Jim Bianco: Powell 'Caved' In Jackson Hole, A Rate Cut In September Would Be A Mistake
Summary
Market Outlook: Jim Bianco criticizes Fed Chair Jerome Powell's decision to potentially cut rates in September, arguing that it would be a mistake given the current high inflation environment.
Inflation Concerns: Bianco emphasizes the importance of reducing inflation to the Fed's 2% target, warning that tolerating inflation benefits asset holders but harms lower-income individuals.
Interest Rates: He argues that the current level of interest rates is appropriate for the economy, as lowering them could unnecessarily stimulate an already robust market, leading to further inflation.
Economic Shifts: The pandemic has fundamentally changed the economy, impacting labor markets and deglobalization, making it unlikely that zero interest rates will return in the foreseeable future.
Labor Market Dynamics: Bianco highlights the impact of immigration on labor supply and warns against misinterpreting low job creation numbers as a sign of economic weakness.
Investment Opportunities: With bond yields offering a viable alternative to stocks, there is a potential shift in investment strategies, especially among older investors seeking lower risk.
Technological Advancements: Bianco is optimistic about the potential of AI and technological advancements to create new industries and jobs, despite the initial disruption they may cause.
Transcript
And this is why I think that inflation cannot be overestimated and how important it is that you have to bring it down. You have to get to the Fed's goal of 2%. Uh so now they're going to try this again. They're going to try and cut rates with a high inflation environment defined as core inflation above three, hoping that it is the right strategy. We'll see what they go. Obviously, from the way I'm framing it, I'm kind of skeptical that it will be, but you know, I want to try and be open-minded and see what comes. But I'm not very optimistic. Jim Biano, president of Biano Research. It is so wonderful to welcome you back to the show. Great to see you as always, Jim. We always love having you on. Really appreciate you taking the time to join us on this Friday, August 22nd, just after Fed Chair Jerome Powell gave his speech in Jackson Hole. So, I can't think of a better day and better time to have you on. Thanks for joining. Thanks for having me. Well, we got to start with um the reaction there because all eyes have been on this speech all week and the markets seem to like it. But I just want to start with your kind of big picture reaction. What's your take from uh Pal's remarks today? He caved and he's going to cut rates in September. He was pretty adamant for most of the year giving arguments for why the Fed needed to be very cautious about cutting rates. And now he's kind of, you know, done a bit of a right turn. I wouldn't say a U-turn, but a right turn. And he's now looking towards the idea that the the Fed needs to worry about the perceived slowdown in the labor market and cut rates even though the inflation numbers are too high and they're expected to go up even more. So given that conflict again like we saw last year, the Fed is going to say bad inflation numbers, bad employment numbers, cut rates. They did that last year. It didn't work because what happened was long-term rates were more worried about inflation and they went up. They're going to try that again this year. We'll see if we get the same result as last year, we get something different. Okay, let's elaborate. There's so many areas I would love to explore with you. Um, you say that he caved. So, am I kind of hearing that maybe rate cuts aren't the right move from your vantage point then? No, I don't think they are. I think that there's a mistake about interest rates that has been driven in this market that, you know, down is good, zero is the best, and negative is even better, you know, um, and that up is bad. And that is not always the case with interest rates. Interest rates are a cost of money. you you'd like to see money be appropriately or fairly valued. You don't want it to be undervalued. You don't want it to be overvalued. And I've been arguing that the current level of interest rates is about the appropriate level for this economy. And I would point to stocks at an all-time high, crypto at an all-time high, housing at an all-time high. The economy seems to be moving forward, and we have a bit of a sticky inflation problem. That is not the prescription that interest rates are too high and that by lowering them you're going to in you're going to stimulate the economy. Maybe it doesn't need it. And that is the problem that we faced last year. It didn't need it. And when you stimulate an economy that doesn't need it, you wind up just pushing prices up, which is inflation. And then you wind up pushing interest rates up uh to undo what you've done with trying to stimulate the economy. And that's the risk I think we face in the markets right now. So it's the inflation problem that still persists. Let's explore that too because um you bring up an interesting point. Markets are all-time highs even today like they're ripping on today's news. And if you're an asset holder, you've benefited in this environment and inflation it hurts a lot of folks out there. But I imagine doesn't inflation also like help benefit asset prices or as a hedge or something? It just yeah I want to hear more on like the inflation front and are we going to like create more pain or division in the economy because of this kind of move because it might benefit those who own the assets. It's great if you own a home. It's great if you own stocks, right? Historically, inflation has been a destroyer of economies. It's been a destroyer of cultures. It is the single worst thing that you could do from an economic standpoint to an economy. War obviously being the worst. Uh and the reason is and you could look at it in the latest data and I'll I'll say this forcefully to get my point across. Um indeed the uh job posting website has a blog where they do um some economic research about the labor market. They posted last month some data that they got from the Atlanta Fed looking at wages and about 35 or 40% of the US economy people have jobs where they're not getting raises of 3%. The core inflation rate is 3%. Meaning prices are rising faster at the store than their paycheck. They go to the store, they got to buy less stuff every month because of that. Now, those are the people in the bottom 35 or 40% of income. They're not rich people that are that that that have this problem. They're poor people that have this problem. They don't own assets. They probably rent. Um, so screw them because we want assets to go up and we'll just leave them behind. That's the risk you face. And that's why I said if you wind up tolerating inflation and you wind up, you know, allowing it to go up because it benefits a certain group of people, asset holders, this is how you have revolutions in UN UN societies. And this is why I think that inflation cannot be overestimated and how important it is that you have to bring it down. You have to get to the Fed's goal of 2%. and the Fed. What worries me about this is the inflation rate is above three. There's only been two times in the last 40 years that they've cut rates when it's been above three last year. And it didn't work out very well because long-term interest rates went up. And 34 years ago, they did it as well, too. And it didn't work out very well because long-term interest rates went up. Uh so now they're going to try this again. They're going to try and cut rates with a high inflation environment defined as core inflation above three, hoping that it is the right