The Great Repression

In articles I wrote, and in national news interviews where I appeared starting in December 2019, I put the odds of a recession at 30%. In January 2020, I raised the odds to 80%, and in March, I increased the odds to 100%. Things are changing so fast it’s challenging, but not impossible to stay on the ball. Unfortunately here in America we do not learn from history and most of us hate math. Now math is a four-letter we should not only use but become very comfortable with the habit of using. And when we don’t learn from history, that’s the perfect recipe not to have learned a thing—leaving us to repeat history. Again and again.

Recession is a word w don’t like, and depression is a word we fear. According to me, you don’t need to see the future to prepare for it. In fact, it’s not about the prediction. It’s all about the preparation. Prepare now for the good, the bad, and the unforeseen. When we look at history, we can see that unemployment hit 25% in the U.S in 1933, but that milestone occurred four years after the 1929 stock market crash, per NBC Boston, April 8, 2020. With COVID-19, unemployment could top 32% in the second quarter as 47 million workers are laid off amid the outbreak per USA Today, March 31, 2020. In the Great Depression, it took four years to get to staggering unemployment numbers from the same source and at the rate we are going we could see similar, if not even more staggering statistics in about six months. Things are changing just about every nano-second.

There are scores of talking heads that want you to believe in something they love to call a V-Shaped recovery. While I hope they are right in their identical forecasts, I prefer to look at the whole picture. As Colonel George Patton put it, “If everybody is thinking the same thing, then somebody isn’t thinking.” Please keep in mind that globally there are more people 65 and older than 5 and younger, reports National Geographic, June 11, 2019. These are unprecedented times. We have never been here before. What’s more is the world’s population is aging, while many countries’ birth rates fail to keep up. It’s time to see things the way they are. Not the way we might imagine.

Hopefully, it’s a nice and smooth V-Shaped recovery. But the recovery shape may be something that looks more like a W, or a U, or a Swoosh. Or an L-Shaped recovery. The last recovery is the one that captures my attention, particularly since what I will call an L-Shaped recovery has occurred no less than twice in our history. After The Great Depression, it took 25 years for the stock market to get back to even and 40 years for NYC real estate to get back to its high watermark, according to Yahoo Finance. Please keep in mind that if you were an adult in the early 20s, your life expectancy was mid-50s, per the U.S. Census Bureau, so the same adults were deceased long before they experienced a full recovery. Which means, they probably died with regret. Regret is the gift that just keeps on giving.

More recently, in the late 1980s, we were convinced the country across the Pacific called Japan was going to overtake these United States of America is rising to the top spot in Gross Domestic Product (GDP). We were convinced they were masters of the universe. Then something caused Japan to stall out about New Year’s Eve, 1989, with both the Nikkei 225 and Japanese residential real estate. Japan’s Nikkei hit a high of 38,916 on December 29, 1989, submits, December 28, 2019. It was a “milestone that proved to be the last hurrah of the country’s asset-inflated bubble economy, a period of ostentatious consumption and overconfidence in the infallibility of Japan, Inc.,” wrote Justin McCurry. The Nikkei 225 traded at 19,619 on May 1, 2020, per Bloomberg Markets. 

Residential real estate prices appear to have peaked in Japan around 1991, and home prices were not expected to fully recover until 2025, according to CNBC, May 3, 2017. What this means is that it’s now 30 years or nearly 30 years later, and neither the Japanese stock market nor their residential real estate market have gotten back to even. Go ahead, try to wrap your mind around those stark realities happening on your watch.

With those two L Shaped recovery examples, it is reasonable to this observer that what has happened in the past could well happen here again. Especially in this new reality, we know as COVID-19. Here’s how MarketWatch, May 1, 2020, puts things in perspective. “The economic aftermath of the 2008 financial crisis was so tepid it was referred to as the ‘Great Recession.’ In the wake of the coronavirus catastrophe, investors need to brace for the ‘Great Repression,’ which may be even uglier than the downturn of a decade ago.” That’s the summary of from the same day analysis from economist David Rosenberg. He wrote, In the “base case” for the U.S. economy, published by his firm, Rosenberg Research, the economy “reopens” in May, in a staggered approach across industries and regions. There are “periodic setbacks in terms of COVID-19 case counts…sufficient to make people less comfortable and confident about spending than they did prior to the crisis. A vaccine is not developed in this forecast, but the treatment that alleviates the worst respiratory symptoms” is developed within the next six months.

Here’s what I am saying. Do not be complacent. Do not get high on the hopium that everything is going to be just the way it was. Certainly not anytime soon. Instead, hope for the best. As you simultaneously prepare for the worst. When the data for the second quarter hits, it won’t be pretty. It will be pretty ugly. 

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