The Recession You’re Already In (But Don’t Recognize Yet) - A discussion with Jeff Snider

[00:00:00] Egal ob Sie gerade erst beginnen oder Ihr Sicherheitsprogramm erweitern, herausragende Sicherheitspraktiken zu demonstrieren und Vertrauen aufzubauen ist wichtiger denn je. Vanta automatisiert die Einhaltung von ISO 27001, SOC 2 und mehr, spart Ihnen Zeit und Geld und hilft Ihnen das Vertrauen Ihrer Kunden zu stärken.

[00:00:20] Darüber hinaus können Sie Sicherheitsüberprüfungen vereinfachen, indem Sie Fragebögen automatisieren und die Sicherheit Ihrer IT-Infrastruktur mit einem kundenorientierten Trust Center demonstrieren. Über 9000 globale Unternehmen wie Atlassian, Flow Health und Quora nutzen Vanta bereits, um Risiken zu managen und Sicherheit in Echtzeit nachzuweisen. Erhalten Sie ein spezielles Angebot von 1000 Dollar Rabatt unter venta.com slash hohren.

[00:00:53] So Jeff, in May you predicted that we're already in a recession. So I'd love to start off with, you know, that incredible talk you did at Rebel Capitalist. What are the things that you see? Because it certainly feels like we're in one, but it's not being reported. Yeah, well, I mean, just to be a little pedantic here, Ken, what I said was that we never left the last one. So we've been in a recession for the last couple of years, which is, I think, first of all, a lot of people have a reaction to you.

[00:01:21] Whenever you use the word recession, they have this this singular picture in their mind that a recession looks a certain way. And if it doesn't look that way, then it must not be a recession. Everything must be fine. So what I said was and what I showed was that if you look around the rest of the world and including the U.S. labor market and U.S. GDP, too, what you see is that we have been in what looks like a different kind of recession ever since 2022. So the banking crisis, the aftermath, all of that stuff.

[00:01:50] What happened was the economy that was modestly recovering from the pandemic and the lockdowns, really more the lockdowns than anything, just kind of stopped in 2022. As prices shot ahead, as oil prices spiked, it was just way too much for the economy to absorb. And it just is short circuited everything. It kind of froze everything in place. So because that doesn't look like what everybody has in their mind for a recession, you use the term recession. You're like, oh, that's crazy. That's not happening.

[00:02:18] Even though most people, by and large, their perception of the economy is something doesn't feel right here. Something isn't isn't. It doesn't seem like the economy is strong and resilient, as Jay Powell and the Federal Reserve keep saying. Certainly wasn't strong like the Biden administration kept trying to say, you know, everybody's whining about economic circumstances. And it really goes back. It's not necessarily inflation as the aftermath of inflation.

[00:02:43] So when I use the term recession, I've actually called it forgot how to grow economy because people don't like the term recession. But you have to realize that there's different forms of recessions out there. It's not just a, you know, everything drops off at once and then it comes back and recovers on the other side. We have various different forms of contractions and economic dysfunction that we need to be aware of. And like I said, it's not that hard to establish that we've been in some kind of recession for the last couple of years. And and it's not just here or there. It's everywhere.

[00:03:13] This is the reason why that people are so upset with the economy, why they're lashing out in terms of politics, too. So the recession question is a little bit broader than people have in their mind. That's a really good point. Yeah, I think a lot of you know, there's that technical term right to to I think two quarters of negative GDP. But, you know, as you know, we have 10,000 tenants. And so, you know, you know, and we see it right on Main Street. You know, there are things happening at the Main Street level for sure that.

[00:03:42] And also, as we start to see turnover in our staff, let's say, or openings, you know, as we grow, you know, we're we're seeing 30, 40%. 40, 50 applications. You know, we're seeing the job growth. I should say is certainly slowed. The wage growth has certainly slowed. We're starting to see people's you know, because we pull people's credit to when they move in.

[00:04:08] Yeah. We see credit card delinquencies up. We see auto loan payments delinquencies up, you know, and we're starting to see, you know, these alternative pay programs like flex and Apple Pay later. You know, like people are financing their future, you know, and it's it's frustrating because I'm seeing it with with, you know, obviously I just we've got 10,000 people living in our apartments.

[00:04:35] And so, you know, I can't be alone there and it's just not being reported and people are frustrated. You know, it's you talk about the buy now, pay later. I mean, that's that's now spread to you want to buy Taco Bell. You can buy now, pay later. That's not a good sign in any shape, any way, shape or form. And you can that's I think the essence of the recession question boils down to exactly what you're just talking about.

[00:05:00] The probably the worst part of and maybe the best or the best example of this forgot how to grow recession is the fact that nobody has been hiring. So a recession traditionally starts out with with companies that stop hiring and then it leads into a progression where you have eventually everybody gets fired. You get mass layoffs. And so the layoff part of it is what everybody has in their mind when they use the term recession.

[00:05:24] But what we have seen over the last couple of years is what some people call a no hiring, no firing environment, which is not consistent with the traditional, you know, and recession that we're all familiar with. So we've had most of the symptoms of a recession, lack of hiring. Nobody's hiring. Income growth has slowed way down. There's not enough income growth to begin with. So you have all of that stuff. But it's the firing. It's the layoffs.

