Brand spankin' new Seth Godin interview, from 10/5/2020. Seth Godin has been marketing on the internet since 1989, before it was "the internet." He gets it, and he gets how it has changed business. Thirty years later, thousands of business still haven't learned the basics Seth has been teaching for decades now, on how marketing has changed with new technology and social norms. When a major crisis, like this current issue, comes along, Seth is the first guy I want to hear new input from, followed closely by people like Vaynermedia CEO/keynote speaker Gary Vaynerchuk, and economic development expert Richard Florida, and a handful of others.
Very simply, interviews like this one, with Seth, get you to rethink your approach to business, rather than just think how to get more clients. In this fast changing, and extremely challenging environment, that makes all the difference. If you still want to be in business 5 or 10 years form now, watch or listen to this interview. Then answer the questions Seth asks, in a way that makes sense for your business.
This video talks about the recent stock trades of Berkshire Hathaway, the investment business headed by legendary investor Warren Buffet, and his lesser known partner, Charlie Munger. If you go to about 1:12 in the video, you can pause it and read the list.
Way back in the early 1990's, as a geeky, 20-something, BMX freestyler guy, I wanted to be ridiculously rich. Like most young guys, I thought that if I could find a way to become rich quickly, I could avoid working lame jobs, and do what I wanted all day, which was mostly riding my BMX bike.
Unlike most young guys, I started reading and learning about real estate, money, economics, and all things money related. One thing I began to do was study the Forbes 400 magazine every year. That was a pretty new thing back then, and had been coming out annually for 6 or 8 years when I first picked on up. The Forbes 400 is an issue of Forbes magazine where they listed the 400 richest people in the United States, how much those people were worth, and two or three paragraphs about each person. It comes out each fall. Reading the Forbes 400, year after year, was incredibly enlightening in a financial sense. First I learned that about 1/3 of the 400 richest people inherited their money. So the first lesson, if you want to get rich really quick, is to find one of those people with a huge inheritance, and marry them. That didn't appeal to me. There were no hot, young, Kylie Jenner types on the list then.
The next lesson in the early 1990's, was that most of the major fortunes were families who owned old, well known, industrial companies, like Levi Strauss, Seagrams, and M&M/Mars candy, businesses like that. In the early 1990's, tech billionaires were a new thing, and there were only a few. Most of the fortunes were from old, well established, industrial age companies, ones that were still primarily owned by one family. Another big category then was real estate tycoons, largely self-made developers who bought lots of apartment buildings over their lifetimes. No, not Donald Trump, he was (and still is) anything BUT self-made. As we know now, his dad set him up in business, and he's been propped up by his late father, others ever since. But guys like Donald Bren with the Irvine Company, and some other New York real estate magnates then, actually did build real estate empires, and become super rich.
One of the biggest surprises I learned from studying those early Forbes 400 magazines, was that only one guy (later his partner Charlie Munger made the list), Warren Buffet, actually became super rich from investing in stocks. One guy. That's it out of the 400 richest Americans. As it turns out, investing in the stock market is actually one of the worst ways to try and become super rich. Stocks have their place, in "normal" times. But they get sketchy during recessions and depressions, particularly for inexperienced investors and speculators. The vast majority of the super rich back then, and now, built a huge business, and then took that already successful business public, so everyone could buy stock shares in it. The billionaires of the world, old and new, made their billions by taking a large company public. Buffet did that to a degree, but primarily built the nation's third biggest fortune by investing in stocks of other businesses.
Even more interesting, Buffet and Munger are the most boring kind of investors that exist. They spend their days reading, back home in Omaha, Nebraska. They research all kinds of companies, and try to find established businesses with well known brand names (like Coca-Cola or Dairy Queen). Then they watch the markets, day by day. When a recession, or some kind of downturn hits, the everyday stock traders would freak out, and often sell lots of shares of a perfectly good company, really cheap. The market panic days are what Warren and Charlie lived for, and still live for. Basically, they had a list of companies they thought were solid in business and in management, and when the markets sold those companies cheap, Warren and Charlie would buy a big position. Then they went back to reading and researching every day... and they waited. Once the market turmoil calmed down, people realized the solid companies were still solid companies, and stock prices went back up. And so did the stock price of Berkshire Hathaway. That's called "value investing," and Warren Buffet learned it from an early mentor. Value investing is the exact opposite of what dumb ass Millennial investors (and dumb ass Gen Xers and Boomers), are doing right now, which is buying hype, not businesses. They'll learn... pretty soon.
