Weekly Recap: Recession? • Solvency Crisis • China Stimulus • Bull Market

In this week’s edition of Wealthion’s Weekly Market Recap, James Connor highlights key insights from our expert guests: David Rosenberg warns of an impending recession, highlighting clear signs of economic contraction, while Chris Casey sounds the alarm on a looming U.S. solvency crisis. Jeremy Schwartz analyzes China’s stimulus and U.S. growth outlook, and Geo Chen shares why he’s optimistic about a larger bull market ahead.

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https://youtu.be/1PEE8yQpwAg

1. James Connor 0:00
2. Hi and welcome to wealthions weekly recap. I’m your host. James Connor. Well, here we are in the last quarter of the year, and there’s so much happening in the world. China announced a multi trillion dollar stimulus package. We have an ongoing debate about whether or not the US is going to go into a recession. We have ongoing hostilities in the Middle East, and we have an election coming up in just four weeks, if you can believe that. So what does it all mean, and how should we position ourselves as we go into year end? Let’s hear from the experts in the weekly recap.
4. James Connor 0:33
5. Anthony Scaramucci welcomed David Rosenberg to speak up this week. David warned that a recession is staring us right in the face. He pointed out that there are some clear signs of economic contraction that investors should not ignore. David also discussed how the recent US election results could impact the economy, including potential shifts in fiscal policy, plus he gave his take on gold, highlighting its current bullish performance and his outlook for the shining metal.
7. Anthony Scaramucci 1:04
8. This is Ben Bernanke talking about the mortgage crisis in 2007 he’s being he’s at a testimony in the Congress. Market rallies on this. He says, I’m not worried about the mortgage crisis. They say why? It’s a $90 billion crisis. He actually uses the words, I can ring fence the problem, and the Fed can figure out a way to absorb the bad loans and will clean up the economy. But he waits, and this $90 billion crisis, the prairie fire starts very similar to what you’re saying about how things can get extended and things could be made worse just by the reflexivity of markets. We go from a 90 billion, $90 billion problem to a $6 trillion global financial crisis. So I guess everything that you’re saying policymakers have to think about, and a lot of these policymakers have been around since the last crisis. So in your research and in your discussions with people, are they thinking along the lines of David Rosenberg, or how are they thinking?
10. David Rosenberg 2:23
11. Well, if you go back to that period, right, and of course, you know Bernanke also said, right, the problems of subprime remain contained. Remember contained? I
13. Anthony Scaramucci 2:33
14. remember the word contained. Remember the word ring fence I was I was on every I was on every syllable of every sentence that he said back in those days.
16. David Rosenberg 2:44
17. It was Neville Chamberlain’s piece in our time, yes and but he also said that home prices nationally never go down. And that was another, you know, Charlie Brown and Lucy episode with the football. So you go back to that period in oh seven, and I am certain that the only people that were calling for a recession were me and Dick Berner, uh, over at Morgan Stanley, uh, for different reasons, but Anthony, everybody was in the soft landing camp back then. Okay, that was the widespread consensus narrative. And in fact, the consensus did not shift towards a recession view until the summer of 08 when the recession was already eight months old, sometime between the conservatorship of Fannie and Freddie to the failure of Lehman and AIG and Merrill sometime the consensus finally got it, but it was too late. And yeah, so asking me, do I feel like the lone wolf? I’ve been here before 100% when I was at the when I was back in Merrill, Canada, in the early 2000s I was laughed at for calling recession in 2000 and you’re right when you said before that, I’m early. I’m always early, sometimes too early to a fault. However, you know the thing is about bull markets, right? The bull markets are an escalator going up, and a bear market’s an elevator going down, and the next thing you have your head sliced off. So, yeah, I am, I am concerned. I can’t say I’m going to sit here and talk about, you know where, you know where the, what sort of financial crisis we can get out of this. It’s, it’s not something that I’m I can’t identify it right now, I just know that we have an economy that is inherently interest sensitive and credit sensitive, and we’ve had a whole bunch of other things from fiscal policy and people having walked in those low rates, we’ve had the lag sort of clogged up so. Right now, interest rates, the interest rate cycle, the market cycle, the economic cycle. These are centrifugal forces, the their sine waves over time that overlap with each other, but they’re not always necessarily in sync, but they overlap with each with each other. And I have continued to say, and I say today, that there is no get in a jail free card from the most pernicious tightening cycle by the Fed since the volquera. There are things and including I didn’t mention, of course, the excess savings file when you do without a $2 trillion stimulus check, to anybody with a pulse back in the winter months of of 2021, that is going to provide a lot of firepower for an extended period of time. Just like look how long it took for the recession to take place back in oh seven It took years because everybody till the last second wasn’t about fiscal stimulus, about extracting home equity and cash flow refinancings right to the last drop, and the last drop ended in december 2007 so the something else that is on my mind is that people have forgotten about that The lags between rates in the economy are long. They’re long. People will say, well, they’re long and variable, they’re just long. And