Latest / Financial Survival Network / Economy Keeps Muddling Through -- Wolf Richter #5815

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Economy Keeps Muddling Through -- Wolf Richter #5815 · Financial Survival Network

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Spending growth asked to Inflation is not as strong as it was, but it's
0:05
still there. You know, it's still growing and it's growing at rates of
0:09
worth similarly before the pandemic. And yeah, so the consumers hanging in there
0:15
though it's other parts of the economy that are hiving will problems. You're listening
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You are listening to watching the Financial Survival Network. I'm your host,
0:51
Carrie Lutts. Well, hey, economy, it looks like it's imploding,
0:56
or maybe it's a slow ocean implosion right before area is housing down in many
1:02
areas, auto sales, economy, interest rates. We got Wolf Richter with
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us now from wolf street dot com. Wolf great to have you back on.
1:11
So what do you make of the economy now? Hi, Kerry,
1:15
Yeah, I mean it's it's an interesting economy. Economy and um, I've
1:19
never seen anything like this. Yeah, the consumer is still hanging in there
1:25
like a server, is still swimming in money, and uh so they're still
1:29
spending, which is a problem for the fit because you know, they're trying
1:32
to get inflation down and so they're raising interest rates and the consumers are not
1:37
cooperating. So now we've got high interest rates that are really harding the banks.
1:42
Uh we've got you know, we've got there. We already had a
1:45
handful of them inpload and and there's stressed many other banks of stress. So
1:49
that's that's an issue we've got. Uh And so that's the financial system that
1:56
is now struggling. And then on top of that, of course, we
2:00
we have this uncertainty about the US default. So meanwhile the consumers just blowing
2:05
it all off and just spending money handle a fast. So that's the Alfred
2:09
E. Newman economy, remember him, what me worry? That's that's that.
2:16
Yeah. Yeah, So how long does this go on for it till
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till the consumer starts, uh facing reality. Well, we we've seen some
2:27
layoffs, but these people that have gotten layoff laid off in the techn social
2:31
media uh sector, stuff got to rehigh end pretty quickly and uh, sometimes
2:38
outside of tech and social media and lots of other companies that look for talenter
2:43
this type. And so we really haven't seen, uh in the big increases
2:50
and unemployed people, you know, so that that's not happening yet, and
2:53
it's going to eventually happen maybe you know, but it's not. It hasn't
2:58
happened yet. So that's the incomes stream of many Americans and that's still holding
3:02
up. They've gotten the biggest pay raises in for decades and they're working and
3:07
so you know, that's that's doing pretty good. And then you know,
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you have all these other people, the retirees and others that live off their
3:15
fixed incomes and yeah, you're talking about twenty twllion dollars in in UH treasury
3:22
bills and money market funds and in savings products and they're now making five percent
3:27
income yet on their money and they made zero but send essentially a year and
3:30
a half ago. So they're starting to spend this money and this is propping
3:35
up spending. Two. So we've got all the stuff going on on the
3:38
spending side, uh in terms of consumers, and we haven't seen any disruption
3:44
to that yet. Yeah, that's it's it's i mean, spending growth after
3:47
inflation is not as strong as it was, but it's still there. You
3:53
know, it's still growing and uh it's growing at rates and worth similar before
3:58
the pandemic. And um, yeah, so the consumers hanging in there.
4:01
There's other parts of the economy that that are having real problems. Yeah,
4:05
the banks, we're talking about that from a minute ago. Companies are having
4:09
trouble, uh, you know, with with risk here, companies are having
4:14
trouble refinancing their loans. We've got the whole sect of commercial real estate,
4:18
particularly office and now apartments and some other parts. You know, they're getting
4:21
into serious trouble. Retail and commercial real estate has been in trouble for years.
4:28
So yeah, there's other parts of the economy they're really struggling. Yeah,
4:31
so it's kind of interesting phenomena. And then there's sections of the country
4:38
that are struggling more than others, right, Yeah, And it's it really
4:41
depends on where you are and uh, and the economy is always local and
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and uh, real estate is always local, and small businesses are always local.
4:51
So I mean the big companies are global, you know, so when
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they talk about the layoffs they're talking about global layoffs. A lot of them
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don't even happen. Then, I it states that definitely impact us here.
