The End of 'Paper' Wealth? Why Pomboy Says Sell Tech & Buy Energy Now
Summary
Hard Assets: The guest emphasizes a structural shift favoring hard assets over financial paper, preferring tangible stores of value amid policy and market uncertainty.
Gold and Silver: Bullish long-term outlook supported by central bank demand, retail speculative flush at $4,000, and China stockpiling silver; miners showed resilience and often lead bullion.
Energy: Recommendation to go long energy as a levered way to play AI’s growth, citing scarce power supply and far cheaper valuations versus high-flying AI equities.
Private Credit Risks: The $1.7T private credit boom is likened to subprime, with opaque marks, PIK interest, and a 2026 refinancing wall likely to trigger more bankruptcies and forced repricing.
UBS (UBS): Potential HQ move to the U.S. is a symbolic shift in global banking, with uncertain impact on the dollar but notable for capital flow dynamics and regulatory arbitrage.
Macro & Consumer: Data fog, rising delinquencies (utilities, auto, mortgages), and tariff dynamics suggest demand cooling; Fed may need balance sheet expansion to maintain market liquidity.
Market Outlook: Credit stress could broaden from junk to higher quality, risking an abrupt risk-off turn; long rates remain stubborn, complicating Treasury financing and corporate refinancing.
Portfolio Positioning: Favor hard assets (gold, silver) and energy over richly valued AI leaders, using miners and broad energy exposure to capture upside with better risk-reward.
Transcript
Welcome back. I'm Jeremy Saffron. If you've been watching the economy this year, you know that the real story hasn't been the stock market highs or the Fed speeches. It's been the data, or rather the breakdown of it. Now, we're living in what many people are calling the year of the astre. Think about it. We saw 818,000 jobs erased in a single revision. We've watched the establishment survey and the household survey tell two completely different stories. And we've seen inflation numbers that don't match what we see at the grocery store. And now the ultimate twist. We're finally getting the delayed September jobs report this Thursday. But for October, the White House has confirmed this morning that the unemployment rate likely won't be published. Now, the surveys simply weren't done due to that government shutdown. So, after years of revisions and confusion, the Federal Reserve is what some say flying blind into December. But here's the thing. While the government is dark, the private markets are screaming. Jeffrey Gunlack, the bond king, didn't mince any words today with BN uh with Bloomberg rather. He called the $ 1.7 trillion private credit market quote garbage lending. He compared it directly to the subprime rot of 2006. And then at the same time, we just got this massive signal from Europe. The Financial Times report that UBS is in private talks to move its headquarters here to the United States. Why? To escape a $26 billion capital hit in Switzerland. Now, we're going to get into that. And the numbers don't lie. The Century Foundation reported that the past due utility balances from consumers have spiked nearly 10% year-over-year. Now, you can debate a jobs model. You cannot debate a missed electronic payment. The Fed might be missing data, but the market isn't. Joining us to break it all down this morning is Stephanie Palmboy. She's a founder of Macro Mavens. Joining us now, great to see you, Steph. >> Yeah, thank you so much, Jeremy. Pleasure to be with you. And as you said, there is quite a lot to uh to cover right now. >> Yeah. Yeah. Well, I mean, you know, the government's back and and before we get into that, I want to start with this UBS story because I mean, it feels bigger than a regulatory dispute. If one of Europe's largest banks is considering relocating to New York, that's a huge shift in capital flows. Uh the FT of course Financial Times reported this morning UBS chairs Cole Keller is uh been kind of in private discussions with Treasury Secretary Scott Bessence about moving the HQ here to avoid that $26 billion capital hit under Swiss rules. Now the pessimist says we're importing someone else's risk. But let's flip that. I mean if the global banks start fleeing Europe and planting their flag in New York, doesn't that create a massive structural bid for the US dollar? >> Well, you would certainly think so. I think that's a good case. Um, but I can't help but be struck by the irony that uh the financial capital of the world, New York City, just elected a socialist mayor and now is the time that the European banks decide to come states side. You know, there's something uh that just seems a little discordant about that. And sort of the um contrarian in me wants to view that as a signal that we've reached, and I'm going to beat the drum on this old tired thesis of mine. We've reached the turning point in the primacy of paper over rock. And I am a hard asset girl and have been for a long time. So when UBS, you know, uh a famous Swiss bank decides that it's time to pull up stakes and move to New York, uh which is now turning socialist, it seems like maybe maybe uh that we're past our prime as relates to the engineering of uh financial instruments in general. >> Yeah, just a little bit concerning that news, huh? I mean, you've tracked the dollar wrecking ball for years. If if UBS relocates to the US and the capital flows them, does that supercharge the dollar though? And if the dollar rips, I mean, what what happens to the emerging markets carrying trillions in dollar denominated risk, you know, in debt? >> Yeah. I mean, I guess the question is really how much will it shift their dollar denominated lending? You know, it seems like a lot of that is already taking place already. And it's just more of a uh physical movement of uh plant and equipment, let's say, more so than the output they're producing. You know, we we know for years and years that um one of the reasons that the dollar has the dollar index, for example, has remained so strong in the face of its withering status as a share of global forex reserves as central banks sort of diversify into alternative assets like gold especially. um is that the DXY the financial flows dollar has been supported by all of the financial activities that are conducted in dollars right now whether they be taking place in China or Switzerland or in New York City. So I'm not sure to what extent it's going to dramatically provide a new bid for the dollar. Um, I think the stronger argument would be that if a lot of European banks came over here and moved their headquarters this way, um, you'd be looking at some increase in employment here domestically. Um, but you know, it's to me it's uh I guess I'm going to call it a nothing burger at the at the risk of being quoted on this a few years from now and looking like >> I I hear you on that. Hey, go back to New York. Yeah, I mean it's interesting looking at this because obviously UBS isn't leaving Switzerland because New York suddenly became lays a fair paradise, right? It's leaving Switzerland because historically the safest banking jurisdiction on the earth has kind of shifted politically as well just like New York and and regulatory in a way that most global banks simply just don't trust anymore and they've kind of moved left. The capital search charge is is punitive. The AT one wipeout treaded the company's you know the country's kind of safe haven brand. So, with that irony, I mean, is New York still viewed as a predictable jurisdiction, or is that about to change? >> Well, I guess we're going to find out, you know, um I moved uh from New York, so I I bet my uh my uh personal, you know, I made my personal wager on that uh 5 years ago. Um but we'll see. you know, New York is really uh such an icon and it's a emblematic really of the strength of the country and that's why, you know, it's particularly disconcerting to see the shift and it seems extremely um knee-jerk and probably unlikely to be longlasting. That's the hope at least. Um so, we'll see. But um yeah, I I guess uh I'm I'm hopeful that they will dabble their toe in this little experiment and quickly determine that uh they shouldn't continue and uh we'll go back to a more uh pro- capitalist uh sort of ethos, which obviously would be great for for the entire country, but um we shall see. We're definitely at an inflection point and I think part of this and again I hate to get back to sort of the big picture themes I mentioned rock versus paper but another one of them is just this people refer to it as the K-shaped economy where you've had you know people who are involved in the financial markets or have significant assets tied in them um feel indestructible while as you noted in your excellent uh preamble uh the lower end of the consumer segment is, you know, behind on utility bills. They've subprime auto loans are record delinquent. We're starting to see mortgage delinquencies creep up. Student loan debt repayment is an issue. So, you know, there's real stress at the bottom. Um, and Wall Street has here to four really been able to ignore that because of all of this um, you know, uh, robust financial markets. But I think this New York mayor election is sort of a a shot across the bout to Wall Street. You know, watch >> watch your P's and Q's because um they're coming for you. >> Little irony, right? Little irony. Okay, let's pivot to credit because obviously Gonac didn't tiptoe there. He called the entire private credit boom, you know, garbage lending. And he said the valuations are binary, 100 or zero. But let's kind of get to the to the mechanism. I mean, garbage credit can sit on the books indefinitely until you hit a refinancing wall and and it seems like we've got a pretty big one. I mean, Steph, in 2026, we face one of the largest corporate maturity walls in modern history. Hundreds of billions of debt needs to be rolled over at today's rates. If companies are as weak as GLAC says, I mean, what happens when they try to refinance next year? Is that the real event risk? >> Yeah, I think so. And we've been seeing it. You know, it's not like this is just going to suddenly pop out out of nowhere. We are now on pace for the fastest, you know, the largest corporate bankruptcy cycle since the 2015 corporate credit bust, which you know, unless you are following the markets, you might not be aware happened, but it was a vicious corporate credit bust. Um, and then you get things like, I mean, you're perfectly dead on about going from uh being valued a par one day to zero the next day. And that's what happened to Blackstone with this Renovo um uh investment that they had where