Who Will Win: Money Printing Or Physics (Energy, Inflation, Reality)
Summary
Liquidity & Valuations: Record corporate buybacks, elevated call premiums, and synchronized global rallies suggest a hidden wall of liquidity amid late-cycle extremes.
Energy Shock: The largest modern oil and refined products disruption is unfolding, with collapsing jet fuel flows to Europe, US inventory drawdowns, and risk of rationing and higher prices.
Commodity Rotation: Analysis (e.g., Goehring & Rozencwajg) points to a major commodity supercycle as commodities are historically undervalued versus equities and underowned by investors.
Precious Metals: Bullish stance on gold and silver, underscored by record Chinese silver imports and the risk of Western metal outflows tightening future supply.
Latin America/Brazil: Preference for Latin America, especially Brazil, due to capital scarcity, lean operations, and leverage to a rising commodity cycle.
Stagflation Risks: Rising input costs (diesel, heating oil, fertilizer) point to stagflation, historically negative for stocks but positive for commodities, echoing 1970s dynamics.
Market Structure Concerns: Questions over VIX signals, SPR accounting, and potential price suppression in oil raise the risk of a sudden repricing if algorithms misread fundamentals.
Portfolio Positioning: Emphasis on active management, risk controls, and strategic commodity exposure as a hedge, while avoiding leverage and preparing for potential equity drawdowns.
Transcript
Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. The question is, is there a wall of liquidity that's coming at this point to keep this thing going in spite of what's taking place? I mean, heck, at this point, you know, I'm sure there's somebody out there that's hoping they're going to throw nukes because that'll add another 20 or 30% to the market because it seems to like all of these potential troubles on the horizon. Welcome everyone to this episode of Finance U where we discuss all things financially related hopefully in easy to understand terms because that's that's what we try and do here. Back with Paul Kiker of Kiker Wealth Management this week. Paul, it feels like another decade has passed. So much to discuss. How you doing? >> I'm doing well and it does feel like a decade. These have been some long days in the past week. >> They have. Like I I I'm not even going to update what I was hoping to talk about this week except I had the war the word continued. So we're going to talk about markets in the Iran war continued. And um let's just start with the markets. I took this snapshot just minutes ago. It's April 22nd at this time. And so a lot of people are talking about oh the S&P here making you know just absolutely gigantic green candles as if there's nothing but this war has been nothing but good for anything. Uh an absolutely powerful move as we discussed last week. This move is historically powerful and is soon to be I think one of the most powerful upthrusts in S&P history. But can I just point out again it's the Dow. So it's industrials. It's all 500 companies. Oh it's tech shares too. Wait a minute. But it's also European shares. Hey, it's also tech shares over here. I'm sorry, that was Japanese shares. Tech shares, the small caps. Germany. Germany doing great while VIX collapses. That's volatility. So, um, the war has been super bullish for the US, for Japan, US. I I can't make any sense of this except Paul that these things are are recording that a wall of liquidity has somehow found its way into these various markets. They're all trading in lock step right now. But you could clearly see how this war would have a differential impact on the US versus Japan versus Europe just because of Japan is 100% 100% energy import dependent. So obviously they're in very different situation from the United States in particular their their corporations over there. They should not be they should be carving their own path. They're not. Look at that. If I strip the names off and and the and the numbers, could you tell the difference between the Dow and the Nikkay without a lot of very careful study? Probably not. >> No, not at all. >> How do you interpret that? That that to me is just that's primaasy evidence that these aren't markets are not discounting anything. They're just adding up liquidity. I think that's one way to look at it. >> It seems to be the case. I mean, we've had a little bit of information come out last week. Uh corporate buyback announcements have reached another record. That's a huge amount of demand that's coming in for equities in the interim period because they've had what se past several years I believe 90% execution rate. So I mean this is this is just absolutely amazing. But there's also signs of where we are in that cycle. I mean we're obviously late cycle but I mean call premiums have been through the roof. Not only are we make breaking records in the in the market moving, you know, participants are are overweight equities, uh, largest number market participants that they've been in quite some time outside of prior market peaks. Valuations are setting records across the board. I mean, the only thing that really makes sense is there's a hidden hand of liquidity that's that's in the backdrop of the market, which we've not seen that announcement yet, right? In the past, it was quantitative easing round one, round two, you know, went from twist to all of this that was announced. But right now, you're just looking at some of the most incredible rallies that we've seen in history kind of across the board. And what doesn't make sense to me, which is confusing, which makes you feel a little bit like an idiot because most of the time you can I can understand like I understood the short squeeze that occurred. I think we talked last week and said, "Hey, at this trajectory, we're probably going to go on to all-time highs." And then you've got the NASDAQ that's just soaring today on the extension of the peace talks, but yet, you know, apparently Iran attacked some ships this morning. The straight still shut down. That clock is still ticking. But the market just participants just don't seem to care. And this seems, you know, this is obviously what happens late cycle. The question is, is there a wall of liquidity that's coming at this point to keep this thing going in spite of what's taking place? I mean, heck, at this point, you know, I'm sure there's somebody out there that's hoping they're going to throw nukes because that'll add another 20 or 30% to the market because it doesn't it seems to like all of these potential troubles on the horizon. >> Well, that's absolutely true. So, um I can't remember if I presented it last week, but M2, which is a broad definition of money, right? Um global M2 is just like It's on one of its steepest trajectories and and yes, uh central bank printing can contribute somewhat to that, but mostly that comes from from new debt being taken on in the banking system, right? Because when you create debt, money's created on the other side of that, right? You borrow a h 100,000 Well, that's that's an old number. A 500,000 mortgage and uh and the you know $500,000 of cash is created at the same time. That's how the banking system works. Debt and money. We have a debt-based money system. Okay. So, what's going on with debts? I c came across this chart just this morning and my eyebrows shot up because this is pretty impressive what's happening here. So, this is debt growth. So, pretty complicated chart. Let's break it down. So, first off, the dark blues are going to be OECD sovereign and then there's EMDE sovereign, which is this next sort of grayish in between. And then there's corporate in here. So, sovereign debt, that's that's US Treasury debt. That's European debt whatever this is this is global this is astonishing so you see here it's expressed in percent of GDP these corporations through 20078 there was this big explosion in 2009 because because GDP came backwards this is expressing how much are new debt are you borrowing compared to global GDP it was 15% shot all the way up to 21.4% 4% here in the great financial crisis mostly because GDP took a tank but otherwise you can see here Paul's kind of like 17ish% all the way along. Oh no COVID 27.5% borrowing more than a quarter of global GDP. Wow that was going to goose stuff fell all the way back to 19% but now here we are at 23%. And this is so many trillions of dollars is just it's just unbelievable. Uh I think this is 28 trillion of borrowing that they're everybody's sort of planning for this year. Second only to the COVID explosion, higher even than the great financial crisis. This is a wall of liquidity. They're going to and I wonder how much of this corporate borrowing is so they can buy their own shares back because that's also a late cycle thing you see corporations borrow to buy back their own shares because they can't think what else to do with the money. like it's if I can borrow it say four and a half 5% and retire equities and make my stock go up 10%. Why wouldn't I do that you know if I'm in the sea suite and I mean it and it's self- serving to an extent at a basic level because most of your compensation for CEOs are coming from the performance of the stock. So, you know, last week we talked about all the insider sales, right? But these So, insiders are actually selling, but yet they're announcing these record stock buybacks, which they have vested stock that's coming in the future, so it's beneficial to them. You know, it seems like they're straddling the fence to an extent from there. So, it it's just amazing. I mean, you know, the question is at this point, if there's that much liquidity and and stocks are just oblivious to anything, you know, any risks that are on the horizon, then all of history's lessons are not worth paying attention to. Never in any cycle through history has that been something that was um um pro a take a take that would serve you well throughout your life. But I really believe at least subconsciously it that's what investors are believing. And and another question is is why in the world would you have any money going into bonds at this point if the markets are never going to have any decline because of all this liquidity? I mean that that's going to throw a wrench at the future if bond you know if investors are not putting money into bonds and infrastructure and development government bonds. So something if we continue this path, something has to break. That's either the bond market or the equity market or a little bit of both depending on how this thing unfolds. If if if they're if the market's actually not paying attention to the potential risks of this continued shutdown and lack of oil supplies running around the world. >> Yeah. Well, um we'll get to this a little bit later. Uh the inflation signals that are popping through right now are extraordinary, Paul. Um but I think uh I found on Zero Hedge today uh Goldman Sachs piece uh little statement where I think they sort of captured a little bit of what's happening here. Believe me, I I I'm of the mind that our markets have a helping hand that shows up especially during moments of war because you wouldn't want the market signaling any sort of like lack of confidence in in your war machine. And so that's something I've seen, but leaving that aside, let's pretend it could be one of these two things. So Goldman, Delta 1, said, quote, "There is still a real debate inside the oil complex," which we'll get to as well. One camp argues the curtailment is so severe, especially in refined products that each additional week becomes disproportionately more disruptive. That's position A. You know, they say that you cannot simply put the toothpaste back in the tube or on any reasonable timeline. The other side argues that once there's a deal, sanctions, relief, and incremental barrels come back, meaning the pain is acute but fundamentally temporary. Equity markets are very clearly siding with the latter view and looking through the risk of structural consumer damage. End quote. So on the one hand, wow, this is this is by by by far the largest energy shock the world has ever experienced. That's true by the numbers. Others people are going, "Yeah, but you know what? We've printed up all this money in the past and we got through the great financial crisis. We got through the com bubbles. We got through co. But each one of those things, Paul, was just humans doing kind of foolish things. And you can print your way around human folly. This is physics now, right? Oil is how the economy happens, right? The economy. What is that? Well, economy is a bunch of people performing work, right? You get out of bed and you go and you do something. Economy is work. All work requires energy across the workout. The economy requires energy. So if we take a supply shock and we skinny it down, that by definition is going to take the economy and squeeze it. All right. At that same time, we're throwing more and more and more money into this. M2 is growing because of the corporate debts, because all the money printing, the Fed's expanding its balance sheet, the governments are borrowing. We're going to throw more money in what appears to be a shrinking economy. That is the very definition of inflation from a monetary standpoint. But as well, there's going to be what we call supply shock, cost push inflation. It's not really inflation. Prices go up because you're you have a supply shock. There's just not enough of this stuff to go around. So the cost goes up and but we call it inflation. Anytime prices rise, we call it inflation. It has prices can go up for different reasons is what I'm trying to say. But at any rate, they're going up and we're going to print more money against that backdrop. So that's hard to square with a complacent bond market cuz bonds are supposed to sniff that stuff out and say I don't want to be compensated 4% in a 6% world of inflation and 8% world. No thanks. >> My biggest concern if there is this wall of liquidity that's coming and that's in the background that we can't see. Look, in 2008 you had deflationary pressures, right? Housing market collapsed, banking banks were collapsing, you know, demand destruction took place and and you have this void which is deflationary. So they print all of this money to try to stop that deflationary um uh impulse, right? So Bernani did all of his studying on the Great Depression and basically said, "Hey, if we just if they just printed enough money back then, it wouldn't have been so bad." So we get this massive experiment. You don't see inflation for quite some time because of the destruction that that event laid across the economy. So they were able to print print print. Markets look good. It further separated the wealthy from the average individual destroying the middle class. Now that makes sense to me. But in this situation, if you've got a fundamental destruction of the of a just in time inventory from an oil standpoint, liquidity can't produce energy, right? I mean, it can it can go into the markets and cause inflation, but a lot of liquidity coming into this price shock is just going to magnify the available money that's going to move into those commodities if this inflationary cycle takes place. So historically, I've not finished the entire article, but the Gargan Rosen Swag uh article that you actually shared with me yesterday, I got derailed this morning getting a chance to finish it, but they do a great job of talking about how those cycles have four or 500% returns once they start and the reasons why they start and they've been underinvested in for some time. So that cycle is going to be magnified even greater with extra liquidity in the system and we're going to get a completely different outcome from an inflationary standpoint than what we did after the 2008 crisis. And my concern is the only thing that the Fed understands is they have a hammer and if you have if your only tool is a hammer, right, print money, everything looks like a nail. But you've got to have different tools that you can implement to be a good mechanic. And that's my concern is hey market's anticipating liquidity but what happens if all of that liquidity moves into that commodity space and now every single commodity that we have for everything from housing to car production to transportation is three four or five times the cost because of the inflationary pressures you know catching up you you're under supply you have to rise that price to meet that demand and then the liquidity rolling around the system starts moving in that direction and runs that way. And I will tell you when those prices have risen long enough then and and it finally impacts other earnings within the economy, there's going to be a huge ball of money that's going to be moving out of those equities that they've been chasing and the next level of euphoria is going to be in the commodities market. I mean we're laying the foundation for that right now already >> and it's kind of it's uh in the Garing and Rosen Schwag article they also they pointed out they had a new way which I really wanted to share with you of sort of capturing the move of commodities relative to stocks and they had to come up with a new way because you know stocks are are accumulating dividends and there's productivity enhancements. So you can't really compare a ratio in the 1950s to today because of reasons. So they accounted for those reasons and said whoa we are now at a threshold which almost always I think actually always in history it doesn't have to be the same this time but always in history has meant wow this would be a great time to rotate into commodities um powerfully I mean this is like this is going to be a legendary move if their analysis is correct >> and and they do a really good job of laying the foundation and a clear argument uh and that new calculation was absolutely phenomenal. But you see it everywhere, right? I mean, there's these these imbalances that occur and that's one of the reasons we we like Latin America and Brazil specifically. Like all of the money was, you know, several years back, all of the money was coming into the United States. So I if you're a in a sector or if you're an economy that has easy capital, right, then you become complacent. You spend too much money. We've seen that with all companies throughout time that they become they just become complacent. They're spending money that they may need in the future of in areas that they don't necessarily need to. Well, if you're in a car a category that's been starved of capital, right, then you're lean, you're mean, you're paying attention to every penny that's spent, every investment that you make is is very carefully considered. And then when that money comes in there, it catapults those areas. So, you know, commodities are ridiculously undervalued from a historical standpoint in relative in relationship to percentage of the S&P 500. The stage is set for massive returns. And then you add this apparent wall of liquidity that's back there that's just going to supercharge those returns in the future. And look, I've seen all kinds of modern portfolio theory portfolios and passive investment strategies that have come in from all over around the country that we've analyzed. I have yet to see anybody that has commodity exposure unless the individual specifically directed their adviser to do it and their advisor was pushing back with the argument that that's just a waste of capital and resource allocations. But on our side, from a tactical standpoint, we've been getting clear indication that money is starting to move into that category and you should have exposure to it now going back at least a year and a half. Gold, yeah, back to 2016, but it's its own little um investment within that commodity space. Now, we're starting to see money starting to flow in those other areas, and this seems to be institutions, sovereigns, and others that that are moving. retail just haven't hasn't figured it out yet. >> Well, on that front, uh when we come back, Paul, I want to talk about probably the most surprising, if not shocking statement by Trump this week, and it pertains to the economy. Uh just as soon as we come back, markets are facing heightened uncertainty and thoughtful portfolio management has never been more important. If your current strategy relies solely on passive investing or diversification without active oversight, it may be time to consider a different approach. At Peak Financial Investing, we connect you with experienced wealth managers who actively manage portfolios using disciplined, research-driven strategies designed to adapt to evolving market conditions. Our focus is on helping clients navigate volatility with clarity and confidence. While no investment strategy can guarantee results or eliminate risk, we believe that preparation and active management can make a meaningful difference over time. Visit peakfinaniallinvesting.com to