5:01
Uh yeah, so that's a global thing. And but your small businesses,
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you know, they're local and they have local customers and restaurants at local customers
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and and so they're depending on the local economies and and on some places.
5:17
When I live in San Francisco and the place is hopping, you know,
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I just find it all the layout announcements and all the empty offices and all
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the stuff. You know, people are spending a disillion tons of money here,
5:30
and it's tourists and from all over the place, and and uh so
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you know that part is still there. And in other parts of the country
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you see some bigger weakness. This car cropping up. Some places never had
5:44
any growth to begin with. I mean that that's just how it is.
5:49
Right Well, in Miami, in Florida, it's exactly the same. It's
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blooming. Houses are still selling, but housing is definitely taking a hit in
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large swaths of the economy. And what's your take on that. Yeah,
6:04
it's regional to you. I mean, like you said, Miami, Uh,
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it's probably that in Florida, generally probably much better shape in terms of
6:13
housing, are further behind, let's say, uh than the West Coast,
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the entire West Coast, particularly California and Seattle, Portland. Yeah, big
6:21
coastal cities there are gating hit very hard on housing and they've been overpriced for
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years. Uh. Here in San Francisco, we've lost a good part of
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the population, and uh, there's all kinds of stuff on the market.
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Now. Prices have come down substantially in the entire Bay Area. They're starting
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to come down inside in California that have come down a lot. In Seattle,
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Oh, these are big price declines. We're looking at double digit price
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declines. Um. And now I've got spring selling seas at the moment,
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and everybody's got into this. Okay, Uh, prices are going up,
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but they're going up seasonally. Yeah, they always go up. They'll wind
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up during housing Dutch one during this time of the year, and so the
7:04
other parts. Yeah, some other markets have gotten hit pretty hard too,
7:09
and so we're and it's just sort of spreading from there. I mean,
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mortgage trades on Friday or so, the daily measures we have for backhouse to
7:20
seven percent, so for the average thirty you fixed. That's six point nine
7:25
percent. And yeah, these home prices in a lot of places don't don't
7:29
make sense at six point nine percent. It's just, yeah, it's just
7:32
too expensive and for details to happen. Yeah, the prices have to come
7:38
down. Hey what about the commercial real estate. You got empty skyscrapers all
7:44
over the country. I mean, my kids have embraced at the hybrid workplace.
7:49
They go to work two three days a week. The rest of the
7:53
time they work from home. If you're raising a family and you're a single
7:57
mom or father or to working parents, this is the greatest thing that ever
8:03
happened to you. But but not so much for commercial real estate. It
8:07
looks like we're looking at trillions of dollars of commercial real estate that will have
8:11
to be repurposed in some way or form. Perhaps they'll will become tesla factories.
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Yeah, that will be interesting. You know, I'm kind of long
8:24
term. You know, I'm pretty positive about this because these uh downtowns that
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are full of business buildings that you know, they're empty out after hours and
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then it become yeah, just devoid of people and they're not fund to be
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in the end, doesn't matter, war or when Yeah, these these financial
8:45
centers are really not a good place, uh in a sense. And uh
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so cities that have embraced mixing office buildings with residential buildings. Yeah, these
8:56
these central business districts that would become pretty lively and uh and so I think
9:01
that that's the future. You know, they're going to have to convert some
9:05
of those office towers that can be converted, you know, talking to older
9:07
buildings, a lot of them cannot be converted. You know, there will
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be sold in the foreclosure sale for land value essentially and be torn down and
9:16
replaced by residential tower. And yeah, this is is all very slow moving.
9:22
And we were talking years, you know, and so this is not
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happening today. I mean they're talking about it, they're starting some some conversions,
9:30
and they've conversion has been going on for years. But it's just hard
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to convert a nineteen eighties office tower into residential. It's almost impossible. It's
9:37
just cheap but to tear it down. But there's some buildings where that works.
