Is The Credit Crunch Here? | Peter Boockvar

and all right we should be live this is uh Adam Taggart CEO and founder of wealthyon welcoming you to Wealthy on here we'll be in conversation today with Peter bookfar Chief investment officer of Bleakley Financial Group and editor of the book report who very kindly agreed to join me this week I kind of called an audible on him we were going to record later in the day I asked if he could come on earlier and do this live he very kindly agreed we had to work through a couple of technical issues to make that happen for those of you that have been waiting a few minutes for this to start thanks for your patience uh but we're here Peter thanks so much for joining me thanks Adam appreciate having me on all right um well look we'll uh we'll have a great discussion if there's time then uh near the end I if you're all right I'll I'll pull a couple of questions from the live chat we can do a little live q a because I know we have some folks who I've been looking forward to having you on the program and have some questions I'd love to hear you address um very quickly um let me get to the question I always like to kick these um interviews off with let me just read the uh the intro that I had prepared uh and we'll go right in um here's the intro that I would have read off a teleprompter folks but you get the joy of seeing me read it off a sheet of paper here now um the Bulls are feeling increasingly confident these days the s p is up 11 in the NASDAQ and I had to check this number is up 28 since the start of the year and the speculation is that the most anticipated recession in history uh may bypasses now that narrative is suddenly springing up everywhere but the macro data continues to look grim and hardly merits such optimism at least not yet so which is it do sunnier or darker days lie ahead we're going to dig into that here with Peter um all right Peter so on our way into talking about that very quickly just to kick us off the general question I always like to ask you at the beginning what's your current assessment of the global economy in financial markets well let me just say that the Market's rallying because no one wants to miss the FED is done raising rates rally that is what's helping the market uh it's not because of the economic data uh yes we did have a pretty robust Friday payroll number but there are plenty of holes in it that I don't think itself the headline number is is carrying weight if you break down the US economy housing is essentially in a recession in terms of the pace of transactions uh the U.S manufacturing is in a recession if you look at consumer spending consumers are spending a lot on travel Leisure entertainment bars restaurants but that's about it they're not well I should say they're spending money on food going to the drugstore and and beauty products but uh other uh Goods they're not really spending anything at all Electronics Furniture jewelry and the sort uh even started her up at Wolf uh Richter refers to the whole travel boom right now as Revenge travel is really just trying to make up for you know lost time during covet I love that term yeah I mean that that's certainly the case and just also a shift in in spending habits it's you know you you bought you Goods don't certain durable goods don't need to be replaced every single year so it's just okay I already I already bought things from my home I already bought uh an exercise bike and a DAC and a new bathroom uh I'm not going to repeat that every single year and particularly uh electronic products too like computers and cell phones they're not being upgraded at the same Pace that we knew historically but also people just got new ones just a couple of years ago so yes it is Revenge uh uh travel but it's not just travel it's just going to a live event it's going to a concert I mean here we are into June Live Nation has sold more tickets the year to date than they did all 2019. so it's just going out and and doing the experience thing that um I I think is sort of capture that even also just going out to dinner which not necessarily travel but it's just being social again so it's more that I believe uh and that has been a good part of the economy then look at Capital spending it's really slowing down uh you know outside of big cap Tech spending a lot of money on Nvidia chips and and their AI rollout uh Tech spending in the aggregate uh is slowing down CDW which is one of the major uh Distributors excuse me out there with uh a couple hundred thousand uh different customers out there selling everything between software Hardware uh and the like uh they're seeing they expect I.T spending to actually decline this year but also with earnings growth uh declining now that then follows a reduction in capital spending too so to me there aren't many bright spots in the economy but this doesn't mean that we're sort of in this deep recession because even if we're growing call it a half to one percent that doesn't feel much different than no growth or a contraction of one percent it still feels kind of muddied all right so we're we're kind of in the muddy muddy phase here um I I want to get to in this discussion kind of your odds you place on a recession coming this year you know do you where do you fall in the hard soft no Landing you know Outlook um a couple things though first real quick question um so we're seeing this spending on travel and most of the things you listed off there that people are spending on right now are Services their experiences right um well someone's trying to call me that's uh that's the danger of doing a live live event um so uh uh you know when we look at at the inflation story right now um yes CPI is coming down we are disinflating um but the inflation that Still Remains you know we're still near five percent is really shoved onto the services side of things so it's really funny when like I just wrote an article yesterday or we had a big Twitter discussion yesterday about the sandwich shop in my area that if you go buy a BLT there it costs you 34 to 36 dollars depending upon what size tip you pay them when they turn the little kiosk around and ask them to right so like why with a lot of the sort of sluggish you know economic growth stats that you just mentioned like why are people so willing to be spending so much on Services right now you know we see things like the Consumer Debt going through the roof right it was beginning to get paid off during the pandemic but then it it shot back to record highs we see a huge decline in savings rates like why are why do you think people are are willing to be spending so much right now on Services is it you know is it because the economy is stronger the consumer is stronger than maybe we think or is there a different reason well two things as we talked about they're spending Less on other things so they're prioritizing their spend and food is one of them but also wage gains while still uh has trended below the rate of inflation last couple years average hourly earnings year over year are running basically double the pace of pre-covet I mean the 20 years leading into covid average hourly earnings on a year-over basis was about two and a half percent and we got up above five percent uh a few months ago now we're trending more like four and a half so that is a quicker pace of wage against albeit still below the rate of inflation but uh I I unfortunately people are spending that kind of money but if you dig deeper you look at some of the publicly traded food companies like a canagra which full disclosure we own uh and General Mills and Kellogg's and some other food companies