schedule a complimentary consultation and explore whether our approach aligns with your goals. I'm Dr. Chris Martinson and I am proud to support Peak Financial Investing. This is not a guarantee of future performance, but a call to take your financial planning seriously. Again, that's peakfinancialinvesting.com. Investing, of course, involves risk, including the potential loss of principle. Past performance is not indicative of future results. Please consult with a qualified adviser before making investment decisions. All right, welcome back everyone. Uh, I promised you the most shocking statement. I don't know if you saw this yet, Paul. It just came up, but this caught me way off guard and I I would like to get your views on what it might mean. Trump said, quote, "I've been in favor of interest rate rises to stop inflation." >> What? I did not see that. And I'm sorry. Well, wait a minute. He's been in favor of interest rate risers when literally he's grabbed the Federal Reserve chair metaphorically by the neck and stuck him out in front of people and said, "If we don't cut rates, everything's coming apart and it's his fault." When in the world, what? Hang on. That I'm absolutely shocked by that. And I did not see it. >> I'm glad for the honest reaction then. What does that even mean? You're right. All he's been saying is we need lower interest rate. Lower interest rates. I follow him pretty closely. I've never heard him say anything like that before. I might have missed it, but I am not aware of him saying that. So, all of a sudden, he's in favor of interest rate rises to stop inflation. Hm. >> Yeah, that's a new one to me. I have I I followed him pretty closely on everything he said and I have never heard any indication out of his out of him. And even the analysts are justifying it. They're like, "Hey, he's a real estate guy, so the only thing he understands is lower rates because that's all he's ever talked about." >> Yeah, >> that's very interesting to me. >> So, we'll get to the oil data in a bit. um and what's really happening there in the Gulf. But but already we're starting to see these impacts bleed through, which you and I have been talking about. And so maybe somebody got to Trump's ear and said, "Hey, this inflation stuff is going to be burning hot by the time we get out to the election cycle." And here's why. So this just came out in Bloomberg looks like today. Um uh yesterday. So Joel Wezzenthal, Tracy Aloway, uh I've got some texts from this article, but this is astonishing. Would you look at this average spot inflation 7.9% year-over-year up 373 basis points. That's 3.73%. Versus last month. >> Mhm. >> Boom. March food price inflation. Here it goes. Okay. And so they wrote here, quote, "It should be obvious by now that the impact of the Iran war will take time to work its way through the global economy. Last week, we still had ships unloading barrels of oil that they had picked up in the Gulf before the conflict began. Many companies have stockpiles of critical chemicals and materials that act as a buffer to immediate price shocks. And in agriculture, the full effects of higher fertilizer costs won't be really felt until harvests. But when it comes to food, all the signs are already pointing to higher prices. BOA's commodity inflation trend spotter for food and beverage companies shows March input costs up a whopping 373 basis points to 7.9% year-onear. So that's input costs for food and beverage companies. That jump was driven mostly by diesel and heating oil, meaning we haven't even seen much impact from things like higher plastics prices or fertilizer just yet. There's a sequencing at play here. There's also a layering effect as higher fertilizer costs get added on top of fuel expense, etc. And by the way, Paul, no, the price of corn, nothing has happened. It's down 42% since 2022, the last energy shock we had. Just a mouse compared to this roaring line of one we have this time. But I think you can clearly see that really corn has gone nowhere this whole year. even even you know since you know what's that uh a year and two years year and a half whole year that's February last year it's actually down from February last year to this year so it still hasn't bled through I feel bad for the farmers in this story Paul again because they they are their input costs they're going to have to take a gamble to either plant and hope that that price grain prices rise by next fall harvest or they have to make the decision not to plant tough decision I think it's terrible but here we are. So maybe maybe Trump's getting people whispering in his ear like that's pretty 7.9%. Over the month is, >> you know, >> it's shocking. >> The only thing that I can think of a complete change like that is he's trying to build the argument to B blame the Fed for all of the higher prices that are potentially coming because look, if you're not getting f fertilizer on those fields, you're going to get a lower yield in that crop. We've got a pretty nasty drought at least North Georgia right now that's taking place. Like I don't remember it in quite some time. And I saw another report that we are in somewhat of a drought condition. It's early in the seasons. If we got a drought on top of the lack of fertilizer, which is going to impact that yield, then that's just going to further magnify um food prices going into the fall. So maybe this major change on his part is to try to pet prep. He's a master of blaming other people for it for for something that goes wrong. So maybe he's trying to lay that foundation, but I'm shocked that he made that statement. Actually, that was quite shocking. >> Is a couple guys with with farm farmets, whatever you call them, gentleman farms. Uh here's how this plays out. So 40% of the price of corn is actually the fertilizer cost. So when it gets sold, 40%. So if that's up by 80%, you see there's like a call it 100% because I do the math in my head. It's like a 20% increase in the price of corn just just just to make the fertilizer square out. But then corn is the primary feed stock that goes into feeding cows and chickens and pigs and all that other stuff. So that's a primary source of protein for them. So downstream protein costs are going to be going up, right? Because again, the corn's going to cost more. So the pigs and the chickens and the cows are going to cost more to finish. Um that that that's all absolutely coming uh in the future. So how are they going to try and spin this? Inflation is typically not not really good for well we're going to get to that stagflation thing we talked about right low job creation which we certainly have and then high and rising in you know fertilizer well let's just call it inflation price prices rising for a variety of reasons inflation being one >> well one thing that I will say is this is counterintuitive but this is something that I learned several years back so let's say that food cost that you know the the the the lack of production means the feed to the cattle and the and the um herd goes up dramatically, then you might not actually see an instant rise in those prices. There'll be a delay because of the reason of these farmers are going to have to look at their winter carrying costs and they're going to have to cut their herd. So, they're going to go ahead and take a large portion of them to slaughter initially so that they can reduce their carrying cost uh through that winter. M >> so that isn't that is a delayed impact because you're reducing the the size of the herd initially supply comes onto the market but then the the followup to that is you have less feed stock essentially and in your cattle that are out there and those future prices will rise really quickly on the other side of it >> for whatever reason our cattle herds are at the lowest they've been since 1961. >> Yes. >> So they're already low population right? >> Yep. No, just I mean total total herd size, not even related to population. >> Yeah. >> Oh, okay. >> Compared to population, it's a lot more dramatic than that, right? Which you would know. I mean, you you can go to like Costco now and see three steaks in a package with a number like 75 on the front, you know. >> Yeah, that's right. It's crazy how expensive they've become. And even like long story short, I I I had one goat that I thought was castrated that was not. So, I have a whole lot more goats than what I was prepared for. So, I have to take some to uh Yeah, guys, I should have caught it, but I didn't. Had a little long hair on the back. So, I've been looking at prices even even at the um uh the sale, and goat prices are substantially higher than what they've been in the past, at least here locally. >> So, if we add this all up, what do we have? We have um record amounts of debt issuance, right? Sovereign corporate. Uh that's going to create a explosion in M2 money. some of that debt's going to be used to buy back stocks, but when they buy back the stocks, you know, I I love how uh John Husman always puts it where he says it, you know, this idea that there's money on the sidelines is a complete fiction because it's like, oh, oh, there's these companies, they have money now. It's on the sidelines, but it's going to come into the market. But if a company buys a share of stock from me, I get the cash, they get the stock. So now I have money on the sidelines. When you follow it through, when somebody buys something, somebody else gets the money for that. So there's always the same amount of money on the sidelines. The only thing you can really say is is there an appetite for people to want to buy more or is there an appetite to sell more cuz that's why things go up in price. More people are buying than selling, you know, and that's why things go down in price. People there's more sellers than buyers. So um it feels like right now there's still a huge appetite to just buy. Um >> yeah, >> and I'll have to I every time it's a little bit different, but they do rhyme. I'm not I I thought corporate profits really took a took a beating in the in the 1970s inflation if I remember that right. >> They did substantially. And I I'll pull up a chart in just a minute just to to to remind listeners what happened when that inflationary surge occurred in 1973. The stock market went down 47% to 50% some somewhere around there. was a substantial decline which is counterintuitive to the story that you're hearing today like hey this inflation's coming along you have to buy stocks. Yes over the long term you have to but initially it's negative for stock prices good for commodity prices. So if you're in the right place you can participate well but especially when the market is extremely overvalued. But talking about that that appetite Chris let me see if I can find it right here. I think it I have it under market warnings or signs of the top. Um there was let me see if I can find it. Bear with me. Um it's not coming up quickly. But essentially there were multiple like the largest applications for four, five, and six times ETFs on individual stocks and on the market. SEC said no to a lot of them, thank goodness. But that just shows you that there is a market. There's so much euphoria and retail demand out there right now and they're so convinced that this is the easiest way for them to get rich. It's gambling is what it is that they're wanting to go five and there's a market out there for five and six time levered ETFs, right? And I think year and a half ago when when crypto blew up, there were many people that were absolutely wiped out over one weekend just because of the volatility because they were levered substantially in those in those uh products. That's just a sign of where we are in the market cycle. There's very little compl There's no complacent. There's no there's no concern. And I'm not you don't make decisions on fear, but but you have to have a little bit not necessarily fear. Courage means you have to feel the fear and do it anyway, but you have to be prudent in analyzing the potential paths that are out there and instead of just going all in. So, it seems that that there's a market for there is a market for investors that are willing to put all their cards on the table at this point with no regard for the negative consequences of a five and six time levered fund. Thankfully, at least for now, the SEC is pushing back on that. But that just shows you the undercurrent of the average investor out there that they're even more they're already all in. But now any cash that they have they want to transition from all in to five times in. And that's where people just absolutely get wiped out when the path that they are certain is going to unfold does not. Like we the future's unknown. You always have to have an adaptation mentally and within your strategy in case things don't unfold the way you expect them to. But that's not what we're seeing in market participants right now. I I didn't even know they had five and 6x levered products. >> Yeah, I remember being horrified when when they went to the 3X, you know. Um but and part and this could be different. Maybe they've solved this, but there was always this erosion that happened even in the 2x3xs. I imagine I'm going to guess it's worse than the 56s, but I don't know cuz I haven't studied them. So, >> um don't hold me to this. But what I found back in the day when I was examining these things, they were good trading vehicles. Like if you had a good instinct for something's going to pop soon, go ahead, get yourself 2, 3x levered, whatever, but they were horrible investment vehicles, they all bled over time. So even though you held this 2x triple Q, you know, the and technology stocks absolutely shot the moon, a year later, you'd find you probably you lost money. >> You did, >> right? Just because of just because of how those those products were structured then. I don't know if they're structured the same now, but um just to be clear, great trading vehicles, terrible investment vehicles. >> Ter well said. And it's what they call a tracking error because let's say you've got something that's two time VIX futures, right? So each day they have to reset that price. So if that price drops, you're two times down. Then you, you know, by the end of the day, you're resetting. So that's a it's a great trading vehicle, but it's not a long-term investment vehicle. So, let me get back while we're thinking about that because I don't want to leave I don't want to leave that that thought process of what happened and I know we've shown this before but u but this is important because if if these inflationary pressures come along at least in the context of history doesn't tell us exactly what's going to happen but what it does give us an indication of is what has happened in the past in these types of environments I like this from a big picture perspective Ive so this is the S&P 500 index going back to the black line is the S&P 500 going back to 1926. The red dotted line is a priced earnings ratio of the S&P of 20. So this is what it actually was historically priced earnings ratio of 20 would be here. The blue line is considered a fairly priced S&P which is 15. And the green line if you have the opportunity in your lifetime which most investors do u at least prior to the Fed printing like they have is price earnings ratio of 10. That's when you just need to buy stocks and set them on the shelf. So what we notice is coming out of the great depression era we started getting towards that expensive side of the market. Okay, we were closer to an overvalued market. Now this right here is 1973. Now, one thing that I want to point out is notice that earning line goes up because that's the earnings of the uh S&P 500 companies actually went up, but the market went down. So, why did that happen? You know, the inflationary pressures hurt corporate profits. Their earnings went up, but their profits went down and investors had to re the market had to readjust for that. So, you had this massive decline that went into 1974. Okay. Now at that point in time the market had reset to well undervalued and that was the bottom from that point forward but it took you all the way back to around 1958 1960 from 1974 so what's that uh you know 14 16 years going back now after that event you know hey investors were chasing in the early 1980s interest rates went up to offset that inflation so what was it I don't remember exactly but 80 82 two somewhere around there you could get a 17 18% 20-year government treasury right >> CDs were paying 17 to 21%. We hear the baby boomers talking a lot about hey in the 1980s my mortgage was 14 15 16%. So people were chasing those higher returns, which is great by the way, but in hindsight, you see this undervalued market gave you a great opportunity to buy equities when nobody else wanted it. And then that culminated in the euphoria of the year 2000. So that's just a good example of what could happen, you know, in a higher inflationary environment when when that actually starts hitting financialization leaves and it starts hitting corporate uh profits. Now, let's take that where we are today. So, we're way above an overvalued market on the S&P right here. So, let's assume the earnings climb like they did back then. I don't know how much that would be, but just to get down to a price range ratio of 10, if that impacted the market at this point, let's say that they grow earnings grow to 3,000. That's still 7,000 to 3,000 on the S&P. That's more than a 50% decline. And that's closer to 60 to 70%. That is not outside the realm of possibility. And when you take the psychology of investor emotions, which I'm going to jump over to here, right? Whether investors are scared or not, they're behaving with euphoric moves in their allocation. However that's taking place, you know, call volumes, corporate buybacks. We're in that euphoria stage for the average investor regardless of whether they say they're concerned. If you look at the at the uh surveys out there, they say they're concerned, but if you look at allocations, everybody's all in. So, we're certainly somewhere between the euphoria to complacency. And this is just an indication of what market cycles are. You can be back to all-time highs and still be in the complacency mindset, which is where I believe we're combination of euphoria and complacency right now. But just to reference that again, you know, this is what occurred in a highly inflationary environment back then. Equities had to repric. Now things have changed now, right? You can make that argument, but the reality is there's going to be an impact if all of this liquidity uh and this this hole that can't be printed with uh energy input brings about severe inflation and it accelerates going forward. So, you know, this is a dangerous environment by far, much more dangerous than what the market action is behaving like. >> Well, and let's talk about that because um so why why would inflation necessarily be punishing? And by the way, we've shown this before. I think it's worth revisiting daily. Um and so this is comparing in the dark blue line is the 1974 to 1982 double hump inflation that happened. Things were cooking along. 