Is the U.S. Economy Starting to Roll Over?

foreign [Music] is U.S economy rolling over hi everyone Welcome to the Real Vision Daily Briefing with me today is Jesse feldler founder of Felder investment research hi Tessie it's nice to see you again hi good to be back Maggie thanks so we had U.S consumer we've all been waiting for this inflation data for a while we had U.S consumer prices CPI index come in a little bit lower than expected not by a lot but it seemed to be enough to send those treasury yields lower um we saw U.S equities they were a little mixed but we did see a late push higher the NASDAQ up over one percent that they're just settling actually those prices but what did you make of the number and do you think this is a sign that we're going to start to see inflation continue to moderate I think probably it's going to continue to moderate you know we have some tough comparables you know year over year throughout June which will make you know that disinflationary Trend you know probably continue through that that time period I think you know what's more important are the the bigger picture inflationary forces right I think people are so focused on these monthly readings when really what's going on is uh you know their their demographic Tailwinds to inflation and longer term kind of structural forces to inflation that I I think are much more important to pay attention to because I really think that the big question on everybody's mind is you know whether consciously or subconsciously is is the Fed going to be able to go back to the monetary policy that they pursue for the last 15 years or are we in a new monetary era where monetary policy is going to be normalized to some extent you know based on that that pre-gfc uh framework um I I think you know that will help it helps to determine how you look at virtually every different asset class out there yeah and so what that you're you're right I mean that's it in fact it's funny that you bring that up because just earlier today um we had the first of what we're calling the academy sessions a conversation with members and Roger Hurst about trading strategies how to think about the environment and you know some of the modules if they if they work through the real investing course and this is one of the things that came up you know are we how are you thinking about this is it different or are we going back and how do we kind of fit that into the Frameworks we've been developing um it was really interesting where do you fall on that if that is the big overarching question how are you thinking about that well my opinion is that we are in a new monetary era that this this 15 years of the post GFC zero percent interest rates uh and money printing came to an end um right we had we saw a huge we really kind of hit its its peak right in the you know response to the the onset of the pandemic where we printed trillions of dollars in new money interest rates went back to zero and we we've now seen inflation take off as a response to that kind of over overdoing it on both fiscal and monetary policy so I think that that marks a kind of a markation point where no longer can the FED pursue these kinds of policies without there being any consequences whatsoever um it's pretty clear that now the consequence of of overdoing it is inflation and so we have to go back to a more normal uh monetary policy pre-gfc if that's the case then it doesn't matter if the Fed said you know uh does in fact pivot and maybe they lower rates to three percent or something we're not going back to zero again and so a lot of the problems that we've seen crop up with regional Banks and things of you know based on just the normalization of interest rates those problems aren't going away there's been you know as you know Stan druckenmiller said this week when you get out free money people do stupid things when you give out free money for 15 years people do really really stupid things and so now that you have to Norm you know there's no more free money we're starting to find out what are the stupid things that happened and if interest rates don't go back to zero we're gonna just keep finding out there's going to be more bodies you know converting to the surface of Stan yeah yeah so which is you know I think is going to scare people when they when they think about that and hear that I'm gonna I want to bring a questioning because I think it's I think it's exactly in line with what we're talking about right now but we'll go back to those bodies in a second you always have to right um but this is from Paul Jesse you uh wrote recently there has been no real growth in the economy since 2008 and the economy's actually been in Decline for decades and worsen during QE can you give a brief explanation fits perfectly into the question we asked at the top as well yeah I mean that was a blog post I put out today and I and I basically you know when Ben Bernanke started quantitative easing he said it was in order to create a wealth effect we're going to boost asset prices going to make people feel healthier they're going to spend more and it's going to create a virtuous circle of growth that creates incomes and that creates growth and kind of and so on and so forth they were effective in boosting asset Isis uh if you look at you know household net worth relative to GDP it's off the charts I mean it's just it's it's gone you know parabolic in the last few years until until last year um now whether that's actually most of the economy I think is open for debate but from all the signs I look at the economy hasn't done nearly as well as asset prices and when you look at these things and relative to the money supply let's look at household net worth relative to the growth in M2 it's actually just flatlined uh you know it's declined since 2008 and it's essentially been flatlined for the last 15 years so all of the growth in wealth is just commensurate with the growth in the money supply so it's it's really uh you know just a money illusion I think if you look at it in terms of net worth relative to M2 and if you look at the economy relative to the growth in the money supply it's been in structural decline or you know well over you know since pre-gfc but during the QE era we've seen mine printing grow a lot faster than the