Are we on the brink of the next financial crisis? Peter Boockvar joins Anthony Scaramucci to explain central bank policies that could trigger economic turmoil and his outlook on the state of the economy. Join Anthony Scaramucci in this episode of Speak Up, as he sits down with Peter Boockvar, Chief Investment Officer at Bleakley Financial Group and CNBC contributor. Boockvar shares his insights on the impact of central bank policies, the challenges posed by rising interest rates, and the potential for a financial crisis. During their discussion, Peter and Anthony also touch on the consequences of excessive government spending, the role of central banks in moderating inflation, and how each of these factors could lead to a significant economic downturn.
Peter Boockvar 0:00 For as long as you know, for 40 years people have been talking about debts and deficits and it never has mattered. I do believe that now it does matter. And the question is okay, it matters for what? Well, I do believe that it matters. Now, for interest rates. It matters now for the reserve status of the US dollar, the value of the US dollar the purchasing power of the US dollar. Now, I do believe the reserve status the US dollar will maintain itself, but it's getting chipped away. You look at over the last couple of years, you have Russia and Saudi Arabia, dealing with China in non dollars and dealing with their own currencies. China buying soybeans from Brazil, in renminbi not in dollars, because they don't want to hold as many dollars. They see the the debt and deficit trajectory of the US. Anthony Scaramucci 0:55 I am welcoming to speak up Peter Boockvar for he is a economist extraordinaire. I Peter, I think I've known you for 22 or 23 years. I mean, going back to your Miller Taebaek days if I remember correctly, right. I mean, we know. Peter Boockvar 1:12 Right? Yeah. Anthony Scaramucci 1:13 Very, very long time. Okay. You're the chief investment officer at Blakely Financial Group. Now, you're also a contributor at CNBC. And, but you're a great guy. And I will tell you, you're a volume turner upper. So what I mean by that, I watch CNBC all day. I watch all kinds of talking heads go on there with the gesticulations. Oh, there's Peter. I take the control. And I put and I raise the volume. I want to hear what you say. So let's get right into it. mortgage applications are down 5.2%. Purchases are lower by 4.4. And this is the housing market, of course refires are down 6.8%. This is all the numbers that have come out fresh. What say you about this? This is the lowest the index has been since 1995. Are we worried? Peter Boockvar 2:05 Well, I think for the US economy as a whole. It's remarkably mixed and uneven. And narrowing it down to the question on housing. It's extraordinarily mixed as well, you have the pace of existing home sales, as you mentioned, that are near the lowest level in 30 years. But on the flip side, you have the new build market doing better because we of course need more inventory, and builders are able to provide that. But even within the new construction market, you have bigger builders that are taking market share that are doing better than smaller builders, bigger builders are able to provide incentives that are able to buy down your mortgage, whereas the local builder doesn't have that capability is dealing with the higher cost of capital and seeing a slowdown in their construction. Overall, new home sales are sort of middle of the road. And of course, we know affordability mortgage rates being high, or all the major impactful influences here on the housing market right now. Anthony Scaramucci 3:05 Okay, so I'm putting you in charge of everything. Okay, you're very smart, you're rational guy, you're a moderate guy, you're a data guy. You're now in charge of everything. Here's the economic dashboard of the US. What do you do from a fiscal and monetary perspective? To increase people's living standards and help them right now at this period of time. Peter Boockvar 3:30 On the fiscal side, the government has to reduce the rate of spending increases to something like two to 3%, not the 567 percent. And because then we'll never actually see a reduction in spending. It's the question of moderating the rate of increase and get something more to a trajectory that we had before all this COVID spend. And two to 3% of the reason why throw out those numbers is because pre COVID, inflation was around even one to 2% some giving it some extra room. But slowing down the pace of that increase will go a long way in resetting the fiscal side in terms of the budget deficit and debts and deficits now, that will have a short term impact on economic growth, because the bigger deficits floating through the economy, but it is a better long term strategy in terms of maybe moderating the pressure points on inflation that's being fed through Excessive government spending. Now, with respect to monetary policy, you go back historically, monetary policy and interest