they were marking it at 100, you know, 100 cents on the dollar as of September 30th and then you turn the page on the calendar and suddenly it's bankrupt. So this is both the virtue and the curse of these opaque private credit markets where you can mark things to whatever fantastic uh fantasy you have but eventually someone has to come in you know some distressed seller comes in and says I'm pulling the record and you're marked at zero or you know somewhere close to it and so I couldn't agree with gunlock more and it's something I've been talking about for ages because we've staring down this barrel of massive um corporate debt that has to roll just in the next four years. I think 23 of the high yield market rolls. I mean that's a massive amount. You know 65 basically percent of everything that's junk rated has to refinance. And if what we've seen so far in terms of the efficacy of the Fed rate cuts um continues, they're going to be refinancing that debt at rates that are still way above what they were prior. You know, the Fed's cut rates uh rather the Fed has cut the Fed funds rate, but nothing else has followed. So, the relief that all these firms anticipated, and I like to say, you know, they've doubled, tripled, and quadrupled down on this bet that once the Fed cut rates, they'd get relief and they'd be able to refinance all this paper. And so far, we're seeing that's not holding true. But for the better part of the last 3 years since the Fed tightened rates in 2022 23 um they have just been doing the extend and pretend and adding more debt and extending out you know their durations and issuing payment in kind instead of paying interest and all these games so that they could just get from here to the rate cut and now we got the rate cuts and we're no better for it. So, I think we're really at a point and I think Gunlock's right to beat the drum now and say, you know, this is all really going to quickly deteriorate and we're seeing it. You know, it wasn't just Renovo, but first brandsolor, you know, all of a sudden the one cockroach has turned to to four, five, six, you know, every day there's another one out there. >> Yeah. Yeah. You're you're you're not wrong on that one. We keep hearing about it and it's even in the mainstream headlines. And you know, you're just talking about that that that surge in payments in kind loans, companies paying interest with more debt because they can't pay in cash. That that looks less like risk-taking and more like a slow motion Ponzi scheme. I mean, how long before lenders stop pretending that these zombies are alive and force liquidations? Are we months away? Is there quarters away? You're asking the wrong person, Jeremy, because I said a long time ago, we when the Fed started raising rates, I said there's no way the average corporation, which is levered more than it ever has been before, um, is going to be able to tolerate refinancing their paper at these new rates. I mean, uh, Jim Grant is just a fabulous wordsmith and he described this as the mischief that takes place around 0%. And we had this extended period of essentially 0% financing, free money for everyone. And the idea that Triricolor and First Brands were sort of the only ones that were doing getting a little, let's say, uh, handsy with their financial accounting is just, >> yeah, it's just laughable. you know, these we're going to discover that there was a lot of mischief around 0% and we're just seeing the most um you know, pathetic examples of it exposed first. But yeah, I think it's going to move up the corporate up the uh chain up let's say up the quality chain and surprise people by how far it touches. I mean, when you get Black Rockck, you know, they're not uh some fly by night organization. uh majorly invested in the sperm that goes from 100, you know, cents on the dollar one day to zero the next. Um you know, that kind of stuff, you don't need too many of those before people start to worry about, hey, what's going on with claim crop? You know, I wonder who is caught holding the bag, right? I mean, I mean, the wall the Wall Street defense, the the defense we hear from private credit managers is relax, our capital is locked. You know, there can't be a run. But that cuts both ways. I mean, does does locked up capital actually protect the system or does it trap the rod inside the black box until it all hits at once? >> Yeah, absolutely. And the thing that I really am most concerned about are the innocent main street victims. And those are the people whose unwittingly they're unaware but their pensions have been invested massively in all these alternative assets of which the private credit space has been the hottest area to be over the last several years. So what will happen is that and you're seeing it already with some of the endowments for example uh where the funds the investments in these alternative asset managers aren't throwing off the income they anticipated. they're having to turn to the capital markets themselves to borrow to you know fill that void. So you saw like Stanford came out and borrowed because their investment the pension fund uh you know Stanford endowment wasn't uh getting the returns because all the AI sorry alternative asset capital was locked down as you said so it creates its own problems um so there can be secondary and tertiary effects that you know we won't be able to anticipate but will suddenly um appear on our headlines. >> Yeah. Yeah. I I mean Gounlac in that thing he said he was he was you know more cash stable right now he's kind of more holding a lot more cash and I want to connect the garbage debt to gold because historically when a credit bubble pops we see a liquidity flush investors sell their gold just to kind of cover margin calls on their bad loans. Gold's down recently at around $4,000. Was that the flush? I mean, you know, was it kind of the baby flush? Is there any panic here for you? Well, what I had been looking at um leading up to that was the interest in gold among retail investors. And the way I was tracking that was the total shares outstanding of all gold ETFs. What you saw was as gold made its march to up to 3500 and then to 4,000 that retail enthusiasm started to build. You know, here to four, no one had been you everyone was chasing AI stocks. No one cared at all about gold. But once it broke some crucial price level thresholds, suddenly it became this sort of momentum darling. And what you've seen is that that pop from once we broke 4,000, you had a huge surge in retail interest and that has exactly roundt. So everyone who got in at 4,000 has now exited. So I think you basically flushed out sort of the Johnny come lately who didn't ever believe in the fundamental long-term story for gold but were just chasing you know the chart pattern basically. Um and so I think the downside >> risk here is fairly limited. Um and you know you got to come back to sort of the bigger picture thing. What's changed in the long-term case for gold, which has been this global dollar diversification and the prospect of that being accelerated by another round of currency debasing expansionary monetary policy and here we are waiting for the Fed to cut rates again and then you know uh the president now has yet another slot that he can fill at the Federal Reserve Board next year um with Bostik's retirement. So, you know, we're kind of greasing the runway for another major uh shift in expansionary monetary policy. I've talked to you about this before, Jeremy, that I think forget about the Fed funds rate. It's all about the balance sheet. And I think gold is sniffing out that that balance sheet is going to go from doing nothing to expanding very quickly. >> Yeah, as you mentioned, I mean, the fundamentals haven't changed. And isn't that historically what happens before a major kind of gold run? Retail flinches at the volatility while the smart money uses every dip to build positions. I mean, the real story was that retail might have panicked out, but gold didn't even crack $3,800. I mean, it's been just incredibly stable. If you look at that chart, 50% over this year. >> Yep. And and the miners have actually >> I was afraid to look the other day when gold was down 112 bucks or whatever. I was like, I can't look. Um, and it turned out they really held up very well and the miners tend to lead the price of the bullion. So I, you know, I I feel confident about the long-term case and I try not to get too worked up about these squiggles, but I understand that's not as satisfying for people who are, you know, just getting into it who kind of sweat every every, uh, you know, dollar swing. But nothing has changed in terms of the foreign demand for gold, uh, the supply demand imbalance, uh, which I would note is probably dramatically more profound in silver. and we're seeing silver, you know, move too. And then you saw um I guess it was China now really trying to make some moves uh to stockpile silver. So we're we're into the deep getting into this um hard asset versus paper trade as relates to the real money buyers, the foreign central banks out there. Um, and we'll see, you know, how long it takes for the broader investment community to actually get on board. But right now, they nobody really believes that story. It was just a brief momentum play and they seem to be over it. >> Yeah. Let's talk about this this I won't call it fake data, but at least this this data blackout that we're getting. I mean, Kevin has it confirmed this morning that there will be no unemployment rate for October. The data was strange long before the shutdown, though, right? I mean, you warned about the birth death rate model, the BLS algorithm that guesses how many new businesses are created. Now, without surveys, they have to rely entirely, I guess, on that model. In a year where business bankruptcies are rising, isn't the model almost guaranteed to produce fake growth? >> Exactly. And that's the problem at turning points. You always see payroll the payroll numbers or the unemployment payroll is overstated. unemployment rate is understated because they interpolate the same amount of jobs created from expanding businesses um that are no longer happening. You know, they just string it forward at a time when in fact people, you know, businesses are closing rather than um opening more uh rapidly. So, that's always been the problem. And I I guess from that standpoint I would argue that having no data was probably better than having bad data, you know. So it also sort of has focused investor attention on things like first brands which had we been getting monthly payroll reports that were inflated and made everything look fabulous people might have been