strategy. We'll see what they go. Obviously, from the way I'm framing it, I'm kind of skeptical that it will be, but you know, I want to try and be open-minded and see what comes, but I'm not very optimistic. You point out inflation being above 3% and this need to get back to the 2% target. Do you see a path to get back to the 2%? Is that reasonable or do we need to rethink what that might look like? Um, you get at least try to get back to the 2% target. But to your larger point, there's there's two verboten categories in economics that we're not allowed to talk about because everybody stares at their shoes and wishes you would stop talking about it. one is the impact that the pandemic had on the economy and the other is immigration and what its impact has been on the economy. Uh let me start with the pandemic and just to kind of give you a bigger picture on it. I've argued in our lifetime the biggest economic event is the pandemic. It's bigger than the financial crisis. It's bigger than any war like the golf war or the stock market crash 87. And it might remain we're going to abol be healthy and live a long life. It might remain the most important economic event of our life. It changed our economy in ways we are not fully understanding. The labor market is a different market because of remote work and it was accelerated because of the pandemic. Delobalization was accelerated because of the pandemic. Tariffs are now probably an artifact of what happened during the pandemic. And we cannot emphasize that this economy is not the 2019 economy. And yet you hear people always talk about is the economy normalizing. That's J. Paul says that. Or returning to prepandemic levels. That's a different cycle. That cycle's over. And by the way, along with that cycle being over from a market standpoint, I would also argue zero interest rates. I don't think we will ever I don't think I would go out to say not only in my lifetime will I never see zero interest rates. I don't think in my children's lifetime we're going to see zero interest rates. That was an exper experiment from 2010 to 2020. That is now over. Yet I hear people all the time don't wait the next, you know, time the market wobbles, the Fed cut rates to zero and they'll print money. That is a different cycle. That is an old cycle. That it's like that would be akin to arguing that we're going to return to the gold standard. That that's another old cycle as well too. So, the economy is completely changed because of the pandemic, but yet we still want to argue this is a prepandemic economy. We're going to go back to 2% rates. We're going to have slow growth. We're going to have to have interest rates go down to 1% as President Trump wants to wants to put it at. Um, as well, the other one I would argue is immigration. We don't want to talk about immigration. The biggest thing about the labor market and this is the big contention and some of the academic papers after Paul spoke today are going to be discussing this and I hope to go back to look at uh uh you know what they have to say uh when they're when they're released is that the labor market that we call this the supply of labor versus the demand of labor. There's 164 million jobs in the United States. Um we when we look at uh the unemployment rate, we survey 120,000 households or at least that's the goal to try and figure out what the unemployment rate is in the country. Let me restate that. These are measures of the population of the United States. What is the biggest driver of whether or not we have strong growth or weak growth on jobs is population growth. Now one other quick statistic. What is the biggest driver of population growth? It is not it is not fertility because the fertility rate in the United States is the lowest it's been in its history right now. Something around 1.6 children. The replacement rates 2.1. It's immigration. So from 21 to 23 when we had 3 million people come into the country the population of the country exploded higher to a 20 or 30year high population growth largely because of immigration. Every day thousands of people came into the country. the supply of labor ballooned. It pushed down wages and you saw payroll growth expand because there were people out there looking for jobs. After Donald Trump became president again in January, he has slammed the border shut. At the beginning of the month, he put out a truth social post saying that we have net negative immigration for the first time in 50 years. Now, net negative immigration means more immigrants leaving the country than entering the country. And he said for the first time in 50 years, that's only because we have 50 years of data. You could actually argue it's the first time in American history that our flow of migrants is now negative in the country. Given the low fertility rate and a negative flow of migrants, this we have probably dramatically changed the population growth of the country to one of its lowest levels in American history that has not been involved with the Spanish flu of 1918 or war like the Civil War. Now, we had negative population growth because people were literally dying in the streets then, but take those out because we don't have those situations. We have no population growth. So, what is that? What am I leading up to? We freaked out about 10 thou about a big revision down in jobs. 19,000 jobs being created in May, 14,000 jobs being created in June, 73,000 jobs being created in July for a three-month average of 35,000 jobs. And we said, "That's too low. The Fed's got the Fed's got to cut rates. We can't have this. We're going to have a recession." No, that's fine. That's all we need in terms of jobs. If you have no population growth, the American Enterprise Institute takes it one step further. They did a paper and they said by 2027, anything above zero in payroll report might be enough. And so this is the big mistake I think we're making is that we think we still think this is preandemic. We still think we should be creating 100 to 150,000 jobs a month. We not with this population growth. The only way you're gonna do that is you're gonna stimulate the economy by lowering interest rates. Let me give you one other quick statistic. There's Yeah, this is great. Keep going. Yeah. Yeah. There's a statistic called labor mark uh uh labor force participation. That is the percentage of people between 18 and 64 that have a job. It's about 62%. The other 37% are either housewives, students in the military, um, on disability, or just decided that they don't want to work. So 37% of the workforce of 18 to 64 year olds don't have a job. If you have no population growth, the only way you're going to get back to 100,000 to 150,000 jobs a month is you're going to have to get those 37% back into the workforce. How do you do that? Raise wages. give me more inflation and drag them in. Say, "Look, what do I have to pay you to stop being a housewife or what do I have to pay you to get to leave the military and come take my job or to quit school and come take my job here? How much more money do I have to give you?" That's wage inflation is what that is. These are the two big things. Like I said, we don't want to talk about the pandemic. We didn't like what happened. Nobody Everybody hated the pandemic. We want to pretend like, oh, it's over, you know, just forget about it. But it just so changed the economy. And throwing open the border and slamming the border shut is such a big impact on the labor market. And we've got the Federal Reserve here seeming to make the assumption, no, everything's like it was last year and two years ago and five years ago. And now we got low numbers. So we got to cut rates because we got to get back to some perceived number. Now what's