There really is nothing left. I mean, we basically just have to collapse,
or you know, the financial system has to have a gigantic crisis and
then the market has to impose austerity on everybody. In other words, we'll
just reach a point where there's nothing else we can do, and all of
a sudden we're living within our means again, and our means are diminished.
At the same time, you were listening to Carrie Lutz's Financial Survival Network,
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Go to Financial Survivalnetwork dot com and get your free newsletter and gift. Financial
Survival Network now more than ever, And welcome you are listening to and watching
the Financial Survival Network. I'm your most Carrie Lutz. Well, John Rabino
is with us now. John, Hey, I'll just skip the niceties other
than to tell you to go to Rabino dot substack dot com and send any
emails with questions comments kl at Carrie Lutz dot com. We always want to
know what you'd think. First story headline and this should be shouted from the
rooftops it's got to be a plus for the administration's somewhat lackluster economic policy.
Edge fund leader Bill Ackman sold his t bond shorts called the interest rate tops
top, and rates fell hard to the point where we're no longer having an
inverted yield curve. The FED one, hey carry, Well, it was
a big day in bonds. I think it's it's maybe too soon to say
there's FED one anything, but it was very interesting because the ten year treasurynoe
yield, which is the most important interest rate, hit five percent for just
you know, like fifteen seconds last week, and then it opened there again
this morning. And you know, when going from a four handle to a
five handle, that's a big deal because markets like big round numbers. And
right at the moment that the Treasury note was hitting five percent, Bill Acklin,
like you said, it's a big hedgepun guy came out and said,
Okay, we've been short bonds up till now, and we just closed them
all out. Well, now we're not short balloons anymore. So you combine
those two things and and the interest rates plunged. You know, the yield
on the ten year note went from five down to four eighty something, which
is a big move for a bond like that. So you know, the
question is is this the end for rising interest rates? You know, have
we reached the terminal rate, which we you know, kind of thought the
terminal rate would be lower than this. So we're above what it seemed like
the terminal rate should be, in other words, to the point where things
start to break. And so if they start heading back down, now that's
that's a big deal for the economy. But we've got to figure out why
it's heading back down. You know, grates are falling because the economy is
contracting, which I think is the case, and that just means we're heading
into a recession. You know. On the other hand, if it's falling
because everybody suddenly has faith in the US government's finances, that's a different thing.
But I don't think that would have had it. But you know,
we're going to run a deficit this year that is the highest we did already
run it were right at the end of this year, so third highest on
record. In you know, we're not theoretically at war, although we kind
of are behaving like there, and there's no giant crisis out there or anything
which is normally, why you run deficits this big excuse me, They get
a cupan to you asking ask another question. Well, I'm having a preuar
so so you know, third largest deficit ever, right, yeah, Okay,
then that's a very big sign that we've just lost control. I mean,
when government finances are that deeply in the red, and when there's no
real reason for it. You know, there's no giant crisis here, there's
no more pandemic, there's not a recession, there's nothing like any of that,
and yet we're running crisis level deficits, which in part explains why the
economy hasn't tanked yet, because even the government is creating all this new money
and dumping it into the system. And it also you know, it also
implies that we've just basically lost it. You know, we have given up
any semblance of fiscal control and we're just going to spend whatever we have to
spend. Yeah, you know, I think historians will look back on,
well, there's a lot of things for them to look back on that they
could call a big turning point, but I think the pandemic was one where
we just let fly, you know, we increased the lines fly by sixty
percent. We were running massive deficits. We took on what do we take
on like seven or eight trillion dollars of debt in the last few years,
please, yeah, yeah, And for no real apparent reason, we just
did it and we're not stopping, you know. So this is the point
at which we really lost control, which will destroy us financially at some point
in your future. You know that that clip was already always out there.
We were always going to walk off the cliff unless we changed something in a
really positive way, in a really big way. But now we brought the
cliff a lot closer. You know, if we're at what thirty four trillion
dollars of debt and in an interest radio, how high can it go while
we're having to borrow another trillion dollars on top of everything else to pay the
interest on that debt, which means we got to have higher debt with higher
interests going forward. We're in that kind of deep doom loop now, and
it doesn't seem like there's any way out of it. You know, We're
just there until you up. Is there any anyway? No? Obviously,
because if you try to cut spending, you throw us into a really deep
recession because that kind of austerity, you know, to get from one point
seven trillion dollar deficit to a balanced budget means we have to live on one
hundred or one point seventy trillion dollars less every year, which is a big
thing to ask when already stressed out porpois. So that won't happen. So
and that's the only way you can do it. I mean, you can't.
