In this Weekly Market Recap, Andrew Brill reflects on the interviews that took place on Wealthion over the past week in another Wealthion Weekly Market Recap!
Andrew Brill 0:00 Hello and welcome to wealthions weekly market recap. I'm your host, Andrew Brill. Is the market headed for a massive crash? Henrik Zeberg joined wealthy on this week and thinks it could be a question why the Fed has not yet cut rates and hinted that we could be facing a banking and pension crisis. James Connor 0:26 And why do you think the Fed is taking so long to cut, especially with weakening the economy. And we when we look at the q1 GDP numbers, I believe the first number came in at 1.6%. And this is down from last year when it was grown at 3%. But it was revised down to 1.3%. And it does look like the economy is slowing. But why do you think the Fed is taking so long to make a decision here? Henrik Zeberg 0:50 Honestly, I think they're looking at the wrong numbers. And they are we know that they have an inflation. So as part of their mandate that they need to keep inflation low. But inflation is a lagging indicator on the lagging power meter on the economy. So it looks it's like, you know, looking out the rear window when you're driving forward in your car. So you're looking out the window, and then you will discover later, what actually it is that you go by when you drive forward. So that is what the what is happening to the to the Fed here. That's why they will be hopelessly late again, this time around, like I've been so many times before, both in terms of when they need to cut and when they need to hike. And so they are way past the time, where we they should have started cutting, cutting rates. So we have unemployment moving up. Now, we have a most recent recent retail sales also seeming to be you know, showing a slowdown in the economy and so on. There are many, many signals now. And in my mom's they, they're way too late. So I think they have been afraid of what they unleashed or what they think they unleashed in terms of the inflation the last time around. But that's why they're kind of sitting on their hands now saying, Oh, we definitely do not want to trigger inflation, because that's going to hurt to consumers. But But the other thing is also a bad thing. And that's that's what they that's what they are, you know, up to doing right now honestly, and, and again, it will come no matter what and the last face just getting back to your previous question, also the last face of when the Fed, not when they cut, but actually the moment up to that first cop is where we normally see that the markets really take off. And that's why we've seen that take off now. My timeline has been shifted smaller than fit. And that is that I had to say, well, of course, when we got to was in March or April and say, Well, you're not gonna get you cannot get reach these numbers by June. But it seems like now the September timeline is more realistic in terms of terms of when you'll see the top in the stock market and in the crypto market and also, and then recession potentially setting in like in q4 of this year. James Connor 2:37 Henrik, you made an interesting comment about the ECB and that they recently cut rates. And they did so with with the inflation still relatively high. And they may mention that fact too. But I guess the threat they see is a weakening weakening economy. And this is also hurting the the consumer, do you see do you think the same thing is going to happen in the US, the Fed is going to wake up and say, Okay, we still have high inflation, it's not near our 2% target rate. But we still see pain happening to the consumer. And therefore we got to start cutting rates. Henrik Zeberg 3:10 Absolutely, they have to, and I think the market yields were stopped, you know, to to pull them down what's also so we have to understand also that the Fed often will follow the market yields so. So we will see that two year yields will start to decline very faster as we start to get going as we get closer to the to the point where it's becoming very obvious to everybody that the economy is slowing, and the recession is ahead. So yes, I think that is happening. And if we look at it in the interest payments of for the consumers are just skyrocketing, and they have skyrocketed, they have been moving up faster than anything we've seen over the last 70 years, at least for as long as I have data, which means that we are seeing the consumer first as it's simply I mean, it's very simple, you have to pay your interest rates is that because the interest rates are so high, so you pay interest payments, then, and then you will you know, you'll cut on your consumption. And when you put on your consumption, then the businesses will have to, you know, employ as many people and then they'll start cutting first they'll probably say you know some of the open positions off and then they'll try to see if they can, you know, make people work and in less than later the the the initial claims will start to come up and then you'll see it also in the non farm payrolls. So it's a there's a sequence to it, but that sequence is working perfectly that we see it now with the demand the as I said, the most retail, recent retail numbers doesn't look very good. And we see also that the unemployment is moving up because the the compensators look slowly starting to take you know, action on this and it's not like you are just seeing that, you know, immediately. This is a slow moving, or supertank attorney and and it's like again, you know, how do you how do you go bankrupt? And how did you see the recession coming? It's like it'll first you know, first it was gradually and then it was all of a sudden and that's the same thing we're going to see with the recession. I mean, it's going to be a slow moving turn and then we're going to see all of a sudden and then it's there. So the Fed will follow they will start to see and I hope that they see unless as I said before, I think they are already very late and I do not understand how they can even talk about a I mean, the soft landing narrative is so naive that it's unbelievable. James Connor 5:06 Okay, so let's talk about this banking crisis. And you also made mention of the fact that you think we're going to have some sort of pension fund crisis. But why don't you provide some more detail on that? What exactly do you see unfolding? Henrik Zeberg 5:19 There are different kinds of crisis, there's not just one type of crisis, people have to understand that you can have a, you can have deflationary crisis. And you can also have a flight prices where inflation can become a problem. And what we actually had when when inflation went up, was not really a crisis, because the economy was still expanding, but you have inflation coming up into from 21 into 22. And the reason I was not paying, you know, even though it went down a lot the market I have to give it that, obviously, but it was because the the business cycle was still strong at that time. But what we see now, and what I'm expecting ahead is that the business cycle has rolled over in my, in my metrics, or in my, in my model, and we're just starting to see that into the labor market. And the first part of that crisis will be a deflationary bust, which will be like what we saw during the 2008. So, what we saw there will be, again, what we see here, and the Fed and every central banker of the world will, you know, of course, jump on this, they will not do it immediately, we also have to think that they are still scared of what the least the last time. So if the market comes down a little, and they will probably just cut rates and the rates are rather high now. So they will cut rates, but they will not come flooding the market with what is