Speaker 1: If you're just tuning in, you're listening to the Mark
Speaker 1: Mass Show. We always talk about the way the world
Speaker 1: is changing as we look at it through the lens
Speaker 1: of politics, finance, and technology, and today we are going
Speaker 1: to look at where the economic world is moving into.
Speaker 1: This continues to further discussions that we've had showing what
Speaker 1: the natural constraints of the central bankers and politicians are.
Speaker 1: So we know what moves are coming and so we're
Speaker 1: going to break that down. So, like I said, most
Speaker 1: people have been watching the doom, the doom and the gloom,
Speaker 1: the doom scrolling if you will, across YouTube and Twitter
Speaker 1: and Instagram, et cetera, and unfortunately the doom and gloom cells,
Speaker 1: which is why people continue to do it. I have
Speaker 1: found myself in this trap all though for the last
Speaker 1: year so I've been trying to be much more optimistic.
Speaker 1: I always was, but I was still using some doom
Speaker 1: to sort of bring people in. However, I've been trying
Speaker 1: to change that and a lot of people aren't. And
Speaker 1: we're seeing that. The reason why is we kind of
Speaker 1: know this. We see social media post things for engage.
Speaker 1: Rage gets more engagement, rage fear those to get more engagement,
Speaker 1: it starts to divide us. Mainstream media they show us
Speaker 1: all the doom and gloom, and unfortunately, like I said,
Speaker 1: that's what sells. And while most people are so worried
Speaker 1: about their watching every video on, you know, the debt
Speaker 1: of the United States and the bond market's going to
Speaker 1: implode and the yield curve is going to reinvert, and
Speaker 1: it's going to mean recession. Recession, recession, recession. What does
Speaker 1: that mean? Everyone's afraid of a recession. But why well,
Speaker 1: I mean technically, a recession would be that growth is slowing,
Speaker 1: so that means businesses aren't doing as good, You're not
Speaker 1: making as much money, and ultimately your quality of life
Speaker 1: would go down. Okay, that that sounds pretty bad and
Speaker 1: it is. However, we also then the other side of
Speaker 1: a recession. We have what's called the markets. So we
Speaker 1: have the economy and we have the markets. Now, those
Speaker 1: things used to be the same. You see in the
Speaker 1: economy when businesses when when you and I the people
Speaker 1: did good, then the business is good. When the businesses
Speaker 1: did good, then the markets did good because we would
Speaker 1: buy those businesses through publicly traded stocks and equities. And
Speaker 1: when those businesses did good, meaning their revenues went up,
Speaker 1: their profits went up, then their stock would go up,
Speaker 1: and so then we were all in this together. We
Speaker 1: made more money, which means we spent more money, which
Speaker 1: means the business did better. So the economy did better,
Speaker 1: which then meant the markets did better. But that's no
Speaker 1: longer the case. As a matter of fact, I've been
Speaker 1: most economists talk about sort of pre COVID era. I don't.
Speaker 1: I don't. Maybe maybe we can call it BC before COVID.
Speaker 1: And really the world changed in two thousand and eight,
Speaker 1: and specifically the markets and the economy changed. Specifically, the
Speaker 1: way that the governments and central banks work in the
Speaker 1: markets changed. This is something I've talked about quite extensively. Really,
Speaker 1: the way central banks and the governments changed the way
Speaker 1: they interacted the markets happened in two thousand and eight,
Speaker 1: and since then it's only continued to accelerate and get
Speaker 1: bigger and bigger and bigger and bigger. We've seen it.
Speaker 1: You know, I'm not going to go through the whole
Speaker 1: timeline and history of this, but twenty twenty, I mean,
Speaker 1: it was just put into steroids, was put into overdrive.
Speaker 1: And so now we sort of have to when we
Speaker 1: look at economic data financial data, we have to sort
Speaker 1: of look at like pre COVID era, and so we'll
Speaker 1: talk about a little bit of that. We also to
Speaker 1: look at like two thousand and eight era. But what
Speaker 1: I was going to say is in the twenty twenty era,
Speaker 1: what we saw maybe for the first time, or really
Speaker 1: became obvious to everybody for the first time, was that
Speaker 1: the economy in the market split. They were no longer
Speaker 1: equal to each other anymore like they did in the past.
Speaker 1: So what we saw is that literally literally all, you know,
Speaker 1: not all, but a majority of businesses, the economy was
Speaker 1: shut down like a light switch, turn the lights off,
Speaker 1: turned the economy off, not just in the United States,
Speaker 1: but most of the world, pretty much the whole world
Speaker 1: at the same time. So the economy was shut down.
Speaker 1: We saw countless people lose their jobs. We saw countless
Speaker 1: millions of businesses literally shut down. Businesses that have been
Speaker 1: around for multiple decades, multiple generations, were shut down permanently
Speaker 1: for good. A lot of them never made it. You know,
Speaker 1: here in southern California, up in like Hollywood, you have
Speaker 1: all these iconic restaurants that have been around for decades.
Speaker 1: You know, served, served, famous, serve famous, famous athletes from
Speaker 1: way way way back, and they're just gone. Now. Landmarks
Speaker 1: are gone. Right, And so we saw literally the economy
Speaker 1: shut off, but then the markets, meaning the stock markets
Speaker 1: and things like that made crazy all new all time high.
