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Macro analyst Stephanie Pomboy returns to discuss her latest market outlook as well as assess just how painful the coming recession she predicts may be. In the second half of the discussion, live Q&A will be taken from the audience.

We talk about Fed policy, bank lending tightening (SLOOS), the recent payrolls report, the crazy volatility in T-bills lately, credit spreads, gold, and more.


Adam Taggart 0:02
And we should be live. I’m Adam Taggart, founder of Wealthion Welcome to Wealthion. special treat today we have a very good friend of the program. Stephanie POM boy, macro analyst extraordinaire, joining us again for her monthly appearance on this channel. Stephanie, it’s great to see you.

Stephanie Pomboy 0:20
Thank you so much. Great to see you, Adam. It feels like it’s been more than a month these days feel like yours?

Adam Taggart 0:28
Well, especially for you, Stephanie, because you have been appearing on the mass media, mass financial media and mass media in general, a lot of late so it is great to see your star continuing to burn ever brighter in the minds and hearts of everybody in the financial world.

Stephanie Pomboy 0:44
Well, thank you. I, I definitely don’t don’t want to jinx myself here. Also, I’ll just keep my mouth shut.

Adam Taggart 0:51
All right. Well, I will say, very well deserved. And hopefully it’s just the start. All right, well, we want to get going here because we have a lot of material to slog through. If we have the time and opportunity. I’d like to pull some questions from the audience here, if possible, folks, apologies if that doesn’t happen. But we will try to reserve some time at the end. To do that. Got a lot to plow through first, though. Stephanie, I’m going to I’m going to just start with a softball. I always do just to get the conversation rolling. But what is your current assessment right now of the global economy and financial markets.

Stephanie Pomboy 1:26
So I’ve been for quite a while trying to character characterize what we’re going through now not so much as a tightening environment so much as an interest rate shock. And the difference is that unlike a standard tightening cycle, and interest rate, shock, has a tendency to hit all at once, with devastating force. So it’s sort of like a gut punch to the economy in the markets. And I think what happened is that when the Fed first started raising rates, it did so so quickly, that we had, you know, 12 months where all these rate hikes are being pushed out. And they hadn’t really gotten into the system yet. And now we’re seeing the fruits of those rate hikes start to be harvested, as you will. And obviously, not surprisingly, given the unprecedented speed and magnitude of those rate hikes, I think the impact is going to be pretty profound. Right? Now, obviously, everyone’s focused on the banks as the main problem, but I don’t think by any stretch of the imagination is going to remain confined to the banking sector. And I think maybe even the last time we talked, I was characterizing this as that old, everything everywhere, all at once type of thing. And the fact is that while everyone is looking at the banks, the wheels are coming off. In other places, it’s just being obscured by the headlines about, you know, when you see these regional bank stock sell off, the way they have, it’s understandable that people are myopically focused on that. But there’s plenty of other bad stuff that’s going on that’s kind of been swept to the sidelines, and I think will come into focus as we move forward. But so generally, that’s my, my outlook is that we’re seeing the the impact of that interest rate shock now, and we’re just getting started in that process.

Adam Taggart 3:26
Okay, is this a scenario, I should have used the analogy before of like, shooting a bull elephant and mortally wounding it, where that elephant can still trample a lot of people before it kills over and dies? So has the injury already happened here with the interest rate shock, and it’s just a matter at this point of the economy lurching around for as long as it can before it just kills over? Or is this going to be like a continuation of of injuries as it goes along?

Stephanie Pomboy 3:57
Well, I think, you know, it’s a good description. And there are areas where I think that’s really apt, like, I’ve been focused, as we’ve talked about on the corporate credit market, as really a flashpoint for major problems. And what you’re seeing is to the extent that companies can restructure the debts that are now maturing, they’re doing that so a lot of this debt is kind of being restructured and extended, essentially, to the extent they can on the sidelines here. So there that is kind of that wounded elephant that’s figuring out some way to kind of keep causing damage, but basically, eventually, you can’t restructure every single piece of paper out there as it becomes a you know, a all encompassing problem. So I think it’s a good description. And you are seeing it in a variety of places, not just corporate credit, you know, consumer credit cards, auto loans, I know you’ve, you know, had some interesting inner views on that front that would probably make your hair stand up in terms of just how ugly things are there and there plenty of headlines on that score. And then, you know, I don’t even know how you quantify what’s going on with Buy now pay later. But to me, that seemed like a complete disaster first implemented, you know. So there are plenty of areas to be concerned about. And, you know, this is why, if I can sort of cut to the punch line for me, because I’ve been concerned that we’ll have credit default, everywhere, not just, you know, in commercial real estate, but also in corporate and consumer loans, etc. And I, you know, I would worry about the credit quality of municipals as well, eventually, because I think it’s going to affect everything I’ve been trying to figure out, okay, who are the bag holders, who are the people are most exposed to all of the stuff that’s going to go toxic. And that’s brought me as we’ve talked about endlessly here to the pension funds. But I would also say the insurers pensions and insurers are the two constituents that have a hard return mandate that’s otherworldly in, you know, over the last 10 years, we had basically 0%, risk free yields, and they were trying to generate 8% Plus free, you know, return. So we know that they’re exposed to everything that’s starting to go belly up. And that’s why rather than trying to focus on each discrete sector, that’s having a problem, I’ve been really focused on the guys who are going to be left holding the bag, which may or may not be right, but I think that’s where the buck eventually stops.

