Speaker 1: And I believe a recession is going to take hold.
You know, the slow down in the economy has been very,
very gradual. I think it's going to persist. There's the
next couple of charts just down below where we are.
Carrie underscores this in terms of again looking at the
labor market. You know, the savings rate now, for instance,
is down to two point nine percent. Prior to the pandemic,
it was about five and a half percent, between five
and six percent. So the economy's still moving forward, but
there's a whole lot of people that are spending, but
they're not saving because they don't have the extra income
to be able to do it.
Speaker 2: You're listening to Carrie.
Speaker 3: Let'sa's financial survival network where you get valuable information you
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You need the Financial Survival Network now more than ever.
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Speaker 2: Now more than ever, and welcome you are listening to
and watching the Financial Survival Network. I'm your host, Carrie Lutz. Hey,
Jim Wilsh of macrotides dot com is with us today,
he's got some revised charts hot off the out off
the Excel spreadsheet. However, he's doing it, and you're definitely
going to want to look dealing with market with latest in,
latest employment numbers, what it all means. Jim, welcome back.
How are you. It's great to join you, Carrie.
Speaker 1: I'm doing well. I hope you are too. Okay, So
let's get down and dirty. Here we got these charts.
By the way, if you're listening on the podcast, there
will be a link in the show notes so you
can download his latest Jim's latest update here so you
can take a look at it firsthand. So what am
I looking at here? Well, basically, Carrie, you know the
Fed meets on September eighteen. They're going to cut the
funds rate. The open question is, well how much are
they going to cut it? But I just thought for
those listening in as well as if they go and
I get the piece that can look at this, you
know what is the debate going to center around as
the hawks and the doves on the FMC discuss all
this stuff. So the first one is a neutral rate,
which is a theoretical concept of where is the fund
where is the level of the funds rate that is
neither restrictive nor accommodata. There's no exact formula, so this
is a best guess thing, and right now the best
guess is around two and a half percent. So what
we can see is in the pandemic, the Fed lowered
the funds rate way below the neutral rate to you know,
support the economy and so forth. When inflation broke out,
they raised it comfortably above the neutral rate, which is
a measure of how restrict of the FMC is. What's
interesting Carry is the Doves think it might be closer
to two percent and the Hawks think the neutral rate
could be closer to three. And the reason why that
debate is important is you measure the difference between the
current funds rate and the neutral rate to determine just
how restrictive policy is. But the bottom line here is
both the Hawks and the Doves Carry agree that the
current level of the funds rate is a restrictive level,
which is why both Camps, Buwks and Dove are on
board to cutting the funds rate in coming meetings. So
that's what they're going to be talking about. And then
one of the things that they've talked about in prior meetings,
and again this is more the doves fucking point, but
the Hawks acknowledge it is that if you look at
the core PCE, which is the Personal Consumption Expenditures Index,
it excludes food and energy. That is the inflation metric
that the FMC pays more attention to than just about
any other metric like the CPI and so forth. So
the point that they've made is that in July of
last year, inflation was I think around four percent. It's
dropped about one hundred and fifty basis points, and the
idea is, okay, the fund rate hasn't been changed at
five and three eighths, but as inflation declines, the real rate,
how much the funds rate is above the core PC
has increased, and that in a sense represents policy tightening.
This is another point of agreement between the Doves and Hawks, like, okay,
policy even though we haven't done anything with the funds
rate since July of last year, has been tightening because
the real fund rate is going up. So these are
the reasons why Auks and Doves are both on board
to lower the funds rate in not just in September,
but incoming meetings. All right, let me ask you one
question first. When you say the neutral rate, would that
also be construed as the natural rate if they weren't
messing around with interest rates in the first place, which
maybe we would all be better off for Yeah, I
agree with that point in terms of historically, the Fed
really and its best efforts, has not done a wonderful
job in terms of the outcomes that have generated the
natural rate. Again, what it is is what's the level
of the funds rate that is neither restrictive or accommodative.
And to me, calling the natural rate makes sense too.
Speaker 2: Okay, So that would be if there was no federal reserve.
This is what it would be. And so we think
it's somewhere around.
Speaker 1: Two and a half percent. Yeah, now, for what it's worth,
before the financial crisis, it was closer to four and
a half. So this thing changes. Obviously, we went through
after the financial crisis an extended period of really muted inflation,
you know, sub two percent, and things like productivity would
also enter into it, you know. So it isn't, like
I said, there is no precise formula. This is the
best guess estimate.
