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🚨 LIVE CPI W/ @theRealKiyosaki
Recorded: June 13, 2023 Duration: 1:24:39Space Recording
Short Summary
The conversation highlights significant economic trends, including the decline in the crypto market and real estate sectors in certain countries, while specific stocks drive growth in the stock market. Additionally, the potential impact of AI on job markets and the gradual shift in global reserve currency dynamics are discussed as emerging trends.
Full Transcription
As always, Twitter is glitching, so we're waiting for, I think the team on the back end is trying to invite folks.
So if there are people that you think you want involved, just start adding them and start commenting in the bottom right.
And we'll start inviting people, but we're struggling to get invites out because Twitter is glitching all over again.
Give us a few minutes.
Thanks, guys.
Mickle, how long do you think they're going to let this crappy spaces experience continue?
I feel like how are you pushing something and then it sucks this bad?
I hope not longer. This is such a great feature that I think they really need to capitalize on better.
It's like crazy. This is unreal.
Like I love spaces, obviously. I spend, you know, a couple hours a day on it, but it's like...
Jesus, in terms of like getting shit done, just doesn't enable high quality management.
But that's okay.
That's okay.
Yeah, I hope Elon gets together.
I'm confident he will, but right now it is a rough start to it.
Well, especially on the back end.
So for people that don't know, maybe I'll give a little insight, we have an entire team of people on the back end.
They're working on getting these spaces up.
They help us get the best guests.
They help us.
you know, to get the invites out.
I know it seems like pretty casual,
but on the back end,
it's like a very formal operation.
And it's unreal how challenging it is for them
because the system doesn't work perfectly.
Like, by the way, there's no like a set of tools.
There's none of that.
Like, they're manually doing everything.
It's unreal that they're doing everything manually.
That there's no like,
host tools there's not like an entire analytics back end we're literally i mean everybody's doing
everything manually it's crazy and so uh please if everybody that's listening if you can go to your
bottom right and put in some comments and let the twitter spaces team here i'd love that uh
i don't mean to be mean but jesus it's so bad
Rob, how you doing, man?
Yeah, Donovan.
Go ahead, Michael.
I always think it's funny.
You have to start off as a speaker and then be converted to a co-host.
Like, you can't just come in as a co-host.
How silly is that, by the way?
Also, we can't have multiple hosts.
You have to have a host and then co-hosts.
So the original host can never leave or the whole thing has to come down.
clubhouse that crazy awful sort of company had better features than this I mean
this is crazy and so it's a I know that that's not what we're talking about today but
geez how can I not start every single room by complaining about Twitter spaces it's
it's this beautiful magical awfully orchestrated company a feature and I just don't
understand why this is so challenging
All right, I'm going to add.
And by the way, if we invite people, this is the funniest part, we still have to accept their request.
So even if we have formally invited people, we still have to accept their request.
So while you're talking, while you're doing other things, the team on the back end is trying to make sure that everybody can get out.
So sorry, everybody, it's been a little bit late this morning.
But we're just still waiting on like,
half of the people to show up because we can't get the invites out.
By the way, did you all receive invites?
Caleb, did you guys actually receive an invite or you just were like, oh, it's time for me to show up?
No, I just knew it was time and I actually just got back home.
So I hopped on and even to pull up the space was kind of difficult even to get in.
And I had to go to my DMs with Mario and click on his profile in there in order to pull it up.
So it's a mess.
It's just so crazy.
Yeah, it did the same thing.
I didn't get any kind of notification.
Yeah, Rich sent me a message saying, are you joining?
And it hadn't actually even shown the invite until that message came through.
Anyway.
All right, so this morning.
And here we are, every day using it still.
See, that's the thing.
It's like, you know, you know that this is adding value
because despite this incredibly bad UI and incredibly poor performance,
we're still here.
There's like nothing we can do.
It's as if it's an addiction.
I'm not saying we're addicted.
That's not what I'm saying.
I am.
Yeah.
Yeah, no, 100%. I'm so addicted. I feel bad for all of our spouses and partners.
But yeah. So, all right. So we have a lot to talk to. Caleb wanted, you know, we're going to have the real Kyosaki or joining us in a few in a few.
I know. I love saying it. It's like the best...
It's a good handle.
But yeah, Robert Kiyosaki will be joining us in a few.
We also, for anybody that's listening, if you do have some questions for him,
please go to the bottom right.
and put them in there.
Because when he's going to be up here, we're going to make sure that we can hear from him on it.
But there's a lot going on.
I saw Caleb's tweet yesterday about how his sarcastic tweet about how this CPI read is the most important CPI read of all time,
which I thought was kind of funny because that's how it feels every time, Caleb.
Every single time it's like, this is the CPI read that will determine all of the other decisions that happen over the course of the next few weeks and months.
But Caleb wanted to start with you about why this is such an important CPI read.
I'm just kidding.
But no, like really, though, like why are you paying attention today?
Why is this important?
Yeah.
If it was up to me, I would not be paying attention.
You know, newsflash, we're in disinflation.
We've been in disinflation.
I've been pounding the table on this since December of last year when we got the November
CPI data.
And I think, you know, this month we're going to have a considerable drop and decline in the year-over-year headline CPI relative to the results for April and certainly relative to the results from March.
A lot of people were, you know, pounding the table on FUD basically saying that, oh, sticky inflation is here because we went from 5.0% to 4.9% on a headline year-over-year basis.
I was not going to let that one single month give me a little bit of a fake out.
And same thing for the PCE data that we got a couple of weeks thereafter.
I think it actually showed an uptick on a year over year basis from one month to the next.
And I looked back through history and I found that within disinflationary periods where inflation
is slowing down.
it's not uncommon to see these one-off months of an uptick in the year-over-year rate of inflation.
And so I really pounded the table to my followers on Twitter and for the newsletter subscribers that
we should continue to expect to see disinflation going forward.
And so one of the favorite indicators that I have that surprisingly no one uses,
but I've really been trying to kind of raise awareness about this metric,
is looking at the average monthly price of crude oil on a year-over-year basis.
And believe it or not, for the month of May,
the average price of crude oil fell by 34.5% year-over-year.
and about 9% month over month relative to April of 2023.
And so as far as I'm concerned, this is going to have significant ripple effects through broader inflationary pressures.
It's going to reduce producer prices and therefore consumer prices.
We've already seen a massive, massive, massive decline in the producer price index, which is generally a leading indicator for where CPI is headed.
Right.
We continue to see normalization of wages.
We continue to see rents and housing prices decelerate on a year-over-year basis and actually
get close to outright declining on a year-over-year basis.
And so all of the forward-looking metrics that I track, right, we could talk about supply
chains being at a negative 1.7 standard deviation relative to the average historical data
You know, just on and on and on.
We can look at credit creation significantly slowing down and decelerating after peaking
in December.
And so all of these major kind of variables that we look at, hey, I mean, I didn't even
bring up M2 money supply.
I didn't bring up reserves.
I didn't even have to bring up deposits, which are all contracting significantly on a year
over year basis.
We are firmly in disinflation, you guys.
And by the way, we've been experiencing this disinflation,
despite the fact that the largest component of CPI,
shelter, has still been accelerating on a year-over-year basis.
And so the thing that I've been telling investors is now that that variable finally declined for the first time in the April data, I feel like we've reached an inflection point and we're only going to see further disinflation in shelter and therefore significant disinflation in headline CPI.
So, Gail, you know, I largely agree with you on this.
The only thing that's a little bit of a.
a twist on this is that we potentially are seeing a lot of the leading metrics for disinflation,
including what Jay put up in The Nest.
People that don't follow Jay or Caleb, your idiots, you should do it.
They both provide really high quality content.
But I was going to say that, you know, the only pushback to that is employment.
Unemployment has been...
or employment and the you mentioned that wages are on a normalized basis are coming down.
That's not actually correct.
Is it Caleb?
I mean,
we've seen.
so walking through how you're normalizing that data because.
I'm not normalizing.
I said that it is normalizing.
So we're returning back.
So I think what he's saying is wage growth is slowing down.
It's not going negative.
It's not going negative.
Right.
Yeah, so on that point, right, you can look at the Atlanta Fed wage growth tracker.
That's a three-month annualized wage growth metric.
And that peaked in last June and July and it's been decelerating since.
And it just hit new lows on the decline coming back down.
It's still historically elevated.
So that's why I'm saying it's normalizing because we're kind of returning back to the, you know, trend over the last 20 years.
