The Entrepreneur Forum | Startups | Entrepreneurship | Starting a Business | Motivation | Success

HOT TOPIC Where the Economy is Heading (Follow-Up on "The Coming Recession")

Remove ads while supporting the Unscripted philosophy...become an INSIDER.

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
In May 2018, this thread kicked off:


Towards the end of this thread, I suggested that instead of continuing to argue about the current state of economic events (and who was right or wrong in their predictions), it was time to start focusing on what's to come, so that those of us who are trying to profit off future economic shifts can "lock in our bets."

I'm starting to lock in some bets based on my opinions of where things are headed. And I figured that I might as well start a new thread so that we can discuss and perhaps help all of us make good (or at least, better) bets moving forward...

Let me start with this disclaimer:

This is just my opinion! Basically, a guess. Opinions are meaningless, and I can't currently support anything I've written below with any reliable historic case study or economic data. In fact, I’m probably wrong about everything I'm about to say. So, you're not going to hurt my feelings if you disagree and call me an idiot (you're probably wrong too :) ).

That's my disclaimer. But, since a lot of people are asking me my opinion these days, here it is...

I currently imagine our economy as falling off a cliff. That’s not an exaggeration – what our economy is experiencing and is about to experience is completely unprecedented in our history. The government will likely be throwing everything they have at maintaining liquidity (the ability to money to flow to the markets where it’s needed) and maintaining social order. Not to mention that the administration will no doubt do whatever it takes to prop up the economy at least until the election (that’s not a political opinion, that’s simply common sense).

But, nonetheless, we’re about to hit the highest level of unemployment in history, the worst GDP contraction in history, the largest amount of QE/stimulus in history and the worst of pretty much every other economic indicator there is.

So, the metaphor of falling off a cliff isn’t unreasonable.

That said, I think we can all agree that what’s going on now is not a systemic economic issue. It wasn’t bad fundamentals that drove our economy off a cliff. From an economic standpoint, this is an artificial or unnatural event that has been thrust on our society, and by the nature of disrupting society, has disrupted the economy in it’s wake. But, regardless of whether it was a systemic issue or an artificial event that has caused this free-fall, the fact remains that our economy is still dropping like a rock over a cliff.

That’s the bad news.

On the brighter side, while the economy is most definitely in a free-fall, to continue this metaphor, there is almost certainly the equivalent of a huge trampoline at the bottom of that cliff. At some point, this lock-down is going to end, people will start getting back to work, people will start spending money again, and the economy will bounce off that big trampoline at the bottom and head back up.

But, just like a regular trampoline (and the laws of physics), we’re going to lose some energy during that bounce at the bottom, and we’re not going to make it all the way back up to the top of the cliff where we started. We could seemingly get pretty close, but, there’s just no way we get all the way back to the top.

In my opinion, on that first bounce, we’ll get far enough back to the top that most people don’t freak out that the world is ending. From a consumer sentiment standpoint, things will probably feel better than they actually are. In fact, compared to what we’ve been going through, everything will seem great to a large percentage of the people in this country. Many people will go back to their jobs, we’ll probably see a nice little stock market rebound, we may see the real estate market hang in, and people will get back to spending money.

That said, I don’t think things will be as good as they initially seem. I think economically, we’ll settle in at typical recessionary numbers – 6-10% employment, flat or very low GDP growth, wage contraction, etc. I think that’s inevitable, as there will still be a large part of the population that doesn’t just recover like nothing happened.

A lot of businesses are going to fail. Many of these will be businesses that were going to fail soon anyway, but this event was enough to convince the business owner to give up now as opposed to try to stick it out. Other businesses might have been on a good trajectory before this event, but the economic hit coupled with the psychological hit will encourage a lot of business owners to just throw in the towel. Finally, there will be a lot of business owners who were close to retirement, had planned to sell their businesses, but now find themselves in a situation where there is an over-supply of businesses for sale and an under-supply in demand, so they close shop instead of passing the torch.

Most of these business that won’t make it have employees. Those employees are now out of jobs, and due to reduced economic demand, in general, those employees aren’t going to find jobs easily. Especially unskilled employees going back to work in businesses that have figured out how to survive on fewer employees and run a leaner ship. It could take months or years for the economy to reabsorb all those jobs and get back to full employment.

*** In the short-term (through the end of 2021), I foresee recessionary economic numbers, but with more optimism than we necessarily see during a downturn. ***

Now, longer-term (1-2 years), the recovery scenarios start to branch.

The best case scenario (again, my opinion) is that we see a regular recession. Unemployment remains high for 12-24 months, GDP is sluggish for a year or so, housing likely sees at least a modest downturn, lending tightens, yada, yada, yada. Typical recession stuff, but not as bad as 2008...and within a year or so, the next expansion starts.

The more likely scenario (again, my opinion) is that this whole crisis kicks off some series of events that cascade downwards, the domino effect starts to get out of control, and we see an economic snowball that starts a chain of unintended and unexpected outcomes.

