“Massive Market Correction” is coming – Where will the money be made?
Summary
State Capitalism: The podcast discusses the increasing influence of the US government in private enterprises, drawing parallels to Chinese state capitalism, particularly under Trump's administration with deals like Nippon Steel and Nvidia.
Market Outlook: David Hunter predicts a significant market correction, suggesting a potential 80% drop in stock markets due to excessive leverage and central bank policy errors, despite a short-term parabolic melt-up.
Economic Indicators: The discussion highlights skepticism about the reliability of traditional economic indicators like the BLS jobs numbers, emphasizing the need for more accurate and modern data collection methods.
Global Economic Thesis: Hunter outlines a global economic bust driven by unprecedented levels of debt and derivatives, predicting a severe recession that could lead to a rapid market decline and eventual recovery fueled by massive monetary stimulus.
Investment Strategy: In light of the anticipated bust, Hunter advises investors to focus on capital preservation, suggesting a shift to cash and bonds during the downturn, and later investing in commodities and industrials for the next cycle.
Future Inflation: Post-bust, Hunter forecasts significant inflation due to extensive monetary stimulus, leading to a commodity-driven market cycle with substantial opportunities in energy and metals.
Long-term Trends: The podcast emphasizes the potential for a long-term commodity supercycle, driven by underinvestment in capacity and increased demand from global economic recovery efforts.
Transcript
Is the United States heading towards state capitalism? If so, what does that mean for regular folks like you and I? Let's talk about it. Today, I get into this topic with my guest, David Hunter. This is the J Martin show where we dissect the greatest minds in geopolitics and finance. Enjoy. >> This is Jay Martin. >> All right. Here I am with David Hunter. David, it's great to have you back on the program. >> Yeah. Hi, Jay. Great to see you. Good to see you. Okay, so I want to start today by talking to you about state capitalism. Uh here here's what I'll say. Uh recently we've watched President Trump um negotiate some interesting deals, right? first of all with Nippon Steel and US Steel. He initially vetoed this merger and then allowed it with the contingency that they would be rewarded US government was rewarded with effectively a golden share which gives them a lot of influence over the company's US operations. And more recently with the um Nvidia AMD deal, now the US takes a 15% cut of a certain type uh certain chips that are sent to China. Um, we also watched the sort of demanding of the uh ousting of the Intel CEO, which hasn't materialized yet, but he's still pushing for. And more recently, obviously, the dismissal of the BLS chief. Now, here's my question. Supporters would say, look, the uh Nvidia deal, the Nippon Steel deal, that's his negotiating prowess. He's securing better deals for America. That's what we hired him to do. And in terms of Intel or the BLS, he's draining the swamp to some degree. That's also what we hired him to do. Um the the the counterpoint to that might be that while these deals seem a bit novel in American politics, they're not at all novel in Chinese politics. This is often and frequently how business is done. State creep into private enterprise to influence the outcome. Now, a generation ago, the assumption was that if China liberalized, the economy would look more like America. And I'm wondering, could today we make an argument that the opposite is becoming true? State creep into state capitalism in the US? What's what's your take? And then I'll pull on some threads. >> Sure. Um yeah, I mean clearly Trump's different than anybody we've ever had. Um and he's not a pure Republican or pure conservative. Um he actually in his most of his life was probably um socially liberal at least. And um so we are seeing that we know he's a dealmaker. So that's mostly what you're seeing. Yeah, there are times when uh you know I I'm not as comfortable with some things particularly you know his his efforts to get Jay Powell out of there. Um you know I think he should leave that to Bessant and I don't think Bessant's uncomfortable with what's going on. So um I think you also have to look at where we're coming from. He's trying to reverse 40 years of very bad policies and correct some things. He's smart enough to know second time around. I don't have a lot of time. I may only have two years. I may have four, but um you know, my leverage diminishes as we go through this administration and or as we go through this term. So, he's trying to get a lot done in a hurry. Uh he cuts corners, I think. And if he can get a deal, he's not looking for the perfect deal. is looking for something that boos us in the direction he's trying to accomplish and and uh so I I'm I'm certainly not uncomfortable with what he did with Nippon Steel. I mean, the reality is you're getting new capital into an industry that needs it. Um US Steel itself wasn't going to be able to do that. Uh I don't think Cleveland Cliffs really could have done it. So, he's he's doing it, but he's also um you know, obviously his big interest is to get um capital into this country and get manufacturing back where it was in this country. So, he's willing to cut corners and and give Nippon ownership as long as we have some control over that. So, I'm comfortable with that one. Um you know, the tariffs really is a case of trying to fix something in a hurry. Um and you know you have to kind of step back and let let it work. Um he is trying to he's he's basically whether he's right or wrong he's looking at two goals. One is to reduce the deficit get revenues in here and the other is to bring manufacturing back here and open up country other countries to the way we've been open. So, um I I think if you understand his goals, um you get a little bit more comfortable with his approach. Um I can understand people being uncomfortable with it. I don't really think uh we're going to see this as a longlasting policy after he's gone. You know, I don't think JD Vance will necessarily pursue the same kind of thing. you know, Trump is half half uh the uh you know, world leader and half still, you know, somebody who learned how to negotiate in real estate. So, you're seeing both of those things at work. Um you know, whoever we get in to follow him, I don't think we'll pursue anything close to these kind of policy. I mean, the policies will be the same, but the the efforts, the tactics will be different. >> It will be more traditional. Yeah, that's that's an interesting take. I I appreciate that because whenever I watch the reason I ask the question is because whenever I watch these sort of novel developments occur in politics, we we've seen them up where I live, you know, over the last few years, I always have to ask, is this a standalone event or is this new precedent, right? And and more often than not in politics, if it's some kind of a power grab, it's new president because the door has now been opened for future successors. And the problem with that is that if the party you voted for opened that door, maybe the next one in the seat is going to be the party that you didn't vote for, right? And similar influence, power, and strategy, but with the opposing party supporting policies you do not like, right? Is that a risk, do you think? >> Certainly a risk. I think the bigger uh where where I draw the comparison to what you see up up in Canada um I'd say is more in Congress where you see the Senate, you know, everybody on our side on on on the right side of the um equation wants wants Senate to do whatever they have to do to accomplish the goals. And the Senate pushes back and says if we do that and set new president, soon as we lose power, we're opening a door for the other side. So I I see there more of that where if we break the president, if we do something, it's going to come back to haunt us on the other side. The problem is um the left seems to be willing to break whether we do or not. So I'm not sure whether that makes sense or not. It, you know, it becomes the whole end justifies the mean thing and that doesn't always work out. >> Yeah. Well, it's a tricky situation, right? Because if you were to simplify sort of the global economy right now as a competition between the United States and China, you have one economy that doesn't have to wait for political will. They don't have to wait for popular support. Any policy can be pushed forward and uh it's run like a business, right? Like my my company is not a democracy, right? We I set the strategy, the vision, and we hunt that down, right? Um America thankfully has a handful of checks and balances in place to prevent that outcome. but as a consequence moves a little bit slower and so you know I I find myself cheering for the cut corners to be honest with you because the bureaucratic process has become too much right it's important to have those checks and balances in place but it's gotten out of hand obviously maybe what's your take on that David >> yeah I agree with that again it goes back to I think Trump has a limited time horizon to correct an awful lot of um problems excesses in our our society and our country and and in our economy. So, so I I do generally and maybe it's just because he is doing what I want or the goals are what I want. Um I generally support what he's doing. Um I do understand the slippery slope at times but frankly the other side has if we talk about corners that have been cut there have been so many corners cut over the last uh you know certainly the last 20 years uh that have changed this country in in very negative ways. Trying to bring it back is not easy. Um, I'm not a big one that, you know, the media loves to go out and pull everything and and think that the popular opinion is what matters. Sometimes it's not because they've spent so much time under basically a um an agenda that they're they're not aware of what really is is happening. And we're moving very swiftly uh into a point of no return. If not for Trump, if not for him winning this election, I I think we would have really seen us go socialistic and and maybe unfortunately global world order would have won. Uh so this is I think our only hope to push back against that and basically I think the world's only hope. >> So let me ask you about that because I I think you're right. And I saw a trajectory of uh a large number of very unsettling trends occurring you know in sort of like the global you know the globalization trend as opposed to massively summarize and a lot of that conversation a lot of those headlines have been muted in the last 6 months we haven't heard a lot right um do you believe that's temporary are those forces still at play beneath the surface waiting out this current president um I know a lot of if if I were the leader of any of the BRICS nations for example, I'd probably be approaching the current strategy as uh we have to wait 3 or 4 years before we can really get aggressive, but it's only three or four years. America thinks in two or four year cycles. We think in forever terms, right? And so it's just a waiting game. We're playing the long game. We know what's going to happen back in the West. You know what always happens. What's your take on that, David? >> I would agree with that. I I think it's certainly still there. Um you you have they have taken a big step back. not by choice. Um, but you know, Trump has really turned things around in a lot of places, but particularly in Europe. Um, but he certainly hasn't turned it around in your country yet. You know, Carney Carney is one of the lead globalists for sure. Um, and so, uh, I think some are laying in the weeds, others are still not understanding the game, at least in the short run, has changed. Carney, I think, thinks he has leverage when he doesn't. But um you know and that's that basically Trump is using leverage where he has and he understands our market is his leverage. Um and our military might at least in the west is his leverage. Um but you know when it goes you know when it comes to China um and and and to Putin he finds out he he he can only push so far. They they know they have some leverage too. So, >> um, but I do think, yeah, once he's out of I think they they truly believe that once he's out of there, we can, you know, >> um, pick up our agenda where we left off. Maybe we have take a step back, but we're we're not going away. So, I they're by no means um, put the bed. >> Yeah. Right. Okay. Let me I want to get into maybe the China and Russia dynamic in a minute here, but just sticking with uh, domestic issues for a second, the the BLS headlines this week. So, Bureau of Labor Stat Statistics came out with jobs numbers 3 months ago, revised those dramatically uh last week, and there's always a revision about 3 months later. Uh that's normal, but this revision was huge and led to President Trump accusing the agency of uh manipulating the data to make him look bad and order the dismissal of the chief. Um, now I I think the Bureau of Labor Statistics is very archaic. I looked into how it operates and I was shocked to be honest with you that they're conducting surveys, you know, people calling people um in terms of there's sort of two main data points they focus on. One is are you employed or not employed? They call about 60,000 people. So that's the sample size. 60,000 people in a country of 360 million. Seems crazy to me, right? Uh and they also call employers and they call about 650,000 employers. a lot more, but the success rate on completing those surveys is like at best 60%. Because it's not mandatory. It's mandatory in five states, but the majority of country it isn't. And as a business owner, that's like if that lands on my desk on a Tuesday morning and I got 12 priorities on a slow day, like that's not making the list, right? I might get there eventually. Uh but what happens as a consequence is maybe they get 50 60% on the initial round and then 2 to 3 months later they keep prompting these business owners and they get up to 90%. they claim success rate and that's why the revision occurs. There's the initial data uh when they send the surveys out and then they get more responses trickling in over the consecutive months and then send out revised data on the