The Ripples...What comes next in the economic world...

No, this headline and interview above isn't from January 17th, 2020, this interview with Robert Kiyosaki is dated January 17th, 2018, two full years ago.  Robert Kiyosaki is best known for writing the financial bestseller,  Rich Dad, Poor Dad (not a paid link), and several other books.  This clip was taped less than a month after President Trump signed the massive tax cut bill, which most people at the time thought would send the stock markets soaring.  In reality, the Dow, S&P 500, and Russell 2000 all peaked a few days later, after this interview, on January 26th, 2018, and then headed slowly downward.  The Nasdaq went higher for a few months, and then it, too, headed south.

Here's what I see coming soon, after last week's stock market slide:

-One or two up days in the stock market this next week, but another major downhill slide for 2-3-4 days.  There will inevitably, and very unfortunately, be a "community spread" of the virus we're all worried about, in some major city.  This will let us all know this virus issue will be playing out for longer than any of us want it to, and will cause far more trouble that we're hoping it will right now.  That news will have another huge negative effect on the financial markets. 

-Some major investment/lending business goes bankrupt/closes permanently... soon.  In 2008 it was Bear Stearns and then Lehman Brothers investment banks that closed suddenly, sending shock waves through markets and business people.  This time, my educated guess is that we'll see a collapse somewhere in the "shadow banking" world... within days or a few weeks from now.  Some business, like a mortgage lender or auto loan lender, but not an "Official" bank, there have been a lot of rumors of businesses in that world struggling recently.  This one will ripple through the markets in a massive way.

-Large scale layoff announcements at one or more major companies, over the next several weeks and months.

-Some major, established, well known corporation will file for bankruptcy soon, within a month or two.  Yes, we've had several bankruptcies in retail already, once colossal department store, Sears, is in bankruptcy already, for example.  Will it be another major retailer, or some other corporate giant?

-Major downgrading of many businesses' BBB rated corporate bonds into the junk category.  Institutional investors will then be forced to sell a lot of these bonds, which will cause another negative ripple in the markets.

-Farther into the future ( a few weeks, 1-2 months)- Visible signs of a pull back in home sales and commercial real estate, sales and prices will begin dropping in most places.

-At some point, there will be some kind of meltdown in student loan debt.  According to this Nerd Wallet article, nearly 40% of federal student loan debt wasn't being back on time in early 2019.  If that number hasn't increased, it will soon.  We saw a sub prime mortgage loan meltdown in 2008, that was a major trigger of all the other issues.  Student loan debt could be one of several debt meltdowns this time around.  If that happens, then we have to start watching colleges and universities for signs of financial distress.


Why do I think these things will happen?  Because these are the kinds of things that happen when we have underlying financial system issues like we do right now, and then a "black swan" event triggers a downturn.  

The clip above, after last week's horrific stock market crash, seems quite prophetic.  Robert Kiyosaki isn't a mystic, and he wasn't staring into a crystal ball two years ago.  He has just spent his life gaining financial intelligence, learning, building businesses, buying properties, and investing in many things.  He understands money and the financial world at a level few people do.  So he was in a position to call a coming crash "in the next two or three years," in that clip.  He also talks about both "equity bubbles" and "debt bubbles" in this clip.  Right now, we have huge examples of both.  It appears one of the equity bubbles, the stock markets, are popping.  Time will tell, but this looks like a lot more than a market correction.  So here are the main financial bubbles in place right now:

The Asset Bubbles:

The stock markets- The Dow Jones Industrial Average went from about 7,224 in March 2009, after the 2008 crash, up to 29,551 on February 12th, 2020.  That's a rise of over 400% in just under 11 years.  We're definitely in bubble territory.  Source: DIJA chart (Max)

Residential real estate-  We went from a median U.S. home price of about $171,000 in January 2012 ($193K inflation adjusted), to nearly $272,000 in July 2019.  As we all know, real estate hasn't moved much in some areas of the U.S., and has soared in areas like San Francisco, New York City, and other tech hub cities.  Another bubble.  Source: Historical median home price chart.

Commercial real estate- According to the chart linked, major categories of commercial properties, like apartments, core commercial, retail, and industrial, all surged after the 2009-2010 market bottom.  This chart only goes to 2016, and retail was leveling off some then, but we get the idea.  Source: Commercial real estate trends.

