This Market Will Crash, You Will Get DESTROYED | David Collum
Summary
SpaceX IPO impact: Extensive discussion on a potential SpaceX index inclusion and how a massive IPO could dominate passive flows, forcing index buyers into extreme valuations.
AI and valuations: The guest argues the AI race continues amid stretched valuations, warning that mega-cap AI firms face heavy capex, short server lives, and rising power costs.
AI Infrastructure: Data centers are portrayed as a capex sink with significant ongoing energy needs, challenging the long-term profitability of AI infrastructure buildouts.
Passive Investing: Index-driven flows are highlighted as a market driver; new trillion-dollar IPOs could cannibalize flows from existing holdings across sectors.
Market Overvaluation: A prolonged valuation expansion is seen as unsustainable, with the risk of a multi-year mean reversion that could severely hurt equities.
Gold: Despite recent sideways trading, gold is modestly positive YTD; the guest holds significant gold and views steady gains as attractive amid market instability.
US Treasuries: Preference for short-term T-bills and treasuries is emphasized when equity earnings yields are low versus bond yields, aligning with a defensive stance.
Energy: Rising energy costs pose risks to AI economics, while the guest is cautiously averaging into energy equities despite expecting near-term volatility.
Transcript
So the minute SpaceX goes into the go does an IPO supposedly they've now rig it so that they also will go into the index which means all of a sudden uh with a couple of these big IPOs they're going to dominate the passive flows into the index. So as an indexer you are going to be forced to buy SpaceX selling at 500 time sales. Elon Musk is going to be the first trillionaire on the planet when SpaceX IPOs here next week. $1.75 trillion valuation for the company. Of course, the space race is on, but also the AI race is still on. It hasn't really subsided. Uh the bubble is getting bigger and bigger or is it is it a bubble? We'll have to talk about it. The market seems to be completely ignoring valuations and many other factors that could be hindering growth. But uh is is it invincible? I've invited back Dave Colum. He's a university professor over at Cornell. He's really a strong market commentator. I love his yearly reviews and I'm really looking forward to discussing this with him. Like where are we in the cycle? What what is really happening? And of course, and as an added bonus, we'll throw in a discussion about gold. Why is gold trading like there's ju just trading sideways with no impulse? So, lots and lots to talk about over the next 30 minutes. And one thing, always ask for your help. always ask for your support of course with the algorithm by by hitting that like and subscribe button. It means a lot to us and we really really appreciate it. Thank you so much for doing that. Now Dave, thank you so much for joining us again. It's always great to see you. I hope you've been well. >> I've been doing okay. There's issues in my family I've been wrestling with, but I've been fine. >> Okay, let let's talk markets, though. Let's uh you know let's tie all your concerns together cuz I know you you've got quite a few and you voiced some of them on your ex channel for example like overvaluations the AI race geopolitics gold to a degree as well everything seems to meet like the market seems to think it's invincible right nothing seems to wanting to break and I'm curious like why is that why do we believe that or why does the market believe it's invincible >> uh because the the market has been savable um for 45 years now. So the the recency bias is is we're we're still in a secular 45 year run. And if you think that's sustainable, I'll point out that that the valuations which should not trend uh compounded 4% a year over that 45 years. So um at some point the markets will become cheap again and you'll you'll compound negative 4% a year for 45 years. and and I don't know if it'll what percentage it'll compound and for how long but that that that is mathematically what it would take to undo the expansion of valuation. So it's essentially uh the entire boomer generation I think actually fueled this growth in the valuations. >> Explain that like how did we do it just by because we got so much passive income passive investing like how were we fueling it? No, it's more it's bigger than that. In 1981, here I've got it down to an elevator pitch. Um, in 1981, China entered the world and sold labor at slave wages. Russia was uh Soviet Union was collapsing. Not yet, but they were working on it. They sold a lot of resources cheap. The Middle East sold a lot of resources cheap. The boomers entered the workplace. That's the big one. Demographically, we're at the beginning of a big boom in workers, uh, creating wealth, um, investing, buying, consuming. They brought their wives to the workplace, which which was an un unprecedented, uh, demographic boost. And, uh, and we started at valuations of of, you know, the PE of six. Um, current case Schiller PE is 42. And so so there's been a sevenfold expansion of valuation. A sevenfold expansion of valuation. Valuation shouldn't trend. So seven-fold expansion. Uh you take sevenfold away from the current market just somehow magically waved a wand. We're talking 85% 85% loss. And over the next 40 or 50 years it will find a way to take it back because the boomers are going to die and the demographic is going to disappear. So, so it's been and you've always been rewarded for buying the dip and and one of the more absurd examples that keeps coming up, you know, during 2020 we shut down the entire global economy, right? We shut down the entire global economy. The FSB grew 13%. That doesn't make sense. That means the market doesn't price in anything. And now we've got, you know, you've got mag seven stocks that over the last 10 years starting at very high valuations um have have grown, you know, 10x while the revenues are growing less than 2x and things like that. And so you just nothing works. Ed Citron Zitron just did an 11minute pitch that I picked up on Twitter that was the most compelling 11 minute twitch for why all these AI companies are going to completely destroy the system. Not in terms of the social structure of the system, which they could, but but but why why you know they they haven't finished these big these big these big uh data centers. So they still got huge capeex in front of them. Um once finished, these servers have life expecties. So they're going to have to do it again. So it's not like building railroads where for the next hundred years you get to use the railroad. Um, and one of them like the Indiana one they say is going to going to burn the electricity of a million homes. It's going to burn the energy of a million homes. So, so, so, so for those business models to be viable, they're going to have to cover the cost of a million homes worth of energy year after year after year. That's not going to get cheaper. It's going to get more expensive to be quite blunt, I think. And and so they're they're these big mega companies have gone from low capex, high uh profit margin, record high profit margin, which are mean reverting, I'm told, um to a low profit margin, high capeex. And so they're they're burning they burn their balance sheets. They're going deep into debt. They're they're they're doing all sorts of weird financing deals that would that would if we had regulators would get the regulators into the game. Uh, Zitron makes the argument that none of these companies should go public because they're they're none of them are ever going to function correctly. So that the regulator should not let them do an IPO. >> Do you throw SpaceX in that bucket because they are running off Starlink AI and future revenues? Uh, reminds me a lot of Greece. You know, we're doing a lot of forward accounting here uh to to balance the budget and actually come up with something that we can bank against. Um, so SpaceX falls into that category. Yeah, I mean I think SpaceX will the technology and the development will still be here. But but I I read somewhere that it's trading at 500 times sales. Now you may recall Scott McNeely um sales and revenue are essentially the same thing in a world like that. Um Scott McNeely when he testified to Congress about the collapse of the do said that you know Sun Microsystem was trading at 10 times revenue. Um he said what were investors thinking right what were they thinking at 10x SpaceX was 500 >> so and the seven collectively are are well over 10x sale uh revenue well over 10x revenues so >> I I was listening to podcast the other day and they were looking at sales growth or revenue growth versus valuations for example and they say as long as growth is there the valuations are okay actually they're not lying their ass off. They're they're they're either retards or lying their ass off. >> Yeah. >> You know, sis Cisco grew its grew its earnings, I'm assuming, revenues only 30% in 1999. How'd that work out right now? These are these are guys in cubicles who are who were who were soiling their diapers during the com bust. They don't know what they're talking about. Now, I might not know what I'm talking about either, but I've lived through a bunch of these, so I at least I I at least have some historical perspective. And by the way, if you you're an econ major or something and you go off to Wall Street, you never took a course that made you read Adam Smith or Graham Dot or anything like that. You took a course that forced you to use Excel spreadsheets and do econometrics and take advanced math. Everything's just a model for these guys. Everything's just a price and and they they have inflation numbers they put in their models, which are a load of crap. So you can hear a little frustration in my voice. Now on the bright side, the bright side is that doomer is it does feel like it's close to the end. Um I don't know what'll end it, but I think the IPOs could because here here's an interesting problem. So the minute SpaceX goes into the go does an IPO supposedly they've now rigged it so that they also will go into the index which means all of a sudden with a couple of these big IPOs they're