Welcome back to another episode of the Meet Kevin show from two days ago in New York City with Kevin O'leary to yesterday with Gary Black. Today we are visiting who could potentially be the most famous bear on CNBC and Twitter I Think it is going to be so enlightening to have a discussion with you and uh, I am so excited to introduce Gordon Johnson You have a research firm G L J Research and uh, tell the world, why are you such a bear? Yeah, thanks. Thanks for coming. Uh, it's a pleasure to meet you.

Um, so essentially we're bearish right now. We're not structural Bears I hate that we got that that moniker, but unfortunately, that's what we have. The reason why we're bearish right now is because we can get into this and we talk about some of the other topics, but you know we've had essentially since 2009. We've had um, you know, over a decade of artificially low interest rates um, and we've had significant since Covid and even before Covid quantitative Easing and we believe those macro factors are shifting and we believe they have to shift because what's happened is inflation has now surged to a 40-year high.

So the FED is kind of against their back, is against the wall and they have to act to fight inflation because as Charlie Munger said, outside of nuclear war, inflation is the worst thing that can happen. So I think that the FED has to act to fight that and I think that's going to pull liquidity out of the market I Think that's going to be bad for stocks. That's the kind of overall view why we're a bit more negative, which makes sense, which is also why it looks like uh, you hit on Nick T this morning. that's the famous sort of fed mouthpiece.

uh, he seems to get the text messages from Jerome Powell hey, leak this or whatever drone Powell seems to be really interested in these moving averages of what inflation is doing. And Nick T this morning mentioned that on a 12-month annualized basis, while 12 month year over year, we're at 4.6 inflation. which I know you have some comments on because you tweeted it. but what I did think was interesting.

To your point is that six-month annualized, we're at four two, but three month. where at Four Nine, which feels like we're seeing some acceleration, especially in that more sticky travel Hospitality people basically spending money on restaurants, right? Is Is this going to become unsustainable? And is the Fed even able or equipped to fight that kind of inflation? They're definitely equipped to fight it. and this is a great question. Great setup.

Um, so with respect to Nick T he does great work. I Told him that I think the issue is he's using seasonally a seasonally adjusted index to make observations on annualized numbers. And if you talk to the Bureau of Labor Statistics they'll tell you you have to use non-seasonally adjusted numbers because you don't want those adjustments. And when you look at the non-seasonally adjusted numbers specifically the index not non-seasonally adjusted CPI Over the past roughly three months, you've seen literally it shoot up.

and in fact, inflation shoot up. And in fact, in 2021, if you look at the trend from about 1980 to 2020, it was a straight Trend And there's a couple of periods 2000, 2001, 2007, and 2008 where kind of hockey stick them in the moment, right? We went back down. Sure, it's hockey sticking again. That started in 2021.

and I Think again, the issue is all the stimulus money that was printed. So the problem is for uh, the deflation crowd is we're seeing a Resurgence in inflation. Um, and in fact, it's really resonating in Services inflation which represents about 70 70 of CPI Services inflation. When this in the CPI number, uh was 7.1 percent.

In the most recent reading, it was down from 7.3 percent. But I think over the past Uh, roughly. uh, four readings, it's been above 77. We haven't seen that since 1983..

Services is the sticky inflation that's really hard to get under control. So when you consider that, you consider that gas prices are going back up, right? Um, Energy Prices are going back up. What happens with inflation is, as we learned in the 70s, it rotates. You know you see it in Services.

You see it in uh, car prices. Then it rotates the energy, Then it rotates somewhere else. And when you let that Genie out of the bottle as the FED did I Think you know, Know people say the Fed's going to make a mistake. They already made a mistake, right? The mistake is 40-year high inflation, right? So when you let that Genie out of the bottle, it's really hard to put back into the bottle.

And you know I'm really concerned. And and again, Nick does good work. Nick T Um, but he's using seasonally adjusted numbers when he should be using non-seasonally adjusted numbers. When you look at the NSA numbers, the inflation looks actually worse.

Yeah, that's interesting because otherwise you're comparing how seasonal adjustments have changed. So now then the question becomes the you know we have all this mixed data I Mean diesel prices are plummeting because of the freight recession, but gasoline prices are rising. Like you mentioned, it almost feels like what you've described is this cancer of inflation that it's here Now it's gone from there. Oh, but now it's popping up over here, right? It's like metastasizing and showing up in different parts of the body.

But my concern is with Services as you've mentioned, isn't there this potential that the FED raises rates, but the people who are actually really driving the services spending the average American They don't necessarily care about higher rates now. maybe that'll affect affect your credit cards, But if you're already in credit card debt and you're already paying twenty percent on your credit card, who cares if it's now 25. That really doesn't marginally affect your ability to spend or go on vacation because people are living paycheck to paycheck. Yeah, good point.

So let's use history, right? Yeah, we. It's hard to predict the future. In fact, it's impossible. But our job is to try you.

You're not sure. So the issue is every single time historically that CPI inflation has gone above five percent. It didn't come back down again without until not every session. But until the Fed's funds rate went above CPI Inflation Sure, CPI Inflation right now is sitting at five percent, right? Core: CPI Inflation: 5.6 The Fat Funds rate is about 4 4.75 Powell Had that prank call yesterday and he said he's going to raise rates two more times.

So theoretically we're going to get to 5.25 but the problem is, you don't just need the FED Funds rate historically. using history to go to where CPI is. you needed to go above CPI We're not there yet. So I think that his.

Historically when the FED raises rates, it has allowed inflation to come back down. And let's be honest, really, what the FED needs is they need a recession. Um, and that's not. That's not.

They don't want to admit that they and he said that in the prank call yesterday. but they need growth to actually decline. They need jobs to be lost so you don't have all this strength. strong economic growth I Want to go to my notes Here Sure, you know.

uh. consumer spending. So consumer spending data came out recently. Um, it accounts for 70 of GDP Uh, 1q23.

Um, it's surged by 3.7 percent. That was the biggest increase since 2021 during the stimulus money bench. Um, and then you had government spending. uh uh, which surged 4.7 That's a new record high.

