Episode of the meet kevin show today, peter schiff is coming back. I believe this is now the fourth time that peter uh has taken the time to join us here and share his perspectives. Peter's uh information and funds are linked in the description and down below, but boy. Oh boy, do i have questions for peter schiff now, because i'll tell you the last three times peter schiff has been here: uh i've always been the bull and uh and and peter's had you know kind of put me in check a little bit.

You know i'm like hey we're going to the moon, we're going to the moon. Please put me in check a little bit now. I've turned a little bit more bearish myself. Okay, you all know i've sold some stocks sold, sold lots of stocks uh selling a little bit of real estate.

Now now i want to talk to peter, because macroeconomic climates are changing a little bit here and it's time to talk to peter to see what he thinks now that uh you know, we've got some serious headwinds, so welcome aboard peter. Thank you. So much for being back kevin. My pleasure thanks for inviting me back - and you know i'm not bearish on everything i'm bearish on certain things.

You know the motto of my firm and i think jim cramer over at cnbc, actually stole this from me uh. But my mottom was europe pacific capital because there's a bull market somewhere - and you know there may not be a bull market here and you know i i i adopted that theme during uh the earlier part of the 2000s. You know, after that that the nasdaq bubble popped 2001. 2002.

We were in a bear market for years and i was trying to encourage my clients - hey. It may be a bear market here, but they got bull markets in other countries and now pretty much 20 years later, we're seeing the same dynamic unfold. I think we're at the beginning of a massive long-term bear market in u.s stocks in general. In specifically the stocks that did the best over the last decade - the momentum stocks, the big tech, the fang names uh, you know anything related to.

You know these spax all these recent ipos payments, you know uh cryptocurrencies or all these crazy kind of companies that don't make any money you know. Last year we actually set a record not only in ipos but ipos of money losing companies. These companies are going to crash and burn just like the dot coms did, but you know from beneath the ashes of of of those collapsing companies you're going to see a lot of other stocks rise and those are the stocks that i own. You know the same types of stocks that did really well uh from 2001 through you know, 2008 and then into 2011.

Those are the types of stocks that investors are just starting to buy. Now: global value, dividend payers, commodities, emerging markets, precious metals. These are where the bull markets are, and this is where investors should be uh allocating their their money now ray dalio, uh or at least bridgewater capital, so ray dalio's firm that he co-founded recently released an investor letter and and indicated that right now the u.s you've Got stock valuations still relatively high and you've got monetary and fiscal tightening, whereas in china you have relatively low valuations and fiscal and monetary support and so they're making this argument that you know what maybe, like you just mentioned, maybe u.s stocks isn't the place to be Their argument is china. What's your take on china? Well, i mean i'm bullish on china, but there are a lot of other countries that i'm also bullish on.

It's not just a you know: a choice between the united states and china. It's a big world out there, but the united states is very expensive, even our legitimate companies, the ones that actually do have earnings and pay dividends, they're generally twice as expensive as a similarly situated company in europe or asia. So you get much better valuations and investors are going to be more focused on valuation. Now i mean that's one of the reasons that a lot of these stocks like look at facebook.

You know they came up with bad earnings. The stock dropped 25 in one day. Uh, you know same thing with the paypal it because the valuations are so high. If you just miss expectations by a small amount uh, you know you're going to get completely clobbered in this market, where we're starting to revalue stocks at lower multiples, because we're no longer in this low inflation environment, we're in a high inflation environment and what people still Don't understand is that this high inflation environment is here to stay, because there's absolutely nothing the fed is capable of doing about it.

In fact, everything the fed does is going to throw gasoline on the inflation fire, so fed monetary policy is going to exacerbate the inflation that we're dealing with. I mean even though they're talking about fighting inflation they're not really going to fight it they're going to keep stoking the flames. Just they're gon na you know be less aggressive. What they're talking about doing is raising interest rates from zero, where they are now up to.

Maybe one percent by the end of this year and maybe up to two percent by the end of next year, but these are still highly stimulative rates of interest. It was in 2002 that the fed slashed rates to one percent to stimulate the economy after you know the nasdaq bubble bursts and after you know, we had the terrorist attacks in 9 11 and we had we started. You know the war on terror and all that stuff happened. We had a recession and so greenspan lowered rates to one to stimulate the economy.

Now powell's saying well we're going to raise rates to one to sedate the economy. I mean it's, it's still low and the fed is still printing money and the problem is the budget. Deficits have exploded. We're talking about maybe three trillion dollars a year.

Now is what our annual budget deficit is. The only way to finance that is for the fed to do more qe. So, even though it's talking about shrinking the balance sheet, it's not really going to happen. The balance sheet is going to keep expanding, but not only do we have this huge budget deficit.

We have record trade deficits. Last year we had the first ever merchandise trade deficit to exceed one trillion dollars in a single year, and in the month of december, we hit a new record high. We had over a 100 billion dollar deficit in december and these deficits are going to skyrocket. Look at the price of oil now, 92 93, a barrel heading well above 100, a barrel this year we're at net importing all that a lot of oil that further runs up the trade deficit.