going to dominate the passive flows into the index. So as an indexer, you are going to be forced to buy SpaceX selling at 500 times sales and and what it's going to do to the extent that the passive flows don't change, right? There's no reason to believe that the SpaceX IP IPO will increase the passive flows that you could imagine maybe decreasing them. um then then then it'll cannibalize the flows that we're hitting and and and pumping up the shares of everything else including you know you can say look I don't I don't want to own Nvidia I don't want to own SpaceX. Nvidia gets the most latitude for being the the guys who sell the pick and shovels. I still but Zitron still said it was going to be an epic correction. I don't remember his language but he said it was some very very hyperbolic phrase. Um and and and but but but your Philip Morris will be getting cannibalized. The passive flows who were keeping Philip Morris up and keeping Chevron up and keeping So even the energy stocks which the bears like um they're the passive flows are going to get bled away by these trillion dollar IPOs. >> Uh I saw a meme actually on X just a few minutes ago actually with a a flood of cash from from Bitcoin going towards SpaceX for example. like it was a bunch of jeeps going through the deserts. Like, is that something we're seeing right now? Um, >> well, you know, I I get I I end up getting hung up on the flow model to the extent that, you know, people talk about money on the sidelines. When when when you buy a share of a stock, you do not change the money on the sidelines. What changes the price of the stock? So, let's say hypothetically in a in Dave's world, you've got a hundred trillion dollars of cash equivalents, we'll call that, on the sidelines, and you've got a hundred trillion dollars worth of equities. If if the investors decide that's too conservative and say, "Let's go to a 6040," they will bid up the shares of the stock to the point where it's now $150 trillion worth of equity valuation and there's still only a hundred trillion worth of cash in the sidelines. And as that system works, they say, "Oh, let's go to 8020." Now, it's going to be $400 trillion of of of market cap to 100 trillion of cash in the sideline. And there's there's rumors of 9010 at this point. And and so now we're talking about a $900 trillion versus 100 trillion of cash. Now, the cash in the sideline does move around, but it's not by virtue of investors moving the cash from cash to assets. It's it's it's their bidding up the assets to match their preferred ratio. And as investors get more and more bullish, they say, "Well, I should just be and in the limit you say if investors collectively said, I want to be 100% equities, no cash, then you go to infinity, right? You you can't get there." So, so when the investors finally uh get some wake up moment, some come to Jesus moment and some 45 year secular bare market drills drills their heads down into a bloody mass and they end up back at um they end up back at a 5050 cash equity ratio preference. They'll have a hundred trillion dollars worth of market cap back. Again, ignoring inflation, ignoring flows in and off the sidelines by other means like QE and whatever else, but you get the idea. It is it is money doesn't flow into equities. The preference for equities causes the price to increase. >> A couple follow-up questions though like valuations is one thing of course. Do we have to get used to a new higher level? Same with inflation. 2% I think is is out the door. 3% is the norm. Do we have to get used to higher higher valuations in general? Is 10x the minimum? Is 100x the norm? And 500x of course may be an exaggeration, but um do we have to get used to that level? Because M2 money supply is at a record level. It's much higher obviously M2 than it is in 1971 for example, right? Do we have to get used to that new level? Because it's not going to M2 is not going to go back to 1971 levels. I think we can agree on that. >> No, because inflation doesn't seem to ever want to turn around to deflation. Um there will be there's potential here's here's a a Gdankan experiment in Vimar Germany people say well you know if you talk about various bubbles around the world they say yes but the equities soared right you know so they view them as a hedge but if I'm Germany supposedly the equity markets lost about 80% inflation adjusted which is interesting because it was a hyper horrible phenomenal event but but but but the factory stuff were still worth something and and they were worth 20% of what they had previously been worth before the inflation. Now what's it? So then you say that's an inflation that's that's that shows you that inflation hurts equity prices because if your money supply is if if your if the money supply is growing like crazy then then you demand a higher higher amount of profit out of the company and so you sell the shares because because you're not getting it. Now in Vimar Germany you could also rumors of being able to buy a house for an ounce of gold because gold was so precious and that's a hyperdelation and so the question is was the viar an inflation or a deflation and and you could argue either way I think and so so now what happens well when when when um when the the the the uh uh say the KP is 50 let's make that a round number let's call it 40 because it's right now 42. Um, you are priced to return a 2 and a half% cash flow. Period. There's no way around that. That's that's the price to earnings, right? Your earnings are 2 and a half% of the price you paid. You It's hard to live off two and a half%. Now, here's the problem. As inflation goes nuts, the value of that 2 and a half% cash flow goes down, not up. And so, what do you do? Well, you drive equity prices down so that you get a better return because you got to compensate for the goddamn inflation. >> And like in the reason the PE in ' 81 was six is because inflation was crazy. An asset returning at 6% cash flow wasn't worth a And and you could get um you could get 15 plus percent off of bonds. So why would you ever own an equity? So the value of these equities with low cash flows goes down >> and there's no reason to hold like like Buffett great story Buffett lamented holding Coke through the.com bust. Very very few people know this. He actually uttered something about he should have known better. What he knew was in 1998 Coke peaked for the PE of50. What he also undoubtedly knew was that Coke controlled the entire global beverage market pretty much, right? So it's not a growth story because there were Coke machines in Nepal, I'm told. Right. I mean, and and so so so there was no growth story and and it was returning two and a half% where treasuries were turning six and a half. Why own Coke? Well, it turns out Coke did very poorly over the next couple decades as it readjusted and and uh and he knew better. and he but he didn't make the correction because he was so emotionally wed into Coke and Dairy Queen and crap like that, right? So So he knew better. So when when when your treasuries return five and your cash flow on your equities is two and a half, which is what KLF says it is right now. >> You should own treasuries. >> Yeah. Well, I I was just going to say, so where is that tipping point? >> Right. So where is that tipping point? Treasuries 10 years at four and a half like inflation though like we can argue is is increasing. So >> what caused the earthquake in in California? What caused the earthquake that produces tsunamis in Indonesia? What caused the avalanche? What causes bombs to blow up? You know I the the tipping point is some moment where it just changes and and it goes emergent. So as a chemist what I can tell you is when you get far from equilibrium the return trip is is violent. So so an avalanche, an earthquake, a bomb, forest fires, they are they are a a a they are a return from instability to stability. The system is equilibrating. And so you had too much underbrush in the fire. You had too much snow on the mountain. You had too much pressure in the earth's crust. You are returning back to stability. And because it built up without incrementally correcting, then it happens in one big fell swoop. And one big fell swoop to me doesn't mean a crash. I don't no 87 crash. 87 crash wouldn't do We had an 87 crash tomorrow and the markets lost 22%. The dip buyers would show up. >> You have to demoralize the dip buyers. So you have to do what the the the the the uh the the the uh political wonks would call over in the Israel, Gaza, Iran story. You have to do double taps. You have to hit them, then people rush in, and then you hit them again. That's exactly what a double tap is, militarily speaking. It's considered immoral. Well, the markets are going to get really immoral on us because they're going to do triple taps, quadruple taps, and and at some point the investors will say, "I am never buying this crap again." Then you finally have reached stability >> and I've been saying this for years. So, so, and I'm an organic chemist, so the people listening to this should say, "Well, this guy doesn't know what he's talking about." That would be a reasonable assault. Someone said I was the epitome of a larer, which which I had to look up to see precisely what he meant, but it's basically a guy who who's not qualified but fakes it. >> There was a life action role player or something like that, >> right? But it's it's it's not a compliment. And and I I will accept that. I will accept that. I'm just an amateur looking in to a world filled with with 20somes in cubicles that does not make sense. And I'm willing to go out on a limb and say I think you're all going to get really hurt badly. By the way, I call it a complacency bubble because I think everyone knows we're screwed >> potentially, but they think the Fed will save us and the Fed can't save us. I'm >> How can the Fed save the stock market and per se? Like >> like how can they intervene? I I get it on on the housing side, the mortgage side, like the credit market perhaps, but the stock market Well, it's like the Twin Towers. What are you going to do? Put up braces and supports while it's tumbling? No, you're going to run. So, the Fed's not the Fed here. Here's what I think the