Adam Taggart 6:45
Okay, I actually want to dig into that with you in a little bit in terms of are there opportunities there for investors? Pensions, I think harder to short, but you can definitely short insurers. Real quick. So this that you talked about, you’re really looking at the corporate credit side of things and expecting that to be where the real stumbling and the real, you know, whenever the collateral damage to to start happening. And that makes total sense, right? I mean, you’re a company, you have been able to finance yourself at really cheap debt for a long time. And then all of a sudden interest rates are way higher. I think some people are surprised that like, Hey, we’ve we’ve had this incredibly fast and high interest rate increase over the past year, why are these companies not killing over already. And I want to make sure that I understand this correctly, which is, like you said, as many as Ken are going out restructuring their debt, they’re highly likely getting new debt at a much higher rate. And the thing is, is it’s it’s a sort of like, in my mind to like, I don’t know, eating your seed corn during the winter, or like when the body is starving. It starts actually basically metabolizing your organs, right where it’s like it, yes, it’s staying alive for longer, but it’s now dooming itself by the choice it’s making, right? Yeah. Is that kind of where we are in the debt cycle right now with a lot of these these corporations?

Stephanie Pomboy 8:18
Yeah, I mean, I think so. Well, one, just right off the bat, one of the reasons they’re even able to do this is a lot of the lending that I’m referring to is these leveraged loans. And as you surely read over the last several years, the loan covenants in those securities have basically been, you know, as lacs as ever, so basically, it provided the wiggle room for companies if they got in the current situation, to replace existing debt with new debt or pay interest with new debt, rather than, you know, cash. So that’s what’s happening now. But like you said, the question is, how long does that keep them alive for? And I think this takes us back to sort of the bigger macro question, which is, so much of this rests on the assumption that either the economy is going to have a short and shallow recession, and things will recover, and they’ll be able to all they need to do is muddle through this period, and then they’ll be able to maintain that higher debt service, you know, six, nine months down the road, because things will be better. Or the Fed is going to cut rates aggressively, and they’ll be able to go back to their creditors and say, hey, look, you know, we can’t continue servicing our debt at these rates, especially when the prevailing interest rate is now whatever many basis points lower. So I think there’s those two hopes out there that are kind of sustaining this market and maybe making it so that the creditors are actually willing to do this because they figure Hey, maybe these guys are right if we fleet throw them have, you know, a little more cash that we’ll be able to just get through this brief period of time we get to the other side of the cab or you know, the chasm. And obviously, I happen to face it that’s just throwing good money after bad and this will all end up in tears.

Adam Taggart 10:20
Yeah, that seems like such a pervasive mentality right now you see it, I think in the housing market, right? Where the sellers are just saying, if we all just hang together, we can stay here until the Fed pivots.

Stephanie Pomboy 10:30
Nothing in the stocks if you looked at these housing stocks to

Adam Taggart 10:33
Well, I know the homebuilder stocks have been up near all time highs, which is bananas. Yeah, and then talking to Lucky Lopez yesterday, the auto guy, he said he’s seen something, he’s seeing something that he’s never seen before, which is that banks are helping existing auto loan holders restructure their auto loans, where they’re basically it’s almost like they’re making it a balloon payment, right, where it’s like, okay, you know what, we’ll take down your current monthly payments, and you just have to pay us more and, you know, 84 months or whatever, right?

Stephanie Pomboy 11:04
This is reminiscent of the housing bubble.

Adam Taggart 11:07
Yeah, exactly. And it’s all just, you know, financial sort of shell game. Sure. Connery just, hey, let’s, let’s hope we somehow could get through this, right. Yeah,

Stephanie Pomboy 11:16
no, I think in this gets back to that core consensus that whatever we’re going to go through is going to be short and shallow, you know, the consensus of economists and, you know, the Feds and total fairy tale and but the consensus of Wall Street economist is that you get your classic two quarter technical recession, but it’s not going to be anything super material. And sure as hell isn’t going to be 2008 Nine all over again. And the Fed will pivot. And we’ll be back off to the races. I think that’s really a very solid consensus view out there. And you see it, like, you know, we’re talking about that the housing stocks are obviously anticipating the pivot and the lower rates that will help resuscitate the housing market at the same time. You know, as Powell said, in his presser, maybe it’s different this time, because the unemployment rate won’t move higher, you know, we have a structural shift in the labor market. And therefore, you know, once the Fed starts cutting rates, employment is still solid. So people will have the income with which to go out and buy new homes and buy new cars, and everything will be fine.

