Ed Dowd: USA Facing A 'Toxic Cocktail' of Trouble In Stocks, Credit, Trade & Housing

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So we have, you know, an AI bubble that could burst at any moment. We have a real estate crisis brewing and uh and we have a trade wars and we have credit issues. So this is a very toxic cocktail. [Music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Today's guest suggests that for much of the past three years, the economy and financial markets have been boosted by a sugar high cocktail, which includes prodigious fiscal stimulus from the government, massive AI capex outlays from the private sector, and a wave of incremental consumer spending from the waves of millions of illegal immigrants. But now he warns that the sugar high is behind us. If true, what will the repercussions be? Well, to find out, we're fortunate to welcome to the program for the first time, Edward Dow, founder of macroeconomics consulting and research firm Finance Technologies. Ed, thanks so much for joining us today. >> Adam, thank you for having me on. Honored to be here. >> Thank you. Uh, it's a real pleasure. This is sort of one of those like incredibly uh, you know, overdue meetings. Um, I've had people tell me forever, I've got to get you on the program, Ed. Um, I've known that we've we've sort of followed each other on on X. Um, I'm sorry it's taken so long. Totally my bad. But but very appreciative that you're you're coming on now. >> Well, you know, it's good timing because I think we're at a at a crossroads in in the capital markets. And had we talked a year ago, I would have been convicted, but I'm even more convicted now in what we're seeing. And uh it's going to be a very interesting next six to 12 months in my humble opinion. So I'm gl I'm glad maybe in a strange way we delayed it until now. >> Okay. Well, that's good. We we we'll call that the universe doing us a solid. All right. So, um let's spend the next hour digging into exactly that. Why you think the capital markets um are at this crossroads, what you think is likely to happen next and and what the ripple effects of that are going to be. If we can though, just so folks can kind of understand how you see the world. I want to ask you a question that um uh I used to ask a lot when I was interviewing people for the first time. Since I haven't interviewed you before, this be perfect time to do it. It's an intentionally broad question, but I just think it again helps people sort of think how you see the world. What is your current assessment of the economy and the financial markets right now? >> Uh the financial markets and the economy. Well, there's there's a complete disconnect between the two. Uh the economy, the real world economy has been in trouble for quite some time and it's been stimulated and and and and papered over by a couple things. One was unfortunately we did have some um non-farm payroll numbers that seem to have magically been revised down to the tune of about a million or so. You you can call it fraud or statistical incompetence but that was during the election year the Biden administration and the numbers are coming out they're not good. So we had non-farm peril numbers that were were that were uh uh let's just say wrong. Uh and that had you know that had implications for the economy. There was a lot of >> but wrong to the upside, right? They were they were artificially rosy. >> Artificially rosy. Uh to the to the tune of and this is something I learned this this is you when my whole career I I I was in fixed income in my early career at HSBC. Then I went to the sell side uh did equity research. Then went to the buy side and became a portfolio manager. So I've spanned both credit and equity markets. And my whole career, I never knew of a report called the quarterly uh census of earnings and wages. >> The QECW. >> Yeah. Yeah. >> The QCW. >> QCW. Yeah. >> Yeah. Did did not know what that was. And the reason why we did not know what that was is because it was like, you know, historical data that was eventually, you know, calc. It's it you it's it's the survey of 16 million actual pay you know all the employers wrapped up and it's the actual data the non-farm payroll number which I've known my whole career and we trade on and we we look at is the estimate the reason why we fig we found out about this report uh and and and you know Lacy Hunt was the one who turned me on to it is because the disparity between the two got to the point of seven sigma seven standard deviations which >> wow >> you know which when you think about that it indicates one of two things or both. Statistical incompetence or fraud. So you get the non-farm payroll number gets reported. It's an it's an estimated it's about it's about 600,000 firms I think surveyed and then the QCW on a on a very long leg about a year later comes along with the actual numbers. Well, they usually over time are pretty close. There's some discrepancy, but over time they're pretty close. There was one time there was a big statistical error that was during the great financial crisis, but more often than not, you know, it's just not that big of a deal. Uh we discovered at the end of last year going into this year uh and and and Lacy Hunt uh discovered this. We we we checked the work. We just we said, "Yep, that's correct." And then I think Daniel D. Martino and a bunch of other people have talked about this set about a million and a quarter jobs >> uh over the course of uh 2024 to the downside uh that well to the upside the rosy outlook. So those just magically disappeared. So the implications of that are stark. So the credit markets traded on non-farm payroll. They don't trade on the QCW. Mhm. >> And so the credit markets uh thought the economy was better than it was. The Fed thought the economy was better than it was and decision makers thought the economy was better than it was. And it's not. And it also was bolstered by uh a new economic variable that we discovered that caused us to be wrong in our economic projections. Myself and Carlos, my partner, were calling for a recession at the end of 23, beginning of 24. uh because that's what our traditional early cycle indicators were telling us that it had been back tested for years. Well, we were wrong and you know a bunch of other economists were wrong too. A lot of famous economists were calling for the same thing and then it didn't materialize. And so we asked ourselves had the laws of economic fundamentals changed or was there something else? And what we discovered was there was, you know, crisis level deficit spending going on in 23 and 24 that uh resulted in unprecedented government spending and uh spending on uh illegal immigration which was a coordinated uh logistical effort and a lot of it was washed through the NOS's and we discovered a lot about the NOS's when Trump came in and and a lot of uh great work done by Doge. So that that was you know when you drop 10 to 20 million people into an economy the bulk of which came in in 23 and 24 that's going to produce and you give them money uh and accommodations and you and you and you subsidize an ecosystem of NOS's that facilitate all this to the tune of we've estimated between 500 billion to one and a half trillion that's going to