You know, we could try to grow our way out of it,
but we're already running massive deficits. What else can we do to grow and
maybe get rid of some some high tech states. I don't know, like
basically fire the government. Is there any way of doing this? I don't
see how we could ever get back to fiscal sanity, Although what do you
think physical sanity is at this point? Would it be just running a five
hundred billion dollar deficit? When we used to think that was a lot,
John, Yeah, we thought that was crisis level at one time, at
the not too distant future. Now there's not really anything you can do when
you're at this point, because okay, hear your options. You could immediately
go to a gold standard just shut down, you know, which basically shuts
down government deficits and devalues the dollar really aggressively, but that impoverishes all the
people who trusted the government don't go they'll go nuts. You know, you
can't have that, and you can't stop the government from being able to borrow
money and create new currency because that means they have to cut all that spending.
They'd have to be a phase out or something. You can't phase your
way into a gold standard because everybody front runs it, so you have to
announce it by surprise. That's the only way you can do a monetary reset.
So that can't be done, and we can go to old style austerity,
which people tried in the last twenty years and it totally blew up in
everybody's face because the people who were being hurt by austerity, which is basically
everybody that depends on the government for anything, voted out the people in charge
and voted back, you know, voted in people who promise to do away
with austerity. They say, you can't do that in a democracy. So
there really is nothing left. I mean, we basically just have to collapse
or the you know, the financial system has to have a gigantic crisis and
then the market has to impose austerity on everybody. In other words, we'll
just reach a point where there's nothing else we can do, and all of
a sudden, we're living within our means again, and our means are diminished
at the same time. So that has to happen. And then once the
alternatives are all horrendous and going back to some kind of sound money is the
least bad option, then they do it. But it won't happen to You're
right, I think you are correct about that. That it's it has to
be the worst option except for all the rest, right, That's what it
will be, right, Yeah, Yeah, it's when they look around they
think, okay, in this one option, I'm this generation's for recouver and
they'll know my name one hundred years for now for bad reasons, and they'll
kick me out of office right now and maybe hang me. And then the
other option will have three percent higher inflation next year. Well, you know
they're gonna They're gonna choose the inflation every single and so each year the inflation
rate that they have to choose goes up and up until the financial system just
spins out of control because everybody starts running inflation in other words, they dump
their dollars, they buy real stuff. The price of real stuff goes through
the roof, which is to say, the value of the dollar versus real
names plunges, and then you know, then you're there. And so that's
you know, those are our options, an immediate depression or a five year
cycle of hyperinflation, and neither one of those sounds great. But if you're
a politician, you will take a hyper inflation every day. Yeah, Well,
because you could just blame it on animal spirits or something, right,
John, You blame it on an external enemy. Just look at it.
This time, the cludent inflation. Yeah, you know, the Russian gas
increases. You know, we'll just find somebody to blame. Probably next time
around it will be China, you know, so it'll be the you know
Cha's inflation. Yeah, it'll be in China for sure. Yeah. And
then so so then we can play war, you know. Yeah. Yeah.
War justifies unlimited deficits, and it justifies capital controls and price controls and
and so that way, you blame it on somebody else, and that's your
excuse to go authoritarian. And of course from there it's still a huge disaster
waiting to happen, but it buys you as the politician who becomes the dictator.
It buys you some time. Is totally screwed here, totally totally totally
screwed. Yeah, we are, We really are. You know. The
best scenario here is that Sunday night announcement that we're back on the gold standard.
Yeah, and it could be that that there's like three far sighted people
in the government and they somehow gained control of the financial or the monetary system,
and that they do that preemptively. That's crazy. Yeah, but that's
that's the only way it happens. And even that's not pain free. I
mean, if you bankrupt everybody who has a bank savings account or a bond
mutual fund, they're not going to be happy, no hit the streets.
So you still have to put up with nobody is going to be of scale.
Yeah, so when you do that, you probably have to declare some
kind of martial law, even after just the basic currency reset of this for
a while. So yeah, it's well, when you go into a certain
level of debt, all your options sound crazy like this, and that's just
where we are. Oh my god. Yeah, yeah, it really does
sound crazy. But but what else do we do, right, what else
can we do? Nothing? There there's no way out of this. I
mean for the government, there's no way out of this. Of course,
as individuals we have all kinds of choices. We can read. Yeah,
lots of people get rich during crises, so we could, in theory,
you know, be the next batch of guys from the big short you know,
where we get it exactly right and that we make life. But waiting
a long time for that, ha. Indeed, Yeah, it's been it's
been well. You know that that thesis really applied to before the last housing
bust, So that was the thing that made a lot of sense in yeah
two that two thousand and three, you know, And it's just it's become
more and more likely going forward. But I really thought but that we were
done when the housing bubble burst here, but it has had to be bailed
out. I didn't think we could make it ask that, but we did
barely. I mean we were pretty close to you know, they say,
like the food trucks, you know, the trucks that bring the food to
your supermarket because the banks they no longer trusted letters of credit. Right,
People don't realize how serious it was we were three days away from from like
the food not arriving at the supermarkets, right, That's what then stepped in
and back dropped all those letters of credit and then we were like, oh,
okay, everything's fine now, right. Well, the big banks told
Bush that that we were three days away from martial law, and that's how
they got him to bail out all the big banks. But you know what,
it still would have been worth it. We would still be in so
much better shape today if we'd said, listen, you guys got yourselves into
this mess. You guys get yourselves out if you If Goldman Sachs needs to
go bankrupt, so be it. That's just a change of ownership. That's
still all the computers are still there, all the office space is still there.
