Michael Lebowitz steps in for portfolio manager Lance Roberts and joins Wealthion founder Adam Taggart recap the major developments of the week, including:
- Is the market rally tapping out?
- Yields are back on the rise. What does the mean for the economy? The markets?
- How are bonds likely to perform from here?
- Will the lag effect eventually crash the markets and cause a recession?
- Will the Fed prove more hawkish or dovish than markets currently expect?
- The trades Michael & Lance’s firm made this week
Adam Taggart 0:04
Welcome to Wealthion and Wealthion founder Adam Taggart welcoming you back at the end of the week for another weekly market recap. This time not featuring my friend Lance Roberts, featuring my even better friend. And let’s admit it, folks, this is quite an upgrade. Lance’s partner, Mike Liebowitz from real investment advice, how’re you doing? My great,
Michael Liebowitz 0:24
great even Lance gets vacations now. And again,
Adam Taggart 0:27
I can’t believe you guys let that guy do that. I guess the bigger question is that guy ever do any real work? Or is he just sort of on perpetual vacation there?
Michael Liebowitz 0:33
question is Does he ever not do any work? Guys always worked. And I guess he probably is working right now on vacation.
Adam Taggart 0:41
He probably is. He’s probably watching this. I just like to get my jabs. And when I can when he’s not around me. I do too. All right, well, look, lots of talk about we’re going to talk an awful lot about two very important things. One is something you and I talk a lot about, I don’t think enough people talk enough about this, which is the the lag effect from the very aggressive hiking and tightening campaigns that many of the world’s central banks have been engaged in now for over a year. And related to that, we want to talk about what’s going on in the bond market with rising yields, because yields are back on the move again. And of course, those are very tied to the lag effect because the higher yields go that what creates the the impact of the lag effect. Before we get there, though, let’s just talk about the markets really quickly. Bit of a down week in the markets not by too much. But you know, we’ve we’ve had our a rollicking start to the year with least the big stocks, the s&p things took a little breather this week. anything notable about the market action this week.
Michael Liebowitz 1:45
The only thing worth noting was I mean, it’s a tough week because of the holiday. The the thing worth noting was Thursday, we saw a decent decline on that very strong ADP number, the jobs number reported just under 500,000 new jobs were created in the economy. Now the problem is the BLS came out on Friday morning and said that there were only 200 I think it was 209,000 jobs, which is slightly above the average from 2015 to 2019. So the robust job growth in ADP is average job growth in in the BLS world. So not sure there’s much to make of employment data in general, it’s not really it’s not strengthening, but it’s certainly not weakening either. And I believe that we are not going to have a recession until the labor market cools off. And there’s nothing in this week’s data between ADP, the BLS, we also had jolts. We had the ITSM surveys, there’s other than manufacturing, which is probably in a recession, there’s nothing else telling us that the labor market is going to turn into a recession. But things change rapidly. But based on the data looking backwards, that’s fine. Adam, let me remind you that most of the time, the unemployment rate doesn’t take up until a recession has actually started. So it’s not the leading indicator, either. It’s very much a lagging indicator.
Adam Taggart 3:23
Right. And frequent watchers of his channel have probably heard me referenced many times the work of Michael Michael Kantrowitz, who has the hope framework, which basically shows the progression of how we get into and out of recession. And that H stands for housing. O stands for new orders. P stands for profits or earnings for corporate companies. And the last one in the acronym is the E is employment. Right. And that basically is the final Domino and if we look at the first three Domino’s, you know, they have tipped over or in the process of tipping over the last E they’re the employment has been the bulwark, and it’s been surprisingly resilient. But as I’ve been reminding people many times, you know, sort of as goes the employment data, so goes the economy from here, if it if it manages to hold steadily, and I think everybody is I would say I feel comfortable saying extremely surprised with how resilient the employment market has been so far. If it manages to remain solid, then we may not get this very predicted recession. And I’ll be super clear. I’m one of the guys that’s been it is still is predicting recession here. What’s interesting is the employment data has been just amazingly good. And I showed a chart from one of your recent reports Michael last week with Lance which shows the the number of beats that we’ve had in the employment data and you know, it’s the kind of data where in a regular market, you know, 50% of the time it’s going to beat 50% of the time it’s going to disappoint. And I think they’ll last dataset, if I’m remembering correctly is that we’ve now had 14 consecutive beats with that numbers. And so that’s sort of the equivalent of flipping a coin and getting heads 14 times in a row, right?
Michael Liebowitz 5:21
Well, this Friday’s employment number was tails. So it’s that streak is finally over.
Adam Taggart 5:27
Okay, so was it was it NFP numbers? Was that Is that what that that chart was measuring?
Michael Liebowitz 5:31
Yes. Yes. I think the expectation for Friday was 235 and it came in at 209. So, you know, the expectation was pretty much right on but it was slightly over the actual number.
Adam Taggart 5:43
Okay. Well, that’s notable, then because that is the I mean, that one data point does not yet make a new trend. But it shows that we’ve had this incredible run of beats. Now we’ve had our first miss. Let’s see what goes on from here. I know that the Non Farm Payroll numbers as well. Not only did it did disappoint when it came out on Friday, but they went back and fairly substantially revised downwards the previous couple of months as well.
Michael Liebowitz 6:09
Yeah, yeah. But again, there’s nothing in the data that tells you to run for the hills. The unemployment rate is still 3.6%, which is ticked down with this latest report, right, slightly above 50. year lows. The number I pay little more you know, BLS is the big number, employment Friday, everyone talks about, I like jobless claims better. It’s a weekly number, it’s up to date. It’s based on data, not on surveys, it’s based on actual filings. Now, there are certainly some flaws in it. But when you look at like four week moving averages, I feel it gives a more reliable picture of what’s happening in real time. And if you look at jobless claims, they’ve uptick. And they’re actually slightly higher than where they were for the couple of years before the pandemic. But again, they’re not ramping higher. They I guess you could call it a slow grind higher. And the second part of that is continuing claims. So people get laid off, how long do they continue to collect jobless claims, and continuing claims to don’t show you that these people are getting laid off and not finding jobs? They’re finding jobs, you know, relatively quickly. So that’s what I like to follow closest, but you can’t focus on every Thursday’s number, you got to kind of take two steps back and look at the trends and look at where it’s going. So that you know, that’s another data point, your listeners viewers can use to kind of track the labor markets. Yeah, and,
Adam Taggart 7:48
you know, we’ve had a lot of discussion on this channel of how much can we really lean into these numbers? How much can we really trust them? Because there is a lot of, you know, some of these numbers at times are sort of hard to believe the beats are multiple sigma, multiple sigma multiples. And oftentimes, there’s pretty big discrepancies even with with different surveys run by the same organizations. There’s the household and the establishment surveys that are done by the BLS that have had a pretty big divergence in the on the order of millions of jobs for much of the past 12 plus months running. One of the data points I like to look at is trying to remember this, I get this correct, it’s, it’s basically, taxes withheld, payroll taxes withheld, because that’s reported daily, by the US Treasury. And so that’s if somebody’s getting a check, you know, you have to tell the government how much you want withheld in taxes from that paycheck. So it’s a it’s not a calculated algorithm, like the birth death models and the BLS models they use, it’s, it’s just a report of, hey, we took we withheld X many taxes today. And that number has actually been declining in growth pretty, pretty radically over the past year. And the last time I saw the data set, and I’ll try to find it and put it up here, if I can here is that it was it was cracking into negative growth. So that sort of shows that at least the trajectory of of employment is, you know, perhaps heading in a direction that that the headlines, maybe still don’t, don’t tell us or the headlines might still be a little bit deceiving on the upwardly rosy side of things. And there’s, you know, lots of debate on you know, most of the job growth that’s being reported is in part time jobs, I think for much of 2022 I don’t know if there was any growth net net, I think we might have actually lost full time jobs net net. So there’s a lot of dust in the air here. And it’s but it’s worth looking from every angle we can do your point, we shouldn’t just look at the payroll report or the jolts report or the ADP, we should be looking at all these different things because employment is so important to where things go from here. In fact, I think if there was only two things we had to look at, I’d want to look at liquidity in the market. And I’d want to look at employment, I think those two things will probably tell us more of where the economy’s headed than anything else,
Michael Liebowitz 10:23
right. And look, bottom line is, you can look at all the data to you’re blue in the face, how many people do you know that have been let go and can’t find a job. That’s, that’s another great indicator. And I don’t know anyone at the moment. In fact, my daughter is in New York City for the summer, she’s in college, and she’s interning she has a marketing internship. But she needs to make some money. So she, first second day she gets there, she walks down the street, she pops into five or six restaurants, she ends the day with five or six offers. I mean, these, a lot of the job growth is coming from the entertainment and the food industry. Yeah. And, you know, they clearly need help. You know, why, you know, we can ask the question, why are people eating out so much more? Is that Is that what’s going on? Or are they just can’t hire enough employees. But there’s clearly strength in certain industries, and they’re not high quality job industries, you know, restaurants, for the most part, and entertainment tend not to be higher paying jobs, they tend to be very, tend to fire very quickly hire very quickly, a lot of volatility in the workforce. So you know, that’s just another thing. It’s just what do you see on the ground? does? Does the data all these reams of data, jibe with what you actually see. And what I see is a very strong labor market.
