In this episode of Wealthion, James Connor sits down with Jim Bianco of Bianco Research to discuss the latest market trends and economic indicators. Bianco shares his expert analysis on the Fed’s upcoming rate cuts, the surprising resilience of U.S. banks, and the potential impact of AI on the economy. With growing concerns over commercial real estate and the persistent strength of consumer spending, Bianco offers critical insights into what investors should watch out for.
This episode is sponsored by BetterHelp. Give online therapy a try at betterhelp.com/Wealthion and get on your way to being your best self.
TIMESTAMPS:
00:00 – Introduction
00:53 – Jim Bianco on Market Trends
02:51 – U.S. Banks Performance
04:12 – Commercial Real Estate Concerns
05:16 – Remote Work’s Impact on Real Estate
06:46 – AI Sector and Nvidia
10:08 – Small Cap Stocks Surge
13:01 – Fed’s Rate Cut Plans
19:10 – Unemployment Rate Insights
23:27 – Inflation and Seasonal Factors
24:46 – Inflation vs. Unemployment Impact
27:14 – Oil and Copper Prices Analysis
30:55 – Global Economic Trends
35:10 – Bitcoin and Politics
40:04 – Political Implications for Markets
44:48 – Market Outlook for Year-End
47:47 – Closing
Jim Bianco 0:00 apparently is they're going to cut rates at the September 18 meeting. And that the week we're recording on Wednesday, the Fed is going to have their July 31 FOMC. Meeting. And while there's only a 5% chance that the Fed is going to cut rates at that meeting a 95% chance they're going to hold. We expect Jay Powell to say those magic words that's going to tell investors that at that next meeting, expect a rate cut. But at that's why the September meeting is priced in at 100%. So what will they do? They'll cut rates at the next meeting. What should they do? I don't think they should be cutting rates right now. Why don't I think they should be cutting rates because of what you mentioned, GDP in the second quarter of 2.8%. That's a decent number. James Connor 0:53 Hi, and welcome to wealthion I'm James Connor. And today my guest is Jim Bianco of Bianco research, Jim and his team provide a wide range of research across many different asset classes. And we're gonna get Jim's views on the markets and across many of the asset classes that he does cover. Jim, thank you for joining us today. How are things in Chicago? Jim Bianco 1:16 Things are good. It's always good in Chicago in July. James Connor 1:20 So Chicago is one of only four cities in the US with two major league baseball teams. Are you a White Sox fan or a Cubs fan? Jim Bianco 1:28 Oh, I'm kind of both. But they're it's a historic year, and that how bad the White Sox are, they have got the worst record after 108 games in 93 years. That's how bad they are right now. And the Cubs have been a bit of a disappointment. So while I do like baseball, it's been a challenging year here in Chicago. James Connor 1:51 That is crazy. So how many games below 500 Are the White Sox, Jim Bianco 1:56 the White Sox at 27 and 81? There 54 games before below 500, which is kind of hard to believe James Connor 2:05 it is. Well let's try to cheer things up a little bit. We're going to talk about the markets the markets are still doing relatively well. We've had a little bit of weakness here and volatility. But I always love the start of a new quarter because there's just so much going on last week we had 25% of the s&p report this week, I believe it's 30%. And then we also have a Fed meeting coming up, we have the non firms coming up. So there's a lot going on. And I want to start by asking you about the US financials. Many of the banks already reported here in the last couple of weeks, and we saw very good numbers at JP Morgan, Citi, Goldman Sachs. Many of these banks are trading significantly above the s&p. So pretty big outperformance Are you surprised by how these us financials are performing in this environment? Jim Bianco 2:51 Not surprised by how they're performing. I mean, let's also put into perspective that the banks, especially JP Morgan, had been horrible underperformers for the last two years or so they've been awful to own them. And so they're finally starting to get a rebound. And a lot of that rebound is coming with this big rotation that we've seen out of the max seven stocks and into the smaller cap stocks as well. The other hope that the banks have is the belief and it's not incorrect that the inverted yield curve, which has been now almost two years, is getting close to an inverted. And if banks borrow short and lend long, that would actually help their net interest margins, as well. So the banks I'm not surprised at the rebound that they've had, they've been down for so long. And with the rotation in the hope for anima net interest margins and and I am helping that they are going to rebound now whether or not that can be sustained, say through the end of the year and into 2025. I have my doubts on that. But for right now, they've been a very good place to be. And I think over the near term, they will continue to be James Connor 4:05 Were there any concerns when you look at a JP Morgan or Wells Fargo any concerns in terms of their loan books? Jim Bianco 4:12 not really, at this point. I mean, the only concern that you would have is to get all round commercial real estate, especially office. But that is such a well known story at this point. And it is so in the in the price of the stocks. In other words, office is a disaster. And the banks have a huge problem because of office. But as I pointed out earlier, they've been suffering terribly for the last two years or so in part because of that. So yes, that is a an issue, but I don't think that what they've reported should make us think that it's better or worse than the already glum outlook that we had for Office real estate. James Connor 4:55 So in Toronto, still a big issue with people going Back to work. If you look at any major office building in downtown Toronto, on a Monday, you might get 10% of the tenants going to work. Tuesday, Wednesday, Thursday, it's 50 to 60%. And then on a Friday, it's down to 5%. How does that compare to what's happening in Chicago, Jim Bianco 5:16 same thing, same thing everywhere, you