The Coming Double Dip Market Crash | Fed's Great Reset.

and Beyond this what we're saying is

double dip recession is most likely what

we're going to see over the next few

years because there's going to have to

be serious damage done to the labor

market to get inflation down this cycle

wow and I just don't think that's a dip

like 8081 exactly exactly I've never

heard that that's original like the

post-crisis conversation Tom yeah 10

years ago before we get to the second

recession yeah you know what it seems

like every single time there's a

recession people start talking about oh

it's gonna be a double dip it's gonna be

a double dip it's literally what I got

in the industry uh in real estate in

starting in uh like the late uh 09 early

2010 when I started getting in I'm like

all right so what do we got here in

terms of real estate oh terrible Market

oh dear worst crash in a very long time

okay interesting and as soon as we

started recovering and this the real

estate market bottomed out at 2011 which

is crazy because it started falling in

o5 didn't bottom out until 11 which is

about six years later uh you had ever

everyone worried about the shadow

inventory of homes that Banks were

hoarding that they were going to release

onto the market and crash the market

again as soon as prices popped up a

little bit it was just a bear Market

rally and and the real estate market was

going to double dip crash let's listen

in more for a moment here just to see

what this guy's talking about and we'll

do a little bit more analysis on this

double dip talk

higher income cohorts they're dipping

into savings at an astounding rate as

well that's probably more sustainable

because they've got a huge cushion but

you put it all together we're seeing

shallow recession because eventually the

consumer wobbles over and once the

consumer wobbles then businesses stop

hoarding that labor like we saw in 2000

with inventories and then you get that

Cascade effect but it should be fairly

shallow because we do think by the time

this happens we're talking later this

year and now the fed's starting to Pivot

towards cuts for 2024. well that's what

I was going to say what's the fed's

response to a shallower session is it

rate Cuts if inflation hasn't really

been killed off I think they're gonna

they're gonna you know Heaven Hall on

this as long as they possibly can but

eventually they will pivot towards rate

Cuts but not this year now that's

interesting because the bond market as

of Friday morning before the the jobs

number was pricing in Cuts as soon as

we'll say October or November of this

year so the market this morning is

pushing those cuts further out it looks

like but the FED is still going to have

to wobble itself towards cut are pivot

towards cuts at some point next year I

believe is just a shallow recession and

nothing deeper enough to justify credit

valuations where they are given the

ongoing rally that people have really

played into yeah I would say no both in

the investment grade and high yield

space no I mean we got IG spreads

investment grade corporate spreads

somewhere around 115 to 120 even in a

shallow recession historically you're

talking about 180 to 200 that's a very

shallow recession and by the way you can

make the same extrapolation to the

equity markets where you're looking at

what how much the earnings contract in a

shallow recession it's you know 15

percent 20 percent perhaps so nothing

seems to line up with even with that

shallow dip in earnings and and output

that we're expecting so this has to be

some risk asset pain a Chapman power

volume two tomorrow can we finish that

if we expect anything different from the

fetcher no I think what he's trying to

tell us is we don't know where where

we're going to terminate the funds rate

it could be five five and a quarter five

and a half but we're confident we're

going to hold it there for a while and

we don't know what a while is but it's

probably for the the remainder of this

year beyond that he's data dependent I

hate that phrase we all hate that phrase

Tom loves it but we we need to see

numbers we need to see the jobs numbers

and we need to see how quickly

inflation's coming down and all of it

comes down to one important data point

or concept that you're not hearing

people talk a lot about today Labor

Force productivity if labor force

productivity somehow Rises and

participation rate Rises then it's a

game changer I don't see that happening

though participation did on Friday is

there anything about the data at the

moment that makes you think I don't

really know what's happening here I

can't draw conclusions about the

post-pandemic realities of this labor

