Inflation’s Next Move, Recession Fears and Crypto Chaos | Weekly Market Recap

James Connor 0:00
Hi, and welcome to Wealthion I’m James Connor. And it’s the weekend and I’m feeling relaxed. And I hope you are too.

This is our weekly wrapup, highlighting key points from various interviews we did this past week, we publish interviews five days a week. And given how busy life can be, we understand that you can’t always join us during the week. So we thought we would put together this summary of all the interviews we did this past week, it’s a great way to take in a lot of information in a short period of time. So grab a coffee, sit back and relax and let’s get started.

On Tuesday, I spoke with value investor Bill Smead of Smead Capital Management, and Bill gave his views on the economy and why he thinks this time is very much like the 1970s. And why we will see inflation like the 1970s I hope he’s wrong on that point. But enjoy this short clip from the interview.

Before we do a deeper dive on the stock market, and in determine where you are investing your clients money, why don’t we look at the economy and take a top down approach. And when I look at the economy and things overall, it looks very good to me, okay, it’s growing at three to 4% annualized, this job, this number continues to stay below 4%. And the stock market’s making new highs every day. What’s your take on the economy?

Bill Smead 1:27
Boy, that’s a great question. To answer that question. I would take your viewers and listeners to the November 1999, Fortune magazine article by Carol Loomis, who is the editor of Warren Buffett’s annual letter. And what she did was she recounted the talk that Buffett did in 99 to the.com billionaires. And what he explained was from 1964 to 1981, the United States economy grew 4.3% per year. And the primary index in those days was the Dow Jones Industrial Average. And Buffett said the Dow Jones Industrial Average did not break above 1000. During that entire 17 year stretch, even though at the beginning of that stretch, it was close to 1000. So the moral of his story was, why did 4.3% economic growth not equate to good stock market performance? And of course, the answer to that question is that interest rates rose that entire time. And inflation was a big problem. And in that time period, I just finished reading Cornelius Bond’s book about T Rowe Price. And T Rowe Price was one of the great growth stock investors of all time. And in the midst of the 68 escalation of the Vietnam War 500,000 American troops halfway around the world, and the borrowed money by the federal government to fund that process, combined with Johnson’s Great Society legislation, troubled, troubled T Rowe Price greatly. And what he did was he pivoted, he put oil and gas stocks in his growth fund. And he started what today is called the T Rowe Price, New Era fund, because he thought it was going to usher in an era of inflation. So he owned oil and gas stocks and gold stocks, et cetera, in the T Rowe Price, New Era fine, which was a massive pivot for a growth stock guy to make that pivot. What was was a massive pivot. We’ll fast forward to today. That is, in effect, what we have the pandemic war is the Vietnam War. And here we are in Arizona, President Biden just tossed another $10 billion to two semiconductor companies to do chips in the Phoenix area. They’re throwing out billions just like candy to a baby, billions of dollars of debt forgiveness for college students, billions and billions. So the point is, the economy is likely to be solid, the next 15 years, because 180 million out of 330 million people in the United States are under 40. People under 40 are way slower getting their life started than we used to be right we used to get our lives going at age 23 or 24. Now they get them going at 30. And because there’s so much slower, we have a lot of household formation and marriages and babies in front of us, but that is inflationary. necessities are expensive and necessities go up in price, especially when 180 million people want them. And and that’s where we’re at now. So we think we’re in an era like the 60s and 70s where the economy is going to be above average. But what happens is, and I’ve been trying to explain this to people for 43 years that I’ve been in the investment business, when the economy’s stinks and the Fed is friendly. When the Fed creates money, it sloshes into the stock and bond markets. So stocks do well, when the economy does credit does poorly, then when the economy’s doing well, and the Fed tightens up, people take money out of common stocks to do Main Street business, to buy a building for their company, to expand their chip plant, yada, yada. All right, so So, in effect, stronger economic activity is bad for the stock market. And the funny thing of it is the the normalization of interest rates, and that fact, has not completely hit home yet. And we highly expect it will hit home in the next two or three years.

James Connor 5:44
Okay, so there’s a lot to unpack there, you just touched on interest rates. And when we started this year, everybody was looking for six cuts, which was kind of a rageous. But as we’ve gotten into 2024, the economy appears to be stronger than it is, and inflation is also very strong. So therefore, now we’re looking at according to the dotplot, three cuts sometime this year, what are your views on interest rates in 2024? And do you think we’re going to see a cut? And if so, when might that be?

