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Speaker 1: All right, David Servant is the founder of Pinebrook Capital.

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Speaker 1: Thanks so much for joining me today. I've been watching

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Speaker 1: your content for six months or so, let's say, and boy,

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Speaker 1: I was just amazed how you stood in the face

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Speaker 1: of almost everybody with the contrary intake and it turned

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Speaker 1: out to be right, and you sort of had this

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Speaker 1: unorthodox way that you look at the markets. So anyway,

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Speaker 1: I appreciate you taking the time to come on and

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Speaker 1: speak to me today.

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Speaker 2: Thank you having me happy to be here.

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Speaker 1: So, David, the first thing, I guess we'll just dump

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Speaker 1: right into I want to talk about, you know, what

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Speaker 1: you're looking at, indicators, levels, charts, things like that, your

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Speaker 1: unorthodox approach to the markets, why you're sort of this

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Speaker 1: contraryan and you seem very confident in your opinions. I

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Speaker 1: like that. And then we're going to talk about it

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Speaker 1: in light kind of what you think and what you're

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Speaker 1: watching for twenty twenty four, and then kind of specifically

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Speaker 1: when we look at, you know, huge debt that we're having,

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Speaker 1: deficits spending two in an election year, which I think

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Speaker 1: is something to be paytitents do. And then in light

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Speaker 1: of war. So those are the topics we're in discuss

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Speaker 1: and dive into. Before we do that, let's just maybe

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Speaker 1: start at the top. And one of the questions that

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Speaker 1: I've been asking is Mark Twain said, it's not the

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Speaker 1: things that we know for certain, or it's not the

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Speaker 1: things that we don't know. They get us in trouble

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Speaker 1: to things that we know absolutely for certain. And what

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Speaker 1: I saw for the last year and a half or

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Speaker 1: two years was everybody saying, as soon as the FED

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Speaker 1: raises the risk free rate, stocks have to reprice lower.

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Speaker 1: They have to. They have to, they have to. They

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Speaker 1: also said, when mortgage rates go from two and a

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Speaker 1: half to eight percent, home prices have to have to

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Speaker 1: have to. When neither of those things happened, they didn't

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Speaker 1: have to obviously, right, So I don't know, do you

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Speaker 1: want to start and tell me why they didn't crash?

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Speaker 2: Sure? So I think we you know these things. We

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Speaker 2: take things that have historically happened and project them into

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Speaker 2: the future without really understanding why. So a good example

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Speaker 2: that you just mentioned was the housing market. Right, everyone said,

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Speaker 2: you know, your mortgage rates went up, home priced home sales,

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Speaker 2: especially for the existing home sales pretty much frozen their tracks.

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Speaker 2: Nothing happened people stopped buying houses. There was new home

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Speaker 2: sales were somewhat okay because of the you know, the

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Speaker 2: rape buydowns that some of the bigger builders were able

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Speaker 2: to offer. But for the most part, you know, the

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Speaker 2: the housing market didn't tank the economy. And what curious

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Speaker 2: is that in seven out of the most eleven, seven

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Speaker 2: out of eleven post war recessions have originated in the

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Speaker 2: housing market. It's the most cyclically sensitive, volatile part of

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Speaker 2: the economy, and that's always that's typically been ground zero

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Speaker 2: for a recession. But the question, the reason, I'm sorry,

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Speaker 2: the no one really bothered to ask why, and the

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Speaker 2: why really matters. What matters is housing employment and unit construction.

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Speaker 2: And with the pandemic, unit construction kept on going. Housing employment.

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Speaker 2: We didn't get an extinction event, an employment extinction event

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Speaker 2: that would take down, you know, translate and take down

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Speaker 2: the rest of the economy. So while everyone scratching their

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Speaker 2: heads about, you know, oh my god, sales have dried up,

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Speaker 2: mortgage rates are high, and it's the end of the world,

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Speaker 2: the real economy what matters for GDP Accounting kept on

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Speaker 2: keeping on, it did find and in November of twenty

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Speaker 2: twenty two, recognizing that, I pivoted and said, look, without

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Speaker 2: these with this, what really matters. Turning over what doesn't

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Speaker 2: matter is not going to have an impact. What doesn't

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Speaker 2: matter is sales. Sales does nothing for the real economy.

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Speaker 2: Housing employment and unit construction spending that does a lot

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Speaker 2: for the real economy, and that never turned over. So

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Speaker 2: I think, you know, what's the takeaway is you've got

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Speaker 2: to get into the nuts and bolts of causality, empirical causality,

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Speaker 2: following the chain of events into what may or may

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Speaker 2: not happen. And that's that's a great example right there.

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Speaker 1: So we saw that evidence, like in the home builder

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Speaker 1: stocks stayed up pretty strong, and the construction industry overall,

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Speaker 1: I guess you're saying, remained strong. So even though the

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Speaker 1: sales of units went down, the industry itself, is that

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Speaker 1: what you're saying, The industry is that right strong.

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Speaker 2: That's right, And there's a lot there's a lot of

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Speaker 2: and then you peel back the onion and go a

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Speaker 2: little deeper. There's a lot of reasons why that's the case.

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Speaker 2: You know. One of the reasons is employment, housing construction.

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Speaker 2: Employment is that secular lows and in other words, there's

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Speaker 2: just not enough bodies out there with hammers, so effectively,

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Speaker 2: there's no one left to fire. You know, there's a

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Speaker 2: shortage of construction workers. And you can, you know, pull

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Speaker 2: your hair out as to why that may be the case,

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Speaker 2: but it's just it is the case. Red secular lows

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Speaker 2: and housing employment trends, so you know, without anyone to fire,

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Speaker 2: you're not going to get that employment extinction event. And

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Speaker 2: the other thing that does is it takes it It

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Speaker 2: stretches lead times for construction projects. In other words, what

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Speaker 2: I can't recall the numbers offhand, but typically it takes

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Speaker 2: a certain amount of time to build a house. Well

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Speaker 2: over the past two decades, those lead times have increased,

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Speaker 2: right because there's not enough people to build them. So

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Speaker 2: the things that the things within housing that typically took

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Speaker 2: down or spread to the rest of the economy just

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Speaker 2: weren't present to have that effect.

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Speaker 1: Good good point. Two thousand and eight. My story as

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Speaker 1: I got taken down in two thousand and eight here

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Speaker 1: in southern California, sort of ground zero in my area

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Speaker 1: here in southern California, we saw prices drop sixty percent

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Speaker 1: Orange County, California. I was sort of the epicenter of

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Speaker 1: the mortgage boom, if you will. Almost everybody, everybody I

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Speaker 1: knew was in the mortgage industry and it was hit

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Speaker 1: extremely hard. And yeah, today we don't see any of that.

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Speaker 1: And my friends that are still in the housing and

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Speaker 1: construction industry, I mean, they're still not able to find workers.

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Speaker 1: To your point, they can't keep somebody there no matter

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Speaker 1: what they do.

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Speaker 2: You know, another thing too, there's there's been a huge

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Speaker 2: consolidation in the market. You know, I forgot what the

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Speaker 2: exact number is, but you know, the big, the big

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Speaker 2: home builders control around eighty percent of the new construction.

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Speaker 2: So what does that mean. It means they have access

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Speaker 2: to capital markets. It means they have a lot more

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Speaker 2: buying power. So the industry itself has changed. You know,

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Speaker 2: before the old you know the old you know the

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Speaker 2: model of a builder and his friends, you know, turning

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Speaker 2: over two or three houses a year, That is kind

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Speaker 2: of a dying part of the business model. Now it's consolidated.

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Speaker 2: These players are bigger, the more agile, they were able

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Speaker 2: to do things like the rate bydowns that we saw

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Speaker 2: that would have happened ten years ago.

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Speaker 1: That's a big piece and that's sort of my thesis

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Speaker 1: is the way that the central banks interact in the

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Speaker 1: markets today has changed. It really changed in two thousand

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Speaker 1: and eight. It's escalated and it's a lot different today.

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Speaker 1: And you're saying even the sort of similar the way

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Speaker 1: that the big home builders interacting the markets has changed,

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Speaker 1: which obviously makes them be able to sort of handle

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Speaker 1: these situations a little bit differently.

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Speaker 2: And there's also that's a segue just you know, segues

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Speaker 2: into another thing too, the bank regulations. After two thousand

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Speaker 2: and eight, you know, the regulatory bodies had a never again,

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Speaker 2: we're never gonna let this happen again. We're never gonna

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Speaker 2: let the economy get over at skis over leverage and

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Speaker 2: take down to the entire economy, and it was an

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Speaker 2: existential moment for the economy. And the banks have been neutered,

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Speaker 2: so even if you you know, the wildcatter days are

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Speaker 2: kind of over. So that's another element where you know,

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Speaker 2: the leverage appetite for risk isn't there, or maybe it's there,

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Speaker 2: but it's been neutered by regulatory reforms. So that was

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Speaker 2: another element where the industry didn't have that overbuilding that

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Speaker 2: it was more familiar with prior cycles.

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Speaker 1: And a lot of it is sort of the general's

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Speaker 1: fighting the last war, so to speak. And so I

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Speaker 1: think you said seven of the last eleven turndowns were

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Speaker 1: driven by mortgage. Obviously two thousand and eight still PTSD

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Speaker 1: on everybody's mind from that, and so you know, everyone's

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Speaker 1: fighting that last war, so to speak, thinking that's going

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Speaker 1: to lead the market. But that's not necessarily the case.

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Speaker 2: That's right, and with fighting the last war, then you

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Speaker 2: end up with perverse outcomes. Now we have the opposite

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Speaker 2: problem we had in two thousand and eight. Instead of overbuilding,

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Speaker 2: now we have aationwide secular housing shortage. So you know,

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Speaker 2: we fought the last war and now we're creating new

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Speaker 2: problems for ourselves.

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Speaker 1: Yeah, now let's jump into the market. So then I

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Speaker 1: don't know, we want to talk markets or economy, but

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Speaker 1: you know there's no shortage. I don't want to call

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Speaker 1: him out by name. We'll call it Harry Dent Junior.

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Speaker 1: Every year he's called him for a ninety percent crash.

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Speaker 1: His data is great. I mean, I've read five of

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Speaker 1: his books. I think his data is right. His assumptions

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Speaker 1: on the data have obviously proven to be wrong. A

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Speaker 1: ninety percent crash in June and then in July and

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Speaker 1: then November, and you were kind of standing firm and saying, no,

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Speaker 1: it's not going to, it's not going to, it's not

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Speaker 1: going to. Why is that? What were you looking at

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Speaker 1: that was sort of giving you that different picture.

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Speaker 2: Well, first of all, the housing market was was central

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Speaker 2: to that thesis. And second of all, you know, I

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Speaker 2: think at the bond market. You know, if you look

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Speaker 2: at bond market, you know, break events and five year

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Speaker 2: five or forward expectations, they never really unanchored the bond

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Speaker 2: market kind of said was able to see the inflation.

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Speaker 2: So as long as the bond market, you know, had

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Speaker 2: its retained its confidence in fret and fed credibility to

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Speaker 2: bring down the inflation, and as long as the bond

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Speaker 2: market more or less agreed that, you know, this was

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Speaker 2: a supply chain driven shock, that the bond market was

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Speaker 2: not going to fall apart and the inflation would eventually

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Speaker 2: turn into disinflation. And that's exactly what happened. We started

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Speaker 2: seeing disinflation really kick in June of twenty twenty three,

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Speaker 2: and it went to high gear in Q four this year.