market well we that that's a head

scratcher and what we can broadly say is

it seems that 18 to 25 year olds are

still to some extent boycotting this

Market this labor market we don't know

why they're doing that we can suspect we

can give anecdotal reasons but someone's

going to give you one right now

we all have and we can have our cynical

reasons why but for whatever reason they

are boycotting this market and when they

do join the market the labor market

they're not putting their best efforts

forward so labor force productivity is

negative one of the great things of

strategus is the inbred optimism of the

shop when Jason Turner started don't

tell me Jason Trenton it's 100 in cash

what's the equity belief that you shot

no so we're looking at again consistent

with a shallow recession a modest

earnings contraction and that means that

say the s p let's put a ballpark here

let's do 200 per share for earnings for

this year you know 17 to you know 17 and

a half multiple I could we'll say 3 500

and if the fed you know pauses and

pivots sooner than expected maybe you

get back down to 3 600 but we're still

bearish at these levels on equities we

just don't I just love to hear Bond guys

talk Equity I just enjoyed that I would

love to hear Bond guys talk Equity so

let's uh let's let's consider that for a

moment so the individual is not wrong

and that the bond market is pricing in

rate Cuts probably as soon as even

September and we're pricing in over one

percent of rate Cuts in 2023. now Jerome

Powell has been telling us hey we don't

have any plans for cuts in 2023 but

let's be clear in his last fomc press

conference he was pretty dang blunt

suggesting that look we're gonna look at

the data and if inflation comes in hot

then maybe we have to go higher and if

inflation comes in lower and he

purposely implied this because he didn't

want to say the word Cuts then obviously

they would cut rates and respond

accordingly now I think there's going to

obviously be volatility over the next

not only year but certainly the next

weeks and months here as we try to get

as much data as we can I think this sort

of Nike Swoosh that we're going through

is going to be pretty spiky up and down

but this idea of a double dip recession

is really interesting really it's a

Michael burry in argument it's this idea

that hey you know what we could end up

seeing a a soft recession here in 2023

then all of a sudden the FED Cuts but oh

no those cuts lead inflation to actually

pop up again now people can't go and

rely on their savings because their

savings are gone now people can't rely

on the ability to go borrow and get

another personal loan from Sofi or max

out their credit cards because they've

already done that and now if you get

into a situation where inflation starts

popping off again while the fed's

cutting now the FED has to raise rates

again at the same time as people don't

actually have a way to spend through the

recession anymore so now what happens

people stop spending and then that's

where employers actually start saying

okay this isn't a hunker down style

recession this is now a real recession

where we actually have to make

meaningful cuts to our businesses now we

lay people off which kills spending even

more and you get a deeper

ugly dark double recession it's possible

what the individual is saying and the

warning from Michael burry is absolutely

possible especially when you combine

with that the U.S China geopolitical

tensions the fear that yes uh combat

with China could actually be something

that occurs in the future obviously we

shot down their their darn spy drone of

uh spy balloon uh over the weekend but

uh look it's probably going to be months

before we're actually able to conduct

sort of a dare you say an autopsy on

this balloon to figure out exactly what

kind of Technology they had what kind of

scanners and cameras and what kind of

data they actually had and we're

collecting as well as what kind of data

not only they were collecting but were

able to beam back to China before uh

this uh this spy balloon was shot down

presumably all of the data that was uh

that was on it was able already to be

sent back to China but look China does

this sort of stuff right like 15 years

ago they stole designs for our F-35 a

fighter jet that's the Lockheed Martin

F-35 Gen 5 plane I mean this is this is

really important and so what they end up

doing they ended up making a pretty

similar plane now most of their jets are

still like Gen 4 you're even older like

the 90s gen 3 kind of stuff but I mean

they've done this before Chinese hackers

have sold in security clearance files

from 22 million Americans in 2025.