[00:05:49] That's the what that's what people have in their mind when they pick when he's used the term recession, what they think of everybody gets laid off. You know, there's mass unemployment that usually only comes at the end of it. And it's not the only symptom of a recession. So that's one of the reasons, one of the big reasons why there's been such a confusion as well as what you're talking about. People are frustrated because nobody is hiring. And the few people that hire like yourself that are doing well, what happens? You put up a job opening and a thousand people sign up immediately.

[00:06:17] So the labor markets in a really bad shape and it's been bad shape for a long time, but it hasn't led to the mass layoffs. And one reason because of this forgot how to grow style recession. The people have in their minds because they were given this by, you know, the Federal Reserve and the government during the time when all this was happening. People say, you know, we had a labor shortage. The economy was so hot and recovered so fast. We had an actual labor shortage when the data shows that just not true.

[00:06:43] What happened was a lot of businesses had trouble securing workers, which meant they had to compete for workers and they weren't competing because there were too few workers in an economic sense. There were too few workers because they were told to stay home. They had covid symptoms. They had long covid symptoms, you know, all the stuff that are associated with the pandemic. So there wasn't a labor shortage in the respect that the economy was so hot. It demanded so many workers. In fact, it was just the opposite. So you had a lot of businesses that were struggling to recover from the lockdowns in the pandemic.

[00:07:13] And they started to bring on some new workers, basically not job growth, but reclaiming all the jobs that were lost in the lockdowns. But they never got all the way there. They started rehiring a bunch of people and then realized halfway through the process thereabouts that they didn't need all these workers because the economy in any volume terms was not recovering.

[00:07:34] Best examples, the car business prices of new cars in particular just sort ahead, which made it seem like the car business was absolutely booming. But would you actually look at the data and actually look at the reports from the car makers themselves? They were selling a lot fewer cars than they were back in 2019 and before. And 2019 before wasn't a great economic climate to begin with. They were selling a lot fewer cars, but the price per car was absolutely huge. So it made it look like the car business was actually booming.

[00:08:03] But if you're an automaker and you're selling, you know, 25 percent fewer units and getting a lot more revenue for it, you don't need to bring on more workers. You don't need to bring on as many workers as you had back in 2019 because you're not selling as many. You're not actually making the cars. You're getting more revenue per unit.

[00:08:18] That's a very different set of circumstances. So all of these businesses that were struggling to recover from the pandemic, they didn't need to bring everyone back on that would lead to a full recovery, which is why we don't have nearly as many jobs in the U.S. economy and around the rest of the world as we really should have. So if you if you have more employees than you need to begin with for the actual level of economic growth and economic activity, you're certainly not going to hire anybody.

[00:08:46] So the forgot how to grow economy starts with that fact that businesses realized they didn't need to bring any more people back on. So they have stopped hiring and they've done this for years. So while you see the employment figures that are continuing to grow, they're growing way less than they need to grow. So the the idea for recession here isn't necessarily that, you know, the the payroll reports are positive. Therefore, the economy is fine. The payroll reports aren't positive enough because businesses have stopped hiring.

[00:09:16] Now, in that type of environment, you also don't necessarily need to fire people either. So the big characteristic, the key characteristic of the economy is just that we never needed to bring everybody back. All the people who lost their jobs in the pandemic, we didn't bring them all back. So we don't need to hire anybody else. But these people do need a job. If you were one of the unfortunate ones who got thrown out of work in the pandemic and, you know, the small businesses that were destroyed that never came back, you have not been able to find a job. You have no income.

[00:09:44] Your cost of living has zoomed way ahead. So you have been left way behind by an economy that everybody keeps telling you is strong and resilient and solid when it's anything but. But you can't categorize it as a recession because it doesn't look like the recession that everybody has in their minds. Right, right. I'll tell you another interesting thing. You know, I have a lot of friends in the restaurant business and I was with one of them who's a chef. And by the way, he employs hundreds of people.

[00:10:13] So not small, you know, little local restaurants, but, you know, more and more higher end. And and so he walked me through the kitchen and he walked me through, you know, the serving area. And I'm like, man, how many people you got here? You know, and it was in the couple hundred that night. And and and he looked at me and he said, but most of these people have second and third jobs.

[00:10:37] And and he said, so what happens a lot of times in the restaurant business is that, you know, they always have two or three jobs because they're usually kind of a part time. Not all of them, of course, but a lot of them are part time. And so I went and dug into this a little bit more. And I found that people with multiple jobs is at an all time high right now. And it's now not just in that service sector. It's in other it's moving into the white collar, according to the stuff I kind of dug down.

[00:11:06] And so so it's clear that people can't make it. You know, maybe maybe they are even working 40 somewhere, but they're not just keeping up with inflation. But they're there. The we've never it's an all time high right now of people actually going out and getting second or third jobs. Well, that was the key problem. The this forgot how to grow recession came from that, which was back in 2021 and 2022. It wasn't inflation.

[00:11:33] It was a supply shock and essentially a phase shift in prices that left everybody behind. Now, some of the people in the economy over the years since have been able to get back that lost purchasing power because they have they have experienced income gains and job growth along the way. But for too many people, they have not been able to go to even get close to back to even where they were before the pandemic. And so what do they have to do? Just like you were saying, Ken, they have to go out there and find a second or third job. I mean, that's where the gig economy is really taken off. Right.

[00:12:01] You work your day job because, you know, you have to work somewhere as you know, as the basis. You have a solid day job as your basis, but it's not enough. So then you have to work nights, you know, doing Uber or something else door dashing for the buy now, pay later customers. And everybody essentially got impoverished by 2020 and 2021. And that's really when you step back and look at the economic question here, that's where it really starts.

