I’ve missed a few predictions along the way, but usually only in part. When I missed, it was because I took the bad too far. The bad has almost always happened exactly when I said it would but hasn’t always been as bad as I said it would be. Now, it has all arrived and is turning out to be fully as bad as I said it would be.
It took the kick of a virus to set everything in place, but all the parts are now falling where I said they would once the next recession began.
I’ve overestimated how dark times would get because I was anticipating the collapse of the Fed’s huge distortions in the economy — the Everything Bubble. However, the Fed reversed course or stopped doing what it said it would do each time the Everything Bubble started to fold in on itself. The Fed, too, saw calamity on the horizon from its own missteps, but only after economic collapse started to emerge from the shadows of future time into the present.
Now the Fed can’t even stop the catastrophe it helped set up.
In 2015, for example, I wrote,
The market did break back in 2015 when I said it would, but it fell only 10%. It was, however, much more than a mere correction because it did not recover for a very long time. After a long period of rising, the market took to big plunges and did not recovery until the Trump Rally accomplished what few were expecting (including me):
Generally bad, and far different than the market had been for years, but not the “Epocalypse” I had predicted. Maybe my swing at that one was less than a strike and more of a foul with a chance to take another swing now that the Trump Rally is toast because it was a pretty significant break.
The Trump Rally, due to its massive tax cuts that fueled huge stock buybacks (as well as the early hope that those were coming), pulled us out of the malaise we entered in late 2014 and that we sunk deeper into in late 2015 and again in 2016.
The rally was fueled on supercharged national debt, yet it still didn’t get us above about 2% GDP growth on a sustained basis. While it looked great for stocks, it looked mediocre for the economy and gradually got worse. The resumption of the Trump Rally after the market broke in to a full-on bear market this year, required a rapid startup of even greater debt issuance by the government and the Fed on a scale we’ve never seen.
Constant new debt issuance in massive doses will be required to sustain the new rally because the economy has been moving in the opposite direction at a great rate of collapse and, so, the economy is far from sustaining rebounding stock valuations or payments on the debt.
What we are witnessing is entirely debt-funded market growth. Without a lot of longterm economic growth, the rally is far from sustainable without constant debt financing, and the debt is rising much faster than the market’s total valuation. With tax revenues falling further and further from supporting the debt, which is growing to replace the lost revenues, it’s a train wreck.
While it’s possible all this new debt pumped into stock prices will push the market up higher than it was before for awhile, it is not what I am betting on as most likely because I think the Fed is deep into diminishing returns. At the same time, I think there is no hope the Fed brings the economy fully back to the paltry 2% growth we were enjoying under the former rally (the economy and the stock market being different things). I think the greater likelihood is that the Fed loses control of everything because the negative side-effects of its interventions outweigh the good.
With that in mind, I’m going review my past predictions of the Epocalypse, by which I meant an epic and epochal and apocalyptic economic collapse (all of those words and sounds being found in that one word and all befitting what I believe is coming upon us). Let’s see how close that vision of the “next” recession looked to the actual recession that is now forming.
Back then I said,
We saw that breakdown begin, just as I said it would, when the Fed started raising interest rates and rewinding its quantitative easing. Now, I’ll go further and say the illusion of recovery at this point will begin to break up even as the Fed returns to life support in more frequent doses and in greater amounts and in a wider array of ways than ever before as it adds new forms it has never tried.
Here’s why I said the Epocalypse is certain
That is the crux of my whole view right there: We did nothing to right the problems that caused the last recession. We actually made them worse in order to avoid the pain of correction– banks too big to fail, mountains of debt that demand extreme low interest just too remain serviceable, stagnant real incomes to support that debt, houses priced back up to levels that cannot be exceeded in the face of stagnant incomes without deep erosion of lending standards, stock valuations built on expanding debt and not on improving business fundamentals, tricky corporate bookkeeping instead of GAAP reporting, greedy crooked people who never paid for what they brought upon the world from 2007-2009 so they continued doing it (moral hazard), deregulation that let greed prevail, including particularly the allowance of banks to participate in purchasing stocks through the repeal of Glass-Steagall, central-planning of the economy by the Federal Reserve, which focused all its rescue efforts on widening the wealth gap between the rich and the rest.
As Carl Icahn noted back then,
And real earnings didn’t improve in the four-and-half years since then either.
