Happy New Year, dear readers! Congratulations on surviving 2022. Those of you who have read my work or follow me on Twitter know I call ’em like I see ’em, so hold on to your hats, buckaroos. This psychic had a good, long look into my red crystal ball, and I’m about to give you my economic forecast for 2023 and beyond.
Disclaimer: This is speculation, not economic advice, but this is how I’m planning to play it 😉
Post-hoc Recession
Not only are we in a recession, we’ve been in one since before the midterm elections. That’s right folks! When did it begin? Nobody can agree, but the powers that be screwed the pooch. Why? Politics? Incompetence? Greed? Who knows?
The fact is the Federal Reserve admitted that several key numbers they used to forecast in 2022 were wrong. The hot labor market (a lagging indicator by the way) kept the federal government insisting that the economy was healthy and strong. But recently, the Philadelphia Fed found over 1 million jobs “created” in Q2 or 2022 never actually happened. Then the Cleveland Fed said the core CPI was far lower than BLS reports, and that wrong number was used in economic forecasting models. Just last week, the St. Louis Fed admitted the US is now effectively in a recession.
Yet these things seem to get swept under the rug and mostly ignored by anyone who isn’t a forecaster. Oh well, better luck next recession!
Don’t Freak Out, We’re Overdue for a Recession
You may not know this, but recessions are part of our normal economic cycle. They tend to come every 7-10 years in the United States. The problem is: we haven’t had one since The Great Recession (2008-2010). Yes, that’s a problem! We were due for one at the end of Trump’s presidency, but then – COVID. From February 2020-March 2021, we had a brief month of recessionary decline at the beginning of the pandemic, but one month does not a bear market make. The average bear market lasts 11 months. So, sorry, friends, but that one-month COVID blip doesn’t count.
During the pandemic, the government freaked out, then the people freaked out. Stimulus checks helped float the economy during lock downs. What else could they do? Let us plunge into a recession? NEVER!
We should’ve had the recession right then and there. By boosting the economy, the government has only delayed the inevitable downturn of our normal cycle, causing hyperinflation. Inflation rates over 8% have disastrous consequences. After almost a year in the danger zone, we’re just now feeling the inflation pinch. Multiply this dozens of times over globally. Many governments made the same mistake. To be fair, nobody knew what to do.
But by delaying the recession, we’re doomed for a deeper, longer one. Sorry, I don’t make the rules.
During inflationary periods, people feel richer than they are. They take greater risks. Bad risks. The same can be said for corporations. Everyone gets swept up in a collective mania, doing crazy things like trying to outbid competitors to buy a home way OVER list price. Or paying double MSRP for a new car. Or living beyond their means and doing it all on credit cards. Why do people do this? Because they believe “number go up” forever. They forgot about normal economic down turns – the essential part of our boom and bust cycle.
It’s Going Bust
We’ve just entered the perfect global economic storm. Market denial has finally broken, but we’ve not yet reached capitulation. Okay, okay, I made my case. You see it now, and you’re wondering: how bad and for how long?
Expect this recession (bear market) to last until the 2024 presidential election – at least 22 months. Ouch! The Fed will not pivot in 2023. Anyone telling you that is a fool or a fraud. Multiple times, Jerome Powell has promised nothing but rate hikes for the entire year. The Fed will continue to drive up the prime rate, making borrowing too expensive for nearly everyone. Stay away from long term consumer contracts and big ticket purchases right now, since companies want to lock in profits while they still can.
Here’s how I think the next couple years will go.
2023 Q1 – Q2: Expect massive layoffs in all sectors. When corporations can no longer increase prices to hit earnings targets, they shift to cutting expenses. The expense they start with is labor – always. After the workforce is reduced, they will cut software licenses and monthly subscriptions (fewer people on the payroll using them), sending the tech industry even lower than it already is. Microsoft and Adobe will bleed.
2023 Q3: Expect to see a wave of repossessions, foreclosures, and bankruptcies as middle-class folks who got laid off can no longer afford to pay for the overpriced things they bought during the pandemic. Also expect prices to plummet in everything from groceries, to cars, to computers, to houses, and even rents. If you need to make a big purchase, wait until this time to do it (and pay cash if you can). Expect manufacturer rebates, dealer incentives, and houses to sit on the market over 90 days before re-listing at lower asking prices. Expect refurbished items, repo sales, and people liquidating assets privately for cash.
2023 Q4: Corporations go for the heart in another big round of layoffs in a desperate attempt to come out in the black for the year.
2024 Q1-Q2: People are in shock over massive losses. Depression and despair sets in. Expect a rise in suicide rates. Expect anger to spill into the streets in protests. Expect mass shootings. Expect max pain. The Democrats and Republicans will blame each other for this. Both presidential candidates will say they have the answer. Neither will.
November 2024: A Republican president will be elected (as they almost always are during a recession).
2025: If we’re lucky, we might start to pull out of this slump, since that’s the normal timeline of our economic cycle. The savior GOP president will take credit for any growth if we do. However, the global stage is incredibly unstable and not on the same timeline as the United States. We’re in uncharted territory here. Anything can happen. I hate to say this, but I do believe it’s just as possible we’ll get stuck in a depression and not see our normal economic recovery. Why? Unnaturally prolonged growth will lead to unnecessarily prolonged pain.
How to Survive This Recession
My best advice to everyone is: stop spending on anything other than bare necessities. Do it now. Pay down your high-interest debt, especially credit cards. Avoid contracts and big ticket purchases until the end of the year. If you can’t buy something with cash, you can’t afford it. Downsize by choice while you still can, because it’s far more painful when someone takes something from you.
If I were a boomer, I’d cash out now.
If you can survive the next couple years without a repossession, foreclosure, or bankruptcy, you’ll be better off than the majority. When the Fed does start to reduce rates (beyond 2024), you can swoop in with excellent credit and buy the thing at a lower price. Be patient. Have faith. It’s just a cycle. Number won’t go down forever.
Stay liquid, my friends. Good luck, and may the force be with you.