#89 - Incoming Market Crash! (2022 vs. 2008) - Transcripts

September 09, 2022

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Is the market about to crash again? Today, we compare how the last great market crash (2008) compares to the current one. By analyzing timeframes, chart patterns, catalysts, and outcomes, we found clues that tell us when the next leg down will be, and where the final market bottom could occur. History does not always repeat itself, but it often rhymes.

Transcript

the market is about to crash.

We've analyzed data from the previous crashes to figure out exactly how the market's about to play out.

Welcome to the bean pod. This is your place for all things stocks and crypto from beginner tips to expert picks. Use this as fuel for your investing journey because when you're in the know your money will grow.

This episode of the beanpot sponsored by Khyber swap

swap is a dex and dex aggregator, which is built to facilitate all your defi needs in one single platform,

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user experience is Khyber swap sole focus to make everyone's life better. In defi. Welcome to the bean pod. This is Shane, a. K. A. The jolly green investor and

this is josh, the nifty investor.

We figured out exactly how the current market crash is going to look like.

We've looked at previous market crashes to figure out exactly how this market crash is about to play out.

So I don't think you can really deny it at this point. The market is in a heavy downturn. You know, Kryptos down 60 70 80% from the top. The S and P 500 is rolling over significantly. So I think it's time to look at previous market crashes and find some clues to maybe find, you know where the bottom is gonna be, what's caused the crash and you know maybe someplace that we can do learning from past past things.

Absolutely. So I mean the most, I'd say the most recent crash that we have in the stock market would have been the pandemic first of all, but that was a V shaped recovery that was like boom, what's going on the world shut down. But then there was a ton of quantitative easing, you know, where the governments were handing out money. So all this money poured into the stock market while people are sitting at home, kind of gambling on crypto and stocks which sent it right back up.

Yeah, So it's probably not the best comparison, right? It was kind of an anomaly that one.

Exactly. So maybe if we go back a little bit further, we could look at maybe the 2008 great financial crash, that might be a little bit more comparative. I

think so, because it's it's a global phenomenon, it's it's something that was lasting, you know, it took years to really figure out the impact of what was wrong with the economic systems and I think there's a lot of similarities between the crisis of that time and now. So let's, let's look back at 2008. So the great financial crisis, the GFC, you know, what was, what was the main cause of that

that was the mortgages, Right? So there's a lot of mortgage lenders received regular interest payments and it was a really easy way to profit at the time. So the tech sector kind of took a tumble and now stock investors were like, alright, where can we put our money mortgages were the best place to put them. They're super low interest rates, everybody was pouring in and buying mortgages. So you had these super big lenders and you had unqualified buyers purchasing all these homes and it was predatory. These loans that they were handed out were predatory. And basically what happened was became this vicious cycle. And I guess, I mean, to to really go a bit further into, I mean there's a lot to this one,

there's a lot to it. I mean if you if you look if you've seen the big short, you know, there's a lot of good information in there, it's basically there were super low interest rates and people were encouraged to borrow beyond their means, right? So they were getting this money that they couldn't really afford to borrow. And then when the house of cards tumbled, ship hit the fan and it built up over years and years and years, these subprime mortgages and then real estate being one of the pillars of any economy, eventually took down the stock market. So I think it was the s. p. 500 fell nearly 50% from mid 2007 to March 2009. So that's one of the first things that we can look at to compare to now. So from the top, which was October 2007, the bottom was March 2009, so everyone's, you know, they're calling the Bitcoin bottoms already happened, the stock market's already bought them, you know by by by but if you look at the past crash It was a year and a half from very top two very bottom. So from the top which was November December 2021, you know we're still only 78 months out from that. So we still have a long way to go. That's the first thing that I learned.

It was also a lot it was caused it was a different cause. So you had finance companies who are involved in this real estate game that eventually took the hit. So investment banks flooding the market with foreclosed homes supply outpaced demands all the finance companies were involved in this in this game. Right? So september 15th, the largest bankruptcy in history in U. S. History occurred. This is the Lehman bros they had their own investment bank with $600 billion in assets when that goes under like that 600 billion is one of the largest asset managers in the world. And people started fleeing the market because they were so afraid like what are we supposed to do here? Right. So any companies associated with the assets that were under this umbrella, in addition to the housing crisis, countries started to pull out of the U. S.

Stock market as well which caused it to cause it to crash.

Yeah so it was a bit more of like a deep rooted systemic failure

of

policy not to say that the policies have not failed us this time. Um, and it's important. And as we go on in this episode, we'll uncover some more similarities and stuff. Um, Because one of the things, the outcomes of the 2008 crash was a more activist fed

right? Financial institutions are the ones who essentially caused the crash.

