Transcription
We just saw two more hedge funds blow up. Like Jamie Diamond says, we're starting to see all these cockroaches, and it's eerily similar to what we saw in 2007. So, this begs the question: Is the future looking into 2026 going to play out just like 2008? I'm going to reveal the answer for you in three simple, fast steps.
Step number one, let's go over WTF just happened. And actually, before we get to WTF just happened, we're going to go back and look at what happened in 2007. And they say history doesn't repeat itself, but it rhymes. But in this case, it looks like it's repeating itself step by step. Let me show you what I'm talking about.
We're going to look at a chart of, yikes, Bear Stearns. And in 2004, 2005, 2006, hey, the future's so bright, you got to wear shades, right? And oh, by the way, we go out to about April or May of 2008. And then on the left, we go from zero up to $175. This is their share price. So, you can see it peaks out, oddly enough, right in January of 2007, and it starts to go down.
Now, I've got this first kind of decline right here circled in red. Why? Because this is when Bear Stearns started to close down some of their funds, some of these subprime funds. And what's really bizarre, or just kind of again, eerie, is that these subprime funds were referred to as high-grade. The irony, right? But wait until we get into what's happening today. It's not just that we have similar types of subprime funds blowing up, but they're also called high-grade. No kidding. You can't make this stuff up.
So anyway, we have Bear Stearns come out and say, "Yeah, nothing to see here. It's got a couple issues just due to this subprime thing, but it's contained. It's contained. We're just going to close down these funds." And again, "Nothing to see here. We just go ahead and sweep it under the rug."
Now, what's interesting is the funds they were closing down didn't necessarily suffer massive losses. It's they had one or two funds suffer losses, and then everyone started to get scared. So, even though the other funds didn't suffer massive losses, they suffered massive redemptions. Massive redemptions. And therefore, what happened is Bear Stearns had to sell all of the assets they owned. And at the time, there wasn't that much liquidity. Sound familiar with today? And they had to fire-sell these assets. They'd had to take a big haircut. And that's one of the main reasons that they had to close these funds. It's one of the main reasons you saw this big decline in their share price.
So, who cares, George? What does that have to do with what's happening today? Ah, I'm glad you asked. So, just the other day, UBS came out and said they were closing down some of their subprime funds. Now, what's really interesting, and I got to give a big hat tip to my good buddy Jeff Snyder, who did a podcast on this. So, going back to UBS, one of these subprime high-grade funds that they had had a tremendous amount of exposure to First Brands. Now, the other fund didn't have really any exposure to First Brands, but everyone saw what was happening over here, and they didn't want to be the last person in the movie theater to rush toward the exit. So, what do they do? They start the redemptions. They say, "Give me my money back." And all of a sudden, UBS says, "Well, some of the underlying assets aren't that liquid, so we have to go ahead and close the fund."
Now, what's happening here in the monetary system? You guys know from watching my videos that the monetary system is simply a network of bank balance sheets. So if you have UBS starting to, let's just say, struggle in a very similar way to Bear Stearns starting to struggle in the middle of 2007, that's going to have a ripple effect throughout the entire monetary system. How? Because perceived counterparty risk goes up. Because everyone at these money dealer banks knows that UBS's balance sheet could be connected to a lot of those counterparties that they may be lending to. So risk goes up, liquidity goes down, regardless of what the Fed is doing with their balance sheet. In other words, QE or QT.
So, just to make sure we're all on the same page, the similarities here are that in the middle of 2007, we saw funds closed by Bear Stearns. There were these subprime funds that, oddly enough, like we said earlier, were called high-grade. They started to close these down, and then they got a massive amount of redemptions, which has caused a doom loop because they have one problem over here. They get redemptions over here, which causes even more problems, which causes even more redemptions. And we could see the exact, well, we've definitely seen the exact same thing play out just the other day with UBS.
Now, will it lead to a doom loop? TBA, right? We'll go over that more throughout the rest of this video. But the key here is to realize that none of us can predict the future. There are no certainties, only probabilities. But what we're seeing right now with UBS, private credit, shadow banking, is exactly what we saw in 2007.
Now, I know the pushback is going to be, "George, what are you talking about? You're always too bearish." I mean, right now the S&P 500 is at all-time highs, and everyone knows it. Sure, we've got Tricolor and First Brands and I don't know, some other cockroaches out there, but this is totally contained. This, there's no systemic risk to what's happening in the shadow banking system and in private credit. Well, I'd like to remind everyone that's exactly what they said right here.
