Kind: captions
Language: en
[Music]
I wish that we were talking about better
news I saw a video that you created
about how the average person doesn't
understand what we're about to go
through and as we sat down to record
this svb just got frozen Silicon Valley
Bank
um looks like there's going to be a
tremendous amount of capital lost and
thinking about what I'm calling the
triangle of Doom with interest rates a
slowing economy and inflation how does
this all play together with what just
happened and how does the average person
if they don't understand what we're
about to go through how do they protect
themselves yeah svb Financial is really
interesting because it's kind of a
byproduct of what you just talked about
the triangle of Doom so we have still
have very high inflation
and that high inflation is slowing down
the economy now to fight the high
inflation the Federal Reserve Bank is
working to raise interest rates
now higher interest rates help to cool
down inflation but that also slows down
the economy now the case of SBB
Financial the bank is really interesting
because
they have been lending money to a lot of
startups like Silicon Valley startups
and when you have low interest rates
it creates ease of access to money
because like if you can borrow money for
two percent I mean you only need a four
or five percent return on your money to
justify making an investment but if you
have to borrow money at 10 now you need
a much higher return on your money to
justify that investment and what we've
been seeing is this is not just svb I
mean there's a lot of examples of this
but what we've been seeing happen is
investment institutions Venture Capital
firms Angel firms and startups had such
easy access to money I mean of course
we've printed trillions and trillions of
dollars over the last number of years
but now if you wanted to raise money
Venture Capital firms are sitting on
boatloads of cash and they're competing
against each other to get the best
investments and so we saw the valuations
of everything rise obviously we saw home
prices Skyrocket over the last couple of
years the stock market skyrocketed even
though we were going through the worst
recession during the pandemic since like
the Great Depression
the stock market grew real estate prices
grew startup valuations went through the
roof and the reason why these valuations
went through the roof is because now
every Bank every investment institution
is competing against each other with
both loads of cash trying to get into
these firms now svb financially like I'm
gonna be completely honest like this is
happening right now so I only know based
off the information that has come out
over the last you know number of days so
I'm giving you just based off of this
things can change by the time this goes
live
but they were lending money
to a lot of startups I think it was like
four or five out of ten of of the
startups out of Silicon Valley had money
from svb
and so now when you're competing against
a startup you might say okay
if you make a hundred thousand dollars a
year I'll value you at a million dollars
I'll give you a hundred thousand dollars
for ten percent of your company
something along that they'll value it at
that but then if you go to bank number
two and say
what will you do
and if bank number two says I'll value
you at eight hundred thousand you're
gonna say well I'm already valued at a
million can you do any better now bank
number two might say okay I value at 1.5
million based off your hundred thousand
dollars of income then you go to bank
number three and say hey can you do
better and they might say I'll value you
based off your hundred thousand dollars
of income at four million dollars now
you're like okay we're talking and now
you you start to shop like this and
valuations just started to Skyrocket and
then you know when you have easy access
to money it fuels I don't want to say it
in a bad way but dumb Investments
because
I can pay if if you can get such easy
access to money
you can run a business where you're
spending a dollar to make 50 cents and
this is a tough concept to understand
but a lot of companies actually do this
especially in the early stages where
they spend a dollar can make 50 cents
because they're just trying to grow
their market share they're trying to
grow the number of users they had like
uber used to lose money on every single
ride why because they wanted to
eliminate the competition and get the
market share and they could get the
cheap capital and they could get the
cheap cap how much of what's happening
right now do you think is a result of
increasing interest rates is that a big
part of this and obviously it's so early
but do you think that there's Scandal
here is it just oh interest rates are a
huge part
because what's been happening now is the
Federal Reserve Bank is trying to bring
down inflation because inflation is
still even today extremely high we're
closer to a peak of inflation than than
our lows which means people's
incomes are essentially shrinking even
though like what we've been seeing
happen is people's incomes are rising
but they're not Rising fast enough to
keep up with inflation so people are
effectively becoming poorer across the
country because the cost of living is
going down
but now interest rates are going up very
quickly
and so when interest rates go up that
means now the investment institutions
the banks they need a bigger rate of
return because most debt I mean besides
your mortgage is not a fixed rate debt
it's a variable interest rate debt are
most of our national debt most of our
corporate debt and most of our little
non-household debt is variable interest
rate debt so when interest rates go up
the cost of servicing that debt goes up
so now you have something like svb
financial and I'm not going to go too
deep into what they do but I'll talk
about just general because I don't know
too much about their particular
financial situation yet but
