While the stock markets began to correct a bit, from their insane highs last Friday, "good news" came out. The U.S. unemployment rate dropped to 8.4%. So what does that mean? Most people think that means 91.6% of American adults have a job, right? Actually, no, that's not even close to true.
The 8.4% number is considered the "official" unemployment rate by Washington and the major media, it's the red line is this chart above. The reason is because it's the lowest rate, and it looks the best in TV and web reports. That 8.4% number is the U-3 number, for August 2020, from the U.S. Bureau of Labor Statistics (BLS). The problem with the U-3 unemployment number is that is doesn't include a lot of people who are not working, in fact doesn't include most of the people who are not working. In any "normal" time, unemployment at 8.4% would be catastrophic, economists want to see real unemployment at about 3% to 4%. So this U-3 more than number is double that. That's bad, horrible, in fact, in "normal times." But in a year when close to 50 million lost their jobs in a few months, most of them"temporarily" lost, 8.4% is LESS BAD, than the 15% a couple of months ago. The problem is, the U-3 number doesn't count about 3/4 of the U.S. adults who are actually not working.
There's another unemployment number, the U-6 number, and it's just as official as the U-3 number, and it's also put out by the BLS, that's the U-6 unemployment rate. The U-6 number dropped to 14.24% for August 2020, and that's the gray line above. What's the difference? The U-3 number basically counts people with traditional jobs who applied for unemployment insurance, that's all. The U-6 number takes that, and adds in people who are forced to work part time, because they can't find full time work, and people who have been discouraged from looking for work in immediate future, they don't think they can find any job soon. So this U-6 number, makes more sense, it's every bit as official as the U-3 number, and it tells us that over 14% of working people in the U.S. aren't working right now.
So what's that scary blue line above, that figures U.S. unemployment at 27 to 28%? That's the number by this website, shadowstats.com, and it takes the U-6 number, and adds in the "long term discouraged" workers, those are American adults of working age, who simply have completely given up looking for work altogether. They either don't think they can ever find a job again, or they have some way to survive without working.
The total American "workforce," is just under164 million people, out of the total 328 million (+/-) Americans. The shadow stats number is the closest to actually showing us how many of the people in the "workforce" are not working right now. So if we figure 27% of the "workforce" isn't working right now, that's 44.5 million American adults NOT working, out of 164 million. If you go through all the actual Bureau of Labor Statistics numbers, you'll find that well over 44.5 million American adults are NOT working right now. Here, dig through the numbers yourself. Here's the official stats for August 2020. If you look at the "participation rate" on this chart for August 2020,it says 61.7%. That means 38.3% of the "American workforce" isn't working right now. Some of those are housewives who take care of the kids, or dads doing that job, and some others who don't work a job or business. So the shadowstats number, roughly 27%, is the closest to a "people who should be able to find work, but can't" number, which is what the unemployment number is supposed to be.
This number doesn't include gig workers, and microbusinesses (1 person business), and small businesses that have lost a lot of their income, but are technically working. So even the 27% number doesn't really give us a good look at how bad of a hit the economic crash (which started with the Repo market in Sept. 2019) AND the Covid-19 shutdown, have hit real world working (and potentially working) Americans.
There's a large group, 7 million + men, and a growing number of women, American adults, who don't even try to find work. This group seems to be living largely on YOUR tax dollars, permanently, getting government checks, from Social Security Disability and other sources. The only person who has looked into this growing group is Nicolas Eberstadt, in his book, Men Without Work. This is a big part of the long term unemployed, and pretty much no one is studying this major American issue right now. And we really need to. Here's a short news clip on his work (February 2017), and here's a full speech by Nicolas Eberstadt, explaining this issue in detail, from 2017.
This quick little compilation video, featuring an interview with Rich Dad, Poor Dad author, Robert Kiysaki, really gives a good explanation of money and debt in five minutes. This is a real quick video, and there's a lot more detail to the whole picture, obviously, but this is a great overview of how money and debt function in society. It you're new to investing, or are confused by all the jargon people throw around, this helps begin to explain things.
