Macro Stress & Fiscal Dominance: Rising JGB yields and a potential yen carry trade unwind highlight global fiscal dominance risks, with implications for U.S. long rates and the dollar.
Market Outlook: Risk appetite is fading as AI capex faces scrutiny; fund managers hold very low cash despite growing concerns, making markets vulnerable to shocks.
Private Credit Risks: High-profile blowups and gating in private credit, BNPL exposure, and the rise of risky business purpose lending underscore mounting credit fragility.
Consumer Strain: Weakening labor data, downbeat real income expectations, and stress signals at the high end (e.g., charge-offs) threaten a negative wealth effect.
Precious Metals: Bullish on gold (and supportive on silver) as central banks diversify from Treasuries; recent retail froth was flushed, with expectations for higher prices over time.
Energy: The guest is allocating incremental capital to energy and sees it as the next big story, with potential oil and gas catalysts including geopolitical shifts like Venezuela.
Fed & Policy: A December rate cut is likely but may have limited impact on long rates; if risk-off accelerates, QE could return and weigh on the dollar.
Positioning: Portfolio centered on gold bullion and miners with added energy exposure; Bitcoin viewed as a risk asset rather than a safe haven.
Transcript
And we are live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert, welcoming you back here for another Wednesday with the macro maven herself, Stephanie Pomboy. Hi, Steph. How are you? >> I'm good. How are you doing? >> Good. Thanks for joining us. Um, nice to see you uh in your uh semi-permanent place now. >> Permanent for the time being. >> Yeah. So, um, you know, we we've had a little irregular schedule over the past two months and and part of that stuff is you have had a lot of curve balls thrown your way um over the past couple of months. Um, and I know we've kept a lot of that on the down low. Uh, but one of the offshoots of that folks, just to be fully transparent here, is um we are going to shift the cadence of Stephanie's appearances here. Um, she's got a lot going on and so we're going to shift from bi-weekly to monthly. I'm sure that's gonna heartbreak uh a number of folks here, but don't worry, you're still gonna get your monthly dose of Palmboy. Um, and we have some other monthly we have some other folks that are going to be appearing regularly, too. So, um, you know, we'll make sure there's content here every week. But anyway, Steph, um, you know, look, we'll take whatever Pombo we can get. So, thank you for for stole doing the monthly cadence with us here. >> I think you can just hear the audible size of relief that there will be some respit from from me. But uh no, I mean my only concern of course is that if we convene monthly that we may be uh scrambling to cover as much terrain as possible, especially given, you know, how quickly things are moving right now. So, but >> well, exactly. >> And we'll we'll make it work. So, I appreciate everyone's flexibility with that. >> All right. Well, look, yeah, I'm sure the universe is going to take this as a hold my beer moment and just say, "Okay, all all that change you guys have been predicting, we're going to make it happen in between your appearances, >> right?" Um, but hey folks, we'll we'll do the best we can here. Um, all right. So, um, lots to talk about here. Um, I do have a bunch of visuals to pull up this time that I prepared. Um, so Steph, um, I titled this session because I have to title them in advance. Um, is this the breaking point? Um, and it's probably a little bit of a premature headline here, but we are, you know, seeing a lot of, um, >> cracks, [clears throat] >> uh, you know, concern and and and angst that the market hasn't really shown, you know, since probably back in April, right? Um, we're seeing certainly the AI complex start to get a lot of questions. There's some interesting things going on in Japan. Uh, credit markets, um, private credit people are getting more concerned about. So these these little micro fractures that we've been talking about for the past couple of months don't seem to be so micro anymore. I don't know if we can call them macro fractures yet, but I think we can call them fractures. So why don't we why don't we start with this one? Um and forgive me for not preparing you for what I was going to tell you. [laughter] Uh but let's see here. Um let's talk about Japan for a moment. So, um, Japanese, uh, government bond yields have just soared. You can see here, you know, from 2021, they've kind of been up and to the right here, but they've been picking up momentum and they are now at levels uh, that we haven't seen in this data series and I don't think we've seen for a long long time. I don't even know if these are record levels or not, but would love to get a sense from you, Steph, as to the implications for this. And and one question I have for you too, I don't know if you can answer, but I'll toss it out there anyways, which is I have heard uh folks say that um uh you know, if Japan is so overinded that if if its debt goes over 2%, just 2%, if bond yields go to 2%, it's going to bankrupt the country um because of all the debt that they hold. They've got the highest debt to GDP ratio of any country, I think, out there. >> Is that true? Is Japan basically on a death watch now? >> Well, they're in that doom loop obviously where you know the higher debt service the debt service is such a huge part of the deficit that it just it's now in this um sort of parabolic move upwards. So yeah, I mean I think there are a couple interesting points. First off, um it's the highest in 17 years on long bonds. Um and I'm just looking at like a benchmark composite of longdated JGB yields. um highest since you know basically 2008. Um but what I think is really interesting there are two things about this that are interesting. Number one um the implications for the yen carry trade and you know when when the bank of Japan sort of tilted away um from its stimulative policy. people started to talk about the prospect of um higher rates in Japan uh and you know unthinkable and that began to sort of shake the uh the foundation of the EN carry trade and of course um it has just kind of been compounding over that last year. Um, but now we're at the point where it's really, you know, clearly that trade is under significant threat. And I saw someone quantify the size of the yen carry trade at 20 trillion dollar. I mean, just to give some cont. I know I don't I'm not really sure exactly how they came up with that number, but we know that um borrowing in you know basically cheap and uh certain to be cheaper yen at 0% has been a source of funding for global levered positions for well over a decade. So it stands to reason that the bu you know it just keep building and building and building. So it's certainly in the multi- trillions. I don't know if it's 20 trillion. That seems like a very large number, but it's it's a multi-trillion dollar bet and it's it's a levered position obviously. So, >> it was a sure bet. People levered up on it. It worked forever. >> Yeah. And so, everyone did it. It was just, you know, the no-brainer. You just borrow in GPN and you use the money to buy whatever you want um all over the globe. So, we're seeing that start to unwind and that may be a contributing factor to what you described as all these little cracks coming in in random spots. Um, the other thing that I think is interesting about it is what it portends for the US because obviously what we're seeing here and one of the catalysts for the recent uh acceleration higher in yield. I mean obviously that chart shows yields have been moving higher for a while but they really sort of popped in the last little bit um was that Japan unveiled this fiscal stimulus program. So essentially what I think is important about what's happening in Japan isn't just the unwind of the carriage trade which obviously is very important but also what it implies for the US in terms of our um move into what I would describe and some people have described as the era of fiscal dominance where we're going to end up having a similar situation and already are to what Japan is which is we borrowed so much our our budget deficit our federal debt that public sector debt is so big that the interest costs are really the what's driving the annual deficit um and unless or until long rates come down, that's going to continue to be a massive headwind um for the economy, but also um it limits the capacity for monetary authorities to get long rates lower. And we've seen this borne out here where the Fed started cutting rates in September and the 10-year yield is exactly where it was on September 17th, the first time they cut. So, they've accomplished zero in terms of their goal of easing credit conditions by bringing long rates down and everything that's tied to that 10-year like mortgages, you know, corporate credit, etc. So, essentially, they're pissing in [laughter] the wind, you know. Um, and so it's it's we're all in this same soup that Japan is in, albeit to varying degrees. And that, you know, Europe's budget situation is very similar, the UK especially. So we're all all the developed world economies are kind of in this predicament where they need more than anything because they're so levered to get relief in the form of lower interest rates. But the conventional tools that they use to get there aren't working anymore because everyone sees, you know, basically everyone now sees the emperor has no clothes. They see the budget situation as untenable and we're sort of exacting a risk premium for what were a risk, you know, no risk uh save borrowers. So, if you're applying a risk premium to the treasury, you know, presumably you're not going to um have lower rates across the private credit sphere either. >> Okay. um get a number of questions coming out of that. First, I just want to say there there's a periodic kind of bass rumbling, folks, you guys might be hearing [laughter] on Stephanie's audio. That's not that's not interference. Uh that's her co-pilot uh snoring beneath her. Correct. >> Yes, that's her. I'm sorry. The soothing sounds of Bulldog are part of my regular backdrop here. [laughter] Well, I I think more than probably the majority I think the majority of viewers here watch more for Willy Mina than anything else. So, um all right. So your point about um uh fiscal dominance um kind of a succinct way that I've heard fiscal dominance described is it's when the debt service cost gets so dire that the central planners have to prioritize lowering the debt burden um or or the the cost of debt service, >> right? >> Versus inflation. >> They they they they basically say, you know what, we've got this inflation control mandate, but you know what? You got to just toss that out of the balloon because the key thing is we just can't die by uh interest rate service costs. >> Yeah. Well, they have basically two options. They can either control the level of interest rates or they can control the the dollar. You know, you you one of those is going to be the valve. And they're obviously with a levered economy, you're going to choose letting the dollar be the valve all day, every day. And we've seen that basically since the Federal Reserve was instituted, >> you know, but it's just obviously now become very evident and and the the purchasing power, the loss in purchasing power has really accelerated dramatically. And I would say if we are in fact at that point where we're starting to see the risk appetite unwinded uh you know uh give it a minute because we're going to see a massive destruction in dollar purchasing power as they take measures to try to mitigate that. >> Okay. So a couple things here. Um and I guess I got to start from what you just said. Um, while I understand why you said it and while I largely agree with you, I just want to make sure you're not giving the impression folks that, hey, this massive decrease in dollar purchasing power is going to happen over the next couple months or quarters and the the the great end of the dollar experiment, you know, is not necessar you're not calling it for it to end like within the next year. And correct me if I'm wrong, but I just there's a lot of people here who watch who are that that's the the thing that they're, you know, chained to the mast on. And I don't necessarily want someone to take the wrong assumption from that comment you just made. >> Yeah. No, I mean, I definitely think that we are at the uh end of the era of fiat money as to when we officially get there. Um, you know, never forecast direction and time is rule number one. So, I will forecast direction and withhold a judgment on time, but I would say it's it's not outside of my lifetime. You know, this is and I I'm a pretty old lady. So, >> hey, wait a minute. You got you got a long time left. So, >> I don't I don't think uh we have I don't think we have a decade left on this experiment. And frankly, I don't think we have five years left on it, but we'll see. You know, I I think it's it's coming probably sooner than most most people don't think it's ever going to happen, but I think the speed with which this can all devolve will be rapid, you know, and we're seeing it start to unfold already. And I think one example and I hate to use this um as because it might seem hyperbolic but when you take uh a situation like Renovo uh which was this investment that >> the um sorry I'm now I'm going to that black black I always get black rock I always call it black stone and I need to make sure I don't I don't slam black stone. So, Black Rockck had and they were marking it, I guess, at 100 cents on the dollar at the end of September and it went to zero. Um, so that's how quickly these things can change because a lot of this, you know, the valuations are so extreme both in equities and in a lot of these sort of uh opaque private credit and other illquid uh credit instruments. So you could flip that light switch and we might see the Fed instituting QE come May of next year when they install the new Fed chairman. So that doesn't seem to me at all outside the real possibility. And if we do start another round of QE, you're going to see the dollar go down very rapidly. Now, I'm not saying it's going to be the end of the dollar, but that will be the first step, you know, and of course, we will have plenty of company with the Bank of England and the ECB and the >> Yes, exactly. >> Yeah. Um, okay. So, I think you've answered my qu my next question already, but I'm going to ask it anyways. Um, so Lynn Alden, who I've talked with a lot about fin fiscal dominance, you know, she's known for this saying that she repeats a lot, which is nothing stops this train, right? Um, and the question I was going to ask you is is, you know, can anything do you see anything that that may stop this train or slow it down materially? But if you if you think potentially, you know, the the fiat regime doesn't have a decade left and maybe not even half a decade left, I'm guessing you're you're thinking no, nothing stops this train. It's going to ride till it rolls goes off the tracks. >> Yeah. I just don't know how at at these numbers, how do you stop the train? you know what what you we're tinkering around the edges here. We're trying to get tariff revenue to kind of bring down the deficit and we're trying to grow our way out of the deficit, which is certainly the preferred and noble way to do it. Um but again, you know, we we've now got ourselves in a situation where the debt level is so oppressively large that I agree. I mean, I I just don't think there's a way to stop this train at this point. >> Okay. Just to connect another dot here too, Darius Dale, who I you know interview periodically, he has these um oh I forget what he calls them, but they're basically these different regimes or different strategies, right? And uh he's got names for them ABC D and I can't remember which is exactly which, but um he's basically said, "Yeah, the current administration is is they've grabbed the grow out of this problem playbook." >> And he says, "But it's not going to work." And so, you know, they're going to revert to the print out of this playbook. And um and honestly, he's like, they