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,
My big prediction for this fall was not merely that the US stock market would crash (by which, I mean it will have to do worse than become a bear market, defined as a 20% drop). I also said we will enter a period of global economic collapse, and I’ve said that collapse will be worse than what we saw at the bottom of the Great Recession. So, I’ve somewhat defined what it will look like, and clearly it doesn’t look anything like that yet.
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,
From the beginning days of quantitative easing and low interest rates, I have said that both were artificial life support and that our “recovery” from the Great Recession would end as soon as all the artificial life support.
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
The reason this economic collapse would be so bad is that it is really all about falling back into the belly of the Great Recession.
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,
The earnings that are being put out today — I think they are very suspect. These earnings are fallacious. And, yet, analysts look at it quarter for quarter. If your earnings went up for the quarter, your stock goes jumping up…. If you really do GAAP [Generally Accepted Accounting Principles], you haven’t really increased earnings for three years…. We are making earnings with financial engineering…. I’ve seen this before a number of times. I’ve been around a long time … and I think a time is coming that might make some of those [previous crashes] look pretty good….
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 …
One of the things you start to see as you get near the end of a period of expansion, but before it really turns, is you start to see major layoffs occurring, big mega-layoffs like we’re seeing now.
Deutsche Bank’s … has about a $76 TRILLION exposure to derivatives…. Those derivatives, says Bank of America, are now a junk-bond “train wreck that is accelerating.” This time, it is not all “mortgage-backed securities,” but includes junk bonds issued to commodities producers, particularly in the energy industry and mining industry.
This would not just be a US stock-market crash, but a global economic collapse…. Everything is only so much worse in the other economies of the world.
…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:
To divine the direction the world will take after global economic collapse, you have to understand the prevailing winds and the underlying tides. Look for the megatrends that are influences against which all other forces have minor affect.
Civil unrest has grown a great deal in the US over racial issues and immigration issues. Harder times with broad new failures in the job market will only make that unrest worse, and that leans toward stronger government controls becoming necessary to sustain some semblance of peace…. Thus, the intrusion of big government will expand more into individual lives and out onto the street … because weak and conditioned people value security more than personal freedom…. Whether due to internal uprising, looting during a global economic collapse, or the increased likelihood of foreign terror on domestic soil, a world that is increasingly hostile and less secure will cause people who value security over liberty to readily yield more power to bigger government to protect them from these wild forces…. The economy will come unhinged. Desperation and fear will quickly follow. Desperate economic times create desperate people, willing to embrace answers they would never have accepted in better times.
Global economic collapse will demand a global answer. People already want electronic money more than cash (even though cash affords individual anonymity and, therefore, liberty) because they do much of their buying online. They will trade liberty for convenience and comfort. A global cashless answer will make sense because it will fill a recognized current need — going in a direction in which the world is already trending…. A global economy that is unified around a single electronic currency will be seen as being stronger than the multi-faceted global economy that is now breaking apart…. This will mean trading away local sovereignty over our economies…. I don’t believe the majority of the citizens of the US are any braver [than the citizens of Greece by in large] or that they will stand any taller on principle if facing the same hardship. They will see globalism as the most natural progression and national sovereignty as regressive…. Globalization … means more homogeneity and blending of cultures, but that will also intensify conflicts by pushing individuals together who don’t readily harmonize. That will awaken counter forces that will inevitably square off against that centralization of power…. This globalization will not happen without rebellion, and that rebellion will require stronger suppression of individuals and those who go against the global flow, which will be justified as being necessary to bring about the reforms the world needs. Most citizens will go along with that because the coming global epocalypse will open up such a huge pit that fear and loss will ready people to give up personal liberties for the sake of restored security.
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:
Corporate debt has never been higher. Interest is rising ahead of the Fed. The pile of junk bonds is starting to waver. Investors are moving to gold and cash. Are these the emerging indicators of a perfect economic storm…? Bond issues … on the skids just like IPOs…. The climate change that is happening in bond issues places corporations at risk if they issued bonds to raise money while interest rates were very low and now have to do a new bond issue to pay off old bonds. If not for the Fed straining to suppress interest to wholesale bond repurchases, these businesses would be in a world of hurt. Regardless, some businesses are facing higher interest on massive amounts of debt at the same time that their revenue is falling.
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.
US corporate earnings are in decline.... This seems to be an emerging trend across US industry.
Retail is crashing.… The drop in retail is industry-wide….
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.
Flight to gold is the kind of move investors make when they are battening down the hatches for a storm. And it’s global. Investors are moving their money into cash and gold.
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:
A supercell spawns tornados — sometimes many. The supertrends I present in the following list have the same power. Against this much larger storm, the quantitative easing of central banks along with their zero-interest policies are a mere breeze — a sniffle of discontent.
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.
Supertrend #1 – Interbank Loans Freezing Up … Again. You may recall that the biggest concern during the first year of the Great Recession was that banks no longer trusted each other and had stopped lending to each other. This was causing a credit freeze…. Is this a repeat of the kind of quarter that led into the Great Recession — that quarter in which almost no one saw a hint of recession coming, much less the worst recession since the Great Depression?