like h yeah that's not a big deal. But now you're starting to see a lot more attention paid to things like what's the credit signs of credit stress and also much deeper scrutiny of corporate earnings reports because that's ultimately you know the government can manufacture whatever data it wants. A company's profits are a company's profits. Now, admittedly, the way they report them, you know, with recurring, non-recurring write-offs and sometime, but if you're a good analyst and you can go through all of that and parse out what's real from the one-time nonsense, um, you can come up with a pretty good picture. And what you see is that the averages, just like was the case with the consumer, the averages tell you nothing because you got seven companies that are earning a lot of money and then you got everyone else who's just barely squeaking by. And in fact, you have a huge swath of companies that aren't making any money at all in the getting back to the zombie thing. You mentioned zombie companies tying it back to the corporate credit cycle. Um, in the Russell 3000, now one out of every five companies can't service their debt with their income. They're not making enough money to even service their debt. So, this is the state of corporate balance sheets and it's being masked by the seven or 10 companies out there that are doing great that make it look like everything's fine. And that's exactly what we've seen for the economy, which is driven by the consumer, where again that high-end is doing great. They're absolutely bulletproof. Um, and the low end, meanwhile, can barely scrape two pennies together. So, you know, it's not for nothing that you get these consumer sentiment surveys that are worse than they were during COVID and the Great Recession. I mean, it's amazing to me that that doesn't get more attention. You know, when people's uh optimism about their uh income after inflation is the worst in history, that's a pretty strong signal that the average guy out there is just not feeling what you're seeing on your on your Bloomberg screen every day. >> Yeah. Well said. Let me layer in something that just hit this morning, too. There was this brand new uh report from the San Francisco Fed working paper, and it looked at 150 years of tariff episodes and full historical record. And the conclusions were kind of surprising. I mean, tariff shocks have historically lowered inflation, raised unemployment, not the other way around. They found that mechanism isn't price pass through. It's it's more confidence. Uh tariffs tighten that kind of financial conditions pull demand out of the economy. Um, are we getting this this tariff story completely backward? Because right now everyone's screaming that these tariffs will drive inflation higher, but if the historic data says it's cooling the economy, is is that what's happening? We got it we got it wrong. >> Yeah. No, I mean, I've been I don't want to pat myself on the back, but I've been saying this since the first came out that, you know, the presumption that tariffs are a tax on the consumer. That was the phrase everywhere. It's your tax on the consumer. It's only a tax on the consumer if the consumer is willing to pay that tax. They have an option whether to buy that good or not. And if the consumer says, "I can barely pay for XYZ at its current price. I'm sure as hell not going to pay for it when you slap a 20% tariff on it." The producer of that good is going to figure out pretty quickly they better figure out how to reduce costs on the back end to prevent losing their market share. And that's what we've seen. Um, in fact, during Trump's first term, when he first did the tariffs on China, you saw that basically all of those tariffs were absorbed actually by the Chinese exporters. They didn't even make it to the US companies, much less to the US consumers. So this notion that was just said as if it were law, that this new wave of terrorists was going to be attacks on the consumer just struck me as completely wrong on its face. And yeah, I mean there's some areas where it's a discretionary item and you know like a Birkin bag or whatever. The person who's paying $100,000 for a handbag isn't going to care if it's another 10 or 20 grand on top of that. It's just all about owning that bag. But the average person, you know, who's trying to feed their kids or buy them some, you know, modest Christmas presents isn't going to be able to do that. And we've seen that very clearly in the data. >> Yeah. Yeah. And I guess it's exactly why we're seeing the fastest corporate bankruptcy cycle in years. If businesses are swallowing tariff costs, swallowing these higher interest costs and slowing, you know, this consumer. Yeah. I mean, something has to break, right? >> Yep. Well, and that's really comes back to the whole thing. I I focus almost myopically on what's happening with interest rates and the lack of response to the Fed's efforts to bring them lower. But it's not just the Fed's efforts. you know, the Treasury, uh, Scott Bessett when he was out on the campaign trail with the president, um, sort of trying to make himself, uh, you know, in contention for his current post was out there deriding Janet Yellen's program of financing our deficits with tea bills. Then he gets to the office and he realizes, geez, that's pretty much the only option I have now. you know, how else am I going to finance these massive deficits without seeing a massive increase in debt service? So, they've tried to coax the Fed and pressure them to bring long rates down, but there's only so much the Fed can do. They can cut the Fed on rate and hope everything comes lower, and that hasn't happened. And that's forced Bessant to continue this short end financing and also I think led the Fed in its latest announcement um to do the uh Q and the QT in the manner that it's doing it. Their their plan is to as they um run off all their mortgage book, uh they're going to stop running off the treasuries, but they're going to continue to run off NBS. And they'll take those proceeds and recycle them into Treasury bills, not notes, not bonds, bills. And I think that's because, you know, we're issuing at the front end and the Fed is going to absorb at the front end until further notice. Um and right now it looks like until further notice is indefinitely because long rates just refuse to go lower. >> Yeah. Yeah. So I mean what you're saying is they're in a position where they must provide liquidity, not to fight inflation, not to support growth, but just simply to prevent a failed auction. >> Yeah. Absolutely. I mean they're very concerned about it. In fact, I think they called some I don't know if you'd call it an emergency meeting with some of the big Wall Street banks to discuss liquidity in the money market uh in the money markets. So, the Fed is clearly concerned about that and I think that was what drove the program. But I I do I will reiterate that I think it's just a matter of time before they go to broadly re-expanding the balance sheet. And at that point, they won't just be buying at the front end of the Treasury curve, but they'll start to step out into longerative maturities in an effort to accomplish what rate cuts have failed to do, which is bring that entire complex lower in yield and hope that provides relief to mortgages and corporate credit, etc. Um, and the jury will be very much out on that for a while. >> Yeah, for a while. You're not kidding. Okay. Well, obviously Wall Street debates the models. Main Street deals with these invoices. Let's talk about this Century Foundation report today that these past due utility balances are up nearly 10%. I mean, you can you can kind of massage a CPI report. You you can't do that with this type of data. If Americans are defaulting on electricity in November, what does that say about the holiday shopping season? And are retailers hitting straight into a buzzsaw? >> Yeah. I mean, this is something that when we talk about how bad the data has been for a long time, a lot of people were poo pooing the consumer confidence and sentiment numbers as just being partisan. You know, there's no way consumers feel that bad because look, payroll employment strong, this is strong, that's consumer spending strong, blah blah blah. Um, and I kept saying, you know, if if they're doing so well, why are they delinquent on everything at the worst rate since the global financial crisis? You know, it just didn't stand to reason. It seemed more likely to me that the measurement of unemployment was wrong than that the delinquencies were wrong. You know, you're delinquent. That's you're not faking that. Um, so that seemed like a legitimate cause for concern. And you know again we look at these broad average statistics of consumer spending um and they're being held up by the top end of that K but more importantly the composition of the spending has been less than compelling. If you look into share of it that goes to things like shelter and food and energy the things you have no choice but to buy at recession level shares of the total spending. you know, we're almost up to half of the average household's income goes to those things and that's on average, forget about, you know, at the lower end, obviously 100 plus% goes to that. Um, so I think the the issue then becomes how do we, you know, we've got the tax cuts really starting to impact next year with the change in withholdings and potential tax refunds that no tax on tips and all of that will really start to take effect. it. Does that provide enough of a boost to offset the drag from these oppressively high interest rates and the still stubbornly elevated price level, inflation, you know, price level, um, that the average consumer is facing. And, you know, I it remains to be seen. I think it's going to be a a close contest. Um, and I think the student loan debt resumption will also be a critical part of that because that's a significant chunk of money. Um, and it hits at a swath of that consumer segment that's a little higher up and is probably spending be or has been spending beyond their means. So we will discover in its absence how big of a role the suspension of those payments had in boosting in in supporting not just spending but uh the payment of other debts. >> Yeah. Yeah. Yeah. I was going to ask you I mean because we got the you know we got tariffs reshoring incentives these tax packages the the big bill that you're talking about energy credits industrial policy even some dispense defense spending. I mean it seems like the whole kitchen sink but does any of that actually boost the economy next year? or is it too small to offset what you just were talking about, you know, the