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I think there will be a lot of optimism during this period. The administration will get what it wants in terms of passing the Clarity Act by July 4th. This would be a boon for the cryptoasset ecosystem. This is Katie Wood making a bold prediction that completely contradicts the conventional wisdom that we are headed for more inflation and job losses.
If she's right, then everything you hear in the news is wrong. Click Subscribe and stay until the end. She backs this up with data that most people have never seen. Today is the employment report, it's Employment Friday. We received all kinds of signals, something for everyone. For example, nonfarm employment rose by 117,000.
This was higher, much higher, than the expected increase of 70-75,000. However, household employment, which includes more small businesses, fell . I think it has fallen in the last three months. And it fell by more than 200,000. Another thing we learned is that the average workweek has increased. So, this is good news.
Um, because maybe instead of hiring people, uh, companies are asking employees to, uh, work a little longer. This shows the strength of the economy. Um, on the other hand, we saw wages grow by only 0.2%. So that's about 2.5% per year. Um, at the same time, the productivity is about 3 %. Um, so we'll look into this some more .
Again, something for everyone. The economy is probably stronger than many of the headline reports we see. Um, and here you can see another reason, uh, why the deficit should be increasing, not decreasing, and that's reimbursement for individuals. Compensation increased by 17% year-over-year , and that's of course because there are no taxes on tips, overtime, and a significant portion of Social Security.
Um, so despite this, the deficit is decreasing. This is very interesting. This probably means the economy is stronger. One of the things we've talked about is that because of these tax changes, uh, and because of deregulation, uh, we think that the return on invested capital in the United States will increase relative to other countries in the world.
And that usually means that, well, it usually has a positive impact on the dollar. This usually has a positive effect on the dollar. Here you can see the CPI inflation rate relative to M2 growth year-on-year. M2 in purple, ee CPI in green. And you can see, and M2 is shifted 18 months ahead because, uh, money growth tends to lead to inflation, and you can see, uh, that's exactly what happened during COVID, uh, monetary policy went crazy.
I think the peak, uh, annual growth was 27 and a half percent. And then inflation, uh, and by CPI it peaked at uh 9%, by true inflation it actually peaked at 11%. And then, of course, it spun out, went into negative territory, which is what it needed to be, and now we have a cyclical recovery . Uh, just looking back at when the money supply growth rate was higher than the CPI, and were there sustained periods when that was the case, and the answer is yes, and that usually happens in the early stages of a recovery and then an expansion.
You can see here, uh, in the 80s, uh, coming out of consecutive recessions, in early 1980, uh , we had money supply growth well above inflation. And then again , you can see this before and after 2080, oh no, sorry, after the tech and telecom bubble and crash. Again, it was much higher. And then, uh, you can see it after, after the crisis of 2089.
Er , so we have money above the CPI, but we haven't gone through a recession, right? As you know, uh , we've been saying that for three years, two and a half to three years, we've been in a constant recession. Of course, manufacturing, housing, low- and middle- income people feel like we are going through something more than a recession.
Uh -uh, and so, uh, I think, uh, we're in the same environment as we were after those recessions. This is when consumers are cautious, and uh, optimism is low. Er, so, er, that's exactly the state we're in right now . So we don't consider, uh, M2 growth, which is 4.9%. For example, a harbinger of 5% inflation.
AI training costs are falling by 75% per year, and you've heard me say before, inference costs are falling by 85-95% or more per year. Uh, very deflationary. Why do you hear so little about this? That's because the advanced models, uh, are very expensive, uh, you know, advanced models. GPT 5.5 came out in the last 10 days, and uh, OpenAI released something called, uh, meta, uh, that can reason for, I mean, for 20 hours, uh, and just absorb tokens, uh, and uh, perform better than the last version's code.
So now you see developers moving back to open AI, and we see that this competition is actually accelerating this space. So, uh, these models are very expensive, but if you're using a generation that precedes these models, then your costs for that go down quite a bit. Most people, and of course we want it to be at the edge of possibility.
We conduct cutting-edge research, so we are willing to pay. But many companies can't afford to pay that much. So either way, it's very deflationary for most of the world. We think we're going to go below, uh, 2%, and here's one reason why: real inflation. This is a measure of thousands of goods, products, and services measured 24/7.
So in real time and even, and that includes food and energy, even with food and energy in the mix. You can see that we are already at 2% on this indicator. And according to the main indicator on which this whole bed is based, we are at the 1% level. We are at the 1% level. And you can see in this overall real inflation, uh , not in the core.
