Multiple Indicators w/100% ACCURACY are Signaling a Market Crash!

Guys, I don't mean to be the bearer of scary news, but I suppose this being the month of October, the month of Halloween, I guess it seems as fitting of a time as any to talk about some scary economic indicators that are signaling a possible recession, either that we're already in one or that one is coming very soon. And of course, that would also lead to a stock market crash. Now, the scariest thing about all of this is that some of these indicators have actually never been wrong for many, many decades with 100 percent accuracy. And there's really two in particular that I want to show you guys in today's video that are extremely alarming to me. Now, of course, there's many broad based indicators out there, even countless surveys of consumers and even businesses today saying that they either feel like we're already in a recession or that they are actively preparing for one, either for good reason or just in case or whatever it may be. But there's this general sentiment out there that the economy is not looking so great, right? Well, here's just two, I would say, factual, unbiased, just by the numbers, actual economic indicators that have accurately signaled a recession every single time since all the way back to the 1950s. Pretty crazy, right? Well, the first of those indicators that I'm bringing to you today, first of those is going to be the yield curve inversion, particularly the most accurate of those being the three month versus the 10 year treasury yield curve inversion. So what is this exactly? Well, this is when bond investors send short term rates rising above long term ones because of their investing activities. Basically, what happens is investors feel so pessimistic about future growth for the country that they expect the Fed to lower rates in order to help boost or recover the economy, which is typically within a recession, right? Well, a couple of important notes on this. First of all, interest rates have been rising at one of the sharpest inclines in history over the past couple of years. This, of course, being the fallout from all the money creation and spending that we did during the pandemic, leading to giant inflation that we later had to try to control by raising rates to cool the economy. Problem is, though, when you try to manually cool the economy, you often overcorrect and send it into a recession. Well, if you're raising rates at one of the highest inclines in history, yeah, chances are going to be, you know, pretty damn high that you overcorrect. In fact, almost every recession in history came right after a period of sharply rising rates. So why would this time be any different if it is one of the sharpest rises we've ever had? I mean, it just makes logical sense that a recession would hit, you know, this time around, too, right? Well, that's exactly what investors are predicting. And so they've been buying up long term bonds right now so that they can lock in higher fixed rates before the Fed starts to lower them. And also because US backed long term bonds are generally considered safer than stocks, which would like likely crash more during a recession. Right now, there's a lot more to this, but basically this increase in demand sends the long term bond prices rising, which lowers their yield. And meanwhile, investors aren't as interested in short term bonds. So that sends their price falling, but their yield rising. The result being if the swing gets big enough, the two different yields actually end up inverting, which is a very rare occurrence that since I believe like the mid 50s has always preceded a recession with 100 percent accuracy. And of course, there's, you know, kind of a self-fulfilling prophecy with a lot of this stuff. Right. I mean, that's why, you know, the Fed and the economists and the media, that's why they're always so careful about, you know, talking about the economy and all that kind of stuff, because you want to have confidence in the economy once once investors are actually betting with their money, big time investors are betting that the economy is going to crash and people, you know, start to freak out and consumers start spending less and businesses stop investing. And all of this stuff ends up, you know, snowballing and really hurting our economic growth. Well, it ends up being the self-fulfilling prophecy that ends up crashing the economy and hurting the market. And that's why these indicators can actually be so accurate because of how much power, you know, consumers and businesses and investors actually hold within the economy. Now, yeah, it just so happens that we had such an inversion this time around, it was around the end of last year, the three month and 10 year treasury yield curve inversion occurred around the end of last year. And the scary thing is that it's really been inverted ever since then. In other words, this is a real inversion. It's not like, you know, oh, it just kind of barely dipped. It's just this tiny little inversion. And then it went right back to normal. No, this is a full on inversion that has been lasting for about a year now and is absolutely by, you know, all the definitions of it, it is absolutely signaling a recession. Now, the caveat to all this is that typically the range when a recession would likely hit after a yield curve inversion can be as much as like 18 