2 people go into a bar, one dumb, one misguided - what's the bar's name? Merica!

I'm uh doing this video from inside my house this week. The cicas outside are just screaming. Uh you probably be able

just screaming. Uh you probably be able to hear them in the background even though I'm all the way inside the house.

Uh, I tried doing it outside and it was it was just impossible. And there was some complaints last week about the background sound. So, when I do these

background sound. So, when I do these outside, it's enjoyable outside because it's nice down here, but the insects ruin everything.

Also, a change up this week. I was going to do Planet Labs as the spotlight company, but as we got into the end of the week, uh, a number of factors, uh,

made me change my mind and decide that, uh, I'm just not going to get it done.

Um, the big one is that by the end of the week, uh, the market I felt had entered a different phase. We'll talk

about that uh, when we start looking at where the indices are versus their up moving averages. and one index is in

moving averages. and one index is in correction. Uh so I think that deserves

correction. Uh so I think that deserves uh more attention. To do a spotlight company uh takes me all week to to really get to know the subindustry, what

it competes in, what its competitors do, what its positioning is. Then you got to dig into its financials. It it does take some time.

Um the other reason, and I don't know why, uh but I just couldn't get interested in this company. I don't know if it was because there was too much

going on in other places and my my focus wasn't there. But as I was um looking

wasn't there. But as I was um looking into what this company does, it just kept striking me as to how bored I was with the whole thing.

Um so uh I think it was more likely that I was distracted because it is uh geo information more than earth observation

they uh sell uh not just access to uh to pictures and uh data but they do some intelligence on top of that. So, it

would otherwise be interesting, I think.

But, you know, I'd spend 10 minutes with it and I'd get so bored with it. I think

this is so boring. Uh, maybe it is boring. I don't know. But we'll attempt

boring. I don't know. But we'll attempt it at some other time. There's just too much too much going on right now. And

the big question is what do we do? How

do we position ourselves for a market like this? Uh, I seem to think we're

like this? Uh, I seem to think we're past the phase of taco. And I don't think taco will help. And I think uh I think the administration knows uh that

this is this is beyond their ability to simply just declare victory on. We'll

talk about uh the FOMC and the administration's inability to execute on even the simplest of plans

and the fallout that happens because of it. I'll demonstrate why the interest

it. I'll demonstrate why the interest rate is going to be ineffective uh on uh this type of inflation.

Uh but it won't matter if you have a group of people who believe the interest rate is is the tool they're going to use. They're going to use it. But I'm

use. They're going to use it. But I'm

going to show you that it's ineffective or that it would be ineffective, which might help us determine where we want to be. For now, let's look at the uh graphic in the middle of the screen.

This is from the summary of economic projections and uh I found it very telling uh in the press conference when pressed upon why they had written down

certain things because I'm going to point out some inconsistencies that just don't seem to make a lot of sense um based on the messaging that they're

giving. when pressed on it, Powell said,

giving. when pressed on it, Powell said, "Look, we we decided, you know, if there was ever a time to skip the summary of economic projections, now would be the

time. We we we don't know. We just don't

time. We we we don't know. We just don't know." But we had to write something

know." But we had to write something down. So, here it is. So, this is just

down. So, here it is. So, this is just this is not even an attempt at forecasting. It's just, well, I guess I

forecasting. It's just, well, I guess I got to write something down. I don't

know. Uh 43 27 31. I don't know. How's

that look? I got to write something down and the meeting's almost over. I want to go home. So I don't even think this is

go home. So I don't even think this is serious stuff.

Um but have a look at what they're forecasting here uh for the December to to uh the uh March SP uh an increase in

GDP real GDP across 26 2728 an increase a decrease in employment a decrease in inflation along with a decrease in the federal funds rate.

So the question was how how are you getting this done? How are you forecasting more people going home with a paycheck, higher GDP, but inflation just magically coming down and and the

interest rate coming down at the same time?

