Latest / Kinesis Money / The Fed Is Looking at the Wrong Numbers Ft. Danielle DiMartino Booth - LFTV Ep 292

Transcript

The Fed Is Looking at the Wrong Numbers Ft. Danielle DiMartino Booth - LFTV Ep 292 · Kinesis Money

• 0:00
  SPEAKER_01: The only choice they have under such circumstances is to cut costs.
• 0:05
  SPEAKER_01: And so you set up a cycle because cost cutting leads to job cuts, which leads to lower demand, which leads to less purchasing power, which leads to greater margin squeezes, and it sets up an adverse feedback loop that you really do not want in your economy.
• 0:22
  SPEAKER_01: They now have to keep renting a week rather.
• 0:25
  SPEAKER_01: We've got this ticking time bomb talking gold with the one and only Andrew McGuire.
• 0:32
  SPEAKER_00: Welcome to Life from the Bull.
• 0:38
  SPEAKER_00: Well, welcome.
• 0:40
  SPEAKER_00: Welcome, welcome, Daniela Di Martino Booth, CEO of QI Research.
• 0:46
  SPEAKER_00: Thank you so much for coming back to join us.
• 0:49
  SPEAKER_01: It's great to be here.
• 0:50
  SPEAKER_01: It's great to be back with you after all this time.
• 0:53
  SPEAKER_00: Yeah, and I was just saying to you a minute ago, this is mind-boggling.
• 0:57
  SPEAKER_00: Um, that was we we actually recorded that in July 2023, and I think it wasn't long after gold was reclassified as a first-year asset in in January of that uh year.
• 1:08
  SPEAKER_00: Uh and I just looked at the title a minute ago.
• 1:11
  SPEAKER_00: Is it time to start hedging against the black swan event?
• 1:14
  SPEAKER_00: Well, hey, Aniella, given it takes$3,000 more dollars to buy the same ounce of gold, I think you would that was excellent advice and very well received.
• 1:25
  SPEAKER_00: Thank you.
• 1:26
  SPEAKER_01: Well, I mean, uh, we're still in the process of doing that hedging.
• 1:30
  SPEAKER_01: It's just a heck of a lot more expensive.
• 1:33
  SPEAKER_00: Yes, more dollars to do the same thing.
• 1:36
  SPEAKER_00: Um, I mean, uh, you know, basically, while we specialize, obviously, while we specialize in gold and specifically the wealth protection aspect of physical gold and silver, what you do is you bring so much more to the table.
• 1:52
  SPEAKER_00: I mean, you have an incredibly incisive, broader view um of how all these broader market crosses greatly influence gold and silver both longer and shorter term.
• 2:05
  SPEAKER_00: And I I'm looking forward to asking you some of our uh we compile some subscriber questions, they would know you were coming.
• 2:13
  SPEAKER_00: Uh, and it relates to these important market drivers.
• 2:16
  SPEAKER_00: But what really, really has our attention at this point, and I really love your comments on this, is gold has decisively broken its relationship with real yields.
• 2:27
  SPEAKER_01: No, that is um that is a great observation.
• 2:31
  SPEAKER_01: Um, you know, I I'm not sure how real the real yields are, given what I consider to be some uh some deeply um structural uh impediments and how inflation is measured.
• 2:49
  SPEAKER_01: But but yes, um it has broken that relationship.
• 2:53
  SPEAKER_01: I think you will see that gold continues to break other relationships as we get further into, you know, kind of we're in the the last gaps gasps right now of credit pricing risk.
• 3:10
  SPEAKER_01: And that's something we are really, really focused on when you're talking about soft bank issuing debt for a 9.875% coupon.
• 3:20
  SPEAKER_01: Uh, so the the market is really um beginning to price risk properly, but we're talking about big junk bond yields here that we haven't seen in in generations.
• 3:35
  SPEAKER_00: And we're seeing from our perspective, we're seeing uh central banks, sovereigns, um, actually, you know, obviously there's a as you say, there's a mechanical link to yields, real yields or dollar yields, dollar, etc.
• 3:49
  SPEAKER_00: Um, but but we notice that uh speaking, we face several central banks, sovereigns, and like big large liquidity providers, and and the feedback is generally um they're just repricing gold as a strategic reserve in in a structurally uns undersupply physical market.
• 4:08
  SPEAKER_00: And and I think um from what you're saying now, I mean, there's some real curveballs coming in.
• 4:14
  SPEAKER_01: Uh there are, and of course, geopolitics being one of them, and if you look back at at long history, um, gold is seen as a place for sovereigns to be, to protect their sovereignty.
• 4:28
  SPEAKER_01: And and so that's that I think is one aspect of what is at play here.
• 4:34
  SPEAKER_01: Um, you know, as we step back a little bit and realize that it's not just the United States, but many countries investing in defense spending right now, and what that says about where we are in history on a much broader level.
• 4:50
  SPEAKER_00: With Xi Jinping in town today, and obviously he's there to meet with Trump to discuss trade, uh, et cetera, and then probably many of the subjects which won't be discussed.
• 5:03
  SPEAKER_00: But um, but but I think some of the, I'm sure one of the or two of the conversations should likely revolve around Beijing's growing concern about Washington's ability to service a ballooning$40 trillion day into higher interest rates.
• 5:22
  SPEAKER_00: Um, that must be a difficult conversation.
• 5:25
  SPEAKER_01: It it is a difficult conversation, but you have to bear in mind that uh that both countries are dealing with their own overly indebted markets.
• 5:34
  SPEAKER_01: It's not the United States that's alone uh in being in this position.
• 5:39
  SPEAKER_01: It's just obviously much more visible because it's the world's risk-free rate.
• 5:44
  SPEAKER_01: It's it is the benchmark upon which all other uh all other sovereign debt is is is measured.