support your economy >> and it did and we warned in our uh US economic report we put out on January 1st or January 9th of this year that Trump's immigration policies and and we're going to reverse all that and also we were seeing the beginnings of a real estate problem which also had been which started to materialize a little bit in 2022 when uh housing starts peaked. They've been coming down ever since. But what kept a floor on the market in terms of prices was uh rental properties and illegal immigrants stopping up uh rental demand. And that's all going the wrong way. So everything that was a tailwind in 23 and 24 is a headwind now. Uh and what's interesting is the evidence that we are correct. We pay attention to the credit markets and the signals from the credit markets. When we put out our report, one of our biggest recommendations was we see a deep, you know, US recession coming. Get out of risk assets and get into um uh risk-free assets, government securities, T- bills, bonds, 10 years, 30 years if you have a higher risk tolerance. The 10ear when we put out our report was 480. Uh the 10ear is now below 4%. The Fed has already cut uh interest rates a couple times now and the three-month T bill is now hitting a new 52- week low. We're seeing uh high yield credits starting to break a four-month trend. >> Y >> starting to see the regional banks rolling over. So everything we talked about is starting to have the classic knock-on feedback loop effects. And unfortunately, the government's been shut down. uh we think it's going to be shut down for longer. Probably the longest shutdown was 35 days. We think it goes longer than that. And we're not getting any economic data at the moment. So if the economic data was being reported, we suspect the non-farm payroll numbers would be showing a lot of weakness and and weekly claims as well. Anecdotally, we're seeing layoffs. We're seeing um credits market start to wobble. And I think one of the biggest early indicators that our thesis on illegal immigration working its way through the pipeline is appearing in the auto sector. We have three uh instances of credit uh just imploding. We have which was a subprime auto lending outfit that just went went away bankrupt. Then first Brands which is an app not not involved in subprime lending but they're an aftermarkets auto dealer. Uh I'm sure they uh are seeing the effects of illegal immigration going the wrong way. And then Prime uh Prime Prim uh uh I forget what the name of the company, Primaband, Prime Bend is a sub another subprime auto dealer that's going away as well. So we're starting to see the illegal immigration have an impact. If you look at the real estate market, we've been following it closely. We put out a real estate package a couple months ago. All our indicators are rolling over. starts construction. Uh homes for sale and homes sold are at a a recordwide gap. Usually, they track each other very closely. There there's a disparity between the two of about 500,000 homes. I think it's getting wider and and people are saying, "Well, we don't have a housing shortage." Well, actually, we have a home affordability problem. Uh and inventory keeps growing. We did have a home building uh boom in 20 uh 21 and 22 and 20 when the the Fed unleashed monetary spiggots. Uh and the illegal immigration caused multi-tenant uh family housing to explode. So we we've we've seen construction the likes of which we haven't seen since the 70s. And that's going to be the real uh part of the crisis. New single family homes are are obviously in trouble, but this crisis is going to be a little different than the last one. is going to be multi-tenant uh homes, structures of five units or more. Uh way overbuilt and the that was built to ho house the illegal immigration demand which has been stopped at the border and now they're self-deportation. So you don't actually need to deport all these people. You just need to halt the second derivative derivative flow for these things to sour >> which we're doing and we are deporting them too. And then many are self- deepporting too. So it could get worse. Right, Ed, that was that was a a really um I think stellar um you know recap of or or summation of sort of how you see the world here. So, first off, thank you. Um to a certain extent, you know, I hear you say, all right, there's kind of several big issues going on. Um you know, first off, we we juiced the economy artificially. Um, at the same time, uh, and and I I imagine, you know, most of the players just sort of assumed that that that artificial juicing was was organic and was sustainable, was going to continue forever. >> Correct. And and that that's the insidious thing about this. You got to remember during the Biden administration, the mainstream media kind of really didn't talk about what was going on. It was an unprecedented amount of people coming into the country and it wasn't well reported on. So business leaders really didn't know what was going on. They they probably thought it was, you know, endogenous to the uh economy of the US rather than exogenous, meaning, you know, helicoptering in a bunch of illegal immigrants and and giving them stimulus. >> So okay, so we we were artificially juicing the economy. We were telling ourselves it was going to continue forever. Meanwhile, the data that we were looking at to measure our progress was telling us things were were even better than than reality. And we now have um weakness in in some really key parts of of the economy. Um so we've got some some issues in credit. And as we all know, credit is sort of the big gorilla, right? If the credit markets get into trouble, everything gets into trouble. The way our economy is structured, the real estate market is rolling over. Um, you didn't mention overvaluation in in in financial assets, but I I I I presume, correct me if I'm wrong, I presume you you've got some valuation concerns. Um, >> correct. We put out a piece in February that that indicated that we looked at the uh val and they've gotten worse since February. The valuations are at a point where historically uh forward tenure returns are zero. So, they're negative, says John Husman. Yeah. That implies a ginormous draw down between now now and then obviously. >> Okay. So ginormous draw down meaning you're you're very worried about a stock market correction. And one thing you didn't mention and I'm just curious um whether this is a concern of yours or not is um you know a lot of these things are sort of bubbleicious right we artificially stoked the economy. Asset prices went to levels you think could have a ginormous correction from. you didn't mention AI. Um, how much is AI contributing to the overvaluation issue? >> So, AI, if you look at the stock market right now, I think that the concentration of the SPY, which is the ETF everybody owns, uh, and is the S&P 500, it's I think it's 35 to 40% is seven to 10 stocks. >> Yeah. You know, if you look at Nvidia, it's a market cap approaching four trillion and it's literally the same size as the the whole Nikke stock market, Japanese stock market. >> Um, you know, and look, uh, so we have, this is the problem we have. We have a we have a real estate crisis coming. We have trade wars. I can talk a little bit about