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Speaker 4: Report meaning a live man like this man letting butterfly
flapping his wing, dig down in the forest Man, it
gonna cause a tree fall, letting five thousand miles away.
Speaker 5: Man, nobody's seen.
Speaker 4: Nobody who.
Speaker 5: You don't need No, Man, we don't like you followed
another story and you got ed like that. That's the win. Man,
don't blackly down on the panel, man, Man don't matter.
Speaker 6: Man, you know the stormy. It is actually quite difficult
to record with you, not necessarily because of your scheduling
or you know, don't have anything interesting to say, because
I swear every time we do this, we end up
talking for like half an hour before even get rolling
about just completely unrelated things like goy beams and literary
literally release release.
Speaker 5: Oh man, it's all it's all true. It's good to
be back. I wish one of these times we're gonna
have to I'm gonna have to come on and talk
about something positive. But today is not going to be
that day.
Speaker 6: Yeah, today is most certainly not that day.
Speaker 5: Uh.
Speaker 6: So we're going to talk about a couple of things.
Inflation for one, uh but more generally kind of the
all of the compounding issues from uh basically the Federal
Reserve and setting interest rates. Right, there's a really interesting
discussion to be had about Canada. That you know, we
can get into in a little bit, but I think
it's important to talk about this because if you've really
heard anyone talk about this, who's outside of the band
of normal people, right who depend on something other than
assets for their daily living expenses. Sort of hard to
bridge that golf, because what really prompted this discussion was
a comment, you know, when you and I were going
back and forth about this, where I just asked an
open question of how much of the growth in the
market since eight plus or minus is actually due to
the market growing and how much of it is just inflation.
Because in that conversation we were talking about the fact that
really we've been in a recession of some type pretty
much off and on ever since that we never really recovered.
And I saw this happen in real time as I
finished up college, where the Biden admin just changed the
definition of what a recession was, so we magically weren't
in a recession. It's magic words theory of economic analysis.
But once I did some digging, and people will know this,
this isn't the most esoteric knowledge, I realized that well,
that exact exact same thing happens to inflation, right The
way that it is measured is completely and totally contrived.
So that was really the genesis of this conversation. And yeah, man,
I'll kick it to your story.
Speaker 5: All right. So if we take the SMP Composite Index,
I have it up somewhere here, all right, the real return.
So let's just say I think that what is the
when you see what the overall adjusted or what the inflation?
What the h we'll say the S and P andrew
annual return for twenty twenty five, right, it was nine
point three percent by year end, all right, so that's
not great. But what's the actual rate of inflation? Well,
I can tell you it's not two percent. You probably
already know it's not two percent, right, so actual inflation? See,
all right, it's just this is funny. This is funny.
You know how you just said, like the Biden admin
changed the definition of what a recession was, and everyone
and we thought that was really funny. Everyone online joked
about it. But what everyone didn't I guess didn't know
or maybe knew a long time ago and forgot. The
Federal Reserve has changed the rate at which it calculates
inflation three or four times now since you've been born.
So basically, when something is inconvenient, they just stop calculating it.
So in nineteen eighty we used to factor things like
housing costs, energy costs, healthcare into our inflation metric our CPI,
and then in nineteen ninety we threw out two of
those things, and in two thousand we threw out even
more things. So now when we calculate inflation, the cost
of housing is not included, the cost of houses not included,
the cost of energy not included, the cost of health
care not included, and they'll probably throw out groceries too,
So maybe they'll just calculate inflation on, you know, the
cost of streaming services. I don't fucking know. So if
we were to calculate inflation on what inflation used to
be calculated on, right, the nineteen eighty methodology is probably
the most honest we've ever been. And if I look
at that same inputs just calculated the way we used to,
twenty twenty three was fifteen percent at sixteen percent inflation,
twenty twenty four was twelve thirteen percent inflation. Right, it
was at a steady ten percent a year from nineteen
ninety three to twenty nineteen, So if you had one
thousand dollars, let's say in twenty twenty, right, So something
costs one thousand dollars, that thing from twenty twenty to
twenty twenty six is now nineteen hundred dollars, right, which
is a actual rate of inflation. Because these are lagging indicators,
I hadn't do it forward, all right, So about fifteen
percent a year has been the actual rate of inflation
since twenty twenty to now. And that compounds like compound interest.
This is the thing that everybody Boomers don't understand about inflation. Oh,
boomers were lied to about everything. So when they say
on the news that, oh, inflation is coming down, it's down,
you know, down one percent. Inflation's coming down. That'd be
like saying you have a fifteen percent interest mortgage and
for one year I charged you fourteen percent. That's basically
what it's saying. Inflation compounds just like interest, and the
cumulative effects are kind of what boomers can't see. So
when you talk about stock market returns, you can adjust
them downwards for the inflation each year, but that doesn't
really factor in the cut of inflation You've already got
in there. So actual stock market returns. Right for the
last I don't know, f S and P five hundred
is ranged somewhere in between ten to fifteen, ten to
seventeen percent, and now let's minus twelve percent out of
that conservatively, and then you're looking at your real rate
of return. So all this big stock market bubbles, Trump
is talking about how the S and P five hundred
is going to be at new highs, it's not. We're
at zero percent actual returns. Maybe two percent returns, three
percent returns the highest. So that means if you were
to like, let's say you're investing, you now need to like,
if you did twenty five percent returns that year, you
would be very very happy. But you didn't actually do
twenty five percent. You did a little bit more than ten.
