What's Coming is Worse Than A Recession | Ed Dowd

[00:00:00]This is the kind of stuff that revolutions are built on. [music] And if this doesn't get fixed, I worry about tax revolts at some point.

[00:00:07]>> At some point, we should have it right now. How dare they collect another dollar from us if they can't stop the fraud. I mean, really, >> what matters is no one believes the official story [music] at all.

[00:00:16]>> You think the recession has already started and the thing that finally makes everyone see would be this AI bubble popping.

[00:00:23]>> They're all kind of [music] financing each other. So, that's a problem. Now, Kevin Worsh is interesting. And if the stock market goes down 20% [music] in four weeks, let's see what he does.

[00:00:32]>> And you add mortality trends on top of already falling birth rates.

[00:00:36]>> Of course, they blame for that. I myself have another opinion which I won't mention on YouTube. [music] Yeah.

[00:00:41]>> But uh >> could AI and automation save this demographic cliff from collapsing everything.

[00:00:48]>> All right, Ed, let's just go ahead and start with a big one. You know, you've been managing money for a long time. I think you managed 14 billion of Black Rockck. Um, and you've got a lot of calls that are seemingly counter to the main narrative. And you got a call right now that cuts against what most people are saying, what most of my audience is positioned for, and that is that you think the recession has already started quietly. Most people haven't picked up on it yet. Um, and the thing that finally makes everyone see it would be this AI bubble seemingly popping. Do I have that right? And if so, explain that.

[00:01:21]>> Yeah. So, absolutely. So a lot of people look at stock market as the health of the economy and while traditionally that's been true there's been a definite degradation in and people they've called it they they named it in the Wall Street Journal and other publications the K Street economy where the top 10% are you know doing 50% of the consumption and the other 80% are struggling mightily and uh you can't have an economy that's going to continue to uh grow when the 80% are starting to miss credit card payments. auto loan payments and now uh foreclosures are starting to take up and those little small cash flows eventually affect everything and the AI bubble is the last credit impulse we're seeing uh that's keeping the stock market up and people your audience needs to know that 45% of the market cap of the S&P 500 is AI or AI adjacent and the semiconductor industry which is notoriously very cyclical is now 19% of the S&P 500 index and this is the last impulse we think uh and when that pauses and we think it might be in the beginning stages of pausing you're going to see the stock market start to reflect the reality on the ground and the other the other thing I want to note is that the jobs numbers have been every month quietly revised down in in late in subsequent non-farm payroll reports to the to the point where there's a report called the quarterly census of earning and wages which in my whole career none of us have ever paid any attention to because it's nine months lag but it is reality. It's the report card of the employment situation nine months later that has been wrong or non-fund payroll has been wrong to the tune of eight standard deviations in 24 and four standard deviations in 25. So the jobs numbers we're seeing quietly get revised lower.

[00:03:14]So that's kind of a problem. uh and and and and that's why you're seeing this disparity in in in uh in the two economies at the moment.

[00:03:25]>> The jobs numbers have been constantly revised later quietly as you said sort of they posted and then they sort of go back and revisit that and to your point we saw a lot of that in 2425 uh seemingly through the last administration cooking the book so to speak. Um has that changed in the last year with the new administration?

[00:03:42]>> Uh in 25 it was wrong to the tune of force gender deviation. So, no, it's better than eight, but >> but in 26, >> but in 26 >> 26 it's it's it's quietly the most the most recent report they revised down the numbers. It's a little better, but we'll see what happens as we roll forward.

[00:03:59]>> Okay. Um, now there's so the AI bubble.

[00:04:02]I want to dig into that, but I think there's also two other uh converging risks that you're that you've been focusing on, which is one, housing, and then also China. And so is it the convergence of those three that really lead to this or are just one is one of them more important than the other?

[00:04:18]>> Uh all three are kind of important interplay between each other. So China they just reported their fourth quarter GDP last night. Uh and it came in at 4.3% well below expectations.

[00:04:30]And so the the the strength of the Chinese economy in our humble opinion is getting worse. They're hitting the acute phase of their housing crisis which started in 2021, but they had long live projects that uh kept construction uh generally speaking uh kind of afloat. So construction was only down 20% when we put out a report at the beginning of this year. Uh it's now worst.

[00:04:53]Construction year-over-year is now uh year-over-year growth has gone negative.

