Increasingly Strapped Consumers Are Tapping Out | David Hay
Summary
Market Outlook: The podcast discusses signs of a potential recession, with evidence suggesting economic challenges are affecting even those typically insulated from downturns.
Economic Recovery: The concept of a K-shaped recovery is explored, highlighting disparities in economic recovery among different income groups, with lower and middle-income Americans facing significant financial challenges.
Housing Market: Concerns are raised about the housing market, noting that new homes are being sold at a discount compared to existing homes, which could indicate a potential decline in housing prices.
Job Market: The discussion touches on the weakening job market, with increasing layoffs and a reversal in the job openings to applicants ratio, suggesting potential economic contraction.
Investment Strategies: The podcast emphasizes the importance of liquidity in driving market behavior and highlights opportunities in commodities, particularly in energy and precious metals, due to global economic conditions.
Global Liquidity: Global money supply and liquidity are discussed as key drivers of market performance, with a focus on China's significant stimulus efforts and their impact on natural resources.
Stock Market Insights: The podcast highlights the overvaluation in certain market sectors, particularly high-momentum stocks, and suggests potential opportunities in energy and value-oriented sectors.
Key Takeaways: The overall investment perspective suggests caution in the face of potential economic downturns, with a focus on strategic allocation in undervalued sectors and commodities.
Transcript
Certainly, we're seeing just a lot of evidence that perhaps there is a recession already underway and it just hasn't been acknowledged. But really kind of the key thing and I know you've talked a lot about the K-shaped recovery. The top of the K is doing well, bottom not so well. You even brought up maybe it's an eye-shaped recovery with a small eye at the top of those that are doing well. Uh but then there's just you know some data here that that's the case that how really challenged a lot of lower income Americans are and even kind of middle inome Americans and really you're seeing more and more of this how it's kind of working its way up the pyramid and starting to hit people who typically are are more uh insulated from economic uh declines and and contractions. is [Music] welcome to thoughtful money. I'm thoughtful money founder and your host Adam Tagert. Welcoming you back here for a special edition of Thoughtful Money. This is something that we uh told you we were going to try to do and we are going to uh pilot it here with its inaugural episode. Uh I'm very fortunate to be joined here by David Haye. David, how are you? Great, Adam. I'm just getting this deja vu all over again feeling for some reason. >> For for a good reason. I'm going to explain why to folks in just a second. But but first folks, um last time David was on, we talked about how he and I agreed that uh given his um power viewing of thoughtful money. Um it's a great honor to me. I I wonder if it's uh a great punishment or if David is a secret masochist because he watches virtually all the interviews that we do here on Thoughtful Money and is a great student of the key takeaways from them. So, in my previous interviews with him, he's done a great job of saying, "Well, Adam, that's just like what so and so said when they were on last week." So, um we agreed to do uh a monthly recap with him going forward, of which this will be the first one. And it's a recap in two ways. Uh David uh in his own right great expert um was I believe the chief investment officer if I'm getting this right of Evergreen GV call uh then miserably failed retirement and um has been publishing uh his substack his excellent haymaker substack um so he's going to update us on you know the key elements that he sees going on with his macro and market outlook right now and then there's going to be a part two of this video where he and I will both go through a number of the recent uh guest appearances on this channel and kind of talk about our key takeaways uh from them. Um that one is also that part two is going to be introducing another new um release here for thoughtful money. YouTube has um uh you know relatively recent released a channel membership program which essentially is premium content that's available to the YouTube audience. And um I have uh put the little membership I've activated it and a couple people have signed up for it. Um but uh what I want to be able to do is provide folks, you know, on YouTube who want more content with a little bit more content. So that's what that extra content's going to be. It's going to be this monthly uh retroactive of David and I looking across the past couple weeks of the month and saying, "Okay, what were some of the really key things that stood out to us that we think were really worth putting on people's radar?" So this video is going to be kind of in a part one and a part two. The part one is going to be public. We're about to kick that off right now. The part two will be available to the folks that have signed up for channel memberships here on YouTube. Or if you are a premium subscriber already to uh the thoughtful money Substack, then don't worry, you're going to be sent that part two as well. So, one thing to think about the um the membership is if you just like to hang out in YouTube, that's kind of an extra plus level on YouTube. But if you just want everything thoughtful money, just subscribe to the the Substack premium service and you'll get everything going forward. Now, um David said he's having deja vu all over again. Uh for good reason. We recorded this a couple of days ago and the recording disappeared into the ether and I will take 100% of the blame of that. Uh it was a excellent discussion which hopefully we'll perhaps maybe if possible even improve upon this time around, David, now that we've had a practice round. Um, but David did a phenomenal job and um, and he's so kind to have given us so much of his time already this week and come back to do the exact same thing. So, David, thank you so much for doing that. >> You're welcome, Adam. Anything to help out the cause. >> And by the way, just let me sneak in quick congratulations. You got another great star appearing in October at your big conference, Lyn Alden. So, kudos on that one. >> Thanks. Yeah. and Lynn. Um, you know, we've got so many great stars this year that I know folks would love to hear Lynn's macro and and market outlook and actually I'm going to try to get her on the public channel beforehand to share that. But, um, I've had a lot of requests this year to to talk more about Bitcoin. Um, Lynn is one of the preeminent experts in the world on Bitcoin and so we're going to have her do a deep dive on that at this conference. So, um, so thank you for noting that, David. Um, all right. Well, look, uh, a pretty lengthy intro there. Uh, I'll kind of wind down here for a little while, David, because you have a wonderful slide deck that you prepared that goes through much of everything I just laid out. Um, I guess let's get to that as quickly as we can. Anything you want to say before you actually start the slides? >> Yes, there actually is, because what I'm going to try to do is to go through a lot of the slides pretty quickly, uh, because we've got different segments, but three of the segments that I particularly wanted to focus on are housing, liquidity, and commodities. And I think they're all kind of related, but particularly the last two. So, but if there's a a visual that you want to pause on and have me elaborate more than just kind of a quick, you know, like just a flash image, let me know and we could do that. You know, obviously the jobs market is getting more and more attention and that actually is how we start out. So, let me get >> kind of by the day, right? >> Kind of by the day. Yeah, there's been some really we'll talk about that some interesting stuff that's come out here lately. So, let me get my slide deck going here. So bear with me. All right. Who are those two guys? One's definitely a lot younger than the other one. >> And and and one's definitely more handsome. That guy on the right. >> I don't want that. This is more like how I feel. This guy here though, uh you know, actually for many of our investments this year, we should be celebrating. A lot of these uh hard assets that were behaving in a pretty soft fashion lately have really come alive. So that's I'm not feeling quite as punchrunk as I did maybe a few months ago. But I do think we should give ourselves a pat on the back here for what happened with this jobs number because when we first or sorry last spoke in July, late July, we were both very critical of the jobs numbers that had been reported in June. You remember that? >> Absolutely. Yeah, it does. Um I mean I don't think we were uniquely alone on that, but we were definitely one of the louder voices and it's been great validation to see. >> Yeah. Right after that, that bombshell number came out that has really done like a 180 to the jobs market. And as you alluded to, there's been more data that's come out here even recently that's indicating things are going the wrong way. But let's get into here and look at some of the specifics. We got a couple images from Danielle D. Martino Booth. Did you just have her on too? I think you did. >> I did. I did. So, yeah, I've got some fresh insights even since we recorded, you know, our failed experience a few days ago. >> Well, these are again, credit credit to her for this. Uh this is looking at you know basically layoffs happening in uh in various industries and it's the important thing about this image is that we're at a recession threshold quite clearly and if it was on its own might not pay too much attention to it but I think it really fits in a mosaic of weakness and this is two month payroll net revisions and I think this is going to get worse. I mean from the Fed body language about the number coming out tomorrow that it's like they're bracing for a really bad one now. Maybe because the new whoever I don't know if the I think it's an interim head of BLS right now. Bureau of Labor Statistics. I don't think the new guy is in there. Was it G& Net? Do you know that guys? I know he's a friend of Stephanie's. But anyway, I don't think he's actually in the position yet. So, they got a probably a standin. And whether he's afraid of getting his head locked off and he's going to try to make those numbers look better, I don't know. But I think it could be there's a potential it could be a real shocker on the downside tomorrow. Uh but certainly we're seeing just a lot of evidence that perhaps there is a recession already underway and it just hasn't been acknowledged. But really kind of the key thing and I know you've talked a lot about the K-shaped recovery. The top of the K is doing well, bottom not so well. You even brought up maybe it's an eye-shaped recovery with a small eye at the top of those that are doing well. Uh but then there's just you know some data here that that's the case that how really challenged a lot of lower income Americans are and even kind of middle inome Americans and really you're seeing more and more of this how it's kind of working its way up the pyramid and starting to hit people who typically are are more uh insulated from economic uh declines and contractions. But it is confusing. I I mean the Atlanta Fed is now at 2.1% for this quarter, maybe even a little higher now. They keep announcing these. Oh, this Yeah, this was Sorry, I thought we'd updated this. I think they're at 29 and now the St. Louis Fed is more like positive 1.7. So, ironically, the Fed has actually been increasing with their estimate of how the economy is doing, not decreasing, >> which is interesting. You said there are a lot of crossurrens here. Um, one thing just on on the importance of the economy, right? I mean, sort of sort of as goes the unemployment situation, so goes the economy. And I think that that was what caused Pal to blink at Jackson Hole. Um, you know, he seemed to to really focus on the jobs market as, hey, we were feeling pretty good about it, but actually all of a sudden that data is starting to deteriorate more than we thought. And we just got, I think it was yesterday, David, might have. No, I think it was yesterday where um we got the data that said the new Jolts data that said for the first time in I don't know how long but a long time um we now have more applicants than we have job openings. And and really when the Fed started its its hiking regime, it kept citing the disparity, meaning we just had way more openings and we had applicants that could fill it. And uh all of a sudden that narrative has now flipped. Yes, you're right. It's the I believe the was the highest job opening number since December of 2020. So, in the wake of COVID. And the other thing that's that's changed here lately is that we're now seeing uh not only a drop in hirings, which has been going for quite a while, but now a bit of a surge in firings because that had been kind of the the bull case of the our story for the bond market is well, yeah, sure, you know, employers are reluctant to hire right now, but they're not firing. Well, now they're starting to fire. and and I think that's something really worth keeping an eye on. >> So, one one question on that. So, um sorry, I'll I'll shut up in just a second here, but I feel this is so important. So historically, if you look at the unemployment rate, it um you know, after a recession, it declines and then it then it stabilizes and then when it bottoms out and starts increasing again, it tends to kind of I mean pretty much almost every time in the data series for the past 50 years, once once the bottom is in and it starts increasing again, it generally then starts spiking up into what is retroactively later on declared the next recession. And you know, usually that's coincident where the the the start of that recession is where the Fed is just starting to cut and then the Fed is usually panic cutting as the unemployment rate continues to rise. This smells like Adam. I'm really glad you said that. This actual next visual we have shows that spiking. It's for new entrance. So basically college grads. But you're right. And I've heard several people I think the guy from Bloomberg I forget his name. Simon White maybe. Diamond White >> brought this up >> that you know once once you do kind of it's like our theory of trading ranges with stocks and as I said to you number of times we found it also works with macroeconomic data when you're within a certain band or range for a number of years and then you break that one way or the other it tends to really keep going. So I I think you're absolutely right about that. So, it's a very good point to make and you know, I think from the standpoint of from a societal uh tranquility standpoint, this particular image that we're looking at here