Stephanie Pomboy: Worrisome Cracks Are Starting To Show In The Credit Market (Finally!)
Summary
Market Outlook: Valuations remain stretched despite rising credit stress, with subprime auto delinquencies, elevated corporate bankruptcies, and zombie firms indicating risks not yet priced into markets.
Policy Path: The Fed paused QT on Treasuries while continuing MBS runoff and recycling into bills, likely setting up a move to broader QE or yield curve control given deficit funding pressures.
AI Theme: Markets are effectively betting on AI, driving capex and index earnings concentration, but sustainability concerns persist around productivity, overbuild, and chip lifecycle risks.
Energy as AI Proxy: Stephanie pitches buying energy stocks as a cheaper, lower-risk way to play AI growth since data centers require massive power, with natural gas a key fuel and energy valuations relatively depressed.
Natural Gas Opportunity: Natural gas is positioned as the primary, cost-effective bridge fuel for AI-driven data center buildouts, with policy urgency likely ensuring capacity expansion regardless of AI equity volatility.
Gold and Miners: Bullish long-term on gold and miners; recent pullback flushed out weak hands, ETF holdings remain below COVID peaks, and gold historically leads Fed balance sheet shifts by ~18 months.
Key Mentions: JPMorgan’s workforce shift toward Texas highlights the financial center’s migration, while ADP was cited as a better payroll data source than BLS during the government data hiatus.
Transcript
Let me silence my phone too. >> And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert, welcoming you here for another bi-weekly macro session with the macro maven herself, Stephanie Pomboy. Hi, Steph. How are you? >> I'm good. How are you doing? >> I'm good. All right. So, folks, we got to give you some quick uh back backstory here. So, I am at the New Orleans Investment Conference. I literally just hopped off stage and we're going to talk about that presentation in just a sec. Steph um so that's why you're seeing uh the the background different background here. Uh I also the hotel Wi-Fi is not working correctly. So we're doing this off my phone hotspot. So hopefully the technology hangs in here with us. I'm not the only one with some challenges here. Of course Stephanie uh her building was hit by lightning. uh they're doing some uh renovation construction as a result of that. So hopefully we can get through that without too much noise on your end, Steph. That that's gonna distract you. >> Yeah, hopefully not. I tell you when it rains, it pours literally around here. [laughter] I guess we're both dealing with issues, but hopefully um nobody will notice. >> All right. Well, everybody, >> you know, my main concern is that >> Sorry. In addition to all these little nuisances, um it's gonna be hard to talk uh to data since we've had 35 days with no data from the government, which actually may be a good thing, but [laughter] >> yeah, leaves me with let me ask you about that. So, um you know, for your regular day job business, Stephanie, you are um looking consuming a lot of data, a lot of it provided by the government and then doing your analysis off of that. um like you, other analysts, even the Fed has had to sort of rely now more on other alternative, more private sources of data. And you and I have even sort of asked the question in the past like why is the Fed so dependent on right >> really problematic data that comes from the government like the BLS particularly like the payroll data around the BLS when we can actually get uh you know the actual the actual payroll data from ADP right so is is this is this hiatus we're having here from the government data now maybe actually letting some of this other newer and perhaps more accurate data step more closely into the limelight and might that be actually a good residual effect from this government shutdown? >> Well, that certainly could be. You know, it kind of highlights the ability for um the average analyst and the Fed, etc. to find sort of more timely, better quality data out there. But the one thing that I thought it would do and and seemed to do initially was in the in the statistical vacuum that was created by this shutdown um obviously corporate earnings announcements coming from the companies themselves became much more important because there's nothing else to look at right and so initially in the earning season you had this you know all everyone with good numbers obviously always reports early in the season and you had a lot of really uh strong reports especially coming out of the the big tech companies and that set the market on a tear. Um and then you had and first brands and a series of um you know bankruptcies around that subprime auto space that seemed to get the markets a little anxious about the outlook for credit quality and that ricocheted back to the regional banks that were perceived to be most exposed to that. So, in a way, it was kind of a good thing because as you and I have been talking about forever, it wasn't a question of whether there were problems in the private credit space. It was just when they were going to actually come to light and be exposed. >> Where will they be and when will they come to light? Yeah. >> Yeah. I mean, we knew, you know, as I had been tracking and this data was available and still is, the corporate bankruptcies and you saw the largest number of corporate bankruptcies basically since the tail end of the global financial crisis. And yet in private credit land and in the the corporate broader corporate credit market spreads were, you know, pressed to the mat on this idea that everything was fine. Meanwhile, you know, when companies are going bankrupt in near a record number, you know, there are a lot of bodies, we like to use that analogy. You know, they're bodies that are are about to float to the surface. And sure enough, we saw a few of those. And as yet, you know, as it always is, these are being dismissed as oneoff uh idiosyncratic situations where they were particularly rife with fraud or had specific uh financial engineering that was unique to those companies. I would argue that it's far from unique and that this is just the beginning. But it's been nice that in the absence of all this other statistical distraction, things like that have actually captured attention and got a conversation going around the outlook for corporate credit quality more broadly. >> So, um, on the the stresses that we're starting to see in the corporate credit world, right, you mentioned a few of the brands that that went belly up and Jamie Diamond famously said, "Well, when you see one cockroach, there's probably more." Right. >> Yeah. We're we're all of a sudden too starting to see uh I don't know if it's record usage, but it's definitely um uh much higher than we'd had before, but usage of of overnight repo facilities, >> which is another sign of potential stress in the system, right? >> Yeah. Yeah. Absolutely. And I know there's been a lot of focus on the repo uh market as relates to the Fed's decision to stop the balance sheet runoff. >> And I think that's all interesting. you know, it's a lot of uh financial plumbing that people like to get into, but I always, as you know, like to step back and look at things from 10,000 feet up and and this idea that there's we're getting to the point where reserves have now run off to the point that liquidity is is suddenly becoming scarce and that's why the Fed had to decide to pause the QT. Um, I think it's just, you know, the financial plumbing notwithstanding, it was always going to end because of the problem of our deficit financing. You know, there just is no there's no way for us to finance two trillion dollar deficits um with foreign central banks outright selling and a der of buyers domestically to step in their and fill their shoes. And you know, we're looking at because we've skewed so much of the financing to D bills. I think I just did this uh last week, looked at the numbers when they they're going to pause the balance sheet runoff starting December 1st. In the 12 months between December 1st of this year and December 1st of 2026, we have to roll 7 trillion worth of Treasury debt. >> So $7 trillion. And right now, judged by the Fed's custody account, which we're still getting updated weekly, foreign central banks are on pace to sell $400 billion worth of treasuries this year. So, you can add that to the total. So, let's say we're at 7.5 trillion in funding that we need to come up with. The last thing, the situation Well, Stephanie froze here on my end. Folks, let me know in the live chat if you're you're hearing her or if uh if you're seeing her frozen as well. That might be on my end. No. Okay. So, Stephanie froze folks in the channel there. Okay. All right. Hopefully, this is probably due to some of the uh challenges that she's having on her end with the construction around her unit. Um hopefully she'll rejoin us in just a moment. Um in the interim, uh and folks, I'm sure she's going to come back in in just a moment if she's able to. Um, so I'm at this conference here in New Orleans and um, uh, want to give you guys a preview of tomorrow's video. Um, it's with Brent Johnson, the dollar milkshake fella, and um, he has a new theory that honestly has just blown my mind. Um, and it has to do with stable coins, which is something that I don't think too many of us really feel like we totally understand. Um, let's see here. Uh, see if she's coming back here. No, not yet. Um, so, uh, there she is. Hold on one sec. Steph, you there now? >> Okay. >> Yeah. I don't know what happened there, but >> your your video froze. Um, so anyways, thank you so much for jumping back in. I'm glad we told people at the beginning of this that there might be some technical challenges. So, I just started this saliloquy on um Brent Johnson and this honestly quite quite honestly mind-blowing theory that he just revealed to me. Um but I I'm I'm actually folks going to pause that for a moment because I I I want to tell Stephanie about that as well and get her reaction to it. So Steph, um we were still talking about the uh the credit system. >> Yeah. Yeah. And and you were basically saying, "Yeah, we're going to have to what? Uh find a way to soak up seven and a half trillion of treasuries over the next year, >> right?" And the way the Fed um uh couch the balance sheet, the end of the QT, is that it's only going to apply to treasuries. They're they're going to stop running off their treasuries. They're going to continue to run off MBS and that will generate up to $420 billion a year in money coming off of that MBS book that they can then recycle into treasuries. So essentially it does enable them to switch sort of reallocate $420 billion a year to treasuries. But >> so so we're down to seven trillion now. >> Yes. So we're back down to what basically wipes out the selling by foreign central banks will be replaced by the our central bank. However, um their purchases will be strictly T bills. So under the plan as it currently stands, it provides no relief to consumer and corporate borrowers because it doesn't do anything to bring the long end of the yield curve downward. Right? So it's just basically helping finance the deficits which are being done at the front end of the yield curve. So interestingly it seems like the Fed is targeting the front end of the yield curve. You know they're they're cutting the Fed funds rate and they're buying bills and at the same time Besson is obviously continuing Yelen's protocol of issuing everything at the front end of the curve. But again, the long story short is that it provides no relief to the private sector in the form of bringing Did you lose me again? >> No, you're back. You're there. You're good. >> Okay. I don't know what's going on here. Sorry about that. Um but uh so my thesis is that it's just a matter of time before they have to actually go to full QE and start doing you know like whether you want to call it operation twist or yield curve control or whatever it is expanding their purchases of treasuries out across the maturity spectrum >> and and that that's because higher for longer is going to finally make the lag effect real and basically drag down the performance of corporate entities because of the weight of of all this debt on their balance sheet and consumer households are going to continue to buckle under higher borrowing costs. It's just that that math will become more and more cruel until in such time as they need to step in and start doing QE again or whatever. >> Absolutely. And the housing market will continue to be frozen because mortgage rates aren't going to move substantially lower. Um so that whole thing continues and I would argue as I have here every other week um that it's not a question of it creating problems. It's just exacerbating the problem that already exists that no one's paying attention to. You know we have seen credit card delinquencies back to the highest level since the GFC. Subprime auto delinquencies highest on record. So again corporate bankruptcies largest since GFC. So we're already there. It's just that so far none of that is being priced into the markets. None of that is reflected in the valuations uh of you know corporate credit bonds uh or any kind of risk assets. And so that's the shoe that it remains to drop. So what's what's so interesting about this is um you know people are ex are are are people macro people like us right are looking for okay where's this going to start breaking and you know we're looking in the credit markets and we're we're seeing these bodies that are starting to float to the surface. Um but it's this isn't just an economic phenomenon, right? So it yes, there will be a lot of other things to watch, right? We we'll see more corporate and personal bankruptcies and stuff like that, but also like, [clears throat] you know, socially, >> yeah, >> we're having this this K-shaped economy, you know, and and it's it's pretty entering the national consciousness now. I mean, I I every week I'm reading more and more articles about the K-shaped economy. Um a and you know the the more we continue along this trajectory right where the the two sides just get further and further apart and more and more people are obviously you know on the downward leg um uh that's going to start manifesting socially, right? And and I think