Now, you may be asking yourself, "Okay, George, why do you have this second portion of the, let's say, downtrend to put it nicely? Why do you have this circled?" Because right around here is when the S&P 500 was hitting all-time highs. So, if you were someone back then that was worried about what was happening with subprime, say, mortgage-backed securities, you would have heard the exact same bullish arguments that you hear today. And oh, by the way, let's remember Ben Bernanke himself even said that subprime is contained, just like today they're saying that subprime, although it's just in the auto sector, is contained. And again, what they don't realize is even if it is contained over here, if that increases counterparty risk, that is going to decrease liquidity, which could lead to problems that are not contained. And the real danger I'd like to highlight is right here. We forget that a $75 stock can go to a zero stock in the matter of just a couple of days.
But unfortunately, there are other things that are happening right now as we speak that are not like 2007 and they're not like 2008. They're actually much, much worse. And we're going to get into that right now.
Step number two. Now, let's go over that economic indicator that is even worse than what we saw during the GFC. You guys know from watching my videos that I think it's all about the labor market. That should be your number one focus, along with interest rates. And just last week, we saw another survey came out, and the results were the worst results that they have ever had in October, going all the way back to 2003. Check this out. This is the recent report from Challenger, Gray & Christmas. They say that employers announced 153,000 job cuts as a result of cost-cutting because the economy is slowing down and AI, as you would expect. And by the way, most of those jobs that are being replaced by AI are high-paying jobs.
But getting into the article, we see that US-based employers announced, like we said, 153,000 job cuts in October, up 175% from what they announced in October of 2024. Oh, but wait, there is more. It's up 183% from the 54,000 job cuts announced just one month ago. Now, here's a quote from Andy Challenger, I assume of Challenger, Gray & Christmas himself. He says, "October's pace of job cutting was much higher than average for the month. Some industries are correcting after the hiring boom of the pandemic, the bullwhip effect, which is what we've talked about on this channel for the last three years. But this comes as AI adoption, softening consumer and corporate spending, meaning economic contraction, and rising costs drive belt-tightening and hiring freezes."
So this dynamic, I talk about it on this channel all the time. And what I'm referring to here is prices going up, but wages, revenues, incomes for businesses staying the same. Or maybe going up, but going up at a much lower rate. So what happens is that spread, that delta, increases, which represents a decrease in overall purchasing power. When you as a family get into that situation, what do you have to do? You have to tighten the belt. When a business or corporation gets into that situation, they have to start firing people.
But instead of just focusing on October, let's go ahead and zoom out and see what has happened in 2025 overall. Through October, employers have announced over 1 million job cuts, an increase of 65% from the 664,000 announced in the first 10 months of last year. It is up 44% from the 761,000 cuts announced in all of 2024. Year-to-date, job cuts are at the highest level since 2020. I think most of you remember exactly what was happening in 2020. And if you don't, I'll let you in on a little secret: the economy was not booming.
So, we know that 2025 has played out in a terrifyingly similar way to 2007, and we know that some labor market data is even worse than we saw during the GFC. So, now we have to answer the question, or I have to give you my opinion, as to whether or not I think 2026 will play out like 2008. And I'm going to do that right now.
Step number three. Now, let's go over my prediction. Are we going to have another GFC? Well, before we get to my prediction on that, let's go back to a prediction I just made and see how that played out. So, for those of you who watch my videos, the very last video I did, I talked about this company, CarMax, ticker KMX. This is a chart from August all the way to today's date. On the left, we go from, well, down here, we'll say $34, up to $63.
Now, for those of you who watched that last video, or for those of you who didn't, let me do a quick recap. So, this was a bad day for CarMax, as you can see. So, they're just cruising right along here, no pun intended, and the market thinks they're selling all these cars. They get this high point right here on the chart at around $63. They start to come down, but then they report earnings. Well, E. Coyote moment, all the way down. Let's just call it $47 bucks. And surprise, surprise, surprise, they said that the economy was slowing. Talked about the labor market before. And people just don't have enough money to buy cars, let alone used cars. And so they weren't selling as many. They had increased inventories. By the way, those inventories are depreciating. So their share price really took a hit.
