To The Moon

In hindsight, the recession in 2008 was obvious. Consumers had gotten over-leveraged, and rising oil $WTI Crude Oil - main 2604(CLmain)$ prices eventually put too much pressure on the consumer to handle. Oil wasn’t the direct cause, but it was a sign of the peak, a push over the edge, whatever you want to call it.

The parallels to this moment don’t end there. What else peaks in early 2008?

You guessed it…jobs.

Higher gasoline prices aren’t the cause of a recession, per se, but when they spike, it can lead to economic catastrophe.

According to a BLS report on 2024 consumer spending, transportation accounts for 17.0% of the average consumer’s bills. If gasoline prices rise by 100%, that number may rise to 20% or more. And then compromises start to be made. Healthcare probably doesn’t get cut, and neither does housing, so eating out, entertainment, apparel, etc, are the likely areas we start to see a pullback.

The problem is that’s where the jobs are. And we’re already seeing signs of stress. Restaurants are struggling across the board.

Discount retailers are crushing it, and the high end is holding up well, but the middle of the retail market is struggling.

If we suck away funds from food and retail even more because of higher gasoline prices, what happens?

And rising gasoline prices won’t be a boiling frog like they were in 2007 and 2008. There’ll be a shock to the system this time around.

Remember that jobs chart above that started to flatten out in late 2007 and into 2008 before falling off a cliff when the recession started rolling? The last five years of the employment chart should be alarming.

The reason high oil prices are worth watching is that there could be a cascading impact on an economy already on unstable ground.

Consumers are already stretched, and businesses are already cutting back on hiring and spending.

Eventually, if we find some kind of leverage or unsustainable model in the economy, like credit default swaps in 2008, there’s a cascading impact that makes it harder to start businesses and invest in the future.

What if a pullback in AI spending comes at the same time?

I don’t write pieces like this to generate fear in you as an investor. In fact, we should see any pullback as an opportunity.

But I’m focusing on a few things more than ever:

• Great balance sheets that can survive a 6-12 month recession

• Businesses with positive cash flow today

• Need to have — NOT nice to have — products

If the market crashes, there will be opportunities for investors prepared to take them.

I have over 20 stocks in the Asymmetric Portfolio that I think are all buys if prices fall. Some I may buy aggressively in a downturn.

Panics and recessions are when asymmetric returns are made, but we need to be sober and rational about what’s an opportunity and what’s a falling knife.

It may soon be game-time for opportunistic investors.

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