We kept all of that in place or made it worse, but we kept the economy and the stock market going with the Fed’s artificial life support. Therefore, once FedMed fails to keep propping us up, all the fluff that was built on top of its artificial support starts to give way because we spent the time they bought us increasing the number of economic fault lines beneath the economy. The destruction from all of that has enormous potential.
Of course, the Fed will amplify its recovery efforts to do “whatever it takes,” and so will the government, and that is exactly what we see right now. We thought the last recovery efforts were astounding, but the present Fed interventions dwarf them.
Because mankind is finite, however, our capacity to deny the realities we are creating puts us in peril of worse realities down the road when we reach the limit of our abilities to intervene on our own behalves.
Leading up to my first Epocalypse article, I made the following broad statements …
and then the series began:
Here is what I said the Epocalypse would look like:
The following began in October of 2015, long before Donald J. Trump was elected:
Who cannot see in all of that the movements that have already begun using police to enforce greater control over a populace that has readily given up its constitutional right to assemble (in order to protest the very social shutdown that doesn’t allow public assembly any longer) and the right to practice religion freely (religion being for many a community event at its core, rather than just an individual event), and the right to free speech as Google, Facebook and Twitter, at the government’s insistence, have all clamped down on writing (including my own) about coronavirus that is deemed dangerous for the public because it does not fit the WHO/CDC party line.”
(I was actually told this week not to write on that subject any more for a certain website because Google was pulling all of their articles on that subject out of their otherwise high search performance).
At the same time, you can see the revolt against this intensified globalized control but also see that the revolt has minuscule numbers compared to the number of people willing to yield their freedoms without so much as a question for the sake of a sense of security. In terms of rising conflict, we see people who are willing even to rat on their neighbors for not conforming by wearing a mask or for peaceably assembling to protest the social constraints so easily and immediately placed over the entire world. We’ve seen at the same time, a greatly intensified push toward electronic currency on the excuse presented by the virus that “cash is dirty.”
In my next article on the Epocalypse, I went into further detail than the broad sweeps above:
Here the Fed, immediately leaped back into rescue operations greater than any ever seen to start sopping up all this excessive and sloppy debt that their recovery plan had enticed into being in the first place as the foundation of their recovery.
Those failings were reported as the mere buds of trends that I said would emerge. They certainly did continue to grow relentlessly into trends in the four-plus years that followed, getting worse from one year to the next without reprieve.
Flight to gold is the kind of move investors make when they are battening down the hatches for a storm.
In the past few months we’ve seen one of the strongest flights to cash and gold in modern history. It has only been restrained by the lack of a sufficient gold supply to fill the demand.
Here are other supertrends I said would develop:
We’ve seen the diminishing power of QE now in a way far more dramatic than most people would have guessed. During the first two weeks of the Coronacrisis, we saw the Fed throw more quantitative easing at the problem than it ever had in the same timeframe, yet the market turned up its nose and continued to descend. The Fed had no effect until the US government joined it with massive fiscal stimulus. Even then, I think the market’s arrest came more because it had fallen about as far as markets ever do in a major crash before taking a rest and starting a large bear-market rally.
We have yet to see if the super combo of Fed and government will pull off a another recovery, but they have already intervened as much in their combo of quantitative easing and fiscal stimulus in a variety of forms as all of the QE and stimulus done in QE1-3 during the first several years of the Great Recession. And they have done it with far smaller effect.
While we saw a foreshadowing of this emerge in 2015 when I started laying out what the next recession would look like, it did not emerge under the withdrawal of QE as quickly or completely as I thought it would. But it did get there, and it did lead the way into the present recession. We saw it rise as an unexpected monstrosity last fall, which I and few others named “The Repocalypse.” (Not sure who said it first.)
That is to say, the Repo Crisis was unexpected by the vast majority, but not here, where it was predicted as an assured development that would occur during the Fed’s quantitative tightening (QT). I said it would have as much impact going into the next (now present) recession as it did going into the Great Recession.
The outburst of the Repo Crisis in September certainly caught the Fed off guard. Worse still, the Fed was unable to put it down — so great was its undertow — until the Fed acquiesced and launched the greatest QE in the history of the world in answer to the current developing recession (which I choose to call QE4ever because it is by far greater than other rounds of QE and can never end without bringing calamity — calamity that I don’t believe can now be averted even with it.
I said very little about that one — simply that it would play a big role in the next global economic downturn, and it certainly is.