Yeah. So the Fed has then stepped in after 2008 and has basically been pumping the markets full of free money for 14 years and now unfortunately the time is up and the COVID crash was basically just like the tip of the cherry on top. You know, like if you look at the, you zoom out, you look at the spy chart for the past 20 years. It's basically just up since the GFC and then there's the little dip for Covid and then just vertical and you know, as a long term investor, you would have to look at that and be like, this is this is this is madness. So now, unfortunately we have to deal with the consequences of the activist Fed coming in printing An unlimited amount of money for the past however many years. And especially over since COVID, you know, trillions have been printed in the past two years. And it all kind of started from the policies, which is that came from the 2008 crisis, which is why it's so important for us to understand that

that's right, this crash is a little bit different, the one that we're experiencing now, right, this is caused by like global inflation, you have supply chain shortages, you have, you know, people who are not going back to work because they don't want to work, so you're having an issue, you have an energy crisis over in europe, so you have basically, you have companies are trying to make up for losses by inflating their prices to cover the energy costs, but then they don't have the money to pay the workers, so they're doing layoffs, you know, this is a much bigger issue here,

it's it's almost like a sum of a bunch of issues that's come up into one and the energy crisis, I feel like that is really just starting to rear its head, you know, as we head into winter now, I think there's gonna be some some very, very bad things going on over in europe, The energy prices are soaring out of control in Germany, you know, with Russia holding supply of energy and oil and gas and all that kind of stuff. And I think you're gonna see that start to be reflected in bottom lines of companies probably in Q one or Q two of next year, Because with with soaring energy costs, this is going to affect consumers, businesses, everything globally. And as people kind of tighten the reins on their spending, businesses are gonna be hurt consumers, they can barely afford to pay their hydro bills, so they can't buy anything. I think that is where we're really gonna see you know some of the worst economic numbers come through and if you look at the 2008 crisis and how long it took to bottom out, that kind of time's up with what's going on right now. So everything if it hits the fan and we really start seeing it Q. One Q. Two of 2023 then potentially the market bottom bottom could be mid end of 2023. Which lines up with a lot of other things we've been researching right?

I mean also I wonder if you know because so the 2008 crisis was caused by the US right? That one was all the countries and companies associate to the US within this lending market for the for the mortgages. This one is this one is global. So there's so many I guess they looked. So I was looking at some data and the U. S. Specific factors alone. So everybody's like oh why did they print so much money in the U. S. The stimulus package was like $5 trillion. But every country was handing out money right? Canada was handing out $2000 a week or $2000 a month to 33 million citizens.

You know it's a lot of money other countries are doing that as well. So they're saying that the U. S. Stimulus package may only explain 11 to 2% of the current inflation rates

that low.

Yeah. Really really low. So this is a globe, this is this is a global issue. It's a

global crisis. I mean when you look at all the factors that you were just touching on like in home prices are insane right now. You know no one can afford the home prices, everything's inflated supply chain. You know the conflict in Russia and Ukraine doesn't help. There's just so many things going on when you look at the macro environment that lead us to believe that why we haven't seen the worst of the market crashed yet. Um and and as you kind of touched on before 80% of all US dollars in existence were printed in the last 22 months. That number right? There is just insane. So when you look at all this free money being pumped into stocks and crypto and now only just they've only just started with their quantity tightening. So as you know the Fed chair comes out jerome Powell now every month he tanks the markets because he's we're not pivoting, you know we're raising interest rates and we're taking money out of the markets and they're gonna keep doing that for the next, I don't know year.

So here's what I'm thinking though, here's what to to the global factor is because the U. S. So because the us is not the sole contributor to this, there's all these other factors at play right if they keep raising interest rates which is great but like what is that really doing if there's a supply chain shortage and they're not getting their parts from china or you're not getting your energy from europe is raising interest rates at home. Really gonna do anything. It's going to curb some demand within your own region of the world. But this is a global issue.

Yeah I mean I guess just the fact that the states is still the global powerhouse and even though it

is that

is only America I feel like their financial policy has such a huge impact in europe and Asia and around the world because they're trading with everyone and the U. S. Dollar is still the king of the you know foreign foreign dollar foreign exchange market it has an effect on everyone. Even if it is just american policy. I feel like it still trickles down

and it's all I guess it's all countries raising their interest rates as well. I know Canada is doing it, you're doing it so

and you know you can see the signs that everyone's kind of humans have a tendency to kick the can down the road and not deal with problems and this isn't even just financial things this is just everyday shit right? So you kick the can down the road until because you don't want to deal with problems and it's just it's whatever you're dealing with in life and I feel like they're just continuing to do that, continuing to kick the can down the road even a sign like they changed the definition of what a recession is. You know biden he sees the data. The traditional definition definition of a recession is two consecutive quarters of declining. GDP. Well they see that data and they say oh no no no no. Now it's all this stuff you have to look at retail sales and unemployment numbers and we we we are still not seeing these numbers coming down. So we're not in a recession. It's like well yeah

cough clearly

in a recession like

Wikipedia had like 300 edits or something the next day. Just like I'll just rewrite what what the definition is. Yeah. I mean that's good for the markets.