So, there's no way to finance this, the fed is going to be forced to print even more money. So while it's pretending it's going to take the punch bowl away, it's going to continue to spike it. But it's not going to be enough to sustain the asset bubble, so the change in monetary policy is a a significant enough shift to prick the bubble in in tech, stocks and momentum stocks. But it's not big enough to slow down inflation.

So we're going to have stagflation, we're going to have a weakening economy, rising inflation, and that is a very different investment landscape than the one investors have been used to over the past 10 20 years. Yeah it so the thing about inflation - and i want to ask you about this - is you know if prices of let's say the apple pencil go from 100 to 110? We got 10 inflation. Do you believe that companies have the pricing power to keep raising these prices? To where that pencil goes to 115 120 125, and it actually just continues to go up it, wouldn't would is this not potentially just a one-time set of that's it? The apple pencil went from 100 to 110. We had our 10 for a year, and now we go back to you know the one two three percent.

What do you think that one to two percent interest is still so accommodative that we're actually going to still see seven plus percent prints on cpi yeah? Well, because the cost of making those pencils is gon na keep going up uh? Maybe you know maybe 10 a year, maybe more so the manufacturers are going to have to pass on those higher costs to their customers because they have to operate at a profit. So at a minimum they have to pass on the costs, but what they end up doing is actually passing on more than the cost, because you have to find a new equilibrium, because every time the company raises prices, it does lose some buyers on the margin, because We're all sensitive to price, i mean if we weren't sensitive, the companies would just jack the prices even higher. The reason that there's a lid on prices is because companies are looking for the optimal price where they can sell the most amount of stuff and make the most amount of money. And so, as you raise prices, you start losing some of your customers.

So there's a sweet spot where you can have the maximum amount of profit. Well that all changes when your costs go up. So when their costs go up, they have to find a new equilibrium where they can maximize their profits. But what happens are is, as you start, raising your prices.

You start losing some customers, and so now you, you know you have fewer customers to try to average out all your fixed costs. So the new equilibrium price, where you can maximize your profits, ends up being even higher than just the increase of costs, because you have to make up for the loss of customers. So what happens in an inflationary environment? Is businesses keep selling fewer and fewer products at higher and higher prices and those customers that can afford the higher prices keep buying and those that can't will they go without the products? Yeah. That's actually really interesting because - and it's something i haven't thought about - and i've read a lot of the earnings calls over the last uh a couple weeks here in earnings season and uh.

Every single company talks about how much pricing power they have and how the consumers willing to pay these higher prices and that they're all raising prices. I mean panda, express starbucks, uh gm ford. You know they're they're, all raising prices. We know this uh, but what's what's fascinating about what you just said is when they raise prices, they're going to lose customers.

So if they want to be able to beat revenues next year, they actually or next quarter, they actually have to raise prices a little bit more beyond just the margin expectation because they want to offset uh the the loss of customers, that's fascinating, yeah and almost like The self and here's the thing last year, though, businesses didn't raise prices enough. That was the problem because you had the federal chairman and all the economists were telling everybody. Oh don't worry about these rising costs. This is all transitory right, yeah, and so the business owners believed the economists, and so they absorbed these price hikes uh in their own costs, because they didn't want to just raise their prices uh.

If it was just. You know a one-off thing: if it was just higher costs for a few months, they probably figured you know what we'll just eat that uh. You know it's not worth. Uh raising prices, uh losing you know out to our competitors, uh annoying our customers.

You know we'll just ride it out because it's you know it's temporary, but as we got to the end of the year, and now these companies look back like look at. We just got the earnings on on friday for clorox and clorox got killed like new down 10 52 week low. Why did it get beat up? Well, they missed why they missed, because their costs were up a lot and obviously they didn't raise their prices nearly enough to to cover the increase in costs, and so i think, a lot of these businesses that were kind of conned into this false sense of complacency. On what was happening now, they have a lot of catching up to do.

Not only do they have to get ahead of the curve for 2022 and start factoring in rising costs for 2022, but they got to catch up for all the lost ground from 2021, so they have to raise prices a lot and that's one of the reasons. I've been saying that, rather than 2022, you know cpi, you know number coming down from the seven percent we got last year. 2022 is probably going to be higher. We're gon na go maybe from seven percent to ten percent.

Oh yeah, you know people are gon na freak out if they freaked out at seven percent. People are gon na freak at ten percent, so but what i wan na know when then do you think? Because at some point consumers are going to stop paying these? These increased and elevated prices. What? What is that point? Is it when the consumers are out of money uh? When does that point come or do wages just rise to give people more ammo? Well, first of all, wages are rising uh. The problem is they're not rising.

As much as prices, so people are running out of ammo, but some people are not buying stuff. Look, what's happened recently to car sales, i mean car prices have gone way up and so car sales are coming down. I mean people are buying fewer cars um. You know it's happened in in the the real estate market.

I mean the prices went way up and so fewer people can afford to buy them. So they're still trading, but you know not, as many people can afford to buy now certain things like food. I mean people are going to keep spending money on food, but they change. You know what they buy right.

