The Consumer is F*cked | The Coming Economic Great Reset.

now we're going to talk about a short

seller why he's short the market and

we're also going to talk about what's

going on with consumer savings consumer

spending and which companies could

actually win bigly I think this is going

to be one not only you want to want to

watch in full but you're going to want

to pay attention to the companies I

mentioned at the end of this because

they're not my traditional companies

that I talk about but let's first listen

to why this guy Jim is shorting the

market hedge fund dude coming to you out

of Miami in an interview with CNBC let's

listen in what does he have to say let's

bring in fam shorts this is our

headliner for this evening Jim chanos

founder of chanos and Company Jim it's a

pleasure to have you with us thanks so

much for joining us Welcome To My Hood I

know your new hood or not relatively

relatively new under 20 years oh 20

years I didn't realize that long yeah

what do you make of this this memo this

notion that that we could be at war with

China it feels like people don't want to

believe it or don't believe it yeah I

mean the the war in the Pacific is

serious stuff I mean let's not forget we

have a land war in Europe going on right

now I mean sort of a World War II tanks

artillery things we haven't really seen

in in our lifetimes and uh so shooting

war in in the Pacific you know all bets

are off I mean I I certainly hope that

doesn't happen and um but yeah I mean it

it upsets everything because of what God

Said I mean whether it's Supply chains

um whatever I mean we having having

China go to war with the West would be

this apocalyptic how does that factor in

if at all to your view on China and how

you view that Mark in terms of

opportunities for you yeah um well

obviously our view on China which is now

12 years old I mean has been based on

the financial system and the debt and

real estate markets over there and not a

whole lot changes obviously China will

become more insular

um I've been watching the the China

reopening trade like everybody else has

for the last six or nine months

um and uh it's sort of marveling at it

but I don't think there's any way to

handicap it from my perspective as an

hedge fund manager I mean again if it

happens it's uh it the unintended

consequences would be severe okay so a

little bit of a warning about maybe war

with China but let's be real I don't

even think he expects that tail risk is

going to happen so let's get into why

maybe a little bit more he's actually

short Jim do you think though you know

going forward we're just seeing you know

I guess the

um you know the situation with Russia

and UK regular simple U.S multinationals

had to take a stand about the uh the

Russian aggression it's a little

different with China when you think

about our Reliance from a manufacturing

standpoint our U.S multinationals

interest in that emerging middle class

which has been a part of the bull case

for 20 years now in China how would that

play out because I really feel like that

could change the dynamic for a lot of

U.S companies

yeah I mean again I think that that

we're far more intertwined into the

Asian economies in particular China and

and so I want to mention here holy

smokes the amount of Investments

Starbucks is making into China insane I

just went through the Starbucks earnings

call and I'll probably do a separate

video on it but it's worth mentioning

that in 2018 Starbucks had 3521 stores

in China by 2022 they added almost all

of the stores that they added 97 of the

stores China or that that Starbucks

added in the world went to China 97 of

them another

1737 stores and they uh they're now at

about 6 000 stores here in q1 6100 I

believe yeah 6100 q1 2023 Q3 2022 they

were at about 53.58 and they expect to

get to 9

000 stores in China know and by 2025. it

was remarkable about that growth is

their their Starbucks is really telling

you and they're screaming at you we

think that uh they're gonna make it uh

they're gonna make big profits big

tendys in uh in China let's keep going

we'll see

uh anything that that would end that and

bring into a cold war much less a

shooting War

um I mean just has to be it has to be

just a major major event for not only

markets but geopolitics I mean it's yeah

scary stuff Jim we talked about

multiples of this Market expensive not

expensive I mean thirty thousand feet

what are your thoughts again that don't

fight the FED Mantra that's been out

there for some reason people want to

look past it when it doesn't sort of

line up with the market going higher for

them

um well I think you know we we don't try

to time the market

um but like anybody else I have opinions

and things are not cheap I mean they're

not as expensive as they were say a year

and a half ago on the other hand

the market is at 18 times forward

profit margins are all-time highs so

that has not been reverted and one of

the most Mean reverting Time series in

all of economics and finance is

Corporate profitability and it's been

stubbornly good and and High

um

but since I've been on the street 1980

not one bear Market has ever traded

above 9 to 14 times the previous Peak

earnings so whether it's 87 89 90 90.