rollover in credit and earnings? >> Yeah, I mean, I guess the question is, uh, what do rates do from here? Do they move higher? You know, if we do start to see more of these cockroaches and you get into a situation where there's a real riskoff attitude that sends private borrowing costs up from where they are. forget about lower. But you know, if you get credit card rates up, mortgage rates up, corporate borrowing costs up, then I think it's impossible for any of that stimulus to overwhelm it because it's just such a huge drag on consumers and corporations. Um, if we continue the status quo, which has been surprising to me, I mean, if you look at a chart of, you know, junk yields or the 10-year yield or um you're looking at basically a horizontal line sideways for three years. I mean, you don't often see markets move like that. They just don't move. Rates don't just sideline like that. They they tend to overshoot and then cause the correction that, you know, drives them lower. And they're much more of kind of a, you know, volatile like an EKG. So, this is a very unusual period and I would describe it as almost too quiet, you know, when you see something like that. >> Um, but it'll break one way or the other. It's either going to break higher or lower. And if it breaks lower in yield, it will definitely provide some relief. But the question is, what's the catalyst for it moving lower in yield? Is it because we're in recession? In which case, >> you know, you're you're swapping one problem for another. And on, you know, on on the stimulus trap, I guess we could call it that. I mean, President Trump's talking about these $2,000 tariff funded checks. If that money hits households, does it produce growth or does it just kind of vanish instantly catching up on these back owed bills? I mean, is the stimulus trade dead on arrival because the dead hole seems too deep? >> Yeah. Um, well, we did see that with the CO stimulus checks where the people who didn't need to use that money or had money left over after they paid their groceries and filled their gas tank used it shrewly to pay down their credit card balances. So, uh, presumably that would go a long way toward that. I also just as a footnote would add that in theory the uh Department of Education was supposed to start garnishing wages for student loans who were delinquent um by September sometime and as yet I haven't seen any reporting that they're doing that. I think that was you know they threatened to do it and as yet it doesn't appear like they're actually garnishing wages. Um, and maybe that's because they understand that that would probably end up hurting them more than helping them. So, they're kind of just letting it lie for now. And maybe in the idea that if they do send out these tariff checks, those student loan uh payments will resume and those folks won't need to have their wages garnished uh to to pay them. So I don't know but u there are a lot of moving parts and as it stands right now you've got this very disturbing very high stress level of consumers at the bottom that's really being masked by the top. Um but increasingly you know I think you're starting to see a little more jitters in the markets around how sustainable this is primarily as it relates to this these issues around corporate credit and you know risk appetite is I like to say it's not on a dimmer it's on or off you know just like you could price uh private credit at 100 one day and zero the next that tends to be the way risk appetite works so if the market suddenly decided that, you know, this this is now we're overvalued and we really need to, you know, cool it. Um, that would cause a massive reverse wealth effect that then would be a whole other, you know, we'd be like 2007 all over again in terms of what that means for the economy and for monetary and fiscal policy. >> Wow, that's interesting. Yeah. I mean, that's a whole angle, too, on the on the auto loans that because if people are missing utility bills in auto loans today before student loan enforcement, I mean, how exactly do they absorb another $300 to $500 a month when interest starts compounding again? Yeah. And only one person won that 900 some odd deal 900 million lottery ticket. So uh that one person will be able to do it but everyone else is kind of uh so um no I it's you know it comes down to getting employment growth uh going and we'll see how that you know what happens although I I'm highly skeptical of the numbers uh given what we just talked about earlier but you're seeing layoff announcements from companies rather than massive hiring announcements and I know there's tremendous hope around the um AI capex which has been material um but that too isn't without its own repercussions um that aren't super great for the financial markets and I don't know if they've figured that out yet but you know when you see all these companies rushing to raise capital to invest in AI well that creates even more competition for the the federal government for financing uh these massive deficits So we, you know, we're trying to borrow a tremendous amount of money, but to finance our deficits and to finance our primacy in this AI race. Um, but we are struggling to come up with the money to do it. You know, who who exactly is going to finance all this stuff uh absent some massive expansion of the Fed's balance sheet and a whole new round of uh mischief at 0%, shall we say? >> I like I like I'm going to use that mischief at 0%. We'll give credit though, of course, big big fan of Jim Grant. Uh, okay. Well, let's close on gold. Obviously, here at Kiko, we got talk about it sitting here around 40, 30, 4,000. Um, it's not breaking out, but I mean, given everything we just discussed, this data fog, the credit rot, the refinancing wall, the consumer stress, I mean, shouldn't it be around 5,000? What are your thoughts? Are we just going to sit here and let this accumulate? Just a nice safe trade. Um, well, I'm I'm a huge bull, so I I mean, I think it should have been 5,000 several years ago. >> Yeah. And, you know, I drank enough of my own Kool-Aid about the forthcoming uh monetary expansion. Uh, and I think the Fed's balance sheet will easily top 12 trillion in the next uh credit meltdown. Uh, easily, probably more like 15 trillion. So I, you know, take whatever I say with a grain of salt. But if that's my view, obviously I think gold could trade, you know, way above 5,000 just to back our monetary base alone. Uh to fully back it would be $22,000, I think, on the price of gold. No one's suggesting they're going to do that, but it just gives you a sense as to um how enormous the amount the mountain of uh paper claims are relative to this very small pool of gold available to to back it if we ever needed, god forbid, to come up with a more hard money uh currency. And I I think we may get to that point mostly because it's not just the US that's in this situation. >> You know, uh it's not just our capital markets that have gotten mischief at 0% and our consumers who are stressed by uh having high interest rates and debt service. It's all of the developed world economies, all of our major world competition. Europe, Asia, UK, you know, Japan. Um, so whatever debasement we engage in, they're going to engage in just as rapidly. Um, which is just even more reason to be looking to to sort of prioritize hard assets over paper. Um, so I think gold's move has just started and I kind of love the fact that um people are just kind of dabbling their toe in um on chart patterns but still don't fully believe the story. And that just makes me feel like it's got that much farther to go. >> I lied. I'm going to ask you one more question cuz you did bring up there. I mean, you brought up the miners. You're obviously watching them at these prices. Uh some of them just huge cash flow. I mean, any minors that you're looking at, I it wasn't always the sexy play, but it's had some great returns. >> Yeah. Well, I have to confess that I'm a big picture gal and I barely spend a lot of time, you know, looking at my own portfolio. I certainly am not going to sit here looking at individual companies because it's just not what I do. So I, you know, I have an investment with a a great manager who I allow I rely on his expertise. Um, and then I own some of the, you know, just the GDX and the GDXJ to get position um, more broadly across the sector. But u, for specific ideas, I would hate to venture because I'm just that's not my Bailey so much. Sorry, I'm sorry to cop out on that one. >> It's all right, Jeff. I guess that's a bit of your audience. I'll I'll resist commenting. >> That's all right. That's all right. I mean, macro is in the name of your company, of course. Stephanie Pomboy joining us today from Macro Mavens. You need to check out that newsletter, too. Uh, thanks for this. Lots of interesting data. We'll see how the week plays out. Any one thing that you're paying attention that maybe this whole script goes out the window? Well, you know, the one thing, this isn't related to the script going out the window, but the one thing I would offer to your audience that thinks this is all way too doom and gloomy and I'm missing out on, you know, what could be a great boom in the markets surrounding this new revolutionary technology that is AI. Um, I would say you can still position that and have a comfortable hard asset versus paper bet by just going long energy if we're if AI is the future. And I believe that it really it will be like this may be an internet bubble but like the internet bubble the internet will be a thing you know it's going to be transformational. I think the same about AI you can buy energy stocks for nothing relative to these AI companies that are trading at nosebleleed valuations. Um and you're basically making a levered bet on the future of AI because AI's future is only as good as the energy required to power it. And that energy is preciously scarce. Um, so it's a great way, you know, if you're worried about missing uh this great uh technology revolution by sitting in gold. You don't have to do that. Buy energy. >> Yeah. Well said, long energy. Trade the pigs in the shovels. Uh, okay. I appreciate this. Thanks. Thanks again. Appreciate it. >> Okay, talk soon. I want to hear from you on this. When you see UBS fleeing for the US, utility bills spiking 10%. Does that look like a soft landing to you? Are we walking into a credit event? Make sure you let me know in the comments below. I do read them, believe it or not. And if you want to know the truth about the what the Fed's missing, make sure you're subscribed right here to Kick News. I'm Jeremy Saffron. We'll see you next time. Heat. Heat.