Adam Taggart 11:50
Yeah, I, I don’t disagree with you, and extra me to invite viewers here to share their observations in the comment section below this video so that we can get some real time kind of crowdsourcing of information, hopefully, from across the country, and maybe other countries as well. I will say out where I am, I’m in Northern California, up in the San Francisco Bay Area region. I would say similar with sort of, like, you know, lower pay scale service jobs, you know, lots of demand, you know, lots of help wanted signs still out there at these places. I will say that with more than white collar level, the, you know, executive manager, director level, mid level management, I’m definitely hearing more stories, and actually seeing more people I know, beginning to get laid off some quite high and like the the C suite or the SVP, SVP suite. And, you know, for the past six months or so that hasn’t, they haven’t seem too worried largely because these guys were getting, you know, six plus months of severance, they’re getting very generous severance packages. And they were kind of resting and recovering for a little bit before looking for work. But I do know, somewhere, I think I’m beginning to see sort of a little bit of beads of sweat on the forehead of like, I’m having trouble finding a job that pays as well, or maybe has the same title that my previous one had. This is all anecdotal. But to your point of looking around, that’s I do sort of see that discrepancy between the lower end of the pay scale and the higher end.
Michael Liebowitz 13:28
Right. And here’s another thing to think about your neighbor loses his million dollar, see, you know, SVP job 1010 10, people were hired to work in a restaurant at, you know, the equivalent of what, 30 40,000 a year, the number of jobs just increased significantly, but the quality of job decreased. So that’s where all these numbers kind of are, you can’t just compare one to another because there’s, they all measure slightly different things. So, you know, just something else to factor in is quality.
Adam Taggart 14:01
Yeah. And that’s exactly what I was saying earlier, we have to kind of look at this jobs number from all different ways, because if we just look at the headlines, I think the story is a little bit deceptive. Right, right. So you know, it’s certainly the quality of the type of jobs tells you more clear story of what’s really going on with the economy here, right? And fair or not, you know, there are a lot of types of jobs, trying to remember who I interviewed on this channel, who said, like the average tech worker, like it or not, there their job basically enables, like five or six jobs in their local economy or not even necessarily in their local economy. But you know, you got one large scale tech manager, you know, there’s the coffee shop that they go get their coffee out in the morning. There’s the contractors that they’re farming out, you know, vendor based projects to stuff like that. That big job goes away. A lot of those smaller jobs suffers Well, so you got to you got to look at those inner connectivities, too. Right?
Michael Liebowitz 15:05
Yeah. One other kind of odd aspect that we’ve been seeing is manufacturing versus service sector. Manufacturing jobs. I think there were 42. I forgot the number in ADP like 42,000 jobs were lost. I didn’t see what it was in BLS. But that’s been a continuing theme that the manufacturing sector is losing jobs, while the service sector is gaining jobs. So a lot of people will say, well, that’s fine, because manufacturing is roughly 20 25% of the economy services, three quarters or so the economy. The problem is many service sector jobs are for lack of a better word, non volatile, right? Teachers don’t get fired, doctors don’t get fired. We go to school, whether we’re in a depression or a booming economy, we go see doctors. So there’s a lot of service sector jobs that are not going anywhere, that that are not really representative of economic activity. So you know, you do have a quarter of the population or so that that is seeing job losses are a quarter of the economy. I mean, seeing job losses. But the question is of those service sector jobs, which ones are marginal, like restaurant jobs are marginal when business slows down, they will let go of the waitstaff and the chefs and you know, whoever else is working there. So that’s important to remember the distinction between those two, because I think it’s getting a lot of press, and we need to understand what it really means, at least on the labor front. Yeah. And
Adam Taggart 16:42
on that same point, I did an interview a few weeks ago with Lakshman Achuthan. And he remember correctly said, yeah, the, you know, our US economy is basically two thirds or whatever services now. But he said the manufacturing jobs, they punch above their weight in terms of their impact on the economy. And he said, I can remember the factor, right? It was like five or six times, right, was the multiplier. So if you if you add that up, even at it’s still, you know, current rate of 20 or 30%, or whatever it is, you multiply that by five or six, it’s actually greater in terms of its ultimate impact than the current services. Right.
Michael Liebowitz 17:29
And what he’s probably talking about is the correlation to economic activity. Yeah, that there’s a very high correlation in manufacturing jobs to economic activity, both hiring and firing, whereas a lot of service sector, there’s not nearly as much correlation. You know, like I said, doctors aren’t losing jobs in a recession. Teachers don’t lose jobs. There’s plenty of other service sector industries that don’t get fired if there’s a recession, whereas manufacturing is all but guaranteed that they will those companies will make adjustments.
Adam Taggart 18:01
Yep. And you what’s interesting about the manufacturing, jobs job decline that you’ve been talking about, which has been going on for a while, is we have the inflation. Well, we have the whole reshoring trend that’s going on right now. And we also have funds that are getting spent now by the inflation Reduction Act. And we’re seeing construction jobs grow pretty dramatically now. And I think that that’s largely coming from that, right. It’s, it’s the building of, you know, new businesses, new roads, etc. Right now. I’m wondering if that will eventually spill over into manufacturing where once that new infrastructure is built, that it’ll enable more manufacturing to be done. But But certainly, the money’s not flowing there yet, because we’re still seeing contraction here in the manufacturing sector,
Michael Liebowitz 18:57
right. And construction in certain parts of like, new home construction is booming right now. You know, at least parts of this country, we’re seeing a boom in multifamily construction. Now, the question is, are they getting ahead of themselves? And will there be enough renters? You know, for the are buyers of those multifamily properties to justify the existence? Or will we have an overhang and that overhang then starts having a big effect on labor on prices on the economy?
Adam Taggart 19:30
Well, let’s let’s use that as our segue then into the the main event of this discussion, because just like with the overall economy, certainly within housing, so much of its going to depend upon what happens with employment, right. And because housing prices, in theory, at least should be a function of what local incomes can support, in theory, so, you mentioned in the intro, that we were going to talk about the lag effect, right. We have had You know, arguably the most aggressive hiking slash tightening campaign, you know, in history in terms of the timeframe that it’s been done in, over the past 14 months or so. And things are holding together still really well, you know, the economy’s still going well, employment still, on paper, really strong. Markets are back, you know, beginning to see their all time highs, you know, in their headlights. And, you know, the fleet of zombie corporations are all still largely alive. I mean, so the market, and I would say the media, the financial media is kind of beginning to adopt this attitude of like, like what lag effect right? Now, of course, by definition, the lag effect means it’s something that shows up later. And so the big question is, is how, how material is the lag effects going to be right? I think you and I probably have a greater respect for its potential, perhaps than than many folks that are creating stocks daily right now, or writing these financial headlines. But let’s really dig into this because everything that we’ve just been talking about its future will be determined basically, about what the intensity of the lag effect is going to be. Right. So I’ve seen lots of debate in terms of how long the lag effect of Fed policy is. And just for new viewers, what we’re talking about is the Fed pulls a lever, right, it increases the federal funds rates by 25 basis points, for example, you don’t really see the impact in the economy of that, that change, that incremental change in the rate until some period of time and I’ve seen estimates of anywhere from nine months to two years, you know, kind of kind of kind of going in between the two, you get about where we are right now. So first off, Michael, how do you look at the duration of when we should expect to see a lag effect from Fed action?
Michael Liebowitz 22:07
Right, so so there’s a lot of different levers going on here. Like you said, the Fed has increased rates at the fastest rate, so how much and over what period of time since like the 19, early 1980s. But now, this is very important. When you factor in how much and how quickly they did it with the amount of debt in the economy, you could say that the current environment, the Fed is blown away what they did in the 80s, because it was so much less debt, it the interest rate had so much less of an effect, because there’s just a lot less debt. So what the Fed is doing is, if I would have told you this a year ago, what they would do you think I was crazy. And it hasn’t worked yet,
Adam Taggart 22:51
right? It just to be clear, I would have thought the economy would have gone into like cardiac arrest by now.
Michael Liebowitz 22:57
I probably said that to you a year ago. So why hasn’t it? So there’s, there’s a lot of different things going on. So first of all, we can look at housing, why hasn’t housing cratered if mortgage rates are now 7%. And part of the problem with housing is that you need a buyer and a seller. And if I want to sell my house, for instance, I can sell it, but can the buyer afford it with the mortgage rate. And even if the buyer can afford it, I have to go by I have to go live somewhere else. So rent play, rent prices are up so I can rent at a very high price. Or I can buy another house and take out a seven or 8% mortgage to buy that other house. And you could make a case where you could sell a house for 500,000. Turn around buy a house for 400,000 and have a larger mortgage payment than you did before. So so the housing the existing housing market, not new homes, but existing homes is very stagnant. There’s just nothing going on, which helps explain why new homes are doing relatively well, why both construction and new home purchases are doing well. Because those are the only homes available, and there are people that want to buy homes need to buy homes.
Adam Taggart 24:12
And let me just clarify what’s going on there for folks. So you’ve got this sort of freezing of the existing home market where as Michael was saying, you have people that don’t want to sell because they don’t want to basically have to have a more expensive house going forward when you take into account the higher mortgage rates, right. So transactions there have pretty much frozen up with the new home builders are able to do is they’re able to slightly undercut the price, or at least the value of these frozen prices in the existing home market. So they’re able to do a lot of turnover at just a little bit of a discount to the existing home market and they’re still capturing the vast majority of the profit they would make if they were selling it at exactly the same level. So they actually have this really nice competitive window of opportunity. At where they can sell a lot of inventory in, at close to what the prevailing market rate is. So that’s why, you know, when I first heard this, I was like, why are Why are new homes being able to? You know why the homebuilders doing so well, now that I sort of understand that dynamic, I kind of get it, right.