So consumers are spending like drunken Sailors Yeah, despite the inflation we're seeing and that is very bad data if you're the FED Um, and if you're somebody who is trying to fight this inflation, you know, trying to make it by a normal person. you know We a lot of us talk about the stock market, but the statistics suggests roughly 80 percent of Americans are agnostic to what stocks are doing right? Exactly. So the problem is the people who run things. The people who make decisions are so focused on the stock market, whereas the bulk of Americans aren't I Think that's why I keep going back to this.

But I think it's a great quote by Charlie Munger The only thing worse than nuclear war is um. inflation. and I think the reason is because once that inflation gets to a certain level, we can look at you know, periods in history like the weirmware Republic You know, the collapse of Rome the collapse of Greece all inflation driven. Yeah, Um, you know you start.

Basically, people can't afford food and they start. to, um, you know, uh, basically push back and when that happens, you have the fall of Empire So that's why we're so focused on this topic on Twitter and why we're so focused on it in our analysis. Yeah, Now what's interesting is the this consumer spend explosion seems to be driven by you had mentioned consumer spend for the first quarter up 3.7 seems to be driven by what last year was a decline in people's personal savings. They were starting to go through the excess savings they accrued during the pandemic, which gave them around maybe on average two and a half times as much cash as they previously had, but that had started declining in 2022.

but now in Q1 it started Rising Again, right? So this this idea that oh, eventually people are going to run out of money. What When does that actually happening? Great Point Great point. So I think there's a dynamic happening and I Don't think a lot of people thought about this. Think about this, right? So for the past since Obama right? the FED has been artificially repressing interest rates, right? I Think a lot of people will agree that they kept rates too low for too long.

So think about this. You know you put your money at Chase and they're giving you point five percent on your money, right? You buy a 10-year bond. The 10-year bond was yielding less than one percent for a long time. Now all of a sudden you're getting four percent on your savings, right? every? American Not not just the rich.

Um, you know you, you buy a 10-year bond. Um, you're getting five percent. Uh, or now it's 3.5 But not sure it was up to four. But you buy a one year bond.

You understand it's way higher. Now the point is, there's a new source of income for everyone that they haven't had for a decade and that is interest rates being higher. Higher rates are bad for people like you and me who are investing in the stock who are long stocks. But I know it's great for the average American because now you actually get paid on your savings.

So I think the reason why you're seeing this strong consumer spending is because interest rates have went up to the point where people feel more wealthy. The problem is again, the FED needs to take interest rates above CPI Inflation. So they're They're fighting it. but they're not fighting it enough and as a result, people are outspending more.

I Think that's why banks have been strong. so that potentially could explain why we're starting. At least in these latest U of M surveys on inflation expectations, right? It seems like some of those expectations are starting to rise. We used to be at a one-year expectation of around three six two weeks ago, and it just came out this morning too.

I Think it was four is above Four Six. So two weeks ago we were at Four Six and it was a shocker. That's the preliminary read. The final just came out 23 minutes ago and Four Six.

Yeah. so it reiterates this, this potential de anchoring of inflation expectations which suggests the FED has a lot more to do right How high? Um I I Don't know. but I think that you know if I want to talk about this, the FED Can we Can we talk about this? Absolutely just real quick. So look, this may this may incense a lot of people.

But I think this is the most Reckless fed we've ever seen. Oh wow, let me explain. So over the first 100 Years of the U.S Federal Reserve Bank in the United States their balance sheet grew by roughly 1 billion. I'm sorry one trillion dollars, it was about 974 billion.

That's that's the first 100 years right? So when Covid hit initially, their response was a two trillion dollar monetary stimulus and you know what? we were looking at. a black hole, right? So I understand what they were doing. But then when Covet hit and we did 2 trillion six months into covet, retail sales were 15 above. Trend Yeah, when the growth.

When we had the global financial crisis, it took retail sales I think eight years to get back to Trent Yeah, um uh. the the The the uh the 2001 collapse I think It took 12 years to get back to Trent covid that recession. It took only six months and we fit 15 above trade. In addition, we had vaccine confirmation.

So after we were back to 15 above retail sales Trend and we had vaccine confirmation, they continued to stimulate. They did another two trillion dollars. That's 200 years of stimulus they did in like two months. That is completely Reckless Right And then they said, you know we're not going to forecast when they were doing all the stimulus and then as me and a lot of other you know people who were historians of the market were saying, we got the crazy inflation right.

And what's crazy is they were essentially making a like 30 to one bet on this right, they were trying to get so inflation you had CPI inflation at 1.7 percent right? They were just trying to get to two percent. And to do that, they were doing this crazy stimulus. Now the problem is, if they lost on that bet, it wasn't them who lost right? It's poor people. It's I think the stock market for the next 10 years I Think is going to be stagnated.

So wow. My point is, these guys have proven to be Reckless and be wrong with the transitory comments Etc But then with Svb and I want to talk about yeah, hopefully we can get it to the bank crisis. but with SBB right you had a a bank doing very bad things. um, clearly other Banks had you know in 2022 had you know, uh, adjusted their uh, you know, risk, assets and duration to match what the FED Fed was Hinting they were going to raise rates so you know and and instead of letting them fail, the FED comes in in over two weeks.

That's 400 billion dollars of not QE We think it's QE But so you know that's like, you know that's like 50. You know what was that Like 50 years of balance sheet expansion in two weeks? So you know this isn't a an instance of you know courage from Jerome Powell So I'm concerned and we could talk about gold because I'm concerned that when things get tough, he's not going to have, um, the courage to stay the course on fighting inflation and that could be quite concerning. Oh wow, I mean this is a lot to unpack there. I'm really, really insightful because you're right.

rates. We were printing over this last decade before Covid because as you said, inflation was running below Trend We were at one seven. Uh, and they were trying to get us to two percent. There was even talk about lowering the inflation Target which sounds insane today, but lowering the two percent Target to 1.75 because they just couldn't get it up right.

Which makes the question then that comes from that is is that because of this 40-year disinflationary trend of technology Or why did we see why Were we able to print so much money then and not see inflation right? Uh, and then of course we can talk about the mistake of now. That is a great question. I'm sorry I keep saying that. Yeah, so the issue is, there were two types of inflation, right? You have inflation of the monetary type and you have inflation of the fiscal type, right? So with Obama and through, you know, essentially until we got to Covid.

