When you ask most people what SLABS are, they tend to reply, "That's the big concrete thing under my house, right?" Yeah. That concrete slab (if you don't have a basement), is one kind of slab. But the SLABS explained in this short, and very well explained video, are Student Loan Asset Back Securities.
These are the investments that are created from a whole bunch of student loans. If nearly everyone is paying their student loans back on time, they're quite safe. But we're in weird times, and not everyone's paying their student loans back on time. The problem I see with SLABS is that they're nearly identical to the subprime Mortgage Backed Securities that crashed, and brought the banking system to its knees in 2008. Except that there are over $1.6 trillion in student loans, as opposed to $1.3 trillion in subprime mortgages in 2008. $1.3 trillion of those student loans are through the federal government, the rest are from private lenders.
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.
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...