Michael Liebowitz 25:16
And it’s also a much smaller percentage of the whole housing market two, right. So you know, you got to put them both together, you can’t just look at either one individually and make a presumption,
Adam Taggart 25:26
right, but you started interrupt again, but you have this, this, this demand that’s getting pent up, right of people that want to buy a house and transactions aren’t happening. So these new houses are coming on to the slightly better value. And so all that growing demand is chasing that. And of course, you’re saying, Oh, wait, I can actually get a new house, you know, that was just built today with all new fixtures. And, you know, I don’t have to worry about termite damage, or any of the things I might have to worry about with with an older home. And so the market is running towards that what it perceives as a better value right now. Right?
Michael Liebowitz 25:59
So that’s just one example. You know, but then you can look at like cars. If you don’t need to buy a car, you don’t really know what auto lending rates are, you know, cars last 5678 years. So in theory, only, you know, a small percentage of those that need to buy cars are out there in the market and affected by the higher rates. Corporations are big borrowers. But unless their debt matures, or they have to borrow new money, they don’t care what the rates are today, they care what they’re going to be when that debt matures, that corporations tend to roll over debt. So if they issue a five year note, the debt matures, and they issue a new five year note. So there hasn’t been a lot of corporate debt. That’s matured thus far in 2023. That number starts ramping up later, and 23 and 24. So that’s, that’s the lag effect. That’s why it takes a while now, you also have the stimulus effect. So the government flooded the economy with money in so many different ways. And some of that stimulus is still flowing through student loans are still you still don’t have to make payments on a student loan. That’ll change in you know, in theory, if Biden can’t do anything in August, where all of a sudden that, you know, a lot of people are going to be paying three, four, or 500. And even more towards their student loan that they weren’t paying for the last three, three and a half years. There are still there’s still a slight excess of savings. If you look at total savings, and kind of the trend rate of savings, they are still running above trend. So consumers are able to draw down savings, credit card usage has increased credit card balances have increased rapidly. So consumers are also using credit cards to help spend as well. So you know, and then there’s this whole psychological aspect of the pandemic we saw. UNH reported that they’re a little concerned because older, their older clients are starting to go to elective surgery, because of the pandemic, they were shying away from that. So a lot of these pent up demand behaviors, from the last three years are coming to fruition. We didn’t go on a vacation for two years, let’s do it up this year, let’s go on a bigger vacation. You know, we deserve it, because it’s been two years, that sort of thing. So you throw all these different factors into the you know, the pot, and you stir them up, makes it very hard to predict when the economy will eventually feel the effect of the rate hikes. But, you know, at the end of the day, I think what we really have to remember is that we are in an economy that grows at one and a half to 2%. After inflation. That’s not me. That’s that’s the Fed that tells you that if you look at their long run projections, I think it’s 1.7 1.8%. If you look at productivity growth in this country, it’s about the same thing. Demographics, don’t do that don’t do the economy, any favors, and it just kind of gets worse as time goes on. And it all comes back to credit then credits that marginal lever and with rates so high and the yield curve inverted. The banks don’t necessarily want to lend money and people don’t want to borrow money at these high rates. So you know, it’s kind of that I feel like we’re like the the coyote and the roadrunner. The coyote runs off why that wily coyote runs off the cliff and he’s sitting there and he looks around he thinks everything’s okay. And then he looks down and the bottom drops. And, you know, it’s really it’s always hard to predict the lag effect. This because of all these different stimuluses and behaviors and everything going on, this is just so much harder. But it means that this lag effect can last longer that. And that’s I think that’s the big risk. Is that what that the coyote stays in the air longer. And the Fed keeps raising rates, they’re piling on to the damage that we don’t see. I think that’s really what is concerning the Fed, the Fed, I think, would love not to raise rates anymore, right? They pat themselves in a corner where they almost have to now,
Adam Taggart 30:43
I’m sorry to chuckle but as you were talking, I was I was seeing the Roadrunner cartoon in my head. And there are times where like, he’s chasing the Roadrunner, you know, with like an anvil, and he runs off the cliff, and he’s in the air and they looks down, and then he falls. Right. And then the anvil hangs up there for a few more extra seconds. So he lands he, you know, falls and makes a big pile of dust at the bottom of the ravine. And then, you know, a second later the envelope goes who lands on him? Right. And that’s kind of like the Feds over tightening. Right?
Michael Liebowitz 31:15
Well, and that’s a great analogy, the more they over tighten the bigger the anvil.
Adam Taggart 31:19
Yeah, yeah, that actually the, the, the analogy I’ve used and be curious to hear, if you think this is true, is imagine somebody walking down the road. And you’re watching them with binoculars, and you determine that person is moving too, too fast for your liking. Right? So this is the Fed looking at the economy and saying, okay, you know, with the economy, it’s getting a little too hot, right. So you send a runner with a backpack, and a wait, and say, Go Go catch up to that guy, put this backpack on and put the weight in the backpack, right. So your runner does that and you’re watching, you’re saying up, now the guy is still moving faster than I want it. So you send another runner out. And after a while, you’re like, now I’m going to send another runner because I think I’m going to need more weight and you keep sending runners out. As each one arrives, they keep putting more and more weight in the backpack of the guy. So he finally does start slowing, and then maybe when the next runner catches up to him, it’s too much weight and he stops, then the next runner comes gives them even more weight, still, you know falls to the ground, you may still have like five or six runners that are in in progress. And now that guy’s on the ground, he can’t move and runners are still arriving and putting more and more weight on him. Right. That’s the danger you get into with overtightening where you might say, Oh, my gosh, I’ve done too much. But you still have a bunch of runners that you’ve sent out.
Michael Liebowitz 32:38
Right? Right. And that’s exactly right. And the Fed knows this, the Feds talk the Fed. Jerome Powell, I think was last week in front of him, was it his congressional testimony, he made statements, it maybe wasn’t congressional testimony. But he made statements. He said, We have to be very respectful that a lot of our rates have not taken full effect yet. So he’s telling you that there, he’s mentioned the lag effect many times, he’s been mentioning that for the whole year of time that he has, and in a weird way, I kind of feel bad for them, because they have to keep piling on making that anvil bigger and bigger. And they have to know that the bottom bottom by definition will fall out. This is basically economic physics, you can’t have a 2% economy with 5% interest rates, the math just doesn’t work. And we are so highly levered, the math even gets worse. So it’s a question of when and I know it’s frustrating from a, you know, from those that are in bonds, it can be frustrating for those that are kind of sitting out or less exposed in the stock market. It’s frustrating. But this can go on for a while. And that’s why it’s important to kind of follow what the markets are telling you watch the economic data respect, the lags respect, kind of the broader macro theme of you know, where this country has been heading for the last 30 years, and kind of put all that together into a cohesive plan of action. So look, I think we both agree the future looks poor. But that doesn’t mean that the next two months can’t be really good for the stock market, or really bad for the bond market. It’s you know, you’re dealing with sentiment and investor behaviors versus to some degree reality and most investors are backward looking. And if you look backward, this is kind of how we lead off. There’s no more lag effect. lag effect is gone. Interest rates don’t matter. Everything’s good luck, the economy was stood withstood 5% interest rates were good. That’s not the truth. That’s not what’s going on. happen. So you have to just keep all this stuff in mind and balance, you know, try to be very, you know, have your opinions. But but read and watch and listen to the bulls to the bears and try to understand what they’re all saying and why the bulls may be right for a while, but may, why they may be wrong. And conversely, maybe the lag effects are going to be much long, maybe we’re talking another year or two. Right? So so try to understand and gain conviction by by looking at basically both sides of the aisle. So Michael,
Adam Taggart 35:36
you just really underscored why we have you and your partner Lance on this channel, week after week is to give people continued ongoing viewpoint into the mind of a capital manager, because you don’t have the luxury of just sitting here and opining, you actually have to make capital allocation decisions for your clients based upon what’s going on. And it’s it’s a challenge, because the theme all year has been that the market performance has been very divergent from what the macro data has been telling us. Right. And so you know, you mentioned the coyote can be remained in the air much longer than you think. And that’s the same thing as the old quote of the market can remain irrational for you know, longer than you can remain solvent. And Lance always tells us look, yes, we can, we can opine all day about what we think should happen. But you have to trade the market that you have, right, not the market that you wish you had, right. So totally get all that. I am going to ask you a bit later about how you your recent decisions, in terms of trading and positioning of your portfolios and whatnot. But we still have more road to hoe before we get there. And I want to get I want to get back on for a second. What what you think the Fed may do here, and the dangers of over tightening? Because from the math of just base effects alone, it does seem that CPI will likely rise over the rest of the summer, right when you have the comparisons from from July to July of next year, highly likely that that’s going to be positive CPI year over year basis. And that’s going to bring inch the CPI right back up again. That will probably I mean, I know the Fed has done the math. I’m sure they’ve got all those PhDs. Hopefully they’ve done this pretty simple math. Yeah, if that indeed happens. I just think optically, it’s going to be really hard for the Fed not to feel pressure increase pressure to be perceived, like it’s doing more, especially with, you know, as we talked about earlier, you know, the nothing seems to be wrong with the labor market. Right. It’s got in stock markets still, you know, again, not too far from all time highs. And if inflation looks to the world, like it’s, it’s going to be stickier than the world has been expecting because it starts inching back up again. I don’t know, I could see Powell, who has already said, Look, we’re gonna do two more hikes, folks. He may say, hey, we might have to add a few more.
