Opinion: A Financial Storm is Brewing

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For a long period of time, there was a ton of denial about the path that the American economy was heading. Biden’s administration, as well as the mainstream media kept on insisting that everything was great even though everybody could obviously see that it was not. However, now, reality is starting to set in.

Recently we received some figures that Wall Street did not like, and as a result, there was a huge temper tantrum. The panic seen last Friday and continuing on Monday was breathtaking, and a lot of people are worried that it might bleed over into this current week. Investors have become desperate for the Fed to slash interest rates; however, thus far they haven’t moved.

Related reading: Wall Street Panicking Over State Of The Economy

In July, American job growth sharply cooled while the jobless rate unexpectedly increased to the greatest level in almost 3 years.

Last Friday, according to The Labor Department, employers added 114,000 jobs in the month of July, missing the 175,000 gain expected by London Stock Exchange Group economists. Also, the jobless rate unexpectedly rose higher to 4.3 percent against predictions that it would be steady at 4.1 percent.

This marked the greatest level for the unemployment rate since October of 2021.

Bear in mind that the United States economy has to generate a minimum of 150,000 new jobs every month to keep up with the growth of population.

Therefore, even if the U.S. added 114,000 jobs in July, they’d still be losing ground.

We cannot forget that all jobs numbers are rigged and manipulated, and July wasn’t any different with the death/birth model adding a 246,000 "statistical" jobs to its unadjusted print. It doesn’t translate apples to apples, but one may confidently state that the real adjusted payrolls figure would be much smaller had it not been for this continuous fabrication.

It is not hard to obtain a positive employment report each month when you’re "adjusting" the final figure by around ¼ of a million jobs you "assume" are being somehow created.

That is because the increase in unemployment triggered the Sahm Rule, a sign used to offer an early recession indication. This rule stipulates that a recession is more than likely when the 3-month moving average of the unemployment rate is a minimum of 1/2-percentage point greater than the one-year low.

Over the last 3 months, the jobless rate has averaged 4.13 percent, around 0.63 percentage points greater than the 3.5 percent rate recorded within July of 2023. The rule successfully forecasted all recessions since the year 1970.

Although the indicator successfully forecasted every recession since the year 1970, Jerome Powell, Fed Chair, insists that it might not be accurate this time...

Powell responded to a query concerning the Sahm Rule at a news conference last Wednesday after the Federal Reserve’s choice to keep the interest rate unchanged. According to Powell, it isn’t like an economic rule in which it is telling you something has to happen. He added that what we think we are witnessing is a normalizing labor market and we are carefully watching to check if it turns out to be much more.

Unfortunately, it seems to be inevitable that the jobless rate will rise even higher because massive companies all across the U.S. continuously shed employees.

Intel said months after the federal government gave them $8.5B in grants to assist in bringing back chipmaking to America, it’s still cutting 15 percent of its workforce, translating to about 17,000 jobs.

The tech business reported that these job cuts are a part of a huge restructuring and cost-cutting plan.

Of course, they are far from being alone.

Over the last year, company bankruptcy filings rose to 40.3%, and now have reached a figure not witnessed since the 2nd quarter of 2020, at the height of lockdowns. Households in the U.S. are following along, with overall bankruptcy filings up 16.2% in the last year, which includes 132,710 new filings within the 2nd quarter of 2024 alone.

The last time company bankruptcy filings were that high was during the COVID pandemic lockdowns.

However, we do not have any lockdowns this time to blame the existing bankruptcy wave.

What we’re seeing now is very scary.

Hordes of companies are failing, and values in commercial real estate are crashing hard...

The Gas Company Tower inside Downtown Los Angeles fell more than $400 million in value.

Recently, the skyscraper was valued at $214.5 million.

Just 3 years ago, the skyscraper was appraised at $632 million.

It’s an apocalypse for the commercial real estate business.

At present, banks are sitting on huge mountains of commercial real estate loans which have gone bad.

For a lot of these banks, it’s only a matter of time before they go out of business.

However, do not just take my word for it. Numerous prominent experts recently have been sending out red flags that a multitude of bank failures is on its way...

Echoes started in May.

Starwood Capital Group’s Barry Sternlicht forecasted a failure of regional banks ‘every week or even every day.’

Days later, Howard Lutnick, Newmark Chair, warned that every weekend one regional bank will be going bye-bye, and expected 500 - 1,000 failures in 2025 & 2026 -- as did other lenders who spoke at the same event. Recently, Pacific Investment Management Company’s head of global private commercial real estate, also joined in on the chorus.

This is actually happening.

A tsunami of financial chaos is in the future, and the majority of people will be fully blindsided by it.

At the very least, the financial markets will probably experience substantial volatility over the next couple of days. But, the long-run issues that underlie the economy aren’t going away anytime soon, and we must prepare for what may lie ahead.

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