what most companies do is now they have
this boatloaded debt and the debt rate
readjusts and so now when you're
investing in companies your companies
have to produce a return in order to
continue making the payments on your
debt
well what we've been seeing across the
board the reason why we've been seeing
so many layoffs in the tech sector is
now
interest rates have gone up meaning the
cost of these corporations debts have
gone up and now you need to make more
money to service the cost of those debts
and if you have a high debt payment now
you have to figure out how am I going to
have the money to pay down this debt
well you can either make more money or
cut my expenses
making more money is hard in a time
where inflation's High people don't have
the ability to spend so what's the
alternative I cut my expenses I started
laying off employees
I cut my expenses it's now I have money
to pay down my debt now that works if
you're meta Facebook or Google but what
about the smaller companies that are are
still in the early stages
now your valuation I mean I was you
you've seen so many companies go from
like a billion dollar valuation to
200 million overnight like you're
talking about us at 80 percent drop yeah
so now you have banks that show on their
balance sheet your balance sheet
essentially is your net worth statement
so if a bank says I'm invested in 10
companies each one of these companies is
worth a billion dollars that means I
have 10 billion dollars worth of assets
and so now if you take this 10 billion
dollars worth of assets and go to get
money
you might be able to get let's just say
80 loan to value right eight billion
dollars worth of loans that you can then
go lend out
but now when you see interest rates go
up the valuations of these things go
down that's why we've been seeing tech
stocks crash well now if
10 if your 10 portfolio companies are
worth a billion dollars each and they
fall by 50 percent
now you go from a 10 billion dollar
valuation on your balance sheet to 5
billion your point about meta I think is
really important here so
the strategy that they deployed now it's
it's too early for us to know if there
was anything Sinister going on so
setting that aside for now
um assuming that there wasn't the
strategy could potentially work in an
environment where it's far more stable
either interest rates are dropping or
they're stable but when you get into a
highly volatile either the companies at
a volatile stage and can't absorb the
losses like a meta which just has an
insane amount of Revenue coming in the
door
then it falls apart but if if they had
longer Runway they might not have gotten
caught out but this is Warren Buffett's
old phrase When the tide goes out you
see the swimming exactly and that's
exactly what's going on Rising interest
rates is going to make money more
expensive and that's where you start to
differentiate the dumb money and the
smart money and as you raise interest
rates to cool down inflation it is going
to cause economic pain
and that is going to be the tide going
out
so what can the average person take away
from this how how does the average
person who probably isn't directly
caught up in anything related to svb
um how do they learn the lesson of the
triangle of Doom the rising interest
rates a cooling economy inflation
what what's this moment about for them I
think the most important thing here is
you need to get financially educated and
you can hear me say that a lot but the
reason why is because anytime we go
through this type of shakeup or change
in the economy
until it slaps you in the face everybody
will keep saying oh it's contained
you don't got to worry about it
everything is fine and I can give you
countless examples in 2020 we saw it
happen in 2008 I mean in 2008 first it
was there's no housing bubble oh there's
a housing bubble but it's contained a
housing and then oh crap the whole
financial system is on the verge of you
know collapsing and look this is not a
political thing it doesn't matter which
side of the political coin that you're
on we're all on the same side of we're
trying to become financially wealthy
but the reality is we have our president
saying there's no chance of any economic
slowdown not just this year but in the
coming years our treasury secretary has
been saying the same thing the Federal
Reserve Bank is saying we're going to
see a soft Landing now let's just look
at the numbers to really understand
what's going on because the first issue
is really
what I call this idea of debt
monetization which is probably one of
the most concerning issues and what debt
monetization is it's
how is
our government
funding its operations and how is that
going to impact the regular person that
monetization as a term if I understand
it correctly makes me very angry because
it sounds cool I can monetize my debt
this sounds amazing
am I correct that debt monetization is
printing money yes yes that's one of the
same right it's the a basic way to
explain it so essentially think of it
this way uh our the size of our economy
last year was about 25 billion dollars
and over the last couple of years
especially during the pandemic era we
printed with the Federal Reserve Bank
around five trillion dollars so to put
that a perspective about 20 of our
entire I mean every single person had to
go to work for a year every corporation
had to work for a year in order to
produce 25 trillion dollars worth of
money or wealth the Federal Reserve Bank
was able to print five trillion with a
push of a few buttons essentially
so now when you think about that the
question is why do you and I have to pay
taxes if the government and the FED can
just print this money
well it's because there's a cost to this
money printing what does that cost well
that cost is inflation
and so we're in a situation right now
where
the amount of money that has been
printed is insane and we don't even know
the exact amount of money like we know
the stimulus was something around five
