Are the Federal Reserve’s policies failing us? Listen to Michael Green’s expert analysis on the Fed, inflation, the economy and more. In this episode of ‘Speak Up,’ join Anthony Scaramucci as he speaks with financial markets expert Michael Green. Michael Green pulls no punches, revealing his stark realities of the current economic landscape. He explains the failures of Fed policies and how they are driving us toward a potential recession. Also, discover the hidden impacts of inflation, the bifurcation in the economy, and learn why the average investor might be in more trouble than they realize.
Michael Green 0:00 The problem is, is that the economic data and the econometric data effectively used for testing that says there's absolutely no relationship. If anything, it's actually negative. So raising interest rates does not fight inflation. It can create conditions of economic slowdown and crisis. But it does not fight inflation. That's particularly true. If you have an environment as we have right now, where there's an elevated level of government debt. What we've done over the last two years is we've replaced stimulus for the lower end population. Anthony Scaramucci 0:39 Joining us now on speak up, and it's incredible get by us, by the way, because he's an extremely talented man, his name is Michael Green. He has been in the markets sooner the mortgage for nearly 30 years, started tremendous amount of proprietary research. He's managed the family offices for multibillionaires. He was, obviously with Peter Thiel, a macro strategies to macro LLC. But you've done everything you've presented at the Fred, you've worked, you've worked at Canyon Capital, you're traveling the world now you're a Wharton graduate, and you are a brilliant long term investor. And so that's my introduction to you. And I'm also a huge fan, I try to follow you around. And I appreciate you coming on this show. So I want to step back, before we get into your investment strategy, which I think is so important for our viewers and listeners, just want you to talk a little bit about the economy, if you don't mind. Your view of the economy right now. Maybe sprinkle in a little bit of deficit weary or not weary? I know you've presentable had before. Tell us what you think. Michael Green 1:52 Well, I mean, this is an interesting situation, it ties in with we were talking before a little bit about political polarization, I would suggest that there's a similar polarization that's now emerged within the US economy where if you happen to have cash, if you happen to have assets, you're doing extraordinarily well. And so anyone kind of in the 10th percentile and above, is really experiencing a fantastic environment. Those who are below that and are not benefiting from those underlying dynamics are starting to feel more and more stressed the cost of living the inflation impacts them significantly more, because they have a lower capability to save some more of their dollars get spent, they pay more the penalty associated with the inflation increase with the price level increase that we've seen, they also don't benefit from much higher interest rates that have dramatically increased the cash that's available to those who had been saving in a low interest rate environment, right. So by saving, I simply mean, typically just getting older, right? So we've actually created a condition under which it's not just kind of the 10th percentile, but it is really this split of, do you have assets have you saved for retirement, and suddenly, you're receiving an unexpected windfall from a dramatic increase in interest rates, even as those who are younger in life who need the jobs who need to borrow in order to obtain the capital goods that they'd like to have things like houses, things like cars, etc, are really suffering in this environment. And so I think it contributes to the political polarization, where nobody really has a shared common experience anymore, right? It's really bad. If you're, you know, below the 75th percentile, and you are young, and it's very bad if you are, you know, a, you know, an older person who has an accumulated assets, because you're watching your accumulated reserves and things like social security, covering less and less of your underlying bills. So this is, I think, one of the real challenges that we have been talking about the economy because there is no shared experience, right? Your experience in the economy has been radically different than the man on the street, and the man on the streets experience is going to be radically different than the person standing right next to him. So it's, it's very hard to evaluate the economy without thinking about individual circumstances as compared to kind of a macro environment. Anthony Scaramucci 4:03 Tell me a little bit about the deficit. Michael Green 4:08 So, you know, the interesting thing about the deficit is, unfortunately, there's really two separate sources to it. One is one that Pete Peterson has been warnings about for a very long time, which is the growth of entitlements. We're now here with the retirement of the baby boomers, and that's accelerating, that's