heels of that. Um I just want to step back and get your take, David, on last week's this week's developments with the BLS, Trump's decision. How are you interpreting all this? >> Um I have no problem with him removing her. um you know, she's it's his prerogative to put whoever he wants into his administration positions or government positions where he has a control over it. Um I wish he had not gone full boore in terms of, you know, he was sure it was politics and all of that cuz I'm not sure. I I can't say whether it was or not. What I think people on the other side who want to defend her and and say this is, you know, he's all wrong. what they what they fail to understand is that there are ways to kind of softly get um you know bias the numbers. So you you you know particularly on the on the uh jobs uh you know surveys you you got just like they skew the polls by only polling people they know you know they know what they're going to get for answers. So so there are ways to skew when people say oh there's so many people involved in that she's not the one. I'm not saying she did it all, but she was overseeing a flawed process, whether it was political or not political. So, I have no problem with him putting somebody in he has more confidence in. Um, I I am not a big believer that the jobs number is should get the attention it gets every month. Um, because it's a lagging indicator. Um, and unfortunately, the Fed pays way too much attention to that. the street pays too much attention to that. So, um it's it's not one that I think is a big deal except that it makes for a lot of good headlines for the media, particularly the mainstream media that has an agenda. Um you know, they they they love to kind of take things that he think he they think will make him look bad or make him look kind of crazy and blow it up into a much bigger deal than it is. Um, so >> you know, I I I mean I heard Jim Kramer this morning uh in his typical kind of shtick uh trying to compare that with the CPI that comes out of the Bureau of Labor Statistics as well and saying, "Well, I no longer am going to pay attention to these government numbers cuz now I don't know if any of them are cooked or not cooked or whatever." Um, and so I'm only going to use private numbers or I'm going to look at companies and get my response. You know, again, it's a kind of an anti-Trump take. You know, it's it basically he takes every opportunity to kind of make make a point that Trump is, you know, not not the best president. So, um, so I, you know, I there's going to be people out there on both sides. I I view it as kind of a non-event. You know, makes makes for headlines for a week and then you move on. >> Yeah, that's that's actually the best take I've heard is that maybe the agency is dated. I think it definitely is. The way they conduct their surveys is archaic and it's not it's not accurate in today's world and CPI as well. People literally drive out to shops, check price tags, or they call department stores and ask about the price of a pair of cargo pants. Like it's amazing how archaic this system is. So, does it need to be shaken up? Like 100%. But I think what you said is actually in fact we just put way too much weight on these numbers. And that's maybe the bigger I align with that completely. It kind of drives me nuts when people obsess over the CPI number coming out and it's like just look around you. You'll know if prices are inflating, right? And uh >> yeah, tra trader traders love it. It's makes for their job for that day to, you know, make their job. I go I look at trends. I'm not looking at one or two month numbers. I'm looking at trends. And yes, you want to be able to rely on numbers over time. Um but yeah, we have seen these big revisions lots of other times and and frankly uh again I want leading indicators. I don't want lagging indicators. You know it's >> focusing in on jobs is going to mean you're going to be guaranteed to be late which is obviously the MMO of the Fed. >> Yeah. Okay. So let's let me ask you then um what are you paying attention to right now um in the American economy and if you were to give it a a score uh in terms of economic health right now where would you land? >> Yeah, I I basically am saying that the inflation is trending down. It may have stalled a little bit here. It may get sticky here, but basically I think we're trending towards ultimately deflation if I'm right that we're heading for a global bust. But I think we may already be in recession and if we're not uh and that will only be known when they go back after the fact and and date the recession. So I'm not saying it'll be obvious in the next month but we could be there already and if not we are definitely slowing. Um and so if the economy is slowing I think it's going to keep inflation pretty much under control until it rolls rolls further down when the economy really takes a dip. Um, frankly, people don't talk enough about the fact that we have crude oil at, you know, $63 a a barrel. Uh, you know, down from, you know, high8s and certainly in the, you know, just more recently, you know, it bounced bounced up from 55 to the mid70s because of Iran, but it's right back down into the low 60s. So, I I think gasoline and oil are going to help keep inflation moving down, not up. And you know, I think the economy is trending down and I think those are much more important stories than you know, month-to-month data. >> Okay. So, probably uh good at this point. I want to revisit your your global economic thesis that we've touched on a few times on this show, but I haven't had you on in probably four or five months. So, I'd like to revisit this. If you could just start essentially from the beginning, uh what is your global economic thesis? And then I'll pull on some threads from there, David. >> Okay. Yeah. My my view has been and continues to be that the economy is moving towards recession and that because of the leverage in the system which is beyond anything we've had in any previous cycle so far beyond 20089 far beyond 2020 um we're we're looking at you know 330 trillion in global debt we're looking at quadrillions in notial value of derivatives so I describe uh the debt has leverage on the financial system, leverage on the economy, and derivatives has the leverage on the markets. You know, fixed income, equity, metals, everything. You know, there's so many derivatives out there. Um, and people don't realize we really didn't have derivatives before the mid 80s or late 80s. So we've just exploded in terms of you know kind of tail wagging the door dog in a lot of ways with that leverage in in both on the system and on the markets. I believe this is going to be far bigger than 20089. So, as I say, 20089, um, we almost went over the cliff, but, you know, when the commercial paper market froze and and GE almost went under, um, you our our policy makers acted just in time and kind of pulled us back from the edge of the cliff. Uh, we had a, you know, rough, uh, what they call a great recession, but we didn't go over the cliff. I think this time the potential is there for us to go over the cliff. Meaning I call a global bust, but basically meaning something that uh leads to lots of bank failures, big bank failures across the globe, probably more so overseas than the US's time because our banks were forced to clean up their act and get, you know, unlevered deleverag. So, um, they're still vulnerable and certainly the counterparty risk means that if something happens in the big banks in Europe or, you know, your banks or, you know, over in Japan, you know, our banks are in trouble, too. But, but that's my thesis is just very simply the leverage this time around could take what would have been an ordinary recession and turn it into something greater. I'd define a bust as something that will feel like a depression but not last for more than 12 to 18 months. So it, you know, the unwind will happen very fast relative to what a depression is. Um and but it will come with a lot of um certain a lot of pain while you're in it. Uh I think the stock market can drop as much as 80% peaks trough. Um so um you know people have a hard time with that part of my my u forecast now because obviously we are nowhere near that seemingly nowhere near that. We're questioning whether we're even going to see a recession. Um I think right now you can get a very uh long extension or steep extension to the bull market because I think there's enough um bullcency in the market to allow um particularly the institutions to believe it's soft landing. So but I believe it's going to be a hard landing starting next year. Could could even begin by the end of this year. I think as we saw in 2008, um when things tip over, they can get pretty ugly pretty fast. So, you have to be careful not to be lulled to sleep. I I remember September of 2008, I was calling for a hard landing and I had no company. The vast majority of economists on the street were saying soft landing, no recession in sight. That was three weeks from Lehman Brothers. M so things can happen fast particularly in the financial world um you know you can think everything's kind of not that it's great but it's not bad and then go from soft landing to hard landing expectations in a hurry. So um I don't know if we'll see it that quickly but that's kind of my guess is that next year is going to be the bust. >> Okay. Now there's obviously some major personalities that agree with that. I think Ray Dallio on a personal level is 100% out of equities. Uh Jeremy Grantham is calling for a 50% correction in the market. Michael Bur has a $98 million uh short bet against Nvidia. So, you know, they're all circling the same concept. If this would be so much more severe because of the leverage and we're looking at sometime next year, walk me through the unwinding process. What will you be looking for to add validation to this thesis or or not? >> Sure. And before we get there, let me just say where I differ from those three guys and and lots of others out there is I'm calling for this parabolic meltup into the top first. So, I've raised my probably since we last talked, I've raised my targets at least twice. I'm at 8,700 on the S&P this year. uh you know 30 uh 40 what am I 30,000 on the NASDAQ 60,000 on the Dow and 3400 on the Russell. So if you do the math basically low 30% gain from here on the S&P uh mid30s gain on the Dow about a 40% gain on the NASDAQ and a 50% gain on the Russell. So, and I'm saying that will likely happen this year and you know um maybe by uh early fourth quarter even. So, I think it'll go parabolic and we'll cover a lot of that ground in a hurry. So, that's the others have been bearish for a while and I think are bearish on the market and have really been as has the street been skeptical of the market all the way up here. Um, I'm I'm still the bull on the street, the high guy on the street, but at the same time, I'm also probably have one of the more uh severe bearish calls. So, so just as a preface, that's, you know, kind of it it's not straight to bust. Um, >> yeah. >> And and the reason you can have that is what I said before. I think for at least the next few months, you're still going to have the look of a soft landing. Um, and frankly, I'm bullish on bonds. um you know bearish on rates. So I think in the next despite today's action in the next couple months, two, three months, you could have rates down well under 4% on the 10-year and that's going to help housing temporarily, probably help autos, help retail a little bit. So So that can give you some of that soft landing look too is that you're getting some support from lower rates. Um but then ultimately I think we are trending towards a recession. That recession then moves towards um a bust. So what am I looking for in terms of triggers for the bust? Um I think let me let me step back and say it's not so much a catalyst for the bust, but what gets us to that bust is that leverage plus I think uh central bank policy error. I think the Fed in particular, but really around the globe, um there's this tendency to worry about the last war and they're still all worried about inflation heating up again. So, it's going to keep them from and not repeating the 20089 um policy. So, it's going to keep them when things start rolling over, there's going to be a a reluctance to print money. They're going to say, "Yeah, we, you know, Paul's already stated, we're not going back to QE infinity. We're not doing that again. U we're not here to support the markets. We're, you know, we're looking at the economy and we're looking, we have a dual mandate of inflation and jobs. And, you know, payroll numbers are still okay. You know, they're starting to weaken, but they're still okay." I'm saying this is what Paul's saying. and um and inflation. We're worried that the tariffs could push up. So, they're going to be slow to respond to what is an economy that's softening, I think. And then as we get more clarity on the softening, they're going to be very timid in what they do. You know, the normal response of saying, "Hey, things are starting to get ugly. We got to print, you know, couple trillion dollars." You know, as we know, they did five trillion in 2020. And their plan is not to do that again. If you ask Paul today and he was on a lie detector, you know, are you going to ever go back to, you know, printing trillions of dollars? He would say no. I mean, I think and be very sincere. You know, there are people think he knows what I'm talking about. No, they truly believe we can't go back there. Now, that will be different that when they finally recognize that that they have to do more than they thought, it'll be too late. I mean, they're they're going to be slowstepping the early part of the uh certainly the recession and then the early part of the bust and they're only going to get to what I call it's not just, you know, unfortunately a lot of people on the street. It's you're either and certainly retail investors are this way. You're either easing or you're tightening. you're either easing or you're not easing. Um it's also a matter of rightsize policy and I have said for quite a while now given the leverage in the system and what I think is coming uh and again it's global I think it could be as much as 20 trillion coming out of the Fed to to um you know stop the freef fall and turn it around. So we we did 3.5 trillion let's say in in response to 20089 you know over the course of the next several years QE1 2 and three and then we did 5 trillion in the pandemic so that got us up to a $9 trillion balance sheet we're only at $875 billion going into the 2008 slide so we went from 875 billion in 2008 fall of 2008 eight to 9 trillion, you know, 15 years later or whatever. Um, and now we've shrunk it back to say 7 trillion. Uh, I believe you'll see us up near 30 trillion in response to the bust. But the first half of that bust, they're going to be very they're going to be slow walking it and thinking, "Yeah, we did a trillion. Oh, we did a couple more trillion. We, you know, they don't realize because they have never, this is going to be unprecedented. We've never unwound like this before. 