they've they're actually losing volume from uh as a result of the sharp rise in pricing uh you you've seen that also in other uh Pepsi for example too and other uh consumer non durables like even Proctor where prices have far uh gone up to the point where volumes are now declining so they're spending that kind of money for a sandwich but you don't necessarily know what the traffic is Home Depot for example talked about you know sales went up but traffic Trends are down okay so just to make sure it's really clear for folks you're saying sales volume measured in dollars is going up but that's more reflective of the increase in the sticker price than it is actual additional transactions correct yeah okay um all right so that that may be masking what's going on here and again you said this is sort of a muddy time right where you know not every every indicator maybe maybe the way it looks on the surface you're gonna have to dig deeper to really get a true understanding of what's going on so I want to talk here about um comments that you've made recently um just looking at your Twitter this morning and you made the Declaration the credit crunch is here and you were talking about how um you know there are lots of stories now in the commercial real estate space of construction being curtailed um we very publicly uh had the the Hilton Union Square Hotel um basically walk away from their loan they walked away from this massive property in downtown San Francisco um and I think that's a you know it's a sign that it's it's getting harder for uh Builders uh companies to get access to loans to do construction um obviously all their input costs are going up from wages to supplies to Services um so we're it's looking like we're seeing you know canceled projects or diminished construction plans and now we're beginning to see you know defaults like like the Hilton there in San Francisco these to me all kind of look like um the relatively predictable impacts of the lag effects from fed policy that's you know occurred over the past year and there's a lot of the folks on this program say you know they they operate with a tag of a year or more oftentimes and so you know fed started hiking rates last what March um and we're maybe now just really beginning to see the cracks in the economy that are happening under that higher cost of capital and you know of course the continued inflation that's continuing along here um so I want to give you a chance to expound on this but but I'm just curious do you do you think this is a a manifestation of that lag effect it's exactly right when you think about the lending world uh the only loan that's really more than 10 years is a 30-year mortgage so most are or just a few years out to call it 10. so before the the rise in interest rates in 2022 uh what was the lending environment it was money was essentially free and it didn't cost you more than 300 basis points 400 basis points at most to get a loan even if that was high yield so when you go vertical in one year like we did over the past uh call it 15 months now to the point you made about starting in March with the rate hikes well any loan that's coming due this year is having to be repriced at a much higher interest rate than the loan that is maturing and when your interest expense you're paying three percent uh you don't need much cash flow in order to service that and if even if you didn't have cash flow there was enough investors out there that would be willing to refinance and Kick the Can until you did achieve profitability and free cash flow well now you're in this new interest rate environment and not everyone can service their debt with this new higher rate world so even before Silicon Valley Bank collapsed Banks had already started the process of realizing this and saying well our customers out there uh can they serve can they service their debt in this new world well yeah some can but some can't and lending standards were tightening pretty aggressively before svb went down to the point where if you don't include covet the standards were the tightest since uh 2009 and then of course you throw in the bank failures and standards tighten further but not only did standards tighten further the demand for loans has weakened too because well I can off I can afford a three percent interest rate but I can't afford an eight percent one so therefore uh the demand for loans has also softened so we are in a credit crunch world where Banks which make up about 20 to 25 percent of the total lending Market are focused on shrinking their loan books not expanding it and particularly in commercial real estate where depending on now the interesting thing about Hilton and the hotel business is that if you own a hotel you have pricing power every day right as opposed to if it's an apartment building maybe it's a year or two lease if it's an office building it's could be three five even further ten years or you're on a triple net lease it can be a 10-year and five year arm so you're much further out so here you can change overnight yeah right so if if anybody can adjust to a higher rate environment it's a hotel if you have some but apparently obviously San Francisco in terms of the tourism and all that and and the city issues that can be a different story but I think generally speaking Reuters had a story yesterday and even the Hilton CEO which was uh who was on CNBC yesterday talked about the dearth of capital for new construction and that's where this credit crunch is at least in real estate is now establishing itself at and it doesn't matter if you don't have to be in office to be having pencils down in in real estate you can be a multi-family project you can be a hotel uh developer uh as as the article that I tweeted talked about in that your numbers just don't pencil out at an eight percent interest rate relative to three percent uh pre the rising rates now it might but you have to come up with more cash and now the loan to value ratio that the bank is willing to accept is going to be much lower than you were budgeting and numbers are just not um coming together in this High rate environment so you do have construction that is that is in place already those will get done whether it's Hotel multi-family industrial and so on it's the new projects that are not getting greenlit because the economics have changed dramatically and I think that that's what that article talked about I hear stories all the time about multi-family projects while are getting canceled so there is a lot of multi-family construction that is in progress and we've got a lot of Supply coming over the next 12 to 18 months but after that there's going to be nothing yeah and uh uh I mean totally makes sense right I mean the the cost of of capital as you just were outlining there right I mean it's it's doubled in a lot of cases right um so not a huge surprise and actually this this is intentional right I mean this is what Jerome Powell has been trying to do since he started the hiking campaign where he basically said look you know my job is to bring down Demand right and and this is a knock-on effect of breaking down Demand with with higher cost of capital um it is backfiring on him on the residential side because they they didn't appreciate and were experiencing now the when you go vertical in interest rates after a long period of of a fallow essentially um in the cost of capital you're having distortive impacts you look at housing right now yeah you're you're shrinking the demand to buy a home but home prices are not coming down because you've trapped everyone in their house that has a mortgage under five percent