Warning: This Time Is Different

➡ The current financial climate is highlighted by extreme market volatility and reflects a significant change in the relationship between the Federal Reserve, central banks, governments, and markets since 2008. The summary of this data shows the Fed’s faster response times and willingness to intervene, contrasting with its more cautious approach in 2008, and indicating a strong bias for a contrarian viewpoint on future market trends.
➡ Market crashes in 2008 and 2020 showed different recovery rates due to different intervention levels, with the quicker recovery in 2020 due to major influx of government stimulus. The author predicts a fast and severe market crash in the next 6-9 months, followed by record highs within 12-24 months. Their prediction rests on the assumption of more substantial stimulus injections and reliable hedging strategies like cash reserves and portfolio protection using options or reverse ETFs. The author also expects higher inflation for longer, attributing this to the government’s ability to print money.

This time is different. I know. Famous last words, right? You’ve heard that before, but it is right now. The markets, they’re going crazy. The bond market blowing up. The yield curve, it’s resteepening. The S and P 500 and the Nasdaq, they’re dropping, they’re bouncing. Commodities are up. Everything seems so mixed up. And they are. But what we know for sure is it’s different this time. What’s different? Well, the Federal Reserve and the central bank’s relationship with the markets and more importantly, with their governments.

And while we might end up in the same place, this time is different. So in this video, I’m going to break down the fundamental shift that’s happened in the relationship with the central banks, the markets, and the governments since 2008. I have the charts. I have the data, I have the receipts, as I call them, and you’re going to be shocked when you see it. And we’re going to use this data to look at why I have a heavy bias for a contrarian viewpoint of where the markets end up.

So if you want to know what I think happens in the short and the longer term, watch until the end and let’s go. All right, welcome back. If you’re new, I am Mark Moss, and I make these videos to change the way you think about money. Because if you’re relying on legacy media to get your information and the public education system, then probably everything you’ve learned is wrong.

But don’t worry, we’re going to explain it to you so you understand what is going on and more importantly, what you should be doing. And I’m going to explain at the end of this video what I’m doing about this. So let’s dig into this video, into the data. So what happens with the economy in the next six months? What happens in the next two to three years, the next five to six years? Well, we have to see what may be different this time.

Now, there are no certainties in life, so we have to look for probabilities. And I’m going to break down what I think is the most probable to happen, what I call my base case, all right? Because what we’re seeing right now is certainly something that we haven’t seen before. Right now we have stocks falling like a recession is coming, while oil prices are rising like there’s no recession in sight.

We see interest rates are rising like we have 10% inflation, but gold is failing and falling like inflation is gone. We have house prices are rising like rates are falling, but yet commercial real estate is falling like it’s 2008. And I believe these mixed up signals are because the markets are trying to reconcile what should be happening with what is actually happening. And it’s the difference because of the fundamental changes in the relationships with the Fed and the central banks have with the markets.

All right, so let’s dig into this. So let’s dig into the data. And to do this, we’re going to jump back into history, going all the way back to 2008, which was the great financial crash. So first, the 2008 great financial crash. If we look back to there, we can see that the relationship between the Fed and the markets changed very dramatically in 2008, when the Fed launched quantitative easing, what we call QE.

Now, sure, we’ve seen that before, right? In fact, we can go all the way back in history to 22 Ad. And we can see that the Roman Empire did something very similar. We can see that the bank of Japan introduced QE in March of 2001, but the Federal Reserve and the US hadn’t ever been directly involved in the markets before until something changed. And that was the great financial Crash.

And the Fed launched its quantitative easing program. Like I said, QE. So that’s when things really changed. But of course, you probably already know this, but what I want to dig into is the data and actually the timing of it all, so we can better understand the change in relationship that we have today, so we can understand how things might unfold and be, well, different. So let’s look back then to 2008.

Now, before the 2008 crash happened, we could already see in 2006 that the markets were slowing down really, really fast. We could see that actions should have been taken. And let’s look at some of the timelines around this. So, in January of 2006, home building permits were down a massive 26% year over year. So massive trouble in the housing market. Already we can see that the yield curve had inverted.

Now you know that this is always a sign that trouble is in the horizon. And it was. Things continued to get worse until April of 2007, which was 16 months later. At that point, the Fed urged banks to start working with borrowers to try to slow down the defaults that were starting to show. By September of 2007, which was now 21 months later, the Fed finally started to act.

They started to drop the Fed fund’s rate just a little bit and then a little bit. And slowly the Fed dropped the rates from 5% down to eventually 0%. But this was done over an 18 month period. Now, if we compare this to today to now or back in 2020, we saw the Fed, at the very first sign of trouble, drop the Fed funds rate to zero, immediately hitting zero in only two months.

Not 18 months like back then in 2008, going back to then in 2008, actually. Now, July of 2008, a full 30 months later, after the housing cris had already started, the subprime crisis really hit the economy hard and GDP fell 2. 1% and continued to get worse. Two months later, September of 2008, a full 32 months later, the stock market crashed 777 points in a single day, making this the worst stock market crash in history at that point.

And this happened when Congress rejected a bank bailout bill. Now, hold on to that for a second. And then the following month, October of 2008, now, 33 months later, after trouble was brewing, and seven months after the Bear Stearns collapsed, the government finally approved $115,000,000,000 bailout. Now, let’s compare that to now. So this year, March 9, 2023, we saw three banks fell that were worse than Bear Stearns.

