Stephanie Pomboy: The Way We Invest Is Coming To An End

Summary

• Investment Framework Shift: Stephanie Pomboy emphasizes that the traditional investment framework is ending, with higher inflation and rising capital costs reshaping financial markets.
• Labor Market Concerns: Recent job data revisions reveal a weaker labor market than previously thought, challenging the Fed's narrative and potentially impacting economic growth.
• Fed Policy Implications: The Federal Reserve's reliance on outdated data may lead to more aggressive rate cuts, affecting liquidity and asset prices.
• Economic Transition: The shift from globalization to reshoring manufacturing could increase production costs and demand more liquidity from the economy, impacting financial markets.
• Market Valuation Risks: Current asset prices may not be justified by economic fundamentals, leading to potential market corrections if growth expectations are not met.
• Gold as a Hedge: In light of potential fiat currency debasement, gold remains a favored investment to hedge against economic uncertainties and monetary policy shifts.
• Corporate Debt Challenges: The looming corporate debt maturities and reliance on favorable credit conditions pose significant risks if interest rates remain high.
• Consumer Spending Pressure: Rising interest rates and economic slowdown could squeeze consumer spending, further impacting corporate earnings and economic growth.

Transcript

I think it's important for investors to start wrapping their heads around the idea that the framework in which we've invested for our entire lifetimes is really now coming to an end and we need to sort of begin to think about how uh higher inflation and I'm not talking about you know a return to 9% but generally we're going to see uh prices rather than going lower and lower every year start to edge modestly higher and higher and more most importantly the cost of capital going up as well and what the implications are for uh you know the financial markets as a consequence. [Music] Welcome to Thala Money. I'm Fal Money founder and host Adam Tagert. Uh welcoming you here for another bi-weekly macro session with the macro maven herself, Stephanie Pomboy. Hi, Steph. How are you? I'm great. How are you doing, Adam? I'm good. And Steph, I know your schedule is extra busy these days. Thank you so much for making the time here. Um, we are pre-recording this one um just because of a few schedule issues. So, folks, we won't be taking live Q&A today. We'll try to make that up the next time we do a live one. Um, but there's plenty to talk about. And I guess Steph, why don't we kick this off with uh today's big news, which is jobs. Um, we just got the jobs revisions for the 12 months ending March 2025. Uh, and it was a big shocker. Um, I mean, I know we all expected it was going to be a big revised number, but it it kind of blew away what the street was expecting. Um, real quick, let me just set the table and then I'll let you expound on it. Um, we've had a lot of jobs data come in since the last time you appeared on this channel, which wasn't that long ago. Uh, but we got the ADP jobs numbers, which showed that definitely jobs were um, uh, diminishing, uh, job opportunities were diminishing. We then got the Jolts report, which showed that for the first time in many years, um, really, I think since sometime in 2020, uh, that job applicants now outnumber job openings. And I know you're very familiar with how long the Fed has been beating the drum of, hey, this labor market's too hot to get inflation down. We've really got to close that that alligator jobs between all these openings we have and the der of people out there trying to fill them. Um, so this is a real flip in that narrative. And of course probably you know the Fed I think had access to all this data uh leading up to Jackson Hole or at least they saw I think a number of the precursors of it where that really did seem to be the thing that that flipped Jerome's script in the sense that he had been talking about hey this jobs market is normalizing there's nothing to worry about here we're still trying to cool it a little bit to all of a sudden whoa this jobs market is maybe a little bit weaker than we thought which of course you and I have been beating that drum forever and then Today we had uh the revisions come out um oh sorry wait then we had the payrolls come out uh last week right uh showing um you know they were expecting a relatively weak number at 75,000 I believe number came in at 22,000 right I mean that's essentially stall speed jobs-wise um they revised the June payrolls data to negative so that would have been the first negative print in I don't know how long but many years um and the unemployment rate started rising again now up at 4.3%. Not a crazy scary number in and of itself, but if you look at the trend, that's the highest number. Again, the unemployment's rates been out in years. I'm going to bring up a chart about that in a little bit for us to talk to. But then we get today's revision, right? And um they were expecting maybe a revision downward of 680,000, which is a really big number, right? But it came out at I'm seeing conflicting numbers. One I've seen at at 911,000 fewer jobs. Yeah. I saw another one at 919. I don't know if these are just sort of fat finger typos or if there's any little discrepancy back and forth. It's in the same ballpark, but that's a lot. I mean, that's like whation 40% more than they were expecting, right? 35 40% more. So, you know, clearly now, Steph, it is becoming obvious that the jobs market is not hail and healthy. um you know that does this mean we're entering into uh you know we're going to start seeing jobs numbers negative job prints going forward from here? We can debate but um you know as as goes the econ the uh employment market so goes the economy. So we've got all this in the soup. Let me hand the baton to you here. What are you seeing in all your analysis? Well, I'd like to preface this by saying that um the irony of watching this whole employment revision uh and the uh berating that the Federal Reserve is getting for claiming to be data dependent and you know uh glomming on to a number that was clearly uh at odds with most of the other data on the ground um is that investors haven't made any kind of mayopa the BLS has come out and said, "Whoops, we were off by almost a million jobs." You know, overstating essentially the strength of the economy in general because, as you said, you know, employment, the economy is as good as employment. Um so if we're talking about a basically a 1 million downward revision to what we thought was the uh total growth in jobs. You would think that that would be get some repricing of risk in asset markets that have levitated in considerable part on this notion that the economy was on a much sounder footing than we're discovering was actually the case. So, you know, you and I, as you also mentioned in your opening there, have been pointing out all of the indicators that conflicted with the payroll number and have been, you know, raising serious doubts about the quality of that measure for over a year now. You know, it was pretty much the exception to the employment data rule. Uh, you were seeing unemploy unemployment claims creep up, continuing claims move sharply higher. All of the regional fed surveys were reflecting weaker employment. The NFIB small business survey blah blah blah. You can go on down the list. And the payroll employment report kind of stood out as this blaring exception to everything that we were seeing around us as related to the strength of the labor market. So, it's interesting because the markets obsessively focus on this payroll data. Um, in large part because it's a key input for Fed policy. But at what point are we going to say, look, we pushed asset prices to levels that were just far beyond that justified by the economic fundamentals based on what we're discovering was now in fact the case. Um so I I think that's one question is we've got basically you know if you look at