George Gamon thinks we are within months of a recession striking. His reason for this has to do with the plummeting of the 2-year treasury yield yesterday. I had the privilege of speaking at one of his events in. Dallas Texas Not only did I have the honor of speaking at the event, but I also had the honor of interviewing him going on.

His Rebel Capitalist Show and Interviewing James Hartman Ken Melroy Boy, we've got some amazing interviews dropping so make sure to subscribe. but George Gamon's argument which you'll hear a lot about and fully explained in the interview that'll drop between myself and him has to do with the two-year treasury dropping and what that is telling us when it drops 25 basis points suddenly out of very little news when the tenure isn't dropping that fast, Is that a sign that the recession is potentially months away? Well, in this video. I'm going to point out two segments from the interview that we did on his show because there are two things that are virtually opposite to either what could happen or comparisons to history which I think are useful for investors. whether you're a bull or a bear.

I Think the concepts that we're about to touch on are going to be very, very important for understanding. Are we indeed going into a recession that is just months away? So the first segment I'd like to talk about is this right here. Now this segment has to do with the difference between comparing our supply chain shortages and the expansion of the money supply that we've seen today during Covid with War. and I Want to touch a little bit on my response here as well as Georg's response.

And then we're going to get into a very clear difference that I found between my expectations for inflations uh, for inflation and George's and how we could actually both be in alignment of what the outcome is. Very interesting. Let's get into it: I Think it's It's like Lynn says it's much more like the 1940s where you've got the supply chain disruptions and you have the money supply growth as a result of fiscal and not necessarily what's going on in the banking. Yeah, I There there are nuances, though in in War versus Pandemics somewhat you have loss of life in both, but interestingly, you probably have much less destruction of industry in a pandemic than you do after the war.

So theoretically those prices would come back down a lot faster because the supply chains are able to go back to as close to normal. You're not retooling so to speak, or rebuilding, right? In fact, instead of retooling or rebuilding, we are just building. So so we're So this is a reference to war versus Pandemics and it's very important to consider that. Look, yes, we had postor War II inflation, but something that we also had post World War II was a retooling of manufacturing.

Remember the thesis of guns and butter. We're going to take factories and we were going to make Warheads We're going to make bullets, We're going to make bombs, and we're going to limit the production of goods that people need at their homes. Uh, and we were going to use a lot of Commodities that we could be using to build homes and instead use them in war. Frankly, so there is post pandemic and post-war inflation generally in both cases.

Uh, however, your ability to get rapid deflation or at least rapid disinflation statistically is easier after a pandemic because again, in both cases you lose lives. But in a pandemic, you didn't retool the auto manufacturer into a bomb making facility. Instead, what's happening in today's economy is actually virtually the opposite of what we saw saw after the war. which is rather than having to go from basically this neet negative place of uh, manufacturing capacity, our manufacturing capacity didn't go down.

What happened was our demand went way up right? so our manufacturing capacity stayed the same Well that demand has since come way down. But what's happened to our manufacturing capacity? it's gone way up. So let's think about it very simply. let's say you're at a 0 manufacturing covid Z Manufacturing War Zer Well, Manufacturing in war goes down 10 and then you add 20.

Let's say now you're positive. 10 Manufacturing after the war, well today think manufacturing never went down. If anything, we've just added a ton of fiscal spending. On top of manufacturing.

We've exploded our investments into manufacturing so we're probably plus 30 to Manufacturing wall demands come down. So in other words, we've created this really like scrunched up rubber band. Quick reminder to go to Meetkevin.com for the courses on building your wealth, building your wealth in real estate stocks, artificial intelligence, and productivity. The New: Gold Course new lectures are being added, so check those out linked down below and if you want Financial Advice: go to Stackhack Tocom.

We have new slots that are finally open again for financial advice as we're just wrapping up all of the other dozens of batches of financial advice that we've given. that's at Stack Hack.com you know I don't have a rubber band handy but I have this watch handy. So I always like the analogy of of this rubber band of where like what we've done is. We've created so much extra capacity and capability for manufacturers to manufacturer that we could add a lot of demand and actually fill up those Supply chains which are now ready and do not want to miss out on the demand that we saw in 2021 the next time we go into a boom cycle.

So we overproduce manufacturing and so what happens? That rubber band can fill in and it can still be very loose unlike the pandemic where it's like like super stretched and it's ripping and breaking. So that's one thing that I think is really important, but it also relates to part two of our discussion. Uh, in that Rebel capitalist video. a lot of supporters uh uh, watch George Gamon as well and George is amazing.