There are three reasons for this:

1. Leading up to this crisis, I don’t believe our economy was as strong as many of the economic indicators (or consumer sentiment) made it seem. Systemic issues from years past could catch up with us in the near-term;

2. There are likely to be a lot of things our government, the Federal Reserve, and the Treasury are likely to do during the next several months that will change the entire equation. Things that right now we can’t predict or foresee, but that will come apparent between now and the election. Trying to kick this can further down the road and not letting whatever is about to happen play out in a natural way will likely exacerbate what's to come;

3. Finally, there’s the big wildcard of whether this lock-down is a one-and-done, or whether this is the first of many lock-downs. Perhaps we get past the first wave, get back to work, and then in September or December or whenever, we find ourselves in round 2 of lockdown mode? In fact, it’s possible that we could find ourselves repeating this cycle several times between now and when a vaccine is available.

Between the foundational issues that we were facing a few months ago, the new issues created while trying to save the economy during this crisis, and the potential for further lock-down events, I think we could see a downward economic spiral that is as bad as 2008, if not worse.

*** Now, I’m not typically a doom-and-gloomer (I’m more of an optimistic pessimist), but if I was forced to put money down on this, I’d say that over the next 1-3 years, we’re in for at least a severe downturn, if not worse. ***

Now, I still have a lot more to say about all of those risks I mention above and how they could play out – the foundational concerns we were facing earlier as well as the new risks introduced during this crisis by trying to help us survive economically.

I'll post more about my thoughts on that in the next couple days...
 

Don't like ads? Remove them while supporting the forum. Subscribe.

Yoda

Platinum Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Nov 12, 2015
396
2,732
654
Dagobah
Leaving politics out of it, how do you think the scenario changes with a Trump Presidency or. Biden one? Do you think one is better for a HEALTHIER economy?

How tf you expect him to leave politics out of a question like that?

:rofl:
 

Tourmaline

Silver Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jun 4, 2019
821
950
333
Texas
@JScott I appreciate the analysis.

Do you have a guess on how low the DOW will go with high certainty?
 

biggeemac

Gold Contributor
Speedway Pass
Jun 25, 2011
786
1,090
390
45
In May 2018, this thread kicked off:


Towards the end of this thread, I suggested that instead of continuing to argue about the current state of economic events (and who was right or wrong in their predictions), it was time to start focusing on what's to come, so that those of us who are trying to profit off future economic shifts can "lock in our bets."

I'm starting to lock in some bets based on my opinions of where things are headed. And I figured that I might as well start a new thread so that we can discuss and perhaps help all of us make good (or at least, better) bets moving forward...

Let me start with this disclaimer:

This is just my opinion! Basically, a guess. Opinions are meaningless, and I can't currently support anything I've written below with any reliable historic case study or economic data. In fact, I’m probably wrong about everything I'm about to say. So, you're not going to hurt my feelings if you disagree and call me an idiot (you're probably wrong too :) ).

That's my disclaimer. But, since a lot of people are asking me my opinion these days, here it is...

I currently imagine our economy as falling off a cliff. That’s not an exaggeration – what our economy is experiencing and is about to experience is completely unprecedented in our history. The government will likely be throwing everything they have at maintaining liquidity (the ability to money to flow to the markets where it’s needed) and maintaining social order. Not to mention that the administration will no doubt do whatever it takes to prop up the economy at least until the election (that’s not a political opinion, that’s simply common sense).

But, nonetheless, we’re about to hit the highest level of unemployment in history, the worst GDP contraction in history, the largest amount of QE/stimulus in history and the worst of pretty much every other economic indicator there is.

So, the metaphor of falling off a cliff isn’t unreasonable.

That said, I think we can all agree that what’s going on now is not a systemic economic issue. It wasn’t bad fundamentals that drove our economy off a cliff. From an economic standpoint, this is an artificial or unnatural event that has been thrust on our society, and by the nature of disrupting society, has disrupted the economy in it’s wake. But, regardless of whether it was a systemic issue or an artificial event that has caused this free-fall, the fact remains that our economy is still dropping like a rock over a cliff.

That’s the bad news.

On the brighter side, while the economy is most definitely in a free-fall, to continue this metaphor, there is almost certainly the equivalent of a huge trampoline at the bottom of that cliff. At some point, this lock-down is going to end, people will start getting back to work, people will start spending money again, and the economy will bounce off that big trampoline at the bottom and head back up.

But, just like a regular trampoline (and the laws of physics), we’re going to lose some energy during that bounce at the bottom, and we’re not going to make it all the way back up to the top of the cliff where we started. We could seemingly get pretty close, but, there’s just no way we get all the way back to the top.

In my opinion, on that first bounce, we’ll get far enough back to the top that most people don’t freak out that the world is ending. From a consumer sentiment standpoint, things will probably feel better than they actually are. In fact, compared to what we’ve been going through, everything will seem great to a large percentage of the people in this country. Many people will go back to their jobs, we’ll probably see a nice little stock market rebound, we may see the real estate market hang in, and people will get back to spending money.