[00:04:58]uh net fixed investment went negative in the fourth quarter of last year and then popped up a little bit but overall uh they're now hitting the acute phase uh where their their long life projects are rolling over and there's no new stimulus. So that that's why you're hearing cries from uh economists that China needs to do a stimulus package because they are uh experiencing a slowdown in their economy which you know will have impacts in Asia. uh Japan is the largest trading partner in both exports and imports of Japan and also you know where there's the everybody's talking about the yen carry trade and the Japanese yen that could go at any moment. So that that that's an that that's a that that's a contagion risk in Asia. Then we have housing which is slowly rolling over uh that was propped up in 23 and 24 by the illegal immigrants. The Fed actually put out a report recently that they believe that the uh illegal immigration uh caused home prices to be 30% overvalued. That's now on the margin going the other way because the borders shut down. The mass deportations haven't happened. Quite frankly, if they had happened, home prices would be a lot lower. So, they've they've kind of slow rolled that. And then, uh the AI bubble uh is a stock market phenomenon. uh and uh a lot of the people there are going to um end up losing money because the valuations are high. It's being funded by debt and the uh rate the return on investment for AI hasn't materialized yet. And then you know underpinning uh AI is private credit and private credit is currently frozen frozen and private credit uh Mark uh was the in incremental driver of credit growth in the US in 24 and 25 we had in our economic report the graph showing that that's mean that means that banks the loans that banks made were to private credit and private equity not really the real well it is the real economy but it was it was to these guys and in the past, you know, credit impulse and the growth of the private credit industry uh has been so big and so fast that marginal credit and new new credit created has probably been to credits that aren't that that sound. And I'm going to be putting I have a new substack called uh Ed Dow beyond the narrative. I'll be putting out a piece I think tonight on private credit and try to explain to the layman what's going on there.

[00:07:21]>> Yeah. So I want to dig into each one of these individually um and go through them. Um so let's start with the AI bubble. Um now you've been talking about the AI bubble for quite a while. As a matter of fact, we talked last over a year ago now and we were talking about it back then.

[00:07:36]Um my thought I I just want your distinction here because like everything's in a bubble, right?

[00:07:41]Everything's always a bubble, but like which point of the bubble are we in? Um, and so when I look at, you know, the AI bubble, um, compared to say like the dotcom bubble, um, when the.com bubble burst in 2000, it seemed like, u, back then we had a problem where, you know, because of the technological cycle that we were in, we had overbuilt demand or we had overbuilt supply. There was all the websites, but there was no demand.

[00:08:03]Nobody was online buying anything. In 2000, less than 10% had people had ever bought anything. And so, we had all these webband.com, pets.com, but nobody could use those. And so, of course, the bubble burst. Um it seems like today two things are happening with AI bubble.

[00:08:16]Number one, we can't keep up with the demand. It seems like the demand is moving faster than we can keep up with uh for a number of reasons. Maybe capex spins, but also just raw materials, energy, data centers, etc. are also holding that back as well. So it seems like we're not growing near fast enough for demand, which seems to me different than. So how are you looking at it? What are your signs to show you it is in a bubble? And you think that bubble's getting close to bursting? A lot of people talk about, you know, the the the pets.com and all those stocks that kind of went to zero. There was a there was an other huge infrastructure build going on during the com days, which was the telecom infrastructure build out, the dark fiber, and a lot of the market cap was in those companies, the Cisco, the Nortell, the Lucent, uh the Worldcoms, etc. And that was an infrastructure build. And then that was uh uh it was it was it was too much infrastructure for the amount of of uh supply and profits that were available. A lot of a lot of these new telecom companies used the junk bond markets to float their valuations. They showed tremendous amount of growth just like AI is. But they ended up not making any money because there was a glut of dark fiber.

[00:09:30]Uh that ended up being a good thing because that collapsed. that dark fiber didn't go away and was recapitalized at pennies on the dollar and then the internet took off and you know quite frankly Apple's smartphone would uh benefited from the amount of dark fiber that was laid during the dotcom boom in the AI uh uh there is a there is demand but there what's what's the demand the demand is and just like in the dot days every company felt threatened by every brickandmortar company felt threatened by the dot phenomenon and the fact that their these online company stocks were accelerating while the the brick-and-mortar stocks were going down.

[00:10:10]So, every every Fortune 500 company spent money on a.com pilot and they and and and so that created a lot of revenue for a lot of these companies. similar situation. Everybody has a do an AI pilot and what we're finding is they're now questioning the return uh uh on investment and token pricing exploded in the first quarter of this year. And so a lot of people that were using the tok the token maxing situation are now readjusting and saying, "Hey, that's a little too expensive." And now there's uh price competition and there's talk of uh of uh you know price cuts from Zuckerberg. um open AI threatened price cuts. They want to go public. And then we have the China deepseek models that are people are using uh because a lot of people are finding out they don't need the frontier model. They need the model that's three or four months behind at much cheaper prices and it's good enough. So we're kind of and then one of the other gating factors on the infrastructure buildout is um is is power and water. It's just not there. So e even let's let's say there is demand.

[00:11:20]there's not there's not enough uh um power to to to meet that demand. So capex will pause which would cause a lot of the valuations of the companies that are benefiting to go down. And the companies that are really benefiting are the uh pick the pick and shovel guys the semiconductor companies uh Nvidia Micron uh the memory guys and we just saw Micron go from a 60 billion market cap to a one trillion market cap. Now, I wish I wish in hindsight I had figured that out. I didn't think that uh these companies would continue to do this kind of crazy infrastructure building through what is looking notoriously like a commodity-like industry at the moment.