If you also look at average hourly earnings on a nominal basis, that's been a little bit steady over the course of the last three or four months, but it has been decelerating.
And so still in that metric, average hourly earnings, it's still high relative to a historic basis, but it's coming down off of the peak from 2022.
So that's the point that I was going to say.
It's like it's still sticky.
Wages have been sticky.
Yes, they're not growing at the crazy rate that they were growing, you know, last year, but they're sticky.
And so that's the one thing that has been confusing for me because usually, is it just that it's such a lack of trick that we wouldn't expect it at this point in the cycle to be coming down?
Yeah.
Yeah, so I mean, I see the fact that wages have been sticky and, you know, inflation has been decelerating as a very good thing, right?
Because essentially what this means is that the real purchasing power of the U.S. worker is improving, right?
And so I think that it's really important to kind of...
you know, bifurcate here, right?
Like my view on disinflation is largely because of, you know,
the variables that I referenced in my rant there at the beginning.
Sorry if that was a little bit long.
But also, you know, just simply how the CPI is calculated.
How does the Bureau of Labor Statistics calculate the CPI?
And so you hit the nail on the head. It is, it is somewhat lagging.
But nonetheless, I mean, another super important metric is the quits rate.
And if you actually look at the quits rate and you overlay the year-over-year headline CPI,
they move almost perfectly in lockstep, and the quits rate tends to lead by about three or four months.
And that continues to fall pretty dramatically. And so, you know, just across the board, even when I look at the labor market, which has been resilient and dynamic, those are the two adjectives I've been using to describe the labor market.
Even though it's been resilient and dynamic, we're seeing firm disinflationary pressures across the board, even from
labor market indicators, right?
In addition to how, you know, simply how it's calculated and shelter and energy and credit creation and and everything else, right?
So we're firmly in disinflation.
And so maybe my prediction for the day is,
I would not be surprised if we see a three handle on the year over year headline.
Yeah.
Yeah, I do believe that because think about it, energy prices down 34.5% in the, in the March to April, or excuse me, in the February to March decline when we had that significant drop from 6% to 5%.
year-over-year energy prices were down, I think, only around 30%.
And so now the fact that energy prices are down 34.5% on a year-over-year basis for the average
monthly price of crude oil in the month of May, I really think we're going to see larger than a 1%,
or not larger than a 1% but I would not be surprised to see a 1% decline on a year-over-year basis.
So falling from 4.9% to 3.9% is not out of the realm of possibilities, in my opinion.
So I just posted up in the nest what J.P. Morgan thinks would happen based on the CPI print.
And interestingly, if Caleb is correct, and it's 3.9% or lower in that range,
uh, uh, uh,
the S&P reaction, according to J.P. Morgan, would be a ripping of the S&P 500 up about 1.5 to 2%.
This is why J.P. Morgan's a little bit off base because anybody can do the math.
Quickly add the numbers. They're basically saying in 85% of all scenarios, the stock market is going to be up over the next six and a half hours.
So what...
I will say is the market's been front running this print.
You know, the true relation data that's been up there, you know, the wage tracker data,
I just put it up.
I shared it in the Discord earlier, but I posted it on Twitter and popped it up here at the top.
That's what Caleb was referring to.
You know, wages in the month of May, the Atlanta Fed Fed wage tracker was up 6%.
So it doesn't mean that wages are going negative.
It means that the speed at which they're rising is now peaked.
So that doesn't mean that wages can't actually still be up for the year.
In most jobs in the United States, wages are still up on a year-over-year basis.
But that's really the only thing that is still an issue, I think, for Powell, because he's looking at services X real estate.
Core inflation is core inflation.
core PCE and within core PCE, he's looking at services X real estate.
So what's going to be interesting today is that the inflation headline is going to be
lower than the core inflation headline.
So on a month over month basis, so in a year-over-year basis, it's expected to be up 4.1% versus 4.4% last month.
We're hitting hard comps and base effects are benefiting us.
What does that mean?
You know, inflation is just the change in a year-over-year of a year of a basket of goods, the change in prices.
So if you think about it, because inflation was rising at this point of last year, it's going to be harder for it to...
rise at this, you know, against those difficult comps we saw last year. So this is one of the
reasons why inflation has, has been falling for most of this year. And when you think about it,
The real estate component, which is 35% of CPI and 16% of PCE, that lags, right?
Because not everyone's lease comes up at the same time.
It lags like nine months to 12 months.
So inflation could come down further as we see real estate prices, the effect of real estate
prices coming down, the effect of rents slowing down.
Rents don't even have to go negative.
Rents just have to stop increasing for that component to also increase.
be a headwind to CPI and PC going forward.
And that's already been happening, by the way, too, which is great news, right?
And even for the first time in the month of March, in May, or excuse me, in April, sorry, guys,
in April, we saw the first year-over-year deceleration in the shelter component,
which is kind of, you know, a harbinger of more of those declines to come because you're spot on.
The shelter component lags the actual housing and rental market by 8 to 12 months.
Even by the Fed's own admission, they know this.
And so if you look at the Zillow National Home Price Index, if you look at the S&P K Schiller, if you look at apartment list, you know, if you look at private market data, year over year prices are up, you know, between 1 and 2%.
And have been firmly decelerating now for, you know, almost 12 months.
So what's interesting, and Jay, I wanted to go to Gareth real quick.
Gareth, thank you for joining us.
You know, are you also in the disinflation camp?
Or are you, is there anybody here?
But Gareth, I want to hear from you first.
But is there anybody here that believes in stagflation?
Gareth, what are your thoughts on what Caleb and Jay are you in the same camp?
Or do you think else is going to happen today?
Gareth, you can unmute, bottom left.
All right, while Gareth is fixing it.
Mickle, go ahead.
Hey guys, I'm here. Sorry about that.
Go ahead, Gareth.
Making the kids breakfast over here.
So a couple of things I just wanted to mention is in regards to the CPI data today.
I think you're right.
It's going to come in reasonably well.
I don't know if it'll have a three handle on it or not.
But I do think the markets have been front running the expectation of good numbers.
I mean, just incredible gains and tech shares and everything else.
which again comes from the expectation that if inflation gets low enough,
the Fed can eventually in a recession come back out and print money.
So that's one point to just make.
I do think that in general people expect a lot going forward from that CPI.
I know Caleb talked about the disinflation factor.
And I do think that's correct.
I think...
Overall, we have to look at it like, okay, from 9% to 5 or 4% is the easy amount that that inflation is declining.
It's that last little bit that gets us into that groove where the Federal Reserve can actually start to print.
So if you think about it in terms of an analogy...
You know, you go to the gym, the first 20 pounds that come off are easy to get that six pack at the very end is the hardest part, right?
It's the hardest amount of work.
And I think because wages have gone up so dramatically, businesses in general can't pass that entire amount of wage increases over to the consumer year one.
And so that's where it comes in, where they're trying to get their margins back to where they were a few years ago.
And they can't, again, pass it all over to the consumer right away.
So it's going to take a few years.
for that increase in price to really filter through.
So from my perspective,
I expect inflation to get into the threes,
but probably stay sticky in the threes.
And that's where,
for me,
at least,
it becomes a trickier scenario
if we do slip into a recession
because the question then becomes,
if we're in the threes,
can the Fed come out and do any sort of monetary easing?
Can they start printing money again?
So it's going to be interesting.
The other thing I would just point out for this week,
I thought that last week's,
unemployment report, the jobless claims was very, very interesting because it was the biggest
jump in jobless claims in a huge amount of time. So we jumped, I think, 266,000 people filing
for unemployment. And right now, that's just an outlier.
But if we see that number stay up there this week, then you start to say, okay, is this now a change in the labor market, which actually could have bigger implications for the economy and potentially that recession that may come later in the year?
So, you know, you're thinking, sure, we have some disinflation going on right now.
There are other folks that are saying, Gareth, that they think that disinflation is going to go past just disinflation and enter into deflation.
You're not in the deflation camp.
You don't think that we're going to be overshoot.
No, as of now, I don't anticipate that.
I think that for us to get into deflation,
the economy would have to get so bad that I just don't see the Fed.
Like even if we're at 3.5% inflation and let's say unemployment jumps to 6% or 7%,
the Fed will be forced based on pressure to come out and do some sort of easing
that will get things going again.
So I'm not quite in the camp of deflation yet.
I'm more in the camp of...
kind of this grinding inflation that stays above the norm for a few years.
