WARNING: These Powerful Yet Unknown Economic Indicators Are Flashing Red
Summary
Economic Indicators: The podcast discusses lesser-known economic indicators that are currently flashing warning signals, similar to traditional indicators like those from the Conference Board and the labor market.
Stock Market Analysis: The host critiques the binary view of the stock market, emphasizing the importance of analyzing PE ratios and risk-reward scenarios rather than choosing between cash and the S&P 500.
Real Estate Market: The discussion highlights the financial engineering tactics of homebuilders like LAR, which are impacting home prices and margins, suggesting potential risks for the broader economy.
Asset Valuations: The podcast notes that both the stock market and housing market are at historically high valuation levels, raising concerns about sustainability and the potential for a market correction.
Unconventional Indicators: Anecdotal indicators such as the presence of attractive women in eviction court and an increase in boat fires are humorously suggested as potential recession signals.
Subprime Auto Loans: The collapse of a subprime auto lender is discussed as a potential canary in the coal mine, highlighting systemic risks and the impact of economic conditions on lower-income borrowers.
Investment Strategy: The host emphasizes the importance of understanding risk-reward dynamics and suggests that alternative investments like gold may offer better opportunities in the current market environment.
Transcript
Hello fellow robo capitalists. Hope you're well. So we have some little known economic indicators that are extremely powerful that nobody really talks about. So I wanted to get into a few of them today. And as you would imagine, they're flashing warning signals just like the leading economic indicators from the conference board and the labor market. A lot of things that we talk about on this channel. Does that mean that the stock market's going to go down? I don't know. The stock market, everybody knows it goes up every single day. That's just what it does. But if you analyze the stock market, the PE ratios, the riskreward, the upside downside, what the conclusion you come to is that n I don't know if it makes a lot of sense. And people have this binary view of the stock market. Well, if you're bearish on the economy, then you have to be all in cash. And if you're not all in C, well then you have to be all in the S&P 500. And this is nonsense. This is total nonsense. In fact, I was just looking at my phone before we went live. And the S&P 500 is up maybe 12, 13% this year. Gold is up 40%. That's not even the miners, that's just gold. So boy, if uh you would have been invested in the S&P 500 instead of gold, you would have missed out on all those gains, right? But by analyzing the economy and analyzing and looking and paying attention to these very unknown or or little known kind of secret indicators, you can get a good read on the economy and you can make better riskreward decisions. That's what it's all about at the end of the day. Okay, so let's start off by looking at a chart of LAR. Now this is a home builder and year to date they're down 11%. But what's really important is the last five days. Now, if you haven't followed this story, what happened with LAR is they came out and reported earnings that were below expectations. But they also said that one of the main reasons these earnings were below expectations is because their margins are getting squeezed. Okay? Why are their margins getting squeezed? because they've been playing this game where that they don't want to cut the price of the home because that impacts the comps. So, what they'll do is they'll just say, "All right, we'll give you a $50,000 credit or I think they call it a interest rate buy down, something like that." So, instead of paying this interest rate, we'll just basically give you $50,000 toward your loan to make the lower interest payment. It all nets out, right? But then they don't have to. And so what they're doing effectively is they are lowering the price of the home but without lowering the price of the home. But at the end of the day where you see this show up is in the margins in the margins of these homebuilders like LAR. So let's think about that in terms of what this is telling us about the economy. Well, you guys know just as well as I do that the economy is totally propped up by asset prices. It's not just the S&P 500. It's probably more so home prices. In fact, let's go to a chart right here. This is real uh home prices. So, home prices adjusted for inflation. And here's where we were during the com bust, excuse me, the GFC, the housing bust. And so you'll notice it's right around oh call it on this chart. I don't know how they're measuring things but it's 0.92. And if you see where we are today it is higher than that. So if you look at price to earnings you're going to see a similar chart where we're way higher. The bubble is way bigger. the prices are far more unaffordable based on incomes than they were even during the housing bubble just prior to the GFC. So now does that mean that home prices are going to just crash? No. They could go up. They could triple from here. But again, it's just like the S&P 500 when you look at the S&P 500 in terms of just the PE ratios, the cape ratios. So, I did a whiteboard video the other day where we discussed the price to sales and the price to sales ratio is higher than it's ever been, higher than it was during the com bust. If you look at the cape ratio, it's like 39 right now. I think I have it up. One of the charts that I know I have up is just the trailing 12 month PE ratio. And that's at uh call it 29 or so almost 29 28. And so this is a metric where it's not at just extreme levels, unprecedented levels, but it's overpriced. It's at nosebleleed levels. Now, this is just one of the ways to this is one of the valuation metrics that uh people use. If you look at other valuation metrics like price to sales, it's at all-time highs. And if you look at the cape ratio, it's at 39. And I think it's the highest it's it's been since the or outside of the dot extremes or levels. So, it's just like housing, right? It's the same thing. Could the prices go up forever? Absolutely they could. For sure. For sure. For sure. But what we're playing here as investors is a game of probabilities. It's not a game of certainties. And so we're just trying to figure out, okay, what's the riskreward here? And if there's more risk than reward, then it might not be a good bet. There might be other things out there where the riskreward makes more sense this year. Again, great example would have been gold. Uh the gold miners especially because those were really, really cheap. But getting back to this indicator that I think we're getting from LAR is we know that home prices actually let's go back to this. We know that if home prices were not at nosebleleed levels, aggregate demand would go down rapidly. I I think we all agree on that. So, if we had another one of these, I'm not saying we will, but if we had another one of these declines, guess what's going to happen to GDP? What's going to happen to purchasing power? Guess what's going to happen to aggregate demand? Likely going to go down dramatically. Dramatically, because so much of aggregate demand depends