Episode of the Chicks on the Right podcast where we talked to our BFF and
sponsor of the show, Zach Abraham, who is the chief investment officer at
Bulwart Capital Management, and he always helps us understand weird, complicated financial monetary
concepts and he breaks them down into little tidbits that we can understand. And
it's good timing, Zach, because apparently the GDP has soared unexpectedly to new
heights that were not foreseen, and so that begs the question, what the
hell is that and what does that really mean? Is that? Yeah,
okay, so GDP stands for gross domestic product. Okay, So what it
basically is looking at is trying to and to add on to what you said.
We try to do this all the time. But it's not about breaking
it into little pieces. It's just about out putting it in layman's terms,
right, Like one of the things you learn about in the world of finances,
everybody knows more than they think they do. They just don't know the
lingo, right like, well, like you people know the concepts and I
and I am convinced to this day that the reason that there's so much of
this esoteric vernacular used is just so we sound smart, right, Like you
know what I mean, because you'll hear these people say this big elaborate thing
and you're like, so what you're saying is we've got too much debt?
Right? And it literally and you literally it took like a paragraph in five
minutes to say it, you know. So, so gross domestic product is
is just basically it's it's a very rudimentary, very inaccurate kind of think of
it like a sledgehammer way to measure the output of an economy. So this
is way over simplistic, but it really does. You don't need to dig
into it deep to really understand it. Basically is looking at the sums or
the additions and subtractions and and basically adding up all transactions, right and saying,
okay, that's some of that transaction that is an output, right,
Apple sold? You know it's thirty million phones internationally that goes on our gross
domestic product. Right, So it's just how they pick, like how does
it who? Well, how do you pick what goes into the measurement and
who's responsible for doing the tallying? Yes? And like is there like a
gdpsre like who does that? It's it's it's it's done different yeah, different
people, different people, different industries, taboo or excuse me, different departments
tabulated. Everybody kind of keeps track of it on their own. The Federal
Reserve tabulates it on their own. I believe the BLS, the Bureau of
Labor Statistics, I believe they tabulate GDP on their own. But it comes
from but the but the official numbers come from FRED. And I forget what
the acronym stands for, but it's the Federal and it's like the Federal Data
Department. Basically, it's FRED, the Federal something economic department, the Federal
or something might the Federal Reserve economic departments. We're gonna go with the exact
data. I've looked at it so long. I just see FRED on the
charts and that's why. Yeah. So, but here's the tricky part about
it, right, And here's one of the things that I think is going
on. And I don't think it's conspiratorial. I just we've talked about before
about the tricky Inflation is a very tricky thing that most people know far less
about than they think they do. Right, It's there's just different forms of
inflation. There's different causes of inflation. So one of the tricky things about
GDP is that GDP there's two different ways to tabulate it. There's what we
call nominal GDP, which is literally just the addition. An easy way to
put it is an addition of all transactions made in an economy over any given
period of time. Okay, so totalnomic output, just adding all of it
up together. How many widgets did the entire economy sell, how many buildings
they are build? Adding it all up together, putting it out there,
that's the nominal number. And then what we look at in the business and
what Fred the Federal Reserve Economics Department and all these guys, what they put
out is something called real GDP, so that is the nominal growth number less
the inflation rate. So one of the things that I have been saying is,
you know, and you talk to people out there, Yeah, you
see these economic prints, does it feel like you're in an economy that's growing
at three to five percent? And everybody's answer is unequivocally no. Right Now,
I could be wrong about this, but I think the easy explanation for
all of it is that inflation is understated. Because if inflation is understated.
That will make GDP look bigger, right because we take the nominal number less
the inflation rate. So if if we had five and a half to six
percent inflation right now, I think that that would make a lot more sense.
That would imply that the economy was growing at like more zero point five
to one percent, or or in other words, just hanging off the edge
of recession. And I think that's actually what's going on. So and again,
I don't think it's conspiratorial. I don't think anybody's trying to do it.
I think that there are things that the Federal Reserve does that makes them
prone to understate inflation. I think that there are things that have you know,
you've had a lot of one off crazy things occur economically in the last
three years. I think that's kind of clouding the issue to some degree.
But you look at all this data, it looks all conflicting, like it
doesn't make sense. Then you look at the Then if you assume that the
inflation rate is understated, bump it up to five and a half to six.
Now everything makes a lot more sense. So that's kind of why we
think that what's going on and what's really confused using people, is inflation is
being structurally understated, which is making growth look stronger than it really is.
So again, but not on purpose. You're saying inflation is not being it's
being understated, but not on purpose. Yes and no, okay, but
except by the Biden administration, because they're going to understate it on purpose with
well, I mean, he's already going to tell you there's no inflation and
we've beat it, right transitory? Yeah right, yeah, yeah, you
gotta love that word. So so the answer, the answer is yes and
no. Okay. So if you go back and look at over the years,
the Federal Reserve has made several tweaks to how it how it measures inflation.
Okay, Now, I think it's impossible not to observe that every one
of those tweaks made inflation lower, not higher. Okay. So now I
think it's also impossible to not observe the fact that understating inflation structurally is beneficial
to both elected officials and the Federal Reserve. So is there a part of
that at play? Yes, I'm sure. Then there's also, though a
part of it that's not and it's something that they do, and I think
we've talked about this before, but it's something that the FED does called hedonic
adjustments. So what a hedonic adjustment is and I've got two really good examples
for what it is and what it isn't. Okay, So and the FED.