needed. And again, they are late, they are looking at the rearview mirror in terms of you know where we're going so, so there needs to be something deflation needs to stare them in the in the eyes before they actually start to move. But the moment they do that, I think the difference this time around from what we saw in 2008 is that you will not see people will not jump on the new money that they will get on get or get there that they will you know, if you start to see that your mortgage loans are not you know, as expensive any longer because the rates are coming down or the you know, your credit card debt is not so expensive to hope. You're not going to say well, let's spend another $1,000 here, or let's buy a new house or Let's buy a new car or something, which is what you need. Or in order for QE or monetary stimulus to actually work if you don't do that if the people or the consumers just say, well, let's stick to this money. Let's see, because actually, we had inflation just a little while ago. And also the interest rates were high. And we were struggling a bit there, which they are right now. Well, if you have that kind of behavior, then you will not see that QE is going to create the the bounce, or QE or whatever they want to introduce in terms of monetary stimulus that they would be expecting. And that would end that happened in 2008. I think this time around, that's a different scenario, we have we oh, the different, you know, setup we have, because people are simply a little scared there. So what will happen in my, what I see ahead of us is that, yes, the Fed will react, but it's not. And also we will see the market reacting on the Fed coming in. So we will have a bounce in the market at that point. So remember, that's often the first serious decline that I see. And then after the the top in this year, well, then I think you're they're going to unleash a sort of stagflation, and we were not far away from that in 21 to 22, if you saw that we were actually seeing, you know, inflation was high. And if If unemployment had been starting to come up at that point, and we have been at a different point in the business cycle, which we are now well, then I don't think you will, then we will have had another outcome. So, the thing is that this time around when they do this about jumping in and P will be waiting a bit, then the unemployment rates will not decline again. And you will see actually that this money will become will be on in the banks. And they will start to you know, circulate the financial industry, which means that you could see a another speculative bubble arise. So this is a little further out. But what I'm seeing in short, is a deflationary bust fit comes in and then we unleash this deflationary period. And that's deflationary period is going to be the worst part because this is where the Fed has very lame as a tool or any other, you know, central banks or anything, any administration. Because if you pour more money on it or more stimulus on it, you'll just get worse. And if you if you don't, you know, then you have the negative spiral. So it needs to work itself out. But there needs to be some structural changes to it is deflationary situation, if I'm right on that. Well, and you actually saw it in doing as I am 21 to 22, you saw pension funds actually having large, large losses, because inflation was was moving up, ie bonds did not do well. And you also the equity markets not doing well. So it was it was it was in the bear market below 20% down. That is not a good situation for support for a lot of pension funds, because they will have to be either in bonds or in stocks. And this time is going to be bigger. So I think there's going to be I think they're going to be a lot of losses there. And actually, it's also part of the contractive way thinking so that into the final phase of the interactive winter, that you also have pension fund crisis, and that is what I see. I can see the drawings of that already. So I feel that part of the of the crisis, I have to say I don't think I'd be ready for it. But it's, I think from a societal standpoint, it's it's not going to be a pleasant time. James Connor 9:47 So you have said that this pullback that we're going to see in the financial markets will be the worst that we've seen since 1929. And I believe back in 1929 the Dow pulled back somewhere around 80% Do you see that same sort of pullback this time in the financial markets? Henrik Zeberg 10:07 Yes, I do. I mean, I do. I mean, and that's well, that's why I'm saying this also, it's not just an old pick out of nowhere. I mean, I've worked with structures I work with, with, with bottles, that shows me that the kind of structure that we see in terms of how the market has been rallying is indicating that if we drop, we could actually drop two levels. Since we haven't seen since we haven't seen since it doesn't, it's not that long ago. But the 2020, bottom of the of Corona, could be one place that we could pull them out, I think it actually goes lower, I think it could be all the way back to 2016. With those levels, and if you take a look at some of the markets, how fast they've been going up, compared to where we are, and how much that would be in terms of the decline, we are close to that number. So when I say that it may sound like wow, but that's, you know, ridiculous, but actually what is ridiculous is the the pace of which markets have been going up over the last few years. It's not the the decline here, it's more that the the very, you know, people have had the feeling that they've had wells, but actually it's been moved by due to money printing, and if that's now coming home to roost, and I think it's a, it's going to be a problem for a lot of people and, you know, we'll simply see that our, the value of our portfolios will be coming down strongly. So the models that I work with, tell us 2016 could be a bottom, and that will be in some markets, it will be more than that in I think there are some small caps, it could be way more than that there will be in the banking index, there'll be also as an 80% decline in some of the in the banking index, which will indicate a big banking crisis as well, many indications of that. And that's why I've said it also all along, it's not just a guess it's like, well, actually, the charts are showing me that these would structurally be the levels that we could fold. And we could drop to, if we get that recession, and which seems to be in the making. James Connor 11:46 And I want to get your views on gold now. Because the last time we spoke, I believe gold was around 2000 bucks an ounce now it's somewhere between 2300 to 2400 an ounce in this environment that you see the do you think gold will perform? Well, especially when you talk about a stagflation? Would gold not do well in that sort of environment? Henrik Zeberg 12:07 Do fantastic. Yes, but not in deflation. And I think gold is the outlier. If you compare gold to palladium, palladium polar, to platinum to silver, to gold miners, I mean, Gold is the only one that has been making a new all time high in the cycle here. The rest of them have not. And I think what we're seeing is the speculation on gold is actually what has been driving it higher. So and now everybody's speculating that okay, then the rest of the pack will follow. I think it's, it's the other way around, I still say, in a sec in a deflation, I will not be holding gold. And that's what I've said all along, has moved higher. Yes, it has. And I give it a give it that. But it's not the same as saying it's a fantastic asset to haul into deflation, because people just need to think that Well, if the dollar starts to rise very strongly into deflation, because of and you have debt that needs to be paid off. And