need to get there uh faster than they're than they're doing it right now um to try to um prevent the economy from from falling into potential recession here. So, anyways, all I want to say is there's a lot of other people out there who use their own methodologies who come to similar conclusions as you staff. So, you've got good company. Well, I think we're also in kind of a it's interesting because it's really a race. You know, a lot of the one big beautiful bill stimulus is going to impact in the early part of next year as you have, you know, it's all related to this year's tax filing. So, you'll get a huge increase in tax refunds and the withholdings will change. So all of a sudden some of the distress that we're seeing at the low end of the consumer chain will start to alleviate hopefully that's the goal, you know, with this um the stimulus coming from higher income after tax income. Um the problem is that if what we're seeing now in the markets snowballs and we enter a riskoff sort of mode, all of that is going to be completely wiped out by a reverse wealth effect. And Peter Atwater made, you know, sent out a little missive the other day where he observed that of all the things that are going on in the market, one of the most interesting things that no one's looking at is the performance of American Express, you know, which caters obviously to the high-end consumer. They had some kind of a larger charge off than people had expected. So there's obviously something going on there and the stock is down substantially. So if you view that as kind of a window into what's happening in the high end of the consumer sphere and you start to get that kind of thing, people concerned about the outlook there, you know, Katie bar the door. Um, so you this is kind of a a nail-biting period here between now and year end because if we can make it through the end of the year and have the Santa Claus rally that everyone anticipates we're going to have uh and then get into 2026, that stimulus could really help support the consumers and and kind of um maybe help us at least turn sideways for a little bit and try to muddle, you know, maybe we get another year of this kind of muddle through phenomenon before you know the you know what hits the fan but [clears throat] it's it's going to be a close call. >> Okay. So like any [clears throat] great uh interviewe you you keep anticipating where I want to go Stephanie. So I I was going to ask you about exactly this. Um, and I I was hesitating to to include this just because >> anything that is related to the president is partisan and I I' I've definitely seen a rash of it quite recently on this channel when even a guest kind of passively m you know mentions President Trump. But I'm going to bring it up anyways at the risk of this and folks not making a partisan comment here and I'm sure there a lot of people here that are going to totally disagree with with this uh truth uh from Donald Trump's Truth Social. Um and he's basically saying he's talking about the Epstein bill and he's like I don't care if it passes or not at this point in time or when it passes. He's like I just don't want us to take our eyes off all the victories we've had. And this is what Trump's really trying to to do in a lot of his public comments recently. >> He's saying hey look don't forget we've got a lot of wins. Great, beautiful bill. Closed borders, no men and women sports or transgender for everybody, ending DEI, stopping Biden's record setting inflation, biggest tax and regulation cuts in history, stopping eight wars, rebuilding our military, being respected by every country in the world, having trillions of dollars invested in the USA. He talks about some other stuff. And so where I'm going with this is, yeah, there's there's a lot of bombast in there, if you will, and I'm sure a lot of viewers will take issue with whether those are true victories or not, right? But there's a lot of stuff in there that that isn't refutable stuff um that's that's related to the economic policies you were mentioning the tariff revenue the new trade deals the the trillions of investment that are coming into the country we have the the uh premier of Saudi Arabia in the country right now you know upping his commitments which I think are at a trillion or more right and so there was the all the provisions of the big beautiful bill there's the tax relief there's the deregulation so the question I was going to ask you because I know you have recession ary concerns was, hey, is is that a calvaryary that is riding to the rescue potentially in 2026 that might actually stave off recession? And what I just heard you say is we can't discount it and it will be additive in terms of tailwinds to the economy, but TBD what the headwinds of the economy are going to be. But if we go into a market a material enough market correction that then generates a negative wealth effect from the affinent consumer base that's been keeping up retail spending I think the term you used was Katy bar the door. So um a lot does hinge on what's going to happen in the markets over the next couple of quarters. Correct. >> Yeah. I mean I think the market is the tail wagging the economic dog and as it relates to you know what you just put up there and everything the accomplishments in the administration. I mean I think that um you know my view is this is this was an insurmountable challenge you know basically to come in and to take the reigns I mean think specifically of Treasury Secretary Bessant and what he faced and you know he's got to figure out a way to finance these deficits at a time when our foreign creditors are fleeing um and you know we've entered this era of fiscal dominance and he's been forced to continue Yellen's program of you know issuing all the debt and and then working in conjunction with the Fed who's now going to be purchasing MBS and recycling those dollars into the front end of the yield curve. They're doing all these things to try to hold it together. But they were handed an impossible situation in my view. That's just talking about the deficit. Then you're dealing, you know, with what happened with the inflation. And I think that's what prompted the president to rail against Republicans for not messaging well because he's looking at the inflation rate going from 9% under his pro his predecessor to to whatever it is now. We don't know. We'll wait and get a number. But um you know and he's saying look I've accomplished a tremendous you know inflation's a lot lower. And that may be true, but the problem is that the average for the average consumer, the fact that prices are going up slower gives them no relief because prices were already way too high. So unless prices actually decline, you know, the actual price level, um, he's going to have a really hard time persuading people that he's accomplished much in the fight for inflation because people don't, you know, these CPI numbers are irrelevant to the average consumer. They don't give two, you know, about how how quickly or slowly the rate of inflation is going. They care about what they spend every week at the grocery store, etc. So, this is the struggle and I'm not sure there's really any way to message that. Um, just because the situation is what it is, you know, unless we see outright price declines, people aren't going to feel better and they're not getting declines in mortgage rates either. So, you're in this environment where the price level kind of is moving sideways. Mortgage rates, credit card rates are all moving sideways, and they're doing so at levels that are so much higher than they were just five years ago. Um, and so it's it's a tricky uh problem and that's why I think you see consumer sentiment and consumer confidence numbers that are worse than they were during COVID, >> right? and in some cases worse than they were at the depths of the Great Recession. And people on Wall Street are like, "Oh, they just don't know what they're, you know, they're just mimicking what they're reading in the headlines." No, I mean, this is this is where they are. >> So, anyway, that was a ramble about I don't know if that even answered any question, but [laughter] >> No, no, no. It it it does. It's very germanine. Um, by the way, just to connect one more dot, um, it all ties into, um, the interview that I just did yesterday with Craig Fuller, CEO of Freight Waves, um, who who, you know, he he tracks supply chain data. So, he basically tracks the economy of real things, >> right? Things that need to get shipped from point A to point B, right? All the parts of the economy that aren't, you know, in the AI digital sphere, right? Um and one of the things you mentioned continental that should have been your >> Yeah. Yeah. >> That one, >> but you know, he talks about how if you add up all of the um all the employees and kind of the the mag seven digital economy, you know, it's like two million people, two million workers. Um with with the part of the economy that he tracks, it's like 35 million workers, right? And so, you know, it really shows a tale of two cities. You know, the the the two million in the AI space are making money handover fist with their stock options. Um the the the real economy, he said, is is the exact words were very very very weak. Um but I think he would also agree with me describing it as recessionary. Um so just like you were saying like that's where the majority of America is right now, right? So obviously what becomes really important in this space is what happens with uh the jobs market right um because uh no matter what's happening with prices if you've just lost your job you know you're you're in a much worse place and we haven't had a lot of data from the BLS of late because of the government shutdown. We did just get some uh September jobs data coming out though um and it said that only 22,000 jobs were added. The unemployment rate has now ticked back up to 4.3%. Um, we'll get more detail on that as time goes on, but um, the official numbers, which I think we all agree are generally too sanguin, >> um, are not looking that good right now as well. And we have seen uh, nearrecord corporate bankruptcies this year. We've definitely seen a steady drum beat of of companies announcing larger and larger layoffs. Again, we're not we're not in the territory we were in the last big recession, but the trajectory isn't very good. So, to your point, Steph, we've got people who are feeling like they're hanging on by their fingernails. They're they're debt financing out the wazoo just to stay alive. the jobs market is looking less good for them and inflation isn't coming down much from where it's been stuck and and may not to your point of fiscal dominance where you they're starting to take the eye off the inflation ball because they just got to figure out how to not let the debt service costs kill them. >> Yeah, absolutely. I mean that's the hard thing is it's not clear to me that you're going to get much relief. certainly not on the interest rate front and the way you're going to get relief on the price front is to have an actual recession. Um so that and that will throw people out of work. And the one area segment of those sentiment and confidence surveys that is worse than it was in the great recession are the um real income responses. So whether it be a combination of expectations that prices will remain elevated or that employment prospects are going lower, um consumers rate their prospects for positive real income the lowest in history. I mean that's kind of breathtaking when you think about it. So anyway, that um yeah, I definitely think that is an issue to be concerned about. And again, you know, hey, to be um snide about it, but it makes what's happening at American Express also extremely important because the tail wagging the dog for the consumer sector has been the high end. You know, the reason why every time you turn on CNBC or any of these financial media networks and you listen to somebody just throw out as if it's fact, the consumer is strong is because they're looking at aggregate statistics that average the people who are just, you know, making minting millions with all their investments uh in uh the financial markets. um with the low end that you know is struggling just to stay afloat. So the averages really don't tell you anything um meaningful. It's that that high end that really is driving the the bus. >> Yeah. And I I've probably mentioned enough on this channel people are sick of me bringing it up, but you we really have to appreciate the difference between mean and median because the mean hides a lot, right? The averages hide a lot as you're saying. you look at things on a median basis, they tell a very different story. Um, so, uh, you know, what's what's, you know, sad about all this is Steph, it reminds me a lot, I think we've talked about this, when I used to live in Manhattan, and I I I just never really got the logic there of like, well, we have to take really good care of the bankers because they spend all the money that makes, you know, the city work. And it was kind of it was always kind of like well why why have we anointed these guys princes, right? Why don't we just make it more equitable for everybody and then everybody can spend the money, right? >> Um so uh you know there seems to be a real sense of well we got to keep those affluent people spending because to your point they're the ones that are keeping the averages up. It's like wait a minute like why why did we end up in this policy situation? Why don't we start developing policies that are, you know, maybe a little bit fair to all? And I know that that was a big part of what Trump ran on. And to your point, you know, I I don't know. I I I still think that um the administration probably if it could have should have let the economy fall into recession, right? talking just as a political strategist >> early on in in in this year, you could have blamed it all in the previous administration, let things heal and be in a healing uptrend when the midterms arrive next year. You know, I I think it's anybody's guess right now whether or not we're going to avoid recession before the the midterms. If we are, hard to believe that the Republicans would would keep a hold of Congress. Um, and to your point, I think even I think even flat is a loss. I think if we just kind of hang out where we are, there's the majority is unhappy enough that they're going to look for somebody different and and the the recent elections that we just saw in the November elections, particularly New York, u but there have been some other, you know, uh progressive candidates like that that have have had notable wins. And it's because people are saying, look, I I don't care if you tell me that their policies are dumb. They're different. And I just know what what we have isn't working for me personally. >> Yeah. I mean, I think that mom dummy win was a shot across the bow. It was an indictment of the K-shaped economy. It was people saying, you know, we're not going to take it anymore. These policies that are skewed to favor the top end of the K um and have been used for years and years and years to our detriment. Um we're going to do something to make sure those policies change. And so they elected this guy. I mean, it's it's amazing to me um how sort of I I don't know if complacent the word is but or non plus the market seem to be about the fact that the financial capital of the world just elected a socialist as mayor. You know, this is like capitalism and socialism, you know, in direct confrontation. It's like it's like two years ago if we were to bet what city was going to have a a Democrat socialist mayor be elected to it, New York would probably have been the last city on the list given that it's supposed to be the most counted. Hey Steph, sorry to interrupt. I just want to >> check one thing. I I I I might have somewhat misspoke because this guy is going bananas in the chat here saying Trump did not run on equity at all. Um and then he kept making some other comments. What I meant to say was he he ran on a message of the system's unfair and we're gonna try to start prioritizing Main Street over Wall Street. That's what I was meaning. Equity, the wrong word. Maybe it should have said equitable or fair or