Bill Smead 6:13
You just remind me of a Rod Stewart song isn’t The First Cut Is the Deepest baby, you know, The First Cut Is the Deepest? Well, we’re having a hard time finding that first cut, we might not get that first cut. So here’s what’s funny. If you would have been interviewing me five years ago, the thing that we were most frustrated by was we had been telling people that interest rates will normalize at some point. So we’ve now normalized interest rates. And the stock market has not readjusted its pricing relative to that normalization, the stock market is still priced at a one to 2% Treasury rate, and we got five or five and a half or whatever it is, right, five and a quarter. So the bizarre so people ask me, Well, Bill, when is the market going to readjust itself to these interest rates? I said, Well, five years ago, I would tell people, interest rates are going to normalize. And they’d say, When’s that going to happen, Bill? And then I’d say, Well, you can’t hold your breath till then. So then now, I say that at some point, the stock market is going to rationalize itself against these interest rates. And they say, Bill, when’s that gonna happen? I said, we can’t hold your breath. Till then. We kind of think that we’re in we’re in 1972 right now. So what happened back in 69, at the beginning of your Buffett closed, his partnership, sent the cash out to the investors criticized the stock market, made fun of the gogos, 60s. And then we have the 6970, bear market of 40%. And then they put the bull market back together on a narrow group of stocks, 24 stocks that were in both the Kidder Peabody and the Morgan Guaranty nifty 50 list. And we had a bull market and 7172 on the back of that narrow group of stocks. Now having a bowl mark on the back of a narrow group of stocks. Does that sound familiar at all, to your viewers and listeners? And the answer is, yeah, we have, we went from fangs to Magnificent Seven to what’s the latest group of neuro stocks that are leading this. And that’s what 7172 was like. But the problem is 72 ended up being followed by 7374, and a nightmare market from the end of 72 to the bottom and 1982. And we believe we’re headed for there.

James Connor 8:32
Okay, so let me ask you about a few things. First of all, let’s just get right into inflation. You’re making comparisons the what the inflation we’re seeing right now, and what’s happening, and what happened in the 1970s. And we just saw recently had a CPI number which came in stronger than expected, and a big part of that had to do with services. Car Insurance, for example, was up 22%, year over year, the biggest move we’ve seen in that since 1976. And there’s so many other things like, I know I’m in Toronto, but I would imagine like, you know, the inflation rates here are probably just as high as they are in Phoenix. But even simple things, I go into a barber now, you charge me so much money, I’ve just started cutting my hair on my own. But it’s like you can’t escape this inflation is just non stop. And even though the government is saying it’s only 3%. I think it’s much higher than that. But what are your thoughts on inflation? And it sounds like if you compare it to the 1970s, do you think it’s going to escalate or accelerate? What’s going to cause that and where do you think it might be going?

Bill Smead 9:37
Well, we have two different strategies are our main us Value Fund and our International Value Fund and our international value value fund is loaded with Canadian companies, because the natural resource industries are going to win the next 10 years. We believe so we you know, we may We should move our offices to Canada or something because it’s, it’s a better place to be, we think the next 10 years. So the too much money in the hands of too many people chasing too few goods. It’s not very complex that here we are, the Fed has tightened credit, but simultaneous let that the federal government the United States is handing out money like drunken sailors on leave. So, so the answer is that think of the Phoenix metropolitan very well, they just announced they’re gonna pump $10 billion into the local economy. Well, $10 billion for the this is the what is Phoenix, it’s the I don’t know, it’s, it’s maybe the fifth largest metropolitan area, United States, that’s a lot of money just in that one source. And then you go to Applebee’s for the grilled chicken salad. And they have such a hard time hiring waiters and waitresses at the going rate, that she she brings three out of the four of them the breaded chicken instead of grilled, we want the grill? Well, that’s because they have a hard time finding staff. And that means you got to pay more to get the staff you want. And that’s exactly what you’re talking about. By the way, in the United States. Gasoline is a much smaller part of the household budgets than it was 15 years ago, even at dramatically higher prices. It’s a way lower part of household budgets. But it’s psychologically important in the United States, because it’s about the only way the average American family measures inflation. Oh, I went to the pump, and I’m paying 50 cents more than I was paying two months ago. We’ve got inflation. And and so that’s what they’re going to see. And by the way, they they strip out energy and food. It’s like, okay, let’s take out the two things that everybody has to have, and tell people that there’s no inflation. It’s bizarre. It’s there, it’s there. And it’s going to stay there. Because those 100 80 million people need the necessities. And as their demand for necessities go up, inflation kicks into gear.

James Connor 12:10
Also on Tuesday, I spoke with macro strategist Peter Tchir of Academy Securities, and our discussion was focused on geopolitical tensions in the Middle East and what this means to the oil price and also to global financial markets.

So I want to ask you about the oil price now. And oil is trading in the mid 80s. And I’m surprised it didn’t catch more of a bid on the back of this. What are your thoughts on that?

