Well hey there everyone welcome back to another uh meet Kevin report we are now on episode 92 it is 4 20 on May 23rd and well let's see here today. uh is uh, his one step Colosso maybe to this debt ceiling crisis finally ending? Uh honestly, it's it. Does seem like uh, things are getting closer this um and I think this is such such nonsense I Really despise the stats healing stuff. we deal with this debt ceiling crap I Feel like every year and it's just such nonsense because it's it just politicians wanting to make sure that they that that America knows they're fighting, uh to do the best for You know what people believe? uh, they want their politicians to do and uh, unfortunately.

uh that uh, that means uh, you end up having this, uh uh, brinksmanship, ship and populism and that finger pointing and name calling and it's it. I I I Don't know to some extent I Feel conflicted because our founding fathers wanted, uh, there to be gridlock. But then we've also walked ourselves into situations where gridlock sucks. like when it comes to having a literal debt ceiling.

where which is stupid because it's like authorizing payments twice. Uh, it's it. It's really dumb. If you think about it.

It's like, what's the point of passing a bill, uh, uh. agreeing to spend money if you're just gonna end up holding it up in debt ceiling negotiations in the future. Just it. Really, it.

it blows my mind. Uh, but uh, you know that's uh, that's what we have to deal with. So here we are now. I mean I Really believe that nobody is dumb enough to actually let the uh, uh, the United States economy uh tank so badly by letting a default occur.

But then again, you know I've seen some pretty stupid things in politics. so I suppose I won't let myself be too terribly surprised. but um, let's just say I'm I'm uh I'll continue to be hopeful. uh I continue to think this is, uh, nonsense.

the debt ceiling nonsense I I put the odds at default at well under one percent. uh I I Know that would be pretty wild if we, you know we ended up defaulting. but it just it seems so, uh, widely impossible. Uh, that, uh that? I I just I can't I can't see a reason why it would happen Beyond Just again, this nonsensical brings a political brinksmanship.

I think there'd be plenty of uh, ways the treasury just ends up figuring out how to, you know, stop making payments for for a little bit on things that don't matter like they did in 2011. then you get a big media spectacle and poop show. Uh if you don't remember 2011. Basically in 2011, the uh uh, the government stopped paying like TSA agents and park Reps for a while and everybody was freaking out because this this idea was like wow man like seriously government you can't even pay TSA agents like this is ridiculous.

This is a joke and it was so embarrassing that we had Parks basically fenced off. you know National well like uh yeah, federally guarded Parks uh like the Washington monuments or whatever that uh uh that uh politicians finally figured it out. uh but uh, you know the good news is the stock market is actually doing surprisingly well in the face of all of this. and in my opinion, that's well.

I mean I don't think I need to say the the b word I think I've already been pretty dang clearly bullish for you know I think I was a little early with the bullishness but I think the Nike Swoosh has been something I've been very consistent with uh and and people have regularly been asking you know since since really December and and uh in January uh and otherwise as as yields have been high, people have been asking well Kevin you know why bother being in stocks I can make five percent on you know my cash and it's true you can. you can make five percent. You know you go to various different platforms I've actually resisted talking about where to place your cash to get yield. uh, you know whether that's uh uh like I mean I've I've briefly mentioned it in in sort of just lists like oh, you know you can go to Robinhood so far or you go to uh, you know what, whatever it doesn't doesn't really matter.

But I've resisted wanting to really make videos about this or or try to encourage people investing in a way that, uh, they're trying to get just cash yield. Mostly because when cash yields are high, you have to consider that you're not really earning five percent, right? So you get a five percent yield at say, wealth front. What are you actually getting? Well, you're getting a real return. Maybe in the neighborhood of zero percent, right when we could when we factor out inflation.

Uh, but beyond that, what are you actually looking at? Well, you're looking at. Let's let's assume Nation doesn't matter to your cash, right? So how could inflation not matter Your cash? What do you mean? Kevin We've been talking about this for a year and a half on the channel. Inflation doesn't matter to your cash. if you're applying assets that are going down in value, I don't I Personally, if I have you know a household food budget, Yeah, inflation's going to make that household food budget go up.

But if food represents I don't know one percent of our household budget. Then and 99 of my budget isn't affected by inflation. Because let's say it's going into investing in assets like stocks or real estate or whatever. Then if those values go down, then my cash actually becomes more valuable in an inflationary time, not less.

But ignore inflation for a moment completely. And let's think to ourselves, if inflation is zero and we're getting a five percent cash yield, what is the other risk we face with our cash And this is something Regularly, people on the uh, you know my courses have been asking me people and uh on the channel I've been asking Kevin why why not just put all my money in on five percent cash or treasuries? And the the real reality that I I think is so quickly missed is this phrase I Know everyone here has heard before. Everybody's heard it before. It should come as no surprise.

And so if you're surprised by what I'm about to say in terms of why you're able to get this, this yield, uh, that uh, that everyone's excited about, Well, it should come as no surprise. Uh, and that is opportunity cost. What's your opportunity cost? Well, since January 1st your opportunity cost of being in cash as opposed to the S P 500 has been 10 percent. That means your Opera like you have earned 10 on stocks since the beginning of the year and uh, the year is not even over.

Which means hey, wait a minute. If we continued at this level, your opportunity costs for a year of the S P 500 could be 20 right now. Of course, with stocks, there's always the risk of the market going down. right? That's that's that's the downside.

Uh, if you're on the right of stocks, of course, there's a risk of Market going down. Uh, and then you could actually have a negative return on your money. But you know. look for example, at um, two Two responses to that.

First of all, I Want to quickly bring up the NASDAQ The NASDAQ 100 Top 100 Technology Companies in America is up 27.6 year-to-date That's insane. So you know if you're excited about earning five percent. Congratulations in this time, Let's see, we're five. Uh, yeah, we're about a full five months into the year, right? So we're about 41 of the way in the year 41.6 into the year.

Uh, let's multiply that by your five percent yield. So so far out of five percent annual yield, you've earned 2 percent all the way through May 23rd. So you've earned two percent the S P's return 10 The Nasdaqs Returned 27 percent. That's what Opportunity Cost looks like Now yes, Is it possible stocks can go down? Of course it's possible, especially since they've already done so well.