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[00:12:39]So if you want to find out, take a short two-minute quiz and get your inheritance readiness score. Just go to unchained.com/mark Moss. Again, that's unchained.com/mark moss and it's definitely worth 2 minutes to find out that it's actually handled or not. I understand what you're saying in the token maxine and maybe some of the the prices are going to come down as they want to go public maybe they gain more more market share etc. But then you also then sort of pivoted into um but we we do have those supply constraints and so if we are slow rolling the roll out because of uh commodity supplies both both in energy raw raw materials whether that's copper etc or it's energy they don't have enough energy or water whatever it is I mean doesn't that slow it down enough from accelerating too fast and then so so that number one and then number two you said some of these companies um you know not the not the frontier companies so not the LLM providers but then some of um microchip companies like Micron or Nvidia, but I thought you were also calling Nvidia sort of like the Cisco of of this of this year sort of sort of a thing.

[00:13:39]>> Well, you know, if you if you if you look at what's going on in the AI complex, Nvidia's kind of gone nowhere quietly over the last uh you know, 3 to six months. Um it's getting cheaper uh on a PE ratio because this is this is something people need to understand about semiconductors. I was a tech investor back when I ran a growth fund.

[00:13:58]When semiconductors are cheap on PE, the market's telling you it's peak earnings and and and peak margins uh quietly. And uh usually you want to buy semiconductor companies at trough margins and you know when they're losing money if you want to play the cycle 100% correct. Um right now even if there is a capex paw if there is a capex pause Nvidia will miss numbers Micron will all these companies that have really benefited from the acceleration of the infrastructure build will will go down and there right now the semiconductor index is 19% of the uh of the S&P 500. So there's a lot of market the way people have been playing the AI infrastructure build is through semic mostly semiconductors and some of the mag seven the mag seven have quietly started to underperform because of their cash flow uh is starting to go negative and they're investing tons and tons of capex into the AI uh infrastructure build and the market's saying hey maybe the ROI here is not going to be as good.

[00:15:03]So the market's starting to bifurcate a little bit here. So the mag seven are being punished for their capex bill whereas before last year every time they announced a capex raise their stock was rewarded and recently Goldman Sachs came out and said that uh the credit market remember the credit markets are funding most of this buildout and and what what ended the party in the dot boom was the credit market said no mass they just said no more and so the bond guys are going to end the party not the equity folks the bond guys always end the party and Goldman Sachs came come out this week and basically said they think that the amount of supply of uh of bonds needed to raise capital for the infrastructure buildout is going to be difficult to place because fixed fixed income investors are questioning the return on on investment. So the bond market will determine what's really going to happen here. Now, you know, it seems like uh most analysts, including myself and a lot of people I follow, um are seemingly maybe almost caught off guard by how resilient and creative the market can be. Like, let's just take the Iran situation. I mean, analysts that I follow and respect were kept posting charts about, you know, the ships going through the Suez Canal, uh and uh or I'm sorry, the Homer straight. And um they're like, you know, if this doesn't change in 45 days, the whole market's coming down. But it didn't, right? Uh the market reroutes and and similar back to this AI boom, and we can talk about the Iran situation later, but um back to the AI boom, uh to your point, you know, you see these signs, but um sometimes timing it becomes very difficult. And I know that a year ago you thought maybe the eye bubble peaked. Um it seems like again timing can be difficult. So rather than trying to figure the timing out, you're looking at the signs. And so I guess what you're saying is the signs that you're looking for is the bond market breaking down and then is that like a leading indicator and we're not quite there yet, but you're keeping your eye on it.

[00:17:00]>> Yeah, that's a leading indicator. And and look, when we talked last year, I looked the uh S&P 500 has gone up 18% since what I was talking about last year. So in the short term, I've been wrong to the tune of 18%. Um and you are you are correct. Uh there are signs and right now as I'm speaking there is no indication that this bull market is over yet. And this is one of the things people keep asking me, oh has it peaked? Well, I don't know yet. I need more market confirmation. And we won't know the market has peaked until we get some structure to the market, meaning we get a nice draw down, which by the way, there's a lot of people that uh are calling for a draw down into the fall. Uh you know, anywhere from 5 to 15%. So let's say we get that draw down then we get a rally there will will be a rally we only in a bare market if that rally fails and then goes to new lows.

[00:17:54]So as I as I'm speaking do not go out and short the market because we don't know we don't know yet. Uh we we're not in an official structural bare market but the sign the signposts are there and a lot of money can be lost before we go into a bare market especially in the semiconductor industry. The semiconductor industry is notoriously cyclical and will peak and start to go down well before any bad news shows up.

[00:18:20]For instance, in the dotcom bubble, uh, and and and by the way, the parabolic move in the semiconductors in, uh, April, May, and part of June was just like the dotcom bubble. And the the the socks index went up 60 plus% in like nine weeks. And, uh, it peaked in the dotcom bubble in a similar structural fashion and started to deflate. Um, the bad the first bad news fundamentally didn't show up until September of 2000 when Intel announced a miss. So, the stocks will figure this out before the actual bad fundamentals show up. And I can't confirm that the semiconductor index has figured that out yet. It's down about uh 12 13% from the highs it put in a couple weeks ago. But caution is warranted in semiconductors at the very least and the general market overall at we we've never seen valuations like this. Uh, you know, every indicator is off the charts. The sh the Schiller PE, the Buffett indicator, um, everything everything we're seeing suggests if you're thinking long term, if you put a million dollars of your 401k to equities today, you're going to earn 0% over 10 years, including dividends at these valuations.

