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Thursday, November 9, 2023
Recession 2023 is here...
Here's macro economic analyst Danielle DiMartino Booth a few days ago. She's on a Blockworks Macro podcast, calling the beginning of what has been the most anticipated, and then forgotten, recession in history. Why? Among all the other economic indicators, the U.S. unemployment rate ticked up to 3.9%, which is half a percent higher than the April 2023 low of 3.4%. In addition, Jeff Snider, a super smart guy, whose YouTube channel focuses on educating people about the Eurodollar system, also called the beginning of the recession last Friday. So there are two very smart macro economic people who both said the recession has begun, on the same day.
To the bond market, which is many times larger than the stock market, and where the Big Money invests hundreds of billions of dollars every year, this news signaled that The Fed is finally DONE hiking interest rates. When this news hit, the key 10 year U.S. treasury bond started selling like hallucinogenic mushrooms at a Grateful Dead concert. The big money players, like hedge funds, major investment funds, pension plans, insurance companies, and the like, now are as sure as possible that The Fed won't be raising interest rates anymore, which made it a good time to stock up on longer term U.S. bonds. When bonds sell a lot, this drives their interest rates they pay down, and the 10 year T-bond went from topping 5% interest down to around 4.5% interest, in a couple of days. That doesn't sound like much, but it's a huge move.
All that jargon means that the world's biggest investors think that interest rates won't go up significantly from anytime soon, and that's interest rates will move down next year. That's the good news. The bad news is, The Fed will pause interest rates, keeping them where they are now, for a while. During that pause, all hell's going to break loose in the economy and the financial markets, and we will plunge deeper into a recession. Nearly all major economic indicators have been pointing towards a recession for over a year now, most getting worse, then a little better, then worse in again September and October.
What does this mean for everyday working people? There will be a lot more layoffs coming, across many different job categories, so be a better employee that your co-workers. Banks have been tightening credit since the bank failures in March, so it will be nearly impossible for many people (and small businesses) to get loans or new credit, and it will cost more interest for people with really good credit who can get loans. The overall money supply, the total amount of U.S. dollars that exist as bills or digitally, has been declining, which hasn't happened in the U.S. since the Great Depression of the 1930's.
Because people (and businesses and governments) have so much more debt now than in the 2008 recession, a lot of people won't be able to make all of their payments. So there will be a lot of people selling all kinds of items, to raise cash to pay bills, from clothes, appliances, and Star Wars collectibles, to cars and houses. Many of these will be people who got laid off, or in households where someone got laid off. Debt becomes a huge anchor, dragging people and businesses down, when one or more sources of income get cut off. There are several economic signals that consumers, by and large, are about tapped out now.
When consumers stop spending as much money (including loan money, which is now much harder to get), then businesses make less money. When businesses make less money, they cut back on costs, and need fewer employees. When consumers and businesses both cut back on spending, then cities, counties, states, and the federal government make less tax money, so those different levels of government have to cut back. The federal government can try and get The Fed to print more money, usually. But if they do that now, it will make inflation start heading back up before too long. That's the last thing federal officials or The Fed want now. So they're stuck letting recession play out.
This means more individuals and businesses will go bankrupt, which is already happening. The entire banking system has been propped up since March, when the first three banks failed, with the BTFP program, and by The Fed's own stats, over 700 U.S. banks are on the verge of bankruptcy themselves. Now, your accounts are insured by the FDIC, up to $250,000, so if your bank has issues, it will probably be bought or merged with another bank, and then that will become your new bank. But when things get sketchy enough, The Fed will do a bigger bailout of the whole banking system, and probably several major businesses again, like in 2020-2021 (and 2008-2009). They always do. But with the current Congress, there's no chance of major stimulus programs for everyday working people, and probably not for small businesses, until at least spring of 2025, and that's only if we wind up with a mostly Democratic Congress and White House. Republicans, as a rule, don't back stimulus programs for individuals. Early 2025 is a long ways away.
We're going into a gnarly recession, that's reality now. The stock market is still snorting Hopium, pretending everything's OK, but that won't last much longer, and reality will hit the stock market as well, before long. As a normal person, the recession basics are to pay off any debt that you can pay off, particularly high interest credit cards. You want to keep your job stable, and cut back on every day expenses, where it makes sense. That's Recession 101. Those of you who remember 2008, 2000, and the early 1990's know that. The rest of you will learn as time goes on. I quit a job in 1990, at age 24, when that recession began, and bought food with credit cards for a couple of months. I learned real quick how stupid that is, and carried that debt for quite a while. I soon learned how to live real cheap, even to the point of living in a house with 7 to 11 roommates at times. It's hard to beat $100 rent in a recession.
There's a whole lot more going on in the Big Picture with this recession, which I've been writing about for 4 years or so now. Check this blog post from March 2019, "Our economy is powered by unicorn farts." That was written nearly a year before the pandemic hit U.S. shores. I'll be writing some more about the Big Picture aspects of this recession as times goes on. For now, the news is, the real world data suggests that the long awaited recession is here. The much anticipated and then dissed Recession of 2023 has begun.
This is the Google Trends search history chart for "Give back car," from January 1, 2004 until this week. For comparison, the Great Recession/Global Financial Crisis of 2007-2009 is near the left side of the chart. Millions of people have bought cars they can't afford since the "Stimulus Baller" days of late 2020-2021. The car repo market has been going gangbusters this year, according to car industry guy Lucky Lopez, on his YouTube Channel. (11/9/2023)
Here's the Google Trends search history chart for "Give back house," also from January 1, 2004 until this week. Millennials and a few high earning Gen Z people are learning the hard way that buying a house with a 3%, thirty year fixed mortgage, isn't necessarily a good thing, if you bought at the peak prices of a 13 year housing market during the crazy FOMO phase. Can you say, "2024 foreclosures?" I thought you could. (11/9/2023).
Future trends and economic cycles are something I've been learning about and fascinated by since the late 1980's. I've linked many of the sources of info above, and will link three really good economic outlook podcasts below. I've been studying these trends for 30+ years now. I have a much better idea what's coming in the next few years most people, just because I've been into this stuff for so long. I've had trouble earning a decent living after taxi driving died, so steady income is my issue these days. But, I know where to look for opportunities as this chaos plays out. Time will tell if I'm able to take advantage of very many of those opportunities.
Here are my three favorite macro economic analysts, each in recent, long podcasts, going into a high level of detail about the current state of the economy in late 2023.
I've begun writing on a new format called Substack, and I've written about a whole bunch of topics over the first 30 posts. Substack is more focused on writing, and you can subscribe (for free) to have my posts come straight to your email. After trying out the platform for a couple of months now, I've decided to focus mostly on creativity, writing, art, and creative scenes from now on. If that sounds interesting to you, check it out.
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