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Well, today was the day that the federal open market committee concluded their two day meeting and they announced to the world their decision on interest rates, but more importantly, Powell held his post decision press conference.

1:24

So I'm going to get to all the highlights or more particular, the low lights of that press conference in a bit.

1:31

But before I get started there, I want to talk a little bit about some of the economic data that came out not only earlier today, but earlier in the week, that really evidences the stagflationary environment that we're in.

1:47

And these problems were not even mentioned in today's press conference.

1:52

No one even cared about this economic data, even the data that came out today, which I might as well start with, which was the trade deficit in goods.

2:02

Otherwise known as the merchandise trade deficit.

2:06

Last month, the may trade deficit was $88.1 billion.

2:13

And the estimate for the deficit in June was for a slight increase to 88.7 billion, not a new record high, but a larger deficit than the one that we had in may.

2:25

Well, the may deficit was just slightly revised, upward to 88.2 billion.

2:32

Not that big a deal, but take a look at the June number it's soared to $91.2 billion.

2:41

Not only does this far exceed the upper range of estimates, which went from a low of 86.9 billion to a high of 89.5 billion, but it is another all time record high.

2:55

In other words, this is the worst merchandise trade deficit that we have ever recorded in a single month.

3:03

91.2. Of course, it's not going to last for long.

3:06

I mean, this record is going to get broken.

3:08

It may even be broken as soon as July, but these records are going to fall like dominoes.

3:15

And this is not happening because we have a strong economy it's happening because we have a weak economy.

3:21

People keep looking at these numbers as if it's somehow evidence is strength because we're buying so much stuff.

3:28

Well, when it comes to an economy, strength is not measured by what you buy, but by what you produce, strong economies produce more.

3:37

They don't simply consume more.

3:39

We are consuming more.

3:40

Despite the fact that our economy is weak, how are we doing that?

3:44

Well, the fed is printing money and we are spending it, but that does not constitute strength that really evidences profound weakness.

3:52

In fact, you had Ken , who was on CNBC earlier this morning.

3:58

And Ken did say some things that I agree with.

4:01

I don't want to totally throw the guy under the bus.

4:03

And he was correct in his assessment of the inflation situation, not being transitory, but he thinks the fed is making a mistake by not doing something about the inflation problem.

4:17

He described the U S economy as being white hot.

4:20

And so he didn't understand why the fed is throwing fuel on this white hot economy.

4:26

Well, the reality is these trade numbers show that the economy's not white hot it's stone cold.

4:33

He's confusing recklessly spending the money.

4:36

The fed is printing with legitimate economic strength.

4:40

It's not. And in fact, the only reason that the numbers look good is because of all this fed Emagic with monetary policy.

4:48

See what Ken Lang gone doesn't seem to understand.

4:51

It's the same thing. A lot of people don't understand is that the fed is really not as clueless as people think, when it comes to inflation, they're not missing the inflation problem.

5:01

I think they understand that there's an inflation problem.

5:04

They also understand that they would create an even bigger problem from their perspective, if they tried to do anything about it, which is why they're not, which is why they are pretending that the situation is transitory.

5:17

It means so many people just don't get it.

5:19

Yes, they get the fact that inflation is worse than the fed claims, but they don't understand why the fed isn't doing anything about it because they don't understand that the fed can't do anything about it without collapsing the economy.

5:33

They don't understand that we have a bubble.

5:34

It is the biggest bubble in history.

5:37

And even the tiniest little pin would prick it, which is why the fed does not want to supply that pin.

5:45

And in fact, all day today on CNBC, before we got the FOMC announcement on rates and the press conference, you had a lot of people that were coming on, who just were scratching their heads and they couldn't understand why the fed was still so easy.

6:04

I mean, they agree that it was the proper policy originally, right?

6:08

As soon as we had COVID and we were under locked down and everybody was at home, everybody agrees to fed, did the right thing by printing all this money and cutting interest rates and doing QE.

6:19

Now, everybody is wrong. The fed did the wrong thing, right?

6:23

I explained it at the time that the proper monetary response to the COVID lockdowns was to tighten monetary policy.

6:32

Because again, what happened because of COVID people who were productive and who were working, went home and stopped working.

6:40

So we stopped producing stuff.

6:42

So the quantity of goods and services that were available to buy went down the proper fed policy response, which is exactly what the policy response should have been based on the original mission of the fed to provide an elastic money supply.

7:00

The fed was designed to shrink the money supply when economic activity shrank.

7:06

That's what they were supposed to do to maintain price stability.

7:10

They're only supposed to increase the money supply when the economy is expanding.

7:14

And that's the elasticity that the federal reserve was created to supply.

7:19

So I pointed out in real time, if production was coming down, if fewer goods and services were going to be produced, then the fed needed to drain liquidity from the system to prevent prices from really going up the fed not only did not do that, they did the opposite instead of draining liquidity, they added more liquidity.

7:39

So they added more demand in one economy where supply was going down.

7:44

And that's why we have this toxic combination of massive inflation.

7:48

And we're just experiencing the beginning of that.

7:52

There is a lot more inflation to come.

7:54

We're at the tip of this massive iceberg, but nobody seems to get that.

7:59

Everybody believes that what the fed did initially was right.

8:03

What they don't understand is why they're continuing those policies.

8:07

After all the economy has not shut down.

8:10

We've now got the vaccines people are out and about.

8:13

So why is the fed still buying $120 billion worth of treasuries and mortgage backed securities?

8:21

Given the fact that the housing market is on fire, that we have price increases that dwarf any previous records during the prior housing bubble that popped in oh eight.

8:33

So we have a super strong housing market.

8:35

Why is the fed continuing to goose this overheated market?

8:40

The same way it was when we were in the depths of the pandemic lockdown?

8:44

Why is the fed still monetizing all this government debt and printing all this money when the economy is not nearly in the predicament that it was in a year ago.

8:55

So this is why everybody is scratching their heads.

8:58

Again, they don't understand that we haven't recovered.

9:01

We've just become addicted to the stimulus.

9:05

The stimulus is a monetary heroin, and not only can't the fed withdraw the drug, the fed has to continue to supply the habit with greater and greater quantities of the drug.

9:17

Again, because the fed made the mistake of going down this path.

9:21

And now has to repeat the mistake by staying on the path, because if they withdraw the stimulus, we have an even bigger crisis than the one that we would have had had they never supplied the stimulus in the first place, because all the stimulus does is delay the day of reckoning.

9:37

But because we had the stimulus, there's a lot more to reckon with because the stimulus itself makes all the problems worse.

9:45

And one of the problems that it has made worse is the trade deficit.

9:50

We have a much larger trade deficit today than the one that we would have had, but for all this stimulus, in fact, getting back to these numbers, look at the increase in imports relative to the increase in exports are exports only rose by 0.3% on the mud.

10:15

Now that was an improvement from the prior month where our exports actually dropped by 0.3.

10:20

So we basically gained back 0.3.

10:22

So it's about a goose egg for those two months.

10:25

But look at imports imports for may were originally reported as being up 0.8.

10:33

That was revised to up 1.5%.

10:37

This month in June imports exploded by 1.5%.

10:43

So the gain in imports is five times as big as the gain and exports, meaning that the trade deficit is getting much worse.

10:52

But look at the two months between may and June exports were flat, no growth imports.

11:00

On the other hand, we're up 2.6%.

11:03

We have a massive increase in imports, no growth in exports.

11:07

This is like a company that is hemorrhaging red ink.

11:10

These merchandise trade deficits are our losses.

11:13

We are operating at a huge loss.

11:16

And how is it that we're able to finance these massive deficits?

11:21

Well it's because foreigners are willing to trade the stuff that they produce and that we consume for financial assets, because the world is willing to invest $91 billion buying us bonds or us stocks or stuff like that.

11:37

But how much longer can we continue with these massive, massive trade deficits?

11:43

Now we're looking at annualized trade deficits.

11:45

Well above merchandise trade, well above a trillion dollars a year.

11:49

Remember we have budget deficits that are in the multiple of trillions.

11:54

So we've never been faced with a situation where we've had a twin deficit problem.

11:59

This enormous. Now I know no one cares about these numbers.

12:02

You know, one of the trade deficit came out.

12:04

This record number, CNBC didn't even cover it.

12:07

They didn't even bother to break to mention this record deficit because I know nobody seems to care once upon a time, the merchandise trade deficit was the single most important economic number that was released every month because people cared about it.

12:23

In fact, the main reason that back then people blame the 1987 stock market crash on the catalyst for that crash was a trade deficit.

12:34

We had an explosion in the merchandise trade deaths that we had an all time record, high trade deficit of 17 billion, right?

12:41

That was an outlier, was a big jump.

12:43

We got 17 billion in one month, which was much larger than the typical deficit.

12:49

As a result of that, you had the dollar go way down, big rise in the Japanese yen, the Deutschmark, the Swiss Franc, and that spilled over into the bond market.

12:59

You had a big drop in the bond market as a weak dollar pushed long-term yields higher.

13:04

And so it was a weak dollar. It was rising interest rates that really precipitated the big one day crash in 1987.

13:13

So back then people cared about the trade deficit.

13:16

People paid more attention to the monthly trade deficit than they did to the monthly jobs report.

13:22

Now, I don't remember when the trade deficit kind of got pushed to the back burner.

13:26

In fact, it's not even on the back burner.

13:28

It's not even on a burner. It's not even on the stove.

13:31

It's not even in the kitchen anymore.

13:33

Let alone being on the stove. I'm not really sure how this transition happened, but nobody cares about it.

13:38

And so, because nobody cares about it, the situation has gotten much, much worse.

13:43

Now that doesn't mean that the trade deficit isn't a problem just because nobody's considered a problem.

13:49

It's not a problem until it's a problem, right?

13:51

Until the markets now recognize it, which means it's going to be a crisis, right?

13:56

It's not going to be a problem until the problem becomes a crisis, but because nobody has cared about the trade deficits and it hasn't been a problem, the problem has gotten much worse.

14:07

Meaning the trade deficit had gotten much worse.

14:10

Had the market done something about this, which is normally the case.

14:14

Normally a country would never be able to run trade deficits this big for this long, because what would happen is its currency would drop sharply that would put upward pressure on interest rates that would make imports much more expensive.

14:31

It would slow down consumption and it would solve the problem.

14:35

Market forces would bring these runaway deficits back under control, but because the dollar hasn't tanked because the federal reserve hasn't been pressured by rising deficits to raise rates.

14:51

We've been able to continue these deficits.

14:54

Not only continue them, but expand them.

14:57

So instead of the market solving the problem, the problem has gotten much worse, worse.

15:02

Now that doesn't mean that it's never going to be a problem.

15:05

It just means that it's going to be a crisis.

15:07

And when it's a crisis, it is an even bigger problem.

15:10

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17:12

Next number I want to touch on is the durable goods numbers for June.

17:17

These came out yesterday and the consensus was for a pretty strong number 2.1% increase in June.

17:26

And that would have followed a 2.3% rise the prior month.

17:30

Well, that month got revised up to an even bigger number 3.2, which may be take some of the sting out of the huge disappointment for the month of June, which came in at just 0.8.

17:42

So that was a much bigger missed the downside than the revisions to the upside, but what would be more important and more concerning to the markets is the trajectory, which is a weakening number.

17:54

And if you X out transportation, the number was even weaker.

17:59

The prior month was revised up from 0.3 to 0.5, but the 0.8% gain that was expected for June that ended up being just 0.3.

18:10

So the numbers there decisively weaker than expected, but what's more important is that trend, which is down, but probably the most concerning number for the people who are looking at the economy is the new home sales number, which collapsed in June for the third consecutive month.

18:33

Now prices continued to hit record highs, take a look at these charts and they continue to move up when it comes to home prices.

18:41

But sales have now fallen.

18:43

In fact, not only did this number come out way below the 800,000 forecast because we printed 676,000, but we also downwardly revised the prior month may was initially reported at 760,000.

18:59

It was revised down to 724,000.

19:02

So why are home sales falling well because home prices continue to rise.

19:09

And even though mortgage interest rates are at all time record lows, which is a massive subsidy.

19:16

The prices are rising so rapidly that more and more people are getting priced out of the housing market.

19:22

Even though they've got these big subsidies in the form of artificially low mortgage rates.

19:29

And I don't think the price increases are even close to ending because what's really important to consider when it comes to these home prices is the cost of construction.

19:41

The cost of replacing the existing housing stock.

19:45

That is what's really, really going up now that is going to put a damper on people's ability to buy new homes.

19:52

Because a new home you're only going to get a new home.

19:55

If you can pay the developer a profit above his construction costs, I think what's going to happen is more and more developers are gonna realize that it now costs so much to build homes that it costs too much for people to buy the homes.

20:11

So a lot of this new construction is going to stop, which means a lot of the employment that was a function of this new construction is also going to stop, but people are still going to want to buy homes.

20:24

They're just not going to buy new homes because they're too expensive.

20:27

They're going to be bidding for the existing supply of homes that have already been built because they're, you don't have to pay these higher costs for materials and labor because those costs were already paid in the past.

20:40

And you already have the building there. Yes, you've got to pay to maintain it and to fix stuff that has gone wrong.

20:45

But the majority, the expense has already been paid by the current owner or the previous owners.

20:52

But what I think that means is when you no longer have this supply of new homes coming on the market, you're going to see continued movements up in the price of the homes that already exist.

21:04

I mean, I still think that most of the homes that exist right now in the country are still selling at prices that are not even close to covering what it would cost to replace those homes.

21:17

I mean, if they burnt down and you had to rebuild them, it would cost a lot more.

21:21

But you know, that also means insurance rates are really going to rise.