Really, what you had was monetary inflation. And that's the FED essentially doing quantitative easing right. We we. We did the you know, the the MBS bailouts.

We were supposed to bail out the the housing market. Then they just continued to do it. So you say, we didn't see inflation, But you did. The problem is, you saw it in stocks and homes house prices.

right? That cancer analogy somewhere else. Not to be insensitive. Obviously, you saw it in stocks and houses, right? Home prices have went from I think an average of like 200 000 to like 400 000. Now they're coming back down.

But you know, over that same time frame, minimum wage hasn't moved. So you've essentially priced an entire generation. You look very young. You're probably in that generation.

even. You price an entire generation out of the ability to buy homes. normal people, right? The bulk of America. It's not not the the well-off Um.

So with Covid right Congress got into the mix and the Fed was extremely Reckless They were doing all this stimulus but Jerome Powell urged Congress to join in. Sure so, and keep in mind right, the U.S government can't do stimulus without the FED printing. So people are blaming the US government and they should. but they can't do it unless power prints that money out of thin air.

So what you had is, you had the fiscal stimulus right? You had literally uh, helicopter money being dropped with people checks and so that's when you had the inflation and everything else right? You just give people checks they're going to go out and buy. So that's when you had the outside of homes and stocks. You started to see inflation everywhere else and again, once you let that Genie out the bottle we've seen historically it's extremely hard to put back in the bottle. So that's why I say and we can talk about this more.

This is the most Reckless fed we've ever seen. Wow. I mean that's fascinating because really, you're suggesting we've always had this inflation during the QE regimes. It's just shown up in asset prices rather than in nominal inflation for your groceries or normal Services Whereas now we've had this massive acceleration in in money printing during the covet era which I I agree with you.

I mean looking back, if we had the vaccines approved what five days after the election or so November 9th of 2020? Right around there? 7th 9th. Um, why did we print until March of 2022? Right when inflation was already six or seven percent, we were screaming um via Twitter And however, we could, we don't have the exposure you do that. We can't believe what the FED is doing. And you know people say, well, you're just trying to support your short position I care about America Sure, the issue is if you look at any major crash of whether it's it's an Empire or major crash in the US economy, it follows a bubble and the FED has built via unnecessary, you know, measures.

the biggest bubble in essentially everything. People have referred to it as the everything buggle bubble we've ever seen. And you know what a lot of bulls would say. Well, what's different, right? They've been doing this since.

you know, 2009? What's different? Here's what's different, right? again: I Think the people say the Fed's gonna blow something up I Think they already did blow something up. And that is prices 40 year high inflation. So the problem is, they've blown this bubble. And you know the Fed's core goal is to keep prices steady, right? That's essentially why the Fed was created.

It's not even really jobs. the Fed was created. Central banks were created to keep prices steady. Clearly, prices aren't steady.

So the problem is, they've blown these massive Bubbles And now that we have 40-year high inflation, they have to fight it. And so as those bubbles Burst when bubbles burst, you have, you know, essentially recession slash depressions. And that's kind of why I Think people should be concerned, less scared? Yeah, you refer a few times now to almost comparing America to potentially the Weimar Republic or Empires collapsing. Is it going to be that bad? I Hope not.

Um I Don't think we're too far past uh, the pill, but it really concerns me. Um, that what the FED did with Svb doing the 400 billion dollars of balance sheet growth in two weeks. Uh, because that showed a lack of Courage um, a lack of willingness to fight inflation. Um, so the concern I have is when the going gets tough and the stock market drops two percent.

I'm joking. but yeah, you know you understand when anything happens negative and I Want to talk about Svb because those guys should have been let to fill as in, the depositors would have been fine. But when anything bad happens, I'm concerned this fed's going to come in and do, um, you know, just massive stimulus again and that that could lead to an even bigger collapse later. let's talk about that.

Let's talk about the Banking Crisis on Stimulus because I Have to say I was uh, really? um I Found this picture very exciting that you put on uh Twitter Okay, this uh this right here. your caption is uh in medieval Spain Bankers who became bankrupt, were publicly disgraced by Town authorities and given nothing nothing but bread and water to eat until the creditors were paid off right after a year. If the bankers fail to pay them, they would be beheaded and their property and assets would be sold off. Yeah, I Don't want to say I think Bankers should be beheaded, but I Do think that you know if you're able to make a lot of money, a lot of money doing bad things, you should also be able to be allowed to fail.

Let me let me talk about essentially what happened. Um, do you mind if everything. Um, so so essentially what you had with the failure of Svb Signature Bank Credit Suisse and any others, it's the fault of the FED for doing 14 years of interest rate repression, quantitative easing, and essentially turning the Banker's brains into mush. um, and what I mean by that is.

and you also had Bank management for not taking the Fed's advice and preparing for higher rates, instead operating recklessly in order to get you know, higher bonuses, moving their stock prices higher versus Brazil and Mexico by the way, who hiked rates sharply in December 2021. the Fed was telling you, we're about to start hiking rates. What did Brazil and Mexico do They hiked rates significantly To prepare for that? Um in December 2021 or the right thing to do so, you had Svb signature your bank credit Suites and others and who engaged in stock pumping schemes to boost their Equity prices which resulted in very nefarious and likely illegal activities. Keep in mind the at Svb what they were doing is offering below market rate loans to startups who weren't making any money right? No earnings.

and the quid pro quo was those startups had to keep their cash at Svb. That's a bad business practice right? That's just that's just nefarious business activity. So when when you when you get caught out there with you you know when the tide goes out we see who has a who's not wearing shorts. that's a Warren Buffett quote Yeah right the tide went out.

They should have been allowed to fail. And keep in mind you know everybody was talking about oh my God the depositors these and we found out later right? it was like you know guys who had billions of dollars so these weren't you know small businesses But also keep in mind um that you know these depositors you know would have been made whole right The depositors that that next it happened over the weekend that Monday they would have been made whole 90 90 cents on the dollar right? So this idea that all these you know know small businesses were going to lose money was always wrong. And when you when you bail these guys out right when you allow these guys to engage in nefarious and um, alleged credibly alleged illegal activity, um, you basically encourage moral hazard. So when you do that, you essentially encourage other Banks to do the same thing.