whatever, but certainly not the DII kind of equity. >> Well, has repeated that at every turn that this Main Street's time has been his phrase. like Wall Street has had plenty of, you know, time in the sun and now it's Main Street's turn. And, you know, the the components of the one big beautiful bill with the no tax on tips and the no tax on social security and all these things are obviously geared toward helping Main Street. Um, but as you said, unless they can get relief in terms of lower interest rates and lower price level, they're probably not going to be particularly um, you know, positive about what >> and and after a certain amount of time, it begins to work against you. If you keep saying, well, we're for Main Street, but everybody's like, yeah, but I see Wall Street continuing to get stock market goes up, you know, my job is getting cut, you know. So, at some point, you really got to deliver. And that's probably, I think, a little bit at behind the um the $2,000 checks to households, which, you know, to me that smells a lot like >> what the previous administration did. And and a question I'm not hearing raised at all in the mainstream media is is >> well, we sent checks to households and we saw more inflation. So, are we signing up for the same thing here? Do we want to do that? Right. Um so, anyways, I'm not a political analyst. I don't want to get too much in this territory. Let let me if I can let me rest it back um to some other big questions uh Steph and let me put one more chart up here. Um so uh okay so we talked about how a lot of the AI stocks are now starting to cool off. Um we've got some doubts creeping in about the level of capex and whether it can be afforded and whether we're going to get a you know enough of return off of it. Here was a notable chart I just saw which I want to pull up here which is that um all of a sudden fund managers >> have flipped in their sentiment um as to whether companies are overinvesting or underinvesting in capex for AI and you know of late it's it's been oh my gosh these guys have to go spend all this much because it's it's the biggest prize in the world and you know we got to chase it but all of a sudden this month they've now said oh you know what I'm beginning to get more concerned that uh oh shoot uh I'm be beginning to get more concerned that uh uh these guys are spending too much and uh I'm I'm I'm now worried that they're not going to get a return on their investment and uh anyways I just thought that was a very notable sentiment shift. What are you picking up in the space right now? >> Well, two things. Number one, uh Michael Bur, you know, restructured whether he actually closed or sort of restructured his fund. basically he's he's um you know he endured as much pain as he could shorting the AI stocks and so I think that's a a important signal. Um but the other thing I wanted to say I was going to ask you with that BA um fund manager survey um the one chart that I thought was interesting was the cash levels. So, while they're saying they're concerned about these AI companies overinvesting or companies overinvesting in AI, um they have their lowest cash position. I think it was uh for decades. I mean, it's it's one of the lowest cash positions in multi-deade. >> When you say that cash position, this is of fund managers. >> Yes. Yeah. >> Okay. So, as concerned as they are, they're still all in. >> Yeah. Exactly. So they may say that they're starting to get a little concerned about overinvestment in AI, but they're still max long, you know. So um but that's another reason to fear what we're seeing in terms of the cockroaches and how many seem to be um appearing is that there's a lot of room for these fund managers to raise cash without bringing it to a level that was in any way exorbitant. you know, they if they, you know, raised their cash positions by one percentage point, it would probably still be low in the context of history. So, yeah, >> that would be a sponge sucking liquidity out of the market, right? >> I'm sorry. >> I mean, that would sort of act as a sponge sucking liquidity out of the market, right? >> Yeah, absolutely. >> Ju just to get back to traditional cash balances. >> Yes. And I mean, I think this is another sort of um thing that I've always found fascinating. From the day that I started my career on Wall Street, which is over 30 years ago, um this notion of the money mountain has been out there, the cash on the sidelines. Look at all the cash on the sidelines. And admittedly, they weren't talking about the fund managers per se, but they were looking at money market funds and the teeming uh uh amount of money that was sitting in money market funds that was ready to roll into the stock market at any moment. That story has been around my entire investment career, >> right? >> And what people fail to look, you know, you have to have context so they look at the absolute dollar level. It would be like saying, "Look at GDP. It's hitting record highs." Well, it goes like this. You know, that's that's what it does. It econ, you know, an object in motion tends to stay in motion. So, it's the same with money market funds. They're doing they're just tracking growth in the economy and and inflation and assets, etc., but relative to total financial assets, cash positions, be it in institutional managers or in retail accounts are very, very low. So this not notion if you hear people this is just me ranting to anyone on the sidelines that if you hear someone tell you hey we haven't seen anything yet all this money's coming in from the sidelines look at all the money in money market funds you just send them to me and I'll set them straight >> absolutely absolutely will do and I know that John Husman rants a lot on just the math of this as well but I don't want to get um I don't want to get stuck in that with the limited amount of time we have left um uh so you Bur um has raised uh some interesting questions of late about um you know uh it's sort of piggybacking on top of all the circular financing that's been going on but but you know questions of if not outright fraud you know just suspicious you know potentially deceptive behavior going on here. Bur was specifically talking about uh the amortization schedules, the depreciation schedules for uh the chips. Um but it seems that there is more and more concern getting voiced on a daily basis about the sustainability of the financing in this space. And um you know curious to hear what you think about that. And just to throw a little bit of levity in there, I I did put a post out on X yesterday because there was um uh there was yet another big deal with a bunch of these companies um packaged together. I think uh investing in Enthropic and then you know Enthropic was going to then invest in some Microsoft cloud compute and then it was going to buy some chips from Nvidia and of course it was getting money from all these companies, right? So, I said, I'm I'm really awaiting the headline which says um OpenAI private valuation surges upon news that the company has decided to take a 20% stake in itself, >> right? [laughter] >> It would be like a a page out of Michael Sailor's book basically, you know. Well, I mean, yeah, it seems to be, and I'm going to get to Bitcoin in just a second here, but how what is your what are your spidey senses telling you about the likelihood that we're going to we're going to enter an era maybe in the not too distant future where it is not, hey, those are the haters just tossing out unfounded accusations to, hey, just like the.com era with all of its crazy vendor financing, there was just a lot of hanky panky going on here and we get a discount for that. You know, I keep coming back to Jim Grant and he is such a brilliant wordssmith and his description of the environment today was we're going to find out all the mischief that takes place at 0%. And >> and it's such a beautiful way to articulate where we're going because we spent basically a decade with this repressive interest rate regime where people could borrow at zero and fund whatever high-flying nonsense operations they wanted. You know, I like it at he's sophisticated. I bring everything back to Seinfeld and I think about George Castanza trying to go up to a girl and he says, you know, hi, you know, I'm my name's George. I'm broke. I live in my parents' basement and I'm unemployed, you know, and and that's basically it was like companies with no no prospects and no business plan whatsoever were able to get money, you know, thrown at them in this environment of 0%. And now we're seeing all of that come home to roost. you know, the zombie companies now, one in every five companies can't service their debts out of their income, obviously, as you referenced all the bankruptcies that are going on. And then you've got what's going on in the private credit space, which has been um delightfully obscured behind the curtain um but now is coming to light as we discover that a lot of these companies were complete frauds. You know, we had the shot across the bow with first brands and tririccolor and then you get this Renovo thing and it turns out, you know, it fraud is what happens at 0%. It's part of the mischief at 0%. >> But I think >> and sorry, but just in the private credit, it's 0% plus no oversight. >> Absolutely. >> No regulation covenants, no nothing. Um, and then you have things like, and this is why I think we're really starting to get into a riskoff mode. You get Blue Owl, for example, where people were like, "Okay, we want our money back." And enough people came and wanted their money back because they saw what was going on probably with the first Bransonor and said, "Hey, these guys are invested in all the same kind of toxic stuff. We're going to get out before it's too late." And of course, they said, "No, no one's getting out. You're all stuck. um we're lowering the gates and um in that environment where where funds are doing that you know okay fine so they prevented the outflow for a minute but ultimately it just feeds the rush to exit right and so I think that we're really at a tipping point I do feel like we're at an inflection point now in terms of the outlook for risk appetite and one thing I've been I've been been looking at the league tables to look at credit issuance because you know we've and h seeing massive corporate debt issuance, a lot of it to fund investments in AI. >> But when you look at levered loan issuance, which is, you know, sort of the [snorts] the more lower credit quality type of stuff, >> um it has completely dried up in the last couple weeks. So, you know, you went from having decent loan issuance to now I think the the number of deals thus far in November are the lowest going back at least to 2014. So, wow. >> Yeah. So, >> and this is starting to be kind of counterparty risk issue, meaning where just like lenders just don't want to lend to people because they're just not certain they're going to get it paid back. And then if that then, you know, spreads into lenders not wanting to lend to other lenders, that's when we get into real trouble in the credit markets. Hey, real real quick, I just want to put this chart up because it's again, you anticipated where I was going to go. Um, this is the S&P [clears throat] um, which is the green line versus a lot of the major, um, funds that that are in the private credit space. And you can see here, you know, starting from sort of the end of the summer, the past two months, um, the bloom has really come off the rose where people are start, to your point, they're starting to get increasingly concerned about what's happening in private credit. And you mentioned Blue. Um, I think it was the interview I was doing with you, Stephanie, where I I mentioned that I I had seen we were talking about buy now pay later and and what an I think what an obvious future um grenade that's going to be. Yeah. And um I had seen an article probably like a month ago where PayPal they have created their own buy now pay later service for people paying through PayPal and they sold their book uh of those loans and it just seemed like PayPal just sort of knew hey we're originating these buy now pay later we think this is junk who can we sell it to well who' they sell it to blue right >> oh gosh wow amazing and you know the who's invested with blue probably pension funds you know insurers a lot of that. So, yeah, it's uh but here's another one I want to flag for you since you're looking at buy now pay later as a possible, you know, debacle to come. I have a a really smart uh hedge fund guy that's a client and his hedge fund does nothing but US financials. Um, and we had a call the other day and he said, "Stephanie, I want you to I want to make you aware of something that you might not have heard of that I think is going to be a debacle." And it's BPL, not BNPL, but BPL. So, stop me if you've heard of this before. It's called business purpose lending. >> Okay? >> It is is basically lending business lending, but essentially these are also called like fix and flip loans. So people who are home flippers who go in and you know buy up properties and flip them. It's financing. So it's essentially collateralized by residential mortgage residential real estate >> but it's to these sort of small business entrepreneurs. So >> entrepreneurs, speculators, but yes. >> Right. So in an environment where you have money going to people who may not be, you know, the savviest business people um and you're at the nexus of a deflation of the real estate bubble and you've got this thing. You know, it seemed to me like this is probably the worst uh intersection. you've got the potential for residential uh home prices to go down and this tremendous leverage built up by these uh flippers that could go bad. So that's just another thing to put on your radar. And I'm sure you know when you look at some of the big investors and that you come back to all the same people that you just had the chart of. Um so it's like Renovo. Renovo was doing exactly that. Although apparently just like that was supposed to be a fraud and these other things aren't frauds. So you know it's uh it's all endemic of the mischief at 0%. >> So let's let's get to the rubber meets the road in the last you know 10 15 minutes we have here Steph. So, um, uh, we talked earlier about, all right, you know, um, if we can get a Santa Claus rally and then we can get tailwinds from the the administration's economic policies, maybe that wins out and keeps us, you know, in the positive territory through the end of or, you know, through 2026. But, of course, the big risk there is a market correction that then creates the negative wealth effect. from the stuff we're talking about, you know, it's it's you got to have a really compelling argument to say, "Hey, these things aren't going to matter uh in 2026." I'm going to guess you think they are. So, in your sort of default outlook, are you expecting a market correction that then creates a negative wealth effect that that causes, you know, some some economic cascades? >> Yeah, I think so. And I, you know, I'm mindful that I've I've had this sensation before. Um, but things really, and I hate to say, they they feel more real this time. You know, I'm looking at things like the outperformance of investment grade paper versus junk. And even when you had periods where spreads were increasing in the corporate space, normally what you had was that spreads were increasing faster for investment grade and less for junk because people still were preferring to get the higher yield and and were still, you know, even though they were things were broadly selling off, they weren't selling the high yield stuff as quickly as they were the more quality paper That's different now. That has changed and the and investors are getting much more discerning about risk and you're seeing that also in the equity market as you mentioned with the mag seven and the scrutiny about hey what really are the returns on AI and might we be over estimating what those returns are going to be and maybe there is some element of you know circular investing etc. So there's a little bit more uh scrutiny which was not something that was taking place for the last several years. Um and again I come back to that levered loan thing because