The Biggest Crash Ever
This week the Bureau of Labor Statistics will downward revise jobs for April 2023-March 2024 by up to 1 million.
Remember seeing month after month of fabulous employment data? This means that all "beat expectations" celebrated in the past year were actually misses and the US economy is in dire trouble.
Please for the sake of your financial future read that again.
The entirety of the “strong labor market” was a production. A fabrication. Outright lies designed to create cover for the Biden Harris Administration.
The situation gets demonstrably worse when you peel back what’s really happening in the labor market. Many of the jobs (the real ones they didn’t delete later I mean) are second and third jobs… not a sign of a strong economy.
Then there’s the bleak credit card vs savings dynamic — look for yourself:
We are increasingly using credit cards to cover our rising cost of living… meanwhile this is cutting off our savings rate (the red line).
Out of necessity many have foreclosed the future to survive another day.
The Unraveling Narrative
This revelation further undermines the administration's claims of a strong economy. The reality is that the labor market is weaker than admitted, and the broader economic outlook is increasingly fragile.
The two engines of the modern economy, services and manufacturing, are both showing signs of contraction. This is evident in the declining Purchasing Managers' Indexes (PMIs) for both sectors. A contraction in these key sectors often signals a recession looming on the horizon.
The fires are burning everywhere. Sovereign debt, Corporate debt, CRE, municipal debt, non-tech equities… each aflame to various degrees with different accelerants destined to increase the fury of their respective fire.
Many of these fires are linked. They are contributing energy to each other, too.
Government bonds are facing immense pressure, with rising interest rates increasing the cost of servicing the debt. This is moving the global markets toward a crisis of confidence in government finances. The commercial real estate sector is also in serious trouble. The rise of remote work has led to a decrease in demand for office space, leaving many buildings vacant. This, coupled with rising interest rates, is putting immense pressure on the sector.
Despite the concerning economic outlook, stock market valuations remain near all-time highs. This is particularly worrisome as it indicates a disconnect between the market and the underlying fundamentals of the economy.
The concentration of market gains in a few mega-cap companies creates additional vulnerability. If these companies experience a downturn, it could trigger a broader market selloff.
The revelation of a weaker job market and the acknowledgment of the administration's misleading narrative will shatter investor confidence. This loss of trust in official economic data and government messaging can lead to widespread panic selling and a rapid decline in market sentiment.
When investors realize the true state of the job market and the broader economy, they will reassess the valuations of stocks, and everything else they own. If they perceive the market to be overvalued based on the actual economic fundamentals, they will start selling their holdings, driving down asset prices. A weaker-than-expected job market increases the likelihood of an economic recession. This fear can further fuel a market sell-off.
The initial sell-off could trigger a liquidity crisis as investors rush to exit the market, leading to a scarcity of buyers. This can amplify the price declines and accelerate the market crash.
Many investors use borrowed money to buy stocks, amplifying their potential gains but also increasing their risks. As stock prices decline, these investors may receive margin calls, demanding that they deposit more money or sell their holdings to cover their losses. This forced selling can put further downward pressure on the market.
There is more borrowing, more leverage, then anyone is willing to admit.. or perhaps even able to calculate. We have derivatives of derivatives. Investors borrow money from their brokers to purchase more stocks than their cash holdings would allow.
Speculators (inside major hedge funds, day trading shops and home traders) have money leveraged 100x.
Heck we have Leveraged ETFs and they are highly popular, albeit with much less than 100x. Typically 1.5x to 3.0x. These exchange-traded funds use derivatives and debt to provide a multiple of the daily return of an underlying index or asset.
There is structural weakness and our environment is filled with accelerants and open flames.
Ultimately the combination of a contracting economy, a looming debt crisis, and an overvalued stock market creates a recipe for a significant market crash. While predicting the exact timing of a market crash is impossible, the current economic conditions suggest that investors should exercise caution and prepare for potential turbulence in the months ahead.
I’ll leave you with a rapid fire preparation list for financial distress / prolonged recession:
Review your budget vs actual → cut off-plan spending
Bolster your emergency cash fund
Diversify income streams
Enhance your network
Upgrade your skills
Reduce your debts
You can’t prevent bad things from happening. You can diffuse the impact with preparation and planning.
You can’t prevent the storm but having an emergency kit and evacuation plan can make a huge difference.
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