which makes them about 90 of the mortgage holders out there and about 70 have a mortgage less than four percent so by trapping them and resulting in less inventory you've not seen the price response in homes that they were hoping would sort of cool down that market and mitigate the impact of a doubling in mortgage rates that is like the definition of stagflation of of a modest pace of transactions and home prices that the last four months in a month or the month over month basis are actually re-accelerated all right so I was going to get the housing kind of near the end of this I'm going to pull it up now to the front um so uh totally true and interestingly it's not not too dissimilar to how the FED trapped the banks um where it got them totally conditioned uh to uh you know basically adding a ton of long-term Safe Money good Securities to their balance sheet and then it jacked up the the interest rates and then the value of those Bond portfolios went down and these Banks you know are finding themselves sort of exposed uh as a result of that right so we've got all these people that are basically marooned in their homes um really curious to think is is that a um will that clear out over time or do you think it will be persistent and the argument for it clearing out over time is that in the housing market like many other asset markets prices are set at the margin right and there will always be some organic amount of transactions that have to happen because of deaths divorces you know job loss moves Etc uh and that eventually those that percent of organic transactions will start resetting the new price in the market it just may take more time um do you agree with that or you have a different Outlook yeah it will ease up as affordability continues to be difficult and credit availability gets tougher right and starting her up but I mean we're at the worst moment for both new for new home buyers this article just came out this week that it has never been this unaffordable to buy a house for new home buyers and obviously there's there doesn't appear to be any immediate relief coming on on the cost of a mortgage so it's just it's very bad on both those metrics right now right so to your point those that have to move are going to be the marginal buyer uh those that want to move will be able to uh take their time uh and and even if they want may not get a loan or just can't pay what the current prices are uh now we've obviously seen home builders sort of trying to step up uh interestingly where new home sales historically made up about 10 of the overall transaction Market now you're pushing like 30 percent uh in certain markets sorry and they can be a more afford to be more flexible on pricing right because they just need to move the unit they don't have to live in it so they're not trapped in a sub 3 mortgage subform right the the Builder can create incentives they can buy down one's mortgage they can put discounts on the home so yeah but but that that doesn't work in all markets uh if you live in a in a dense suburban area well there's not just all this vacant land that a builder can come in and start building uh homes and if there is then you know it's an hour further out so it's not like there's all this vacant land in the world in the country that Builders can come in and sort of solve this problem uh there is more so in certain areas uh more so than others uh and and getting back to you know you talked about monetary policy purposely trying to limit demand or yet from a consumer standpoint and yes from a borrowing standpoint but I don't think that they sort of gained out uh the dramatic impact on certain parts of the economy particularly real estate again when things reprice at a much higher interest rate than before and and and what that potentially leads to because that's the irony of this is that is that because of new construction essentially getting halted in a year or two when the existing projects are done well who's going to have increasing power all of a sudden it's going to be the landlords and that's going to cause another inflationary wave to the upside if you're trying to rent a property from an uh a multi-family perspective or you want to stay at a new hotel uh well since there's no new hotels being bought uh all of a sudden pricing power will remain with travel and entertainment so there's just a lot of distorted factors here uh that I don't think is as easy as okay the FED let's raise rates we're going to impact the demand when inflation will drop and everything's going to be fine yeah interesting so I think you're you're your descriptor is Muddy really really does apply here so um let's get back to just sort of economic outlook for a moment so um because I want to ask you about I want to get back to housing in a second but I want to go through your outlook for recession what that may mean for the employment market and then if those dominoes do fall what impact they may have on housing um where are you in terms of a recession Outlook do you think we're going to have one if so how severe so when getting to the FED raising interest rates 500 basis points in a year uh I I don't want to say 100 but I'll say 99 chances of recession okay uh the extent of it though uh I think is in question and interestingly I believe whether it's a modest recession or a tough one will also depend on how the demographic impact is sort of spread out and I mean that where the stock market goes from here is going to be an influencing Factor on the depths of any recession because if the stock market at some point after it gets off you know the Euphoria of okay the fed's done hiking interest rates and focuses more on they're going to stay high for a while and the fed's still tricking their balance sheet at 100 billion a month and we actually do get a resumption of this bear Market you know if all of a sudden I'm not saying it happens but this is something that I think is a a key part to answering your question is if and I emphasize if the S P 500 goes to 3000 you can be sure that this will be a deeper recession because that will have an immediate impact on high-end consumer spending that has been much less immune to the squeeze that lower and middle income people are feeling uh because of their squeezing their real wages another thing that maybe can uh kind of bring the higher end recession forward is where a lot of the job Cuts happening they're happening in White Collar uh so maybe if that picks up uh that can also uh create a a tougher uh recession than than thought but we can't separate separate out what happens to the asset markets in trying to determine what the extent of this recession will be they're intertwined they're they're joined at the hip just as monetary policy is uh joined uh between the economy markets and monetary policy they're conjoined triplets okay we've got we've got conjoined siamese triplets here um which one do you think does one lead the others well let's let's look at the two recessions pre-covered uh it was a decline in asset prices that drove the recession Tech prices fall the bubble pops Capital spending collapses and that's what led to that recession wasn't a consumer-led recession it was a capex for lead recession then what we saw the next one home prices fall an asset home prices fall collateral values uh get hurt and we know what happened from there so the asset prices have been a driver of economic activity since Greenspan created that environment so if asset prices fall well then that will have a direct impact on the pace of economic activity okay so all right let's then Shuffle over then into asset prices um so we've