Just here to Post my Annual Stock market is about to get completely Destroyed post.

That's right.

I’m back again with my annual/bi-annual doom and gloom post about why the stock market is about to get absolutely clobbered. Yes, yes – I’m a glutton for punishment. This will be a long post. Probably an incredibly long post.  

Admittedly – I’ve been wrong on this thesis for 3ish years… And furthermore, my ‘fun’, day trading account – which hasn’t been much fun of late -- has dramatically underperformed as a result. Underperformed being an understatement… A large one.

Have you ever seen a dog scoot their itchy butthole across the living room floor? Let’s just say I’d prefer doing that, naked, across broken glass – to taking the absolute battering I’ve taken during that time frame. And therefore I won’t be offended if you take what I say with a grain of salt. But I digress.

While much of the reasoning behind my earlier thesis was correct, I severely underestimated the Fed/Treasury’s willingness – directly or by proxies – to prevent a disorderly market. This is entirely a symptom of the post 2007 GFC bailouts – and I suppose there is a reasonable chance they will stop at no cost to keep this house of cards standing – in which case the rest of this post may be irrelevant… (I also underestimated how heavy Cap-ex spending on AI might be able to kick the can down the road).

And as the wise John Maynard Kenes said – The market can stay irrational longer than you can stay solvent. But fortunately, for now, I’m still solvent, and I think we are likely within +/- 90 days of when a massive correction begins.

While I will run through a ton of things I see happening on a Macro level, I think it makes sense to start with the most likely catalyst – Oil/Energy prices.

In a single sentence, we have never seen an energy crisis close to where we are today.

Those aren’t my words. Faith Birol – head of the Internation Energy Agency (you know – the central GLOBAL authority on Oil/Energy analysis and Policy) – stated – verbatim – “This is indeed the biggest crisis in history.” He also stated – a full month ago – “The prices are, in my view, they do not reflect the current situation we are in.” “But I think soon they will converge, which is an extremely sensitive issue for the global economy.” A month ago, oil prices were essentially exactly where they are today… Except we are a month further into the conflict, with LESS chance of a resolution, and +/- 300 million barrels short by measure of reserves from where we were when he made that statement. If you don’t trust his words – look at those of Darren woods, CEO of Exxon… “The market has not yet felt the impact of the supply disruption.” The world’s foremost authorities on energy are stating, emphatically, we are staring at a massive problem.

Okay – Gas is expensive, and will likely get worse… Who cares?

Oil prices, unfortunately, reverberate through every piece of the economy. Oil runs all. Oil powers vehicles, and airplanes and ships and a majority of all machinery used in industry. When oil prices rise, the cost of producing and moving goods increases immediately. The cost of moving people increases immediately. Shipping, commuting, travel and labor expenses all go up instantaneously.

But Oil isn’t just fuel… It’s also a raw material. I think this is best illustrated by a hypothetical story I read several years back about Greta Thunberg waking up in a world with no Petroleum/Petroleum based products…

One crisp winter morning in Sweden, a cute little girl named Greta woke up to a perfect world, one where there were no petroleum products ruining the earth. She tossed aside her cotton sheet and wool blanket and stepped out onto a dirt floor covered with willow bark that had been pulverized with rocks.

“What’s this?” she asked.

“Pulverized willow bark,” replied her fairy godmother.

“What happened to the carpet?” she asked.

“The carpet was nylon, which is made from butadiene and hydrogen cyanide, both made from petroleum,” came the response.

Greta smiled, acknowledging that adjustments are necessary to save the planet, and moved to the sink to brush her teeth where instead of a toothbrush, she found a willow, mangled on one end to expose wood fibre bristles.

“Your old toothbrush?” noted her godmother, “Also nylon.”

“Where’s the water?” asked Greta.

“Down the road in the canal,” replied her godmother. Just make sure you avoid water with cholera in it.”

“Why’s there no running water?” Greta asked, becoming a little peevish.

“Well,” said her godmother, who happened to teach engineering at MIT, “Where do we begin?”

