WEBVTT - The Mark Moss Show 1-31-24 0:00:00.160 --> 0:00:03.520 All right, David Servant is the founder of Pinebrook Capital. 0:00:04.320 --> 0:00:06.560 Thanks so much for joining me today. I've been watching 0:00:06.640 --> 0:00:12.040 your content for six months or so, let's say, and boy, 0:00:12.119 --> 0:00:14.160 I was just amazed how you stood in the face 0:00:14.200 --> 0:00:17.560 of almost everybody with the contrary intake and it turned 0:00:17.560 --> 0:00:18.880 out to be right, and you sort of had this 0:00:19.000 --> 0:00:22.360 unorthodox way that you look at the markets. So anyway, 0:00:22.360 --> 0:00:24.200 I appreciate you taking the time to come on and 0:00:24.239 --> 0:00:26.079 speak to me today. 0:00:26.200 --> 0:00:27.640 Thank you having me happy to be here. 0:00:28.200 --> 0:00:32.280 So, David, the first thing, I guess we'll just dump 0:00:32.360 --> 0:00:34.080 right into I want to talk about, you know, what 0:00:34.120 --> 0:00:39.199 you're looking at, indicators, levels, charts, things like that, your 0:00:39.240 --> 0:00:42.640 unorthodox approach to the markets, why you're sort of this 0:00:42.720 --> 0:00:45.000 contraryan and you seem very confident in your opinions. I 0:00:45.080 --> 0:00:47.159 like that. And then we're going to talk about it 0:00:47.159 --> 0:00:50.320 in light kind of what you think and what you're 0:00:50.360 --> 0:00:54.200 watching for twenty twenty four, and then kind of specifically 0:00:54.240 --> 0:00:56.640 when we look at, you know, huge debt that we're having, 0:00:56.680 --> 0:00:59.319 deficits spending two in an election year, which I think 0:00:59.400 --> 0:01:02.160 is something to be paytitents do. And then in light 0:01:02.200 --> 0:01:04.080 of war. So those are the topics we're in discuss 0:01:04.120 --> 0:01:08.160 and dive into. Before we do that, let's just maybe 0:01:08.200 --> 0:01:12.280 start at the top. And one of the questions that 0:01:12.360 --> 0:01:15.840 I've been asking is Mark Twain said, it's not the 0:01:15.880 --> 0:01:17.760 things that we know for certain, or it's not the 0:01:17.760 --> 0:01:19.399 things that we don't know. They get us in trouble 0:01:19.440 --> 0:01:22.640 to things that we know absolutely for certain. And what 0:01:22.720 --> 0:01:24.480 I saw for the last year and a half or 0:01:24.480 --> 0:01:27.000 two years was everybody saying, as soon as the FED 0:01:27.080 --> 0:01:30.839 raises the risk free rate, stocks have to reprice lower. 0:01:30.880 --> 0:01:32.760 They have to. They have to, they have to. They 0:01:32.800 --> 0:01:34.720 also said, when mortgage rates go from two and a 0:01:34.760 --> 0:01:37.240 half to eight percent, home prices have to have to 0:01:37.360 --> 0:01:39.720 have to. When neither of those things happened, they didn't 0:01:39.760 --> 0:01:42.760 have to obviously, right, So I don't know, do you 0:01:42.800 --> 0:01:45.479 want to start and tell me why they didn't crash? 0:01:45.520 --> 0:01:48.200 Sure? So I think we you know these things. We 0:01:48.240 --> 0:01:51.440 take things that have historically happened and project them into 0:01:51.480 --> 0:01:54.480 the future without really understanding why. So a good example 0:01:55.240 --> 0:01:58.280 that you just mentioned was the housing market. Right, everyone said, 0:01:58.320 --> 0:02:03.240 you know, your mortgage rates went up, home priced home sales, 0:02:03.360 --> 0:02:07.080 especially for the existing home sales pretty much frozen their tracks. 0:02:07.160 --> 0:02:11.520 Nothing happened people stopped buying houses. There was new home 0:02:11.600 --> 0:02:15.799 sales were somewhat okay because of the you know, the 0:02:16.040 --> 0:02:18.079 rape buydowns that some of the bigger builders were able 0:02:18.080 --> 0:02:21.239 to offer. But for the most part, you know, the 0:02:21.919 --> 0:02:25.160 the housing market didn't tank the economy. And what curious 0:02:25.200 --> 0:02:29.200 is that in seven out of the most eleven, seven 0:02:29.200 --> 0:02:31.920 out of eleven post war recessions have originated in the 0:02:31.960 --> 0:02:37.080 housing market. It's the most cyclically sensitive, volatile part of 0:02:37.080 --> 0:02:40.560 the economy, and that's always that's typically been ground zero 0:02:40.680 --> 0:02:46.360 for a recession. But the question, the reason, I'm sorry, 0:02:46.360 --> 0:02:51.600 the no one really bothered to ask why, and the 0:02:51.639 --> 0:02:56.880 why really matters. What matters is housing employment and unit construction. 