trillion dollars but the Federal Reserve
Bank also did a lot of unlimited
quantitative easing the definition of
money changed uh during 2020 M1 I'm not
going to get into the technicals well so
just really fast what's the difference
between printing money and quantitative
easing so quantitative easing is when
the government does some sort of
stimulus when the government spends
money in a way to stimulate the economy
got it they give you money so that is
stimulus quantitative easing would be uh
kind of where the Federal Reserve Bank
Now is working to
stimulate by printing so they're
essentially go hand in hand because so
wait I'm not understanding the
difference between quantitative easing
and debt monetization are they both
printing money are they the same thing
they're they're both printing money uh
the government has one source of income
taxes and so when they spend more money
than what they bring in this money has
to come from somewhere so in 2022 the
government brought in about five
trillion dollars in taxes they spent
about six and a half trillion so where
does that one and a half trillion come
from
well they can borrow money from you and
I these are treasury loans treasury
bonds when you loan your money to the
government that is a treasury bond the
government has to pay back plus interest
but that's generally not enough money so
then they might go to foreign countries
China Japan and ask them for money doing
the same thing selling them bonds
essentially yeah they will loan other
countries will loan money to the United
States because they want to return and
they like to store their their wealth
and dollars because the dollar is the
world's Reserve currency
the government has to pay them back plus
interest but that has not been enough
which brings us to number three which is
the better Reserve Bank who if option
one and option two are not enough the
Federal Reserve Bank will essentially
print the money and give it to the
government when you say essentially
isn't it literally and obviously it's
not actual printing like money machine
go Burr but it's adding zeros and ones
to a database somewhere yeah and if I
remember this correctly uh what they do
is they actually go and buy things from
people to get the they'll go by
it typically they're going to buy
corporate bonds
but they will they started buying
private company Equity if I'm
understanding correctly but that's how
they get the money into the system so
sort of so the Federal Reserve Bank will
get the money to the government by
buying treasury bonds meaning by loaning
money to the government uh that they
made up just to be clear they made they
have no actual money but it in this new
amount that they're going to go and
purchase or loan this money they they
make it up comes out of thin air
and it goes into the system just make
sure that people track this because the
more I learn about this the more it's
it's dizzying that it works at all and
the more I learn about it there's that
classic saying that as the island of my
knowledge grows so grows the shore of my
ignorance and so it's like the more I
learn about this the less sort of fiery
I get about it the more humble in the
face of like whoa this is an incredibly
complicated system
um I won't even take a stance they're
being Sinister but that is what they're
doing they're they are inventing that
money because the government says it's
okay for you Federal Reserve to do that
anybody else we'd put them in jail but
when you do it it's okay and I I don't
even mean that in a cheeky way but like
just so people understand it
it is counterfeiting by another name
which is probably fine but just so
everybody understands what's happening
they're making this money out of thin
air yeah so there's there's a lot more
money out there which is then causes
inflation because now money enters the
economic system people have the ability
to spend well not much is being produced
now that's the first issue and this has
been going on for a little while it's
been going on since before the pandemic
but it really just Amplified during the
pandemic now the next issue is the
amount of debt out there so the
government national debt is
breaking records like 32 32 or so
trillion dollars uh we have the highest
amount of household debt ever and the
highest amount of corporate debt ever so
we have more debt than ever before
and now we have high inflation high
amounts of debt now what's the next
thing that's happening the Federal
Reserve Bank is working to raise
interest rates well what does Raising
interest rates do they are trying to
reduce demand this is what they're
saying they want to reduce people's
buying ability because when you have the
ability to buy whatever home you want
whatever car you want whatever vacation
you want people will spend that then
causes the price of things to rise
because there's a limited supply of
these things
so they want to reduce demand how do
they reduce demand they reduce
affordability all right really fast I
think we have to make it clear for
people why that's problematic because it
doesn't seem like it should be
so here is how the here's how economists
are looking at it the feds being a part
of that system hey everybody you're
acting like it's the 1920s rip roaring
spending money everything's great and
because of that the economy is hot as
they say people are spending a lot of
money they're going out they're buying
things companies are investing they're
hiring new employees and it's like a
growth mode yeah now the problem is it
when the economy is on fire like that
and people are buying a lot of stuff
there's a lot of demand for those
products which causes the price to go up
that is inflation as the prices rise for
the same thing right and so what they
know is that can run away with you and
if wages aren't going up so people are
making more money but the cost of things
is going up the way that people fund
that is through debt but debt has a
Breaking Point debt is fine until it's
