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In this eye-opening episode of Wealthion, host James Connor sits down with Jim Bianco, President and Macro Strategist of Bianco Research, for an insightful discussion on the 2024 economic outlook. Bianco shares his bold predictions and the rationale behind them. From the movement of the 10-year bond to an astonishing 160% rise in Bitcoin, Bianco’s views are not only thought-provoking but also potentially game-changing for investors.


James Connor 0:00
Hi and welcome to Wealthion my name is James Connor and today my guest is Jim Bianco, president and macro strategist at Bianco research. Jim and his team provide a wide range of research across many different asset classes, including bonds, equities and cryptocurrencies. And Jim is going to share his views on where he thinks these markets are going in 2024. Jim, thank you very much for joining us today. How are things in Chicago?

Jim Bianco 0:29
Things in Chicago are great. Thanks. I’m excited to be here. Jim,

James Connor 0:33
I’m looking forward to talking about the economy. But before we do that, we have to talk a little bit about hockey in the Chicago Blackhawks. They won the lottery when it came to picking Connor Barnard in the draft. He’s leading the league in rookies in terms of goals and also points. What’s going on with the Chicago Blackhawks are not doing that. Well. Yeah,

Jim Bianco 0:53
they see the Hawks aren’t doing that. Well, if you know, you remember how we remember that they won the cup in 2010 2013 and 2015. So they’re in a rebuilding process. But Connor Bedard was drafted by the Hawks at 17 years old. He’s now 18 years old. And boy, he just looks like he’s just They said he was a generational talent when they drafted him. And he really does look like a generational talent that could be the face of hockey for the next 10 or 15 years. If he continues to progress at the point that he’s been progressing at right now. It’s amazing. A kid that is just a few months out of high school, is playing in the NHL. And he’s already looking like he’s one of the better players in the NHL right now. And as we like to say, you know, if you give him three or four years of seasoning in the NHL, he’ll still be one of the youngest players in the league is 21 or 22 years old. So it’s going to be exciting to just watch his career progress and keep me interested in hockey.

James Connor 1:57
I actually saw the Blackhawks win the cup in Boston in 2013. I can’t believe that was 10 years ago. Yeah, I know.

Jim Bianco 2:05
I know. Exactly. I mean, I remember those that era of the cup, when they were very good back then. And it was quite exciting. That game was exciting that game that they won in Boston, the you know, the Hawks score two goals in the final foot 90 seconds of the game in order to not only tie the game, but then take the lead and win the cup in Boston. It was it was quite, it was quite amazing. At that point, I have a funny story about that to my I had at the time my daughter was was 16 years old. And I was watching the the that game on TV downstairs that she comes downstairs and she says, Dad, I want the living room TV to watch Pretty Little Liars. And I said I’m watching the Hawks game. And then I said, Oh my god, they tied the game. Oh my god, they’re gonna win the game. That is the most unbelievable thing I’ve ever seen. And she looks at me goes, Oh, so now I can get the TV is basically what she said.

James Connor 2:59
Oh, boy, that’s a good story. So let’s move on down. I want to talk about the economy and the markets. And you’re very positive on both. And you think you also think that 10 year bond is going to go to 5.5% by June. It’s currently around 4%. And maybe you can just provide us with some more context on why you’re positive on the economy and the markets. And why you think rates are going to be going higher,

Jim Bianco 3:22
as far as the being positive on the economy. Right now the data that I’ve been seeing is not really showing much of a soft landing, or recession, it does seem to be most of the data seems to be a trend, or maybe stronger than trend. And so I can think that the economy is going to continue to grow at trend or stronger than trend. As we move forward. The assumption that everybody is making, in talking about a soft landing, talking about a potential of a recession is the old line that the Fed raises rates until something breaks. And their assumption is the Fed has raised rates so much in the last two years, that something must be breaking somewhere, right? We had a banking crisis, we had a stock market, bear market. We you know, housing, sales are off, something has to be breaking. And I’m pushing back on that and saying no, nothing is breaking right now. That rates are not at that interest level for the economy. And without that something breaks, the economy is going to continue to move forward. And if it does, what we’re going to learn is the current level of interest rates is not a serious headwind on the economy, and that if they’re not in demand, stay strong. This idea that we’re in the last mile of inflation, to 2% more Ain’t not come to pass because demand will stay stronger than we think. And therefore rates will probably continue to start moving back up. And that’s why, like I said, you know, five and a half by mid year, you know that that call has not been working out for the last couple of months. But I’m not ready to abandon it yet. I mean, I’ve had that call for a while, I’m not ready to abandon it yet, because the data that I see with the economy is not giving me reason to think that the economy is turning south, if anything, the more recent geopolitical events, like what you’re seeing in the Red Sea, with the disruption in shipping, especially container shipping, and a doubling of container shipping to Europe, all of a sudden now of those supply constraints that were part of the reason that inflation was such a problem in 2022, might be coming back now, we’ll anywhere near the extent that they’re going to come back like they did in 2021, and 2022. But again, if the inflation rates at three, and we’re talking about it going to two, and you throw in a little bit of a comply constraint, we’re talking about inflation, spotting at three, maybe heading towards four. And that’s all I need, you know, in terms of saying that, you know, rates could go back up, you know, to something you’re well into the five somewhere in 2024. Yeah,

James Connor 6:26
I know what you mean, like I really myself, I don’t really see any pullback in inflation at all. In fact, I was at Costco earlier this week, and I go to Costco to save money, and I spent 500 bucks, and I didn’t even buy anything. Yeah, I know.

