Bridges, like most things humans make, are built to withstand much more stress than what they will endure on a day to day basis. Time wears down the steel, concrete, and components slowly. Accidents can damage to them. Extreme levels of wind and water can create higher levels of stress than usual. Still, by and large, bridges just stand there, most of us use one of more of them daily, but we never think of them. Bridges just stand there and do their job. Until they don't. Sometimes it's a visible event, a massive flood, high winds, or maybe a landslide nearby, that leads to a collapse. Other times, they look fine, but years of wear finally hit a breaking point, and they just collapse, unexpextedly. Everything I see in the economy points to a "bridge-style collapse" at some point this year, in 2023. Things look normal, and then some unseen event pushes it to the breaking point.
As I wrote in the last post, 2022 was a pretty easy year to make economic predictions for, there were big moves (inflation, interest rates, stock market, crypto, real estate) getting ready to happen. I could see the pressure building for these, as did several other people. Then they happened. Inflation was going up. After basically ignoring it for months, the Federal Reserve (aka The Fed) raised interest rates to slow down the economy, and eventually help lower inflation (that they caused by creating too much money in 2020-2021). The Fed also stopped buying "assets," which decreases the total money supply, which also helps slow down the economy. Stocks and crypto went down dramatically last summer and fall, and real estate topped out, and began its descent to slowing sales and lower prices in places. Investors didn't know where to put money, it seemed everything was losing ground. For a bunch of reasons I won't get into, we are now in a financial Never Never Land, unlike most any time in memory.
Now we are in the barrage of the ripple effects of the fastest interest rate increases in U.S. history. The thing about these kinds of actions, like The Fed raising interest rates, generally, they take 12-18 months to really show up in the everyday economy, and the economic data. The Fed dramatically increased the money supply, creating $5-$6 trillion out of thin air in 2020 and 2021. That money went to major banks first, then bailouts of the banking system, major corporations, cities and towns, and eventually us everyday people, through stimulus checks and PUA, PPP, and similar programs. We all got high on The Fed's supply... of free money.
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Then in March 2021, close to a year after the first wave of newly created money, inflation began to go up. That new money spread through the economy, and began to drive prices up. Increasing the money supply devalues every dollar (or euro, yen, kronor, yuan, etc.), making them worth less buying power. Eventually prices rise to compensate for the lower buying power of each dollar. But it happens in different places, bit by bit, unevenly, not all at once. So while stocks, crypto, and real estate values have gone down quite a bit, rebounding somewhat, overall, inflation is still high. It's officially over 6% per year. Unofficially, it's probably still around10% per year, overall.
The Fed started raising interest rates in March of 2022, to fight inflation. That began to affect new home loans very quickly. But most other effects happen under the radar, slowly. We should see the first big effects of the interest rate increases in May-June-July of 2023, about a year after the first large interest rate hikes. Those effects will keep getting stronger as the year goes on, as people, businesses, and local and state governments, start paying much higher interest rates, as they roll over, or refinance their debt. The big problem is, there is more debt than everat all levels... in human history. Paying back debt, all kinds, has been getting more expensive, for everyone, for almost a year. Interest rates are still being raised by The Fed, as of their last meeting. So lots of payments, at all levels, are being missed now, everyone's personal, business, and government debt is getting harder and harder to pay. The pressure is building, minute by minute, day by day, like the pressure on those bridges in the video above.
Something, somewhere in the system, will reach the breaking point, and that collapse, of some major corporation, some non-bank lender (mortgage or auto loan companies), a foreign bank (Credit Suisse and Deutsche Bank are being watched closely by many investors), the junk bond market, or perhaps a small country, will not be able to pay its debt. Something big will go bankrupt. That collapse will seem to come out of nowhere, it will be in something we don't expect, and it will spread quickly. At this point, there's far too much debt to be paid back in tough times, and now too much pressure, for a collapse not to happen. Something big, economically, will break this year. Then we won't be wondering "are we in a recession?" It will be obvious.