20089 was the closest and it's going to take them a while to realize, you know, you do you do a trillion and you wait a couple weeks and nothing's happening good. You do another couple trillion. You wait another three or four weeks and nothing's happening good. you do another three or four TRA and it'll take them several months to get to a right size policy. In the meantime, markets are free falling, banks are going out of, you know, are going under. um you know we're seeing a lot of uh involuntary debt liquidation and we've got you know we've got so many areas out there where we talk about the leverage and we talk about I you know mentioned the numbers on debt and derivatives but it's also look at what what that means it means all that private equity um that's basically leverage buyouts you know all the all the pension funds that have loaded up on private equity because it didn't have the volatility that the market had. You know, you've got a lot of those things that have kind of come into play in this this cycle and have never really been fully tested. So, I think you're going to see, you know, a very violent unwind that, you know, I I think the bear could go from peak to trough in 8 to 10 months. I, as I said, I think the economy can go uh the bus could be over in 12 to 18 months. So, it's not that that it's going to be long lasting, but while we're in it, it's going to feel like an eternity. >> And it's it's hard to identify what might be the sort of hair that breaks the camel's back, right? In these scenarios, when everybody is so leveraged and every country is so leveraged, it could be any number of things. That is the first domino causing a tiny liquidity squeeze over here which causes a bigger liquidity squeeze over there and then it permeates, right? And that's >> that's how these events occur. And so to recap, you know, it's only a matter of time before somebody defaults in some fashion, right? And that's the first domino that triggers the recession. We expect 8 to 10 months peak to trough after 30% rise of the equity market from today forward. There's still going to be a frothy uh blowoff top as you mentioned, but eventually um bills are going to have to get paid. Um a de deleveraging will begin to occur and over the course of nearly a year, 8 to 10 months, you expect that potentially up to 80% correction in the market. Um now the Fed's going to watch this. You believe they're going to be more conservative than they've been in 2008 and 2020. So, they're not going to just roll out 10 trillion in stimulus. >> That's actually I I'd say that's probably the >> the easiest prediction I can make. You know, it's it's human behavior. You know, you're you're looking at they they got criticized, not just Paul, but all the Bernani before him. >> They got criticized for all the Z, you know, the Zer policy and all the money that was printed. Um, and so they're they're not going to go back there, or at least they don't think they're going back there. Like I said, if given truth for him, he's being very sincere when he says, "We're not doing that again." But that's that's easy to say when you're not in the midst of it. When you're in the midst of it, there is only one tool that they can deploy. >> You know, nothing else you you can't do it through Congress. You can't do anywhere else. Money, it it's it's happening so fast. the only thing that can help stabilize things is is just printing gobs of money. >> Yeah. So, the search will be for the rightsized policy as you mentioned. And I wonder, you know, that I love I love that you said that. That that's your easiest prediction is that the Fed will not respond aggressively right away. They're going to try really hard not to. And immediately my thoughts went to like, you know, Reagan taking office, right, with bold plans to clean up the government balance sheet. once he got to office realized how much harder that was going to be. I think about President Trump's first term, right? Uh promises of draining the swamp, but once you're in the swamp, turns out it's a lot harder, right, when you're in that Oval Office. Uh and it's hard to deliver on those promises and maybe you're faced with new realities you didn't understand previous to taking that seat, whatever it is. But I found myself wondering is that you Powell can say one thing today, but in the heat of a 2008 style recession, everything's different and whatever you thought you might do just doesn't hold up anymore. >> Yeah. Because because right now the worry is if we if we go back there, we could trigger inflation and make our job so much harder. they're not understanding and and I've said this too is I don't think there's anybody uh in the FOMC on or anybody in the Fed frankly that really understands the the magnitude of the risks this time around like I said it's it's really that debt and derivative story that can because leverage can have things happen much faster and then when you have that kind of leverage that magnitude of leverage it can make things so much greater. I don't think anybody's thought through that and understands, you know, I think they think 20089 was a one oneoff and that yes, we have risk that it could be something like that but less, but I don't think anybody's really understanding how close we are to something bigger than 20089. Um, and so if it's not even in their in their mind as a possibility, it's not among their scenarios, they're they're thinking the the risks, you know, he says this all the time, risks are balanced. You know, we have to worry about dipping us into recession versus worrying about inflation breaking out a bit. >> He had no idea. That's that's the least of your worries. It's so much bigger than that. And he's not going to certainly in the next several months he's not going to understand because the markets are going to be looking like things are okay. And frankly, you know, Paul gets a lot of heat and I defend him on some of this only because I think people have to step away and realize he's saying the same things that the vast majority of Wall Street economists are saying. You know, they weren't pushing for rate cuts here either. I think Paul's I think Powell is late. I think the Fed is late. They should be easing now. But he's not the only one thinking that they don't need to ease. There's no rush. Things look okay to most Wall Street economists. >> Mhm. >> And yet we may be just months away from something that ultimately becomes much bigger than anything we've ever seen. >> And so eventually, and it probably won't be Powell, I suppose, in the seat at this time. If it's 18 months into the future, would it will have rotated the Fed chair at that point in time? Yeah, I'm I you know and I I get timing off all the time. These are big cycles and I can be wrong by you know many many months. But if I'm if if I'm right about my guess of when this thing really gets going, it's probably first quarter next year. >> Okay. >> Uh so he'll be dealing with it before he leaves his position, I think, assuming he sticks around for that. Um but yeah, then he'll be handing it off to somebody else. And the the biggest part of the money print will be probably under somebody else's leadership, >> which is convenient, right? That allows Powell to deliver sort of on his mandate and leave the seat as the guy who did what he said he was going to do or didn't do what he said he wasn't going to do. And the new chair can then uh can then inject this $20 trillion stimulus that you mentioned. So running that forward, that puts us in a sort of new monetary world, does it not? A $30 trillion balance sheet rates have to be zero at this point for any that's there's no other way around that interest expense uh rates have to be zero and we're in total sort of monetary dominance. What's that? Any any thoughts on that, David? What does that look like? And what's the cycle there? I mean, obviously my audience is probably like that's fiscal dominance. This is the downward spiral and the absolute destruction of the purchasing power of the US dollar. But what's what's your take on it? >> Yeah. So, keep in mind this is the US is not operating in the Fed's not operating in a vacuum here. It will be proportionally the same story in with every central bank. >> This is a global bust. >> They'll all be printing at, >> you know, break neck speed uh once once they realize they have no choice. Again, I think that it's not just Powell. All the central bankers to one degree or another are going to be cautious about printing, you know, so it's they're all going to be behind the curveball for behind the curve for a while and ultimately then have to really race to catch up and that's when the money starts pouring out. Um, but it's still ultimately the story of of all that money. Let's say it's 100 trillion. I don't know what it's, you know, 50 trillion. um is way beyond anything this world has ever seen by magnitudes. Um the story is that it jumpst starts it jumpst starts a recovery for sure but it also jumpst starts inflation. Now you know I think the bust will be deflationary because we're going to be entering the bust at very single low singledigit inflation. So, um I think we we'd probably almost definitely go into deflation for a year. Uh and then coming out of that means the first year out despite all that money, you're probably in low singledigit inflation. Second year may be high singledigit inflation. By the third year, you're in double digit inflation on your way to I think in the US you could see 25% inflation by early the early 2030s. So, I mean, the ramifications are huge because rates follow inflation. So, if we're going to be looking at, you know, I lived through I was a money manager in the early 80s. So, you know, you you're looking at in interest rates going from zero that and I'm talking I'll just talk the 10 year you know short rates could be negative are most likely going to be negative but you go 10 years zero and within say six seven years you're looking at you know 10 year maybe approaching 20%. It may be even less time than that even. Um, so you we're still going to have the debt. We're still going to have um governments having to finance, you know, having to service their debt. And my guess is, you know, the I talk about the money, but it's going to be both fiscal and monetary. Obviously, it always is. Um, the Fed will be monetizing new debt. The Fed will the Treasury will be issuing new debt. They'll be doing all kind of programs like they did in 2020. And so, um, the, you know, the Fed will be, um, buying all that debt, monetizing that debt. That means we're, you know, if we're, um, at 37 trillion now in in US government debt, you know, it's probably going to be north of 50. Um if we're at 330 trillion now global debt both sovereign and private you know corporate everything um it's probably going to be something approaching 450 to 500 trillion. All that debt or a lot of that debt is going to have to be serviced and refunded, you know, refinanced, etc. at higher rates and, you know, just sticking to the US government, there's no way you can solve that equation. If you're looking at interest rates in the double digits and your debt is where it is, we can't service it at 5%. Right. >> No. >> Um, and and it it crowds out every other thing you can do in the government if if you have to. that ultimately I think it leads to again not not for several years but in the probably by 2020 2033 to 35 I think it leads to a collapse of the financial system as we know it. Um, so, um, you know, the Austrians might believe, you know, I look at Peter Schiff as an example, might believe that this is the endgame now and that we, you know, that we're heading straight south from here. I believe that we have one more cycle because we have the printing press. As long as you have in inflation near zero or below zero, you have you can print money almost to infinity because there's a lag to when that shows up as inflation. So, so for the next, you know, when the bust hits, for the next 18 months after that, you have the ability to print money to whatever level you need to and that's why it's going to grow to what it is because, you know, they're trying to stabilize the system. >> Yeah. But then once it happens, there's nothing you can do because you've you've waited way too long to to back off of that. And once that inflation starts heating up, you're not going to be able to stop it. Uh you know there and you're going to you're not you know they're going to fight tightening because tightening means higher rates at a time when they can't afford the rates that they're going to be dealing with. So, so they're going to be slow to tighten and and as I say, you can't print your way out of it once inflation really heats up because it's like pouring gasoline on a forest fire, you know, it just it just makes more inflation. So, they basically they run out of options next cycle. This cycle they have the printing press. Next cycle there will be no options left. >> Yeah. Okay. That's that's interesting. And that culminates in like the 2035. Again, massive estimates. It's impossible to time these cycles, but just making some assumptions and our our best guesses. So, a couple things I wanted to ask you off the back of that and they both come from the same place. What should therefore investors be thinking about in terms of protecting their net worth, protecting their purchasing power, reducing their exposure to counterparty risk? In this uh scenario, it's the issuer of the currency. Um, and is there upside to be captured? And I, you know, I've recently been reading a little bit about, you know, life in Amsterdam and life in London, you