You know he he came to testify for me uh in in court when I was running for governor and how was trying to fight the system uh for for uh uh ballot naming. So really good guy. Uh, but anyway, listen to this segment here. This is a very interesting one because it relates to the Baseline that we just created my ,000 in my savings account.

but I'd much prefer to have 5.5 if I buy a three-month treasury. So I'm gonna go ahead and take that savings I'm going to give it to Janet Young She's going to give me a treasury that's paying 5.5% But then what she's going to do is she's going to take that money and she's going to spend it as as let's just say, stemi checks. Yeah, so now that money has gone from zero velocity to a lot to a lot from savings into checking, but yet M2 has not changed at all. velocity increased, therefore all being equal.

you would expect consumer prices to go up. I Think that in my mind, that's the easiest way to. This is a very simple argument as the money supply expands inflation up. I Actually agree with this.

In fact, listen to my response. but notice where we defer it's a very important so that's so your POV is that we'll sum that and call it easing. Easing turns into inflation. Yeah, I Think easing turns into no deflation.

So okay, so it's it's anti- deflationary. That's well, the easing will create inflation, but it will only offset the capitalistic deflation that's occurring. Oh okay, okay, so uh. without that, your base case is let's say we have 2% deflation because of the advances in technology AI Cathywood stuff.

Yeah, exactly. And and so. But what you're thinking is that we're going to have maybe a slight downturn. Or maybe the Fed's going to get ahead of it or the government's going to get ahead.

Let's let's remember it's an election year. Yes, So they're going to try to get ahead of it with all of this, uh, fiscal spending that's going to go into checking. go from savings into checking in increasing velocity. which outside of the deflationary pressures would give us.

let's say 5% inflation. But with the 2% deflationary pressures due to Ai and all this stuff, we end up at a net at two or three %. CPI Which is right around where? Yes, Okay, yeah, yeah. which.

So this was a really interesting back and forth because first of all, usually I I I don't get George in a place where he's like huh? Yeah, because like I I I think I Think there's a little bit of a moment there of like huh? There is an argument there, right? Because ordinarily we look at the yield curve, the inverted yield curve and we're like, okay, this is going to guarantee recession. But the yield curve is also very bizarre Because yes, look at the yield curve for a moment. The yield curve here recently has inverted during recessions. Uh, But then we look at for example, the 81 inversion of the yield curve for 82 uh and GDP in 81 and 82 stayed positive.

This is the percent change from a year ago and we actually inverted here, but kept GDP substantially positive. uh in both 81 uh and 82. That doesn't mean you don't have a recession. Uh, but you certainly don't have this this uh, this crash that you had like in 2008.

Then again, we've also had positive GDP going through the Dotc bubble, which was also defined as a recession. Usually those recessions are driven by Massive joblessness, so you absolutely had a higher unemployment rate during these Cycles That's why we had a recession, so it doesn't necessarily mean our GDP has to go negative. We could absolutely go into into a recession. and I actually think that one thing that could lead us into a recession is a joblessness recession.

But I'll tell you. what's weird about the inverted yield curve is let's go back into history and look at this. When we go before 1930, we actually pretty much had a negative yield curve from 1900 to 1930. Now there are potential reasons for this uh that are different from today.

Uh, that is. we were on a gold standard. Back then. our banking system system wasn't as built out.

we didn't have a Federal Reserve dinking with our economy. Uh, we had limited government spend and and government intervention. Of course. We also had uh, you know, uh, a depression.

And what's crazy is during the Depression here, what actually happened is you went from inverted by about 70 basis points to inverted as low as 300 basis points. So you went from like inverted to even more inverted. But it's really interesting because we always say oh yeah, absolutely the inverted yield curve means a recession is coming. But but wait a minute, we we were inverted.

Which is all of the red section here for 30 years and we didn't have 30 years of recession in the early 19. Uh, uh, you know, hundreds Now of course we had the depression of 21, the depression of the late, uh, 1920s. Uh, and then of course we had war and and there there were a lot of panics. Don't get me wrong, I Mean you had the Panic of 1907.

You had the recession that were like between 02 and 04 1900s. You had a panic between 1910, 1911, uh, 1913 to 1914. Uh, and then again, you went 6 OR7 years before you had the war. So there were definitely boom times.

Uh, during the early 1900s where the yield curve was also inverted. Now I Don't think that's a perfect comparison to today, though, because well, again, things are so structurally different. We're probably much better off looking at the inverted yield curve more recently, but it is interesting because it kind of makes us scratch our heads and go huh? maybe I Didn't know that the yield curve was also inverted for 30 years between 1900 and 1930. Uh, with the exception of a couple short periods of time.

So now you wonder. Okay, so let's let's take a step back here. Let's think about where we sit. now.

we sit in an economically challenged time. What happens when the Federal Reserve eases well? I Ideally, you prevent job loss. If job loss has already begun and you've already started a self-fulfilling cycle of job loss, we're screwed. We're in a recession.

