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foreign it's the top question on many Americans Minds eighteen thousand layoffs at Amazon 11 000 at meta Facebook 10 000 at Microsoft inflation represents the bigger threat overall to markets and the economy we're at the beginning of the beginning okay for all of us that lived through 2000 this was four years of sheer hell and a grind now we have 30 trillion dollars that we have to work through the economy a recession we have to overcome a war we need to end and people all of a sudden assume that two or three rate hikes and five or six months of headlines are enough it's going to take three years probably of the slow meticulous you know running off of money you know not reintroducing new money that may mean the bottom doesn't happen for another 18 months so I think it's a we're in for a lot of choppy um Market action I don't understand why anybody would give up their liquidity in this moment right now why would you why would I why would I give up 100 million dollars of cash in my bank account I would not do that right now the thing that you have to do before you talk about what is happening now I think it's probably useful to go back and you have to really start at the end of the great financial crisis and the reason is there was a bunch of people coming out of the GFC who confused what the U.S government and some European governments were doing at the time there was the risk of a huge financial Contagion and so the U.S stepped in and the Federal Reserve started to use their balance sheet to buy toxic assets right and the ECB did that and I think Japan did that as well anyways a bunch of banks did it I mean a bunch of governments did it and then there was this body of pseudoscientists typic economists who coined this thing called modern monetary Theory which basically said hey you can keep printing money and introducing it into the economy to smooth things out and to actually drive long-term growth and it turns out that a bunch of government officials fell for it and if you fast forward to 2022 so 14 years later you know governments around the world had printed something to the tune of about 30 35 odd trillion dollars of money into the economy that should have never been there so the thing to remember is like we have not necessarily just been obfuscating true Supply demand in the last six or eight months when we've been talking about a recession or inflation we've been actually doing it since 2008 it's just that it's been building up in the system so one of the things that we have to realize is that all of that money somehow needs to get destroyed in some way shape or form if the true economic equilibrium is meant to be found what is true Supply what is true demand in the absence of government sloshing money around trying to prop up things that should not be propped up or buying votes or all the grifts that these folks have engaged in in the last you know decade and a half have to get undone so that's the backdrop so if you think about taking 30 trillion dollars out of the global economy you know you're talking about almost you know I think it's 85 trillion is the world GDP so like you know it's it's it's almost half of an entire Year's worth of global GDP it's gonna take three years probably of the slow meticulous you know running off of money you know not reintroducing new money so it seems like we're at the beginning of the beginning of something that's going to be long and drawn out and that's separate from whether we're in a recession or not that's just the bear Market that we're in right and so you have to look at asset prices today as a microcosm of a much larger Trend that has to be about fake money pushing asset prices up and now taking all that fake money out and finding out what the real price of something is and I just don't think that takes six months so for all the people that were you know fingers crossed hoping that this would be the end of it fed raises 75 we're done with this they're going to raise 75 more I just think that's not how it's probably going to be it's going to take you know 24 36 months that may mean the bottom doesn't happen for another 18 months so I think it's a we're in for a lot of choppy um Market action I think we have to also be sensitive to the fact that the FED operates on a certain class of data and that data in the 21st century is pretty pathetic um Nick you can probably find this but there was an article I think it was in the New York Times that really walk through how CPI is calculated and it's a bunch of people that work for the government that walk around with iPads building relationships with local businesses in all these random places all around the country and asking them to you know chit chat for 15 minutes and do these surveys now you would have thought that in 2023 or 2022 what the government would have said to you know Visa Mastercard American Express all the payment rails the banks and stripe is send me a feed in the following structured way so that I can actually have an absolute precise sense of inflation because inflation really only occurs when a good or a service trades hands for money right and you calculate what did that thing trade at the day before and what does it trade for today so you could get an absolute precise sense of it instead we do this random sampling thing if you read this article your takeaway will be oh my God this is very rickety and it drives an enormous Hammer that we use to try to manage the economy that's the first thing I think you need to buckle your seat belt because the next three four five months of CPI will probably be very very bad seven eight nine percent why there are a handful of components that have gotten completely run away number one the biggest one is rent and so rent works on a three month lag we're going to reintroduce what the true owners equivalent rent is into CPI so we can already forecast that CPI going up oil is at 105 bucks a barrel Russia is basically trying to break the back of Europe by now messing with their Nat gas supplies the German energy Minister yesterday said that if that happens it could be a contagion equivalent to Lehman Brothers with respect to energy when you play all of these things out what you have is unfortunately rampant runaway costs that really have no mechanism to get back and check in the absence of some real governmental changes or policy on this Ukraine Russia War you know how we intend to sort of uh work or cooperate or fight with China all of these things have to get solved so in the absence of that prices are going to continue to go up and so what does the FED do how does it throw away what little credibility it has left when there's eight and nine percent inflation prints and saying we think we're done for right now you can't do that so they will over correct because they're just going to be so much pressure for them to act all roads I think lead to lower Equity prices and I think what David said astutely is we've seen the first wave but now it has to touch all these other areas for example we have gotten totally drunk on debt as a country one of the most obvious places where we've been serving alcohol far too late into the night isn't the financing of all these private Equity leverage buyouts these are sketchy companies that are sort of like you know teetering on insolvency at times where private Equity comes in levers up the balance sheet with debt they price it right to the edge of what's legally allowed or what's financible and then they go do it but that's all assuming the economy continues to grow and so if all of a sudden you have some recessionary forces or prices go up and earnings don't you'll have you know a contagion in the debt markets you could have a contagion in the commodity market so we're dealing with some really um boundary conditions I mean real estate most of most Americans have most of their net worth tied up in real estate and if we see a 30 30 correction in real estate it could be a real problem particularly with Rising interest rates inability to refinance we're at the beginning of something that just fundamentally has to take some amount of time to work its way through the system and so I don't understand why anybody would give up their liquidity in this moment right now why would you why would I why would I give up 100 million dollars of cash in my bank account I would not do that right now
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