on home prices and depends on asset prices. So, let's think this through. The reason this chart is where it is or one of the main reasons that these prices are uh at this level is because of the financial engineering LAR was doing because if they wouldn't have uh done these interest rate buyowns, if they actually would have adjusted the price of the homes that would have impacted comps and let's just say the price of the homes they were selling would have been $100,000 less than let's just say they sold them for 500 but in reality they were selling them for 400 because they were having to eat that $100,000 with that interest rate buy down. These aren't exact numbers. I'm just using them for the sake of the example. So that would mean that the comps for that neighborhood instead of being 500,000 well they'd only be 400,000. And the price of all the homes in the neighborhood is set by those comps. So you see what I'm saying is the the comps are bogus. The comps are the comps are BS. They're total financial engineering. It's total game of smoke and mirrors. Kabuki theater. So if the comps were actually where they should be, then when we go to this chart, it would be lower. Now, it wouldn't be just crashing all the way down here, but what would the trend be? The trend would be lower, right? But it's not impacting the uh the the the the sale value for the homes that are already owned by individuals because again, those comps. So, they're still selling for 500 grand even though LAR is having to take this hit. So, they're still selling for 500 grand, propping up the comps, but at a certain point, Lenar isn't going to be able to eat the margins anymore. This is really where I'm going with this. And if LAR isn't able to eat those margins, and if they actually have to sell the house for what they can sell the house for based on what people can afford, they're going to have to start selling those houses to move inventory at 400,000, not at 500,000. And so then what's that going to do to the comps? It's going to drop. And so all those people out there that aren't dealing in the no new home u inventory, you know, all those owner occupants that are out there wanting to sell their house or maybe do a cash out refi. All of a sudden they take a $100,000 haircut. Boom. Done. So ju let's think about that. Assume that I'm right and LAR can't continue to basically subsidize the price of these homes with their margins and they have to wave the white flag and say, you know what, we can't do this any longer. We're just going to have to drop the price of the actual house, which is also going to impact their margins. But let's just say that they have to go that route because they can't keep playing these financial games. So then the comps drop. people's, they're looking at Zillow every single day, you know, home homeowners and, oh my gosh, oh, my house was worth 500,000 last week and this week it's only worth 475. And then you fast forward too much. Oh my gosh, now it's down to 450. It's almost like a stock quote. So, what's that going to do to their propensity to spend? They're going to tighten the belt. They're going to absolutely tighten the belt. And this could lead to a contraction in the economy all else being equal, right? Especially in an economy that's 70% consumption. So this is one of those kind of hidden indicators that normally probably wouldn't be an indicator uh because normally you you wouldn't have all of these financial engineering shenanigans that have been played over the last let's just call it five years. But at some point in time, the rubber meets the road, right? When the tide goes out, you see who's been swimming naked, as Warren Buffett said. And right now, if you're looking at the LAR share price in the housing market, the tide is going out. The tide is going out. Okay, now let's move on to another one here. And actually, now I'm going to go over to some that are ex totally unknown. They definitely weren't on my bingo card. I'd never heard of them before. more anecdotal, but I think they're pretty powerful if you actually think about them. And then we're going to go over to the Wall Street Journal and read what's happening in the subprime auto debt market and the blow up ofolor. And a lot of people I don't really think have heard about this, but this could be to Wall Street Journal's point could be a canary in the coal mine, but at the very least it tells you what's happening with the economy. Okay. So, here is uh Brent Johnson sent me this the other day, and I know this is kind of funny, but it's not if it I mean, it is funny at surface level, but if you think about it, I I think it's actually a really good indicator. So, this guy is a real estate lawyer, I think, in LA. And he starts off the, and you can tell this is going to be contentious, but he starts off by saying, "There are almost never attractive women in eviction court seen to this week. Major recession indicator." Now, you could look at that and say, "Oh, that's kind of stupid, or he's just being uh, you know, uh, misogynistic or something like that." But if you actually especially if you know Rich Cooper, my good buddy Rich Cooper and Rolo and you read their stuff, you look it's just it is what it is. Let's just call a spade a spade here. In the society in which we live in, there are a lot of dudes that are whatever you want to call them. Rich would call them thirsty betas or beta orbiters or you've got I don't know if you want to call them simps, whatever you want to call them. There's plenty of dudes out there that especially attractive women that kind of would really really like to do anything nice for that attractive woman, let's say, even though she's not interested. I'm not saying that it's the gal's fault. I'm not saying that the gal is uh giving them an uh indicator of interest, let's say, but even if they're not, the guys are just that's how that's just the society we live in. I'm sure most of you that are actually being honest with yourself, you know exactly what I'm talking about. So, this you starting to see very very attractive women in eviction court. What does that mean? That means that either they don't have a job, assuming they were paying their own rent, but Even if they don't have a job, they're not able to pay their rent. That means that all the beta orbiters around them that were happy to throw money at them before, they lost their job. And that's why the gal can't pay rent because it's like she doesn't have a job, so she can't pay. But then no one in her, let's say, financial network, no one, no, none of those dudes can pay. And if the thirsty betas aren't willing to pay the rent for a smoking hot chick, you know, there's something really really wrong with the economy. And and hey, look, don't shoot the messenger. I'm just calling a spade a spade. And I don't care whether you're a woman. I don't care whether you're a man. You know exactly what I'm talking about. All right. And here's another one. And I had never ever ever thought of this one, but this guy chimed in and says, "Boat fires best early indicator of a recession." So, I guess if you read the tweet, it's actually really interesting. This guy said he had uh a degree in economics, I think, and his first job out of college was at an insurance company. and one of the old guys there was training him and he took him