February 12, 2025 • 50 mins
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Inflation expectations and their impacts on the economy take center stage in this episode, as we explore the challenges facing the Federal Reserve and the resulting market volatility. We discuss the interconnected roles of tariffs, immigration, and political influences on inflation, and offer strategies for investors to navigate these turbulent waters.
• Discussion on the latest inflation report and its implications
• Analysis of the Fed’s direction and market reactions
• Exploration of inflation expectations and consumer behavior
• Examination of tariffs and their impact on pricing
• Insight into immigration's role in the labor market and inflation
• Consideration of Fed's political influences on monetary policies
• Recommendations for adjusting investment strategies in uncertain times
• Call for listeners to engage and share topics for future discussions
Straight Talk for All - Nonsense for None
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Disclaimer - These podcasts are not intended as investment advice. Individuals please consult your own investment, tax and legal advisors. They provide these insights for educational purposes only.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Hello everybody and welcome to Skeptic's Guide to
Investing.
This is Clem Miller, and I'mhere with Steve Davenport, and
today we are going to talk aboutthe latest inflation report
that came out today I think thisis the 12th of February, and so
(00:25):
we're going to talk about theinflation rate, we're going to
talk about impacts on potentialinterest rates, we're going to
talk about how this might playout, going forward with things
like tariffs, and we'll seewhere the discussion goes, steve
, so why don't you start?
Speaker 2 (00:45):
Well, clem, this is just another example of what
I'll call Fed lack of directionhere.
It's not been presented to usthat the next move by the Fed
might be up.
In fact, I think they've beenindicating how supportive they
(01:09):
want to be and how engaged theyare in reading the data, but now
the data is pointing the otherway, right.
So we've had a reduction insome of the wages and services
and now we're starting to see ashortage of some of those
services because there'squestions about immigration.
Shortage of some of thoseservices because there's
questions about immigration.
And we're also seeing goodseggs in particular as an example
(01:30):
but oil and others that aregoing up.
So if the price of goods isgoing up and the services are
going up, that's a badcombination for a Fed that wants
to lower rates to help theeconomy.
And if we look at what'shappening with the new
government, the new governmentis saying we're going to do
(01:52):
things that might also beinflationary, and so I think
that the Fed is in a very hardplace here and it's been kind of
a result of their own actions.
They were quick to do cuts thissummer and twice in September,
(02:15):
and they said they had to dothem.
They needed to lower the rates.
And guess what?
The lowering of those rates 1%.
What did it lead to?
It led to higher costs for someof the goods.
I don't think you can expect tolower rates 1% and say I'm
(02:36):
shocked.
There's been a reaction in themarketplace.
You know the way this works.
When you open up more funds andyou increase the availability
of those funds, therefore peopleare going to borrow and do more
.
So we were constricted when themortgage rates were up to seven
(03:00):
, seven and a half, and nowthey're down to six and a half,
six and three quarters Still notwhat I would say is really good
for housing.
So there's people screaming onthe real estate side that we
need to lower rates for housing,but the rest of the economy is
still showing more inflationthan the Fed wants.
(03:22):
So here we are with a Fed inneutral.
But I think the bigger questionthat Mohamed El-Erian mentions
today on Bloomberg is I don'tthink they have a strategy.
And if they don't have astrategy, then, just like every
other influence on the market,it's going to make volatility
(03:44):
greater.
And so if we have volatility ingovernment in terms of which
programs are being cut, whichpeople are being affected, which
areas of the economy are goingto be hurt, and then we take the
Fed in a neutral position andnot really in a supportive
position.
We're setting ourselves up formore volatility and as a seller
(04:08):
of options, I tend to welcomethis, but as an investor long
term in equities, I tend to saythings are going to get
interesting and I think thatwhat we need to do is realize
the humanity of the Fed.
(04:31):
They are a group of people whoare trying to do what they think
in their region is going tohelp their particular part of
the Fed infrastructure and, insome ways, a group of 10 people.
Whether we put them on the Fedboard or whether we put them on
the board of IBM, they're goingto be influenced by their
(04:52):
experiences and their ideas andnot necessarily by the economic
models that their PhD studentscome up with students come up
with.
So my question you know myfeeling is this is the worst of
times.
If you wanted a Fed, that wasgoing to be wishy-washy and not
really clear, and that's what wehave.
(05:15):
What do you think, clem?
Speaker 1 (05:20):
So I think that what we're seeing now in terms of an
increase in inflation is a kindof a partial realization so far
of higher inflation expectations.
So if you look at, you know,last week there was a report you
know the typical report comingout of the, you know, university
(05:43):
of Michigan ConsumerExpectations Survey, part of
which was about inflation andthere was an expectation of
rising inflation.
And that was because of, youknow, you mentioned, steve,
immigration, you know the issueof deportations of people who
(06:03):
are working and you know,working in the US economy,
especially in the agriculturesector, the construction sector,
the medical sector, and theissue of tariffs.
There are a lot of folks thatare concerned about the impact
of tariffs on prices in the USand thus overall inflation.
(06:30):
And I think the third issue,not insignificant, is the effect
of the bird flu in terms of,you know, obviously in terms of
eggs, but you know, even beyondeggs, you know what if bird flu
expands beyond eggs into otherparts of the food system?
(06:54):
So I think there are someconcerns about that as well.
Speaker 2 (06:58):
So yeah, I think I mean tariffs have been put on
hold in Canada and Mexico for amonth.
Speaker 1 (07:08):
So but?
But they're back on 25 percentwith regards to steel and and
aluminum coming from from Canadaand Mexico.
Speaker 2 (07:16):
Not not that, that's everything, but how much is that
of the overall imports?
Speaker 1 (07:21):
I mean, I got to think that's a small, but it
also is stealing aluminum fromaround the world.
So I think you know, I thinkthat you know tariffs is a whole
issue, right, but, but you know, part of the problem about
tariffs again is the uncertaintyabout it, and I think this
(07:44):
factors into the inflationexpectations.
Basically, what I want toemphasize, steve, on this
episode is the fact that it'sall about inflation expectations
and not really about the lastreport.
You can talk forever about whattoday's report was or the
report before that, but it's aquestion of what are people's
(08:30):
inflation expectations and abouthow they might impact, uh,
their, their spending, uh, theprices, uh of their products
that they consume in their ownconsumer baskets, uh, whether
they can afford that, whetheryou know the economy, that is,
the real economy, um, you knowjobs and what, what not might be
impacted and whatnot might beimpacted.
So I think people are concernedabout that, right, the
deportations, which, fortunately, have been less than what were
(08:54):
promised, but still I thinkthere are concerns among people
that deportations will impactthose sectors that have been
buoyed or sustained by bymigrants.
So I think it's all about abouthigh inflation expectations and
(09:17):
that's why we're seeing allthis volatility in markets, in
markets, uh and um, you know,especially in the last week or
so, uh, you've seen, you know, awhole bunch of ups and downs,
mainly downs, uh, but you know,it hasn't been, you know, we, we
(09:39):
, I think it looks like we'veseen kind of a peak of this kind
of positive movement that wesaw through most of, through a
good chunk of January and earlyFebruary, or at least stability,
greater stability, in Januaryand early February.
Now we're seeing, you know, adifferent picture of volatility.
(10:01):
Now, how long would this willlast?
It's unclear.
I think that you would have tosee, you know, an abandonment of
the two things that thatpresident trump holds dear to
his heart, which are tariffs, uh, and migration.
And I don't think we're goingto see him back off from those,
(10:28):
I really don't.
And so, and I don't, I thinkconsumers, uh, are concerned
that he won't back up, back offthose as well, uh, I know that
everybody says, well, trumplooks at what the s&p 500 does
and he makes decisions based onthat.
And that might be, you know,true, to a degree, but I don't
(10:51):
think, I don't think he is goingto let the S&P 500 affect what
he's doing with migrants andwith tariffs.
Just just don't see that.
Speaker 2 (11:03):
And with tariffs.
Just don't see that.
Yeah, I get back to the Fedbeing in a bad position because
they focus on the wrong thingsand I think when they think
about stability, they think ofstability in the markets and
they think that's their thirdmandate, right, they want lower
rates to help the economy andinflation.
(11:27):
They want to have a low joblessnumber, and I think the 4%
they're at now they look at asachieving their goal.
But their third unstatedmandate is market stability, and
in my mind, they're focused onthe 50% of the market who has
(11:47):
investments, and I think thatthe 50% who doesn't is the one
who's really getting hurt byinflation.