[00:19:31]So that timing again, as you say, is awfully difficult. But when this when this happens, I think it's going to be because because we've been kicking the can down the road because of the legal immigration that really, you know, bolstered the economy in 23 and 24. The Piper when it's paid is going to be fast and swift.

[00:19:50]>> Yeah. Uh that's why rather than trying to nail down timing, I like to try to understand the mechanisms that we're watching that would cause this. I think that's much more helpful for someone that's trying to >> the credit the credit markets. Everybody should be focusing on the credit markets and what they're doing. The problem we have, and this is going to be out in the piece I put out tonight or tomorrow on private credit, is private credit is essentially the new junk bond market, but it's more opaque, less transparent, and more illquid. So, it's harder it's actually harder to know what's going on because there's no public quotes for the for the most part. Yeah.

[00:20:25]>> Um whereas the junk bond market traded, you know, daily and you could see spreads widening >> and the private credit market's marking their own book, which is a whole another thing. Correct. That that that's one of the traits and and that you know the the head of the Black Rockck private credit fund was just fired because they had two instances of uh marks going from 100 to zero in a month.

[00:20:46]>> I I want to we'll come back to that because I want to talk about housing.

[00:20:48]We'll get into private credit. But um just sticking on this just for a minute longer. Um a couple things that I'm thinking about. So um two things. So I did a interview recently with James Thorne. He's one of my new favorite followers on on Twitter. I think it's Dr. J Strategy I think is his Twitter handle. But he's talking about how, you know, when you look at different cycles through history or different periods, um, he thinks that everything should be rerated and what people are looking at price to earnings ratios are too high for right now. The prices are too high.

[00:21:18]He thinks that the PE ratio should be much higher and so everything gets rerated and and we're not actually expensive. We're actually cheap because in this period PE ratio should be much higher. Um and so when we look at like how do we determine if things are as you're saying too expensive too expensive compared to what right um are PE ratios too high today for the cycle that we're in I think would be one question I would have especially considering that our denominator the dollars have been so artificially inflated because when you start looking at stock prices in gold for example you see a completely different picture. One thing we we we can say is that S&P earnings have been phenomenal but it's been a very total S&P earnings but has been very bifurcated in in the top uh echelon of the tech companies and a lot of their profits uh are uh uh due to these uh revaluations of their investments on their books. So Google's last quarter 50% of their earnings came from the SpaceX valuation marking that up. So I think we're, you know, this is reflex re reflexivity. Earnings have been good because their investments have been going up. Their cash flow is going the wrong way. And that's a problem. Uh because ca cash is ultimately how we value companies. Uh PE, you know, pees can expand, they can contract, but cash flow is the ultimate king and cash flows are going the wrong way in a lot of the other S&P constituents. and uh they're going to they're and they're going to invite the mag 7 because of their their capex infrastructure build. We saw this with Nordell networks. I was a tech analyst uh in the dotcom days and I had been a fixed income investor prior and uh I was relatively new tech investor and uh Nortell was killing it on its on its sales acceleration and its uh earnings acceleration. But then I looked at their 10K in 2000 and their uh free cash flow or uh was like uh 50 million.

[00:23:24]So for you know billions and billions in sales their free cash flow is 50 million. And when I investigated I find out they were doing vendor financing. So a lot of what's going on in the AI uh situation is circular vendor financing.

[00:23:37]They're all kind of financing each other. So that's a problem. And it's it's reflexivity that works until it doesn't. And again, the ultimate authority in this will be the bond markets, the credit markets.

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[00:24:27]So, click the link down below and get $100 in Bitcoin just for getting started. So, all eyes on that. What do you think about the potential or I guess looking at signs um the the sign of what the Trump administration is doing specifically Scott Bassen and now bringing on Kevin Worsh and so Kevin Worsh at the Fed seems to be much more accommodative to what the Trump administration is trying to doing by reonshoring this so there's a big push for both energy projects as well as um you know the tech race the AI race and sort of having a Fed that's more accommodative to that so changing the way that we um calculate ate inflation to potentially be more accommodative to help that grow. Um, and when you look at the jobs reports, it seems like some of the most important jobs are the construction jobs. There's a lot of construction jobs, blue collar jobs coming back online. Um, how could that influence uh your decisions here?