So in order for you to keep up, you have
to earn fifteen to twenty percent just to tread water.
And no one's earning fifteen to twenty percent a year.
So even boomers with their stock market returns, those are
all fake, right, It's just happening slowly to where they
don't notice. They see their four to one k going
up and the value of their house going up, but
they don't compare that to the purchasing power. Right. So, like,
let's say you're a boomer whose house doubled from twenty
twenty two to twenty twenty four, which most of them did, well,
the cost of everything doubled, right, That thousand dollars thing
now costs nineteen hundred dollars. So even the boomers who
are so scared about their housing costs, like their value
of their house, they don't know that the value of
their house hasn't increased at all. It's actually gone down.
So inflation is so ubiquitous, it's kind of baked into
everything that people don't notice it, right, or they don't
notice to look at all aspects of their life. Right,
So they see their stock market returns as separate from
what happens to the value of the dollar they see
they're housing their house, you know, price, as separate, and
they're really all a function of the same thing. Right.
The boomers really haven't made all that much money in
real terms at all. So it makes the situation that
the younger generation is put in significantly more damning because
if you say, all right, boomer, you really actually haven't
made that much money. All the money that you think
you made has actually just been currency debasement. Okay, well,
then what does that make the youngest generation, who's you know,
quality of life has now you know, been admitted by everyone,
it's going to be exponentially worse. Everyone thinks the boomers
had it so much better. They did in certain aspects,
but not since nineteen eighty they haven't. And most of
the Boomer gains that we look at as gains happened
after nineteen eighty. They've just been riding. They've basically been
cheering on currency debasement, thinking they've been getting a pay raise.
All of the cheap stuff that we talk about, like oh,
you're able to buy a house at this price. You know,
a single family could you know, be sustained off of
one guy working a factory job. Not in nineteen eighty
and certainly not since. So the time that people are
really attributing to, like, you know, livable time was when
the boomers were kids, right, like teenagers' early twenties like that.
But what's gonna happen now, And this is what I
kind of wanted to talk about is velocity of money,
And no one really talks about velocity of money and
velocity of money is probably just asn't. So when you
ask a libertarian about inflation, he'll talk to you about
the Federal Reserve and say a bunch of dumb shit.
He doesn't understand. This is why Peter Shift is always wrong, right.
He has no idea even now why the price of
gold is going up because he's a fucking retard. Sorry,
I really I shouldn't swear so much. But libertarians aren't
factoring in velocity of money, right. They'll tell you how
much money was printed, and oh, well, if you print
this much money, of course this is you know, gonna
is going to happen like inflation happens much much more
from velocity of money. So the Trump government is going
to try to tamp down inflation, even though he thinks
he's going to be able to run it hot, just
like he probably thought he could do everything for Israel
and you know, win domestic politics. He's quickly finding out
that's actually not the case. The admin is going to
be forced to choose yet again, and by the person
that he picked. All right, everyone is like kind of
obsessed and like, oh, this guy is the son in
law of the head of the world sign and his Council, Like, yes,
this is also true, but he is a really big
hawk as far as FED policy. So that means they're
going to try and tamp down inflation, and they're going
to do that with the only tool that they have,
which is the interest rate, which generally works kind of Right,
if I raise the interest rate, people borrow less money
and they hold loans for less amount of time, and
most of our money, right, most of the printing doesn't
happen at the federal reserve. This is again why libertarians
are fucking wrong about everything. All of the money printing
happens in the banks because they're supposed to do that, right,
So the treasure the Federals sells them treasury bonds at
a certain rate, and then they take those treasury bonds
and put them in their bank vaults, call them reserves,
and they will lend against them, right, usually like ten
to one. And it's the lending that they do, the
issuing of mortgages things like that, that actually prints the money. Right.
The money is printed by loans created off of those treasuries.
The money isn't printed by the creation of treasuries.
Speaker 6: Well, and Stormy, as I'm sure you're aware, during COVID,
and it might still be the case. I haven't checked.
Speaker 5: The reserve rate was dropped to zero, yes, yes, I
was going to get to that even further, ridiculously increasing
the amount of effective inflation. Yes. And then also this
other thing happened, which are called non bank lenders, right,
this is a new phenomenon. Like all of those like
by now pay later apps that you've seen just explode everywhere.
Those are lenders. They're printing money right like you're you know,
I mean, let alone payment.
Speaker 6: The explosion of digital consumer looks, you know, that's any
one of these other kind of give knockoffs.