Peter Tchir 12:36
No, we think oil is going to maintain, you know, relatively high prices. I think there’s a chance that spikes to you know, $100 on Brent, maybe 105. I think the one thing that’s helping mitigate oil prices is one, the Saudis have a lot of potential production they could put back on the market. We think they do that somewhere above 100. Right. And the one concern about that event? Well, if the Saudis are really aligning with Iran, maybe they wouldn’t help us in the event that you get an oil spike. But given what we saw this past weekend, I think it’s pretty clear the Saudis and they’ve invested a lot, right. They were part of the Abraham accords. I think the Saudis wanted to westernize. And then the other side, I think, you know, this is almost a little bit depressing. I think when you think about it, it’s just become very clear that politically as a nation, inflation has become our Achilles heel. And we’re so worried about energy prices, right? One, we did not refill the SPR. So we had an opportunity maybe to refill it more than we did. We did not do that. You look at what we’re telling the Ukrainians, we’re telling the Ukrainians not to target Russian energy facilities, right, because we want there and even within what we see in the Middle East, but the sources we talk to, there’s about three and a half million barrels of oil per day being sold by Iran, mostly into China, some into India, that’s well above levels, we have them sanctioned for most of that is being shipped on carriers that are either Chinese related, so you kind of know that. So we have been unwilling to stop those. So again, we’ve kind of turned this blind eye to Iranian production. You know, many wonder, well, how are they funding their war efforts in the funding of the proxies? There’s a lot of this oil on the market. And I think that’s been the biggest thing that we’ve seen, I think domestic policy is trying to do everything not to have to clamp down on Iran, because that would push oil. So I think we’re gonna see oil there. And domestically, I think we’re seeing oil and energy use increase anyways, you know, the prevalence of data centers, I think is huge, right, you’re starting to see more and more demand. We talked to a lot of people who are building out tech infrastructure, including the data centers, and getting reliable energy is one of the biggest problems they’re finding When citing this and what we find interesting. We have one Admiral, she’s been great. She was actually in charge of naval cyber attack capacity. So you know, most people in the cyber world are often defense side. So she has a pretty unique side from looking at the cyber frack. But we’ve been recommending to clients I think people are taking various seriously if you have data centers, you want them domestically based you want local employees working on these. It’s not going to protect you from cyber completely, but it reduces that risk. So things like cryptocurrencies where the mining is headed offshore, I think data center data storage, data processing is going to become more and more domestic. That’s going to drive energy demand in this country. So I think there’s a lot of good reasons to buy energy separate from what’s going on the Middle East. And I almost think you get the geopolitical spikeless for free right now.

Okay, a couple of points. First of all, how many barrels does Iran produce daily?

We believe it’s around three and a half million.

And that’s talking to several, I’ve got some very good sources within the energy side. So that’s outside of our normal scope. But the people that I trust had been very good are saying that and either sanction levels, I think, below a million or something. So there’s this huge gap and what is being shipped. Over the past month, I think we’ve tried to stop a few ships that were flagged on donations, we felt we could stop. But this is really an ongoing, you know, thing we’ve allowed to fly.

James Connor 15:58
So you mentioned that you think oil prices are going to drift higher. And I know you talked about data centers, but that’s more longer term. What about in the short term here? Like as we head into summer? If we have WTI, trading around 85 bucks? Where do you see going up to 100?

Peter Tchir 16:14
You know, I think on a spike, we can get to maybe 95, maybe to 100. I think on the downside, though, you’re probably 7580. So I feel we’re in this much higher band for the next, you know, six months to a year. And again, I think here we’re seeing this kind of realization that not only do we have to build out sustainable energy faster than we thought and more aggressive, you’re seeing states like Michigan institute some rules, where people were using citing and saying, Well, I don’t like the sight of this windmill. So we can’t do it. And now there’s timing to push that through. So you’re gonna see, I think, a lot of commodity demand as we build up sustainable energy. And I think really, for the first time, I’m quite happy about this. I feel like in the last six months, there’s this realization, we’re going to need traditional energy sources for the next 1020 30 years. So there’s some investment in that, you know, I’ve always said fry for the last three or four years and knock on wood has been working well is the energy companies of the future are probably the energy companies that today, right, they’ve got the PhDs, they’ve got the skills at pulling energy out of this earth, how they pull it out, will shift over time. But so that’s why I’m so bullish on the sector in particular, I’m probably more bullish on the stocks even than the commodity. But that’s my favorite place to be right now, with all the geopolitical things going on.

So

James Connor 17:27
So I want to go back and look at the Middle East and get your views on if you think this can escalate. Right, and we had two oil price shocks in the 1970s. One in 1973, from the oil embargo, one in 1979, from the Iranian Revolution, both resulted in significantly higher oil prices. Do you envision a scenario like this happening now, you know, like sometime this year, sometime next year, if things do escalate in the middle?