creating the non discretionary expenses, things like Medicare and Social Security, to begin to rise significantly against the collections. There's not really much we can actually do about that other than tell people we're going to have to deal with last right, we could lower cost of living allowances, we could restrict availability or push retirement agents later similar to things we did in 1986. But candidly, we did and we didn't do that. And now it's probably too late to address many of those. The second source of the deficit is actually a very interesting one, right? It is simply a function of the increase in interest rates. So the actual interest payments on the national debt have now begun to exceed defense spending, they will soon surpass almost all other types of expenses. And we obviously can't change that by not paying those. But it is really a choice that we've made around this idea. We're going to fight inflation through raising interest rates. Now, we'll talk about this later. I think that's a terrible policy. I understand why they think it's working. But the challenge is that when you use, you know, the easiest way to think about what you're doing with the interest rate is it's almost like a, you know, imagine a scale right or a seesaw. We're trying to move the fulcrum we're moving something that affects everyone. And what we're really trying to do is address some targeted issues. And as a result, it's furthering this bifurcation in the economy. Anthony Scaramucci 5:47 So you're obviously a gifted, very smart guy, I have asked this question other people and can't really get an answer. So I'm going to ask you this question. So what happens because it feels like no one cares about it. The Biden administration says, No problem, we're going to rack up a trillion possibly, to $3 trillion. I mean, they're doing a trillion now, every quarter, but I mean, they're gonna tame it down to two and a half trillion. The Trump platform is trillions. They both seem like they're ready to spend anywhere between six to $10 trillion deficit spending. So So what happens, you know, and, you know, what would you do as an investor? Or is there nothing to do with an investor be good? Think like Warren Buffett and just sit in your great stocks and your great companies? Michael Green 6:45 Well, the ideal is to do the latter, right? The challenge is, most people don't have that flexibility, because they don't have the surplus that Warren has, they don't have the capacity for patience, right? We tend to think about these things. Again, it's, it's, you know, I hate to use this phrase bifurcation too much. But it really is defining the underlying characteristics. Most people don't have the luxury of saying, well, I should just take a measured slow approach to this, that because they're closer to a an inflection point in which they move from having enough to having too little, they're forced to make choices that they might not otherwise want to make, right? It's very easy to sit there as a billionaire and say, well, you should be patient with your capital, and you should be thoughtful. And yes, those are absolutely, that's absolutely great advice. But it's ignoring the starting point for most people. And I think that's really a critical thing to understand. The second thing I think, that we really need to kind of be thoughtful about is this work that I've done around passive investing. And so you know, we're in a really interesting situation, in which the US has largely decided that we are going to abrogate social responsibility, and we're going to ignore what we owe to each other, and instead, outsource those retirement services to the market. You know, I am not a pure Keynesian. But Keynes had a fantastic quote, which is a nation that outsources its, its policy to the speculative markets will not be well served, right. That's unfortunately, where we are where we have a massive liability that's been created by everybody relying on the stock market, in particular, to create their retirement. Unfortunately, there's a lot of reasons why that's a problem. That means that the problem is likely going to be a lot harder for either Biden or Trump than they actually recognize, right. And so we're at this point where I would argue that we have lost sight of the fact that the President is supposed to be a leader of the country amongst the division of powers, that he is supposed to work in a centrist platform to help manage the economy by guiding Congress by creating a narrative that people can get themselves behind. And instead, we've turned the presidency into this prize to be fought over, right? And so it's very much like, you know, I know the current joke is all men talk about the Roman Empire fault far too much, right? But you know, we're competing for effectively the grand potentate, position. And as a result, all sorts of crazy promises are being made to people that we actually know we can't fulfill. But the problem is, is once you're in office, you try to fulfill those and you further exacerbate the underlying issues. Anthony Scaramucci 9:22 Yeah, I mean, it's been 50 years of over promising people and