Speaker 5: And also the sports betting people don't see sports betting
as inflationary, and it very much is right because when
someone is, you know, placing a bet at like ten
to one odds, right, that's leverage because if you win,
you expect to be paid that ten to one, don't you.
It's no different than leverage. So the explosion of derivatives
is another type of again lending. This is where the
inflation actually comes from, that end velocity. So this new
man is going to raise the interest rates very sharply,
and I mean sharply. I don't think it'll be I
don't think people give credit where credit is to Jerome Powell.
Jerome Powell's a saint. The world economy existed on basically
zero percent interest rates. The US had a negative interest
rate for like ten years, right, because if the interest
rate is two percent, but inflation is like a lot
more than two percent, that means the interest rate is
effectively negative. So the US has had negative interest rates
for a very long time, which again created the explosion
in lending, which is explosion in the monetary supply, which
is why boomers think that they were getting rich but
were actually just treading water themselves. They're easily fooled, those boomers.
But he raised the interest rates from effectively negative interest
rates to five percent during a fucking pandemic, all without
a market crash, a credit where credit is due. Jerome
Powell knows how to do his fucking job. And this
guy is probably going to be as aggressive, if not
more aggressive. So what happens when interest rates go up?
People borrow less money, right, So that's how they that's
how they're going to bring down inflation. Because don't get
me wrong, Jerome Powell, over the course of raising those
interest rates he basically zapped five trillion dollars with a
goybeam and disintegrated it. Right, five trillion dollars disappeared by
him raising interest rates. That's going to happen this time.
Except what's also going to happen is the velocity of
money is going to tank. We're already seeing it now.
Every single person listening to this is probably agonizing over
each and every expense that they have to make, and
that means people are scared to spend money. And when
people are desperate to save money and to spend as
little as possible, the velocity of money goes down and
the inflation goes up rapidly. Right, So, if velocity of
money is high and money is changing hands and moving
all around, its inflationary value is effectively zero. But if
everyone yanks all the money out of the system right
and tries to stuff it away and there's less money
going around, counterintuitively, it makes things more expensive. It's just
coming from it's just a demand side problem instead is
a supply side problem. So they're going to create a
demand side problem at the time when they go about
trying to solve the supply side problem, and unfortunately they
are taking They're using the one lever that is in
their control to solve a problem and then create a
problem that is in a domain where they do not
have control. Because velocity of money is entirely psychological and
macro effects based, right, So, like I say macro effects
because if you are, you know, trying to agonize over
all of your spending, trying to spend as little money
as possible, you are reducing the amount of velocity of money.
But if I also ship your job to India, I've
effectively done the same thing. Well, and I've pulled your
whole salary out of the money supply have to decrease
the velocity of money by however much you used to
make well.
Speaker 6: And to that point, look, you know, I was never
a highly compensated employee, right in the grand scheme of.
Speaker 5: Things, incredibly undervalued, thank you.
Speaker 6: That's a nice way to say perpetually unemployed. But what
you would have is that jobs like that would have
been a way to outpace or at the very least
keep pace with inflation, relatively high compensation text advantaged ways
to dump that money into the market. You don't need
to get into that. That's a discussion for another day.
And now obviously that's quite expensive for the firm, which
is why they are they are offloading. But a problem
which historically has been reserved for a working class and
for young people, it's coming for your laptop job. Right
you can't, I mean not everyone. I'm sure someone will,
but the ability to out earn this is sort of
going away. And unless you already have assets, because again,
when you know, monetary velocity goes down, if you're a seller,
you have to deeply, deeply discount whatever you're selling because
people are you know, generally it's like, well I don't
want to be giving up money, but this is such
a good deal I can't say no to it. Well,
even people who do have assets, well, sure they have
an asset, that's good, they own that thing, But if
they don't have the income to service that, to make
their mortgage payment, they're going to get blown out of
the water because the market for or most things is
going to crash. And there are leading indicators of this,
right yep. Buying in you know, assets like cars is
way way down. Cars have been hit by inflation like crazy.
Speaker 5: This is actually the perfect example. I'm glad you hate this.
Speaker 6: This is a perfect.
Speaker 5: Example of how demand can collapse but prices can still increase.
Speaker 6: Exactly because you know, demand for new cars is, you know,
way down. You've been reading stories about this really sense
around twenty two to twenty three, but it sort of
continued to pace. But one, well, the interest rates up,
so your cost of lending is proportionally quite high. But
also people are unlikely to dump something for more of
a loss than they're comfortable with. So you just have
in general incredibly low velocity of both money and of assets.
Speaker 5: Bingo. This is why. SO housing is another thing I
think we should talk about because the so I think
I made a prediction a long time ago on maybe
this show or others right, that the demand for housing
was going to collapse just from demography and overall, you know,
prevailing financial conditions. And I think we've seen a pullback
in every major housing market in the country, and things
still aren't selling, like literally nothing is selling. All of
the boom states, right, Colorado, Texas, Florida are now the
lowest transaction volume states in the country. The amount of
real estate actions that have happened this year are half
of what they were the year prior. Right, So fifty
percent of demand just disappeared, and that's going to steadily increase,
and the prices with those are going to go down briefly,
and then the thing that Jay and I are talking
about is going to go up. Right, So you're going
to basically shake a bunch of people out of assets,
and then those prices of those assets are going to balloon.