we've we had a bad year for the markets last year um we could easily make the argument that asset prices were very distorted to the upside at the end of 2021 right so I mean you could almost make an argument that just look they were going to have to correct just simply from a reversion of the mean type standpoint um or or a bubble excess standpoint um we've now seen the you know really robust start to the year uh I mentioned the stats at the beginning s p up 11 NASDAQ you know pushing 30 at this point in time um is there is there a sustainable are there sustainable reasons for that strength in the market right now and you know looking with your crystal ball here do you expect them to continue to power higher or is this more like a classic bear Market rally where it's it's convincing everybody it's time to get back in the water um before the bear returns well obviously AI has has given at least the NASDAQ the most recent lift but the AI narrative right I mean my narrative the AI hype whatever you want to refer to it as the AI excitement whatever uh but gets back to my point early on this is to me all about the FED is almost done hiking and I don't want to miss the rally and what causes that attitude to stumble is the realization that we're not going back to zero rates and we're not going back at least for a while to aggressive QE those days are over for hopefully forever probably not but hopefully for a while and that even if the FED starts cutting rates into to respond to a recession late this year into next year maybe they cut to four maybe they cut to three but that's a much different environment than what we're used to here and I think that when people realize that unlike prior recessions that most people in the markets have been accustomed to is this aggressive monetary response the fed and other central banks are really handcuffed here uh in in eventually responding to that next recession now even that said if you go back to the 2000 2000 2002 bear Market in the 07 to 09 stocks continued to fall all throughout the rate cutting cycle and it wasn't until they were almost done cutting that the bear Market ended right I I appreciate you know everyone excited the fed's pretty much gone they're going to pause in June and therefore it's a green light uh because that's what everyone's been trained on but I think when people see that higher for longer is itself a continuous form of tightening right because of all the debt that needs to be refinanced every month every quarter at much higher interest rates I think this sort of intoxication with the FED is going to save me and save the day I think is going to wear off okay and and why that Outlook is important is because you're you're basically saying look asset prices have led us into some of the most recent recessions and there may be an aha moment for the market where they say oh yeah it's maybe not going to be as rosy as we thought and there may have to be a market downwards repricing I want to get your your thoughts on that but real quick I just want to sort of share an exasperation that that I have and I'm sure a lot of the viewers do and to see if maybe you have a good explanation for this which is we have had the markets repeatedly being more optimistic about fed policy and then having to revise their forecasts right I mean they were initially you remember not that long ago they were predicting the First Rate hike rate Cuts in June right and and Powell kept saying it's not my plan I'm not gonna cut rights and the market kept saying nope we don't believe you nope we don't believe you and you know they've been shifting back and forth you know kind of all the beginning of this year but now the Market's beginning to realize yeah actually you know what maybe Pal's not gonna not going to uh cut it all this year so hire for longer we then had the banking uh weakness or the you know some of the biggest bank failures in history that is now forcing Banks to tighten their lending standards further you've already talked about that and and the FED has said hey that actually acts as if there are those act as additional rate hikes on the economy right those tightening Bank lending standards so it's kind of like hey Powell is doing more than the market was planning and then the banks are now doing more on top of that and the market has had to react to that and keep repricing or keep re-shifting its expectations and you would think because it's reshifting its expectations it would be bringing asset prices down in response but stocks have been going up all year so I'm just curious how do you square that Circle to me the FED doesn't the market right now doesn't care about the rate cuts just yet they just want the pain to stop in terms of the rise in interest rates uh on the short end so let's take this business at a time they're celebrating the end of rate hikes they think that that is an all clear I think they'll be mistaken because QT is still going on in a pretty huge way uh I mean it's amazing how dismissive people are of of 95 billion a month um being sucked out I do think that that reasserts itself just as they got excited about QE I think they're going to be worrying about QT but I think that's the mentality and and I think that people understand what Jay Powell this is Jay Powell's last job he's not he's going to leave the FED when his chairmanship comes up and he needs to get a job on Wall Street and therefore um he needs to make everyone happy he's only focused on his legacy and keeping inflation down not repeating the mistake of the 1970s when inflation went up it came back down the FED backed off it shot back up again inflation then it came down because they had a further Titan the FED backed off and then it accelerated for a third time he does not want to see that acceleration in inflation after this come down and that is what is most important but putting this aside let's just say inflation has a two handle by the end of the year which it very well could but where does it settle out at next year and if it's not going back to one to two percent then I'm sorry everyone we're gonna have to live with higher rates maybe they're lower than where they are now but they're going to be higher than what we're used to and this gets back to a really important thing that we have to focus on is what level of real rates will the FED be okay with I don't think a world of negative real rates is any time we're going to see for many years as long as Jay Powell is running this fed and that a half a percent one percent I think is where where we'll settle out at but that means if inflation next year not where it comes down this year but where it sustainably ends up next year which I think it'll be three to four next year again after falling probably below that uh before it settles out so that means a Fed funds rate of three four four and a half percent on a sustainable basis that is not an environment that we've seen for the last 15 years before 2022 so that is a different world everyone thinks that we're just going back to this this this we're going back to high school here uh and but we're not going back to high school again high school's over all right so uh so Glory Days Are are over right uh it's like an old Springsteen song with just going to reminisce about them um so look Peter if I if I told you before all this craziness happened right let's say let's say 2019 even right for pandemic hit was in people's eyes and the economy was habituated one might say addicted to close dessert policy and I told you Peter you know what fed's going to take the FED funds rate to five and it's going to hold real interest