under taxing them. And so, you know, I just read Hitchcock's book, or William Hitchcock book on Eisenhower. And he was crazy with the national debt crazy. I mean, he was going line by line through the debt. He was calling people at the Pentagon and telling him you got to take that out. I don't care. I'm not signing it, line by line by line through the debt to make sure that it was as balanced as possible, particularly after the war, and particularly after we expanded the debt during the war. Now, no problem, which is, you know, and we and by the way, for viewers and listeners, we have continuing resolutions, we don't even pass a budget anymore. That is passed by the Congress and then signed by the President. So we're just last 15 years operating on a continuing resolution. Okay, let's switch over to monetary policy that I want to talk about your investment strategy, then we'll take questions from the audience. What do you what do you I'm going to put you in charge of the Fed? You just told me that we have a debt crisis looming. And we have inflation taming or where do you where do you see inflation? Michael Green 10:38 Well, so I think inflation has, unfortunately, two fathers. Right. It has inappropriate fiscal policy, right, that can create conditions under which we are spending from the government significantly more than our society can produce, right? That's ultimately inflation is always about that intersection between supply and demand. And unfortunately, the government is the one purchaser who in simple terms, does not care what the price is right there like your wealthiest friend of all time. If the government chooses to meet its objectives by spending without being thoughtful about how its spending, you're going to end up with capacity constraints relative that you'll have inflationary conditions. It's another way inflation happens. And this is one of these things, it's really confusing to people. Most people talk about the supply of labor as a source of supply, right, that it's effectively providing the raw materials for production. That ended actually a long, long time ago, what labor force growth really represents is growth in demand. And it's always been that case. And for the most part, right? This is a variant of Say's Law in which supply creates its own demand. When somebody enters the labor force, they're making a very simple declaration, I want to consume more, right, I don't have enough. And so the very first stop, and that, particularly for young people, is I need a place to live, I need a car to drive to work, I need suits, I need a dishwasher, I need I need I need I need right. And typically that will be paid for with credit. The idea is very straightforward in hiking interest rates, you're reducing the availability and raising the penalty associated with that interest rate. The problem is, is that the economic data and the econometric data effectively that use for testing that says there's absolutely no relationship, if anything, it's actually negative. So raising interest rates does not fight inflation. Yeah, it can create conditions of economic slowdown and crisis. But it does not fight inflation. That's particularly true. If you have an environment as we have right now, where there's an elevated level of government debt. What we've done over the last two years is we've replaced stimulus for the lower end population, things like you know, support for food stamps, and various forms of stimulus checks, which i by the way, I want to be very clear, we're necessary to an extent when we made the mistakes around the handling of the pandemic. But having made those mistakes, we then continued to far basically believing that we could do it with impunity. We've replaced that stimulus, which with what I described earlier as stimulus for rich people, right? The rich and old are benefiting from the interest rate policy. It's creating income supports that are encouraging demand for eating out for going on cruises for various activities. And in particular, things like financial assets are benefiting from this as well. This whole idea, if you remember back a couple years ago was the valuations were high because interest rates were low. Now we've got high interest rates and even higher valuations. And of course, nobody offers a, you know, thoughtful critique of that they suddenly turn around and say, Well, it's because we have a great and grand glorious future ahead of us, which in turn leads monetary policy to think that it has an almost unlimited amount of time before it has to address the growing cracks in society. And that's where I think the real risk lies, right, we have something that is very similar to what transpired in 2007, where the higher levels of interest rates are actually creating their own risks. That's going to be the real question, right? Because our models are not well tuned to think about that dynamic, the refinancing walls that we're facing corporations that are facing significantly higher interest rate expenses, households that are increasingly unable to tap resources of credit availability, because they simply can't afford to do so. So we're at an