Here’s What The Experts See Ahead | Lacy Hunt, Marc Faber, DiMartino Booth, Pomboy, Pento & More

Adam Taggart 0:04
Welcome to Wealthion. I’m Wealthion founder Adam Taggart here with some of the top takeaways from the recent Wealthion Spring online conference, which happened this past Saturday. It was a phenomenal event, folks, the faculty was stellar, the timing and the material couldn’t have been more relevant to what’s going on, given the fears rippling through today’s banking systems as well as today’s highly uncertain markets. But I’m not going to tell you how great it was. I’m going to show you, I’ve got a selection of clips here from our speakers for you to watch and judge for yourself. The day started with Dr. Lacey hunt, former senior economist for the Federal Reserve. Few people alive know more about how the Fed works and the people who run it than Lacey. After giving a master’s level seminar and the current challenges facing the economy, Lacy predicted that the inflation surge we’re currently facing will be brought under control. Now, that’s the good news. But the bad news is, we’ll then need to resume our fight with the forces of secular deflation, which were threatening us before the pandemic hit and are substantially larger and more serious than ever.

Lacy Hunt 1:13
Once the inflation problem is dealt with, and I want to make it very clear that I believe the Fed will win the battle of inflation. They always do, especially when they take such strong actions. Now, in 2019, when the pandemic hit, we had several major problems, one of which was that we were extremely over indebted. Another was that we had poor demographics. And the third problem was that the rest of the world was too dependent upon the United States. I believe that when the inflation is contained, we’re going to be facing all of those problems that were had on center stage in 2019. And the most serious of those is the over indebtedness problem. What you’re looking at on this chart, is the five year moving average of gross government debt. And that’s really the appropriate measure to use. Yes, they’re the trust funds and some government accounts, a whole Treasury securities. However, we have unfunded liabilities and Social Security and Medicare that are much greater than the assets in the trust funds. And so the appropriate measure is gross government debt, which is what the Ryan Hart’s and Ken Rogoff used in their study of the impact of that. They found that when Rose government debt rises above 90%, for more than five years, that there is a extremely deleterious impact upon growth. And right now we’re approaching 120%. This year’s level by itself will be more than 120%. But the five year average is the critical point.

Adam Taggart 3:10
Following Lacey, macro analyst Marc Faber delivered a warning that market returns have peaked for sure in real terms, and perhaps maybe even a nominal ones for a long time to come.

Marc Faber 3:22
I’m an expert, because I was born in 46. That was the low point of inflection in the United States, right, and then inflation, very gently accelerated in the 50s. And then a little bit more in the early 60s. And by the end of the 60s, it went up quite a lot. Because of the bread and butter and gun policy of Johnson, they might increase the fiscal deficit, whereby this fiscal deficits were minuscule compared to fiscal deficits. Nowadays, he was a fiscal conservative, a good old Johnson. And now here in Congress, everyone spends is that doesn’t matter, Republican or Democrats, they all spend money like water, they all think they can print it forever, and that it won’t have an impact on the value of the dollar. But what I want to say is, in my view, because you asked me about the markets, do we go back do an UPS upcycle? In my view, the rise in real terms of assets is finished.

Adam Taggart 4:44
Then former Fed adviser Danielle DiMartino Booth gave an impassioned view on how Fed Chair Jerome Powell only really has two options left at this point, and that our monetary and financial destiny hangs in the balance.

Danielle DiMartino Booth 4:58
He has so few options that Is the problem, everybody’s screaming for the Fed to go back to the zero bound. If the Feds gonna go back to the zero bound after what he’s just done to try and normalize interest rates, I think he realized, I think he came to the realization, when he was renominated, you know what we’re going to have to rip the band aid off, we’re gonna have to try and normalize as quickly as we can, if we ever hope to not go back to the zero bound, I might need a four or five handle on the Fed funds rate to only reduce it to 2% and draw that line in the sand for future generations to finally get rid of the zero bound. And I’m gonna need to continue to shrink the balance sheet. Everybody is saying the only solution here is to to blow up the balance sheet again resumed quantitative easing take interest rates back to the zero bound. My answer to that isn’t why do we have a Fed in the first place that can be done by anybody, a monkey can do that. All they have to do is buy every single Treasury that’s issued by the US government that can be done by the Treasury, you can turn the damn lights off at the Eccles building, you don’t need to pay to have a Fed if you’re just going to have zero interest rate policy for Kingdom Come and beyond and quantitative easing as far as the eye can see. And by the way, as I wrote, if we go there, Adam, if we go there, you’ve got hyperinflation overnight, you can kiss capitalism goodbye and reserve currency status. But why have a Fed if the only policy that’s ever going to be acceptable to market participants, and the banking and financial system globally is zero interest rate policy and quantitative easing as far as the eye can see,

Adam Taggart 6:30
portfolio manager Michael Pento, then shared his proprietary model is reacting in real time to the recent weakness in the banking sector, and how that’s influencing his portfolio decisions.

