Is the US in recession, and how to position crypto?

Transcript

GM good morning welcome to the milk Road show The Daily Show that's as satisfying as a midnight snack I'm your host Jay Hamilton and today we're talking about the likelihood of a US recession and how you should position your crypto Investments to prepare here to guide us is Lark Davis who researches crypto markets every day for his millions of fans Lark why do you think the potential of a US recession is such an important topic right now particularly for crypto investors the reality is is that if a big recession hits particularly a big one but any recession is probably going enough to Spook investors in the short term but if a recession hits for us markets it's not a question if it's just

question of when recessions are a normal part of the business cycle but when that recession hits sooner or later right sooner is what everyone's worried about you have to just keep it real with yourselves okay when we have bad economic conditions when people are losing their homes when people are losing their jobs they're not buying dog coins it's just a straight fact reality unless they get giant stimulus checks from the government then they're buying dog coins and that's that's full on bll then but outside of that it's problematic because when people are struggling to put food on the table investing in speculative assets is and crypto is the most speculative assets is the last thing on their list of things to do now there's always going to be people with money

there's always going to be people in the markets there's always going to be other countries that are doing doing well outside of the US there's always going to be investors right you got to keep in mind the bottom half has zero Investments and can't afford a $1,000 emergency right but the people at the top tend to be doing a bit better but still during recession the smart people are going to tighten their belts a little bit and try to let things blow over and ride out the storm and that again doesn't speak well for your dog coins okay so let's start out by looking at the bad there are are several indicators I believe we have five that we're going to look through today of what is signaling that we are going

towards a recession right now yeah there's a lot of indicators we can look at and and the worrying part is things like the yield curve it has such a strong track record of being right that it's worth paying attention to now I do need to caveat that with any indicator and I mean any indicator can always have a false positive any indicator can be proven wrong at some point just because it's worked in the past doesn't mean it's definitively always going to work in the future but when you have such a high hit rate it's worth paying attention to so maybe we start this conversation by talking about those unemployment numbers because this is what really spooked the market out last

week so there's two rules here in particular that we could talk about they're both dealing with recession with unemployment numbers and how that could have impact a recession recession coming or be an early indicator for recession coming we have the piper Sandler Rule and we also have the Sam rule so we don't need to go into the exact mechanics of both of them but just to understand both of these indicators are flashing and when they flash generally it indicates that a recession will follow sometime in the near future now that's not necessarily tomorrow that could be six months down the line maybe longer but it's coming it's coming and this is part of of what the FED has done to the markets by their higher for

longer at the start of the interest rate hikes you had drone pal come out and say well we got to put a bit of pain on the economy and if you translate that it was you need to lose your house house you need to lose your job we need the economy to cool down we need you to stop buying stuff right we need you to be in a tough economic situation which unfortunately is what they're doing so look when it comes to the piper Sandler and the Sam rule which you need to understand is that neither of these things again are perfect even the lady who made the Sam rule check this out even she came out and said there's a good chance that this one could actually be a false positive now every time this indicators flashed in the past has

basically been an indication that the economy is already in a recession um one time I think it flashed and the recession came five months later so pretty accurate in saying hey recession's here except maybe this time and even she says maybe this time it's wrong which is interesting and she said a few different things why it could be wrong that Texas employment data wasn't properly factored in due to Hurricane that had come through and other stuff like that it's worth keeping in mind too we have this sort of conversation around unemployment numbers it's about the trends right why the markets freaked out so bad last week regarding us unemployment numbers was not because of the total percentage but

because of the trend that it keeps moving up the unemployment does so people keep losing their jobs that's very very problematic because often when you see a four and a half to 5% unemployment rate that's when things start going wrong things start breaking there's too much chaos in the economy but but there's that reality and then there's also the reality of huge amounts of immigration that been happening to the United States both legal and illegal um so that's propping up the jobs Market that's keeping the economy Trucking along and also that this very interesting by the way is that the total number of jobs now there's about six million more employed people in the