And so the Fed, instead offiguring out how do I address
the other part of the market, isstill focused on this quasi
third goal of market stability,and I think that, as a whole,
(12:10):
they don't have as muchinfluence and they don't have an
ability to really affect thatman on the street, and therefore
I think they're going to failbecause they're not in a
position to succeed, becausethey're not in a position to
succeed, because they're not ina position to even admit that
this mandate exists.
So I don't know how you addressa mandate when you're not even
(12:33):
really willing to say that youhave this?
I'm concerned about markets andI'm going to do what I'm doing
now just because I want tostabilize markets and I want
markets to improve.
We've had 220 plus years in arow.
I don't know how we get back tothe average return of 7%, 8%, 9%
(12:56):
, 10% without some negativereturns in markets and I'm not
sure the Fed is in a positionwhere they want to incur the
wrath of Trump because marketsgo down and he says well, lower
rates, so you fix it.
I think the Fed realizesthey've made mistakes.
(13:17):
They made mistakes going toolate against inflation in 2021.
I think they made mistakes ingoing a little too far.
I think they've tried to makethat adjustment, but I think,
unfortunately, they just havethis obsession with the investor
(13:38):
class versus all classes andthey can still protect the
investor class, but there's alot of people who are.
We have a country we justpassed 50% in private 401ks and
(14:01):
I think that's a great move.
I think we need to get thatnumber to 70% 80%, but it's
great to be at 50% and we'removing in the right direction in
terms of more peopleimplementing plans.
I do think that the Fed is along way off where they can say
what we do for the investorclass is really good for all
(14:23):
classes, because it's a greatmajority of the people.
I think right now they're in aposition where they have to
think about how do we do thingsto contract the inflation
problems without doing thingsthat are going to be
specifically beneficial to onegroup, the millionaires and
(14:44):
billionaires of America.
So it's a delicate conversation.
Powell must dance on the headof a pin in order to satisfy
both the existing administrationand all of the members of the
board, and I think the dance isgoing to get more difficult as
(15:05):
we start to talk about moredeficits and how do we pass the
tax extension.
The tax extension forindividuals will be the issue of
2025.
And if they get it done, itwill have to be done with a lot
of histrionics and varioustwisting and turning around how
(15:30):
they justify this as being goodfor everyone.
I think that, when it comesdown to it, it's beneficial to
most of that same investor classthat they're trying hard to
make sure they don't experiencelosses.
That, in my mind, makes it aconflicted discussion, because
(15:53):
there are people out there whocan't afford a home, can't
afford basic goods, goods, andtherefore I think that the Fed,
in keeping rates where they are,is in some ways stuck because
they don't know what's the pathforward, given the tariffs and
(16:13):
the proposals that Trump keepstalking about.
What is the path forward, clem?
What?
Speaker 1 (16:21):
should the.
Speaker 2 (16:21):
Fed do.
Speaker 1 (16:23):
Well, I don't.
What I want to do, steve, is Iwant to ask you two questions,
ok, ok, and then I'll answeryour question, right?
First, do you think that Trumpwill try to to fire Powell?
That's my first question.
(16:45):
Um, you know he's in recentweeks he's fired a lot of people
who are supposedly, uh, youknow, not able to be fired per
uh, per law.
So is he going to try to firePowell, uh?
And secondly, uh, is he goingto do things uh to?
(17:07):
Is he going to do things to?
Is he going to put politicalpeople at lower levels within
the Bureau of Labor Statistics?
Remember, they're gettinginvolved.
You know, doge is gettinginvolved in the labor department
, right?
Is he going to put politicalsin the Bureau of Labor
(17:30):
Statistics who will have amandate from Trump to manipulate
the inflation statistics?
Do you think that that's apossibility?
So you know, if you answerthose questions yeah, he could
fire Powell and the Fed could beworking with manipulated
(17:54):
statistics.
Then I've got an answer for youabout what the Fed should do
what the Fed should do Okay, Ido think Trump will fire Powell,
but not now.
Speaker 2 (18:07):
I think he will fire him when this comes to a head.
And I think it will come to ahead when we start getting into
all of the things that he wantsto achieve with the extension of
the tax cuts, all of the otherpromises of cutting tax on tips
and cutting other items that aregoing to have a budgetary
(18:31):
impact that he needs to come upwith savings from.
So I do think it's a little bitextreme to think that four or
five hires or 100 hires,ultimately the labor statistics
are based on baskets of goodsand if you change the basket,
then everybody knows about thechange and everybody then can
adjust.
(18:51):
If you say you're going tochange the basket and not tell
anybody, I'm not sure that'smore cynical than even I can
come up with.
So I thought I had an advantageover you, glenn, that I was more
cynical and you were moreidealistic, but maybe I am an
idealist in comparison.
(19:11):
But I think that we are in aperiod where we're going to see
extraordinary changes, some ofthem good, some of them bad, and
maybe a majority are bad.
I don't have I right now haveso many articles and things to
(19:49):
read regarding all of thesechanges that I think we all need
to take a step back and say howdo these areas of the economy
function the way they used tofunction?
And I think that Powell isdancing and I think that the
question is does he want todance?
And I'm not sure he.
You know, I could see Powellstepping down or giving up, and
then they're going to have toappoint someone new, and then
they're going to have to appointsomeone new and guess what?
It's very hard to pick anoutsider who's going to fit on
that Fed position, and I thinkit's going to be a hard time for
(20:20):
markets when that happens,because, as much as I might not
find the value in what the Fedis doing, there are quite a few
people in the market who arevery comfortable because they
tell them and they keep theminformed of what their direction
is and what their appetite isfor risk and for lower rates.
And I think that that kind ofcozy relationship with senior
(20:40):
Wall Street and the Fed and thatkind of moving back and forth
that occurs has created acomfort zone for people.
And as that zone gets broken upand I think that we are going
to get less comfortable.
And if we get less comfortableagain, my friend Mr Volatility
(21:01):
he rears his head and somepeople don't like that.
Some people don't like it whenwe have a Monday with deep sea
comes and blows up trilliondollars in value.
I don't like it either.
But I believe that we're in aneconomy now that is going to
have uncertainty because wedon't know and it's hard for us
(21:22):
to say we don't know.
Uncertainty because we don'tknow and it's hard for us to say
we don't know.
But that's where I think we arefor at least another three, six
, nine months.
I think we're either going topass some of these things and
they're going to become law andthen we can look at.
You know what?
Do we think?
The extension of the tax cutsis going to be Permanent, or
(21:44):
tell me is it going to bepermanent, or is it going to be
another 10 years?
What do you think?
Speaker 1 (21:49):
It's going to be temporary and certainly not 10
years, maybe three years, maybefive years.
It's going to be temporary inmy mind.
I think that lowers the costquite a bit.
That's the political solution,right.
But let me just come back towhat some of the things you said
, okay, so I tend to agree withyou, when things come to a head
(22:19):
with the Fed, that he will firePowell, I think.
In the meantime, I think you'reright that Powell will do
nothing until there's moreclarity on the policies coming
out of the Trump administration,and you know that's going to
frustrate Trump.
So there's, you know there'ssort of an interlock, right.
Trump is going to want Powellto do more to well, to lower
rates further, but you knowPowell can't do that without
(22:41):
more clarity on policy.
So there's kind of a connectionthere.
I think that Trump has probablyalready asked his labor
secretary to look into whetherthe statistics have been
(23:01):
manipulated in the past, havebeen manipulated in the past,
and he's probably looking for away to be able to say, hey,
inflation is actually a lotlower than what the BLS is
saying.
He may not tell the BLS tomanipulate, but he may create
uncertainty about the BLS.
(23:22):
And so I think because of that,the Federal Reserve, powell and
others are going to work ontheir own baskets.
They're going to work on theirown alternative inflation
measurement systems if theycan't trust the BLS trust, if
(23:46):
they can't trust the BLS.
The other thing I wanted tobring up about the Fed and about
rates in general is thisbizarre comment that Trump made
the other day about how, youknow, somehow sometimes Trump
uses words and expressions thatyou know cause angst and you
don't really know what he'stalking about, or you don't,
(24:06):
maybe he doesn't know what he'stalking about.
Our debt, our government debt,may not be as large, uh, as we,
(24:31):
as is commonly known, because offraud, and I really I mean, I
don't think anybody knows reallywhat he's talking about.