Jim Bianco 6:40
And that is that is really also what is showing up in the economy, the strength in the economy, could very well be that people are just paying up. I mean, if you look at the President’s approval rating, it’s down. If you ask people, why is the President’s approval rating down so much? They’ll say inflation? And then the administration said, What are you talking about? It was 9%. And it’s now three. But what they’re forgetting is, when the recession ended in April of 2022, today, the average price of anything in the United States is 20%. Higher, meaning you need $1.20 Today, to buy a dollars worth of stuff that you bought just four years ago. And so that extra dollar 20 is showing up in GDP, because GDP is the turnover of money, the production, the purchases of stuff, and we’re spending more for that stuff. Now the rate of change has slowed from 9%, you know, in the middle of 2022 to 3% right now. But we are not really pulling back on what we’re, what we’re buying. We’re just spending we’re, we’re paying more for it. And that does show up as higher economic activity. So

James Connor 7:52
let’s dive into that a little bit deeper, you have written that the economy is experiencing many imbalances and the new trends, and these trends have changed the economy in ways that we haven’t seen before. Maybe you can just elaborate on that and how they are impacting the economy.

Jim Bianco 8:10
So let’s start with a basic, something happened in 2020. And we all know what happened. And from an economic standpoint, we did something that even when we were doing it, we didn’t even believe it was possible. We completely shut down the global economy. And we restarted it, you know, if you want to put it in tech terms, we rebooted the global economy. I’ve been are arguing since 2020. That changed a lot of things. Now, I want to be careful on that word change. Change does not mean dystopian or worse, it means different. And different. You know, like I said, it’s better in some cases, and it might be worse. In other cases, it’s just different. And coming out of that, I think that some of the differences have been the big one that we’re all familiar with is remote work, that the attitudes about work. And the way that we work has permanently changed. I think I could go as far as say is permanently change, that we’re not going back to the office five days a week, except in some certain circumstances. That remote work, we’re also not gonna be home five days a week. So remote work that we’re going to work at home three days a week, be in the office two days a week or two days in the home. Three days is a tectonic change, culturally and economically. For us in this country. Think about it this way. In 2019, you are home to you and me, everybody else. We were home two days a week, Saturday and Sunday. Today, we might be home four days a week, Saturday, Sunday, work from home two days. Three days in the office. I’ve doubled the amount of time I’m home. What does that mean? My lifestyle has changed. I now consume different things. I consume other services I consume less of summer The things that I used to when I was in the office and wasn’t at home as much, this is really changing a lot of things. Also, I think it’s also changed the way that we view labor. You if you look at some of the economic reports like the job opening labor turnover report, which is known as the jolts report, it is showing it is still showing a high degree of quits, that’s people quitting their job, and why did they quit their job because they got another job. It’s showing a lot of turnover in the in the workforce, we’ve invented the words like quiet quitting, you know, to go with the other word, the phrase that we remember invented, remote work. Labor hoarding is another phrase that we’ve invented as well, too. People are not afraid about their paycheck, I get a paycheck, I’ll work at this job because I like it. If I stopped liking it, I’ll go find another one. And I can find another one. So if I’m not concerned about that, my propensity to spend will be higher, because I don’t need to hold more savings in abeyance, or, or have to be worried about losing my job, I’ll find another one. Labor hoarding is become a thing, especially people in the non professional categories, the lower end, you know, if you go you get a job in a big box retail, and this is a friend of mine from college, he’s telling me this story, you get a job at a big box retailer, and they do well they get promoted to assistant manager. And November comes in, they quit, why did they quit? Because they want to go to Colorado and ski for the winter? Well, what are you going to do about work, find another job in the spring, they’re not concerned, they are not going to they’ve got enough money to do that they are not concerned, fully confident that they’re going to find another job in the spring. The federal government is trying to get everybody back in Washington, DC, four days a week back into the office. Federal employees said I’ll quit before you tell me to come back to the office four days a week, they had to back off of it, why would they quit? They’re confident they can go find another job. That’s the basis for a lot of the spending. So I think when you hear people like Chairman Powell, Wall Street economists talk about that the economy is normalizing. It’s rebalancing the code words that they’re using there are trying to say, do you remember what it was like in 2019? We’re gonna go right back to that. And when I’m arguing is nope, that’s and that’s a different cycle. And that cycle is over. We’re in a new cycle now. And a new cycle, again, is different. It’s not worse. Maybe it’s not better. It’s different. And one of the things about that is difference is remote work. The other two real quick, are trends that we know that were in place in 2019, D globalization, fringe shoring, as it’s called, where people are taking and moving production, to places that seem to be a little bit more politically stable. But you know, is latest 2008. We didn’t care about anything other than Is this the cheapest place to make this widget? Yes, it is. But there this country might have human rights abuses, it might have an unstable government. Are they cheaper than everybody else? Yes, fine. We’ll do it there. Today. That’s not the case anymore. And that’s why you see companies like Apple and Google trying to move production to India, because they’re worried about the politics of China, you’re seeing companies like Intel, talking about bringing strategic stuff like silicon chips, or semiconductors, excuse me, to the United States to build them either in Arizona or in Ohio, where they’re talking about building fab plants. So that trend was in place, it’s been sped up, and that fringe shoring is continuing. And finally, energy is a weapon. That’s a new one, too, that’s come out of this. And the most, you know, high profile example of that is Russian natural gas. When Donald Trump was president, and he wants the UN in 2018, he looked at the German delegation and said, You are dependent on Russia, for gas, and it is they have a chokehold on your economy. And there’s a very famous clip of that you could probably Google it or see it on YouTube, where they openly laughed at him. They were mocking him for suggesting that that somehow Russia had something over them, because we they were dependent on them for natural gas. Well, in 2022, when the when the Ukraine war started, we found out that that was exactly the case. We’re seeing that with OPEC plus, and we’re seeing that with a lot of other energy sources, that these are valuable political weapons. And we’re using those political for using those for a political objective, as opposed to pure economics is what used to draw I’ve those decisions. So this is a different cycle. And I think what this cycle is leading us to is more wage inflation, more energy inflation, possibly more goods inflation with the globalization. And that’s why I think we’re in an era of stickier inflation, not the 2% inflation that we were up until 2020. But more of a three or 4% inflation world. Now, that doesn’t sound like much. But in the world of interest rates, it is a big launch, because that means that Welcome to the world of four and 5% bond yields, as opposed to the world of one and 2% bond yields like we were in 2019 and 2018.

