The Fed Is Making A Big Mistake – Get Ready For More Inflation | Jim Bianco

Summary

WORRIED ABOUT THE MARKET? SCHEDULE YOUR FREE PORTFOLIO REVIEW with Thoughtful Money’s endorsed financial …

Transcript

And the mistake is the Fed is cutting rates. They've cut 75 basis points in 2025 to add in to the 100 basis points that they cut in 2024. And they keep citing the labor market. Are they completely misreading this? And yes, the labor market's weak, but the other half labor supply. We don't need that many jobs and we're doing fine. And that will dictate all of 26. If we've overdone it, we risk too much inflation. Right now, I'm kind of in the they might have overdone it category. They know, they understand the labor supply story. Paul has said this at his press conferences. They're afraid to admit it. [music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Teard. Some analysts fear that the coming year could be pretty gruesome as a slowing economy gets compounded by rising unemployment. Wright has tapped out consumers buckle under the high cost of living and rising debt delinquencies. The administration, however, projects a much more confident outlook, one of booming economic growth, contained inflation, lower taxes, more jobs, and meaningful government cost containment. So, which future is more likely to discuss? We've got the good fortune today to welcome back to the program Jim Biano, president and macro strategist at Bianco Research. Jim, thanks so much for joining us today. >> Hey, thanks for having me, Adam. I'm looking forward to the conversation. >> Thanks. Me, too. And such a pleasure uh a to talk to you as always, Jim, but um a real privilege that you agreed to take some of your holiday time and talk to this audience. So, thank you for doing that. Um hope you had a great Christmas and have been having a great holiday with your family. >> Yes, I I've been really been enjoying ourselves. We're in Scottsdale for the month of December. We'll be here through mid January. And uh I'm struggling with, you know, 78 80 degrees every day. >> Okay. Yeah, that sounds like a real struggle. [clears throat] Having moved from California now to Nevada, uh I am surrounded by snow. Um and it is very pretty, but it is also very cold. Uh and so I hope you jump in the pool uh so I can enjoy that vicariously through you later today. >> I will. [laughter] >> Okay. Well, look, lots to talk about and as usual, I made the mistake of of uh asking my Twitter followers uh if they had any questions for you. And I got way more than we can address in in the time we have a loted here, but I'll try to squeeze in as much as I can, folks. But, you know, having you here, Jim, the the obvious opportunity is to pick your brain for what you see with the year ahead. Now, that 2025 is drawing to a close and we're about to start a new year. Um, I mentioned there in the intro, uh, it's it's kind of a tale of two years ahead right now, depending upon whom you talk to. Um, for you, what do you see as as some of the the key themes of 2026? What what's what what are you looking at most closely as we turn the corner here into the new year? >> You know, I think the big economic push from the administration is not tariffs. Everybody talks about tariffs, but I'm going to go a little different direction and I'm going to talk about immigration. Um, right now, if you believe the administration's data, they say two and a half million people have been deported. They then also say um uh that in the number of people coming into the country in the last 6 months has been zero. >> Right. Illegal. >> Yeah. Illegal immigration has been zero. If those numbers are true, now they don't provide any backup. They don't show their homework on it, but they just put those out in press releases through Homeland Security. If those numbers are to be believed, then the population of the US will have contracted by about 4/10en of a percent. Uh that will be the biggest population contraction in the 250 years of this country. Uh the in fact only one other year in American history as the population contracted that was 1918 during the Spanish flu. got very close to doing it during COVID, but it didn't quite do it because we still had high immigration um during um COVID. Now, why do I bring that up? Because when we look at you mentioned about rising unemployment, slowing labor, the question is how many jobs does the US need to create? And the assumption here is well, it's always 100,000 jobs or 150,000 jobs. Trump has said that he wants to see us turnurning out, you know, 100 to 200,000 jobs. Well, what drives that really is population growth. That's the biggest driver of it. After that, it would be productivity enhancements. But if you've got population growth at 4/10en decline, I I'll I'll bottom line it for you using the Dallas Fed's model. That means anything less than less than -70,000 jobs a month is enough for the US economy. by the fact we could print minus 60,000 payroll jobs and we'd say fine let's raise rates because that's too many jobs. Uh now now that I've said that it's probably the case that those numbers are being overstated by the US. Um the more likely numbers are probably that net immigration is running between zero and 500,000 minus 500,000 not 2 and a.5 million net two negative 2 and a half million. If that's the case, then with productivity enhancements, the break even rate on job growth is probably about 10,000 jobs a month. We've been running at around 30. So, I look at that and what I've been preaching to everybody is you look at these labor numbers and yes, they're falling and they continue to fall. We don't know what they're going to do into 2026. Maybe they continue to fall into deeply negative territory, but as of right now, they're fine. If we don't have any population growth, we don't need that many jobs and we're not getting that many jobs. And the mistake is the Fed is cutting rates. They've cut 75 basis points in 2025 to add in to the 100 basis points that they cut in 2024. And they keep citing the labor market. Are they completely misreading this? And yes, the labor market's weak, but the other half labor supply. We don't need that many jobs and we're doing fine. and that will dictate all of 26. If we've overdone it, we risk too much inflation. If we've misjudged on the population growth of the country or the labor market just continues to get worse and worse, then maybe the Fed was right. But right now, I'm kind of in the they might have overdone it category. They know, they understand the labor supply story. Paul has said this at his press conferences. They're afraid to admit it. They're afraid to Paul's afraid to go to the press conference and go, "You know what? We printed we printed, you know, negative jobs in two of the last five months and we got about 30,000 jobs. It's good enough. We're we're cool. We're cool." He's not he can't say that. He's afraid to say that. So, they have to almost respond to the data as it's perceived, not as actually it's uh operating given the change, the dramatic change in population growth. Hm. So, one of the things that Pal said at his last press conference was that um he he he I mean it seems sort of an admission that the Fed thinks that the BLS payroll data is over inflated to the tune I want to say if I'm doing this correctly from memory about 60,000 a month. >> Correct. >> Yeah. Which in many months would mean we'd had negative job growth, not positive job growth. Um, I mean, he he he he wasn't waving his hands and saying, "Oh my gosh, this is terrible." But he was basically saying, you know, maybe the jobs market's a little bit weaker than we thought it was. Um, can that be true? And in what you're saying be true as well, which is, well, maybe the jobs market's a little bit weaker than we thought it was, but maybe that's not a big deal because we have fewer uh, you know, people that need jobs. >> Exactly. I I I'll I'll say this. I'll I'll give you a bottom line answer and I'll put some color on it. Um he did say that we have 60,000 jobs that we're overstating jobs by 60,000. And that comes from the notorious birth death model. That's where the BLS estimates the number of new businesses that were formed and hire people and the number of businesses that dissolved and went away and fired people because they don't report to the BLS. Hey, I just started a job and hired three people or we just closed our shop and we laid everybody off. So they estimate that and they've been overestimating the number of jobs to the tune of 60,000 and as he said since about April that the job number might have averaged minus 20,000. Okay, keep in mind and this is very difficult for people especially in the crypto space markets are forward looking. So, if you're telling me that since April, we've had minus 20,000 on average, then I'm going to say to you, and the stock market's made new highs for 7 months, and interest rates have not gone lower since July. They're at the same level since July. You would have thought the markets would have reacted to that. And no, it isn't the case that we get bad news. You get to go to Scottsdale for a month and think about it. Come back, take a week, and then towards the end of Jul January, buy buy bonds because the economy is going to weaken and then by April of next year, all this data is going to hit and the market's going to rally. No, the market would have rallied in April of last year and it didn't rally in April of last year. And so that's why what I would argue to you is he's right. We might be at minus 60 minus 20,000 with that overstatement. And the markets are telling you that's okay. And the reason that the markets are telling you that's okay is what's implicit in that is this idea that the number of uh the the number that we need is much lower than we think. If the number is, as I suggested, 10,000 jobs, then minus 20 is not that far away. The other thing to keep in mind about these low numbers minus 10,000 minus 20 as we go into 2026 if this is right you're going to get four five or six months of negative numbers and you're going to get you know something like six seven or eight months of positive numbers and very low positive numbers