1973 kicks off, hits a peak right up here around just mid 1974. Inflation comes back down a bit but not too as low as it was and then it starts at second climb and um here it was hitting uh this is the right hand scale. So 14% inflation, right? So this was pretty bad era for stocks. So this is the the inflationary environment during which you're noting that stocks are going down now. Now now why would that be? Um, get to that in a second. But I think we are here in the green line beginning to really rhyme this whole thing. Almost to the to the actual notes in the tune because this is going to be an energy shock again. Only this one's going to be bigger than the one in 1973. It's already more magnificent. It's not even just I'm I'm working on a large piece from my next Renaissance report, Paul, and they're calling it um the Persian poly crisis cuz oil gets the attention, but we're also missing liqufied natural gas. Oh, and helium. Oh, and ura, also ammonia, and aluminum and sulfur and sulfuric acid and all these other petrochemical feed stocks, Napa and ethylene, and all this other stuff. So, any one of those is a crisis, but they they're they're going to combine. And I would I I actually think there's a chance we're going to exceed the inflationary peak of 1980. We could easily exceed that more than 14%. That's what I'm saying. Okay. So, why does that hurt corporate profits? Well, a couple reasons that I can think of. Um, one is that sometimes you find it's hard to raise your prices fast enough to account for your input costs rising even a little bit faster. So, there's a mismatch. You're selling out your stock at this price, but then to to remanufacture, oops, now your price is up like this, then you raise your prices as much as you can, but uh-oh, now it's even more expensive. And so, you're always just a little bit behind on that curve. And then the correlary to that is as you rise raise rise raise raise raise your prices particularly in a stagflationary environment where people's incomes are not keeping up with those things you find that as you r raise your prices to survive and rec recoup your input costs and make profits your volumes fall your sales volumes will fall. So you might technically be making it on each individual unit but fewer units, right? And so that whole thing tends to it's really difficult. Rapidly rising inflation is very very hard to make pricing decisions um and get them right. >> It is. And look, we've seen this through historical cycles in the past, but it seems like at least when you look out at probable outcomes, we've got a perfect storm coming because the reality is if that input cost rises dramatically, but salaries are going up, okay, then you can pass that cost down and keep that profit percentage margin in there. But what we're already seeing is massive layoffs. the art the excuse at least is that AI is coming along enough to where it can replace those jobs. So where's the pressure for salaries to increase if AI is deflationary from an employment standpoint? Because look, you know, let's say there's 300 million people in the United States and a 100 million of them are impacted by, you know, AI layoff just to pick round numbers just so they're extreme and easier to understand. Well, that's 100 million people who are willing to adapt and get and make some money somewhere else. So employers have, you know, the ability, but that's also people that have less money to buy these goods. So they can't pass on those prices. So I mean, we we've got a, you know, the handwriting is on the wall. Whether it actually unfolds that way or not, we don't know. The future is unknown. But the prudent can foresee danger and make adjustments, hide themselves. You can clearly see how this calamity can unfold much clearer than we've been able to see at any other time in the past because it's it it's you know what's taking place in the Middle East, the knock-on effects from that, what AI is doing in another sector of the economy. I mean this this is a precarious time. But investors, you know, at least based on what the market's telling us, have absolutely no concerns at all. And they've taken hindsight bias, what has occurred in the past, and they've fully convinced them themselves subconsciously and projected that into the future. And they're refusing to take any of these concerns into consideration. At least that's what the market's doing right now. Let me pull this up just complete what we're going to be talking about here for in inflation. Um Charlie Bellow always doing a great job tracking all of these things for us. Uh so since the start of the war, this just he came out here on the 22nd of April. Jet fuel up 60%, sulfur 53%. UA 49% that's the prime input for nitrogenous fertilizer for the for the uh corn farmers, heating oil 46%, diesel 46%. So every one of those that we're looking at fertilizer, gasoline, diesel, all the these are all input costs to everything else down down line. Like this is the this is at the head of headwaters of the Nile. Once you put these costs up, everything downstream has to adjust to the extent they're exposed to this right now. the the war better end soon, but we're starting to get more and more credible analysts out there saying even if it does, it could take months, years. It may never come back to full flows through the Gulf for various reasons. Um, so this is this is pretty pretty big deal. Pretty big deal. The only thing that's declined since the start of the war is the VIX down there at the bottom. Stock market volatility for some reason is down. Um, yeah. And that's a the VIX is a triggering mechanism for a lot of these mechanical models, right? So if the VIX is up, they're liquidating, but if the VIX is down, they're buying. >> Yeah. >> So if if you wanted to move the market in one direction, and if you theoretically could attack the VIX and short it and drive that down, and that's going to trigger the mechanical mechanisms from a lot of these CTAs and and algorithmic programs, which is most of the trading out there now. And off of that signal alone, they're going to increase their allocation to equities. So, >> it's a precarious situation. >> Yep, >> it is. It is. So, uh I've been promising the oil data. Paul, soon as we get back, uh we're going to be talking oil data real quick because this is it's pretty astonishing what's going on. Today's markets are more volatile than ever. With ongoing economic and geopolitical uncertainty, navigating such environments requires thoughtful, adaptive strategies, not a one-sizefits-all approach. At Peak Financial Investing, our registered investment advisory firm connects clients with experienced wealth managers who focus on active portfolio management. These professionals use evidence-based strategies designed to respond to changing conditions, not outdated formulas. but customized approaches grounded in research, discipline, and risk awareness. We believe in open, informed conversations, including discussing tools like precious metals and diversification as part of a broader financial strategy. Every investor's situation is unique, and our advisers tailor their guidance accordingly. Visit peakfinancialinvesting.com today to schedule your free consultation and explore how proactive management can support your financial goals. I'm Dr. Chris Martinson, proud to work with Peak Financial Investing, and my support reflects my professional views. I encourage you to take control of your financial future by making informed decisions. All right, welcome back everybody. Paul, uh, some some oil data. Um, so here, okay, this is kind of weird to me. How about this? Remember I told you I said here, wow, look at the German DAX just like powering higher, right? fell for a minute or two at the start of the war, but got all of that back. Europe uh very broadly doing just about as well. And and the reason that that's so mysterious to me is because of this. So uh this is just one component to show what's going on. This is an absolutely astonishing chart to me. It shows daily commodities on the water. So these are shipborne shipments. This is kerosene or jet fuel. And it shows it by destination trading region across all the whole world. Paul, if this is sort of an average level up here at somewhere around, you know, between four and five million barrels, um, well, we're we're less we're at half or less. Like this is the current amount, this red dotted line. And in particular, this darkest area down here, this is called Northwest Europe zone. So Europe is just the collapse. They have no jet fuel coming, none, right? It's just like literally collapsed close to zero. And so, wow, how how are you going to deal with that? Um, well, you're going to have fewer flights. We've already been hearing about that. They're talking about rationing. They're talking about they've already cut flights. There's some marginal flights, you know, for our model is from the outside in. The weak always get trimmed first, right? So, they've already cut some weaker flight patterns that didn't have like, you know, good good traffic or flow. Um, but this is going to bite pretty hard and we're just not seeing that in in the sort of level of concern in in the German stock market or the European stock market. And then the Financial Times, man, when it rains, it pours. They just put this out this morning saying exclusive, Russia is planning to halt the flow of Kazak oil to Germany, threatening a refinery that supplies 90% of the petrol, kerosene, and heating fuel to the German capital, its airport, and the surrounding region. So, Whoops. So, uh, and the reason I've actually a little surprised Russia's been continuing to supply Europe with energy at all, given that they've Europe's been supplying NATO, uh, armaments to Ukrainians and killing Russians with them. But now that Russia's lost a whole string of refineries, like a bunch, like five out of their top 10 have been damaged in the last couple of weeks. So, and one of them destroyed, I think. I I think uh, one of them looks pretty destroyed from what I've seen. At any rate, Russia is now saying, "Hey, we're going to need that stuff here inside our own country." But but your Germany and your capital, Berlin, is suddenly going to be like your main refinery is like offline soon. That in in in the old days, Paul, that would that would cause a selloff in German stocks, something like that. These days, apparently it leads to more buying. And I don't I just don't understand it. It just doesn't make sense to me. But there we are. This is this is my 28th year of of watching markets and and knowing how they have behaved over that entire 28-year career. And I'm just I'm just surprised and absolutely shocked by the lack of the lack of any consideration of the risks that are out there. And it's it sparked this this amazing debate. Okay. In 28 years, I've seen clearly periods of time where the market was not forecasting the future. Right? The argument is there's individuals out there and it makes sense, right? Collectively, we all the markets are a collective uh all the information that's out there together and they're a great pricing mechanism. Well, that wasn't the case in summer of 2008. That wasn't the case in 2007. That wasn't the case at the peak of the dot bubble back in the year 2000. you know, that euphoria took over and where we are right now, you know, there's this great debate. Some people are are looking at the data and and they don't understand the market's reaction to the data. So, they're falling back on the fact that, hey, the market knows something that I don't, which we have to consider that as a possibility. But when you look at the data in context of what's coming down the road and how how you know that decline is not something that can immediately go back to where it is because you've had all the the production capabilities that have been destroyed. You know that just in time inventory you know things keep moving like you said we pull it out of the ground we burn it. So so it's a very it it it's it's something that just the math doesn't add up and people are having to slide into one or two camps and some people are all in. Hey, market's pricing in something, so I'm piling all in. From my perspective and 28 years of watching the markets, that's a very foolish thing to do right now. You have to be careful in this environment and be prudent. And sometimes it's better just to, hey, stand back and just watch that how things unfold, protect yourself, and be very, very careful. There are some categories that it makes sense from a long-term fundamental standpoint and the potential outcome where commodities not a recommendation that I feel very comfortable being exposed to. There are other categories that I certainly don't feel comfortable having exposure to right now without some type of trailing stop or exit point because if the market is wrong and the data is right then there's going to be a violent reaction at some point in the future. We just don't know when that is. >> I think Paul that the markets have forgotten or don't know or had never learned the importance of energy. There's a lot of people in the markets right now who haven't been through an energy shock. They don't really understand it. They don't really understand the physics involved like well you know we had this great financial crisis. We printed money and that turned out to be really good time to buy stocks. You know but again that was a human problem. It's sort of an abstract problem, right? You know, credit default swaps and collateralized loan obligations were were blowing up, you know, it's just like a it's just great papered over. This is different now. We're missing molecules that when you, as you said, we set them on fire, they perform the work. So, we're missing a whole lot of work out there in the environment right now. And by the way, it's not being born equally. If you look at the countries who've had the biggest uh shortfalls in imports month- over-month basis, they're almost all Asian, right? United States, Europe have have managed to sort of maintain stuff, but if you'll permit, this gets a little a little wonky, but I think it's it's it's important to get these details right. So, just today, the EIA comes out with their big old spreadsheet of it's called the weekly petroleum supply report. And um the headlines were these. They said, "Wow, crude inventories increased over this last week by 1.9 million barrels." Everybody was expecting crude to fall because we have hundreds of ships showing up to load up with our crude oil. But instead, somehow the crude oil went up. And you will note it's not because we produce more week overw week. In fact, 11,000 barrels per day less came out of the ground this week than last week. So where'd it come from? Where did all that crude come from? It's because Paul, they do this weird thing where they say, "Oh, commercial stockpiles were up by 275,000 barrels a day." So, these are your refineries. Their stock piles went up. That 7* 275 gives you 1.9 million. But you'll note that we also drained our SPR at an average rate of about 591,000 barrels a day. They don't count that. If they did, you'd get a number that looks like this. Um, we were 316,000 barrels per day as as our crude oil inventories because I count our inventories to both be what the SPR holds and what the commercials hold. That's what our nation holds. They just tell us about this little fragment and say, "Oh, surprise. Crude oil build in commercials." But in fact, when you add those two together, 275 plus negative 591, you get a number that looks like minus 316,000 barrels per day times 7. We actually lost about 2.2 million barrels from our inventories last week. So part one, part two, and I put out a special report last week talking about this. I said our our inventories are going to get drained because most countries are not, Paul, they're not sidling up and asking for crude right now. Some are, but they really just want the distillates. They want the kerosene, jet fuel, you know, uh, diesel, gasoline. So, our gasoline stocks were down 4.6 million barrels. Our distillates down 3.4 million barrels. Okay, we're just we're we're selling it. And there's only so long we can do this before we're going to have to hit the panic button and stop exporting or prices are going to have to go up enough to destroy a lot of demand. That that's just how it's going to have to be. Um again, the US is still a net importer of crude oil. Um dropped a bunch this uh over the past week, but uh 1.2 million barrels a day, net importer of crude oil. The rest is all this natural gas plant liquids. Really weird, Paul. Residual fuel oil. This is bunker oil that that goes into ships. Normally, it was normally it's around 500 600,000 barrels per day is what we make. We only made 55,000. That's a 90% decline in residual fuel oil. I can't account for that. I think these numbers are going to get revised. But Tracy Shoe Chart uh Chirl on Twitter put it this way. Total gasoline inventories are now.5% below the 5-year average for this time of year. Distillant inventory is a whopping 8% below the 5-year average for this time of year. We are draining our inventories right now to try and keep the world supplied. And again, there's a ticking clock on that. Trump's going to have to do something here soon, cuz I don't think we could withstand m two more weeks of this, maybe three, and then we're going to have to hit the panic button and um either suspend exports or suffer much higher prices here in the United States. >> Yeah. I mean, the handwriting is clearly on the wall. And you know when you when you when you said in that chart they don't take that into consideration the SPR draw down and then you showed taking that into cons consideration the negative 2.2 million barrels. >> Mhm. >> I don't know for certain but if they historically don't take that into consideration these algorithms are not taking that into consideration. So they're trading off of that headline number not the actual impact of that loss of 2.2 million barrels. And that sets up for a major price action at some point in the future. If that's two weeks or three weeks out and what's going to, you know, markets are anticipating it's this way because the algorithms aren't looking at the full picture, then there's going to be a massive reversion the other way. I mean, literally, if if if this continues, it seems to be not a prediction. That seems to be the risk is we're looking at a major market reaction at some point in the future. When when the perception of the future that all is okay because of these, you know, promises and, you know, nuances, the reality comes to light that, hey, we've got a major problem here that we've not been paying attention to. And these computers are probably going to head in the other direction just as fast as they've headed in the upside direction over the past couple of weeks. we might see the opposite of a record-breaking decline. That's my concern at this point. >> Well, I just like things to make sense. So, taking the EIA at face value, crude inventories are up, crude exports are up, but crude production is down. You can't have all three of those things in one spot. One of those things is wrong, right? And so, they're hiding it in the in the SPR, which is still our nation's oil, right? We you know, it it's part of the it's part of the accounting. At any rate, we are currently hemorrhaging oil and oil products right now and sending them out to the rest of the world. And again, Paul, there's only so far you can go before your inventories get to what you would consider critical threshold levels, right? Um and and so this is the thing that bothers me a little is that uh oh I didn't pull it up but there was a Bloomberg article where where some of the heads of these big oil trading firms right like Governor and and um others they came out and they said these oil prices don't reflect the current reality of the oil situation. We don't understand what's happening, right? And all I can tell you is that if you keep the price of oil down, which I believe somebody is doing, when you keep it down, well, great. Price, demand, supply. Demand is going to stay higher than it should because the price is down given where the supply is. So, if we let supply tell the tale, we have a much worse shock than we had in 2022. Oil should be higher than, which was about 120 a barrel. And as the price of oil goes up, it starts to crimp demand. I've never seen, and I can't analyze really what's going to happen if we crimp supplies and we just say, "Oh, like we've did with silver forever." Never. There's um oils, Chris, it's only $4 a gallon. We just your your gas stations are all out of it, though, cuz there isn't any to be had at that price, right? Like that we're headed towards that. And it'll be the weirdest thing ever where we're going to have to explain that oil hasn't gone up all that much, but you just can't get any cuz that's not how markets work. Markets find a price that makes supply and demand cross and meet. >> Mhm. >> That's what they're supposed to do. >> Well, one of the analogies that I always give in passive investing is actually appropriate to this. So, in passive investing, imagine you're in a car, you're making a trip across the country, right? Passive means that you've painted black the windshield because you're not taking any into into consideration anything in the future. You're hoping the market's going to do that across the board so that you don't have a catastrophic decline. But if that's the case and and you're traveling 75 miles an hour, there's a wreck down the road, there's cars stopped, there is no brakes on those cars in passive investing to keep you from slow slowing that impact down. So it is a catastrophic decline or crash, which is what happened 2000 to 2003, 2008, right? Just an absolutely catastrophic event. My concern is is if they're if they're hiding the signals within the system to paint this picture that everything is great, well, the market, like you said, doesn't have the ability to tap the brakes and slow that demand down so that you can speed it back up in the future. It's suddenly and all at once. And and look, if if it's 6 months to bring it back on, that is a much more severe economic impact and the after effect after uh effect of that impact than it would be if the market was able to signal with honest information to slow down instead of propaganda and then it could keep from having that catastrophic event where you're just not able to get it because demand didn't adjust in time because the signals were obfiscated. >> Yeah, we need free markets. We really do. I don't believe we have them at present. Um, so a lot of people have also said, well, you know, this is really like 4D 5D chess. It's going to put China in its place because China does import. China is by far the number one import oil in the world by far. Um, and uh, they do need to import a lot, but wouldn't you know it, for some reason they built their inventories up right up leading into this war that was pretty dramatic. And it turns out China has more strategic crude oil inventories than all the other countries combined. 