• 5:52
  SPEAKER_01: Um but I think there's a lot more at play here than government financing of debt in the United States with the meeting of these two individuals.
• 6:04
  SPEAKER_01: If if there was one comment that I heard that was the most salient today, and again, we're speaking about big picture issues here, sovereign sovereignty.
• 6:16
  SPEAKER_01: Um, I think we have to appreciate the comment that I heard that all of the biggest US tech companies have been invited to be part of this, and none of those from China have been.
• 6:30
  SPEAKER_01: And what does that say about um negotiating positions, if you will?
• 6:38
  SPEAKER_01: Because again, there are there there's much more at play here when you consider the role that artificial intelligence is playing in the current very cold war.
• 6:51
  SPEAKER_00: Right.
• 6:52
  SPEAKER_00: And and I think uh, and again, we've got we're I'm sure there's gonna be on the on on the front burner, of course, we've got uh Ukraine, we've got um, in fact, it's one of the subjects that we you and I discussed um or we discussed uh last time you were here, uh, and I think one of the questions was really related to um the the, you know, obviously there's a lot of profit in war, and and there's a lot of, I mean, so basically what I really loved your opinion on that last time.
• 7:25
  SPEAKER_01: Yeah, and and there is, you know, we've seen a uh a very real renaissance in defense manufacturing in the United States at a time that consumers aren't able to buy as many big ticket items.
• 7:40
  SPEAKER_01: It's obviously very expensive to finance them, uh, whether you're talking about a car or a home.
• 7:46
  SPEAKER_01: Um so uh yeah, I I I think that guns and butter, I mean, I'm going but way back in time, but there is something to be said right now for economics, the economics of defense spending and what that can do to shore up individuals, individual economies against this kind of a backdrop.
• 8:08
  SPEAKER_01: China has, of course, been investing in its defense industry for a very long time.
• 8:13
  SPEAKER_01: And they say, and I haven't visited, they wouldn't certainly wouldn't invite me to visit ever, but they say that that some of their defense technology is state of the art.
• 8:23
  SPEAKER_01: Uh and the United States right now, because of the war with Iran specifically, is is gearing up that part of the economy.
• 8:31
  SPEAKER_01: But again, I will reiterate that we are in a very cold, cold war uh with China, and we shouldn't look at it as being any differently, especially because the United States has alienated some of its sovereign allies.
• 8:45
  SPEAKER_01: Uh, and there are dividing lines around the world in terms of with whom do you ally?
• 8:52
  SPEAKER_01: With which the East or the West.
• 8:55
  SPEAKER_01: Um I'm really expected to get this deep into history and where we're headed with this, but there are some very, very subjects that will be written about in history books in years to come, occurring quietly, I would say, right here before our eyes.
• 9:12
  SPEAKER_00: Yeah, this is really interesting.
• 9:14
  SPEAKER_00: I think um uh one of our very good friends is uh Dr.
• 9:18
  SPEAKER_00: Stephen Leeb.
• 9:19
  SPEAKER_00: And he he's actually he was actually um uh just talking about exactly that.
• 9:25
  SPEAKER_00: Um, you know, you're talking about the similarities between um between what happened in the Weimar Republic, and and you've got all these pressures that are coming up now um that are so similar because you've got uh disparities, you've got uh, I mean, I mean, really, it it's interesting because history does repeat itself.
• 9:50
  SPEAKER_01: It does.
• 9:51
  SPEAKER_01: And if you think about that era, it culminated in kind of the largest stock market bubble in history to that point.
• 10:00
  SPEAKER_01: It it truly culminated in 1929.
• 10:04
  SPEAKER_01: And it was the unraveling of that that really brought so many societal issues to the fore.
• 10:12
  SPEAKER_01: And I think that is the risk now because we talk about the top 10% versus the bottom 90% in so many economies, not just the United States.
• 10:22
  SPEAKER_01: But the fact is there are a greater percentage of Americans now who do own stocks.
• 10:29
  SPEAKER_01: So the implications of there being a bubble of the current magnitude, kind of tick-tock, tick-tock, tick-tocking in the background, that will have consequences for a large breadth of US society in the same way that it did in nine in the 1920s, in the roaring 20s.
• 10:50
  SPEAKER_00: Yeah, and and you've got the the elements, I mean these these that worrying echoes.
• 10:55
  SPEAKER_00: I mean, you've got uh debt, inflation, political polarization, public anger, um, you know, declining trust, um uh authoritarian narratives that people question.
• 11:08
  SPEAKER_00: And one of the amazing things to me, now Daniel, when I meet Americans in in my country and um we have talks, I say, but but every single one of them are so polarized.
• 11:20
  SPEAKER_00: So they're so there's only the you you can't say, well, I say raise a question.
• 11:25
  SPEAKER_00: Do you think Trump's playing 5D to chess?
• 11:28
  SPEAKER_00: You should it's almost take my head off.
• 11:30
  SPEAKER_00: You know, it's like how could you even think that?
• 11:33
  SPEAKER_00: It's like so I say, but you know, don't you want to look at both sides?
• 11:36
  SPEAKER_00: It's interesting.
• 11:38
  SPEAKER_01: It is, and um and it's also distressing because in the United States we have this phenomena that is underappreciated of the silent majority, and those who can see both sides of the issue, but really have no voice because they're not loud and angry.
• 12:00
  SPEAKER_01: There is a silent majority in the middle that feels that they're woefully underrepresented in politics, and that sometimes when you go to the polls, and of course the United States is going to the polls in less than six weeks, um, that you're given a choice between bad and worse.
• 12:20
  SPEAKER_01: And that there's nobody who is speaking for those in the middle who don't want to be confrontational and who don't want to be on the extreme right or the extreme left, and who want to have a voice and and and a place at the table, but yet we feel like we don't.
• 12:37
  SPEAKER_01: And yes, I did not say we um by mistake, because I'm part of that silent majority.