And here you are talking about inflationary forces and we stand ready and uh we haven't seen progress towards our goal. Uh and and there's the market

our goal. Uh and and there's the market thinking that maybe you're going to raise rates. How how are you squaring

raise rates. How how are you squaring this that you're going to lower rates this year? Inflation will come down this

this year? Inflation will come down this year. Unemployment will come down and

year. Unemployment will come down and we'll have growth in the economy.

Almost every possible way they can say no stagflation possible. And maybe

that's the message. Maybe the message is to put it out there. We don't see stagflation. So please, please, please

stagflation. So please, please, please stop talking about it because a narrative can sometimes create the very scenario the narrative is talking about.

And I think that Powell had an opportunity to talk down inflationary pressures here so that the narrative would begin to talk it down so that companies wouldn't start saying, "Oh,

well, the Fed is concerned about it. I

better I better start thinking about how I'm going to pass these costs through and that employees who say, "Well, my annual review is coming up. I got a 3% raise. I'm going to see if I can't push

raise. I'm going to see if I can't push it to four or five because obviously we have inflation." And the more you talk

have inflation." And the more you talk about something, the more people start preparing for its eventual arrival, there be thereby creating the very arrival you talked about. So their best

bet, I thought, was just to not talk about it. But here we are. And the

about it. But here we are. And the

market completely ignored the summary of economic projections.

Powell did say in the press conference, we do see one more rate cut this year.

And the market said, oh no, no, no, no.

Not only are you not going to cut, we're going to start pricing in a hike um under Worsh.

I say that with some hesitation because the market is probably listening to Powell's words that if in June Worsh is not there, he will continue on. It will

be a Powell Fed.

This requires the administration to drop everything against Powell and win by putting worsh in place and get the lower interest rates. But that's not how this

interest rates. But that's not how this administration does things. It's not

enough to win. The other side must lose.

Powell must lose significantly.

So to solve his need for petty revenge, we are all going to have to suffer a little bit more. and Powell is is the wrong person to guide us through this. I

do agree with Trump's assessment. He is

mostly late. And at this point, he is mostly wrong. And I'm going to

mostly wrong. And I'm going to demonstrate that over the past number of years, it is the Fed itself that is creating the inflation at this

point by adding to its balance sheet. It

is the Fed itself that is the enemy and is going to raise rates in the hopes of separating people from their jobs so that you can bring down consumer demand

because that's the inflationary potential right now so that uh he can get inflation lower.

Meanwhile, he is this committee is the one that actually is causing the inflation right now by building their balance sheet. And I will demonstrate

balance sheet. And I will demonstrate using two periods of time. We'll go back to a time when oil was $100 a barrel,

$110 a barrel. Interest rates were 0% and inflation was 1.5% over that whole period of time. How can

that be?

Here we're at $97, a much higher interest rate, and everyone's screaming inflation, inflation, inflation. How can that be?

inflation, inflation. How can that be?

We'll see that the Fed itself has set the conditions under which that is possible.

And by doing more of what they're doing, they will get more inflation, not less.

This is why we've got to get rid of them.

But anyways, there is your your uh forecast for uh 2026. Fed funds rate ending at 3.4 is a rate cut. is a rate

cut even though they've increased their uh projection for PCE core PCE from 2.5 to 2.7 kept unemployment the same increased their projection for growth and put a

cut in that was the question of what this is this doesn't make any sense and he says well look we just wrote down don't hold us to it we just wrote

down if you go back to uh 2021 you can get all of these on the on the Fed website just type in FOMC calendar

and you'll get all the years. Go back to 2022 and look at the forecast they had for 2025.

And you can go from each summary of economic projections and you'll see that none of their forecasts are what 2025

was. We have 2026, 2027, 2028 on the on

was. We have 2026, 2027, 2028 on the on here. If you're going back to 2024,

here. If you're going back to 2024, you'll get their forecast for 2026.

look at look at the four SCPs that they uh produce in 2024 and you'll see that nope. Uh and when you look at their

nope. Uh and when you look at their longer run uh in any SCP, look at their longer run, it's always the same. We're

always going to get back to that same point all the time. Uh they're anchored to these points and no matter where they are, no matter where they are, they

linearly project down to those anchor points regardless of where they are.