It if you didn't want to set up a permanent
underclass and you just happen to do it by accident,
I don't think you could have come up with a
better ide way of going about it. That you really
can't it because the boomers they're going You're going to
see a lot of properties literally rotting away because the
boomers that lived in them died and their kids can't
sell it because no one wants to buy it, and
then no one can afford to buy it to move
in it. Right, So you're going to have a housing
problem at the same like you're going to have a
housing problems in like cost of housing at the same
time as you're going to have basically a ton of
inventory empty everywhere, which you're starting to see now, so
that there's very few things that that administratively can fix
this without really like a total crash out, and I
don't think that's what people are bracketing for.
Speaker 6: Well, and this is the point that uh Mark Mitchell
of Rasmussen, who's on my show not too long ago made,
oh thank you. He made a really interesting post to Twitter.
It was today or yesterday, relatively recently. Ree basically was
was talking about a recent meeting he'd had with the
President where he said, I went in there and I said,
mister President, you need to crash the housing market. H
That's that's an option. And he was basically saying He's
like yeah, and I could tell no one had ever
told him that before. And you see that in the
messaging from the administration, right, He's he said, you know,
I will do nothing that allows the value of housing
to decrease.
Speaker 5: Uh. Well, so we're not foreclosures are now hitting the
full time. The foreclosers are now coming close in in commercial.
Speaker 6: Real estate, right, this is like, I mean commercial real
it's been screwed for six years.
Speaker 5: Yes, but so has our housing market.
Speaker 6: Well, and that's my point, right that you know, you
could look at the situation and in uh you know,
not corporate point is in kind of like business and
real estate in twenty twenty and say this is never
coming back, this is screwed. But it's taken more than
half a decade for that to actually shake out. And yeah, sure,
we're on a long enough time span. You know you
can simply say, well, I'll stack cash and wait for
the market at the bottom of the fall out of
the market. But you need a place to lay it.
And let's also acknowledge that you know that these same
trends are hitting rent because someone is paying a mortgage
on your apartment. I think someone is being forced to
bear the higher cost of interest.
Speaker 5: Like, sure, what do you what are you going to
put that money into? You can say gold. Okay, everyone
that says gold, are you gonna stuff your money in gold?
Has never tried to liquidate gold, right, They have never
tried to buy anything with it. Because when you go
to buy something with gold, when you turn your gold
into money again so you can make your purchase, you
will be surprised to find out that no one's gonna
buy it at whatever the spot price of gold is. Right,
you will take a ten to twenty percent haircut. You
can just go to Kickko and find out what the
wholesale rates are for buying, and that's basically a global
exchange or a national exchange. And you'd be like, wow,
so basically I buy a thing for this price and
no one will buy it for me. No one will
buy it for me quickly for the same price. Well
that's bullshit, Yes it is, Yes, it is bullshit, right,
because when you are the seller, you either have two options.
You could either just run around and ask everyone you
know to come buy a piece of bullying off you
the guy, when they could just buy it from like
a place that actually sells gold. Like so just do
you trust the stranger on Craigslist? No, you just buy
it from the people that sell gold, or you try
and have or you're forced to sell it to them
and they're not buying it back for full fare. So
all of the people that say like, oh, well, I'm
just going to just keep all my money in gold,
well great, try and turn that into money when you
need to buy a house. Tell me how much money
you saved.
Speaker 6: I mean, let alone the storage of transport issues. Right. Yeah,
I actually do know someone who everybody does a piece
of land with a quote Suzuku's Jimmy worth of silver bullion. Uh,
but you know, One it was the seventies, and two
it's in Baltimore. You really want to go to Baltimore
to pick that up?
Speaker 5: Uh? Try driving through Baltimore now with the Suzuki samurais
full of silver silver dollars. Well.
Speaker 6: Uh, he did describe remembering his dad with an open
bolt with an open bolt transferable uzzi. Uh, so you
know that's how you do that.
Speaker 5: Yeah, it was.
Speaker 6: It's a pretty cool story.
Speaker 5: Uh. Yeah. But the less if you can do this,
you and if a person is in the position to
drive a Zuki Samurai full of silver bullion at the
same time as you know, wielding or having holstered an
open bolt, fully automatic uzzi and drive through the hood
of Baltimore, if anyone is able to do this, you
are like duty bound to do this. Well.
Speaker 6: Also, like, if you're that cool, what do you taking
advice from us for? Right, You've obviously got you've got
other plans. Uh.
Speaker 5: Yeah, Land is actually a good thing. Land is better
than gold.
Speaker 6: So one other thing, Stormy. Uh. One of the things
that that you talked about when when you and I
were on the phone is that this problem is not
unique to America. You're the one's making this this decision.