interesting, last point for you is J. House seemed to acknowledge all of this in his speech today. He said that the labor he said that the supply and the demand for labor has been falling but oddly enough is staying in balance. That's was the word he used. That's because the population growth is going down. So that all these numbers are going down. And yet he then said that an adjustment might be possible. That's his word for we're going to cut rates in September. So, he acknowledged everything that's happening, but he can't get past the entrenched belief that we've had for decades about how the labor market's supposed to work, even though he acknowledged it's a different labor market right now. And that's why he said the mistake is or the fear I have is he's going to produce yet another policy mistake like they did last year. And if you're looking for interest rates to go down, maybe they won't because that's what happened last year. I'm talking about long-term yield. The long Yeah, the long bonds. Yeah, like they backed up. I want to hear a bit more on that. um that dynamic and that expectation and the implications for that. You know, as far as the the the long bond goes, um let me say this that what you've seen in the trady markets, especially things like um ETF flows, is a tremendous flow of capital or money into fixed income assets. Now, why? Because there's a yield there right now for the first time ever. You know, my friend Jim Grant at Grant's Interest Rate Observer once quipped, "It's nice to Grant's interest rate observer. It's nice to have an interest rate to observe again because we've actually got yield. And if we wind up having more yield, more yield to observe because of the reaction in the market. The bond market stands as an alternative to the stock market." Remember the old Tina, there is no alternative. There is. It's called the bond market now because you can get you know somewhere near 5% yields investment grade yields when you consider corporates and the like you can get a 5% yield and for a vast number of people with a certain risk reward profile that is less riskier um you know than younger people that want to chase chase crypto older people think boomers you know yeah in retirement yeah exactly exactly the biggest thing of mistake I think people make with uh their investments ments is they need to adjust them for their for their um for their risk profile. If you are close to retirement, you should be largely in short-term fixed income assets because your goal should be you look, if you're 64 years old and you're speculating in Nvidia and you're speculating at Bitcoin at 64 years old, you better have be independently wealthy because at that point at 64, your net worth is your net worth and you should be worried more about losing it than saying, "Oh, if it could only just double before I get to 70 or something like that look if you're 34 years old that's a different story alto together because if the markets fall you still got decades to kind of work through this problem you don't have decades if you're 64 years old but that's the biggest mistake so those people should be more in fixed income assets and they are now because of the yield so if yields go up there could be a tremendous sucking sound in the trady markets of people pulling into fixed income assets because they offer an a reasonable alternative to the uh to the stock market. In other words, would the stock market then come down then? Well, it would lose it would lose a big part of what is going on or a big part of its buying right now. Interesting dynamic that's happening in the stock market in the last you know year or so. Um the the retail investor seems to remember we talked about this in 21 when we had GameStop with the meme with the meme stocks and the retail investor was dominating the market. Then in 22 the market sold off and the retail investor kind of went away. Well, in the last year or so the retail investor has come roaring back with a vengeance uh in this market and meme stocks are back in a vengeance um as well too. Uh and you've seen options trading is exploding higher and it all revolved around probably the biggest catalyst was liberation day. We had liberation day, April 2nd. The market sold off 15% in like two weeks. If you were a professional investor, what did you do in the immediate aftermath of liberation day? You sold the market. You were worried that this was going to lead to a recession and and slower growth and everything else. And you sold the market. If you were a retail investor, what did you do on that sell-off on liberation day? You bought the hell out of the market. you just went completely allin reckless abandon and guess what retail investors won huge. It's now the point if you've ever been on the Reddit boards, there's pro I haven't been on this morning, but there's probably disappointment this morning. They wanted Paul to say something hawkish. They wanted the market to tank like it did in on August 1st with the payroll report. They they seek, hope, pray the market collapses because it always comes back. It's always by the dip. So, please give me a dip to buy. So there's no way you're going to shake them out of this market with weak prices. They're more aggressive when the market goes down than less. It's a complete inversion of the way that we understood that retail investors would behave. But if you bring in yields and you take away the high end of the curve, right, if 50 plus crowd just says they're not doing that, it's the lower end crowd that's doing that. Maybe we should move more towards fixed income. it could stall the stock market rally because remember this will always be the case because even when the millennials and the Gen Z's are 50 plus the 50 plus crowd always has the money so that's where the money is and so if they want to move towards fixed income it could really sap sap this market quite a bit gold prices have been breaking all-time highs this year but price appreciation isn't the only way to profit from owning gold you can earn a yield on gold paid in gold without selling your gold or silver. Unlike dollar yields that can be slashed or even go negative, a yield on gold paid in gold means more ounces in your account every month, not paper. Monetary Metals is revolutionizing the way people invest in gold and silver. Instead of paying to own the metal, now you can get paid to own it. Right now, there are opportunities for you to earn 4% on gold paid in gold in their marketplace. The interest you earn is paid in ounces of physical gold or silver which you get in addition to any price appreciation that comes from gold and silver during the year. The question is this. Why earn in dollars when you can earn in gold? Join thousands of investors who are earning a yield in physical gold and silver every month with monetary medals. Visit monetary-medals.com/julia to learn more. Do do you think there's any possibility that Pal won't cut? I mean, I'm looking at the betting markets, too. Like, it's it's the consensus like everyone thinks he's going to cut. Yeah, it's 90%. It's a 90% probability. The only thing that would get him to not cut would be there is the the meeting is September 18th and uh the meeting is um after the next payroll report which I think is September 5th or 6th whatever that Friday is and a couple of days before the next CPI report. if they are hot reports, you know, lots of jobs being created or uh more than expected inflation that could potentially get him to not cut. But I would also point out too, if you look at the market price, uh, you know, Fed fund futures pricing, overnight index swaps pricing, these are short-term interest rate markets that kind of show you the betting on what the Fed's