out to lunch and he says, "Okay, what's the number one recession indicator?" Because I guess he was on the risk management side of the insurance company or something like that. And the kid says, "Well, it's um people's savings go down or he gave he gave some textbook answer, right?" And the old guy kind of laughs at him like, "Yeah, right." No, the best economic indicator in human history is boat fires. And he said because what happens is it's like the ultimate discretionary purchase and everyone has insurance on it. So when they lose their job and they're having to decide, okay, how am I going to pay my mortgage or how am I going to put food on the table? What am I going to do? They're tightening the belt. The very first thing, not that everybody, but that a lot of people do that might not be, you might not have that moral north star, let's say, they light their own boat on fire and then they just make the insurance claim. So, you see insurance claims for boat fires like skyrocket and go parabolic during or just prior to or as you're entering a recession. So, these are things that I wanted to share with you because although they sound kind of funny, if you actually think about it, I think they're probably just as good as as the yield curve or just as good as the leading economic indicators that we get from the conference board. So, I I wish there was some I wish they had a chart here. Now, with the boat fires, I'm sure that's quantifiable. Obviously, seeing how many hot chicks are in eviction court, you can't really quantify that one. I'd love to see a chart of that, right? But with the boat fires, I I'll bet you if you had some time, you could get into the nitty-gritty and maybe with AI, maybe I should do like a deep research thing on chat GPT and see if chat GPT can determine the rate of increase for boat fires over the last year. But I'll bet you that one, neither of those you had on your bingo card. That's why you watch the Rebel Capitals channel. Okay, now let's get into some more kind of nor uh more uh mainstream type of indicators here. So, let me zoom in. So, if you guys haven't heard this, they were a subprime auto lender and they completely blew up. So, bankruptcy, I don't even think they're doing a chapter 11. I think it's just straight chapter 7. They're just folding up shop. And I think there's two arguments here. Number one, this is a canary in the coal mine. Number two, it's all because a vast majority of their loans were to, let's just say, illegals. And so when the illegals go because of Trump, now they're just like, haha, bye. You know, they're not making their their car payment. They're probably selling the car, pocketing it, and then just defaulting on the loan. And I guess they specialized in giving loans to people that were like undocumented. So like they didn't have a social security number. They didn't have a credit score. They didn't Great business, huh? I don't know about that one. Might be a little risky. Yeah. Here's where they go into they filed Chapter 7. So there's this debate back and forth as to whether or not it was just a result of their business model and who their customers were or it was more so just okay, we're kind of seeing this and this is an indication not because of that component of their balance sheet but the rest of their balance sheet. And let's just assume for a moment that the whole reason they went bust is because all the illegals left and they're no longer making their payments. Okay. I I I don't know that that's really a good thing. Because think about it beforeric went bust in their heyday let's say two years ago or something like that were they contributing to the economy or to GDP? Absolutely they were. Absolutely. Because these were people that were going out. I don't care if they were illegal or not but they were going out and they were taking their money or money they borrowed and they were going out there and purchasing things and that contributed. Now, you could say that's a bad thing, a good I'm not here to say it's bad or good. I'm just saying a statement of fact. It was contributing to GDP. So now all these people leave, let's say 10 million. And you could say, George, that's fantastic. Okay, great. I'm not debating that. I'm not debating that. That could be the best thing in the world. But what we have to realize that at least over the short run it may have long-term benefits, but over the short run that's going to decrease the amount of economic activity. So let's just assume that the whole reason they went bust is because all the illegals went home. I I don't know that that necessarily means that the economy is just off the hook because the economy whether we like it or not was dependent to a certain degree on the spending and the purchasing power of those 10 million people that left. And I don't know if it was 10 million. I'm just using that as a a ballpark number just to illustrate the point. But let's keep going here. So, Triricirricolor caught investors and creditors offguard when it said Wednesday it was liquidating after 18 years in business. The Texas-based firm specialized in lending to car buyers with no credit history or social security number, including undocumented migrants in the Southwest. Its business grew amid the Biden era. Yeah, but yeah. So, where I'm going back and forth, I totally get it. I I get the argument that they just made all these loans because Biden was letting in just millions and millions and millions of of illegals. Um but they've been in business for 18 years. So I don't know that that would lead me to believe that they had some sort of risk management controls in place for or they just charged such an like a payday loan. They charged such an astronomical rate that they made up for it. So, it might not be all just a result of everyone going home because they've been doing it for 18 years. If they would have been doing it just for five years, let's say I I would I'd be more like, eh, this is probably just due to their business model. At least, let's keep going here. The company made loans by drawing on a line of credit from banks. So, then you have to look at the systemic risk. Let's just assume that the the only reason they went bust is because all the illegals went home. Okay, great. That doesn't help out the bank they were borrowing from. that still blows a hole in their balance sheet. And what does that do to liquidity? It decreases because overall risk increases because those banks balance sheets are in in one way, shape or form all connected. It's an the monetary system itself is just a network of bank balance sheets. So ditto investors who bought packaged auto loans include Okay, so there's more systemic risk. So, it's not just the banks that was borrowing from, but it looks like it's all the people that were buying all this garbage, assetbacked securities, I think they're called. Uh, so the investors, including Pacific Investment Management, an Aliiance Alliance, Bernstein, a trunch of its higher quality loans issued in June that received a trip AA credit rating, was trading last week at 78 cents in the dollar. A lower tunch was trading at 12 cents on the dollar. Believe it or not, that Whoa. Listen to that. That lower tunch that is now trading at 12 cents in the dollar was trading above par this summer. Wow. Wow. Okay. So, that is like a right hook