not because you have to service the debt
and you know when most of us think of
debt we think of something like a
30-year fixed rate mortgage but most
debts are not a fixed rate debt
corporate debts is not generally fixed
rate it generally has some sort of
variable rate to it meaning either after
six months 12 months or a few years it
is going to readjust our national debt
is not a 30-year mortgage some of it is
10 years some of it is five years some
of it is one year some of it is six
months our household debt we have you
know things like credit card debt which
are variable interest rates so now
interest rates are shooting up and
they're going to continue to go higher
uh the Federal Reserve Bank is saying
the interest rates are going to have to
go higher than what they originally
expected no big surprise here we've been
talking about this because we need to
cool off the economy you guys are buying
too much companies you're hiring too
many people like I heard that they the
FED in raising rates one of the things
that they're looking at is they want to
make sure that um that there's like an
optimal jobless rate that you want is
that true so
essentially we have way everybody has a
job according to the Federal Reserve
Bank
and because there are so many people who
have a job we have a very low
unemployment rate unemployment is around
three and a half percent which is
historically extremely low and this is
where now the Federal Reserve Bank is
saying one of the consequences of
cooling the economy and bringing
inflation down is increasing
unemployment is their goal to
necessarily increase unemployment no
it's a byproduct of bringing inflation
down according to the Federal Reserve
Bank their goal is to bring unemployment
from three and a half percent is 3.6 as
of today to 4.6 percent by the end of
2023. this is what they've stated in
their annual report
that would mean that we would have about
2 million Americans lose their jobs
according to those numbers
now
this is where also understanding what is
the impact of that and is that going to
be enough
because what we've seen happen is it
going to be enough to slow inflation is
that
so the Federal Reserve Bank has to raise
interest rates to bring inflation down
and the consequence of raising interest
rates is a slowing economy AKA less
people have jobs so is
their current projection of raising
interest rates which is bringing
interest rates to about five percent is
that going to be enough with about 2
million lost jobs is that going to be
enough to fix the inflation problem no
it's not going to be
the Federal Reserve Bank has been wrong
many many many times and if we just look
at like the last few years
first they said that this stimulus
quantitative easing is not going to
cause inflation
then they said oh this inflation will be
gone by the end of the year this is like
2021 2022 this it'll be gone by the end
of 2022. then they said the inflation is
transitory then they say the inflation
is not transitory then they said the
inflation will be gone like completely
in the next couple of years now they're
saying that the inflation fight is going
to be much more painful and much more
difficult than originally expected so
okay now they're saying that if we can
bring interest rates to around five
percent
then the inflation problem will be gone
five percent is their terminal rate is
what they're calling it meaning how high
we expect interest rates to go and when
I say interest rates I don't mean your
mortgage rate I mean the interest rate
set by the Federal Reserve Bank this is
the wholesale rate that Banks get
tomorrow money at so Banks borrow money
at the wholesale rate this is the
federal funds rate and then they Jack it
up and then give you the retail price
like your mortgage rate or something
like that so the Federal Reserve Bank as
of today are saying that five percent is
the terminal rate as of today it's at
around four and a half percent
last year they said the terminal rate
was going to be around 4.6 percent uh
before that they said it would be even
lower than that so they keep raising how
high they expect interest rates to go
they're saying that a five percent
interest rate
would result in an unemployment rate of
an extra 2 million people losing their
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description alright my friend back to
today's episode
is there going to be enough well based
off of the past Trends and based off of
where inflation has gone
it doesn't look like it's enough because
what
the Federal Reserve Bank is realizing
that bringing inflation down to their
two percent goal is going to be more
difficult than they thought and if it's
more difficult than they thought that
means it's going to cause more pain to
the economy than they thought
so now what does that mean we're living
in this world thinking everything is
just fine
everyone keeps saying that there's going
to be a soft Landing everyone keeps
saying that we might not even see a
recession everyone keeps saying that
there's nothing to worry about yet if
you look at the numbers we have
still extremely high inflation the
highest debt levels ever we have
interest rates that are rising which
means your corporate debt costs are
rising even if we don't increase your
debt levels the cost payment is rising
because interest rates are rising we
have our national debt cost which is
rising even if the government didn't
spend more money their payments would
still be rising household debt costs are
rising why because our credit card debt
is at the highest level ever
now it looks like interest rates are
going to have to go up even higher than
four
then if you dig a little bit deeper you
start to see where the real issues start
to arise because now if you look at for
example if we just look at the
government
in 2022
are interest payments on the debt
outpaced our total veterans spending
Veterans Affairs spending and
transportation spending combined that's
2022.