Well, I came in and I shorted the stock. Now, this is not personal investing advice. I'm just disclosing. I'm just telling you guys exactly what I did for the sake of this video. So, we understand the concepts here, and you understand my prediction on the economy when I reveal it here in just a few seconds. So, I went short right here because I thought what produced this would continue into the future. And that's what I discussed on the last whiteboard video. Editor, you can go throw up a quick clip. We can do a flashback.
So, I do want to take a short position, but I'm going to try to offset that short position with a long position in the S&P 500. But just a few days later, I added to the position, which I explained in Rebel Capitals Pro. Now, Rebel Capitals Pro is a private investment community I have with my good friends Chris Macintosh, Brent Johnson, Patrick Serna, and others. And whenever I make a change to my personal portfolio, I always put out a trade alert. So, editor, go ahead and throw up this trade alert. And here's exactly what I said: "CarMax got a bump yesterday, meaning the share price went up, due to General Motors reporting good numbers. I'd like to fade this because I think those General Motors numbers were in part due to front-running tariffs and looking forward, conditions will worsen for the car market. Also, we had another cockroach in the subprime auto sector blow up. I haven't even talked about that on this video. That was Primal Lending, who lends to auto dealers. So, CarMax went up because the market focused on GM. But I think soon the market will go back to focusing on the cockroaches in the car market."
But what I didn't realize is how soon this would actually happen. So, you fast forward to the beginning of November, and we had another huge price move down. Fortunately, I was not only short, but I was double short. The stock went down by 24% in just one day. So, I had a massive gain in just the span of maybe three or four weeks. So, I went ahead and covered the position. And I'm not telling you this to brag. I'm telling you this because it illustrates how I view the economy right now. And that view has been very, very correct over the last few months. So, and it's what we've discussed on this video.
So, when you have all these cockroaches coming out in subprime, private credit, the shadow banking system, and you combine that with the labor market deteriorating, that leads to tight money. The tight money, or lack of liquidity, because risk is going up, leads to more of the tide going out, or the tide going out further, which leads to more cockroaches showing up, which inevitably will likely lead to the labor market getting even worse. You can see this doom loop right here. And this usually leads to, or coincides with, an economic contraction. And oh, by the way, an economic contraction isn't good if you're selling used cars.
So the punchline here is I was very confident putting in this trade. Although obviously, the timing, I got lucky here, because I think we're going to see more and more people who are swimming naked. We've got the stock market at all-time highs. We've got manias in AI. To think that Primal Lending or Tricolor or First Brands is all that we'll see, the only cockroaches we'll see throughout this whole cycle, I think is completely naive.
Now, does that mean that I think that 2026 is going to play out like 2008? The answer may surprise you, because the answer is no. Let me explain. Do I think the economy will continue to get worse? Yes, I do. And do I think we'll probably have a recession, even one that is defined as a recession by the NBER? Yes, I do. But this doesn't mean that we have an absolute crisis. Now, we could have a black swan, but I don't know that it leads to something like we saw during 2008 in the GFC. Why? Because right now, the central planners have a hair trigger for any type of economic downturn. Just the other day, and supposedly, if you listen to Donald Trump, he'll tell you this is the greatest economy that we've ever had. But he's also saying that he wants to maybe incorporate a 50-year mortgage into the housing market, and he also wants to give people $2,000 stimulus checks. And you know that's just a gateway drug for UBI, universal basic income.
So whether you love Republicans or you hate them, or whatever your political views are, the bottom line is we have this massive expansion of government into the economy. So what are the probabilities? They would just let a crisis or a collapse just play out and let the free market get out all the malinvestment and misallocation of resources. I think the probability of the central planners at the Federal Reserve and the government right now allowing that to happen is as close to zero as anything I have ever seen in economics.
So what will they do? Probably something very similar to what we saw in 2020 and in 2021, but five times bigger, 10 times bigger, who knows? Which will lead to the exact same results. Remember this: prices are going up faster than incomes and business revenue. It'll distort the economy, and as a result, we as Americans will be worse off than we otherwise would have been.
So the main takeaway here is my base case is if this continues to play out, then we won't see 2008. We'll likely see 2000 and 2001, meaning not a global financial crisis, but really just kind of a garden-variety recession where asset prices come down, probably pretty substantially.
And for those of you who want more information on how you can join Rebel Capitalist Pro and get direct access to insider intel like this and some of these contrarian strategies that we use that have worked extremely well over the past few months, we'll go ahead and put a link in the description below.