I interviewed with the President of Bear Stearns in the late 1980s. The interview went well, but he looked at my background in law and finance and said something like this:
“You can work here, but we are facing a recession that I think will hit us hard, so I think you should instead get a job at a major bank to help them work out all of their Leverage Buyout (LBO) Debt – and make that your niche.”
He said that because there was an unprecedented number of LBOs in the 1980s (an LBO is a transaction where Company A buys Company B with debt that is financed with Company B’s assets – sort of like financing a home purchase).
The Bear Stearns gentleman and many others like him firmly believed that the enormous amount of LBO debt would tank the entire economy once a recession hit and take years to work out, requiring experts in corporate finance, banking, and law.
So, I took his advice and went to Wells Fargo out of law school, and here’s the thing: the recession did hit, and the LBO debt was a problem … but only for about 15 minutes, as banks were able to work their way out of it relatively quickly and without major issues.
So, after seeing that play out, and after seeing the savings and loan banking crisis get worked out in the 1980s, and after seeing the dotcom crash get worked out, and after seeing America recover from 2008, I have become much more sanguine when it comes to potential crises.
BUT – there are still lots of analysts who like to predict doom and gloom, and they have a lot of data to back it up. So, I thought I’d touch briefly on what one of those doom and gloom guys is predicting.
David Hunter (longtime contrarian analyst) is the gentleman I will focus on today, as he was on The Julia La Roche Show recently. SIDENOTE: I highly recommend Julia’s podcast because she has no axe to grind, and willingly entertains ALL perspectives (optimistic, pessimistic, and in-between).
- STOCK MARKET HEADING HIGHER BEFORE CRASHING: Hunter believes stocks are a great leading indicator for the economy, and he believes stocks will continue to climb higher in 2023, before crashing into the ground in 2024. He made similar run-up predictions in 2020 and 2021 and was correct.
- EARNINGS WILL CRASH/END OF 41-YEAR BULL MARKET: Hunter further states that corporate earnings will fall off a cliff in 2024, sparking the crash and that our 41-year bull market stocks will come to a screeching halt.
- 12 – 18 MONTH RECESSION STARTING IN 2024: Hunter thinks we will see financial crises and a long recession starting in 2024 – with an 80% DROP in the S&P 500! But note, he also thinks the S&P could run up to 7,000 (currently at 4,400ish) before plunging.
- COMMODITY PRICES THROUGH THE ROOF: Hunter thinks the economy will recover in 2025 – 2030, but the problem will be commodities – as demand will massively outpace supply and push prices into the stratosphere.
- DOUBLE-DIGIT INFLATION: The commodity price surge will spark double-digit inflation (20% to 25%) that will in turn lead to a depression.
- DOLLAR WILL CRASH, THEN SURGE: Hunter thinks the dollar will get much weaker before surging next year during the crisis like “it always does during crises.”
- INTEREST RATES & MONEY PRINTING: Hunter thinks the 10 Year Treasury will drop as low as 2.5% (from 4.0% now) THIS SUMMER – so that would mean mortgage rates will fall as much as 2% too. He further says the 10 Year will drop as low as 0% next year, putting mortgage rates as low as 2%. But – then the Fed will start printing, and all hell will break loose – with the 10 Year Treasury hitting 15% in the years following next year’s crisis.
- GOLD TO $20,000: Hunter thinks gold will hit $3,000 per ounce this year (up from $2,000 now), and $20,000 per ounce later this decade in response to all of the inflation and money printing.
- TOO MUCH DEBT/DEPRESSION IN 2030s: With money printing, massive debt buildups worldwide (particularly with massive Quantitative Easing), and inflation – there is no way we will be able to service all of our debt. And that will foster the collapse of the entire system and foster a long and very difficult depression – the doom loop, as America will no longer be able to borrow, print and spend.
How likely this will play out this way is anyone’s guess. BUT, Mr. Hunter is not alone in his concerns about our massive debt loads, potential commodity shortage, and enormous entitlement obligations ($200 trillion by some estimates), so I think this doom loop scenario is probably more likely to play out than the others I list above. BUT – America has shown an amazing ability to work through major crises in the past, so I wouldn’t sell us too short now.
What I would do no matter what though is buy more real estate, as it will prove to be an excellent hedge against 25% inflation (which I think is inevitable at some point) and high inflation rates turn today’s mortgages into enormous assets!
Gold and Bitcoin, depending on your leaning, might also prove to be nice hedges.
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