1.4 billion barrels compared to the United States 4.263 for Japan etc. So China can actually wait for a good long time here if they need to. Um they can actually wait this out. And if the United States is going to be draining theirs off at 4 million barrels a day, uh, which is what we did, um, you know, we drained it out about 4 million barrels a week, we would don't have that much time before I I suspect we could take that down maybe another 100 million barrels, Paul, but then there's something called working volume. You you can't take the storage container because we don't have these in in big uh tanks, right? That's not how we store. China stores a lot of theirs in tanks. You can get those working volumes very low in those tanks. We have ours in salt domes underground and because of that there's only so low you can drain them before they start to collapse on themselves. Um so uh yeah it just it's it yeah it just creates a problem um for them. So apparently we've we've I don't know how low they can go. It's kind of an open mystery at this point. I don't think anybody really does but you know you start draining them and damage happens and anyway um so China's ready. They they came into this pretty prepared. Um, >> yeah, >> I this is a waiting game now. >> Yeah, China's prepared. And it doesn't surprise me because they're long-term thinkers. They're strategic thinkers. They've educated a tremendous number of engineers and especially in the sciences. So, they're they're paying attention to the data, right? If you're an engineer and you've got to build a bridge that's got to carry a 100,000 pounds. Look, I'm not an engineer, so I don't know. So, y'all just bear with me on the analogy. 100,000 pounds to carry, you're probably going to build it for 150 because you know there's people that are going to be over that number for whatever reason. You know that engineers have to stay focused on the truth and they have a tremendous number that have been educated in the past, right? Whereas in the United States, we seem to be in this propaganda and kind of fairy tale thinking to where the facts don't really matter. And and they have they have looked into the future, examined their risks, recognized that that's a weakness of theirs, and have actually based on that data that shows us that they have taken steps to prepare themselves. They have been prudent. And that's a very important thing from a long-term standpoint. And I wish that we were being more prudent within the United States instead of just, you know, trying to tell everybody it's going to be sunshine and rainbows, right? >> You're not going to keep wealth over the long term if you don't make prudent decisions. And that's one of the reasons why wealth doesn't go beyond three generations typically unless there's a huge amount of effort taken to teach that next generation that it is a tool. You know, your wealth is something that you have to use. It's not who you are. Right? If you get to the third generation, they think it's who I am. They're throwing money here and throwing money there. They think it's always going to be coming, right? I mean, and and you look at it, we're behaving as a nation like that that third and fourth generation to where, hey, I can spend all I want and the Fed's just going to print money. Somebody's always going to bail me out. And China's in the position based on that data, there's not going to be anybody there to bail us out necessarily. So, we're going to have to prepare ourselves for known risks in the future and be prudent and and hide oursel. I mean, that's what that's telling us what they've done right there with the data you shared. That's absolutely amazing where we're we're drawing our savings down. They've been beefing their savings up. >> Yep. >> And I'll tell you, if I can find it here real quick, did you see the data on how much uh silver they inputed? I'm uh that imported last month in the month of May. Let me see if I can >> I saw that chart. I think I put it in the fat pipe yesterday or day before. Uh it was astonishing. So yes, let's see if we can pull that up because >> um I've got it here. Uh top >> even as the the price of silver has basically gone nowhere for for months, you know, it's kind of hanging out around 75. >> Uh the uh doesn't that doesn't square with this chart you're about to show here, which is pretty astonishing to me. >> It doesn't. Well, and this just tells us they obviously see the value. We've been told that it's in there. So, uh, Tavi Costa says that he he, you know, he's hat tipped to Chi Girl for pulling this up. So, what a fascinating chart. A real sign of the times. You can't put the delobalization toothpaste back in the tube. So, China imports the most silver ever in March. So, these are all the years in the past going all the way back to 2016. Steady imports. Steady imports from January to March. Look at that. That's incredible. >> It is. >> That's incredible. So why what is it that they see? Okay, you just showed the information that they were prudent and prepared enough to have these massive stock piles of oil to protect themselves in relation to everybody else. So what is it that they see that makes them accelerate? Is it as simple as the fact that hey now oil is going to be sold in one. We don't want to have these treasuries because that could be lower treasury values and currency price for the United States. So we're going to recycle it over here. or is this a critical mineral that we need metal that we need for where the future's going? That's a huge signal right there. I mean, you you know, and in spite of the fact that prices have gone down. So, what that tells me if I'm accumulating from a long-term standpoint, these prices have dropped dramatically. They got overvalued. They pulled back, but they are just piling into their they're taking advantage of this pullback to build their stockpile. And my concern is, I've said it before, my concern is this money's these metals are leaving the West and going over and they're not going to be a uh you're not going to be able to afford to bring them back if you don't have them or they're not going to allow them to come back. From what I understand, uh uh help me on this, Chris. They do have export bans on on silver right now. Correct. Coming out of >> China I would I would Yeah. not not an outright ban yet, but each each export decision has to go through some labyrinth of bureaucrats, you know. So, >> yeah. >> And you look at that, >> the Shanghai markets have been paying more for that metal than what the comics has. So, they've incentivized pulling that over. I think we had talked about that before. Now, we're seeing that in that data that's helping them build their stock piles there. >> I believe that's an important signal. Well, in and related to that, you know, there's going to be all this issuance of treasuries and money and all that stuff. Um, I don't know if you saw this, but this also caught my eye. Kind of a related concept, which is that turns out hedge funds are holding about 8% of treasuries outstanding. So, it depends. There's about 39 trillion of total treasury debt, but some of that's um debt held by the public and some of its intragovernmental holdings. So, if you just take the the debt held by the public, 27 trillion, 8% math in my head, about $2.4 trillion. Where did hedge funds come up with $2.4 trillion to buy that many treasuries? It's a big number. You know, that's a large number. 2.4 trillion. >> That's a huge number. That's a really huge number. I've not seen that. I mean that that's I'd make a number up here, but I bet that's more than the total capitalization of all banks. Like how where did where did hedge funds come up with 2.4 trillion? I don't know. Beer's watching. But if they turn into a selling mood instead of a buying mood, obviously they've been doing a lot of buying. I'd be Paul. Well, I would like to know if some of these hedge funds have cryptic names and they're housed in the Cayman Islands and it's a little mysterious exactly how they got their trillions. Remember Elon told us about these magic money machines that he found in the US government, right? It was probably the most consequential video I've ever seen and it just went nowhere. Just like nobody else seemed to really notice it. But I was like, you know, because if what he said was accurate and I believe he knew what he was talking about because he obviously he was one of the founders of PayPal or instrumental in its founding. >> So he probably understands how payment systems work, right? It's you know it's a every payment system has a credit and a debit and they always have to account they have to square that that T every single time. It has just has to work, right? You can't you can't accidentally emit credits without debits, right? In the system it doesn't allow you to do that. But he said very specifically that there were 14 magic money machines not at the Federal Reserve which does have magic money machines but inside the US government. Some of them at DoD, some of them at at HHS even, some of them at Treasury, one of them at state that were he called magic money machines. And Ted Cruz is like he was interviewing was like what do you mean by that? He said, you know, a magic money machine, it just emits credits, right? And so without a in theory a corresponding debit on the backside. So that was that was shocking. I'm I'm not even sure we know how much money is out there in the system. If there are magic money machines, there is a leak in the system, which now Paul, you know, can begin. Now I can say, oh, now I know where all this liquidity comes from out of nowhere. All of a sudden, if you have a magic money machine, you can do I could do some amazing things if I had a magic money machine. >> Oh, absolutely. You'll win every Monopoly game that you ever play. You'll be the wealthiest individual around. You could buy all the land within your community and every and the inflationary pressures of that magic money machine would price everybody out because you've got unlimited capital that you're at your fingertips. And you know, it's interesting because you bring that up. I spent some time trying to have conversations with people and ask them what they think and and nobody paid attention to that in any way whatsoever. You know, it's just like there's the belief that we have this rule of law and that they're they're abiding in the halls of power to that rule of law. And I don't believe that Elon Musk said magic money uh casually or without intent. I believe that was the best explanation that he could come up with. to explain what he found. I mean, because look, he he's a brilliant individual and he understands and and he's a good communicator. So, he's using that term, I believe, because that's the best explanation of what he found. >> And and that means I mean, look, let's say you found that you didn't know it was there. You're the president of the United States. You care deeply about what the markets do. Would you not start utilizing those magic money machines to help, you know, paint this picture that things are better than what they are? >> Not Not before I fired the guy who found them. >> That's a very good point. That's a very good point. Purge anybody who who was around finding them. And well, maybe that makes sense that Doge was shut down and out of the way now. >> I don't know. And I'm not saying that's what happened. I'm just thinking out loud. >> There I'm surprised. There ought to be some clarifying questions and followup to that astonishing magic money machine clip. But since there hasn't been, that's a tell to me, right? Because at least one enterprising Bloomberg reporter should have said, "Can you explain that real quick?" Cuz maybe we missed something that that deserves clarification because otherwise what he's talking about is a complete breakdown in the basketetry that holds uh and gives credence to our system of banking. Right. Mhm. Mhm. >> For every credit there has to be a debit. If not, >> you know, >> then then that's a big break in the system, which which you know, I talked to people who are in the biz in banking and all that. They're like, "No, no, that's impossible. It's impossible." I would. But if a computer issues a treasury check that goes to somebody overseas and they put it in their bank and it and it comes out as cash in their account. I don't understand why why that would why. Yeah, it could happen. It's an interesting idea. >> Yeah, it could happen. I mean, within the banking system, the way they're set up, yeah, I can understand their perception that it's impossible to happen because they have to account for outflows and inflows. Everything's accounted for. But like you said, if there's an entity, whether it's an NGO or it's a hedge fund that's that's in a jurisdiction where they don't have to have as much reporting, then you can funnel it into the system that way. I mean, what you know, what what do drug dealers do, right? they have to launder money into the system in some way like they have that has to be laundered into the system and and obviously I'm not saying I got to be careful here but um you know theoretically there's a way to launder that money back into the system is essentially what it would be done and and the banking system wouldn't be the right way to do that you would have to do it through some other entity >> I think so anyway I'm going to keep I'm going to being puzzled by that um for a while. >> But you know, in reality, isn't that modern moni monetary theory being run behind the scenes where you just print a bunch of money and put it into the system and then if inflation gets too high, you raise interest rates to pull it back? Wasn't that what uh what's her name? >> I can't name right now. >> Stephanie Kelton. Was it Kelton? I >> think so. >> I can't remember. But you know, that was what five, four, five, six years ago. gosh, it feels like a hundred years ago at this point where there was this big push for modern monetary theory and um but that's essentially what a magic money machine would do. Well, that would be a giant threat to the to the Federal Reserve um you know, which has had a monopoly on running running that that uh scheme for for a long time. I actually think they should they everybody needs competition to get better in life. Everybody. So, I think that if the Federal Reserve had to compete against another money system, maybe currency units directly issued from the Treasury. Now, that's what they've been trying to do with this stable coin thing, right? That's kind of an end run around the Fed because what happens is you're a bank, Paul. You can make stable coins. One rule. They have to be backed by US treasuries. So, in essence, the government's giving you the backing for your currency and you're making that currency on the back of the thing that the government gave you, not the Federal Reserve. So, it actually starts to cut the Federal Reserve out. I never thought that was going to go down without a huge battle because obviously it's an exorbitant privilege to have the only magic money machines ostensibly in circulation at the Fed. That's your number. That's your only thing. That's that's your whole reason for being that's the only thing you do is you emit credits to the world, right? Um and make sure the banking system is amply stocked with those. So, I was kind of intrigued by these stable coin endun to that whole process because it it cuts them out except for the nominal tie that a stable coin is equal to the same thing as a Federal Reserve note, which we call a dollar, but it's really a Federal Reserve note. Anyway, that would be the connection. But, but um the issuance and the supply dynamics would be out of the hands of the Fed pretty much. >> Mhm. Yeah. which may be a good thing for individuals in the end. >> Could be be an interesting experiment to run. Wow. All right, Paul, any closing words as we come to the end of this amazing episode? >> Now, the biggest thing that I would like to share with people is look, the potential impact of this can bring about a lot of fear. Emotional decisions with your money and typically anything in life, right? Like you've been told if you lose your temper, count to 10. I've got a quick temper, so I've learned that over years. And life is much better if you keep your uh emotions in check, especially when it comes to money. You've got to develop a plan and implement that plan. So, it's easier when you have a strategy like we do. You can see the potential outcome. You can feel the fear, but you've got signals that help you make adaptations in the portfolio when to lower risk. And look, you don't know what the future's going to be. You might lower risk and everything work out just fine and you miss a little bit of opportunity. Okay, missed opportunity is a lot easier to make up for than lost capital for most people. Especially if you're right on the verge of retirement, you're getting ready to retire. A major market decline can wipe out your dreams of retirement, right? If you're 30 years old, passive, ride that volatility, you might can maximize by being able to sidestep a major downturn. But depending upon where you are in life, you know, you need to have a plan. You need to have some way to make adaptation. You know, I've run into tons of people in the past that have been so scared of the markets that they piled it all into treasuries in the interim period and they feel foolish at this point because they didn't imagine that that that things could go on this long without consequences. And I've run into people that were all in one category because they believed that that was the sole answer and they got wiped out. So diversification and adaptation. So, I encourage everybody develop a plan. Talk to your adviser that you have. Find out what their plan is. What if things do spiral out of control and oil prices were to jump to $300 or $400 a barrel? What adaptations will they make in the portfolio, if any? And and if their answer satisfies you, that they're going to help protect you based on that information. And as things change, then continue to work with them. If not, you want to do it yourself. Develop a plan. Plan ahead of time. You know, it's far better when I did a whole lot of scenario planning over the years, you know, especially with guns. It's like you have to think ahead of of the situation that you might be in so that you're not panicked, frozen, or making emotional decisions. And I've been in situations before where that training has helped me get out of a very what could have been a very volatile situation because I was calm, cool, collected, and spoke clearly because I had already considered what I would do when I ran into that situation and probably kept something from escalating. I know that to be prudent in the investment process. We have, you know, we make adaptations. We plan. Not going to be perfect. You can't pick the top and the bottom, but there are times where it makes sense to lower risk. It also makes uh sense in other areas to allocate to an area that the weight of the information tells you that that you should be allocated there. So, I just want to encourage everybody develop a plan, work that plan, think about it, and keep your emotions in check. Courage is essentially feeling the fear and making the prudent decision anyway. This I don't believe this is a period of time where you can stick your head in the sand, put your fingers in your ears, and hope that this will pass because the consequences are too severe to most individuals if these potential risks lead to the reality it looks like we're getting ready to walk into. So, I'll leave it at that. >> All right. Well, folks, you heard the options. Talk to your financial adviser. Do it yourself. or let me present a third option which is to go to peakfinaniallinvesting.com and fill out a simple form so that maybe you can talk with somebody at Paul's shop. If you do that within 48 business hours, somebody will be back in touch with you from Paul's shop to set up what should be the first of three calls. The first call, hey, an introductory call, get to know each other. Then there'll be a planning call and if things progress, you'll get to a recommendations call. And if all that ples out, it might make sense to work with Paul. and a lot of people have been deciding that makes sense for them uh over the past couple years now. So Paul, thank you so much for your time today and again for everybody else, peakfinancialinvesting.com and we hope to see you there or here next week. Bye for now.