United States than there was before covid so within four years the US has added six million total jobs but the total unemployment rate's gone up a little bit I know you're probably listening to all this stuff and thinking man why do I have to worry about unemployment rates unfortunately the reality with crypto is is that it highly responds to risk on risk-off attitudes in the market and if the market decides to go riskof in a big way because of us recession fears then pretty soon you'll know all about why it was worth paying attention to all right let's go to the yield curve lots of talk around the yield curve and it flipping turning positive on fears of recession explain to us what's going on here so yield

curves basically what happens is when the yield curve inverts it means that the 2-year bonds are giving higher returns than the 10-year bonds or long-term bonds which generally shouldn't be the case you should be getting more money for locking up your money for longer with long-term bonds makes sense right short-term should pay lower amounts of money so it's a sign of dysfunction in the bond markets and the bond markets are big right and so that inversion happened back in 2022 when that happened as you will probably remember things started falling apart and it was kind of a symptom of all the other economic chaos now currently we are on the verge of

uninversity now here's the worrying part the yield curve has basically been a very strong recession indicator with a near-perfect hit rate for the past Century almost and that uninversity a recession has followed shortly thereafter often within two to six months so that kind of gives us that potential for Q4 rally around the

elections and then you know things could really go down fast if based on the yield curve right right and and we're going to get to a little bit later in this conversation even though we're we're three for three on things that are signaling recession coming does not mean that all of this is accurate want to go through two more indicators that are not looking good right now let's talk about manufacturing numbers in the US yeah so manufacturing numbers is another one of those Canary in the coal mine things but look it can be a deceptive number too you see how much fluctuation there can be month- on month and stuff like that but the worry is that it's been going down recently and

so people are saying well manufacturing is going down that must mean less consumer demand but consumers are still spending strong so so the US economy in spite of all of these indicators that might tell you otherwise the US economy keeps stubbornly being strong and people keep spending money and all this stuff but a fall in manufacturing is problematic for a variety of reasons this is the uh Philadelphia Manufacturing Index and so the this essentially shows that businesses are doing Less business and if they do Less business they need less employees which means more people get fired from the jobs which means employment goes up and companies are paying less in taxes and people have less money and all this kind

of stuff now part of that problem for the manufacturing industry in the USA is that rates have been so high for so long it's hard for companies to borrow money to expand and to invest in new equipment and stuff like that as well consumers of course are getting hit um we could throw the housing market in here too that's kind of the fifth thing we want to talk about here but I think it's good to mention around this time because essentially when you have the housing markets in such a state of chaos right now where the prices are down big time on people's houses so there's no wealth effect anymore when house prices are up people have the wealth effect they borrow against their houses they use it to make speculative Investments or buy new boats or buy things that companies manufacture in Philadelphia right stuff

like this but that's not happening right now because house prices are lower right everything's gone down 15 20% more in some cities in the USA plus people having a really hard time selling houses right now so this dysfunction in the housing market has massive impact because it's one of the biggest asset classes well it real estate is the biggest asset class in the world certainly one of the biggest in the United States when we talk about investment opportunities and stuff like that so it has a big effect and it's one of those symptoms of massive dysfunction in the markets okay so some bad some not so good-look stuff but it's not all bad and this is where

it gets confusing isus it's not like every indicator is saying it's bad there are actually quite a few positive indicators right now that say that we're not headed towards the recession so keep on listening because if you're not already trying to figure out what's going on here you're gonna learn that it's not easy to figure all this out so let's talk about what are some of the good things that are happening in the US right now yeah I I know listening to all this by the way you just kind of feel like like what's going on uh but there are good things that's what makes the current situation so difficult and why so many are saying that a lot of this could just be false signaling and that if the FED there's a

narrowing window for the FED to actually pull off whatever they were trying to pull off without causing complete Devastation but if the FED can still pull that off that there's still a chance that this other stuff doesn't matter so for example the GDP growth in Q2 2.8% that's crazy now look I I'm not an economist here but I'm pretty sure when your economy is growing at 2.8% that's not a recession right because the recession is classified as when your economy is in negative growth territory so the US economy despite everything we've just talked about has stayed resilient the problem is how much longer can it stay resilient for that's what's got everybody freaked out right now