China because that's a problem. uh and we have um credit issues starting to rear their ugly head and then we have a dot bubble-like situation which if you remember the dotcom bubble was not systemic. The stock market did correct 50% over two years and it caused a kind of a minor recession. Uh so we have you know an AI bubble that could burst at any moment. We have a real estate crisis brewing and uh and we have a trade wars and we have credit issues. So this is a very toxic cocktail and the AI bubble is obvious to if you look all over uh X a lot of smart people and a lot of people in the AI ecosystem are even calling it a bubble. So now we're at the point now where people are saying it's a bubble but this the current sentiment seems to be well we're in the early phases of this bubble so it could go higher. >> Yeah it's sorry to interrupt but you can you can comment on this but I just saw a headline an hour ago saying it's in a bubble but it's a rational bubble. >> Yeah that Yeah. Yeah. So look, um, we're at the point now where the case use for AI is starting to come out. There's been a bunch of studies done that corporate uh, uh, corporations looking at AI and rolling out AI projects is declining because it's not ready for prime time. I think that there's a there's a there's a re a reality versus perception problem. AI has a hallucination error rate that is unacceptable to roll out, you know, full scale. So, the revenues from corporate America aren't going to be there. There's there there's subscriber revenues, but they they're so dimminimous that they don't even begin to cover the capex. So, we've never seen an investment cycle where the capex and the revenues are so out of sync. So the the return on capital the only way to get the return on capital is for the current investors to go bankrupt and then subsequent users of AI might get a return. But right now, you know, the this capital, the depreciation schedule on these chips, it can it it's a and the power consumption that it needs, it's not possible. And the revenues aren't going to come just like they didn't come in the dotcom era. They can't I mean, the internet was a thing. Uh, and I was in the doc, I was a tech analyst in the dotcom era. A lot of these companies went to zero. the real benefactors of the dotcom era and the tele and it was mostly a telecom equipment uh and fiber buildout right >> uh that created the capacity for the companies that emerged later Apple took advantage of that B broadband uh um Facebook Google IPOed well after the dotcom crash crash Microsoft benefited so all these Oracle b so all these companies that benefited from this infrastructure buildout really didn't benefit from until later. Uh, and this is AI is an infrastructure buildout that's going to be stranded. It's even worse because at least dark fiber could be used and turned on later. What do you do with an Nvidia chip three years from now that what you bought for 40,000 that's worth zero? Not much. >> That's a great question. I was going to ask about that. So, will we have dark computational capacity or does that expire, right? Does it to your point after three years is it is it no longer useful? uh you know well that's that's that's assuming the madness of this you know constant spend goes on there there there may be some use case for this but not not like dark fiber where you can you can just light it and turn it on. >> Yeah. >> A lot of that dark fiber was built by these people may not remember this but there were these companies called selex. Do you remember the selexs? >> Yeah. These were these were speculative telephone long-distance companies that were gonna dis intermediate the the the bells. >> Global crossing, WorldCom, those guys. >> Yeah, those guys. Uh um Windstar, you name it. There's a bunch of them. And they raised uh a bunch of capital. The financing technique back then was junk bonds. Now it's private equity, but you know, there's always somebody willing to give money. So, the junk bond market funded all these guys. They then took all that money and bought switches and fiber and telecom equipment from Nortell and Lucen and Cisco. And then one day the giant bond markets decided, hey, there's no return on capital here. And they imploded. And then Cisco, Nortell, Lucen all imploded as well. Nvidia is like Cisco was to the telecom companies. And so if you think Nvidia is going to stay a 4 trillion market cap company in a notoriously cyclical sector, I got news for you. It's going to do what all classic bubbles do. It'll go down 80 to 90% when it's all said and done. >> Okay. Um I mean I know that sounds unimaginable to many people. Um but hey, I mean in in 2022 it had a pretty bad year, right? Uh so you got to remember what happened that Nvidia was a beneficiary of the Bitco Bitcoin mining episode and then they discovered AI and the great news about AI is there's no Bitcoin pricing because Nvidia when Bitcoin would go down Nvidia didn't do so well. So but there's no pricing of AI at the moment. So this is a a much better scheme for AI to for Nvidia to um sell stock into. And if you look at the insiders they're selling stock handovers. test right now. >> Okay. Yeah. And you know, um Jesse Felder has been beating this drum for for a long while, but certainly as we've gotten further into this year, uh kind of all across uh the corporate world, not not just in the Mag 7, um we're seeing uh higher percentages of insider selling, certainly relative to buying than like almost ever, right? So big big warning sign that I think they are smelling out some of the same risks that you're seeing here. Um, all right. So, let me ask you this, Ed. The the the tricky part on all this, right, is is obviously the timing. >> Yeah. >> And and to your point, you know, you said, um, you were wrong a year ago. I think maybe you're being a little bit too hard on yourself. Maybe you were just early, right? And and for the reasons you mentioned, this taken a little bit longer to to manifest. But, you know, markets did have done very well in the past year, right? And so, you know, the danger of getting out too soon, right, is that the party continues for a couple more years, right? Like the people who hopped out in 1997 because they were worried about the do-com bust or the dotcom bubble only to have it continue, right, for three more years, >> right? >> How do you how do you gauge right now sort of what inning we're in in the story? >> Well, so the dotcom bubble is going to be linked to what's goes on in the rest of the economy. You got to remember the a lot of people are saying that this is like 1998 999 for you know the AI bubble but we had a different economic backdrop back then. >> You did >> we had a we had a demographic tailwind in the US. Uh we had uh Y2K ahead of us which was a huge capex spend >> capex spend >> that that that was driven by this what turned out to be a nothing burger of hysteria that you know when the clock changes the world was going to shut down. You had to be Y2K compliant. Um we had >> globalization where companies were totally reducing the cost of their labor. >> Yeah. We had and we also had uh a deficit surplus I believe at the time. >> Yes. A brief blip but yes. >> Yeah. Yeah. Yeah. Um so that was a much and and the