So I think what Yellen did and what what Powell did um I think was bad and I think you know it's all funded by the taxpayers. You know, FDIC treasury et cetera. the government is funded by the taxpayers. so that's why I put that quote up because you're not holding these people to account.

and these people did extremely very various things. and we have. we have. We have examples of banks who took the Fed's advice and raised rates.

You know they they. They change the duration of their asset mismatch. not just not just Mexico and Brazil but also banks in the U.S JP Morgan Bank of America et cetera. When these Banks didn't and and so these Banks should be held to account I Think this is so fascinating because really, what you've suggested is that uh Jerome Powell was weak in 2020.

when we had the vaccines, we had retail sales above Trend we had already won. Why continue to spend money and now he's acting tough. Oh, we're going to stay higher for longer, but as soon as one thing goes wrong, that's it. 100 bailout of the banks essentially right, which was taxpayer backed.

Uh, ultimately, I think FDIC will end up Distributing the 20 billion 22 billion dollars of loss to other Banks right? Really corporate socialism to some extent which I think you've referred to as well on Twitter So the question then is if he was weak in 2020, if he's weak now during the banking crisis, it sounds like you're thinking it's going to be weak again and we're going to see printing again and stimulus again. Which potentially means inflation again. Can you speak to that? Yeah, so I I think you. You phrased it perfectly.

which is why you know again, everybody positions us as bears. But if you don't have faith in your own power, you don't have faith in Joe Biden from a fiscal responsibility perspective. And they're going to basically print which is going to decrease the value of the dollar. What you want to do is you want to own gold, right? If the dollar Falls in value.

gold is going to increase not just gold, but other precious metals and potentially other. Commodities So that's why we're bullish. Gold, We own gold. We like gold.

Um, and I think it's because you have a Fed chair and a U.S president who are willing to spend hundreds of billions of dollars in the face of 40-year higher inflation. Which is extremely scary if you love this country. because again, you know every it's it's like every time I Talk about inflation. These these guys on Twitter who say you're just you know talking up your Tesla position no study economic history I Went to school, you know I studied economic history? Um, you know I Major in Finance, minor in economics Morehouse College Um, you know if you study economic history, inflation is extremely scary I think Munger At over 90 years old, he knows what he's talking about.

So do you think we're going to return to stimulus checks then? Or how is that inflation going to come back? Where's this? Where's the weakness going to manifest? Like how are we going to see it right? It's it's hard because if you look at the history of inflation, you know the last time we had inflation like this was in the 70s and what you've seen with CPI it's like this, right? So you'll think you got it under control. Then it rears its ugly head. You think you got it under control, It rears its ugly head and you know everybody. credits Paul Volcker rightfully so.

Uh, but if you remember initially, you know he didn't raise rates enough at inflation 1980 and then you had to come up again. And then he had you know at one point you had mortgage rates at 15. you were able to invest in a bond and get like, you know, 13. Um, so I don't know where we're headed but I think that what is being done now is not enough.

and I think that again. You know because rates were zero for so long and now they're you know on certain bonds, You know one year, you know, six month Bond you have near five percent rates I Think that's why you're seeing an increase in spending because people have more money on their savings and they feel like they have our money and they do. But I don't think they're doing enough and you can see that evidence by the strong economic activity the strong leg of Labor Market The CPI data. Today the data.

We talk about the non-season adjusted data which is now spiking back higher. Um so I I Don't know what we need to do, but it's definitely more than what they're doing and you know they have not been a um a A A image of Courage if you will. um uh. With respect to some of these issues we've had, do you think the depositor should have taken that 10 haircut you mentioned a quick reminder to check out my wonderful programs on building your wealth linked down below I Regularly add content to them I Go Live every single day with course members providing not only my commentary, financial analysis, real estate analysis but I Answer your questions.

There are multiple different Avenues you can check out. You could start with the zero to millionaire real estate and the stocks and psychology of Money Group Phenomenal Baseline Knowledge to really build your wealth Check out the Elite Hustlers Course to grow your income as an entrepreneur making sure you're negotiating those higher wages as an employee or protecting yourself as a business owner, Make sure you check out the real estate agent course if you're an agent. a YouTube course if you want to build your social media followings all of those linked down below I Would love to see you as a course member soon. We'll also be doing free house visits to random course members within the course whoever wants to and we'll be exploring what your financial Journey has looked like.

Check it all out. Link down below. Absolutely Absolutely. I Mean they would have gotten that that day and then they would have been made whole later.

Um, but we now know that I think I think it was like 10 depositors that had billions of dollars. So initially you know like Circle was one of them I think they had three billion dollars. but the point is it wasn't small. You know businesses that you know we're going to see massive labor.

Cuts these were like Silicon Valley billionaires who had you know who essentially bailed out and these were guys who knew what they were doing. Like when you when you look at some of these VCS on Twitter who talked about some of the deals they got from Svb I mean it's crazy. you know they were getting below Market rates they were getting like you know, sweetheart deals on mortgages Etc These are guys who not who should not be bailed out and all of a sudden it's the VCS and potentially like the Gavin Newsoms of the World who were also a big voice in forcing this essential backstop right right, potential conflict of interest. It was just it's it's infuriating when you think about it if you understand what's going on.

I think it's fascinating that you, uh, are you you criticized Paul Volcker. Generally, people don't go there. Uh, people seem to honor Paul Volcker, but you mentioned that I mean he got in at 79. He had a recession in 80 because they didn't raise rates even enough, right? And that didn't tame the inflation that they needed to raise rates again.

For starting: I think in October of 80. all the way through 82 right to actually get inflation under control. So everybody holds them up on a pedestal. but even he was not certain with what to do.

Well no, I do hold him on a pedestal He he he did something amazing he and keep in mind at the time I think Carter was behind him but there were a lot of pundits out there and Congress both the House and the Senate and you know TV pundits Etc who positioned him as the devil when he held his ground. He is a man to be revered. He had the courage, The courage. He had the courage.

So no I I I Just what I meant to say is initially he didn't do it, but he did it and he stuck with it. And he's a man that should be revered because I Think he saved America from years of stress. And if you look at what this Fed has done, I Mean think about. let me finish that thought.