• 12:45
  SPEAKER_00: Really is good to hear that because uh that we we're finding um basically in in this country, for example, it's it's it's just a it's just a uniparty.
• 12:57
  SPEAKER_00: It's even though they they at polar opposites, it's still necessary, it's still really just a uniparty that that are so absorbed with their own um their own um uh uh sort of uh egos and their own um sort of agendas.
• 13:12
  SPEAKER_01: Uh whereas you you you used to have a dynamic in the United States where the Democrats represented the people and the Republicans represented corporate America.
• 13:24
  SPEAKER_01: They're all bought and paid for now and introduces to the world's greatest economy, to the world's biggest economy, this this strange element of corruption uh that you see with your own eyes.
• 13:39
  SPEAKER_01: And and yet there's so little that that can be that can be done about it because the money thrown behind lobbies, the money thrown behind um elections uh to sway public opinion, the the role that social media has played, and uh so many uh younger Americans believe exactly what they read, and there's not enough fact-checking done on their part.
• 14:07
  SPEAKER_01: So the ability to influence has never been what it is today.
• 14:12
  SPEAKER_01: And yet again, I go back to the fact that a lot of us know that that we're not part of the discussion, that we don't matter.
• 14:22
  SPEAKER_00: That is it's good to hear that that that there's this this swell.
• 14:27
  SPEAKER_00: I mean, and I imagine it's much bigger uh than than people imagine.
• 14:31
  SPEAKER_01: Well, and there's you know, I mean, the the good news is is that there's serious pushback right now.
• 14:37
  SPEAKER_01: And so they're growing recognition of the value of centrists.
• 14:42
  SPEAKER_01: And we will see how that plays out in the US midterm elections, and we will see how that plays out in 2028 with the next presidential election.
• 14:53
  SPEAKER_01: Hopefully, that's not a massive pendulum swing to the other side because the last time we had politics be so polarizing, such that every four years we were going from one extreme to the other, led to the civil war.
• 15:10
  SPEAKER_01: So we need to be cognizant of the importance of being in the middle because of what it implies if if we're not.
• 15:22
  SPEAKER_00: Who does one, if there's only two parties, who does one vote for?
• 15:26
  SPEAKER_00: Um that's that's the the puzzle.
• 15:30
  SPEAKER_01: Well, so I tell everybody who will listen that what the United States needs is a young conservative JFK.
• 15:40
  SPEAKER_02: Yes.
• 15:41
  SPEAKER_01: And I um conservative because fiscal conservativeness is so critical right now to the future of the United States, such that we don't need a New Deal, we don't need a growth of the welfare state, we certainly don't need to elect a socialist who pays people to not work.
• 15:59
  SPEAKER_01: That that that would have our founding fathers spinning in their graves.
• 16:02
  SPEAKER_01: But what we need is somebody who is young and engaging and dynamic, but fiscally conservative.
• 16:09
  SPEAKER_01: And we're all waiting for this young leader to rise and lead the country to a better place as opposed to that pendulum I'm describing swinging back and forth.
• 16:19
  SPEAKER_00: Yeah, and and um I get that.
• 16:21
  SPEAKER_00: I get that.
• 16:22
  SPEAKER_00: That this is, I mean, it's really interesting because um, because right now um there is very little choice.
• 16:28
  SPEAKER_00: But but I think um this is one of the things, um, our world, our little our world, our gold world.
• 16:36
  SPEAKER_00: It's even though it's I I think one of the good things is we've got you to throw the net way further than our world.
• 16:44
  SPEAKER_00: And I think because all those things are very important, um, but I think one of the good things of the thousands, the many thousands, the probably millions of people really that we run across um that are interested in in seeking uh protection uh for for their assets, are involved in gold and silver, but really what they are is these are people who are if bottom line trying to take responsibility for themselves.
• 17:14
  SPEAKER_00: And and because um you can't anyone that depends, putting the hand out and say, feed me, uh, which is communist ideal, ideally, but but I mean this is what essentially most of that most of the governments in this country are saying, you know, don't worry about it, we'll WEF uh you know agendas.
• 17:36
  SPEAKER_00: Um but the pushback is that people are generally trying to take actual responsibility for themselves.
• 17:44
  SPEAKER_00: Info this is why it's important to do um uh podcasts like this where it's in it's providing information for people to say, hey, you know what?
• 17:55
  SPEAKER_00: I can make up a better, a better decision based upon all the things I heard from Daniela today.
• 18:01
  SPEAKER_00: And and you know, it's about it's about that to me.
• 18:04
  SPEAKER_01: Yeah, I mean, I I think what you describe is a parallel to global central banks increasing their stores of gold for the purpose of national sovereignty and individual sovereignty can be attained by taking similar actions.
• 18:23
  SPEAKER_01: Now, I will throw this out there.
• 18:26
  SPEAKER_01: Um I I do have some concern that we could see uh a run-up in gold um kind of back towards its highs.
• 18:37
  SPEAKER_01: And because there are what I like to call investing tourists in asset classes, that can place uh precious metals um it can it can it can put precious metals in a disadvantageous position in the event of margin calls.
• 18:56
  SPEAKER_01: But if you step back though, and we do have a massive run-up, and then a pullback, what that would present would be uh the next generational opportunity to step in.
• 19:09
  SPEAKER_00: Higher physical stair steps, where where actually you rinse out, as you say, the tourists.
• 19:15
  SPEAKER_00: Uh there's other names for them, but yeah, rinse out these speculators, and uh because because really they're just tailgating uh a momentum, as you say.
• 19:25
  SPEAKER_00: It and and we saw that.
• 19:26
  SPEAKER_00: In fact, it was interesting because I think I brought some attention to what Jane Street had a very, very um enormous silver position um on and you could see that by looking at their footprints, uh, and that was into the uh January, December, January spike higher, and then suddenly cashed in all their positions, and we see it, and then we've got a crash.