is not good. I mean, this we've really never seen anything like this kind of spike or college grads. I guess it could even be for coming out of business school or in a graduate program. I'm not sure if this says new entrance, but certainly supporting what you said. And then this is just looking at the trend in non-farm payrolls which had been down even before the the July shocker. And I I do think that part part of the issue that you know like Danielle would say is look this is not new. The Fed Fed should not have been surprised because these revisions have been going on for a long time. And actually, I don't know if you've heard Darius Dale, who's on your show fairly frequently, and you know, he tends to be relatively bullish on the economy, relatively bullish on financial markets. I just heard his most recent video. I was shocked at how guarded his outlook is for the economy. And he's really hammering on the jobs market. And virtually all the the job creation over the last couple of years has been government related. that basically the true private sector job growth has been paralyzed for a very long time which is consistent with a lot of this data that we've seen that indicates that that things have been softer than popularly believed and you know maybe there were political reasons for that I don't know but what we do know for sure is that a real recession is way overdue this is a new visual for you have >> that's a great visual look at that >> yeah so this goes back 170 years had 34 recessions and you can just see by the coloring that certainly it's fair to say recessions have become much less frequent. And you could say good job Fed, but of course what's come with that good job Fed is a lot of asset bubbles and a lot of inflation and >> Yeah. lot of inflation, a lot of wealth inequality and and sorry, not only less frequent but less longived too, it looks like. >> Yes. And you know, of course, you could say, well, COVID was really threw a knuckle ball at everything because it, you know, was a flash crash, but it did kind of reset things in its own way. So, it it maybe, you know, maybe this looking back and saying we haven't had a real recession since 2009 or so is is a bit misleading, but regardless, it's been a very I mean, you know, going back to this beginning of the century millennium, it's uh we just haven't had much in the way of recessions in 25 years. And the one that happened at the beginning of the of the century was pretty mild. But uh anyway, it's we're overdue and that doesn't mean it's got to happen. And we're going to talk about reasons why it might not happen. But it it is something to be aware of. >> Sorry to interject with this and and maybe we'll get into more of this later on in part two. Um but you know I interviewed um uh Greg Luke enough about the coddling of the American mind >> and his point was you know American society has just become less resilient because we have gotten more comfortable and we've become more sheltered and protected from adversity. Could you almost say the same thing about the economy just because it just hasn't had to deal with the natural cadence of recessions? >> I think absolutely. I believe that the Fed has become so hyper sensitive maybe to their mandate on the you know keeping unemployment low side that they ignore the implications of these you know what I call I call the Fed sometimes the big easy because really if you look at most of their monetary policies you know this last 25 years they have a aired on the easing side repeatedly and so you never really get kind of an extensive cleansing process that eliminates a lot of inefficient uh companies and and basically allows for a debt payown and uh you know maybe a more more durable decline in inflation and just the kind of things that you know recessions serve a purpose. I mean it's kind of like what Buffett said about capitalism that capitalism without failures without bankruptcies is kind of like Christianity without hell. you you've got to have some consequences for bad activity, bad decisions and and instead I think what we've done is we've just continued to use cheap money, low interest rates or you know overt money creation which has been going on in in different ways even in the most recent years as your friend Michael how says that not QEQ we can talk about that a little bit later but yes I think that's that's exactly right and we know we're constantly trying to avoid pain you know that's kind of the American what was become the American way, no pain. But, you know, remember the rest that no pain, no gain, >> right? >> But yeah, I may have been a long-winded way of agreeing with you, but I really do want to talk about housing because I think this is another one that could be a big surprise. I don't think most people are aware. Certainly, most people that own home builder stocks are not aware because the home builder ETF is basically right at an all-time high or very close to it, you know, just a little bit. And yet, their business is terrible. And if we look at So, starts and permits are both down about 20% year-over-year. and permits do lead and as you can see this is another thing where you go wow this is hat tip to Danielle once more but this looks extremely recessionary and this is the part that actually I really want to home in on because you've had two housing experts on recently Ivy Zelman and Melody Wright and Ivy I think just briefly touched on this Melody Wright really drilled down in this idea that new homes are now at a discount to existing homes and how unusual this is a period briefly in ' 05 where they kind of converged and I think you know really instantaneously the the existing homes were a little bit cheap uh new homes are a little bit cheaper but now we have quite a yawning gal and according to Melody which I totally agree with it's even more dramatic than what it looks like superficially so basically the the official numbers are a median existing home is 435,000 a median new home is about 395,000 so a significant difference, a discount, which doesn't make any sense, but we'll explain why that's happening. But what Melody is saying, and this is what really resonates with me, is if you adjust for the discounts that the builders are giving, they're kind of like off off the radar such as buying down mortgages, free appliances, right? >> Other perks that they give new home buyers that existing home buyers are not able to offer. If you include that, the gap is about 80,000. So from 435 down to 355. That's just stunning. But I think what it tells us is that's really where the market is. The market, so existing homes probably should be instead of at 435, more like 335, but they're not. And and that's why home sales are so terrible. So something's got to give. And we saw a little bit of this back in 2005 67. And eventually the prices did come down. And I I guess my point is that I know that Ivy Zelman said she thought prices might fall less than 1% next year. I think that's way too optimistic. She's the expert on that, but certainly I know Melody agrees. So, uh, >> yeah, and I'll take I'll take the under on that as well. And it's as well, I think we talked about last time we recorded this, um, so I'll say it again, is I think Ivy has the burden of having a lot of, um, corporate clients that, you know, pay her firm a lot of money. And so, I think it's just more challenging for her to to be bearish and pessimistic. Um, and I don't want to say that she's intentionally selling things rosier than she believes, but I I think that it's a tough position to be in. You certainly listening to her commentary, it was very disturbing. And, you know, she really brought up the idea that the the housing market's got this boomer problem. Guys like me, as you know, I've got a 70th birthday coming up in two months. And, you know, I saw him right smack in the dab dab in the middle of boomer cohort and a lot of us are going to want to be unloading our homes. uh you know, my brother's basically at the top. He's at almost 80 years old. And you know, there's how many young people are out there that are going to be able to buy, especially these higherend homes where a lot of the baby boomers tend to be overweight. So, I know I've got a couple, but I need to get off for one. So, >> so David, you haven't seen it yet. So, I'll just give a quick nod to it, but this morning, a few hours before we're recording this video, I released a video with Danielle Park, um, who is based in Canada, and she did a really deep dive into both the Canadian and the US housing markets. But Canada is, it's almost sort of like your chart back there of, um, the higher unemployment rate amongst recent college grads. That's probably a preview of coming attractions to the general unemployment rate. Canada is in very many ways a preview of coming attractions for the US and a main reason for that is you know not only do they have an even bigger price bubble but um their mortgages are much shorter in duration than ours about 5 years is average. So about 20% of the housing stock comes up for refinancing every year there. So they're they're entering this process at a much faster rate than we are and it is clear that things there are softening at a accelerating rate. Very good point. Yeah, and you bring up something that I think most Americans are unaware of, which is the housing bubble in Canada was even more severe than the United States. But for sure, when you look at this and you make this adjustment that Melody, and I think it's totally reasonable to, you know, look at what the net, you know, price being offered to new home buyers is, and it is, you know, shockingly low, frankly, right now. But that just tells you that they, you know, the builders have to acknowledge reality. And the reality is that a new home today is very unaffordable for almost everybody. So therefore, they have to cut the price to get, you know, clear the market. That's just the way economics are supposed to work. I, you know, kind of your point, we don't like to take that kind of pain and the threats to the lending community are obvious. So it's much easier to pretend, extend and pretend, but I think the, you know, that's that time is running out as it did back in 07 and08. And this is one we I remember maybe you liked this one from before, but it's pretty amazing that when you look at the at the the boomer generation or I'm sorry, two cohorts of boomers and then going back to even silent if you put them all together it's pretty close to 50% of home sales I'm sorry home purchases are occurring among boomers and you know so almost half the market which tells you how really kind of nonpresent the younger generations are with this and that's but I think that just speaks what we're talking about and where how are we going to get these younger people to be able to afford, you know, million dollar, $2 million homes when they can't afford $400,000 homes. I know boomers, not all boomers own uh, you know, that kind of, but in the in the certainly the coastal markets, man, the major metropolitan areas, it's not uncommon to have a million-dollar home be just kind of a normal price. I'm sure you're well aware that in Northern >> I'm well aware of that. Yeah, being California. Um, so real quick, and I'm sure you're going to get here, but um, you know, what's going to enable those younger generations to start buying again is going to be lower prices um, even much more than lower rates. And we've had a lot of experts on to sort of explain why. And so the big question is, okay, well, what will get lower prices? And I think the answer is is more inventory. And of course, we're already seeing this happen in a growing number of markets, Texas and Florida at the vanguard of that. >> Well, thanks for a great lead into this slide. That's exactly what this slide is showing. >> Great. And I just want to mention one last thing. I'll let you run on this, but tying it back to what we were saying earlier. So, what's going to create more inventory? Um, well, there's a lot of organic stuff that's that's starting to create it, but if we go into a recession where there's a lot of job loss, Dave, you would expect to see a lot of inventory come on from that is is, you know, basically people just can't afford the homes they have, especially if it's a second home or a short-term rental or whatever. >> Absolutely. So this is, you know, getting back to what I said earlier that we found with macroeconomic data when you see these big breakouts, they keep running. That's already happened with this hasn't yet happened with existing. It's pushing up and I have no doubt it's going to break above this, you know, going back basically 10 years and so we're going to see a lot more existing inventory hitting kind of consistent with what you just said. So I think that's absolutely right. Then if we look at the combination of the two, new and existing, you know, clearly a pattern of higher highs break out to a five-year high. So just, you know, my bullet here, what I put, which I put in, which we just were saying is when it comes to prices, watch out below. So I'm I'm really I'm the most bearish I've been on the housing market since 2007. And actually, as I think you know, that's when I started writing my newsletter for the first time was in ' 05. And my basic point in '05 wasn't that there was a bubble in housing. It was just that stocks were cheaper than housing in my view at that time. And then by 07 it had become a you know full-blown bubble with all the crazy financing. And so I was very very worried about a housing meltdown back in 2007208 as it turned out I wasn't worried enough. It was got way worse way worse than I thought it would. I mean as you know it almost crashed everything. Okay. But so >> sorry let let me just ask you a question before you move to bonds here. Um, so one question I've been getting in recent days, I just love your thoughts on Is, hey Dave, I understand all the reasons to be pessimistic on the housing market and certainly the home builders, right? Why did why did Berkshire Hathaway just, you know, buy these stakes in in some of the bigger home builders? Do you have an inkling why? >> I don't. I I do think that it was, you know, the two younger guys that who are not really not all that young anymore that are controlling that pot of money, but it was, you know, I think about a billion dollars that he put in that Bergkshire put in. I don't think again it was the Oracle himself, >> right? So, sort of a >> 340 billion in cash. I mean, superficially, this is where and these guys are super smart. I'm sure they do this kind of adjustment, but one of the biggest traps you can fall into as an investor is to buy low PE cyclical stocks when prices are high. Stock prices are high and usually that's when earnings are high too. It's a little bit different this time and that earnings have already been cracking for these builders and yet the stock prices are as I said almost at their highs. Uh but you know in a cyclical industry and housing is notoriously cyclical earnings