Edition of the Chicks on the Right podcast where we have on our friend and
sponsor of the show, Zach Abraham from Bulwark Capital Management, is with us
once again, and just before we started recording this, you gave us a
term that we have not heard before that we need an explanation of doom spending.
What is it? Yeah? Yeah, it does well. I read
the headline and I was like, oh, I'm in right, Yeah,
somebody tells me the world is ending, and I'm like, I'm going doom
spending. Oh yeah, I'm doing Yeah. It's like the guy that builds
the bunker out in the back of his yard, you know, on packs
of full of ammunition and guns. He's doom spending. That's what I was
thinking. And you know, as a kid growing up watching movies like Commando,
I was sitting there thinking, hey, you know I could, I
could, I could get into some spending here, right. Is it basically
just prepping? No, that's what it sounds like. No, So I
think it's another nonsensical term that the media is made up to try to shield
the Biden administration from any responsibility for the economicsculation. We're just going to keep
coining new terms and new phenomena, right, So, but I do think
it says something interesting culturally. So what they're looking at is that they're talking
about how despite the fact that credit cards are maxed and you're seeing delinquencies sore
that people are basically grabbing every level or a or cash from any place that
they possibly can't can So you see loans against four oh one K balances shooting
up through the roof to extraordinarily high levels, and people are like, well,
it's better than racking up debt. And you're sitting there going, do
you know what it costs you to pull money out of a four to one
K? It's your personal income tax rate plus ten percent. Early, I
used to be in HR and handle benefits way back in the day, and
when anybody would come to me asking to take out a loan against their four
oh one K, I judged them. Yeah, I like secretly judge them.
Oh my god, they're like trying to pay for their mother's surgery and
stuff. And you're back there going youth financial neanderthal. I mean I would
never say anything, but like secretly I was like, this is not smart,
this is you shouldn't be doing this, This is not a good financial
plan. Yeah, you're managing your household like the Biden administration manages our country's
finances. This is not good. Yeah, so well, and then that's
where the lesson would start, right you start breaking them down a finance and
civics lesson. But no, So I think it's one of these things where
they're they're contextualizing it, trying to make it sound so, but it really
is interesting because I think it's just a product of the greatest handout of money
in the history of mankind, and that creates a sort of nihilism, right,
like meaning, you're spending money you don't have because somebody sent you a
check. You're making more sitting at home than you were working, by it
all, and you get into a mode, right, You get into a
mode and you keep spending, and you know this isn't new. People spending
beyond their means in America? Oh my, Like that's crazy. Right.
So they're just talking about how basically the people are trying to treat their nerves
or cope with hardships of the day to continue spending money they don't have.
And I'm like, okay, well, you just described the peak of every
economic cycle in history. Right, like, that's that's what happens. So
the crazy thing about it, though, and I don't really think people are
seeing it the correct way. The crazy thing about it is when you look
what's happening with delinquencies and you look what happens is happening with collections, the
picture is changing a little bit right now where you're sitting there going look,
it's not so much you're going to see a reduction in consumer spending. We're
seeing that, right. It was funny that they were touting around Costco numbers,
which weren't bad, but Costco's sales were up, you know, three
and a half percent over the same month last year. Well you've averaged five
percent inflation over the last year, so that means adjusted for inflation, it's
going down already, right, So I just don't think people are looking at
all these things in context. But anyway, getting back to the doom spending,
one of the things again, consumer spending is already going down. What
I think people need to start thinking about is those people who are doom spending
are doing it on consumer credit. A lot of that credit's going in delinquency
and collections. Well, guess what's going to happen, right, the bail
out, right, Well, at some point, right, yeah, no,
but right those people's credit get dinged and they're not able to access credit
anyway. Right, So not only do they run out of money, but
they're also not there for the bounce back and spending because they can't get any
credit issuance, so you know, and they can't after a while. But
what I'm saying is, not only are we exhausting current levels of consumer spending,
but every time you see delinquency numbers going higher, that's one less consumer
that's going to be able to access consumer credit. So I mean, it's
just it's really funny to listen to the narrative. And we've been talking about
this for the last month and a half, and you know, I've been
telling you guys every week, I don't know what the market's talking about.
All we can do is look at the data. The data's head headed the
opposite way. Well, just all of a sudden, now in the last
week you're starting, the data is so consistent. It's just it's not horrible
yet, it's just all headed the wrong way. And it's like, I
know, I just not the same thing. I'm like, he said,
yet Well, like I've told you guys, I look you you said it
perfect, which was a bailout, right. I don't think because of that
reason, I don't think that this is going to be really bad. Okay,
what I do think is it's going to be I think it's going to
be shallower than a lot of the you know, perma bear out there.