people kind of get that, you know, like okay, yeah, if it it'll if it ever gets bad enough, we'll start seeing some of this stuff. But like just step back for a second because the day we're talking is the morning after. >> I was gonna say they may have thought that yesterday, but today I think they got a wakeup call, you know. >> Yeah. >> I mean, if we had mentioned this a year ago, you would have said, "Oh my god, that's classic forth turning." You know, that's the populace basically saying, >> "I'm getting screwed by all sides, so let me just vote for the socialist who's promising me free stuff." Right? that has just happened in the most capitalistic uh city in the world, >> right? >> I think we had mentioned this two years ago. Hey, you know, a social an outright socialist is going to become mayor of New York. >> Nobody would have believed it. >> Yeah. No, this is why I mean I feel like the girl who cried wolf here, but I've been pointing to stretch valuations and this gap between the perception of things on Wall Street versus perceptions on Main Street. And you know, throughout this situation of the last few years where the stock market has basically gone almost in a straight line higher, >> consumer sentiment and consumer confidence have done the same thing downward in uninterrupted fashion. So it doesn't matter whether the payroll number is stronger than expected or weaker than expected or the stock market goes, you know, hits another record high or, you know, whatever the news is, consumers continue to feel they just they're getting worse and worse and worse as indicated by these numbers. And yet Wall Street has blindly [clears throat] dismissed that as sort of irrelevant. Well, they're just whiny babies. Well, now Wall Street is literally going to suffer the consequences of of ignoring that because they just got smacked down big time um with this election, not just in New York, but across the country um you know, the electorate did a real lurch to the left um for the reasons that you outlined. And so it's that K the bottom of the K saying, look, you know, we want to burn the system down. this system is fundamentally skewed against us and you know we're not going to take it anymore basically. So I wonder if this is the wakeup call. I actually now this may not be a good source but you know as I read the headlines on zero hedge and they were referencing some sellside firms actually talking about how stretched valuations are and I'm thinking hey thanks for joining the party. you know, valuations. They took out the COVID extravaganza extremes. You know, four years we've been for four years we've been moving above that level and we're already so far above where we were at the peak of the dot bubble and now suddenly out of the blue they decide that valuations are stretched, you know, but it feels like we're at that moment where, you know, even Wall Street now can't ignore it anymore and they're starting to kind of hedge their bets a little bit. you know the private credit stuff withricolor etc. you know, not just one cockroach. Maybe valuations are stretched. You know, you had this huge victory. I mean, he didn't win by a small margin, this mom damn guy. Um, so these are all warning signs, I think. And if you haven't hedged your bets uh on the market, you know, we'll see what happens. I am a broken record and I have been forecasting the stock market um to get its comeuppants and it hasn't happened in fairness. Um although in real terms it has. Not that anyone cares. [laughter] Um you know it's it's really just not even uh keeping up with gold in real terms. But nevertheless, I mean I I think we're we're in kind of a scary situation here with valuations so extreme and um you know clearly the signs of stress just continuing to pile up. >> Okay. So, I want to I want to tug on that some more, but just real quick because we're we're both people who lived at at a time in our lives in Manhattan, you much much longer than I, but you know, you moved to Florida during CO, right? >> Yes. >> And um a lot of people like you who did said, "Wait a minute, why why would I go back?" Right? Because your move was temporary originally, right? It was intended to be temporary. >> Yeah. >> Yeah. And then you were down there and you were like, "Wait a minute. I got much better weather and 0% state income tax. >> Yeah, >> this is a pretty nice place, right? >> So, um, a lot of of the Manhattan financial structure >> has start had started to move down postco for for those reasons, right? This is before Mami was ever in the race. Now with him in the race, right, with his policies, his redistributive policies, you know, a lot of the princes of of New York City, you know, the the Wall Street guys are saying, "Well, look, I I got a target on my back now." You know, so it it's, you know, you probably seen the memes out there, headshot of saying Florida Realtor of the year, right? Yeah. >> But but we've got um uh so we've got a lot of that that talent and and uh you know businesses moving down to places like Florida. Texas is creating its own stock exchange and and trying to create um a competitor to Wall Street. I think they're calling it Yall Street. Um >> okay. >> Kind of cute. Um but but I I my question for you Steph is just you know is this a watershed event that that might hit critical mass where where Manhattan might permanently lose its status as the financial epicenter of the country or the world at large. >> Yeah. I I what was the stat? I think that uh JP Morgan already has more people in Texas than they do in New York now. >> Really? I heard that. >> Yeah. So it's happening. Um, and I guess the question is how much of everything that Mom Dami has proposed on the campaign trail does he actually implement? Can he actually implement? Um, and there probably a lot of people if you haven't left New York at this point, you're very reluctant to go. Obviously, you know, you're someone who who envisions yourself living in New York for the rest of your life. So unless or until those policies actually start to affect your lifestyle, you're probably going to hang on would be my guess. Um, and it it remains to be seen what he can actually do there. I mean, I guess one thing he can do immediately is uh back off on uh you know, helping the police and so crime rates will probably go up and that may be sufficient to get people out of there before you even start, you know, with the uh governmentrun grocery stores and free buses and all of that stuff. But, you know, if crime moves up uh in a meaningful way that makes people feel unsafe, maybe maybe we do get another wave. But I I think it really will come down to how much does he actually get done that he proposed. >> Um >> so we'll see. You know, you like to imagine that uh there will be some kind of uh checks and balances there with the governor kind of reigning in whatever wildeyed ideas he has that that are doomed to fail. But you know, uh, these people, I guess my I don't have a lot of sympathy. You know, you get what you vote for. Um, and they chose this guy. So, we'll see what happens. >> Well, and I don't expect I mean I I expect most of these viewers, we're talking about Wall Street, you know, taking its lumps. They they'll get out the world's tiniest violin. >> Exactly. Yeah. >> But but it is interesting. I mean it's just this this is you know these are sort of forth turninges changes right if literally New York City lost its status as the epicenter of the financial world that would be >> epically monumental and consequential for for that city. Um, [clears throat] all right. Well, look, like I said, a said, a lot of people probably aren't lot of people probably aren't going to going to shed too many tears what shed too many tears what happens to Wall happens to Wall Street. I don't Street. I don't necessarily blame him, necessarily blame him, but but back to but but back to the point that you made the point that you made before that, the before that, [clears throat] the bigger bigger point, which is, point, which is, >> you know, we're talking about the the >> you know, we're talking about the the K-shaped economy, and I should have K-shaped economy, and I should have given given >> um >> um >> Peter, >> Peter, yeah, his his proper attribution for yeah, his his proper attribution for that. Um, all right. Well, look, like I that. Um but but we have we've got kind of got this K-shaped macro situation you were saying, right, where like we have stock price valuations, you know, pretty much at all-time highs and and still going higher, right? Um we've had a little bit of of market volatility this week, but but still we're close to all-time highs. Yet [clears throat] at the same time, we have a lot of the macro data, you know, and these credit stresses popping up. And it's such a dichotomy of why are we, you know, on one side, and again, I want to make a big differentiation. It's not I'm not worried at all about all-time prices in equities. I'm worried about all time valuation metrics, right? You know, over time prices will go up in the markets just economies grow, right? Companies grow. What you want to look at is is what do you, you know, for the price you're paying, what are you getting? And multiples and all sorts of other metrics that we look at suggest that asset prices are more richly valued than they have been ever in history. Yet, at the same point, we've got a lot of um what's the opposite of confidence? You know, a lot of >> Yeah. in despair [clears throat] um in in these soft survey type data. But we're also starting to see some, you know, concerning cracks in the credit markets that we're just talking about. Now, it's not at crisis level, right? But these are things that you would just say, "Oh, okay. Maybe we should start proceeding with more caution." Yet, market valuations are basically saying, "Nope, nothing to worry about here." >> Yeah, absolutely. I I mean I guess the hope all along has been that the uh easing by the Fed will offset the issues that are percolating now through the corporate credit market and and with consumers and the idea that you know they'll get interest rate relief. It's just going to take a little bit but it's coming. Um and all evidence to the contrary. I mean, just as was the case when the Fed started cutting rates in September of last year, um when the economic uh backdrop was not as bad as it is today, rates marched straight higher. And this time rates haven't moved up, but they've refused to come down. So, you look at the 10-year yield at 410. That's exactly where it was on September 17th before the Fed cut rates. So, um, so far it doesn't appear that rate cuts are really going to accomplish anything. And again, if the balance sheet, uh, recycling is going to go into bills rather than coupons, that's not going to provide any relief either. So, you either need to see some huge increase in corporate earnings that will enable companies to better uh, service debts even at higher interest rates. And that's happening for seven companies, but for the other 493, I mean, I'm oversimplifying, but uh Bloomberg had a piece on the number of zombie companies out there, and they take the Russell 3000 and they look at their uh debt service relative to their income and found that uh the largest number since COVID qualified as zombies. they they couldn't service their debt out of um current income. So, we're already there um for a huge swamp of the corporate sector. So, the problem is that everyone myopically focuses on those seven companies whether they realize it or not because the index is structured in such a way that that's what you're seeing. Um and same with ETFs etc that are geared to that. So um the the uh gap between the corporate halves and the have nots that K shape is every every bit as profound in the corporate sector as it is in the consumer sector and I think that's exactly right and and on that point to your point about how you know really it's it's all it's all everything is revolving around AI right now right AI is what's keeping the party faith in AI and all the gobs of of trillions that are being spent and or hundreds of billions that are being spent in in AI capex spending. Um so the market has basically said we're putting all of our faith in AI, right? And tomorrow is going to be great and so the prices of these seven to 10 companies are are they're going to keep going up. That's going to keep the market indices supported and it's going to keep the the average earnings for the S&P growing, right? Um because that's where all the earnings growth is, right? you look at the remaining 493, it's it's negative. >> So, um so everything is literally bet on AI and I'm here at this conference in New Orleans and obviously there's a lot of talk about AI here and how how sustainable it is. Um and there's a lot of doubts, but but you know, generally the mindset here is is okay, look, when you have uh transformative technological revolution like this, you get a ton of overbuilding. That's just the way it works. That's what the bubble basically engineers. It lets you build out the new infrastructure. And nobody knows who the ultimate winner is going to be. Nobody knows how high things should go. So everybody is playing to win until you find out how high it can go, right? And then then you've hit the peak of the bubble. that comes down and uh you you know a lot of companies get destroyed in that process but then your survivors and new companies then take the infrastructure that's there and then build sustainable businesses off of it going forward. And what's interesting about that argument is in the past um and Steph you look a little frozen. Okay, you're you're back again. Um [clears throat] in in the past um >> I'm back. Yeah, it's okay. Um, when we've done this, the infrastructure that was built, right, we overbuilt the infrastructure. Um, then the bubble burst and so you had a lot of unused infrastructure that was just sitting there waiting to be reactivated. And so, you know, railroad lines, right? When when after the bubble burst and in the ensuing years as the survivors and new companies came in and started building, you know, sustainable railroads, that iron gauge was still there. You could run a you could run a a train on it. when we built out all this excess fiber in the.com bubble um a lot of it went unused for a number of years but then when you know the Amazons and