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6 MINS AGO! Jim Rickards: "We're Seeing Something We've NEVER SEEN BEFORE" | Plain Finance Reborn | YouTubeToText
YouTube Transcript: 6 MINS AGO! Jim Rickards: "We're Seeing Something We've NEVER SEEN BEFORE"
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We're seeing something globally we've
never seen before and it is the best
single indicator of a recession. The
last time we saw anything like this was
uh 2007 just ahead of the 2008 financial
catastrophe. So the stock market is
saying it's all good. Goldilocks soft
landing. Fed's going to get the memo.
They're going to cut rates the pivot and
buy stocks. The bond market is saying
no. this is bad and it's going to get
worse and it's actually too late for the
Fed to do anything about it. But what
happens is as you get closer to the
actual thing you're worried about, the
inversion gets nearer and nearer. Now it
is literally a month away or less. So uh
so that's like a that's like a you know
a big red siren, flashing light,
whatever you want to call it. Interest
rates are a lagging indicator.
Everyone's like well how could interest
rates going up if we're in a recession?
The answer is as you get close to
recession, who who figures it out first?
Well, the Fed figures it out last.
They're usually the last to know. Wall
Street is second last to know. The
people who figure it out first are
actual business people, entrepreneurs,
restaurant owners, dry cleaners, taxi
drivers, um or even medium-sized
businesses. Um they see it. You know, if
you're in the trucking business, it's
it's real time. Inventories are skyhigh
and new orders are being slashed. You're
not moving anything by truck. A lot of
business people are living in the real
world in real time. They know what's
happening now and the stock market tends
to figure it out later. But as far as
banking and credit is concerned, what
happens is if you're a business person
and you see business u heading down, you
know, fewer customers, whatever, you go
out and borrow all you can. You're like,
hey, there's a really bad recession
coming. I better if I got lines of
credit, I'm going to use them up now. I
don't want my bank changing the terms. I
don't want material average clause
closed clauses kicking in. and said,
"I'm going to borrow everything I can."
And that creates a demand for funds and
interest rates go up. And then the
recession hits and the bankers go, "Aha,
what's going on?" Credit losses start
going up and then then they just turn
off the spots and they raise standards.
They stop doing loss and then interest
rates will start to come down, but they
interest rates peak after the recession
be has already begun. So, so stock
market's telling us Goldilocks, bond
markets telling us, you know, here
comes, you know, Hurricane Mitch or
whatever. Um, and then, uh, there's what
I call the reality. What I see is is a
kind of a hybrid. The Fed's doing what
they're doing, right or wrong, okay?
They're they're doing what they're
doing. The market has their own
interpretation. I agree with the market,
certainly the bond market, that the Fed
has probably overtightened. They're
going to keep going for the reasons I
explained. That means they're going to
make it worse. They're going to make the
recession even worse. And they may
pivot. Uh to say that there could be a
rate cut. Um it won't be in April, but
you know, rate cut in August, maybe. I
wouldn't rule that out, but for a really
bad reason. In other words, if the Fed
cuts rates, which they may, the pivot
may be real. It's not because they
engineered a soft landing and Goldilocks
and everything. Oh, that's just right.
It's because they screwed up as usual,
as they've been doing since 1913. They
overtightened. They didn't look at the
forward indicators I described, and they
found out too late. Then they have to
slam on the brakes or take the foot off
the brake, if you will, in terms of rate
hikes, and then pivot. We've seen this
movie before. This is exactly what
happened in 2018. I mean, I don't I
don't know. Uh attention spans seem to
be short these days, but it wasn't that
long ago. Go back and look at look at a
chart uh any stock index chart from
October 1st, 2018 to to December 24th,
2018. Um less than 3 months, the stock
market dropped 20%. I mean, it's like
19.9 or something on the Dow, so maybe
not technically a bare market, but yeah,
what's the difference? It dropped 20%.
Culminating in the Christmas Eve
massacre, December 24th, 2018, when it
dro NASDAQ dropped like 3% in one day.
Now, here's the point. The Fed was
tightening into that collapse. The Fed
tightened on uh December 16th, 2018,
only like 8 days before the Christmas
Eve massacre and after most of the 20%
collapse had already happened, they
tightened one last time. So, what it
shows you is that when the Fed's on a
mission, they they actually don't care
about the stock market. This whole, you
know, Bernanki put and Greenspan put and
all that. That's not how it works. Uh
they don't care that much about the
stock market level. Here's what they do
care about. They care about disorderly
markets. And that's the key word. It's
not stocks are going down, but you know,
kind of little, you know, half a percent
a day, 1% a day, trending down, lower
highs, lower lows, trending down. The
Fed doesn't care about that. They're not
going to bail out the stock market. They
do care if it's disorderly. When was it
disorderly? Well, March 2020 at the
worst part of the pandemic. It dropped
like 30% in like 2 or 3 weeks. The fall
of 2008. I mean, it was like somebody
opened a trap door. The Fed does care
about that because that kind of swordly
behavior can feed on itself and end up
in a 1929 type scenario. So, the Fed
will get the memo, as I put it, uh, stop
raising rates and begin cuts when the
markets are disorderly, but not just
because they're going down. So there may
be a pivot you know in late August but
or you know July thereabouts but not
because of Goldilocks but because it's
not a soft landing it's a crash landing
but real quick I guess let's stick on
the recession just for one second
because there's the um you know bad
recessions generally come along with um
with a lot of job losses. Do you see
given that this recession could be worse
than most are expecting right now there
being you know widescale layoffs of the
sort we've seen in some of the bad the
the worst the bad previous recessions
like 08 like 01 the answer is yes first
of all we're seeing it already um so you
know I don't match the company the exact
number but layoffs order of magnitude
10,000 to 20,000
terminated employees at Google Amazon uh
Facebook um you know and other other
tech names. This affects other sectors
as well, but tech in particular has
engaged in a massive series of layoffs.