fluctuate a lot and what you typically want to do is you want to look at price to sales and get a sense are they cheap on a price to sales or revenue basis and they're not they're actually quite expensive. So that kind of jives and so maybe they're just or maybe they just you know they have a very long-term time horizon and they may be saying look there's this chronic shortage of housing in America which is true there is a shortage of housing but the word that keeps getting left out is affordable housing and the problem is these builders don't make that kind of product for the most part I'm sure there's some niche builders that do but it's you know you most of these guys they go where the margins are and the margins are the more expensive homes and those are the ones that just not affordable. So, I've talked in my book. I'll just admit it. I' I've short a bunch of XHB and I've had a kind of mixed success with it because it had a big breakout a couple of years ago and I I covered and you know, kind of small loss and then I shorted a bunch when it was up and covered and now I'm shorting it again. But I know most of your people don't want to do that. If anybody's a put buyer, I would say you might want to look at puts. But anyway, housing I'm bearish on obviously much more so than the stock market where I think there's pockets of value though not a lot. So global liquidity this has been what's you know driven everything and >> All right. Hey sorry to interrupt but I I think maybe I distracted you from talking about the previous slide. >> Oh the interest rates. >> Yeah. >> Sorry about that. And I just it's important so I didn't want you to skip over point out because this is important uh not only in terms of it its impact on housing and what we know of course is that since the Fed started easing back last fall long-term rates have actually gone up and we've got the this is the 10 years is about at 425 today which has come down a little bit. The 30-year is being very stubborn up right around 5%. It's it's down in yield a little bit right now. But if you look at other countries, other developed countries, what you're seeing is a disturbing situation where even though industrial production is falling, uh, interest rates on the long end, not the short end, but on the long end are rising. And that is, if you listen to somebody like Luke Groman, he's saying that's a classic emerging market in trouble kind of scenario. So, I'd keep a very close eye on it. It's not as bad in the US, but it is still even a little concerning in the US. And it's going to be tough and unless people really going to go with variable rate mortgages to stimulate the housing market with lower interest rates by the Fed if the long end is going the other direction. But again, the key point is since the Fed started cutting last year, long yields are up. It's very, very unusual. But it's not in emerging markets. At least those that have been in trouble are under stress. Thank you for getting me back to that. But let's talk about liquidity because this has been why the the markets have been so frothy and why risk assets I mean it's whether it's crypto or meme stocks or one zero days expiration options you just go all credit spreads you know junky junky bond credit spreads are super tight so it's just indicative that there is way too much liquidity out there it is you know I you look at global money supply it's growing faster than the US maybe that's why overseas markets have actually been outperforming the S&P this year, which a lot of people don't seem to be aware of, but it's a fact. So maybe that real world liquidity has been doing overseas what it's done in the US for so long. But now that's actually slowing. And according to Darius, he's got it going from 11 to 15% earlier in the year to 4%. So that's really a dramatic slowdown, which maybe fits in with why he's kind of changed his tune. I think what he believes is that the that the Fed and the Treasury are going to shift gears here, become much more stimulative soon. So, don't get too bearish on stocks or Bitcoin or gold. But, you know, this whole idea, I mean, I hear this all the time, there's this mountain of money on the side of cash on the sidelines, but it just doesn't show up. This isn't a B of A, you know, there trillions of dollars that they hold for clients. So, it's a good sample set. And I saw a similar graph, I don't have it here, but on cash levels among fund managers being very low, which makes sense. I mean, there's been a lot of pressure on anybody running money to be fully invested. And of course, so much of the market is driven by index funds, which by definition are 100% invested all the time. So, I don't get it. But in terms of positive global liquidity, as Michael Hal pointed out, uh, China's already created about one and a half trillion trillion of stimulus, and he thinks another amount is coming similar to that real soon. And that I think for your viewers is a really important fact to latch on to because it is highly supportive of you know natural resources some of which have done extremely well already a lot of which is are still lagging and have quite a bit of upside particularly in energy. So, you know, one of we'll talk about this in the second part with Michael How and his liquidity views, but you know, he is I think you believe like I do that he's one of the world's foremost experts on liquidity and he's got, you know, some semi- encouraging comments there, although you know, with a with a footnote or caveat. So, here's been, you know, this big fiscal statement. Our friend, our mutual friend Kevin Mir's been all over this. these budget deficits that have been running, you know, two trillion and, you know, that's that is really stimulative and it's just been going on for years and years and years. So, we're all kind of used to it. But, you know, Doge unfortunately struck out and we've got in the first 10 months of this year, the deficit was actually up about 7.4%. We're headed to about 1.2 trillion expenditures just on interest. We're about 1 trillion now, but the trend is up as the debt rolls over higher rates. So, it's still that federal fiscal funding fiasco is still a fiasco. Now, this is uh excuse me where the Bitcoin stable coin comes in because I really have had an epiphany. Kudos to Luke Grman in this regard that stable coins are really a big part of the solution the government's going to employ. And so, they want, as Bessin has said, we want 2.7 trillion to go into stable coins. And where that relates to Bitcoin is that almost all Bitcoin purchases and sales occur through stable coins. And his point is there's a multiplier effect and it well I say his Luke Gman's point. So if there is a decline even if there is a decline in the in the velocity if you will. So how much stable coin trans translates to Bitcoin activity it's been a pretty high ratio and I forget exact like 10 to1 and he's using something like six or seven to one. But his point is, if that kind of money goes into stable coin, it's going to put a lot of juice under the Bitcoin rally for its next move. But I think it's a good question to ask where is that money going to come from? And I've been, you know, trying to roll that around my mind. I know the banks, the US banks are worried it's going to come out of deposits. So if investors shift and say they take just could be simple 2.7 out of the banking system, they put it in stable coins, that that's not great for the banking system. But what's probably more likely, and this again is a an acknowledgement of Luke Groman, is that it would come out of the Euro dollar market. And I know there's people you've had on that are big adherence that the Euro dollar market is what really matters. And I don't know, that's always been kind of a mystery to me. But apparently there is 11 trillion, which sounds about right in the Euro dollar market, which is really uninsured. It's not really protected by the US umbrella of the Fed and FDIC and so forth. And so if there is if there is this desire to get that money into stable coins but without hurting the US banking system, I think that's a very logical, you know, point of uh of funding that we're going to see here coming up pretty soon. And I do I think good point to consider maybe you've had some experts on comment on this is what would happen if the Euro dollar market comes under a lot of stress >> and and it has a time typically during a crisis it has had there has been weakness and then the Fed does their dollar you know dollar facilities dollar lending facilities but have you heard anything that about that Euro dollar market what could go wrong >> um I have not so literally as you're talking here I'm making a note to reach out to Brent Johnson dollar milkshake theory developer. Um Brent talks probably maybe with the exception of Jeff Snyder talks the most about the Euro dollar market. Um and uh I'm going to ask him today his thoughts on this. >> Great. Thank you. I'd love to hear you mentioned Jeff Snyder. That's the person I've listened to who's gone into great detail about the Euro dollar market. So thank you. It's just I think something people really should be keeping an eye on because it's clear the government has a tremendous fiscal financing problem and this could be one of the big solutions. I'm not saying it's going to be the panacea but it's definitely uh something desperately need when you look at these next few visuals we come up with and it wasn't that long ago. Well, so so Dave, I sort of see the government kind of like, you know, pulling >> from everywhere it can here, right? So, okay, let's get a couple trillion from stable coins. Let's try to work on, you know, continuing to Doge, even though that doesn't seem like it's doing all that much. Um, let's um, you know, obviously try to get the 10-year yield down. Like, it's going to be a a multiffactorial uh approach to this. Let let me ask you this and and you can you don't have to answer right now if you want to wait if you've got slides that talk about it but um you know Bessant has been saying you know hey the tariff revenue is starting to become pretty material and I know you showed the the slide showing that July's uh deficit was was big after uh a dip in June. Um but Besson's now beginning to say like um you know hey it's been kind of coming in around 300 billion. Um, I think we're on track to 500 billion pretty soon. And to be honest, I'm thinking we might be close to a trillion next year. Um, now obviously he's paid to be optimistic here. Um, but let me just ask you this. It Let's assume for a moment that he's correct and tariffs keep mounting like that. Uh, tariff revenue keeps mounting like that. And let's assume for whatever reason um efforts on behalf of the administration or just a recession and uh uh there's a safety trade and um uh you know a bunch of money runs in the treasuries and yields come down. Uh will that make a material help in getting this this side under control? And I guess when I say recession, I got to be open to the fact that if we're in a recession, at some point the fiscal spending is going to go bananas. So it might offset all that anyways. But >> yes, I'm glad you brought that up because that's what I was going to say. That's the problem that you got with this. Okay, buy bonds, buy long bonds because of recession. And that's why I was bringing up what I did earlier that I think is so disconcerting is to see, you know, this industrial production as being a reflection of economic uh softness. And that when you have that and you have rising long-term bond yields like you do in France and the UK and even in Germany to a degree, uh, Japan, although Japan's economy is a little more vibrant, that's a definite warning sign that the normal, you know, buy bonds in a recession game plan isn't working. So, what you're describing though is kind of a push me pull you type of situation, right? be positives from the stable coin effort and you know the tariff tariff revenues versus the uh you know the hemorrhaging that occurs when you go into recession with all the entitlement payments that you know go ballistic. So, it's going to be I mean I said this I was on a podcast yesterday with one of your esteemed peers and I said look anybody that tells you they know what's going to happen. I mean they're they're guessing. We're always guessing. It's like Yogi Bear said it's always hard to make predictions especially about the future. But right now I mean we've never had this tariff situation at least not in you know basically 100 years. We've never had uh this these types of deficits during good times supposedly good times. Certainly, you know, the economy officially has been in an expansion mode for years and years and years. So, it's it's very hard to know what's what's going to happen. And I guess, you know, kind of the so what what does that mean? I think it you want to do a buffet. I mean, he's got 340 billion of cash and, you know, just kind of adjust it, you know, size it to your portfolio and just 4% probably headed to 2% on short-term rates, but you're not going to lose money. Well, that was more of a digression that I probably should have done, but it's a good lead into commodities, which is another kind of a key part of this presentation. And it has been a bit frustrating to me, I will admit. And that we have put out a series in our newsletter of very good recommendations on commodities, even on oil, but especially on gold. We flagged that breakout that happened early last year when I mean, that was really impressive on the chart and stuck my neck out and said, I think this one's going to keep going. Then we did the same thing earlier this year on silver. And you know, there's been no thank you note showing up in the mail or even the in the digital mail, but uh I I think silver's off to the races. I know you've had some people on that have been bullish on silver. And I think some of these silver miners, my personal preference is first Majestic, but there's others out there that are or you can just buy the silver mining ETF. It's always safer to do that. But it's pretty amazing when you see some of these return numbers. But here's the chart on silver that we showed and you know again broke out over critical resistance and it just off to the races. But I will say this >> that chart hasn't been updated since uh we had our failed attempt a couple days ago, right? >> Well, it broke when it broke out over 40 >> because Yeah. I mean uh that that I think that's the spot price you're looking at there, but I know that silver futures yesterday were over 42 at one point. >> Yep. It's it's clearly run a little bit more from here, but uh you know the just is a pattern that happens so often when you see these resistance taken out and we like you know to be at least three years. Two years is pretty good. Three years is usually our minimum. The longer the better. The longer something's been in a trading range. Longer it's been basing. So the bigger the base usually the bigger the breakout. And I'm amazed how many people