They don't buy as much steak. They buy more. You know hamburger right, so they're not eating as well as they would like to, because they can't afford some of the stuff that they used to be able to afford they have to they have to trade down uh. You know and you're it's gon na happen across the board.

People are gon na, buy cheaper stuff or or less things, and it's probably already happening. It's just going to happen more uh, as the inflation gets worse in this case. Would it make sense to buy companies that provide these the economical term inferior goods, like maybe more walmart, stock, more dollar, general style stock, yeah? Well, walmart again, would not be. You know number one on my list because walmart's a pretty expensive stock as it is - and i think the volume of sales at you know is going to dry up.

I mean they sell a lot of more expensive things that have higher margins. That, i think, will be will impact their their sales, but you're right. You want to skew your portfolio to uh stuff that people have to buy, not stuff that they buy because they want to right, so people have to buy certain products right and and and so you've got much more pricing power if the consumer has to buy what You're selling versus a discretionary item that you know if he has any money left over. You know he'll buy that uh, but you know, but first he has to take care of what he needs before he can start buying.

You know what he wants and so yeah, and if you look at a lot of the stocks that that we own for our customers, those are the companies a lot of these consumer companies or utilities. You got to pay your electric bill. You don't want to be in the dark, i mean you can use less electricity, you can, you know, watch how many lights you leave on. You can adjust your thermostat but you're going to buy electricity, no matter what you're not going to you know live in the dark you know and and use candles.

So these companies are still going to are still going to sell energy right. You're gasoline people are still going to drive cars. They may not drive as often but they're still going to drive, maybe they're not going to take a long vacation or maybe they'll carpool, but you're still going to buy gas. So these oil companies are still going to make money.

We have a lot of tobacco stocks, i mean people are going to smoke, i mean they may not even cut down on their smoking. They might have to cut back on their eating some people before they cut back on their smoking, but you know you buy these things that you know people are going to keep buying and you can raise your prices, your costs go up, you raise your prices and You know make and you can stay ahead and you can you can pay dividends and absolutely you have to be in companies that have a lot of pricing power now. You know there are a lot of these companies that have products it's highly competitive. Like look at all these streaming stocks, i mean one of the places people can easily cut back is just look how many streaming services are you gon na buy right? Maybe you'll look back and i've got six or seven of them.

Yeah you're gon na cut back on three or four of them, or maybe i'm gon na i'm gon na i'm gon na take a streaming service and i'm gon na use it for a week or two i'm gon na watch what i wan na watch, i'm gon Na then i'm gon na you know unsubscribe from that one and i'll have one at a time until i you know watch the shows i want to watch. But you know people are competing for the same. You know group of customers and these customers are dealing with higher food prices higher. You know higher gas prices higher rent, so they got to cut back where they can cut back.

You know, and and and i think too, a lot of these companies that give away their products right like the facebooks right, you don't pay money to have a facebook account, but the problem is facebook makes money from the advertisers and if the advertisers aren't selling as Much of their stuff because the people on facebook can't afford to buy it. Well now the advertisers can't afford to advertise on facebook anymore. Facebook's earnings go away even though they're giving away their product the fact that their customers don't have the discretionary income, their real product, which is the advertising. They can't sell that so there's a lot of these businesses that are going to be a lot of trouble uh when everybody is tightening their belts, so when folks start tightening their belts in an environment where we have high inflation.

Obviously this brings up fears of stagflation, which you have mentioned. I believe - and i want to hear your opinion on this - i think there's quite a big risk that we could end up having a negative uh quarter or two of gdp, which that puts us into a technical recession or paper recession. Uh is, is anything safe going into a recession other than cash? Well, cash isn't safe either i mean the problem is: there's nothing. That's truly safe.

Everything has a certain degree of risk associated with it, and so what you have to do, as an investor is decide which risks you want to take right. What what are you comfortable with and and and what what risks do you want to avoid? Because cash is not safe if you have inflation at seven percent and of course, when the government admits it's 7, it's 15, you know because the government lies, the numbers are cooked right, the way they measure it. If we still measured inflation today, the way we measured it during the 1970s and 80s last year would have been 15. So it's just a big lie.

So if it's 15 now - and i think it's going to be 10 next year, that means it's 20 this year right. So you have this massive inflation. Cash is losing value every single year. You know you don't get any interest in the bank to offset that.

You put your money in the bank you're making no interest and it's losing 7 10. 15 20 of its purchasing power every year. That's a big loss! So there's no safety there. You can't buy bonds.

Bonds, aren't safe at all. What's the coupon on a bond? What's the interest one percent, two percent, three percent - that's a you're still getting killed there, but the problem with bonds is: let's say you buy a 10-year bond or 20-year bond and you're and you're getting two or three percent interest on that bond, and then interest rates Really go up the price of that bond crashes. So if you need to sell the bond because you need the money you're not going to get par, you might, you might take a 20 30 40 loss on your bond. The only way you get your money back is, if you hold it to maturity, but if maturity isn't for another 10 or 20 years and inflation is ten percent a year by the time you get your money back, it's not worth anything.