[00:12:26] And that was the point I was trying to make at the rebel capitalist presentation was simply that what happened in 2020 and 2021 is, first of all, we destroyed a lot of the economy. But number two, the parts that didn't get destroyed got impoverished because prices of everything went up and incomes did not. So in other words, you lost a ton of purchasing power. Your labor was devalued. In fact, the last time I talked to you, last time I was on with you, we talked about this. Your labor was devalued. And so you've been left behind by an economy that isn't actually getting any better.

[00:12:56] So, I mean, what are you going to do in that situation? Well, either you're going to have to pull back in your lifestyle and cut back a lot of things or you're going to try to get something back. What a lot of people have realized around the world is that the labor market, the economic growth since then, hasn't been nearly strong enough for people to reclaim that lost purchasing power and get back their incomes. In fact, they're finding out it's going the opposite direction where any of those avenues to try to get back their purchasing power have been closed off by economic weakness and fragility, especially over the last year.

[00:13:25] So it doesn't look like a recession, but it sure as hell feels like it to weigh too many people. Egal, ob Sie gerade erst beginnen oder Ihr Sicherheitsprogramm erweitern, herausragende Sicherheitspraktiken zu demonstrieren und Vertrauen aufzubauen ist wichtiger denn je. Vanta automatisiert die Einhaltung von ISO 27001, SOC 2 und mehr, spart Ihnen Zeit und Geld und hilft Ihnen, das Vertrauen Ihrer Kunden zu stärken.

[00:13:50] Darüber hinaus können Sie Sicherheitsüberprüfungen vereinfachen, indem Sie Fragebögen automatisieren und die Sicherheit Ihrer IT-Infrastruktur mit einem kundenorientierten Trust Center demonstrieren. Über 9000 globale Unternehmen wie Atlassian, Flow Health und Quora nutzen Vanta bereits, um Risiken zu managen und Sicherheit in Echtzeit nachzuweisen. Erhalten Sie ein spezielles Angebot von 1000 Dollar Rabatt unter venta.com slash hoeren.

[00:14:19] Ja, und ich will sagen, wir haben nicht noch nicht gesprochen, über Tariffs oder Immigration oder etwas wie das. Es ist lustig, Elon Musk, of course, war ist zwischen den USA, aber er hat sich die Trump-Tariffs-Tarrieren, die Trump-Tarrieren werden in der nächsten Jahre. Er hat sich das aus. Und dann, of course, ich war in den Immigration-Tarrieren, weil wir 2.8 Millionen Menschen in der Jahre, und das Jahr haben wir 2.8 Millionen Menschen.

[00:14:48] we're at 500 million or 500,000. And so now while most people think that those numbers are good and maybe they are, I'm just saying that when you don't have that amount of people coming into the economy, it does affect the economy, I guess is kind of the point. So, you know, I know we're kind of predicting now and I know you've got some slides that you're also going to talk about today. I'd love to kind of hear your perspective if you could pull a couple of those up just to kind of

[00:15:16] see where's all this heading and what's the common person, what can they do? Well, the first thing is, you know, what I always do is start with the marketplace and you're right, Ken, we haven't even touched on tariffs and trade wars and all the stuff that everybody's focused on today because we were in bad shape long before we got to tariffs. And so maybe Elon Musk is right in that, you know, the tariffs are just one, you know, the straw that breaks the camel's back is just one negative thing to many because tariffs are attacks on the economy. Let's be honest about it.

[00:15:44] That's exactly what they are. They either get paid by consumers where businesses can pass them along or they get paid by producers in the fall off in business and fall off in volume when consumers can't afford the price increases. Either way, tariffs are a tax on the economy. And so, you know, an economy that's in a forgot how to grow, stay at a state to begin with, you throw some tariffs on top and maybe the last half of 2025 starts to exhibit all the signs of what looks like a traditional

[00:16:12] recession or the layoffs that start to really surge. We've seen some indications that the labor market conditions more recently, like jobless claims have picked up a little bit, though those have been unreliable over the last couple of years. So it's possible that in the end of this, the last half of this year, we do get the recession that everybody's been talking about. Where I start from all this is with the marketplace. I don't mean stocks because stocks, they don't trade on fundamentals. Stocks have very little relationship with the real economy, even though most people's perceptions of

[00:16:42] how the economy is doing. They look to the stock market and Jay Powell. Those are the two indications that they focus on. The stock market has nothing to do with the real economy, very little to do with the real economy. So what I look at is you look at some interest rate derivatives, some interest rates, you know, bond curves and things like that. And what they have been saying ever since 2021 and 2022, when you look at them, you're not going to pull up the slides here, we can start with that. But what the markets have been saying is essentially that

[00:17:11] rates were going to end up going lower, going a lot lower over the long run. And so you have to think, okay, that's all the market says. Balance of probabilities, when we get to the long run future, this is 2021, 2022. While everybody's talking about inflation, while everybody's talking about, you know, central banks are going to have to hike rates forever, or it's going to be the 1970s all over again. What the markets were saying is no, once we get past the central banks doing what they're going to do, rates are going to go, they're going to, they're going to level off and go down again.