That said, I don’t think things will be as good as they initially seem. I think economically, we’ll settle in at typical recessionary numbers – 6-10% employment, flat or very low GDP growth, wage contraction, etc. I think that’s inevitable, as there will still be a large part of the population that doesn’t just recover like nothing happened.

A lot of businesses are going to fail. Many of these will be businesses that were going to fail soon anyway, but this event was enough to convince the business owner to give up now as opposed to try to stick it out. Other businesses might have been on a good trajectory before this event, but the economic hit coupled with the psychological hit will encourage a lot of business owners to just throw in the towel. Finally, there will be a lot of business owners who were close to retirement, had planned to sell their businesses, but now find themselves in a situation where there is an over-supply of businesses for sale and an under-supply in demand, so they close shop instead of passing the torch.

Most of these business that won’t make it have employees. Those employees are now out of jobs, and due to reduced economic demand, in general, those employees aren’t going to find jobs easily. Especially unskilled employees going back to work in businesses that have figured out how to survive on fewer employees and run a leaner ship. It could take months or years for the economy to reabsorb all those jobs and get back to full employment.

*** In the short-term (through the end of 2021), I foresee recessionary economic numbers, but with more optimism than we necessarily see during a downturn. ***

Now, longer-term (1-2 years), the recovery scenarios start to branch.

The best case scenario (again, my opinion) is that we see a regular recession. Unemployment remains high for 12-24 months, GDP is sluggish for a year or so, housing likely sees at least a modest downturn, lending tightens, yada, yada, yada. Typical recession stuff, but not as bad as 2008...and within a year or so, the next expansion starts.

The more likely scenario (again, my opinion) is that this whole crisis kicks off some series of events that cascade downwards, the domino effect starts to get out of control, and we see an economic snowball that starts a chain of unintended and unexpected outcomes.

There are three reasons for this:

1. Leading up to this crisis, I don’t believe our economy was as strong as many of the economic indicators (or consumer sentiment) made it seem. Systemic issues from years past could catch up with us in the near-term;

2. There are likely to be a lot of things our government, the Federal Reserve, and the Treasury are likely to do during the next several months that will change the entire equation. Things that right now we can’t predict or foresee, but that will come apparent between now and the election. Trying to kick this can further down the road and not letting whatever is about to happen play out in a natural way will likely exacerbate what's to come;

3. Finally, there’s the big wildcard of whether this lock-down is a one-and-done, or whether this is the first of many lock-downs. Perhaps we get past the first wave, get back to work, and then in September or December or whenever, we find ourselves in round 2 of lockdown mode? In fact, it’s possible that we could find ourselves repeating this cycle several times between now and when a vaccine is available.

Between the foundational issues that we were facing a few months ago, the new issues created while trying to save the economy during this crisis, and the potential for further lock-down events, I think we could see a downward economic spiral that is as bad as 2008, if not worse.

*** Now, I’m not typically a doom-and-gloomer (I’m more of an optimistic pessimist), but if I was forced to put money down on this, I’d say that over the next 1-3 years, we’re in for at least a severe downturn, if not worse. ***

Now, I still have a lot more to say about all of those risks I mention above and how they could play out – the foundational concerns we were facing earlier as well as the new risks introduced during this crisis by trying to help us survive economically.

I'll post more about my thoughts on that in the next couple days...
Thanks for starting this J. Since our little circle likes to get ahead of events like this, its wise to talk about what COULD LIKELY happen, and how best to protect ourselves and ideally still be profitable.

For me, I have been weighing out how safe my family, my real estate, and my cash is.

As far as my cash, the problem is that banks could be in trouble up the road with the floodgates of lending being opened. Is the bank the right place to park my cash? If not the bank, then where? I am wanting to maintain some liquidity to buy up deals or whatever when things get REALLY bad. So that sort of stops me from dumping it into my real estate loans.

So many questions to ask ourselves. I feel as good as is possible discussing it here.
 

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
Same thing I was thinking. Their whole life revolves around politics how do you separate politics from people that are politicians? Do you base your opinion on the way they look?
Just on economics. Leave the social policies out. I think you can make an apolitical answer to that question.
 

ReeZ

Contributor
Oct 9, 2016
38
91
117
Just thought I'd give a heads up and mention that Ray Dalio has been beginning to write somewhat of a series on what he is expecting to come during the years ahead. There's an introduction before this and also another post on what he refers to as the "War economy", both interesting and relating to the post I'm linking to below, aside from that he has some studies that are available on Economicprinciples.com

The post I'm talking about - "The Changing World Order"

Specifically, Ray Dalio will also have an AMA on reddit by 3 pm EST.

I will jump into the discussions later when I have more time...
 