Fed is terrified of. My guess, and I'm just saying if I were a Fed governor, this is what I would be terrified of. I would be terrified of trying to intervene, having it now work, and having the system finally realize that they're a bunch of mediocre bureaucratic clowns who are driving the shopping cart, you know, steering the shopping cart through the grocery store, not really the not realizing the NC4's mom pushing it behind you. And uh and and I don't think they want to be shown to be feckless charlatans. And so they're not going to jump in the way because that's high risk for them. And I think, by the way, I also I stand alone in my belief that that actually uh Worsh was brought in to usher us down to the bottom. Everyone says Worsh new boss, same as the old boss, blah blah blah. For for for 15 years, he's been hammering monetary policy pretty hard. >> Yeah. And no one no one no one thought that Trump would nominate Walsh. They you know Lyall Brainard or Stephanie Kelton for Christ sake but um no one thought he'd nominate it was the last choice. I mean he and so the question is what's going on here? I think what's going on here is the same reason they nominated Bernani in what 2005 was it? Was it 2005? >> Yeah. They they they hire a guy to run the Fed who just happens to be what the world thinks is the expert on the Great Dep depression. >> Now, I think he's either lying or a clown, but that's a separate issue because I'm just an organic chemist. But what he says about the Great Depression, I think, is crap. >> His public statements on the Great Depression are crap. He blames monetary policy in the 30s. He never mentions monetary policy in the 20s. and he never mentioned the post-war chaos that teed up the Great Depression, any of that stuff. So, if if he's not going to mention that, then he's full of or lying or whatever it is, whatever you want to do. I assume he's smart enough to know he's just lying. So, I'm I'm giving the benefit of the doubt by calling him a liar. Um and and but they brought him in two years before the great financial crisis. Does that seem coincidental to you? They didn't bring in Stephanie Kelton for that one. >> No. So, I think they brought in for a reason. I think they brought Wars in for a reason. And I I seem to be the only one holding this view. I I I go on podcast, the guys, they say, "Oh, he's just going to turn into a printer just like everyone else." I'm going, "I don't know. That's not >> Well, we need somebody to rip the band-aid off, quite frankly, dude." >> Well, that's what I think Wars is going to be. >> Right. So, we we do need that. Like, and you can't vote somebody like that in because nobody will get nobody will vote for somebody who brings more pain, >> right? that that won't work. That's a horrible campaign promise. So, you got to nominate him. I guess >> you're bringing Vulkar, >> right? >> You're bringing a guy who's got the guts to do what we all what the banking system knows has to be done. That's the thing. They're not bringing in a guy to fight the banking system. They're bringing in a guy to give the banking system the chemotherapy that it needs to heal. like um systemic risk like we can agree the stock market is the retirement savings account of the Americans in in particular right it's the 401ks everything goes in the stock market passive investing Mike Green talks about it phenomenally makes some really really good point how passive investing is steering you touched on it as well earlier um so how systemic or like how important is the stock market to the US econ like to the US in general like can it even fail can they let it fail right Well, can they not let it fail is the question and that's the part I say no. In part because I think the boomers guarantee because the demographic argument. I think the boomers guaranteed we're going to have a big bubble. I think it was built in once once you you can see the boomer's effect on society. If you look at elementary schools, they were all built 1959 to 62 because all of a sudden society said, "Holy all these kids are coming at us." Right? And so the boomers basically uh caused great turbulence in society for their entire life. >> And one of the the turbulences is they took us they expanded the valuation 4% a year for 45 years. And and at some point they got a start someone criticized the boomers for not downsizing their houses for example and that they were they're hoarding them or something like that. And I said let me see see if this is right. The youngsters can't buy a house because they're too expensive. So, houses really should go down in price. We shouldn't lower the interest rates. The prices should go down. They're they're bloated. It's a bloated overpriced market. Assets can't be bought that have a good return, long-term return. They don't exist pretty much, I don't think. And yeah, someone will get lucky and buy the right one, but for the most part, collectively they'll so they should go way down so that the next generation can buy assets at a credible price to build wealth, but they can't right now. So, uh, someone said the the boomer should down or resisting downsizing their house. I go, well, wait a minute. Let me think about this. You sell your McMansion to buy a smaller house. Those are the houses that the younger generation can't afford. So, you're going to put increased pressure on the entry level houses and and and release a bunch of McMansions for which the entire the entire younger generation has no goddamn idea how to pay. My kids not only couldn't buy the house that I own just to pick a unit cell of the whole thing. They couldn't afford to own it. When you look at the when you look at the taxes on the house, when you look at what it would cost to paint it, when you look at the maintenance of the house, they can't afford to own it, let alone buy it. >> Yeah, it's Yeah, absolutely. I'm I'm here with you. Like I' I've been looking at the markets and it it doesn't make any sense like the the valuations and like I saw an argument like even single single like retirees or so they should be downsizing moving into smaller apartments and leave the bigger apartments for families for example. I got >> the bigger houses. Yeah. Look at all the McMansions all over the country. Tons of them. Who's going to buy them? >> Not the Chinese. >> The big big disconnect, right? Absolutely. I'm talking about bit of a bis disconnect and I'm I'm I'm looking at the gold price over the last few weeks here Dave or months actually since since the correction it's it's apathetic it's just moving sideways it goes down half a percent and a half goes up a percent and a half what do you make of gold? What is gold telling you right now? It used to be a great indicator. It used to be maybe foreshadowing something but right now it seems like complete apathy. Well, let me preface that with a statement about what it's also approximate to, and that is it's as of we'll call it round number April 1st, the equity markets have gone on what is arguably the greatest, you know, one and a half month run in history. >> While we're bombing Iran and while the straight of hormones is closing and while everything's wrong. So, so there's something so insane about the markets that I think that's a gamma squeeze. I think I think the Feds are probably bought buying call options. It forces the banks to buy the shares to hedge the call options and it becomes this virtuous cycle. But as soon as you stop buying the call options and the banks have to liquidate all their hedges, which means they have to sell all their shares, which means that's going to all go away possibly as the start of something much more horrific. Um, the gold market meanwhile is is is trending water. But don't forget two things. One is it's still up uh probably five or six% year to date. And if I could in my gold holdings, which are considerable, if I could get another five or six five or six% in the second half, I'd be so thrilled. It would be ridiculous. Now, what's painful is is that and this this is the insanity of the markets. I was up February 1st year to date, which is one month. That was my portfolio is up 24%. That's not supposed to happen. It's not, you know, SanDisk is up is up 258% in six weeks. And it's not alone. Everything April 1st, actually about March 30th, something like that. Everything just took off. It looks totally rigged to me. I I don't like the rigging model, but this looks rigged. And I'm guessing someone said, "We got a war in Iran. We don't want to look bad. We don't want the straight hormones to cause trouble." I think there really were cement blocks put under the market and and and if if if you are told that this is what's going to happen and you're big money you're going to say well then I'm going to write it and that then becomes a selfperpetuating system. So it's like playing football touch football you know you say okay everyone go long right everyone go long and I'm going to throw the ball in the end zone everyone runs down the field >> they've gonna throw one thing in we have midterm elections coming up November do you think they play a role in all of this? No, if Trump cared about the midterms, he wouldn't have bombed a run. >> Okay. >> Right. So, no, I don't think they matter. I Both parties look like they're populated with idiots at this point. They really look the political system looks so hopeless um that I don't care about the midterms. I don't care about the the Republican party. When Trump first got reelected, um I was pretty enthusiastic. I thought he was doing some really good stuff and none of it worked. None of it panned out. He got rid of some political correctness and things like that. Doge didn't work. Um he certainly didn't stay uh uh war free, right? He certainly boned that one completely. Um I think he actually destroyed his presidency in terms of legacy. I think the Iran war and I it seems to me besides his narcissism, he had to know it. So, so his certain he certainly had advisers who knew that this was a headsh shot to his presidency. He still did it. So, that gets you deeply into the question of why he did it and and that'll get you kicked off YouTube and stuff like that. So, um so I don't think the midterms matter, not to Trump