Yeah hasn't been lately but yeah

we're gonna have to change what the what the definition of depression means I guess

change the definition of the stock market. Yeah just change it, change everything. And they'd be like look we told you.

Yeah it's pretty brutal. Alright so this time around we have you know demand bounced back far more quickly than expected after um after the pandemic we have prices soared because demand outpaced supply and there was a big shift to goods, you know actual tangible goods and services because with the lockdowns everybody there was no services so we create this huge bottleneck now where I think there's a bunch of, you're seeing a bunch of layoffs right now, right? You're seeing all these companies and I think this is a good thing Because if people don't have money to go spend it should in theory drive down the demand and should the supply should start to come up because people are getting laid off. So these companies laying off 20,000 people 20% of the workforce, I think this would be a really good thing. The layoffs that are now starting to occur, it's gonna be kind of shitty and it could put us into stagflation or a recession, but it's also ultimately going to bring down inflation as well. Yeah,

I think so. What was what was the one who was Shopify laid off like 25% of the staff via email? Yeah, people are just like out on a weekend, just like you have been terminated.

Oh my God, that's brutal.

Yeah, there's some pretty

think about that, right? So if they're not making money now they can't go out and spend. So you know, all these people have been gouging with the inflation rises with the inflation rising. It should in theory bring it down if people aren't out spending.

Yeah, I think all these, you know, economic factors kind of everyone pulling the reins and things declining will eventually bring down the historic inflation we've seen. Um I mean you just look at some of the other stats that I found. So 40% of Americans are struggling to pay their daily and monthly bills right now, which is more than any time since, you know, pre pandemic. So people are really starting to feel the pinch here. Um we, we now we're seeing the real estate market start to tip over as well, right? We just had the biggest drop in average and median new us home prices since 2008 since the last real estate crash. So we're starting to see some time, some signs of things coming back down to Earth, which is what the market needed because everything was just so inflated. Everything from real estate prices to stock prices to crypto prices, everything was just pumped full of free money. You know, you give a country $5 trillion dollars and obviously everything is going to become way more expensive.

So I wonder if they're gonna eventually pump money back in to the markets.

A lot of people are calling for that Fed pivot, right? They're like, oh well everything is so bad. You can't keep raising interest rates while the world is collapsing around you. But it's a tricky one. It's almost like if they do then they have no credibility. Yeah, it's like, will they bring down the world economy just to save face? People have done stupider things in the past.

It was 2000, I put up a chart on Twitter the other day. Um it was over the course of three years They raise interest rates 25 basis points for

every month

for three years. Yeah that could

be where we're at now

They've done it. That's why I was like, I don't think we're going to see a pivot any time the Fed just came in and said they weren't gonna pivot until at least 2023.

No, I don't think so. So I mean look, we've got all these bad factors and you know, studying the 2008 crisis, the causes. I think one conclusion that I've made is that and I think you know, we all agree is we haven't seen the bottom yet. I think it's gonna take a long time to play out to really unravel all the layers of poor policy that have been put in place. I think the one thing is to watch is going to be the earnings for for corporate corporate earnings for Q one and Q two next year, after the winter, the energy crisis. Everything. I think you're gonna see some big time blood in the streets then as we've seen over the past month and a bit there's always bear market rallies where people are like, oh yeah new bull market started, you know, you just have to proceed with caution in those, you can play them but make sure you don't get trapped because it's a staircase up in an elevator down, right?

It happens that it was in five days the whole month was wiped out gains

its last

month.

But you know in general do do we think that this crash crash and crisis will be as bad as the 2001? I mean I'd like to say no

I was looking at chart the other day and it was showing how the S. & P. has been performing versus the 2008. And it's the chart looks almost identical.

Yeah.

And if there's any indication, I think we're sitting on what like 3800 right now on the S. And P. We we will go down to 3200. We're losing our 15%.

