It Really Feels Like We're Out Of Time

To be frank, for everyone’s sake, I hope I’m wrong. But sadly, I don’t think I am.

I don’t really like talking about trying to time the market with specifics, as most of my readers know. For the better part of the last two years, I’ve been eating crow on my predictions that higher interest rates would grind the economy to a halt.

While I still think that’s going to be the case — that positive real rates and slowing economic activity are a mathematical certainty — I severely underestimated the lag with which those rates make their way through the economy.

And so, here we are, years after the Fed started raising rates, and for the most part, things appear relatively status quo — with the exception of some slight volatility over the last week or two due to President Trump’s tariffs.

Yesterday, I spent an hour of my afternoon listening to Peter Schiff’s November 2006 speech at the Western Regional Mortgage Bankers Conference in Las Vegas, in front of 2,000 mortgage bankers. Schiff predicted, with excruciating detail, exactly what was wrong in the housing market and how it would collapse.

If you think the guys from The Big Short were prescient, give this video an hour of your time. Try to pick out one single solitary thing Schiff says that didn’t come to fruition.

His financial forecast wasn’t just surgical — it was delivered straight to the main vein of the very people helping perpetuate the crisis. It’s a stunning, hour-long proclamation that, in and of itself, should have been made into a documentary.

As I listened to Schiff rattle off exactly how the economy would collapse, one perfect detail at a time, it made me think critically about where we are today for the first time in a long time.

For those who read my analysis of the market crash after Trump announced his tariffs, you probably gathered two things. First, I thought cooler heads would prevail and the storm would pass — which seems to have happened with the U.S. rolling back tariffs and active negotiations taking place. And second, either tacitly or through veiled language, I hinted that the market might continue status quo for a while.

It was great to be proven right on the first, but the second, I’m now not so sure about.

Listening to Schiff’s speech yesterday was a well-timed reminder that no matter how much modern monetary bullshit and shuffling of Titanic deck chairs we employ, the natural laws of economics and free markets are eventually going to have their way.

The line in his speech that stood out to me was when Schiff described how the Fed lowering interest rates wouldn’t prevent a market crash. It hearkened back to multiple pieces I’ve written over the last 2 years, explaining that this is usually the case: the market doesn’t bottom until after the Fed starts cutting. As an example, I always cite that Lehman Brothers went bankrupt after the Fed had cut rates.

Put another way, if the Fed is rushing to cut due to a crisis, it’s already too late — the plane has crashed into the mountain.

Or as they say in London, mind the gap between rate cuts and a market bottom.

Now, more than ever, rate cuts are being discussed. President Trump used the ECB’s decision to lower rates this week as leverage to argue that Jerome Powell should follow suit. When he got the impression Powell wouldn’t budge, he started talking about firing him — until reports later in the week suggested that Treasury Secretary Scott Bessent talked him out of it.

As resolute as Powell says he is, as the rhetoric about rate cuts gets louder, it’s just human nature that the Fed will be quicker to pull the trigger in the event of continued volatility.

Powell also made comments last week that the Fed’s dual mandate — maintaining price stability and maximum employment — may soon see both objectives slipping the wrong way.

“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” he said. He acknowledged, somewhat underhandedly, that the Fed may have to prioritize one goal over the other, which in my opinion would allow the other to run wild. This aligns with a view I and others have had for a while: that the Fed will have no choice but to run inflation hot to give the appearance that all is fine elsewhere in the economy and to protect financial assets, especially if the bond market starts to crack up any further.

This shouldn’t surprise my readers. I’ve been saying for years that the Fed is going to get stuck between a deflationary depression rock and a hyperinflationary hard place.

That point now seems just around the corner. You can say it my way, or you can say it in econ-speak: “dual-mandate goals are in tension”.

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The Trump team has ostensibly made progress with trade deals, saying this week that they’re talking to countries like Japan and clearly offering rhetoric that acts as olive branches to China — hoping to advance, or even just begin, constructive dialogue.

But as with the seizure of Russia’s FX reserves during the war in Ukraine, the macroeconomic landscape has already shifted — and can’t be easily reversed. The shock of seizing Russia’s reserves prompted countries globally to consider getting out of the US dollar. While recalibrating the global trade picture is a worthwhile goal, there’s no denying that it’s again served as a clarion call to the rest of the world to look beyond the dollar.

And this isn’t just my opinion — it’s what the market has shown us over the last two weeks: gold skyrocketing, US financial assets floundering, the dollar falling, and notable volatility in the Treasury market. For those seeking a deeper macro view of where the US stands right now, I suggest watching this other Schiff video, a 40-minute interview from last week— in my opinion, it explains it perfectly.