I just want to take a quick pause there

and mention what he's saying is that we

are at such a high level of of

essentially our multiples now on the S P

500 our price to earnings multiple right

we're willing to pay 19 times s p

projected earnings

for the s p right now and Jim is

suggesting we've got to get to probably

9 to 14 because historically that's

where S P 500 earnings go now I actually

do not disagree with this it is one of

the reasons that I really believe you

have to invest in individual companies

versus just the S P 500 over at least

the next year to two because I think S P

500 companies are going to get reamed

with earnings uh well many of them

whereas individual companies that that

you can select might end up showing

improving more pricing power through

this sort of recessionary dynamic and

you might actually see a lot more

earnings growth now no guarantees okay

it's not personalized Financial advice

for you but that is at least something

that I think individuals would have to

consider let's keep going for the 2002

or 09

um if you think earnings are peaking now

give at 200

um that's a long way down right that's

1800 to 2800.

um we're not anywhere near that and uh

and so

you have to hope earnings hold up

um and you have to hope I mean look

right now the market in the in the space

of really

six seven months has gone to corporate

profits are going to be up 12 this year

inflation's coming down to two percent

the FED may be easing at the end of the

year I mean that's pretty much Nirvana

if you're a ball is is basically here

saying hey look the Market's pricing in

great things corporate earnings up

whatever he's making the bet against the

Spy basically that's but that's what

markets actually forward pricing think

right now they're wrong all the time but

people are praising in a pretty pretty

nice Goldilocks scenario are you trading

the markets directionally overall or is

it just individual no I mean we in our

hedge fund we are slightly neck short

slightly net long

um and and so until recently we were

actually slightly net long I think we've

gone to back down to zero line plus or

minus

um and in our short only funds were

60 to 80 percent

um and so it just depends on the

individual names in those and and we try

not to take a lot of systematic Market

risk in our hedge fund a lot lot of

changes though when you go from zero

percent interest rates to what could be

five percent and certainly accelerate

the fundamental stories you bet against

when you do your defund mental analysis

so I'm wondering are there are there

positions

that look even better now because that

environment changes maybe the debt

services to a heavier burden Etc well

one of the areas I'm marveling that is

held up as well as it has with with a

couple of exceptions and sub-sectors

like office there's been commercial real

estate

um I just don't get people buying almost

any kind of of commercial real estate

that is that doesn't see good demand at

this point at first of all hands down

100 correct the the fact that these

these uh real estate funds are getting

massive outflows right now totally makes

sense to me like why would you buy real

estate and get you know uh five percent

cash flow when you could just invest in

Robinhood and get four point one five

percent like if it doesn't make sense

and this is exactly why we see this as

first of all we see a big compression

coming in valuation for Real Estate

which is exactly what we're preparing

for with my real estate startup house

hack the whole point of house hack is to

wait for the pain and then get in right

uh and then we've got some really

phenomenal ideas in terms of maximizing

cash flow and being able to sort of

cycle wedge deals over and over and over

again which we're really excited about

uh and and obviously we're working to

bring to non-accredited investors as

well if you're accredited you have a big

Advantage by going to househack.com

reading the solicitation there and

potentially investing uh before uh the

end of February or the end of March

because you get some more bonuses for

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somewhat kind of like call options that

