So today we're going to talk about why I believe we are in a recession
and stay to the end, because I'm going to talk about tactics
that I'm doing and you could do to mitigate your risk.
There are many definitions of what a recession might be.
I'm going to talk today about a balance sheet recession,
which is rarely discussed.
A balance sheet recession focuses primarily on debt,
and we folks are in a debt crisis.
A balance sheet recession is a type of economic recession
that occurs when high levels of debt caused individuals or companies
to collectively focus on
saving by paying down debt rather than spending or investing.
Pausing economic growth to slow or decline.
So why am I talking about this now?
Because that was cheap at one zero or 1% or 2%, and people
were getting mortgages at two or 3%.
It wasn't a problem, but now the debt has more than doubled.
People are starting to see the problems.
They're starting to not be able
to pay their credit card balances, which are over 20%.
And they're not buying bonds, of course, because rates are at six and 7%.
And, of course, commercial interest rates, the Paul thing, as we speak.
So on this slide, I'm going to talk about both public debt and private debt,
because I think both are important right now.
So as you guys know,
we just had a big debate over the debt ceiling, what just got approved.
But the total U.S.
gross debt is now at $31.4 trillion at the end of 2022, 24.5
trillion of that or 78% is actually deemed as public debt,
meaning that it's cash borrowed from domestic or foreign investors.
One big issue that just happened in the last 30 days is that the U.S.
national debt surged by $1 trillion in just one month.
That's the borrowing ceiling was just lifted by Congress.
This is a potential problem and something to watch as we move forward.
The second big one, of course, which I've talked about, is that
we have $1.5 trillion of debt looming for U.S.
commercial real estate.
Now, this is office retail, multifamily, even self-storage
has and could fall as much as 40%, which means
that the values of these properties are not even worth the loan.
The next one is student loan debt, which is $1.75 trillion right now,
or almost $30,000 per student or borrower on the average.
We've all heard the stories around student loans, which apparently
are going to have to start being paid in the fall of this year.
And the last one is consumer debt.
And this is one big catch all.
So this is mortgages and auto and all those kinds of things,
including credit card debt, is at a record almost $17 trillion.
And delinquencies are up as Americans now over $1 trillion in credit card debt.
Don't forget, with all that, there's what we call counterparty risk.
There's somebody on the other side of that debt.
Somebody is owed that money, though, as debt defaults,
it doesn't just go poof and go away.
Somebody actually takes that hit.
So if you're owed Social Security or a pension or Medicare,
that could take the hit.
If you're a retiree, if you're on the commercial real estate,
that then that could make its way into your retirement accounts.
As we start
to see these insurance companies and big pensions
write down the commercial real estate market.
The next one, of course, is student loan debt.
And that's a wild card.
Who knows whether or not that will be repaid any time soon
and what the defaults are going to be,
that consumer debt is the one that you need to continue to watch
as Americans are continuing to rack up more and more credit
card debt and their personal savings continues to go down.
So why am I concerned about this?
Because the cost of debt has more than doubled.
And now, of course, the point of a balance sheet recession
is that people are going to start
diverting more of their income to paying debt as opposed
to consuming and investing, which is what the entire economy is built on.
So now let's take a look at good debt or bad debt.
Good debt is debt that's used to provide passive income
or that has some kind of return.
Bad debt would be the opposite.
Let's say buying something that appreciates right up.
You buy it like a boat or a car or some of the types of debt or mortgages
businesses are, or credit cards, student payday loans and consumer debt
and of course, entitlement programs which are Social Security, Medicaid,
health care, etc.
There's arguments
about whether this is good debt or bad debt, but the bottom line is
does the actual investment or is there enough income to cover the debt?
If it's not, it effectively goes over to the bad debt column.
So there's three stages in the pattern of all borrowing.
Stage one borrowers expect to be able to pay
both the interest and to repay the principal from the cash.
They expect their investment and or income and generate.
I think everyone's optimistic at this stage.
Age to borrowers hopes are limited to paying the interest
and due to the lack of income or value that was declined
the refinancing and the principal is now not an option.
This is generally where we are right now.
Stage three The interest payment is not made due to the lack of income
and the loan goes into default or the loan is due.
But the loan is not necessarily worth the value as it sits today.
So if you take a look at the debt crisis that we're in today,
the government is in a bad position because it owes a lot of money,
an entitlement program.
And of course, those are going to be paid, but they're going to have to print
that money, which is going to create more and more inflation down the road.
So the second one, of course,
is commercial real estate, that which was talked about.
And those loans are starting to fall
because the values of those properties are not worth the current loans.
And those are going to start to show up in the smaller regional banks.
And of course, inside of your statements, whether it's insurance or pension
for one care or retirement for rent and of course, commercial
debt and student loans that are a little bit of a wild card.
This is primarily based on wage growth and the borrower's
ability to pay back those loans over a period of time.
So on traditional balance sheet recessions, people divert their income
to pay down debt as opposed to consuming or investing.
And when consuming and investing goes down,
that means that GDP will also go down
because GDP is based on consumption.
So we're already starting to see reduced borrowing,
reduced spending, reduced savings.
People are struggling to pay off their debts.
And of course, there's a rush to sell off
assets to pay off the underlying debt that many people all know.
It's not all bad news because a lot of people
can make a lot of money during recessions.
So these are balance sheet recession tactics.
And I suggest you take a look at a debt review of these in a prior video.
But I think it's important that you understand
that these are the things I'm doing and these are the things that you need
to do in order to survive this recession that's about ready to hit us.
So, number one, review your asset exposure
like the banks are doing right now and sell off your marginal assets.
Anything that's negative or no cash flow you need to get out of right now
and make sure that you're fixing your dad as well.
You can do is you can always heads the up and you can always refinance that down.
That's the important thing.
We don't know what the Fed's going to do.
They said that they were going to raise the rates two more times, but who knows?
Definitely build up your cash reserves because cash is king.
Use inflation as your 2023 24 strategy.
Because I don't see this going away because the government's
going to have to print more money and they're going to have
to inject more stimulus either directly to the people or to the banks
to be able to prop up the economy, to continue to keep it moving forward.
Expect more loan defaults.
We've already talked about this at the very beginning.
You know, we're in the first few innings of this
and which is going to create some bank instability and failures
and just be patient, wait one or two years, build up your cash, reserve,
Do not catch your falling knife, Let the knife fall, let it hit the floor,
let the bank on the knife, and then go negotiate for the knife.
That's the time that you want to buy assets and get ready and just get ready
to have your cash together and solve the banks problem.