9:41
And so but it's you know, tearing down the building and building a
9:43
new one that's good for the economy. Yeah, it's a lot of investment,
9:46
a lot of spending and so that that when that starts to happen,
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that would be a good thing. Meanwhile, we've got investors or equity investors
9:54
in these buildings, and we've got lenders in these buildings, and they're going
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to lose their shirts. And there's just no way around it. It is
10:01
spread all over the places. Uh. So far the big defaults that we
10:05
have that I've looked at that these big towers, you know, there will
10:09
all investors in banks that we're on the hooks and these a commercial war dispatch
10:13
securities, mortgage speeds and private equity farms and other especially unders life insurance companies
10:20
you know that that are on the hook for them so far, and um,
10:24
yeah, that and the investors, equity investors lose their their portion first.
10:28
So then so far that too has gotten hidden. It's spread all around.
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It's global on these a global investment funds, he's a global bond continential
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funds that that have invested in the equity and in the depth of these uh,
10:41
these office towers, and you know, there's just no way around it.
10:46
These an old office tower is worth the land value essentially. You know.
10:50
That's that's what we're learning and one of them solding in San Francisco.
10:54
You know, we finally had the first post pandemic sale going through of an
11:00
office tower, and I cut the prize by seventy five percent. And it's
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old. You know, that's that's what you have to do. You know,
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this out on an old office down. It was a usable office down.
11:09
It had an attended that's Albna. It was at least after the arrangement
11:13
the bank sold. There was no lenders involved. They didn't involve any losses
11:16
for Lendus. And in that kind of set of market price, seventy five
11:22
percent off and and uh you know, and that will probably uh I would
11:28
be working model and going forward. Okay, so you know I can see
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that. I remember reading the story of the of Massachusetts Mutual for closing on
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the Chrysler building. I don't remember the exact dates, and they sold it
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for hundreds of millions of dollars at some point in the future. I was
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in an office building in Manhattan that they foreclosed on and I never saw it
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if they sold it again, but they foreclosed for like twelve million. Building
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is probably worth a couple hundred million. It was a historic high rise.
12:05
So definitely opportunities are there. They found that, like in Lower Manhattan,
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a lot of these older buildings that were office buildings were actually really perfect for
12:16
conversion because of the dimensions or so than new buildings because they were a set
12:24
number of feet from the elevator corps, so there was very little internal space.
12:28
And these buildings, the newer ones that have like hundred thousand square foot
12:33
floors, not really that suitable for or residential because you've got all this interior
12:39
space that won't have windows, and that just it's good if you're an artist
12:45
an art studio, or you have a sound studio in your house like me,
12:50
but otherwise not so good. But I guess it's going to get digested.
12:56
As your point, a lot of institutional investors hold them orgages and they'll
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be the proud owners of this property at some point or another. What about
13:05
the auto industry now, it looks like sales have been heading downward for everybody
13:11
but Tesla and a few ev makers in in China. But one analyst I
13:20
talked to recently forecast that the Tesla will not be able to withstand the flood
13:26
of Chinese imports. I'm not buying it being a Tesla owner myself, I
13:31
just don't see the driving experience being equal in the Chinese cars. I could
13:37
be wrong. What's your take on what's happening there and and interest rates and
13:43
repos and all of that. Yeah, so in terms of the thing,
13:48
yeah, we have Ford come out today and say that prices will have to
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come down by about five percent in part because of Tesla's price cuts. And
13:58
Tesla has is very uncommon in the auto industry. You know, Tesla has
14:05
build and it's continuing to build production capacity and in large amounts. I mean,
14:11
they're just opened plant in Texas, they opened one in Europe. They're
14:15
looking at new plants that have got this huge plant in China and got the
14:18
plant in California. They're looking at opening new plants in Mexico and in other
14:24
places in Asia. And so they're continuing to ramp up the capacity. And
14:28
in order to make the work, they have to sell a lot of vehicles
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and uh and they had the largest profit margin of the main automakers, you
14:39
know, so they can't afford to cut prices. And they're going out there
14:43
and they're trampling all over these legacy automakers. And I think that's great.