going to do. They're betting that there's going to be like one or two, maybe three rate cuts and that's it. There's not going to be a 100 to 150 basis points. We're not going to go to 1% or anything like that. If I was to describe the way the market is doing it is it's like here's here President Trump, here's your one cut. Now leave me alone, you know, and that's about all you're going to get. So the market is not pricing in some kind of aggressive move down in interest rates, at least not now. Yeah. But in your mind, it will still be a mistake though to make the cut. I think it would be because like I said, I don't think given that the labor markets being driven by the supply of labor, by the population growth of the country, that the Fed can't open the border and let more people in. We could argue whether they should, but they can't do that. The problem is not that we need cheaper money to get people to start to hire. In other words, to put this in Fed Parliament, I'm of the opinion it's a supply problem in the market. The population growth, there is not a lot of evidence it's a demand problem in the market, meaning that companies just don't want to hire. They've got the for sale, they got the four hire signs out, but there's nobody walking through the door because of the population. Now, why do I say that? Because the the statistics that would suggest that there's a demand problem would be first and foremost the unemployment rate. It's at 4.2%. It's the same level that it was a year ago, 4.2%. A year ago we were cranking out 150,000 jobs. Now we're cranking out 35 and we've got the same unemployment level. What does that say? If we could go from 150,000 jobs to 35 without the employment level going up, there's no more supply of labor. And that's why you're not getting that. But people are putting out their for sale signs and the people are not walking through the door looking for those jobs right now. And a lot of that has to do with the immigration flow in the country because that's where the population growth comes from. Yeah. This is why I love this show so much because I have folks like yourself who bring up these ideas and we have that conversation. It's not just a sound bite. You actually get to hear different points of views and um you get to rethink your framework. Jim, before I let you go here, I'm going to ask you a two-part question. Um, what is that risk for you right now that's maybe keeping you up at night? It doesn't have to actually be keeping you up at night, but that's on your mind that you can't stop thinking about. And after you answer that, what is something that's making you optimistic? Oh, okay. So, two things. The thing that's worrying me the most is this assumption that tariffs, and Jay Pal said this today, it's a one-time thing, right? Trump's going to raise tariffs once and prices are going to jump once and then that's it and they're done. Um, are we not paying attention? He's going to keep playing this tariff game every week until January of 29. And if JD Vance becomes the president in January 29, we're going to keep playing this tariff game every week. As long as the stock market goes up every day and it's at a new high, he could keep raising tariffs because his argument is that at the end of the day, what he'd like to do is collect trillions of dollars in tariffs and he would like to um do away with income taxes and have an external revenue service. He's called it that. and get rid of the Internal Revenue Service and that foreigners would pay for everything. And I said, "God, that's great if it could only happen because always taxes are because tariffs are taxes. Taxes have always been the case of um you know, everybody wants everybody says, "Yes, we need more taxes. Find somebody other than me to tax." That's why all the p polls always say 90% of the public thinks that we should tax the rich more because 90% of the public doesn't think they're rich. It's somebody else. But the ultimate somebody else is foreigners. Then none of us have to pay for this. And if he could get the Chinese to give us a lot of money so we could buy weapons to protect ourselves from the Chinese, put him on Rush Mush Rushmore right now. We don't even have to wait till his term is over because he's he's managed to fix things. Now the sarcasm I'm using is I don't think it's going to quite work that way um as well. So I what worries me is people being somewhat dismissive of the impact of tariffs. Yeah, you raised them once and we're done and that's it. It's all over. It isn't all over. It's going to continue and continue optimism. I think that on the optimistic side, the ingenuity of the country and I want to point out something on the optimistic side and that is the new technological advances with AI coming and AGI coming. The thing about that is when I say that a lot of people will worry because there's some studies out there that suggest that in the next 10ish years or so, 15 years that AI, and by the way, just so everybody knows where I'm at, count me among those that thinks AI is going to be bigger than the internet. It's going to be one of the most transformative technologies that we have seen um if not ever. It could eliminate 50 million jobs of 164 roughly a third of the jobs of the United States could be eliminated most of them in the white collar sector that those could be done by AI. That sounds tremendously disruptive, tremendously destructive actually I should say. But there's a professor in Northwestern University, Bob Gordon, who's done some studies on technological changes. And what he found is that on balance, technological changes are net creators of jobs. So let me put this in in in perspective. 50 million jobs lost, we'll create 70 million jobs. And those will be a better, higher quality job that we have now. The problem is everybody thinks, everybody understands the jobs loss, right? 50 million jobs are going to be lost. They immediately think driver because according to the IRS you you know on your IRS uh 1040 form you write down your job your occupation and the most cited occupation on forms is driver. Now you don't qualify they don't get nuanced are you a truck driver, taxi driver, forklift driver, bus driver. It says just the word driver. Oh those jobs are going to go away because of AI and automated and automated driving and stuff like that. The most cited job description for somebody on minimum wage is cashier. That's going to go that's going away and there might be in 10 years zero cashiers in the United States. That that'll all be driven by AI. And we look at that and we say that that's bad because we understand that. But there will be new industries and those new industries will employ millions of people because the cost of transportation will go down. The cost a lot of other costs will go down as well too. And I'll throw crypto in there, too. I think with the payment rails coming, with the Genius Act coming, with the disruption of payments that should dramatically lower the cost and reduce the risks, whole new industries are going to be created that don't exist and that I'm optimistic for that. So, when you talk AI, at least the circles I run in, there's more trepidation about it than excitement. I think we should be really excited about it because I think it's going to make things better. Yes, it's going to eliminate jobs, but it's going to create whole new categories of jobs that cannot exist because the business models don't work. And I'm looking forward to when that starts to play itself out. I love that. Jim Biano, president of Biano Research, always a treat having you on the show. We look forward to our next conversation. Really appreciate you taking the time today. Thanks again, Jim. Thank you.