Um, but you know, it's possiblethat one thing is he might say
well, there's been a lot offraud, therefore we're not going
to pay X portion of our debt.
That would be a completedisaster, given that you know,
(24:55):
treasuries underlie a large partof the global financial system,
financial system.
So I was very concerned aboutthat comment.
And he's also made anothercomment kind of related to that.
I think he's made anothercomment that really it's not
(25:15):
short-term rates that he'sconcerned about, it's really
long-term yields that he'sconcerned about, and that led me
to think that maybe he's goingto do some things to suppress
long-term yields.
So these two things areconcerns to me, kind of red flag
(25:37):
statements that make me worried.
What about you, steve?
Speaker 2 (25:47):
me worried.
What about you, steve?
I think he's.
You know, I don't know.
I'm not going to pretend tostep into the mind of Trump or
Musk and be able to understandthe nuance of everything they
say, because we're obviouslytaking the perspective of how
does this affect my investments?
And some of these things areaffecting your investments and
(26:07):
some of them are really not andso what I think we need to do is
really try to focus on thethings that are and try to
eliminate noise.
I think that we have a regular,you know, I'd say we have a
(26:27):
regular allocation to noise of20 to 30% of what we hear in the
media is noise and not reallyinformation, and I think now
that percentage has gone up toclose to 40 or 50.
And I think we're notcomfortable with that new level
of noise.
And what I would say is look,there is a.
You know, the financial systemhas been and I hate to use this
(26:52):
word, but it seems like theright word bastardized by what
we did with Russia and the fundstransfer system and basically
freezing funds in the systemthat previously had gone through
all sorts of political changes,and now we all of a sudden say
your assets are frozen.
And so, because of that guesswhat happens?
(27:16):
People look for differentmethods of transferring funds
and using funds that are not onthe main system.
They look towards crypto, theylook towards other things and
other ways to transport money.
And I believe and this is justme, but I believe we're starting
to get to two systems the goodsystem for all the companies and
(27:41):
countries that we feel are good, and the axis of evil for all
of the countries and systemsthat we think are being done by
people who are evil.
And we take China, north Korea,venezuela, iran, russia and we
(28:02):
put them in the access of evil.
And we take the Euro and theEuro countries in England and
the United States, canada andMexico and we put them in the
group of good.
And we look for those peoplewho are in between the Brazils,
the Nigerias, the differentcountries that we think are
influenced by either the good orthe evil, and we try to figure
(28:24):
out who they are and whatthey're doing.
And I believe that this type ofseparation is not going to get
less, but it's going to becomegreater.
That's what bringing those jobshome is going to do.
It's going to create morestability for those companies,
it's going to be more expensive,it's going to be inflationary,
(28:45):
but ultimately we can't have thecheapest labor in the world and
expect to have the greateststability.
Those are two differentfunctions.
The utility function doesn'tallow you to get both.
If you want the cheapest, mostenvironmentally insensitive
location, indonesia is going tobe pretty hard to beat.
(29:08):
There could be others who comealong and say maybe it's better
in Africa, Maybe it's better in,you know.
But we're talking about lessenvironmental and less labor
rules and those are the choice.
We can continue to try topursue lowest common denominator
(29:28):
type of labor around the worldor we can pursue what we
consider to be a moreappropriate treatment of the
environment and the labor force.
And I think COVID saw thesecamps in China and these
campuses that were developedovernight to house people, so
they couldn't go home, so theyhad to work at the factories.
(29:50):
Keep them going.
And we've seen some extremethings in the Ukraine.
Is the US going to become partof the real estate group that
redevelops Gaza?
To become part of the realestate group that redevelops
Gaza?
Is the US going to go intomilitary control of the mineral
sources in the Ukraine?
I don't think that's reallywhere our bailiwick of taking AI
(30:17):
technology to the next leveland we're taking control of
assets in other countries to tryto make a profit.
It doesn't feel like that's areasonable path to go down, but
we're talking about going downsome pretty strange paths.
So in my mind, clem, I thinkwe're in a very volatile period.
(30:40):
We're in a very volatile periodand, in my mind, what the Fed's
doing and their uncertaintyabout how to proceed is just
indicative of the time we're inand we're going to have to get
comfortable with our fundamentalvalues.
And I know, eventually you'regoing to buy some Bitcoin and
(31:01):
you're going to feel betterabout yourself because you have
the fear of missing out, and Idon't want you to miss out
either.
I want you to be successful,klum.
I want you to be comfortableand successful and have all the
assets that only have a positivetrajectory, but I'm not sure I
(31:22):
can do that for you with cryptonow.
Maybe, crypto in the future,when it becomes part of the US
Treasury?
Maybe that's when we all throwin the towel and we admit that
we were wrong and that there isvalue in something just because
it's secure or just because it'scontrolled or limited supply.
(31:43):
What do you think?
Speaker 1 (31:46):
ED HARRISON About what you covered a lot of
territory, michael KRIGSMAN, arewe going?
Speaker 2 (31:51):
to become a global surfer of different resources
and trying to stick our hand invarious things in the Ukraine
and Gaza and Taiwan, or are wegoing to have more of a?
We're bringing our labor backto the United States.
We're bringing back to theUnited States.
Onshoring is very much anon-engagement with the world,
(32:16):
like we did before World War I.
Offshoring and becominginvolved in mineral rights in
Ukraine and real estate rightson the Gaza Riviera is very much
of an engaged US out beyond itsnormal reach right when are we
(32:37):
going is a frenetic uh move by a, uh by a president and his
administration, which really hasno ability to prioritize what
(33:00):
they want to do.
Speaker 1 (33:02):
There are so many ideas that are floating around,
uh in you know trump's head andamong his staff that it's just,
it's just overwhelming.
You know, people you know aretalking about how people are
talking about how you know it'sflood the zone is the expression
(33:25):
right, but honestly, I don'tthink.
I don't think this really is.
You know, flood the zoneimplies that there's a purpose,
uh, to having so many uhpolicies that are floating
around.
Maybe it's to obscure some ofthe more negative things or or
controversial things that mightbe happening.
(33:46):
Uh, I don't think that.
I don't think flood the zone isthe appropriate term.
I just think that there's a lotof uh frenetic activity and it
reflects uh, you, it reflects alack of understanding of many
things, a lack of prioritizationof many things.
(34:11):
It's basically, as they say, youknow, throwing crap at the wall
right and seeing what sticks.
I think that's what it's allabout.
It's not flooding the zone,it's not creating, you know, I
used to think it was creatingpurposeful distractions, but
there's so much of this stuffthat's going on, that it's like
(34:34):
gaza.
Gaza riviera is a concept thatis so crazy in my mind, uh, that
it's not a flood, the zone, itis a throw crap at the wall and
see what sticks idea from a guy,from a guy who's who looks at
the world at from a real estatedevelopers.
(34:55):
You know through the lens of areal estate developer, that's
what he's.
You know that's what he's doing.
It's throwing crap at the walland seeing what sticks.
Speaker 2 (35:05):
I agree.
I don't see.
I don't see a permanency to anyof these ideas.
I don't see a long-termperspective.
I don't see a discipline.
I see a wide scattershot.
You know like he should be in.
You know, one of those shotgunshootings with the deep, with
the doves right, he could go gettogether with the Vice
(35:28):
President Cheney there and Ithink somebody might get shot.
I feel like this is a shotgunapproach and not a precise
sniper approach to our problemsand our you know, and the
different things in the.
I hear this week that you weekthat he's negotiating with
Ukraine and Russia to make thathappen, make a peace proposal
(35:52):
happen, and I sit there and I go.
If it takes Trump a month to fixthe Ukraine with a peace
proposal, I guess I got to askwhy didn't we do this a year and
a half ago?
Proposal?
I guess I got to ask why didn'twe do this a year and a half
ago?
It feels to me like he is goingafter everything he can Again,
(36:12):
like he did in 2017, he wentafter Obamacare and it didn't
work and he wasted all of hiscapital.
He feels like to me he'sdistributing his capital across
15 or 20 different issues.
And guess what?
I don't think that's the way tomake something successful.
(36:33):
I think he should be concerned.
Speaker 1 (36:40):
I don't think he's allocating his capital.
I think he's just throwing shitat the wall, right.
I'm trying to bring it down toan analogy that's more
appropriate.
Investment oriented.
We can't just keep talkingabout throwing shit.
Speaker 2 (36:58):
I think we're trying to make this discussion about
he's away for 16 hours and he'sdoing it.