There followed a long monologue about how sink valves need elastomer seals and how copper pipes contain copper, which has to be mined and how it’s impossible to make all-electric earth-moving equipment with no gear lubrication or tires and how ore has to be smelted to a make metal, and that’s tough to do with only electricity as a source of heat, and even if you use only electricity, the wires need insulation, which is petroleum-based, and though most of Sweden’s energy is produced in an environmentally friendly way because of hydro and nuclear, if you do a mass and energy balance around the whole system, you still need lots of petroleum products like lubricants and nylon and rubber for tires and asphalt for filling potholes and wax and iPhone plastic and elastic to hold your underwear up while operating a copper smelting furnace and . . .

“What’s for breakfast?” interjected Greta, whose head was hurting.

"Fresh, range-fed chicken eggs,” replied her godmother. “Raw.”

“How so, raw?” inquired Greta.

“Well, . . .” And once again, Greta was told about the need for petroleum products like transformer oil and scores of petroleum products essential for producing metals for frying pans and in the end was educated about how you can’t have a petroleum-free world and then cook eggs. Unless you rip your front fence up and start a fire and carefully cook your egg in an orange peel like you do in Boy Scouts. Not that you can find oranges in Sweden anymore.

“But I want poached eggs like my Aunt Tilda makes,” lamented Greta.

“Tilda died this morning,” the godmother explained. “Bacterial pneumonia.”

“What?!” interjected Greta. “No one dies of bacterial pneumonia! We have penicillin.”

“Not anymore,” explained godmother “The production of penicillin requires chemical extraction using isobutyl acetate, which, if you know your organic chemistry, is petroleum-based. Lots of people are dying, which is problematic because there’s not any easy way of disposing of the bodies since backhoes need hydraulic oil and crematoriums can’t really burn many bodies using Swedish fences and furniture as fuel, which are rapidly disappearing - being used on the black market for roasting eggs and staying warm.”

This represents only a fraction of Greta’s day, a day without microphones to exclaim into and a day without much food, and a day without carbon-fibre boats to sail in, but a day that will save the planet.

While the story is silly – and undoubtedly will piss a few readers off – the point hits…

Gas, and Petroleum products, are a part of EVERYTHING we do and everything we use.

While the Strait of Hormuz remains closed, 20% of the world’s oil is offline… And while allowing Russian exports, increased Saudi Production, and releases from Strategic Petroleum Reserves can help offset the supply/demand balance – They are coming nowhere near offsetting the supply disruption entirely… And furthermore, they are a temporary band-aid.

As long as this imbalance exists, there will be upward pressure on oil prices. Simply stated, everything gets more expensive. Yesterday’s CPI print was TERRIBLE. Inflation came in at 3.8% YoY, the highest we’ve seen since COVID. Today’s PPI print was worse – coming in at 6.0% YoY. Increased oil prices are already hitting everything in the economy. When people spend more money on gas/energy, they have less disposable income. Consumer spending is one of the largest drivers of the economy. Less disposable income means bad things for everything from retail to restaurants to car sales.

High energy price related inflation also has another really troublesome effect – it keeps central banks from being able to cut interest rates. Though Trump’s newest pick to head the fed, Kevin Warsh, officially becomes chairmain on Friday – and he has been vocal about cutting rates -- his hands will undoubtedly be tied. Warsh cannot cut interest rates unilaterally… it takes a majority vote by the FOMC… and even if he could, there is no way a rate cut in the current environment can possibly be justified. The fed has a dual mandate – low unemployment, and steady, controlled inflation at around 2%. Inflation has remained far above its long term goal since the money printing days during COVID, and unemployment remains historically low. With a print yesterday at 3.8% cutting rates again guarantees the stagflation we saw during the 70’s/early 80’s (which we will likely see regardless – it would just make it worse). Economists are now expecting no cuts in 2026, and likely none in 2027. Some are expecting rate hikes. These aren’t fringe economists… we are talking the experts at BOA and Chase.

And while more expensive goods, mortgage payments (for those that can afford to still buy new homes), and gasoline are certainly the immediate effect here at home, much of the world faces far more severe realities.

In the US, we are at least semi-insulated by the fact that we:
1. Produce massive amounts of oil domestically (we are the world’s largest producer of oil.

2. Have a domestic Strategic Petroleum Reserve that is far greater than what most countries have.

The US only gets 7-8% of the oil we consume through the Strait of Hormuz. The rest of the world isn’t so lucky.

Roughly 85% of Japanese oil travels through the strait of Hormuz. Roughly 70% for Korea. 95-98% for the Philippines. 80% for Pakistan. There is no Asian country that is immune. Asia, quite literally, is a ticking time bomb.