Jim Bianco: Powell 'Caved' In Jackson Hole, A Rate Cut In September Would Be A Mistake
Summary
Transcript
And this is why I think that inflation cannot be overestimated and how important it is that you have to bring it down. You have to get to the Fed's goal of 2%. Uh so now they're going to try this again. They're going to try and cut rates with a high inflation environment defined as core inflation above three, hoping that it is the right strategy. We'll see what they go. Obviously, from the way I'm framing it, I'm kind of skeptical that it will be, but you know, I want to try and be open-minded and see what comes. But I'm not very optimistic. Jim Biano, president of Biano Research. It is so wonderful to welcome you back to the show. Great to see you as always, Jim. We always love having you on. Really appreciate you taking the time to join us on this Friday, August 22nd, just after Fed Chair Jerome Powell gave his speech in Jackson Hole. So, I can't think of a better day and better time to have you on. Thanks for joining. Thanks for having me. Well, we got to start with um the reaction there because all eyes have been on this speech all week and the markets seem to like it. But I just want to start with your kind of big picture reaction. What's your take from uh Pal's remarks today? He caved and he's going to cut rates in September. He was pretty adamant for most of the year giving arguments for why the Fed needed to be very cautious about cutting rates. And now he's kind of, you know, done a bit of a right turn. I wouldn't say a U-turn, but a right turn. And he's now looking towards the idea that the the Fed needs to worry about the perceived slowdown in the labor market and cut rates even though the inflation numbers are too high and they're expected to go up even more. So given that conflict again like we saw last year, the Fed is going to say bad inflation numbers, bad employment numbers, cut rates. They did that last year. It didn't work because what happened was long-term rates were more worried about inflation and they went up. They're going to try that again this year. We'll see if we get the same result as last year, we get something different. Okay, let's elaborate. There's so many areas I would love to explore with you. Um, you say that he caved. So, am I kind of hearing that maybe rate cuts aren't the right move from your vantage point then? No, I don't think they are. I think that there's a mistake about interest rates that has been driven in this market that, you know, down is good, zero is the best, and negative is even better, you know, um, and that up is bad. And that is not always the case with interest rates. Interest rates are a cost of money. you you'd like to see money be appropriately or fairly valued. You don't want it to be undervalued. You don't want it to be overvalued. And I've been arguing that the current level of interest rates is about the appropriate level for this economy. And I would point to stocks at an all-time high, crypto at an all-time high, housing at an all-time high. The economy seems to be moving forward, and we have a bit of a sticky inflation problem. That is not the prescription that interest rates are too high and that by lowering them you're going to in you're going to stimulate the economy. Maybe it doesn't need it. And that is the problem that we faced last year. It didn't need it. And when you stimulate an economy that doesn't need it, you wind up just pushing prices up, which is inflation. And then you wind up pushing interest rates up uh to undo what you've done with trying to stimulate the economy. And that's the risk I think we face in the markets right now. So it's the inflation problem that still persists. Let's explore that too because um you bring up an interesting point. Markets are all-time highs even today like they're ripping on today's news. And if you're an asset holder, you've benefited in this environment and inflation it hurts a lot of folks out there. But I imagine doesn't inflation also like help benefit asset prices or as a hedge or something? It just yeah I want to hear more on like the inflation front and are we going to like create more pain or division in the economy because of this kind of move because it might benefit those who own the assets. It's great if you own a home. It's great if you own stocks, right? Historically, inflation has been a destroyer of economies. It's been a destroyer of cultures. It is the single worst thing that you could do from an economic standpoint to an economy. War obviously being the worst. Uh and the reason is and you could look at it in the latest data and I'll I'll say this forcefully to get my point across. Um indeed the uh job posting website has a blog where they do um some economic research about the labor market. They posted last month some data that they got from the Atlanta Fed looking at wages and about 35 or 40% of the US economy people have jobs where they're not getting raises of 3%. The core inflation rate is 3%. Meaning prices are rising faster at the store than their paycheck. They go to the store, they got to buy less stuff every month because of that. Now, those are the people in the bottom 35 or 40% of income. They're not rich people that are that that that have this problem. They're poor people that have this problem. They don't own assets. They probably rent. Um, so screw them because we want assets to go up and we'll just leave them behind. That's the risk you face. And that's why I said if you wind up tolerating inflation and you wind up, you know, allowing it to go up because it benefits a certain group of people, asset holders, this is how you have revolutions in UN UN societies. And this is why I think that inflation cannot be overestimated and how important it is that you have to bring it down. You have to get to the Fed's goal of 2%. and the Fed. What worries me about this is the inflation rate is above three. There's only been two times in the last 40 years that they've cut rates when it's been above three last year. And it didn't work out very well because long-term interest rates went up. And 34 years ago, they did it as well, too. And it didn't work out very well because long-term interest rates went up. Uh so now they're going to try this again. They're going to try and cut rates with a high inflation environment defined as core inflation above three, hoping that it is the right strategy. We'll see what they go. Obviously, from the way I'm framing it, I'm kind of skeptical that it will be, but you know, I want to try and be open-minded and see what comes, but I'm not very optimistic. You point out inflation being above 3% and this need to get back to the 2% target. Do you see a path to get back to the 2%? Is that reasonable or do we need to rethink what that might look like? Um, you get at least try to get back to the 2% target. But to your larger point, there's there's two verboten categories in economics that we're not allowed to talk about because everybody stares at their shoes and wishes you would stop talking about it. one is the impact that the pandemic had on the economy and the other is immigration and what its impact has been on the economy. Uh let me start with the pandemic and just to kind of give you a bigger picture on it. I've argued in our lifetime the biggest economic event is the pandemic. It's bigger than the financial crisis. It's bigger than any