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Speaker 2: So what was different It was the bond market, the

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Speaker 2: bond market never really freaked out. I mean, there was

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Speaker 2: some spasms and we know, some term premiums blew out,

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Speaker 2: I'm sorry, contracted, and you know.

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Speaker 1: There was some dysfunction. We saw a few, you know,

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Speaker 1: we saw.

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Speaker 2: Some starting with starting with the bank, starting with the banks.

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Speaker 2: In March of twenty twenty three, Sure there was a

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Speaker 2: mini banking crisis and a pretty favorable, robust policy response,

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Speaker 2: but you know, growth, the growth, it didn't really affect

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Speaker 2: the growth impulse. In fact, we had some stunning growth.

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Speaker 2: You know, people were calling for a recession in twenty three,

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Speaker 2: everyone was sure about it, and back in two thousand

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Speaker 2: and I'm sorry, back in February of twenty three, this

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Speaker 2: is on Twitter. I came out and said, look, as

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Speaker 2: long as things get less bad, the economy is going

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Speaker 2: to be doing fine. Because despite all the muck that

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Speaker 2: was throwing at the economy, we were still at you know,

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Speaker 2: very very low but still positive growth. And all these

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Speaker 2: headwinds were basically dead weight and the economy proved to

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Speaker 2: be resilient. And there's many reasons for that. There is,

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Speaker 2: you know, all the stimulus spending, but you know, supply

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Speaker 2: chains started coming back online stimulus spending got us through

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Speaker 2: you know, the quote unquote of the dark times. And I

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Speaker 2: called out a growth impulse back in February of twenty three,

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Speaker 2: and lo and behold, Q two came in at a

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Speaker 2: high two handle. Q three was on fire, came in

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Speaker 2: at I believe five point two percent. So I think

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Speaker 2: listening to the bond market, paying attention to what really

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Speaker 2: matters and what doesn't matter, is kind of key to

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Speaker 2: my process.

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Speaker 1: Now, the market responded, the economy we're talking about the

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Speaker 1: economy specifically here coming back with strong growth. But what

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Speaker 1: about the consumer that is, savings are dwindling, and consumer

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Speaker 1: debt is skyrocketing, cost of living is going up, standard

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Speaker 1: of living is going down at the same time. I mean,

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Speaker 1: how do you look at that.

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Speaker 2: These are all valid points, and there's you know, there's

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Speaker 2: pockets of you know, strengths, and there's pockets of weakness.

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Speaker 2: But for the purposes of the overall macary economy and

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Speaker 2: for purpose of markets, it doesn't matter. It really doesn't matter.

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Speaker 2: I mean, I remember that last year too. Those I'll

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Speaker 2: talk about the this, you know, student loans after I

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Speaker 2: guess there was some forbearance and once that forbearance expired,

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Speaker 2: then there's gonna be a kind of this huge wall

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Speaker 2: of debt. It's going to hit consumers, and it didn't matter.

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Speaker 2: And the way the way I approach all these questions

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Speaker 2: is take whatever doom story you're thinking about it, divide

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Speaker 2: it by the size of the knowledge of nominal GDP.

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Speaker 2: It's about twenty eight trillion dollars, and you typically get

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Speaker 2: a really really really small number with a lot of

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Speaker 2: far you know, far right the tow of zeros to

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Speaker 2: the right of the decimal point. So I think when

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Speaker 2: you contextualize things like this, it really it doesn't matter.

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Speaker 2: This is a massive, massive economy. It's not going to

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Speaker 2: be taken down by you know, a relatively small thing.

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Speaker 2: I mean, these things obviously affect people's lives, affect people standards,

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Speaker 2: individual standards of living, but for purposes of the macro economy,

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Speaker 2: which is my area of focus, it doesn't matter.

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Speaker 1: That's a really good point. So within the economy, there

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Speaker 1: are certainly groups of people that are being affected. So

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Speaker 1: if you want to dive into it, you can see

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Speaker 1: that certainly some people are dealing with the volatility, and

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Speaker 1: a lot of people are affected. But when you look

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Speaker 1: at the whole then it's more bullish. So it kind

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Speaker 1: of depends on where you're at, but as a whole,

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Speaker 1: it's good.

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Speaker 2: Correct me. As a whole, we've created over two point

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Speaker 2: five million jobs in the past few years. I mean,

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Speaker 2: that's bonkers. That is crazy. I mean, and you can

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Speaker 2: say it's because the stimulus is fine, it's fake. Fine,

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Speaker 2: you say whatever you want. But the number is the number,

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Speaker 2: and that's what you got to pay attention to.

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Speaker 1: Even though a lot of those are two jobs, the

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Speaker 1: second jobs.

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Speaker 2: Look, that's that that that those individual hardships are are

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Speaker 2: kind of a policy question. But for people in the

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Speaker 2: markets that want to make money, that's what they need

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Speaker 2: to focus on.

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Speaker 1: Good. Okay, now do you.

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Speaker 2: Think I'm sorry, I'm sorry if that sounds harsh. I mean,

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Speaker 2: I'm you know, I didn't grow up rich. I I

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Speaker 2: went to public schools all my life. I know, I know,

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Speaker 2: I know, you know, I've I've experienced different I've had

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Speaker 2: many different experiences in my life. I'm not trying to

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Speaker 2: be callous to the human element of it. I'm just

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Speaker 2: saying for purposes of markets, yeah, that should be the focus.

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Speaker 1: Yeah, and I'll to speak into that human element of

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Speaker 1: it just for a second, I mean, if you're one

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Speaker 1: of these people that might have not liked what David

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Speaker 1: just said, and hey, that doesn't help me, you know,

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Speaker 1: I'm affected by that. The hope is that well, lots

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Speaker 1: of the market and economy still doing very well. And

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Speaker 1: you're not a tree. You can move and so you

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Speaker 1: could learn a new skill, you can move into a

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Speaker 1: part of the market that is in demand, that is growing.

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Speaker 1: And so while whatever corner of the market or economy

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Speaker 1: you may be in that that's affected, there's lots of

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Speaker 1: other corners and areas in the economy and market that

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Speaker 1: are doing well well.

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Speaker 2: And we see it in you know, one really one

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Speaker 2: of the best things about this labor market recovery is

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Speaker 2: that we've seen labor market dynamics that we haven't seen

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Speaker 2: in generations. African American employment is at levels that we

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Speaker 2: haven't seen in fifty years. People that were at the

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Speaker 2: margins of the labor force, people with you know, mild

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Speaker 2: disabilities that maybe were not deemed to be socially appropriate

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Speaker 2: for a job environment. Now suddenly they have access to jobs.

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Speaker 2: People with petty criminal records that were you know, because

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Speaker 2: maybe they smoked a joint and high school or in

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Speaker 2: college and got nailed for it or got a DUI

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Speaker 2: when they're eighteen, But now they're thirty five and they're

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Speaker 2: trying to support a family. You know, they were hard

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Speaker 2: to employ because they had a felony record. Now that

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Speaker 2: stuff is being looked over, So you know, the human element.

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Speaker 2: I think, you know, a rising tide does lift all

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Speaker 2: boats eventually, maybe you know, again, not at the same rate.

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Speaker 2: Now everybody benefits at the same time. But this economy,

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Speaker 2: this recovery, has helped a lot of people that were

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Speaker 2: previously on the margins of the labor force.

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Speaker 1: Now in your work at Pinebrook Cap it's a substack.

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Speaker 1: We'll link to it down below. I follow it. Like

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Speaker 1: I said, you kind of stood in the face of

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Speaker 1: the general consensus, if you will, sort of as this

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Speaker 1: contry and the market's not going to crash. You started

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Speaker 1: to I think it seems like maybe you're starting to

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Speaker 1: change your view a little bit. You've kind of been

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Speaker 1: reporting that maybe the Fed's job of cooling inflation has

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Speaker 1: maybe gotten in front of them, and so maybe they

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Speaker 1: wanted to cool it. Maybe it's cooling too asked, which

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Speaker 1: is part of why I think you were calling for

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Speaker 1: the pivot. You know, coming a little bit sooner. And

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Speaker 1: now it looks like some of the data that you're

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Speaker 1: looking at might be saying that maybe they've gone too far,

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Speaker 1: too fast, and this disinflation might be catching them off guard.

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Speaker 1: I don't know if I'm summarizing.

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Speaker 2: That right, No, I think that's right. I think, you know,

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Speaker 2: if we go back to the premise that a lot

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Speaker 2: of the you know, look there was the inflation is

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Speaker 2: a very complex subject. You know, to this day, we

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Speaker 2: still don't have a true working theory of inflation. And

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Speaker 2: that's you know, that's everyone knows this. Everyone at the

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Speaker 2: FED knows this. You know. It's it's not like, you know,

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Speaker 2: it's not like a machine that we can totally understand.

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Speaker 2: We have ideas, we have approximations, but no one really

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Speaker 2: has a real working theory of inflation.

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Speaker 1: So we're kind of making I buy into the Austrian

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Speaker 1: school economics theory of in place and being a monetary phenomenon.

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Speaker 2: But anyway, so, yeah, so so now that we've kind

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Speaker 2: of realized that, look, you know, roughly around eighty percent

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Speaker 2: of the inflation that we saw was supply chain driven.

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Speaker 2: Maybe we over maybe they were over hiked, you know,

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Speaker 2: and and the FED kind of put themselves in this position,

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Speaker 2: right because they were related to the trade, and you know,

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Speaker 2: when they call it transitory even and it wasn't transitory,

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Speaker 2: they had egg on their face. So now they had

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Speaker 2: like this oh crap moment of oh my god, we're

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Speaker 2: behind the curve and we better get after it. And

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Speaker 2: we see that with you know, they started with twenty

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Speaker 2: five basis point hikes, twenty five, then they went to fifty,

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Speaker 2: and then they're like, we need to do seventy five,

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Speaker 2: and they went guns and blazing. So I think by

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Speaker 2: the time they were at at a point where they

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Speaker 2: were hitting, they were, you know, baking seventy five basis

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Speaker 2: point increases. By then, you know, if you subscribe to

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Speaker 2: the idea of you know, long and variable lags, I

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Speaker 2: kind of do kind of I have do have, don't.

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Speaker 2: But by by the time they were doing seventy five,

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Speaker 2: you know, they were there. They were just getting getting

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Speaker 2: too aggressive. At that point. I mentioned earlier in the

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Speaker 2: show that disinflation really started in June of twenty three.

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Speaker 2: Well guess what, we got a signified basis point hike

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Speaker 2: in July. So right there you have this wedge is

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Speaker 2: asymmetry of the disinflation has already started, but we're still hiking.

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Speaker 2: And that's only you know, seven months ago. So the

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Speaker 2: idea that we went may have gone too far. Obviously

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Speaker 2: we will only know that in hindsight, but we're getting

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Speaker 2: clues that that has been the case right where now

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Speaker 2: we're undershooting the fed's target for twenty twenty three. The

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Speaker 2: FED had a target of three core PC of three

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Speaker 2: point seven. We're undershooting. We undershot that. So by definition,

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Speaker 2: if you've undershot it, that means you applied the brakes

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Speaker 2: too hard. Think of a moving car. You got your

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Speaker 2: approaching a stoplight. You want to nail the stop more

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Speaker 2: or less appropriately. But if you had to shoot the

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Speaker 2: stoplight by by one hundred meters, you've either put the

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Speaker 2: brakes on too long, too hard, or both. And that's

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Speaker 2: effectively what happened in twenty three. In twenty three, we

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Speaker 2: see it already, and we're seeing it more as as

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Speaker 2: the data comes in. So the way it's looking now,

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Speaker 2: the piece the Summary of Economic Productions, the FES looking

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Speaker 2: at a PC of two point four for twenty four.