Speaker 1 (37:05):
Allocating political capital in the way that Trump is
doing is sort of like saying OK, there's 100 different crypto
tokens out there, I'm just goingto allocate 1% to each crypto
token.
You know, it's all crap in mymind.
It's all crap in my mind.
(37:26):
It's all crap, uh.
So what's the purpose of?
And it's all like throwingstuff at the wall to see which
crypto token is going to dobetter than than all the others.
Um, it's like, it's like goingto the um, uh, to the craps
table and putting your chips,you know, on every square, right
?
Speaker 2 (37:43):
I agree.
I think that what we're seeingis a misallocation of an
opportunity.
He does have a majority, hedoes have the ability to go
forward with some things and ifhe picks the right things, aka
get that tax extension, make itpermanent.
(38:04):
I think if you make ittemporary, I think if you adjust
only a little bit of theproperty tax level, I think
you're going to have a lot ofangry people at the midterm
election.
And I think that he's notthinking about the midterm
elections, but guess what?
I think he should be Because inreality control of government
(38:29):
is not a given, especially witha three and a five seat majority
in the two houses, in a waythat's prudent, that gives
everyone something that they cango home and say I won, I won
for you, I gave you what weneeded as a community and
therefore you should reelect me,if not reelect more of us.
(38:59):
I mean, I know it comes down tomore than politics, but in
reality life is a lot ofpolitics and in my mind, the
politics of the Fed, thepolitics of the Sovereign Wealth
Fund, these are all just ideasthat have some grounding in
reality, but some grounding inpolitical instinct and political
activity, activity.
(39:26):
So I'm not sure he's doing theright things to help the people
in the House and the Senatebecause he's focused on so many
issues and I have yet to see howmany of the people who are not
reelected or who are affected byDoge are in districts where the
person, would you know, wouldsay, hey, my district, this is
(39:46):
going to affect 100,000 peoplein my district, that's.
You know, we worry aboutdefense contractors adding
10,000 jobs.
If the government lays off100,000 in your district in
Maryland, is that going toaffect anything?
Is that going to affect any ofthose representatives getting
reelected?
I wonder if the layoffs and howthat would affect those
(40:11):
Democratic candidates in thoseDemocratic areas would, just
like the property tax, adverselyaffected one part of the
country.
I wonder if government layoffsare going to affect one part of
the country.
I wonder if government layoffsare going to affect one part of
the country more than others andtherefore achieve two goals,
not one.
Speaker 1 (40:33):
Well, you know, everybody thinks that the main
impact will be on, you know,virginia, Maryland, dc, the
so-called DMV.
But the impact of governmentlayoffs is really a nationwide
(40:54):
concept, and so it affectsdistricts all across the country
.
Well, it does from a servicestandpoint, but my point is as
voters it's a service standpoint, but also there are employees
all across the United States too.
Speaker 2 (41:13):
It's pretty centralized, like what is?
Every government agency exceptthe CDC is based in that
three-state area, right or three.
Speaker 1 (41:23):
The headquarters is yes, okay, but you know the
headquarters is for manyorganizations is only a part of
what you know of where the staffis.
Staff are located throughoutthe country.
Speaker 2 (41:39):
Yep.
Speaker 1 (41:41):
You know, you have, you know a lot of agencies have
you know, district offices,regional offices within the US,
state-by-state offices?
So you know there's a lot of,there are a lot of operations
for agencies that occur outsideof Washington occur outside of
(42:04):
Washington.
Speaker 2 (42:04):
Okay, well, I think we might have gone a little bit
far afield here on the originalinflation results of today.
So, let's get back to what doinvestors need to do with the
information you get from today?
How do you adjust yourportfolios and how do you make
an impact?
If this is an indication ofrates not going down but
(42:26):
potentially going sideways or up, how would you play this in
your own portfolio?
Speaker 1 (42:34):
So, steve, as you know, I am very focused on short
interest and I uh am have beenincreasing and peg ratios, but
I've been increasingly focusedon using beta as a kind of way
to dial up and dial down on um,you know, on risk uh related to
(42:56):
the market Um, and in addition,I've had you've had gold and
I've had pretty significant cashreserves, and so I am
considering, given what we'veseen the last few days, I'm
really hoping that we'll see abounce back.
(43:16):
But if we don't see a bounceback in the next couple of days,
I might dial down beta a bit,increase some cash, maybe add to
my gold Just ED HARRISON, we'lltake a little duration risk
with that cash and put it intobonds if the rates are going up.
(43:38):
MIKE GREEN.
Well, I don't have any bonds.
Ed HARRISON, don't laugh at mybonds, mike GREEN, I don't have
any bonds.
Laugh at my bonds.
I don't have any bonds, I know.
But you could, I could havesome bonds, you could take your
cash and actually earn somethingmore with it.
I could, I could take that cashand put it into gold, which is
doing well.
I don't really think.
(43:59):
Well, you have a point.
Maybe I should be thinking, youknow, as markets become more
volatile, maybe I should bethinking more about dividend
yield.
So you have a good point there.
But you know, we'll see.
Speaker 2 (44:17):
I'm just saying, I've looked at hunker down by taking
some of my investment in mymidcap and my index, because I'm
in an IRA.
I've just gone to cash withthem and now I'm thinking about
whether I should take that 20%,I put into cash and put it into
some bonds, because I'm going tobe here, I think, for more than
(44:39):
nine months.
So if I'm going to be here fora month of time, it might make
sense to, you know, earn 5%instead of 3% and uh, and I, I
think that we're, I think, withthis, um, you know, there was a
good, there was a good line thatsaid, when, the, when, the.
(45:02):
What was it?
When a clown comes to?
Speaker 1 (45:09):
the.
That was the line that Idiscovered, which was an old
Turkish proverb.
Right, turkish proverb, right,yeah, old Turkish proverb.
When a clown enters the palace,he does not become king, he
turns the palace into a circus,and I think that's a good
(45:30):
description of what we'redealing with right now.
Speaker 2 (45:32):
Right.
And all I'd say to add to thatis that if you think that the
circus doesn't include the Fed,you haven't been paying
attention, because the Fed andtheir ties to the existing
government, whether it's forreappointment or whether it's
for other resources that theywant to obtain, I think the Fed
(45:55):
is part of the circus.
Now I agree, 100% agree, steve.
Okay, if you are idealisticallybelieving that the Fed is an
independent entity and is goingto do whatever is right, then
you haven't been watching thelast six months.
The Fed cutting 50 basis pointsin September was an
election-motivated cut.
(46:18):
They wanted to cut to try tomake the markets more stable
because they believe that wouldhelp Harris.
There was no reason for them tocut 50 basis points in
September.
They were projected to maybehave no cut.
So to think that they are notpolitically motivated, I think
is a little bit naive.
(46:40):
I'm a little skeptical.
Speaker 1 (46:42):
Yeah, it's like saying you know, the Fed is
politically motivated in thesame way that the Supreme Court
is politically motivated.
Correct, they're not supposedto.
You know, Roberts would say wecall balls and strikes.
Speaker 2 (46:57):
But if you believe, if you believe that the Supreme
Court is politically motivated,you don't believe that the Fed
is politically motivated, howare you making that transferral
realistic If they're both bodiesmade up of people who were
appointed?
They're both.
(47:18):
I mean, I think you're makingmy point for me, Clem, You're
not making a point against me.
Speaker 1 (47:24):
No, I am making a point for you, oh okay, I
thought you disagreed.
I'm saying that politics is animportant consideration in
bodies that are supposed to beneutral and technical.
(47:46):
The Fed is not supposed to beresponsive to politics, but yet
is.
The Supreme Court is notsupposed to be responsive to
politics, and yet is.
I think they're analogoussituations.
Speaker 2 (48:05):
Correct, and so all I'm saying is it feels to me
like they're in a box now thatthey can't get out of because
they don't have enough basis onthe real facts and they're used
to operating in more politicalenvironment and I think that
that's going to create, in mymind, more volatility.
So I think we're both skepticalof the same things, but maybe
(48:28):
not Anything else.
On, inflation.
Speaker 1 (48:33):
No, I think we've just about covered it.
So everybody, please, you know,please, you know, tune in for
some future episodes and youknow we're really happy that you
, you know, that you listened tous today.
Please like us, please send usquestions if you have any, and,
(48:55):
steve, you know, have a greatday, okay, hey, thanks.