this is what you see when you have credit crunches, which I think we'll have this time around again, why would you want to hold gold, and they will be sold off to provide liquidity. But again, when the Fed moves in, and you as you also rightly said, in circulation or environment, yes, then you will be holding gold, but but then you will have you know, gold could drop to again, I could still see 1250 on gold. So I am just saying, Why hold it from 2300 or whatever it is now to to 1200, 1400, whatever it's going to drop to. And in order to well, then you can get in, but that will be a big drop, and there'll be so many other things that you should be holding in that period in a deflationary period. So people had the notion that or that the idea that you need to hold gold into a crisis? Well, actually, the reason you hold gold is because if you want liquidity, you can get liquidity from gold. And that is my goal. They say it's a safe haven so to speak. But it's it's just a different crisis in inflation, stagflation 100%, I expect gold to go up much, much faster. I mean, even the rally in gold over the last couple of years has been you know, muted. I mean, nothing compared to what we're gonna see. I mean, when we start to see that real face that real bull market unfold, well, then it's going to be much faster, but that requires a rather big pullback first as I see it. James Connor 14:08 And so I just want to clarify something you so have gold's trading around 2300 to 2400. Where do you see going on the upside before it collapses? Henrik Zeberg 14:18 So I've said all along, I could see it. I mean, potentially it could have topped already, and I think there's some some weakness in it. Right now, I've said that I could also see it the best I still expect the dollar to come down. And even though there's not 100% correlation, though invert inverse correlation between gold and M dollar, I could still see of course at a weakening dollar, which support gold said I could see to 2700 and still coming down quite significantly. But I would not bet it because again, also gold usually sniffs up the environment off what is coming a little before. So I think you could see that gold could could also drop from here. So I would not you can I think it's the most speculative play happening to hold gold at this point. And then then holding risk assets because risk as is right now. With liquidity coming in will be fantastic. But gold, we'll start to see that the deflation environment may be just around the corner and then you can see something quite different develop. And I think also if you look at the, at the if you look at the Bitcoin gold ratio, I think Bitcoin will outperform gold, you know, I can remember what the ratio I'm expecting but it's, it's a lot that we can see Bitcoin so power outperforming gold over the next, let's say three months. Andrew Brill 15:23 A friend of wealthy and Steve Hankey joined us this week and explain what is going on with the economy and inflation. He questioned whether or not anyone in government is concerned with the deficit and offered advice on what they can do to avoid $1 crisis. Anthony Scaramucci 15:40 What's happening in the economy? Sir? Where is inflation? We at skybridge think the inflation numbers are lower than the Fed is suggesting? Do we have that wrong? Are we in a period of long term inflation? Steve Hanke 15:54 No, I think generally, broadly speaking, Anthony, you're correct. And the reason for that is that the the money supply, broadly measured by him to the broadest measure that the Fed has, has been falling, and contracting since July of 2022. And it's actually contracted by almost 4%. Since July of 2022. That's, that's only occurred four times in US history. You gotta have to go way, way back to 1948 49, the find the, the, the last contraction, and then you go, you go back, you got another one and 3738. And then of course, the big kahuna 2933, that was a great depression. And then 1920 1922, yet another contraction. So they're, they're very, very unusual. We haven't had any in modern times. And they're always followed by economic slowdown and recession, of course, the Great Depression was 2933 contraction. So so the economy is going to slow down, because money is the fuel that drives the economy. And and with long leads, and variable leads, after you get these changes in the money supply, then you get changes in asset prices, changes in economic activity and changes in inflation. So what did we have on the upside? We had the money supply, skyrocketing, and in February of 2021, it was growing at 21%, 27% Sorry, 27% per annum. That's a record, it's never grown that fast. And we got inflation looks exactly what we thought, now it's contracting. And what back to your point, that inflation has been kind of plateaued a little bit in here for the four months, but it's, it's coming down, it's baked in the cake, John Greenwood. And I think by the end of this year, it'll be down to two and a half to 3%. So that's a kind of a long answer, but you gotta get the money supply. It's all about the money supply. Anthony Scaramucci 18:18 Do we have anybody that is willing to do that though? Steve Hanke 18:23 I don't see anyone on the political scene that's willing to do that. And if you look at the history of fiscal control, if you have statutory changes, that that are put in place new fiscal rules that try to slow things down, those tend to work for a little little while, and then they break them. So the only way you really can do it, I think, is to have a constitutional convention under Article Five of the Constitution, and look specifically at how to change the constitution that would require something like a Swiss debt break, like like the Swiss do, they change their constitution, and now they must balance their budget. And the government expenditures can't grow any more any more rapidly than the rate of growth in the economy. So that's that. I think that's the only long term solution, really. Anthony Scaramucci 19:24 If I talked to business leaders, no one cares. If I talk to the campaign's I have friends on both campaigns, the Biden campaign and the Trump campaign. Don't care, not going to stop it not going to do anything about it. Don't care. So why such apathy, you're concerned about and I'm concerned about it. If I was in the government, I'd be pulling a five alarm fire, I'd be working on a 15 year deficit reduction plan. I'd be telling the American citizens how dangerous this is and how we're going to lose our dollar supremacy. See, we could I mean, you're now spending more on interest rate payments, and we are in national defense. And that's only going to accelerate, sir. So. So what am I missing? Or? Or is that because there is also wisdom in crowds? Maybe I'm completely wrong. Listen, I've been humbled by life and markets. Professor, so I'm not here even pretending for a moment that I'm right. I'm just Am I missing something? Is the marketplace, right that the indifference is the right approach? or should there be some, some less indifference Steve Hanke 20:31 Than you and I are in the same camp, obviously, on this, on this score? These kinds of things aren't a problem until they sneak up and bite you in the rear end. It's that it's that kind of problem, and is Herb Stein, who was the chairman of the President's Council of Economic Advisers under Nixon once said, If If something can't go on, it will stop. And this can't go on. And it will stop. And what people have to think about are those three options that I just mentioned to you. Are we going to, are we going to squeeze government spending? Are we going to increase taxes? or direct taxes? Are we going to have more inflation tax? That's the that's the only thing that can