Robert Kiyosaki, best known as author of Rich Dad, Poor Dad, does a regular (weekly, I think) radio show/podcast about different aspects of money, investing, and the economy. He gets some really good, really smart people on this show. This is a scary, but very good show, with Harry Dent and Stan Harley talking about the current bubbles in stocks and real estate. These guys are seeing historically economic BIG bubbles that are getting close to popping.
"The greater the bubble, the greater the burst."
- Harry Dent, in the interview above
It's late August 2020, as I'm writing this. In my opinion, we are now 11 months into what I'm calling The Phoenix Great Depression. That's my own term, but I see this as the beginning of a 5 to 7 year (minimum) economic downturn. There are a couple of long term trends and cycles, and several shorter term ones, that have brought me to my conclusion. This current crisis started with the seizing up of the Repo Market, in the banking industry, in September of 2019. The Federal Reserve (aka The Fed), had to begin injecting billions of dollars, weekly, then daily, into the financial system, to simply keep the banking system from collapsing. That slipped under most people's radar.
Then, the Covid-19 coronavirus (aka Sars Cov-2), hit U.S. shores, which was the "black swan" event that tipped the U.S. stock markets into collapse. As we all know, the shutdowns have led to all kinds of problems, millions have lost their jobs, mandatory business shutdowns, and tens of millions of people now struggling to simply pay rent. I saw a huge economic collapse coming, and have been blogging about it for three years.
The two guys in the interview above, Harry Dent and Stan Harley, have come so very similar conclusions, using completely different cycles and models. One of the things that is amazing to me about our current economic mess, is that several, really smart economic thinkers, investors, and forecasters, have come to the same conclusion about a huge peak and then crash, right now, in this 2019-2022 period. But all of these thinkers (myself included), have come to very similar conclusions, from very different forecasting directions. We're all looking at different data sets, different cycles and theories, but coming to the conclusion that this is going to be a historically huge economic downturn. You can easily discredit me, I'm a bum, but it's hard to deny the thinking of Robert, Harry, and Stan above, as well as Ray Dalio, Jim Rogers, and several others. Even internet marketing expert and entrepreneur Gary Vaynerchuk has been waiting for this collapse, and has talked about it.
That said, this interview above is one of the most intelligent looks at what's happening in the economy these days. If you're interested in running a business in the next few years, and/or investing, watch/listen to this interview above. It's a lot to take in, so maybe watch it a couple times, or until it begins to make sense.
Yesterday, I predicted that the Nasdaq would drop before 8,000, before the November 3rd U.S. presidential election, and I predicted really low numbers for the Dow and the S&P 500 as well. All conventional wisdom, all common sense right now, says it's completely INSANE to think that The Fed would let the stock markets drop before the election. The Fed's main job right now (in many people's eyes), is to get Donald Trump re-elected. I know my prediction seems completely nuts. My January 26th prediction that the Dow would drop below 19,000, was also completely nuts, according to conventional wisdom then. Yet, it happened.
My reasoning for yesterday's crazy prediction is that we are now sitting on several financial bubbles, any of which could collapse at any time, triggering the collapse of the rest. When one really begins to go, it will start to topple the others. That toppling will lead to a world financial system wide crisis, and that will bring down the currently over-inflated stock markets. Here's a quick list of businesses and markets that will hit crisis point, could reach a collapse point, and trigger a mess that would bring down stocks, and everything else.
-SLABS (Student Loan Asset Backed Securities) market- There's no good data, but probably 50%-70% of student loans are being paid right now. When this market goes, everything topples.
-CMBS (Commercial Mortgage Backed Securities) market- Commercial real estate? Yeah, not good these days. When this market collapses, like subprime MBS and CDO's in 2008, other things start collapsing as well.