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.
Supertrend #2 – The China Syndrome. The meltdown of the Chinese economy is big.
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.
Supertrend #3 – Global Industrial Slowdown. “The industrial environment’s in a recession. I don’t care what anybody says.”
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.
Supertrend #4 – Central Bank Stimulus Already Ineffective.… It’s been a long race to the bottom of low interest for Europe and the United States, as well as for other countries like Japan and China, which has recently joined the race. Yet, the race is nowhere near over as far as the central banks are concerned. Sweden is expanding its quantitative easing program for the fourth time since February…. You don’t think that’s a financial world that is standing on hits head and blubbering its lips with its index finger? Clearly central-bank stimulus is no longer giving much bang for the buck (or klang for the kroner). With interest rates diving deep below the sub-basement into a realm where once-upon-a-time no central bank dared to go, heavy industry is collapsing all over the world!
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.
When the world is this far upside down, with central bankers dancing on their heads, all giddy about their ability to stoop even lower, it is surely not hard to realize the outcome has to be economic apocalypse. How can a world gone goofy end up in any other place….? When the world is so crazy that its wealthiest people yell, “Yay, we’re all dying, so that means more free yummy medicine!” then you surely can figure the bust is going to be an all-out epocalypse. And when the investing euphoria is happening because the lunatic central bankers have started carving out sub basements to the sub basements [in interest] to create an economic bomb shelter, you know the epocalypse cannot be far away…. So, duck and cover.
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:
A formidable super volcano of global debt has grown since the Great Recession began…. Smaller nations like Brazil and Greece and Puerto Rico are already crumbling under the weight of their portion of this mountain. This crushing of small economies will continue for years to come…. When the price of money is the lowest it has ever been, businesses buy a lot of nearly free money, just as do nations; but what happens when many of those same businesses go to refinance bonds in three years, and the price of borrowed money has gone up?
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.)
The golden days of the global economy are over because we are now entering the golden years of the baby boomers. Not only will retirees no longer contribute to the expansion of GDP via their own productivity, they also will also start to downsize their homes and buy fewer expensive toys than they did in the peak of their career. This would be the normal transition, but it is going to be made worse by the fact that those pensions have performed poorly under the Federal Reserve’s zero-interest policies and because they lost a lot of wealth during the worst of the Great Recession…. We are now entering such a massive demographic shift in the world that it has to negatively impact economic growth.
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:
I am not saying [the economy] will all slide this fall, but the cracks all around the mountain’s side that say it is starting to slide will grow huge and threatening; the movement of land in large pieces and trees beginning to tip will become evident, and there will probably be several large downward jolts as it begins to move in sections and the movement of one section weakens the next until the whole thing slides to the bottom.
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.
It was the second nuclear explosion, not the first, that ended World War II; and so it will be with the nuclear-sized economic disaster that first struck the earth in 2008. The second strike will be more calamitous and have greater consequence than the first … because so much more top pressure is bearing down from all the piled debt and because so many more economic structures around the world are in weak condition and because central banks have run out of additional ammo to fight a war of such scale any longer.
There, I also parted company with the permabears:
Some permabears like Peter Schiff have held resolutely to the opinion that the Fed will not raise rates because it cannot without causing economic collapse. Schiff says the Fed will go straight into a fourth round of quantitative easing. I disagree and have said it will raise rates this year. The Fed has never seen an economic collapse that it could not help cause. It is not exactly a coterie of the world’s wisest people.
The Fed may be bullish on its own recovery programs, but it has the dim vision of a bear. Its bull-headed attitude is its blind spot. It will raise rates to prove its critics wrong and its own programs a success only to prove its critics right by triggering the rapid end of the mirage of recovery its programs created. The Fed is dumb like that.
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:
So, will the Fed raise rates just as the US economy reaches a critical mass of internal reactions? Of course it will! It believes the glowing stock market is a proof of economic recovery, even as the actual economy (as opposed to the stock market) is cracking up.
I completed my Epocalypse intro with this list of major events to come:
The destruction of Jerusalem, AD70.
Call it the “Great Collapse” or the “Epocalypse.” Whatever you call it, it’s about to change the world. I am referring to an economic crisis so big that the global economy will be forever different after those days.
- The energy crash is certain to worsen.
- China’s demand for natural resources will not return for many years.
- Numerous stock markets throughout the world will fall into deep bear markets.
- Many nations will go into recession.
- Global economic trade will collapse.
- Joblessness will push Europe’s refugee and migration crisis into a social calamity and open the door to more Islamic terrorism.
- Farm incomes will decline significantly, and farmers will face great stress.
- Major retailers will experience massive declines and closures. (The start of the Retail Apocalypse.)
- Auto loans and student loans will continue to pile up into a leaning tower of bad debt.
- Shipping companies, railroads and trucking companies will sink into serious decline.
- The number of rising stocks will narrow as the band that is declining broadens.
- Corporate sales and revenues will fail year after year.
- National debt will skyrocket.
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.