know, in pretty much the developed world right now. Or maybe I shouldn't be that broad, I should say, more like North America, you know, remote work is a thing, it is not going, we're not going back, we're not going to go back to where we were in 2019, or anything like that. So that this is part of the issue around Office real estate, that if companies are only utilizing, as you pointed out, maybe 50% of their office space on a weekly basis. In other words, if you have 100 employees, you'd have 500 visits to your office a week, employees five times, and you're getting about 250 visits a week, to your office from your employees, you're only half utilizing your space. And so there's been a downsizing, you've seen of a lot of employers on their space. And I don't think we're going to go back, we're not going to go back on this. People have asked me all but what about the next recession? Won't everybody come crawling back to the office? Like, No, it'll be worse, the next recession, your employer will say, I can't give you a raise, but take another day a week at home. And you'll think that he gave you a raise, if you want people to come back to the office, tell them that they get paid X. But if they come to the office every day, you'll give them 15% More money. But nobody thinks that way. So since we're not going to pay them a premium to come to the office, we're not going to see this remote work thing go away. James Connor 6:46 you touched on the fact that there's a rotation going on within the market. And we've seen a nice pullback here in the AI stocks. Goldman Sachs and a few other brokers have come out with negative reports here in the last few weeks, just suggesting that the benefits that are coming from AI will not exceed the money that's being spent. Well. What are your what's your view on on the AI sector? And Nvidia it's pullback from like 140, down to 110, give or take down 20%? Do you think this is the beginning of a significant pullback or what? Jim Bianco 7:18 You know, it's hard to say? I mean, these stocks were definitely way out there, you know, and there's no surprise that they are getting pulled back. But let me make a big comment about AI. It I'm in the camp that it is a significant is the invention of the internet itself. And when it is fully utilized, it will be as significant as the invention of the internet. And the internet was invented 30 or 40 years ago. And it was really, you know, I'm old enough to remember the late 90s. When everybody says, Wow, you watch what this internet is going to do. And it did everything in more than they said, except it took 25 years. It didn't happen in three years. Ai i think it's the same thing, you watch what AI is going to do it is going to knock your socks off. But it might take 20 years, it's not going to take three years for AI to come down. Now. Why is that the case? You mentioned in video, let me give you a quick comment about in video. It is a three are at its peak, it was a $3 trillion company, the most valuable company for a brief moment they're at its peak, five customers of Nvidia are half of their revenue five, you know, it's it's Microsoft, it's Google, it's Tesla. It's open AI, it's meta, these are the companies that fit these are their customers. So in order to put together a large language model that has widespread adoption, the first thing you need to do is raise many, many billions of dollars in order to do something like this. The difference was with the internet 20 years ago, if you wanted to create an internet business, you just needed electricity to computer and an internet connection. And away you go, you could pretty much set up a website for nothing. And anybody can do it. So yes, this AI model is definitely got some real promise. But it's investments. And its concentration, I think is going to be a problem in its widespread adoption right away. You know that they're going to put together these these large language models. And then they're going to expect you and me and everybody else to pay a ton of money to use these things. Because they're so expensive. Whereas the Internet itself was I'll put together a website, and you can visit my website. I'm not charging you anything to look at my website. Now maybe I have some password protected stuff later on behind it. But the barrier to entry or the barrier to view it was practically nothing. So this is why I think the review of the AI story is yeah, it's there. Yeah, it's big. Yeah, it's going to be huge. But don't hold your breath. You're going to see it in the next near term, it might take a lot longer than we think. And so did the original Internet from the late 90s. To one eventually, what we have now 25 years later. James Connor 10:08 a lot of this money that's been flowing out of Nvidia and other the other large caps, it's going into the small caps. And the Russell has put in a nice move here in the last couple of weeks. And I'm really surprised given that a lot of the smaller cap stocks are have a higher risk level, they their cost of capital is much higher. How do you explain this? Why is the Russell putting in such a good move? Jim Bianco 10:30 So the simple answer is I can't, but I'll offer you in a simple offer you some ideas. First of all, let's talk about the rotation. Out of like the max seven in the big cap stocks into the small cap stocks. It's the largest ever measured by many different metrics, whether you're looking at the performance of the Russell 2000, to the Russell 1000, or maybe the max seven stocks to you know, the NASDAQ composite or something like that to the Russell 2000, or back seven stocks to 2000. So you've seen this gigantic move that we've never seen to this degree. And all of the other moves that were behind it a little bit smaller, were 2020 1987 2008. In other words, when do small cap stocks massively outperform large cap stocks, when the stock market is collapsing, and big cap stocks go down a lot faster than small cap stocks. This time it's been won both have been rising Well, or at least mom, you know, a 4% correction in big cap stocks, and a big vertical rise in small cap stocks as even that's unprecedented to see that kind of