0:02:57.919 --> 0:03:05.560 And with the pandemic, unit construction kept on going. Housing employment. 0:03:06.120 --> 0:03:09.400 We didn't get an extinction event, an employment extinction event 0:03:09.440 --> 0:03:13.000 that would take down, you know, translate and take down 0:03:13.040 --> 0:03:15.359 the rest of the economy. So while everyone scratching their 0:03:15.360 --> 0:03:18.280 heads about, you know, oh my god, sales have dried up, 0:03:18.320 --> 0:03:21.000 mortgage rates are high, and it's the end of the world, 0:03:21.960 --> 0:03:25.320 the real economy what matters for GDP Accounting kept on 0:03:25.560 --> 0:03:29.680 keeping on, it did find and in November of twenty 0:03:29.720 --> 0:03:33.200 twenty two, recognizing that, I pivoted and said, look, without 0:03:33.240 --> 0:03:37.080 these with this, what really matters. Turning over what doesn't 0:03:37.080 --> 0:03:39.000 matter is not going to have an impact. What doesn't 0:03:39.040 --> 0:03:42.040 matter is sales. Sales does nothing for the real economy. 0:03:42.680 --> 0:03:47.200 Housing employment and unit construction spending that does a lot 0:03:47.240 --> 0:03:50.000 for the real economy, and that never turned over. So 0:03:50.120 --> 0:03:53.440 I think, you know, what's the takeaway is you've got 0:03:53.440 --> 0:03:57.360 to get into the nuts and bolts of causality, empirical causality, 0:03:57.800 --> 0:04:00.600 following the chain of events into what may or may 0:04:00.640 --> 0:04:03.400 not happen. And that's that's a great example right there. 0:04:05.000 --> 0:04:08.320 So we saw that evidence, like in the home builder 0:04:08.400 --> 0:04:12.720 stocks stayed up pretty strong, and the construction industry overall, 0:04:12.880 --> 0:04:15.400 I guess you're saying, remained strong. So even though the 0:04:15.440 --> 0:04:18.479 sales of units went down, the industry itself, is that 0:04:18.520 --> 0:04:20.720 what you're saying, The industry is that right strong. 0:04:21.040 --> 0:04:22.640 That's right, And there's a lot there's a lot of 0:04:22.800 --> 0:04:24.280 and then you peel back the onion and go a 0:04:24.320 --> 0:04:26.760 little deeper. There's a lot of reasons why that's the case. 0:04:26.880 --> 0:04:30.960 You know. One of the reasons is employment, housing construction. 0:04:31.040 --> 0:04:33.840 Employment is that secular lows and in other words, there's 0:04:33.880 --> 0:04:37.279 just not enough bodies out there with hammers, so effectively, 0:04:37.320 --> 0:04:39.680 there's no one left to fire. You know, there's a 0:04:39.720 --> 0:04:42.880 shortage of construction workers. And you can, you know, pull 0:04:42.920 --> 0:04:44.960 your hair out as to why that may be the case, 0:04:45.000 --> 0:04:48.200 but it's just it is the case. Red secular lows 0:04:48.200 --> 0:04:53.679 and housing employment trends, so you know, without anyone to fire, 0:04:53.800 --> 0:04:55.719 you're not going to get that employment extinction event. And 0:04:55.760 --> 0:04:58.000 the other thing that does is it takes it It 0:04:58.080 --> 0:05:01.320 stretches lead times for construction projects. In other words, what 0:05:02.800 --> 0:05:05.800 I can't recall the numbers offhand, but typically it takes 0:05:05.839 --> 0:05:07.560 a certain amount of time to build a house. Well 0:05:07.600 --> 0:05:11.080 over the past two decades, those lead times have increased, 0:05:11.640 --> 0:05:13.840 right because there's not enough people to build them. So 0:05:14.080 --> 0:05:17.400 the things that the things within housing that typically took 0:05:17.440 --> 0:05:19.919 down or spread to the rest of the economy just 0:05:19.920 --> 0:05:21.880 weren't present to have that effect. 