So, there's a lot of risk in bonds. That's why you have to go into real things: real assets, uh. What i mentioned at the beginning of of with the podcast is, you know, dividend paying value stocks around the world. You know stocks that are trading at like 8, 9, 10, 12, 14, 15 times earnings stocks that pay four five, six, seven, eight percent dividends.

Now companies that are making money paying dividends that you can own. The value of these businesses will rise, uh with inflation. The value of their goods that they own uh the value of their inventory, the value of their plant and equipment uh. If they own resources, you know those will become more valuable.

They can raise their prices, so you have a hedge against inflation when you're in a stock and the dividend can go up. You know within you know. The bond coupon is fixed, whatever interest coupon you're, getting you're stuck with that uh, no matter how high prices go, but your dividend can go up if you're owning a company that pays dividends because and you need earnings to pay dividends. But a lot of these other companies that don't have any earnings.

I mean they're, going to have a lot of trouble staying in business, because a lot of american companies have been able to stay in business because their real business is selling stock. They sell, they sell stock to investors, and then they use that money to pay their expenses to pay salaries. Those days are coming to an end. I mean a lot of people in america are going to get unemployed, which is one of the reasons that we're going to have this stagflation inflation and recession.

Because, as a lot of these, money-losing companies go out of business uh, all their employees are going to be out of work. Yeah is it? Is it not possible that i mean because we've seen commodities go through these cycles before? Is it not possible that commodities just end up bubbling up and then and then crashing back down, or do you just have to adjust uh when that time comes yeah? That is possible, but i think that's not going to happen for a long time. I think they will bubble up at the end of the bull market. The problem is this is just the beginning.

I mean think about the oil market, oil topped out at 150 a barrel in the last bull market and it topped out in 2008. It was the summer july of 2008, the fed funds rate was six and a quarter at that time. That's how high six and a quarter it's a quarter right now. It's 25 basis points right, look how much room we have to raise interest rates before we get to a point where oil might peak out and also the dollar index in in the summer of 07 was about 73, it's 95 now, so we had a much weaker Dollar back then, we have almost 100 oil now with a strong dollar.

So if you figure we're starting a cycle where the dollar is going to start falling and interest rates are going to start rising, how high will interest rates get and how long will it take to get there and how low will the dollar be before oil peaks? Again, i mean, i think you could be looking at a 300 oil price before you get another big drop. You know, and and so that i mean that's basically a triple from where we are now. Maybe it happens over the next several years, but if we got to, if we got to 150 a barrel in 2008, why couldn't we get to 300 by 2028 right 20 years? And you get a doubling in the oil price over 20 years from peak to peak? Can easily happen, but if that happens, i mean you're not going to be able to get gas for less than 10 dollars a gallon at a gas station. So now what is that going to mean to the average american if it costs you 10, just to get a gallon of gas? Well, i mean we've never had a recession uh where we've never been over a hundred dollars in a barrel in oil without a recession.

So i think, there's probably the answer: huh yeah and also you know we we've never started a recession when the fed was starting to raise rates. The recession may be starting right now. You know the atlanta fed their estimate for q1. Gdp is one tenth of one percent, so it could very easily be a negative number, but the fed is just starting to raise rates.

I mean in fact, that even raised them yet they're just talking about raising them and the economy is already going into recession, see normally the economy doesn't go into a recession until the fed has already raised rates a lot you know. Normally the recession starts when interest rates are a positive number, a real number meaning you have to get the rate of interest above the rate of inflation before we roll over to recession. Well, if the inflation rate is seven, we need to get interest rates at eight or nine. Well, i mean we're trying to be anywhere close, so this is gon na be the first time we're gon na go into a recession where we have negative real interest rates.

I mean we're in a lot of trouble because how does the fed normally fight recession? It cuts rates? Well, i mean if, if we're practically at zero and the recession starts, there's not a lot of room to go right and, and you know, and if you so we're we're in a we're in a box that the fed put us in and i've been warning that This was going to happen for years, because i was able to understand the consequences of what the fed was doing. Every time they kicked a can down the road because they didn't want to deal with the problem. They made the problem worse and now. The problem is so big that there's no more road and we can't kick the can because we've got this seven percent.

You know inflation albatross around our necks, because the only way they've been able to justify these zero percent interest rates in qe was because inflation was below their two percent target. Well, how can you justify the same monetary policy when inflation is more than triple your two percent target? No, no kidding why? Why do you think this gdp uh forecast here is is so weak, because, right now, at least in earnings, we're seeing a lot of enthusiasm around around earnings and people spending everybody seems like they're they're spending like crazy and people are buying boats and cars and jets, And everybody's spending money on everything: why would the atlanta fed estimate this low of a gdp? I mean this was the consensus. Back in december i mean we've gone from a three and a half percent print to to basically nothing well. First of all, we had a big inventory build in the fourth quarter of last year, that was 71 of q4 gdp.