Speaker 2: Okay. So yeah, because you can't know that, because you
would have to have a free market that would actually
set it. So in other words, you're saying that the
FED is like, according to this, it should be basically
two point eight seven five percent.
Speaker 1: Well, two and a half would be the dead neutral
if you believe two and a half is the natural
or neutral rate, the funds rate would be down there.
So that kind of tells us where is it going
over the next twelve eighteen months as they reduced the
level of restrictiveness, that would be an endpoint of where
they might get to the speed with which they move
from where they currently are down towards that two and
a half is going to be dictated by how much
the economy slows and whether or not it goes into
a recession and.
Speaker 2: How much they panic. And you can't of course political
considerations here. They got to do something because the only
bright spot somewhat on the economic horizon has been the
stock market. If it's going to start tanking, they're going
to panic. We already have green Span on on on
the audio saying that I'm not green Span I'm sorry,
and I'm dating myself here. Powell Powell, Yes, Jerom Powell,
I did know that so we already got Powell on
the record in background, you know, somebody somebody talking to
like Project Veritas or something saying that he hates Trump
and do anything to stop them from getting elected. So
when we take into consideration the political backdrop and that
now they could really bring it the rate down to zero,
but there isn't that much time before the election, only
two months. Don't you think they got to go for
the biggest bang for the buck. I'm not in that camp,
in part because we've seen evidence like the employment report
that came out today, Kerrie. You know, last week I
wrote that, hey, we're going to see the unemployment rate
probably chick down, job growth kick up. So job growth
went from one hundred and fourteen thousand to one hundred
and forty two. Oh wow, twenty eight thousand increased. Right, Well,
they revised July.
Speaker 1: And June down by eighty six thousand, and I think
the stock market is responding to that weakness that rule.
Wait a second, that number headline looks fine, but underneath
it not so good.
Speaker 2: So my point is is, if.
Speaker 1: The Fed moves, even if they go fifty basis points,
I think they're gonna go twenty five. But even if
they go fifty, some people might start to think, hmm,
what does the FED see that we don't see? In
other words, is the economy slower than expected? So it
perversely if they went more aggressively at this point in time,
I think the stock market would react more negatively, not positive.
If they go twenty five, one interpretation can be okay,
the Fed still thinks everything is okay, No need to
go more than twenty five.
Speaker 2: So that's my tape.
Speaker 1: I really again, I play very close attention to the
minutes of the FED and all the rest of it.
I've been probably more right than most people in the country.
Speaker 2: I agree with that. Well' see no no argument. But
you know, I'll just go back, and we've talked about
this before to the late great Alan Abelson, who was
a it was the chief editor at Baron's. I remember
one's comments and saying, the FED is doing what it
does best, which is getting a president reelected. And hey,
everybody in Washington wants to increase their own power and
be able to doever they want with minimal oversight, and
you know their allegiances here are very obvious.
Speaker 1: Jim, I'm nuts, you know again, I'm pretty confident that
each of the FED members has their own political bias.
Maybe I'm naive enough to think that they're in a
position where they're looking out over the next one to
three years in terms of me and that they're going
to try to do the right thing right now. The
right thing is cutting by twenty five. If we get
some more data, that is, we could than expect it.
Maybe they go fifty. I just don't see. I will
wrestle and the next meeting is until after is the
day after the election, right, so.
Speaker 2: They got to do it now. They need that market
to jump. I will bet you a latte, and my
latte at Starbucks is currently five dollars and sixty two
cents get his increat from around four bucks two years ago.
And they've cut back on their rewards for their their
customer disloyalty program. We're it's supposed to be loyal to them.
They're disloyal to honest. Yeah, but that's business in America today, right,
all right, it's trying to make your buck. You know, Hey,
they got to do something here. Yeah, this is the
only thing they got. Well, I guess they could just
print up a couple of trillion dollars and just dump
it into the market.
Speaker 1: Right, Well, that's coming, I mean during the next recession.
And I believe a recession is going to take hold.
You know, the slow down in the economy has been very,
very gradual. I think it's going to persist. There's the
next couple charts just down below. Over reard Carry underscores
this in terms of again looking at the labor market.
You know, the savings rate now, for instance, is down
to two point nine percent. Prior to the pandemic, it
was about five and a half percent, between five and
six percent. So the economy is still moving forward, but
there's a whole lot of people that are spending, but
they're not saving because they don't have the extra income
to be able to do it. So there are stresses
building in the economy. And if you could just tick
down to the next two charts, because you know this, okay,
So the one on the left is diffusion index. It's
kind of like, okay, how many sectors are really contributing
to employment? Bro Well, it drop below fifty percent last month.
