hi I'm Jimmy in this video we're gonna look at the Great Recession was it
possible for everyday investors to see the trouble ahead before it happened
because if we could do that well imagine the money that we could have saved or
even the money we could have made sort of big short style so each month on this
channel we do an analysis of the US economy where we go through a handful of
economic indicators to see if we think we should invest now we'll wait for the
stock market to crash this is what our scorecard looks like from the most
recent video and clearly we mark this one is neutral
we got three points for the Bulls three points for the Bears
and then we got one neutral group that's what we call the way up both in the
middle there now I got some pushback on using the S&P 500 as an indicator since
it's not we're not really trying to predict where the movement of the
economy ultimately we're after predicting the movement of the S P
itself so let's cross that one off the list okay so what we're gonna do in this
video is we're going to perform this exact same analysis this is what we do
each month but this time we're going to try to perform this analysis as if today
were right before the stock market crashed in 2007 this is what the S&P 500
had done leading up to the Great Recession and I know we're thinking this
looks very similar to today but either way our analysis is going to happen as
of right here this is the very peak of the stock
market if we had done this analysis at that point well what would our results
have looked like being as objective as we could possibly be okay so let's go
through each of these items on the scorecard fairly efficiently and fairly
quickly first up we're gonna look at the yield curve so this is a chart of the
difference between the ten-year Treasury and the 2-year Treasury so here's
basically what we're looking for clearly the ten-year Treasury should pay
a higher yield than the two years Treasury does so at this level here well
the ten-year Treasury was actually paying 1% more than the 2-year Treasury
would have been we expect this number to be positive
well when the yield curve invert sublimate which they call an inverted
yield curve well that's when this spread goes below zero which means that the two
year was actually paying a higher interest
rate than the 10-year Treasury once this happened a few times back here now this
is crucial because every recession that the US economy has gone through has been
preceded by this inversion of the yield curve now interestingly at this point in
time well the yield curve is positive so we
actually have a very similar situation today that the yield curve is no longer
inverted but it was inverted a few months ago in that this this spread was
negative a few months ago so where do we mark this on our scorecard well in the
last video I actually gave this as a neutral point because it's no longer
inverted and some people pointed out that because the yield curve was
inverted a few months ago this should be a negative point but for the sake of
trying to be as objective as possible since I did it just last month I'm gonna
stick with this being a neutral point although you feel free to adjust this in
your own analysis and call this a negative one if you'd like so for now we
have one neutral point for the economy right bet the peak of the grade right
before the Great Recession okay next up we have manufacturing now once again
manufacturing in 2020 is negative we've marked it as a negative point but when
we look at the ISF manufacturing indicator back in 2007 well clearly we
can see that this is trending lower which is a negative thing for the
economy if the economy was getting stronger we would expect for this to be
at least steady if not moving higher so this looks like this is clearly going to
be a point for the Bears now the key level on this particular
indicator is 50 anything above 50 implies growth albeit in this case
slower growth compare that to back here when it was below 50 well that was
actually negative growth so that's worse now that was coming out of the tech
bubble crash so best-case scenario we can call this a neutral point because
it's above 50 but because this is actually trending lower I think that
this is a potential problem for the economy at this point in time so I think
we have to give the points to the point to the Bears okay so on our scorecard
we're showing one negative point in one neutral point next up for our indicators
we have an indicator that tracks the percentage of
car loans where people are 90 days or more late on their car payments and the
fact that this chart is moving higher right now is certainly a negative thing
for the overall economy now this chart actually covers one of the shorter time
periods of all the charts that I have because that's as far as as much data as
I could find I couldn't find anything going back further than that but either
way this point stands for the Bears since this is a negative thing for the
overall economy so jumping back to our scorecard we can give another point to
the Bears over here okay next up we have consumer confidence in modern times
consumer confidence is actually a positive thing for the economy this is
where the consumer confidence is today in 2020 but if we eliminate that well to
me consumer confidence seems to be somewhat
of a negative thing it seems like consumer confidence is falling leading
up to this particular point in time but on the flip side we could also maybe
want to say it's not as bad as it was back then so maybe it's trending higher
sure it broke that trend line right here but if we were looking at this chart
today I would say that I'm concerned about the confidence of the consumer as
of this point in time but I would probably end up giving this one a
neutral point so on with that goal of being as objective as possible I think
on the scorecard it makes sense to go ahead and give this a point on the in
the Nutri column but I am curious how you would mark this one up or even the
yield curve would you have gone with the neutral point on the yield curve or on
this particular indicator would you have gone a negative point I doubt we would
have gotten positive but I guess hey anything is possible
please let me know what you would have done in the comments below okay next up
we have CEO confidence and when we look at this chart well clearly this is a
negative point this is a point for the Bears this is a negative thing to me
it's quite clear that this is trending lower and this is actually a really easy
one so jumping back to the scorecard well once again this is a point for the
Bears so right now it seems that our scorecard is leaning towards the Bears
which is likely a bad sign for the stock market going forward okay now we're
gonna look at our housing indicator now housing stock
is how many new homes are being built in a given period of time and given that
the Great Recession was preceded by a housing boom so the time period we've
been analyzing is in theory at the very peak of a housing boom I was actually
quite curious to see how this indicated how this indicator look at the peak of
the stock market before the Great Recession so this is what housing stocks
would have looked like in October of 2007 well clearly this is negative and
this is going to be a point for the Bears and much to my surprise housing
starts had peaked more than a year before this particular analysis and it
was getting rapidly worse so if we were paying attention back in October when
we're doing this analysis well at this point the stock market was at its peak
well it may have been obvious that things were in trouble
now you may notice that on each of the charts it said September and that's
because I'm assuming that we're analyzing this in October and the
October's numbers haven't been published yet so we would have had September
either on a monthly basis or quarterly basis depending on what the indicator
does that's why each of these sub say September but we're actually looking at
it as if we were in October so when we go back to our scorecard well we can see
that clearly there were troubling signs ahead for the economy and since the
stock market tends to lead the economy well it wouldn't have taken a rocket
scientist at this point to at least guess that there was trouble ahead for
the stock market and if we're curious this is what the S&P 500 actually did by
the end of 2008 and clearly it wasn't a good thing now I know that I mentioned
that this video is designed to look at the effectiveness of our monthly invest
now or wait series well we do this very same analysis each month and we're
trying to objectively gauge where the economy could be going and where the
stock market could be going so if you're curious
well that series could be a good next video to watch might make sense to keep
up with that if you are investing or if you're considering investing and I want
to thank you so much for sticking with me all the way into the video I really
appreciate it I hope you found this interesting thanks and I'll see in the
next video