Michael Liebowitz 38:03
Yes, absolutely. But who has gotten inflation right over the last three years? So you know, I know we think and we have opinions on what inflation is going to do 1/3 of the CPI numbers housing. If you look at the shelter, it’s called shelter. The shelter component CPI, it is still rising. Every other gauge of housing prices Case Shiller all the different rent. Redfin, a whole host of indicators show that house price gains and rent gains have been arrested. They’re flat in some cases falling. So at some point, the BLS who would calculate CPI will catch this, we’ll catch up with them. Right. And that’s a third of the CPI number. CPI, I think it’s next Wednesday, or this coming Wednesday, is supposed to on a year over year basis, this is the headline number, which includes everything fall from 4% to about 3.1 3.2% 3.2%. isn’t that bad? I mean, it’s not the 2% they want, but it’s not the eight, nine 10%. We saw a year ago. Right? Right. So that’s not bad. PPI is going to come out the following day or two days, that could keep you out could be zero, or negative year over year growth. I think the expectation is point two. Now, the Fed is looking at core, and they’re kind of coming up with these wacky variations of CPI, core service sector CPI without housing. Right core service sector CPI is sticky. I think it’s, you know, rough closer to 5%, four and a half percent, and it’s sticky. But, you know, this is where the Fed is almost trying to make a case to the market that we’re trying to find these parts of C API that are remaining sticky, so that we can validate so that we can stay higher for longer, because we are scared that inflation could resurface. So, but at the end of the day, CPI represents a wide basket of goods, that’s going to be 3%. not awful. And if you look at kind of the monthly growth, which I actually like to do better, the expectation is two tenths of a percent for the month, two tenths of a percent by for a month is 2.4%, inflation, annualized. And it’s been running kind of between, I think, between 1/10, and like three or four tenths. So you know, the inflation rate is probably closer to two and a half, three and a half percent. Yes, there are sticky components. But overall, the stuff that we buy is, it’s still rising. And let’s be honest, here, it’s still rising in price, just not at the same rate was rising. And we’re not getting back, that 8% Jump, it’s not like you should expect it to come all the way back prices to be back where they were in 2019. That’s not going to happen. But in economics, we talk about growth rates, the Fed focuses on growth rates. And so yes, employment part, employment, parts of inflation will remain sticky, there’s no doubt. And, you know, we have yet to see what’s going to happen, but the trend is certainly lower. And if you look at some of these ITSM gauges and other gauges of inflation, there’s nothing overly concerning that inflation will not come continue to at least stay where it’s at and possibly trend lower, maybe it can uptick a little bit over the coming months, but the monthly data is starting to become more friendly. And, you know, I think at some point, it allows the Fed to step back, which is what I think they tried to do at the last meeting, we’re not going to do anything, let’s just wait and see. And unfortunately, for them, economic activity was pretty strong. And they have to, you know, they have to appear strong appear in charge of the situation, willing to do whatever it takes.
Adam Taggart 42:16
Right. And that, and that’s sort of the concern and potential concern I was raising, which is if the CPI after, after the June numbers come out, which should be lower, like you said, if the CPI starts to tick up for a couple of months, even if you and I might think, okay, that’s a that’s going to be transitory. It, I’m just wondering if it’s going to put enough optical pressure on the Fed to look like it’s in control that it’s gotta announce some additional tightening, just to sort of show that, hey, we’re not going to, you know, we’re on top and as folks, but it’s like adding yet another anvil, you know, above the coyote.
Michael Liebowitz 42:54
Right? Right. And in our we wrote a commentary a day or two ago, you can go on our website and look it up. And we looked at real rate real two year rates. So real rates are the the yield on a two year note minus the actually, I’m sorry, us five year rates, the yield on the five year rate minus the implied inflation. So you can back into the tips, markets and bond markets and figure out what inflation rate the market thinks will happen over the next five years, not the next three months, like we’re kind of talking about, but five years, and five years, is a very good gauge of the economy. That’s where a lot of corporate loans occur auto loans. Believe it or not, the duration on a mortgage is much closer to five than 30 years. So a lot of borrowing kind of occurs in that five year period. Right now, the spread on the five year Treasury minus a five year implied inflation rate is over 2%. If you go back and look from the post financial crisis ever up to the pandemic, that number was by and large negative, meaning the Fed was trying to push the economy trying to push for growth, they had very easy policy, we now have the most restrictive policy we’ve had since 2007 2000. When you’re looking at this on a five year real rate basis, the last time we were up here was 2007. And that real yield got up to I think it was 2.5%. We’re at 2.10%. So we’re not that far off. But this goes back to what I said earlier, the amount of debt in the system has significantly increased since 2007. So the effect of that real rate is much more now than it was then. So we’re getting to the point where the fed the Fed, we’re not getting we’re there. The Fed is extremely restrictive already on the economy. And I feel like we just need some time to let some of these Other things work themselves through that basically, the lag effect just has to work itself through. And, you know, I think inflation will fall when the account will fall rapidly. And you know, you can laugh, but I think it wouldn’t be shocking a year from now. We’re in a recession, and the Feds worried about how they’re going to get the inflation rate back up to 2%.
Adam Taggart 45:23
Right. And just what you know, I mean, we’ve we’ve had a number of other people on this program who think that that’s the likely scenario, right, you get folks like Stephanie pomp boy, who has just been beating the drum that look, we gotta be really much more focused on the deflation that she thinks we’re going to have soon, versus the remaining inflation. You’ve got guys like Lacey hunt, that have done an excellent job with data to show that the bigger existential problem that the US economy face faces is a deflationary one. It has had to put down its deflationary sword to fight a hungry or inflation dragon that has showed up in the short term. But as soon as it slays, that one, it’s going to pick that deflation sword right back up.
Michael Liebowitz 46:08
Right. And that’s an important point, that inflation Dragon was not based on the economic trends of the last 30 years, based on the kind of the economy as we have it, right. It’s based on a one off event. It says if Martians landed on this planet, and did all kinds of, you know, spent all kinds of money or did all kinds of crazy stuff, and then they flew away. Well, that’s what the pandemic was, it just hit us out of nowhere, it hit the world out of nowhere, it shut down economies, which we’ve never seen, anything like that. Economic shutdowns, people couldn’t travel, they couldn’t, you know, factories were shutting down, you couldn’t spend money. And then at the same time, the government is flooding the system, both financial system and individuals and corporations with money to spend, they had nowhere to spend it. And then you got then, you know, again, then you got all the behavioral aspects to this, like, okay, we’re free. Now we’re free from the pandemic, let’s go spend money, but everyone’s on a different scale. Some people are ready July of 2020, to go on a cruise. Other people are finally getting getting, you know, willing enough to get on a cruise today. So it just works itself through and very, you know, unpredictable ways. But that was a that is in was a one time event. Now, there’s something a little different about that one time event is that the Fed or the Treasury learned how to print money. They learned how to do stimulus, get the Fed to back them up, and basically hand money to people shower, shower the citizens with money. My concern is yes, we’re in a deflationary economy, broadly speaking, not, you know, notwithstanding the last few years. My My concern is that whoever’s in charge, I don’t think it matters whether you know, because one of this the money drops happened under Trump and one on nearby. Yeah. So both. They’re both capable,
Adam Taggart 48:16
show me the political party that that doesn’t love to spend money when they can.
Michael Liebowitz 48:20
Exactly, exactly. So my concern is that we get into a recession, and they want to give every citizen $300. They want to follow it up with another 500. We know how that ends, right, it’s gonna be another inflationary bout. So as we look forward, I wouldn’t say that we’re going to be in a deflationary bout for 10 years, because I’m now there’s a new political financial concern that the powers that be basically learn how to buy votes, a different way, a new way. And that’s money printing.
Adam Taggart 48:56
Yeah. Greg, really want to dig more further into that with you. Let me hold off for a moment. But let me say I sadly agree with you that I think we have opened that box and it very well may be a Pandora’s box. And it’s certainly you know, once you give a politician a tool that, you know, especially helps them curry favor in the short term with the electorate, they don’t ever want to put that tool down again. In fact, they want to use it as often as they’re able to. But sticking at a high level here on the lag of fact, before we move on to a few other things, you did a good job of, I think, summarizing, kind of four things that are that explain where we are right now in the story. But all of them are transitory, right? And this is what I think gives you confidence that that the macro data is going to win out in the long run here. When you talked about you know, we issued all this stimulus Right, but there’s no there’s still, some of it left sloshing around. And it’s big enough to be material, right? This is the pig in the Python that Lance and I talk about all the time. And I wish there were a really good metric that told us exactly how much pig was left in the Python. We can’t, you know, there’s all different ways people estimated, but it’s it hasn’t fully passed through. And there’s enough there that still propping up certain elements of the economy and to a certain extent the financial markets, then we have this sort of the easy legacy or the low cost legacy debt that consumers but mostly, I think, in this case, corporations took out, you know, a year a few years ago, when rates were a lot lower, right. So they can coast on that as well. Right? The problem with both of those is that at some point that picks through the Python, right, no more support there. Right. Secondly, with the credit, you have fairly violent events of rewriting, right? Okay, you’ve used up the capital that was cheap. Now you have to go out and get more and bow bang, wow, look how, look how much higher it is right now. Right. So you kind of have these step functions, where all of a sudden, you could do something, and then you can afford to do a lot less in a very short period of time. Right? That’s there’s going to be like rolling thunder of that going forward, as you know, especially in corporate America is corporations have to refinance on whatever their debt schedules are. The third thing you mentioned was credit financing. So a lot of consumers are now switching from their own personal as their own personal pig is passed through their own personal Python, they are deciding to still maintain their same standard of living, they’re just turning to revolving credit to fund it. And we’ve seen you mentioned, we’ve seen the credit card balances, shoot the moon again, after going down for a couple of years, as folks were getting checks in the mail and whatnot. And, and so again, that’s something that sort of has an expiration date, because you can only lever up such to the point that if you take on more debt, you’re now unable to service the existing debt that you have. So there’s that limiter, or there’s the limiter of your credit card companies, the credit providers, just saying, Hey, we’re not lending to you anymore, you’re no longer a good credit risk, right. So we know that that has an end to it. And then last, you talked about the sort of revenge spending, right, we’ve been sort of stuck at home for years. And now I’m going to go out and finally treat myself and take that cruise again, that’s, that’s a bolus of spending that has an expiration date, once once it’s gone, you know, the revenge is over. So we kind of have these four big things that have been propping things up. And we don’t have great measures of when each one kind of tips from the green into the red. But as more time goes on, we can get more confident that each of them is a lot closer to the red here. So I just wanted to really clarify that for folks, because some of these things you just can’t avoid, unless there’s like another massive stimulus program, that pig is going to get through to Python. As long as until, as long as until rates dramatically go down again, credit is going to rewrite it much higher cost than it was before. At some point, as I mentioned, the credit financing is going to dry up. And in this event spending will be over probably quite soon. So you can look at all those things and say, okay, yeah, you know, we can’t, we can’t fool ourselves for too much longer. If those are the four pillars. We’re building our bullish case on,
Michael Liebowitz 53:33
right. And here’s another big factor that we haven’t talked about. I wrote about it a couple of weeks ago. And it’s the banks and said, money is created by banks. Banks lend money, and that’s how money is created. It’s not really printed at the Fed, the Treasury really doesn’t print it. A new loan, a new debt is money creation. So when the Treasury spent, you know, X trillion showering us with money, that was money creation, that’s a new loan, they borrowed money from the Treasury markets. So banks create money, right? Banks drive the economy with lending, there is a strong correlation between bank credit and GDP. So and it makes sense, if you have an economy driven by bank credit,
Adam Taggart 54:21
by credit, the credit issuer is determined what the economy is going to do. Absolutely.
