Chips are stacked against the US economy
Don't shoot the messenger
In Plutarch's Lives: "The first messenger, that gave notice of Lucullus' coming was so far from pleasing Tigranes that, he had his head cut off for his pains; and no man dared to bring further information. Without any intelligence at all, Tigranes sat while war was already blazing around him, giving ear only to those who flattered him"
As someone who researches and studies the economy and market, I regularly uncover some things that may not considered "popular" to be covered by the mass media.
In many cases, I see things that may sound scary to some.
I remember going through a bit of a surreal experience when I had first taken the "red pill".
In the movie, The Matrix, the red pill symbolizes a choice to see the truth, even if it's uncomfortable, and to accept a painful reality.
It represents enlightenment and waking up to the real world, which is the opposite of the blue pill, which offers blissful ignorance and a continued existence within the simulated world.
Some of the first reactions I had were:
How come no one tells me about this?
How come this isn't covered by the mass media?
Once I had taken the "red pill", I realized that I'd prefer to know the truth, even though it may feel uncomfortable at first.
Because, I fundamentally believe, I much rather be informed ahead of time than get caught off guard.
Being prepared feels much better than getting the rug pulled from under me.
For the record, I don't find joy delivering bad news.
I much rather be sharing sunshines and rainbows with my dear readers than being the bearer of bad news.
However, as I have promised you before, I write these newsletters with a clear intention in mind:
By sharing the information I would have wanted if our role were reversed.
It is with that very intention, I feel the need to stay true and from time to time, sharing the bad news as you have come to expect that from me.
As a messenger, I ask for you to "spare my head" and allow me to continue sharing things you may not hear from the mainstream media.
The US economy is heading towards a recession
If you have attended any of my previous Economy & Market prediction calls in the past, you know how much I stress about the importance of studying the US economy as an investor, especially as someone like myself who invests in Alberta real estate.
The Canadian economy is deeply connected to the US.
What happens in the US will show up in Canada.
Today, I’d like to give you 10 reasons I believe the US economy is heading towards a recession.
1. Tariff increase costs resulting in slowing consumptions, reducing demand
Amazon had previously planned to display tariffs to show the price increase.
Walmart is the latest retailer to announce price increases are on its way.
Walmart's tariff price hikes are likely weeks away
2. Uncertain Tariff policies affecting supply chains resulting in increasing cost of manufacturing
So far, I have heard from anecdotal stories that oversee manufacturers are absorbing some increase of the tariffs by lowering their price.
That may be temporary.
I believe this is COVID all over again.
Most manufacturers run on a tight profit margin.
The rush of orders could push up higher prices while cancelling orders and later re-ordering pushes up costs on the manufacturers to manage the volatility.
Even if the oversee manufacturers aren't increasing their price to compensate the volatile policy change, we can expect an increase in costs for the local wholesalers and retailers as they increase their costs of storing additional inventories to manage the frontloading the inventories.
Remember toilet paper scare in 2020?
Toilet paper prices are way up
3. Uncertain Tariff policies affecting supply chains resulting in increasing cost of shipping
Here’s an excerpt from How Tariff Uncertainty is Driving Freight Rates and Fleet Costs
Recent data shows shippers frontloaded record imports in late 2024 to avoid tariffs, with September 2024 volumes surpassing 2021-2022 growth, tripling container rates in 2021 due to demand surges Freight markets brace for impact of proposed tariffs. This frontloading caused temporary freight rate spikes, but post-tariff implementation, demand may slow, with overcapacity expected to leave the market, potentially lowering rates
4. Consumers are becoming more pessimistic about the future
The US is largely a consumer driven economy. As long as the consumers keep spending, the economy keeps on humming.
The drop in confidence may translate to pulling back and lower spending.
Consumers' expectations for the future are at a 13-year low
https://www.conference-board.org/topics/consumer-confidence
5. Record high new construction inventory
The new construction inventory in the US is currently sitting at 8.3 months.
Meaning, it takes 8.3 months to sell all the new constructions on the market.