historically, it’s about 30 months from the time of the first rate hike, remember, which was back in March of 2022 to the timing of the recession. It’s not 30 days, and it’s not 30 weeks, it’s 30 months. Well, we’re pretty well staring it on the face right now. I mean, just think back to that last cycle where I was a laughing stock at Merrill Lynch for daring to call for recession. Back then, people dreamed of different reasons why the business cycle has been repealed. The Fed started hiking rates in June of 2004 Well, the recession started in December of 2007 how is that different than right now? Now, I would say that some of us out there that were calling for recession last year it didn’t come. Were being tempestuous and impatient, but you know to say that we’re not going to have a recession. And of course, the Fed believes that too. Somehow, somehow the Fed wants to have it both ways. We’re going to forecast 100 basis point increase in the unemployment rate, but there’ll be no recession, which has never happened before. But there’s a lot of people that believe that this time is different. That is the one thing I hear consistently from colleagues, from clients, from just watching bubble vision that this, this is a different sort of a cycle, and I and when I hear that, I head for the hills, because every cycle has its similarities and has had its differences, but the one thing that has never changed over time is the powerful impact that interest rates have on the economy, and the legs are long, but I think this recession nobody sees is actually staring us in the face. You know, we have what we had second quarter, GDP growth of 3% and people are just dancing around the kitchen table without realizing firstly that GDP does not even go into the NBR definition of recession for one thing, of course, we’re just pretending focused on GDP. However, when you look at the first quarter of every recession going back to 1950 the average quarter the recession starts is 2% with a plus sign, not a minus sign. So I just find that, yeah, where is this black swan? This black swan is in this incredibly entrenched complacency that the business cycle has been repealed and that therefore I am not going to rebalance my portfolio, but I’ll be all in, all in on one asset class, and really one index, otherwise known as the S, p5,
19. Anthony Scaramucci 9:10
20. 100, Donald Trump wins the presidency. What’s good and bad about that economically? Is it all good, all bad? Or what’s the mixed bag? And then conversely, what happens to the economy of Vice President Harris, a sense of the presence Well,
22. David Rosenberg 9:28
23. you know, you set me up for ensuring that 100% of the viewers are going to be angry with me, no matter what the, I think the, the only negative that I see with Trump’s economic plank is the size of the tariffs, and I don’t think I’ll go through with them, but it’s just, you see the tariffs are not inflation, in the sense that tariffs are not raised every single year. It’d be a price level shift. Shift, but it’ll brutalize the economy if he would
25. Anthony Scaramucci 10:04
26. be regressive not to jump on it, but it would also hurt lower middle income families harder than any other family. Of
28. David Rosenberg 10:11
29. that, there’s no doubt. And look, he, he did. He did embark on tariffs in his first presidency, but not, not this size, and then we don’t know how much of it hits the foreign producer, how much of it hits retailer margins and how much of it lands on the consumer, but either way, it’s going to produce a big negative shock. I would highly advise against it, but I think again. And you know, you know the President better than I do that it sounds to me more tactical. I just don’t think it’s realistic, but that’s the biggest negative part of his policy plank. I think cutting corporate tax rates to 15% it sounds crazy to most people, but that’s where the top marginal tax rate was for the business sector before World War Two. And of course, tax rates go up and then, well, they didn’t start to come down until Reagan. Reagan’s epic tax reform in 1986 so all he’s really doing is saying, I’m taking, actually, the top corporate tax rate where it used to be back in like the early, mid 1930s so I have no problem with that. And of course, he is the poster child for, well, it’s hard to say poster child with somebody in their late 70s, but the poster child for deregulation. And so, you know, people will say, well, the immigration wall against will constrict labor supply. But you know what? He did that from 2016 to 2020 we never got big inflation, we never got a wage spiral. And what happened was that a lot of unemployed Native Americans end up getting employed in terms so. So in actuality, I think his policies are probably over time would be less bad. That’s, that’s how I would portray it. Visa V what the Democrats want to do in terms of principally raising top marginal rates to 28% people say, well, it’s still low. No, no, no, no, no. It’s not low anymore. When you count in all the state taxes, and what happens with that policy is a net effective top marginal rate for the business sector that, let’s face it, does most of the employing in the economy. It takes it about 40% so all of a sudden, America, in terms of total net effect of corporate tax rates, the Democrats take the America from being competitive to the very high end of the OECD scale. I don’t think that’s going to be very good news, because if you tax corporate income and you tax profits, what is employment and wages paid out of Anthony what are they paid out of? It’s not money out of the sky, right? It’s paid out of profits. So what you tax to get less of so out of everything you know, that’s out there, I think that the Trump’s tariffs would just be, you know, would be a a big, big price shop for the economy, but it wouldn’t last more than a couple of quarters, raising corporate tax rates at the margin are going to have more pernicious multiplier impacts on the economy than most people think.