rotation. So now that I've said that this is wholly unlike anything we've seen before, what do I think could be behind it? My best guess, is the ETF zation of the stock market. And that it all started really on July 11. July 11, was when this shocking CPI report came out at negative 1/10 of percent. And I think that pretty much hundreds of 1000s of investors looked at that number and hundreds of 1000 investors in the same minute came to the same idea, oh, this means the Fed has to cut rates. And since they are going to cut rates and lower the cost of capital, this is going to help more traditional companies. So therefore I am going to buy IWM, the Russell 2000 ETF, or RSP, the s&p equal weighted ETF, or something along those lines. So basically, everybody got the same idea for the same two or three trades all at the same moment. And all rushed into it. And we saw this massive rotation unlike we've ever seen before. Now, of course, I'm surmising this. I'm conjecturing this, because we've never seen this before. And we don't really understand what quite happened. But that's my best guess as to what I think happened. James Connor 13:01 So let's talk about the Fed now. And you touched on interest rates. And we just recently saw GDP print q2 numbers came in at 2.8%, which was much higher than what the market was expecting. What's your take on this number? And does it change anything in terms of interest rate expectations? Jim Bianco 13:21 So when we talk about the Fed, we should talk about what they should do and what they will do. So let me let me let me attend. And then I'll work that into these numbers. First of all, what they will do, apparently, is they're going to cut rates at the September 18 meeting. And that the week we're recording on Wednesday, the Fed is going to have their July 31 FOMC. Meeting. And while there's only a 5% chance that the feds going to cut rates at that meeting, a 95% chance they're going to hold. We expect Jay Powell to say those magic words, that's going to tell investors that at that next meeting, expect a rate cut. But at that's why the September meeting is priced in at 100%. So what will they do? They'll cut rates at the next meeting. What should they do? I don't think they should be cutting rates right now. Why don't I think they should be cutting rates because of what you mentioned, GDP in the second quarter of 2.8%. That's a decent number. Oh, yeah, there's so many issues with it inventories might have been a little bit more of that number than we would have liked. But, um, you know, in inventories of kind of a temporary thing sometimes can be a worrisome thing that companies built stuff, stuffed it in inventory, because it didn't make it out the door. It was a little larger than we expected but nothing, you know nothing that's going to cause a review rethink of the economy. If you look at initial claims, retail sales, durable goods, factory utilization, these are some of the numbers that we've seen in the last couple of weeks. The economy seems to have done something interesting when June came April in May, the numbers were kind of milk toasty. But then when you start looking at economic data that starts with the letter with the word June, excuse me, in a letter J, the June data on balance seems to be much better, as if the economy started to rebound around June 1. And if that's the case, the economy is fine, the economy doesn't need extra stimulus, the stock market is fine, even though it's had some turbulence, it is only about 3%. From its all time high right now. And it's only been about three weeks, since it said it's all time high. So under what should the Fed do, I don't think that the Fed should be cutting rates. Now, we're going to get a big data point at the end of the week in in, you know, non farm payrolls in the unemployment rate. And that could really set the tone for where we go next. Now, two things to keep in mind, I'll throw out two ideas 23 of the last 27 months, and that goes back to March of 22. When the Fed started raising rates, the Non Farm Payroll report has beaten Wall Street's median estimate. So Wall Street has been chronically too low on this number, it constantly beats, there's only been four months in the last 27. That it's been, I suspect, not knowing anything more than that, I look for a beat because that seems to be the pattern. Wall Street structurally does not appreciate the robustness of the of the labor market, and yet it's growing. But what people are going to focus on Friday is going to be the unemployment rate. And if the unemployment rate, which is estimated to hold at 4.1, which is what it was in June, then what you're going to see if it goes higher than that 4.2, or even 4.3, you'll trigger what's known as the sum rule, the sum rule was created by Claudia, some Federal Reserve economist, who now works in the private sector, she writes The Stay At Home macro blog. And it says that if the three month average of the unemployment rate goes up by half a percent over its low of the last year, that triggers a recession. Well, if it's 4.2%, that should trigger the recession warning, as early as Friday. But there's a giant caveat in this data. And even Claudia has said this of herself, it was assumed with this rule that you had stable demographic trends. But when you have, depending on who you ask, anywhere between eight and 15 million people, this the population of Arizona stream over the southwest border into the country, they're getting picked up in the census surveys of households and unemployed. And that's why the unemployment rates going up. So if we trigger the sum rule, is it because the economy is slowing? Well, the payroll report 23, the last 27 and beaten. And it's not showing that companies are not reducing their hiring. But maybe what it's just showing is that there's been this burst of population, unfortunately, many of them come across the border, unemployed, and they're getting picked up in the statistics. And that's why the unemployment rate is going up. So it's not necessarily a measure of a slowing economy, which is what everybody thinks the unemployment rate would say, but a change in the demographics of the