Berkshire Hathaway was originally a textile mill that Buffet invested in. Later, he bought chunks of insurance companies, which got a lot of money coming in from premiums. That money needed to be invested well, so the companies would have the money needed to pay for insurance claims. Berkshire morphed into a holding company as the textile business faded, and Warren and Charlie just kept buying large positions in solid businesses, with well known brand names, when those businesses shares were selling cheap. Even more weird, Buffet very rarely sells shares.
But we're in really crazy times right now, largely unprecedented, even in the decades Warren and Charlie have been investing. Buffet will turn 90 in a week, and Munger is 96 now. They've seen A LOT. These guys both were kids DURING the Great Depression. They remember it, to some degree. That's probably why they're sitting on about $140 billion in "cash" right now. They know shit's gonna get a lot crazier in the next couple of years, and they're ready for some chaos.
In the video above, we see Buffet sold their positions in several airlines. OK, that makes sense right now, airlines are screwed for at least a couple of years. He sold out of RBI (Burger King, Popeye's Chicken, and Tim Horton's in Canada). Hmmmm, OK, restaurants are struggling I can see that one. But then I saw Buffet sold a huge chunks of several banks. OK, that's big, Warren and Charlie see trouble in banking in the future. But they sold 100% of Goldman Sachs? Wow.
Goldman Sachs is basically the investment bank that tells the U.S. government what to do with money. Seriously. Check out this article, current Treasury Department secretary Steve Mnuchin is a Goldman guy. Steve Bannon worked for Goldman. Former Goldman Sachs people have been Tresaury Secretaries, economic advisors, worked at The Fed. No bank in recent times has had more influence on the U.S. government, than Goldman Sachs. And Warren Buffet just sold ALL of Berkshire Hathaway's shares in Goldman Sachs. Warren and Charlie see something pretty brutal coming our way to make a decision like that. They've literally walked away from one of the 2 or 3 most powerful banks in the world. Wow. That's big.
Oh, by the way, Berkshire Hathaway stock can be yours for $322,126 per share, right now, if you're interested...
Tom Petty's "Don't Come Around Here" video seems the perfect lead into this post. In the economics and social world, we're down the rabbit hole, and everything is crazy and hard to predict right now. But that just makes it more interesting...
For over 30 years now, when I explained to average people why I read a lot of business books, real estate books, futurist books like those by Alvin Toffler, and studied the Forbes 400 magazine every year, I would tell people I'm an "economics geek." That shut people up, and they'd leave me alone. Even traditional geeks don't want to talk economics. I got interested in real estate in 1986, when I moved to Southern California, and the market was hot. I thought it might be a way to earn extra money as a young man. I started reading books on it, and kept following my interests, from there. I never went to college, I'm self-educated in this respect.
Being totally shy, scared of losing money, and a horrible salesman as a young guy, I wasn't able to raise money, or earn enough, to buy any houses then. In 1990, we went into a long recession, and I started getting more interested in the long term dynamics of real estate, business, and the financial markets. I began to watch the stock and precious metals markets daily, just seeing what happened, and trying to figure out why it happened. Rather than just "get rich," I wanted to grasp the long term dynamics of why different markets moved, and truly understand them. Then I could eventually invest in things when prices were low, and wait until the values rose, and make a profit. Without realizing it then, my natural way of thinking about business and investing was very similar to Warren Buffet and Charlie Munger's style of investing, at Berkshire Hathaway. Study, watch, wait for the prices to drop on things with inherent value, and then pounce and buy. Then wait for the markets to return, and prices to rise.
Basically, I wanted to truly understand markets, so I could predict the future of where they were heading. I predicted the 1993-94 interest rate spike that sent Orange County, California into bankruptcy. By late 1998, I sat the DotCom stock craze was getting ridiculous, and started talking about the eventual crash, which everyone then thought would never come. In 2000, it came. By late 2005, the California real estate market was going nuts, and I thought the inevitable crash was a year or so away. It took until 2008, but it came, big time. In all of those events, I was living on a low budget, and had no money to invest, but the dynamics of markets still fascinated me. I watched them from a distance, and kept reading, and kept learning.