happen. And it will happen, by the way, because it Stein says, if something can't go on, it will stop. Anthony Scaramucci 21:31 Okay, so let me set the stage for you. It's 2030. We're spending $2 trillion in interest rate payments, one and a quarter trillion dollars in national defense. And we're upside down on our budget deficit by two and a half trillion dollars, and we're having $1 crisis. People are shedding dollars internationally, because they're worried about this upside down applecart. What would the United States do in the event of a crisis like that, sir? Steve Hanke 22:01 With those who occupy Washington, DC, and got us into the crisis, into the end of the hypothetical crisis that you just put forward, it's very hard to predict what they would do. My guess is, they would probably panic. And, and, and make a move that maybe would make the crisis even worse. So it's, this is one thing in the in the markets, I mean, you're in the market every day. And the thing that amazes me is that the markets aren't aren't pricing any of these kinds of things in at all, you and I are talking about the debt and the deficit. And in the CBO says, This isn't sustainable, we, we know the arithmetic just can't keep going like this, the markets just don't have anything priced in for that the markets are not pricing in any of these broad things in, for example, the the proxy war, the US is engaged in with Russia right now in Ukraine, that none of none of that's priced in what's going on in the Middle East. None of that's priced in there, just all these larger things that are kind of off being on the horizon, that, that bite you when they buy, before biting, nothing is happening that none of that is priced in. No one's pricing in a bite. Anthony Scaramucci 23:27 Okay, um, what would you do? So is there anything actionable? Given everything that we're discussing? I always like asking our guests is, is there something actionable that you would do today? That would well improve your portfolio? Steve Hanke 23:44 The actionable in terms of fiscal policy, fiscal policy is simply way out of equilibrium, shall we say? It's not sustainable. So I would start doing something with it right now. And as I say, what I would do is be pushing for a constitutional convention, and the constitute change in the Constitution that impose something like the Swiss debt break into the US Constitution, that that would fix the fiscal thing right away. The next thing I would do is, is get a chairman of the Federal Reserve that was in there paying attention to what was going on with the money supply. Somebody like Paul Volcker, who paid attention to the money supply, it's all about the money supply. The current chairman Powell is not even looking at the money supply. They don't even look at it. They poo pooed the thing they said it doesn't matter. It doesn't count. So it's not in there. It's not in their models. It's not in any of their templates. They they hardly even report on it. How many how many times do you see in the newspaper a headline of what just happened to the to the change in the money supply during the last month. You've got to look in some footnote, even in the Wall Street Journal to find the number. Anthony Scaramucci 25:05 The Petrodollar agreement with the Saudis. It looks like they haven't read up that agreement. Some people say that that's a big deal. Other people say it's not that big of a deal. But you know, the BRIC countries, many of these countries are thinking about figuring out ways to trade in commodities away from the US dollar. Our sanctions on our enemies have certainly created incentives for these people to do that. Are we at risk of losing our mantle of monetary leadership? Steve Hanke 25:39 Well, for for one thing, that that petro dollar agreement, from what I can figure out, never existed. So this, this has been something that's been floating around on the social media, but as someone who is, you know, been studying currencies, more or less, for over 50 years, I I'm not aware of that agreement from what I can figure out it never really existed. But, but be that as it may, what, what are the risk? Well, the risk if you go back 2500 years, and look at all the currencies, there's, there are the world economy for 2500 years, there's always one dominant international currency, the US dollar happens to be the dominant international currency. There have only been 14 Anthony and 2500 years. So it's it's hard to knock the king off the off his throne. But how do you do that? When the challengers come in and knock a king off the throne, they come in with basically bad monetary management, and bad economic policies of one sort or another. So let's look at the US and the US dollar. Right, right. Now, of course, it's unbelievably strong. It's been unbelievably strong for a couple of years. You know, it's the old line as a trader, you'll you'll know this and appreciated by dollars were diamonds. And so that's where we're at right now. So but but if you look at the social media, you've got basically the enemies of the United States who want to D dollar eyes so that they're they're fanning the flames saying, all these weaponization of the dollar sanctions and so forth, are going to cause the dollar to tank and somebody else will take over. Well, I agree sanctions are a bad thing. And weaponization of the dollar is something that makes it more vulnerable. But But it had something to keep your eye on. But at this point, we're certainly not at any tipping point. So, so you have you know, China and Russia, they talked a lot about dedollarization. And, and the fact that the dollar is history, and of course, all the crypto crowds, they put out basically the same propaganda. So you get a lot of chatter about D dollarization. But the fact is, if you look, even for central bank reserve buying central banks are piling into the dollar now. They're actually increasing their dollar reserves, they the percentage of their total portfolios, that has been in dollars, it has gone down a little bit in the last 10 years. But one of the main reasons for that is that the Swiss were intervening tremendously to try to hold down the value of the Swiss franc, which kept ever appreciating, and they were doing that by by doing what they were buying euros, they were selling Swissy and buying Euro. So that's what that's probably the main factor. If you look in the aggregate reserves of all the central banks, that's the reason the dollar is rule looks like it was sliding a little bit. It was mainly that Swiss intervention. Now they're actually coming back into the market and buying dollars. Anthony Scaramucci 29:08 If you werethe Secretary of the Treasury, what would you do in anything? Would you have no sanctions on any of our adversaries? Or what would you do? Steve Hanke 29:18 As a principal? I would exit sanctions are counterproductive. They hurt the United States more than they hurt the enemy. What do they do? They strengthen the enemy, you get a rally around the flag effect. Right? If you sanction somebody in a country or a country, everybody says, Oh, those who are imposing sanctions on us, they're at war with us or our enemy. So they want to circle the wagons rally around the flag. And that's why the history of sanctions since World War One have been a complete failure. There are almost no sanctions have ever accomplish their stated objectives. And I, by the way, I was involved in this once with President Trump administration was considering putting financial sanctions on Hong Kong as you remember. And sacred Secretary Pompeo called me one Sunday afternoon says, you know, we're, we're gonna meet on Monday and decide on these financial sanctions against Hong Kong. And I was requested to get your opinion on it. So