Well folks, in this next piece, we're going to talk about this: TS Lombard Argument that how is this cycle different and every time we hear this time is different, we want to be nervous. But what they're actually saying is Tech That's the only thing that's different about this cycle. What they discuss is this argument that this cycle is different because in every down cycle, there is a poster child for what got overbuilt, distorted, and basically bubbled up. and this time Tia Slombard argues it's hex term.

It happens every cycle, an industry convincing themselves and investors that they are a growth industry immune to economic cycles and then discovering they are, after all, a cyclical business. Which means you are affected by the business cycle after all, commercial real estate. Here is potentially another obvious problem and a coming issue for banks given that Banks hold 50 percent of commercial mortgages specifically the small ones relative to the these smallers. I'm sorry the the larger Banks hold about seven percent commercial mortgages.

it's the Smalls and needs medium medium-sized banks that have more of exposure here. As far as inflation, high prices as opposed to the rate of change needed to reverse some of the items for consumers to gain loss, spending power, blah blah Okay, if not so let's make this clear. as for inflation, high price levels as opposed to the rate of change need to reverse first for some items for consumers to regain lost spending power. In other words, what they're saying is this time in this recession Tech is potentially most exposed to a tech Crush Now it could be argued that that's already happened.

but they're saying that even if inflation goes away, prices are now so much higher. right? Remember, if you paid a hundred dollars for a piece of tech that now costs a hundred and twenty dollars, you have experienced 20 inflation over a certain period of time. Be that one year, two years, six months, Whatever. And if inflation now goes away, you're still at 120 dollars.

You have a zero percent rate of inflation, but you're still paying more money. What does that mean? That means individual people have had their purchasing power, their pricing power reduced, and in order to regain pricing power, you might need to see wages go up. However, we're not seeing wages go up in the form of, say, a wage price spiral. And if we are not seeing wages go up and prices are higher, then people can simply afford less stuff.

Now an argument is being made that today we have plenty of excess savings. Still, Yes, Yes, it is true that not only do we have a lower savings rate now than we did before the pandemic? That is true, but we have a higher base of savings. Remember what Bank of America told us last month? Somebody with five thousand dollars in their bank account before the pan? Uh, yeah, before. Actually, the pandemic now sits somewhere at a 12 900 to 13 900 of extra cash.

But what happens when that is spent Are we in a deep dark recession or have we finally conquered inflation? Jerome Palace done with his rate hikes and we can go back to the Glorious Bull Run of the 2010 to 2019 cycle. Some people say that's delusional. Other people say no, that's actually entirely what could happen. But let's see what.

TS Lombard Argues the coming reversal in credit expectations will also help lower inflation by pulling down service price inflation. So in other words, less credit, less service inflation great. But what they see coming will be a downturn with a recession that ends up correcting the excesses of 2010 to 2019 specifically Tech and asset values. Not simply a correction of the post covet boom.

Now, this is fascinating because this is actually a Peter Schiffian argument. Peter Schiff has argued that we are not going through a crash of the Covenant printing. we are actually repaying the debts of the bubble we created post 2008. T is Lombard is now echoing the Peter Schiffian argument.

And folks, that is one that could that should create nervousness. Now, how could asset values go down? Well, let me make this argument in regards to real estate. So a lot of people obviously you know this already. Well, most of you do, but some people don't.

obviously. Uh, for those of you don't, I'll explain. I'm a licensed financial advisor, but I started in real estate. That's very rare.

It's very rare that you have somebody go uh, from from Real Estate brokering to financial advising. This video isn't personalized Financial advice because of course I don't know you? Um, but but when I look at this I think I I try to look at what's going on in the economy from from both sides. I Try to do the same thing in politics as well. It's very difficult because obviously divisive videos do much better.

But what I think is fascinating is this potential that real estate. it may not necessarily rebound immediately if rates drop. We have this expectation that the Bull Run of real estate will continue if interest rates drop. But what might also happen if interest rates drop.

The people who have refused to sell might think, oh well, interest rates are lower. Now now is a good time for me to move and sell my property. Or maybe I'll get a higher price because interest rates are lower. But if everybody thinks that inventory bubbles up and you could actually then have substantially more inventory than you previously had in the last eight years.

Frankly, certainly during the pandemic. and if you have to adjust to a higher level of inventory that it doesn't matter if rates go down, you could actually see a real estate crush. And you could see that same real estate Crush in residential which could just be Amplified by a similar Crush that you see in commercial real estate. So I think patience in real estate is very prudent right now.