When I saw the forces building for this current economic downturn, back in 2017, I was able to watch things much closer, and share my thoughts in my personal blog. I actually got threatened by a group, they were one step away from a lynch mob, because of my blogging, in North Carolina, in May of 2018. Despite the threat of being beaten by clubs, I kept blogging about the economy (and art and Old School BMX). Southern lynch mobs aren't used to people standing up to them, so the beatings didn't happen. Instead I managed to spend three days in jail in solitary, for heinous act buying donuts (after being told to leave a store, 2nd degree trespassing), and then get sentenced to $600 in fines, 50 hours of community service, and a 30 day suspended sentence. Pretty crazy for my first criminal offense, EVER, at age 51. These charges were dropped a year after I left North Carolina. The South is still The South. But I digress...
Anyhow, with years of watching markets, a few hundred books read, and a growing understanding of market dynamics, I had more time, and the internet and YouTube for research, heading into this recession (now actually a depression, technically). I decided to do my best to predict what I saw coming our way in the economy as this recession headed our way.
But this economic crisis is unlike any before in my life, or anyone's life. We headed into this downturn already living in Economic Never Never Land. Interest rates had been held incredibly low since the Great Recession. Major corporations, many former Industrial Age blue chips among them, loaded up on debt billions of dollars in debt, in the low interest rate environment. The Trump tax cuts, signed by the most corrupt president in modern history, were yet another windfall for major corporations, and high net worth people. Meanwhile, government bonds around the world went negative in many countries, and were ultra-low (and still are) in the U.S.. All the while, since late 2008, The Fed has been propping up Big Business and Wall Street, with the low interest rates and trillions of dollars in quantitative easing. The Fed is the "crack dealer" letting cheap money flow to the major economic players, who are now addicted to cheap money.
In addition, we have widespread smartphones, the internet, and a level of inter-personal and business connectivity never seen in human history. The newer, high tech businesses cluster together in a handful of major metros, like the San Francisco Bay Area, New York City, Boston, Seattle, L.A./SoCal, and Austin, Texas. A huge percentage of the U.S. economy is centered in those metros, while rural, small town, and small city America struggled to recover form the Great Recession. This helped create a huge economic polarity, which helped create a huge political polarity. In the lead up to this current economic collapse, we had crazy stuff happening that most business people and economists had never seen before. This wasn't going to be "just another recession." It was all new territory, and nobody knew what would happen.
In this chaotic mix, as stocks soared to all time highs on Fed created money in January, I predicted the unthinkable (here's that post), that the Dow would drop about 40%, and slide below 19,000 points. It was at about 28,800 and rising when I made that prediction, and other predictions, in my blog post. But I saw a change in momentum coming, soon. Three weeks later, a "black swan event" came, the Covid-19 pandemic hit U.S. shores, and businesses were forced to shut down for a couple of months. My "crazy" predictions for the Dow, the S&P 500, and the Russell 2,000, all came true within 8 weeks. I missed on my Nasdaq prediction, because that's where investors put their money as the market dropped.
Then shit went crazy, because the official financial world didn't see this crisis coming. Most of the "experts" didn't think there would even be a mild recession in 2020. As most people sheltered at home, the business news channels tried to make sense of what was going on. Being homeless, I struggled to simply find places to power up my laptop, and then find wifi spots I could use. You can't shlter at home, when you don't have a home. In yet another crazy aspect to the 2020 stock market crash, it was me, a homeless man, who accurately predicted the crash, and the depth of the crash. Nothing makes sense now.
As the reality of the pandemic, and the much needed, but financially catastrophic, business closures set in, everyone in the business media tried to figure out what happened. Then they try to find some happy ending to this mess. Everyone had opinions, and economists and public officials weighed in on this growing crisis. By late April, I was able to start consuming these ideas from others, and to try to find accurate information on what was actually happening.
I quickly began to figure out that, as I predicted the interest rate spike in 1993-94, the coming DotCom crash in 2000, and the real estate crash/Great Recession in 2008, I wasn't using hard number, nuts and bolts economics to make my preicitons. Most of what I was looking at was actually the mass psychology of investors, and the public at large. I did look at all kinds of economic trends, but I never got deep into the actual numbers.
