The rebel capitalist show all right guys. It gives me a great deal of pleasure to welcome someone back to the rebel capitalist show. She is really really awesome and by the way, i’m gon na go out on a limb and say she’s, most likely. The only fed employee to ever step foot in a louis vuitton danielle am i right about that. My souls are red. Well, danielle di martino. Welcome back to the rebel capitalist show, so, just before we started recording, you were saying that there was some big news that you were kind of thinking through about the election and how that might play out over the macro economic landscape. So let’s just dive into that! Well, i mean you know so: i’ve been thinking for the last few hours, i’m going to talk to george we’re going to have about housing, we’re talking about commercial, real estate, we’re going to be real estatey, and you know when i look at senator toomey who’s trying To hold the line, because the democrats in congress want to keep open the fed’s municipal bond facility right right, they want to make sure that they can bail out states that are suffering flight, like illinois like new jersey and they’re. Obviously, their their real estate markets have suffered accordingly, when your tax base starts to erode and people are going to other no income tax states. So i think this is just it’s we’re at such a fascinating juncture in this k-shaped recovery, uh that that it’s come down to a matter of of two senate races in georgia. Determining so much of what happens in fed policy going forward in fiscal policy going forward. In tax rates going forward, because if the democrats are afraid that the senate is going to hold on to those two seats, that the republicans are going to hold on to those two seats in the senate and that the senate’s not going to flip they’re, not going To be able to raise capital gains taxes they’re not going to be able to raise federal income taxes, so they’re not going to be able to bail out these states effectively unless that fed’s municipal bond facility that steve mnuchin said he was closing as it expired. As per the cares act on december 31st right, if they can’t keep that open, they don’t have a sideway around to get to these state bailouts. I mean this is really critical stuff when you think about how underfunded some of these states pensions are and what their remedies are, which in many cases is raising property taxes yeah. So so how does janet yellen play into that? Oh gosh, i mean janet. Yellen is look, this is it’s no surprise for anybody. Who’S ever read fed up. I’M not a huge fan. Look she in 2010. She basically said i didn’t understand what an off-balance sheet vehicle was. I didn’t know what a clo was. This was in congressional testimony. I didn’t see the crisis coming so this this is a labor economist. It is a she’s, a pure labor economist and you say well, why does why would the democrats want to have a pure labor economist running the treasury department? I mean you kind of understand, steve mnuchin. A year ago today we were worried about the fed, increasing the size of its not qe program, because the overnight lending market had frozen up, and these were very arcane. Intricate dilemmas facing the financial markets that a labor economist would probably not have been equipped to address in in that position in those times, and we know that the financial markets have gotten increasingly complex, as the fed has bought up all the mortgages. The feds bought up. All the treasuries, the feds propping up the corporate bond market, the feds propping up the stock market, so people are increasingly looking to volatility, plays or currency plays or commodity place, any place that the fed is not. I mean why else: do you get lumber at eight hundred dollars, so so so you’re but you’re having your financial markets are getting increasingly complex and you’re, putting a labor economist, educated at uc berkeley in as treasury secretary to be to look over the financial system of The world effectively, why are you doing that? I mean i’m being rhetorical, but there’s a there’s a really good reason: there’s a really really good reason: janet yellen can cross the aisle that was like the fairy tale time for congress. Republicans and democrats alike markets were going up. Volatility had vanished off the planet. She had the slowest tightening cycle of any fed chair in the history 107 year. History of the fed, so john, is like this sweet fairy godmother that just delivers all this money. But what does she want to do? What is janet yellen bitter about she’s bitter that the labor force participation rate has never come back and she wants to get these marginal buyers back into the workforce if she doesn’t, she wants to help them now. How do you help them when the fed’s quantitative easing only flows into risky assets? Only flows into the top of the k only helps that top 10, or at least the 55 of americans, who own stocks in