They are terrible at forecasting. Just

so that we have that in there. Yet the

market zeros in on their forecasts so much. Let's look at the uh effect that

much. Let's look at the uh effect that we had throughout the week. And it was not pleasant. There was no safe place to

not pleasant. There was no safe place to hide anywhere to do uh with interest rates or yields. Uh this is one week.

Look at the uh massive increase in par yields for one week. this uh when we say a par yield just so that you know what that means. It means if the Fed sorry

that means. It means if the Fed sorry the Treasury we're going to issue a 2year bond and it was going to issue it

at par meaning 100% so 100% of its face value. So if it's a $1,000 bond it's

value. So if it's a $1,000 bond it's going to raise $1,000 it would have to have a coupon of 3.88% based on where the market is. If it had

a coupon of 3.8 88% it would go out at par that is uh above the average interest rate the Fed pays on uh the Treasury

pays on all the debt.

So it would have to issue uh and it has a lot of debt uh uh maturing this year and next year a big wall of debt and the interest rate is already unaffordable

$1.2 2 trillion dollar per year. And if

you have to issue more debt, you must issue it at higher prices. And they're

talking about saying, you see this money market rate over here, which is higher than the cost on the debt. Now, the Fed is saying, we're going to make it even

more costly for the government to borrow. We're going to make the deficit

borrow. We're going to make the deficit even worse than it is right now, and we're going to make it much harder for this problem to be solved.

you know, in support of our dual mandate for the public. You see, uh we are, I believe, uh at that cusp right now where

you need a new Fed chair that recognizes that that the US is entering its period of fiscal dominance.

Fiscal dominance is a situation in which the fiscal situation of the government has a lot to say about where monetary policy can be. It cannot act

independently of the fiscal situation.

With $1.2 trillion in interest per year, the second largest budget line item, you cannot go it alone. You cannot look at things and say, "We're going to make

US debt far more expensive for the taxpayer because inflation is 70 basis points above our target, mostly due to tariffs

and we know that." and mostly due to energy which which is an energy shock which we tend to look through but we're not you'll all have to pay more and some of

you will lose your jobs you know independence if you think I'm being a little facicious on this I am because this is

the we have I think the most um inexperienced uh and uninformed group of people across government right now we have an

administration that just can't execute and are absolutely willing every day to show how inexperienced they are, almost

verging on dumb.

And we have a Fed that is causing its own inflation and cannot understand that the interest rate here is not the effective tool. Not

once did they mention the money supply.

Not once did they mention the balance sheet. Not once. It's not even on their

sheet. Not once. It's not even on their radar because we live in an ample reserves regime. We have to keep adding to the

regime. We have to keep adding to the Fed balance sheet. We have to keep pushing money into the system. And we'll

scratch our heads and say, "Huh, inflation seems to be sticky. Let's make

everything more expensive for everyone by talking about it and raising the interest rate." Keep in mind, you you

interest rate." Keep in mind, you you bring this up another 25 basis points.

uh the the Treasury has no place to issue debt at this point in time that would lower their average cost of debt.

The average cost is sitting around 3, call it 3.35%.

Everything is well above 3.35%.

No matter where they issue debt, it can only make things worse at this point in time. And they're asking for another

time. And they're asking for another $200 billion to fight a war they never approved.

uh which will only add more to the deficit which adds more to the debt and you can see where this is going. The

idea that the Fed can remain independent I think is misguided thinking. The uh

idea that the Fed should remain independent I think is more misguided thinking.

If it does end up being that way, I would have to say that America under this leadership is getting is is almost to the point of being an uninvestable

market.

Slopes uh 3 month to 10ear slope is higher uh yearto date uh and it is flatter from the two to the 10 only because the two has come up so very much

starting to price in um cuts. You can

see January 1st uh on the yield curve chart down here. There's January 1st. Uh

look at where March 20 this is higher across almost all teners except here uh the uh the one month one basis point better than the beginning of the year.

