Recession Risks Rising: Tariffs, Markets, and Economic Shocks

[00:00:00]a large firm on Wall Street just released a document titled A recession is imminent I'm going to go through the highlights the most important parts of that 18-page report with you in this video but first we're going to take a look into what Donald Trump actually said because right now almost every mainstream News company whatever is running headlines saying Donald Trump refuses to rule out potential recession risk what I'd like to do is actually listen to what Donald Trump says and then comment on potentially what he means and then let's get into the recession risk document here's the actual interview from Fox where the interview actually occurred so we don't have any overlay of another company throwing in their Cuts I want you to know this first portion over here you can watch as well and at the beginning about 1 minute in he does talk about how a tax bill is coming an incentive bill is coming uh and that we want to see lower taxes in America and that could be a Tailwind to the economy The Wall Street Journal reviewed this video and they didn't mention anything about those potential tax benefits or anything about the good they only referred to this last two and a halfish minute clip so it's worth mentioning that it is also worth balancing that hey it does take a while to get tax plans through Congress because as we all know Congress is frustratingly slow let's get into what Trump just said what you said and I want to ask you about Ukraine and the blow up the other day with with zalinski let me stay on the economy for a moment because there are rising worries about a Slowdown you've got the Atlanta Federal Reserve saying we're going to have a contraction in the first quarter look I know that you inhered a mess and you said that the other only been here are you expecting a recession this year um I hate to predict things like that there is a period of transition because what we're doing is very big we're bringing wealth back to America that's a big thing and there are always periods of it takes a little time it takes a little time yeah quick interjection this is where a lot of folks say all right you don't bring wealth back to America by taking the stock market out of uncertainty but that's not what Donald Trump is specifically referring to in fact Donald Trump and letnik they argue they're they're just blind to the stock market that they don't watch it that this isn't part of their their goal instead part of their goal is rather to try to force companies to come to America uh in manufacturing America but as you'll see in the the BCA research piece in just a moment this becomes really complicated because when you issue tariffs and then in this video you're going to see Donald Trump threaten even more tariffs you know people are looking for Trump to walk back tariffs he's threatening more tariffs in this video uh BCA research says look trade isn't black and white it's not like hey okay okay you want to buy this little $5 calculator from Canada uh tariff you know 20% uh it's even if we make the chip in America we often send our chips that are made in America to Canada for testing and then back to America and then of course people like all right well they test in America that's fine but that's just one tiny example of an intermediate trade in other words an item that crosses the Border potentially multiple times but before it becomes a final product uh and to rebuild Supply chains that have been built over the last decades under NAFTA and usmca is very difficult it doesn't happen overnight so I know Donald Trump talks about bringing wealth back to America because this his protectionist view is we want to bring more jobs to America the downside though with that is that we have built decades worth of infrastructure on free trade not on tax trade and so that is what creates problems in the near term and Donald Trump is acknowledging this he is he is like I'm happy he's not pulling the lutnick and going yeah we're never going to have a recession again you know everybody's got a stock app on their phone stock market only goes up I know that's a thesis that people have out there but it's also not realistic related to the business cycle I'd love to say hey yeah no there's no chance of recession but I actually think that Donald Trump takes a reasonable answer here because yeah recession risk is real and you'll see in the BCA research piece in just a moment it's intense but I don't I think it should be great for us I mean I think it should be great it's going to be great ultimately for the farmer you know don't forget I made the deal with China on a farmers where they had to buy $50 billion worth of product 50 billion from 15 to 50 did they follow up and do it they did it when I was president what happened is when Biden was President they didn't buy any longer yeah because there was nobody to call them I used to call President she I said you got to do me a favor you got to you know live up to that agreement and he was great he did before you came into the Oval Office the first time you were a very successful businessman very successful that's all related to the 2018 tariff War by the way that was a great by the dip opportunity uh so I just want to be transparent about that I covered the 2018 trade Wars and what was going on with the Federal Reserve at the time but remember 2018 was a period of time where the Federal Reserve was actually also raising interest rates we were moving up to oh my gosh 2 and 1 12% in quote quote unquote normalizing interest rates you got tariff uncertainty uh and then at the end of the year when there was a shock because the market was just pissed and selling off because rates were moving up uh we actually had a crisis in the bond market for a moment uh Jerome pal said we're done we're done raising rates and you sort of got the Powell put as we like to say where Powell kind of saves the day uh and and you had recovery again in 2019 so that 2018 experience was a great by the dip opportunity that said we also weren't building uh the levels of uh recession risks that we're seeing now we didn't really see recession risks until Co and obviously that was uh a quite a unique shock let's continue real estate executive and a lot of people said oh this is the business president this is it he's watching the stock market he knows all about you know he doesn't want the market to go she's purposefully saying that line he's watching the stock market when reporters do that it is a cue to the interviewee to respond to specifically that but they're doing they're smart Fox is smart they want Trump to keep coming back because we know that fox and and Trump have friendly relations so they're trying to softly like please say something about the stock market go down