"What's Coming Is WORSE Than A Recession" - Patrick Bet David's Last WARNING

[Music] remember a couple years ago how everybody was talking about that a market crash was coming everybody's like oh my God what if it happens what if it doesn't now everybody's talking about it's going to be soft Landing there's not going to be any recession and there's one thing that people forgot about the saying only the paranoid survive this is coming soon that starts this month a month before election there should be a recession in America so people are now it's totally fine look at the market it's near all-time Highs but is it really if you were to pull out the top seven stocks when you see the numbers on this it's staggering and on top of that there is an indicator of when a recession actually hits and it isn't while we're raising interest rates the FED it happens after we stop raising rates and wait till you see how long it takes for the market to crash and by the way I got a bunch of other data to share with you but uh I've learned one thing for sure having been in the financial industry since the day before 9/11 only the paranoid survive and those who are way too confident are typically wrong and those who are way too cocky are are also typically wrong so here's us interest rate hikes in the history of America when we raise rates we have never raised 4. 88 percentage points as quickly as we did in the state nothing comes closer to 22 to 23 of 4. 88 but what does this really mean so if we look at the balance sheet of this is pretty much the quantitative easing balance sheet that shows how much bonds the FED is buying the M2 money supply shows how much money is circulating in the economy so you notice look how historically it's gradually climbing climbing climbing but it's nothing that's sudden then all of a sudden boom we feed the economy the market with trillions of dollars we're not accustomed to and we don't have another case study for somebody to say well here's what's going to happen well it's totally okay well don't worry about it based on what based on what case study can you speak so confidently saying nothing's going to happen everybody is almost protecting whatever business they're part of investment they have they're trying to sell why they're right and maybe don't worry about it or do worry about it but the reality of it is nobody knows 100% what's going on cuz we've never been here before so let's continue so then 2024 projections what's next for the US economy they did a survey to find out who thinks a recession is coming the FED staff says 0% there's not going to be a recession I remember they're in the business so they're supposed to be saying that because that is Wall Street right yield curve says 61% chance of recessions coming next 12 months economists are at 48% consumers are at 69% that's Main Street you and I Goldman Sachs is saying only 15% Bank of America 35 to 40% but look at CEO 84% Okay Sea SES are saying 84% now what would cosos know that rest of them don't know maybe they know their debt payment maybe they know when their debt payment interest rates that they got was lowerer that if they have to renew the debt that they got it's going to go up here how the hell are we going to make those payments maybe we got look at what some of these cosos are talking about you'll notice the percentage of S&P 500 companies citing keywords on earning calls what words they're using fewer times inflation has decreased material costs decreased economical slowdown decreased job Cuts went up but it's also decreased so could this be a sign that everything's going to be okay if yes why are CEOs at 84% saying a recession is coming are they Houdini are they Nostradamus are they somebody that can predict the future what do they know that the rest of the people don't know now when it comes on to S&P 500 these are the 500 biggest companies in America something very interesting is happening there are seven companies that make up 28% of the S&P 500 let me break this down for you 500 biggest companies seven companies make up 28% in the history of S&P 500 never has there been a time where seven companies make up 28% we''ve never had seven companies you know too big to fill what are these companies you got meta Facebook Nvidia Apple Microsoft alphabet Amazon and Tesla so why is this important here's why if you look at the S&P 500 year to- dat returns you will notice a number roughly around 12% could be higher could be lower but it's around 12% you know what magnificent 7's return is for the year so far roughly 92% so what happens if you take the seven stocks out and there there's only 493 stocks left how's the S&P 500 doing it's down so the seven are pulling the rest of the market and it looks like everything else is okay but is it really so we decided to break it down to see how small cap companies were doing midcap companies were doing versus large cap companies and you will notice a trend here watch this if you look at this chart you'll notice three different funds here one is the Spy which is the S&P 500 the other one is the Russell 2000 then you have the micro cap ETF so if you look at these the S&P 500's companies valued roughly at 12.