rates positive you know for years afterwards um what would you have thought would have happened to the economy um and I asked that in the mind with you know could how much of the economy could survive that persistently right we've got the stat of what 20 percent of companies or we're zombie companies back when credit was cheap right I mean are you expecting kind of a decimation of that whole you know cohort of of corporate America well actually I I think what's happening now is is how it was supposed to play out in the sense of I had somebody actually really kind of I was talking to somebody over the weekend about this they're like how is how is the US economy Still Standing how hasn't it not blown up yet with all this debt and this short rise in interest rates and I said because it doesn't affect us all at the same time if if I have a 30-year mortgage and no other debt it's not affecting me now if I have if I if I'm a big company and I've turned out my termed out my death my debt to 2025 2026. it doesn't yet affect me it's affecting the person who's got a 10-year arm who's coming through this year right may not come due in June maybe it's coming in due in November so they're not affected yet but they're going to be affected in five months it's affecting those that didn't hedge out they're floating rate debt it's affecting those that have debt coming due this year as we talked about uh that's who it is affecting But as time progresses it affects more and more people it affects more and more businesses so the cumulative effect doesn't change it's just happening at a more spread out time this can be more of an economic malaise as it's going to take time for the economy to acclimate to this new rate environment we need more equity banks are asking for more Equity investors are going to ask for more equity and less debt because of that higher cost of debt and this takes time it's not a the bottom economy it's not a a no Landing soft Landing situation this is going to play out over time and I think people just have to be more patient and understand that this is a different economic situation than what they're used to over the past 20 years okay so it sounds like you're saying it's gonna be more of a grind as opposed to a sharp event is it a grind kind of downwards for the next couple years is it a grind sideways is it a upward grind I mean how do you see it well it can be the the initial ground grind down and then we sort of settle out you know in a lower growth type of environment and you know one thing to add to that I talked about businesses and households but the US government too here because higher rates for longer has its own sucking sound of liquidity out of the private sector the US government is crowding out the private sector in terms of funding because people are taking their money out of Banks and sticking it into treasuries and as time goes on they will continue to do that and it won't be just out of banks into treasuries it'll be out of other assets as well so this crowding out effect as U.S debts and deficits continue to rise and If the Fed keeps rates higher for a while the government has more and more of an appetite for your money to find Finance themselves which means less money for the private sector which has its own depressing effect on economic activity so to me this is not a is it going to be a sharp Landing or soft Landing it's how elongated could this situation potentially last yeah I I almost think of it as like a like a burrowing you know the plane isn't coming down and Landing softer hard it's kind of just getting on the ground and just kind of just grinding you know along as time goes on um but but what you just mentioned there getting back to kind of the main point is you know that's not that's not uh conducive of higher financial asset prices both if the economy is is going through a slow grind and also if the government is stealing more liquidity that would otherwise be going into the private space so um you again you talked about kind of uh asset price declines leading recessions um I guess you already said you put a 99.9 percent probability on some some type of recession this year so I I guess we do have that answer and that recession will be because of the higher cost of capital the direction of asset prices from here will determine the extent of that economic slowdown got it okay which then brings to my next question which is so what is your outlook for the markets at least let's say for for H2 so I think that um you know right now we have two stock markets we have you know the top 10 stocks and then we have everything else exactly yeah and so what the stock market does is is obviously very difficult I think that you know at least in the s p 19 times earnings for the environment that I'm talking about doesn't seem very attractive to me uh now that said the other the rest of the markets the 490-ish stocks and the the 2000 and the Russell uh small cap index you know there's a lot of value being created there so uh I I think that this this growth value sort of differentiation that really exploded to the benefit of growth uh over the many years outside of uh we're in 2022 we sort of reversed that but then growth is now re-accelerating its value I I think that the the value relative to growth has has more legs than just one year and that I think once this sort of hype and AI calms down and yes it's very exciting and yes it's gonna do transformational things um you know ai's been around since the 1950s and this new iteration is exciting like I said but it's not necessarily something new it's going to be great for NVIDIA because they have a dominant presence in chipsets for this uh and and some others but uh I think the Market's just going to be very choppy and directionless for a while and just as the economy can have sort of a malaise for multi-year period so can markets but that doesn't mean that there's not opportunities out there on with a lot of cheap stuff which I like I also think that the uh that we are sort of set up for our performance with International stocks which have been just terrible relative to the U.S stocks over the past 10 years I'm particularly bullish on Asian markets uh putting aside the china-us battle every day and the authoritarian government there you know there are the Chinese economy is reopened this is 17 of the world's population that was closed for three years and but there are ways of playing that reopening and it doesn't have to be China it can be Japan it's going to be a major beneficiary in the Japanese stock markets at a third 33 year high where long Japan we're bullish on Japan we think that can continue to work uh also bullish on Singapore also bullish on Vietnam uh I think the Asian region is going to be the most exciting Marketplace to invest in when looking at over the following of five to ten years now you don't necessarily have to buy an Asian stock to do that you can buy U.S companies that have a lot of exposure there and I still like energy stocks I think that I'm sorry can you just give an example of one for folks I like the European ones like VP and shell uh Canadian natural resources that's great on energy I meant the big U.S stocks that are heavy Asian exposure oh um so I I I'm very bullish on a cow and we're along Las Vegas Sands uh now all of the businesses in Asia between Singapore and and Macau uh Melco too is another one that uh that I like that trades in the U.S big presence in Macau uh they just opened up the the basically uh Las Vegas of Europe uh of a new casino in Cyprus which is a large Casino Hotel there as well and they have a casino in the Philippines