[00:17:39] Buy shock and all that. Should we longer run future where interest rates round tripping, end up going a lot lower and then stay there for a longer kind. One of the ways that you can get there is what everybody thinks of as a recession. Gold is near all time highs, but appreciation isn't the only way to benefit. Monetary metals, you could potentially earn a yield on your gold, paid in physical gold without selling it. Here's how it works. When you lease your gold

[00:18:03] through their platform, pre-qualified companies pay to use it under strict guidelines, like renting out real estate, but with gold. Instead of paying to store your metal, you may earn up to 4% annually in gold. You stay in control and you can choose which leases to participate in. Monetary metals handles the due diligence, lease terms, and all the administration. Thousands of investors use this

[00:18:27] approach to grow their gold, not just sit on it. Visit monetary-metals.com forward slash Ken to learn more. Leasing gold involves risk and returns are not guaranteed. This is not an offer to buy or sell securities. Please review all risk disclosures at monetary-metals.com. Visit monetary-metals.com forward slash Ken to learn more. The economy seems fine, something happens, and then it just kind of

[00:18:55] falls off. And then when it falls off, that's, you know, everybody just throw out of work. There's lots of layoffs, you know, 2008 or even just 2001, which was a mod recession. He still had millions of layoffs. So that's where everybody could choose as a recession. But what we find is that the diagram on the right place. And by the way, this is what the market was predicting back in 2021 and 2022, that we would end up in a situation that was not like the first diagram, was actually like the second

[00:19:21] diagram. And the second diagram, you see economic activity that was recovering modestly from the pandemic and the lockdowns, but then it just stopped. It doesn't fall off like the traditional recession that we see in the first diagram on the left. Instead, it just kind of goes sideways. And sideways doesn't, most people, they look at sideways and think, well, that's not bad. That's not a, that's not a recession when in fact, sideways is bad and it is a contraction. And it is the reason why we don't have

[00:19:47] job growth or nearly enough job growth in the U.S. And it's a lot worse around the rest of the world. So we start out with that type of recession question. Interest rate swaps are a very powerful part of the marketplace because it basically everybody's there. It's one of the biggest markets that are human beings have ever conceded. You know, there's like 600 trillion worth of derivative contracts out there, though that overstates the market a little bit. But basically, interest rate

[00:20:12] swaps are everything that everybody, commercial, commercial participants, financial participants, banks, even central banks to an extent, everybody's involved in the swap market. And it's a huge, important part of the modern monetary system. So we look at interest rate swap spreads as a signal, as an indication of what's happening among all of these different participants and their, their perspectives and their viewpoints on economic stuff as well as monetary stuff. But long story short here,

[00:20:41] when we see interest rate swaps go up, that means that generally speaking, this huge marketplace is starting to think that things are improving. Up is good. Up is at least less bad. It doesn't actually get good. We don't get into a recovery, but up is less bad. Swap spreads that compress and get even more negative. That's not a good sign. And what you can see over in the far right part of the screen, when we get into more recent times, ever since 2021 and 2022, swaps spreads have been compressive.

[00:21:10] And so again, very technical, very, very basic terms. What that was saying is that this huge, important, the most important market that's out there, participants in the marketplace were, were preparing for interest rates to go lower, to go a lot lower and to stay a lot lower for the long run. Now, the first thing that told you is that number one, there was no inflation, no sustained inflation.

[00:21:35] We only had a supply shot. So that's number one. So that's when swap spreads stopped decompressing in 2021 and 2022 and started to compress all over again. That was the market saying, whatever central banks are doing, rates are going to go down once they're done, which by the way, that's exactly what's happening here over the last year or so, really going back to last March. So swaps got that right. There was no inflation. It was a one-time phase shift on the supply shock.

[00:22:00] And you can even see how the market predicted how CPI rates were going to go over the last couple of years since 2022. So right away, the market got inflation saying that there wasn't inflation. It was simply a one-time phase shift, but that the consequences of that one-time phase shift are going to be with us for the long run. Again, we have to figure out what that means because the swap market doesn't tell us. All it really tells us is about the future and probabilities of interest rates. So we got to kind of fill in the blanks. And I don't think a lot of people realize that, you know,

[00:22:30] this forgot how to grow economy could actually develop. And here's the, again, you can really see the phase shift in consumer prices. It's a one-time phase shift that happened between March of 2021 and June of 2022. And you can really see it when you get rid of the shelter imputation and the CPI, but the market said that was it. Disinflation over the years since then has just meant that the phase shift is over with, not that prices are ever going to go back to where they were because they're never going to do that. But as far as the inflation everybody talks about,

[00:22:59] that all ended in 2021 and 2022. The problem is the economy and generating incomes that can therefore claw back all of the purchasing power that we lost during the phase shift. That's what most people say when they, when they complain about inflation and their right to complain about inflation, that's what they mean. Not the continuous inflation of the 1970s, but having been impoverished by the phase shift back in 2021 and 2022. And so that's what the market was increasingly pricing

[00:23:25] was the consequences of that phase shift. And so the second part is how did that play out in the real economy? So that was, you get further into 2022 and swap spreads returning really negative at that point, which meant that rates are going to go down. In fact, the market was even more more, more confident that was the case. And so what you start to see develop around the global economy is this odd, this odd pattern. And it was everywhere. I'll just kind of run through these slides real

[00:23:51] quick. You can actually see this pattern everywhere around the world. So here we start out with Germany. Germany is probably the best example you'll ever see. So you have it, I mean, it doesn't look like a recession, but it is, it's, it's the, it's the forgot how to grow style recession. So GDP in real terms, price adjusted terms was recovering like everybody thought. But then in 2022, right when the swap market said it stopped and it has never gone back since it, it hasn't collapsed either.