Last edited:

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
Just thought I'd give a heads up and mention that Ray Dalio has been beginning to write somewhat of a series on what he is expecting to come during the years ahead. There's an introduction before this and also another post on what he refers to as the "War economy", both interesting and relating to the post I'm linking to below, aside from that he has some studies that are available on Economicprinciples.com

The post I'm talking about - "The Changing World Order"

Specifically, Ray Dalio will also have an AMA on credit by 3 pm EST.

I will jump into the discussions later when I have more time...
Ray Dalio has been saying the 2020’s will be like the 1930’s for years now. I don’t think he was expecting to be this right.

- left & right wing populism
- rising economic inequality
- nationalism (good thing)
- end of globalism (amazing thing)
- Huge Economic crisis

so many more parallels.

The 2020’s are going to be a GRIND
 

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
Holy cow.

I just read the Ray Dalio piece. I can’t believe he thinks CHINA is the next world power.

He even says a sign of a declining power is rising DEBT levels, meanwhile China is the most indebted world power on earth. 300% debt to GDP ratio!!!


On top of the increasing debt (at the same time its GDP growth has gotten slower and slower) It has a HUGE population problem: It’s shrinking thanks to One child policy


Mind you, when the US was a “Rising Power” It’s population was ~100 million and debt to gdp was like 20%. To get to where it is now its more than tripped in size and takes in immigration to keep its working age population forever young.


It seems every decade there’s a new competitor.

Remember India super power by 2020? Brazil superpower? Japan super power in the 1980s? EU super power in the 2000’s?

USA is still the last man standing every time




 
Last edited:

ChrisV

Legendary Contributor
EPIC CONTRIBUTOR
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 10, 2015
3,118
6,696
1,512
Islands of Calleja
My knowledge of economics are limited, but the other day I was curious about where things were going, and most economists say that we're basically 'on pause.' As soon as things let up we'll be fine.

 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
@JScott I appreciate the analysis.

Do you have a guess on how low the DOW will go with high certainty?

I'm the furthest thing from a stock market guy, so I don't like to even try to predict (guess) these types of things...

But, if you were going to force me to guess, I think we see a lower low in the next 12 months than we saw a couple weeks ago simply because I think the economy will get ugly. Market could hold up well for a while, but I don't think everything is going back to normal in the next 12 months.

Again, just a guess based on my prediction for the the economy in general... Certainly not my area of expertise.
 

Don't like ads? Remove them while supporting the forum. Subscribe.

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
Just thought I'd give a heads up and mention that Ray Dalio has been beginning to write somewhat of a series on what he is expecting to come during the years ahead. There's an introduction before this and also another post on what he refers to as the "War economy", both interesting and relating to the post I'm linking to below, aside from that he has some studies that are available on Economicprinciples.com

The post I'm talking about - "The Changing World Order"

Specifically, Ray Dalio will also have an AMA on credit by 3 pm EST.

I will jump into the discussions later when I have more time...

I've been reading that... It's fantastic!
 

ChrisV

Legendary Contributor
EPIC CONTRIBUTOR
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 10, 2015
3,118
6,696
1,512
Islands of Calleja

ChrisV

Legendary Contributor
EPIC CONTRIBUTOR
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 10, 2015
3,118
6,696
1,512
Islands of Calleja
Very good article. The Forecasters at Good Judgment Inc have historically been the most accurate prediction engine I've seen.

While it's doubled, they still only put it at a 36% chance,

Good Judgment (the forecasting panel) run by Philip Tetlok, who has devoted his life to making accurate prediction engines:


You'd have to dig in to understand his unique methodology, but historically it's been very accurate.
 
Last edited:

tpuffer

Bronze Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Sep 12, 2019
111
302
168
Holy cow.

I just read the Ray Dalio piece. I can’t believe he thinks CHINA is the next world power.

He even says a sign of a declining power is rising DEBT levels, meanwhile China is the most indebted world power on earth. 300% debt to GDP ratio!!!

China has also been buying a lot of gold in the preceding decade. While they do report some number of what they have - that number likely isn't the true amount they have. It's possible that they have more than enough gold to cover for that nominal debt:GDP ratio.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
In the first post in this thread, I mentioned that there were three things that I felt could impact the mid-term (1-3 years) economy, potentially very negatively. Those three things were:

1. Leading up to this crisis, I don’t believe our economy was as strong as many of the economic indicators (or consumer sentiment) made it seem. Systemic issues from years past could catch up with us in the near-term;

2. There are likely to be a lot of things our government, the Federal Reserve, and the Treasury are likely to do during the next several months that will change the entire equation. Things that right now we can’t predict or foresee, but that will come apparent between now and the election. Trying to kick this can further down the road and not letting whatever is about to happen play out in a natural way will likely exacerbate what's to come;

3. Finally, there’s the big wildcard of whether this lock-down is a one-and-done, or whether this is the first of many lock-downs. Perhaps we get past the first wave, get back to work, and then in September or December or whenever, we find ourselves in round 2 of lockdown mode? In fact, it’s possible that we could find ourselves repeating this cycle several times between now and when a vaccine is available.