Yes, she went through the struggle that we still go through, uh, in the markets, asking whether inflation will return to 2% and stay there or not. So you've had, you know, a lot of uncertainty over the last 3 years. Uh, the situation has improved. Oil is creating a little difficulty, but we are still only at 2%.
Thanks to increased productivity. Unit labor costs are decreasing. Uh, and I wish we could move this graph to the 70s, you would have , and it basically looks like seven and a half to 10% on a long-term basis. Uh , but you can see that as measured by the unit labor cost inflation rate, the inflation rate is, uh, very low at 1.2%, which is somewhat consistent with the true core inflation rate.
So what this means, and this is really important, is if we're right and productivity is now about 3 %, uh, we could have a 5% increase in compensation. So, a 5% increase in inflation compared to last year minus a 3% increase in productivity will give us a 2% increase in unit labor costs. So, 2% is the inflation rate they expect.
We are below that level now. And this once again convinces us that inflation will surprise with high expectations. Manufacturing is coming back to life and you can see that there has been a big upward movement here. Hmm, and that's probably because manufacturers have understated their inventory. However, you can see that the services, ahem, don't work that well.
So you can see the order in green. They grew and then just fell. This could be a reaction to oil prices and the rising prices, ahem, prices being paid here. So that makes sense. That makes sense. If prices are rising, then demand is likely to pause, and we think that is exactly what is happening now.
You can see that there has been demand from the manufacturing side in the flatbed truck market . Moreover, it is positive. There's been a big movement that confirms this, you know, the shipment of goods, um, is growing rapidly. Capital expenditures are starting to rise rapidly. What's interesting about this graph, and I've been, um, watching it since the early 90s, um, we've been peaking at about the same level every cycle.
And now we've overcome it, hmm, and are rapidly moving away from that former peak. So, you know, in the stock market, when you say you had a large base, and it lasted in this case for 30 to 35 years, the breakout, um, is significant and is likely to be sustained, um, I think, due to deregulation and favorable tax policies here in the United States, as I discussed earlier.
Of course, of course, the, um, AI boom and the energy boom, um, are behind this, but we're even starting to see, um, capital that's sitting outside of those two industries moving, um, higher. And actually, what was so exciting was Intel, um, Corning, um, Flextronics , now called Flex, names from the previous bubble.
Cisco, uh, there's... Oh, today AI, my God, it's always grown in the single digits, and now it's got an order for hyperscale. Uh, wants to use its content delivery network. Uh, you know, these are blasts from the past, and it essentially says that this AI boom, uh, is pulling, you know, the old guard along with all the hands.
Let's do this. Uh, watching Bitcoin to gold. Bitcoin is moving up relative to gold. This, uh, this, uh, suggests that we've held something like higher lows. The trend is growing, would you say ? The trend is growing over time, and we believe it will continue to grow over time. We wouldn't be surprised if gold continues to fall, especially if we're right about the dollar and Bitcoin continues to rise.
And here are two dimensions of risk: credit default swaps in the banking system, especially given the private lending crisis that we talked about, we said that this is not systemic; this confirms it. The last tick here was down. And finally, uh, the high-yield, uh , spread, of high-yield bonds or junk bonds versus the 10-year bond in terms of fair yield, again, is very low by historical standards.
Uh, no surge after the private lending sell-off, uh, uh, here. So, uh, that's good news. Uh, I know the market has been struggling this year, even though the market itself is growing. Uh, the innovation area was disappointing. Some parts of it showed very good results. Everything related to space and defense technologies has shown very good results.
Uh, but everything related to software, even fintech and payment ecosystems, uh, they've been affected, and we think there's, uh, a big confusion: sell now and ask questions later. So, uh, as you can see, as we publish our deals every day, we're picking some of the babies, uh, uh, out of the bathwater, uh, when it gets thrown out.
So, um, um, we expect that as the economy recovers dramatically, the 4th of July, um, is coming up, um, it's our 250th, um, birthday as a country, and we think there's going to be a lot of optimism during that period . We hope the administration gets what it wants in terms of passing the Clarity Act by July 4th.
This would be a boon for the cryptoasset ecosystem. Katie Wood just made an argument that most investors are not ready for. Falling inflation, rising productivity, a manufacturing boom, and a dollar that is rising, not falling. Whether you agree with her or not, the data she presents is worth understanding because if she is even half right, the market is about to repeat a lot of things.
If this video gave you a new perspective on the macroeconomic picture, leave a comment with one chart or statistic that surprised you the most. Like and subscribe to receive more analyses like this. We dig so you don't have to .
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