The Great Convergence: Why 2024 Signals a Recurrence of 2008, 9/11, and the 2022 Crisis
The global economy is currently standing at the precipice of a significant, serious recession that is likely to bring markets much lower from here. While many analysts look for complex indicators, the reality is stark: the number one reason the economy is heading into a recession is the stock market going down.
In today’s financialized world, the stock market is the economy. We are currently witnessing what appears to be the beginning of the third 50% drawdown in the S&P 500 since the year 2000.
This convergence of events—ranging from geopolitical shocks to unprecedented market valuations—suggests a "pump and dump" cycle that will likely break careers and reset the global financial landscape.
The Strait of Hormuz: A Five-Decade Miscalculation
The closure of the Strait of Hormuz following the Iran strikes on February 28th has emerged as the single biggest shock for the modern market. For nearly five decades, the U.S. military had planned for a scenario where they would not allow this vital waterway to be closed. It was a major mistake by market participants to assume it couldn't happen; and yet, it is now closed.
This event has created a "fog of war" that carries the inklings of the 2008 financial crisis, the aftermath of 9/11, and the 2022 Russian invasion of Ukraine. While there is hope that the U.S., Israeli, and allied forces will eliminate Iran's offensive capabilities and secure the strait—perhaps even within a single weekend—the immediate damage is profound.
Even if the strait were to be reopened tomorrow, the disruption to the global supply chain is already "done." It will take several months to recover as ships are rerouted and cargo flows are rearranged, creating a lasting inflationary ripple through Asia and Europe.
Crude Oil: The "Pump and Dump" Paradigm
Crude oil remains at the center of this storm. While WTI crude has recently hovered around 96 to 98, the long-term trajectory is pointing sharply downward. In commodities, the goal is to "skate where the puck is going," and the December contract—which is significant because it will be the front month right before the U.S. midterm elections—is running around 77 to 78 dollars a barrel.
Historical parallels offer a sobering guide for oil traders. In 2008, oil peaked at $147 before plunging to $32; in 2022, it hit $130 before dropping to $55. Crude oil is frequently its own worst enemy: high prices bring on massive supply while simultaneously crushing demand.
We are seeing a massive increase in supply from the Western Hemisphere, including the U.S., Canada, Brazil, and Guyana. Furthermore, human ingenuity and necessity are driving a paradigm shift toward technology. In China, electric vehicle (EV) sales have jumped from 10% to roughly 60% in a very short period, largely because the cars are "awesome and cheap".
Consequently, the call for $40 or $50 oil by the end of the year is a likely outcome of the coming global recession.
The Stock Market Bubble: 100-Year Highs and AI Anxiety
The current U.S. stock market is perhaps the most overextended in history. Currently, the market capitalization stands at approximately 2.3 times GDP. To put this in perspective, during the peak of 2007 before the Great Recession, that ratio was only 1.2 times GDP. This makes the current market the most expensive since 1928 on a year-end basis.
The recent "pump" in stock market valuations was driven largely by Artificial Intelligence (AI). However, that narrative is now shifting. The same AI that drove prices up is now causing consumer anxiety as workers worry about losing their jobs to the technology.
When you combine waning consumer sentiment with rising gas prices and a rolling-over stock market, you have a classic cycle primed for a 20% to 50% correction. We are way overdue for a normal reversion; just a 10% correction in the stock market represents a massive hit to the total GDP.
Metals and the "Devil’s Metal" Reversal
Precious and industrial metals have also undergone a fundamental shift. Silver, often called the "devil’s metal" for its volatile nature, is seeing its Q1 "pump" turn into a "dump". It reversed from a 63% year-to-date gain on January 28th to a decline by March 19th. Copper has followed a similar path, dropping from a 15% gain to a 7% loss. When prices go parabolic, they shift the supply-demand curve, bringing on supply and curtailing demand—a process known as "thrifting".
Gold has also transitioned from a stable store of value into a speculative risk asset. Its 180-day volatility is now running at 2.4 times that of the S&P 500—the highest since 2009—which is the opposite of how a "safe haven" should behave. While gold was the right trade last year, it has become its own worst enemy. Initially, gold could drop to $4,000 as high-volatility assets are liquidated during a market-wide selloff.
Bitcoin and the Mainstream Crypto Purge
Bitcoin, which led the way up, is now leading the way down. Despite the excitement surrounding the biggest ETF launch in history, this "financialization" of Bitcoin served as a classic sell signal. Bitcoin is currently an asset with an "unlimited supply" of competing cryptocurrencies—billions of them—and a major purging of assets like Dogecoin (still worth 15 billion despite having no utility) is required.
If the stock market experiences the projected 50% correction—which would be the third such drawdown since 2000—Bitcoin is expected to head toward 10,000. It is currently a bear market where traders should "respect and sell rallies". Initial key support may be at 50,000, but a significant drawdown is likely as the over-leveraged crypto market reverts to the mean.
The Federal Reserve and the 2008 ECB Mistake
A critical risk factor is the Federal Reserve's next move. Currently, the market is beginning to price in potential rate hikes due to the spike in inflation caused by oil prices. This would be a catastrophic mistake similar to the one made by the European Central Bank (ECB) in 2008. In the summer of 2008, the ECB raised rates because oil was rising and inflation readings stayed hot; this only served to accelerate the coming recession.
The Fed should instead "wait it out" as they did in 2008. Adding a rate hike to a global energy shock and a declining stock market is "one good way to accelerate a recession". Currently, consumer sentiment is already negative, and rising gas prices act as a catalyst for households to "shut off the spending". While core inflation remains high, a normal reversion in the stock market and commodities could bring CPI numbers close to zero by next year.
The Consumer Signal: Gas Prices and Sentiment
The number one way to pressure consumer sentiment is through gas prices going up and the stock market going down—and we are seeing both right now. In 2008, when the average price of gasoline reached $4 a gallon, it was a clear signal of the Great Recession. In 2022, it hit $5 before coming back. Today, the price of diesel—the "grease of the global economy"—has popped above $5 again.
This spike in energy costs, combined with a 10-year low in stock market volatility that is finally starting to revert, provides a "great catalyst" for a global shutdown in consumer spending. When the data from this period is reviewed a few months from now, the results will likely be "horrible".
Strategic Outlook: The Long Bond Refuge
In this environment of "post-inflation deflation," the best strategy is to look for safety. The most significant industrial commodities have already tilted from "pump to dump," including natural gas, copper, and silver. Crude oil is the next in line.
For those looking to "grab alpha" this year, the best trade remains the long bond (Treasuries). Treasury bond yields have been unable to sustain a move above 5%, and as the stock market rolls over, these bonds will become the primary refuge. This is a year to "button down and act accordingly" as we face a combination of shocks that make 2008 look like "sissy stuff" by comparison.
Conclusion
The global market is currently "an accident just getting started". Between the energy crisis in the Middle East, the collapse of commodity "pumps," and the most expensive stock market relative to GDP in nearly a century, we are entering a period of severe global reset. As the Strait of Hormuz is eventually cleared and a more "secure world" emerges, the market will finally have to face just how expensive and over-leveraged it truly was before the crisis began.
Investors should prepare for a significant drawdown, respecting the bearish signals in Bitcoin and commodities while seeking shelter in the long bond until the "purging" of the current cycle is complete.