And eventually the Fed has to come out and save the day anyways.
So, Gary, that was interesting, just on your view on inflation slowing, creating an opportunity for the Fed to ease.
Right.
I think that is what the market is pricing in, along with this huge AI Kep-X spend,
part of which is just front-running.
There's a hedge fund called Magnitar, which actually raised half a billion dollars to buy GPUs from Nvidia,
and there's a fund in Europe doing it too.
So it's hard to know, you know, how much of it is big tech, how much of it
is, you know, these venture-backed LLMs, how much of it is hedge funds front running,
given that NVIDIA is the only game in town for GPUs for the short term until AMD comes out with their own.
You know, this 55% of the, so seven stocks have rallied 55%.
The equal-weighted S&P is only up a couple percent.
And, you know, high yield spreads were the same.
Russell's down.
By the way, what happened to the China recovery?
China stocks are down high single digits here to date.
China's exporting deflation to the rest of the world,
given that their demand for commodities is not increasing as fast as it should.
I mean, look at oil.
After two OPEC cuts, two months in a row, oil is down in the 60s.
So what...
I was just going to say, and that drop in oil is telling us all that there is some sort of recession for the global picture on the horizon, right?
I mean, for OPEC, like you said, to come out and cut twice in basically a month, month and a half, and for oil to every time you get slammed down, that's telling us something about what smart money is telling us about the global economy.
The smart money is saying that Europe's in a recession and that the U.S. is slowing and the Asia recovery isn't enough to pull the U.S. out.
But just the conclusion to that comment was that we are in goods deflation.
We are in a global manufacturing recession.
Services is holding up for now.
We do have a long-term labor problem in the United States.
But to expect the Fed to go from QT to QE in the immediate future is, I think, not a good assumption to make.
And in April, the market was forecasting 12 cuts over a period of 12 to 18 months and was expecting a cut in July.
And I think that the market is way overrun what I think the Fed is actually going to do.
And I think the second half of the year is going to be a lot more difficult than the first.
I'm in that same exact camp in that respect.
So when I say the Fed will cut, I mean, literally it will take unemployment to get to like six, seven plus percent.
So I mean, we are a long way away from that.
And the Fed will, and Jerome Powell has said this.
He said, listen, Paul Volker, I don't want to be Paul Volker.
I don't want to cut.
too fast. So he is going to hold out as long as he can, which will mean, again, that we do
slip into a recession. And you're right, stocks are not pricing that in at all. I mean, I have not
seen this type of euphoria since late, you know, 2021. And then you could go back to 2007 or the late
90s with the dot-com bubble. So I mean, the stuff that's going on right now is this
is this incredible money flow.
I don't know if it's coming out of partially of crypto, too,
but just kind of money on the sidelines.
Everyone's convinced everything's going to be perfect.
I mean, look at the VIX.
The VIX is trading at...
Bankrupt companies.
You guys remember...
400%.
400%.
You guys remember in 2008...
There was a three-month period where we had the same thing happen.
Now, I'm not comparing this to 2008.
I don't think that's a fair comparator.
But there was a three-month period once Bear Stearns was acquired that we had three months of just the market ripping.
And that, it has this like ominous feel to it.
Like everybody knows, we all are sitting there holding our nose and saying,
there's something weird going on here.
So, you know, do you guys expect something like that to happen?
When Kathy Wood sells Tesla and Nvidia, you know, like something's going on.
I would just say, she bought Facebook.
She's like the inverse graemer.
Go ahead, Garrett.
I was just going to say that.
So in the dot com.
in the dot com bubble the markets initially fell 38% and then they rallied 38% to the upside which was just this
rip roaring rally and then proceeded to dump out for the next you know two years really and have this
massive massive sell-off that we know um and then we know that the nasdaq took 15 years to recover so
and again i'm not saying that this is that repeat performance type thing but
But these type of rallies that we're seeing now, bear market rallies, there's this term,
rip your face off rally for a reason.
I mean, it really rips your face off if you're a short.
And it just seems unbelievable.
It lures in all that money that was scared, gets everyone more on the bullish side, which is a psychological factor in allowing the markets to then sell off and kind of catch all that retail money on the way down.
Yeah, I mean, that's kind of what this feels like.
This truly has that feel.
At what point does a bear market rally,
like what is the usual...
You need a catalyst.
This is the seventh bear market rally since the fourth quarter of 2021.
And I kind of stick by that.
But the issue is what's the catalyst?
And I think the catalyst is going to be threefold.
It doesn't have to play out, by the way.
Things can go higher before they come lower.
But one, earnings are coming down faster than they did in the first.
half of the first quarter. So in the first half of the first quarter earnings reporting December 31st
to March 31st, you saw 75% of companies beat earnings. Pretty strong, right? The market expectation
was going into the first quarter that earnings would miss by almost 7%. They missed by 2.1%. So that was
500 basis point B. Now, it is a game, right? Management teams talk the sell side down and then they try to beat.
The second quarter, I think, will be worse because by the end of this first quarter reporting season, you look at all the SaaS companies that missed, you look at Dollar General missing, you look at Walmart calling disinflation, you look at lows saying margins are going to be down because they can't raise prices and they're increasing wages by a billion dollars hitting the operating income line.
You're going to see, you know, EBIT margins, which peaked.
last year continue to come down.
And I think they're going to come down faster than people expected because most of Wall Street outside of Morgan Stanley and B of A was expecting earnings to bottom in the second quarter.
Why? Completely arbitrarily.
So I think that earnings will come down to.
I think consumer spending is going to come down with the student loans, $3.93 per person, 27 million people under forbearance that are going to have to start paying.
you know, 10 billion a month out of disposable income.
Three, you're just seeing liquidity come out of the system,
but you can't really see it affect the market right now because of, you know,
how big a reverse repo is, you know, 5.2 trillion in money markets.
There is a lot of cash on the sidelines, but you have L-Tero 3 ending in Europe,
95 billion of QT continuing.
Like everyone thought QE was starting when the banks fell on the Fed's balance sheet.
It went up.
Well, guess what? It's lower than when it was when SIVB failed.
At the same time, like, we're going to be issuing like 1.5 to 2 trillion of bills every single year, not just this year, because government spending is not going to go down.
So we have this huge, you know, global government debt issue where central banks are not even swallowing up this debt.
And at the same time, consumer spending is going to be coming down, business spending is coming down, and earnings is going to be coming down.
And it's not going to happen overnight, right? Like, I was bearish.
at the end of 205 and 2006 and crushed it.
But it took a couple years.
Recessions don't happen just like that,
especially on the services side.
On manufacturing, it happens quick.
Services takes a while.
And that's sort of the big question for me has always been,
what is the timelines really hard to time the market,
even for experts.
And we can talk about larger, longer term,
uh, trends, but nobody can time the market perfectly.
Otherwise,
nobody can.
There are 130 real estate, uh, bankruptcies.
We just saw another one in California, half a billion dollar mall that just,
they just walked away from the loan.
130 large scale buildings in Western Europe and the US have seen their property owners.
These are big guys, Brookfield, Blackstone, Pimco.
ABR, all these guys just walk away from the properties.
And so that was going to be my next actual thread.
And Mickle, I wanted to go to you first before we go down that road, before we go down
the commercial real estate and potentially that being the big Black Swan event.
But Michael, I actually have a comment on real estate.
Yeah, because my dad's actually a pretty big real estate broker and, uh,
He's been saying for a while ever since COVID came around, pretty much he said he's seen the biggest explosion in people looking to do Airbnb he's ever seen.
But he said in the last three months, that's essentially completely gone away.
And what we're really seeing right now, or at least what he's seeing, is he is seeing almost no Airbnb people.
And he really just chalked it up to the fact
that all the stimulus money was coming in.
All these people were collecting massive amounts
of unemployment and people who were having
such low interest rates.
All these people were running out and getting Airbnbs
and was essentially massively bidding up retail houses.
And he said that's almost completely gone away.
He's seeing almost none of it.
And in fact, a lot of these Airbnbs
are now being forced to liquidate their houses.
So he thinks this is going to be a massive catalyst going forward
And one last thing, I've personally been looking for a house myself.
I'm up in the northeastern area.
and houses up here were sticky for a while.
They were trading about double what they were in 2020.
What I'm noticing now is these houses are not slowly going down.
People are slashing $100,000, $150,000 right off the top.
So I have a feeling when these houses start coming down,
it's not going to be as gradual as some of the other things we've seen.