and and not to the administration. um and and probably don't matter anyways because I don't see any evidence the right and the left have that one side has better ideas than the other. We get told which side has terrible ideas and stuff, but when you when when you finally look at what gets done, the presidents, the administrations, they all seem to do the same damn thing. They all seem to squander money. They also they're they all seem hellbent on making our 7% a year growth in in our debt rise from there. And when your GDP is growing, well, see, I don't think our GDP is grow. What do you think the inflation is right now? What's your personal guess as what the real inflation rate is? >> Six 7%. >> Story which means which means that the reported numbers are off by a factor of two, which means the GDP isn't even growing. I think we've been in a recession for a long long time, many years. You go, "Well, that can't be. A recessions, they don't last that long." I go, "Well, they don't they don't last that long because they lie their ass off." But but um or because as soon as it grows for a quarter, then they call the recession over. Um but I think, you know, I think we're doing a British Empire shrinkage here. So that the British Empire was in recession for many, many, many decades, right? >> It's been recession for the last six years and nobody talks about it, right? Then the DAX is soaring. >> Yeah. >> Right. >> Record high,000 points. Crazy. >> You know, and they would say that it's naive to think that there should be a rigorous correlation between markets and the economy. And I agree with that. But it's also naive to think that when the markets get way, way, way, way ahead of the economy that you're not going to somehow cross paths the other direction at some point. And I do not believe I don't see any evidence that the economy is going to be the one to make up that gap. I think the economy looks like it's headed for trouble. When I see people talk about the strong economy, I have no idea what they're looking at. You talk to anyone at the lower end of the economy and they're using, you know, the private credit markets unknowingly, the private credit markets to pay their groceries bills and their rent and stuff like that. I mean, it's we're really in a mess. And so the the tropish K-shaped economy is more real than ever. You know, the economy is doing great as long as you include in the GDP data centers, >> but data centers aren't wealth creation. And I really believe that they're not wealth creation. So if you built a gas station, you could spend maybe a million dollars building a gas station. If you don't pump any gas, it's not wealth. So the gas station the cost is a sunken the building it building the data centers is a sunken cost. It's an upfront cost and until that starts generating wealth you know it becomes Bosia's broken window fallacy or up data center fallacy. You know, it it's it's you're not creating wealth by creating gigantic facilities that don't yet do anything >> and because revenue, >> right? >> You're not you're not making progress on your journey if you sit in the driveway revving the engine of your car, you know, you got to actually drive somewhere. >> Yeah. Which brings me to my last question, Dave. What are you doing this summer? Of course, mostly portfolio speaking, but uh it's it's a good segue. Like, are you driving your car somewhere this summer? Can you afford the gas? Can you afford the gas? Yeah, I can. >> But what what are you doing over the summer with your portfolio? >> Nothing. Um it's a lot of cash, a lot of gold, a lot of silver. Not nowhere near as much silver, but um slowly but surely, I've been averaging into energy on the assumption that I will get beaten up. On the assumption I will get beaten up. And it's it's you know you have to sometimes bet against what your instincts tell you just to just just just in case I'm wrong. There was a guy who's a economic analyst at at at JP Morgan I think at the the turn of the millennium and he was 40% equities while bearish as hell. And they said why do you have any? He said I I could be wrong. Um but but I wouldn't you know if you made me either go all in or all out I would be so totally all out. My equity position is about 10% or something. I mean, it's really not a >> When you say cash, Dave, do do you mean like cash cash or are you in money markets? >> Well, for me, it's complicated. Um, it's it's short-term T bills, right? Right. It's short-term, you know, ideally 2%. Uh, I have a big retirement account that's Cornellbased is called TIAA, which um which which which has no lockout period. Normally it does, but I use the supplemental part of my retirement to to to fill that up. And and that has that's a fixed income account and it returns a pretty steady income and it it's probably got some real dog in it, but because because the vast percentage of it has has a total gate to it. Um there can't be a run on it. and and and as a consequence because mine's the supplemental part, I can exit with a phone call, but most of the people in it, it takes 10 years to get out. >> Oh boy. Okay. >> And so I'm pleased with that and it's been a pretty good return. You know, back in um back in the 80s, for example, while equities were roaring, uh that TIAA returned about 12 13%. I mean, it was it was a was a pretty good investment. Correct. for inflation you got clobbered maybe but um you know I don't think you get more than three or 4% above inflation during in any protracted period I don't I think this I these these estimated returns eight or 10% they're ignoring fees are ignoring taxes are ignoring inflation they're ignoring everything it's a load of crap you don't get Buffett said 4% um ra no said you know three and a half um if you look at an M2 corrected did S&P 500 back a 100red years. It's uh it's M2 corrected uh total return, not just capital gains, total return uh is about 3.7%. >> Okay. So, so you'd be like your your treasuries, your your your T bills, you're you're happy with the 4% you're getting right now >> because you're beating it up. >> Happy is not the word. Um, it is it I I I've been promising my wife that we are as defensive as we can be. And by the way, the boomers are not playing enough defense. And when they finally realize they got to put their defense on the field, that's when the ball stops moving, right? And so when the Boomers finally figure out that they're, let's say you're a boomer, the median boomer, by the way, here's the median boomer. um they have something like 300,000 in their retirement account. Now, if you take out 4% a year, that doesn't pay for Chinese takeout on Saturdays. I mean, that's just that four that's that's that's that that's $12,000 >> a year you can take out uh using conventional portfolio theory. Um and and and so you you you and you know and then you say okay they have social security. Typical social security that boomer is something like um 25,000. The median boomer has something like 25,000 in social security. And so they're now up to 3540,000. Can you live on 40,000? Well as our grad students our grad students get paid about 45. So you can live on it, but you know, you're not going to be going on your dream vacations and on that. >> No, your lifestyle will drastically change. >> And and that assumes your 300,000 doesn't become 150,000. >> Exactly. Dave, we we we got to put a bow around it. It's it's always great to chat. We could we could continue for hours. There there's much more to talk about. uh like international flows of of liquidity into the US market as well, not just the boomers being front running here or in at the front of the market here, but international flows as well for just because of lack of alternatives. We could debate for hours as well how that is affecting markets of course, but um in in in the meantime, Dave, where can our audience follow more of your work and more more of your thoughts? >> Uh you can find me at David B column on Twitter. Uh you can go to YouTube and find countless YouTubes. I appear to be uh one of the most podcasted guys on the planet because I'm old and have the time, I guess. Um um and and you can find me, I think, in New Orleans this fall. >> I can't wait. I'm looking for you. I was looking at the flights already, so I'm coming out. So, >> right. >> I'm excited. Fantastic. Dave, thank you so much for your time. It's always a absolute pleasure to to be speaking with you. Really appreciate it. Can't wait to do this. Maybe we'll get it finally done in person in New Orleans. Maybe I'll just bring a camera and sit in the green room with you. >> That's if Yeah, I That's right. That's right. Um >> I do so many podcasts. The ideas of going to New Orleans and filling my day with podcasts is unappealing. That's the problem. So I'm happy to do it, but I hate to I hate to clog up my schedule because what I end up doing is saying, "Okay, you know, Jimmyorio just invited me to lunch, so I gotta cancel my podcast." You know, that sort of thing. I would I would disappoint you. >> Oh, that's fine. I'll I'll just show show up in the green room with the camera and hold it in your face and we'll figure it out. So, >> I love the green room. The green room is my favorite place. >> Absolutely. Fantastic. Dave, thank you so much for your time. Really really appreciate it. And of course, I appreciate every every single one of you watching this channel. Of course, we've broken through 100,000 subscribers. It's a big big milestone for us. Thank you so much for that. If you enjoy this program, of course, continue hitting that like and subscribe button. It helps us out tremendously with the algorithm. Helps us grow. It helps us bring fantastic guests like Dave onto the program and we tremendously appreciate. How are you protecting your wealth? You're a boomer. I know some of our audience of course is in that age group. How are you protecting yourself? What does it look like for you and your account? Um are you retiring off $300,000? More, less, I'd be curious to know and happy to ask questions. It might be a bit more specific to you as well. So, put those down in the comments. Thank you so much for tuning in. We'll be back with lots more here on Zor Financially. Take care out there.
