THIS *Bear* Case has Me Worried | Market CRASH.

does does a recession even matter now

we're going to cover whether or not a

recession actually matters in the eyes

of TS law important I think this is very

interesting and they give some

fascinating perspective so let's take a

look at this 2020 has given investors a

false sense of security about the

recession impact now look most of you

know I'm I'm pretty bullish right now

mostly because the conditions that we

see in the market today are highly the

opposite of the conditions that we saw

in January of 2022 where in January of

2022 the conditions of a wage price

spiral were in place everybody was

Raising prices pricing Powers insane

supply chain shortages were a chain

we're insane we knew the worst was ahead

of us now a lot of those conditions have

really started their reversal path and

even though that reversal is taking

substantially longer than expected we're

not facing the sort of Paul Valkyrie

scenarios uh that we were potentially

facing in January of 2022 however I'd

like to read sort of the more bearish

pieces and I think it's very interesting

that they start off by saying you know

2020 gives people a false sense of

security that basically in 2020 as they

say was a joke basically about how the

market responded because and I remember

this during the covet pandemic the stock

market I mean the entire economy

basically got shut down in March and

then in April May everything is a

disaster everybody's afraid of covid

everything's hell and the stock market's

just going straight up because the fed's

printing money like crazy uh and I

remember the the memes of the child on

the swing uh smiling and laughing being

labeled the stock market and in the

background the whole town is on fire uh

being labeled the economy right and that

disconnect those memes I'll never forget

of 2020. and so they bring up basically

this this joke they don't say it's a

funny joke but basically a joke about

how the stock market is not the economy

because back then we really had this

element of Tina there there is no

alternative to investing in the stock

market

and so what they argue here was that the

big thing about the fake 2020 recession

is that if you if your only real

experience of a recession uh like this

this is if you're maybe like in your

early 20s or before like if you you

weren't essentially of adult age in the

2008 9 10 sort of depths of the

recession or potentially even seven six

they make the argument here that the

2020 my recession might be people's only

actual experience of a recession and

that was really a fake recession because

the government knew they were shutting

down economies and they preemptively

printed so much money to backstop

financial markets we basically didn't

actually have a real recession yes GDP

went negative but we didn't actually

allow real damage to occur from the

lingering of a recession now what I

think is interesting here is it somewhat

relates to me what uh what some of what

Elizabeth Warren said yesterday now we

know that Elizabeth Warren is pretty far

relatively

I say extreme on the left

uh as somebody who who enjoys financial

and political coverage in the middle I I

see Elizabeth Warren is quite left not

not just left quite left uh but anyway

she she made this argument that hey look

once you start seeing layoffs in the

economy you're going to create this

quote runaway train of more damage

occurring how are you going to prevent

that continued damage and she actually

has a really good point that we don't

know what is going to happen in terms of

how long the damage of the recession

could actually last you know the FED

could U-Turn when inflation is under

control but then you look at the pieces

of the economy and you go well what did

you just do to the economy what if now

we go into a real and deep recession now

we we don't know we don't know we

haven't had these sort of experiences

before so we don't we don't have a very

clear precedent of of war and pandemic

in a pandemic that was responded to with

the money printing that we've seen right

we've had Wars and we've had pandemics

separately but not both together

combined with these modern supply chain

issues we haven't been in these

situations before but anyway the stock

market uh the stock market performed

during an artificial environment during

2020 and 2022 is not necessarily a

helpful guide where sessions they say

are a process not just a period of two

consecutive quarters of falling GDP In

fairness in 2021 oh sorry last year 2022

we had two quarters of negative GDP but

we did not have the recessionary process

now that actually led to a lot of

complaining that Joe Biden was trying to

re-jegger the definition of a recession

like hey a recession isn't actually just

two quarters of negative GDP and

everybody's like of course you're saying

that you're the White House but to some

extent the white house isn't necessarily

wrong like we didn't really have the

quote unquote process of a recession in

2022 even though we did have two

quarters of negative GDP it didn't

really feel like we were in a recession

unless the only thing you cared about is

the stock market but stock market as we

know is not the economy but anyway

recessions are a process it says here

not just two quarters of falling GDP and

they sent her on deployments in the

labor market particularly in the United

States when U.S companies start to fight

fire people it sets off a highly

unstable and reflexive process because

falling employment in turn kills

consumer confidence reduces spending and

feeds back into a decline in corporate

revenues which could lead to further job

losses now I find it very interesting

but this is literally what Elizabeth

Warren was talking about and I can't

believe I somewhat find myself finding