Adam Taggart 12:32
Alright, so I got lots of data on all those points right here, but it is true. I mean, that’s sort of what the market. In my mind, that’s almost the only way you can justify today’s market prices is if we really do not have much of a landing, right. And interestingly, I have interviewed a couple of smart, successful investors recently, in the past week, who have said, one of which was live, it was Michael Howell on this channel for folks that watch that one is coming up next week, Dan Tapi arrow, who have basically said, Yeah, I think the correction is happened. And that was last year, it was all we’re gonna get, and markets beginning to price and getting through this, you know, whatever mild recession we have, even if we have one, right, and it’s looking beyond that, I don’t think you subscribe to that. And I’m gonna let you react to that in just a second. When we were planning for this conversation, we talked about a number of topics. Again, I’m going to try to squeeze as many in as I can here. But you said at this point, it’s still all about the fit. So can I can I just let you opine on that right now? You know, in other words, what why do you think right now the most important determinant of what’s going on? Is the Fed and what do you expect the Fed to do from here?

Stephanie Pomboy 13:42
Well, so just getting to what we were talking about, I think it’s the most important because that’s the area that is keeping the market float right now, is this idea that the feds gonna pivot. And that whatever we’re going through will therefore be short and shallow, because they’re not going to let us go into some 2008 Nine style meltdown. And I, you know, when you look at, as you said, when you look across asset markets, that’s pretty much the only rationale you can point to for keeping things together, as they have been in the face of, you know, the worst bank crisis since 2008. Nine actually worse so far, in terms of losses that we’ve seen,

Adam Taggart 14:30
but three of the four biggest bank failures in US history last month,

Stephanie Pomboy 14:36
but it’s like, Huh, no problem. Yeah. And the stat that I’ve been talking about for months that, again, is unfolding in the background is that corporate bankruptcies are running at the fastest pace since 2009. So to people who dismiss parallels to 2008 Nine, you now have two areas where it’s as bad or worse, you know, it’s as bad from Corporate bankruptcies, it’s worse from the banking sector. So I think there’s a lot of reason to be skeptical about this confidence that the Fed is going to pivot. And everything about their their language. And their actions over the last year suggests the mean it when they keep saying higher for longer. And if you listen to what Powell said in the presser, again, you know, he talked about maybe he he actually used the phrase, I think it could be different this time as relates to the labor market, which is crucial, because it’s one of their two mandates. So if they think that the labor market really isn’t going to ease very much, they’re going to have to keep rates higher longer to get the inflation traction they want.

Adam Taggart 15:49
Yeah, and sorry to interject, but for I think, since last May, or June powered basically said, Look, I got two mandates, price stability and full employment and employments really hot right now it’s almost over hot. So I’m going to sacrifice that if I need to, to get inflation under control. And so the longer that he thinks that inflation that the jobs market isn’t really going to suffer. It just gives him more and more runway to say, okay, I can go full bore on demand destruction. Yeah, because we don’t have an unemployment problem. In fact, we’re not even close to one.

Stephanie Pomboy 16:21
Exactly. So they definitely believe that there are some structural difference in the labor market right now. That if they believe that, I think would keep them leaning toward a higher for longer. And then I mean, it’s, it’s laughable, but he stood there on Wednesday at the podium and described the banking system as sound and resilient. And all I could think about were those scenes during the BLM riots where the buildings were on fire. And the the reporter was describing it as mostly peaceful. A perfect analogy for Palo giving this press conference, while the regional bank stocks are literally a nosedive. And he’s describing it as sound as resilient. So now, maybe he’s doing that, because he doesn’t want people to panic. If he said, you know, we’re worried about the banking system, we’d be in a whole other well, and

Adam Taggart 17:13
he’s the guy in charge of running the entity that oversees the banking system. Of course, he’s not going to say, hey, we’re doing a terrible job and running things off the rails. Yeah.

Stephanie Pomboy 17:20
Right. Right. Although clearly they do. But anyway, so what I come back to is this confidence in the pivot, because the pivot is really what’s holding the markets up. And again, their language and their actions and the things that they’re looking at, to indicate to them that they can pivot all suggests that it’s not going to happen anytime soon. And so my sense is that as the economy slows, and things start to devolve, and we have more stress in the banking system, and more corporate bankruptcies, and you know, these delinquency rate numbers start to go up, their first impulse is more likely to stop Qt than to cut rates. That would be my sense is that they probably, if they were going to pick one lever, they’d probably stop that so that they can, you know, maintain that higher for longer promise without having egg on their face. Because so far, they’ve, you know, they’ve gotten everything wrong, you know, inflation is transitory, and then it goes up to 8%. And then they declare that it’s not transitory anymore, right, as it comes, you know, dropping down.