know, as those empires quote unquote collapsed, right? And obviously life in London, the empire didn't collapse, right? The baton was passed over the course of about 30 years. But if you were a citizen of London, you might not even have noticed much in your life changed. And they had periods of immense volatility that actually started way before. I mean inflation in the UK was like 30% in uh 1803 like you know but they recovered from that right when they lost the American colonies. It triggered massive inflation to the UK and you could have said this is the beginning of the end for the UK empire but it wasn't right. They had their best years ahead of them still. Um but citizens in London wouldn't have noticed much from a transition of global power when it occurred right from the 20s to the 50s. Um what do you expect the experience to be the lived experience for the average American and where should people be looking to protect their purchasing power and find safe haven? >> So let's let's start with getting from here to the the next recovery cycle. So you you go into this bust um you have to be very aware that for the last you know from the mid80s on the mantra in the financial industry was it's time in the market not timing the market >> and that was correct all the way through anybody you it didn't take any genius to to put your money in an index fund and you've probably outperformed most professional money managers in, you know, in the last 40 years. Um, if you bought back in the mid 80s or any time since and and put it in, the index fund, you know, the S&P index has outperformed active management typically and that's because we were in a period of disinflation where interest rates came down, PE multiples went up, earnings did great, uh, and and indexes did great. going into this, if you listen to your financial advisors because they're not going to say anything otherwise. Now, they're going to say, "Oh, don't bail out. You know, it's markets always go to new highs. You just, you know, if you just ride through these things, you come out the other side and you do fine." And they've been right through all these cycles since 80, you know, mid 80s. The problem is that if we're going down 80% or anything close to that, I think the highs this cycle that we make later this year, in my opinion, um will probably stand for decades. Um, and obviously if if my dire forecast comes true in the mid-30s, it may be many decades, but but um so so it's going to behoove people to actually go against what the the kind of consensus advice out there is and and actually liquidate your portfolios or get very defensive and meaning in cash and bond. you know, treasuries will be one of the very few assets to hold up in the bust if if interest rates go from where they are now to zero. You know, holding a long bond is going to be very lucrative. Um, so so you can hide during the bust, but it's not in equities. Um, and you know, you could say, well, I'll be in defense of equities like utilities. Well, they're not defensive anymore so much anymore. And frankly, they'll go down less than the market, but if the market goes down 80 and they go down 40, you're not going to be a happy camper. >> Um, and you know, same thing with consumer staples and things, they may go down less than the market, maybe not. Um, but they're not going to preserve your capital. So, preservation of capital somewhere later this year is going to be very important. And I should point out cuz timewise, we may not be very far from a top. So, normally I my own advice would be, you know, you're not gonna nobody's going to call the top. Don't don't try to be a hero. You know, if you're out by if you're out 6 months early, you'll be grateful you're out. The problem is if we're looking at 30 to 50% upside between now and the end of the year, that's typically three years worth of returns at least. And so, even though timewise it's time to say, "Hey, I I'm not taking any more risk. I'm getting out. You're going to be very unhappy if you get out now and miss 30 40% upside and and then knowing psychology the way I do. I'm a contrarian. have studied psychology a lot or you know behavioral economics. Investors that come out today are almost sure a majority of them to be drawn back in at the top because at the top there's not going to be a bell rung. >> At the top most institutions that have been skeptical all the way up are going to be screaming that this thing has a long way to run. We just started a new Fed uh easing cycle. you know, there's at least a couple more years to go. And so, if you got out now, you're gonna say, "Hey, I can't afford to miss more of this upside. I just missed 30 or 40%. I got to get back in." You know, I was dumb. I was dumb to get out. And then you what do you do? You just you just climb back in at the top. >> Um, so again, I'm not going to be perfect. I'm not going to call this thing precisely the way I'm telling you it's going to go, but I am pretty confident that that's what we're headed for. So, the first step is going to be that capital preservation uh sometime in the next, you know, 3 to 6 months where you get out and you don't want to be late. That's that's for sure because the first step down could be, you know, 25 or 30% down. So, um so that's first step. Then you go through the bus and as I said, you know, treasuries, FDIC insured savings accounts um are probably the things that will hold up the best. My guess is given what happened in 20089 and given how much money is going to be flooding into the system at some point they will uh put back that policy of we won't break a buck on the money market so that they'll you know basically be ensuring the money market is going to stay whole. Um so you you're probably going to be able to use that but we don't know that yet so I can't say that for sure. Mhm. >> Um so it's going to be preservation of capital for the you know from that peak through the bust on the other and and by the way metals um that people think are good defensive things they're likely to get hit pretty hard. I think it's going to be hard to find many assets that don't get hit hard in a bust. Um so certainly silver is a economically sensitive metal. It could go down almost as much as the market you know 50 60 70%. Gold may hold up better because it is something that people run to. So it might only go down 30 40%. But it's going to go down. Um and that's not from here. Again, I have we can talk about my metals forecast later, but I have pretty big expectation before we get there um to the bus. But and then so preservation capital through the bust on the other side of the bust. This isn't the end of making money in markets or the end of opportunities. I believe if you if you just looking at the US, if you look at something close to 20 trillion in in um new QE and even if I'm half right, it's only 10, you're looking at a Vbottom at some point. So if you go down 80%, you can come back three or four fold from that. So, let's let's just use 9,000 as an S&P estimate for a top, you know, 80% down gets you to 1,800. You could see the market go up, let's say, fourfold from that, and that's 7,200. If we peak at 9,000 and go back to 7,200, you're in a secular bare market if that's your high for the next cycle. Um, but you also had a four-fold increase out of the bottom. So those that think it's the end of the day here when we top out, no, there's another cycle after this one and there's going to be plenty of money mark moneym opportunities and most importantly going to be a lot of opportunities in commodities. M >> this cycle was driven you know was led by tech and up until a year ago healthcare and you know some other things. The next cycle will be a commodity cycle with all that money printed and with the reshoring going on and you know more of that to come um you're going to see that it's industrials and commodities that will dominate the leadership in the next cycle. I am forecasting oil to go to $30 in the bust. Uh, and I think I've been the only right bear out there calling for, you know, I called low 60s when it was um over, you know,und over 100. So, um, I I think 30 in the bust. I think you could see oil at $500 by the early 2030s. >> H So, so there's going to be, you know, energy will be a dominant leader. Um, copper will do very well. Um, you know, any any of the industrial metals will do well. Uh, and the precious metals will probably top the charts. I I think gold's going to 20,000 by sometime in the early 2030s. I think silver's going to 500 in that time. And I may be conservative. Um, uh, I think they can get hit in the bust. As I said, my targets for, by the way, just to square that circle. Um my targets for silver pre-bust is 75 and for gold 4,000. So you know we we go to 75 here in the next 6 months or less and then could go down below 30 again. We we could see gold at 4,000 this year and then go back down under 3,000. Um so um you know but from there the next cycle if we go to 20,000 on gold you can obviously see what that does and silver 500 from wherever it bottoms in the bust. So there's there's going to be tremendous opportunities but it's not in the same leadership that major your money this time around and it's sure not going to be in the indexes. could be in the indexes for ye, you know, the first year or 18 months coming out of the bottom, but after that you're going to have a stiff headwind of ever rising interest rates pushing P multiples down. So the only things that really work in that kind of an environment that was kind of the late 70s early 80s market is you go into the the industries the particularly the commodities where their price flexibility because of the supply demand situation means they're able to uh print earnings or or make earnings that stay far ahead of the interest rate gains. So as rates go up, earnings are going up faster. In most most of the sectors, earnings aren't going to keep pace with inflation. So your stocks go down. >> So okay, thank you for that. So the commodities run that we're currently experiencing right now. A lot of hard commodities uh trending at or near all-time highs and the equities responding in most cases in many cases. That trend and oft you know it's on the heels of a handful of things. The industry has been starved of capital for 15 years. Uh you know del globalization whatever you want to call it reshoring French shoring. This just decreases our certainty and future supply of these commodities. And so demand will go up and price will reflect that. And that's a trend that you see as long-term that's going to carry us probably towards the end of the 2030s. You know, we'll have to wait and see, but it's a long-term trend. But in the interim, in the interim, uh, in these liquidity squeezes, anything with a bid gets sold. And that's why you say despite having a $4,000 target for gold pre-bust and 20,000 post, in the interim, it may fall by 25%. Same thing with silver, right? We're looking at maybe $75 pre-bust. Uh, I think you said 200 or 500, 500 postbust in the recovery. But in the interim, right, if it's got a bid, it's going to get sold to cover our obligations priced in US dollars. And >> Yep. And remember, every everybody, you know, those those metals get bought on leverage. So there's going to be margin calls. There's going to be all kinds of deleveraging going on. >> And so you get a lot of forceelling in that process. Um so but and and when you mentioned the rejouring things what really is the whole thesis around the postbust period is we we've spent decades rational rationalizing down our capacity in commodities right it became >> you know it was overcapacitized in in uh the early 1980s and we've spent decades kind of getting uh capacity down and of course commodities are something that gets um used up and it gets harder and harder to find more. >> Uh we discouraged investment in that area not just the US but around the world um such that you know because if if it wasn't going to be economically viable in in the shorter term it wasn't going to be developed. So, so what we're going to have is you have 20 trillion from the US and maybe it's 50 trillion from the world causing this ramp up in demand because it's it's it's combined with this whole reindustrialization that's going to go on. You have the ramping up of demand because that money goes into the system and creates demand quickly. To put on new capacity in in um commodities takes maybe 10 years, maybe longer, right? And maybe in the shortest cases maybe 5 years, but you're going to have demand far outstrip capacity uh uh for many years, far outstrip supply for for several years. So the only thing they can give in that scenario is price. So price goes through the roof and these companies coin money. >> Um and so for a period of time, that's what we're going to be looking at in the next cycle. It's going to be a very different cycle than any of the cycles we've had post the early 80s. You know, it's basically been, you know, I lived through that, but we haven't really had it's been all disinflation since then. We've had some bump ups and and you know, periods where industrials took off and commodities had their day, but just very short spurts, not not this long spike that you're going to see next cycle. >> Yeah. Okay. Okay, David, this has been very interesting. I always appreciate catching up with you. We've covered a lot of ground. It's very fun conversation and I appreciate your time very much. >> Yeah, thanks Jay. Thanks for having me on. >> You will not hear this from most financial adviserss and in fact the traditional construction of most portfolios in Canada actually inhibits you from benefiting from these 10x stocks. You can find the next 10x stock in the most boring places. Boring, beautiful businesses. They create great cash flow over the long term. We recommended this company at 60. Today trades at 116. That's 200x where we originally recommended it. Boyd Group traded at $2.30. Today about 222, about 10,000%. If you had 20 stocks in that portfolio, all other 19 companies could have literally went to zero in that portfolio and you'd still have a tremendous return. You really find the companies, the next 10x stocks in a down market when everybody is looking away. When there's blood in the streets, that's a great time to buy. 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“Massive Market Correction” is coming – Where will the money be made?