basically an Institutional piece of

evidence that reiterates what Elizabeth

Warren says because I generally don't

like to amplify what people on the

extreme say

but she's right she's not wrong we don't

know what happens when employment

unemployment starts to rise and then we

get that potential runaway train and

here T.S Lombard is telling us like

yeah like the 2020 recession didn't

matter but this recession we're about to

go through you know this could actually

be a really big problem falling

unemployment in turn kills consumer

confidence I mean think about it you

lose your job all of a sudden you're

like oh damn I I'm not going on vacation

this year now In fairness to myself okay

well I'm not trying to sound conceited

here but I've been pounding the table

since like March of 2022 uh and January

of 2022 around that region the reason I

say Bart is because I did an interview

with a good friend of mine Matt

Reisinger I love the guy I got to go

visit him in Texas and I remember going

on his podcast and I said if you're a

contractor right now just get ready I

don't know when but probably over the

next one to two years you're going to be

in a recessionary environment and you

want to get ready start saving more

money now right and I'm trying to

provide that warning like get ready uh

now I'm glad I did because you know the

building permits are starting to fall

we're starting to wreck recognize that

there could be lagging effects that

affect the construction Market in fact I

thought it was very fascinating there's

this researcher who put together a

phenomenal piece this morning on on the

lags of construction data and how that

potentially affects real estate I'm

going to go ahead and pull that up right

here because it's and I'll give you some

bottom lines on it too we're not going

to go through the whole thing on it but

uh let's see if I could find the darn

thing here here it is

EPB research okay and I'm going to

bottom line this because it's it's a

little bit long-winded and that's no

offense to him he's providing data but

we're going to just keep it simple for

the sake of YouTube here although

usually I go into more detail on YouTube

this one is not as necessary I could sum

it up faster so basically he talks about

construction being a major driver of

recessions and essentially what he's

saying is construction is really broad

it's really residential construction

that leads recessions and the Really

fascinating part here is he talks about

how building permits are one of the most

reliable indicators of construction

because obviously you need a building

permit before for you can build and he

talks about right here building permits

Blue Line recession gray bars okay so

what do you have before the recession of

the early 70s what do you have a massive

drop off in permits what do you have

before the late 70s recession massive

drop-off and permits what do you have

before the 82 Paul volcker era massive

drop in permits what do you have before

the late 80s recession 89 recession drop

in permits not not very soon before or

not very early it's not like a super

leading indicator of recession but what

do you have over here before the housing

recession obviously massive drop in

permits and look at what you have now

massive drop in building permits and I

thought it was a really fascinating

piece because he's really saying hey

like Hello uh the leading indicators are

screaming that we're basically barreling

towards a recession he says when you see

a big decline in building permits you

know some number of months later the

number of units under construction will

Decline and this is sort of a lining

with sort of my idea that like if you're

a contractor like get ready and I've

been saying that for like a year now but

I mean it when the number of units under

construction starts falling construction

employment Falls almost instantly

remember construction employment has

residential and non-residential

components residential labor tends to

react more uh clearly with the actual

economy because you could have you know

institutional uh well I should say like

government for example construction like

roads or highways or whatever those tend

well I shouldn't say 10 but maybe more

recession agnostic uh and and they're

not as as you don't turn those projects

as quickly as you do a house right you

could build a house in in you know three

months you know building a highway could

take you three years so that's why you

get more responsiveness for residential

construction but anyway basically he

talks about how going back to the 70s

there have only been a certain number of

times where building permits declined 20

uh and and pretty much at all of those

times we've seen a recession and we've

had We have basically that showing up

again and then he talks about how

there's about a six-month lag between

when permits fall and when construction

jobs start falling and I think that's

that's a fascinating warning because

he's basically giving us a leading

indicator that like hey like this could

actually reiterate what Janet Yellen is

saying here and maybe we should be

careful on how much we tighten because

if we do get this right away train there

are a lot of actual lagging indicators

that suggest we're running into problems

look uh Minecraft Steve uh is here as

Jack described you yesterday saying

Lumber price is probably or in an early

indicator as well Steve here says

construction is the number two GDP

driver in Canada after real estate oh

look at that Steve what part of Canada

are you in I'm going to come visit you

and then we can talk about uh garages eh

okay sorry bad Canadian jokes uh we'll

trade loonies and toonies instead okay

so investors can be sure remember my

family is half Canadian so I I feel like

I I we we get to make those jokes and

then have beer we'll go to LCBO if