interesting inflection point that unfortunately, looks similar in some ways on the household sector to what transpired in 2007 2008. Anthony Scaramucci 14:32 So we know what happened, then you see that happening? Michael Green 14:35 Well, this becomes the key question, right? Because 2008 was very mild until Lehman Brothers failed, right? And as you know, what really happened with Lehman Brothers was it was not Lehman Brothers per se. It was that cash became suddenly noncash every sizeable fraction of hedge funds, for example, held their cash balances at Lehman Brothers international thinking that they were secured by a triple A rating and the things were all fine. What they discovered is that the cash that they held became they became unsecured creditors of Lehman Brothers international that cash disappeared. If cash disappears, you suddenly need to raise cash that results in forced sales, no different than what transpired in housing and mortgages in 2007 2008 is what transpired in terms of you know, the stock market, bond market, etcetera, credit availability, etc. It's hard to know if that's going to happen this time, right? We've had a number of bank failures, the Fed has been very aggressive in stepping in front of it with things like BTFP, but you know, which sounds awful. Like, you know, PTSD, right. But it's, you know, it effectively changed the banking crisis from a liquidity crisis to a long, slow moving solvency crisis in which banks are now funding themselves at much higher rates. There are a number of banks exposed, but I just don't see the you know, the equivalent to a Lehman Brothers sitting out there that is, you know, exposed in a way that could take the system down. That I just don't see. It's possible, but it's, it's unlikely. Anthony Scaramucci 16:09 All right. Well, I mean, it's very well said, and it's, it's, it's frightening. But what you have learned, and what I have learned from our careers is that if we climb a wall of worry, in the markets, and we think long term as investors, we generate a tendency to do very well. And we listen to the siren call of cable news, CNN, CNBC pundants, we could get knocked off course so so give our before we switch over to the questions from the audience, give our investors some ideas about your investment discipline, the way you think about investing, and maybe some actionable things that they can do. You don't have to be specific in terms of stock, but I'm talking more about way of thinking. Michael Green 16:55 Well, I think that there's a couple of things. You know, today, we actually had data that came out that showed on the Conference Board expectations that consumers expect the stock market to continue to soar, even as they expect the economy to continue to weaken, right business performance continue to deteriorate. This is not dissimilar to you know, the general perspective that people seem to have at this point that the stock market has largely divorced itself from the reality of the economy that they're experiencing. The irony, of course, is very much like the late 1990s period. We're seeing an extraordinary bifurcation. There's that word again between the haves and have nots in the stock market, there are very few number of mega cap companies that are rising rapidly. This is pulled cap weighted indices higher, even as metrics like the Russell 2000 equal weighted or the s&p 500. Equal weighted have languished, right with relative underperformance in the case of the Russell small companies are actually down on a year to day basis with the s&p up ever take 15%. The Russell 2000 equal weight is down about 6%. So we've got this bifurcation occurring across all regions, across sizes and company attributes as well. Anyone who walks down the main street of their local town will see symptoms of this in the you know, lack of occupancy, retail establishments, I was just in Manhattan, it's astonishing to see vacant storefronts on Fifth Avenue at the time of the stock market is at all time highs, it feels completely insane. But it is very much something that we're experiencing. And Walgreens just announced today that they're closing 2200 stores, right? And then we turn around and we look at things like same store sales, and we say Oh, those are going up, right things must be fantastic. Well, you reduce the denominator, it gets a lot easier, right? So you know, when you think about all of these things, in terms of how to influence your behavior, the most important thing is, in my opinion, always to stop and say, Can I get what I need? At the lowest possible risk? Right. And I would encourage a lot of people to look at the pool of opportunities that are out there today. And off of the asset base that we have. Many investors are remarkably well served with simply buying high quality corporate debt, or by buying bonds. And the key question there is this one of inflation, right? That's what we just don't know. And so that's creating uncertainty. It's leading to people engaged in all sorts of synthetic creation of fixed income instruments. Let me just explain what that means. I'm sure many of your listeners have been exposed to things like