0:05:22.839 --> 0:05:25.880 Good good point. Two thousand and eight. My story as 0:05:25.920 --> 0:05:27.480 I got taken down in two thousand and eight here 0:05:27.480 --> 0:05:30.400 in southern California, sort of ground zero in my area 0:05:30.440 --> 0:05:33.040 here in southern California, we saw prices drop sixty percent 0:05:33.320 --> 0:05:35.640 Orange County, California. I was sort of the epicenter of 0:05:35.680 --> 0:05:38.600 the mortgage boom, if you will. Almost everybody, everybody I 0:05:38.680 --> 0:05:40.640 knew was in the mortgage industry and it was hit 0:05:40.680 --> 0:05:44.200 extremely hard. And yeah, today we don't see any of that. 0:05:44.360 --> 0:05:46.400 And my friends that are still in the housing and 0:05:46.440 --> 0:05:49.880 construction industry, I mean, they're still not able to find workers. 0:05:49.880 --> 0:05:52.080 To your point, they can't keep somebody there no matter 0:05:52.120 --> 0:05:52.479 what they do. 0:05:53.200 --> 0:05:55.120 You know, another thing too, there's there's been a huge 0:05:55.240 --> 0:05:57.400 consolidation in the market. You know, I forgot what the 0:05:57.400 --> 0:06:00.480 exact number is, but you know, the big, the big 0:06:00.520 --> 0:06:02.839 home builders control around eighty percent of the new construction. 0:06:03.240 --> 0:06:04.760 So what does that mean. It means they have access 0:06:04.760 --> 0:06:07.320 to capital markets. It means they have a lot more 0:06:07.320 --> 0:06:10.000 buying power. So the industry itself has changed. You know, 0:06:10.040 --> 0:06:13.320 before the old you know the old you know the 0:06:13.880 --> 0:06:17.039 model of a builder and his friends, you know, turning 0:06:17.040 --> 0:06:19.599 over two or three houses a year, That is kind 0:06:19.640 --> 0:06:23.320 of a dying part of the business model. Now it's consolidated. 0:06:23.320 --> 0:06:25.840 These players are bigger, the more agile, they were able 0:06:25.880 --> 0:06:28.280 to do things like the rate bydowns that we saw 0:06:28.360 --> 0:06:29.840 that would have happened ten years ago. 0:06:31.120 --> 0:06:33.520 That's a big piece and that's sort of my thesis 0:06:33.600 --> 0:06:36.039 is the way that the central banks interact in the 0:06:36.080 --> 0:06:38.679 markets today has changed. It really changed in two thousand 0:06:38.680 --> 0:06:40.760 and eight. It's escalated and it's a lot different today. 0:06:40.800 --> 0:06:43.960 And you're saying even the sort of similar the way 0:06:44.000 --> 0:06:47.240 that the big home builders interacting the markets has changed, 0:06:47.320 --> 0:06:49.600 which obviously makes them be able to sort of handle 0:06:49.600 --> 0:06:50.839 these situations a little bit differently. 0:06:51.400 --> 0:06:53.560 And there's also that's a segue just you know, segues 0:06:53.560 --> 0:06:56.360 into another thing too, the bank regulations. After two thousand 0:06:56.360 --> 0:06:59.840 and eight, you know, the regulatory bodies had a never again, 0:07:00.200 --> 0:07:01.880 we're never gonna let this happen again. We're never gonna 0:07:01.920 --> 0:07:05.200 let the economy get over at skis over leverage and 0:07:05.560 --> 0:07:07.320 take down to the entire economy, and it was an 0:07:07.680 --> 0:07:10.760 existential moment for the economy. And the banks have been neutered, 0:07:11.520 --> 0:07:13.920 so even if you you know, the wildcatter days are 0:07:14.000 --> 0:07:17.440 kind of over. So that's another element where you know, 0:07:17.520 --> 0:07:22.120 the leverage appetite for risk isn't there, or maybe it's there, 0:07:22.160 --> 0:07:25.320 but it's been neutered by regulatory reforms. So that was 0:07:25.360 --> 0:07:29.400 another element where the industry didn't have that overbuilding that 0:07:29.480 --> 0:07:32.880 it was more familiar with prior cycles. 