Speaker 2 (49:00):
And I also want to say a big thank you to all of
our listeners in Scotland andCanada.
We've gotten some real bigdownloads recently and we really
appreciate you tuning in and ifyou have topics you want to
email us or ideas, let us know.
We love to talk and pretty soonwe're going to get our friend
(49:20):
from Canada back on, Mr Thorneand some other guests.
So have a good day and justremember, keep your head up,
Keep looking around.
You never know who might begaining on you.
Hello everybody and welcome to Skeptic's Guide to
Investing.
This is Clem Miller, and I'mhere with Steve Davenport, and
today we are going to talk aboutthe latest inflation report
that came out today I think thisis the 12th of February, and so
(00:25):
we're going to talk about theinflation rate, we're going to
talk about impacts on potentialinterest rates, we're going to
talk about how this might playout, going forward with things
like tariffs, and we'll seewhere the discussion goes, steve
, so why don't you start?
Speaker 2 (00:45):
Well, clem, this is just another example of what
I'll call Fed lack of directionhere.
It's not been presented to usthat the next move by the Fed
might be up.
In fact, I think they've beenindicating how supportive they
(01:09):
want to be and how engaged theyare in reading the data, but now
the data is pointing the otherway, right.
So we've had a reduction insome of the wages and services
and now we're starting to see ashortage of some of those
services because there'squestions about immigration.
Shortage of some of thoseservices because there's
questions about immigration.
And we're also seeing goodseggs in particular as an example
(01:30):
but oil and others that aregoing up.
So if the price of goods isgoing up and the services are
going up, that's a badcombination for a Fed that wants
to lower rates to help theeconomy.
And if we look at what'shappening with the new
government, the new governmentis saying we're going to do
(01:52):
things that might also beinflationary, and so I think
that the Fed is in a very hardplace here and it's been kind of
a result of their own actions.
They were quick to do cuts thissummer and twice in September,
(02:15):
and they said they had to dothem.
They needed to lower the rates.
And guess what?
The lowering of those rates 1%.
What did it lead to?
It led to higher costs for someof the goods.
I don't think you can expect tolower rates 1% and say I'm
(02:36):
shocked.
There's been a reaction in themarketplace.
You know the way this works.
When you open up more funds andyou increase the availability
of those funds, therefore peopleare going to borrow and do more
.
So we were constricted when themortgage rates were up to seven
(03:00):
, seven and a half, and nowthey're down to six and a half,
six and three quarters Still notwhat I would say is really good
for housing.
So there's people screaming onthe real estate side that we
need to lower rates for housing,but the rest of the economy is
still showing more inflationthan the Fed wants.
(03:22):
So here we are with a Fed inneutral.
But I think the bigger questionthat Mohamed El-Erian mentions
today on Bloomberg is I don'tthink they have a strategy.
And if they don't have astrategy, then, just like every
other influence on the market,it's going to make volatility
(03:44):
greater.
And so if we have volatility ingovernment in terms of which
programs are being cut, whichpeople are being affected, which
areas of the economy are goingto be hurt, and then we take the
Fed in a neutral position andnot really in a supportive
position.
We're setting ourselves up formore volatility and as a seller
(04:08):
of options, I tend to welcomethis, but as an investor long
term in equities, I tend to saythings are going to get
interesting and I think thatwhat we need to do is realize
the humanity of the Fed.
(04:31):
They are a group of people whoare trying to do what they think
in their region is going tohelp their particular part of
the Fed infrastructure and, insome ways, a group of 10 people.
Whether we put them on the Fedboard or whether we put them on
the board of IBM, they're goingto be influenced by their
(04:52):
experiences and their ideas andnot necessarily by the economic
models that their PhD studentscome up with students come up
with.
So my question you know myfeeling is this is the worst of
times.
If you wanted a Fed, that wasgoing to be wishy-washy and not
really clear, and that's what wehave.
(05:15):
What do you think, clem?
Speaker 1 (05:20):
So I think that what we're seeing now in terms of an
increase in inflation is a kindof a partial realization so far
of higher inflation expectations.
So if you look at, you know,last week there was a report you
know the typical report comingout of the, you know, university
(05:43):
of Michigan ConsumerExpectations Survey, part of
which was about inflation andthere was an expectation of
rising inflation.
And that was because of, youknow, you mentioned, steve,
immigration, you know the issueof deportations of people who
(06:03):
are working and you know,working in the US economy,
especially in the agriculturesector, the construction sector,
the medical sector, and theissue of tariffs.
There are a lot of folks thatare concerned about the impact
of tariffs on prices in the USand thus overall inflation.
(06:30):
And I think the third issue,not insignificant, is the effect
of the bird flu in terms of,you know, obviously in terms of
eggs, but you know, even beyondeggs, you know what if bird flu
expands beyond eggs into otherparts of the food system?
(06:54):
So I think there are someconcerns about that as well.
Speaker 2 (06:58):
So yeah, I think I mean tariffs have been put on
hold in Canada and Mexico for amonth.
Speaker 1 (07:08):
So but?
But they're back on 25 percentwith regards to steel and and
aluminum coming from from Canadaand Mexico.
Speaker 2 (07:16):
Not not that, that's everything, but how much is that
of the overall imports?
Speaker 1 (07:21):
I mean, I got to think that's a small, but it
also is stealing aluminum fromaround the world.
So I think you know, I thinkthat you know tariffs is a whole
issue, right, but, but you know, part of the problem about
tariffs again is the uncertaintyabout it, and I think this
(07:44):
factors into the inflationexpectations.
Basically, what I want toemphasize, steve, on this
episode is the fact that it'sall about inflation expectations
and not really about the lastreport.
You can talk forever about whattoday's report was or the
report before that, but it's aquestion of what are people's
(08:30):
inflation expectations and abouthow they might impact, uh,
their, their spending, uh, theprices, uh of their products
that they consume in their ownconsumer baskets, uh, whether
they can afford that, whetheryou know the economy, that is,
the real economy, um, you knowjobs and what, what not might be
impacted and whatnot might beimpacted.
So I think people are concernedabout that, right, the
deportations, which, fortunately, have been less than what were
(08:54):
promised, but still I thinkthere are concerns among people
that deportations will impactthose sectors that have been
buoyed or sustained by bymigrants.
So I think it's all about abouthigh inflation expectations and
(09:17):
that's why we're seeing allthis volatility in markets, in
markets, uh and um, you know,especially in the last week or
so, uh, you've seen, you know, awhole bunch of ups and downs,
mainly downs, uh, but you know,it hasn't been, you know, we, we
(09:39):
, I think it looks like we'veseen kind of a peak of this kind
of positive movement that wesaw through most of, through a
good chunk of January and earlyFebruary, or at least stability,
greater stability, in Januaryand early February.
Now we're seeing, you know, adifferent picture of volatility.
(10:01):
Now, how long would this willlast?
It's unclear.
I think that you would have tosee, you know, an abandonment of
the two things that thatpresident trump holds dear to
his heart, which are tariffs, uh, and migration.
And I don't think we're goingto see him back off from those,
(10:28):
I really don't.
And so, and I don't, I thinkconsumers, uh, are concerned
that he won't back up, back offthose as well, uh, I know that
everybody says, well, trumplooks at what the s&p 500 does
and he makes decisions based onthat.
And that might be, you know,true, to a degree, but I don't
(10:51):
think, I don't think he is goingto let the S&P 500 affect what
he's doing with migrants andwith tariffs.
Just just don't see that.
Speaker 2 (11:03):
And with tariffs.
Just don't see that.
Yeah, I get back to the Fedbeing in a bad position because
they focus on the wrong thingsand I think when they think
about stability, they think ofstability in the markets and
they think that's their thirdmandate, right, they want lower
rates to help the economy andinflation.
(11:27):
They want to have a low joblessnumber, and I think the 4%
they're at now they look at asachieving their goal.
But their third unstatedmandate is market stability, and
in my mind, they're focused onthe 50% of the market who has
(11:47):
investments, and I think thatthe 50% who doesn't is the one
who's really getting hurt byinflation.
And so the Fed, instead offiguring out how do I address
the other part of the market, isstill focused on this quasi
third goal of market stability,and I think that, as a whole,
(12:10):
they don't have as muchinfluence and they don't have an
ability to really affect thatman on the street, and therefore
I think they're going to failbecause they're not in a
position to succeed, becausethey're not in a position to
succeed, because they're not ina position to even admit that
this mandate exists.