-CLO (Collateralized Loan Obligations) market- CDO-type investments made from business loans. Business loans in 2020? Yeah, not a good bet after the Covid-19 shutdowns. Smaller than the two above, but if this collapses, it will start the other two above toppling.
-Deutsche Bank- It's been struggling for many years. If it goes bankrupt, it will send shock waves through the worldwide financial system. That will start other houses of cards falling.
-A major banking/corporate bankruptcy in the U.S.- Boeing is known to be struggling. GE is known to be struggling. Capital One is known to be struggling. Many other major corporations are loaded with debt and struggling under the crazy conditions the pandemic and 2020 has thrown at us. If one MAJOR corporation goes bankrupt, especially one tied to banking, it will send shock waves through the financial system, and these other things begin to topple.
-Serious evidence of a likely Joe Biden presidential win- If the polls turn dramatically in Biden's favor, Wall Street will react, believing much less money will be thrown at them in the future, sending markets down. The stock markets are completely detached from the real world economy, and from reality, at this point. We're at a Tulip Mania level, and there WILL be a huge correction sometime. Personally, I think a Democrat presidential victory is likely, and is basically our only hope of survival as a nation and democracy. Just for the record, I'm an independent, and not a fan of Joe Biden. But we need a semi-functional government, and less money thrown at Wall Street, and more at the American Public, to get through the current, and the coming crises. Short term, the markets will throw a temper tantrum, and drop significantly, giving us the much needed correction. In the long term, this will help the economy, bringing all types of assets down to real world values. This alone could drop the stock markets before the election. My personal thinking right now is that one of the things above, not a big Biden lead in the polls, will be the cause of the drop, but huge poll numbers for Biden COULD send markets down pre-election.
-There are many other things that could send all these houses of cards tumbling before the election. Bad Q3 earnings for major businesses, major commercial real estate numbers dropping significantly, national residential real estate numbers dropping significantly, a large virus surge in a major city, causing another short term shutdown. Lots of things COULD happen, any one of which would send all these houses of cards toppling down. My bet is that one of these will happen before the election, and will cause massive chaos in other areas, which will ultimately bring down the hyper-inflated stock prices. There are just too many possible triggers of potential collapse for The Fed to continue to prop everything up for two more months. This is very similar to my thinking in January.
I know this is a very controversial call, we'll see how things play out.
What goes up, must come down. A little Blood, Sweat & Tears (lots of tears), for you today.
I'm back from a few days of not thinking about the economy, and the depression we are now 11 months into. Ip'm utting my ass on the line again, with some hard number, hard date predictions. Here they are.
The Nasdaq will drop below 8,000 points BEFORE November 3rd, 2020
The Dow Jones Industrial Average will drop below 20,000 points BEFORE November 3rd, 2020.
The S&P 500 will drop below 2,500 points BEFORE November 3rd
Call if the Trump Dump, if you need a catchy nickname. Or not, he didn't cause this, he just helped make it worse.
Will these ridiculous predictions come true? Of course not, as anyone in the market right now. "It will never go down!" Right? We'll see.
By the way, here are my last set of ridiculous predictions. No one in any serious position of expertise thought ANY of these would happen in 2020 when I wrote this post. Three of the nine predictions have come true, and they were all for calendar year 2020, so there's four months left to see if any of the others happen. Once again, let's hope I'm wrong...
Remember to vote for someone, for every office open, on November 3rd.
Here's one aspect of the economy I wasn't familiar with until seeing Robert Kiyosaki interview Jim a couple of month s ago. In this quick video, from 2015, Jim quickly explains the "velocity of money," and how important it.
In this crisis of the last few months, The Fed has created enormous amounts of money, but the money, for the most part, isn't moving through the everyday economy much at all. These 3 1/2 trillion dollars or so, mostly went into the banking system, the stock market and to a lesser extent, real estate, propping up those markets.