The End of 'Paper' Wealth? Why Pomboy Says Sell Tech & Buy Energy Now
Summary
Transcript
Welcome back. I'm Jeremy Saffron. If you've been watching the economy this year, you know that the real story hasn't been the stock market highs or the Fed speeches. It's been the data, or rather the breakdown of it. Now, we're living in what many people are calling the year of the astre. Think about it. We saw 818,000 jobs erased in a single revision. We've watched the establishment survey and the household survey tell two completely different stories. And we've seen inflation numbers that don't match what we see at the grocery store. And now the ultimate twist. We're finally getting the delayed September jobs report this Thursday. But for October, the White House has confirmed this morning that the unemployment rate likely won't be published. Now, the surveys simply weren't done due to that government shutdown. So, after years of revisions and confusion, the Federal Reserve is what some say flying blind into December. But here's the thing. While the government is dark, the private markets are screaming. Jeffrey Gunlack, the bond king, didn't mince any words today with BN uh with Bloomberg rather. He called the $ 1.7 trillion private credit market quote garbage lending. He compared it directly to the subprime rot of 2006. And then at the same time, we just got this massive signal from Europe. The Financial Times report that UBS is in private talks to move its headquarters here to the United States. Why? To escape a $26 billion capital hit in Switzerland. Now, we're going to get into that. And the numbers don't lie. The Century Foundation reported that the past due utility balances from consumers have spiked nearly 10% year-over-year. Now, you can debate a jobs model. You cannot debate a missed electronic payment. The Fed might be missing data, but the market isn't. Joining us to break it all down this morning is Stephanie Palmboy. She's a founder of Macro Mavens. Joining us now, great to see you, Steph. >> Yeah, thank you so much, Jeremy. Pleasure to be with you. And as you said, there is quite a lot to uh to cover right now. >> Yeah. Yeah. Well, I mean, you know, the government's back and and before we get into that, I want to start with this UBS story because I mean, it feels bigger than a regulatory dispute. If one of Europe's largest banks is considering relocating to New York, that's a huge shift in capital flows. Uh the FT of course Financial Times reported this morning UBS chairs Cole Keller is uh been kind of in private discussions with Treasury Secretary Scott Bessence about moving the HQ here to avoid that $26 billion capital hit under Swiss rules. Now the pessimist says we're importing someone else's risk. But let's flip that. I mean if the global banks start fleeing Europe and planting their flag in New York, doesn't that create a massive structural bid for the US dollar? >> Well, you would certainly think so. I think that's a good case. Um, but I can't help but be struck by the irony that uh the financial capital of the world, New York City, just elected a socialist mayor and now is the time that the European banks decide to come states side. You know, there's something uh that just seems a little discordant about that. And sort of the um contrarian in me wants to view that as a signal that we've reached, and I'm going to beat the drum on this old tired thesis of mine. We've reached the turning point in the primacy of paper over rock. And I am a hard asset girl and have been for a long time. So when UBS, you know, uh a famous Swiss bank decides that it's time to pull up stakes and move to New York, uh which is now turning socialist, it seems like maybe maybe uh that we're past our prime as relates to the engineering of uh financial instruments in general. >> Yeah, just a little bit concerning that news, huh? I mean, you've tracked the dollar wrecking ball for years. If if UBS relocates to the US and the capital flows them, does that supercharge the dollar though? And if the dollar rips, I mean, what what happens to the emerging markets carrying trillions in dollar denominated risk, you know, in debt? >> Yeah. I mean, I guess the question is really how much will it shift their dollar denominated lending? You know, it seems like a lot of that is already taking place already. And it's just more of a uh physical movement of uh plant and equipment, let's say, more so than the output they're producing. You know, we we know for years and years that um one of the reasons that the dollar has the dollar index, for example, has remained so strong in the face of its withering status as a share of global forex reserves as central banks sort of diversify into alternative assets like gold especially. um is that the DXY the financial flows dollar has been supported by all of the financial activities that are conducted in dollars right now whether they be taking place in China or Switzerland or in New York City. So I'm not sure to what extent it's going to dramatically provide a new bid for the dollar. Um, I think the stronger argument would be that if a lot of European banks came over here and moved their headquarters this way, um, you'd be looking at some increase in employment here domestically. Um, but you know, it's to me it's uh I guess I'm going to call it a nothing burger at the at the risk of being quoted on this a few years from now and looking like >> I I hear you on that. Hey, go back to New York. Yeah, I mean it's interesting looking at this because obviously UBS isn't leaving Switzerland because New York suddenly became lays a fair paradise, right? It's leaving Switzerland because historically the safest banking jurisdiction on the earth has kind of shifted politically as well just like New York and and regulatory in a way that most global banks simply just don't trust anymore and they've kind of moved left. The capital search charge is is punitive. The AT one wipeout treaded the company's you know the country's kind of safe haven brand. So, with that irony, I mean, is New York still viewed as a predictable jurisdiction, or is that about to change? >> Well, I guess we're going to find out, you know, um I moved uh from New York, so I I bet my uh my uh personal, you know, I made my personal wager on that uh 5 years ago. Um but we'll see. you know, New York is really uh such an icon and it's a emblematic really of the strength of the country and that's why, you know, it's particularly disconcerting to see the shift and it seems extremely um knee-jerk and probably unlikely to be longlasting. That's the hope at least. Um so, we'll see. But um yeah, I I guess uh I'm I'm hopeful that they will dabble their toe in this little experiment and quickly determine that uh they shouldn't continue and uh we'll go back to a more uh pro- capitalist uh sort of ethos, which obviously would be great for for the entire country, but um we shall see. We're definitely at an inflection point and I think part of this and again I hate to get back to sort of the big picture themes I mentioned rock versus paper but another one of them is just this people refer to it as the K-shaped economy where you've had you know people who are involved in the financial markets or have significant assets tied in them um feel indestructible while as you noted in your excellent uh preamble uh the lower end of the consumer segment is, you know, behind on utility bills. They've subprime auto loans are record delinquent. We're starting to see mortgage delinquencies creep up. Student loan debt repayment is an issue. So, you know, there's real stress at the bottom. Um, and Wall Street has here to four really been able to ignore that because of all of this um, you know, uh, robust financial markets. But I think this New York mayor election is sort of a a shot across the bout to Wall Street. You know, watch >> watch your P's and Q's because um they're coming for you. >> Little irony, right? Little irony. Okay, let's pivot to credit because obviously Gonac didn't tiptoe there. He called the entire private credit boom, you know, garbage lending. And he said the valuations are binary, 100 or zero. But let's kind of get to the to the mechanism. I mean, garbage credit can sit on the books indefinitely until you hit a refinancing wall and and it seems like we've got a pretty big one. I mean, Steph, in 2026, we face one of the largest corporate maturity walls in modern history. Hundreds of billions of debt needs to be rolled over at today's rates. If companies are as weak as GLAC says, I mean, what happens when they try to refinance next year? Is that the real event risk? >> Yeah, I think so. And we've been seeing it. You know, it's not like this is just going to suddenly pop out out of nowhere. We are now on pace for the fastest, you know, the largest corporate bankruptcy cycle since the 2015 corporate credit bust, which you know, unless you are following the markets, you might not be aware happened, but it was a vicious corporate credit bust. Um, and then you get things like, I mean, you're perfectly dead on about going from uh being valued a par one day to zero the next day. And that's what happened to Blackstone with this Renovo um uh investment that they had where they were marking it at 100, you know, 100 cents on the dollar as of September 30th and then you turn the page on the calendar and suddenly it's bankrupt. So this is both the virtue and the curse of these opaque private credit markets where you can mark things to whatever fantastic uh fantasy you have but eventually someone has to come in you know some distressed seller comes in and says I'm pulling the record and you're marked at zero or you know somewhere close to it and so I couldn't agree with gunlock more and it's something I've been talking about for ages because we've staring down this barrel of massive um corporate debt that has to roll just in the next four years. I think 23 of the high yield market rolls. I mean that's a massive amount. You know 65 basically percent of everything that's junk rated has to refinance. And if what we've seen so far in terms of the efficacy of the Fed rate cuts um continues, they're going to be refinancing that debt at rates that are still way above what they were prior. You know, the Fed's cut rates uh rather the Fed has cut the Fed funds