So I don't know how you addressa mandate when you're not even
(12:33):
really willing to say that youhave this?
I'm concerned about markets andI'm going to do what I'm doing
now just because I want tostabilize markets and I want
markets to improve.
We've had 220 plus years in arow.
I don't know how we get back tothe average return of 7%, 8%, 9%
(12:56):
, 10% without some negativereturns in markets and I'm not
sure the Fed is in a positionwhere they want to incur the
wrath of Trump because marketsgo down and he says well, lower
rates, so you fix it.
I think the Fed realizesthey've made mistakes.
(13:17):
They made mistakes going toolate against inflation in 2021.
I think they made mistakes ingoing a little too far.
I think they've tried to makethat adjustment, but I think,
unfortunately, they just havethis obsession with the investor
(13:38):
class versus all classes andthey can still protect the
investor class, but there's alot of people who are.
We have a country we justpassed 50% in private 401ks and
(14:01):
I think that's a great move.
I think we need to get thatnumber to 70% 80%, but it's
great to be at 50% and we'removing in the right direction in
terms of more peopleimplementing plans.
I do think that the Fed is along way off where they can say
what we do for the investorclass is really good for all
(14:23):
classes, because it's a greatmajority of the people.
I think right now they're in aposition where they have to
think about how do we do thingsto contract the inflation
problems without doing thingsthat are going to be
specifically beneficial to onegroup, the millionaires and
(14:44):
billionaires of America.
So it's a delicate conversation.
Powell must dance on the headof a pin in order to satisfy
both the existing administrationand all of the members of the
board, and I think the dance isgoing to get more difficult as
(15:05):
we start to talk about moredeficits and how do we pass the
tax extension.
The tax extension forindividuals will be the issue of
2025.
And if they get it done, itwill have to be done with a lot
of histrionics and varioustwisting and turning around how
(15:30):
they justify this as being goodfor everyone.
I think that, when it comesdown to it, it's beneficial to
most of that same investor classthat they're trying hard to
make sure they don't experiencelosses.
That, in my mind, makes it aconflicted discussion, because
(15:53):
there are people out there whocan't afford a home, can't
afford basic goods, goods, andtherefore I think that the Fed,
in keeping rates where they are,is in some ways stuck because
they don't know what's the pathforward, given the tariffs and
(16:13):
the proposals that Trump keepstalking about.
What is the path forward, clem?
What?
Speaker 1 (16:21):
should the.
Speaker 2 (16:21):
Fed do.
Speaker 1 (16:23):
Well, I don't.
What I want to do, steve, is Iwant to ask you two questions,
ok, ok, and then I'll answeryour question, right?
First, do you think that Trumpwill try to to fire Powell?
That's my first question.
(16:45):
Um, you know he's in recentweeks he's fired a lot of people
who are supposedly, uh, youknow, not able to be fired per
uh, per law.
So is he going to try to firePowell, uh?
And secondly, uh, is he goingto do things uh to?
(17:07):
Is he going to do things to?
Is he going to put politicalpeople at lower levels within
the Bureau of Labor Statistics?
Remember, they're gettinginvolved.
You know, doge is gettinginvolved in the labor department
, right?
Is he going to put politicalsin the Bureau of Labor
(17:30):
Statistics who will have amandate from Trump to manipulate
the inflation statistics?
Do you think that that's apossibility?
So you know, if you answerthose questions yeah, he could
fire Powell and the Fed could beworking with manipulated
(17:54):
statistics.
Then I've got an answer for youabout what the Fed should do
what the Fed should do Okay, Ido think Trump will fire Powell,
but not now.
Speaker 2 (18:07):
I think he will fire him when this comes to a head.
And I think it will come to ahead when we start getting into
all of the things that he wantsto achieve with the extension of
the tax cuts, all of the otherpromises of cutting tax on tips
and cutting other items that aregoing to have a budgetary
(18:31):
impact that he needs to come upwith savings from.
So I do think it's a little bitextreme to think that four or
five hires or 100 hires,ultimately the labor statistics
are based on baskets of goodsand if you change the basket,
then everybody knows about thechange and everybody then can
adjust.
(18:51):
If you say you're going tochange the basket and not tell
anybody, I'm not sure that'smore cynical than even I can
come up with.
So I thought I had an advantageover you, glenn, that I was more
cynical and you were moreidealistic, but maybe I am an
idealist in comparison.
(19:11):
But I think that we are in aperiod where we're going to see
extraordinary changes, some ofthem good, some of them bad, and
maybe a majority are bad.
I don't have I right now haveso many articles and things to
(19:49):
read regarding all of thesechanges that I think we all need
to take a step back and say howdo these areas of the economy
function the way they used tofunction?
And I think that Powell isdancing and I think that the
question is does he want todance?
And I'm not sure he.
You know, I could see Powellstepping down or giving up, and
then they're going to have toappoint someone new, and then
they're going to have to appointsomeone new and guess what?
It's very hard to pick anoutsider who's going to fit on
that Fed position, and I thinkit's going to be a hard time for
(20:20):
markets when that happens,because, as much as I might not
find the value in what the Fedis doing, there are quite a few
people in the market who arevery comfortable because they
tell them and they keep theminformed of what their direction
is and what their appetite isfor risk and for lower rates.
And I think that that kind ofcozy relationship with senior
(20:40):
Wall Street and the Fed and thatkind of moving back and forth
that occurs has created acomfort zone for people.
And as that zone gets broken upand I think that we are going
to get less comfortable.
And if we get less comfortableagain, my friend Mr Volatility
(21:01):
he rears his head and somepeople don't like that.
Some people don't like it whenwe have a Monday with deep sea
comes and blows up trilliondollars in value.
I don't like it either.
But I believe that we're in aneconomy now that is going to
have uncertainty because wedon't know and it's hard for us
(21:22):
to say we don't know.
Uncertainty because we don'tknow and it's hard for us to say
we don't know.
But that's where I think we arefor at least another three, six
, nine months.
I think we're either going topass some of these things and
they're going to become law andthen we can look at.
You know what?
Do we think?
The extension of the tax cutsis going to be Permanent, or
(21:44):
tell me is it going to bepermanent, or is it going to be
another 10 years?
What do you think?
Speaker 1 (21:49):
It's going to be temporary and certainly not 10
years, maybe three years, maybefive years.
It's going to be temporary inmy mind.
I think that lowers the costquite a bit.
That's the political solution,right.
But let me just come back towhat some of the things you said
, okay, so I tend to agree withyou, when things come to a head
(22:19):
with the Fed, that he will firePowell, I think.
In the meantime, I think you'reright that Powell will do
nothing until there's moreclarity on the policies coming
out of the Trump administration,and you know that's going to
frustrate Trump.
So there's, you know there'ssort of an interlock, right.
Trump is going to want Powellto do more to well, to lower
rates further, but you knowPowell can't do that without
(22:41):
more clarity on policy.
So there's kind of a connectionthere.
I think that Trump has probablyalready asked his labor
secretary to look into whetherthe statistics have been
(23:01):
manipulated in the past, havebeen manipulated in the past,
and he's probably looking for away to be able to say, hey,
inflation is actually a lotlower than what the BLS is
saying.
He may not tell the BLS tomanipulate, but he may create
uncertainty about the BLS.
(23:22):
And so I think because of that,the Federal Reserve, powell and
others are going to work ontheir own baskets.
They're going to work on theirown alternative inflation
measurement systems if theycan't trust the BLS trust, if
(23:46):
they can't trust the BLS.
The other thing I wanted tobring up about the Fed and about
rates in general is thisbizarre comment that Trump made
the other day about how, youknow, somehow sometimes Trump
uses words and expressions thatyou know cause angst and you
don't really know what he'stalking about, or you don't,
(24:06):
maybe he doesn't know what he'stalking about.
Our debt, our government debt,may not be as large, uh, as we,
(24:31):
as is commonly known, because offraud, and I really I mean, I
don't think anybody knows reallywhat he's talking about.
Um, but you know, it's possiblethat one thing is he might say
well, there's been a lot offraud, therefore we're not going
to pay X portion of our debt.
That would be a completedisaster, given that you know,
(24:55):
treasuries underlie a large partof the global financial system,
financial system.
So I was very concerned aboutthat comment.
And he's also made anothercomment kind of related to that.
I think he's made anothercomment that really it's not
(25:15):
short-term rates that he'sconcerned about, it's really
long-term yields that he'sconcerned about, and that led me
to think that maybe he's goingto do some things to suppress
long-term yields.