only pay lip service to that. They don't really hunt for investments to profit from it, but we do. Uh, this is from my friend Fred Hickey, who I think Have you had him on your show yet? >> I have. I have. Yeah. Several times. >> He is one of the best. He's made us a lot of money in the in the Gold here. I have to. And his newsletter is so reasonable. I guess newsletter writers aren't supposed to endorse other newsletter writers, but I will. >> Well, his his is great and his has been a standard for a long time. And for folks that aren't familiar with it, it's it's the high-tech strategist. And and Fred's been writing about the high-tech industry since the 80s, but he is one of the biggest um you know endorsers of gold out there. And it's so funny to see, you know, a high-tech guy being such a gold bug. >> Very true. And he uh what he's pretty good at too is he's willing to take profits. I mean, he's definitely not a permable in the precious metal space. In fact, he ran this page one of his newsletter that just came out. So this is basically telling you that the the gold miners bullish percentage index is at a level where it's rarely been and the two prior times it was here the the miners got smacked. So it I do believe this and we have been huge endorsers of the miners. I mean it was the the quantity of investment advisor newsletter writers that were endorsing the miners a year ago when gold that was running and they weren't. He put him on one hand. It was talk about feeling like the lone ranger, >> but he just kept pounding the table and saying, "Look, these these earnings are going to take off." And he, you know, Fred gets more credit for that than I do. >> So, it's u I think I've got that coming up, but I'll just in case I don't or it's in the second section. It's how many people, Adam, realize that the gold miner ETFs, GDX and GDXJ, so GDX is the senior, GDXJ is the junior. How many people know they're up 95% this year? I would guess hardly anybody realizes that. >> So, all right. I know you want I know you want to talk about other things and I'll let you here in a second, but this is a great question. Um, so those of us that have been following gold for a long time, we all remember when Grant Williams famously put out about 10 years ago his gold report that was titled, "Nobody Cares." >> Nobody cares. >> Right? And he said, "Look, there are all these great reasons to own it that are probably very valid, but it doesn't matter right now because nobody cares." Now, since then, in the past couple years, we've had um the central banks wake up and they've started caring and that's that's been a big reason why the measles have moved. We've also had the eastern investor care about gold, wake up and care about gold, but the western investor really hasn't showed up to the party. And I guess my question for you, Dave, is you know, Wall Street hasn't liked gold for a whole bunch of reasons, and this is a small sector and all that type of stuff, but at the end of the day, Wall Street likes making money and it it likes momentum. When will Wall Street start waking up to what you just mentioned? >> Probably at the wrong time. You know, probably when it's time to take some profits. And that's what I would suggest with a big footnote here on this. And I guess if we want to I mean gold is important enough probably it's worth the diversion. But u first of all to your point about how do you avoid because you're kind of saying it's it's really easy to be too early. it could have a great story and yet you sit there for years and years with it just going sideways. So, one way you can avoid that is wait for a breakout. Now, typically you're not going to get the bottom. And I I'm totally sympathetic to the idea that when something's really really beaten down, it's got a great fundamental setup, sure, buy some. But when you really want to be aggressive is probably when it's been in that range and it breaks above it. You know, if you bought if you wait missed all those years of sitting around, you bought it at a little over 2,000 last year, you know, what are you up 75%. Yeah, you had a great ride with a lot less risk. Yeah. >> And the same thing with the minor. You could look at some of these charts coming up on that. Uh most of these these commodities that I've got shown here have had these basing patterns. Some have broken out, some haven't. Oil is of course the real redheaded stepchild right now. But it wasn't long ago that platinum was in that same boat. It was just this spring that we were telling people at $1,000 when gold was 3,300. You remember platinum used to trade at a premium to gold for years. Mhm. >> You know, platinum credit card is better than a gold card, right? >> So, we thought it was a steal, but you know, it's up 36%. Still probably going to go. The supply, a lot of these commodities have a supply deficit, and the demand just continues to grow. And I think at some point that's going to happen with oil. I know Rick Rule, you've had him on, he believes the same thing with oil. There's been social capital spending starvation in that industry. Palladium is one where there's it's breaking out and there's the fundamentals are much better. You get these narratives that people hang on to and they'll say, "Well, I don't like palladium because of EVs." Because EVs use very little, if any, palladium. What they miss is that hybrids actually use more palladium than do internal combustion engines. And hybrids, I mean, the EV story is really tired. The hybrid story is very exciting. So, when you get these kind of misperceptions is when you can really make some money. So, and then if you get down to the bottom, natural gas, it's not as behind the moon as oil is, but it's it's, you know, in the twos and that's very cheap on a global basis. And then you look at what's happening to electricity demand. It's just going through the roof. And this is what the data center is just starting to kick in. So, like you had Stephanie on your show the other day or two weeks ago and she said, "If you love AI, you should really love energy." Well, people don't as we're going to see here coming up. Anything before I move on to the stock market? I'm just going to go through stocks really quickly, but >> no, I'm I'm biting my my lip on a lot of these things just because we could take almost any of these points and speak for another hour on them. So, I want to let you, you know, make the progress you need to make here. >> Well, we better talk about stock market anyway. We always have to cover that. And Jesse Felder is one of my really good friends and he writes some great stuff and he had these uh I mean this is looking at the equity market valuation using a composite. So, not just the the Buffett, not just the Schiller PE, but you know, like a a mosaic of of these guys and or these factors and you can see how expensive it is. And you look at the momentum and this is, you know, I think it is a two-tier market and I am very hopeful. People say, "Oh, you're too bearish." Well, I'm I'm bearish on stuff like this, these crazily overpriced stocks, which frankly I called out in my book, Bubble 3.0, that went out in early 2022 and they went down 70 80% in 22 and into 23. So they got schlocked and some of them rally back, some haven't. But this is you just can't look at something like that and not say this is is a bubble in this part of the market. >> It just looks insane. Yeah, >> I'm what I'm personally hoping for, you know, as John Molden often says, hope is in a strategy, but I do think we can see a rotation away from, you know, some of these high momentum, extremely highly valued companies where sometimes we're trading at 30 times sales, forget earnings, and into uh these companies of I think you could throw a dart at the energy sector and make really good money over the next few years. Can't believe how many cheap energy stocks there are out there. Petro BRS is one of our favorites at double digit yield selling about three times earnings and they do have some of the best reserves in the world. Okay. So then this is what I was saying earlier. You could I think you could along with the miners win a lot of money. Oh this is sharp ratio. This was supposed to be switched out but just I mean even we're using sharp ratio which is riskadjusted return. Uh it's a these foreign markets have dramatically outperformed. One of my favorites as you've heard me say is Brazil. Brazil is up about 33% this year and that's in dollars. So this is in dollars, not local currency. Dollar's weak this year. So for once it's actually these returns are higher in dollars than local currencies. But my point is there's a windshift going on which I think is supportive of what some people call the great rotation like we had in 2000 to 2002 where the tech bubble popped and the money went into more valueoriented securities or sectors. a positive certainly earnings have been much stronger than I thought or even the street. Second quarter earnings come in at about plus 13%. Now there's a lot of pretty generous accounting that goes with that but let's just say that's what the official numbers are indicating. >> But here's how much of that is the mag 7 you know power hyperscalers you know driving the average higher. >> Well I don't think there's any question that's been a big factor. Uh there's also cost cutting that's article in Wall Street Journal today about how cost cutting has been flattering earnings. And you know what's one of the biggest line items companies have and that's labor and I think that uh as things get tougher on the top line which I think they probably will then they'll be more inclined to cut their workforce which is we've already talked about that's starting to happen. Mhm. >> But you're right. I that's and that's a positive is that you and we that's why you can have a company like Nvidia selling at a $4 and half trillion dollar market cap which is way more than most stock. In fact, I don't think there's any stock market in the world. Maybe China has a market cap that big, but most of the other leading uh you know entire markets are less than four and a half trillion. But it's because profits have been so strong out of that group uh with the exception of Tesla which used to be part of it. But yes, good point. Uh but here we look at energy sector fund flow. So what's what this is again from Jesse his point is if you go back to the panic pandemic so the last five years the XOP which is the uh oil and gas production ETF has actually dramatically outperformed the market and yet look at what's happened in terms of flows. So investors just keep taking money out of this sector. We could talk about why, but it's a lot of it is due to misinformation from the leading energy authority, the International Energy Agency, which is just so been so wrong for so long. But I mean, look at this. This really tells you the story, all you need to know about why you should be buying energy if you're kind of an extended time frame. The end of 07 was 13% of the S&P. It's now 3%. And yet we're we need energy more now than we ever did, especially with what's going on with the whole AI revolution. Yep. >> Because it is an energy hog. So it's I just think it's that's where you should be putting it. You should be overweighting that area. Instead of being at 3%, you should be at six, maybe even 9%. A lot more exposure makes sense to me than it does apparently everybody else, almost everybody else. I know Stephanie would agree and Rick Rule. Small caps has been another area experiencing outflows and they've been underperforming for a long time. I actually personally prefer the midcaps and they're starting to break out. actually pretty impressive breakout though hasn't done much since breaking out. So that's that's the section on you know kind of my thoughts and so we've got some time we got through that pretty pretty well so we have some time to talk about part two but anything we should cover here before I move on? Uh no except um just to a thank you for putting all the work into this folks and folks. So this is the type of monthly uh you know sort of macro and market recap that that Dave and I envisioned him providing uh the thoughtful money audience here on a monthly basis. Um if you have enjoyed this and would indeed like to see this continue, please let us know in the comments section below or in the live chat if you're watching a premiere on this. Um, and uh, if the if the feedback is as positive as I expect it's going to be, David, um, you know, we we'll do this as as often as you guys want us to continue it and and as for as long as Dave's got the the stamina and the interest to do it. Uh, even though he's in quasi retirement, he's a busy guy, but it's a huge uh, privilege and benefit for us here at Thoughtful Money. And uh Dave, if if folks like this as much as I suspect they will, uh there'll be a lot of pull to keep this going monthly for again as long as you want to do it. >> That would be great, Adam. I hope so. >> All right. Well, now let's uh let's get ready to trundle over to part two here. Just a couple quick things. Uh one, Dave mentioned that um Lynn Alden did just join the faculty for the upcoming Thoughtful Money Fall Conference. If you haven't yet bought your ticket for it yet, do so now while it's still offered at the the early bird price discount, which is the lowest discount that we're offering. Uh so to go sign up for that, uh go to thoughtfulmoney.com/conference. And if you are a premium member to our Substack, uh make sure you check the emails I've sent you that have the discount code in it where you can get an additional $50 off of that low early bird price discount. Um, also if you are a premium subscriber to our Substack, um, don't worry about, uh, finding part two. It's going to get emailed to you, uh, the day this video releases. Um, but if you're not a premium Substack member, um, but you're interested in becoming a member of, uh, our YouTube channel, uh, this new program that I just mentioned, uh, it's only, I think, $5 or I think more specifically, $4.99, uh, a month, uh, to subscribe to it and you will get, amongst other benefits, the, uh, uh, monthly kind of retroactive on all the, you know, key takeaways that we took from a lot of the the top experts that came on the channel in the past month. Dave and I are about to go record that right now. Um, if you are not uh yet a member but would like to become one, I believe the way you do it is is you subscribe to this channel which is free. So you click the subscribe button. Once you've done that, if you click that subscribe button again, I think it then brings up the opportunity to become a member. So hopefully you see it in the uh in that the you know set of menus there below the screen here. Um, and for those of you who have become members or who are existing uh premium subscribers to our Substack, we'll see you over in part two. Dave, thanks again. >> Thank you, Adam. >> All right, >> real soon. >> All right, we'll see you all in part two. And everybody else, thanks so much for watching.