0:07:33.520 --> 0:07:35.240 And a lot of it is sort of the general's 0:07:35.280 --> 0:07:36.920 fighting the last war, so to speak. And so I 0:07:36.920 --> 0:07:39.520 think you said seven of the last eleven turndowns were 0:07:39.600 --> 0:07:43.240 driven by mortgage. Obviously two thousand and eight still PTSD 0:07:43.360 --> 0:07:45.880 on everybody's mind from that, and so you know, everyone's 0:07:45.880 --> 0:07:48.000 fighting that last war, so to speak, thinking that's going 0:07:48.080 --> 0:07:50.559 to lead the market. But that's not necessarily the case. 0:07:51.640 --> 0:07:53.760 That's right, and with fighting the last war, then you 0:07:53.840 --> 0:07:56.600 end up with perverse outcomes. Now we have the opposite 0:07:56.640 --> 0:07:58.760 problem we had in two thousand and eight. Instead of overbuilding, 0:07:59.080 --> 0:08:03.960 now we have aationwide secular housing shortage. So you know, 0:08:04.000 --> 0:08:06.440 we fought the last war and now we're creating new 0:08:06.480 --> 0:08:07.440 problems for ourselves. 0:08:07.680 --> 0:08:10.960 Yeah, now let's jump into the market. So then I 0:08:11.000 --> 0:08:13.680 don't know, we want to talk markets or economy, but 0:08:14.520 --> 0:08:16.360 you know there's no shortage. I don't want to call 0:08:16.440 --> 0:08:18.880 him out by name. We'll call it Harry Dent Junior. 0:08:19.920 --> 0:08:22.600 Every year he's called him for a ninety percent crash. 0:08:22.680 --> 0:08:24.400 His data is great. I mean, I've read five of 0:08:24.440 --> 0:08:26.840 his books. I think his data is right. His assumptions 0:08:26.880 --> 0:08:29.960 on the data have obviously proven to be wrong. A 0:08:30.040 --> 0:08:33.200 ninety percent crash in June and then in July and 0:08:33.240 --> 0:08:36.080 then November, and you were kind of standing firm and saying, no, 0:08:36.120 --> 0:08:37.520 it's not going to, it's not going to, it's not 0:08:37.520 --> 0:08:40.640 going to. Why is that? What were you looking at 0:08:40.679 --> 0:08:42.160 that was sort of giving you that different picture. 0:08:43.240 --> 0:08:45.920 Well, first of all, the housing market was was central 0:08:45.960 --> 0:08:49.240 to that thesis. And second of all, you know, I 0:08:49.320 --> 0:08:51.520 think at the bond market. You know, if you look 0:08:51.559 --> 0:08:54.679 at bond market, you know, break events and five year 0:08:54.679 --> 0:08:58.360 five or forward expectations, they never really unanchored the bond 0:08:58.440 --> 0:09:00.680 market kind of said was able to see the inflation. 0:09:01.480 --> 0:09:04.199 So as long as the bond market, you know, had 0:09:04.240 --> 0:09:07.360 its retained its confidence in fret and fed credibility to 0:09:07.440 --> 0:09:09.480 bring down the inflation, and as long as the bond 0:09:09.559 --> 0:09:13.760 market more or less agreed that, you know, this was 0:09:13.800 --> 0:09:18.520 a supply chain driven shock, that the bond market was 0:09:18.559 --> 0:09:23.880 not going to fall apart and the inflation would eventually 0:09:23.920 --> 0:09:28.440 turn into disinflation. And that's exactly what happened. We started 0:09:28.440 --> 0:09:33.040 seeing disinflation really kick in June of twenty twenty three, 0:09:33.160 --> 0:09:37.680 and it went to high gear in Q four this year. 0:09:37.920 --> 0:09:41.120 So what was different It was the bond market, the 0:09:41.160 --> 0:09:43.520 bond market never really freaked out. I mean, there was 0:09:43.520 --> 0:09:46.960 some spasms and we know, some term premiums blew out, 0:09:47.160 --> 0:09:50.520 I'm sorry, contracted, and you know. 0:09:50.440 --> 0:09:52.600 There was some dysfunction. We saw a few, you know, 0:09:52.640 --> 0:09:53.160 we saw. 0:09:53.000 --> 0:09:55.280 Some starting with starting with the bank, starting with the banks. 0:09:55.400 --> 0:09:58.360 In March of twenty twenty three, Sure there was a 0:09:58.440 --> 0:10:02.720 mini banking crisis and a pretty favorable, robust policy response, 0:10:02.880 --> 0:10:06.600 but you know, growth, the growth, it didn't really affect 0:10:06.640 --> 0:10:09.400 the growth impulse. In fact, we had some stunning growth. 