we talked for about 35 minutes, I was, of course, adamantly opposed. Pompeo was adamantly for. And ultimately, the next day, I got a message back from the White House. This basically said, thank you one. There won't be any there won't be any sanctions on Hong Kong. Anthony Scaramucci 30:45 Yeah, well, it was a great move. And thank God, thank God for your contribution, because sometimes these things are reactionary, and they don't really factor in all of the long term consequences. So I, before we go to the audience,. Steve Hanke 30:59 By the way, the Hong Kong thing is interesting in the sense that the Hong Kong dollar is is issued by the Hong Kong monetary authority, which is a currency board. And, and it trades on a fixed exchange rate of 7.8. Hong Kong for one US dollar, and it's backed 100% with US dollar reserves. So the Hong Kong dollar is is in effect a clone of the US dollar. So if you put sanctions on Hong Kong, what would be financial sanctions, you'd basically be attacking the US dollar. So it would it would have been stupidity, doing the same thing over and over again, expecting different results, it would have been a complete disaster. Anthony Scaramucci 31:42 Well said well said Sir, Andrew Brill 31:44 When it comes to cars and how to make money with them, not many are as savvy as Aubrey Janek. She joined wealthy on to talk about dealers, how to buy a car, and how to make money with cars. She has a fleet of them, and explains. So just, you know, let's start generally, what the heck is going on with the car market? It seems to have changed since I started driving. And I'm not going to tell you how many years ago that is. But the car market has definitely changed in recent years. Aubrey Janik 32:14 Oh, yeah. I mean, it's changed, I would say more in the last like four to five years, and it probably had changed like the prior 15 to 20 years. And it's just been a real night and day difference. And so kind of the long story short, cliffnotes version is that during the pandemic, due to a variety of factors, including, you know, shortages, incentives, companies cutting back on production, there was not enough cars being produced for really kind of that 2020 to like beginning of 2021 period of time. And as a result of that production shortage really came to a head and 2021 where, you know, you heard about dealership lots being empty, people couldn't find cars, cars were selling for a lot more than what they were worth, you could sell a used car for much higher than what you paid for it. And that really came to head during that time and summer of 2021, specifically almost exactly the same time and 21. And it really continued up until really until about last year where production just did not meet demand. And as a result, car prices were very high. And then in the last like about year or so maybe a little bit over a year, the car market has started to very slowly but surely level off. And now you are seeing higher inventory. I mean, inventory has increased new car inventory specifically has increased 55% and May of 2024, compared to May of 2023. You're seeing these lower prices. But the problem is, is that, you know dealerships really reacted to the lack of inventory a lot faster than they're reacting to the surplus of inventory. And so when in 2021, we saw prices skyrocket very quickly as a result of low inventory. And you're not seeing that dial switch back quite as quickly today. And so prices are still I think higher than they should be dealerships are still a bit unwilling to negotiate. It's very difficult to navigate the dealership process. And so we're really fighting the ramifications of what had happened back in 2021 through 2023. Andrew Brill 34:14 I want to ask you about the car buying process. Now it like you said there's not a lot of negotiating you seem to walk in and like I said, I just bought a certified pre owned and when you walked in, they have an internet price. There's almost no negotiating on you have to find first of all, you have to find the perfect car. And then there's no negotiating on these cars anymore. So you know they can have anybody selling a car because there's no salesman ship any longer. Aubrey Janik 34:40 Oh, I mean, I could write a book on this topic because it's something that I do. I should it's something that I put so much thought into because it's so annoying. I think that the car industry and specifically car sales have become the it was already truthfully kind of a bad industry like a bit skeezy and it's become just so much More so over the last couple of years, and it's it's horrible. And so you have like these discrepancies of you know, when you go into a dealership, not only are they not willing to negotiate, they're not transparent on pricing, they are kind of giving you the runaround. So many dealerships are offering, you know, these packages that are required. I bought a Tesla back in April, and I ended up buying it on Facebook marketplace us. But before I went to Facebook marketplace, I went to a local dealership that had the exact term I wanted, they had the price, I was willing to buy it right then and there. And we walk in and the guy puts me to his desk, I was with my husband, and he's like, Hey, before we go and show you the car, I want to let you know that we require all of our buyers to buy this $2,500 Like premier package, which includes all of this crap. And I just got up and left, I was like, This is ridiculous. And I left and I was I told him like you wasted my time. This is ridiculous. And then I ended up leaving, and I ended up buying one on Facebook. And these, I think that the unfortunate reality is, is that because people are still buying cars. And because automakers are still making great profit, they haven't felt the need to change their dealership practices. And I do think until you know, their bottom line and their sales are hurt by these shady practices, they're not going to change. And so they're still kind of sticking to this skeezy approach that they took in 2021. Because they had the power that even though this dynamic is shifting, they're not shifting back to where how things were. Andrew Brill 36:24 Talk to me about new versus certified pre owned, versus used. Obviously, you buy us through Facebook, Facebook marketplace, I don't remember I sold I had a similar situation with an old car where I I didn't trade it in I actually sold it on my own because I felt like I would get more money so that and I did get more money than they were going to give me for the trading. So but talk to me about new versus used versus certified pre owned, I was looking for a certified pre owned only because I felt like it had a little bit more of a warranty I bought a 2020 Honda Civic and they give you it only has, I think 17,000 miles on it. So you get that 100,000 mile Guaranty. And so and actually the one that I had bought from my older son had an air conditioning leak that they fixed for free because it was CPO. So talking about the difference between those things. Aubrey Janik 37:18 So the big difference between CPOE and I guess I'll go in order of like new CPOE. And the news. So new is obviously going to be the most expensive. And I think that there's always this, I think wrong connotation with new cars were like, Oh, we want a new car, because it's going to be more reliable. It's going like we want reliability. And while I do think that new cars are inherently probably going to be a little bit more reliable right out of the gate, just because they've never been used before. I think that this idea that like you can't get a reliable car that's used is just very, it's very false. And a lot of people I think get that wrong, especially non car people, like you hear oftentimes people say stuff