If you look what this fed has done, it's the opposite that. think about this right. think about this. Think about it So Janet Yellen right? So in 2000 in 2021, 2020, 2021 right when the 10-year bond was below one percent instead of issuing debt to fund the U.S she was running down the TGA.

Now the problem is when you run down the TGA not the problem. The benefit is if you're long stocks, that's like QE Yeah, um, what we look at. a lot of people talk about the FED balance sheet, but you also have to look at the treasury general account balance and the reverse repo account balance. When she run down run down to TGA That's a way to effectively stimulate the economy.

You know the problem is, she could have issued that 10-year debt at below one percent. That was just Reckless It was Reckless Not to issue debt at those numbers was Reckless enough. It was Reckless And you know, So so so the last time she ran down the TGA and then she had to run it back up, it was um, I think it was December 2021 to May of 2022, right? she ran down to TGA She had to refill it Now keep in mind when she refills the TGA What that means is she has to issue debt into the market. So she's pulling liquidity out of the market.

Guess what happened December 2021 to May of 2022 S P down 17 and a half percent right? So now we're at a point where, right the TGA got all the way below 100 billion right tax season. We're now at I think we're like 270 billion. She's doing about 50 billion of rundown a week. So that means she has about maybe four or five weeks left before she runs out of money.

So over the next month she's gonna run out of money, the debt ceiling is going to be compromised, and then she's going to have to refill the TGA right Treasury General Account balance. She's going to pull liquidity out of the market. Where at the same time the FED is doing QE Last time she did that, S P fell 17 18 right? right? Uh, correct? Yeah, they're doing QT games. Sorry, correct, sorry.

uh. The FED is doing quantitative tightening. Not quite. but the last time she did that right, the Fed was doing QE right.

The Fed was, you know, pushing money to the market Stock market still fell 17.5 Now she's gonna have to do it. and the Fed's doing QT right. They're pulling money out of the market. so I don't know how much the Market's going to fall, but it's things like this that I think some of our sell side peers aren't focused on.

Yeah, and I understand it, but you have to be focused on the macro in this environment. Oh yeah, absolutely yeah. I think that's so interesting. The idea of refinancing or having refinanced the debt lower reminds me of I believe it was Donald Trump Who was saying we should take out 100 year treasury bonds now because we could do it for next to nothing, right? I mean now in hindsight, that would have looked like a brilliant idea, right? He wasn't all bad I Don't want to get political at all.

but um, one thing I would say though is he was pushing Powell to cut rates and I think it was 2019 pal cut rates three times. With unemployment at a 50-year low, that was a huge mistake. Um, you don't do that when things are going well. you do that when things are going bad.

So again, another issue. another instance of him not having the courage to do what's necessary. the the right Futures market right now seems to be convinced that we're going to get around two percentage points of cuts by December January after maybe hitting that peak of that 5.25 Do you think that's realistic? Or are we going to sit at that flat line for a year? Yeah, I Wanted to bet you a beer that's not going to happen I'm joking. but no, no, absolutely a Bud Light or like a like a Stella I Don't want to go there but um what I'll say is you know you just look at where inflation is.

You look at the trends in inflation going up. You look at the strength in the jobs Market you look at the strength in consumer spending that we talked about. The idea that the FED is going to cut rates I think is ludicrous. Um, and I think the rate Market will have to adjust accordingly.

What Val said When with the prank from Zelinsk, the Faith Zielinski which we now know was real, he said we're going to raise rates two more times and keep them there for a long time. Look believe what he's saying like I was a guy who fought pal right? don't fight the FED I fought him for a year and I lost tremendously. Um, look at Tesla in 2020. um in 2021 I I fought them and I lost.

So for guys who are saying we're gonna have rate Cuts you're fighting what he's telling you and I I don't think that's smart I think you should believe what he's saying and if you believe what he's saying, you know rates are going higher. Is it possible and they're going to stay there? That the reason maybe people are fighting? That is the idea that the FED can't today say that they're going to cut rates in December because then people will pull out dead and go right back to spending and they'll reanimate inflation and we truly won't get there. Whereas if he pretends to have this hard face, uh, we're gonna, you know, Hire for longer, Hire for longer and then we get to December All right, we're gonna, You know is, is it an expectations game? Is he playing with us because you actually tweeted about how Jerome Powell seems to be more transparent in this prankster call right than he is with the American people? Is he playing us I don't think he's playing us I think but in the prankster call he said what he's told us right. He said we're going to raise rates.

He said in one minute what takes probably 20 press conferences I agree I agree I think they should stop with these speeches but he but he kept with what he's been telling us right. He's saying I'm going to raise rates and keep them there. He said that in the prankster call. so I don't think he's trying to play us I think he's being honest and let me tell you why.

So it's the data. If you look at Services Inflation, you know Uh Services Inflation sitting at Um, hold on, let me see here. So we got uh, uh, let's see. um.

Core Services Inflation right? The number that just came out core Services Inflation without Energy Services jumped 7.1 percent from a year ago in the most recent reading. Um, that's CPI Okay, the Core Services CPI I Um, and that was 7.3 in February So this was the fourth month in a row of seven percent plus Core Services inflation. It's the highest we've seen since 1982. that has to be scary to the Fed.

You look at Um Energy prices which are going back up. You look at um, uh. Core CPI which is sitting at 5.6 percent, right? Their target is two. That's their measuring state.

So the reason why I think he's serious is because the numbers are too high, The numbers are sticky, and they're not coming lower. So if he's serious about fighting inflation which I think he is, then he has to do what he said he's going to do. And again, he reiterated that with the fake Zielinski and that's the hire for longer. Okay, now, Uh PC this morning.

Uh, those numbers I I Want to say I want to pull the the services? Uh, figures Here it seemed like Services came in at expectation Core services and we know Pce runs lower just the way they measure it right. Uh, is it possible that we really did peak in June of 2022 and that yeah, maybe it'll take longer to get these numbers down whether it's CPI or PC, But in a year from now, are we going to be at two percent inflation? Are we going to get it down? I I Hope so. But the data just doesn't support that right now. Um, again, this.

