Summary
➡ The text discusses the potential timing of a recession based on indicators like the Federal Reserve’s pause on rate hikes and the yield curve. The average from the pause till recession is around 13 months, but there are issues with this measurement, usually due to the use of hindsight. Factoring in other indicator like the yield curve, the text suggests a probable recession may occur around the second or third quarter of 2024. However, the author emphasizes that predicting the future is uncertain and depends on a balance of short-term market psychology and long-term valuations.
➡ The speaker forecasts a possible recession in the second or third quarter of 2024, and emphasizes that a recession doesn’t necessarily lead to a market crash, as seen in 2020. He additionally offers a free encore presentation on the upcoming economic situation, and assures viewers he will guide them throughout this uncertain period.
Transcript
We’re going to look at two of the most reliable and consistent indicators, and we’re going to come up with the most likely scenario. And I’m going to show you what you should be watching, what you should be doing as all this unfolds. So let’s go. All right, welcome to the channel. If you’re new, my name is Mark Moss. I make these videos to change the way you think about money, because almost everything you’ve learned is wrong.
And it’s very hard to understand what’s going on because it’s pretty dang confusing. We’re seeing things from both sides at the same time as we’re seeing good data, bad data. We have the entire world breaking apart, multipolar world, rise of the bricks, all of these things going on. So we’re going to look at some data to break this down. Now, real quick, I do want to let you know that I am having an encore presentation.
The live presentation I did two weeks ago was packed. We ran out of room, so not everybody got in, unfortunately. So I’m doing an encore, and it’s going to be on a weekend this time. So people that couldn’t attend normally could attend. There’s a link down below. It’s free if you want to come hang out. I’m going to go through I think it was like 60, 70 slides I put together.
We’re going to do all the Q and A. I’ll answer any questions you have on how to prepare for the $7. 5 trillion shockwave. It’s a free event. Come hang out, check out the charts, chat with me. There’s a link down below. But let’s get into this video. Okay, so there is no shortage of headlines everywhere screaming recession. If you just go to Google, just type in recession, it’s nonstop.
Same on YouTube. Now you’re going to see ones like you can see on the screen right here. And this is basically the first page of the search engine. It’s dominated by headlines of the recession, but you’ll see they’re all dated back in 2022. So where is this recession? Did it already happen? Are we in it right now? Or is it still coming? And if so, when? There’s no shortage of bad economic data.
It’s all around us, right? There’s more coming, and it’s all coming soon. And so why is it not here? Well, it’s because of something known as the Lag Effect. And to understand this there’s three components of it that you need to understand. Now, I want to break that down for you so you can understand what to watch for. And then I’m going to break down some charts and some data for you so we can get an idea of the highest probable chance of when this is all going to hit.
Okay, so first let’s dig into the Lag effect. Now, you’ve probably heard that it takes anywhere from twelve to 18 months to really feel the effects of the Fed’s rate hikes, right? Well, we’ve gone on the fastest rate hike in history. Why haven’t we felt it yet? Well, let’s break this down. To understand this, we have to look at the three ways that the lag is caused. It’s broken down by the how and the who it affects.
So the first group it affects is the US. Government with now more than $33 trillion in debt. Most of this debt is actually locked in to long term rates and there’s only a small portion of it that actually matures at any given month, which then has to be reissued at new, higher rates. Also, some maturing debt was issued so long ago when interest rates were actually similar or even higher than they are current levels.
For instance, the 30 year bonds issued in August of 1993 with a coupon of six and a quarter just matured in August and it can now actually be moved down. Now, by doing that, reissuing debt like that to replace the bond actually saved the government about 2% on 11. 5 billion, which is almost a quarter billion dollars 230,000,000. But it’s still a massive problem the government’s going to have to deal with.
In fact, the US government’s interest expense will increase more between 2022 and 2024 than in the 51 years prior. And with about 30% of government debt that needs to be rolled over the next twelve months, this could become a big, big drag on the economy. Now, the second way it affects the economy is corporate borrowers. Corporate debt is similar to government debt in which it’s not all due at the same time.
Adding to this lag effect now most companies, sort of like the government, they spread out their debt. So there’s only a small amount that’s actually maturing in the one year. So it can take time until the more expensive debt replaces the cheaper maturing debt. Now, as you can see from the chart on the screen, a wall of maturing debt is approaching quickly, but it’s spread out over years.
Now, finally there’s the third group that’s hit with this Lag effect and it’s you and me, the consumer. It’s similar to the corporations and the government. So you can think like mortgage rates. Most people got locked in with historically low interest rates 2%, 3%. So they’re insulated from all of this. But new homebuyers or people that were forced to sell and move, for example, they’re going to be stuck paying these new higher rates.
However, consumer credit card debt, which is skyrocketing right now, actually floats monthly. So cardholders who don’t pay off their entire balance every single month get hit by the new higher rates. According to Fed data, the average credit card interest rate is 21%, up over 6% since the Fed started raising rates. Now the Lag Effect is delayed even more because of the record low rates. Right before, the Fed went on the fastest rate hike in history.
