Inflation To End As Arriving Recession Now 'Baked In' | Steve Hanke

a recession really is baked into the cake the money supply in the United States has been contracting actually for about 10 months that's shrinking the money supply and when that happens with with a lag of about six to eighteen months economic activity starts changing and so a contraction means what it means a recession and If the Fed continues to have this car in Reverse we're going to probably have a pretty good recession maybe one one that will last quite some time welcome to wealthyon I'm Wealthy on Founder Adam Taggart when he was on this channel back in August of 2021 when inflation was five percent today's guest made the Bold prediction that the CPI would eventually hit nine percent which it indeed did the following June so where does he see inflation headed from here to find out as well as hear his latest outlook on fed policy the U.S dollar recession risk in the markets we welcome back Steve Hankey professor of Applied economics at the Johns Hopkins University in Baltimore Maryland Steve thanks so much for joining us today good to be with you again Adam it's always a pleasure Steve I follow your work closely especially your Twitter accounts um you have been uh at no loss for words of many things that have been happening uh in in the economy and in the markets and you know geopolitically this year lots to talk with you about here um before we dive into it although just I want to ask my normal high level starting question what's your current assessment of the global economy in financial markets well starting at the epicenter of things the United States I think a recession really is baked into the cake the money supply in the United States has been contracting actually for about 10 months that's shrinking the money supply and when that happens with with a lag of about six to 18 months economic activity starts changing and so a contraction means what it means a recession and If the Fed continues to have this car in Reverse we're going to probably have a pretty good recession maybe in one one that will last quite some time and and and be deep we can get into that in detail later but so that's the that's the starting point always is that the the main thing is what's going on in the United States Europe is is in bad shape they've they've essentially uh also money supply has been slowing way down so that's a key same with the United Kingdom money supply slowing way down credit uh getting squeezed and the war against Russia that's that's really being led by the United States is is really throwing a spanner in the works not only the U.S economy but also the European economy so so those are those are the two two big ones then then you've got another real big one with China and it's coming back and slowly coming back online after stupidly imposing these lockdowns you know we've done this big study at Johns Hopkins I with uh Jonas Herbie and Laurie zionic uh Herbies in Denmark and ioni goes in Sweden and I'm of course at Hopkins uh we're we're public that that research we did will be published uh as a book shortly but the conclusion was that lockdowns essentially don't do anything to improve Public Health but they kill the economy and what did they do in China well they had severe lockdowns and it really crippled the economy and but they're kind of coming back out of it so that's that's a plus uh in India is doing doing okay uh Indonesia is doing okay so that's that's kind of the the big ones in Asia uh so the picture is kind of Bleak I would say kind of bleak uh and one in which there's a lot of uncertainty not not only Bleak but we don't know how severe the storm is going to be there there's definitely going to be a storm in the United States and there'll be one in Europe and there'll be one in the UK exactly how intense that storm will be no one really knows yet but it seems like these central banks are are hell-bent on continuing what they're doing stupidly to over over squeezing the money supply they're not paying attention to the money supply over squeezing it with quantitative tightening and uh the fed and and the ECB and the bank of England clearly uh are just basically have been Flying Blind I mean they're not looking at the money supply so they're they're Flying Blind they're they're driven by daily data that come out short-term data they're called what they call data driven they're not looking at the quantity theory of money that relates the changes in the money supply to economic activity prices and things like that they're looking at Daily data so a lot of noise they they watch the noise they don't watch the signal which is a money supply the signals the money supply it's the only thing that counts and they will and they listened to all the noise coming out every day so that's that's kind of a 30 000 feet that's kind of a starter so you gotta you got to be very careful star storm clouds are gathering okay great so Gathering storm clouds you feel relatively confident a recession lies ahead baked in the cake especially if the central banks continue to focus on the noise and not the signal um you didn't mention the markets we are going to get a chance to talk about that in depth in a bit but I assume you're not very optimistic about the general economic conditions should I presume that you're not generally optimistic about the market conditions going forward uh no I'm not uh so and I said the volatility and uncertainty especially with these sanctions the U.S you know weaponizing the financial system is extremely dangerous and and I don't think it's it's really made a big bite yet but but it could uh and it just throws a lot of uncertainty in the markets it did disrupt the oil Market of course and the grain markets for a while and and uh but the financial markets have been kind of immune from Financial sanctions so far but that's I say so far because Financial sanctions by the way the history the reason the financial sanctions are so stupid is twofold one if you put sanctions on that that goes against the principle of free trade and the French principle of free trade is really what's behind prosperity and growth so so that's one thing holding back by the way the international economy when you said my broad view of things one thing holding back broad growth throughout the the world which you can look at the IMF as he's forecast