Was businesses stocking up on inventory now? Why did they do that? I think it's because they're going to an inflationary, uh business model, see before there was a lot of inflation. People didn't keep a lot of inventory. Businesses were lean and mean just in time. You know you ordered goods as you sold goods right.

You didn't you didn't want to carry a lot of inventory. What was the point? Just buy it in the future. You know when you needed it, but now, with prices rising, so much businesses want to invest in their inventory. Why wait to buy the products they're? Just going to be more expensive, let me buy them right now and also another thing that's happening is that supply chains are, you know, broken down and delivery times are extended, and so companies are like look.

Let me get the stuff and have it because that way at least i can sell it, because i don't i won't. I don't know if i can get it in the future, so businesses are now moving back towards holding inventory, which is something they used to do. I mean it was normal for companies to have more inventory, and so now we're getting back to that environment. And so what happened? Is these businesses just bought a lot of inventory that maybe they would have bought throughout 2022 and they just bought it all? At the end of 2021., so that means the businesses aren't going to be spending that money uh in q1 and q2 and q3.

So we we moved forward a lot of that gdp growth to the the fourth quarter of last year and and then also the trade numbers are exploding. These trade deficits are just horrific. They subtract from gdp right all these trade deficits reduce our gdp. So if we're gon na have much bigger trade deficits, we have to subtract a much larger number uh from the gdp and i think inflation is taking a toll on spending.

I mean you're talking about people are spending more, but in many cases they're not buying more they're, just paying more so they're spending more because the prices have gone up, because these consumer spending numbers and retail sales they're not adjusted for inflation they're. Just looking at how much we're spending not what we're buying so wouldn't an inventory well so two things about inventory more inventory to me suggests that we we could have deflationary figures because they might want to lower prices yeah. You know a lot of people think. Oh, the businesses are going to dump this inventory, no they're, not they didn't load up on it to dump it.

They loaded up on it to have it and what they're going to do is they're going to mark it up and they're going to sell it slowly and and here's how i think businesses are going to price they're not going to price off of their original cost. They're going to price um based on their expected replacement cost. So let's say i'm uh, you know i'm a company and you know i sell widgets right. Widgets is just a made up word for a fictitious product right from economics, so i sell widgets.

So let's say i bought a bunch of widgets at ten dollars a piece and i have a fifty percent markup, so i buy for ten dollars and i retail myself for fifteen right. So i bought a bunch of widgets for ten dollars but let's say bef. I start selling my widgets at fifteen dollars, then, all of a sudden, the whole sale price of widgets jumps up to 20. They double from 10 to 20..

I'm not going to continue to sell my widgets at 15, even though i bought them at 10, because if i sell it at 15 and now i have to buy one back, i'm going to pay 20. right. So now i'm just going to start selling my widgets for 30, because that's 50 above my replacement cost, which is 20., and so this is how businesses are going to operate. They're going to start selling marking up based on replacement they're going to hold their inventory they're going to sell it slowly, they're, not just going to dump it on the market at a low price when it's going to be so expensive to buy it back.

So i don't expect this mass liquidation of stuff. I think businesses are buying this stuff because they needed to operate. They want the inventory and they are making an investment in their inventory yeah. I mean really suggesting that a built-up inventory is going to lead to plummeting prices is really suggesting that supply chains are perfect again and we're going back to justin inventory.

Essentially, right yeah, i mean and you'd have to make a a bet that all these guys, that are loading up on inventory. You know as soon as they get it they're just gon na dump it all like. Why did they buy all that inventory if they're just going to dump it um, and if that was the case, then all these companies would lose a ton of money right. They would buy all this stuff and then sell it at a loss.

Yeah um. So i don't think that's what's going on and i think they waited all year. I mean to start buying because again they they were hoping, it was all transitory, they believe the economists and now you know powell finally comes out and says: okay, you know it's not transitory, and now the business is like you know. Now you tell me you know, and now they got to hurry up and and start doing something because i know i mean in my life everything i want to buy and i'm in puerto rico.

So it's even worse, but it takes forever to get stuff. I mean months and months and months you just have to wait because nobody has anything. Is it possible that a lot of this extra inventory that we saw in q4 gdp is in transit? That uh? You know, like you say it's taking so long to get uh? Maybe maybe this is not inventory on shelves, yet it's sitting on a ship somewhere in a container in a warehouse somewhere yeah that i don't know how much of the inventory spend has actually been delivered. You know we know, there's massive delays and every there's bottlenecks at the ports, um.

So yeah, i don't know, but i think you know they place these big orders and now they're going to sit on their inventory and you know they're going to sell it at higher prices and, of course, as they mark their inventory up. You know it's not going to move as fast, because people are going to be priced out of the market and what i think a lot of these businesses are going to have to do is downsize their overall operation to be profitable at a smaller scale. Right because, if you're forced to really raise your prices and you're gon na have fewer customers. Well, you don't need as much customer support.

You don't need as much of a overhead right if you have a smaller group of customers that are utilizing your business. So everybody has to scale down, and that means layoffs. That means uh. You know some some, maybe some of my office space or some of my warehouse space or my retail space.