some way shape or form, or american homeowners and we’ll get to that. But how do you help them? You send them money, you just deposit the money into their accounts right right right, you do helicopter money and how do you do helicopter money? Well, you got to have somebody who’s, a savvy enough political operator to bring both sides of the aisle together to reopen the federal reserve act of 1913 and change the law and allow the fed to buy treasuries at auction, which is illegal right now and while we’re At it in april, she said on a cnbc interview that, under the right circumstances, the fed should be allowed to buy equities. So why not put that into the federal reserve act just in case and she’s also said in the past that under the right circumstances, the fed should be able to impose negative interest rates. That’S against the law. Why not? If you’ve got the federal reserve act, open hadn’t been open since 1977 when they increased the single mandate to the dual mandate, which includes maximizing employment, which they’ve clearly exhibited. They cannot do in the post-covered world right. But why not have this sweet quiet, little grandmother? Looking figure say: oh we’ll just reopen the federal reserve act, we’ll fix everything and we’ll give you helicopter money and, by the way, the mother of all inflation yeah. That’S what janet yellen can do when, when i heard that she got the job. The very first thing that came to my mind was mmt, because it was the first step for ct is when you take the balance sheet of the fed in the treasury, and you just merge them into one balance sheet. Exactly that’s just that’s the step one, i’m assuming that you’re, seeing this going the same direction there now, whether they want to call it that or not who knows, they’ll call it uh. You know they’ll call it fixing the transmission mechanism of monetary policy right right so that it can get to where it needs to be in the form of universal basic income and then going back to dr lacey hunt, and i just always go back to that interview. He had with grant where you know he was talking about how he would go from a deflationist to an inflationist and he actually used the word. Hyper inflation. Oh yes, if you turn bank reserves into legal tender or the fed’s balance sheet starts paying the bills. So, just for the layman – here, that’s watching this. Basically, what we’re talking about is the fed starting to pay the bills or the two balance sheets merging and the treasury, just using newly created bank reserves as legal tender in the real economy yep, and that is when you i mean. I know lacy well, and you know he is he is maintaining, but i think lacy would change his tune on january, the 5th if the senate flips and you have a blue wave, basically how he would be connecting the dots is. If you have that blue wave, then in his mind the federal reserve act is definitely going to change. It’S perfectly plausible. Nobody would stop them. It would have to go to the supreme court eventually for check and balance. But if you have the administration, if you have the executive branch and the legislative branch holding hands, you can do whatever you want with the law or don’t you think they would also do whatever they want. If we just have a big enough crisis, i mean, because we go back to march nothing they did. Uh was true to the federal reserve act when they’re buying junk debt and setting up all these special purpose vehicles. So is it that the other scenario where and they don’t have another encore – george – i don’t mean to interrupt, but they have on march. The 23rd look look, i i know people who have died from covid, i’m not an anti-massacre, i’m all about social distancing, i’m not an anti-vaxxer, i’m none of those things, i’m very much in favor of people putting on your mask whether you agree with it or not. So that you can keep small businesses in america open period end right. If everybody’s wearing a mask, then you’re going to have higher consumption in the economy, you’re going to grow your gdp you’re, going to reduce your unemployment rate period and full stop people don’t get that argument, then they shouldn’t be listening to me or you anyways, i’m not Putting words in your mouth all of this being said: the fed needed covet the fed needed kovit. Again. A year ago, jay powell was struggling to say that not qe was a technical adjustment, we’re just tweaking with the plumbing of the overnight rates market right right and the banks are screaming for more reserves screaming screaming screaming, saying you know what you did: quantitative tightening uh By the way, currency and circulation increased tremendously, at the same time, and by the way, foreign central banks that have imposed negative interest rates in their countries, which is no fun parked their money at the fed. So you pulled in order to get a better interest rate paid by the fed paid by u.s taxpayers. So all three of these