Video Update: The Fed is Lying About the Upcoming Recession

Things aren’t adding up as we crunch the numbers and sort through the data at Fortress Portfolio.

Although the Fed’s official narrative is that there will no longer be a recession, all the numbers say otherwise.

And numbers don’t lie.

Today, Chief Analyst Adam Galas walks you through all the research, and how each piece of the Fed’s official narrative falls apart when confronted with the facts.

If you follow the facts, Fortress Portfolio will protect and grow your wealth in the coming recession.

Click below to watch the video or scroll down to read the transcript.

Happy SWAN (sleep well at night) investing,

Brad Thomas Editor, Fortress Portfolio

Welcome Fortress Portfolio members to another special edition video.

Today we’re talking about why the Fed is lying to you about the coming recession.

Now, the Fed’s official line is that the Fed does not expect a recession and neither do its 400 Ph.D. economists.

Goldman Sachs agrees and recently downgraded its estimate of recession risk for the next year… down to 15%.

Now, to see why, just take a look at this forecast from the Atlanta Fed for GDP.

(Source: Atlanta Federal Reserve)

As you can see, it’s predicting an impressive 5% GDP growth – and that’s inflation adjusted growth.

Now it is, of course, much higher than the blue-chip economists consensus of 3% – though it has been marching steadily higher.

And the New York Fed estimates about 2%, which is the expected long term growth rate of the U.S. economy.

Now, I’m sure some of you might be wondering – what about the 5.25% worth of rate hikes?

What about the Fed’s reverse money printing quantitative tightening (which actually pushes it up to about 7% where the rate hikes)?

What about the Treasury bond sales sucking $1.5 trillion out of the economy?

What about all the things you’ve been warning me about? Isn’t that supposed to slow growth?

Well, as you can see below, all those factors have been slowing growth significantly. The growth has now slowed to less than 1%.

(Source: The Daily Shot)

But at the moment, what the Fed has been pointing out, is the fact that it looks like the economy is starting to accelerate.

So, you might be wondering, how is that possible?

When the Fed is jacking up rates as much as 7% (including quantitative tightening)…

And the Treasury is sucking money out of the economy…

And things such as consumer debt and student loan payments restarting…

What is driving this economy?

Well, the answer is partially related to a bit of pandemic stimulus still in the economy.

Remember, that was $9 trillion worth of money printing and stimulus. So that’s quite a bit.

But also it has to do with credit cards.

Now, notice below in the chart how credit cards fell off a cliff while the government was handing out checks.

(Source: YCharts)

And then as inflation started, people started putting money on credit cards.

And then by the start of the year, we were above the trend… meaning we’re now taking on a lot more credit card debt.

And now we’re facing the highest credit card rates in history, 21% and climbing.

And the longer the Fed keeps rates high, the higher those credit card rates are going to climb.

And the Fed has said it plans to keep sucking $90 billion out of the economy via reverse money printing, even if it starts cutting rates.

It’s going to do that until mid 2025.

Meanwhile, every bond that gets sold is sucking money out of the economy so that the government can borrow it.

As we explained a few weeks ago, $1.5 trillion will be sucked out by the end of the year… and next year, the Congressional Budget Office estimates that if we don’t get a recession… 1.5% growth is what Congressional Budget Office estimates.

But we’d still be looking at a $1.7 trillion deficit. That means the government’s going to have to borrow $1.7 trillion on top of all the refinancing it’s going to have to do anyway.

So that’s another $1.7 trillion sucked out of the economy.

And if we do get a recession, states are going to need help from the government in terms of unemployment checks… in which case the government is going to be spending more.

But as of right now of course, the Fed is planning one more rate hike and then will hold rates for one year at 5.5% percent.

So as you can see below, the Fed always hikes until something breaks. 9 of the last 13 recessions were caused by the Fed.

(Source: The Daily Shot)

The others were caused by the pandemic, 9/11, and various oil shocks.

Now, Deutsche Bank actually put out a recent report that’s very interesting.

They studied 34 previous U.S. recessions and then used advanced statistical modeling to look at what combination of various variables create warning flags.

They say that according to their best estimates all four of the most accurate red warning flags are waving right now – a recession is coming.

And as you can see below from the Conference Board, it shows we’ve had 17 consecutive months of leading indicators falling.

(Source: The Daily Shot)

So you might be wondering – well, how often has that happened before?

It has happened just once before.

As you can see below, it occurred just two years before the Great Recession.

(Source: The Daily Shot)

Now, that doesn’t actually mean we’re headed for another financial crisis.