7 billion or higher top 500 biggest companies in America Russell 2000 is company size is $300 million to $2 billion market cap and then the micro cap is from 50 million to 300 million so if you look at this what do you notice you'll notice spy is up 18. 66% the rich get richer the big get bigger the stronger get stronger great Russell 2000 is only up 7% but look at the micro cap micro cap companies are down 1. 85% so why is that is it the bigger guys can afford to go through a season like this they can weather the storm and it can kind of handle because the amount of cash they have and capital they have and the smaller guys cannot possibly but we cannot fool ourselves thinking the market is up just because these seven magnificent companies are carrying the weight so so far the reason why the market hasn't crashed is one magnificent 7 is holding the S&P 500 high so people are like it's going to be okay number two unemployment is super low 50e low so people have jobs they're paying their bills they're not really that worried about it they are worried but not that worried about it to the point that the market has to think about maybe a crash or recession coming around the corner however number three is something to be concerned about because the US consumer credit card debt tops a trillion dollars so you may say Pat credit card debt trillion dollars I get it it's the highest it's ever been in the history of America it's not like that's that big of a deal we've been spending money on credit cards for a while fine no problem but look at this chart tell me if this concerns you a little bit this is the credit card interest r rate this shows you let me explain what the differences are blue is the credit card rate orange is the 5year US Treasury the gray is the difference between the two so look at credit card interest rates is the highest it's ever been because as rates go higher your interest rate on your credit card goes higher and then it makes you mis payments more so if you had a $33,000 credit card total debt and it keeps going higher and higher and higher your payments are getting bigger and bigger and bigger the average person is like look I can afford to pay 300 bucks a month I can't afford to pay $420 a month all of a sudden it went up or a bigger number than that $420 now it's $580 but this is not a good sign of what's taking place because people's interest payments are officially higher than they've ever been before now for some of you guys that are watching this I don't want to break it to you I got some bad news for you you know the 30 40 million students or Americans who were paying their debt for their student loan remember that whole where the government said yeah during Co don't worry about making a payments we're going to defer this in October those things are coming back so think about 30 to 40 million people having to pay another $300 per month that starts this month so put that on top of everything else that's going on another 300 bucks a month now this next one's going to be crazy because this next one some people could say p this is why the market is not going to crash and I'll give you the argument currently mortgage rates are well over 7% in some cases at 8% about 4% or 5% higher than the lowest mortgage rates we have in 2022 we're around 3% today we're at say 7 and 1/2 8% despite the sharp increase in interest rates the weighted average rate has barely ticked up only those buying houses are affected by no mortgage rates and there aren't many home buyers so what this means is the weighted if you take everybody's mortgage loan everybody's loan together and you average it weighted rate that they have it hasn't increased cuz people are not refinancing the refi business is dead today right only the people that buying a new house are paying these new high rates and people are not buying as many houses as they did before because people are not selling cuz those who are not wanting to sell they don't want to go from a 3% loan to an 8% loan you get the idea how long this can last no one knows but they're still hanging on to that loan saying I'm not giving up this 3% loan okay so that was a breather I gave you some bad news that's a student loan you got to PID reminded you were kind of said then I give you some good news this is the real news you want to know about why the market hasn't tanked it when you look at this chart this is the Fed funds and the lag effect the lag the delay the graph below shows the FED fund rate and the time as measured in months from the last in a series of rate hikes preceding each recession since 1981 so meaning they're increasing the rates increasing increasing increasing increasing increasing boom they stop raising how long did it take until recession hit if you look at these numbers you'll see a six a 15 months 8 months 17 months 10 months you know what that means takes roughly 11 months from the moment we stop raising interest rates that recession appears again if this data is real a month before election there should be a recession in America based on this chart that's what should happen some people may say well Pat how come more corporations are not filing bankruptcy how come all this stuff that happened in 2008 is not happening today because these corporations if you look at this chart what they were doing is the money they took companies were taking millions and billions from Banks saying go get some more money from the bank cuz it's so cheap what do we do with the money just set it aside who cares well go get the money yeah but the rates are only locked for 3 years or two years or four go get 50 million go get a billion go get 100 million and they did so what did these corporations do they took that $50 million at 3% and they bought bonds so the difference let's just say the bonds paying 6% the 6% 3% the 3% they're making on top of us okay we're making 3% on 50 million bucks we were making million and a half in interest this is awesome we should have borrowed more money however if you look at this chart you know what's coming up here's what's coming up when that expires and it matures and then it goes from 3% to 8% they're going to be in deep trouble cuz they have to make those payments they can no longer make money on that so what do they do that's when they have to say hey we don't want this loan anymore Let me give it back to you if they have the money or two bank's going to say we're expecting a payment do you have it can we wait another month can we wait another two months this this is why a company called weor that was valued at $47 billion in 2017 where soft Bank gave it $18.

9 billion investment defaulted on a $95 million payment we haven't seen a lot of this yet this is coming soon so let me unpack this lag effect of these corporations having to pay their interest on the loan that they took take a look at this chart if you look at this chart this is Corporate debt maturing in billions of dollars to the left roughly 700 90 billion matures how much does it mature in 25 1. 1 trillion and then it goes to roughly 1. 2 trillion give or take 2027 stays at a trillion 2028 goes closer to 1.

