As we wind down from an exciting year on the world’s stage, we’re reflecting on just how much the big show had to offer. And boy, was it ever a production.
In a recent episode of Squawk Box, Paul Tudor Jones talked about what he calls an “economic kayfabe.” If you’re not into pro-wrestling, kayfabe refers to the unspoken agreement between wrestlers and fans. Basically, we suspend disbelief and ignore that what’s happening is scripted.
Of course, the reality is that it’s all bogus, but to really enjoy the experience and keep it alive, you have to pretend it isn’t. In wrestling, that’s all well and good. In a real world economy? Not so much.
According to Jones, the biggest players on the world stage are caught up in a kayfabe. He also wonders if we’re on the cusp of another fun term: a Minsky moment.
A Minsky moment refers to the beginning of a market collapse, resulting from speculative activity that defines an unstable bullish phase. Minsky moments typically occur after a lengthy growth period, potentially leading to overleveraging once prices stop rising.
Will we experience a post-election “come to Jesus” Minsky moment? Will we finally see behind the curtain and realize it was all just a big game of pretend?
Let’s unpack some noteworthy recent happenings and what the producers of the big show might be missing.
Paying Dues
Our nation’s debt has become so normalized, it’s easy to feel numb whenever it’s mentioned. However, we’re teetering on crisis-mode.
US debt is up $13 trillion since 2020, currently sitting at a record $36 trillion. In 2025, the country is expected to spend $3.8 billion a day on interest expenses alone.
That’s right. Roughly 28% of all government revenue will get thrown at interest payments. Think about that as you pay your Q4 taxes. We’ve never seen spending like this. Not even during WWII.
On an individual level, 11.1% of all US credit card debt was delinquent for over 90 days last quarter. That’s the highest we’ve seen since 2011.
In November, we had 22 large bankruptcies ($50M or more), some of which were the multi-billion kind. This is the highest number of large bankruptcies since the post-pandemic peak of 2023. Nine months before the 2008 financial crisis, they peaked at 23.
It’s been awhile since we checked in on CMBS, but they’re still kicking that can down the road. We’ve reached a point where some commercial real estate is defaulting for a second time. We’ll likely see an uptick in foreclosures as folks throw in the towel.
Real World Roundup
Economically speaking, there’s no shortage of indicators we’re heading towards a tipping point. Here’s what’s worth pondering:
- Layoffs could be on the way for the US construction industry. Residential units under construction fell by over 17%, the biggest decline in 13 years. Another pocket of weakness for the labor market. US home sales might have the worst year since 1995.
- Inflation may be down, but the cost of living continues to rise. CPI is 22% higher than it was at the start of 2020. Car insurance is 52% higher. Prices are surging, placing a huge burden on the average American household.
- In October, The Conference Board Leading Economic Index (LEI) declined -0.4%, the lowest since March 2016. The LEI hasn’t seen an increase in 32 straight months, the longest streak in its history. This current stretch is longer than the 25 months in the 1974-1975 recession and 24 months during the 2008 Financial Crisis.
The gaslighting fest that inflation is cooling and our problems are over continues. Credit spreads are at all-time lows and another cut could really do us in.
Banks are counting on depositors to keep their money in their accounts. As long as they do, everything’s just fine, but how much longer can unrealized losses go unchecked?
Should a withdrawal frenzy occur, the Fed will do what they do best: print more money. More fuel for the inflation that apparently is no longer a concern.
Errors and Lessons
When disaster strikes, the heroes in charge have the duty of learning from their mistakes. They take stock of what they missed, etch it in their brains, and vow to not let it happen again.
It seems as though the Fed and Co. are ignoring indicators that should be alarm bells, seeing only what they want to see. It doesn’t seem like they’re going under the hood to take a closer look, especially when looking at the jobs report.
Cutting rates based on surface level status checks could very well lead to its own brand of meltdown.
So what’s the plan for us everyday heroes? For those of us who see the writing on the wall, it’s time to prepare for that return journey. Because, it really never ends.
Even if the people in charge aren’t learning from the past, we can. We’ll use what we know to set us up for smashing success in the future. As you start prepping for all 2025 has to bring, don’t forget to look behind you.
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Until next time,