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Speaker 2: The end of twenty four, we're probably gonna hit that

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Speaker 2: mid June and that's why, you know, the fixed income market,

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Speaker 2: the short end of the curve is being so aggressively

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Speaker 2: bid because the market is seeing that, holy crap, we're

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Speaker 2: gonna unershoot the red light. We're not We're gonna we're

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Speaker 2: not gonna h stop you know, three feet before the

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Speaker 2: red light. We're gonna stop a thousand feet before the

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Speaker 2: red light.

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Speaker 1: Yeah. So one of the big, maybe the big drivers

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Speaker 1: of this to me, seems to just be looking at

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Speaker 1: sort of the natural constraints that are there, the amount

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Speaker 1: of government debt that we have, and not just really

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Speaker 1: the debt, but really the deficit and the continuing adding

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Speaker 1: of the debt that's that's going there. I mean, we're

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Speaker 1: having you know, the largest deficits spinning that we've seen

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Speaker 1: in any war, but you know, even even higher than COVID.

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Speaker 1: This spinding never sort of came down that deficit spending

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Speaker 1: seems to be in an area what we'll call fiscal dominance,

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Speaker 1: I mean, pushing the markets, if you will, and sort

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Speaker 1: of there's this provlaile rock and a hard place where

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Speaker 1: they're fighting inflation, but at the same time they don't

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Speaker 1: want this disinflation or deflation that we're seeing there. How

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Speaker 1: do you see them navigating this in light of being

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Speaker 1: an electioneer? I think maybe one president income and president

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Speaker 1: during an electioneer and a recession has ever won reelection,

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Speaker 1: and so you would think if there's anything the Democratic

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Speaker 1: Party could do to stay in power and keep the

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Speaker 1: economy going, they would do that. So how do you

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Speaker 1: think they manage this election and this debt deficit spending

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Speaker 1: and sort of what is this tug of war that

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Speaker 1: we see in the economy in the markets this year.

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Speaker 2: Honestly, for now, they don't care. I think this morning

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Speaker 2: I just heard that they don't care.

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Speaker 1: What about inflation or about.

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Speaker 2: About the death set. The depth isn't in an election year,

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Speaker 2: it's not. It's a non for us. It might be

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Speaker 2: an issue, but I think for policymakers, for people, you know,

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Speaker 2: making the rules, not really consideration why they want to

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Speaker 2: get elected. Both parties want to get elected, right, so

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Speaker 2: they're gonna they're gonna spend, and they're spending. This morning,

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Speaker 2: I just I think I read a blurb of that

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Speaker 2: some R and D and some business property expenses are

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Speaker 2: going to be be allowed for you know, instant depreciation,

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Speaker 2: expanding the child tax credit. Again, we can argue to it.

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Speaker 2: We're blue in the face where that's good or bad,

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Speaker 2: But the fact is they're doing it, and that's what

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Speaker 2: matters for markets. So I think with that kind of spending,

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Speaker 2: you know, it's going to be hard to get a

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Speaker 2: recession this year when the government can you know, the

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Speaker 2: twenty twenty four is going to the budget's looking bigger

430
00:21:33,840 --> 00:21:34,760
Speaker 2: than twenty twenty three.

431
00:21:36,040 --> 00:21:38,600
Speaker 1: Yeah, I love, I love your viewpoint on this and

432
00:21:39,000 --> 00:21:41,199
Speaker 1: something I say quite often, which is we have to

433
00:21:41,240 --> 00:21:43,200
Speaker 1: take the market as it is, not as we want

434
00:21:43,280 --> 00:21:44,960
Speaker 1: to be or we think it should be, but as

435
00:21:45,000 --> 00:21:46,639
Speaker 1: it is. And so you're like, wait, we could argue

436
00:21:46,640 --> 00:21:49,240
Speaker 1: these whether these are good or bad policies, and that's fine,

437
00:21:49,280 --> 00:21:51,720
Speaker 1: but like the data is the data, right, right?

438
00:21:51,760 --> 00:21:54,040
Speaker 2: I mean, these are these are you know, ultimately they're

439
00:21:54,040 --> 00:21:58,000
Speaker 2: philosophical questions, but they're they're electoral questions. There are questions

440
00:21:58,000 --> 00:22:00,520
Speaker 2: of national priorities, what's important, what's not. We should have

441
00:22:00,520 --> 00:22:03,640
Speaker 2: this debate. But as an effect as it matters to markets,

442
00:22:03,800 --> 00:22:06,800
Speaker 2: I think I think that's the If you start projecting

443
00:22:06,840 --> 00:22:09,160
Speaker 2: politics in the market, you're just gonna get wrecked.

444
00:22:09,200 --> 00:22:11,560
Speaker 1: I think, uh, except for I mean, you do sort

445
00:22:11,560 --> 00:22:14,040
Speaker 1: of want to think about the politics and what they

446
00:22:14,080 --> 00:22:15,720
Speaker 1: may do. I mean, if you're trying to sort of

447
00:22:15,960 --> 00:22:17,960
Speaker 1: guess into the future, right, so it's like, hey, the

448
00:22:18,000 --> 00:22:20,520
Speaker 1: politics is they want to get elected, so they're going

449
00:22:20,600 --> 00:22:22,399
Speaker 1: to continue to do deficit spending, and so we kind

450
00:22:22,440 --> 00:22:26,120
Speaker 1: of have to anticipate that versus going, well, no, they're

451
00:22:26,119 --> 00:22:28,520
Speaker 1: going to run on a ballot of austerity and they're

452
00:22:28,520 --> 00:22:30,240
Speaker 1: going to cut the spending. Right, So you do kind

453
00:22:30,240 --> 00:22:31,480
Speaker 1: of have to run the politics a No.

454
00:22:31,600 --> 00:22:33,199
Speaker 2: I think that's right because we saw with you know,

455
00:22:33,200 --> 00:22:35,760
Speaker 2: a lot of the IRA spending the ironically they call

456
00:22:35,800 --> 00:22:39,160
Speaker 2: it that Inflation Reduction Act, but that targeted a lot

457
00:22:39,160 --> 00:22:41,000
Speaker 2: of you know, a lot of spending. So you know,

458
00:22:41,040 --> 00:22:43,040
Speaker 2: if you're if you're a market participant, you want to

459
00:22:43,040 --> 00:22:44,800
Speaker 2: get in front of that, find out where's that? Where's

460
00:22:44,800 --> 00:22:46,800
Speaker 2: that money? Follow the money, as they say, right, where's that?

461
00:22:47,080 --> 00:22:49,159
Speaker 2: You know this is this is trillions and trillions of

462
00:22:49,200 --> 00:22:52,439
Speaker 2: dollars going into different sections of the economy. And if

463
00:22:52,480 --> 00:22:53,800
Speaker 2: you can get in front of that, sure there's a

464
00:22:53,800 --> 00:22:54,359
Speaker 2: buck to be vein.

465
00:22:54,880 --> 00:22:58,000
Speaker 1: Yeah. So in an electioneer both parties want to get

466
00:22:58,040 --> 00:23:00,479
Speaker 1: elected and they don't really care about the defast it anymore.

467
00:23:00,520 --> 00:23:02,439
Speaker 1: I almost seems like I mean, at this point, the

468
00:23:02,480 --> 00:23:05,959
Speaker 1: deficit and the debt are just so big that like

469
00:23:06,200 --> 00:23:08,359
Speaker 1: everybody just doesn't even care about it. I mean, it

470
00:23:08,440 --> 00:23:11,160
Speaker 1: just seems like we're at that pace at that point anymore.

471
00:23:11,920 --> 00:23:14,159
Speaker 1: It's such a big number, like thirty four trillion now

472
00:23:14,200 --> 00:23:16,239
Speaker 1: we've surpassed, Like we're never going to pay that back. Yeah, well,

473
00:23:16,280 --> 00:23:17,919
Speaker 1: I guess we'll just kind of forget about it. And

474
00:23:17,960 --> 00:23:19,240
Speaker 1: what does it even mean at this point?

475
00:23:20,160 --> 00:23:22,320
Speaker 2: Well, I mean, let's look at history. We know, we

476
00:23:22,600 --> 00:23:26,000
Speaker 2: had look at World War Two as as a president,

477
00:23:26,040 --> 00:23:30,520
Speaker 2: where we had massive debt I think nationwide, you know,

478
00:23:30,640 --> 00:23:33,400
Speaker 2: economy wide, meaning private debt as well as public debt.

479
00:23:33,520 --> 00:23:37,760
Speaker 2: You know, we're right over two hundred percent GDP, and

480
00:23:37,960 --> 00:23:40,880
Speaker 2: we managed to work our way through that to much

481
00:23:40,920 --> 00:23:43,920
Speaker 2: lower levels by the sixties and seventies, and debt really

482
00:23:43,920 --> 00:23:46,359
Speaker 2: didn't start picking up again until the eighties. But my

483
00:23:46,440 --> 00:23:50,640
Speaker 2: point is governments have a unique ability, especially a government

484
00:23:50,800 --> 00:23:54,520
Speaker 2: that is the issuer of the global reserve currency. They've

485
00:23:54,520 --> 00:23:57,159
Speaker 2: got a lot more runaway than we think. They're not

486
00:23:57,200 --> 00:23:59,520
Speaker 2: like a household. The rules that apply to me and

487
00:23:59,560 --> 00:24:02,240
Speaker 2: you do not apply to governments. Why you and I

488
00:24:02,320 --> 00:24:04,480
Speaker 2: have a natural life spent we will die. We need

489
00:24:04,520 --> 00:24:09,639
Speaker 2: to satisfy our obligations before we die. Governments until unless

490
00:24:09,640 --> 00:24:12,520
Speaker 2: they're defeated in a warrant taken over, they live in perpetuity,

491
00:24:13,000 --> 00:24:16,439
Speaker 2: so they can ride out. They can basically deflate and

492
00:24:16,600 --> 00:24:20,560
Speaker 2: ride out you know, debt. Right in other words, when

493
00:24:20,560 --> 00:24:23,520
Speaker 2: the country was newly formed and needs any you know,

494
00:24:24,119 --> 00:24:26,280
Speaker 2: a ten million dollars bond issue and so it's massive

495
00:24:26,320 --> 00:24:28,399
Speaker 2: back then. Now I mean it's it's a drop in

496
00:24:28,440 --> 00:24:32,200
Speaker 2: the buckets. And these numbers kind of deflate over time.