from Tyson you didn't see coming. But what's amazing is it was trading above par. Like, how could anyone not see this coming with what Trump was doing? I mean, who's buying this stuff? Media reports say Justice Department is investigating potential fraud again. When tide goes out, you see who's swimming naked. A tririccolor ABS asset back security issuance this year showed that more than twothirds of its borrowers lacked a credit score. For those with credit scores, an average was the average was 614. More than half didn't have driver's license, which suggests they may lack permanent legal. So you think ah geez the broader market problem is that auto lenders in recent years have been extended. uh the duration of loans to keep monthly payments affordable stretched after years of inflation, lower income borrowers falling behind on payments, and many are underwater on the loans. Yeah. So what they're saying here is this could be indicative not necessarily that all these auto lenders are lending to illegals but the fact that in order to get even legal Americans that are struggling I mean we all can agree that regardless of what the NBER is going to call a recession I would say at least 75% of Americans right now feel like it's a recession rightfully so their purchasing power has gone down and they're really struggling. I I don't think anyone would disagree with that. Even the the bulls out there, I think the bulls out there would just say, "Yeah, I I totally agree." But the other 25% that have assets and along with the government spending and deficit spending, that's going to continue to prop up the economy and therefore we won't go into a recession. I think that's the other side of that argument. So, we all agree that a vast majority of Americans are struggling right now. So even if they are legal, it's it's the same it's a similar concept that yes, they're not leaving the country, but they don't have the ability to make those payments anymore. And this puts those auto lenders at huge risk because they extended out those loans so far to where they have to, you know, they're still on their balance sheet or whoever's balance sheet they're on. and the car depreciates uh a lot over the first 5 years to where you know it could be worth half of what uh they're expecting to receive for the loan. Stretch after low-income borrowers are falling behind on payments and many are underwater on their loans. They owe more than they could get for trading in or selling their cars. That's the point I was trying to make right there. Many young people borrowed to buy cars during the pandemic when they didn't have to make student loan payments. Now they're struggling to repay both. Auto delinquencies and car repossessions are getting closer to their 200 2009 recession levels. Yet investors have continued to snap up subprime. Why? Why have they done that? Well, it's actually pretty simple. Because they they have liabilities or you know they're borrowing at let's just say whatever four 5%. and they have to go out the risk curve. They have to go out the risk curve to get a yield and to appease their shareholders or if you're a pension fund, if you have a 7% liability to all of your pensioners, you have to get that every single year. So, if the if you can only get 4%, let's say, on a 10-year Treasury yield and you have 10-year liabilities or obligations, maybe that's a better way of saying it, then you have to figure out how to make up that 3%. And what you have to end up doing is going further and further out the risk curve. And I think this is why uh corporate spreads are so tight. You know, people say, well, the economy can't be the economy has to be doing great because look at corporate spreads. look at corporate spreads. Um maybe maybe but you have to wonder if the corporate spreads are that low because all these financial institutions just don't have a choice and they've went so many years where there was a huge discrepancy between the treasuries and their liability benchmark or their obligations. So say the treasury is trading at 2.5 their obligations at seven. You go 5 6 7 8 9 10 years of that you got a lot of making up to do. So then if you're looking at a 10-year Treasury trading at whatever 4% and you're looking at corporate debt trading at 4.5, you're going to buy the the corporate debt because you just don't have a choice. Even though you see the risks involved, you look at the underlying economy and you're like, "Well, I don't have a choice. I don't have a choice. I'm going to go ahead and buy at 4.5%." And then I think in the back of their mind you're rationalizing saying, "Well, if corporate spreads do blow out, then I'm not going to get hurt that bad because the Fed is going to come in and do exactly what they did during the surveys sickness." I I think that's kind of the the mindset of these pension funds. And that could explain why corporate spreads are so tight, even though a lot of the economic data would suggest that they should be going up, not down. The Federal Reserve may cut rates this week, though current financial market conditions suggest monetary policy isn't all that restrictive. This, you guys know from watching my videos that the interest rates are not, they don't control the economy. They're a reflection of the economy. So, usually, and Milton Freeman nailed this, usually when you see extremely low interest rates, that doesn't mean that money's loose. It means that money's tight. They say there's always a reckoning after periods of easy money. And the question I don't know that so have you had periods of easy money? Um maybe for these mega corporations, you've had quote unquote easy money, but for the small and midsize business, do you have easy money conditions out there? Absolutely not. I always use the example of 2012 when I retired and I got to real estate and I had like 20 properties in a portfolio that were owned outright. I didn't owe one dime and I have them all rented out and they're cash flowing beautifully. They're all in great neighborhoods and the Fed had been doing QE and interest rates were at zero. But I go to the bank and try to get a loan at just a line of credit 40% LTV. And I'm like the perfect perfect borrower. And you know what they told me? Pound sand. Pound sand. I'm like, okay, if you're not lending to me, like who are you lending to? And the answer is the only people they're lending to are the people that they knew would most likely get bailed out or be part of the financial uh economy that would most likely get bailed out if this stuff really really hit the fan. The people in the real economy, they're not money's not tight or money's not loose for them. Money's not easy for them. Money is extremely tight. It's just these mega corporations and publicly traded companies. All right, Josh. So, what do you think about the hot chick eviction indicator? Oh, I saw way too many comments saying that that sounds like Josh and that he's a s. Uh, I'm not handling the comments section uh today. Ah, so you're you're the s. You're the beta orbiter that the thirsty beta that's paying the hot chicks rent. Just all of them. They they all get free rent. Oh, from from Josh from Josh Lassard. Oh, there you go on that bombshell. Guys, enjoy the rest of your afternoon. As always, make sure that you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.