Services Inflation is sticky. You know. Core Services Inflation minus energy sticky at seven percent, you know that's a that's that's A that's that's roughly 70 of CPI services and it's not falling. Um and you also have now Energy Prices going back up right Biden Ran down the Spr right? Strategic Pro Strategic Petroleum Reserve Um so what happens when we have to refill that? What happens if OPEC continues to cut right? We're going into driving season oil prices, but more importantly gas prices which are have a a hugely High correlation to the energy component of CPI We did the math: I Think it's around like 85 percent if you look at just retail gas prices.

Oh wow, uh against the Um energy component of CPI that the r squared correlation going back multiple years is it's like 85 percent. So as gas prices go up, that component in CPI is going to go up and that's been a key driver of the downtick, right? That's a way of saying You could sort of see a leading indicator of what CPI is going to be just by looking at gas prices which have been coming up right. Not to be confused with diesel prices coming down, but gas prices for normal Americans going up. If if any of your viewers want to just do this analysis, it's very simple.

look at the energy component of CPI on a monthly basis. go back about 10 years and then track that against retail gas prices which we get daily and you'll see that the r squared correlation is nearly perfect. So the fact that those prices are going back up has to be scary to the FED if they're looking at this data, I'm sure they are. So the idea that he's going to quote unquote pivot I think is it's it's it's I don't know a better word than ridiculous I Think it's it's just not going to happen.

What about this? d Dollarization? Uh, you know we've lost some clout in the Middle East Potentially a lot a lot of talk about now. Uh, Saudi Arabia and Iran partnering and they used to be mortal enemies now with deals negotiated by China right? Uh, Are we losing? Uh, the the strength that we once had, the soft power strength that we had and our people respecting America less and trying to move away to different Alternatives Or is this just the same story we've heard before? Yeah, that's that's a great topic and currencies is one of the hardest things to predict. Um I I'm definitely not better than anyone else out there, but what I'll say is I think there's two different things to focus on here. Number one dollar deal.

You know the idea that we're going to move to some of the reserve currency I think is ridiculous. Um still I think roughly 60 of the world's reserves are in US Dollars Uh, the United States despite all its problems, is the most stable democracy in the world. Um, you look at you know China Where you have a dictator who's running you know, labor camps and slaves and you know, look at what happened to Jack Ma. it's not a real democracy you look at Russia I Don't think I even need to talk about that.

They invaded a Sovereign Nation Um, you think about some of these others. so I don't think there's risk of us moving to another Reserve currency anytime soon. What I will say though is if Pow is reckless which scares me. Um I Think the value of the dollar could decline significantly.

Um, and if that happens, you're going to have inflation in the United States That brings a lot of people to their knees if they're not already there. So wow. I Don't think there's risk I I Think that people are just playing. This is something we've heard for years.

Oh, we're moving away from a dollar. Just like the numbers, right reserves again. US Dollars 60 Our democracy is the strongest. You don't have people you know, um, getting in boats in the U.S trying to get into China You do have people getting in boats in China going through Mexico trying to get into the U.S We're still the best and I I'm a patriot so you know.

add that to this, but we, we're still the strongest in the best country in the world and that that has that that psychology has a lot to do with the strength of the dollar. So I don't think there's any risk of us moving. but I do think there's risk of you know them printing a lot of money and devaluing the dollar. and if that happens I think you will have a lot of people here that are brought to their knees and then it's true.

By the way, you're getting an awful lot of an increase of Chinese Nationals coming in through the Mexican border right? Very interesting. Okay, now we have to talk about Tesla So when when are you going long test: Do you own a Tesla I Do not. have you ever driven it I'll show you the cars I own okay I have I've driven one uh I actually drove the man. This is a great story.

You won't believe this. Okay so this was like 2000 I think it was nine or ten. okay um and I remember I forget the guy the IR guy's name at Tesla but I was out doing like um I remember I So I was out doing like some solar meetings in California and the guy said you got to come to our plant and he let me drive the Roadster and it was like driving like a electric go-kart Oh yeah yeah, it was really fast and I went to their plant. no there were no cars being made and I was going to initiate on the company with a buy I swear this was that it was when it was 35 and you know 15 split ago.

Yeah and a couple of my clients were like if you initiate on that stock with the buy we're leaving and it's not that it's not that I let that influence me but yeah you know it kind of influences. So I said you know what I'm just not going to touch it um so that that's an interesting story and it wasn't that I was extremely sold I didn't even meet Elon it was just I I just I was just like this is a new product and you know people like me products anyway. so to answer your question, get back to your question. what what would get me to buy a test? look we have I think it's I think the stock is worth 24.33 and I know that sounds crazy but I'll you know I'll tell you this when when tilray was at 300 I think we had like a 40 Target people said you're crazy um with Sun Edison which went bankrupt um we had a buy rating at 30.

they did this deal with event and we took our our 30 price Target down to one dollar when the stock was 19. people said you're crazy um in First Solar I Remember this is back in 2009 when the stock was like 230 dollars. I think we had a forty dollar price Target People said you're crazy. look I think that's what the stock is worth.

When it gets there, we'll reevaluate. Um, but I think there's a lot of issues which we can get into. Um, and you know, are you using sort of the industry average multiples? and no, we're using a Um I I Actually think that the the numbers we're using. So to answer that, we're using a a 20-year DCF Okay, projecting out cash flows, discounting those cash flows backwards or something.

Um, uh, we're using I Think the the discount rate we're using is around eight percent. Yeah, Um, but so you know and what I'm saying is the assumptions we have in our model to get to 24 I think are pretty aggressive. Um, what kind of volumes are you thinking? Um I think we have them getting to like 10 million. Okay, so you'll actually have them getting to 10 mil, right? But your DCF is still putting them at 24 today.

Correct, That's scary, right? Because the thing is, think about this right? So Tesla did what? 73 cents? Um, in Q1 you you multiply that by four and divide it into the stock price. Today, you're talking about just under 60 times multiple, right? The industry trades it seven times. This is for a company who effectively cut prices roughly I Think it was like 10 in Q1 yet solve volumes grow just four percent, right? That means they're cutting prices and they're not seeing the elasticity. Think about this.