they've sold in medical files from

Anthem they've stolen travel records

from Marriott the difference with this

balloon because they always steal our

software try to steal our stuff is it

was sort of like theft right in our face

and that's pretty ugly right so so

there's certainly the geopolitical risk

here there you've got Ukraine and Russia

risks you've got Iran and Russia risks

this idea that now Iran is partnering

with Russia to manufacture potentially 6

000 Kamikaze drones by building a

factory in Russia so that way they can

be sent straight from Russia to the

front lines you've got the treasury

yields Market that's clearly at least

showing some short-term uh nervousness

we've had recently Fallen to a low of

about 3.35 on the tenure right now we're

sitting over 3.6 again which just drives

the real estate market down further so

you do have a lot of reasons to be

nervous BTC back under 23 000 which is

sort of like a I always like to consider

it uh your your risk gauge and uh you

know we we got rejected at 24 and and

now all of a sudden the stock market's a

little bit more tentative on top of that

you've got the earthquakes that are

going on in Turkey which aren't

necessarily A lagging risk uh right now

to the stock market but they are they

are something that uh guess what now

turkey is having to shut down certain uh

oil facilities uh in the Turkish region

because of a 7.8 magnitude earthquake

that hit followed by a 7.5 after shot

potentially 1300 dead in Syria and

turkey and now you got oil Futures

Rising on on that thought and you're

back to almost 81 bucks for Brent uh

which is probably your biggest

inflationary impulse so you have a lot a

lot of uncertainties and at the same

time as you have a lot of uncertainties

you have mixed data coming in as well

right the jolts data came in high which

drum Powell sort of brushed off the

employment cost index came in at one

percent but still that's 4.4 percent

annualized for wage gains that's still

too high right it's nowhere near two

percent uh Factory orders in Germany

coming in stronger than expected we

retail sales in America coming in weaker

than expected all across the world it's

sort of like man got some good some bad

a lot of companies talking about

inflation risks going down but what do

you have you have companies like Hershey

telling you that they still are

experiencing uh inflationary pressures

still today and what I thought was the

most interesting out of the Hershey

earnings call because remember this is

what I do I I read earnings calls I love

reading and sharing the information with

you as you find nuggets like this uh

Hershey says historically after they

raise prices you actually don't end up

reducing uh prices that's just not how

market dynamics and the candy Market

work so in other words once you get the

inflation you're stuck with it now the

good news is as long as prices stay

stable and they don't actually expect to

raise prices which they don't uh but you

can actually bring inflation technically

back to zero it's just now everything's

been reset to a higher level but still

all of these things create substantial

uncertainties and so yeah this is where

people say look the first recession

needs to be aligned with if we have a

recession needs to be aligned with well

inflation going away because if

inflation doesn't convincingly go away

and the fan has to Hawk through a

recession then that's where the Real

Pain could come and Asbury and this Bond

dude suggest you could end up being in a

double dip recession now this chart is

really fascinating as one to pay

attention to this is the probability

that the next recession in the economic

cycle has started we briefly looked at

this just the other day but it's

important to look at because it's very

uh historically accurate doesn't mean it

will be going forward

but probably one of the most important

indicators of a recession or reliable

indicators of a recession actually

happening are the inverted yield curves

and this one in particular is the fed's

favorite it's called the three month 10

year inversion and so you could see that

on the bottom which is basically this

upside down Little Blue Mountain over

here and basically the depth of this

inversion is the deepest that we've seen

since the 80s it's pretty dang deep and

in the 80s we had a pretty darn ugly

recession because we ended up having to

get Paul volcker now eventually the

depth of the inversion is correlated

with the amount that in the future the

bond market actually expects the Federal

Reserve will cut interest rates so yes

at some point we're going to get massive

interest rate cuts the question is just

do we end up having a single recession

do we have no recession or do we have a

double dip recession nobody really knows

in fact according to this chart the odds

that we're in a recession right now are

less than two percent in fact it's more

likely that the recession is still

somewhere around six months out

according to the inverted yield curve

that would put us into a recession

somewhere around August and then we'd be

within a sort of one standard deviation

range of the recession being somewhere

between August and December now if by

that point inflation actually is

convincingly low and how can we get

convincingly low inflation we'll talk

about the if well to get convincingly

low inflation you need Goods to continue

their Trend down which they already are

that's good in addition to Goods

continuing their Trend down what do you

