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I think that there's going to be a big problem with all of the the resources and all of the, you know, the money that needs to be borrowed in order to pay for this at a time where governments are already borrowing so much money and there's not a lot of savings and there's also not a huge abundance of spare capacity with these resources.
So there's going to be all these bottlenecks that could blow everything up and we could easily have a debt crisis, a sovereign debt crisis before we get an answer to the question of how how much productivity and profitability is going to flow to the providers of AI. The US economy is is in the process of breaking.
When that is going to accelerate into a crisis, it's it's hard to say, but we're certainly heading in that direction. Doesn't matter if the Fed hikes rates, it's too little too late. Inflation is going to keep rising. The Fed is going to fall further and further behind the curve with each hike. &. How far do you think the global economy could take this war?
H how far how how high would oil prices go before the economy breaks? The Trump administration is talking about doing something after the midterms, which I think, you know, in and of itself is suspicious because you should not be planning military action around our elections because that's an admission that is all political.
Um, so I I don't like the whole idea that, you know, things should be done after the election because you don't want uh the what you're doing to have an impact on the election. But um I think oil prices are going higher regardless of whether or not we escalate this war. And I don't think that escalating it means that we're going to win it uh or that it's going to bring victory any closer uh than than it already is.
Um, so I I think what's really going to have an impact is when we have to turn off the spigots from the strategic petroleum reserve and you know we have to deal with uh the actual uh oil and not not all this extra oil and if we get to see a decline in the dollar which hasn't happened yet but if the dollar finally rolls over and falls that will also be pushing up oil prices for Americans.
It may be restraining them some somewhat for the rest of the world. Uh but it will certainly be adding to the upward pressure uh that Americans are seeing with with oil prices. But it's a combination too. It's not just the price of oil. It's actually the price of everything that's going up and and and and the cost of credit.
So interest rates are also going up. Fact, there's a pretty strong correlation between oil prices and interest rates or you know long-term bond yields. they're they're rising together and yeah, the US economy is is in the process of breaking. When that is going to accelerate into a crisis, it's it's hard to say, but we're certainly heading in that direction.
I think the main reason that Donald Trump's popularity continues to hit new lows is because the economy is weak and all of the talk about the strong economy is is just talk. The reality is that the economy is weak and uh prices are are rising. Uh we have, you know, a bigger increase in prices happening now than we did under Biden.
Uh certainly under Biden's last two years, the first two years of Trump have seen bigger price increases than the last two years of Biden. So, uh you know, we've turned that corner and inflation is headed up now, not down. Uh and GDP growth has actually been weaker. Uh during Trump's first two years, the GDP is going to grow less than it did under Biden's last two years.
So the economy has weakened, inflation has strengthened. That is the opposite of what Trump promised. And it's the opposite of what he is pretending is happening. What would break first? What would be things you'd be looking out for? Uh well, you know, I think you could see housing. The housing market is in a very precarious position.
uh you know sales are the weakest they've been in in in over 20 years which means they're weaker than they were you know in the early uh years after the financial crisis and collapse of the housing market and builder sentiment is the lowest it's been in over 20 years uh because it cost a lot to build a new home and nobody can afford to buy it.
So the whole industry is in a lot of trouble. But what has been kind of keeping some of the uh the real damage at bay is the fact that homeowners, a lot of homeowners still have very low mortgages and they can afford to make the payments on the homes that they can't sell. But eventually you're going to see a repricing lower of home prices regardless of people uh holding on to homes who have those low interest rates.
And not everybody has a 3 or 4% mortgage. There are plenty of people uh with five 6% mortgages. Even though current rates are closer to 7 and a half, uh they still may not be able to afford to make those payments and the incentive to do so will disappear once their home equity is gone. So, I still think that you have a major uh crisis coming from a collapse in home prices.
And I think the losses to banks in the financial system will be staggering because not only are the lenders losing money or will they lose money when mortgages default and home prices are down, but they lose money on every mortgage that does not default. And that is a a a huge difference between the '08 crisis and now.