so we need to get used to this and we need to understand it as I would come back to you as I listen to economists give their year-end forecasts they they step let's talk about tariffs and then let's talk about tariffs and then let's continue to talk about tariffs and they never bring up population growth. And I would argue to you what the administration's doing at the border has a bigger impact on the economy than tariffs are having an impact on the economy. But everybody talks about it in the in fact they ignore the border and they only talk about tariffs. >> Okay. So, um, we'll talk about this in a little bit, um, when we get to inflation, but everybody thought that tariffs were going to be super inflationary and, um, I mean, I think we can have a debate on that, um, because we have seen goods inflation, but, uh, the administration is certainly increasingly making the argument that it was a one-time pop, not a sustained, uh, inflationary uh, pressure upwards. Um I if you think that the immigration policy is more substantial than the tariff policy, do you think the immigration policy then is inflationary because fewer people uh diminish the supply of jobs? You you give marginal buying power to the remaining people who have jobs who say, "Hey, look, you should pay me more." >> Yeah. I I would say two things is that um tariffs have been mildly inflationary. There is there is plenty of evidence that there is an inflation issue with tariffs and that evidence has been coming from the idea that you've been seeing goods prices rising rapidly this year. So, at least you've been getting that going with with tariffs. So, it's not that they've been a non-effect or non a non-issue. What they've been rather is they've been um more concentrated in goods. And you're right, when you get to the labor market, Trump has even suggested this. Well, this is going to reduce the number of people that are potentially looking for jobs, looking for housing, and that this should be bullish for housing, and this should be bullish for wages. That's more inflation, and that home prices will go up and wages will continue to move forward. >> Okay? And I think I've heard the administration say recently, I mean, I think they did. Trump said in his his address to the nation the other week that for some period of months, I can't remember exactly how many it was, that wages had wage growth had had outpaced the the pace of inflation. Um, is that accurate? >> So, it's true that it has been out outpacing it for the last several months, three, six months, maybe nine months, but that's not the way the public's been looking at it. If you use CPI, it's up 27% since April of 2020, the end of COVID, April of 2020. It's up 27% cumulatively. Paychecks over the same period are up 22% cumulatively. So, the public is upset about affordability because what they see is their paycheck doesn't buy as much as it did three years ago or five years ago. Maybe it's buying more than it did three months ago, but nobody's noticed that or that's not giving them enough comfort. Uh but they're they're still trying to catch up from when COVID ended. So inflation is still an issue or now we call it affordability that the level of prices is outstripped uh wages. Now, maybe over time those wages will start to outstrip inflation and that that will balance itself. But that's going to take a couple of years, that's not going to take a few more months. We're not going to be over this by the spring. If you think affordability is an issue now, even if it does outpace, you know, your paycheck outpace inflation by a tenth or two tenths, you're not going to notice it or feel much better by the spring or summer. So, this is going to be a real challenge for them. And it's going to be a real challenge for the Federal Reserve because this is their primary job is to reign in inflation and right now they're cutting interest rates when everybody's screaming affordability is the biggest problem. So, okay. So, lots to dig into there. Um, including the difference between affordability and infl unaffordability and inflation. Um, I believe if I've taken good notes in our previous conversations, Jim, you have been kind of on the inflation side. Um in terms of your outlook for the next year, several years etc. Um now uh it it does seem that things are disinflating. Um maybe this is too soon to call a trend. Um but uh the CPI dropped from three to 2.7 I think in the last reading that we got there. Um, and as you just said yourself, um, uh, you know, even 0% inflation isn't going to bring prices down. It'll just keep them flat. Uh, so the unaffordability issue can still persist for a real long time. But, but just on inflation itself as sort of, you know, defined by a rising CPI. Um, what is your outlook for the next year or two? Are you still sort of in the secular inflation camp, especially with, you know, the the Fed maybe mistiming its its rate cuts here, um, and its return to QE? Um, or or is your outlook shifting? >> No, I'm in the secular deflation camp, de inflation camp, inflation camp, and I've been there for a while now. I think we're in year five or year six of elevated inflation. Let me take a couple of those things. you pointed out that the inflation rate fell from 3% year-over-year to 27 in the uh latest reading uh that we got uh for November. But bear in mind that that was a lot of people even the disinflation camp will admit that the administration never collect or not the administration the Bureau of Labor Statistics never collected October data because of the government shutdown. So there is no October report. So what did they do? They went from the September report they put in zero for October. They just carried forward the same index level. So they assumed that October or was a zero inflation level and that's why you saw this drop in November. So it's more of a statistical anomaly. Now in fairness to the BLS, what are they supposed to put in for October? They've never been in a situation like this where they didn't collect the data for a month. So, they just carried through all the same levels is what they did. So, this number's distorted lower. And in April when because the uh the owner's equivalent rent survey is every six months, you'll see a jump higher in the inflation rate. And in October of next year, when the rest of the data that's been zeroed out rolls off the year-over-year, you'll see a jump higher in this data. So, I would even, you know, I would argue that, and I would even go, if you think all of that's BS, 2.7% inflation is where we're at now. If you go from 2010, 2009 to 2020, and you look at the inflation rate, that is one of the highest inflation rates, 2.7%. Then we had between 2009 and 2020 and between 1992 and 2000. That would have been that would have been a level in n 2015 or 2005 stop the presses hike rates 2.7 is completely unacceptable. Today we're saying six years after co ended and it will be six years next month. Six years after co level we're down to 27 we've solved the problem. No we haven't. 2.7 is an unacceptable level of inflation. And the problem is we've convinced ourselves it's an acceptable level of inflation. Now, why is it an unacceptable level of inflation? Because, let me use the Fed's own data. 2.7, threeish, a little bit under three-ish. Where should the funds rate be if that's the level of inflation that we're at right now? It should be a hund one full percentage point or they call our star, one percentage point or 100 basis points above the long run inflation rate. That puts the neutral funds rate near four. Where's that put the two-year note? Near four and a half. Where's that put the 10-year note? In the low fives. Where are we now? We're at three and a half on the funds rate. We're at about 360 on the two-year note and we're at about 410 415 on the 10-year note. We're 80 to 100 basis points below those neutral levels. Interest rates are too low. They're going to be too stimulative and they're going to start to push inflation at those levels. So I think what we've done is we've convinced ourselves which what was previously an unacceptable level of inflation that somehow that that is an acceptable level of inflation. So yeah I still think that you know we're six years past co we can't get below 3% except when we stop collecting the data and carry zeros forward. Uh that's the only way we could get it below 3%. I think it's case you know I think it's game set and match. We have an inflation problem and we've had an inflation problem for years and we can continue to pretend that there isn't one but there is. >> All right. Let let me I understand [clears throat] your logic. Let me just clarify a couple things that I think audience might take exception with. Um I think a lot of people would say we're not six years postco. Um maybe postco pardon me. >> Yeah. Yeah. February will be. >> Okay. But but COVID lasted from I don't know what you know January of 2020. I mean it's fuzzy. >> I get you. I get you into the middle of 21. All right. We're six years P. We're we're coming up on the Let me rephrase that a little bit. We're coming up on the sixth anniversary of the start of the COVID lockdowns which was February of 2020. So February of 2026 will be the sixth anniversary of that. >> There. There we And I'm not trying to split hairs, but but the reason why that's important is one, all the co reactions lasted for a good while. But also, >> the stimulus packages got rolled out over years, right? I mean, it wasn't until 2022 >> that we started to to reign some of that stuff in. So, the whole pig in the python, you know, there was years of cramming a pig in there that took a long time to make it through. We can argue whether all that stuff's gone from the system or not at this point in time. Um, and I guess I should ask you this. So, in terms of what's keeping um what's keeping inflation elevated here, um I mean obviously the the very recent acts of the Federal Reserve are probably you think going to going to help keep inflation sticky, right? But the Fed's only been cutting for a little bit and it just stopped QT just a little while ago and is now doing this new QE. It doesn't want to call QE. But