But look at the increase in costs to issue a mountain of debt this year. 9

trillion rolling over at much higher yields and rates.

No mention of that. Not at all.

Um, let's look at ZQ. Let's get right to that. This is beyond my worst case

that. This is beyond my worst case scenario at this point. I did not expect this kind of reaction.

Uh, I had been asked before, uh, you know, what's your worst case? And at

that point, I thought my worst case is is is one rate cut before Powell goes.

And and you know, worst case, two cuts this year. worst case.

this year. worst case.

Um, but I didn't expect uh the bully to pick a fight with the crazy kid and he did. And you don't have it in your

did. And you don't have it in your bingo. What if the straight of Hormuz

bingo. What if the straight of Hormuz gets shut down? Well, sure these things could happen, but you know, that's nowhere near a base case. Well, now it is. What if Powell is going to stay?

is. What if Powell is going to stay?

Powell's not going to stay. They're

going to get Wars uh confirmed. Then

they had their opening case was overturned. Piro could have walked away, but no, they had to double down and run back into the burning

building.

So now it is a Powell fed.

Uh, and the bully is in a fight with the crazy kid. So,

crazy kid. So, uh, I I know I'm going to be right, but I don't know how long I can suffer the

stupidity of the crowd. I shouldn't say stupidity. They're probably doing the

stupidity. They're probably doing the rational thing based on what they're seeing right now. But I'm making the bet that they will get Wars confirmed, that

they will find some way out with Powell.

I don't know how cuz it's not enough again for Trump to win. He never he he'll declare victory no matter what.

The other side must lose, must publicly lose. They must be publicly embarrassed.

lose. They must be publicly embarrassed.

That is just his MMO. And he won't stop until until he gets there. and he'll

ruin everything else. But by God, he's going to win. It's his ego on this one.

Um, we are pricing in eight basis points of rate hikes for the year, even though the Powell explicitly said in verbal

words during the press conference, we still see one rate cut this year.

Michelle Bowman said, I still see three rate cuts this year. Worsh will be confirmed. It's not going to go all year

confirmed. It's not going to go all year with Powell. Worsh will be confirmed and

with Powell. Worsh will be confirmed and he sees rate cuts this year. There are

rate cuts this year. But the market can get stupid before all of that happens.

And at this point, I don't feel that I can give the market another 24 hours of this stupidity.

But here we are. No ability to look forward on this one. It is a Powell Fed as far as the eye can see. It is the interest rate to solve inflation no

matter what evidence you show that it doesn't work. Eight basis points in six

doesn't work. Eight basis points in six meetings, five of them apparently.

Air quotes now ex Powell.

Um I think the best we can hope for is for Piro to back down. Not Trump, but

for Piro to back down.

Um, but just to spin it another way, she's asked for documents from the Fed. Why

not just give it to her? Like, why not just give her the documents? They're

asking for them. Why not just say, "There's nothing to find here. Here,

fine, have them." Like, why make a stand on it and say, "No, you can't have them.

This is a witch hunt. We know it is. You

can't have them." Why not just say, "Look, here. Why not just give them?" I

"Look, here. Why not just give them?" I

mean, that's her big deal. She's saying,

"Oh, he said this this two this thing this two-minute thing in in in front of Congress. Let's find the documents to

Congress. Let's find the documents to see was he lying? Did he know that that what he said was wrong at the time? Why

not just hand over the documents?"

a little bit of stubbornness on both sides maybe, but I think the best that we can hope for is Piro coming out and saying, um, this is not, you know, it is not in

our best interest to continue to pursue this. Uh, the American public needs

this. Uh, the American public needs relief and they're not going to get it from this group of imbeciles. Call them

whatever names you want on the way out.

You know, you can call them whatever names you want, but do something. But I

think that is the best. Trump won't

admit defeat. Trump will then just pass it off and say, "Well, you know, that's that's why I hire people. I put him in place. She made a judgment call. I back

place. She made a judgment call. I back

her judgment. Although he's a loser.

He's a two-time loser. He's he's a fraudster most likely. He's he's a liar.