I haven't seen the number for the most recent month.
So again you look back in time when fewer and
fewer industries are adding jobs. You're on the cusp of
a recession. The monthly hours work you can see, you know,
that's a that's slowing, and that is progressive. I think
that's going to continue. So my point is irrespectable of
today's number. If the die is cast as far as
I'm concerned, Donald, then rate's going to tick up, and
you know, the labor market's going to weekend and ultimately
I think we go into a recession as we get
into next year.
Speaker 2: Hey, well, don't worry about it, because AI is coming
to save the day. Jam. We're all going to be saved.
It will save the US economy, the global economy, because
Elon Musk says, so right.
Speaker 1: I don't agree with that, but you know what, you
know again, AI is going to make a difference. The
problem is, and I wrote about this a couple of
months ago and talking about the semiconductor stocks and Nvidia.
That is, fifty billion dollars were spent on Nvidia chips
so far companies employing have generated three billion in revenue.
So that we're at a point where people are going
to start to question, gee, we're spending all this money
and we're not really seeing much bank for our book,
which then begs less spending. I think that's the technology
weakness we've seen carry is people are waking up to like, ooh,
maybe we're not going to get the return on all
this money as quickly as we thought.
Speaker 2: Well, one industry that is really cashing in on the
AI boom is the energy industry, the electrical industry. Now,
I don't usually tell people when I buy stocks when
I sell them, because I'm not a financial advisor. I
don't give advice, and you know I'm no expert on it.
But I did happen to buy this stock a couple
months ago, called Dominion Energy. And I didn't buy it
because it's financials. It's a solid mid tier electrical utility
that pays the divid end of I don't know, two
point seven percent something like that. The reason I bought
it is because all the government data centers are in
like Langley, Virginia, in that CIA strip over there, and
they are piling and they're probably buying more Nvidia chips
than Tesla and Musk combined. And sure enough, I was
starting to wonder, it's only up like ten percent and
what the market's been doing. Plus I got paid to wait.
Sure enough, there was a news release saying that, hey,
if you want to build a data center here, you
got to make a reservation because we're all booked up.
You can't just build one because they use like five
hundred megawatts, which is like enough to power the state
of Rhode Island, you know, and they're cashing in on
it obviously for intelligence and such. Hey just get rid
of like all those analysts who just to take up
space and right.
Speaker 1: But I was definitely at the goringsouch that people when
they made money in the Gold Rush, for the people
who sold the pickets and doubles, the troubles and all the.
Speaker 2: Rest and le stress. Don't forget Levi Strauss got to
have some g's baby.
Speaker 1: So you know, the utility are seeing a huge ramp
up in demand for energy and they should be beneficiaries
and at least at the same time, if the economy
does slow, the decrease in demand, because the economy slowing
is going to be offset to some extent by the
increase in demand to be able to power AI and
everything associated with it. Well, that was a good camber
you too.
Speaker 2: I mean, the robots are coming and I have no
doubt those robots are going to be super useful, especially
in Florida here. They Hey, I can't walk, but my
robot can go like being a cigar, right, and lighten
for me. Cut the tip. That's the that's the robot.
I want the one that will pick out the cigar.
Cut the tip, put it in my mouth. I lighten it.
I can't do anything here, jemmy, you know, and then
flick the ash. Yeah, to flick the ash, lean up
after me, because of course I'm you know, infirmed, I
can't like do everything. But seriously, those robots are common.
There's the right question, and it's going to be revolutionary.
You know, we're like, we're right when the dot com
bust happened, right, nobody thought the after that the Internet's
not going to amount to anything yet. You know, these
trillion dollar companies all all came about as a result
of that. That's where we're at now, where the return
is going to lag the investment. But then when it
kicks in, you know, I see it with the Tesla cars.
You know, I have a Tesla, big Tesla fan. Not
because I say it. I think I'm saving the planet.
Uh furthest thing from my mind. But the tech and
that thing basically ninety percent of the time. Jeff, it's
driving itself. Sure, I'm monitoring it. I'm like the pilot,
so that the pilot is the car and I'm the
monitoring driver. And when it does something I don't like,
I'd knock it off and I'd take the control. We're
not that far here, and according to Musk, we're going
to be having these things. Yeah. No, I mean all
those things are coming.
Speaker 1: As you point out, I tell the story about RCA
because I think it's applicable. You know, radio was a
huge thing when it showed up, and RCA was at
the forefront of radio at radio stations all over the country.