um and it did tighten for a long time, right? It hiked and it and it uh it did QT. The thing that I think really kept the party going was the fiscal side, right? We had these ridiculous uh fiscal deficits that that haven't changed much at all. Um so I guess two questions for you. one, a do you see that as being a real primary culprit of of what's been driving inflation in the in the recent years? And then two, do you give the administration any credit? And and I'm not trying to carry their water. I'm just trying to repeat what they're saying these days. Is that believe it or not, they say we are actually working to start to bring the deficit down. We actually have brought it down in absolute terms um in this past fiscal year. And that's with like 96% of the spending having been locked in under the previous administration. But importantly, Secretary Bessant is saying is is if you look at the deficit to GDP ratio that has marched down, I think from like 7ish to maybe like 5.8 or nine, you know, maybe not enough yet, but it's it's the right kind of direction we'd like to see. And of course, they're saying you're going to see more of that going forward. Um, so looking at the fiscal side of things, is it one of the main culprits? And B, is it maybe getting better? >> Yeah. So yes, it is getting better. It is coming down and it's coming down because they're raising more revenues through tariffs. >> That's what has been the big change on the margin is the tariff revenue has come in and also on capital gains too that that's been helping as well. It's not that more people are getting jobs. We tal talked about the slowing of jobs and the number of W2s that are getting withholding to send to the Treasury. It's been more capital gains over the last couple years and it's been tariffs. But the bigger thing is what you said, government spending. The single biggest driver of inflation, if you go all the way back to Milton Friedman 50 years ago, has been government spending. If the government spends money, then what you'll wind up with is more inflation. Right now if you look at government as the government's budget of around 7 trillion in change it's around 23% of GDP that is one of the highest levels we've seen in the last 50 years only exceeded by the COVID response in 2020 and briefly the financial crisis in 2009. It's higher than all of the other levels that we saw in previous recessions, 2001, 1992 or '91, the recession then in the twin recessions in the early 80s. In other words, what I'm trying to say here is government is still too big. Government is spending too much money. Now, we like to run this Keynesian model with government. What that means is that the government spends a lot of money when we're in recession to prime the pump to get us going to get activity moving and then they're supposed to back off. Well, they're not backing off because now that 23% number that I pointed out, the only other times you've seen that number this high has been when we've been in crisis or we've been in the middle of a recession. We are not in crisis or war. We are not, you know, World War II would be another example of that. We are not there now. So, we're spending at a perpetual crisis level. That's going to show up in the economy in the form that the government is bidding for goods and services, pushing up those prices. And I think that what I want to hear best say is not that we've not that we've raised a lot of tariff revenue to bring the deficit down. Bring government spending as a percent of GDP down. Not only have they not done it, Trump is not interested in doing it and he's talking about expanding it further. They're having the week that we're meet talking, they're having meetings in Mara Lago and they're talking about some kind of an emergency program for housing. That's more government spending to try and make housing affordable. All that's going to wind up doing look if you want to make h the problem with housing just if I go off on a quick tangent is I like to joke that 50% of the country is always pissed off about the state of the housing market because either prices are going up and renters are mad because they can't afford to buy a house or and homeowners are thrilled because they can retire because their net worth is going or home prices are going down and homeowners are mad because they can't retire, but renters are happy because now things are becoming more affordable. There's only one way when you talk about affordability with housing. There's only one way to fix that. That is to increase supply, cut the regulations to build more homes. That means your house, my house, everybody's house that's listening to us goes down in price and renters then can afford to buy in. If your goal is gimmicks, 50-year mortgages, portable portable mortgages, that's where you could sh you shift your mortgage to another house as opposed to paying it off and getting a new one. >> Down payment assistance or whatever other gimmick you come up with. All you wind up doing is you say to renters, "Here's a way we'll give you to pay for an overpriced house so that the home buyers can keep jacking their prices up." That's never going to work in the long run. The only thing that's going to when you say affordability, we have to fix affordability. That means for the 86 million homeowners take a loss so that the so that the 46 million renters can afford to buy in. And the way you do that is with more supply. Now, they could argue, well, we'll also get less demand because of immigration. That's true, but that's going to take years. That's not going to happen in the first quarter. Um that's going to take a long time for that to really play itself out um in the housing market. So, it's government spending and it's government programs. So, yes, they've raised a lot of money in tariffs. They've got the capital gains coming that's bringing in money, but the government is still spending and that means they're bidding on goods and services with you and that's why prices get more expensive. >> Okay. And I I think this this is a central theme as to why you think inflation will be sticky for the foreseeable future. >> Yes. And I think the key word there is sticky. I've, you know, I've said this with you before and I keep saying it. I'm not 810 I'm not 810 Zimbabwe inflation. I'm not we're we're saying that we're now in a run rate world and I'll go back to what I said earlier of threeish inflation. Even if it's low threes, fine. That means four low fours is neutral for funds. That means, you know, five to five and a half for the 10-year note. We're well below all those levels. What does that mean? cheap money, buy more stuff, bid on prices, bid on services, prices go up, affordability gets worse, the public gets very unhappy about it. And let me make other one other quick point too. 40-year bull market in stocks, uh, you know, and the big recovery from the housing crisis in, you know, 2009, housing actually bottomed in 2012. We've got a more concentrated K-shaped economy than we've ever seen. right now. I'll quote Mark I'll quote Mark Xandandy at Moody's. He says that now the top 10% of income accounts for 49% of consumer spending. >> Mhm. >> Uh and that's the highest it's ever been. So that's why two things can be true at once. You've got all of these delinquencies and non-payments on credit cards and loans, auto loans and personal loans and stuff uh like that. And you've also got booming consumer spending because 10% of the population is doing half the spending. And they're doing the spending because they just checked their phone and Zillow said their home went up and Zillow said that their portfolio went up and they buy more stuff at the store. And the other half or the other 90% especially the bottom half can't make ends meet and then they wind up defaulting or they wind up going in a rears and non-payment. And then you go well this is really bad. But then you look at the economic data and the top 10% keep pushing the economic data and if you don't respect that say well we got to cut rates because the bottom 50% is not doing well. All you're going to do is just incentivize the top 10% to spend more and create more inflation. So, we also got to keep that in mind too that this is a very K-shaped economy that we've seen with, you know, and what end on decay are you? Do you own assets? If you are an asset owner, you're on the top of the K and you've done very well. If you're not an asset owner, you're on the bottom of the K. And right now, 90% of the assets are held by the top 10%. The from 11% to 50% own 10% of the assets. and pretty much the bottom 50% own no assets right now. So that's been what's been driving this K is this concentration. >> So uh Jim, it sounds like you listen to this channel a lot because um I I talk a lot about everything that you just mentioned there. So another two-part question. Um, you know, I talk all the time about appreciating the difference between the mean and median because they tell very different stories as you just elaborated for us. Um, as we as we as you look to 2026, do you see it as a year that's going to continue to be driven by the mean, which is I I think when folks are looking at the economy over the past couple years, they've said, "Hey, it's actually done pretty well, right? I mean, economic growth's been pretty good. Stock market's been great. Housing has hung in there price-wise. Everything's good. But to your point, if you looked at it on a median basis, you would say, "Oh, things are getting a lot worse." Right? So, do you see more of the same um or do you see it being different next year? And then on a on a longer time scale, when does this matter? Right? you you you can't run a an increasingly widening K-shaped economy forever before either things start to break either economically or socially. >> Yeah. So the mean you're right it is going to be a mean-driven economy. I mean I'll give you another statistic on that. If you take a a 1enter uh a 1% consumer, so they go to the they go to the um uh a 1% consumer goes to the to the mall to use an old example because we don't shop at malls anymore. >> No, they they don't they send their personal shopper to the