But something to remember is. and this is the beautiful thing about owning stocks. The problem with Uh options, for example, is you have Theta Decay You get slowly bled out. Uh, unless of course you're a seller of options.

which is is generally the way to make money. With options, you sell options. you become, uh, someone who profits off of that Theta Decay But anyway, if you're holding stock, you don't have to worry about data Decay You don't care at all about okay. you could just hold the stock and you ride it up and down.

So really, to not be in stocks, you have to believe in some form of extreme level of bearishness. That says well, you know we're gonna go into an earnings recession and everything's gonna be worse going forward. you know I was trying to read a summary of bare pieces and uh or or like reasons to be bearish and I found one. it was in a Goldman actually in a bullish Goldman piece.

Then we'll talk about it in a little bit. but I I was curious I'm like okay, well what's their bear case and what they did is they basically put one little paragraph out for hey, like look, you don't have to look far to understand the bearish narrative so we're just not going to talk about it. Uh see So what they did is look at this. they uh right there for the bear case, talk to the person next to you.

Geopolitics: Fed error that would be over tightening or under tightening uh Debt ceiling Financial crisis two Recession Rich Session: that's the white collar recession Credit stagflation, commercial real estate Urban Divine Civil Unrest rate Cliffs job you know Jobs stocks first, Bonds blah blah blah bad news is in The Ether and is priced in and I thought that was really interesting This this uh sorry, this wasn't a Goldman piece that was actually a Bank of America piece but anyway, uh point of this is really it's like yeah, there's no shortage of like this poop. But the thing that I keep going back to and it's really what defined the Nike Swoosh Uh, before we you know before the Nike Swoosh actually started becoming a reality. My thesis with the market uh with with the Nike swooshes that we would go through a volatile period of ups and downs and uh, that over time would look like 2022 was it down? uh and then you'd have your up but that up would not be a straight up, it would be a volatile up. And my thesis supporting the Nike Swoosh before you know, just just broadly zooming out from all of the data was when does the market feel more fearful Or when did the market seem more fearful? and I mean now we obviously we have the luxury of hindsight.

You know, as they say, hindsight is 20 20. so it's it's you know. But then again, you? you know, you know we've talked about the Nike switch for many months. You're probably just tired of hearing about it now.

But the point is, what? What was sentiment like? Uh, think about this like yourself for a moment. how are you feeling in uh September or August or October of last year relative to how you're feeling? Now Now that's a really important question. and uh I I Personally, I try to think about it I go Well, how was I feeling and the reality was not that great because there was no bottom indication yet there was no bounce off the bottom. We were still free falling and nobody knew how far things were going to go.

You had the Jackson Hole Summit before. We had a little bit of optimism, but boy oh boy. after that, uh, not great, you know. I remember when I launched uh uh my? ETF on November 30th.

December was actually a really difficult month because everybody was selling. It was like tax laws harvesting. uh and so it was really remarkable to see just how much bearishness there was. And to some extent, it made sense.

Because we're looking and saying, well, we, we don't know, where's the bottom. Inflation hasn't gone away yet. do we have any faith that that we've actually hit uh Peak inflation And it's only now that we have this luxury of looking back that and this is going to be remarkable to say it. But it just shows that when you're bearish, how quickly things can turn on you.

do you realize that it's almost been one year since we hit Peak Inflation? Think about. let me let that sink in for a moment. It's almost been one year since we hit Peak inflation. We hit Peak Inflation 11 and a half months ago.

In about two, two and a half weeks, three weeks, we will be one year away from Peak inflation. That's crazy. That's absolutely crazy to think that we are already a year away basically from Peak inflation. Especially since uh, inflation has been so Salient in our lives.

and and it's create, we've had so much. Dare I say fear, uh about uh, what's gonna happen you know? Uh, so look I guess my thinking in all of this is just that when you're getting a five percent yield and you're like, look at all this money I'm making on my cash, there's usually a reason. uh, and I think that's that's the important lesson is when you're making big, big, big big money, So somewhere it usually comes to an end or it comes with some form of cost. and that's that's not a bad thing.

Like keep in mind in certain cases, it absolutely makes sense to be sitting in treasuries. Uh, there there are some companies that shouldn't be investing in stocks. They shouldn't be gambling in stocks. There's some people who shouldn't be gambling stocks.

Look if I if, uh, if you're a company that's going to be buying real estate, you should be in cash, right? Uh, because I know what's going to happen with real estate. I Mean, think about. For a moment we could talk about real estate a little bit more in depth a little bit later, but think about it for a moment. The 10-year treasury went from the banking crisis of 3.3 all the way to where it is now basically a 3.7 It's actually higher.

My goodness. So look, it's up again. 3.746 percent. So what's happening? Oh interesting.

The stock market's going up while yields are actually Rising Weird making real estate more expensive, putting more potential pressure on real estate. We're just now starting to get those year-over-year negative numbers. But we'll talk about real estate differently. Uh, you know, maybe somebody else who should invest in stocks would be? you know, somebody who's retired who's like dude I I just want to lock in the 10-year treasury at nearly four percent and screw it like I Just that's great I Don't need any volatility stocks, just give me the money and I'll stay here and milk the yield.

That's fantastic. But if you're you know and this is my opinion, this isn't personalized Financial Advice That should be obvious, but you know you never know these days. Everybody on the internet seems to get get upset if you're not like super clear. But you know if you're uh, 18, 19, 20, 30, 40 years old, 45 years old, 50 years old and and you're still going to be working for at least the next 10 years either by choice or because you have to Who? like? If you're mostly just cash farming, you gotta look and go.

Damn screwed up for the first part of the year. Now Again, that's okay. like I Absolutely got back in the stock market way too early, right? So yes, in hindsight, we could probably all have done something better. Now, my belief was that the stock market would pre-price in the Fed's U-turn Remember when I sold I said in January of 2022 that you want to get back in the market when the Federal Reserve u-turns because the Federal Reserve u-turned in 87 Uh, February of 2009 Uh, December of 2018 March of 2020.

Uh, you also had the Uh March of 2003 I skipped over that one. but every time the Fed u-turned and Mark at the bottom of the market and this was sort of your broad shift in strategy Mark the bottom of the market and the market did a lot better. That's obviously led a lot of people today to say okay, but what you know, maybe maybe that hasn't happened yet and that means the Bottom's still ahead of us. Or we know that the problem isn't actually fundamental.