Speaker 1: So how does that work? How can we have a
Speaker 1: recession and yet we have a boom in the markets
Speaker 1: at the same time. Well, that's the world that we
Speaker 1: live in, and so it's important to understand that. So
Speaker 1: when everyone's afraid of a recession, we have to understand
Speaker 1: what are we afraid of? You See, this is a
Speaker 1: question that I get asked a lot mark. What are
Speaker 1: we going to do to protect ourselves from inflation, or
Speaker 1: from a recession, or from central bank digital currencies, or
Speaker 1: from attacks on our privacy things like that, if what
Speaker 1: if the electricity goes out? All these different things. And
Speaker 1: what I always typically, always, typically, typically always reply back
Speaker 1: with is what is the attack vector you're trying to
Speaker 1: protect against? So, for example, if I think that if
Speaker 1: I'm worried about a recession, okay, then what is it
Speaker 1: that I'm afraid of the recession for while I'm afraid
Speaker 1: that my job might get taken out? Okay? Well, if
Speaker 1: you're in a if you're in a job you work
Speaker 1: for a business that's highly dependent on the let's say
Speaker 1: on economy, that would be highly influenced by a recession,
Speaker 1: that could be a problem. But I could have a
Speaker 1: job that's not recession. I guess that that is recession proof.
Speaker 1: So let me give you an example. If I was
Speaker 1: in a business that was only catered to tourists, for example,
Speaker 1: it was all tourism based. Well, in a bad recession,
Speaker 1: tourism might slow down, and so my business might be
Speaker 1: impacted by that. I might lose my job, or if
Speaker 1: I have a business in that sector, I might suffer. However,
Speaker 1: I have a buddy who has a business where he
Speaker 1: does like flood and fire restoration. So if your house
Speaker 1: floods or your house gets a fire, he works for
Speaker 1: the insurance companies and he will go fix your house.
Speaker 1: That business is recession proof. It doesn't matter where the
Speaker 1: recession's at. If you have a fire or flood at
Speaker 1: your house, insurance going to pay for it. And so
Speaker 1: you have to kind of think about what am I
Speaker 1: trying to protect against. Some people think, well, a recession
Speaker 1: is just bad for the market. So like if we
Speaker 1: have a recession, then my retirement accounts are going to
Speaker 1: get cut in half, my value of my home is
Speaker 1: going to get cut in half. And that's where we
Speaker 1: want to talk about today because is that necessarily the case.
Speaker 1: Let's just take a look at some of the data.
Speaker 1: So what we saw this week officially Japan, the Japanese
Speaker 1: economy officially shrinks unexpectedly. In the final quarter of twenty
Speaker 1: twenty three, the gross domestic product or GDP was down
Speaker 1: zero point one percent. Very dramatic. I know, I know,
Speaker 1: very dramatic, but it's down and it's technical, right we
Speaker 1: want it. We ow to understand this. Japan dropped a
Speaker 1: rank in the global standings and went to become the
Speaker 1: fourth largest economy now after the weekend of twenty twenty three,
Speaker 1: and it was weaker than what most economists had projected it.
Speaker 1: So these economist always trying to project where things are
Speaker 1: going because markets are forward looking. And so what we
Speaker 1: see is that the economists had forecasted zero point two growth,
Speaker 1: but then the economy actually contracted, so is much worse
Speaker 1: than what they had thought. Now zero point one doesn't
Speaker 1: sound like a lot, but technically, now the Japanese economy
Speaker 1: is in a recession, and because it's now contracted for
Speaker 1: two consecutive quarters. Now, if you remember, the Biden administration
Speaker 1: changed the definition of that, So technically two quarters and
Speaker 1: to contracting quarters consecutive quarters don't mean a recession in
Speaker 1: the United States anymore. But in this case, they're declaring
Speaker 1: Japan to technically be in a recession. Now, the data
Speaker 1: is preliminary, is small enough I mean, zero point one,
Speaker 1: and small enough to leave room for doubt. So what
Speaker 1: does that mean. I mean this preliminary, It means they're
Speaker 1: still gonna retally the numbers and the margin is so
Speaker 1: small we might be able to just find a little
Speaker 1: bit of extra you know, economic activity over here in
Speaker 1: the corner and bring it in and then when we
Speaker 1: revise the estimates that are going to come in next month,
Speaker 1: I mean, maybe it could paint a different picture. So
Speaker 1: that's where we're at. Okay, So technically, as of today
Speaker 1: we've slipped. It could be revised and will be out.
Speaker 1: But does it really matter whether Japan is in a
Speaker 1: recession right now? Could be debatable? Right, Like I said that,
Speaker 1: the information is still gonna get revised. And what's interesting
Speaker 1: about this is though, even though the GDP contracted for
Speaker 1: a second straight quarter. When we look at other data,
Speaker 1: such as business surveys, it tells us a completely different story.
Speaker 1: And this is why you can't rely on any one indicator.
Speaker 1: You have to look at lots of different things. So
Speaker 1: when we look at some of the business data, some
Speaker 1: of the business surveys, and we look at the labor market,
Speaker 1: it looks like something different. So, for example, if you
Speaker 1: look at Japan's unemployment, and don't worry, it's not all
Speaker 1: about Japan. We're going to talk about EU. We're gonna
Speaker 1: talk about the We're gonna talk about the the EU,
Speaker 1: we're talking about England, and we're gonna talk about the
Speaker 1: United States. We're gonna get through all these but we're
Speaker 1: talking about Japan for a second here. But I gotta
Speaker 1: take a very quick break. If you're just tuning in
Speaker 1: your listening to the Mark Moas Show, we're talking about
Speaker 1: recession and markets and booms and busts and so much more.