31. Anthony Scaramucci 13:30
32. What’s your view of gold? Charlie from California, David,
34. David Rosenberg 13:32
35. right, well, that’s my wheelhouse. Been bullish on gold for 10 years. Was one of the first calls that I made when I formed rose over research back in early 2020 as you mentioned before, I remain bullish, and it’s interesting that the complexion of gold has completely changed. It’s trading less as a commodity and more as a currency. Anthony, it’s trading as a currency that is no government’s liability. And so what was interesting to me in the past year is that gold had a new high in every single major currency term. So its complexion is changing. The two tailwinds for gold, lower rates and a weaker dollar, and we’re getting both. And so I can’t give you a price target. People ask me, will we get to $3,000 I think we’ll blow through that. But gold is something that’s very difficult to value. Just you mentioned Bitcoin before, you know, hard to value these things that don’t have a cash flow stream, right? However, I’ll start to turn bearish on gold, or certainly talk about how I’m pulling back from my bullish call once I see the tailwind subside, and that will be the interest rate cycle and the dollar cycle. Now, even if those things happen. There are other things occurring that should make you bullish on a fund flow perspective, and that is the fact that global central banks, by the way, not just the BRICS, but increasingly developed country central banks, after years and years of depleting their gold reserves, are now diversifying back in the gold and the one thing we know from QE is that you don’t want to fight central banks with deep pockets, but that’s third on the list in terms of why I’m bullish. We’re in a bear market on the dollar. Certainly it’s not a bear market, a correction phase in the dollar, as the Fed plays catch down to the rest of the world on interest rates, and rates coming down as a time warn, time warn, universal relationship with the gold price. So I say stick with the program until these until these tailwinds become headwinds. Chris
37. James Connor 15:51
38. Casey from our RIA partner, WinRock, joined us to sound the alarm on a looming us solvency crisis, warning about the long term risks to US debt sustainability. He explained how the Fed’s recent rate cut deficit spending and potential money printing could affect inflation. Chris also talked about cryptocurrencies as a possible hedge against these risks, and why, despite all the talk about AI, energy might be one of the best investment opportunities of this decade. So
40. Andrew Brill 16:23
41. I know that the presidential election about five weeks away, as we as I said earlier, but we spoke last time about what you would want to invest in, or where you’d want to put your money if either one of these candidates won. I’m interested to know where are we putting our money with either candidate? Because there’s got to be some safe havens and we can start with inflation. And I know inflation’s not where the Fed wants it just yet, although they just started a rate cutting cycle with the 50 basis point cut, are there hedges against inflation that we where we can put our money where it doesn’t matter all that much, up or down? Yeah, I think
43. Chris Casey 17:05
44. so. And it’s important to remember, especially with all the negative news, if you’re looking at any of the signals about the economy, it’s tough not to be pessimistic, right? So it’s, it’s important to remember that aphorism that indeed, it’s a it’s a market of stocks, more so than a stock market, right? There’s always opportunities. There’s always investments. But having said that, you definitely need to protect yourself. There are a number of things that we would think that would do well regardless as who becomes the president in January. And I think the easiest one, or really the no brainer, is to load up on inflation hedges. And I’m not talking so much about what’s been done by the Federal Reserve and what will happen. I’m really more concerned about what the Federal Reserve will likely do and the reason they’re going to have to really intervene, forgetting about any kind of market downturn, forgetting about a recession here coming down the pike, really just look at the debt issue. So right now, to put it in kind of household terms, it’s no different than if you had your salary was around 125,000 a year, and you had a million dollars in debt, right? Because that’s eight times the salary. And right now we have federal revenue of 4.5 trillion or so, and that’s over 35 trillion. So that’s well over eight times. And so it’s no different than that situation. When you look at it from that perspective, you realize, no matter what people say about us being a superpower, no matter what they say about the economic strength of us, long term, the reality is that’s a very, very bad situation, and the only way to get out of it, and the only way they will get out of it, is to print their way out of it. And so I’m more concerned about the Federal Reserve will do next year. I mean, we already had interest for fiscal 2024, running at over a trillion a year. The deficits over 2 trillion for this year. So not only is there no end in sight as far as prolific spending, but it’s, I think it’s going to get worse, and when it gets worse, the Fed has to step in. So there’s a number of inflation hedges I think everyone should embrace, regardless as to the candidate or the president, because I don’t think they’re going to be able to solve this the next four years.
46. Andrew Brill 19:17
47. So they started the rate cutting cycle, the debt. It is what it is, and it’s not, as you pointed out, it’s not getting any lower, and we’re servicing this tremendous amount of debt, but now bond prices should start coming down, because the interest rate was lowered. Are we worried about inflation going back up? I’m more
49. Chris Casey 19:40
50. worried about inflation being sticky for a while here. And it’s really once we maybe get into next year, when I think the Fed really has the gloves off, that’s when they really start embracing kind of a QE type mentality. That’s what I’m really concerned about. That’s when I’m worried about inflation. And, you know, and today, by the way, I should digress from it and just remind people. So especially with President or presidential candidate Harris out there talking about greedy corporations or what have you, I don’t know why she thinks corporations got greedy in the last couple of years, right there, as far as I know, everybody, everybody, and every corporation is greedy to some extent, right? So it’s, it’s about making fun of me, isn’t it? Yeah, right. And before we start talking about how the Federal Reserve, you know, did great job bringing inflation down. We should also remember they’re the ones that brought it up. So it’s, let’s, let’s keep that in mind with their actions here. I think they’re panicked. So they they clearly have started a rate cutting cycle. And the reason I think they’re panic is for a couple reasons. I think the last couple months, the price action they’ve seen in financial markets, the stock market, with Japan, I think it’s really spooked them. I think they’re extremely concerned about the debt situation, because reality is, they never caught 50 basis points, unless we’re in kind of a so called crisis. And I think that’s the way they’re viewing things right now. They’re, they’re they’re scared.