um the stock market relative to any variety of economic indicators whether it's the leading indicators or real consumer spending or real retail sales etc. Um it's just hanging out there like a giant moatza ball you know it's just way over its keys and the question is the the right now the analysis in the marketplace has to be one of two things. It's either that this downward revision is bad news and it doesn't have any bearing on the rate of growth in employment going forward. In other words, that things were weak and maybe weaker than we thought, but we're about to see uh an acceleration that will justify the levels to which we've already pushed asset prices. So, that's one possible narrative. The other possible narrative, and this is probably more powerful, is that because the Fed is now discovering that it placed way too much emphasis on this data that was wrong, it's going to have to catch up by cutting rates even more dramatically. And that will provide some liquidity offset, reduce borrowing costs, and provide relief to a stressed corporate and consumer sector. And that will help validate the level to which asset prices have climbed. So, you have to believe one of those two arguments or some combination of the two to be sitting pat here uh in the face of this downward revision. Um well, let me let me show you this uh Steph. So, I just took the screenshot about 30 seconds ago. Okay. Yeah. You know, the markets are treating treating this as a big nothing burger at the moment. Yep. Right. Um so, they're believing one of those narratives at the moment. Right. And the dollar is actually a little firmer, which blows my mind. I don't know. So, that would suggest maybe they're putting more emphasis on the first argument that the economy is about to pick up rather than the second argument that the Fed's going to have to be even more aggressive, but who knows? We may be overanalyzing it, but yeah. So, look, I mean, there's lots and lots of data, which you and I talk about all the time, and we'll probably talk a little bit more about this time, uh, of how the economy is slowing. And you know, my day job is interviewing experts like you and pretty much every expert I talk to says the economy is slowing down, right? It's a question of how slow how how much it's going to slow down. Um, now obviously the administration's working on a whole bunch of things that it hopes is going to goose economic growth, but a lot of those things are going to take time, quarters, you know, to to really start to get felt in the general economy. Even the Fed rate cuts, right? Even if you're thinking, okay, the Fed's going to start cutting a lot from here, you know, lag effect. It takes a while for that that to get uh felt in in the wider world. What are the arguments right now for hey, the economy is going to start picking up here in a material enough uh short enough period of time that we don't have to discount stock valuations for a slowing economy? Well, I think the argument probably rests on some of the big beautiful bill, uh, you know, the immediate depreciation, the extension of the tax cuts, no tax on tips, you know, some of the new, um, progrowth policies that were built into that, as well as the sweeping deregulation. Um, I guess if you wanted to layer in there, you could say that uh the tariff income to the extent that that is able to be uh remain in place is helping to gradually uh re in a little bit of the deficit uh and sort of helping us deal with what was an untenable problem. Um, you know, those all strike me as fairly weak arguments. Um, yeah. I mean, I hear the administration pounding its chest about all that stuff. I don't hear corporate America CEOs shouting from the rooftops, "Oh my goodness, thank God, you know, the big beautiful bill. We're going to see our profits explode next quarter." You know, well, we do have the capex boom that they're talking about related to the incentives to produce here in the US and all the foreign commitments that we've had, you know, all the capital commitments both domestic and and uh foreign uh into the country. I don't know how much of that has actually materialized and what the you know the uh runway is on that. It's probably very long and very gradual. So that's sort of a glacial uh assist but not something that is going to be sufficient to offset the loss or the revision of 900,000 jobs. You know, we we there is something here that's got to pick up the mantle. Uh, and another thing you and I have talked about at length is it doesn't look like the consumer is going to be the one doing that. um given the the still ownorous level of interest rates uh the resumption of student loan payments and if we're seeing a deceleration in the labor market that's obviously going to only further curb consumer spending which eventually will then you know result in weaker earnings for companies who will then start to try to rationalize labor costs by either trimming hours or headcount outs and you know you risk setting up that vicious feedback loop. Um, but so I think the the main argument, the hope that everyone is clinging to is that when the Fed cuts rates, interest rates across the entire credit spectrum will follow the Fed funds rate lower. And that will provide relief at a time when consumers are still trying to get, you know, their bearings, get their uh finances shored up, and the employment market is sort of weakening. Um, and so if you can reduce debt service for consumers and businesses, that will provide sufficient relief to, you know, keep the economy going. I don't know. This I'm speculating because I don't I know I you're doing a good job of trying to make lemonade from lemons here. Exactly. I'm struggling to to come up with the rationale, but clearly the markets are very content with uh whatever their narrative is. Their narrative is Yeah. And we we'll maybe come back to this in a moment. I think a big part of that is likely the difference between mean and median, right? Which is we have, you know, such a small number of companies that are doing phenomenal and they are basically carrying almost all the water, right? So that people look at the averages, the indices and stuff and say everything looks great, right? Where it's really these very small number of hyperscalers that are benefiting a lot from this capex, right? It's this, you know, we're not necessarily seeing a ton of organic um sustainable profitability. We're just seeing a lot of capex going to a small number of companies and um you know that is providing the impression that everything's fine. Whereas beyond outside of those seven to 10 companies, things look very different. But let me show you this. So for those that are hanging their hat on, okay, the Fed's going to lower rates and that's going to, you know, bring out the sunshine rainbows for everybody. So um I was just playing around in Fred and created this chart here. So this is the unemployment rate in blue and it is the federal funds rate uh in red, right? And then its recessions are the gray shaded areas there. So, I ask this question all the time, but I'm going to ask it again with with the benefit of this visual. So, let's look at the unemployment rate, the blue line. Well, every time that that has come down from a previous recession and plateaued and then found a true bottom, once the unemployment rate started increasing again, it then spikes, right? And you know these get declared retroactively but once the the recessions you know are are declared um you know basically the spiking of the uh unemployment rate kind of goes into the next recession right so you know here we are uh at the right end of this chart and we have bottomed and the unemployment rate is is starting to come back up again. So, it hasn't spiked yet, but I think you got to ask yourself, well, okay, what's going to make it different this time versus almost every other recessionary period uh on this chart? And there are a lot, right? Secondly, same thing with the Fed funds rate, right? That's the red line here. Pretty much every time the Fed