Michael Liebowitz 54:25
Right. So let’s put ourselves in the shoes of a banker. Right? First of all, to make Adam alone. I’m taking money from you. Right, your deposits, you deposit $1,000 And I can lend Adam out about $900. That’s great. Right, that works well, because I’m paying you next to nothing. And Adam is paying me a percent to borrow the money.
Adam Taggart 54:48
Yeah, and hey, can I started interrupt you but I just had to ask this. So you’re basing that on the the 90%. This is what’s called fractional reserve lending right is put in 1000, you can loan up to 900 to somebody else off that initial 1000. I’ve heard that during the pandemic, the reserve ratios were brought down to zero. So could you literally take $1,000 from somebody else and then lend the full 1000 to the next person?
Michael Liebowitz 55:17
I guess you could, but there’s also other restrictions on banks that they would never do that. But yes, in theory, okay. And but their leverage ratios I ran this a few months ago are like nine, they’re, they’re not. They’re less than 10 times levered. So they are doing it at about the same rate.
Adam Taggart 55:37
Okay, so they haven’t gone hog wild, even though the reserve ratio was brought to an end, because
Michael Liebowitz 55:41
there are other ratios they have to adhere to. Alright, sorry
Adam Taggart 55:45
to interrupt. But I know some people have had that question
Michael Liebowitz 55:48
right now. So that’s a good point. That’s so let’s think about what’s going on. I’m taking your deposit at zero, because because my money markets still pay close to zero. And I’m lending it to Adam and eight. So I make 8%. Well, all of a sudden, you say, Well, why do I have my money in a bank at zero, I’m gonna go buy a treasury bill at 5%. That money goes away. The only way for me to I have two options. At this point, I can sell another bank, Adams loan, or I can get a new deposit. Well, unfortunately, for banks, new deposits are much more are much closer to current interest rates. So that new deposit rate may be 5%. So Adam comes to me for a second loan, it says, Hey, I need to borrow money. And I’m like, Adam, I’m borrowing money at 5%, I can’t lend you any more money. 8%, that doesn’t cover all my costs. Plus, I’m losing deposits. So I have to sell assets, I can’t add more assets when I’m trying to sell assets. So the bottom line is, and I created a proxy. It’s in that article from two weeks ago about the yield curve that basically looks at the shape of the yield curve. So what what does it cost to borrow, you know, to borrow short and to lend long. And it looks at credit spreads. And it basically says that the banks incentive to lend is the lowest it’s been in basically, I forgot how far back I go, but a long time. So banks are not incented to lend. And then when you factor in that they’re still losing deposits. And they have to sell assets that makes them even less likely to lend money. And this isn’t just my conjecture. This is if you look at bank lending standards from all, you know, credit cards, mortgages, commercial industrial loans, those are corporate loans, the whole slate their lending standards standard tight, they’re basically tightening their lending standards. So the engine for the economy, credit is slowing down rapidly, we’re running out of gas, so to speak. That too, takes a while, because if you don’t need to borrow money until November, who cares what the bank’s doing today. But as you know, as this situation continues, and the problem just met, so rates, a slew of rates, long term rates just went over 4% and short term Treasury rates, just one over 5%. That makes headlines that makes cocktail conversations, you know, what do you do with your money? Oh, I just bought a six month bill at five and a quarter percent. Oh, where do I get one of those? And how do I do that? Oh, just take your money from the bank, send it to Fidelity and buy it or just buy an ETF that kind of mimics that. This was like You remember those inflation? I bonds? I think it was I bonds? Yeah, I remember I bonds. They were all the rage because they paid 910 11%. Well, consumers are slowly but surely figuring this out. And I’ve helped help my mom helped my brother in law and a few other friends. How do I get my money from a bank to a fidelity and what do I buy? And it seems? I think to me and you it seems pretty easy, but it can be complicated and daunting to do. If you don’t really know what a treasury bill is and what the restrictions are and how to buy it and what difference between price and coupon yield. And what does all that mean? It can be daunting, but slowly but surely, people are doing the math and saying even if I have $100,000, that’s an extra 5000 A year of income I can make on the money. So you have a slow drain of deposits from banks, you have a yield curve that does no favors for them. And you have banks that basically have no incentive or very little incentive to lend money. And again, if you’re going to you have an economy that’s based on debt. That’s a huge headwind that will slowly but surely increase against the economy.
Adam Taggart 59:57
Okay, great points. Let me just mention a few things. One is, to your point about buy bonds. Yes, I actually talked a lot about them on this channel back when they were yielding 9%. Longtime viewers probably remember my explainer videos on those, I also did an explainer video on how to buy T bills. And so if you’re interested at all, in what Michael was saying, and thinking, oh, gosh, I’ve got money sitting in the bank earning next to nothing, I’d love to be making five plus percent on that. I’ll put a link to that video here. You can watch it after this video if you want to. So one thing he didn’t mention, Michael, was some of the other shoes that are set to drop for the banking system. A big one that folks are watching closely right now is commercial real estate loans. And, you know, these smaller banks, which is where the trouble has been so far this year, and by smaller banks, I mean, really any bank in the US that’s not in like the top eight. They have uncharacteristically most other loan types, the big banks have a bigger presence in but it’s actually the smaller banks that have the majority of the commercial real estate mortgages out there. And, you know, for many understandable reasons, folks are expecting that loan book to be in a world of hurt relatively soon. So that’s probably just going to tighten things even, you know, more further, that you’re talking about, you know, the steps the banks are having to take care. So Jerome Powell himself has said, Hey, bank lending standards have been tightening posed, you know, the banking wobbles that we saw earlier this year, you know, Silicon Valley, bank, etc. And he said, those act as additional, they substitute for additional rate hikes on our end, right. So that’s one of the reasons why he did the skip was, hey, we want to see what the impact of what we’ve the lag effect, but we’ve done is, but we also want to see with a lag effect of this these bank tightening standards are. So I just just to make sure folks are understanding how to view all this, it’s like the coyote, you know, is in danger of falling, then we have the Feds over tightening, you know, being an anvil or cluster of animals that are falling down in him. And then on top of that, we may have a couple of pianos, you know, that are gonna fall on him that are coming from the banking system. Correct? Yeah. So I just, I’m not sure everybody really puts all those pieces together all the time. But but there is an awful lot of, of gravity potential gravity in the situation that can finally start pulling things down here. And again, the risk, I think, that you and I are most concerned about is because we think that’s likely to happen, right? And I don’t want to put words in your mouth, correct me. But I think we think that the gravitational pull of all of these contractionary issues we’re talking about is going to slow the economy here and start bringing asset prices down along with it. The problem is, is there may be way more anvils pianos and bowling balls that come along with it that could bring this down much further than anybody wants? are consumers, businesses, the policymakers themselves,
Michael Liebowitz 1:03:09
right? Let’s put ourselves in Jerome Powell shoes for a second. I bet that if we had him here, and you know, he was allowed to speak off the record, he would tell you they’ve done enough, he would probably tell you, they probably done too much.
Adam Taggart 1:03:24
And then I would agree. I mean, that’s my perspective. And yeah, maybe he actually lives
Michael Liebowitz 1:03:29
right around me. So maybe I’ll walk into dog maybe I’ll run into him.
Adam Taggart 1:03:33
Alright, great. We’ll send a camera crew if you want. I’d love to record that one.