country, because of the migrant flows that we've seen over the last three years. That's my take on it. Now, I know others disagree. But these numbers that we're going to see at the end of the week are going to be very, very difficult to read, especially if we get that psalm rule recession indicator triggered with a 4.2% unemployment rate at the end of the week. It's James Connor 18:59 surprising they would include those individuals in the unemployment numbers. Or they do because of the Yeah, go ahead. Oh, I was just gonna ask, Are they illegals yet? Jim Bianco 19:10 Well, yes, they're illegal and that they have illegally entered the country is so they are illegals, but the way that you remember it's a survey of households. And there are more households, because there's there's households of of migrants or illegals that have come into the country. And if you walk over the border and ask for asylum and take a free bus ride to Chicago or New York, and then the bus just randomly stops at Grand Central Station and you just walk off the bus with no plan. Most likely you're unemployed. And so this increase in the population is showing up in the survey that what they call the household survey of the number of households, the number of people that have jobs, the number of people that are looking for jobs, so that person walks off the bus They wind up maybe not that specific person. But in general, they're getting captured into that group of how many people in the country are looking for a job. And it's going up, because more and more unemployed people are coming into the country. So the unemployment rate is rising. Now, like I said, Claudia said with her rule, she assumed stable growth, stable demographics that nothing was going to acknowledge exogenous li change the population growth of the country, then that's a very good rule. But when the population growth of the country starts to change radically like it has that you have to wonder about that indicator, should we see a recession warning at the end of the week? James Connor 20:44 So just to summarize, this meeting that's coming up on the 31st. You don't see every cut happening then but you do see one in September, but you don't believe they should just given the high rate of inflation? Jim Bianco 20:56 Yes, the high rate of the high rate of growth and the high rate of inflation. Let me make a quick comment about inflation. The day we're recording Monday, the 29th Alan Blinder had an op ed in the Wall Street Journal. Alan Blinder was a former Federal Reserve vice chairman, and he's now an economics professor at Princeton, and highly influential in Federal Reserve circles. In the opening paragraph, he said, It's no obvious that there was some faulty seasonal factors in January, February, March, that caused the inflation rate to be overstated. And now that we're past those faulty seasonal factors, we now know that the inflation rate is, you know, low and the Feds got room to cut rates. Okay, hold on a second here. Mr. blinder, seasonality is zero sum for every month that seasonality overstates in a number, it has to by definition, understated in a different month. I think that those understatements have been the last two months, May in June, when you had 1/10 in minus a 10th. So otherwise, if it doesn't, if it's not zero, sum of all the positive seasonal factors and negative seasonal factors don't equals zero, then you've got a real problem with your seasonality because it always has to equal zero. So yes, we might have overstated inflation in February, March, okay. We also understated it, I think, in May in June, with that minus 1/10 and plus 1/10. And so I think the inflation rate is going to bounce back through the rest of the year. And what I'm saying is, it's probably going to settle out around three to three and a half percent. Now, that's where it has been for about the last 18 months. And if it does set a lot of three to three and a half percent, the Federal Reserve has no business cutting rates, that is way too high relative to their target of 2% on inflation. So I get what they're saying, Yeah, don't worry, we're in the so called last mile, inflation is gonna go to 2% and throw out some stuff about faulty seasonals without really thinking through it. Well, if there was faulty seasonals, somewhere, there has to be the opposite in another place, because seasonals are zero sum. But we don't think through that all the way. And I think what we're now realizing is, yeah, we are in a sticky inflation world of around three to three and a half percent. The Fed shouldn't be cutting rates in that kind of environment. But that's what I think they should do. And I'm not a member of the Federal Reserve, but they seem to be vaping the Federal Reserve intent on signaling this week, that in September, there will be a rate cut. James Connor 23:27 This show is sponsored by better help. To feel my best. There's two things I do on a regular basis, I work out with a personal trainer, and I meet with a therapist. Working out keeps my body in shape. Working with a therapist keeps my mind in shape and keeps me thinking in a positive manner. Life can be crazy busy with family and work commitments and managing your investment portfolio and just so much more. With fall that it's hard to fit in time to relax and have some fun. That's why it's important to keep your mind fit and focus as much as possible. Therapy can provide you with the skills which allow you to manage stressful situations more easily. If you would like to speak with a therapist or give it a try, consider better help. It's all online and fully flexible according to your schedule. Never skip therapy day with better help, visit betterhelp.com/wealthy And to get 10% off your first month. That's BetterHelp Help.com/wealthion. Now back to the show. So the last time we spoke you made mention of the fact that if the unemployment rate goes from 4% to 5%, that's going to cost the economy 1.7 million jobs, but inflation at 3% or three and a half or 4% that impacts 300 million people. Jim Bianco 24:46 Right. And, you know, keep in mind that if the unemployment rate goes from four to five, that means you have an extra 1.7 