Speaker 1: You don't want to miss what's coming up next. Don't
Speaker 1: go away, I'll be right back, all right, Welcome back.
Speaker 1: If you just tune in your listening to the Mark
Speaker 1: Moas Show, we're talking about how the United States and
Speaker 1: other major nations that major economies around the world are
Speaker 1: technically falling into recession, but is it as bad as
Speaker 1: what people think it is? And so we're looking at that,
Speaker 1: we're talking about Japan right now. We'll get to the EU,
Speaker 1: we'll get to Britain, we'll get into the US, but
Speaker 1: right now we're just talking about Japan. And so what
Speaker 1: I was saying is technically we're in a recession, very
Speaker 1: very small zero point one percent of contraction in that. However,
Speaker 1: the data is still going to be revised and be
Speaker 1: released next month, and so it could change. But the
Speaker 1: point that I was making is though even though that
Speaker 1: never came out, some of the other data is contradictory
Speaker 1: of that. And so, for example, business surveys of the
Speaker 1: labor market are telling a different story. We can see
Speaker 1: in the unemployment which fell to an eleven month low
Speaker 1: in December, which is pretty interesting. So typically you think
Speaker 1: of a recession like, oh my gosh, gross slows down,
Speaker 1: I'm probably going to lose my job, But in this case,
Speaker 1: unemployment actually has continues to fall lower and lower and lower,
Speaker 1: which showed that business conditions across all industries and firm
Speaker 1: sizes were the strongest they've been since twenty eighteen. It's
Speaker 1: pretty interesting. So GDP's slowing down, although the job markets
Speaker 1: the strongest it's been since twenty eighteen. Now we're going
Speaker 1: to talk about why that is in a minute. Let's
Speaker 1: just keep going. We can see that many economists expect
Speaker 1: makeup Japan to now end its policy of negative short
Speaker 1: term interest rates. They had wanted them to the Japan
Speaker 1: the boj bankup Japan kept saying they were going to.
Speaker 1: But how can they now? And we'll talk about why
Speaker 1: this is important, But how can with these GDP numbers
Speaker 1: of contracting growth, how could the boj think about ending
Speaker 1: negative vent rates or going to a tightening cycle. And
Speaker 1: the answer is they probably can't. So this leads into
Speaker 1: where we're going. But let me just hit on a
Speaker 1: couple more points here about Japan. Like I said, it
Speaker 1: lost its spot from the third biggest economy to go
Speaker 1: into the fourth and now is in this technical recession.
Speaker 1: And so what comes next and again understanding of some
Speaker 1: of the constraints, we'll talk about that, but let's jump
Speaker 1: over to the European continent for a minute, and what
Speaker 1: we can see over in Europe is sort of the
Speaker 1: same thing the whole Euro Area. For the most part,
Speaker 1: the EU shows that the economy is now losing momentum
Speaker 1: and they're starting to downgrade or slash their outlooks. So
Speaker 1: we saw in the EU, we saw the GDP gross
Speaker 1: domestic product was expanded expanded the zero point eight percent,
Speaker 1: that's the outlook, but they had projected one point two
Speaker 1: percent in a prior prediction. And again when you look
Speaker 1: at public financials, when you look at governments, they try
Speaker 1: to project out what the growth of our revenue profits
Speaker 1: will be. The problem is when businesses, companies and governments
Speaker 1: miss those projections and so downgrading that is pretty bad.
Speaker 1: And going from one point two, which is bad growth
Speaker 1: to zero point eight is like almost no growth, So
Speaker 1: it's a pretty pretty big deal. Now, on the bright side,
Speaker 1: they say that inflation has slowed down to two point
Speaker 1: seven percent this year, which is basically matching the European
Speaker 1: Central Bank's estimate, So that's good. So apparently they're getting
Speaker 1: it under control. What we can see is that this
Speaker 1: is through the EU, but in the UK they are
Speaker 1: also suffering from the same thing. As a matter of fact,
Speaker 1: they're dealing with the recession now as well, we can
Speaker 1: see the UK recession deals a fresh blow to Sunak's
Speaker 1: economic promises. And so what is that means? So again
Speaker 1: we talked about the intersection of politics, finance and technology,
Speaker 1: and finance should not be technical. I'm sorry, finance should
Speaker 1: not be political, but yet it is. And so that's
Speaker 1: what we're talking about here. We can see that GDP
Speaker 1: fell zero point three percent in the fourth quarter of
Speaker 1: last year. Again, they had projected a zero point one
Speaker 1: percent drop, so again it was worse than they had expected.
Speaker 1: Now we can see that this is affecting their Prime
Speaker 1: Minister Rishi Sunac, who so far has failed to meet
Speaker 1: his pledge to grow the economy. And so this is
Speaker 1: the big key. In order for politicians to stay in power,
Speaker 1: one they have to promise more things. So each politician
Speaker 1: is incentivized to offer you more free things. That's why
Speaker 1: Biden is trying to slash student debt. Right. We have
Speaker 1: to continue to give more and more stuff with to
Speaker 1: buy the votes, if you will. And so Prime Minister
Speaker 1: Rishi came in with a whole bunch of promises. I'm
Speaker 1: going to list them here in a second, one of
Speaker 1: which was to grow the economy and in the United States,
Speaker 1: it's also as important. We'll come to the US, but
Speaker 1: no income and president or maybe only one meaning a
Speaker 1: returning president, has won. In a time of recession, the
Speaker 1: economy has to be growing. Rishi Sunik pledged that he
Speaker 1: would grow the economy, but yet grossmc product is falling,
Speaker 1: and it's falling faster than what the economists had predicted.
