0:01 We're seeing something globally we've
0:06 never seen before and it is the best
0:08 single indicator of a recession. The
0:10 last time we saw anything like this was
0:13 uh 2007 just ahead of the 2008 financial
0:15 catastrophe. So the stock market is
0:18 saying it's all good. Goldilocks soft
0:20 landing. Fed's going to get the memo.
0:22 They're going to cut rates the pivot and
0:24 buy stocks. The bond market is saying
0:26 no. this is bad and it's going to get
0:28 worse and it's actually too late for the
0:30 Fed to do anything about it. But what
0:32 happens is as you get closer to the
0:33 actual thing you're worried about, the
0:36 inversion gets nearer and nearer. Now it
0:40 is literally a month away or less. So uh
0:42 so that's like a that's like a you know
0:45 a big red siren, flashing light,
0:47 whatever you want to call it. Interest
0:48 rates are a lagging indicator.
0:50 Everyone's like well how could interest
0:52 rates going up if we're in a recession?
0:54 The answer is as you get close to
0:56 recession, who who figures it out first?
0:58 Well, the Fed figures it out last.
1:00 They're usually the last to know. Wall
1:03 Street is second last to know. The
1:05 people who figure it out first are
1:07 actual business people, entrepreneurs,
1:09 restaurant owners, dry cleaners, taxi
1:11 drivers, um or even medium-sized
1:15 businesses. Um they see it. You know, if
1:16 you're in the trucking business, it's
1:18 it's real time. Inventories are skyhigh
1:20 and new orders are being slashed. You're
1:22 not moving anything by truck. A lot of
1:24 business people are living in the real
1:25 world in real time. They know what's
1:28 happening now and the stock market tends
1:30 to figure it out later. But as far as
1:32 banking and credit is concerned, what
1:34 happens is if you're a business person
1:37 and you see business u heading down, you
1:39 know, fewer customers, whatever, you go
1:40 out and borrow all you can. You're like,
1:42 hey, there's a really bad recession
1:43 coming. I better if I got lines of
1:45 credit, I'm going to use them up now. I
1:46 don't want my bank changing the terms. I
1:48 don't want material average clause
1:50 closed clauses kicking in. and said,
1:52 "I'm going to borrow everything I can."
1:53 And that creates a demand for funds and
1:54 interest rates go up. And then the
1:58 recession hits and the bankers go, "Aha,
2:00 what's going on?" Credit losses start
2:02 going up and then then they just turn
2:04 off the spots and they raise standards.
2:06 They stop doing loss and then interest
2:08 rates will start to come down, but they
2:11 interest rates peak after the recession
2:14 be has already begun. So, so stock
2:16 market's telling us Goldilocks, bond
2:18 markets telling us, you know, here
2:20 comes, you know, Hurricane Mitch or
2:24 whatever. Um, and then, uh, there's what
2:27 I call the reality. What I see is is a
2:30 kind of a hybrid. The Fed's doing what
2:32 they're doing, right or wrong, okay?
2:33 They're they're doing what they're
2:34 doing. The market has their own
2:38 interpretation. I agree with the market,
2:41 certainly the bond market, that the Fed
2:43 has probably overtightened. They're
2:45 going to keep going for the reasons I
2:47 explained. That means they're going to
2:49 make it worse. They're going to make the
2:51 recession even worse. And they may
2:54 pivot. Uh to say that there could be a
2:58 rate cut. Um it won't be in April, but
3:00 you know, rate cut in August, maybe. I
3:02 wouldn't rule that out, but for a really
3:05 bad reason. In other words, if the Fed
3:07 cuts rates, which they may, the pivot
3:10 may be real. It's not because they
3:12 engineered a soft landing and Goldilocks
3:14 and everything. Oh, that's just right.
3:16 It's because they screwed up as usual,
3:19 as they've been doing since 1913. They
3:22 overtightened. They didn't look at the
3:25 forward indicators I described, and they
3:26 found out too late. Then they have to
3:28 slam on the brakes or take the foot off
3:30 the brake, if you will, in terms of rate
3:33 hikes, and then pivot. We've seen this
3:34 movie before. This is exactly what
3:39 happened in 2018. I mean, I don't I
3:41 don't know. Uh attention spans seem to
3:42 be short these days, but it wasn't that
3:45 long ago. Go back and look at look at a
3:47 chart uh any stock index chart from
3:50 October 1st, 2018 to to December 24th,
3:54 2018. Um less than 3 months, the stock
3:56 market dropped 20%. I mean, it's like
3:59 19.9 or something on the Dow, so maybe
4:01 not technically a bare market, but yeah,
4:04 what's the difference? It dropped 20%.