In nineteen twenty one, OURCA stock was eight dollars a share.
By nineteen twenty nine it was four hundred and sixty
seven dollars a share, and it went up because people
are like, oh God, they're going to be able to
send pictures and you'll be able to see people talking,
not just listen.
Speaker 2: I'm okay.
Speaker 1: In thirty nineteen thirty two fifteen dollars a share. Now,
obviously the depression had little something to do with it.
My point though, is did TV stations happen. Did rca
fulfill if you will, the promise of the twenties in
terms of what was coming next?
Speaker 2: They did.
Speaker 1: So what happens, though, is you get into these phases
where people get so enamored about what might be coming
down the road they're more than willing to overpay in
the shortcot.
Speaker 2: And I'll just.
Speaker 1: Think that's where we've kind of been. And ultimately what
you're talking about will like the Internet, you know, after
the unwined between two thousand and two thousand and two,
and then you flash forward twenty years and you've got
several companies that are worth three trillion dollars.
Speaker 2: Okay, so, and that is so true because it's the
lag between the promise and the delivery. And we'll buy
the sizzle, not the steak. So Buffet's dumped seven billion
dollars worth of boa, he sold off half his Apple holdings.
You know, he's got two hundred and seventy seven billion
dollars in cash right now. So you can basically buy
elon Musk, you know, and put them on a raft
out to Africa or whatever. Are we going to see
a return to real value investing here? Yeah, it's going
to take time.
Speaker 1: I mean at the beginning of the piece that you're
posting on your side is I'm offering a special report
the coming secular bear market. And in that piece, Terry,
I go back through history and then look at what's
going on in our economy that has been going on
that is going to require, if you will, a big adjustment.
And that adjustment is going to be valuations are going
to drop from very very high levels from an historical
standpoint to a much more reasonable level. And as we
deal with these problems, the economy is going to grow
more slowly. Well, that means earnings are going to be less,
So you get a combination of factors that bring stock
valuations down. The parallel I would make is between nineteen
sixty six nineteen eighty two, the Dow got to one
thousand in nineteen sixty six. In nineteen eighty two it
was trading under one hundred, a party under eight hundred. Yeah,
except years later at something I remember, yeah, yeah, you
know so. But it took a long time, and there
were a lot of ups and downs. Is that process
got worked through. I think we're on a cusp over
the next ten to fifteen years where we're going to
see a secular bear market. There's no way the government
can continue to spend and have a deficit seven percent
a year while the economy's growing one hundred and twenty
five percent of debt to GDP and it's going higher.
Those things have to be addressed and will be addressed.
And I think the outcome is that equity valuations are
going to get compressed. Hey, So just to let you know, AI,
I solved the budget problem, by the way, until at
GPT to cut three trillion off the budget. And the
first thing it does, because it has a certain leaning,
is it doesn't say anything about budget cuts. It wants
to raise the tax rate on business from twenty one
to twenty eight percent. So I said, do not, under
any circumstances.
Speaker 2: Raise taxes, all right, And then I said get rid
of one hundred government agencies. And you know what, I
save trillions of dollars here, man, and I didn't even
have to look at it. Yeah.
Speaker 1: The reality is, Kerry, I mean to be serious about
it in the sense is we got through this problem
because of too much spending, no question about it, and
tax levels are lower. I just think, if you want
to get serious about bringing the deficit down, you have
to curb spending and you need to increase some taxes.
Of course, I mean it's painful ideologically surgery.
Speaker 2: It isn't. I mean, ideology a part of me.
Speaker 1: Ideologically, the Dems aren't going to go for the spending
cuts and the republic Ms aren't going to go for
the taxing creases, which is how we got to do
so that if indeed that happens, you spend less money,
you raise taxes, there is going to be slower economic growth.
Speaker 2: If we had cut spending twenty years ago by ten
percent and just we wouldn't even have these deficits now,
you know, yeah, no, I mean, you know it's called discipline.
Speaker 1: I think going to last fifty years, tax receipts have
averaged about seventeen and a half percent of GDP. Spending
is around twenty percent, so you still had a deficit.
But we're at twenty three percent to twenty four percent
of GDP in terms of spending. So if there was
no thing we're disciplined on the spending side, the deficits
would not have been or be now. And the sad
thing is both candidates are not talking about.
Speaker 2: Reducing deficits whatsoever. Well, Trump is to the extent of
wants to put Elon Musk in charge of Cost Savings Commission.
But yeah, yeah, Like, I think there's a realization that's
dawning that it's the deed's going to have to be done.