497
00:24:32,600 --> 00:24:36,960
Speaker 2: So governments have a unique ability, especially again we print

498
00:24:36,960 --> 00:24:39,520
Speaker 2: our own our own currency. We we can ride out

499
00:24:39,960 --> 00:24:43,400
Speaker 2: these bumps. And not only that, you know, because we're

500
00:24:43,440 --> 00:24:46,639
Speaker 2: the world's largest reserve where the reserve the reserve currency

501
00:24:46,640 --> 00:24:49,760
Speaker 2: of the world. You know, money pours in here. Why

502
00:24:49,800 --> 00:24:53,000
Speaker 2: because we have the biggest, deepest liquid, most liquid capital

503
00:24:53,040 --> 00:24:56,040
Speaker 2: markets in the world every country. You know, we we

504
00:24:56,080 --> 00:25:00,000
Speaker 2: rent current account deficits, we we we we buy more

505
00:25:00,119 --> 00:25:02,840
Speaker 2: then we sell. But you know, we seem to be

506
00:25:03,640 --> 00:25:06,760
Speaker 2: able to give in foreign investors a good return on

507
00:25:06,840 --> 00:25:10,119
Speaker 2: their capital. And you know that that party can go

508
00:25:10,200 --> 00:25:12,000
Speaker 2: on as long as we give foreign investors to get

509
00:25:12,040 --> 00:25:13,760
Speaker 2: return on their capital. And you see it with stock

510
00:25:13,760 --> 00:25:17,600
Speaker 2: markets where you know, em valuations European valuations are at

511
00:25:17,600 --> 00:25:19,639
Speaker 2: a discount compared to the US. Why because we just

512
00:25:19,640 --> 00:25:22,960
Speaker 2: have better companies, better institutions, and better returns.

513
00:25:23,840 --> 00:25:26,360
Speaker 1: Although we have seen the last couple of treasury auctions

514
00:25:26,359 --> 00:25:30,159
Speaker 1: have some pretty big tails and some dysfunction there. And

515
00:25:30,359 --> 00:25:32,320
Speaker 1: it looks like when I've looked at the data, like

516
00:25:32,760 --> 00:25:35,320
Speaker 1: the foreign demand is still there. It's just the treasure

517
00:25:35,400 --> 00:25:38,400
Speaker 1: is just issuing more supply than there is demand for that.

518
00:25:38,720 --> 00:25:40,800
Speaker 1: So at some point there is some sort of a

519
00:25:40,880 --> 00:25:43,639
Speaker 1: limit there. Obviously until you can start, you know, forced

520
00:25:43,680 --> 00:25:46,639
Speaker 1: to by by yourself, I suppose, I mean, don't you

521
00:25:46,680 --> 00:25:47,840
Speaker 1: take that into some consideration.

522
00:25:49,760 --> 00:25:52,400
Speaker 2: Absolutely, but it's not. It probably won't happen in our lifetime.

523
00:25:52,520 --> 00:25:56,119
Speaker 2: It's just the number the capacity for debt is staggering.

524
00:25:56,480 --> 00:25:58,720
Speaker 2: Think about it. We are at I think you mentioned

525
00:25:58,760 --> 00:26:02,199
Speaker 2: you're right, I think you're thirty two trillion dollars in

526
00:26:02,600 --> 00:26:05,080
Speaker 2: federal debt. So that's a little more over one hundred percent,

527
00:26:05,600 --> 00:26:07,640
Speaker 2: you know, if we can get you know, during World

528
00:26:07,640 --> 00:26:11,439
Speaker 2: War Two we managed over orders of magnitude above that.

529
00:26:11,680 --> 00:26:15,040
Speaker 1: So that's just as a percentage as a percentage, correct.

530
00:26:15,480 --> 00:26:18,000
Speaker 2: That is a staggering amount of money for the government

531
00:26:18,040 --> 00:26:21,600
Speaker 2: to spend that. Maybe they can spend that in our lifetime,

532
00:26:21,920 --> 00:26:24,440
Speaker 2: but it's a huge runaway that I think most people

533
00:26:24,480 --> 00:26:26,600
Speaker 2: find hard to fathom. I mean I find it hard

534
00:26:26,640 --> 00:26:27,879
Speaker 2: to fathom. And this is kind of what I look

535
00:26:27,920 --> 00:26:31,040
Speaker 2: at a lot. Yeah, will there be a dec day

536
00:26:31,080 --> 00:26:33,720
Speaker 2: of reckoning. There always is, but it's just a question

537
00:26:33,760 --> 00:26:35,800
Speaker 2: as well i'd be around to see it. Yeah, highly

538
00:26:35,840 --> 00:26:36,520
Speaker 2: enlightening my life.

539
00:26:36,520 --> 00:26:38,280
Speaker 1: Well, it's a law of the way that I see.

540
00:26:38,320 --> 00:26:40,480
Speaker 1: It is sort of the law of diminishing returns. And

541
00:26:40,640 --> 00:26:42,600
Speaker 1: you know, you have this Kinsian multiplier, if you will.

542
00:26:42,720 --> 00:26:45,840
Speaker 1: So they're using debt to get growth, but eventually you

543
00:26:45,840 --> 00:26:47,960
Speaker 1: don't get enough growth for the debt that you're consuming,

544
00:26:48,000 --> 00:26:50,480
Speaker 1: and then eventually you're getting more debt. The hole is

545
00:26:50,480 --> 00:26:52,879
Speaker 1: getting digger deeper, right, So you're getting more debt than

546
00:26:52,880 --> 00:26:55,119
Speaker 1: you're getting growth, and then sort of that collapses. I mean,

547
00:26:55,440 --> 00:26:56,560
Speaker 1: it happens to all nations.

548
00:26:56,800 --> 00:26:57,240
Speaker 2: We've seen it.

549
00:26:57,440 --> 00:26:58,879
Speaker 1: I see it having all around the world.

550
00:27:00,680 --> 00:27:03,119
Speaker 2: I agree one hundred percent. I think that the trump

551
00:27:03,160 --> 00:27:06,280
Speaker 2: card at this car that this country holds though, and

552
00:27:06,320 --> 00:27:08,960
Speaker 2: that we're not leveraging is immigration. People still want to

553
00:27:08,960 --> 00:27:10,800
Speaker 2: come to this country. And if you look at every

554
00:27:10,840 --> 00:27:14,240
Speaker 2: developed nation and even under development or developing nation, they

555
00:27:14,280 --> 00:27:18,760
Speaker 2: have really bad demographics. You know. If you look at

556
00:27:18,960 --> 00:27:21,400
Speaker 2: you know, Japan, you know they're just they're they're you know, China,

557
00:27:21,400 --> 00:27:24,760
Speaker 2: There're gonna below replacement rates at some point. People still

558
00:27:24,760 --> 00:27:26,520
Speaker 2: want to come here, people will still die to get here.

559
00:27:26,560 --> 00:27:28,359
Speaker 2: And I think if we can you know, GDP is

560
00:27:28,400 --> 00:27:31,600
Speaker 2: basically two things. It's population growth and productivity growth. So

561
00:27:32,040 --> 00:27:33,399
Speaker 2: you know, all we need to do is you know,

562
00:27:33,400 --> 00:27:35,280
Speaker 2: I had out some green cards. And this may not

563
00:27:35,320 --> 00:27:38,720
Speaker 2: be politically uh, you know, appealing to a lot of people,

564
00:27:39,240 --> 00:27:44,320
Speaker 2: but from an economic standpoint, the GDP calculation is very simple.

565
00:27:44,440 --> 00:27:47,600
Speaker 2: It's people and productivity. So if you grow your people,

566
00:27:47,600 --> 00:27:49,760
Speaker 2: you're going to grow your you grow your economy, and

567
00:27:49,800 --> 00:27:51,439
Speaker 2: you grow your way out of debt. If you have

568
00:27:51,560 --> 00:27:54,760
Speaker 2: pred activity to that, things like AI or whatever. I'm

569
00:27:54,760 --> 00:27:56,760
Speaker 2: not sure how much of an impact is gonna have.

570
00:27:57,080 --> 00:27:59,399
Speaker 2: There's a lot of hype, I'm sure, but there's a

571
00:27:59,400 --> 00:28:03,400
Speaker 2: lot of you know, productivity that if you exploit that

572
00:28:03,600 --> 00:28:07,639
Speaker 2: then it's like a superpower. And I think I'm very

573
00:28:07,640 --> 00:28:09,399
Speaker 2: boolish long term in this for this country.

574
00:28:10,000 --> 00:28:13,800
Speaker 1: Okay, so the massive amounts of debt. They're not worried

575
00:28:13,800 --> 00:28:16,160
Speaker 1: about that right now in an election year, the goal

576
00:28:16,240 --> 00:28:20,040
Speaker 1: is to continue to keep a recession at bay, and

577
00:28:20,640 --> 00:28:23,119
Speaker 1: your sort of outlook is they'll probably be pretty successful

578
00:28:23,119 --> 00:28:25,160
Speaker 1: with doing that, I think.

579
00:28:25,240 --> 00:28:29,400
Speaker 2: So. I mean, I'm a I'm a small time investor,

580
00:28:29,520 --> 00:28:31,560
Speaker 2: so you know, I'm I'm the I'm the pimple on

581
00:28:31,560 --> 00:28:35,560
Speaker 2: the elephants, but the elephant being the Fed and policymakers,

582
00:28:35,600 --> 00:28:37,560
Speaker 2: and they will make the rules. My best bet is

583
00:28:37,600 --> 00:28:39,920
Speaker 2: not to fight them. It's to find out where it's

584
00:28:39,960 --> 00:28:41,840
Speaker 2: going and just you know, enjoy the party.

585
00:28:42,200 --> 00:28:45,840
Speaker 1: Yeah, now, what about there's any number of black Swans

586
00:28:45,880 --> 00:28:47,640
Speaker 1: or gray Swans, because we know about them, that we

587
00:28:47,640 --> 00:28:51,920
Speaker 1: could we could discuss. But what about the war and

588
00:28:52,160 --> 00:28:55,280
Speaker 1: the risks of the wars and escalating wars things like that.

589
00:28:55,360 --> 00:28:57,960
Speaker 1: So right now we're seeing you know, the attacks happening

590
00:28:58,000 --> 00:29:03,240
Speaker 1: in the Suez Canal. We see car transit cargo going

591
00:29:03,280 --> 00:29:05,600
Speaker 1: through is down almost forty percent in just the last

592
00:29:05,680 --> 00:29:08,560
Speaker 1: couple of weeks. Ships are having to be rerouted. You know,

593
00:29:08,640 --> 00:29:11,440
Speaker 1: YadA YadA, yah. We can go on at less trips,

594
00:29:11,640 --> 00:29:16,200
Speaker 1: more costs, higher inflation, et cetera. And this is just

595
00:29:16,240 --> 00:29:18,720
Speaker 1: a small piece I mean, if it continues to escalate,

596
00:29:19,720 --> 00:29:22,960
Speaker 1: what does that do to oil, to you know, supply

597
00:29:23,080 --> 00:29:25,960
Speaker 1: chains just in general. And we don't need to get

598
00:29:25,960 --> 00:29:27,920
Speaker 1: into the details of each one of those, but I mean,

599
00:29:28,160 --> 00:29:30,080
Speaker 1: is that a potential wrench that could be thrown into

600
00:29:30,080 --> 00:29:32,160
Speaker 1: the spokes of sort of the economy and this inflation

601
00:29:32,280 --> 00:29:33,080
Speaker 1: dynamic this year.

602
00:29:33,760 --> 00:29:36,680
Speaker 2: Yeah, if we have a serious supply chain interruption, we

603
00:29:36,720 --> 00:29:38,959
Speaker 2: could you know, go back to twenty twenty twenty one.