21:25

Because if you look at what it costs to insure your property, you can't insure it based on what it originally cost you to buy it.

21:33

You have to insure it based on what it would cost you to rebuild it, right?

21:36

So if a fire completely burns down your house and you've got to rebuild it, what's it going to cost?

21:42

And if the replacement cost is much, much higher than the insurance company has to charge you a lot more money.

21:47

And of course, another reason that insurance rates have to keep going up is because the insurance companies can't earn any interest on the premiums that they collect because rates are at zero.

21:58

So they have to compensate for those low returns, by charging even higher premiums to the people who are buying insurance.

22:05

So everything associated with housing is going to keep going up.

22:09

In fact, I read an article that I retweeted from MarketWatch and they pointed this inconsistency out regarding rents because rents in the CPI comprise one third of the CPI.

22:26

And of course housing costs are more than one third because there are other components of the CPI that relate to housing.

22:34

But if you just look at rents, rents are a third.

22:38

So that's the big enchilada.

22:40

And according to the government, even though the CPI year over year is up, I don't know about five and a half percent.

22:45

Something like that. Certainly it's, it's, it's at a much quicker pace.

22:49

If you just look at the last three or four months, but year to date, I think if you go backwards 12 months from the most recent number you got year over year inflation or CPI of about five and a half, 5.6.

23:01

During that same year, according to the CPI, rents have only risen by two and a half percent.

23:08

Now that is a laughable number, but it's the number the government has used.

23:13

And obviously because the overall CPI is up five and a half percent, the low increase in rents being such a big component has actually been helping to keep that number much lower because it has brought down the average, especially considering that it's such a big part of the computation.

23:32

That means that if you take out the rents, all the other prices collectively are going up much more than five and a half percent.

23:41

If rent increases of two and a half percent, we're able to bring down the average so much.

23:46

Well, market watch points out that if you [email protected], which is a website that is actually showing real rents, that people are paying because realtor.com, they have properties for sale and they have properties for rent.

24:03

And so they are studying the rent offers for now, and then they're comparing it to what properties were renting for a year ago.

24:13

And these are actual rents, right?

24:15

These are just not the made up owner's equivalent stuff that the government is using.

24:19

These are actual rents that people are paying.

24:23

And according to realtor.com, rents are up 25% year over year.

24:29

Think about that 25%.

24:32

That is 10 times the official increase that the government is using to calculate the CPI.

24:40

And that is the biggest single component of the CPI.

24:43

So just imagine if we have year over year inflation of 5.5%, when a third of that number is two and a half percent increases in rents, imagine what the CPI would be right now, if you replaced the two and a half percent government number with the 25% private sector number from realtor.com, I mean, you would be looking, I think at a year over year inflation rate right now at 13%.

25:11

And that would probably rank it as bad as any single year during the 1970s.

25:18

Right now, we already have inflation. If we just made this one substitution of the realtor.com rents for the government rents.

25:25

If we just did that, we would have inflation that was worse than any year during the 1970s, except it's probably much worse because the rest of the numbers are probably understating the true magnitude of the price increases.

25:38

So the real rate of increase year over year is probably closer to 20% than 30%.

25:45

I don't know exactly where it is, but it is a very, very big number.

25:49

The bad news is it's going to get bigger from here, which I think is a good point to transition back to the main topic of today's podcast.

25:59

And that is the fed decision on rates and the Powell press conference.

26:05

Now, first of all, the press conference is always far more important than the actual announcement on rates or, you know, what it actually does on rates, which of course is nothing.

26:18

The reason these press conferences are so important is because the Fed's monetary policy today basically consists completely of talking right there.

26:29

There's no real action involved because they can't act.

26:33

The fed has already inflated such a big bubble, such an over leveraged economy that actually using any of its tools, right.

26:41

Did he keeps talking about using actually using these tools is really off the table.

26:46

The fed can't raise rates, they can't taper, but what they can do is talk about those things.

26:53

So really we have monetary policy that is a hundred percent talk and no action, right?

26:58

It's all bark and no bite.

27:00

That's why the press conference is the only thing that really matters because nothing is actually going to happen.

27:06

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28:43

Now, before I get to the conference itself, I want to mention a couple of things from the official statement that was initially interpreted as oh, somewhat hawkish.

28:54

So within the official statement, in that language, the fed made a statement that the economy is making progress towards reaching its goals, right?

29:05

Its goals of full employment and, you know, complete strength and to the extent that we ever achieved this goal.

29:12

Well, that's when the fed is going to start to taper.

29:15

That's when the fed, at some point, it's going to start raising interest rates.

29:18

So because the fed claim that some progress has been made, the initial reaction to the statement was, oh, this is somewhat hawkish, right?

29:26

Because if we've made progress, we'll now we're closer to some tapering.

29:31

We're closer to some, you know, rate hike, however far in the future.

29:35

It is we're a little bit closer because we've made some progress.

29:38

And so if you looked at the markets immediately after the fed statement, you saw a bit of an uptake in the dollar, a bit of a sell off in gold, a bit of the sell off in the bond market, nothing dramatic, but that was the initial interpretation that this was somewhat hawkish.

29:54

Now I think it was tempered a little bit by the fact that the fed removed from its official statement, a reference to the vaccines, helping the economy because now more people were vaccinated.

30:07

And so people were not as worried about getting COVID.

30:10

And I think this is kind of an acknowledgement that you've got this Delta variant problem real or made up, and that this may be somewhat diminishing the benefits that the fed saw from the vaccine.

30:23

The fact that now you've got this variant of COVID that is coming back, and that is, you know, kind of putting the brakes somewhat on the reopening.

30:31

So probably if it wasn't for that, you may have even seen a little bit of a bigger reaction in gold and the currencies to the idea that the fed was more hawkish.

30:42

But of course, that is a bunch of nonsense.

30:44

And to the extent that you thought that there were any Hawks at the fed or that Powell was a Hawk, well, the actual press conference would have put those rumors to rest.

30:55

Powell is an Uber dove, as I've been saying, every press conference tops, the previous press conference in the degree of dovish Snus.

31:04

And I would still continue to say that, yes, this time pal Al dubbed himself, it's just like the trade deficits.

31:12

Those records keep falling like dominoes.

31:14

Well, so does the Fed's record on dovish?

31:17

the only question is when is the market going to wake up to this reality?

31:24

Now it is possible that today was the wake up call because by the end of the day, by the time that the press conference concluded and there were no more questions, gold actually caught a bid, the dollar, which had been positive all day sold off.

31:41

So the dollar index closed down on the day near the lows of the day, gold closed near the highs of the day.

31:46

I mean, not a big move. It was up about nine bucks, but we still managed to rise.

31:51

And the dollar managed to fall, despite the fact that during the press conference, one of the things that Powell repeated was his assurance that if the fed is wrong and if this pick-up and inflation that the fed has acknowledged is well above 2%.

32:10

But if it turns out that it's not transitory, the fed is going to use its tools.

32:16

Pal said, and this is one of the things he said in the press conference that if inflation is significantly and materially above its goal of 2%, which of course it already is.

32:27

So the question is how long does it have to be significantly and materially above 2% when it's already met that criteria?

32:35

Despite the fact that neither significantly nor materially is actually defined, but given how much higher than 2% we are right now, I think based on any definition, even one, that's not disclosed, what we have now would qualify.

32:49

But what Powell said is that if inflation does persist to be significantly and materially above its goal, that it will use its tools to guide inflation back down to 2%.

33:04

Now, maybe, maybe the markets are finally calling the Fed's bluff that it has no intention or ability to use those tools, because that may be why, despite the Fed's insistence, that it stands ready to fight inflation, which up until now has been a major factor, keeping the price of gold down and keeping the dollar up.

33:26

The fact that the dollar sold off in gold rose, maybe this indicates that the markets have called the Fed's bluff.

33:33

And if it does indicate that if in fact that is what the markets have done, then really it's game over.

33:39

Now it's not game over immediately.

33:42

So it's more of the beginning of the end because the decline that we saw in the dollar today and the increase in the price of gold was very small.

33:50

The key is, is it a harbinger of much bigger moves that lie ahead.

33:55

Now, let me get to some of the other comments that were made during the press conference.

34:01

Oh, and by the way, too, before I even get to these comments also earlier in the day, we got the news that this bipartisan coalition in the Senate has agreed to a $1.2 trillion infrastructure bill.

34:16

So the path for this bill is now been paved.

34:19

And what nobody seems to appreciate is where does this $1.2 trillion come from, right?

34:26

Because we don't have the money and there were no real tax increases to pay for it.

34:31

So this is all going to be paid for through inflation, right?

34:33

The government is going to issue bonds, which the federal reserve is going to buy.

34:39

And they are going to buy the bonds by creating new money out of thin air that did not exist.

34:45

And now the government is going to take this newly created money, and it's going to use it to go into the market and bid up raw material prices and bid up labor prices in order to do the infrastructure program.

34:57

So what is this going to do? Push up prices.

34:59

This is more fuel on a roaring inflationary fire.

35:04

So, you know, none of this, of course even came up in the press conference.

35:08

By the way, I did read an article. This is a bit off topic, but I might as well introduce it here.

35:13

Sheila Baird, who, you know, I talked about her because she was in that documentary about the fed a frontline documentary by PBS.

35:22

And, you know, she at least acknowledged the problems of moral hazard that the fed had created.

35:28

Of course, she ignored all the moral hazards that her own agency that she used to head the FDI C created, but forgetting about that, she was correct in the moral hazards of the fed.

35:39

But if you remember, when I did that podcast, I said that I thought the hidden agenda behind frontline was to try to say that the fed had been using its monetary powers inappropriately, that it was using them to enrich wall street.

35:55

And what they really should do is use those powers to enrich main street as if the fed could enrich anybody by just creating inflation.

36:03

But there was an article just came out by Sheila Barrett.

36:05

That's called for just that she wants the federal reserve to start creating digital dollars digital currency and send it directly to the people, into their digital wallets, right?

36:16

Bypassing Congress, right?

36:18

Not waiting for Congress to pass the stimulus, just give the federal reserve power to send money, digital money directly to individuals who could immediately spend it.

36:30

And she actually thinks that this is a good idea.

36:32

Of course, it's an impossible idea to do legally because the federal reserve can't do that because in order for the federal reserve to introduce new federal reserve notes into the economy, and they are notes, they are liabilities.

36:45

Even though they technically don't have to actually pay anything like they used to, when they actually had to pay gold, they don't have to pay anything, but they need an asset for each liability.

36:55

So when the fed puts new dollars into the economy, it takes existing treasuries or mortgage backed securities out of the economy.

37:03

So its liabilities grow, but its assets grow.

37:07

That's the whole balance sheet. The fetches can't put money out there without buying an asset.

37:11

It needs to have an asset to correspond to the liability because that's the only way the fed can shrink the money supply.

37:18

If there's too much money out there and there's inflation, the fed sells its assets to get back its liabilities, to retire them.

37:26

But at the fed simply puts digital money out there and gives it to people to spend.

37:30

It has no way to get those digital dollars back off the books.

37:35

It can't bring them back because it has nothing to sell to get them back.

37:39

So this would be a complete engine of inflation.

37:42

It would just be turning the federal reserve into an inflation machine, which was actually on autopilot, which would be a complete disaster.

37:50

And I think Elise Shaler bared in her op-ed that she wrote said that nor to do this, we would have to amend the federal reserve act.

37:58

So Congress would have to authorize this harebrained scheme, but she didn't think it was a harebrained scheme.

38:03

She thought it was a good idea, which again, this is where we're going.

38:07

Even if we don't do it this way, it's going to be QE for the people.

38:11

We're going to be printing a lot more money, but finding a way to focus that money directly to main street, not to wall street.

38:20

But all that means is that rather than the inflation primarily manifesting itself in asset prices, like stocks is going to manifest more predominantly in goods prices like food, like energy, like clothing, like all that stuff.

38:38

So at the time were the fed is thinking that all this is transitory.

38:42

All the evidence that we're seeing is that not only isn't it transitory it's about to explode to levels never before experienced, but let me get back now to the conference to Q and a.

38:54

So the first question came from Steve Leesman of CNBC and he actually wanted Powell to define substantial, further progress.

39:04

Cause after all that is the criteria that the fed has thrown out there.

39:08

They need to see substantial, further progress before they withdraw the accommodation, which would start the taper.

39:17

And eventually some way down the line, a rate hike that of course Powell went out of his way.

39:24

Not to answer that question, which he did not do because there is no answer because as far as I'm concerned, there is no amount of progress that would be substantial enough to actually allow the fed to withdraw its monetary support because it can't because the entire economy is resting on the foundation of that support.

39:47

And in fact, not only won't the fed be able to withdraw the support it's going to have to increase the amount because again, the support is like a drug and the more we take the drug, the more of the drug we need to stay high.

40:03

So in order to prevent everything from collapsing, the fed is going to have to up the amount of monetary heroin that it is jacking into the economy.

40:12

So that's why they can't answer the question because there is no way to answer it other than to admit that you can never withdraw the support, which the fed can't admit, because that would make the problem that they're trying to avoid much worse and it would accelerate the timetable for when they have to deal with it.

40:30

And in fact, one of the other, and I forget the name of this guy, but somebody else asked Powell specifically about interest rates.

40:38

Like, you know, when is the fed going to get around and raising rates?

40:41

And in Pal's answer, he basically said, Hey, look, I mean, raising interest rates isn't even on our radar yet.

40:48

Right? So why are we even talking about raising rates?

40:51

Because that's not even on our radar, right?

40:53

We're not even looking at it. We're not even thinking about it.

