100% chance of recession

From Bill Bonner, Editor, Bill Bonner’s Diary:

So, so you think you can tell
Heaven from hell…
Blue skies from pain

– Pink Floyd, “Wish You Were Here”

PORTLAW, IRELAND – We left off yesterday with the biggest question in philosophy hanging from our lips like a cold cigarette…

How can you tell the difference between good myths and bad ones?

We’ll get to that in a minute. But first, we need a warm-up… like Kid Rock playing before the Rolling Stones come on stage.

More of the Same

Yesterday, we looked at risks. What are the odds, we wondered, of a major disaster? Greater than we think, according to mathematician BJ Campbell. But he was only talking about floods and revolutions.

Get a bolthole, he suggested, and stock it with food, water, and firearms.

But financial risks are much more imminent.

Markets and economies move in cycles. It’s not up… up… up all the time. And the downcycle is always painful.

But when you’ve got $68 trillion in debt (the current U.S. total)… it is also very risky.

People have spent their savings. They’ve gambled their retirements. They’ve bought houses… cars… stocks… and college educations – counting on “more of the same.”

“More of the same” is what you get for a while. Then you get “something different.” And then, the people who need “more of the same” just to survive are in big trouble.

Here’s an old proverb for you: What goes up must come down.

Important Landmark

We’ve just passed an important landmark. The U.S. economy has been going up for 106 months, edging into second place among the longest-lasting expansions of all time (more on that in today’s Market Insight).

Since 1879, there have been 28 recessions and (obviously) 29 recoveries. The average recovery lasted 41 months. So we’re driving way over the legal limit.

What are the odds of an accident? We’re not a mathematician, but we put them at approximately 100% sometime during the next three years.

The economy will go into recession. Jobs will be lost. Cars and houses will be repossessed. Some people will be desperate.

Like the economy, the stock and bond markets are also cyclical… and driving severely impaired. We are now in the tenth year of a bull market that has taken prices higher than we’ve ever seen them.

At these levels, according to market folk wisdom, logic, and the studies of Nobel Laureate economist Robert Shiller, the next 10 years will be a bad time to be in stocks.

Prices go up and down, say the old timers.

When do they go down? After they’ve gone up!

Myth Explorer

What are the odds of a major stock market decline sometime in the next three years? Again, we don’t trust numbers, but we put them at about 90% (allowing for a 10% margin because, after all, nobody knows).

How about the bond market? Bonds move in long cycles… about a generation in length. The last time bonds were this high was about when we were born – after World War II.

They fell for the next 30-plus years… bottoming in 1980. Since then, it’s been up… up… up.

But as Carl Jung – a myth explorer extraordinaire – put it: “No tree can grow to heaven.”

Now, after 38 years, it looks as though the tree has reached its maximum height. The cycle has turned.

In fact, we believe the top was reached nearly two years ago in July 2016. Since then, yields have been going up (and prices have been going down). Already, the yield on the 10-year U.S. Treasury note has almost doubled.

Remember the old Bible saying that “the debtor is slave to the lender.” As long as interest rates are falling, the debtor can refinance… at lower rates.

But when rates move up, the lender gets out the chains and the lash. That’s when the going gets tough.

What are the odds that things will get tough in the next three years?

We don’t know.

But as with death itself, there is no escape. The question is not “if,” it is “when” – and only the gods know the answer.

And what kind of disaster do you get when stocks, bonds, and the economy all go down together?

We don’t know. But before it is over, we might wish we’d taken Mr. Campbell’s advice.



Crux note: As Bill mentioned, interest rates are on the rise. And that’s putting pressure on America’s mountain of unpayable debts. It’s all leading to a financial crisis unlike any we’ve seen. And when  not if – that day comes… stocks will be halved.

Your retirement could disintegrate overnight. And don’t bother going to the ATMs… They’ll be shuttered. There is still time to prepare though. Here’s what Bill recommends.

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