It's pretty amazing to me how much people are just cutting off the top of these houses.
And that's what the Fed wants to happen.
They don't want speculation in real estate and asset prices.
I mean, look at what the government has done to crypto, right?
Look at what they're trying to do to real estate and the equity market.
There's $7.5 trillion of wealth created overnight in real estate.
And people realize all these people.
people who own homes,
they were taking out helox.
They were taking out home equity loans,
taking that money,
putting it in the market,
buying expensive cars,
you know,
all these TikTokers buying G-wagons.
The funniest thing I saw during COVID was,
hey,
you know,
start an LSC in the morning,
buy a G-wagon for a hundred grand plus,
then use that G-wagon to do Uber Eats.
Like, how does that ROI even make sense?
Then use your Uber Eats money to buy an Airbnb and rent it out.
Like, most stupid shit, you know,
Every single person on TikTok with a million plus followers was pitching the same thing.
And also, just the Airbnb crisis, you also have the commercial real estate crisis, the much broader commercial real estate crisis.
And that to me is probably the biggest.
potential for a black swan event, which is all of these commercial real estate office and
commercial primarily starting to, I mean, as I mentioned to Rob the other day on stage,
you know, we're in the early stages of the default cycle, right?
Like the default cycle hasn't really begun.
And so, Garrett, I'm seeing you on mute, you know.
Do you agree that we are early in that commercial?
Everybody knows that that's going to happen.
We've had, I mean, it's funny because why is Janet Yellen talking about commercial real estate?
What are your thoughts on commercial real estate and the potential for us having grades higher for longer leading to that collapse?
Yeah, so there's no doubt that the commercial real estate, whenever it hits is going to be the next big wave.
And I think it's already in process.
I think the banks already know it is.
Again, they can hide it somewhat because they don't have to necessarily mark to market any of this stuff.
But I do think that, and I was talking to Grant Cardone and Gary Cardone recently, and they just said, yeah, I mean, it's done.
You're going to see, you're going to see it be so bad that the government's going to have to step in in many situations.
Right.
probably late second half of this year.
So I do think that's coming.
And I do think the consumer is saying that at the same time shilling all these real estate funds to retail investors promising them 10x their money when he is telling you that he thinks the real estate market is imploding.
Yeah, I mean, this was on a space as we did.
I think it was last Tuesday night.
But, but yeah, I mean, it was, you know, he wasn't saying the, he thinks the residential real estate market will hold up really well.
And that will continue because of so much supply, excuse me, so much demand and so little supply.
I personally look at it a little differently.
I see it if the economy does roll over, you have houses that are still mostly out of reach for most consumers in terms of buying.
Now you have interest rates at 30 years at what?
They're paying 7% on a loan.
And you throw in the fact that if people start losing their jobs, how is that going to influence their ability to afford a house?
Also, yeah.
Let's be honest also.
Institutions on a shit ton.
of homes in this country.
Like the most recent estimates
were closer to 14% of all
homes, especially in certain markets like Dallas.
That number shoots up 20, 30%.
So if those institutions
have any exposure to
commercial real estate, which they often do.
If they have exposure to short-term rental, which they often do, and they have exposure
to residential, they're going to liquidate the asset that they believe has the highest,
but they're just going to have to start liquidating, right?
So the chances of them not, of their not being in effect on...
residential is insane.
You need,
we need a two,
three,
four percent swing
in inventory and suddenly
market will start crashing,
right?
Just on that,
Donish,
I mean,
like,
just,
we also need to dispel a myth,
which is because property,
because properties are in demand,
prices will continue to rise.
There is an upper ceiling.
If the general economy is doing badly,
which all indicated on the ground to me,
suggests that nobody is,
is growing really, which means that's recessional in basic terms. If household incomes are
receding, at least parity purchasing power on those are, and also they are unable then to get
better debt terms because of higher interest rates, whatever, that will have enough
ceiling to how much real estate you can go for in general, just because people can't
afford it, even if it's in high demand. You can't eventually end up pricing everyone out
the market. They have to adjust.
And that's definitely going to happen because you can't have the property price increases we've had since COVID.
And that not come down back to parity at some point it's got to.
Yeah, and so I wanted to bring Greg into the conversation.
Greg, my team was telling me that you're a real estate developer.
Wanted to get your thoughts.
Do you agree with the general sentiment on stage around commercial real estate and just the real estate in general?
Wanted to get you to give us some insider info.
Yeah, absolutely.
And for context, you know, I started my career back in the dot-com bubble, 2001.
And then, you know, I went through the 2008-9 great financial crisis and, you know,
You know, so I've seen what can happen and how long it takes and things like that.
So I'll agree, you know, in the short term rental thesis in terms of zero interest rates,
everybody jumping in.
The same thing happened in commercial and multifamily.
Grant Cardones in the multifamily space.
So very different than the other aspects of, you know, office, warehouse, and, you know, retail that we've seen.
But from the housing market perspective, we've seen 10 years of appreciation in two years.
And unless interest rates get up above seven, close to eight, four,
a couple of years, we have so little inventory.
We only have a million homes on the market for sale.
Normally we need about four million.
So if everybody started dumping Airbnbs,
if some of the institution started selling some houses at scale,
which they're not, they're just keeping them for rentals.
And there's a huge shift into built for rent where they're building thousands of homes just to rent.
you know, that market would absorb that.
And right now, I mean, we only have about a month's worth of supply in most markets.
The other thing about financing, 40 to 60 percent of transactions in some markets,
real estate's hyperlocals, not every market's the same.
In the housing market, 40 to 60 percent are all cash.
There's so much liquidity out there still from a consumer level because they've been able to tap equity.
you know, in their houses and they made a lot of money in the markets and everything else.
I mean, it's going to take years of really high interest rates to really see any kind of a meaningful long-term correction in housing.
And, you know, I think the thing that it's going to take is going to be, you know, a severe economic situation like we're talking about.
As far as commercial real estate goes,
You know, what you're seeing is there's about, I think it's 1.5 or 2 trillion in, you know,
short-term bridge debt that has to be refinanced the next two to three years.
All of the properties that were bought, you know, two, three years ago with interest rates,
you know, what's shielding grant is he got 10-year, you know, interest-only loans for the most part.
Most people got three to five.
And we're starting to see some of those assets go back to the lender.
But again, it's only a couple trillion dollars.
That's a good.
that's nothing like the 2008 housing market where you were talking about 30 trillion,
and then that was levered up, you know, with all the contagion through the space with credit default swaps,
MBS, CMBS, all that.
The commercial real estate space right now, what's happening is these assets that are going
back to the lenders like the shopping mall, the hotel, you know, multifamily portfolios,
things like that.
They go back to the lender.
The lender liquidates them and, you know, another investor buys them.
You know, pension funds, hedge funds, investment funds are buying these things for like,
20, 30% of what they paid, you know, three, four, five years ago.
So, you know, that debt is just basically getting written off.
And that, again, is trickling through the economy slowly because it takes time.
So this mall that was just given back, it'll probably be a year or more before that actually ever gets liquidated.
The receiver is going to take it. They're going to continue to operate it. And then at some point, they'll sell it.
You know, so, you know, the debt just kind of sits there and waits for that. So I think it's going to take time for all these things to play out.
So, Garrett, do you agree with Greg's assessment? Obviously, you know, that's one point of view. I, Greg, I will say you sound like you're throwing the
the real estate party line right now i've heard that from a lot of real estate folks so i do want to
get some pushback on that and greg you know obviously you're an expert so we'll we'll trust you but gareth
what are your thoughts
Yeah, no, Greg is definitely an expert. I mean, I would just counter with like, you know, just like they do stress tests on the bank.
So I'd love to do a stress test on real estate and say, okay, what if unemployment jumps to 5%?
What if we get some of these scenarios where interest rates have to stay higher for longer?
Like I know just in my neighborhood, I live in an 11 house neighborhood.
There's three houses up for sale that have been up for sale for now.
over probably four to five months,
and they've had to drop the price multiple times already now.
And this is Florida's, right?
So Florida's been a really hot place to obviously move
and to buy real estate.
So, I mean, at least in terms of what I'm seeing,
I just wonder.
Is it just cutting off for me or for everybody?
He's cutting off a little bit.
Yeah, I lost him.
I lost him too.
Jay,
one thing that's,
one thing that I'll talk about real quick.
Hold on, Greg.
Just wanted to get a second opinion and then we'll have you respond.
Go ahead, Jay.
Sure.