52. Andrew Brill 20:54
53. Is cryptocurrency something that you know? I know that Donald Trump was, you know, pro cryptocurrency and but Harris seems to be softening too. Is, is with either candidate, you think cryptocurrency is going to become or continue to grow higher?
55. Chris Casey 21:10
56. I do primarily because what you’re referring to is more the regulatory framework, right? They may be a little more open or less open, depending on the candidate to really having a a concrete framework for cryptocurrencies? Yeah, I do think that from that aspect, it’s each of them acknowledging a reality. It’s not one being pro Bitcoin versus this is a multi trillion dollar, you know, asset class, and this is, it’s been around for a long time now, you know, over a dozen years. So this is a real asset class. It’s about time you had some real good regulatory frameworks around it. But on top of that, and this is, I think, the biggest thing, if anyone’s gonna take one thing away from this podcast, really, any podcast I may talk about, it’s, I think it always comes down to a solvency crisis for the US, and I think that’s gonna be the biggest issue over the next 10 years, regardless as to who’s in office is a solvency crisis. I think it’s bigger than any kind of economic downturn or recession we have, no matter how severe. I think it’s bigger than any kind of financial downturn in the equity of bond markets. I think a solvency crisis is because it permeates everything. Is the biggest issue facing any administration and any investor for the next 10 years. That’s really something we got to be prepared. For. And like we alluded to early on, I think the best way to do that is through inflation hedges, because that’s really the only way out of the crisis. How do
58. Andrew Brill 22:31
59. we play that long term, the AI trend?
61. Chris Casey 22:35
62. Well, it’s kind of a pick and shovels mentality, which I think makes a lot of sense, right? You could buy, go out and buy a video right now, I don’t it’s, you know, by any measure, it’s fairly expensive. You could do that. But I think maybe a better play is looking at some of the ancillary effects that you’re going to see from AI. And one of those big ones is energy consumption, right? It’s, if you look at the projections of AI’s impact on the US electricity grid as far as its consumption, it could be, right now, it’s probably one to 2% but some people are predicting that could be up by tenfold, could be up by 20 fold, by say, 2030 I mean, there’s predictions out there like that. So that is another way to play it. And there’s other factors that introduce energy, but I think energy is a great kind of stealth AI plays, way I’d look at
64. Andrew Brill 23:22
65. it. It’s funny. We put out a community poll on our YouTube page and asked where people are most bullish. And energy took the cake by 37% crypto came in at 23% tech came came in at 24% so the tech is on the AI side and energy, obviously, because we’re using AI, is, is a concern. How are we going to meet the demand for energy for AI? I know that uranium and nuclear, like many, many reactors, have been talked about. I don’t know if you’ve, you’ve researched that at all. But how do we how does the country combat this energy need right now? Well,
67. Chris Casey 24:07
68. it’s a real issue, and if we had a free market in this industry, it would not be an issue, right? Because that’s what markets do. That’s what industries do. They’re able to adjust very quickly to do developments, etc. But the reality is, is that energy production is a very controversial area, obviously in this country, for a couple different reasons. And by the way, AI is not the only, the only reason you would expect electricity consumption to go up. Obviously, there’s electric vehicles. That trend will continue, maybe not with the rates that people initially predicted, but that certainly will continue. There’s you mentioned cryptocurrencies earlier. Cryptocurrency mining already takes up around 2% of your US electricity consumption. So that’s These may seem like small numbers right now, but the margin, they have a very, very big impact. And then combining all these other ones together, are data centers. Right? Data centers eat up about the same amount of energy. Okay? And if anything you know there’s you could look at that and say, with AI, the data center creation and usage will go up on a similar scale, so normally would not be an issue. However, let’s look at the reality of where things sit today. And I think it’s very telling that we had the Three Mile Island deal recently with Microsoft, right? That’s the first time you’ve had a decommissioned nuclear power station in New Works to be recommissioned. And it’s the first time you had a whole plant for nuclear power with one customer. Now, you could say that all plants have one customer and they but these, reality is they’re, they’re middleman, right? They sell it to a bunch of households, what have you. No, this is for Microsoft and their data centers. This is primarily for their usage. So that’s very telling. Right now, nuclear energy accounts for less than 20% of US production. That could increase, but that’s obviously a very long term trend. But the short way to do it and the most environmentally friendly way to expand energy production is through natural gas. And each candidate, as we’ve seen, has very different views on that. But I think the reality will dictate policy more so than the candidate dictating policy going forward.