if the supply of credit starts to shrink as people become less inclined to lend then it's game over because this economy requires not just credit to go but an everinccreasing amount of credit. So it's not enough for us to borrow the same amount we borrowed last year. We have to borrow more if the economy is going to grow. So this is really could be a a major inflection point if these things u don't just turn on a dime and we'll see. But you know you're looking at the Fed meeting coming up in December. We're waiting more more immediately on Nvidia's earnings tomorrow. Um and and so there are a couple things that will give us some insight as to whether this is going to continue to devolve or not just in the next couple weeks. Um but it really feels different this time at the risk of uttering that dread phrase. [clears throat] >> Yeah. What I hear you saying is is for the first time in perhaps a long while risk is starting to matter. Um and and that could be what changes things here. So you mentioned two things real quick. Um the the markets have been playing a an interesting yes they will no they won't game in recent weeks about the Fed uh whe the Fed's going to cut in December. Um and uh I think based on the past couple of days uh both with some of the economic data and with some of the um proclamations by a few of the folks on the Fed, the market's now beginning to think, hey, they're going to actually cut again, right? So, um back and forth. Curious, do you have a inclination predelection one way or the other? >> I'd be surprised if they didn't cut. I I just feel like, you know, we'll probably get to tomorrow we get the uh payroll report probably be pretty weak. Um and maybe that will give them some fodder to uh to cut. I I think they will cut. Um but, you know, I'm not going to make a bet on it. Um I still don't think it'll matter. It won't mean a thing. But I also think more broadly the fact that the market is gyrating on from day to day. You know, first we had Boston announced his retirement, the stock market flew, and then the next day you got some hawkish comments from some of the Fed governors and the market tanked. And the fact that the market is this vulnerable to, you know, what's going on at the Fed, never mind that their rate cuts have had zero impact whatsoever. um just besp speaks to me how massively overvalued the stock market is. The only thing that can keep it at these levels is continued monetary stimulus and absent that you have to do a lot of sort of self-reflection and look at hey is AI overvalued hey might we be overinvesting in this hey you know maybe consumers are stretched hey maybe private credit is bursting you know all those things become important in the absence of continued monetary stimulus >> so so you need to have the the stimulus and you need to have the narrative, right? You need you need to have the story that everybody buys into. And right now that story is AI and you mentioned like right now the world is basically waiting on Nvidia and there has been a lot of negative news start to creep in as we've been talking about. So like Nvidia better have really encouraging forecasts because if it doesn't, you know, we've seen weakness a lot of the other AI players. If if Nvidia disappoints, that could be the domino that then really starts everything. Doesn't it seem like even if they deliver on expectations, the market's gonna absolutely tank, right? They they have to blow the >> Exactly. Exactly. They They have to really surprise to the upside. I think I think to your point, a a meat is a loss here. >> Yeah. >> Yeah. >> Yeah. And it's interesting. I mean, it I'm trying to think, has there ever been a time that I can remember where so much rode on the results of a single company? I don't know. I would guess probably in the.com sometime back then there was probably >> but we didn't have we didn't have a single tractor that was pulling everything back then. Now Enron was the thing that caught everybody by surprise but it wasn't like there was one.com company that was like driving the entire ecosystem. >> Yeah, maybe not. I can't remember. >> Yeah. So, um Okay. So, um you mentioned uh you know risk. We're we're we're we're starting to see more riskoff sentiment. Now, again, folks, you know, I'm going to say it wouldn't shock me to see a a Santa Claus rally because these things, you know, take a while to break. Um, and to the topic of our of our the title of of today's video, is this the breaking point? Steph, I'm kind of hearing from you. Maybe. Don't know yet, but but certainly has some of the hallmarks that we would expect. We need more data and more, you know, we'll see what happens, but but it's certainly not a no. Um so what's interesting is we have seen risk asset sorry risk off assets like gold and silver you know kind of hang in there right they've been bouncing back and forth um both flirting with so you know gold support at 40 4,000 silver support at at at 50 bucks an ounce um when we started this they were up quite nicely today they're they're not up quite as nicely but they're still above those those uh thresholds that I mentioned Um, I want to contrast that with Bitcoin. And this is a screenshot I took right as we hopped on, Steph. Um, I just checked on my phone. Bitcoin's now actually now below 90. >> Okay. >> So, 89. So, it's really interesting because both of these are assets that I think pundits expect to do well at least on a nominal basis. um uh for the currency devaluation, you know, outlook that you were talking about earlier. Um but I think very clearly one has been trading like a riskoff asset and one's been trading like a riskon asset and and Bitcoin's decline here I think is is showing people's increasing jitters on the risk on trade. So, I want to give you a chance to opine on either of those things. Gold, silver, Bitcoin, whatever. >> Well, I've long viewed Bitcoin as a risk asset rather than a a safe haven. Um, so I totally agree with your analysis of that as relates to gold. You know, when you think about things, if we go back to the conversation at the very beginning about unwinding the yen carry trade, just broadly, if we're in an environment where there's a little bit uh less uh inclination toward risk and people are trying to reduce a little bit of their exposure to it, um you're going to reduce exposures across the board. You know, you don't just you're taking everything down. You're you're reducing your leverage. a lot of these speculative uh hedge funds, you know, might have been three times levered or five times levered and they're saying, "Hey, you know, maybe we want to take that down." And what they do is just basically take down every position x% across the board. And so everything goes down. It's like, you know, a rising tide lifts all boats and a a receding tide takes them all lower. Um and so gold gets you know hit in that process along with everything else. Um so I was not surprised to see that. I also felt like you had seen and I think we talked about it in our last conversation a lot of retail interest came right as we broke some key price levels. At 3500, you had a one wave of retail investment. And then at 4,000, you had a huge rush of retail investors into the gold ETFs. And in the round trip back to four, you know, we went to 4,300 and came back down to 4,000. All of those people who entered at 4,000 exited. So you flushed out a lot of those Johnny completely. Um, so the people who are inclined to just look at a chart and chase it, they're out. Um, and that's why I think gold has since resumed its footing because now it's back to the real money buyers who were always propelling it forward. And then you see larger stories more more on the central bank purchases um you know India, China obviously and now into silver as well. So that entire precious metal space is continuing to get support um from the the dollar um diversification by global central banks. And then the last point I would make on that score is we got the uh treasury capital flows report yesterday um which looks at monthly you know capital flows into treasuries and corporates etc. And it showed a huge increase in capital flows which is probably where most people's analysis ended. But if you looked at central bank purchases of US treasuries, they actually declined again. And uh India was one of the most aggressive sellers of US treasuries. So again, you know, you know that they're buying, they're shifting into gold and silver and other precious metals and they're doing so at the expense of the dollar. Um which brings us back to that whole question of you know what is Scott Besson going to do um in terms of getting debt service down uh without the help of foreign financiers. So, um, anyway, it all comes back to the same fiscal dominance question. And I think gold will continue to, uh, just move higher. Um, albeit not in a straight line because nothing ever does. And Bitcoin, I think, has demonstrated itself to be what it is, which is a speculative asset. [laughter] >> Yeah. Um, this is a this is a question that Andy Shechman raises a lot, but I'm curious if you have any thoughts on it, Steph. Um, so, you know, people might look at the US and and start to get concerned by its debt to GDP ratio um uh its levels of indebtedness. Um but one of the things that Bessant has mentioned at times is hey we want to try to monetize our balance sheet >> and you know one thing that they could do um is I think gold is valued at what like 42 or three bucks right right on the US balance sheet I mean they they could just do a marktomarket revaluation and say hey you know we all of a sudden look a lot better right um here's a qu Why wouldn't they do that? What is the benefit of holding gold at 42 bucks an ounce? >> Yeah, I I don't know the answer to that question. I don't know why they don't do that. Um, so I you would think they would. I guess the only possible wrinkle is what if it turns out that China owns more gold than we do and they do the same thing. you know, we revalue gold and all of a sudden, you know, we find out that uh they win the the uh the gold contest, you know, then their currency becomes substantially stronger than ours. Is that necessarily a bad thing? I don't know. I mean, this administration, it's tricky because they purport to be interested in portraying the strength of the US, but they don't really want a strong dollar, you know? So, so they're really kind of threading a very uh fine needle there. Um, but yeah, I I don't know why they don't do that. It's interesting because they're trying a lot of other things like uh Fanny Freddy is a way of >> privatizing the balance sheet essentially by saying, you know, we're going to sell that and take all the money from selling our our stake in Fanny and Freddy. Um, and that, you know, who knows how many hundred billions they would get from that. So they're they're trying a lot of things that seem to me to be far less compelling than what you talked about. It's just revaluating the gold. Um but I you know to me that happens when we get to the point where the uh the Fed has expanded its balance sheet so far that the dollar is absolutely imploding and we're forced to go back onto some kind of direct or indirect link to gold. and that's when they would do that. But maybe that's what they're saving it for. I don't know. >> All right. Well, I don't know. Um but whatever they whatever they do do, I'm sure we will be reacting to it live here. So Steph, last question before we wrap this up. Um has any of what we've talked about here today, these issues, um have they caused you to make any material changes in your investments or your investing outlook versus your last time here? or you still pretty much going with the portfolio construction you've got? >> Yeah. No, I'm I'm boring. I I am uh you know, set it and forget it. So, I've got my gold um tiny bit of cash and where I have um you know, income that I want to deploy, I'm putting it into energy because I feel like I I've got plenty of gold exposure between the bullion and the miners. And uh I think energy is really going to be the next big story. >> Okay. and we have talked about that. Um, folks, just to let you know, I am working with Rick Rule to have him come on the program at some point before the end of the year to do a deep dive in oil and gas and the opportunities that he sees there. I know people have been really interested in that. Um, on a related topic, I am interviewing um, Rain. Rain is one of the top um, geopolitical think tanks in the world. um one of their analysts you've seen on this program with me several times, Ryan B. He's been their M East analyst and and we've reacted in real time to, you know, some of the developments that were going on in the Middle East um between Israel and Iran and and and the US bombing of the nuclear facility there in Iran. So, I've asked Rain if I could talk to their um South American specialist about the situation in Venezuela, what's going on there, really understanding kind of what's at the heart of it and trying to get a sense of what would be the implications if there was a replacement of Maduro there and potentially if the you know in a good way or in a bad way, but also, you know, if the c country did open up more towards um the US, what would that mean for oil and gas prospects? So, folks, if that's something you think um is interesting, uh let me know in the uh live chat here or in the comments if you're watching the replay and I'll make sure that happens if enough people want that to happen. Um all right, Steph. Well, look, thank you so much. Um really appreciate you doing this, especially with all that's going on. Look forward to seeing you in four weeks from now, folks. Yep. Tighten your belts. You can make it. >> Um and in the interim, folks, to get more palmboy in between your appearances here, Steph, where should they go? um macromavens.com. You can find me there and you can learn how to subscribe. And then um on Twitter and obviously with Hugh uh I'm at S Pomboy on Twitter. And uh we're going to be doing another one of those super terrific happy hour conferences which I I'll post some information about on my website and on Twitter and maybe you can come meet us in person for that. That'll be in February of next year. So that's a ways off, but here in South Florida. So if you're looking to escape some cold weather somewhere, um I'll provide all those details on my Twitter feed soon. >> Awesome. And and when you come back on next time, Steph and anytime in between now and then, uh if you've got all the details, you know, URL folks should go to check it out. That type of stuff, we'll let you share it loudly and proudly here because I know a lot of these viewers would probably love to go do that. Um uh the the one you guys assembled last year was just it was like a justice league of uh you know the world's greatest macro analysts. Um it was fun. >> And who wouldn't want to spend the day with Stephanie Pomboy and GR? >> A lot of people >> and God. >> All right, folks. Well, look, just in wrapping up real quick, um please show your appreciation for Steph and her continued willingness to come on the program here by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. And if you would like um any help from a professional financial adviser in putting into practice any of the opportunities, strategies we've talked about today um in your own portfolio, uh feel free to talk to one of the financial adviserss that Thoughtful Money endorses. To do that, just fill out the very short form at thoughtfulmoney.com and one of our endorsed uh advisors, whichever one you're matched with, uh will reach out to you. Um these consultations are totally free. There's no commitment to work with these firms. It's just a service they offer to be as helpful as possible. Steph, great to see you. Wonderful conversation today. Willina, um she she just kept everything on an even keel with her soothing snores. >> Yeah, I know. The floor stayed down, which is important. So >> yeah, but have yourself a wonderful Thanksgiving. >> You, too. And we'll reconvene right before Christmas, I guess. >> All right. Well, look, everybody, thanks so much for joining us. Steph, thanks so much again. And everybody else, thanks so much for watching. Bye.
