Warning: The Mid-Cycle Recession.

well we gotta talk about a mid-cycle

slow down slash recession and is it

possible is it possible that we could

actually be facing a type of slowdown

that isn't that bad and the answer to

that is well what we're going to talk

about in this particular video and in my

opinion it's actually quite remarkable

so there's this argument that perhaps

just maybe

1995 is

2023 all well basically today and so

what does that mean well in 1995 we had

what was known as a mid-cycle Slowdown

see we came out of this 89 recession

which really didn't take hold until

1990. so either crash in 89 we got the

recession the official recession

designation in all August of 1990 the

recession technically was over by March

of

1991. now what's really interesting

about this is it was one an eight month

long recession so you had your crash in

89 your official recession about a year

later in August of 90. the recession

ended in March of 91 and guess when

unemployment peaked

15 months after the recession well after

the recession started well so which

that's pretty remarkable because the

recession started in August of 90 but it

wasn't until June of 92 that you ended

up getting to 7.8 percent uh

unemployment which is pretty remarkable

that's that's a pretty high level of uh

Unemployment uh and so uh a lot of

people believed that okay well if

unemployment can take that long to Peak

then obviously unemployment is a lagging

indicator and that is absolutely true we

know that unemployment is a vastly

lacking indicator one of the things that

we also know today is that there really

hasn't been an official recession

without the unemployment rate

skyrocketing like when you look at the

St Louis fed and you look at the charts

on the unemployment rate every time it

takes up and hockey sticks up you have a

recession now that's interesting but it

has nothing to do with the mid-cycle

sort of slowdown other than the fact

that it was relatively close to when you

last had a recession so think about that

you had to crash in 89 and then you had

a recession uh in 90 to 91. okay great

so then you started going into recovery

mode and in recovery mode you actually

started seeing the stock market start

doing quite well and not only did it do

quite well it started doing very well

specifically starting in 1995 and if you

look up the S P 500 and like you look up

like a 90-year history on a logarithmic

pattern or whatever you'll really see uh

what what we're talking about but in 95

you started seeing a skyrocketing of the

stock market going all the way into the

2000s era and then of course you had

the.com crash and some nightmares over

here but what was really remarkable was

the conditions of 95 that led to the

stock market rally

and it's wild because think about how

similar it sounded you ready for this I

went to a

1996. New York Times article and here's

what they said while there's talk of a

possible recession the conversation

leans towards a mid-cycle Slowdown

rather than a full-blown recession as

indicators such as consumer sentiment

and spending remain relatively strong

it's very interesting mostly because

what led to the mid-cycle slowdown in

the mid 90s listen to these conditions

the Federal Reserve raised interest

rates several times in the early 90s in

an effort to control inflation

the dollar had also risen strongly after

the 89 crash and 90 recession making it

expensive for American businesses to

export goods and services on top of that

you had a decline in business investment

those three conditions are exactly the

same three conditions that are going on

right now literally they're exactly the

same things you're seeing right now you

have the rising interest rate

environment not only do you have the

rising interest rate environment but but

you have a dollar that has already

substantially strengthened and then on

top of that you're seeing this slow down

in business fixed Investments uh as well

as uh just businesses overall being most

likely to be affected by the credit

crunch from the banking crisis which

makes sense because when businesses take

out loans they usually don't take out a

30-year fix like a consumer does they

take out these revolving lines of credit

that slowly adjust up in interest and

that's painful for businesses it's

actually more painful for businesses

than it is painful for consumers and

then listen to this from the 1996 piece

from The New York Times what do they

have to say they have to say the U.S

economy grew at a meager annual pace of

just 0.9 nine percent in the final three

months of 1995.

and guess what you didn't end up having

a recession which that was the really

exciting part is that you could grow at

point nine percent I think for the year

GDP in 1995 was about 2.6 percent when

they finally did the math on the full

year uh but uh what's Wild here is you

had

GDP really slow under higher rates a

strong dollar unless business fixed

investment

and this came after a recession just a

few years before which we had a 2020

recession remember

and on top of that you had uh the

consumer spending levels start

stabilizing they didn't really fall off

a cliff but they started getting quote

restrained also you saw total output

somewhere around the 2.1 percent which

was quote back then the smallest gain

since 1991 basically right around after

that recession ended you started coming

out you had the Clinton Administration

anticipating economic weakness might

continue for another year ahead but

expected growth to Rebound in the spring

of 1996. Alan Greenspan the chairperson

of the Federal Reserve described the

economy as going through a significant

soft patch but predicted the higher

likelihood of a rebound than a recession

Builders broke ground on new homes at a

solid Pace in January 1996 offsetting

previously the previous declines in

December that's literally really the

same thing that just happened this year

by the way same thing with housing

starts and then personal spending while

it climbed 0.8 percent in the first

quarter or the fourth quarter in 1995.