But you know, as you said, right, the Fed coughs,
the world catches a cold, and specifically you were talking
about the nation of Canada, which I'll be honest, man,
I am sort of equal parts disturbed and amazed by
the Nation of Canada. Nothing to do with you Canadians listening.
You're great, particularly if you give me money. But maybe
we could examine that as one example of how this
causes issues for other people than just kind of normal working.
Speaker 5: Americans, and Canada is actually a very good case study
of how this could shake out, right, which obviously isn't great.
So Canadians have a couple problems. So one, well, you
guys have lots of problems. But let's just take the
Canadian real estate market, right, So Canada basically exported all
of its production capacity, right, the ability to make things right.
The regulators have made it impossible to you know, start
up a thing to make things Agriculture is basically regulated
all to hell. Energy is regulated all to hell, and
it doesn't really make a lot of money just as
a nation. So that's gonna I'm gonna come back to
that in a second, and that's going to be important.
So Canada has had a real estate boom bigger than ours. Right,
So as much as people are upset about what's happened
to us real estate prices, you should just be thankful
you're not in Canada, right, because Canada real estate prices
have I mean literally like quadrupled in ten years more.
And if you're in an economy where nothing makes money
but housing is shooting through the roof, what do you
put your money in housing? Right? And so much so
that forty percent of Canadians right have either a small
or a large chunk of their savings, like their retirement
savings in real estate trusts right, or real estate investment
companies right, real estate funds because real estate was the
only thing making any money on paper. Right, The only
thing going up in the Canadian stock market was real
estate funds. Because the only thing going up in Canada
was real estate. And they have a real problem. Well,
you can tell that they have a real problem because
the five biggest real estate investment funds over the last
two years have all suspended redemptions. Right. So a fund
suspending redemptions is like your bank account suspending withdrawals. It's
not a good sign. Right, They're basically saying investors can't
take their money out. So now that forty percent of
Canadians that have their and most of it not even
to their knowledge. Right, there's a whole bunch of these
bullshit money market funds like these black Rock ETFs and
dumb shit like that and automatic you know, basically automated
four oh one k investment machines, right, because that's really
what it is like if you have Blackrock or Vanguard
manage your four oh one k retirement savings, it's just
a really retarded and I mean it's literally right compared
to like what a lot of the hedge fund guys
are running. The algorithm that decides what stocks your four
oh one k buys has literal down syndrome, right, It's
the most unintelligent, you know, robot ever and it just
basically throws you into whatever is moving or whatever is
anyways it's done. So most Canadians probably don't even know
that their money is in these real estate funds, so
they don't know that their money is locked in them, right,
the algorithm can't trade out of them because they can't
get their money out. But you know, unless you are
like Hawke eyed on your four oh one K. You're
not going to know this is an issue, right. Mostly
it's the individual private investors that are screaming about it.
So they built a fuck tone of housing because it
was making a lot of money. Right, A literal garage
in Vancouver or Toronto, a literal one bedroom garage, not
even like a fucking condo. A garage that has been
turned into a garage or sorry, turned from a garage
into a tiny home will cost you almost a million dollars.
So everyone obviously was in the garage building business. Like
you can pay a million dollars for a shack, okay,
and a Canadian may not live in a shack, but
in you know, five Indians will. So they had plenty
of people to sell them to, which all sounds just
shitty but fine, except for the fact that in Canada,
and as an American, we are going to find this
incredibly unjust because like we we have a concept of like,
if you make a deal with somebody, you make a deal, right,
and the terms that you agree upon are the terms.
But in Canada that's not the case. So if you
have a mortgage, you don't A fixed rate mortgage is
something that doesn't exist in Canada. Right, it is an
adjustable rate mortgage that you have to renegotiate every year,
or sorry, every three years, from what I understand, and
that means if interest rates go up, when you go
to renegotiate that mortgage rate, your payment it. Basically it's
the same exact thing that blew up the housing market
in two thousand and eight, those adjustable rate mortgages. Because
for the last thirty years of them dishing out these mortgages,
the interest rate hasn't moved more than like one percent
up and down in either direction, right, like half a
point a quarter of a point. But in the last
five years, especially the last three years, interest rates have
gone up a hell of a lot more. And I'll
talk about that last, right, Well, sixty percent of those
mortgages are going to renegotiate this year. And if anyone's
been checking what has been happening in the Anglo sphere,
right as the as the FED raises interest rates slightly, right,
this is to your point about the world catching a cold, right, bank,
let's take at the Bank of Canada. Now, I'm now
going to be specific because I don't want to piss
off any Canadians. M hmm, okay, yeah, bond yields. We'll
say the five year government all right, let me see.