He's a what? Call him all the names you want, but find a victory." And I think if there is going to be an exit, it's going to be that. Um, I thought maybe,

you know, with politics you can give Tom Tillis something, but he's done.

He's done this year. This is it. There

is nothing he cares about at this point in time. Now, you can wait them out.

in time. Now, you can wait them out.

That's January. Powell till January. No.

No. I I'd be I'm out. I if if I knew ahead of time it was Powell to January, I'm I would never have entered the trade. I'm out of the trade. If if if

trade. I'm out of the trade. If if if there's any indication that we can wait him out, but we're not going to let him go. we're going to punish him and punish

go. we're going to punish him and punish him forever and ever. I'm out of the trade. Out of the trade. There's other

trade. Out of the trade. There's other

ways to make money. I don't have to die on this particular hill. Uh but that's the best that we can hope for is for Piro to come out and say, "This is not in the public's best interest at this

point. Somebody got away with a crime.

point. Somebody got away with a crime.

So be it." You know, do whatever you got to say. But anyways, there we are going

to say. But anyways, there we are going all the way out to uh May.

So, you know, you're still there. Seven

and a half in nine meetings.

This cannot be. And there is no desire by the market to price in a calamity.

You've got private credit issues that are still out there. You've got consumer credit issues that are starting to rise, especially with the buy now pay later.

Wait till I give you some statistics on buy now pay later. You have energy infrastructure that is being destroyed.

Uh so even if this does end, you're not going to completely get back to where you are. And this is an energy shock

you are. And this is an energy shock because the price has risen so much. AI,

don't forget AI is still in the background. AI is still affecting asset

background. AI is still affecting asset valuations. And the idea that AI is not

valuations. And the idea that AI is not taking jobs, I think, is just blindness.

Uh and that AI over the next 12 months will not take anything, I think, is is is extreme blindness. It is taking jobs.

And it gets better all the time. Where's

it going to be in a year? This last year has been absolutely amazing.

I went from I've got a long runway ahead of me to I don't even know if I'm going to be useful in a year. That's where I am. And I'm an expert in what I do and I

am. And I'm an expert in what I do and I don't even know if I'm going to be useful in a year. What about non-experts and low growth?

No mention of the downturn in economic activity in the fourth quarter.

uh no mention really of the negative jobs growth once you uh account for uh health care which is a function of an aging population. Nothing out of the Fed

aging population. Nothing out of the Fed on any of that. You almost think they're completely blind to this information

or if they or or maybe they're just being political at this point and saying Trump wants a fight. We'll give him a fight. We'll give him the exact opposite

fight. We'll give him the exact opposite of what he wants.

uh KRE the banking sector is not having a good time at all this year. Uh they've

got so much uh weighing on them. If

you're going to have higher short-term rates that hits their overnight borrowing costs, that's a negative. That

starts to affect their net interest uh margin. If you raise rates at the

margin. If you raise rates at the margin, you decrease loan growth that otherwise would happen. It's not one for one with the interest rate. you you must

really increase the interest rate to get to get a significant enough effect. It's

not one for one. There's a better way to do it. But the interest rate is a blunt

do it. But the interest rate is a blunt tool. It's not one for one. But you do

tool. It's not one for one. But you do have bit of uh lower demand uh for loanable funds heavily uh institutional

side more than uh more than on the commercial side. But with um private

commercial side. But with um private credit and with buy now pay later, uh there are so many different ways for consumers to get credit that the

interest rate in the banking system just isn't a big deal anymore. Uh it doesn't have the effect that it used to have.

It's mostly uh um uh muted. Uh and I'll show you a supply demand curve and I'll draw out the the demand curve uh for credit from consumers.

uh and it is almost almost a straight line.

Uh so uh both sides of their balance sheet are getting hurt and then there's the concern about well how much exposure do they have to private credit uh and how much exposure do they have to

uh all of the consumer credit uh vehicles uh that are out there.