months. I think one time it was like 22 months. So, you know, it can be at the high end. It could be getting close to like two years can be a pretty big period of time, but the average is usually around one year, which kind of makes things even scarier because that would mean that a recession we could already be in one or it could be like very, very soon. And that actually lines up perfectly with the next indicator. Again, just making it even that much scarier. And the next indicator that I'm going to show you guys is what we call the Sam rule. Now, what's that? Well, the Sam rule was actually created to predict a recession within a much smaller time frame as opposed to the inverted yield curve. And I'll explain that in further detail in just a second, but just a couple of quick points on this first. Now, the indicator was developed not too long ago. It was in 2019 by Claudia Sam, an economist who recognized that traditional economic indicators for signaling recessions often lagged behind real time economic conditions that can take time to gather and analyze, of which Sam focused primarily on the unemployment rate because of how sensitive it is to our current economic health. Of course, when an economy is in decline, like a recession, unemployment rises quickly and can often be observed more quickly than other economic metrics. And after doing her research, well, she found that throughout history, basically since at least the 1970s, whenever there was a three month moving average of unemployment rising above half a point or more over the low of the past year, well, it indicated a recession with 100 percent accuracy. And yes, guys, the Sam rule has also been triggered now. In fact, it just got triggered this past July where it remained triggered in August. And while we don't have September unemployment numbers in quite yet, it's widely expected to be triggered that month, too. And so here's a chart showing this. And as you can see, a recession was already taking place every single time that the Sam rule had been triggered. And then you look at the very tail end of that chart there and well, you can see that we just started triggering it once again. And so the point being that a recession has already started if this model is correct, which it always has been. So if it's not correct this time, well, that would be an extremely rare occurrence, more like a one off kind of outlier has never happened before. So what are really the chances of it being wrong? Well, surprisingly, there's actually many economists that are arguing that it will be wrong this time because of a sudden rise in migration, particularly the illegal kind from south of the border, which is estimated to be well into the millions these past couple of years. Now, I'm not saying that for any kind of political reasons. I'm just telling you the facts. And economists are arguing that this is why unemployment is rising, not because of a lack of jobs or a weakening economy, but rather just too many available workers. OK, well, regardless of whether that's true or not, other economists this time, I think they're from a college might have been Berkeley. I forget which college. But anyway, they modified this economic indicator, the Sam rule, to also add on top of it the metric of the job vacancy rate to make up for that, you know, for that issue. And this is the rule that is referred to as the Michez rule. It's named after the combined last name of the two economists behind it. And will this new indicator is actually even more accurate than the Sam rule? It's dating back even further to the 1930s. But here's the thing, guys, here's the bad news. This one, too, despite, you know, the immigration, all that kind of stuff, those those reasons or excuses or however you want to look at it. This one, too, has also been triggered. In fact, its threshold of zero point three was triggered back in March. So what's my overall conclusion here? Well, I think, you know, making the case for us to be in a recession already is a pretty easy one to make at this point. People and businesses, of course, generally feel that the economy is weak these days. The yield curve inverted about a year ago, which lines up almost perfectly in terms of timing for a recession to be occurring either now or at least very soon. And on top of that, both the Sam rule and the Michez rule have both officially triggered and have never been wrong for many, many decades. And those typically trigger when we're already in a recession. So, you know, it'd be either already in a recession or again, it could be like coming very, very soon. Right. So the likelihood of a recession, I would say, is pretty high based on a lot of this data. Right. And it's I would also say it's probably higher than most other times. Like you guys probably remember ever since like the Great Recession, we've had so many economists and the media and others for years saying that there would be a recession. Right. Like for years we heard that that rhetoric or that talk about a recession. And it never really happened. And not just that, but we also had like much less data back then than we do now signaling a recession. Like right now, all the cars are, you know, saying that that a recession is on the table and yet, you know, they're not really talking about as much or I would say they're not really saying that it's going to happen. You know, they tend