Federal Debt Crisis May Mean Economic Recession on the Horizon

• 4 min read
Federal Debt Crisis May Mean Economic Recession on the Horizon

Hey there - welcome to your weekly ‘mid-week’ update.

Don’t forget, if making good decisions is a full-time gig for you, we are now publishing Sundays through Fridays (and Fridays are “Crypto Only” digests). To stay up to date daily, visit the site, click the profile button in the bottom right and update your subscription to premium.

We are also adding audio versions for premium members starting this Sunday :-)

SOMETHING INTERESTING

We think the Mailchimp acquisition is a pretty big deal. Here’s a great 20 minute listen on the history of Mailchimp, breakdown of the biz, lessons, and takeaways from the $12 Billion Bootstrap Startup. Happy listening!

MARKET MOVERS

  • Deutsche Bank's Jim Reid says what we’re all thinking - "Are we seeing the correction that’s increasingly become a consensus view?" The better question - is this the dip to buy?

  • Is Evergrande the next Lehman Brothers? China’s real-estate crisis is intensifying. Stocks are falling as Evergrande's financial issues weigh heavily on the entire Chinese property sector, causing a ripple effect into global markets, possibly forcing $40 Billing in selling by volatility funds (read more here). There’s talk that Beijing will let Evergrande fail and inflict losses on its shareholders and bondholders. Our thoughts: The real issue for the US may not be China, but the fact that the market hasn’t corrected in a year. Read more here.

  • The Biden administration has issued a warning that the pending federal debt crisis might trigger an economic recession that would affect economic growth and trigger job losses across the United States (as if the labor market isn’t having enough issues already). With Congress approving trillions of dollars in spending and relief packages in recent months, and the current push of the $3.5 trillion budget reconciliation bill, plan on a recession being a strong inevitability. Read more here.

  • Another infrastructure bill delay...voting on the House infrastructure bill is to take place on September 27th, though completion of the bill could be delayed until early October. Democratic Senator Joe Manchin has called for a “strategic pause” of the larger $3.5 trillion plan until next year, due to concerns of soaring debt and inflation. Read more here.

  • Big tech companies are on a buying spree, snapping up smaller rivals at a record pace as US regulators look to clamp down on anti-competitive acquisitions. Tech companies have spent at least $264 billion buying up potential rivals worth less than $1 billion since the start of 2021. Tech mergers and acquisitions of all sizes have reached new highs this year due to companies bolstering digital capabilities as millions of people embraced the internet and e-commerce during the pandemic. Read more here.

WHAT TO WATCH

  • Wage raises could be a smart move. Look at Amazon - they’ve realized they have access to cheap capital. If you're paying an employee $14 an hour and you have a lot of turnover, you're actually paying more like $20 an hour, due to the non-economic cost of scaling and retraining. High retention and a high-caliber workforce is a greater payoff. Amazon is ahead of the curve on this. Listen to more here (33:00).

  • In light of the last point, the labor shortage is causing increased hours for current employees. Companies that can’t fill open positions are relying on current employees to log more hours. The reward: Larger paychecks for the workforce (only a temporary bandaid to a larger issue in our opinion). The risk: Stress, Burnout, Resignations, and more pressure on the remaining employees. The data is telling us already that demands on the workforce to log more hours is contributing to a broad wave of U.S. workers quitting their jobs - more than at any time in the last two decades. Read more here.

  • Kids may have taken a hit academically through the pandemic, but what did they get better at? Tech. Kids are starting to learn how to invest and earn money online. We now have crypto millionaires below 18 years old. Kids are now tech-enabled and they are now able to influence markets or at least join in them. The wealth landscape is shifting and it’s no respecter of age.  Listen to the discussion here (32:50).

  • Fed on a taper see-saw. As we’ve been sharing in past digests, the Fed may start tapering bond purchases because the economy is booming and inflation is running hot. But, if growth starts slowing down the Fed may not taper at all and stocks will move higher again because the economy is weakening. Some think any chance at a successful taper is long gone. This is nothing new. The paper hands panic and the big boys buy the dip cheap. 2020 COVID crash redux? Check out this thread and the comments.

FINAL THOUGHTS

In December 2014, Bezos referred to the failed projects by saying, “I’ve made billions of dollars of failures at Amazon.com. Literally billions.” - The 3 Stages of Failure in Life and Work, James Clear

Risk and failure are inevitable. It’s the ability to withstand immense risk and failure along the way that precedes the reward. The journey is what makes the master.



← The Riches are in the Commercial Real Estate Niches
The Hottest Spots for Single-Family Rentals? The “Smile States.” →

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