This Market Will Crash, You Will Get DESTROYED | David Collum
Summary
Transcript
So the minute SpaceX goes into the go does an IPO supposedly they've now rig it so that they also will go into the index which means all of a sudden uh with a couple of these big IPOs they're going to dominate the passive flows into the index. So as an indexer you are going to be forced to buy SpaceX selling at 500 time sales. Elon Musk is going to be the first trillionaire on the planet when SpaceX IPOs here next week. $1.75 trillion valuation for the company. Of course, the space race is on, but also the AI race is still on. It hasn't really subsided. Uh the bubble is getting bigger and bigger or is it is it a bubble? We'll have to talk about it. The market seems to be completely ignoring valuations and many other factors that could be hindering growth. But uh is is it invincible? I've invited back Dave Colum. He's a university professor over at Cornell. He's really a strong market commentator. I love his yearly reviews and I'm really looking forward to discussing this with him. Like where are we in the cycle? What what is really happening? And of course, and as an added bonus, we'll throw in a discussion about gold. Why is gold trading like there's ju just trading sideways with no impulse? So, lots and lots to talk about over the next 30 minutes. And one thing, always ask for your help. always ask for your support of course with the algorithm by by hitting that like and subscribe button. It means a lot to us and we really really appreciate it. Thank you so much for doing that. Now Dave, thank you so much for joining us again. It's always great to see you. I hope you've been well. >> I've been doing okay. There's issues in my family I've been wrestling with, but I've been fine. >> Okay, let let's talk markets, though. Let's uh you know let's tie all your concerns together cuz I know you you've got quite a few and you voiced some of them on your ex channel for example like overvaluations the AI race geopolitics gold to a degree as well everything seems to meet like the market seems to think it's invincible right nothing seems to wanting to break and I'm curious like why is that why do we believe that or why does the market believe it's invincible >> uh because the the market has been savable um for 45 years now. So the the recency bias is is we're we're still in a secular 45 year run. And if you think that's sustainable, I'll point out that that the valuations which should not trend uh compounded 4% a year over that 45 years. So um at some point the markets will become cheap again and you'll you'll compound negative 4% a year for 45 years. and and I don't know if it'll what percentage it'll compound and for how long but that that that is mathematically what it would take to undo the expansion of valuation. So it's essentially uh the entire boomer generation I think actually fueled this growth in the valuations. >> Explain that like how did we do it just by because we got so much passive income passive investing like how were we fueling it? No, it's more it's bigger than that. In 1981, here I've got it down to an elevator pitch. Um, in 1981, China entered the world and sold labor at slave wages. Russia was uh Soviet Union was collapsing. Not yet, but they were working on it. They sold a lot of resources cheap. The Middle East sold a lot of resources cheap. The boomers entered the workplace. That's the big one. Demographically, we're at the beginning of a big boom in workers, uh, creating wealth, um, investing, buying, consuming. They brought their wives to the workplace, which which was an un unprecedented, uh, demographic boost. And, uh, and we started at valuations of of, you know, the PE of six. Um, current case Schiller PE is 42. And so so there's been a sevenfold expansion of valuation. A sevenfold expansion of valuation. Valuation shouldn't trend. So seven-fold expansion. Uh you take sevenfold away from the current market just somehow magically waved a wand. We're talking 85% 85% loss. And over the next 40 or 50 years it will find a way to take it back because the boomers are going to die and the demographic is going to disappear. So, so it's been and you've always been rewarded for buying the dip and and one of the more absurd examples that keeps coming up, you know, during 2020 we shut down the entire global economy, right? We shut down the entire global economy. The FSB grew 13%. That doesn't make sense. That means the market doesn't price in anything. And now we've got, you know, you've got mag seven stocks that over the last 10 years starting at very high valuations um have have grown, you know, 10x while the revenues are growing less than 2x and things like that. And so you just nothing works. Ed Citron Zitron just did an 11minute pitch that I picked up on Twitter that was the most compelling 11 minute twitch for why all these AI companies are going to completely destroy the system. Not in terms of the social structure of the system, which they could, but but but why why you know they they haven't finished these big these big these big uh data centers. So they still got huge capeex in front of them. Um once finished, these servers have life expecties. So they're going to have to do it again. So it's not like building railroads where for the next hundred years you get to use the railroad. Um, and one of them like the Indiana one they say is going to going to burn the electricity of a million homes. It's going to burn the energy of a million homes. So, so, so, so for those business models to be viable, they're going to have to cover the cost of a million homes worth of energy year after year after year. That's not going to get cheaper. It's going to get more expensive to be quite blunt, I think. And and so they're they're these big mega companies have gone from low capex, high uh profit margin, record high profit margin, which are mean reverting, I'm told, um to a low profit margin, high capeex. And so they're they're burning they burn their balance sheets. They're going deep into debt. They're they're they're doing all sorts of weird financing deals that would that would if we had regulators would get the regulators into the game. Uh, Zitron makes the argument that none of these companies should go public because they're they're none of them are ever going to function correctly. So that the regulator should not let them do an IPO. >> Do you throw SpaceX in that bucket because they are running off Starlink AI and future revenues? Uh, reminds me a lot of Greece. You know, we're doing a lot of forward accounting here uh to to balance the budget and actually come up with something that we can bank against. Um, so SpaceX falls into that category. Yeah, I mean I think SpaceX will the technology and the development will still be here. But but I I read somewhere that it's trading at 500 times sales. Now you may recall Scott McNeely um sales and revenue are essentially the same thing in a world like that. Um Scott McNeely when he testified to Congress about the collapse of the do said that you know Sun Microsystem was trading at 10 times revenue. Um he said what were investors thinking right what were they thinking at 10x SpaceX was 500 >> so and the seven collectively are are well over 10x sale uh revenue well over 10x revenues so >> I I was listening to podcast the other day and they were looking at sales growth or revenue growth versus valuations for example and they say as long as growth is there the valuations are okay actually they're not lying their ass off. They're they're they're either retards or lying their ass off. >> Yeah. >> You know, sis Cisco grew its grew its earnings, I'm assuming, revenues only 30% in 1999. How'd that work out right now? These are these are guys in cubicles who are who were who were soiling their diapers during the com bust. They don't know what they're talking about. Now, I might not know what I'm talking about either, but I've lived through a bunch of these, so I at least I I at least have some historical perspective. And by the way, if you you're an econ major or something and you go off to Wall Street, you never took a course that made you read Adam Smith or Graham Dot or anything like that. You took a course that forced you to use Excel spreadsheets and do econometrics and take advanced math. Everything's just a model for these guys. Everything's just a price and and they they have inflation numbers they put in their models, which are a load of crap. So you can hear a little frustration in my voice. Now on the bright side, the bright side is that doomer is it does feel like it's close to the end. Um I don't know what'll end it, but I think the IPOs could because here here's an interesting problem. So the minute SpaceX goes into the go does an IPO supposedly they've now rigged it so that they also will go into the index which means all of a sudden with a couple of these big IPOs they're going to dominate the passive flows into the index. So as an indexer, you are going to be forced to buy SpaceX selling at 500 times sales and and what it's going to do to the extent that the passive flows don't change, right? There's no reason to believe that the SpaceX IP IPO will increase the passive flows that you could imagine maybe decreasing them. um then then then it'll cannibalize the flows that we're hitting and and and pumping up the shares of everything else including you know you can say look I don't I don't want to own Nvidia I don't want to own SpaceX. Nvidia gets the most latitude for being the the guys who sell the pick and shovels. I still but Zitron still said it was going to be an epic correction. I don't remember his language but he said it was some very very hyperbolic phrase. Um and and and but but but your Philip Morris will be getting cannibalized. The passive flows who were keeping Philip Morris up and keeping Chevron up and keeping So even the energy stocks