Summary
Transcript
Is the United States heading towards state capitalism? If so, what does that mean for regular folks like you and I? Let's talk about it. Today, I get into this topic with my guest, David Hunter. This is the J Martin show where we dissect the greatest minds in geopolitics and finance. Enjoy. >> This is Jay Martin. >> All right. Here I am with David Hunter. David, it's great to have you back on the program. >> Yeah. Hi, Jay. Great to see you. Good to see you. Okay, so I want to start today by talking to you about state capitalism. Uh here here's what I'll say. Uh recently we've watched President Trump um negotiate some interesting deals, right? first of all with Nippon Steel and US Steel. He initially vetoed this merger and then allowed it with the contingency that they would be rewarded US government was rewarded with effectively a golden share which gives them a lot of influence over the company's US operations. And more recently with the um Nvidia AMD deal, now the US takes a 15% cut of a certain type uh certain chips that are sent to China. Um, we also watched the sort of demanding of the uh ousting of the Intel CEO, which hasn't materialized yet, but he's still pushing for. And more recently, obviously, the dismissal of the BLS chief. Now, here's my question. Supporters would say, look, the uh Nvidia deal, the Nippon Steel deal, that's his negotiating prowess. He's securing better deals for America. That's what we hired him to do. And in terms of Intel or the BLS, he's draining the swamp to some degree. That's also what we hired him to do. Um the the the counterpoint to that might be that while these deals seem a bit novel in American politics, they're not at all novel in Chinese politics. This is often and frequently how business is done. State creep into private enterprise to influence the outcome. Now, a generation ago, the assumption was that if China liberalized, the economy would look more like America. And I'm wondering, could today we make an argument that the opposite is becoming true? State creep into state capitalism in the US? What's what's your take? And then I'll pull on some threads. >> Sure. Um yeah, I mean clearly Trump's different than anybody we've ever had. Um and he's not a pure Republican or pure conservative. Um he actually in his most of his life was probably um socially liberal at least. And um so we are seeing that we know he's a dealmaker. So that's mostly what you're seeing. Yeah, there are times when uh you know I I'm not as comfortable with some things particularly you know his his efforts to get Jay Powell out of there. Um you know I think he should leave that to Bessant and I don't think Bessant's uncomfortable with what's going on. So um I think you also have to look at where we're coming from. He's trying to reverse 40 years of very bad policies and correct some things. He's smart enough to know second time around. I don't have a lot of time. I may only have two years. I may have four, but um you know, my leverage diminishes as we go through this administration and or as we go through this term. So, he's trying to get a lot done in a hurry. Uh he cuts corners, I think. And if he can get a deal, he's not looking for the perfect deal. is looking for something that boos us in the direction he's trying to accomplish and and uh so I I'm I'm certainly not uncomfortable with what he did with Nippon Steel. I mean, the reality is you're getting new capital into an industry that needs it. Um US Steel itself wasn't going to be able to do that. Uh I don't think Cleveland Cliffs really could have done it. So, he's he's doing it, but he's also um you know, obviously his big interest is to get um capital into this country and get manufacturing back where it was in this country. So, he's willing to cut corners and and give Nippon ownership as long as we have some control over that. So, I'm comfortable with that one. Um you know, the tariffs really is a case of trying to fix something in a hurry. Um and you know you have to kind of step back and let let it work. Um he is trying to he's he's basically whether he's right or wrong he's looking at two goals. One is to reduce the deficit get revenues in here and the other is to bring manufacturing back here and open up country other countries to the way we've been open. So, um I I think if you understand his goals, um you get a little bit more comfortable with his approach. Um I can understand people being uncomfortable with it. I don't really think uh we're going to see this as a longlasting policy after he's gone. You know, I don't think JD Vance will necessarily pursue the same kind of thing. you know, Trump is half half uh the uh you know, world leader and half still, you know, somebody who learned how to negotiate in real estate. So, you're seeing both of those things at work. Um you know, whoever we get in to follow him, I don't think we'll pursue anything close to these kind of policy. I mean, the policies will be the same, but the the efforts, the tactics will be different. >> It will be more traditional. Yeah, that's that's an interesting take. I I appreciate that because whenever I watch the reason I ask the question is because whenever I watch these sort of novel developments occur in politics, we we've seen them up where I live, you know, over the last few years, I always have to ask, is this a standalone event or is this new precedent, right? And and more often than not in politics, if it's some kind of a power grab, it's new president because the door has now been opened for future successors. And the problem with that is that if the party you voted for opened that door, maybe the next one in the seat is going to be the party that you didn't vote for, right? And similar influence, power, and strategy, but with the opposing party supporting policies you do not like, right? Is that a risk, do you think? >> Certainly a risk. I think the bigger uh where where I draw the comparison to what you see up up in Canada um I'd say is more in Congress where you see the Senate, you know, everybody on our side on on on the right side of the um equation wants wants Senate to do whatever they have to do to accomplish the goals. And the Senate pushes back and says if we do that and set new president, soon as we lose power, we're opening a door for the other side. So I I see there more of that where if we break the president, if we do something, it's going to come back to haunt us on the other side. The problem is um the left seems to be willing to break whether we do or not. So I'm not sure whether that makes sense or not. It, you know, it becomes the whole end justifies the mean thing and that doesn't always work out. >> Yeah. Well, it's a tricky situation, right? Because if you were to simplify sort of the global economy right now as a competition between the United States and China, you have one economy that doesn't have to wait for political will. They don't have to wait for popular support. Any policy can be pushed forward and uh it's run like a business, right? Like my my company is not a democracy, right? We I set the strategy, the vision, and we hunt that down, right? Um America thankfully has a handful of checks and balances in place to prevent that outcome. but as a consequence moves a little bit slower and so you know I I find myself cheering for the cut corners to be honest with you because the bureaucratic process has become too much right it's important to have those checks and balances in place but it's gotten out of hand obviously maybe what's your take on that David >> yeah I agree with that again it goes back to I think Trump has a limited time horizon to correct an awful lot of um problems excesses in our our society and our country and and in our economy. So, so I I do generally and maybe it's just because he is doing what I want or the goals are what I want. Um I generally support what he's doing. Um I do understand the slippery slope at times but frankly the other side has if we talk about corners that have been cut there have been so many corners cut over the last uh you know certainly the last 20 years uh that have changed this country in in very negative ways. Trying to bring it back is not easy. Um, I'm not a big one that, you know, the media loves to go out and pull everything and and think that the popular opinion is what matters. Sometimes it's not because they've spent so much time under basically a um an agenda that they're they're not aware of what really is is happening. And we're moving very swiftly uh into a point of no return. If not for Trump, if not for him winning this election, I I think we would have really seen us go socialistic and and maybe unfortunately global world order would have won. Uh so this is I think our only hope to push back against that and basically I think the world's only hope. >> So let me ask you about that because I I think you're right. And I saw a trajectory of uh a large number of very unsettling trends occurring you know in sort of like the global you know the globalization trend as opposed to massively summarize and a lot of that conversation a lot of those headlines have been muted in the last 6 months we haven't heard a lot right um do you believe that's temporary are those forces still at play beneath the surface waiting out this current president um I know a lot of if if I were the leader of any of the BRICS nations for example, I'd probably be approaching the current strategy as uh we have to wait 3 or 4 years before we can really get aggressive, but it's only three or four years. America thinks in two or four year cycles. We think in forever terms, right? And so it's just a waiting game. We're playing the long game. We know what's going to happen back in the West. You know what always happens. What's your take on that, David? >> I would agree with that. I I think it's certainly still there. Um you you have they have taken a big step back. not by choice. Um, but you know, Trump has really turned things around in a lot of places, but particularly in Europe. Um, but he certainly hasn't turned it around in your country yet. You know, Carney Carney is one of the lead globalists for sure. Um, and so, uh, I think some are laying in the weeds, others are still not understanding the game, at least in the short run, has changed. Carney, I think, thinks he has leverage when he doesn't. But um you know and that's that basically Trump is using leverage where he has and he understands our market is his leverage. Um and our military might at least in the west is his leverage. Um but you know when it goes you know when it comes to China um and and and to Putin he finds out he he he can only push so far. They they know they have some leverage too. So, >> um, but I do think, yeah, once he's out of I think they they truly believe that once he's out of there, we can, you know, >> um, pick up our agenda where we left off. Maybe we have take a step back, but we're we're not going away. So, I they're by no means um, put the bed. >> Yeah. Right. Okay. Let me I want to get into maybe the China and Russia dynamic in a minute here, but just sticking with uh, domestic issues for a second, the the BLS headlines this week. So, Bureau of Labor Stat Statistics came out with jobs numbers 3 months ago, revised those dramatically uh last week, and there's always a revision about 3 months later. Uh that's normal, but this revision was huge and led to President Trump accusing the agency of uh manipulating the data to make him look bad and order the dismissal of the chief. Um, now I I think the Bureau of Labor Statistics is very archaic. I looked into how it operates and I was shocked to be honest with you that they're conducting surveys, you know, people calling people um in terms of there's sort of two main data points they focus on. One is are you employed or not employed? They call about 60,000 people. So that's the sample size. 60,000 people in a country of 360 million. Seems crazy to me, right? Uh and they also call employers and they call about 650,000 employers. a lot more, but the success rate on completing those surveys is like at best 60%. Because it's not mandatory. It's mandatory in five states, but the majority of country it isn't. And as a business owner, that's like if that lands on my desk on a Tuesday morning and I got 12 priorities on a slow day, like that's not making the list, right? I might get there eventually. Uh but what happens as a consequence is maybe they get 50 60% on the initial round and then 2 to 3 months later they keep prompting these business owners and they get up to 90%. they claim success rate and that's why the revision occurs. There's the initial data uh when they send the surveys out and then they get more responses trickling in over the consecutive months and then send out revised data on the heels of that. Um I just want to step back and get your take, David, on last week's this week's developments with the BLS, Trump's decision. How are you interpreting all this? >> Um I have no problem with him removing her. um you know, she's it's his prerogative to put whoever he wants into his administration positions or government positions where he has a control over it. Um I wish he had not gone full boore in terms of, you know, he was sure it was politics and all of that cuz I'm not sure. I I can't say whether it was or not. What I think people on the other side who want to defend her and and say this is, you know, he's all wrong. what they what they fail to understand is that there are ways to kind of softly get um you know bias the numbers. So you you you know particularly on the on the uh jobs uh you know surveys you you got just like they skew the polls by only polling people they know you know they know what they're going to get for answers. So