So I've been learning more about actual economics, as I tried to figure out where we're going now. Economics is the study of financial data (technically, the study of "scarce resources"). But economists are notoriously not known for accurate predictions. They look at the data after events happen, and analyze what happened. I wanted to understand the dynamics, dig into the myriad of forces at play in the financial markets, and then be able to get a good idea of what's coming next.
Ideally, I will actually have resources to invest at some point, and make some money off of my thinking. My drive has always been to try and figure out what's coming next. And all that thinking led me to seeing a bunch of forces at work, social trends, social cycles, and things no one else pays attention to. But financial markets, even completely manipulated markets, like the stock markets right now, held up entirely by Fed money creation, are still a result of human psychology. Humans look at things, they make decisions and take actions, or don't take action. Lots of actions, driven by mass psychology, drive the markets. When the thinking in a large group of people changes, markets change soon after. And when you study the trends, and try to figure out what idea caused a market change, you begin to get an idea where things will head in the coming days, weeks, months, and years.
So I don't really tell people I'm an "economics geek" anymore. I'm really a futurist, fascinated by Big Picture social dynamics and economics. I try to accurately see the long term, mid term, and short term social trends going on, and get a grasp on the dynamics of these different trends, and how they affect and interact with each other. Then I look at the economics world, and lay the economic trends on top of my world view of social trends. That gives me some sense of where things are going. That's how I made the call that the Dow would drop below 19,000 in January, when most people were expecting Dow 30,000 and Dow 35,000 soon after. My thinking is a lot more like the late futurist Alvin Toffler, and his wife Heidi, than it's like Paul Krugman's, for example.
I came to my conclusion that we're heading into an actual great depression from underlying, long term, social trends, combined with economic trends. I'm working on putting the basic idea into a concise report. But there are so many tangents and offshoots to what's happening today, that I'm going to dive deeper into pieces of the big picture in this blog. This was not the blog post I sat down to write, but I hope it helps you readers get a better idea on where I'm coming from. Much more to come...
This Kitco interview from July 31, 2020, has a couple of the best guys to listen about gold. Gold just hits its all time high in dollars, though it's still a bit below the inflation adjusted high from 2011. Is gold a bubble about to pop? Or does it have room to run as the dollar get devalued? Both of these guys see gold likely going much higher in the next few years, and see $15,000 and ounce gold by 2025 a serious possibility.
Peter Schiff, who's been predicting the collapse of the dollar for 15 or 20 years or more, takes over at the end of part 3 of the interview, and doesn't let Jim finish explaining his idea on the "velocity of money," which is an important concept to understand right now. So here's a quick video of Jim Rickards explaining the idea.
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.
The U.S. GDP dropped 32.9% in the second quarter of 2020, with numbers out this morning. There were already many issues in the economy, like the Repo Market seize up in September 2019, before the second quarter came around. But it was the Covid-19/coronavirus pandemic shutdown that was the "black swan event" that really sent things downhill. For those not up on economics, the GDP is the Gross Domestic Product, basically all goods and services bought in the U.S. the second quarter, April, May, and June, of 2020. The next biggest drop was about 28%... back in 1921. Even in The Great Depression of the 1930's, no single quarter's economy dropped this much.
I love how the CNBC hosts say, "It wasn't as bad as the 34.7% drop expected." That's a lot like saying, "Today I expected to catch Covid-19, have a car accident, get mauled by a grizzly bear, get hit by an asteroid, and be in a plane crash. And I ONLY got in a plane crash, caught Covid-19, and got attacked by a small bear, so it wasn't as bad as expected." It's that ridiculous.
If you look at the "definitions" section for an economic depression on this Wikipedia page, you'll see one of two things define an economic "depression." Either there's a recession that lasts for 2 years or more (Investopedia and the traditional definition is 3 years), OR there's a 10% decline in GDP. Today's numbers tripled that level. Again, we had a 32.9% drop in GDP. So, like it or not, this economic downturn is OFFICIALLY a depression. When this time is written about in history, it will be called a depression, or a maybe great depression, if it lasts more than five years.
I'll be fair, this depression would have happened if anyone was president. Donald Trump didn't cause the depression. But the Trump administration did do things that made it worse. The completely inept reaction to the pandemic when it first hit U.S. shores has not only killed thousands more Americans than it would have, but it is making the economic situation far worse, in the long term. The Trump tax cuts were a windfall for the uber-rich and major corporations, and that helped prop up a weak economy for many more months. Because the recession that should have started in 2017 or 2018 was held off, markets went much higher, and financial bubbles got much bigger. Because of that, the economy had (and still has) much farther to drop.