Now, a lot of the problems in those spaces is because you have a mismatch between liquidity versus what's in the loan. I want my money back now. Well,

loan. I want my money back now. Well,

you can't have it back now. We don't

have it either. It's loaned out. It'll

get paid back so much per month. Those

redemption gates and all of these funds are going to be hit again and again and again. Not because you got to get out

again. Not because you got to get out cuz it sucks, only because it just is smart to get in line. you may as well get in line because you're not going to get everything you want and you may as well ask for way more than what you

want. So, of course, they're going to be

want. So, of course, they're going to be hit again and again. I don't know that I would be too much interested in banks unless you believed that the interest

rate is not going up. In fact, it is going down. War shall be there. The

going down. War shall be there. The

market is wrong on that. And if you have lower interest rates, you'll have a higher demand for loan growth. The

market is wrong on that one as well. and

that the private credit issues are really one of liquidity, not one of loan quality. That the banks are maybe a

quality. That the banks are maybe a little bit here and there, but for the most part, they're going to be okay. And

that for the uh private uh consumer credit stuff that that's that's uh it'll be uh uh mostly a liquidity issue again with some issues here and there,

especially in the subprime part, but mostly they'll be okay. Uh little losses here and there, but okay, if you believe all that, then yeah, the banks are

probably a good buy.

Only thing up this year, XLU, there's the utilities. 100% track record of

the utilities. 100% track record of being up being green when the market is in in recessions. Utilities are green.

Utilities are green. They're a safe place to be. Nice dividend yield, too.

Almost 3%. uh consumer staples having a rough time but still uh positive for the year. Those are the only two sectors

year. Those are the only two sectors that are showing green for the year. SPY

down almost 5% from the beginning of the year. Uh IWM

year. Uh IWM uh down last week in correction territory. It is in correction territory

territory. It is in correction territory and triple Q's uh down as well from the beginning of the year. Nothing nothing

is safe. TLT down for the year, everything falling, rate expectations rising, energy and food costs rising. I don't know that you

could position the chessboard against this administration as effectively as you had. And again, I go back to what I said last week. What if,

right? I'm not saying this is this is the case, but what if Trump's goal was to destroy the economy? I got to give him an A+. If his goal was to destroy everything, I got to give him an A+. But

if we take him at his word and his goal was America first, I got he's a D on the verge of an F. You get a recession in there, you could put an F uh for

failure. Okay, lots of interesting stuff

failure. Okay, lots of interesting stuff here. Uh real yields uh all uh all

here. Uh real yields uh all uh all higher uh which is negative for gold. Uh

you had a dollar that was lower, but real yields higher. the belief that real yields will continue to go higher uh as longer term yields go higher. Your break

evens not much. Look at that. For all

the inflation, inflation inflation uh participants that are buying tips versus buying nominal bonds are pricing the break even at eh you know not that

much. Pretty much where where uh core

much. Pretty much where where uh core happens to sit right now. They're not

seeing it.

comma yet.

Uh and this is starting to uh show some some concern which uh spreads were so tight for so long. Credit was so good given the backdrop of everything. You

wondered if credit even had its eyes open or if it was just on autopilot. But

look at that year to date. All those

spreads are are much wider. Uh watch

these watch these spreads.

Let me just read some stuff off from consumer credit here because that's not reflected in any of this stuff. New York

Fed, the household debt and credit report. Total household debt, sit down

report. Total household debt, sit down for a moment, 18.8 trillion as of Q4 2025.

You got federal debt pushing 40 trillion. Never mind the state and local

trillion. Never mind the state and local debt that you that that you taxpayers have, but collectively household debt at 18.8 trillion.

Delinquency rates. This is a big one.

4.8% delinquency rate. This gets very scary.

delinquency rate. This gets very scary.

Highest since Q3 of 2017.

uh auto loan delinquencies uh expected to tick up. Federal

Reserve's own analysis through Q3 2025 notes credit card and auto delinquency rates uh have have started to flatten out after their post-pandemic rise.