mall, >> right? They spend 11 times the median consumer at the mall. So, so if two 1% housewives are at the mall and there's 20 other median shoppers at the mall, those two 1% housewives will spend more than the other 20 combined. >> Um, and so that's the mean versus the median. You know, that would be my example of that. And yes, that is going to continue to do it. You're right. This can't continue. Is it going to show up somewhere? Yeah, it already is socially. Zoran Mandami in New York City. It's showing up socially in our our anger about affordability. It's and it's going to show up. It showed up in the New Jersey governor race. It showed up in the Virginia governor race where they said, "Elect me. I'm going to deal with the affordability problem." And the Republicans were talking about cultural issues and social issues. and the public said, "I want somebody to deal with affordability, and you said you'd deal with it. Fine, you got my vote." So, yeah, it's going to show up, and it already is in our voting patterns, and it's going to continue to show up in our voting patterns. And by the way, this is not an easy thing to fix. I mean, you know, to to try and to to try and lift up the bottom half when you're at a state when the top half is being driven by asset prices, you know, whether it's their home or their portfolio, that's what's causing the top of the K to move forward. Um, you know, the bottom of the K cannot because they don't own assets and you know, and because they live paycheck to paycheck, they don't have the ability to save. And so this is just going to continue to expand out and we're going to take it out in our voting patterns right now. And I think we've already seen the beginning of that. >> So, uh, it's a great topic. I I think you can even make the argument it's it's we saw it in the Trump election, right? Uh, that Trump was talking about economic issues and you know the for better or worse, Biden was running or Biden and Harris were running on a record that everybody was >> feeling really wounded about because they just seen cost of living go through the roof, right? Um, >> can I can I jump in there? And I I would say yes. And here's the problem for politicians. When you're running for office and not the incumbent, you could say, "I'm pissed. You're pissed. This is unacceptable." Then you win and then you're told the reality. It's really difficult to fix it. So you start spinning it as, well, it's getting better. We're working on it. And then the incumb then the uh challenger to you says, "I'm pissed. You're pissed. this is unacceptable and you keep voting that person in. That's where Biden was struggling to with messaging and where Trump is struggling with messaging. So I to I totally agree and to your and so obviously in the near term um the big question is is what can the Republicans hold on to Congress in the midterms? Personally, I think it's going to be super duper hard for exactly this reason, right? because I I I believe that unless you're feeling flush, you're pretty much pulling that lever for how you feel economically the moment you step in the voting booth. And a lot of people, as you said, you know, the the the the bottom n 80 90% is not feeling so hot. And to your point, it's really hard to to change, right? And so, personally, I don't think they've got enough time between now and then to really make a big difference. Um, and that and that's that's if you're able to to fix it quote unquote the right way. right? Like boosting organic growth and creating jobs that you know pay a real wage and all that type of stuff, right? Um the the other way uh and probably the easier and maybe even the more sustainable way uh to to to quote unquote fix it is to let natural market forces play out, right? And uh you know you can you can bring the top of the K down closer to the low to the lower end of the K by you know letting market corrections happen and stuff like that like to your point of housing right if we want housing to be more affordable then just quit propping it up and just let natural market forces take over right. Um, the problem with that though is is our economy right now seems to be so built on the wealth effect of that top 10%, that top 20%. That if we go through a material asset price correction, the bottom 80% is going to get whacked too because there's going to be a ton of companies that lay off those that those two housewives aren't going to, you know, top 1% housewives aren't going to spend nearly as much anymore. The economy is going to shrink. uh and they're not going to understand that this is a progression maybe to a more sustainable baseline going forward. They're just going to know I'm hurting today. So, it's almost kind of like you're damned if you do if you're damned if you don't. It's it's a really hard problem to solve in any certainly in any time frame that matters to the nearest election, >> right? I mean, this is the old Charlie Mer thing where we have misaligned incentives because of asset ownership being so concentrated at the top and being so wealth driven um that we've got this problem. But you're right. And there's another, by the way, there's another wrong way to fix this, and that would be the Zor Mani way, right? Elect me and I'll just put price controls on everything. That's it. Prices are capped and they're not and they're just not allowed to go up. The problem is you can't cap every price because raw material prices or input prices will go up and you can't cap every price because then you have a disincentive to continuing to move the economy forward. So, this is a difficult problem. it. What makes this problem a little bit unique in 2025 2026 is that misalignment of incentives. If you went back 20 years ago or if you went back even 10 years ago when you didn't have such a K-shaped concentrated economy, you could argue that what was good for the asset owners was good for the non-asset owners to get the economy moving forward. It would benefit both at the same time. The concern I have now is what benefits the asset owners is lower pro uh is the Fed cutting interest rates is stimulating financial markets higher but that runs the risk of inflation which does not benefit the bottom half of the economy. What benefits the bottom half of the economy would be more restrictive policy to restrain inflation back below 2% for an extended period of time so that you could then get wages to catch up, but that could inhibit growth in assets. So, they're kind of they're they're the the the incentives now. >> Yeah, they're they're more at odds right now and they're not aligned and that's going to be a real problem. That's why I said this is not an easy thing to fix um here. I mean, Trump's kind of got the idea, right? He wants to give everybody a $250,000 sav or $250 $250,000 be better, but a $250 um you know, savings account. Um you know, every kid under the age of 10 or something like that. I mean, it's in the at the at the margin that's not going to do a whole lot, but it's you're you're understanding this is an asset driven economy and you need to have assets in order to benefit from an asset driven economy. Asset driven economies are not a bad thing. That what becomes a bad thing is when it becomes too concentrated and you wind up K-shaping your economy like we are now. That's where the issue is. I'm I'm just gonna ask you to guess here uh on whatever timeline you want to guess on. H how do you think this resolves? >> You know, you could say we play this out long enough that we just become an aristocracy, right? Where it's a permanent upper class and everybody else just supports them and there are lots of >> societies around the world that are structured like that. A lot lat Latin a lot of Latin American countries are like that. Um does it become you know redistributive where we we there's a president mandami you know who gets in with a mandate just to put confiscatory taxes on on the wealthy. Do we somehow grow our way out of this? I mean what do you think happens in the long run? >> So let me let me turn to the markets and I I'll use my favorite metric my favorite current metric the Schiller PE ratio. >> Schiller PE is over 40. it was in December. Um, it's only, you know, that number goes back 150 years. That's why I like to use it. And, um, by the way, that's the cape ratio, the cyclically adjusted PE ratio. It's a 10-year average. Goes back 150 years. >> 40 is a massive extreme. Just >> in 150 years, it's only been higher twice. And that is in uh 1999 and in 2021. It is higher. 1999, the tech bubble. 2021 was the peak of the market before the Fed started hiking rates. It's higher now than it was in 1929. If you look at history, whenever you get that number above like around 37 or 38, over the next 10 years, the average return for the stock market is negative real. Now, what does negative real mean? It means that the stock market's gains is less than inflation. It underperforms inflation when you have a valuation that high. How do you resolve this? I think that's how we're going to do it. We're going to run into a period of of funk in markets. Didn't say crash. It didn't say bare market. It's just that you're going to be looking and going, "Oh god, another 4% year, 1% year, 6% year, year after year after year with threeish inflation just keep ticking and ticking and ticking and eventually you're going to decay the K-shaped economy that way. That's going to take several years, but that's how I think you do it. And you started off with the valuation in the market. Now, the other argument, just to give you the the the the devil's advocate argument, is um what's going to justify those valuations in the market today is AI. is that AI is going to come down and it's going to say that all of those companies margins, their profit margins are going to expand because they can fire all the middle class or the middle management of those companies and it'll all be run by a large language model which is far cheaper um and more efficient and therefore they can deliver on those gigantic earnings expectations. Um >> so that justifies the cape ratio. But it it doesn't do anything to diminish the K-shaped economy imbalance. >> No, no, it