things happened in concert. So when the fed thought that it was going to do quantitative tightening, it ended up effectively tightening to twice the extent while raising interest rates, because you had money in circulation. Plus foreign central bank reserves parked at the fed increased by an equal amount to quantitative tightening. So, by the time we got to the end of 2019, the market was screaming for real qe a real deal launch rail qe, because that would be an admission that the economy needed it. That would be an admission that counterparty risk was rising. That would be an admission that, instead of the subprime crisis, they had the mother of all corporate debt crisis crisis that was ballooning in front of their faces. Promise you on somewhere around halloween 2018, when general electric’s debt got downgraded and then high yield bond issuance froze for 41 record days, and then you had the bloodbath on christmas eve in the stock market. I promise you people in the basement of the new york fed. Then started devising a game plan for what they would do in the event of a black swan event, but they never thought that they’d have to roll it out before the black swan event, but that was what the market was. That was the point that was the threshold that the market was already hitting at the end of 2019, with non-financial us debt to gdp at a record 78 percent, it hit 74 at the peak of the great financial crisis. So we entered the year in an economic recovery in an expansion with non-financial debt to gdp at 78 percent, posing greater systemic risk to the global financial system than the subprime crisis did a decade earlier. The fed needed covid the fed needed a black swan event because they needed to bail out the corporate bond market, which is exactly what they did. People were like wow, they sure did come up with that plan quickly. On march, the 23rd yeah rolled out all those facilities at once bull. You can finish the word right. No, they had it ready to go and they were able to grandfather in every fallen angel. Every single investment grade bond that was downgraded to junk right. They said we’re gon na grandfather in anything, that’s downgraded as of march the 22nd, so problem solved, but now what happens now? What happens if there’s another problem, because now we’ve got non-financial debt to gdp of ninety percent? Can you just explain that stat? I heard you talking to keith mccolo about that and just for people that are familiar with just debt to gdp overall, if you add up bonds and loans to every small and medium enterprise by the way, small and medium enterprises, the blight does not have to be, As bad as it is, it doesn’t, but small and medium enterprises had twice the debt load that they had going into the financial crisis coming into covid. Oh okay, i think you, you just think about att’s got. You know 160 billion dollars of debt on their balance sheet. Big big companies have problems. Small and medium ones did as well. So when you add up all of the loans made to every company in america because you it’s, this is more than the corporate bond market. All debt in all forms leveraged loans, private, entire balance, sheet of small and mid-sized businesses right plus large businesses. Then you get to non-financial debt, and then you, you measure, that against gdp and pushing 18 trillion dollars at the end of 2019, a record percentage of gdp and because of his bazooka solution, which kept open the bond market. It it wrenched it open. But because of this now, we’ve got 90 percent we’ve added two and a half trillion dollars in one year’s in in three quarters time: corporate america tax on two and a half trillion dollars. On top of that, so now he’s made a bad situation worse. What’S he gon na do if the market blows up without a black swan event? Well, here comes janet. All right here comes janet just flat out monetize the debt right, and you know when you’re saying that, in the back of my mind, i’m thinking about what uh raoul paul always says that this. This is not a liquidity problem, that this is a solvency problem. No matter how much debt you pile onto the balance sheet, yes, it might buy you a little more time, but it doesn’t solve the real problem, and that’s that you just don’t have enough cash flow coming in right. At the end of the day, that’s has to do with the amount of goods and services that are being produced in the real economy, real wages, all those things. So, let’s go back to janet uh, the the the grandma wizard, who waves the magic wand and combines the balance sheets and starts spending bank reserves directly into the real economy to in their mind, solve the cash flow problem. And if you get the blue wave plus sweet janet together, the sky is the limit green new deal medicare for all you a pony everything, except for the fact that you have runaway inflation and that’s where the mmt people get caught up. They’Re, like that’s, fine, we’ll just