rates or about where interest rates were before the great financial crisis. The problem was the 15 years of artificially low interest rates that make the transition to more normal normal ones. A very difficult one to make. For example, that we as we well know that 3% mortgage that is now repricing an eight nine and even to double digit type interest rates, right? What is something that takes years for us to transition to even though current interest rates, bigger picture longer term is a good thing to have positive real interest rates, interest rates that are about two to 300 basis points above the rate of inflation. Now, what I would do, I was in Jay Powell we'll see, right now he's dealing with the fear of having inflation re accelerate. And but at the same time, seeing that there's some sort of air pockets being found in the economy, particularly labor market, where there's a slowing demand for workers, there's an uptick in the unemployment rate, and how does he balanced that? And that's a difficult job for him, I would be cutting rates maybe once or twice this year, taking a step back, see what happens. But the days are going back to zero or over. Anthony Scaramucci 5:54 Okay, that means so it's all it's all. It's all grounded. I mean, I don't want to make this political because are wealthion network as opposed to be money making, but I think you're a good referee, and a good observational, so I just want to ask you, so the Trump campaign says the economy's horrific and, you know, worst economics that they've ever seen. And it's all because of Joe Biden. The Biden campaign paints a different picture. They'll say that the inflation is situational. It's it's born from the fiscal and monetary equation side of the equation that helped us during COVID. And that we're actually doing pretty well probably going to avoid a recession. Who is right, and if either one of them is right pick and choose what's right about each argument. Peter Boockvar 6:40 Well, based on my mixed view of the economy, with with every pro being matched by a con, I guess they're both sort of right. They're both sort of wrong. I see the economy right now. And putting aside the GDP number, based on a lot of corporate earnings releases and conference calls that it listen to mixed in with the data, it feels like, to me an economic growth rate of about one and a half percent, which just so happens to be weird, the q1 print came in, and q2 right now is estimated to be so one and a half percent is not a recession. It's not a tanking of the economy. But it's not a very robust growth rate. And the economy is still dealing with this cumulative increase in inflation, that since before COVID, is up about 20%. And as we know, mostly impacts lower to middle income consumers. And we're clearly getting that message from a lot of retailers that are talking about a value conscious consumer or consumer that's trading down from brand names to private label, one that is prioritizing their spend on more non discretionary stuff rather than discretionary stuff. But then you have the higher income consumer that's benefiting from 5% interest income on their savings. If you're a boomer, you're going on cruises, like there's no tomorrow, you're traveling, you're seeing the world and you're spending on concerts and sporting events, and so on. So there's a mixture of of it. I think the bigger problem is there's what I see is, while inflation is definitely moderating and could continue to do so as the year progresses, there's sort of this bid underneath inflation. And that's coming from Excessive government spending that both sides certainly are guilty of, in their response to COVID, Trump spent a shitload of money, Biden spent a ton of money, where we spent what $5 trillion in a very condensed period of time, which was a 20 plus percent touch points of GDP. You know, that was an extraordinary number, unfortunately, keeping spending rates not in a trajectory, the same, but the absolute levels that are still the same, we're not taking back any of that. It's to that bid under inflation, that causes stress for many households. Anthony Scaramucci 8:49 So is it possible given the two presidential candidates and given what you know about the Fed? Will they slow down spending? I mean, this is a staggering statistic, but I'll give it to you George Washington to George Walker Bush $7 trillion. Barack Obama, Donald J. Trump, Joe Biden: $28 trillion. So we've gone crazy now with the deficit spending. And I guess the question is, are we ever going to rein that in? And could the Fed ever get back to that 2% designated inflation number? Peter Boockvar 9:26 Well, the problem as we know is we have the non discretionary part of spending, Medicare, Medicaid, Social Security that is on autopilot. The problem now is we're adding a fourth line item to that autopilot nature, and that's interest expense. And now interest expense on an annualized basis at current levels of interest rates are around a trillion