Here's the problem. The FED does this to both things. If we
look at automobiles, and I can't remember the I can't remember the date.
But if you look at the Fed's data, the FED will tell you that
the cost of automobiles and again I don't remember the exact dates, but it's
over a twenty five year period of time. So let's say nineteen eighty to
two thousand and five, the FED will tell you that there was zero automobile
inflation. Okay. Now, if you look at the price of automobiles over
that period of time, they went from like thirty five hundred to like thirty
five five thousands. Okay, Now what the FEDS now, the Fed's argument
is this, their argument is now okay, at the same time, now,
now keep that in your mind. What we're talking about with automobiles.
Now think about cell phones. Let's go back and look at what the average
family was paying for telephone bills in nineteen eighty, and look what they're paying
now. Okay, cell phones are why the Fed does hedonic adjustments. If
you look at what people were paying for a telephone bill in nineteen eighty compared
to what families are paying today, it's mind blowingly more. Right, But
think about what use we get out of that telephone bill that we didn't then.
We're using it for GPS, We're using it to GPS locate our kids.
We're using it to email and conference call and FaceTime and take pictures and
videos and all these other things. Right, So to say that the cell
phone the cost of phones inflated one thousand percent, it wouldn't be accurate because
phones are serving so many more purposes today than they were in nineteen eighty.
Okay, but flip back to the automobile. Okay, the automobile isn't giving
us a service today that it wasn't in nineteen eighty. What is the primary
function of the automobile. It's to get you from one place to the other.
Well, guess what, cars aren't any better at doing that today than
they were in nineteen eighty. Yeah, Well, you could certainly, you
could certainly make that argument, especially if you drive an electric vehicle, specifically
one made by Tesla. But no, but no, but I agree with
you. But so that's a classic example though, of bureaucratic you know,
oversights where they don't think about unintended consequences, right where you're like, yeah,
I can see how a donic adjusting would would would deal with cell phones
and that gives you a more accurate picture. But on the other hand,
you're doing that same thing to a bunch of and their argument is, well,
but look at all the things. You've got c heater or seat heaters,
and you've got stereo systems and moon roofs, and I go, yeah,
but that doesn't improve the underlying intended function of the car. It doesn't
get to work faster, it doesn't improve my margins. I'm just spend Yes,
it doesn't allow me to spend more time with my family. So that
is just pure inflation, right, It's just pure inflation. So when you
look at that side of it, I think it's really hard to argue that
inflation is not materially understated because of things like that. And like I said,
when you see a GDP print like that that everybody's like, oh,
it's growing, and you're like, Hey, find me anybody out there that
would say that they feel like the economy is growing at that pace. Nobody
does, right, So then you look at it and go kind of Awkham's
razor, You go, hey, of all these things, what makes sense.
Well, if inflation is materially understated, that would mean growth is materially
overstated. That seems to fit, right, So that's kind of I didn't
give you guys more questions and answers on that, but I just I think
that that's what's happening. And I think that there's a real danger in that
as far as the economy is concerned, because it's gonna make the economy appear
much stronger than it actually is. And I think, I am not sure,
but I think that is starting to unravel as we speak, meaning you're
not there yet, but you see all of the things lined up for a
lot of job losses in a relatively short period of time. We guys this
and to be to be fair, though, this environment is extraordinarily complex and
there's so many cross currents that you can't be the only thing I'm sure of
really in this environment is that the guy that can tell that tells you that
he knows exactly how it's gonna play out. The only thing I'm sure of
is he's a complete idiot or a liar, right it really, I just
I just know that it's a it's an environment where the market is telling you
there's no risk, there's tons of right, and it's just an environment that
requires a lot of caution because there's just so many false flags and there's so
much conflicting data, so much confusion. But the underlying health of things is
not good. You know, every single day interest rates stay up. Here,
you're going to see Remember we told you guys a couple months ago,
We're like, wait, things are gonna get really weird. You're gonna start
seeing the market do really well, and you're going to see data start picking
up a little bit, and everybody's gonna be like, oh, it's great,
here, we are right. This is exactly what we were looking for.
So it's it's going to be a complicated environment. But man, these
commercial we've just heard about Blackrock had a big property default. It was worth
one hundred and seventy five million bucks. So those those commercial office space defaults
are coming. Oh my gosh, my god. Well, okay, so
that's helpful. And this is exactly why you do the seminars that you do,
why you do your little short radio bits all the time, and this
is why people should connect with you. How can they do that? Yeah?
So well, shoot, the easiest way today is we've got our live
roadshow webinar deal today at three thirty Pacific standard time. If you want to
go for that, or if you want to get a link to that,
it's on zoom. You don't have to participate. You just sit back,
We run you through who we are, what we do, how we do
it for about forty five minutes, and then do a Q and A session
at the end. You can ask me anything from you know, stocks,
to currency questions to bitcoin whatever, whatever the deal is, and you do
you do those seminars monthly? How often do you do those? We do
them every six weeks every week. Yeah, yeah, so yeah, free
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com and little prompt comes right up. You just sign up for it.
We'll email you the link right before the webinar starts, and if you're interested,
you can sign up to talk to one of our advisors or talk to
me afterwards. If not, hopefully you'll leave with more information. So awesome,
fantastic, thank you, thanks about and they're always so helpful, all
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