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There really is nothing left. I
mean, we basically just have to collapse,

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or you know, the financial system
has to have a gigantic crisis and

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then the market has to impose austerity
on everybody. In other words, we'll

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just reach a point where there's nothing
else we can do, and all of

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a sudden we're living within our means
again, and our means are diminished.

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At the same time, you were
listening to Carrie Lutz's Financial Survival Network,

7
00:00:23,839 --> 00:00:28,839
where you get valuable information. You
just can't find anywhere else to thrive in

8
00:00:28,839 --> 00:00:34,280
today's trying times. You need the
Financial Survival Network now more than ever.

9
00:00:34,880 --> 00:00:40,600
Go to Financial Survivalnetwork dot com and
get your free newsletter and gift. Financial

10
00:00:40,719 --> 00:00:50,079
Survival Network now more than ever,
And welcome you are listening to and watching

11
00:00:50,159 --> 00:00:54,560
the Financial Survival Network. I'm your
most Carrie Lutz. Well, John Rabino

12
00:00:54,679 --> 00:00:59,359
is with us now. John,
Hey, I'll just skip the niceties other

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00:00:59,399 --> 00:01:03,200
than to tell you to go to
Rabino dot substack dot com and send any

14
00:01:03,239 --> 00:01:08,519
emails with questions comments kl at Carrie
Lutz dot com. We always want to

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know what you'd think. First story
headline and this should be shouted from the

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rooftops it's got to be a plus
for the administration's somewhat lackluster economic policy.

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Edge fund leader Bill Ackman sold his
t bond shorts called the interest rate tops

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top, and rates fell hard to
the point where we're no longer having an

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inverted yield curve. The FED one, hey carry, Well, it was

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a big day in bonds. I
think it's it's maybe too soon to say

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there's FED one anything, but it
was very interesting because the ten year treasurynoe

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yield, which is the most important
interest rate, hit five percent for just

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you know, like fifteen seconds last
week, and then it opened there again

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this morning. And you know,
when going from a four handle to a

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five handle, that's a big deal
because markets like big round numbers. And

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right at the moment that the Treasury
note was hitting five percent, Bill Acklin,

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like you said, it's a big
hedgepun guy came out and said,

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Okay, we've been short bonds up
till now, and we just closed them

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all out. Well, now we're
not short balloons anymore. So you combine

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those two things and and the interest
rates plunged. You know, the yield

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on the ten year note went from
five down to four eighty something, which

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is a big move for a bond
like that. So you know, the

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question is is this the end for
rising interest rates? You know, have

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we reached the terminal rate, which
we you know, kind of thought the

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terminal rate would be lower than this. So we're above what it seemed like

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the terminal rate should be, in
other words, to the point where things

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start to break. And so if
they start heading back down, now that's

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that's a big deal for the economy. But we've got to figure out why

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it's heading back down. You know, grates are falling because the economy is

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contracting, which I think is the
case, and that just means we're heading

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into a recession. You know.
On the other hand, if it's falling

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because everybody suddenly has faith in the
US government's finances, that's a different thing.

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But I don't think that would have
had it. But you know,

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we're going to run a deficit this
year that is the highest we did already

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run it were right at the end
of this year, so third highest on

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record. In you know, we're
not theoretically at war, although we kind

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of are behaving like there, and
there's no giant crisis out there or anything

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which is normally, why you run
deficits this big excuse me, They get

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a cupan to you asking ask another
question. Well, I'm having a preuar

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so so you know, third largest
deficit ever, right, yeah, Okay,

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then that's a very big sign that
we've just lost control. I mean,

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when government finances are that deeply in
the red, and when there's no

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real reason for it. You know, there's no giant crisis here, there's

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no more pandemic, there's not a
recession, there's nothing like any of that,

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and yet we're running crisis level deficits, which in part explains why the

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economy hasn't tanked yet, because even
the government is creating all this new money

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and dumping it into the system.
And it also you know, it also

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implies that we've just basically lost it. You know, we have given up

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any semblance of fiscal control and we're
just going to spend whatever we have to

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spend. Yeah, you know,
I think historians will look back on,

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well, there's a lot of things
for them to look back on that they

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could call a big turning point,
but I think the pandemic was one where

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we just let fly, you know, we increased the lines fly by sixty

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percent. We were running massive deficits. We took on what do we take

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on like seven or eight trillion dollars
of debt in the last few years,

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please, yeah, yeah, And
for no real apparent reason, we just

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did it and we're not stopping,
you know. So this is the point

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at which we really lost control,
which will destroy us financially at some point

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in your future. You know that
that clip was already always out there.