Adam Taggart 18:35
And before that, that stimulus wasn’t gonna create an inflation problem.

Stephanie Pomboy 18:40
I mean, the history of Fed missteps is long and luxurious, as I like to say. So I guess, you know, what I come back to is, if it’s true that the Fed isn’t going to pivot in the amount of time that the markets currently expect, that’s going to create its own market reaction, which will not be positive. And that, I think, would be the catalyst for the pivot. I mean, I think you and I agree on this, that the markets are discounting the pivot before the pain, but the pivot is going to be a consequence of the pain, right? So we need to see blood in the streets before this fed that’s gotten everything wrong and is now trying to belatedly protect their legacy really moves to cut rates, it’s going to take a tremendous amount of really ugly, you know, read on the screen read on Main Street before they move, in my opinion,

Adam Taggart 19:44
okay. And so one of the things that could that could intensify the pain that we see right now, is the lag effect, which you and I have talked about many times, right? And I sort of described them as shock waves traveling through time right with a leave It was pulled multiple times over the past year. And it takes about a year for the full impact of those hikes to hit the economy. And I sort of talked about it as like just a series of shock waves that are slamming into the economy again and again over the next couple of quarters. I think you’ve largely agreed with that, although you, I think, had an even better analogy. Or maybe this was Nick timorous his analogy, but it’s more like the the ketchup bottle, where you’re hitting, hitting. And then it gets to you’re everywhere, all at once, where it all just works out and ruins your meal. But another factor on top of the Fed rate hikes and the quantitative tightening is the fact that banks have been tightening their lending standards. And they were already doing that coming into this year. But then, of course, we had these banking system failures. And now they’re kind of freaking out, understandably, in the wake of that. And that’s tightening even further, and even palace and hay these substitute as additional rate hikes with their own lag effect as well. So how concerned are you about this incremental factor of the additional tightening?

Stephanie Pomboy 21:01
Yeah, well, we’ve been waiting for that to happen. And the fact is the capital market, which is where the vast majority of credit is created, now, most of the credit is created outside the traditional banking system these days, capital markets have been tightening credit for over a year. I mean, they started tightening credit. Back when the Fed first started raising rates, we saw leveraged loan issuance down last year was down I think, 50%. And, you know, investment grade and chunk issuance was down as well, this year so far, I know, levered loan issuances down another 40%. So the capital markets have been turning the screws for a year, it’s just taken a while for the traditional banking sector to get to that point. And part of it is, you know, there’s that competition between the banking sector in the capital markets. So what happens is when a company finds that it’s being squeezed out of the capital markets, then they might go back to the banks and say, All right, well, how about we take out a loan from you. So what what is bad for one area and secondary to the benefit of the other for a little while the banks are always the saps who don’t realize that the credit quality is deteriorating, and they look at Oh, we can gather some market share, we can make some more loans, the capital markets to figure it out, and the bankers are still sitting there with their heads up their butts. And they go, okay, yeah, look at this, we can make all these great, you know, CNI loans, and auto loans, et cetera, et cetera. So that’s what’s happened. Now, the banks are obviously seeing what the capital markets figured out a while ago. And I have a chart that overlays bank lending year on year with the Fed funds rate. And as late as banks usually are to tighten credit, we’ve still never been in a situation where bank lending growth has slowed to the point that it has now, when the Fed was still raising rates. Normally, by the time I think, bank land bank loans are running around one and a half percent year on year growth right now down from whatever, eight or something like that. Normally, by the time we get to sort of this 1%, one and a half percent area, the Fed has either fully completed an easing cycle, or somewhere in that easing cycle. This time, you’ve got bank living doing this, and the Fed funds rate doing this. So it’s uncharted territory. But again, this is the scary thing, Adam is that the bank lending was slowing. And now, you know, the recession, in theory hasn’t yet started. And we’re just at the beginning of this whole process. So how negative is bank lending going to get it will be very restrictive on the economy, as you said. And so that will do a lot of the additional tightening for the Fed for them.

Adam Taggart 23:56
Okay, so on whether it’s going to be a minor issue or a major issue, I hear, you’re saying this is going to be a major issue, this additional tightening?

Stephanie Pomboy 24:04
Well, and also, I mean, again, getting way back into this sort of macro stratosphere. It all comes back to basic math, you know, the US economy depends on credit to grow. And we passed the the point of diminishing marginal returns on that credit a long time ago, meaning that not only do we need credit, to get the economy to grow, but we need an ever expanding amount of credit to grow. If we have the same amount of credit injected in the economy this year, as we did last year, growth will slow. So it’s just math. So when you say, well, the capital markets are contracting credit, and the banks are congrat, contract and credit and then you tell me we’re going to have a short and shallow two quarter meaningless recession. I just don’t see how that’s possible. If we had no growth in credit it, we be at zero in terms of GDP. So it just a minor decrease in credit growth would give you that mild recession. I think we’re in for something much more like 2008 Nine, like, like, you know, Jonah on with you before about.