rate, but nothing else has followed. So, the relief that all these firms anticipated, and I like to say, you know, they've doubled, tripled, and quadrupled down on this bet that once the Fed cut rates, they'd get relief and they'd be able to refinance all this paper. And so far, we're seeing that's not holding true. But for the better part of the last 3 years since the Fed tightened rates in 2022 23 um they have just been doing the extend and pretend and adding more debt and extending out you know their durations and issuing payment in kind instead of paying interest and all these games so that they could just get from here to the rate cut and now we got the rate cuts and we're no better for it. So, I think we're really at a point and I think Gunlock's right to beat the drum now and say, you know, this is all really going to quickly deteriorate and we're seeing it. You know, it wasn't just Renovo, but first brandsolor, you know, all of a sudden the one cockroach has turned to to four, five, six, you know, every day there's another one out there. >> Yeah. Yeah. You're you're you're not wrong on that one. We keep hearing about it and it's even in the mainstream headlines. And you know, you're just talking about that that that surge in payments in kind loans, companies paying interest with more debt because they can't pay in cash. That that looks less like risk-taking and more like a slow motion Ponzi scheme. I mean, how long before lenders stop pretending that these zombies are alive and force liquidations? Are we months away? Is there quarters away? You're asking the wrong person, Jeremy, because I said a long time ago, we when the Fed started raising rates, I said there's no way the average corporation, which is levered more than it ever has been before, um, is going to be able to tolerate refinancing their paper at these new rates. I mean, uh, Jim Grant is just a fabulous wordsmith and he described this as the mischief that takes place around 0%. And we had this extended period of essentially 0% financing, free money for everyone. And the idea that Triricolor and First Brands were sort of the only ones that were doing getting a little, let's say, uh, handsy with their financial accounting is just, >> yeah, it's just laughable. you know, these we're going to discover that there was a lot of mischief around 0% and we're just seeing the most um you know, pathetic examples of it exposed first. But yeah, I think it's going to move up the corporate up the uh chain up let's say up the quality chain and surprise people by how far it touches. I mean, when you get Black Rockck, you know, they're not uh some fly by night organization. uh majorly invested in the sperm that goes from 100, you know, cents on the dollar one day to zero the next. Um you know, that kind of stuff, you don't need too many of those before people start to worry about, hey, what's going on with claim crop? You know, I wonder who is caught holding the bag, right? I mean, I mean, the wall the Wall Street defense, the the defense we hear from private credit managers is relax, our capital is locked. You know, there can't be a run. But that cuts both ways. I mean, does does locked up capital actually protect the system or does it trap the rod inside the black box until it all hits at once? >> Yeah, absolutely. And the thing that I really am most concerned about are the innocent main street victims. And those are the people whose unwittingly they're unaware but their pensions have been invested massively in all these alternative assets of which the private credit space has been the hottest area to be over the last several years. So what will happen is that and you're seeing it already with some of the endowments for example uh where the funds the investments in these alternative asset managers aren't throwing off the income they anticipated. they're having to turn to the capital markets themselves to borrow to you know fill that void. So you saw like Stanford came out and borrowed because their investment the pension fund uh you know Stanford endowment wasn't uh getting the returns because all the AI sorry alternative asset capital was locked down as you said so it creates its own problems um so there can be secondary and tertiary effects that you know we won't be able to anticipate but will suddenly um appear on our headlines. >> Yeah. Yeah. I I mean Gounlac in that thing he said he was he was you know more cash stable right now he's kind of more holding a lot more cash and I want to connect the garbage debt to gold because historically when a credit bubble pops we see a liquidity flush investors sell their gold just to kind of cover margin calls on their bad loans. Gold's down recently at around $4,000. Was that the flush? I mean, you know, was it kind of the baby flush? Is there any panic here for you? Well, what I had been looking at um leading up to that was the interest in gold among retail investors. And the way I was tracking that was the total shares outstanding of all gold ETFs. What you saw was as gold made its march to up to 3500 and then to 4,000 that retail enthusiasm started to build. You know, here to four, no one had been you everyone was chasing AI stocks. No one cared at all about gold. But once it broke some crucial price level thresholds, suddenly it became this sort of momentum darling. And what you've seen is that that pop from once we broke 4,000, you had a huge surge in retail interest and that has exactly roundt. So everyone who got in at 4,000 has now exited. So I think you basically flushed out sort of the Johnny come lately who didn't ever believe in the fundamental long-term story for gold but were just chasing you know the chart pattern basically. Um and so I think the downside >> risk here is fairly limited. Um and you know you got to come back to sort of the bigger picture thing. What's changed in the long-term case for gold, which has been this global dollar diversification and the prospect of that being accelerated by another round of currency debasing expansionary monetary policy and here we are waiting for the Fed to cut rates again and then you know uh the president now has yet another slot that he can fill at the Federal Reserve Board next year um with Bostik's retirement. So, you know, we're kind of greasing the runway for another major uh shift in expansionary monetary policy. I've talked to you about this before, Jeremy, that I think forget about the Fed funds rate. It's all about the balance sheet. And I think gold is sniffing out that that balance sheet is going to go from doing nothing to expanding very quickly. >> Yeah, as you mentioned, I mean, the fundamentals haven't changed. And isn't that historically what happens before a major kind of gold run? Retail flinches at the volatility while the smart money uses every dip to build positions. I mean, the real story was that retail might have panicked out, but gold didn't even crack $3,800. I mean, it's been just incredibly stable. If you look at that chart, 50% over this year. >> Yep. And and the miners have actually >> I was afraid to look the other day when gold was down 112 bucks or whatever. I was like, I can't look. Um, and it turned out they really held up very well and the miners tend to lead the price of the bullion. So I, you know, I I feel confident about the long-term case and I try not to get too worked up about these squiggles, but I understand that's not as satisfying for people who are, you know, just getting into it who kind of sweat every every, uh, you know, dollar swing. But nothing has changed in terms of the foreign demand for gold, uh, the supply demand imbalance, uh, which I would note is probably dramatically more profound in silver. and we're seeing silver, you know, move too. And then you saw um I guess it was China now really trying to make some moves uh to stockpile silver. So we're we're into the deep getting into this um hard asset versus paper trade as relates to the real money buyers, the foreign central banks out there. Um, and we'll see, you know, how long it takes for the broader investment community to actually get on board. But right now, they nobody really believes that story. It was just a brief momentum play and they seem to be over it. >> Yeah. Let's talk about this this I won't call it fake data, but at least this this data blackout that we're getting. I mean, Kevin has it confirmed this morning that there will be no unemployment rate for October. The data was strange long before the shutdown, though, right? I mean, you warned about the birth death rate model, the BLS algorithm that guesses how many new businesses are created. Now, without surveys, they have to rely entirely, I guess, on that model. In a year where business bankruptcies are rising, isn't the model almost guaranteed to produce fake growth? >> Exactly. And that's the problem at turning points. You always see payroll the payroll numbers or the unemployment payroll is overstated. unemployment rate is understated because they interpolate the same amount of jobs created from expanding businesses um that are no longer happening. You know, they just string it forward at a time when in fact people, you know, businesses are closing rather than um opening more uh rapidly. So, that's always been the problem. And I I guess from that standpoint I would argue that having no data was probably better than having bad data, you know. So it also sort of has focused investor attention on things like first brands which had we been getting monthly payroll reports that were inflated and made everything look fabulous people might have been like h yeah that's not a big deal. But now you're starting to see a lot more attention paid to things like what's the credit signs of credit stress and also much deeper scrutiny of corporate earnings reports because that's ultimately you know the government can manufacture whatever data it wants. A company's profits are a company's profits. Now, admittedly, the way they report them, you know, with recurring, non-recurring write-offs and sometime, but if you're a good analyst and you can go through all of that and parse out what's real from the one-time nonsense, um, you can come up with a pretty good picture. And what you see is that the averages, just like was the case with the consumer, the averages tell you nothing