[00:25:17]>> Well, the construction job in the housing market has been going the wrong way and the data center buildout has been picking up the slack. If that pauses, then we're going to have a true construction recession. uh which you know if housing continues to do what I think it's going to do that may overwhelm the jobs being created from the data center buildout which could pause at any moment depending on what the bond markets do. Um now Kevin Worsh is interesting. Um it remains to be seen what he's going to do. um on his first FOMC meeting, a lot of us were uh surprised he's decided to get rid of Fed forward guidance, which is a big deal uh because now uh he's he he's a believer in in the letting the markets figure it out and so that introduces more volatility and in a world that's uh very highly levered volatility uh is a problem. So uh that was an interesting new insight and I think it's the correct decision. This this forward guidance really kind of distorts the capital markets and lets people take on too much risk. So he's kind of taken away that um in terms of uh you know calculating inflation. I think I think that's net net a good idea because I think a lot of the inflation statistics are just you know spurious and and and it's and it's hard to figure out what's really going on. Um, so and you know he's also known for saying in the past whether he's going to do it again remains to be seen.

[00:26:42]He doesn't want to utilize the Fed balance sheet which you know that's not good for risk assets if that if he sticks to that. We'll see what happens when he's tested. Every new Fed chairman gets tested and if the stock market goes down 20% in in four weeks, let's see what he does. But uh this is this is an interesting pick in my humble opinion.

[00:27:03]And well, interestingly enough, um uh when he held rates, uh Trump didn't scream at him like he screamed at Powell. Uh but you know, he he he may he may be more hawkish than Powell. We'll find out.

[00:27:16]>> Yeah, I didn't take it as hawkish. It seems like definitely it's a regime change for sure. Um and he he doesn't want to utilize QE or the Fed balance sheet as you said, but because he wants to push the he he he's not opposed to the money supply expanding. He just doesn't want the the Fed or the QE to be the money supply expend. He wants to push the credit creation to the banks, right? He wants to push it to the banks.

[00:27:37]>> Yeah. So you he wants to push it to the banks. But the problem is the the banks uh from a regulatory standpoint were clipped had their wings clipped after the great financial crisis and that's why we have the emergence of private credit and private equity. So now we have kind of a shadow banking system rather large. the private credit uh market is deter is somewhere between uh you know two and three trillion currently which is a huge shadow banking system and then you throw private equity in there that we're talking two kind of uh shadowy uh uh I I don't when I say shadowy I don't mean it's not it's not a knock on it's just that it's not transparent what's going on there and they do get to mark their own books so this is this is going to be very interesting to see what happens uh you And you are correct. Most of the credit creation that occurred in 23 and 24 and the expansion in the money supply was the private credit. It wasn't the Fed.

[00:28:33]And you know people look at the Fed buying uh you know 40 billion now 10 billion of T bills every month. Uh that wasn't really QE. That was more uh to manage reserves. And you know even if people want to call it QE it's not a lot of money to con consider a QE not fast enough. So, I think the Fed uh hasn't been, you know, there's a lot of FUD on Twitter. Everyone says that the Fed injected nine 9 billion into the markets today. That's just repos. It's it's management of of the money supply on a technical daily basis.

[00:29:09]>> So, that that we have to keep an eye on that. It's an everchanging situation.

[00:29:12]We'll have to have to have to see how that can affect everything. Which is again why I try to understand the mechanism behind these things. Um because obviously none of us know. But we have to kind of look at the signpost and see sort of which way we're going.

[00:29:23]Um, let's jump over to housing. And you had talked about maybe this housing market correction that could come. Home prices are maybe 30% overvalued, I think, which you were sort of assigning to the immigration situation. I think they came back and corrected that and said it home prices aren't up 30%. But 30% of the home price appreciation was accredited towards the immigrants.

[00:29:43]Either way, it it pushed it to be elevated. So the third the 30% actually just happened to match what we've been saying that we've done the work and home prices given our affordability index are 30% too high and you know that's been proven out in the homes for sale versus homes sold. We've never seen such a wide gap between the two. Um so that that's that's a big big problem and the real estate market is essentially dead at the moment. There's just not a lot of transaction volume. uh and housing uh existing home sales are are at back at 2008 levels. So the market is kind of dead or frozen at the moment.

[00:30:22]>> And when you say that, are you talking about the activity like the units being bought and sold?

[00:30:26]>> Yeah, the activity levels. So So what what what's going on is 60% of of the home sellers are boomers and it's usually not their primary residence, maybe a secondary home. and they're refusing to lower prices uh because some of them don't have a lot a large majority of them don't have to sell. Uh but if there is a a um uh bare market, I I suspect that that'll that'll we'll see some sales or listings and price cuts generated if there is an equity bare market. Uh because then the boomers won't be feeling as as good as they feel now.

[00:31:01]>> Yeah. I mean certainly the real estate I've I I started my career in real estate and I learned that there is no such thing as the real estate market.

[00:31:08]There's a thousand real estate markets.

[00:31:10]Um we we've certainly seen areas like Austin or now right now Florida as a whole and certain areas of Florida are extremely weak. Um extremely weak. Um where I'm at here in Southern California, every home is still setting record prices and they sell in weeks. So um it's it's interesting of course here in my pocket in Southern California, but you can go to parts of LA and they're dead as well. Um, so we can certainly see that, but I, you know, I know you're taking the market as a whole. I'm curious when I look at the K Schiller index and I overlay it with the Fed balance sheet, it almost seems like a perfect proxy for inflation.