Stephanie Pomboy: Is This The Breaking Point?
Summary
Transcript
And we are live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Tagert, welcoming you back here for another Wednesday with the macro maven herself, Stephanie Pomboy. Hi, Steph. How are you? >> I'm good. How are you doing? >> Good. Thanks for joining us. Um, nice to see you uh in your uh semi-permanent place now. >> Permanent for the time being. >> Yeah. So, um, you know, we we've had a little irregular schedule over the past two months and and part of that stuff is you have had a lot of curve balls thrown your way um over the past couple of months. Um, and I know we've kept a lot of that on the down low. Uh, but one of the offshoots of that folks, just to be fully transparent here, is um we are going to shift the cadence of Stephanie's appearances here. Um, she's got a lot going on and so we're going to shift from bi-weekly to monthly. I'm sure that's gonna heartbreak uh a number of folks here, but don't worry, you're still gonna get your monthly dose of Palmboy. Um, and we have some other monthly we have some other folks that are going to be appearing regularly, too. So, um, you know, we'll make sure there's content here every week. But anyway, Steph, um, you know, look, we'll take whatever Pombo we can get. So, thank you for for stole doing the monthly cadence with us here. >> I think you can just hear the audible size of relief that there will be some respit from from me. But uh no, I mean my only concern of course is that if we convene monthly that we may be uh scrambling to cover as much terrain as possible, especially given, you know, how quickly things are moving right now. So, but >> well, exactly. >> And we'll we'll make it work. So, I appreciate everyone's flexibility with that. >> All right. Well, look, yeah, I'm sure the universe is going to take this as a hold my beer moment and just say, "Okay, all all that change you guys have been predicting, we're going to make it happen in between your appearances, >> right?" Um, but hey folks, we'll we'll do the best we can here. Um, all right. So, um, lots to talk about here. Um, I do have a bunch of visuals to pull up this time that I prepared. Um, so Steph, um, I titled this session because I have to title them in advance. Um, is this the breaking point? Um, and it's probably a little bit of a premature headline here, but we are, you know, seeing a lot of, um, >> cracks, [clears throat] >> uh, you know, concern and and and angst that the market hasn't really shown, you know, since probably back in April, right? Um, we're seeing certainly the AI complex start to get a lot of questions. There's some interesting things going on in Japan. Uh, credit markets, um, private credit people are getting more concerned about. So these these little micro fractures that we've been talking about for the past couple of months don't seem to be so micro anymore. I don't know if we can call them macro fractures yet, but I think we can call them fractures. So why don't we why don't we start with this one? Um and forgive me for not preparing you for what I was going to tell you. [laughter] Uh but let's see here. Um let's talk about Japan for a moment. So, um, Japanese, uh, government bond yields have just soared. You can see here, you know, from 2021, they've kind of been up and to the right here, but they've been picking up momentum and they are now at levels uh, that we haven't seen in this data series and I don't think we've seen for a long long time. I don't even know if these are record levels or not, but would love to get a sense from you, Steph, as to the implications for this. And and one question I have for you too, I don't know if you can answer, but I'll toss it out there anyways, which is I have heard uh folks say that um uh you know, if Japan is so overinded that if if its debt goes over 2%, just 2%, if bond yields go to 2%, it's going to bankrupt the country um because of all the debt that they hold. They've got the highest debt to GDP ratio of any country, I think, out there. >> Is that true? Is Japan basically on a death watch now? >> Well, they're in that doom loop obviously where you know the higher debt service the debt service is such a huge part of the deficit that it just it's now in this um sort of parabolic move upwards. So yeah, I mean I think there are a couple interesting points. First off, um it's the highest in 17 years on long bonds. Um and I'm just looking at like a benchmark composite of longdated JGB yields. um highest since you know basically 2008. Um but what I think is really interesting there are two things about this that are interesting. Number one um the implications for the yen carry trade and you know when when the bank of Japan sort of tilted away um from its stimulative policy. people started to talk about the prospect of um higher rates in Japan uh and you know unthinkable and that began to sort of shake the uh the foundation of the EN carry trade and of course um it has just kind of been compounding over that last year. Um, but now we're at the point where it's really, you know, clearly that trade is under significant threat. And I saw someone quantify the size of the yen carry trade at 20 trillion dollar. I mean, just to give some cont. I know I don't I'm not really sure exactly how they came up with that number, but we know that um borrowing in you know basically cheap and uh certain to be cheaper yen at 0% has been a source of funding for global levered positions for well over a decade. So it stands to reason that the bu you know it just keep building and building and building. So it's certainly in the multi- trillions. I don't know if it's 20 trillion. That seems like a very large number, but it's it's a multi-trillion dollar bet and it's it's a levered position obviously. So, >> it was a sure bet. People levered up on it. It worked forever. >> Yeah. And so, everyone did it. It was just, you know, the no-brainer. You just borrow in GPN and you use the money to buy whatever you want um all over the globe. So, we're seeing that start to unwind and that may be a contributing factor to what you described as all these little cracks coming in in random spots. Um, the other thing that I think is interesting about it is what it portends for the US because obviously what we're seeing here and one of the catalysts for the recent uh acceleration higher in yield. I mean obviously that chart shows yields have been moving higher for a while but they really sort of popped in the last little bit um was that Japan unveiled this fiscal stimulus program. So essentially what I think is important about what's happening in Japan isn't just the unwind of the carriage trade which obviously is very important but also what it implies for the US in terms of our um move into what I would describe and some people have described as the era of fiscal dominance where we're going to end up having a similar situation and already are to what Japan is which is we borrowed so much our our budget deficit our federal debt that public sector debt is so big that the interest costs are really the what's driving the annual deficit um and unless or until long rates come down, that's going to continue to be a massive headwind um for the economy, but also um it limits the capacity for monetary authorities to get long rates lower. And we've seen this borne out here where the Fed started cutting rates in September and the 10-year yield is exactly where it was on September 17th, the first time they cut. So, they've accomplished zero in terms of their goal of easing credit conditions by bringing long rates down and everything that's tied to that 10-year like mortgages, you know, corporate credit, etc. So, essentially, they're pissing in [laughter] the wind, you know. Um, and so it's it's we're all in this same soup that Japan is in, albeit to varying degrees. And that, you know, Europe's budget situation is very similar, the UK especially. So we're all all the developed world economies are kind of in this predicament where they need more than anything because they're so levered to get relief in the form of lower interest rates. But the conventional tools that they use to get there aren't working anymore because everyone sees, you know, basically everyone now sees the emperor has no clothes. They see the budget situation as untenable and we're sort of exacting a risk premium for what were a risk, you know, no risk uh save borrowers. So, if you're applying a risk premium to the treasury, you know, presumably you're not going to um have lower rates across the private credit sphere either. >> Okay. um get a number of questions coming out of that. First, I just want to say there there's a periodic kind of bass rumbling, folks, you guys might be hearing [laughter] on Stephanie's audio. That's not that's not interference. Uh that's her co-pilot uh snoring beneath her. Correct. >> Yes, that's her. I'm sorry. The soothing sounds of Bulldog are part of my regular backdrop here. [laughter] Well, I I think more than probably the majority I think the majority of viewers here watch more for Willy Mina than anything else. So, um all right. So your point about um uh fiscal dominance um kind of a succinct way that I've heard fiscal dominance described is it's when the debt service cost gets so dire that the central planners have to prioritize lowering the debt burden um or or the the cost of debt service, >> right? >> Versus inflation. >> They they they they basically say, you know what, we've got this inflation control mandate, but you know what? You got to just toss that out of the balloon because the key thing is we just can't die by uh interest rate service costs. >> Yeah. Well, they have basically two options. They can either control the level of interest rates or they can control the the dollar. You know, you you one of those is going to be the valve. And they're obviously with a levered economy, you're going to choose letting the dollar be the valve all day, every day. And we've seen that basically since the Federal Reserve was instituted, >> you know, but it's just obviously now become very evident and and the the purchasing power, the loss in purchasing power has really accelerated dramatically. And I would say if we are in fact at that point where we're starting to see the risk appetite unwinded uh you know uh give it a minute because we're going to see a massive destruction in dollar purchasing power as they take measures to try to mitigate that. >> Okay. So a couple things here. Um and I guess I got to start from what you just said. Um, while I understand why you said it and while I largely agree with you, I just want to make sure you're not giving the impression folks that, hey, this massive decrease in dollar purchasing power is going to happen over the next couple months or quarters and the the the great end of the dollar experiment, you know, is not necessar you're not calling it for it to end like within the next year. And correct me if I'm wrong, but I just there's a lot of people here who watch who are that that's the the thing that they're, you know, chained to the mast on. And I don't necessarily want someone to take the wrong assumption from that comment you just made. >> Yeah. No, I mean, I definitely think that we are at the uh end of the era of fiat money as to when we officially get there. Um, you know, never forecast direction and time is rule number one. So, I will forecast direction and withhold a judgment on time, but I would say it's it's not outside of my lifetime. You know, this is and I I'm a pretty old lady. So, >> hey, wait a minute. You got you got a long time left. So, >> I don't I don't think uh we have I don't think we have a decade left on this experiment. And frankly, I don't think we have five years left on it, but we'll see. You know, I I think it's it's coming probably sooner than most most people don't think it's ever going to happen, but I think the speed with which this can all devolve will be rapid, you know, and we're seeing it start to unfold already. And I think one example and I hate to use this um as because it might seem hyperbolic but when you take uh a situation like Renovo uh which was this investment that >> the um sorry I'm now I'm going to that black black I always get black rock I always call it black stone and I need to make sure I don't I don't slam black stone. So, Black Rockck had and they were marking it, I guess, at 100 cents on the dollar at the end of September and it went to zero. Um, so that's how quickly these things can change because a lot of this, you know, the valuations are so extreme both in equities and in a lot of these sort of uh opaque private credit and other illquid uh credit instruments. So you could flip that light switch and we might see the Fed instituting QE come May of next year when they install the new Fed chairman. So that doesn't seem to me at all outside the real possibility. And if we do start another round of QE, you're going to see the dollar go down very rapidly. Now, I'm not saying it's going to be the end of the dollar, but that will be the first step, you know, and of course, we will have plenty of company with the Bank of England and the ECB and the >> Yes, exactly. >> Yeah. Um, okay. So, I think you've answered my qu my next question already, but I'm going to ask it anyways. Um, so Lynn Alden, who I've talked with a lot about fin fiscal dominance, you know, she's known for this saying that she repeats a lot, which is nothing stops this train, right? Um, and the question I was going to ask you is is, you know, can anything do you see anything that that may stop this train or slow it down materially? But if you if you think potentially, you know, the the fiat regime doesn't have a decade left and maybe not even half a decade left, I'm guessing you're you're thinking no, nothing stops this train. It's going to ride till it rolls goes off the tracks. >> Yeah. I just don't know how at at these numbers, how do you stop the train? you know what what you we're tinkering around the edges here. We're trying to get tariff revenue to kind of bring down the deficit and we're trying to grow our way out of the deficit, which is certainly the preferred and noble way to do it. Um but again, you know, we we've now got ourselves in a situation where the debt level is so oppressively large that I agree. I mean, I I just don't think there's a way to stop this train at this point. >> Okay. Just to connect another dot here too, Darius Dale, who I you know interview periodically, he has these um oh I forget what he calls them, but they're basically these different regimes or different strategies, right? And uh he's got names for them ABC D and I can't remember which is exactly which, but um he's basically said, "Yeah, the current administration is is they've grabbed the grow out of this problem playbook." >> And he says, "But it's not going to work." And so, you know, they're going to revert to the print out of this playbook. And um and honestly, he's like, they need to get there uh faster than they're than they're doing it right now um to try to um prevent the economy from from falling into potential recession here. So, anyways, all I want to say is there's a lot of other people out there who use their own methodologies who come to similar conclusions as you staff. So, you've got good company. Well, I think we're also in kind of a it's interesting because it's really a race. You know, a lot of the one big beautiful bill stimulus is going to impact in the early part of next year as you have, you know, it's all related to this year's tax filing. So, you'll get a huge increase in tax refunds and the withholdings will change. So all of a sudden some of the distress that we're seeing at the low end of the consumer chain will start to alleviate hopefully that's the goal, you know, with this um the stimulus coming from higher income after tax income. Um the problem is that if what we're seeing now in the markets