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We were always going to walk off
the cliff unless we changed something in a

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really positive way, in a really
big way. But now we brought the

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cliff a lot closer. You know, if we're at what thirty four trillion

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dollars of debt and in an interest
radio, how high can it go while

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we're having to borrow another trillion dollars
on top of everything else to pay the

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interest on that debt, which means
we got to have higher debt with higher

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interests going forward. We're in that
kind of deep doom loop now, and

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it doesn't seem like there's any way
out of it. You know, We're

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just there until you up. Is
there any anyway? No? Obviously,

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because if you try to cut spending, you throw us into a really deep

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recession because that kind of austerity,
you know, to get from one point

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seven trillion dollar deficit to a balanced
budget means we have to live on one

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hundred or one point seventy trillion dollars
less every year, which is a big

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thing to ask when already stressed out
porpois. So that won't happen. So

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and that's the only way you can
do it. I mean, you can't.

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You know, we could try to
grow our way out of it,

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but we're already running massive deficits.
What else can we do to grow and

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maybe get rid of some some high
tech states. I don't know, like

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basically fire the government. Is there
any way of doing this? I don't

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see how we could ever get back
to fiscal sanity, Although what do you

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think physical sanity is at this point? Would it be just running a five

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hundred billion dollar deficit? When we
used to think that was a lot,

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John, Yeah, we thought that
was crisis level at one time, at

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the not too distant future. Now
there's not really anything you can do when

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you're at this point, because okay, hear your options. You could immediately

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go to a gold standard just shut
down, you know, which basically shuts

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down government deficits and devalues the dollar
really aggressively, but that impoverishes all the

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people who trusted the government don't go
they'll go nuts. You know, you

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can't have that, and you can't
stop the government from being able to borrow

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money and create new currency because that
means they have to cut all that spending.

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They'd have to be a phase out
or something. You can't phase your

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way into a gold standard because everybody
front runs it, so you have to

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announce it by surprise. That's the
only way you can do a monetary reset.

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So that can't be done, and
we can go to old style austerity,

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which people tried in the last twenty
years and it totally blew up in

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everybody's face because the people who were
being hurt by austerity, which is basically

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everybody that depends on the government for
anything, voted out the people in charge

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and voted back, you know,
voted in people who promise to do away

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with austerity. They say, you
can't do that in a democracy. So

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there really is nothing left. I
mean, we basically just have to collapse

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or the you know, the financial
system has to have a gigantic crisis and

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then the market has to impose austerity
on everybody. In other words, we'll

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just reach a point where there's nothing
else we can do, and all of

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a sudden, we're living within our
means again, and our means are diminished

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at the same time. So that
has to happen. And then once the

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alternatives are all horrendous and going back
to some kind of sound money is the

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least bad option, then they do
it. But it won't happen to You're

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right, I think you are correct
about that. That it's it has to

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be the worst option except for all
the rest, right, That's what it

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will be, right, Yeah,
Yeah, it's when they look around they

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think, okay, in this one
option, I'm this generation's for recouver and

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they'll know my name one hundred years
for now for bad reasons, and they'll

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kick me out of office right now
and maybe hang me. And then the

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other option will have three percent higher
inflation next year. Well, you know

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they're gonna They're gonna choose the inflation
every single and so each year the inflation

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rate that they have to choose goes
up and up until the financial system just

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spins out of control because everybody starts
running inflation in other words, they dump

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their dollars, they buy real stuff. The price of real stuff goes through

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the roof, which is to say, the value of the dollar versus real

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names plunges, and then you know, then you're there. And so that's

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you know, those are our options, an immediate depression or a five year

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cycle of hyperinflation, and neither one
of those sounds great. But if you're

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a politician, you will take a
hyper inflation every day. Yeah, Well,

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because you could just blame it on
animal spirits or something, right,

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John, You blame it on an
external enemy. Just look at it.

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This time, the cludent inflation.
Yeah, you know, the Russian gas

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increases. You know, we'll just
find somebody to blame. Probably next time

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around it will be China, you
know, so it'll be the you know

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Cha's inflation. Yeah, it'll be
in China for sure. Yeah. And

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then so so then we can play
war, you know. Yeah. Yeah.

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War justifies unlimited deficits, and it
justifies capital controls and price controls and

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and so that way, you blame
it on somebody else, and that's your

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excuse to go authoritarian. And of
course from there it's still a huge disaster

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waiting to happen, but it buys
you as the politician who becomes the dictator.

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It buys you some time. Is
totally screwed here, totally totally totally

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00:11:07,399 --> 00:11:13,639
screwed. Yeah, we are,
We really are. You know. The

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best scenario here is that Sunday night
announcement that we're back on the gold standard.

