Economy
The Looming Recession Of The 2020s
Signs Of Euphoria And Maximum Greed
Should you wonder why the Fed has kept interest rates at 20-year highs for such an extended period, there’s a simple answer:
They know what’s ahead, and it ain’t sunshine and roses.
The economic situation today is not too different from 2008, with several major economies teetering on the edge of a cliff.
We’ve moved beyond greed at this stage.
One can still overlook the signs if also caught up in euphoria.
The bubble creates a false sense of security making the naive feel safe and untouchable, but precisely this illusion signals the end of the the turning point in the economic cycle.
Right now, we see the powerful quietly building nests of safety around their investments. They’re gradually and discreetly exiting their top positions.
Take, for example, our favorite Oracle of Omaha, Warren Buffett. As of August 2024, Berkshire Hathaway sold half of its Apple stocks, amounting to $80 billion, and now sits on nearly $300 billion in cash.
Let’s take a closer look at why the economic boom cycle is nearing its end, with the beginning of a bust cycle likely on the horizon.
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The Next 2008 Is Right Around The Corner
For years, financial gurus have tried to replicate the success of their counterparts who predicted the 2008 meltdown, only to fail repeatedly.
They were wrong time and again as they were distatched from economic reality, financial cycles and the rapid evolution of the economic system.
They misjudged the resilience of the “bubble,” underestimating how long a market can remain irrational.
Indeed bearish indicators were turning red and, the market was overheating for years.
When the market wavered in 2020, governments intervened, printing massive amounts of money to prop up the stock markets, much like they might have done in 2008 had they acted immediately.
The hidden tax of inflation imposed by central banks hit the middle and lower classes hardest, as prices soared.
Inflation was ignored until it reached alarming levels, with the true impact being felt by the vast majority of the global population. Wages stagnated, forcing the middle class to bear the brunt of avoiding another collapse.
Four years later, we witness financial hypocrisy, euphoria, and ignorance persisting. Nothing has changed.
The market will eventually self-correct, and once again, the 99% will be forced to make sacrifices.
The Euphoria Phase
Be fearful in times of euphoria. The markets issued their first warning in early August 2024.
Smart money is exiting cautiously, quietly trying to avoid triggering an early collapse.
You won’t see headlines warning of the high risk just before a collapse, but you’ll see an emphasis on stability and positive news.
Clearly, panic should be avoided, but there’s no better time to be cautious when watching irregular markets hitting new all-time highs repeatedly and not reflecting the real economy.
Economies transform during wars, political upheaval, and “black swan events”, and those with foresight will always be in a better starting position than the rest.
Buffet Sitting At ~$300 Billion In Cash
Warren Buffett is sitting on over $270 billion in cash after recently selling half of his Apple stock.
For Berkshire Hathaway, this represents money waiting on the sidelines.
What is Buffett anticipating?
Sixteen years since the last recession is a long time for a bull run and markets tend to correct violently.
Yet, there is a thin line between a correction and something worse.
Central banks won’t be able to sustain market rallies by increasing the money supply at the cost of everyone’s financial well-being.
The money printed by the US and the EU has eroded the value of currency in circulation.
Much of this money flowed into large corporations, which used it to buy back their own stocks, creating artificial price surges while they were on the brink of collapse.
High inflation (around 10%) was an outcome that central banks seemingly failed to anticipate, and wages didn’t keep pace with rising prices, severely diminishing our purchasing power.
Three to four years later, the future remains uncertain.
Those of us who have observed and warned about these issues recognize that consumerism is at its peak, and euphoria is rampant.
Warren Buffett has approximately 30% of Berkshire Hathaway’s funds in cash creating a buffer to protect the fund.
This 30% could be crucial.
Buffett correctly anticipated the 2008 financial crisis by holding cash and companies with strong foundations, and it appears he may be preparing for similar turbulence now.
Closing Remarks
We can’t predict the precise timing or severity of economic cycles with accuracy, yet we know with certainty that economic cycles will inevitably repeat.
The signs flash brightly, warning investors of an impending disaster. These indicators remain consistent throughout economic cycles, and right now, they resemble those of 2008.
During the financial meltdown of 2008, only the most cautious and well-informed insiders foresaw the brewing trouble in the real estate market and subprime mortgages.
Today, Buffett’s decisions also signal substantial pain on the horizon as turbulance in the market slowly increases.
Even without insider knowledge, we can often connect key dots and figure out the emerging pattern.
The 15 year economic boom is nearing its end, and the only question that remains is how severe the bust will be.
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