which the bears like um they're the passive flows are going to get bled away by these trillion dollar IPOs. >> Uh I saw a meme actually on X just a few minutes ago actually with a a flood of cash from from Bitcoin going towards SpaceX for example. like it was a bunch of jeeps going through the deserts. Like, is that something we're seeing right now? Um, >> well, you know, I I get I I end up getting hung up on the flow model to the extent that, you know, people talk about money on the sidelines. When when when you buy a share of a stock, you do not change the money on the sidelines. What changes the price of the stock? So, let's say hypothetically in a in Dave's world, you've got a hundred trillion dollars of cash equivalents, we'll call that, on the sidelines, and you've got a hundred trillion dollars worth of equities. If if the investors decide that's too conservative and say, "Let's go to a 6040," they will bid up the shares of the stock to the point where it's now $150 trillion worth of equity valuation and there's still only a hundred trillion worth of cash in the sidelines. And as that system works, they say, "Oh, let's go to 8020." Now, it's going to be $400 trillion of of of market cap to 100 trillion of cash in the sideline. And there's there's rumors of 9010 at this point. And and so now we're talking about a $900 trillion versus 100 trillion of cash. Now, the cash in the sideline does move around, but it's not by virtue of investors moving the cash from cash to assets. It's it's it's their bidding up the assets to match their preferred ratio. And as investors get more and more bullish, they say, "Well, I should just be and in the limit you say if investors collectively said, I want to be 100% equities, no cash, then you go to infinity, right? You you can't get there." So, so when the investors finally uh get some wake up moment, some come to Jesus moment and some 45 year secular bare market drills drills their heads down into a bloody mass and they end up back at um they end up back at a 5050 cash equity ratio preference. They'll have a hundred trillion dollars worth of market cap back. Again, ignoring inflation, ignoring flows in and off the sidelines by other means like QE and whatever else, but you get the idea. It is it is money doesn't flow into equities. The preference for equities causes the price to increase. >> A couple follow-up questions though like valuations is one thing of course. Do we have to get used to a new higher level? Same with inflation. 2% I think is is out the door. 3% is the norm. Do we have to get used to higher higher valuations in general? Is 10x the minimum? Is 100x the norm? And 500x of course may be an exaggeration, but um do we have to get used to that level? Because M2 money supply is at a record level. It's much higher obviously M2 than it is in 1971 for example, right? Do we have to get used to that new level? Because it's not going to M2 is not going to go back to 1971 levels. I think we can agree on that. >> No, because inflation doesn't seem to ever want to turn around to deflation. Um there will be there's potential here's here's a a Gdankan experiment in Vimar Germany people say well you know if you talk about various bubbles around the world they say yes but the equities soared right you know so they view them as a hedge but if I'm Germany supposedly the equity markets lost about 80% inflation adjusted which is interesting because it was a hyper horrible phenomenal event but but but but the factory stuff were still worth something and and they were worth 20% of what they had previously been worth before the inflation. Now what's it? So then you say that's an inflation that's that's that shows you that inflation hurts equity prices because if your money supply is if if your if the money supply is growing like crazy then then you demand a higher higher amount of profit out of the company and so you sell the shares because because you're not getting it. Now in Vimar Germany you could also rumors of being able to buy a house for an ounce of gold because gold was so precious and that's a hyperdelation and so the question is was the viar an inflation or a deflation and and you could argue either way I think and so so now what happens well when when when um when the the the the uh uh say the KP is 50 let's make that a round number let's call it 40 because it's right now 42. Um, you are priced to return a 2 and a half% cash flow. Period. There's no way around that. That's that's the price to earnings, right? Your earnings are 2 and a half% of the price you paid. You It's hard to live off two and a half%. Now, here's the problem. As inflation goes nuts, the value of that 2 and a half% cash flow goes down, not up. And so, what do you do? Well, you drive equity prices down so that you get a better return because you got to compensate for the goddamn inflation. >> And like in the reason the PE in ' 81 was six is because inflation was crazy. An asset returning at 6% cash flow wasn't worth a And and you could get um you could get 15 plus percent off of bonds. So why would you ever own an equity? So the value of these equities with low cash flows goes down >> and there's no reason to hold like like Buffett great story Buffett lamented holding Coke through the.com bust. Very very few people know this. He actually uttered something about he should have known better. What he knew was in 1998 Coke peaked for the PE of50. What he also undoubtedly knew was that Coke controlled the entire global beverage market pretty much, right? So it's not a growth story because there were Coke machines in Nepal, I'm told. Right. I mean, and and so so so there was no growth story and and it was returning two and a half% where treasuries were turning six and a half. Why own Coke? Well, it turns out Coke did very poorly over the next couple decades as it readjusted and and uh and he knew better. and he but he didn't make the correction because he was so emotionally wed into Coke and Dairy Queen and crap like that, right? So So he knew better. So when when when your treasuries return five and your cash flow on your equities is two and a half, which is what KLF says it is right now. >> You should own treasuries. >> Yeah. Well, I I was just going to say, so where is that tipping point? >> Right. So where is that tipping point? Treasuries 10 years at four and a half like inflation though like we can argue is is increasing. So >> what caused the earthquake in in California? What caused the earthquake that produces tsunamis in Indonesia? What caused the avalanche? What causes bombs to blow up? You know I the the tipping point is some moment where it just changes and and it goes emergent. So as a chemist what I can tell you is when you get far from equilibrium the return trip is is violent. So so an avalanche, an earthquake, a bomb, forest fires, they are they are a a a they are a return from instability to stability. The system is equilibrating. And so you had too much underbrush in the fire. You had too much snow on the mountain. You had too much pressure in the earth's crust. You are returning back to stability. And because it built up without incrementally correcting, then it happens in one big fell swoop. And one big fell swoop to me doesn't mean a crash. I don't no 87 crash. 87 crash wouldn't do We had an 87 crash tomorrow and the markets lost 22%. The dip buyers would show up. >> You have to demoralize the dip buyers. So you have to do what the the the the the uh the the the uh political wonks would call over in the Israel, Gaza, Iran story. You have to do double taps. You have to hit them, then people rush in, and then you hit them again. That's exactly what a double tap is, militarily speaking. It's considered immoral. Well, the markets are going to get really immoral on us because they're going to do triple taps, quadruple taps, and and at some point the investors will say, "I am never buying this crap again." Then you finally have reached stability >> and I've been saying this for years. So, so, and I'm an organic chemist, so the people listening to this should say, "Well, this guy doesn't know what he's talking about." That would be a reasonable assault. Someone said I was the epitome of a larer, which which I had to look up to see precisely what he meant, but it's basically a guy who who's not qualified but fakes it. >> There was a life action role player or something like that, >> right? But it's it's it's not a compliment. And and I I will accept that. I will accept that. I'm just an amateur looking in to a world filled with with 20somes in cubicles that does not make sense. And I'm willing to go out on a limb and say I think you're all going to get really hurt badly. By the way, I call it a complacency bubble because I think everyone knows we're screwed >> potentially, but they think the Fed will save us and the Fed can't save us. I'm >> How can the Fed save the stock market and per se? Like >> like how can they intervene? I I get it on on the housing side, the mortgage side, like the credit market perhaps, but the stock market Well, it's like the Twin Towers. What are you going to do? Put up braces and supports while it's tumbling? No, you're going to run. So, the Fed's not the Fed here. Here's what I think the Fed is terrified of. My guess, and I'm just saying if I were a Fed governor, this is what I would be terrified of. I would be terrified of trying to intervene, having it now work, and having the system finally realize that they're a bunch of mediocre bureaucratic clowns who are driving the shopping cart, you know, steering the shopping cart through the grocery store, not really the not realizing the NC4's mom pushing it behind you. And uh and and I don't think they want to be shown to be feckless charlatans. And so they're not going to jump in the way because that's high risk for them. And I think, by the way, I also I stand alone in my belief that that actually