Finally, a broken economy. it's just inflation. And since inflation is basically you know, basically peaked a year ago. People like, well, as long as the economy can just get through for a little while longer and and the FED pauses.

Maybe we didn't actually over type. So so long and short of it we we. My thesis was okay. Well, if if the market comes to expect that the market rallies when the Federal Reserve u-turns uh, and and the entire Market knows that this time around, then what will happen is you'll actually end up seeing the stock market recover before the U-turn under the assumption the U-turn is coming.

And so far that's what's happened. That's actually exactly what's happened so far, which is scary. But it also goes to show like you could not have perfectly predicted that. Oh yeah, in January, the market was just going to start rallying again and it would have stuck.

There's no way you could have predicted it. Uh, now of course there was this uh, understanding of like oh well, all the taxos Harvesters jumping back in? sure, but nobody thought that would end up being sustained. So uh yeah, it's really incredible. It's really interesting, so the point of that is can't be perfect.

But the other point of that is, you know, if you're looking at your portfolio, it's like yeah, you know I know. Cash was great in 2020 too, but boy it sucked in 2023. That's also potentially Another lesson is usually the assets that do really really well one year don't do that great the next year because fund managers are trying to find Alpha Have you ever heard of the website? Seeking Alpha Yeah, that's because they're looking for Alpha They're legitimately looking for ways to outperform the market. That's what.

Alpha is your outperformance of the market beta adjusted Anyway, long and short of that, uh, it. It makes sense to some extent. That's stuff that did really well One year is it isn't going to be the next pitched thing. The next year you've all seen The Wolf of Wall Street right? everybody's seen The Wolf of Wall Street And what's fascinating about the Wolf of Wall Street is is, um, remember when uh oh, what's that guy? uh, math is it Matthew McConaughey yeah I was I think it was Connie he's uh, he's like, you know you always have another idea.

you never let him out of a trade something like that, right? Uh, you always have another idea. That's how I feel like the you know the real suits on Wall Street are because but but because they have to be. You know that's not to just back on suits, it's just that's just the business. It's like all right, Cash did really well last year.

Hmm, what do we think's gonna do really well this year? Well, you have to pick, you know. Okay, great it was. It was attacking Ai and stuff that was massively oversold last year. Could it continue to do well? Maybe just maybe.

maybe we'll see within video earnings which I think is propped on a pedestal right now A shaky pedestal. Uh, but we'll we'll have a video on that probably later today. not not from this live stream but I expect to make it in video video uh later today. So uh, sort of just an earnings preview video.

but anyway, uh yeah. it's a really fascinating time and a really fascinating market. and I think it is a it's always good to sort of self-reflect You know, the nice thing about you is you know you don't have to be public with your portfolio and your decisions and your successes and mistakes. It doesn't matter.

Uh, you know, celebrate your successes, forget about mistakes and just move on and and try to do better. Go for it. It's difficult now because it's like you know now and this is the conundrum. This is probably the hardest part and I I feel bad for anyone in the situation.

If you've got a bunch of cash, you're like, all right, Kevin You're right, You're right, too much cash, had too much cash. What do you buy stocks Now you know and now it's like oh well, you know anything can happen in the next. uh, you know in the next few weeks here. I mean ignore ignore the debt ceiling for a moment.

but I mean just look at like retracement levels. Over here it would be very easy for the NASDAQ to at least go back to 3 30 on QQQ right? Which is your your index for? uh or ETF for tracking the index of the NASDAQ 100? What of them? Uh, you know you could easily go back to to you know, 312 or uh, you know, can you go back to 290? Pro That's probably a little bit more of a stretch, but look you've you know you've got some downside. Yeah, we could go up to 348. but so what's the upside? Okay, well, 348 divided by 330.

7.64 You're at a three percent upside: 337.64 divided by if we go to call it 312. Okay, new numbers: 312 divided by 337.2 You know, seven and a half percent Downside: Like it would be horribly frustrating to go from cash now to like the NASDAQ and then it takes down. but it will also be frustrating to miss it if it keeps going like this. So it's very frustrating.

And I think that's another lesson that we want to think about is when we're in cash, the hardest thing is figuring out well, when do you pull the trigger and deploy? uh, you know, when when looking at the stock market? Uh, because you just just don't know. Uh, probably Vanguard says that Statistically, the best thing to do is love some Invest. but uh, psychologically most people find it's better to take your cash, divide it into let's say 10 buckets and just DCA dollar cost. Average those 10 buckets so you know you put one ten percent bucket in and then if the market goes down great, throw in another 10 Market goes down more another 10 Market goes down more another 10 Market goes up baby.

Wait or go wait. Whatever right? Uh, so um, it's It's a really weird time, but uh, you know I'm I'm happy I'm grateful that so far things are going well with this thesis. but I've I you know I want to be humble enough to say we we don't know what the next leg down could bring. Everybody's talking about a Q3 Q4 recession if we get sticky inflation that encourages the FED to hike more uh, or we have to basically price out the idea of raid Cuts then maybe there's some downside.

if, uh, if we really are going to have this earnings recession which I feel like many companies already had. Sure, maybe there's some downside, but I don't I'm not convinced that, uh, an earnings recession isn't already built into valuations that we've seen here. The earnings recession seem to be most feared here, and it's almost like markets pre-priced in the bad earnings of 2023. Here you know they got got out before 2023 and that's really what we saw widely.

So now it seems to be okay. You know by the dip on everything is what it feels like. which I understand to some extent feels like ludicrous. You know, Gosh, like how could you keep by the dead by the damage? It seems like oh oh oh wild time to do that.

and certainly last year was this was I mean look at this. Okay, go back for a moment to 2009. So where's 2009? Oh look it's it's way way look I'm gonna I'm gonna zoom out on the month. Wow.

Okay, we're gonna zoom out on the month, on on. Uh, weeps. Oh it's gonna tell you I should have just left it on the week chart. All right, whatever.

it'll come up in a sec. But anyway, um, your opportunity to to buy the dip was fantastic. Between 2009 and quite frankly, 20 end of 2021, you could just buy the ticket and the market just went right back up within the next month consistently. So buying the dip worked for what is that? 11, 12, 12-ish years and then you have one bad year and all of a sudden everybody's like buy the dip sucks.