James Connor 15:42
You raised a lot of very interesting points there. And I guess I just want to touch on the last one when you were talking about energy. And there’s so much going on right now, of course, this isn’t an election year in the US. And, and I’m amazed at what the US has done here. And just in the past year, as you mentioned, they released a lot of their strategic reserves. They’ve also entered into a new agreement with Venezuela where they’ve relaxed restrictions fiz, with Venezuela, so they can sell more oil and produce more oil into the open market. And then they’ve also done the same thing with Iran. And all of these movements have helped create or keep the price of oil lower as we go into this election year. What are your thoughts on that?

Jim Bianco 16:24
Yeah, exactly. You know, going back to 2022. The Strategic Petroleum Reserve, you know, was invented in the 1970s, after the Arab oil embargo was so that the US had an emergency stockpile. For an emergency 120 22 The definition of an emergency was the midterm election, which is why we jokingly renamed it the strategic bid term reserve. And we saw hundreds of millions of barrels of oil come out of that, in order to hold down the price of gasoline, you know, going into the election. Can that happen again in 2020, for sure. But the difference now is we’re starting the SPR at a much slower pace. And there’s only so much it’s now it’s a little bit more finite in its ability to be released in order to hold down gas prices. But you’re exactly right, what I think has been holding down gasoline prices which have been holding down energy, even though it’s been been used as a political weapon is on the supply side. You’ve not only have we relaxed restrictions with Venezuela, and have been talking to the Iranians about getting oil. But we’ve also quietly not really said anything, we’ve relaxed restrictions domestically, we produce 13 million barrels of oil a day now in the United States, which is a record high. And that’s definitely helping to keep the supply going. On the demand side. The biggest story on the demand side, I think, at 23 was the weakness of the Chinese economy. The Chinese economy reopened in 23. Because remember, 22, zero COVID. And people were literally locked in their homes and not allowed to leave to try and read the country of COVID, they finally gave up on their policy at the end of 22. And there was a widespread perception that the Chinese economy had all this pent up demand, and it was just going to blow the roof off with booming growth. Now it did uptick from 22, everybody was locked in their house and 22. So it couldn’t do worse. But boy, it was a giant disappointment. What the Chinese economy did in 23, their stock market was down 11% for the year, just as one example of how disappointed everybody was. And that really helped to set demand and hold down prices now on the Chinese economy side, you could actually start making the case that they might be turning the corner and actually seeing a little bit better growth and 24, which means they’re going to suck up more demand for energy, as well. So there’s been a lot of that that supply has definitely been there. Demand was was weakened from the Chinese and that helped to hold down prices. But as we go forward and 24, that might not be the case anymore, the Chinese economy might be picking up, we might be seeing issues with the supply of oil, especially again, you know, with what’s going on in the Middle East and the potential disruptions that it’s causing as well, too. But energy will be a big story for the for the upcoming year.

James Connor 19:24
No, you’re right. And it’s one of the markets that always amazes me is oil because it is so large. But I’m always surprised that the volatility it’s nothing for oil to move three, four or 5% in one day. And as you mentioned, it wouldn’t take much for oil to go from the low 70s to the low 80s or low 90s.

Jim Bianco 19:45
Yeah, you know, one of the things that’s interesting about the oil market is we have such poor statistics on it. We only impute the demand for oil. How much do we use, we impute that supply of oil Well, the Saudis and OPEC really don’t. They really don’t, you know, issue data they do, but it’s kind of suspect. So we rely on and I’m not making this up, we rely on server services that you literally use harbor. So harbor spies in order to figure out the supply of oil, that they’ve got literally guys with binoculars and they go, okay, here comes a tanker. It’s this big, it’s running at this draft. So put it in my computer, okay, it must have 800,000 barrels in it. And according to its manifest, it’s going from Saudi Arabia to United States. So here’s 800,000 barrels of oil in the United States. This is how we figure it out in 2023. I mean, as far as the supply of oil goes, I mean, the Saudis haven’t even released GDP since 2001. Because they try to keep everything, there’s a big secret. So part of the volatility that you see in the oil market is the statistics are really that good. You know, they could be a lot better, good sintering how important that commodity is, and trying to track it. And what its uses are, where the supply is coming from where the demand is coming from, I’d still say that what we’re doing is we’re doing better, but it’s still not very good.