raise income taxes, i’m sorry, but it’s not that easy in this country yeah and for those people who who might not follow along with what you’re saying there. As far as the income taxes – and i don’t want to put words in your mouth – but i assume where you’re going with that is where i’ve gone in several of my whiteboard videos, where, if you look at the receipts, the tax receipts to gdp, you take that Back as far as you want to the 1940s even and it’s pretty darn consistent, it hovers right around 18 percent of gdp, regardless of whether the highest marginal rate is 90 percent or at a certain point, people just won’t pay the taxes. That’S right and that’s the big flaw with mmt and how they plan on squashing. Inflation is just take money out of the system through taxation, but they don’t ever come to the conclusion that oh wait at a certain point. People just won’t pay it and if they don’t pay it, it’s not coming in. It’S still out there creating inflation, but you had one hedge fund manager a few years ago, leave new jersey and moved to florida and they had to they had to specially convene the new jersey state legislature to revisit the budget, because one person left the state. That’S how much one person affected the revenue. You can’t tell me that if you try and raise taxes to kingdom come that people aren’t going to be like. I hear new zealand’s great this time of the year yeah right yeah, and you know another thing too, that i think people miss is just the basics that the wealth of our society isn’t green pieces of paper. It’S not stimulus checks, it it’s it’s goods and services and, if we’re producing less stuff as a society, regardless of how much mmt we’re doing or ubi or whatever you want to call it we’re getting poorer as a society and as a nation and everything that you’re Talking about yes, it might just plug the problem momentarily, but it distorts the proper allocation of resources which, in the long run uh. Basically we produce less goods and services. We reduce the amount of wealth, that’s involved. I don’t think most people really think that through no. I mean look, i i, i think, one of the most formative moments of my life. I was wall street, had a hiring freeze. I was in business school so in between my first and second year of getting my mba wall street originally had me plan to go. Work in south america and mexico they said, go perfect, your spanish go, do something and once the hiring freezes up we’ll hire – and i i did go off to wall street and i’m – and i had my spanish perfected because i lived in venezuela for a summer where I had an internship at a massive steel conglomerate that has now been nationalized again, but i lived in venezuela the summer before chavez came in the level of the the income inequality divide, the level of poverty compared to the vast riches of their top one percent. At the time, i’m 25 years old, i don’t know anything about anything. I mean i’m as naive as they come. I i never even thought i would be an economist one day ever, but there i am going. You know this is a real problem. This could really boil over into something ugly and sure enough. It did and they brought socialism to their country and destroyed it in the process. Yeah, you got all your productivity eggs in one basket: yeah, okay! So now, let’s transition a bit into the real estate topic. You sent me your report that i’ve got up on my screen here. That’S really really cool and of course, the first thing that jumped out at me was the information you had on hotels, new york, hawaii and san francisco, and you know it was interesting daniel when i was reading all of the information about how the hotels are are Struggling it took me back to a recent dinner i had with robert kiyosaki and ken mcelroy, and i don’t know if you know ken but he’s a roberts real estate investor guy, and he is thinking about putting a group of money together or a pool of money. A fund to go in and buy distressed, boutique, hotels, and i was thinking about that and also too i read an article the other day about phil ruffin, and i don’t know if you recall who he is but he’s the guy that bought uh treasure island in Uh back in the gfc when a corian had to sell it, because he was worried about going into bankruptcy and uh phil ruffin came in and bought it for cash, just stole it and turned it around, and he didn’t really need to turn much around because the Capital structure was flawed; it wasn’t that it was. It was producing a ton of cash, but it was just levered up with so much debt yeah exactly. It took me right back to your report. So can you explain what’s going on there and uh? Maybe some downside, but maybe some opportunities for future investors. Well so when you said the word boutique that kind of set off an alarm bell, because boutiques appeal to leisure, travelers, [, Music, ], that will come back so there will be more in distress in that niche than there will be across