“Without deviation from the norm, progress is not possible”
— Frank Zappa
(What you are reading is a cut/paste of a post I wrote for a different publication. Some of you know most of my thoughts on this already, but if you would like to read it anyway, please enjoy. I wrote it in a more grown-up style than you’re used to seeing on here, so don’t get freaked out.)
As a contrarian, I tend to gravitate to other contrarians over time, especially on social media because it’s much harder to find these people in real life. I will say however, a lot of them have become contrarians only recently, and when you change your views for the first time, you tend to overcorrect and go too far over to one side. This kills objectivity, and in my opinion, times like this expose these people for the neophytes they currently are.
For example, the Trump administration has more or less told us out loud they are going to bring us into a correction at best, and a recession at worst. And I applaud them for it.
Anyone who is upset about this has zero understanding of how markets work. They are either in the cadre of people who blindly oppose anything this current administration does, which is never an educated approach, or like a lot of people they have simply been conditioned to only be able to function if number does nothing but go up, and are concerned it won’t be doing this for a while.
Both groups are filled with people who should never be allowed to run or manage a taco stand, much less anything of broader importance. In case you have forgotten, over time, recessions are healthy. If you take a long term approach, and you always should, recessions are vital. They rid the market or malinvestment and excess, and allow us to reset what needs to be reset, and move forward without a slew of dead weight dragging us down at every turn. Think of it as purging pre-cancer cells in the body due to occasional bad health decisions, environmental damage, stress, etc. If you ignore it because it’s scary, inconvenient or hurts a little bit, then you are only making everything worse over time. And this is what we have done.
And why have we done this? Votes. We in the US and most of the Western world nowadays only focus on short-term problems, because we somehow think it is in our best interest to do so. We focus on “communist China’s” inherent flaws without giving them extreme credit for bucking this harmful trend and focusing on what really matters decades into the future. With China’s demographic collapse and cult-of-personality quasi-communist government, the fact they’re still here and prospering says a lot. And these types of long-term decisions have played a major part. It is in their culture. It is not in ours. And if you so dare have us go backwards even a little bit, so we can eventually move forwards — here come the pitchforks. “You can’t take us into a recession, I have CHILDREN for chrissakes!!” This is where democracies can really work against you at times.
And this is where the Trump administration comes in. They are (legally, mostly) coming in and saying “we are not taking this to a vote, we are doing what is necessary”. A bit scary if you think about it, but I will agree it’s necessary. And in the best interest of themselves, they need to get this recessions started now so we can be in the recovery phase by midterm elections in November of 2026. It’s pretty obvious.
If it’s still not obvious to you, let me go further than just stating my own opinions over and over. Fed Chairman Powell has stated publicly he is not aligned with the Trump administration. Powell has the power to raise and lower interest rates. There is little reason to drop interest rates if the market appears healthy and its numbers are not falling. Powell has dropped rates, only once, and he did it in a rising market. This was done right before the 2024 election, there was no real reason for it, and this is why I have always suspected him of working for the swamp behind the scenes. But apart from this, you would only drop rates to get ahead of impending doom in the markets so the recovery can begin sooner as opposed to later.
Don’t believe me? If you don’t, history would not be on your side I’m afraid. In the chart below, you have a history of where interest rates have been in the US. Ever since 1980, which was a wild time in our financial history where very little made sense, things got really really predictable.
If you had a rise in rates, followed by a flattening, followed by a cutting cycle — a recession was soon to follow. On the chart, recessionary periods are shaded in gray. Have a look.
Every. Single. Time.
When people see this chart, they think it’s the cutting of rates which spurns on a recession. It’s actually not. This would be counter-intuitive. You drop rates to allow more lending, which brings more money into the economy — not the other way around.
What actually creates recessions is the RISE in rates that happened before the lowering. But this phenomenon doesn’t happen overnight. It takes time. There’s a lag effect. How long this lag effect takes is undetermined, but judging by the above chart, we are right on schedule aren’t we?
Powell should, in good conscience, continue to lower rates once the market is officially in mid-term “down mode”, but he has to be convinced we’re actually there first. So if rates are going to drop (which this current administration has all but BEGGED for don’t forget), he has to see “number go down”, consistently.
Before going any further, here is video proof of what I’m talking about. I found the shortest video I could for your viewing pleasure. The first one is of Trump wanting lower rates.
And I apologize for not being able to find the next clip, but it was Trump (or Vance I don’t 100% recall) in a recent interview saying how China makes decisions 100 years in advance, while the US makes decisions for next quarter. This was really the smoking gun, and I just can’t frickin find it. But it was absolutely said, without any ambiguity.
Put these things together, and it’s very clear. We’re going down.
Your newly-minted contrarian will probably disagree. As new as they are, they have seen enough to know, when sentiment gets too high or too low, the opposite typically happens. As we speak, they are saying things like “Like the great Warren Buffet said, buy when there’s blood in the streets” (There is no blood yet. And that was Rothchild, not Buffet), and “This is the perfect time to buy the dip!”.
To their credit, in most cases they wouldn’t be wrong. Fading normie consensus is a winning formula almost every time. Until it isn’t. This administration, love them or hate them, has shown they do get things done. And if they say it, they’re probably going to do it, or at least go down swinging. I am going to take them at their word. They’ve been very careful not to say the “R” word out loud (“recession”) in order to avoid panic, but they have literally said everything else. We’re very likely going down.
What I have always found interesting, is how most investors have been conditioned to take unnecessary losses during this time. In my strong opinion, they do this for two main reasons:
- They know the market will go back up over time, so they just need to ride out the storm lest they risk missing out on the next move up
- They, nor their financial advisor, knows how to properly read a price chart.
I have had the luxury of being a chartist for the better part of 15 years now, and if you zoom out the way you are supposed to you can see rises and falls happen early and adjust your portfolio accordingly. You will still take some losses, because charts are not correct every time, but what you will be able to do most importantly is avoid needless mid-to-long term losses like your average investor takes for no reason.
There is nothing wrong with sitting in cash while the storm passes. You will never hear this from a financial advisor, because they can’t make money off of you by you sitting in cash. They would just assume you take losses while they rake in commissions.
Don’t do that.
— VP