14:46
Now I'm not a huge fan of Tesla, but but I think the strategy
14:50
is just amazing. I have come to hate the legacy automakers for the stupid
14:54
decisions they have made over the years, and you know, they have ignored
14:58
e for decades. So now Tesla it's a decade ahead of them. They
15:01
can't get the supply chains together, you know. For it's got a couple
15:05
of models out, but you can't build them in large quantities because it doesn't
15:09
have the supply chains to do that. And yeah, they're going through all
15:13
the problems Tesla went through ten years ago, five years ago, you know,
15:16
So now they're trying to catch up. GM doesn't have anything really,
15:20
you know, it's talking about what it's gonna have, and the one vehicle
15:22
that had the boat it's it's shutting down. So there are other eb meakers
15:28
out there, like Volkswagen and the Koreans you know, that are doing a
15:31
much better job, and they're providing some pretty stifferent competition. Of course,
15:35
in challenge that, Like you said, there are hundreds of eBay because and
15:39
some of the big ones, some of the big companies are are being very
15:43
competitive and they have to compete on price, So they cannot compete on cool
15:46
factor with Tesla, and they'll have to compete on the price. And that's
15:50
what it comes down to. The United States. Now we have this for
15:54
the first time in many, many years. We've got a new entrant,
15:56
essentially a Tesla shaking ogopulistic behavior of the legacy automakers. And I think that
16:03
is great. And the auto prices have gone up so much, so fast
16:07
that the average American came no longer a forty V a new vehicle, So
16:11
that's something seriously wrong with that strategy. Everybody has gone up scale. Uh
16:17
that the average Sun's actual prices for new vehicle is now forty seven thousand dollars,
16:21
which is just ridiculous, you know when you look at average incomes.
16:23
Yeah, and so uh yeah, something needs to happen. It. Tesla
16:27
came along and it is now shaking them up and that it's good and it's
16:30
having a big impact. Um. You know, that's why EV says and
16:34
a lot of other ev evmakers have followed suit. So they've cut their prices
16:38
and in California and we're looking already at an EV market share of twenty percent.
16:44
So I mean Nasi from I don't know or really you know, And
16:47
it's not just destolating more now it does forty models on the market. And
16:51
and so even though Tesla is number one and the model of hy and Model
16:56
of three are now the number one and number of best sellers in the statement
17:00
blowing away Camry and other models. And uh, you know, so the
17:06
automakers are going to have to react after this story that doesn't have anything really
17:08
to speak off from the EV field completely drop the ball. And so that's
17:12
that's the biggest movement in the auto industry I've ever seen. It's a shake
17:17
up. You know. It's really good for industrial America, I think because
17:19
a lot of these evs and the technology is is being built in the United
17:23
States. Uh. Yeah, I think this is a great thing to happen
17:26
from an industrial point of view, from an American industrial point of view.
17:30
And uh and I think the price cuts are a great thing to happen.
17:34
From a consumer point of view. I think it will be tough going for
17:38
for the legacy automakers. You know, a fight like that, it's it's
17:42
tough to deal with. And so that's that's one aspect that's really working and
17:48
I'm I'm I'm surprised with how suddenly it took off, you know, and
17:52
it was just gradually going and now starting we've got this this sort of massive
17:59
momentum behind and that we're going to get some imports from China that we're going
18:03
to shake up the pricing situation further. So I think that's a good thing.
18:06
The bad thing is for consumers. Interest rates have doubled for autos.
18:11
You know, that's just that's just how it is. And and uh so
18:14
that's getting a lot more expensive to type with these expensive vehicles and uh you
18:18
know, there's a huge amount of paint up supply out there. There's like
18:23
four or five six million vehicles that haven't been bought over the last three years
18:26
because of the supply s religious people have inventory. Now we've got inventory.
18:30
Now there's pickups, and there's SUVs and alternids of stuff everywhere. Uh except
18:36
some of the import makers don't have a lot of ivagory. But the domestic
18:38
brands all have a plenty inventory and deals are being made. Uh yeah.
18:42
Automaxis subsidizing the interest rates on the car loans, so for credit offering three
18:48
point nine percent of pickups and that kind of stuff. So, uh,
18:52
yeah, they're they're going to they're going to have to fight to get get
18:56
their internal compulsion engine vehicle sales up the way down the levels of the nineteen
19:02
seventies. You know, we we haven't seen those kinds of sales figures and
19:06
in many decades except during the peak of the financial crisis and and uh during
19:12
the lockdown. Yeah, so these are really bad sales figures on on ice
19:17
vehicles and uh, you know it market just being eaten up by these evs.