I don't need as much and so now, there's uh, you know stuff. You know for rent, and you know the the economy goes into recession as everybody downsizes to survive in a world where you don't sell as much stuff, because everything you're selling is more expensive right right exactly so. What? What do you think, then? If, if we're on this path and companies feel they have so much pricing power, they're raising prices, we're going to see this continue inflation. What do you think the odds of a recession are, and when is this happening? Well, i think, i think the odds of a recession or 100 right i mean the question is: when does it start right? Because you know we're always going to have one right.

So when is the next recession going to come? But you know i, i don't really believe the government numbers anyway, because when they lie about inflation, they also lie about inflation in the gdp. Because there's something called a deflator and the government takes the nominal gdp, which is how much prices went up and then they adjust it by what they claim. Inflation is so, let's say you know: nominal gdp. The prices were up 6, but inflation they say was four percent.

Then they end up with two percent gdp right. But what, if inflation, wasn't four percent? What? If it was eight percent, but they pretended? It was four percent. That means that if they used an honest inflation rate, we would have a negative two percent. We would be in contraction but because they pretend that inflation is only four percent when it's really eight percent, it looks like the economy grew by two percent, even though it contracted by two percent so we're, but we're going to get a recession.

You know even the way the government scores it, but of course it's actually going to be a lot worse than what they admit to, and it may be that the government still pretends the economy is growing, but it will feel like a recession because it is yeah And how do you i mean that that also begs the question of like what happens if we go into a recession, and then people look to jerome powell to bail us out and then there's no drone power. Do you think they have a capacity to to u-turn and help prevent a recession or bail? That's the problem see this is the the the uh pandora's, not the pandora's box, but you know the catch-22 uh that uh the fed is in, where they're damned that they do and damn if they don't, because their normal policy response to a recession is to stimulate Demand right print money, create inflation uh. You know bigger deficits, more government spending tax cuts right, a keynesian pump, priming stimulus. Well, you can't do that when you have inflation, because the way to fight inflation is the opposite of that, you have to shrink the money supply.

You have to curtail a demand right. You have to slow the economy right, you don't want to pump it up. You got to slow it down. So what happens when you have both of those problems simultaneously, you have a weak economy, a recession, but you have inflation right, it doesn't work anymore, yeah, uh and, and - and that is the problem you know.

While i remember this too, i i meant to make this point when we were talking about inventories. I just occurred to me, but also customers. Just like businesses are stocking up, so are their customers. I mean i don't know about you, but i don't buy one of anything i mean if, if i'm gon na buy toothpaste, i'm gon na buy a dozen tubes right, deodorant shampoo, razor blades, i mean last time i bought razor blades.

I bought like 40 of them and i don't even shave that much because i just you know, but i i i didn't know like if i'd be able to get them in the future, i mean. If you go through our house, you know you will open up a closet, it's like it's. Like a you know, a drugstore there's so much stuff. There just goes.

I got everything we need. We got all vitamins like we get everything and then we buy in huge bulk quantities of whatever doesn't uh. You know, uh, you know get bad over time. Whatever is non-perishable, you know batteries i mean, we've got drawers and drawers of batteries.

You know i mean so. I think a lot of other people are going to do the same thing: they're not just going to buy one thing you know, because if, if you're an average person right you're not making an investment right, you're, not you know investing in the stock market with me, You're just going to the supermarket right with your paycheck, but you know: let's say you normally shop for the week and and you and you keep some money in the bank. You know a little bit of savings, but if you notice that every time you go to the store stuff is three percent, more four percent, five percent - more, it's like well, you know why not buy extra cereal boxes right now. You know why not buy some extra rice or extra can of soup.

I mean why come back in the future and pay the higher price i'll just invest in my own inventory i'll buy the things i'm going to need in the future and i'll buy it right. Now, and if i buy you know, you know a package of rice and that same package of rice is 20 percent more expensive at the end of the year, but i bought it a year earlier. That's like a 20 gain on a stock. You may cuz you saved, you know you made 20 on that rice.

You were gon na, buy it, but you bought it cheaper, because if i just left my cash in the bank, i couldn't afford to buy it anymore. I have to get an extra 20 uh, and so i think a lot of the inventory might end up getting sold quicker because consumers are doing what i'm doing that. You know they're just saying: hey, i'm not going to wait to buy i'm just going to stock up, you know and buy what i can and and there's two reasons to do that, not just because it might be more expensive in the future. But what i think might happen before, probably not before the midterms, but before the general election, although it could happen before the midterms is that inflation is going to be so bad and there's going to be nothing.

That's politically acceptable that the fed could do about it. That they're going to do what's really unthinkable is price controls they're going to basically say you know what the reason prices are going up is because the farmers are greedy, those big businesses, the are are greedy. The supermarkets are greedy, the the the food distributors, everybody is greedy and gouging the consumer, so the government's going to say no more price hikes, we're going to have price controls and we're not going to let these greedy companies rip off their customers anymore right. So this is what happens, but now the minute you get price controls.

What happens? Well, there's shortages, the stuff's, just not there anymore. So one of the reasons to buy the stuff now is that you may not be able to get it now. Maybe they'll ration it. Maybe you know, you'll have a long line.