like oh, well, my family gets rid of a car every four or five years because reliability. And that just isn't the case. Up until I got my Tesla, my daily driver was a 97 former owner that was and still is very bulletproof. So it all depends on the car and the maintenance. But with new cars, you have that aspect of you know, warranty, you have the reliability that people associate with it, but you have the massive depreciation that you're going to have as a result of that. And for that reason, I think in 90, really like 98% of cases, getting a new car just simply doesn't financially make sense. Like you can put your wants into it and maybe justify it that way. But whenever we look at the numbers of the situation, new cars very, very rarely make sense. I think one of the exceptions and there are a handful, but one of them would be like a Toyota, foreigner, Toyota, foreigners, they don't depreciate at all really, they hold their value extremely well, if you really wanted a foreigner it could make sense to buy it new. But then we go into the you know, the CPO in the US which is I think you know the best case scenarios, you buy a three year old car that has already depreciated. You had somebody else absorb that cost, and you come in and own it. And you can do so in a really I think financially sound manner. Now the difference between CPOE oftentimes is there in it depends a little bit on manufacturer, but it comes down to the warranties that's offered. And then also like the reconditioning and so with CPOE, a car has to meet certain set of standards for it to be certified pre owned. And automakers actually kind of changed this a bit during the pandemic Honda was one who kind of notoriously expanded their CPOE offering I don't actually know if they like limited it back, I need to check into that. But they made it so that the I believe it might have been 10 years, I can't don't hold me to those exact numbers, but they changed their CPOE to be significantly older than it was before as a way to accommodate to the changing car market. And so I do think that CPOE in some ways has has maybe lots of lost its meaning a bit just because of the fact that they are accepting older cars. And I think that this reconditioning that they say can be a little bit either misleading or maybe just not as important as they make it seem. I think especially with third party warranties and account like you can get warranty even on a regular used car. So, you know, I think that CPOE has has merit for sure. I think that if you aren't a car person going CPOE can maybe provide you with that extra bit of just confidence going into the deal. But I personally wouldn't hesitate getting a non CPO car and I wouldn't like advise somebody to not buy a non CPO car either. I think that it just kind of depends on the deal. Andrew Brill 40:26 Alright, so now let's talk about the cash in your pocket and lease versus finance versus pay cash. Aubrey Janik 40:34 Yeah, so I think I'm very anti lease. Just in general, I think that in today's market leasing, it just very rarely makes a lot of sense. I understand that there is a tax play with leasing, that kind of adds a whole another dimension to leasing that can possibly make it make sense. But I just think for leasing, you're putting so much money into the lease, and then at the end of the day, you don't really have anything to show for it. And so for me leasing is in the majority of cases, it just doesn't make sense. And you know, there are exceptions, like the EV tax credit can make sense with leasing businesses. But we'll kind of negate that. I think for most people, that leasing just doesn't make sense financially. Whenever it comes to financing and paying cash, I think it comes down to just like the math aspect of it. Which is can you get a low enough interest rate to justify financing that? Or would the term be short enough to where even if it was a higher interest rate, it wouldn't be a big deal. And so for and I also think long term goals also makes an impact is like what do you plan on doing in the next year with your money, like, for example, whenever I bought my Tesla, I bought it in cash predominantly, or almost solely because of the fact that I knew I wanted to buy a rental property at some point this year. And I knew that if I financed it, it would be a negative on my credit, and I didn't want to risk that. But if you have no plans to make any large purchases, you can get a solid rate, I think financing it is fine. I also think that a big portion of the equation, which I think a lot of people don't talk about is the value retention of that car. If you're buying a you know, 2024 Audi that's brand new, and you're financing it, I think that's a terrible financial decision, because it's going to lose value, it's probably going to be a bit of a high rate, especially in this market, it's going to be high monthly payment. But if you're financing say a, you know, maybe a Toyota rav4 Or even like BMW is have been holding their value fairly decently you finance something that isn't going to depreciate the same rate. Even if it's for a longer term, I think that's a much better play than financing one that's going to depreciate, so that appreciation play also comes into account with financing, which I think a lot of people forget. Andrew Brill 42:34 So how many cars do you own right now? Aubrey Janik 42:37 33 total? Andrew Brill 42:39 All right. Talk to me about that. I know you have a unique way of making some money. And look, I've rented cars and I've seen Turo as one of the options. Yeah, I have not used it yet. So I'll be honest about that. But I know it's out there. So talk to me about how that works. And 33 vehicles. I think I have three now. And I only drive drive one of them at a time. Obviously my son has the other one. And one sits in a garage that I only use during the summer time. So talk to me about how you make money with Turo. Yeah, Aubrey Janik 43:11 So my husband and I have a Turo fleet. And for people who aren't familiar with Turo, it's sort of like an Airbnb but for cars and so you rent out cars to people they pay you and then there's like a slew of other things that go along with it. But that's like a very summarized version. And so we own a fleet of amongst those 33 Cars are also our personal cars as well. And so I think 29 is actually two real cars. But the the way that it works is you just like you have these vehicles and you rent them out. And if you've ever looked on Turo, you probably see that like, there's a lot of different types of cars you have people who kind of get the new sexy car like the cybertruck is a big one right now. But then my business model is sort of the exact opposite, which is normal everyday cars. And so I go after you know, Mazda's Honda's a lot of Toyota's Ford's, and my kind of whole play is really kind of go diving into what I've spoken about on this on this discussion is, you know, going after cars that have already depreciated buying them and cash renting them out, and then either selling them or they eventually get totaled, and kind of rinsing and repeating that, and I've been doing that since 2017. Andrew Brill 44:13 And how do you make money with that? Obviously, is there a Turo site is how did you get set up? Aubrey Janik 44:20 Yeah, so you can make money a few different ways. But I would say the kind of main ways is like you do go on turo.com. So it's just like Airbnb in the sense that like, you go there, you set up a profile and you list a car. And then from there, you have a daily rate. And so you set the daily rate based off of the car that you're renting as well as market demand. And different markets will have different prices for different cars. And so you listed and then people rent it and so you