call overriding strategies, right? These would be funds that engage in owning the underlying and then selling a call option against it right. Many of your listeners have probably recently been exposed to things called Buffer funds. Right? A buffer fund is simply I bought I buy a you know, zero coupon Bill effectively, right, a discounted bill with a one year to maturity. And then I use the so if I spend it dollar on that I spent $100 notional, right. So if I buy a face value bond that is discounted by the current 5%, I'm going to pay 95 cents on the dollar for that, I then take that remaining five cents and I buy a call spread, right? So I'm effectively giving up the return on my bond, so that I can gain the potential for a slightly higher return if the stock market were to go up. All of these are super interesting types of strategies. But at the end of the day, what you need to recognize is you're giving up that 5%. Right. And so that's one of the key questions that I challenge people I do this with institutional investors on a very regular basis. Are you actually getting your needs met by that? 5%? And if so, why are you taking significant additional risks? Anthony Scaramucci 20:45 That's smart. Michael Green 20:46 Right. Anthony Scaramucci 20:48 So last question, I'm going to turn it over to talking about gold and crypto. Some of the most assists sophisticated technologists in the world, do you have an opinion on Bitcoin or gold? Michael Green 21:01 Well, unfortunately, I do have an opinion on Bitcoin. And I know, it's gonna be contrary to what you and much of your audience may say, it is actually linked to the general thought process behind gold. And so let me just hit gold on that front first, gold played a unique role in monetary systems in the past, in that it was one of basically five metallic elements that could be easily malleable, it could be formed in, you know, early historical periods. All those metals, nickel, tin, gold, silver, have all been used copper have all been used in coinage somewhat indiscriminately, because they share those physical features, right? And there's videos on the internet that you can find other people talking about this sort of stuff, but just stop for a second and say like, where are we going to mint coins out of mercury? No, it's toxic, and it's a liquid that burns a hole in your pocket, if you try to put it in there, right. So you're not going to do it, you're not going to use uranium, because that will also kill you. Alright, so gold had a very unique role as being very uncommon, right, it was relatively rare. And it was also malleable, could be turned into coinage, it didn't tarnish, etc. So it filled a unique role in the processing and actual printing the technology effectively appointed, it no longer plays that role. And that's an important thing to recognize that, you know, it can rise if people demand more of it relative to the supply. But like all commodities, it's actually becoming much more common relative to people, the number of people on the planet than most people are willing to accept. And so I think that's actually a really important place to start. The second thing to remember about things like the gold standard, is you didn't actually, as an individual, you didn't have the opportunity to go to a bank and say, here's $1, Bill, give me back $1 bills worth of gold, you just couldn't do that, right? That's a misunderstanding of how the system worked. It worked in reverse, I can show up with an ounce of gold, and sell it to the US government at a guaranteed price that was expected to be more than my markup. Right, then my costs of mining or obtaining it. Right, that meant that you actually had a flexible money supply. It wasn't a hard money system. It was a flexible money system. If the price of gold rose relative to all other goods and services, well, I'm going to redirect my resources to mining gold. Right. And so I'm going to increase the supply of money through human effort. That was a really powerful component. Now Bitcoin has tried to take the place of that, right for the next generation. And I'm sympathetic to the demand for a currency that does not simply respond to the government's whims. Right. So that's actually a really important distinction. The problem is, you actually can't increase the supply of Bitcoin through effort, you can't decide that the price of money is too high, and therefore you're going to redirect resources, and aggregate to create more of it. Because Bitcoin has a fixed issuance schedule, and a cap on the quantity of issuance. Ultimately, that system has very different dynamics than the ones we're used to thinking about and becomes very anti technology and anti human innovation. So I'm actually quite negative on Bitcoin. Anthony Scaramucci 24:25 Okay, Michael Green 24:26 Even as I acknowledged, the price can go higher. Right. It just want to be very clear on that. Anthony Scaramucci 24:30 I understand. I appreciate that because obviously, you know, I like bringing on people that have opposing views to me, we're in sailors camp on Bitcoin, but I appreciate your view. Any other coins you like? Or the