#3 pretty much speaks for itself. If there are additional lock-down periods – even if they are shorter and less restrictive – this could add a lot of additional stress to the economy and derail any progress we make leading up to those additional lock-down events.

But, I wanted to give a few more thoughts around #1 and #2 above – specifically some of those things that I believe were systemic issues with our economy leading into the recent CV crisis, and the risks from the drastic efforts the government is taking (and potentially going to take) to keep things afloat. These are the things that could lead from what I believe is going to be a typical recession to what *could* be a much more massive economic downturn. I’m not saying that’s necessarily going to happen, but if it does, these are the most likely reasons (as of now) it will happen.

I put this list of issues/risks into three broad buckets:

  • Consumer Issues/Risks
  • Corporate & Business Issues/Risks
  • Market Liquidity/Currency Risks

CONSUMER ISSUES/RISKS

From the consumer side, here are the biggest issues we faced leading into the CV crisis, and the potential issues resulting from the crisis and the government’s actions:

- Credit/Debt Defaults: Consumer debt leading into the crisis was about $9T. This is the highest it’s been in the history of our country, and I don’t believe it would take much for defaults to snowball. Not only does this pose a short-term risk to various markets (including real estate, should foreclosures spike), but it poses a longer-term risk as well as credit scores drop and consumers don’t have as much access to credit in the near future.

- Unemployment: This one is obvious. Depending on how many businesses don’t return after this crisis is over, we could see unemployment at 8%, 10% or higher, even after everyone gets back to work. It could take months/years to reabsorb all these jobs, and in the meantime, Americans are having trouble paying bills and are spending less on commodities and durable goods, which hurts the economy further.

- Credit Impacts: How will forbearances and missed payment during the lock-down translate to credit scores? Will lenders report missed payments and forbearances, hurting consumer creditworthiness? Will those who take forbearances see credit restrictions in the future? We don’t yet know the answer to these questions, but the worst case scenario is that tens of millions of Americans have more trouble accessing credit in the near future.

- Forbearance Defaults: Depending on how lenders treat forbearances, consumers may be in for a nasty surprise come July or August. If lenders decide that they want all their deferred payments returned in a single balloon payment, there will likely be millions of Americans who will face default and foreclosure when they can’t pay. I don’t see this as a high risk – lenders won’t screw borrowers en masse because it would just hurt them as well – but this goes back to the point above about forbearances potentially hurting credit scores if borrowers can’t make the repayments that lenders require.

- Medical Debt: This is a wild card. With so many American out of work these days – and potentially without health insurance – and with a lot of people likely to receive medical bills related to CV treatments, we don’t know how these costs will be handled. Will the government step in and provide health-care for needy Americans? Will Medicare be extended? Will COBRA be made more widely available? Will the government cover CV treatment costs? As more Americans go without health insurance, and as more Americans get CV, the risk of an insurance debt crisis becomes more and more possible.

- Consumer “PTSD”: This is another wildcard that is hard to quantify, but we aren’t yet sure if this entire lock-down and health scare will change consumer attitudes and spending habits. For example, after the 2008 recession, millions of millennials decided they didn’t want to ever buy a house because they saw the risks firsthand of their parents and relatives dealing with foreclosure. That attitude eventually changed, but it took years to get there. How will consumer attitudes be shaped by this recent crisis? Will people not eat out as much? Will they decide it’s important to save money for fear of a future economic crisis? Will consumers decide that they don’t need to travel as much? We don’t know how consumer attitudes will change, but if they change in a way that involves spending less money, that’s bad for the economy long-term.

CORPORATE & BUSINESS ISSUES/RISKS

From the business side, here are the biggest issues we faced leading into the CV crisis, and the potential issues resulting from the crisis and the government’s actions:

- Corporate Debt: Corporate debt in the US hit $10T late last year, which is about half the size of the entire economy. Corporate debt levels have never been this high, and with both a likely domestic and global slowdown on the horizon, there is massive risk of defaults among some of the biggest companies on the planet. And companies don’t exist in a vacuum – default by some large companies in one segment of the economy can easily lead to a cascade of defaults across many industry and many companies. Would the government bail them all out? COULD the government bail them all out? How a domino effect of corporate defaults would play out is unknown, but it’s a huge risk to the entire economy.

- Supply Constraints: Most downturns/recessions are a result of “demand constraints” – in other words, consumers don’t have enough money to spend, which hurts business profits, which leads to layoffs, and the process snowballs. But, depending on how quickly our trading partners around the world recover from this CV shock, companies may find that they have a “supply constraint” as well – in other words, an inability to get the inventory, raw materials, equipment and other things needed to produce the products that keep our economy chugging along. This supply-side risk is something we’ve never really faced before, and could cause issues that we can’t even foresee at this point.