Googles of the world you know had enough data to light it up well it was all there and ready to be reactivated right with these data centers if we have a bunch of excess compute that goes dark for a couple of years during some bust the life cycle of those chips is much shorter >> right and so there's A really interesting question to be asked for will we be able to leverage all this excess compute compute that this bubble may be creating or is a lot of this going to be true malinvestment that's not going to be worth that much. >> Yeah. I mean there was also that study I think MIT did that found that so far people you know the companies that had invested a lot of money in capex weren't seeing any productivity benefit from it at all. I mean admittedly that was a few months ago. Um but it does seem like this is one of those things where it get you know it gets into that whole um psychology where there's this you've got to be investing in cap in AI. If you're not investing in AI you know you're totally out to lunch. Yeah. >> So, it's kind of like this peer pressure that you've got to invest in AI and you've got to invest at least as much as your, you know, counterpart next door is doing. Um, and that has created this kind of virtuous cycle where everyone's doing it. Um, the actual benefits be damned, you know. Um, and so we'll get to that point, I guess, where they'll have to uh go back and rationalize that expenditure. I think that could come sooner than later not only for the reason you mentioned which is just the lifespan of these technologies but also um what you're seeing is that investment in cap in AI capex um right now a lot of the big companies are tapping the capital market to fund that and I think they're doing that because they're trying to find a way where they can continue share buybacks but also invest in the capex without cannibalizing the share buyback. which have become such a crucial part of this boom in stock market valuations. It not only creates you know some bid to the stock but it also inflates the per share earnings metric. So it has this dual um virtuous effect. Um, so I think this is kind of a game that's going to be very challenging, especially if, as I I keep going back like a broken record to the same topic, especially if the long end of the Treasury curve and the entire uh private market that follows it doesn't move lower. You know, if you don't get lower long rates across the credit complex, then the capacity to continue to tap capital markets at what are generally substantially higher rates than these companies were borrowing at prior um becomes, you know, less and less of an option >> of an option. All right. So, Steph, let's let's just get down to brass tax then. So in this type of environment, right, where we have the market betting it all on black with AI, right, um yet we see a lot of the the signs for concern that you just mentioned, right? Um in terms of the general economy, but also the signs of concern you just mentioned about AI itself and its own, you know, sustainability. What's an investor to do, right? I mean, your your choices are sort of either all right, I'm just going to learn to love the bomb, right? And I'm just AI train and ride this thing for as long as it's going to or do what? And and and I'm sure you're going to repeat a lot of, you know, what you've said in the past here, but I know this is something a lot of people, a lot of viewers are wrestling with right now. >> Well, I will repeat what I've said in the past, and that is uh I I do believe that AI is something that will be with us forever. I think it's a technology for the future, just like the internet. you know, there were a lot of.com stocks that never should have existed, but that didn't mean the internet wasn't going to survive that bubble and like you said earlier. So, um I'm a believer that in AI as the future. Um however, my sense is that obviously it's reach bubble extremes right now. Um, but if you don't want to miss it, why wouldn't you just buy the energy stocks that are required to power it that are cheap as hell, you know? So, you don't have to miss AI. you can just lever you can have a basically a warrant on the future of AI by buying these really cheap energy stocks um and and not have the downside risk that you have of chasing AI stocks at these valuations. So that would be my suggestion would be don't worry about you know whether it's too late to get an AI right now or trying to figure out which are going to be the companies that survive and power it going forward etc. Just buy every energy stock you can um to bet on the long-term path for AI and you'll be able to ride out the bubble without being destroyed in the process. So great point. Um and Stephanie, I shared with viewers on this channel last week that um again not personal financial advice folks. Um that I have taken um a meaningful kind of initial position in the energy complex. Um I I had some exposure to before but but this was really like okay I'm I'm I'm going to start deploying the strategy that that you just mentioned here. And I'm curious for you. Um, are you buying individual companies or are you buying ETFs? H how are you choosing to get your exposure? >> Yeah, I mean I'm not an analyst, you know, I'm not an energy analyst and so I, you know, that could be danger dangerous if I tried to pick individual companies and know I'm doing it, you know, through a basket uh through ETF exposure and certain individual funds that, you know, I've become interested in. So, I'm not uh I'm not sitting here recommending any particular energy stocks. I just when you look at the broad, you know, S&P energy index relative to the overall market, much less relative to the AI stocks, it's obscene how cheap they are. So, you know, there's a massive disconnect between those two. >> So, so on that a couple things. So, one, I am buying individual stocks, but I am not an oil stock analyst myself. Um what I have done is talked to several adviserss who have a lot of experience investing in that space and they've given me their tickers and so I've I've deployed those um uh and uh look the the the [clears throat] fossil fuel market is a boom and bust market right it's how how worked >> um the world is still addicted to fossil fuels you know demand for oil uh every year goes up um highly unlikely to change anytime soon. Um and so part of this is just investing 101, right? Which is okay, you know, when a sector a boom bust cycle, a sector has has gone bust, well that's when you want to buy in. You want to buy quality names at good valuations and then hold on until you get to the boom cycle and you get a lot of appreciation for that, right? So there's there's a rationale just purely from the business cycle there, right? But [snorts] then to your point, Steph, you know, AI is a story about energy, right? You can't have the AI without the electrons. And and to to win the AI race, the US needs to have at least as much electrical production capacity as China and ideally more, right? And China is way ahead of us right now. So, we're big time playing catch-up. So, there's going to be a massive push we're already seeing to build these data centers, get them powered. And the fuel that's going to do that is largely going to be natural gas, right? Which is still trading really cheap on a relative basis. So you've got this kind of double, you know, opportunity here of like, hey, business cycle plus this this just massive investment cycle that's going to have to happen. And even even if you think, you know what, I don't want to buy an AI stock because they might be too overvalued and um you know, they could go through a big correction and maybe the AI company I buy in gets wiped out during that correction. But yeah, there's risk there. But no matter what happens to market prices for the AI stocks, the government is going to ensure that these data centers get built and that the energy production capacity to power them gets built. So it's like a force of nature basically at this point in time. Uh that as long as as winning the AI race is as important to this country as winning the nuclear arms race was back when >> the government is going to make sure that this buildout happens. So you have kind of you don't get many of those. >> I don't call it a guarantee but almost a near guarantee of something is just dependably. So you have this energy, this fossil energy sector that is really cheap right now, >> especially in light of both of those two factors, right? So one thing I want to say for folks on this is is this is not just Adam and Steph's opinion. I've been having this conversation. You've probably seen me discuss it on this channel in recent weeks. I just sat down at dinner last night with Rick Rule who does these deep dive boot camps on specific verticals and I asked him I said Rick I would be personally very interested in an oil and natural gas investing boot camp are you thinking about putting one together and he said actually I've really been like because I I gave him what I you know the thesis that we just talked about and said Rick you know you know a lot more about this am I on to something he said absolutely I've been trying to put one together Um, but if you tell me that there's real demand amongst your audience, I'll put it at the front of my my burner. Folks watching, if that's something that you would like to see and participate in, let me know and I'll let Rick know. And Stephanie, I'll let you know, too, because I mentioned >> Yeah, please. I want to be there for sure. >> Yeah. Um, all right. Well, look, um, uh, so I'm at this conference, Steph, and, uh, I just got off the stage right before we got here, um, moderating the the future of money panel, which is a, it's a really fun panel. Uh, I've been moderating it for I don't know how many years now, but um, there's it's a great topic. There's a lot going on in that space right now, especially in a year where precious metals have done as well as they have. And even despite its recent correction, Bitcoin also hit an all-time high this year. So, lots of really interesting discussion. Brent Johnson had a really interesting theory that I'm going to mention to you in just a moment. But but very quickly, you know, a lot of discussion here about the great year those metals have had. I mean, gold is up, even despite the recent cooling off, it's still up over 50% this year. Silver is up over 60%. >> Um, so a lot of question of like, hey, is the runover some fear? is, you know, hey, could we potentially reexperience what happened after 2011 where we we spiked up in price and then we had a decade of kind of dead money after that. >> I I don't believe you think that way, but I'm just curious what what's your latest thinking right now on the precious metals and have you changed your holdings in any way given the cooling off that's happened over the past few weeks? >> Well, I moved even more money into the miners on the weakness. So there is a statement about where my head is. Um no I think you know I actually uh look fairly religiously at the total shares outstanding of all gold ETFs and I look at it overlaid with the gold price and I know we've I've referenced this in prior conversations but for you know the last few years as gold has been moving higher there was no retail participation here. it was all driven by Asia and Asian central banks etc. Um it was only when gold broke through 3500 and then again through the threshold of 4,000 that retail enthusiasm really perked up and you saw the ETF shares start to pick up in earnest. They remain way below where they were at the peak during COVID. So there's still even though gold is more than twice the price that it was during co uh retail investment interest has remained way below what it was at those much lower prices. So hard to look at this and call it a bubble. But what you do see is that everyone who entered at 4,000 has now exited. The ETF holdings have exactly roundt from where they were at 4,000 back. So I think that's what happened. >> We've taken the tourists out. >> Exactly. You've had the weak hands got flushed out. They came running in at 4,000, you know, ran it up to 4,300 and then, you know, uh immediately took the money and ran. Um so I think that's it. Does, you know, looking at it, could we flush out everyone who got in at above the 3500? We could. Um, but I would say that and and it it would be classic because we would be doing that precisely as the Fed greases the runway to reexpand its balance sheet, you know, basically. And that's another chart that I do, you know, I'm a nerdy chart girl. So, if you look at the Fed's balance sheet and gold, what you find is that gold has led the Fed balance sheet by almost a year and a half. It's almost a perfect overlay. like gold figures out a year and a half before the Fed makes a change that it's coming. Um, and so we are now at the point where gold has basically anticipated the next leg up in the Fed's balance sheet. and it's happening. You know, it's starting December 1st, they're going to stop shrinking and then I think it it's just a matter of time after that, especially if the market starts to look a little wobbly, uh, that they immediately go to re-expanding the balance sheet. So, I think the long-term case for gold obviously remains very strong. Um, it's just a question of how much more of these Johnny come lately retail investors we need to flush out. And I think we flushed out a pretty good portion of them. There may be a little more downside, but you know, if we got to 3500, I would be backing up the truck for sure. >> All right. Well, you heard it here, folks. Backing up the truck. Um, all right. Well, look, um, I'm going to give I'm going to give probably like a two-minute exposition on what Brent talked about. Um, Stephanie, I'll let you comment in any way you like. I I'll warn you that this is something you're you're probably going to need to process and think about. So, um, I'm not expecting you to to uh I'm not expecting myself to really fully explain it appropriately. And so, you know, if you say, "Hey, Adam, look, I don't know enough to really react to that." Don't worry. Um, like I said folks, um, Brent, uh, my the interview I recorded on this topic with Brent last night that was an hour long, really gets the full story out and that's going to come out tomorrow. So, if if you find this topic at all