Fed was raising interest rates because the economy was so hot going into that bubble. The Fed has stopped raising interest rates a long time ago and they're now in the process of lowering interest rates which is never a good sign for you're you know given what people were thinking in terms of inflation. The Fed's now switched and pivoting to worrying about the labor market and they're I think they understand that their numbers are wrong and they don't want to admit it yet and they're keeping policy too tight. I think they're gonna I think we're going to see them chasing uh this down fairly soon. Next six months, they're going to be they're going to be doing >> which they have at every I mean in the past 50 years pretty much every time the Fed has hiked and then plateaued, it started cutting and then realized I was too high for too long. I'm behind the curve now and they panic cut down. Sounds like you think the same thing's going to repeat here. >> Correct. And so that's why when you know I when people say oh we're like in 98 99 in the AI AI bubble we're already seeing you know in in the dot bubble at the end we started seeing fantastical press releases about deals uh you know circular deals deals with no details about future funding we're seeing those now in the AI ecosystem I mean we're seeing open AI and Oracle announced five you know Oracle went up stock went up 30% on um you know announced that if you looked at the quarter it was awful. The actual quarter Oracle had was awful. But the stock hit a new all-time high based on a press release they're going to commit 500 billion to open AI. But if you look into the details, you know, there's not a lot there. >> Yeah. And it was crazy. I mean that that 30% was added within like an hour in after hours after they gave the the earnings call, right? Like no time for anybody to vet the assumptions, right? But you had this massive blue chip tech company that basically gained >> 30% in market share in a heartbeat. Yeah. >> Right. And you know, look, if you're a student of the market, this is the kind of thing we saw in the do and I was less of a student of the market, but these are what we call ending moves. When you have these ginormous, you know, 30% rise in a market cap company the size of Oracle, it's not a beginning move. Yeah. >> It's an it's an ending move. uh >> late stage. >> Yeah. Late cycle, late stage. And so I think what we're gonna see um is we're gonna see the dot bubble blow up at the same time the bond market and every and everybody else realizes we're going into a recession and the bond market is sniffing that out. And the reason why I'm so confident is the tenure again has gone from 480 to sub4 since we put out our report. The three-month T bill is now hitting a new 52- week low today. Um, the 30-year bond has put in a nice low. It looks like it wants to go uh technically, if you're just a technical guy, looks like it wants to go higher in bond uh futures price and lower in yield. And then the US dollar uh you know, again, everyone talks about this. We just discovered the the debasement trade. This is what they're calling it. >> When it gets a name, it's over. Um, I'm very bullish on the the US dollar. There's actually a dollar liquidity shortage going on globally. And you're going to see the dollar uh we think I have a friend Tim Wood. He does a lot of cycle analysis and he's discovered what's called a four-year cycle to the dollar. And we think there might have been a four-year cycle low in the dollar in September. And if that's correct, uh, we got a lot of room to run higher and it held above right on its trend line. And if you look at the long-term chart of the dollar since the great financial crisis, it's been in a bull market. It's it's been a, you know, you know, up and down quite a bit, but it's it's a long-term rising trend. And a lot of people don't understand, you know, what the dollar is. It's a we're a debt based fiat system and we're the reserve currency. So when the dollar is declining, that means more credit's being created. And when the dollar is rising, in general, not always, but in general, when the dollar is rising, there's less credit being created. There's a scramble for dollars, and there's also potentially defaults coming on the horizon. So that's what I see. I see the early signs that there's going to be an aha moment in the capital markets and we're going to see everybody that's on the wrong side of asset allocation scramble to the other side. And you're already seeing it in the bond market. I mean, you got to remember remember, you know, about six months ago, the our our yields were going to go to, you know, 8%. That was the chatter. They're not they're not going to 8%. They seem to be creeping lower. And why? That's because the bond market has started to focus rather than on inflation to disinflation or deflation. >> Defl Okay. So, so you think then sounds like we're going to have disinflation. This is one of my next questions for you. disinflation, deflation, not higher inflation, and then lower bond yields obviously along with that. >> Yeah. Correct. And the other thing that's misunderstood, and you know, my partner Carlos and I put out a piece on this in April when the Trump tariffs came out, everybody was, even the Fed, they were talking about how inflationary these tariffs are going to be. They're actually deflationary. Uh, and you know, when I talked to my friend Lacy, Dr. Lacy Hunt about it, he agreed. He put out a great piece on it, too. So, they're they're actually deflationary if you look at them on a microeconomic level. The Fed is behind the eightball in providing liquidity because there's again one of the mistakes in the Great Depression was we had tariffs and they should have flooded the system with liquidity. They didn't and uh we didn't get out of the depression till World War II. The Fed's making the same mistake. We think we think eventually they will catch up. Then we got China. Now we're going to be putting out a big huge uh very sophisticated report on China that's going to be sold to institutional investors. It's not going to be cheap. So if you're a retail person, it's not for you. Um we've discovered that China uh a lot of interesting things about China that are not really well understood. Their GDP uh as a percent of the US going into um the COVID era was 80% of of of US. So they were everyone was talking about them overtaking us and that's priced in US dollars. since co they and by the way coincidentally they hit a demographic wall in 2020 and is accelerating a lot lower as we speak. It's devastating. Um their GDP priced in US dollars is uh 60% of the US now and their actual GDP growth since COVID has been zero priced in US dollars. 