"My Biggest Fear Is A Reverse Market Crash" - Prepare For This Now Before 2026 | Patrick Bet David

What's different between today and 2008 market crash? 2008 market crash was about no income, no assets, Nina loans. Banks were giving them money left and right. Hey, uh stated income. You're trying to qualify for $720,000 loan. How much money did you make last year, Tom? I'm a school teacher, $48,000. You're not going to get qualified for this time. I'm going to ask you this question one more time. How much money did you make last year? I just told you, $48,000. Do you want to get qualified for this or not? Yeah. Okay, one more time. How much money did you make last year? 62? That's what it was, no income, no assets in 2008, right? 2007. And then I remember the month when I knew it's over. Because the one guy in LA who was making 400 grand a month uh had an office in Topanga Valley, in Topanga or Canoga, 30,000 square feet of office space. November of 2007, he shuts it down. Ooh. And this is right after you're seeing Wamu, Countrywide, you know, all these other com- companies that are doing what they're doing. Very problematic when that took place. So then you saw cities like Riverside community, Riverside County, 65% houses foreclosure. Oh my god. loan modification. Then you have people that were buying five, six homes paying the negative amortization payment, which means if you got a loan, this was a pro- program that came here from Australia. It is what the story you always hear about that this program was in Australia, we brought it in America. It was meant to only be for people who are affluent. Okay, you got a $20 million loan on a house? You got $40 million on a bank account? I'll give you $20 million, no problem. You got four payments to make. You got your 15-year loan, which is going to be the biggest loan. You got your 30-year fixed, which is going to be reasonable, but it's not a 15-year loan. Then you have your interest only that you're literally only paying interest and the loan stays the same amount. Or you got your negative amortization payment, which means the loan gets bigger every month that you pay it because it's negative amortization. Every month the loan gets bigger. Okay. So for example, for the average person in America, it would have been something like this. It would have been neg am payment was 1,200 bucks a month, interest only was 1,800 bucks a month. 30-year fixed was $3,100 a month and 15-year was $4,500 a month, okay? So people are like, dude, buy another house and another house and another son. I got five houses that I'm paying 1,200 bucks on. I can't afford to do that. Except that was only for two or three or five years. And then all of a sudden your 1,200 payment goes to $4,200 times five houses. How do you pay $20,000 a month? You can't do it. Boom. Foreclosure, foreclosure, foreclosure. So that's not the case study of today. The case study of today is somehow, someway the government thought it's a good idea to lower interest rates to 1% and we had 3% loans that were going on. And then we talk about a 128-month expansion. By the way, if there's no COVID, that would have been a 150-month expansion that we would have had. That's not good to have a 150-month expansion because during that cycle that we went on, Tom, money was so cheap that people were just picking up money and buying stuff left and right. It was so cheap. Go get a house. Go get a car. Rates were low. You know, these big companies are getting $50 million lines, $100 million lines, $200 million lines. Go get as much money as you can. Then COVID hits. When COVID hits, philosophically, it was a show. Go work from home, 18 months. That's what you got to do. Essential, non-essential. And then when that took place, companies like Twitter and many others said, at Twitter under Jack Dorsey, you can work from home for the rest of your life. What a noble company. That's what we got to do. And then so we go through that cycle and then people started abusing employers and that two jobs that they weren't telling anybody, but they're making 82 here and 88 here. So they're making $170,000 thinking they can do this fraud that they're doing for the rest of their lives and then they're living a $170,000 year lifestyle not realizing that's not going to be around forever. And then the money that they put into the system, all of a sudden people have cash in the bank like never before. So we had $2.2 trillion of cash, Americans. Every quarter that thing went from $2.2 trillion to $1.7 trillion to $1.4 trillion to $1.1 trillion and our savings as a nation kept going lower and lower and lower and lower. So then we have um more money being printed into the economy and then we have the election. Then now if COVID is gone, now we got to get people to come back to work. They don't want to come back to work. They want to work from home. Then companies like David Solomon, Goldman Sachs, they start saying, no, you got to be there for accountability