Speaker 1: It says. While the economy still grews zero point one
Speaker 1: percent across the entire year as a whole, it's the
Speaker 1: slowest annual expansion the UK has seen since two thousand
Speaker 1: and nine. So that's pretty bad now. If you think
Speaker 1: about that. That's two thousand and eight. Two thousande was
Speaker 1: the Great financial Crash, so after the worst crash in history,
Speaker 1: we had a rebound that typically happens. But since then
Speaker 1: we've been in this up trend for the last decade,
Speaker 1: twelve years, fourteen years, and it's the worst that it's
Speaker 1: been since that time. It's pretty bad now. We can
Speaker 1: see that this is a like I said, it was
Speaker 1: anticipate paid, but it's giving the Bank of England the
Speaker 1: same problem that the Bank of Japan is having, which
Speaker 1: is actually the same problem that the US central banks,
Speaker 1: the Federal Reserve is having as well, which is what
Speaker 1: can they do to fight inflation when at the same
Speaker 1: time they're fighting recession. You see, the recession needs stimulation.
Speaker 1: The recession needs easy monetary policy to try to get
Speaker 1: the economy out of the recession. If we can make
Speaker 1: money cheaper, then people will buy more of it, will
Speaker 1: take on more house, car, boat loans, We'll expand our businesses,
Speaker 1: We'll go remodel our house, fix our yard up. We'll
Speaker 1: spend more money, and that stimulation in the market will
Speaker 1: bring us out, hopefully. The goal is to bring us
Speaker 1: out of recession. The problem is is that it restokes inflation,
Speaker 1: and so on one hand they're fighting the inflation, but
Speaker 1: they're overtightening, which is then causing the recession. It's the
Speaker 1: rock and the hard place. We've been talking about this
Speaker 1: for a long time. Now made again, like I said,
Speaker 1: made growing the economy one of five key pledges after
Speaker 1: he took office back in October of twenty twenty two.
Speaker 1: The other ones were cutting the debt, having inflation, reducing
Speaker 1: health services, waiting lists, and stopping boat migration across the
Speaker 1: English Channel. So far, out of all those pledges, those promises.
Speaker 1: Elect me, and I'll get these things done. Out of
Speaker 1: all of those, the only thing he's been able to
Speaker 1: do is been able to slow down price growth. Now
Speaker 1: I say he's been able to do, he's certainly not
Speaker 1: responsible for that. A lot of it is returning to
Speaker 1: the mean. So again, we had this COVID era, this
Speaker 1: massive I call it like a sugar rush, all this
Speaker 1: money dumped in the economy that created all these distortions,
Speaker 1: and a lot of it's coming back to normal. So
Speaker 1: I'm certainly not going to give him credit for that,
Speaker 1: but to his credit, he'll certainly claim it. The one
Speaker 1: thing out of all of those things is inflation has
Speaker 1: started to come back down. But migrants that's not better,
Speaker 1: health services waiting less, that hasn't gotten better. The debt
Speaker 1: certainly hasn't gotten any less. That's laughable. And so none
Speaker 1: of these things have worked. So what do they do well?
Speaker 1: We need to kind of dig in a little bit
Speaker 1: because there's a lot of nuance here. Like I said, one,
Speaker 1: we want to understand what are the constraints. So we
Speaker 1: know that this puts a lot of pressure on the
Speaker 1: central bank. The bank now has to start cutting rates
Speaker 1: faster and deeper than they had wanted to do, because
Speaker 1: again they're trying to keep inflation at bay. And just
Speaker 1: like all central banks Japan wanted to start tightening, they
Speaker 1: can't do that now. The fed's trying to FED in
Speaker 1: the US is trying to delay their pivot, but they're
Speaker 1: being forced into it sooner. In the UK, same thing,
Speaker 1: they're being forced into faster rate cuts at a faster rate,
Speaker 1: psyching highicle than they had wanted to. Now, this is
Speaker 1: the Europe, Europeans the EU, this is the UK, this
Speaker 1: is Japan. And now we'll talk about the United States,
Speaker 1: because retail sales are plunging in January, the worst year
Speaker 1: over your growth since the COVID lockdown. But this is
Speaker 1: only about the economy. What about the markets. I'll cover
Speaker 1: that in a minute when I come back. If you're
Speaker 1: just tuning in, youth in too, the Mark Mass Show,
Speaker 1: talking about recession and markets, don't go away. We'll be
Speaker 1: back with more a minute. Beer back, all right, welcome back.