This level of inventory is close to the level of inventory right before the 2008 Great Recession.
One thing to keep in mind here, the US is still in a housing shortage in some areas, just because the inventory is high, it doesn't mean the housing market will crash.
https://fred.stlouisfed.org/series/MSACSR
6. High level of unsold inventory leads to decline in new housing starts
What I do believe matters more, is the decline in new housing starts.
Home builders won't be building more homes unless their existing products are selling well.
This will have a bigger impact to the economy as home builders start to lay off workers.
Housing Starts Decline Amid Economic Uncertainty
7. US scaring away many international travellers
The stories of some international travellers getting detained arriving at the US airports has resulted many countries to issue travel advisories warning their citizens of traveling to the US.
Combining this with the tariff, many international travellers have changed their travel plans to the US this year.
Tourism is one of the best industries, because it's importing foreign money and keeping the money locally.
No need to manufacture any goods, or take the risk to develop a new technology.
Tourists were happy to pay to visit Grand Canyon, Las Vegas, NYC, etc.
The World Travel & Tourism Council (WTTC), the global body representing the Travel & Tourism private sector, today announced its latest Economic Impact Research which found that the U.S. is on track to lose a staggering $12.5BN in international visitor spending this year.
Notably, international visitor spending to the U.S. is projected to fall to just under $169BN this year, down from $181BN in 2024.
This significant shortfall represents a 22.5% decline compared to the previous peak.
U.S Economy Set To Lose $12.5BN In International Traveler Spend this year
https://wttc.org/news/us-economy-set-to-lose-12-5bn-in-international-traveler-spend-this-year
8. Student loan payment restarting this summer
I wrote about how student loan payment restarting this summer could cause a recession.
https://www.whyalbertanow.ca/p/how-to-invest-using-critical-thinking
9. Retail investors buying stocks like no tomorrow
Yet, while bad news continues to pile on, many investors seem to think there's more upside ahead.
We've seen many retail investors buying stocks like there's no tomorrow.
While many seasoned investors such as Warren Buffett is building up a $300 billion dollars war chest at a magnitude not seen in years.
There's no reason Warren Buffett is sitting that much money in cash because it's fun.
Jamie Dimon, CEO at JPMorgan, the largest bank in the US recently said:
“My own view is people feel pretty good because you haven’t seen effective tariffs,” Dimon said. “The market came down 10%, [it’s] back up 10%. That’s an extraordinary amount of complacency.”
“I think earnings estimates will come down, which means PE will come down,” Dimon said, referring to the price to earnings ratio tracked closely by stock market analysts.
The odds of stagflation, “which is basically a recession with inflation,” are roughly double what the market thinks, Dimon added.
JPMorgan CEO Jamie Dimon says markets are too complacent on tariffs, expects S&P 500 earnings growth to collapse
https://www.cnbc.com/2025/05/19/trump-tariffs-jpmorgan-chase-ceo-jamie-dimon.html
10. Decline wealth effect reduce spending
Saving this one for the last one.
Over the past few years, Americans were able to spend, spend, spend using billions handed out from the US government during COVID.
Once those were gone, Americans kept on spending.
Real estate reaching all time high.
Bitcoin and some cryptos reaching all time high.
Stocks reaching all time high.
As the stock market turns the other direction as Jamie Dimon suggested, I expect Americans to pull back on their spending due to the decline in their perceived wealth.
The decline in spending will pull the stock market down further.
A downward spiral until the market finds its bottom.
You're still with me?
Not to scare you, as you can see, I've shared the data and charts to show you what's going on "under the hood".
This is what taking the "red pill" means to me.
Seeing things as they are.
While looking for ways to protect myself in the coming downturn.
I haven't openly shared about what I'm doing to prepare for the coming downturn
If this is something of interest to you, reply to this email and let me know.
If there's enough interests, I may consider hosting a webinar on this topic.
If you like my work, I invite you to share it with others.
Eric Chang
Edmonton, Alberta
May 20, 2025
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