on Monday morning and all this other stuff. If you don't, you're not getting your bonus. People started kind of getting creative. That's unfair. That's not cool. I'm going to go get another job. Many did. Then some companies came out and said, no, we're just not doing that. And then, you know, that is taking place. And then you have a bit of war. You have craziness going on with another war. You have all of these things taking place. And then suddenly Jerome Powell sees inflation's going to 8%. Wait a minute. What's going on here? We got to lower it to 2%. How do you lower it to 2%? Let's start increasing interest rates. We raise. This is crazy. We raised 4.88% in the shortest amount of time ever in the history of America. There's a chart on Statista. You got to see this. It's a great visual. And it shows historically when we've had to increase rates, it's over a 3-year span or it's over a 6-year span or a 3 and 1/2 year span. No, no. This is over a 12-month 15-month span. 4.88% boom, like this. Hoping inflation goes down. Okay. Inflation moves a little bit. Sales of homes to the lowest in 20 years. Mortgage applications lowest in 27 years. People who were doing loans, I don't know if you have friends who were doing loans or mortgages or real estate. These are guys that were making half a million dollars 3 years ago per month. They're not making nothing right now. Guys who were making $100,000 a month are having a hard time making $8,000 a month right now in loans. There is no loan application because even new homes are not being sold to do the loans of new homes. So home sales are down cuz typically when refi comes down, people will sell homes. No one's selling homes today. Why are they not selling homes today? Because they're still sitting on some cash and they don't want to give up that 3% loan they got a year and a half ago. And then you look at the data. Okay, let's just say I do sell this house. I got to go buy another house, but I got to get that house at 8%. I'm not willing to do it. Why would I do it? So I'm not going to There is no motive to sell the house. So now what's the ticking time bomb? Few things. One, Jerome Powell is trying to increase rates hoping hoping unemployment increases cuz that's what we need. They need the unemployment to increase. It's not moving. Still 3.7, 3.5, 3.8, 3.9. It's not moving. It's right there. Okay, so either we need unemployment to go up or we need people to run out of money. If people run out of money and they're stressed out, guess what they they do? They're going to sell the house. So today numbers came out saying it's 55% more cheaper to rent than buy. This is the highest we've had ever. It's 55% cheaper to rent than to buy today. This is not a buying season. This is a renting season, okay? This is what Wall Street Journal, many of these other articles will talk about. Okay, meanwhile, the economy's growing. The economy's going up. Dow Jones, oh, it's killing it based on seven companies. Magnificent Seven. You know who these Magnificent Seven companies are? Nvidia, you got these Facebooks, the Amazons, the Apples, these seven companies that are preventing the company from country the market from having a crash. Then while all this stuff is taking place, um Powell now is dealing with a war. He's afraid. He wants to raise the rates a quarter, but due to the war that took place in Israel, he doesn't. And then data shows, which is by far the most interesting data to answer your question here, is how much after these five situations where we raise the rates multiple times in a span, this being the shortest in the most condensed time frame, how long does it typically save? Is there a formula of when recession comes, if at all? Here's what they realize. Recession usually comes, on average, 11 months after the last month they raised the rates. So what does this mean? If Powell's no longer going to raise the rates and the last time they raised the rates was September. Let's just say. That means recession's going to come when? Not October. So you got October, November, December, January, February, March, April, May, June, July, August. August of next year, 3 months before election. That's if it follows the trends of the last five times when they raised interest rates. So how did I start off the story? I talked about the doctor that has met 4,000 different patients in the 420 you're kind of going through this. The problem of everything I just told you could be completely wrong because there's a fifth. When the doctor says, I've never seen this before. So we've never seen current climate current climate before for us to be able to put it and say, well, according to this and according to that, we've never had this situation before. Yeah, that's the thing that makes me really tense, but there are fundamentals that when I look at, I think, ooh, like there it isn't possible to sustain this. So the thing that I just keep coming back to is debt and interest. And when you