doesn't. It it doesn't. Although I will say this um about about AI, just before I go one step further, I've said this before. I am actually a big bull on AI. I think it is more important than the internet itself. And I'm not afraid of it, not for me personally, but for the economy in in in large. And that is because two things. We are a digital economy and we depend on the use of computers. And I've bluntly said and go to the airport and I think the airport is the best example of this. Everybody who has a job where you sit in front of a computer for most of the day and that's a lot that's maybe a majority of the people right now that have jobs in the country. You're a database operator. All you basically do is you're just putting information into a database. When I go to the airport, I have to scan to go through security. I have to be in the database. If I'm not in the database, then I got to go to the counter and they got to fix my my entry in the database. Then I got to get a boarding pass. I have to be in the database. Otherwise, I go to the counter and they fix my thing in the database. That's all everybody does. Then they scan me to put on the plane. They have to make sure I'm in the database. This is too hard. This is too cumbersome. AI should do all this stuff for me. I should walk into the airport. It should facially recognize they have it anyway. So, use it to my advantage. Jim's here. He must be on a flight. Oh, there's the flight. Oh, he's not on a flight. Let me fix it before he gets to security. And then he fixes it. I just walk right on the airplane. That's what it's going to do. Now, what's that mean for all those jobs? One, they go away. But what AI will do and what technology has always done is it will bend cost curves lower. It will create whole new industries, whole new um uh companies that cannot exist today because they don't have the cost structure to be profitable but they will under that scenario. So, I've read studies where they say AI could cost with 160 million jobs in the US, 50 million jobs in the next 10 years or 15 years. Okay, I might actually buy that, but I think it's going to make 70 million jobs. It's going to create 70 million jobs that don't exist because it's going to bend those cost curves. Think about today. We talk about the Mag 7. We talk about AI. None of this stuff existed three 30 years ago. None of it existed 30 years ago. Now, they're the major drivers of our economy. In 30 years, we will have a new mag seven list or whatever we'll call it then. And it will probably be a lot of companies that don't exist today. And so, I'm not afraid of it that it because yes, it's going to eliminate jobs, but it's going to create more jobs and it's going to create new jobs. The problem is I don't know what those jobs are. Neither do you. Neither does anybody else. But I do know the jobs that are going to go away and that's what makes people concerned. I see who gets eliminated. It's a concept of who gets a job. But every technological advance is always been a net creator of jobs. This one's going to be no different. Especially in the digital world where we need these computers to be simpler, that we don't sit in cubby holes all day long making sure entries into a database are correct. That's what we call a modern job right now. and we need to fix and that's going to change in a big way into whatever the next modern job is going to be. >> So, um I I'll I'll admit I'll be transparent and say I'm I'm I'm more pessimistic than you, but I hope I'm wrong. I hope you're right, Jim. the the one thing I'll encourage you to think of is a concept of Keynes the the same economist that that we all know called technological displacement where he says you know if if a new technology can do a better job than human labor at something it should replace it makes total economic sense it should do it if you look at the arc of history it it always has what you got to be careful about is the pace of displacement he said if you displace that labor faster then you can repurpose it to additional productive constructive use, you can create a social problem of which the cost of which is greater than the gains of the the new technology. And so the only question I would ask you as you're continuing to think about this going forward is is could AI and robotics um displace labor at such a fast pace that yeah maybe all maybe maybe we have those future jobs new jobs down the road but they might not materialize for 10 or 20 years and in the interim we have a massive un under or unemployment problem because we just can't push all these bodies into some productive use case yet. >> Absolutely. And that is and there's an there's an historical example for that too. And that was the industrial revolution. When everybody left the farms to go to the industrial revolution, the pace of let's all leave the farms, let's all get a job in a factory and let's all get a a good decent job in a factory was uneven. And the push back to that was communism. Um and that was what Karl Marx was writing about about you know about the the evils of capitalism and everything else. Now the push back to this won't be communism because that was for the industrial revolution but it'll be something of something socialistic uh like that. Right now the phrase they use is decelerationist. You know these are the people that want to slow down uh the AI growth. Bernie Sanders probably being one of the more vocal um political voices um in that in that crowd. But yes, that is going to be a real problem that yeah, you know, going back to what I said at the end, I see the jobs that are going to be eliminated because they're going to go first. those jobs that are going to be created will come hopefully soon, but if they're too slow in coming, that's going to change things. You know, give you give you one quick example. Um we we'll have autonomous driving. Um you know, we we could see um as I mentioned, I'm in Scottsdale and I see the Whimos here. We've got Whimos in Scottsdale and I could see it coming with uh with the Whimos and we're not there this moment, but it's coming soon. >> What's that going to do? that's going to dramatically lower the cost of transportation and that's going to for me to go to the airport, you to go to the airport or to deliver a package. Um maybe even if Elon Musk's vision of the world is is correct and that vision of the world is we no longer own cars and that there's 50 million driverless taxis and you push a button on your phone and your average wait time is about 12 seconds and one shows up in front of your house and it takes you wherever you want to go for $4. And even if that's to the store or something like that, and then you save all that money by not buying a car, not having a garage, not paying insurance, not paying upkeep for a car, and you just keep doing it that way. That is going to change the cost of transportation in ways we don't understand. That will create whole new industries in millions of jobs is that do not work now because the cost of transportation is too high, but will work in that kind of world. Um, so yeah, I could see >> but how many Uber drivers does that put on the sidelines for >> right years until those jobs come? Yeah. >> If you push, you know, according to the IRS, I believe this was a couple years ago and I don't believe that have any reason to believe it's not the case. >> We all write what our occupation is on our on our tax reform. And the word that appears the most on that is is either cashier or driver. >> Wow. >> And and both of those jobs will go away with AI. So what do we do with I find they lost their job Tuesday. They don't give them my BS story about in five years we're going to have this whole new industry. They need a job by Friday and that's where the push back comes. So I completely understand that and so that is going to be the the challenge for the you know adoption of AI and the challenge of how we manage this transition but it isn't going to be a permanent loss of jobs. It will be a permanent loss of certain chops of jobs to get automated away to make room for new jobs that um you know don't uh don't currently exist. >> Yeah. Okay. Well um like I said I might want to take the over. It sounds like you want to take the under. I hope you're right on the under and we'll just cross our fingers and chronicle this is as the screen just go forward. Yeah. >> I hope I'm right too and I fear you might be right. So I'm I'm not complet I'm I'm optimistic on it. >> Okay. All right. Well, the world needs optimists. So Okay. So you see um inflation being sticky. You see the economy probably still trundling along driven by the you know the mean being okay but but largely continued to be driven by asset owners here of which you think the Fed is is is increasingly helping out here by lowering rates and and resorting to QE. Um, you kind of gave a nod to this, but I just want to clarify it. So, we've had three great years in the stock market. Those asset owners are feeling real frisky right now. Um, I get a sense looking over the next 10 years, you think that markets are going to underperform. as you said, they might they might even be um negative uh real uh a negative real return over the next 10 years um given how richly valued things are right now. Just looking at it, you know, coin flip basis, right? So, we've had um you know, every time you flip a coin, it's it's a 50/50 shot, but the odds of flipping a coin heads three times in a row is pretty low. flipping it heads fourth for the fourth time in a row is real low. Uh if you're looking at the string, rare we have three years this good back to back to back in the markets. What do you see the odds of of the market performing not in the next 10 years but in the next year given where things are? >> Well, I think it's going to be tough. um what it's going to be tough because of the valuations and I think you've already started to see that in the markets because we do an exercise where we uh split out the S&P 500 between the AI companies and the nonAI companies. Um right now um I use Michael Kemblas's uh list. He's a strategist at JP Morgan. They identified 41 AI AI adjacent companies