Increasingly Strapped Consumers Are Tapping Out | David Hay
Summary
Transcript
Certainly, we're seeing just a lot of evidence that perhaps there is a recession already underway and it just hasn't been acknowledged. But really kind of the key thing and I know you've talked a lot about the K-shaped recovery. The top of the K is doing well, bottom not so well. You even brought up maybe it's an eye-shaped recovery with a small eye at the top of those that are doing well. Uh but then there's just you know some data here that that's the case that how really challenged a lot of lower income Americans are and even kind of middle inome Americans and really you're seeing more and more of this how it's kind of working its way up the pyramid and starting to hit people who typically are are more uh insulated from economic uh declines and and contractions. is [Music] welcome to thoughtful money. I'm thoughtful money founder and your host Adam Tagert. Welcoming you back here for a special edition of Thoughtful Money. This is something that we uh told you we were going to try to do and we are going to uh pilot it here with its inaugural episode. Uh I'm very fortunate to be joined here by David Haye. David, how are you? Great, Adam. I'm just getting this deja vu all over again feeling for some reason. >> For for a good reason. I'm going to explain why to folks in just a second. But but first folks, um last time David was on, we talked about how he and I agreed that uh given his um power viewing of thoughtful money. Um it's a great honor to me. I I wonder if it's uh a great punishment or if David is a secret masochist because he watches virtually all the interviews that we do here on Thoughtful Money and is a great student of the key takeaways from them. So, in my previous interviews with him, he's done a great job of saying, "Well, Adam, that's just like what so and so said when they were on last week." So, um we agreed to do uh a monthly recap with him going forward, of which this will be the first one. And it's a recap in two ways. Uh David uh in his own right great expert um was I believe the chief investment officer if I'm getting this right of Evergreen GV call uh then miserably failed retirement and um has been publishing uh his substack his excellent haymaker substack um so he's going to update us on you know the key elements that he sees going on with his macro and market outlook right now and then there's going to be a part two of this video where he and I will both go through a number of the recent uh guest appearances on this channel and kind of talk about our key takeaways uh from them. Um that one is also that part two is going to be introducing another new um release here for thoughtful money. YouTube has um uh you know relatively recent released a channel membership program which essentially is premium content that's available to the YouTube audience. And um I have uh put the little membership I've activated it and a couple people have signed up for it. Um but uh what I want to be able to do is provide folks, you know, on YouTube who want more content with a little bit more content. So that's what that extra content's going to be. It's going to be this monthly uh retroactive of David and I looking across the past couple weeks of the month and saying, "Okay, what were some of the really key things that stood out to us that we think were really worth putting on people's radar?" So this video is going to be kind of in a part one and a part two. The part one is going to be public. We're about to kick that off right now. The part two will be available to the folks that have signed up for channel memberships here on YouTube. Or if you are a premium subscriber already to uh the thoughtful money Substack, then don't worry, you're going to be sent that part two as well. So, one thing to think about the um the membership is if you just like to hang out in YouTube, that's kind of an extra plus level on YouTube. But if you just want everything thoughtful money, just subscribe to the the Substack premium service and you'll get everything going forward. Now, um David said he's having deja vu all over again. Uh for good reason. We recorded this a couple of days ago and the recording disappeared into the ether and I will take 100% of the blame of that. Uh it was a excellent discussion which hopefully we'll perhaps maybe if possible even improve upon this time around, David, now that we've had a practice round. Um, but David did a phenomenal job and um, and he's so kind to have given us so much of his time already this week and come back to do the exact same thing. So, David, thank you so much for doing that. >> You're welcome, Adam. Anything to help out the cause. >> And by the way, just let me sneak in quick congratulations. You got another great star appearing in October at your big conference, Lyn Alden. So, kudos on that one. >> Thanks. Yeah. and Lynn. Um, you know, we've got so many great stars this year that I know folks would love to hear Lynn's macro and and market outlook and actually I'm going to try to get her on the public channel beforehand to share that. But, um, I've had a lot of requests this year to to talk more about Bitcoin. Um, Lynn is one of the preeminent experts in the world on Bitcoin and so we're going to have her do a deep dive on that at this conference. So, um, so thank you for noting that, David. Um, all right. Well, look, uh, a pretty lengthy intro there. Uh, I'll kind of wind down here for a little while, David, because you have a wonderful slide deck that you prepared that goes through much of everything I just laid out. Um, I guess let's get to that as quickly as we can. Anything you want to say before you actually start the slides? >> Yes, there actually is, because what I'm going to try to do is to go through a lot of the slides pretty quickly, uh, because we've got different segments, but three of the segments that I particularly wanted to focus on are housing, liquidity, and commodities. And I think they're all kind of related, but particularly the last two. So, but if there's a a visual that you want to pause on and have me elaborate more than just kind of a quick, you know, like just a flash image, let me know and we could do that. You know, obviously the jobs market is getting more and more attention and that actually is how we start out. So, let me get >> kind of by the day, right? >> Kind of by the day. Yeah, there's been some really we'll talk about that some interesting stuff that's come out here lately. So, let me get my slide deck going here. So bear with me. All right. Who are those two guys? One's definitely a lot younger than the other one. >> And and and one's definitely more handsome. That guy on the right. >> I don't want that. This is more like how I feel. This guy here though, uh you know, actually for many of our investments this year, we should be celebrating. A lot of these uh hard assets that were behaving in a pretty soft fashion lately have really come alive. So that's I'm not feeling quite as punchrunk as I did maybe a few months ago. But I do think we should give ourselves a pat on the back here for what happened with this jobs number because when we first or sorry last spoke in July, late July, we were both very critical of the jobs numbers that had been reported in June. You remember that? >> Absolutely. Yeah, it does. Um I mean I don't think we were uniquely alone on that, but we were definitely one of the louder voices and it's been great validation to see. >> Yeah. Right after that, that bombshell number came out that has really done like a 180 to the jobs market. And as you alluded to, there's been more data that's come out here even recently that's indicating things are going the wrong way. But let's get into here and look at some of the specifics. We got a couple images from Danielle D. Martino Booth. Did you just have her on too? I think you did. >> I did. I did. So, yeah, I've got some fresh insights even since we recorded, you know, our failed experience a few days ago. >> Well, these are again, credit credit to her for this. Uh this is looking at you know basically layoffs happening in uh in various industries and it's the important thing about this image is that we're at a recession threshold quite clearly and if it was on its own might not pay too much attention to it but I think it really fits in a mosaic of weakness and this is two month payroll net revisions and I think this is going to get worse. I mean from the Fed body language about the number coming out tomorrow that it's like they're bracing for a really bad one now. Maybe because the new whoever I don't know if the I think it's an interim head of BLS right now. Bureau of Labor Statistics. I don't think the new guy is in there. Was it G& Net? Do you know that guys? I know he's a friend of Stephanie's. But anyway, I don't think he's actually in the position yet. So, they got a probably a standin. And whether he's afraid of getting his head locked off and he's going to try to make those numbers look better, I don't know. But I think it could be there's a potential it could be a real shocker on the downside tomorrow. Uh but certainly we're seeing just a lot of evidence that perhaps there is a recession already underway and it just hasn't been acknowledged. But really kind of the key thing and I know you've talked a lot about the K-shaped recovery. The top of the K is doing well, bottom not so well. You even brought up maybe it's an eye-shaped recovery with a small eye at the top of those that are doing well. Uh but then there's just you know some data here that that's the case that how really challenged a lot of lower income Americans are and even kind of middle inome Americans and really you're seeing more and more of this how it's kind of working its way up the pyramid and starting to hit people who typically are are more uh insulated from economic uh declines and contractions. But it is confusing. I I mean the Atlanta Fed is now at 2.1% for this quarter, maybe even a little higher now. They keep announcing these. Oh, this Yeah, this was Sorry, I thought we'd updated this. I think they're at 29 and now the St. Louis Fed is more like positive 1.7. So, ironically, the Fed has actually been increasing with their estimate of how the economy is doing, not decreasing, >> which is interesting. You said there are a lot of crossurrens here. Um, one thing just on on the importance of the economy, right? I mean, sort of sort of as goes the unemployment situation, so goes the economy. And I think that that was what caused Pal to blink at Jackson Hole. Um, you know, he seemed to to really focus on the jobs market as, hey, we were feeling pretty good about it, but actually all of a sudden that data is starting to deteriorate more than we thought. And we just got, I think it was yesterday, David, might have. No, I think it was yesterday where um we got the data that said the new Jolts data that said for the first time in I don't know how long but a long time um we now have more applicants than we have job openings. And and really when the Fed started its its hiking regime, it kept citing the disparity, meaning we just had way more openings and we had applicants that could fill it. And uh all of a sudden that narrative has now flipped. Yes, you're right. It's the I believe the was the highest job opening number since December of 2020. So, in the wake of COVID. And the other thing that's that's changed here lately is that we're now seeing uh not only a drop in hirings, which has been going for quite a while, but now a bit of a surge in firings because that had been kind of the the bull case of the our story for the bond market is well, yeah, sure, you know, employers are reluctant to hire right now, but they're not firing. Well, now they're starting to fire. and and I think that's something really worth keeping an eye on. >> So, one one question on that. So, um sorry, I'll I'll shut up in just a second here, but I feel this is so important. So historically, if you look at the unemployment rate, it um you know, after a recession, it declines and then it then it stabilizes and then when it bottoms out and starts increasing again, it tends to kind of I mean pretty much almost every time in the data series for the past 50 years, once once the bottom is in and it starts increasing again, it generally then starts spiking up into what is retroactively later on declared the next recession. And you know, usually that's coincident where the the the start of that recession is where the Fed is just starting to cut and then the Fed is usually panic cutting as the unemployment rate continues to rise. This smells like Adam. I'm really glad you said that. This actual next visual we have shows that spiking. It's for new entrance. So basically college grads. But you're right. And I've heard several people I think the guy from Bloomberg I forget his name. Simon White maybe. Diamond White >> brought this up >> that you know once once you do kind of it's like our theory of trading ranges with stocks and as I said to you number of times we found it also works with macroeconomic data when you're within a certain band or range for a number of years and then you break that one way or the other it tends to really keep going. So I I think you're absolutely right about that. So, it's a very good point to make and you know, I think from the standpoint of from a societal uh tranquility standpoint, this particular image that we're looking at here is not good. I mean, this we've really never seen anything like this kind of spike or college grads. I guess it could even be for coming out of business school or in a graduate program. I'm not sure if this says new entrance, but certainly supporting what you said. And then this is just looking at the trend in non-farm payrolls which had been down even before the the July shocker. And I I do think that part part of the issue that you know like Danielle would say is look this is not new. The Fed Fed should not have been surprised because these revisions have been going on for a long time. And actually, I don't know if you've heard Darius Dale, who's on your show fairly frequently, and you know, he tends to be relatively bullish on the economy, relatively bullish on financial markets. I just heard his most recent video. I was shocked at how guarded his outlook is for the economy. And he's really hammering on the jobs market. And virtually all the the job creation over the last couple of years has been government related. that basically the true private sector job growth has been paralyzed for a very long time which is consistent with a lot of this data that we've seen that indicates