3 trillion how are they going to go all of a sudden from 2 3 4500 billion to a trillion to 1. 4 trillion 1. 5 trillion and this is why when we ask the question at the beginning who is the least optimistic about recession 84% CEOs maybe they know something that others don't because they know that debt is coming so so far we've talked about imagine the average individual is like look dude you might school loan I got to pay for now that credit card debt went up all of a sudden to the highest it's ever been DED I can't afford these payments and you're noticing the defaults right now you know commercial real estate companies are defaulting on their payments subprime Auto Finance so those people that don't have good credit that bought a car they're starting to default with their payments cuz their interest rates are going out their default and they can't afford a pay right now but who else is experiencing this these were all small things we're talking about right you know who else owes a lot of money what Corporation in the world owes the most money you know what that Corporation is called the Great United States of America you know what's going to happen to them every time interest rates go up let's break it down for you so us roughly owes $33 trillion of national debt math would tell you and I that each 1% increase in interest rates pushes the government's interest expense up by you know how much $320 billion each per each 3% is a trillion dollar just interest increase not total an increase of an additional $3 trillion at each 3% so just to kind of put that in context if you look at this chart look what it shows you this is the interest expense we've had in us from 1970 till today you know how it's gradually gone up gone up gone up but it's nothing anything crazy then look at Co boom boom Skyrocket it how are we going to make these payments I have no clue but they're going to come to you and I cuz it's really our debt the government is we the people you and I are running you know we hired these people to run this Corporation but they come to you and I to fund it so guess who they're coming to very soon you and I you now there's certain things you look at to be motivated and excited about the future take a look at this chart here so again remember this Corporation we're talking about called the United States of America here's what this is the green is the tax revenue our government gets every Year from you and I the Orange is our GDP the blue is our interest payment and the red is our debt the $33 trillion debt look how many many years ago in 1980 everything was right next to each other just 43 years ago they're neck and neck all of a sudden Boom the red goes off to the roof it just skyrockets all the way to the top GDP is a gradual growth and guess what all of a sudden caught up to being the second highest now it's our interest expense this is not good news this is why every time these guys don't want to go balance their budget except they want to spend money and people say well it's okay well it's okay well it's okay you're just telling them don't do your job it's okay keep spending money I'm okay with that this is our doing cuz we voted these people in you and I voted these people in and they're managing Us's finances in a reckless way a lot happened yesterday one First Rate cut in God knows March of 2020 4 and 1/2 years since March of 2020 there's a rate cut cut however everybody's asking why is the market tanking why did the market tank in the opposite react in opposite way not tank interest rates 11 times in 6 months we raised the rates never in the history of America have we done this we haven't touched the rates for over a year and a last time we lowered the rates was 4 and A2 years ago March of 2020 Jerome pal making this announcement he comes out everybody's expecting a court of a point it's not going to be anything it's only going to be a qut of a point we're even talking about it you said 50/50 I said said 50/50 for a half a point yeah and then all of a sudden he says nope we're going to a half a point Tom I have a chart I want to show after you're done but I want to hear your reaction when you saw this so I was 50 so was I super surprised no but was I somewhat surprised sure cuz I was 50/50 and what everyone had been looking at all the FED Watchers and I get away from all the chaff and I try to Signal the noise ratio I try to get the signal and cut out the noise of a lot of that chatter and what was in the signal was that there's a lot of these Labor Statistics and unemployment the fed's going to go faster on rate Cuts if it's worried about unemployment or a stagnating economy like slowing down so recession unemployment whoops got to drop the rates well recession everybody's been thinking it's recession or thinking we're in a structural recession right now but it's light and the labor numbers keep getting revised so everybody including the FED had been saying you know some of these labor statistics it's troubling to see them revised and we've even covered it here they were missing 100,000 jobs they came back a week later oh yeah we're sorry really was 100,000 different sorry meanwhile the White House took credit for creating all these jobs and they revised it a week later so with all that jobs data and the potential recession that was a 50% of me that said you know what he may go to half a point there to protect the economy I get that Tom but what's the average person right now so the stock market dipped after historic Fed rate cut here's what experts think here's fortune and what they think why this is taking place so Federal Reserve cut the rates by half a point calling it a move to demonstrate officials confidence that the labor market can stay strong with appropriate recalibration despite the Dow dropped quar of a basis point and Robert fright corporate Economist at nav Federal Credit Union noted that half a point cut is an admission the fit is behind the curve the market reaction saying the market has priced in a rate path that looks more like what an impending recession would require rather than the fed's less aggressive recalibration the fed's Outlook of two more quar of a basis point Cuts this year that's a full-on under basis points by 2025 disappointed investors Powell insisted that the US economy is in good shape but his comment that we're not going back to near zero rate cause unees watch this every time we've cut rates the first time I just kind of want you to think about this historically when there's been these climbs of rate increases and then there's the First Rate cut how much does the stock market drop at after the First Rate cut historically the market usually reacts down because the market is usually talking about what it needs and the economy is showing what it needs and when the FED finally responds usually the fs there's two theories fed Chase and fed ahead fed usually chases because fed looks at history the FED reacts to history so the FED is chasing its tail where's the stock market is always speculating it's always aead yes exactly the federal fund rate has increased 10 times in 14 months I think it's 11 time in 16 months so if you look at that that's the cycle that we've been going bam we went up stock market valuation and performance after fed's First Rate cut so the First Rate cut happens and then it shows the average of how much the decline is 20.