including >> in the S&P 500 >> in the in the S&P 500 including the uh uh MAG7 obviously those 41 companies are up something like 28% for the year those 41 companies account for something like 14% of the gain in the overall S&P. other 459 companies are up about 8% for the year and they account for about 4% of the S&P's gain. So you've already started to see that that if you if you reduce if you take the AI companies out there's a speculative element you when you talk about everybody feeling frisky uh you know there's a speculative element there uh if you take them out of the equation it's been you know an okay year 8% is nothing to sneeze at but it isn't the 18 to 20% plus that people have been expecting a lot of that has been AIdriven and I think that that is going to continue to be the case. Now, if you throw in there that the economy is going to stay hot, inflation is going to stay sticky once you get past all these measurement problems and everything else and the Fed maybe has done cutting rates. I actually think they are. I, you know, I I you know, the markets as we're talking right now are not pricing in a January or March cut. Uh, and if and I think if we get through January and March and don't cut, we're done. that the last cut was in mid December when we got the three and a half% on the funds rate that will impact the the nonAI levered companies that need lower borrowing costs and so the Russell 2000 type companies and stuff they will continue to to drag and I'm using the word drag you know so I could see next year being mid to low singledigit returns maybe less u but you know there's still a possibility you might have, you know, four or five% returns, 6% returns in in the stock market. And I think that that's where we're going to have to go. Otherwise, you have to make an argument. I am paying record valuations for these companies. And there's good reason for it. And the good reason is what that is going to justify that these companies are going to deliver booming earnings to justify these these valuations. Historically, they don't. And that's why buying highly valued companies over long periods of time is a struggle. And that's why I think you might you're beginning to see it in the non companies in 25. And I think it'll continue into 26, especially if the Fed doesn't uh cut rates anymore. >> How much sleep do you lose over a harder landing in the AI sector? you know, of of people saying, "Look, we've spent these all this gobs of money and we're just not seeing the productivity gains and now we're starting to doubt it or um you know, that's the circular funding that everyone's been talking about. We're now really starting to get concerned about that." >> Um, you know, h [laughter] how how much do you worry about an actual AI bubble burst versus just a slowing of the complex? Oh, I I think there's a there's a real risk that that could happen. And I think that I'm going to quote Jeff Bezos in the way that he laid it out and that he called this a good bubble and he called techn he called the internet a good bubble and what he meant by that was all the investors were throwing money at AI and we're creating AI just like we created the internet and then in 2000 the internet companies peaked and by 2002 the NASDAQ was down 77%. you lost threequarters of your money. Amazon, to use Bezos's example, went from $100 in 999 to $6 by 2002. It eventually recovered and moved higher. But what he meant by a good bubble was you busted all the investors, but you left the internet, >> right? You left the the infrastructure, right? You're going to bust the investors and you know that's a real risk and you'll leave AI behind. And so what happened was you had a two-stage development with the internet, right? First you had the big push where everybody bought the infrastructure companies, JDSU, Cisco, um you know, Global Crossings and the like. And then that infrastructure phase peaked in 2000 corrected that 77%. But you left the internet. What came after that was the rise of the content companies, the Google's and the Facebooks and the services and that took us higher. I think that's a good model for what we have now. What's the leading investor? What there's only one company in AI that's making money and that's Nvidia and it's a$ five trillion dollar company right now. Um but it's not maybe making enough to justify its valuations too. So you're in the infrastructure phase, you get that infrastructure correction. You leave AI behind and then what comes behind that is the in the content companies you know in other words to put it in simple terms now you got AI what do I do with it besides you know Google or it's using it as a Google uh search on steroids what more can I do with it well that's what comes afterwards and that's what will lead us up but first we'll have to transition away from buying the infrastructure companies and transition to whatever these content companies that are coming just like we had to transition away from everybody owning Cisco in 2000, you know, to buying um Facebook at the time, which is now Meta and Google and Amazon and everything else. By the way, um I'm old enough to remember 2000 and I'm old enough to remember that Cisco was the largest market cap company. It was the only company that was making profitabil profits in um the in the internet. It was pursu it was heralded as the first trillion dollar company. It got to about 600 billion in market cap before it peaked. Today it's at a lower than it was in 2000. And so 25 years later, there's been no gain in that in that company. But all these other multi-t trillion dollar tech companies have come. I could see that happening that Nvidia peaks somewhere down the line here and then in 25 years it's at the same price. But then we have all these other AI companies that come become trillion dollar companies that carry the torch to the next level. >> Uh okay, Jim. So we might be back to where we were with the uh unemployment discussion, which is looking ahead with the long arc of history, we end up in a good place, but there might be some real pain to get to between now and then. Um this is why I asked how much sleep you lose over this, right? It's it's one thing to have a a low digit low singledigit year in the markets because maybe the AI trade is slowing down a little bit and whatnot. Um it's another thing to go through a.com bust, right? Which, you know, um if if if that repeats here, if this good bubble ends the same way the previous good bubble did, um I mean this could be a year the market could be down 20 30 plus%, right? Um sure. And I I I I'm guessing that's not your default assumption heading into this year, but it sounds like it's something that while not not your default, um it's something that you're you're open to happening. >> Yeah. Oh, absolutely. I think what you got to do is before we talk about the market being down a lot like that, let's see if it actually starts to peak in and show signs of rolling over and and show signs of people, you know, afraid to invest in the sector right now. Um, and that is going to be the real sign that you could wind up really rolling this over. But right now, no one is afraid to invest in this sector. As a matter of fact, >> let me let me give you one data point here that just caught my attention. You had Blue Owl, which has been a big private lender to this space bulk at lending to Oracle. Um, it had a Oracle had a debt issuance that I guess Blue Owl was was going to buy, but then it backed out. Um, at the same time, you then also just had Saudi Arabia come in and put a an investment in open AI and and I I wonder if that was in part at kind of some strongarmming from the administration saying, hey, look, you know, we don't want this thing to run out of buy uh lenders. So, you know, hey, in addition to the other things that we're roping into our trade deal, we'll give you the opportunity to buy into these companies, but you got to buy into them to keep this game going. Um, is that are those signs of late stage, you know, sort of lending jitters here? >> Yeah. No, I mean, I think it's a little early. I was going to say I was listening to a podcast a couple days ago with Bill Gurley, who's a famous Silicon Valley investor, and he made the case >> that in Silicon Valley right now, >> if you have any kind of a deal you're looking for financing that does not involve AI, don't bother. >> Don't bother. >> There is don't bother. there is absolutely no uh appetite for any nonAI investment in the valley. Now, if that's the case, it's going to be hard for this to roll over. But once you start to see people start to question the idea that they should be pushing this hard into AI, then you could really see these markets roll over. But as we're talking right now, we're not there. And if the administration is twisting the arms or the Saudis just want in on their own valition right now into open AI and everybody wants in on this then we're going to probably continue to see it at least fight that trend right now you know so but basically what you've got is you've got huge amounts of money meeting insane in valuations and something's going to give there now eventually it's going to give it it still might be you know it might be in 26 it might be in 30 it might be you know somewhere in between. But I do think it's just mainly about these valuations. >> Okay. Um All right. Uh your valuations comments making me want to go into another asset, which I'll get to in just a second, but real quick, just to make sure I get it on the table here. So given [clears throat] everything that we've talked about, Jim, in terms of kind of what's what's in your mind and what's on your radar for next year, what uh what general investing strategies to you seem appropriate for 2026? You know, either general strategies or particular asset classes you think are particularly good or particularly bad for this type of environment. >> Yeah. So I think that this the strategy is a realistic expectation. And I I talked about this the last time I was with you and I I'm still on this train that for the long term, you know, not 26, but over the next several years, you ought to think about four, five, six markets