that that things have been softer than popularly believed and you know maybe there were political reasons for that I don't know but what we do know for sure is that a real recession is way overdue this is a new visual for you have >> that's a great visual look at that >> yeah so this goes back 170 years had 34 recessions and you can just see by the coloring that certainly it's fair to say recessions have become much less frequent. And you could say good job Fed, but of course what's come with that good job Fed is a lot of asset bubbles and a lot of inflation and >> Yeah. lot of inflation, a lot of wealth inequality and and sorry, not only less frequent but less longived too, it looks like. >> Yes. And you know, of course, you could say, well, COVID was really threw a knuckle ball at everything because it, you know, was a flash crash, but it did kind of reset things in its own way. So, it it maybe, you know, maybe this looking back and saying we haven't had a real recession since 2009 or so is is a bit misleading, but regardless, it's been a very I mean, you know, going back to this beginning of the century millennium, it's uh we just haven't had much in the way of recessions in 25 years. And the one that happened at the beginning of the of the century was pretty mild. But uh anyway, it's we're overdue and that doesn't mean it's got to happen. And we're going to talk about reasons why it might not happen. But it it is something to be aware of. >> Sorry to interject with this and and maybe we'll get into more of this later on in part two. Um but you know I interviewed um uh Greg Luke enough about the coddling of the American mind >> and his point was you know American society has just become less resilient because we have gotten more comfortable and we've become more sheltered and protected from adversity. Could you almost say the same thing about the economy just because it just hasn't had to deal with the natural cadence of recessions? >> I think absolutely. I believe that the Fed has become so hyper sensitive maybe to their mandate on the you know keeping unemployment low side that they ignore the implications of these you know what I call I call the Fed sometimes the big easy because really if you look at most of their monetary policies you know this last 25 years they have a aired on the easing side repeatedly and so you never really get kind of an extensive cleansing process that eliminates a lot of inefficient uh companies and and basically allows for a debt payown and uh you know maybe a more more durable decline in inflation and just the kind of things that you know recessions serve a purpose. I mean it's kind of like what Buffett said about capitalism that capitalism without failures without bankruptcies is kind of like Christianity without hell. you you've got to have some consequences for bad activity, bad decisions and and instead I think what we've done is we've just continued to use cheap money, low interest rates or you know overt money creation which has been going on in in different ways even in the most recent years as your friend Michael how says that not QEQ we can talk about that a little bit later but yes I think that's that's exactly right and we know we're constantly trying to avoid pain you know that's kind of the American what was become the American way, no pain. But, you know, remember the rest that no pain, no gain, >> right? >> But yeah, I may have been a long-winded way of agreeing with you, but I really do want to talk about housing because I think this is another one that could be a big surprise. I don't think most people are aware. Certainly, most people that own home builder stocks are not aware because the home builder ETF is basically right at an all-time high or very close to it, you know, just a little bit. And yet, their business is terrible. And if we look at So, starts and permits are both down about 20% year-over-year. and permits do lead and as you can see this is another thing where you go wow this is hat tip to Danielle once more but this looks extremely recessionary and this is the part that actually I really want to home in on because you've had two housing experts on recently Ivy Zelman and Melody Wright and Ivy I think just briefly touched on this Melody Wright really drilled down in this idea that new homes are now at a discount to existing homes and how unusual this is a period briefly in ' 05 where they kind of converged and I think you know really instantaneously the the existing homes were a little bit cheap uh new homes are a little bit cheaper but now we have quite a yawning gal and according to Melody which I totally agree with it's even more dramatic than what it looks like superficially so basically the the official numbers are a median existing home is 435,000 a median new home is about 395,000 so a significant difference, a discount, which doesn't make any sense, but we'll explain why that's happening. But what Melody is saying, and this is what really resonates with me, is if you adjust for the discounts that the builders are giving, they're kind of like off off the radar such as buying down mortgages, free appliances, right? >> Other perks that they give new home buyers that existing home buyers are not able to offer. If you include that, the gap is about 80,000. So from 435 down to 355. That's just stunning. But I think what it tells us is that's really where the market is. The market, so existing homes probably should be instead of at 435, more like 335, but they're not. And and that's why home sales are so terrible. So something's got to give. And we saw a little bit of this back in 2005 67. And eventually the prices did come down. And I I guess my point is that I know that Ivy Zelman said she thought prices might fall less than 1% next year. I think that's way too optimistic. She's the expert on that, but certainly I know Melody agrees. So, uh, >> yeah, and I'll take I'll take the under on that as well. And it's as well, I think we talked about last time we recorded this, um, so I'll say it again, is I think Ivy has the burden of having a lot of, um, corporate clients that, you know, pay her firm a lot of money. And so, I think it's just more challenging for her to to be bearish and pessimistic. Um, and I don't want to say that she's intentionally selling things rosier than she believes, but I I think that it's a tough position to be in. You certainly listening to her commentary, it was very disturbing. And, you know, she really brought up the idea that the the housing market's got this boomer problem. Guys like me, as you know, I've got a 70th birthday coming up in two months. And, you know, I saw him right smack in the dab dab in the middle of boomer cohort and a lot of us are going to want to be unloading our homes. uh you know, my brother's basically at the top. He's at almost 80 years old. And you know, there's how many young people are out there that are going to be able to buy, especially these higherend homes where a lot of the baby boomers tend to be overweight. So, I know I've got a couple, but I need to get off for one. So, >> so David, you haven't seen it yet. So, I'll just give a quick nod to it, but this morning, a few hours before we're recording this video, I released a video with Danielle Park, um, who is based in Canada, and she did a really deep dive into both the Canadian and the US housing markets. But Canada is, it's almost sort of like your chart back there of, um, the higher unemployment rate amongst recent college grads. That's probably a preview of coming attractions to the general unemployment rate. Canada is in very many ways a preview of coming attractions for the US and a main reason for that is you know not only do they have an even bigger price bubble but um their mortgages are much shorter in duration than ours about 5 years is average. So about 20% of the housing stock comes up for refinancing every year there. So they're they're entering this process at a much faster rate than we are and it is clear that things there are softening at a accelerating rate. Very good point. Yeah, and you bring up something that I think most Americans are unaware of, which is the housing bubble in Canada was even more severe than the United States. But for sure, when you look at this and you make this adjustment that Melody, and I think it's totally reasonable to, you know, look at what the net, you know, price being offered to new home buyers is, and it is, you know, shockingly low, frankly, right now. But that just tells you that they, you know, the builders have to acknowledge reality. And the reality is that a new home today is very unaffordable for almost everybody. So therefore, they have to cut the price to get, you know, clear the market. That's just the way economics are supposed to work. I, you know, kind of your point, we don't like to take that kind of pain and the threats to the lending community are obvious. So it's much easier to pretend, extend and pretend, but I think the, you know, that's that time is running out as it did back in 07 and08. And this is one we I remember maybe you liked this one from before, but it's pretty amazing that when you look at the at the the boomer generation or I'm sorry, two cohorts of boomers and then going back to even silent if you put them all together it's pretty close to 50% of home sales I'm sorry home purchases are occurring among boomers and you know so almost half the market which tells you how really kind of nonpresent the younger generations are with this and that's but I think that just speaks what we're talking about and where how are we going to get these younger people to be able to afford, you know, million dollar, $2 million homes when they can't afford $400,000 homes. I know boomers, not all boomers own uh, you know, that kind of, but in the in the certainly the coastal markets, man, the major metropolitan areas, it's not uncommon to have a million-dollar home be just kind of a normal price. I'm sure you're well aware that in Northern >> I'm well aware of that. Yeah, being California. Um, so real quick, and I'm sure you're going to get here, but um, you know, what's going to enable those younger generations to start buying again is going to be lower prices um, even much more than lower rates. And we've had a lot of experts on to sort of explain why. And so the big question is, okay, well, what will get lower prices? And I think the answer is is more inventory. And of course, we're already seeing this happen in a growing number of markets, Texas and Florida at the vanguard of that. >> Well, thanks for a great lead into this slide. That's exactly what this slide is showing. >> Great. And I just want to mention one last thing. I'll let you run on this, but tying it back to what we were saying earlier. So, what's going to create more inventory? Um, well, there's a lot of organic stuff that's that's starting to create it, but if we go into a recession where there's a lot of job loss, Dave, you would expect to see a lot of inventory come on from that is is, you know, basically people just can't afford the homes they have, especially if it's a second home or a short-term rental or whatever. >> Absolutely. So this is, you know, getting back to what I said earlier that we found with macroeconomic data when you see these big breakouts, they keep running. That's already happened with this hasn't yet happened with existing. It's pushing up and I have no doubt it's going to break above this, you know, going back basically 10 years and so we're going to see a lot more existing inventory hitting kind of consistent with what you just said. So I think that's absolutely right. Then if we look at the combination of the two, new and existing, you know, clearly a pattern of higher highs break out to a five-year high. So just, you know, my bullet here, what I put, which I put in, which we just were saying is when it comes to prices, watch out below. So I'm I'm really I'm the most bearish I've been on the housing market since 2007. And actually, as I think you know, that's when I started writing my newsletter for the first time was in ' 05. And my basic point in '05 wasn't that there was a bubble in housing. It was just that stocks were cheaper than housing in my view at that time. And then by 07 it had become a you know full-blown bubble with all the crazy financing. And so I was very very worried about a housing meltdown back in 2007208 as it turned out I wasn't worried enough. It was got way worse way worse than I thought it would. I mean as you know it almost crashed everything. Okay. But so >> sorry let let me just ask you a question before you move to bonds here. Um, so one question I've been getting in recent days, I just love your thoughts on Is, hey Dave, I understand all the reasons to be pessimistic on the housing market and certainly the home builders, right? Why did why did Berkshire Hathaway just, you know, buy these stakes in in some of the bigger home builders? Do you have an inkling why? >> I don't. I I do think that it was, you know, the two younger guys that who are not really not all that young anymore that are controlling that pot of money, but it was, you know, I think about a billion dollars that he put in that Bergkshire put in. I don't think again it was the Oracle himself, >> right? So, sort of a >> 340 billion in cash. I mean, superficially, this is where and these guys are super smart. I'm sure they do this kind of adjustment, but one of the biggest traps you can fall into as an investor is to buy low PE cyclical stocks when prices are high. Stock prices are high and usually that's when earnings are high too. It's a little bit different this time and that earnings have already been cracking for these builders and yet the stock prices are as I said almost at their highs. Uh but you know in a cyclical industry and housing is notoriously cyclical earnings fluctuate a lot and what you typically want to do is you want to look at price to sales and get a sense are they cheap on a price to sales or revenue basis and they're not they're actually quite expensive. So that kind of jives and so maybe they're just or maybe they just you know they have a very long-term time horizon and they may be saying look there's this chronic shortage of housing in America which is true there is a shortage of housing but the word that keeps getting left out is affordable housing and the problem is these builders don't make that kind of product for the most part I'm sure there's some niche builders that do but it's you know you most of these guys they go where the margins are and the margins are the more expensive homes and those are the ones that just not