0:10:09.440 --> 0:10:12.000 You know, people were calling for a recession in twenty three, 0:10:12.880 --> 0:10:16.680 everyone was sure about it, and back in two thousand 0:10:16.679 --> 0:10:20.080 and I'm sorry, back in February of twenty three, this 0:10:20.120 --> 0:10:21.679 is on Twitter. I came out and said, look, as 0:10:21.679 --> 0:10:24.600 long as things get less bad, the economy is going 0:10:24.640 --> 0:10:27.400 to be doing fine. Because despite all the muck that 0:10:27.440 --> 0:10:31.080 was throwing at the economy, we were still at you know, 0:10:31.960 --> 0:10:35.520 very very low but still positive growth. And all these 0:10:35.559 --> 0:10:39.920 headwinds were basically dead weight and the economy proved to 0:10:39.920 --> 0:10:42.160 be resilient. And there's many reasons for that. There is, 0:10:42.200 --> 0:10:46.400 you know, all the stimulus spending, but you know, supply 0:10:46.480 --> 0:10:49.439 chains started coming back online stimulus spending got us through 0:10:50.000 --> 0:10:53.200 you know, the quote unquote of the dark times. And I 0:10:53.240 --> 0:10:58.319 called out a growth impulse back in February of twenty three, 0:10:58.360 --> 0:11:02.360 and lo and behold, Q two came in at a 0:11:02.440 --> 0:11:05.240 high two handle. Q three was on fire, came in 0:11:05.240 --> 0:11:09.440 at I believe five point two percent. So I think 0:11:09.480 --> 0:11:12.480 listening to the bond market, paying attention to what really 0:11:12.480 --> 0:11:14.640 matters and what doesn't matter, is kind of key to 0:11:14.720 --> 0:11:15.360 my process. 0:11:16.960 --> 0:11:20.559 Now, the market responded, the economy we're talking about the 0:11:20.559 --> 0:11:23.920 economy specifically here coming back with strong growth. But what 0:11:24.040 --> 0:11:28.040 about the consumer that is, savings are dwindling, and consumer 0:11:28.080 --> 0:11:32.000 debt is skyrocketing, cost of living is going up, standard 0:11:32.040 --> 0:11:34.240 of living is going down at the same time. I mean, 0:11:34.679 --> 0:11:35.480 how do you look at that. 0:11:36.559 --> 0:11:39.680 These are all valid points, and there's you know, there's 0:11:39.720 --> 0:11:42.120 pockets of you know, strengths, and there's pockets of weakness. 0:11:42.520 --> 0:11:45.880 But for the purposes of the overall macary economy and 0:11:45.920 --> 0:11:48.480 for purpose of markets, it doesn't matter. It really doesn't matter. 0:11:48.520 --> 0:11:50.320 I mean, I remember that last year too. Those I'll 0:11:50.440 --> 0:11:54.800 talk about the this, you know, student loans after I 0:11:54.800 --> 0:11:58.360 guess there was some forbearance and once that forbearance expired, 0:11:58.400 --> 0:12:00.320 then there's gonna be a kind of this huge wall 0:12:00.360 --> 0:12:04.480 of debt. It's going to hit consumers, and it didn't matter. 0:12:04.520 --> 0:12:06.800 And the way the way I approach all these questions 0:12:06.880 --> 0:12:11.280 is take whatever doom story you're thinking about it, divide 0:12:11.280 --> 0:12:14.280 it by the size of the knowledge of nominal GDP. 0:12:14.760 --> 0:12:17.200 It's about twenty eight trillion dollars, and you typically get 0:12:17.200 --> 0:12:20.160 a really really really small number with a lot of 0:12:21.040 --> 0:12:23.920 far you know, far right the tow of zeros to 0:12:23.920 --> 0:12:26.839 the right of the decimal point. So I think when 0:12:26.840 --> 0:12:30.240 you contextualize things like this, it really it doesn't matter. 0:12:30.280 --> 0:12:33.000 This is a massive, massive economy. It's not going to 0:12:33.040 --> 0:12:37.640 be taken down by you know, a relatively small thing. 0:12:37.679 --> 0:12:41.920 I mean, these things obviously affect people's lives, affect people standards, 0:12:41.960 --> 0:12:45.480 individual standards of living, but for purposes of the macro economy, 0:12:45.480 --> 0:12:47.679 which is my area of focus, it doesn't matter. 