• 19:52
  SPEAKER_00: So essentially they're catering, you know, and some of these funds are double and triple leveraged, right?
• 19:58
  SPEAKER_00: So it is a concern when these tourists get on board.
• 20:04
  SPEAKER_01: It is, and you know, just like um the old saying, you know, I'm the government and I'm here to help.
• 20:11
  SPEAKER_01: Uh, I had that same kind of sensation of oh no, when a lot of the big sell-side investment banks said, we're here to tell you how much of your portfolio to allocate to gold.
• 20:24
  SPEAKER_01: Um and it was it just kind of stood up the hairs on the back of my neck because sometimes the last entity you want to be advocating for an asset class is a sell-side bank because they sell things and they make money from selling narratives and selling products.
• 20:49
  SPEAKER_01: And that is certainly not what I would characterize as as a step towards maintaining individual sovereignty.
• 20:58
  SPEAKER_01: You have to understand why you own precious metals over the very long term, and that it's never something that's going to be sold to you.
• 21:09
  SPEAKER_00: I think one of the interesting things is obviously we face um we face the Asian market um every morning, early, and and and so on and so forth.
• 21:19
  SPEAKER_00: And and and obviously, generally, that's all that's obviously to trade in Shanghai, um, for example, and or in the SGE or the Hong Kong-facing SGE uh gold corridor, you have everything to put a novel idea.
• 21:34
  SPEAKER_00: You to to to put a bullion bar up for sale, you have to fully own it.
• 21:38
  SPEAKER_00: You have to pay for it first, and and it has to be subscribed to you.
• 21:42
  SPEAKER_00: And uh and to and so if you want to buy or sell something, it is physically settled.
• 21:47
  SPEAKER_00: Now, interestingly, is that uh, and we're running premiums all the time, every morning, seeing big premiums, and and it sometimes it averages ten dollars in gold, uh, averaging 13%.
• 22:00
  SPEAKER_00: In silver, and and I think, but these are physically settled prices.
• 22:04
  SPEAKER_00: So the over-the-counter markets, the foreign exchange markets, and people forget that gold and silver are foreign exchange crosses.
• 22:11
  SPEAKER_00: So naturally, you've got like I think gold's 15 trillion a year or something.
• 22:17
  SPEAKER_00: And it's it's like I think we've got set 600 to 800 tons of gold clearing the system every day with three to five tons delivered.
• 22:25
  SPEAKER_00: That's right.
• 22:26
  SPEAKER_00: So so you've got two dynamics going on here.
• 22:29
  SPEAKER_00: Now you've got one that is physically settled and gaining liquidity.
• 22:33
  SPEAKER_00: And and and I don't know if you you saw this, you probably have.
• 22:36
  SPEAKER_00: Um, but Hong Kong when uh the the the trial launch of the Hong Kong SGE Connect um system, um, when it's fully launched in the first quarter of 2027, it's gonna have 30,000 tons of gold.
• 22:50
  SPEAKER_00: Well, London only has 9,000, including ETF gold owned by other people, and 1,200 uh ton float.
• 22:58
  SPEAKER_00: So I guess the point I'm trying to make is liquidity is pouring into the physical markets.
• 23:06
  SPEAKER_00: And at the same time, open interest in the comics is at multi-decade lows.
• 23:13
  SPEAKER_00: People have bailed, they've just had enough of being rinsed, and so it's an interesting dynamic where you've got the physical market liquidity increasing and the paper market liquidity decreasing.
• 23:27
  SPEAKER_01: But the most critical point that you just made without saying it is where it's clearing.
• 23:34
  SPEAKER_01: And remember, east-west and the importance of precious metals.
• 23:41
  SPEAKER_01: So the entity doing the trading and where that entity is located is also a critical factor.
• 23:49
  SPEAKER_00: Yeah, absolutely.
• 23:50
  SPEAKER_00: Absolutely.
• 23:51
  SPEAKER_00: I think it's just to me, all any of us want is a physical price that um I want a high-quality liquid asset in the form of gold that I can collateralize.
• 24:05
  SPEAKER_00: Now, if I know that it's stored inside of a physically um ring-fenced vaulting system that's expanding and graining liquidity, then I don't have to sell my gold.
• 24:18
  SPEAKER_00: I can actually collateralize it.
• 24:20
  SPEAKER_00: I can um and and without actually selling it, and and I can borrow against it, and I can do all the things I want to do with gold, and it takes a lot of the volatility uh out of the out of the market, essentially.
• 24:36
  SPEAKER_01: And I think you speak to a future that's going to be facilitated simply by the virtue of there being more liquidity in it.
• 24:47
  SPEAKER_00: Absolutely.
• 24:48
  SPEAKER_00: I think while while we've got you here, we've got to ask you some of the broader um looking at the broader crosses, because this is so important.
• 24:59
  SPEAKER_00: Um, I've sorry, the official story, and I do listen to your stuff, by the way.
• 25:03
  SPEAKER_00: The official story is that the economy is still holding up pretty well.
• 25:07
  SPEAKER_00: The mainstream narrative suggests the labor market looks solid.
• 25:11
  SPEAKER_00: I mean, you've got consumers, it's all spending.
• 25:14
  SPEAKER_00: Hey, this is all so rosy.
• 25:15
  SPEAKER_00: And the Fed says it's just fine-tuning its policy, but you have been saying there's actually a lot more stress underneath the surface.
• 25:24
  SPEAKER_00: So, what's the market missing here?
• 25:27
  SPEAKER_01: Well, I think that uh Federal Reserve Chair Kevin Worsh uh did a very good job of articulating what's being missed because he used the word aggregate over and over again.
• 25:41
  SPEAKER_01: We're looking at aggregate spending, we're looking at aggregate um consumption, we're looking at aggregate GDP, we're looking at the labor market through the sole prism of the unemployment rate.
