The Coming 5-Year Recession.

well folks in this next piece we're

going to talk about this TS Lombard

argument that how is this cycle

different and every time we hear this

time is different we want to be nervous

but what they're actually saying is Tech

that's the only thing that's different

about this cycle what they discuss is

this argument that this cycle is

different because in every down cycle

there is a poster child for what got

overbuilt distorted and basically

bubbled up and this time Tia slombard

argues it's hex term it happens every

cycle an industry convincing themselves

and investors that they are a growth

industry immune to economic cycles and

then discovering they are after all a

cyclical business which means you are

affected by the business cycle after all

commercial real estate here is

potentially another obvious problem and

a coming issue for banks given that

Banks hold 50 percent of commercial

mortgages specifically the small ones

relative to the these smallers I'm sorry

the the larger Banks hold about seven

percent commercial mortgages it's the

Smalls and needs medium medium-sized

banks that have more of exposure here as

far as inflation high prices as opposed

to the rate of change needed to reverse

some of the items for consumers to gain

loss spending power blah blah okay if

not so let's make this clear as for

inflation high price levels as opposed

to the rate of change need to reverse

first for some items for consumers to

regain lost spending power in other

words what they're saying is

this time in this recession Tech is

potentially most exposed to a tech Crush

now it could be argued that that's

already happened but they're saying that

even if inflation goes away prices are

now so much higher right remember if you

paid a hundred dollars for a piece of

tech that now costs a hundred and twenty

dollars you have experienced 20

inflation over a certain period of time

be that one year two years six months

whatever

and if inflation now goes away you're

still at 120 dollars you have a zero

percent rate of inflation but you're

still paying more money what does that

mean that means individual people have

had their purchasing power their pricing

power reduced

and in order to regain pricing power you

might need to see wages go up however

we're not seeing wages go up in the form

of say a wage price spiral and if we are

not seeing wages go up and prices are

higher then people can simply afford

less stuff now an argument is being made

that today we have plenty of excess

savings still yes yes it is true that

not only do we have a lower savings rate

now than we did before the pandemic that

is true but we have a higher base of

savings remember what Bank of America

told us last month somebody with five

thousand dollars in their bank account

before the pan uh yeah before actually

the pandemic now sits somewhere at a 12

900 to 13 900 of extra cash but what

happens when that is spent

are we in a deep dark recession or have

we finally conquered inflation Jerome

Palace done with his rate hikes and we

can go back to the Glorious Bull Run of

the 2010 to 2019 cycle some people say

that's delusional other people say no

that's actually entirely what could

happen but let's see what TS Lombard

argues the coming reversal in credit

expectations will also help lower

inflation by pulling down service price

inflation so in other words less credit

less service inflation great but what

they see coming will be a downturn with

a recession that ends up correcting the

excesses of 2010 to 2019 specifically

Tech and asset values not simply a

correction of the post covet boom now

this is fascinating because this is

actually a Peter schiffian argument

Peter Schiff has argued that we are not

going through a crash of the Covenant

printing we are actually repaying the

debts of the bubble we created post

2008. T is Lombard is now echoing the

Peter schiffian argument

and folks that is one that could that

should create nervousness

now how could asset values go down well

let me make this argument in regards to

real estate so a lot of people obviously

you know this already well most of you

do but some people don't obviously uh

for those of you don't I'll explain I'm

a licensed financial advisor but I

started in real estate that's very rare

it's very rare that you have somebody go

uh from from Real Estate brokering to

financial advising this video isn't

personalized Financial advice because of

course I don't know you

um but but when I look at this I think I

I try to look at what's going on in the

economy from from both sides I try to do

the same thing in politics as well it's

very difficult because obviously

divisive videos do much better

but what I think is fascinating is this

potential that real estate

it may not necessarily rebound

immediately if rates drop we have this

expectation that the Bull Run of real

estate will continue if interest rates

drop but what might also happen if

interest rates drop the people who have

refused to sell might think oh well

interest rates are lower now now is a

good time for me to move and sell my

property or maybe I'll get a higher

price because interest rates are lower

but if everybody thinks that inventory

bubbles up and you could actually then

have substantially more inventory than

you previously had in the last eight

years frankly certainly during the

pandemic and if you have to adjust to a

higher level of inventory that it

doesn't matter if rates go down you

could actually see a real estate crush

and you could see that same real estate

Crush in residential which could just be

Amplified by a similar Crush that you

see in commercial real estate so I think

patience in real estate is very prudent

right now don't get me wrong I I my goal