Peter Tchir 17:57
Yeah and so we’ve been talking about both escalation and expansion. And so I think now you’re seeing both right expansion of the number of nations directly involved, right, up until this weekend, you had not had Iran and Israel directly attack each other. So that’s kind of that expansion as well as escalation. I think there’s a real risk that at some point, we decided we have to do something to stop this, and we maybe it’s us, maybe it’s Israel, it’s going to be very difficult to stop the container ships, because I think that would bring us almost a direct confrontation to China, right, most of the oil is going to China, stopping these ships that are carrying the oil to China, I think could be very diplomatically problematic, especially, as you know, Yellen is over there trying to get some sort of trade normalization going on which we don’t think it’s gonna be particularly successful. So do you wind up attacking some of these oil fields to something happened to create a real disruption? Does Ukraine for example, decide, well, maybe they put pressure on the US by attacking Russian oil fields more directly. And I just feel that overall, our enemies, in particular, know that this inflation has become our Achilles heel. And if you want the incumbents to lose, you would create an oil shock, right? Because, as we saw, you know, coming into the midterms and things like that, the incumbents do not do well during inflation spikes. So I don’t know what other countries will be motivated to do. But yeah, I think there’s a risk that we’re almost back, unfortunately, to where we were, it felt like 20 years ago, or 10 years ago, we kind of were self sufficient. And it didn’t matter as much in the Middle East. And somehow it seems like we’ve lost that even though we’re relatively self sufficient. We’re not wholly self sufficient. And it’s a little bit scary to me that so much seems to depend on the price of oil, and so little that’s truly in our control at this point for the next six months.

James Connor 19:39
On Wednesday, my colleague Andrew Brill spoke with Anthony Scaramucci about the potential of Bitcoin and why it will grow significantly higher in value than gold’s current market value of $16 trillion. Anthony also discusses Bitcoin halving and why this is so important and why we’re hearing so much about it.

Andrew Brill 20:01
So you said something earlier about Bitcoin and tokens like that, or, or things like that being backed by either the US dollar, or the pound or the euro? Is that going to be the case? Or will eventually Bitcoin and those things become their own currency?

Anthony Scaramucci 20:22
So so? So it’s a great question. So the only thing I’m willing to say to you on that is, I don’t know, I can speculate with you though. And I can say, Bitcoin, to me is digital property, its property on the internet. Could Bitcoin eventually become the standard were we treated as the global currency? And we say, okay, these other currencies, these central banks, unfortunately, crushed all these other currencies, the US dollar is down 99% in value, since we took it off the gold standard in 1971. So we don’t trust these things anymore. And so now we’re just going to trust the Bitcoin standard. There are people that believe that and there is a great book called The Bitcoin Standard by Saifedean Ammous. But I’m not there yet. I’m just saying that Bitcoin is a store of value, it’ll be like gold, and gold at a $16 trillion market capitalization, bitcoins at a 1.4 trillion. And I believe it could go up 10 to 12 times from here over the next 10 to 15 years, as a result of which I’m recommending people that they buy some.

Andrew Brill 21:39
You had said something earlier about, and we’ll get into the having, there’s only a certain amount of bitcoin to go around. And I know that when you got into Bitcoin, you were kind of watching Metcalfe’s law, and saying, Oh, if enough people are using it, it might be worth something. And so you hopped in. Now what happens? And in the book, you say, could go to a billion users by 2025. And we’re fast approaching 2025? Is there enough Bitcoin to go around? Or is that just going to drive the price up?