and now we've got tariffs and the market has been going down um well not much I mean in offer it's not you you said look we're going to have a disruption but we're okay with that is that what you me I guess it depends which stock you're referring to Tesla like 50% the stock market going down was the disruption what other disruption were you alluding to look what I have to do is build a strong country you can't really watch the stock market if you look at China they have a 100e perspective we have a quarter we go by quarters that's true and you can't go by that you have to do what's right what we're doing is we're building a t this by the way is a a great argument that people like Steve Jobs also took which was look we're even Warren Buffett takes this mentality we're not not a quarter to quarter based company or country right we have long-term goals that's what Donald Trump is trying to convey here the downside of that is it does mean Donald Trump isn't going to be affected by this sort of Atlanta fed you Atlanta fed's super sensitive okay like yes it's bad we covered all the details of it but we know it's very very volatile you get two good reports like good reports pops right back up I'm not saying I I can predict what's going to happen with that Atlanta fed reader but it's a very sensitive ometer that's said uh yeah I mean this this is a fair argument tremendous foundation for the future tremendous Foundation everything's been taken away we don't make ships anymore we don't you know you just saw one of the biggest ship builders in the world one of the biggest shipping people in the whole world in the Oval Office with you in the Oval Office he's announcing a 20 billion investment in the United States which he would have never done except for this but look at this Honda Toyota they're all coming in you you take a look at what's happened the chipmaker the greatest chip Mr wayy the biggest in the world by far is going to spend $200 billion on making a massive plant to make chips so that's your message build it here build it here there's no tariff yeah the the the public companies want to make sure that we have Clarity after April 2nd when those reciprocal tariffs go in is that it are you going to change anything after that will we have Clarity you'll have a lot but we may go up with some DS it depends we may go a lot but we may go up with some tariffs it depends we may go up I don't think we'll go down but we may go up see I like this idea of uh you know building in America if if we could do it better uh a lot of manufacturing has gotten really good in other parts of the world and that is why it is is difficult for for people to say okay yeah we'll do it in America but they show up in the White House they say yeah I'll I'll do a deal and they promise this you know number you know and then of course if there's a recession they won't actually do that number but they promise a number to get on Trump's good side Trump can make the pr announcement they didn't actually spend a dime yet and then they get favors to you know try to make that make Financial sense for them fine but it also has to make sense for us to manufacture certain things in America we just can't do it all here because things would just become substantially more expensive the bigger problem here is Donald Trump's comment that oh they're not going to go down they might go up this is him negotiating with the other countries but the stock market don't want to hear that right now and but you you're have there plenty of clarity they they just use it that's like almost a sound bite they always say that we want Clarity look our country has been ripped off for many decades for many many decades and we're not going to be ripped off anymore on the tariffs what are the automakers going to do for a month I mean you say you wanted to help American Auto I did you spoke with the a transition period okay and it's a transition into April and after that I'm not doing this I mean I told them I said look I'm going to do it this one time but after that I'm not doing it they called me and they wanted help during this little transition period And I gave it to them boom okay so not helpful for the stock market today but that's okay you know Donald Trump himself said the goal right now isn't to care about the stock market okay well I mean just obviously keep that in mind as as an investor but here are the bigger problems let's look at BCA research all right I'm just going to give you the tldr on this okay first recessions often begin when an economy becomes vulnerable to a downturn and then a shock all right something I've talked about on this channel for a very long time is the difference between the 10year and the two-year treasury yield those don't like the the spread between those two numbers doesn't Skyrocket until you have a shock when the economy starts slowing down that's when you are vulnerable to a shock and that's when things move very very rapidly so I want to mention this recessions don't come slowly they hit hard and fast the market gets hit before you even realize it's come and by the time the worst is in everybody's screaming recession the Market's bottomed and you're already recovering like the stock market tends to recover three months before the end of a recession so there's an interesting timing thing here where you you are going to have some really incredible buy the dip opportunities I want to I'll make a video on redin being acquired by rocket mortgage but I think it is the wedge deal of the century this is such a brilliant acquisition H like this is the stuff I want to do with house hack like that is so smart buying redin uh because it's like the worst time to run a a real estate broker style Lending SL website worst possible time and we'll talk about that in a different video anyway us is at the greater risk of recession than it was in early 2022 why because people had excess household savings then they don't today job openings were plentiful they are not today and you could refinance low you can get cheap debt can you today no okay those three things they say has basically worn the insulation low on this economy consumer confidence is nose diving job layoffs are up new home inventories are elevated all right in other words in overbuilt areas there are a lot of homes so in overbuilt areas you might see prices come down all right well we've known this was likely for 2 or 3 years already confidence goes up and down it's a very volatile needle job layoffs going up that's a problem now part of this is due to Doge but they mentioned this fancy thing called the be Beaver curve I'm not going to explain exactly all the details of this right now but basically it is it is at a Tipping Point the only thing holding the beaver Ridge curve up right now which is anything that changes