What Happened To The Recession?

I’ll be honest. I’m early, probably very early. Is that a negative? Does that add an asterisk to what I say?

What I say has always been my interpretation of the data and the observations I see in the marketplace. Hard data in certain assets, businesses, and markets show struggle and loss in equity and profits, but the fact remains: No one can predict exactly what's going to happen.

However, I can tell you some reasons why the recession hasn't happened yet and why I still think it's going to happen.

I still believe that we are at the tail ends of a euphoric, exuberant marketplace. Much of it has been provoked by the COVID-19 pandemic, but it goes back further to the 2008 Great Financial Recession when the Federal Reserve started pumping in all the fiat currency to get us out of these financial messes.

The COVID-19 pandemic happened four years ago this spring, and since then the Federal Reserve has cranked out unprecedented amounts of dollars. Nine trillion dollars in just the last four years have been used to pump up the economy.

But what happens when you increase the fiat monetary system by that much?

Devaluing the Dollar Bears Consequences Beyond a Recession

The immediate consequence of printing more dollars into the economy is the value of the dollar decreases. This is what is defined as inflation. In 2020, due to the unprecedented amount of fiat currency being pumped into the monetary system, inflation reared its ugly head for the first time in 40 years.

The Federal Reserve's job is to maintain price stability, so their response to the exorbitant increase in inflation is to raise interest rates. Their aim was to correct the exuberance and the excesses in the marketplace.

This would normally cause some level of correction or recession; however, raising the interest rates has a counter effect. The government does not want a recession and is attempting to counter the effect of interest rates through fiscal deficit spending. The government is spending way more than it takes in revenue tax. 

In 2023, the deficit overage spending by Congress and the administration was two trillion dollars. In one year the government spent two trillion dollars above the revenues taken in by taxpayer money.

Our national sovereign debt just turned the corner on 34 trillion dollars in the first week of January. If this trend continues we will have nearly 60 trillion dollars in national debt by 2030. That is only 6 years from now.

Eventually, we will hit a wall. I can’t tell you what will be the last straw, but the dollar has been the world reserve currency since 1945 in the Bretton Woods agreement. The status of the dollar is becoming more acutely at risk with every dollar that’s printed.

The U.S. currently has the luxury of holding the reserve currency, giving our irresponsible politicians and administrations on both sides of the aisle the illusion that they can spend money like drunken sailors without repercussions.

Other countries can't do this. When they do, they head downhill faster (Look at French, German, and Zimbabwean history, to name a few). The U.S. has only maintained a high standard of living because we have spat out these dollars in mass proportions that other countries have been willing to take, so far.

In reality, the U.S. is only the best of the worst. We used to be a creditor nation in the 1940s, 50s and 60s. I believe we turned the corner when Nixon detached us from the gold standard. We have been a fiat currency ever since and have become increasingly a debtor nation.

Eventually, all empires fall. If we don't turn something around quickly, the U.S. will go down in history as one of the greatest empires to ever fall. 

How to Win at a Fool’s Game

The ever-increasing height of the market, the continued spiking in all-time highs, and the consensus thinking of going to the moon with the market… It is all a fool's game. No market can continue in perpetual growth forever. But the higher we go, the more dangerous the fall.

So, the way to win the game is not to play it. How do I do that? I take higher ground. I look for places to store my capital that are safer such as debt lending. This is loaning my money to the government (T-Bills) or to real estate operators who know how to manage an asset to sustainable profitability long-term.

What I don’t do is play the fool’s game. Everyone wants to chase yields ever higher. This is occurring in a frenzy in the institutional marketplace and with many retail investors.

I've seen it happen over and over again right before the market corrects and goes down as much as 40-50%. This always happens throughout history, but we have short-term memories. Even those who went through the 2008 downturn, the 2000 dot com crash, or the 1990 recession seem to get lost in the frenzy and fail to see the calamity that follows.

All of these corrections have the same effect on the way people think. What once was a speedy pursuit for more is replaced with a sobering clarity. They chased their returns off a cliff.

Most get caught up in the marketplace and don't know how to shift their assets to produce cash flow in a time of stalled growth. They only know how to play one game: Taking stocks and equities as high as they can go.

Alternatives to Stocks and Equities

There are other places to go in the alternative space where you can hedge against recessionary times. This includes energy, private credit or lending money, and precious metals to name a few.

You don’t have to play the equity game. Right now, equity is a dangerous place to be. I don't want to be in the real estate equity market right now. When we go into a correction, equities –  financial equities, stocks, and real estate equities – will all go down in value. I do not want to be in that mix.

I want to be in assets with more sustainable, predictable income. I’m calling this decade the “Show Me The Money” decade. Growth is great when there is growth potential, but we have sucked all the growth out in recent years. All the massive debt that we’ve created and all the leverage used have taken future income and future growth and brought them to the present.

We’ve used it all up, and now that ship has sailed. It will take some time for us to get back to some level of stability where we see growth occur again.

Until that time, I am making some shifts in my investment model towards assets that produce cash flow/recurring income. You can do this as well. It’s time to learn and educate yourself on different options and ways of investing.

A New Era of Investing

This is a time to be more prescient about where you are and what’s available to you. Take stock of the capital you have and the amount you spend and save. It’s time to run lean in your business and your personal life. 

Invest in education towards the right assets and the right people who will advise you on profitable investments. Learn sound financial concepts and build a network of experts around you that will help you steward your capital.

Avoid getting caught up with what everybody else is doing and what everybody else is saying. Do not let FOMO infect you like it infects everybody else.

It’s Time to Be a Contrarian

It’s time to search for different pathways. Other ways of doing things because what’s worked before can no longer be relied upon to work in the future.

You have to find people who are doing things differently. Search for other models that account for the changes in the economy. Resist what everybody else is telling you to do. Resist the allure of high returns and quick profit.

It’s time to focus on the long game. I’m not a speculator or a trader. I want to minimize risk as much as possible, and speculating and trading carry much risk.

I want to protect my family. I don’t want to get crushed by the market correction that typically occurs every six to eight years. The correction of this market cycle has been delayed, but it will eventually run its course. 

When the correction occurs, many will be desperate and caught by surprise. Don’t let that happen to you, especially if you’re attempting to transition out of active income and into retirement. If you’re younger you have time to make up for it, but you still don't want to lose that time or money.

Focus on what you can control and what you can predict. Find people who have been through multiple market cycles and learn from them.

I place particular emphasis on learning from people who are patient, have experience in investing successfully during corrections, and don’t simply want you to do exactly as they do. 

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