these big Global forecasts and they've got a pretty a pretty low growth scenario coming out of the the the IMF forecast and one reason for that are these sanctions and the sanctions are anti-free trade anti-market just anti-prosperity anti-everything I mean they're they're absolutely stupid in terms of principle but in practice or even worse in the sense that they'd never accomplished or stated objective so if you're going after somebody and you want regime change you want to change your regime in Korea well we've had sanctions on Korea for decades what's what's happened oh Cuba let's overthrow Castro that's a great idea we put sanctions on well what what do we have in Cuba how about Madeira this is one of the most stupid cases in Venezuela Madeira was weak he was in power he was floundering around we put sanctions on that was 10 years ago we've kept Madero in power the U.S policies of sanctioning Venezuela are the only reason Madeira is in power right now he's actually had two hyperinflations in those 10 years a complete disaster but with sanctions what do you get you get a rally around the flag effect right and it keeps Madeira in the Saddles so the history of sanctions is is one of a complete disaster as a policy they do not accomplish their stated objectives but the U.S and and by the way this is very bipartisan if you think this is just Biden doing this no no we we we were doing it with bush big time in fact after September 11th George W bush ramped up Financial sanctions fairly severely and they were followed by the Obama Administration and and of course Trump also and now we have Biden and and by with Biden of course there's like tripling down because because Biden has entered a proxy war the U.S is very involved by the way in this war if you look at these leaked papers that just came out for example it's very clear the U.S is doing everything except sending battalions of ground troops into Ukraine so so this is another saying that people aren't thinking about when you talk about markets you better be thinking about things like this so that does get to One Market gold has been pretty strong by the way and uh one one aspect is a safe haven thing so you have a war going on okay that's good for that's good for gold you have a banking crisis that's good for gold and you have a recession baked in the cake and usually when a recession comes about six months before the recession and and going into the recession during the recession gold is strong so so that's one that's one market that's you know a pretty safe bet I you know you're not going out going out too too far on the on a long plank if you're if you're going to be long gold with the kind of environment that I'm describing right now that we're in okay great well look I want to I want to get to more discussion about gold specifically as well as you know the other assets you think are either well positioned or poorly positioned given the the macro environment you just laid out for us but we got we got some ways to go before we get there um so let's let's if we can let's let's talk about Central Banking for a moment here um because that is what is driving a lot of the action and particularly you said that look you know these guys are looking at the the noise and not the signal they're continuing to tighten here while the most important metric that you said you know money supply is Contracting and uh We've not seen a contraction in M2 for decades and decades and decades um so Steve as you had talked about you know the fed and the world other central banks um uh you know they they ended up creating the nine percent inflation that you had been warning about right so they were complicit in creating that inflation they certainly waited too long to take action against it um now they have they've raised rates um further and faster in the shortest period of time in the data series that I know of here so um I I want to ask you basically two things um one is um you know we might be in in danger of now of the the fed and the other central banks over tightening right and as you said uh creating a recession perhaps even a worse recession than might be necessary here so there are two things going on like even if the central banks pause right now right and a number are beginning to right I think uh Canada Australia India have all announced pauses um Powell is talking like you know maybe I got one right hike left in me but I'm gonna see but even if they pause here we've got the lag effects from all of those rate hikes uh that the feds made over the past year that take about a year-ish or so you know better than I uh to fully manifest in the economy after the FED has made the decision um we also have tightening lending standards going on now that have been exacerbated by the banking crisis and you know Jerome Powell said recently that those sort of substitute as additional rate hikes which is one of the reasons why he's saying I'm going to kind of wait until the next fomc before I determine if I want if another hike is needed or not right so my point is is we have all of these additional um you know impacts that are going to serve to continue to contract things even though the FED just stays tries to stay flat from here so two questions for you one is how important are those factors I just mentioned the rate hikes and the credit tightening in terms of kind of making things worse from a Contracting standpoint and then secondly do you think the FED is going to be able to hang in until inflation is truly tamed or are these you know contract the gravity of these Contracting forces going to break something systemic and force the FED to step in uh because it's trying to has to feels like it has to save the system at that point okay now Adam to unpack that actually you've asked about 20 questions I'm sorry I did so so let me just kind of ramble around over the territory that you were covering there uh first the inflation story I I think as you mentioned John Greenwood and I were the first ones to actually forecast and put a number that was correct on where inflation was going to go and that it would be permanent it would it would persistent it would be persistent not permanent it would be persistent not temporary and and we did say it would go up to nine percent it actually went at the peaked at 9.1 percent the headline CPI in the United States so the question is now