war like the golf war or the stock market crash 87. And it might remain we're going to abol be healthy and live a long life. It might remain the most important economic event of our life. It changed our economy in ways we are not fully understanding. The labor market is a different market because of remote work and it was accelerated because of the pandemic. Delobalization was accelerated because of the pandemic. Tariffs are now probably an artifact of what happened during the pandemic. And we cannot emphasize that this economy is not the 2019 economy. And yet you hear people always talk about is the economy normalizing. That's J. Paul says that. Or returning to prepandemic levels. That's a different cycle. That cycle's over. And by the way, along with that cycle being over from a market standpoint, I would also argue zero interest rates. I don't think we will ever I don't think I would go out to say not only in my lifetime will I never see zero interest rates. I don't think in my children's lifetime we're going to see zero interest rates. That was an exper experiment from 2010 to 2020. That is now over. Yet I hear people all the time don't wait the next, you know, time the market wobbles, the Fed cut rates to zero and they'll print money. That is a different cycle. That is an old cycle. That it's like that would be akin to arguing that we're going to return to the gold standard. That that's another old cycle as well too. So, the economy is completely changed because of the pandemic, but yet we still want to argue this is a prepandemic economy. We're going to go back to 2% rates. We're going to have slow growth. We're going to have to have interest rates go down to 1% as President Trump wants to wants to put it at. Um, as well, the other one I would argue is immigration. We don't want to talk about immigration. The biggest thing about the labor market and this is the big contention and some of the academic papers after Paul spoke today are going to be discussing this and I hope to go back to look at uh uh you know what they have to say uh when they're when they're released is that the labor market that we call this the supply of labor versus the demand of labor. There's 164 million jobs in the United States. Um we when we look at uh the unemployment rate, we survey 120,000 households or at least that's the goal to try and figure out what the unemployment rate is in the country. Let me restate that. These are measures of the population of the United States. What is the biggest driver of whether or not we have strong growth or weak growth on jobs is population growth. Now one other quick statistic. What is the biggest driver of population growth? It is not it is not fertility because the fertility rate in the United States is the lowest it's been in its history right now. Something around 1.6 children. The replacement rates 2.1. It's immigration. So from 21 to 23 when we had 3 million people come into the country the population of the country exploded higher to a 20 or 30year high population growth largely because of immigration. Every day thousands of people came into the country. the supply of labor ballooned. It pushed down wages and you saw payroll growth expand because there were people out there looking for jobs. After Donald Trump became president again in January, he has slammed the border shut. At the beginning of the month, he put out a truth social post saying that we have net negative immigration for the first time in 50 years. Now, net negative immigration means more immigrants leaving the country than entering the country. And he said for the first time in 50 years, that's only because we have 50 years of data. You could actually argue it's the first time in American history that our flow of migrants is now negative in the country. Given the low fertility rate and a negative flow of migrants, this we have probably dramatically changed the population growth of the country to one of its lowest levels in American history that has not been involved with the Spanish flu of 1918 or war like the Civil War. Now, we had negative population growth because people were literally dying in the streets then, but take those out because we don't have those situations. We have no population growth. So, what is that? What am I leading up to? We freaked out about 10 thou about a big revision down in jobs. 19,000 jobs being created in May, 14,000 jobs being created in June, 73,000 jobs being created in July for a three-month average of 35,000 jobs. And we said, "That's too low. The Fed's got the Fed's got to cut rates. We can't have this. We're going to have a recession." No, that's fine. That's all we need in terms of jobs. If you have no population growth, the American Enterprise Institute takes it one step further. They did a paper and they said by 2027, anything above zero in payroll report might be enough. And so this is the big mistake I think we're making is that we think we still think this is preandemic. We still think we should be creating 100 to 150,000 jobs a month. We not with this population growth. The only way you're gonna do that is you're gonna stimulate the economy by lowering interest rates. Let me give you one other quick statistic. There's Yeah, this is great. Keep going. Yeah. Yeah. There's a statistic called labor mark uh uh labor force participation. That is the percentage of people between 18 and 64 that have a job. It's about 62%. The other 37% are either housewives, students in the military, um, on disability, or just decided that they don't want to work. So 37% of the workforce of 18 to 64 year olds don't have a job. If you have no population growth, the only way you're going to get back to 100,000 to 150,000 jobs a month is you're going to have to get those 37% back into the workforce. How do you do that? Raise wages. give me more inflation and drag them in. Say, "Look, what do I have to pay you to stop being a housewife or what do I have to pay you to get to leave the military and come take my job or to quit school and come take my job here? How much more money do I have to give you?" That's wage inflation is what that is. These are the two big things. Like I said, we don't want to talk about the pandemic. We didn't like what happened. Nobody Everybody hated the pandemic. We want to pretend like, oh, it's over, you know, just forget about it. But it just so changed the economy. And throwing open the border and slamming the border shut is such a big impact on the labor market. And we've got the Federal Reserve here seeming to make the assumption, no, everything's like it was last year and two years ago and five years ago. And now we got low numbers. So we got to cut rates because we got to get back to some perceived number. Now what's interesting, last point for you is J. House seemed to acknowledge all of this in his speech today. He said that the labor he said that the supply and the demand for labor has been falling but oddly enough is staying in balance. That's was the word he used. That's because the population growth is going down. So that all these numbers are going down. And yet he then said that an adjustment might be possible. That's his word for we're going to cut rates in September. So, he acknowledged everything that's happening, but he can't get past the entrenched belief that we've had for decades about how the labor market's supposed to work, even though he acknowledged it's