70. Andrew Brill 26:14
71. It’s a big you’re absolutely right. It’s a big discussion on both sides. You know, one wants to drill like crazy, and one is not, although softening on that view because of the energy demand, I think your point is very, very well taken, is that the demand is going to dictate policy, for sure, in that respect. And I grew up not far from Three Mile Island, and maybe that explains some of my quirks. But it’s interesting that nuclear power, which was like, you said, decommit, we decommissioned that, that power plant all of a sudden. Now it’s like, okay, you know what? How can we do this? And the question is, how can we do it a lot safer? And I think that might be another area of investing is, you know, places and ways to keep this, these particular nuclear power plants, safe, probably,
73. James Connor 27:03
74. I mean, there’s, there’s
76. Chris Casey 27:04
77. definitely like, for instance, there’s consulting firms on, you know, fire protection, all that kind of stuff related to big plants like that. The good news is that nuclear power United States is inherently safe relative to, for instance, Russia. And it all has to do with the feedstock, where they’re using different isotopes of uranium, and so the So, the very fact is, is that technical about it, but the modulator, the thing that regulates the actual nuclear reaction, is actually the same as the coolant water. So that’s not true in Russia, where they use, you know, maybe graphite versus, you know, water for a modulator. So it’s, it’s inherently safer, but, but I think this is a long term trend. We’re probably not going to see new plants online for years. There’s a new one, I believe it’s been approved for licensing in Georgia, but that probably doesn’t take effect till next decade. So it’s a very long term trend. That’s why now, that’s why natural gas, which already accounts for over 40% US energy production, should continue and should grow as far as its share. Jeremy
79. James Connor 28:10
80. Schwartz of WisdomTree joined me on wealthy on this week. He shared his thoughts on the impact of the latest China’s stimulus efforts and how markets have responded. He also discussed US economic growth the Fed’s policy changes and recent rate cuts. Jeremy gave us an outlook for 2025 sharing his thoughts on where economic growth and potential geopolitical risks could lead us over the next year. I want to start with the big picture and get your thoughts on what’s happening in the US and China. And I want to start with China, given it’s the second largest economy in the world, representing 20% of global GDP. Recently, the People’s Bank of China cut interest rates and also implemented a massive stimulus package. The CSI 300 index, the Shanghai index, are both up 20% since this news came out. What’s your take on these policy changes, and what does it mean for North American investors?
82. Jeremy Schwartz 29:07
83. This is definitely a bit of a welcome relief. It’s been one of the tougher places to be an investor for the last three to four years. You know, we’ve been seeing it in our business. We do a lot, and even the whole ETF industry has seen flows to emerging markets. Ex China, the number one leading emerging market inflow has been a broad ETF that goes ex China. You’ve seen countries. India has been a big beneficiary. Japan’s been a big beneficiary, as people have gone away from China and, know, a lot of it was self inflicted, like they did their own clamp down on the big tech companies. They’re talking about more regulations, and it looked like there was aggressive policy stances to really beat down a lot of these big tech companies. So some of it was self inflicted, but then they had sort of subdued economic growth. They’ve been exporting deflation around the world because they’ve been in a you. Really, you could say disappointing economy, and it seems like they got towards sort of the maximum amount of pain they were willing to accept, and they’re now trying to stimulate. And so they’re doing all sorts of measures. And people are saying, like, is this the, you know, Mario Draghi moment, that they’re going to do whatever it takes to to really get the economy going? And I think that will remain to be seen how much of an impact on the economy they’re doing. You know, they have one of the big overhangs is the housing market, and that’s been, you know, they have a lot more of their wealth in housing that’s been in a very painful slowdown, and people sort of overexposed there now. So now they’re trying to get people into equities, that’s not a big part of what they do, but the sentiment has turned around pretty dramatically. And you think about what’s happening around the world with all the geopolitical tension, China’s front and center for a lot of these conversations. And so yes, there’s been a huge short term pop. There’s definitely the trading community is going after it. The question is, will it lead to a meaningful rebound in flows? You know, there’s been about in the US, ETF, is it 200,000,000,002 15 billion of flows to broad equities this year? China’s it outflows, one of the few places that are in outflows. And, you know, so is this going to get people to turn you know, their opinion is going to be a big one. You saw a little bit last week, and how, how long lasting is it? Could just be this short term tactical burst, or will it lead to a sustainable growth our team is probably a little skeptical on the economic side with whether it really will lead to a major economic growth turnaround, but it’s certainly leading to short term sentiment rebound at the moment,
85. James Connor 31:46
86. why is your team skeptical?
88. Jeremy Schwartz 31:49
89. Well, it’s a matter of how much capacity do they have to stimulate, you know? So they’re taking measure after measure. They’re lowering some of the interest rates. They’re trying to lower the mortgages. The question is the capacity to do a major, aggressive program. That’s, you know, so our real economist team has, has, has not thought it would be overly meaningful on the pure growth side, but that, you know, it’s going to take time to to tease that out. Short term, the markets move way in anticipation what happens in the economy. You know, the the economy is like the slow moving ship that doesn’t turn on a dime. It’s not a speedboat, you know, it’s a tanker that takes a lot, you know, longer, to move. But the markets will will front run all that, and they’re just getting excited that the tone has changed, and that may be enough for some of the market movements to keep going.