where are we well about a year ago we using again the quantity theory of money focusing on the money supply MV equals py we indicated that by the end of 2023 that's this year inflation would be around five percent so so it would be coming down towards five percent then about two months ago we we noticed and that of the money supply was Contracting and and not only that and I'll get into this in a minute but the loans and leases put out by the commercial banking system which are a big contributor to the money supply growth those were actually slowing down a lot Banks were cutting back this was before you know Silicon Valley Bank and all the First Republic and all of that it hit the fan so it was already slowing down the bank credit so we revised based on the declining and Contracting money supply and the squeezing of the Credit in the commercial banking system are year-end inflation forecast and now it's two to five percent so we it's a big range but it's it's coming down so the inflation story is in a way over they've they've already over done things so much that inflation is coming out of the system contrary to what the FED keeps telling us Greenwood and I are looking at the money supply if you look at the money supply what's that tell you it tells you it's Contracting so rapidly that with a lag of 12 to 24 months we know that inflation starts changing and that's why we've revised our inflation forecast from five percent at the end of this year to a range of two to five percent so that's that's the first thing uh and and remember you did talk about lags remember the lags are important and and people have to watch the money supply and then the lags are as follows in one to nine months after the money supply starts making a significant change you get changes in asset prices that's you know equities for example home prices sensitive commodity prices those start changing then with a with with another lag of about six to eighteen months you get changes in real economic activity that's changes in Real GDP and and that's why we know the recession is baked in the cake we've had a huge contraction in the money supply so after six to eighteen months you're going to get a recession well we've already been in we've had 11 months of monitor AIDS slow down so we we know this it's right around the corner of the recession and a weakness and then the ultimate lag 12 to 24 months you get changes in headline CPI so so that's the lag part of the story and and the reason people get confused they they don't understand the lags they're but most people are data driven they're looking at what's happening today in the economy so you get a lot of noise number one that's a big problem so what should you look at you should look at what's going on in the money supply not only today but what's been going on in the last year or so with the money supply but people don't look at that they look at what's happening today and and they they don't get these lags figured out that's very very confusing for most people so so that's that's kind of the lag story now let's talk about the the bank credit for just a little bit most people don't understand that the money supply in normal times about 85 or 90 percent of the of broad money is produced privately by Banks it's it's not produced by the FED it's private money it's credit that loans and leases that have been extended by the Commercial Banking sector and if you look at what's been going on in the commercial banking sector we were up at the uh in the in last summer we we were up to year year over year growth well even as late as as July for example of last year Bank credit uh was growing at 10 year over year and now it's it's down on February it was down to five and a half percent and and it's going down very fast credit credit is really being squeezed now because it was going down it was trending down and then we had the banking blow up with Silicon Valley Bank and and and and so on so so so that contribution has actually been positive it's been slowing it's been diminishing but but the bank credit is maybe going to end up going in negative territory it could it could actually start Contracting if think if things develop as I think they might in any case whatever they've been contributing forget it it's it's going to be it's gonna be nil and there's not going to be much contributed by the commercial Banks and and If the Fed is quantitative tightening and reducing the size of its balance sheet even if it leaves a Fed funds rates where they are or maybe takes them down 25 basis points or something like that you're still going to have this massive downward contraction and the money supply continuing on it's been going for 11 months but it's going to be continuing on and all that means is that the recession will last longer than otherwise would be the case so so that gets to another part of your 50 question thing and two that is well what what should the FED be doing and if you look at the quantity theory of may use the quantity theory of money as John Greenwood and I do and we calculate what's called we call a golden growth rate the Greenwood and Hanky golden growth rate and that is the growth rate in the money supply measured by M2 that is consistent with a Fed hitting and inflation it's inflation Target of two percent and that's more or less between five and six percent is back at the end but let's just say five and a half percent well what what's what's the growth the money supply right now as I look at the number you you're you're the year over year growth rate in U.S money supply is minus 2.35 percent year over year it should be growing up plus 5.5 to be consistent with hitting an inflation Target of two percent and use using the golden growth rate but they don't look at the money supply they don't look at things like the golden growth rate so again they're Flying Blind these people are really I have to label them just incompetent at this point they and and what's my evidence my evidence is pretty clear they they were not able to forecast inflation remember they said it was a temporary little glitch that was going to go away because of Supply shot chain problems and things like that they still talk that way by the way but but now they they switched into oh it's it's it's it's it's kind of persistent and we keep you have to keep fighting and fighting and fighting it and as Greenwood