Michael Pento 6:41
But the high frequency components of the model are starting to flash more towards red than just amber or bright yellow. So financial conditions are tightening credit spreads are starting to blow out. And the portfolio that I had going into that is pretty solid, we had 70% of the portfolio was treasuries, more short duration and long duration, we’re gonna move towards more long duration, as I indicated, we’ve got 10% Gold, that’s 5% minus 5%. Physical, we have shorts, that shorts working fantastic 5% utilities, and 5% dollar and 5% foreign stock. So what I’m thinking now is if these, these credit spreads continue to blow out, and I, like I said in the prepared interview, I look at these high frequency components every day, they update during the day, some of them and they update every day. So there’s daily components, there’s weekly, monthly and even a couple of quarterly components in my model. But I look at these daily high frequency components, very assiduously. And they are getting worse. And so I am now ready now to increase the duration of the portfolio from the short duration treasuries to longer duration. And I’m thinking that if things keep falling apart next week, high frequency components continue to flash more towards red, I will then sell some of the Long’s and increase the shorts.

Adam Taggart 8:06
After that market analyst Stephanie Pomboy shared her concern that we’re staring down the barrel of another 2008 style credit bust.

Stephanie Pomboy 8:14
I’ve been describing this not as a tightening cycle. This was not a tightening cycle. It was an interest rate shock. We’ve never seen rates move this high this fast in our lifetimes. And it’s an important distinction, because what it suggests is once that lag effect has passed, once you’ve, you know, gone through the time it takes for it to hit, it’s going to hit all at once. This isn’t you know, we’re not going to have experience, oh, well, this is what happened, you know, the lag effects from the first 25. And now three months later, here’s the next 25. It’s going to be one smashing blow, like SVB, which was solvent on Wednesday, and it was completely bust on Friday. That’s kind of what I’m preparing myself to see. And this is why I come back to this idea that we’re on the doorstep of a 2008 Nine type of situation. And that sounds hyperbolic, except when you consider that the economy is much more levered, especially the corporate sector. And they’ve raised rates faster, higher than they did then. And we went into this before the Fed even began raising rates with $1 trillion dollars in debt sitting on zombie company balance sheets. Now, I’m maybe guilty of oversimplifying this, but when you look at SVB, that’s your window into zombie companies. I mean, these VCs layer debt on the startup companies, you know, who basically have some harebrained business model that they throw money at and they can borrow. They subsist on an endless supply of cheap credit and when that cheap credit disappears, it’s game over

Adam Taggart 9:59
for Following Stephanie, portfolio manager Michael Liebowitz shone a bright light on why now may be the best time to invest in quality bonds.

Michael Liebowitz 10:08
But bottom line is that our economy grows one and a half to 2% a year. That’s the natural rate of growth. And that’s been declining for 30 years. We again, we’re a highly indebted economy. So interest rates are a burden on the economy, interest costs and coupon payments and mortgage payments and loan payments. Those are a burden on society in the last few years, we’ve put on a lot more debt. So the burden on the economy is even greater than it was in 2018 2019. So my longer term projection has economic growth rates of one to 2%. With inflation, probably in that same area, if not lower, therefore, interest rates are a should be reflective of that, which means one to 2% interest rates, most likely short term interest rates go to zero. Long term interest rates kind of go back into that one to 2% range. So if you can lock in, in my opinion, four to 5%, for any longer period of time, you should be doing it, understanding that that it could be a little painful, initially. But if you’re buying a 10 year bond, you’re buying 10 years worth of time. The first three months may be a little painful, maybe six months, but it’s a steal in the long run based on where we think economic growth and inflation will be for the large majority that 10 year period.

Adam Taggart 11:39
Next, housing analyst Nick Gerli give a detailed update on his outlook for home prices, which are under siege from a number of fronts, including an ill timed wave of record new inventory, hitting major metros across the country.

Nick Gerli 11:52
So everyone needs to understand that like, again, this is just the beginning. Right. And if you live in a city where you haven’t seen price declines yet, you know they’re coming, especially if your your city is building a lot of homes and apartments. Right now there is a record number of homes and apartments actively under construction right now. The builders, they’ve started pulling back in terms of starting new developments, but they started so many during the pandemic that there’s about 1.6 to 1.7 million still actively under construction. So for the next 18 months, we’re gonna see new for sale and new rental inventory hit the market across America, but as you said specifically in the cities that boomed the most during the pandemic and that are building the most.

Adam Taggart 12:42
Nick was followed by energy expert Doomberg, who shared his detailed forecast for the global energy market.