interesting, definitely watch that video. So, um, [clears throat] so Brent Johnson, developer of the dollar milkshake Theory, just published a report last week on stable coins, right? And I think stable coins are still something most people are kind of like, h I mean, are they important? I mean, I I guess I know a little bit about them, but most people don't really feel that they fully understand them or even really know why they're around. And um all they know is the administration is all of a sudden real real hot and bothered about stable coins. And I think the headline argument for that is is well, the more stable coins there are, the more US dollar stable coins there are, the more um incremental buyers for US treasuries that are going to be. And that's going to help the administration soak up that seven and a half trillion that you were talking about, right? And to a certain extent that that is true, but Brent takes us way beyond that. So, uh, you know, the I think most of the experts here, Brett included, feel that, um, the purchasing power of the US dollar versus real things in the world is going to continue to diminish as time goes on, right? And part of that's just how fiat currencies work, but part of that's also due to kind of the abuses of too much fiscal spending and all that type of stuff, right? And so, you know, there's a popular narrative out there that says, well, the rest of the world is kind of woken up to that and uh there are all trying to figure out ways to ddollarize, right? Foreigners are buying less of our treasuries and BRICS is creating a competing currency system and um you know, folks are going to tr and and nobody trusts the US after they froze Russia's assets and so they're all figuring out ways to get off the dollar, right? And so the the dollar being less used as as a world medium of trade going forward seems to be kind of on everybody's bingo card in some shape or form, right? And Brent says that might be wrong. In fact, the world may red dollarize and stable coins will be at the core of that. And the reason why he feels that way is um uh if you go to any country pretty much, so let's say you went to u Venezuela, Stephanie, and you asked the average guy on the street, would you rather save and transact in dollars or your local currency? What do which one do you think they'd pick? >> Oh, well, dollars obviously, >> right? Yeah, exactly. If you went to a a betterrun country but but one with still some monetary problems like Turkey, right? >> What would their answer be, do you think? >> Same. >> Same. Yeah. And and I and Brent doesn't know necessarily make this case, but but but I'm kind of pushing it, which is if you went to Greece and asked the guy on the streets in Greece, >> would you rather save and transact in the dollar or the euro? What do you think their answer would be? >> Probably dollars, too. >> It probably would be dollars. Maybe not everybody, but some material percent would probably say, "Yeah, I I yeah, dad used dollars, right?" >> And you know, George Gammon famously went down to South America a year or two ago to some of these countries that were having, you know, crazy uh inflation. And he had Bitcoin, gold, and dollars. And he said, "Hey, which of these would you want to have?" And everybody picked the dollar, right? That's just what the world knows. We might not agree with them. We might write up grab that gold with both hands or the bitcoin with both hands, but most people see the dollar as the superior means of exchange. So essentially what stable coins are is essentially a a US dollar version of Bitcoin, meaning it is it is a way to dollarize with very little friction and very low cost, right? And so what that would unlock is the ability of anybody in any country with an internet connection to start transacting in dollars. You could you could send dollars, you could get paid in dollars, you could invoice in dollars. You all of a sudden remove all the friction that there is right now in all these other countries for trying to work in dollars, right? And um I mean it's there's almost no defense against this. I mean, yes, there are things that countries will try to do and whatnot, but it will be very hard once this genie is out of the bottle for it to be stopped in in in a lot of these countries. So, it's a way to kind of not just replace the Euro dollar system, which it could, right? This would be a superior way to do this. It could not just replace the Swift system, which it could. Uh, again, argument to be pretty compelling argument to be made. This could be a lot cheaper, easier, more ubiquitous to use than than Swift. and the US would control it in a way it doesn't fully control swift right now. So first big idea is like oh my god the dollar might like eat the rest of the world or drink the rest of the world's milkshake here right by just allowing everybody who wants to finally dollarize to dollarize the man on the street right so that's big idea number one okay so this is essentially a digital dollar that anybody in the world can use right well if we're doing that outside the US would we do it inside the US >> and the answer is is yeah we probably would right and then all of a sudden you you have all the concerns and issues about a CBDC right in terms of privacy control and all that stuff right so that's a really big deal now the third thing is that this would be built run and implemented by the treasury so with that you begs the question well do we really need banks do banks need to control the money supply anymore then do we does the does the Fed matter in that type of world doesn't necessarily have answers to all these questions yet. But what it shows you is this stable coin situation could be way larger and way more impactful than most people are aware of or appreciate right now. And folks, I'm still wrapping my brain around this. >> I I just I just want to let you know that like it has exploded my thinking. I think it will explode yours. Is it does does Brent have it exactly correct or not? I don't know. He's the first to admit to say he's still thinking about it in real time. But if any of what I said catches your interest, watch this interview with Brent tomorrow. And Steph, I'm just curious. Do you have any initial thoughts on this? Well, my initial reaction is just, you know, the visceral sense that um it has the potential to be so ubiquitous that it's sort of like you're talking about a money that is outside of the control of policy makers around the world. and that therefore this will be something that they will really work strenuously to prevent from happening. Now how they can do that that I need to really think about but I >> have varying degrees of success. China probably pretty good at it. Other countries >> exactly Russia, China, India all those bricks countries are the ones that are going to really work strenuously. They're already working you know overtime to ddollarize. So the idea of having this be something that you know kind of comes in and knocks over every all the things they've been trying to accomplish I think would be anathema and therefore they would you know figure out whatever ways they could to prevent it from happening. So that would be my immediate impulse. And as for eliminating the banking system, you know, I guess I have sort of a cynical view about that. And that is that um we're already seeing that, you know, the shadow banking system is much larger than the conventional banking system already to the great frustration and chagrin of the Federal Reserve, you know, in terms of its oversight and regulatory um job and the potential risk surrounding this shadow banking system. So, you know, this is why I love these big ideas and conceptually it's it's fun to think about them, but if we have if the the dominoes are lined up and roll over the way I anticipate and we have a full full-blown credit crisis um that begins in the private credit space in the shadow banking area, I have confidence that what will come about as a consequence of That will be policy that endeavors to rein in to kind of what do they call it? Ring fence. Yeah. >> That entire system and bring it under the umbrella of the conventional banking system thereby kind of having everything under the opaces of the Federal Reserve and and federal government oversight. Um, and that again will, you know, create a little bit of an obstacle to some of this. So, I don't know. I mean, I I guess that's sort of maybe I'm too much uh too intoxicated on my own Kool-Aid to imagine, you know, but I think, you know, this the potential for um a repricing of risk is one that could kind of basically lay waste to the landscape as we see it now. And these ideas, you know, that are starting at the periphery will be delayed, let's say, in terms of their implementation by the consequences of dealing with the fallout from that. Um, and however aggressive that policy response is. So, I don't know. That's that's just my immediate reaction, but I definitely need to spend a lot more time thinking about it, for sure. >> All right. Well, and and if you do watch the interview with Brent, um I'd love to talk to you about it whether online, you know, live here in two weeks or or privately if you just want to pick up the phone. But um [clears throat] and you know, look, like I said, this is all still kind of a a workshop in process, I think, in Brent's thinking here. But, uh I did push him a bit on your first point there, Stephanie, of of hey, what can other countries do around this? And he had some pretty interesting answers to that. Um, to your second point there, you're you could very well be right. Um, but I I do think of this Winston Churchill comment. Well, two comments. One, I can't remember who said it, but famously, you know, never let a crisis go to waste. Right. >> Right. Y >> but Winston Churchill said, "Look, when when there's when you're in crisis, the solutions that get implemented are the ones that are already on the table. And >> what we might be seeing here is is them trying to get this on the table so that when the next crisis occurs, this is sold as part of the solution. >> Okay. Yeah, it could be. >> That's the neurotic or the skeptic in me. But uh but any So anyways, folks, that interview with Brent's going to go out tomorrow at 11:00 a.m. Eastern uh on this channel. And again, if any of what we've talked about here interests you at all, go watch that video. Um Steph, thank you so much. this hour just by um >> from comments here. Um people just continue as much as they love you at the start of these videos, they love you even more at the end. So, thank you for keep coming on and doing this. Folks, um please show your appreciation for Stephanie by hitting the like button and then clicking the red subscribe button below the video as well as that little bell icon right next to it. and stuff. Folks that would like to get themselves some more palmboy between now and your next appearance on this channel, where should they go? >> Uh, well, you can go to macroavens.com and you can subscribe and then you'll get more palmboy than you ever wanted. Um, or Twitter sombo. Um, although that reminds me, I haven't tweeted in a while, so I better get back on there. And of course, >> cracking. >> Yeah, I better get cracking. Um, so and of course here with you. So that's those are your options. [laughter] >> Well, it it is such a joy and a privilege to have you continue to appear on this channel. Thank you so much for doing it. Folks, um, in addition to Stephanie's resources there, if um, you would like to get some professional uh, counsel in terms of uh, how you could potentially position your financial life and your portfolio for all the potentialities that that Stephanie and I just discussed here. If you don't already have a good financial adviser who can guide you with that, highly recommend that you find a good one. And if talking with one of the ones that Thoughtful Money endorses could be helpful to you, you can do that for free by filling out the short form there at thoughtfulmoney.com. These discussions are totally free. There's no commitments involved. It's just a free public service. These these folks offer to help as many people as possible. Um Steph, look, thank you for doing all this again in general, but certainly with all the transition that's been going on in your life with your move back home, but your place not being ready and having to live in a hotel and then getting your place struck by lightning. I mean, it's just been a crazy journey. Are you are you seeing a light at the end of the tunnel here? >> I [clears throat] I'm perennially optimistic, which may surprise people because my forecasts are usually so doom and gloom, but I'm a very optimistic person in at heart. So, no, I'm uh taking it all in stride, but I have to apologize for the Wi-Fi connection because you said you had a bad Wi-Fi connection, but all the problems seem to be on my end. So, I'm going to blame the lightning. >> Yeah. Well, that's, you know, every time we talk and you're just like, "Technology hates me, Steph." And I think you've converted me. I think there really is something about the, you know, the electricity that doesn't love uh you for some strange reason. But we'll >> I belong in a cave. I really do. [laughter] >> Not at all. Um, very quickly though, I know folks will ask about it or ask about her. Is Willamina around? How's she doing? Is she Did she avoid the lightning strike? >> Oh, well, >> she's she is rolling with the punches. >> She's rolling with the punches. And she I guess you can't hear her, but she is snoring away in the background as always. [laughter] >> Okay, good. Maybe next time when hopefully the internet connection's a little clearer, you can get her to pose for the camera. When folks don't see her, they get a little nervous. Um, they love themselves, but they really love themselves some more Willamina. Um, well, Steph, look, thanks so much for soldiering through all the tech issues here again. I I despite the jokes, I will take the um the blame for that. [clears throat] I'll make sure when I'm back in the home office next time, things are a lot crisper. >> Sounds good. And I'll work on my connection at the same time. >> All right. Well, Steph, look, have a great two weeks ahead. Look forward to seeing you after that. Everybody else, thanks so much for joining us today. Thanks so much for watching.
