We’re continuing our discussion on America’s Great Reorganization this week.
When we left off yesterday, we were talking about what would happen if the DOGE team of Elon Musk and Vivek Ramaswamy managed to cut $2 trillion in government spending. Would there be a recession?
My suggestion is that we’ve already been in a recession for over a year now… except it’s impacted certain elements of the American population far more than others. Low-income households, renters, middle-wage workers, young families with children, and retirees on limited incomes have each struggled mightily over the past year.
Housing, rent, and food costs have risen dramatically… as have child care costs. Meanwhile, official statistics show that the record level of household savings we saw during the Covid hysteria has evaporated. Worse, auto and credit card delinquencies have ballooned.
My friends at Bonner Private Research use a proprietary model to measure the health of the real economy. It’s called the Doom Index (version 2) – and it uses real-world data, not government statistics which are constantly dressed up.
The latest Doom Index reading illustrates the undeclared recession of 2023 very clearly:
The black line in this chart tracks the Doom Index reading. When it’s above the blue line, the economy is expanding. When it’s below the blue line, the economy is contracting. The lower it goes, the worse the contraction.
Here we can see that the economic readings from the past year look eerily similar to what we saw during the Covid hysteria and the 2008 financial crisis – both of which were official declared recessions. Those periods are highlighted in gray.
My own experience in real estate supports this also. It’s anecdotal, but I think it is representative of what we see in the real data.
As an active real estate investor, I balance my portfolio across markets and across property types. I own both large new construction properties and small rehabbed properties.
Each property type tends to cater to renters in different situations.
The large new construction properties tend to attract families and young professionals with a steady career. They are more settled, and they tend to stay in the property for years.
The smaller rehabbed properties tend to attract folks who aren’t as settled. For whatever reason, they stay for a year or two and then move on.
Well, the rent stopped coming in for three of my rehabbed properties at roughly the same time last year. That’s after the tenants had each paid rent on time every month for six months or more previously.
My property manager called each tenant to ask what the situation was. Two of them packed up and moved out without answering the phone. The third let us know her situation…
“I’m sorry, but I just can’t afford it any longer. I had just enough to cover my bills before, but now my groceries cost so much more… I don’t make enough money to pay for everything. I’m moving back in with my mom.”
All of us have had to deal with dramatically higher prices at the grocery store. But for many of us it was just a nuisance.
For the person who was renting one of my properties, those rising costs were the difference between being able to pay all the bills and having to make some tough decisions. I imagine that was true for countless other households as well.
So it’s clear to me that we’ve already been in a recession, and that it was driven largely by inflation. If the DOGE team manages to cut government spending and balance the budget… inflation will evaporate.
Seems to me that’s a first-class ticket to economic recovery…
-Joe Withrow
P.S. Routing out inflation like this could be a major boon for strategic investors. In fact, it opens the door to some powerful strategies that simply don’t work as well in a world where the dollar’s purchasing power falls dramatically.
To that end, I’m hosting a webinar on January 8, 2025 to share with you exactly how to take advantage of this scenario. We’re going to talk about how to build out a turn-key investment system that will snowball our assets and our income in an America-First world.
We’re calling this event Secrets of the Turn-Key Investment System. We’ll go live at 3:00 pm Eastern on January 8, 2025.
You can register for the webinar at your convenience at: https://phoenicianleague.com/secrets