604
00:29:39,080 --> 00:29:41,640
Speaker 2: It depends on the severity of it and the escalation.

605
00:29:41,920 --> 00:29:44,280
Speaker 2: So I think it's an everyone's interest to de escalate.

606
00:29:44,360 --> 00:29:47,680
Speaker 2: But there's no doubt. You know. Look, you know, you

607
00:29:47,720 --> 00:29:50,600
Speaker 2: know what happened with Russia and Ukraine. You know, it

608
00:29:51,120 --> 00:29:53,480
Speaker 2: was kind of you know back then, it was like

609
00:29:53,720 --> 00:29:55,440
Speaker 2: it'll get resolved and really quick, and all of a

610
00:29:55,480 --> 00:29:58,320
Speaker 2: sudden it turned into this massive supply chain shock. You know,

611
00:29:58,360 --> 00:30:04,200
Speaker 2: everything from energy Europe, fertilizer, food, you know, so these

612
00:30:04,200 --> 00:30:07,120
Speaker 2: things can have huge ramifications, and I think need to

613
00:30:07,120 --> 00:30:10,240
Speaker 2: pay attention to these things now. I think it's an

614
00:30:10,280 --> 00:30:13,960
Speaker 2: everyone's interest to de escalate. Hopefully there's successful at it.

615
00:30:15,040 --> 00:30:19,680
Speaker 2: War's never in anyone's interest, but unfortunately it happens now.

616
00:30:20,120 --> 00:30:22,040
Speaker 1: I mean, that's a pretty good sort of proxy to

617
00:30:22,040 --> 00:30:23,840
Speaker 1: look at, sort of the rush of Ukraine situation. So

618
00:30:23,880 --> 00:30:27,400
Speaker 1: when that happened, it didn't crash the markets. We did

619
00:30:27,400 --> 00:30:29,320
Speaker 1: see supply chain shocks. We did see the price of

620
00:30:29,360 --> 00:30:31,680
Speaker 1: gold and oil go through the roof. So it sort

621
00:30:31,720 --> 00:30:36,040
Speaker 1: of drove asset prices higher, commodity price is higher, and

622
00:30:36,080 --> 00:30:38,680
Speaker 1: even the cost of goods higher because of the supply chain.

623
00:30:38,760 --> 00:30:41,680
Speaker 1: So that was sort of an inflationary impulse that happened.

624
00:30:41,680 --> 00:30:44,320
Speaker 1: It was not a deflationary impulse. So is that sort

625
00:30:44,360 --> 00:30:46,760
Speaker 1: of what you think may happen If if this were

626
00:30:46,800 --> 00:30:48,520
Speaker 1: to escalate and get worse, it'd probably be more of

627
00:30:48,520 --> 00:30:51,840
Speaker 1: an inflationary impulse to the economy than a deflationary one.

628
00:30:52,600 --> 00:30:53,960
Speaker 2: I think so, because you know, you have you have

629
00:30:54,000 --> 00:30:56,080
Speaker 2: oil in there. I mean oil is oil is really

630
00:30:56,240 --> 00:30:58,120
Speaker 2: you know, there's some people, some people have a theory

631
00:30:58,200 --> 00:31:02,200
Speaker 2: and I'm sympathetic to it that inflation really is an

632
00:31:02,200 --> 00:31:05,440
Speaker 2: oil phenomena and energy or energy rather and energy really

633
00:31:05,600 --> 00:31:08,440
Speaker 2: is at the heart of inflation. So people think of that.

634
00:31:09,200 --> 00:31:11,720
Speaker 2: I know, you're an Austriten. That's fine. I respect that,

635
00:31:12,920 --> 00:31:16,080
Speaker 2: But you know, in any case, I think there's no

636
00:31:16,640 --> 00:31:22,680
Speaker 2: question that the you know, energy shock would be you know,

637
00:31:22,800 --> 00:31:24,640
Speaker 2: it could be it could be a disaster for the economy.

638
00:31:24,760 --> 00:31:26,680
Speaker 2: It could be really bad. And that's what's kind of

639
00:31:26,720 --> 00:31:29,240
Speaker 2: like the one thing we really want to avoid. That's

640
00:31:29,280 --> 00:31:31,600
Speaker 2: that's the that's we don't want to go there.

641
00:31:32,120 --> 00:31:34,640
Speaker 1: Yeah, do you do you? I don't know. I haven't

642
00:31:34,640 --> 00:31:36,600
Speaker 1: seen you talk a lot about oil and energy and

643
00:31:36,640 --> 00:31:38,360
Speaker 1: your research, so I'm not sure how first you are.

644
00:31:38,400 --> 00:31:40,719
Speaker 1: But it is seemingly sort of a little bit interesting

645
00:31:40,800 --> 00:31:44,760
Speaker 1: right now seeing this traffic whatever's happened in the Middle

646
00:31:44,760 --> 00:31:45,880
Speaker 1: East wherever you want to call it. I don't know

647
00:31:45,920 --> 00:31:48,080
Speaker 1: if it's officially declared as a war or whatever, but

648
00:31:48,200 --> 00:31:50,680
Speaker 1: whatever's going on there, Plus with the shipping delays through

649
00:31:50,680 --> 00:31:53,120
Speaker 1: the sous Canal, et cetera, and we're seeing the price

650
00:31:53,160 --> 00:31:56,040
Speaker 1: of oil still continuing in to fall, which is pretty interesting.

651
00:31:56,080 --> 00:31:58,160
Speaker 1: You would think just from that alone, it would be

652
00:31:58,200 --> 00:32:00,720
Speaker 1: pushing the price up. I don't know if you have

653
00:32:00,760 --> 00:32:02,840
Speaker 1: an opinion on that, And do you think it's potentially

654
00:32:03,200 --> 00:32:06,000
Speaker 1: you know, the economy, the global economy is slowing enough

655
00:32:06,000 --> 00:32:09,720
Speaker 1: to sort of offset that supply demand imbalance that's being

656
00:32:09,720 --> 00:32:10,240
Speaker 1: pushed there.

657
00:32:10,880 --> 00:32:13,480
Speaker 2: I think that's one thing that's really interesting is that

658
00:32:13,720 --> 00:32:16,200
Speaker 2: the United States is now the largest largest oil supplier

659
00:32:17,080 --> 00:32:19,680
Speaker 2: producer in the world. That is crazy. I mean, we

660
00:32:19,720 --> 00:32:21,680
Speaker 2: don't think about that that you know, all we think

661
00:32:21,680 --> 00:32:24,360
Speaker 2: about in Saudi Arabia and the Middle East. But now

662
00:32:24,960 --> 00:32:29,280
Speaker 2: we are the world's biggest oil producer. That is bonkers.

663
00:32:29,360 --> 00:32:31,840
Speaker 2: And I think that's I think that's the offset to

664
00:32:31,920 --> 00:32:33,000
Speaker 2: what's happening in the Middle East.

665
00:32:34,880 --> 00:32:38,160
Speaker 1: So that is sort of sort of kind of keeping

666
00:32:38,200 --> 00:32:41,280
Speaker 1: the price down. Even though there are some supply chain

667
00:32:41,320 --> 00:32:43,320
Speaker 1: shortages happening over the Middle East, the US is sort

668
00:32:43,320 --> 00:32:44,320
Speaker 1: of picking up the slack in that.

669
00:32:44,640 --> 00:32:45,840
Speaker 2: Sure, yeah, we're able to do that.

670
00:32:46,560 --> 00:32:46,720
Speaker 1: We know.

671
00:32:47,440 --> 00:32:50,240
Speaker 2: One other area of concern, the possible black swan that

672
00:32:50,360 --> 00:32:53,080
Speaker 2: not a lot of people are talking about, is Panama Canal.

673
00:32:53,760 --> 00:32:58,200
Speaker 2: So there's a drought in Panama. The for to operate

674
00:32:58,280 --> 00:33:00,920
Speaker 2: the canal locks, they have to pump into water from

675
00:33:00,920 --> 00:33:04,960
Speaker 2: the nearby lake. That lake is you know, getting pretty

676
00:33:04,960 --> 00:33:07,880
Speaker 2: bone dry, and now they're starting to put limits on

677
00:33:08,720 --> 00:33:12,560
Speaker 2: traffic going through the Panama Canal. So, you know, I

678
00:33:12,600 --> 00:33:15,760
Speaker 2: don't know to the extent or the impact, but I

679
00:33:15,800 --> 00:33:17,400
Speaker 2: think that's going to keep an eye on if if

680
00:33:17,440 --> 00:33:19,680
Speaker 2: someone is really concerned, if one is really concerned about

681
00:33:20,400 --> 00:33:22,920
Speaker 2: possible future supply change shocks. Have a look at the

682
00:33:22,920 --> 00:33:23,520
Speaker 2: Panama Canal.

683
00:33:24,280 --> 00:33:26,280
Speaker 1: Yeah, yeah, I mean it's the same thing. I mean

684
00:33:26,320 --> 00:33:29,280
Speaker 1: then you would have to basically reroute ships around Cape

685
00:33:29,280 --> 00:33:32,120
Speaker 1: Horn as opposed to Cape Good Hope and to add delays,

686
00:33:32,160 --> 00:33:34,680
Speaker 1: add costs, add things like that.

687
00:33:35,040 --> 00:33:35,880
Speaker 2: So that's right.

688
00:33:36,680 --> 00:33:41,320
Speaker 1: What about all the what about all the people pointing

689
00:33:41,400 --> 00:33:46,000
Speaker 1: to the yield curve inversion and one hundred percent accuracy

690
00:33:46,040 --> 00:33:48,560
Speaker 1: and pointing to a recession and it's going to be

691
00:33:48,640 --> 00:33:52,080
Speaker 1: uninverting and it's guaranteed doom and gloom because one hundred

692
00:33:52,080 --> 00:33:54,760
Speaker 1: percent as that uninverts, that there's a massive recession coming.

693
00:33:56,320 --> 00:33:58,880
Speaker 2: Yeah, So the yield curves I think is important. But

694
00:33:59,200 --> 00:34:02,720
Speaker 2: I think what people can inflate is the ConFlat for

695
00:34:02,800 --> 00:34:07,719
Speaker 2: being a coincident indicator and having predictive power. What they'll

696
00:34:07,800 --> 00:34:10,279
Speaker 2: curve tells us, the ill curve inversion tells us is

697
00:34:11,080 --> 00:34:13,960
Speaker 2: inflation is higher today than it will be tomorrow, and

698
00:34:14,000 --> 00:34:17,400
Speaker 2: therefore short rates are higher today than they will be tomorrow.

699
00:34:17,680 --> 00:34:20,320
Speaker 2: That's all. That's all. That's what it's telling us today.

700
00:34:20,440 --> 00:34:24,640
Speaker 2: It can't it doesn't tell us that a recession is coming.