Adam Taggart 25:17
Okay, I want to put up two charts here real quickly just sort of corroborate what you’re saying here. So one this was big in the news yesterday. This is the Federal Reserve’s senior loan officer opinion survey, also referred to as the slews. And basically, it’s a measure of banks tightening their lending standards. And you can see here that we are in a pretty dramatic uptrend since the end of 2021. But we’re way ahead of that kind of median line there. And I want to compare that with this chart here from Michael Kantrowitz, who I interviewed on this channel two weeks ago or so one of the best interviews of the year so far. And Michael has a ton of data. If Seth, I don’t know if you’re familiar with his hope framework, super useful. And his hope framework basically says, Look, this is the process by which we go into recession. And three of the four dominoes have fallen. The fourth is the E, which is employment, which we’ll talk about in just a second. But he says, Once that process is underway, then there’s a bunch of factors that are coincident with either a hard landing, or a soft landing. And this chart here shows you that hard landings are preceded by tightening lending standards. And you see here on the top part of the chart, what tightening looks like in each previous recession we’ve gotten into, and you see, we have all the same indicators this time around. Right? So, you know, I look at those two charts to your points there, Stephanie, and just say, All right, yeah, you know, credit is tightening pretty strongly and can momentum still to the upside. And history shows every time we see this, we pretty much go into a recession. So it is hard to just sort of blindly agree with the market that like okay, yeah, you know, maybe we’ll just have a little, little flesh wound here and be right back to growth.

Stephanie Pomboy 27:11
The other thing I would add on to that is, we haven’t even talked about earnings. You know, we’re talking about the debt service side, but your ability to service your debt is a function of how much income you’re generating. And that’s another area where I think there’s over there’s too much complacency. Because this earnings picture, I mean, obviously, we’re already into an earnings recession. But again, you know, that’s anticipated to be short and shallow. But the reality is that we never saw a gap as wide as we did recently, between the CPI and the PPI, meaning that the implied squeeze on profit margins from input prices, which is the PPI rising so much faster than the CPI, the ability to pass those input prices along. We never saw anything that acute since the 1970s to mid 1970s, not surprisingly. So that sets up a real problem for corporate profits. And what we have right now is this environment where everyone’s so focused on expected earnings. So they’re cheering the fact that earnings are beating expectations. But you can’t service your debt with better than expected earnings when expected is minus 5%. You know, exactly.

Adam Taggart 28:36
And that’s the whole like Lance Roberts rants on this, he calls it the millennial earnings season every year, but it’s like, we have all these beats, but we only have the beats because the analysts keep bringing their expectations down, up until earnings announcement day, right.

Stephanie Pomboy 28:49
And that was true. And they were bringing them down, but at least they were still positive. We’re in negative net, we’re talking about something like 80% of the companies that have reported so far are beating, but we’re still going to have a decline in earnings this quarter. So that’s great. Congratulations, you beat down, you know, lowered estimates. But you’re you have no profit growth with which to service this higher, or even Apple

Adam Taggart 29:17
which had negative revenue growth year over year, and yet the stock was up like 5%. Right.

Stephanie Pomboy 29:22
Yeah. And then that gets into the whole thing that I keep harping on, which is that the skew between the haves and the have nots in the corporate sector, makes the consumer sector look tame. You know, if you take the s&p 500, which is the largest 500 companies, arguably on the planet, not you know, not just in the US but in the world. The top 10 have more cash in the bottom 400 So, and those are the largest corporations. Can you imagine if you expanded it out to like the Russell 3000 What bottom 1500 companies have Um, you know, presumably they’ve zero cash. So the ability to absorb this higher debt service becomes a real issue. So there are two moving parts, there’s the higher interest rate. And then there’s the withering corporate profits. And that combination, I think, really rules out any kind of mild recession, in my view. But