need you need that household inflation

to come through that inflation uh sort

of a metric from owner's equivalent

rents uh we have got to see that

continued weakness in that housing

sector right but on top of that we have

to see a service wage inflation go down

service wage inflation is going to be

like Medical Care uh haircuts accounting

services basic services that that even

car insurance that that you spend money

on just to sort of live right and the

hope is that by the time we get to the

summer or say June or July hopefully

before we walk into a recession these

numbers are starting to convincingly

disinflate disinflate just does this

inflate is different from deflation

right deflation is falling prices uh

whereas disinflation is prices that are

growing at a slower rate right so that's

falling versus slower rate of growth

anyway

as long as we can get this and we can

confirm okay we have a slower rate of

inflation in wages than the Federal

Reserve can actually preemptively try to

soften the blow of us walking into

recession and maybe we completely avoid

a recession entirely however if we don't

get that service side deflation or

disinflation I should say then yeah it's

entirely possible that we walk into a

recession not only do we walk into

recession but then the FED cuts but

inflation still stays sticky and then we

end up getting the worse double dip

recession on the heels of that

thereafter now again unfortunately it

looks like wage inflation is actually

stabilizing this is important you look

at a company like Starbucks and what are

they telling you wow it's a lot easier

to hire people a lot less labor turnover

what is less labor turnover mean it

means less wage inflation very very

important less wage inflation is exactly

what we're looking for here now the

fascinating part is that a year ago

companies were telling you exactly the

opposite they were telling you oh no oh

we are having a hard time keeping our

employees and we're having to pay more

to get more employees right now the only

place you're really seeing that now is

in certain sectors of the airline

industry like Pilots it's still very

difficult to hire Pilots because there's

so few of them you still have a smaller

industry now than you did before the

pandemic and that's the problem because

you had so many retirements but you are

still seeing hope and good news that

that wage inflation is going to go down

same thing Starbucks is saying is what

Chipotle is saying and a lot of

companies suggesting hey look finally

we're seeing those wage pressures go

away that's great but right now it's

just hope that it continues to move in

that direction now on some good news we

had earnings this morning from Tyson

Foods Tyson Foods a year ago was

bragging about how much their margins

were exploding they're bragging about

how big their PP is they're bragging

about look at my PP look at my pricing

power it's so large it's so huge that's

what they were bragging about last year

and now what are they bragging about

it's a small PP basically which is

probably not trying to brag about it but

basically chicken prices were so high it

was easy for them to have high margins

but unfortunately chicken is a commodity

and when you have a commodity the price

of a commodity generally Trends down

over time especially chicken because you

get more producers in and when you get

more producers in what happens oh wow

chicken prices plummet now what's

happening well the company did grow

revenues relative to last year they grew

less than expected 3 or 13.26 billion

versus 13.5 expected above the 12.933

from last year but their earnings per

share missed bigly they were expecting

1.31 cents of eps markets where we got

85 cents and that's because as chicken

prices plummeted the company's costs

were still rising and so all of a sudden

you're getting squeezed on both sides

this is an example of where it's easy

for every company to have told us they

had big PP last year but the reality now

is who is actually able to continue to

sell product with decent margins while

not actually missing estimates as

terribly as Tyson Foods did and

destroying the margins so in other words

where can you remain competitive in a

recession while still maintaining

profitability Tyson Food a little little

bit of an oopsy-doopsy today with

substantially less profitability than

expected and this is totally the

opposite of what we saw last year so

this is great but but look you know we

are still waiting for substantially more

certainty on what's going to happen

you've got Morgan Stanley's Mike Wilson

going see told you bear Market rally

everything's going to go down again uh

obviously Futures right now are red just

about one half to one-third or

two-thirds of a percent depending on

which index you've got Goldman Sachs

saying hey the January rally is as good

as it gets you've got Dell announcing

that they're cutting five percent of

jobs citing the lack of PC demand you've

got Deutsche Bank now looking at

strategic job Cuts yeah you've got uh

portfolio managers talking about this

regime shift of potentially higher rates

staying for longer we saw this double

dip guy uh and the double dip guy you

know on one hand he's kind of like hey

look uh in this I'm giving them Credence

here or you know credit essentially here

he's talking about how right now people

can kind of spend through this recession

right they can hold out because they can

just take on debt or they have the

savings they can spend through the