Don't get me wrong, I I My goal with my real estate startup is to create a a 10 to 100 billion dollar company. Uh, with House hack I Could not be more enthused. uh about the path and trajectory we're on and so I'm very excited about that. But I I'm also having to be very cognizant of where are the potential black swans individuals aren't paying attention to.

So I run those scenarios through my head and this TS Lombard piece, uh, evokes some of those potential fears. Uh, now that's not to say it's oh, fud fear, uncertainty, doubt it's this is this is a a real argument. so uh, as uh Daniel here says in the chat, patience is a virtue I Completely agree. Uh, and and maybe it could be considered a normalization right? All right.

So um, there's a little bit of a preview they give here on jobs, but we've already gone through the jobs data mostly at expectations here now I think this is very interesting. They show a confirmed weakness in White Collar hiring and they use this to basically say well, the tech sector is far from being relative to the entire economy. Remember, you could lay off the entire Silicon Valley Bay Area and only affect three percent of jobs. So while the tech area is far from being relative to the entire economy, it has been on the margin an important driver of overall growth, hiring and spending, and a source of income from the financial sector as well as investment wealth.

When the tech sector booms, you have people who build their wealth. And when people build their wealth, what happens? People can spend more on services or going on holiday going on vacation, right? Tech Employment increases 60 percent since 2009. Look at that difference. that actually gives you a A A A showing here.

Look at this two things here: Non-public Tech Firms uh, net worth versus non non-financial corporate Tech X Real Estate So non-financial This is a little bit confusing. Let's look at this chart instead: I'm not going to try to understand that one your live, we'll we'll understand this one together High Tech versus says uh, the private sector excluding Leisure and hospitality and social services so that would be private sector jobs could be like manufacturing. uh PC Repair Um, to some extent that could be really any local business that is outside of tech. And what you're finding is this large wedge here between 2009 and 2022 where you've seen a boom in in hiring for Tech relative to other sectors.

Commercial real estate Obvious problem. notably The Leverage in large offices. Yeah, and and we realized this already that JPMorgan Just mentioned the other day that we could be seeing a 350 to 400 billion dollar hit from commercial mortgages I Was just talking to uh, a another financial advisor yesterday and they see uh a potential We they see BlackRock liquidating a substantial amount of mortgage-backed Securities and the liquidation of that could lead to the selling of a substantial amount of real estate assets. We shall see commercial real estate debt has been less of a problem than it was in the 90s commercial real estate recession over here.

So you have less of a problem out here in terms of commercial mortgages outstanding in total. Uh. And then you could see that commercial real estate held by Banks has been slightly trending up versus non-banks The large banks have been heavily moving into commercial real estate, whereas the non-large bank lenders have been helping people with 30-year fixed rate mortgages. These are going to be your mortgage brokers, your direct lenders, your UWM your rocket mortgage and otherwise, uh, dollars downward impact? not finished yet.

I Actually believe that I think that the dollar is likely to continue to fall and uh, that's why I Started by taking a short position last summer in the dollar and uh, I'm not short the dollar right now anymore. But I do think there's still some move down, uh, potentially in the dollar specifically as yields fall remember as yields fall people's desirability or interest in the US dollar declines. and that's because we need the dollar in order to buy uh, of quote, unquote safe assets like treasuries and so uh, the more yields are high on our Ultra safe. Potentially the safest asset in the world products, the more we end up with a demand for our dollars that drives our dollar amount.

So you know is, take a listen over to CNBC So we'll close off this section here. Uh, let's do a summary: I Suppose on TS Lombard I Guess the summer here would be: Is it possible that if we combine this summary? uh, let's think about it this way: Combine this information from TS Lombard with what the International Monetary Fund said this morning that we could be going into a five-year slowdown and what do you face? Well, you face an environment where potentially you could have a repayment or session of the bubble of 2009 to 2010's Bull Market and you could have a five-year Slow blow recession with a real estate slowdown over the next five years and in my opinion, the next five years if we have a slower recovery and we do not simply Resort back to the excesses of the 2010 to 2019 cycle. I Believe the next five years would actually be a glorious opportunity to build your asset base. Think about it.

What you want is your assets to be massive in the future, and if you potentially invested in let's say pricing power stocks today which got us through the next five years. and then we went back into a bull run where credit started expanding again rather than tightening and real estate really started recovering again. Maybe you could set yourself up pretty well by working hard over the next five years and making sure you have as much available. Capital Now that's something we regularly talk about in the course member live streams which I encourage you to check out a link down below you get lifetime access to those courses under building your wealth.

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