The many waves of The Phoenix Great Depression

This is The Wedge, in Newport Beach, California, on BIG day.  This video is about the best analogy I can think of for today's economic world.  One big, gnarly, dangerous waves after another.  The main plan is to not get destroyed by the economic waves, and then, try to ride one or two of them, if you can.

Last night I watched several CNBC interviews with top economists, about where the economy, and our financial world is headed.  None of them really seem to have a good grasp on the Big Picture.  Yes, I'm calling out Paul Krugman, Joseph Stiglitz, and several others.  These are all very smart guys, and they have good insights on pieces of what's happening.  But none seems able to predict the world that a handful of top investors see coming.  For months, in some cases years now, top business guys and investors, like Ray Dalio, Robert Kiyosaki, Jim Rogers, and a few more, have been talking about a historic level economic downturn.  OK, now we are definitely in it, and as of yesterday, this officially qualifies as an economic depression (see last blog post).  So... what's going to happen now?  And how long will this last?  The top economists don't have good answers to these questions.

Here's my take on today's economic mess.  First, as I wrote a few weeks ago, I've been watching several ultra long term trends, cycles, and shorter term trends, converge in recent years.  I spelled out the basic idea in this blog post, and a few earlier ones.  With so many major issues happening all at once in the economic/business world, and then the pandemic hitting hard on top of that, I saw several years of tough economic times heading our way.  I've been blogging about some of these issues for three years now, like in this post, from June 2017.

There are so many different things that need to get worked out in this economic downturn, that I think it will feel much like the video of The Wedge, above.  One big gnarly economic wave after another.   
Here are the "waves" that have hit in the last 11 months:

-September 2019- The Repo Market seized up- The little known repo market, a sort of "pawn shop" for major banks and shadow banking businesses to get overnight loans, froze up.  The Fed had to jump in to try and save it, by creating billions of dollars, and throwing that money into these markets, so banks and lenders needing short term loans could keep getting them.  What started as a "week or two" of "adding liquidity to the markets" turned into $20 to $100 billion A DAY being shoved into the financial system, to keep it from collapsing.  Most of America paid little attention to this issue.
-February/March2020- Stock Market collapse triggered by Covid-19 Pandemic/business shutdown- The financial world was teetering all last winter, but stocks surged, as The Fed pumped tens of billions daily into Wall Street and the banking system to shore up the Repo Markets.  No bad news had much effect, a true sign of market euphoria.  Then the pandemic hit U.S. shores, and national leadership didn't take it seriously.  The completely inept, and late response to the pandemic has now led to the deaths of over 157,000 Americans.  Though much needed for public safety, the mandatory business shutdown that has threatened millions of businesses, small, medium, and large.  Several large businesses, and many smaller ones, have already gone bankrupt, and 25,000 stores are expected to close this year, far more than double the number that closed last year, the highest number ever.  Because of this GDP dropped 32.9%, the biggest quarterly drop on record, EVER, in the second quarter of 2020.  This has put the U. S. in completely unknown territory, economically. 
April 2020 on- The first wave of business bankruptcies- Among the big names that have entered bankruptcy, are Pier 1 Imports, J.Crew, Lucky's grocery stores, Neiman Marcus, J.C. Penney's, GNC, Chuck E Cheese, Brooks Brothers, California Pizza Kitchen, and Hertz along with many other smaller businesses.  Most of America's major corporations (except for the tech giants), were near insolvency in March and April, but the bailouts saved them... for now.  There will be thousands more businesses going bankrupt as the other "waves" crash on our shore.

June 2020- Tens of millions of Americans are laid off, 40-50 million so far/unemployment claims spike to historic levels- While most of these layoffs were deemed "temporary" at first, it's obvious that a huge number of these will be permanent.  The Fed and Congress has thrown 3 1/2 to 4  trillion dollars into the economy, most to major corporations, but a large amount into extra unemployment payments.  This bought the country time.  But the time is ending right now, as the $600 extra unemployment payments end.

Now, what other huge waves are headed our way?  This is where the economists either are afraid to make forecasts, or are simply not sure what will happen soon.  To be fair, economists, by nature, study what has already happened, not what might happen soon.  This is where I come in.  Here are several of the major "waves" I see headed our way.