But either way, the Lag effect is a ticking time bomb. But rather than a sudden bomb, it’s like a slow tightening vice that gets tighter and tighter and tighter until something eventually breaks. So now when will something break? When will this recession finally come? Like as if we want it? Right. Well, let’s look at some charts and data to see if we can figure this out. All right, to do this, I’m going to go over to my whiteboard and let’s look at some charts.
All right, so we’re going to look at two charts. I have a couple different ones. We’re going to look at it from different ways. But it’s two main charts we want to look at. The first one is the Fed funds rate. Now don’t get me started. The Fed sets the price of the money by setting what the Fed funds rate is. And they basically create booms and busts by making money cheap and making money expensive.
And so we can look at the price of money as it goes up and down. And then we can see the recessions that are here. Now, what we’re looking at on this first chart is the Fed funds rate. So we can see it was all the way up here at about 18% here in the 1980s. But what we’re looking at specifically these gray areas are the times we had recession is we want to look at the price of money came back down, they went too far, they started raising it back up.
And from that when they went on the hiking path, when they paused, how long it took before the recession happened here in the 1990s, we can see it took 15 months to happen. Then the economy crashed. They lowered rates. They kept the rates down. They raised them back up. They paused here. It took eleven months to get the recession. They lowered them back down. This is the 2000 dot boom crash.
They kept them low, low. They started raising them. They paused here. It took 18 months. They left them down from 2010 all the way to about 2015. And they’ve been raising, raising, raising till about 2019. And then it took 13 months before that crash brought them back down to zero. And now we’re here today. So if we look at this, if we go back just to the went from the 80s, because if I go before the 70s, that’s before the Fed really had this sort of monetary policy they have today.
So from the 80s, we saw, there was one that was seven months. We had 115 months. Eleven months. We had 18 months, 13 months. And so when we take that, we can see the shortest time from the pause to the recession was seven months. The longest time from the pause to a recession was 18 months, and the average time was 12. 8. So almost 13 months was the average from the pause until the recession.
Now, are we at a pause right now? Well, the fed just paused. However, no time in history have they ever paused and then resumed going again. But they already did it once this year, and now they’ve paused a second time. Could they keep going? They very well could. So we don’t know the answer to that. But based off of this chart right here, it looks like the average from a pause about 13 months, is a recession.
However, there’s some problems with this chart. If we look at from the time they stopped, they paused until the recession here, they paused in a recession here. Well, what about here? So, see, they lowered, lowered, lowered, lowered. Went too far, raised it, and then they dropped it. So really, should we be measuring from here? And if so, now we’re looking at five years, 15 years. Same thing here.
They lowered, lowered, lowered, lowered, lowered to get us out of the recession, went too far, started hiking, hiking, hiking, and then they lowered it again. So shouldn’t we be measuring it from here? Not from here. The reason why I measure it the way I did the first time is because lots of economists do it that way. But I see lots of flaws in that method, because what they’re doing is they’re trying to use the benefit of hindsight.
Now, the reality is, none of us know the top of the market or the bottom market until we’re looking backwards. So for them to use this data point or this data point seems a little disingenuous to me. It seems like we should be measuring from here, because that’s when they went back up. So if we fix this chart, the other thing is, when will they pause? What we can see here is the Fed’s been on this war path, but you can see they paused right here and then went into another hike.
So should we be measuring from here? When they pause? Should we measure from here? Well, we don’t know. So let me show you an updated chart that I think makes a little bit more sense. This gives us a different picture. So what we should probably do is instead of measuring from when they pause, we should measure from when they go back up. And here’s why I like to show you the charts so you can see the speed.
What you can see right here is that we are on the fastest rate hiking cycle in history. See how steep that is. If you go back to here, look how slow that was. This one is moderately slow. These ones are slow, this one is extremely fast. And so it typically takes twelve to 18 months to see the effects of those rate hikes come into this, into the market.
However, if it happens very slow, then they ease into the market. If it happens very fast, it comes in the market on a faster time frame. So a better way to look at it is when you have a recession, the Fed lowers rates to get the economy going again. Recession happens, lowers rate. Recession happens, lowers rate. Recession happens, lowers rate. Right? So what I did is instead I measured from the time they stopped lowering.
So here they went back up. So we measured from there. They lowered, lowered, lowered, kept it low. They went back up. So we measured from here, lower, lower, went back up here, measured there. And now what we can see is something different. And I think this is a more accurate gauge. What we can see now. Twelve months, 45 months, 88 months, 42 months, 21 months, 19 months. So the average is 42 months from the time they started raising.