5% in >> Yeah. So >> what it changed from the pre-COVID >> Yeah. So what happened? They hit a demographic wall. It's in our report. The numbers are diff. Their internal demand is collapsing. They have a brewing real estate crisis. And to get themselves out of this, they've been accelerating their exports. Hence why we have trade wars right now. >> Yeah. >> And the message I want to send if anybody from the Trump administration is listening, we have way more leverage than we think because they are about to enter the acute phase of their real estate crisis. uh that is going to um require them to even export more to keep the lights on of the all their industrial capacity because the real estate crisis had a lot of long live projects. >> Those construct so construction is only down 10 to 15% uh from its highs but there's no contracts new contracts being uh filled into the pipeline. We think that's their and it's already started to to decelerate. We think that's going to be crisis level event for them in 2026. So we have a deflationary giant known as China that's going to be exporting all sorts of cheap goods and unless we come to some sort of reasonable trade deal, it's going to be a big problem for China and for us and comm and commodity producing countries are going to have big problems. And it I find it curious that Argentina needs 20 billion in in US dollars. Why do they need the 20 billion? Their biggest trade partner is China >> and China is obviously probably slowing. So they have a dollar liquidity issue. South Korea raised their hand recently said we want we want some dollars too. Uh who's ch South Korea's biggest trade partner? China. So this is going to be a problem for emerging economies and it's and it's it's going to start out we already have our own issues but this is going to be a synchronized global problem and and it's and real estate globally is going to be a problem. >> So essentially they'll be exporting to a certain extent disinflation and deflation to the rest of the world during this. You're correct. >> Yeah correct. If you look at the price of oil you know uh copper has its own uh issues at the moment. We expect copper to eventually figure this out. But oil is telling you uh that China's collapsed internally um because a lot of the the growth you know in China uh happened in the early 2000s and that's when oil started to really spike. >> Oil's in telling you that the the Chinese economy is is is problematic and global demand for oil is problematic. So ch oil is a very big canary in the coal mine. And in our US economic report that we put out in January, we said that we would eventually see the price of oil at 30. We when we put out the report, oil was 77. It's now 5756. On its way to 30, we think now it won't stay at 30, but that's where that's where it's going. >> Wow. Okay. Um this is a side. I hate to say this, but I'd actually love to see that. Um, I know it's going to have a lot of issues in the world, but oil is looking increasingly attractive to me as a long-term investment. And boy, would I love to get into these oil related investments during $37 oil. >> Oh, yeah. Uh, that that'll be the time to go all in to the oil companies because, you know, it's classic. The the biggest uh um the way to correct high oil prices are high oil prices themselves and the same with low oil prices because you know how this works. When there's high oil prices, they overbuild and and and drill more and there's and there's too much capex and that creates the next bust. And in the bust, they underinvest and that creates the next boom. So, you know, at 37 $30 oil, 20 whatever it is, it won't stay there for long and the new boom will begin from there. And if you're a value guy, energy companies will be your friend as long as they don't go bankrupt. >> All right. So, when the time comes to invest in them, Ed, I want you to come back on. We'll both put on our cowboy hats and we'll channel our best techs and oil. >> Yeah. And and what we hope to do, like we're not calling for a systemic banking crisis uh yet. I mean, we don't we hope there isn't one. Uh but this is going to cause at at minimum we think a 50% draw down in stock markets. We hope to come back to you and others uh when everybody is running around like chickens with their heads cut off. We'll be flipping positive. Mhm. I mean, look, I I I can't wait for the day where you and and the many other folks that come in this channel who share similar concerns get to that point. Um, look, you know, I I like to tell people who say, "Oh, you're just all a bunch of doomers." It's like, "No, we're just, you know, these are datadriven analysts. We're pragmatists." And, um, I know individually every one of them would much rather be bullish. And so, we can't wait for the day we generally feel like there are good values out there. >> Exactly. And, you know, look, we're not doomers like in our reports. We're not calling for a systemic crisis. We're not saying it's the end of the world. We're not calling for the end of the dollar reserve system. Uh we're just this is this is classic cycle behavior with too much Ponzi credit at the end. And it's just the nature of the beast and of the system. And it's actually as we go through this, this is going to be a great thing for millennial home buyers to pick up homes finally. >> Yeah. You know, it's it's for those who are cautious, it'll be time to get in the stock market and set yourself up for a retirement. So, I you know, I'm not a doomer. I'm not a gloomer. And I think a lot of good things will come out on the other side. I mean, a lot of what Trump's trying to do, he has to do what he has to do in China because it's unacceptable for China to dump their slave labor into our markets and destroy our economy. And he also needs to bring manufacturing back. But that's not an overnight success story. There's a valley in between and it's going to take a lot of time. But long term, I'm bullish. Near-term, not so much. >> Okay. And I was actually going to ask specifically about that. So, if the if the US plays its cards right here, China's woes could actually really work to the US's long-term advantage here. Correct. >> Correct. But we also have to understand China, you know, the current power structure needs help because they are their most the people they fear the most isn't the US. It's their own people. >> It's their own people. Yeah. >> Yeah. So, you know, China has has two uh solution. It can do what Japan did when it hit its uh demographic wall and their bubble imploded. they decided to export their way out and that worked because they're a tenth the size of of China. China can't do that. >> So we have to we and other nations have to work with China to actually help them develop a consumer economy because they have a mercantilist economy right now and so they need we need to raise their people up and that's of course a decadel long process and they would have to give up power to do that. So that that that's that's the you know for them they stay what they're what they're probably going to do is try to stay in power. They hope their social credit score system works and they hope to become a mer they already are a merant to listen nation but they hope to become an even bigger one. That's their hope and that's that's where the rubber meets the road where President Trump and other countries are going to have to negotiate and and calm them down. But China is at a crossroads big and demographically I'm not going to get into too much details but the numbers are horrific uh until 2020 2032 demographically for them. Um, yeah, I I I I I'm just going to ask this and I promise we won't rattle hole in here, but you know, a big part of why they're they are where they are, right, is they've got their one child policy that