- Oil & Energy Production: If you haven’t been paying attention, there is a global battle brewing over oil between Russia and Saudi Arabia. Couple that will low demand for oil (due to everyone being locked down), and oil prices have plummeted to their lower levels in over 20 years (and then back to the 1970s). This hurts oil producers in the US, as well as other energy producers who need to compete with oil on price. US oil producers are already starting to collapse, and this could end up hurting the entire energy sector and put hundreds of thousands of people out of work.

- Trade War: Remember that pesky little trade war we were in just a few months ago? Well, it never ended. And once the virus is gone, and the animosity towards China (likely) grows, that trade war could be front and center again. There’s a reasonable chance we don’t hear much about it before the election, but if Trump gets re-elected, I imagine round two of the trade war will start up, and it could be a lot uglier than round one. China may have less to lose this time around, and may not tread as lightly as they did last year.

- Corporate Policy Changes: I haven’t seen the numbers yet, but I imagine that during this CV crisis, companies across the US have spent tens – maybe even hundreds – of millions of dollars upgrading their teleconferencing infrastructure to allow employees to work at home. This cost won’t be wasted, and it’s very likely that companies will use this lock-down as test of their ability to allow employees to work from home and to cut back on travel for the purpose of long-distance meetings. This could result in a significant decrease in corporate spending for things like office space, travel, hotel rooms, restaurants, etc. Which will have a ripple effect on the broader economy. Likewise with automation – many company have spent a lot of money the past month trying to figure out how to remove employees from their operating equations due to the virus. If they were successful, they’ll continue that effort, resulting in more automation and fewer employees moving forward.

LIQUIDITY & CURRENCY ISSUES/RISKS

Finally, there are a number of market liquidity and currency issues that could potentially result from the crisis and the government’s actions:

- Inflation: The Fed will likely pump many trillions of dollars into the economy over the next several months. While the short-term risk of inflation is probably pretty low, once the economy starts to get its footing again, the expanded money supply could lead to higher inflation than the Fed is targeting. Add any on-going supply-side constraints from our trading partners, and inflation could be a real issue.

- More Inflation: The other big inflationary risk is that there will be pressure on the US government and Americans to start to move away from China as a supplier. I could imagine a national call to start ramping up domestic manufacturing, especially for things like drugs that essential, but mostly produced overseas these days. The US can’t currently compete with China when it comes to manufacturing costs, so if this happens, we could see a wholesale rise in costs for many commodities and durable goods. This would take a major toll on lower-income families, and could exacerbate the wealth gap.

- Bank Liquidity: We’ve all been following the repo market liquidity issues for several months (see my older posts on this). But, that’s not where it stops. When the Fed announced its recent $1.5T in repo liquidity a couple weeks ago, a less touted part of that announcement was that banks reserves were dropped to zero. In other words, banks don’t need to keep ANY reserves on-hand these days. Couple that with the liquidity issues in the repo markets, the mortgage markets and who-knows-what-other-markets, and we could see a liquidity crisis that is worse that what we saw back in 2008.

- Weakening Dollar: If a couple of the things above start to happen and our economy goes south, it’s not hard to imagine a weakening dollar. Between the drop in interest rates, QE, stimulus, inflation, and slowing growth, a weakened dollar seems almost inevitable (especially compared to how strong it is now). Worst case, if other countries decide that they don’t necessarily want to finance our debt anymore or if there is movement towards another reserve currency, we could see a catastrophic economic event. Personally, I don’t think this is a short-term risk, but over the next 5 to 10 years, it could happen.

- Negative Interest Rates: I wrote a long post last year on the risks of negative interest rates, so I won’t rehash it here. But, long story short, if rates go negative, there is tremendous risk to banks, and potentially to many other parts of the economy. While it’s not clear all the risks that negative rates pose (we’re pretty much in uncharted territory here), I personally see this as high on the list of likely culprits messing with the economy over the next few years.

I’m sure if I spent a few more minutes thinking about it, I could probably come up with another half-dozen risks to add to the list, and many of you are probably thinking about things I didn’t mention. Again, I don’t if any of the things above will conspire to really mess up the economy, but of that list, it would only take one or two of those things to create a downward spiral that could kick off some unexpected events that bring things crumbling down.

The issues we face today are much different than back in 2008, but the Great Recession was a perfect example of what happens when one or two really big issues domino across all industries and sectors of the economy.
 

NewManRising

Silver Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
Oct 30, 2017
379
563
257
40
Medford, OR
But there's also this from the IGM Economic Experts Panel:

View attachment 31982

View attachment 31983

View attachment 31984


I tend not to trust experts a lot of the time. They're in the game to make money. Whenever some expert makes a proclamation, they're just trying to influence the market in some way.

I'm just cautious and take it with a grain of salt. Also, the opinions of the masses is useless because you have to remember they don't really know shit.

Best thing to do is trust yourself and use information to make good decisions.

It always amazes me how if in an article they claim a certain figure said something, everyone should follow.

Example: The other day they announced some Saudi prince bought like 384 million dollars worth of Canivial Cruise stock.

