Could We See a Repeat of the Great Recession?

by Andrew Zatlin

Could we see a repeat of the Great Recession?

Based on key data I’m seeing, it’s possible.

Let me explain what’s going on here…

And what lies ahead for investors like you.

For a transcript of this video, see below. This transcript has been lightly edited for length and clarity.

Could We See a Repeat of the Great Recession?

Happy early Thanksgiving, readers.

I’m sure you’ve got a favorite dish you’re looking forward to. As for me, I’m eager for my signature sweet-potato casserole. It’s to die for.

But speaking of dining and consumption, I’m looking at some worrisome consumer data.

Essentially, consumers are in debt — a lot of debt. And if they’re not careful, they could trigger a repeat of the Great Recession of 2008/2009.

Let me get you up to speed on the situation.

An Annual Tradition

To set the stage, let’s focus on an important theme that’s central to this week’s calendar.

No, I’m not talking about family, food, or football. I’m talking about holiday shopping.

Black Friday is just days away, which marks the unofficial start to the shopping season. And initial signs point to robust spending.

Inflation, for example, is back down to around 4%. Additionally, more shoppers are ready to spend. Two and a half million people joined the workforce since this time last year.

These factors help explain why the National Retail Federation (NRF) is projecting this holiday season to include a spending increase of around 3% to 4% — solid. But hold on a second…

A Different View

If you look below the surface, you’ll see a different outlook. In fact, retailers and shipping companies are very worried.

Consider department-store chain JCPenney, for example. This year, it’s hiring 12,000 fewer seasonal workers. Competitor Macy’s is hiring 3,000 fewer. And then there’s Walmart. Last year, the retail giant hired 40,000 seasonal workers. This year? Zero. FedEx is even telling its airline pilots to look for work elsewhere because it’s not expecting an abundance of shipments.

What’s going on? Why such different outlooks on the shopping frenzy?

Seeing the Problems First-Hand

For starters, retailers view inflation a bit differently than the NRF.

Remember the NRF’s 4% spending growth projection? With inflation still hovering at around 4%, that growth projection is akin to flat or even downward sales growth compared to last year.

Furthermore, the NRF is making broad projections based on all consumers. Meanwhile, retailers like Walmart have insights into how certain demographics are faring, particularly low-income consumers, Walmart’s most popular shopper.

Interest rates are high, wages are stagnant, and lower-income consumers are living paycheck to paycheck. Many aren’t even able to get by on their income. And that means they’re turning to loans and debt to survive.

Walmart is seeing this first-hand. And that’s why it’s tempering expectations this holiday season.

But let’s focus more on the rising debt, because that’s what could trigger another Great Recession.

Another Great Recession?

You see, a key factor in setting the Great Recession in motion 15 years ago was a simple, but dramatic shift. Basically, money that was easy and cheap to acquire became difficult and expensive. Millions of borrowers were quickly denied access to funds and, as a result, delinquencies and debt soared.

We’re seeing this happen again right now. As the Fed has raised interest rates, money has become more expensive to borrow. And consumers — particularly lower-income ones — haven’t been able to secure the additional funds they need. That’s sent delinquencies skyrocketing. Take a look:

 

This chart shows credit-card delinquency rates over the past 14 years. The data is broken out by different card issuers, but it doesn’t matter. American Express, Capital One, Discover — delinquency rates are up across the board. In fact, they’re the highest level in a decade.

Auto delinquencies are up, too, especially among a group known as subprime borrowers. These are consumers who don’t make a lot of money and/or have poor credit, so they’re forced to borrow money on less than ideal terms. 

According to recent data, subprime loans to auto buyers reached a delinquency rate of 6%. In other words, one out of every 15 people who bought a car with a subprime loan isn’t paying it back. That’s the highest rate in 30 years!

A Harsh Reality

Look, times are tough. And consumers are struggling. It can be difficult to push through a retail-obsessed holiday season.

But it’s the reality we face. And sure enough, there are investment opportunities because of it.

If you’re a consumer, hold off on buying any big-ticket items. Retailers are going to be slashing prices in 2024 as they race to get consumers back in the doors.

Meanwhile, investors should look back at 2008. Use the Great Recession of 2008/2009 as a proxy for where and how to invest.

That’s the strategy I’m using. And I’ve found an intriguing opportunity that I’m sharing with my Pro subscribers. So make sure you’re one of them. 

We’re in it to win it. Zatlin out.

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