Back then, the lenders only lost money on 10% of the mortgages that defaulted. They actually had unrealized gains on the 90% that didn't default. Now, they have losses on pretty much all the mortgages, whether they default or not. Uh they just may have greater losses on defaulted mortgages uh if real estate prices really tank, which it looks to me like they're going to do, you know.
And then you have the reverse wealth effect of uh you know all these retirees uh watching their home equity you know vanish. The fragility of the tech sector in the last few days and weeks. I think I was reading a comment that Elon made is implying that you know appetite for that level of risk is drying up pretty quickly.
It's hard to know what the motivation for Musk is uh for those statements. I mean, maybe he believes it or maybe he's trying to make it harder for competition to raise money uh by talking about the fact that it's hard for companies to borrow money. But but I agree there's a lot of money that's being borrowed.
Uh the the interest rates that companies are paying is rising. Um you know, the question is can these companies continue to get access to credit? Can they afford to pay the higher rates? Will the investments they're making in the AI related capex uh the data centers all the compute uh will that provide enough revenue to repay the debts with the interest uh and make you know a good profit for the companies?
I don't know. uh you know is there are a lot of factors that I that I that I don't know uh how they'll play out with respect to uh AI and and what you know what the value will be uh that these companies are providing relative to what their competitors may be able to provide at a lower cost I don't know you know this whole thing is evolving very quickly um you know around AI but I I think that there's going to be a big problem with all of the the resources and all of the you know the money that needs to be borrowed in order to pay for this at a time where you know governments are already borrowing so much money and there's not a lot of savings and there's also not a huge abundance of spare capacity with these resources.
So there's going to be all these bottlenecks that could blow everything up and we could easily have a debt crisis, a sovereign debt crisis before we get an answer to the question of how how much productivity and profitability is going to flow to the providers of AI. Well, gold's been banging around the $4,000 support.
It did dip below it slightly, but didn't really stay there. But I think again investors have got this trade wrong. They keep looking at rising bond yields. They look at the Fed and the fact that the Fed is going to raise rates. And all this is seen as being bearish for gold. And so traders are selling gold based on, you know, the idea that the Fed's going to hike rates because inflation is is too high.
But inflation is too high because the Fed lacked the ability to raise rates high enough to contain it. The reason the Fed stopped hiking rates originally was because things started to break, not because inflation was was was vanquished, but because uh Signature Valley Bank uh was was failing and other banks uh were were starting to fail because of their exposure to the bond market, to the mortgage market.
Well, you're now getting even more downward pressure on on lender balance sheets uh based on falling bond prices and falling value of of of mortgage back securities. So, I don't think there's that many rate hikes coming. But even if we get all the rate hikes that the market seems to anticipate, maybe another 50 or 75 basis points, that's nothing.
The inflation has already risen. The official inflation rate has risen by more than that. uh since the time that markets expected the Fed to cut rates. So I would argue that real rates are actually falling and they're falling rather sharply and that is bullish for gold and traders haven't figured that out yet.
That's the buying opportunity for the people who understand this doesn't matter if the Fed hikes rates. It's too little too late. Inflation is going to keep rising. The Fed is going to fall further and further behind the curve with each hike. Uh so gold's going to new highs. So is silver. So people should be buying now before investors figure out what they already should know.
Nothing goes up at a straight line. You know, there are traders. People take profits. Um so I I think bond bond yields are going to keep rising. the, you know, the high that we set. I think we got to about um five point maybe 69 on a 30-year and I think 5.33ish on the 10-year before we've pulled back.
In fact, the 10-year yield is now slightly below 5%. But I doubt it will go much lower than here. And I think, you know, the next move up will be five and a half, then six. Uh, you know, this is a long journey and rates are not going to stop at six. There's no reason. They they they need to go a lot higher and they ultimately will go a lot higher.
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