on the layoff side at this point pushes up the unemployment rate almost one for one we're at the Tipping Point of that curve pushing unemployment straight up the only thing that's been missing the only thing been layoffs 27 weeks unemployed are elevated uh you've got a lack of job openings you've got Inc uh you know lowering of Labor quits which is a sign of Market uncertainty when people are confident about getting a job uh they don't quit uh or sorry they're more likely to quit when they're nervous about getting a job they don't quit because they don't want to lose their money right they'll hunker down and wait for a bit this will be a terrible time to quit uh you know unless you had some other crazy source of income because you're going into a crap job market right this is why I said to the to people taking those layoffs at Doge I'm like if you're going to do it find a job ASAP because you don't want to be the last person in line trying to get a job somewhere else anyway so so this is bad right okay uh now we don't currently yet have a recession uh at least according to the NBR signals most people I see you in the comments I see the pain okay I see it um they're like where we've been in a recession we're already in a recession these are at least the metrics for this uh you know whatever these are like charts who who cares okay but basically could we turn into recession yeah absolutely are we there right now according to those numbers and those charts no fine who cares it's it's paper it's Wall Street what about this oh this tariff thing is going to be a little disruption okay this is where they talk about the intermediate Goods section I already explained this uh you know about 10 minutes ago in this video but they talk about the supply side impact of higher tariffs could turn out to be quite large this is where they say more than half of trade in North America is based on intermediate goods and here's where they talk about uh you know testing semiconductors uh in China or the relations that we have with Mexico and the halfhazard way that we're sort of applying tariffs and like are we going to get fewer tariffs are we going to get more tariffs that creates a lot of uncertainty for a very delicate uh economy and in an uncertain time they also talk about how because of tariffs inflation is likely to overshoot slightly in the near term especially with inflation expectations going up putting the FED in a place where the fed's going to go yeah no we're not doing anything everything's fine which is exactly the opposite of what the FED should be doing because they're going to stall us into a depression a deflationary spiral with 20% unemployment and robot taking over the world making it even damn harder for you to get your job after you lose your we don't have to get chill Kev chill the higher tariffs will temporarily push up inflation which keeps the FED on hold okay what else cautionary savings they argue that $1 of a decline in income is likely to decrease aggregate demand by more than $1 this is basically a way of saying when uncertainty goes up and people are nervous what happens in the economy is they see sales down a little bit one month and then they're like okay well so let's make an example here let's say you're selling lemons uh you know lemonade and your your net profit every single month is $2,000 and then the next month your net profit is $1,500 so you're down 500 bucks you might go out and you know spend in restaurants or discretionary spend or whatever the equivalent of $1,000 less even though you only took in 500 less you're like oh oh crap and that oh crap when the economy does that really really easy to slip you into a recession on top of that Financial conditions have not tightened yet which is actually bad now okay Financial conditions is a tough one I'm going to explain that in just a moment but then they talk about kir your enthusiasm like European stocks are only up because of the pull forward of tariffs uh and you know we had a lot of pull forward of front running in the stock market because of trump coming in blah blah blah blah blah okay they recommend selling stocks fine this is BCA research Financial conditions okay this is this one's a little more complicated think of financial conditions as a banker's willingness to lend to you all right so let's put this as simply as possible you run that Lemonade Stand today you go to the bank you're like I want $100,000 loan bank's like no problem okay now you go into a period of economic tightening contraction concern uncertainty tariffs blah blah blah blah hey I want a loan for $100,000 hell no we ain't doing loans right now you got to be kidding me we're a bank you think we do loans it's like yeah that's literally what Bankers do nah no no no no no no no come back to us in a few years or you know like sure $5,000 loan right so it could be the availability of loans but it could also be the size of lending that gets crushed so that way even if interest rates come down your availability to get credit can collapse now this is actually a personal warning to folks and what I recommend people do and this is not personalized Financial advice but generally if you own a home right now and home values are high in in your area get a home equity line of credit now yes rates are high but you're not going to spend the money don't spend the money yet just open the damn line of credit it cost you like a hundred bucks a year it's not a big deal but if you open a line of credit for $100,000 let's say in the equity on your home and you're not spending any of that money you have the capacity of writing a check okay if home values come down you will still have that $100,000 line yes they can freeze lines these are rare things that could happen people then often take that money and just put into a savings account right they pay the interest for a little period of time uh and then they collect it in savings but uh establishing it is very interesting because if you do go into a crisis you have something to pull from whereas if you are in a crisis it's very difficult to establish that credit because Financial conditions type all right there you have it that was a long one uh but honestly I think this was chalk full of information and this should give you some insight into why the stock market's like man this sucks it does suck U but anyway I'll bring you more updates as they come out so I'm back in the studio I'm super happy to be back I miss you all we'll see you all soon bye good luck why not advertise these things that you told us here I feel like nobody else knows about this we'll we'll try a little advertising and see go congratulations man you have done so much people love you people look up to you Kevin P there financial analyst and YouTuber meet Kevin always great to get your take