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Language: en
we've laid out sort of the basics of
what people ought to do if they want to
die wealthy however I want to get into
like the real economy that's happening
right now so everybody inherits a set of
circumstances those circumstances matter
a lot they will for sure shape people um
you said at one point either in your
book or in an interview that I heard you
say there's no precedent for it being
worse than it is now if you're buying
your first house yeah I think that's
true specifically right now where home
prices are by and large higher than
they've ever been but mortgage rates
went from 3% to 8% that defies all
economic logic it should be in a world
where mortgage rates go from 3 to 8%
home prices fall 30% 40% 50% and we
hasn't that hasn't happened yet at least
so now you're in the situation where
particularly in big cities La San
Francisco Seattle New York Boston the
big cities you're looking at at least a
million dollars for a starter home for a
starter home at an 8% mortgage it's a
it's a completely different univers than
anything we've experienced in a lot
because the last time that rates were
this High even in the mid 1990s home
prices adjusted for inflation like an
Apples to Apples comparison were a
fraction of what they are today so
having home prices where they are today
at 3% mortgage rates was still very high
you're still oppressive for a lot of
people to do it at 8% is just like a
different world now because of that very
few PE very few homes are transacting
there's like the level of sales has just
dropped off a cliff it's the lowest
point in I think 20 years in ter in
terms of the volume of home sales
because the prices that are out there
are not realistic given the financing
options for most people so a lot of
people will say according to Zillow my
house is worth x million but that's not
actually a mark to market price like if
you actually needed to sell it to
someone tomorrow who has an 8% mortgage
the actual market price the clearing
price for that is going to be much lower
than you think so I think there's like a
Wy coyote Mo moment of like we've gone
over the cliff and we're just starting
to look down and realize there's no Road
beneath us three things needs to change
either incomes need to Surge either
mortgage rates need to come down or home
prices need to come down like one of
those three or combination of those has
to occur you can't keep this situation
that we have going
indefinitely so is the would you call it
a housing crisis that we're having now
is there a set of other things going on
in the economy that makes this a good or
bad time like what if you were going to
paint a generalized picture
of what's happening now especially for
young people
um I mean what's good right now is that
unemployment is incredibly low I mean
unlo you know having an unemployment
rate below
4% other than the late 1990s and a
period in the 1950s it's lower now than
it's ever been and even it's even lower
now than it was in the late 1990s that
we associate with like the best economy
that's ever existed it's lower now than
it was back then unemployment rate is
crazy crazy low if you want a job jobs
are out there so that's a major Tailwind
that we have that's propping a lot of
this up if you took today's housing
market very high prices very high
mortgage rates and you mix that with
high unemployment everything falls apart
everything breaks so I think a very
strong employment Market that we have
today can mask a lot of challenges the
other thing is that during Co the amount
of stimulus that went out trillions of
dollars in stimulus during a period
where people were locked in their homes
they saved that up and what's called
excess savings what's trillions and
trillions of dollars of money and by and
large that benefited the poorest people
the most the people who had the least
money in their checking account before
covid had the the biggest percentage
boom really like those are the people
for whom their financial situation just
utterly changed overnight and a lot of
that excess savings still exists not as
much as did two years ago but people
like households in general are in a
better Financial shape right now than
they've been in a very long period of
time including you can say mortgage
rates are 8% today for the people who
are buying a new house today but so many
people locked in a 3% mortgage either
because they bought in previous years or
they refinanced in 2021 so to the extent
that they don't need to move and someday
they might eventually need to move but
if you're locked in at a 3% Mortgage in
a world where maybe you're getting an 8%
raise every year like that's a that's a
boom that's amazing situation to be in
so there's all these like weird
breakages mixed with a lot of great
things that are happening in the economy
at the same time so so many people were
predicting recession I'll be honest Hest
like it as a person who is very tied to
advertising I can just tell you things
ain't what they used to be yeah so
advertising money is pulling back
advertisers are definitely expecting
something bad to happen for sure um so
from where I'm sitting the economy feels
soft it feels like Wy coyote has run off
the road and is looking down uh it's
just no one has reported back what they
actually see yet but everybody's
paranoid that they're going to see
something bad that's how feels from
where I'm sitting yeah um is that people
just being paranoid what's the I mean
not to get too technical about this how
much of that is literally when Apple
changed the tracking feature and all of
a sudden advertising got less potent
than it used to be isn't that at least
part of this that wouldn't matter for
the advertising that we deal because we
interface with it through YouTube um but
when we're trying to advertise our stuff
that matters but not the inbound I mean
one one other way to phrase this is that
is the economy weak today no is it
weaker than it was in 2021 yes but 2021
was the anomaly today is not the anomaly
so even if it is weaker by any metric in
unemployment income growth household
debt to income ratios it's doing very
well today now the history of all of
these things is that the speed in which
you can break that narrative is very
quickly so 19 the year 2000 strongest
economy that's ever existed 2001
everything fell to Pieces 2007
absolutely on top of the world 2008
worst year since the Great Depression so
even if you say even if I can say all
these things are going well today we
could be talking two months from now and
be in a completely different world it's
usually not a slow thing that kind of
trickles in it's like most recessions
are usually a big exogenous event that
hits like Leman Brothers go goes
bankrupt or covid or 911 that just
throws things for a loop so just because
you I can St here today and say things