downside uh well I hate to say it but

when I looked at the earnings call for

American Express they used the phrase

that consumers right now especially

American Express users are spending

through this recession and that's

basically reiterating what this double

dip individual is suggesting that hey

look right now people aren't actually

yet treating this like a recession

because they're just taking on more debt

or loading up credit cards to spend

through it sort of like the idea that

hey you know what we just have to get

through the next six months and then

we're good uh and then we'll pay off the

debts that we accrue that's great and it

relies on the hope that this is over

after you know we we can prove

disinflation but if we don't then yeah

double dip becomes possible so you want

to hedge for that possibility and the

best way to generally Hedge for that

sort of possibilities making sure you're

not in exposed substantially to deaths

that could get margin called short

amortization periods and you're not

exposed to potential job loss now if we

actually look at reports from Goldman

Sachs and Morgan Stanley we can get a

little bit of insight into sort of their

thoughts we get first of all insight

into the European Central Bank hoping

that inflation is mostly now conquered

or at least on the path to being

conquered and they're actually starting

to taper how much they are basically

quantitatively tightening so they're

reducing their tightening efforts

already and they're pointing out to a

more balanced inflation Outlook that's

great uh this is sort of the European

Outlook from Morgan Stanley but Morgan

Stanley and a lot of investment Banks

right now are saying that emerging

markets and Europe are actually faring a

lot better

than the United States that the United

States is more at risk of an earnings

recession than other countries or

Emerging Markets if we look at a piece

from Goldman Sachs over here we talk

about uh the the this idea here that uh

in the quick disinflation right now is

what's being priced into markets and

that actually creates a risk in itself

that now all of a sudden everybody is

too optimistic that we are pricing in so

much disinflation that if that doesn't

happen in the face of mixed data and

then we start getting realistic data

like maybe potentially uh you have uh of

car prices starting to rise again uh

then then what you end up having is

forces that were disinflationary in the

last few months starting to become

inflationary again and if it takes

longer for the housing market to bring

home prices or rents down yikes then uh

then that quick disinflation of the rate

Cuts markets are pricing in is all for

nothing now one of the interesting notes

here from Goldman Sachs is that hey look

you know housing starts uh coming out uh

over the middle of this year

will probably help Drive inventory up

substantially as home builders actually

try to finally finalize some of their

building they get through the

construction backlogs and you can

actually see some downward pressure on

real estate in the second half of the

year uh and yeah the market is pricing

in that sort of disinflation but be

careful because even though we have

signs that hey these numbers should come

down if for whatever reason they don't

got a big oopsy-doopsy coming your way

so be careful uh and they suggest here

that it's probably going to be until the

end of the year according to this

particular individual at Goldman Sachs

uh before the FED is actually confident

that the inflation fight has been won

and so Goldman doesn't actually think

you're going to see a 50 basis point

rate cut until December even though

we've been hearing about raid Cuts

coming as soon as September based on

what the bond Market's expectations are

Goldman here suggesting that we'll

probably end up sitting around three to

three and a half percent as sort of a

neutral rate once we get into the

cutting cycle uh be it next year uh

we'll see we'll see but a lot of

uncertainty and is it possible there

could be a double dip yeah numbers are

still very mixed and so I think it's

important to sort of stay the course on

okay be conservative have have long

exposure but don't go YOLO not just yet

uh anyway this gives us some insight

here into some of the madness and

uncertainty that we're going to be

dealing with I think it's actually great

uh that uh that that we are starting to

see more of a balanced labor force for

businesses even as the unemployment rate

is as low as it is it seems like at

least from the front lines companies are

suggesting look no real concerns of a

wage price spiral which reiterates what

Jerome Powell had suggested in his fomc

press conference so I think there are

reasons to be optimistic but there there

are definitely risks and and nervous uh

dry or nervous Catalyst that should make

us nervous uh that we want to pay

attention to uh this week we do get some

more earnings as well Powell talks

tomorrow Biden's got a state of the

union tomorrow as well that's Tuesday

you've got sentiment data coming out

Friday you've got Waller and Hawker

talking Friday you've also got earnings

from companies like KKR the real estate

business BNP BP Nintendo Pepsi

semiconductor manufacturing

International seam and SoftBank Toyota

Uber Disney Tyson we just got talked

about Energizer Royal Caribbean Hertz

Fiserv CVS Hilton and Credit Suisse all

coming out this week so we'll get some

more data but we know what to look for

and uh boy oh boy there's a lot to look

for