economy which suggests to me that the money printing is has been very successful at creating inflation in the last few years it hasn't been successful in creating economic growth as Ben Bernanke suggested that it would way back in 2010. so interesting so what Crea where how do we juice the growth then how do we solve the growth problem well it's funny because uh in my friend Jim Bruce put out a movie after the the great financial crisis called money for nothing and there was a quote from that movie that didn't actually make it into the movie but Janet Yellen um told Jim in an interview it's you know in the in the outtakes that we somehow have to find a way to grow the economy without the assistance without relying on asset levels um something that we've kind of relied on since uh the the 1990s.com media and then the housing bubble and now what we've you know called the everything bubble for the past uh you know decade or so um you know you have to find a way to uh not be reliant on monetary policy to try and Stoke asset prices you have to do it in a more fundamental way and that is you know through through real uh you know growth in in the economy and I and I think you know the other side of this is the fact that you know the labor share of income has been a structural decline relative to corporate profits for a long period of time and so people have been making less less money their share of the pie as Warren Buffett has called it has declined um the average person's uh as you know their share of the pie of the overall economy is declined so you probably we're probably at an inflection point I think anyways now where that's reversing and labor shares going to start to take four of that of the pie and I think that will help in a lot of these areas but it's not disinflationary yeah well it's and it's interesting because when that happens the first thing you do if you see wages go up is everyone freaking out and the FED hiking rates to stop that from happening I mean it's seeing the knee-jerk reflex of that is seen as a negative because in the era we've been in that has been the case and people wonder why confidence in the FED is you know a Gallup poll this week shows confidence in the FED is its lowest ever recorded and it's because people start you know the FED creates inflation and then when wages start picking up they say okay no now we gotta Crush wages and and uh so you know I I think it we're going to if we continue down the path that we're on um you know and this is something Warren Buffett wrote about 20 plus years ago in 99 2000 that if the labor share continues to decline we're going to get political problems and I think that's what we've started to see in the last five six years this growth of populism and people voting for people they think are going to put their interests ahead of Corporations ahead of uh you know things like that and and I think we're going to those kinds of populist uh sentiments are only going to grow unless we find a way to kind of uh balance out the economy and a more Equitable way yeah I'm glad you say think that they are going to address the problem because no matter where you look there's not a lot of substantive you know really deep Economic Policy discussion and thinking going on in political circles there's a lot of re-election talk and election politics and very little else which I think is frustrated an enormous amount of people and that is a completely apolitical conversation right comment by the way that is yes you know that is just how I see it I Edward says something very interesting I love this expression too if the economy goes into the soup what choice does pal have other aggressively cut and reinflate the bubble I would add to that based on what you just said Jesse is their monetary policy is one area but there's fiscal too right I mean it was always really supposed to be fiscal that was driving this it wasn't supposed to be just up to the monetary authorities to address these issues right right I mean and that's you know you could argue that that that's what the Federal Reserve felt like it had to do through you know in the post-gfc period was because fiscal couldn't get its act together that you know it was all put on Central Bank to try and stimulate the economy um I I do think that there's a good chance we are headed for a hard Landing in the economy and that will probably for a pivot uh but I think Jay Powell knows I think uh you know a lot of people a lot of you know smart people in this business understand that if he does uh pivot there's a risk that inflation come becomes an even bigger problem down the road and so I I think you know it's it's a very difficult Point uh you know a dilemma that's uh facing the fed and and for now with unemployment extremely low right the FED is executed on one side of the Dual mandate right full employment side I think by anybody's definition we have full employment the stable price aside they're not and so I think they have to uh maintain interest rates a tightening posture until you see you know you know very compelling evidence that we are already in the midst of a hard Landing that that's potentially what could get you know pal to Pivot yeah that's interesting and and that that lag of you know when we're gonna get it show up in the data um and it's funny that you mentioned hard Landing I I we had Jeremy Schwartz on from Wisdom Tree uh on the daily briefing yesterday and he made the point that we haven't really begun to see the impact of this Regional banking crisis let's have a listen to that clip and then we'll talk on the other side you can tell the message is going that you know the bank let the bank lending we've been saying could be as much as three or four hikes you've got people like tourist and slock who says six hikes like torsten's been saying he's a chief of college for Apollo saying that the tightness in lending standards and Apollo knows something about lending I mean they do lending and you know he says it's it's 150 basis points so six Heights we say maybe three maybe four and some of the FED were saying one so we we definitely see what's going to happen in Bank lending acting as another mitigating Factor plus we see the data uh you know we've been talking a lot about the late data the lag data and housing that