has hiked and then plateaued, it has then uh realized it's remained too high for too long. the new rec the next recession starts and then the Fed is panic cutting into that and in almost you know in most of those that panic cutting didn't spark the economy right away because there's a lag and there's usually a pretty big market repricing downwards uh in each of those recessions as well. So again with that data series you have to ask yourself the question well what's going to be different this time versus the pronounced history here. So to me, this is one of the more compelling charts out there, which is you really have to have a extremely convincing empirical argument that says, "No, there's something different this time that that we're going to break this historical pattern." Yeah. I mean, I guess the one thing that would break the historical pattern is this reshoring of production uh and the idea that you're going to create more jobs here rather than outsourcing them to factories in China. However, that's not something again that's going to happen overnight and um you know that's costly as well for businesses. So, I'm not sure that that immediately uh creates a real boon for consumers, right? And the trajectory of jobs isn't showing yet. Oh, we're adding a whole bunch more. That's mostly, you know, if we're talking about reshoring manufacturing primarily, uh then first thing you got to do is build the plant and equipment. Then you bring in the people to work there. So there's a lot that has to happen first and and as we talked about earlier, it's not clear how much of that capex is actually underway already. When you look at the capital spending numbers, um they're not particularly impressive. And then we got the NFIB survey also this morning and the capex plans there continue to be incredibly weak. um granted that small business and most of these big capital commitments have come from the you know the top triangle of the corporate pyramid as as you mentioned. Um but importantly as relates to employment uh you don't see small businesses saying I'm going to use this immediate expensing as an opportunity to go out and you know franchise more or whatever. Um at least not yet. So I think it's a good question. The other question that I would raise about that chart though is do we trust the unemployment rate as a number? Do we believe 4.3 is an accurate reflection of the unemployment rate. Um, and I would argue and I, you know, I could figure out maybe if we have some time here how to screen share this, but you and I have talked a fair amount about uh the quits rate and the uh relationship that it normally has with asset prices. So normally in an environment where asset prices are soaring, people are more inclined to quit their jobs without having another one lined up already because they feel like it it'll be really easy to turn around and get another job, right? Um so what we've seen basically I'm looking at this chart here since 20 uh 22 is the quitz rate has absolutely collapsed. I mean it is you know back to where it was during COVID and then the the great recession before that. So people are reflecting tremendous job insecurity at a time when the asset markets have been on freaking fire. You know we're setting new records relative to GDP for pretty much any valuation metric on the stock market. So this is a stark departure from the historical relationship where you know uh the Wilshire and maybe I'll send this to you Adam and you can post it uh after but the the Wilshire uh 5000 and the quitz rate are almost indistinguishable the two lines together until that moment in 2022 when um they parted company dramatically. So I'm, you know, I would raise real doubts about the val the u accuracy of the 4.3% unemployment rate based on what consumers are expressing about the labor market. You know, it's not just this quits rate, but obviously the confidence surveys have long reflected a very dor outlook or um even analysis of the current uh labor market by consumers, whether it's in the the University of Michigan survey or the conference board. Um all of them suggest that, you know, the consumer really does not believe the labor market is strong at all. So, let me do a couple things on that. one is I want to pat ourselves on the back a little bit. Um because you know a couple years ago I remember us talking and I I I predicted that uh you know in the heart of the the um great resignation, right? You and I were talking about how, you know, we thought once the the pig was through the python and the lag effect caught up with everything and all that stuff that we were going to see the great resignation um right uh metastasize into the please sir may I have my job back movement right and I think we are beginning to see that um certainly you know quits rates cratered as you've said so people are definitely saying please sir don't fire me um and uh we are starting to hear stories of of people that uh cost of living has, you know, been higher than they thought when they retired and now they're having to, you know, think about maybe going back into the workforce. If we end up getting a market correction here, and there's no guarantee we will, but if we get them a market correction of the size that I think Steph, you you think kind of should happen. Yeah. Um, there's going to be potentially a lot of boomers who retired early during the great resignation because all the trillions that were getting forced into the system sent their stocks to the moon and they hit their retirement goals a lot sooner and said, oh, okay, you know what? I'm out of here. Right? They may realize, oh my gosh, you know, I just lost 20 25% of what I thought I had and I got to go back to work. And that might be happening at the exact wrong time, right? So, anyways, kudos to us for sort of calling what's going on. I hope it doesn't get as bad as I just mentioned, but I think it there's potential it could. To your point about not trusting the data, I mean, you and I have not trusted the the jobs data any way, shape, or form for a good while. But one thing to just remind folks is is that 4.3% is the unemployment rate of what the BLS estimates the people who are in the labor force, right, who are out of work is. It does not take into account the people that it considers out of the labor force. And that is a massive number. I think it's over a 100 million um you know 18 plus uh US adults are considered not in the labor force and in some cases those are students or those are homemakers uh or those are people who too too old to work and that's a material amount but increasingly there are millions to tens of millions in that outside the labor force market who are able-bodied US adults um but they have just stopped permanently looking for work and that's a that's a um you know that that's a drag on society. It's it's it's a societal ill and that that cohort is growing here. So point being to your point is if we're really thinking about the spirit of what unemployment is, it is substantially worse than what a 4.3 number, you know, seems to suggest. Well, and one presumes that a a fair amount of those people who have exited the labor force voluntarily have done so because they've been able to source funds elsewhere. So either they're making so much money on their Bitcoin or their stock market portfolios or they were enjoying the benefits of not having to pay off their student loans or they were on social security disability. All three of which are now you know well the the latter two are you know now reversing. Um and so if the as you said if the stock market uh reverts to any anything resembling you know normal valuations you could see a huge influx back into the labor force and that would immediately pop that unemployment rate much much higher. Um, so I I at a time where companies are probably shedding intentionally shedding jobs and the wild card of AI, are the jobs even ever coming back? Right? You know, right? Yeah. Um, all right. So, there's a lot uh there's a lot there to keep our eyes on. Let me ask you