• 25:55
  SPEAKER_01: That's only going to give him a skewed picture because if we go back to Math 101, averages reflect in many ways those who have amassed the greatest wealth.
• 26:08
  SPEAKER_01: And their imbalanced and dominant position in creating the aggregate level of cash savings in the United States, the$8 trillion in money market funds, that's dominated by a very small percentage of Americans.
• 26:26
  SPEAKER_01: The flip side of that is the 3% saving rate, which by itself is an aggregate, which tells you that a huge percentage of Americans are dissaving.
• 26:37
  SPEAKER_01: And that many US households, which is reflected in the credit card delinquency rate being higher than it was coming out of the Great Recession, with an unemployment rate at 4.1%, you're not seeing the entire picture.
• 26:52
  SPEAKER_01: There are millions of people have left the United States.
• 26:55
  SPEAKER_01: Well, how can you expect the how can you expect the unemployment rate to move very much when you've depleted the labor force of that many human beings?
• 27:03
  SPEAKER_01: So you have to look under the surface.
• 27:06
  SPEAKER_01: Last week we just we we we decided to throw some spaghetti up against the wall.
• 27:11
  SPEAKER_01: And when we saw initial jobless claims in the United States fall below the$200,000 threshold, we decided to do some research on what it looks like for in in Google search trends, drive for Uber.
• 27:25
  SPEAKER_01: Well, that's going in a completely different direction.
• 27:28
  SPEAKER_01: And that tells you that households are not getting by, but that they're supplementing their current work by getting more work.
• 27:36
  SPEAKER_01: So worse looking at the aggregates is not painting a picture of the average working US household that is being crippled, crippled by high utility bills, high gasoline prices, high prices for food, which leaves them with that much less to spend on what we call discretionary purchases, unless they're paying through the nose to finance it.
• 28:02
  SPEAKER_01: So Americans, more Americans than we've seen in five years are pulling cash out of their homes, cash out refinancing, something we talked about in the last housing cycle.
• 28:14
  SPEAKER_01: But they're paying up to do so.
• 28:16
  SPEAKER_01: They're paying much higher mortgage rates to get that cash out of their house.
• 28:20
  SPEAKER_01: Buy now, pay later, has become a real phenomenon, including to buy groceries.
• 28:26
  SPEAKER_01: So Warsh has five task forces.
• 28:30
  SPEAKER_01: I would humbly suggest to him that he look at the alternative data task force to provide him with a little bit different prism than just looking at the aggregates.
• 28:40
  SPEAKER_00: Well, perhaps you should subscribe to your service, QI.
• 28:44
  SPEAKER_01: That would benefit him as well.
• 28:46
  SPEAKER_00: Yeah, but exactly.
• 28:47
  SPEAKER_00: Exactly.
• 28:48
  SPEAKER_00: Because what you're talking about here is you're you're talking about analyzing, going deeper and analyzing um what would be most people just look at the mainstream media and say they take headlines and that's it.
• 29:00
  SPEAKER_00: Uh it does go no deeper than that.
• 29:02
  SPEAKER_00: I think that's why it's important.
• 29:03
  SPEAKER_00: I will obviously going to put a link in in for that because I would uh honestly expect I know that you look after um institutionals, you look after individuals, really across the board.
• 29:15
  SPEAKER_00: So um it's things that you need to know um when you're making decisions.
• 29:20
  SPEAKER_00: And you obviously not all of this stuff's free.
• 29:24
  SPEAKER_00: You have to, in fact, I always think you have to put a value on something for it to be appreciated.
• 29:30
  SPEAKER_00: Because if it's free, you just got no value.
• 29:34
  SPEAKER_01: Yeah, yeah.
• 29:36
  SPEAKER_01: You do, and and and the work that we do tirelessly, we publish eight times a week, is not easy work to do.
• 29:43
  SPEAKER_01: Um, but at the same time, we're wise enough, especially with our institutional investors looking for direction in terms of how they invest, we're wise enough to stick to our mantra that you have to trade the narrative.
• 29:56
  SPEAKER_01: You have to trade what most people see, which is very superficial.
• 29:59
  SPEAKER_01: But that doesn't mean the the other side of our mantra own the truth.
• 30:04
  SPEAKER_01: You also have to know where you actually are in the business cycle, in the data cycle.
• 30:08
  SPEAKER_01: If AI investment that is increasingly bought with very highly priced leverage, if that's plus defense spending is what's carrying the US economy, that doesn't tell you anything about underlying demand and what that is.
• 30:25
  SPEAKER_00: Yeah, no, that's so that's so important.
• 30:27
  SPEAKER_00: And I think again, you need to know what the big boys are doing.
• 30:32
  SPEAKER_00: And and you need to know that before you enter into that fray.
• 30:36
  SPEAKER_00: Uh, and an individual get get eaten alive.
• 30:39
  SPEAKER_00: Um, and so I think it's important.
• 30:41
  SPEAKER_00: And I think I was gonna ask you, um the Iran conflict, um, it's really changed the outlook for global energy supply.
• 30:51
  SPEAKER_00: I don't think in in the the short, just the short term, it looks pretty embedded.
• 30:57
  SPEAKER_00: Uh is that gonna, is that is that gonna create uh obviously obviously it's more inflation, but is it are we now facing a stagflationary shock where you've got a kind of a blend of weaker growth but higher producer and consumer costs?
• 31:14
  SPEAKER_01: What you're describing, um, we actually call stagnation because of a lack of purchasing power of most U.S.
• 31:23
  SPEAKER_01: households against this backdrop.
• 31:26
  SPEAKER_01: And therefore, you put the onus on the producers, the manufacturers, the service providers that are absorbing higher costs and not able to pass them along to end users to consumers.
• 31:41
  SPEAKER_01: The only choice they have under such circumstances is to cut costs.