it uh it was substantially slower than

that 2.8 percent climb they saw in the

summer before that uh so you saw

businesses really slow down consumers

slow down a good amount but you didn't

end up going into recession for the

entire year you ended up Rising uh with

a GDP level of somewhere around

2.63 percent uh and you avoided a

recession but when people look back at

1995 they're like dude 1995 was one hell

of a soft patch in the economy but it

was a great year why was it a great year

folks look at the stock market ready for

this I'm going to show you a logarithmic

chart of the S P 500 and it's scary go

back well look at look for a moment

where on this chart do you see the

biggest

skyrocketing uh and this is a

logarithmic chart uh and look for the

biggest skyrocketing outside the decade

going into the pandemic so in other

words ignore this part which is the

decade going to the pandemic where is

the biggest rise in this logarithmic

curve well it's actually right here and

let's see where that begins

[Laughter]

oh look at that right here February of

1995. yo boy Kevin was three years old

anyway February of

1995. during the soft patch during the

mid-cycle slow down during everybody

freaking out about their potentially

being in a recession after you already

had the recession just a few years

before that during all of this freaking

out

the stock market absolutely went ape I

mean it went to higher levels uh than

than we saw until uh basically 2014 on

you know on nominal levels here now some

say you know well of course I mean once

you got to the late 90s you had the.com

era which was just a massive period of

excess and speculation this is true I

mean it all ended up in the poopy

doopies over here right you ended up

with double recession.com recession in

the Great Recession driven by housing

but the point is if today we're at

February or March of 1995 you got

another five years bro and that's

consistent with the nice Nike Swoosh

recovery just say now it's not just me

who's talking about this potential idea

that today's cycle could be somewhat

similar to 1995. it's actually

uh Texas instrument uh this is uh this

is where I was inspired by the idea

because I've always looked at you know

the Federal Reserve has regularly talked

about this idea of a soft landing and uh

the soft Landings that we've previously

had have been far and few between it's

basically mid 80s mid 90s those are your

soft Landings and this the mid 90s soft

Landing just happens to be somewhat

eerily scarily similar uh to to you know

some of the conditions some of them not

everything uh that we're seeing now you

know history doesn't repeat itself but

it tends to rhyme and uh the chair Chief

Executive Officer of Texas Instruments

was at a banking conference with uh city

the city conference and I want to read

you what he says

so he said the following

I know you're a historian in terms of

keeping track of this stuff to me

potentially the cycle you may want to go

back and look at is 1995 to 96.