Who Will Win: Money Printing Or Physics (Energy, Inflation, Reality)
Summary
Transcript
Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. The question is, is there a wall of liquidity that's coming at this point to keep this thing going in spite of what's taking place? I mean, heck, at this point, you know, I'm sure there's somebody out there that's hoping they're going to throw nukes because that'll add another 20 or 30% to the market because it seems to like all of these potential troubles on the horizon. Welcome everyone to this episode of Finance U where we discuss all things financially related hopefully in easy to understand terms because that's that's what we try and do here. Back with Paul Kiker of Kiker Wealth Management this week. Paul, it feels like another decade has passed. So much to discuss. How you doing? >> I'm doing well and it does feel like a decade. These have been some long days in the past week. >> They have. Like I I I'm not even going to update what I was hoping to talk about this week except I had the war the word continued. So we're going to talk about markets in the Iran war continued. And um let's just start with the markets. I took this snapshot just minutes ago. It's April 22nd at this time. And so a lot of people are talking about oh the S&P here making you know just absolutely gigantic green candles as if there's nothing but this war has been nothing but good for anything. Uh an absolutely powerful move as we discussed last week. This move is historically powerful and is soon to be I think one of the most powerful upthrusts in S&P history. But can I just point out again it's the Dow. So it's industrials. It's all 500 companies. Oh it's tech shares too. Wait a minute. But it's also European shares. Hey, it's also tech shares over here. I'm sorry, that was Japanese shares. Tech shares, the small caps. Germany. Germany doing great while VIX collapses. That's volatility. So, um, the war has been super bullish for the US, for Japan, US. I I can't make any sense of this except Paul that these things are are recording that a wall of liquidity has somehow found its way into these various markets. They're all trading in lock step right now. But you could clearly see how this war would have a differential impact on the US versus Japan versus Europe just because of Japan is 100% 100% energy import dependent. So obviously they're in very different situation from the United States in particular their their corporations over there. They should not be they should be carving their own path. They're not. Look at that. If I strip the names off and and the and the numbers, could you tell the difference between the Dow and the Nikkay without a lot of very careful study? Probably not. >> No, not at all. >> How do you interpret that? That that to me is just that's primaasy evidence that these aren't markets are not discounting anything. They're just adding up liquidity. I think that's one way to look at it. >> It seems to be the case. I mean, we've had a little bit of information come out last week. Uh corporate buyback announcements have reached another record. That's a huge amount of demand that's coming in for equities in the interim period because they've had what se past several years I believe 90% execution rate. So I mean this is this is just absolutely amazing. But there's also signs of where we are in that cycle. I mean we're obviously late cycle but I mean call premiums have been through the roof. Not only are we make breaking records in the in the market moving, you know, participants are are overweight equities, uh, largest number market participants that they've been in quite some time outside of prior market peaks. Valuations are setting records across the board. I mean, the only thing that really makes sense is there's a hidden hand of liquidity that's that's in the backdrop of the market, which we've not seen that announcement yet, right? In the past, it was quantitative easing round one, round two, you know, went from twist to all of this that was announced. But right now, you're just looking at some of the most incredible rallies that we've seen in history kind of across the board. And what doesn't make sense to me, which is confusing, which makes you feel a little bit like an idiot because most of the time you can I can understand like I understood the short squeeze that occurred. I think we talked last week and said, "Hey, at this trajectory, we're probably going to go on to all-time highs." And then you've got the NASDAQ that's just soaring today on the extension of the peace talks, but yet, you know, apparently Iran attacked some ships this morning. The straight still shut down. That clock is still ticking. But the market just participants just don't seem to care. And this seems, you know, this is obviously what happens late cycle. The question is, is there a wall of liquidity that's coming at this point to keep this thing going in spite of what's taking place? I mean, heck, at this point, you know, I'm sure there's somebody out there that's hoping they're going to throw nukes because that'll add another 20 or 30% to the market because it doesn't it seems to like all of these potential troubles on the horizon. >> Well, that's absolutely true. So, um I can't remember if I presented it last week, but M2, which is a broad definition of money, right? Um global M2 is just like It's on one of its steepest trajectories and and yes, uh central bank printing can contribute somewhat to that, but mostly that comes from from new debt being taken on in the banking system, right? Because when you create debt, money's created on the other side of that, right? You borrow a h 100,000 Well, that's that's an old number. A 500,000 mortgage and uh and the you know $500,000 of cash is created at the same time. That's how the banking system works. Debt and money. We have a debt-based money system. Okay. So, what's going on with debts? I c came across this chart just this morning and my eyebrows shot up because this is pretty impressive what's happening here. So, this is debt growth. So, pretty complicated chart. Let's break it down. So, first off, the dark blues are going to be OECD sovereign and then there's EMDE sovereign, which is this next sort of grayish in between. And then there's corporate in here. So, sovereign debt, that's that's US Treasury debt. That's European debt whatever this is this is global this is astonishing so you see here it's expressed in percent of GDP these corporations through 20078 there was this big explosion in 2009 because because GDP came backwards this is expressing how much are new debt are you borrowing compared to global GDP it was 15% shot all the way up to 21.4% 4% here in the great financial crisis mostly because GDP took a tank but otherwise you can see here Paul's kind of like 17ish% all the way along. Oh no COVID 27.5% borrowing more than a quarter of global GDP. Wow that was going to goose stuff fell all the way back to 19% but now here we are at 23%. And this is so many trillions of dollars is just it's just unbelievable. Uh I think this is 28 trillion of borrowing that they're everybody's sort of planning for this year. Second only to the COVID explosion, higher even than the great financial crisis. This is a wall of liquidity. They're going to and I wonder how much of this corporate borrowing is so they can buy their own shares back because that's also a late cycle thing you see corporations borrow to buy back their own shares because they can't think what else to do with the money. like it's if I can borrow it say four and a half 5% and retire equities and make my stock go up 10%. Why wouldn't I do that you know if I'm in the sea suite and I mean it and it's self- serving to an extent at a basic level because most of your compensation for CEOs are coming from the performance of the stock. So, you know, last week we talked about all the insider sales, right? But these So, insiders are actually selling, but yet they're announcing these record stock buybacks, which they have vested stock that's coming in the future, so it's beneficial to them. You know, it seems like they're straddling the fence to an extent from there. So, it it's just amazing. I mean, you know, the question is at this point, if there's that much liquidity and and stocks are just oblivious to anything, you know, any risks that are on the horizon, then all of history's lessons are not worth paying attention to. Never in any cycle through history has that been something that was um um pro a take a take that would serve you well throughout your life. But I really believe at least subconsciously it that's what investors are believing. And and another question is is why in the world would you have any money going into bonds at this point if the markets are never going to have any decline because of all this liquidity? I mean that that's going to throw a wrench at the future if bond you know if investors are not putting money into bonds and infrastructure and development government bonds. So something if we continue this path, something has to break. That's either the bond market or the equity market or a little bit of both depending on how this thing unfolds. If if if they're if the market's actually not paying attention to the potential risks of this continued shutdown and lack of oil supplies running around the world. >> Yeah. Well, um we'll get to this a little bit later. Uh the inflation signals that are popping through right now are extraordinary, Paul. Um but I think uh I found on Zero Hedge today uh Goldman Sachs piece uh little statement where I think they sort of captured a little bit of what's happening here. Believe me, I I I'm of the mind that our markets have a helping hand that shows up especially during moments of war because you wouldn't want the market signaling any sort of like lack of confidence in in your war machine. And so that's something I've seen, but leaving that aside, let's pretend it could be one of these two things. So Goldman, Delta 1, said, quote, "There is still a real debate inside the oil complex," which we'll get to as well. One camp argues the curtailment is so severe, especially in refined products that each additional week becomes disproportionately more disruptive. That's position A. You know, they say that you cannot simply put the toothpaste back in the tube or on any reasonable timeline. The other side argues that once there's a deal, sanctions, relief, and incremental barrels come back, meaning the pain is acute but fundamentally temporary. Equity markets are very clearly siding with the latter view and looking through the risk of structural consumer damage. End quote. So on the one hand, wow, this is this is by by by far the largest energy shock the world has ever experienced. That's true by the numbers. Others people are going, "Yeah, but you know what? We've printed up all this money in the past and we got through the great financial crisis. We got through the com bubbles. We got through co. But each one of those things, Paul, was just humans doing kind of foolish things. And you can print your way around human folly. This is physics now, right? Oil is how the economy happens, right? The economy. What is that? Well, economy is a bunch of people performing work, right? You get out of bed and you go and you do something. Economy is work. All work requires energy across the workout. The economy requires energy. So if we take a supply shock and we skinny it down, that by definition is going to take the economy and squeeze it. All right. At that same time, we're throwing more and more and more money into this. M2 is growing because of the corporate debts, because all the money printing, the Fed's expanding its balance sheet, the governments are borrowing. We're going to throw more money in what appears to be a shrinking economy. That is the very definition of inflation from a monetary standpoint. But as well, there's going to be what we call supply shock, cost push inflation. It's not really inflation. Prices go up because you're you have a supply shock. There's just not enough of this stuff to go around. So the cost goes up and but we call it inflation. Anytime prices rise, we call it inflation. It has prices can go up for different reasons is what I'm trying to say. But at any rate, they're going up and we're going to print more money against that backdrop. So that's hard to square with a complacent bond market cuz bonds are supposed to sniff that stuff out and say I don't want to be compensated 4% in a 6% world of inflation and 8% world. No thanks. >> My biggest concern if there is this wall of liquidity that's coming and that's in the background that we can't see. Look, in 2008 you had deflationary pressures, right? Housing market collapsed, banking banks were collapsing, you know, demand destruction took place and and you have this void which is deflationary. So they print all of this money to try to stop that deflationary um uh impulse, right? So Bernani did all of his studying on the Great Depression and basically said, "Hey, if we just if they just printed enough money back then, it wouldn't have been so bad." So we get this massive experiment. You don't see inflation for quite some time because of the destruction that that event laid across the economy. So they were able to print print print. Markets look good. It further separated the wealthy from the average individual destroying the middle class. Now that makes sense to me. But in this situation, if you've got a fundamental destruction of the of a just in time inventory from an oil standpoint, liquidity can't produce energy, right? I mean, it can it can go into the markets and cause inflation, but a lot of liquidity coming into this price shock is just going to magnify the available money that's going to move into those commodities if this inflationary cycle takes place. So historically, I've not finished the entire article, but the Gargan Rosen Swag uh article that you actually shared with me yesterday, I got derailed this morning getting a chance to finish it, but they do a great job of talking about how those cycles have four or 500% returns once they start and the reasons why they start and they've been underinvested in for some time. So that cycle is going to be magnified even greater with extra liquidity in the system and we're going to get a completely different outcome from an inflationary standpoint than what we did after the 2008 crisis. And my concern is the only thing that the Fed understands is they have a hammer and if you have if your only tool is a hammer, right, print money, everything looks like a nail. But you've got to have different tools that you can implement to be a good mechanic. And that's my concern is hey market's anticipating liquidity but what happens if all of that liquidity moves into that commodity space and now every single commodity that we have for everything from housing to car production to transportation is three four or five times the cost because of the inflationary pressures you know catching up you you're under supply you have to rise that price to meet that demand and then the liquidity rolling around the system starts moving in that direction and runs that way. And I will tell you when those prices have risen long enough then and and it finally impacts other earnings within the economy, there's going to be a huge ball of money that's going to be moving out of those equities that they've been chasing and the next level of euphoria is going to be in the commodities market. I mean we're laying the foundation for that right now already >> and it's kind of it's uh in the Garing and Rosen Schwag article they also they pointed out they had a new way which I really wanted to share with you of sort of capturing the move of commodities relative to stocks and they had to come up with a new way because you know stocks are are accumulating dividends and there's productivity enhancements. So you can't really compare a ratio in the 1950s to today because of reasons. So they accounted for those reasons and said whoa we are now at a threshold which almost always I think actually always in history it doesn't have to be the same this time but always in history has meant wow this would be a great time to rotate into commodities um powerfully I mean this is like this is going to be a legendary move if their analysis is correct >> and and they do a really good job of laying the foundation and a clear argument uh and that new calculation was absolutely phenomenal. But you see it everywhere, right? I mean, there's these these imbalances that occur and that's one of the reasons we we like Latin America and Brazil specifically. Like all of the money was, you know, several years back, all of the money was coming into the United States. So I if you're a in a sector or if you're an economy that has easy capital, right, then you become complacent. You spend too much money. We've seen that with all companies throughout time that they become they just become complacent. They're spending money that they may need in the future of in areas that they don't necessarily need to. Well, if you're in a car a category that's been starved of capital, right, then you're lean, you're mean, you're paying attention to every penny that's spent, every investment that you make is is very carefully considered. And then when that money comes in there, it catapults those areas. So, you know, commodities are ridiculously undervalued from a historical standpoint in relative in relationship to percentage of the S&P 500. The stage is set for massive returns. And then you add this apparent wall of liquidity that's back there that's just going to supercharge those returns in the future. And look, I've seen all kinds of modern portfolio theory portfolios and passive investment strategies that have come in from all over around the country that we've analyzed. I have yet to see anybody that has commodity exposure unless the individual specifically directed their adviser to do it and their advisor was pushing back with the argument that that's just a waste of capital and resource allocations. But on our side, from a tactical standpoint, we've been getting clear indication that money is starting to move into that category and you should have exposure to it now going back at least a year and a half. Gold, yeah, back to 2016, but it's its own little um investment within that commodity space. Now, we're starting to see money starting to flow in those other areas, and this seems to be institutions, sovereigns, and others that that are moving. retail just haven't hasn't figured it out yet. >> Well, on that front, uh when we come back, Paul, I want to talk about probably the most surprising, if not shocking statement by Trump this week, and it pertains to the economy. Uh just as soon as we come back, markets are facing heightened uncertainty and thoughtful portfolio management has never been more important. If your current strategy relies solely on passive investing or diversification without active oversight, it may be time to consider a different approach. At Peak Financial Investing, we connect you with experienced wealth managers who actively manage portfolios using disciplined, research-driven strategies designed to adapt to evolving market conditions. Our focus is on helping clients navigate volatility with clarity and confidence. While no investment strategy can guarantee results or eliminate risk, we believe that preparation and active management can make a meaningful difference over time. Visit peakfinaniallinvesting.com to schedule a complimentary consultation and explore whether our approach aligns with your goals. I'm Dr. Chris Martinson and I am proud to support Peak Financial Investing. This is not a guarantee of future performance, but a call to take your financial planning seriously. Again, that's peakfinancialinvesting.com. Investing, of course, involves risk, including the potential loss of principle. Past performance is not indicative of future results. Please consult with a qualified adviser before making investment decisions. All right, welcome back everyone. Uh, I promised you the most shocking statement. I don't know if you saw this yet, Paul. It just came up, but this caught me way off guard and I I would like to get your views on what it might mean. Trump said, quote, "I've been in favor of interest rate rises to stop inflation." >> What? I did not see that. And I'm sorry. Well, wait a minute. He's been in favor of interest rate risers when literally he's grabbed the Federal Reserve chair metaphorically by the neck and stuck him out in front of