When that happens, we will see big drops in stocks, crypto, and lower quality bonds, very quickly. Gold and treasury bonds will be where major investors head for safety, for a while, during the turmoil. Central banks and smart investors have been buying up a lot of gold in the last few years. When there's a big enough collapse, The Fed will have to pivot, and begin to lower interest rates again. That's what they usually do when we are heading into a recession. Raising rates into a likely recession, like they've doing for almost a year, is very unusual, and part of why we're in a Financial Never Never Land, unlike previous downturns.
The Fed has said several times in recent months that it plans to keep interest rates high, and not lower them at all, in 2023. If there's one thing we can count on these days, it's The Fed changing its mind.
I believe they will pivot, and begin to lower interest rates, in 2023. If it's a really extreme crisis that makes this necessary, they will soon begin to create more new money, to bailout the banking system and corporate America. Since we have a Decomcratic White House, and a Republican House and Senate, they probably won't pass major stimulus money for us regular people. They'll throw money at Banks and Big Business, but don't expect stimulus checks this time around. They'll argue about it, but it won't happen, most likely.
Then the real, gnarly part of this recession hits us, and it hits hard. There tens of thousands of more layoffs, more small, medium, and large business bankruptcies, and some major troubles for many countries (already struggling in many cases, because of a strong dollar), and local and state governments across the U.S., particularly in rural, small town, and small city America. It will probably be something like the Lehman Brothers collapse in 2008, but worse, overall, in the beginnings.
So everything, investment-wise, should tank, right? Not necessarily. The stock markets are looking for any reason to rise, yearning for another late 2020/2021 boom to happen again. I think we will see a big stock drop, in mid to late 2023. But the S&P 500 and the Nasdaq may not go lower than last years lows. The Dow might drop lower than the 2022, but it's a tough call. Because the coming bailout will mean more money in the financial system, and lowering interest rates. Stocks will drop, but they will want to rise back up very quickly afterwards, because the bailouts will mean more new money into the economy. This will push inflation to begin rising again, before long. Then we will have a crazy recession, and a rising stock market, like after March 2009. Except, there will be much more new oney being created, and inflation already, so stocks will go up much faster than in 2009. It will be choppy, but when The Fed begins creating new money, stocks will start climbing, overall. This could be late 2023, or early 2024.
I think crypto has seen its bottoms, in late 2022, the major cryptos, anyhow, like Bitcoin, Ethereum, and the top 10 or so most popular coins. Unlike the stock market, crypto is a major new technology realm, and it is innovating, and has incredbile organic growth potential, while most large, major corporations are now either low growth, or full on "zombie corporations" at this point. I think the big gains in the next 2-5 years will be in the blockchain/crypto/Web 3/DeFi/NFT world. We're heading into recession right now, but crypto and NFT's are innovating, and trending up again. This current trend will stall, but there will be a solid rebound after the big crash.
Normally, in a major recession/depression, people flock to gold and silver. Gold has kept its value over pretty damn steady for over 5,000 years. It's said that an ounce of gold would buy a top quality men's suit of clothes in ancient Rome, and in 1800 or 1900, and that's true today. But the ancient world, or even in the 1930's Great Depression, didn't have Millennials and Gen Z digital natives, and we didn't have crypto and MMORP games and multiple emerging metaverses.
Here's what the economists, policy makers, and big players in today's economy don't see. Digital assets DO HAVE INTRINSIC V ALUEto people under about 30-35 years old. Millennials and Gen Z adults and teens won't buy a bunch of gold when the recession hits, they'll be betting on crypto, mem stocks, NFT's and online gaming, and cool metaverses. Like I said in the last post, we are heading into the Information Age people, these technolgies are today, in 2023, what the internet was in 2001.