and I have pointed out no that fight is already over because they crushed the money supply so much so another thing I would like to point out you said well central banks all over the world have been you know pumping up money pumping up money giving us a lot of inflation well that was true the U.S did it the United Kingdom did it the bank of England and the European Central Bank that's true but but what about and and so everybody says oh inflation it's Global it's Global no it's not Global it's local it depends on what local central banks are doing with their money supply now the three that I just gave you were pumping and they got a lot of inflation as a result of that but if we look at China where's China's inflation now China's inflation is one percent per year that China didn't pump anything uh what what about Switzerland their inflation rates 3.4 percent year over year they they never pumped anything in Switzerland uh what what about Japan their inflation rate's 3.3 percent they never pumped anything in in Japan so you have to look locally at what these local central banks are doing to the money supply and and another problem and you mentioned this I think you fell into the trap in how many caught Milton Friedman monetary policy is not about interest rates it's about the rate of growth and the money supply it's the money supply so that's I think covers at least partially what you were asking me uh it covered an awful lot of what I was asking you and you covered a few things I was going to ask you so that was a wonderful answer there Steve um first off I want to uh just comment that uh we had Lacey hunt uh on our uh recent conference about three weeks ago and he thinks very similarly as you um which when I see very smart people coming to similar conclusions it lets me lean into those conclusions more which is great to hear you guys uh you know seeing things quite similarly here um when talking to Lacey uh sort of made the analogy of inflation as sort of like a like a mortally wounded bull elephant which is you know uh maybe shot it may be on its way to dying but it's going to trample around for a while do some destruction before it finally kills over right now it seems like everybody's still focused on that elephant thinking that inflation you know is is going to be the Beast we have to still kill but you're basically saying no no it's it's mortally wounded at some point here it's going to Keel over and then we need to worry more about what comes next right I think that's a good way to put it I I think that you know I said baked in the cake well you can use you know the elephant or bull that's been mortally wounded it will go down now the the thing that's interesting about the reason I like the bull analogy is that uh it will go down but but at my or you know ramble around all over the place and that's the noisy data right that's that's looking at the so I I we're going to get an inflation number this week and I I anticipate it's it's going to be weak and going down but you never quite know there are zigs and zags and these data that throw people off base but the fundamentals are what has been going on in the money supply 12 to 24 months prior to the inflation number that you're looking at and and that will tell the tale and and given that I I know the Bulls going down the inflate the inflation is is is that part of the story has has been licked already because because the Fed was excessively tight they they they over did the thing and the reason they overdid it they're not looking at the thing that counts so it changes in the money supply right right so in our elephant analogy they're looking at where the elephant is trampling next they're not looking at the fact that it's got a bullet hole in its heart and they they can count that it's going to go down at some point in the near future so um when we talk about the Primacy of data like the money supply you mentioned that the current reading is negative on a year-over-year basis in terms of its momentum is it still continuing to contract here in other words like you basically said what's important is the trajectory of the money supply because that tells you where things are going to be in the future and if it's continuing to contract then it should suggest that things are going to continue to worsen in the future um as opposed to like hey at some point we're bottoming and when we can start feeling optimistic about things six months a year out whatever but but is it still heading downwards oh yes now this is a very critical point that you're raising so so it's one thing to look at year over year data but what it always happens you have to look at things at the margin a little closer in and and if you do that and instead of looking at year over year if you take the six month numbers and annualize those and remember year over year is Contracting at minus 2.35 percent but the six month annualized is declining at minus 5.4 percent it's accelerating it's accelerating then if you look a little shorter in a three-month period and you annualize that it's even going down faster it's minus 5.7 so the momentum you you said you use the word momentum it's it's accelerating that the the contraction's accelerating and what is worrying actually and yeah it is comes back to the banks because banks have been really the only Bank credit has been the only positive contributor to that shrinking money supply okay and and what did we just say about Banks we had the banking crisis all of this and and and and and and they're kind of decelerating the credit growth but but I think that's going to go very close to zero actually so this this means that the broader M2 number the money supply number that that momentum that I just gave you will will probably get worse there's nothing positive about what we're talking about relative to the money supply everything is looking negative all right so we're basically entering a storm and as we're heading towards it we're seeing the storm clouds you mentioned those at the beginning of the video the storm clouds are getting bigger they're getting darker the winds are picking up the weather's getting worse so as as we look out towards the storm for all the reasons you just mentioned um I gotta point out that the disconnect right now between you know what the FED is telling us right which is I'm going to continue you know pursuing inflation