because 2000 to 2001 the Y2K cycle

emerged into a pretty weak personal

electronics Market

but and so did the 2008 to 2009 cycle

which emerged into a pretty weak global

economy because of well the real estate

crisis but between 1995 and 1996 you had

in the words of the CEO of Texas

Instruments quote what turned out to be

an eight seven or eight year secular run

with the growth of PCS and cell phones

well it isn't going to be PCS and cell

phones in this run guess what it's going

to be it's going to be industrial and

automation because of semiconductor

Toccata in other words AI now the city

conference was happened before you know

all this AI stuff was going crazy and

Kevin's like hey all right well let me

show you as an entrepreneur or as an

employee how to be more productive using

AI via my course Sun building your rev

link down below how to make more money

and get sh90 done faster it's actually a

free upgrade for existing members of

that course but uh we're going to be

doing all the AI releases here on June

1st I encourage you to join we'll have

another large price increase uh once

June 1st rolls around so check that out

you can bundle up with any of the

programs like down below but listen to

that quote for a moment

you had an eight seven or eight year run

where from 95 to 96 the stock market

blew up because of cell phones and PCs

well now we have these conditions in the

market that are super similar to what we

saw in 95. and the stock markets not you

know just getting potentially started on

its run so it's actually a really

exciting period to look back to that

maybe just maybe this is not going to be

a recession maybe we we had a technical

recession I mean q1 Q2 of 2022 was a

recession technically right we had

negative GDP

uh but beyond that it makes you wonder

is it possible that Ai and productivity

can can swing us out of this and then

this is of course where people say but

Kevin the consumer they're gonna roll

over right this is what all the Bears

say and I get it because the Bears are

like Kevin okay we agree inflation is

going to come down but the consumer is

going to roll over really where are the

indications of that well let's just

analyze exactly that for a moment let's

go press uh let's see I'm supposed to be

able to press that button it didn't work

okay hold on I pressed that button here

we go okay so I press this button and

then I need to press this button and

then that button oh that's not the right

button oh dear this is what happens when

I bring back the me Kevin report and it

just has some battle tests it hasn't

been battle tested okay you just have to

bear with me here for a moment one of

these buttons is gonna uh put me in the

right spot oh this is terrible uh well

you know what whatever you'll just have

to deal with me where you'll have to

deal with me yeah I can't I can't get it

up boys and girls you can't get it up

today uh that's all right we'll just uh

we'll just uh go with Kevin right there

all right so what do we have here look

at this

America runs on consumer spending and

consumer spending continues to run oh

hold on I'm in the weird corner there we

go America runs on consumer spending and

consumer spending continues to run in

the right direction as this week's

strong April sales report confirmed

retail sales report the strong start for

consumer spending should support another

moderate increase in GDP in the second

quarter

in aggregate the household sector is a

net recipient of monetary interest while

non-financial business sectors are net

payers of Interest as businesses

gradually reset into higher interest

expenses over time this will be an added

headwind okay then they talk about how

businesses are starting to reach a

Breaking Point and how you know last

week's seven went bankrupt this is a

recent report by the way it's from May

19th there we go oh it's so weird being

in the top left corner there uh anyway

May 19th this is from when this JPM

reports from and what they're really

telling you is hey look businesses might

be the ones who roll over as we talked

about earlier it's businesses just like

in 1995 that started slowing down their

Investments because it was getting more

expensive to do business because rates

were going up not the consumers the

consumers didn't roll over in 1995

either and yes while some things slowed

in 1995 we didn't actually go into a

recession uh and and really we're seeing

similar things happening right now in

fact look at this

uh oh first of all they talk about the

credit tightening and how the fed's

probably done this cycle okay we talked

about that earlier but look at this

after a sluggish end to q1 real consumer

spending might be off to a good start

with the April retail sales report even

though retail sales growth was below

expectations with a point four percent

increase in April the sales of the

control category Rose 0.7 percent so

what is control Well Control takes out

the volatile gas segment the volatile

the used autos and new auto segment it

takes out building materials and Food

Services which is like restaurants now I

understand that takes out a lot of stuff

what does it leave in there well it

leaves in there you're getting your hair

cut your CPA your dentist Medical

Services you're buying uh groceries you

buying see not Food Services right you

buying uh you know I don't know

um I I if I didn't already say well here

like tax prep services financial

services courses on building your like

all those things are excluded or or are

included rather the only things that are

excluded Auto's gas building materials

and Food Services these are generally

the volatile ones and when you actually

look at that segment retail sales Rose

0.7 percent in April of 2023 and what's

it being driven by you won't believe it

online retailers

dude you know how long online retailers

were a big sandbag well for a very long

time they were a massive sandbag because

everybody's like oh my gosh you know I'm

done buying stuff online I want to go

out and spend money at an actual store

again because you know I'm so used to

buying stuff online because of covet

well now all of a sudden retail online

retailers are actually driving retail

sales again this is crazy so uh you know

and then of course you could look at

industrial production data coming in

stronger than expected there is a lot of

noise in this you know some reports are

strong some reports are weak you've got

the New York and Philly feds coming in

