CNBC Anchor LOSES It Over Fed INCOMPETENCE

let's talk about Rick's freakout on CNBC

and what it could mean for the future

specifically what it could mean for

rates in the future because the numbers

weren't good on the surface when you

take into account that last month was

downgraded a bit it really adds into the

notion I don't follow fed dot plots but

we all know that this quarter isn't

shaped enough to be necessarily a good

quarter many are seeing recession I

don't see a way to avoid it uh just to

put a face on this we all see what's

going on with interest rates you know

356 in a two year just think about this

on March 8th it closed at 507 the high

yield closed that was the highest since

2007. now we're at the low Shields since

September 10 year and we did the charts

what a month ago in about five months

ago I staked my claim here four and a

quarter is the high it was the high back

in October we never came back and

challenged those fall levels you

remember Joe we did the Elliott wave

count it was clearly the high yield

close but man look at how far we Fallen

there is this really a banking crisis

Joe you know what it is it's a Fed

crisis it's a rate hiking crisis it's a

crisis built on a crisis we never solved

and now we have walk backs take backs

treasury secretaries changing their mind

is it any Wonder there's all this

volatility in the markets back to you

good point people are testing they

they're I don't even know if they know

anything about Deutsche Bank do they

Rick they're going to test it they're

gonna and they're going to keep testing

right

you know first of all we test and we

don't test for rates on some of the

stress tests here that's crazy but

listen listen folks we all need to take

a step back okay how many trillions of

dollars of negative Securities we're

hovering through Europe how could

anybody be shy I was shocked that the

news wasn't worse three months ago two

months ago now we're starting to see the

realities of it and listen I'm not

picking on Jay Paul in the fed their

mission is almost impossible when I do

get a little stressed though is when

they ask them questions about the

government and spending and debt and

fiscal dreaming and Magic monetary

Theory and he says oh no I don't comment

about that you seem to have worked with

them when the debt was being created now

they leave us out to dry

I thought that was 507 we've been

talking about that so we're that's 150

basis point right there that is that we

go 100 do we go 150 too far

you know I don't know what too far is

you know another thing we always forget

is that the signals for the market were

broken long before covet hit uh we had

zero interest rate policy for so long

who knew we became you know uh unable to

notice all the Aromas in the room and I

think that those Aromas of debt and the

fact that we had abnormal monetary

policy really since the credit crisis

each other there's no way to tell if

this is where we're supposed to be with

rates are not supposed to be I think the

most interesting trade to watch is that

three months of ten the way it's

reinverted because bills have been a lot

more solid than two years yeah but we

saved the world twice that you could say

the fed and and uh you know if it was a

two-week crisis that's all he had to do

or three-week crisis that's all that's

all the comeuppance there was for all

that extraordinary government help that

we had that that doesn't make sense

probably I don't know what it poor ten

I'm saying that it portends maybe

inflation comes down that would doesn't

have to be some disastrous economics and

scenario but maybe our inflation problem

comes under control let's see if Steve

thinks that can we do it that way Steve

so Rick makes this argument that look we

were basically drunk off cheap money for

too long long after the global financial

crisis we had zero interest rates and

that is the lower bound of a Federal

Reserve was zero so money was cheap and

easy even though we were coming out of

the great financial crisis where dead

people were getting loans for homes

and lending standards tightened

substantially coming out of the great

financial crisis basically what you said