I noted Chinese steel and US oil and companies like industrial giant Caterpillar playing the leading-name roles in the parts of industry we would see crumble most. While we got some reprieve back then, who would try to argue that those focal points of industry have been on center stage in the global economic shutdown that eventually happened? They were the right focal points to identify. Throughout 2019, we saw the industrial sector of the US economy sink into recession even before the Coronacrisis. It officially hit recession status in summer of 2019 and stayed there.
I felt that part bore repeating because it would be the single worst aspect of the next Great Recession — inability of all the world’s central banks to stop the recession because they were already showing signs of losing their mojo back then.
The great debt volcano erupts
In my next article in the series, I went on to describe the problems that would come because of the “mountain of debt” that was “banked up against the entire global economy.” That mountain would become especially formidable to emerging-market nations because much of their debt is denominated in US dollars, leaving them at the mercy of an increasingly strong US dollar:
That price of money can go up for two reasons — either because interest goes up when a loan/bond that has to be refinanced or on a loan that has variable interest or because exchange rates make those debts more expensive. If a business in Brazil, for example, takes out a loan with an international US bank, that business earns its revenue in reals, but has to repay the loan in dollars. (Of course, deflation could make the price of the loan go up in terms of inflation-adjusted dollars, too; but in the case of international loans, inflation/deflation over time would be reflected in the current exchange rate.)
We aren’t seeing the serious impact of this yet, but those days are dawning now, so this will be a factor that makes it harder to climb out of the present recession. It is likely to play out as resentment between the younger working generation that has to pay all the debt unfairly heaped upon it and the retiring generation that did the heaping. Expect some clawback, adding to the fore-described social unrest!
I was careful to say the whole scenario I was laying out would not develop all at once:
The mountain didn’t slide all at once, but it did start to move back then. You can see the major pieces that started sluffing away back then have turned out to be the major pieces that are moving at greater speed now. The reason the mountain of troubles didn’t move as much as I said right off was because the Fed did not initially do as much as it led everyone to believe it would do in tightening. When it finally did, it rapidly reversed course because cracks began to appear all over the mountainside, even though the Fed had said it’s tightening would continue on autopilot for another year beyond where we are now and that the whole event would be “as boring as watching paint dry.”
Nothing has been done to stabilize any of these faults. The mountain has started erupting through those same cracks again due to the Coronavirus, spreading the cracks wider; and the same land masses are now sliding down the volcano’s sides more quickly this time.
The next recession, I said would be worse than the Great Recession.
There, I also parted company with the permabears:
The Fed did raise rates, and the market did fall sharply at the start of 2016. Because the market started to crash, the Fed stopped raising rates for a year, which arrested the slide. Then the Fed started slowly raising rates again and slowing tightening up money supply until it caused everything to start to slide again. This time, it reversed itself completely, but not before causing a worse market crash at the end of 2018 and the Repocalypse at the end of 2019.
After interbank lending froze up in the Repocalypse in late 2019, the Fed went back to QE while denying it. Then the coronavirus shutdown that the entire world forced upon itself, gave the Fed cover to switch to QE overdrive to try to prevent the present recession.
(This recession actually started forming quantifiably in manufacturing in the summer of 2019 and spread to the services sector of the economy in the fall, but it didn’t blow wide open until the Coronacrisis hit.)
Back in 2015, I asked whether the Fed would really set all of that into motion since others were saying it wouldn’t dare:
I completed my Epocalypse intro with this list of major events to come:
The destruction of Jerusalem, AD70.
While things did not go down as quickly as I originally predicted, and while stocks managed to levitate above the fray for awhile due to massive tax cuts that fueled buybacks, all of those events above continued to worsen in the economy over the intervening years.
They are now easily identifiable fault lines in our crack-up into the Great Recession 2.0, which is looking so dire because of the coronavirus accelerant that many are thinking to take the name one step further than I did back then and call it the “Second Great Depression.”
And how could one know those are the cracks that would open up in the next recession? Because in some cases, those are the faults you could see being laid long ago in the Fed’s recovery plan. In other cases, those are the fault lines you could see opening up from a long way off. And, in other cases, you could see those are the trends — the directions — along which the earth’s plates were moving. And, so, you could know that in the next recession, those are the lines along which things would break apart.
We will continue to see these gaps spread wider, defining the shape of the recession that is erupting all over the world today.
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