whole industry you don't like? Michael Green 24:45 No, I actually think so. I think this is a really important point as well. I think the industry of crypto or the idea of utility tokens or tokenization, in general, is incredibly powerful. Right? I mean, I see tons of books behind you in your office, you know, those are fantastic tools for accessing information in an analog framework, I start on page one. And I finish on the last page, right? If I've read it, or I have resources that allow me to go to that point in the book that has the information that I want, super valuable, right? So people don't Anthony Scaramucci 25:19 stainable technology. So you probably shouldn't be, I probably should be showing you this one though. This is my favorite see that? That's my favorite. Look at that high school picture of me made. Michael Green 25:31 You look fantastic. Anthony Scaramucci 25:32 There's a 500 year old piece of technology that we're still using. So you're right. Michael Green 25:37 And another almost 500 year old piece of technology as the stock certificate, or the the physical manifestation of a corporate bond issue, right. And so those are analog technologies, we actually have turned them into digital proxies by depositing the shares at DTCC, right, the central clearing house. And then we trade effectively the equivalent of the gold receipts from merchants in days past that we call the electronic transactions, right? That's archaic and absurd. In today's digital world, we should absolutely be moving to truly digitized information. And I'll give a really simple example. It's probably near and dear to your heart, when you think about something like a mortgage backed security, right? That is typically composed of about 10,000 mortgages. Imagine each individual that is on your call is on this that has filled out their own mortgage, all those pages that need to be filled out all the documentation for the bank, everything else, all of those have to be kept in physical record storage places like Iron Mountain, etc. The cost of doing that creating that mortgage backed security that is then structured in a variety of ways chopped up into different pieces, right? That is so cost prohibitive, that it's very limited in the number of people that can really do it. If you move to a truly digital technology, a tokenized technology, you really could do all these things at a much lower cost. And so I think it's inevitable that we'll move to that. And I think crypto is playing an important role in driving us in that direction. But so far, we're a long way away from that promise. Okay, I mean, it's very well said, and the reason why I wanted to bring you on, I feel hopeful when I'm listening to you, I should, because like this is, you know, like, it's one of the most frustrating things is to be very bearish on behaviors, and the evidence that's directly in front of us. And yet at the same time to truly appreciate the potential, it's a little bit like you have children, right. So it's a little bit like a teenage boy, you look at them, and you're so frustrated with the choices that they're making. And you recognize the potential for the man there. Right. And that is how I truly look at the world. I'm frustrated by the choices we're making. But I understand that as long as we recognize human potential, somebody is going to figure it out. And that's really the key, by the way to economic freedom, and democratic freedom, the ability to express your own perspective means that I don't have to have the right answers. Somebody has to come up with the right answers, and I'll pay them for it. Right. And that's a really powerful message. Anthony Scaramucci 28:13 It's interesting. And the other thing you're saying, which I think is very valuable, is that, you know, we can get the reduction in inflation through things like aI productivity increases, new technologies that we onboard, that lower the price of delivering goods and services, we may not be getting it from the blunt instrument of the Federal Reserve, but it could be having an effect on asset prices. And obviously, if you're raising rates, and you're increasing the cost of capital for people that are borrowers, it does slow down their spending. So it's a you know, I do think we have to reevaluate all this stuff, and I appreciate you sharing it with me. We're gonna go to the the viewers questions now. So I sent out an email I say to people, hey, what do you have? Do you have a recommendation for per, for preserving financial sovereignty? And personal freedom? This is from Michelle in New Hampshire. Michael Green 29:13 Well, Michelle, first of all, I think it's it's a great question, and I'm going to answer it in a way that's really going to frustrate you, right. The single greatest way to preserve financial sovereignty and personal freedom is to actually vote and elect leaders that will make choices along that right. We are ultimately social animals, you cannot preserve financial sovereignty as much as people would like to tell you that you can. We're all tied together. There's no give or take seven and a half billion people on this earth. There's about 