But we are headed for a bit of pain.

And part of that relates to long term interest rates as you can see below.

(Source: The Daily Shot)

In fact, in the last three months, we just had long term rates shoot up by almost 1%, the fastest rate rise in over 20 years.

Now, the reason this matters is because long term rates determine corporate borrowing costs.

And, corporate borrowing costs have soared between 8% and 14% in the last three months, depending on the credit rating.

So company borrowing costs are soaring… and some of them, are soaring four or five times higher than the pandemic lows….

So you had some of these companies borrowing at negative rates adjusted for inflation, and now rates are 4 to 5 times higher.

So you can imagine why $2.5 trillion dollars in corporate bonds maturing through 2025… could be a major problem.

So what about the timing of this recession?

Remember, the Fed says, “Oh, there’s not going to be a recession. It’s gonna be a soft landing.”

Now, mind you, the Fed has never done a soft landing when inflation started up above 5%. It would be unprecedented.

Now, it’s not impossible.

We did do $9 trillion in money printing and stimulus during the pandemic – but that’s why we have this inflation and why the interest rates are soaring.

And the Fed says it’s going to have to keep rates at 5.5% pretty much all next year.

Now, if we look at the bond market, we can see the bond market says that the recession should begin around June or July or September of next year.

(Source: CME Fed Probabilities from CME Group)

And if you add those percentages up in addition to November of 2024, there’s a 93% probability of a recession starting next year.

Now, as far as economists go, 43% in a recent survey think that the recession is in the first quarter of 2025.

(Source: The Daily Shot)

Remember, the stimulus and money printing that we got basically flooded the economy with cash.

So now the government and the Fed have been sucking money out of the economy. But it’s just so much money to suck out.

And remember that 85% of the money supply is created by banks lending.

And as long as people have jobs, banks are willing to lend. This is why consumer spending has held up.

So the bottom line is, a recession still likely – but just pushed back into 2024… possibly into even 2025.

Now, what about Fortress?

The good news is, as the song says, “Don’t worry, be happy.” And don’t forget to sleep well at night.

Last week I told you about our 3,000 points Safety & Quality model and the 1,000 metric S&P long term risk management model data that we plug into our model as well.

I told you about our data sources, FactSet, Bloomberg, Morningstar, Google and more… all sending us world class data and analysis… and then our algorithms start crunching away.

After eight years, 20,000 man hours, and $1,000,000 in R&D (research and development), this is how we know that our 7.5% yielding portfolio is safe.

That’s right. 7.5% yield if you buy it today. And we’ve seen 8% dividend growth over the last five years compared to 5% for the S&P 500.

Now, of course, as we just saw in the last three months… interest rates are shooting through the roof.

Now, it’s not likely to continue at those rates… we’re probably close to the peak in rates.

But we just don’t know. In a worst-case scenario, a stagflation hell, rates could go a lot higher.

And as we’ve seen with certain companies, even dividend aristocrats like Walgreens and 3M Company, the wheels have started to fall off the bus for companies with lots of debt as rates soar.

But this is where our model comes in. We are the watchers on the wall protecting you from the night, which is full of terrors… or in this case, rising rates and potential dividend cuts.

The point is, we are watching the fundamentals. We will reach out to you with special reports if something breaks.

Right now, nothing is breaking but of course. But, if that changes, we will let you know.

We have an investing universe of 504 companies. And that includes every Dividend Aristocrat, every Dividend King with a 50+ year streak, every dividend champion… any company with a 25-year streak or longer, and what we call “ultra sleep well at night” companies (the world’s best companies).

So we know exactly what the best opportunities are. And we bring them to you in our monthly issues, and from time to time announce them in these video updates.

And this is the value of Fortress.

It’s why I love running this service. And I hope you love being a member of this service.

After I had to medically retire from the Army Medical Service Corps, I needed to find a way to serve my country in another capacity.

And the way I do it is by helping you reach your financial goals for retirement in safety and splendor… ensuring you float to your dreams on an ocean of safe and growing dividends.

No matter what the economy, the stock market, the Fed, or the clowns in D.C. are doing.

I hope you enjoyed this update and will join us next week when we talk about some more important things happening with the economy, the stock market, and your Fortress Portfolio.

As a reminder, please send us your questions and feedback so I can respond to them in these videos and our monthly issues.

Just remember, I can’t provide personalized investment advice.

Until next week, this is Adam Galas, wishing you and your family safe investing and a healthy and relaxing weekend.