dollars for exceeding the spending on defense. And that is unfortunately a line item that only gets worse as the years go on from here as soon I mean, we don't go back to zero interest rates, which I think is an impossibility. So and you have a budget deficit as a percentage GDP at 6%, which, historically speaking, is what you usually see at the trough of a recession, like you did in the early 80s recession. You saw in the 1990 91 recession, you saw in the 2000 2001. Recession, we got to about 10%, during the great financial crisis, and I'll put away COVID Because, you know, that was an abnormality. So you can assume if the economy softens from here, if the unemployment rate goes up from here, and tax receipts shrink, that budget deficit, as a percentage GDP, potentially could approach 10%. And it's raining that in unfortunately, we know congress and Washington will only respond in a crisis. How I would define an urgency moment in Washington to address this is if the bond market revolts, again, from here defined as the 10 year yield goes to five and a half to 6%, in a very short period of time. Until that happens, we won't get any change in policy. In Washington, whether it's Trump or Biden, it's only if the bond market forces them to make the change, because now interest expense is a major problem for that city. Anthony Scaramucci 11:23 It makes sense everything you're saying. So we, we ask our guests to come up with some actionable ideas. We've got people that are interested in putting the money to work like today. And so we always ask one question of our guests. What's actionable right now, Peter, given the landscape of everything that you've just described. Peter Boockvar 11:43 So my favorite asset class and we're long for full disclosure are commodity stocks. Its energy on this pullback. It's Agricola tree that you can play via fertilizer stocks, like mosaic and nutrient. We've been bullish on uranium. And while a lot of the sort of easy money has been made, I still think that there's further upside that you can trade through ETFs or Cameco. Copper, I believe, has had a nice run, but still has a lot more to it. And also precious metals. I've been bullish on precious metals for a while. So it's not like it's a new idea for me. But I do think the trend between central banks stocking up because of both the the desire to diversify away from dollars, and also post the confiscation or freezing of Russian assets. That also leads to more central bank buying, in addition to we could be on the cusp of the Fed cutting interest rates, they've already slowed down QT. And that could also be another lift to gold and silver. So to me, those are the attractive actionable ideas. If you track commodity prices relative to the s&p 500 commodity stocks, or one of the cheapest levels we've seen going back to the 1970s. Anthony Scaramucci 13:02 One commodity that you didn't mention, which I gotta bring up because it's sort of an elephant in the room for me all the time. Is bitcoin is and I guess the first question is in your mind, Bitcoin a commodity seems like Gary Gensler says it is a different type of commodity and the ones that we're using day to day like the ones you're referencing, but if bitcoin is a commodity, would you include Bitcoin in that commodity basket? Or? And if not, what are your thoughts on Bitcoin? Peter Boockvar 13:28 So as a bull in gold and silver, I appreciate the creation of Bitcoin. I appreciate the desire to own an asset that's finite in nature in terms of its supply, that can't be printed away by central banks. So I appreciate and I respect Bitcoin. I also see it though as similar to other assets that are finite in nature in terms of them not making any more of it, like a Mickey Mantle baseball card, or 1965, Ferrari or vintage painting, and that Bitcoin has the benefit of being able to treat it 24 hours a day, seven days a week, but it's still an asset limited in nature, similar to those others. So there's definitely a place for Bitcoin. I've tended to lean more towards gold and silver to sort of satisfy my macro belief on that. But I don't want to downplay Bitcoin now. One of the things that need that Bitcoin has not yet become that maybe was an initial hope was... Anthony Scaramucci 14:36 You're not a baby boomer Peter. You're not old enough to be a baby boomer are you? Peter Boockvar 14:40 Yeah, no, no, I'm not I'm very much. Anthony Scaramucci 14:42 I mean, are you going on cruises? And no, no, no. I'm very a Gen Xer. Yeah just asking because you don't you don't look like a baby boomer you don't you don't manifest like a baby boomer and so I mean, that was a little bit of a baby boomer statement about gold and silver, but I'm I'm with you. I get it. I like gold and silver. Peter Boockvar 14:59 Gold and silver had the benefit of 5000 years of history. So you lived through a lot when you're been alive for 5000 years. we're buying it at Costco now. So Anthony Scaramucci 15:13 Listen, I mean, somebody I think, told