There are many ways to look at the economy. One view is to look at macroeconomics, with big events that can drive markets. By that standard, it’s clear that the economy has a lot of leverage in the system.

With the Federal Reserve raising interest rates, that could cause a few things to happen. Most hope that it will mean the Fed is essentially capped at how high rates can go. The US government, financing a $30 trillion national debt, would prefer that.

But for many, printing more money isn’t an option. For them, that means deleveraging. That simply means paying down debt and finding a better balance of money and credit available.

The deleveraging process means a slowdown in investment. That will mean lower economic returns for longer.

A deleveraging process can also cause liquidity issues. When investors pull back and work to deleverage, they are less willing to provide capital to investment ideas that may require it. That can cause companies to have operational issues from lack of working capital.

The issue may not result from higher interest rates. Rather, it may from the risk premium that investors are willing to pay for. That’s been the case in Japan, where interest rates have been near zero for decades.

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The Federal Reserve appears to be making some bad decisions right now. As a result of its dazed and confused behavior, markets will likely be chaotic for months to come. That has a huge impact for everyday Americans.

Based on the latest jobs numbers, things don’t look so bad. The economy added 372,000 jobs in June. That’s a good sign that the economy is growing and producing jobs. But that’s a process the Fed wants to end.

That’s because inflation can’t come down without an economic slowdown. And that means higher unemployment, not lower unemployment.

In other words, the Fed may not be tightening monetary policy enough.

That said, the jobs report does suggest that much of the increase has come from secondary jobs. And that total hours has started to decline. That also may be an early sign that the job market is about to slow down significantly. Significantly, that’s showing up in rising unemployment claims.

Another factor is a declining labor force participation rate. It’s starting to tick down. That didn’t happen in 2020, during the rapid Covid selloff. That’s why the world continues to face a labor shortage right now, which may limit how high unemployment could rise.

Bringing down the economy without job losses and higher unemployment is impossible. A fully employed economy has strong demand, and that could continue to add to inflationary pressure for longer than expected.

To see the full analysis and data behind the Fed’s confusion, click here.

Most of the stock market’s extreme valuation and speculative names have been wiped out so far this year. However, there’s still a lot of froth in the markets. That could result in the stock market taking years to recover.

That goes against the grain of much of traditional finance. Typically, bull markets are measured in years. Bear markets are measured in months. But with the extreme activity on the upside, the unwinding could take longer.

One instance of this phenomenon can be seen with Tesla Motors (TSLA). Even before the markets hit their post-pandemic extreme, the electric carmaker was a top stock.

And it managed to see its market cap surge. At its height, it had a value of more than the next top 10 automakers combined. That’s even as the company produced just a fraction of the total cars in the automotive industry.

Where markets can go from here remains unknown. Some are starting to price in the Federal Reserve losing its nerve and ending its interest rate hikes earlier than expected. There could even be rate cuts in the next year depending on economic conditions.

Additionally, energy prices can play a wild card role as well. The jump in oil prices at the start of the year sucked out considerable capital that could have gone elsewhere.

To listen to the full interview to get a sense of how this latest bear market could play out, click here.

With the economy teetering into a recession, most investors haven’t fully realized the severity of the stock market’s recent decline. The first six months of 2022 marked the worst six-month period for a 60/40 portfolio in history.

While all the attention has been on the declining stock market, bonds have been selling off at a rapid rate. Typically, stocks and bonds counteract each other. That helps smooth out overall investment volatility.

However, the bond market’s drop and the sharp rise in interest rates has had a profound impact.

Is the worst over yet? Many see more pain ahead. And the latest data indicates that the US is likely in a recession. That will be confirmed as soon as GDP data for the second quarter comes in.

If the economy is slowing, investors may be in for further downside. That’s because companies will likely report lower earnings. And analysts will downgrade stocks, adding to the current drop.

The slowing economy has at least ended the animal spirits that have driven markets since the start of the pandemic. The easy money and stimulus checks that led to large bull runs and investments in NFTs and the like has now reversed.

Now comes a retrenching as investors cope with inflation in goods and services, not asset prices.

To listen to the full podcast, click here.