Michael Liebowitz 1:03:38
No, but especially the
Adam Taggart 1:03:39
men and black men jumping on you and carrying you away. We still have it on tape,
Michael Liebowitz 1:03:43
my dog barking Adam. The so he would I think he would tell us and I think most Fed members would say they’ve done enough they’ve done too much. The problem is, if he were to say they’ve done enough or even too much, and that, you know if they’ve done too much. That means the Fed has to lower rates. If the markets got when that the Fed was thinking about lowering rates or was done hiking, that’s considered bullish. Should it be we can debate that all day, but it’s considered bullish, because the Fed is making policy less restrictive, they’re allowing for more economic growth, stock market would love that stock market would rally. The problem with that is and the Fed This is the Feds theory. The Fed believes there’s a huge a really robust relationship between the stock market and economic activity. When the stock market’s going up, people feel confident, they spend more money and it it keeps, you know, it’s a it’s a circle. And so, so this is the Feds problem. And if you put yourself in pals shoes, he’s he’s really screwed.
Adam Taggart 1:04:53
What I mean, I think we, we could have said the same thing and 2018 19 and whatnot and it’s just gotten made more sense a couple of questions there. One is, so the economy is supposed to be the dog that wags the market tail. Right? When did we get to the point where the tail is wagging the dog here?
Michael Liebowitz 1:05:16
You know, at this has been the financialization of the economy. This is the Fed ever since, you know, I mean, the Feds always been involved. But I think starting with Greenspan and progressing, the Fed has become more and more the market. And what I mean by that is, at the base of capitalism is the cost of money is basically interest rates. What are people willing to borrow and lend money at? And where does the supply and demand the money find the right price. And that that that right price will shift over time based on the economy. And if it’s left, largely for consumers and corporations to do, it’ll overshoot and undershoot, but it tends to gravitate towards the right place. Once you once you put the fed into the picture, that tells that basically dictates the price of money to market, you get a price of money, that’s a one place and what should be the right price of money at another another place. And you get incredible amounts of potentially speculation if the Feds rate is lower than than the real market rate. And that’s that’s what we’ve created. And that’s largely the way the economy has operated for the last 2530 years. What we’re seeing now remember, we talked about real rates, the instances of real rates since 2010, are almost non existent, that means the Fed had rates below the rate of inflation. Why would anyone buy a bond below the rate of inflation, you’re guaranteed to lose purchasing power, assuming inflation remains at the level it’s at. Right? That tells you that there’s something wrong, no one should want to buy a bond where they’re going to lose purchasing power doesn’t make sense. And the reason is, because there’s no other alternative, unless you want to buy something more risky, like stocks, or junk bonds, or, you know, whatever it may be real estate, which has upside, but there’s also a downside. So the Fed has created this, this problem, and they’ve just propagated it more and more. With each crisis or each recession, they’ve taken greater and greater actions. And, again, you know, this is how we got here. This is the problem we have is there’s a lot of speculative debt outstanding. It’s not productive debt, it’s speculative debt, and it needs to be refinanced at lower rates. And
Adam Taggart 1:07:53
so, so agree with that. And so let’s get to the where the rubber meets the road here. And they’ve got a number of questions folks have asked about kind of what you think the Fed is going to do and what that means for the bond market. And we are making our way there, folks promise. But yes, if Powell admitted, I think I’ve probably done enough from here, maybe over tightened. Yeah, the expectation probably would be Oh, then we’re gonna cut rates real soon. We’re gonna pivot. Right. And I agree the markets would would rally initially on that, right. But, you know, one thing that Powell could do is he could he could say, No, I’m not going to cut I’m just going to I said higher for longer. So we’re just going to stay high for a long, longer, you know, so it’s just a long pause, right? That could happen. But even even if, even if today passes, oh, folks, I overtightened. I’m pivoting tomorrow. If this these lag effects hit in the way in which you and I think they could, you know, in history sort of shows once the Fed realizes it is over tightened. And then it starts cutting rates, it tends to overtime, it tends to tighten into a recession. And then once it sees the recession, it starts cutting rates. We usually have quarters of the markets declining after it starts the rate cuts. So one of the things that’s so curious to me right now is the market has been so fixated on the pivot, and in their mind that pivot means Oh, we go straight back to 2021. And Happy days are here again, right, where anyone just looking at history briefly sees Oh, actually, the pivot is where things get really bad for the markets. And I should get out of the markets when the Fed announces the pivot.
Michael Liebowitz 1:09:37
Right, right. And the other funny thing is the yield curve. The yield curve is steeply inverted. So the yield on a two year note is over 1% More than the yield on a 10 year note. Recessions don’t really start until the yield curve inverts. So the two year yield is less than the 10 year yield. So you could also say the same thing. Well, that’s great. The yield curve is going to uninvent heard the banks have more incentive to lend money because that differential is going back in their favor. But that’s just not the way it works in the real world. You know, it’s every it’s not the inversion of the yield curve. It’s the onion version that signals a recession. And it’s counterintuitive. Just like just like what you were saying with the Fed cutting rates. And they’re linked. The reason the yield curves on inverting is because the Fed is cutting rates. But you know, it’s yes,
Adam Taggart 1:10:31
in most cases, there was a chart you and I were referring to before we started filming today. And maybe I’ll put it up super briefly here. It’s put out by a Bloomberg analyst, where he talks about the correlation between liquidity and yield curve. I’m going to call it flattening. I don’t know why he sort of refers to it in the article is steepening. But basically, the chart that he shows basically says when liquidity is on the rise, like it seems to be right now. Eventually, the yield curve kind of flattens along with it. And what he is saying is, is like you’re saying, Michael, either the yield curve inverts, usually, by the short end of the curve coming down as the Fed cuts rates. He’s saying it doesn’t look like anytime soon, the Feds going to be cutting anytime soon. But if this historic relationship maintains going forward, then we’re going to see this flattening basically by the longer end of the curve coming up. And I’m not trying to say that that’s necessarily what you’re predicting. I’m just saying that there are two ways these yield curves can can and invert, and presumably, maybe they have different outcomes depending upon how the inversion happens.
Michael Liebowitz 1:11:46
Right. Right. So that the curve is going to uninvite, right? We know that will happen. That has always happened, the banks are going to be out of business, if it doesn’t happen may take five years. But it’s not. It’s not a sustainable yield curve, given the way that this country and really how the rest of the world banks, borrows money, lends money, etc. So the yield curve can have an invert, like you said two ways. If this is the 10 year, this is the two year right now it’s at a higher level, right? The 10 year can rise in yield, or the two year can drop in yield. Traditionally, it’s the drop into two year with some drop into tenure, but a large drop in a two year as the Fed cut rates. So we go back to where we’re at now, two year tenure, tenure rises, right? 10 years already around 4%, mortgage rates are ready at 7%. Karla 7.22, as of the taping here, seven to two, right car loans are 678 percent, corporate loans are anywhere from five to you know, depending on the credit quality, you know, within reasonable credit quality 7%. So now, you’re saying that if the Feds gonna do nothing, the two year rate isn’t going anywhere, right? If the market thinks the Feds gonna be on hold for two years, the two year rates going to be stuck at you know, five, five and a quarter wherever it is, meaning the tenure rate, if it’s kind of invert, it’s going to five and a half, six, meaning that mortgage rates are going eight or eight or 9%, auto loans are gonna be double digits, some triple B rated companies are going to be paying eight, nine 10% for money. So I think if that happens, and who knows it could happen. The feds going to drop this rate in a hurry, and this rate will follow because we’re going to be in a deep recession. So I think initially, maybe it inverts I don’t I don’t think that’s going to happen. But if it does, the drop in yields for both short and long term will be significant, which I think happens regardless. But that’s you just we can’t continue with rates at these levels or higher. And it’s not the Fed funds rate doesn’t affect much. It’s it’s, you know, the five year the 10 year rates, that’s where people borrow money. That’s where companies borrow money. That’s, that’s where the biggest effect is going to be felt. So as longer term rates are popping up here. Again, it’s another headwind to the economy. Yeah,
Adam Taggart 1:14:25
another one of the economy, the way I started thinking about it, just to go back to our wily coyote analogy, and all the animals and everything, it’s just the higher rates go. It’s like the stronger the force of gravity that’s pulling everything to Earth. Right. Right. And so that’s why you’d hang in the air longer, and his impact is going to be more forceful.
Michael Liebowitz 1:14:43
And that’s why using a term economic physics, it’s really physics. It’s, it just is what it is. It’s you can’t really get around it.