James Connor 21:13
I want to move on down discuss the Fed, you have said in the past that the Fed has no idea what they’re talking about. Can you just elaborate on that? Well, that’s

Jim Bianco 21:21
a little strong. I said that. The Fed has no working theory on inflation. And I got that, from Dan Carrillo, who was a Fed governor from 2009 to 2017. He and I always joke that the most interesting Fed officials to listen to are the ones that recently leave, they know what’s going on. They’re no longer muzzled. And so they tell you what they really think. And when Dan Terrell left in 2017, he went to the Brookings Institute, he gave his speech, and he said, basically, he said, The Fed has no reliable theory on inflation. And what he meant by that is, everybody goes, whoa, you know, what causes inflation? And people tell you, Well, you know, it’s money supply, or it’s rational expectations, or it’s MMT, or it’s something among those or some other topic like that. Okay. His point was, go ahead and model that against the actual data, and you’ll come up with a correlation of zero. And that’s largely true. And what I said was, that’s okay, that we don’t have a, a theory for inflation. We being the entire world of economics, understanding doesn’t have a theory for inflation. But the when it comes to the Fed, and it comes to the other central banks, no, no, no, we understand it to the fourth decimal place. And we know we have these little levers that we can pull in knobs that we can turn in order to, you know, make the inflation rate do what we want it to do. No, you don’t, you’re just fooling everybody that you do. And that’s what you wind up with mistakes, like calling inflation in 2021, transitory, you know, and, or saying that in 2022, as Jay Powell said, when he wants to Jackson Hole, that the only way we’re going to get rid of inflation is there’s going to have to be pain of unemployment, and possibly a recession. And so you wind up making these statements over and over again, because you think you understand this stuff, when you don’t. So like I said, it’s fine to say, it’s an enormously complicated and hard to understand, issue, what causes inflation, and why and what causes it to disappear. But then that’s fine. And we could be in a pursuit to try and understand it better. But to kind of brush that off and say it’s all about expectations, which is what the Feds theory is how you feel about it. And they don’t even know how to measure that anyway, is where they get into trouble all the time. And that’s why, you know, I think that what we’re seeing with the Fed now, in their December meeting, declaring victory Oh, yes, we’ve we’ve licked the inflation problem we’re in is Wall Street says the last mile, we’re going from three to 2%. On inflation, we could start talking about three rate cuts in 2024. Okay, fine, maybe that’s what happens. But I’ll quote from Deutsche Bank securities that, that by their reckoning, this is the seventh pivot that the market has come to expect from the Fed in raising rates and cutting potentially cutting rates in the last two years. The first six didn’t work. So I like to know why we think the seventh one is going to wind up panning out the way that they think why inflation is going to wind up going from three to two. Now, I have a theory on inflation. And my theory is that the world changed in 2020. And that it’s going to be a little stickier than we think and that it might be that last mile might already be done right now. And that 3% ish is the low with inflation, and it will probably bite him out and start moving back up instead of getting ready to make its next move lower. And so you know, I could be just as wrong as the Fed but like I said, at least I’m up approaching it from an uncertain standpoint and not trying to pretend that I have this level of certainty, like central bankers have. And that’s been the mistake I think that they’ve made year in and year out and potentially very continuing to make that mistake. Yeah,

James Connor 25:15
it’s truly amazing how out of touch they are. But I guess the other thing, too, that comes to my mind are the number of strikes we had in 2023, I believe there was 21 major strikes, that strike being anything over 1000 people. And all of these higher prices, they probably haven’t even filtered through yet. Down to prices.

Jim Bianco 25:39
Yeah, I mean, you’re right, we did have a lot of major strikes in 23. You know, the two big ones was the Hollywood strike. And was the auto workers strike in, among the big three. Part of the reason that we’ve had the strikes, again, I think, is, if you know, when I was talking about remote work, I think that the pendulum is swung, that labor now has more power over management than any time in decades, right now. That’s why people will quit and go skiing, I’ll find a job in the spring, there’s always another job, I don’t have to worry, you know, don’t have to worry about it, just go to the mall and keep spending money, buy those tickets for that Bahamas vacation, I have a job. And we’ll keep getting a paycheck. But what if you lose your job, I’ll find another one, we’re still going to the Bahamas, that that’s the attitude that we have right now. And that’s why workers are not afraid to strike, maybe they were a little bit more afraid to strike when management had more power, or they’re going to fire us. And then I won’t be able to find a job, you know. And so but so there’s they’re stepping up. And now they’re striking. But they’re also now getting big concessions and winning on a lot of a lot of things as well, in terms of higher pay. And that will eventually show up along the line. And a good a good the leading edge of this might be what’s happening in California, California because of the Kaiser Permanente strike and and being that it is, you know, the Left Coast, they have now instituted for health care workers in California, a minimum wage of $25 an hour. Now most of the rest of the country, 16 $17 minimum wage in California is still $20 An hour above the average for everybody else. But it’s $25 an hour for healthcare workers, eventually everything is going to be $25 an hour of minimum wage, that’s where we’re going on the minimum wage, probably a lot sooner than we think in the next couple of years more wage inflation. If that’s the minimum wage, of course, the next levels higher the next levels higher than next levels higher after that. And that will show up in higher prices. I might have

James Connor 27:57
to send my kids out to California to take advantage of those. But you

Jim Bianco 28:01
also got to pay Yes, I got to pay the highest taxes in the country to if you want to go live in California.