a different labor market right now. And that's why he said the mistake is or the fear I have is he's going to produce yet another policy mistake like they did last year. And if you're looking for interest rates to go down, maybe they won't because that's what happened last year. I'm talking about long-term yield. The long Yeah, the long bonds. Yeah, like they backed up. I want to hear a bit more on that. um that dynamic and that expectation and the implications for that. You know, as far as the the the long bond goes, um let me say this that what you've seen in the trady markets, especially things like um ETF flows, is a tremendous flow of capital or money into fixed income assets. Now, why? Because there's a yield there right now for the first time ever. You know, my friend Jim Grant at Grant's Interest Rate Observer once quipped, "It's nice to Grant's interest rate observer. It's nice to have an interest rate to observe again because we've actually got yield. And if we wind up having more yield, more yield to observe because of the reaction in the market. The bond market stands as an alternative to the stock market." Remember the old Tina, there is no alternative. There is. It's called the bond market now because you can get you know somewhere near 5% yields investment grade yields when you consider corporates and the like you can get a 5% yield and for a vast number of people with a certain risk reward profile that is less riskier um you know than younger people that want to chase chase crypto older people think boomers you know yeah in retirement yeah exactly exactly the biggest thing of mistake I think people make with uh their investments ments is they need to adjust them for their for their um for their risk profile. If you are close to retirement, you should be largely in short-term fixed income assets because your goal should be you look, if you're 64 years old and you're speculating in Nvidia and you're speculating at Bitcoin at 64 years old, you better have be independently wealthy because at that point at 64, your net worth is your net worth and you should be worried more about losing it than saying, "Oh, if it could only just double before I get to 70 or something like that look if you're 34 years old that's a different story alto together because if the markets fall you still got decades to kind of work through this problem you don't have decades if you're 64 years old but that's the biggest mistake so those people should be more in fixed income assets and they are now because of the yield so if yields go up there could be a tremendous sucking sound in the trady markets of people pulling into fixed income assets because they offer an a reasonable alternative to the uh to the stock market. In other words, would the stock market then come down then? Well, it would lose it would lose a big part of what is going on or a big part of its buying right now. Interesting dynamic that's happening in the stock market in the last you know year or so. Um the the retail investor seems to remember we talked about this in 21 when we had GameStop with the meme with the meme stocks and the retail investor was dominating the market. Then in 22 the market sold off and the retail investor kind of went away. Well, in the last year or so the retail investor has come roaring back with a vengeance uh in this market and meme stocks are back in a vengeance um as well too. Uh and you've seen options trading is exploding higher and it all revolved around probably the biggest catalyst was liberation day. We had liberation day, April 2nd. The market sold off 15% in like two weeks. If you were a professional investor, what did you do in the immediate aftermath of liberation day? You sold the market. You were worried that this was going to lead to a recession and and slower growth and everything else. And you sold the market. If you were a retail investor, what did you do on that sell-off on liberation day? You bought the hell out of the market. you just went completely allin reckless abandon and guess what retail investors won huge. It's now the point if you've ever been on the Reddit boards, there's pro I haven't been on this morning, but there's probably disappointment this morning. They wanted Paul to say something hawkish. They wanted the market to tank like it did in on August 1st with the payroll report. They they seek, hope, pray the market collapses because it always comes back. It's always by the dip. So, please give me a dip to buy. So there's no way you're going to shake them out of this market with weak prices. They're more aggressive when the market goes down than less. It's a complete inversion of the way that we understood that retail investors would behave. But if you bring in yields and you take away the high end of the curve, right, if 50 plus crowd just says they're not doing that, it's the lower end crowd that's doing that. Maybe we should move more towards fixed income. it could stall the stock market rally because remember this will always be the case because even when the millennials and the Gen Z's are 50 plus the 50 plus crowd always has the money so that's where the money is and so if they want to move towards fixed income it could really sap sap this market quite a bit gold prices have been breaking all-time highs this year but price appreciation isn't the only way to profit from owning gold you can earn a yield on gold paid in gold without selling your gold or silver. Unlike dollar yields that can be slashed or even go negative, a yield on gold paid in gold means more ounces in your account every month, not paper. Monetary Metals is revolutionizing the way people invest in gold and silver. Instead of paying to own the metal, now you can get paid to own it. Right now, there are opportunities for you to earn 4% on gold paid in gold in their marketplace. The interest you earn is paid in ounces of physical gold or silver which you get in addition to any price appreciation that comes from gold and silver during the year. The question is this. Why earn in dollars when you can earn in gold? Join thousands of investors who are earning a yield in physical gold and silver every month with monetary medals. Visit monetary-medals.com/julia to learn more. Do do you think there's any possibility that Pal won't cut? I mean, I'm looking at the betting markets, too. Like, it's it's the consensus like everyone thinks he's going to cut. Yeah, it's 90%. It's a 90% probability. The only thing that would get him to not cut would be there is the the meeting is September 18th and uh the meeting is um after the next payroll report which I think is September 5th or 6th whatever that Friday is and a couple of days before the next CPI report. if they are hot reports, you know, lots of jobs being created or uh more than expected inflation that could potentially get him to not cut. But I would also point out too, if you look at the market price, uh, you know, Fed fund futures pricing, overnight index swaps pricing, these are short-term interest rate markets that kind of show you the betting on what the Fed's going to do. They're betting that there's going to be like one or two, maybe three rate cuts and that's it. There's not going to be a 100 to 150 basis points. We're not going to go to 1% or anything like that. If I was to describe the way the market is doing it is it's like here's here President Trump, here's your one cut. Now