Oh yeah, So across the anglosphere, interest rates on government debt,
which is basically where your interest rate from your mortgage
is calculated, is has been on a tear lately. And
here I will I will take a little screenshot and
then we can look at this chart together. All right,
So mortgage is are basically calculated off I believe. I
don't know if it is the because in the US
mortgages are calculated off the five year and the ten year,
but I think Canada is roughly similar. I think it's
I think it no, sorry, it's it's capted in the
ten year, in the thirty year. I think with Canada
it's the same thing. But the interest rates across the
anglosphere are just stacking up very very quickly. And for
like a for a government bond to move a quarter
of a percent, right, a tenth of a percent in yield, right,
So interest rate basically right, So the interest rate that
the government pays on its debt, if you're a bond holder, right,
that is yield to you. So in February twenty twenty five.
The interest rate on government bonds in Canada right on
the ten year was two point nine percent. It's now
up a point in a year, which is a very
very very big deal, and it's projected to go up
another point by the end of this year. Right, so
two percent on government debt is going to basically shake
out to like a four percent at the time that
it shakes out at. I mean, what is it. What
is a mortgage rate right now? Seven percent?
Speaker 6: Yeah, it's pretty punishing, but I mean, in story.
Speaker 5: The FED rates only four and a quarter, so that
extra two points comes from the banks off of the
government interest rate. So if the government interest rate goes
up two percent, when they go to negotiate that mortgage
at the end of this year, sixty percent of them
it's going to be three or four percent higher than
whatever it is they're paying now, and in you know,
in mortgage terms, four percent. I mean to give you
an example, I went, I was looking to buy a
house in twenty twenty one, and I knew the stock
market was going to crash, and I knew that every
time the stock market crashes, the FED drops interest rates
to basically zero. So I'm like, all right, cool, all
the people buying houses are buying them in cash, but
basically cash that's borrowed against their stock portfolio. Stock portfolio
gets you know, a thirty percent haircut. Nobody will be
buying houses for cash anymore, which was correct. What I
didn't see is the FED, for the first time in history,
raising interest rates into a stock market crash. So I
was looking at I think the hom I was looking
at was one in three quarter million, and the mortgage
payment on the amount that was going to finance was
roughly like four grant for grand a month. The interest
rate going up, the FED interest rate going up one
in three quarter points made the mortgage rate go up
to point nine points, and that two point nine point
difference turned a four thousand dollars payment into a eighty
five hundred dollars payment, same amount borrowed, same term, two
percent increase, the payment doubles. So the people in Canada,
sixty percent of them, are going to have their mortgage rate,
their mortgage payments double. And this is why the real
estate funds are freezing redemptions. Because another scary thing is
that Canada doesn't do gibbs like we do gibs. Canada
just puts them on the payroll. So some retarded number,
like almost forty percent of Canadians are employed by the
federal government, like their government, right, So rather than just
hand them free money, they just hand them bullshit jobs.
So if you're a government employee, you're kind of on
a fixed salary. So if your mortgage payment doubles, you're
going to lose your fucking house. That's all I wanted
to say. And if you know a third of your
economy is real estate speculation, that's going to be really
bad for you or sorry for your economy. Like Canada
is going to get a two thousand and eight, but
only after it restructured its entire economy around housing. So
two thousand and eight is bad. But the US did
not structure its entire economy around housing before the crash.
Canada has restructured its entire economy around real estate, and
it's going to have a real estate blow up. Gonna
be really bad.
Speaker 6: So before we went live, so to speak, you mentioned
that one of the things you really want to do
is not simply offer analysis, right, offer some sort of
viable alternative or viable path. I realized you You've been
quite a grim picture here, So to be honest, like,
what should people do?
Speaker 5: Okay, So the only time you can really make if
if everything is going according to plan, no one can
make any money, right, So, like, if the stock market
is just steadily crawling up every single quarter, just up
and up and up, and you're on the bottom of
the ladder, you're never going to be able to climb
that ladder because everybody else is also you know, all
the people above you are also you know, moving on
up faster because they have more money compounding. Right. The
only way a person can move up in the economy
is when other people fall down. So we're talking about
something that is ostensibly very scary, but it is also
a chance for people to move themselves up. Right. So
they price options all right, How much an option costs
is a function of how much volatility is. And if
volatility is very very high, right, the cost of that
option is going to be equally high, right, because they
are pricing the chance of you know, the assets swinging
in either direction very aggressively. Right, They're trying to cover
their ass So with people, right, that volatility is where
you make money. You can't make any money if everything
goes according to plan. You need volatility. If there is
no volatility, then there's no gains to be had right
when everything goes So how people should see this is
imagine if you knew that certain parts of the economy
are going to be really bad for people that have
their money in certain things, or how they position themselves
according or how they position themselves, right, Because what's a
good way of putting it. How is that I'm trying
to think because there's a lot of people that just
straight up don't have any assets at all, right, But
if you have some assets, and I'll probably get a
lot of criticism for this, but I hold a lot
of bitcoin and everyone is like, oh, well, bitcoin went
down a whole bunch, like it always does, but it
provides me liquidity, right, and it basically runs in much
of the same mechanisms. Mine is the volatility as golden
silver does, but it allows a lot faster liquidity. Right.