is poor people can no longer get loans

but rich people can get really cheap

loans that's basically what you did

coming out of the financial crisis

because you led to a substantially more

stringent uh requirements for Lending

which ended up increasing the

requirements to be able to get home

loans bank loans business loans lines of

credit credit cards car loans do you

name it

and that enabled a 10-year run of people

with access to cheap Capital becoming

wildly wealthy whether that was through

investing in stocks or investing in real

estate which is substantially easier way

to do it in my opinion for example had I

put my first eighteen thousand dollars

with Lauren into the S P 500 we would

have turned it into sixty four thousand

dollars uh by right by around covet so

let's just say the end of 2019. so S P

500 for about 11 years 10 11 years would

have turned into about uh eight to sixty

four thousand dollars by

the beginning of covet end of 2019 we'll

call it instead we put that money into

real estate leverage that real estate

with cheap money and took advantage of

the beautiful type of financing that we

were able to get after the great

financial crisis and what happened we

turned that sixty four thousand dollars

into over 275 000 well that 18 000 into

over two hundred seventy five thousand

dollars so substantially more than what

we could have gotten certainly with with

without risk exposure right there's no

risk exposure in real estate when you

can rent out a property for more than

what your payment was then because rates

were so freaking low and and prices were

so low then you had no risk basically

whereas in stocks you go on margin you

have massive risk all it takes is a

quick flash crash and you're out so

Rick's argument here is that we were

drunk on cheap money for the last decade

and that now the Federal Reserve is

basically saying look

when you guys need to print money we'll

print as much money as you need when

Congress wanted as much money as

possible to print

4 covid will print it for you in fact

you know it's actually really funny to

think about uh I did this uh and in

hindsight it's like so weird but uh I

did this uh and then I want to talk

specifically about going forward uh what

we think might happen with rates again

long term uh I I really think it's it's

uh worth discussing a little bit but uh

before we do that I want to show you uh

uh this idea because it's it's spawned

by what Rick santali just said he said

look Jerome Powell gave no pushback to

this idea that hey look you know maybe

we shouldn't be printing all this money

no pushback from jpow when it was time

to print money no pushback when it was

time to uh tighten uh and now you don't

want to be real with us about how much

you really uh have to tighten down how

much you're basically walking the

economy into a recession right uh so

what I'd like to do is quickly share

this particular tab here let's share

this and take a take a listen to this

you should be able to hear this so let

me know if there's a problem with the

audio but look at this this was you

could look at this free money Jerome

Powell's Halloween and what we did is uh

we basically did a Halloween as I

dressed up as Jerome Powell and my

father-in-law dressed up as Janet Yellen

and uh we we literally gave money away

in along with candy we gave two dollar

bills away to people along with candy uh

and then of course we made it rain money

as well because well the money printer

was on right is my son jack uh but

anyway what was funny and I'm just

thinking about it in hindsight now is uh

let me go to the transcript so we can

get it quickly here

a print because I print money where is

it the money we've printed uh French

breakfast ah yes okay here here we go

let's listen to just this segment really

quick

come on

all right come on

so far we've given away about 80 percent

of the money that we've printed Janet's

uh we might have to go back to the

printer and print more if so we will do

so excellent do you think we'll get the

authorization from Congress of course

Nancy pelosia let us print more

of course go by and let us spend more

yes we'll be able to print more

[Laughter]