91. James Connor 32:39
92. So one of the reasons why the markets ripped also was because the People’s Bank of China also pledged $113 billion in equity market support. They also said that they’re considering a stock market stability fund. And this is very reminiscent to what we saw in the US during the great financial crisis of oh 809, what are your thoughts on these programs? And maybe to your point that you mentioned earlier, do you think this is just short term in nature and it’s not going to have any lasting effects? Yeah,
94. Jeremy Schwartz 33:08
95. they’re definitely trying to get their own local investors to buy. I mean, they had been one of the big sources of demand, was the global investing community. And so the question is that, to me, that’s also the big question. But certainly they’re trying to get the local investors more involved. They’ve got their own pensions that they can put to work. What they call the national team is coming in to play. And so, you know, the 100 billions sounds like a lot, but for the size of the markets, it’s not that much. And so it really will come down to the full global investing communities. What will give them the confidence, you know? And so this geopolitical overhang people talk about, you know, we see with Russia, Ukraine, you see, what’s going on the Middle East? Is there going to be another theater in Asia, with Taiwan? Is a very big open question, and that that not necessarily a this year event, but people talk about 2627 gearing up for that. So there’s all. There’s when I talk about the geopolitical overhang. This is one of the big topics that scares a lot of people about, how do you invest in Asia with what they have said about they’re going to take Taiwan at some point. And, you know, so I and what we saw, what happened with Russia, where, you know, you were a US investor, and you held Russian assets, and we basically made those assets were zero. You know, it wasn’t really helping the US. In that case, we were hurting us investors. It actually helped Russia. But so you sort of, what about the US politicians, reaction to these different events. And you know, that’s my worry about some of the the long term, you know, nature in China.
97. James Connor 34:47
98. And so you threw out the years 2026 27 in terms of China invading Taiwan.
100. Jeremy Schwartz 34:53
101. Well, that’s what they talk about. You know, I don’t it’s all speculation. But, you know, they say they talk about. Being prepared to do something by then, and nobody knows what it actually would look like. Do they actually do physical invasions? Is it more of these blockades? Is it in substance for you know, what are they actually going to do? But you know, you we, we were, there was not a lot of these major conflicts. For such a long time, we’ve now had these major regional conflicts with what’s going on Europe and the Middle East and China’s is certainly talks about Taiwan is a big part of the One China policy. And the question is, what, where, where is it going to go? These are very open questions that you don’t have answers to, but it’s definitely a source of long term risk. And, you know, you got to be remindful of what happened just with Russia recently, and what you were doing as an investor into Russian securities. So
103. James Connor 35:48
104. let’s look at the US economy. Now. It’s growing somewhere between two to 3% unemployment is ticking higher. It’s at 4.2% during the last reading. What’s your take on the US economy? Do you have any concerns?
106. Jeremy Schwartz 36:01
107. Well, we’re very happy finally. Finally, the Fed is taking our advice. I mean, we’ve been calling out the Fed that they’re so slow and deliberate in getting towards what we call they need to get to a neutral policy stance. And, you know, it seems like on track for being that place by next July. You know, now we if our senior comes running the Fed, he would do it basically instantly. You know, he thinks they just move so slow and deliberate that, you know, they’re basically at their employment mandate when they say their long term view of unemployment should be 4.2 4.3% that’s basically exactly where it is. Inflation has come down 80 to 90% of their goal. And if you use some real time data on housing, you’d say inflation is actually well below their target. We have when we put in, instead of the official BLS number for shelter, we plug in, you know, an average of what’s happening in Zillow an apartment list, instead of a 5% shelter inflation, you get something low ones that would bring headline inflation to 1.2 correlation to 1.6 you know? So all of us, inflation is being driven by the shelter number at least the year over year changes. Obviously, the cumulative price increases that people are not happy about. But those prices aren’t going back down, you know, you got to think about the year over year change. And so, you know, our views, the Fed should be at neutral, neutral. You know, their official dot plots have neutrals below three. We think that’s going to keep coming up, and that’ll be closer to three and a half. And that’s basically one cut at each of the next few meetings until they get towards, you know, the June meeting. So you have six more meetings to get there. And that’s that’s largely, again, we think they should get there quicker, but they’re on path to do it. They might be able to avoid a recession. You know, you’re not zero probability recession, but they’re, they’re cutting rates, and we were happy they cut 50 at the first cut. And
109. James Connor 37:54