701
00:34:25,200 --> 00:34:28,799
Speaker 2: It's been coincident. It's kind of it happens as a

702
00:34:28,880 --> 00:34:30,799
Speaker 2: part of that, but it's not. It doesn't cause the

703
00:34:30,840 --> 00:34:34,120
Speaker 2: recession itself. How do we know this, Well, this is

704
00:34:34,200 --> 00:34:37,240
Speaker 2: the exception this cycle, right, The you'll care first inverted

705
00:34:37,320 --> 00:34:42,479
Speaker 2: in October of twenty twenty two three. And to be clear,

706
00:34:42,719 --> 00:34:44,759
Speaker 2: I'm talking about not two tens. I'm talking about three

707
00:34:44,760 --> 00:34:48,640
Speaker 2: month tenure that spreads the gold standard for an inversion,

708
00:34:49,000 --> 00:34:52,479
Speaker 2: and that inverted in October twenty two. Classic theory tells

709
00:34:52,560 --> 00:34:58,120
Speaker 2: us it's twelve to eighteen months. We're on month fifteen. Now,

710
00:35:00,120 --> 00:35:02,520
Speaker 2: chances of us getting recession the next two to three

711
00:35:02,600 --> 00:35:06,040
Speaker 2: months is pretty low. I mean, it's recession was always there,

712
00:35:06,480 --> 00:35:11,040
Speaker 2: but you know it's not happening. Why is that? There

713
00:35:11,040 --> 00:35:13,840
Speaker 2: are many answers. I don't know them all, but I

714
00:35:14,600 --> 00:35:17,000
Speaker 2: think what's happening flies in the face of what we

715
00:35:17,000 --> 00:35:21,160
Speaker 2: were told is supposed to happen. So the yield curve

716
00:35:21,400 --> 00:35:24,160
Speaker 2: is I don't think is predictive. I think it's coincident.

717
00:35:24,200 --> 00:35:25,760
Speaker 2: It just tells us what's happening today.

718
00:35:27,480 --> 00:35:29,319
Speaker 1: I think some of it too, kind of going back

719
00:35:29,320 --> 00:35:31,520
Speaker 1: to a point I made earlier about the way the

720
00:35:31,560 --> 00:35:34,240
Speaker 1: central banks interact in the Market's changed in two thousand

721
00:35:34,239 --> 00:35:36,160
Speaker 1: and eight with the launch of QE, and it seems

722
00:35:36,200 --> 00:35:39,480
Speaker 1: it's only escalated since then. And now instead of the

723
00:35:39,520 --> 00:35:42,160
Speaker 1: FED being sort of this reactionary machine, now they're sort

724
00:35:42,200 --> 00:35:44,080
Speaker 1: of preemptively moving. So if you look at like two

725
00:35:44,080 --> 00:35:47,400
Speaker 1: thousand and eight, it took seven months from bear Stearn's

726
00:35:47,400 --> 00:35:49,880
Speaker 1: collapse till the the FED got about one hundred and

727
00:35:49,960 --> 00:35:52,160
Speaker 1: fifteen billion into the market in twenty twenty three. Who

728
00:35:52,160 --> 00:35:55,440
Speaker 1: saw it in six days, right, Yeah, And so that

729
00:35:55,520 --> 00:35:57,600
Speaker 1: just showed short to shoo the size and the speed

730
00:35:57,640 --> 00:36:00,480
Speaker 1: of these moves. In twenty twenty, I think they set

731
00:36:00,560 --> 00:36:04,560
Speaker 1: up like thirteen SPV you know, funding facilities in a

732
00:36:04,600 --> 00:36:07,840
Speaker 1: matter of months, including buying equities, you know, basically in

733
00:36:07,880 --> 00:36:09,920
Speaker 1: the market. We've never seen that before, and so you

734
00:36:09,960 --> 00:36:11,480
Speaker 1: sort of look at that. And so then going back

735
00:36:11,480 --> 00:36:15,920
Speaker 1: to this yield curve, typically showing that rates will be

736
00:36:15,960 --> 00:36:18,080
Speaker 1: lower in the future means that, well, there must be

737
00:36:18,120 --> 00:36:21,200
Speaker 1: some big recession coming that would cause them to lower rates.

738
00:36:21,200 --> 00:36:23,200
Speaker 1: I don't know, this is kind of my thinking about it. Yea, yeah,

739
00:36:24,840 --> 00:36:27,280
Speaker 1: but what we're seeing now is well, they are cutting

740
00:36:27,400 --> 00:36:30,759
Speaker 1: rates and there is no big recession, and so in

741
00:36:30,800 --> 00:36:32,960
Speaker 1: the past they've sort of started cutting rates and then

742
00:36:33,000 --> 00:36:35,440
Speaker 1: people would say, well, it's when it uninverts then it

743
00:36:35,480 --> 00:36:37,520
Speaker 1: causes the crash, or when they when they pivot, it

744
00:36:37,560 --> 00:36:39,359
Speaker 1: caused the crash. But I think to your point, that's

745
00:36:39,400 --> 00:36:41,840
Speaker 1: not the cause. It was what was it was in

746
00:36:41,920 --> 00:36:44,200
Speaker 1: common and so the FED was late to reacting. The

747
00:36:44,200 --> 00:36:47,400
Speaker 1: markets were already crashing when they made the pivot. But

748
00:36:47,480 --> 00:36:49,399
Speaker 1: in this case, they're making the pivot early.

749
00:36:50,239 --> 00:36:53,359
Speaker 2: Well that you're I think you're right, and I think

750
00:36:53,480 --> 00:36:57,560
Speaker 2: they they're they're preemptive. In other words, typically what would

751
00:36:57,600 --> 00:37:00,320
Speaker 2: have happened in twenty three with those banks going down,

752
00:37:00,640 --> 00:37:03,239
Speaker 2: they would have shut the banks down, you know, the

753
00:37:03,280 --> 00:37:09,040
Speaker 2: problem banks twenty three, and but the fallout the model

754
00:37:09,120 --> 00:37:12,480
Speaker 2: that the transmission would have kept on going and the

755
00:37:12,520 --> 00:37:15,719
Speaker 2: negative transmission, and we saw in twenty three was that

756
00:37:16,040 --> 00:37:22,120
Speaker 2: negative feedback loop was short circuited by by by policy.

757
00:37:22,160 --> 00:37:25,280
Speaker 2: Whatever they did, they stopped the you know, they stopped

758
00:37:25,280 --> 00:37:27,920
Speaker 2: the contagion from spreading. They front run that and got

759
00:37:27,920 --> 00:37:31,319
Speaker 2: ahead of it. And so credit continued to flow. The

760
00:37:31,360 --> 00:37:34,400
Speaker 2: economy was never starved with credit. People still had access

761
00:37:34,440 --> 00:37:37,400
Speaker 2: to credit, corporations still had acces to corporate to credit.

762
00:37:38,880 --> 00:37:44,080
Speaker 2: High yield bond spreads continued to come down, and so

763
00:37:44,400 --> 00:37:46,640
Speaker 2: you know, the FED was able to front run that,

764
00:37:46,880 --> 00:37:49,840
Speaker 2: and the yield curb version had nothing to do with that.

765
00:37:49,960 --> 00:37:53,480
Speaker 2: It was just policy being preemptive and of what are

766
00:37:53,480 --> 00:37:54,400
Speaker 2: the problems of the past.

767
00:37:54,920 --> 00:37:58,640
Speaker 1: Yeah. Now I love how, you know we talked earlier,

768
00:37:58,680 --> 00:38:01,400
Speaker 1: sort of your ear your take on the market, the

769
00:38:01,440 --> 00:38:03,560
Speaker 1: way you look at them, watch them, read them, et cetera.

770
00:38:03,640 --> 00:38:05,680
Speaker 1: A little bit different. It seems to be a lot

771
00:38:05,680 --> 00:38:07,520
Speaker 1: more data driven. And as we kind of said earlier,

772
00:38:07,600 --> 00:38:09,480
Speaker 1: it's not as you think it should be, your philosophically

773
00:38:09,560 --> 00:38:12,120
Speaker 1: want it to be, but as it is, so all

774
00:38:12,160 --> 00:38:15,040
Speaker 1: of this could change at any moment, and you're sort

775
00:38:15,040 --> 00:38:18,799
Speaker 1: of watching the data, right and I'm guessing, or I

776
00:38:18,800 --> 00:38:21,319
Speaker 1: guess I'm curious, Like what are you watching? You know,

777
00:38:21,360 --> 00:38:23,480
Speaker 1: your charts to indicators you think are probably the most

778
00:38:24,160 --> 00:38:27,600
Speaker 1: important to kind of sniff out when you should start

779
00:38:27,640 --> 00:38:28,400
Speaker 1: to change your mind.

780
00:38:30,200 --> 00:38:34,480
Speaker 2: Yeah. So, in terms of conventional charts, I look at

781
00:38:34,640 --> 00:38:37,120
Speaker 2: the labor market. I'm kind of obsessed with the labor market,

782
00:38:37,200 --> 00:38:39,720
Speaker 2: So I look at weekly job, the weekly job claims,

783
00:38:39,960 --> 00:38:44,720
Speaker 2: the continuing claims, the four week moving average of continuing claims.

784
00:38:45,080 --> 00:38:49,200
Speaker 2: Those are a big tell on on the cycle. Once

785
00:38:49,239 --> 00:38:52,480
Speaker 2: you start you know, once you start losing the labor markets,

786
00:38:52,719 --> 00:38:56,560
Speaker 2: it's kind of like an emergency and it's pretty soon

787
00:38:56,640 --> 00:39:00,919
Speaker 2: game over. So throughout this whole cycle, what we've seen

788
00:39:01,080 --> 00:39:04,320
Speaker 2: is those numbers improve even in the face of other shocks,

789
00:39:04,640 --> 00:39:07,839
Speaker 2: the labor market kept on improving. So you don't get

790
00:39:07,840 --> 00:39:10,279
Speaker 2: a recession when people are still working. As long as

791
00:39:10,280 --> 00:39:12,960
Speaker 2: people wake up in the morning, go to work, earn

792
00:39:13,000 --> 00:39:16,360
Speaker 2: a paycheck, spend it, the economies and to keep on going.

793
00:39:16,760 --> 00:39:20,320
Speaker 2: And so that is really really important to me, the

794
00:39:20,400 --> 00:39:20,879
Speaker 2: labor market.

795
00:39:20,920 --> 00:39:24,440
Speaker 1: But isn't that somewhat of a lagging indicator unemployment. I mean,

796
00:39:24,520 --> 00:39:26,600
Speaker 1: typically businesses are going to go through a whole lot

797
00:39:26,640 --> 00:39:28,400
Speaker 1: of hardship before they start to lay off employees.

798
00:39:29,640 --> 00:39:32,000
Speaker 2: The answer is yes and no. It's lagging in the

799
00:39:32,040 --> 00:39:34,080
Speaker 2: sense of it's the last thing to go. But if

800
00:39:34,800 --> 00:39:38,520
Speaker 2: you as long as it as long as it you know,

801
00:39:38,719 --> 00:39:41,719
Speaker 2: is resilient, you're not going to knock the economy over.

802
00:39:42,640 --> 00:39:45,200
Speaker 2: So I guess if you want to say, oh my god,

803
00:39:45,560 --> 00:39:47,600
Speaker 2: you know it's labor market softening up, We're to have

804
00:39:47,640 --> 00:39:49,680
Speaker 2: a recession tomorrow, I guess in that way, it could

805
00:39:49,719 --> 00:39:52,680
Speaker 2: be leading right it It gives you a talent what's

806
00:39:52,680 --> 00:39:55,839
Speaker 2: going to be happening in the market. So maybe it's

807
00:39:55,840 --> 00:39:57,560
Speaker 2: the last thing to go. But since it's the last

808
00:39:57,600 --> 00:39:59,240
Speaker 2: thing to go, that's when you really have to start worrying.