WARNING: These Powerful Yet Unknown Economic Indicators Are Flashing Red
Summary
Transcript
Hello fellow robo capitalists. Hope you're well. So we have some little known economic indicators that are extremely powerful that nobody really talks about. So I wanted to get into a few of them today. And as you would imagine, they're flashing warning signals just like the leading economic indicators from the conference board and the labor market. A lot of things that we talk about on this channel. Does that mean that the stock market's going to go down? I don't know. The stock market, everybody knows it goes up every single day. That's just what it does. But if you analyze the stock market, the PE ratios, the riskreward, the upside downside, what the conclusion you come to is that n I don't know if it makes a lot of sense. And people have this binary view of the stock market. Well, if you're bearish on the economy, then you have to be all in cash. And if you're not all in C, well then you have to be all in the S&P 500. And this is nonsense. This is total nonsense. In fact, I was just looking at my phone before we went live. And the S&P 500 is up maybe 12, 13% this year. Gold is up 40%. That's not even the miners, that's just gold. So boy, if uh you would have been invested in the S&P 500 instead of gold, you would have missed out on all those gains, right? But by analyzing the economy and analyzing and looking and paying attention to these very unknown or or little known kind of secret indicators, you can get a good read on the economy and you can make better riskreward decisions. That's what it's all about at the end of the day. Okay, so let's start off by looking at a chart of LAR. Now this is a home builder and year to date they're down 11%. But what's really important is the last five days. Now, if you haven't followed this story, what happened with LAR is they came out and reported earnings that were below expectations. But they also said that one of the main reasons these earnings were below expectations is because their margins are getting squeezed. Okay? Why are their margins getting squeezed? because they've been playing this game where that they don't want to cut the price of the home because that impacts the comps. So, what they'll do is they'll just say, "All right, we'll give you a $50,000 credit or I think they call it a interest rate buy down, something like that." So, instead of paying this interest rate, we'll just basically give you $50,000 toward your loan to make the lower interest payment. It all nets out, right? But then they don't have to. And so what they're doing effectively is they are lowering the price of the home but without lowering the price of the home. But at the end of the day where you see this show up is in the margins in the margins of these homebuilders like LAR. So let's think about that in terms of what this is telling us about the economy. Well, you guys know just as well as I do that the economy is totally propped up by asset prices. It's not just the S&P 500. It's probably more so home prices. In fact, let's go to a chart right here. This is real uh home prices. So, home prices adjusted for inflation. And here's where we were during the com bust, excuse me, the GFC, the housing bust. And so you'll notice it's right around oh call it on this chart. I don't know how they're measuring things but it's 0.92. And if you see where we are today it is higher than that. So if you look at price to earnings you're going to see a similar chart where we're way higher. The bubble is way bigger. the prices are far more unaffordable based on incomes than they were even during the housing bubble just prior to the GFC. So now does that mean that home prices are going to just crash? No. They could go up. They could triple from here. But again, it's just like the S&P 500 when you look at the S&P 500 in terms of just the PE ratios, the cape ratios. So, I did a whiteboard video the other day where we discussed the price to sales and the price to sales ratio is higher than it's ever been, higher than it was during the com bust. If you look at the cape ratio, it's like 39 right now. I think I have it up. One of the charts that I know I have up is just the trailing 12 month PE ratio. And that's at uh call it 29 or so almost 29 28. And so this is a metric where it's not at just extreme levels, unprecedented levels, but it's overpriced. It's at nosebleleed levels. Now, this is just one of the ways to this is one of the valuation metrics that uh people use. If you look at other valuation metrics like price to sales, it's at all-time highs. And if you look at the cape ratio, it's at 39. And I think it's the highest it's it's been since the or outside of the dot extremes or levels. So, it's just like housing, right? It's the same thing. Could the prices go up forever? Absolutely they could. For sure. For sure. For sure. But what we're playing here as investors is a game of probabilities. It's not a game of certainties. And so we're just trying to figure out, okay, what's the riskreward here? And if there's more risk than reward, then it might not be a good bet. There might be other things out there where the riskreward makes more sense this year. Again, great example would have been gold. Uh the gold miners especially because those were really, really cheap. But getting back to this indicator that I think we're getting from LAR is we know that home prices actually let's go back to this. We know that if home prices were not at nosebleleed levels, aggregate demand would go down rapidly. I I think we all agree on that. So, if we had another one of these, I'm not saying we will, but if we had another one of these declines, guess what's going to happen to GDP? What's going to happen to purchasing power? Guess what's going to happen to aggregate demand? Likely going to go down dramatically. Dramatically, because so much of aggregate demand depends on home prices and depends on asset prices. So, let's think this through. The reason this chart is where it is or one of the main reasons that these prices are uh at this level is because of the financial engineering LAR was doing because if they wouldn't have uh done these interest rate buyowns, if they actually would have adjusted the price of the homes that would have impacted comps and let's just say the price of the homes they were selling would have been $100,000 less than let's just say they sold them for 500 but in reality they were selling them for 400 because they were having to eat that $100,000 with that interest rate buy down. These aren't exact numbers. I'm just using them for the sake of the example. So that would mean that the comps for that neighborhood instead of being 500,000 well they'd only be 400,000. And the price of all the homes in the neighborhood is set by those comps. So you see what I'm saying is the the comps are bogus. The comps are the comps are BS. They're total financial engineering. It's total game of smoke and mirrors. Kabuki theater. So