110. I guess one of the reasons why they’re moving so slow and deliberate is because they don’t want to make another policy, or like they did back in 2122 and they said inflation was transitory. And then by March of 22 they realized, Oh, my God, we got a serious problem here. Well,
112. Jeremy Schwartz 38:09
113. they should, they should have. We were calling them out at that time too, saying they should have been hiking much faster that. You know that one of the big mistakes is they moved away from looking at the money supply. We’ve been talking about, why did the Fed, you know, all of history, the money supply was viewed as the key driver of inflation. They started looking at the minutia and like monthly changes, and say, Hey, we’ve seen no relationship. But when you have an explosion of money 40% higher, how would that not lead to inflation? So we, we think they were very overly loose, and you know, that started declining. You never seen the money supply decline going back to the Great Depression, that’s a sign that they were too restrictive, and to why we want them to move quickly. That’s starting to grow. Actually, the we got more money supply data last week, and it’s starting to grow at a 5% annualized rate, the 5% annualized rate is exactly what we want. Now it’s just, you know that it’s not 5% of the full year, just annualizing the latest monthly change, but you’d like it to be growing at that help more healthy level and but and bringing down rates is one of the things that will stimulate that. When
115. James Connor 39:19
116. you said the money supply exploded by 40% was that over one year or a few years? Uh,
118. Jeremy Schwartz 39:25
119. you know, it was a, it was basically two years from the from the beginning of the pandemic to a few years later. And so it did have this huge pop, and then it continued to grow. But it was two to three year move that got to that 40% the largest single year change. It was a 26% annual change in the m2 money supply, largest in history, right? So that was, that is what really, you know, led to that big inflationary impulse all people talk about the. Financial crisis when the Fed was buying all these bonds. And he said, Well, is that QE similar? Well, that money didn’t get out into the real economy stated bank balance sheets. This time, it actually did get to the real economy. You had all these government efforts to give checks cash to people’s check accounts, and then the Fed financed it off. So like you know that people say, Hey, we should give Powell Nobel Prize for landing the plane like well, he created the problem. You know what? You shouldn’t give Him praise for fixing the problem he created. And so you didn’t have to have as much inflation as we had. If they would have been raising rates sooner. Interest rates have been higher. Wouldn’t borrowed as much. But, you know it they’re now, we’re happy they’re starting to cut rates, because we do, we do see that appropriate at the moment
121. James Connor 40:47
122. inflation was transitory. There was no need to. Well,
124. Jeremy Schwartz 40:52
125. they, they definitely helped foster what we had. Now,
127. James Connor 40:56
128. you also made mention of the fact that the money supply contracted for the first time since the Great Depression?
130. Jeremy Schwartz 41:02
131. Yeah. I mean, you really want, usually should grow that. There’s a simple formula that I learned in in school. It was, real growth in the economy is equal, well, real growth plus inflation is approximate equal to the money supply. There’s this velocity of money term. But let’s just say the velocity of money is is constant there. So it real growth, plus inflation gives you money supply. And so if you want five if you want two to 3% real growth, two 3% inflation, that gets you 5% money supply growth when, when it’s contracting, that’s a negative sign.
133. James Connor 41:37
134. And when we look at a few months going into 2025 I can’t believe it’s only a few months away. But what are your thoughts? How do you think things are looking when we look in q1 or q2 of 25 well, we’ll
136. Jeremy Schwartz 41:49
137. have the election in the US, and that, you know, question will be, what are the economic policies we’re getting? Nobody’s focused on the debt and deficits. You know, it seems to be both parties are, are not really focused on the deficit. So again, you really want to chase the long bond at 375 here. I think that’s one of the things again, say we think that should be over 4% you know, if you got a democratic sweep, you know, the taxes are going up. That’s a challenge like so divided. And you know, if you get the Senate to stay Republican, which it looks like it very well, could, then you have less to worry about from a tax perspective. But if taxes are going up in a meaningful way, because you get a democratic sweep, that’s probably the most negative event for the markets. But that’s what one of the things we’ll be watch as we go into the
139. James Connor 42:41
140. end of the year. So year. Um, sorry. Why do you say it’s going to be negative for the markets? Well, tax
142. Jeremy Schwartz 42:45
143. rates going up. You’re gonna have corporate taxes going up, individual taxes going up. But markets don’t love higher taxes.
145. James Connor 42:52
146. Geo Chen, author the fidenza macro newsletter, was optimistic about the current global economic and market climate geo thinks an even larger bull market is ahead, and explains why he’s feeling confident about growth. He also discussed China’s ongoing real estate crisis and the government’s recently announced economic stimulus efforts. Lastly, he dove into the oil market, exploring how Saudi Arabia’s recent actions could impact prices.