that's going to feed into much lower inflation if they used updated data they'd actually see they're right at their two percent Target I mean I can't wait to update we have an ALT inflation series compared to the FED in the BLS official inflation series and you know my projections are showing that the core rate would be below two I thought that was so interesting um and by the way I'm not I don't believe Wisdom Tree I don't know if they're calling for hard Landing I I don't believe that um just so we're clear on that I'm not sure exactly what their call is but they do they are worried Jeremy for one is worried about this you know this sort of when when it starts to show up in the data and it's not maybe capturing what's happening in real time in the economy Jesse how are you thinking about are we facing a credit squeeze that's going to hit the U.S economy and if so how bad will it be when do you expect it to show up like these are the bodies I think that you're talking about right well yeah I mean the the bodies are you know would be more problems in in um you know Regional Banks I think even maybe you know so private um private credit you know who knows where it's where the commercial real estate show up yeah but I but I do think the economy is is headed for hard Landing all of the you know leading indicators you you'd want to look at whether it's you know of the yield curve or you know composite of oil price interest rates and the dollar they all kind of point to uh a significant potential for a recession in the second half of this year so I you know I think we're we're headed that direction now in terms of you know the fed's Mandate and you know what we saw in the clip there the fed's Mandate you know just to be clear is for stable prices you know the FED interprets that as two percent inflation I think technically it means zero percent inflation um but you know they're they're in charge and they say too so you know to say that they're potentially hitting on their mandate when core inflation is still running five percent you know plus year over year I think is you know is tough I I think you know the FED has to see core inflation and Jay this is what JL said you know they have to see it declining significantly for several months in a row before they can have any confidence that it's headed back towards two so I think when we're still running double mandate and you have things like sticky CPI median CPI trimmed mean CPI all of these things are still very elevated and suggesting that we're not going to get close to two anytime soon that it has to maintain a tightening posture that's what they're and I think that's what they'll do until we start seeing that there's pause on the other side of the Mandate right he starts seeing unemployment rising and things due to the fact that we're we're in the midst of a hard Landing then you can start talking about okay the FED needs to cut um but but it's usually right I mean too late uh some things something's broken the the famous phrase we use all the time are trying to figure out so John read my mind and is asking exactly what I wanted to know where to hide if the hard landing's coming or what performs well in this environment it's a great question because I think normally would you would say Okay I want to buy iteration I want to go into longer term bonds right uh that the economy is going into a hard Landing and things like even the copper to gold ratio suggests that interest rates are potentially too high at the long end of the curve that we could you know we should fall below three it's interesting to me though that they haven't right that we have you know we're still well over three and a quarter on the tenure uh and Until It Breaks below that I you know I think you have to look at what's going on with supply and demand right the treasury needs to refill its coffers once the the uh you know debt limit is is increased uh they may have they have tons of new debt to sell uh there's interest right I mean this is the first time we've had interest rates above you know uh uh inflation for a long time but that's mainly at the short end of the curve when you look at you know do I want to go three and a quarter for ten years when inflation is you know I don't have a lot of confidence that Powell might is going to hold the line on inflation in 10 years from now inflation could be even more of a problem it is today it's hard to get excited about bonds um you know obviously stocks don't you know if stocks if we're going into our Landing earnings are going to decline significantly than we've seen that's not good for the stock market so I think generally I think we talked about this the last time I was on Maggie was we're in the early stages of longer term Commodities super cycle um in the short run a hard Landing is going to be bearish for potentially things like oil and and copper but longer term the supply demand for these things is inordinately bullish and so I think you have to look at opportunities to to you know buy the dip in in commodity uh focused areas and uh you know Paris medals I think are maybe the most interesting area in the market right now and getting zero interest from the mainstream media and investors which to me is even more bullish yeah so we have I think you sent over um chart on that and I love the the Dory count because I have to tell you um I mean I don't know this goes I think the story count may go back to last year as well but anecdotally this year every single person that we talk to at the beginning of the year in January wanted to talk about gold every single person and then that was it like it it vanished you know so why do you track that that's so interesting to me well actually I I have to be honest I stole this chart from uh Nick Reese uh I retweeted uh or actually I deleted his chart with full credit to him but it was fascinating to me it really mirrors you know when you look at things like ETF flows right we've seen gold prices really uh take off since you know the end of you know last fall right um you know from about 1600 to over 2 000 and we've seen no no flows into gold ETFs whatsoever uh it's essentially you know you look back at those two previous times you know gold attempted to break out above 2000 which was a little over a year ago