4:06 Culminating in the Christmas Eve
4:09 massacre, December 24th, 2018, when it
4:12 dro NASDAQ dropped like 3% in one day.
4:15 Now, here's the point. The Fed was
4:17 tightening into that collapse. The Fed
4:22 tightened on uh December 16th, 2018,
4:25 only like 8 days before the Christmas
4:28 Eve massacre and after most of the 20%
4:30 collapse had already happened, they
4:32 tightened one last time. So, what it
4:34 shows you is that when the Fed's on a
4:36 mission, they they actually don't care
4:37 about the stock market. This whole, you
4:39 know, Bernanki put and Greenspan put and
4:41 all that. That's not how it works. Uh
4:43 they don't care that much about the
4:45 stock market level. Here's what they do
4:47 care about. They care about disorderly
4:49 markets. And that's the key word. It's
4:51 not stocks are going down, but you know,
4:52 kind of little, you know, half a percent
4:56 a day, 1% a day, trending down, lower
4:58 highs, lower lows, trending down. The
5:00 Fed doesn't care about that. They're not
5:03 going to bail out the stock market. They
5:05 do care if it's disorderly. When was it
5:07 disorderly? Well, March 2020 at the
5:09 worst part of the pandemic. It dropped
5:13 like 30% in like 2 or 3 weeks. The fall
5:15 of 2008. I mean, it was like somebody
5:17 opened a trap door. The Fed does care
5:19 about that because that kind of swordly
5:21 behavior can feed on itself and end up
5:24 in a 1929 type scenario. So, the Fed
5:28 will get the memo, as I put it, uh, stop
5:30 raising rates and begin cuts when the
5:32 markets are disorderly, but not just
5:34 because they're going down. So there may
5:37 be a pivot you know in late August but
5:39 or you know July thereabouts but not
5:41 because of Goldilocks but because it's
5:44 not a soft landing it's a crash landing
5:46 but real quick I guess let's stick on
5:47 the recession just for one second
5:51 because there's the um you know bad
5:54 recessions generally come along with um
5:57 with a lot of job losses. Do you see
5:59 given that this recession could be worse
6:01 than most are expecting right now there
6:04 being you know widescale layoffs of the
6:06 sort we've seen in some of the bad the
6:08 the worst the bad previous recessions
6:10 like 08 like 01 the answer is yes first
6:13 of all we're seeing it already um so you
6:15 know I don't match the company the exact
6:17 number but layoffs order of magnitude
6:20 10,000 to 20,000
6:24 terminated employees at Google Amazon uh
6:27 Facebook um you know and other other
6:29 tech names. This affects other sectors
6:31 as well, but tech in particular has
6:33 engaged in a massive series of layoffs.
6:35 Um and so people go, well, wait a
6:37 second. How come the that hasn't shown
6:39 up in the unemployment numbers? Cuz the
6:41 the unemployment rate is um it's around
6:43 3.5 3.6. I don't exact number. It's
6:46 right in that neighborhood 3536.
6:47 We haven't seen that level of
6:50 unemployment that low that is since the
6:53 1960s. this isn't like oh good year or a
6:54 good debt you know this is the lowest
6:57 since the 1960s and so and the Fed is
6:58 absolutely looking at that you're right
7:01 about that Adam and they're saying and
7:02 of course because they believe in the
7:03 Phillips curve which is junk science but
7:05 the Phillips curve for those who are not
7:06 familiar says there's an inverse
7:09 relationship between unemployment and
7:10 inflation so if unemployment is high
7:13 inflation is low and if unemployment
7:15 comes down inflation goes up and so if
7:17 you want to get inflation down you
7:20 should expect to bring unemployment up
7:21 that's what the Fed belie what I just
7:23 said is nonsense. It's not true. It's
7:27 junk. But the Fed believes it. Again, it
7:28 doesn't matter what I think. It matters
7:30 what the Fed thinks. They say, "You got
7:32 to put yourself in their minds to figure
7:33 it out." So, as far as they're
7:35 concerned, that kind of those kind of
7:37 unemployment numbers, lowest since the
7:39 1960s, that's inflationary. They got to
7:41 get those numbers up. Now, here's what
7:44 the Fed is uh is missing or maybe
7:46 everybody's missing. When you hear these
7:47 layoff announcement, people like, "Well,
7:49 if they're laying off, why isn't why
7:51 isn't the unemployment rate going up?"