Powers basically said if needed I'm going to hike more but if not I'm going to pause and I'm going to hang out there for the rest of the year right like I'm not planning on changing policy at any point in time yet the markets are predicting a Fed pivot as soon as the summer that's just a couple months away and the markets have been you know fairly in rally mode this year um so there's a big disconnect between the the stormy weather that the the FED kind of says it's preparing for preparing for but you definitely see Steve and the markets who are looking out there and all they see are sunny skies it seems so that's the only thing that would really cause a sharp pivot at the FED would be if there'd be some liquidity crisis on a Wall Street or something like that then they will pivot fast and and it'll be it'll be the kind of thing that that you know you you won't really pick up in the market it'll it'll happen pretty suddenly and they'll pivot pretty suddenly um all right I I want to I want to dig into that point in just a second Steve but real quick um the the the markets are you know still relatively sanguine this year certainly versus where they were last year they do not seem to be pricing in the type of of economic storm that you and I were just talking about here so do you anticipate uh some sort of repricing in these markets when they they begin to realize that that uh you know it's not going to be as many sunshine and Roses as they seem to be pricing in right now and obviously if there's a pivot that'll change things and I'll talk with you about that in a second here yeah okay there okay that's a good question of course tricky but the the market you you the Market's been kind of segmented shall we say so the the big tech stocks have had a huge rally actually right and the rest of the rest of the Market's been kind of in the doldrums and not not doing very well so if if you look at the aggregate of everything it looks like it's kind of as you say kind of sanglin well if you look under the water there's a there's a lot of garbage going on it's a top Tech part it looks pretty sunny so so it's it's kind of Stormy down below but up the big the big guys in the tech world have been doing pretty well so the question is what what what should people be thinking about and and and number one in in general I I I I I I I subscribe to holding you know high quality stocks that you like and and and and the Investments for the long run I'm not I'm not talking about date day trading and that kind of thing so so that's that's that's fine but I would I would lighten up on the on the more iffy positions that you might have and you know you can either go in money money you know go in cash safe safe cash either either to your treasuries or you know good good government money market fund so so that's that's one thing now the question I'm sorry to interject but just because you mentioned it so given the fact that you see these storm clouds ahead and that the the main important Trends are still continuing to deteriorate like money supply um it's an uncertain time and so being able to park yourself somewhere safe like t-bills and get paid for it in a way that they haven't been paying in a good long while right that that's probably not so bad for somebody right now that doesn't have a lot of confidence and where else to invest yeah yeah I completely agree with it I mean that's what I've done myself but that's that's another matter we don't we don't need to get into that yeah okay but but you know also I said earlier gold remember I said something about gold well I do what did I say I said about six months before recessions goals starts getting strong and it remains strong during the recession so so go you want you want to go let's go and gold has been picking up in in kind of your safety zone you want to include not only cash let's say those two-year T bills but you want also some gold okay and starting to object again but but gold is had a pretty strong run the past month or so do you see that as an indicator of this okay we're getting to the point in the timeline where gold begins to sort of front run the coming recession well I I would say I'd put it this way I I think it's consistent with the fact that I think a recession is right around the corner based on the quantity theory of money based on the quantity theory of money I think economic activity is going to slow down dramatically and we'll have some kind of recession okay that's that's point one now point two so so what hanky you know you've got the thing baked in the cake what do I do you're asking what do I do and and and one thing I I would do because I like gold and focus on gold is that I'd want some gold in my portfolio and why would I because I know that prior to recessions and during recessions gold history is to do well so I that that's that's the gold thing and and the cash thing goes without saying I mean you you said you know you're getting you're getting paid a little bit to be in to your T bills or perfectly liquid and safe and everything and and so that gets you out of the storm you're you're on you're on the sidelines or you're not going to get buffeted by by winds and rain and all the rest of it are tornado and and then you you keep your high quality investment uh positions and that's it got it and I'm guessing you you can imagine be open to the fact that you know whatever you own going into a recession may go down in it but if you're buying something that's quality maybe there's a good track record of paying dividends and whatnot you know it'll weather the storm and come out okay on the other end yeah and and and then you know that for me other different exotic things that for the general purpose person maybe aren't that in I happen to like lithium and lithium is is boom boom I I've been long lithium for a long it's boom it's backed off and I think it's probably pretty close to its lows so I they're they're very Specialties that if you study in though something about them you want to be in them and they're just a whole array of things you know when I when I say good high quality investment positions that you have that assumes you've actually studied the positions and and know what in the world you're doing right you're hitting an important Point here I just want to get your your commentary on which is we've had a number of of experts like you