Um and so people go, well, wait a
second. How come the that hasn't shown
up in the unemployment numbers? Cuz the
the unemployment rate is um it's around
3.5 3.6. I don't exact number. It's
right in that neighborhood 3536.
We haven't seen that level of
unemployment that low that is since the
1960s. this isn't like oh good year or a
good debt you know this is the lowest
since the 1960s and so and the Fed is
absolutely looking at that you're right
about that Adam and they're saying and
of course because they believe in the
Phillips curve which is junk science but
the Phillips curve for those who are not
familiar says there's an inverse
relationship between unemployment and
inflation so if unemployment is high
inflation is low and if unemployment
comes down inflation goes up and so if
you want to get inflation down you
should expect to bring unemployment up
that's what the Fed belie what I just
said is nonsense. It's not true. It's
junk. But the Fed believes it. Again, it
doesn't matter what I think. It matters
what the Fed thinks. They say, "You got
to put yourself in their minds to figure
it out." So, as far as they're
concerned, that kind of those kind of
unemployment numbers, lowest since the
1960s, that's inflationary. They got to
get those numbers up. Now, here's what
the Fed is uh is missing or maybe
everybody's missing. When you hear these
layoff announcement, people like, "Well,
if they're laying off, why isn't why
isn't the unemployment rate going up?"
Unemployment lags the business cycle.
Unemployment is a lagging indicator.
When you're an employer, entrepreneur,
and you're in any kind of distress, you
know, not as many customers walking in
the door, you'll do everything you can
to avoid laying people off. You'll, you
know, be laid on the rent. You'll turn
down the lights. You'll, you know, find
a cheaper laundry, whatever it takes.
Um, and then by the time you get around
to firing people, you run out of options
like I've done everything I can. Now my
business is in jeopardy. I have to fire
some people. So that and then combine
that with what I just said about
severance and, you know, rolling
terminations, etc. It's a lagging
indicator. We know enough right now to
know that numbers going up this spring.
But that's not inconsistent with the
fact that we're already in a recession.
It's exactly what you would expect um
that unemployment is a lagging
indicator. Now, having said that, what
else is the Fed missing? Well, wages are
up 5% on an annualized basis. 5.2% on an
annualized basis. I'm like, yeah, and
inflation's 7% or 6%. So, your real wage
just went down one or two points. Cuz
when when the when the Bureau of Labor
Statistics reports those wage numbers,
those are nominal numbers. I'm not
saying they're fake, but you have to
know that they're nominal, and you have
to subtract inflation to find out what's
happening to real wages. And the answer
is real wages have been going down for a
couple years because um there runs
around 5% annualized give or take.
Sounds like 85% raise. What what do you
want? Well, yeah, but with 8 9%
inflation or even 6% inflation, um your
real wage is going down. So that's not a
a robust number at all. The Fed, by the
way, the Fed wants to make make it
worse. The Fed agrees that uh those wage
gains are too high. But my point is in
real terms, they're actually going down,
but the Fed wants them to go down more.
That that's that would be one way to put
it. If you get inflation down and and
wages are constant, then the real wage
goes up relative to where it was before.
Uh but if you're unemployed, you have no
wage. So that's that's another issue.
Now, what the Fed is missing, and it's a
long list, but uh there's something
called the labor force participation
rate. Now, the labor force participation
rate, you just take the number of people
working divided by the total working age
population. It's all it's all you do.
It's not sophisticated. Um, and that
number today is around 61%
60 61.2 give or take uh percent. But as
recently as um 2000, that that number
was over 70%. Uh, and it's come down
ever since. And it's it dropped like a
stone during uh 2020 during the pandemic
lockdown. Came back a little bit but not
much. The reason it got first of all
it's never 100%. It shouldn't be. There
are legitimate reasons to be working age
population not working. You're um you're
a homemaker, you're a student, uh you're
an early retiree, uh
you're in the military. Yeah,
you're in the Yeah, there's there's a
bunch of perfectly good reasons. So it's
never 100% not even close, but 70 is
pretty high and 60 is pretty low. uh so
and that the trend has been down. So
that leaves uh relative to kind of a
normalized number that leaves about 8 to
10 million people between the ages of 25
and 54 who are not in the workforce.
There's a big untapped labor pool. But
if you throw if you took that group and
threw it into the unemployment numbers
the way the Bureau of Labor Statistics
calculates it, unemployment would be
about 9%. And that's the that's a
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