with my real estate startup is to create

a a 10 to 100 billion dollar company uh

with house hack I could not be more

enthused uh about the path and

trajectory we're on and so I'm very

excited about that but I I'm also having

to be very cognizant of where are the

potential black swans individuals aren't

paying attention to so I run those

scenarios through my head and this TS

Lombard piece uh evokes some of those

potential fears uh now that's not to say

it's oh fud fear uncertainty doubt it's

this is this is a a real argument

so uh as uh Daniel here says in the chat

patience is a virtue I completely agree

uh and and maybe it could be considered

a normalization right all right so

um there's a little bit of a preview

they give here on jobs but we've already

gone through the jobs data mostly at

expectations here now I think this is

very interesting they show a confirmed

weakness in White Collar hiring and they

use this to basically say well the tech

sector is far from being relative to the

entire economy remember you could lay

off the entire

Silicon Valley Bay Area and only affect

three percent of jobs so while the tech

area is far from being relative to the

entire economy it has been on the margin

an important driver of overall growth

hiring and spending and a source of

income from the financial sector as well

as investment wealth when the tech

sector booms you have people who build

their wealth and when people build their

wealth what happens people can spend

more on services or going on holiday

going on vacation right Tech employment

increases 60 percent since 2009 look at

that difference that actually gives you

a a a a showing here look at this two

things here

non-public Tech firms uh net worth

versus non non-financial corporate Tech

X real estate so

non-financial this is a little bit

confusing let's look at this chart

instead I'm not going to try to

understand that one your live we'll

we'll understand this one together High

Tech versus says uh the private sector

excluding Leisure and hospitality and

social services so that would be private

sector jobs could be like manufacturing

uh PC repair

um to some extent that could be really

any local business that is outside of

tech and what you're finding is this

large wedge here between 2009 and 2022

where you've seen a boom in in hiring

for Tech relative to other sectors

commercial real estate obvious problem

notably The Leverage in large offices

yeah and and we realized this already

that JPMorgan just mentioned the other

day that we could be seeing a 350 to 400

billion dollar hit from commercial

mortgages I was just talking to uh a

another financial advisor yesterday and

they see

uh a potential we they see BlackRock

liquidating a substantial amount of

mortgage-backed Securities and the

liquidation of that could lead to the

selling of a substantial amount of real

estate assets we shall see commercial

real estate debt has been less of a

problem than it was in the 90s

commercial real estate recession over

here so you have less of a problem out

here in terms of commercial mortgages

outstanding in total uh and then you

could see that commercial real estate

held by Banks has been slightly trending

up versus non-banks the large banks have

been heavily moving into commercial real

estate whereas the non-large bank

lenders have been helping people with

30-year fixed rate mortgages these are

going to be your mortgage brokers your

direct lenders your UWM your rocket

mortgage and otherwise

uh dollars downward impact not finished

yet I actually believe that I think that

the dollar is likely to continue to fall

and uh that's why I started by taking a

short position last summer in the dollar

and uh I'm not short the dollar right

now anymore but I do think there's still

some move down uh potentially in the

dollar specifically as yields fall

remember as yields fall people's

desirability or interest in the US

dollar declines and that's because we

need the dollar in order to buy uh of

quote unquote safe assets like

treasuries and so uh the more yields are

high on our Ultra safe potentially the

safest asset in the world products the

more we end up with a demand for our

dollars that drives our dollar amount

so

you know

is take a listen over to CNBC so we'll

close off this section here uh let's do

a summary I suppose on TS Lombard I

guess the summer here would be is it

possible that if we combine this summary

uh let's think about it this way

combine this information from TS Lombard

with what the international monetary

fund said this morning that we could be

going into a five-year slowdown and what

do you face well you face an environment

where potentially you could have a

repayment or session of the bubble of

2009 to 2010's bull market and you could

have a five-year Slow blow recession

with a real estate slowdown over the

next five years

and in my opinion the next five years if

we have a slower recovery and we do not

simply Resort back to the excesses of

the 2010 to 2019 cycle I believe the

next five years would actually be a

glorious opportunity

to build your asset base think about it

what you want is your assets to be

massive in the future and if you

potentially invested in let's say

pricing power stocks today which got us

through the next five years and then we

went back into a bull run where credit

started expanding again rather than

tightening and real estate really

started recovering again

maybe you could set yourself up pretty

well by working hard over the next five

years and making sure you have as much

available Capital now that's something

we regularly talk about in the course

member live streams which I encourage

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