come on the channel of late and say look you know for the past 20 plus years um for the most part um you know investors passive investing has paid off right uh because you had the central banks you know at your back they're pushing liquidity into the markets and being ready to intervene anytime the markets you know got wobbly right the famous fed put um we're not living in that world anymore and so what I've been hearing from a lot of experts is look it active investing is really going to be the successful approach going forward where you can't Just Close Your Eyes by a sector or ETF and expect all boats to rise you've really got to do your due diligence to find the the diamonds in there and separate them from all the junk would you agree with that Yeah but I yes I I will I'd agree with what you just said but you know backing up a little bit I I I I'm more a due diligence drill down kind of person so yeah anyways yeah yeah I I just you know I the so the the market is one thing and and and but but it's it's just not the way I'm wired I I like to I like to drill down on some very specific things and right well I guess where I'm going with this is is the way that we're wired you and I and I think the way most of the viewers are wired here which is that fundamentals do matter right but we've we've been in an era of investing a pretty long error of investing where the fundamentals got overwhelmed by a lot of intervention and you know other Extraordinary Measures that that kind of dictated what went on I believe we're entering an era where fundamentals are going to matter more again would you agree with that uh yes great okay yeah yeah man right all right um I think people will be in a position where you know they won't be able to push us off on the sidelines uh as they've been able to do in the last few years let's put it that way great that's exactly what I was going to Let's summarize what we were just talking about so great so I I I'm the kind of person I I I don't looking at equities for example or or or or anything you can look do the same with commodities if if it's equities I I don't want to buy the market I buy a company I I buy companies I don't I don't buy markets and and the same with commodities I I you know okay you can look at commodity Industries and so forth but I I'm I'm a commodity person or or currencies for example all these things are specific currencies I I want to trade specific currencies I I don't really want to trade a basket and and that's that's just my orientation well I'm I'm not saying it's it's better or worse than other orientations but that's the way I look at the world I I look at specific companies I don't look at more at the market I mean I do look at them I shouldn't say that I do look at the market I'm gonna I want some ideas some markets going up or going down yes that's that's fine but I I'm not into trading the index got it all right well well put look in a couple specific questions about some Commodities you mentioned um gold you track gold very closely in fact you along with um uh your one of your partners there have created a gold sentiment index um can you just talk really briefly about what that index is telling us right now okay uh right right now as we speak today I I I can't tell you because I I've been so busy I haven't had time to look at the index but the end the index changes every hour so so it takes a temperature the sentiment the gold market every hour so you so you it's it's based off very high frequency data so so let me let me walk you through what how the thermometer works it's like a barometer basically and that's another thing it's like a thermometer or barometer and and what we do I do this with Aid coughness and we call it the hanky coughness gold sentiment score that we produce every hour so the score has a range it's the biggest negative possibility is negative 15 versus a positive 15. so if if it's and and the way we measure it we look at every article that's come out in the last hour and and with text mining we have we have a dictionary of bullish and bearish words that the computer is able to allow us to read all these articles with what they call text Mining and we ultimately figure out is this article bullish or is it bearish and we accumulate all those articles every hour and come up with kind of an aggregate let's say temperature or barometric pressure is this thing bullish now or bearish and if it's bullish what do you do if it's if it's a highly bullish you you you want to get out of your long position liquidate that and go sure if it's very you want to do just the reverse you want to get out of your short position and go on because the sentiment is moving around all the time and and it's always reverting back once it gets an extreme it will revert back the other way towards neutrality or it could go from actually bullish all the way over to bearish I mean it could swing all the way so so it's it's measuring the temperature it's not it's not measuring the sediment in the gold market for a long-term trend for example we talked about what what we think is going to happen long term in the gold market anticipating a recession so that means the long term is going up it's going up up getting stronger stronger going into the recession but but along the way that the prices will be going up and down up and down up and down zigging and zagging all over the place and this sentiment is based on high frequency data that allows you to catch those zigs and zags that are going up now we had on on the 4th of April by the way we had a a huge negative reading I'm holding up the you can put that up for your readers I think I sent it to you yep you did we'll put this on the screen yeah yeah a huge negative score popped up that actually uh early in the morning the score was flipped over into minus eight that's a very extreme score at eight A.M then at 9 00 am it went even more negative it was minus 12. we we put on a a a a big position long and what happened to gold we we caught a 37 and a half dollar move up in Gold wow so if you go back to the fourth you'll see there was a huge upswing yeah I remember and and this is a perfect example of how this sentiment thing works you know when it works it works most of the time by the way we we've been running this thing now for a couple of years and depending on the trading algorithm that's that's linked to