they've been pursuing for so long, right? So, you end up with a ton of, you know, a kite-shaped um population. A bunch of people at the top, a lot fewer at the bottom. How does it get resolved by 2032? That seems really short to me. >> That's when they have a little echo boom. >> Okay, >> little echo baby boom. Then it goes back to decades of uh of despair, but there'll be a little boom. >> Okay. So, it's not a it's not a sustainable rescue. It's just a little >> It'll feel good for a couple years and then they're going to roll right over. >> Okay. Okay. Um All right. So, one other topic here. Um gold. So, um I heard you say there could be a ginormous correction in the stock markets. you said people, you know, should should get out of risk assets and and and risk on assets, get into riskoff assets. Um, but you're also very bullish on the dollar. So, given those crossurrens, some gold favorable, some at least historically not gold favorable, what what are your thoughts on gold right now? So, uh, about five, six months ago, they asked me what I thought gold was going to do. And I said, I had a friend who's very good at technical analysis said it looked like it was go, it was around 3,000. >> Uh, and he said it was going to uh, and I knew the dollar hadn't put in its bottom yet. I was waiting, timing wise, we were looking for a low. I said gold could go to 4,000 according to my friend, and here we are. We're at 42, 4,300. uh it gets more difficult here and long term I think gold is going a lot higher uh because there is there is going to be a global reordering uh and there may be negotiations about what that looks like gold's going to be part of the the discussion >> gold also became money at least in the US again on July 25th when uh banks uh were able to take physical gold and call it tier one capital Which means if it's tier one, you can create money against it. You can loan, you know, originate loans against it, which is money creation. >> Yes. >> Um, so long term, I'm bullish on gold and I don't want people to trade in and out of it, especially physical gold. I mean, you know, if you and and I I recommend physical, not not GLD, not these. And if you're going to do it, it's kind of a it's, you know, it should be a part of anyone's portfolio, not all your eggs in one basket. and buy and hold and buy the dips. You know, gold could uh could it could it could could continue to rock here. I don't know. Uh but if I'm a betting man, it probably goes sideways for a little bit, consolidates it gains, then maybe starts going up again. And a ginormous systemic problem. If there was a systemic problem, there's a global margin call like there was during Lehman. Gold went down 50%. But it went back to new highs pretty quickly. So don't be don't be leveraged in gold. Uh because gold gold is you know gold is you know you sell what you which what what you can not what you want to and some people were forced to sell. >> You sell what has value. Yeah. >> Correct. So but but I I I would not get shaken out on my gold. I I I I I like it long term. You know the charts and the way the world's going. Gold's probably going to 10,000 by 2030. >> Okay. So, okay. Thank you. And I just wanted to make sure. So, a a um multi-year bull cycle in the US dollar in your mind does not mean gold has to suffer. >> No, it does not necessarily mean that. No. >> Okay. All right. Um Ed, this has been excellent so far. Thank you. And I I got to start wrapping up because we're getting near the hour and I want to be respectful of your time. Um a couple couple questions before we get to the the ending though. Um, so one, um, uh, I don't know if you specifically said this or not, but it it you've got concerns obviously about the economy slowing. Do you think there what do you see as the recession odds for 2026? >> Uh, we were we were we were calling for it in 25. Uh, it was delayed a little bit. I think the odds are are I'd say 80 90% right now is my odds. I I I was I when we put out a report, we were thinking it would be 2025. I think the be I think when we look back, I think when the official numbers come out, it may have started in the fourth might start in the fourth quarter, but we won't know that for a year or two, but you know, I think I think I think it's beginning. >> Okay. Um and again, maybe the spirit of my question is when will it really feel to folks like we're in a recession? Sounds like you have high confidence it'll be at some point in 2026. uh jobs. So, you know, again, we don't have any data right now, but but the jobs data we have had has been very suspect as you were talking about earlier. But with with the numbers we have, unemployment is still relatively low. If we're having this conversation a year from now, where do you expect unemployment to be? >> Uh north of 5% obviously. >> Yeah. >> Yeah. And you know the we did get one data point uh that wasn't so hot uh even though the government shut down we get the ADP number that was not that was not rosy >> right >> uh and you know >> there's a contraction right >> yeah it was a contraction and and you know uh the markets always focus on the NFP and without what in an absence of data uh the ADP becomes more important so >> that's kind of and you know the bond markets are are starting to are definitely sniffing this out and the fed the Fed if you listen to what Jerome Paul has said he mentioned a couple times immigration may be affecting employment we said that months ago and then >> he also said we were we were crying fowl on the uh NFP in 2024 he finally said that at the end of the year there's some dispute about the non-farm payroll numbers I think if you listen to the Fed speak their sh their shift to the weak labor market is telling you all you need to So they are going to probably drop 50 at the next meeting and and if and if there's any kind of like credit blow up and any you know fastm moving uh feedback loops they'll they'll drop a 100 but I'm not calling that because we don't see it yet. >> If they drop 50 because I don't think the market's expecting it to be 50 at the next meeting. Will that freak the market out? I >> I think this time it will. >> Okay. the there's this belief system out there that when you lower and this is in the equity world that when you lower interest rates it's always universally bullish and it's free money. It's not the Fed when the Fed lowers interest rates they don't print money. It's it's this is not money printing. This is just a lower interest rate that works its way through the economy usually 18 months after the effect. >> Yeah. The lag effect. Yeah. >> It's a lag effect. And you know, people got to remember in uh 2000, the bubble peaked in March of 2000. The first rate Fed rate cut happened in May. Then we went down 50%. In the great financial crisis, they started cutting in ' 07 and we did go a little higher, which we which is what's happened here. This stock market's a bit like 07. The market's gone to new highs in the face of a couple rate cuts, but eventually uh that that didn't help that that that didn't stop the stock market from giving up 50%. >> Gravity takes over. Yeah. >> Yeah. Yeah. >> That's where we are. That's where we are. We're in the other side of the rate cycle. The plateau is over. We're in rate