Pakistan will likely be the first place you see true, massive friction. In addition to being a country that has almost no strategic reserves, the little reserves they do have were drawn down to 5-6 days of reserves remaining weeks ago. Austerity measures, and smugglers via trucking through the Iran/Pakistan border, are easing the pain/extending the runway… but they can’t nearly make up for the supply disruption. I think best case scenario, without a massive fuel injection, they’ve got 2-3 weeks. Pakistan is also a country that organizes well, and they do so violently. Their energy grid is heavily reliant on petroleum. As summer temperatures swell, and blackouts start – prepare to see civil unrest; it is typically the fuse in Pakistan. Suddenly gas stations run out of fuel. People can no longer get to work because they have no gas. They no longer have the money to feed their families. Even those that can get to work often have no work to do, as almost 55% of Pakistan’s industry is textile related, which relies heavily on oil.  It is isolated at first, reserved to a few locations -- and within 48 hours spreads across the country. Civil unrest explodes.

The ‘everything is fine,’ narrative that has been sold thus far is destroyed almost overnight. Cell Towers in Pakistan are having intermittent blackouts. ATM’s empty because the trucks used to deliver cash no longer have gas to get to their destinations. Supermarket shelves start to empty as shipping trucks don’t have the necessary gas to deliver food. People riot against the government and start burning down gas stations.

The world is well aware that we are in a massive energy crisis – even if they haven’t yet come to realize what that actually means. Posts on social media escaping Pakistan highlight the unrest – and a new thought process emerges elsewhere… “This could happen to us.” Demand for gasoline surges everywhere – even in places that aren’t currently strapped for oil. People all over southeast Asia, Europe, and even the states run to the gas pumps, determined to fill up before their country runs out. This massive artificial surge in demand looks like bank runs of the great depression. With everyone buying at the same time – gas stations some gas stations elsewhere actually begin to run out of gasoline -- even in places where there isn’t a massive shortage yet. While the demand was artificial, the idea becomes self-reinforcing… People see the gas stations run out and implicitly believe there is a shortage everywhere.

Oil prices spike further. Massive demand, everywhere, all at once, pushes the price per barrel from $150 or so – where it is headed no matter what at this point – to $200 or higher.

Demand destruction is the only solution. Factories all over the world cut production. Costs for everything skyrocket. Inflation spikes further. People scale back on luxuries. Companies’ revenues drop and they are forced to fire employees. Unemployment skyrockets, and the world enters a global recession.

Alright alright – Maybe – Just maybe – I’m being dramatic about where chaos starts, and how quickly it spreads… Although I do think Pakistan is the likely fuse… and I actually think there is a better than zero chance this plays out, and plays out in this sequence.

However – I am certain that I’m not wrong about where oil is headed, particularly if this doesn’t end now. And unfortunately, the negative impact of $100 plus oil through the end of the year – which is virtually guaranteed at this point – will cause a recession.

History may not repeat itself – but it almost always rhymes. The world has yet to have a major energy crisis that did not cause a global recession. And we are staring at the largest energy crisis in history, with no signs whatsoever of it being solved.

Iran has stated they will not end the war unless they have full control over the Strait of Hormuz. The US has stated this is a non-starter. There is no way whatsoever to remedy these two demands simultaneously – which to me means escalation is the far more likely scenario.

Now – let’s assume I’m wrong about the Oil price narrative all-together.

What does the rest of the Macro scenario look like?

This post has gotten incredibly long, so I’m going to do my best to keep the remainder brief. I’m happy to elaborate on anything individually in the comments.
1. P/E levels are stretched even further than the last time I made a similar post. This will vary depending on where you get your data, the the P/E of trailing 12 months earnings for the S&P 500 – as reported by Multpl – currently sits at 32.04. The price earnings ratio of the market has only been this high three times in history – the Dot Com Bubble, the Global Financial Crisis, and the Quarter after Covid hit. Meanwhile, the Shiller PE ratio is in line with the highest it has ever been – during the Dot Com bubble. Multiples are inflated.