• 31:46
  SPEAKER_01: And so you set up a cycle because cost cutting leads to job cuts, which leads to lower demand, which leads to less purchasing power, which leads to greater margin squeezes, and it sets up an adverse feedback loop that you really do not want in your economy.
• 32:04
  SPEAKER_00: And I think one of the things that um that I noticed that it might blow your mind if you think you've got expensive diesel costs over where you are, but I I'm paying two pounds a liter.
• 32:15
  SPEAKER_00: That's two pounds per liter.
• 32:17
  SPEAKER_00: I mean, that's like uh I mean, that's what's five liters to American liters to a gallon.
• 32:22
  SPEAKER_00: It's like that is huge money.
• 32:24
  SPEAKER_00: That's huge money.
• 32:25
  SPEAKER_00: So in other words, you fill up your tank, it's like it's it's like 200 bucks, maybe 250 bucks, you know.
• 32:33
  SPEAKER_00: Uh now this is what about the farmers?
• 32:36
  SPEAKER_00: What about the delivery people?
• 32:38
  SPEAKER_01: I mean, how is And that's and that's where you see the real tragedy, and that's what few few talk about.
• 32:44
  SPEAKER_01: And that's that small business bankruptcies in the United States are up 64% year over year.
• 32:49
  SPEAKER_01: And one of the reasons that these upcoming midterm elections uh could swing the opposite way.
• 32:56
  SPEAKER_01: You could see a full blue wave.
• 32:57
  SPEAKER_01: You could see Democrats take not just the House but the Senate, is because some of these Midwestern states, the farmers have just been slaughtered.
• 33:07
  SPEAKER_01: And there hasn't been the Chinese purchases of soybeans and corn that were promised at the same time to add insult to injury of what their operating costs are and how much fertilizer costs.
• 33:19
  SPEAKER_01: So um it is a very real economic phenomena and it is a tragedy for the US farming community.
• 33:27
  SPEAKER_00: Okay.
• 33:28
  SPEAKER_00: And and if and if the Fed can obviously continues to raise rate, um um, so what breaks first?
• 33:36
  SPEAKER_00: Is it bonds, equities, uh employment?
• 33:40
  SPEAKER_01: I think uh again, I'm gonna go back to what we first discussed.
• 33:43
  SPEAKER_01: It is a company with the gravitas of soft bank in the market as we film, contemplating having to pay a 9.875% coupon on junk debt.
• 33:58
  SPEAKER_01: So to me at least, I always see the markets and the stress points in the markets through the prism of credit.
• 34:06
  SPEAKER_00: If the Fed waits for official data to confirm slow down, is it is it too late by then?
• 34:16
  SPEAKER_00: Of course it is.
• 34:17
  SPEAKER_01: Of course it's too late by then.
• 34:19
  SPEAKER_01: And that's why that's why the Fed, that's why I wrote a book about the Fed, but that's why the Fed is rightly criticized for being a reactive central bank as opposed to a proactive central bank.
• 34:33
  SPEAKER_01: And I go back to one of the task force based on alternative data sets so that policymakers can have a more realistic prism so that they see what's coming and can be proactive in monetary policymaking, as opposed to just being constantly reactive.
• 34:52
  SPEAKER_01: Oh gosh, this happened.
• 34:53
  SPEAKER_01: We were waiting on very lagged old data sets that are poorly modeled for the modern economy, and all we can do is play catch up.
• 35:02
  SPEAKER_01: And by the time you're playing catch up, it's too late.
• 35:05
  SPEAKER_00: Well, that's a real problem.
• 35:06
  SPEAKER_00: And um, so so I guess really, if you're an investor in stocks or whatever it might be, um, are you getting paid enough to take this risk?
• 35:17
  SPEAKER_00: Um I mean, you've got equity concentration here, risk as well.
• 35:23
  SPEAKER_00: Um, are you getting paid enough, do you think?
• 35:25
  SPEAKER_01: Well, you know, the biggest players in the market where the concentration lives, last check, don't pay dividends.
• 35:32
  SPEAKER_00: Well, obviously, cash is still paying.
• 35:35
  SPEAKER_01: Cash is still paying.
• 35:36
  SPEAKER_01: That's that's why there's$8 trillion in money market funds, which is typically characterized as being cash on the sidelines.
• 35:44
  SPEAKER_01: Not when you're the wealthy who can see with your own eyes what overvaluation looks like, but sit back on cool your heels making five percent on your cash.
• 35:53
  SPEAKER_01: Why wouldn't you?
• 35:54
  SPEAKER_01: Why wouldn't you keep your powder dry?
• 35:57
  SPEAKER_00: Well, absolutely, absolutely.
• 35:59
  SPEAKER_00: No, this is uh it's it's really it's really interesting to me.
• 36:03
  SPEAKER_00: This because it's it can combining all these pieces is is very, very um it's very enlightening um because obviously these are the things that that decide what we do on from our perspective as well.
• 36:18
  SPEAKER_00: Um if the Fed prioritizes stimulus and credit expansion, is that going to accelerate for more foreign selling of we're seeing debasement trade, we're seeing selling of dollars and treasuries.
• 36:33
  SPEAKER_00: Um so that's underway, clearly.
• 36:37
  SPEAKER_00: Um, and and as we can see by there's absolute evidence of that.
• 36:41
  SPEAKER_00: With we've got um what bonds, uh I think um China, for example, has is has sold more bonds.
• 36:50
  SPEAKER_00: Uh I mean it is it has got less bonds now than the UK and Japan combined.
• 36:57
  SPEAKER_01: So here's my answer.
• 36:59
  SPEAKER_01: It's been almost 20 years since we've had a financial crisis.
• 37:03
  SPEAKER_01: When we did have a financial crisis, the world flocked to dollar financing.