cutting mode and it's indicating slower growth in my humble opinion. And the AI bubble is about to burst at any moment in my humble opinion. >> Okay. Um uh I know we could talk probably an hour just about this topic in general, but but on private credit um how concerned are you this it at at this cycle um that we have a lot more credit in the system provided by private credit than we've had in the past and and it's because it's not regulated. We don't really know how good the quality of the loans are that have been made. And we're already beginning to see with some of the names you mentioned earlier, you know, some some negative surprises here with defaults. Um, how big of a risk is that in in this cycle this time? >> Well, you know, when the subprime crisis happened, people would always point to the the dollar amount and say it's not that big. But it wasn't it wasn't just it was it was the feedback loops and the Jenga style credit markets we have. Our our markets are built everything is collateralized against everything else. So once one sector goes puff, it kind of has this feedback loop effect. >> It's the counterparty risk. Every everything's intertwined, right? Yeah. >> Correct. And what the private credit markets I think I I I are are around one one and a half trillion total. So it's not a it's not big. The housing market's like 12 trillion. That that I think that's where a lot of problems are going to occur and we're we're we're not bullish on that. But this this private credit is opaque and it could happen fast and there's a and there could be a lot of distrust which is what we're seeing with Jeff and this first brand situation because literally two I think something over two plus billion of this money just vanished. People say it vanished. didn't v the credit just it it you know there was no there there it just >> um so this is the kind of thing it and you know the doc the the subprime crisis started to emerge in February of07 and it really didn't impact the stock market until October of '07 I think we're in a faster time frame now so I think I think things are faster and I think things are more precarious and there's way more leverage at this time globally and in the system So, this could happen fast, but it could it could be delayed. I mean, just just because we're seeing some wobbles in the credit market doesn't mean everything's gonna float, right? It takes time, but there's definitely feedback loops going on. >> Okay. But it sounds like you think this is just, you know, a a another risk factor that that maybe may play more this time around than in the past just because we haven't had this much private credit before. >> Right. Correct. And the other thing I'd like to explain before we we wrap it up is this this uh the Trump tariff tweets and truth social posts. >> Sure. >> Uh tariffs are exogenous. What I mean by that is he can he he can he can set them and then take them away. So that's the self-imposed pain and he can take it away. So that's why the markets care a lot about that. What's coming is indogenous to the system. It's it's it's part of the cycle and the feedback loops. Trump Trump can't affect that. Now, Trump Trump has a lot of control over terrorists, but the rest of the economy, not so much. >> Okay, that is that is a great point to remind people of. Um, all right. Uh, two last questions for you. Um, one, uh, you've already sort of given a nod to this, but but in terms of sort of an in what investing approach fits the current moment we're in here, right, where the bubbles are still kind of expanding. There's a little bit of turbulence in the system here, but nothing crazy yet. Um, we don't know how much longer it's going to go on for, although you've got a pretty good sense of of where you think. You know, I guess is it time to be just all in riskoff assets at this point or are there certain assets that you think or strategies that that make sense here before it's time to get fully in the bunker? >> Well, you know, look, I I a lot of people ask me their opinion and I say, look, it depends on your risk tolerance and where you are in your investing life cycle. If you're 25, >> yeah, >> you know, raise some cash in your 401k and then put it in at the bottom. If you're 60, you got to be more conservative. >> Yeah. Mo the majority of the viewers on this channel are over 50. So, >> well, I I would say um if you have leverage in the market in terms of real estate and pay down your debt as as fast as you can, uh if you are levered in your margin account, unlever immediately. uh if you are worried about if you're you know have 60% of your net wealth in stocks I would raise a generous amount of cash uh to reinvest at the lows. Um I never tell people what to do and go to 100% zero because again the timing is always difficult but this is this is a time to be what I call accumulating dry powder for opportunities. >> Okay. Uh, and it sounds like >> and people worry a lot about the US dollar and they say, "Are Treasury bills safe?" Treasury bills are the safest investment on the planet. That's not changing. Warren Buffett owns 5% of the T bill market. If Warren Buffett's good with it, I'm good with it. You don't have to work. It's money good. And you're earning, you know, 3.9% on your T- bills if you roll them every three months. You're getting paid to wait. >> Personally, I completely agree with you. And to your point about um you know raising cash that's you know hopefully sidestep a lot of the ginormous decrease you think could happen but your point about dry powder is as we mentioned earlier you expect there to be some wonderful valuations at the end of this if this follows the course you think it will right >> yeah dry powder first of all you're not as worried as everyone else running around everyone else is panicking you've decided what's what what's comfortable for you in terms of your cash allocation versus the rest of your portfolio And again, I'm not going to tell you what to do, but you know, it depends on your risk profile. As prices come down, there's going to be wonderful buying opportunities. And you know, I'll just use a simple example. You know, let's say you have $100 all in stocks and it goes down 50%, you have, you know, you have $50. If you're 25% cash, 75% stocks, and it goes down 50%, you have 62 and a half dollars. >> That's the math. >> Yep. And then you and then you're starting off way a way ahead ahead of everybody else to reinvest. >> All right. Very well very well explained. All right. So last question for you, Ed, and then we'll wrap it up. Um this is more society. So over given the policies that we've been pursuing for the past couple decades, you know, we can argue whether they were the right or the wrong policies in a moment, but kind of the net effect has been a bifurcation of society. um this K-shaped economy that you you probably heard about, right? >> Yeah. >> Um and that kind of got I think you know put on steroids during COVID, right? Where the stimulus um it it both juiced asset prices and it juiced the cost of living. And if you owned asset prices, your your asset prices probably did much better than the rise in cost of living. So you were fine. You're doing great. everybody else bottom 90 plus percent they only got the