look at the charts that show the interest payments and how they're going to go up and up and up and even people that locked in, you know, say 3-year fixed rates at really low rates in the corporate market, that all goes away in a few years. And so, you start looking at just the absolute behemoth numbers that are going to be due to service that money, and it becomes completely untenable. And the bad news is it becomes untenable both at the individual level where we're more in debt than I forget, ever or close to it, but individuals are in psychotic amounts of debt, corporations are in ridiculous amounts of debt, and the nation is in a ridiculous amount of debt, all while we've had two major printing events since 2008. And so, now you really have a very unstable market. So, there's a great quote called Minsky's financial institutional hypothesis, instability hypothesis, excuse me. Uh and he said, "When an economy is stable, people get optimistic. When people are optimistic, they go into debt. When they go into debt, the economy becomes unstable." And now, that's even without the crazy rising in interest rates. So, we have like this For me, it seems self-evident that there is going like that that gravity insists that things come back down, but they haven't yet. And so, just when I want to get bullish and be like, "Hey, obviously this is all going to come crashing down." it just keeps not and not and not. Um my intuition is that a recession is inevitable. But, the market can remain crazy longer than you can remain solvent, whatever that quote is. Um why hasn't it happened yet? And how do you think about cuz obviously you have the you have similar concerns that I have. Only the paranoid survive, but how do we turn paranoia into an action plan? Yeah, so everything is right now about mapping out different possibilities. So, for example, if we're right now in a conference room and we got board to write on, we would write on you and I would write down and we would say, "Okay, uh World War takes place. What do you think of the chance of this taking place? Ray Dalio says 50%. Okay. A um Jamie Diamond says this is the most dangerous time dangerous times we've had in America in decades. Okay, cool. So, if World War happens, what happens to the economy? Who's going to be the parties involved? Are we going to be involved purely through proxy, or is there going to be attack here? Then you write down the possibilities. Okay, if this happens, what are you going to do? If this happens, what are you going to do? Then next, what happens if unemployment all of a sudden goes to 7%? 6%? What happens if inflation goes down? What happens if Powell starts lowering rates back down to 5 4%? Holy that's that's going to be crazy. What hap- So, you got to write all of these different scenarios down. But, here's a couple things that we have to be thinking about, and you said which was fascinating. One, so credit card debt highest it's ever been. You know what's the craziest thing about the credit card debt being being the highest it's ever been? Tom, the average interest rate on credit card is the highest it's ever been. Jesus. Forget about the debt. So, people are worried about the debt. So, imagine the interest rates in the last 5 years has gone like this to 23%. The average is 23% on credit card. You know what 23% means? That means the debt doubles about 2 and 1/2 years. That's like loan shark numbers. That's loan shark. 3 years your debt is doubling, right? But, that's what we got right now on credit cards. Okay, so our debt is record-breaking. The forgiveness for your loan school loan is gone. So, now you have to start paying for it. That's 3 $400 a month that people are expecting, I think October November starting. Then, let's set that part aside, go to the corporations you were talking about that are borrowing money. This year, their interest payment on corporation that borrowed money is going to end up being around $530 billion, just interest. Oh my god. Next year it's going to 730. Next year it's going to 1.1 trillion. In the next 5 years it's going between 1.3 to 1.5 trillion dollars just on the corporate debt that we're talking about. By the way, next part, car payment, A credit, no one's affected. Good credit, they're making their credit payments on time. Mortgages, we're not seeing anything crazy with people with bad credit not making payments, we're still good. Car payments in subprime, they're seeing a spike in defaults where people are not making car payments. The first sign you're seeing on what's taking place. No problem. Let's go to the next one, that's the scariest one. US has $33 trillion of debt, worst it's ever been, the highest it's ever been. No problem. What does that really mean? Nobody can really figure it out. Here's what it means. All of the money that we have, about 8 trillion of it, the rates are going to recalibrate, and we're going to have to have new rates that we're going. Every single time the rates go