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uh the Federal Reserve recently said that they think we've uh kind of cleared the recession uh hurdle and they don't really project a recession any longer you disagree with the FED on that yeah I think the fed's record on these things is is wonderful it's uh almost guaranteed to be wrong for years Jeremy Grantham has grown to be a fine investor and one of the world's most recognized voices in finance renowned for his reputation as a doomsday Oracle after accurately predicting significant stock market crashes including the dot crash in 2000 and the financial crisis in 2008 his current prediction is more scary far beyond a typical recession Grantham believes the world's new bubble is bursting and that we're on the brink of an unprecedented uphill drive in an exclusive interview with CNN he had not too long ago he sternly suggested that we are by no means finished with the stress to the financial system despite numerous pred itions of a recession from notable figures on Wall Street billionaire investors and former Federal Reserve officials for nearly 2 years the US has not experienced an economic downturn and with a strong labor market and inflationary Trends fading in the face of Skyhigh interest rates a lot of experts have now turned bullish believing the economy will have a soft Landing in 2024 as a matter of fact even the Federal Reserve staff economists abandoned their initial forecast of a mild recession that they predicted months ago so given that mainstream economists are becoming more optimistic about the economy what exactly does Jeremy Grantham see differently in today's video we'll be diving into the factors generating grantham's pesimistic view of the state of the economy also there's some solutions to stay on top should his concerns become a reality are Federal Reserve recently said that they think we've uh kind of uh cleared the recession uh hurdle and they don't really project a recession any longer you disagree with the FED on that yeah I think the fed's record on these things is is wonderful it's a almost guaranteed to be wrong they uh have never called a a recession and particularly not the ones following the great bubbles they prided themselves in in stimulating the bubbles they took credit for the beneficial effect of of higher asset prices on the economy they have never claimed credit for the deflation effect of asset prices breaking and they always do believe it or not the first reason why Grantham believes a perilous period is coming is due to a potential crash in the S&P 500 Grantham has been warning of an epic stock market bubble since January 20121 for some valid reasons starting with the fact that it has been proven vulnerable to external shocks surely you can say the market seemingly has upward momentum at the moment but even that is being propelled by a few stocks creating a delicate environment as far as liquidity is concerned currently analysts are predicting that the s&p500 will potentially decrease by more than 20% a figure that exceeds its previous low in October in the worst case scenario they believe the index might fall by 45% or more returning to its pandemic induced low levels however if you thought that was bad enough grantham's view is way worse since the beginning of 2020 22 when the S&P 500 reached a record high US Stocks declined by approximately 15% in the first quarter of the year due to Central bank's increasing borrowing costs and Grandam believes the best we could hope for is a fall of about 27% with a worst case scenario seeing a plunge deeper than 50 to add to the Intrigue he believes the low Point might not even arrive until deep into next year regardless of how bad the crash eventually becomes these forecasts emphasize the gravity of a potential crash and the economic challenges that lie ahead as sad as it may be one of the major reasons why the S&P 500 May crash soon is the bursting of economic bubbles that emerge when assets become way more expensive than their intrinsic worth eventually promotes a correction going back in time to the great bubble in the late 1990s the market was at a standstill countless investors invested lots of money into internet related firms in hopes of flipping a lot of profit profits and guess what many of them didn't even bother doing their homework on the firms they were investing in they didn't even know if it had realistic projected growth or if it could be profitable in the long run when the market correction finally came knocking the bubble eventually burst leading the S&P 500 suffering a significant decline of almost 50% from its peak a similar scenario happened in the housing bubble back in the mid 2000s driven by a surge in subprime Lending and inflated real estate prices the value of assets and housing went through the roof but pandemonium ensued when the eventual burst of the bubble led to a widespread financial crisis at that time the S&P 500 went down by 60% hitting its lowest point in 2009 while we admit it's still uncertain whether history will repeat itself or Not Another significant factor that could lead to a potential S&P 500 crash is a broader economic decline or a sudden change in Market sentiment additionally geopolitical tensions or abrupt shifts in monetary policy can significantly affect investor confidence triggering market sell-offs and speaking of the market have you been paying attention lately it's common knowledge that the economy of America is a well-oiled machine with hands down the largest GDP in the world its economy always has a way of bouncing back despite inflation and other issues that kick back annually almost almost every year analysts on Wall Street for instance voice out concerns but 90% of the time they never come to life to address this mild recession concerns for 2023 didn't happen despite inflation and high rates with that in mind don't you think it's a bit concerning for Grantham to say this I I suspect that they will once again Dominate and we will have a recession running perhaps deep into next year and and an accompanying decline in stock prices no matter how we want to look at things the economy is still at risk of a recession yield curves particularly when they invert are one of the best ways to anticipate a recession and currently as per the New York federal reserves model there's a substantial likelihood of a recession in the next 12 months with an almost 70% chance which is notably higher than any historical trend has indicated so far that said are you wondering what an inverted yield y curve is an inverted yield curve happens when short-term interest rates surpass long-term ones put simply it means that those rates on short-term loans or Investments are now higher than those with longer terms and this usually occurs when long-term government bonds yield less than short-term bills presently there is a spread of more than 1.5% between the yields of 10year and 3-month bonds this negative spread harks back to the early 1980s a Time marked by recessions in 1980 1981 and 1982 these parallels between the current inversion and past economic downturns are just one of the reasons why Grantham and some analysts are showing concerns about the state of the US economy moving on it's almost common