because if Jerome pal does cut hard and fast enough bad outcomes are likely to happen in the markets and that GDP growth will slow real fast just because we had a good Q2 doesn't mean Q3 is going to be great so far it's probably going to be okay but for how long so hopefully these GDP growth numbers are showing us that we are still doing okay and that this other stuff's potentially more noise than signal okay another number that every everybody watching this week in particular is CPI the inflation rate in the US so right now the expectation and by the time you guys watch this you

might already have those recession um inflation numbers out expected is 3% so that's the expectation right now so it's currently at 3% so the expectation from the market is that there's not going to be a change in inflation which in of itself can be a bit worrying and might make the FED hesitate on those rate cuts now right now the market is basically factoring in an almost certainty of a rate cut in September by the fed the only question whether it's going to be 25 50 or 75 basis points but 3% inflation is not bad okay we've had a huge downtrend in inflation things have generally gone pretty good there's been some moments when we Spike back up a little bit but you look at the prices of

like corn and soybeans and all that stuff down massively there are some some small worrying signs that inflation could have potential to start tracking back up for example the cost of shipping containers out of China has increased dramatically in the last two or three months so that could be a problem because that obviously China makes everything that then carries down to the end consumer because of companies in the USA have to pay more to get their stuff shipped guess who's paying the costs not them it's you right so that could have a an inflationary impact pushing this back up potentially which you don't want to see because if inflation starts going back up hold on to your butts it's going

to get nasty in my opinion a a slight bump not a problem big bump not good now this week in particular the expectation is 3% if it comes in an expectation markets probably are going to be fine if it comes in at 2.9% markets are probably going to quite like that if it comes in at 3.1% again hold on to your butts because markets probably are not going to like that and it's going to cause even more fear and panic and an already fragile Market any other indicators that are signaling good for for all of us out here that are worrying yeah yeah I know you're probably hey wait a second L wasn't the inflation supposed to be a good one the inflation's good if it keeps going down right and it has been down a lot it's down from

99.3% or something like that in 2023 down to 3% now so this is largely saying to the FED that the job's been getting done there's other things too that are are positive like rail traffic in the USA is up 15 % or something like that in the last quarter and that means that there's more economic activity happening that companies are doing stuff companies are ordering stuff business is happening right and that's a good thing that's a positive thing it's hard to ignore those kind of things so there are again we have such a a mixed picture right now if everything was just signaling bad then you could say well recession is definitely coming if everything was signaling good then Great Recession is not coming but we have some

very strong indicators saying warning sign and other indicators saying maybe don't worry that much another one too we could talk about really is just the impact of rate cuts and what that's actually going to mean because here's the deal historically if you have rate cuts that happen outside of a recession it's good for markets if you have rate cuts that happen inside of a recession bad for markets usually rate cuts inside of a recession you'll see markets still go down quite a bit from that point of rate Cuts currently there's no recession in the US USA by the majority of metrics I know we have all these signals the yield curve the Sam roll whatever saying recession's coming but it's not here yet and if the rate Cuts come in September

as the market generally expects that they will then we get rate Cuts outside of a recession which historically have seen markets pump at least for some time again looking at that Q4 rally so that's I think what a lot of people are banking on right now so the rate cuts are going to be very very important the Fed has been too high for too long I think at this point and we need it or things are probably going to go real bad real fast okay so we got some bad but we got some good quite honestly we got a kind of a a a mix of confusing information in terms of figuring out where this is

going so if we step back from this all what do you think the likelihood of a recession actually is hold on a second it's got coin here let's have a look heads recession Tails no recession let's go okay we're gonna do that again hold on a second look so look look it was heads okay no recession we're be fine look but no seriously guys nobody really knows this is one thing you have to understand about markets is that everybody's got intelligent clever models right but nobody knows for certain recessions do always come they are a part of the business cycle need to expect them and anticipate them because they're always going to come the question we want to ask ourselves right now is does that recession come soon by the end of the year or is it going to be

2026 or something like that there's this old thing I don't know if you ever seen it's the um the Benner model this guy back in the late 1800s early 1900s he was like a pig farmer or something and he basically charted out a 100 plus years of Market movements based on what he saw as cyclical movements in the price of uh pork very interesting what's very interesting is the scary accuracy of that over time you should go look it up it's very interesting and that's currently saying if if you're curious about what a pig farmer from 100 years ago had to say that's currently saying that 2026 is going to be the year of economic