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Yeah, and it could be that
that there's like three far sighted people

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in the government and they somehow gained
control of the financial or the monetary system,

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and that they do that preemptively.
That's crazy. Yeah, but that's

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that's the only way it happens.
And even that's not pain free. I

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mean, if you bankrupt everybody who
has a bank savings account or a bond

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mutual fund, they're not going to
be happy, no hit the streets.

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So you still have to put up
with nobody is going to be of scale.

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Yeah, so when you do that, you probably have to declare some

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kind of martial law, even after
just the basic currency reset of this for

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a while. So yeah, it's
well, when you go into a certain

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level of debt, all your options
sound crazy like this, and that's just

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00:12:13,679 --> 00:12:16,600
where we are. Oh my god. Yeah, yeah, it really does

159
00:12:16,639 --> 00:12:22,919
sound crazy. But but what else
do we do, right, what else

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00:12:22,960 --> 00:12:26,320
can we do? Nothing? There
there's no way out of this. I

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00:12:26,320 --> 00:12:28,360
mean for the government, there's no
way out of this. Of course,

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00:12:28,399 --> 00:12:31,200
as individuals we have all kinds of
choices. We can read. Yeah,

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00:12:31,679 --> 00:12:35,320
lots of people get rich during crises, so we could, in theory,

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you know, be the next batch
of guys from the big short you know,

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00:12:39,879 --> 00:12:43,720
where we get it exactly right and
that we make life. But waiting

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00:12:43,799 --> 00:12:48,240
a long time for that, ha. Indeed, Yeah, it's been it's

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been well. You know that that
thesis really applied to before the last housing

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bust, So that was the thing
that made a lot of sense in yeah

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two that two thousand and three,
you know, And it's just it's become

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more and more likely going forward.
But I really thought but that we were

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done when the housing bubble burst here, but it has had to be bailed

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out. I didn't think we could
make it ask that, but we did

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barely. I mean we were pretty
close to you know, they say,

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like the food trucks, you know, the trucks that bring the food to

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your supermarket because the banks they no
longer trusted letters of credit. Right,

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People don't realize how serious it was
we were three days away from from like

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the food not arriving at the supermarkets, right, That's what then stepped in

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and back dropped all those letters of
credit and then we were like, oh,

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okay, everything's fine now, right. Well, the big banks told

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00:14:00,919 --> 00:14:05,799
Bush that that we were three days
away from martial law, and that's how

181
00:14:05,799 --> 00:14:11,320
they got him to bail out all
the big banks. But you know what,

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00:14:11,480 --> 00:14:13,720
it still would have been worth it. We would still be in so

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00:14:13,799 --> 00:14:18,159
much better shape today if we'd said, listen, you guys got yourselves into

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00:14:18,159 --> 00:14:20,480
this mess. You guys get yourselves
out if you If Goldman Sachs needs to

185
00:14:20,519 --> 00:14:24,159
go bankrupt, so be it.
That's just a change of ownership. That's

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still all the computers are still there, all the office space is still there.

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So let it happen. And so
JP Morgan, Chase, Berkshire,

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00:14:33,639 --> 00:14:39,120
Hathaway, AIG, Bank of America. They all would have ceased to exist,

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and the world would be vastly healthier. The world would be a better

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00:14:43,159 --> 00:14:48,080
placed. Oh, it would be
so much better because we would have learned

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00:14:48,080 --> 00:14:50,919
a lesson. You know, we
would have learned that, yes you can,

192
00:14:50,080 --> 00:14:58,159
indeed I agree with you, but
you're cracking me up because it's so

193
00:15:00,080 --> 00:15:03,080
and true. You think Carrie,
you think you too. Allows somebody to

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00:15:03,120 --> 00:15:09,000
say that, yeah, that's okay, good economic implosion, you know,

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00:15:09,399 --> 00:15:16,039
hey, end of the world,
post apocalyptic, dystopian future. They like

196
00:15:16,120 --> 00:15:22,120
that stuff. You get extra play
for that. But when you do tell

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the truth about certain matters, then
you're virtually guaranteed that you are going to

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00:15:28,559 --> 00:15:37,279
be obliterated from the from the platform. Now, I've only been partially digitally

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00:15:37,360 --> 00:15:43,840
re educated, and they've upped the
ability to attract more subscribers a little bit,

200
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and I'm just how do I get
them to believe that I love Big

201
00:15:48,159 --> 00:15:52,080
Brother? I don't know how to
do it here. Should I send them

202
00:15:52,080 --> 00:15:56,159
an email? Or should I just
go to the headquarters and say I love

203
00:15:56,200 --> 00:16:00,679
Big Brother? I don't know what
to do. Ye don't know what either,

204
00:16:00,759 --> 00:16:04,039
because you know you you haven't proven
yourself to be a good team player

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in the past, and so what
to do? I think it just takes

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time. When you betray the trust
somebody who has power over you, then

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it takes a long time to regain
that trust. So carey, you're just

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gonna have to grovel. You just
grovel and censor your your interview subjects as

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much as you can, and and
eventually they'll let you back in the club.