so I think that that is pretty cheap stock and uh you look at them account numbers and it tells you that um it's not just mainland China that wants to bust out uh I think that over time they're going to get a lot more uh International tourists and Macau is uh going to reassert itself as the uh the Vegas of Asia got it all right sorry I interrupted you you were you were going on in energy and some of the other sectors you like too uh yes so uh energy stocks I think that there's more to this uh and if we get to the point where the fed's cutting interest rates uh I think the dollar is going to get sacrificed in that kind of environment it's going to re-accelerate inflationary Trends and oil is going above 100 in that scenario uh natural gas when it's two dollars in the U.S uh I think that that's a Buy in some of the uh large uh EMP companies in the US like eqt and Southwestern look attractive and I think natural gas has asserted itself as a very important uh fuel for the world and uh us pipeline companies I think are a beneficiary of that particularly as the US grows in importance in terms of exporting LNG okay um great and thank you for being so specific here this is great folks watching um two things uh one I'm trying to leave a little bit of time here to take some audience questions so if you have questions for Peter ask them there in the live chat and I'll do my best to pull a few up here um also if you like this live format we don't do it all that often when I do do it I always think oh we should do it more often if you'll like it please let me know in the chat and if if there's enough positive feedback for it we'll try to do it more often going forward um so Peter I mean as a capital manager um I I got to imagine this is a bit of a challenging time right uh you've got a lot of euphoria I'm going to say Euphoria you don't have to agree but Euphoria right now that is crammed into a very small or very very small number of stocks yet still a very big part of the market and one that influences the price of the major indices um so you've got that going on but then you have you know all of the the macro data that we talked about the recession concerns Etc right so um it sounds like there are there are parts of the market that have corrected enough where you're seeing good value or value that's catching your interest but then there's got to be parts of the market where you're concerned that I imagine you're concerned that hey this is pretty frothy and if this goes down it could take you know a large chunk of market value the industry market value down with it how are you playing this and I guess maybe first question is is how what percent deployed are you like are you are you um you know we just went through a tough year where I know a lot of capital managers were holding more cash than normal are you still taking that kind of approach or are you seeing enough value here that you're you're really kind of more aggressively buying no and one of my strategies I'm probably about um half-long equities uh about 15 percent Plus in in Precious Metals uh owning some International bonds and some tips and and having some cash uh I I think it's really difficult uh to be managing money here especially when only a few things are are outperforming and and I think it's I I think the when you try to figure out what type of investor you are it's if you if you suffer from fear of missing out then this environment is even more excruciating because you find yourself making decision buying decisions and sell decisions just based on where the current momentum is you know fortunately for me I don't suffer from that now that doesn't necessarily help me when people see okay you're not participating in certain things but I try not to get caught up in that so if a lot of it has to do with one's time Horizon and the shorter your time Horizon is the more difficult this Market is the longer your time Horizon is the more you can sort of ride through the the the the bipolar nature and mentality of investors of wanting to go in to what worked so much for so long over the past 10 years thinking how that pattern is just going to repeat itself you know just a a reality check in in some of the big cap tech stocks I mean outside of Nvidia where they're seeing explosive growth I mean Microsoft Apple alphabet I mean these companies aren't really seeing much growth anymore these are phenomenal companies but with very high multiples and very little growth uh one has to ask themselves is is this where I'm going to get my return of substance over the next five to ten years these companies will still be around they'll still be great but where am I going to get that incremental return particularly relative to the risk that I'm taking uh so like bottom line is it's not easy oh it never is but I got to imagine now is a you know on the challenging scale it's it's closer to the more challenging side than not given everything you just went through and it's it's so so one I appreciate you sharing all that with us um yeah I I just got to ask because it's it's such fresh news so um Apple just revealed it's was it Apple Vision Plus the new VR headset yesterday um and uh I I honestly I didn't really watch much I don't really have very informed opinion um I've seen you know social media kind of eviscerate the look of the product and whatnot and there's a lot of dead bodies you know on the road to uh VR and and AR um maybe this will be the one that cracks the code or whatever but I did see sort of a joke of somebody wearing the the headset and looking kind of silly and somebody's saying hey you know don't laugh like you know all of our retirements are hinging on this being successful because so many people obviously are are Apple stock owners right now um but I'm just curious if you have any any thoughts about that is is or are we potentially sort of witnessing the the Apex moment or the jump to shark moment where the the company that could do no wrong is is you know it's next uh next hyped product may be the one that that doesn't become the next iPhone well that's the thing that the beauty of the iPhone is that it became this Mass Market product that people use every day all day a VR headset is not going to be a mass Market product that people are necessarily going to use every day all day uh so I I at least right now maybe down the road so I I think that um I think that is one of the issues but it's very difficult to come up with a product that's Mass Market that everyone needs every day oh absolutely it comes along like once in many generations so to make that a repeatable thing is almost impossible and I see this being a point where and Apple's just not the same Growth Company as it once was it's got a phenomenal existing franchise and yes they're selling other things like the iPad and and the watch which you're watching and some people have it but some people don't but those aren't necessarily uh the same type of of product that the iPhone was and that the goggles particularly at the three thousand dollar price point I mean that's just a no-go in in terms of creating a master Market product now I know over time it'll get cheaper it'll get better but you know right now to me it's just a a video game and yeah maybe I guess people will watch TV on their their virtual reality headset instead of actually looking at a TV maybe so I don't know we'll have to see but um it's going to be a long time before this becomes I think a major contributor to the revenue of Apple yeah uh well we'll see and I don't know enough to really opine intelligently I do looking at some of their featured use cases of the