40:56

That's so far in the future, right?

40:58

That, you know, it's not on our radar, which of course is a true statement.

41:01

It's not on their radar by design.

41:04

In fact, when it comes to raising interest rates, I don't even think the fed has a radar.

41:08

So it'll never be there because the fed can't raise interest rates.

41:12

If they could, they would have already done it.

41:14

The fact that they haven't done it is proof that they can't.

41:18

It's just that the markets still haven't come to terms with this.

41:21

Now, maybe as I said earlier, maybe Gold's reaction the dollar's reaction evidences that they have, but I think it's a little premature to necessarily come to that conclusion.

41:32

So we need to see how these trends potentially play out in the days ahead to see if we get more buying in gold and more selling in the dollar to really show that the markets are getting wise to the feds.

41:46

Con somebody actually asks Powell about whether the fed would be willing to raise interest rates, to fight inflation.

41:57

Even if the labor markets hadn't fully recovered.

42:01

And I thought that was a very good question.

42:03

It's unfortunate that we didn't get an answer.

42:06

And then of course, we're not going to get an answer because again, the fed can't answer it because the markets can handle the truth.

42:13

So Palo is going to avoid it.

42:15

And it was a particularly appropriate question because earlier in the Q and a Powell had specifically pointed out that the fed is not even going to think about whether or not the uptake in inflation is transitory or not until we reach full employment.

42:35

Because according to pal, as long as we're not at full employment, he doesn't really think we have to worry about inflation.

42:43

And so he's not going to, until we have full employment now, of course, full employment is like, you know, what is it?

42:52

There's no set answer.

42:54

It's kind of in the eye of the beholder, right?

42:56

It's like, you know, what is pornography while I know when I see it?

43:00

Well, supposedly the same thing applies to full employment because the level of unemployment that we have right now in periods of the past, what we've got right now, people would have considered this full employment, but it's not because we're comparing it to the record, low unemployment that we had at least on paper before the pandemic.

43:20

But one of the things that Powell is looking at to conclude that we're nowhere close to full employment is the labor force participation rate, which he is waiting for a increase, a return to the labor force of a lot of people who left the labor force.

43:36

And they may never come back. You know, it's going to be like waiting for Godot.

43:40

There are a lot of reasons and many of them are manmade.

43:44

Why a lot of the people who left the labor market are not going to come back.

43:49

So if Powell is simply stuck on labor force participation, which has been falling for a long time, I mean, this trend existed long before COVID and it's going to continue if palace saying, well, I'm not going to even concern myself about inflation or whether or not it's transitory until we're at full employment.

44:07

We're never going to be there. So in other words, he's admitting that the fed has never actually going to pay attention to inflation and means that inflation is going to keep getting worse and worse.

44:16

So as a result, I guess, of him making the statement, which of course completely overlooks the possibility of stagflation because he thinks that that's impossible.

44:25

That, well, as long as we have this unemployment, we have slack in the labor market while we're not going to have protracted inflation, but this guy, whoever was asked the question, well, what if we're not at full employment perish?

44:40

The thought, I know it's totally hypothetical, but what if this happens and inflation is higher.

44:45

Are you willing to raise rates?

44:48

And basically his answer was to basically deny that such a condition would exist.

44:55

So it's almost like there's no point in entertaining this hypothetical when the situation is not going to happen, but he did come back to well, if it does, right in the unlikely event that we do have a pickup in inflation that the fed determines not to be transitory and we're not at full employment.

45:16

Well, the fed is going to have to do something about the inflation problem without actually talking about what the consequences of doing something would be, which would be horrific because you know, the longer the fed rates to do something about inflation, the worst the inflation is going to be when it finally gets around to doing something about it.

45:35

And the more damage its tools are going to do to this bubble economy, because the longer it ignores inflation, the bigger the fire, the harder it is to put out and putting out the fire, it means rate hikes, but it's not these quarter point rate hikes.

45:50

I don't know why people still think that, oh, if inflation turns out to be five or six or 7%, well, it just means that that quarter point rate hike that we thought was going to happen in 2023 is going to happen in 2022.

46:04

And that that's the only consequence of inflation being so much higher than 2%.

46:08

You can't put out 5, 6, 7, 8% inflation with a quarter point rate hike or a half a point radar.

46:15

I mean, talk about bringing a knife to a gunfight.

46:19

I mean, you're not even bringing a knife, you're bringing a pea shooter, like, like a straw with a little P I mean, you got nothing.

46:25

If you are going to fight inflation, that is that far out of control.

46:30

As I said, defense is going to have to get medieval on inflation.

46:34

It's going to have to do a Paul vulgar, which is impossible.

46:37

We can't even get close to that. So nobody wants to contemplate what the fed would actually have to do to reign in inflation.

46:44

That's that out of control because it can't even rate in the inflation that we got now, because if it could, it would, the reason it's not is because it can't now one thing that should have bothered the markets was Powell did in fact, define transitory.

47:00

And he basically defined it this way.

47:03

The last time he was asked and nobody really paid attention, but he was asked again, you know, what's transitory, meaning how long, most people who want the fed to define transitory, they're interested in how long is the transition, right?

47:15

We've got this rise in inflation and you know, it's supposedly temporary, right?

47:20

That's what people think when they think transitory, they think temporary.

47:24

Plus they also think reverse C most people think that the price increases in order to qualify as being transitory need to be reversed so that they go back down.

47:35

Well, Powell threw cold water on that idea specifically.

47:40

He said that transitory inflation does not mean that the price increases are reversed.

47:47

And so that these big gains that we've seen recently are going to be reversed.

47:52

What Powell said transitory inflation means is that at some point in the future, and he wouldn't say how long into the future, these huge price increases stop.

48:04

And we simply revert to the normal 2% per year price increases.

48:09

So in other words, according to Powell, if we have, let's say a two year period of time where prices go up by 20% a year, right?

48:17

40%, right.

48:19

Huge increase in the cost of living.

48:22

But then after that huge increase, we just go back to 2% a year.

48:27

As far as the fed is concerned, the whole thing was transitory.

48:31

And there's nothing that the fed needs to do.

48:33

Think about what that means.

48:35

And even if it's not a 40% increase, what if it's 10% a year for two years?

48:39

And it's 20%, whatever the number is, you're talking about a permanent increase in the cost of living that every American has to pay each and every year for the rest of their life.

48:50

And according to the fed, it's no big deal.

48:52

So long as after that huge increase, that is permanent in the future.

48:58

We just go back to 2% a year.

49:00

Now this of course destroys all the Fed's credibility about how low inflation was in the past, because, you know, we have all these years where inflation was 1% or one and a half percent.

49:11

Well then if we have a couple of years of 10% back to back, all that is destroyed because then if you go backwards and you average the annual rate of inflation, it becomes a huge number.

49:22

That's way, way above the Fed's 2%.

49:25

Even after that huge number, if we just go back to 2%, how can the fed with a straight face claim that it is satisfied?

49:33

It's 2% mandate. When the average rate of inflation over the entire period is so much higher than 2%.

49:40

And of course, how can they say with a straight face that we still got inflation at 2%?

49:45

Because after all, what if we have another transitory period, maybe it's five years in the future, right?

49:51

Where inflation spikes up again, 10 or 20% for one year, but then comes back down to just 2% a year, right?

49:58

The fed is going to say, oh, no big deal. That was another transitory spike in the cost of living.

50:03

But since we're back down to 2% a year, you know, there's nothing to worry about.

50:07

This destroys the Fed's credibility.

50:10

And if the markets have to start anticipating that we're going to have these transitory spikes in inflation, every five or 10 years will, the markets are going to discount that into the average annual inflation expectation.

50:24

And that means the bond market has to crash, which means that the fed has to print even more money to prevent it from crashing, which means everybody's going to run from the dollar.

50:32

Everybody's going to run to gold, right?

50:34

Once people understand this, I mean, it should be obvious, but it's not, but a lot of things should be obvious and are not, but eventually they are, you know, I've talked about it on this podcast, just like the subprime problems.

50:48

I was warning about these problems for years, I was laying out.

50:52

It was clearly obvious to me what was going to happen, but the rest of the financial world was completely oblivious.

50:59

That's why these bonds were mispriced for so long, but there was a point and it only took a few days for the market to actually realize what they got wrong.

51:09

And these bonds that were at par went to zero over the course of a few days and we had the financial crisis.

51:16

So I think the same thing is going to happen when it comes to the dollar, when it comes to the price of gold.

51:22

So people out there who are concerned that we haven't seen a bigger increase in the price of gold, that we haven't seen a bigger drop in the dollar, just wait, all this stuff is going to happen.

51:33

The dollar is going to fall even more than I once thought gold is going to soar even higher than I once thought, because all these problems have gotten much worse than I once thought, because it's taking so much longer for the markets to come to terms and understand the problems.

51:49

But eventually they will because reality always rears its ugly head.

51:53

And the longer people live in fantasy, the bigger the disruption, when it does also Powell was asked about rising wages and whether or not he was concerned there, you know, because if companies are paying higher wages, you know, maybe they're going to pass on those costs to their customers in the form of higher prices.

52:13

And according to Powell, this is not a problem because according to Powell, the fed doesn't see any evidence that companies are passing on their higher wages low.

52:22

Really? So they're just going to absorb it. I mean, because I haven't seen this huge spike in productivity that would enable all these companies to just pay higher wages.

52:31

So either their profits are going to collapse or they're going to raise prices.

52:36

And my guess is it's going to be a little bit of both, but there are going to be significant price increases.

52:43

Now it is possible that some of the companies out there have been a bit reluctant to pass on the higher labor costs to customers because they didn't want to jump the gun.

52:54

They didn't want to raise prices and then have to reduce prices.

52:58

There was a lot of talk that what they were seeing with their costs was all transitory.

53:02

So maybe companies just assume that it was transitory and maybe gave the fed the benefit of the doubt.

53:08

And so we're holding off on some of these price increases, but there's a limit to how long they're going to hold off.

53:15

So even if this is partially correct, that we haven't seen companies raise prices yet to reflect the increase in wages.

53:24

That doesn't mean it's not going to happen. For some reason, Powell is confident that it's never going to happen just because it hasn't already happened.

53:31

Meanwhile, the process just got started and pal of course, looks back to the inflation of the 1970s.

53:38

And he's convinced that the wage price spiral was a major factor behind the inflation.

53:44

In other words, Powell believes that it was the fact that wages were driving prices up, that we had an inflation problem.

53:51

He's wrong. The reason we had an an inflation problem was because the fed printed too much money to monetize large deficits from the government.

53:59

It was the money printing that caused both wages and prices to rise.

54:03

It wasn't just wages happened to start rising on their own.

54:07

And that because wages went up, prices went up because companies passed on those higher costs.

54:12

And we went into this wage price.

54:14

Spiral wages are prices.

54:16

That's what they are. They're the price of labor.

54:18

All prices were going up because of the inflation.

54:21

The federal reserve was creating. That was the dynamic.

54:24

It had nothing to do with this wage price spiral.

54:27

That was just the way the government tried to shift the blame for inflation on the private sector, rather than accept responsibility themselves.

54:37

Because if you blame rising prices on rising wages, well, then it lets the fed off the hook.

54:42

Well, we're not causing it. It's just these unions and workers are just demanding higher pay.

54:47

And then, well then the companies are just passing on those higher wages, right?

54:51

As if none of this is the responsibility of the fed, but of course the entire process is put into motion by the fed.

54:59

And that is what's happening this time.

55:01

Except now the fed has put into motion and even bigger spiral.

55:05

So yes, wages are going to go up.

55:07

Prices are going to go up then wages, you're going to go up.

55:09

Then prices are going to go up, but it's not this wage price spiral that's causing it.

55:13

It's the fed, it's the spiraling of the money supply.

55:17

And in fact, I think the way the government is going to react to rising wages and rising prices, hurting the economy, right, hurting real consumer spending is going to be to stimulate the economy by creating even more inflation so that people have even more money to spend, which is going to fuel the fire.

55:37

But my advice is consistent and it's the same to not wait for the markets to figure this out.

55:46

Do not wait until everybody finally understands the predicament that the fed is in, because believe me, when that happens and it's going to happen, there will be an epiphany.

55:57

And everybody's going to come to this conclusion pretty much at the same time.

56:01

And everybody's going to run for the exit at the same time.

56:04

And the exit is very small and there's no way to get out.

56:07

The only way to get out is to exit before the crowd.

56:10

Now, obviously I'm way before the crowd, but, you know, I was way before the crowd on the housing market.

56:15

I'm even further before the crowd.

56:17

Now I've been talking about this for a long time, just because the market hasn't blown doesn't mean I haven't been right.

56:25

I have been right. Everything that has happened economically has simply provided more and more evidence that I'm right.

56:33

So our patients is going to be rewarded.

56:36

Of course, there's an opportunity here for people who are just arriving with my strategy and maybe you've been in the us stock market, and you've been lucky enough to go along for the ride.

56:46

You can count your blessings and get out now before the collapse.

56:51

And you can get fully positioned into this strategy because not only are we going to revert out of growth into value, and this trend has already changed, the flows have already started to shift, but it's going to be a massive rotation out of us stocks into international stocks and into real assets, into commodities, into gold and silver.

57:16

I've been positioning for this outcome for years and years anticipating it.

57:22

And I think now we are here.

57:24

And in fact, one of the other factors that I think is particularly important with this dynamic is if you think about the companies, particularly in the U S that have attracted investment capital over the last decade, it's been all these high growth companies that don't really make things.

57:43

Maybe they, you know, they provide free services on the internet and they, they generate revenues from advertisers, right?

57:50

These are these momentum, social media companies that have gained all the new money they'd been going public.