Doomberg 12:48
Now then the big question is, what do we see going forward? First thing is natural gas, coal and oil have traded back into a narrow band of arbitrage, correcting for their inherent energy content and units of trade, which is something that we chart that we have created that we’ve published a couple of times on Newberg most recently in a piece called The Streisand effect. But the demand for oil and the supply demand and balance for oil look set to be tested again here as China reopens the majors have not invested. And the shale patch looks to be turning over. And there’s a dwindling level of inventory in the Strategic Petroleum Reserve that can be made available to manage the upper bounds of price for the current administration. And so

Adam Taggart 13:36
Then hard assets investor Rick Rule surprised and delighted the audience by sharing over 30 stocks from his current portfolio watchlist that he favors most right now.

Rick Rule 13:47
I’ve probably given your people more names than they care to speculate or invest on.

Adam Taggart 13:54
Gold Silver as Mike Maloney then gave the audience a sneak peek of the key conclusions from his new book and explained why sound money will be the key to both individual wealth building and national prosperity going forward.

Mike Maloney 14:06
The 70s bull market in precious metals was the biggest bull market in history to that date. cryptocurrencies have outshined that sense, but not by a whole, I mean, yes by a whole lot. But before that was a brand new asset class. It’s the first new asset class I believe, since the year 900, when bonds started being traded. And so yes, when you’re starting at zero, from zero to one is an infinite return. And so that has been the biggest bull market in history. But before that, it was gold and silver in the 70s. And in just eight and a half years, gold went up 25 times its original price, Silver 41 times. This is real estate here and this is the stock market here. And what I did was I started all Have these not at a specific date, but at their very lowest price of that decade to give them the maximum advantage. And then I ended them all the day that gold and silver peaked in January of 1980. So gold has been the best investment of this century. As far as something that is a total asset class that is solid, that and you can hold it in your hand, it has no counterparty risk, and it can’t go bankrupt. So here it is compared to the s&p 500. So anybody that thinks anybody that invests in gold is wearing a tinfoil hat. Well break out the tinfoil I want to make as many hats as possible.

Adam Taggart 15:42
Then agricultural investor Craig Wichner gave an update an update on farmland as an asset class.

Craig Wichner 15:49
And if you look at the actual financial performance of farmland, farmland delivers higher returns over decades, with lower volatility than other asset classes, including commercial real estate, nearly the same volatility as bonds but with much higher returns, and also beating the s&p 500 in the stock market. So if you look at from 1995 Going forward, actually, over time, over the past 80 years, farmland has delivered around 11% annualized returns over annually, half from cash flow half from appreciation, and that’s with the very, very low leverage, and that’s average farmland across the US. So you can do better than that. If you compare farmland against commercial real estate, for example, you see that in 2009, you see a drop in commercial real estate. That’s because of the leverage driving down the prices these building owners had to sell. But you see farmland just basically kept on going it farmland is the slow and steady that wins the race. If you compare it to the s&p 500 Yes, there absolutely periods of time when there’s outperformance of the s&p 500. But you also have those draw downs. So you have those down periods like we see today. And this is why we love farmland as a nice, sleepy asset class that really does well.

Adam Taggart 17:19
And rounding out our faculty was Auto Trader Lucky Lopez who predicted a lot more weakness to come in the auto market, as well as his updated guidance on when better bargains for car buyers will emerge.

Lucky Lopez 17:31
So I believe that within the next hopefully three to four months, you will see significant drops and we’re not talking like the five 10% What we’re usually seeing every month, we’re talking 20 to 30%. I thought we’d be back 2019 prices by the beginning of the third quarter of 2023. But now it’s looking more of like the end of 2023 in the beginning of 2024. Because the market just simply can’t put up with the end of the man is pretty much dwindling. And it’s just it’s getting worse and worse.

Adam Taggart 17:58
The conference finished up with an hour long ask anything q&a session with Wealthion Some doors financial advisors, no question was too big or too personal. We fielded any and every topic the audience made of folks just like you wanted answers to. So now you have a taste for what happened at the conference. But just a small one. I’ve only shown you a few minutes here. The conference itself lasted for over nine hours. It was jam packed with fantastic insights. If you’re disappointed you missed out. Don’t be replay videos of the full event. All the presentations, all the q&a, the archive of the live chat from the day, plus a bonus video for mining analyst Jeff Clark, sharing his latest outlook on the precious metals mining sector and giving an update on his GDX portfolio. Replay videos of all of this are available for purchase by simply going over to wealthion.com/conference head over there now if interested. It really was a fantastic event folks, bringing so many great minds together both our faculty of experts and our audience of curious minded viewers like you makes these conferences my favorite days of the year. Thanks to everyone who participated in the event. And thanks to all of you for watching.

Transcribed by https://otter.ai