James Connor 28:05
Very true. So okay, so that’s a good discussion on on inflation and what you think of inflation. Now we got to look at interest rates. And the consensus right now is that interest rates are on hold. And depending on whose research you look at some people I believe it’s UBS. They’re actually looking for the first debt cut to come in March. What are your thoughts on interest rates?

Jim Bianco 28:28
Well, what’s interesting about interest rates just to set the table. The Fed announced, you know it their December meeting, they put out what’s called the Dodd chart, and it’s just the median estimate of what all the Fed officials think, and that they had penciled in three rate cuts for 2024. The markets taking it one step further, it’s priced in at least six rate cuts, might be working on a seventh. What’s interesting about that is that there’s a Fed meetings in a year, and there’s a meeting of January 31. And the probability that the Fed is going to raise rates or excuse me, cut rates at that meeting is very low, it’s rough 10 15%. So it’s not going to happen in January. But if the market is expecting six, maybe seven rate cuts, that means it pretty much expecting a rate cut in every meeting this year, the next one being March, you know where UBS is talking about the first rate cut, and then in May and then in July, and then in August, and then in late October. So the Feds gonna cut every meeting up until the US election. Have they done that before? Yes to 2020. They did it in 2008. They did it but they did it because circumstances dictated it. It was the COVID shutdown recession. It was the financial crisis that dictated that the Fed get aggressive in an election year. What we seem to be saying now is no, the Fed is going to achieve a soft landing everything’s gonna go Rate and they’re going to cut every single meeting. And that’s not going to be viewed as political. I think that’s gonna be viewed as highly political is what it’s going to be. So, first of all, I’m open to the idea they may cut rates. I mean, sure, they might cut rates, I don’t think they need to. I don’t think you know, the stock market. Two days ago, the Dow was at an all time high. The economy seems to be doing okay. It seems to be weathering these current level of interest rates fine. It there’s no urgency to cut these rates right now, so I can understand why they want to do it. But I don’t see why they would do six rate cuts or something even like three rate cuts. Unless, as we progress into the year, we see serious problems with the economy. And again, I don’t see those now. Things can change. Things the Middle East can get worse. attitudes can change in this country, and spending can go away. You know, so but when that happens, I’ll adjust. But right now, I just don’t see that coming down. Because I what I see what the economy’s it’s doing fine. Lastly, tell me if you see a trend here, two years ago, in 2022, the beginning of the year forecast was inflation would be transitory. So therefore, interest rates will fall, that wasn’t the case. Last year, the consensus forecast was we’re going to have a recession. So interest rates can fall. That wasn’t the case. This year, it’s we’re gonna have a soft landing, and inflation is gonna go back to two. So interest rates can fall, Wall Street is telling you what they want, not what’s going to happen, what they want is they want lower rates. So they always start, it seems like they start with, Okay, what’s your outlook for this year? Well, our outlook is going to be interest rates are going to fall, please find me a reason to justify it. And two years ago was inflation is transitory that it was we’re gonna have a recession. Now it’s we’re going to have a soft landing. But they’re always have the same conclusion, interest rates are going to go down. And so I think that they’ve been wrong the last couple of years, because they’re not forecasting what’s going to happen. They’re forecasting what they want. And I still think they’re forecasting what they want, with all these rate cuts, and we’ll see whether or not that’s what actually happens.

James Connor 32:17
So you made mention of the fact that the Dow is at or near an all time high, and so two or the other indices, but and a lot of that is based on the expectation of lower interest rates. But do you think the markets have gotten ahead of themselves