2. GDP grown last year is almost entirely attributed to AI/Data center growth. Much of these earnings have been entirely circular. NVIDIA invests $100 billion in Open AI and CoreWeave to develop AI models and Infrastucture solutions. CoreWeave and Open AI then use the $100 billion that was just invested to purchase NVDA GPU’s. All three companies report the revenue on the same exact dollars being spent. CoreWeave leverages the system further by utilizing NVIDIA GPU’s as collateral to secure financing for their debt. If CapEx spending slows even marginally, GDP goes negative almost instantly. A few major players are keeping the US spending afloat.

3. The S&P 500, and even moreso the NASDAQ – are the most top heavy they have been in history. The 10 largest companies in the S&P 500 make up over 40% of the entire value. If these companies correct – the effect is absolutely catastrophic. By comparison – during Dot Com – the 10 largest companies made up about 29% of the value of the market… However forward P/E of these companies today, admittedly, is healthier.

4. The real-estate bubble is higher today than it was during the global financial crisis… by almost any measure. Housing prices peaked at roughly $247k in 2006. In inflation adjusted dollars, that’s roughly $396,00 today. Today’s median home price is $405,000. Interest rates are similar today to the peak in 2006. Experts claim a mortgage crisis couldn’t happen again due to ‘safeguards’ in the system – but I disagree wholeheartedly. I regularly get mortgages done for individuals with credit scores in the 500’s, and debt to income ratios approaching 50, or even 60 on VA loans. And legally – I am obligated to do everything I can to get these borrowers approved, or risk fines/suspension/license revocation. Many of these people, quite simply, shouldn’t be able to finance a hot dog. You’re starting to see that system break. 11.5% of all FHA loans are currently delinquent – with 5.23% of them delinquent 90 days or more. COVID era moratoriums on foreclosures expired at the end of September 2025. I don’t think it is any surprise that foreclosures are up 30% since September.

5. Consumers are stretched incredibly thin. Credit card debt is the highest it has been in history. Auto loan delinquency rates are the highest they’ve been in history.

6. Regional banks are sitting on massive, unrealized losses in the form of T-Bills they bought during COVID. Eventually these notes come due, and they have to actually eat those losses – they’re not just a paper loss anymore. As the 10 year ticks upwards, these get increasingly more painful. If there is any sort of major bank run, these banks could easily become insolvent – like what we saw with Silicon Valley and Signature Bank.

7. Regional banks are also sitting on MASSIVE Commercial real estate exposure. They account for 55% of all commercial real estate mortgage exposure. Based on federal regulatory guidelines, CRE should not exceed 300% of tier 1 capital. 54% of regional banks are above this threshold. Over 1,000 regional banks are over 400% and hundreds are over 500 and even 600%. Many of these commercial properties are massively underwater, and the loans that were taken out on them were at 3 and 4% when interest rates were far more favorable. These loans are also almost always written on balloon notes that must be refinanced after 5 or 7 years. Many of these are coming due, or have come due, and the property owners are now looking at interest rates that have doubled. Worse yet – for office buildings – not only is the interest rate doubling, but the properties have much higher vacancy rates. They are looking at much higher mortgages payments on properties generating far less revenue. Regional banks have played the delay game – and extended existing loans for the time being – but that can only last so long. At some point, these losses will be realized.

8. This hasn’t fully materialized yet, but white-collar work is about to be completely decimated by AI. This isn’t an if – but a when. If you need further confirmation, look no further than the companies already most heavily invested in this space (Microsoft, Meta, Oracle, Amazon)… They are quite literally ALL laying off 10’s of thousands of employees. I’m of the belief that we are less than 5 years away from +/- 80% of white collar work – as it exists today – disappearing. AI models are progressing far faster than originally projected, and they advance exponentially. You have smarter and smarter systems being built in larger and larger quantities, training themselves faster and faster. This – quite honestly – may be the market’s only savior. Maybe the stock market becomes +/- a dozen massive AI companies that run the entire world.

Lastly – I feel compelled to mention – I was completely and utterly wrong in my assessment regarding the assassination of Khamenei. I viewed this as an entirely black and white scenario, and didn’t put nearly enough forethought into the potential outcomes. I assumed, incorrectly: US kills Khamenei à Iranian population galvanized à Iranians overthrow what’s left of their government à Iran, once again, becomes a secular, largely democratic, westernized country and ally in the middle east. Unfortunately we have yet to see this materialize. And unless it does – and does so soon – I think the entire world economy will suffer… And furthermore, it is a mistake from which Trump and Republicans likely will not recover.

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