The Worst Is Yet to Come For

This Economic Winter Season

March 14, 2019

Last Friday I talked about how we have been in a muted Economic Winter
Season. We may have had the greatest stock market bubble ever, but our
economic “recovery” has been the weakest on record, despite the strongest,
globally-concerted stimulus ever.

Here’s a chart comparing the real GDP for the 11 years from the 1929 top
through the 1940 bottom to the 11 years from 2007 to 2018.
Notice how the cumulative GDP growth since 2007 is 19%? It was 20%
from 1929 through 1940. That means this period has actually been slightly
worse.

How could this be?

The clear difference is that the Great Depression started with the greatest
crash in U.S. history, with stocks down 89%, 25% unemployment, and a
GDP fall of 30% between 1929 and 1933.

Think of it like the Big Bang. The explosion came at the beginning and
everything took shape from there.

The current Economic Winter Season also started with a stock crash and
high unemployment: 54% loss in the markets, near 11% unemployment,
and a GDP fall of 4.3%.

Mild in comparison…
But the recovery from 1933 to 1937 saw average real GDP growth of a
whopping 9% per year. We’ve managed to eke out just 2% per year. Then
there was a less severe crash and mini-depression or great recession in
1938 that lingered into 1942. Stocks bottomed in 1942 and the next great
long-term bull market began.

What does this mean?

The next chart shows real GDP on a 10-year moving average to smooth out
the trends.

Look at that remarkable difference: The period after 2007, with an average
of 2% GDP, has already been lower than the extended recession and
inflation trends of the Economic Summer Season from 1968 to 1982.

This tells me that this Economic Winter Season will go out with a bang (as
opposed to beginning with one, like with the Great Depression).

A final deep depression, debt deleveraging and economic crisis will see a
20%-plus fall in GDP, 15%-plus unemployment, and a stock crash that
could rival that -89% for the Nasdaq and maybe even the Dow.

Talk about ass-backward.

The good news…

The good news is that my four key fundamental indicators are generally at
their worst between 2020 and 2023 and turn up one by one after 2020.
The Geopolitical Cycle turns up after 2020 as does the sunspot-driven
Boom/Bust Cycle. The U.S. Generational Spending Wave turns up
in 2023, making the 45-year Technology Cycle the last to flip, around
2032.

Hence, the worst of the next great crash is likely to occur by late 2020, and
we won’t come out of it until 2023 or so.

After that, we should enjoy a stronger recovery and quick reforms that
actually deal with the debt crisis this time.

Still, we won’t see as strong a recovery as that from 1933 forward because
we face weaker demographic trends in the U.S. and developed world. The
outstanding growth will occur in the emerging world, especially places like
India and Southeast Asia.

I don’t expect that the central banks can create another heroic turnaround
this time when their last “something for nothing” stimulus program fails so
miserably. They didn’t deal with the debt and financial bubbles last time,
so expect the worst ahead after this final bubble peaks later this year, or
early 2020 at the latest.

Harry
Follow me on Twitter @harrydentjr