What if Lamborghini cut their prices by 20, right? Or forget about Lamborghini Porsche You understand, people will be running to the dealership right? If if that 200 000 Lamborghini people, the elasticity would be massive. So the issue with Tesla is very simple in our view. Um, you have a company who over the past four quarters has produced more cars than they've sold. That's a record.

Um, you have a company who's cutting prices and you're not seeing the same increase in unit volume that you're seeing in price. Cuts That's a big problem. You have a company who in our view, is the Blackberry of EVS I.E They're the first guy out there. But now you have all these guys coming in with cars that have equal or better Real World Range better interiors and real service ability.

Um, and a long history of um, you know, being able to make it. You know Tesla's never been through. It's a frontier asset. Essentially, they've never been through a full business cycle.

Um, so I Just think that there's significantly more downside because you have. You know all this competition and it's not necessarily Tesla's fault, right? Think about this right? The cost of capital right over the past three years? Think about 2020, 2021, early 2022. If you said EV you could go raise billions of dollars and create a car company out of thin air. But the demand.

the demand for those cars increase right? You have all these new cars companies, all these new EV car companies but like is there is the demand for are there more people to buy the car? So what I think is going to happen we highlighted this last year is inevitably: you're going to have a price War because it's just Supply demand. if you have more cars, same amount of demand, you're going to have to cut your prices to move those units. And because Tesla's the first guy in there they haven't really invested in R D To you know, come with new models. Every car company you know, new models every one to two years.

Tesla's essentially have the same models since. Inception Um, uh and I think that's a problem. So you have all these issues you have the issue with. You know the specifically Elon Musk around you know the full self-driving He's been saying we're gonna have full self driving next year since 2014.

You have you know? Um, you know all the things he's done. You know the fake solar panels he did to sell SolarCity Um, filing a 13d instead of a 13g clear violation of Securities laws to acquire Twitter the things he's done on Twitter Um, you know, forcing his workers back to work in California at the height of the covet crisis against a county order um, and and calling a hero a pedo and a number of other things. So I think that's in, uh, you know, uh, upset if you will, some of his buyers. um, and we've said this before in a lot of instances.

you know having a Tesla car now is analogous to wearing a red Mega hat. um, and I think that you know his core constituency was, you know, on the liberal side. and I think now that he's kind of, whether it's true or not moved over to the conservative side I think that's hurt him too. So there's a fundamental aspect.

and then there there's a quantitative aspect and there's a qualitative aspect. Both I think are working against them. And if you look at what's happening in China I mean so so far this quarter, we just put our time in no doubt. Um, the the numbers came out early this week.

You've had six votes go from China to Europe last last quarter. Over the first 26 days of the Uh of the quarter, you had 13 votes. So significant decline in boats to China Um, so the cells domestically in China are better than they were last quarter, but they're not significantly better. Despite the fact that you're not having all those cars produced, go to Europe That's a big problem.

they're just not selling the cars in China they need to. That also suggests the demand in Europe is a week you saw today. Again, they cut the Model Y seven seater by another thousand dollars. That's the seventh price cut in the U.S this quarter and yet and still their inventories are going up.

Look, this is just a company that has too much capacity versus demand. I Think they've reached saturation and the competition is coming and coming heavy. Um, so I think that you know I think our price Target is going to prove accurate when it hits our price. Target We'll reevaluate, but you know we don't hate Elon Musk or hate Tesla It's just we think the stock is grossly overvalued and when it gets valued accordingly, we will reevaluate.

But it's not a tech company, right? they're last in. FSD Um, uh, they're buying batteries from Catl and Panasonic all the promises they made at Battery Day were essentially mistruths. We now know that the battery has, um, the 4680 battery they had they they they made is actually worse from a technological standpoint standpoint than existing technology. so they don't have any technology either.

So I think once it gets valued accordingly, we'll reevaluate. Have you tried? FSD I am scared to try FSD I have not I have not and I've seen the videos and I know I know every experience probably probably isn't like that. but I've been in a pretty pretty uh, the Dawn videos the dawned uh I've been in a bad car accident and I'm just once you. once you're in a car accident you're not willing to risk your life for you know, technology.

Um, what about um, which companies do you think are beating Tesla in FSD or even regular competition you mentioned Tesla might be the Blackberry So which which other companies? Yeah, So Guide House ranks um, uh uh uh uh. autonomous driving Technologies And they rank Tesla dead last. There's probably 20 companies they rank, if not more. The ones they have at the top are uh, Wamo and Cruz and Mercedes and Byd literally Tesla ranks dead last.

So When you say which companies are beating them in FSD According to Guide House who I Trust everyone? Um, with respect to cells, right? Byd is crushing them in China VW is beating them in Europe Um, and in the U.S We now know that over the first two months of this year their market share has fell from 75 last year to 50 this year. Keep in mind GM's not even really in the folds yet. They're coming with I think like 15 new EB models this year. It's not the GMS and the Fords beating them and you know on CNBC A lot of people like to say, but look at Lucid Look at Rivien I think that's cherry picking.

The guys who are beating them here are Toyota Um, uh, VW uh Mercedes Um, you know Etc Hyundai Those are the guys who are taking share from Tesla and beating them in the U.S Um so I think that you know the numbers, just tell the story. um. and I think that you know with these price cuts that aren't working I mean the proof is in the pudding. Toyota's CEO Recently said that they believe they're part of the silent majority of people who are interested in hybrids instead of fully battery electric vehicles.

Shortly after, he said that in December he uh announced his retirement and now the new CEO is talking about moving to All Battery Electric vehicles and they're talking about a new lineup of Bevs is potentially Tesla Just early here and these Legacy companies uh, realizing wow, we actually have to catch up with real battery electric products where we really haven't yet. Yeah. I I Think that again. Yeah.

I think they're I think they were early I think they had a first mover Advantage I think that when we had the part shortage in 2020 and 2021 I think they were willing to cut Corners that other people weren't uh with respect to some of the chips they qualified in within months where usually it takes two years. Etc We highlighted all these issues. Nobody seems to care. but now you're starting to see some of these cars.