Adam Taggart 30:19
yeah, there’s so many questions I have based off of that, because of course, you know, then that’s why capital continues to flow even further into those few stocks, right, because they’re, quote unquote, safe, right? Alright, look, folks, I’m going to ask a few more questions. As Stephanie, we’ve got a little less than 15 minutes left. I’m going to try to make room for questions if we can. But these are important questions we want to make sure to ask while Stephanie’s here. So Stephanie, I mentioned the key. last bulwark and Michael Kantrowitz is hope framework, which is employment, right. And you and I have ranted many times about our levels of suspicion of the government reported jobs numbers. And we just had the payroll report last week, which was really a blowout to the upside. Again, you know, letting the Fed say, okay, look, no problems there. So, we’d love to give, let me get any of your updated thoughts on unemployment. But I want to show this chart really quickly, which was put up by to Megan Neely over at distill, which he said, Look, you know, we should be looking at other different alternative ways to measure employment just to see if the government numbers are correct or not. And so she chooses to look at withheld employment taxes, right. So this is, hey, if you’re, you know, if you’re on a payroll withholding is taken out of your paycheck. And why she likes this data is it’s reported daily by the Treasury, right? So the payroll reports comes out once a month, it’s calculated by the government, it’s like a snapshot, monthly snapshot. And there’s all sorts of things that can color it, where this is, like I said, it’s a daily reported numbers straight from the treasury of how much is being taken out of people’s paychecks for withheld taxes, she does a trailing 12 month average here just to sort of, you know, get rid of the noise. And you can see, you know, since the the end of last year, or sorry, the end of 2021, this thing has been a nosedive. State and the trajectory is, you know, looks very much like it’s going to break through the zero line, and go negative very soon. So, you know, you and I have talked about other indicators in the real economy that, you know, give us confidence that the government numbers are not to be leaned on or trusted fully. But data like that really shows me Hey, if you look at this metric over here, it’s way different than what the BLS numbers are saying. So, anyways, anything you want to say in employment?

Stephanie Pomboy 32:48
Well, several things. First, kudos to John liscio. May he rest in peace, because he was the one who started this whole monitoring the tax receipt data’s window into employment with Alyssia report, and I’m really dating myself with that reference at this point. But as relates to the payroll numbers, just to underscore why we can be suspicious about it first, you know, they have two ways that they can color this data, there’s something called the birth death plug factor, which is essentially a number that they tried to impute new business creations that haven’t yet been reflected in payroll numbers or their businesses that are so small that they don’t use one of the big payroll processing companies to run their payroll. So they just picked a number, basically, out of thin air, it’s based on last year’s IRS tax data for corporate filings. So it has really no bearing in current reality. But they can monkey with that number. So this in the latest report, the birth death plug factor, it was a full 70,000 jobs higher than the one they had used in the prior April’s over the last five years. So and for no reason that we are told about the second thing is a seasonal adjustment, which you know, I won’t go too deep into the weeds on but there again, you know, they pulled that rabbit out of the hat too, by making the seasonals. They created a more flattering seasonal benchmark that had the effect of boosting the headline print for the April number. But all of that is underscored by the fact that the February and March numbers were revised lower. So we’re finally starting to see the BLS acknowledge that oops, we got it wrong in February and March. And I think the cumulative revision was almost 150,000 Lower. So that’s a significant increase when you’re only running at about 150,000 a month. So I think that’s going to be the new game is they’ll print a nice print in the current month and they’ll they’ll go back and say, Oops, we got last month’s number wrong. So

Adam Taggart 34:57
that seems to be some poker could have accusing Uh, the current administration of this, which is every month is a rosy number. And to be able to do that, we then revise all the previous ones down. So it’s kind of like Let’s cheer the headline and ignore the revisions that we’re making. Yeah. Well,

Stephanie Pomboy 35:16
just I one thing I want to get into is the NFIB, because it just came out this morning, small businesses, who, you know, theoretically are the main job creators out there. And the headline, small business optimism, which now should be called the Small Business pessimism report, was the lowest reading in 10 years, meaning it was lower than the depths of the COVID. Lockdown. So this is the worst since two, you know, basically, you since we were coming out of the 2008, nine global financial crisis, that’s not a good sign, their outlook for sales? Absolutely weathering. And on the inflation front, you know, they were ranking inflation is their number one concern that’s come down dramatically as have their expected price. You know, the prices, they’re going to charge customers that’s been cut in half since the beginning of the year, and just four months. So we’re seeing a lot of real weakening in the small businesses that are the engine of growth for employment.

Adam Taggart 36:16
Okay, yeah, and engender growth for employment. I mean, we think about these big companies. And we look at the layoffs that are being announced by a lot of the meadows and Amazons and stuff in the world. But that actually is a small fraction of the workforce, most of the workforce is in the small business world, as you mentioned. All right. So I’m going to start going over to questions from the chat. Real quick, I’m going to pull a few together. That one thing that you’ve warned about in the past, Stephanie, that’s going to be a big indicator for you, if I remember correctly, is credit spreads. And credit spreads are still remaining relatively moderate. Right now, they haven’t really taken off yet. So when do you think we’re, what do you think is going to cause that to start widening?