19:22
So you know, the industry hands is being really shaken up by business,
19:26
right, So yeah, I just see it. They're totally caught flat
19:33
footed, like merry embarrassment there over who runs a gm uh saying that they're
19:40
going to overtake Tesla by two twenty five. And you know she said that
19:45
a couple of years ago and everyone left. But it was ridiculous on its
19:49
face. The charging infrastructure that Tesla has constructed, they just opened one literally
19:57
down the street from house here. That's the demand. Like I don't use
20:03
it that much because I charge at home, which is another nice thing.
20:07
Whether the grid can handle the increased demands of the evs at something I guess
20:12
we'll find out in the next few years they'll have to build. So when
20:17
you charge up your vehicle, I charge it in my garage, you know,
20:21
a midnight right, yeah, And so to see that's the thing.
20:23
You know, most people that own evs charge at midnight. That's when the
20:27
electricity is cheaper if you have time of use building. And that's one of
20:30
those huge excess capacity in the grid. And so these evs that are being
20:37
charged at home at night are just using up excess capacity, you know,
20:41
and and idle capacity. You know, that's just sitting there and it's expensive.
20:45
And the electric utilities they're loving you it's they're absolutely exciting about this because
20:48
now they can sell electricity at night, but when the really people hadn't been
20:52
buying electricity, And so I think the strain on the grid will be a
20:56
lot worse because of that, because it's just it will it will even out
21:02
the loan and uh, it won't be all yeah, it won't be in
21:06
dcvs won't be charging in the middle of the afternoon when the acis kicking,
21:10
you know, they'll be charging when the electricity is cheaper, which is in
21:11
the middle of the night. Moost of them and so um, you know,
21:15
I think the strength on the grid will be manageable. Also, all
21:19
the electric utilities, when they see that they have growth in revenue, that
21:22
can invest in the equipment and infrastructure in which yeah, which they really couldn't
21:27
before because they couldn't justify to investors because the sales weren't going up. And
21:33
so now that sales are going up electricity sales, you know that they can
21:37
invest if she long term bonds to build equipment. That's how the model works.
21:41
And they're back on the growth models. And I think, I mean
21:45
twenty twenty two was the first year in the United States broke out of its
21:48
electricity consumption pattern. It's stuck in for fifteen years. So for the first
21:52
time we have a nature increases in electricity sales in fifteen years, you know,
21:57
and that's that's a good day in anyway. Yeah, for utilities,
22:00
they're not scared of that. Well, the fact is that a kilowat to
22:07
produced at high and noon pass the electric company about five times more than a
22:14
kilowat produced at midnight, assuming it's not air conditioning season and you don't have
22:21
this massive heat wave going on. And the fact is that when you're in
22:26
time of use billing, they charge you five times more for that day kilowater.
22:30
Maybe in Florida it's four times more, and they don't you know,
22:37
it costs them three cents to produce a kilowat at midnight and they charge you
22:44
seven or eight cents, So they're really like not passing that savings on to
22:48
the consumer. I mean one thing, having an EV, I've learned to
22:52
geek out over my electric bill to figure out like how I do things as
23:00
cheap as possible using time of use billing. But so summing up, things
23:07
are bleak for the legacy auto of manufacturers, but for the up and coming
23:11
ones Tesla in particular, a select few of the Chinese, because they're not
23:17
going to be able to build service organizations. Globally, only a few will
23:22
be able to do that. You know, your x y Z electric car
23:26
company that's in the you know, shen Zen province is just not going to
23:33
be able to have a service network. Cars regardless still require a lot of
23:41
service, so only certain companies can really do that right, right, But
23:45
there's also hancidentia among American consumers to buy unknown brands with little representations. She
23:52
ended up with a vehicle or the carmaker then pulls out and eat retail value
23:59
crash value crashes, and you can't get it sort of, you can't get
24:02
parts of stuff, you know. So, I mean that's a problem a
24:04
lot of startups have once a cool factor vanishes. You know, most people,
24:07
like they look at a vehicle as transportation that needs to be reliable,
24:12
and they need to be able to sell it when they want to, and
24:15
they need to be able to get it fixed when they need to, and
24:18
and and so I think a lot of these startups will just not make it.