To create the inflation that The Fed is trying desperately to create, according to Jim, we also need more velocity of all this newly created money. While stock traders are staying busy, most everyday people are holding back on a lot of extra spending, and just trying to pay the day to day bills. The tens of millions of people who got laid off, or have taken pay cuts, or are working fewer hours, are struggling to just pay their rent or mortgages. They are not spending near as freely, as far as we can tell now, than they were a year ago. Will the velocity of money pick up? We'll see how this all plays out in the next several months.
You just can't beat this scene from Harry Potter when looking for a visual representation of the phoenix of myth.
The idea is simple... huge, old, no longer needed parts of our Industrial Age society are breaking down, to be reborn into a new, Information Age version of American society. The most chaotic part of this transition will happen in this decade we're entering now, the Tumultuous 2020's as I'm now calling them. That's The Phoenix Great Depression in a nutshell.
On October 1, 2019, nine months ago, I first used the term, "phoenix recession," in this blog post. For three years, in that personal blog, I had been writing posts about the coming recession, and some of the big economic and societal issues that I realized would affect all of us, in a big way. I'm a geek on economics and big picture social dynamics, and an amateur futurist. Since childhood, I've been fascinated by trying to figure out what's going to happen in the future. A lifetime of watching and learning led me to the conclusion that a major economic crisis was coming in the late 2010's.
In short there is this convergence of some ultra long term trends and cycles, shorter term trends and cycles, and then the Covid-19/human corona virus pandemic also fell right into the mix, like a societal atom bomb, to force the change needed on so many levels. The Universe is weird like that.
On one hand, we have the long, sticky transition from an Industrial Age society into an Information Age society, described by futurist Alvin Toffler, in his long forgotten book, The Third Wave. In addition to that, we have a transition from the Acquisitor, or businessmen-dominated age, as the dominant mentality in American society, to the Laborer, or working people's mentality. This concept is described in The Law of Social Cycle by P.R. Sarkar, a 20th century thinker from India. In that theory, this is a time of a major populist uprising, which we've
now seen in a series of increasing waves, since Occupy Wall Street in 2011.In addition to those two huge transitions, we have the rise of the Creative Class, described by professor/author Richard Florida, an aspect of the rising Information Age where the economy is dominated by ideas, and the clustering of creative people into creative scenes who come up with those ideas. In addition to that, economist Ravi Batra found 30/60 year cycles of economic depressions in the U.S., and wrote about them in the late 1980's. The best known is The Great Depression of the 1930's. Then the cycle skipped 1960, and in 1990 we had a long "double dip" recession, six years of stagnant economy. 2020 is the next point in that cycle, so we're due for a depression or great depression. And what do you know, things lined up again and we dropped into what is now officially a recession, right in line with that cycle. It takes 3 years or a 10% drop in GDP to make it an "official" depression. We'll probably get the 10% GDP drop in the Q2 numbers. In addition to all of that, our U.S. (and most of the world's) economy is floating on the highest levels of government, corporate, and personal debt in human history. Oh, and we're at the end of the traditional 4 to 7 year business cycle. This cycle was highly manipulated, and stretched out for 11 years. So by late 2019, we were due for a major economic crash, and some major social movements as well.
So all those things somehow converged into the set-up for a major economic downturn, which would jump start a period of major economic and social change. Basically, a massive pile of shit is sitting in front of the biggest fan ever, and it was waiting to be plugged in. Then... like a late night infomercial, "And that's not all folks, as an added bonus, here's Covid-19, a 100 year, worldwide pandemic." The fan got plugged in, and a historical shitstorm began. We're going to see a level of change, all throughout society, like none of us alive have ever seen, in the 2020's.
This incredible period of breaking down of the old, the no longer useful, and the just plain fucked up aspects of human society, will usher in changes of all kinds. It's happening, like it or not. Change. More change than any of us can imagine now, even after the last 4 crazy months. This is just the beginning.
Change. Lots of change. The old is breaking down, and we have to figure out something new, and hopefully better, and build it. Quick. Death and rebirth from the ashes, on a societal level. That's The Phoenix Great Depression in a nutshell. We've got at least 5 to 7 years of craziness ahead, maybe more. Buckle up, it's gonna be a wild ride.