affordable. So, I've talked in my book. I'll just admit it. I' I've short a bunch of XHB and I've had a kind of mixed success with it because it had a big breakout a couple of years ago and I I covered and you know, kind of small loss and then I shorted a bunch when it was up and covered and now I'm shorting it again. But I know most of your people don't want to do that. If anybody's a put buyer, I would say you might want to look at puts. But anyway, housing I'm bearish on obviously much more so than the stock market where I think there's pockets of value though not a lot. So global liquidity this has been what's you know driven everything and >> All right. Hey sorry to interrupt but I I think maybe I distracted you from talking about the previous slide. >> Oh the interest rates. >> Yeah. >> Sorry about that. And I just it's important so I didn't want you to skip over point out because this is important uh not only in terms of it its impact on housing and what we know of course is that since the Fed started easing back last fall long-term rates have actually gone up and we've got the this is the 10 years is about at 425 today which has come down a little bit. The 30-year is being very stubborn up right around 5%. It's it's down in yield a little bit right now. But if you look at other countries, other developed countries, what you're seeing is a disturbing situation where even though industrial production is falling, uh, interest rates on the long end, not the short end, but on the long end are rising. And that is, if you listen to somebody like Luke Groman, he's saying that's a classic emerging market in trouble kind of scenario. So, I'd keep a very close eye on it. It's not as bad in the US, but it is still even a little concerning in the US. And it's going to be tough and unless people really going to go with variable rate mortgages to stimulate the housing market with lower interest rates by the Fed if the long end is going the other direction. But again, the key point is since the Fed started cutting last year, long yields are up. It's very, very unusual. But it's not in emerging markets. At least those that have been in trouble are under stress. Thank you for getting me back to that. But let's talk about liquidity because this has been why the the markets have been so frothy and why risk assets I mean it's whether it's crypto or meme stocks or one zero days expiration options you just go all credit spreads you know junky junky bond credit spreads are super tight so it's just indicative that there is way too much liquidity out there it is you know I you look at global money supply it's growing faster than the US maybe that's why overseas markets have actually been outperforming the S&P this year, which a lot of people don't seem to be aware of, but it's a fact. So maybe that real world liquidity has been doing overseas what it's done in the US for so long. But now that's actually slowing. And according to Darius, he's got it going from 11 to 15% earlier in the year to 4%. So that's really a dramatic slowdown, which maybe fits in with why he's kind of changed his tune. I think what he believes is that the that the Fed and the Treasury are going to shift gears here, become much more stimulative soon. So, don't get too bearish on stocks or Bitcoin or gold. But, you know, this whole idea, I mean, I hear this all the time, there's this mountain of money on the side of cash on the sidelines, but it just doesn't show up. This isn't a B of A, you know, there trillions of dollars that they hold for clients. So, it's a good sample set. And I saw a similar graph, I don't have it here, but on cash levels among fund managers being very low, which makes sense. I mean, there's been a lot of pressure on anybody running money to be fully invested. And of course, so much of the market is driven by index funds, which by definition are 100% invested all the time. So, I don't get it. But in terms of positive global liquidity, as Michael Hal pointed out, uh, China's already created about one and a half trillion trillion of stimulus, and he thinks another amount is coming similar to that real soon. And that I think for your viewers is a really important fact to latch on to because it is highly supportive of you know natural resources some of which have done extremely well already a lot of which is are still lagging and have quite a bit of upside particularly in energy. So, you know, one of we'll talk about this in the second part with Michael How and his liquidity views, but you know, he is I think you believe like I do that he's one of the world's foremost experts on liquidity and he's got, you know, some semi- encouraging comments there, although you know, with a with a footnote or caveat. So, here's been, you know, this big fiscal statement. Our friend, our mutual friend Kevin Mir's been all over this. these budget deficits that have been running, you know, two trillion and, you know, that's that is really stimulative and it's just been going on for years and years and years. So, we're all kind of used to it. But, you know, Doge unfortunately struck out and we've got in the first 10 months of this year, the deficit was actually up about 7.4%. We're headed to about 1.2 trillion expenditures just on interest. We're about 1 trillion now, but the trend is up as the debt rolls over higher rates. So, it's still that federal fiscal funding fiasco is still a fiasco. Now, this is uh excuse me where the Bitcoin stable coin comes in because I really have had an epiphany. Kudos to Luke Grman in this regard that stable coins are really a big part of the solution the government's going to employ. And so, they want, as Bessin has said, we want 2.7 trillion to go into stable coins. And where that relates to Bitcoin is that almost all Bitcoin purchases and sales occur through stable coins. And his point is there's a multiplier effect and it well I say his Luke Gman's point. So if there is a decline even if there is a decline in the in the velocity if you will. So how much stable coin trans translates to Bitcoin activity it's been a pretty high ratio and I forget exact like 10 to1 and he's using something like six or seven to one. But his point is, if that kind of money goes into stable coin, it's going to put a lot of juice under the Bitcoin rally for its next move. But I think it's a good question to ask where is that money going to come from? And I've been, you know, trying to roll that around my mind. I know the banks, the US banks are worried it's going to come out of deposits. So if investors shift and say they take just could be simple 2.7 out of the banking system, they put it in stable coins, that that's not great for the banking system. But what's probably more likely, and this again is a an acknowledgement of Luke Groman, is that it would come out of the Euro dollar market. And I know there's people you've had on that are big adherence that the Euro dollar market is what really matters. And I don't know, that's always been kind of a mystery to me. But apparently there is 11 trillion, which sounds about right in the Euro dollar market, which is really uninsured. It's not really protected by the US umbrella of the Fed and FDIC and so forth. And so if there is if there is this desire to get that money into stable coins but without hurting the US banking system, I think that's a very logical, you know, point of uh of funding that we're going to see here coming up pretty soon. And I do I think good point to consider maybe you've had some experts on comment on this is what would happen if the Euro dollar market comes under a lot of stress >> and and it has a time typically during a crisis it has had there has been weakness and then the Fed does their dollar you know dollar facilities dollar lending facilities but have you heard anything that about that Euro dollar market what could go wrong >> um I have not so literally as you're talking here I'm making a note to reach out to Brent Johnson dollar milkshake theory developer. Um Brent talks probably maybe with the exception of Jeff Snyder talks the most about the Euro dollar market. Um and uh I'm going to ask him today his thoughts on this. >> Great. Thank you. I'd love to hear you mentioned Jeff Snyder. That's the person I've listened to who's gone into great detail about the Euro dollar market. So thank you. It's just I think something people really should be keeping an eye on because it's clear the government has a tremendous fiscal financing problem and this could be one of the big solutions. I'm not saying it's going to be the panacea but it's definitely uh something desperately need when you look at these next few visuals we come up with and it wasn't that long ago. Well, so so Dave, I sort of see the government kind of like, you know, pulling >> from everywhere it can here, right? So, okay, let's get a couple trillion from stable coins. Let's try to work on, you know, continuing to Doge, even though that doesn't seem like it's doing all that much. Um, let's um, you know, obviously try to get the 10-year yield down. Like, it's going to be a a multiffactorial uh approach to this. Let let me ask you this and and you can you don't have to answer right now if you want to wait if you've got slides that talk about it but um you know Bessant has been saying you know hey the tariff revenue is starting to become pretty material and I know you showed the the slide showing that July's uh deficit was was big after uh a dip in June. Um but Besson's now beginning to say like um you know hey it's been kind of coming in around 300 billion. Um, I think we're on track to 500 billion pretty soon. And to be honest, I'm thinking we might be close to a trillion next year. Um, now obviously he's paid to be optimistic here. Um, but let me just ask you this. It Let's assume for a moment that he's correct and tariffs keep mounting like that. Uh, tariff revenue keeps mounting like that. And let's assume for whatever reason um efforts on behalf of the administration or just a recession and uh uh there's a safety trade and um uh you know a bunch of money runs in the treasuries and yields come down. Uh will that make a material help in getting this this side under control? And I guess when I say recession, I got to be open to the fact that if we're in a recession, at some point the fiscal spending is going to go bananas. So it might offset all that anyways. But >> yes, I'm glad you brought that up because that's what I was going to say. That's the problem that you got with this. Okay, buy bonds, buy long bonds because of recession. And that's why I was bringing up what I did earlier that I think is so disconcerting is to see, you know, this industrial production as being a reflection of economic uh softness. And that when you have that and you have rising long-term bond yields like you do in France and the UK and even in Germany to a degree, uh, Japan, although Japan's economy is a little more vibrant, that's a definite warning sign that the normal, you know, buy bonds in a recession game plan isn't working. So, what you're describing though is kind of a push me pull you type of situation, right? be positives from the stable coin effort and you know the tariff tariff revenues versus the uh you know the hemorrhaging that occurs when you go into recession with all the entitlement payments that you know go ballistic. So, it's going to be I mean I said this I was on a podcast yesterday with one of your esteemed peers and I said look anybody that tells you they know what's going to happen. I mean they're they're guessing. We're always guessing. It's like Yogi Bear said it's always hard to make predictions especially about the future. But right now I mean we've never had this tariff situation at least not in you know basically 100 years. We've never had uh this these types of deficits during good times supposedly good times. Certainly, you know, the economy officially has been in an expansion mode for years and years and years. So, it's it's very hard to know what's what's going to happen. And I guess, you know, kind of the so what what does that mean? I think it you want to do a buffet. I mean, he's got 340 billion of cash and, you know, just kind of adjust it, you know, size it to your portfolio and just 4% probably headed to 2% on short-term rates, but you're not going to lose money. Well, that was more of a digression that I probably should have done, but it's a good lead into commodities, which is another kind of a key part of this presentation. And it has been a bit frustrating to me, I will admit. And that we have put out a series in our newsletter of very good recommendations on commodities, even on oil, but especially on gold. We flagged that breakout that happened early last year when I mean, that was really impressive on the chart and stuck my neck out and said, I think this one's going to keep going. Then we did the same thing earlier this year on silver. And you know, there's been no thank you note showing up in the mail or even the in the digital mail, but uh I I think silver's off to the races. I know you've had some people on that have been bullish on silver. And I think some of these silver miners, my personal preference is first Majestic, but there's others out there that are or you can just buy the silver mining ETF. It's always safer to do that. But it's pretty amazing when you see some of these return numbers. But here's the chart on silver that we showed and you know again broke out over critical resistance and it just off to the races. But I will say this >> that chart hasn't been updated since uh we had our failed attempt a couple days ago, right? >> Well, it broke when it broke out over 40 >> because Yeah. I mean uh that that I think that's the spot price you're looking at there, but I know that silver futures yesterday were over 42 at one point. >> Yep. It's it's clearly run a little bit more from here, but uh you know the just is a pattern that happens so often when you see these resistance taken out and we like you know to be at least three years. Two years is pretty good. Three years is usually our minimum. The longer the better. The longer something's been in a trading range. Longer it's been basing. So the bigger the base usually the bigger the breakout. And I'm amazed how many people only pay lip service to that. They don't really hunt for investments to profit from it, but we do. Uh, this is from my friend Fred Hickey, who I think Have you had him on your show yet? >> I have. I have. Yeah. Several times. >> He is one of the best. He's made us a lot of money in the in the Gold here. I have to. And his newsletter is so reasonable. I guess newsletter writers aren't supposed to