Also, when Fed chair Jerome Powell started raising interest rates in late 2016, and into 2017, pressure was put on him to reverse course, because higher interest rates were freaking out the stock market. At that time, Powell was trying to get interest rates from a historical low position, to a more "normal" level, which would give The Fed more ways to deal with the next recession. But he suddenly reversed course, apparently under heavy pressure from the White House and others, and eventually lowered rates, to help prop up stocks and other financial markets. This also propped up a weak economy that desperately needed a serious correction, a recession. So when a crash did finally come, it was a much worse one than it would have been if it hit in 2017 or 2018.
So why does it make a difference if we're in a recession or a depression? A depression is simply more intense, and will likely last quite a bit longer. Simply acknowledging that we're in a "depression," should make people think more intensely about how to survive and work out of it. It should also get us to look at this as a longer term, serious issue, not just something that will work itself out in six months. The downside is that a lot of people freak out when they hear "depression." And people are freaked out already.
My personal opinion is that it's better to state it clearly, accept that this is a major deal, and then get to work looking for solutions in all the issues facing us, like 28 million people on the verge of eviction. We don't need millions more people on the streets or living in cars suddenly. But our jacked up political system likes to spin things, even serious things, hoping the problems will go away if they can convince enough people it's not that bad. Politicians can call this whatever they want, but if you get an eviction notice, shit gets serious... real quick.
This is a serious economic crisis. It's not being handled well, though the trillions of dollars The Fed has created have helped big business, wealthy people, and many recently unemployed people... for a while. But this help comes at a huge cost later on, in the form of heavy inflation, possibly full blown hyper-inflation. We need to put on our Big Boy and Big Girl pants and work out some really big solutions soon to some really big problems, and get a handle on keeping struggling people housed, finding new jobs, saving small businesses, and everything else we're dealing with.
Here's my recent blog post explaining why I started calling this economic downturn The Phoenix Great Depression several months ago. There are a lot of really long term trends and cycles converging, making this much more than a typical recession.
In this CNBC article from last Tuesday, they actually printed the words "Great Depression," on CNBC. Believe me, that's a big moment when they admit that's a possibility. The reason the article asks the question is because of the huge unemployment numbers in major cities right now. Here are the June unemployment numbers from the article:
New York City- 20.4% unemployment
Los Angeles- 19.5%
Chicago- 16.1%,
Detroit (it went up)- 17.7%.
Real unemployment stats are likely higher, only people actively seeking employment, and signing up for unemployment get counted. There were at least 7 million working age men not officially working and not looking for work before all of this started (Eberstadt- "Men Without Work"), and unemployment doesn't include a lot of independent workers, gig workers, small business people not working because or mandatory closures, people with reduced hours, or people who've accepted pay cuts. In all likelihood, we're probably near or over the 25% unemployment threshold of The Great Depression of the 1930's, if everyone could actually be tallied up.
The article says there's no real definition of "great depression." According to economist Ravi Batra's books, which I read in 1989-1990, there is, or at least was, a definition. A recession is an economic contraction (total economy shrinks) for two consecutive quarters, meaning 6 months. A depression is an economic contraction for 3 years, OR a 10% drop in GDP. We may see a 10%+ drop in GDP in the official Q2 numbers coming out next week, July 30-31. A great depression, by the traditional definition is an economic contraction for 5 years or more.
My personal opinion, and the reason I've been writing on this subject for about 3 years now, is because I think we're at the start of a true depression, and it will feel like a full blown great depression of 3-5, and likely 7 years, of tough economic times. Since the traditional definition has been abandoned, I don't know what this economic downturn will be called, but it will be a long tough ride for most Americans. BUT, recessions and depressions are also a great time of innovation, new business ideas, new industries emerging, and a lot of opportunities hidden in the economic mess.
According to this CNBC article today, 28 million Americans face eviction. Uh... yeah... that's not good. Landlords are encouraged (by someone, apparently) to "be creative." I wonder if the banks and lenders the apartment owners owe money to are also encouraged to be creative.