people and said, "If we don't cut rates, everything's coming apart and it's his fault." When in the world, what? Hang on. That I'm absolutely shocked by that. And I did not see it. >> I'm glad for the honest reaction then. What does that even mean? You're right. All he's been saying is we need lower interest rate. Lower interest rates. I follow him pretty closely. I've never heard him say anything like that before. I might have missed it, but I am not aware of him saying that. So, all of a sudden, he's in favor of interest rate rises to stop inflation. Hm. >> Yeah, that's a new one to me. I have I I followed him pretty closely on everything he said and I have never heard any indication out of his out of him. And even the analysts are justifying it. They're like, "Hey, he's a real estate guy, so the only thing he understands is lower rates because that's all he's ever talked about." >> Yeah, >> that's very interesting to me. >> So, we'll get to the oil data in a bit. um and what's really happening there in the Gulf. But but already we're starting to see these impacts bleed through, which you and I have been talking about. And so maybe somebody got to Trump's ear and said, "Hey, this inflation stuff is going to be burning hot by the time we get out to the election cycle." And here's why. So this just came out in Bloomberg looks like today. Um uh yesterday. So Joel Wezzenthal, Tracy Aloway, uh I've got some texts from this article, but this is astonishing. Would you look at this average spot inflation 7.9% year-over-year up 373 basis points. That's 3.73%. Versus last month. >> Mhm. >> Boom. March food price inflation. Here it goes. Okay. And so they wrote here, quote, "It should be obvious by now that the impact of the Iran war will take time to work its way through the global economy. Last week, we still had ships unloading barrels of oil that they had picked up in the Gulf before the conflict began. Many companies have stockpiles of critical chemicals and materials that act as a buffer to immediate price shocks. And in agriculture, the full effects of higher fertilizer costs won't be really felt until harvests. But when it comes to food, all the signs are already pointing to higher prices. BOA's commodity inflation trend spotter for food and beverage companies shows March input costs up a whopping 373 basis points to 7.9% year-onear. So that's input costs for food and beverage companies. That jump was driven mostly by diesel and heating oil, meaning we haven't even seen much impact from things like higher plastics prices or fertilizer just yet. There's a sequencing at play here. There's also a layering effect as higher fertilizer costs get added on top of fuel expense, etc. And by the way, Paul, no, the price of corn, nothing has happened. It's down 42% since 2022, the last energy shock we had. Just a mouse compared to this roaring line of one we have this time. But I think you can clearly see that really corn has gone nowhere this whole year. even even you know since you know what's that uh a year and two years year and a half whole year that's February last year it's actually down from February last year to this year so it still hasn't bled through I feel bad for the farmers in this story Paul again because they they are their input costs they're going to have to take a gamble to either plant and hope that that price grain prices rise by next fall harvest or they have to make the decision not to plant tough decision I think it's terrible but here we are. So maybe maybe Trump's getting people whispering in his ear like that's pretty 7.9%. Over the month is, >> you know, >> it's shocking. >> The only thing that I can think of a complete change like that is he's trying to build the argument to B blame the Fed for all of the higher prices that are potentially coming because look, if you're not getting f fertilizer on those fields, you're going to get a lower yield in that crop. We've got a pretty nasty drought at least North Georgia right now that's taking place. Like I don't remember it in quite some time. And I saw another report that we are in somewhat of a drought condition. It's early in the seasons. If we got a drought on top of the lack of fertilizer, which is going to impact that yield, then that's just going to further magnify um food prices going into the fall. So maybe this major change on his part is to try to pet prep. He's a master of blaming other people for it for for something that goes wrong. So maybe he's trying to lay that foundation, but I'm shocked that he made that statement. Actually, that was quite shocking. >> Is a couple guys with with farm farmets, whatever you call them, gentleman farms. Uh here's how this plays out. So 40% of the price of corn is actually the fertilizer cost. So when it gets sold, 40%. So if that's up by 80%, you see there's like a call it 100% because I do the math in my head. It's like a 20% increase in the price of corn just just just to make the fertilizer square out. But then corn is the primary feed stock that goes into feeding cows and chickens and pigs and all that other stuff. So that's a primary source of protein for them. So downstream protein costs are going to be going up, right? Because again, the corn's going to cost more. So the pigs and the chickens and the cows are going to cost more to finish. Um that that that's all absolutely coming uh in the future. So how are they going to try and spin this? Inflation is typically not not really good for well we're going to get to that stagflation thing we talked about right low job creation which we certainly have and then high and rising in you know fertilizer well let's just call it inflation price prices rising for a variety of reasons inflation being one >> well one thing that I will say is this is counterintuitive but this is something that I learned several years back so let's say that food cost that you know the the the the lack of production means the feed to the cattle and the and the um herd goes up dramatically, then you might not actually see an instant rise in those prices. There'll be a delay because of the reason of these farmers are going to have to look at their winter carrying costs and they're going to have to cut their herd. So, they're going to go ahead and take a large portion of them to slaughter initially so that they can reduce their carrying cost uh through that winter. M >> so that isn't that is a delayed impact because you're reducing the the size of the herd initially supply comes onto the market but then the the followup to that is you have less feed stock essentially and in your cattle that are out there and those future prices will rise really quickly on the other side of it >> for whatever reason our cattle herds are at the lowest they've been since 1961. >> Yes. >> So they're already low population right? >> Yep. No, just I mean total total herd size, not even related to population. >> Yeah. >> Oh, okay. >> Compared to population, it's a lot more dramatic than that, right? Which you would know. I mean, you you can go to like Costco now and see three steaks in a package with a number like 75 on the front, you know. >> Yeah, that's right. It's crazy how expensive they've become. And even like long story short, I I I had one goat that I thought was castrated that was not. So, I have a whole lot more goats than what I was prepared for. So, I have to take some to uh Yeah, guys, I should have caught it, but I didn't. Had a little long hair on the back. So, I've been looking at prices even even at the um uh the sale, and goat prices are substantially higher than what they've been in the past, at least here locally. >> So, if we add this all up, what do we have? We have um record amounts of debt issuance, right? Sovereign corporate. Uh that's going to create a explosion in M2 money. some of that debt's going to be used to buy back stocks, but when they buy back the stocks, you know, I I love how uh John Husman always puts it where he says it, you know, this idea that there's money on the sidelines is a complete fiction because it's like, oh, oh, there's these companies, they have money now. It's on the sidelines, but it's going to come into the market. But if a company buys a share of stock from me, I get the cash, they get the stock. So now I have money on the sidelines. When you follow it through, when somebody buys something, somebody else gets the money for that. So there's always the same amount of money on the sidelines. The only thing you can really say is is there an appetite for people to want to buy more or is there an appetite to sell more cuz that's why things go up in price. More people are buying than selling, you know, and that's why things go down in price. People there's more sellers than buyers. So um it feels like right now there's still a huge appetite to just buy. Um >> yeah, >> and I'll have to I every time it's a little bit different, but they do rhyme. I'm not I I thought corporate profits really took a took a beating in the in the 1970s inflation if I remember that right. >> They did substantially. And I I'll pull up a chart in just a minute just to to to remind listeners what happened when that inflationary surge occurred in 1973. The stock market went down 47% to 50% some somewhere around there. was a substantial decline which is counterintuitive to the story that you're hearing today like hey this inflation's coming along you have to buy stocks. Yes over the long term you have to but initially it's negative for stock prices good for commodity prices. So if you're in the right place you can participate well but especially when the market is extremely overvalued. But talking about that that appetite Chris let me see if I can find it right here. I think it I have it under market warnings or signs of the top. Um there was let me see if I can find it. Bear with me. Um it's not coming up quickly. But essentially there were multiple like the largest applications for four, five, and six times ETFs on individual stocks and on the market. SEC said no to a lot of them, thank goodness. But that just shows you that there is a market. There's so much euphoria and retail demand out there right now and they're so convinced that this is the easiest way for them to get rich. It's gambling is what it is that they're wanting to go five and there's a market out there for five and six time levered ETFs, right? And I think year and a half ago when when crypto blew up, there were many people that were absolutely wiped out over one weekend just because of the volatility because they were levered substantially in those in those uh products. That's just a sign of where we are in the market cycle. There's very little compl There's no complacent. There's no there's no concern. And I'm not you don't make decisions on fear, but but you have to have a little bit not necessarily fear. Courage means you have to feel the fear and do it anyway, but you have to be prudent in analyzing the potential paths that are out there and instead of just going all in. So, it seems that that there's a market for there is a market for investors that are willing to put all their cards on the table at this point with no regard for the negative consequences of a five and six time levered fund. Thankfully, at least for now, the SEC is pushing back on that. But that just shows you the undercurrent of the average investor out there that they're even more they're already all in. But now any cash that they have they want to transition from all in to five times in. And that's where people just absolutely get wiped out when the path that they are certain is going to unfold does not. Like we the future's unknown. You always have to have an adaptation mentally and within your strategy in case things don't unfold the way you expect them to. But that's not what we're seeing in market participants right now. I I didn't even know they had five and 6x levered products. >> Yeah, I remember being horrified when when they went to the 3X, you know. Um but and part and this could be different. Maybe they've solved this, but there was always this erosion that happened even in the 2x3xs. I imagine I'm going to guess it's worse than the 56s, but I don't know cuz I haven't studied them. So, >> um don't hold me to this. But what I found back in the day when I was examining these things, they were good trading vehicles. Like if you had a good instinct for something's going to pop soon, go ahead, get yourself 2, 3x levered, whatever, but they were horrible investment vehicles, they all bled over time. So even though you held this 2x triple Q, you know, the and technology stocks absolutely shot the moon, a year later, you'd find you probably you lost money. >> You did, >> right? Just because of just because of how those those products were structured then. I don't know if they're structured the same now, but um just to be clear, great trading vehicles, terrible investment vehicles. >> Ter well said. And it's what they call a tracking error because let's say you've got something that's two time VIX futures, right? So each day they have to reset that price. So if that price drops, you're two times down. Then you, you know, by the end of the day, you're resetting. So that's a it's a great trading vehicle, but it's not a long-term investment vehicle. So, let me get back while we're thinking about that because I don't want to leave I don't want to leave that that thought process of what happened and I know we've shown this before but u but this is important because if if these inflationary pressures come along at least in the context of history doesn't tell us exactly what's going to happen but what it does give us an indication of is what has happened in the past in these types of environments I like this from a big picture perspective Ive so this is the S&P 500 index going back to the black line is the S&P 500 going back to 1926. The red dotted line is a priced earnings ratio of the S&P of 20. So this is what it actually was historically priced earnings ratio of 20 would be here. The blue line is considered a fairly priced S&P which is 15. And the green line if you have the opportunity in your lifetime which most investors do u at least prior to the Fed printing like they have is price earnings ratio of 10. That's when you just need to buy stocks and set them on the shelf. So what we notice is coming out of the great depression era we started getting towards that expensive side of the market. Okay, we were closer to an overvalued market. Now this right here is 1973. Now, one thing that I want to point out is notice that earning line goes up because that's the earnings of the uh S&P 500 companies actually went up, but the market went down. So, why did that happen? You know, the inflationary pressures hurt corporate profits. Their earnings went up, but their profits went down and investors had to re the market had to readjust for that. So, you had this massive decline that went into 1974. Okay. Now at that point in time the market had reset to well undervalued and that was the bottom from that point forward but it took you all the way back to around 1958 1960 from 1974 so what's that uh you know 14 16 years going back now after that event you know hey investors were chasing in the early 1980s interest rates went up to offset that inflation so what was it I don't remember exactly but 80 82 two somewhere around there you could get a 17 18% 20-year government treasury right >> CDs were paying 17 to 21%. We hear the baby boomers talking a lot about hey in the 1980s my mortgage was 14 15 16%. So people were chasing those higher returns, which is great by the way, but in hindsight, you see this undervalued market gave you a great opportunity to buy equities when nobody else wanted it. And then that culminated in the euphoria of the year 2000. So that's just a good example of what could happen, you know, in a higher inflationary environment when when that actually starts hitting financialization leaves and it starts hitting corporate uh profits. Now, let's take that where we are today. So, we're way above an overvalued market on the S&P right here. So, let's assume the earnings climb like they did back then. I don't know how much that would be, but just to get down to a price range ratio of 10, if that impacted the market at this point, let's say that they grow earnings grow to 3,000. That's still 7,000 to 3,000 on the S&P. That's more than a 50% decline. And that's closer to 60 to 70%. That is not outside the realm of possibility. And when you take the psychology of investor emotions, which I'm going to jump over to here, right? Whether investors are scared or not, they're behaving with euphoric moves in their allocation. However that's taking place, you know, call volumes, corporate buybacks. We're in that euphoria stage for the average investor regardless of whether they say they're concerned. If you look at the at the uh surveys out there, they say they're concerned, but if you look at allocations, everybody's all in. So, we're certainly somewhere between the euphoria to complacency. And this is just an indication of what market cycles are. You can be back to all-time highs and still be in the complacency mindset, which is where I believe we're combination of euphoria and complacency right now. But just to reference that again, you know, this is what occurred in a highly inflationary environment back then. Equities had to repric. Now things have changed now, right? You can make that argument, but the reality is there's going to be an impact if all of this liquidity uh and this this hole that can't be printed with uh energy input brings about severe inflation and it accelerates going forward. So, you know, this is a dangerous environment by far, much more dangerous than what the market action is behaving like. >> Well, and let's talk about that because um so why why would inflation necessarily be punishing? And by the way, we've shown this before. I think it's worth revisiting daily. Um and so this is comparing in the dark blue line is the 1974 to 1982 double hump inflation that happened. Things were cooking along. 