you're in the Ontario area uh just as

long as it's in accordance with their

hours because they have weird operating

hours anyway

investors can't be sure how deep the

recession will be when it will end or

whether there will be a strong and full

recovery but we can agree that a

recession should be in the mind of

investors right and we want to be aware

because uh you know right now the

assumption is that the recession is

going to be mild but a big red flag that

you want to pay attention to is every

recession is assumed to be mild now I

think that that was actually really

interesting what's up Max I'll come

visit you in Toronto that's only like 30

40 minutes from Barry depending on

traffic

anyway uh this I thought was really

interesting because yeah everybody right

now is like okay if we have a recession

it's going to be mild well dude I

remember 2006 and you know what Realtors

said in 2006 they're like ah we're just

gonna have a leveling off of home prices

it's just gonna be leveled off it's just

gonna be mild dude it was not mild it

was hell it was hell

some condos

in many markets fell as much as 55 it

was insane if true recessionary Dynamics

kick in at which point people start to

feel uncomfortable with the mild

recession thesis

there will be a particular point of

danger for risk assets and will be

particularly dangerous if the response

from policy makers is less preemptive

than everyone has been assuming in other

words well inflation is still up we EFT

and we're just gonna have to keep hiking

so in other words every recession is

supposed to be mild until it isn't this

is like uh quite frankly like chilling

this this piece right here especially

when you combine it with with you know

leading indicators Elizabeth Warren and

Jerome Powell and and this piece here

it's it's this is bear bearish I don't

like this right

even if it lasts only a matter of weeks

the combination of rapidly deteriorating

economic data and residual monetary

hawkishness could substantially deep

stabilize Global markets investors are

focusing on the softness of the soft

Landing but even a soft Landing could be

disturbingly bumpy corporate earnings

could okay so then we get into one final

thing about a normal recession is we

don't know what sort of economy will

emerge on the other side often the whole

trajectory of nominal GDP turns lower

which means corporate earnings are

permanently reduced compared to what

investors expect before the downturn

more subtle point is that sectors that

performed well during the previous

expansion might not be the growth

leaders of the news cycle take famously

the mid-2001 recession Manufacturing in

the developed World never fully

recovered with many of these industries

migrating to China and developing

economies out of the US U.S tech

companies suffered years of structural

derating with with Europe and Emerging

Markets expering the best period of

outperformance in decades it is possible

we could see another big rotation after

the next recession particularly if

underlying inflation pressures were to

linger and there was no return to

quantitative easing and the this is

basically near zero interest rate

policies of the 2010s

which had previously given stocks

distinct advantages so we can tell

ourselves the next recession doesn't

matter but it is like and that it is

likely to be mild especially if we

manage our own jobs but that view could

well be tested at some point this year

oh

that is this is a pretty damning piece

on the recession and uh and and you know

how does this affect my likelihood of

flip-flopping

well uh right now it doesn't I'm going

to be as the FED says data dependent I

think our trajectory is substantially

different than that again of where we

were in January of 2022. uh however this

is a very good point and this is

something that I'm going to put on my

bear belt so I like to say I have a bear

belt and so that way if I need to reach

down to my tool belt and go I got a gun

I mean I gotta I got bear information I

can go down and go oh this is starting

to align and so every so often I kind of

like to look and go hmm okay the Bear's

argument you know they have a point here

here and here this is a really good

point I think this is a fantastic bear

argument is that we don't know how dirty

this recession could be we have no idea

uh and so we just have to see hey how

how's our how's our progress growing and

uh what is the likelihood that the

amount of wealth and excess savings that

has been built up uh will actually

sustain us through the recession now

somebody left a comment yesterday which

I thought was actually a very fair

comment they're like Kevin can you

clarify why everybody keeps saying that

you know the savings rate is down and uh

a credit spending like Consumer Debt is

up but somehow people have excess

savings

and this is actually a very weird

phenomenon so let's say you have twenty

thousand dollars of excess savings but

you're saving zero right now your

savings rate is zero so that could be

explained away we can explain a way that

you have more money while the savings

rate is lower than usual that's fair but

then why is debt going up well it's

financially stupid but a lot of people

do this they will actually look at money

in their bank account and say yeah I'm

going to keep that that's my that's my

safety net now I'm going to go spend on

my credit card and borrow more money

it's it's generally terrible of a

terrible financial decision to pay

interest on a credit card while you have

money to pay it off but people do it I

don't know why I don't think it's a good

idea but it does happen so uh you know

the conditions are definitely present

for uh for some bearishness uh but we'll

see how the leading data comes out over

the next uh over the next period of time

here