So if we look at here, we started raising right here. If we measure 42 months now, we’re into 2025. Now, on the short end, this would put us into November of 2023, which is a couple of months away. Could be pretty accurate. The long end could be 2030, but the average puts us 2025. So you have to see there’s a little bit of range here. Now, probably the more accurate even chart to look at, and I would argue that we should look at multiple indicators.
We don’t just look at one, we look at multiple indicators. And here is probably another one that we should be looking at. This is the yield curve. Now, the yield curve, when it goes inverted, it’s predicted every recession in history. So how long does the recession take to come after it goes inverted? So we can see here from the point it got inverted here, it took 19 months.
From the point it went inverted here, it took 13 months, 24 months, seven months, and now we’ve been inverted for 14 months. So what does this tell us? Well, the average is 14 months, which again puts us at September right about now, going into recession, I could make the case that we’re in recession right now. You might remember that we were technically in a recession this year until the Biden White House changed the definition of recession.
You might remember that on the short end, that’d be seven months, which would say February of 2023, which is actually when we were in the recession, that the Biden administration changed the definition on on the long end of 24 months, it puts us to July of 2024. All right, so if we take a blend of these things. And we look at the differences between not when they pause, but when they start raising rates and we look at the yield curve.
It looks like the most probable scenario for hitting a recession is going to be sometime in quarter two or quarter three of 2024. Now let’s go back and let’s see what this means. All right, so hopefully that was helpful. I like to show you the charts because you want to see the size, the speed of the moves. But what does all this mean? So as you can see, the range of the time frames we looked at it varies wildly.
Sure, we can use an average, but the difference from the short being months to the longest being years and even longer, they show us that using an average isn’t really going to help us. So predictions are pointless. Predictions of the future, they’re difficult at best, they’re impossible at worst. If we could accurately predict the future, then fortune tellers would win all the lotteries. What we can do is we can analyze what occurred previously, though we can weed through all the noise of the present, and we can discern the possible outcomes for the future.
But it’s still not that good. One of the most successful banks in the world, Goldman Sachs. Their chief equity strategist, David Coston, forecasted that the S and P 500 would gain 9% to 5100 by the year end of 2022. As he said, quote, reflect a prospective total return of 10%, including dividends, end quote. But the problem is that never happened. In fact, historical earnings forecasts and changes for each year analysts expectations are clearly wrong by about 30% on average.
So the question becomes, how much faith should we have in Wall Street estimates when it comes to our investing? The answer? Well, very little. In the late 1990s, there was a study on the accuracy of predictions. The study took predictions from various professions, including psychics and meteorologists. The study came to two conclusions. One, meteorologists are the most accurate predictors of the future, and two, the predictive ability was accurate to just three days.
Most importantly, once predictions stretch beyond three days, the accuracy is no better than a coin flip. A quarter of a century later, the Economist magazine analyzed computer models and their weather forecasting accuracy. Surprisingly, despite the massive increases in computer analysis capabilities, increased data collection and improved models, the accuracy has failed to improve. Now, as it was then, the accuracy of weather forecasts is roughly 100% for three days into the future.
However, at ten days, the accuracy is still no better than a coin flip. So does this mean that we should just abandon economic data and stop paying attention to it? Well, if you’re Warren Buffett, yeah. He said dozens of times, he just buys great companies and never tries to time the markets. Now, for me, I like to be somewhat what I call tactical with my assets in my portfolio.
No, I’m not a trader, and I certainly don’t recommend it. 95% of people lose their money trading. But I do ride the waves. I do like to ride the trends, like a 60% investor and 40% long term trader. You have to always ask, what time frame? Because predictions of the future, they have an expiration. In the short term, all that really matters to investors is short term market psychology.
That psychology is easily seen in a technical analysis of market price data. In the long term, though, meaning, like, over the course of the next couple of years or decades, it’s fundamentals. It’s valuations that will determine the return of your investments. But back to the topic of the video. Given historical measures, the most probable scenario of the US. Entering a recession are sometime in quarter two of quarter three of 2024.
So hang on tight and prepare. Now, some of you might be asking, what would a recession actually look like? How would my life how would your life change in a recession? What should you be doing to prepare? Now, if you want another video on that, drop me a comment and let me know. And like I said, I do have a new encore presentation. There wasn’t enough room for everyone in my last presentation.
We’re doing an encore on the weekend. There’s a link down below. It’s free. If you want to come see about the $7. 5 trillion tsunami, there’s a link. Come hang out, check out the slides. I’ll do a live Q and A. Other than that, that’s what I got. Hopefully, this makes sense. Quarter two, quarter three. That’s the best that we can tell from the data. A recession is coming.
Now, I do want to just say real quick, a recession doesn’t necessarily mean a market crash. There’s plenty of reasons why a market crash is coming or a recession is coming, but they don’t have to work together. In 2020, the economy literally shut down and markets went to new all time highs. But we’re we’re going to ride this together. We’re going to stay on top of this data.
I’m going to continue to report back to you. We’re going to get through it together. I got your back. Don’t worry. To your success. I’m out. .
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