million unemployed people, but base is what I said before some of those 1.7 A million could just be new entrants to the country without a job, as opposed to somebody who actually had a job and lost a job. But that's where he's going. But the comment that I made before was that people don't appreciate that when the inflation rate stays to three, three and a half percent, that impacts 100% of the population. Even Elon Musk, the world's richest man is impacted by inflation, because he's going to see prices at Tesla, and prices at SpaceX and prices at Twitter, squeeze his margins, people that are on public assistance, are going to see prices at the stores that they shop at go up faster than their public assistance, and they're going to get squeezed. And everybody 100% of the population is hurt by three to three and a half percent inflation. Whereas if the unemployment rate goes from four to 5% 1.7 million people are hurt. Maybe it's less than that, because of the migrant thing. And to give you the crass calculation I was talking about the last call that we had together is that if you told 300 million people, 1.7 million people need to take some pain. So the other 298, you know, point 7% of the people could see some inflation relief. They probably say sorry, you 1.7%. But the other 298 million, could definitely use some inflation relief. The point I'm trying to make by making it this way is inflation is worse than unemployment, and inflation needs to be arrested, even at the cost of unemployment. If it comes to that it hasn't yet. And therefore the Fed should be on the lookout to try and arrest this high unemployment. inflation rate, excuse me. But they don't seem to be they seem to be thinking that it the war is over there is been one, and that they're now start starting to talk about cutting rates. And I again, I'll just emphasize, I don't think we're there yet. And they shouldn't be doing it. But like I said, I don't get a vote at the Fed. They seem to be ready to be cutting rates. James Connor 27:14 So let's look at this GDP number in a little more detail. Okay, it came in at 2.8%. Alright, very strong number. But then when you look at the price of oil, it's vacillating between 70 and $80 a barrel, the price of copper has gone from five down to four bucks a pound. Both of these are commodities are a good barometer of what's happening in the economy. And I guess my question to you is this pullback that we're seeing in oil, does this not indicate a weakening economy and also copper. And then I gotta also ask you about the q2 numbers that are McDonald's, they came in with their q2 numbers today, they missed for the second consecutive quarter, and they cited weakness coming from consumers, people just don't want to eat up, they don't want to spend the extra money. Jim Bianco 28:00 So let me take the second part. First, with McDonald's, there's been a term that economists use, which I agree with, which is called the K shaped economy, like the letter K, you know that part of the economy is going up and part of the economy is going down. And it really revolves around income. If you have enough income to where you own assets, like a house or stock portfolio, you've seen decent gains in your home, you've seen decent gains in your stock portfolio I'm talking about over the last year. And even though maybe your paycheck didn't go up, your net worth went up. So you're able to handle this level of inflation. But if you're at the lower end of income in Unfortunately, bankrate.com does a survey of people that can come up with $1,000 in an emergency. And over half the country says they cannot come up with $1,000 in an emergency. If they needed it, they'd have to put it on a credit card borrowed from a family member or something along those lines, because they just don't have $1,000 sitting in a bank account. Well, those people are being squeezed by inflation. And those tend to be the people that shop at fast food places like McDonald's. And so I'm not surprised at the McDonald's numbers, because it's telling you that the lower end of the income spectrum is really being squeezed quite a lot by inflation. First half of your question about oil and about copper. And isn't this showing a weakness in the economy? The answer is yes. With a clarification, the global economy. Because let me give you one other statistic. The 10 year yield in China is at the lowest level ever right now ever. No other interest rate in anywhere else in the world is at the lowest level we've ever seen. That was 2020. When we had negative interest rates in Europe, negative interest rates in Japan, we had less than 1% 10 year yields in the US. We were in the middle of a COVID shutdown. China's interest rates are at the lowest levels ever now because of their economy is in deep trouble. So the weakness you're seeing in copper, the weakness you're seeing in oil is because there's 1.4 billion consumers in China that aren't consuming as much as anybody thinks that as much as anybody wants them to, or they think they should be, they're consuming a lot less, their economy is being retarded, their economy is what's dragging down these commodity prices. But their economy runs on a different cycle than develop world and especially the United States. So they can be weak, we can be okay with sticky inflation, both at the same time. So I would attribute the price action you're seeing in Cropper and crude oil and some of the other industrial commodities that has been very weak as to being a signal of what's happening in China, more than what's happening to say, the United States or Canada. James Connor 30:55 So let's talk about what's happening in Canada and also Europe, because both both of these central banks have cut their rates. And so in Kent, I reside in Toronto, so I have a good understanding of what's happening here. But they just cut for the second time, it was only 25 basis points. So the bank rates down to four and a half percent. But inflation is still running quite high here. And but they're more concerned about what's coming on the horizon. And I think they, they, they're more concerned about the slowdown in the economy than they are with inflation. I