Whether GDP goes negative or not doesn't matter. The unemployment rate alone will drive us into a recession rapidly. It's a lagging indicator. Once it happens, it's too late.

We're screwed and you do not want this. Job loss sucks right now. Most people think if they lose their jobs, they can find another one. Very difficult in a recession.

Okay, now what if the Federal Reserve and I'm not trying to give them credit, but I'm just saying it's a possibility. What if they realize that they start easing early because they recognize that Supply chains are like the crunched up rubber band and we won't necessarily see consumer prices go up with easing. Remember, easing can cause a lower unemployment rate and it could lead to more spend. More spend does not mean more inflation.

If you have companies that are like please buy more stuff from us If companies want to grow their revenues and grow their profits without laying off people, you need more demand, you need the top line to go up. You need more units sold with flat prices, not more units sold at higher prices Because if you raise prices, you lose unit volume which you don't want. You want units to grow and profit to grow, How do you get that units up? Profit up with an eased economy. Now if it's ease too far to where Supply chains are constrained Again, that's when you get prices going up.

That's a very capitalistic and normal environment. So my belief is that yes, we can have a situation where uh uh, we have inflation from easing. but it will come from a negative position. It will come from preventing companies from dropping prices too rapidly because you drop prices too rapidly.

Recession or depression. I I Know people are frustrated by this because it's sudden of like prices have gone up 30% Please let prices come down. I Agree it's insane. Okay I don't want to pay $300 for freaking lifting any or the groceries or whatever it is right? But I'm just warning that one of the ways the system could be manipulated is that we are basically knocking on the door of recession companies Realize that they start cutting prices rapidly.

We actually walk into deflation Before we get the joblessness. the FED eases pulling us out of any kind of realized deflation, and all of a sudden we're at 2% inflation simply by having printed our way so to speak, or easing the money supply out of deflation. It's a crazy argument I Realize it, but it's actually one that I think is true because if you think of Jerome Powell we know he does not want deflation. We we know he does not want joblessness.

We know he does not want to reignite inflation. That's the risk factor to this strategy. If he believes, well, inflation's still at 3% If we start easing now, we're going to go up from three, then you're screwed. So it really depends on where you're measuring from.

So the best generally way to measure is by looking at 3, six, and 12 month annualized uh reports of recent inflationary data because it tells you where the inflation is today. year over year is much more lagged. So when you do that, you actually see a chart like Niki Leak shares over here that inflation is sitting between 2.5 to 2.7% if it continues on this trend for the next two inflation reports going into March and all of a sudden, we're at a flexible average inflation Target of 2% and the FED can begin to ease. Remember, easing a little bit doesn't really make that much of a difference yet.

Uh, you could. You could actually follow this curve down and start going minus 25 - 25 25 and that that line can still go down. They just don't want to add even more pressure to the economy by keeping rates high for too long as inflation spreads down, because then your real level of tightening, which is the difference between the two, expands. Okay, so bottom line: out of all of this, the FED can absolutely cut.

the FED can also probably cut rapidly and avoid a joblessness recession. And if we don't get joblessness in this cycle, I Think we're going to avoid a recession, will get inflation back to expectations, and we'll actually be able to look at the inverted yield curve as something that pulled off more of a 1982 or a mid90s than what most people look at the inverted yield curve likely being able to pull off. And that's because I Think we're sitting here in the aftershocks. Kind of like we got hit by an earthquake and see this blue line here.

see how volatile the inverted yield curve is? Here, we got this volatile earthquake, which was the rapid rising of interest rates like you saw from Paul Vulker. And now we're dealing with sort of the aftershocks of that. And so technically we could argue. We've already had the recession of the 2019 inverted yield curve, so inverted yield curve.

of 2019 created all of the insanity we've had over the last four years. And so we're not saying this time is different. The inverted yield curve is wrong. We're actually saying the inverted yield curve was right.

It was just right already. it's already done. It's already been correct. Uh, and then then uh.

You know you could go into a 10-year boom cycle? Who knows, who knows, but it is a consideration. Uh, so we'll see. I'd love to hear your comments on this down below and we'll see you soon! Thanks so much Goodbye! So remember, go check out the gold course at Meetkevin.com along with the other courses and Stack hack to get stacked with Stackhack Stack.com Email us at Staff Atme Kevin.com if you have any questions. why not advertise these things that you told us here? I Feel like nobody else knows about this? We'll We'll try a little advertising and see how it goes.

Congratulations man, you have done so much. People love you people look up to you Kevin Paffrath there financial analyst and YouTuber Meet Kevin Always great to get your take even though I'm a licensed financial adviser, real estate broker, and becoming a stock broker. This video is neither personalized Financial advice nor real estate advice for you. It is not tax, legal or otherwise personalized advice tailored to you.

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