Anthony Scaramucci 22:11
Yeah. So there is enough Bitcoin to go around. Because remember, it’s divisible by Satoshis 100 million Satoshi. So there’s, you know, I don’t know 21 billion, hopefully, I’m doing the math, right. Satoshis. But, but yes, there’s enough Bitcoin to go around. But it will drive the price up, the price will start to inflate. Because it will be, you know, in large demand. So we’re heading towards mid 24. And we have about 350 to 400 million users right now, we do think that that will double by mid 25. And then if I’m right about that, by the end of 2025, you’ll have approximately 1 billion users and, and so to frame this for you, and viewers and listeners go back to web one, we have about five or 6% adoption, globally, a Bitcoin and that would put the web back to 1998 1999. And, you know, we have three or 4 billion people now on the web. You know, I think it’s greater than half of the of the global population, but don’t quote me, but I’m just saying, we’ve got three or 400 million people today, that’s about four or five 6% of the global population. We have, we have a huge opportunity here as this scales and adopts. And it will be used, it will be used. Okay, I submit this to you. We can’t predict the future, Andrew, but we can, we can observe the past. And so just imagine, you’re sitting at your fat box computer in 1998. And you have a dial up modem underneath your desk, and it’s wearing and burning and catching a dial tone. And it’s going to now log into the internet. And then it takes 35 seconds for your AOL landing page to arrive. And you can use it for email. You may want to go to a website known as eBay to buy a Pez gun, or you may want to go to Amazon to buy a book. Okay, but that’s sort of where this is right. And it’s clunky. And there’s people writing about it saying, you know, the internet is a fad. But what have I been in 25 years later, I say, Oh, by the way, we’re going to be using this on thin screen computers. We’re going to have the smartphones we hold in our hands that have more technology than what landed people on the moon in the 1970s. And oh, by the way, we’re going to do trillions and trillions of dollars of transactions on this thing known as the internet. And there’ll be billions and billions of people downloading 4k or now 8k video on the internet. And you know, people will be delivering things to your house, something called DoorDash you’ll be sharing rides around urban areas called Uber. And there’ll be this explosion of social media, all these things are going to happen in the ensuing 25 years and trillions and trillions of dollars of wealth is going to be created. That’s where we are right now on what we’re calling web three. That’s where we are right now and what we’re calling the blockchain technology. And believe it or not, back in 1998, there were skeptics. And people said, this is a bunch of bunk. I’m not buying Amazon. It’s a high price bookseller. This is a bunch of bunk, I’m not gonna buy Ebay. I have no interest in Google. Okay, and they miss these technologies, and they missed this growth. So I’m trying to tell people, okay, you may have missed that. Don’t miss this. And, and again, you don’t have to buy a lot of it. But get off zero, buy some of it.

Andrew Brill 25:48
Right. So talk to me, Anthony about the I know we’re running up against time, but about the having everybody’s like, Oh, my God, my, my, my wallets gonna be cut in half. And no, that’s not actually the case. It has nothing to do with what you already own. It just has to do with what’s coming up in the future.

Anthony Scaramucci 26:06
Yeah, lots of information about the halving. I’m glad that you brought it up. So So what if you read the white paper, and again, I believe it was a group of computer programmers that develop this together. They named it Satoshi Nakamoto. But I believe it was a group of people. But if you read the white paper, what they said is we’re going to have this nodal system. And these nodes are going to verify the transactions that are taking place. And I think there’s about 100 plus 1000 nodes, now, you can have your own node, you can go on to bitcoin.org, and download their software. And then you could have your, your your computer helping the system, keep and verify these transactions. And so in order to incentivize people to do that, and Nakamoto says, you know, this may catch on, you may want to buy some, this may catch on. And he said, but you know, in order to incentivize people to be on the system to help us verify all of these transactions, every day, we’re gonna give out some bitcoin. And so we have 21 million coins, they released a huge amount of them in the beginning, I can’t exactly remember at this moment, what it was. And then they said, when we get to a certain level of blocks transacted, we’ll cut that amount in half. And so we’re going to reduce the supply of Bitcoin that comes into the network, roughly every four years. And so, four years ago, there were 1800 coins coming into the network per day. And those coins were at lower prices $1,000 A coin $2,000 A coin. But what what the Nakamoto programmers felt was going to happen is if the coin went up in value, well, they wouldn’t have to put out as many coins, right, you have to put out less coins, it’s 71,000, then you do at 1000. And so they predicted that what would happen is as these halvings took place, there’d be less supply in the marketplace. And because there would be increased exponential people on the network to be way more demand and less supply coming into the marketplace. So when somebody says a halving, it doesn’t mean that the supplies being cut in half, meaning there’s 21 million coins, there’s probably a million and a half or so coins left to be mined. But what it does mean is that the network will spit out less coins per debt. And so starting sometime in mid to late April, probably in the next 10 or so days, we’re going to cut, the network is going to cut the supply of Bitcoin from 900 coins a day to 450. And that’s meaningful because you have a ton of people that are buying the Black Rock ETF buying Cathie Woods ETF, and there’s probably several 1000 coins of demand. But there’s only 450 coins being produced by the network per debt. And so that has a tendency to typically push the price up, but But what happens it’s a market. And so what typically happens is the hammering app is on the price goes down. So why that happened? Well, there’s a lot of people that were waiting for the halving, they decided that they made some money in Bitcoin, they’re not long term holders, they’re gonna get out of Bitcoin. And there’s a new wave of people that come into Bitcoin. And then there’s people like me never selling my bitcoin. And so I don’t care if it goes down, I’m gonna sit and hold it, and then it builds itself back up. And that’s happened over the last 14 years of Bitcoin. It is the best performing asset we know about in the world. Okay, from the day of its inception.