So I agree that they're obviously different areas of,
I mean,
In fact, they're over 20 different types of rates.
There are different types of real estate.
When you think about the Class B office and, you know, class B&C, retail mall, strip mall,
those are the areas that are weakest right now.
But you're also seeing, you know, transitional multifamily defaults in Texas.
And I think that all you need is for rates to stay higher.
for two to three years. Everyone thinks that the Fed is going to cut to zero. In fact, they're not
going to cut straight to zero unless we see a recession. You can't have what we call a soft landing
and for the Fed cutting it to zero at the same time. Those two things don't happen together.
So you're either going to see the economy on the services side to weaken but not go
into a strong recession and the Fed is able to keep rates higher or
you're going to see the economy going to the reset going to a steeper recession and then the
fed is going to act you can't have you can't have your cake you need it too so what that means is
that this 1.5 trillion or 2 trillion of debt that is coming due you're going to see
severe defaults in the commercial real estate space that are going to affect a lot of the small regional banks.
Most of the regional banks are not publicly traded of the 40, you know, there are 4,500 of them.
And I think that Greg's absolutely right that this isn't going to happen overnight.
But as it does happen, these smaller banks are going to be under more and more stress and they're going to have huge, you know, MPL portfolios and not enough liquidity.
And if the Fed continues to keep rates where they are, there's going to be deposit stress on the banks.
The banking issues are not gone.
It doesn't mean that there's a banking crisis, but it does mean that this is a slow bleed that's going to affect large pools of capital globally.
And when you're saying people are buying these properties at 20, 30 cents on the dollar, that's insane.
That's worse than what happened in 2008.
on the commercial side.
2008 was a residential recession.
This year we're having
a commercial real estate recession.
So that means 20, 30% on the dollar
means that the bank
that lend to you at 60% LTV
loan to value ratio, the bank's
taking a 50% loss on their loan
So this if the Fed keeps rates higher for longer, it's not going to be catastrophic for real is real commercial real estate is over 20 trillion dollar industry.
But it is going to hurt a lot of investors.
A lot of sponsors are going to see their, you know, specific funds that they raise, you know, go to zero.
The equity go to zero.
And they're, you know, their examples, you know, of the Brookfield, the, you know, BRTLA that that is going to zero.
Yeah.
So one thing,
could I say one thing on the debt real quick?
So what we're seeing already is banks,
banks are already front running exactly what you're saying.
They're selling off performing loans at a discount just to get them off the books.
So they're already anticipating everything you're saying and they're,
they're de-risking their books.
And the people that are taking hits is like Goldman Sachs.
There was a report out the other day.
They're taking a hit on a half a billion dollar equity investment in a real estate portfolio.
These equity individuals other than like the general syndicated, you know, LPs are the ones that are taking a hit and they can absorb it.
And again, most banks, most banks are only 10 to 20 percent of their investment portfolio as real estate.
So they're starting to derisd that already.
So that, again, I'm not saying that it's not going to happen.
It can't happen.
I'm saying it is happening.
But what I'm saying is it's not enough and it's going to take.
such a long time that that is not the black swan that's going to create any kind of a significant
significant event in the economy you would need commercial real estate and housing and a couple other
things with the way we are right now the second part of it is banking gregg is corporate it's
corporate bankruptcy so corporate bankruptcies are up at the highest level since april of 2020 so i agree
with you gregg that
that commercial real estate isn't enough, but you're seeing commercial real estate defaults for the first time.
There's a lot of extend and pretend after 2008.
And even Carl Icon was short, you know, CmbX for the last 10 years.
And it's an expensive short.
But when you think about what's happening in corporate land, there are a lot of zombie companies that during COVID,
they pushed off maturities to 2025 to 2027.
And rates were zero. So you had companies like Bed Bath and Beyond that we're experiencing COVID benefits from people being at home and buying, you know, consumable goods that had high amounts of leverage where the bonds now trade at pennies on the dollar, complete wipeout of the entire capital structure.
So we're not even talking about, you know,
people restructuring we're talking about zombie companies that have so have so much debt that even the debt holders right
right are going to get severely impaired going into this and you know there are probably within the
leverage loan market which is 1.4 trillion private debt which is 1.3 trillion in the high yield bond
market the 1.2 trillion there's four and a half trillion dollars of this paper i would say the high
yield bond market is actually the most insulated because they're the biggest companies but as in
in the leverage loan market in the private credit market you're going to see a lot of debt funds
see zero for the first time in their portfolios
see a handful of zeros in 15 years.
Agreeing. Shadow banking is your biggest risk out there, I think.
Shadow banking is 90 trillion.
We talk about the banking system.
The shadow banking market is bigger than the United States.
Bigger than the United States banking system.
According to the IMF, shadow banking sector represents 50% of global assets,
which is unreal if you start doing those numbers.
Rob, wanted you to jump in.
I know you've been trying to jump in for the last like two minutes.
Go ahead, Rob.
Thanks, I was just going to say,
you know, the commercial real estate thing is interesting
because if you look at it from a, you know,
a straight value, Jay's are absolutely right in terms of,
Sorry, my baby's screaming in the background.
My wife's doing this, so I'm a bit distracted.
Commercial real estate is going for an interesting phase in the sense that, yes, you're going to see defaults increase.
And yes, if you're playing it off, these low maturities coming up, you're going to see it slow drip.
The problem that I have is, again, and I keep on saying this on these spaces, is that at low occupancy rates as it is,
you add into the fact that businesses are under a lot of strain at the moment,
and I don't see that getting materially better in the short term.
That's going to, I'd love to get J's or other people's opinion on this,
when I'm talking out of my rear end.
But, you know, essentially the amount of defaults you see on commercial property
is inherently tied to how long people who take it into receivership can keep it serviced,
even on a maintenance basis.
And if those companies are seeing hits and nearly put out of things saying that,
Small businesses sales now are looking at the lowest rates since 2008 and they're in sharp decline and that's very
In line with what what I'm hearing through a 30-odd WhatsApp groups that message me all the time about problems that these people are having whatever else
then that's going to speed that up.
And that's a general indication of the underlying economy issue.
So it might not be that commercial real estate plays out as this black swan that people
may or may not think it is.
But certainly, generally speaking, if we're entering into this sort of
disinflationary, deflationary environment,
that's very indicative,
and the people who are hedged against that
are going to be very happy,
because it's very indicative of a wider recessional issue.
Europe's definitely in recession.
The UK is definitely in recession.
The United States, in certain sectors,
is definitely in recession.
So generally speaking, I think it's on a downward trend,
and that's not going to help asset values in general.
So if you're in asset values, I'd be concerned.
Am I right with that?
And if you were holding receivership of these assets,
I wouldn't want to do that.
And those 20, 30% asset values resales on the after receivership on the defaults where they're walking away from the loans.
Is that not also indicative of what they think future value of those assets might be?
Oh, 100%.
A lot of these assets were held within CMBS.
And, you know, the market was so opaque.
that it was very difficult for people to really even know what was going on in these structures.
So a lot of these structures, you go to some malls, some properties, you know, their anchor tenant was Sears, right?
And who goes to, you know, who's gone to Sears in the last five to ten years?
Right.
Right. So a lot of these loans, because interest rates were so low, right? They're being serviced by a couple tenants. And, you know, same thing when you think about office, right? Since COVID, you know, there are a lot of offices, for example, in San Francisco, downtown LA, that have like 50% occupancy. You think about like these, these guys earning like one to two million in rent, but their interest costs is going up from half a million with LIBOR at 1, you know, L plus 200 loans.
You know, now that LIBOR is 5%, their interest costs are tripling.
They have to pay maintenance and taxes are going up.
Like, it is, even if interest rates stay slightly higher and don't go to zero,
there are going to be a lot of corporations and commercial real estate outfits that simply cannot operate in a non-zero interest rate environment.
And that's kind of a problem that the Fed created.
Does it mean that things are going to blow up overnight?
Does it mean that asset values are going to come down in multiple pockets of the US economy
after one of the fastest reflationary periods and recorded history?
Yeah, absolutely.
And you're seeing that you, I mean, we're talking about this.
The crypto market bubble has imploded, right?
Commercial real estate is having some difficulty.
You're seeing real estate markets in New Zealand, Australia, Canada, completely imploding on the residential side.
And, you know, people think that the stock market is making local highs, but it's really only seven stocks.
Dude, no, it's not.
No, it's not.
You cannot say that, man.
Look, look, it.