strong uh you had Empire State coming in

a little bit soft you had some other

business surveys uh like ISM moving up

Institute for supply side management so

a little bit of of mixed data here but

when you're actually looking at

manufacturing output it seems like

you're seeing at least somewhat of an

inflection point up in April which is

just weird because I I think most of the

bear argument is that oh well okay

inflation will go down but the Fatal

have squeezed us into an earnings

recession because people are going to

stop spending but it's just that's just

not what we're seeing in the data right

now uh not only is manufacturing data

ticking up again after the banking

crisis but consumer spending is sticking

up again like the second quarter is

starting to look just fine and it's

scary to some extent because it's like

there's no way Jerome Powell could

really pull this off is there I mean

there's there's no way he could pull off

this soft Lane

it has happened before it is very rare

and you know I'm not here to be like a

j-pow shell I mean we know they've been

wrong in the past here pretty

significantly but it's kind of

remarkable to think that wow that's

weird Kevin maybe this could potentially

be like 1995. now you know I'm not

saying with certainty that's what what I

think it is I still believe in my

volatile Nike Swoosh which we've been

talking about for like six months sorry

to sound like a broken record but I mean

I was blown away yesterday when I looked

at the S P 500 over the last you know 90

years or whatever on on a log curve and

I'm like well what did it do in 95 and I

look and see it Skyrocket I almost lost

it I'm like oh my gosh near soft Landing

in 95 in the stock market skyrockets

which we kind of started setting the you

know foundations for in the last five

months the Market's done very very well

and if you look at the the Atlanta feds

real GDP Now cast which is basically

this forecast of what GDP is going to be

for the second quarter

it's rising they keep revising it up

first they thought it was going to be

1.9 they thought it was going to be 1.9

just uh three weeks ago then they raised

it to 2.7 then they raised it to where

it is now at 2.9 percent

oh it's almost three percent growth

that's for the entire United States

right now we're projecting Q3 to be uh

sorry Q2 to be on Pace for almost three

percent growth that's wild I mean that's

knocking on the door of what we saw in

95 when we had 2.63 growth for the

entire year so I know everybody's

talking about the recessions coming in

Q3 Q4 you know everybody's gonna

suddenly magically run out of money and

stop spending uh and it's possible I

mean businesses could roll over uh maybe

consumers don't have to it could be

businesses that roll over I actually

think this this piece uh by JPM was

pretty reasonable where where they

suggest yeah like hey man if if we do

roll over on uh on the on the business

side maybe that's all you need to go

into recession but this is just not as

as bad as uh as as thought uh so uh

pretty

pretty remarkable pretty remarkable so

um anyway uh let's see let's take a

quick look at some of the comments here

uh 1995 was due to dance mix 1995 on CD

you know whatever enthusiasm it takes

welcome redis being another member of

the uh Channel over here Steve says time

for that Dell step bro

uh yeah it was a little bit of a dumb

butt I uh I uninstalled over the weekend

like three Wi-Fi access points I have in

the house I usually have five I'm down

to two right now so uh yeah that was uh

that was my oopsies mostly because

they're old and I'm upgrading them but I

didn't install the upgraded part yet and

then I'm like let's have this great idea

of going live uh anyway okay well so so

look at this a lot of people on Twitter

are showing the explosion and Consumer

loans and the end of the student loan

pause okay first of all let's make this

very clear guess what people paid before

their Pan the pandemic okay think about

that for a moment what did people pay

before

the pandemic I'll give you a moment to

think about it

okay they're debts

they paid their student loans oh my God

radical idea holy crap people paid their

student loans and what did we not have

all right

maybe because students are kind of broke

he's anyway it's unfortunate this is

true uh but um

yeah yeah you know I I don't I don't

know that this idea that oh yeah with

certainty uh uh once uh once people have

to pay their student loans again the

economy screwed is probably just as

strong of an argument as people were

making or like oh well just wait as soon

as China reopens every commodity is

going to go to the moon and we're going

to have another wave of inflation and

I'm like okay dude just like we had all

that inflation last time China's economy

was open what happened China's economy

opens up everything's fine like sorry

that not a good way to drill fear uh now

you know this this other idea we could

look up we could go St Louis Fred uh

household spend uh Debt Service payments

disposable income so all we have to do

is pull up a chart of what's going on

with household uh Debt Service payments

as a percentage of personal income so

I'm gonna grab that chart and then we

can also grab Consumer Debt Service

payments as a percentage of personal

income and we can go all the way to Q4

2022 on this data we'll pull this data

up on screen in just a moment here let's

go and run this over to the iPad uh and

then we can look at some of the data

because I think it's going to give us a

good indicator of what we want to pay

attention to and it's not that the

nominal number of debt is going up I

think that's something that a lot of

people really miss it's sort of like and

look I get it you know I said it too

you've heard me say and it's true oh

this banking crisis is already larger

than the banking crisis of 2008. well

yeah but you know the dollar we've had a

lot of inflation since then okay I'm not

saying that there hasn't been a lot of

inflation I'm definitely saying that and

I'm not saying that's a good thing to

say is problematic it is a problem uh

but what's crazy is when uh when we

remember that nominal numbers matter

when we bailed out the economy and covid

with trillions of dollars and the

bailout you know what was tarp like 1.2

and I think we were like six trillion

dollars in covid it's a crazy difference

in terms of the numbers

uh but anyway so take a look at these

numbers here we'll pull this up let's

see here

um we're gonna go here it's here so what