high-end hotels in general, okay. But the bottom line is a lot of these hotel chains that are in trouble were up to their eyeballs in debt. Coming into this, and you listen to the sell side analysts to see you know the guys who do commercial mortgage backed securities and they’re like there’s more equity than there was in 2002, 2007 2008 and i’m like yeah, but you’ve got a pretty steep assumption on valuation. There right perpetuity by the way – and so this crisis comes and we have more overbuilding in the hotel sector than we’ve ever had. Why? Because public pensions have been throwing millions of dollars at private equity, real estate funds for a generation, and these guys don’t know what to do with the money. So what do they do? You’Re joe q, real estate, developer and you’ve got a great idea. You want to build one hotel and a great place. You found the perfect location. Everything gon na make money. Good business model. Private equity guy says we’ll cede you we’ll fund. You you’ve got to build 10
All right, because we have too much money, yeah same thing happened with restaurants. Same thing happened with retail, what’s happening with ipos door, dash same thing’s happening with yeah, i mean hello, you need one! That’S how many door dashes you need on planet earth. You need one app on your phone that covers all of the restaurants in the world and that’s it and then it’ll be like amazon, but for food. So but my point is the leverage wasn’t seen until there was this massive fissure that opened up because of covid yeah right and all of a sudden, because i’m sorry but we’re on zoom right now. A year ago i was in studio when i did interviews but we’re on zoom right now. A year ago i was at podiums when i was giving speeches now. I do it right here in my house, but you can’t tell me that zoom wasn’t coming dot dot dot. Eventually, eventually it was coming, it was. It would have been a lot slower in its development, but we would have had a recession at some point and at some point, travel and expense budgets would have been cut because they’re cut during every recession and at some point that technology would collide with a plain Vanilla recession, but instead you have a pandemic, so zoom is 24. 7 in your face. You know your your joe cue cfo, you’re sitting there watching your kid on virtual school you’re like hell. I can have all my meetings on this thing too, so you adapt. You immediately, adapt, there’s a story on the wires today about cfos and some bad news. They’Ve got for the office sector, that’s a whole nother can of worms, but first and foremost you have mackenzie bain. You have all these armies of consultants who are continuing to do the projects that used to put them in high-end hotels for a week at a time and they’d fly home to the family on the weekends right right in business class. You had road warriors, you had armies of road warriors filling up the 50 of commercial mortgage-backed securities that are backed by high-end hotels, right right and even before covid. We had over supply well huge oversupply before covet, but it wasn’t exposed and now it’s been exposed massively and you know your joe q holiday and express on you know somewhere between dallas texas and the florida panhandle right and you are just rolling in dough. You your occupancy’s, a hundred percent, because families are driving to take their vacations, so there are some areas of the hotel sector that are going to do really well, luxury travel will come back for leisure business. Travel will never be what it once was ever again. You can hold me to it, yeah yeah interesting point: i want to circle back to janet yellen and talk about student loan debt forgiveness, because i was talking to my good buddy jason hartman who’s, a real estate guy in the residential sector – and you know we were Thinking through okay well, if they come in and just wipe out that 1.8 trillion in student debt, that frees up a lot of balance sheet capacity for those young adults 18 to let’s say 28, which i saw in your report – 52 percent of them living at home. Right now, with their parents that were just two percent, i almost fell out of my chair. I could not believe that, but it frees up a lot of balance sheet capacity for them to go out and buy their first home. Certainly it doesn’t stop playing out. Well. First of all, i think we’re going to have an fha bailout. I think that that’s step one, i think you’re going to have to have a full-blown fha bailout, because fha delinquencies are pushing 18 percent pre-third wave pre-second round of shutdowns in america. So it’s just quiet right i mean, and the democrats aren’t freaking out yet because the cares act covers forbearance and foreclosure moratorium through end of q. 121. Okay, so the democrats are like okay, we can, we can get the banks, we can get. The lenders to in perpetuity never collect these mortgage payments. At some point, the banking lobby is going