snowballs and we enter a riskoff sort of mode, all of that is going to be completely wiped out by a reverse wealth effect. And Peter Atwater made, you know, sent out a little missive the other day where he observed that of all the things that are going on in the market, one of the most interesting things that no one's looking at is the performance of American Express, you know, which caters obviously to the high-end consumer. They had some kind of a larger charge off than people had expected. So there's obviously something going on there and the stock is down substantially. So if you view that as kind of a window into what's happening in the high end of the consumer sphere and you start to get that kind of thing, people concerned about the outlook there, you know, Katie bar the door. Um, so you this is kind of a a nail-biting period here between now and year end because if we can make it through the end of the year and have the Santa Claus rally that everyone anticipates we're going to have uh and then get into 2026, that stimulus could really help support the consumers and and kind of um maybe help us at least turn sideways for a little bit and try to muddle, you know, maybe we get another year of this kind of muddle through phenomenon before you know the you know what hits the fan but [clears throat] it's it's going to be a close call. >> Okay. So like any [clears throat] great uh interviewe you you keep anticipating where I want to go Stephanie. So I I was going to ask you about exactly this. Um, and I I was hesitating to to include this just because >> anything that is related to the president is partisan and I I' I've definitely seen a rash of it quite recently on this channel when even a guest kind of passively m you know mentions President Trump. But I'm going to bring it up anyways at the risk of this and folks not making a partisan comment here and I'm sure there a lot of people here that are going to totally disagree with with this uh truth uh from Donald Trump's Truth Social. Um and he's basically saying he's talking about the Epstein bill and he's like I don't care if it passes or not at this point in time or when it passes. He's like I just don't want us to take our eyes off all the victories we've had. And this is what Trump's really trying to to do in a lot of his public comments recently. >> He's saying hey look don't forget we've got a lot of wins. Great, beautiful bill. Closed borders, no men and women sports or transgender for everybody, ending DEI, stopping Biden's record setting inflation, biggest tax and regulation cuts in history, stopping eight wars, rebuilding our military, being respected by every country in the world, having trillions of dollars invested in the USA. He talks about some other stuff. And so where I'm going with this is, yeah, there's there's a lot of bombast in there, if you will, and I'm sure a lot of viewers will take issue with whether those are true victories or not, right? But there's a lot of stuff in there that that isn't refutable stuff um that's that's related to the economic policies you were mentioning the tariff revenue the new trade deals the the trillions of investment that are coming into the country we have the the uh premier of Saudi Arabia in the country right now you know upping his commitments which I think are at a trillion or more right and so there was the all the provisions of the big beautiful bill there's the tax relief there's the deregulation so the question I was going to ask you because I know you have recession ary concerns was, hey, is is that a calvaryary that is riding to the rescue potentially in 2026 that might actually stave off recession? And what I just heard you say is we can't discount it and it will be additive in terms of tailwinds to the economy, but TBD what the headwinds of the economy are going to be. But if we go into a market a material enough market correction that then generates a negative wealth effect from the affinent consumer base that's been keeping up retail spending I think the term you used was Katy bar the door. So um a lot does hinge on what's going to happen in the markets over the next couple of quarters. Correct. >> Yeah. I mean I think the market is the tail wagging the economic dog and as it relates to you know what you just put up there and everything the accomplishments in the administration. I mean I think that um you know my view is this is this was an insurmountable challenge you know basically to come in and to take the reigns I mean think specifically of Treasury Secretary Bessant and what he faced and you know he's got to figure out a way to finance these deficits at a time when our foreign creditors are fleeing um and you know we've entered this era of fiscal dominance and he's been forced to continue Yellen's program of you know issuing all the debt and and then working in conjunction with the Fed who's now going to be purchasing MBS and recycling those dollars into the front end of the yield curve. They're doing all these things to try to hold it together. But they were handed an impossible situation in my view. That's just talking about the deficit. Then you're dealing, you know, with what happened with the inflation. And I think that's what prompted the president to rail against Republicans for not messaging well because he's looking at the inflation rate going from 9% under his pro his predecessor to to whatever it is now. We don't know. We'll wait and get a number. But um you know and he's saying look I've accomplished a tremendous you know inflation's a lot lower. And that may be true, but the problem is that the average for the average consumer, the fact that prices are going up slower gives them no relief because prices were already way too high. So unless prices actually decline, you know, the actual price level, um, he's going to have a really hard time persuading people that he's accomplished much in the fight for inflation because people don't, you know, these CPI numbers are irrelevant to the average consumer. They don't give two, you know, about how how quickly or slowly the rate of inflation is going. They care about what they spend every week at the grocery store, etc. So, this is the struggle and I'm not sure there's really any way to message that. Um, just because the situation is what it is, you know, unless we see outright price declines, people aren't going to feel better and they're not getting declines in mortgage rates either. So, you're in this environment where the price level kind of is moving sideways. Mortgage rates, credit card rates are all moving sideways, and they're doing so at levels that are so much higher than they were just five years ago. Um, and so it's it's a tricky uh problem and that's why I think you see consumer sentiment and consumer confidence numbers that are worse than they were during COVID, >> right? and in some cases worse than they were at the depths of the Great Recession. And people on Wall Street are like, "Oh, they just don't know what they're, you know, they're just mimicking what they're reading in the headlines." No, I mean, this is this is where they are. >> So, anyway, that was a ramble about I don't know if that even answered any question, but [laughter] >> No, no, no. It it it does. It's very germanine. Um, by the way, just to connect one more dot, um, it all ties into, um, the interview that I just did yesterday with Craig Fuller, CEO of Freight Waves, um, who who, you know, he he tracks supply chain data. So, he basically tracks the economy of real things, >> right? Things that need to get shipped from point A to point B, right? All the parts of the economy that aren't, you know, in the AI digital sphere, right? Um and one of the things you mentioned continental that should have been your >> Yeah. Yeah. >> That one, >> but you know, he talks about how if you add up all of the um all the employees and kind of the the mag seven digital economy, you know, it's like two million people, two million workers. Um with with the part of the economy that he tracks, it's like 35 million workers, right? And so, you know, it really shows a tale of two cities. You know, the the the two million in the AI space are making money handover fist with their stock options. Um the the the real economy, he said, is is the exact words were very very very weak. Um but I think he would also agree with me describing it as recessionary. Um so just like you were saying like that's where the majority of America is right now, right? So obviously what becomes really important in this space is what happens with uh the jobs market right um because uh no matter what's happening with prices if you've just lost your job you know you're you're in a much worse place and we haven't had a lot of data from the BLS of late because of the government shutdown. We did just get some uh September jobs data coming out though um and it said that only 22,000 jobs were added. The unemployment rate has now ticked back up to 4.3%. Um, we'll get more detail on that as time goes on, but um, the official numbers, which I think we all agree are generally too sanguin, >> um, are not looking that good right now as well. And we have seen uh, nearrecord corporate bankruptcies this year. We've definitely seen a steady drum beat of of companies announcing larger and larger layoffs. Again, we're not we're not in the territory we were in the last big recession, but the trajectory isn't very good. So, to your point, Steph, we've got people who are feeling like they're hanging on by their fingernails. They're they're debt financing out the wazoo just to stay alive. the jobs market is looking less good for them and inflation isn't coming down much from where it's been stuck and and may not to your point of fiscal dominance where you they're starting to take the eye off the inflation ball because they just got to figure out how to not let the debt service costs kill them. >> Yeah, absolutely. I mean that's the hard thing is it's not clear to me that you're going to get much relief. certainly not on the interest rate front and the way you're going to get relief on the price front is to have an actual recession. Um so that and that will throw people out of work. And the one area segment of those sentiment and confidence surveys that is worse than it was in the great recession are the um real income responses. So whether it be a combination of expectations that prices will remain elevated or that employment prospects are going lower, um consumers rate their prospects for positive real income the lowest in history. I mean that's kind of breathtaking when you think about it. So anyway, that um yeah, I definitely think that is an issue to be concerned about. And again, you know, hey, to be um snide about it, but it makes what's happening at American Express also extremely important because the tail wagging the dog for the consumer sector has been the high end. You know, the reason why every time you turn on CNBC or any of these financial media networks and you listen to somebody just throw out as if it's fact, the consumer is strong is because they're looking at aggregate statistics that average the people who are just, you know, making minting millions with all their investments uh in uh the financial markets. um with the low end that you know is struggling just to stay afloat. So the averages really don't tell you anything um meaningful. It's that that high end that really is driving the the bus. >> Yeah. And I I've probably mentioned enough on this channel people are sick of me bringing it up, but you we really have to appreciate the difference between mean and median because the mean hides a lot, right? The averages hide a lot as you're saying. you look at things on a median basis, they tell a very different story. Um, so, uh, you know, what's what's, you know, sad about all this is Steph, it reminds me a lot, I think we've talked about this, when I used to live in Manhattan, and I I I just never really got the logic there of like, well, we have to take really good care of the bankers because they spend all the money that makes, you know, the city work. And it was kind of it was always kind of like well why why have we anointed these guys princes, right? Why don't we just make it more equitable for everybody and then everybody can spend the money, right? >> Um so uh you know there seems to be a real sense of well we got to keep those affluent people spending because to your point they're the ones that are keeping the averages up. It's like wait a minute like why why did we end up in this policy situation? Why don't we start developing policies that are, you know, maybe a little bit fair to all? And I know that that was a big part of what Trump ran on. And to your point, you know, I I don't know. I I I still think that um the administration probably if it could have should have let the economy fall into recession, right? talking just as a political strategist >> early on in in in this year, you could have blamed it all in the previous administration, let things heal and be in a healing uptrend when the midterms arrive next year. You know, I I think it's anybody's guess right now whether or not we're going to avoid recession before the the midterms. If we are, hard to believe that the Republicans would would keep a hold of Congress. Um, and to your point, I think even I think even flat is a loss. I think if we just kind of hang out where we are, there's the majority is unhappy enough that they're going to look for somebody different and and the the recent elections that we just saw in the November elections, particularly New York, u but there have been some other, you know, uh progressive candidates like that that have have had notable wins. And it's because people are saying, look, I I don't care if you tell me that their policies are dumb. They're different. And I just know what what we have isn't working for me personally. >> Yeah. I mean, I think that mom dummy win was a shot across the bow. It was an indictment of the K-shaped economy. It was people saying, you know, we're not going to take it anymore. These policies that are skewed to favor the top end of the K um and have been used for years and years and years to our detriment. Um we're going to do something to make sure those policies change. And so they elected this guy. I mean, it's it's amazing to me um how sort of I I don't know if complacent the word is but or non plus the market seem to be about the fact that the financial capital of the world just elected a socialist as mayor. You know, this is like capitalism and socialism, you know, in direct confrontation. It's like it's like two years ago if we were to bet what city was going to have a a Democrat socialist mayor be elected to it, New York would probably have been the last city on the list given that it's supposed to be the most counted. Hey Steph, sorry to interrupt. I just want to >> check one thing. I I I I might have somewhat misspoke because this guy is going bananas in the chat here saying Trump did not run on equity at all. Um and then he kept making some other comments. What I meant to say was he he ran on a message of the system's unfair and we're gonna try to start prioritizing Main Street over Wall Street. That's what I was meaning. Equity, the wrong word. Maybe it should have said equitable or fair or whatever, but certainly not the DII kind of equity. >> Well, has repeated that at every turn that this Main Street's time has been his phrase. like Wall Street has had plenty of, you know, time in the sun and now it's Main Street's turn. And, you know, the the components of the one big beautiful bill with the no tax on tips and the no tax on social security and all these things are obviously geared toward helping Main Street. Um, but as you said, unless they can get relief in terms of lower interest rates and lower price level, they're probably not going to be particularly um, you know, positive about what >> and and after a certain amount