This is why JP morgan is is allocating a lot
of money to crypto, specifically bitcoin, not you know, ethereum
or whatever has been doing the same thing they bought
all the way down. In any type of really inflationary environment,
you're going to see things that have liquidity and store
of value become everyone's favorite assets. So how do you
deal with a hyperinflationary or sorry, an inflationary environment. You
buy assets? Okay, what else can you buy? You buy commodities, right,
and the commodity cycle is just now starting. Land is
a commodity, especially agricultural land is a commodity, and it's
one of the things that our economy has grossly underpriced
for a tremendous amount of time. Right, you don't actually
have to go plant crops. You can literally just lease
the land out to farmers. So the income generation is
kind of like sticking a renter somewhere like you were
talking about, like, oh well, you know, even if no
matter what happens to rents, there's somebody behind that renter
has to be paying that mortgage. Right. So land is
something that is infinitely more liquid than gold is without
the haircut. Right, it's different than housing. People should recognize
that commodities. If you want something that is publicly traded
that you can slide into and out of, right, turn
to money very very quickly. People need to focus heavily
on commodities because you're basically facing a one to an
eighty year commodity supercycle. That's a whole separate podcast. But
there is specific types of assets where a lot of
this stuff will pass you by and that have been
grossly underpriced. Because the thing that we've had in this
hyperinflationary environment is which medical amount of capital concentration? Right?
Not only is there a metric fuck ton of money,
but the metric fuck ton of money is all concentrated
in very specific things, right, which in my opinion is
very very dumb things. Right. And it seems that the
market's kind of thinking it's dumb too, which is nice
because software companies are basically falling apart right now as
far as the stocks, and you're seeing all of that
money have to go into things like small caps, into commodities, right.
So as money bleeds out of these balloon industries, these
balloon sectors, it's going to reprice a lot of other things.
But basically, getting yourself on the ladder board should be
the most important thing, whether it is assets in public markets,
whether it is real estate. In terms of land, I
wouldn't want to be I wouldn't want to be flipping
homes right now, right, But land is also something that
people can afford, right, it's not something that they're priced
out of. Right, Land is infinitely cheaper than the house
that you put on it, but now nobody wants that house.
So for people with no money, they need to be
skill stacking. I mean I'd almost have to really think
about it for like some time to basically tell the
person without any money, you know how they need to
position themselves. But for a person with even a small
amount of money, you have a chance to get it
right in a way that will not necessarily set you up,
but put you on a ladder where you otherwise wouldn't.
Like a good example of this would be like after
two thousand and eight, I was sitting at my kitchen
table with my dad. I had just gotten out of college,
and like this was it was like two thousand and nine,
so the crash was like in full swing and my
dad is sitting there and he's like, if you had
an extra hundred thousand dollars right sitting around, like would
you buy GM Ford and Bank of America? And I
mean these stocks where I think Bank of America I was,
I always get it wrong, but these stock were dollar
like single digit and low double digits. I mean it
looked like they were going to go bankrupt. Nobody knew.
And there was a series of three or four stocks
my dad asked me about and I basically pussied out.
I said like, oh no, like you know, I did
the typical dum or take. I was like, oh no,
we just saw bear Stearns go bankrupt. There's a good
chance Bank of America could go bankrupt. You know, FOURD
and GM. It kind of looks like it's over for Ford,
and it really looks like it's over for GM. And
there was one other stock. I can't remember what it was,
But if I had told him to buy that those stocks,
I can't remember. I did the math once and it
would have been something like fifteen million bucks. So in
a crash, you have a chance to buy things at
fire sale prices. Basically, a whole bunch of investment bankers,
you know, fell off the ladder, and all of a sudden,
all of these rungs opened up. A lot of people
made a lot of money coming out of the Great
Financial Crisis that never would have been able to make
any money if anything had just gone on the way
things always go. And people should look at it. If
you're not on top a crash is the best thing
that can happen to you. I mean, inflation's going to suck,
but there's ways of mitigating inflation. I'll let people, you know,
research various ways to basically, you know, I can't help
you make groceries cheaper, but if you've got a couple
hundred grand that you're trying to keep away from inflation,
there's a ton of ways to do that. But people
should look at this like an opportunity because it's the
only It's only when things get shaken up really really
hard that there's a chance to make moves. When everything
just goes on accordingly, the big things just get bigger
and the rich people just get richer. But when the
rich people lose their shirts, there's a chance for you
to actually make money. I made most of my initial
nut in housing during the foreclosure crisis. I use that
to fund my first startup. If it wasn't for the
two thousand and eight fine crisis, I would probably be,
you know, working in some cubicle somewhere. So it was
actually the two thousand and eight financial crisis that gave
me an opportunity to make a bunch of money. Because
a whole bunch of banks lost their shirt. So that's
the way it's really just mindset.
Speaker 6: I think that's the closest that you and I have
ever gotten to a hopeful message in one of these episodes.