this question. Um, so I think from what you said, you you you think similarly, but correct me if I'm wrong. Um, personally I'm a big fan of the attempts to reshore a lot of American American manufacturing. Um, I'm a I'm a big fan of the um intent to create more jobs, you know, here in in the country uh in ways that, you know, invest in our infrastructure or take greater advantage of of resources that we have. Um, you know, I I I I I think um, you know, we've done a terrible disservice to the working class of this country um, by exporting so many jobs over the past bunch of decades um, I think is a lot of good logic. Now, will will like will that lead to higher, you know, costs of goods and services going forward? It very well may. Um, but I think hopefully it'll also lead to higher wages and I think that'll provide a good cushion. And you know, okay, does that bring corporate profits down a little bit? Yeah, maybe. But you know what? They've had record profits recently, you know. Anyways, I I I think in general, you know, nuance topic, but I think in general it's quite a good thing. Um, and I applaud the administration for um, you know, making this a priority. Um, but a lot of these jobs are um I mean they're all over the spectrum, but a lot of them are trade jobs. Um, which we have already had kind of a big gap of, you know, the trades need a lot more people that are going in, especially with the retirement of so many skilled baby boomers, right? Um, and uh, it's funny because the the, you know, almost dismissive advice to people was, well, just learn to code, right? we're shutting down your mind, but if you all just learn to code, you're gonna be fine, right? It really does seem now that that the right thing to do here is, hey, go learn a trade, right? For for a lot of Americans. Um my question is is uh you know hopefully younger students are hearing that and more and more of them are thinking okay well maybe going to a that maybe versus going to a liberal arts college and getting kind of a vague degree in you know Brazilian underwater gender studies. Right. Exactly. I could I could I could go to a pract get learn a practical trade. Um Right. And that'd be great and there'd be a lot of demand for them. But for the large amount of the working populace that may be getting displaced here, either because of an economic downturn, either because of AI, or either because just the economy is waking up to the fact that, yeah, this job didn't create nearly as much value as some of these other jobs that we could open up here. What is the transition for the workforce that we have today to to become the workforce of tomorrow? Is that something that can happen pretty quickly? like, "Oh, okay. I'm working a desk job, but I see that this oil field is hiring here. Let me go work there." Or is this something that's going to take multi-year for people to reskill and, you know, find a home in these new industries? Well, I mean, it seems like it's a a multi-year, multi-deade process, I would think, but this is all sort of part and parcel of the shift away from globalization to this whatever you want to call it, delobalization or mercantalism or or whatever terminology. Um and that's going to involve a lot of real um challenges in terms of the the transition from where the economy is now to where it will be you know let's say 20 years from now and you and I talked about this briefly I think in our last conversation um you you know I've been talking about the idea that we have enjoyed this period that was Greenspan described as the great moderation which was the result of access to cheap labor and goods. s around the world that held inflation really substantially lower. You know, sorry to interject too, but also cheap energy prices, right? Cheap labor and we had the shell revolution that really helped keep oil prices. Yeah. Right. But with regard to the the globalization side of it, being able to access all these cheap resources, labor, capital, um, etc. around the globe created a massive tailwind for financial assets in the US because we didn't have to use our money toward you know the plebeian task of producing widgets um we were able to buy those cheaply and with the profits that companies were able to generate as the consequence of sourcing all this cheap capital right sorry to interrupt but just to make sure folks understand the trifecta We had access to cheap labor that we didn't have before globalization. We had access to cheap energy, which I just mentioned, but your point's a really big one, which is we had access to cheap capital, right, with with ZERP and all this stuff like you know, you could you could basically borrow for almost nothing. Yes. To invest in your business. So, I mean, it really was the perfect trifecta if you were sitting in the the corporate CEO seat, right? and and one of the great uh bonuses of the lower costs of goods and and production for the US was that the economy didn't require as much money to operate. You know, let's just think about this. Every day we wake up and there's this tugof-war taking place between the economy and the financial markets for that marginal dollar of liquidity. And in an environment where inflation is going, you know, low and going lower every day because companies can source cheap capital in China and then when that gets expensive, they shift to Indonesia and then they shift to the Philippines and they keep pushing the those costs of production lower and lower and lower. Um the economy is losing that battle for marginal liquidity. It doesn't need the money as much. So all that free liquidity flows into financial assets which set up this environment that we've seen today where you know this gets back to that whole abstract social concept that basically what we've seen is this massive wealth effect and a hollowedout middle class because we've outsourced all of the production of goods and we've come to the production of paper um as a result of being able to enjoy all the the uh surplus liquidity um generated by this access to free uh you know cheap goods and capital as you talked about globally. So if that's all reversing now and we're going to reshore and the rest of the world doesn't have as much uh to gain by trying to trade with the US you know in fact they're being increasingly marginalized as the US tries to produce here rather than there. um then the wisdom of their recycling the dollars that they're actually no longer receiving from trade flows back into our markets withers as well. So we're talking about uh the reversal of this framework that we've lived in for the last you know more than 20 30 years now um to one where at the margin the economy is going to start to demand more of that marginal liquidity as the cost of production go up while we reshore and we hire more people and that labor becomes more expensive and capital becomes substantially more expensive and that will drag it basically will pull all of the you know in the tugof-war. The economy will gain the upper hand and financial markets. They may continue to go up but not in the asmmptotic way they have and probably with substantially more volatility because we're going to reshore production. We're reshoring the business cycle and that means the economy is going to have those oldfashioned inventory swings um and that's going to jerk the markets around with it. Um, so I, you know, these are all big sweeping secular concepts, but I think it's important for investors to start wrapping their heads around the idea that the framework in which we've invested for our entire lifetimes is really now coming to an end. And we need to sort of begin to think about how uh higher inflation and I'm not talking about you know a return to 9% but generally we're going to see uh prices rather than going lower and lower every year start to edge modestly higher and higher and more most importantly the cost of capital going up as well and what the implications are for uh you know the financial markets as a consequence. So, uh, that's such a phenomenal point. Um, I'm going