James Connor 29:55
On Thursday, I spoke with Professor Steve Hankey of Johns Hopkins University and Steve provided his insights into the economy. And when he thinks we will be entering into a recession, Steve also draws comparisons to today’s stock market valuations and those of the late 1990s. During days of irrational exuberance, Steve also gave a very frank review of the Fed and what they are doing wrong. And all I can say is, I’m glad I’m not a student in one of his classes, I hope you enjoy this short clip.

So let’s just summarize a few of the points you made in first of all, I want to look at the current economy. And as you mentioned, it appears to be very strong, growing at three to 4%, the jobless rate continues to be very low below 4%. Now, for many quarters, stock market continues to make new highs or was up until the last couple of weeks now we’re seeing some weakness, the housing market, I can’t really speak for what’s happening in the US. But in Canada, it’s hanging in there pretty good in spite of the mortgage rates, being a lot higher in the last couple of years. But overall, things look pretty good to me. And I know we’ve had this big contraction in the money supply, and there’s this big leg coming. But do you think when I look at all of these things, I’m being too complacent?

Steve Hanke 31:19
Yes, because that that the those aren’t current data. So if you look at the current data, those are kind of symptoms of, of what what happened before. And the big thing that happened before that’s causing these current the current data that you see in driving them, it’s the money supply, what happened to the money supply, and and you’ve got these long and very highly variable legs in the picture. So I’m just saying that, given what I know, actually happened, in reality, this contraction in the money supply and huge slowdown in the money supply. And the fact that all excess cash balances have pretty much been drained out of the system. I know what’s coming down the track. It just isn’t here yet.

James Connor 32:13
And to reiterate something you said earlier, we get changes in the money supply first and then changes in asset prices. And the asset prices are starting to change. Alebit slowly but it’s starting to come.

Steve Hanke 32:25
Yeah but they’re starting to change. And when you look at it, for example, stock market. If we look, remember, Nobel laureate, friend of mine, Robert Shiller at Yale, great, great professor. He wrote a he’s written a number of famous books, after all, that’s how you win a Nobel Prize. But one of them was irrational exuberance. And he wrote that in 2000. And he anticipated that the the tech bubble that we had, right, remember, we had that huge run up in the stock market and then a crash and 2000 2001. And, and he anticipated that thing. And, and what he looked at he he has something called Shiller’s cyclically adjusted price to earnings ratios, CA P E ratio. And now that si p at CIP E ratio is 34.4%. And it’s higher than 95% of the readings that we’ve ever had since 1881. Now, what’s that mean? It means stock prices are very high. Now, the price, price earnings ratio, the way Schiller majors that, which is a very carefully done, thing. And, you know, just yet another reason the guy won a Nobel Prize. It’s very high right now. And the only higher time actually was in 2000. It was a it was about 45%. The ratio is 45. The ratio is about 45 is 34. And 34 is higher than 95% of the readings that have ever occurred in the stock market since 1881. And there’s only been one peak higher. And that was the so called the interim internet bubble, whatever you want to call it that occurred in 2000. So the market looks pretty pricey to me. And Schiller now, thanks. There’s a 50% chance of a recession. I think it’s a little higher than that. He by the way, Shiller is not a monetarist. He’s Shiller Shiller is a canny Keynesian and, and, and so, that’s, that’s, that’s the stock market. Bass bass. basically in a nutshell, to summarize, I’m a little bit with Jamie Dimon and Warren Buffett. They’re they’re not they’re not. They haven’t been injected with irrational exuberance. Neither is Anki. So is this the calm before the storm? Yeah, this is well, this is the this is the exuberance before the storm. I mean, everybody’s in the party, you know, everybody’s celebrating and, and the wildly optimistic and, and especially if you listen to some of the Silicon Valley crowd, you know, they say, artificial intelligence is going to save man, you know, and change the world and everything? Well, it will, it will change a lot of things, by the way. But when you put it into context, they they say things like this. And this is this is how you can kind of take them to school a little bit. They say, Oh, artificial intelligence, you know, that’s going to change everything. Productivity will zoom in the United States. And, and instead of in, they say, we’ll have real economic growth of 6% per year, well, not 6% per year, that’s, that’s three times higher than the current potential growth rate in the United States. We haven’t seen that kind of jump ever in history. So you know, I mean, Black Swans are possible, but they’re not very likely.

James Connor 36:38
So let’s talk about the inflation rate. And I know you said that with this contraction in the money supply, we’re going to get a big pullback in the inflation rate, you think it’s going to be approaching 2% or lower by the end of the year. But you we just recently had a very strong CPI number, we had very strong retail numbers. And we had your good friend, Powell speak recently, he also said it, it said it almost sounded like rates are going to be higher for longer. And I think the dot plot in March, they said they were expecting three rate cuts with the first one coming in June. It sounds like it’s going to be beyond that. Now. What do you think about what’s happening right now in the economy? And then, of course, I got to touch on what’s happening in the Middle East with oil prices, and with the potential for oil prices, prices to go significantly higher? How does this all fit into your scenario?