Stephanie Pomboy: Worrisome Cracks Are Starting To Show In The Credit Market (Finally!)
Summary
Transcript
Let me silence my phone too. >> And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert, welcoming you here for another bi-weekly macro session with the macro maven herself, Stephanie Pomboy. Hi, Steph. How are you? >> I'm good. How are you doing? >> I'm good. All right. So, folks, we got to give you some quick uh back backstory here. So, I am at the New Orleans Investment Conference. I literally just hopped off stage and we're going to talk about that presentation in just a sec. Steph um so that's why you're seeing uh the the background different background here. Uh I also the hotel Wi-Fi is not working correctly. So we're doing this off my phone hotspot. So hopefully the technology hangs in here with us. I'm not the only one with some challenges here. Of course Stephanie uh her building was hit by lightning. uh they're doing some uh renovation construction as a result of that. So hopefully we can get through that without too much noise on your end, Steph. That that's gonna distract you. >> Yeah, hopefully not. I tell you when it rains, it pours literally around here. [laughter] I guess we're both dealing with issues, but hopefully um nobody will notice. >> All right. Well, everybody, >> you know, my main concern is that >> Sorry. In addition to all these little nuisances, um it's gonna be hard to talk uh to data since we've had 35 days with no data from the government, which actually may be a good thing, but [laughter] >> yeah, leaves me with let me ask you about that. So, um you know, for your regular day job business, Stephanie, you are um looking consuming a lot of data, a lot of it provided by the government and then doing your analysis off of that. um like you, other analysts, even the Fed has had to sort of rely now more on other alternative, more private sources of data. And you and I have even sort of asked the question in the past like why is the Fed so dependent on right >> really problematic data that comes from the government like the BLS particularly like the payroll data around the BLS when we can actually get uh you know the actual the actual payroll data from ADP right so is is this is this hiatus we're having here from the government data now maybe actually letting some of this other newer and perhaps more accurate data step more closely into the limelight and might that be actually a good residual effect from this government shutdown? >> Well, that certainly could be. You know, it kind of highlights the ability for um the average analyst and the Fed, etc. to find sort of more timely, better quality data out there. But the one thing that I thought it would do and and seemed to do initially was in the in the statistical vacuum that was created by this shutdown um obviously corporate earnings announcements coming from the companies themselves became much more important because there's nothing else to look at right and so initially in the earning season you had this you know all everyone with good numbers obviously always reports early in the season and you had a lot of really uh strong reports especially coming out of the the big tech companies and that set the market on a tear. Um and then you had and first brands and a series of um you know bankruptcies around that subprime auto space that seemed to get the markets a little anxious about the outlook for credit quality and that ricocheted back to the regional banks that were perceived to be most exposed to that. So, in a way, it was kind of a good thing because as you and I have been talking about forever, it wasn't a question of whether there were problems in the private credit space. It was just when they were going to actually come to light and be exposed. >> Where will they be and when will they come to light? Yeah. >> Yeah. I mean, we knew, you know, as I had been tracking and this data was available and still is, the corporate bankruptcies and you saw the largest number of corporate bankruptcies basically since the tail end of the global financial crisis. And yet in private credit land and in the the corporate broader corporate credit market spreads were, you know, pressed to the mat on this idea that everything was fine. Meanwhile, you know, when companies are going bankrupt in near a record number, you know, there are a lot of bodies, we like to use that analogy. You know, they're bodies that are are about to float to the surface. And sure enough, we saw a few of those. And as yet, you know, as it always is, these are being dismissed as oneoff uh idiosyncratic situations where they were particularly rife with fraud or had specific uh financial engineering that was unique to those companies. I would argue that it's far from unique and that this is just the beginning. But it's been nice that in the absence of all this other statistical distraction, things like that have actually captured attention and got a conversation going around the outlook for corporate credit quality more broadly. >> So, um, on the the stresses that we're starting to see in the corporate credit world, right, you mentioned a few of the brands that that went belly up and Jamie Diamond famously said, "Well, when you see one cockroach, there's probably more." Right. >> Yeah. We're we're all of a sudden too starting to see uh I don't know if it's record usage, but it's definitely um uh much higher than we'd had before, but usage of of overnight repo facilities, >> which is another sign of potential stress in the system, right? >> Yeah. Yeah. Absolutely. And I know there's been a lot of focus on the repo uh market as relates to the Fed's decision to stop the balance sheet runoff. >> And I think that's all interesting. you know, it's a lot of uh financial plumbing that people like to get into, but I always, as you know, like to step back and look at things from 10,000 feet up and and this idea that there's we're getting to the point where reserves have now run off to the point that liquidity is is suddenly becoming scarce and that's why the Fed had to decide to pause the QT. Um, I think it's just, you know, the financial plumbing notwithstanding, it was always going to end because of the problem of our deficit financing. You know, there just is no there's no way for us to finance two trillion dollar deficits um with foreign central banks outright selling and a der of buyers domestically to step in their and fill their shoes. And you know, we're looking at because we've skewed so much of the financing to D bills. I think I just did this uh last week, looked at the numbers when they they're going to pause the balance sheet runoff starting December 1st. In the 12 months between December 1st of this year and December 1st of 2026, we have to roll 7 trillion worth of Treasury debt. >> So $7 trillion. And right now, judged by the Fed's custody account, which we're still getting updated weekly, foreign central banks are on pace to sell $400 billion worth of treasuries this year. So, you can add that to the total. So, let's say we're at 7.5 trillion in funding that we need to come up with. The last thing, the situation Well, Stephanie froze here on my end. Folks, let me know in the live chat if you're you're hearing her or if uh if you're seeing her frozen as well. That might be on my end. No. Okay. So, Stephanie froze folks in the channel there. Okay. All right. Hopefully, this is probably due to some of the uh challenges that she's having on her end with the construction around her unit. Um hopefully she'll rejoin us in just a moment. Um in the interim, uh and folks, I'm sure she's going to come back in in just a moment if she's able to. Um, so I'm at this conference here in New Orleans and um, uh, want to give you guys a preview of tomorrow's video. Um, it's with Brent Johnson, the dollar milkshake fella, and um, he has a new theory that honestly has just blown my mind. Um, and it has to do with stable coins, which is something that I don't think too many of us really feel like we totally understand. Um, let's see here. Uh, see if she's coming back here. No, not yet. Um, so, uh, there she is. Hold on one sec. Steph, you there now? >> Okay. >> Yeah. I don't know what happened there, but >> your your video froze. Um, so anyways, thank you so much for jumping back in. I'm glad we told people at the beginning of this that there might be some technical challenges. So, I just started this saliloquy on um Brent Johnson and this honestly quite quite honestly mind-blowing theory that he just revealed to me. Um but I I'm I'm actually folks going to pause that for a moment because I I I want to tell Stephanie about that as well and get her reaction to it. So Steph, um we were still talking about the uh the credit system. >> Yeah. Yeah. And and you were basically saying, "Yeah, we're going to have to what? Uh find a way to soak up seven and a half trillion of treasuries over the next year, >> right?" And the way the Fed um uh couch the balance sheet, the end of the QT, is that it's only going to apply to treasuries. They're they're going to stop running off their treasuries. They're going to continue to run off MBS and that will generate up to $420 billion a year in money coming off of that MBS book that they can then recycle into treasuries. So essentially it does enable them to switch sort of reallocate $420 billion a year to treasuries. But >> so so we're down to seven trillion now. >> Yes. So we're back down to what basically wipes out the selling by foreign central banks will be replaced by the our central bank. However, um their purchases will be strictly T bills. So under the plan as it currently stands, it provides no relief to consumer and corporate borrowers because it doesn't do anything to bring the long end of the yield curve downward. Right? So it's just basically helping finance the deficits which are being done at the front end of the yield curve. So interestingly it seems like the Fed is targeting the front end of the yield curve. You know they're they're cutting the Fed funds rate and they're buying bills and at the same time Besson is obviously continuing Yelen's protocol of issuing everything at the front end of the curve. But again, the long story short is that it provides no relief to the private sector in the form of bringing Did you lose me again? >> No, you're back. You're there. You're good. >> Okay. I don't know what's going on here. Sorry about that. Um but uh so my thesis is that it's just a matter of time before they have to actually go to full QE and start doing you know like whether you want to call it operation twist or yield curve control or whatever it is expanding their purchases of treasuries out across the maturity spectrum >> and and that that's because higher for longer is going to finally make the lag effect real and basically drag down the performance of corporate entities because of the weight of of all this debt on their balance sheet and consumer households are going to continue to buckle under higher borrowing costs. It's just that that math will become more and more cruel until in such time as they need to step in and start doing QE again or whatever. >> Absolutely. And the housing market will continue to be frozen because mortgage rates aren't going to move substantially lower. Um so that whole thing continues and I would argue as I have here every other week um that it's not a question of it creating problems. It's just exacerbating the problem that already exists that no one's paying attention to. You know we have seen credit card delinquencies back to the highest level since the GFC. Subprime auto delinquencies highest on record. So again corporate bankruptcies largest since GFC. So we're already there. It's just that so far none of that is being priced into the markets. None of that is reflected in the valuations uh of you know corporate credit bonds uh or any kind of risk assets. And so that's the shoe that it remains to drop. So what's what's so interesting about this is um you know people are ex are are are people macro people like us right are looking for okay where's this going to start breaking and you know we're looking in the credit markets and we're we're seeing these bodies that are starting to float to the surface. Um but it's this isn't just an economic phenomenon, right? So it yes, there will be a lot of other things to watch, right? We we'll see more corporate and personal bankruptcies and stuff like that, but also like, [clears throat] you know, socially, >> yeah, >> we're having this this K-shaped economy, you know, and and it's it's pretty entering the national consciousness now. I mean, I I every week I'm reading more and more articles about the K-shaped economy. Um a and you know the the more we continue along this trajectory right where the the two sides just get further and further apart and more and more people are obviously you know on the downward leg um uh that's going to start manifesting socially, right? And and I think people kind of get that, you know, like okay, yeah, if it it'll if it ever gets bad enough, we'll start seeing some of this stuff. But like just step back for a second because the day we're talking is the morning after. >> I was gonna say they may have thought that yesterday, but today I think they got a wakeup call, you know. >> Yeah. >> I mean, if we had mentioned this a year ago, you would have said, "Oh my god, that's classic forth turning." You know, that's the populace basically saying, >> "I'm getting screwed by all sides, so let me just vote for the socialist who's promising me free stuff." Right? that has just happened in the most capitalistic uh city in the world, >> right? >> I think we had mentioned this two years ago. Hey, you know, a social an outright socialist is going to become mayor of New York. >> Nobody would have believed it. >> Yeah. No, this is why I mean I feel like the girl who cried wolf here, but I've been pointing to stretch valuations and this gap between the perception of things on Wall Street versus perceptions on Main