Buy the dip is stupid Nookie to YouTubers and you buy the tip mentality. It's like, ah, buy the dip was a bad strategy in 2022. Absolutely. But wait a second.

Wait a sec. Fire The dip was already back to being great in 2023. So now you look back and you go. Hmm.

Is it possible that one out of 12 years is a bad positive strategy? Well, I mean we'll see. Maybe it'll be two years if this market ends up being a little poopy doopy. Uh, you know, for longer it's possible. But again, here's here's your chart.

Look at this. You know I mean it didn't matter what debt crisis. You know, the debt crisis. The last debt crisis was over here.

Can you even notice anything on the month chart? I Don't know. Maybe it's a little flatter than you'd hope. Maybe you'd hope it was a little bit more of a perky chart over here. but I mean like, Okay, so there's 2018 when the fed you turned over here.

All right. But but other than that on the month chart, you know, other than 2022, by the day, it worked really well. So it's It's fascinating to me. So this, uh, this? Chase I I guess it's sort of.

In summary on this this part. uh, the important thing to remember is there is a real cost to cash yield and it's the cost of your opportunity. That's a problem. See this and and this is exact.

You know how many times I've heard this? You know, like I'm not blaming you I'm not blaming you I know you're just the messenger. Your name is literally the messenger I appreciate you being a channel member over here. but this this fear over election Cycles I've just never actually seen it be the Catalyst for the stock market doing anything in particular. It was never an election that did it.

It was the housing crisis of 08. You know, the the.com bubble of of valuation implosion. Uh. but then look, look outside of those.

or or covet, right? But then you look outside of those. 2020 was a really contested period. Nobody cared. The stock market had like two weeks of heart palpitations.

Oh my gosh. What if there's a you know, uh, uh, a contested election? Oh no body cared in terms of the Stock Market 2016. Oh My Gosh. Donald Trump Won You know everybody's like Donald Trump wins.

We're going Poopers Nope 2008. Oh you know if uh, the first black man wins the presidency? That's it. We're going to the toilet. You never had a black man before, only had a white man before.

No, it didn't matter. You know. Obama Took office near the bottom of the market. bottom of the market was like February or March it was February of 2009 he took office Jan 21.

I mean come on. If anything, the elections help. Uh, so it's just. you know.

I Think the news media has us convinced that there's always a reason to be fearful. Always a reason to be fearful. It's just. let's just put it this way.

it's absolutely ridiculous. Don't bet against America Don't do it. It just ain't worth it. Let's listen to Teddy Boy over here.

let's see what drama he has for us. it is, you know. Joe Biden Started off with a position he wouldn't talk at all, he wouldn't compromise. He was unwilling to consider anything that was obviously unreasonable and and he had to fold from that because it that didn't withstand scrutiny.

Where we are now: I Don't know if the White House is willing to be reasonable I I'll tell you what I've encouraged President Joe Biden to do which is listen to Vice President Joe Biden In 2011, the last big debt ceiling Showdown we had where Republicans held a line and said we need Iranian spending it was Vice President Joe Biden who negotiated what was called the budget Control Act designed to cut 2.3 trillion in spending and he sat down with with Mitch McConnell and and with with the house speaker and they negotiated that deal I hope Joe Biden As president has at least some modicum of the same willingness to do that. I'm worried that he doesn't have the ability to do it anymore. and and look, I will say honestly, this is going to be a negotiation that plays out Kevin McCarthy definitely has a stronger hand because he passed the bill in the house that gives them a stronger negotiating power. He is not going to take something to the floor that he can't get at least a majority of his caucus to sign off on, so hopefully the two of them can work some sort of a deal out.

look I Think we both agree that it's not a good scenario in any way, shape or form. If we default on our debt, we should absolutely not default on the debt and and I will tell you I'm I am more worried now that we might default than I ever have been really And the reason is I Don't think Biden is is up to the task I Don't think he's engaged in the negotiations personally and directly. Yeah, they literally met yesterday. What are you talking about? Ted His mental capacities are markedly diminished from from even a few years ago.

And don't make me go through this and what? What makes me worry is: Yeah, I think the decision-making in the White House is being done by a bunch of 20-something and 30 something little Marxists who don't have an appreciation for reality. Oh, I told you I didn't want to dig into this. We're going to get stuck digging into this. I mean I will say the same argument.

There have been people who questioned the last President's ability to be able to have rational conversations and do these things. There are people who were talking about having him removed with the 25th Amendment But look, he's in the room. He's making the talks. hopefully.

so I can tell you the reality. All right. When the Senate is in session, every Republican Senator we have lunch together. We sit around and talk about how virtually none of us have spoken to the president even once he doesn't talk to Republican Senators And that's weird.

We all know Joe I was sworn into office by Vice President Joe Biden he was a man of the Senate This White House hides him and and it's unfortunate Donald just meet with him McConnell had met with him briefly but it is I Used to talk to Trump every week, sometimes every day. I spoke with Obama I spoke with Obama regularly. It is weird Lindsey Graham has flown all over the world with Joe Biden for 20 years Lindsay hadn't talked with Joe They keep him hidden. that's not disputed like no, but nobody denies that they keep him hidden.

He's not doing media. He doesn't do media. He doesn't just sit down with McConnell and McCarthy is talking to him every day. He also just went to the G7 It's not like this guy I don't want to be in the corner of um on on things great.

If he is, then he ought to do what he did in 2011. I I Don't think he is and I'm worried because I think the young extreme staffers in the White House have no appreciation for just how damaging a default would be and so I think they are quite willing Force the default because they think the media will blame it on Republicans and I think that would be wildly irresponsible. The talking points I hear all the time is that this would be much worse for the president to go into a default because he's the president who would get blamed in the next election cycle. which is why Donald Trump is urging anyone in the house to say no.

So I I Don't think that's what the White House believes I think the White House believes whatever happens the media will blame it on. Republicans Whether that's true or not. I think that's what the White House believes. And and one thing to be clear: Joe Biden Today could take the chances of a default to zero.