to make it the, uh, the intro to to the video here. Um, and and this is why it's going to catch, I think, if indeed this does happen, it's going to catch the vast majority of of people in in the system by surprise, right? Because it's just hard to imagine what you've known your whole life essentially changing in in such a big way, right? Um I I put up this chart real quickly um just to show to your point about reimporting the business cycle. Um you know you can you can see here in in the first half of this chart you know kind of 1950 through uh through the mid 80s uh recessions you know happen pretty frequently. Yeah. And then, you know, once we get to the new millennium here, 2000, you know, we've had three and the COVID one was the blink and you miss it recession, right? And so, to your point, by exporting manufacturing, we we kind of push the business cycle on others and we got to enjoy, you know, if we think of these as seasons and and uh uh recessions as winter, you know, we got to enjoy really long summers, endless summer. Yeah. Yeah. So, so to your point, you know, we got to be willing to to say, "Hey, you know, that's pro it's probably going to go back to a much more historic frequency of of winter going forward." Yeah. Um, wow. All right. Well, look, um, so let me ask you this. I'll get to the the Fed and we'll talk about the Fed and gold and then we'll we'll start to wrap up. But, um, look, one man's opinion, you know, I've been every so often I emerge from my cave and I get interviewed by somebody else. So, I have to process all my thoughts together, right? And um my opinion so far is um you know anything can happen from here folks but uh trying just to distill it into you know something I could explain to somebody within a minute or less is I say I'm sort of short-term bearish medium-term bullish long-term bearish. Um, so for all the reasons you and I were talking about at the beginning of this discussion, um, you know, the trajectory seems downward in the economy from here, it seems like a lot of the shoes that you and I have been talking about that that we we believe are likely to drop at some point, their likelihood of dropping seems to be increasing uh, as more and more data comes in. And so, you know, I can see a slowing economy and sort of a forced market correction somewhere in there, you know, in the next six to 12 months, right? Essentially, because if the economy slows, these crazily rosy earnings estimates, earnings forecasts that are keeping prices pushed high are going to have to start coming down. There's going to have to be some repricing. Now, I'm I'm sort of midterm bullish in the sense that um whether you agree with them or not, I think a lot of the policies that the current administration is pursuing will create incremental economic growth. Um, and so, you know, both once we're through the the worst of whatever may happen here in the short term, if we do have an economic slowdown, if we do have a market repricing, over the next several years, we should start to see more and more tailwinds to the economy from from what the administration's, you know, trying to to put in place here. Um, and so, you know, okay, great. Now, also too, what also might goose things to the upside is if if things get painful enough in the short term, the central plan or reaction function. You know, they'll likely interject a whole bunch of stimulus that'll get things going again, too. So, we may have kind of a double whammy there of the policies finally bearing fruit and all the stimulus. Right now, that said, you know, I'm not optimistic that we are in any material way changing our ways of deficit spending and racking up more debt than we can afford and all that type of stuff. So, that's why I'm long-term bearish. I just think that that those long-term chickens that you and I, you know, like to sit back in the chair and talk about stuff. Uh, I I don't I I don't yet see anything we're doing that's going to avoid that fate, right? Um, so let me take a pause there. Do do you see something similar or do you have a different look on on things? No, I don't disagree with that at all. I mean, I do think that uh when the time comes that they policy makers hit the panic button, they'll hit it hard. Um and so that will just continue, you know, attempt to continue that cycle on the chart that you showed previously where we can just reduce the cost of capital and have that endless summer again. But it won't be it won't work this time uh for the reasons we've talked about in that is you know that structurally the global economy is now in a different place than it was then. Um, and it's not clear to me when the Fed does hit the panic button that it will actually provide any relief to the economy in the form of lower interest rates, which means that the burden will be placed on fiscal policy again to do that. Um, and so I totally agree with your conclusion that there there's very small likelihood that we're changing our deficit spending ways um in in a way that's going to be bullish over the very long term for the economy. The one thing I will say that's a positive is Misery Lips's company and when it comes to bloated debts and deficits, uh, the US has plenty. um pretty much the entire developed world is in a similar if not worse situation in terms of having massive untenable debts to aging populations. Um, so you know, when it comes when push comes to shove, it's not just going to be the US that's implementing these radical uh monetary and fiscal policies, but all of the developed world, which again brings me back to gold as pretty much the place to be because you're going to have to hedge against not just dollar debasement, but a debasement of fiat money broadly. Um, so you know, I'm a broken record on that score, but it's just hard for me to see um how we get out of this situation, especially if we find out next week when the Fed finally cuts rates on the 17th, as they've largely telegraphed they're going to do um and the long end of the yield curve refuses to move lower. It's going to be very interesting to see um how interest rates respond over you know maybe not that one day but over the ensuing couple weeks. Um, I would mention that in September of last year, actually the meeting was on exactly the same day, September 17th, 2024, when the Fed cut rates, um, the 10-year and the long end of the Treasury complex had rallied in anticipation of that Fed cut just as they have rallied in anticipation of it today. Um, and then they U-turned on the news. So, I am kind of holding out the the real possibility that we'll see an exact repeat of that this time. Um, but even if rates just don't, you know, they don't have to go up, but let's say they just don't come down, that is sufficiently awful for all the companies that have been counting on lower rates to bail them out and all the creditors who have been willing to engage in these extend and pretend uh antics in, you know, on the assumption that, you know, it would just be a matter of time before borrowing costs came down anyway. So, this is going to be quite a pivotal moment to watch um and will have massive implications for, you know, where we're headed going forward because I if interest rates do uh refuse to follow Fed funds right lower, then I think a recession in the US is very very hard to avoid. All right. So I guess first off Steph um you know the next FOMC meeting is what in nine days something like that. Um so uh what's your expectation rate cut 25% 25 basis points more. What are you thinking? Well I mean I guess this morning's uh revision might put 50 on the table. Um so maybe they do 50. Um I think the the question would be let's say there are two scenarios. They do 25 and Powell comes out and strikes a much more doubbish tone at the presser. So you know if the if the markets had been expecting 50 they'd be disappointed with 25 but once he opens his mouth they'll take comfort in all of that. The alternative scenario is he does 50 and then in the presser kind of says, you know, this doesn't monetary