Oh, you can't say that.
Where, what's the, where's the equal, where's the equal weight of S&P?
In the right corner.
Where is the equal weighted S&P 500?
Sure, sure, sure.
So I'll let Caleb go first and then go back to Jay.
I think it's unfair to characterize that it's only seven stocks when we're seeing net new highs in the S&P 500.
substantial net new highs on a 20 day, 50 day, and 52 week basis.
Okay.
Yeah.
40% of the S&P 500 is how many stocks, Caleb?
How many stocks?
Okay.
So yeah, exactly.
It's 500.
It's 500.
Let me look at the data here.
We know that it's 500 stocks, but look at how many stocks make up the top 40% of the S&P 500.
No, I'm very well aware, but if you had let me finish my point, I would have been happy to provide a little bit more context.
So we had 82 stocks in the index making new 20-day highs last week.
We had 45 making new 50-day highs.
10% of the index is making new 50-day highs.
That's good behavior.
And so the pushback that I make is, you know, I fully concede that the equal weight S&P 500 is not performing very well.
However, look at equal weight tech.
Look at QQQE.
You can't look at equal weight tech, bro.
You can.
Let's look at one sector in the global economy.
If I could please just finish a statement before having you interrupt me every five seconds, that'd be fantastic.
I really appreciate and respect the work that you do.
So I'd appreciate some of that back.
And so if you look at equal weight tech, that's up about 18, 19 percent year to date.
And so certainly tech has been showing leadership.
Mega cap tech has been showing leadership.
But it's not just, you know, seven mega cap tech stocks.
It's tech in general.
We're seeing IGV do very well.
We're seeing semiconductors do very well.
Homebuilder stocks at new 52 week highs.
This is not representative of a bare market.
If you look at industrials relative to the S&P 500, new all-time highs,
what's bearish about that?
How is that seven stocks leading the market higher?
Thank you for sharing that.
I still think it's seven stocks driving the majority of market value gains.
Right.
Number two, you just mentioned home builders after we had a 10-minute discussion about the challenges in real estate.
The two sectors that you talk about are rallying are sectors that are rallying because of an expectation of a decline in rates.
Tech and real estate.
Those are the two most sensitive.
And consumer discretionary and consumer discretionary and communications.
And the interesting thing to note is that, you know, again, you mentioned in your own words, you know, 10% of the market, right, is making all-time high.
The breath is pretty bad, even coming from someone with expertise with your background.
50-day highs, not all-time highs.
50-day highs.
50-day highs, right?
So the breath is still pretty terrible.
Right.
From my perspective, now, let's say in 2021, or 2022, when the market was coming down,
we had a huge, you know, intra-year rally in crypto.
What if I said, you know, the average weighted crypto is up, right?
What does that reflect on the economy?
I think focusing on, you know, one or two sectors and saying because one or two sectors are
up, that it means that we're not entering an economic slowdown.
With all due respect, I think you're a brilliant guy.
And if I was younger, I would be, I would, you know, love to work on something with you if I wasn't retired.
But, you know, the interesting thing to note is that just looking at one or two sectors that are expecting rates to come down, I would say on the consumer discretionary side, I expect demand and earnings to actually come down pretty dramatically in the second half of the year.
But I just want to go back to that same point.
We're seeing one or two, we're seeing home builders and tech rallying because of an expectation that rates are going to come down.
If that expectation doesn't play out, it would be very interested to see where those two sectors are by the end of the year.
So I'll let Caleb respond if you want Caleb.
And then if not, then I'll go to Gary.
Yeah.
You know, so I fully concede that the market is being led by mega cap tech.
But again, I think that, you know, like, look, we have industrials that are, you know, basically at year-to-date highs.
We have consumer discretionary at new year-to-date highs.
You know, so it's not just a couple pockets of the market.
A couple pockets of the market are doing way better than everything else for sure.
But again, it's like even if you look within that pocket of the market,
QQQE, like I said, up 17, 18% year to date.
The expanded I shares,
I shares expanded tech ETF, new year to date highs yesterday.
New 52-week highs yesterday, the ETF is now up 32% year-to-date.
And this is a lot of software-service-type stocks, right?
And so certainly tech is very strong, but tech is not just seven stocks.
And so, you know, that's the pushback that I'd like to make.
I'm not in disagreement with you, but I'm also not saying it's only two sectors that are doing well.
It's not just real estate and tech because we have consumer discretionary doing very well.
Staples are underperforming. Utilities are underperforming. The defensive pockets of the market are not performing well.
But the best companies in the world with the best balance sheets, the steadiest growth, the most cash on hand, these are the companies that are performing the best, and they just so happen to be the largest, most important stocks in the entire market.
I think a lot of those names are rallying also because multi-manager guys have underperformed values underperform growth.
It's not just the defensive is underperforming.
It's all the cyclicals.
It's energy.
It is.
But Jay, there is a world in which that the market leaders are leading.
And then there is a world in which, again, you know that I disagree with this world.
I don't think this world exists.
But there is an argument to be made that maybe the market leaders are leading, and we will expect some of the followers to follow suit, especially as more positive data comes.
That is what is seen as the soft landing hypothesis.
That is 100% the soft landing, no landing argument.
Yeah, so the garage wanted to go ahead.
Over the last week, two weeks or so, I've started to see a couple of this other names start to catch up.
Boeing hit new 52-week highs yesterday.
That was interesting.
I haven't seen that in a while.
Carnival and Royal Caribbean, the cruise lines catching up as well.
So it's interesting.
I will say I started to see that over the last week or two.
Some other interesting names on the 52-week high.
Yeah.
The other interesting names that I saw hit 52-week highs were all the names like the carnivals of the world that have been eschewed by a lot of institutional money managers and a lot of the names that have the very high short interest.
So in the same vein.
Right, Carvana, upstart, a firm.
The shittiest companies that are publicly traded are up like three, four, five hundred percent.
And perhaps this is being driven more by narrative than actual performance.
I mean, like that, that, you know, and so the shorts are getting squeezed and maybe it was just technical.
But Garrett, go ahead.
Yeah, I was just going to say that I agree. I think for the most part, I mean, when you're looking at 50 day highs, I mean, you have to take it into perspective is that, you know, that's not, that's taking us back to within that October low. So, so again, any stock that's bounced decently off of those October lows of 2022 is hitting at least a 50 day high at this point. I also think that for the most part, I think.
that seven stocks or 10 stocks that are leading,
there's this kind of run to safety in a way,
and it's maybe not the healthiest thing.
Again, when you see,
when you see seven stocks have a weighting in the S&P of 30%
and 50% in the NASDAQ 100,
that is not necessarily a healthy thing for the overall markets.
Now, it is broader, right?
So there's a couple things.
Number one, if you just as a company mention AI, boom,
your stock's going up 100%.
I mean, that's the nature.
What, 110 companies mentioned AI in the first quarter?
Yep, there you go. So, so I mean, just that alone gives your stock a bit. I mean, look at so far. I mean, there's so many of these companies that have been crushed from 2021 highs that are now just getting these insane surges. And I think it's, again, it's partially what was just mentioned before. It's partially AI and it's partially a short squeeze, right? So you have this combination. I also think that the market itself, right, you have these safety names.
and tech names like Nvidia and AMD and Apple and so forth hitting new all-time highs.
And a rising tide lifts all boats, right?
So even though you have a majority of the other companies way, way off their 52-week or all-time highs,
just the fact that everything is up so much in the,
big cap, the mega cap area, it's going to start to, people start to just naturally, psychologically,
you say, okay, well, I can't buy Nvidia up here. So what am I going to do? Well, let me look for
something that hasn't rallied. It's almost like Bitcoin rallies first and then supposedly the
all season comes in afterwards, right? It's that it's that kind of looking for the crap that
that you could just make money on when it kind of floats up anyways.
So I personally am concerned about how the market has behaved.
I think that, again, you know, the majority of this money is in these few stocks.
And yes, everything has rallied off the lows, but it's still lagging by a ton in terms of the broader market.
By the way, really quickly, on that topic, 1 p.m. Eastern today, AMD is hosting an event to showcase their quote-unquote next generation data center and AI technology.
So they might be changing.
There you go.
Time to pump.
Just kidding.
There comes the next NVIDIA competitor on.
On the GPS.
And by the way, AMD, in my opinion, is a realistic competitor to NVIDIA since a lot of people are using it to build their own chips, right?
Neely, before we go to Robert, Robert, thank you for joining us.