24:22
Yeah, there'll be a big shakeout and a lot of these smaller companies
24:25
will vanish, and the big legacy automakers will eventually get the stuff together.
24:29
But yeah, they're just ds behind and they just handed Tesla the market and
24:33
say, oh go go run with it. Yeah, it's like basically owning
24:40
one of these Chinese no name, we used to call them bastard brand cars
24:45
will be like owning a Saab. After they shut the company down, you're
24:49
out a few years there, maybe if nothing bad goes wrong, and you
24:53
hope that you'll be able to find the parts from a scrapyard, but it's
24:59
not exactly confidence inspiring for sure. So and Tesla says they're going to build
25:04
by the end of the decade twenty million cars a year, which is a
25:08
feat that has never been accomplished even by the lakes of GM or Toyota.
25:14
That's going to be interesting to see. Yeah, it'll be interesting to see
25:17
if they can actually sell them. I'm pretty sure they can build them,
25:19
but selling them that's another thing. You know, once you get to these
25:22
numbers and a few Ustan glod, you know that there are some automakers that
25:27
are starting to make a lot of progress, you know, like like Kia
25:30
and yeah and die in one and another she has some Europeans and um,
25:37
yeah, they're going to eventually fight back, and so then it will come
25:40
down to price. Now, I mean, this is this is why I'm
25:42
so excited the Buddy beans, because we finally have a disruptively company here that
25:48
will shake up that pricing on Agapuli we've had, yeah, and they've just
25:52
been screwing us, you know, the guaranteed price. Look what they did
25:56
during the pandemic. Prices of pickup trucks or one hundred thousand dollars and more
26:03
and they didn't get that much better in the maybe even a little worse during
26:07
the pandemic. You know what about this full autonomy. I mean, I
26:12
love the FST, but it's like, basically, you're driving with your sixteen
26:18
year old who just got their license, except that Tesla has a lot more
26:22
confidence than that sixteen year old. And I'm telling you, if you just
26:27
let it steer you in the direction it wants all the time, you'll be
26:32
in an accident, there's no question. On the other hand, I've had
26:36
two instances. One where it's pitch black at night. I'm going on the
26:41
road. There's street lights, but not very they're really spread apart, and
26:45
it's a divided highway. The car hits the brakes and I'm thinking, oh,
26:49
okay, great phantom breaking again. And then I see a bicycle shoot
26:56
across right across where I was going, basically save that person's life. The
27:00
other time it happened almost the exact same situation, but pedestrians in an unlighted
27:07
area ran across the street. The car hit the brakes like not quite panic
27:12
stop, but it hit it well before I even recognize those pedestrians were crossing.
27:18
Do you think this is like the the unobtainable full self driving automated autonomous
27:25
driving. Yeah, so the things that you mentioned are widely available now and
27:30
they I mean even heavy trucks have those emergency braking systems now and they're working.
27:36
You know, you have adaptive cruise control, you have all kinds of
27:38
things that regular cars and I have that are actually far from driverless autonomous driving.
27:47
You know. And we in San Francisco half now cars driving around robotax
27:55
is driving around with out drive or picking up people. Yeah, and on
28:00
an experimental basis by by the automakers, and um, you know, and
28:07
you know there's yeah, there's a fun stories to read where where you know,
28:11
a bunch of these crews rubbo taxes suddenly passed up into an intersection stop
28:17
and pop traffic for hours, you know, and and um, those kinds
28:21
of things. You know, I'm a base how well they are doing.