[00:24:20] We haven't seen the recession, the, you know, the traditional recession out of it, but it's just gone sideways for the last three years. And that's an unbelievable, a remarkable outcome that the swap market was essentially saying that's consistent with rates that are going to go lower over time, because what's happening with interest rates in Europe, interest rates in Europe are going down because of this forgot how to grow, call it a recession, not don't call it a recession. It's whatever it is, it's happening. And so, you know, you, you look at places all over the, you know,

[00:24:49] European GDP, South Korea, you see the same thing. And in the same, the same pattern emerges, which is that economies look like they were starting to recover in 2021, 2022, that just abruptly stopped doing so in 2022, heading into 2023. And of course the banking crisis in 2023 didn't help. In many ways, the markets think that the banking crisis actually finished off this recovery process and left us with this forgot how to grow world. Like I said,

[00:25:15] you can see it everywhere. It is all over the place. So the recession question is a little bit different than people have in their mind. Global trade's another example. We get the next update from the IMF. It's going to be even worse moving forward, more consistent with forgot how to grow in sideways. But even here in the United States, we see it too. That's another misconception that, you know, the U S is generally fine. And this is a problem for everybody else around the world. GDP looks a little bit better than it does in other places simply because U S government

[00:25:45] interference, transfer payments, government spending. So a lot of that government, a lot of the GDP growth is actually government, government activity. You know, the inflation reduction act, which really let's keep GDP up act as sort of a backdoor fiscal program. But even so it wasn't enough to get the labor market to recover. So here we see, this is the big stuff that, you know, Ken, you and I were just talking about. Nope. People stopped hiring. So in the establishment survey,

[00:26:13] which is the payroll report that every, everybody pays attention to in the details, you can clearly see 2022 in the middle of 2022, just as I pointed out with the swap market, suddenly the amount of hours work in the U S economy stopped growing. Well, it didn't stop growing in absolute terms. You can still see there's an upward slope to it. It's still improving, but that's not growth. That's not a recovery. That's not what we need in the real economy. And that's consistent with employers who realize they don't need any more employees. Stop.

[00:26:43] They stopped hiring. They didn't start firing, but they definitely stopped hiring right when the swap market said it would. And it goes on and on through all of the economic statistics. You can really see how closely that aligns with the forgot how to grow economy there. Even the establishment survey itself, the number of payrolls that we get every, every, you know, every month we have the payroll report and wall street and the financial media are, are glued to social media and their, their, their computer screens.

[00:27:09] You can see how far off that we are compared to what we need for an actual recovery. So while payrolls are still expanding, they're not expanding nearly enough. And so everybody's waiting for confirmation of recession from a negative payroll report, they're looking at the situation all wrong. And this is again, consistent with what the swap market was telling us, especially the fact that when you actually crunch the numbers, um, we're getting further and further behind. What most people see is that when you look at the payroll report,

[00:27:37] the last one was 7.2, this might be two months ago, but this, that one was 7.2 million jobs higher than where we were in February, 2020. So maybe the labor market is just fine. That's just, that's the misconception of this forgot how to grow style recession. When you actually look at it in terms of the trend that it needs to be just to be minimally sufficient for the economy, we're getting further and further behind. We're, we're five and a half million jobs short of where we need to be for the economy to be even

[00:28:05] considered healthy and, uh, healthy and, you know, booming or expanding. And that, that gap has actually increased over the last year and a half, which means the entire economy is getting further and further behind, even while the payroll numbers are generally positive. And everybody thinks that generally positive payrolls means we can't possibly be in a recession. And it all comes back to the same forgot how to grow tendencies. Um, and it gets back to what the swap market was pricing the entire time.

[00:28:33] And so what we're really talking about, Ken, is how do we go from over here and at a, which was the pandemic, the supply shock, everybody thought was a red hot recovery, you know, the price illusion to the long run future that the swap market is saying where interest rates go down, they go down a lot and they stay there. Um, so that's really the question that we're at because we're kind of in the middle of that process. So number one, the market said there's no inflation. We got, that one. Number two, it said, forgot how to grow, not an expansion or recovery. And so now here we are

[00:29:02] in the middle of that process, trying to figure out what that means for the rest of this year and beyond what I will say. And I'll, I'll stop with the slides here. What I will say is that the market was right. The market had everything right over the last three years. And so what it's saying today is that the swap market and all the bond curves that, you know, everybody's talking about the, you know, the long-term interest rates are rising. No, they're not rising. The yield curve is steepening out. So you have the yield curve, the swap curve, and a whole bunch of others beside

[00:29:30] that are saying we were right about the last through last couple of years. And we're even more convinced today than we were back in 2022, that interest rates are going to go down. They're going to go down by a lot and they're going to stay there for a lot longer. So we have to kind of fill in the last mile here, which is okay. We forgot how to grow. What gets us to where interest rates go all the way down and then they stay there for say the rest of the 2020s?

[00:29:56] Well, I mean, that could be a recession like Elon Musk was tweeting about, or it could just be that the economy continues and it's no hiring, not enough, not enough income state for the next several years. We just get stuck in this no man's land where the economy does nothing. And everybody kind of looks around at each other and says, what the hell's going on here? But either way, the market positions have been validated. And we see that in a number of ways. And I can go back to the slides if you want. A lot of people don't realize that even central bank policy rates.