leave me alone, you know, and that's about all you're going to get. So the market is not pricing in some kind of aggressive move down in interest rates, at least not now. Yeah. But in your mind, it will still be a mistake though to make the cut. I think it would be because like I said, I don't think given that the labor markets being driven by the supply of labor, by the population growth of the country, that the Fed can't open the border and let more people in. We could argue whether they should, but they can't do that. The problem is not that we need cheaper money to get people to start to hire. In other words, to put this in Fed Parliament, I'm of the opinion it's a supply problem in the market. The population growth, there is not a lot of evidence it's a demand problem in the market, meaning that companies just don't want to hire. They've got the for sale, they got the four hire signs out, but there's nobody walking through the door because of the population. Now, why do I say that? Because the the statistics that would suggest that there's a demand problem would be first and foremost the unemployment rate. It's at 4.2%. It's the same level that it was a year ago, 4.2%. A year ago we were cranking out 150,000 jobs. Now we're cranking out 35 and we've got the same unemployment level. What does that say? If we could go from 150,000 jobs to 35 without the employment level going up, there's no more supply of labor. And that's why you're not getting that. But people are putting out their for sale signs and the people are not walking through the door looking for those jobs right now. And a lot of that has to do with the immigration flow in the country because that's where the population growth comes from. Yeah. This is why I love this show so much because I have folks like yourself who bring up these ideas and we have that conversation. It's not just a sound bite. You actually get to hear different points of views and um you get to rethink your framework. Jim, before I let you go here, I'm going to ask you a two-part question. Um, what is that risk for you right now that's maybe keeping you up at night? It doesn't have to actually be keeping you up at night, but that's on your mind that you can't stop thinking about. And after you answer that, what is something that's making you optimistic? Oh, okay. So, two things. The thing that's worrying me the most is this assumption that tariffs, and Jay Pal said this today, it's a one-time thing, right? Trump's going to raise tariffs once and prices are going to jump once and then that's it and they're done. Um, are we not paying attention? He's going to keep playing this tariff game every week until January of 29. And if JD Vance becomes the president in January 29, we're going to keep playing this tariff game every week. As long as the stock market goes up every day and it's at a new high, he could keep raising tariffs because his argument is that at the end of the day, what he'd like to do is collect trillions of dollars in tariffs and he would like to um do away with income taxes and have an external revenue service. He's called it that. and get rid of the Internal Revenue Service and that foreigners would pay for everything. And I said, "God, that's great if it could only happen because always taxes are because tariffs are taxes. Taxes have always been the case of um you know, everybody wants everybody says, "Yes, we need more taxes. Find somebody other than me to tax." That's why all the p polls always say 90% of the public thinks that we should tax the rich more because 90% of the public doesn't think they're rich. It's somebody else. But the ultimate somebody else is foreigners. Then none of us have to pay for this. And if he could get the Chinese to give us a lot of money so we could buy weapons to protect ourselves from the Chinese, put him on Rush Mush Rushmore right now. We don't even have to wait till his term is over because he's he's managed to fix things. Now the sarcasm I'm using is I don't think it's going to quite work that way um as well. So I what worries me is people being somewhat dismissive of the impact of tariffs. Yeah, you raised them once and we're done and that's it. It's all over. It isn't all over. It's going to continue and continue optimism. I think that on the optimistic side, the ingenuity of the country and I want to point out something on the optimistic side and that is the new technological advances with AI coming and AGI coming. The thing about that is when I say that a lot of people will worry because there's some studies out there that suggest that in the next 10ish years or so, 15 years that AI, and by the way, just so everybody knows where I'm at, count me among those that thinks AI is going to be bigger than the internet. It's going to be one of the most transformative technologies that we have seen um if not ever. It could eliminate 50 million jobs of 164 roughly a third of the jobs of the United States could be eliminated most of them in the white collar sector that those could be done by AI. That sounds tremendously disruptive, tremendously destructive actually I should say. But there's a professor in Northwestern University, Bob Gordon, who's done some studies on technological changes. And what he found is that on balance, technological changes are net creators of jobs. So let me put this in in in perspective. 50 million jobs lost, we'll create 70 million jobs. And those will be a better, higher quality job that we have now. The problem is everybody thinks, everybody understands the jobs loss, right? 50 million jobs are going to be lost. They immediately think driver because according to the IRS you you know on your IRS uh 1040 form you write down your job your occupation and the most cited occupation on forms is driver. Now you don't qualify they don't get nuanced are you a truck driver, taxi driver, forklift driver, bus driver. It says just the word driver. Oh those jobs are going to go away because of AI and automated and automated driving and stuff like that. The most cited job description for somebody on minimum wage is cashier. That's going to go that's going away and there might be in 10 years zero cashiers in the United States. That that'll all be driven by AI. And we look at that and we say that that's bad because we understand that. But there will be new industries and those new industries will employ millions of people because the cost of transportation will go down. The cost a lot of other costs will go down as well too. And I'll throw crypto in there, too. I think with the payment rails coming, with the Genius Act coming, with the disruption of payments that should dramatically lower the cost and reduce the risks, whole new industries are going to be created that don't exist and that I'm optimistic for that. So, when you talk AI, at least the circles I run in, there's more trepidation about it than excitement. I think we should be really excited about it because I think it's going to make things better. Yes, it's going to eliminate jobs, but it's going to create whole new categories of jobs that cannot exist because the business models don't work. And I'm looking forward to when that starts to play itself out. I love that. Jim Biano, president of Biano Research, always a treat having you on the show. We look forward to our next conversation. Really appreciate you taking the time today. Thanks again, Jim. Thank you.