Today's younger adults grew up playing video games, often huge, online multi-player ones. Building on The Sims, games like World of Warcraft, and Grand Theft Auto, and Minecraft and Roblox, and Fortnite, are the first metaverses. Younger people, now up into their 30's and even 40's, are used to wandering those cyber universes, buying skins, in game weapons, and attributes. So even in the depths of the recession, I think there will be some growth in the blackchain/crypto space, online gaming, and the emerging metaverses, like Sandbox, Decentraland, Minecraft, and Yuga Labs Otherside. Mark Zuckerberg/Meta's metaverse looks like a fucking cyber shopping malls, and shooping malls have been dying in the real world for 20 years. I wouldn't bet on that one, personally. My point here, the Millennials are the largest U.S. generation ever, they're in their high earning years of life, tech savvy, and 72 million strong, edging out the Boomers by 2 1/2 million people, or so. The Millennials, Gen Z, today's smartphone, social media tech, and blockchain/crypto will make this recession much different than previous ones, including the Great Recession of 2007-2009.
Yeah, the governments want to outlaw crypto. They won't be able to, it's already a major part of society, worldwide. When The Fed puts new money into the system, a lot will find its way into crypto, because that's where the huge returns will soon be. There will be lots of losers in crypto, like all other investments, those who ape in and don't do their due diligence. But there will be huge wins as well.
Another thing the older generations haven't figured out about Millennials and Gen Z. They grew up in a world where working traditional jobs for 40 years isn't even a thing, and jobs under $80-$100K a year don't make you a good living. If you're not in tech, making at least $100K+ a year, you're struggling, if not actually poor. These 72 million+ young people are gamblers, the rise in Gamestop, AMC, and other meme stocks in 2020, 2021, showed us that. Lots of young stock and crypto "traders" (gamblers) made a year's income at their old job, in a month or two, from stocks or crypto, in 2021. They remember that. As the economy goes down, millions and millions of people under about 35 will go looking for big scores, like in 2020 and 2021.
If The Fed begins to create new money again, those opportunities will come back. Fed money creation is THE THING that leads to stock market increases (like October 2019- Repo Market "liquidity" led to stocks rising, then the stimulus money later in 2020-2021).
This will be a recession like no other. Real estate will be tanking, new cars and higher value used cars will still be out of price range, because that whole industry got fucked by easy credit and people buying cars they knew they couldn't afford. But the big collapse will lead to a Fed bailout, which will lead to rising stocks (The top Ten of Tech should lead the way), and soaring crypto, soon after stocks take off. NFT's are already rebounding, and it will lead to millions of low wage jobs STILL not being filled. There are millions of jobs in the U.S. that are simply not worth working anymore, even in a recession, because the compensation just won't pay rent and bills. In the 2020 shutdowns, millions of people learned alternative ways to make money. They haven't forgot those, even if they are harder during a big recession.
So... in review. There's a big crash, a "bridge collapse" moment coming. Late Spring to mid Fall 2023, is the most likely timing, in my opinion. There will be a big crash, stocks and crypto will drop. Real estate continue to drop more, and keep dropping. This is starting in the West, Florida, and some Southern cities. Other parts of the country will see smaller drops, or a long period of stagnation.
Then comes the banking and corporate bailout, and lowering interest rates and new money being created by year end, 2023. Stocks will probably be near where they are now by year end, after a big drop, but it's tough to make a solid call. Gold will rise, but I don't think it will spike like in 1980 and 2011. I could see $2,000 or $2,100 an ounce gold, and maybe $35-$40 an ounce silver. But not $3,000 gold and $100 silver. Soon after the crash (2-4 months) stocks begin to seriously rally, after the crash, and then crypto will really take off. Old School investors will dive into Treasury bonds, like Titanic passengers into lifeboats. So bond prices go up, driving yeilds down, early in the crash. All of this will be going on around the later months of 2023, or into early 2024. That's the best call I can make. It'll be nuts, but a different kind of nuts than 2020, 2021, and 2022.
OK, no hard numbers this year, there are too many effects of last years big moves rippling back and forth around the economy. But these thoughts are my best educated guess as to how the economic world will play out for the rest of 2023, and into early 2024. We'll see what happens. Thanks for reading.
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