You'll have to wait in line for a couple of hours to get a small quantity of stuff. Now. The other way you get stuff in in an environment of price controls is illegally. You go to the black market and, of course, there's going to be stiff penalties for people right these traders, these price gougers, you know who are operating in the black market, but if you actually want to get something, that's going to be the only way to really Get it uh is is in the black market uh, but of course all those transactions will probably be in cash because they'll all be illegal uh, but you can't hold cash.

So that's why i tell people to buy silver coins. You know buy one ounce silver rounds or you know junk silver, because when you ought to make a transaction that nobody knows about, that's how you're going to have to do it. You can't illegally sell stuff on a credit card. You know uh, and so you have to have some means of of engaging in commerce in the black market, which i think is coming, unfortunately, and and you don't think that might be crypto, no, because a you can track crypto right, i mean it's on the internet.

I mean the government can can see. People are transacting in uh in cryptocurrency, but also i mean cryptocurrencies are very volatile. They can crash, they don't have any real value. I mean, if i'm a merchant and i'm selling goods i mean, do i really want to get paid in bitcoin, i mean what happens if, while i'm holding my bitcoin, it drops 20 or 30 percent.

I don't want to do that. I mean i'd rather get paid, let's say in silver or gold, something that i know it might. You know hold on to its value. I have something real in my hand that i that i can exchange uh so yeah.

No, i i i don't see crypto actually serving that function. I mean it's if people are buying it as a speculation, but i don't see it functioning as a medium of exchange store of value. Now, last time we had price control, i mean we've had price controls. Many times, but we had price controls in 1951 after the korean war that ended up just delaying a recession that we got.

Two years later, we had price controls that were lifted uh in the late 60s and that led to essentially the recession of the early 70s. When we had this rampant inflation and we left the gold standard in this disaster, nothing good comes of price controls, but the question i have for you is you mentioned politics. How much do you think the fed is influenced by politics this particular year, and is it going to stop them from doing what they need to do to get inflation under control? Well, they are 100 percent influenced by politics. They are extremely political and they're, always trying to appease whatever party controls, the white house, because they're, that's that's, who appoints them right, they're, always appointed by the president, um and they're.

Also, in a way trying to appease all the incumbents, they kind of want everybody to get reelected, i mean that's how they play ball, and so that's why they pursue the policies that they that they do they're, never looking to do what's in the long-term best interest Of the country, which is what they should be doing, that's the whole theory about the fed being apolitical right being independent because it can act in the long term interest of the nation and sacrifice. You know what might be expedient in the short run, but they never do that everything the fed does is. Oh, we have a recession, we have to stimulate well what, if the recession is exactly what the economy needs? What, if it's the cure? That's going to make us better, it's the bitter tasting medicine that we need to swallow right, because the economy is sick and the recession is the medicine. Because what happens is you get these artificial booms and unfortunately the fed is the creator of these booms.

But during the booms you have all this malinvestment. You have capital, uh, misallocated resources, misallocated uh and every we're making all sorts of mistakes during this bubble. But nobody cares about the mistakes, because everybody thinks they're getting rich, but then the bubble pops and we realize how many mistakes we made and now the economy has to be rebalanced uh in a viable way. Again, resources have to be reallocated, people have to lose jobs in certain sectors, so they can get jobs in other sectors.

Capital has to be reallocated from the bubble area to where it could be used more efficiently. In other words, we have to stop funding money. Losing companies that make things that nobody needs and we have to free up that capital to start producing the real goods that we do need. You know we're running a huge trade deficit because we're not making enough of the stuff that americans actually need we're wasting our resources making stuff.

Nobody needs right because it's all part of the bubble. So all of the mistakes get corrected during the recession. But when the federal reserve comes in and tries to mitigate that recession and cut it short, what it's actually doing is stopping the economy from healing the free market is trying to fix what the federal reserve broke during the bubble and then the fed comes in and Prevents it it's like you, you have this big, you know you're high on drugs, and you know you, okay, i check into rehab and i start stop taking drugs and now, like i'm, my body is like starting to have convulsions. I'm you know, go detox and then the fed comes in and just gives you a bunch of drugs, so you'll make you feel better right and interferes with this process.

You know, and so now, you're high as a kite again and you're doing stupid things and and that's what the fed keeps doing, because the voters you know when they're in detox they're not re-electing the guys that that put them there right so they're always trying to Get the voters to feel good and give them more drugs, so they'll re-elect the guys in power and and so it's but they're, not gon na be able to do that. They're gon na try they're, never gon na stop trying. The only reason powell is talking about raising rates is because he thinks he can do it without hurting the economy. He thinks he can do it without uh, causing a recession.

He's wrong. I mean just like he was wrong about inflation being transitory. Just like the fed was wrong when they said the subprime problem was contained. The fed is wrong about everything, and so they'll be wrong about this.

