None of what follows should be construed as financial advice. I’m not advising you to do anything. I am only sharing what I think, and if past performance is any reflection on future, I’d suggest you consider doing the opposite, if I were giving advice, which I definitely am not.

My thoughts are a combination of what I’ve read, past experiences, greed, and fear. I am not a financial advisor. My only subscriptions are to the Wall Street Journal and a daily newsletter, Jared Dillian’s the daily dirtnap. I also read John Mauldin’s free weekly, Thoughts from the Frontline, and Steve Blumenthal’s On My Radar. Of course, I read a ton of other stuff, mostly fiction, but the above is the minimum. I rarely take any action from any of the above, except for Mr. Dillion, who pushed me into a significant gold position three years ago, as well as some Argentina trades before Milei was elected, and a few other things. Sadly, I sold about half of the gold (GLD ETF) gradually, at each new high until I felt stupid selling any more and started to buy some back.

Mr. Blumenthal has been saying a similar thing for the past couple of years, high valuations, etc. etc. and sharing charts with red circles and yellow highlights, saying “We are here” at the top of some chart, and another red arrow, or circle maybe, saying “We’d be better off here,” at the bottom of the same chart. I believe that the time has come where we will get to Mr. Blumenthal’s red circle at the bottom of the chart. Mr. Mauldin had a guest poster for the past two weeks, Danielle DiMartino Booth. Of everyone I’ve been reading, it is she I believe the most, insofar as my overall impression that something wicked this way comes, which is something Ray Bradbury said once, but seems to fit here as well.

Why there will be a recession:

1. The general consensus is that there will not be one or that we are in a soft-landing scenario. This was recently reinforced by J. Powell last Wednesday. The general sense is that there may be some short-term pain or volatility, but all will be well, and the strategy of “buying the dip” remains alive and well.
   • I should note that there is a counterview. There always is. In investing, the investor is tasked with identifying the view they choose to believe, because there is an argument for every one.
   • Jeffrey Gundlach said that the risk of a recession is 60% in a recent webcast.
   • Mr. Blumenthal, Mr. Mauldin, Mr. Dillian, and Ms. Booth, especially Ms. Booth, are increasingly cautious; however, most of the mainstream media is in the general consensus.
2. President Trump, Elon Musk, and Scott Bessent told us there would be some transition, maybe a little pain. Of course, they wouldn’t say outright that we’re headed for a recession. They can’t. There would be panic in the streets. The equity market would fall off a cliff. No, we have to discover it gradually, painfully, then all at once, like it always is.
   • The federal government is a major employer, and federal spending contributes significantly to the GDP.
   • If DOGE’s efforts to rein in spending and decrease the size of government come to fruition, the GDP will be proportionately diminished—the more successful they are, the greater the pain.
   • They know this. That’s why they said, Elon, perhaps the most emphatically, that the USA is headed for bankruptcy if nothing is done. There is no other option.
3. As the Fed has been cutting interest rates, the long-end, 10yr. rates rose. Normally, they fall. Why is that? Is that because the National debt and unfunded liabilities are so great that they (the buyers of the debt) think the US will default and that 10, 20 30yr paper will be worthless? Regardless, that can’t be good.
4. Warren Buffett’s cash position has doubled in the past year to 334 billion, which is about 30%, and the highest it’s been in the company’s history.
5. As above, this always happens gradually, painfully, then all at once. The all-at-once part is typically precipitated by a catalyst, such as the subprime mortgage crisis or a worldwide pandemic, as was the case last time. I think I know what the catalyst will be this time, or at least one of them—the 1.7 trillion student loan debt.
   • A week ago, President Trump moved student loan debt to the Small Business Administration.
   • Who is going to service that debt better, more efficiently? The DOE or the SBA. Is there going to be billions of debt forgiveness as with the last administration? You know the answers.
   • All the students have been in forbearance for the last five years under the CARES Act. Payments will start coming due. This will further stress the system, car delinquencies, spending patterns, etc.
6. The current media culture will primarily emphasize the negatives and suppress the positives because, well, the Orange Man Bad sort of thing.
   • Some percentage less than half of the population thinks the sky is falling and things are really bad; inflation is coming back because of tariffs, their stocks are losing value, DOGE is going to ruin everything and take from the poor to give to the rich, etc.
   • The other roughly half think things are on the cusp of a golden age, other than there might be a little pain, a hiccup, a transition, but then off to the races.Some folks think deflation is coming, not inflation. Truflation is lower than the CPI print the Fed has been responding to. What if the Fed has to cut rates bigly? What about all the retired folks who own 40% of stocks? They’ll have to sell some because they won’t have enough interest income, and that’s only one example. The student loan debt, car delinquencies, credit cards, are all short-term insults to be shouted from the mountain tops of 60 Minutes, Face the Nation, and all the rest.This amplification of bad news will cause a mass psychotic negative feedback loop, creating panic and capitulation, which isn’t that unusual. It happens nearly every time, but instead of the market having a sensible 30% retracement to fair value, it may overshoot to 50% or more, which is a potential outcome. This is specific to the Trump administration because he makes people crazy. The people who hate him, if they haven’t sold everything by now, will sell, sell, sell. This is the bottom, and it will be lower than if they didn’t hate him.
   • The golden age coming, for those who survive the culling, may yet arrive, if the trillions of promised investments in the US in the first months of the new administration come to fruition, and those promises are kept. Foxconn in WI didn’t work out as billed, and even that took 5 years, so they are not a sure thing. But, if they do happen, they are 1 (maybe), 2, 3 years away. Maybe those effects will start to manifest late in the third year of Trump’s second term, similar to what happened with Reagan and the recession in the early eighties.
7. Everybody is buying gold. Many governments are building on their gold reserves. It’s like they know something bad is coming, and if it is, only precious metals are a practical store of value, not BTC.

Maybe I’m wrong, but that is the picture I see with the dots. If it does happen, you get a puke day or days or week or weeks, maybe there’s a waterfall down, correlation goes to one across most asset classes, so it’s hard to sell something high to buy something low. The only thing liquid enough to work is cash, because there’s no guarantee that your gold or bond position will move counter to the general market although they’d likely recover quicker. For once, I’d like to not be one of those running off the cliff.