in 2021 we spent more than 100 billion
dollars Less in interest payments than
in 2022 and the prediction is that by
around 2025 our interest payment
spending just on the interest on the
debt is going to exceed our entire
military budget here in the United
States
and now you have to ask okay is that a
problem
well if the government can continue
generating enough tax dollars then maybe
it's not a problem how does the
government generate tax dollars you have
to go to work to get paid your company
has to make a profit people have to make
money in their Investments
let's start tying this together now if
the economy is slowing people are losing
their jobs corporations are making
smaller profits
less income less income means less
taxable income less taxable income means
less tax dollars
so if the government is generating less
tax dollars because the economy is
slowing people are losing their jobs
how are they going to afford a
ballooning interest payment like it's
our interest payments are growing so
quickly not because now the government
is spending like they were in 2020 and
2021 but because the cost of servicing
the debt is growing really faster than
ever and on top of that the Federal
Reserve Bankers say that they're going
to have to increase interest rates
more aggressively and potentially even
longer than what they originally
expected
so now you look at that from the
government side it's like oh there's
some issues on the government side but
they should be able to figure it out
where the world's observe currency okay
let's go to the corporate side
corporations are going to face one of
their biggest tests
because of this ballooning debt bubble
and the reason why it's is because
in 2020 2021 and even in 2022
corporations were making their biggest
profits ever the economy was booming
partially because of all the money that
was now just entered our economy there's
a lot of fresh money in the economy
corporations are making money hand over
fist meaning they're making big profits
meaning they would have big piles of
cash
yet you're seeing layoffs accelerate why
are corporations having to do layoffs
when they're making the biggest profits
ever just you know a year or two ago
well it's what does a corporation do
with their cash there's three things
that a company can do with their cash
they can save it for an emergency they
can reinvest it back into the company
hire more employees open more plans open
more stores or they can give this money
away to their owners
and what's interesting is our economic
system makes it so that saving money as
a corporation is the least attractive
thing to do
now you might say what do you mean
if you made let's just say a hundred
million dollars of profit and you kept
it because you said I want to keep this
100 million dollars for a rainy day as a
corporation
but the first thing you have to do is
pay taxes on that money
and that means that you're going to have
to send a check of maybe 20 million
dollars a little more than 20 million
dollars to the government just in taxes
now you if you're running a company
that's a lot of money I mean 20 million
dollars they can hire more employees
they can open your plant you can invest
in more whatever like there's a lot of
things you can do with 20 million
dollars so you're gonna say do I really
want to do that with my money because as
a CEO of a company you want to use your
money in the most productive way
possible and to you giving the money to
the IRS is not very productive for the
company
so you might say well you know what
we're not going to give this money to
taxes we're going to invest it back into
the company so now if you take all 100
million dollars and you hire more
employees you invested in advertising
you open a new store and all that money
is gone
you have zero dollars of taxable income
three dollars a profit but you're making
the company more valuable
the third not presumably creating
something that the world wants exactly
that would have to be a product for the
business to continue uh but then the
third option is
you can give the money away to
shareholders and what what has been
happening is shareholders when you say
give it away are you talking dividends
or stock BuyBacks or both yes both of
them and so this you know I think this
is where it's important to understand
corporate governance because most people
assume that if you're the CEO of a
company you're the head you're the head
Hot Shot like you run the company we
used to have a boss your boss is now the
owners of the company the shareholders
and so if you're a publicly traded
company your shareholders are anybody
who owns the stock if you own one share
of Amazon you're one of the owners of
Amazon
and what happened was in between 2020
and 2022 the end of 2022 the shareholder
said
wow I made a big profit we've been
invested in this company for a long time
it's time for us to see our returns give
us some of that money you can give us
that money in the form of a stock
buyback which means the corporation is
literally buying back their own stock to
make the stock price rise or give us
that money in the form of a dividend
which is literally a cash payment a
distribution
and so for the shareholders they put a
lot of pressure on the CEOs saying we
want some of this uh we want this money
given to us
and so what did we see happen well we
saw dividends grow very quickly and we
also saw a record amount of stock
BuyBacks stock BuyBacks broke a new
record in 2021 they broke a new record
again in 2022 and currently they're on
Pace to break in new record in 2023. so
now let's go back to the same example
because I really want to highlight this
one point because if you made a hundred
million dollars in profit and then you
announced a 100 million dollar stock
buyback now you're using all their money
to buy back stock you have to pay taxes
on this money first but then you can use
all whatever is left to buy back the
stock which enriches the shareholders
and there's a time and place for this
but if you think that if a corporation
is just going to spend a hundred million
dollars in stock BuyBacks you're
thinking very small because what can a
corporation do then go to the bank and
say hey Bank look at our balance sheet
look at how many assets we own look at
how much our stock is worth and look at
how much money we made
we deserve a loan give us a half a