That's right. So the max that the spy has fallen this year from like I guess it was bottomed out in June was 25% from the peak. And as we looked out from the 2008 crisis the spy fell 46%. So we might have another 22% to go which is significant. Um When are we gonna see that? You know, no one can really predict it could take another year for the stock market to really reflect how terrible the global economy is. But

you know where a lot of this comes from Two is back in uh looking a bit deeper. I obviously didn't live through the 19 seventies but there was the 19 seventies inflation crisis and food rose from 2% to 15% over the course of 15 years. A lot of this was caused by the energy crisis. Opec raised their rates during this time, unemployment rose up to 10% so they experienced stagflation. This is like a really really really bad time and they do not want to see this again. So there's a lot of policy missteps that occurred under it was President ford President carter. So it's kind of like biden right now is inherited. Just a massive problem. Wasn't necessarily his his fault per se, but it was, what was it uh jimmy carter he find when he finally stepped in the powder, he appointed this guy named paul Volcker who was the Fed chairman and he's just like I'm clamping down and we're gonna keep hiking the Fed rates and it worked. So he was appointed in 1979. They're experiencing the super high inflation inflation peaked at 20%.

Holy

yeah. Right. Pretty crazy. So what's

his name, Powell was referencing Volker in his last speech. I think that's why everyone's like

This guy he's like no I'm doing it like he just kept so interest rates reached the highest annual average of 16.63%. That's what the interest rates went up to. We're sitting at 2.5% right now.

It's a long way to go

and 8.5% inflation. So Technically we're far off from that 20 but they don't want to get to that point right? But you can see how far they can actually raise these interest rates. They've done it to 16% before.

Yeah, that's extreme.

So, you

know, the thing I I feel about those inflation rates when they post them is like they are just not accurate at all. I feel like they're not, they don't want to tell the full story about how bad things are because you you've seen these charts, it's like People are independently tracking prices of gas at the pumps, food at their grocery stores and it's all, you know, 15%, everything. And they're like, oh yeah, inflation is 7%. Like how does that add up? It's

just over a year, right? So it's like, it's all gone up right? Like over the past two years, but then it's like, oh well versus last year it's only 7%. Yeah, it's all

bullsh it. I think it's all bullsh it, we know that though. And then, you know, a lot of the other warnings, you can see many of the world's top investors, you know, Ray Dalio Michael Burry, the guy who called the 2008 crash, they're all basically putting out massive warnings right now. You know, they're saying this is not the bottom barry sold his entire stock portfolio last quarter and bought his only position is in a prison company

I think also holds um the housing that there was, I don't have the ticker on the top of my head, but there's one where you can short the housing market is right.

Yeah, he would he would do that. Um So if christian bale's against the market again, then

I

mean look, you just take sometimes it's it's difficult because we get so caught up researching projects and you know, we we want the market to go up and blah blah blah. But when you look at all these factors, you look at previous crashes, you look at everything that's going on in the world right now. You just have to be bearish to a certain extent. And as we've talked about in our previous episodes, you know, bear market opportunity, top bear market this that this is a great opportunity for everyone. If you have, if you are liquid and you have cash on the sidelines, you should embrace the bear market, embrace another 12 months of low prices because it will allow you to dollar cost average into all the top stocks and kryptos that you can, that will eventually rebound. The market always recovers. Um And by studying previous crashes, you can kind of take solace in the fact that it's just a cycle. It's a cycle, you know up and down. That's how it goes as market goes.

Yeah, one day. So I guess we're going to come out with, do you have any stocks or anything we can say that you'd pick during these times or I

mean we have we have recession proof stocks. We'll link that episode at the end of at the end of this one.

Probably an episode to check out.

Yeah recession proof stocks. That's like the one we made that even way before this recession was called. So yeah. Check out the recession proof stocks episode. There's some bangers in there for sure.

Yeah, I mean what else we have on the horizon here we have china potentially invading Taiwan. That could be a black swan event that could send the market a bit further. Um a few other things.

I mean you know there is the midterm rally

rally which

we if you if you're wondering what the midterm rally is and why that could potentially spell another bear market rally to come check out that episode we posted last week. But that is something that's on our near horizon timeline that could provide some Some gain, some gains opportunities, some some light at the end of the tunnel. But then you know, that's why we say maybe we bounced out for the midterm rally now and then back down to the final bottom sometime in 2023 and then we have the Bitcoin halving coming

up coming. I mean You know Bitcoin has been around since 2009, it is relatively close that it's having, it's only 500 a 580 days away or something. I just

wonder that you know Bitcoin has never seen an economic environment like this. It was born out of the financial crisis.

It was born during quantitative easing.

I mean it was, he made it because of what happened or he they or whoever made it and now it's never seen, you know, the hold the macro environment, the tightening, it's never seen that. So everyone's like, oh you know, just having them will go up. I feel like nothing is certain in the market so we'll have to play it by ear. You'll have to make sure you like and subscribe the channel so we can keep you updated with everything that's going on. That's

right. Like we do in the next episode,

that one is going to be a banger. All

views expressed by speakers on the bean pod are solely their opinions. You should not treat any opinion expressed on the bean pod as a specific inducement to make a particular investment or follow a specific strategy, but only as an expression of their opinion. This podcast is for informational purposes only

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