Adam Taggart 1:14:52
Right, right. You can’t use a cavity browsing trickery to get around it
Michael Liebowitz 1:14:56
to the moon somehow gravity’s with us. Right, right. And
Adam Taggart 1:15:00
And then look, there’s a lot that can be done with accounting, Chicago theory and, you know, changing definitions of things and things like that. But we’re talking about the actual physical laws that you really can’t get away from. And I think I might have misspoke in there. The gravitational pull, we’ll, we’ll let the coyote hang in the air for less long. And when he hits who’s going to hit with more force, same thing with all the animals and pianos and everything. Alright, so let’s get into the meat of it here, then, which is, okay, so what does this mean for investors? Right? Is you’ve done a really good case of making here, which is just the global economy can’t withstand the cost of capital that we have right now. Right? And if that cost to capital gets even higher, it just brings in the reckoning date and maybe makes the the damage even worse. And TBD? How much higher rates will go from here? What do you what are you planning for? And how are you managing capital here? And specifically, we’ve had you on this program, you know, a few times over the past year. And you have, I think, the last time you were on the channel, which was or I think it was at our spring conference, you had basically said, Hey, I think you know, it’s about as high as rates are gonna go. I think we could even come down a bit from from the highs, and you had said, hey, you know, the probably likely to start hitting lower from here, we’ve now had this sort of resurgence. Do you see this as being relatively short lived, or has something changed since your last appearance on the channel that changes your outlook for bonds,
Michael Liebowitz 1:16:29
short lived, you know, we were talking about the five year real rate at 2.1%. last 10 years, or less pre pandemic, 10 years, it’s been zero or below, I have no doubt it gets to zero or below. And I think that’s a combination of inflation, falling, inflation expectations falling and yields falling. So I think there’s still tremendous upside in bonds, longer term bonds. But we just have to wait out these lag effects. Now, the nice thing is we’re getting paid four or 5%, to wait it out. So if yields go nowhere, you still at least get to make four or 5%. While you’re waiting, but you know, whether it happens a month from now, or six months from now, six months from now? I don’t know, again, it’s all these these different things affecting lag effect are incredibly difficult to to quantify. So
Adam Taggart 1:17:27
But sorry, let me summarize for a second. So you can you can clarify the remaining answer. So it sounds like you’re saying, you see a lot of opportunity in bonds. As interest rates come back down, as yields come back down. You don’t know exactly when that’s going to happen yet, when you feel confident it is you’re gonna go further out and duration on your bond portfolio. And that’s because when yields go down, the price of bonds go up. That’s the seesaw relationship between interest rates or yields and bond prices. And that that effect of prices going up is felt more dramatically, the further out you go on the risk curve, or on sorry, on the on the duration curve. But because you don’t yet know You don’t have kind of confidence yet that that moment is is here yet. The bulk of the capital you’ve got invested in bonds is sitting in the safety of the short end of the curve, where you’re getting paid a nice five plus percent just to sort of sit and wait that I summarize it correctly. Yeah,
Michael Liebowitz 1:18:27
but even bonds, you know, longer term bonds are paying 4% to wait. So you’re getting paid to wait across the curve, not getting paid as much to wait in a 10 year as a two year. But you’re getting paid to wait. And the problem is there’s an old saying that the Fed Funds take the steps up in the elevator down. So if you look at a history of Fed funds, they go 25, they go 50, they wait a meeting, they go they raise another 2550 They were a little more aggressive. This time, it was a steep stair step versus kind of the normal stair step. But when they start easing, they drop rates, they’re going to drop rates significantly and quickly. They’re not going to do intermeeting moves, they’re not going to wait for the next meeting. They’re not going to be afraid to drop by 5075 1% at each meeting, and again, possibly go between meetings. So the problem with the trade is that you kind of have to be in it to take advantage of it because you know like the last two times real yields. Well, the last in 20 years in 2019 2018. The real yield on the five year note was a little over 1% This is pre pandemic we’re not talking pandemic here. That was in mid in mid early 2019. By the end of 2019. The real yield was below zero, and it was all almost all due to declining yields. So yields fell by 1% on a five year note without a recession. and this was again before the pandemic started in February. That’s a, that’s a big move for no recession, because the Fed started cutting rates, right. And then you know, you go back to 2007, that real real yield dropped 2% In a matter of months. So it’s the kind of trade you want to be on before it starts. But timing, the point to get on is gonna be very difficult. And, you know, unfortunately, you got to kind of, you know, weather the storm, you know, the storm a little bit, but you aren’t getting paid a nice coupon at this point, or whether it,
Adam Taggart 1:20:38
which is actually nice. Now, the risk, I just want to make sure folks are fully aware of this, the risk is, if you go out further on the duration curve and bonds and yields go up, then your bond is going down in value, right? So part of this is saying, hey, if I’m buying the tenure right now, and it’s returning 4%, it’s nice. I’m getting paid 4% a year to wait to see, you know, for this repricing that I’m looking for. But if if the yield, let’s I’m just not saying it’s going to, but let’s say it goes up to 6%, on the 10 year, you’re going to lose a lot of value in that bond. Now, the good news with a bond is you can hold it to maturity, but you’re basically saying, okay, that capital stuck for the next 10 years in that bond, if rates ever don’t come down. Now, I don’t think you will, nor I think rates are going to not come down over the next 10 years. But of course, that’s even magnified, the further you go out. If you buy a 30 year bond, you know, obviously it gets hurt even more. So part of this is the calculus of just how close to the end? Do we think we are? Right? Right now, just asking you to kind of just spit ball, Michael, have of the money that you are putting into the bond trade? What percentage of it is sitting in shorter duration? That’s waiting to go longer duration when you feel more confident that the time is right. Two thirds, okay. All right. So you’re two thirds, three quarters in the short end. And you plan to move when you think when things go green. And you think, Okay, this is the time to do it, how much of that two thirds to three quarters, are you going to shift?
Michael Liebowitz 1:22:16
I don’t know. Because we don’t know how the government reacts. If, if yields start dropping quickly, and the government starts talking about stimulus, then we have inflation problems, and we may want to just take advantage of it in five or 10 years. If we think we’re going into a full blown recession, and there’s no chance the government’s really gonna respond forcefully, we want to be in all 30 years. So you just have to play it as it comes to you. Because these, these players, the Fed the government are extremely powerful, and can have a big effect on what happens with yields. So, you know, one of the things we’ve been trying to do is a laddered portfolio. So you know, we have exposure to two years, we have exposure kind of five years and money market stuff. So you can kind of, again, the five year at a you know, the two year two year has a yield over 5%. In, you know, two years ago, that yield was close to 0%. So you can make 5%. And if the yield drops to 0%, a year from now, you’re gonna make an additional 10%, maybe a little bit less than that. That’s a nice return for a very short two year note. So there’s opportunity across the curve. Some of it depends on how much risk short term risk you want to take, ie the risk being that 10 year yields go from 4% to 6%, which I can’t rule out, I don’t know what’s going to happen. But, but again, at the end of the day, the economy cannot withstand interest rates where they’re at certainly not higher. And at the end of the day, I see no reason why inflation won’t be 2% or below, and why yields won’t be below at 2% or below as well.
Adam Taggart 1:24:10
Okay, you’re getting you’re underscoring the value for y we have you and your partner Lance on this channel, week after week here, because the calculus does depend upon what’s happening in real time as well. Right? So having you guys kind of update us on what you’re seeing, you know, in real time is super useful. And as Lance said at the beginning of this year, 2023 was kind of going to kind of be the year of the audible, and it certainly has been so far and probably will continue to be to a certain extent, though. Are we like the markets don’t give you a lot of periods of high confidence in something right. You always want to wait for the high confidence trade. Right. I’m wondering if this isn’t one of those moments where As you and I have been discussing, the economy just can’t sustain yields at this level, right, the cost of capital is just too high for the global economy to run sustainably given how it’s currently structured. So the odds of yields going lower over time are pretty good, we know the policymakers are going to have to make a beat a retreat at some point in time, right? Bonds are now yielding an awful lot more than they have in the past, right? And so you have a moment to get in, where you have high confidence that the value of the bonds are going to go up. And even if you decide not to sell them, you’re going to be getting a return that we haven’t seen for years. I don’t know how many years it’s been, I mean, a lot decade plus. Right, right. So you’re gonna get paid four plus percent, when the market is going to be yielding two or less, potentially at some point, right? So it’s the matter how you want to play it, hold it, sell it, you’ve got pretty good odds of this money, doing you pretty well, right now. I agree.
Michael Liebowitz 1:26:13
I agree. And, you know, it’s, but we’re not in a vacuum. So the what I would I would I would counter you is say, Well, what about stocks? Stocks traditionally yield 789 percent on you know, on average, right? Yep. Well, is that enough of a premium over four, four or 5%? You know, we can debate that all day and look at historical and right now, the answer is historically, that’s a very low premium. But you have to look at valuations on stocks. And valuations are very high, which portend low rates of return in the future. So, you know, you can make a case at what, traditionally, seven 8% returns may only be four or 5% returns for stocks over the next 10 years. So do you want to buy a 10 year bond that 4%, or a stock that ultimately yields 4%? Right, with a lot more risk in it with a lot more risk. So that’s an that’s kind of a no brainer, sleep at night and buy the bond. But, and this is this where it gets difficult being a money manager, the stock market is very bullish now. And there are some opportunities we’re taking advantage of, and we are invested in the stock market. And we’ve been slowly adding to our exposure. Because in the short run, it’s not about all these fundamentals and not about this gloomy picture I’ve been painting for an hour, right? It’s about, it’s about momentum, it’s about investor sentiment. And as long as there’s a willing buyer, the price doesn’t matter. And that’s the market we’re in right now. And there are times where you have to put aside your gloomy outlook, and kind of hold your nose and understand that nothing’s permanent. You can sell something the day after you buy it two weeks after you buy it. But that the market, the stock market is bullish. And it’s it there are some opportunities at the moment, how long they last. I don’t know, you know, what my long term outlook is, you know, what I think about the economy, it’s not the kind of position I would buy today and not look at for three years, said, I think that’s that’s not a great situation. But but, you know, you have to balance all this stuff out and think about what am I doing today. And that’s why putting all your money into stocks or all your money into bonds is not a good idea. It’s a good idea to diversify between the two.
Adam Taggart 1:28:38
So totally, totally agree and diversification that with everything you said there that the key thing you’re underscoring here for me is, you know, I beat the drum every week on this channel about that the vast majority of people who view these videos should be working with a professional financial advisor just in general, right? It’s specifically one that takes into account all the macro issues that we’re talking about here. Right? I know that there’s a lot of DIY investors that watch the program too, and are using this information to influence their own decision making. And so one thing you really got to figure out here is what kind of investor Are you? Alright, so I talked about what you were just talking about there, Michael, with Lance last week. And I didn’t like this analogy, but I still haven’t thought of a better one, where what you’re kind of saying is what Chuck Prins was saying, leading up to the global financial crisis, which is like, Hey, as long as the music’s still playing, you got to get on the dance floor and dance with it. Right. And to a certain extent, you know, financial advisors feel a lot of pressure to do that, because you’re getting measured versus all sorts of benchmarks, right. And you you, again, are trying to trade the market that you have, right. But as an investor, you just need to ask yourself, like, what do you value more, right? Like, do you value safety capital preservation, like if you’re okay with not getting the maximum return the market might have this year, but you can sleep at night knowing that you’re not going to be put In a massive percent of your portfolio at risk, then you can kind of go heavy bonds and sleep at night and not worry too much, right?