if the comps were actually where they should be, then when we go to this chart, it would be lower. Now, it wouldn't be just crashing all the way down here, but what would the trend be? The trend would be lower, right? But it's not impacting the uh the the the the sale value for the homes that are already owned by individuals because again, those comps. So, they're still selling for 500 grand even though LAR is having to take this hit. So, they're still selling for 500 grand, propping up the comps, but at a certain point, Lenar isn't going to be able to eat the margins anymore. This is really where I'm going with this. And if LAR isn't able to eat those margins, and if they actually have to sell the house for what they can sell the house for based on what people can afford, they're going to have to start selling those houses to move inventory at 400,000, not at 500,000. And so then what's that going to do to the comps? It's going to drop. And so all those people out there that aren't dealing in the no new home u inventory, you know, all those owner occupants that are out there wanting to sell their house or maybe do a cash out refi. All of a sudden they take a $100,000 haircut. Boom. Done. So ju let's think about that. Assume that I'm right and LAR can't continue to basically subsidize the price of these homes with their margins and they have to wave the white flag and say, you know what, we can't do this any longer. We're just going to have to drop the price of the actual house, which is also going to impact their margins. But let's just say that they have to go that route because they can't keep playing these financial games. So then the comps drop. people's, they're looking at Zillow every single day, you know, home homeowners and, oh my gosh, oh, my house was worth 500,000 last week and this week it's only worth 475. And then you fast forward too much. Oh my gosh, now it's down to 450. It's almost like a stock quote. So, what's that going to do to their propensity to spend? They're going to tighten the belt. They're going to absolutely tighten the belt. And this could lead to a contraction in the economy all else being equal, right? Especially in an economy that's 70% consumption. So this is one of those kind of hidden indicators that normally probably wouldn't be an indicator uh because normally you you wouldn't have all of these financial engineering shenanigans that have been played over the last let's just call it five years. But at some point in time, the rubber meets the road, right? When the tide goes out, you see who's been swimming naked, as Warren Buffett said. And right now, if you're looking at the LAR share price in the housing market, the tide is going out. The tide is going out. Okay, now let's move on to another one here. And actually, now I'm going to go over to some that are ex totally unknown. They definitely weren't on my bingo card. I'd never heard of them before. more anecdotal, but I think they're pretty powerful if you actually think about them. And then we're going to go over to the Wall Street Journal and read what's happening in the subprime auto debt market and the blow up ofolor. And a lot of people I don't really think have heard about this, but this could be to Wall Street Journal's point could be a canary in the coal mine, but at the very least it tells you what's happening with the economy. Okay. So, here is uh Brent Johnson sent me this the other day, and I know this is kind of funny, but it's not if it I mean, it is funny at surface level, but if you think about it, I I think it's actually a really good indicator. So, this guy is a real estate lawyer, I think, in LA. And he starts off the, and you can tell this is going to be contentious, but he starts off by saying, "There are almost never attractive women in eviction court seen to this week. Major recession indicator." Now, you could look at that and say, "Oh, that's kind of stupid, or he's just being uh, you know, uh, misogynistic or something like that." But if you actually especially if you know Rich Cooper, my good buddy Rich Cooper and Rolo and you read their stuff, you look it's just it is what it is. Let's just call a spade a spade here. In the society in which we live in, there are a lot of dudes that are whatever you want to call them. Rich would call them thirsty betas or beta orbiters or you've got I don't know if you want to call them simps, whatever you want to call them. There's plenty of dudes out there that especially attractive women that kind of would really really like to do anything nice for that attractive woman, let's say, even though she's not interested. I'm not saying that it's the gal's fault. I'm not saying that the gal is uh giving them an uh indicator of interest, let's say, but even if they're not, the guys are just that's how that's just the society we live in. I'm sure most of you that are actually being honest with yourself, you know exactly what I'm talking about. So, this you starting to see very very attractive women in eviction court. What does that mean? That means that either they don't have a job, assuming they were paying their own rent, but Even if they don't have a job, they're not able to pay their rent. That means that all the beta orbiters around them that were happy to throw money at them before, they lost their job. And that's why the gal can't pay rent because it's like she doesn't have a job, so she can't pay. But then no one in her, let's say, financial network, no one, no, none of those dudes can pay. And if the thirsty betas aren't willing to pay the rent for a smoking hot chick, you know, there's something really really wrong with the economy. And and hey, look, don't shoot the messenger. I'm just calling a spade a spade. And I don't care whether you're a woman. I don't care whether you're a man. You know exactly what I'm talking about. All right. And here's another one. And I had never ever ever thought of this one, but this guy chimed in and says, "Boat fires best early indicator of a recession." So, I guess if you read the tweet, it's actually really interesting. This guy said he had uh a degree in economics, I think, and his first job out of college was at an insurance company. and one of the old guys there was training him and he took him out to lunch and he says, "Okay, what's the number one recession indicator?" Because I guess he was on the risk management side of the insurance company or something like that. And the kid says, "Well, it's um people's savings go down or he gave he gave some textbook answer, right?" And the old guy kind of laughs at him like, "Yeah, right." No, the best economic indicator in human history is boat fires. And he said because what happens is it's like the ultimate discretionary purchase and everyone has insurance on it. So when they lose their job and they're having to decide, okay, how am I going to pay my mortgage or how am I going to put food on the table? What am I going to do? They're tightening the belt. The very first thing, not