like looking back to this it's just like

of course

like of course the writing was on the

wall like

they'll just print more you need more

money we'll just print more

and and that's really

Rick santelli's frustration here is that

there was no constraint on on how much

we were able to print and now we are

having to pay for that and the question

is is it really possible uh as as uh you

know the other CNBC anchors mentioned

that we could just go through a little

short period of pain and then all of the

money printing that we did and the pain

we had to go through basically pays for

that inflation in a very short period of

time

Maybe and that's the question see if

you're wondering about recession you

have to ask yourself this we were

talking about this yesterday

uh the team and I I asked

look if a normal recession is a decline

in GDP of half of a percent to maybe

negative two percent if that's a normal

recession right

let me ask you this how bad would a

recession be if GDP contracted 10

percent

really bad right that's the assumption

but wait a minute

you have to ask the question correctly

how long

let me ask you this

could you get through a 10 contraction

in GDP a massive recession

for a month

probably you'll just spend through it

okay could you get through it for three

months

probably just spend through it could you

get through it for a year

probably not 10 contraction would be

devastating the amount of job loss would

be insane

now

where are we today well we're not going

to face a 10 GDP contraction but the

question is how long does the recession

last

because it's almost a foregone

conclusion now that the recession is

going to happen Jerome Powell's

recession indicator is flashing

massively red and it's basically

screaming at us saying we are going into

a deep dark recession and that indicator

is actually right here on screen now

Powell's curve says recession is

confirmed gap between current and future

short-term rates signals steep Cuts

coming in interest rates and a massive

uh inversion here of the yield curve

this yield curve inversion we have not

seen since the.com recession

now this inversion is the difference

between the three month

treasury yield which is around 4.5 ish

right now and the uh a 10-year treasury

yield which is around 3.3 that means

people are demanding a higher yield on

their money today than they are for the

next 10 years that's because we think

inflation is going to remain hot for the

next you know certainly at least three

months but potentially even more so

people are demanding more of a premium

and that's why you have this inversion

of the yield curve now the only way you

can explain away well there are two ways

you can explain a weighted version of

the yield curve one you can say well

that's reasonable if inflation goes down

of course people are going to expect a

higher rate today because they have to

get through this period of inflation so

they'll expect a higher rate now and

then a lower rate in the future that's

why the yield curve is inverted because

there's High inflation we didn't have

high inflation in 2000.

the problem with that thesis is pretty

much every time the 310 has inverted in

the past

it's led to a recession within the next

18 months and so now the question

becomes how long is that recession going

to be and how much pain are we going to

suffer well let me tell you my base case

and then uh let's go to the worst case

scenario

so base case scenario is that we have a

massive amount of disinflation that

comes from Housing Services

this summer

that combines with goods disinflation

and the start

of services X housing disinflation

that's like labor hotels Hospitality

whatever and come July August September

we start having potentially even

negative prints of inflation and

month-over-month prints those would be

year-over-year likely negative but month

over month rents hopefully close to zero

point one point two percent acceptable

as long as we have that sort of

disinflation this summer again point one

point two percent on the month over

month acceptable

then the recession will probably come we

will probably go into recession

but the recession might be short-lived

and short-lived is very important so

inflation goes away come June July we

cut rates like crazy as we saw from CNBC

the rate cut curve as you can see on

screen here the rate cut curve is

substantial we expect to be uh one

percent lower on rates by the end of the

year

so massive rate Cuts being priced in

starting this summer and what happens

well you end up having a shallow maybe

two-quarter recession you cut rates

substantially you turn the money printer

back on and everything goes back to

normal in the meantime people who lose

their jobs or have revenues decline what

do you do you spend through the

recession and the stocks that will do

the best in a spend through type of

recession in my opinion are going to be

people and and or who spend money on on

expensive items uh and uh and high

quality brands that have pricing power

in a shallow recession that's my base

case and I'm putting my money where my

mouth is now every time I flip-flop I

send alerts and I talk to specifically

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that's the base case scenario what's the