because you got seven companies that are earning a lot of money and then you got everyone else who's just barely squeaking by. And in fact, you have a huge swath of companies that aren't making any money at all in the getting back to the zombie thing. You mentioned zombie companies tying it back to the corporate credit cycle. Um, in the Russell 3000, now one out of every five companies can't service their debt with their income. They're not making enough money to even service their debt. So, this is the state of corporate balance sheets and it's being masked by the seven or 10 companies out there that are doing great that make it look like everything's fine. And that's exactly what we've seen for the economy, which is driven by the consumer, where again that high-end is doing great. They're absolutely bulletproof. Um, and the low end, meanwhile, can barely scrape two pennies together. So, you know, it's not for nothing that you get these consumer sentiment surveys that are worse than they were during COVID and the Great Recession. I mean, it's amazing to me that that doesn't get more attention. You know, when people's uh optimism about their uh income after inflation is the worst in history, that's a pretty strong signal that the average guy out there is just not feeling what you're seeing on your on your Bloomberg screen every day. >> Yeah. Well said. Let me layer in something that just hit this morning, too. There was this brand new uh report from the San Francisco Fed working paper, and it looked at 150 years of tariff episodes and full historical record. And the conclusions were kind of surprising. I mean, tariff shocks have historically lowered inflation, raised unemployment, not the other way around. They found that mechanism isn't price pass through. It's it's more confidence. Uh tariffs tighten that kind of financial conditions pull demand out of the economy. Um, are we getting this this tariff story completely backward? Because right now everyone's screaming that these tariffs will drive inflation higher, but if the historic data says it's cooling the economy, is is that what's happening? We got it we got it wrong. >> Yeah. No, I mean, I've been I don't want to pat myself on the back, but I've been saying this since the first came out that, you know, the presumption that tariffs are a tax on the consumer. That was the phrase everywhere. It's your tax on the consumer. It's only a tax on the consumer if the consumer is willing to pay that tax. They have an option whether to buy that good or not. And if the consumer says, "I can barely pay for XYZ at its current price. I'm sure as hell not going to pay for it when you slap a 20% tariff on it." The producer of that good is going to figure out pretty quickly they better figure out how to reduce costs on the back end to prevent losing their market share. And that's what we've seen. Um, in fact, during Trump's first term, when he first did the tariffs on China, you saw that basically all of those tariffs were absorbed actually by the Chinese exporters. They didn't even make it to the US companies, much less to the US consumers. So this notion that was just said as if it were law, that this new wave of terrorists was going to be attacks on the consumer just struck me as completely wrong on its face. And yeah, I mean there's some areas where it's a discretionary item and you know like a Birkin bag or whatever. The person who's paying $100,000 for a handbag isn't going to care if it's another 10 or 20 grand on top of that. It's just all about owning that bag. But the average person, you know, who's trying to feed their kids or buy them some, you know, modest Christmas presents isn't going to be able to do that. And we've seen that very clearly in the data. >> Yeah. Yeah. And I guess it's exactly why we're seeing the fastest corporate bankruptcy cycle in years. If businesses are swallowing tariff costs, swallowing these higher interest costs and slowing, you know, this consumer. Yeah. I mean, something has to break, right? >> Yep. Well, and that's really comes back to the whole thing. I I focus almost myopically on what's happening with interest rates and the lack of response to the Fed's efforts to bring them lower. But it's not just the Fed's efforts. you know, the Treasury, uh, Scott Bessett when he was out on the campaign trail with the president, um, sort of trying to make himself, uh, you know, in contention for his current post was out there deriding Janet Yellen's program of financing our deficits with tea bills. Then he gets to the office and he realizes, geez, that's pretty much the only option I have now. you know, how else am I going to finance these massive deficits without seeing a massive increase in debt service? So, they've tried to coax the Fed and pressure them to bring long rates down, but there's only so much the Fed can do. They can cut the Fed on rate and hope everything comes lower, and that hasn't happened. And that's forced Bessant to continue this short end financing and also I think led the Fed in its latest announcement um to do the uh Q and the QT in the manner that it's doing it. Their their plan is to as they um run off all their mortgage book, uh they're going to stop running off the treasuries, but they're going to continue to run off NBS. And they'll take those proceeds and recycle them into Treasury bills, not notes, not bonds, bills. And I think that's because, you know, we're issuing at the front end and the Fed is going to absorb at the front end until further notice. Um and right now it looks like until further notice is indefinitely because long rates just refuse to go lower. >> Yeah. Yeah. So I mean what you're saying is they're in a position where they must provide liquidity, not to fight inflation, not to support growth, but just simply to prevent a failed auction. >> Yeah. Absolutely. I mean they're very concerned about it. In fact, I think they called some I don't know if you'd call it an emergency meeting with some of the big Wall Street banks to discuss liquidity in the money market uh in the money markets. So, the Fed is clearly concerned about that and I think that was what drove the program. But I I do I will reiterate that I think it's just a matter of time before they go to broadly re-expanding the balance sheet. And at that point, they won't just be buying at the front end of the Treasury curve, but they'll start to step out into longerative maturities in an effort to accomplish what rate cuts have failed to do, which is bring that entire complex lower in yield and hope that provides relief to mortgages and corporate credit, etc. Um, and the jury will be very much out on that for a while. >> Yeah, for a while. You're not kidding. Okay. Well, obviously Wall Street debates the models. Main Street deals with these invoices. Let's talk about this Century Foundation report today that these past due utility balances are up nearly 10%. I mean, you can you can kind of massage a CPI report. You you can't do that with this type of data. If Americans are defaulting on electricity in November, what does that say about the holiday shopping season? And are retailers hitting straight into a buzzsaw? >> Yeah. I mean, this is something that when we talk about how bad the data has been for a long time, a lot of people were poo pooing the consumer confidence and sentiment numbers as just being partisan. You know, there's no way consumers feel that bad because look, payroll employment strong, this is strong, that's consumer spending strong, blah blah blah. Um, and I kept saying, you know, if if they're doing so well, why are they delinquent on everything at the worst rate since the global financial crisis? You know, it just didn't stand to reason. It seemed more likely to me that the measurement of unemployment was wrong than that the delinquencies were wrong. You know, you're delinquent. That's you're not faking that. Um, so that seemed like a legitimate cause for concern. And you know again we look at these broad average statistics of consumer spending um and they're being held up by the top end of that K but more importantly the composition of the spending has been less than compelling. If you look into share of it that goes to things like shelter and food and energy the things you have no choice but to buy at recession level shares of the total spending. you know, we're almost up to half of the average household's income goes to those things and that's on average, forget about, you know, at the lower end, obviously 100 plus% goes to that. Um, so I think the the issue then becomes how do we, you know, we've got the tax cuts really starting to impact next year with the change in withholdings and potential tax refunds that no tax on tips and all of that will really start to take effect. it. Does that provide enough of a boost to offset the drag from these oppressively high interest rates and the still stubbornly elevated price level, inflation, you know, price level, um, that the average consumer is facing. And, you know, I it remains to be seen. I think it's going to be a a close contest. Um, and I think the student loan debt resumption will also be a critical part of that because that's a significant chunk of money. Um, and it hits at a swath of that consumer segment that's a little higher up and is probably spending be or has been spending beyond their means. So we will discover in its absence how big of a role the suspension of those payments had in boosting in in supporting not just spending but uh the payment of other debts. >> Yeah. Yeah. Yeah. I was going to ask you I mean because we got the you know we got tariffs reshoring incentives these tax packages the the big bill that you're talking about energy credits industrial policy even some dispense defense spending. I mean it seems like the whole kitchen sink but does any of that actually boost the economy next year? or is it too small to offset what you just were talking about, you know, the rollover in credit and earnings? >> Yeah, I mean, I guess the question is, uh, what do rates do from here? Do they move higher? You know, if we do start to see more of these cockroaches and you get into a situation where there's a real riskoff attitude that sends private borrowing costs up from where they are. forget about lower. But you know, if you get credit