so there are ways to skew when people say oh there's so many people involved in that she's not the one. I'm not saying she did it all, but she was overseeing a flawed process, whether it was political or not political. So, I have no problem with him putting somebody in he has more confidence in. Um, I I am not a big believer that the jobs number is should get the attention it gets every month. Um, because it's a lagging indicator. Um, and unfortunately, the Fed pays way too much attention to that. the street pays too much attention to that. So, um it's it's not one that I think is a big deal except that it makes for a lot of good headlines for the media, particularly the mainstream media that has an agenda. Um you know, they they they love to kind of take things that he think he they think will make him look bad or make him look kind of crazy and blow it up into a much bigger deal than it is. Um, so >> you know, I I I mean I heard Jim Kramer this morning uh in his typical kind of shtick uh trying to compare that with the CPI that comes out of the Bureau of Labor Statistics as well and saying, "Well, I no longer am going to pay attention to these government numbers cuz now I don't know if any of them are cooked or not cooked or whatever." Um, and so I'm only going to use private numbers or I'm going to look at companies and get my response. You know, again, it's a kind of an anti-Trump take. You know, it's it basically he takes every opportunity to kind of make make a point that Trump is, you know, not not the best president. So, um, so I, you know, I there's going to be people out there on both sides. I I view it as kind of a non-event. You know, makes makes for headlines for a week and then you move on. >> Yeah, that's that's actually the best take I've heard is that maybe the agency is dated. I think it definitely is. The way they conduct their surveys is archaic and it's not it's not accurate in today's world and CPI as well. People literally drive out to shops, check price tags, or they call department stores and ask about the price of a pair of cargo pants. Like it's amazing how archaic this system is. So, does it need to be shaken up? Like 100%. But I think what you said is actually in fact we just put way too much weight on these numbers. And that's maybe the bigger I align with that completely. It kind of drives me nuts when people obsess over the CPI number coming out and it's like just look around you. You'll know if prices are inflating, right? And uh >> yeah, tra trader traders love it. It's makes for their job for that day to, you know, make their job. I go I look at trends. I'm not looking at one or two month numbers. I'm looking at trends. And yes, you want to be able to rely on numbers over time. Um but yeah, we have seen these big revisions lots of other times and and frankly uh again I want leading indicators. I don't want lagging indicators. You know it's >> focusing in on jobs is going to mean you're going to be guaranteed to be late which is obviously the MMO of the Fed. >> Yeah. Okay. So let's let me ask you then um what are you paying attention to right now um in the American economy and if you were to give it a a score uh in terms of economic health right now where would you land? >> Yeah, I I basically am saying that the inflation is trending down. It may have stalled a little bit here. It may get sticky here, but basically I think we're trending towards ultimately deflation if I'm right that we're heading for a global bust. But I think we may already be in recession and if we're not uh and that will only be known when they go back after the fact and and date the recession. So I'm not saying it'll be obvious in the next month but we could be there already and if not we are definitely slowing. Um and so if the economy is slowing I think it's going to keep inflation pretty much under control until it rolls rolls further down when the economy really takes a dip. Um, frankly, people don't talk enough about the fact that we have crude oil at, you know, $63 a a barrel. Uh, you know, down from, you know, high8s and certainly in the, you know, just more recently, you know, it bounced bounced up from 55 to the mid70s because of Iran, but it's right back down into the low 60s. So, I I think gasoline and oil are going to help keep inflation moving down, not up. And you know, I think the economy is trending down and I think those are much more important stories than you know, month-to-month data. >> Okay. So, probably uh good at this point. I want to revisit your your global economic thesis that we've touched on a few times on this show, but I haven't had you on in probably four or five months. So, I'd like to revisit this. If you could just start essentially from the beginning, uh what is your global economic thesis? And then I'll pull on some threads from there, David. >> Okay. Yeah. My my view has been and continues to be that the economy is moving towards recession and that because of the leverage in the system which is beyond anything we've had in any previous cycle so far beyond 20089 far beyond 2020 um we're we're looking at you know 330 trillion in global debt we're looking at quadrillions in notial value of derivatives so I describe uh the debt has leverage on the financial system, leverage on the economy, and derivatives has the leverage on the markets. You know, fixed income, equity, metals, everything. You know, there's so many derivatives out there. Um, and people don't realize we really didn't have derivatives before the mid 80s or late 80s. So we've just exploded in terms of you know kind of tail wagging the door dog in a lot of ways with that leverage in in both on the system and on the markets. I believe this is going to be far bigger than 20089. So, as I say, 20089, um, we almost went over the cliff, but, you know, when the commercial paper market froze and and GE almost went under, um, you our our policy makers acted just in time and kind of pulled us back from the edge of the cliff. Uh, we had a, you know, rough, uh, what they call a great recession, but we didn't go over the cliff. I think this time the potential is there for us to go over the cliff. Meaning I call a global bust, but basically meaning something that uh leads to lots of bank failures, big bank failures across the globe, probably more so overseas than the US's time because our banks were forced to clean up their act and get, you know, unlevered deleverag. So, um, they're still vulnerable and certainly the counterparty risk means that if something happens in the big banks in Europe or, you know, your banks or, you know, over in Japan, you know, our banks are in trouble, too. But, but that's my thesis is just very simply the leverage this time around could take what would have been an ordinary recession and turn it into something greater. I'd define a bust as something that will feel like a depression but not last for more than 12 to 18 months. So it, you know, the unwind will happen very fast relative to what a depression is. Um and but it will come with a lot of um certain a lot of pain while you're in it. Uh I think the stock market can drop as much as 80% peaks trough. Um so um you know people have a hard time with that part of my my u forecast now because obviously we are nowhere near that seemingly nowhere near that. We're questioning whether we're even going to see a recession. Um I think right now you can get a very uh long extension or steep extension to the bull market because I think there's enough um bullcency in the market to allow um particularly the institutions to believe it's soft landing. So but I believe it's going to be a hard landing starting next year. Could could even begin by the end of this year. I think as we saw in 2008, um when things tip over, they can get pretty ugly pretty fast. So, you have to be careful not to be lulled to sleep. I I remember September of 2008, I was calling for a hard landing and I had no company. The vast majority of economists on the street were saying soft landing, no recession in sight. That was three weeks from Lehman Brothers. M so things can happen fast particularly in the financial world um you know you can think everything's kind of not that it's great but it's not bad and then go from soft landing to hard landing expectations in a hurry. So um I don't know if we'll see it that quickly but that's kind of my guess is that next year is going to be the bust. >> Okay. Now there's obviously some major personalities that agree with that. I think Ray Dallio on a personal level is 100% out of equities. Uh Jeremy Grantham is calling for a 50% correction in the market. Michael Bur has a $98 million uh short bet against Nvidia. So, you know, they're all circling the same concept. If this would be so much more severe because of the leverage and we're looking at sometime next year, walk me through the unwinding process. What will you be looking for to add validation to this thesis or or not? >> Sure. And before we get there, let me just say where I differ from those three guys and and lots of others out there is I'm calling for this parabolic meltup into the top first. So, I've raised my probably since we last talked, I've raised my targets at least twice. I'm at 8,700 on the S&P this year. uh you know 30 uh 40 what am I 30,000 on the NASDAQ 60,000 on the Dow and 3400 on the Russell. So if you do the math basically low 30% gain from here on the S&P uh mid30s gain on the Dow about a 40% gain on the NASDAQ and a 50% gain on the Russell. So, and I'm saying that will likely happen this year and you know um maybe by uh early fourth quarter even. So, I think it'll go parabolic and we'll cover a lot of that ground in a hurry. So, that's the others have been bearish for a while and I think are bearish on the market and have really been as has the street been skeptical of the market all the way up here. Um, I'm I'm still the bull on the street, the high guy on the street, but at the same time, I'm also probably have one of the more uh severe bearish calls. So, so just as a preface, that's, you know, kind of it it's not straight to bust. Um, >> yeah. >> And and the reason you can have that is what I said before. I think for at least the next few months, you're still going to have the look of a soft landing. Um, and frankly, I'm bullish on bonds. um you know bearish on rates. So I think in the next despite today's action in the next couple months, two, three months, you could have rates down well under 4% on the 10-year and that's going to help housing temporarily, probably help autos, help retail a little bit. So So that can give you some of that soft landing look too is that you're getting some support from lower rates. Um but then ultimately I think we are trending towards a recession. That recession then moves towards um a bust. So what am I looking for in terms of triggers for the bust? Um I think let me let me step back and say it's not so much a catalyst for the bust, but what gets us to that bust is that leverage plus I think uh central bank policy error. I think the Fed in particular, but really around the globe, um there's this tendency to worry about the last war and they're still all worried about inflation heating up again. So, it's going to keep them from and not repeating the 20089 um policy. So, it's going to keep them when things start rolling over, there's going to be a a reluctance to print money. They're going to say, "Yeah, we, you know, Paul's already stated, we're not going back to QE infinity. We're not doing that again. U we're not here to support the markets. We're, you know, we're looking at the economy and we're looking, we have a dual mandate of inflation and jobs. And, you know, payroll numbers are still okay. You know, they're starting to weaken, but they're still okay." I'm saying this is what Paul's saying. and um and inflation. We're worried that the tariffs could push up. So, they're going to be slow to respond to what is an economy that's softening, I think. And then as we get more clarity on the softening, they're going to be very timid in what they do. You know, the normal response of saying, "Hey, things are starting to get ugly. We got to print, you know, couple trillion dollars." You know, as we know, they did five trillion in 2020. And their plan is not to do that again. If you ask Paul today and he was on a lie detector, you know, are you going to ever go back to, you know, printing trillions of dollars? He would say no. I mean, I think and be very sincere. You know, there are people think he knows what I'm talking about. No, they truly believe we can't go back there. Now, that will be different that when they finally recognize that that they have to do more than they thought, it'll be too late. I mean, they're they're going to be slowstepping the early part of the uh certainly the recession and then the early part of the bust and they're only going to get to what I call it's not just, you know, unfortunately a lot of people on the street. It's you're either and certainly retail investors are this way. You're either easing or you're tightening. you're either easing or you're not easing. Um it's also a matter of rightsize policy and I have said for quite a while now given the leverage in the system and what I think is coming uh and again it's global I think it could be as much as 20 trillion coming out of the Fed to to um you know stop the freef fall and turn it around. So we we did 3.5 trillion let's say in in response to 20089 you know over the course of the next several years QE1 2 and three and then we did 5 trillion in the pandemic so that got us up to a $9 trillion balance sheet we're only at $875 billion going into the 2008 slide so we went from 875 billion in 2008 fall of 2008 eight to 9 trillion, you know, 15 years later or whatever. Um, and now we've shrunk it back to say 7 trillion. Uh, I believe you'll see us up near 30 trillion in response to the bust. But the first half of that bust, they're going to be very they're going to be slow walking it and thinking, "Yeah, we did a trillion. Oh, we did a couple more trillion. We, you know, they don't realize because they have never, this is going to be unprecedented. We've never unwound like this before. 