At this year’s Strategic Investment Conference, my good friend Mark Yusko poured cold water on whatever bullishly warm feelings the most optimistic folks may have clung to.
You might think someone who manages real money would have a more enlightened view than those bearish economists. Mark, however, was hardly bullish. He listed ten plausible scenarios that could send markets down to the basement.
Here I’ll focus on his “Surprise #6: Déjà vu, Welcome to #2000.2.0.” That’s right: Mark says it’s year 2000 all over again. That was when the tech bubble popped and sent us to an ugly bear market and recession.
Here are four major parallels he pointed out that make it clear we are heading for another ugly recession—or are already in one without realizing it.
Parallel #1: The Fed’s urge to raise rates
One of the major catalysts for the recession was the Fed’s move to withdraw the liquidity it had pumped into the system for those who expected a payment system breakdown and thus hoarded physical cash.
Alan Greenspan took the fed funds rate from 5.4% on Y2K day to 6.5% in October 2000.
(Younger readers will do a double-take on those numbers. Yes, borrowing overnight money once cost more than 6%. Furthermore, the Fed is perfectly capable of hiking rates 100 basis points or more in less than a year. Or at least it used to be.)
John Mauldin is editor of Mauldin Economics' Outside The Box.