Jim Bianco 32:30
ahead of themselves to the extent that what seems to be the driver, let’s talk about the stock market. What seems to be the driver of the stock market is interest rates. So let’s go back to late October 10 months, we’re done of the 12 months of 2023. The s&p was up 7%. But if you took the seven Magnificent Seven stocks, which are 30% of the s&p seven stocks, and you looked at the other 493 stocks as a group, they were down in the year, at the end of October, the mid caps were down in the year at the end of October, small caps. The Russell 2000 was not only down in the year, it actually took out its 2022 low, it actually made a lower low by the end of October. So you know, there’s roughly 4500 4600 stocks in the United States, seven of them, which are $9 trillion in market cap, so they’re not insignificant. We’re up 40% 4593 of them collectively, we’re down in the year by the end of October. But we have 4.9% GDP growth. Third quarter earnings were rolling through in September and October and they were pretty good in the stock market kept falling and falling and falling except for seven stocks, which were driven by their own myth narrative about artificial intelligence and they were kind of immune to the economic cycle. Then in early November, we had the Feds quarterly refunding announcement or not the Fed to Treasury’s quarterly refunding announcement, where they said that they’re going to issue less notes and bonds than people thought we had the inflation report, which came out better than expected in mid November, and the bond market took off, and so did the stock market. So let’s talk about what really drives the stock market. On the one hand, I could give you hundreds of economic reports and 1000s of earnings reports that say everything’s good. Or I could give you a bond rally and the stock market saying you can keep all your earnings reports in your economic reports. Give me a bond rally, lower interest rates, that’s what’s going to drive it. Now. Why is that driving it? Dr. Jeremy Siegel, who wrote the great book stocks for the long run. There’s a new edition of it out this year. I’ll summarize it real quickly. What is the long term potential of the stock market? You buy stocks and you do the Warren Buffett thing, don’t even price them for five years value them in 10 years, you should reasonably expect that you should get about an 8% rate Turn on stocks now in the last two years, they’ve given you zero big down and 22, big up and 23. But you should get about 8%. Okay, in 2019, if they pretend if the potential for the stock market was 8%, your money market fund was giving you zero, Tina, there was no alternative. So you’ve kind of shifted into something that was going to give you a return, like the stock market. But in 2024, your money market fund is yielding over 5%. You’re getting about two thirds of that 8% gain in the stock market with virtually no market risk. What is it worth to extend out that final third? It’s a very different equation, there is an alternative. And the alternative is the bond market. So why did the stock market take off in the last two months of the year when the bond market took off? Because its biggest competition is yields. And if yields go down through a bond rally, then the stock market looks relatively more attractive. When yields go up. It looks relatively less attractive. So when I talk about the economy’s okay, maybe inflation is a little bit sticky rates are gonna go back to 5%. Does that sound like it’s bullish for stocks, you’re you could argue that it’s going to mean decent earnings reports better valuations in the stock market? Sure it will. But it’s also going to have the hurdle of yeah, that’s all looks good. But I’m getting most of the stock market’s gains, without taking much of any market risk in bonds, or in short term bonds or in money market funds. Thank you very much, I’ll just stay right here. And you’ve seen that with the flows, gigantic flows into bond funds, gigantic, a trillion and a half dollars, went into money market funds, that’s rational they’re giving you 5% is why that money is going into money market funds. Cash is not trash anymore. That is an old cycle that’s over with now, with these much higher rates. So I think that really yields the stock market are really going to come down to or the stock markets really, its fate is really gonna come down to what yields do, if I’m right, and we see real start trending back towards 5%. It’ll be like 23, it’ll be a slog, it won’t be a bear market, you won’t be losing tons of money, that would only happen if things go bad. But if I’m saying things are going to be good, and that’s going to drive rates up, and we can handle those higher rates, the stock market would probably be more of like a slog, like everything other than the Magnificent Seven was in 23. If we get the proverbial soft landing, everything’s good, inflation comes down, interest rates come back off without creating inflation, they’ll do very well. But again, it really comes down to the reaction to the interest rate component, because that’s what we saw last year. And I think it’s going to continue through in 2024.

James Connor 38:00
Jim, you and your team have done a lot of work on cryptocurrencies and Bitcoin and I want to get your views there. Bitcoin was up over 160% in 2023. So a significant move. What are your thoughts on Bitcoin?