worst case scenario uh which I

diligently research myself with my team

on a daily basis to find okay how

exposed are we to a potential worst case

scenario well the worst case scenario is

problematic the worst case scenario

unfortunately is a situation where we

have a longer recession

that is inflation stays sticky

if inflation stays sticky you probably

don't want to be invested in the stock

market

because even pricing power stocks will

suffer them

if the recession ends up lasting

throughout not only the second half of

this year but all throughout 2024

pricing power stocks will suffer you

will not want to be in margin going into

2024. uh the start of the recession

might not actually Mark the bottom of

the stock market because the earnings

pain that comes could be very bad

so in the scenario of sticky inflation

we would actually not have rate Cuts we

would uh because remember what the bond

market is pricing in right now the bond

market is telling you rate cuts are

coming the Federal Reserve is saying

rate cuts are not coming so why is there

such a difference between what the FED

thinks and what the market thinks well

it's it's for two reasons number one the

bond market

is looking at leading indicators of

inflation and is suggesting that rates

are going to get cut the FED is playing

a two-folded game one they're playing

the game for the worst case scenario the

worst case scenario we have to keep

rates high for longer or even raise them

more which means longer deeper recession

but also if they admit that we have to

cut this year

then they might actually undo the

progress they're making on tightening

because if the FED comes out and says

yeah we'll probably cut by one percent

by the end of the year they're admitting

to a recession they're admitting to

turning the money printer back on and

people go spend willy-nilly again stocks

will go to the Moon that's what they

don't want to happen they don't want

Financial conditions to ease so they

have to put the hard face on for the

worst case scenario they basically have

to lie to us for the worst case scenario

to minimize the worst case scenario and

to make sure the best case scenario

actually occurs

and then of course I mean the best case

scenario is inflation's gone tomorrow

but uh you know then everything goes

back to normal then you might not even

have a recession base case scenario is

shallow recession worst case scenario is

deep Long recession so so that's really

what the Market's dealing with right now

now where do we think rates could go in

the long long term well personally I

think in the long long term there's

actually a possibility

actually High likely that we're probably

going to go back to zero the zero lower

bound

within the next four years I think by

2028

7 will probably be back at zero percent

interest

by the end of the decade we'll certainly

be back at zero percent interest and

before 2020 2040 we'll probably be

looking at so God 20 40 17. you know

I'll be

I'll be older anyway uh but anyway by

2040

we will probably be at negative interest

rates

that's my thesis and not deeply negative

but we will probably be at negative a

quarter negative a half percent in

interest rates

yeah you will get punished for saving

you think you're making four percent now

on treasuries is gonna last

that ain't gonna last it's gonna go

negative again and that's going to be

because of the acceleration of deflation

thanks to autonomy and AI now there was

actually a funny quote in the stock uh

on Twitter yesterday it was a Goldman

Sachs quote that somebody posted on

Twitter

and the argument was the bond market is

pricing in a recession the equity Market

is pricing in artificial intelligence

part of that is because of nvidia's

skyrocketing which I believe is actually

pricing power saw I bought a lot of

Nvidia uh in the mid 100s exposed myself

to a lot of that but uh you know it's

it's getting a little frothy over here

270s it's a little expensive out of some

of the other options that there are

still not as expensive as a TSM and

apple though but uh you know it's

getting let's get let me get up there

but anyway

is is it possible that we were just

drunk on cheap money the last 10 years

yes that's possible or the great

moderation is real and this 40-year

downtrend of inflation and this thousand

year long downtrend of mature economy is

seeing declining rates uh neutral rates

of Interest which means declining

interest rates

is it possible that we'll return and

that all this coveted transitory

inflation of money printing will just

end up being trans story

yeah that is possible that's very

possible now transitory will end up

probably having been

21 2 3 4 be like a three or four years

of trans story

but you know when we zoom out on sort of

the macro it'll end up being a sort of a

blip transitory but potentially if the

base case holds true if we go back to

the Peter schiffian style uh long-term

inflation then eventually the the dollar

will collapse which I do think that at

some point the dollar will collapse I

think that point is still hundreds of

years away uh Peter Schiff thinks it's

you know months away uh or potentially a

few years away

so I think then it just depends on on

your thesis but but my take is base case

inflation goes down

you want to be invested because of a

potential Nike Swoosh style recovery

where yes we have a lot of volatility

fears of these banking crises Deutsche

Bank Credit Suisse uh you know who's an

ex what else what's the next shoe to

fall and drop

uh all wall drone piles still hiking

and credit conditions are tightening

which will lead to a deeper recession

I think that Nike Swoosh recovery holds

in the base case if inflation stays

sticky for too long we don't get that

disinflation we're expecting the summer

we're screwed and the base case Goes to

Hell so anyway uh yeah so there you have

it uh of uh of my thesis and response to

Rick santali