So let it happen. And so JP Morgan, Chase, Berkshire,
Hathaway, AIG, Bank of America. They all would have ceased to exist,
and the world would be vastly healthier. The world would be a better
placed. Oh, it would be so much better because we would have learned
a lesson. You know, we would have learned that, yes you can,
indeed I agree with you, but you're cracking me up because it's so
and true. You think Carrie, you think you too. Allows somebody to
say that, yeah, that's okay, good economic implosion, you know,
hey, end of the world, post apocalyptic, dystopian future. They like
that stuff. You get extra play for that. But when you do tell
the truth about certain matters, then you're virtually guaranteed that you are going to
be obliterated from the from the platform. Now, I've only been partially digitally
re educated, and they've upped the ability to attract more subscribers a little bit,
and I'm just how do I get them to believe that I love Big
Brother? I don't know how to do it here. Should I send them
an email? Or should I just go to the headquarters and say I love
Big Brother? I don't know what to do. Ye don't know what either,
because you know you you haven't proven yourself to be a good team player
in the past, and so what to do? I think it just takes
time. When you betray the trust somebody who has power over you, then
it takes a long time to regain that trust. So carey, you're just
gonna have to grovel. You just grovel and censor your your interview subjects as
much as you can, and and eventually they'll let you back in the club.
Maybe you know, it's all a big club and we're not in a
job. We might be though, you know, you know, but I
don't want to be. The gold bugs are the next capital allocators when the
time yes, so it could be it could be us calling the shots.
You'll have a bank, you'll be basically, your stack will become a new
bank. You will charter banks with your stacks. By so stock buy back
blackout here, Please explain what the heck that is because I missed that story.
I'm middle there. There's stretches when corporations are allowed to buy back their
stock and stretches when they're not. Usually I think it has something to do
with earning season, right, So after they've announced their earnings, and after
enough companies have announced earnings, the blackout is lifted and companies can go back
to buying their stock back, which is a big driver of share prices.
You know, when you've got big corporations borrowing billions of dollars and just turning
around and buying stock with it, right, that's a lot of accumulation,
of course, and so people are thinking it will happen again, and it's
a it's a reason to own equity is going forward. But what company in
its right mind is buying back its own stock in this market? You know?
I guess I could see if you're like a precious metals royalty company,
okay, and you're cheap, You're this is the best part of the cycle
for you. You usually come roaring out of bear markets for junior mining equities,
you know, so I can see them buying back their stocks. But
if you're just a regular company and your stock has been growing up for the
past ten years, and interest rates are now really high, and the economy
could easily tip over into a recession, how do you justify to your board
of directors borrowing a bunch of money and buying back your stock at near its
all time high heading into a recession. You know, you'd think that would
be a tough sell for CEO, But we'll see. You know, maybe
corporations are that dumb, And actually, what am I saying? They are
definitely that dumb, you know, so it could just be that they display
their stupidity one more time before everything blows up on them. Well, you
know, let's not forget. It's not a question of whether their stock is
a good buyer or not. It's a question of can they buy enough of
their stock to reduce the supply enough to raise the price to the point where
it triggers their bonus provision. That's what stock buybacks are about, right,
Well, yeah, that it is what it is. And don't forget there
a lot of them own a lot of their own company stock, so they
make money directly when they funneled stops pay their money. Yeah. Oh yeah.
They have options that have a certain strike price and a certain expiration date,
so that kind of colors their perception. But which is kind of a
shocking thing when you think about it. It used to be. It used
to think that for CEOs to always stock in their company, that's good because
if it aligns their incentives with shareholders. But when you've got these option grunts
and everything, and they're they're borrowing money, which is basically using shareholder money
to buy back stock that allows them to catch their options out of big profits,
then you're not really that aligned with shareholders anymore in the long term,
right You're going for short term profits using shareholder money that the company has to
pay back in the future, which means it comes out of shareholder profits and
you will be retired at that point when the debts come due. So yeah,
they basically CEOs and the regulators that they own have figured out a way
around the whole aligning shareholder and CEO interests being you know now that they don't
have to do that anymore. Amazing, huh, And nothing is really surprising
anymore in this world. But John, when we grew up and you and
I took economics one oh one, they said that the principal purpose of the
public securities markets was to raise and allocate capital to worthy companies seeking to expand.