policy isn't on a preset course, you know, to sort of allow for the possibility that maybe they won't feel the need to cut rates at the next meeting, but you know, they'll continue to watch the data. So, I think they don't want to come out and appear to have their hair on fire in some kind of massive panic. Right. So I I I think it it will likely be one of those two scenarios rather than he does 50 and comes out and sounds even more doubbish. I think that might actually have the reverse impact on the markets where people said, "Holy crap." You know, the Feds, these doofuses are finally worried about something. It must be really awful. You know, so um that those are, you know, I'm just guessing, but that those would be my two. Okay. But but also uh I mean the market is expecting further rate cuts this year and rate cuts into 2026. Do do you believe um and of course you'll be on this channel every two weeks so you can you can think I can embarrass myself every two weeks with my best forecast. But but do you believe right now that we're we're starting a an era of rate cuts? You know maybe similar to what I showed on the chart there where it's not just a couple ch couple hik cuts and then they wait a month a year. It's it's going to be more sort of a progression downwards. Yeah. I mean, I think last year was extremely atypical and that's probably one of the reasons why Trump has been so um exercised about the Fed's behavior is that once they start cutting, they usually cut a lot. Um they don't just, you know, cut a 100 basis points and then decide to sit pat. So, um I do think it would likely be part of a broader rate cutting cycle. Um, and I do think, you know, I'm trying to flesh through what is their reaction if they cut as they did in September of last year and then do a couple more cuts after and yet the long end of the curve does what it did then. Do they then have some hysterical panic where they say, "Well, clearly we're just not cutting fast enough." And then do like some 100 basis points emergency rate cut. know I wouldn't put it past them to do something like that where if they don't get the market reaction they conclude as policy makers always do that it's not that the policy was wrong it's just that they didn't do it big enough you know it's not that our toolkit is broken it's that we didn't bang on this thing hard enough we just didn't use the hammer hard enough exactly right exactly so and and I think um when that fails that's when they finally say all right we have to go the way of Japan We have to impose yield curve control. We have to get out there and actually start actively suppressing the long end of the yield curve by monetizing, you know, imposing some kind of form of quantitative easing, but essentially targeting the long end of the yield curve. So, um, again, asking you to to prognosticate here, so you'll have plenty of time to to change your answer. What do you think is more likely at this point? Um, the Fed cuts the short end of the curve, the long end of the curve does not go along with the Fed's plan and keeps rate yields where they are or brings them even higher. Um or to your point at some point slowing economy with yields that are just hanging out in this ballpark which add like you know act like gravity on economic growth push us into a recession and the the just the decrease in demand uh for the economy uh plus maybe a little bit of a safety flight to safety brings bond yields down over time. Yeah. I mean I I wouldn't rule out. I'm sorry. The specific question should have been do you think bond yields will come down over time like that or do you think yield curve control is more likely? Well, I think um bond yields might come down reflexively on this idea that you know once it's clear that the economy let's say is headed into recession and maybe imagine it uh equity valuations start to get repriced. I can't see that ever happening ever before. I I hesitate to even suggest something so outrageous, but let's say that happens and the sun will go dark and okay, you know, will fall from the sky. Sure. Um, in that scenario, you would think at a minimum the massive spec shorts in longdated treasuries would rush to cover and so you'd get at least a bid there. The question is how long does the bid last and how material is it before people do the calculus and say all right this deficit that we've got isn't going lower but quite the contrary because we're heading into a recession this re this deficit is likely to maybe even double from where it is which is typically what happens in a nasty recession um and in the prior you know uh bubble busts. So that scenario I think would begin to put more pressure on rates to edge back higher. So I do think, you know, I don't want to be too cute about it, but I think you do have a massive short exposure on the part of hedge funds and leverage speculators um betting that my scenario is going to take place where the Fed cuts and the long end of the yield curve does what it did last year. Um, so if it appears, you know, as they look like they're getting that bet right, and then all of a sudden the fact that rates haven't come down, uh, reflexively sews the seeds of this recession. Um, which, you know, causes them to cover, you could see a pretty material and swift rally in bonds. Um, but I think that would be pretty short-lived before people do the math on on what it means for our fiscal situation. Okay. All right. Um All right. Well, then wrapping up here. Um, uh, so gold. So, you mentioned a few minutes ago for, you know, a lot of these reasons, you know, it makes you feel real confident that gold is still good to continue to hold. Um, and I, you know, full transparency, I I hold a fair amount of gold. And, um, you know, it's been a really great year uncharacteristically for for precious metals investors. And, uh, I've been having this conversation in my past couple interviews. I'd love to get your thoughts on it, um, Steph, which is, um, I think just the metals themselves year to date are both up like 40 plus percent. um they've had great performances and they could very well still go a lot higher from here. I mean, I can easily convince myself that that that's the case. Um and maybe it's just because it it I'm not used to experiencing this as a precious metals investor much over the past, you know, 12 years. Um uh you know in investing in general no matter the asset um when it has moved really far really fast you know there's generally some sort of pullback uh process that happens uh even even if the it still continues higher you know oftentimes there's still you know pretty decent corrective corrections. Um and so you know the question that's being raised right now is hey if you're sitting on some attractive gains right now as a precious metals investor should you um you know should you either take some of those off the table should you rebalance you know if if precious metals went from 5% of your portfolio to 10% or whatever you know should you should you position resize right which is a a very good best practice in investing um and even for those who say look I'm holding on to to precious metals um as a as like a foundational trade, you know, over the next decade plus because I I I think this is going to happen with the monetary system or whatever. Um, okay. You know, may maybe you've got this sort of holdal position in in in your portfolio, but when it's moved like this, does it make sense to maybe put a hedge against it? So, just in case you go through a pullback or corrective cycle, uh, you're not taking a 100% of it on the chin and you've got some additional dry capital at the end of it by selling your hedges to then reinvest at lower prices to ride the recovery from there. Do you have a strong opinion? What are you doing with your portfolio? Well, it's so funny because I was talking to my father yesterday and he's, you know, in his late 80s, uh, and has been big in the gold miners for a long time. And he called me and he said, "I I want you to sell some of my gold miners because I feel like