billion dollar loan so now this
Corporation has 100 million dollars of
cash of profit they got 500 million
dollars from the bank at some of the
lowest interest rates we've ever seen in
history in 2021 and even in the early
part of 2022 the lowest interest rates
ever
and now you have a 600 million dollar
cash pile that you can now use for
something like a stock buyback what does
it do stock price is soar investors see
their portfolios grow the corporation
sees their debt balance balloon
now if a corporation has an increase in
debt because they're investing their
money into more research into more
employees into something else it's a
income producing asset right because
they're investing their money into
something that will hopefully produce a
much higher return than whatever the
debt cost is if a debt is costing you
four percent a year but you can invest
it in your company get 20 it's
profitable
but if a corporation is going into debt
to fund a stock buyback that means
they're not borrowing money to
essentially fund a liability because
they're not getting a return on their
stock buyback right if I go out and I
borrow money to buy something for myself
I make myself richer
that stock buyback doesn't produce a
return for the company it'd be like you
going to Gucci and financing a new Gucci
belt you don't get a return on it as
opposed to you going out and buying
maybe a rental property which is
something that produces a return so what
we've been seeing happen is Corporate
debt balances have have been ballooning
to the highest levels ever like
corporate debt today is at the highest
level really ever
partially due to levered corporate
BuyBacks meaning corporations doing
stock BuyBacks with the help of debt why
were they doing that because debt levels
were at the lowest rates we have ever
seen interest rates interest rates now
today it's changing interest rates are
growing at some of the fastest rates
we've ever seen and this corporate debt
that they have is not a 30-year fixed
rate mortgage it's a variable meaning
six months 12 months five years it is
going to readjust
and now when it starts to readjust
they're going to have higher costs where
they have higher costs they're gonna
have to pay this money back again no big
deal assuming you're making enough money
how do corporations make enough money
you need a growing economy you need
people to have the ability to spend
but people's ability to spend has been
going down why because of inflation
people can't spend as much because I got
to spend more money on my gas and my
eggs than I so I don't have money to go
out and buy as much other stuff so
people spending ability goes down and in
addition to that what we've been seeing
happen well okay I'm actually let me
clarify this for a second because
one thing that I I really really really
really want people to understand is that
there's a difference between data and
Analysis and today most people's
analysis is everything is fine
why because of the way they interpret
the data so let me explain what that
means because the data today says that
the economy is growing and it's and
people are spending
our economy runs on spending the more
you spend at Chipotle the more money
Chipotle makes if you go to Chipotle and
you buy the extra guac they make more
money right
and so what we're seeing right now is
that consumers are spending
they think things are still good
all's well
so I get 21 and I get 22 in terms of the
consumer thinking things are well in
terms of the corporations thinking
BuyBacks are the right play but I'm
super confused why in 23 we're on Pace
to set another record for BuyBacks do
you think that's just going to
absolutely die in the second half of the
year or it's hard to time it I mean
BuyBacks are still happening but what do
they what do they understand that either
I'm missing you're missing we're both
missing like it seems self-evident that
right now is the time to save and be
cautious and you've got Warren Buffett
and Charlie Munger saying I see red
flags in the economy bro and so they're
sitting on 90 billion dollars in cash so
how on Earth are we on Pace why are
consumers still spending like crazy and
why are we on Pace to
um
again set another record for BuyBacks so
on the consumer side
consumers are spending and this is what
the data shows which is why everybody's
saying everything is it's great why are
they spending what's the psychology the
first issue is it's you have no choice
inflation has made everything so much
more expensive so people are spending
more interesting so they're looking at
spending and it's not that they're
buying more cars and Gucci belts is that
they're paying more for eggs so that's
the first part and there's there's a
holistic view the first part is they're
spending more money for their eggs and
that is made
like if you look at the the recent
spending reports it shows the consumers
are spending but they're spending
partially because of inflation which
means people aren't just getting more
things they're just spending more time
out there spending like drunken Sailors
they to some extent so okay this is very
interesting so as you tease out
the data raw numbers and the analysis
the story you tell about the data that
you see yeah
people are confusing oh everybody's
spending more money Good Times yay with
no no just to get my Basics and and
that's your analysis are there who else
is saying that so let me explain me just
hone in on that for one point because
now if you look at the spending people
are spending right but how are they
affording it which is the interesting
part because so I ran these numbers
um on a YouTube video that I did
recently and what it's the data shows us
that inflation between the pandemic 2020
to now
there's reported inflation number over
those last number of years is about 15
whoa God I've known that but that just I
don't like hearing that well now let's
compare that to wages because according
to the Bureau of Labor Statistics and I
calculated this out in 2020 inflation
was around two and a half percent I
think it was 2.6 percent 2021 it was
about 5.1 2022 was about five percent
which means if you made a hundred
dollars in 2020 you made about
13.20 today
inflation is 15
wage growth is about 13 on average
according to the numbers now most of us
know that the reported inflation isn't
the real inflation wait but sorry what