that everybody, but that a lot of people do that might not be, you might not have that moral north star, let's say, they light their own boat on fire and then they just make the insurance claim. So, you see insurance claims for boat fires like skyrocket and go parabolic during or just prior to or as you're entering a recession. So, these are things that I wanted to share with you because although they sound kind of funny, if you actually think about it, I think they're probably just as good as as the yield curve or just as good as the leading economic indicators that we get from the conference board. So, I I wish there was some I wish they had a chart here. Now, with the boat fires, I'm sure that's quantifiable. Obviously, seeing how many hot chicks are in eviction court, you can't really quantify that one. I'd love to see a chart of that, right? But with the boat fires, I I'll bet you if you had some time, you could get into the nitty-gritty and maybe with AI, maybe I should do like a deep research thing on chat GPT and see if chat GPT can determine the rate of increase for boat fires over the last year. But I'll bet you that one, neither of those you had on your bingo card. That's why you watch the Rebel Capitals channel. Okay, now let's get into some more kind of nor uh more uh mainstream type of indicators here. So, let me zoom in. So, if you guys haven't heard this, they were a subprime auto lender and they completely blew up. So, bankruptcy, I don't even think they're doing a chapter 11. I think it's just straight chapter 7. They're just folding up shop. And I think there's two arguments here. Number one, this is a canary in the coal mine. Number two, it's all because a vast majority of their loans were to, let's just say, illegals. And so when the illegals go because of Trump, now they're just like, haha, bye. You know, they're not making their their car payment. They're probably selling the car, pocketing it, and then just defaulting on the loan. And I guess they specialized in giving loans to people that were like undocumented. So like they didn't have a social security number. They didn't have a credit score. They didn't Great business, huh? I don't know about that one. Might be a little risky. Yeah. Here's where they go into they filed Chapter 7. So there's this debate back and forth as to whether or not it was just a result of their business model and who their customers were or it was more so just okay, we're kind of seeing this and this is an indication not because of that component of their balance sheet but the rest of their balance sheet. And let's just assume for a moment that the whole reason they went bust is because all the illegals left and they're no longer making their payments. Okay. I I I don't know that that's really a good thing. Because think about it beforeric went bust in their heyday let's say two years ago or something like that were they contributing to the economy or to GDP? Absolutely they were. Absolutely. Because these were people that were going out. I don't care if they were illegal or not but they were going out and they were taking their money or money they borrowed and they were going out there and purchasing things and that contributed. Now, you could say that's a bad thing, a good I'm not here to say it's bad or good. I'm just saying a statement of fact. It was contributing to GDP. So now all these people leave, let's say 10 million. And you could say, George, that's fantastic. Okay, great. I'm not debating that. I'm not debating that. That could be the best thing in the world. But what we have to realize that at least over the short run it may have long-term benefits, but over the short run that's going to decrease the amount of economic activity. So let's just assume that the whole reason they went bust is because all the illegals went home. I I don't know that that necessarily means that the economy is just off the hook because the economy whether we like it or not was dependent to a certain degree on the spending and the purchasing power of those 10 million people that left. And I don't know if it was 10 million. I'm just using that as a a ballpark number just to illustrate the point. But let's keep going here. So, Triricirricolor caught investors and creditors offguard when it said Wednesday it was liquidating after 18 years in business. The Texas-based firm specialized in lending to car buyers with no credit history or social security number, including undocumented migrants in the Southwest. Its business grew amid the Biden era. Yeah, but yeah. So, where I'm going back and forth, I totally get it. I I get the argument that they just made all these loans because Biden was letting in just millions and millions and millions of of illegals. Um but they've been in business for 18 years. So I don't know that that would lead me to believe that they had some sort of risk management controls in place for or they just charged such an like a payday loan. They charged such an astronomical rate that they made up for it. So, it might not be all just a result of everyone going home because they've been doing it for 18 years. If they would have been doing it just for five years, let's say I I would I'd be more like, eh, this is probably just due to their business model. At least, let's keep going here. The company made loans by drawing on a line of credit from banks. So, then you have to look at the systemic risk. Let's just assume that the the only reason they went bust is because all the illegals went home. Okay, great. That doesn't help out the bank they were borrowing from. that still blows a hole in their balance sheet. And what does that do to liquidity? It decreases because overall risk increases because those banks balance sheets are in in one way, shape or form all connected. It's an the monetary system itself is just a network of bank balance sheets. So ditto investors who bought packaged auto loans include Okay, so there's more systemic risk. So, it's not just the banks that was borrowing from, but it looks like it's all the people that were buying all this garbage, assetbacked securities, I think they're called. Uh, so the investors, including Pacific Investment Management, an Aliiance Alliance, Bernstein, a trunch of its higher quality loans issued in June that received a trip AA credit rating, was trading last week at 78 cents in the dollar. A lower tunch was trading at 12 cents on the dollar. Believe it or not, that Whoa. Listen to that. That lower tunch that is now trading at 12 cents in the dollar was trading above par this summer. Wow. Wow. Okay. So, that is like a right hook from Tyson you didn't see coming. But what's amazing is it was trading above par. Like, how could anyone not see this coming with what Trump was doing? I mean, who's buying this stuff? Media reports say Justice Department is investigating potential fraud again. When tide goes out, you see who's swimming naked. A tririccolor ABS asset back security issuance this year showed that more than