0:12:48.280 --> 0:12:51.480 That's a really good point. So within the economy, there 0:12:51.520 --> 0:12:55.000 are certainly groups of people that are being affected. So 0:12:55.120 --> 0:12:56.960 if you want to dive into it, you can see 0:12:57.000 --> 0:12:59.280 that certainly some people are dealing with the volatility, and 0:12:59.360 --> 0:13:01.280 a lot of people are affected. But when you look 0:13:01.320 --> 0:13:04.760 at the whole then it's more bullish. So it kind 0:13:04.760 --> 0:13:06.440 of depends on where you're at, but as a whole, 0:13:06.679 --> 0:13:07.080 it's good. 0:13:07.800 --> 0:13:10.520 Correct me. As a whole, we've created over two point 0:13:10.559 --> 0:13:12.600 five million jobs in the past few years. I mean, 0:13:12.600 --> 0:13:15.080 that's bonkers. That is crazy. I mean, and you can 0:13:15.080 --> 0:13:17.200 say it's because the stimulus is fine, it's fake. Fine, 0:13:17.240 --> 0:13:19.240 you say whatever you want. But the number is the number, 0:13:19.559 --> 0:13:20.840 and that's what you got to pay attention to. 0:13:22.080 --> 0:13:25.040 Even though a lot of those are two jobs, the 0:13:25.280 --> 0:13:25.960 second jobs. 0:13:26.400 --> 0:13:30.959 Look, that's that that that those individual hardships are are 0:13:31.080 --> 0:13:33.000 kind of a policy question. But for people in the 0:13:33.040 --> 0:13:35.000 markets that want to make money, that's what they need 0:13:35.040 --> 0:13:35.600 to focus on. 0:13:36.360 --> 0:13:38.959 Good. Okay, now do you. 0:13:38.880 --> 0:13:41.360 Think I'm sorry, I'm sorry if that sounds harsh. I mean, 0:13:41.360 --> 0:13:44.320 I'm you know, I didn't grow up rich. I I 0:13:44.360 --> 0:13:47.320 went to public schools all my life. I know, I know, 0:13:47.440 --> 0:13:51.160 I know, you know, I've I've experienced different I've had 0:13:51.240 --> 0:13:53.199 many different experiences in my life. I'm not trying to 0:13:53.200 --> 0:13:55.080 be callous to the human element of it. I'm just 0:13:55.120 --> 0:13:58.440 saying for purposes of markets, yeah, that should be the focus. 0:13:58.720 --> 0:14:01.880 Yeah, and I'll to speak into that human element of 0:14:01.880 --> 0:14:03.959 it just for a second, I mean, if you're one 0:14:03.960 --> 0:14:05.679 of these people that might have not liked what David 0:14:05.760 --> 0:14:07.559 just said, and hey, that doesn't help me, you know, 0:14:07.600 --> 0:14:10.760 I'm affected by that. The hope is that well, lots 0:14:10.800 --> 0:14:13.080 of the market and economy still doing very well. And 0:14:13.320 --> 0:14:15.680 you're not a tree. You can move and so you 0:14:15.679 --> 0:14:17.160 could learn a new skill, you can move into a 0:14:17.200 --> 0:14:20.080 part of the market that is in demand, that is growing. 0:14:20.120 --> 0:14:23.320 And so while whatever corner of the market or economy 0:14:23.360 --> 0:14:26.080 you may be in that that's affected, there's lots of 0:14:26.120 --> 0:14:28.160 other corners and areas in the economy and market that 0:14:28.200 --> 0:14:30.040 are doing well well. 0:14:30.080 --> 0:14:32.240 And we see it in you know, one really one 0:14:32.280 --> 0:14:34.800 of the best things about this labor market recovery is 0:14:34.840 --> 0:14:38.920 that we've seen labor market dynamics that we haven't seen 0:14:39.120 --> 0:14:43.240 in generations. African American employment is at levels that we 0:14:43.280 --> 0:14:45.800 haven't seen in fifty years. People that were at the 0:14:45.800 --> 0:14:48.360 margins of the labor force, people with you know, mild 0:14:48.440 --> 0:14:52.160 disabilities that maybe were not deemed to be socially appropriate 0:14:52.200 --> 0:14:55.840 for a job environment. Now suddenly they have access to jobs. 0:14:55.880 --> 0:14:59.720 People with petty criminal records that were you know, because 0:14:59.760 --> 0:15:01.440 maybe they smoked a joint and high school or in 0:15:01.480 --> 0:15:04.440 college and got nailed for it or got a DUI 0:15:04.480 --> 0:15:06.920 when they're eighteen, But now they're thirty five and they're 0:15:06.920 --> 0:15:08.800 trying to support a family. You know, they were hard 0:15:08.840 --> 0:15:11.280 to employ because they had a felony record. Now that 0:15:11.320 --> 0:15:14.920 stuff is being looked over, So you know, the human element. 