[Music] we're seeing something globally we've never seen before and it is the best single indicator of a recession the last time we saw anything like this was in 2007 just ahead of the 2008 financial catastrophe so the stock market's saying it's all good Goldie Locks soft Landing fed's going to get the memo they're going to cut rates the pivot and buy stocks the bond market is saying no this is bad and it's going to get worse and it's actually too late for the FED to do anything about it but what happens is as you get closer to the actual thing you're worried about the inversion gets nearer and nearer now it is literally a month away or less so that's like a a big red siren flashing light whatever you want to call it interest rates are a lagging indicator everyone's like well how could interest rates going up if we're in a recession the answer is as you get closer to recession who figures it out first well the FED figures it out last they're usually the last to know Wall Street is second last to know the people who figure it out first are actual business people entrepreneurs restaurant owners dry cleaners taxi drivers or even mediumsized businesses they see it you know if you're in the trucking business it's real time inventories are Skyhigh and new ERS are being slashed you're not moving anything by truck a lot of business people are living in the real world in real time they know what's happening now and the stock market tends to figure it out later but as far as Banking and credit is concerned what happens is if you're a business person and you see business heading down you know fewer customers whatever you go out and borrow all you can you're like hey there's a really bad recession coming I better if I got lines of credit I'm going to use them up now I don't want my bank changing the terms I don't want material average CL average change closes kicking in a said I'm going to borrow everything I can and that creates a demand for funds and interest rates go up and then the recession hits and the bankers go huh what's going on credit losses start going up and then then they just turn off the spets and they raise standards they stop doing loss and then interest rates will start to come down but the interest rates Peak after the recession has already begun so stock market tell US Gold El locks Bond Market's telling us you know here comes hurricane Mitch or whatever and then there's what I call the reality what I see is a kind of a hybrid the fed's doing what they're doing right or wrong okay they're doing what they're doing the market has their own interpretation I agree with the market certainly the bond market that the FED has probably overtightened they're going to keep going for the reasons I explained that means they're going to make it worse they're going to make the recession even worse and they may pivot but for a really bad reason in other words If the Fed Cuts rates which they may the pivot may be real it's not because they engineered a soft landing and goalie loocks and everything oh that's just right it's because they screwed up as usual as they've been doing since 1913 they overtightened they didn't look at the forward indicators I described and they found out too late then they have to slam on the brakes if or take the foot off the brake if you will in terms of rate hikes and then pivot and we've seen this movie before this is exactly what happened in 2018 I mean I don't know uh tension spans seem to be short these days but it was that long ago go back and look at look at a chart any stock index chart from October 1st 2018 to December 24th 2018 less than three months the stock market dropped 20% I mean it's like 19. 9 or something on the Dow so maybe not technically a bare Market but yeah what's the difference it dropped 20% culminating in the Christmas Eve Massacre is December 24th 2018 when it DrI think NDA dropped like 3% in one day now here's the point the Fed was tightening into that collapse the FED tightened on uh December 16th 2018 only like 8 days before the Christmas Eve Massacre and after most of the 20% collapse had already happened they tightened one last time so what it shows you is that when the fed's on a mission they they actually don't care about the stock market this whole you know banki post and greens SP put and all that that's not how it works uh they don't care that much about the stock market level here's what they do care about they care about disorderly markets and that's the key word it's not stocks are going down but you know kind of little you know half perent a day 1% a day trending down lower highs lower lows trending down the FED doesn't care about that they're not going to bail out the stock market they do care if it's disorderly when was it disorderly well March 2020 at the worst part of the pandemic dropped like 30% in like 2 or 3 weeks the fall of 2008 I mean it was like somebody opened a trap door the FED does care about that because that kind ofly Behavior can feed on itself and end up in a 1929 type scenario so the FED will get the memo as I put it uh stop raising rates and begin cuts when the markets are disorderly but not just because they're going down so they're may be a pivot but not because of Goldilocks but because it's not a soft Landing it's a crash landing but real quick I guess let's stick on a recession just for one second because bad recessions generally come along with with a lot of job losses do you see given that this recession could be worse than most are expecting right now there being you know widescale layoffs of the sort we've seen in some of the bad previous recessions like 08 like 01 the answer is yes first of we're seeing it already you know I don't match the company the exact number but layoffs on order magnitude 10,000 to 20,000 terminate employees at Google Amazon Facebook other Tech names it affects other sectors as well but Tech in particular has engaged in a massive series of layoffs and so people go well wait a second how come that hasn't shown up in the unemployment numbers because the unemployment rate is um it's around 3. 5 3.
6 I exact number it's right in that neighborhood 35 36 we haven't seen that level of unemployment that low that is since the 1960s this isn't like a good year or good debt you know this is the low since the 1960 60s and so and the FED is absolutely looking at that you're right about that item and because they believe in the Phillips curve which is junk science but the Phillips curve for those who are not familiar says there's an inverse relationship between unemployment and inflation so if unemployment is high inflation is low and if unemployment comes down inflation goes up and so if you want to get inflation down you should expect to bring unemployment up that's what the FED believes what I just said is nonsense it's not true it's junk but the FED believes it again it doesn't matter what I think it matters what the FED thinks to say you got to put yourself in their minds to figure it out so as far as they're concerned those kind of unemployment numbers lowest since the 1960s that's inflationary they got to get those numbers up now here's what the FED is missing or everybody's missing when you hear these layoff announcements people like well if they're laying off why is the unemployment rate going up unemployment lags the business sect unemployment is a lagging indicator when you're an employer entrepreneur and you're in any kind of distress you know not as many customers walking in the door you'll do everything you can to to avoid laying people off you'll you know be laid on the rent you'll turn down the lights you know you know find a cheaper laundry whatever it takes and then by the time you get around to firing people you run out of options like I've done everything I can now my business is in Jeopardy I have to fire some people so that and then combine that with what I just said about Severance and you know rolling terminations Etc it's a lagging indicator we know enough right now to know that numberers going up this spring but that's not inconsistent with the fact that we're already in a recession it's exactly what you would expect um that unemployment is a lagging indicator now having said that what else is the pet missing well wages are up 5% on analized basis 5. 2% on analized basis I'm like yeah and inflation's 7% or 6% so your real wage just went down one or two points because when the Bureau of Labor Statistics reports those wage numbers those are nominal numbers I'm not saying they're fake but you have to know that they're nominal and you have to subtract inflation to find out what's happening to real wages and the answer is real wages have been going down for a couple years because they run around 5% annualized give or take sounds like 5% raise what what do you want well yeah but with 8 % inflation or even 6% inflation your real wage is going down so that's not a robust number at all by the way the FED wants to make it worse the FED agrees that uh those wage gains are too high but my point is in real terms they're actually going down but the FED wants them to go down more that would be one way to put it if you get inflation down and wages are constant then the real wage goes up relative to where it was before uh but if you're unemployed you have no wage so that's that's another issue now what the FED is missing and it's a long list but uh there's something called the labor force participation rate now the labor force participation rate you just take the number of people working divided by the total working age population that's all you do it's not sophisticated and that number today is around 61.