person who's kind of Minority Report wise you know moving spreadsheets and kind of managing their their professional life uh in augmented reality there I'm just thinking to get there absolutely oh we could get there and could you be more productive sure I'm just thinking I'm one of the work from home people right and I already have so much blowback from my family about my lack of boundaries between work and personal life and if I'm sitting there you know in the kitchen doing this you imagine your whole family sitting at dinner while wearing goggles uh I don't think that's gonna happen maybe it will yeah yeah I don't know I I don't know and yeah we already talk about how lost kids are on their phones um anyways I I don't want to just hijack a conversation on that um let me pull a couple of questions here um there's a several on this one so let me just pull it up um what impact do you expect from the student loan repayment uh starting uh by the end of August um which is part of the the debt ceiling deal that just got struck so it's a good question because there are some interesting uh things out there that that are going to flow through the economy uh with respect to the consumer I've seen numbers that consumers student debt paydowns are going to cost about 5 billion a month to call it 60 billion annualized uh We've cut off the extended SNAP benefits that's going to be about 50 billion a month so we're going to take 100 billion away from uh lower end um or I shouldn't say lowering because people are paying back their student loans could be medical school students they can be hired uh so that's about 100 billion but look we we have five trillion dollars of uh money market funds that are now getting four percent five percent that's 200 billion dollars of extra income that people didn't have a couple years ago so there's some we gotta there are multiple flows here in and out uh into consumer Pockets but specifically to the question student loans that's gonna be about five billion a month okay and what do you expect from that I mean uh there's maybe I'll conflate this with another question which is um sometimes talking all the experts on this channel um we will sometimes look at data and say you know what is the only thing that really matters just liquidity and when it's going up prices go up when it goes down prices go down are things like the student loan repayment and I'm going to mention the TGA because I meant to mention that earlier the the the force TGA refill that's now going to happen over the next couple months could those potentially tip liquidity so much to the negative that it actually Matters from a asset standpoint well the student loan and the snap program that 100 billion is coming out of people's pockets that are obviously less well off right but but that's also directly impacting velocity of money though right yes less dollars getting spent right for sure you know the 200 million the 200 billion dollars of extra interest income is obviously helping those that have the most amount of savings and a lot of them aren't necessarily going to spend more because they have some more interest income uh so there could be a net negative effect if you combine the actual um spending impact that it has with respect to TGA it's it's a combination of things it's the US government that from now until the end of its fiscal year I think is the end of September uh there's another 600 billion of of a budget deficit that needs to be financed then plus the call it five or six hundred billion that needs to be refilled in TGA so there you get about a trillion then you have 100 billion a month that the FED is essentially selling so this gets my point earlier about the US government potentially crowding out the private sector and they are becoming a bigger presence in the financing room that needs your dollars and from a liquidity standpoint yeah more money is going into the public sector uh not to finance immediate spending uh just to finance the ongoing business of running the government and um that is going to create yes a liquidity suck of some sort I know everyone's trying to figure out what the impact is uh but there's going to be an impact and just getting back to you know qeqt markets love QE and look at the market State under QE are we going to be so blind to think that QT is not going to matter for us well look there are a number of folks that I talk to when you go back to the lag effect for a second that they say look deflation or inflation's kind of taking care of itself here at this point meaning that if the FED just kind of stopped now which they may do at the next meeting right like that that we've talked about it sort of being like a bull elephant right that's been mortally wounded right it's going to trample around for a long time before it kills over but it's it's the Fatal blow has already been delivered and it's it's yes it's going to around for a while but we know it's gonna die um uh and one of their concerns is you know the lag effects as we talked about may just be hitting now right and so that that pain that that pal predict we would see maybe a lot of that's still ahead of us here even if they do nothing additionally from here yet they're still continuing to do QT and they still could tighten I mean the door is open for them to tighten or to pause and then tighten again if they feel they need to so there are some concerns that the FED has been maybe taking they've been over tightening now and and they're potentially making a much deeper and more protracted recession than might otherwise be needed um if you have an opinion on that I think it's it's the fed's mistake really started when obviously they were too easy for too long yeah but I had more of an issue of not where the Fed was eventually going to get the FED funds rate but the rapidity at which they decided to get there yep and get getting to my point about this interest rate shock therapy was more of the problem because to me negative real rates QE have done an enormous amount of damage uh to the to the global economy negative rates for for for a while now and having positive real interest rates is a long-term good thing so if I'm going to interrupt it we actually as of the last hike right we have positive real interest rates for the first time in how long I mean a long time so that that's why like I said like I'm more I have a more of a problem with the the speed at which they raised rather than where their ultimate destination was going to be but but I guess my question is is do you because of the rapidity and the you said interest rate shock I guess people are arguing we haven't felt the full force of the shock wave yet and yet QT is still continuing which has only begun we've had it we've had a two-part economy one pre-svb collapse and we've just started the post svb collapse world and that is a world that where credit was already tightening that tightening is going to accelerate and this has only just begun okay so I'm going to put words in your mouth but you what I kind of hear you're saying is is batting down the hatches and yes you're not predicting perhaps a violent you know market crash or a violent uh you know going for Death By A Thousand Cuts yep yep this is what we acclimate to this higher rate environment until we have more equity and we have less debt yeah this is that grinding burrowing that we were sort of talking about earlier okay uh last question from the audience here um just because we're getting short on time it's a question we already kind of touched on uh Peter but there's just so many people asking this question I'm going to give you a chance to