Are We On The Brink Of Another Financial Crisis Answer Will Surprise You

Are we on the brink of another financial crisis? This sounds like hyperbole, but when you actually look at the data, you see that it's a very legitimate question that all investors, including you guys watching this video right now, should be asking yourself. I'm gonna go over those data and give you my opinion in three simple, fast steps. Step number one, let's go over the GFC 2.0. I'm gonna show you what I'm referring to. We're gonna start off with a chart going from today's date, but we kind of stop in May. I'll tell you why in just a moment. We go all the way back to October of last year. We go from 2%, 5%. What is this? CPI or CPY, if you will. I understand that it's not a very good measurement of inflation, but we use it as a proxy because this is what the market is gonna be trading off of. So pretty basic chart here, right? This is one of the easiest charts I've ever drawn. But what I really want you to focus on is just this year. So from January right to the most recent data here, call it in May. So the CPI has gone up by 1.9%, roughly, from about 2.3 up to 4.2. And you're saying to yourself, okay, George, well, it's obvious why. We had this big issue in the Middle East. Oil prices, energy prices spiked because they closed the Straits of Hormuz and that fed directly into that CPI measurement. But why are you saying this is similar to the GFC? Because we all know how the GFC played out, or at least we all know how the GFC ended. And that was in a deflationary collapse of asset prices that actually led to disinflation and outright deflation, as measured by the CPI, in 2009. So I don't understand why you're even bringing up this chart because it seems like this is the opposite of what happened in 2008. Ah, you would be wrong because what you're doing is you're just focusing on the end of the movie. You're not focusing, or you're not paying attention to what happened at the beginning of the movie and the middle of the movie. And that makes all the difference in the world. Let me show you what I'm referring to. Editor, go ahead and throw up a chart of what the CPI did from roughly January of 2008, or maybe March of 2008, all the way to July of 2008. It went up by, drum roll please, right around 1.6%. So in the last few months, we have had the CPI actually go up to a greater degree than we saw in 2008, although in 2008, the outright number was higher, peaking out at 5.6 in July. But that's not the only similarity. We know that oil prices have spiked recently, but what did they do in 2008 between let's just say January and the middle of the year? Oh, they went up by 55%. And more recently, oil has come down, but from its peak right around 120 in 2026, it went up by roughly 65%. But let's look at interest rates. And when I'm using interest rates, we use the two-year treasury as a proxy. Back in 2008 from March to call it July, the two-year treasury went up by about 100 basis points. So what has it done since, I don't know, March of 2026? It's gone up by roughly 100 basis points. But remember back during the GFC, it was all about subprime, subprime, subprime. And this was subprime mortgages. But at the end of the day, what is a subprime mortgage? Well, it's just bad debt that was issued. Well, what do we have today? We definitely have subprime, but it's not in the form of mortgages. It's just in the form of private credit. And this is really the key, which we're gonna focus more on in step number three. So regardless of whether you have bad loans over here that blow up that cause a financial crisis or bad loans over here that blow up that cause a financial crisis, the net result is still the same. But you guys know from watching my videos that whether we're talking about the economy or asset prices, almost everything revolves around the labor market. And we just got big news in the labor market that would suggest the probabilities of a financial crisis being imminent have increased tremendously. We're gonna talk about that right now. And at the end of the video, I'm gonna give you my opinion as to whether or not I think we are on the brink of a GFC 2.0. And I think the answer will shock you. Step number two, the BLS, the Bureau of Labor Statistics, just came out with their most recent non-farm payroll. In other words, the jobs data. Let's check out what happened. And actually, what's most important isn't necessarily the headline number, but as most of you can guess, it's all about the revisions. And before we scroll down, I wanna highlight the fact the expectations from the market were for 115,000, which in and of itself isn't a very good number when you consider that we are in an economy of call it 350 million people. But the actual headline number was, drum roll please, 57,000, way below expectations. Now what's unusual is the unemployment rate went down to 4.2%, but that's just because the labor force participation went down as well. It wasn't because the job market is improving. And when we continue to scratch beneath the surface and actually look at the facts and not what you're hearing on Bloomberg or CNBC, it's obvious the labor market is extremely unhealthy. As an example, going back to the BLS report, they say 4.7 million Americans right now are working part-time when they would prefer to work full-time, but they just can't find a decent full-time job. That's 4.7 million Americans. But it gets worse. The number of people not in the labor force who currently want a job is at six million people. And I love this next sentence. These individuals were not counted as unemployed because they were not actively looking for work in the past four weeks. So remember when I told you the unemployment rate was 4.2%? Just go ahead and disregard that number. It's completely irrelevant when you're trying to figure out the health of the actual labor market itself because there's so many people that they omit from that calculation. And look at this next number, very important. In fact, before we do, let's think back to the labor markets in the past two years, and they've all been propped up, to the degree to which they have, by leisure and hospitality. But now we see that leisure and hospitality jobs are actually on the decline. And I think this is very important because it shows us a lot about what's happening with Americans' disposable income. And as disposable income goes, usually so goes aggregate demand. But the negative number here for leisure and hospitality was negative 61,000. But let's get into the revisions, guys. For April, it was revised down by 31,000. And for May, it was revised down 43,000. So the two previous reports to the most recent one that