20089 was the closest and it's going to take them a while to realize, you know, you do you do a trillion and you wait a couple weeks and nothing's happening good. You do another couple trillion. You wait another three or four weeks and nothing's happening good. you do another three or four TRA and it'll take them several months to get to a right size policy. In the meantime, markets are free falling, banks are going out of, you know, are going under. um you know we're seeing a lot of uh involuntary debt liquidation and we've got you know we've got so many areas out there where we talk about the leverage and we talk about I you know mentioned the numbers on debt and derivatives but it's also look at what what that means it means all that private equity um that's basically leverage buyouts you know all the all the pension funds that have loaded up on private equity because it didn't have the volatility that the market had. You know, you've got a lot of those things that have kind of come into play in this this cycle and have never really been fully tested. So, I think you're going to see, you know, a very violent unwind that, you know, I I think the bear could go from peak to trough in 8 to 10 months. I, as I said, I think the economy can go uh the bus could be over in 12 to 18 months. So, it's not that that it's going to be long lasting, but while we're in it, it's going to feel like an eternity. >> And it's it's hard to identify what might be the sort of hair that breaks the camel's back, right? In these scenarios, when everybody is so leveraged and every country is so leveraged, it could be any number of things. That is the first domino causing a tiny liquidity squeeze over here which causes a bigger liquidity squeeze over there and then it permeates, right? And that's >> that's how these events occur. And so to recap, you know, it's only a matter of time before somebody defaults in some fashion, right? And that's the first domino that triggers the recession. We expect 8 to 10 months peak to trough after 30% rise of the equity market from today forward. There's still going to be a frothy uh blowoff top as you mentioned, but eventually um bills are going to have to get paid. Um a de deleveraging will begin to occur and over the course of nearly a year, 8 to 10 months, you expect that potentially up to 80% correction in the market. Um now the Fed's going to watch this. You believe they're going to be more conservative than they've been in 2008 and 2020. So, they're not going to just roll out 10 trillion in stimulus. >> That's actually I I'd say that's probably the >> the easiest prediction I can make. You know, it's it's human behavior. You know, you're you're looking at they they got criticized, not just Paul, but all the Bernani before him. >> They got criticized for all the Z, you know, the Zer policy and all the money that was printed. Um, and so they're they're not going to go back there, or at least they don't think they're going back there. Like I said, if given truth for him, he's being very sincere when he says, "We're not doing that again." But that's that's easy to say when you're not in the midst of it. When you're in the midst of it, there is only one tool that they can deploy. >> You know, nothing else you you can't do it through Congress. You can't do anywhere else. Money, it it's it's happening so fast. the only thing that can help stabilize things is is just printing gobs of money. >> Yeah. So, the search will be for the rightsized policy as you mentioned. And I wonder, you know, that I love I love that you said that. That that's your easiest prediction is that the Fed will not respond aggressively right away. They're going to try really hard not to. And immediately my thoughts went to like, you know, Reagan taking office, right, with bold plans to clean up the government balance sheet. once he got to office realized how much harder that was going to be. I think about President Trump's first term, right? Uh promises of draining the swamp, but once you're in the swamp, turns out it's a lot harder, right, when you're in that Oval Office. Uh and it's hard to deliver on those promises and maybe you're faced with new realities you didn't understand previous to taking that seat, whatever it is. But I found myself wondering is that you Powell can say one thing today, but in the heat of a 2008 style recession, everything's different and whatever you thought you might do just doesn't hold up anymore. >> Yeah. Because because right now the worry is if we if we go back there, we could trigger inflation and make our job so much harder. they're not understanding and and I've said this too is I don't think there's anybody uh in the FOMC on or anybody in the Fed frankly that really understands the the magnitude of the risks this time around like I said it's it's really that debt and derivative story that can because leverage can have things happen much faster and then when you have that kind of leverage that magnitude of leverage it can make things so much greater. I don't think anybody's thought through that and understands, you know, I think they think 20089 was a one oneoff and that yes, we have risk that it could be something like that but less, but I don't think anybody's really understanding how close we are to something bigger than 20089. Um, and so if it's not even in their in their mind as a possibility, it's not among their scenarios, they're they're thinking the the risks, you know, he says this all the time, risks are balanced. You know, we have to worry about dipping us into recession versus worrying about inflation breaking out a bit. >> He had no idea. That's that's the least of your worries. It's so much bigger than that. And he's not going to certainly in the next several months he's not going to understand because the markets are going to be looking like things are okay. And frankly, you know, Paul gets a lot of heat and I defend him on some of this only because I think people have to step away and realize he's saying the same things that the vast majority of Wall Street economists are saying. You know, they weren't pushing for rate cuts here either. I think Paul's I think Powell is late. I think the Fed is late. They should be easing now. But he's not the only one thinking that they don't need to ease. There's no rush. Things look okay to most Wall Street economists. >> Mhm. >> And yet we may be just months away from something that ultimately becomes much bigger than anything we've ever seen. >> And so eventually, and it probably won't be Powell, I suppose, in the seat at this time. If it's 18 months into the future, would it will have rotated the Fed chair at that point in time? Yeah, I'm I you know and I I get timing off all the time. These are big cycles and I can be wrong by you know many many months. But if I'm if if I'm right about my guess of when this thing really gets going, it's probably first quarter next year. >> Okay. >> Uh so he'll be dealing with it before he leaves his position, I think, assuming he sticks around for that. Um but yeah, then he'll be handing it off to somebody else. And the the biggest part of the money print will be probably under somebody else's leadership, >> which is convenient, right? That allows Powell to deliver sort of on his mandate and leave the seat as the guy who did what he said he was going to do or didn't do what he said he wasn't going to do. And the new chair can then uh can then inject this $20 trillion stimulus that you mentioned. So running that forward, that puts us in a sort of new monetary world, does it not? A $30 trillion balance sheet rates have to be zero at this point for any that's there's no other way around that interest expense uh rates have to be zero and we're in total sort of monetary dominance. What's that? Any any thoughts on that, David? What does that look like? And what's the cycle there? I mean, obviously my audience is probably like that's fiscal dominance. This is the downward spiral and the absolute destruction of the purchasing power of the US dollar. But what's what's your take on it? >> Yeah. So, keep in mind this is the US is not operating in the Fed's not operating in a vacuum here. It will be proportionally the same story in with every central bank. >> This is a global bust. >> They'll all be printing at, >> you know, break neck speed uh once once they realize they have no choice. Again, I think that it's not just Powell. All the central bankers to one degree or another are going to be cautious about printing, you know, so it's they're all going to be behind the curveball for behind the curve for a while and ultimately then have to really race to catch up and that's when the money starts pouring out. Um, but it's still ultimately the story of of all that money. Let's say it's 100 trillion. I don't know what it's, you know, 50 trillion. um is way beyond anything this world has ever seen by magnitudes. Um the story is that it jumpst starts it jumpst starts a recovery for sure but it also jumpst starts inflation. Now you know I think the bust will be deflationary because we're going to be entering the bust at very single low singledigit inflation. So, um I think we we'd probably almost definitely go into deflation for a year. Uh and then coming out of that means the first year out despite all that money, you're probably in low singledigit inflation. Second year may be high singledigit inflation. By the third year, you're in double digit inflation on your way to I think in the US you could see 25% inflation by early the early 2030s. So, I mean, the ramifications are huge because rates follow inflation. So, if we're going to be looking at, you know, I lived through I was a money manager in the early 80s. So, you know, you you're looking at in interest rates going from zero that and I'm talking I'll just talk the 10 year you know short rates could be negative are most likely going to be negative but you go 10 years zero and within say six seven years you're looking at you know 10 year maybe approaching 20%. It may be even less time than that even. Um, so you we're still going to have the debt. We're still going to have um governments having to finance, you know, having to service their debt. And my guess is, you know, the I talk about the money, but it's going to be both fiscal and monetary. Obviously, it always is. Um, the Fed will be monetizing new debt. The Fed will the Treasury will be issuing new debt. They'll be doing all kind of programs like they did in 2020. And so, um, the, you know, the Fed will be, um, buying all that debt, monetizing that debt. That means we're, you know, if we're, um, at 37 trillion now in in US government debt, you know, it's probably going to be north of 50. Um if we're at 330 trillion now global debt both sovereign and private you know corporate everything um it's probably going to be something approaching 450 to 500 trillion. All that debt or a lot of that debt is going to have to be serviced and refunded, you know, refinanced, etc. at higher rates and, you know, just sticking to the US government, there's no way you can solve that equation. If you're looking at interest rates in the double digits and your debt is where it is, we can't service it at 5%. Right. >> No. >> Um, and and it it crowds out every other thing you can do in the government if if you have to. that ultimately I think it leads to again not not for several years but in the probably by 2020 2033 to 35 I think it leads to a collapse of the financial system as we know it. Um, so, um, you know, the Austrians might believe, you know, I look at Peter Schiff as an example, might believe that this is the endgame now and that we, you know, that we're heading straight south from here. I believe that we have one more cycle because we have the printing press. As long as you have in inflation near zero or below zero, you have you can print money almost to infinity because there's a lag to when that shows up as inflation. So, so for the next, you know, when the bust hits, for the next 18 months after that, you have the ability to print money to whatever level you need to and that's why it's going to grow to what it is because, you know, they're trying to stabilize the system. >> Yeah. But then once it happens, there's nothing you can do because you've you've waited way too long to to back off of that. And once that inflation starts heating up, you're not going to be able to stop it. Uh you know there and you're going to you're not you know they're going to fight tightening because tightening means higher rates at a time when they can't afford the rates that they're going to be dealing with. So, so they're going to be slow to tighten and and as I say, you can't print your way out of it once inflation really heats up because it's like pouring gasoline on a forest fire, you know, it just it just makes more inflation. So, they basically they run out of options next cycle. This cycle they have the printing press. Next cycle there will be no options left. >> Yeah. Okay. That's that's interesting. And that culminates in like the 2035. Again, massive estimates. It's impossible to time these cycles, but just making some assumptions and our our best guesses. So, a couple things I wanted to ask you off the back of that and they both come from the same place. What should therefore investors