knowledge that the prices of Commodities including food and energy have been dropping it's no longer news that after Russia invaded Ukraine Global Food commodity prices reached a record high before declining over 20% this year even vegetable oil maze wheat sunflower oil and all kinds of stuff drastically decreased at some point this year up to 20% or more this is particularly concerning because when these prices fall a recession can happen under certain circumstances let's break it down when the price of a key commodity drops significantly it can impact Industries and businesses associated with that commodity for instance if oil prices decrease sharply it may lead to reduced revenues for oil producing countries and companies this in turn can trigger a chain reaction these entities may cut back on spending Investments and employment job losses and reduced income can then lead to lower consumer spending which forms a significant portion of economic activity furthermore a drop in commodity prices can affect the Financial Health of companies that heavily rely on producing or selling that Comm commodity this can lead to a decline in stock prices impacting the overall Financial Market in essence the interconnected nature of the global economy means that a significant reduction in the prices of a key commodity can have Ripple effects negatively influencing various sectors this Collective impact on businesses employment and consumer confidence can contribute to an economic downturn or even a recession and how about cryptocurrencies 2022 was a particularly challenging period for Bitcoin which plummeted up to 65% of its value while it was unexpected it had a catastrophic domino effect on FTX Luna and other macroeconomic conditions however the start of 2023 brought some hope for the crypto Market as signs of recovery began to appear in July Bitcoin recorded a modest uptick of 0.39% reaching a value of approximately $31,000 and despite falling slightly below it has recently been on a path to recovery with a monthly increase of almost 15% alas according to recent charts from coin market cap Bitcoin is trading at a weekly loss of over 2% at $26,845 and to make things even more suspicious in October the number of Bitcoin sold by minors exceeded $20,000 marking a significant record since April 2023 to Burress this ethereum whales have initiated a trend of selling their Holdings commencing in February addresses with a balance ranging from $10,000 to $100,000 in eth have been actively divesting or redistributing their cryptocurrency during this period and notably over 5 million eth approximately valued at 8.5 billion have been withdrawn from these massive wallets while many enthusiasts are optimistic IC that the long awaited bare Market is back many critics are arguing that bitcoin's recent rally may be a bull trap rather than a sustained upward Trend especially given that Bitcoin is almost halfway down from its all-time high with all of these points that we've discussed let's talk about the possibility of a recession happening next year if grant them is right and a prolonged recession plays out we should all expect companies to make continually low returns and the bare Market to be significant history has shown that bare markets typically occur when stock prices decline by at least 20% from their recent highs and are also followed up by pessimism and an overall lack of investor confidence you may want to brace yourselves because in the last two major bare markets of this Century the S&P fell by about 50% with the other being just under 60% should 2024 fall beyond that the S&P 500 may not only be close to 70% but will also be the worst worst Plunge in history Additionally the danger of simultaneous housing and stock market bubbles is another factor that we definitely need to keep an eye on when both markets experience excessive growth fueled by speculation and high demand the risk of a significant decline increases a burst of either of these bubbles could trigger a domino effect leading to a substantial decrease in asset values and overall Market instability using China One of the major players in the global econ economy as a case study the deceleration of its economy is anticipated to adversely impact Global oil prices any additional disruptions or economic setbacks in the nation can send reverberations worldwide impacting trade Supply chains and overall financial performance massive layoffs have been a thing in the US for a while now and a recession will only worsen things when the economy contracts businesses often experience reduced consumer spending this decline in demand demand for goods and services directly impacts company's revenues forcing them to re-evaluate their operational costs and labor expenses as cost cutting measures to maintain profitability and keep the business afloat and of course one of the quickest ways to do this is by simply laying off employees so given the fact that no one can truly say for sure that they'll retain their jobs we all have to take proactive steps and strategies in preparation for the likely recession start with investing in quality assets or free lunch as he calls it I would concentrate on non US Stocks if I had to buy US stocks and most people do I would I would concentrate on quality I am very nervous about the economy and quality protects you to some considerable degree for the uninitiated quality assets refer to companies characterized by robust fundamentals sound balance sheets and sustainable competitive advantages historical evidence indicates that these firms are highly profitable generate steady cash flows and experience consistent earnings growth with the icing on the cake being that they are incredibly resilient to dreaded economic downturns moving on do you remember when we talked about layoffs being a byproduct of economic recessions in uncertain economic climates employers downsize their staff to save costs and the first people who are sadly shaved off are those who are expendable as we prepare for the likelihood of a recession we need to be updated with the latest industry Trends and gain skills that are not just currently in demand but also future proofed not only will you have professional and personal growth but you'll also gain a lot of Leverage against layoffs moving on to the third point we all have to keep an eye out for worthy Intel by keeping up to date with reputable financial news sources or Consulting with financial advisers we can gain a lot of Smart Tips and insights into market conditions and we can use them as leverage against the potential risks that come with the recessions the worst mistakes that you could possibly make in a recession is acting with haste always make smart grounded decisions that will last and speaking of which it's crucial for every investor to focus on the long-term and not just the quick Financial gains when contemplating Investments and strategies to endure economic downturns prioritize decisions that will align with your long-term goals and demonstrate resilience against Market fluctuations opt for approaches that emphasize stability and align with your overarching financial objectives to navigate turbulent economic periods effectively
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