148. Andrew Brill 43:20
149. How are we saving the economy? And what’s your view on the present economy?
151. Geo Chen 43:24
152. Yeah, you know, on the present economy, I’m feeling pretty positive. I think that this is one of the most bullish backdrops that we’ve seen in a while. So you know, what we have right now is a fed that has pledged to cut as much as needed to support employment, that in itself, is very bullish, and we’re not even in a recession. So whenever the Fed historically, when the Fed has cut in the absence of a recession, that has been very bullish for equities and you know, we’re not really too worried about inflation. As you know, the inflation prints have been coming in pretty, pretty low, pretty tame. So that’s not really a concern for a fed. It’s not a roadblock for them to cut as deep as they want. Now, on the other side of the world, we have China, which has finally woken up, and they’ve realized that the only way to to support their economy, to get the economy out of this, you know, huge balance sheet, recession, wealth recession, is really To stimulate forcefully. And, you know, they’ve been stimulating, and, you know, little bits and pieces in here and and trying to, you know, be like, fiscally, you know, responsible. But that hasn’t really done the trick, because the real estate bubble that was building for decades. Is has popped, and there’s, you know, like, trillions and tons of trillions of real estate and really bad loans on bank balance sheets. You know, the average Chinese consumer has most of his his wealth in real estate, and it’s illiquid, and it’s down a lot. So there’s going to, it’s going to require hundreds of billions, trillions of dollars of stimulus to to really get the Chinese economy going. So I think, what the what they announced last week, a combination of both very forceful monetary and fiscal measures, amounting to over 3% of GDP. I think that’s a start. Now, if they just do that and nothing else, then that would end in disappointment one or two quarters from now, but the tone from the announcements last week suggested that more it’s coming, and that, you know, they see an urgency in, you know, an urgent need to support the economy. So me, along with, you know, most other economists and retail and, I mean, everyone’s piling into Chinese equities right now. You know, it’s, I think it’s for good reason. I think the economy is likely to rebound from here, and it’s just a matter of how much and how long this rally is going to last.
154. Andrew Brill 46:30
155. They’re facing almost the opposite problem of what we’re having here in the United States. Their real estate values are plummeting, while the real estate values here in the states are just ridiculously high and in essence, priced many, many people out of the market. Is it a population issue? Are there fewer people looking to purchase homes? So the prices are plummeting in China?
157. Geo Chen 46:53
158. Yeah, it’s, um, it’s an issue of oversupply. You know what China did was they they provided liquidity to banks, and they provided subsidies to banks, and told the banks and developers to just build, build, build. And the premise was that we have all these people in the countryside who are going to move to the cities, and that has happened, most of the people who are ever going to move from the countryside to the city already have. So you know, developers just kept building, and at the end of the day, there just were not enough people to buy and live in those apartments. So you know, everything came crashing down a couple years ago, and it’s reverberated through the banks, which have all these loans where the value of the asset backing those loans is no longer you know what it was worth at the beginning, they’ve loaned to developers. Developers have a bunch of unsold homes, some of them are not even, you know, completed yet. So there are big holes everywhere in the balance sheets of of the real estate developers, in the balance sheets of banks and in the balance sheets of of the average consumer. So, you know, similar to long, lasting bubbles, like, for example, the this is compared to the bubble in Japan, which had a similar trajectory, you know, multi decade bubble in real estate, which eventually crashed. This is the depth and magnitude of this bubble is quite large, and therefore it’s going to take a lot of capital and and also time to to take the economy out of it. I want
160. Andrew Brill 48:55
161. to ask you about commodities also, because they’ve been suppressed for quite some time, and oil is now down right around 70 bucks, $71 a barrel, which is, I guess, normal but but also kind of low, considering what’s going on in the Middle East. What’s going on with Russia and Ukraine, which is now in has taken on a ridiculous length of time. But with the uneasiness in the Middle East, do you think oil would go higher? But commodities have been suppressed, and now with the Chinese economy that they’re trying to pump that up, you would think that commodities would be a good place to park some money at this point. Yeah, yeah. There.
163. Geo Chen 49:37
164. There’s a bit of a you know, there are conflicting narratives going on in oil right now. So as you mentioned, China stimulus should be bullish for for oil and and conflict in the Middle East normally should be bullish for oil as well. Although you know when. And when Israel did their ground invasion of Gaza, that didn’t, you know, any, any rallies in oil end up getting sold. So I think that the market is now kind of, you know, feeling or trading more immune to what’s going on in the conflict between Israel and its neighbors. So on the bearish side, the main, the main narrative, is that Saudis want to increase supply. They’re tired of their OPEC partners constantly cheating on them. You know, the Saudi Saudis have been trying to manage their OPEC partners to cut production. And what’s happened is that the Saudis end up cutting, but their partners keep producing and cheating above the quotas. So now I think the Saudis are getting pissed off and and they’re gonna, you know, teach a lesson to their partners and, and they’re just gonna go ahead and, you know, and and pump as much as they want. So, you know, previously, when the Saudis have done this, this it resulted in in a pretty sharp drop in oil because the market was, was afraid of a price war. So it’s a, it’s quite a powerful bearish narrative, which is, which is countering the bullish narrative out of China. And I don’t know at the moment which one is going to prevail. I was, I was long oil and just, you know, exited my position. And I do think that positioning is, is quite short, quite bearish. So I think at some point, you know, a rally will materialize just based on charter stimulus and positioning alone. But it, you know, it might take some time.
166. James Connor 51:53
167. Thank you for watching this week’s recap. If you’re feeling overwhelmed with what’s happening in the financial markets and you would like to have a discussion with a financial advisor, go to our website, wealthion.com/free for free, no obligation. Consultation. After providing some basic information, wealthion will connect you with a vetted advisor who will be happy to have a discussion with you. You can find out more information@wealthion.com slash free. If you want to check out more content like this, check out this video now once again, thank you for spending time with us today, and I look forward to seeing you again soon.