7:52 Unemployment lags the business cycle.
7:55 Unemployment is a lagging indicator.
7:57 When you're an employer, entrepreneur,
7:58 and you're in any kind of distress, you
8:00 know, not as many customers walking in
8:03 the door, you'll do everything you can
8:05 to avoid laying people off. You'll, you
8:07 know, be laid on the rent. You'll turn
8:09 down the lights. You'll, you know, find
8:11 a cheaper laundry, whatever it takes.
8:13 Um, and then by the time you get around
8:15 to firing people, you run out of options
8:17 like I've done everything I can. Now my
8:20 business is in jeopardy. I have to fire
8:21 some people. So that and then combine
8:23 that with what I just said about
8:24 severance and, you know, rolling
8:27 terminations, etc. It's a lagging
8:29 indicator. We know enough right now to
8:32 know that numbers going up this spring.
8:33 But that's not inconsistent with the
8:36 fact that we're already in a recession.
8:37 It's exactly what you would expect um
8:39 that unemployment is a lagging
8:41 indicator. Now, having said that, what
8:43 else is the Fed missing? Well, wages are
8:46 up 5% on an annualized basis. 5.2% on an
8:48 annualized basis. I'm like, yeah, and
8:52 inflation's 7% or 6%. So, your real wage
8:54 just went down one or two points. Cuz
8:55 when when the when the Bureau of Labor
8:59 Statistics reports those wage numbers,
9:00 those are nominal numbers. I'm not
9:02 saying they're fake, but you have to
9:04 know that they're nominal, and you have
9:06 to subtract inflation to find out what's
9:08 happening to real wages. And the answer
9:10 is real wages have been going down for a
9:13 couple years because um there runs
9:15 around 5% annualized give or take.
9:17 Sounds like 85% raise. What what do you
9:20 want? Well, yeah, but with 8 9%
9:25 inflation or even 6% inflation, um your
9:28 real wage is going down. So that's not a
9:30 a robust number at all. The Fed, by the
9:32 way, the Fed wants to make make it
9:35 worse. The Fed agrees that uh those wage
9:38 gains are too high. But my point is in
9:39 real terms, they're actually going down,
9:41 but the Fed wants them to go down more.
9:42 That that's that would be one way to put
9:45 it. If you get inflation down and and
9:47 wages are constant, then the real wage
9:50 goes up relative to where it was before.
9:52 Uh but if you're unemployed, you have no
9:54 wage. So that's that's another issue.
9:56 Now, what the Fed is missing, and it's a
9:58 long list, but uh there's something
10:00 called the labor force participation
10:02 rate. Now, the labor force participation
10:05 rate, you just take the number of people
10:07 working divided by the total working age
10:08 population. It's all it's all you do.
10:11 It's not sophisticated. Um, and that
10:15 number today is around 61%
10:19 60 61.2 give or take uh percent. But as
10:22 recently as um 2000, that that number
10:25 was over 70%. Uh, and it's come down
10:28 ever since. And it's it dropped like a
10:31 stone during uh 2020 during the pandemic
10:33 lockdown. Came back a little bit but not
10:35 much. The reason it got first of all
10:37 it's never 100%. It shouldn't be. There
10:40 are legitimate reasons to be working age
10:42 population not working. You're um you're
10:45 a homemaker, you're a student, uh you're
10:46 an early retiree, uh
10:48 you're in the military. Yeah,
10:49 you're in the Yeah, there's there's a
10:50 bunch of perfectly good reasons. So it's
10:53 never 100% not even close, but 70 is
10:55 pretty high and 60 is pretty low. uh so
10:57 and that the trend has been down. So
11:00 that leaves uh relative to kind of a
11:03 normalized number that leaves about 8 to
11:06 10 million people between the ages of 25
11:09 and 54 who are not in the workforce.
11:11 There's a big untapped labor pool. But
11:13 if you throw if you took that group and
11:15 threw it into the unemployment numbers
11:17 the way the Bureau of Labor Statistics
11:18 calculates it, unemployment would be
11:21 about 9%. And that's the that's a
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