Michael Liebowitz 1:30:08
Yeah, absolutely. And a lot of it is risk management. And if you’re willing to look at your portfolio every, not every day, but every, you know, frequently, and set up risk levels. So if the market drops to this level, I’m going to sell X percent, if my stock goes to this level, I’m going to sell some and be good about keeping those risk levels, you can participate, and you can limit your losses. And you can use options, there’s more, more trickier ways to hedge as well. And you don’t have to be fully invested, we’re not fully invested in stocks, we also own stocks in general that have lower beta, they’re more conservative, pay higher dividends in general. So you know, there’s various ways to express, you know, an equity position, you know, and if you go back and look, in 2000, to 2003, small stock value stocks did very well, despite the broad indexes losing 50 plus percent, and the major stocks getting hammered. So, you know, it’s, you have to, you have to manage your positions, you have to set risk tolerances, you have to understand your own weaknesses. And you have to have a short term outlook to some degree, if you’re going to be trading your position and going back and forth between different types of stocks and bonds, where you can take a longer term approach, and tell you what the long term returns what we think they’re going to be, and probably sleep at night, a little better, but potentially give up some returns because there are great opportunities in the short run.
Adam Taggart 1:31:50
Right? And so, you know, you’re talking about Okay, so you got to, you know, watch the market closely, you’ve got to set your your risk parameters, and maybe use options for hedging, is you’re kind of putting all those requirements and and agree with every one of them. The universe of people that like, really fit that mold gets smaller and smaller and smaller, because most people have real lives, right? They’ve got a job they’ve got to devote the majority of their attention to they’ve got families, etc. Right? So all I’m saying is, is folks watching you, the first question you should ask yourself is like, what kind of investor Am I like, what am I playing for here. And if I’m not a highly experienced DIY investor, who can do all the things that that Michael is saying there, then just be honest with yourself and say, Look, that’s, that’s not me. And if it’s not, you, then you should either come up with a very simple DIY approach for yourself, or, and this is why keep hammering the drum at professional financial advisors, as you should find an advisor whose approach matches your personality and your goal set. And give them the keys now, make sure it’s an advisor who keeps you well informed and all that type of stuff. But it’s much easier, and I being really honest, I that’s what I do. Even though I follow the markets every day, I’m too busy interviewing these guys to be making trades. And, you know, putting all this in Keeping all this in my head and making decisions in real time. I’ve really given that to an advisor I trust and I just did the work upfront, to evaluate a bunch of different advisors. And pick the advisor that I felt was was the best for me. And that that’s, that’s all I’m really trying to get people to and
Michael Liebowitz 1:33:21
it’s like most it’s like most professions, like when I go see doctors, I don’t diagnose myself, I don’t know what’s going on. I go to doctors that that tell me what’s going on in that I can trust in that I like their approach and I am comfortable with their approach. So you know, we all have our specialties. Mine just happens to be in money management and economics and you know, financial outlooks and that kind of thing. You know, so go, you know, just like you do with everything else. If you don’t think you can do it yourself or you’re not comfortable doing it yourself, find someone that you can work with.
Adam Taggart 1:33:57
Great. Alright, so getting to where the rubber meets the road here. With you’re in the bullseye of your professional expertise. What trades have you guys made in the past week? How are you surfing these current market conditions,
Michael Liebowitz 1:34:09
we have been slowly adding a little bit of equity exposure. Nothing substantial. We added I think 2% of equity exposure. We bought a REIT and we bought a tech company. You know, we’re kind of laying low where we see the stock market on a short term sell signal. We think it could correct five, seven, maybe even 10%. Possibly that started on Thursday with that decent size decline. So we, you know, we’re kind of waiting for a sell signal to add a little more equity exposure. We’re not really doing much with bonds. We’re just we have decent positions right now. We’re waiting And you know, when we see this stock markets are set up nicely here above key moving averages and above other key support. So that if those supports are broken, those are nice risk tolerance levels for us that we can sell, sell or reduce exposure. So it’s a pretty comfortable place to get long, because we know if the market starts breaking down, we have key levels that will help us get back out of the market.
Adam Taggart 1:35:30
All right, great. And so you know, as I said, we have you and your partner, Lance Roberts coming on this channel, week after week after week to keep people informed here. So if indeed, things either drop to those key sell signals, and you start selling your Lancer, let us know in this channel, if they break through other technical indicators that suggest they could run even higher, you’re gonna let us know that as well. So again, it’s super useful for you guys letting us look over your shoulder here, at your trades. And just to help give you guys a little bit of a plug your simple visor service. Actually, if folks sign up for that they actually get alerted to your trades as they kind of happen in real time. Is that correct? Right, right.
Michael Liebowitz 1:36:12
So all our portfolios are on simple visor. Anytime we do a trade, we post it to simple visor, it sends an email out as well. And we are working on texting that as well. Right now, Lance, and I get text, but it’s still in beta mode. But hopefully over the next few weeks, we can roll that out. And you also have access to all the tools that we use to help determine what she wants rich, what do we what sectors what type of stocks do we want to move to or away from? Etc?
Adam Taggart 1:36:44
Okay, great. And I’ll just put it up on the screen here. But it’s simple visor.com If folks want to go check that out. All right, Michael, this has been great. As far as I’m concerned, Lance can set up shop at whatever desert island he’s on for this week. And we’ll just have you every week going forward. I really appreciate the time, the expertise has been a great conversation. Thanks so much. So, in wrapping up, folks, a couple of quick updates. One is I’ve mentioned a couple of times our upcoming Wealthion fall conference. Just to reminder, the date is Saturday, October 21. So we’re still a couple of months away. But we’ve been having really good luck so far with getting confirmations from a really high caliber faculty, I think the highest caliber faculty that we’ve we’ve ever yet had so very excited about how things are coming along. Just to let you know who said yes, so far. We have Lacey hunt, returning and he will do one of his epic kickoffs. And if you’ve watched one of our conferences in the past, you know exactly what I’m talking about. That presentation I think is worth the cost of the event alone. He’ll be followed by Jim Grant. Of Grants Interest Rate Observer is really the godfather of where interest rates are headed. We’ll also have Michael Kantrowitz, developer of the hope framework that Michael and I talked about here earlier on in this discussion. Stephanie Pomeroy has said yes, she’ll be there. She’ll be talking about the whole inflation deflation. Tug of War. Kyle bass has agreed to come participate. IV Zelman is going to come back on give us their her latest update on the housing market. Tom McClellan is agreed to come on to give us the latest on his technical analysis. And we’ll have Doom Berg and Justin hewn talking about the energy markets where the real deep dive on investing in nuclear and with the latest outlook for that energy sources. There’s a lot going on in that space. There’s a number of other additional lines we have in the water, I hope to be able to announce some other really big names soon. But when it just to let you know how this is coming along. I did forget one name actually, we’ve got a great bond expert coming on to update us on bonds at the conference. So a guy named Michael Liebowitz is a pretty smart guy. All right. And just to wrap things up here, just a reminder, folks, for all the reasons that Michael and I went into, so I won’t continue to beat that drum. We think that most people watching this, especially if you’re feeling kind of you know overwhelmed on how to take advantage of some of the opportunities we talked about while avoiding some of the pitfalls of these you know lag effect anvils and pianos and bowling balls that we’re worried about. I highly recommend you work under the guidance of a professional financial advisor that takes all those macro issues into consideration. If you’ve got a good one who’s doing that for you. Building a personalized portfolio plan for you executing it for you in keeping you well informed along the way. You should stick with them. They’re very valuable. They’re extremely rare. If you’ve got a good one, congratulations. If you don’t or if you’d like a second opinion from one who does perhaps even Michael and Lance and their team they’re at real investment advice. I then consider scheduling a free consultation with one of the endorsed financial advisors by Wealthion To do that, just go to wealthion.com Fill out the short form there. These consultations are totally free, they don’t cost you anything. There’s no commitment to work with these providers, they just offer it as a free public service to help as many people as possible position prudently in advance of what might be lying ahead. And with that, Michael, I just want to say thanks so much. It’s been great. Like I said, again, I hope, you know, Lance, extensive vacation we get to continue having you on here in the near term. But it’s been wonderful, folks, if you enjoy these weekly market recaps, and especially have enjoyed Michael coming back on here and you want to see him on his recaps. Again, please do us a favor and support this channel by hitting the like button, then clicking on the red subscribe button below, as well as that little bell icon right next to it. Michael, let you have the last word here again, thanks so much.
Michael Liebowitz 1:40:50
You’re welcome. It was great to be on here. And we just Yeah, respect the lag. That I think that’s the important part. It doesn’t mean you know, we don’t know when the lag is going to hit but just respect that. It’s still there. All right.
Adam Taggart 1:41:01
I’m kind of feeling like we should maybe get like T shirts and hats made up with respect to lag on right. Alright, folks, if you think we should make them let us know in the comment section below. We get enough demand. Maybe we’ll do something crazy and order a few. Alright again, Michael, thanks so much, everyone else. Thanks so much for watching.