When looking for a visual example of the phoenix myth, it's hard to beat this scene from Harry Potter. When the time comes, the phoenix goes up in flames, and then is reborn from the ashes. Metaphorically speaking, that's what I see happening in the decade of the tumultuous 2020's, here in the United States, and elsewhere.
I believe we are several months into a period of time that I've dubbed "The Phoenix Great Depression." In my thinking, it started with the seizing up of the "shadow banking system," and the Repo Market last September, 2019. This was the first shudder in this current economic collapse. While most people could ignore the Repo Market mess, the Federal Reserve had to rush in and pump tens of billions of dollars a day, ultimately every day, to keep our banking system functioning. They're still doing that now, in addition to "printing" money at a breakneck pace.
Then in February 2020, the Covid-19 strain of the human corona virus hit U.S. shores, bringing the pandemic here. This was the "black swan" event that triggered a stock market collapse that was already waiting to happen. Then came the mandatory business shutdown, for a couple of months, which we're emerging from as I write this, on June 23rd, 2020. With the opening up of businesses again, another surge of virus infections is occurring in many states, and we're still in the first major wave of infections in this pandemic. There are one or two more waves to come, most likely.
In addition to that, we had a video taped killing of George Floyd, in Minneapolis, by police officers. That sparked another aspect of The Phoenix Great Depression, massive social unrest, widespread protests, and calls for change, to policing, in this instance. We have had statues being pulled down by protestors in parts of the country, something I always associated with Third World revolutions. Shit's gettin' crazy. I believe these chaotic economic and social events are our future for the next 3 to 5 years. Five years of economic contraction is a "great depression." Three years of economic contraction, or a 10% drop in GDP (Gross Domestic Product), is a "depression." No matter how manipulated the numbers for Q2 2020 are, it appears the GDP will drop far more than 10%. So this looks like an official depression already.
I've been writing about some of the major issues happening in society, particularly in the economy, for three years, in my old blog, Steve Emig:The White Bear.* I saw a serious economic downturn coming a couple years ago. I believe it would ultimately be an economic collapse that will feel like a Great Depression, even if it didn't fit the textbook definition. For most people, the years 2020 to 2027, or so, will be a major economic struggle to survive. The reasons for this are that several ultra-long term cycles are merging into a period of incredible change. A period like none other in the memory of people living today.
One major cycle or trend is "The Third Wave" concept described by futurist Alvin Toffler in his 1980 book by that title, and subsequent books. Basically, we're living through the time when the Industrial Age is collapsing, and the Information-based Age is emerging. All of our myriad of new technologies is changing the way human beings live. This change is as big as the change from hunter-gatherer societies 10,000 years ago, into agricultural based societies. It's as big as the change from the Agrarian Age into the Industrial Age, starting 300-350 years ago. But this time it's happening much faster, in a single human lifetime.
In short, every industry, every system, every institution in our society will break down, and be rebuilt to work in the Information Age world. This is the 'phoenix" aspect of this great depression.
The factories were largely closed, or moved offshore, in the 1980's, 1990's, and 2000's. The music industry, the publishing industry, the TV and movie industry, and parts of the transportation have collapsed, and been reborn in a new version, with new technology, like the phoenix, Fawkes, above. The Retail Apocalypse, is the break down of the Industrial Age shopping system, and we'll see similar collapses and rebuilding in every other aspect of our society, that hasn't changed yet.