me over the last two years or gold has done way better than the s&p 500. Imagine the commodity gold has done better than the 500 best companies in the United States. And so, I am, I'm with you, I and I like all the great deal, I'm just teasing you. Because I don't see you ready? For those like Skechers shoes walking the, you know, the outside perimeter of a cruise ship. But I mean, maybe that's just me, I just I don't see it. Peter Boockvar 15:44 You know, I try to you know, I'm still that's why I've been trying to be very respectful of Bitcoin, because I feel like a gold bull and a Bitcoin bull were our sort of soulmates, and they can sort of express their, their investment in different ways they can do it in both ways. Like I always, you know, a couple of years ago, when I was told a bitcoin is going to replace gold. I said, No, something that's at the time, 1314 years old, is not replacing something that's 5000 euros old, but it can complement each other. They can, they can join at the hip together. And I think one of the things that that needs to change winner for Bitcoin, at least in the US, it in terms of it making a form of payment, is the tax consequences of a transaction needs to change, right, go into a store to buy something I can't have to worry about, I'm going to pay a capital gains by selling Bitcoin in order to buy that jacket. That is what at least in the US will limit it from a medium of exchange. Other countries, it's going to be a great thing where sort of that bypasses any corrupt financial system and allows people to transact without tax consequences. So now, there was a price because you taught us the question about in actual investment ideas, I'm just personally more comfortable having an idea of where the price of gold and silver may go, based on central bank balance sheets, based on where they've been based on inflation adjusted levels compared to the 1980 peak, for example. I just don't have an opinion. Either way, I just don't know where Bitcoin goes a price. Can it go to 300,000? can go to 500? Go to million? Absolutely. Getting 30,000? Sure. I just don't know. Anthony Scaramucci 17:36 Okay, I'd say I think it's very fair comment there. I just, I love getting your perspective, because in a world of extremists, you're a man of balance and reason. And so I don't know if that's a compliment, though, Peter, because of balance, and reasonable people don't seem to be getting the attention right now. But you deserve the attention, which is why I wanted to bring you on. I, I have a theory, and I'm gonna test it on you and I want you to react to it. I have a theory that this generation of leaders is going to run us into a debt crisis. It's just looking like an absolute slow motion train wreck, though, let's add, whether it's Joe Biden, or it's Donald Trump, they're going to add four to $6 trillion to the deficit. If rates don't go down, it sounds like they're sticky, with a slight downward trend because of productivity and AI and things like that. But we'll be staring down the barrel of one and a half to $2 trillion worth of interest payments. And so if I'm right about this, what happens to the United States? And what happens to the economy? What happens to the average citizen knighted states if a president in 2020? Let's say 2029 2032? has to say, Geez, I'm really sorry, we just ran the country off the cliff, we have $45 trillion of spending now we're just going to make money from our printing press to pay the interest on the money and your living standards are heading south as a result of this, what happens and how can we course correct it? Peter Boockvar 19:17 Well, I'll lay out what that would look like. In terms of the market Anthony Scaramucci 19:21 Do you think that's a possibility sir, let me say that Peter Boockvar 19:24 100% possibility. Anthony Scaramucci 19:26 All right. So then what happens? Peter Boockvar 19:28 For as long as you know, for 40 years, people have been talking about debts and deficits and it never has mattered? I do believe that now it does matter. And the question is, okay, it matters for what? Well, I do believe that it matters now. For interest rates. It matters now for the reserve status of the US dollar, the value of the US dollar, the purchasing power of the US dollar. Now, I do believe the reserve status the US dollar will maintain itself, but it's getting chipped away. You look at over the last couple of years, you have Russia and Saudi Arabia dealing with China in non dollars and dealing with their own currencies, China buying soybeans from Brazil in renminbi not in dollars, because they don't want to hold as many dollars. They see the the debt and deficit trajectory of the US. So what the crisis situation would look like is back to my earlier point is you would see a revolt in the bond market, you would see the 10 year yield, go to five back to 5%. Back to go to five and a half to six in sort of an uncontrollable way, because the bond market has a failed auction, because