Speaker 1: If you're just tune in you Lily too, the Mark
Speaker 1: Mass Show. We're talking about the whole world and going
Speaker 1: into a recession right now, and does it matter and
Speaker 1: if so, what should we do about it. So we're
Speaker 1: talking about we talked about Japan going into recession technically
Speaker 1: potentially could be revised out what technically it is, the
Speaker 1: EU and then the UK, and now we'll talk about
Speaker 1: the US. But the story is the same. All governments
Speaker 1: and central banks have been fighting inflation, which inflation was
Speaker 1: caused by printing too much money, creating too much money
Speaker 1: through increasing the monitary base and credit expansion. The problem
Speaker 1: is they created too much inflation by expanding that, and
Speaker 1: they're trying to bring inflation back under control because people
Speaker 1: get restless when you can't afford to feed your family
Speaker 1: and you can't afford the same quality of life that
Speaker 1: you've been living, and you're unhappy. And when people become unhappy,
Speaker 1: then governments don't last very long. So they want to
Speaker 1: bring inflation back down. But at the same time, by
Speaker 1: trying to bring inflation back down, they have to do
Speaker 1: the opposite. They have to contract the money supply them.
Speaker 1: But when they contract the money supply, then the entire
Speaker 1: economy starts to contract. Growth slows down or goes negative
Speaker 1: is exactly what we're seeing. And then if people lose
Speaker 1: their jobs, then they're even more unhappy. So what do
Speaker 1: we do Damn. If we do dan, if we don't write,
Speaker 1: we either continue to print the money that we need
Speaker 1: for all of our endless programs that we want to
Speaker 1: continue to fund and stimulate the economy and face inflation,
Speaker 1: or we try to bring things back under control and
Speaker 1: then we crash the economy. Those are the two choices. Now,
Speaker 1: what we can see in the United States is retail
Speaker 1: sales plunged in January. Like I said, worst year over
Speaker 1: year growth since the COVID lockdown, which is pretty bad.
Speaker 1: We saw that they unexpectedly surged in November and December,
Speaker 1: now driven in a large pot by a jump in
Speaker 1: the food services headline. Retail sales in January expected to
Speaker 1: decline by just zero point two percent, but it was worse,
Speaker 1: and it had been zero point six percent, so again
Speaker 1: worse than expectations. This is the worst monthly decline since
Speaker 1: March of twenty twenty three, and the worst year over
Speaker 1: year rise since May of twenty twenty so that's a
Speaker 1: big problem. We have the same issues going on in
Speaker 1: the United States. The retail cells are plunging. Now we're
Speaker 1: not technically in a recession like we have over in
Speaker 1: Japan and we have in the EU and we have
Speaker 1: in the UK. Technically the US is not, but it's slowing.
Speaker 1: It's slowing now technically to be in a recession, to
Speaker 1: be two negative quarters, we're not at that point yet.
Speaker 1: But it's the trend, it's the direction that we're trying
Speaker 1: to pay attention to. We can see that motor vehicles
Speaker 1: and parts and building materials saw the largest decline month
Speaker 1: over month on a year over year basis. Gas stations
Speaker 1: building materials were the big drag, while online retailers and
Speaker 1: food services were the biggest upside drivers of this. We
Speaker 1: also saw core retail sales declined zero point five percent
Speaker 1: month over month, which dragged the year overyear levels down
Speaker 1: to the lowest level since the COVID lockdowns. Again, so
Speaker 1: we can see that this is starting to be a
Speaker 1: big problem. Basically, if we sum this up, Americans just
Speaker 1: aren't buying as much stuff as they used to. That's
Speaker 1: basically what this means. And so are we get into
Speaker 1: that recession? Will we get to a recession? We don't
Speaker 1: know how do we fight that, but we already know
Speaker 1: the constraints that we're in. I believe, and I say
Speaker 1: this all the time, I believe that when push comes
Speaker 1: to shove, when you're forced to choose, when the central banks,
Speaker 1: the BOJ, the ECB, the FED, when they're forced to
Speaker 1: choose between one of two choices. And this is what
Speaker 1: people don't understand. They have to choose one or the other.
Speaker 1: They're trying to go right down the middle, but unfortunately
Speaker 1: one or the other prevails. And the two choices, as
Speaker 1: I already laid them out, are one we continue easing
Speaker 1: the monetary cycle so we don't crash the entire economy.
Speaker 1: People don't lose their jobs, business don't go under, and
Speaker 1: we can continue to fund all these wars and all
Speaker 1: these social programs and all these other programs. So we ease.
Speaker 1: The problem if we do that is we have high inflation.
Speaker 1: On the other side is we want to bring inflation
Speaker 1: down because people get unhappy when they can't afford the
Speaker 1: quality of life. But the problem is that then we
Speaker 1: crash the economy. And I believe when flaced between those
Speaker 1: two choices, they will choose inflation every time. And the
Speaker 1: reason why is I think inflation is more incremental. I
Speaker 1: would rather see my assets going higher. I would rather
Speaker 1: see my bitcoin going up, which, by the way, it's
Speaker 1: shooting to the moon right now. I love it. I'd
Speaker 1: rather see my value of my homegowup. I'd rather see
Speaker 1: the value of my stocks, my retirement account going up.
Speaker 1: And if the prices of all my assets were going
Speaker 1: up and my pay is going up, I can stomach
Speaker 1: the higher prices I have to pay at the gas
Speaker 1: pump and the airline tickets and my food and all
Speaker 1: those things. However, if I lose my job, I lose
Speaker 1: my business, and I lose all my income, I'm very unhappy.