But instead of taking the government seven months to come up with a bailout, we saw the Feds create a new funding facility called Btfp to bail out the banks with $100 billion in only six days, going back to then, February of 2009. Now, the government finally approved a $777,000,000,000 stimulus package, which was now three years after the crisis had started, eight months after the subprime crisis erupted and GD plummeted three years, okay, compared to now.

On March 6, March 18, and March 27 of the year 2020, just weeks after the Pandemic hit, the government approved not one, but three stimulus bills totaling almost 2. 5 trillion. So now three packages, three times the stimulus amount approved in weeks, not in years. Looking at the size and the speed of these moves, it’s clear that the Fed has gone from slow and reactionary to now driving the bus.

Now, jumping back to then, the Fed and the government were waiting a long time for trouble to show up, and they were slow to react and approve. But today, now we can see the Fed has their finger on the trigger, and it’s itchy they’re ready to act fast. In 2020, they created 13 new funding facilities to quickly funnel money to every area of the market, including the commercial paper markets, the primary dealers, money market, mutual funds, corporate credit, secondary market, corporate credit, asset backed securities, main street loan facilities, municipal bonds, and even paycheck protection.

Now, what most claiming an imminent crash get wrong isn’t their research. Their research is mostly right. What’s wrong is they’re failing to see how many more tricks the Fed has up their sleeve, or in this case, how many more funding facilities. At the rate they’re going, they’re probably going to run out of three and four letter acronyms pretty quickly. And this year, they’re not just acting quickly now, they’re moving in advance.

So we saw in March of 2023, the Fed opened up and set permanent swap lines with the major central banks, including the bank of Canada, the bank of England, the bank of Japan, the European Central Bank, the Swiss National Bank. So they can have money whenever they want it or need it. And the Fed even opened up the credit cards for credit lines, however you want to look at it, for smaller central banks, including Australia, Brazil, South Korea, mexico, singapore, Sweden, denmark, Norway, and New Zealand.

These create liquidity backstops to e strains and global funding markets. And again, they’re essentially credit cards to be used whenever they need them. So you can see there is a massive fundamental difference in the willingness to act and the reaction times since 2008. Now, what took back then three years to happen now only took weeks and even more. The Feds opened up lines preemptively just in case something bad happened.

So how has this fundamentally transformed the markets? And will all of this keep the markets from crashing? Well, probably not. But let’s take a look at the time frames to get an understanding of what we might expect in the near and the longer term futures so we can be prepared. Now, we can see that when the 2008 crash came and the markets fell, we can see the S and P 500 crashed about 60%.

And what I want to pay attention to in this is it took about five and a half years just to get back to, even to get back to its previous high. Now, if we compare this to the S and P 500 crash in 2020, we can see it only fell about 35%. But what I want to pay attention to is that it took less than six months to get back to its previous high.

So the Fed and the government’s fast action and about ten X the amount of stimulus cut the drop in half, and it recovered in five and a half months instead of five and a half years, which is a pretty big difference. So again, will all of this keep the markets from crashing? Probably not. There’s at least, I don’t know, twelve pin pricks that we can see right now that could potentially crash this market.

There’s probably hundreds more things that could blow this up that we don’t even know about right now that could cause a massive credit event. But my base case is, if or when it happens, it’s going to be fast. The next injection package will be at least 10 trillion, maybe 20 trillion, just as 2020 dwarfed 2008. So the 2024 ish or whenever it happens will probably dwarf 2020. So my base case is there will probably be a crash sometime around the next six to nine months.

I expect it to be severe and I expect it to be fast because of the Fed and the other central banks having their fingers on the trigger and they’re ready to blow it back up. My base case is in the next twelve to 24 months. We’re at new all time highs, but you have to understand a couple of things first. So first, this is my base case, which means this is what I view as the most probable outcome.

But I can’t guarantee this. It’s not a certainty, it’s a probability. Right. And so for me, I have hedges in place. What are those hedges? That includes keeping cash on the sidelines as well as hedging to the downside. Now, how can you do this? You can easily do this. You can protect your portfolio using options if you’re more advanced, or you can do this with reverse ETFs if you want something quick and easy.

So how do you do this? First, you have to ask yourself this question what is your base case? Do you think there is a 100% certainty the markets crash? Probably not. Do you think there’s a 95% chance they crash? Do you think it’s an 80%, a 50%? So first you have to figure that out. Do you think there’s a 50% chance, an 80% chance? Then you have to adjust your hedges accordingly based off of what your probability is that you think it happens.

Then you have to adjust how much cash you keep on the sidelines and how much you want to hedge. Now, also, as I said, I think this happens way faster than it did in 2020. Just as 2008 took about six years to recover, 2020 took about six months to recover. And I think this next one will probably be even faster and more violent. And the other thing to understand is that there are two types of crashes.

All right? There’s an inflationary crash and there’s a deflationary crash. Now me, I lean towards an inflationary crash over the longer term. I’m speaking about 24 months or longer. I don’t believe a government that can print money will go bankrupt, not when they can just print the money. I’m an inflation bull, as I’ve been stating for a long time. I’ve been talking about for years. I think that inflation is higher for the rest of the decade.

And so I’m sticking with that. But what do you think what do you think the odds of are a crash? What are you doing to hedge your positions? And do you think that we have long term inflation or deflation? Let me know down in the comments, down below what you’re doing to protect yourself. Of course, as always, if you like this video, give me a thumbs up. If you don’t give me a thumbs down, that’s okay.

At least tell me in the comments why, if you’re not already subscribed, hit that subscribe button. And that’s what I got. All right, to your success. I’m out. You it. .