This short article cites a recent survey of apartment owners, 60% of whom said their tenants can't make rent payments. All of their tenants? Or some of them? It doesn't say. In any case, here's another ginormous number in a bad category, possible evictions, giving us some sense of just how many people are seriously struggling to stay housed after the craziness of the past few months.
This video was made in March 2020, when the stock market was hitting its first big bottom, and before most of the $3 TRILLION+ in bailouts really began. But this video gives a great view of how big and widespread this economic crisis is. This depth and breadth of this crisis is one major reason this will be a long downturn.
From my point of view, having followed and watched several long term social trends for many years, I see a long, rough, economic downturn for several other reasons. There is a convergence right now of several long term trends and major social changes, it's not just an "normal" economic recession that lasts 12-18 months.
Here is one of the big social upheavals I've been watching evolve for years, which almost no one even knows is going on. This is The Third Wave concept explained by the late futurist Alvin Toffler in his 1980 book, The Third Wave. The basic idea is very simple, the Industrial Age dominated by factories in every town is ending, and the Information Age is being built. At one level, we all know that. It's like, "Duh, of course!" To most people, this transition happened a long time ago. The factories shut down, a lot of small cities and towns struggled, and now we're in the Information Age.
But we're only PARTLY in the Information Age. Yes, nearly every person has a smart phone now, we don't share a phone with a cord attached to the kitchen phone like when I was a kid. We have streaming music, not CD's or vinyl records played on a record player. But our education system, K-12, is still an Industrial Age model. Our legal system, our criminal justice system, our political parties and system, they are all systems created in the Industrial Age. A lot of our old, major, industrial, "blue chip" businesses, are still largely working on underlying Industrial Age models. Our entire college/university system is still a model from the Industrial Age. Our local, state, and federal government bodies and agencies are still working on Industrial Age models. Yes, these all use new technologies, but the underlying systems and models they are based on, are still Industrial Age models.
Each of these businesses, governments, industries, or systems, will break down, and be disrupted, the same way Napster completely disrupted the music industry in 1999. This can either happen by people of the old model, intentionally re-inventing the old system, or completely new people inventing a new, Information Age system. Most of the time, it will be the second option. Thinking of the retail industry, Sears, the longtime major department store didn't see the potential of online shopping, and Jeff Bezos, who started Amazon, did. Bezos started a new model, and now, about 25 years later, Amazon is gigantic, and Sears is bankrupt. This basic scenario WILL happen to every part of society that it hasn't happened to yet. It's simply happening because new technologies making an entirely new business model or system possible.
This transition of everything, from the Industrial Age model, to the Information Age model, started slowly in about 1956, according to Alvin Toffler. The speed of this change has gradually increased, and now change is happening very rapidly. When it comes to 2020, this economic downturn is accelerating the level of this change. So we not only have a major economic recession, which started last September (Repo crisis), AND we have a major, 100 year pandemic, which has killed over 142,000 Americans, as of this morning. In addition to THAT craziness, those things are dramatically escalating the pace of change in the remaining Industrial Age businesses, governments at the local, state, and federal level, and systems of other kinds. In every system, business, or industry, these are HUGE, massive changes, and many of the old businesses wind up closing down, like chain stores in the Retail Apocalypse. This level of change, happening in so many different places at once, cannot possible happen in 12-18 months. Most... MOST of those major Industrial Age businesses were practically insolvent in March 2020. These major businesses, an Wall Street, have been propped up by somewhere around $3 trillion, just to keep them afloat, so they can try to recover. But this completely unprecedented level of bailouts WILL ALSO dramatically lengthen this recession/depression (it is officially a recession, for now).
So this is just one of several major social trends and cycles happening, and CONVERGING, at this point in time. The Third Wave aspect alone would turn a serious recession (6-18 months) into a depression (3 years or 10% GDP drop) or a great depression (5 year economic downturn).
So that is PART of the reason I'm calling this economic collapse The Phoenix Great Depression. It will be VERY deep. It will last several years, with different economic indices going up and down at times, and it includes a level of societal change, and speed of change, unheard of in human history. The "phoenix" part is the rebuilding of a new, viable society as we work through these many changes, at many levels, happening all at once.
