6 Signals of an Economic Collapse

Do you know about the Mexican Repatriation of 1930-1931?

President Herbert Hoover's Mexican Repatriation program was a factor in the Great Depression because it contributed to job losses and economic hardship. The program was a government-sponsored effort to remove people of Mexican ancestry from the United States. The thinking was the Mexicans were taking jobs from Americans and deporting them would help improve the economy. The program did not help the Great Depression and Hoover left as one of the least liked Presidents in History.

Do you know about the Smoot Hawley Act of 1930?

The Smoot-Hawley Tariff Act of 1930 was a law that raised import duties on many goods, including agricultural products. The act was intended to protect American farmers and businesses, but it had the opposite effect, making the Great Depression worse.

Do you know about the 10-2 Treasury Bond Spread?

The 10-2 Treasury Bond Spread is the difference between the 10-year Treasury rate and the 2-year Treasury rate. An inversion is a key indicator of how investors think the economy will perform in the future. When investors feel confident about the financial markets, they invest in 10 Year Treasury Bonds.   When they are more nervous about it, they are reluctant to invest in such a long term, so they buy 2 Year Treasury Bonds. This is one of the most accurate predictors of a recession.  We just went through an inversion, like we did in the early 90s during the Savings and Loan Crisis compounded by the Gulf War and decreased defense spending following the end of the Cold War. We witnessed the same inversion right before the dot com bubble burst, right before the financial crisis of 08-09.  We just had an inversion.

Do you know what P/E ratios are?

The price-to-earnings (P/E) ratio measures a company's share price relative to its earnings per share (EPS). Often called the price or earnings multiple, the P/E ratio helps assess the relative value of a company's stock. It's handy for comparing a company's valuation against its historical performance, against other firms within its industry, or the overall market.  Often, before a recession, P/E ratios are increased, indicating that the underlying performance of a company doesn't reflect an accurate valuation of the company.    Currently, P/E ratios are extremely high.

Do you know what the Buffett Indicator is?

The "Buffett Indicator" is a financial metric that measures the ratio of a country's total stock market capitalization to its Gross Domestic Product (GDP), essentially indicating how large the stock market is relative to the overall economy, and is considered a gauge for whether the market is overvalued or undervalued; it is named after Warren Buffett who has publicly cited its usefulness in assessing market valuations.  This gauge just hit an all time high.

Do you know about commercial loans coming due?  Billions in commercial loans were handed out at cheap interest rates during the foreclosure crisis.  Unlike residential loans, commercial loans come due sooner than residential. What happens when these investors struggle to refinance?

Buckle up!