I Think they have the most amount of their. Their cars are recently ranked the most likely to be recalled Consumer Reports has Tesla ranked nearly dead? Lasts on Uh. quality slash performance uh JD Power the same what what question mark which is a rating outfit in the UK the same. They rank Tesla's cars literally What? what question mark is dead last and quality performance JD Power and Consumer Reports either dead last or you know, second or third from last.

So you know Again, this isn't me saying this. These are reputable you know rating agencies who are saying these cars are just not high quality. So with the with the new guys coming with all these different EVS you're getting guys who have done this for you know in some cases a decade who you know can ease think about. Let me finish that thought.

Who can easily you know go from producing an ice car to producing um, an EV card? Think about this right? So when covet hit right Elon Musk was famous for saying we're going to make ventilators right, We're going to repurpose our Factory to make ventilators. Did he? No, he didn't make one ventilator. What he did is, he brought a couple of CPAP machines, slapped the Tesco Tesla logo on them, sent it to a hospital. You know who did repurpose their facilities Ford and GM right about this World War II Right when we needed tanks Ford in just their facilities to make tanks right? These guys know what they're doing.

and what's more important is the ICS I see Eternal Internal Combustion Engine manufacturers. They make cars out of profit. They're ice cars, right? Those cars have profits on them. They're losing money on their EV cars and I would argue that barring China Tesla might be losing I Don't think the Fremont Factory is profitable I Don't think the this is my personal opinion I Don't think the Texas Factory's profitable I Don't think Germany's profit I think the profit is in is in China And if you look at their um you can't tell Now with the 2022 10K but in the 2021 10K you work the numbers out, they tell you the only profitable facility is China Why? Because they got a sweetheart deal there.

because you're able to. You know I'm not saying Tesla's doing this, but in China you're able to hire slave labor. Everything's cheaper. So you know The point is, you know outside of all the what I think is um, uh, accounting Shenanigans Um, that is going on at Tesla Um, the reality is they need to generate cash and I think that you know this year they have to pay taxes in China that deal gets less and less sweet each year.

Um, and I think that making EVS is not profitable right now. but I think the Ice can do that. They can make these cars unprofitably because they're They're their their core constituency of selling ice. Cars are profitable, so they can use that profit to invest in the Uh the EV space.

So I think that puts Tesla at a disadvantage when a lot of people thought Tesla was at an advantage. So what do you say to people who respond and say well, Chevy tried with the bolt to have an EV and they just can to the bolt right? Uh, the it seems like they're cutting jobs at Chevy Cruze uh their Autonomy division. It seems like most companies even Byd are focused on. Let's provide some simple Adas tools that we know will work like uh Lane keep assist something we can go to market with we can bolt on But most industry reports show that Legacy Automakers have a ten thousand dollar cost disadvantage in making EVS compared to a Tesla Right when when does that switch? Are you suggesting that the Ice will catch up and somehow they'll get that Advantage back.

That's a great point. So if you look at Tesla's margins with the most recent price Cuts you're talking probably about 18 17 to 18 margins. That would put them below most automakers. All of a sudden they're not the manufacturing leader.

This is already happening. Um, and with respect to you know GM canceling that car That's normal, right? So they're replacing that with another EV right? You introduce new models I Think that's they're replacing it with another low-cost EV So while while a lot of Tesla you know fans and you know Bulls come out and say hey, look look look at this replacing it with another EV so I don't think it's them getting out of the business, they're just they're just basically updating the model and I think with respect to cutting people, look, people are struggling, right? I mean you know the economy is not great despite what you know, some politicians may tell you. so it's not just you know, the car companies cutting employees, right? There's a ton of tech companies cutting employees. Uh, you know, uh, there's job Cuts being announced every day.

So I don't think this is um, specific to the Auto industry I Think it's a more economic thing? Do you think that could be potentially why Tesla doesn't have that demand elasticity? Going back to one of your original arguments that hey, you're reducing prices, but it doesn't seem like maybe we're getting as much throughput while at the same time I Think you would agree they are ramping production substantially right? Uh, is that maybe more macro if we were back at uh, you know you finance your car for 1.5 percent Tesla would be having wait lists I Think it's partially macro, but you're seeing tremendous growth from guys like GM Byd VW Hyundai Toyota Etc and their EV sales. Their EV sales are growing whereas Teslas are stagnating despite significant price Cuts So I do think there's a part of it that's macro, but I think there's a big part of it. That's I think Tesla has saturated the market and I think that people are saying, let me look at something else. you know it's just competition right? You have you have a ton more EV cars available.

You know before it was just Tesla Now you have you know 10, 20, 30 options with EVs and I think people are saying let me try this other car, let me try this other company my service to Tesla was horrible. Um you know my brother is um uh manages a dealership in California He said someone came in with their Tesla and this is one person I Don't want to say this is everybody but he called me up two days ago. he's like call me back immediately you got to call me and I was busy I called the next day and I'm like what's up and he's all excited. um he's like look you know people are bringing in their Teslas and they're telling me that like there's this scheme that Tesla is doing where you know you lease a car and you you can't buy it and then they tell you you have to buy a car and then you go to and then they tell you they're bought, they'll buy the lease back and then you go to sell them the lease and the price they told you they would give you.

They cut it lower when you go to sell it. So he said there's been a number people people that have come into His dealership saying we want to trade in our Tesla we'll never buy another one because some of these schemes they're doing and again I Don't know if that's widespread. this is just you know, a couple of guys in California but you've heard a number of things like this right on. Twitter I Suppose I would say it's very likely that anybody showing up at a dealership with a Tesla does not like Tesla so you probably have a disproportionate share of unsatisfied people.

right? That's fair, That's fair. Uh, but just the serviceability has been extremely questionable. Um, you know, and some of their tactics just you know that we've seen have been questionable, but that's that's not the bark of our thesis. Our thesis is basically competition is going to come in.

Um, competition is going to crush them because they're the Blackberry of the EV space. They're gonna have to cut prices, margins are going to get cut and people are going to see this is just a car company that's the Auto industry. Every auto company outside of Ford and all the new EV guys has went bankrupt. Why? Highly Capital Intenses extremely low margin and I think Tesla has been able to Stave that off because of a number of things.

I Think Kova was the best thing that happened to Tesla Because you had all this stimulus come in, you had part shortages and they were willing I think to do things and other auto automotive companies were not