Here's what I Think a responsible president would say he would stand up and say, under no circumstances will we ever ever default on the debt no matter what, the United States honors our commitments. Now how could he do that? He could do that by claiming the 14th Amendment and I know. except that would be patently unconstitutional. But but he could do it in a very simple way that is clearly legal.

which is that every month Federal tax revenues coming into the Federal government significantly exceed interest on the debt. and he could say we're going to pay interest on the debt, we're not going to default everything else. It's what's called prioritization. He could do that and they they very very well may get to that situation.

They may get to that situation. But the reason that he hasn't said that which he could say he could take the chances of default to zero. The reason he hasn't is is I Think the the White House is trying to scare Monger on this. they're trying to threaten to fall.

Not paying the rest of our bills would not be great either. Well, but but let's stop paying the veterans. Do you stop paying the Defense Department about paying the salaries of people in Congress Okay, not paying the salaries of people in Congress would actually be a pretty good step. So so that that actually those should be the first bills they don't pay.

Actually, let's be clear, everyone agrees that the death ceiling needs to be raised. But if you look historically it has been the only leverage that has been effective in reigning in out of control spending. Look, it's a negotiating tool. I Get it and it's the only thing that works.

And you know, given squawk bucks, get it gets into the numbers. I Think it's worth pausing for a second and reflecting at how different this is from the past. So 2017 total Federal spending was about four trillion dollars. Total federal tax revenue was about 3.3 trillion dollars.

Now quick math: that means we had about a 700 billion dollar deficit. That was 2017. fast forward to today: Total spending has gone from 4 trillion up to six and a half trillion dollars. 6.4 trillion dollars tax revenues have exploded.

Tax revenues have gone from 3.3 trillion to 4.8 trillion now. Quick pause to note when we signed the 2017 tax cuts that I fought very hard to pass every Democrat went on TV and said this is going to slash Federal revenues and blow up the deficit. Turns out they were entirely wrong on that. Every year federal tax revenues have gone up and they've gone up from 3.3 trillion to 4.8 trillion.

The problem isn't tax revenues. The problem is we had a spending binge from the Democrats that has caused the national debt to go from 20 billion to 30 to 20 trillion rather to 32 trillion. Reasons that's an infrastructure Bill A chip spill the ridiculously named Inflation Reduction act. Yeah, look.

I voted against those bills. Those were mistakes. You voted against the infrastructure Bill too. Yes, Okay, so there are people who who would say even once we get through that you got to cut the spending back because those are long-term projects that maybe even if they were in need of spending it.

And by the way, if the infrastructure Bill had focused on actual roads and bridges and infrastructure that we need, I would have happily voted for it. The problem was it was filled with with all sorts of goodies for special interest that had nothing to do with real infrastructure. So you said you said numbers. So CNBC so the S P 500 is at 4200.

There seems to be a firm belief in the market that a deal will be reached. It sounds like you you're saying to Market participants, brace yourself because we could actually go to default. That's a scenario that we are not pricing into the markets right now. I Agree and listen.

I Think a deal will be reached I Think at the end, even though you're saying Joe Biden is not going to be the Vice President of 2011, you think a deal is going to be I think a deal will be reached. but I worry that the chances of a default are greater than they ever have been that I I Worry that this White House is reckless enough to force a default I Don't think that'll happen I Think that's less likely than not, but the odds are higher than than we should be happy with. Let's switch to technology. We were just having a well the the discussion about what happened.

Yes, we'll respond to some of these things as well in just a moment. Sure of the Pentagon being bombed, What what else can you imagine under the scenario? How do you stop it? How do you make sure that this is not going to be something that we have to be worried about every day? Oh, look, it's it's a Brave New World We're in and and it is frightening between technology, the technology of deep fakes, between where AI is going. Um, it's just going to be a very dangerous environment for the foreseeable future and we're going to have to have real skepticisms almost anything you see to make sure it is real and accurate. It's not going to be that hard to suddenly have video of some politician saying something they never said uh or somebody you know, people doing things that never happened and and so it's going to be incumbent on.

It's actually why I'm a big believer in in Free Speech that if you have lots of people engaged uh, you can have real-time fact checking You Remember one of the first big instances of this was Dan Rather back in I Guess it was 2004 where he had 60 Minutes This Brig big expose on George W Bush with these documents and you know it's one of the first instances of I Guess it was a bunch of you know bloggers in their pajamas who noticed the documents that he claimed to have appeared to be fraudulent and it ended up within a couple of days revealing that they were faking fraudulent documents. That was one of the first real illustrations to me of the power of the community of folks online being able to point to facts and correct them. And and with new technology, we're going to need to do that. It's easier to do that when you have a limited number of news sources and a bunch of people.

When everybody is a news service which is essentially what you have on a lot of these social media apps, you know that that becomes it's how something can get faked and spread instantaneously and before you have the time to fact check it. Yeah, there's questions about security. Something along those lines say yes and no. Um, I Worry about what has happened to much of the media.

There's a reason I Like coming on Squawk Box because because you all actually talk about substance and you get into it and and you guys are much much less partisan than most of the other media Outlets out there. Um, one of the really unfortunate consequences: I Think of the Age of Trump is that much of the media Trump broke the media that that stations like CNN MSNBC they hate Trump so much that they've stopped practicing journalism and and I don't think that's good for America when when people who are supposed to be journalists view their role as advocates pushing a point of view, particularly in that context I Think it's important to have lots and lots of people where everyone can be a publisher and can press back so the media is broken. But back to the question: is there anything Congress can do about AI Because misinformation can spread and it's like shouting fire in a crowded movie theater and and in this case it could be billions of dollars in market cap shaved off the stock market a single stock. So many different ramifications here.

Well, it's It's not like Congress is going to be able to waive a magic wand and make ai go away. Um, it's not like Congress is going to be able to stop, uh, criminal activity and make suddenly criminals go away either. But you signed off on an amicus brief against Section 230 and I think that's a good start. Yeah, absolutely yeah.

Look, section 230 was passed at a time when the internet barely existed and it was designed to protect a nascent industry and to enable it to grow. We now have big Tech Is are these massive behemoths the largest companies in the world and the power they exercise the Monopoly control they exercise and in particular, 230. When it was passed, Congress assumed that Big Tech would be a neutral Public Square In other words, it wouldn't be putting it some on the scale, it wouldn't be silencing some voices and not others, but it would let everyone speak and and the reasoning was, it's not fair to sue Facebook because of a comment you make or I make because if you make it or I make it, it's not Facebook's fault Now Now that's true. If they're an open Public Square for everyone, what's happened is that Big Tech in recent years has decided to actively and aggressively censor speech and silence views they disagree with and I gotta say, Elon Musk's buying Twitter and making the Twitter files public was an absolute Game Changer.