And now, the Debt Bubbles: (Source: U.S. National Debt clock, unless another source is given)

U.S. national (government) debt- $23,394,536,000,000 ($23.3 trillion)
U.S. GDP (Gross Domestic Product- everything bought an sold in the U.S. in a year)- $21,845,407,000,000 ($23.84 trillion)
U.S. corporate debt- $15,500,000,000,000+ one year ago, ($15.5+ trillion)- Source: "US Corporate Debt Continues to Rise..."/Forbes, January 2019
U.S. credit card debt- $1,123,222,000,000 ($1.1 trillion)
U.S. mortgage debt- $16,155, 222, 000000 ($16.15 trillion)
U.S. student loan debt- $1,655,530,000,000 ($1.65 trillion)
U.S. car loan debt- $1,200,000,000,000 ($1.2 trillion) - Source: Investopedia article

These huge debt loads, the stock market euphoria, and the other parts of the big financial world picture have been building for over a decade now.  On top of that, interest rates have been kept historically low, and are even negative in some countries.  We're in a weird financial world Never Never Land, and no one is really sure exactly how things will shake out, ultimately.  But we have multiple tends and soaring debt levels that just can't go on forever.  And that's why we're seeing what appears ot be the beginning of a serious shake-out in the financial world.

These are the things I see happening in the next few weeks or months.  We'll see how things actually play out in the real world. 

Juat ignore this canary in the coal mine economic post

As the impeachment arguments happen in the U.S. House of Representatives, Mr. Rosenberg here tells you about the "smoke and mirrors." 

Personally, I firmly believe there will be a major economy crash BEFORE the November 2020 elections, LONG before.  AND I believe Donald Trump will not be in the 2020 election.  In my lowly opinion, the charade, economically and politically, simply can't last that much longer.  Time will tell...

A beginner's Guide to The Next Great Recession: The Trends

What's in store for the world's economy in the next year or two?  Here's a pretty good series of visual metaphors for what I see coming...

This is copied from my personal blog, Steve Emig: The White Bear
I'm going to put the financial oriented stuff on this blog from now on...

People watch weather reports.  Why?  So you can be prepared for the rain, snow, wind, lightning, possible tornadoes, and on a really bad day, a hurricane, in some regions.  We watch the reports, and adjust our plans to work around the lame stuff that's going to inevitably happen.

Yet in the financial world, it's just the opposite.  Home prices go up and down.  Stock prices go up and down.  Bull markets happen.  Recessions happen.  But almost everyone ignores you when you say, "Hey, there's a recession coming pretty soon, I think it's going to get really gnarly."  For some reason, the people who would want to prepare for a hurricane, or close all the windows before a bad thunderstorm, don't want to even hear about an economic storm.  In my opinion, there's a Category 9 hurricane 100 miles offshore right now.

I say this because I've been writing about the serious recession I've seen coming, for a couple of years now.  Hardly anyone takes me seriously.  OK, I'm homeless and broke, so those are legit reasons to be skeptical.  But Robert Kiyosaki is rich, and he's been saying the same thing.  Gary Vaynerchuk is rich, and he's ready to pounce on good deals during the next collapse.  Jim Rogers is rich, and he's been saying the same thing.  Warren Buffet doesn't talk about it, but he's sitting on $120 billion, waiting for the next downturn to find good deals to invest in.

Most people don't even listen to those guys, guys who have been through this before and have made fortunes from the downturns.  Most people just jog along with the other lemmings, completely ignoring all the red flags and warnings, from people who look ahead and watch the economic world.  Remember, lemmings are basically hamsters that follow the crowd and go BASE jumping... without a parachute.  Then they die.  For obvious reasons, I never wanted to be a lemming.


Here are the basic trends I've been watching, many for years, or decades in some cases, that lead me to believe we're in for the financial equivalent to a Category 9 hurricane, and we're just heading into it now.  It will be apparent to everyone within six months, I think.

-Alvin and Heidi Toffler's Third Wave idea- This idea says that we, as a society, began to leave the Industrial Age society in 1956, and are transitioning into an Information-based society. This transition will affect every level of society, and is as big as the change from hunter/gatherer societies to agricultural societies (about 10,000 years ago), or the change from an agricultural society to an industrial society (beginning about 350 years ago).  Except this time, this massive change is happening in the span of a human lifetime, not over hundreds or thousands of years.  No humans, in known human history, have had to deal with a societal change this big.

-P.R. Sarkar's idea of the transition from a society led by the "Acquisitor" (business person's) mentality to a "Warrior" (those who prize courage and physical ability most) mentality.  Only economist Ravi Batra speaks of this, and his 1989 book is where I first heard of this.  It takes a while to explain, but Batra's take on this theory from India is why I was predicting a future populist uprising, back in the mid to late 1990's.

-The Populist Uprising in the U.S. (and western society) actually happening-  It's kicking into high gear now, and it's far from its peak. While the Trump following racists, xenophobes, and business people got the head start, this Populist movement greatly favors the political Left and the Progressive/Socialist side of the equation, over the long term.  Hey, I'm a capitalist, I'm not stoked on this, but that's where the momentum is, and will be for some time, like it or not.