Jim Bianco 38:14
In the big picture? Over many years, I’ve been very optimistic about cryptocurrencies. I think that they have the potential to be a new type of financial system, a permissionless decentralized financial system, that no one can limit your money. No one can debase your currency, no one can tell you what you could spend or not spend your money on. Now everybody listening to me, he’s gonna look at me go, this is a scam. Or why do we need this? Because we’re in we’re the apex predator, we’re in the biggest financial system and the most rule of law with the reserve currency. But 2 billion plus people live in either Asia, Africa or Latin America, where they have shaky governments questionable policies, that their central banks, their commercial banks cannot be trusted. They they’re subject to either failure or bank runs. And they don’t know what to do with their wealth. The US, the Western world has had 150 years to extend their rule of law, their banking system to the rest of the world, we can’t do it. It’s it’s it’s almost highway robbery, how much it cost a migrant worker to send money back to their country, in terms of fees, delays, bank notices, and everything else that they have to go through to try and wire money back to their families. We’ve had 150 years to fix it. It’s interesting. Somebody pointed out to me once that the average migrant worker, if you are from Ecuador, and you work in the United States and you earn some money, you I send it back to your family in Ecuador. It’ll cost you about 3% of your paycheck. And it will take you about a week to send your money In 1871, Western Union invented the telegram money, where you could telegram money to somebody through Western Union in 1871. And it cost you about 3%. And it took about a week. And but in 1871, they had to physically put coins and bills in a saddlebag and write it to you on a horse. And in 2024, they don’t have to use a horse, but they still chucked you exactly the same amount. And they still take exactly the same amount of time, we’ve improved our financial system for the rest of the war, the rest of the world hasn’t seen the improvements of our financial system in 150 years, they’re looking for a new one. And cryptocurrencies might be that new one. So it could be something that you see from the rest of the world, we will be the last to adopt it, not the first adopted. So that’s been my short answer for why I’ve been optimistic. It’s not ready for primetime, but it’s getting closer every day, in terms of what they’re doing with decentralized finance. And with a lot of the Koch tokens and currencies, shorter term, the big story there is going to be the potential of a Bitcoin a spot Bitcoin ETF spot, meaning it actually owns physical Bitcoin, as opposed to a derivative like a futures contract, which we already have and have had since 2018. There’s 14 of those ETFs in registration with the SEC, now the week of January 8, we’re supposed to, that’s the week that everybody in the space is all excited that there’s supposed to be an approval of these funds. Now, I think if they get the approval, they’re gonna get the approval of all of them at the same time. We’ve seen that with the Aetherium ETF and stuff because there’s such a giant first mover advantage and cryptocurrency they can’t just let Blackrock go first. Because once whoever goes second second win, so they’re all going to get into probably at the same time, and they’re gonna say Have at it, guys, you guys figure out who’s gonna be the winner. And there’s no high expectation we could January 8 is when we’re gonna get that we’re gonna get the listing almost immediately after that bid wise is already got the you know, the most interesting man in the world commercials, advertising for their E for their ETF and it doesn’t even exist yet. Right now. So that’s that’s all coming in. In the next couple of weeks, I’m kind of a little bit skeptical that that might be a kind of sell the news because the hype has been so enormous. The run up in the price, as you pointed out, it’s up 160%, it’s up 70% From mid January from mid June, excuse me, when Blackrock file for a Bitcoin ETF. So it’s really been up quite a bit, and we’ll see whether or not it pulls back as much as it does. Longer term, I also have a little bit of a concern. As I explained you, I like decentralized finance, I like the idea that you’re building an alternative financial system. But what you’re doing with an ETF is you’re kind of sucking it back into the existing financial system, and not letting it be independent of it and trying to do something new. And I’m afraid that if we do too much of that, we could kill innovation. And we could just turn it into basically a gambling token. Oh, who cares? Well, I don’t want to I don’t want VCs to be funding some other new project to try and advance decentralized finance, just start another ETF and hype it to everybody to put their money in. So as they like to save crypto world number go up. So I am very bullish on it for a very long term. I think it has a lot of potential. Potential is the key word there. Especially for like I said, Asia, Africa, Latin America, certainly the current financial system we live under has not as failed them, it’s failed them. And it’s not that that’s not going to be the answer for them to get a more stable few of money. Last thought for you to keep in mind is remember 80% of the world has a mobile phone. If you’re a refugee in a camp in Africa, you have a mobile phone. If you’re a subsistence farmer in Latin America, you have a mobile phone. So if a digital currency comes along, that can be a store of value on an electronic account, access via mobile phone. Almost everybody has one of those right now. And so that’s where this real potential is because otherwise without it, where do they keep their value? Where do they keep their worth? their net worth? Where do they keep their money? Do they keep it in a rickety banking system that subject to fraud and failure in some of these third world countries? Do they keep it in something physical that can be stolen from them or destroyed in fire? Or do they put it into a password protected digital account? Like I said, could that password protected digital copy a JP Morgan account or Citibank account, or Toronto Dominion account? Sure. They’ve had 150 years to do it and they haven’t had it. It hasn’t happened yet. So it I don’t think that that’s going to be where they’re going to do wind up doing it. So I think that this, this is probably going to fix a need for a big part of the world. But the big part of the world that doesn’t need it is Europe, America and Canada. And so that’s why I think you see a higher higher degree of skepticism in Europe, America and Canada over a cryptocurrency just you have to understand what it’s trying to what what problem is trying to solve.

James Connor 45:24
A lot of the advantages of cryptocurrencies of Bitcoin, specifically, are the same ones that are associated with gold. Do you think Bitcoin is overtaking gold?

Jim Bianco 45:38
It is a competitor to gold, it uses a lot of the same arguments. I’ve heard a lot of people in the crypto space say, Oh, this Bitcoin ETF is really bullish, because think of all the wealth managers if only 1% of all the money in the in the wealth management community goes into cryptocurrency, its price would soar. And I was like, you know, I’m old enough to remember that that was the reforming for 25 years about the gold market. If only 1% of all of the wealth was in gold, or 3% was in gold, the price would be $3,000 or something like that. That’s been that’s an argument that’s decades old. Is is what it is. But to the extent that the what is gold’s promise, is it supposed to be a way to get your money out of the financial system? When you’re worried about the health of the financial system? Where do you go, it’s really hard, but one of the places you could go is gold. And now you’ve got cryptocurrencies that could compete with if kind of the same reason. And by the way, I would argue what I’m arguing about with the ETF, I got that analogy from gold. Because I’ve argued, if you look at the way gold trades, it trades like another fiat currency. Why? Because we have ETFs on it. We have futures, we have derivatives, we’ve so sucked gold into the existing financial system, that instead of being something independent of it, it’s become just another fiat currency. What is gold do? Well, when the dollar goes down? Well, so does the euro. And so does the yen for the same reason. And so really, what have we really accomplished with gold? And I’ve heard people say to me, you know, that I’m worried about the financial system, I have my money in gold, and I say, Oh, really? How do you own it? GLT. So you’re worried about the financial system, but you own a financial asset that trades in the New York Stock Exchange? If you really think it’s as bad as you think it’s going to be? You think that’s a safe place to be? You know, so we’ve kind of lost the narrative if you really want to be outside the financials, and you should own coins, bury them in your backyard, or warehouse receipts in a foreign country? Oh, I don’t know how to do that. That’s expensive. That’s hard. This is easy. Yes. But then it’s not what you think it is anymore. And that’s why I’m worried about what we’re doing with the ETF with Kryptos. But yes, to your larger question, cryptocurrencies and gold kind of fill that same lane as an alternative to the financial system. What if I’m worried about inflation, debasement of the currency to health of the banking system? All of the above? Where do I go? Well, you used to have gold, and now you’ve got cryptocurrency. Jimmy,

James Connor 48:16
overall, you’re very positive on the markets in the economy. But if there was one element of risk, or maybe a potential Black Swan, what would it be?