335 million in the United States. Not one of those people would have a job, right? We'd all be subsistence subsistence farmers, if we didn't have a market economy and a market economy is ultimately something that is managed through social norms and social media caterers, if people show up at the Moroccan souk and start shooting people, nobody shows up to exchange their goods and services. We're Unfortunately at that stage in the process where we need to start behaving like adults and say, I'm not going to just take care of myself, I'm not just going to take care of my family, I'm going to actually start making the choices that are necessary for us to preserve the social arrangements, arrangements that allow us all to flourish. Anthony Scaramucci 30:24 All right, it's an excellent answer. Thank you, Michelle. Let's go to the next question. Now can those of us who want to be individual stock pickers play along with one's global game, while still investing in stocks with earnings yield? From DC. So he's right down the block from you? Michael Green 30:43 Yeah, David, we should grab a coffee. I don't know if you just heard the ambulance driving by as that question was read to me, but the... Anthony Scaramucci 30:53 bond vigilantes in the ambulance heading over to the fit. Michael Green 30:57 Exactly. So I think unfortunately, that was an apt metaphor for the stock picker, right. And so again, this individual obviously is familiar with some of the work that I've done around the dynamics of fun flows, and the idea of passive investing. And so it's really important for people to understand the reference point there, what he's identifying is, is that perversely, when you go and buy the s&p 500, you're actually contributing to the behavior that we're seeing in the market, perversely, the largest stocks are what's called the least elastic stocks that are the most inelastic stocks. It sounds crazy, but when you try to buy 5% of Apple, you're gonna have a much bigger impact on Apple or Nvidia today, than you would on a very small stock for a couple of reasons. Right, the most important one being the market, the way market making operations actually work by try to buy 5% of Apple, that's literally we're talking about $150 billion of capital that has to figure out how to move, it takes a ton of capital to allow $150 billion of capital to move. And as a result, actually, it becomes less efficient, the larger you get in stocks. This is a big reason why many of the smaller stocks that people are playing along with that have earnings yields better than a T bill that they have traditionally been taught to focus on. Those are the stocks that are neglected, and increasingly just getting sold. Because of the underperformance people are walking away from small stocks, right, it goes a step further and say the same thing is increasingly true for small business. Why would you possibly go through all the hassles of creating your own job when you could just get a $70,000 marketing job at Nvidia, and by luck, be a millionaire, you know, a couple of years later, right. So this is creating all sorts of interesting challenges. If you want to do that, if you want to do what David is highlighting, and I actually encourage people to do this. And you need to recognize exactly as my friend David Einhorn has talked about, you need to find companies that are capable of being their own sources of liquidity and their own sources of return. That means dividend yields, not earnings yields, it means companies that are buying back shares of their company, so that you own more of it. Right? Those are the companies that have the catalysts that allow you to create an endogenous return as compared to something that relies on somebody else coming in to buy it from you. And if you can do that, I think ultimately, you're going to be very well served. Anthony Scaramucci 33:17 Okay. Let's keep going. Does the facts does the fact some central banks are starting to ease give you any predictive signals on what the Fed will do rich from Florida. Michael Green 33:32 So, you know, one of the greatest tricks in investing, right is to run something like a 50 day moving average and a 200 day moving average and the 50 day moving average is supposed to tell you the direction that the 200 day is likely to take in the future, right? It's basically that shorter moving average versus a longer moving average. What Richard is describing is something very similar, right? We're seeing some of the banks start to respond to information. And it's a little bit like that shorter moving average has has hit now, right, the Fed has stopped hiking, there's still random calls out there for the Fed to hike on interest rates, anytime speculative activity is observed people, you know, will point to money being spent for Taylor Swift concerts and saying the Fed should hike right now. Again, just remember how stupid that is. Right? If you actually think that the Fed is going to control the price of Taylor Swift tickets, by changing the interest rate for the entire economy, like I don't know how to help you, right? Because it's actually there's so peripherally related, that