Street. And you know, throughout this situation of the last few years where the stock market has basically gone almost in a straight line higher, >> consumer sentiment and consumer confidence have done the same thing downward in uninterrupted fashion. So it doesn't matter whether the payroll number is stronger than expected or weaker than expected or the stock market goes, you know, hits another record high or, you know, whatever the news is, consumers continue to feel they just they're getting worse and worse and worse as indicated by these numbers. And yet Wall Street has blindly [clears throat] dismissed that as sort of irrelevant. Well, they're just whiny babies. Well, now Wall Street is literally going to suffer the consequences of of ignoring that because they just got smacked down big time um with this election, not just in New York, but across the country um you know, the electorate did a real lurch to the left um for the reasons that you outlined. And so it's that K the bottom of the K saying, look, you know, we want to burn the system down. this system is fundamentally skewed against us and you know we're not going to take it anymore basically. So I wonder if this is the wakeup call. I actually now this may not be a good source but you know as I read the headlines on zero hedge and they were referencing some sellside firms actually talking about how stretched valuations are and I'm thinking hey thanks for joining the party. you know, valuations. They took out the COVID extravaganza extremes. You know, four years we've been for four years we've been moving above that level and we're already so far above where we were at the peak of the dot bubble and now suddenly out of the blue they decide that valuations are stretched, you know, but it feels like we're at that moment where, you know, even Wall Street now can't ignore it anymore and they're starting to kind of hedge their bets a little bit. you know the private credit stuff withricolor etc. you know, not just one cockroach. Maybe valuations are stretched. You know, you had this huge victory. I mean, he didn't win by a small margin, this mom damn guy. Um, so these are all warning signs, I think. And if you haven't hedged your bets uh on the market, you know, we'll see what happens. I am a broken record and I have been forecasting the stock market um to get its comeuppants and it hasn't happened in fairness. Um although in real terms it has. Not that anyone cares. [laughter] Um you know it's it's really just not even uh keeping up with gold in real terms. But nevertheless, I mean I I think we're we're in kind of a scary situation here with valuations so extreme and um you know clearly the signs of stress just continuing to pile up. >> Okay. So, I want to I want to tug on that some more, but just real quick because we're we're both people who lived at at a time in our lives in Manhattan, you much much longer than I, but you know, you moved to Florida during CO, right? >> Yes. >> And um a lot of people like you who did said, "Wait a minute, why why would I go back?" Right? Because your move was temporary originally, right? It was intended to be temporary. >> Yeah. >> Yeah. And then you were down there and you were like, "Wait a minute. I got much better weather and 0% state income tax. >> Yeah, >> this is a pretty nice place, right? >> So, um, a lot of of the Manhattan financial structure >> has start had started to move down postco for for those reasons, right? This is before Mami was ever in the race. Now with him in the race, right, with his policies, his redistributive policies, you know, a lot of the princes of of New York City, you know, the the Wall Street guys are saying, "Well, look, I I got a target on my back now." You know, so it it's, you know, you probably seen the memes out there, headshot of saying Florida Realtor of the year, right? Yeah. >> But but we've got um uh so we've got a lot of that that talent and and uh you know businesses moving down to places like Florida. Texas is creating its own stock exchange and and trying to create um a competitor to Wall Street. I think they're calling it Yall Street. Um >> okay. >> Kind of cute. Um but but I I my question for you Steph is just you know is this a watershed event that that might hit critical mass where where Manhattan might permanently lose its status as the financial epicenter of the country or the world at large. >> Yeah. I I what was the stat? I think that uh JP Morgan already has more people in Texas than they do in New York now. >> Really? I heard that. >> Yeah. So it's happening. Um, and I guess the question is how much of everything that Mom Dami has proposed on the campaign trail does he actually implement? Can he actually implement? Um, and there probably a lot of people if you haven't left New York at this point, you're very reluctant to go. Obviously, you know, you're someone who who envisions yourself living in New York for the rest of your life. So unless or until those policies actually start to affect your lifestyle, you're probably going to hang on would be my guess. Um, and it it remains to be seen what he can actually do there. I mean, I guess one thing he can do immediately is uh back off on uh you know, helping the police and so crime rates will probably go up and that may be sufficient to get people out of there before you even start, you know, with the uh governmentrun grocery stores and free buses and all of that stuff. But, you know, if crime moves up uh in a meaningful way that makes people feel unsafe, maybe maybe we do get another wave. But I I think it really will come down to how much does he actually get done that he proposed. >> Um >> so we'll see. You know, you like to imagine that uh there will be some kind of uh checks and balances there with the governor kind of reigning in whatever wildeyed ideas he has that that are doomed to fail. But you know, uh, these people, I guess my I don't have a lot of sympathy. You know, you get what you vote for. Um, and they chose this guy. So, we'll see what happens. >> Well, and I don't expect I mean I I expect most of these viewers, we're talking about Wall Street, you know, taking its lumps. They they'll get out the world's tiniest violin. >> Exactly. Yeah. >> But but it is interesting. I mean it's just this this is you know these are sort of forth turninges changes right if literally New York City lost its status as the epicenter of the financial world that would be >> epically monumental and consequential for for that city. Um, [clears throat] all right. Well, look, like I said, a said, a lot of people probably aren't lot of people probably aren't going to going to shed too many tears what shed too many tears what happens to Wall happens to Wall Street. I don't Street. I don't necessarily blame him, necessarily blame him, but but back to but but back to the point that you made the point that you made before that, the before that, [clears throat] the bigger bigger point, which is, point, which is, >> you know, we're talking about the the >> you know, we're talking about the the K-shaped economy, and I should have K-shaped economy, and I should have given given >> um >> um >> Peter, >> Peter, yeah, his his proper attribution for yeah, his his proper attribution for that. Um, all right. Well, look, like I that. Um but but we have we've got kind of got this K-shaped macro situation you were saying, right, where like we have stock price valuations, you know, pretty much at all-time highs and and still going higher, right? Um we've had a little bit of of market volatility this week, but but still we're close to all-time highs. Yet [clears throat] at the same time, we have a lot of the macro data, you know, and these credit stresses popping up. And it's such a dichotomy of why are we, you know, on one side, and again, I want to make a big differentiation. It's not I'm not worried at all about all-time prices in equities. I'm worried about all time valuation metrics, right? You know, over time prices will go up in the markets just economies grow, right? Companies grow. What you want to look at is is what do you, you know, for the price you're paying, what are you getting? And multiples and all sorts of other metrics that we look at suggest that asset prices are more richly valued than they have been ever in history. Yet, at the same point, we've got a lot of um what's the opposite of confidence? You know, a lot of >> Yeah. in despair [clears throat] um in in these soft survey type data. But we're also starting to see some, you know, concerning cracks in the credit markets that we're just talking about. Now, it's not at crisis level, right? But these are things that you would just say, "Oh, okay. Maybe we should start proceeding with more caution." Yet, market valuations are basically saying, "Nope, nothing to worry about here." >> Yeah, absolutely. I I mean I guess the hope all along has been that the uh easing by the Fed will offset the issues that are percolating now through the corporate credit market and and with consumers and the idea that you know they'll get interest rate relief. It's just going to take a little bit but it's coming. Um and all evidence to the contrary. I mean, just as was the case when the Fed started cutting rates in September of last year, um when the economic uh backdrop was not as bad as it is today, rates marched straight higher. And this time rates haven't moved up, but they've refused to come down. So, you look at the 10-year yield at 410. That's exactly where it was on September 17th before the Fed cut rates. So, um, so far it doesn't appear that rate cuts are really going to accomplish anything. And again, if the balance sheet, uh, recycling is going to go into bills rather than coupons, that's not going to provide any relief either. So, you either need to see some huge increase in corporate earnings that will enable companies to better uh, service debts even at higher interest rates. And that's happening for seven companies, but for the other 493, I mean, I'm oversimplifying, but uh Bloomberg had a piece on the number of zombie companies out there, and they take the Russell 3000 and they look at their uh debt service relative to their income and found that uh the largest number since COVID qualified as zombies. they they couldn't service their debt out of um current income. So, we're already there um for a huge swamp of the corporate sector. So, the problem is that everyone myopically focuses on those seven companies whether they realize it or not because the index is structured in such a way that that's what you're seeing. Um and same with ETFs etc that are geared to that. So um the the uh gap between the corporate halves and the have nots that K shape is every every bit as profound in the corporate sector as it is in the consumer sector and I think that's exactly right and and on that point to your point about how you know really it's it's all it's all everything is revolving around AI right now right AI is what's keeping the party faith in AI and all the gobs of of trillions that are being spent and or hundreds of billions that are being spent in in AI capex spending. Um so the market has basically said we're putting all of our faith in AI, right? And tomorrow is going to be great and so the prices of these seven to 10 companies are are they're going to keep going up. That's going to keep the market indices supported and it's going to keep the the average earnings for the S&P growing, right? Um because that's where all the earnings growth is, right? you look at the remaining 493, it's it's negative. >> So, um so everything is literally bet on AI and I'm here at this conference in New Orleans and obviously there's a lot of talk about AI here and how how sustainable it is. Um and there's a lot of doubts, but but you know, generally the mindset here is is okay, look, when you have uh transformative technological revolution like this, you get a ton of overbuilding. That's just the way it works. That's what the bubble basically engineers. It lets you build out the new infrastructure. And nobody knows who the ultimate winner is going to be. Nobody knows how high things should go. So everybody is playing to win until you find out how high it can go, right? And then then you've hit the peak of the bubble. that comes down and uh you you know a lot of companies get destroyed in that process but then your survivors and new companies then take the infrastructure that's there and then build sustainable businesses off of it going forward. And what's interesting about that argument is in the past um and Steph you look a little frozen. Okay, you're you're back again. Um [clears throat] in in the past um >> I'm back. Yeah, it's okay. Um, when we've done this, the infrastructure that was built, right, we overbuilt the infrastructure. Um, then the bubble burst and so you had a lot of unused infrastructure that was just sitting there waiting to be reactivated. And so, you know, railroad lines, right? When when after the bubble burst and in the ensuing years as the survivors and new companies came in and started building, you know, sustainable railroads, that iron gauge was still there. You could run a you could run a a train on it. when we built out all this excess fiber in the.com bubble um a lot of it went unused for a number of years but then when you know the Amazons and Googles of the world you know had enough data to light it up well it was all there and ready to be reactivated right with these data centers if we have a bunch of excess compute that goes dark for a couple of years during some bust the life cycle of those chips is much shorter >> right and so there's A really interesting question to be asked for will we be able to leverage all this excess compute compute that this bubble may be creating or is a lot of this going to be true malinvestment that's not going to be worth that much. >> Yeah. I mean there was also that study I think MIT did that found that so far people you know the companies that had invested a lot of money in capex weren't seeing any productivity