uh Worsh was brought in to usher us down to the bottom. Everyone says Worsh new boss, same as the old boss, blah blah blah. For for for 15 years, he's been hammering monetary policy pretty hard. >> Yeah. And no one no one no one thought that Trump would nominate Walsh. They you know Lyall Brainard or Stephanie Kelton for Christ sake but um no one thought he'd nominate it was the last choice. I mean he and so the question is what's going on here? I think what's going on here is the same reason they nominated Bernani in what 2005 was it? Was it 2005? >> Yeah. They they they hire a guy to run the Fed who just happens to be what the world thinks is the expert on the Great Dep depression. >> Now, I think he's either lying or a clown, but that's a separate issue because I'm just an organic chemist. But what he says about the Great Depression, I think, is crap. >> His public statements on the Great Depression are crap. He blames monetary policy in the 30s. He never mentions monetary policy in the 20s. and he never mentioned the post-war chaos that teed up the Great Depression, any of that stuff. So, if if he's not going to mention that, then he's full of or lying or whatever it is, whatever you want to do. I assume he's smart enough to know he's just lying. So, I'm I'm giving the benefit of the doubt by calling him a liar. Um and and but they brought him in two years before the great financial crisis. Does that seem coincidental to you? They didn't bring in Stephanie Kelton for that one. >> No. So, I think they brought in for a reason. I think they brought Wars in for a reason. And I I seem to be the only one holding this view. I I I go on podcast, the guys, they say, "Oh, he's just going to turn into a printer just like everyone else." I'm going, "I don't know. That's not >> Well, we need somebody to rip the band-aid off, quite frankly, dude." >> Well, that's what I think Wars is going to be. >> Right. So, we we do need that. Like, and you can't vote somebody like that in because nobody will get nobody will vote for somebody who brings more pain, >> right? that that won't work. That's a horrible campaign promise. So, you got to nominate him. I guess >> you're bringing Vulkar, >> right? >> You're bringing a guy who's got the guts to do what we all what the banking system knows has to be done. That's the thing. They're not bringing in a guy to fight the banking system. They're bringing in a guy to give the banking system the chemotherapy that it needs to heal. like um systemic risk like we can agree the stock market is the retirement savings account of the Americans in in particular right it's the 401ks everything goes in the stock market passive investing Mike Green talks about it phenomenally makes some really really good point how passive investing is steering you touched on it as well earlier um so how systemic or like how important is the stock market to the US econ like to the US in general like can it even fail can they let it fail right Well, can they not let it fail is the question and that's the part I say no. In part because I think the boomers guarantee because the demographic argument. I think the boomers guaranteed we're going to have a big bubble. I think it was built in once once you you can see the boomer's effect on society. If you look at elementary schools, they were all built 1959 to 62 because all of a sudden society said, "Holy all these kids are coming at us." Right? And so the boomers basically uh caused great turbulence in society for their entire life. >> And one of the the turbulences is they took us they expanded the valuation 4% a year for 45 years. And and at some point they got a start someone criticized the boomers for not downsizing their houses for example and that they were they're hoarding them or something like that. And I said let me see see if this is right. The youngsters can't buy a house because they're too expensive. So, houses really should go down in price. We shouldn't lower the interest rates. The prices should go down. They're they're bloated. It's a bloated overpriced market. Assets can't be bought that have a good return, long-term return. They don't exist pretty much, I don't think. And yeah, someone will get lucky and buy the right one, but for the most part, collectively they'll so they should go way down so that the next generation can buy assets at a credible price to build wealth, but they can't right now. So, uh, someone said the the boomer should down or resisting downsizing their house. I go, well, wait a minute. Let me think about this. You sell your McMansion to buy a smaller house. Those are the houses that the younger generation can't afford. So, you're going to put increased pressure on the entry level houses and and and release a bunch of McMansions for which the entire the entire younger generation has no goddamn idea how to pay. My kids not only couldn't buy the house that I own just to pick a unit cell of the whole thing. They couldn't afford to own it. When you look at the when you look at the taxes on the house, when you look at what it would cost to paint it, when you look at the maintenance of the house, they can't afford to own it, let alone buy it. >> Yeah, it's Yeah, absolutely. I'm I'm here with you. Like I' I've been looking at the markets and it it doesn't make any sense like the the valuations and like I saw an argument like even single single like retirees or so they should be downsizing moving into smaller apartments and leave the bigger apartments for families for example. I got >> the bigger houses. Yeah. Look at all the McMansions all over the country. Tons of them. Who's going to buy them? >> Not the Chinese. >> The big big disconnect, right? Absolutely. I'm talking about bit of a bis disconnect and I'm I'm I'm looking at the gold price over the last few weeks here Dave or months actually since since the correction it's it's apathetic it's just moving sideways it goes down half a percent and a half goes up a percent and a half what do you make of gold? What is gold telling you right now? It used to be a great indicator. It used to be maybe foreshadowing something but right now it seems like complete apathy. Well, let me preface that with a statement about what it's also approximate to, and that is it's as of we'll call it round number April 1st, the equity markets have gone on what is arguably the greatest, you know, one and a half month run in history. >> While we're bombing Iran and while the straight of hormones is closing and while everything's wrong. So, so there's something so insane about the markets that I think that's a gamma squeeze. I think I think the Feds are probably bought buying call options. It forces the banks to buy the shares to hedge the call options and it becomes this virtuous cycle. But as soon as you stop buying the call options and the banks have to liquidate all their hedges, which means they have to sell all their shares, which means that's going to all go away possibly as the start of something much more horrific. Um, the gold market meanwhile is is is trending water. But don't forget two things. One is it's still up uh probably five or six% year to date. And if I could in my gold holdings, which are considerable, if I could get another five or six five or six% in the second half, I'd be so thrilled. It would be ridiculous. Now, what's painful is is that and this this is the insanity of the markets. I was up February 1st year to date, which is one month. That was my portfolio is up 24%. That's not supposed to happen. It's not, you know, SanDisk is up is up 258% in six weeks. And it's not alone. Everything April 1st, actually about March 30th, something like that. Everything just took off. It looks totally rigged to me. I I don't like the rigging model, but this looks rigged. And I'm guessing someone said, "We got a war in Iran. We don't want to look bad. We don't want the straight hormones to cause trouble." I think there really were cement blocks put under the market and and and if if if you are told that this is what's going to happen and you're big money you're going to say well then I'm going to write it and that then becomes a selfperpetuating system. So it's like playing football touch football you know you say okay everyone go long right everyone go long and I'm going to throw the ball in the end zone everyone runs down the field >> they've gonna throw one thing in we have midterm elections coming up November do you think they play a role in all of this? No, if Trump cared about the midterms, he wouldn't have bombed a run. >> Okay. >> Right. So, no, I don't think they matter. I Both parties look like they're populated with idiots at this point. They really look the political system looks so hopeless um that I don't care about the midterms. I don't care about the the Republican party. When Trump first got reelected, um I was pretty enthusiastic. I thought he was doing some really good stuff and none of it worked. None of it panned out. He got rid of some political correctness and things like that. Doge didn't work. Um he certainly didn't stay uh uh war free, right? He certainly boned that one completely. Um I think he actually destroyed his presidency in terms of legacy. I think the Iran war and I it seems to me besides his narcissism, he had to know it. So, so his certain he certainly had advisers who knew that this was a headsh shot to his presidency. He still did it. So, that gets you deeply into the question of why he did it and and that'll get you kicked off YouTube and stuff like that. So, um so I don't think the midterms matter, not to Trump and and not to the administration. um and and probably don't matter anyways because I don't see any evidence the right and the left have that one side has better ideas than the other. We get told which side has terrible ideas and stuff, but when you when when you finally look at what gets done, the presidents, the administrations, they