Steve Hanke 37:31
Well, first of all, the inflation rate was was coming down fast from that peak of 9.1. And then the first quarter, the last three months, it’s kind of plateaued at more, more or less, where we are now 3.5. So it was coming down coming down, and then it’s and then applied to, it’s going to start going down again. And John Greenwood night, again, were originally thought with without this plateau in the picture, this little kink, in the in the trend, we thought it would be down to 2% or below by the end of the year that that that will occur. But I it might not occur quite by the end of the year, it might take a little bit longer. But then we’ll come down to the to the target. Now about Paul and policy, they they don’t look at the money supply, they’ve canceled the money supply. And they’re their data dependent. They’re looking at current data. And that’s it. So he looks at the current three months of the CPI, he says, Oh, we better stay higher for longer tighter for longer. Now, I think that’s inappropriate. They’ve been way too tight. And for way too long. And if anything you ask about well, how deep do I think the recession is going to be? I think if they stay tighter for longer, that will simply mean that recession will be drugged out for longer and might might even be a little deeper than we are more or less anticipating so. So that’s that’s that side of the picture. The Fed is just got us on this. They’re just all wrong. They’re not looking at the money supply. They’re looking at current data. And as a result of that, they’re just whipsawing us we’re we’re on a roller coaster. I said unprecedented increase in the money supply. February 2021. At peaked at 27%. Year over year, highest it’s ever been in the history of the Fed. And now boom, we’re coming down and we’re contracting. We’ve only had four contractions in the history of the Fed. And as you say, you’ve got to go back to 1948 49 to even pick up the the last one we had before. So they’re on a roller coaster, they just are not with it. They don’t follow the hankies golden growth rate about 6% per year constant rate and you’re going to come pretty close to hitting the inflation target. And that’s what they were doing, by the way with Greenspan in the 1990s that wasn’t that long ago. What Why why why did we have a pretty constant inflation rate the United States and pretty good growth and sustainability along Long Boom, it was because of money supply was growing more or less at a constant rate of around 6% per annum so that’s the that’s the money supply part of it the what’s what’s going on with the the wars in Ukraine and the Middle East. That’s another kettle of fish. Creating, by the way, creating a lot of uncertainty.

James Connor 41:07
On Friday, Anthony scare Moochie spoke with Travis Kling of Ikigai Asset Management and Travis provided his views on the economy, and how Bitcoin fits into his investment thesis. Enjoy this short clip from Anthony and Travis.

Anthony Scaramucci 41:25
What about macro economics? You have a view on that you’re really good at that. So what do you think’s going on there? Where do you think the Fed is?

Travis Kling 41:35
You know, you I mean year to date, the defining macro trend feels like going from six rate cuts to two rate cuts this year. And pushing the first rate cut from May to I think now it’s in September, I think, maybe October. And risk assets have been able to hang in pretty well through that going NASDAQ’s up 5%. This year, crypto has obviously done well, this year, the market has gotten a little skittish, just over the last risk assets in general have gotten a little skittish over the last, I guess it’s been a week or week and a half now since that CPI print came out and took another cut out of the curve off that print, push the date back. Some are the first cut off that print now people are thinking or what happens to you know, tech stocks and in turn crypto, if we go from two rate cuts this year to zero rate cuts this year, is there a chance that they’re going to have to hike rates again. And that just seems to be kind of front and center and then with with some sprinkle of it not to not to talk about it flippantly but some kind of world war three risks sprinkled in there as well, too, which is you know, that’s obviously a really sad thing. But it does, I think to a lesser degree have market skittish, but those are the types of things that can obviously escalate really, really, really quickly, in a really scary way. It seems to me like there’s an enormous amount of cash sloshing around. Crypto is is heavily beholden to global liquidity characteristics, monetary and fiscal policy into money supply, that type of stuff. And I think specifically with Bitcoin with these ETFs, we have had an there’s enough of a structural inflow that has occurred there. And I think there’s some more of that to come just directional slow structural inflows. And you would know better than me, I’d be curious to hear your views on that, that it’s going to, if that’s going to probably big ones probably going to trade fine this year, even if risk assets broadly, are going from two cuts to zero cuts and getting nervous about maybe a hike instead of a future cut. I do think that would probably, you know, meaningfully meaningfully curtail how high bitcoins price might get this year, as opposed to you know, if they cut, say four times this year, like you would just expect bitcoins price to be higher in that scenario. But I wouldn’t be super worried about the kind of downside in Bitcoin. Yeah.