do you have here on screen you have

household Debt Service payments as a

percentage of personal uh disposable

income and what you have here is really

an indication that we're nowhere near to

the levels that we saw in 2007 or eight

in 2007 and eight we were around 13 up

to 13 right now we're all the way down

there at the bottom right at nine point

seven percent so in other words nine

point seven percent that's how much

money we're spending on debt as a

percentage of our disposable income now

if we jump on over this is household

Debt Service payments right then you

jump on over here to Consumer Debt

Service payments okay so this one's a

little higher Right In fairness it's a

little higher oh but wait a minute it's

just on par with what we saw in 2017 18

and 19 and it's actually a fraction of

what it was uh in the mid 2000s uh you

know in the mid 2000s you were sitting

around six percent early 2000s you were

knocking on the doors seven percent uh

and we're down over here at 5.7 percent

I know the numbers don't sound like

they're that horribly far off but when

you look on the chart you can see we're

not seeing any kind of like explosion or

or runaway uh of something that's

horribly concerning so yes on a nominal

value debts are going up people are

taking on more loans I get it but people

are also making more money so so this

idea idea that oh but people I mean Max

Max you're right to bring this out I

actually think it's great you bring it

up so thank you I'm not I'm not saying

you're wrong I think it's great you

bring this up because it's good to

address the issue but this idea of

people on Twitter complaining about the

explosion of student loans or the

explosion of Consumer loans in the end

of the student loan pause I hate to say

it but that's absolutely what I despise

about Twitter is the level of depth you

get on Twitter is zero because it's just

what's the what's the sexy like

provocative uh a chart that you could

throw up on screen and it's that's going

up

and that gets likes and shares and

retweets now don't get me wrong there's

some really cool things about Twitter

you know I don't want to poop on Twitter

that much because I do like Twitter but

that's one of the things that grinds my

gears is that the level of depth on

Twitter is like negative man it's

because it's almost like I think people

who really do well on Twitter they have

to look for those charts that evoke a

lot of emotion and rather than you know

potentially argue why that chart is

actually you know why you have to adjust

the chart not to be relevant to our

times today it's so much easier to just

go way up and then everybody's like oh

that can't be good you know it's like

Kevin McCarthy on Fox News we spent too

much money on our credit card it's like

we gave a teenager the credit card we

spent too much money and and now we

gotta rein in the budget because we're

in tough times it's like oh okay I mean

the government is different from a

household in many regards uh most of the

fact that we could print our money and

inflate our money away and technically

we never have to repay our debt as long

as the economy grows stronger but that's

not to argue that we shouldn't have a

balanced budget we should our

government's highly failed that and

they're highly inefficient at spending

money but the point is there's a lot

more than making a simple analogy that

goes into the complexity of a situation

and every time I look at these bear

arguments I'm like

I

don't see it I don't see it it's that's

not that scary and to me that's what

makes me

dare I say the b word but it's true it's

what makes me bullish uh there was this

uh there was this guy on Twitter oh who

was he uh there was this dude on Twitter

he had this uh long a rant and he's like

a super bear uh super bear and so this

super Bears on Twitter and he puts

together this chart it was something it

was um I think it was the credit impulse

that's what it was it was the chart on

credit impulse

so he puts up a chart on credit impulse

and I tried to recreate his chart and I

couldn't do it and so I tweeted at him

and I'm like bro I can't recreate your

chart how did you make this did you rig

the data because the only way I could

remotely and potentially get a chart

that looks like yours is if I rigged the

data and then I get something that looks

like what you did maybe I missed

something here can you just like help me

understand how you made your bear chart

and uh never reply never reply just tote

never brought it up again never brought

up credit impulse again just I can

totally ignored it it's like okay fine

but like why why why do the Bears have

to resort to that you know it's like uh

it's like Mike Wilson the more

frustrated he gets that the bear case

isn't playing out for him uh the more he

starts talking about nonsense like oh

the the academy and the stack might get

her you know they're they're they're in

thin air they're climbing Mount Everest

and it's thin air up there they're gonna

suffocate eventually and but we you know

we just looked at consumer data it's

like it's not that bad and then you get

out of these other people again on

Twitter uh and they're like but Kathy

have you seen the p e ratios of all

these companies this is clown world and

then I look and I go

bro you're using 20 22 numbers and when

you use 2022 numbers especially of the

tech industry when the earnings were in

the hole because you're comparing to

2021. we know the chip companies had a

nasty earnings recession that's already

behind us that's why Nvidia went to 120

bucks because of the earnings recession

and so you're going to use trailing

12-month EPS to tell me what the p e

ratio is and and to somehow suggest that

we're in clown world today because

you're using EPS from the whole

like who's the Clown

look use realistic data

it's a whatever but I don't know I don't

know maybe maybe just maybe Kevin has

Rose Colored Glasses on no I really do

my best every day to try to see what the

bear argument is what I'm potentially

missing but I'll tell you so far this

really this idea of whether or not we

have a 1995 recovery or not

it really feels a lot like

we are actually on the Nike Swoosh

recovery and I'm very optimistic about

it I'm very optimistic about buying real

estate later this year I'm very

optimistic about being in stocks and I'm

very optimistic about these courses

especially the AI release coming out on

June 1st

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