So these two things areconcerns to me, kind of red flag
(25:37):
statements that make me worried.
What about you, steve?
Speaker 2 (25:47):
me worried.
What about you, steve?
I think he's.
You know, I don't know.
I'm not going to pretend tostep into the mind of Trump or
Musk and be able to understandthe nuance of everything they
say, because we're obviouslytaking the perspective of how
does this affect my investments?
And some of these things areaffecting your investments and
(26:07):
some of them are really not andso what I think we need to do is
really try to focus on thethings that are and try to
eliminate noise.
I think that we have a regular,you know, I'd say we have a
(26:27):
regular allocation to noise of20 to 30% of what we hear in the
media is noise and not reallyinformation, and I think now
that percentage has gone up toclose to 40 or 50.
And I think we're notcomfortable with that new level
of noise.
And what I would say is look,there is a.
You know, the financial systemhas been and I hate to use this
(26:52):
word, but it seems like theright word bastardized by what
we did with Russia and the fundstransfer system and basically
freezing funds in the systemthat previously had gone through
all sorts of political changes,and now we all of a sudden say
your assets are frozen.
And so, because of that guesswhat happens?
(27:16):
People look for differentmethods of transferring funds
and using funds that are not onthe main system.
They look towards crypto, theylook towards other things and
other ways to transport money.
And I believe and this is justme, but I believe we're starting
to get to two systems the goodsystem for all the companies and
(27:41):
countries that we feel are good, and the axis of evil for all
of the countries and systemsthat we think are being done by
people who are evil.
And we take China, north Korea,venezuela, iran, russia and we
(28:02):
put them in the access of evil.
And we take the Euro and theEuro countries in England and
the United States, canada andMexico and we put them in the
group of good.
And we look for those peoplewho are in between the Brazils,
the Nigerias, the differentcountries that we think are
influenced by either the good orthe evil, and we try to figure
(28:24):
out who they are and whatthey're doing.
And I believe that this type ofseparation is not going to get
less, but it's going to becomegreater.
That's what bringing those jobshome is going to do.
It's going to create morestability for those companies,
it's going to be more expensive,it's going to be inflationary,
(28:45):
but ultimately we can't have thecheapest labor in the world and
expect to have the greateststability.
Those are two differentfunctions.
The utility function doesn'tallow you to get both.
If you want the cheapest, mostenvironmentally insensitive
location, indonesia is going tobe pretty hard to beat.
(29:08):
There could be others who comealong and say maybe it's better
in Africa, Maybe it's better in,you know.
But we're talking about lessenvironmental and less labor
rules and those are the choice.
We can continue to try topursue lowest common denominator
(29:28):
type of labor around the worldor we can pursue what we
consider to be a moreappropriate treatment of the
environment and the labor force.
And I think COVID saw thesecamps in China and these
campuses that were developedovernight to house people, so
they couldn't go home, so theyhad to work at the factories.
(29:50):
Keep them going.
And we've seen some extremethings in the Ukraine.
Is the US going to become partof the real estate group that
redevelops Gaza?
To become part of the realestate group that redevelops
Gaza?
Is the US going to go intomilitary control of the mineral
sources in the Ukraine?
I don't think that's reallywhere our bailiwick of taking AI
(30:17):
technology to the next leveland we're taking control of
assets in other countries to tryto make a profit.
It doesn't feel like that's areasonable path to go down, but
we're talking about going downsome pretty strange paths.
So in my mind, clem, I thinkwe're in a very volatile period.
(30:40):
We're in a very volatile periodand, in my mind, what the Fed's
doing and their uncertaintyabout how to proceed is just
indicative of the time we're inand we're going to have to get
comfortable with our fundamentalvalues.
And I know, eventually you'regoing to buy some Bitcoin and
(31:01):
you're going to feel betterabout yourself because you have
the fear of missing out, and Idon't want you to miss out
either.
I want you to be successful,klum.
I want you to be comfortableand successful and have all the
assets that only have a positivetrajectory, but I'm not sure I
(31:22):
can do that for you with cryptonow.
Maybe, crypto in the future,when it becomes part of the US
Treasury?
Maybe that's when we all throwin the towel and we admit that
we were wrong and that there isvalue in something just because
it's secure or just because it'scontrolled or limited supply.
(31:43):
What do you think?
Speaker 1 (31:46):
ED HARRISON About what you covered a lot of
territory, michael KRIGSMAN, arewe going?
Speaker 2 (31:51):
to become a global surfer of different resources
and trying to stick our hand invarious things in the Ukraine
and Gaza and Taiwan, or are wegoing to have more of a?
We're bringing our labor backto the United States.
We're bringing back to theUnited States.
Onshoring is very much anon-engagement with the world,
(32:16):
like we did before World War I.
Offshoring and becominginvolved in mineral rights in
Ukraine and real estate rightson the Gaza Riviera is very much
of an engaged US out beyond itsnormal reach right when are we
(32:37):
going is a frenetic uh move by a, uh by a president and his
administration, which really hasno ability to prioritize what
(33:00):
they want to do.
Speaker 1 (33:02):
There are so many ideas that are floating around,
uh in you know trump's head andamong his staff that it's just,
it's just overwhelming.
You know, people you know aretalking about how people are
talking about how you know it'sflood the zone is the expression
(33:25):
right, but honestly, I don'tthink.
I don't think this really is.
You know, flood the zoneimplies that there's a purpose,
uh, to having so many uhpolicies that are floating
around.
Maybe it's to obscure some ofthe more negative things or or
controversial things that mightbe happening.
(33:46):
Uh, I don't think that.
I don't think flood the zone isthe appropriate term.
I just think that there's a lotof uh frenetic activity and it
reflects uh, you, it reflects alack of understanding of many
things, a lack of prioritizationof many things.
(34:11):
It's basically, as they say, youknow, throwing crap at the wall
right and seeing what sticks.
I think that's what it's allabout.
It's not flooding the zone,it's not creating, you know, I
used to think it was creatingpurposeful distractions, but
there's so much of this stuffthat's going on, that it's like
(34:34):
gaza.
Gaza riviera is a concept thatis so crazy in my mind, uh, that
it's not a flood, the zone, itis a throw crap at the wall and
see what sticks idea from a guy,from a guy who's who looks at
the world at from a real estatedevelopers.
(34:55):
You know through the lens of areal estate developer, that's
what he's.
You know that's what he's doing.
It's throwing crap at the walland seeing what sticks.
Speaker 2 (35:05):
I agree.
I don't see.
I don't see a permanency to anyof these ideas.
I don't see a long-termperspective.
I don't see a discipline.
I see a wide scattershot.
You know like he should be in.
You know, one of those shotgunshootings with the deep, with
the doves right, he could go gettogether with the Vice
(35:28):
President Cheney there and Ithink somebody might get shot.
I feel like this is a shotgunapproach and not a precise
sniper approach to our problemsand our you know, and the
different things in the.
I hear this week that you weekthat he's negotiating with
Ukraine and Russia to make thathappen, make a peace proposal
(35:52):
happen, and I sit there and I go.
If it takes Trump a month to fixthe Ukraine with a peace
proposal, I guess I got to askwhy didn't we do this a year and
a half ago?
Proposal?
I guess I got to ask why didn'twe do this a year and a half
ago?
It feels to me like he is goingafter everything he can Again,
(36:12):
like he did in 2017, he wentafter Obamacare and it didn't
work and he wasted all of hiscapital.
He feels like to me he'sdistributing his capital across
15 or 20 different issues.
And guess what?
I don't think that's the way tomake something successful.
(36:33):
I think he should be concerned.
Speaker 1 (36:40):
I don't think he's allocating his capital.
I think he's just throwing shitat the wall, right.
I'm trying to bring it down toan analogy that's more
appropriate.
Investment oriented.
We can't just keep talkingabout throwing shit.
Speaker 2 (36:58):
I think we're trying to make this discussion about
he's away for 16 hours and he'sdoing it.
Speaker 1 (37:05):
Allocating political capital in the way that Trump is
doing is sort of like saying OK, there's 100 different crypto
tokens out there, I'm just goingto allocate 1% to each crypto
token.
You know, it's all crap in mymind.
It's all crap in my mind.
(37:26):
It's all crap, uh.
So what's the purpose of?
And it's all like throwingstuff at the wall to see which
crypto token is going to dobetter than than all the others.