Stephanie Pomboy 37:06
Well, it’s a good question because as I said, you know, bankruptcies every day, you pick up the paper, there’s a new bankruptcy, Jenny Craig, Tuesday morning, you know, Bed Bath and Beyond, it’s in these aren’t companies no one’s ever heard of before. So you think that would get, you know, garner a little bit more attention. And the credit ratings have really deteriorated where there are a lot of downgrades, we had actually nine fallen angels, which is a big deal, but meaning that these companies were downgraded from investment grade to junk. And I think that could begin to be a catalyst. Because if you’re a mutual fund manager, and you’ve got a quality mandate, where you can only hold the investment grade paper, and some of this paper gets downgraded to junk, you got to sell it. And then you’ve got to look through your portfolio and make sure you don’t hold any other stuff that might be ripe for a downgrade. So that could create some issues in the market if we get more of those fallen angel downgrades. But you know, to be honest, I have been surprised, but then when you look at it, relative to what we’re seeing in the stock market, it all fits. It’s the same narrative, you know, these are all risk assets. So, you know, if you’re gonna buy meta, you may as well buy a junk bond, you know, it’s the same bet. It’s just two different ways of expressing it, essentially. So I think it’s the same consensus view that the pivot is going to come and we’ll have a short and shallow recession and then we’ll everything that we find that’s that’s working at credit spreads right now.

Adam Taggart 38:40
Okay, there’s memory serve. Somebody I think it might have been you during our conference shared an ETF that was sort of like a, a way to play credit spreads was that you are yes,

Stephanie Pomboy 38:51
it was. And now I forget, it’s like SDS, I didn’t want to get it wrong. It was not I’m gonna have to look this up now. I mean, this is what I do. And I buy it, and I have it in my account, and then I forget what

Adam Taggart 39:05
it is you’re gonna forget.

Stephanie Pomboy 39:07
This is how I stay sane. I don’t sit here watching my positions all day, every day. So but I will get back to you on that. And you can tweet it out or something.

Adam Taggart 39:17
Okay, great. So Steph, we’re now getting into the lightning round, because we only have about six minutes left, five minutes left. Now before I promised I’d let you out of here. So so give punchy, as punchy answers as you can to these questions. So one hears you got a few people’s attention when you talked about pensions being one of the big things you expect to go to the big bag holders. Pops McGee here asks, Hey, do you believe existing military pensions are or will be in jeopardy? Or do you think they’re more safe than the average pension?

Stephanie Pomboy 39:47
Well, I mean, I think all these pensions are exposed to this. The real problem is at the state and local level. But you know, every pension had to get into risk in some form or fashion. So I think they’ll all be exposed. But the question is, you know, I, I would hope for sure that if there’s going to be a bailout of pensions, that military pensions would be number one on the list. Yeah.

Adam Taggart 40:14
So that’s actually where pension started, by the way back in Roman times. That’s how the pension came into being. Yeah.

Stephanie Pomboy 40:21
I don’t make sense. Yeah, absolutely. So I think there’ll be damaged there. I’m really concerned mostly about the state and local pensions. But again, you know, I do, I don’t see how an atom you and I’ve talked endlessly about this, I don’t see how they can not bail out these pensions. After bailing out Goldman Sachs, and you know, all the Wall Street banks in 2008, nine, I just don’t see how that happens.

Adam Taggart 40:50
I agree with you. And as we’ve talked about, I just don’t see how that doesn’t unleash a massive, you know, sort of social rift, where those who have pensions are getting bailed out, but those who don’t aren’t, and then, you know, which is

Stephanie Pomboy 41:03
why it may be an it’ll probably be an indirect bailout, where they’ll basically the federal government will say, you know, what, we’re going to give stimulus to the states were basically in hand money to the states. And they can use that money being fungible, to fund whatever they want. And so it won’t be billed as a pension fund bailout, it’ll be aid to the states who will then use that money to bail out their pension.

Adam Taggart 41:27
Right, right. I’m sure. In whatever event that happens, I’m sure there’d be some anger. One thing we didn’t get into which we don’t have time, because I want to ask one or two other questions here is, you know, we also just have had this implicit change in how bank deposits are protected, right, where we basically had two categories, insured and uninsured. And it looks like all of a sudden uninsured is now insured. And that seems to have been done with sort of the wave of one.

Stephanie Pomboy 41:54
I think it depends what bank you’re at, doesn’t it? That’s what they’re saying right

Adam Taggart 41:59
now. But I have had some banking experts on the program recently who are saying, Look, right now it is seeming sort of implicit that this just might be policy going forward? We’ll see. But yeah, yes, they’re saying it, we’re going to do it on a bank by bank basis. But we so far this year, every bank they’ve decided to do it with. So folks remember that you are a gold holder, that you gold is in your portfolio. I guess first question is is is it still Are you still as are you as more or less bullish about its prospects? And you have been and then specifically Larry’s asking, How much do you hold physically versus and other related assets?