Neely, I wanted to give you a chance.
You had your hand up for so long.
I feel bad about moving on before hearing you speak.
Go ahead.
You know, I just was going to go back to that real estate point.
And if you don't want to go on that thread, we can.
No, no, no.
It's fine.
That will be a good transition to Robert.
Go ahead, Neely.
Yeah, so it's really like a question for anybody here on the panel.
I'm very familiar with how leases work for retailers, you know, in malls and what have you, because I covered the retail sector for 20 plus years, and that's who I advise.
But.
you know, when I've been thinking through this office component, do they have it same in office leases for co-tenancy requirements in occupancy level?
Because for malls, if you get an anchor, you guys were joking about Sears, but like one of the problems with Sears and why I think it was held on for so long, like malls being somewhat supportive to them trying to figure it out is the moment Sears leaves a mall, you basically have 300,000, you know, what they call GLA or gross leasible area space that goes dead.
And it starts to trigger all of these co-tenancy clauses.
And then people can basically like,
kick out their lease and be gone.
So then your occupancy can go fast.
Is that the same for office?
Is this like,
is this another element of the story?
Usually,
I just know this because of my business,
but because we often put our clinics in office buildings.
But,
But so with office buildings, often there's an occupancy trigger.
So there will be an occupancy trigger that starts proceedings if you fall below a certain occupancy.
And a lot, and I'm not saying this as fud, this is the reality of,
a lot of office spaces are reaching those occupancy rates right now,
especially in specific markets.
You're thinking about markets like Austin.
You're thinking about San Francisco and others.
And that's actually why you're hearing about those markets more and more.
So it's not triggered by a tenant, often.
But usually, if you know office buildings, it's an 80-20 rule.
20% of tenants represent 80% of the square footage.
And so if the big tenant leaves, you're automatically in trouble.
But I...
So, okay, so I wanted to get to just some breaking news while we're talking about real estate.
There's a bank with 90 billion of assets, Comerica, just announced this morning that they're exiting the mortgage banker finance business.
And a move to supposedly smooth the seasonality in its loan portfolio.
I'm sure that's why.
So, Robert, thank you so much for joining us.
We haven't met yet.
My name's Donish.
You can call me, Doc, if you can't say my name, which is fine.
But, Robert, you know, thanks to joining us.
We were talking about, obviously, today's CPI brand, how inflation is doing.
And we went into...
you know, the challenges with real estate.
First of all, what is your base case on how inflation is doing?
Do you think that the Fed is working with lagging data like a lot of people believe?
Or do you think the Fed has been working appropriately?
I hate to say this, you guys.
I'm a high school flunk out.
You guys are speaking about stuff I don't even know about.
But the thing is that when you look at the world of money,
There's macro, micro, and what you guys are talking about, from my point of view, is micro micro.
And I'm more concerned about the macro right now because the macro is changing.
And the macro is changing on all fronts more than just real estate.
So...
But what I
Give us a picture, Robert, of what do you think?
Where is the macro changing the most?
I mean, inflation supposedly is coming down.
There's a lot of belief in the market that inflation has been coming down.
Are you in the camp that believes that inflation is coming down faster than the Fed is acting?
And that all of these interest rate hikes have broken inflation and we're in a disinflation cycle?
I mean to be disrespectful, but I don't care.
What I want to say to you is this, we're the biggest change in world history.
The reason I wrote Rich Dad, Poor Dad, was that when I was 17 years old, in 1964, I picked up a coin, and it was a U.S. quarter, and the quarter had copper in it.
And I didn't know what that meant, and what that triggered on the macro-macro level is Gresham's law.
And Gresham's law states that when bad money enters a system, good money goes into hiding.
And I didn't know that at 17 years old.
So what's happening in the world today is that we're the end of the American Empire.
And all empires ending, the Chinese Empire ended, the Roman Empire, the Greek Empire ended, British Empire ended.
So my concern on the macro-macro level is that an empire is ending, and so is the U.S. dollar ending.
But what is going on is that this technology...
today is more powerful than any government in the world.
So you look at what's happened to what happened with AI and all that.
I look at that.
I wonder, AI is going to probably cause millions and millions of people to lose their jobs.
So what you guys are talking about, CPI and all this stuff?
Well, it's important, but on a micro, micro level.
And I cover CPI as that I am an entrepreneur.
And I own gold mines and I own silver mines.
I also own cattle.
I also own oil.
Things that are not really that affected by CPI, but actually improve with CPI.
I think I might be.
I think I'm not qualified for your program because I'm not very detailed.
Well, but the point that you're making about the U.S. dollar, I'm going to go to Caleb, since Caleb has a, you know, I think he disagrees with the end of the empire commentary. I actually think Robert, what's interesting is most people that are listening, because they listen to us every day. And Robert, I kind of shit on that a lot.
I will say honestly, because I think that the whole, remember when everybody was talking about bricks,
bricks is nothing.
Bricks is a made up thing.
It's not like a real thing.
We're not going to see de-dollarization.
We're still the main currency used for trade.
But I'll let Caleb do this for me.
Caleb, can you respond to Roberts' thought about the end of the empire and the de-dollarization narrative?
Go ahead.
Yeah, I mean, I think it's a fine narrative.
And like, you know, I'll be it.
I'm probably the youngest, if not, you know, one of the younger people on this call, you know, at 28 years old.
But, you know, since I've been in Marcus for the past, you know, 10 plus-ish years, you know, I've been hearing about the end of the empire.
And, you know, that kind of rhetoric goes back to the 90s and even before that.
How is it produced?
you know, necessarily actionable investment advice on what investors should be doing here and today.
How is it hindered innovation?
Right. You know, we can talk about AI in the same breath as, you know, the end of the U.S. empire.
To me, that doesn't make a lot of sense because, you know, this is still the hub of innovation and world change,
both from a political, social, economic, and technological standpoint.
And so certainly, you know, we've been off the gold standard now for, you know, 50 plus years, basically.
And we have not yet seen the end of that empire.
And so, look, I'm a firm believer in sound money.
That's why I'm a bitcoiner.
But from that perspective, you know, I think when we talk about the macro macro, it's interesting
conversation. I think it's true. You know, the U.S. Empire is slowly falling, but the key word there is
slowly, right? And so could that take 50 to 80 years? Yeah, it could. Could it take 150 years? Yeah,
it could. Hey, maybe it takes 15. I don't know. But even still, if it takes 15 years, I don't know
how that's going to help me in the short term. Yeah, I agree with that sentiment in
in that, you know, there is no alternative.
It's like the worst, you know, it's essentially the best of the worst, right?
So if you're not going to use the dollar, are you going to use the Chinese yuan in a closed financial system?
Are you going to use the Brazilian real?
Are you going to use, you know, Argentinian peso and hyperinflation, right?
Are you going to use...
the peso or the Canadian dollar, but guess what?
They're all dependent on the US dollar because they're part of NAFTA.
Like when you think about,
are you using the Indian repeat where India just last week said that you can't,
you have to pay a 20% tax to take your money out of the country,
which is probably the most ridiculous thing I've seen in the last 20 years.
So there's just,
you know,
there's really not a lot of substitutes.
And you could say,
well,
you know,
you can look at crypto,
you can look at gold,
et cetera,
et cetera.
But,
These are changes that are not going to happen over the next 5, 10, even 15 years.
You know, maybe, you know, when I've passed, you know, there's going to be a new reserve currency.
But in the near term, I just don't see things moving that quickly.
Should you be prepared?
Yes.
Are you going to see, you know, robots in every single, you know,
manufacturing outfit are you going to see you know you're are you going to go to quick fast serve
restaurants and see one person in the entire restaurant absolutely are you going to see
a i take out basic accounting and call center jobs yes but i think for a lot of front end front
office jobs a i is just going to provide you a tool to improve your productivity and it's actually
likely going to help the u.s economy
cut costs, unfortunately lay off more people and improve productivity of the best companies in the
world. And the U.S. government, essentially through its tax base, has the net present value of the
best company and the wealthiest people on the planet. So we do acknowledge some of the debt problems
that we have. But when you NPV, the future value of the assets in the country, it's also a very
large asset. And people don't talk about that side.
Yeah, so, Robert, I know we've had a lot of people speak,
but did you want to respond to any of those that pushback?
I mean, I don't give a shit personally.
This is my question to you guys, okay?
Last July, I took a company public to rid the biggest gold mine in America.
I own tons of gold.