• 37:10
  SPEAKER_01: Now, if that is not replayed in the subsequent episode, if sovereigns, if corporates do not borrow in dollars, then we would have a definitive answer to your question.
• 37:28
  SPEAKER_01: But we know that China does not want reserve currency status.
• 37:31
  SPEAKER_01: Um and if there is such a situation in the United States that the Fed finds itself easing, that means that the rest of the world's economies will be that much worse because of the influence the US economy has on the global economy.
• 37:47
  SPEAKER_01: But the question will come down to actions, not words, and whether or not the debt that is subsequently issued, whether it be emerging market, global corporate debt, is not in dollars.
• 38:02
  SPEAKER_00: And and you uh you mentioned how to subscribe a question actually, because they um they picked up on you talking about the$8 trillion in money market funds uh that you've drawn attention to.
• 38:14
  SPEAKER_00: And but but I think the question was there are always risks attached to any trade.
• 38:19
  SPEAKER_00: And uh and what risks do would you attach basically to what many investors could see as a passive low risk trade?
• 38:27
  SPEAKER_00: But but really, I mean, every every even a bank deposit is a trade.
• 38:33
  SPEAKER_00: Um, what do you do you see there's risks of say say say that there's a market, another 2008 situation or something similar to that?
• 38:43
  SPEAKER_00: Is there a risk of being gated in those funds?
• 38:46
  SPEAKER_01: No.
• 38:47
  SPEAKER_01: No, no, no, no, no, no, no, no, no, no.
• 38:49
  SPEAKER_01: Um, there are laws against that.
• 38:50
  SPEAKER_01: Um, and that was what the question that you're posing is exactly why Lehman Brothers' collapse led to a breaking of the buck.
• 39:01
  SPEAKER_01: A breaking of the buck in a money market fund, which was considered to be a bridge too far, systemic risk.
• 39:07
  SPEAKER_01: Um investors have to know that their money is safe.
• 39:12
  SPEAKER_01: And money markets breaking the buck just cannot happen.
• 39:17
  SPEAKER_01: Now, this being said, can you wake up tomorrow and your 5% is 0%?
• 39:23
  SPEAKER_01: That's a good question.
• 39:24
  SPEAKER_01: Um, because rates do move quickly if there's panic at the central bank, such that they're saying we have to immediately go to the zero bound, which happened when COVID hit.
• 39:34
  SPEAKER_01: It's it's not impossible in the realm of possibilities.
• 39:39
  SPEAKER_01: Um, but in such instances, I say find great dividend-paying companies because their dividends are a lot fatter after you go to a zero interest rate environment.
• 39:49
  SPEAKER_01: So there's always opportunities presented um to investors, regardless of which direction markets may move.
• 39:57
  SPEAKER_00: And and I think you've also mentioned there's um risks, um, and and we're looking at um some of the uh real estate risks, commercial real estate risks.
• 40:09
  SPEAKER_00: Uh are they still, I mean, there was a real issue um some months, some a year or two back.
• 40:14
  SPEAKER_00: I'm just wondering, is how how is that looking?
• 40:18
  SPEAKER_01: So um I I have a Bloomberg chat uh with my institutional clients.
• 40:23
  SPEAKER_01: And boy, if the last three or four days have not been filled with stories about commercial real estate blowing up.
• 40:32
  SPEAKER_01: And the difference between when we spoke three years ago and today is that banks no longer have an appetite to extend and pretend.
• 40:41
  SPEAKER_01: So they're forcing properties to clear.
• 40:45
  SPEAKER_01: And the losses that are occurring, um the the percentage of commercial mortgage-backed securities that are in default, that are maturing this year and next year, and and Moody's has been um drawing attention to this, they're just enormous.
• 41:06
  SPEAKER_01: And so, whereas a year ago we were isolated to talking about distress in commercial real estate as office properties, that is now spilling over into the multifamily sector, where a lot of money has been poured in the past cycle.
• 41:21
  SPEAKER_01: And if banks no longer have that wherewithal or ability or choose to extend and pretend, um you will see a continued unraveling in commercial real estate that's broadening out beyond the office sector.
• 41:39
  SPEAKER_01: And by the way, that's a global phenomenon.
• 41:42
  SPEAKER_00: Yes, it is.
• 41:43
  SPEAKER_00: It is.
• 41:43
  SPEAKER_00: I've noticed that in this country, and we're connected to somebody in that industry, and they're just like they're they're they're a bit concerned.
• 41:51
  SPEAKER_00: And that's you say it's true.
• 41:52
  SPEAKER_01: If a bank refuses to extend and pretend you have to show up to refinance a property with cash, that's your only alternative.
• 42:00
  SPEAKER_01: You have to be able to infuse equity, and if you can't, then losses are realized.
• 42:05
  SPEAKER_01: And there are a few outfits here in the United States who've learned how to break a CMBS structure, commercial mortgage backed security structure, such that all the way up to the AAA's, investors are taking losses.
• 42:16
  SPEAKER_01: Now, that that is supposed to be impossible.
• 42:20
  SPEAKER_00: I mean, who who's holding this debt?
• 42:22
  SPEAKER_00: I mean, is it private private sector?
• 42:25
  SPEAKER_00: Is it who is it?
• 42:26
  SPEAKER_01: Increasingly, it well, in the United States, the largest banks have tried to divest themselves of some of the riskiest commercial real estate loans.
• 42:36
  SPEAKER_01: Um, they've been selling them to the private entities of the world, to the private equity and private real estate funds that banks, by the way, provide funding to.
• 42:45
  SPEAKER_01: So there's a circularity there.
• 42:47
  SPEAKER_01: But it's the small and regional banks in the United States that continue to have disproportionate shares of their loan books in commercial real estate, and they are at risk.
• 42:58
  SPEAKER_01: And then, of course, investors in commercial mortgage-backed securities, they are at risk.