5% wow that's the average not after the first dates 94 days or 20 days or 437 days but after the first rate cut the market tanks 27. 6% in 1980 it dropped 2% 1981 dropped 22 . 6 84 dropped 1 89 dropped 8 95 dropped half 2001 dropped 42% okay after the First Rate cut which is what a year and 9 months the first one is a 3 months the third one is a year and 2 months and then the 55.

5% that's how many years that's a year and a half and the 24. 2 that we went through just four years ago was in roughly 7 months right give or take that it dropped 24. 2 so if on average if we go based on this there's going to be a 202 Market correction within 3 months to 18 months based on history that's what this is telling us the question then becomes the following how different is this than others the average person is going to ask how does this affect the housing market number one mortgage rates may not drop much further a lot of people are thinking it's going to drop it says no although mortgage rates have decreased to 6.

2 they're lowest since February 23 further drops will likely be marginal as the rate cut may already be priced in well farward Economist predicts that rates remain around 6. 2 by the end of the year and could fall to 5. 5 by 2025 still above pre-pandemic levels number two lower rates could drive higher home prices which we know that lower mortgage rates might attract more buyers increase competition and a limited housing Supply the first time buyers are especially impacted and many regret not buying earlier that's what they're saying that's sounds like a realtor though you have keep in mind number three droing rates may spur more housing Supply makes sense and number four affordability remains a major challenge even with the lower mortgage rates affordability issue persist as home prices have surged by 50% since 2020 far outpacing income growth which is what the federal guy was talking about so what is different Tom about this rate drop that we have half a basis point versus what we've had in the previous time we looked at well the last three that we've had so 2019 it was Co we had dramatic economic impact go down to 20072 2008 the housing market crashed dramatic economic impact we have not had a dramatic economic impact have we had an oil shortage no an oil embargo and oil goes to 140 no now we had the recession of 2001 remember that was talking uh 644 days so that was almost 2 years 2000 to 200 and2 was the recession that was in there hasn't been a dramatic economic impact this time like Co caused havoc and 2008 the housing market caused havoc and what's interesting is they are saying that there's another half Point coming this year a quarter point in the first week of November and another quarter point I think they meet against on December 18th I believe so November 2nd December 18th the FED meets again takes a quarter quarter so it's a point down when the FED also signaled that it actually made this worse because that tells oh not only you taking a half you're telling us quarter quarter so you're going bang bang bang the market is reacting oh so the FED is believing the recession story everybody's looking for the economic impact where is it are we going to admit that we're having a recession right now check this out when they say refi are up 35% you have to remember the number of houses available to refi look how low it is compared to the 20 million houses available to repi in 2021 why because there's been no transactions so when they say they won't say numbers the real estate St industry won't say numbers Pat they're only saying refi are up 35% 35% over last year is still up over nothing from April of 2022 to August of 2024 that's 28 months how many Realtors and loan officers didn't make it only 8mon period so many I would imagine you have to have dramatic shift in the part-time because Realtors are 1099s they get a license and then they just disappear you know what I mean there's not a layoff so that's the interesting thing that whenever you're looking to see layoffs if Wells Fargo lays off mortgage administrators like a mortgage officer loan officer you can see the layoffs Pat you can't really see what happens because they're 1099s and they just kind of go to a side hustle or disappear because you don't lay off Realtors they just stop producing 47% of Realtors didn't do a single deal last year 47% didn't sell one house last year I believe that not because it comes down to the Paro principle the 820 Ru the median number of sales was two how do you live on two sales a year insane you don't you do it part time or you're pretending to be a realtor when you're not really want I've seen all this in Miami it's you got the fakers and you got the doers the rates are now down to six but take a look the last time it was six in 22 to get activity we really got to get back down into the fives cuz we've been above six the guy from Wells Fargo is right but he's not right cuz take a look at what's happened already he was saying 6.