all seem to do the same damn thing. They all seem to squander money. They also they're they all seem hellbent on making our 7% a year growth in in our debt rise from there. And when your GDP is growing, well, see, I don't think our GDP is grow. What do you think the inflation is right now? What's your personal guess as what the real inflation rate is? >> Six 7%. >> Story which means which means that the reported numbers are off by a factor of two, which means the GDP isn't even growing. I think we've been in a recession for a long long time, many years. You go, "Well, that can't be. A recessions, they don't last that long." I go, "Well, they don't they don't last that long because they lie their ass off." But but um or because as soon as it grows for a quarter, then they call the recession over. Um but I think, you know, I think we're doing a British Empire shrinkage here. So that the British Empire was in recession for many, many, many decades, right? >> It's been recession for the last six years and nobody talks about it, right? Then the DAX is soaring. >> Yeah. >> Right. >> Record high,000 points. Crazy. >> You know, and they would say that it's naive to think that there should be a rigorous correlation between markets and the economy. And I agree with that. But it's also naive to think that when the markets get way, way, way, way ahead of the economy that you're not going to somehow cross paths the other direction at some point. And I do not believe I don't see any evidence that the economy is going to be the one to make up that gap. I think the economy looks like it's headed for trouble. When I see people talk about the strong economy, I have no idea what they're looking at. You talk to anyone at the lower end of the economy and they're using, you know, the private credit markets unknowingly, the private credit markets to pay their groceries bills and their rent and stuff like that. I mean, it's we're really in a mess. And so the the tropish K-shaped economy is more real than ever. You know, the economy is doing great as long as you include in the GDP data centers, >> but data centers aren't wealth creation. And I really believe that they're not wealth creation. So if you built a gas station, you could spend maybe a million dollars building a gas station. If you don't pump any gas, it's not wealth. So the gas station the cost is a sunken the building it building the data centers is a sunken cost. It's an upfront cost and until that starts generating wealth you know it becomes Bosia's broken window fallacy or up data center fallacy. You know, it it's it's you're not creating wealth by creating gigantic facilities that don't yet do anything >> and because revenue, >> right? >> You're not you're not making progress on your journey if you sit in the driveway revving the engine of your car, you know, you got to actually drive somewhere. >> Yeah. Which brings me to my last question, Dave. What are you doing this summer? Of course, mostly portfolio speaking, but uh it's it's a good segue. Like, are you driving your car somewhere this summer? Can you afford the gas? Can you afford the gas? Yeah, I can. >> But what what are you doing over the summer with your portfolio? >> Nothing. Um it's a lot of cash, a lot of gold, a lot of silver. Not nowhere near as much silver, but um slowly but surely, I've been averaging into energy on the assumption that I will get beaten up. On the assumption I will get beaten up. And it's it's you know you have to sometimes bet against what your instincts tell you just to just just just in case I'm wrong. There was a guy who's a economic analyst at at at JP Morgan I think at the the turn of the millennium and he was 40% equities while bearish as hell. And they said why do you have any? He said I I could be wrong. Um but but I wouldn't you know if you made me either go all in or all out I would be so totally all out. My equity position is about 10% or something. I mean, it's really not a >> When you say cash, Dave, do do you mean like cash cash or are you in money markets? >> Well, for me, it's complicated. Um, it's it's short-term T bills, right? Right. It's short-term, you know, ideally 2%. Uh, I have a big retirement account that's Cornellbased is called TIAA, which um which which which has no lockout period. Normally it does, but I use the supplemental part of my retirement to to to fill that up. And and that has that's a fixed income account and it returns a pretty steady income and it it's probably got some real dog in it, but because because the vast percentage of it has has a total gate to it. Um there can't be a run on it. and and and as a consequence because mine's the supplemental part, I can exit with a phone call, but most of the people in it, it takes 10 years to get out. >> Oh boy. Okay. >> And so I'm pleased with that and it's been a pretty good return. You know, back in um back in the 80s, for example, while equities were roaring, uh that TIAA returned about 12 13%. I mean, it was it was a was a pretty good investment. Correct. for inflation you got clobbered maybe but um you know I don't think you get more than three or 4% above inflation during in any protracted period I don't I think this I these these estimated returns eight or 10% they're ignoring fees are ignoring taxes are ignoring inflation they're ignoring everything it's a load of crap you don't get Buffett said 4% um ra no said you know three and a half um if you look at an M2 corrected did S&P 500 back a 100red years. It's uh it's M2 corrected uh total return, not just capital gains, total return uh is about 3.7%. >> Okay. So, so you'd be like your your treasuries, your your your T bills, you're you're happy with the 4% you're getting right now >> because you're beating it up. >> Happy is not the word. Um, it is it I I I've been promising my wife that we are as defensive as we can be. And by the way, the boomers are not playing enough defense. And when they finally realize they got to put their defense on the field, that's when the ball stops moving, right? And so when the Boomers finally figure out that they're, let's say you're a boomer, the median boomer, by the way, here's the median boomer. um they have something like 300,000 in their retirement account. Now, if you take out 4% a year, that doesn't pay for Chinese takeout on Saturdays. I mean, that's just that four that's that's that's that that's $12,000 >> a year you can take out uh using conventional portfolio theory. Um and and and so you you you and you know and then you say okay they have social security. Typical social security that boomer is something like um 25,000. The median boomer has something like 25,000 in social security. And so they're now up to 3540,000. Can you live on 40,000? Well as our grad students our grad students get paid about 45. So you can live on it, but you know, you're not going to be going on your dream vacations and on that. >> No, your lifestyle will drastically change. >> And and that assumes your 300,000 doesn't become 150,000. >> Exactly. Dave, we we we got to put a bow around it. It's it's always great to chat. We could we could continue for hours. There there's much more to talk about. uh like international flows of of liquidity into the US market as well, not just the boomers being front running here or in at the front of the market here, but international flows as well for just because of lack of alternatives. We could debate for hours as well how that is affecting markets of course, but um in in in the meantime, Dave, where can our audience follow more of your work and more more of your thoughts? >> Uh you can find me at David B column on Twitter. Uh you can go to YouTube and find countless YouTubes. I appear to be uh one of the most podcasted guys on the planet because I'm old and have the time, I guess. Um um and and you can find me, I think, in New Orleans this fall. >> I can't wait. I'm looking for you. I was looking at the flights already, so I'm coming out. So, >> right. >> I'm excited. Fantastic. Dave, thank you so much for your time. It's always a absolute pleasure to to be speaking with you. Really appreciate it. Can't wait to do this. Maybe we'll get it finally done in person in New Orleans. Maybe I'll just bring a camera and sit in the green room with you. >> That's if Yeah, I That's right. That's right. Um >> I do so many podcasts. The ideas of going to New Orleans and filling my day with podcasts is unappealing. That's the problem. So I'm happy to do it, but I hate to I hate to clog up my schedule because what I end up doing is saying, "Okay, you know, Jimmyorio just invited me to lunch, so I gotta cancel my podcast." You know, that sort of thing. I would I would disappoint you. >> Oh, that's fine. I'll I'll just show show up in the green room with the camera and hold it in your face and we'll figure it out. So, >> I love the green room. The green room is my favorite place. >> Absolutely. Fantastic. Dave, thank you so much for your time. Really really appreciate it. And of course, I appreciate every every single one of you watching this channel. Of course, we've broken through 100,000 subscribers. It's a big big milestone for us. Thank you so much for that. If you enjoy this program, of course, continue hitting that like and subscribe button. It helps us out tremendously with the algorithm. Helps us grow. It helps us bring fantastic guests like Dave onto the program and we tremendously appreciate. How are you protecting your wealth? You're a boomer. I know some of our audience of course is in that age group. How are you protecting yourself? What does it look like for you and your account? Um are you retiring off $300,000? More, less, I'd be curious to know and happy to ask questions. It might be a bit more specific to you as well. So, put those down in the comments. Thank you so much for tuning in. We'll be back with lots more here on Zor Financially. Take care out there.