time frame do we go from making 100 to
making 13 100 to 113. there we go
between 20. if I said 13 I apologize I
heard 13 so I was like wait what no no
100 to 113. so wages have gone up by
around 13.2 percent got it inflation
about 15 and some change which means
inflation has been growing faster than
wages and so now people are spending how
are they spending well what we've been
seeing is credit card debt is not only
at its record levels but growing at
record speeds so people are going to
credit card debt uh bank rate did a
study that they put out earlier in 2023
which said that about 4 out of 10
Americans have been digging into their
emergency funds uh to cover lifestyle
expenses and in addition to that savings
rates in America this according to the
federal reserve banks are near record
lows right now all time all time we're
very close to the all-time the all-time
was like somewhere in the last six
months so our savings rates right now is
very low and so people are spending way
more so what we're seeing is yes people
are spending how are they spending
they're going into debt and they're
digging into their savings at a time
where variable interest is about to slap
them about the head neck and chest
and servicing the debt is going to get
far more brutal but they have to do it
because it isn't lifestyle at the club
it's lifestyle eggs it's and it's a mix
of both but the thing is there's a
breaking point so do you think there's
still Euphoria like are people I get the
eggs problem I know you're just gonna
ballpark this or maybe you have the data
but I'm guessing you're just going to
take a stab but how much of the increase
in spending is eggs and how much is I
don't want the party to stop well
okay
there are over 50 I think it's about 6
out of 10 Millennials who are making
over six figures a year are living
paycheck to paycheck yep and it's like a
tail is all this time but if we assume
that if you're making six figures that
you should be able to invest some money
and save some money
and 6 out of 10 Millennials who are
making over a hundred thousand dollars a
year are living paycheck to paycheck
well that gives us an idea that well you
should be able to at least save some and
invest some money and live so some of
this is still I don't want the party to
stop which is at least as long as I've
been alive that's been the case
everybody lives paycheck to paycheck
almost no matter how much money you make
which is very terrifying
just like one thing to do this is not
the year to finance a brand new truck
let's just make that clear because now
we're seeing all these red flags we have
people spending and then you also have
people
if you're not aware of what's happening
if you're let's just say a regular
person I go to work I get paid and I
like to spend money which is you know a
lot of people because we don't have a
lot of financial education and you keep
hearing everybody saying there's nothing
to worry about everything is fine you're
still getting your paycheck
what's the concern for you well we're
talking about are things that I mean how
many people understand what our national
debt is how many people understand what
debt monetization is how many people
really understand what inflation really
is I didn't I did a video a number of
years ago this is before the pandemic
I walked the streets of different cities
around the country I went to San
Francisco I went to Chicago I went to
Washington DC I went to Manhattan New
York and I walked I went to LA also and
I walked around and I asked people the
question this is like 2018 I think what
is inflation
and I can't give an exact number but
let's say eight out of 10 people if not
nine out of ten people had no idea what
inflation was and the like the number
one comment that I would get on these
videos is how long did it take you to
find these people
like you don't get it this is like half
a day I went there shot the videos and I
left like I didn't go out and try to
find people it was like this is regular
people that I was asking these questions
to now obviously inflation is becoming a
little bit more of like front of mind
because we see it everywhere but most
people still don't understand the
consequences when was the last time we
saw inflation this high
the late 1970s what had to happen in
order to bring inflation down interest
rates had to get jacked up mortgage
rates in the early 1980s were over 18
percent it took a lot of work to bring
inflation down
are we gonna have to see that same thing
happen now
well we've taken our mortgage rates from
three or under three percent to now over
seven percent and inflation is still
closer to its peak than it is to our
goal
so what does that mean I mean how much
more are we going to have to do and how
much more are we willing to endure we
we're seeing the issues with
corporations they have the debt problems
our national debt is having some issues
households are starting to have issues
and yet we're sitting here like nothing
is wrong and this is where like Michael
was to say look
let's run two scenarios
nothing bad happens
and something bad happens what's the
best thing for you to do if you start
preparing right now we start building a
little bit of a savings cushion you put
some money aside to invest you make some
Investments and you start preparing and
you start getting educated
versus you don't well if you prepare
and nothing bad happens
you do nothing wrong like like
everything is fine you have a big bank
account now you can go to Disney World
if you want
if you prepare it and something bad
happens you have a once in a lifetime
opportunity to build a immense amount of
wealth just because you're prepared
because when
bad things happen
good assets go on sale and that creates
opportunity because now you can come in
and buy some of these distressed assets
which are like when I say asset I mean
an investment it could be a stock it
could be real estate it could be a
business
when when people are are running out of
money people become desperate and then
they will need to sell or they'll be
forced to sell because the bank is
forcing you to sell and this can create
an opportunity now for somebody who's
prepared to go out and buy some of these
Investments at a discounted price when
the 2020 pandemic hit
people were able to buy stocks for 50
off for a small period of time now most
people running away getting a scared