I, you know, at my age, I don't want to take the risk that we've seen the gains and then this all craps out and all of a sudden I've wiped out our, you know, what savings we've got." So, um, you know, I was trying to I said to him, "Well, I don't know. The number one rule you taught me was never lose position in a bull market. So, why wouldn't you think about just instead of selling your exposure, just hedging it?" Um, and I proposed because, you know, buying puts are so expensive and writing calls is incredibly dangerous. I would never even contemplate doing that. Um, I was looking at inverse ETFs and the gold miners and you could do like they even have a three for one inverse ETF which ends up actually tracking the one for one miners on the up. So if the miners are up 100% over the last year, the three for one inverse is down 100%. So you that you need to use the three for one to hedge your your straight vanilla u miners position. So the point is that um I appreciate the concern and I know there are a lot of people out there who have time horizons that require them to actually make these kind of asset allocation decisions. I'm sticking with what I have because I feel like um this run is really just getting going. And when you look at things like the miners relative to the bullion and if you look at, you know, gold relative to the S&P and all of these sort of long-term charts, um we've got a long way to go. And that being said, I'm not a I mean, all all evidence to the contrary, I am fully prepared for a downdraft. And in fact, I've been, you know, telling my clients, I feel like uh the Fed rate cut will be the event. You know, they will they will clobber gold on that just as the sell the news. You know, if gold went up on the rumor of the Fed rate cut, um I expect next Wednesday to be pretty ugly um for gold. I, you know, hopefully I'll be pleasantly surprised the other way, but I think that uh either that actual day of the move or, you know, uh fleshing out the idea that we're beginning a rate cutting cycle thereafter um could see an unwind in some of the enthusiasm for gold. That being said, again, I come back to the idea that this move has barely gotten started. I recently did because I'm speaking at this metals conference tomorrow, a chart that looked at the um gold price relative to total holdings of gold ETFs. And the gold price obviously is hitting all time, you know, it's just blown through record after record after record. And the total known holdings of all uh gold ETFs right now is um up but back to where it was in 2023. in June of 2023. So you're looking at a chart where when gold was what like 1,800 or something like that. It was half. It has doubled from that moment. Yeah. It was 1,800. Now it's 36. So u it's exactly half of that. So it's interesting that uh that just speaks to the fact that the the interest in gold continues to be um really nonwestern. It's not US investors who have decided that in addition to AI, they want to own a little bit of gold in their portfolios. That's not what's going on here at all. Um, and so I think that chapter is still to come eventually when, if and when. Yeah. No, I appreciate you mentioning that because that's something I've mentioned a lot because I don't hear about it all that much, right? is is um you know I always bring this back to our your partner in crime there Grant Williams from his famous piece that he wrote what nobody cares 12 years ago nobody cares yeah it's like hey look you know you you you may have the correct rationale here and you may be proven correct over the scope of time but right now it doesn't matter because nobody cares about gold and he was right for many many years nobody did now we've had the central banks wake up to it we've had the eastern investor wake up to it and so a question I've been asking a lot recently is is you when when do we think the western investor is going to wake up to it perhaps? Are they starting to you know one thing Wall Street has not liked gold for a variety of reasons. Um, but what Wall Street likes more than anything else in the world is momentum that it can make money off of. And at some point, you know, they're going to look at the profits that these gold miners are making and saying, "Wow, look, you know, some of these stocks are up 100%, 500%, a thousand% like we need to get into this, right?" So, we we have yet to see that mania yet. Um, so anyways, look, I I I agree with you and and I hope you're right, which is that, you know, we're still in early innings here and it goes a lot further. Um, just for full transparency because I I put this out on X yesterday. Um, I am not selling any of my positions and I did actually go through them to say, look, are there anything here that I really want to just get rid of or lighten up on? And I I kind of talked myself out of it, which I'm sure I'll regret when this, you know, the next sell the news event happens. But I did yesterday take a hedge on on on my position. Um relatively small. Um, but you know, um, uh, one of those asymptoic bets where, um, I know what I'll lose if I'm wrong and, uh, and if we end up having a pretty serious correction, it it's not by any stretch going to cover, you know, my total positions, right? But it'll take a little bit of the sting off, right? Yeah. Give you the intellectual of indication that you knew that was a possibility. So, yeah. Yeah. And I may add to this if if the miners continue to go up here in the next couple weeks because they've they've done great. And I I think I've shared, you know, with folks on Twitter, I mean, I've had a awful lot of mining positions over the years that have just performed horribly. You know, gone to zero or down 80% or whatever. So, I've got tons of losses. But now, you know, I do have some in there that are up 100%, 500%, you know, I've got I've got one that's up almost 2,000%. Wow. Right. I mean, I sure wish I'd put a lot more money in there because I only put a tiny bit in. That's how it is. Sadly, it's not a life-changing event for me. It would have been if I if id had uh you know, the is to go big. But um but anyways, you know, you I I think it's a little bit hubristic to look at returns like that and just say, well, I'm not going to do anything. Right. Right. So, um, so you know, folks, it's it's up to each of you to do your own calculus here, but, um, I I can, you know, with any I'd be saying this with any asset that has moved this far this fast, but certainly with gold, which is as volatile as it is, um, just project yourself forward. Um, assuming that there's a 20 to 30% correction in your current um, precious metals positions and just ask yourself, how much am I going to hate myself if I did nothing today to to cushion against that? That's a different answer for everybody here. So, you got to do your own. All right, Steph. Well, look, in wrapping this up here, um, uh, great discussion this week as always. Um, are there any other cracks that you're watching closely right now, and we may not have time to get into them deeply today, but we can certainly talk about them next time. Uh well I I plan to uh do another deep dive into what's going on with corporate credit and all this extended pretend because uh they're really uh have been uh relying on the kindness of strangers in this place in this case creditors to uh continue to be obliging. Uh and there are signs that that is starting to come to an end. So we'll we'll see how that all plays out. But I wanted to look at that a little more closely and revisit um you know the amount of debt that's coming due this year. Last time I checked it was a trillion dollars and another trillion after that for the corporate sector. So this is going to be a huge issue that you know I just mention it because we've talked about it a lot in prior conversations but it seems to have just completely faded from the I agree with you. Yeah. And it and the problem hasn't gone away. It's just that uh people have convinced themselves that because the Fed's going to cut rates, the problem will go away. So, it's