of time, it begins to work against you. If you keep saying, well, we're for Main Street, but everybody's like, yeah, but I see Wall Street continuing to get stock market goes up, you know, my job is getting cut, you know. So, at some point, you really got to deliver. And that's probably, I think, a little bit at behind the um the $2,000 checks to households, which, you know, to me that smells a lot like >> what the previous administration did. And and a question I'm not hearing raised at all in the mainstream media is is >> well, we sent checks to households and we saw more inflation. So, are we signing up for the same thing here? Do we want to do that? Right. Um so, anyways, I'm not a political analyst. I don't want to get too much in this territory. Let let me if I can let me rest it back um to some other big questions uh Steph and let me put one more chart up here. Um so uh okay so we talked about how a lot of the AI stocks are now starting to cool off. Um we've got some doubts creeping in about the level of capex and whether it can be afforded and whether we're going to get a you know enough of return off of it. Here was a notable chart I just saw which I want to pull up here which is that um all of a sudden fund managers >> have flipped in their sentiment um as to whether companies are overinvesting or underinvesting in capex for AI and you know of late it's it's been oh my gosh these guys have to go spend all this much because it's it's the biggest prize in the world and you know we got to chase it but all of a sudden this month they've now said oh you know what I'm beginning to get more concerned that uh oh shoot uh I'm be beginning to get more concerned that uh uh these guys are spending too much and uh I'm I'm I'm now worried that they're not going to get a return on their investment and uh anyways I just thought that was a very notable sentiment shift. What are you picking up in the space right now? >> Well, two things. Number one, uh Michael Bur, you know, restructured whether he actually closed or sort of restructured his fund. basically he's he's um you know he endured as much pain as he could shorting the AI stocks and so I think that's a a important signal. Um but the other thing I wanted to say I was going to ask you with that BA um fund manager survey um the one chart that I thought was interesting was the cash levels. So, while they're saying they're concerned about these AI companies overinvesting or companies overinvesting in AI, um they have their lowest cash position. I think it was uh for decades. I mean, it's it's one of the lowest cash positions in multi-deade. >> When you say that cash position, this is of fund managers. >> Yes. Yeah. >> Okay. So, as concerned as they are, they're still all in. >> Yeah. Exactly. So they may say that they're starting to get a little concerned about overinvestment in AI, but they're still max long, you know. So um but that's another reason to fear what we're seeing in terms of the cockroaches and how many seem to be um appearing is that there's a lot of room for these fund managers to raise cash without bringing it to a level that was in any way exorbitant. you know, they if they, you know, raised their cash positions by one percentage point, it would probably still be low in the context of history. So, yeah, >> that would be a sponge sucking liquidity out of the market, right? >> I'm sorry. >> I mean, that would sort of act as a sponge sucking liquidity out of the market, right? >> Yeah, absolutely. >> Ju just to get back to traditional cash balances. >> Yes. And I mean, I think this is another sort of um thing that I've always found fascinating. From the day that I started my career on Wall Street, which is over 30 years ago, um this notion of the money mountain has been out there, the cash on the sidelines. Look at all the cash on the sidelines. And admittedly, they weren't talking about the fund managers per se, but they were looking at money market funds and the teeming uh uh amount of money that was sitting in money market funds that was ready to roll into the stock market at any moment. That story has been around my entire investment career, >> right? >> And what people fail to look, you know, you have to have context so they look at the absolute dollar level. It would be like saying, "Look at GDP. It's hitting record highs." Well, it goes like this. You know, that's that's what it does. It econ, you know, an object in motion tends to stay in motion. So, it's the same with money market funds. They're doing they're just tracking growth in the economy and and inflation and assets, etc., but relative to total financial assets, cash positions, be it in institutional managers or in retail accounts are very, very low. So this not notion if you hear people this is just me ranting to anyone on the sidelines that if you hear someone tell you hey we haven't seen anything yet all this money's coming in from the sidelines look at all the money in money market funds you just send them to me and I'll set them straight >> absolutely absolutely will do and I know that John Husman rants a lot on just the math of this as well but I don't want to get um I don't want to get stuck in that with the limited amount of time we have left um uh so you Bur um has raised uh some interesting questions of late about um you know uh it's sort of piggybacking on top of all the circular financing that's been going on but but you know questions of if not outright fraud you know just suspicious you know potentially deceptive behavior going on here. Bur was specifically talking about uh the amortization schedules, the depreciation schedules for uh the chips. Um but it seems that there is more and more concern getting voiced on a daily basis about the sustainability of the financing in this space. And um you know curious to hear what you think about that. And just to throw a little bit of levity in there, I I did put a post out on X yesterday because there was um uh there was yet another big deal with a bunch of these companies um packaged together. I think uh investing in Enthropic and then you know Enthropic was going to then invest in some Microsoft cloud compute and then it was going to buy some chips from Nvidia and of course it was getting money from all these companies, right? So, I said, I'm I'm really awaiting the headline which says um OpenAI private valuation surges upon news that the company has decided to take a 20% stake in itself, >> right? [laughter] >> It would be like a a page out of Michael Sailor's book basically, you know. Well, I mean, yeah, it seems to be, and I'm going to get to Bitcoin in just a second here, but how what is your what are your spidey senses telling you about the likelihood that we're going to we're going to enter an era maybe in the not too distant future where it is not, hey, those are the haters just tossing out unfounded accusations to, hey, just like the.com era with all of its crazy vendor financing, there was just a lot of hanky panky going on here and we get a discount for that. You know, I keep coming back to Jim Grant and he is such a brilliant wordssmith and his description of the environment today was we're going to find out all the mischief that takes place at 0%. And >> and it's such a beautiful way to articulate where we're going because we spent basically a decade with this repressive interest rate regime where people could borrow at zero and fund whatever high-flying nonsense operations they wanted. You know, I like it at he's sophisticated. I bring everything back to Seinfeld and I think about George Castanza trying to go up to a girl and he says, you know, hi, you know, I'm my name's George. I'm broke. I live in my parents' basement and I'm unemployed, you know, and and that's basically it was like companies with no no prospects and no business plan whatsoever were able to get money, you know, thrown at them in this environment of 0%. And now we're seeing all of that come home to roost. you know, the zombie companies now, one in every five companies can't service their debts out of their income, obviously, as you referenced all the bankruptcies that are going on. And then you've got what's going on in the private credit space, which has been um delightfully obscured behind the curtain um but now is coming to light as we discover that a lot of these companies were complete frauds. You know, we had the shot across the bow with first brands and tririccolor and then you get this Renovo thing and it turns out, you know, it fraud is what happens at 0%. It's part of the mischief at 0%. >> But I think >> and sorry, but just in the private credit, it's 0% plus no oversight. >> Absolutely. >> No regulation covenants, no nothing. Um, and then you have things like, and this is why I think we're really starting to get into a riskoff mode. You get Blue Owl, for example, where people were like, "Okay, we want our money back." And enough people came and wanted their money back because they saw what was going on probably with the first Bransonor and said, "Hey, these guys are invested in all the same kind of toxic stuff. We're going to get out before it's too late." And of course, they said, "No, no one's getting out. You're all stuck. um we're lowering the gates and um in that environment where where funds are doing that you know okay fine so they prevented the outflow for a minute but ultimately it just feeds the rush to exit right and so I think that we're really at a tipping point I do feel like we're at an inflection point now in terms of the outlook for risk appetite and one thing I've been I've been been looking at the league tables to look at credit issuance because you know we've and h seeing massive corporate debt issuance, a lot of it to fund investments in AI. >> But when you look at levered loan issuance, which is, you know, sort of the [snorts] the more lower credit quality type of stuff, >> um it has completely dried up in the last couple weeks. So, you know, you went from having decent loan issuance to now I think the the number of deals thus far in November are the lowest going back at least to 2014. So, wow. >> Yeah. So, >> and this is starting to be kind of counterparty risk issue, meaning where just like lenders just don't want to lend to people because they're just not certain they're going to get it paid back. And then if that then, you know, spreads into lenders not wanting to lend to other lenders, that's when we get into real trouble in the credit markets. Hey, real real quick, I just want to put this chart up because it's again, you anticipated where I was going to go. Um, this is the S&P [clears throat] um, which is the green line versus a lot of the major, um, funds that that are in the private credit space. And you can see here, you know, starting from sort of the end of the summer, the past two months, um, the bloom has really come off the rose where people are start, to your point, they're starting to get increasingly concerned about what's happening in private credit. And you mentioned Blue. Um, I think it was the interview I was doing with you, Stephanie, where I I mentioned that I I had seen we were talking about buy now pay later and and what an I think what an obvious future um grenade that's going to be. Yeah. And um I had seen an article probably like a month ago where PayPal they have created their own buy now pay later service for people paying through PayPal and they sold their book uh of those loans and it just seemed like PayPal just sort of knew hey we're originating these buy now pay later we think this is junk who can we sell it to well who' they sell it to blue right >> oh gosh wow amazing and you know the who's invested with blue probably pension funds you know insurers a lot of that. So, yeah, it's uh but here's another one I want to flag for you since you're looking at buy now pay later as a possible, you know, debacle to come. I have a a really smart uh hedge fund guy that's a client and his hedge fund does nothing but US financials. Um, and we had a call the other day and he said, "Stephanie, I want you to I want to make you aware of something that you might not have heard of that I think is going to be a debacle." And it's BPL, not BNPL, but BPL. So, stop me if you've heard of this before. It's called business purpose lending. >> Okay? >> It is is basically lending business lending, but essentially these are also called like fix and flip loans. So people who are home flippers who go in and you know buy up properties and flip them. It's financing. So it's essentially collateralized by residential mortgage residential real estate >> but it's to these sort of small business entrepreneurs. So >> entrepreneurs, speculators, but yes. >> Right. So in an environment where you have money going to people who may not be, you know, the savviest business people um and you're at the nexus of a deflation of the real estate bubble and you've got this thing. You know, it seemed to me like this is probably the worst uh intersection. you've got the potential for residential uh home prices to go down and this tremendous leverage built up by these uh flippers that could go bad. So that's just another thing to put on your radar. And I'm sure you know when you look at some of the big investors and that you come back to all the same people that you just had the chart of. Um so it's like Renovo. Renovo was doing exactly that. Although apparently just like that was supposed to be a fraud and these other things aren't frauds. So you know it's uh it's all endemic of the mischief at 0%. >> So let's let's get to the rubber meets the road in the last you know 10 15 minutes we have here Steph. So, um, uh, we talked earlier about, all right, you know, um, if we can get a Santa Claus rally and then we can get tailwinds from the the administration's economic policies, maybe that wins out and keeps us, you know, in the positive territory through the end of or, you know, through 2026. But, of course, the big risk there is a market correction that then creates the negative wealth effect. from the stuff we're talking about, you know, it's it's you got to have a really compelling argument to say, "Hey, these things aren't going to matter uh in 2026." I'm going to guess you think they are. So, in your sort of default outlook, are you expecting a market correction that then creates a negative wealth effect that that causes, you know, some some economic cascades? >> Yeah, I think so. And I, you know, I'm mindful that I've I've had this sensation before. Um, but things really, and I hate to say, they they feel more real this time. You know, I'm looking at things like the outperformance of investment grade paper versus junk. And even when you had periods where spreads were increasing in the corporate space, normally what you had was that spreads were increasing faster for investment grade and less for junk because people still were preferring to get the higher yield and and were still, you know, even though they were things were broadly selling off, they weren't selling the high yield stuff as quickly as they were the more quality paper That's different now. That has changed and the and investors are getting much more discerning about risk and you're seeing that also in the equity market as you mentioned with the mag seven and the scrutiny about hey what really are the returns on AI and might we be over estimating what those returns are going to be and maybe there is some element of you know circular investing etc. So there's a little bit more uh scrutiny which was not something that was taking place for the last several years. Um and again I come back to that levered loan thing because if the supply of credit starts to shrink as people become less inclined to lend then it's game over because this economy requires not just credit to go but an everinccreasing amount of credit. So it's not enough for us to borrow the same amount we borrowed last year. We have to borrow more if the economy is going to