1973 kicks off, hits a peak right up here around just mid 1974. Inflation comes back down a bit but not too as low as it was and then it starts at second climb and um here it was hitting uh this is the right hand scale. So 14% inflation, right? So this was pretty bad era for stocks. So this is the the inflationary environment during which you're noting that stocks are going down now. Now now why would that be? Um, get to that in a second. But I think we are here in the green line beginning to really rhyme this whole thing. Almost to the to the actual notes in the tune because this is going to be an energy shock again. Only this one's going to be bigger than the one in 1973. It's already more magnificent. It's not even just I'm I'm working on a large piece from my next Renaissance report, Paul, and they're calling it um the Persian poly crisis cuz oil gets the attention, but we're also missing liqufied natural gas. Oh, and helium. Oh, and ura, also ammonia, and aluminum and sulfur and sulfuric acid and all these other petrochemical feed stocks, Napa and ethylene, and all this other stuff. So, any one of those is a crisis, but they they're they're going to combine. And I would I I actually think there's a chance we're going to exceed the inflationary peak of 1980. We could easily exceed that more than 14%. That's what I'm saying. Okay. So, why does that hurt corporate profits? Well, a couple reasons that I can think of. Um, one is that sometimes you find it's hard to raise your prices fast enough to account for your input costs rising even a little bit faster. So, there's a mismatch. You're selling out your stock at this price, but then to to remanufacture, oops, now your price is up like this, then you raise your prices as much as you can, but uh-oh, now it's even more expensive. And so, you're always just a little bit behind on that curve. And then the correlary to that is as you rise raise rise raise raise raise your prices particularly in a stagflationary environment where people's incomes are not keeping up with those things you find that as you r raise your prices to survive and rec recoup your input costs and make profits your volumes fall your sales volumes will fall. So you might technically be making it on each individual unit but fewer units, right? And so that whole thing tends to it's really difficult. Rapidly rising inflation is very very hard to make pricing decisions um and get them right. >> It is. And look, we've seen this through historical cycles in the past, but it seems like at least when you look out at probable outcomes, we've got a perfect storm coming because the reality is if that input cost rises dramatically, but salaries are going up, okay, then you can pass that cost down and keep that profit percentage margin in there. But what we're already seeing is massive layoffs. the art the excuse at least is that AI is coming along enough to where it can replace those jobs. So where's the pressure for salaries to increase if AI is deflationary from an employment standpoint? Because look, you know, let's say there's 300 million people in the United States and a 100 million of them are impacted by, you know, AI layoff just to pick round numbers just so they're extreme and easier to understand. Well, that's 100 million people who are willing to adapt and get and make some money somewhere else. So employers have, you know, the ability, but that's also people that have less money to buy these goods. So they can't pass on those prices. So I mean, we we've got a, you know, the handwriting is on the wall. Whether it actually unfolds that way or not, we don't know. The future is unknown. But the prudent can foresee danger and make adjustments, hide themselves. You can clearly see how this calamity can unfold much clearer than we've been able to see at any other time in the past because it's it it's you know what's taking place in the Middle East, the knock-on effects from that, what AI is doing in another sector of the economy. I mean this this is a precarious time. But investors, you know, at least based on what the market's telling us, have absolutely no concerns at all. And they've taken hindsight bias, what has occurred in the past, and they've fully convinced them themselves subconsciously and projected that into the future. And they're refusing to take any of these concerns into consideration. At least that's what the market's doing right now. Let me pull this up just complete what we're going to be talking about here for in inflation. Um Charlie Bellow always doing a great job tracking all of these things for us. Uh so since the start of the war, this just he came out here on the 22nd of April. Jet fuel up 60%, sulfur 53%. UA 49% that's the prime input for nitrogenous fertilizer for the for the uh corn farmers, heating oil 46%, diesel 46%. So every one of those that we're looking at fertilizer, gasoline, diesel, all the these are all input costs to everything else down down line. Like this is the this is at the head of headwaters of the Nile. Once you put these costs up, everything downstream has to adjust to the extent they're exposed to this right now. the the war better end soon, but we're starting to get more and more credible analysts out there saying even if it does, it could take months, years. It may never come back to full flows through the Gulf for various reasons. Um, so this is this is pretty pretty big deal. Pretty big deal. The only thing that's declined since the start of the war is the VIX down there at the bottom. Stock market volatility for some reason is down. Um, yeah. And that's a the VIX is a triggering mechanism for a lot of these mechanical models, right? So if the VIX is up, they're liquidating, but if the VIX is down, they're buying. >> Yeah. >> So if if you wanted to move the market in one direction, and if you theoretically could attack the VIX and short it and drive that down, and that's going to trigger the mechanical mechanisms from a lot of these CTAs and and algorithmic programs, which is most of the trading out there now. And off of that signal alone, they're going to increase their allocation to equities. So, >> it's a precarious situation. >> Yep, >> it is. It is. So, uh I've been promising the oil data. Paul, soon as we get back, uh we're going to be talking oil data real quick because this is it's pretty astonishing what's going on. Today's markets are more volatile than ever. With ongoing economic and geopolitical uncertainty, navigating such environments requires thoughtful, adaptive strategies, not a one-sizefits-all approach. At Peak Financial Investing, our registered investment advisory firm connects clients with experienced wealth managers who focus on active portfolio management. These professionals use evidence-based strategies designed to respond to changing conditions, not outdated formulas. but customized approaches grounded in research, discipline, and risk awareness. We believe in open, informed conversations, including discussing tools like precious metals and diversification as part of a broader financial strategy. Every investor's situation is unique, and our advisers tailor their guidance accordingly. Visit peakfinancialinvesting.com today to schedule your free consultation and explore how proactive management can support your financial goals. I'm Dr. Chris Martinson, proud to work with Peak Financial Investing, and my support reflects my professional views. I encourage you to take control of your financial future by making informed decisions. All right, welcome back everybody. Paul, uh, some some oil data. Um, so here, okay, this is kind of weird to me. How about this? Remember I told you I said here, wow, look at the German DAX just like powering higher, right? fell for a minute or two at the start of the war, but got all of that back. Europe uh very broadly doing just about as well. And and the reason that that's so mysterious to me is because of this. So uh this is just one component to show what's going on. This is an absolutely astonishing chart to me. It shows daily commodities on the water. So these are shipborne shipments. This is kerosene or jet fuel. And it shows it by destination trading region across all the whole world. Paul, if this is sort of an average level up here at somewhere around, you know, between four and five million barrels, um, well, we're we're less we're at half or less. Like this is the current amount, this red dotted line. And in particular, this darkest area down here, this is called Northwest Europe zone. So Europe is just the collapse. They have no jet fuel coming, none, right? It's just like literally collapsed close to zero. And so, wow, how how are you going to deal with that? Um, well, you're going to have fewer flights. We've already been hearing about that. They're talking about rationing. They're talking about they've already cut flights. There's some marginal flights, you know, for our model is from the outside in. The weak always get trimmed first, right? So, they've already cut some weaker flight patterns that didn't have like, you know, good good traffic or flow. Um, but this is going to bite pretty hard and we're just not seeing that in in the sort of level of concern in in the German stock market or the European stock market. And then the Financial Times, man, when it rains, it pours. They just put this out this morning saying exclusive, Russia is planning to halt the flow of Kazak oil to Germany, threatening a refinery that supplies 90% of the petrol, kerosene, and heating fuel to the German capital, its airport, and the surrounding region. So, Whoops. So, uh, and the reason I've actually a little surprised Russia's been continuing to supply Europe with energy at all, given that they've Europe's been supplying NATO, uh, armaments to Ukrainians and killing Russians with them. But now that Russia's lost a whole string of refineries, like a bunch, like five out of their top 10 have been damaged in the last couple of weeks. So, and one of them destroyed, I think. I I think uh, one of them looks pretty destroyed from what I've seen. At any rate, Russia is now saying, "Hey, we're going to need that stuff here inside our own country." But but your Germany and your capital, Berlin, is suddenly going to be like your main refinery is like offline soon. That in in in the old days, Paul, that would that would cause a selloff in German stocks, something like that. These days, apparently it leads to more buying. And I don't I just don't understand it. It just doesn't make sense to me. But there we are. This is this is my 28th year of of watching markets and and knowing how they have behaved over that entire 28-year career. And I'm just I'm just surprised and absolutely shocked by the lack of the lack of any consideration of the risks that are out there. And it's it sparked this this amazing debate. Okay. In 28 years, I've seen clearly periods of time where the market was not forecasting the future. Right? The argument is there's individuals out there and it makes sense, right? Collectively, we all the markets are a collective uh all the information that's out there together and they're a great pricing mechanism. Well, that wasn't the case in summer of 2008. That wasn't the case in 2007. That wasn't the case at the peak of the dot bubble back in the year 2000. you know, that euphoria took over and where we are right now, you know, there's this great debate. Some people are are looking at the data and and they don't understand the market's reaction to the data. So, they're falling back on the fact that, hey, the market knows something that I don't, which we have to consider that as a possibility. But when you look at the data in context of what's coming down the road and how how you know that decline is not something that can immediately go back to where it is because you've had all the the production capabilities that have been destroyed. You know that just in time inventory you know things keep moving like you said we pull it out of the ground we burn it. So so it's a very it it it's it's something that just the math doesn't add up and people are having to slide into one or two camps and some people are all in. Hey, market's pricing in something, so I'm piling all in. From my perspective and 28 years of watching the markets, that's a very foolish thing to do right now. You have to be careful in this environment and be prudent. And sometimes it's better just to, hey, stand back and just watch that how things unfold, protect yourself, and be very, very careful. There are some categories that it makes sense from a long-term fundamental standpoint and the potential outcome where commodities not a recommendation that I feel very comfortable being exposed to. There are other categories that I certainly don't feel comfortable having exposure to right now without some type of trailing stop or exit point because if the market is wrong and the data is right then there's going to be a violent reaction at some point in the future. We just don't know when that is. >> I think Paul that the markets have forgotten or don't know or had never learned the importance of energy. There's a lot of people in the markets right now who haven't been through an energy shock. They don't really understand it. They don't really understand the physics involved like well you know we had this great financial crisis. We printed money and that turned out to be really good time to buy stocks. You know but again that was a human problem. It's sort of an abstract problem, right? You know, credit default swaps and collateralized loan obligations were were blowing up, you know, it's just like a it's just great papered over. This is different now. We're missing molecules that when you, as you said, we set them on fire, they perform the work. So, we're missing a whole lot of work out there in the environment right now. And by the way, it's not being born equally. If you look at the countries who've had the biggest uh shortfalls in imports month- over-month basis, they're almost all Asian, right? United States, Europe have have managed to sort of maintain stuff, but if you'll permit, this gets a little a little wonky, but I think it's it's it's important to get these details right. So, just today, the EIA comes out with their big old spreadsheet of it's called the weekly petroleum supply report. And um the headlines were these. They said, "Wow, crude inventories increased over this last week by 1.9 million barrels." Everybody was expecting crude to fall because we have hundreds of ships showing up to load up with our crude oil. But instead, somehow the crude oil went up. And you will note it's not because we produce more week overw week. In fact, 11,000 barrels per day less came out of the ground this week than last week. So where'd it come from? Where did all that crude come from? It's because Paul, they do this weird thing where they say, "Oh, commercial stockpiles were up by 275,000 barrels a day." So, these are your refineries. Their stock piles went up. That 7* 275 gives you 1.9 million. But you'll note that we also drained our SPR at an average rate of about 591,000 barrels a day. They don't count that. If they did, you'd get a number that looks like this. Um, we were 316,000 barrels per day as as our crude oil inventories because I count our inventories to both be what the SPR holds and what the commercials hold. That's what our nation holds. They just tell us about this little fragment and say, "Oh, surprise. Crude oil build in commercials." But in fact, when you add those two together, 275 plus negative 591, you get a number that looks like minus 316,000 barrels per day times 7. We actually lost about 2.2 million barrels from our inventories last week. So part one, part two, and I put out a special report last week talking about this. I said our our inventories are going to get drained because most countries are not, Paul, they're not sidling up and asking for crude right now. Some are, but they really just want the distillates. They want the kerosene, jet fuel, you know, uh, diesel, gasoline. So, our gasoline stocks were down 4.6 million barrels. Our distillates down 3.4 million barrels. Okay, we're just we're we're selling it. And there's only so long we can do this before we're going to have to hit the panic button and stop exporting or prices are going to have to go up enough to destroy a lot of demand. That that's just how it's going to have to be. Um again, the US is still a net importer of crude oil. Um dropped a bunch this uh over the past week, but uh 1.2 million barrels a day, net importer of crude oil. The rest is all this natural gas plant liquids. Really weird, Paul. Residual fuel oil. This is bunker oil that that goes into ships. Normally, it was normally it's around 500 600,000 barrels per day is what we make. We only made 55,000. That's a 90% decline in residual fuel oil. I can't account for that. I think these numbers are going to get revised. But Tracy Shoe Chart uh Chirl on Twitter put it this way. Total gasoline inventories are now.5% below the 5-year average for this time of year. Distillant inventory is a whopping 8% below the 5-year average for this time of year. We are draining our inventories right now to try and keep the world supplied. And again, there's a ticking clock on that. Trump's going to have to do something here soon, cuz I don't think we could withstand m two more weeks of this, maybe three, and then we're going to have to hit the panic button and um either suspend exports or suffer much higher prices here in the United States. >> Yeah. I mean, the handwriting is clearly on the wall. And you know when you when you when you said in that chart they don't take that into consideration the SPR draw down and then you showed taking that into cons consideration the negative 2.2 million barrels. >> Mhm. >> I don't know for certain but if they historically don't take that into consideration these algorithms are not taking that into consideration. So they're trading off of that headline number not the actual impact of that loss of 2.2 million barrels. And that sets up for a major price action at some point in the future. If that's two weeks or three weeks out and what's going to, you know, markets are anticipating it's this way because the algorithms aren't looking at the full picture, then there's going to be a massive reversion the other way. I mean, literally, if if if this continues, it seems to be not a prediction. That seems to be the risk is we're looking at a major market reaction at some point in the future. When when the perception of the future that all is okay because of these, you know, promises and, you know, nuances, the reality comes to light that, hey, we've got a major problem here that we've not been paying attention to. And these computers are probably going to head in the other direction just as fast as they've headed in the upside direction over the past couple of weeks. we might see the opposite of a record-breaking decline. That's my concern at this point. >> Well, I just like things to make sense. So, taking the EIA at face value, crude inventories are up, crude exports are up, but crude production is down. You can't have all three of those things in one spot. One of those things is wrong, right? And so, they're hiding it in the in the SPR, which is still our nation's oil, right? We you know, it it's part of the it's part of the accounting. At any rate, we are currently hemorrhaging oil and oil products right now and sending them out to the rest of the world. And again, Paul, there's only so far you can go before your inventories get to what you would consider critical threshold levels, right? Um and and so this is the thing that bothers me a little is that uh oh I didn't pull it up but there was a Bloomberg article where where some of the heads of these big oil trading firms right like Governor and and um others they came out and they said these oil prices don't reflect the current reality of the oil situation. We don't understand what's happening, right? And all I can tell you is that if you keep the price of oil down, which I believe somebody is doing, when you keep it down, well, great. Price, demand, supply. Demand is going to stay higher than it should because the price is down given where the supply is. So, if we let supply tell the tale, we have a much worse shock than we had in 2022. Oil should be higher than, which was about 120 a barrel. And as the price of oil goes up, it starts to crimp demand. I've never seen, and I can't analyze really what's going to happen if we crimp supplies and we just say, "Oh, like we've did with silver forever." Never. There's um oils, Chris, it's only $4 a gallon. We just your your gas stations are all out of it, though, cuz there isn't any to be had at that price, right? Like that we're headed towards that. And it'll be the weirdest thing ever where we're going to have to explain that oil hasn't gone up all that much, but you just can't get any cuz that's not how markets work. Markets find a price that makes supply and demand cross and meet. >> Mhm. >> That's what they're supposed to do. >> Well, one of the analogies that I always give in passive investing is actually appropriate to this. So, in passive investing, imagine you're in a car, you're making a trip across the country, right? Passive means that you've painted black the windshield because you're not taking any into into consideration anything in the future. You're hoping the market's going to do that across the board so that you don't have a catastrophic decline. But if that's the case and and you're traveling 75 miles an hour, there's a wreck down the road, there's cars stopped, there is no brakes on those cars in passive investing to keep you from slow slowing that impact down. So it is a catastrophic decline or crash, which is what happened 2000 to 2003, 2008, right? Just an absolutely catastrophic event. My concern is is if they're if they're hiding the signals within the system to paint this picture that everything is great, well, the market, like you said, doesn't have the ability to tap the brakes and slow that demand down so that you can speed it back up in the future. It's suddenly and all at once. And and look, if if it's 6 months to bring it back on, that is a much more severe economic impact and the after effect after uh effect of that impact than it would be if the market was able to signal with honest information to slow down instead of propaganda and then it could keep from having that catastrophic event where you're just not able to get it because demand didn't adjust in time because the signals were obfiscated. >> Yeah, we need free markets. We really do. I don't believe we have them at present. Um, so a lot of people have also said, well, you know, this is really like 4D 5D chess. It's going to put China in its place because China does import. China is by far the number one import oil in the world by far. Um, and uh, they do need to import a lot, but wouldn't you know it, for some reason they built their inventories up right up leading into this war that was pretty dramatic. And it turns out China has more strategic crude oil inventories than all the other countries combined. 