809
00:40:00,120 --> 00:40:02,960
Speaker 2: I know, it's I know, it's kind of counterintuitive in

810
00:40:02,960 --> 00:40:06,880
Speaker 2: that way. It's kind of like, I don't know, I'm

811
00:40:06,880 --> 00:40:08,600
Speaker 2: trying to draw an analogy. I don't I'm getting I'm

812
00:40:08,600 --> 00:40:11,359
Speaker 2: getting old. So once once I start, once I start

813
00:40:11,400 --> 00:40:13,200
Speaker 2: losing my hair, and then should I really really worry

814
00:40:13,200 --> 00:40:16,160
Speaker 2: about getting old till then looking great? Right? So it's

815
00:40:16,200 --> 00:40:18,560
Speaker 2: it's it's kind of a it's a counterintuve approach that

816
00:40:18,560 --> 00:40:19,280
Speaker 2: I take at least.

817
00:40:19,600 --> 00:40:24,080
Speaker 1: Yeah, what about the Fed's numbers, the probably not CPI

818
00:40:24,320 --> 00:40:27,920
Speaker 1: maybe PCE. I mean, what about those into type of indicators.

819
00:40:28,640 --> 00:40:30,600
Speaker 2: Yeah, so I look at I really look at the

820
00:40:30,600 --> 00:40:34,120
Speaker 2: the s c P, the Statement of Summary of Economic Projections. Now,

821
00:40:34,200 --> 00:40:36,040
Speaker 2: a lot of people think that the s c P

822
00:40:36,200 --> 00:40:39,200
Speaker 2: are forecasts, and they say, oh, you know, inflation did this,

823
00:40:39,280 --> 00:40:41,560
Speaker 2: and the FED they can't forecast for beings and they

824
00:40:41,560 --> 00:40:44,920
Speaker 2: don't know what's going on. I think that's the wrong framework,

825
00:40:44,960 --> 00:40:50,000
Speaker 2: the wrong approach. FED projections in the se PR statements

826
00:40:50,040 --> 00:40:53,839
Speaker 2: of intent, What does that mean? It means that they

827
00:40:54,480 --> 00:40:57,760
Speaker 2: are trying to use their policy powers, the levers of policy,

828
00:40:58,320 --> 00:41:03,080
Speaker 2: to guide the economy to you know, whatever target they have. Right,

829
00:41:03,120 --> 00:41:05,000
Speaker 2: it's a it's an intent in other words, like when

830
00:41:05,040 --> 00:41:06,400
Speaker 2: you wake up in the morning and say, God, I

831
00:41:06,440 --> 00:41:09,719
Speaker 2: went on a diet and my goal is through this

832
00:41:09,760 --> 00:41:12,920
Speaker 2: fifty pounds by year end. So you know, it's in

833
00:41:13,200 --> 00:41:15,279
Speaker 2: a way, it's kind of a forecast. But really it's

834
00:41:15,280 --> 00:41:18,840
Speaker 2: an intent that's going to guide your actions and hopefully

835
00:41:18,840 --> 00:41:21,759
Speaker 2: you get there, maybe you miss. But it's really a

836
00:41:21,800 --> 00:41:26,680
Speaker 2: framework for guiding other parts of the policy apparatus, whether

837
00:41:26,719 --> 00:41:29,880
Speaker 2: it's the r RP you know there, you know, all

838
00:41:29,960 --> 00:41:36,920
Speaker 2: these different you know, plumbing acronyms, those things are driven

839
00:41:37,040 --> 00:41:41,440
Speaker 2: by the S, by the SEP, by the statements of intent. Right,

840
00:41:41,520 --> 00:41:45,480
Speaker 2: So the statement of intent creates the framework for how

841
00:41:45,719 --> 00:41:48,680
Speaker 2: different policy levers are going to be pulled and manipulated

842
00:41:48,719 --> 00:41:52,000
Speaker 2: to guide the economity their target. It's not a forecast, no,

843
00:41:52,000 --> 00:41:55,600
Speaker 2: no one's got a crystal ball. So I start with

844
00:41:55,360 --> 00:41:58,759
Speaker 2: the with the SEP and try to understand, Okay, if

845
00:41:58,760 --> 00:42:01,920
Speaker 2: this is the target, then they're going to try to

846
00:42:01,920 --> 00:42:03,760
Speaker 2: do X, Y and Z to get us to that target,

847
00:42:03,880 --> 00:42:06,319
Speaker 2: and that has an impact on rates, it has an

848
00:42:06,360 --> 00:42:09,960
Speaker 2: impact on risk assets. So you know, a good example

849
00:42:10,160 --> 00:42:17,120
Speaker 2: was we undershot PCE. So having undershot PCE, now they're

850
00:42:17,120 --> 00:42:20,600
Speaker 2: going to have to take actions to kind of recalibrate

851
00:42:21,320 --> 00:42:24,360
Speaker 2: their policies. And that's what that's what I use to

852
00:42:24,480 --> 00:42:27,200
Speaker 2: kind of front run where they're going to go. So

853
00:42:27,800 --> 00:42:31,160
Speaker 2: the SEP for me, is a tool of getting into

854
00:42:31,239 --> 00:42:34,160
Speaker 2: their thinking, not to not to make a forecast, but

855
00:42:34,280 --> 00:42:37,880
Speaker 2: to get into how they're going to react to the data.

856
00:42:38,800 --> 00:42:42,719
Speaker 1: Okay, now you put on Twitter a few weeks ago

857
00:42:42,840 --> 00:42:44,800
Speaker 1: or maybe a week ago, I forget, but something about

858
00:42:45,719 --> 00:42:48,640
Speaker 1: I remain risk on. I think you said that, right, yep,

859
00:42:49,280 --> 00:42:51,719
Speaker 1: that's your viewpoint for this year. Your remain risk on

860
00:42:52,640 --> 00:42:55,120
Speaker 1: until proven otherwise, until some of these indicators you mentioned,

861
00:42:55,800 --> 00:42:58,359
Speaker 1: the unemployment data or the SEP data starts to change

862
00:42:58,360 --> 00:42:59,640
Speaker 1: your mind. But until then it's risk on.

863
00:43:00,520 --> 00:43:02,799
Speaker 2: Yeah. I mean, look, there's volatility, there's risk. You know,

864
00:43:02,800 --> 00:43:04,239
Speaker 2: we you know, just get if we get a five

865
00:43:04,239 --> 00:43:06,799
Speaker 2: percent pullback, that doesn't really change the broad thesis. It

866
00:43:06,840 --> 00:43:08,960
Speaker 2: just means, you know, the market that a little ahead

867
00:43:08,960 --> 00:43:13,520
Speaker 2: of itself. You know, there's always variants in markets. But

868
00:43:13,719 --> 00:43:16,239
Speaker 2: I'm constructive of the economy. A recession is not my

869
00:43:16,280 --> 00:43:19,560
Speaker 2: base case. I don't think we're gonna go into recession.

870
00:43:19,600 --> 00:43:21,760
Speaker 2: I don't think we're gonna get an employment extinction event.

871
00:43:22,920 --> 00:43:25,319
Speaker 2: You know, obviously there's there's always those risks that we

872
00:43:25,320 --> 00:43:29,520
Speaker 2: discussed earlier, right, supply chain, risk, war, these things can

873
00:43:29,800 --> 00:43:32,880
Speaker 2: can always you know, we just don't know. But apps

874
00:43:32,920 --> 00:43:37,520
Speaker 2: all else being equal, Uh, you know, inflation should continue

875
00:43:37,520 --> 00:43:42,360
Speaker 2: to moderate or disinflate, the labor markets should remain strong,

876
00:43:42,560 --> 00:43:44,759
Speaker 2: and we should not go into recession. And you know,

877
00:43:44,840 --> 00:43:48,280
Speaker 2: risk it's a favorable, favorable environment for risk assets.

878
00:43:49,440 --> 00:43:52,640
Speaker 1: So so how do you play it? What? What sectors

879
00:43:52,640 --> 00:43:55,640
Speaker 1: do you like the best? I mean, I think I'm

880
00:43:55,680 --> 00:43:57,480
Speaker 1: an inflation bowl. I think the rest of this decade

881
00:43:57,520 --> 00:44:01,000
Speaker 1: is an inflationary story. And maybe the story isn't so

882
00:44:01,080 --> 00:44:04,040
Speaker 1: much how do we keep up with inflation? But how

883
00:44:04,040 --> 00:44:06,120
Speaker 1: do we beat it in this type of environment? What

884
00:44:06,160 --> 00:44:08,759
Speaker 1: type of sectors and assets are are you liking for

885
00:44:08,800 --> 00:44:09,720
Speaker 1: this type of environment?

886
00:44:10,480 --> 00:44:12,560
Speaker 2: Yeah? So I link it to my to my policy

887
00:44:12,600 --> 00:44:14,520
Speaker 2: call on what's happening with the YELD curve. So what's

888
00:44:14,560 --> 00:44:16,600
Speaker 2: what's going to happen, What's going to happen? What we

889
00:44:16,800 --> 00:44:19,040
Speaker 2: know is going to happen. Is the yield curve is

890
00:44:19,080 --> 00:44:21,520
Speaker 2: going to disinvert. We know that's going to happen. Why

891
00:44:21,520 --> 00:44:22,399
Speaker 2: do we know it's gonna happen.

892
00:44:22,640 --> 00:44:23,520
Speaker 1: You think it happens this year?

893
00:44:24,600 --> 00:44:27,000
Speaker 2: I start, it's that I think I don't know if

894
00:44:27,040 --> 00:44:31,520
Speaker 2: it fully happens this year, but that's I think more likely. Yes, Okay,

895
00:44:32,360 --> 00:44:35,520
Speaker 2: So the yield curves, you know, disinvert. Now what does that?

896
00:44:35,520 --> 00:44:38,560
Speaker 2: That can take different forms? Could mean that could mean

897
00:44:38,560 --> 00:44:40,879
Speaker 2: that two years days where it is, ten years goes higher.

898
00:44:40,880 --> 00:44:43,560
Speaker 2: It could mean it could mean, you know, ten years

899
00:44:43,560 --> 00:44:46,319
Speaker 2: stays where it is to your fall eels fall. Could

900
00:44:46,360 --> 00:44:50,400
Speaker 2: be some combination thereof, but it will disinvert. So I

901
00:44:50,440 --> 00:44:53,839
Speaker 2: think the trade is to play off that disinversion. Who

902
00:44:53,960 --> 00:44:58,560
Speaker 2: who benefits from a disinversion? Well, the easiest one is

903
00:44:58,960 --> 00:45:01,640
Speaker 2: if you're borrowing short lending long right now, you're kind

904
00:45:01,640 --> 00:45:03,879
Speaker 2: of screwed, right In other words, if you're if you're

905
00:45:04,120 --> 00:45:07,600
Speaker 2: financing costs today are higher than what you're making on

906
00:45:07,640 --> 00:45:09,960
Speaker 2: the long end, you're kind of screwed. You're not, you're

907
00:45:10,040 --> 00:45:16,080
Speaker 2: upside down. However, if the yield curve disinverts, and depending

908
00:45:16,120 --> 00:45:18,719
Speaker 2: on the speed, if you're in if you're in any

909
00:45:18,760 --> 00:45:22,319
Speaker 2: business that borrows short lends long, you're gonna start making

910
00:45:22,320 --> 00:45:25,520
Speaker 2: more money. So classic one is and I discuss we

911
00:45:25,560 --> 00:45:28,200
Speaker 2: put this trade on back in November, and I discussed

912
00:45:28,200 --> 00:45:31,680
Speaker 2: it on a different podcast. Was you know the mortgage rates.

