Ed Dowd: 'Kooky' Valuations & Weak Economy To Lead To Big Downturn By Midterm Elections

**Edward Dowd** (0:00)
The valuations are kooky. We are at.com level valuations on the tech stocks, and the overall market valuations are high, and 10 year forward projected returns are zero. So that doesn't bode well putting new fresh money into that market.
Conversely, you know, the economy we think is, think for the economy for the middle class is already in recession. Eventually, the K-shaped economy will be overwhelmed by the middle class continuing to have job losses. And so we just think there's going to be a slowing of economic activity that's just part of the natural cycle. There's too many headwinds, and Trump and team can try to stop it, they can try to prevent it, but I think eventually they're going to end up like the Bush administration, and likely have some sort of mild to moderately severe downturn manifesting right before the midterms, unfortunately, is our call.

**Adam Taggart** (1:05)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Change around the world, especially geopolitically, is accelerating as we enter 2026 Depending on your point of view, some of these changes are positive, potentially historically great even. And some of them are much more concerning. Where's the world order headed from here? And more granularly, how are the economy and financial markets likely to perform in 2026? For Insight, we're fortunate to welcome back to the program Edward Dowd, founder of macroeconomic consulting and research firm, Phinance Technologies. Ed, thanks so much for joining us today.

**Edward Dowd** (1:44)
Thanks for having me on again. Appreciate it.

**Adam Taggart** (1:46)
Hey, it's a real pleasure. I appreciate you coming back on the program, Ed. We had a great talk on your inaugural appearance here, and folks certainly loved it. So a lot of folks were very excited to hear that you were coming back again here early in 2026
So I got a ton of questions for you. Like I said, they're in the intro, Ed. There's a lot of change going on in the world right now. Let's start, if we can, with your economic and market outlooks for 2026, and I know you've got a report that's coming out soon that's going to go deep into that, and part of that report is going to be a postmortem on what you got right and what you got wrong in 2025 So why don't we wrap that all up right here? What do you see coming for the next year and what about 2025? Do you feel you nailed and what maybe did you not quite get exactly right?

**Edward Dowd** (2:41)
Well, in 2025, we warned of the dangers of the deep worldwide recession. It hasn't manifested yet in the capital markets, but the real-world data is getting worse, and one of the calls we made was that long-term yield would come down, and we suspect that there's a lot more room for long-term yields to fall in the treasury market as we enter our forecast, become more correct, especially in the labor market. But we said the 10-year would go lower. The 10-year was at 4.8 percent when we talked about it in January 25 It's come down around and hovering around 4.16, so that is a slight win. Treasuries did have their first positive year, which sets the table for what we think is going to come, which is a deflationary scare. We also got oil right. We said in our report in 2025 that oil would go to 30 Oil at the time of the issuance of our report was close to 80 It's at 57 What we didn't get right was the actual GDP numbers. We think those have been distorted by all the trade situations, the imports and exports in the front running, and the AI infrastructure spend, which has been supporting a lot of the headline GDP numbers. We suspect GDP will be a lag, and GDP will show recession at some point in 2026 The housing recession that we called for is beginning. It's starting.
It's a slow moving, glacial process. It's what we call a white swan event. It's totally predictable. And until, you won't hear about it in the mainstream media until we're at some sort of crisis. And there's an affordability issue in this country, and prices need to come down. And we're seeing in the beginning of the year, a whole host of Trump administration policy measures to, quote unquote, help ease the affordability issue.

**Adam Taggart** (4:50)
Let's talk about those, because they got strong feelings on many of them.

**Edward Dowd** (4:54)
Oh, yeah, we'll talk about those. They seem to be walking a tight political tightrope of trying to make it more affordable while protecting current prices. And I think that's a disaster, and it's not going to work. Home prices, the only way this affordability issue gets corrected is by price. And right now, home prices are 35% overvalued, and they need to come down that amount for people to really be incentivized to buy at the current income levels. You also need income levels and jobs to grow to really help home prices, and those are all going the wrong way. And the real economy is struggling. You can see it in the non-reform payrolls.