0:15:15.160 --> 0:15:18.360 I think, you know, a rising tide does lift all 0:15:18.400 --> 0:15:21.120 boats eventually, maybe you know, again, not at the same rate. 0:15:21.240 --> 0:15:24.320 Now everybody benefits at the same time. But this economy, 0:15:24.400 --> 0:15:27.480 this recovery, has helped a lot of people that were 0:15:27.520 --> 0:15:30.720 previously on the margins of the labor force. 0:15:32.000 --> 0:15:35.800 Now in your work at Pinebrook Cap it's a substack. 0:15:36.080 --> 0:15:38.800 We'll link to it down below. I follow it. Like 0:15:38.840 --> 0:15:40.360 I said, you kind of stood in the face of 0:15:40.880 --> 0:15:42.880 the general consensus, if you will, sort of as this 0:15:42.920 --> 0:15:46.360 contry and the market's not going to crash. You started 0:15:46.400 --> 0:15:49.120 to I think it seems like maybe you're starting to 0:15:49.200 --> 0:15:51.920 change your view a little bit. You've kind of been 0:15:52.040 --> 0:15:56.080 reporting that maybe the Fed's job of cooling inflation has 0:15:56.120 --> 0:15:58.360 maybe gotten in front of them, and so maybe they 0:15:58.360 --> 0:16:00.840 wanted to cool it. Maybe it's cooling too asked, which 0:16:00.880 --> 0:16:02.320 is part of why I think you were calling for 0:16:02.360 --> 0:16:05.160 the pivot. You know, coming a little bit sooner. And 0:16:05.200 --> 0:16:06.800 now it looks like some of the data that you're 0:16:06.840 --> 0:16:09.720 looking at might be saying that maybe they've gone too far, 0:16:09.760 --> 0:16:12.960 too fast, and this disinflation might be catching them off guard. 0:16:13.120 --> 0:16:14.720 I don't know if I'm summarizing. 0:16:14.240 --> 0:16:16.640 That right, No, I think that's right. I think, you know, 0:16:16.720 --> 0:16:18.560 if we go back to the premise that a lot 0:16:18.640 --> 0:16:21.480 of the you know, look there was the inflation is 0:16:21.720 --> 0:16:24.920 a very complex subject. You know, to this day, we 0:16:24.960 --> 0:16:28.440 still don't have a true working theory of inflation. And 0:16:28.440 --> 0:16:31.080 that's you know, that's everyone knows this. Everyone at the 0:16:31.080 --> 0:16:33.720 FED knows this. You know. It's it's not like, you know, 0:16:34.200 --> 0:16:37.920 it's not like a machine that we can totally understand. 0:16:37.920 --> 0:16:41.240 We have ideas, we have approximations, but no one really 0:16:41.240 --> 0:16:43.840 has a real working theory of inflation. 0:16:44.600 --> 0:16:48.040 So we're kind of making I buy into the Austrian 0:16:48.120 --> 0:16:52.360 school economics theory of in place and being a monetary phenomenon. 0:16:53.000 --> 0:16:58.360 But anyway, so, yeah, so so now that we've kind 0:16:58.360 --> 0:17:01.320 of realized that, look, you know, roughly around eighty percent 0:17:01.360 --> 0:17:03.880 of the inflation that we saw was supply chain driven. 0:17:05.000 --> 0:17:07.359 Maybe we over maybe they were over hiked, you know, 0:17:07.400 --> 0:17:09.440 and and the FED kind of put themselves in this position, 0:17:09.520 --> 0:17:12.080 right because they were related to the trade, and you know, 0:17:12.080 --> 0:17:14.760 when they call it transitory even and it wasn't transitory, 0:17:14.800 --> 0:17:16.400 they had egg on their face. So now they had 0:17:16.440 --> 0:17:18.920 like this oh crap moment of oh my god, we're 0:17:18.960 --> 0:17:20.719 behind the curve and we better get after it. And 0:17:20.760 --> 0:17:22.920 we see that with you know, they started with twenty 0:17:22.920 --> 0:17:26.680 five basis point hikes, twenty five, then they went to fifty, 0:17:27.160 --> 0:17:28.880 and then they're like, we need to do seventy five, 0:17:29.119 --> 0:17:32.640 and they went guns and blazing. So I think by 0:17:32.680 --> 0:17:34.560 the time they were at at a point where they 0:17:34.560 --> 0:17:39.080 were