913
00:45:32,239 --> 00:45:36,520
Speaker 2: You know things like anally mortgage, they basically borrow money

914
00:45:36,520 --> 00:45:41,040
Speaker 2: from banks buy mortgages. So they're they're they're they're borrowing

915
00:45:41,040 --> 00:45:45,320
Speaker 2: short lending long, and they've been in the toilet for

916
00:45:45,400 --> 00:45:48,400
Speaker 2: a while, so lately they're up around being close to

917
00:45:48,400 --> 00:45:51,799
Speaker 2: twenty percent it's November. Why because their funding costs are

918
00:45:51,800 --> 00:45:55,200
Speaker 2: going their overnight funding costs are going down, and you

919
00:45:55,239 --> 00:45:57,680
Speaker 2: know they're they're buying you know, long dated paper that's

920
00:45:57,680 --> 00:46:00,880
Speaker 2: going to be yielding more than what they're art costs are.

921
00:46:02,520 --> 00:46:05,200
Speaker 1: So banks, financial institutions that that sort of have these

922
00:46:05,200 --> 00:46:06,880
Speaker 1: types of strategies you think will outperform.

923
00:46:07,040 --> 00:46:10,719
Speaker 2: You like that, uh correct? And also homebuilders right, and

924
00:46:11,040 --> 00:46:14,279
Speaker 2: they're they're capital intensive, so they need to borrow. I

925
00:46:14,320 --> 00:46:16,480
Speaker 2: mean they're borrowing the way they turn off their debts

926
00:46:16,480 --> 00:46:20,640
Speaker 2: a little different. But I think between the secular wind

927
00:46:20,719 --> 00:46:26,120
Speaker 2: of the housing shortage combined with the change in in

928
00:46:26,120 --> 00:46:28,799
Speaker 2: in the yeld curve, they should do really well.

929
00:46:29,280 --> 00:46:32,600
Speaker 1: So companies that are cash intensive could do good because

930
00:46:32,640 --> 00:46:35,600
Speaker 1: they're borrowing costs would go down, which would drive their expenses.

931
00:46:35,239 --> 00:46:38,800
Speaker 2: Down borrowing costs relative to what they're making on the

932
00:46:38,840 --> 00:46:41,879
Speaker 2: other on the other side, Yes, right, Okay, doesn't really

933
00:46:41,880 --> 00:46:44,840
Speaker 2: matter the level. What matters is the relative relationship between

934
00:46:44,840 --> 00:46:45,279
Speaker 2: those two.

935
00:46:46,080 --> 00:46:51,640
Speaker 1: Okay, so homebuilders some financial institutions that have that and play.

936
00:46:51,760 --> 00:46:54,520
Speaker 1: What do you think about commodities? Do you follow commodities much?

937
00:46:55,040 --> 00:46:57,399
Speaker 2: You know? I don't. I just and I I don't

938
00:46:57,400 --> 00:46:59,520
Speaker 2: only out of ignorance. They are they are so above

939
00:46:59,520 --> 00:47:02,080
Speaker 2: my above my pay grade. I do not understand them.

940
00:47:02,120 --> 00:47:04,160
Speaker 2: I mean they're there. I know it's supplying demand. I

941
00:47:04,200 --> 00:47:08,319
Speaker 2: can tangle and vapradation. I get these consps academically, but

942
00:47:08,480 --> 00:47:12,080
Speaker 2: just as as as a as a way to approach

943
00:47:12,080 --> 00:47:14,359
Speaker 2: them to make money, I would most likely lose money

944
00:47:14,360 --> 00:47:15,359
Speaker 2: to make it, so I don't touch them.

945
00:47:15,960 --> 00:47:18,920
Speaker 1: Yeah, I mean, certainly the commodity itself has those attributes

946
00:47:18,960 --> 00:47:20,839
Speaker 1: supply demand, if you will, which is there's a million

947
00:47:20,880 --> 00:47:23,320
Speaker 1: reasons that would drive that. I was thinking about the

948
00:47:23,920 --> 00:47:27,120
Speaker 1: companies themselves, the gold mining companies, the oil companies. They're

949
00:47:27,200 --> 00:47:29,239
Speaker 1: very capital intensive, right, so they may be caught up

950
00:47:29,239 --> 00:47:33,080
Speaker 1: in that sort of borrow along lend short sort of scenario.

951
00:47:33,920 --> 00:47:34,640
Speaker 1: But okay, I just.

952
00:47:34,600 --> 00:47:36,839
Speaker 2: Don't under I don't understand. I don't get it. Unfortunately,

953
00:47:36,840 --> 00:47:37,520
Speaker 2: I wish they did.

954
00:47:37,880 --> 00:47:42,200
Speaker 1: Yeah, yeah, okay, So financial stitutions, what about what about

955
00:47:42,640 --> 00:47:45,800
Speaker 1: like the tech stocks and like AI you mentioned AI earlier.

956
00:47:46,600 --> 00:47:49,600
Speaker 1: Do do you think of in that area that's that's

957
00:47:49,640 --> 00:47:52,360
Speaker 1: certainly a risk on type of asset.

958
00:47:52,400 --> 00:47:55,080
Speaker 2: Absolutely, I think I think tech is you know, tech is.

959
00:47:55,400 --> 00:47:57,040
Speaker 2: I believe it's now forty of the S and P

960
00:47:57,120 --> 00:47:59,840
Speaker 2: five hundred. I mean, it's right tenth overall, and I

961
00:48:00,040 --> 00:48:02,279
Speaker 2: think that that's going to keep growing and that I

962
00:48:02,320 --> 00:48:06,880
Speaker 2: think those huge leverage returns, those scalable returns that you

963
00:48:06,920 --> 00:48:10,040
Speaker 2: can get from technology is one of the reasons why

964
00:48:10,760 --> 00:48:14,279
Speaker 2: US markets, especially at the SMP level, trade at a

965
00:48:14,280 --> 00:48:16,760
Speaker 2: premium round to other world markets. We just have best

966
00:48:16,880 --> 00:48:19,960
Speaker 2: in world, best in class world, you know, world class companies,

967
00:48:20,880 --> 00:48:22,440
Speaker 2: and that will I think that's gonna that's going to

968
00:48:22,480 --> 00:48:23,239
Speaker 2: continue to do well.

969
00:48:23,680 --> 00:48:27,840
Speaker 1: Yeah, And what's your take with bitcoin? The ETF popped

970
00:48:28,400 --> 00:48:31,319
Speaker 1: a lot of trading volume happening over there. Larry Fink

971
00:48:31,360 --> 00:48:33,560
Speaker 1: seems to have really sort of turned the corner at

972
00:48:33,680 --> 00:48:36,200
Speaker 1: least vocally what he's talking about on bitcoin. What's your

973
00:48:36,280 --> 00:48:36,879
Speaker 1: viewpoint on that?

974
00:48:37,560 --> 00:48:40,960
Speaker 2: I I have no no view on bitcoin. I don't

975
00:48:41,000 --> 00:48:43,560
Speaker 2: trade it. I mean I understand one of it's like commodities.

976
00:48:43,560 --> 00:48:48,160
Speaker 2: I understand it intuitively maybe and academically, but it's I

977
00:48:48,440 --> 00:48:51,279
Speaker 2: really devote my time to understanding the economy and interest

978
00:48:51,360 --> 00:48:54,560
Speaker 2: rates and from their building out trades based off the

979
00:48:54,560 --> 00:48:57,000
Speaker 2: interest rate movements, and that that takes up a lot

980
00:48:57,000 --> 00:48:58,359
Speaker 2: of my most of my time.

981
00:48:58,719 --> 00:49:02,280
Speaker 1: Sure, sure, yeah, Warren Buffett strategy, right your deal box,

982
00:49:02,440 --> 00:49:04,319
Speaker 1: stay in your area of your circle of competence, if

983
00:49:04,320 --> 00:49:04,640
Speaker 1: you will.

984
00:49:05,360 --> 00:49:07,319
Speaker 2: Sure, exactly, Yeah.

985
00:49:07,080 --> 00:49:09,719
Speaker 1: All right, David well Man, that was really good. A

986
00:49:09,760 --> 00:49:13,080
Speaker 1: lot of information there. I really really appreciate that. Anything

987
00:49:13,080 --> 00:49:14,719
Speaker 1: else that we need to lay out there that we

988
00:49:14,719 --> 00:49:15,920
Speaker 1: haven't discussed, no.

989
00:49:16,000 --> 00:49:18,480
Speaker 2: I think we covered it all, you know. I think

990
00:49:18,520 --> 00:49:21,680
Speaker 2: we're looking at it at a March cut in by

991
00:49:21,680 --> 00:49:25,000
Speaker 2: the Fed, and you know, we'll see how that evolves.

992
00:49:25,040 --> 00:49:26,360
Speaker 2: But I think the cuts start in March.

993
00:49:27,000 --> 00:49:29,359
Speaker 1: Whether it happens in March or April, does it really matter,

994
00:49:30,800 --> 00:49:30,960
Speaker 1: you know.

995
00:49:31,160 --> 00:49:33,480
Speaker 2: I think what matters more is less the timing at

996
00:49:33,480 --> 00:49:35,200
Speaker 2: this point, more the degree, you know. I think if

997
00:49:35,200 --> 00:49:38,279
Speaker 2: they just I think the more they forestall or kick

998
00:49:38,360 --> 00:49:40,799
Speaker 2: the can on actually making the cut, the bigger the

999
00:49:40,840 --> 00:49:43,160
Speaker 2: impetus grows for a large cut. In other words, instead

1000
00:49:43,160 --> 00:49:45,080
Speaker 2: of starting at twenty five, if you start kicking the

1001
00:49:45,080 --> 00:49:47,120
Speaker 2: can un till June, now, now you're going to start

1002
00:49:47,120 --> 00:49:49,600
Speaker 2: cutting at fifty, right because of the disinflationary pressure is

1003
00:49:49,640 --> 00:49:51,640
Speaker 2: building up, So you know, to me, it's you know,

1004
00:49:52,239 --> 00:49:54,359
Speaker 2: you know, tomato, tomato, right, That's.

1005
00:49:54,320 --> 00:49:55,799
Speaker 1: Kind of what I was thinking. That was sort of

1006
00:49:55,840 --> 00:49:57,600
Speaker 1: like last year, like, oh, we're gonna get one more

1007
00:49:57,640 --> 00:49:59,480
Speaker 1: twenty five basis point raise, and it's like does it

1008
00:49:59,520 --> 00:50:02,640
Speaker 1: really matter at this point? All right, and sort of

1009
00:50:02,719 --> 00:50:06,440
Speaker 1: kind of like that. Okay, great, well, David Savante's Pinebrook Capital.

1010
00:50:06,520 --> 00:50:08,000
Speaker 1: We'll link to your stuff down on the show notes

1011
00:50:08,040 --> 00:50:11,160
Speaker 1: down below. Anyway, thanks for joining, Thanks for.

1012
00:50:11,200 --> 00:50:12,680
Speaker 2: Having me, appreciate it. Take care,