is what I've called them. 4% cash, 5% bonds, 6% stocks, and let's say non AI stocks, call it 6%, AI being something else. If you at least approach it with that that I could buy some bonds, buy some stocks, get something like 5 to 7% in a three-ish percent infl inflation world, that's not a bad investment. >> The problem is too many people think that the world owes them 20 to 50% every year. And that's really where we wind up getting to these problems that we are right now. So I would start with that you know that diversified portfolio 456 is not a bad place to be and and you don't want to start in on the greed oh we got to buy crypto because it was down and you know bitcoin's going to go to 250,000 next year and it's going to be up 100 plus percent. or you know, gold, you know, silver is going to go to $100 after hitting 80 bucks and uh or maybe even more. And that everybody's looking for the next double. And that's how you wind up losing a lot of money as opposed to at this stage in the game. Look, if I could put in an investment that I could sleep at night is going to return me decently above the inflation rate, I'll take it. When markets are bombed out and everybody hates them, that's when you should be greedy. but we're not there right now. >> Okay. Um so because you mentioned it um and I had a lot of questions about this uh [clears throat] so given the fact that you expect um sustained sticky inflation um does that make you a fan in general of commodities and hard assets? >> Uh yeah, I mean it makes me a a fan Well that that's a tough one to say. It makes me a fan of things that would benefit from sticky inflation, you know. Um, but the problem is the things that you would think that would benefit from it, housing, precious metals, and the stuff have already run quite a bit right now. Home prices are unaffordable. You know, you've you've had a huge run in a record run in in silver. You've got over 4,500 or at least had over $4,500 in gold uh the day before we were recording. I know it's correcting on the day we're recording. Um, so you've had a big run in a lot of those things, but you know, to find another place to invest that would benefit from sticky inflation is getting really tough because all of them have had a real big run. >> Have had a real big run. Okay. Uh, and then specifically again because I got so many questions on it. Um, any any insight at all to offer on sober at this point? And and again, um, silver folks, unbelievable year. It was up, I don't know, over 150%. Uh, it it this past weekend, uh, silver futures got up above 80. Uh, they corrected pretty hard so far in the day that Jim and I are recording here. Um, down at about 62 and a half right now, Jim. So about >> 72. >> Sorry, 72. You're right. Sorry. 72 and a half. Thank you. Thank you for correcting that. 72 and a half. uh down about 6% uh versus the the 80 peak there yesterday. Um so, you know, there's a lot of chatter out there, Jim. On one side, it's a lot of long-term precious metals folks saying this is a grand repricing. The world is finally waking up to both the monetary sins of the past as well as just how um uh scarce silver has become as a metal. and it's just realizing that that silver's been way too cheap and it needs to be repriced and that's what's going on here. There are others that are saying this just looks a lot like the the previous silver surges we saw, you know, back in the 80s, back in 2011 and those shot the moon like this. They went vertical like this did and then they they fully corrected and silver was dead money for years if not decades after. Do you have a strong opinion one way or the other? >> Yeah, I think I I'll split the baby and I'll say it is a monetary repricing for what's happening in Asia. It's not a monetary repricing for what's happening in the US and Europe right now. If it was, you'd see it in the bond market with vastly higher interest rates and lowers and lower equity prices. Um, Asian economies, and I'm speaking primarily about China at this point, are really struggling bad. And those investors in those countries are looking for places to put their money. And that's why you're seeing a big rush into the precious metals. That's where I think that this play has been. I don't think this play has been in the US. It's just been a bunch of momentum players chasing it um in the US. Now that we said that, you're right. We're actually recording on the day that we've had the biggest down day in silver all year, right? We hit $84 inter intraday overnight and now we're down to we hit we went as low as $71 on it um since we hit that peak. And that is a 16% correction for one day. So this is one of the biggest this is the biggest daily correction we've seen in silver and in the charts it's a gigantic outside day and I read on zero hedge everybody's searching for reasons they >> we should we should note too that the CMA did hike silver margins which is a factor in popping the previous runaway bubbles as well >> right but in 1980 when they did hike those margins they went all the way to 100% on margins they did they did away with margins it's basically you had to pay 100% of everything on it that but that should have been expected the margin hike from the CME um given given the gigantic run that we've seen in silver but what I'm trying to point out is um if you ask the technician what is the textbook sign of a blowoff top parabolic move up gigantic outside day down nobody knows why and that seems to be what we're doing with silver so that's got me a little worried what we're seeing very very short term term in in in silver right now and you could wind up seeing a big correction in silver. Um you know you could correct the 50 bucks and people will say yeah but I bought it at 10 so I'm fine with it correcting the 50. U that's really but I think you know going back to the to the going back to the earlier thing I don't think it's about a monetary repricing and about inflation. How how can that be that it's all about silver and gold monetarily repricing things, but stocks and bonds aren't? Um they they would have to be doing the same. But I think it's more about a monetary repricing like I said in Asia. That's where the issues are is the issues are in Asia and that's where most of the buying is coming. Actually, we did a study on this too that you can look at when the market rallies during time of day. The entire rally this year has been in in gold. Now I'm gonna switch to gold because we don't have it in silver. Has been in Tokyo hours, which would be China's hours, which would and there's [clears throat] actually been hardly any movement. If you bought gold all year at the open of the New York Stock Exchange and sold it at the New York at the at the uh New York Stock Exchange, 4 Eastern time, um 9:30 in the morning Eastern to 4 Eastern. Every day this year, you've made hardly any money in the metals. It's always been overnight during the Tokyo hours because that's where the buying is coming from. That's who's monetarily repricing is it's coming out of Asia. >> Okay. And is do you see that repricing as a sustainable repric? Meaning is it is it being brought to a new baseline and it will stay there going forward or is this you know something that eventually will lose support? >> I think it is being brought to a new baseline. Now, that baseline might be $60 or $70, you know, and you know, we hit 80 and we might see a stiff correction. And the reason I think it's being brought to a a sustainable baseline is I am a bear on China. I am a big bear on China. I think that their debt problems, their housing markets, their economy is in a very, very precarious place right now. Uh, and that's who needs to be monetarily repriced. That's not going to get fixed anytime soon. And if it's not going to get fixed anytime soon, then the buyers of gold, remember gold and silver are like 3% the size of the stock and bond markets, they're very, very small. If you just told me China is in trouble and the Chinese are buying silver and gold, fine, the rest of the world, do whatever, you know, carry on whatever you want to do. Gold and silver are going to keep roaring higher. >> Um, I don't need to spin stories about massive inflation or problems in the US or, you know, unrest in Europe or anything. I don't need any of that. I've got enough with China and with Asia. And that's why I think it is at a sustainably higher level. >> Okay. All right. Great. Um well, and um in wrapping up here, uh I'm at the part normally where I say, you know, for folks that have really enjoyed this conversation, would like to follow you and your work, where should they go? Let me wrap that question in another one um which is um any updates to provide as well on the wisdom tree Bianco fund because I know that some people might want to invest according to the way you see the world Jim. >> Yeah. So a couple of things I'll answer the first part first and then I'll get to that. Uh Bianco Research is the name of my research company that I've had for almost 30 years. I I go with that handle on Twitter X under Bianco Research on uh YouTube. Uh, we also go on that handle um on LinkedIn and I also go under Jim Bianco on LinkedIn if you want to follow me on any of those or you can you go to biancorressearch.com and um see what we do there. It's mainly an institutional research product. Two years ago we did start an index called the Bianco total return fund. It is Biano Advisors is its own website. Find out more about that. Wisdom Tree has a ETF that tracks our index, WTBN. What is it? It's a total return fixed income index. When I started this index, I said I'm a bond guy and I want to start with what I felt most comfortable with was bonds. So, in that four, five, six category, I'm playing the role of the five in bonds. That's what I'm trying to argue uh for bonds. And the other reason I started this in bonds is we'll make one more pitch here. In the world of active management, it is well known that active managers cannot beat their benchmark indexes. Hire somebody to beat the S&P, you can't beat the S&P just by the index. That's true. That's well documented. But in the world of fixed income, that's not the