This has been reported a bit already, the pandemic has sent a lot of New York City renters scurrying for the suburbs or less dense regions. My personal opinion is that, it's freakin' New York City, wealthy people will come back once a vaccine is available and in wide use, and they can get back to "normal" big city life. But for now, vacancies in NYC apartments are up 85%. Rent prices are insane there, we've all heard that, and now they're coming down, and I think we'll see more of this in coming months.
Basically, this appears to be the start of a much needed price correction in NYC rentals, and we'll probably see similar data soon show up in other major cities. The beneficiaries right now are the smaller communities upscale city dwellers are flocking to. With things moving so fast these days, other than Long Island and parts of the Hudson Valley, I haven't heard where else city dwellers are moving to. Again, like the previous post, we'll see how this current trend plays out.
In this Bloomberg article, "A $35 Billion Bite From U.S. Banks May Be Only The Start," the spin doctors seem like they're trying to make you dizzy. One one hand, the article explains that major banks have set about $35 billion aside to deal with delinquent loans that may be coming their way. On the other hand, comes the "everything's fine" spiel you get form mainstream outlets. Unemployment is up, but "seriously delinquent loans" are down in the last couple months. Um... yeah, because The Fed has thrown over $3 trillion or of created money into first the repo market, then many other aspects of the economy, in the past 9 months, something never done in history. At the same time, because of the intense nature of the virus shutdown, banks and lenders have been going to great lengths to offer forbearance and other terms to help the millions of people laid off, with lowered pay, and struggling to pay all kinds of debts.
This article reminds me a lot of the early rumblings of the subprime mortgage mess in 2008. We have at least three major forms of debt that have been packaged and sold as investments, very much like the subprime mortgage backed securities and CDO's in 2008. The three main ones I'm aware of are Student Loan Asset Backed Securities (SLABS), Commercial Lending Obligations (CLO's), and Commercial Mortgage Backed Securities (CMBS). We'll see where this leads...
This is a CNBC report from March 9th, 2020, as stocks plummeted on Covid-19 shutdown fears, AND a whole slew of longer, underlying factors. The Dow was down about 1,700+ points at the time of this report. The Dow bottomed out at around 18,500, a couple weeks later.
Here's my 2020 predictions blog post, from my (now retired) personal blog, written on January 26,2020. The Dow was around 28,700 and still heading up, the Friday before I wrote this post. In that post, I predicted the Dow Jones Industrial Average would drop below 19,000 at some point in 2020. I also made predictions for the Nasdaq, the S&P 500, and the Russell 2,000. Of those four predictions, all but the Nasdaq prediction have actually come true. And we're just 6 1/2 months into 2020.
I'll go into more detail on how and why I made those predictions as this blog goes on. But there's a simple rule I learned in the late 90's, about commodity charts. It also generally applies to the stock markets. When a long bull market ends, the price drops approximately 50% of the entire bull market run. So if you take this last bull market in the Dow, check this chart, (click to "Max" timeline), and figure the points risen from February 2009 low, to the peak in February, 2020. Cut that number in half, and subtract it from the Dow's peak in February 2020, of 29,551. The Dow should drop to roughly17,800, at some point. You can do the same thing to the other index charts. I padded my predictions a bit, knowing that there may be one big drop, a likely rally for a while as the inevitable bailouts kick in, and very likely another, lower drop, at some point in the future. I was just trying to predict the initial big drop.
Once a long term bull market is over, in commodities or stocks, the markets are turbulent, and basically pretty much impossible to predict, for quite a while. This usually turns into a wide trading range for some time. In today's Dow, for example, I think we'll see a big, long trading range from roughly 23,000 to 28,000, up and down, for another 1-3 years. There SHOULD be 1 or 2 more big, DEEP drops, to Dow 17,800 or so. But that might not happen because The Fed is basically willing to completely devalue the dollar (eventually) to prop up all the major U.S. corporations and banks that were functionally insolvent in March, after the stock plunge.
In any case, the stock market is basically a gambler's market, for the next year, at least, and probably 2-3 years. Yes, there will be incredible bargains for long term investors, like Warren Buffet and Charlie Munger at Berkshire Hathaway. But you're not Warren or Charlie.
In addition to that, with so many other factors happening in the economy, like real estate collapse that's coming, the continued retail apocalypse, precious metals rising, and more bankruptcy auctions coming than ever in human history, I think there will be thousands of amazing opportunities for small and mid-level investors, that will be much more lucrative than stocks over the next 1-3 years. So that's why I wouldn't touch the stock markets now, if I was in a position to invest a serious amount of money.