Another ultra-long term cycle that is merging in time with The Third Wave, is The Law of Social Cycle, a little known social theory by P.R. Sarkar from India. In this concept, there are four main mentalities in any society, and one mentality dominates, and shapes all of society, at any given time. The U.S. is at the tail end of the Acquisitor Age, the era where the businessmen rule society. It's a time when corruption has become so prevalent, and so ingrained, that the Laborers, the mass of people, find it nearly impossible to make a decent living anymore. The begin to rise up in a massive populist movement, and topple the corrupt powers at be. This is called the "Acquisitor cum Laborer" era in this theory, and it's a time of great upheaval and unrest, until either the society collapses (bad option), or the Laborers win (good option). The Laborers, by nature, are not leaders, so a third mentality, the Warriors, rise up into positions of power, ultimately. The Warriors are people who prize physical courage, daring, and individuality. In societies past, this was primarily the soldiers. But the warrior mentality in modern society includes, soldiers, police, firefighters, martial artists/MMA fighters, professional athletes, action sports athletes, fitness buffs, activist leaders, and others who display true courage on a regular basis. The fourth mentality is the Intellectuals.
Both of these social concepts predict times of incredible, rapid change, and much turbulence and chaos. Lucky us, they've now combined. In addition to those two ultra-long term cycles/trends, we have the end of a traditional business cycle, which generally means a "normal" recession.
We also have the clustering effect of the "Creative Class," explained by economic development expert Richard Florida in his 2002 book, The Rise of the Creative Class, and subsequent books. The majority of the United States economic output is now largely clustered in several large metro areas, primarily the San Francisco Bay Area, Seattle, the New York City metro, Boston, Los Angeles/SoCal metro, the Washington D.C. metro, and Austin Texas. You can add Houston, as well, a major energy hub. The vast majority of our economy is based in these places, a few second tier tech hubs. Most of the rest of the country is still clinging to life after the Great Recession of 2007-2009. In addition to all of that, we have more debt than ever before in human history; government debt, business debt, and personal debt. All of these major factors have combined, merged, into one period of incredible change.
Like a late night infomercial, "But that's not all folks..." Into this perfect storm of change came a 100 year pandemic, the Covid-19 virus. I DID NOT see that coming. The effect the pandemic had on these other trends is to dramatically increase the speed that things have gone, and will continue to go, downhill.
We're only 5 1/2 months into this new decade, 9 months into The Phoenix Great Recession, and we have major corporations going bankrupt weekly, about 43 million people recently laid off (temporarily in many cases, but still unemployed at the moment), tens of millions of Americans suddenly struggling to make their rent and mortgage payments, and over 100 million debt payments, of all kinds, being skipped now. So we have the highest level of debt in human history, and suddenly much of those payments simply aren't being made.
This mess is going to take a long time, several years, to work through. I think 2020-2023 will be the worst years economically. But it will be a tough slog, for most Americans (and much of the world) for at least 5 to 7 years. Many parts of America, particularly rural areas and small towns and cities, will never recover. That's the bad news.
The good news is that major economic downturns are the greatest opportunities in any economy. There will be incredible deals on all kinds of things, from everyday items, to cars and trucks, to businesses, to real estate, all over the place... for the people who can take advantage of those deals. There will also be tremendous social change, and great opportunities to right long term, structural problems throughout society. The Black Lives Matter movement is just the beginning on that front, there will be many more social causes gaining steam in the next few years.
In short, like the phoenix of myth, or Fawkes, Dumbledore's phoenix in the clip above, our society will be broken down (not necessarily in literal flames, but metaphorically), and we have the chance to rebuild human society into something more equal, more fair, more environmentally sound, and that works with all of our modern technology that we have now, or that is being developed.
It's going to be a rough ride for just about everybody. But if we use this incredible, if chaotic, series of opportunities well, most of us should be in a much better place in 10 years.
Hang on.
Steve Emig, June 23, 2020
Here's the January 26th, 2020 blog post where I predicted the 10,000 point, $10 trillion dollar (+/-) stock meltdown.
*"The White Bear" is my nickname in the BMX world, it has nothing to do with race. It came from a poem I wrote, after getting dumped by my girlfriend, in 1988. My roommate a few years later used the term to make fun of me, and it became my nickname. I hate racism, and prejudice of all kinds. We all do it, but like most intelligent people, I try to keep it to a minimum.