Armageddon so we shall see we shall see right look right now the big banks are giving uh one in three odds so JP Morgan's sitting here they're looking at the yield curve inverting and going you know what best I can do is one in three odds right think about that think about that now I know JP Morgan Goldman Sachs they agents of chaos you can't necessarily trust anything that they say still though if the big banks are sitting here and looking at it and going one and three odds of recession by the end of the year I mean those are betting odds right so two and three odds that it's not going to be recession by the end of the year and by the end of the year could be December right so it doesn't mean again

that there can't be a big rally between now and that officially happening I I think their rate for 2025 is they give it a 45% chance of recession 2025 the flip side is you have to remember they can be wrong JP Morgan back in 2022 was like recessions like 100% guaranteed and then it didn't happen I mean technically technically there was a recession in 2022 we had two quarters of negative growth in 2022 for the USA but we don't count it like that anymore okay it's only when the government tells the recession don't believe your liing eyes and that's another thing you can look at and say well a recession technically already happened in 2022 and this is just post recession recovery and all this other stuff is just lagging indicators

so it's an interesting one now how to navigate all this stuff this is probably one the most important things for investors to keep in mind because okay nobody really knows what's coming nobody knows recession is going to happen but what do you do right you're asking my question for me Lark thank you I know you're welcome I know I know but it's an important thing to think about because the reality of markets is that recessions always happen the only question is when they happen and are you prepared for them when they do happen so there's a couple big things you need to keep in mind one you need to take profits mercilessly especially if we get a great Q4 everyone's going to be bullish everyone's be super euphoric and all this stuff hasn't gone away so perhaps you want to take a

little more off the table just to be safe right one thing that people tend to forget in markets is that you can always come back in later too you don't have to walk away forever I feel like when you talk about selling anything in crypto it's like you violated some sacred Rule and you're going to be banished forever you can be flexible with your portfolio these are wildly speculative assets they will not farewell in a recession best case Bitcoin is going to go down 60% ethereum down 70% and all those dog coins you think are the new paradigm money right now are going to go down 99.99999% they'll reach new depths that you didn't even know were possible you're it's down 99% it can't go down another 99% oh no it can go down 99% and then go down 99% again and again you'll have fun it'll be a great time so cash

positions get cash when the market starts pumping again think about your cash position how can you build a strong cash position for the worst possible Market outcomes you don't have to go out of the market I have no plan on going all all out of the market but my personal thought is if we get a nice Q4 rally which there's a lot lining up to say that we could get a nice Q4 rally if that happens taking a lot more money off the table getting a cash position aside make sure your taxes and stuff are taken care of okay guys that's going to catch a lot of people out you don't want to have to be forced to sell your crypto in the bare Market to pay your taxes okay so make sure you're taking out the cash for your taxes make sure you're taking

out enough cash to be able to ride any difficulties in market conditions what if you lose your job right A lot of people don't even think about this well if you lose your job recession hits you lose your job but if you got cash I'm telling you you're going to you're going to thank yourself for taking profits off the table when you have them so and of course if you do have cash then you have flexibility if you're all in all the time you don't have the flexibility to be able to buy during the recession because the reality is is that when the recession comes whether that's 2026 whether that's Q4 this year again nobody really knows but when that comes if you have cash on hand then you're going to be able to take advantage of that opportunity Lark thank you so much for

joining us and giv giving us the lowdown and the likelihood of recession and I hope that our listeners are not panicking or fear as a result of this type because that is when you make emotional decisions which we all know is a bad idea as an investor but also have a plan and that's really what this episode is all about is helping you plan for both sides we're not always going to be the Bulls here there is always going to be The Good the Bad and the Ugly of being invest in this space remember as always that none of this is financial advice investing in crypto and any asset is risky and you should only invest what

you can afford to lose if you enjoy enjoyed today's episode please give us a like give Lark over a follow on his Twitter hook him up as well smash the like button subscribe so you stay up to date because you know lar is with us every week and we're going to be talking about this again in future weeks as to where we are because these indicators change and move constantly we want to make sure that you are up to date if you are afraid and you want a community make sure you join our community we'll make sure you're okay through all of this thanks so much for listening in everybody have a wicked awesome day [Music]