twothirds of its borrowers lacked a credit score. For those with credit scores, an average was the average was 614. More than half didn't have driver's license, which suggests they may lack permanent legal. So you think ah geez the broader market problem is that auto lenders in recent years have been extended. uh the duration of loans to keep monthly payments affordable stretched after years of inflation, lower income borrowers falling behind on payments, and many are underwater on the loans. Yeah. So what they're saying here is this could be indicative not necessarily that all these auto lenders are lending to illegals but the fact that in order to get even legal Americans that are struggling I mean we all can agree that regardless of what the NBER is going to call a recession I would say at least 75% of Americans right now feel like it's a recession rightfully so their purchasing power has gone down and they're really struggling. I I don't think anyone would disagree with that. Even the the bulls out there, I think the bulls out there would just say, "Yeah, I I totally agree." But the other 25% that have assets and along with the government spending and deficit spending, that's going to continue to prop up the economy and therefore we won't go into a recession. I think that's the other side of that argument. So, we all agree that a vast majority of Americans are struggling right now. So even if they are legal, it's it's the same it's a similar concept that yes, they're not leaving the country, but they don't have the ability to make those payments anymore. And this puts those auto lenders at huge risk because they extended out those loans so far to where they have to, you know, they're still on their balance sheet or whoever's balance sheet they're on. and the car depreciates uh a lot over the first 5 years to where you know it could be worth half of what uh they're expecting to receive for the loan. Stretch after low-income borrowers are falling behind on payments and many are underwater on their loans. They owe more than they could get for trading in or selling their cars. That's the point I was trying to make right there. Many young people borrowed to buy cars during the pandemic when they didn't have to make student loan payments. Now they're struggling to repay both. Auto delinquencies and car repossessions are getting closer to their 200 2009 recession levels. Yet investors have continued to snap up subprime. Why? Why have they done that? Well, it's actually pretty simple. Because they they have liabilities or you know they're borrowing at let's just say whatever four 5%. and they have to go out the risk curve. They have to go out the risk curve to get a yield and to appease their shareholders or if you're a pension fund, if you have a 7% liability to all of your pensioners, you have to get that every single year. So, if the if you can only get 4%, let's say, on a 10-year Treasury yield and you have 10-year liabilities or obligations, maybe that's a better way of saying it, then you have to figure out how to make up that 3%. And what you have to end up doing is going further and further out the risk curve. And I think this is why uh corporate spreads are so tight. You know, people say, well, the economy can't be the economy has to be doing great because look at corporate spreads. look at corporate spreads. Um maybe maybe but you have to wonder if the corporate spreads are that low because all these financial institutions just don't have a choice and they've went so many years where there was a huge discrepancy between the treasuries and their liability benchmark or their obligations. So say the treasury is trading at 2.5 their obligations at seven. You go 5 6 7 8 9 10 years of that you got a lot of making up to do. So then if you're looking at a 10-year Treasury trading at whatever 4% and you're looking at corporate debt trading at 4.5, you're going to buy the the corporate debt because you just don't have a choice. Even though you see the risks involved, you look at the underlying economy and you're like, "Well, I don't have a choice. I don't have a choice. I'm going to go ahead and buy at 4.5%." And then I think in the back of their mind you're rationalizing saying, "Well, if corporate spreads do blow out, then I'm not going to get hurt that bad because the Fed is going to come in and do exactly what they did during the surveys sickness." I I think that's kind of the the mindset of these pension funds. And that could explain why corporate spreads are so tight, even though a lot of the economic data would suggest that they should be going up, not down. The Federal Reserve may cut rates this week, though current financial market conditions suggest monetary policy isn't all that restrictive. This, you guys know from watching my videos that the interest rates are not, they don't control the economy. They're a reflection of the economy. So, usually, and Milton Freeman nailed this, usually when you see extremely low interest rates, that doesn't mean that money's loose. It means that money's tight. They say there's always a reckoning after periods of easy money. And the question I don't know that so have you had periods of easy money? Um maybe for these mega corporations, you've had quote unquote easy money, but for the small and midsize business, do you have easy money conditions out there? Absolutely not. I always use the example of 2012 when I retired and I got to real estate and I had like 20 properties in a portfolio that were owned outright. I didn't owe one dime and I have them all rented out and they're cash flowing beautifully. They're all in great neighborhoods and the Fed had been doing QE and interest rates were at zero. But I go to the bank and try to get a loan at just a line of credit 40% LTV. And I'm like the perfect perfect borrower. And you know what they told me? Pound sand. Pound sand. I'm like, okay, if you're not lending to me, like who are you lending to? And the answer is the only people they're lending to are the people that they knew would most likely get bailed out or be part of the financial uh economy that would most likely get bailed out if this stuff really really hit the fan. The people in the real economy, they're not money's not tight or money's not loose for them. Money's not easy for them. Money is extremely tight. It's just these mega corporations and publicly traded companies. All right, Josh. So, what do you think about the hot chick eviction indicator? Oh, I saw way too many comments saying that that sounds like Josh and that he's a s. Uh, I'm not handling the comments section uh today. Ah, so you're you're the s. You're the beta orbiter that the thirsty beta that's paying the hot chicks rent. Just all of them. They they all get free rent. Oh, from from Josh from Josh Lassard. Oh, there you go on that bombshell. Guys, enjoy the rest of your afternoon. As always, make sure that you're standing up for freedom, liberty, free market, capitalism, and we'll see you in the next video.