[00:31:45]So, do you see that sort of diverging where home prices are not that and they can start rolling over even though we might see the Fed balance sheet or the money supply expand? New tenant rents started uh coming off dramatically in the fourth quarter of 2024 when Trump was elected. A lot of people self-deported. So new tenant rents came down huge statistically we've shown that's a huge leading indicator for all tenant rents which eventually lead to home prices. So home uh CPI uh 42% of CPI is is housing and housing related items. Uh and that is slowly starting to deflate. You're going to hear a lot of talk coming over the next 12 quarters about core inflation. Now core inflation is trending lower despite the oil price spike and we just had the most recent CPI number that surprised to the downside. We had we were estimating 3.7% for this month.

[00:32:40]They came in at 35. Um, so housing is very slow rolling and I think over time it's gonna it's it's going to continue to come under pressure and you are right it's you know a lot of the home price cuts have been in the southern red states along the border.

[00:32:57]The blue cities are still sticky. Uh that we don't think that'll last too much longer.

[00:33:03]>> So does this become some sort of a contagion event where everybody sort of gets affected by this and potentially even brings down the economy?

[00:33:11]>> Yeah. uh you housing is is 20% of of of consumption or 20% of the economy, 25% of US consumption. So uh that that market is slowly starting to fade and there's a lot of construction jobs that roll into that. Um there right now we have nine months of new homes uh inventory which is uh last seen at the great financial crisis peak. So inventories are growing in the new home build home builders are cutting prices.

[00:33:39]Existing home sellers are not cutting prices, but the home builders are because there's no demand.

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[00:35:56]>> We we think inflation is going to come down and mathematically let's assume for now that the Iran war is essentially over even though we had some, you know, some flare ups this weekend. Um, so we think inflation likely peaked in May um due to the oil price spike. Oil is going to trend lower. Um, again, this is all, you know, I I can't tell you if if the war starts up again and the bombing and that that's a whole different ball game, but let's assume we saw the peak oil price. Oil is going to continue to drift drift drift lower. China is a big marginal buyer of oil. They got problems. So, oil before the war was on, it's way a lot lower. We had a $30 price target uh uh you know, in in the depths of a recession than we were calling for.

[00:36:43]So we think inflation's going to trend lower, core is going to go lower, and the Fed will end up cutting.

[00:36:50]We'll end up cutting rates. Now, people say, "Oh, that's good for markets." You got to you got to look at history. When the Fed starts cutting uh after a period of raising interest rates and a plateau, uh it's generally speaking, not a good thing because they're cutting because the credit markets are in turmoil and it takes a while for that monetary transmission to work. So in the.com bubble they started cutting in May of uh of uh 2000 I believe and we didn't bottom until two years later in the great financial crisis they started cutting actually in ' 07 uh and then we didn't bottom until '09. So when we're in an economic slowdown the Fed will cut uh but unless they do massive QE it won't save asset prices. So that that's the unknown. If the Fed comes out and does a bazookas uh event with the stock market down 20%. Then we'll we'll call the bottom and get bullish. But we haven't, you know, we don't know, >> especially with the new Fed chair's opposition to QE.

[00:37:52]>> Correct. We don't know. We what we don't know is what the policy response is going to be to when the crisis finally arrives. And and and when the crisis finally arrives, everyone will be hiding under their desks and we'll be starting to get more bullish. I want to pivot into um data that seemingly nobody wants to talk about but you have talked about it quite a bit and um you've been publishing data on I believe um about mortality data and a lot of this uh obviously coming from what happened during the co era um and the high rates of cancer the high rates of death the sudden death that seems to be hitting people a lot um and you add the mortality trends on top of already falling birth rates on top of aging populations across all the developed world. Um Elon Musk has been pretty outspoken saying that the greatest the greatest risk we have to humanity is declining population uh for those those reasons. Um what does that collision of falling birth rates, aging population, mortality trends look like over the next decade and how does that affect the markets?

[00:38:54]>> Well, let let's start with China. We've done a lot of demographic work in China and that's one of the big underpinnings of our research reports that we put out.

[00:39:02]uh they they they peaked demographically and in 2015 and and plateaued until 2021 uh or 2020 I should say and then they started a precipitous decline. uh they are losing over into 2032 about 150 million of prime age workers, meaning people are aging out of their prime working years into uh the sunset years and the spending profile on those consumers is vastly different. Uh and so they have it their their demographics are going the wrong way. They're aging and uh same thing in Korea. South Korea is a disaster. Their birth death rate is disaster. Japan, same thing. Japan has got a new demographic decline uh going on, reacelerating. So, we have Asia demographically going the wrong way.

[00:39:52]Europe is a basket case. We got the southern European company uh countries with bad demographics being supported uh economically by the other countries that have done a lot of illegal immigration uh which is kind of offset that what but societal costs are huge. And in the US we uh have we we were beginning to have a demographic problem but then we we ploped 20 million people into the country uh which kind of solved that temporarily. But if you want to look at uh you know excess deaths excess deaths uh coming out of the co era uh they peaked at uh in 2021 at nationally at 31%.