think the same sort of thing is happening in Europe. What are your thoughts on that? Jim Bianco 31:30 Yeah, if you look at you know, just to contrast them to the United States, if you look at the US has growth rates, as I talked about 2.8% with GDP, and and, you know, decent numbers, like at a durable goods and factor utilization and retail sales, the US really, among the developed world is an outlier, its growth is much stronger than the rest of the world, including, including Canada, what is got the US is growth rate, much higher than the rest of the world is consumption, the US consumer is buying goods and services in much greater numbers than anybody thought that the US consumer would remember earlier, I said with the GDP number, that The inventory number was a little bit worrisome, or really powered, it was consumption, consumption numbers were huge, you know, that the consumer continues to buy stuff. Now economists talk about this idea that it's excess savings from the pandemic, and that the excess savings are gone, and that the consumer should stop spending two problems with that problem one, I get the concept of excess savings, but we don't really know what it is, or we don't really know how to measure it. And the reason I point that out, is they've been saying that the consumer is going to run out of excess savings since 2021. And And yet, the consumer continues to spend and spend and spend, and here we are in the second half of 2024. And they keep telling me oh, any minute now they're gonna run out of money, and they're gonna stop spending it. Now, I guess, in theory, if you say it forever, some point that will happen. But it's been almost three years now. And it hasn't really played out to the degree that they have now. The US consumer stands apart from everybody else, and that their ability to spend. Why is that? Well, that's another one, I don't really have a good answer for you. I only have a theory on it. And the theory is, they were trained after the financial crisis that you have to save. Because there's going to be a bad experience somewhere down the line, and you're going to be happy that you have a rainy day fund. Well, that happens in 2020. And then what happened in 2021, that bad experience happened and you had a rainy day fund, the government mailed everybody money. And you felt like a chump that you spent 10 years not taking a trip to Italy or not buying a new car or doing other things you would have done because you needed to save more in case there was a problem? Well, when there was a problem, they mailed everybody money. So what is the attitude of Americans coming out of this, I am going to Italy, I am going to buy a new car, I am going to enjoy my life. What happens when there's another downturn, I will walk to the mailbox, and there will be a big fat check from the government in it. Because the last time this happened, there was a big fat check from the government. And that is why I think we've been seeing so much spending, it's a change of attitude among Americans. Now maybe the Europeans didn't have that happen. They're a little bit more used to, you know, heavier government invention and, and this whole idea of mailing people money was wholly unique in the United States. But whatever the reason is, even if I'm wrong on that argument, we are spending like crazy now a lot of IT services, but we're also buying goods, and that's what's keeping our economy much stronger. So when you ask Bank of Canada's cut rates, the Bank of England has cut rates, I get it. Their economies are markedly weaker than the US economy. The US has both strong growth and sticky inflation. They have much weaker growth and and probably still sticky inflation, but they're cutting in response to that much weaker growth, which we in the United States don't have, which is why I don't think the Fed should be cutting rates right now. James Connor 35:10 Yeah, interesting points. I can tell you things are a real mess in Canada right now. So I know you're, you always have an opinion on Bitcoin. So I got to ask you about this. Trump was one of the keynote speakers at the Bitcoin Conference in Nashville recently. And he had a lot of positive comments to say about it. And he was even allude alluding to the fact that he would initiate a strategic reserve fund similar to what they have for Euler, you even gold, what are your thoughts on that? So what are your thoughts on Bitcoin? Jim Bianco 35:42 Yes, you undersold it, Trump went to Nashville, the big Bitcoin Conference, and told them everything they wanted to hear, he's gonna fire gear against, or he's gonna get the industry involved in writing regulations for crypto, he's gonna have the government never sell any of the crypto that they've acquired over the years because of fraud, which is the basis of this national National Fund. He loves crypto, he said I love crypto. He said he's gonna and operation choke point 2.0, which is where the government has been cracking down on any bank that services a crypto, you know, services a crypto firm, you know, so he gave them everything he wanted, and the price ain't going anywhere. Now, part of the reason that the price ain't going anywhere might also be that at the same time he was doing this and the Democrats were offered Kamala Harris come to speak to our conference, she refused or turn them down to be more specific. And just today, the day we're recording price getting crushed, because the government has now moved some of the crypto that it owns do another wallet, which is supposedly a prelude of selling it. The reason that government owns crypto is they acquired it through Silk Road and mount Gox. These were, you know, famous frauds in the crypto space where the government investigated the frauds and then wound up acquiring the Bitcoin through those frauds. So it's almost like Trump said on Saturday, I'll never sell Bitcoin. And the Democrats on Monday are saying Fine, we'll sell our Bitcoin right now. So it's almost like back in your face. Now, the reason I I expressed it that way, is it's looking like if you are interested in betting on the election, you know, whether Trump will win or Harris or when bitcoin