grow. So this is really could be a a major inflection point if these things u don't just turn on a dime and we'll see. But you know you're looking at the Fed meeting coming up in December. We're waiting more more immediately on Nvidia's earnings tomorrow. Um and and so there are a couple things that will give us some insight as to whether this is going to continue to devolve or not just in the next couple weeks. Um but it really feels different this time at the risk of uttering that dread phrase. [clears throat] >> Yeah. What I hear you saying is is for the first time in perhaps a long while risk is starting to matter. Um and and that could be what changes things here. So you mentioned two things real quick. Um the the markets have been playing a an interesting yes they will no they won't game in recent weeks about the Fed uh whe the Fed's going to cut in December. Um and uh I think based on the past couple of days uh both with some of the economic data and with some of the um proclamations by a few of the folks on the Fed, the market's now beginning to think, hey, they're going to actually cut again, right? So, um back and forth. Curious, do you have a inclination predelection one way or the other? >> I'd be surprised if they didn't cut. I I just feel like, you know, we'll probably get to tomorrow we get the uh payroll report probably be pretty weak. Um and maybe that will give them some fodder to uh to cut. I I think they will cut. Um but, you know, I'm not going to make a bet on it. Um I still don't think it'll matter. It won't mean a thing. But I also think more broadly the fact that the market is gyrating on from day to day. You know, first we had Boston announced his retirement, the stock market flew, and then the next day you got some hawkish comments from some of the Fed governors and the market tanked. And the fact that the market is this vulnerable to, you know, what's going on at the Fed, never mind that their rate cuts have had zero impact whatsoever. um just besp speaks to me how massively overvalued the stock market is. The only thing that can keep it at these levels is continued monetary stimulus and absent that you have to do a lot of sort of self-reflection and look at hey is AI overvalued hey might we be overinvesting in this hey you know maybe consumers are stretched hey maybe private credit is bursting you know all those things become important in the absence of continued monetary stimulus >> so so you need to have the the stimulus and you need to have the narrative, right? You need you need to have the story that everybody buys into. And right now that story is AI and you mentioned like right now the world is basically waiting on Nvidia and there has been a lot of negative news start to creep in as we've been talking about. So like Nvidia better have really encouraging forecasts because if it doesn't, you know, we've seen weakness a lot of the other AI players. If if Nvidia disappoints, that could be the domino that then really starts everything. Doesn't it seem like even if they deliver on expectations, the market's gonna absolutely tank, right? They they have to blow the >> Exactly. Exactly. They They have to really surprise to the upside. I think I think to your point, a a meat is a loss here. >> Yeah. >> Yeah. >> Yeah. And it's interesting. I mean, it I'm trying to think, has there ever been a time that I can remember where so much rode on the results of a single company? I don't know. I would guess probably in the.com sometime back then there was probably >> but we didn't have we didn't have a single tractor that was pulling everything back then. Now Enron was the thing that caught everybody by surprise but it wasn't like there was one.com company that was like driving the entire ecosystem. >> Yeah, maybe not. I can't remember. >> Yeah. So, um Okay. So, um you mentioned uh you know risk. We're we're we're we're starting to see more riskoff sentiment. Now, again, folks, you know, I'm going to say it wouldn't shock me to see a a Santa Claus rally because these things, you know, take a while to break. Um, and to the topic of our of our the title of of today's video, is this the breaking point? Steph, I'm kind of hearing from you. Maybe. Don't know yet, but but certainly has some of the hallmarks that we would expect. We need more data and more, you know, we'll see what happens, but but it's certainly not a no. Um so what's interesting is we have seen risk asset sorry risk off assets like gold and silver you know kind of hang in there right they've been bouncing back and forth um both flirting with so you know gold support at 40 4,000 silver support at at at 50 bucks an ounce um when we started this they were up quite nicely today they're they're not up quite as nicely but they're still above those those uh thresholds that I mentioned Um, I want to contrast that with Bitcoin. And this is a screenshot I took right as we hopped on, Steph. Um, I just checked on my phone. Bitcoin's now actually now below 90. >> Okay. >> So, 89. So, it's really interesting because both of these are assets that I think pundits expect to do well at least on a nominal basis. um uh for the currency devaluation, you know, outlook that you were talking about earlier. Um but I think very clearly one has been trading like a riskoff asset and one's been trading like a riskon asset and and Bitcoin's decline here I think is is showing people's increasing jitters on the risk on trade. So, I want to give you a chance to opine on either of those things. Gold, silver, Bitcoin, whatever. >> Well, I've long viewed Bitcoin as a risk asset rather than a a safe haven. Um, so I totally agree with your analysis of that as relates to gold. You know, when you think about things, if we go back to the conversation at the very beginning about unwinding the yen carry trade, just broadly, if we're in an environment where there's a little bit uh less uh inclination toward risk and people are trying to reduce a little bit of their exposure to it, um you're going to reduce exposures across the board. You know, you don't just you're taking everything down. You're you're reducing your leverage. a lot of these speculative uh hedge funds, you know, might have been three times levered or five times levered and they're saying, "Hey, you know, maybe we want to take that down." And what they do is just basically take down every position x% across the board. And so everything goes down. It's like, you know, a rising tide lifts all boats and a a receding tide takes them all lower. Um and so gold gets you know hit in that process along with everything else. Um so I was not surprised to see that. I also felt like you had seen and I think we talked about it in our last conversation a lot of retail interest came right as we broke some key price levels. At 3500, you had a one wave of retail investment. And then at 4,000, you had a huge rush of retail investors into the gold ETFs. And in the round trip back to four, you know, we went to 4,300 and came back down to 4,000. All of those people who entered at 4,000 exited. So you flushed out a lot of those Johnny completely. Um, so the people who are inclined to just look at a chart and chase it, they're out. Um, and that's why I think gold has since resumed its footing because now it's back to the real money buyers who were always propelling it forward. And then you see larger stories more more on the central bank purchases um you know India, China obviously and now into silver as well. So that entire precious metal space is continuing to get support um from the the dollar um diversification by global central banks. And then the last point I would make on that score is we got the uh treasury capital flows report yesterday um which looks at monthly you know capital flows into treasuries and corporates etc. And it showed a huge increase in capital flows which is probably where most people's analysis ended. But if you looked at central bank purchases of US treasuries, they actually declined again. And uh India was one of the most aggressive sellers of US treasuries. So again, you know, you know that they're buying, they're shifting into gold and silver and other precious metals and they're doing so at the expense of the dollar. Um which brings us back to that whole question of you know what is Scott Besson going to do um in terms of getting debt service down uh without the help of foreign financiers. So, um, anyway, it all comes back to the same fiscal dominance question. And I think gold will continue to, uh, just move higher. Um, albeit not in a straight line because nothing ever does. And Bitcoin, I think, has demonstrated itself to be what it is, which is a speculative asset. [laughter] >> Yeah. Um, this is a this is a question that Andy Shechman raises a lot, but I'm curious if you have any thoughts on it, Steph. Um, so, you know, people might look at the US and and start to get concerned by its debt to GDP ratio um uh its levels of indebtedness. Um but one of the things that Bessant has mentioned at times is hey we want to try to monetize our balance sheet >> and you know one thing that they could do um is I think gold is valued at what like 42 or three bucks right right on the US balance sheet I mean they they could just do a marktomarket revaluation and say hey you know we all of a sudden look a lot better right um here's a qu Why wouldn't they do that? What is the benefit of holding gold at 42 bucks an ounce? >> Yeah, I I don't know the answer to that question. I don't know why they don't do that. Um, so I you would think they would. I guess the only possible wrinkle is what if it turns out that China owns more gold than we do and they do the same thing. you know, we revalue gold and all of a sudden, you know, we find out that uh they win the the uh the gold contest, you know, then their currency becomes substantially stronger than ours. Is that necessarily a bad thing? I don't know. I mean, this administration, it's tricky because they purport to be interested in portraying the strength of the US, but they don't really want a strong dollar, you know? So, so they're really kind of threading a very uh fine needle there. Um, but yeah, I I don't know why they don't do that. It's interesting because they're trying a lot of other things like uh Fanny Freddy is a way of >> privatizing the balance sheet essentially by saying, you know, we're going to sell that and take all the money from selling our our stake in Fanny and Freddy. Um, and that, you know, who knows how many hundred billions they would get from that. So they're they're trying a lot of things that seem to me to be far less compelling than what you talked about. It's just revaluating the gold. Um but I you know to me that happens when we get to the point where the uh the Fed has expanded its balance sheet so far that the dollar is absolutely imploding and we're forced to go back onto some kind of direct or indirect link to gold. and that's when they would do that. But maybe that's what they're saving it for. I don't know. >> All right. Well, I don't know. Um but whatever they whatever they do do, I'm sure we will be reacting to it live here. So Steph, last question before we wrap this up. Um has any of what we've talked about here today, these issues, um have they caused you to make any material changes in your investments or your investing outlook versus your last time here? or you still pretty much going with the portfolio construction you've got? >> Yeah. No, I'm I'm boring. I I am uh you know, set it and forget it. So, I've got my gold um tiny bit of cash and where I have um you know, income that I want to deploy, I'm putting it into energy because I feel like I I've got plenty of gold exposure between the bullion and the miners. And uh I think energy is really going to be the next big story. >> Okay. and we have talked about that. Um, folks, just to let you know, I am working with Rick Rule to have him come on the program at some point before the end of the year to do a deep dive in oil and gas and the opportunities that he sees there. I know people have been really interested in that. Um, on a related topic, I am interviewing um, Rain. Rain is one of the top um, geopolitical think tanks in the world. um one of their analysts you've seen on this program with me several times, Ryan B. He's been their M East analyst and and we've reacted in real time to, you know, some of the developments that were going on in the Middle East um between Israel and Iran and and and the US bombing of the nuclear facility there in Iran. So, I've asked Rain if I could talk to their um South American specialist about the situation in Venezuela, what's going on there, really understanding kind of what's at the heart of it and trying to get a sense of what would be the implications if there was a replacement of Maduro there and potentially if the you know in a good way or in a bad way, but also, you know, if the c country did open up more towards um the US, what would that mean for oil and gas prospects? So, folks, if that's something you think um is interesting, uh let me know in the uh live chat here or in the comments if you're watching the replay and I'll make sure that happens if enough people want that to happen. Um all right, Steph. Well, look, thank you so much. Um really appreciate you doing this, especially with all that's going on. Look forward to seeing you in four weeks from now, folks. Yep. Tighten your belts. You can make it. >> Um and in the interim, folks, to get more palmboy in between your appearances here, Steph, where should they go? um macromavens.com. You can find me there and you can learn how to subscribe. And then um on Twitter and obviously with Hugh uh I'm at S Pomboy on Twitter. And uh we're going to be doing another one of those super terrific happy hour conferences which I I'll post some information about on my website and on Twitter and maybe you can come meet us in person for that. That'll be in February of next year. So that's a ways off, but here in South Florida. So if you're looking to escape some cold weather somewhere, um I'll provide all those details on my Twitter feed soon. >> Awesome. And and when you come back on next time, Steph and anytime in between now and then, uh if you've got all the details, you know, URL folks should go to check it out. That type of stuff, we'll let you share it loudly and proudly here because I know a lot of these viewers would probably love to go do that. Um uh the the one you guys assembled last year was just it was like a justice league of uh you know the world's greatest macro analysts. Um it was fun. >> And who wouldn't want to spend the day with Stephanie Pomboy and GR? >> A lot of people >> and God. >> All right, folks. Well, look, just in wrapping up real quick, um please show your appreciation for Steph and her continued willingness to come on the program here by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. And if you would like um any help from a professional financial adviser in putting into practice any of the opportunities, strategies we've talked about today um in your own portfolio, uh feel free to talk to one of the financial adviserss that Thoughtful Money endorses. To do that, just fill out the very short form at thoughtfulmoney.com and one of our endorsed uh advisors, whichever one you're matched with, uh will reach out to you. Um these consultations are totally free. There's no commitment to work with these firms. It's just a service they offer to be as helpful as possible. Steph, great to see you. Wonderful conversation today. Willina, um she she just kept everything on an even keel with her soothing snores. >> Yeah, I know. The floor stayed down, which is important. So >> yeah, but have yourself a wonderful Thanksgiving. >> You, too. And we'll reconvene right before Christmas, I guess. >> All right. Well, look, everybody, thanks so much for joining us. Steph, thanks so much again. And everybody else, thanks so much for watching. Bye.