get money from like the daily rate. You can also do extras and so for example, in my cars, we offer children's car seats, and so that's like a fee that you can add, but you could do like beach equipment. I think bikes is an option. There's like a handful of like a catalog that you can choose from. And then there's things like you know, You get a convenience fee for gas, which is $10. But it does add up. And then a big area where you can potentially make money is also like off of the play of buying the car. And so that's one thing that I talk about a lot on my channel is that with Turo, you not only make money off of the front end, so like renting out the cars. But if you buy the cars at the right price, you can also make money off the car itself either, you know if it gets totaled, or if it ends up needing to be sold. And so if you buy cars that already have depreciated, you buy them at below market value, you can then make a pretty good profit like off of that vehicle sort of as if you're flipping a car type of thing. Andrew Brill 45:34 Brett Rentmeester from our partner RIA Winrock stopped by wealthy and they explain all about Central Bank digital currency versus cryptocurrency, how the government could implement the digital currency. So central bank digital currencies now, look, we all walk around with a little bit of cash in our pocket, and that's what we consider currency. But like you said, In the article, when the country needs more money, they don't print it, they actually make jet ledger entries and make, you know, here's the money. So explain to us exactly what a central bank digital currency would be. Brett Rentmeester 46:11 Yeah, it's a great question in this is, this is a key to this informed consent concept here, and which is what it's being billed as, let's start with that is, oh, this digital money, you know, kind of similar to cryptocurrencies that are people are getting used to and will be easy to transact and, and cheap, great, let's all use it, they'll be on your mobile phone. Okay. However, we already have, as you pointed out digital money, you know, most of the money out there is not $100, bills, changing hands, it's digits on a ledger at a bank going from one account to another. So it's a little misleading, in my opinion, to to just say it's an improvement in digital money, it's not really what I would say is CBD C's are equal to programmable money, something that's a little more sinister, you know, they're handed out, but they have technology that allows a lot of controls to be put on them. And if I could just share one quote, This was from a number of years ago, I believe 2020. So some time ago, central banks were working on this, you had Augustine Karstens, who was the Director General of the Bank of International Settlements, which is commonly thought of the Central bank of Central banks, basically say this about Central Bank digital currencies, the quote was, central banks will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability is referring to CBDCs. And also, we will have the technology to enforce that. So when I hear that two things jump out, absolute control and technology to enforce, well, listen, CBDCs aren't inherently bad, but they do give complete trackability transparency, which can be good. But in the wrong hands, the idea of complete transparency plus control can be a problem. So the real question for people is, you know, do you trust the current slate of bakers and politicians today? And if you do wholeheartedly, then maybe it's not a bad thing. Otherwise, I think there's some reason for real caution. Andrew Brill 48:10 It seems to me, we live in a world where, you know, we make mistakes, where there's lawsuits, or you owe the government some money. If we go to a digital currency, it's gonna make it a lot easier for the banks to just lock you up. Without a trial, almost they can put, it seems if it's a central bank, digital currency, they kind of put a padlock on your account and say, Okay, you can't spend any more money until we figure this out. It doesn't happen that way right now, because they can't, unless you've gone through a process and you've ignored them long enough. They can't really put a lien on your bank accounts. But this would make it a lot easier for them to make mistakes, even, and, in essence, lock people out of their money by mistake. Brett Rentmeester 48:56 Yeah, absolutely. And listen, we've seen some more recent real life cases where they are trying to lock people out of their money it happened with in Canada a bit with the truckers, protests, and certain people that funded that even people that might have made the $20 contribution, you know, trying to lock people out of accounts. You know, we think of China maybe as the front edge of this where it's not just your money, it's some kind of social credit score working against you. So you know, all these things kind of come together into a dangerous mix, where technology is now caught up to a point where these things are possible. Sounds very dystopian and 1984 ish. But the reality is, the tools are there to make a reality like that possible if if we let it. Andrew Brill 49:40 Why would central banks explore this? Instead of which is it's transparent, it's transparent to a point. Instead of exploring a crypto type currency where it's deregulated, it's person to person look, if I wanted to buy something from you, we trans x, it goes into blockchain and of story. There's a record of it, you can go back, but we're in there is, it just seems like why a little bit more complicated. But why would central banks be exploring this instead of something like crypto? Brett Rentmeester 50:15 Yeah, I'm glad you brought it up. Because the first point would be, it's a mistake to think of CBDCs as crypto because they're almost the polar opposite. So on one hand, CBDCs have control. They've got monitoring, you know, centralized power, controlling everything, right. The premise of cryptocurrencies, by and large, is decentralized, we don't need a middleman, we don't need a government sitting in the middle anymore. We've got a self executing program maintained by a user community. And that's a real risk to power structures. Because historically, last couple of 100 years, we always needed this middleman to develop trust between transacting parties. cryptocurrencies changes that because the technology itself doesn't require a trust between you and I know that if I send crypto, you're going to receive it in there's just a, an element of it that doesn't require a bank in the middle. So I think it's a, it's a power grab, in the sense that I think all of these governments globally and 98% of the central banks are working on a CBC. So it's not, you know, again, it's not a fringe idea. You know, they all have a similar backdrop, which is they're slowly losing control a little bit of this cryptocurrency phenomena. But also, I think, behind the scenes, they know that the fiat system is in trouble. And this debt based economy we've built can only go so far. So just in the US alone, I was just looking on US debt clock.org. Of course, we all know, we have about $35 trillion of official debt. But there's all these unofficial things that just don't get added to that unfunded pensions and liabilities, etc. And that by that site's measure is greater than 200 trillion. So I think at some point, they know, hey, this thing's gonna go out of control. And we need some solution out of the ashes. And this is going to be their mechanism. Andrew Brill 52:04 Let's go to the other side that we're we're not controlled. And explain to us the cryptocurrency side how that would work. And I know that when you have a cryptocurrency, it's I guess what the market would bear right? When it comes