you get for free they're different read

the website you'll learn more about but

anyway totally agree right now that real

estate especially some of the REITs

really expensive especially commercial

like office rate we just had a New York

developer start giving stuff back to the

bank and I hate it when people say that

because it basically just means you

sucked and you had to turn around and

give up and admit Nell but this New York

developer is like yeah I'm giving

properties back to the bank I'm just

handing the keys back to the bank and

I'm like you know it doesn't really work

that way like you're getting foreclosed

on is what it is uh it's it's

disappointing but uh anyway let's listen

in here more to the short seller and

then we'll add some commentary about U.S

consumers they're spending and where we

might be going with Consumer Debt

three percent four percent five percent

so-called cap rates it makes no sense SL

green which we are short New York

offices uh been short now for a couple

years trades at a five percent cap rate

and it's levered massively to its cash

flow

um and I just don't want to buy New York

Office Buildings right now at a five

percent cap when the balance sheet is

leveraged 15 to 1. it just makes it and

I mean and there's all kinds of stories

like this out there in the commercial

real estate

um as you know we're short the data

centers which I think is one of the

worst businesses I've ever seen

um they traded 100 times earnings

and and the earnings of the metric

because capex equals depreciation

uh is that wrong I mean some of the the

data center REITs trade very very very

expensively uh I personally prefer

investing in the chips I don't know I

feel like chips themselves are like the

uh the pickaxe the backbone of it all

and so there's just all sorts of odd

anomalies in the valuation space of

things that are just in the stratosphere

still that sort of make no sense to us

yeah sometimes things look cheap and

they're actually more expensive than

like the Intel quarter for example was a

disaster in that world

debt ceiling and the politics are boring

we don't really talk about them and I'm

not suggesting we're going to go down

2011 path when U.S debt got downgraded

but it's clear that there's a faction of

people that want to push the envelope on

this is that something that concerns you

we just sort of slide through this like

we typically do no I mean again it's

another black that would be kind of

another Black Swan that no one thinks

will happen including me

I mean just one push comes to shove I

think we're going to pay the interest on

our debt

um but who knows it could be wrong

all right so there's our little CNBC

interview now we got to talk about the

consumer here because the consumer I

think is going to be a big piece of this

as well as a market so uh first of all

is is it possibly true that uh you know

there's more pain to come in markets

absolutely in fact here's the biggest

thing reiterating Jim's point right here

this chart right here is called the

yield curve it is the three month ten

year and if I hide myself for a moment

what you could do is you can compare

the.com crash of the yield curve here to

the Great Recession yield curve bottom

to uh approximately the 2020 yield curve

inversion uh and then which is anything

under zero which is over here right so

there's your zero line

to where we sit now which is massively

inverted and folks look at when the

yield curve hit its lowest point

it was at the beginning of 2001. you

still had another year to go of Hell

before the markets bottom markets didn't

actually bottom until over in this

region substantially higher when the

yield curve went substantially positive

again

the yield the markets did not bottom in

the Great Recession until the yield

curve was substantially positive again

in fact it went super negative at the

beginning of 2017.