to give excuses or reasons for why this time is different, which is totally fine. You know, they might be right. But, you know, it's just in my opinion, I feel that the economy is probably worse than they're letting on, than they seem to be letting on. And that's why, of course, you're now seeing the Fed cut rates. They just cut rates by half a point, which is more than anyone expected it to be in September. And they're likely going to cut another half a point this year before this year even ends. They have like two more Fed meetings, probably going to be cutting out both. And then they have a whole point that is expected to be cut next year and then still another half a point the year after that. So that's pretty aggressive for an economy that is supposedly doing so great. Right. And so my guess is that the Fed is actually worried about a recession and they've put off lowering interest rates for as long as they could. And, you know, they're not going to just go out right right out and say, right, like they're not going to say, oh, we think we're in a recession or recessions right around the corner, because, again, this can be a self-fulfilling prophecy. So you don't want to freak out all consumers. The economy, most of the economy is consumer driven. If you freak out all the consumers, what's everyone going to do? They're going to stop spending. All of a sudden, companies stop, you know, make less money. They have to start doing mass layoffs. They stop investing. It takes the economy. So you don't want to you don't want to cause it yourself, but you'll just kind of start lowering interest rates. And hopefully, if you're the Fed, you're just hoping that you did it soon enough or fast enough to actually prevent a recession this time, which, again, it could happen. It is possible that we're not yet in a recession. And, you know, maybe we got super close to one, but now the Fed is lowering rates and we just kind of barely miss it. That is possible. But either way, here's why I'm actually more optimistic. This might surprise you based on everything we've everything I've shown you in this video. I'm actually optimistic. I would say more optimistic than most about the future, because the biggest reason why is that we have the high interest rates. It's funny, as a long term investor, I actually kind of like high rates because I know that if a recession hits and the market crashes, I know that we have the firepower to quickly get out of it by being able to lower rates. It's kind of a nice thing to have in your bag. Right. And so here's my overall summary and what I'm doing myself now. Number one, I think focusing on a stable job and career is top priority in this environment with so much uncertainty. You've got to make sure that you have a reliable job because if a recession hits, you don't want to get caught off guard. And I know it's not always possible to have a reliable job, but I would just say put as much energy and focus and attention into that as possible, because being employed is ultimately going to be the most important thing if you do have to suffer through a recession. And number two, try to have some savings. Don't just put all your money and faith in stocks. That's ridiculous. Always have a backup plan. Always have emergency funds and at least try to the best of your ability. And then finally, at number three, though, this would be for me the lowest priority is where I am still investing in stocks because I feel that longer term, again, we have the firepower to get out of a recession and maybe we actually end up missing it altogether. So I'm still investing in stocks, but I am being a little more cautious here. I mean, right now the market is at record highs. It's not the most attractive times far from it. And with so much uncertainty and all the data I just showed you about signals of a recession, well, I think it is OK to invest a little slower than normal and instead put a little more of that money, a little more of that budget into cash, if possible, into emergency funds and things like that. And so if a recession does hit, well, guess what? That's where I really want to be able to go ham on stocks. In my opinion, that's where I want to be able to buy very heavy. The market corrects or crashes or dips. That's where I like to do the longer term. I can expect the lowering of interest rates to help boost up the economy and help it recover. And so is this a little bit of a scary time? Yeah, it can be a little scary for us investors out there. And, you know, of course, we also have a big election this year. Things can get a little volatile. I think there is a disconnect between the economy and the stock market. It's up a lot. I think a dip, a correction makes sense, but nothing is guaranteed either. And maybe, you know, so nothing maybe nothing ends up happening and we just kind of continue on the same course that we've been on. Time will tell. But I just think that under the conditions, under the uncertainty, having a little more caution here just in case I think will ultimately serve us better over the long run as investors. So anyway, those are my thoughts. I love to hear what you guys think down below. Hope you enjoyed the video and I will catch you in the next one, my friends. Best of luck. Wishing you with any decisions you make out there in the market. But yeah, thanks for stopping by. I'll see you next time.