2030:The Next Great Depression
Here is a summation of a recent interview with the founder of ITR economic, Brian Beaulieu.
Brian Beaulieu is in the business of predicting economic trends. He’s been forecasting trends for the past 39 years and he’s very transparent about his methods. Brian is politically agnostic and aims to be as objective as possible. He doesn’t make money if the market goes up or down, he makes money by being right.
Between March 20th and 28th of 2020, his GDP retail sales forecast came out with a 98% accuracy.
When it comes to long-term trends, there are only a few ways they can play out.
In terms of accuracy, Brian forecasted the great depression of 2008 and 2009 at the tail end of 2003, so their clients were well prepared when the crash hit.
Back in 1987, a month before the stock market experienced a short but rapid decline, Brian warned his clients to get out and saved them from heavy losses.
Brian’s team has a unique methodology as well as business cycle theories which help them achieve such a high level of accuracy. By using a system of leading indicators, Brian can forecast major market trends with confidence.
Business cycles don’t turn based on old age, but that does produce imbalances that accumulate eventually causing major trends. Overall, Brian and his team have had an average accuracy of 94.7%.
It’s not particularly useful to read financial publications when it comes to trying to make predictions. Publications like the Wall Street Journal are in the business of selling ad space and have financial biases. They often look for data that reinforces what they already believe, and if they don’t play that game, then their subscription base dwindles.
Financial publications are interested in articles that get clicks, not in predicting the future. Brian knows that he’s not immune to that, which is why he tends to be very dogmatic about his leading indicators.
Humans have a tendency to think linearly. Financial behavior has a recency bias and whatever we have experienced most recently has the strongest imprint on us. This leads people to think that next month will look a lot like last month, and next year will look like this one. Brian refers to this behavior as recency bias.
Most Millennials and Gen Xers have only experienced falling interest rates. Because they haven’t experienced a rising interest rate environment, they can’t figure out ways to take advantage of it.
If the success of stimulus spending is defined by people receiving a check and thinking fondly of the political process, then the most recent stimulus was indeed successful. Long-term, the stimulus has made the forecasts worse and someone is going to have to pay for it.
People are aging, and as a population gets older, they spend less and cost more. We are not going to get out from underneath those healthcare costs until 2036. Another issue is that the government has refused to fund Social Security, Medicare, and Medicaid. When interest rates start to rise again, the government is going to find itself in the position of not being able to afford both the mandatory and discretionary items.
Most people like to think that rising healthcare costs are due to litigation or the greed of pharmaceutical companies, but the truth is more complicated than that.
All these trends are going to line up around the time when the US national debt is so large that it becomes untenable.
Advocates of Modern Monetary Theory believe that because we can print our own money that we don’t have to worry about that, but history tends to disagree. What happens when the rest of the world stops lending the US money at the current interest levels?
Over the next 8 years, Brian does not expect any politicians appearing with the political will to change the trajectory of the country until it’s too late.
Since the inflation from stimulus spending is not immediately present, people are going to believe that they can print money indefinitely with little to no consequences. Brian addresses the current spending patterns as well as patterns under both Republican and Democratic administrations.
Interest rates will have to increase at some point and the federal government will have trouble paying down debt. This will lead to tax increases.
Rising healthcare costs – a greater volume of patients (baby boomers) and higher prices for care and medication.
Lack of ‘true inflation’ will allow the government to justify the continuation of money printing and maintain the delusion that we can have an unlimited amount of national debt.
Nationalism by many countries could lead to China and Japan refusing to buy out debt.
They don’t see a change in the governmental policies driving us toward a 2030 recession.
Deficit spending will lead to a drop in the value of the U.S. dollar, greater inflation, and higher interest rates.
We will have a 6-year recession driven by healthcare costs and our demographics (old population).
Make as much money between now and 2029. That means investing in assets that do well during periods of inflation and assets that do well even when the value of the dollar is declining. Since interest rates will rise - bonds will be less attractive and bond substitutes might be an option.
Evaluate if it makes sense to own a business during a severe economic event.
Get out of the assets that built your investment income through 2028 and flip into assets (2028 or 2029) that work in a deflationary environment. He even suggests investing in key (4) countries that will manage through the 2030-2036 economic event because they will have more vibrant economies, and have debt under control. The key will be to invest in their government bonds or investments that mimic their bonds just to preserve our wealth.
2036 – begin investing in stocks and businesses all over again.