the sentiment score in other words you get a sentiment score but the question is well what do you do with the thing I told you in in general terms what you do be you have to have an algorithm of trading rules in it which we do and depending on the algorithm we we've been generating returns that are in the 30 to 50 percent per year range so very very good performance with the thing it's been working really like a charm and and if you want to find out more about it that was going to be my next question yeah let me just tell you uh you go to our website which I will read off it's www dot the gold sentiment report all one word the gold sentimentreport.com and you'll find out the various things we offer uh the the basic Services uh 15.95 a month and you get six sentiment scores every day but but there are other things there are other things that you can get plus you can get a free sample of this uh get one score a day and give you some idea what's going on but but that's the gold market uh based on what sentiment what temperature is driving the Market on these on these very hour by hour what's what's going on so so for for people who want to active trading uh that's that's one way to do it uh the other is if you want to be adding or subtracting from positions that you have that are more long-term fundamental you wanna you wanna see what the sentiment's doing because that'll give you a pretty good idea of when to enter the market or exit the market if you're thinking about selling a long position you say well I've had it with this gold market it's not doing what I wanted to do the question is oh when when do you get out well you better know what the temperature of the market is with a hanky coffiners goal score at that time and it'll it'll help you time your exit or if you want to get in or add the long position the sentiment score helps you with that also well Steve that's great look I will put up the URL on the screen here to the gold sentiment report so that interested investors can go you know check out this service and I do want to you know long viewing Wealthy on viewers here may remember when you came on this program Steve when you were in the beta testing phase for this and a number of uh wealthians early viewers were were some of the first to actually take this index out for a test drive and it's great to see how far it's come since then so congratulations to you on that real quick if we wrap up here quickly yeah we we had a lot of wealthy on followers that actually uh got on board with us and have been there ever since our first session so so it's obviously something that is in interest to your viewers they they're interested in in what's going on in the gold market and how you measure sentiment in the gold market right and looking for actionable or always looking for actionable resources so it's great that you're you're continuing to uh to optimize this one here real quick before you go I want to this is an unfair question to ask you um because I'm sure we could have made the whole interview about this topic um and we can have you back on anytime you like Stephen go deep into this but um uh I I'd like to just I'd like to get your sentiment on the Bitcoin and crypto space because you tend to write about it a lot on your your Twitter feed um you definitely got a very defined point of view on it I want to read two quotes and then I'll just let you go here these are these are two quotes from your uh your Twitter feed um first one is is the U.S treasury says the decentralized cryptocurrency market threatens U.S security the U.S treasury has a point then your second one was um an investment Guru Paul singer's interview with the Wall Street Journal he articulates what I've been saying there are thousands of cryptocurrencies that's why they're worth zero anyone can make one all they are is nothing with a marketing pitch literally nothing so um I'd just like to get your your latest kind of current sentiment on bitcoin cryptos if you see any difference between Bitcoin and the rest of the cryptocurrencies every so often I get people to ask me you know Adam talk to your guests about what they think about crypto since you have such a defined opinion I wanted to give you a chance to give everybody your latest thoughts okay well the latest really uh is that tweet that I put out by the way people can follow me uh at Steve underscore Hankey on Twitter and and that Paul singer Paul was interviewed over the weekend in the Wall Street Journal I I highly recommend the interview it's very very interesting uh uh and I I was in agreement with generally with the interview let's put it that way he's he's coming he's coming from things the same way I am he he had a small remark Point pointed remark about Crypt is that you quoted I completely agree with that so that's my current view they can be produced by anyone there were a zero now he was talking about Bitcoin in particular so Bitcoin does fall into that category some of the other cryptos uh may may not be worth zero uh they they might actually be backed by something we in most cases we don't exactly know what but that's another story The in general that that whole Space it you're talking about a category of assets that's highly speculative so so if if you if you like to go to Vegas it's it's a place for you I I I don't like to go to Vegas so it's it's not it's this is not for me that's I I I'm a little I I'm like Paul singer I mean you know he's he's the kind of guy he likes to buy companies too or or Charlie Munger or Warren Buffett I mean those guys buy companies that's that's what we do not but again everyone's free to speculate if if you if you like to go to Vegas I'm not gonna tell you not to go go go speculate your and gamble your to your hurts desire but know what you're doing before you go you're speculating on in the case of Bitcoin something with a fundamental value of zero great and that's that's really what I wanted to sort of get a Clarity from you on which is um reading your your Twitter feed it it seems to come across that you think look if you if you want to preserve and grow capital you don't see cryptocurrencies at least in general as a place to do that obviously if bitcoin's got a fundamental value of zero sounds like you don't think any money should really go in there um are there are there any parts of the cryptocurrency universe where you think