Speaker 1: So I think most people would be okay paying a
Speaker 1: little bit higher prices, but seeing the value of all
Speaker 1: the things go up, then to lose everything, lose their
Speaker 1: business and lose their job, and so I think, and
Speaker 1: then that's the government's trying to keep us, as we
Speaker 1: the people happy, complacent. But if you think about it
Speaker 1: from a government perspective as well, if they have a
Speaker 1: recession and then we go into some sort of deflation,
Speaker 1: that could be the end of the governments as we
Speaker 1: know it, right because all the debt is collateralized, and
Speaker 1: so then it starts to unwind this debt bubble. I'm
Speaker 1: not going to go through all that right now, I've
Speaker 1: talked about it extensively. But if they're forced to choose
Speaker 1: between the people, do we want to give them inflation
Speaker 1: to deflation? But if they're forced to choose for themselves,
Speaker 1: do we allow deflation and everything just to fall apart
Speaker 1: and we go bankrupt? Or do we continue to print
Speaker 1: money to pay our debts? Of course, they're going to
Speaker 1: continue to print money every single time. All right, Now,
Speaker 1: here's what I want to talk about though. So we're
Speaker 1: going into recessions. So what so what? Well, I've already said,
Speaker 1: so what maybe your job? So think about your job
Speaker 1: or your business. Are you like in a recession proof
Speaker 1: business or job or are you more at risk from that?
Speaker 1: So that's one way you need to think about that.
Speaker 1: But now let's talk about our money, our assets. So,
Speaker 1: as I said, in twenty twenty, things really changed. We
Speaker 1: saw first and foremost that no longer do the economy,
Speaker 1: no longer does the economy equal to markets. As I said,
Speaker 1: we saw the entire economies of the world literally shut
Speaker 1: off with a light switch, and yet markets went to
Speaker 1: new all time highs Now, was that an anomaly in
Speaker 1: the COVID era or is that the way things are
Speaker 1: now today? And is that the way things are going well,
Speaker 1: maybe some of both. As a matter of fact, what
Speaker 1: we can see is that the UK and Japan show
Speaker 1: that markets are going up, not down after technical recessions.
Speaker 1: Very interesting. So we have the UK and Japan are
Speaker 1: slipping into technical recessions with their GDP releases. It's an
Speaker 1: opportune moment to underscore that while such developments may generate
Speaker 1: a lot of headlines, they have no forward looking information
Speaker 1: content for investors. That's a key piece. They have no
Speaker 1: forward looking information. You see, markets are what we call
Speaker 1: future discounting. We're basically trying to buy something cheaper today
Speaker 1: than it's worth in the future. So we're not buying
Speaker 1: something for how much it's worth today. We're buying for
Speaker 1: something for how much we think it will be worth
Speaker 1: in the future. So we have to be forward looking.
Speaker 1: And what happens is some of these data we have
Speaker 1: lagging indicators, we have leading indicators. So GDP is a
Speaker 1: lagging indicator. GDP tells us what happened in the past,
Speaker 1: but we're trying to guess on where things will be
Speaker 1: in the future. And so what they're saying here is
Speaker 1: these GDP releases they have no forward looking information. For US,
Speaker 1: technical recessions typically precede rising asset returns. It's pretty weird.
Speaker 1: It's the opposite of what most people think. But as
Speaker 1: we can see both of these countries going into recessions,
Speaker 1: we can see this playing out in real time. Why
Speaker 1: is this the case, Well, there's two main problems with
Speaker 1: this categorization. One, when we look at just the recession
Speaker 1: and the GDP, it's overly simplistic. Okay, when we look
Speaker 1: at like Japan, like I said, it was like zero
Speaker 1: point one percent two percent, there's little to no difference
Speaker 1: between an economy that contracts it zero percent zero point
Speaker 1: two percent one quarter and is flat the next, which
Speaker 1: would be no recession, or one that sees growth fall
Speaker 1: by zero point one percent for two quarters in a row,
Speaker 1: which would be a recession. You see what I'm saying,
Speaker 1: So technically a technical recession, what's the difference if I
Speaker 1: get zero point two percent one year and one quarter
Speaker 1: in the next quarter, it's flat or zero point one
Speaker 1: percent both, Right, So that's what I'm talking about, overly simplistic.
Speaker 1: Second of all, which is why probably why the Biden
Speaker 1: administration said that's not technically the recession. We need to
Speaker 1: look at more data than them. Second is because like
Speaker 1: I said, GDP's a lagging indicator, is telling us where
Speaker 1: the economy was, not where the economy is going. But
Speaker 1: the markets are trying to predict the future. They're forward looking,
Speaker 1: and so us as investors, we need to focus our
Speaker 1: energies on leading indicators of the economy rather than GDP,
Speaker 1: which is again a lagging indicator. Some information content can
Speaker 1: be gained by gap by looking at by trying to
Speaker 1: discern by gauging the composition of the growth, but there's
Speaker 1: nothing in a GDP report that will give us any
Speaker 1: indication of an approaching turning point when markets typically see
Speaker 1: the biggest moves When it comes to the UK, leading
Speaker 1: indicators are rising, So what are those. I'm going to
Speaker 1: come back with those in a minute. If you're just
Speaker 1: tune in your listening to the markmas Show, I'm going
Speaker 1: to take a very quick break. When we come back,
Speaker 1: we'll talk about the leading indicators that show it's rising.
Speaker 1: Don't go away, I'll be right back, all right, Welcome back.