-Demographic shifts- Rich Dad, Poor Dad author, Robert Kiyosaki, predicted a 2017 recession back in about 2003.  Why?  Because 2016-2017 is when the huge Baby Boom generation was mandated to start taking their money out of the stock market, as the first of that group hit age 70 1/2 years old.  This trend of pulling money out of stocks by the Baby Boom will continue for about 20-25 years.

-The Big Transition- This is my personal term for the transition that the Toffler's spoke of in The Third Wave, the change from the Industrial Age to the Information Age.  I don't think we're in either age right now, but the chaotic and messy transition between the two.

During this period, The Big Transition, with the continuing and accelerating rise of new technology, comes Disruption.  Think of the music industry a month before, and a month after, Napster went online.  The whole industry was suddenly toast, thanks to a click of a mouse by a kid we'd never heard of.  A new technology can literally cause a disruption that makes an entire business model obsolete, practically overnight.  Major disruption has happened in music, TV, movies, publishing, and marketing. But Disruption hasn't really hit many other areas.  I believe that every business, industry, organization, or institution, will either intentionally re-invent itself from an Industrial Age model to an Information Age model, or more likely, it will collapse and an Information Age model will be created by someone else.  There's A LOT of Disruption still to happen.

Both main U.S. political parties right now, for example, are in the middle of their disruption.  Trump and Bernie Sanders came out of nowhere in 2016, buoyed by the simmering populist sentiment on both sides, and garnered huge support, because the traditional power structures in the parties had completely lost touch with average Americans.  That will continue, in political parties, and EVERYWHERE ELSE.  I see this period of transition lasting from 1956 (the Toffler's starting date) to about 2040 (my guestimate of when it's all shaken out, and begins to settle, providing humans are still here then).

-The Student Debt bubble- Student debt is now over $1.6 TRILLION in the U.S..  Why is it so high?  That's $300 billion more than the sub prime mortgage bubble that helped spark the 2008 crisis.  Student debt is so high because Wall Street took the sub prime model, and simply applied it to student debt.  The student loans are bought, repackaged as Student Loan Asset Backed Securities (SLABS), and resold in pieces to other investors.  To keep making the wonderfully high fees on all of this, Wall Street needed more and more student loans.  So the student loan bubble is the new sub prime.  Here's a fun fact, according to this recent Nerd Wallet article, about 40% of current student loans, over 10 million loans, are not being actively paid back.  Right now, 5.2 million federal student loans are in default, about 5 million other loans are deferred in one way or another.  Tick, tick, tick...

-What a student loan bubble pop would do to real world ("Main Street") America- Let's say the student loan bubble doesn't crash like sub prime in 2008, but just has a major correction period, and this causes student loan income to colleges and universities to be cut back by 20%.  Where are colleges?  They're in 150 or so cities and towns around the U.S., all over the place.  After the loss of manufacturing plants and jobs, a huge number of those towns and cities are now referred to as "Eds and Meds" cities.  The colleges and the hospitals (often associated with the colleges) are the primary employers in town.  So if student loan income drops by just 20%, what happens to those 150 or so towns and cities?  MASSIVE economic slow down, everywhere.  Now, what happens to those towns and cities, most of America by area, if the student loan bubble actually does burst, and student loan and tuition income drops 40%-50%-80%?  The financial crisis becomes catastrophic, REAL QUICK.  So there's that...

-The Geographic Recession- Most of the United States, by area, is rural area, small towns, and small to mid size cities.  Most of of those regions simply have not recovered from The Great Recession.  Real estate hasn't surged.  Large numbers of people work two or three low paying service jobs to survive.  High tech companies avoid these areas, and entire regions, like the plague.  There are a handful of people who describe the U.S. as actually having been in a Great Depression for the last 10 years.  We've had growth well below the long term trendline that whole time.  Sure, there's money in the big tech companies in the big cities, but the vast majority of the U.S. is ALREADY struggling.  In the next economic downturn, that will intensify.

-Richard Florida's Creative Class and the rise of Tech Hub cities- This is a very complex set of ideas, but here it is in a nutshell.  In a high tech enabled, information-based society, creativity is a main (probably THE main) driver of innovation and building wealth.  Creative people like to be around, actually physically near, other creative people.  Creative people cluster.  So the emerging tech world is now largely clustered in Silicon Valley/The San Francisco Bay Area, Boston, Seattle, Southern California, New York City, Washington D.C., the Raleigh Reserach Triangle, and Austin, Texas, by and large.  In effect, and for a whole range or reasons Richard Florida has laid out in his books and articles, much of the U.S. is a kind of wasteland with little or no large scale high tech businesses.  We have the tech hubs with lots of wealth and one set of urban issues to deal with.  Then we have the vast majority of the country's small cities, towns, and rural areas, trying desperately, and largely unsuccessfully, to attract high tech companies and viable start ups.  The map of these different areas is also the map of our political divide.  We have tech hubs and tech wastelands.  Since his first book on these ideas, The Rise of the Creative Class, in 2002, Florida has been looking for ways to level this playing field out, but the clustering has actually increased in the 17 years since.  This geographic sorting is a major root, but not the only one, in my opinion, to our current political polarization.

