Another Financial Crisis Is Coming

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What is going to happen next?

It's coming back!

I wrote a famous report in March 2019 predicting a financial crisis and stock bear market one year forward. It happened.

We have now set up to have another financial crisis in 2023. Here's why:

  • Debt levels at record highs
  • Record setting zombie companies and even zombie countries
  • Global central banks are tightening monetary policy with major exception of China
  • Consumer debt was modest but is now back to highs in everything but mortgages and they are screaming higher.

The Fed will raise interest rates and reduce liquidity leading to:

  • Massive corporate bankruptcies likely next year. Zombie companies will die.
  • A mortgage crisis next year but not as bad as 2008
  • Subprime defaults in auto and revolving credit will hit records next year
  • We might see some city and potentially even state defaults but they will be bailed out by the Feds.
  • We should see record setting student loan defaults but I believe the Biden Administration will try to eliminate some if not all of student debt before the November election.

I'm not a naturally pessimistic person. I believe that only optimists make money in the markets. But I'm pessimistic about the business/credit cycle this time around.

Here's why.

2008 was a major financial crisis largely because consumers took on way too much debt to buy one or more houses at ever increasing prices. It was sustainable only as long as the Fed kept interest rates low. But they started raising rates in 2006 and they eventually got to 5% in 2007 and that was enough to break the back of the economy and stock market. You know the rest of the story.

Consumer balance sheets were way over leveraged before the Fed raised interest rates. Corporate balance sheets were in great shape. Some state and local governments balance sheets were in bad shape and some cities went bankrupt. The federal government's balance sheet was in bad shape but, hey, they can print money. Nobody else can.

The situation is very different now.

After 2008, consumers repaired their balance sheets by paying off debt. Those balance sheets were in very good shape until last year when they started to borrow money again. That was not a problem last year because they received so much cash from the government that they actually had more savings than debt! Amazing for that to happen for Americans! We love debt!

But the situation has deteriorated sharply for consumers now that they don't have government cheese.

Debt has skyrocketed as people bought ever increasing priced houses. Inflation is now causing them to have to borrow more to buy things like cars.

The chart above shows that revolving credit is rocketing and is about to hit new record highs.

The bottom line is that the excellent balance sheets for consumers is a thing of the past. We are fast approaching the terrible balance sheets we had in 2007.

Corporations and governments are in terrible shape as well. I'll cover this is a future TradeSecrets.

So what will happen and how do we make money on it?

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The Fed caused the current inflation, not Vlad or supply chains. Purely the Fed. Now they are almost to panic levels and will raise rates from the current 1% to a minimum of 2% this year but more likely we will be approaching 3% by the end of the year.

That will be enough to cause a bear market in stocks and other instruments in bubbles, like crypto and houses but it will take until 2023 before the recession hits. Look for rates to get to 5% next year.

I'm short the stock market. Long the dollar. Starting to get short some select commodities and crypto.

So far so good!

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Good bear market trading,

Courtney Smith

Words To Live By

Personal freedom is important to me. I always choose in favour of more freedom rather than less. I can do whatever I want, as long as my actions don't infringe on someone else's right to do the same. I believe life is about seeking experiences rather than accumulating things. I accept responsibility for everything that happens in my life. I believe governments serve no useful function. I do not vote—it only encourages them—and I structure my life to avoid dealing with them as much as possible. In return, I do not ask for or accept government handouts. I value honesty and do not pretend to have had experiences I never had, or pretend to be something I'm not. Etc. - Ryan Murdock in Personal Freedom

Where to get more Courtney!

Youtube: Freebee Wall Street Winners

Podcast: The Courtney Smith Show

Substack: courtneysmith.substack.com

Medium: Courtney Smith – Medium

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