are very good doesn't mean that 30 or 60
days from now that narrative can't be
completely Unwound now but and that's
why forecasting is so difficult now you
said the narrative so how much of this
and this is one thing that freaks me out
about the economy and money it's
basically just a public confidence
feelings there's a great economic uh
commentator content maker named Kyla
scanon who who talks about the vibe
recession and it's literally like most
most economists are like data and charts
and numbers she's like no it's just the
Vibes it's just how people feel and it's
true when people feel good about what's
going on they spend money when they
spend money the economy is strong when
they don't feel good about things when
The Vibes are low they stop spending
money and then the economy unwinds like
it's not more complicated than that so
mood is a massive thing it's huge and a
lot of it it's it's self-fulfilling a
lot like there's measures of consumer
confidence and most of what moves
consumer confidence what actually moves
the needles are three things stock
prices gasoline prices and politics
those are the things that people pay
attention to or they can just get a
quick update when they watch the news
for 10 seconds stock market's up gas
prices are down I'm not hearing anything
about politics good I'm in a good mood
or the opposite of that if gas prices
are going up and the stock market fell
today and politics is a mess you're
going to be in a bad mood and like those
are the three things that move people's
economic sentiment that has a very
strong uh impact on how much money
they're going to spend and the money
that they spend is somebody else's
income so when you stop spending money
that's someone else's income that just
went down and it snowballs from
there so okay knowing that
um basically this is a sentiment game I
want to bring up something that you
talked about in your book uh that I'll
tie to what I'll call the debt crisis
that be very like it feels to me like
we're in a debt crisis just looking at
the numbers uh doesn't seem sustainable
to me when you look at the housing
numbers you were saying hey one of these
three things has to give yeah like uh
you you can't have debt like this with
interest rates as high as they are like
this just seems like an absolute recipe
for driving off a cliff we're talking
household debt everything household
corporate and government debt all I
don't know if they're historic Highs but
holy hell they they are massive yeah Ma
it's something like three times GDP that
could be wrong it it's bad like the the
debt to GDP ratio is crazy some people I
think it was chamath that said oh it's a
nothing burger and I'm like bro how can
this be a nothing burger like you at
some point just servicing the debt
becomes a problem anyway not an expert
but I'll call it a debt crisis from my
limited understanding uh but you have a
statement in your book where you say
this is crazy to me stability is
destabilizing yeah and you walk through
Minsky's Financial instability
hypothesis do you remember the three
beats oh yeah I mean so himman Minsky
was this economist back in the 1960s and
in the 1960s there was this move in
economic circles that we should
eradicate recessions people were very
optimistic back then let's just get rid
of but we had just walked on the moon we
had like eradicated polio there was this
idea that of course we should be able to
eradicate recessions himman Minsky said
you'll never do it it can never be done
because of what he came up with what he
call the financial instability
hypothesis he said when people are
optimistic they go into debt when they
go into debt the economy becomes
unstable when the economy is unstable
you get a recession so the lack of
recessions is what triggers the next
recession if you never have any
recessions people go into crazy amounts
of debt when they go into debt you have
a recession so by definition you cannot
avoid it it's always going to be a thing
that you're going to have to deal with
in life the same is true in the stock
market like if the market never crashed
people would put all their money in the
market if they put all their money in
the market valuations go way up when
valuations go way up the stock market's
fragile and it crashes so a lack of
crashes is what causes the next crash
it's just it breeds a level of over
optimism and over complacency that that
causes the next crash so when you accept
that just like the nature of how
cyclical these things are then you don't
pretend that we're going to be in some
sort of stable zone or that we can stop
these or that the next recession is
caused because this politician and that
policy maker necessarily made a mistake
that's just an innate part of how any
capitalistic Society works okay so if we
know that what do we do with that
information those of us that want to
navigate all of this well you have to
assume as I do that there's going to be
at least two recessions per decade one
of which is going to be really bad that
should be your Baseline scenario so
don't act surprised when the next one
comes don't say nobody could have seen
this coming you know I hope to be an
investor for the next 50 years so during
that time I I hope to experience 10 to
20 more recessions you know that's I
think that's that's just the Baseline of
what you should expect as as an investor
but every recession we have people say
something to the effect of nobody could
have seen this coming and it's that
guy's fault versus I just think it's
just an part of how the system works so
when you accept that not only are you
psychologically more prepared but I
think you should be financially more
prepared I think most people don't have
enough cash in liquidity because they
extrapolate the good times indefinitely
and they don't have the mentality to
assume that just because it's good today
doesn't mean everything can't be taken
away from you next month like I said
earlier Mo most recessions don't you
don't Cruise your way into it you go
from everything is great to utter chaos
in 30 days that's usually how it plays
out out and so because of that and most
of what causes the big economic declines
are surprises things that people don't
see coming 911 Leman Brothers covid
nobody saw those things coming until
they wre their havoc and so because of
that I think most people just don't have
enough cash liquidity margin of safety
buffer in their finances so accepting
that just the natural path of what we've
gone through in the past and that these
crashes are inevitable pushes you
naturally towards a greater degree of
safety not because you're conser ative
but because you want to be able to
survive and endure all of those
challenges so you can stick around long
enough to be a good long-term investor
if you like that clip check out the full
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