they're getting overwhelmed with the amount of supply coming from the US Treasury to finance these exploding debts and deficits, then all of a sudden, the Fed has to step in, they try to lower short term interest rates. But that backfires, because the market starts to get worried about higher inflation, long rates continue to go higher than the Fed reverts to QE to do what the Bank of England did with stemming the spike in gilt yields last year, and then all of a sudden, in response, the dollar tanks, and then we start importing more inflation, because oil goes to $100 and other commodities go higher. This is what the crisis in terms of the market and economic reality would be to that, then, of course, that puts that that affects the stock market, the stock market falls, the wealth effect then flows through the higher income consumer spending. So the hiring income consumer that's really keeping the economy of fluid, they pull back their spending, higher inflation negatively further impacts the lower income consumer, we're in a deep recession. That's the bad scenario, then your question is, is how does the government then respond to that? And that's when they'll have to make the very hard spending decisions, which has been done in the past Canada had a major budget debt and deficit problem in the 90s. And they slowed the pace of spending. So it can be done. But we know Washington won't do it until these bad things starting to happen. Anthony Scaramucci 22:01 It's a sad thing. You know, unfortunately, yeah. All right. Let's take some viewer questions. We get all these great emails that come in to us. If we were to go into a recession this year, what would happen to the housing market? As they haven't done cutting ranks? Does gold and crypto start going bananas? If a recession were to happen, this is Ben from Australia. Peter Boockvar 22:24 Well, it's a push and pull with the housing market. Because on one hand, if you go into recession, maybe you do you do see a short term drop in mortgage rates that could relieve some of the the pricing and funding pressure. And maybe but on the other hand, people start losing their jobs. They need to sell their homes that can create more supply in the housing market, which lowers the prices that could lead to some demand, but then these people losing their jobs. You know, they gotta go somewhere, or maybe they're renting. So they're there. It's not an easy answer to to an easier question to answer where the housing market goes, because you'll see maybe more supply lower prices, more greater affordability, but on the other hand, people losing their jobs. And you know, that's not not good for the economy either, where crypto goes up and gold, we know that the Fed is going to try to offset any any economic weakness through rate cuts. Now, long rates may go up on that if the bond market thinks that the Fed is loses backing away from the fight on inflation, but you can be sure the Fed cuts rates is going to be good for Bitcoin and gold. Anthony Scaramucci 23:30 Right? Amen. Okay. This is if my Roth IRA custodian does not offer any option to invest in cryptocurrency. What do you think of opening a second Roth IRA just to be able to buy it? Or is there a better way this is Chuck from Pennsylvania and so I have mine at fidelity. And so I would tell you, if you want to own Bitcoin, again, we're not, quote unquote, allowed to give financial advice. But what I am allowed to say is where custody situations are for IRAs, and they are at fidelity. And so if you want to use fidelity, very, one of the oldest and largest asset managers in the world, and they were very early in the space, and I'll just point out that I, a lot of my bitcoin exposure is held at Fidelity digital assets. Let's go to question number three. Peter Boockvar 24:23 I want to just chime in with Bitcoin, which will be really interesting to see is, is we need to see Bitcoin, become less correlated with the NASDAQ, and become more correlated with gold. And so a tight relationship with Bitcoin and the NASDAQ and the triple Q's and Ark, I think it became less correlated with that and more correlated with you know, we're, we're reverse correlated with the dollar and more correlated with commodities and gold. Anthony Scaramucci 24:56 I think it's an interesting point and again, just offering my opinion, I think Bitcoin is still an early adopting asset. I don't see it as a competitor to gold yet at this time, it only has about five to 6% adoption, depending on how you're measuring it, which would put it in web one terms, it would put us back to 1999. And so we've had 10 or 15 years ago, before, I think you start to see what you're suggesting. And I would just point out something like Amazon, extremely volatile, went public in 1997. Had good 15 years plus of extreme volatility, when it started to get baked into the s&p 500. And in the large cap, scaled asset category, then it started acting like the s&p slash the NASDAQ. And so I don't