Stephanie Pomboy 42:40
So it’s still just as much a core position for me, it’s my largest position. And my view on it hasn’t changed at all. I mean, I would say my view has gotten better. But honestly, I anticipated, this would be exactly why I would want to have gold. So it’s pretty much status quo in that regard as to physical. Sorry,

Adam Taggart 43:04
I was just gonna say, Now gold is is up near its all time highs. It’s had a pretty good run the past month, do you see that as? Like? Do you have a sense here that is this the beginning of the big run most folks have been expecting or too early to tell?

Stephanie Pomboy 43:20
Well, I’d like to think it’s the beginning of the big run. And one thing that I do look at very closely isn’t just gold, but gold relative to copper. The gold copper ratio has always been a great sort of canary in the coal mine of financial stress. And right now, I mean, it actually got over 5.3 times, which is just a number. That’s irrelevant. But if you go back through history, we’ve only ever been at that level a handful of times. And every time we’ve been at that level, we’ve been in a crisis. So, you know, obviously, we’re in a crisis in terms of the banking system, and we’ll see how much more that evolves. But I think as it devolves gold will go much, much higher. Especially as these if I’m right, and these expectations that what we’re going through is just going to be a very mild affair, begin to be called into question, but getting the hilarious thing on how much is physical. You know, I’m not sitting here in Fort Knox with bars and everything behind me. So I own gold through vehicles that give me delivery and physical Sprott has a vehicle called fizz pH. Why is so that’s really primarily how I own gold. So it is physical to the extent that I can have it redeemed that way. And then I have a small position and miners, I’d say maybe, you know, 20% of my gold position is is in mining stocks versus the Boolean.

Adam Taggart 44:49
Okay. I’m going to kind of follow up questions on that. But I’m not going to ask him because I promise I get you out of here. One last user question. What are your thoughts on silver? I got a bunch of questions about Those after you were on last time. So well,

Stephanie Pomboy 45:03
this will be a good place to end because I don’t really have a whole lot to say on silver. I mean, I’ve been, I guess I got to myopically focused on gold that that’s been my main vehicle. And I haven’t I have to confess I haven’t done work on silver. I would obviously, the macro case for it is the same. I just am not as fluent in the supply demand situation, etc, there. But I mean, generally, I would be very bullish silver just like I am on gold, given where I think we’re going.

Adam Taggart 45:39
All right. Well, look, folks, we’re going to have to stop the q&a there. I know, we’d love to have an infinite amount of time to be able to do this with Stephanie, but she was kind enough to give us the time she had today to do this last question for you, Stephanie. Is there’s the URL to your website. You’re known on Wall Street for your institutional analysis. But if I remember correctly, I believe you actually have like a newsletter for the average retail investor, too. Is that true?

Stephanie Pomboy 46:09
Yeah. So it’s essentially I cherry pick, you know, what I think is the most valuable of my commentaries for a given month. And that’s what I send out to my retail subscribers, but they also get access to the podcasts that I do with Grant Williams, who you know, are super terrific, Happy Hour, which is super terrific, but rarely happy.

Adam Taggart 46:35
It’s phenomenal.

Stephanie Pomboy 46:37
And so yeah, go check out the website. And if you have any questions, there’s a contact form. And you know, we’ll answer your questions about it. But yeah, that’s it and you can follow me on Twitter for the three tweets I make a month.

Adam Taggart 46:53
You know, and I didn’t create a little overlay for that. But that’s at spawn boy. Right? That s bumbling.

Stephanie Pomboy 46:59
Yeah, I believe. I really shouldn’t know that. But I think you should

Adam Taggart 47:03
know that is your Twitter handle. Just say? All right, folks, we’ll look go Go follow stuff on Twitter. Definitely if interest in her newsletter for retail folks, like you go check it out. I’ve a lot of folks always asking me Stephanie, how they can get more Stephanie. That’s a great way to do so. Just a reminder for folks, if you’re watching this and are feeling like this is a pretty challenging environment to navigate as an individual person. If you want some help on, you know, ideas for for perhaps how you can better do that. Go schedule a free consultation with one of the financial advisors endorsed by Wealthion by just going to You are right there. It’s totally free doesn’t cost you anything. There’s no commitment to work with these guys. They just offer it as a public service. If you’ve enjoyed this monthly session here with Stephanie, please do us a favor, 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, Stephanie, wonderful. As always, thanks so much for joining us.

Stephanie Pomboy 48:01
Flies. So it really does the challenge of

Adam Taggart 48:05
this. There’s so much we want to pack into these discussions and you’re such a great font of wisdom. Maybe next time we’ll schedule an eight hour one and still only get through a nightmare to you. But yeah,

Stephanie Pomboy 48:15
I’ll need about five of these but I’ll get it

Adam Taggart 48:19
and everybody else. Thanks so much for watching. Thanks,

Stephanie Pomboy 48:22
Adam. Take care

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