is come now the measure that you could do it, it's become so politicized, that it's almost like an election futures on whether or not Trump or Harris is going to win over the next few months. And that's a problem for Bitcoin, because it's getting wrapped up in politics. It always wanted to be this nonpartisan, decentralized, freedom of choice kind of asset. And all of a sudden, it's starting to look like a Republican asset that the Democrats are attacking because it's a Republican acts as that this is a problem for Bitcoin as we move forward. Now, let me come back. I own Bitcoin. I own some cryptocurrencies. I am very bullish on the specter. I liked the alternative financial system that they're building, I think that it is needed, the disruption is worthwhile. But it constantly gets sidetracked with these kinds of things that I just described. And it just makes the eventual creation of this alternative financial system that much harder and that much further out into the future. Do I still think they can do it? Yes. But all I keep doing is just pushing out my timeframe, saying no man no more time where it's just going to meander about or maybe sell off and it isn't quite going to get there. And it's just going to take longer and longer and longer to do it. Now. Eventually, if it just keeps doing this forever, you might start to think maybe it'll never do it. I'm not there yet. I'm not quite that pessimistic. But you don't test it. Don't keep don't keep getting sidetracked by becoming a Republican asset, or something like that, to make people start to doubt whether or not you'll ever fulfill that promise of being an alternative financial system. So Bitcoin has been struggling since March it hit 74,000. In March, as we're recording, it's around 66,000. Right now, it hasn't been able to make any forward progress. It's had the havening or its have its inflation rate. It's had the success of the new ETS, it has had Trump who's who is the leading candidate to be president, give the Bitcoin Conference, everything they've ever wanted. And I would omit and people say it's gonna go to 100,000. And my answer is why isn't it already there now? What more does it need to get to 100,000? Is it making this progress? because there's a lot of other messy crosscurrents that are getting in its way. James Connor 40:04 Okay, so let's talk a little bit of politics. I don't want to spend too much time on it. But we do have a DNC coming up on August the 19th. That is being held in Chicago. Could be a lot of fireworks. And Harris has been she's gained a lot of momentum here in the last couple of weeks, who's gained I think, over $200 million. Yes. What are your views? If if we do get another Democratic president, what does that mean for the markets? And then if Trump wins, what does it mean? Jim Bianco 40:32 So I've been of the view of the opinion that there is no Trump or Harris trade at the top level. What does it mean for stocks? Was it mean for bonds? What does it mean for the dollar? I don't think it means anything either way, Trump or Harris and I've argued, if you look at, you know, the the charts of the stock market, or the charts of bond yields, or the charts of the dollar over the last two or three months, we've had some amazing events that should have moved them, if they were political. The disastrous debate by Joe Biden the attempted assassination, Joe Biden dropping out Kamala Harris becoming the nominee, none of these have been really impacting the dollar or yields in that respect. So I don't think there is a Trump a trade or a bearish trade. And why don't I think there is, because the biggest problem that the government has right now is huge deficits in big spending. If Harris wins, we're going to get big spending and huge deficits. If Trump wins, we're getting a tax cuts and huge deficits. So it's going to be a choice between huge deficits and huge deficits. So why are we surprised that at the top level, you know that you're not really seeing much movement between stocks, bonds, and the dollar around the equator around the election? Now, if you drill down, you look at prison stocks, Trump is a law and order guy, or, you know, if you look at the pot stocks or something like that, sure, you might, you know, because of the legalization of pot pushed by the Democrats, you might be able to find some trades down at those levels, between the Republicans and the Democrats, or maybe the defense stocks do better under under under Trump and the technology stocks do better under Harris, or something like that? Sure, I'm open to that idea that those those could definitely happen as well. But I don't think that there is a Trump trade, or a Harris trade at the top level, that's good or bad. You know, if you're an investor at the top level, you don't need to be worried about which one is going to win. It's going to really, you know, come down both ways. Now, the caveat I've given that is unless there is a wave election, if Trump wins, and he brings in a significant majority in the House, in the Senate, of Republicans with him, then that could change that calculus. But it doesn't look like a wave election right now, or at least not yet. If it is going to be one. Still did, oh, Harris, if Harris wins, and she brings in a Democrat wave, that could be the case, the most likely case is kind of what we have now divided government, that, you know, one party Trump or Harris wins, and then the other party holds something on the other side. And I'd say that's important, because I'll remind people that, you know, a lot of left of center economists keep talking about Trump wants to cut the corporate tax rate to 15%. And it's going to do this, they're going to do that if he cuts, he can't cut the corporate tax rate to 15%. He needs to intern 18 Senate 218 congressmen and 51 senators to agree with him to cut the tax rate to 15% for corporations. And if there is a Democrat house and or a Democrat Senate, it ain't gonna happen. So you got it, you know, it's like, we all have to go back to eighth grade government class and remember how the government works. They've got you know, the President is not a monarch, he doesn't get to decree what the