Why does it seem like uh, so many things sound so similar to 2006-ish right now, where we hear a lot of folks saying things like we're coming in for a soft landing, everything's gon na chill out and it'll all be okay, it's like somebody playing the violin On the titanic is, is that too extreme of an analogy? No, when they, when they talk about soft landing, grab your crash helmet, because it's never a soft landing? You know i mean this thing: ain't gon na land right, there's no way to land it. So it's just a question of where it crashes and and how uh, but you know they're again, you don't have to stay on the plane. That's the thing you you can you i'm helping people get off, and and so they don't have to worry about whether it's a soft landing or a crash landing just get off right and you know, or you know i mean, i call it like the titanic. You know we're going down on the titanic, but i got these lifeboats, so you know hop on board because i think, if you're in good, solid companies, foreign companies uh in countries that are in much better fiscal shape than the united states countries that run surpluses instead Of deficits when it comes to trade uh, where they're, not you know as loaded up with debt, where their people save more and actually produce more uh.

These these, these uh will be relative, safe havens. There are good companies in those countries, uh that you can buy at fair or cheap valuations, historically, get good dividends, and you know load up on the things that work in inflationary environment. Look at the oil stocks. You know, we've been overweight oil.

We added to our oil stocks last year when you know when oil went negative, but you know they were giving these oil stocks away, but oil stocks are going to do very well in an inflationary environment. So will agricultural stocks so will industrial material stocks, but also emerging markets? They do very well uh when the dollar is weak and the u.s market is weak. I mean look, look how well they did uh in the 2000s when the u.s market was getting killed. I mean people were making money like crazy in emerging markets, they're making tons of money in oil and and gold and agriculture.

So all that stuff is going to work again. I think it's going to work even better this time, because we're going to have an even bigger round of inflation and there's no way to stop it. I mean think about what it took to stop inflation in the 70s, because the last time inflation was this bad. It was the 1970s right, even if you accept the government's methodology, it's you still got to go back to the 70s.

So how did we stop inflation? In the 70s, the fed funds rate or discount rate went up to 20. Now the highest the cpi ever got was 1980. It was up 13 and a half percent in one year, so the federal reserve moved interest rates six and a half percentage points above the inflation rate, to get inflation under control. So if inflation is seven percent now, we'd have to go up to and a half percent to have the same distance except inflation isn't seven percent it's 15.

If we measured it the way we did in 1980, you know which means we have to take interest rates up to 20 percent again, which is impossible. I mean we couldn't even get that the supply chains will get better and then prices can stabilize, maybe not necessarily come down but stabilize and then inflation's flat would wouldn't that be the case. No, i mean it's like it's, not the supply chains that are the big problem. It's the demand.

The demand is coming from money printing. You know i was one of the few people early in the pandemic at the very beginning, in march of 2020, when everybody was talking deflation, i was on my podcast saying this is the most inflationary uh situation that you can imagine, because on the one hand, we Are sending people home from work, so people aren't showing up at work so they're not producing goods and services, so the supply of goods and services is going down, but instead of demand going down, which would normally happen if people didn't have jobs, so they wouldn't be Able to buy stuff, the government made the mistake of sending people money who no longer had jobs, so they can keep spending. In fact, we we made the even bigger mistake of giving people more money after they lost their jobs than what they used to earn when they still had jobs. So so we had the supply of goods and services going down.

Yet demand was exploding through the roof. For the goods and services that we weren't even producing, so it was a function of all this new demand. That was the problem. In fact, america has never imported more stuff than it imported last year.

Right so more stuff came into this country in 2021 than in any prior year. So we got all this stuff that the stuff isn't the problem. We got too much money chasing that stuff too much too many people got money for not producing, and so prices are going up and yes, there is a problem with the supply chains, but probably because we over overwhelmed them with demand. Right i mean i i talk about on my podcast, but let's say the government gave everybody a million dollars.

I just printed it up, sent everybody a check for a million dollars, and now everybody has a million dollars, and so they all call up the ferrari dealer and everybody wants to buy a new ferrari. Well, i mean how many ferraris can they make a year they're going to say? Oh well, you know ferrari. Prices are going to skyrocket and they're going to say. Well, it's a supply problem.

It's a bottleneck, there's not enough ferraris for everybody. Of course not. It takes a long time to make these cars right. You just can't.

You know, you know, produce them like like magic. So whenever governments print a lot of money, they always blame the problem on supply. You know, but the government can't print supply. The government can't print stuff, they can print money and give everybody money, but the money doesn't have any value unless we produce stuff first and that's what people don't understand, they think the money has value.

If i only had more money, we'd all be rich. No, we have to produce more stuff for us all to be with rich. If we just all have more money, then all the stuff just costs more. We you cannot print yourself uh into prosperity, not considering now not considering the uh, the rest of the child tax credit, that's coming, which comes as a refundable tax credit to folks.

It's basically another stimulus check coming in next few months for for millions of families outside of that, this we're running out of stimulus, no more unemployment boost. The forbearances are ending the child tax credit's over buildback, better didn't pass uh, you know who knows maybe we'll get a piece. Maybe we won't before the midterms. Let's assume we won't.

It sounds to me like the fiscal stimulus is ending.