[00:40:37]Um which was a disaster >> that that and and just just so I'm clear that's excess and so we have like sort of a a normal trend of deaths and then you're talking now we're 30% above the trend line.

[00:40:50]>> Yeah. So that the peaked in 2021 and now it's running between five and 10%. These aren't my numbers. This is Swiss re put out a report I think in 2024 saying that uh excess mortality is here to stay uh for the next uh 5 to 10 years uh at least until 2030. And of course they blame COVID for that. Uh my I myself have another opinion as you know which I won't mention on YouTube but uh >> yeah my my my opinion is different.

[00:41:25]>> If you want the full opinion go see what he says on X where he can actually talk about it. We're not going to talk about here on YouTube.

[00:41:31]>> Yeah. Exactly. But but excess deaths are running uh still running above normal.

[00:41:37]Uh and uh we have declining birth rates now.

[00:41:41]uh we we we could do a a a birth uh study. The problem is it would take a lot of money and uh and time. So if any uh billionaire wants to give us a million dollars to do that study, we'll do it. But right now we're not doing it because it it it would take thousands of hours of work. And we did all our COVID research for free. So we're done with the business model of free.

[00:42:05]But uh without without what we can say is uh birth rates are going down. Uh we just haven't proven it mathematically yet.

[00:42:15]>> Uh Peter Zion has done a ton of work on the demographic cliff. Um Hen Henry Harry Dent Jr. wrote a book called the demographic cliff which is what brought it to my attention whatever that was I don't know 15 years ago or so. Uh again Peter Zion's done a lot of work and he was so bold as to say that China would collapse within a decade because of this. Um, I'm not sure if you agree with that, but the question that I have for you is while everyone is afraid that AI and automation is going to take all the jobs, could a AI and automation save this demographic cliff from collapsing everything?

[00:42:48]>> That's what Larry Frink has said. Um, I think the reality is somewhere in between. I think the problem is AI is not ready for prime time. In fact, you know, one of I was just reading today on X, the proliferation of AI consulting firms has exploded. So, we're going to we're going to take jobs, but we're creating a new industry. This reminds me of um you know, the do the Y2K explosion of uh people uh being hired to take care of that. So, it may in a very funny way, it may create more jobs initially than take away. Eventually, I think AI and robotics are coming, but it's not anywhere near ready for prime time. So, there's going to be an adjustment period as the demographics overwhelm. But yes, you're correct. AI could save uh a lot of what's going on, but it's not it's not in the near future.

[00:43:43]>> It doesn't need to be in the near future because this is a 10-year problem, but we'll see how that offsets it. Um, let's move into I know we got to sort of wrap this up. I'm curious if we look 5 years out from now and I know you've cited the CBO math. Um the CBO, the Congressional Budget Office, they forecast out 30 years. Um spending levels, deficit levels, debt levels, all of these things. Um my guess is they're way undershooting the target. They're probably way too conservative in that math. Uh you know, we're pretty clearly in a period of fiscal dominance. Um, and so if we look at the CBO math and the period that we're in, it seems like if we zoom out five years, looking at what they project federal tax revenue to go to, interest on the debt, entitlements, that would probably exceed um, you know, the the money bringing in, which only accelerates this even faster. So, you know, given the fact that you're sort of a little bit bearish on well, a little bit pretty bearish on the economy forecasting this this drop and we don't know what's going to happen. If we zoom out five years, looking at like CBO projections, how does that change things?

[00:44:45]>> Well, you know, look, there's going to there's going to have to be um cuts in the government at some point and a measure of austerity due to demographics. We're not there yet. And and I guarantee you if we have an an economic recession, we're going to get monetary policy and fiscal stimulus. The good news is five years out, I'm actually a little more bullish. uh primarily because once we get this correction um the real economy can take off again. If you have home prices go to realistic levels and people can afford homes it'll generate economic activity and the cycle is reborn. Cycle cycles aren't the end of the world. Cycles are cycles and you know one person's pain is is another person's gain. So asset prices going down, especially in real estate and homes, would be a boon to the the Gen Z and the millennials and some Gen Xers. Uh, and I think that those people have a different spending profile than the boomers who are just sitting in their homes watching Fox News and CNN drinking cocktails. So I think I think I'm actually bullish once we get the correction at least for a couple years.

[00:45:53]We'll see. We'll have to see how the math sorts itself out. But that's that's and barring any World War III situations or anything like that, I'm actually bullish once we get the this kind of this correction.

[00:46:06]>> So short-term bearish, long-term five years or longer bullish.

[00:46:11]>> Correct.

[00:46:12]>> Short-term bearish being 12-month bearish, long-term bullish being fiveyear bullish. Timing on this has been really hard because uh we were looking for our our economic indicators which had worked for 20 plus years historically. We're calling for a recession in 23 24. We didn't get it, but we didn't count on uh one and a half trillion dollars being spent on bringing in 20 million illegal aliens and giving them each one of them about 60,000K, which immediately they spend into the economy. And that's all in, you know, shelter, uh, EBD cards, uh, health care benefits, you name it. And some some of them actually got money to buy homes, believe it or not. We're finding that out. So, we we didn't expect that to happen. and the pipers do and we're in the 18 year h housing cycles of 18 years. We're at 18 years. Um this is just the way suckles work.