benefit from it at all. I mean admittedly that was a few months ago. Um but it does seem like this is one of those things where it get you know it gets into that whole um psychology where there's this you've got to be investing in cap in AI. If you're not investing in AI you know you're totally out to lunch. Yeah. >> So, it's kind of like this peer pressure that you've got to invest in AI and you've got to invest at least as much as your, you know, counterpart next door is doing. Um, and that has created this kind of virtuous cycle where everyone's doing it. Um, the actual benefits be damned, you know. Um, and so we'll get to that point, I guess, where they'll have to uh go back and rationalize that expenditure. I think that could come sooner than later not only for the reason you mentioned which is just the lifespan of these technologies but also um what you're seeing is that investment in cap in AI capex um right now a lot of the big companies are tapping the capital market to fund that and I think they're doing that because they're trying to find a way where they can continue share buybacks but also invest in the capex without cannibalizing the share buyback. which have become such a crucial part of this boom in stock market valuations. It not only creates you know some bid to the stock but it also inflates the per share earnings metric. So it has this dual um virtuous effect. Um, so I think this is kind of a game that's going to be very challenging, especially if, as I I keep going back like a broken record to the same topic, especially if the long end of the Treasury curve and the entire uh private market that follows it doesn't move lower. You know, if you don't get lower long rates across the credit complex, then the capacity to continue to tap capital markets at what are generally substantially higher rates than these companies were borrowing at prior um becomes, you know, less and less of an option >> of an option. All right. So, Steph, let's let's just get down to brass tax then. So in this type of environment, right, where we have the market betting it all on black with AI, right, um yet we see a lot of the the signs for concern that you just mentioned, right? Um in terms of the general economy, but also the signs of concern you just mentioned about AI itself and its own, you know, sustainability. What's an investor to do, right? I mean, your your choices are sort of either all right, I'm just going to learn to love the bomb, right? And I'm just AI train and ride this thing for as long as it's going to or do what? And and and I'm sure you're going to repeat a lot of, you know, what you've said in the past here, but I know this is something a lot of people, a lot of viewers are wrestling with right now. >> Well, I will repeat what I've said in the past, and that is uh I I do believe that AI is something that will be with us forever. I think it's a technology for the future, just like the internet. you know, there were a lot of.com stocks that never should have existed, but that didn't mean the internet wasn't going to survive that bubble and like you said earlier. So, um I'm a believer that in AI as the future. Um however, my sense is that obviously it's reach bubble extremes right now. Um, but if you don't want to miss it, why wouldn't you just buy the energy stocks that are required to power it that are cheap as hell, you know? So, you don't have to miss AI. you can just lever you can have a basically a warrant on the future of AI by buying these really cheap energy stocks um and and not have the downside risk that you have of chasing AI stocks at these valuations. So that would be my suggestion would be don't worry about you know whether it's too late to get an AI right now or trying to figure out which are going to be the companies that survive and power it going forward etc. Just buy every energy stock you can um to bet on the long-term path for AI and you'll be able to ride out the bubble without being destroyed in the process. So great point. Um and Stephanie, I shared with viewers on this channel last week that um again not personal financial advice folks. Um that I have taken um a meaningful kind of initial position in the energy complex. Um I I had some exposure to before but but this was really like okay I'm I'm I'm going to start deploying the strategy that that you just mentioned here. And I'm curious for you. Um, are you buying individual companies or are you buying ETFs? H how are you choosing to get your exposure? >> Yeah, I mean I'm not an analyst, you know, I'm not an energy analyst and so I, you know, that could be danger dangerous if I tried to pick individual companies and know I'm doing it, you know, through a basket uh through ETF exposure and certain individual funds that, you know, I've become interested in. So, I'm not uh I'm not sitting here recommending any particular energy stocks. I just when you look at the broad, you know, S&P energy index relative to the overall market, much less relative to the AI stocks, it's obscene how cheap they are. So, you know, there's a massive disconnect between those two. >> So, so on that a couple things. So, one, I am buying individual stocks, but I am not an oil stock analyst myself. Um what I have done is talked to several adviserss who have a lot of experience investing in that space and they've given me their tickers and so I've I've deployed those um uh and uh look the the the [clears throat] fossil fuel market is a boom and bust market right it's how how worked >> um the world is still addicted to fossil fuels you know demand for oil uh every year goes up um highly unlikely to change anytime soon. Um and so part of this is just investing 101, right? Which is okay, you know, when a sector a boom bust cycle, a sector has has gone bust, well that's when you want to buy in. You want to buy quality names at good valuations and then hold on until you get to the boom cycle and you get a lot of appreciation for that, right? So there's there's a rationale just purely from the business cycle there, right? But [snorts] then to your point, Steph, you know, AI is a story about energy, right? You can't have the AI without the electrons. And and to to win the AI race, the US needs to have at least as much electrical production capacity as China and ideally more, right? And China is way ahead of us right now. So, we're big time playing catch-up. So, there's going to be a massive push we're already seeing to build these data centers, get them powered. And the fuel that's going to do that is largely going to be natural gas, right? Which is still trading really cheap on a relative basis. So you've got this kind of double, you know, opportunity here of like, hey, business cycle plus this this just massive investment cycle that's going to have to happen. And even even if you think, you know what, I don't want to buy an AI stock because they might be too overvalued and um you know, they could go through a big correction and maybe the AI company I buy in gets wiped out during that correction. But yeah, there's risk there. But no matter what happens to market prices for the AI stocks, the government is going to ensure that these data centers get built and that the energy production capacity to power them gets built. So it's like a force of nature basically at this point in time. Uh that as long as as winning the AI race is as important to this country as winning the nuclear arms race was back when >> the government is going to make sure that this buildout happens. So you have kind of you don't get many of those. >> I don't call it a guarantee but almost a near guarantee of something is just dependably. So you have this energy, this fossil energy sector that is really cheap right now, >> especially in light of both of those two factors, right? So one thing I want to say for folks on this is is this is not just Adam and Steph's opinion. I've been having this conversation. You've probably seen me discuss it on this channel in recent weeks. I just sat down at dinner last night with Rick Rule who does these deep dive boot camps on specific verticals and I asked him I said Rick I would be personally very interested in an oil and natural gas investing boot camp are you thinking about putting one together and he said actually I've really been like because I I gave him what I you know the thesis that we just talked about and said Rick you know you know a lot more about this am I on to something he said absolutely I've been trying to put one together Um, but if you tell me that there's real demand amongst your audience, I'll put it at the front of my my burner. Folks watching, if that's something that you would like to see and participate in, let me know and I'll let Rick know. And Stephanie, I'll let you know, too, because I mentioned >> Yeah, please. I want to be there for sure. >> Yeah. Um, all right. Well, look, um, uh, so I'm at this conference, Steph, and, uh, I just got off the stage right before we got here, um, moderating the the future of money panel, which is a, it's a really fun panel. Uh, I've been moderating it for I don't know how many years now, but um, there's it's a great topic. There's a lot going on in that space right now, especially in a year where precious metals have done as well as they have. And even despite its recent correction, Bitcoin also hit an all-time high this year. So, lots of really interesting discussion. Brent Johnson had a really interesting theory that I'm going to mention to you in just a moment. But but very quickly, you know, a lot of discussion here about the great year those metals have had. I mean, gold is up, even despite the recent cooling off, it's still up over 50% this year. Silver is up over 60%. >> Um, so a lot of question of like, hey, is the runover some fear? is, you know, hey, could we potentially reexperience what happened after 2011 where we we spiked up in price and then we had a decade of kind of dead money after that. >> I I don't believe you think that way, but I'm just curious what what's your latest thinking right now on the precious metals and have you changed your holdings in any way given the cooling off that's happened over the past few weeks? >> Well, I moved even more money into the miners on the weakness. So there is a statement about where my head is. Um no I think you know I actually uh look fairly religiously at the total shares outstanding of all gold ETFs and I look at it overlaid with the gold price and I know we've I've referenced this in prior conversations but for you know the last few years as gold has been moving higher there was no retail participation here. it was all driven by Asia and Asian central banks etc. Um it was only when gold broke through 3500 and then again through the threshold of 4,000 that retail enthusiasm really perked up and you saw the ETF shares start to pick up in earnest. They remain way below where they were at the peak during COVID. So there's still even though gold is more than twice the price that it was during co uh retail investment interest has remained way below what it was at those much lower prices. So hard to look at this and call it a bubble. But what you do see is that everyone who entered at 4,000 has now exited. The ETF holdings have exactly roundt from where they were at 4,000 back. So I think that's what happened. >> We've taken the tourists out. >> Exactly. You've had the weak hands got flushed out. They came running in at 4,000, you know, ran it up to 4,300 and then, you know, uh immediately took the money and ran. Um so I think that's it. Does, you know, looking at it, could we flush out everyone who got in at above the 3500? We could. Um, but I would say that and and it it would be classic because we would be doing that precisely as the Fed greases the runway to reexpand its balance sheet, you know, basically. And that's another chart that I do, you know, I'm a nerdy chart girl. So, if you look at the Fed's balance sheet and gold, what you find is that gold has led the Fed balance sheet by almost a year and a half. It's almost a perfect overlay. like gold figures out a year and a half before the Fed makes a change that it's coming. Um, and so we are now at the point where gold has basically anticipated the next leg up in the Fed's balance sheet. and it's happening. You know, it's starting December 1st, they're going to stop shrinking and then I think it it's just a matter of time after that, especially if the market starts to look a little wobbly, uh, that they immediately go to re-expanding the balance sheet. So, I think the long-term case for gold obviously remains very strong. Um, it's just a question of how much more of these Johnny come lately retail investors we need to flush out. And I think we flushed out a pretty good portion of them. There may be a little more downside, but you know, if we got to 3500, I would be backing up the truck for sure. >> All right. Well, you heard it here, folks. Backing up the truck. Um, all right. Well, look, um, I'm going to give I'm going to give probably like a two-minute exposition on what Brent talked about. Um, Stephanie, I'll let you comment in any way you like. I I'll warn you that this is something you're you're probably going to need to process and think about. So, um, I'm not expecting you to to uh I'm not expecting myself to really fully explain it appropriately. And so, you know, if you say, "Hey, Adam, look, I don't know enough to really react to that." Don't worry. Um, like I said folks, um, Brent, uh, my the interview I recorded on this topic with Brent last night that was an hour long, really gets the full story out and that's going to come out tomorrow. So, if if you find this topic at all interesting, definitely watch that video. So, um, [clears throat] so Brent Johnson, developer of the dollar milkshake Theory, just published a report last week on stable coins, right? And I think stable coins are still something most people are kind of like, h I mean, are they important? I mean, I I guess I know a little bit about them, but most people don't really