[00:30:25] So central banks, let me do that. Let me get the slide out if you don't mind, Ken. Sure, sure. Let's do one more slide here, one more group of slides. I think it's worth it. So let's fast forward ahead. So central bank policy rates. Here we go. So that was, I mean, everybody remembers central bank policy rates in 21 and 2022. They zoomed ahead. Some central banks continue to raise rates in 2023 saying inflation, inflation, inflation. A lot of people out there

[00:30:52] were saying interest rates are never going to come back down again. Well, they kind of hung out for a little bit there. And central bankers said, well, we'll stay higher for longer because we're not sure about maybe inflation could be sticky. You know, we're not really quite sure about what to do. This is why the swap market was getting even more negative saying, no, central bankers, you are going to start cutting rates. And once you start cutting rates, you're going to not, you're not going to be able to stop cutting rates. And that's kind of where we are in terms of central

[00:31:19] bank policy rates. They are doing exactly that. They're starting to come down and they've come down a lot more than people seem to realize. Outside the United States, outside the Federal Reserve, you have central banks like the Swiss National Bank that's going to be at zero this week. Yeah, the Swiss National Bank will be at zero, zero rates this week. Other banks, the central, the ECB is right back at 2% already. And it goes on and on and on. So even central bank policy rates

[00:31:47] are doing what the market said they were going to do three years ago. Everybody said rates are going to go up and they're going to stay there. And this market said, nope, that's not going to happen. And the reason why is because the economic climate is nowhere, is in no shape for rates to stay up. Instead, it's, it's this forgot how to grow. Nobody's hiring, not enough income. Everybody has been impoverished by the supply shock and the price illusion. I mean, you just step back from a big

[00:32:13] picture perspective. Why do people think the global economy was going to be fine moving forward, given where we started? We started from the 2010s, which was really weak to begin with. Then we did a whole bunch of economic stupidity. You know, we shut everything down. We destroyed a lot of long run potential, a lot of businesses that went out of business and never came back. And then we impoverished the entire frigging world. And everybody thinks the economy is just going to be fine from that. Why? Because governments spent a bunch of money along the way.

[00:32:41] Well, governments are the worst at allocating resources. So from a very big picture perspective, you can see where the markets are coming from, why they, why they became so, so pessimistic and therefore so confident in their pessimism because we impoverished the entire world after the pandemic. And we still have to live with the consequences of that. And the consequences have only shown up slowly over time. Well, everybody said, bring facts. Well, those are facts guys. Those are real charts

[00:33:10] that Jeff just showed up and there's a lot to unpack there. So I would encourage you guys to go through that. I have a ton of questions, Jeff. The biggest one of course is you, a lot of people are, you are saying that we have to lower rates, right? And so there's this, there's a lock-in effect right now with a lot of people with cars. You know, I was actually, I was working out this morning with my trainer and he wants to buy a new car, but he said, my rates at 3% and he went out and looked this

[00:33:39] weekend. It's a 6.9. So he's like, I'm going to stay put. Same thing with houses. Same thing with, you know, a lot of stuff. People are just sitting there waiting for these rates to go down. So that was the first thing. And then the second thing is, will that create another bubble? You know, because obviously I get what you have to feed the, you have to feed the monster, right? Like, and you know, we need people to consume to keep growth, I suppose. But it doesn't that just kick

[00:34:05] the can down the road and create another big bubble? Potentially. I mean, possibly, but just the economics of the situation though, if we did have legitimate labor market growth and income growth, then it wouldn't matter that interest rates are higher because you, like you're saying, your trainer, who's paying 3% now is facing 6%. If his growth was, you know, if the economy was booming, legitimately booming, and he saw income growth that was sufficient, he would just say, okay, I found a car that I really like. I'm going to pay 6%, even if it's a little bit more,

[00:34:33] you know, the financing cost is a little more, I really need the car and I can afford it. That's really the issue here is that people can't afford when interest rates went higher. And the reason they couldn't afford them is because of everything that we just stated. So the economics of the situation are not necessarily that rates have to come down so that people can afford stuff and afford more financing. Interest rates are responding to the economic circumstances once the central banks get out of the way. And central bankers and their policy rates are coming down.

[00:35:02] They tell you they're stimulating the economy. What they're actually doing is responding to the weakness in the economy that's already there because they believe that lower interest rates stimulate stuff and they do in certain ways, but they don't stimulate the entire economy because most people, an interest rate is not a significant input on any of their activity. Like you ask the general person, you go to the mall and say, Hey, Jay Powell is going to lower interest rates by a hundred basis points. You're going to go spend more. They're going to look at you like, what are you talking about?