it's actually kind of absurd. But with that said, the fact that central banks are starting to recognize that this bifurcation that's happening across many economies, those who are cash rich, are benefiting those who are cash poor are really beginning to struggle, and the cash poor always outnumber the cash rich, right, just by sheer quantity of individuals. As a result, they're starting to tell you we feel compelled to move in this direction. I think the Fed will end up cutting that creates its own risks though. Right. And this is actually a really important component, some of the smartest people out there have really grabbed on to this underlying dynamic. The stimulus for the rich that's created by these high interest rates is actually part of the behavior that we're seeing in the perverse extension of this cycle. Right. So if the Fed starts to cut interest rates, in a very weird way begins to remove income supports for some of the wealthiest members of our society. If they tighten up their spending in reaction to that, then the recession gets worse. The Fed likely responds under their inappropriate models by cutting interest rates even further. And that process continues until a levered buyer and effectively step in and say, Hey, this super low interest rate means that I can afford to buy all sorts of stuff. That's unlikely to be you. It's much more likely to be Stephen Schwarzman. Anthony Scaramucci 35:51 Amen. Well said, Alright, let's keep moving. I'm gonna have you do all the questions for me, Michael, going forward. Oh, perfect. All right, Bank of America says the housing market is stuck. until at least 2026. What's your take? And if I'm looking to buy, is it worth renting for a couple of years? This is Jamie from Connecticut? Michael Green 36:10 Well, so it's a great question. And it's candidly one that I'm struggling with as well. I was talking with Anthony about my experience prior to the call, I sold my home about a year and a half ago, and have been traveling and renting. And I plan on continuing to do so for roughly two years. So that 2026 actually sounds pretty spot on last time I did this, by the way it was in 2004. When I sold the home obviously early, and then bought back in in 2011. My wife is extraordinarily tolerant of my trying to time housing markets. And I appreciate that very much. We were in an interesting situation where we perceive that there is an extraordinary shortage of housing, I will tell you, I fall into the camp that says a lot of what we're actually seeing is what I would describe as hoarding of housing, we're seeing vacancy rates and and begin to rise significantly for particularly multifamily rentals. If you're looking at a nicer multifamily rental, you're going to start finding some bargains today. On the flip side of that, if you want to buy a, you know, 2500 square foot, three bedroom, two bath, or four bedroom, three bath so that you can have a home office relatively near a major metropolitan area that's growing, because we're in very short supply, right. And we're really challenged in that environment. I fall into the campuses that the demand for housing is probably less than people think, and the supply of housing is probably greater. And if we persist under this current model will start to see the system begin to free up some of that supply. We're really starting to see this in areas of single family home rentals and multifamily rentals that were dominated by Airbnb where you're seeing the demand being curtailed by increasing restrictions on renting out your home. And the other area that we're seeing is the syndicated private, private syndicated borrowing. This has actually been the source of capital for many of the individuals that own you know, 1000 apartments all of a sudden, right? They've borrowed money from other friends family or foreign investors through syndication deals, and they're desperately holding on now. And so my hunch is, is that we're going to start to see a lot of that shaken loose in the next 12 months. Anthony Scaramucci 38:27 Okay, well, that was that was the last question. You know, it's funny, because we all have these different personalities, I've always just boom, go out and buy the house and I'm like, I'm gonna live in it. You can treat it as consumption, you can treat it as investment. Also, since you're talking about your wife, I'll bring up my wife, this woman, there's no house that I've ever been in with her that hasn't had the need for renovation, including brand new ones, Michael. So yes, it is what it is, you know, you just lock and load and buy the house and happy wife happy life. Okay, so that's my view. But anyway, you've been a terrific guest. I hope you'll come back on with us as we get through the election. So if I'm still living in the country, I may have to undisclosed location. We'll have to see what happens. But I really appreciate you joining us on speak up and I wish you a great summer, and Happy Fourth of July. Michael Green 39:26 Thank you very much Anthony. I wish the best to you as well. Anthony Scaramucci 39:32 If you liked this video, you'll like this video as well. Check it out.