I own a silver mine in Argentina.
I own cattle, and I own oil.
What do you guys have?
No, I think that's fair.
Good for you.
I'm with Robert on that one.
I mean, I have exposure to those asset classes, but I'm not calling for the end of the world.
Gentlemen, you guys probably have an MBA or something, you know, I don't have one.
I really don't, we don't speak the same language.
I'm a hardcore entrepreneurial capitalist.
I take down companies.
I acquire companies.
I've taken three companies public.
That's what I do.
I don't know what you guys were talking about because you sound like a bunch of business school graduates.
Yeah.
That's a fair point.
Rob, you were about to respond?
Yeah, I actually own farms.
So I'm with Robert.
Actual physical farms, real farms that we plant things into the ground with.
And I'm with Robert.
I'd like to own the food I make as a fundamental.
So, you know, our goal today is to make sure that people...
Go ahead, Robert.
Gentlemen, I'd best get off this call.
I mean, you guys, we don't...
You know, I'm probably speaking Filipino, and you're speaking Chinese right now.
So it's not what I do.
I hire guys like you.
So I'm saying, if you want to find out how I do it, there's a different story.
But you want to sit here and argue with me, you know, how many companies have you taken public?
What's, are you hiring right now?
How many companies have you guys taken public?
None.
Give me a break.
I mean, when I was the left-in banker, I mean, I probably financed two or three hundred companies.
I started and taken public.
That's all I'm asking you guys.
I'm not as smart as you.
I'm a dumb shit.
I'm a U.S.
Marine.
I went to Vietnam twice.
And I don't belong on this call.
That's all I'm saying.
You guys don't want to hear what I have to say.
So being respectful to you and being respectful to me, you know, that's why.
I totally understand.
Again, it's a different.
Let me finish because we don't speak the same language.
You know, I just said to me, which I think is important, we're at end of the American Empire.
All empires come to an end.
We're at that end right now.
And so all empires have survived on gold, cattle, food, silver, water, and things like that.
So that's what I invest in.
And if you come on to talk about the splitting hairs, I'm bored stiff.
I hire guys like you, okay?
So, I mean, no disrespect on this whole thing, but I don't belong on this call.
No, we appreciate you coming on, though.
Thanks, Robert.
Bye-bye.
Bye.
So, interestingly,
you know,
I guess the point that that's being made is around hard assets.
I think it would be very interesting to have that conversation,
but we have a big CPI print today.
Jesus Christ.
Wait, what's the starting salary for the analyst jobs at his company?
I'm looking for work right now.
What's the starting salary?
Caleb, I'd recommend.
So, Caleb, I don't know if you want to work for him.
I think you could get a pretty nice job at any financial firm.
I think that interview's over.
Can I just say none of you are speaking more language either?
I just like to, I'd like to say that.
I'm not going to be a Zhaug about it or talking about it.
All right, so let's let's ask our, I'm not gonna,
I'm gonna act like that never happened,
just so everybody knows,
because that was probably one of the most incoherent conversations
around when he knew that we were talking to him
about the CPI print for him to come in and say,
none of it matters.
It was freaking hilarious.
I love it.
I don't give a shit, frankly.
Yeah, it was wonderful.
To be fair, though, the argument that none of it matters might be interesting because we have
FMC the next day, and I feel like we would have heard a hint if it was a big number.
So there is a chance that's true, but we don't have to talk about that.
CPI and 11 minutes.
Please do not defend that crap.
No, I won't.
That was a wild interview.
It was hilarious.
I'm really, really hoping.
Drop the mic.
for everybody that won
you said no disrespect but all of you guys are too poor for me to
talk to
yeah that was crazy right that and post it
please clip it and post it because it was literally
like the rambling every treat it you're just
oh my god that was wonderful all right
none of us have taken a company public so none of us can
none of us can speak we've never taken a company public
hilariously if you google me uh
In my background, you'll understand that I was one of the founders of School, which went to power school, which then went public.
But I don't talk about it much because I think it's stupid to do that.
But unlike other people, I let my words drive the conversation instead of, you know, instead of trying to posture as someone who's much more than I actually am.
It's good.
He wrote a book like 25 years ago.
You guys remember?
It's called Rich Dad, Poor Dad.
I don't know if you've heard of it.
So because he talks about it every 30 seconds.
So, so yeah, Trevor, go ahead.
Yeah, that was definitely interesting to say to least.
Respectfully, wow.
I think one of the unfortunate things is that I think to Caleb's point, the rhetoric discussion is so interesting because narrative definitely does drive.
action, right? I mean, we look at market psychology all the time. And when you have positive and
negative, you know, media pushing and swinging investors to call their advisors daily to make sure
that the market's not going to bottom out, even though it's probably a buying opportunity,
you know, I think there's a lot of media stoked and induced, um,
fear from, you know, people like him.
And that's fine.
That's what drives market forces, right?
I think we can't discount the fact that, you know,
everybody's entitled to their opinion, and that's what dictates price.
Zero has just pitching gold for like 20 years, right?
And how is that done versus, you know, AutoZone or Microsoft or Adobe?
Yeah.
No, super fair point. And I think the, you know, you can't discount the fact that, and there are a lot of people that you could argue success in terms of their narrative. And that's fine. But, you know, one of the things that I wish, you know, he would have answered is, you know, how does this transition bode for existing equity holders or bondholders?
And where does the rotation go?
I think this is something that we don't talk about enough,
that if we're going to push this rhetoric of, you know,
the end of an empire,
okay, where else do you go, right?
Where's the next stop?
So it'd be curious and I don't really...
Because the specifics.
It's specifics.
Yeah.
Specifics are hard.
They're so, so hard.
It's so great to have beautiful narratives that everybody agrees with.
But it's really, really hard to provide specifics.
Jay was right.
Tell me what currency is going to take over.
I'll wait.
we should have just let him wait and actually answer that.
We should have just gone through like the 300 currencies of the world and say which one's
going to replace the dollar and gone through every single one.
Yes or no?
I couldn't have list, frankly, I don't give a shit 300 times though, Jay.
That is true.
I mean, it was, so regardless, what's important is
is that I will respectfully disagree that we should be focusing on cattle.
It was so funny because one of the comments that was made was around AI,
and where are the best AI companies in the world being built right now?
Yep.
That is something that if you look at,
you know, talent attraction, the United States is still one of the heaviest hitters to acquire
the best talent to go to either national labs or private corporations that are listed in the
United States. So I think, you know, to say that the United States is not a long game, full
AI play.
you're out of your mind.
And I think this is heavily discounted.
And, you know, Jay, I think you were talking, you know,
especially on the NPV of the United States assets.
Let's talk about the United States IP for automation and artificial intelligence, right?
If we opened up immigration overnight...
Imagine, do you know how many of the world's top engineers would come to this country?
It's because we don't open immigration that we don't have more human capital coming here.
And also, Jay, to add to that, because we don't have that human capital coming in, we can't actually train our own people internally either.
So there's a net net loss. There's like a double bubble.
I think the biggest thing, too, though, is that you've got a huge amount of immigrants actually leading the technology of the world today.
Look at the greatest CEOs of this generation.
They're all from India.
And a lot of the immigrants they're trying to pull into work for their companies are from there that are actually staying in India.
So the IP that we're creating in North America is actually leaving and going back to those countries because it's easy to transfer IP.
There's no physical asset to block.
And so, like, we've seen a lot of universities get funding from overseas or from India, from China, and that's becoming very political.
So I'm actually concerned when you say, you know, you're right.
You're right on that side.
But it's leaving the country and going back to the places that are probably needing it most and going to us.
So you're right about the fact that, you know, the U.S. is actually hurting itself by not opening it up immigration, not allowing the free flow of human capital.
And you are seeing, you know, some of my cousins and nephews and nieces who, you know, when my parents moved here in the 60s and 70s, you know,
They wanted to move with us and everybody wanted to come to the US in the 80s and 90s and now
My nephews are like well, I can't you know the immigration rules are so hard
I'm gonna spend all this money coming to university here and then just get kicked out a year later
And some of them are saying you know the lifestyle is easier where they are now and things are modernized
So you know, I do think we need to open up immigration, but I think tomorrow if we said that we're letting in you know a million engineers a year
that demand would be met.
I just think,
Jay, I'd like to,
I generally agree with you on the opportunity here
and I just came back from being around the world,
I literally landed back in San Francisco yesterday,
which is most assuredly the AI capital of at least the U.S.,
if not the...
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