57:56

So all the investment capital has flowed.

57:58

They're the companies that actually make stuff, the real companies that generate profits and make the stuff that we buy.

58:05

They haven't been able to generate any capital.

58:07

In fact, what they've had to do in order to maintain their share price, because investors aren't interested because they want something hot.

58:15

That's moving up faster is a lot of these companies.

58:18

Instead of investing their profits in expanding their capacity, plant and equipment to produce more stuff, they've used what profits they've had to buy back their stock because the investors aren't doing this.

58:31

So they're buying it themselves in order to try to compete with the era of the market where all the new capital is flowing.

58:37

So that's part of the problem. We've been printing all this money to create all this demand, but we haven't been investing in productive plant and equipment to produce more goods, which is why we're more and more reliant on the rest of the world to produce the goods that we don't, which is why these trade depths are exploding.

58:56

But here is why I wanted to bring this point up.

58:58

I think that one of the ways, a lot of these companies that are experiencing huge increases in raw material costs and labor costs, what are the ways that they're going to reduce the amount by which they're going to have to raise their prices is they are going to look for what costs they can cut.

59:19

And I think the number one costs that companies throughout the us are going to be cutting next year is going to be advertising.

59:28

I think ad budgets are going to be slashed.

59:31

Meanwhile, you have all of these companies that are dependent on advertising spending, and there's more and more of them.

59:38

We keep getting new companies that are going public.

59:41

And the only way they make money is by selling ads.

59:44

They're not making any money selling their products or services, right?

59:47

They give away their products or services.

59:50

And the model is we're just going to make it up with ads.

59:53

The problem is all these companies are depending on the same group of advertisers, there's only so much ad money to go around.

1:00:01

And now when you have all these companies who were advertising, who are now spending more for raw materials and spending more for labor, something's got to give, and it's going to be the ad budgets.

1:00:12

That means the revenues of all these high, multiple firms are going to implode.

1:00:17

So these big stocks are going to come crashing down.

1:00:20

The dollar is going to come crashing down.

1:00:22

Money is going to be flowing into real things.

1:00:25

Foreign stocks, value stocks, abroad given and paying stocks, commodities, gold, silver, these mining stocks.

1:00:32

So before everybody wakes up and again, I don't know how much more time we have just assume we're running out of time.

1:00:39

Just assume you got to do this now because the consequences are high.

1:00:44

The stakes are very high.

1:00:47

If you wait too long.

1:00:49

So it's better to be too early than too late, but you know what?

1:00:53

If you're positioning yourself now in the scheme of things, even if it's a little early, it's almost perfect.

1:01:00

Because as far as I'm concerned, the clock has almost completely wound down.

1:01:05

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1:07

today was the day that the Federal Open

1:10

Market Committee concluded their

1:12

two day meeting 719 they announced

1:14

to the world their decision

1:17

on interest rates, but more importantly,

1:20

Powell held his post

1:22

decision press conference.

1:24

So I'm gonna get to all the highlights

1:26

or more particular the low

1:28

lights of that press conference

1:31

in a bit. But before I get started

1:33

there, I 719 talk a little bit about

1:35

some of the economic data that

1:37

came out not only earlier today,

1:40

but earlier in the week that really

1:42

evidences the stagflationary environment

1:45

that we're in in. And these problems were not even mentioned in today's press 719 these

1:48

problems were not even mentioned

1:50

in today's press conference. No one even

1:52

cared about this economic data

1:55

even the data that came out today, which

1:57

I might as well start with, which was

2:00

the trade deficit in

2:02

goods. Otherwise known as the

2:04

merchandise trade deficit. Last

2:06

month, the May trade

2:08

deficit was eighty eight point

2:11

one billion dollars. And

2:13

the estimate for the deficit in June

2:16

was for a slight increase to

2:18

eighty eight point seven billion. Not

2:20

a new record high, but a larger

2:23

deficit than the one that we had

2:25

in May. Well, the May deficit was

2:27

just slightly revised

2:30

upward to eighty eight point two

2:32

719, billion. Not that big a deal, but take a look at the June number it's soared to $91.2 not that big a deal. But

2:34

take a look at the June number

2:37

it soared to ninety one

2:39

point two billion dollars.

2:42

Not only does this far exceed

2:44

the upper range of estimates, which

2:46

went from a low of eighty six

2:49

point nine billion 25 a high of

2:51

eighty nine point five billion but it

2:53

is another all record

2:55

high. In other words, this is the

2:57

worst merchandise trade deficit

2:59

that we have ever recorded in a

3:01

single month. Ninety one point two. Of course,

3:04

it's not gonna last for long. I mean, this

3:06

record is gonna get broken. broken. It may even be broken as soon as July, but these records are going to fall like may

3:08

even be broken as soon as July.

3:11

But these records are gonna fall

3:13

like dominoes, and this is not

3:16

happening because we have a strong

3:18

economy. It's happening because we have

3:20

a weak economy. People keep looking

3:22

at these numbers as if it 719

3:25

evidence is strength, we're

3:27

buying so much stuff. Well, when it

3:29

comes to an economy, strength is

3:31

not measured by what you buy, but

3:33

by what you produce. Strong

3:35

economies produce more. They don't

3:37

simply consume more. We are consuming

3:40

more despite the fact that our economy

3:42

is weak. How are we doing that? Well, the

3:44

Fed is printing money and we are spending

3:47

it. But that does not constitute strength.

3:49

That really 719 is profound

3:52

719. Fact, you had Ken Langone

3:55

who was on CNBC earlier

3:57

this morning. And Ken did say

3:59

719 things that I agree with. I don't wanna totally

4:02

throw the guy under the bus, and he

4:04

was correct in his assessment

4:06

of the inflation situation, not being

4:08

transitory, but 719 thinks

4:11

the Fed is making a mistake by

4:13

not doing something about

4:15

the inflation problem. problem. He described the U S economy as being white

4:17

He described the US economy as being

4:19

white hot 719 hot. And so he didn't understand why the fed is throwing fuel on this white hot so he didn't understand

4:22

why the Fed is throwing fuel

4:24

on this white hot economy. economy. Well, the reality is these trade numbers show that the economy's not white hot it's stone

4:26

the reality is these trade

4:28

numbers show that the economy's

4:30

not white hot. It's stone cold.

4:33

He's confusing recklessly spending

4:36

the money the Fed is printing with

4:38

legitimate economic strength. It's

4:40

not. And in fact, the only reason that

4:42

the numbers look good is because

4:45

of all this Fed magic with

4:47

monetary policy. See what Ken Langone

4:49

doesn't seem to understand. It's the same thing

4:52

thing. A lot of people don't understand is that the fed is really not as clueless as people think, when it comes to inflation, they're not missing the inflation lot of people don't 719. Is that

4:54

the Fed is really not as clueless as

4:56

people think when it comes to

4:58

inflation. They're not missing the inflation

5:01

problem. I think they understand. That

5:03

there's an inflation problem. problem. They also understand that they would create an even bigger problem from their perspective, if they tried to do anything about it, which is why they're not, which is why they are pretending that the situation is also understand

5:05

that they would create an even bigger problem

5:07

from their perspective. If they try to

5:09

do anything about it, which is why they're not,

5:11

which is why they are pretending that

5:14

the situation is

5:16

transitory. I mean, so many people

5:18

just don't get it yes, they get

5:20

the fact that inflation is worse

5:22

than the Fed claims, but they

5:24

don't understand why the Fed isn't doing

5:26

anything about it. Because they don't understand

5:29

that the Fed can't do anything about it

5:31

without collapsing the economy. They don't understand

5:33

that we have a bubble. bubble. It is the biggest bubble in It is the biggest

5:35

bubble in history history. And even the tiniest little pin would prick it, which is why the fed does not want to supply that

5:38

719 even the tiniest little pin

5:40

would prick it, which is why the Fed

5:42

does not want to supply that

5:45

pin. And in fact, all day today on

5:47

CNBC before we

5:50

got the FOMC announcement

5:52

on rates 719 the press conference. You had

5:55

a lot of people that were coming on

5:57

who just were scratching their heads 719

5:59

they couldn't understand why

6:01

the Fed was still so easy.

6:04

easy. I mean, they agree that it was the proper policy originally, they agree that it

6:06

was the proper policy 719.

6:08

Right? As soon as we had COVID, 719 we

6:10

were under locked down 719 everybody was at

6:12

home. Everybody agrees the Fed did

6:14

the right thing by printing all this

6:16

money and cutting interest rates and doing

6:18

TUI Now everybody is wrong. wrong. The fed did the wrong thing,

6:21

The Fed did the wrong thing. Right?

6:23

I explained it at the time that

6:25

the proper monetary response

6:28

to the COVID lockdowns was

6:30

to tighten monetary policy.

6:32

Because 719, what happened

6:34

because of COVID 719 who were

6:36

productive and who were working, went

6:39

home and stopped working. So we stopped

6:41

producing stuff. stuff. So the quantity of goods and services that were available to buy went down the proper fed policy response, which is exactly what the policy response should have been based on the original mission of the fed to provide an elastic money So the quantity

6:43

of goods and services that were available

6:46

to buy went down. The

6:48

proper fed policy response,

6:50

which is exactly what The

6:52

policy response should have been

6:54

based on the original mission

6:57

of the Fed to provide an elastic

6:59

money supply supply. The fed was designed to shrink the money supply when economic activity 719 Fed was designed

7:02

to shrink the money supply when economic

7:05

activity shrank. That's what they were

7:07

supposed to do to maintain price

7:09

stability. They're only supposed to increase

7:12

the money supply when the economy is

7:14

expanding, expanding. And that's the elasticity that the federal reserve was created to and that's the elasticity that

7:16

the Federal Reserve was created to

7:18

supply. So I pointed out in real

7:21

time if production was coming

7:23

down. If fewer goods and services

7:25

were gonna be 719, then the Fed needed

7:27

to drain liquidity from the

7:29

system to prevent prices from

7:31

really going up. The Fed not only did

7:33

not do that, they did the opposite. Instead

7:36

of draining 719, they added

7:38

more 719, liquidity. So they added more demand in one economy where supply was going so they added more

7:40

demand into an economy where

7:42

supply was going down. down. And that's why we have this toxic combination of massive that's why we

7:44

have this toxic combination of

7:47

massive inflation 719 inflation. And we're just experiencing the beginning of we're just

7:49

experiencing the beginning of

7:51

that. There is a lot more inflation

7:53

to come come. We're at the tip of this massive iceberg, but nobody seems to get at the tip of

7:56

this massive iceberg, but nobody

7:58

seems to get that. that. Everybody believes that what the fed did initially was believes

8:00

that what the Fed did initially was

8:03

right. right. What they don't understand is why they're continuing those 719 they don't understand is why

8:05

they're continuing those policies.

8:07

After all, the economy is not shut

8:09

down. We've now got the vaccines.

8:12

People are out and about. So why is

8:14

the Fed still buying a hundred and

8:16

twenty billion dollars worth

8:18

of treasuries and mortgage backed 719?

8:21

Given the fact that the housing market

8:23

is on fire, that we have price

8:25

increases, that dwarf any

8:28

previous records during the

8:30

prior housing bubble that popped

8:32

in o eight, so we have a super strong

8:34

housing market. Why is the Fed

8:36

continuing to goose this overheated

8:39

market market? The same way it was when we were in the depths of the pandemic same way it was

8:41

when we were in the depths of the pandemic

8:44

lockdown. Why is the Fed

8:46

still monetizing all this government

8:48

debt and printing all this money when

8:50

the economy is not nearly in

8:52

the predicament that it was in a year ago.

8:55

So this is why everybody is scratching

8:57

their heads. heads. Again, they don't understand that we haven't 719, they don't understand

8:59

that we haven't recovered. We've just

9:01

become addicted to

9:04

these stimulus. stimulus. The stimulus is a monetary heroin, and not only can't the fed withdraw the drug, the fed has to continue to supply the habit with greater and greater quantities of the stimulus is a

9:06

monetary heroin and not only

9:08

can't the Fed withdraw the

9:10

drug, the Fed has to continue to

9:12

supply the habit with greater

9:14

and greater quantities of the drug.

9:17

Again, Because 719 Fed made the mistake

9:19

of going down this path path. And now has to repeat the mistake by staying on the path, because if they withdraw the stimulus, we have an even bigger crisis than the one that we would have had had they never supplied the stimulus in the first place, because all the stimulus does is delay the day of

9:21

now has to repeat the mistake by

9:23

staying on the path because if

9:25

they withdraw the stimulus, we have

9:27

an even bigger crisis than the one that

9:29

we would have had Had they never supplied

9:31

the stimulus in first place? Because all

9:34

the stimulus does is delay

9:36

the day of reckoning. But because

9:38

we had the stimulus, there's a lot

9:40

more to reckon with because the stimulus

9:42

itself makes all the problems

9:44

worse. And one of the

9:46

problems that it is made worse

9:49

is the trade deficit. We have

9:51

a much larger trade deficit

9:53

today than the one that we would have

9:55

had 719 for all this stimulus.

9:57

In fact, getting back to these

10:00

numbers, look at the increase

10:02

in imports 719

10:05

to the increase in exports, our

10:08

exports only rose

10:10

by point three percent

10:13

on the month. Now that was an

10:15

improvement from the prior month where

10:17

exports actually dropped by point

10:19

three. 0.3. So we basically gained back we basically gain back

10:22

point three, so it's about a goose egg

10:24

for those two months. But look at imports.

10:27

Imports for May were

10:30

originally reported as being

10:32

up point eight. That was revised

10:35

to up one point five percent.