and then back in the middle of 2020 and the you know the amount of interest that it that garnered was just off the charts right you had a hundred thousand news stories a month and ETF flows were off the charts the fact that we're testing uh 2010 uh you know trying to break out and there's zero interest is is a sign to me that a very bullish contrarian sentiment signal that you know my friend Peter Atwater likes to say media reflects mood and if that's the case here then the media is reflecting total you know nonchalance no interest at all in Precious Metals which which would be very bullish for for a potential breakout here are they uh are people not interested in it because they think it's had its run or is that too backward looking I think you know what I keep hearing is a triple top uh in the gold price but if you look at that chart you can understand why people might be thinking that yeah you know that's not a uh a con technical pattern that I've ever come across I mean a double top yes a triple top I mean the more times you test a supported resistance area the weaker it gets and so I I think we're getting close to breaking out above uh that 2000 level and you look back at the the previous cycle right gold price is bottomed in August of 2018 about six months ahead of the original pal pivot right gold price is anticipated that the Fed was going to be done uh with its rate hacking cycle when it was done you know when it was clear that Powell was done gold prices started to to really take off and I think we're at a very similar point in the cycle here where gold prices bottom about you know six months you know maybe a little bit longer this time ahead of the FED being done of uh done with its rate hiking cycle once it becomes clearer that that pal is not going to raise anymore it becomes obvious um it's no longer a question we can see gold prices really take off like they did in 2019 and 2020. you know it's so interesting so Roger uh in the chat just said no one wants to buy at these highs everyone's waiting for a pullback in gold a very interesting uh because I'm wondering what everyone's time frame is and maybe you can tell us your time frame Jesse because I would think if you're really short-term maybe you're doing that but you're talking about a longer term Trend you're seeing does time frame matter when you're thinking about prices like that I think you know it waiting for uh yeah how do you respond to that from you know from a trading strategy point of view well from a standpoint I I do think we could see a a little consolidation period for gold before it does officially break out when you look at that price analog uh chart that I that I shared um that's that's what we saw in early 2019 right the piece the prices peaked in February of 2019 and kind of pulled back for a little while before they finally broke out above that 1350 level uh in 2019 I think we could see potentially something similar here but but you know with the the problems in the banking system and with the the uh the debt limit issue kind of looming um if anything kind of goes wrong in in either of those areas gold prices could could break up at any time uh gold is really kind of the uh the the only Safe Haven I think right now normally people would you know in a workout period would look to buy dollars but you know if we're in the midst of a a debt limit issue or something like that you know the dollar might not be the safe haven that it once was and people will be looking for an alternative and the only clear alternative I think is is gold oh very interesting uh yeah we're going to have to be what's your feeling about the debt ceiling because as we March up to it people usually say oh it's nothing it's a bunch of drama in DC it's ugly it's unfortunate but it will get resolved at the 11th Hour is that how you think about it or is that is there a little bit too much complacency in that I I think that's the most likely you know outcome and that's why the markets are so comfortable discounting it is because it's the most probable thing but when you look at when you actually listen to what they're saying in in Washington you have the White House saying they're waiting potentially for some Market volatility to Spur Republicans into a into a more favorable kind of negotiating position for the White House conversely the Republicans are kind of waiting for some sort of Market a potentially Market volatility Market event to communicate to the White House you need you you need to budge and so it seems like they're both waiting for markets to say okay we're really starting to worry about this before they come closer together in terms of some type of negotiation so what that that type type of Market signal needs to be is anybody's guess I mean it could be another breakout higher in interest rates across the curve it could be uh just volatility and stocks you know stocks rolling over hard kind of like they did in 2011. either way I think you know people aren't necessarily appreciating the fact that I think both sides are waiting for markets to to start getting nervous yeah so uh yeah it's a game it's a dangerous game of chicken politicians always think they can play it skillfully but um you know these are complicated markets by the way just passing along something we were just talking about internally um Libby Cantrell from Pimco I heard her talking earlier today and she was talking about May 26 as the Line in the Sand not June 1st because Congress breaks for Memorial Day and in the in the week leading up to that um she was just musing that you know that's when you have the potential if there does not seem to be a resolution to the market start to send that signal um so just passing that along I think that was I thought that was a great observation she made so watch out for that I think it starts the week of the 22nd just watch out if there's not you know real movement in that area you could start to see some ripples as because we know that the markets will Telegraph their um their outrage about that if it if it's not being resolved a question coming in from trillionx um uh Jesse don't you think yields are higher for longer would that then mean that Tech would have to derate from here as the sector has discounted a much lower yield environment we've seen