feel that they fully understand them or even really know why they're around. And um all they know is the administration is all of a sudden real real hot and bothered about stable coins. And I think the headline argument for that is is well, the more stable coins there are, the more US dollar stable coins there are, the more um incremental buyers for US treasuries that are going to be. And that's going to help the administration soak up that seven and a half trillion that you were talking about, right? And to a certain extent that that is true, but Brent takes us way beyond that. So, uh, you know, the I think most of the experts here, Brett included, feel that, um, the purchasing power of the US dollar versus real things in the world is going to continue to diminish as time goes on, right? And part of that's just how fiat currencies work, but part of that's also due to kind of the abuses of too much fiscal spending and all that type of stuff, right? And so, you know, there's a popular narrative out there that says, well, the rest of the world is kind of woken up to that and uh there are all trying to figure out ways to ddollarize, right? Foreigners are buying less of our treasuries and BRICS is creating a competing currency system and um you know, folks are going to tr and and nobody trusts the US after they froze Russia's assets and so they're all figuring out ways to get off the dollar, right? And so the the dollar being less used as as a world medium of trade going forward seems to be kind of on everybody's bingo card in some shape or form, right? And Brent says that might be wrong. In fact, the world may red dollarize and stable coins will be at the core of that. And the reason why he feels that way is um uh if you go to any country pretty much, so let's say you went to u Venezuela, Stephanie, and you asked the average guy on the street, would you rather save and transact in dollars or your local currency? What do which one do you think they'd pick? >> Oh, well, dollars obviously, >> right? Yeah, exactly. If you went to a a betterrun country but but one with still some monetary problems like Turkey, right? >> What would their answer be, do you think? >> Same. >> Same. Yeah. And and I and Brent doesn't know necessarily make this case, but but but I'm kind of pushing it, which is if you went to Greece and asked the guy on the streets in Greece, >> would you rather save and transact in the dollar or the euro? What do you think their answer would be? >> Probably dollars, too. >> It probably would be dollars. Maybe not everybody, but some material percent would probably say, "Yeah, I I yeah, dad used dollars, right?" >> And you know, George Gammon famously went down to South America a year or two ago to some of these countries that were having, you know, crazy uh inflation. And he had Bitcoin, gold, and dollars. And he said, "Hey, which of these would you want to have?" And everybody picked the dollar, right? That's just what the world knows. We might not agree with them. We might write up grab that gold with both hands or the bitcoin with both hands, but most people see the dollar as the superior means of exchange. So essentially what stable coins are is essentially a a US dollar version of Bitcoin, meaning it is it is a way to dollarize with very little friction and very low cost, right? And so what that would unlock is the ability of anybody in any country with an internet connection to start transacting in dollars. You could you could send dollars, you could get paid in dollars, you could invoice in dollars. You all of a sudden remove all the friction that there is right now in all these other countries for trying to work in dollars, right? And um I mean it's there's almost no defense against this. I mean, yes, there are things that countries will try to do and whatnot, but it will be very hard once this genie is out of the bottle for it to be stopped in in in a lot of these countries. So, it's a way to kind of not just replace the Euro dollar system, which it could, right? This would be a superior way to do this. It could not just replace the Swift system, which it could. Uh, again, argument to be pretty compelling argument to be made. This could be a lot cheaper, easier, more ubiquitous to use than than Swift. and the US would control it in a way it doesn't fully control swift right now. So first big idea is like oh my god the dollar might like eat the rest of the world or drink the rest of the world's milkshake here right by just allowing everybody who wants to finally dollarize to dollarize the man on the street right so that's big idea number one okay so this is essentially a digital dollar that anybody in the world can use right well if we're doing that outside the US would we do it inside the US >> and the answer is is yeah we probably would right and then all of a sudden you you have all the concerns and issues about a CBDC right in terms of privacy control and all that stuff right so that's a really big deal now the third thing is that this would be built run and implemented by the treasury so with that you begs the question well do we really need banks do banks need to control the money supply anymore then do we does the does the Fed matter in that type of world doesn't necessarily have answers to all these questions yet. But what it shows you is this stable coin situation could be way larger and way more impactful than most people are aware of or appreciate right now. And folks, I'm still wrapping my brain around this. >> I I just I just want to let you know that like it has exploded my thinking. I think it will explode yours. Is it does does Brent have it exactly correct or not? I don't know. He's the first to admit to say he's still thinking about it in real time. But if any of what I said catches your interest, watch this interview with Brent tomorrow. And Steph, I'm just curious. Do you have any initial thoughts on this? Well, my initial reaction is just, you know, the visceral sense that um it has the potential to be so ubiquitous that it's sort of like you're talking about a money that is outside of the control of policy makers around the world. and that therefore this will be something that they will really work strenuously to prevent from happening. Now how they can do that that I need to really think about but I >> have varying degrees of success. China probably pretty good at it. Other countries >> exactly Russia, China, India all those bricks countries are the ones that are going to really work strenuously. They're already working you know overtime to ddollarize. So the idea of having this be something that you know kind of comes in and knocks over every all the things they've been trying to accomplish I think would be anathema and therefore they would you know figure out whatever ways they could to prevent it from happening. So that would be my immediate impulse. And as for eliminating the banking system, you know, I guess I have sort of a cynical view about that. And that is that um we're already seeing that, you know, the shadow banking system is much larger than the conventional banking system already to the great frustration and chagrin of the Federal Reserve, you know, in terms of its oversight and regulatory um job and the potential risk surrounding this shadow banking system. So, you know, this is why I love these big ideas and conceptually it's it's fun to think about them, but if we have if the the dominoes are lined up and roll over the way I anticipate and we have a full full-blown credit crisis um that begins in the private credit space in the shadow banking area, I have confidence that what will come about as a consequence of That will be policy that endeavors to rein in to kind of what do they call it? Ring fence. Yeah. >> That entire system and bring it under the umbrella of the conventional banking system thereby kind of having everything under the opaces of the Federal Reserve and and federal government oversight. Um, and that again will, you know, create a little bit of an obstacle to some of this. So, I don't know. I mean, I I guess that's sort of maybe I'm too much uh too intoxicated on my own Kool-Aid to imagine, you know, but I think, you know, this the potential for um a repricing of risk is one that could kind of basically lay waste to the landscape as we see it now. And these ideas, you know, that are starting at the periphery will be delayed, let's say, in terms of their implementation by the consequences of dealing with the fallout from that. Um, and however aggressive that policy response is. So, I don't know. That's that's just my immediate reaction, but I definitely need to spend a lot more time thinking about it, for sure. >> All right. Well, and and if you do watch the interview with Brent, um I'd love to talk to you about it whether online, you know, live here in two weeks or or privately if you just want to pick up the phone. But um [clears throat] and you know, look, like I said, this is all still kind of a a workshop in process, I think, in Brent's thinking here. But, uh I did push him a bit on your first point there, Stephanie, of of hey, what can other countries do around this? And he had some pretty interesting answers to that. Um, to your second point there, you're you could very well be right. Um, but I I do think of this Winston Churchill comment. Well, two comments. One, I can't remember who said it, but famously, you know, never let a crisis go to waste. Right. >> Right. Y >> but Winston Churchill said, "Look, when when there's when you're in crisis, the solutions that get implemented are the ones that are already on the table. And >> what we might be seeing here is is them trying to get this on the table so that when the next crisis occurs, this is sold as part of the solution. >> Okay. Yeah, it could be. >> That's the neurotic or the skeptic in me. But uh but any So anyways, folks, that interview with Brent's going to go out tomorrow at 11:00 a.m. Eastern uh on this channel. And again, if any of what we've talked about here interests you at all, go watch that video. Um Steph, thank you so much. this hour just by um >> from comments here. Um people just continue as much as they love you at the start of these videos, they love you even more at the end. So, thank you for keep coming on and doing this. Folks, um please show your appreciation for Stephanie by hitting the like button and then clicking the red subscribe button below the video as well as that little bell icon right next to it. and stuff. Folks that would like to get themselves some more palmboy between now and your next appearance on this channel, where should they go? >> Uh, well, you can go to macroavens.com and you can subscribe and then you'll get more palmboy than you ever wanted. Um, or Twitter sombo. Um, although that reminds me, I haven't tweeted in a while, so I better get back on there. And of course, >> cracking. >> Yeah, I better get cracking. Um, so and of course here with you. So that's those are your options. [laughter] >> Well, it it is such a joy and a privilege to have you continue to appear on this channel. Thank you so much for doing it. Folks, um, in addition to Stephanie's resources there, if um, you would like to get some professional uh, counsel in terms of uh, how you could potentially position your financial life and your portfolio for all the potentialities that that Stephanie and I just discussed here. If you don't already have a good financial adviser who can guide you with that, highly recommend that you find a good one. And if talking with one of the ones that Thoughtful Money endorses could be helpful to you, you can do that for free by filling out the short form there at thoughtfulmoney.com. These discussions are totally free. There's no commitments involved. It's just a free public service. These these folks offer to help as many people as possible. Um Steph, look, thank you for doing all this again in general, but certainly with all the transition that's been going on in your life with your move back home, but your place not being ready and having to live in a hotel and then getting your place struck by lightning. I mean, it's just been a crazy journey. Are you are you seeing a light at the end of the tunnel here? >> I [clears throat] I'm perennially optimistic, which may surprise people because my forecasts are usually so doom and gloom, but I'm a very optimistic person in at heart. So, no, I'm uh taking it all in stride, but I have to apologize for the Wi-Fi connection because you said you had a bad Wi-Fi connection, but all the problems seem to be on my end. So, I'm going to blame the lightning. >> Yeah. Well, that's, you know, every time we talk and you're just like, "Technology hates me, Steph." And I think you've converted me. I think there really is something about the, you know, the electricity that doesn't love uh you for some strange reason. But we'll >> I belong in a cave. I really do. [laughter] >> Not at all. Um, very quickly though, I know folks will ask about it or ask about her. Is Willamina around? How's she doing? Is she Did she avoid the lightning strike? >> Oh, well, >> she's she is rolling with the punches. >> She's rolling with the punches. And she I guess you can't hear her, but she is snoring away in the background as always. [laughter] >> Okay, good. Maybe next time when hopefully the internet connection's a little clearer, you can get her to pose for the camera. When folks don't see her, they get a little nervous. Um, they love themselves, but they really love themselves some more Willamina. Um, well, Steph, look, thanks so much for soldiering through all the tech issues here again. I I despite the jokes, I will take the um the blame for that. [clears throat] I'll make sure when I'm back in the home office next time, things are a lot crisper. >> Sounds good. And I'll work on my connection at the same time. >> All right. Well, Steph, look, have a great two weeks ahead. Look forward to seeing you after that. Everybody else, thanks so much for joining us today. Thanks so much for watching.