28:25
I'm a what amazed that anybody can come up with a vehicle that that drives
28:30
on its own to the chaotic traffic of San Francisco and uh, and they're
28:33
doing it. Yeah, So this come a long way. Obviously we're like
28:37
ten years behind schedule, but um uh eventually this technology will probably work and
28:44
I I am personally looking forward to having you know, not even holding a
28:48
vehicle anymore, just just subscribing to something that that that picks me up when
28:52
I needs, you know, right, you know, And um, uh
28:56
yeah, I've been looking forward to this forever and it's going to be many
29:00
more years probably before this is a functional technology that's widely available by the reasonable
29:06
price. Uh yeah. Human drivers are really bad and so you know it
29:11
the thing you know that robot drivers only have to be better than human drivers,
29:17
but that's not how the human equation works. We think the first person
29:21
that gets killed by a robotaxis like the natural catastrophe and we're killing thirty five
29:26
thousand people and traffic mentality here, So you know, human drivers are horrible
29:33
and yet you know or h self driving photonos driving to take off commercially,
29:40
it needs to be near perfect. That's a high bar to pass. And
29:45
and um and I agree with that. You know, I don't want to
29:48
get run over by a driver list vehicual who would just be really embarrassing.
29:53
Who are you going to sue? That's right exactly, that's a problem.
29:57
So but interest thing I mean Yeah. Every time there's a Tesla crash with
30:03
the autopilot, which is amazing. I have to tell you there is.
30:07
It's adaptive cruise control on steroids, steers the car. It really it's like
30:14
nothing. You get to a place, you're relaxed. It takes a lot
30:18
of the burden of driving off. I have to say, you know,
30:23
drive to Miami, they're relaxed, eighty miles away, relaxed. So I
30:29
think it's it's going to take a while though, because we're aways from fully
30:33
autonomous, because the thing has to be programmed to recognize a situation. It
30:38
doesn't think ahead, like hopefully if you're a if you're a defensive driver,
30:44
you're always thinking ahead. What's going to happen here? All autonomous can do
30:48
at this point is react, right, It doesn't predict. Yeah, I'm
30:55
doomed to look forward to the technology where many more years probably before wildly available
31:00
available. All right, So hey, interest rates in the economy in general,
31:06
like you said, it's a tale of two cities, if you will.
31:11
But as the Federal Reserve gotten to the point now where the system's broken
31:15
and they're going to have to cut rates, and if that's the case,
31:18
how much impact will it have. Yeah, so the system, meaning the
31:22
financial system, it's struggling with these higher rates, and it's struggling with them
31:26
because these managers back then made some really stupid decisions in buying these long term
31:33
pressure securities and mortgage backed securities going to rate too really low, and you
31:37
know, they the bond market was in complete denial about this, and they
31:41
know we started getting bigger inflation in late two twenty early twenty twenty one.
31:47
I kept buying these long eagest right securities. And so now they've got the
31:51
stuff that you know who whose market value has now dropped and then that will
31:56
be that'll be worth face value and they mature. But until that, let's
32:00
yeah, maybe ten years or twenty years from now, until then they have
32:05
to deal with market value and then has dropped a lot. And so for
32:07
banks, you know, this is a tough environment. There was a long
32:10
time, you know, there's this notion that are asking interest rates would be
32:14
good for banks because they the banks would still not paying any interest on the
32:19
deposits, so they would get this free money and they could charge higher interest
32:22
rates on their loans, so their their interest rate margin would would become wider
32:28
and that would make more money, and that has turned out to be a
32:30
fallacy that has turned out to be complete bs that's been been been spreading,
32:35
resuing spread for years. That in fact, deposits are leaving when banks are
32:38
not paying any interest on right, they're leaving to money market funds, they're
32:42
leaving to treasury security, they're going somewhere else. And when the deposits are
32:45
leaving, uh, you know, banks run out of funding and they collapse,
32:50
and so you know that part of the equation has turned out to be
32:54
wrong and the other part got misjudged, and you know that's so now we've
33:00
got this issue and the banks are going to get it through it, uh
33:04
mostly, and it'll be something that won't and they'll have crime earnings, Yeah,
33:09
because the interest rate margin will be squeezed as the deposits are leaving,
33:13
and especially the regional banks and the smaller banks, they have to offer I
33:17
two strakes on their deposits and that that brings the costs up and uh so
33:23
the earnings will be squeezed. There will be bad for investors, you know,
33:28
and they'll be we always lost some banks, but every year, yes,
33:30
and it's not unusual for for the piece of bank collapses. Um,
33:36
and there will be more. Uh. In terms of the rest of the
33:38
system being arts, it's really doing fine, you know. I mean they're
33:43
economy being a little with five percent interest rations. That's fine. We'll see
33:45
that, you know, we'll see inflation come down a little bit. Maybe
33:47
it has come out a little bit, but it's getting st key around that,
33:51
right and uh, you know consumers are still spending. Business are some
33:55
of the risks you alone will start to pick up again, you know.
