We all witnessed the pump, now get ready for the dump.

The term "Pump & Dump" comes from Wall Street of course; it refers to when the "wise guys" who run the show there pump a stock up to encourage the small-fry investors to pile in so they can dump their own shares to these unsuspecting marks. What I'm referring to however when I use the term "Pump" is the injection of literally Trillions of new, freshly printed dollars into the economy ostensibly to compensate for covid. These new dollars entered the economy so quickly and with no corresponding increase in production that they caused scorching price increases as these new dollars started chasing far fewer goods. Now that's over and a reversion is under way. Things won't go back to where they started from however but way lower. Thus, we need to prepare for the coming "Dump" of all the inventory and excess capacity created by this circle-jerk.

Where will it all go? Who will be buyers of the excess? What will happen to prices if everyone's a seller and buyers pull back?

These are the questions small business owners need to be asking themselves. No past performance data will help answer them either since we're kind of in uncharted territory due to the huge dislocation(s) created by the speed and breadth of their causes.

"So sorry, but the lifestyle of low-cost credit and all the goodies it could buy is permanently out of stock. The banquet of consequences is being served even if no one has the appetite for what is about to be forced down their throats by constraint, asymmetries and cause-and-effect."

If this problem was just about mis-management we might avoid the worst, however there's a growing understanding in the general populace that many if not all of the problems we're now facing are by design and are being instigated on purpose. The reasoning is simple: You can't "reset" something unless it's broken, so it needs to break first. To me, that means none of the institutions we would normally rely on to help solve these big problems will help. In fact, they'll be like fire-fighters standing around a 5-alarm blaze holding gas canisters - this has happened before in history (1913, 1933, 1971) but never this fast.

“Their expressed goal is to asset-strip the general citizenry – and the controlled demolition tool of choice is, in fact, leverage and debt. Because if you spike that interest rate, you can force people out of the assets. Only those cash owners outright will survive a major interest rate spike”
“If you’re looking to shake the tree and get most of the people falling out and tumbling down, the interest rate is one of the key tools to do that.”

So, the tool of choice to break the system is interest rates. That makes sense since, by using that one lever, the Fed will increase costs across the board for everyone - even them!

"People in debt will be squeezed really hard, alongside their employment and income choices being taken away. Average Americans and other people in different countries “will only survive for more than a handful of months” under this scenario."
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"In the initial stages of a period of rising interest rates, business is good for banks with margins for credit tending to improve. We have seen this recently, with bank profits and their share prices having risen significantly in 2022. But this is a temporary phase, inevitably followed by concern on the effects of yet higher interest rates on economic calculation. Businesses which factored lower interest rates into their calculations find that their plans begin to go awry. Bankers are aware of this problem through their own monitoring of business conditions."

I can't understate how rising interest rates will contribute to the "dump" - consider how much the increases so far have affected household budgets:

"For a buyer purchasing a $400,000 home with 20% down on a 30-year fixed loan, the monthly payment, including principal and interest, is now roughly $230 a month more than it would have been a month ago. Compared with a year ago, when rates were in the 4% range, today’s monthly payment is about 50% higher."

Some signs are already popping up:

This morning Bloomberg reports that Wall Street's largest commercial real estate landlord, private equity giant Blackstone, has defaulted on a €531 million ($562 million) bond backed by a portfolio of offices and stores owned by Sponda Oy, a Finnish landlord it acquired in 2018.

"The spike in defaults was not a fluke, and according to Bloomberg data, one month later - as of the end of February - no less than 39 large companies had filed for bankruptcy in the US so far this year, as February's pace matches that of January; the YTD total represents the fastest pace of companies filing for bankruptcy since the immediate aftermath of the global financial crisis in 2009."

Friends, this is happening. No amount of happy talk is going to change that. For those with open eyes, ears and, most importantly minds; now is the time for clarity.

My wife calls me a doom & gloomer lol. I disagree of course, I consider myself an optimist, just not a deaf, dumb and blind one!

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