1.4 billion barrels compared to the United States 4.263 for Japan etc. So China can actually wait for a good long time here if they need to. Um they can actually wait this out. And if the United States is going to be draining theirs off at 4 million barrels a day, uh, which is what we did, um, you know, we drained it out about 4 million barrels a week, we would don't have that much time before I I suspect we could take that down maybe another 100 million barrels, Paul, but then there's something called working volume. You you can't take the storage container because we don't have these in in big uh tanks, right? That's not how we store. China stores a lot of theirs in tanks. You can get those working volumes very low in those tanks. We have ours in salt domes underground and because of that there's only so low you can drain them before they start to collapse on themselves. Um so uh yeah it just it's it yeah it just creates a problem um for them. So apparently we've we've I don't know how low they can go. It's kind of an open mystery at this point. I don't think anybody really does but you know you start draining them and damage happens and anyway um so China's ready. They they came into this pretty prepared. Um, >> yeah, >> I this is a waiting game now. >> Yeah, China's prepared. And it doesn't surprise me because they're long-term thinkers. They're strategic thinkers. They've educated a tremendous number of engineers and especially in the sciences. So, they're they're paying attention to the data, right? If you're an engineer and you've got to build a bridge that's got to carry a 100,000 pounds. Look, I'm not an engineer, so I don't know. So, y'all just bear with me on the analogy. 100,000 pounds to carry, you're probably going to build it for 150 because you know there's people that are going to be over that number for whatever reason. You know that engineers have to stay focused on the truth and they have a tremendous number that have been educated in the past, right? Whereas in the United States, we seem to be in this propaganda and kind of fairy tale thinking to where the facts don't really matter. And and they have they have looked into the future, examined their risks, recognized that that's a weakness of theirs, and have actually based on that data that shows us that they have taken steps to prepare themselves. They have been prudent. And that's a very important thing from a long-term standpoint. And I wish that we were being more prudent within the United States instead of just, you know, trying to tell everybody it's going to be sunshine and rainbows, right? >> You're not going to keep wealth over the long term if you don't make prudent decisions. And that's one of the reasons why wealth doesn't go beyond three generations typically unless there's a huge amount of effort taken to teach that next generation that it is a tool. You know, your wealth is something that you have to use. It's not who you are. Right? If you get to the third generation, they think it's who I am. They're throwing money here and throwing money there. They think it's always going to be coming, right? I mean, and and you look at it, we're behaving as a nation like that that third and fourth generation to where, hey, I can spend all I want and the Fed's just going to print money. Somebody's always going to bail me out. And China's in the position based on that data, there's not going to be anybody there to bail us out necessarily. So, we're going to have to prepare ourselves for known risks in the future and be prudent and and hide oursel. I mean, that's what that's telling us what they've done right there with the data you shared. That's absolutely amazing where we're we're drawing our savings down. They've been beefing their savings up. >> Yep. >> And I'll tell you, if I can find it here real quick, did you see the data on how much uh silver they inputed? I'm uh that imported last month in the month of May. Let me see if I can >> I saw that chart. I think I put it in the fat pipe yesterday or day before. Uh it was astonishing. So yes, let's see if we can pull that up because >> um I've got it here. Uh top >> even as the the price of silver has basically gone nowhere for for months, you know, it's kind of hanging out around 75. >> Uh the uh doesn't that doesn't square with this chart you're about to show here, which is pretty astonishing to me. >> It doesn't. Well, and this just tells us they obviously see the value. We've been told that it's in there. So, uh, Tavi Costa says that he he, you know, he's hat tipped to Chi Girl for pulling this up. So, what a fascinating chart. A real sign of the times. You can't put the delobalization toothpaste back in the tube. So, China imports the most silver ever in March. So, these are all the years in the past going all the way back to 2016. Steady imports. Steady imports from January to March. Look at that. That's incredible. >> It is. >> That's incredible. So why what is it that they see? Okay, you just showed the information that they were prudent and prepared enough to have these massive stock piles of oil to protect themselves in relation to everybody else. So what is it that they see that makes them accelerate? Is it as simple as the fact that hey now oil is going to be sold in one. We don't want to have these treasuries because that could be lower treasury values and currency price for the United States. So we're going to recycle it over here. or is this a critical mineral that we need metal that we need for where the future's going? That's a huge signal right there. I mean, you you know, and in spite of the fact that prices have gone down. So, what that tells me if I'm accumulating from a long-term standpoint, these prices have dropped dramatically. They got overvalued. They pulled back, but they are just piling into their they're taking advantage of this pullback to build their stockpile. And my concern is, I've said it before, my concern is this money's these metals are leaving the West and going over and they're not going to be a uh you're not going to be able to afford to bring them back if you don't have them or they're not going to allow them to come back. From what I understand, uh uh help me on this, Chris. They do have export bans on on silver right now. Correct. Coming out of >> China I would I would Yeah. not not an outright ban yet, but each each export decision has to go through some labyrinth of bureaucrats, you know. So, >> yeah. >> And you look at that, >> the Shanghai markets have been paying more for that metal than what the comics has. So, they've incentivized pulling that over. I think we had talked about that before. Now, we're seeing that in that data that's helping them build their stock piles there. >> I believe that's an important signal. Well, in and related to that, you know, there's going to be all this issuance of treasuries and money and all that stuff. Um, I don't know if you saw this, but this also caught my eye. Kind of a related concept, which is that turns out hedge funds are holding about 8% of treasuries outstanding. So, it depends. There's about 39 trillion of total treasury debt, but some of that's um debt held by the public and some of its intragovernmental holdings. So, if you just take the the debt held by the public, 27 trillion, 8% math in my head, about $2.4 trillion. Where did hedge funds come up with $2.4 trillion to buy that many treasuries? It's a big number. You know, that's a large number. 2.4 trillion. >> That's a huge number. That's a really huge number. I've not seen that. I mean that that's I'd make a number up here, but I bet that's more than the total capitalization of all banks. Like how where did where did hedge funds come up with 2.4 trillion? I don't know. Beer's watching. But if they turn into a selling mood instead of a buying mood, obviously they've been doing a lot of buying. I'd be Paul. Well, I would like to know if some of these hedge funds have cryptic names and they're housed in the Cayman Islands and it's a little mysterious exactly how they got their trillions. Remember Elon told us about these magic money machines that he found in the US government, right? It was probably the most consequential video I've ever seen and it just went nowhere. Just like nobody else seemed to really notice it. But I was like, you know, because if what he said was accurate and I believe he knew what he was talking about because he obviously he was one of the founders of PayPal or instrumental in its founding. >> So he probably understands how payment systems work, right? It's you know it's a every payment system has a credit and a debit and they always have to account they have to square that that T every single time. It has just has to work, right? You can't you can't accidentally emit credits without debits, right? In the system it doesn't allow you to do that. But he said very specifically that there were 14 magic money machines not at the Federal Reserve which does have magic money machines but inside the US government. Some of them at DoD, some of them at at HHS even, some of them at Treasury, one of them at state that were he called magic money machines. And Ted Cruz is like he was interviewing was like what do you mean by that? He said, you know, a magic money machine, it just emits credits, right? And so without a in theory a corresponding debit on the backside. So that was that was shocking. I'm I'm not even sure we know how much money is out there in the system. If there are magic money machines, there is a leak in the system, which now Paul, you know, can begin. Now I can say, oh, now I know where all this liquidity comes from out of nowhere. All of a sudden, if you have a magic money machine, you can do I could do some amazing things if I had a magic money machine. >> Oh, absolutely. You'll win every Monopoly game that you ever play. You'll be the wealthiest individual around. You could buy all the land within your community and every and the inflationary pressures of that magic money machine would price everybody out because you've got unlimited capital that you're at your fingertips. And you know, it's interesting because you bring that up. I spent some time trying to have conversations with people and ask them what they think and and nobody paid attention to that in any way whatsoever. You know, it's just like there's the belief that we have this rule of law and that they're they're abiding in the halls of power to that rule of law. And I don't believe that Elon Musk said magic money uh casually or without intent. I believe that was the best explanation that he could come up with. to explain what he found. I mean, because look, he he's a brilliant individual and he understands and and he's a good communicator. So, he's using that term, I believe, because that's the best explanation of what he found. >> And and that means I mean, look, let's say you found that you didn't know it was there. You're the president of the United States. You care deeply about what the markets do. Would you not start utilizing those magic money machines to help, you know, paint this picture that things are better than what they are? >> Not Not before I fired the guy who found them. >> That's a very good point. That's a very good point. Purge anybody who who was around finding them. And well, maybe that makes sense that Doge was shut down and out of the way now. >> I don't know. And I'm not saying that's what happened. I'm just thinking out loud. >> There I'm surprised. There ought to be some clarifying questions and followup to that astonishing magic money machine clip. But since there hasn't been, that's a tell to me, right? Because at least one enterprising Bloomberg reporter should have said, "Can you explain that real quick?" Cuz maybe we missed something that that deserves clarification because otherwise what he's talking about is a complete breakdown in the basketetry that holds uh and gives credence to our system of banking. Right. Mhm. Mhm. >> For every credit there has to be a debit. If not, >> you know, >> then then that's a big break in the system, which which you know, I talked to people who are in the biz in banking and all that. They're like, "No, no, that's impossible. It's impossible." I would. But if a computer issues a treasury check that goes to somebody overseas and they put it in their bank and it and it comes out as cash in their account. I don't understand why why that would why. Yeah, it could happen. It's an interesting idea. >> Yeah, it could happen. I mean, within the banking system, the way they're set up, yeah, I can understand their perception that it's impossible to happen because they have to account for outflows and inflows. Everything's accounted for. But like you said, if there's an entity, whether it's an NGO or it's a hedge fund that's that's in a jurisdiction where they don't have to have as much reporting, then you can funnel it into the system that way. I mean, what you know, what what do drug dealers do, right? they have to launder money into the system in some way like they have that has to be laundered into the system and and obviously I'm not saying I got to be careful here but um you know theoretically there's a way to launder that money back into the system is essentially what it would be done and and the banking system wouldn't be the right way to do that you would have to do it through some other entity >> I think so anyway I'm going to keep I'm going to being puzzled by that um for a while. >> But you know, in reality, isn't that modern moni monetary theory being run behind the scenes where you just print a bunch of money and put it into the system and then if inflation gets too high, you raise interest rates to pull it back? Wasn't that what uh what's her name? >> I can't name right now. >> Stephanie Kelton. Was it Kelton? I >> think so. >> I can't remember. But you know, that was what five, four, five, six years ago. gosh, it feels like a hundred years ago at this point where there was this big push for modern monetary theory and um but that's essentially what a magic money machine would do. Well, that would be a giant threat to the to the Federal Reserve um you know, which has had a monopoly on running running that that uh scheme for for a long time. I actually think they should they everybody needs competition to get better in life. Everybody. So, I think that if the Federal Reserve had to compete against another money system, maybe currency units directly issued from the Treasury. Now, that's what they've been trying to do with this stable coin thing, right? That's kind of an end run around the Fed because what happens is you're a bank, Paul. You can make stable coins. One rule. They have to be backed by US treasuries. So, in essence, the government's giving you the backing for your currency and you're making that currency on the back of the thing that the government gave you, not the Federal Reserve. So, it actually starts to cut the Federal Reserve out. I never thought that was going to go down without a huge battle because obviously it's an exorbitant privilege to have the only magic money machines ostensibly in circulation at the Fed. That's your number. That's your only thing. That's that's your whole reason for being that's the only thing you do is you emit credits to the world, right? Um and make sure the banking system is amply stocked with those. So, I was kind of intrigued by these stable coin endun to that whole process because it it cuts them out except for the nominal tie that a stable coin is equal to the same thing as a Federal Reserve note, which we call a dollar, but it's really a Federal Reserve note. Anyway, that would be the connection. But, but um the issuance and the supply dynamics would be out of the hands of the Fed pretty much. >> Mhm. Yeah. which may be a good thing for individuals in the end. >> Could be be an interesting experiment to run. Wow. All right, Paul, any closing words as we come to the end of this amazing episode? >> Now, the biggest thing that I would like to share with people is look, the potential impact of this can bring about a lot of fear. Emotional decisions with your money and typically anything in life, right? Like you've been told if you lose your temper, count to 10. I've got a quick temper, so I've learned that over years. And life is much better if you keep your uh emotions in check, especially when it comes to money. You've got to develop a plan and implement that plan. So, it's easier when you have a strategy like we do. You can see the potential outcome. You can feel the fear, but you've got signals that help you make adaptations in the portfolio when to lower risk. And look, you don't know what the future's going to be. You might lower risk and everything work out just fine and you miss a little bit of opportunity. Okay, missed opportunity is a lot easier to make up for than lost capital for most people. Especially if you're right on the verge of retirement, you're getting ready to retire. A major market decline can wipe out your dreams of retirement, right? If you're 30 years old, passive, ride that volatility, you might can maximize by being able to sidestep a major downturn. But depending upon where you are in life, you know, you need to have a plan. You need to have some way to make adaptation. You know, I've run into tons of people in the past that have been so scared of the markets that they piled it all into treasuries in the interim period and they feel foolish at this point because they didn't imagine that that that things could go on this long without consequences. And I've run into people that were all in one category because they believed that that was the sole answer and they got wiped out. So diversification and adaptation. So, I encourage everybody develop a plan. Talk to your adviser that you have. Find out what their plan is. What if things do spiral out of control and oil prices were to jump to $300 or $400 a barrel? What adaptations will they make in the portfolio, if any? And and if their answer satisfies you, that they're going to help protect you based on that information. And as things change, then continue to work with them. If not, you want to do it yourself. Develop a plan. Plan ahead of time. You know, it's far better when I did a whole lot of scenario planning over the years, you know, especially with guns. It's like you have to think ahead of of the situation that you might be in so that you're not panicked, frozen, or making emotional decisions. And I've been in situations before where that training has helped me get out of a very what could have been a very volatile situation because I was calm, cool, collected, and spoke clearly because I had already considered what I would do when I ran into that situation and probably kept something from escalating. I know that to be prudent in the investment process. We have, you know, we make adaptations. We plan. Not going to be perfect. You can't pick the top and the bottom, but there are times where it makes sense to lower risk. It also makes uh sense in other areas to allocate to an area that the weight of the information tells you that that you should be allocated there. So, I just want to encourage everybody develop a plan, work that plan, think about it, and keep your emotions in check. Courage is essentially feeling the fear and making the prudent decision anyway. This I don't believe this is a period of time where you can stick your head in the sand, put your fingers in your ears, and hope that this will pass because the consequences are too severe to most individuals if these potential risks lead to the reality it looks like we're getting ready to walk into. So, I'll leave it at that. >> All right. Well, folks, you heard the options. Talk to your financial adviser. Do it yourself. or let me present a third option which is to go to peakfinaniallinvesting.com and fill out a simple form so that maybe you can talk with somebody at Paul's shop. If you do that within 48 business hours, somebody will be back in touch with you from Paul's shop to set up what should be the first of three calls. The first call, hey, an introductory call, get to know each other. Then there'll be a planning call and if things progress, you'll get to a recommendations call. And if all that ples out, it might make sense to work with Paul. and a lot of people have been deciding that makes sense for them uh over the past couple years now. So Paul, thank you so much for your time today and again for everybody else, peakfinancialinvesting.com and we hope to see you there or here next week. Bye for now.