up one point, just one point for the US government, our interest payments, Tom, increases by $320 billion. Jesus. So, imagine we raise rates by three points, just interest, it's a trillion dollars more per year. If it's 6%, $2 trillion more per year. That's that. Then last thing that I'll just kind of get you to be thinking about. Um so, anytime you want to know if the economy is back to normal, go to Vegas. If Vegas is humming, like, "Okay, we're good." And always, whenever you go to Vegas, talk to cab drivers and talk to the drivers who are doing Uber. Always ask, "How's conventions doing? How are you seeing with traffic? Are you noticing things canceling? No, this has been crazy for us the last 3 months. Everything's good." But, if they start seeing a downturn, they're typically an indicator of what's to come. Transportation industry, we consult for a lot of transportation companies at Bidady Consulting. One of my friends, I'm about to go meet with them right after this. It They're They're They're construction company does very well. We have these three clients that we have who are doing transportation. Two of them are doing 100 million, 80 million a year. Numbers are down 40 50%. One of them is doing a billion a year. Their revenue is down 70%. Oh. So, let's actually talk about transporta- Why would transportation be down 70%? Aren't Walmart, Amazon, companies ordering stuff to ship it from here to there? Why would that be lowering? What do they know that we don't know? Again, these are people who have data to insider stuff that we can sit there and say, "These are great indicators." when you're studying these things on what's going on. Does this mean recession's going to come here? Uh like I told you earlier when we were talking, my bigger fear is a reverse market crash, which Venezuela just went through, which all of a sudden the rates get lowered, and Dow and S&P goes, and Dow goes from 33, 40, 45, 50, 55, 60, just goes voom. Is that just the dollar losing its purchasing power? That's what happens. The more we're printing, like For example, a Michael Jordan um card uh years ago at BGS 9 and 1/2 sold for $78,000. I was like, "Oh my god, that's crazy." But, then all of a sudden, all of these boxes kept entering the marketplace of 1986 Fleer. Mhm. So, guys started buying these things, and they were sending more to get graded at Beckett and PSA. The more they got cards graded, that $78,000 card BGS 9 and 1/2 became a $60,000 card, $50,000 card, $40,000 card, $30,000 card. You can probably buy a BGS 9 and 1/2 today for $20,000, $25,000. Okay? So, the inventory increases the more we print money. The more you print dollars and it's more accessible, the less it's valued, the less it's worth. So, these are some things that's going on uh today. Uh so, I you know, like I You sit there and you're like, "Okay, so does this mean guys are not going to make a lot of money?" No, no. You're going to see the first trillionaire in the next 24 months cuz none of this is going to affect the guys at the top. None of it. This printing money, every time they print money, the guys at the top make more money. Every If there's anybody that should be against printing money, it's low middle-income families. If there's anybody that should be against printing money, it's them. If there's anybody that's for printing money, guess who it is? The guys at the top. Why? Because the poor and middle America can't keep money. They spend it, and when they spend it, what do they buy? A product owned by somebody in the S&P 500 or other people who have businesses. Money flows up. They can keep printing money all they want. So, when low- and middle-income families are like, "Look at these guys. All they care about is themselves. Let that bill pass for $2.7 trillion." You simply look at them and you say, "You have no clue how money works. You have no idea how money works. I Guess what? Let's print $10 trillion. The rich are okay with it. You ain't going to get the rich complaining about printing $10 trillion or $5 trillion. BlackRock's going to be like, "All right, cool. We're at 8 to $10 trillion of money in our ETFs, and we're buying up a bunch of different companies. We're buying up all these properties today. Right now it's going to be nothing, but in the next few years you have to go through us, and we dictate the market, and we're going to own it all, and what are you going to do about it?" You know, this These are These are a lot of different moving parts that is going on to me. And again, for me um the idea of middle America not being able to make the money they need to make to be able to afford a house, send their kids to school, live in a nice place, enjoy some of their dreams, maybe not the biggest ones, but some of their dreams are going to become a reality. Middle America is getting smaller and smaller and smaller every single time we print money. If you like that clip, check out the full powerful episode here, and I'll see you there.