Speaker 1: If you just tune in your listening to the Mark
Speaker 1: Maas Show, We're talking about how the major economies of
Speaker 1: the world are all slipping into recession. But yet surprise, surprise,
Speaker 1: surprise is the markets are making highs, which is pretty interesting.
Speaker 1: So we're talking about why looking at the GDP and
Speaker 1: stuff are lagging indicators and it doesn't tell us what's
Speaker 1: happened in the future. And so that's one of the
Speaker 1: reasons why we see that it's going down but markets
Speaker 1: are going up because it told us what already happened.
Speaker 1: But the markets are telling us what is going to happen.
Speaker 1: So better understand that we're trying to look forward leading indicators,
Speaker 1: not lagging indicators, and when it comes to the UK,
Speaker 1: leading indicators are rising, suggesting the worst could have already
Speaker 1: passed for the economy. That's what people are saying. I mean,
Speaker 1: that's what the market's telling us. Anyway, they're saying it's
Speaker 1: already happened. It's similar same thing in Japan. The yen
Speaker 1: and the JGB yields fall in the shorter term. Then
Speaker 1: when that happens, the Nikki, which is their index, their
Speaker 1: stock index, treads water in the short term after the
Speaker 1: technical recession, but after twelve months it returns an average
Speaker 1: of ten point seven percent. That's what we've seen. Good
Speaker 1: now again back in the US, the US is nowhere
Speaker 1: near a technical recession at the moment, but same we're
Speaker 1: also the average mean positive returns after we can see
Speaker 1: that after recession, we see that we see big returns
Speaker 1: over the next three to twelve months historically, So what
Speaker 1: we see is technical recessions generate a lot of heat,
Speaker 1: but not much light. There are sometimes oftentimes most times
Speaker 1: just a distraction for us and as investors. So we
Speaker 1: can see again back to the United States, we had
Speaker 1: a technical recession, then the Bide administration told us it wasn't.
Speaker 1: But then market's rallied in one of the best years
Speaker 1: that we've had in decades. And that's exactly what we're seeing.
Speaker 1: And so the recession in the UK, the EU and
Speaker 1: Japan could already be over because it's lagging. Indicators in
Speaker 1: the markets are giving us those forward looking indicators. Now,
Speaker 1: some of the things that we can pick up from
Speaker 1: Japan is, like I said, because it's forward looking, it
Speaker 1: sort of tells us what's going to happen. And so
Speaker 1: Japan had been wanting to and the ECB and the
Speaker 1: FED as well been wanting to again fighting inflation, wanted
Speaker 1: to raise rates. Japan specifically wanted to get out of
Speaker 1: this negative interest rate policies they've had. But going into
Speaker 1: the recession right now, EU, UK, JGB, potentially the US
Speaker 1: going to that recession shows us that there's no way
Speaker 1: they can tighten that market back up, and most of
Speaker 1: these countries ecb US, etcetera are going to have to
Speaker 1: start easing, and that's what the markets are picking up on.
Speaker 1: You See, you have to understand the causal, the cause
Speaker 1: and effect mechanism here. If we go into recession, then
Speaker 1: the Feds will ease, and so what the markets are saying, well, okay,
Speaker 1: we get the recession, but that's what happened last quarter.
Speaker 1: Now we understand because of that the central banks will
Speaker 1: have to ease, and so we now expect an expansion.
Speaker 1: So we're going to bid the stocks up, right, That's
Speaker 1: what we're talking about. So, like back to Japan, the
Speaker 1: Nikkei Index more than doubled from the COVID lows and
Speaker 1: it's about to breach its all time bubble highs that
Speaker 1: were set in the back in nineteen eighty nine. So
Speaker 1: the Nikki index is making a new high that hasn't
Speaker 1: been set for multiple decades, and it's right after Japan
Speaker 1: technically entered a recession. You see what we're talking about here.
Speaker 1: So the recession happened, but what's happening next? The markets
Speaker 1: are trying to tell us, at least what they think.
Speaker 1: Now it's anybody's guests. None of us have a crystal ball.
Speaker 1: But people are putting their money where their mouth is,
Speaker 1: so to speak. And that's exactly what the markets are saying.
Speaker 1: And so it's confirming that only central banks matter in
Speaker 1: a world where the economy clearly does not. Back to
Speaker 1: twenty twenty, the entire economy was turned off like a
Speaker 1: light switch all across the globe simultaneously. At the same time,
Speaker 1: the economy, the jobs, the businesses, but yet the markets
Speaker 1: screamed to all new time highs. And so what that
Speaker 1: means is that the money printers override real businesses. Now,
Speaker 1: this is fake, it's artificial, it's non sustainable, and it
Speaker 1: only leads to paying death and destruction eventually. But for now,
Speaker 1: in the short term, this is what matters, which is
Speaker 1: why we focus on the central bank policy. We focus
Speaker 1: on are their policies going to be tight, are they
Speaker 1: going to be loose? What will they do? And we
Speaker 1: try to understand the leading indicators that show us what
Speaker 1: they'll have to do. So, for example, this is exactly
Speaker 1: what we're talking about. The central banks say they want
Speaker 1: to tighten, but given the fact that economies are going
Speaker 1: into recession, they can't, and so we can start to
Speaker 1: front run them. We can start to guess where they're
Speaker 1: going to go based off of understanding these natural constraints,
Speaker 1: and rather than trying to spend all our time focusing
Speaker 1: on what the economy is doing, really what we're understanding
Speaker 1: is it's the central banks that matter the most. That
Speaker 1: makes sense. It's why I talked about probably the greatest
Speaker 1: investor in I don't want to say he's the greatest,
Speaker 1: he's one of the greatest investors in history. I don't know,
Speaker 1: I don't I don't know totally. But he went forty
Speaker 1: years without a loss in a twenty billion dollar portfolio,
Speaker 1: forty years without a loss and averaged a thirty percent return.