10:37

This month in June, imports

10:40

exploded by one point five

10:42

percent. So the gain in

10:44

imports is five

10:46

times as big as the gain in exports,

10:49

meaning that, like, the trade deficit is

10:51

getting much worse, but look at the two months.

10:54

Between May and June,

10:57

exports were flat. No growth.

10:59

Imports imports. On the other hand, we're up the other hand were up

11:01

two point six percent 2.6%. We have a massive increase in imports, no growth in have a massive

11:04

increase in imports, no growth

11:06

in exports. This is like a company

11:08

that is hemorrhaging red ink. These

11:10

merchandise trade deficits are

11:12

our losses. We are operating at

11:14

a huge loss. And how

11:17

is it that we're able to finance these

11:19

massive 719. Well, it's because

11:22

foreigners are willing to trade the

11:24

stuff that they produce and that

11:26

we consume for financial assets

11:29

because the world is willing to invest

11:31

ninety one billion dollars buying

11:33

US bonds or US stocks

11:36

or stuff like that. that. But how much longer can we continue with these massive, massive trade 719 how much longer

11:38

can we continue with these massive,

11:41

massive trade 719. Now

11:43

we're looking at annualized trade deficits

11:46

above merchandise trade, well above

11:48

a trillion dollars a year. Remember, we

11:50

have budget deficits that are in the multiple

11:53

of trillions. So we've never been

11:55

faced with 719 situation where we've

11:57

had a twin deficit problem.

11:59

This enormous. Now I know no one cares

12:02

about these numbers. You know, when the trade deficit

12:04

came out, this record number, CNBC

12:06

didn't even cover it. They didn't even bother

12:08

to break mention this record

12:11

deficit. Because I know nobody seems

12:13

to care. Once upon a time,

12:15

the merchandise trade deficit was the

12:17

single most important economic number

12:20

that was released every month because people

12:22

cared about it. In fact, the main

12:24

reason that back then,

12:26

people blamed the nineteen eighty

12:28

seven stock market crash on.

12:31

The catalyst for that crash was

12:33

a trade deficit. We had an explosion

12:36

in the merchandise trade deficit. We had an all

12:38

time record high trade deficit of seventeen

12:40

billion. Right? That was an outlier. It was

12:43

a big jump We got seventeen billion

12:45

in one month, which was much larger

12:47

than the typical deficit. deficit. As a result of that, you had the dollar go way down, big rise in the Japanese yen, the Deutschmark, the Swiss Franc, and that spilled over into the bond

12:49

As a result of that, you had

12:51

the dollar go way down, big

12:53

rise in 719 Japanese yen, the Deutsche

12:55

mark, the Swiss franc, and that spilled

12:57

over into the bond market. You had a big drop

13:00

in the bond market as a weak dollar

13:02

pushed long term yields higher.

13:04

And so it was a weak dollar. dollar. It was rising interest rates that really precipitated the big one day crash in It was

13:06

rising interest rates. That really precipitated

13:10

the big one day crash in nineteen

13:12

eighty seven. So back then, people

13:14

cared about the trade deficit deficit. People paid more attention to the monthly trade deficit than they did to the monthly jobs

13:16

719 paid more attention to the monthly

13:19

trade deficit than they did to the monthly

13:21

jobs report. Now I don't remember when

13:24

the trade deficit 719 got pushed

13:26

to the back burner. In fact, it's not even on the back

13:28

burner. It's not even on 719 burner. burner. It's not even on the It's not

13:30

even on the stove. It's not even in the kitchen

13:32

anymore. Let alone being on the stove. I'm not

13:34

really sure how this transition happened.

13:37

But nobody cares about it. it. And so, because nobody cares about it, the situation has gotten much, much so because

13:39

nobody cares about it, the situation

13:41

has gotten much, much worse. Now that

13:43

doesn't mean that the trade deficit

13:46

isn't a problem just because nobody's

13:48

719 a problem. It's not a problem

13:50

until it's a problem. Right? Until the markets

13:53

Now recognize it, which means it's

13:55

gonna be a crisis. Right? It's not gonna be a problem

13:57

until the problem becomes a crisis. But

13:59

because Nobody has cared

14:02

about the trade 719, and it hasn't

14:04

been a problem. The problem has gotten

14:06

much worse, meaning the trade deficit

14:08

had gotten much worse. Had the market

14:11

done something about this, which

14:13

is normally the case. Normally 719 country

14:16

would never be able to run

14:18

trade deficits this big

14:21

for this law. Because what would happen

14:23

is its currency would drop sharply.

14:25

That would put upward pressure on interest

14:28

rates. That would make imports much

14:30

more expensive. expensive. It would slow down consumption and it would solve the It would slow

14:32

down 719, and it would solve

14:34

the problem. Market forces would

14:37

bring these runaway deficits back

14:39

under control. But because the

14:42

dollar hasn't tanked, because

14:44

the Federal Reserve hasn't been pressured

14:47

by rising deficits to

14:49

raise rates, we've been able to

14:51

continue These deficits

14:54

not only continue them, but

14:56

expand them. So instead of the market

14:59

solving the problem, The problem has

15:01

gotten much worse worse. worse. Now that doesn't mean that it's never going to be a doesn't

15:03

mean that it's never gonna be a problem.

15:05

problem. It just means that it's going to be a It just means that it's gonna be a crisis.

15:07

And when it's a crisis, it is an even

15:09

bigger 719. And that is where we are

15:11

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15:30

of the services. I think it was ten dollars

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didn't get paid. It ended up going

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into 719. And collections. And the whole thing screwed the whole thing

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of dollars a year. Next Next number I want to touch on is the durable goods numbers for

17:13

719 I wanted to touch on is the durable

17:15

goods numbers for June. These

17:17

came out yesterday, and the consensus

17:20

was for a pretty strong number

17:23

two point one percent increase in

17:25

June, and that would have followed a two point

17:28

three percent rise 719 prior

17:30

month. Well, that month got revised

17:32

up to an even bigger number three point

17:34

two, which maybe takes some of the sting

17:37

out of the huge disappointment for the month

17:39

of June which came in at just point

17:41

eight. So that was a much bigger

17:43

isnt 719 the downside than the revisions

17:46

to the upside. 719 what would be more important

17:49

and more concerning to the markets

17:51

is the trajectory, which is a weakening

17:53

number. And if you x out transportation,

17:56

719 number was even weaker.

17:59

The prior month was revised up from

18:01

point three to point five. But the

18:03

point eight percent gain that was expected

18:06

for June that ended up being

18:08

just point three. So

18:10

719 numbers there decisively weaker

18:13

than expected, but what's More

18:16

important is the trend which

18:18

is down. But probably the

18:20

most concerning number

18:23

for the people who are looking at the economy

18:26

is the new home sales number,

18:28

which collapsed in

18:30

June for the third consecutive

18:33

month. Now 719 continue to hit

18:35

record highs. Take a look at these

18:37

charts 719 they continue to move up

18:39

when it comes to home 719, prices. But sales have now

18:42

but sales have now fallen. In fact,

18:44

not only did this number come out

18:46

way below the eight hundred thousand

18:48

forecast because we printed six

18:50

hundred and seventy six thousand, but

18:52

we also downwardly revised

18:54

the prior month. May was initially

18:57

reported at seven hundred and sixty thousand.

18:59

It was revised down to seven hundred and twenty

19:01

four thousand. So why are

19:03

home sales falling.

19:06

Well, because home prices continue

19:08

to rise. And even though

19:10

mortgage interest rates are at

19:13

all time record lows, which is a massive

19:15

subsidy. subsidy. The prices are rising so rapidly that more and more people are getting priced out of the housing The prices are rising

19:17

so rapidly that more and more

19:20

people are getting priced out of the housing

19:22

market it. Even though they've

19:24

got these big subsidies in the

19:26

form of artificially low

19:28

mortgage rates, and I don't think the price

19:30

increases are even close

19:33

to ending. Because what's really important

19:36

to consider when it comes to these home

19:38

prices is the cost

19:40

of 719, construction. The cost of replacing the existing housing the cost of replacing

19:43

the existing housing stock. That

19:45

is what's really really going up. Now that

19:47

is going to put a damper on

19:50

people's ability to buy new homes.

19:52

Because a new home, you're only 719 get

19:54

a new home if you can pay the developer

19:57

a profit above his construction costs.

20:00

I think what's gonna happen is more

20:02

and more developers are gonna realize that

20:04

it now costs so much to

20:06

build homes, that it costs

20:09

too much for people to buy the homes. So

20:11

a lot of this new construction is

20:13

going to stop. Which means a lot

20:15

of the employment 719 was a

20:17

function of this new construction is

20:20

also going to stop. 719 people

20:22

are still 719 wanna buy homes. They're just

20:24

not gonna buy new homes because they're too expensive.

20:27

They're gonna be bidding for the existing supply

20:30

of homes that have already been built.

20:32

Because there, you don't have to pay these

20:34

higher costs for materials and

20:36

labor because those costs

20:38

were already paid in the past. past. And you already have the building you already

20:40

have the building there. Yes. You've gotta pay

20:43

25 maintain it and to fix stuff that has gone

20:45

wrong, but the majority of the expense

20:48

has already been paid by the current

20:50

owner or the previous owners. owners. But what I think that means is when you no longer have this supply of new homes coming on the market, you're going to see continued movements up in the price of the homes that already

20:52

I think that means is when you no longer

20:55

have this supply of new homes

20:57

coming on the market, you're gonna see

20:59

continued movements up

21:01

in the price of the homes that already

21:03

exist. I mean, I still think that most

21:05

of the homes that exist right now in

21:07

the country are still

21:10

selling at prices that

21:12

are not even close to covering what it

21:15

would cost to replace those homes. I

21:17

mean, if they burnt down and you had to rebuild

21:19

them, it would cost a lot more. But, you know, that

21:21

also means insurance rates

21:23

are really going to rise. Because if you

21:26

look at what it costs to insure your property,

21:29

You can't insure it based on what it

21:31

originally cost you to buy it.

21:33

You have to insure it based on what it would

21:35

cost you to rebuild it. Right? So if

21:37

a fire completely burns down your house

21:39

719 you've got to rebuild it, what's it

21:41

gonna cost? And if the replacement cost

21:44

is much, much higher, then the insurance company

21:46

has to charge you a lot more money. And of course, another

21:48

reason that insurance rates have to keep

21:50

going up is because the insurance companies

21:52

can't earn any interest on

21:54

the premiums that they collect because rates

21:57

are at zero, zero. So they have to compensate for those low returns, by charging even higher premiums to the people who are buying so they have to compensate

21:59

for those low returns by charging

22:01

even higher premiums to

22:04

719 people who are buying insurance. So everything

22:06

associated with housing is going to

22:08

keep going up. up. In fact, I read an article that I retweeted from MarketWatch and they pointed this inconsistency out regarding rents because rents in the CPI comprise one third of the In fact, I

22:10

read an article that I

22:12

retweeted from MarketWatch. And,

22:15

you know, they pointed this inconsistency out

22:18

regarding rents. Because

22:20

rents in the CPI comprise

22:24

one third of the CPI. And

22:26

of course housing costs are

22:28

more than one third because there are other

22:30

components of the CPI that

22:32

relate to housing. housing. But if you just look at rents, rents are a if you just

22:35

look at rents, rencer

22:37

719 third. So that's the big enchilada. enchilada. And according to the government, even though the CPI year over year is up, I don't know about five and a half

22:40

according to the government, even though

22:42

the CPI year over year is up I

22:44

know about five and half percent, something like that.

22:46

Certainly, it's it's it's at a much quicker

22:48

pace if you just look at the last three

22:50

or four 719. But year to date, I think if

22:52

you go backwards twelve months from the most recent

22:54

number, you got year over year inflation

22:57

or CPI of about five and

22:59

a half, five point six, During that

23:01

same year, according to the CPI,

23:04

rents have only risen by

23:06

two and a half percent. Now that is a

23:09

laughable number 719 it's

23:11

the number 719 has used. And

23:13

obviously, because the

23:15

overall CPI is up five and

23:17

a half percent, 719 low increase

23:19

in rents being such a

23:21

big component has actually been

23:24

helping to keep that number much lower.

23:26

Because it has brought down the average,

23:28

especially considering that it's such a big

23:30

part of the computation. That

23:32

means that if you take out the

23:35

rents all the other prices collectively

23:38

are going up much more than five and a

23:40

half percent if rent

23:42

increases of two and a half percent were

23:44

able to bring down the average so much.

23:46

Well, 719 points

23:48

out that if you look at realtor

23:50

dot com, which is a website

23:53

that is actually showing real

23:55

rents that people are paying. Because realtor

23:58

dot com, they have properties for

24:00

sale 719 they have properties for

24:02

rent. And so they are studying the

24:05

rent offers for

24:08

now, and then they're comparing it

24:10

to what properties were renting for

24:12

a year ago. And these are actual rents.

24:15

Right? These are just not the made up owners

24:17

719 stuff that the government is using,

24:19

these are actual rents that people

24:22

are paying. And according to realtor

24:24

dot com, rents are up

24:26

twenty five percent year

24:29

over year. Think about that. Twenty

24:31

five percent. That is ten times

24:34

719 official increase that the government

24:36

is using to calculate the

24:39

CPI 719 CPI. And that is the biggest single component of the that is the biggest

24:41

single component of the CPI.

