Article contributed by Isaiah McCall
All the gains we’ve made in stocks, crypto and other assets since the pandemic have vanished. We’re back to square one.
The whole thing has been unwound. Everyone’s portfolio from Warren Buffett to Joe Schmo down the street has taken a massive fucking haircut.
So, where do we go from here?
The answer is pretty simple: we keep going.
As the old saying goes, “He who holds cash during a recession is king.” If you have a steady income, you can buy assets on the cheap; you can have the entire restaurant to yourself while others prioritize bills. And if you don’t have a steady income, then you may have to liquidate your assets for the time being.
But that isn’t the good news. This is.
The Federal Reserve Only Has One Move to Make
They can’t let the economy fail. That’s it.
There is always a safety net underneath equities and the wider asset market because every financial institution is too big to fail. Every bank, hedge fund, and insurance company is too interconnected to let go.
Not only are these institutions invested in the market, but they are also overleveraged in the market, meaning their exposure to risk is much higher than their actual capital.
In other words, if the market were to go down, we’d lose our pension funds, our insurance, and our jobs. The entire system would implode.
“Our current economic system is so levered that the Federal Reserve can barely raise interest rates without everything falling apart.” — Raoul Pal in a Podcast with Bankless
Right now the markets are spooked because they believe the Fed has left them like a parent leaving their kid at college. They’re on their own. The reality is the Federal Reserve has to bail out their kiddo eventually.
In other words, investing isn’t just educated gambling, it’s educated gambling with a giant safety net. And that safety net is the Federal Reserve.
More Stimulus Checks Are Coming
Stimulus checks are coming during the highest inflation we’ve seen in 40 years?
CPI inflation, otherwise known as the index that tracks the rising costs of everyday items, is a lagging indicator. It takes time for prices to adjust. This means inflation might have already hit a brick wall, and we haven’t seen it yet.
Think about it. Overall economic consumer demand is slowing. People are losing their jobs. Equities, bonds, and crypto are all at junk prices and still, no one is buying. Lumber prices are down. Gold is down. Heck, even the OnlyFans bubble popped and creators are complaining that the recession is the cause. (Strippers are complaining too; don’t ask how I know)
The only market that is still highly inflated is the oil market, and that’s primarily due to Russian oil being off the markets (they’re the third-largest producer) and people still buying it up because of our over-reliance on cars.
(This leads us to the scariest possibility, but we’ll get to that in a second)
The answer is yes. The government will eventually have to do something to prop up the economy and stave off a worse recession. That will come in the form of further stimulus checks or debt forgiveness — it could even be the student-debt forgiveness that the Biden administration keeps pussyfooting around.
What makes these stimulus checks different from last time is that Americans won’t be able to pour all of it into Robinhood and crypto; this time many of us will need this to just pay for the bills.
The Worst-Case Scenario
US dollar hegemony has clearly pissed off the rest of the world.
About 80% of trades are done in the US dollar, yet the US only represents 25% of the global economy.
This has led Russia and China, two of the most influential countries in the world, to start planning for a world without the dollar.
If that happens, we’re all screwed and inflation is here to stay.
In Russia’s case, they have started offering oil at premium prices to anyone who can pay in Rubles, Rupees, or Yuan. And as for China, not only have they invented the Digital Yuan, but they have also started trading oil in Yuan.
This is a direct assault on the US dollar’s dominance, and if successful, could lead to an entirely new economic system.
If this were to continue then supply chains would remain bottlenecked, the world would segment, and it would lead to inflationary pressures on an already inflated market. Stimulus checks would then be like trying to put out a fire with gasoline. But hopefully, this scenario doesn’t happen.
Just Hold for The Next 3 Years
It’s been a shitty past few years.
As a young 20-something, I never wanted the Millennial-2008 recession treatment. I wanted to graduate college in economic prosperity, make tons of money, invest it wisely, and die in a bathtub in Vegas on pills. Now that dream is dead.
Anyway, the markets aren’t as scary as they seem. And while no one can predict what will happen next, the markets can only experience so much pain before the Fed steps in and saves the day.
It’s like using bubble gum to patch a hole in your canoe. It’s not going to be pretty, but it’ll work for now.
The moral of the story is: For now, make long-term investments. Amazon, Apple, and yes, Bitcoin and Ethereum will come roaring back. Nobody has a timetable for exactly when, but know that things always come back around.
So, sit on your hands for the next three years. We’ll be ok — probably.
Article contributed by Isaiah McCall
Ever since I was a child it was my dream to become a financial advisor. Unfortunately, it never came true. Therefore I am not a financial advisor and you should do your own research and not just listen to random people on the internet. Nothing contained in this publication should be construed as investment advice.Join 2000+ people on my Substack for a limited copy of my new eBook “Gold2.0.”