People are saying, but you just you keep adding these things together, and
what it's all screaming to us is it's not going to be that bad,
but it's going to last longer to people think. Right. And remember we've
talked about these people losing access to consumer credit, which is part of delinquencies
and all that other kind of stuff. But remember the other thing is,
unlike every other economic drawdown or every recession we've had in the past, one
of the first shots of life into the economy's arms is the fact that interest
rates go down in recessions. Well, when you think of the average mortgage
in this country, the effective mortgage rate is three point nine. How far
in order to make that an attractive source of capital, you've got to get
rates far enough to where people can refin, which means the thirty year needs
to be sub three to nine. Well you're above seven right now, right,
So you start looking at it and you're like, not only are rate
cuts going to be less stimulative than they ever have been before, but you're
not going to be able to run. I mean, people will refive some
debt here, like it's not going to freeze, but you're just not going
to get this. You know, if you bought a house, if you
mortgaged a house at six and a half percent in two thousand and seven or
two thousand and six and you were able to refy it at three point seven
in twenty eleven, that made a material difference to your household budget. Right,
yeah, for sure. Well you're at three two five now you know
where do rates got to go? And three two five were mortgage rates when
rates were at zero. So even if you get back to zero, which
I don't think the Fed's going to cut that far, but you just you
don't have that relief there, right, you don't. This will be the
first recession in the last hundred years where we do not have that that wind
at our back. So you know, and then you look at peak employment,
which is good right now, but what is peak employment? Well,
I mean the last time of employment was this unemployment was this low was fifty
five years ago. You know, people always forget about this, right,
stock market heights, valuations. It's great when you're up here. The problem,
the thing you need to understand is you don't stay there. Right.
The view is always greatest from the top, you know. So and again
not saying it's collapse, but it just goes along to this doom spending and
all of these things just add up. And I think people have really been
in denial this year, based only by the movement and the equity markets and
just not paying attention to underlying data. And it's you just see it really
picking up steam. We saw it today in the jobless claim numbers that came
out. The new jobless claims came in as expected, but nobody's paying attention
to continued continued jobless claims now are higher than they were at any point over
the last five years. Right, So kay four? Right, and we're
going to talk about, hey, it's still stets a strong labor market and
you're like, well, it's not a weak labor market, but it's not
as strong as it was six months ago, not even most so, Yeah,
it's it's shaping up to be a great year, you know. And
and well, if people are doom spending, they're following the lead of our
government, who constantly spends what they don't have, So you can't hardly blame
them. No, And here you you brought up a really good point.
If somebody asked me the other day in an interview, they were like,
well, Zach, you're saying all these bad things. Why don't you think
it's an absolute lock that we're going to have a really nasty recession? This
sounds really bad. I think this will help your listeners. And it was
kind of an eye opener to me even the other day when I came to
this realization. But in two thousand and eight, two thousand and nine,
we all remember how bad the financial crisis was, right we had at that
time our economy was sixteen trillion dollars in size, okay, And the total
economic contraction from the end of two thousand and seven till the bottom in two
thousand and nine, the economy contracted about it was somewhere between three and a
half to three point eight percent. Okay. So you do the numbers on
that, and it's right around on a sixteen thousand, or a sixteen trillion
dollar economy that equals about six hundred billion. We'll call it. Okay,
that means the economy contracted by six hundred billion. We are running two point
one trillion dollar deficits right now. Okay. The one caveat that I give
to perhaps there won't be a recession. And I still think it's a very
very low possibility that you're not going to go into recession. But it is
tough to go into recession when you are spending that much money. I mean,
it's just crazy to me that people aren't freaking out about a two point
one trillion dollar deficit. It's just mind blowing. It is mind blowing,
it is. Okay, Well, we'd learned a new word today and we
have you to thank for it. So thank you, Zach. Where can
people learn more about you and about Bullwark Capital Management? Yeah, well,
if you guys can't tell, I think there's some scary times, but if
you love this industry, they're very historic, interesting times. And we're watching
this on a daily basis. So we put out a show every single day
that's about fifteen minutes long and summarizes all the market action and all important economic
data that came out that day. That's called their Daily Dots, and then
we do our one hour weekly show on Friday, usually with the one to
one and a half hour interview with any other professional in the industry. And
you can get all of that. There's no cost to start podcasts. Know
Your Risk Radio podcast. You can just Google it or we're on any podcast
site and yeah, easy to find. And we've had some really great guests,
including a couple of the real players from The Big Short, the famous
movie. And yeah, so trying to trying to make it all clear to
the folks and keep them up on what's going on perfect well. As always,
you always teach us Latin wad present and all, thanks for as always.
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