24:43

CPI. So just imagine if we have year over year inflation of 5.5%, when a third of that number is two and a half percent increases in rents, imagine what the CPI would be right now, if you replaced the two and a half percent government number with the 25% private sector number from realtor.com, I mean, you would be looking, I think at a year over year inflation rate right now at just imagine if we have year

24:46

over year inflation of five point

24:48

five percent when a third

24:50

of that number is two and half percent

24:52

increases in rents. Imagine what

24:55

the CPI would be right now

24:57

if you replaced 719 two and a half percent

25:00

government number with the twenty five

25:02

percent private sector number from

25:04

realtor dot com. I mean, you would be

25:06

looking, I think, at a year over year

25:08

inflation rate right now at thirteen

25:11

percent. And that would probably rank

25:13

it as bad as any

25:15

single year during the nineteen

25:18

seventies. Right now, we already have inflation.

25:20

inflation. If we just made this one substitution of the realtor.com rents for the government If we just made this one substitution of

25:23

the realtor dot com rents for the

25:25

government rents. If we just did that,

25:27

we would have inflation that was worse than any

25:29

year during the nineteen seventies, except

25:31

it's probably much worse. Because the rest

25:33

of the numbers are probably understating the

25:36

true magnitude of the price increases.

25:39

So the real rate of increase year

25:41

over year is probably closer

25:43

to twenty percent than thirteen percent.

25:45

I don't know exactly where it is, but it

25:47

is a very very big number.

25:49

number. The bad news is it's going to get bigger from here, which I think is a good point to transition back to the main topic of today's The bad news is it's gonna get bigger

25:52

from here. Which I think is a good

25:54

point to transition back

25:56

to the main topic of today's

25:58

podcast, and that is

26:00

the Fed decision on rates and

26:03

the Powells conference. Now first

26:05

of all, the press conference is

26:08

always far more

26:10

important than the

26:12

actual announcement on rates or, you

26:14

know, what it actually does on rates, which

26:16

719 course is nothing. nothing. The reason these press conferences are so important is because the Fed's monetary policy today basically consists completely of talking right The reason these

26:19

press conferences are so

26:21

important is because the Fed's

26:24

monetary policy today basically

26:27

719 completely of talking. Right?

26:29

There there's no real action involved

26:31

because they can't act. act. The fed has already inflated such a big bubble, such an over leveraged economy that actually using any of its tools, The Fed

26:33

has already inflated 719 a

26:35

big bubble, such an over leveraged

26:38

economy that actually using

26:40

any of its tools. Right? Did it keep talking

26:42

about using actually using

26:44

these tools is really off the table. The

26:47

Fed can't raise rates, they can't

26:49

taper. But what they can do

26:51

is talk about those things. So

26:53

really, we have monetary policy that

26:56

is hundred percent talk and no action.

26:58

Right? It's all bark and no bite.

27:00

That's why the press conference is

27:02

the only thing that really matters because nothing

27:04

is actually gonna 719. All we're gonna

27:06

do is talk about what's gonna 719, and

27:09

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gold. Now before I get to

28:45

the conference itself, I 719 mention

28:48

a couple of things from the official

28:50

statement that was initially, you

28:52

know, interpreted as, oh, somewhat hawkish.

28:55

So within the official statement

28:57

in that language, the Fed

28:59

made a statement that the

29:02

economy is making progress towards

29:04

reaching its goals. Right? Its goals of

29:06

full employment and, you know, complete strength

29:09

719 to the extent that we ever

29:11

achieve this goal, well, that's

29:13

when the Fed is gonna start to taper.

29:15

That's when the Fed at some point is gonna start

29:17

raising interest rates. So because the

29:19

Fed claimed that some progress has

29:21

been made, the initial reaction

29:23

to the statement was, oh, this is somewhat

29:26

hawkish. Right? Because If we've made progress,

29:28

now we're closer to some

29:30

tapering. We're closer to some, you

29:32

know, rate hike. However far in the

29:34

future future. It is we're a little bit closer because we've made some is, we're a little bit closer because

29:36

we've made some progress. And so if you

29:39

looked at the markets immediately

29:41

after the Fed statement, you saw

29:43

719 bit of an uptick in the dollar, a bit

29:45

of a sell off in gold, a bit of a sell

29:47

off in the bond market. Nothing 719, but

29:50

that was the initial interpretation that

29:53

this was somewhat hawkish. Now I think it

29:55

was 719 a little bit by the fact

29:57

that the Fed removed from its

29:59

official statement a reference

30:01

to the vaccines helping

30:04

the economy because now more people were

30:06

vaccinated vaccinated. And so people were not as worried about getting 719 so people were not as

30:08

worried about getting COVID. COVID. And I think this is kind of an acknowledgement that you've got this Delta variant problem real or made up, and that this may be somewhat diminishing the benefits that the fed saw from the 719 I think

30:10

this is kind of an acknowledgment that

30:13

you've got this 719 variant problem

30:15

real or made up and that this

30:18

may be somewhat diminishing

30:20

the benefits that the Fed saw from

30:22

the vaccine, vaccine. The fact that now you've got this variant of COVID that is coming back, and that is, you know, kind of putting the brakes somewhat on the the fact that now you've got

30:25

this variant of COVID that is coming

30:27

back and that is, you know, kind of putting

30:29

the brakes somewhat on the reopening. reopening. So probably if it wasn't for that, you may have even seen a little bit of a bigger reaction in gold and the currencies to the idea that the fed was more

30:31

So probably if it wasn't for that,

30:33

you may have even seen a little bit of a bigger

30:36

reaction in gold in the currencies

30:39

to the idea that the Fed was

30:41

more hawkish. But of course, That

30:43

is a bunch of nonsense. And to the extent

30:45

that you thought that there were any hawks

30:47

at the fed or that Powells

30:49

was a hawk, Well, the actual

30:52

press conference would have put those

30:54

rumors to rest. Powell is

30:56

an Uber Dov as I've been

30:58

saying every press conference tops

31:00

the previous press conference in

31:03

the degree of dovishness. And I would

31:05

still continue to say that, yes, this

31:07

time, Powells 719 himself

31:10

It's just like the trade deficits. Those

31:12

records keep falling like dominoes. Well,

31:15

so does the Fed's record on

31:17

dovishness The only question

31:19

is, when is the market

31:21

going to wake up to this reality?

31:24

Now it is possible that

31:26

today was the wake up call because

31:28

by the end of the day, by the

31:31

time that the press conference concluded,

31:33

and there were no more 719, gold

31:35

actually caught a bit. The dollar,

31:37

which had been positive all day,

31:40

sold off. So the dollar index

31:42

closed down on the day near the lows of

31:44

the day, goal closed near the highs

31:46

of the day. I mean, not a big move. It was up about

31:48

nine bucks, but we still managed

31:50

to rise 719 the dollar managed

31:52

to fall despite the fact that

31:55

during the press conference, one

31:57

of the things that Powell repeated

32:00

was his assurance that

32:02

if the Fed is wrong 719 if

32:05

this pick up and inflation that

32:07

the Fed has acknowledged is well above

32:09

two percent, 2%. But if it turns out that it's not transitory, the fed is going to use its 719 if it turns out

32:11

that it's not transitory, the Fed

32:14

is going to use its tools. Powells

32:16

and this is one of the things he said in the press

32:19

conference that if inflation is

32:21

significantly and materially above

32:23

its goal of two percent, which 719 course,

32:26

it already is. So the question is

32:28

how long does it have to be significantly and

32:31

materially above two percent? When

32:33

it's already met, that 719,

32:35

despite the fact that neither significantly

32:38

nor materially is actually defined. But

32:40

given how much higher than two percent we

32:42

are right now, I think based on any

32:44

definition, even one that's not disclosed,

32:47

what we have now would qualify. But

32:49

what Powells said is that if inflation

32:52

does persist to be as

32:54

significantly and materially above

32:57

its goal, that it will use

32:59

its tools to guide inflation

33:02

back down to two percent. Now,

33:05

maybe maybe 719 markets

33:07

are finally calling the Fed's

33:10

bluff. That it has no intention or

33:12

ability to use those tools. Because

33:14

that may be why despite the

33:16

Fed's insistence that it stands ready

33:19

to fight inflation, which up until

33:21

now has been a major factor

33:23

keeping the price of gold down and keeping

33:25

the dollar 719. The fact that the dollar

33:28

sold off in gold rose, maybe

33:30

this indicates that the markets have called

33:32

the Fed's bluff. And if it does

33:34

indicate that, If in fact that is

33:36

what the markets have done, then really

33:39

it's game over. Now it's not game over

33:41

719, so it's more 719 beginning of

33:43

the end. Because the decline that we

33:45

saw in the dollar today and the increase

33:47

in the price of gold was very small.

33:50

The key is, is it a harbinger of

33:52

much bigger moves that lie ahead.

33:55

Now let me get to some

33:57

of the other comments that were

33:59

made during the press conference. Oh,

34:01

and by the way too, before I even get to

34:03

these comments, also earlier

34:05

in the day, we got the news

34:08

that this bipartisan coalition

34:10

719 the 719 has agreed

34:13

to a one point two trillion dollar infrastructure

34:15

bill. So the path for this bill

34:17

has now been paved paved. And what nobody seems to appreciate is where does this $1.2 trillion come from, 719 what

34:20

no one seems to appreciate is

34:22

where does this one point two trillion

34:24

dollars come from?

34:26

Right? Because we don't have the money and there

34:28

are no real tax increases to

34:30

pay for it. So this is all gonna be paid

34:32

for through inflation. Right? The government

34:34

is going to issue bonds which

34:37

the Federal Reserve is going to

34:39

buy 719 they are gonna buy the bonds

34:41

by creating new money out of thin air

34:44

that did not exist. 719 exist. And now the government is going to take this newly created money, and it's going to use it to go into the market and bid up raw material prices and bid up labor prices in order to do the infrastructure now the

34:46

government is gonna take this newly created

34:48

money and it's gonna use it to go

34:50

into the market and bid up raw material

34:52

prices and bid up labor prices in

34:54

order to do the infrastructure program.

34:57

So what is this gonna do? Push up

34:59

prices. prices. This is more fuel on a roaring inflationary This is more fuel

35:02

on a roaring inflationary fire.

35:04

So, you know, none of this, of even

35:06

came up in the press conference. By the

35:08

way, I did read an article. This is a bit

35:10

off topic, but might as well introduce it

35:12

here. Sheila Baird, who, you know,

35:14

I talked about her because she was

35:16

in that documentary about

35:19

the Fed. Frontline documentary

35:21

by PBS. And, you know, she at least

35:23

acknowledged the problems of moral

35:25

hazard that defended 719.

35:28

Of course, she ignored all the moral hazards

35:30

that her own agency that she used to head,

35:32

the FDIC, created but

35:35

forgetting about that. She was correct in

35:37

the moral hazards of the Fed.

35:39

But if you remember, when I did that podcast,

35:41

I said that I thought 719 hit an agenda

35:45

behind 719 was

35:47

to try to say that the Fed had

35:49

been using its monetary powers

35:51

inappropriately that it was using

35:53

them to enrich Wall Street, and what

35:56

they really should do is use those powers

35:58

to enrich Main Street as if the Fed

36:00

could enrich anybody by just creating 719.

36:02

But inflation. But there was an article just came out by Sheila an article 719 came out by Sheila

36:04

Barrett that call for just that. She

36:07

wants the Federal Reserve to start

36:09

creating digital dollars, digital

36:11

currency, and send it directly

36:13

to the people into their digital wallets.

36:16

Right? Bypassing 719. Right? Not

36:18

waiting for 719 to pass

36:20

the stimulus. Just give the Federal

36:22

Reserve power to send

36:24

719, digital money directly

36:27

to individuals who could immediately

36:29

spend it. And she actually thinks that this

36:31

is a good idea. Course, it's an impossible

36:33

idea to do legally because the 719

36:36

Reserve can't do that. Because in order

36:38

for the Federal Reserve to introduce

36:40

new 719 reserve notes into the economy

36:43

and they are notes, they are liabilities liabilities. Even though they technically don't have to actually pay anything like they used to, when they actually had to pay gold, they don't have to pay anything, but they need an asset for each

36:45

though they technically don't have to actually pay

36:47

anything like they used to when they

36:49

actually had to pay gold They don't have

36:51

to pay anything, but they need an asset

36:54

for each liability. liability. So when the fed puts new dollars into the economy, it takes existing treasuries or mortgage backed securities out of the So when the Fed

36:56

puts new dollars into the economy,

36:58

it takes existing treasuries or

37:01

mortgage backed securities out of the economy.

37:03

So its liabilities grow,

37:05

but its assets grow. That's the whole balance

37:08

sheet. sheet. The fetches can't put money out there without buying an 719 can't put money out

37:10

there without buying an asset. asset. It needs to have an asset to correspond to the liability because that's the only way the fed can shrink the money needs

37:12

to have an asset to correspond to the

37:14

liability because that's the only way

37:16

the Fed can shrink the money supply.

37:18

supply. If there's too much money out there and there's inflation, the fed sells its assets to get back its liabilities, to retire If there's too much money out there nears inflation,

37:21

the Fed sells its assets to

37:23

get back its liabilities 25 retire

37:25

them. them. But at the fed simply puts digital money out there and gives it to people to 719 if the Fed simply puts digital

37:28

money out there and gives it 719 people to spend,

37:30

spend. It has no way to get those digital dollars back off the it has no way to get

37:32

those digital dollars back off

37:34

the books. It can't bring them back because it

37:36

has nothing to sell to get them

37:38

back. So this would be a complete engine

37:41

of inflation. It would just be turning the

37:43

Federal Reserve into an inflation

37:46

machine, which was actually on

37:48

autopilot, which should be a complete disaster.