[00:47:03]>> You mentioned that we're going to need some sort of austerity in the government and that's never uh popular. It's almost impossible to get through.

[00:47:11]But what is extremely unpopular, at least to the public, not not among the politicians. What's extremely unpopular to the to the masses to the public is the fraud. We're talking hundreds of billions pro probably tens of trillions of dollars of fraud that's going on that's being so obviously exposed like Nick Shirley's going around and just going oh look here's 7,000 doctors in this one building right here it's like so apparent. Um my question would be you you mentioned we need some form of austerity. Well it seems like we could probably shave a couple trillion dollars off just by stopping the fraud. There seems to be massive appetite for that from the public anyway. Um I guess so two-part question. Number one, do you think that would be enough to sort of be that austerity we need? Number one. And number two, do you think there's a political appetite to get that done?

[00:48:00]>> There's definitely appetite amongst the populace. And I was very excited when uh Trump first entered office and we saw what was going on with Doge and they exposed us a all the NOS. I mean we the amount of money we give to NOS's is just ridiculous. We don't know how how this money is used. Is it just enriching people? So yes, we could get rid of this fraud. The problem is the deep state bureaucratic ticks uh seem to be pushing back on that. And also temporarily if we cut off all the fraud tomorrow magically with a wand uh it would impact the economy and and and in a very very short basis it it would it would it would it would it would be a reduction in GDP because that money is going out to people and getting spent this fraud but long term the savings to the taxpayer and everybody else will be very much more productive but there's no political will to do that and a lot of these people are making money off the system as it currently is. So it's a you know this this is the kind of stuff that revolutions are built on and you know if this doesn't get fixed you know uh I worry about tax revolts at some point now I'm not calling that but that's >> point we should have it right now. How dare they collect another dollar from us if they can't stop the fraud. I mean really >> yeah and it's trillions. It's not it's not a small number. It's trillions. And it goes back to we talked about before we started uh talking which was I was referencing this book that I read from Martin Guri who was an XCI analyst called the revolt of the public and basically the revolt of the public was he was talking about ever since the internet came out and he really started documenting um the Arab Spring in 2012 and how the CIA was using uh free speech and the and and and social media to sort of um kind of foster these uprisings.

[00:49:49]And of course we saw just this week in the EU they're passing new regulations to of course censor free speech. But as long as we have free speech and we have social media, the uproar, the uprising, the the rage that we get from these types of things, it's seeming like uh I don't know how much more it can keep percolating. I mean, how dare they continue to spend trillions of dollars of fraud and do nothing. I mean, 7,000 addresses in one location were just discovered by just some random guy on the internet. Uh to do nothing to stop that while they continue to t raise our taxes and continue to push these billionaire taxes, etc., It seems like it's going to have to come to a head here pretty soon. At least I don't know. Maybe I'm maybe I'm uh foolishly optimistic about that.

[00:50:30]>> No, you're you're not wrong. I mean, let's look what happened this weekend uh with the two senators, Lindsey Graham's uh death and Mitch McConnell's apparent proof of life. No one believed either stories. Now, I I I'm not here to tell you what I think because it doesn't matter what I think. What matters is no one believes the official story at all.

[00:50:54]No one. What whatever is officially being presented, people just don't buy it. And that's a problem. Uh no one believes anything anymore. And that and the numbers of of those people are only rising. Um you know, I'm I'm out in the world uh on Maui and you know, I take a pulse of the common man by just talking to people on the beach and at restaurants and acquaintances. And it's gone from very divided to more you know what this is all a gang like the the blue and the red fighting is slowly going to the way of let's agree to agree that this is a this is a con on both sides and that that's that's a healthy attitude change. It's not the the the yelling and screaming that I that happened when I didn't get involved in it but I saw during COVID it's turning into you you were you're a blue team member. or I'm a red team member. We're we're both getting screwed. There's more and more of those conversations >> as there should be. Fraud should not be political. We either want to stop it or not. Like why why is that why is that political? Um so uh >> well we could we could definitely spend another hour talking about that, but I know we're sort of at at the end of our time here. Um you kept referencing a report that you're going to be putting out, I think you said tonight. Where can people go uh follow your work and find out more about these reports you put out? Yeah. So, I just started a I launched a new Substack last week called Ed Dow beyond the narrative. It's going to cover finance, uh, COVID truth, um, politics, culture, you know, uh, in terms of like what the real narrative is and and, uh, health and fitness, mostly finance. Um, you can follow me there. I also all economic research is available at financologies.com with a ph. I'm on X at Dowed Edward and I have a private website where you can reach reach me for consulting which has been going very well. A lot of people want to talk to me oneon one.

[00:52:51]>> Great. We're going to link to all that in the show notes down below so you can go find that if you want to go look him up and we'll wrap it up with that.

[00:52:57]Thanks so much. Appreciate it, >> Mark. Great being here again. Thank you.