Right, what the heck happened? Well, they've redefined expansion to raising
their dividends and buying back stock. You know, those are now investment activities
for a company. So it basically said, yeah, you basically just funneled
money. Well yeah you should. I mean you should be able to buy
back stock because there are times when that's a great idea. For instance,
I have a lot of beaten down miners that should be buying back their stock.
Right, they would buy it back and then they'll sell it again at
five times. I was one hundred times a price, right, yeah,
But but buying back you know, borrowing money and then using that money to
buy back stock that that yeah, that you that you as a CEO are
not obligated to own for the life of the bond offering. Okay, Like
if you had to own the stock until the bonds mature and are paid off,
not be one thing. But if you can just borrow money, boost
your stock options, cash those options out, and then let the bonds run
for another five years before they have to be paid, before they mature and
have to be back, then that's not a good thing. You know,
it doesn't seem like that that is flowing in your interest correctly. So I
see. So I'm going to share with you a book that I once read,
and I don't remember the exact title, but it was basically called How
Companies Manipulate their Financial Statements. That was the effect of the name, and
it talked about all these different ways that they hid losses and inflated profits that
were legal under then accounting rules. I know it's changed at books twenty plus
years old, all right, but this is what it's all about here.
So the number one way to manipulate your share price is to have less shares,
so the you know, the denominator is less, so you're or the
nuerrator is less, I guess, so your per share profits get inflated,
and then the share price gets inflated. Right because in theory, your share
price is trading at a multiple of earnings. Right. It used to be
ten times earnings. That was average average company. We're way past that now
thirty forty fifty tesla. Who the heck knows. So that book is like
must reading, but it needs to be updated, I'll tell you that,
because there's like nothing real about these markets anymore. They're all it's all fake,
John, it's all fake. Well, yeah, companies have always tried
to manipulate earnings that they report. You know, you want to lower your
earnings when you're talking to the irs, and you want to raise your earnings
when you're talking to banks and shareholders, right, So there's lots of accounting
ways to do that, and they keep two sets of books. Yes,
real life, every publicly traded company keeps one set for the shareholders and one
for the government. And that's all illegal, and it gets reconciled on the
balance sheet as deferred income tax Okay, that's how you know. Well,
you know, the funny thing is that Trump is indicted and he's he's in
court, he's being tried for exactly that for you know, presenting different numbers
to different people. So you know, the whole rest of corporate America is
watching this and going, whoa wait a minute in their pants, Yeah,
Jesus, isn't that exactly what we do? You know, call it into
their accountants and going, hey, waity, we do exactly this thing,
right? And I thought that was legal? Yeah, it was legal.
What the heck is going on? Out of accounting? You told me I
could do that? And I'm going to roll on you in court if yeah?
That like, what's the world coming to here? Huh? Yeah?
But anyhow, with with share buybacks, that is exactly what they do.
They they take stock off the market and retire it so that erning's per share
go up. But if you if you're using corporate cash flow to do that,
yeah, and that's defensible because it's you know, it's the company's money.
The company earned the money, and if they think their shares are undervalued,
so be it. But if you're using borrowed money that your future shareholders
have to pay back. That's that's kind of a different thing, we think,
and that that's where the trouble starts. And that's what's happening a lot
of companies, you know, especially when interest rates were effectively zero for big
companies, they could borrow it basically zero, buy back their stock and then
not have to pay the three percent dividend on that stock. So it was
a cash flow positive financial engineering operation. I love it, and that's yeah,
yeah, but I love it. And what's wrong with that? Hey?
Everyone does it? Right? But everyone does it? Yeah, yeah,
everyone everyone, everybody except Trump now because he's he's going to jail for
it. Yeah, it's just good business, right, yep, it is,
it is all right. Well, I think we're done for today.
We'll be back in two weeks again. I urge you go to John's site.
It's rabino dot substack dot com. You're gonna find material you're not gonna
find anywhere else on the web. Our site, of course, Financial Survival
Network dot com. Email address, contact us k l at Carrie LUTs dot
com. And hey, if you've got a good question, I will we
will go over it and give you attribution, you know, to your first
name and see what we think about it. All right, John, two
weeks. We'll see you then, care Thanks for listening to Carrie Letz's Financial
Survival Network, your solution to today's trying times. For the latest, go
to Financial Survivalnetwork dot com. Financial Survival Network now more than ever,