33:58
So I after period of adjustment to five percent interest rates, you know,
34:02
uh, the economy will model through it this this, and and that's a
34:07
bad time for inflation, yeah, because now we've got this inflation that said
34:10
in that column is still generating demands and that's still you know, feeling inflation,
34:15
and there's the excess money. Ut. So I don't see I just
34:20
don't see a rate cut right this year, you know the short term bond
34:24
markets. I'm not saying it either. You know, when you look at
34:28
the six month yield, it's it's figuring in another rate height. Uh.
34:32
And no rate cut is yeah the majority of the year, and um,
34:38
you know that would have to be a significant decline in an inflation before the
34:45
FED would cut of interest rates. So it also this gets completely out of
34:47
control, you know, and then there were that we went through that in
34:52
the seventies and eighties were it completely got out of control and you know,
34:54
the dollar got hammered and all connects of problems. We're going and nobody wants
35:00
to think about the housing market with eighteen percent mortgage rates. So uh so,
35:07
I think the economy right now is adjusted, is adjusting to these higher
35:10
interest rates, and um, you know, in terms of stocks, in
35:15
terms of bank stocks particularly, I think this is tough sledding real estate stocks.
35:19
I think it's really bad. I mean, there's a lot of other
35:21
stocks out there that they're going to have a problem. But the financial markets
35:24
really are in the economic system, you know, they're they're just kind of
35:29
doing the own thing. And we've had really crummy economies with moving stock markets.
35:34
And we can get you know, a pretty you know model through economy
35:37
with a stock market that's a really bad shape, and that that could burn
35:40
will be a possibility given the valuations we now have. All Right, Well,
35:45
I think it's interesting what we're going through here and hopefully we're not going
35:52
to see double digit interest rates again in the near future, perhaps with Europe's
35:58
Europe's banks are in worshiped in the US as banks. One thing I find
36:02
interesting is Jamie Diamond said, we're not taking over these failing banks, and
36:08
that's going to last about five minutes till the next one comes, because it's
36:13
going to be like Merrill Lynch and Bank of America, where Ken Lewis said,
36:17
we don't want Merrill Lynch and the Treasury the FED say hey, mister
36:24
Lewis, you are now the proud owner of Merrill Lynch, but we don't
36:28
want it. No, you didn't hear us, right, you're a now
36:30
owner. And that's what's going to happen. The big banks will have these
36:36
failing regionals cram down their throats, whether they like it or not. On
36:38
a very attractive terms, I might add, they're gonna wind up with them,
36:43
so they might as well just bite the bullet now whichever one's fail.
36:47
Further consolidation, right, yeah, and I think there will be some pressure
36:52
on the other big bank. Bigger banks, I mean, even some regional
36:57
banks steps orb another regional bank. If it's not that big, you out.
37:00
There's some pressure on the banks that are not JP mortgage, you know,
37:07
to provide competitive bits, and they just you know, and they have
37:13
to provide competitive bits and and uh and then they get the bank, you
37:16
know. And but it's you know, I mean looking at a bank or
37:22
a weekend and deciding whether you want to buy it or not. I mean
37:24
that's a gamble. Well, yeah, they always get a backstop though,
37:30
from the Fed and from the Treasury. We take all the bad stuff,
37:34
you get all the good stuff as of this cutoff date. And you're off
37:38
to the races, but going to be interesting. So hey, go over
37:43
to Wolf's site, wolf street dot com. It's must reading. You get
37:49
insights into these types of issues you're just not gonna find anywhere else. And
37:54
Hey, you've got a question for Wolf or myself, shoot me an email
37:58
k l at carry Lutz dot com and you can click right through to wolf
38:04
site on the show notes to this interview at Financial Survival Network dot com.
38:09
Just click sign up for a free newsletter WELF. Always a pleasure. We'll
38:14
talk to you again soon. Thank you, Kerry, thanks for listening to
38:16
carry Lutz's Financial Survival Network. Your solution to today's trying times For the latest,
38:23
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