-The Retail Apocalypse- In 2017, 2018, and so far in 2019,a total of 20,000 retail stores have closed, or are scheduled to.  Another 20,000 or so closed from 2009 to 2016.  Toy-R-Us is gone.  Radio Shack is gone.  Sears and J.C. Penney's, once the 800 pound retail gorillas of retail, are now circling the drain.  This is the technology rooted Disruption of the Industrial Age retail industry.  Amazon didn't cause this.  The leaders of all those dead and dying companies, who didn't see the future potential of the internet that Jeff Bezos of Amazon saw, caused this.  The Industrial Age goods distribution system of mass marketing, mass manufacturing, U.S. based factories, and hundreds of department stores, malls, and shopping centers, is collapsing, because most of it is not viable in the Information Age.  A new system, including Amazon, but also platforms like eBay, and millions of small, online, niche stores, is growing to replace it.  By watching how the Retail Apocalypse has taken shape, I (and you, hopefully) can get an idea of what's going to happen to colleges, and to every other major industry where it hasn't happened already.  Technology has changed the game.  If you're still playing the mass market Industrial Age game, you're toast.  Or soon will be.

-And now... we get to the actual current economy.  Historically, we have a recession every 4 to 10 years in the U.S..  We're in year 11, so we're due, simply looking at the timing.

-The everyday person, traditional American economy, has decoupled from Wall Street and the Tech world.  Most of America never left, or barely left, the last recession, even as stocks have soared.  A bull market in stocks, in today's world, barely effects most of the everyday economy.  This is the Geographic Recession I mentioned above.  The Wall Street euphoria died a couple months after the Trump tax cuts, and stocks headed down, but that hype has risen again the last couple of months.  The recent cut in the Fed Funds rate shows that The Fed is getting desperate, and doesn't have much left to keep Wall Street growing.

-The ultra low interest rate and quantitative easing economy-  The Fed lowered interest rates just over a week ago, in what was already a historically low interest rate economy.  The interest rates were lowered dramatically, and quantitative easing (buying our own debt and pulling money out of America's ass, basically) was instituted to help bring the economy back after The Great Recession.  It didn't work.  The Fed was never able to raise interest rates back up to traditional, historic levels.  Yes, we've had a 10 year bull market in the stock markets, but it's been absolutely feeble economic growth the whole time.  There's been very little major infrastructure or capital investments.  But there's been a ton of stock buybacks.  We're in this weird financial Never Never Land, a place the economic world has never been, best described by former Goldman Sachs, Bear Stearns, and Lehman Brothers quant, Nomi Prins, in this talk, and her book Collusion.  No one knows a good way out of this mess.

-The Orange County/Southern California real estate market- When I lived here in Orange County from 1986 to 2008, it was pretty easy to see economic downturns coming, because the real estate market here soars up, tops out, and then heads down fast.  When you see housing inventories rising, and then prices begin to decline, things are getting ready to drop, and that's happening now.  In this blog post, we see the housing inventory growing here, which happens right before prices begin dropping.  Also Chinese buyers are pulling out of the U.S. market, which has helped it soar to the current point.

These factors (and many others) are all coming together in a huge convergence.  Some of these factors only happen once in hundreds of years, or once ever.  In addition, all forms of debt; government, business, and consumer, are at or near all time high levels.  All this situation needs to turn into a big financial downturn is a spark.  It looks like Trump's trade war with China is turning into that spark.

So that's why I'm predicting an economic collapse in excess of what we saw in 2008, and a 5-6-7 or more year hangover of little, if any growth, and stagnation all over the place.  We're in new territory in many ways, we've never been here before, and there is no roadmap (or GPS directions for you youngin's) to lead us out of it.  If it's not a textbook Great Depression in the next decade, it will definitely feel like one to most Americans.

But with this dismal economic outlook comes opportunities at a never before seen level, as well. Warren Buffet, Robert Kiyosaki, Gary Vaynerchuk, Jim Rogers, and other business people, are ready to pounce on all the good deals that will happen soon.  You can do that as well, if you're not crushed by your own debt right now.  A new world will be built in this next economic downturn, if we survive it, that is.