tax rate is going to be. It needs to pass to an 18 congressmen and 51 senators, and unless we have a wave election, that's not going to be likely. Similarly, Harris will spend money on this and spend money on this and that and this and that, and, but not if we have a Republican something, because she can't spend the money, she would have to have a bill in Congress passed to spend the money. And if there's a Republican something, that bill will never pass. So that's why another reason why I don't think that there's a Harris or a Trump trade, because there's a widespread belief that there's going to be divided government coming out of it which way whichever way we go, at least now, you know, there's still 100 days left and that can change James Connor 44:31 So much can happen in the next few months. So before we wrap up, Jim, I'm gonna put you on the spot now. And the first seven months of the year had been pretty good for the broader indices, the s&p and the NASDAQ. Where do you see it going as we go into year end, is this curve pullback a buying opportunity? Jim Bianco 44:48 I think that you know, after a huge run in the market, and the rotation that you've seen, I wouldn't be surprised if if we ended the year fairly close to where we are now media percent or to lower If so that means you'll end the year with, you know, 15 ish percent gain for the year which is already in the books. I think the NASDAQ, especially the end dx or the QQ Q ETF are going to do a little bit worse, because the volatility of the max seven and they've got bigger room to pull back. But then I think that the Russell 2000, which has been a terrible underperformer, like the bank stocks, that could continue to do a little bit better, and maybe should be a little bit higher. Remember that that that index, it's all time high still back in 21. So it's still going on three years without making an all time high. With the s&p last all time high was three weeks ago, just you know, and it's made like 100 of them since 21, new all time highs as well. So I think that they're going to probably continue sideways interest rates, I think they're going to head higher, I think interest rates are going to head higher, because the economy's Okay, and inflation is going to be sticky. And I think that, you know, there could be a fear that if the Fed does cut rates that they might be igniting start stimulating an economy that doesn't need it, and they could be igniting even more inflation, that's not necessarily a bad thing for bond investors, because bonds have a yield now. And there's a decent yield of over 5%, in a lot of the places in the bond market, especially when you look at corporates, and you look at mortgages and the like you can get five plus percent yields. So you've got a yield play in bonds. And if interest rates continue to go up, you'll just have more of a yield, yield play in bonds. And in the dollar, I think the biggest driver of the dollar has been different interest rate differentials, if US rates are heading up, the dollar will probably stay strong. For those that asked, you know, argue, you know, the dollar, you know, the Saudis stopped, you know, saying that they will use the dollar to price, the oil and the end of the reserve currency and the end of dollar hegemony? What's going to reach what's going to replace it, just tell me what the replacement is. And please don't insult me and tell me it's Bitcoin because Bitcoin is nowhere near close to being ready for it. Neither is the euro. Neither is the end, neither is the one. So you know, to kind of paraphrase Winston Churchill, the dollar is the worst reserve currency ever created, except for every other choice. So it will remain the reserve currency by default. Now, it's not a good reason to be a different, you know, hey, we're the reserve currency by default, because there's no other choice. So we could continue to be irresponsible and reckless for a while. But eventually, if you do it long enough, a another choice will come along, and everybody will run to it. And then the dollar will just instantly stop being the reserve currency and cause a lot of problems. So I don't think that that's immediately in the future. So I kind of bullish on the dollar, and I think it's going to move higher through the rest of the year. James Connor 47:47 A lot of very interesting points. And I want to thank you very much for spending time with us today. If someone would like to learn more about you, Jim, and follow you online, where can they go? Jim Bianco 47:55 So I'm gonna give you two options. Bianco research is the name of my research company. You can follow me on Twitter axe now at Bianco research on YouTube at Bianco research as well or at Bianco research.com is our website or me on LinkedIn. It can be awkward. The other option I would give you is we do manage a fully invested fixed income ETF. It is you could find out more about our ETF at Bianco advisors.com and its its ETF symbol is w r we manage an index and then there is a tracker ETF similar to s&p manages the 500 and spy tracks it. WTBN. It's a Wisdom Tree ETF WT Bianco Nancy wisdom Bianco finance WTN is to tracker ETF for our index that you can find out more about it Bianco advisors.com. James Connor 48:52 That's great. We will put all the details in the show notes below. Once again, Jim, thank you. Jim Bianco 48:57 Thank you. James Connor 48:57 Well, I hope you enjoyed that discussion with Jim Bianco. I always enjoy speaking with him because he covers so many different asset classes and he's such a great speaker. If you're trying to figure out how to prepare for your financial future consider having a discussion with a wealthion endorsed financial advisor and wealthion.com. After providing some basic information wealthion will put you in touch with an editor advisor. There's no obligation whatsoever to work with any of these advisors is a free service that wealthion offers to all of its viewers. Don't forget to subscribe to our channel wealthion.com and hit that notification button to be kept up to date on upcoming events. I want to thank you very much for spending time with us today and I look forward to seeing you again soon.