revisit it which is will the housing market crash um maybe the right way to pose this question is is you talked about how we have a lot of people that are trapped in these mortgages and that was sort of an undetended consequence of what the FED did in terms of their hiking interest rates how do you see that resolving um and let's let's take a two to three year outlook on this um you know do the existing marginal transactions finally get to a true price Discovery or do we stay at a higher elevated level just because of the weird dynamics of the current setup we we have the definition of stagflation in the housing market if you look at weekly mortgage applications from The Mortgage Bankers Association the purchase component is in a stone's throw away from falling to the lowest level I believe since 2011. so we've had quite a freeze on the pace of housing transactions now that's for those that need a mortgage obviously cash buyers don't fall into that category and they've been spending and buying and we know home builders uh have been stepping into this breach so we've had a pretty notable reaction in the housing market ready I think the question goes to also what happens to price and what you said like what is going to be that clearing price uh and it's a really tough question to answer because of how distorted but I think the question that that folks are really asking here so if you can address it and your answer is for the folks that thought housing prices got to Crazy levels kind of pre-pandemic and then they've just Gone Bananas right um and now you know not only do we still have pretty high you know prices still near kind of Records but now the cost of financing has gone way up if I'm sitting around waiting for a better opportunity because surely the housing market must correct at some point am I going to be disappointed I I think you potentially could be disappointed that prices are not going to fall to an extent enough to really fully mitigate the doubling and mortgage rates and let's game this out what happens if the FED starts cutting interest rates well that doesn't necessarily mean mortgage rates are going to fall if maybe the long end actually yields go up because people are worried about falling a dollar and that the Fed rate cuts are going to re-accelerate inflation and maybe the yield curve starts to steepen again uh or let's just say it does not let's just say that mortgage rates actually go down and that starts to open up some inventory people say you know what I can now get a mortgage rate that's not my not much different than the house than I'm in so I'm going to sell here to buy here maybe that can ease up and add to some of the supply that can maybe slow down the rise in home prices but on the other hand that person still needs to move somewhere and go find another home which then creates its own demand it's just it's it's it's upside down here and it's really I think difficult to have a confident answer to to that question okay um and and look uh I'll let you off the hook here because we also do have housing Specialists so bring on here to really dive into this but it's it is uh it's muddy as you've said and and I think in some ways that can be really infuriating uh particularly because I get the way that people look at it and I I gotta be honest I look at it a lot that way myself which is that prices just got incredibly insane versus fundamentals and then now you know financing Has Gone Bananas and and surely just from the increase in mortgages alone we should see a nice mathematical correction but we're not you know no matter what percent of the people had mortgage rates above four instead of under before uh I you'd probably see more mobility and and more easing of prices got it so I assume that you would say so yeah look at a country like Canada or the UK where uh you know they have like five-year mortgages or mortgages have to be refinanced every five years so basically every year you've got about a fifth of the housing stock that needs to be refinanced I'm assuming you would expect to see a faster correction in those types of countries yeah you would you would think so uh for sure uh but even in the UK you haven't necessarily seen it just yet uh I do think you're beginning to see it in Sweden they also have you know feasted on on cheap money and and having more adjustable rate stuff so uh I think there's more vulnerability from affordability standpoint without question because there's not as many people sort of Trapped in these low mortgages for a lengthy period of time all right well I got to leave it there um Peter I could go in all day with you and I know there are a number of folks here that would love for us too but you got to get back to to work thank you again for not only coming on the program and giving us so much uh of your expertise but for changing the plan coming on to do it live I know you had a couple technical issues as well yeah I appreciate you solving it through it no no no I like I said I really appreciate you soldiering through everything to to come talk to us today um for folks that have really enjoyed this discussion would like to learn more about you and your work follow you where should they go uh well they can subscribe to the book report it's actually bookreport.com b o o c kreport.com uh actually starting this week I'm going to be shifting over to sub stack and uh we'll see how that goes but I write daily and then on the wealth management side you can reach us at uh you can go to our website at bleakly.com and learn more about us all right fantastic um folks please give Peter a big thanks there in the live chat um just wrapping up um I just want to remind everybody um for the reasons we talk about every week but particularly the reasons uh that Peter mentioned here uh in this entire conversation you know it's a very muddy very confusing time he talked about the challenges that he has as an experienced Capital allocator trying to figure out how to play this right now so um if you're feeling you know overwhelmed by trying to figure out how to navigate your own well through this again highly recommend you do that under the guidance of a good professional financial advisor one that takes into account all the macro issues that Peter and I talked about here if you have a good one who's doing that for you already and then creating a personalized portfolio plan for you and then executing it for you great you should stick with them but if you don't or you'd like a second dependent from one who does um then consider talking to one of the financial advisors that wealthan endorses these are the guys you see come on the program with me every week I just set up one of those free consultations just go to wealthyon.com I've got the URL right there at the bottom of the screen only takes a few seconds to fill out that form schedule one of these free consultations they don't cost anything there's no commitment to work with these guys just a public service they offer if you really enjoyed having Peter on as I always do I would like to see him come back on the program please vote your support by hitting the like button and then clicking on the red subscribe button below Peter again I can't thank you enough these are always just wonderful conversations good luck with your navigations here and look forward to having you back on the program as soon as your schedule allows thanks and I very much appreciate having me on all right thanks so much everybody else thanks so much for watching

Channel: Wealthion

Views: 88,495

Keywords:

Id: CLg9ESsvyHE

Length: 66min 28sec (3988 seconds)

Published: Tue Jun 06 2023