the the the increase in the cost of living. Um you know a I'm just sort of curious to hear your thoughts about you know sort of where we're headed as a society and and I'm curious too like there'll be a lot of collateral damage um to everybody if what you think is going to happen in the you know next year or two indeed happens. Will that be a a net negative? Um, I mean, it'll injure the bottom 80% in a way that they would very much not like to be injured. Or may it be a net positive in the fact that it's going to evaporate some of this, you know, phantom market value that's been pumped into the markets and it may actually decrease a little bit of the gap between the halves and the haveotss. >> It will decrease the gap between the have and the haveotss. But, you know, part of the problem since the great financial crisis and zero interest rate policy for essentially 14 years is that the the wealth gap has be grown even larger than it ever has. And historically, when we get here, there's political movements. And is there any, you know, wonder why we have populism? I mean, it's, you know, this this is this is this has been brewing since the, you know, the Tea Party. Um, this is >> on both ends. Sorry, but like that that's what got Trump in office, but it's also what's getting Mambi Mami in office, right? >> It's happening globally. Populism is happening globally. The wealth disparity is insane. Insane. And and historically, uh there's there's um there's two ways this ends. It ends in revolution or a great a new great deal, uh you know, like like happened after the Great Depression. And so I'm hoping for a new great deal, not >> not revol like we don't want a French style revolution that didn't end well, >> right? >> For anybody. >> For anybody. Yeah. >> Um I'm just curious how how much does this weigh on your your mind, you know, actively? A lot or a little or what? You know, I I try to live I you know, I have to toggle out into the future to make a lot of our prognostications, but I come back to the present moment because, you know, I used to I was one of these people decades ago used to worry about stuff and it it caused me anxiety and mild depression. I kind of live in the present moment understanding that life can be still very joyful and uh and and you know just try to enhance my social circles and and and hang out with great people but understand that the tough times are coming but it doesn't necessily mean it's the end of the world. It just doesn't you know the sun will come up tomorrow people will still have babies you know life goes on it's just it's just not the end of the world. Well, I I a thousand% agree and and look, we we don't know exactly what's going to happen and and we don't know what's going to happen to us individually and you know, as a result of that, I I tell people on this channel, look, this is a wealth buildinging channel. We talk about money all the time, but at the end of the day, remember that money is just a means, right? It's not the end and of itself. What really is true wealth and um you know, you know, I say the research is pretty clear on this. It's quality relationships. It's having purpose or meaning in your life. and it's having good health. And if you can focus on really winning in those three, you know, be great if the money comes along, but if it doesn't, you're still kind of winning life where it matters. >> Absolutely. Absolutely. I agree 100%. >> All right. Well, Ed, look, it has been a real pleasure uh to meet you, to be uh be able to be in discussion with you here. I would love to have you come back on the program again um whenever you want, especially whenever you are making some sort of audible change uh to your outlook, whether you're moving things up or pushing things back or whatever. So, please know the door here is open. >> For folks that have really enjoyed this discussion, maybe it might be their first um introduction to you. Where can they go to follow you and your work in between now and the next time you come on this channel? >> No. Great. Thank you. Um, if you want to just see my public commentary, uh, you know, top of- mind thoughts, I'm on Xd. We put out and sell research on our firm website, finance techchnologies.com, spelled with a ph instead of an f. And I also have a personal website, eddow.com, where you can uh, hit me up for personal consulting if you so wish. >> Awesome, Ed. When I edit this, um, I will put up links on the screen to or I'll put up, you know, the handle, your handle on your screen, your website URL, etc. And then I'll also put the links in the description below this video so folks can get there directly. >> Appreciate it. >> Okay. Well, to close up here, folks, please thank Ed for coming on today, being so um, prodigious and generous in terms of the insights that he shared with us. Um, but please share your appreciation for that by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. Um, a reminder folks, if you did not watch uh Thoughtful Money's fall online conference, which just happened this past weekend, which included as its keynote the great lazy hunt, who Ed has mentioned several times in this conversation, uh, it was an absolutely phenomenal experience. Um, if you are feeling a sense of regret that you missed it and didn't go, don't worry. You can still buy a replay of the entire event. To do that, just go over to thoughtfulmoney.com/conference. And if you are a premium subscriber to our Substack, you can still use that uh code that I've been emailing you to get an additional $50 off of the price of the replay. Last, if you would like to get some help from a professional financial adviser to position your portfolio for whatever may lie in the road ahead, but particularly if it ends up looking uh a lot like what Ed thinks might be happening from here. Um, highly recommend again you get that help from a good professional financial adviser, but importantly one that takes into account the macro issues that Ed and I talked about here and that the many guests on this channel and I talk about. If you've got a good one who's doing that for you and is translating that into a, you know, a good strategy and executing it for you, great. Don't mess with success. But if you don't have a good one or you'd like a second opinion from one that meets the criteria I just mentioned, then consider scheduling a consultation with one of the financial adviserss that Thoughtful Money endorses. These are the firms you see with me on this channel week after week. To set up one of those conversations, just fill out the very short form at thoughtfulmoney.com. Only takes you a couple seconds to fill out. These consultations are totally free. There's no commitments involved. It's just a service that these firms offer to be as helpful to as many people as possible. Ed, I can't thank you enough. This really has been um well, it's been wonderful to meet you. This has been just a fantastic inaugural appearance for you here on the channel. Um the door is open here at any time for you to come back and update us on your outlook. But again, really have enjoyed meeting you and look forward to seeing you again soon. >> Thanks for inviting me on, Adam. I'm glad we hooked up. and everybody else. Thanks so much for watching.