Jim Bianco 48:27
Well, I mean, in terms of risk or back swans, I’d have to say it would be on the supply side of the economy, because one of the things that everybody’s talking about was inflation was transitory one to nine and down, it’s down to three, okay, two things can be true. At the same time, there was a big transitory element in that nine to three because of a supply constraint. But once you factor that out, I think what you’re going to when the dust settles is we’re not back in under 2% inflation. I think we’re back at three or 4% inflation. So there is a bit of a different cycle kind of permanence to this level of inflation. If there’s a Black Swan, it’s that everybody should see that supply constraint container, shipping costs and all that other stuff that stuff, you know, number of ships that are backed up in the Los Angeles, San Pedro Bay to get unloaded in LA Long Beach Harbor. That’s all behind us. We can forget about that. That could be coming back. We’ve already seen a doubling of container shipping prices in just the last couple of weeks between Asia and Europe, because of what’s happening in the Red Sea with the Houthis in Yemen. We’ve got the war in Israel, we got the war in the Ukraine. I still think that if there is a black swan, there is a supply constraint that is still hanging out there that could produce a another sharply higher bout of inflation, like the last supply constraint. Now they said that it there is a little one on the margin of peering with the shipping problem because of the Bab el Mandeb, which is that 16 mile stretch between Djibouti and the Yemen, where the where the Houthi rebels are attacking ships that go through that. That’s what that’s a shipping lane. It says 12% of all cargo in the world moved through, and it’s effectively been shut down for now. Now, effectively, it’s been five or six weeks. And for how much longer that lasts is an open question. But this could metastasize into a bigger problem. And this could contest the size into more inflation. So if there is a black swan, I would say it’s on a supply constrained side to be watching as we move forward from here. So from an economic standpoint, there’s a moral standpoint to but from an economic standpoint, what’s happening in the Southern Red Sea might be more important than what’s happening in Gaza, in Israel, or maybe even with Russia in Ukraine. For right now. And how does that get resolved? And does shipping return to normal? Or do all these ships have to take another 4000 extra miles to go around Africa? And it really raises the cost of shipping anything and it gets passed on? And that means higher prices for every everybody for everything and goods are fungible. If it’s if you want to say yes, but that’s higher prices in Europe. We’re going to start sending stuff to Europe and not here because they’re gonna get more money for it. And so that’s what I mean by goods are fungible. If it shows up in one place, it shows up everywhere. Fascinating

James Connor 51:36
discussion. Jim, as we wrap up, if someone would like to learn more about you and the services that you offer, where can they go?

Jim Bianco 51:43
So one of the a couple of places if you want to follow me on Twitter, I’m at Bianco research. I like to say make sure you look at the one that’s got like 370,000 followers and the blue checkmark. I have dozens of scam accounts don’t get sucked into one of those. I’m also on LinkedIn at Jim Bianco. My research business is at Bianco research but recently we’ve developed an index that’s at Bianco advisors, which is a fixed income total return index, a long only index that we manage to try and outperform the benchmarks of the bond market. So it’s a way for bond investors to say I like the yield of the bond markets having How do I get that yield protect myself? We’ve offered this Bianco research total return index. And in the last couple of weeks Wisdom Tree has brought out an ETF that tracks our index under the ticker, WT bn. So that would be Wisdom Tree Bianco and for Nancy, so w TVN. Is the ticker that it trades under that tracks our index as well, too. So if you’re in the market for an ETF or a bond fund, or you have bond investments, and you like the yields the bond market has and you should and you’d like to say how do I take advantage of those yields? And how do I protect myself? That’s what we’re trying to do with our index. You could find more about it at bianco, Bianco is our research business. And WT bn is is an ETF that tracks it. So with social media Bianco research in LinkedIn at Jim Bianco, and our websites and our index in the ETF. So lots of places you could go find more about us.

James Connor 53:34
Well, that’s great. That was a fascinating discussion, Jim. And I want to thank you very much for making time for us today. And I look forward to our next discussion. Thank you very much. To all of our viewers, I want to thank you very much for spending time with us today. If you are trying to figure out your financial future as I am consider having a discussion with the wealthy on endorsed financial advisor wealthy After providing some basic information wealthy, I will put you in touch with a vetted advisor. And there’s no obligation to work with any of these advisors. It’s simply a free service that wealthy on offers to all of its viewers. Don’t forget to subscribe to our channel, wealthy and also hit that notification button to be kept up on future events. We have some amazing interviews coming up here in the coming weeks. Once again, thank you very much for spending time with us today and I look forward to seeing you again soon.

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