And that's the problem when you like, don't discipline your
child when they're six, when they're twenty and they're in
college and they're not going to class, it becomes impossible. Anyways, Hey,
let's just look at it, Charity. I want to look
at the old gold.
Speaker 1: Yeah, gold all right, from the low of last year
goal bottom of eighteen twelve. I think we're nearing the
end of that big move up from eighteen twelve. I
still think there's a potential for one more pop above
the twenty five twenty nine high that happened a few weeks.
Speaker 2: Ago to complete this move.
Speaker 1: If gold trades bowl twenty four to seventy, that probably
reduces the the chance for another pop. My guess is well,
and part of this too, besides just the price pattern
bullistes on gold is quite high positioning is you know,
large speculators have a very big position long in gold.
Because people who have been talking about gold going to
three thousand. It may indeed go to three thousand. I
just think in the short term people are over extended
toward gold. I think we're going to see a pullback
in gold twenty three hundred and twenty three fifty. Consolidation, yeah,
more consolidation than oh, my goodness, the sky's falling. In
terms of the dollar, I think the dollars headed toward
the mid nineties. I think near term you might see
a little bit more strength, but I think we're going
to take out that recent low then they'll be into
their bouts. But ultimately I think carry the dollar dropped
about thirteen and a half dollars from one fourteen to
one oh one. You take thirteen dollars from that high
at one oh seven ninety four. So nowther words, two
decline that are relatively equal, and that's how you get
down towards ninety five. If I'm right about the economy
slowing more going into recession, FED being forced to probably
accelerate rate cuts. I think that's what is why I
felt really for the last two three months the trend
in the dollar was down. It was just how we
were going to get towards the mid nineties. Okay, all right, hey,
you got more charts.
Speaker 2: We're going to cook to just TLFT again.
Speaker 1: I put these charts together a couple hours ago and
Waller made some comments he's an f OMC governor, so
tlt rallied above. I think he got up to maybe
one hundred point seventy. What I basically told my subscribers
to a macrotites briefly texteds to review. We've been long
since the spring at ninety one thirteen to sell a
third of their position above that ninety nine ninety three
because we're getting a little overextended in the short term
onl and you know, sell the news. The Fed does
cut the rates I did. Potentially if they only go
twenty five not fifty, that gives people a reason to
fell into the news, so to speak. A longer term,
I still think one oh five, one oh nine, and
the possibility is if we really do go into recession,
one nineteen is possible. So I'm looking to be a
buyer on a pullback over the next you know, a
couple of months. Uh at that panel and finally the
SMP once it dropped goal of fifty five sixty one,
you can see that's important support that held it twice.
There's still the chance that the SMP will be able
to go up one more time to a new hot. Now,
what I said in Monday's Weekly Technical Review is if
we do get the rally above fifty seven hundred, that's
going to set the stage for a decline to fifty
one fifty to forty nine eighty. In other words, that
while we saw in April, I think if we did
get this pop, we're going going down there. We may
not get the pop. We may be just going down
there directly because people are realizing, you know, oh great,
they may cut more if the economy is weak. And
the premise of this rally the last two months or
so Jerry was, hey, the economy's okay, we don't have
to worry about intercession, and the Fed's going to cut rates. Well,
now all of a sudden, the idea that the economy's fine,
I think, is being called into question. And even if
the Fed is going to cut rates, people are looking
at that as like that glass looks half empty, not
half full.
Speaker 2: So you know, okay, I'm buying. I think, all right, Jim,
we got to run now, Matt, it's dot com. The
link to these charts. If you're listening on the podcast
is in the show notes. Just click it. You'll get
it from my dropbox right to you and look go
subscribe macro tides dot com. You can send me an
email at kl at Carrie lets dot com if you
got a question or comment. Very interesting conversation, Jim. As always,
we appreciate your joining us here and we'll talk to
you again when the fallout happens. If we're not all
in our fallout shelters, well we'll see what the FED
does on September eighteenth. This was a fun conversation, Carrie.
I enjoyed it and I hopefully might rise listeners as well. Always. Hey,
by the way, you'll find a link to macrotides dot
com in the show notes to this interview on Financial
Survival Network dot com. Hey, while you're there, please sign
up for your free newsletter so you get information like this. Jim,
you have been ahead of the curve. We've been talking
about this for like a year and a half and
it's all coming to fruition. Appreciate you. Thanks very much, Carrie,
have a great weekend.
Speaker 3: Thanks for listening to Carrie Lets'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