Now the stock is being pumped up. It's just a pump and dump. They announced this purchase not to tell everyone the Saudi believes in the company, but to get the masses to pump the price up. These whales are going to short these stocks. They always win. That's why they're rich.
 

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
China has also been buying a lot of gold in the preceding decade. While they do report some number of what they have - that number likely isn't the true amount they have. It's possible that they have more than enough gold to cover for that nominal debt:GDP ratio.

Jesus dude China’s debt is 40 trillion. All the gold in the world is like 8 trillion. Fact checked
 

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
- Trade War: Remember that pesky little trade war we were in just a few months ago? Well, it never ended. And once the virus is gone, and the animosity towards China (likely) grows, that trade war could be front and center again. There’s a reasonable chance we don’t hear much about it before the election, but if Trump gets re-elected, I imagine round two of the trade war will start up, and it could be a lot uglier than round one. China may have less to lose this time around, and may not tread as lightly as they did last year.

And...do what? China can’t do anything.

We are the customer. They don’t have the domestic comsumption, Europe won’t be in the best position so their alternatives are pretty slim. They have to bend the knee. They have nothing they can retaliate on, merely the fact there’s a trade deficit indicates they have way more to loose than us.
 

Silverfox148

Bronze Contributor
Read Millionaire Fastlane
Speedway Pass
Apr 17, 2017
96
283
161
Excellent Analysis, Jscott

Very impressive, I view this CV event as a catalyst/spark that starts a wider collapse of dominoes that will eventually lead to the U.S losing it's sole superpower status. The main danger to losing the status is that the reserve currency status would likely go at some point not far after that.

I haven't read the Dalio piece but I'm sure it will resonate with me. I see the below factors he pointed as key drivers for the U.S losing it's reserve currency/superpower status: LeaderShip Capabilities, Education Levels, Character/Determination, Rule of Law, Corruption.

There is a lot of "soft corruption" in the U.S at the moment, yeah it's not illegal per se but it's still corruption especially among the political and corporate classes. The senator who was cv insider trading is a perfect example, she thinks it's not wrong because it's not illegal and within guidelines, It's rare to meet people with true character these days, the lack of character leads to a lack of honest leadership at any level, this is a function of lack of character/termination, this seeps into increasing corruption and eventually a weakening of the rule of the law. During this current crisis we see government at all levels overstepping its authority both legally and morally.

When your leadership class has no true character\morals you are in for a rough ride, some may scoff but history shows this to be true over and over again through thousands of years of recorded human history. This lack of character is present in both right and left sides of the political world. Yes if you are dedicated and intelligent you can climb into the top 20% of any nation, that is true. However, when that is the case when only the top 20% can be well off, that is not a superpower nation nor a reserve currency holding nation, it doesn't work that way.

It's odd I was reading Robinson Crusoe recently and in the book he talked about how on the African continent , tribes would trade slaves to the whites for mere trinkets such as mirrors/beads/etc.
The U.S is in that same state and moment, except it's not mirrors/beads but iphones/entertainment/etc.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
And...do what? China can’t do anything.

We are the customer. They don’t have the domestic comsumption, Europe won’t be in the best position so their alternatives are pretty slim. They have to bend the knee. They have nothing they can retaliate on, merely the fact there’s a trade deficit indicates they have way more to loose than us.

I'd have this conversation with you, but now that I know you're willing to change old posts and lie about it to further your arguments, I'm no longer willing to enter into a debate with you. You have no integrity and your reputation is trash. I don't debate with people like that.

You are forever FAKE NEWS to me...

Bye bye!
 

Don't like ads? Remove them while supporting the forum. Subscribe.

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
I'd have this conversation with you, but now that I know you're willing to change old posts and lie about it to further your arguments, I'm no longer willing to enter into a debate with you. You have no integrity and your reputation is trash. I don't debate with people like that.

You are forever FAKE NEWS to me...

Bye bye!
I already know what you’d say anyway. I’m pretty sure something about currency which is pretty esoteric And speculative.

So I’ll just lay out the facts.

  1. China debt to GDP ratio is about 3 times higher than US.
  2. China growth is slowing down.
  3. China population is shrinking
  4. China’s GDP is greater than 45% exports, of which a huge portion is going to US. Meaning if trade slows down, out put could fall 45%. The rest of Chinas GDP has been building ghost cities lol.
  5. Companies are already moving out of China because successful tariffs, and also the virus.
  6. US is not dependent on China in anyway, and people leaving china is proving that.
  7. US is the least dependent developed trade nation in the world right now.
Even Ray Dalio’s own criteria signals that China is in decline (high debt, demographics etc). He doesn’t do it because he has strong relationships in China going back decades. He’s a china shill.

People like Jim Chanos, Peter Thiel, Kyle Bass call China correctly.
 