we've been going over, there was 74,000 fewer jobs than were actually reported. So that begs the question, if we had a huge miss, where the expectations were for 115,000 for this report, and we only got 57,000, what is this going to be revised down to in the next report? Could it be revised down to a negative number? Very possibly. But why is the labor market so important? I mean, it's obvious why it's important for the economy. What about asset prices? Well, you guys know from watching my videos and my good buddy, Mike Green, it's all about passive flows when we're talking about the S&P 500, or the stock market, we'll say. So those passive flows are going directly from people's paychecks. And on net balance over the last 25 years, it's obviously been a positive. And this is why, one of the main reasons, you've seen the stock market go higher and higher and higher and higher. But if those positive net inflows turn into a net negative outflow due to the loss of jobs or the labor market deteriorating, then that tailwind for the stock market will become a headwind. And if we had 25 years of it going higher and higher and higher, we could possibly have, maybe not 25 years, but we could at least get, call it six months, of the stock market going straight down. Which, as you guys know, would dramatically impact the economy, make it much, much worse, because today's economy is completely dependent on asset prices. Said another way, if we saw the stock market decline like we did, let's just say in 2000, when the S&P went down by about 45%, the NASDAQ went down by 80%. If we had something like that today, or heaven forbid, the stock market going down by 50%, like it did in the GFC, I think the impact on the actual economy would be far, far greater than it was back then. Step number three. So do I think we are on the brink of a GFC 2.0? To answer that question, I want to go over something called a credit cycle. Now, let's look at this chart again, a very simple one here. And we just see it going up, and then rolling over, coming down, and then just going through this wave pattern. And these are the stages of a credit cycle. So we've got the early stage, mid stage, late stage, and then the R word, the recession. That's when it hits. So what we have to do is look at the characteristics of each one of these stages and apply it to what we're seeing today, right now as we speak. And for the sake of time, we're gonna go right to where I think we are, late stage. And here's why I say that. Editor, go ahead and throw up these seven characteristics of a credit cycle. That would be defaults, margins, capex, dividends, buybacks, M&A, and cash position. So let's go right over to this green highlighted section where it says late cycle. And we look at the defaults are usually bottoming out. So if we look at a chart of, let's just say corporate credit spreads, we see that they're extremely low right now. So this would make sense. Profit margins have plateaued. If we look at a chart of the profit margins of the S&P 500, we see that they have plateaued. And capex, and this is obviously a complete no-brainer, late stage cycle, you see it accelerating. Well, what have we seen recently? We haven't seen capex accelerate. We've seen it go absolutely parabolic when we're looking at it through the lens of all of this AI capex spend that you hear about in the news every single day. So you can check that one off the list as well. The next two, dividend payments and buybacks, these are typically on the rise in late stage. And we, once again, see that happening right now as we speak. Now, the M&A is very interesting because we all know the capex is completely off the charts. But the M&A, when you look at the third characteristic, we see high valuations. Well, some would argue, I think justifiably, that the valuations we are seeing right now, SpaceX, are not just high, no pun intended, they're astronomical. Which brings me to my third, which is the cash position. And we see this in the news as well. All of this capex spend was coming from cash, but now the big hyperscalers and MagSeven aren't able to spend this capex through positive free cashflow because there ain't no more positive free cashflow because they spent so much on these data centers. So now, what we see is them having to go out to the market and borrow the money to continue this mind-boggling capex spend. And what some entities have done, like Meta and Google, is they're not only borrowing the money, but they're selling shares, they're selling equity, they're diluting shareholders because those cash taps have run dry. And if you weren't keeping your own scorecard, we'll review right now to make sure we're all on the same page. So when you look at the late stage of a credit cycle and you go through these characteristics and ask, what do we see today? You can go ahead and check every single one of them off the list. So there is nothing that happens in late stage credit cycles that we are not seeing today. That's the punchline. That's the main takeaway. But does that mean I think a GFC 2.0 is imminent? And the answer is no. Why do I say that? Because it's very rare to have an identical type of crisis within a 20 year period. So do I think we will likely see an economic contraction? The answer is unequivocally yes. Do I think that will lead to a quote unquote recession as defined by the NBER? The answer is yes. That would be my base case. In other words, do I think this credit cycle will play out like pretty much every single other credit cycle that we have seen going back literally hundreds of years? The answer is yes. But do I think this will look exactly like the GFC? The answer is no. Just like the dot-com bust or end of that credit cycle looked different than the end of the credit cycle in 2008, I think this 2026 end will look different than it did in those prior two cycles. But just because the cycles don't end in the exact same way, it doesn't necessarily mean that those cycles have disappeared. And it definitely doesn't mean that the cycles are any less powerful today than they have been in the past. Now I know a lot of you right about now are saying, okay George, I get what you're saying here, but what do I do about it? How do I set up my portfolio to not only survive, but hopefully thrive whatever we see in the next stage of this cycle? Well, I've got good news for you. I've got a private investing community that I set up with my good friends, Brent Johnson, Chris McIntosh, and Patrick Srezna, just to name a few, to help investors just like you navigate these difficult times. It's called Rebel Capitals Pro. If you want more information, you can click the link in the description of this video.