well this is one that's maybe worth keeping an eye on or do you just really say look yeah you know people who spend money and all sorts of crazy things if you want to just go and play in that world whatever fine but that's not a place to build wealth sustainably that's a good summary in my position okay you know if again it's it's a Vegas kind of analogy I mean you know some some people hit the jackpot let's face it but the odds are not in your favor it's just what you're saying your favor plus it's even worse than that in in Vegas you know what the house knows what the odds are and you know what the odds are with crypto you don't all right great all right well look I I know we're gonna get a bunch of crypto supporters here saying Adam you should have asked oh I told Litany of other questions we're going to save that for a different day yeah you have to realize it it's a re it's a religious movement more more than an investment movement I mean people and and singer hit it on the nail read the last part of what singer said read the last sentence because sing singer articulates the thing exactly the right way you're saying the sentence I read earlier yeah right right all they are is nothing with the marketing pitch literally nothing yeah the marketing pitch the marketing pitch it's something worth nothing it's based on a lot of hot air that's what singers saying I agree with him all right great all right and look folks for those of you who you know if you want to hear the other side of the story from a you know credible rational proponent of crypto let me know their names in the the comment section below I'm totally open to bringing them on and letting them make the other case but Steve I appreciate you making your position on this super clear and obviously Paul singers are pretty smart guy as well um well look Steve you've given us another great hour thank you so much for your time and sharing your insights so transparently um are there any parting uh either bits of advice or any key topics we didn't cover things that you just would want to put on the radar of of the average prudent investor who's watching this because they're trying to self-educate and probably most importantly just make sure they don't become collateral damage to the storm you see coming um you know the only thing I would say two things well thank you for having me on again no it's always a pleasure but the the other thing is you know it's an old line but you know if if you're interested in in accumulating wealth you you better first and foremost rule number one try to avoid losing money you got to worry about making it but you got to really focus on staying away from those traps that that that that that lose your Capital it's it's the the drawdowns are are and much more important than the upside and and by the way the drawdowns have been very small on the the algorithms using the hanky Kaufman's goal sentiment I I told you what the returns are that depending on the algorithm they've been between 30 and 50 percent they're very high yeah those sounded majority but what's interesting but what's he what's more interesting than that is is the fact that the drawdowns have been very low that's that's the message in other words anyone listening they say oh boy he's got something 30 to 50 percent oh that oh that's fine that's that's not that's the that's the positive side but but the real interesting part is very small drawdowns uh all right well thanks so much for all that Steve um real quick for um people who have really enjoyed this conversation maybe for the few who weren't super aware of you beforehand uh who would like to follow you and your work um besides going and checking out uh your gold sentiment score um besides going to your following your Twitter feed um where else should they go I believe you have a distribution list correct yeah I do I have a distributionalist and and I anyone who wants to get on it just just send me an email at hanky h-a-n-k-e at j h u dot edu dot EDU and and requests to be put on my distribution I'll put you on right away awesome Steve thank you so much for for offering that um I I hope you don't live to regret it with all the different all the many requests you're going to get to be added to it the you know the the the ones who want it will send me emails which is fine it's not a not a big deal all right Steve Willock thanks so much and Steve look you've done a magnificent job in this interview of really hammering home the main message of wealthyon which is that uh if indeed the future is as uncertain and volatile as you've been telling us it's highly likely to be um it's really challenging for the average investor to navigate on their own especially if they have a a job and a family to focus on and they don't have the expertise of a university professor in economics such as yourself so we highly recommend that folks work in concert with a professional financial advisor who takes into account all of the macro risks and challenges that you talked about today Steve and not only you know takes it into account in developing a personalized plan for the individual investor but then actually sits there by their side and executes that plan for them and folks if you're watching and you have an advisor who's doing that for you fantastic you should stick with them but if you don't or you'd like a second opinion from one who does consider scheduling a free consultation with the financial advisors that are endorsed by wealthyon it's totally free doesn't cost you anything there's no commitment to work with these guys they just offer it as a public service to schedule one of those just go fill out the short form over at wealthyon.com and if you've enjoyed having Steve on this program folks would like to see him come back on this channel soon and other great caliber guests like him please do me a favor support this channel by hitting the like button then clicking the red subscribe button below as well as that little bell icon right next to it Steve I want to thank you so much again for sharing so much of your time and expertise with us today Adam great to be with you have a great day thanks so much everybody else thanks so much for watching foreign

Channel: Wealthion

Views: 101,831

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Id: JHH1ebnE6lY

Length: 63min 43sec (3823 seconds)

Published: Tue Apr 11 2023