to say: i’ve had enough. If you want campaign contributions for the midterms you’re going to need to. Let me collect on that mortgage or pay it 40 of all. Fha borrowers need down payment assistance right, don’t have the money they’ll be upside down in five minutes. If you let the foreclosures conservative estimates put 1.1 million foreclosures tomorrow. If forbearance ends tomorrow. So, but so you can’t let it happen, you can’t the fed knows it. They own a more than a third of the mbs market and they’re struggling because prepayments are eating them alive and and so it but you’re good. At first, i see the fha bailout first. Okay, i mean we’re talking about this: mini blue wave and sweet janet at treasury, so you pay off all the student debt as well. You bail out anybody in fha, so they don’t get their lose their homes. Is income growth going to be enough to make those down payments? Probably so you also set up a program to help millennials get out of their parents homes and yes, but these are going to be entry-level homes, so the builder that can make money building a true, single-family, starter home is going to do really well yeah, but see. I don’t know if that’s possible, because what we’ve seen since 2012, when i got into real estate, is there’s very little supply if any being built with these starter homes, and you know the politicians like to come out and say: oh these, greedy billers. They only build these mcmansions because they’re, just you know, profit hungry. Well now it’s not it’s not because they’re greedy, it’s because they can’t make a profit by building these smaller homes due to the increase in construction cost, labor and regulation. So i don’t know how that that that comes back and by the way, riddle me this. What happens if you get the blue wave and sweet janet and inflation and no growth? What’S a whole builder going to do in a stagflationary environment when their commodities costs are going through the roof, but yet the economy is not growing because remember, does anybody remember the 70s? Yes, so what happens to residential in that environment i mean. Do we just see like the the oversupply of mcmansions kind of uh, the price just stagnates and then the lower end of starter homes and good neighborhoods, though the price just keeps going up and up and up with this new balance sheet capacity until they’re they’re maxed Out once again – and i mean look – i mean george – you had a hundred billion dollars of cash outs in the third quarter. We are back at those seven levels, yes party time fannie and freddie they’re, doing automated appraisal waivers for like gazelle, i mean their their footprint in the refinancing market is enormous. 11 of purchases are automated appraisal waivers. You want to get some home price appreciation going. Just call up jay at the fed and say jay. You me fannie freddie, you and me we’re all going to get together and have a we’re going to create overnight in a time compression vacuum a housing bubble. Let’S do it and then jay gets to go to the podium on fed day and say interest rates. Sensitive sectors of the market are doing extremely well like housing. Well, no [, __ ], excuse me yeah and but see i’m trying to reconcile this. This chart that i’m looking at toward the end of your report. That’S called the uh ignored housing crisis and i’m looking at it. It’S the likelihood of eviction or foreclosure, and i mean the best state is utah and it’s still within the range of 15 to 20 percent of mortgages are uh. In that category i mean that’s, that’s shocking, and it goes up to states like uh in the midwest and texas, where it’s over 39 39 to 56 percent. I mean so, i guess it’s just every single person that is actually making their mortgage payment is doing a cash out refi. Is that what we’re dealing with, of course, there and and but we’re also sitting on record levels of home equity, yeah right money’s there for the taking as long as home, prices, stay up dot dot dot. But you answered the question earlier: there’s no mystery in that map that you’re, looking at no mystery at all, we’ve only built luxury, you know even apartment developers couldn’t make the math work unless they built some stupid high-rise with huge rents. How are they doing right now? In the middle of those cities, that’s how are they doing because i know prior to covid, that’s one! You know i don’t spend much time in the united states, but when i do come back to areas that i’m familiar with, such as las vegas and now i’m in phoenix that i i go through these uh parts of town that used to just have basically nothing And now it’s nothing but apartment complexes and multi-family. You think okay well at some point that they have to have overbuilt this, and so how are those numbers looking well? The thing about apartments and offices is the the the lag time we saw hotels blow up overnight. There was no lag time there, but longer leases kind of leave you in