now that's the remarkable part about

this Market is the biggest thing that

bears have going for them right now is

that historically the yield curve is

suggesting the most painful part is

actually still ahead the only reason you

could suggest that the most painful part

is not ahead of us would be to argue

that we'll wait a minute

the entire reason markets are selling

down is because the FED is trying to get

rid of inflation as long as inflation

goes away and the FED can then relax

earnings per share will continue to grow

they'll go back to growth we'll put the

pain of 2022 in the beginning of 2023

behind us and we'll be right back to

growing and booming

that's sort of the bullish idea

and it's really the basis in the

argument of this time is different which

are the four most dangerous words in

investing this time is different very

dangerous so that gives a lot of

credence to short sellers so we always

want to be as neutral as possible on a

channel obviously everybody's got their

biases but the goal is to be as neutral

as possible and

look you got to give credit where

credits too the yield curve is the most

concerning part now you could try to

explain this away you could say that we

had structural differences between the

recession of 2001 where you had

basically an econ a market that was

running solely on Tech valuations which

had bubbled to insane levels and has

collapsed our market today is so much

more diverse our economy is so much more

diverse and by having a so much more

diverse economy it doesn't really matter

that certain like spax or whatever here

recently have fallen like 90 our broader

economy and the consumer is still strong

we'll talk about that consumer in a

moment and that potentially businesses

can take this as an opportunity to

invest kind of like you're seeing

Chipotle doing you're seeing the chips

companies doing you're seeing a lot of

companies throughout America saying look

the hard part is going away the second

half of 2023 should be very strong for

them that's the argument will that hold

true we don't know but we're also

looking at different structural causes

of a crash now than we had in 2006 and

7. in 2006 and seven you had a real

estate disaster dead people getting

loans people who couldn't qualify for

loans getting teaser rates of negative

interest rates that ended up adjusting

to seven percent and then they had to go

into foreclosure so you had a

foreclosure crisis we don't actually

really have a clear fundamental disaster

that we could see right now but then

again that's why they call it a Black

Swan because maybe we're just blind to

that potential Black Swan and maybe that

Black Swan is coming and then we could

go oh yeah there were real fundamental

problems in which case the inverted

yield curve would be correct that the

pain is still ahead of us and that gives

Credence to what short sellers like Mr

Jim are saying

now other folks look at what consumers

are doing and say that consumers are

basically building up a consumer credit

bubble in fact CNBC just posted

yesterday this particular piece here

which shows that U.S credit card debt

jumped 18.5 and hit a record total

credit according to TransUnion hit a

record annual aprs are already sitting

at 20 on average basically meaning more

and more money of individuals uh income

is going to debt payments you've got the

an average balance on credit cards of

5.8 thousand dollars and you're

returning to levels of Consumer Debt uh

in terms of a payment of their personal

disposable income that resemble what we

saw before the pandemic in other words

we're getting back to levels where

people are spending more potentially

than than they're actually able to save

and this is very easy to see by just

looking at the personal savings rate a

personal savings rate was just 3.4

percent in December that is a disaster

compared to the usual five to six

percent where we sit and it's certainly

a disaster relative to the covet era but

then again we were getting a lot of

money that we could save via stimulus

checks so we are in this little consumer

savings glut at the same time as people

are taking on more debt and at the same

time that we're actually going back to

2019 levels of spending uh debt spending

as a percentage of personal disposable

income now

the good news is if you compare to the

last recessions the.com bubble and the

Great Recession or the recessions of the

80s you actually had consumers spending

households households were spending over

11

of their disposable income on debt

we're at 9.7 right now which is in line

with the lower levels of about 9.7

between 2010 and 2020. now that one

percentage point doesn't really seem

like a difference but between 11 and 13

is where we sat during the recessions

and if you see the chart either it's

actually a substantial difference so

we've got a substantial way to go

however this is where I think the

problem could actually come

if inflation rears its head again

then you're in this really interesting

environment because think about this for

a moment what I think you have right now

is right now you have people borrowing

they're taking on more debt to get

through the inflationary period right so

debt now as a bridge think of it as a

bridge right you're bridging to get

through the painful period so yes

consumers are taking on more debt this

is just my theory as long as inflation

goes down

then we can refinance the debt and that

debt payment as a percentage of this

personal disposable income plummets

again

we have to rely on being able to

refinance that debt however if we get a

second wave of inflation this debt stays

expensive and then we potentially go

back to the this this sort of era that

we had in Prior recessions where people

are spending way more money on their own

debt as a percentage of their disposable

income so you go back to 2006 and 2007

2008 and 2009. you go back to a.com

bubble and you actually confirm what the

bond curves are telling you you confirm

that the worst part is still yet to come

and then guess who ends up being right

Jim the short seller so if debt is not

just a bridge but it actually stays

because inflation pops up again then the

bond markets inversion of the yield

Curve will be correct the painful period

is still to come the earnings decline is

still to come the S P 500 is still to

fall the short sellers will be correct

as earnings collapse the market will go

to crop

however

if inflation goes down and that

fundamental reason for a crash now goes

away then guess what could end up

booming and this is what I teased

earlier with which companies could win

all of this debt that's being taken on

on credit cards in excess of 20 right

now or personal loans that are being

taken on like crazy right now something

crazy is going to happen to that debt

let me just reiterate currently what's

happening with personal loans look at

sulfi's earnings okay

three months ended December 20 uh 21

1.6 billion dollars in personal loans

done by Sofi

one year later

2.46 billion dollars in other words a 50

increase in personal loans at Sofi Sofi

is taking money and deposits and they're

lending it out like crazy which means

people are borrowing money like crazy

and this is reiterated by what we're

seeing in the numbers this is why Sofi

beat on those earnings they're making a

lot of new loans not only are they

making a lot of new loans but credit

card debt is skyrocketing Consumer

Credit has been skyrocketing we get new

Consumer Credit numbers next week so

yeah you've got a lot of crazy numbers

going on in the world of debt

but what happens if indeed those

inflationary numbers go down and all of

that debt what's going to happen to that

debt Focus what kind of Boom are we

going to have if inflation Falls let's

write it down if inflation plummets who

wins and what companies win that we

haven't talked about yet

refinance companies baby think about it

any lender who makes money

off of making loans wins so that's

probably going to be companies like Sofi

because think about it the loans they

have are more valuable because they're

paying a higher interest rate and if

people refinance those loans so far wins

because you have more refinancing income

and more more actual processing Revenue

right and their costs go down who else

wins probably think about like a rocket

mortgage or what about a UWM right uh

United Wholesale Mortgage Company the

real estate mortgaging companies win

because a lot of people have been buying

homes with interest rates between five

to seven percent rates go back to three

percent you're gonna have a huge

refinancing boom

and so you're going to have some

companies with massive PP massive

pricing power if that inflation comes

down we have that uh that uh refinancing

boom and then all of the debt that

consumers have taken on actually doesn't

become that big of a deal you could have

Consumer Debt as a percentage of

disposable income right now literally as

high as 2007 levels

but if rates plummet and people

refinance it away that burden goes down

really really fast also think about this

Autos the entire Auto sector will be a

whole lot more affordable for people to

go buy cars because then they can go

Finance cars again at three percent

instead of you know the five to seven

percent they're paying right now

so you will as long as inflation Falls

consumers what they're doing is they're

borrowing through this recession I

really believe that to be true that

consumers

and businesses

are borrowing through this recession I

believe that's what's happening and if

the recession lasts longer

we're screwed right so if inflation

doesn't plummet and the recession lasts

longer we're screwed

but if inflation plummets and therefore

rates plummet the refinance companies

win bigly the Autos win Bakery and we

don't end up having an EPS disaster at

uh at American companies why because

people can keep spending

so that's a really big thesis and sort

of a big conclusion there that all of

this credit spend is inflating a massive

bubble

but that bubble would actually be

manageable if inflation continues to go

down if inflation pops back up we're all

screwed it's that simple so that's why

looking at the inflationary numbers is

very important looking at the jobs

report yesterday was important because

it reiterated the downtrend on average

hourly earnings but it also reiterated

that we could potentially Dodge

a recession in that maybe we don't need

a a bunch of people to lose their jobs

people losing their jobs is bad for

recession right best case scenario we

don't lose a bunch of jobs and inflation

just goes away best case scenario it's a

Goldilocks scenario and that's somewhat

What markets uh some markets are pricing

in now with the FED potentially uh

writing

um well basically uh with with markets

pricing that the fed's going to cut

rates eventually so we shall see we

shall see