been lingering in the background, but people have had this confidence that, you know, we're going to be able to deal with that, just give it a minute. Um, so if that assumption gets called into question, I think this is a topic that will come to the four very quickly. um especially as we're seeing more pricing pressures on uh corporate profit margins. So that's going to further uh sort of limit their capacity to service these high cost debts if in fact interest rates don't come lower lower. Yeah. And and so that's on the cost side, right? That's potentially going to keep squeezing or will continue squeezing corporate profits. You know, I'm I'm similarly worried because I think it's somewhat tied on the demand side um in terms of consumer spending, right? Yeah. They're suffering the same issue with all the debt that they have that's incredibly high cost. Exactly. Starting with mortgages, right? And we have the whole potential cascade issue from the student debt uh that we've talked about, but just like with the um corporate fleet of hey, you know, we'll survive to 25 and we'll get through this, right? Um that's been the same thing in the homeowners. And to your point, even if rates just kind of hang out here, right? Um even if mortgage rates come down, you know, 25 50 basis points, that doesn't solve the problem, right? And so increasingly you've got these homeowners that are just going to start increasingly tapping out because they can't afford their home, right? And again, even if you're sitting pardon me, you're starting to see that. You're starting to see that. Yeah. And and I think even you're going to see the people sitting on a sweet two or 3% mortgage, you know, with the other costs associated with home ownership, an increasing number of them are going to say, "Look, yeah, I got a sweet mortgage, but you know, my home insurance went through the roof. My property taxes got reassessed. uh just fixing this place is turning into a nightmare. And if if if the trajectory downward trajectory continues in the employment market where all of a sudden an increasing number of of homeowners start losing their income, you know, then that just puts jet fuel on this thing. So, you know, you could also see that drop demand on the corporate side and then they're getting squeezed from both ends, right? Absolutely. I mean topics all that we will get to cover again in the future. But the idea that um you know you could have a housing bubble bust on top of all of this um is just another wonderful thing we can look forward to. But we'll see. I guess we'll have a lot of opportunity to discuss that um in the coming months. Yeah. So I interviewed um Danielle Park uh last week. Um great interview folks. Um and Stephanie, I don't know if you know her much, but I think you'd really like her a lot. Um, but she used one of my favorite terms which was parade of horribles. And there is a potential parade of horrible scenario here where we get kind of all this stuff, you know, the sort of everything everywhere all at once, right? We get the the the slowdown into recession, market correction, housing bubble break, you know, huge spike in unemployment. I mean, it could it could get real nasty. And I'm not trying to sell that scenario, folks. Um, but I think you should have a plan in case we get there. My point is is we don't need the full parade. I mean, almost any one of those things could do some pretty material damage. Um, and certainly the asset prices here, especially Exactly. at these valuations because these markets are priced for absolute perfection infinitely into the future. So any disruption to that outlook will be um, you know, could have devastating consequences. So, okay. Anyway, on that shipper note, yeah, exactly on on that fun note. Um, well, anyway, Steph, have a great time at the conference next week. Maybe if if if it uh it's particularly interesting, you can give us a quick little recap of your experience there when you come on next. Um, yeah, and for folks, we didn't talk about it too much, but she's she Stephy's going to be at a um gold mining conference, right? The metals conference. Yeah, it's a precious metals conference. So, um, you know, I don't really come out of my cave to speak at many things very often, but this this was a a community that I felt I'd be at home with. So, well, have a have a great time there. Um, all right. So, folks, first off, um, please thank Stephanie for delivering yet another wonderful appearance 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. Stephanie, for folks that would like more palmboy in their life than just these bi-weekly appearances here on Topful Money, where should they go? I said no one ever. Um, macroavens, macromavens.com. Uh, you can learn about me and read some sample reports and learn how to subscribe. And then on Twitter at S Pomboy and of course here every other week. Every other week, Wednesdays at 11:00 am Eastern live usually. Um, usually. All right. Yeah, when whenever we can do it. Um, and just a reminder folks, um, you know, Stephanie produces, um, research for institutional investors, which she's best known for, but she also produces research for retail investors, folks just like all of you watching. If you have not yet checked out her offering, highly recommend you go over to Macro Mavens um, and check it out. And I'm a huge fan of it and consumer of it. So encourage a lot of uh any of you for whom you go there and you say yeah this looks great to to follow suit. Um just two concluding things as well as always uh if you want to get some help some professional help in figuring out how to navigate um what may lie ahead for the markets especially if it looks in any way shape or form like Stephanie thinks it could. um highly recommend you get that help from a good professional financial adviser, but importantly one that takes into account all the macro issues that Stephanie and I have talked about here. When you place that requirement on the universe, it starts to shrink pretty quickly. Um but if you've got a good one who's doing all that for you and executing well for you, great. Don't mess with success. Stick with them. U but if you don't or you just like a second opinion from when it meets that criteria, then consider scheduling a free consultation with one of the financial adviserss that powerful Money endorses. These are the firms you see with me on this channel week in and week out. To do that, just fill out the short form right there at thoughtfulmoney.com. Only takes you a couple seconds to fill out. These consultations are totally free that these firms offer. There's no commitment to work with them. It's just a free service that they offer to help as many people as possible position as prudently as possible today for what might lie ahead. Also a reminder that we are still selling tickets for the thoughtful money uh fall online conference at that lowest early bird price discount. Stephanie herself is going to be there along with Grant Williams. I'm really excited for that one. Uh but the faculty continues to just uh expand uh with just great names. You probably heard we've we've added um Sven Henrik and Linton Alden over the past week. I've got a few more names I'm about to announce next week. Um, but a reminder to to go get your ticket now if you haven't got it already at that lowest early bird price discount. And if you are a premium subscriber to the Thoughtful Money Substack, check your email for the code I've sent you. That'll let you get an additional $50 off of that um price discount, that early bird price discount. Um, all right, Steph, as usual, it's just such a joy. Thanks for giving us so much of your time in general, but specifically this week when you have to get off this conference. really look forward to seeing you uh two weeks from now where we'll take a lot more questions from the audience. But uh it's just always great to see you, my friend. Thank you so much, Adam. Have a great couple weeks and I'll see you soon. All right, and everybody else, thanks so much for watching.