Speaker 5: Right, I think that's a win. It was all over
the place. But yeah, trying to discuss the economics of
this country right now isn't fun. Same thing with all
these people losing their jobs. There's mass amounts of people
are very upset about layoffs. And I think a lot
of the people that have gotten laid off, I mean,
especially if you work in tech that you like, the
outsourcing is going to come to an end very quickly
because and a lot of people are factoring us in.
But like, there's also going to be a lot of
data breaches because in Indian and Calcutta, right, he doesn't
know that you know an admin. He doesn't know the
importance of like an ad the you know admin access.
So if his cousin wants to give him one thousand
dollars US dollars for admin access to like all of
the bank accounts at XYZ Bank that just outsourced to India, right, Like,
this is going to be a disaster for a lot
of these companies, right, and they're going to, especially all
the AI in tech companies are going to have to
end up bringing it all the way all the way
back home. Right. So this outsourcing thing is just really
laying corporate problem solving that's going to get unwound. But
I bet a lot of the people it may not
seem this way now, but if you were some corporate
drone at Facebook or you know, Deloitte or whatever, I
bet you if I ask you in ten years from now,
are you happy you got laid off? You'll probably tell
me yes. Because everybody in our sphere jokes about all,
you know, these bullshit jobs, how most of the jobs
are bullshit jobs. Well, they're bullshit jobs that'll take like
that will literally suck your life away from you, and
you'll be an old man before you know it, right,
But you'll you'd probably be too scared to basically try
and do something else. So I think a lot of
people are going to, by circumstances that are out of
their control, be forced to do something that otherwise wouldn't
have that seems impossible and scary, but they'll come out
the other end very glad they did it. Like, are
you going to be glad that you didn't spend ten
more years in some soul sucking corporate hell whole with
some screaming HR manager. I think we're going to see
an explosion in entrepreneurism. I really do, because it's the
only way people are going to be able to guarantee
a lot of income security is if they manage their
income themselves. And I think it's going to be great,
and I think a lot of people are going to
be a lot happier. So just be glad you got fired,
I guess, even though it doesn't seem that way.
Speaker 6: That's what I said.
Speaker 5: Are you happy? Are You're actually a perfect example? Are you?
Speaker 6: Are you kidding? I? Was it horrible at having real jobs?
Is anybody who worked with me? Yeah?
Speaker 5: Would you have ever done what you're doing now?
Speaker 6: Decent chance? But now, to be perfectly honest, it was
a decision.
Speaker 5: Why I'd caught up with you and been like, hey,
do you want to just go and be a content
creator on the internet. You'd be like, fuck, no, dude,
I have bills.
Speaker 6: You said that hypothetically, like you didn't tell me to do.
Speaker 5: That, so I told you to do it. When you
were doing something you were not working at corporate job
all the way, yet you were already halfway out the door,
and you were already making at least some money off
of this. It was you had significantly de risked my
investment analysis. You took all the risk off of it.
But I mean, are you happier?
Speaker 6: Oh yeah, are you kidding? Even aside from okay, yeah, sure,
Like I have a job that's not particularly like harder, backbreaking,
Like it's not like I'm doing something physically strenuous, but
being unemployed is great, or being sorry self employed is great.
I would I could never go back genuinely for any.
Speaker 5: I was listening to your talk with Lucas, and I
think there's going to be there's a lot of people
that would be very very scared, too scared to do
something like what Lucas has done, but would always in
the back of their head wish that they did. And
I think a lot of people are going to find
themselves where doing what Lucas did is going to be
the most saying choice you have. And I think a
lot of people are going to be good at something
they never thought that they were going to be good at,
and be very very interested in something that they never
thought they would have been interested in most entrepreneurs. I
know that, you know they the business that they own
now looks nothing like the business that they started or
that they set out to make. So I think a
whole bunch of people are going to be doing things
that they didn't think they were going to be doing,
and they're going to be much happier. So I think
everyone being forced out or checking out of corporate America
may be the best thing that ever happens to us,
both politically and economically. It'll be whatever comes out of
this will be infinitely more resilient.
Speaker 6: So Stormy, where could people find you?
Speaker 5: I think just the Inquisition podcast man.
Speaker 6: Yeah, I'll be sure to link that as well as
your Twitter.
Speaker 4: Uh.
Speaker 5: Yeah, we give you a burden money. Prove my hypothesis correct.
Speaker 6: Yeah, this is the best, the best shilling segment I've
ever had. Yes, give me.
Speaker 5: That money, right, give him more than a little bit,
not a lot, but just more than a little bit.
Speaker 6: Yeah, so I stopped calling you for for financial advice?
Speaker 5: Definitely. I doubt that will happen.
Speaker 6: Well, dude, this is a ton of fun. Man, I
appreciate it. I'll see you on a good.
Speaker 5: Soon, all right, I mean later. Marketing is hard, but
I'll tell you a little secret.
Speaker 1: It doesn't have to be. Let me point something out.
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You listen to it while driving, working out, cooking, even
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