• 43:03
  SPEAKER_00: I mean, we're talking this must be trillions involved.
• 43:06
  SPEAKER_01: Oh gosh, yes, of course.
• 43:08
  SPEAKER_01: Yes, it's a massive market.
• 43:10
  SPEAKER_01: Yes, we're talking trillions.
• 43:13
  SPEAKER_00: So it's not the small regional banks that that necessarily, because we have some huge issues there, didn't we?
• 43:19
  SPEAKER_00: Some bankruptcy.
• 43:20
  SPEAKER_01: No, no, no, no.
• 43:21
  SPEAKER_01: Small and regional banks are still sitting on that, on their on their commercial real estate loan books.
• 43:26
  SPEAKER_01: They're most at risk within the US banking system, the conventional banking system.
• 43:31
  SPEAKER_01: And then it's the private markets, the the huge investors on the private side, big private equity, commercial real estate collateralized loan obligations, C R E CLO.
• 43:45
  SPEAKER_01: That's where a lot of this risk lies too.
• 43:47
  SPEAKER_00: I think the sad part to me would be the re in the regional banking sector, which is which is basically your farmer going to the local bank, negotiating face to face, doing deals and And it's like so when if that goes down, that effects that is really that that under undermines everything.
• 44:08
  SPEAKER_01: Yeah, it it is it is the fabric of communities.
• 44:12
  SPEAKER_01: The idea that the United States should be a country where there's just five or six big banks that serve is is that that is not a future that I'd like to see.
• 44:22
  SPEAKER_00: Well, Danielle, you've been so, so generous with your time.
• 44:26
  SPEAKER_00: I'm gonna ask you uh and I'd love a final question if that's all right.
• 44:31
  SPEAKER_00: Um and this is really again, it's aggregating a bunch of questions that came to me for you.
• 44:37
  SPEAKER_00: So for investors trying to protect their capital over the next, say, six to twelve months, this next period, um, what is the one risk perhaps that they are really still underestimating?
• 44:50
  SPEAKER_00: And and what really ideally should they be doing now before the official data really catches up with all of this stuff?
• 44:58
  SPEAKER_01: So I think um I think investors should be cognizant of it's kind of like driving on the highway.
• 45:04
  SPEAKER_01: If you're a really good driver, you still have to worry about the other drivers on the road.
• 45:10
  SPEAKER_01: And so I would be cognizant of how much margin debt there is out there and the potential for margin debt to land in strange places that they're not expecting.
• 45:19
  SPEAKER_01: So to the extent that they need to be more risk averse with the riskier portions of their portfolios and hedged in some way and prepared for the other drivers on the road getting margin calls, that would be that would be my advice.
• 45:34
  SPEAKER_00: And I think from a practical perspective, and we've we always say to people, don't don't get involved in in the um the comex play pin pen.
• 45:44
  SPEAKER_00: I mean, and don't get involved in paper gold.
• 45:46
  SPEAKER_00: Either look, if you're gonna buy gold and silver, physical gold, physical silver, over time, just have a look at any chart, go back, any chart, no matter.
• 45:56
  SPEAKER_00: I'm not talking about 10-minute charts, we're talking about go back and look.
• 46:00
  SPEAKER_00: And and you'll see that if you've just been a stacker and if you continue to be a stacker and just average in a little bit what you can afford, what you're not using dollars for essentially every every month, um, would you agree that's a really solid strategy to continue with?
• 46:19
  SPEAKER_01: Yes, over the long term, I would certainly agree with that.
• 46:24
  SPEAKER_01: Again, being cognizant of um uh the ability of tourists in the asset class causing a good period of disruption.
• 46:36
  SPEAKER_01: But again, that would present that would present a buying opportunity.
• 46:39
  SPEAKER_00: Yeah, absolutely.
• 46:40
  SPEAKER_00: And this is eyes wide open.
• 46:42
  SPEAKER_00: But essentially, I've I've always said to people, don't don't put in if you've got spare money and you want to protect, generally you've got a longer-term view, and you want to protect your wealth, you know, it's a bit like a bucket, it's got a hole in it.
• 46:56
  SPEAKER_00: Well, better plug the hole.
• 46:58
  SPEAKER_00: And and and it's probably a good idea to plug the hole um for a longer-term position with something that you know cannot be be debased at all.
• 47:08
  SPEAKER_00: It cannot never been debased 6,000 years, saying can't be debased.
• 47:13
  SPEAKER_00: And in fact, I've got this little sovereign here carry around in my pocket.
• 47:16
  SPEAKER_00: And in 1930, that was I could exchange that sovereign for a pound at the bank.
• 47:22
  SPEAKER_00: Well, it's 900 pounds now.
• 47:24
  SPEAKER_00: I mean, it's like it didn't change, nothing changed.
• 47:27
  SPEAKER_00: It's like so, really, over time, um, probably not a bad idea.
• 47:34
  SPEAKER_00: Indeed.
• 47:35
  SPEAKER_00: But Daniel, thank you so much for your time today.
• 47:39
  SPEAKER_00: It is really valued.
• 47:41
  SPEAKER_00: Um, and um, you know, it's about education, it's about people learning, um, learning the bigger picture.
• 47:49
  SPEAKER_00: Um, I have encouraged people, I will encourage people to land on your site.
• 47:55
  SPEAKER_00: Um the obviously be prepared.
• 47:58
  SPEAKER_00: You're gonna be you're gonna pay a fee for a valuable service, but if you're gonna make decisions, you can't afford not to.
• 48:05
  SPEAKER_00: So I would strongly narrative, own the truth.
• 48:08
  SPEAKER_01: You own the truth by by reading our research.
• 48:11
  SPEAKER_00: Well, Dani Ellis, thank you so much.
• 48:13
  SPEAKER_00: Thank you so much for joining us.
• 48:15
  SPEAKER_01: And thank you for having me.