the dark for longer right. So you’ve got this massive overbuilt asset sector in commercial, real estate. You’Ve got everybody fleeing urban centers right and moving out to suburbia, because the you know the average cfo in america today. There’S a there’s a report out. That’S like! I think we can do this work from home thing forever. So this this is. This is such an accident waiting to happen, but we’re not going to see it we’re seeing apartment, delinquencies tick tick up, but that is going to be another sector where oversupply is just choking the sector. They just don’t realize it and remember, remember, remember pre-covet what happened. Pre covid senior citizens were starting to sell their homes because 80 is the new 50 and move into city centers, so they didn’t have any home maintenance. They wanted to live in hip millennial homes in these high rises too. So you had a double demographic pouring into these high-rises and senior citizens no longer want to be in an elevator yeah. They might not ever want to be in an elevator again, they might be, they might be. You know scarred from this episode, so i mean my mom lives in a in a suburb of college station. Where texas, a m is in a ranch. I bought her. It’S you know. People can’t even find it on a map. She’S really happy she’s. There she’s not alone yeah, so you have this oversupply of high-rises and multi-family in the city center and then a dramatic under-supply and who knows, if there’s ever going to be more supply, come online of these starter homes in the suburbs. You also worked your way into a solution of sorts yeah. Let me hear the solution. [ Laughter, ]. Well, it’s not a good solution if you’re a real estate developer, but but if you have a situation where the economy stagnates and you’ve got this huge house – and you want your millennial kids to make grand babies for god’s sake, i want grandchildren, you do you, you Turn into italy all right, you just bunk up yeah multi-generations under one roof, you got the space you built, the you built, the big house for you and your husband and you’ve got all these bedrooms just move on in and stay on in and then here at The house, when mom and dad cry yeah, i think that’s what we’re going to be seeing uh more and more of in the future, and i know spending a lot of time in south america. That’S typical! You see multi generations in the same house and it just kind of you stay there and it passes from one group to the next group and that’s just kind of uh how you live yeah. I mean we’re in we’re in such a remarkable time in u.s economic history. It is hard to describe how unique the backdrop is right now and it, and and how bizarre how surreal it is that it comes down to two senate races in one southern state. I mean it’s just this is just surreal and by the way democrats are really really really worried about these races for more than just they’d love to have a blue wave. Nancy pelosi has the slimmest majority in the house of representatives in the past 20 years. So if she loses any any of her caucus, any member crosses the aisle it’s you’re going to effectively end up having the republicans in control of the house and senate. So everything depends on these two senate runoffs that affects everything that we just talked about. As far as the student loan forgiveness, the mmt janet’s ability to do xyz changing the federal reserve act that that has a lot of uh systemic effects for the the broad economy and just uh people’s lives, everyday people. You know talking about that with the i know. You’Ve done a lot of work with the pension funds and we all know they’re underfunded, but where are we now in that? In that story? You know i just go back to these recent ipos, where i did a whiteboard video and i thought through okay. Well, you got the vc and they can’t find they have these huge pools of money and they’re just flat out aren’t enough profitable businesses to invest in so what they have to do is they have to find a story company that has a great story. You get a salesman, ceo and maybe a a cfo, that’s willing to kind of cook the books or use some creative counting. And then you take this vehicle public and just keep dumping money into it to sell 20 bills for ten dollars. But as long as it has a good story, then you have this huge ipo cash out with billions, and you know one thing that i heard uh schiff talk about which i thought was interesting. You know microsoft in the late 80s, when it went public number. One is profitable but number two when they went public they generated like 60 or 80 million dollars, microsoft and in inflation adjusted dollars. It would have been like 120 million, where it just uh generated over 3 billion, and so it’s just to pay these people off. But my point is it’s: the fed lowering interest rates, pushing people further and further out the risk curve to get that yield. We talked about it earlier. I think the vcs are capitalizing on it, but how do the pension funds play into that mix so um? First, a note on the stock market, so after tesla is added to the s p 500. Today, before tesla buddy of mine, philippa dunn does great work. She looked back at the raw at schiller’s cape ratio, the 10-year price, to earnings ratio on the s yeah. You can actually schiller has has, has found a data set. That is what the s p 500 was before it truly existed, and so he’s able to to map it back to 1881.