If that is your view though about Big Tack and their ability to control speech Etc then that should be even more of a concern when it comes to AI. Yeah, they are the leaders in AI right now. they're the ones that have accrued billions of Market billions of dollars in market cap because of the notion they are in the lead on AI. So is that a much bigger concern? And how does it factor in? Also, because there's a thinking that if you if you constrain the development of AI in this country, that you're going to actually allow other countries particularly China to take the lead in this technology.

Look, I think you make a very good point and I am quite nervous about constraining the development of AI And are there very real dangers coming from AI across the board? Yes. I I Chaired the very first congressional hearing ever on artificial intelligence. The problem is and and is there a need for congressional action on some point? Almost surely there is. But the problem is most people in Congress don't understand this at all.

Look, we don't do intelligence very well, much less artificial intelligence. Um, and you know the Senate I think the median age is about 142. Um, you know one of my colleagues on Judiciary referred to the internet as a system of tubes you ought to be. We should be careful asking folks who don't really understand it to regulate it.

I Think Congress needs to get smarter I think we need to have hearings I think we need to consider testimony but I think we should proceed slowly so that we don't go in and break things. The last thing I want is for China to get way way ahead of us on AI because government Regulators have gotten in the way so it is reasonable to be worried about where AI is taking us. But I don't think Congress is going to fix the problem overnight. Senator Cruz Want to thank you for coming in today.

Always a pleasure. Good to see you! This was actually surprisingly a really good piece. like that's one of the reasons I like this. five to uh, you know, six o'clock hour even though this began a little bit before that with CNBC is is they they have really good guests on around this time.

uh and uh, it really better than than what you see or closer to Bell time on CNBC or or earlier in the morning. Uh, just my take, you know. anyway. so uh, I'll go backwards here a little bit and just address a few things.

Uh, first of all, a lot of people are talking about investing in Chinese AI uh I Actually think there's a reason to be cautious about that specifically because with Uh Chinese AI you're running into severe risks of U.S sanctions basically destroying Chinese AI companies I know that sounds extreme like how could America destroy a company? oh, a vacant uh, even just limiting China's access to some of the most powerful or Advanced microchips could sandbag saw social intelligence race. and I think that's probably exactly why America is sanctioning China's ability to get their hands on Advanced lithography machines to to make uh, you know, uh, smaller uh, transistors? uh, you know, or reduce the spacing between them down to you know that five to three nanometer? uh, level? uh or below that? Mostly because one of the best weapons we have is just having better chips than China I Still refer to China as the uh, a teenager of the global stage where China is kind of coming into its uh, discovery of its sort of like power like ah, you know I'm a I'm a big you know? uh, he had like I went to the zoo last week I went to San Diego with uh, my kids Lauren and I and uh, they're they're teaching the kids about uh, you know, the gorillas and and it's kind of like the gorilla teenagers. they uh, they get really aggressive because they're just coming to realize how strong they are. but they don't know what they're doing.

so they're constantly like hurting themselves and stumbling over each other. and they have to kind of like realize how strong they are and to some extent it maybe a little bit feels like China is kind of like that. So personally, I I can't invest in China Uh, because a I don't understand like it's a totally different culture. so I don't understand how to even analyze what companies would do well with Chinese consumers.

So this is why I've always stayed away from from China But also I think that the United States and Europe will probably make it their mission to continue to sort of keep a boot uh, or on on the neck or or maybe more appropriate, like, keep the the gorilla of China caged a little bit, basically limit their ability to really explode with artificial intelligence relative to what I think American companies will be able to do. Uh, keep in mind as well, you know, just sort of on the the uh a topic of China Joe Biden's suggested potentially some softening relations coming with China I Really believe this is because they have to, you know China's GDP is coming in uh or is expected to come in substantially lower than what they've been growing at the last like two decades that they've been growing at somewhere around 8.9 percent. Now, their GDP will grow somewhere around five percent and they're trying to stimulate their economy to grow more because they want that growth. Uh, the United States has way more Partnerships around the world than China does.

And and their their potentially way stronger I Mean think about American Alliances are not just trade Partnerships but they're defense Partnerships Uh, sure, China's got their Belt Road initiative and they've got some friends in Pakistan and North Korea and maybe Iran now after their negotiations with the Saudis. But I mean when you look at and then maybe you could say Russia but I mean what kind of friend is that? I mean that's you know that's the Loose Cannon friend. You're like, you know, just just leave us alone. but maybe, uh, no, settle down.

You know China really ought to condemn Russia but I don't want to go like super deep here on China. But but really, if if you think about it, it's it's tough It's It's tough to argue that investing in Chinese chips or AI is the best move when you know the International Community is good to do everything they can to limit uh Chinese growth. Now then you wonder like, okay, well, how much of that is already priced in I I I Don't know, you have to figure that one out. but then again, trying to underwrite Chinese stocks with with their public filings relative to what we have.

And I'm not saying in companies with public filings over here are not shysters. There are plenty of reasons to think that companies with public filings are are you know shysters? uh, like just look at uh, not to mention any names Not possible. Uh, but um. but yeah.

so so going back to Ted Cruz's argument: I'm not terribly worried about Chinese AI uh as an individual, mostly because I actually think that Congress uh, we'll give them credit there and the International Community will will already cage in China So uh, that that leaves me less worried about that. Uh, and uh, it will be interesting to see how regulation evolves for for AI here, but uh, you know that that'll all come in time. probably too late, as it usually does. Uh, there's already research now that AI is getting more attention than Bitcoin has been getting over the past three to four to five years and I find it very interesting because the stock market's been trending up, but Bitcoin really has that.

I mean Bitcoin had a really nice run there. So yeah, we're at 27-3 right now. Uh, so it's done very well because it's nearly doubled right? I mean we're at 15 something so so maybe it's just on its uh, natural break so to speak. You know you go to the one year.

Yeah, we're about at the same level as the one year on BTC right now. but uh, at the start of the Year, we're at 16 9. So I think it's Bitcoin Just fine because if you think about it, it's outperformed the other indices 16-9 Yeah, it's up 61. It's way outperformed.