[00:35:29] Is that going to help my job? Am I going to have more income? Now, economists and central bankers have these convoluted theories where lower interest rates then lead to more hiring and that leads to more income, but there's zero evidence that's ever the case. And it really doesn't make a whole lot of sense when you think about it because for the other side, just, I mean, from the loan sector, banks are not going to want to make more loans when they perceive economic circumstances the same way you do, Ken. They see all

[00:35:54] of these credit applications coming in with lower and lower credit scores with more and more troubling job implications. So the Fed can lower rates to try to stimulate borrowing and banks are going to say, I'm not lending. So lower interest rates are not stimulus. They're a response to these economic conditions. So that's what the market was saying is that, look, eventually central bankers are going to have to respond to economic conditions that are a lot weaker than what everybody thought they were a couple of years ago. And that's exactly what central banks are doing. They're calling it stimulus,

[00:36:23] but it's really actually response. But does that lead to another bubble in the real estate market? I don't necessarily think that's the case because of the overall economic macroeconomic background here. You don't have a lot of people like you did in 2021, 2021 that were suddenly flush with cash. They're going to look out there like, okay, you know, I still have my job. The government just handed me what was it, you know, three, four or $5,000. I remember what it was. It was ridiculous amounts of money. I have spare cash in my pocket. Let's go out and buy a bunch of stuff that we don't

[00:36:52] actually need. Unless you get to something like that, I don't think interest rates alone will lead to a real estate bubble. Because as you know, there's still a real estate shakeout that needs to take place in a lot of sectors. And we're actually kind of seeing that here in Florida. Florida seems to be leading the nation in what looks to be like maybe a little mini housing bust that's developing because of these macroeconomic conditions that we're talking about. And they're only going to get worse if we do have

[00:37:18] a worsening economic environment that leads to not just nobody hiring, but now we start seeing layoffs and firing take place. That's certainly going to lead to a retrenchment in the real estate market on top of everything else, which means if there is a bubble in real estate, it gets pushed off further and further into the future and then becomes even more uncertain. But the lower interest rates are just a response to what the market was saying is about the background economic fundamentals and the

[00:37:43] consequences of the early 2020s and the pandemic. Right. Oh, wow. Well, so I was reading this week that the Walmart CEO, he said, budget pressured consumers are cutting back. That's Walmart, obviously one of the largest retailers, if not the, you know, and of course they've also announced that they're going to adjust pricing. I don't know if that's marketing or, you know, or what? I think they're going to try, but they're going to find out that they can't do it.

[00:38:10] Yeah, I don't. Especially with these tariffs and things like almost everything they have in that store, I'm sure is from out of the US. Well, that's what we've seen over the last, the tariff issue is that. So all of these businesses, I mean, everybody said tariffs are going to be inflationary. Jay Powell said the same thing. He's all, we're worried they're going to be inflationary. What has happened? The CPI and the PPI over the last three months, they've been the exact opposite for that reason, because businesses have found if they raise prices

[00:38:39] even a little bit, customers disappear because they can't afford it. So what ends up happening is all of these businesses are having to absorb the price hit or the tariff hit or the input cost hit because they know they can't pass those costs on the customers. But what happens after that? I mean, businesses will do that for a month, maybe two and think, okay, this has got to end in a month or two. We'll get all the trade deals done and then we'll go back to the way things were. But if it lasts more than a month or two, businesses are not going to continue to take profit hits and margin

[00:39:08] squeezes. What they're going to end up doing is saying, okay, we're getting hit on the margins. Businesses is not picking up. And if we try to raise prices, it leads to lower volumes. So we got to start cutting our own costs. There's really only one way that you can do that, especially in a tariff restricted environment. I mean, you can't cut back on your input costs or they're rising for non-economic reasons. The only thing you could do is start firing your workers, start laying off, start cutting their hours. And even if you don't lay them off, you cut their hours by a lot.

[00:39:36] So you do exactly the things that look like the recession. And that's what Elon Musk was probably talking about is that if the tariff hit continues to hit margins over the next couple of months, eventually businesses are going to say, we've had enough. We got to start cutting workers. Yeah. I know on the real estate side, I was just looking at an article this weekend on LinkedIn about interest rates, you know, because obviously we're super active both on the building side and

[00:40:02] on the buying side. And construction debt is priced at 9%, 10% right now. That's the pricing. That's like hard money, you know, like three years ago. And then you add on the costs from the tariffs, potential costs, you know, for all the components, you know, and I was, I was trying to articulate this to somebody, all that stuff has to get passed on to the consumer. And if it can't, then the builder

[00:40:29] won't build period. They're not going to absorb it and build it for free. So, you know, it has to work all the way down the line. And then the consumer now is sitting on these high rates, I guess, compared to the last few years. You know, so, so that's another factor. All that only works if the consumer buys it. And so, so interest rates will have a massive impact on the real estate world

[00:40:54] because of the refinancings, you know, and just the movement of the product and the inventory and all that kind of stuff. And I also think that it might get some commercial debt out of hot water as it starts to mature. But, you know, that's just me being an insider. I think it, to your point, it doesn't necessarily mean that's going to be that impactful for that person that's, you know, working in the mall. You know, if rates go down, maybe they start to sell more stuff because it gets

[00:41:22] financed more on their credit cards, perhaps, I suppose. But, you know, where does all this head? Like, what do you, what's your crystal ball see next? Right. Like we're heading to Limitless in July. I'm excited that you're going to be there and talk. You know, we have George there, George Gamma. And of course, we've got Brent Johnson. We've got Jim Rickards. We've got Larry Lepard. We've got a lot of really smart people that you know well. And, you know, where do you see all this headed?