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Maybe you know, it's all a
big club and we're not in a

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job. We might be though,
you know, you know, but I

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don't want to be. The gold
bugs are the next capital allocators when the

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time yes, so it could be
it could be us calling the shots.

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You'll have a bank, you'll be
basically, your stack will become a new

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bank. You will charter banks with
your stacks. By so stock buy back

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blackout here, Please explain what the
heck that is because I missed that story.

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I'm middle there. There's stretches when
corporations are allowed to buy back their

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stock and stretches when they're not.
Usually I think it has something to do

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with earning season, right, So
after they've announced their earnings, and after

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enough companies have announced earnings, the
blackout is lifted and companies can go back

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to buying their stock back, which
is a big driver of share prices.

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You know, when you've got big
corporations borrowing billions of dollars and just turning

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around and buying stock with it,
right, that's a lot of accumulation,

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of course, and so people are
thinking it will happen again, and it's

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a it's a reason to own equity
is going forward. But what company in

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its right mind is buying back its
own stock in this market? You know?

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I guess I could see if you're
like a precious metals royalty company,

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okay, and you're cheap, You're
this is the best part of the cycle

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for you. You usually come roaring
out of bear markets for junior mining equities,

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you know, so I can see
them buying back their stocks. But

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if you're just a regular company and
your stock has been growing up for the

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past ten years, and interest rates
are now really high, and the economy

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could easily tip over into a recession, how do you justify to your board

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of directors borrowing a bunch of money
and buying back your stock at near its

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all time high heading into a recession. You know, you'd think that would

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be a tough sell for CEO,
But we'll see. You know, maybe

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corporations are that dumb, And actually, what am I saying? They are

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definitely that dumb, you know,
so it could just be that they display

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their stupidity one more time before everything
blows up on them. Well, you

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know, let's not forget. It's
not a question of whether their stock is

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a good buyer or not. It's
a question of can they buy enough of

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their stock to reduce the supply enough
to raise the price to the point where

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it triggers their bonus provision. That's
what stock buybacks are about, right,

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Well, yeah, that it is
what it is. And don't forget there

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a lot of them own a lot
of their own company stock, so they

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make money directly when they funneled stops
pay their money. Yeah. Oh yeah.

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They have options that have a certain
strike price and a certain expiration date,

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so that kind of colors their perception. But which is kind of a

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shocking thing when you think about it. It used to be. It used

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to think that for CEOs to always
stock in their company, that's good because

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if it aligns their incentives with shareholders. But when you've got these option grunts

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and everything, and they're they're borrowing
money, which is basically using shareholder money

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to buy back stock that allows them
to catch their options out of big profits,

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then you're not really that aligned with
shareholders anymore in the long term,

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right You're going for short term profits
using shareholder money that the company has to

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pay back in the future, which
means it comes out of shareholder profits and

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you will be retired at that point
when the debts come due. So yeah,

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they basically CEOs and the regulators that
they own have figured out a way

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around the whole aligning shareholder and CEO
interests being you know now that they don't

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have to do that anymore. Amazing, huh, And nothing is really surprising

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anymore in this world. But John, when we grew up and you and

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I took economics one oh one,
they said that the principal purpose of the

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public securities markets was to raise and
allocate capital to worthy companies seeking to expand.

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Right, what the heck happened?
Well, they've redefined expansion to raising

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their dividends and buying back stock.
You know, those are now investment activities

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for a company. So it basically
said, yeah, you basically just funneled

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money. Well yeah you should.
I mean you should be able to buy

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back stock because there are times when
that's a great idea. For instance,

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I have a lot of beaten down
miners that should be buying back their stock.

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Right, they would buy it back
and then they'll sell it again at

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five times. I was one hundred
times a price, right, yeah,

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But but buying back you know,
borrowing money and then using that money to

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buy back stock that that yeah,
that you that you as a CEO are

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not obligated to own for the life
of the bond offering. Okay, Like

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if you had to own the stock
until the bonds mature and are paid off,

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not be one thing. But if
you can just borrow money, boost

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your stock options, cash those options
out, and then let the bonds run

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for another five years before they have
to be paid, before they mature and

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have to be back, then that's
not a good thing. You know,

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it doesn't seem like that that is
flowing in your interest correctly. So I

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see. So I'm going to share
with you a book that I once read,

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and I don't remember the exact title, but it was basically called How

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Companies Manipulate their Financial Statements. That
was the effect of the name, and

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it talked about all these different ways
that they hid losses and inflated profits that

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were legal under then accounting rules.
I know it's changed at books twenty plus

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years old, all right, but
this is what it's all about here.