Uh, you know it's basically performed like a tech stock. not not the NASDAQ though. Nasdaq's only up like 27. But anyway.

uh, this. uh, this debt ceiling Just to sort of finish that, It's interesting that Ted Cruz argues that Joe Biden should come out and declare that America will not default when. and this is what? I just so much hate about politics. It's literally what Joe Biden has done.

and I'm not here to like shell a party or Joe Biden or whatever. But you know, of course, if you're Joe Biden you're like we will not default and then the Republicans are like man. If only Joe Biden would come out and say we will not default. You know it's Gotta suck being the president because you're just like dude I literally just said that man.

if only he would just say it. It's like ah uh but uh, but I I think that Ted is. You know the talk was good but I think it's There's a little bit of extremeness in this idea that uh uh, you know the the quote-unquote 20 year olds in the White House are willing to let the Uh government default I uh I mean I'm not that skeptical. Do I think that uh Joe Biden is at a hundred percent in that mental capacity Department No uh, but I do do I think that like somehow, uh, woke left this uh, 20 year old staffers are running the White House I mean hopefully not.

I mean nobody knows. but but I I don't think that would lead to a default I think that's a really weak argument to say that Oh yeah, woke leftists who are 20 years old. they're gonna be willing to gamble. Uh, you know our entire economy on this debt ceiling negotiation.

It actually it doesn't sound like the negotiations are going that badly and this is what you know earlier. we started on the Dead Sea Level like this is just so annoying. but really I mean every day it's like uh, you'll get the oh Republicans walked out and then like a day later things are better or like Kevin McCarthy on Sunday Joe Biden should be here instead of at the G7. It's like dude, the presidents are always at the G7 meeting.

The United States President has never missed a meeting of the G7 because if they did it would be G6 Okay well has never been a g-sync no uh so the United States President has never missed that meeting and then over the weekend you get Kevin McCarthy Well Joe Biden should be here instead of over there. It's like that's a popular thing to say but like you can't all of a sudden stop the the global calendar of events. Uh, you know because you want to sit down and do things out and sure enough they end up sitting down and and you know had Progressive talks. uh so I I I don't know I I uh I think Becky Quick, really held, uh held a good discussion here with with Ted uh you know I obviously uh it's a lot of it's party talk but uh none of this was particularly scary and uh I don't know what to say other than that not not scared.

uh maybe uh the lead. uh are we able to say that though because I feel like the stock market is slightly uh ticking to continue red today after yesterday's rally. but then again, you would kind of expect a little bit of a get a give back. so uh, that's uh, that's pretty typical.

So anyway, okay next up, what do we want to talk about next? Oh so let's see here. Mnuchin sees debt deal I wonder what he's been up to I Know he started a fund after his role as Treasury Secretary, but it's so weird that was such coveted times Treasury Secretary Mnuchin. All right. So let's say uh, let's jump into this uh piece from Bank of America on uh S p, uh, targets and and some updates on on uh, where the market might be going.

uh and then we gotta talk some real estate too and talk some sense into good old real estate I haven't done that in a minute. So all right, let's get started with that. You mean you have any question? Oh, here's uh HS Cadre really does not like Ted Cruz Uh, it was only a semi-informative interview because Becky kept pushing the issues and questions. Becky's good.

she's great. Let's see here I think Grandpa show us all sounds some of these comments so uh China has the real pricing power. Stop it I disagree uh oh, did I freeze there for a moment? Sorry about that. Well, thanks for sticking around.

Oh I turned off the um add button so hopefully you don't get any Uh ads during the actual live broadcast of uh Emily's mostly good. that's true. Uh yeah. but anyway, if uh, leveraged ETFs leverage ETFs are really scary just because you know I mean think about it it I think I did the math once if you lose a 90 of Leverage DTF you have to return like a thousand percent to get back.

It's crazy because think about it, you know. Let's let's let's do an example really quick. So say you have a hundred dollar stock and it goes down 90 percent. Uh or no, not 90.

Well let's say it goes down. Let's say you're a 3X Leverage ETF Okay, so you're you're 3x leveraged here. Let's let's write this down. Uh, let's go to this one.

All right. So here's your problem with the Leveraged: ETFs So let's say you have a hundred dollars. Uh, the market goes down 30 percent. You have seventy dollars.

But then you have a leveraged ETF and your one hundred dollars goes down. Uh, 30 percent times three. Now you're at ninety dollar or sorry. Ten dollars.

Okay, you ready for this? Now the market doubles. Well, now you're at 140 versus a hundred and twenty dollars Or sorry versus twenty dollars. Whoops. Now the market doubles again.

We're at 280 versus uh. well. I guess uh I Guess Double it. Hold on.

We should do. uh, the 3x multiple over here. So doubles times three. You're at sixty dollars, right? So you'd have to have another double.

Uh, okay, this this would probably look better. You'd have to have another double. Uh, another double would be another 60 times three. That'd be another 180 bucks.

That'd be 180 plus sixty dollars. that'd be 240. Oh, look at that, you're still behind. It would.

after two doubles, you'd still be behind on the leveraged. ETF That's scary. and that's if you didn't get margin called out over there, right? But it's just. it's just an example of of how when you have a leveraged ETF you could get stuck in the hole, right? So let's make sure we did that math right.

If the market goes down 30 percent, you're at 70 bucks on the left. Market goes down 30 times. Three, you're down 90 percent. So you're at ten dollars now.

the market doubles. Uh, so an extra uh did I do that wrong? Let me see if I did that right. Oh Orchid doubles would be ten I may have done that wrong. Let's look over here.

double double. So 2x would be 140. 2x would be 280. Uh, Market doubles is it's ten dollars times three.

This should be forty dollars. Sorry, this is actually just forty dollars. Then the market doubles again. that would be another 120.

Basically, in this case, that would be 180. There you go. So 2x 2x There we go. That's actually more appropriate.

You're still well ahead in the non-leveraged so the doubt like leveraged is great when the Market's going up. But if you get stuck in a down Market with leverage, you just end up getting stuck in this nasty nasty Hole Uh, and it's really, really dangerous. Uh, not not a big fan. so uh I would? Um yeah, I would just be cautious.

especially too, because you know, think about it this way. I'm a big believer that if you're going to hold an ETF let's say your goal shouldn't be to sell it and trade it. See, the point of an ETF is to milk the tax benefits. you know? And obviously this isn't tax advice.