Um, it's like, it's like goingto the um, uh, to the craps
table and putting your chips,you know, on every square, right
?
Speaker 2 (37:43):
I agree.
I think that what we're seeingis a misallocation of an
opportunity.
He does have a majority, hedoes have the ability to go
forward with some things and ifhe picks the right things, aka
get that tax extension, make itpermanent.
(38:04):
I think if you make ittemporary, I think if you adjust
only a little bit of theproperty tax level, I think
you're going to have a lot ofangry people at the midterm
election.
And I think that he's notthinking about the midterm
elections, but guess what?
I think he should be Because inreality control of government
(38:29):
is not a given, especially witha three and a five seat majority
in the two houses, in a waythat's prudent, that gives
everyone something that they cango home and say I won, I won
for you, I gave you what weneeded as a community and
therefore you should reelect me,if not reelect more of us.
(38:59):
I mean, I know it comes down tomore than politics, but in
reality life is a lot ofpolitics and in my mind, the
politics of the Fed, thepolitics of the Sovereign Wealth
Fund, these are all just ideasthat have some grounding in
reality, but some grounding inpolitical instinct and political
activity, activity.
(39:26):
So I'm not sure he's doing theright things to help the people
in the House and the Senatebecause he's focused on so many
issues and I have yet to see howmany of the people who are not
reelected or who are affected byDoge are in districts where the
person, would you know, wouldsay, hey, my district, this is
(39:46):
going to affect 100,000 peoplein my district, that's.
You know, we worry aboutdefense contractors adding
10,000 jobs.
If the government lays off100,000 in your district in
Maryland, is that going toaffect anything?
Is that going to affect any ofthose representatives getting
reelected?
I wonder if the layoffs and howthat would affect those
(40:11):
Democratic candidates in thoseDemocratic areas would, just
like the property tax, adverselyaffected one part of the
country.
I wonder if government layoffsare going to affect one part of
the country.
I wonder if government layoffsare going to affect one part of
the country more than others andtherefore achieve two goals,
not one.
Speaker 1 (40:33):
Well, you know, everybody thinks that the main
impact will be on, you know,virginia, Maryland, dc, the
so-called DMV.
But the impact of governmentlayoffs is really a nationwide
(40:54):
concept, and so it affectsdistricts all across the country
.
Well, it does from a servicestandpoint, but my point is as
voters it's a service standpoint, but also there are employees
all across the United States too.
Speaker 2 (41:13):
It's pretty centralized, like what is?
Every government agency exceptthe CDC is based in that
three-state area, right or three.
Speaker 1 (41:23):
The headquarters is yes, okay, but you know the
headquarters is for manyorganizations is only a part of
what you know of where the staffis.
Staff are located throughoutthe country.
Speaker 2 (41:39):
Yep.
Speaker 1 (41:41):
You know, you have, you know a lot of agencies have
you know, district offices,regional offices within the US,
state-by-state offices?
So you know there's a lot of,there are a lot of operations
for agencies that occur outsideof Washington occur outside of
(42:04):
Washington.
Speaker 2 (42:04):
Okay, well, I think we might have gone a little bit
far afield here on the originalinflation results of today.
So, let's get back to what doinvestors need to do with the
information you get from today?
How do you adjust yourportfolios and how do you make
an impact?
If this is an indication ofrates not going down but
(42:26):
potentially going sideways or up, how would you play this in
your own portfolio?
Speaker 1 (42:34):
So, steve, as you know, I am very focused on short
interest and I uh am have beenincreasing and peg ratios, but
I've been increasingly focusedon using beta as a kind of way
to dial up and dial down on um,you know, on risk uh related to
(42:56):
the market Um, and in addition,I've had you've had gold and
I've had pretty significant cashreserves, and so I am
considering, given what we'veseen the last few days, I'm
really hoping that we'll see abounce back.
(43:16):
But if we don't see a bounceback in the next couple of days,
I might dial down beta a bit,increase some cash, maybe add to
my gold Just ED HARRISON, we'lltake a little duration risk
with that cash and put it intobonds if the rates are going up.
(43:38):
MIKE GREEN.
Well, I don't have any bonds.
Ed HARRISON, don't laugh at mybonds, mike GREEN, I don't have
any bonds.
Laugh at my bonds.
I don't have any bonds, I know.
But you could, I could havesome bonds, you could take your
cash and actually earn somethingmore with it.
I could, I could take that cashand put it into gold, which is
doing well.
I don't really think.
(43:59):
Well, you have a point.
Maybe I should be thinking, youknow, as markets become more
volatile, maybe I should bethinking more about dividend
yield.
So you have a good point there.
But you know, we'll see.
Speaker 2 (44:17):
I'm just saying, I've looked at hunker down by taking
some of my investment in mymidcap and my index, because I'm
in an IRA.
I've just gone to cash withthem and now I'm thinking about
whether I should take that 20%,I put into cash and put it into
some bonds, because I'm going tobe here, I think, for more than
(44:39):
nine months.
So if I'm going to be here fora month of time, it might make
sense to, you know, earn 5%instead of 3% and uh, and I, I
think that we're, I think, withthis, um, you know, there was a
good, there was a good line thatsaid, when, the, when, the.
(45:02):
What was it?
When a clown comes to?
Speaker 1 (45:09):
the.
That was the line that Idiscovered, which was an old
Turkish proverb.
Right, turkish proverb, right,yeah, old Turkish proverb.
When a clown enters the palace,he does not become king, he
turns the palace into a circus,and I think that's a good
(45:30):
description of what we'redealing with right now.
Speaker 2 (45:32):
Right.
And all I'd say to add to thatis that if you think that the
circus doesn't include the Fed,you haven't been paying
attention, because the Fed andtheir ties to the existing
government, whether it's forreappointment or whether it's
for other resources that theywant to obtain, I think the Fed
(45:55):
is part of the circus.
Now I agree, 100% agree, steve.
Okay, if you are idealisticallybelieving that the Fed is an
independent entity and is goingto do whatever is right, then
you haven't been watching thelast six months.
The Fed cutting 50 basis pointsin September was an
election-motivated cut.
(46:18):
They wanted to cut to try tomake the markets more stable
because they believe that wouldhelp Harris.
There was no reason for them tocut 50 basis points in
September.
They were projected to maybehave no cut.
So to think that they are notpolitically motivated, I think
is a little bit naive.
(46:40):
I'm a little skeptical.
Speaker 1 (46:42):
Yeah, it's like saying you know, the Fed is
politically motivated in thesame way that the Supreme Court
is politically motivated.
Correct, they're not supposedto.
You know, Roberts would say wecall balls and strikes.
Speaker 2 (46:57):
But if you believe, if you believe that the Supreme
Court is politically motivated,you don't believe that the Fed
is politically motivated, howare you making that transferral
realistic If they're both bodiesmade up of people who were
appointed?
They're both.
(47:18):
I mean, I think you're makingmy point for me, Clem, You're
not making a point against me.
Speaker 1 (47:24):
No, I am making a point for you, oh okay, I
thought you disagreed.
I'm saying that politics is animportant consideration in
bodies that are supposed to beneutral and technical.
(47:46):
The Fed is not supposed to beresponsive to politics, but yet
is.
The Supreme Court is notsupposed to be responsive to
politics, and yet is.
I think they're analogoussituations.
Speaker 2 (48:05):
Correct, and so all I'm saying is it feels to me
like they're in a box now thatthey can't get out of because
they don't have enough basis onthe real facts and they're used
to operating in more politicalenvironment and I think that
that's going to create, in mymind, more volatility.
So I think we're both skepticalof the same things, but maybe
(48:28):
not Anything else.
On, inflation.
Speaker 1 (48:33):
No, I think we've just about covered it.
So everybody, please, you know,please, you know, tune in for
some future episodes and youknow we're really happy that you
, you know, that you listened tous today.
Please like us, please send usquestions if you have any, and,
(48:55):
steve, you know, have a greatday, okay, hey, thanks.
Speaker 2 (49:00):
And I also want to say a big thank you to all of
our listeners in Scotland andCanada.
We've gotten some real bigdownloads recently and we really
appreciate you tuning in and ifyou have topics you want to
email us or ideas, let us know.
We love to talk and pretty soonwe're going to get our friend
(49:20):
from Canada back on, Mr Thorneand some other guests.
So have a good day and justremember, keep your head up,
Keep looking around.
You never know who might begaining on you.
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