think bitcoins there yet, which is why I think there's an opportunity upside opportunity in Bitcoin. But of course, if we're right, then you're correct, it will end up tracking and looking like another commodity, it'll look like a store of value equivalent to things like gold and other things that we've traditionally use for store of value. But we'll see, in today's commerce, should usury be limited to say the Feds prime rate, credit card interest rates of 20% plus seems so excessive, as to make borrowers debt slaves. So this is Steven from California. It's an interesting question, I'll let you take a stab at it first. Peter Boockvar 26:27 It is, but we have to look at how credit cards priced these interest rates. Because when you think about the credit card business, if you pay your bill on time, every month, you're essentially using the credit card for free, outside of maybe an annual fee that you may pay. So you have the ability to borrow money from visa from MasterCard from AmEx, for no cost in lieu in return for you paying off that bill every month. So some people don't do that. So that's why these these credit card companies have to price higher risk borrowers that don't pay their bill back at a much higher interest rate. Now, definition of usury is very subjective. And where that right rate sort of ends up at is difficult to say. But a credit card user, a borrower knows what they're getting into, before they use that credit card. So if they don't want to pay a 25% 20% interest rate on that unpaid balance, well, then don't buy that stuff. Save money. Now some people can I know they're living paycheck, I don't want to sound insensitive, but it's it. Credit card companies have no choice, but to price, a certain interest rate on those that don't pay back because they're funding all these other people that are essentially using their card for free. Anthony Scaramucci 28:00 Okay, I mean, I hear you and I think, Steven, I think it's the thing is, is that try not to borrow money on that credit card, because it is so excessive. Unfortunately for me, I get it though, I have a lot of empathy for this, because unfortunately for me, the early part of my career, I had a lot of credit card debt as I was trying to literally just fund owning a few nice suits and getting myself in a position. Try to get my career going. So I so I get it. And there's a there's a big dilemma in that space. Let's go to our last question. Looks like a lot of folks are betting big on the Etherium run. What's your take on Etherium versus Bitcoin? This is Angela from Texas. Before I answer that, Peter, do you have a take or you Peter Boockvar 28:44 I'm gonna have to defer to you, Anthony on this. Anthony Scaramucci 28:46 Okay, fair enough. And so I, I would say that we like Bitcoin full disclosure, we own some Etherium. And I probably am now going to show my baby boomer status, in the sense that if I am a baby boomer that's going to own some of these digital assets. My proclivity is to own Bitcoin. Now, having said that, Etherium has some very interesting features, including you're able to stake your theory, you put it up into the network, the network itself will actually pay you money to help verify transactions, they'll pay it to you, in Aetherium. I think it's important for people to know Angela that the Etherium and ETFs come without staking doesn't mean that you're not going to get a good investment return from them, but you lose some of the economic incentives associated with why someone would own Etherium but we're we're biased towards Bitcoin. I don't know if bitcoin is going to do better than Etherium. But I liked the liquidity features of Bitcoin. And I liked the fact that it's the grandfather, the George Washington have digital assets or what Michael Saylor calls digital property. Okay, we're rounding out to the end of the show. And I have to ask you this because I'm looking at behind you, you have a you're getting a good room rater rating from wealthion. But what is that picture behind you not the chart showing your genius put the one behind you that what is that? Peter Boockvar 30:13 So I spent a semester abroad in London many many years ago when I was in college, okay, in each of the tube stops. They had a poster. And that was the Piccadilly Circus tube stop poster that they had on the walls. Anthony Scaramucci 30:29 Okay. So you wanted to, Did that remind you of London, you go to London School of Economics, where do you go? Peter Boockvar 30:35 No, my program was like London Polytechnic, or something like that. Anthony Scaramucci 30:39 You never went to class or I mean, you could be open about that here on the wealthion network, you were just traveling Europe with your URL pass. Peter Boockvar 30:47 It was a fun semester. Anthony Scaramucci 30:51 All right. Well, it's great to be on with you. And great, really appreciate you being here with us and let's, let's stay in touch you promise right? Peter Boockvar 30:59 Would love to, great to see you.