Speaker 1: Arguably one of the greatest ever. Talking about Stanley drucken Miller,
Speaker 1: he worked under George Soros, and I mean, he's just
Speaker 1: a legend. But what we saw is that there there
Speaker 1: was a book written New Money Wizards, New Market Wizards,
Speaker 1: and he talked about how when he first started his career,
Speaker 1: he win did all this research into these stocks and
Speaker 1: these companies and looked at all the fundamental analysis and
Speaker 1: looked at, you know, the earnings and the profits and
Speaker 1: all these things, and he took it to the fund
Speaker 1: manager and they said, this is this is all garbage's
Speaker 1: none of this matters to us. And he's like, what
Speaker 1: what do you mean None of this matters? He said,
Speaker 1: go find out the real thing that drives prices up
Speaker 1: and down. And Stanley Druckon Miller was kind of confused.
Speaker 1: He said, what do you mean, go find out the
Speaker 1: real thing? I thought I did, So he went back
Speaker 1: to the drawing board and what he concluded was that
Speaker 1: none of those fundamentals matter. What really matters is the liquidity.
Speaker 1: That's what matters. And liquidity is supplied by the central banks.
Speaker 1: They're the ones that change the price of money, they're
Speaker 1: the ones that add money whatever. And so it's basically
Speaker 1: what led to his success for thirty or forty years.
Speaker 1: And it's the same playbook that we can and we're
Speaker 1: seeing it front and foremost right here Japan, EU, UK
Speaker 1: and now potentially the US slipping into recession. Wall markets
Speaker 1: are screaming to new all time highs. It's pretty incredible.
Speaker 1: And again we're seeing it in the US as well.
Speaker 1: Now the US is not technically in a recession, but
Speaker 1: growth has slowed way down, and everyone's afraid that we're
Speaker 1: going to go into recession any moment. But we can
Speaker 1: see that Wall Street is at its highest level ever,
Speaker 1: the S and P five hundreds breaking new levels. We
Speaker 1: see that we have higher retail sales and markets are
Speaker 1: going up. US stocks closed higher on Thursday as retail
Speaker 1: sales data declined more than expected. So the sales data
Speaker 1: went down, meaning the economy is not doing good, meaning
Speaker 1: we could be slipping into recession, but stocks went up. Huh,
Speaker 1: how does that work? Wait, so sales the business went down,
Speaker 1: but the stocks went up. Are you starting to understand?
Speaker 1: Are you starting to understand why? Well, because then we
Speaker 1: understand what comes next. If retail sales go down, that
Speaker 1: means the economy is slowing down. That means the recession
Speaker 1: is coming. If that happens, then what you have to
Speaker 1: ask yourself, second, third, fourth, fifth order? Then what well?
Speaker 1: Then the Federal Reserve will start cutting interest rates in
Speaker 1: coming months. You see, and this is what stocks are
Speaker 1: starting to price for a Commerce Department report showed US
Speaker 1: retail sales dropped zero point eight percent in January, so
Speaker 1: you know things are slowing down pretty bad. Investors are
Speaker 1: cheering the fact that we got a weaker than anticipated
Speaker 1: retail report. When our investors cheering that, why do they
Speaker 1: want a weaker than anticipated retail report? Well, because if
Speaker 1: the retail port was stronger than anticipated, then the FED
Speaker 1: would push off the pivot, they'd push off the rate decreases.
Speaker 1: But because it was weaker than expected, the investors are
Speaker 1: cheering it because they want that to come. It says,
Speaker 1: it shows that maybe the economy might be a little weak,
Speaker 1: and so that's sort of bad news. That's potentially good news,
Speaker 1: good news, bad news. It's good it's it's bad news
Speaker 1: that the economy is getting weak, but it's good news
Speaker 1: because it means the FED is more likely to cut rates,
Speaker 1: said Thomas Martin, senior portfolio manager at Globalt. So this
Speaker 1: is this is where we're at. You have to understand
Speaker 1: what is the problem I'm afraid of? What am I
Speaker 1: trying to protect myself from in a recession? Is my job?
Speaker 1: Is my business at risk? What can I do to
Speaker 1: shore that up, and then what should I expect with
Speaker 1: my investments? To understand those are two separate things that
Speaker 1: have to be addressed and managed separately. I know this
Speaker 1: is we I know this is a new world. But
Speaker 1: as Einstein said, the answers have changed. The way the
Speaker 1: central banks and the politicians and the governments interact in
Speaker 1: the markets changed in two thousand and eight, it changed
Speaker 1: again in twenty twenty, and we are a new paradigm.
Speaker 1: If you're just tuning in your listening to the Mark
Speaker 1: Maus Show, talking about the way the world is changing
Speaker 1: as we look at through lens of politics, finance, and technology.
Speaker 1: And that's what I got for today. That's a wrap.
Speaker 1: Thanks so much for listening.