to how much it costs? Brett Rentmeester 52:22 Yes, certainly for things like Bitcoin, those type of examples we used for the stable coins, this whole new area, those are trying to create a little more of a stability. But again, I think, again, the primary differences include, these are decentralized, but transparent, the other ones transparent, but it gives one power, the power to you know, control all the levers, this is transparent, so everybody trusts it. But no one player can compromise somebody else's cryptocurrency right. And so I think, listen, this is still early stages, and we're just seeing within the last year, certain companies use cryptocurrencies we're seeing countries like El Salvador and potentially Argentina starting to use them. In fact, some of the biggest adoption of cryptocurrencies is in countries that have blown up their currencies. And it makes sense, right? If if you're used to high inflation, or currency, massively devaluing, and you have a choice of owning whatever that is relative to something with limited supply, people are eventually going to get the hint and move into things that they think will hold value. And so that's the other key fundamental thing. I mean, just using Bitcoin as an example. 21 million will be the maximum supply ever and again, central bank digital currencies, you know, the sky's the limit, kind of kind of like what we have today. But it does seem like because the debts are so high today, if we go to that kind of system, first they have to rise that right size, the depths, there has to be a crisis, and some kind of reset, where they give you less, somebody's got to pay, you know, a price or give up something for them to reset a system to move forward. So that's the fear, right? What will that come to fruition? We don't know, it's we're part of all part of the story. But I think the more people can educate themselves, about what central bank digital currencies are, and with a healthy skepticism and an understanding of other things they might be able to do to not put themselves in a position to be totally reliant on it, the better we'll all be. Andrew Brill 54:29 Is there something we're missing with CBDCs? Is there is there a positive that I'm not seeing is a you've, you've obviously given us a lot of thought you've done your research, you know how this could work if implemented. I just seem to be missing something or positive here. Brett Rentmeester 54:49 Well, again, it's from whose perspective are we looking at it from? From a government perspective, the positive might be, hey, Andrew owes taxes. I'm just going to take it out of his account or from Central Bank perspective, it could be, hey, we're trying to get the inflation rate up, let's just hand out a bunch of money and tell people they have to spend it in the next week, or it disappears from their account. Right? It gives them this feeling like they're controlling the levers, but much like this wizard of oz analogy that one of my colleagues wrote about recently in a different context. It's the man behind the curtain for the individuals. Yeah, I mean, is it any step up from Venmo? Or, you know, sending cryptocurrencies? I can't see it. I mean, yes, we're gonna move more digital in the world. But there's a difference between becoming digital and creating a programmable money that people can, you know, restrict you from take away from you or, you know, put an agenda on, and I think that's where the problem lies. Andrew Brill 55:47 Finally, next week on the trading floor featured Justin Nugent of market rebellion in an off script moment, Justin decided to go with two winners this previous week, instead of one of each. Take a look at to see who he picked, and how he did. Your pick for last week, which was the s&p 500 ETF, which you said was a longer term bet, still went up this week? Justin Nugent 56:14 Yeah. Oh, man. I just want to thank you, Wealthion and Andrew and market rebellion for allowing me this platform to make a prediction that literally nobody else is, was a fan of here. Now it's starting to look like we could get even higher than that, right? 600, we're still keeping it 600 For the SPY, s&p 500, 6,000. We're halfway through the year, we've already done what 13, 14%. And first half isn't even done. From here, we need another maybe 10.6% I believe from where we're trading right now. That equates to about 26% gained throughout this year, which if you look at 2023, we gained a little more than 26%. If you look at 2021, we gained a little more than 28%. If you look at 2020, not our 2019, we gained a little more than 31%. All respective to the spy. So for those out there who thought 600 That's crazy. It's not actually so crazy, after all for a bull market year. Andrew Brill 57:22 Alright, so let's recap. Nvidia. You think that's what your winner for the week and we went with a second winner, which was also AI, which was C three AI, a software company software, artificial intelligence company. And the unusual options activity is Netflix. So those three stocks we think are going to do pretty well over the next week. Justin Nugent 57:44 Yeah, the theme here is stick with what's working, look at the data. Look at the chart, stocks are going up what stocks are doing the best, it's growth, the high beta AI related tech stocks. And it makes perfect sense. It's uh, it's looking a lot more bullish out here than it has throughout the rest of the year. And I'm here for it. Andrew Brill 58:06 I will tell you that a few weeks ago, when we spoke you did. Hype Nvidia, I did get in, I'm up about 11%. So far, so and I have 10 times as many shares. So you know, where it's all working. It's not the only trade I've made some money on. So you need to listen to Justin, you need to listen to market rebellion. And you need to, you know, just do your own research as well. Make sure that you're comfortable with whatever it is that you're doing. So I know that there is on Justin, I know that there is on your advice, money to be made here. But obviously, you want people to be comfortable and do their own research. Justin Nugent 58:47 Always, it's the most important thing. You know, what I always say is that if you're not familiar, especially with options, open up a paper trading account. It's the only way that you can actually say, hey, there's zero risk in what I'm doing. If you're paper trading, that means that you're not using your real money, but you're using the Real Stock figures, you can find those on Thinkorswim or a variety of other platforms. And just try paper trading, see how it goes, see how theta goes. See how the trades go and find out what you're comfortable with in terms of risk and try and trade like you actually would trade in real life. I think that's the best way to really learn what you're comfortable with. And also to see the power of some of these trade ideas. Andrew Brill 59:30 You can also head on over to market rebellion.com They have a bunch of educational videos that you can watch that if you're looking to get into options, it's a great place to start. Justin Nugent 59:41 Absolutely. Andrew Brill 59:43 Thank you for watching this week's recap don't forget to head over to wealthion.com for a free no obligation portfolio review with one of our registered investment advisors. And please follow us on social media for the latest news and information to help you invest wisely. If you haven't done so already. Please make Be sure to like and subscribe to our channel and don't forget to turn on notifications so that you never miss a video. Thanks again for watching. Until next time, stay informed, be empowered and may your investments flourish. If you like this content and are looking for more ways to keep growing your investments, watch this video next