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So the number one way to manipulate
your share price is to have less shares,

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so the you know, the denominator
is less, so you're or the

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nuerrator is less, I guess,
so your per share profits get inflated,

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and then the share price gets inflated. Right because in theory, your share

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price is trading at a multiple of
earnings. Right. It used to be

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ten times earnings. That was average
average company. We're way past that now

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00:23:11,440 --> 00:23:15,759
thirty forty fifty tesla. Who the
heck knows. So that book is like

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must reading, but it needs to
be updated, I'll tell you that,

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because there's like nothing real about these
markets anymore. They're all it's all fake,

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John, it's all fake. Well, yeah, companies have always tried

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to manipulate earnings that they report.
You know, you want to lower your

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earnings when you're talking to the irs, and you want to raise your earnings

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when you're talking to banks and shareholders, right, So there's lots of accounting

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ways to do that, and they
keep two sets of books. Yes,

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real life, every publicly traded company
keeps one set for the shareholders and one

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for the government. And that's all
illegal, and it gets reconciled on the

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balance sheet as deferred income tax Okay, that's how you know. Well,

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you know, the funny thing is
that Trump is indicted and he's he's in

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court, he's being tried for exactly
that for you know, presenting different numbers

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to different people. So you know, the whole rest of corporate America is

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watching this and going, whoa wait
a minute in their pants, Yeah,

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Jesus, isn't that exactly what we
do? You know, call it into

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their accountants and going, hey,
waity, we do exactly this thing,

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right? And I thought that was
legal? Yeah, it was legal.

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What the heck is going on?
Out of accounting? You told me I

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could do that? And I'm going
to roll on you in court if yeah?

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That like, what's the world coming
to here? Huh? Yeah?

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But anyhow, with with share buybacks, that is exactly what they do.

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They they take stock off the market
and retire it so that erning's per share

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00:24:51,720 --> 00:24:57,640
go up. But if you if
you're using corporate cash flow to do that,

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yeah, and that's defensible because it's
you know, it's the company's money.

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The company earned the money, and
if they think their shares are undervalued,

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so be it. But if you're
using borrowed money that your future shareholders

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have to pay back. That's that's
kind of a different thing, we think,

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and that that's where the trouble starts. And that's what's happening a lot

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of companies, you know, especially
when interest rates were effectively zero for big

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companies, they could borrow it basically
zero, buy back their stock and then

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not have to pay the three percent
dividend on that stock. So it was

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00:25:30,200 --> 00:25:36,920
a cash flow positive financial engineering operation. I love it, and that's yeah,

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00:25:37,039 --> 00:25:40,920
yeah, but I love it.
And what's wrong with that? Hey?

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00:25:41,400 --> 00:25:45,359
Everyone does it? Right? But
everyone does it? Yeah, yeah,

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00:25:45,359 --> 00:25:49,480
everyone everyone, everybody except Trump now
because he's he's going to jail for

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00:25:49,559 --> 00:25:53,480
it. Yeah, it's just good
business, right, yep, it is,

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00:25:53,799 --> 00:25:59,000
it is all right. Well,
I think we're done for today.

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We'll be back in two weeks again. I urge you go to John's site.

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00:26:03,000 --> 00:26:07,240
It's rabino dot substack dot com.
You're gonna find material you're not gonna

333
00:26:07,240 --> 00:26:12,240
find anywhere else on the web.
Our site, of course, Financial Survival

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00:26:12,279 --> 00:26:18,039
Network dot com. Email address,
contact us k l at Carrie LUTs dot

335
00:26:18,079 --> 00:26:22,759
com. And hey, if you've
got a good question, I will we

336
00:26:22,839 --> 00:26:27,119
will go over it and give you
attribution, you know, to your first

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00:26:27,200 --> 00:26:32,839
name and see what we think about
it. All right, John, two

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00:26:32,880 --> 00:26:37,880
weeks. We'll see you then,
care Thanks for listening to Carrie Letz's Financial

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00:26:37,960 --> 00:26:42,160
Survival Network, your solution to today's
trying times. For the latest, go

340
00:26:42,240 --> 00:26:48,759
to Financial Survivalnetwork dot com. Financial
Survival Network now more than ever,