The question becomes: what kind of economic foundation does the country have to fall back on? Or put differently — if people want out of the US dollar, what will serve as the bottom for investors selling dollar-denominated assets?

First, people need to realize this is a decades-long trade now beginning to unwind, as Larry McDonald explained perfectly on a podcast a day or two ago. This kind of dollar-denominated unwind hasn’t happened often, precisely because of the US’s reserve currency status. Economic commentators have noted that this kind of behavior is usually seen in emerging markets — so why is it happening here? Could it be the beginning of a prolonged global shift away from the dollar and the U.S.?

And, if so, we have to start looking inward. I’ve been arguing for years that the US is on an unsustainable fiscal trajectory — $37 trillion in debt, and debt-to-GDP over 120%. That used to be a fringe concern. But now, just a year or two after the Biden administration redlined the spending machine with zero care for the nation’s fiscal trajectory, it’s something the rest of the world is starting to focus on. DOGE is making progress with government cuts with the March deficit tumbling, but will it be enough?

And the more people dig into the U.S. economic data, the worse things may look. Economists I follow have long argued that the US has exported dollars and lived a higher-than-earned quality of life thanks to the privilege of printing the world’s reserve currency. To me, when I see people using “buy now, pay later” services for fast food, I get the message loud and clear: we’ve passed peak decadence — and we’re on the downhill side of the bell curve. Said another way, we’re fucking broke.

While housing may not tank the global economy this time, I do think it’s going to fall significantly. A realtor friend recently forwarded a note from their CEO saying the market is turning into a “buyer’s market.” This is code for “shit is going to hit the fan soon”.

Even Zillow is now predicting a housing bear market. Zillow now expects home values to fall by 1.9% in 2025, reversing its earlier prediction of a slight gain. Despite the market’s unpredictability, mortgage rates are projected to settle around 6.5% by year-end, assuming no major disruptions. The forecast also anticipates a rise in existing home sales, driven by more listings and motivated sellers. As inventory increases and borrowing remains costly, buyers are gaining leverage, and sellers are slashing prices at record levels to stay competitive.

Credit card debt and delinquencies are climbing toward Great Recession highs. Private credit in many industries hasn’t been marked down properly and is being questioned. Regional banks, touted on CNBC as high-yield dividend plays, are tied up in all sorts of illiquid, backward positions. And the auto market? Look into the subprime lenders and tell me this thing isn’t about to blow.

Wherever you look, the US economy looks shaky — not euphoric. And that’s the danger: once we’re on shaky ground, sentiment shifts. Investors move to cash and de-leverage at the first sign of trouble. Every full-blown panic in the last hundred years started with a spark. I can’t help but think that trying to recalibrate global trade — especially while running the largest trade deficits in our history — could be that spark.

It feels like we’ve run out of runway. The same axioms Schiff laid out in his speech apply now. Just like one plus one will always equal two, these economic truths will bear out. And while I’ve been wrong on timing, I no longer feel these outcomes are far off in the future.

To be clear, I don’t think we’re facing another global financial crisis. I think the pain will be contained to the United States, while much of the world sees improving quality of life. Our markets still trade at ~25x earnings, while countries with better fiscal positions — and who supply us with goods — trade in the low teens. I expect those valuations to meet in the middle.

It wouldn’t surprise me if US multiple contraction does most of the heavy lifting in that reversion, either.

With the Fed in place, I don’t think people’s money is at risk in the banking system, per se. But I do believe we’re going to see wild distortions that degrade people’s quality of life and realign America’s position in the global order. Such shifts are tricky — nominal prices can rise, but inflation, shrinkflation, and the outperformance of sound money assets and emerging markets will tell the real story.

That was my thesis picking my 25 stocks to watch for the year, and it still is.

For years, people like me have been dismissed as “perma-bears” or “fearmongers.” We’ve countered that we’re just playing a longer game — one that exists outside the dopamine loop of financial media. If I’m right now, we could be witnessing the start of a years-long transformation so profound that most economists will be forced to admit they never saw it coming.

To be frank, for everyone’s sake, I hope I’m wrong. But sadly, I don’t think I am. The 25 stocks I’m watching this year continue to validate my thesis and reassure me that I was right — but I’ve been wrong before and will be again. This feels like a good time to remind you to read my full disclaimer, located below.

And now, in the words of Bruce Buffer: “It’s time…”

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