Tech be on fire I mean that was not the call at the beginning of the year it's narrow but it's been pretty impressive yeah I think that's a great point right when I look at the top five biggest tech stocks on the market you put them together um I don't know if they're still the top five but it's Microsoft Apple uh Nvidia Tesla and alphabet put them together and you look at the price relative to their total free cash flow total market cap to Total free cash flow these stocks trade 65 times aggregate free cash flow that's a multiple and and they're all none of them are really growing anymore you look at alphabet and meta you know they're they're all at zero percent Revenue growth Apple zero percent Revenue growth um so you know I think for investors to be right paying 65 times uh free cash flow for these this group they either need to return to rat growth like we saw during the pandemic which was really spurred by the work from home trade everybody needed new laptop a new phone you know all these things and advertise the fact that you know take out restaurants I mean it was just a huge uh Boom for these companies they either need that kind of massive Revenue growth again or they need zero percent interest rates again or some combination of both because if interest rates do stay elevated and the revenue growth doesn't pick up yet there's gonna there could be a significant re-rating the last 10 years the average multiple for these companies is 30. so if they just go back to your average multiple free cash flow you could have a significant decline even without a decline in in their actual fundamentals yeah this is where everyone's everyone's puzzling about AI right because you'll notice all of those names have a sort of an AI component to them I'm laughing because I mean it's everywhere Carl asked if I was a real person and you're not the first one Carl no I'm not a bot or an AI generated a person um but it really I'm laughing because it's everywhere it's what everyone's talking about and I think everyone wondering is AI that big revolution in Tech um we know it's going to change the way we operate is it going to draw the revenues in that's a those are big unknowns are they Jesse absolutely and I think from from my standpoint I think people don't appreciate yeah I think people are also discounting here that that AI is going to allow these big tech companies to reinforce their moats yeah uh and in fact it's an area I think where they're competing more head-to-head with each other I think for the last n plus years they've all kind of had their own sandboxes to operate in and they've had very little overlap and that's allowed them to to generate massive profits but now you have you know Amazon and web services Google Microsoft are now competing in that area pretty significantly you have uh digital advertising right meta and and alphabet Amazon's now getting into advertising and now they're all they all want to compete together against each other in Ai and you know that type of competition usually results in some sort of creative destruction rather than in reinforcing you know the type of profits that they've had so I think people might be underestimating the uh destructive potential of AI for for these companies and even you know I I think it was a Discord page or something came out with a Google engineer who said look we have no moat when it comes to AI yep um we don't have any way any proprietary um and that's probably true for each one of these companies if you don't have anything proprietary and you don't have you know patents and things to to build on it's very difficult to see how you're going to protect profit margins and uh protect against competition in that area so I think it's a wonderful source of competition we're going to see some amazing products I just don't know that it's going to be the source of Revenue growth and profits that other things have been for these companies great great observation that not enough people are making I think that's something we're going to be talking a lot about um I love that arms races are expensive right you know I mean and that's what people saying we're in one more I'm going to squeeze in even though we're almost out of time because two different people are asking about this um it goes back to Gold um the question are you not considering crypto more specifically Bitcoin over other Commodities if you're bullish Commodities or in a similar correlation to Gold obviously some regulatory risks they're acknowledging but um how are you thinking about that digital assets maybe Bitcoin for me you know I've looked at it uh in a lot of different ways and to me that for the last I don't know 10 plus years Bitcoin has had its highest correlation to the NASDAQ 100 um it's not very correlated to uh non you know for to real assets Commodities gold prices it trades like a risk asset and uh if if it continues to trade like a risk asset and we have a hard Landing it I think it's going to perform more like a lot of these unprofitable non-profitable tech stocks than uh a true Safe Haven like like the gold or silver price fantastic Jesse great conversation so wonderful to catch up with you again we've got a lot we've got to keep our eye on so we appreciate your Insight thanks Maggie always appreciate you talking with you and great questions great questions from everyone uh I Ash will be with you tomorrow I'm going to be in DC actually talking about digital asset regulation if you can believe that and um but we'll be back on Friday for the extended so thank you so much for your time and as always take care and good luck out there [Music] thank you

Channel: Real Vision Finance

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Keywords: real vision finance, real vision tv, chinese, stocks, bitcoin, equity, equities, nasdaq, consumer sentiment, consumer prices, inflation, chinese tech, chinese tech stocks, china's tech crackdown, fed, federal reserve, the fed, taper, fed tapering, fed hikes, rate hikes, interest rates, bonds, treasuries, investing in bonds, raoul pal, 2023 markets, 2023 recession, 2023 inflation, realvision, ral pal, raoulpal, portfolio management, gold, tony greer, tg macro, beer with tony greer

Id: Zffr6Z8p8RA

Length: 32min 22sec (1942 seconds)

Published: Wed May 10 2023