be thinking about in terms of protecting their net worth, protecting their purchasing power, reducing their exposure to counterparty risk? In this uh scenario, it's the issuer of the currency. Um, and is there upside to be captured? And I, you know, I've recently been reading a little bit about, you know, life in Amsterdam and life in London, you know, as those empires quote unquote collapsed, right? And obviously life in London, the empire didn't collapse, right? The baton was passed over the course of about 30 years. But if you were a citizen of London, you might not even have noticed much in your life changed. And they had periods of immense volatility that actually started way before. I mean inflation in the UK was like 30% in uh 1803 like you know but they recovered from that right when they lost the American colonies. It triggered massive inflation to the UK and you could have said this is the beginning of the end for the UK empire but it wasn't right. They had their best years ahead of them still. Um but citizens in London wouldn't have noticed much from a transition of global power when it occurred right from the 20s to the 50s. Um what do you expect the experience to be the lived experience for the average American and where should people be looking to protect their purchasing power and find safe haven? >> So let's let's start with getting from here to the the next recovery cycle. So you you go into this bust um you have to be very aware that for the last you know from the mid80s on the mantra in the financial industry was it's time in the market not timing the market >> and that was correct all the way through anybody you it didn't take any genius to to put your money in an index fund and you've probably outperformed most professional money managers in, you know, in the last 40 years. Um, if you bought back in the mid 80s or any time since and and put it in, the index fund, you know, the S&P index has outperformed active management typically and that's because we were in a period of disinflation where interest rates came down, PE multiples went up, earnings did great, uh, and and indexes did great. going into this, if you listen to your financial advisors because they're not going to say anything otherwise. Now, they're going to say, "Oh, don't bail out. You know, it's markets always go to new highs. You just, you know, if you just ride through these things, you come out the other side and you do fine." And they've been right through all these cycles since 80, you know, mid 80s. The problem is that if we're going down 80% or anything close to that, I think the highs this cycle that we make later this year, in my opinion, um will probably stand for decades. Um, and obviously if if my dire forecast comes true in the mid-30s, it may be many decades, but but um so so it's going to behoove people to actually go against what the the kind of consensus advice out there is and and actually liquidate your portfolios or get very defensive and meaning in cash and bond. you know, treasuries will be one of the very few assets to hold up in the bust if if interest rates go from where they are now to zero. You know, holding a long bond is going to be very lucrative. Um, so so you can hide during the bust, but it's not in equities. Um, and you know, you could say, well, I'll be in defense of equities like utilities. Well, they're not defensive anymore so much anymore. And frankly, they'll go down less than the market, but if the market goes down 80 and they go down 40, you're not going to be a happy camper. >> Um, and you know, same thing with consumer staples and things, they may go down less than the market, maybe not. Um, but they're not going to preserve your capital. So, preservation of capital somewhere later this year is going to be very important. And I should point out cuz timewise, we may not be very far from a top. So, normally I my own advice would be, you know, you're not gonna nobody's going to call the top. Don't don't try to be a hero. You know, if you're out by if you're out 6 months early, you'll be grateful you're out. The problem is if we're looking at 30 to 50% upside between now and the end of the year, that's typically three years worth of returns at least. And so, even though timewise it's time to say, "Hey, I I'm not taking any more risk. I'm getting out. You're going to be very unhappy if you get out now and miss 30 40% upside and and then knowing psychology the way I do. I'm a contrarian. have studied psychology a lot or you know behavioral economics. Investors that come out today are almost sure a majority of them to be drawn back in at the top because at the top there's not going to be a bell rung. >> At the top most institutions that have been skeptical all the way up are going to be screaming that this thing has a long way to run. We just started a new Fed uh easing cycle. you know, there's at least a couple more years to go. And so, if you got out now, you're gonna say, "Hey, I can't afford to miss more of this upside. I just missed 30 or 40%. I got to get back in." You know, I was dumb. I was dumb to get out. And then you what do you do? You just you just climb back in at the top. >> Um, so again, I'm not going to be perfect. I'm not going to call this thing precisely the way I'm telling you it's going to go, but I am pretty confident that that's what we're headed for. So, the first step is going to be that capital preservation uh sometime in the next, you know, 3 to 6 months where you get out and you don't want to be late. That's that's for sure because the first step down could be, you know, 25 or 30% down. So, um so that's first step. Then you go through the bus and as I said, you know, treasuries, FDIC insured savings accounts um are probably the things that will hold up the best. My guess is given what happened in 20089 and given how much money is going to be flooding into the system at some point they will uh put back that policy of we won't break a buck on the money market so that they'll you know basically be ensuring the money market is going to stay whole. Um so you you're probably going to be able to use that but we don't know that yet so I can't say that for sure. Mhm. >> Um so it's going to be preservation of capital for the you know from that peak through the bust on the other and and by the way metals um that people think are good defensive things they're likely to get hit pretty hard. I think it's going to be hard to find many assets that don't get hit hard in a bust. Um so certainly silver is a economically sensitive metal. It could go down almost as much as the market you know 50 60 70%. Gold may hold up better because it is something that people run to. So it might only go down 30 40%. But it's going to go down. Um and that's not from here. Again, I have we can talk about my metals forecast later, but I have pretty big expectation before we get there um to the bus. But and then so preservation capital through the bust on the other side of the bust. This isn't the end of making money in markets or the end of opportunities. I believe if you if you just looking at the US, if you look at something close to 20 trillion in in um new QE and even if I'm half right, it's only 10, you're looking at a Vbottom at some point. So if you go down 80%, you can come back three or four fold from that. So, let's let's just use 9,000 as an S&P estimate for a top, you know, 80% down gets you to 1,800. You could see the market go up, let's say, fourfold from that, and that's 7,200. If we peak at 9,000 and go back to 7,200, you're in a secular bare market if that's your high for the next cycle. Um, but you also had a four-fold increase out of the bottom. So those that think it's the end of the day here when we top out, no, there's another cycle after this one and there's going to be plenty of money mark moneym opportunities and most importantly going to be a lot of opportunities in commodities. M >> this cycle was driven you know was led by tech and up until a year ago healthcare and you know some other things. The next cycle will be a commodity cycle with all that money printed and with the reshoring going on and you know more of that to come um you're going to see that it's industrials and commodities that will dominate the leadership in the next cycle. I am forecasting oil to go to $30 in the bust. Uh, and I think I've been the only right bear out there calling for, you know, I called low 60s when it was um over, you know,und over 100. So, um, I I think 30 in the bust. I think you could see oil at $500 by the early 2030s. >> H So, so there's going to be, you know, energy will be a dominant leader. Um, copper will do very well. Um, you know, any any of the industrial metals will do well. Uh, and the precious metals will probably top the charts. I I think gold's going to 20,000 by sometime in the early 2030s. I think silver's going to 500 in that time. And I may be conservative. Um, uh, I think they can get hit in the bust. As I said, my targets for, by the way, just to square that circle. Um my targets for silver pre-bust is 75 and for gold 4,000. So you know we we go to 75 here in the next 6 months or less and then could go down below 30 again. We we could see gold at 4,000 this year and then go back down under 3,000. Um so um you know but from there the next cycle if we go to 20,000 on gold you can obviously see what that does and silver 500 from wherever it bottoms in the bust. So there's there's going to be tremendous opportunities but it's not in the same leadership that major your money this time around and it's sure not going to be in the indexes. could be in the indexes for ye, you know, the first year or 18 months coming out of the bottom, but after that you're going to have a stiff headwind of ever rising interest rates pushing P multiples down. So the only things that really work in that kind of an environment that was kind of the late 70s early 80s market is you go into the the industries the particularly the commodities where their price flexibility because of the supply demand situation means they're able to uh print earnings or or make earnings that stay far ahead of the interest rate gains. So as rates go up, earnings are going up faster. In most most of the sectors, earnings aren't going to keep pace with inflation. So your stocks go down. >> So okay, thank you for that. So the commodities run that we're currently experiencing right now. A lot of hard commodities uh trending at or near all-time highs and the equities responding in most cases in many cases. That trend and oft you know it's on the heels of a handful of things. The industry has been starved of capital for 15 years. Uh you know del globalization whatever you want to call it reshoring French shoring. This just decreases our certainty and future supply of these commodities. And so demand will go up and price will reflect that. And that's a trend that you see as long-term that's going to carry us probably towards the end of the 2030s. You know, we'll have to wait and see, but it's a long-term trend. But in the interim, in the interim, uh, in these liquidity squeezes, anything with a bid gets sold. And that's why you say despite having a $4,000 target for gold pre-bust and 20,000 post, in the interim, it may fall by 25%. Same thing with silver, right? We're looking at maybe $75 pre-bust. Uh, I think you said 200 or 500, 500 postbust in the recovery. But in the interim, right, if it's got a bid, it's going to get sold to cover our obligations priced in US dollars. And >> Yep. And remember, every everybody, you know, those those metals get bought on leverage. So there's going to be margin calls. There's going to be all kinds of deleveraging going on. >> And so you get a lot of forceelling in that process. Um so but and and when you mentioned the rejouring things what really is the whole thesis around the postbust period is we we've spent decades rational rationalizing down our capacity in commodities right it became >> you know it was overcapacitized in in uh the early 1980s and we've spent decades kind of getting uh capacity down and of course commodities are something that gets um used up and it gets harder and harder to find more. >> Uh we discouraged investment in that area not just the US but around the world um such that you know because if if it wasn't going to be economically viable in in the shorter term it wasn't going to be developed. So, so what we're going to have is you have 20 trillion from the US and maybe it's 50 trillion from the world causing this ramp up in demand because it's it's it's combined with this whole reindustrialization that's going to go on. You have the ramping up of demand because that money goes into the system and creates demand quickly. To put on new capacity in in um commodities takes maybe 10 years, maybe longer, right? And maybe in the shortest cases maybe 5 years, but you're going to have demand far outstrip capacity uh uh for many years, far outstrip supply for for several years. So the only thing they can give in that scenario is price. So price goes through the roof and these companies coin money. >> Um and so for a period of time, that's what we're going to be looking at in the next cycle. It's going to be a very different cycle than any of the cycles we've had post the early 80s. You know, it's basically been, you know, I lived through that, but we haven't really had it's been all disinflation since then. We've had some bump ups and and you know, periods where industrials took off and commodities had their day, but just very short spurts, not not this long spike that you're going to see next cycle. >> Yeah. Okay. Okay, David, this has been very interesting. I always appreciate catching up with you. 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