Last edited:

lewj24

Gold Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 12, 2016
454
1,565
478
25
St. Louis, MO
The best asset to be in is gold. The best inflation hedge. We are walking up the inflation steps getting ready to knock on hyperinflation's door. Will the Fed stop before we get invited in?
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
So I’ll just lay out the facts.
  1. China debt to GDP ratio is about 3 times higher than US.

You should stick to pretending to be a virus expert (or better yet, a candle maker). The stuff you write about the economy is simply laughable.

How about I address the first "fact" you made up:

China's debt to GDP ratio is about 47% as of 2017 (if you do the 2019 calculations, it's closer to 40%):


The United States debt to GDP ratio is over 100% as of 2019:


So, China is about half of the US when it comes to debt to GDP.

I stopped reading after your first point, but probably safe to say that the rest of what you wrote is FAKE NEWS as well.

You make things up. You lie. You slander others. You're just a joke on this site now.

This is why people have started calling you MR. FAKE NEWS.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
The best asset to be in is gold. The best inflation hedge. We are walking up the inflation steps getting ready to knock on hyperinflation's door. Will the Fed stop before we get invited in?

In my opinion, the best inflation hedge is leverage.

Physical assets will hedge inflation. Leverage will beat it.
 

lewj24

Gold Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 12, 2016
454
1,565
478
25
St. Louis, MO
In my opinion, the best inflation hedge is leverage.

Physical assets will hedge inflation. Leverage will beat it.

Leverage to buy gold lol. Yes debt will go away in inflation as long as you have an asset that will go up in comparison. Stocks and bonds don't do well in inflation.
 

Rivoli

Silver Contributor
FASTLANE INSIDER
Speedway Pass
Jun 4, 2018
512
827
313
Orange County, California
You should stick to pretending to be a virus expert (or better yet, a candle maker). The stuff you write about the economy is simply laughable.

How about I address the first "fact" you made up:

China's debt to GDP ratio is about 47% as of 2017 (if you do the 2019 calculations, it's closer to 40%):

Do you know what the Chinese shadow banking industry is? You’re source is actually BS. Per IFF its 300%

Here’s a ton of sources including from the Federal Reserve showing you’re 100% wrong bud.








LOL hows that for facts?

I got one juicy bite from the federal reserve just in case you stick your head in the sand and hide from the truth.

  • China’s debt-to-GDP has increased by nearly 150 percentage points since the Global Financial Crisis, accompanied by a $30 trillion increase in the banking sector. While other countries have experienced large increases in debt-to-GDP before, the size and scale of China’s economy makes the growth alarming.

Now let me hear, are you wrong about China’s debt to GDP ratio?

Sounds like I know more about economics of China than you!
 
Last edited:

lewj24

Gold Contributor
Read Millionaire Fastlane
I've Read UNSCRIPTED
Speedway Pass
May 12, 2016
454
1,565
478
25
St. Louis, MO
Cash flowing real estate.

I agree with you. I just don't think real estate is going to have a higher return than gold because real estate prices are still very high. I do like that low fixed interest rate though. If you could refinance to buy gold that would be a 2 punch KO when inflation comes swinging imo.
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
Speedway Pass
Aug 24, 2007
4,570
10,025
2,451
LOL!!!!!!!!!! Sounds like I know more about economics of China than you!

There were so many things in what you posted that were wrong, I'm not even going to start peeling that onion and arguing with you. Even if I could teach you economics over a few forum posts, you're not interested in learning.

It's quite clear that you simply Google terms, then cut and paste without even reading or understanding the things you're posting.

Well, I do understand this stuff. And you're wrong.

Again, that's why people CALL YOU MR. FAKE NEWS on this forum.
 

Sponsored Offers

  • Sticky
MARKETPLACE Fox Web School "Legend" Group Coaching Program 2020
I'm on the fence with joining. I've been job searching for about 2 months and I can't get hired...
  • Sticky
MARKETPLACE Lex DeVille's - Advanced Freelance Udemy Courses!
If you read the last message then you know I'm removing my courses from Udemy next month. You...
  • Sticky
MARKETPLACE Grow Your Business With a Book (An Unorthodox Marketing Strategy That Built One of the Largest...
PS. what do you think about the idea of setting up live Busking experiences on Air BNB? I could...
  • Sticky
FEATURED! Introducing... WEALTH EXPO$ED, A Short Story By MJ DeMarco
Hi Mj, I just bought it. And reading it. I think is a great idea to write using the stories to...
  • Sticky
MARKETPLACE You Are One Call Away From Living Your Dream Life - LightHouse’s Accountability Program ⚡
Just got off the phone with @LightHouse. Having just a 45 minute conversation with him has...
  • Sticky
MARKETPLACE Kill Bigger Incubator
@Kak Thanks for the reply. Whats interesting is that I have an idea that's been cooking which...



Forum Sponsor

sponsor

New Topics

Fastlane Insiders

View the forum AD FREE.
Private, unindexed content
Detailed process/execution threads
Monthly conference calls with doers
Ideas needing execution, more!

Join Fastlane Insiders.

Top Bottom