We are heading for a massive correction in the market in 2021.
We’ve been in a COVID recession since 2020 but the majority of people haven’t really felt it hit hard.
It’s like we can see the mushroom cloud far away but the blast wave hasn’t hit us yet. But it’s coming…
Most folks have had their banks and landlords defer mortgage, rent payments, and more. Some collected unemployment benefits, others were liberated by work-from-home, and some are taking ground.
Generally, there was this feeling of “nothing matters” for a year, and COVID became the ultimate excuse.
“Missed a meeting. Whoops, COVID.”
“Missed a wedding. Sorry, ‘Rona.”
Missed a payment. Apologies, Pandemic.”
You get the point.
Unemployment and stimulus money has helped, but my point is that the majority of Americans just haven’t felt it that hard yet.
Poor people are stretching it out. And rich people are still summering in Florida. But time is not on most people’s side, at least on the side of the ones caught head-on because they were looking in the rearview mirror too long.
This year, when I was looking at investment properties in Brooklyn I saw at least two apartments with white board expenses laid out. The runway was only a few months.
The reality is almost here.
I’m not a trained economist, but you really don’t have to be one to see the signs of a massive collapse that’s coming for us all. I’ll outline them in a minute.
“Those aren’t mountains!” (Bonus points if you can name that movie by my favorite director in the comments.)
Ok, back to the economy.
Economies are emotional. Economists of the past didn’t see this and that’s why their financial models were flawed. Behavioral economics proved out that markets move with emotion, and the American market is close to a nervous breakdown.
I highly recommend reading, Misbehaving by Richard Thaler.
So we can admit that markets are emotionally charged, but there are other factors at play.
Such a factor is illustrated by the case study of Game Stop.
This situation has proven that there ARE larger forces at play who routinely manipulate financial markets for personal gain. Some are bad actors, others are just acting legally and with self-interest. We all act in our self-interest; we are biologically wired this way.
“Helm… full stop.”
I’m an unapologetic capitalist: if there’s a Legend of Zelda code (and it’s legal) that unlocks ways to make money easily, go knock yourself out.
There are plenty of cheat codes out there, there always have been. Early Bitcoin was one. So was Facebook advertising five years ago. Those who knew how to build profitable and scalable ad campaigns made millions, maybe billions. That environment has changed, as environments invariably do.
Here are some signs and indicators that tell us we are dangerously approaching the cliff’s edge:
Markets go up and down. We’ve been in an up for a long time.
Inverted Yield Curve
As pithily put by CNBS, “Amid falling interest rates in the broader U.S. bond market, the yield on the benchmark 10-year Treasury note has fallen below the two-year yield several times since Aug. 14. In a healthy market, long-term bonds carry a higher interest rate than short-term bonds. When short-term bonds deliver a higher yield, it’s called an inversion of the yield curve. The bond market phenomenon is historically a trusty signal of an eventual recession: It has preceded the seven last recessions.”
This is demonstrated in the graph below.
Gross Domestic Product (GDP)
GDP growth is slowing. It’s the lowest it has been since 2018.
Lowest it’s been in 10 years.
Lowest it’s been in 10 years. Companies are saving up for a rainy day.
We are close to a 50-year low.
Shit is just crazy.
This is my personal favorite indicator that I just made up. Gamestunk, Bitcoin, Politics, COVID, Riots, Liberals buying guns, and Uncertainty. It’s just f’ng crazy out there right now. Feels like teen spirit and is about to burst at the seams.
BUT! How can we benefit from and in such an environment?
The first step is to start preparing.
What am I personally doing?
I pulled out of the stock market a year ago right before COVID. Maybe it was early, but better early than late.
If you have the cash there’s going to be a lot of bargains out there, wealth builders. I’m focusing on trying to buy another business, and acquire U.S. and foreign real estate investments.
I sold a business, Crate Club, that was struggling from growing too fast. It’s in better hands now and I can focus on SOFREP Media which is high-margin, asset-light, and offers a great community.
I bought an investment property and I’m looking for more. I sold what I didn’t need (my watch collection). I started stockpiling liquidity (aka cash) to buy more real estate and a distressed business.
Why am I looking offshore at real estate? It’s part lifestyle, part hedging against a depreciating dollar, and part asset protection.
America is a sue-happy place, unfortunately. Trip and fall, and it’s the restaurant’s fault. “They have insurance. We, you, should sue them!” exclaims an army of contingency (ahem… ambulance chasers) lawyers.
It’s a shame but it is what it is. This is why I like the idea of holding some assets offshore.
This year will be one to re-invent and take ground. Recessions produce massive opportunities for the person who is willing to plan and, more importantly, execute.
Most people just don’t execute. They just plan, plan, and plan some more.
Join a group and hang out with people who are going where you want to go, or are already there.
My YPO.org forum mates say that my superpower is execution. Sometimes it’s a curse but most times it works out.
The biggest thing I am trying to accomplish in 2021 is to lower my personal carry to zero.
Most people raise their expenses along with their increased wages. Bigger paycheck, bigger house, and a fancy car.
Yet, a higher income and lower expenses is my aim.
If you are looking for a great group of people, would like to get more specific, and dig in on this stuff and more, consider joining my exclusive group at the Red Circle Mastermind.