Anthony Scaramucci 44:18
Right. So I’m the contrarian here, right. And I and I appreciate the data. But I think that there’s something else going on and I and I’m, again, I could be completely wrong. The same thing that got the Fed in trouble at the beginning of COVID, which was the incredible induction of money into the economy, and the massive fiscal stimulus which led to this inflation that we have and just to remind viewers and listeners we’ve lost 22% of the dollars value. The US Dollar in terms of his purchasing power has gone down 22% In the last four years, so it’s really putting a strain on lower middle income people. But but the Fed Miss sighs the inflation on the weigh in, they said it was going to be transitory inflation because they felt the supply chain was going to connect more quickly. I think what’s happening now is the data is lagging where the actual inflation is there were good numbers in Europe where I was this week. And I think when you get to the end of the first, the second quarter, when you get to the end of June, you’re going to see lots of these numbers better than people expect, which is going to force the Fed to cut rates, which will put pressure on them are you mean, we dead side of the economy for everybody, not just the congressman, but also the real estate, the mortgage brokers, etc?

Sorry,

Travis Kling 45:41
Sorry, do you mean the data coming in weaker than expected so then that gives the Fed room to cut was that what you meant by that?

Anthony Scaramucci 45:47
Weaker weaker than meat meaning meaning more inclination, the economic data is going to suggest that it’s time for a cut what so when I say better than expected mean data data that will allow them to cut obviously, it’s a weird thing about markets in the economy, worst data, allows them to cut which gives the market a little bit more flexibility in terms of price appreciation, but yet, I could be wrong. And just these are my feelings about it. Let me let me go to a topic that I always like asking people is there’s something today that this audience could take advantage of, if you had an idea or there was a spy, you say, you know, listen, this is something I think it’s going to work over the next three to six months. Anything right there in the sweet spot of your investment zone?

Travis Kling 46:40
Well, I gotta be careful about this stuff. As you know, from a regulatory perspective getting on it, this is absolutely not financial advice. But I can stick with an easy one. How do you know if you’re just gonna guess finger in the air? What percent of your listeners that are gonna watch this own Bitcoin?

Anthony Scaramucci 46:57
Good question. I mean to say less than half, but I would say more than 25%.

Travis Kling 47:04
Okay, so then it’s very easy for me to give a Bitcoin dollar cost, average pitch, and even even up here, that’s a fine, very fine thing to do. You can Google around for kind of Bitcoin DCA trends, I think there’s a website that tracks this thing. But $1 cost averaging strategy for Bitcoin has just been such a great investment for such a long time, through incredible increases in price and stunningly decreases in price. And if you just chug along like that, that has just been so good for you. And if you want to get a little cute with it, you can put on incredibly basic risk management stuff around. There’s something called the mayor multiple, maybe you’re familiar with that, where it’s the distance that bitcoins price is above or below its 200 day moving average, incredibly simplistic stuff. And so maybe if you want to get cute, you can like cut the DCA when you’re way up above the 200 day, maybe you want to juice the DCA pursuant to the mayor, multiple words, and now, I would probably be slightly like a bit above but not in a crazy zone, definitely still in a bye zone for sure. And then and then I think each person’s portfolio allocation about how much that’s a very person by person dependent thing, how old you are, what your family situation is, what your general risk appetite is, what your knowledge of crypto is just different things like that. But you know, I think 5% in Bitcoin makes sense for everybody. You know, my mother had 5% of her networks are 71 years old. If you’re younger, you want to do more, you can do more than one to 10% 15% something like that. And you can DCA into it and and I was trying to give just a quick kind of one minute pitch on what Bitcoin is. And so Bitcoin is a non sovereign, hard cap supply, global, immutable decentralized digital store of value. That’s six adjectives, that’s a lot of adjectives, but each one of them is important in its own right. And it is a insurance policy against monetary and fiscal policy irresponsibility from central banks and governments globally. That’s what it is, if you are bullish on central bank balance sheet growth, and if you are bullish on m two money supply growth, and and sort of the inverse of that is that you’re worried about the diminishment of your purchasing power over a multi year multi decade period of time. Bitcoin is a great financial instrument for that and I have a higher degree of confidence of that, certainly than anything else in the crypto ecosystem.

James Connor 49:51
Well, I hope you enjoyed that synopsis of this week’s interviews. You can find the full length interviews on our YouTube channel. Don’t forget to subscribe to our channel Wealthion.com and also hit that notification button to be kept up to date on upcoming events. If you would like us to interview somebody that we haven’t yet interviewed on the channel, please let us know in the show notes below. We’re always looking for new guests and new ideas. Once again, I want to thank you very much for spending time with us today and I hope you enjoy the rest of your weekend and I’ll see you back here again next week.