The case-shiller since from 1881 to present day the stock market valuation is in the 98th percentile tesla alone is going to add 10 percent to the pe tesla alone to smp’s pe. Do you mean the 99th percentile and pensions have more exposure to the stock market than they’ve ever had and you’ve got quiet little headlines on bloomberg about steve mnuchin looks looks as if he made sure that one of the private equity portfolio companies got some ppp financing. So you’ve got these private equity firms that are all in pensions and don’t forget the real estate private equity they’re, all in pensions, right powell, jay powell cannot this country can’t you? You cannot have a stock market correction you’re right right, because people don’t realize good friend of mine, um chris cole, at artemis, capital yeah right he’s shown that in in in long cycles, looking back a hundred years that real estate and private equity are pro cyclically correlated With public equities run for size, and then you tell me how pensions are going to do and that’s why, when we started this discussion today, i said that senator toomey was so critical because he’s holding the line on the relief package in congress saying you cannot have The back door bailout through the fed’s facility, by keeping it alive, you have to let the thing expire, because you’re worried that the senate is going to stay red and you want a backdoor way to bail out the blue states when their pensions blow up. For the average investor listening to this right now, it goes back to the release valve being the dollar. Is that what you’re seeing long term? Yes, i mean? Look, i i’m not necessarily i’ll, let you know on january, the 6th my view on the dollar? Okay, because, if, if we’re allowed to go from [ Music, ], two or three trillion in the middle of a crisis to seven or ten trillion dollars of deficit deficit spending in one fiscal year, we’re gon na have inflation. The dollar’s gon na get trashed yeah the fed will have to monetize the debt. They’Ll have no choice because nobody else is gon na want the paper. So that’s really what people should be focusing on it’s. It’S are the system as it is, or let’s say, as it’s intended to be with the federal reserve act and that the only thing they can do is is is we’ll call it print bank reserves. If that system stays in place, then we’ve got a lot of deflationary pressure, but if they change that system through janet yellen to merging the balance sheets through mmt, whatever you want to call it to basically they’re now using those bank reserves as legal tender in the Real economy, that’s what everyone needs to pay attention to and if we cross that rubicon, then we’re headed to the path of stagflation. Basically, because again to your point and to my summer in venezuela, you can’t you cannot monetize your way to prosperity into real economic growth. You can’t do it yeah right all right, danielle. I know you’re short on time. I really appreciate the conversation. It’S enlightening we’re just bouncing all over the place there with commercial, real estate and grandma yelling, and everything in between for those of my viewers who want to check out more about what you do. Where can they go? Quill intelligence, dot, com? This is this: is my post covet advertising in-house um go to quillintelligence.com, follow me on twitter, at d martino booth, but go to quill until my my research is so good. This is just this is just shameless on my part, but i i have to toot my horn. My research is that good yeah, it really is. I got this report from danielle’s about 18 pages and i read through it last night and uh this morning, and actually you had a couple charts in there from our good buddy george george goncalves george is our special advisor george works with quill. I didn’t realize that yeah i’ve interviewed him he’s i really enjoy going back and forth with him on twitter. He’S amazing he’s just amazing. He was george was for just a second when i was at the fed advising fisher all those years on the financial markets. Um george was one of my closest. He was one of my closest sources on wall street for for 10 years. I would before every single fomc meeting i would go and meet with george in new york and we would sit down and talk about the plumbing of the financial system. He’S amazing yeah. He really is so check out danielle’s work. I cannot recommend it enough. Thank you very much and happy holidays. You
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