2 Pat take a look at this nothing right but the 20e is 5. 9 and a 30-year fixed VA and a 30-year fix 62 and this is 760 so we're not doing anything crazy here you know what I mean I'm looking at this report since the new commission structure is changing with real estate agents and loan officers it suggest that the agent count in the US could theoretically decline approximately 3 to 600,000 people okay which is roughly 60 to 80% of current n membership of 1. 6 million could leave the industry and by the way this is one of the ways I saw it with real estate and Loans if you can stick around the Market's not going to stop selling you know million homes $5 million home $10 million home $20 million homes half a million it's not going away but a chunk of them that 28% of people the 28 months of not making money and selling homes and refi that filtered out a lot of people I don't know if there's a profession out there where you need to look the part and fake it till you make it more than being a realtor you have to drive a nice car you're driving clients around how are you as a new realtor going to compete with the big dog out there that's listing $20 million properties while you're trying to do a rental for a $2,500 property you got to drive a nice car you got to have a nice watch it's literally smoking mirrors in this business but the people that deal with the UPS the Downs the left and rights the people that I've been seeing realtor since 05 06 in that world for the last 20 years the same people the guys and the girls that stick it out that basically save their money reinvest in the business and are not just using all their proceeds to look cool they stick it out you don't have money you can't buy that because it's a cash deal yep everything right now to all the people that made fun of people that are saving money if you don't like I said to this guy I said the first four Tom remembers what I was making you know what I Wasing pay myself the first 2 three years of starting insurance company I didn't pay myself anything Jen and I lived in an apartment at The Summit in Woodland Hills literally regular apartment at the summon in Woodland Hills right truth yeah and then by the third year I'm paying myself $80 $100,000 a year that's nothing I can't my expenses I'm barely making it right and then we start going and going and going I start paying myself a little bit I've never been the highest paid guy in the company but we always had cash so we need to invest into bamboo we had cash we need to go raise money we didn't give down much Equity because we had cash every time we had cash to reinvest the mistake in every business but it's so common in the real estate side is they don't value cash it's all go go go go go not realizing every 5 to 10 years happens to the real estate industry for 2 years so if you do it right you can really end up building something like Keller Williams did but it's only if you're thinking long term treat the company's money like it's your own oh okay cool like just cuz this guy's got hundreds of millions I I shut the lights off in the bathroom you better buddy or else you'll be sweeping the bathroom Flo there's a reason for that but there's also things like you know cash is King save that money you never know what's around the corner When the tide goes out we're going to see who's actually being smart with their money so it starts from the top whether it's an organization whether it's the head of the household if you sort of set the tone this is how we handle money here guys we're not going to be just be lavishly spending when we can be saving cuz when the time is right we're going to have this opportunity to buy something very unique for the company that pet will announce soon but at the end of the day you have the pretenders and you have the Professionals in everything you have the people that want to look rich and you actually have for the people that actually want to be wealthy or are wealthy and there's a significant difference the bottom line is this for me you have sprinters and you have marathon runners the people who are playing the long game and are the marathon runners Like Pat they know what is you said time and proof test of time 5 10 20 50 years you're going to figure out who actually was good with their money or good with their morals and their values the sprinters they're going to look good for a year for two for three but at the end of the day when the market shuts down or they basically run out of money or the economy tanks Boom the marathon runners are actually going to show who actually save that money Tom this rate cut had something to do with unemployment the FED uses rate Cuts if inflation is high what you do is you raise the value of the US dollar by raising interest rates when unemployment starts getting too high you lower rates so that businesses can get loans for sensible purchases building a new Factory building a building adding equipment you see what I mean sensible and they're supposed to delicately turn the dial kind of like have you ever been in a hotel where if you turn that shower just one in it's way too hot and you turn it another half in that is think of that's the way that a sensible fed is controlling interest rates on our economy just think of it that way the FED Jerome pal he's got one main job control the economy he has two basically things that he does to control the economy number one he has to deal with employment and unemployment he has to manage that yeah and the other thing is managing inflation the point I was going to make back is he just came out yesterday I think right Robbie and he blamed the migrant crisis for this growing unemployment he said if you're having millions of people come into the labor force then you're creating 100,000 jobs you're going to see unemployment go up he was saying so it really depends on what the trend underlining the volatility of people coming into the country so this whole every time I hear kamla and then brag about Pat how amazing the economy is doing they're full of crap because it's been steadily going up since spring of last year and after starting the year at 3.

7 it stood at 4.