hitting, they were, you know, baking seventy five basis 0:17:39.080 --> 0:17:44.399 point increases. By then, you know, if you subscribe to 0:17:44.400 --> 0:17:46.800 the idea of you know, long and variable lags, I 0:17:46.920 --> 0:17:48.800 kind of do kind of I have do have, don't. 0:17:48.840 --> 0:17:52.440 But by by the time they were doing seventy five, 0:17:53.080 --> 0:17:55.280 you know, they were there. They were just getting getting 0:17:55.280 --> 0:17:58.760 too aggressive. At that point. I mentioned earlier in the 0:17:58.800 --> 0:18:02.360 show that disinflation really started in June of twenty three. 0:18:02.440 --> 0:18:04.440 Well guess what, we got a signified basis point hike 0:18:04.480 --> 0:18:07.520 in July. So right there you have this wedge is 0:18:07.600 --> 0:18:11.800 asymmetry of the disinflation has already started, but we're still hiking. 0:18:12.000 --> 0:18:16.119 And that's only you know, seven months ago. So the 0:18:16.200 --> 0:18:18.760 idea that we went may have gone too far. Obviously 0:18:18.800 --> 0:18:21.600 we will only know that in hindsight, but we're getting 0:18:21.680 --> 0:18:24.320 clues that that has been the case right where now 0:18:25.040 --> 0:18:29.520 we're undershooting the fed's target for twenty twenty three. The 0:18:29.600 --> 0:18:32.320 FED had a target of three core PC of three 0:18:32.320 --> 0:18:36.440 point seven. We're undershooting. We undershot that. So by definition, 0:18:36.560 --> 0:18:39.320 if you've undershot it, that means you applied the brakes 0:18:39.320 --> 0:18:41.800 too hard. Think of a moving car. You got your 0:18:41.840 --> 0:18:45.399 approaching a stoplight. You want to nail the stop more 0:18:45.480 --> 0:18:47.680 or less appropriately. But if you had to shoot the 0:18:47.720 --> 0:18:50.040 stoplight by by one hundred meters, you've either put the 0:18:50.080 --> 0:18:53.440 brakes on too long, too hard, or both. And that's 0:18:53.480 --> 0:18:56.240 effectively what happened in twenty three. In twenty three, we 0:18:56.280 --> 0:19:00.600 see it already, and we're seeing it more as as 0:19:00.600 --> 0:19:03.200 the data comes in. So the way it's looking now, 0:19:03.920 --> 0:19:09.000 the piece the Summary of Economic Productions, the FES looking 0:19:09.000 --> 0:19:11.959 at a PC of two point four for twenty four. 0:19:12.040 --> 0:19:14.439 The end of twenty four, we're probably gonna hit that 0:19:14.600 --> 0:19:19.399 mid June and that's why, you know, the fixed income market, 0:19:19.400 --> 0:19:21.919 the short end of the curve is being so aggressively 0:19:21.960 --> 0:19:24.840 bid because the market is seeing that, holy crap, we're 0:19:24.880 --> 0:19:27.560 gonna unershoot the red light. We're not We're gonna we're 0:19:27.640 --> 0:19:30.040 not gonna h stop you know, three feet before the 0:19:30.040 --> 0:19:31.760 red light. We're gonna stop a thousand feet before the 0:19:31.840 --> 0:19:32.200 red light. 0:19:32.720 --> 0:19:36.960 Yeah. So one of the big, maybe the big drivers 0:19:37.000 --> 0:19:39.080 of this to me, seems to just be looking at 0:19:39.119 --> 0:19:41.520 sort of the natural constraints that are there, the amount 0:19:41.560 --> 0:19:43.680 of government debt that we have, and not just really 0:19:43.720 --> 0:19:47.040 the debt, but really the deficit and the continuing adding 0:19:47.160 --> 0:19:49.560 of the debt that's that's going there. I mean, we're 0:19:49.600 --> 0:19:51.840 having you know, the largest deficits spinning that we've seen 0:19:51.880 --> 0:19:54.720 in any war, but you know, even even higher than COVID. 0:19:54.720 --> 0:19:57.560 This spinding never sort of came down that deficit spending 0:19:57.640 --> 0:20:01.200 seems to be in an area what we'll call fiscal dominance, 0:20:01.200 --> 0:20:05.040 I mean, pushing the markets, if you will, and sort 0:20:05.040 --> 0:20:07.360 of there's this provlaile rock and a hard place where 0:20:07.359 --> 0:20:09.640 they're fighting inflation, but at the same time they don't 0:20:09.640 --> 0:20:14.160