It's Over: We're in Recession [Do this NOW].

Summary

In this video, the speaker discusses the possibility of a recession, triggered by the S rule, which has historically indicated economic downturns. He challenges mainstream perspectives, comparing current market conditions to past bubbles and suggesting a potential bottoming out period of 15-20 months. The speaker advises caution, recommending strategies like cutting expenses and considering investments in resilient companies like Amazon and McDonald's, while hedging against potential market dips. He also emphasizes the importance of being prepared for various economic scenarios.

Takeaways

• 📉 The speaker suggests the U.S. might be in a recession, citing the S rule from the St. Louis Federal Reserve as a recession indicator, which has been triggered by recent job numbers being significantly off expectation.
• 📈 Historically, the S rule has been a reliable indicator of recessions, with every instance of it crossing over 0.5 correlating with economic downturns since the 1960s.
• 🤔 The speaker challenges the mainstream perspective, suggesting that the current situation might be different due to the potential 'AI bubble' and comparing it to past bubbles like the dot-com and housing bubbles.
• 📊 The speaker references past recessions, noting that market bottoms did not occur immediately after the S rule was triggered, but rather took 15 to 20 months, suggesting a prolonged sell-off period.
• 💡 The speaker emphasizes the importance of being cautious, cutting expenses, and preparing for worst-case scenarios, such as job loss or salary reduction, in light of potential economic downturns.
• 💰 The speaker shares personal trading success, indicating a bearish stance since July 11th and profiting from short positions, which aligns with his outlook on the market.
• 📉 The speaker discusses market indicators such as the Greed and Fear index, VIX, junk bond yields, and the yield curve, all of which suggest increasing economic uncertainty.
• 🏦 The speaker predicts that the Federal Reserve will likely cut rates in response to a weakening market, but warns that this may happen too late and could lead to a return to near-zero interest rates.
• 🛒 The speaker advises against investing in small-cap stocks during a recession, as they are more likely to go bankrupt, and instead suggests considering established companies like Amazon and McDonald's.
• 💡 The speaker uses the '2x2 Foundation Model' to identify companies with low bankruptcy risk, strong valuations, and pricing power, recommending Amazon and McDonald's as examples.
• 🚫 The speaker warns against being overly bullish in the current market environment, especially leading up to the election, and suggests using this time to raise cash and hedge long positions.

Q & A

What is the significance of the S rule in determining a recession?

The S rule, developed by the St. Louis Federal Reserve, is a recession indicator. When it crosses over 0.5, it suggests that a recession might already be in progress. Historically, whenever the S rule has exceeded 0.5, it has coincided with recessionary periods.

What does a standard deviation off expectation in the jobs report indicate?

A standard deviation off expectation in the jobs report indicates that the actual job numbers are significantly different from what was predicted. In the script, it is mentioned that the jobs report was 2.6 standard deviations off expectation, which is a strong indicator of economic instability and can trigger recessionary signals.

What is the relationship between the S rule and market bottoms during recessions?

According to Bloomberg, historical data suggests that the market bottoms when the S rule triggers. However, the script challenges this by pointing out that in previous recessions associated with asset bubbles, such as in 2000 and 2008, the market took 15 to 20 months to bottom out after the S rule was triggered.

What is the current situation with the S rule in relation to the potential AI bubble?

The speaker in the script believes there is an AI bubble and compares it to previous bubbles like the dot-com and housing bubbles. He found that when the S rule was triggered during these bubble periods, the market's behavior was different from what Bloomberg's data suggested, indicating that the current situation might not follow the same pattern.

What investment strategy does the speaker suggest for the current market conditions?

The speaker suggests a cautious approach, recommending cutting expenses and preparing for potential job loss or salary cuts. He advises against being overly bullish, especially in the small-cap sector, which is more vulnerable during a recession.

What are the implications of the yield curve inverting for the economy?

An inverted yield curve, where short-term interest rates are higher than long-term rates, is traditionally seen as a signal of a potential recession. The script mentions that the yield curve is currently inverted by 9.9 basis points, indicating that a recession might be imminent.

What does the speaker think about the Federal Reserve's response to the current economic situation?

The speaker believes that the Federal Reserve will likely cut interest rates in response to the market's correction. However, he thinks that they might wait too long to act, which could exacerbate the economic downturn.

What are some potential safe investments during a recession according to the script?

The speaker suggests that gold, McDonald's, and Amazon could be safe investments during a recession. He particularly likes Amazon for its potential to be the 'dollar store of the future' and its exposure to AI without being part of the AI bubble.

What is the significance of the '2x2 Foundation Model' mentioned in the script?

The '2x2 Foundation Model' is a personal investment strategy inspired by the game 'Rust'. It emphasizes buying companies that do not have a bankruptcy risk, have strong balance sheets, and are not overvalued, which the speaker believes Amazon and McDonald's currently exhibit.

What does the speaker suggest as a signal for the market to bottom out?

The speaker suggests that the market will bottom out either when there is confirmation of a soft landing or when the Federal Reserve commits to a full-on bailout, similar to the actions taken during previous market crises.