A professor at NYU, and one of the most hardcore realists among economists, Nouriel Roubini gives a great take on the myriad of issues we're facing in this new decade, and what the recovery may look like. He sees what may be a "Greater Depression" in the mid-20's, and he explains the ten drivers that could lead to it.
I had no idea who Kevin Ward was when I watched this video, a couple of days ago. I'm currently writing a report on where I see things going economically in the next several years, on my Phoenix Great Depression concept as a whole. So I watched a handful of videos on real estate, to see what other people were thinking about the current state of things. This was one of those videos. I wanted to know if everyone still had very different view than me, or were some people toning down their optimism on real estate after the last few months?
To be honest, I thought this was going to be a "Rah!Rah! Buy real estate right now!" video. Much to my surprise, Mr. Ward gives a really serious, really comprehensive, very well thought out look at what's wrong right now, and what's right, in the economy and real estate. This video gives a really good overall view of real estate in our current crazy times. I recommend this video for anyone interested in investing in real estate, or selling real estate, right now, or in the next few years.
Best known for his 1997 book, Rich Dad, PoorDad, and several investing books since, investor Robert Kiyosaki talks about how commercial real estate supports cities themselves through taxes. What happens when the office buildings and retail stores empty out? Cities themselves, small, medium, and large, could go broke. Robert focuses on New York City, as an example of what's happening, and will happen, to cities throughout the U.S., and the world. This short, 5 minute video is a great insight into this issue from a top investor's mind.
In this Forbes column, we hear that 106 million different loans have not been paid on time, in the last two months. Not $106 million dollars, but different loans. The information comes from Trans Union, one of the big credit rating agencies.
For the last 12 years, spurred by The Fed's artificially low interest rates, most of the U.S. (and much of the world's) economy has been fueled by debt. In everyday terms, American businesses, the U.S. government, and most consumers, have been living on their "credit cards" for more than a decade. Now they (we) can't make their payments in many, many cases. A huge chunk of those loans are not being paid back, due to the shaky financial system and the Covid-19 sparked downturn and business shutdown. So what happens to a world propped up by debt when the debt stops getting paid back? A collapse of some sort is inevitable, unfortunately. Tick. Tick. Tick...
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.
This is a real good video explaining the "zombie companies," how they became zombies, and their effect on a country (Japan from the 1990's on), and the zombie companies among us now.
Over 42 million Americans have lost their jobs in about three months. The stock markets plummeted in February and March 2020, as a 100 year pandemic, the Covid-19 virus, made its way into the United States, and spread rapidly. Most businesses face a mandatory shutdown, and now millions of small businesses are struggling, most major corporations were close to insolvency in March, and tens of millions of Americans are suddenly struggling to simply pay their rent.
It's June 21, 2020, as I write this post. We're in weird times. REALLY weird times. Economics and Big Picture social dynamics is something I've had an interest in for many years, going back to high school in the 1980's. I saw part of what's happening now coming, major economic and social issues, and wrote about them to some extent, in my previous blog. But the Covid-19 pandemic was something I did not expect to be in the mix, and it helped shift the other issues into light speed mode. Things are happening much faster than eve I expected.
I first coined the term "The Phoenix Great Depression" in a blog post, last December (2019), I believe. That's a term that popped in my head while trying to make sense of several long term trends I was watching. As some of the things I'd been writing about for three years started happening, like the massive stock market drop and subsequent recession (possibly a depression already, if we see a 10% drop in GDP). Over the past couple of months, I came to think of this decade we're entering as the "Tumultuous 2020's." That's because I believe we're just at the beginning of the incredbily chaotic times, as opposed to the simply chaotic times of the last decade or so.
So many things are happening so fast right now, and I was retiring my previous personal blog, after hitting the 100,000 page view threshold, that I decided this new blog was in order. In this blog I will collect articles, news clips, and interviews from people I think are sharing key insights going forward. I will also share my personal views, which are a Big Picture context for all the craziness going on these days. Hopefully this will help many of you make sense of today's Never Never Land economy, social upheaval, and chaos, and also help you find ways to make dollars from all the opportunities, as things get weirder.