case. Active managers can and do beat their benchmark indexes. So our benchmark, our index that we manage, it's discretionally managed. We set the weights, we set the parameters on our index, has beaten the Bloomberg aggregate index by almost 200 basis points over the last, you know, 20 months and we hope to continue to do that. So we are better investors in our fund in the five category are better off with an active manager than they would have been if they would have bought the index. That's our goal and that's what we've been able to deliver at least up to this point with it. >> Great. Well, congratulations. And Jim, as usual when I edit [clears throat] this, I will put up the URLs there to your websites and your handles and your ticker so folks know exactly where to go. Folks, those same links will be in the description below this video as well. Um, last question for you here from the audience. Um, where do you see World Cup tickets pricing at for the final? I guess this is something you've been tweeting about. >> Yeah, I found it. Um, somebody sent it to me on one of the um, uh, reselling sites that they were quoting $50,000 for World Cup tickets. Uh, it's at Metife Stadium. It's July 19th, Metife Stadium, and which is where the Giants and the Jets play. Um, and they're quoting prices of $50,000. Um, that's if you want to buy the tickets today and those are the best seats um, right now. Now, I'll give you a quick little anecdote. Um, my wife and I are huge tennis fans and we go to the US Open and we and we go to the US Open with the intention to go to the men's and women's finals every year. We get on the seven train to go out to Flushing to where the US Open is with our phone open. And the tickets are $2,000 each. And by the time we get off the train and we walk up to the gate, >> the tickets are 800 bucks each because, you know, in the minutes before the match starts, the ticket price start diving. And then you hit buy and you get the you get the uh you get the UR code and you scan it, you walk right in. >> Let's see what the ticket prices are for the World Cup 10 minutes before the game starts. I have a feeling they're not going to be $50,000 if you want. But if you are one of those that just wants to, you don't care about money, you're a billionaire and you want to pay for those prices right now, go ahead. And the final thing I tweeted out too that got a chuckle was if $50,000 for a football match is is too much money for you, the Jets play in the same stadium, and I'm sure you could get it for much cheaper if you want to go to a Jets game. >> Exactly. Uh this is a whole other story. Um I I you know you can you can look at a lot of you can tell a lot about as a society by what it it prioritizes and uh the amount that we spend on professional sports >> is in my opinion you know obscenely uh it was just obscene and I mean you think about [clears throat] what you could do even with one of those tickets $50,000 if you invested into a local sports organization in your community. Oh my god. Right. I mean, >> yeah, but you know, the people that are buying those tickets are probably first of all, it's the it's the World Cup. I mean, let me just it they're not you they're not American citizens. They are buying those those are people from Middle East and from Europe that are rabid sports fans. They're billionaires. They're flying in on their private planes. They're landing at Teter Burough and they're going to the they're going to the match. This is not people throughout the country that are doing that are that are dying to get these tickets to go um to this match. They're more interested in the Super Bowl in this country than they are in the World Cup final. >> No, I I I get that. But like, you know, just going to see the Giants play, you know, in San Francisco. You take your family there, you get fair to middling seeds. You're still spending basically a grand. You're dropping a grand on on that day's experience, right? I mean, it just >> Well, I will say this, you're right, and I I was watching a sports is the last shared experience we have in this country. It seems like movies have been bifurcated. Music has been bifurcated, you know, because of the internet and stuff like that. We all listen to different music. We all watch different movies. We all watch our different our favorite podcasts on YouTube. We don't have a shared experience. The last shared experience we really have is sports and in particular the NFL. And that's that tells you why is it so insanely priced because it doesn't compete with anything else for the water cooler talk on Monday morning. Did you watch the game last night? No one goes to the water cooler anymore and says did you see X movie or did you hear the the new album that so and so dropped? We don't care about that stuff as a shared experience. We only seem to care about sports. >> You know that that's actually really interesting. I think sadly probably very accurate. And look, I'm not trying to tear down professional sports per se, but I I would just love if if part of the water cooler discussion wasn't just, oh, did you see that pass that, you know, the quarterback who's making 22 grand, 22 million a year, you know, is getting, and instead say, hey, did you see Jim's son yesterday, you know, make the scoring touchdown pass in the local, you know, football game. So, >> I I'm chuckling because you said that quarterback is making 22 million a year. So, you're talking about a backup, right? [laughter] >> Yeah. Tell you how much I've fallen out of it, right? I mean, how terrible how scene is that, right? Anyways, okay. I'm sure I'm not making too many friends with this. All right. Well, look, in wrapping up here, um, first and foremost, folks, please join me in thanking Jim for sharing so much of his time and insights with us, especially during his holiday week. um please let them know how much you appreciate that by hitting the like button and then clicking on the subscribe button below if you haven't already, as well as that little bell icon right next to it. If you would like to get some professional help in figuring out how to position your portfolio for the year ahead, especially if it it looks in any way, shape, or form like the way that Jim thinks it might, uh then consider talking to one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me in this channel week in and week out. To schedule one of those consultations, just fill out the very short form at thoughtfulmoney.com. As a reminder, these consultations are totally free. There's no commitments involved. It's just a service these firms offer to be as helpful to as many people as possible. Jim, my friend, I can't thank you enough. I really hope you enjoy the rest of your time there in Scottsdale with your family. I hope you do get to jump in that pool today and cool off. Um, but I'll let you have the last word here. You know, most of the folks that are watching this channel are, I think, entering um 2026 with a mixture of both trepidation at what could happen, what could go wrong, but also some hope that um you know, they might be able to to to build their wealth constructively during it. Um any bits of parting advice for for somebody who matches that profile? >> Yeah, I've always told people, you know, investing is the never- ending game. Um, you know, if you missed an opportunity, I should have bought crypto 10 years ago. I should have bought AI stocks four years ago or something like that. Don't worry, there's going to be those types of opportunities in the future. I don't know what they're going to be yet. You don't know what they're going to be yet, but it's a neverending game. There will always be another opportunity. Um, so don't feel like, oh, I missed it and I've lost my last chance to make money. even if there is going to be a correction, there's still going to be opportunities within that as well, too. So, um if you're worried that there's going to be a correction, you're probably, you know, overinvested then at that point. Uh but don't worry about missing opportunities because they there will always be more in the future. >> All right, very well said. Um, you know, we all look at the uh successes and think, well, those people were, you know, I could never be like them and they were either the incredibly lucky ones or just the the Elon Musk's the one in a gazillion and I could never do that. Um, but I'm always amazed when I look back at people who were great successes in many cases for how long they were failures until they became a great success. And I was just reading a really interesting background on um I'm forgetting his first name, but Hershey, the the guy who came up with, you know, the Hershey's chocolate bar and >> became so ferociously successful. And I think I I think he really stepped into his success when he was about 40 and became gargantuinly wealthy. But when he was 30, he had failed so badly at his most recent business venture that he was basically like subsisting on family support at that point in time. And it was amazing how he was able to turn it around in in just 10 years. And what I what I take from your what you're saying there, Jim, is hey, maybe you had a bad year last year in the markets or maybe you didn't buy silver before it took off or whatever, right? like there's still plenty of time ahead of you, much more than most of us give credit for uh to be able to recover from our losses and u perhaps even even get to a place that we can't even imagine right now that we could be at. >> Exactly. Exactly. And that's why I meant by that it's a never- ending game is that people talk as if there was this one opportunity and I missed it. No, there's, you know, to use the baseball analogy, you'll come up to bat again and you'll come up to bat again and again and again and um don't worry about what you did in the p previous at bats. Worry about the next ones that are coming up. >> All right. Well, very great encouragement and wise words from a wise man. Jim, I can't thank you enough. So great to see you. Enjoy the rest of your holiday. >> Thank you. Happy New Year to everybody. >> Thank you. Yes. Happy New Year, everyone. And thanks so much for watching.