37:50

disaster. And I think Elise Shaler bared in her op-ed that she wrote said that nor to do this, we would have to amend the federal reserve I think Alicia or Baird in

37:52

her op ed that she wrote, said that

37:54

in order to do this, we would have to,

37:57

you know, amend the Federal Reserve Act so 719

37:59

would have to authorize this air brain scheme.

38:01

719 she didn't think it was a hair brain scheme.

38:03

She thought it was a good idea, which 719, this

38:06

is where we're going. Even if we don't do

38:08

it this way, it's 719 be QE

38:10

for the people. We're gonna be printing

38:12

a lot more money, but finding

38:14

a way to focus that

38:16

money directly to Main Street

38:19

not to Wall Street, but all that

38:21

means is that rather than

38:23

the inflation, primarily manifesting

38:27

itself in 719 prices like

38:29

stocks is gonna manifest more

38:32

predominantly in goods prices

38:34

like food, like energy, like clothing,

38:37

like all that stuff. So at the time

38:39

where the Fed is thinking that all this is

38:41

transitory, all the evidence

38:43

that we're seeing is that not only isn't

38:46

it transitory, it's about to explode

38:48

to levels never before 719. But

38:51

let me get back now to the conference,

38:53

the q and a. a. So the first question came from Steve Leesman of CNBC and he actually wanted Powell to define substantial, further the first question

38:55

came from Steve 719 of

38:58

CNBC. And and he actually

39:00

wanted Powell to define

39:02

substantial further progress. Because after

39:04

all, that is the criteria that

39:07

the Fed has thrown out there. They need to see

39:09

substantial further progress before

39:13

they, you know, withdraw the accommodation, which

39:15

would start the taper and eventually

39:18

some way down the line, a rate

39:20

hike. And of course, Powell

39:22

went out of his way not to answer

39:25

that question, which he did not do

39:27

because there is no answer. Because

39:30

as far as I'm concerned, there is

39:32

no amount of progress that

39:34

would be substantial enough to

39:36

actually allow the Fed to

39:39

withdraw its monetary support.

39:41

Because it can't, because the entire

39:43

economy is resting on the

39:45

foundation of that support. And

39:47

in fact, not only won't

39:50

the Fed be able to withdraw the support

39:53

it's going to have to increase the

39:55

amount. Because 719, the support is

39:57

like a drug and the more we

39:59

take the drug, the more of the drug

40:01

we need to stay high. high. So in order to prevent everything from collapsing, the fed is going to have to up the amount of monetary heroin that it is jacking into the

40:03

So in order to prevent everything from

40:05

collapsing, the Fed is gonna have to

40:07

up the amount of monetary heroin

40:10

that it is jutting into the economy. So

40:12

that's why they can't answer the question because

40:14

there is no way to answer it other than to

40:16

admit that you can never withdraw

40:19

the support, which the Fed can't admit

40:21

because that would make the problem that they're trying

40:23

to avoid much worse.

40:26

719 it would accelerate the timetable

40:28

for when they have to deal with it. And

40:30

in fact, one or the other and I forget

40:33

the name of this guy. 719 somebody

40:35

else asked Powell specifically about

40:37

interest rates. rates. Like, you know, when is the fed going to get around and raising know, when is the Fed

40:39

gonna get around 719 raising rates? And in

40:41

Powell's answer, he basically said,

40:44

hey, look, I mean, raising interest rates

40:46

isn't even on our radar yet. Right? So

40:48

why are we even talking about raising

40:50

rates because that's not even on our radar.

40:53

Right? We're not even looking at it. We're not even

40:55

thinking about it. That's so far in the future,

40:58

right, that, you know, it's not on our radar.

41:00

Which 719 course is a true statement. It's not

41:02

on their radar by design. In fact,

41:04

when it comes to raising interest rates, I

41:06

don't even think the Fed has a radar, radar. So it'll never be there because the fed can't raise interest

41:08

so it'll never be there. Because the

41:10

Fed can't raise interest rates. If they

41:12

could, they would have already done it.

41:14

it. The fact that they haven't done it is proof that they The fact that they haven't done it is

41:17

proof that they can't. can't. It's just that the markets still haven't come to terms with just that

41:19

the markets still have it come to

41:21

terms with this. Now maybe as I said

41:23

earlier, maybe gold's reaction,

41:25

the dollar's 719, evidences

41:27

that they have, but think it's a little premature

41:30

to necessarily come to that conclusion.

41:33

So we need to see how these trends

41:35

potentially play out in the days

41:37

ahead to see if we get more

41:39

buying in gold and more selling in the dollar

41:42

to really show that the markets

41:44

are getting wise to the Fed's con.

41:47

Somebody actually asked Powell

41:49

about whether the Fed would

41:53

be willing to raise interest rates

41:56

to fight inflation even

41:58

if the labor markets hadn't

42:00

fully recovered. And I thought that was a very

42:03

good question. It's unfortunate that

42:05

we didn't get an answer. And of course, we're not

42:07

719 get an answer. Because 719, the

42:09

Fed can't answer it because the markets

42:11

can't handle the truth. So

42:13

Powell is going to avoid it. And it was

42:15

719 a particularly 719 question

42:18

because earlier in the q

42:20

and a, Powell had specifically

42:22

pointed out that the Fed

42:24

is not even going to think

42:27

about whether or not the

42:29

719 in inflation is transitory

42:31

or not 719 we

42:34

reach full 719. Because according

42:36

to Powell, as long as

42:38

we're not at full employment, he

42:40

doesn't really think we have to worry about inflation.

42:43

And so he's not

42:45

going to until we

42:48

have full employment. Now, of course, full

42:50

employment is like, you know, what is it?

42:52

There's no said answer. answer. It's kind of in the eye of the beholder,

42:54

It's kind of in the eye of the beholder.

42:56

Right? It's like, you know, what is pornography? Well,

42:58

I know it when I see it. Well, supposedly, the

43:01

same thing applies to full employment because

43:03

the level of unemployment that we have

43:06

right now in periods of the past,

43:08

what we've got right now, people would have considered

43:10

this full employment. But it's not because

43:12

we're comparing it to the record low

43:14

unemployment that we had

43:17

at least on paper before the

43:19

pandemic pandemic. But one of the things that Powell is looking at to conclude that we're nowhere close to full employment is the labor force participation rate, which he is waiting for a increase, a return to the labor force of a lot of people who left the labor 719 one of the things

43:22

that Powell is looking at to conclude

43:24

that we're nowhere close to full employment is

43:27

the labor force participation rate. Which

43:29

he is waiting for a

43:31

increase, a return to the

43:33

labor force of a lot of people who left

43:35

the labor force 719 they may never come

43:37

back. You know, it's gonna be like waiting for Godot.

43:40

There are a lot of reasons

43:42

and many of them are man made why

43:45

a lot of the people who left the labor

43:47

market are not going to come back. back. So if Powell is simply stuck on labor force participation, which has been falling for a long time, I mean, this trend existed long before COVID and it's going to continue if palace saying, well, I'm not going to even concern myself about inflation or whether or not it's transitory until we're at full

43:50

if Powells simply stuck on labor

43:52

force participation, which has been falling

43:54

for a long time. I mean, this trend existed

43:56

long before COVID, and it's going to

43:59

continue. If Palace saying, well, I'm not

44:01

gonna even concern myself about

44:03

inflation or whether or not it's transitory

44:05

until we're in full 719. employment. We're never going to be We're never gonna

44:08

be there. So in other words, he's admitting that

44:10

the Fed is never actually 719 pay attention

44:12

to inflation and means that inflation

44:14

is gonna keep getting worse and worse. So

44:16

as a result, I guess, of him making

44:19

the 719. Which, of course, completely

44:21

overlooks the possibility of stagflation.

44:23

Because he thinks that that's impossible that,

44:26

well, as long as we have this unemployment,

44:28

we have slack in the labor market, we're

44:30

not 719 have protracted inflation. But

44:33

this guy, whoever was asked 719 question,

44:35

well, 719 if we're

44:38

not at full 719, perish the

44:40

thought. I know it's totally hypothetical. But what

44:42

if this happens 719 inflation

44:44

is higher are you willing

44:47

to raise rates? And

44:49

basically, his answer was to

44:51

basically deny that such a condition

44:54

would exist, so it's almost like there's

44:57

no point in entertaining this

44:59

hypothetical when the situation

45:01

is not 719 happen. But he did

45:03

come back 25, well, if it 719. Right?

45:05

In in the unlikely event

45:08

that we do have a pickup

45:10

in 719, that the Fed determines

45:12

not to be transitory And

45:15

we're not at full 719. Well, the Fed

45:17

is gonna have to do something about the inflation

45:20

719. Without actually talking about

45:22

what the consequences of

45:24

doing something would be, which would be horrific.

45:27

Because, you know, the longer the Fed rates

45:29

to do something about inflation. The worst

45:31

the inflation is gonna be when it finally

45:33

gets around to doing something about it. And

45:36

the more damage its tools

45:38

are gonna do to this bubble economy

45:40

because the longer it ignores inflation,

45:43

the bigger the fire, the harder it is

45:45

to put out. And putting out the fire

45:47

means rate hikes. But it's not these quarter

45:49

point rate hikes. don't know why people still

45:52

think that, oh, if inflation turns

45:54

out to be five or six or seven percent.

45:56

Well, it just means that that quarter point

45:58

rate hike that we thought was gonna happen in

46:00

twenty twenty three is gonna happen in

46:03

twenty twenty two. 719 2022. And that that's the only consequence of inflation being so much higher than that that's the only

46:05

consequence of inflation being so much

46:07

higher than two percent. You can't

46:09

put out 5678

46:11

percent inflation with a quarter point

46:14

rate hike or a half a point rate hike. radar. I mean, talk about bringing a knife to a I mean,

46:16

talk about bringing a knife

46:18

to a gunfight. I mean, you're not even bringing

46:20

a knife. You're bringing a pea shooter.

46:22

Like like 719 draw with a little peat.

46:24

I mean, you've got nothing. If you

46:26

are going to fight inflation that

46:28

is that far out of control, control. As I said, defense is going to have to get medieval on

46:30

as I said, defend's gonna have to get

46:32

medieval on inflation. It's gonna

46:35

have to do a Paul Volker, which is impossible.

46:37

We can't even get close to that. So nobody

46:39

wants to contemplate what the Fed

46:41

would actually have to do to rein

46:44

in 719, that's that out of 719. Because

46:46

it can't even rate in the inflation that we got

46:48

now. Because if it could, it would.

46:51

The reason it's not is because it can't.

46:53

Now 719 thing that should have bothered

46:55

the markets was Powell

46:57

did in fact defined transitory.

47:00

And he he basically defined

47:02

it this way the last time he was asked 719 nobody

47:04

really paid attention. But he was asked

47:07

again, you know, what's 719? Meaning,

47:09

how long? Most people who want the Fed

47:12

to define transitory they're interested

47:14

in how long is the transition. Right? We've got

47:16

this rise in inflation and,

47:18

you know, it's 719 temporary. Right? That's

47:20

what people think. When they think transitory, they

47:23

think temporary, plus they also

47:25

think reverse. See, most people think

47:27

that the price increases in

47:30

order to qualify as being transitory need

47:32

to be reversed so that they go back down.

47:35

Well, through cold water

47:37

on that 719. Specifically, specifically. He said that transitory inflation does not mean that the price increases are

47:40

he said that 719 inflation

47:43

does not mean that the

47:45

price increases are reversed 719

47:47

reversed. And so that these big gains that we've seen recently are going to be so that these big gains that we've

47:49

seen recently are going to

47:51

be reversed. What Powell said

47:54

transitory inflation means is

47:56

that at some point, in the

47:58

future. And he wouldn't say how long the

48:00

future. These huge price increases

48:03

stop 719 we simply revert

48:06

to the normal two percent

48:08

per year price increases. So in other

48:10

words, according to Powell, if

48:12

we have let's say a two year period of time,

48:15

where prices go up by twenty percent

48:17

a year. Right? Forty percent. Right?

48:19

Huge increase in the cost of

48:21

living. But then After

48:23

that huge increase, we just

48:25

go back to two percent a year. year. As far as the fed is concerned, the whole thing was

48:27

As far as defense concerned, the whole thing

48:29

was transitory and there's nothing

48:31

that the Fed needs to do. Think about

48:33

what that means. And even if it's not

48:36

a forty percent increase, what if it's ten percent

48:38

a year for two years. And it's twenty percent.

48:40

Whatever the number is, you're talking about

48:43

a permanent increase in

48:45

the cost of living. That every American

48:47

has to pay each and every year for the rest of

48:49

their life. And according to the Fed, it's

48:51

no big deal so long

48:53

as after that huge increase

48:56

that is permanent in the future,

48:58

we just go back to two percent a year.

49:00

Now, this 719 course destroys all

49:03

719 Fed's credibility about how low

49:05

inflation was in the past because, you know, we

49:07

have all these years where inflation was

49:09

one percent or one and a half percent

49:11

percent. Well then if we have a couple of years of 10% back to back, all that is destroyed because then if you go backwards and you average the annual rate of inflation, it becomes a huge then if we have a couple years of ten percent

49:14

back to back, all that is destroyed. Because

49:16

then if you go backwards and you average

49:19

the annual rate of inflation, it

49:21

becomes a huge number that's way,

49:23

way above the Fed's two percent.

49:26

Even after that huge number, if

49:28

we just go back to two percent, how

49:30

can the Fed with a straight face claim

49:32

that it is satisfied its two percent

49:34

mandate when the average rate of inflation

49:37

over the entire period is so much higher

49:39

than two percent. And of course, how can they

49:41

say with a straight face that we still

49:43

got inflation at two percent 2%? Because after all, what if we have another transitory period, maybe it's five years in the future, after

49:45

all, what if we have another transitory

49:48

period? Maybe it's five years in the future.

