To The Moon

“Buy the dip.”

“AI is not a bubble.”

“The economy has never been stronger.”

As I look out on the landscape of the market today, I’m reminded of one thing.

Most of the loudest voices in the room haven’t lived through the worst the market can offer.

If you started investing at age 23 at the market bottom in 2009, you’d be 40 years old today. And the stock market over that period of time went almost straight up. Every dip was a dip to buy. There were no bubbles, unless you count crypto. And there were no real recessions (no, COVID doesn’t count).

Contrast that to the market from 1998 (more than two years before the dot com crash) to the bottom in 2009. You could have beaten the market and still lost money.

As I look around at what’s happening in the economy and geopolitics, I spend more time thinking about 1999 and 1979 than I do any time in the past quarter-century.

Maybe, just maybe, it’s time to give the old man shouting at clouds the time of day.

More on that in a moment.

We’ve Been Here Before

As someone who has been investing since 1995, I see a lot of parallels between today and historical investing moments. No comparison is perfect, but these four factors have my attention.

Oil Is a Big Deal

In 2008, I remember tangibly feeling the pain of higher oil $WTI Crude Oil - main 2605(CLmain)$ prices, which topped over $140 per barrel. And it’s no coincidence that rising oil prices probably tipped the U.S. into a recession, exposing financial risk, which ultimately led to the depths of the Great Recession.

Oil was the straw that broke the camel’s back.

NOTE: In FRED charts, recessions are marked in grey.

Has this happened before? Does the dot-com bubble pop if oil doesn’t triple from 1999 to 2001?

Ohh, Travis. You’re cherry picking.

Am I? Here’s the price of oil and the recession in 1990.

I could keep going back to the 1970s, but I think you get the point.

Now look at oil today.

I wrote earlier this week about how I’m worried about oil prices tipping us into a recession. On Friday, $United Airlines(UAL)$ CEO Scott Kirby, widely considered the best CEO in the industry, said they’re preparing for oil to hit $175 per barrel and prices to be over $100 for the next two years.

What happens to the economy if oil doesn’t just stay where it is, but goes up from here?

Bad Debt is Revealed In a Crash

In 2007, no one was talking about credit default swaps.

It wasn’t until Bear Stearns failed in March 2008 and then Lehman Brothers followed 6 months later that people figured out there was real rot in the financial system.

What rot or bad debt is there under the surface today?

We don’t know.

It could be commercial real estate debt.

It could be student loans.

It could be private credit.

It could be something else. But when the tide goes out, someone is always swimming naked.

Employment…Isn’t Great

Have you looked at the total employment in the U.S. over the past five years? The number of people employed goes up and then flatlines…

Historically, what happens after peak employment? You guessed it, a recession. It happened in 2008.

In 2001.

In 1990.

You get the point.

There Are No “Safe Havens”

What I think has changed over the past week is that this isn’t just a correction, like 2022. It’s not “risk off” from tech to consumer staples or gold.

Everything is selling off.

$Gold - main 2604(GCmain)$ is down nearly 5% in futures trading and is off 12.4% in the past week and 15.8% in the past month.

Treasury yields are up (which means bond values are down).

Bitcoin is also down, not that it’s a safe-haven, but that’s a story for another day.

In market downturns, there’s nowhere to hide except holding cash.

I’m not changing anything about the way I’m investing for Asymmetric Investing. A downturn was inevitable and is healthy.

I own companies with great balance sheets and positive free cash flow for exactly this reason. They’ll come out better in the long run.

But that doesn’t mean there won’t be pain ahead if the Iran conflict/war/whateveryouwanttocallit gets worse. Oil is often the commodity that tips us into recession, and I’ve shown above that the economy may already be teetering in that direction.

My argument for today is that it’s time to listen to those who have been through these moments before. They have some experience in what it feels like to go through the market’s downturns. And we may be entering one right now.

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