getting scared they had no idea what was
going on but some people were buying
and it created an opportunity I don't
think like even myself I didn't expect
the stock market to turn around that
quickly I talked about on my channel how
I was buying in phases on the way down
because I didn't know what was going to
happen but I knew that this was creating
great opportunities
I never expected the market to turn
around as quickly as it did I never
expected the Federal Reserve Bank to do
the amount of quantitative easing that
they did I never expected the amount of
stimulus that we saw happen that was a
surprise to me but that completely
turned around the market and that made
you know the people who invested they
saw huge returns very quickly which I
did that's what everybody thinks is
going to happen again
so in preparing for this episode I
started looking what are most people
saying and most people are like oh has
the crash finally been canceled I think
you actually even have a video along
that vein there's a lot of people
talking about oh the crash that we
thought was coming it's not going to
come we are going to get our soft
Landing uh we have the increasing rates
which has already started to really
bring down inflation the government will
do more quantitative easing AKA printing
money we're going to be fine
so here's the thing like yeah that has
happened in 2020 it happened in 2008 it
happened in 2001. the difference between
now and then
is we have an inflation problem now
which we didn't have before which means
let's just let's go with that right
where let's say unemployment shoots up
we start to see a recession and now the
Federalists start to see a recession so
you don't think we're in a recession now
well I think the average person is in a
recession I'm saying what the world is
saying right we haven't been declared in
a recession so let's just go with that
because they changed the definition
though they changed the definition of a
recession and you know that's a whole
different topic which we won't derail
because you know at the end of the day
if they're declaring a recession or they
don't declare your recession if you're
struggling financially it doesn't matter
right the average American is feeling
the effects of a recession right now
plain and simple now whether they're
declared or not it's a matter of
semantics and you got to take care of
yourself financially so if our economy
gets worse and now the Federal Reserve
Bank pivots
well then what that means they're going
to cut interest rates if interest if
more if your mortgage rate
dropped to two and a half percent
tomorrow what's going to happen
people are going to start buying homes
again
and people start buying homes again
who've been waiting for the mortgage
rate drop what's going to happen home
prices will shoot back up
and spending will shoot back up car
sales will shoot back up people would
spend more money or is that going to
result in higher prices for things and
so this is the problem where
we don't have that same ability to cut
interest rates without consequence like
we did before and you talk about this
idea of a soft Landing which you know
I want to highlight that this isn't the
first time we've ever heard of
this concept of a soft Landing
it's been talked about many times and
the whole idea of a soft Landing like
technically is you raise interest rates
without inducing a bad recession without
it seeing a huge increase in
unemployment rates in 2000 before the
2008 crash let's start with 2005. the
den chairman who was Ben Bernanke said
not only is there no housing market
bubble that's going to burst there is no
housing market bubble so that there's
like his famous three years from
catastrophe three years of catastrophe
2007 now we start to see a little bit
more issues we start to see the housing
market go down a little bit and that's
where Ben Bernanke brought up the idea
of a soft Landing he says we're going to
raise interest rates to ease the issues
in the housing market but we believe
that we can do a soft Landing
without causing pain to the broader
economy one year later
the entire meltdown happened
and so now what is a soft Landing you
raise interest rates without inducing a
major pain to the economy have we ever
seen a soft Landing before yes we have
if we go back to 1994 this is what all
the economists are like
talking about they're saying oh we can
just do a repeat of 1994 because in 1994
the Federal Reserve Bank raised interest
rates
and we didn't see a major increase in
unemployment
and that was the only real time between
19 like the 1940s and now so like modern
economy where we were able to increase
interest rates without causing a big
increase in unemployment
are we the same economy that we had in
the early 1900s no we have so much more
national debt we have so much more
corporate debt we have so much more
household debt we're raising interest
rates very aggressively and on top of
all of that we have extremely high
inflation and now on top of that we're
also jacking up interest rates very
aggressively and they keep saying that
they're going to have to raise it like
every time we hear oh I think we're
getting close to the interest rate and
we're gonna have to raise interest rates
even more aggressively and so now it's
look
understand that
just because somebody says something
doesn't mean it's necessarily true right
it's the data versus analysis the data
shows if you take a snapshot of today's
economy if you take a still picture it
shows you consumers are spending
and companies are making money now if we
turn this into like a live photo where
you can kind of see moving image
now you see yeah consumers are spending
how are they spending well they're going
into credit card debt they're going into
their savings they're spending more of
their income
so now you start to see oh there's some
red flags there and oh debt levels are
rising and corporate debt levels are
rising and national debt levels are
rising and household debt levels are
rising
there's got to be a cost for this and
bringing inflation down like okay
inflation by itself is slowing down the
economy
fight on inflation is bringing down the
economy
but inflation hasn't gone away and the
fight on inflation has a lot to go so
it's like a double whammy which are both
hurting the economy and now everyone's
saying don't worry we're gonna have a
so