49:51

Right, right? Where inflation spikes up again, 10 or 20% for one year, but then comes back down to just 2% a year, inflation spikes up again, ten

49:53

or twenty percent for one year, but

49:55

then comes back down to just two percent

49:57

a year. Right? The Fed's gonna say, oh, no big

49:59

deal. That was another transitory spike

50:01

in the cost of living. living. But since we're back down to 2% a year, you know, there's nothing to worry since we're

50:04

back down to two percent a year, you know, there's

50:06

nothing to worry about This destroys

50:08

the Fed's credibility. And if

50:10

the markets have to start anticipating that

50:13

we're gonna have these transitory spikes

50:15

in inflation, every five or ten

50:18

years, well, the markets are gonna discount

50:20

that into the average annual

50:22

inflation expectation, and that means

50:24

the bond market has to crash which means

50:26

that the Fed has to print even more money

50:29

25 prevent it from crashing, which means everybody's

50:31

gonna run from the dollar, everybody's gonna

50:33

run to gold. Right? Once people

50:36

understand this. I mean, it should be obvious,

50:38

but it's not. But a lot of things

50:41

should be obvious and or not.

50:43

719 eventually they are. You know, I've talked about

50:45

it on this podcast just like the subprime

50:48

problems. problems. I was warning about these problems for years, I was laying I was warning about these

50:50

problems for years. I was laying out

50:52

out. It was clearly obvious to me what was going to happen, but the rest of the financial world was completely was 719 obvious to me what was

50:54

gonna happen, but the rest of the financial

50:57

world was completely oblivious. That's

50:59

why these bonds were mispriced for so

51:01

long. 719 there was a

51:03

point and it only took a few days for

51:05

the market to actually realize what

51:08

they got wrong, wrong. And these bonds that were at par went to zero over the course of a few days and we had the financial 719 these bonds

51:10

that were at par went to

51:12

zero over the course of a few days

51:14

719 we had the financial crisis. So

51:16

I think the same thing is going to happen

51:19

when it comes to the dollar, when it comes

51:21

to the price of gold. So people out

51:23

there who are 719 that we haven't

51:25

seen a bigger increase in the price

51:27

of gold, that we haven't seen a bigger drop

51:29

in the dollar. Just wait. All

51:32

this stuff is gonna happen. The dollar is

51:34

gonna fall even more than I once

51:36

thought. Gold is gonna soar even

51:38

higher than I once thought. Because

51:40

all these problems have gotten much worse than

51:42

I once thought because it's taking so much

51:45

longer for the markets to come to

51:47

terms and understand the problems. problems. But eventually they will because reality always rears its ugly

51:49

eventually they will because reality

51:51

always rears its ugly head and

51:53

the longer people live in fantasy, the

51:56

bigger the disruption when it does.

51:59

Also, Powell was asked about

52:01

rising wages and whether

52:03

or not he was concerned there, you know,

52:05

because if companies are paying higher wages,

52:07

you know, maybe they're 719 pass on those costs

52:10

to their customers in the form of higher

52:12

prices. And according to Powell, this is not

52:14

a problem. Because according to Powell, the

52:16

Fed doesn't see any evidence that

52:18

companies are passing on their

52:20

higher wages. Well, really? So they're just

52:23

gonna absorb it it. I mean, because I haven't seen this huge spike in productivity that would enable all these companies to just pay higher because I haven't

52:25

seen this huge spike in productivity

52:28

that would enable all these companies to

52:30

just pay higher 719. So either

52:32

their profits are gonna collapse or

52:34

they're going to raise prices. And my

52:36

guess is it's going to be a little bit

52:38

of both 719 there are gonna

52:41

be significant price increases. Now

52:43

it is possible that some of the

52:45

companies out there have been a bit reluctant.

52:48

To pass on the higher labor

52:50

costs to customers

52:52

because they didn't wanna jump the gun. They

52:54

didn't wanna raise prices and then have

52:57

to reduce 719. There was a lot

52:59

of talk that what they were seeing with their costs

53:01

was all 719. So maybe

53:03

companies just assume that it was

53:06

transitory. It maybe gave the Fed the benefit

53:08

of the doubt, doubt. And so we're holding off on some of these price increases, but there's a limit to how long they're going to hold so we're holding off

53:10

on some of these price increases, but

53:12

there's a limit to how long they're gonna hold off.

53:15

So even if this is partially

53:17

correct, that we haven't seen companies

53:20

raise prices yet to reflect

53:23

the increase in 719, that doesn't mean it's

53:25

not gonna happen. For some reason, Powell

53:27

is confident it's never gonna happen

53:29

just because it hasn't already happened. Meanwhile,

53:32

the process just got started. And Powell,

53:34

of course, looks back to the inflation of

53:36

the nineteen 719. And he's convinced

53:39

that the wage price spiral was

53:41

a major factor behind the

53:43

inflation. In other words, Powell believes

53:45

that it was the fact that

53:48

wages were driving prices up,

53:50

that we had an inflation problem. He's

53:52

wrong. The reason we had an inflation problem

53:54

was because the Fed printed too much money. To

53:56

monetize large deficits

53:58

from the government. government. It was the money printing that caused both wages and prices to was the money printing

54:00

that caused both wages and prices

54:03

to rise. rise. It wasn't just wages happened to start rising on their It wasn't just wages

54:05

happen to start rising on their own,

54:07

and that because wages went up, prices

54:09

went up because companies passed on those

54:11

higher costs. 719 costs. And we went into this wage we went into this

54:13

wage price 719. Wages

54:15

are prices. That's what they are. They're the price of

54:17

labor. All prices were going

54:19

up because of the inflation, the

54:21

Federal Reserve was crating. That was the

54:23

dynamic. dynamic. It had nothing to do with this wage price had nothing to do with

54:26

this wage price spiral. That was

54:28

just the way the government tried

54:30

to shift the blame for inflation

54:32

on the private sector rather than

54:35

accept responsibility themselves.

54:37

themselves. Because if you blame rising prices on rising wages, well, then it lets the fed off the if you blame rising prices,

54:39

on rising 719? Powells, then it lets the Fed

54:42

off the hook. Well, we're not causing it. it. It's just these unions and workers are just demanding higher It's just

54:44

these unions 719 workers are just demanding

54:46

higher pay. And then, well, then the companies

54:48

are just passing on those higher 719.

54:51

Right? As if none of this is the responsibility

54:53

of Fed, 719, of course, the entire process

54:56

is put into motion by

54:58

the Fed. And that is what's happening this

55:00

time, except now 719 Fed has put into

55:03

motion an even bigger spiral. So

55:05

yes, wages are gonna go up, price

55:07

are gonna go up, then wages are gonna go up, up. Then prices are going to go up, but it's not this wage price spiral that's causing

55:09

price are gonna go up, but it's not this wage

55:11

price 719 that's causing it. It's

55:14

the Fed. It's the spiraling of the

55:16

money supply. And in fact, I think

55:18

the way the government is gonna react

55:20

to rising wages and rising

55:23

prices hurting the economy,

55:25

right, hurting real consumer spending

55:28

is gonna be to stimulate the economy

55:30

by creating even more inflation so

55:33

that people have even more money to spend,

55:35

which is gonna fuel the fire. But

55:37

my advice is consistent

55:40

and it's the same, do not

55:42

wait for the

55:44

markets to figure this out.

55:46

Do not wait until everybody

55:49

finally understands the

55:51

predicament that the Fed is in. Because

55:53

believe me, when that happens and it's gonna

55:55

happen, there will be an epiphany and

55:57

everybody is gonna come to this conclusion

56:00

pretty much at the same time and everybody

56:02

is gonna run for the exit at the same time

56:04

and the exit is very small and there's no

56:06

way to get out out. The only way to get out is to exit before the 719 only way to get out is

56:08

to exit before the crowd. Now,

56:10

obviously, way before the crowd,

56:12

but, you know, was way before the crowd on the

56:14

housing 719, I'm even further

56:16

before the crowd now. I've been talking

56:18

about this for a long time just

56:21

because the market hasn't blown up.

56:23

Doesn't mean I haven't been right I have

56:26

been right. Everything that has happened

56:28

economically has simply provided

56:31

more and more evidence that I'm right.

56:33

So our patience is going

56:35

to be rewarded. rewarded. Of course, there's an opportunity here for people who are just arriving with my strategy and maybe you've been in the us stock market, and you've been lucky enough to go along for the Of course, there's

56:37

an opportunity here for people who are

56:39

just arriving with my 719, and

56:41

maybe you've been in the US stock market 719 you've

56:44

been lucky enough to go along for the

56:46

ride, ride. You can count your blessings and get out now before the you can count your blessings

56:48

and get out now before the collapse

56:51

collapse. And you can get fully positioned into this strategy because not only are we going to revert out of growth into value, and this trend has already changed, the flows have already started to shift, but it's going to be a massive rotation out of us stocks into international stocks and into real assets, into commodities, into gold and 719 you can get fully positioned into

56:54

this strategy because not

56:56

only are we 719 revert out of

56:58

growth into value 719 this trend

57:00

has already changed. The flows

57:02

have already 719. This shift, but it's

57:04

gonna be a massive rotation out

57:07

of US stocks into international

57:10

stocks 719 into real

57:12

assets, into commodities, into

57:14

gold and silver, I've been

57:17

positioning for this outcome for

57:19

years and years, anticipating it,

57:22

and I think now we are here.

57:24

And in fact, one of the other factors

57:26

that I think is particularly important

57:29

with this dynamic is if you think

57:31

about the companies

57:33

719 in the U. S. That have attracted

57:36

investment capital over the last decade.

57:39

It's been all these high growth companies that

57:42

don't really make things. Maybe they, you know,

57:44

they provide free services on the Internet

57:46

and they they generate revenues from

57:49

advertisers. Right? These are these momentum,

57:51

social media companies that have gained

57:54

all the new money. They've been going 719. So

57:56

all the investment capital has flowed

57:59

there. The companies that actually

58:01

make stuff, the real companies that generate

58:03

profits 719 make the stuff that we buy,

58:05

they haven't been able to generate any capital.

58:07

In fact, what they've had to do in

58:10

order to maintain their share price because

58:12

investors aren't interested, because they

58:14

want something hot that's moving up

58:16

faster is a lot of these companies instead

58:18

of investing their profits in

58:21

expanding their capacity, plant,

58:23

and equipment, to produce more stuff.

58:26

They've used what profits they've had to buy

58:28

back their stock because the investors

58:30

aren't doing it. this. So they're buying it themselves in order to try to compete with the era of the market where all the new capital is they're buying it themselves in

58:32

order to try to compete with the area

58:34

of the market where all the new capital is flowing.

58:37

So that's part of the problem. We've been

58:39

printing all this money to create all

58:41

this demand. 719 we haven't been investing

58:43

in productive plant and equipment to

58:45

produce more goods, which is why

58:48

we're more and more reliant on

58:50

the rest of the world to produce the

58:52

goods that we don't, which is why these

58:54

trade debts are exploding. But here is

58:56

why I wanted to bring this point up. up. I think that one of the ways, a lot of these companies that are experiencing huge increases in raw material costs and labor costs, what are the ways that they're going to reduce the amount by which they're going to have to raise their prices is they are going to look for what costs they can

58:59

think that one of the ways

59:01

a lot of these companies that are experiencing

59:04

huge increases in raw material

59:06

costs and labor costs. What

59:09

are the ways that they're going to reduce

59:11

the amount by which they're going to have to

59:13

raise their prices? Is they

59:16

are going to look for what costs

59:18

they can 719. And I think the number

59:20

one costs that companies

59:23

throughout the US are 719 be

59:25

cutting next year is

59:27

gonna be advertising. advertising. I think ad budgets are going to be I think ad

59:29

budgets are going to be slashed. Meanwhile,

59:32

you have all of these companies that

59:34

are dependent on advertising spending.

59:37

And there's more and more of them. We keep getting

59:39

new companies that are going public

59:41

And the only way they make money is by

59:43

selling ads. They're not making any money

59:45

selling their products or services. Right? They

59:48

give away their products or 719. And

59:50

the model is we're just gonna make it up with

59:52

ads. ads. The problem is all these companies are depending on the same group of advertisers, there's only so much ad money to go The problem is all these

59:54

companies are depending on

59:56

the same group of advertisers. There's only

59:59

so much ad money to go around.

1:00:01

And now when you have all these companies

1:00:03

who were advertising, who are now

1:00:06

spending more for raw materials, and

1:00:08

spending more for labor, something's gotta

1:00:10

give 719 it's gonna be the ad 719. That

1:00:13

means the revenues of all these high multiple

1:00:15

firms are going to implode. So

1:00:18

these big stocks are gonna come crashing

1:00:20

down, the dollar's gonna come crashing down,

1:00:22

money is gonna be flowing into real

1:00:24

things, foreign stocks, value

1:00:27

stocks abroad, dividend paying stocks,

1:00:29

commodities, gold silver, these mining

1:00:31

stocks, So before everybody

1:00:34

wakes 719. And again, I don't know

1:00:36

how much more time we have. Just assume

1:00:38

we're running out of time. Just assume you

1:00:40

719 do this now because the

1:00:42

consequences are high. The

1:00:44

stakes are very high if

1:00:47

you wait too long. So

1:00:50

it's better to be too early than too late.

1:00:52

But you know what, if you're positioning yourself

1:00:55

now in 719 scheme of things,

1:00:57

even if it's little early, It's

1:00:59

almost perfect because as far as

1:01:01

I'm concerned, the clock has almost

1:01:03

completely wound down. .