endorse other newsletter writers, but I will. >> Well, his his is great and his has been a standard for a long time. And for folks that aren't familiar with it, it's it's the high-tech strategist. And and Fred's been writing about the high-tech industry since the 80s, but he is one of the biggest um you know endorsers of gold out there. And it's so funny to see, you know, a high-tech guy being such a gold bug. >> Very true. And he uh what he's pretty good at too is he's willing to take profits. I mean, he's definitely not a permable in the precious metal space. In fact, he ran this page one of his newsletter that just came out. So this is basically telling you that the the gold miners bullish percentage index is at a level where it's rarely been and the two prior times it was here the the miners got smacked. So it I do believe this and we have been huge endorsers of the miners. I mean it was the the quantity of investment advisor newsletter writers that were endorsing the miners a year ago when gold that was running and they weren't. He put him on one hand. It was talk about feeling like the lone ranger, >> but he just kept pounding the table and saying, "Look, these these earnings are going to take off." And he, you know, Fred gets more credit for that than I do. >> So, it's u I think I've got that coming up, but I'll just in case I don't or it's in the second section. It's how many people, Adam, realize that the gold miner ETFs, GDX and GDXJ, so GDX is the senior, GDXJ is the junior. How many people know they're up 95% this year? I would guess hardly anybody realizes that. >> So, all right. I know you want I know you want to talk about other things and I'll let you here in a second, but this is a great question. Um, so those of us that have been following gold for a long time, we all remember when Grant Williams famously put out about 10 years ago his gold report that was titled, "Nobody Cares." >> Nobody cares. >> Right? And he said, "Look, there are all these great reasons to own it that are probably very valid, but it doesn't matter right now because nobody cares." Now, since then, in the past couple years, we've had um the central banks wake up and they've started caring and that's that's been a big reason why the measles have moved. We've also had the eastern investor care about gold, wake up and care about gold, but the western investor really hasn't showed up to the party. And I guess my question for you, Dave, is you know, Wall Street hasn't liked gold for a whole bunch of reasons, and this is a small sector and all that type of stuff, but at the end of the day, Wall Street likes making money and it it likes momentum. When will Wall Street start waking up to what you just mentioned? >> Probably at the wrong time. You know, probably when it's time to take some profits. And that's what I would suggest with a big footnote here on this. And I guess if we want to I mean gold is important enough probably it's worth the diversion. But u first of all to your point about how do you avoid because you're kind of saying it's it's really easy to be too early. it could have a great story and yet you sit there for years and years with it just going sideways. So, one way you can avoid that is wait for a breakout. Now, typically you're not going to get the bottom. And I I'm totally sympathetic to the idea that when something's really really beaten down, it's got a great fundamental setup, sure, buy some. But when you really want to be aggressive is probably when it's been in that range and it breaks above it. You know, if you bought if you wait missed all those years of sitting around, you bought it at a little over 2,000 last year, you know, what are you up 75%. Yeah, you had a great ride with a lot less risk. Yeah. >> And the same thing with the minor. You could look at some of these charts coming up on that. Uh most of these these commodities that I've got shown here have had these basing patterns. Some have broken out, some haven't. Oil is of course the real redheaded stepchild right now. But it wasn't long ago that platinum was in that same boat. It was just this spring that we were telling people at $1,000 when gold was 3,300. You remember platinum used to trade at a premium to gold for years. Mhm. >> You know, platinum credit card is better than a gold card, right? >> So, we thought it was a steal, but you know, it's up 36%. Still probably going to go. The supply, a lot of these commodities have a supply deficit, and the demand just continues to grow. And I think at some point that's going to happen with oil. I know Rick Rule, you've had him on, he believes the same thing with oil. There's been social capital spending starvation in that industry. Palladium is one where there's it's breaking out and there's the fundamentals are much better. You get these narratives that people hang on to and they'll say, "Well, I don't like palladium because of EVs." Because EVs use very little, if any, palladium. What they miss is that hybrids actually use more palladium than do internal combustion engines. And hybrids, I mean, the EV story is really tired. The hybrid story is very exciting. So, when you get these kind of misperceptions is when you can really make some money. So, and then if you get down to the bottom, natural gas, it's not as behind the moon as oil is, but it's it's, you know, in the twos and that's very cheap on a global basis. And then you look at what's happening to electricity demand. It's just going through the roof. And this is what the data center is just starting to kick in. So, like you had Stephanie on your show the other day or two weeks ago and she said, "If you love AI, you should really love energy." Well, people don't as we're going to see here coming up. Anything before I move on to the stock market? I'm just going to go through stocks really quickly, but >> no, I'm I'm biting my my lip on a lot of these things just because we could take almost any of these points and speak for another hour on them. So, I want to let you, you know, make the progress you need to make here. >> Well, we better talk about stock market anyway. We always have to cover that. And Jesse Felder is one of my really good friends and he writes some great stuff and he had these uh I mean this is looking at the equity market valuation using a composite. So, not just the the Buffett, not just the Schiller PE, but you know, like a a mosaic of of these guys and or these factors and you can see how expensive it is. And you look at the momentum and this is, you know, I think it is a two-tier market and I am very hopeful. People say, "Oh, you're too bearish." Well, I'm I'm bearish on stuff like this, these crazily overpriced stocks, which frankly I called out in my book, Bubble 3.0, that went out in early 2022 and they went down 70 80% in 22 and into 23. So they got schlocked and some of them rally back, some haven't. But this is you just can't look at something like that and not say this is is a bubble in this part of the market. >> It just looks insane. Yeah, >> I'm what I'm personally hoping for, you know, as John Molden often says, hope is in a strategy, but I do think we can see a rotation away from, you know, some of these high momentum, extremely highly valued companies where sometimes we're trading at 30 times sales, forget earnings, and into uh these companies of I think you could throw a dart at the energy sector and make really good money over the next few years. Can't believe how many cheap energy stocks there are out there. Petro BRS is one of our favorites at double digit yield selling about three times earnings and they do have some of the best reserves in the world. Okay. So then this is what I was saying earlier. You could I think you could along with the miners win a lot of money. Oh this is sharp ratio. This was supposed to be switched out but just I mean even we're using sharp ratio which is riskadjusted return. Uh it's a these foreign markets have dramatically outperformed. One of my favorites as you've heard me say is Brazil. Brazil is up about 33% this year and that's in dollars. So this is in dollars, not local currency. Dollar's weak this year. So for once it's actually these returns are higher in dollars than local currencies. But my point is there's a windshift going on which I think is supportive of what some people call the great rotation like we had in 2000 to 2002 where the tech bubble popped and the money went into more valueoriented securities or sectors. a positive certainly earnings have been much stronger than I thought or even the street. Second quarter earnings come in at about plus 13%. Now there's a lot of pretty generous accounting that goes with that but let's just say that's what the official numbers are indicating. >> But here's how much of that is the mag 7 you know power hyperscalers you know driving the average higher. >> Well I don't think there's any question that's been a big factor. Uh there's also cost cutting that's article in Wall Street Journal today about how cost cutting has been flattering earnings. And you know what's one of the biggest line items companies have and that's labor and I think that uh as things get tougher on the top line which I think they probably will then they'll be more inclined to cut their workforce which is we've already talked about that's starting to happen. Mhm. >> But you're right. I that's and that's a positive is that you and we that's why you can have a company like Nvidia selling at a $4 and half trillion dollar market cap which is way more than most stock. In fact, I don't think there's any stock market in the world. Maybe China has a market cap that big, but most of the other leading uh you know entire markets are less than four and a half trillion. But it's because profits have been so strong out of that group uh with the exception of Tesla which used to be part of it. But yes, good point. Uh but here we look at energy sector fund flow. So what's what this is again from Jesse his point is if you go back to the panic pandemic so the last five years the XOP which is the uh oil and gas production ETF has actually dramatically outperformed the market and yet look at what's happened in terms of flows. So investors just keep taking money out of this sector. We could talk about why, but it's a lot of it is due to misinformation from the leading energy authority, the International Energy Agency, which is just so been so wrong for so long. But I mean, look at this. This really tells you the story, all you need to know about why you should be buying energy if you're kind of an extended time frame. The end of 07 was 13% of the S&P. It's now 3%. And yet we're we need energy more now than we ever did, especially with what's going on with the whole AI revolution. Yep. >> Because it is an energy hog. So it's I just think it's that's where you should be putting it. You should be overweighting that area. Instead of being at 3%, you should be at six, maybe even 9%. A lot more exposure makes sense to me than it does apparently everybody else, almost everybody else. I know Stephanie would agree and Rick Rule. Small caps has been another area experiencing outflows and they've been underperforming for a long time. I actually personally prefer the midcaps and they're starting to break out. actually pretty impressive breakout though hasn't done much since breaking out. So that's that's the section on you know kind of my thoughts and so we've got some time we got through that pretty pretty well so we have some time to talk about part two but anything we should cover here before I move on? Uh no except um just to a thank you for putting all the work into this folks and folks. So this is the type of monthly uh you know sort of macro and market recap that that Dave and I envisioned him providing uh the thoughtful money audience here on a monthly basis. Um if you have enjoyed this and would indeed like to see this continue, please let us know in the comments section below or in the live chat if you're watching a premiere on this. Um, and uh, if the if the feedback is as positive as I expect it's going to be, David, um, you know, we we'll do this as as often as you guys want us to continue it and and as for as long as Dave's got the the stamina and the interest to do it. Uh, even though he's in quasi retirement, he's a busy guy, but it's a huge uh, privilege and benefit for us here at Thoughtful Money. And uh Dave, if if folks like this as much as I suspect they will, uh there'll be a lot of pull to keep this going monthly for again as long as you want to do it. >> That would be great, Adam. I hope so. >> All right. Well, now let's uh let's get ready to trundle over to part two here. Just a couple quick things. Uh one, Dave mentioned that um Lynn Alden did just join the faculty for the upcoming Thoughtful Money Fall Conference. If you haven't yet bought your ticket for it yet, do so now while it's still offered at the the early bird price discount, which is the lowest discount that we're offering. Uh so to go sign up for that, uh go to thoughtfulmoney.com/conference. And if you are a premium member to our Substack, uh make sure you check the emails I've sent you that have the discount code in it where you can get an additional $50 off of that low early bird price discount. Um, also if you are a premium subscriber to our Substack, um, don't worry about, uh, finding part two. It's going to get emailed to you, uh, the day this video releases. Um, but if you're not a premium Substack member, um, but you're interested in becoming a member of, uh, our YouTube channel, uh, this new program that I just mentioned, uh, it's only, I think, $5 or I think more specifically, $4.99, uh, a month, uh, to subscribe to it and you will get, amongst other benefits, the, uh, uh, monthly kind of retroactive on all the, you know, key takeaways that we took from a lot of the the top experts that came on the channel in the past month. Dave and I are about to go record that right now. Um, if you are not uh yet a member but would like to become one, I believe the way you do it is is you subscribe to this channel which is free. So you click the subscribe button. Once you've done that, if you click that subscribe button again, I think it then brings up the opportunity to become a member. So hopefully you see it in the uh in that the you know set of menus there below the screen here. Um, and for those of you who have become members or who are existing uh premium subscribers to our Substack, we'll see you over in part two. Dave, thanks again. >> Thank you, Adam. >> All right, >> real soon. >> All right, we'll see you all in part two. And everybody else, thanks so much for watching.