card rates up, mortgage rates up, corporate borrowing costs up, then I think it's impossible for any of that stimulus to overwhelm it because it's just such a huge drag on consumers and corporations. Um, if we continue the status quo, which has been surprising to me, I mean, if you look at a chart of, you know, junk yields or the 10-year yield or um you're looking at basically a horizontal line sideways for three years. I mean, you don't often see markets move like that. They just don't move. Rates don't just sideline like that. They they tend to overshoot and then cause the correction that, you know, drives them lower. And they're much more of kind of a, you know, volatile like an EKG. So, this is a very unusual period and I would describe it as almost too quiet, you know, when you see something like that. >> Um, but it'll break one way or the other. It's either going to break higher or lower. And if it breaks lower in yield, it will definitely provide some relief. But the question is, what's the catalyst for it moving lower in yield? Is it because we're in recession? In which case, >> you know, you're you're swapping one problem for another. And on, you know, on on the stimulus trap, I guess we could call it that. I mean, President Trump's talking about these $2,000 tariff funded checks. If that money hits households, does it produce growth or does it just kind of vanish instantly catching up on these back owed bills? I mean, is the stimulus trade dead on arrival because the dead hole seems too deep? >> Yeah. Um, well, we did see that with the CO stimulus checks where the people who didn't need to use that money or had money left over after they paid their groceries and filled their gas tank used it shrewly to pay down their credit card balances. So, uh, presumably that would go a long way toward that. I also just as a footnote would add that in theory the uh Department of Education was supposed to start garnishing wages for student loans who were delinquent um by September sometime and as yet I haven't seen any reporting that they're doing that. I think that was you know they threatened to do it and as yet it doesn't appear like they're actually garnishing wages. Um, and maybe that's because they understand that that would probably end up hurting them more than helping them. So, they're kind of just letting it lie for now. And maybe in the idea that if they do send out these tariff checks, those student loan uh payments will resume and those folks won't need to have their wages garnished uh to to pay them. So I don't know but u there are a lot of moving parts and as it stands right now you've got this very disturbing very high stress level of consumers at the bottom that's really being masked by the top. Um but increasingly you know I think you're starting to see a little more jitters in the markets around how sustainable this is primarily as it relates to this these issues around corporate credit and you know risk appetite is I like to say it's not on a dimmer it's on or off you know just like you could price uh private credit at 100 one day and zero the next that tends to be the way risk appetite works so if the market suddenly decided that, you know, this this is now we're overvalued and we really need to, you know, cool it. Um, that would cause a massive reverse wealth effect that then would be a whole other, you know, we'd be like 2007 all over again in terms of what that means for the economy and for monetary and fiscal policy. >> Wow, that's interesting. Yeah. I mean, that's a whole angle, too, on the on the auto loans that because if people are missing utility bills in auto loans today before student loan enforcement, I mean, how exactly do they absorb another $300 to $500 a month when interest starts compounding again? Yeah. And only one person won that 900 some odd deal 900 million lottery ticket. So uh that one person will be able to do it but everyone else is kind of uh so um no I it's you know it comes down to getting employment growth uh going and we'll see how that you know what happens although I I'm highly skeptical of the numbers uh given what we just talked about earlier but you're seeing layoff announcements from companies rather than massive hiring announcements and I know there's tremendous hope around the um AI capex which has been material um but that too isn't without its own repercussions um that aren't super great for the financial markets and I don't know if they've figured that out yet but you know when you see all these companies rushing to raise capital to invest in AI well that creates even more competition for the the federal government for financing uh these massive deficits So we, you know, we're trying to borrow a tremendous amount of money, but to finance our deficits and to finance our primacy in this AI race. Um, but we are struggling to come up with the money to do it. You know, who who exactly is going to finance all this stuff uh absent some massive expansion of the Fed's balance sheet and a whole new round of uh mischief at 0%, shall we say? >> I like I like I'm going to use that mischief at 0%. We'll give credit though, of course, big big fan of Jim Grant. Uh, okay. Well, let's close on gold. Obviously, here at Kiko, we got talk about it sitting here around 40, 30, 4,000. Um, it's not breaking out, but I mean, given everything we just discussed, this data fog, the credit rot, the refinancing wall, the consumer stress, I mean, shouldn't it be around 5,000? What are your thoughts? Are we just going to sit here and let this accumulate? Just a nice safe trade. Um, well, I'm I'm a huge bull, so I I mean, I think it should have been 5,000 several years ago. >> Yeah. And, you know, I drank enough of my own Kool-Aid about the forthcoming uh monetary expansion. Uh, and I think the Fed's balance sheet will easily top 12 trillion in the next uh credit meltdown. Uh, easily, probably more like 15 trillion. So I, you know, take whatever I say with a grain of salt. But if that's my view, obviously I think gold could trade, you know, way above 5,000 just to back our monetary base alone. Uh to fully back it would be $22,000, I think, on the price of gold. No one's suggesting they're going to do that, but it just gives you a sense as to um how enormous the amount the mountain of uh paper claims are relative to this very small pool of gold available to to back it if we ever needed, god forbid, to come up with a more hard money uh currency. And I I think we may get to that point mostly because it's not just the US that's in this situation. >> You know, uh it's not just our capital markets that have gotten mischief at 0% and our consumers who are stressed by uh having high interest rates and debt service. It's all of the developed world economies, all of our major world competition. Europe, Asia, UK, you know, Japan. Um, so whatever debasement we engage in, they're going to engage in just as rapidly. Um, which is just even more reason to be looking to to sort of prioritize hard assets over paper. Um, so I think gold's move has just started and I kind of love the fact that um people are just kind of dabbling their toe in um on chart patterns but still don't fully believe the story. And that just makes me feel like it's got that much farther to go. >> I lied. I'm going to ask you one more question cuz you did bring up there. I mean, you brought up the miners. You're obviously watching them at these prices. Uh some of them just huge cash flow. I mean, any minors that you're looking at, I it wasn't always the sexy play, but it's had some great returns. >> Yeah. Well, I have to confess that I'm a big picture gal and I barely spend a lot of time, you know, looking at my own portfolio. I certainly am not going to sit here looking at individual companies because it's just not what I do. So I, you know, I have an investment with a a great manager who I allow I rely on his expertise. Um, and then I own some of the, you know, just the GDX and the GDXJ to get position um, more broadly across the sector. But u, for specific ideas, I would hate to venture because I'm just that's not my Bailey so much. Sorry, I'm sorry to cop out on that one. >> It's all right, Jeff. I guess that's a bit of your audience. I'll I'll resist commenting. >> That's all right. That's all right. I mean, macro is in the name of your company, of course. Stephanie Pomboy joining us today from Macro Mavens. You need to check out that newsletter, too. Uh, thanks for this. Lots of interesting data. We'll see how the week plays out. Any one thing that you're paying attention that maybe this whole script goes out the window? Well, you know, the one thing, this isn't related to the script going out the window, but the one thing I would offer to your audience that thinks this is all way too doom and gloomy and I'm missing out on, you know, what could be a great boom in the markets surrounding this new revolutionary technology that is AI. Um, I would say you can still position that and have a comfortable hard asset versus paper bet by just going long energy if we're if AI is the future. And I believe that it really it will be like this may be an internet bubble but like the internet bubble the internet will be a thing you know it's going to be transformational. I think the same about AI you can buy energy stocks for nothing relative to these AI companies that are trading at nosebleleed valuations. Um and you're basically making a levered bet on the future of AI because AI's future is only as good as the energy required to power it. And that energy is preciously scarce. Um, so it's a great way, you know, if you're worried about missing uh this great uh technology revolution by sitting in gold. You don't have to do that. Buy energy. >> Yeah. Well said, long energy. Trade the pigs in the shovels. Uh, okay. I appreciate this. Thanks. Thanks again. Appreciate it. >> Okay, talk soon. I want to hear from you on this. When you see UBS fleeing for the US, utility bills spiking 10%. Does that look like a soft landing to you? Are we walking into a credit event? Make sure you let me know in the comments below. I do read them, believe it or not. And if you want to know the truth about the what the Fed's missing, make sure you're subscribed right here to Kick News. I'm Jeremy Saffron. We'll see you next time. Heat. Heat.