-August-November 2020- The first big wave of evictions and foreclosures- (28 million people are on the verge of eviction according to this report).  The moratoriums on evictions and foreclosures just ended, along with those extra unemployment checks.  This inaction by Congress is putting the very survival of the United States of America at risk, holding back help for tens of millions of people who are in survival mode now, trying to figure out what to do.

-September- December 2020- Residential real estate market heads downward- This wave of evictions and foreclosures will begin to tip the residential real estate market downward, into a major collapse nationwide.  The major metros, where real estate prices are highest, like New York City, San Francisco Bay area, L.A., and others, will probably get hit the hardest, at first.  The trillions of dollars pumped into the financial markets buoyed up residential real estate these last few months, but that's ending soon.  We'll see sales and prices begin to drop in the remaining months of 2020, and plummet in in 2021, in most areas.  As I said, the major cities, with highest prices, will be hit first and hardest, but will also be the most likely to recover first, in 3 to 5 years or so, in my opinion.  Why will it takes so long?  Because there are a whole lot of other things that need to shake out, besides overly high real estate prices.  Those things are subjects of other posts in this blog, and more coming in the future.

The wave of upscale people leaving cities and working from home, is much hyped right now, and is a factor.  But once we get a Covid-19 vaccine, or quality treatment, I think major metro areas, particularly those with lots of high tech, will try to rebound.  Those same cities will also have a lot more people homeless, in poverty, and struggling, at the same time.  Dealing with these issues may delay a rebound.  Smaller cities, towns, and rural areas will struggle much harder, and for much longer.  We will see a bunch of mid-sized and smaller cities get hit the way Detroit got hit by the loss of manufacturing jobs, many years ago.  This will be due to a lot of colleges and universities going bankrupt, and perhaps cities themselves.  This, again, is an issue for other blog posts, coming soon.

-September-December 2020- Retail and commercial real estate market really begins to fall- Obviously, this has been happening for years, to some extent, we've all heard of the Retail Apocalypse, by now.  But now we will have millions of square feet of office space open up, and ripple effects through mixed use, warehouse, and industrial properties.  You've probably heard the term "Dead Mall," by now.  For years, 400 or so of the nation's 1100+ shopping malls have been expected to close down eventually. A small number have, and some have been repurposed.  But I think this amplified closing of an estimated 25,000 retails stores this year will start the malls to tumbling.  We'll probably see 400 to 600 enclosed malls close down by 2025.  Thousands of smaller shopping centers will have vacancy issues, as well.  On the positive side, the malls expected to fair the best are the very high end malls, and the low end ones, where lots of lower income people shop.  Generally speaking, those people are much less likely to buy a lot of items online, to be delivered.  It's the mid-range malls (and cities) that are most likely to struggle.

Future economic "waves" coming at some point:

-Some kind of debt collapse in the SLABS (Student Loan Asset Backed Securities) market, the CLO's (Collateralized Loan Obligations), and the CMBS (Commercial Mortgage Backed Securities) markets- All three of these are similar to the Subprime mortgage securities that triggered the 2008 economic collapse.

-Crisis in auto loans, credit cards, and other consumer debt that's not being paid right now.

-Huge protests and social unrest caused by the millions of people who will likely drop into poverty in the coming months and years- Major healthcare and social programs will be needed to deal with this, much like the 1930's.


-The College Apocalypse- The collapse of the student loan system, along with the pandemic slowing down enrollments, AND the huge loss of revenue from college sports during the pandemic, will bankrupt colleges and universities.  Dozens of small colleges have closed or merged, for other reasons, in recent years.  But this financial crisis will cause major disruption to the whole college system, and I think we'll see a "College Apocalypse," something like the current Retail Apocalypse, starting in late 2021, and throughout the 2020's.  This will cripple cities dependent on colleges and universities, as well.  Higher education will have to re-invent itself for the 21st century, and the Information Age.

There will be others... but that's enough to bum you all out right now.  Watch that video above again, and remember that metaphor.