[00:41:51] Because I think, you know, people want to make moves. They want to make decisions. They want to make the right ones. And, you know, what do you see this year and next couple of years? Well, I mean, if we stick with what the markets are saying, what they're telling us is that rates still have a long ways to go down. And then once they do go down, they're going to stay there for a lot longer. So, I mean, that does that kind of narrows down the range of possibilities as far as macroeconomic circumstances. And then that leads to, you know, consequences for financial markets as

[00:42:20] well. I mean, who knows with the stock market, the stock market, you can do whatever the hell it wants in any kind of short run period anyway. But one of the one thing that stock market doesn't like, and you can almost count on selling taking place, is when you do see the firing in the labor market. When you see mass layoffs, everybody's selling their stocks at the same time. Not because of the mass layoffs, you know, it's not because they're losing their job, but because that's a signal for a, what everybody recognizes as a recession. And so if you see those traditional recession signals,

[00:42:50] historically over the last 40 years, during the period when the stock market has become the primary store value for people's savings, stocks do not do well during traditional recession periods. You know, 1990, 91, 2001, the dot-com bus, 2008, obviously. And that started to show up here in 2025. So if we do see the economy start to tip more toward not just no hiring, but also now starting to see some firing

[00:43:16] and layoffs, then the stock market is going to round trip and head back lower again. So that's one financial consequence or knock-on effect from a macro economy that might continue to worsen from here. But as far as, you know, interest rates and the rates markets, they're all pointing toward, I mean, nothing is ever guaranteed. There is no such thing as 100%, but the balance of probabilities are tilted in that direction, probably as far as the balance of probabilities can possibly get.

[00:43:42] And it's just being confirmed over and over again, outside the Federal Reserve. Even central banks are lowering their policy rates in response to all of the stuff that the market has been saying. So while we can't say for sure what that means in the short run period, because you can never predict anything, the balance of probabilities are still that the macroeconomic circumstances continue to deteriorate. We don't know how quickly or how far. It depends on how things work out in the short run. But as far as interest rates go, the response to that, they go lower. And if they start to

[00:44:12] get, you know, macroeconomic circumstances, like I said, if they start to get more familiar to most people's definition of recession, then the stock market will suffer like it did in April. So you can go through a short run period this year into next year, we have a whole bunch of, you know, really bad stuff begin to show up. Yeah. And it actually is, as you pointed out, like, like a little things guys, little things are important to follow. Like, like one of the things that jumped out is like just purchasing

[00:44:41] athletic shoes is down 12% and clothes are down 12%. Travel like American Airlines came out and they showed their, their Q1 was not good. You know, people will pull back from luxury to necessity and they, they start to brand switch, you know, at this point. And this is all happening and it's showing up in sales, but there's an interesting thing called lag, you know, as you know, like, like, like it all, it all shows up here and then it shows up there because it has to,

[00:45:09] right? It, it, it shows up in lack of sales. It shows up in their, in their earnings reports. Right. So do you see that hitting in like, let's say Q2, the report in Q3, Q3 or four, like what you see that is just like a slow, you know, like the frog in the pot kind of a thing. All of a sudden we're there. Yeah. I mean, we've been in the pot since 2022. And so I think what a lot of businesses are saying that they're starting to notice the temperatures being turned up even more, but I think what happened

[00:45:39] a lot of businesses, what they're saying is that, look, we're going to kind of take the second quarter off. We're going to just see where everything goes. I mean, that's the most overused term in the, the macro economies uncertainty, right? I mean, everybody's talked about uncertainty. So a lot of corporate businesses, like I said, they're, they're kind of looking, they're waiting and seeing how the second quarter develops. And if consumers continue to pull back, maybe they start pulling the trigger in the third quarter. I know there's a lot of businesses and a lot of the smart

[00:46:05] people who are talking about the third quarter being maybe the inflection point where all this stuff finally does, you know, the feces and the fan blades finally do start to come together in the third quarter. And that makes a lot of sense too, just from a human nature standpoint, as well as a market standpoint, because nobody wants to overreact to a short run thing. And nobody really knows how the tariff shock is going to play out. And over the last couple of years, even though the economic climate has been horrible, it hasn't been, it hasn't been catastrophic. So I think what a lot of

[00:46:34] businesses are doing and they're saying that they're doing is they're just kind of hanging in there to see how things develop. And if this consumer pullback that we did see at the start of the year, I mean, airlines is like you said, kind of perfect example. If the airline problem continues to manifest moving forward, that's when things really get dicey and that's where you can really start to see some of the more, some of the more recognizable negative consequences. Well, this is precisely what I was hoping to get this morning, Jeff, is like the real meat,

[00:47:04] like, like, what are you really seeing at the, at main street level? I can't thank you enough. I think it's, these are super confusing things. Oftentimes for, you know, when you read all these conflicting headlines, what's the best way people can reach you? You know, obviously subscribe to your channel. What's the best way? Yeah. Just follow me at Eurodollar University, either on YouTube, it's Eurodollar University, or we have a website, subscriptions, memberships,

[00:47:30] and all that stuff. If you want to learn about what interest rate swaps really are and why they're so powerful, check us out at Eurodollar.universes. Yeah. And I guess the next time I'll see you, I'm going to be in Miami this weekend. I don't know if I'm going to see you there. Yeah. But also limitless at the end of July, I cannot wait to, you know, this stuff keeps coming, keeps coming out. And I can't thank you enough for being there too, Jeff. You're a wealth of knowledge.

[00:47:56] I really appreciate it, especially for the layman who's trying to figure stuff out. I appreciate your time. Oh, my pleasure, Ken. Like I said, I'm looking forward to limitless too. It looks like it's going to be tremendous. Yeah. Thanks again, Jeff. I appreciate it. Talk to you soon.