So consult your tax professionals. But you know an ETF can rebalance for you and potentially help you not pay a dime in taxes because ETFs can rebalance if they do it in a certain way without passing on capital gains to you. That's amazing. That means you could trade in an ETF.

Basically, the ETF manager can trade for you and and you don't pay taxes on those gains. That's amazing. So your goal should not be to trade ETFs it should be to hold ETFs That's how you get the best benefit. but you can't hold a leveraged ETF You could only you.

You should only be trading a leveraged ETF But then it takes away some of the big benefits of ETFs you know? and then it just becomes a tool for speculations What it is. So okay. Max Great question: Companies with U.S Exposure to China I Actually think that's a great thing. So the reason I say that is because I Mean my belief always has been that one of the reasons you invest in companies like like for example Tesla is because you actually get the Chinese exposure.

uh, as an American company. so you can bet on the American accounting, the American financials, the American transparency, the American regulation and still get that exposure to Chinese sales. So why would I bet on Chinese companies if I could just bet on American companies to sell good stuff in China I Love that. That's that's exactly what I love.

Uh, so yeah. uh. housing applying stuff is cheap in South America Well, of course. all right.

so Msci is pretty good. World Index uh IRA account. That's true. You could.

you could trade uh, tax-free if you trade in like a Roth for example I Think that's a great idea I'm a big fan of people maxing out their Roth The problem: The downside of maxing out your Roth is you usually delay your interest in buying real estate because you think oh no, I have to sell my Roth because that's often what people's down payment money is. But that's okay. you could withdraw your principal from a Roth without tax implications. It is a perfect opportunity to use a you know the the tool of a Roth as as basically your shelter until you're ready to buy real estate.

and I've mentioned this for you know, over a year now I Don't want to sound redundant, but I really think uh, that either the housing market will be kind of flat or teetering as the stock market and maybe even down a little bit as the stock market is roaring. That's all part of the whole Nike Swoosh thesis, which I think is incredible, but it sets up for I think uh, probably better opportunities to come and real estate. We'll talk about real estate, maybe a little bit more later. Hsas are amazing.

It's just you just need a high deductible. Health Plan The problem with the high deductible Health Plan is a lot of people don't have high deductible. Health Plan you know you're If you're an employee, you generally don't have a high deductible health plan because you're getting provided. uh Insurance in many cases.

Uh, uh, so so um, can you pull your entire Roth I Mean, there's so many. There's so many things you could do with these various different tax accounts. Uh, yeah, there are penalty free ways You can also take out uh, invested gains to buy your first property or property to live in in some cases. But yeah, I mean it just to keep it simple for a moment.

The point of the Roth that's cool is you can always take out your principle for any reason because you've already paid taxes on it. which is kind of cool. So you can kind of always put money in, take money out, put money, and take it out and write your principal. Uh, but there's there's obviously a limit because you have those contribution limits for putting money back in.

so it's not as easy as I've just described. but I You know, to some extent, it's kind of nice to know that you could take your principal out and go buy real estate anyway. I Want to talk about this? B of A Piece So let's get into this: Nike Swoosh is looking more like a Nike V Well, I mean that's not a bad thing. All right.

What do we just talk about? Leveraged? ETFs Uh, what else we talk about? Ross EPC All right, What else now? Uh uh yeah, they're both bull thing. All right. There we go. Well Citigroup just came out and indicated that 21 billion dollars in new long positions have been added.

S P 500. And this is a lot of really one-sided betting and it's leaving a lot of people wondering. Is the stock market stupidly euphoric? Again, Are we yet at another one of those points in the market where the market is just detached from reality? Who remembers the days of covet, where the economy was basically at a standstill and collapsing, and yet the stock market was just up, up, up and away? Well, Bank of America has a pretty fascinating piece on the stock market and what the forecast for the stock market could be. And even though to some extent, this forecast and this piece that we looked through might look, uh, you know, to some as relatively one-sided, it's worth noting they're really only projecting that the S P 500 will rise another 2.3 percent this year at the end of the year.

And and who knows? that could mean there could be a dip between now and then. But what I really want you to pay attention to is what they're specifically referring to as to why the market could do something unique here. So let's take a look at the piece together. This is the piece from Bank of America Bank of America's new end year Target 4300.

Okay, 4300 again represents about a 2.3 percent increase from where we sit today. So it's actually not that big of a deal. That means you know with the S P 500 up 9.9 you've already had most of your gains essentially for the years. What Bank of America is saying here? Although they do, they do indicate that the stock market could actually fall to 3 900 or rise all the way up to 4 600 in a Range.

So now what I'd like to do is look at some of this the the views they have here, especially on multiples and valuations and otherwise. So they argue here that the era of easy money is behind us and that today Corporate America is focused on efficiency automation AI productivity. Which definitely reminds me about this program on how to make more money and get sh19 done faster featuring AI which remember, we're releasing that on June 1st and then there'll be a massive price increase for for those programs on building your wealth. But anyway, take a look at this.

They start talking about multiples and uh, how multiples for the S P 500 or or high. But uh, multiples have been even higher during prior crises and I Thought this was fascinating this comparison because right now the S P 500 is sitting at about a 21 times multiple. But one of the reasons the multiple is high is because earnings are lower I Want you just visualize that for a moment because it's easy to get lost in that, especially if you're half listening. So let's simplify that.

Okay, let's say you have a stock that trades for one hundred dollars and you had five dollars of earnings per share. Uh, you know last year. let's say trailing 12 months? Well, that puts you at a 20 times multiple. But let's say last year your earnings were depressed and you actually expect your earnings to be seven and a half dollars today? Well then you're forward-looking PE Basically is a hundred divided by 7.5 is actually 13.3 So one of the problems in a recessionary time is multiples are a dangerous tool to use during the period of low earnings.

specifically because the earnings numbers are lower, so you have to keep that in mind. So look at this when we compare to Prior lows in the stock market. What did we end up getting? Well, look at this. in Covid, we were at 23 times EPS at the low and during the great financial crisis, we were at 28x.

Which means we actually weren't uh, as uh, as potential. we're not