That's kind of a neat thing that is from the Federal Reserve. That's kind of, you know, I shouldn't say neat, but at least less concerning. Um then the the it

less concerning. Um then the the it breaks it down into the different categories. Credit cards show the most

categories. Credit cards show the most concerning trends. 7.1%

concerning trends. 7.1% of credit card balances transitioned into serious delinquency, meaning 90

days past due uh over the past year in 2025. By the end of 2025, 7.1% of credit

2025. By the end of 2025, 7.1% of credit card balances. So we need something to

card balances. So we need something to uh compare that to. New York Fed describes as comparable to levels observed during the early stages of the

Great Recession.

And and we don't have a we don't have the early stages of a great recession.

Or or do we? I don't know.

Totally serious total sorry total seriously delinquent credit card balances. This this gets terrifying.

balances. This this gets terrifying.

The seriously delinquent credit card balances are within about 1 percentage point of the post GFC peak reached in

2010. So you had your great financial

2010. So you had your great financial crisis and credit card the serious delinquent uh uh ratio peaked in 2010.

We are now only 1% away from that without a crisis. We're 1% away. Where

would it be with a crisis?

statement. This is not normalization.

This is genuine deterioration concentrated among younger borrowers, lower inome households, and subprime borrowers.

Not done. Student loans are in even worse shape. 16.2%

worse shape. 16.2% of balances transitioning into serious delinquency in Q4 2025. A record

16.2 in serious delinquency.

Credit card serious delinquency 1% away from the peak after the Great Recession.

Wow, that's crazy stuff.

Auto loans, um, moderate stress, 60-day delinquencies at 1.54. That's not so bad. Auto loans are are holding up

bad. Auto loans are are holding up fairly well. Buy now pay later.

fairly well. Buy now pay later.

This is really wild. The only saving grace with the buy now pay later is it's small. Total outstanding balances for

small. Total outstanding balances for buy now pay later are a little over 1% of what credit card balances are. So,

it's small, but listen to this. Uh if

we're looking at um uh delinquency rates measured in terms of late payments, not just charge offs, but late payments and charge offs

over 40% low 40% 41 to 42% of the buy now pay later either late

payments or charge offs.

That's huge. And uh there was one fund um Stone Ridge uh which got hit with huge redemptions uh because they hold a bunch of this

stuff. They they hold mostly consumer

stuff. They they hold mostly consumer credit. So the redemptions are starting

credit. So the redemptions are starting to hit these private these uh these private funds that hold these types of uh these types of loans

um on top of what we have in in private credit. Now, there isn't a mountain of

credit. Now, there isn't a mountain of derivatives on this stuff, so it's not going to be a great financial crisis thing, but when you have stuff going on

in this credit market, private credit, then you got stuff going on in this credit market, consumer credit, you know, when you add them all up, they could end up being a fairly big thing on

their own, even without derivatives.

But there we are with uh with the level of credit going on in the background and credit spreads are just starting to show some stress. You may point out but these

some stress. You may point out but these companies are investment grade or high yield. They're better companies than

yield. They're better companies than what than what this debt is going to.

Doesn't matter when there is concern for debt. Debt pulls back everywhere. Credit

debt. Debt pulls back everywhere. Credit

lenders pull back everywhere. So even

good companies that need to roll over their debt find that they have to do it at higher costs. Here you go. Right

here. Look at that.

This this affects margins that affects your net income in all companies.

Anybody issuing IG is 14 basis points higher. Triple C 93 basis points higher.

higher. Triple C 93 basis points higher.

High yield as a category two two rate hikes 48 basis points higher.

When we look at the forward fourarter operating earnings forecast, you can't believe it. You look at the numbers, you

believe it. You look at the numbers, you say, "Well, it's got to come down."

Clearly, it has to come down because the analysts haven't given their new numbers for what they think um it's going to be given the higher energy costs we're now

facing. Uh and the higher interest cost,

facing. Uh and the higher interest cost, although it is operating earnings, so interest isn't included in there. Let me

back that out.

Okay, gold and silver and copper. Oy.

Uh let's look at gold at $4,500. It is

below its 50-day moving average, below its 100. It is above the 200, which is

its 100. It is above the 200, which is sitting at 4139.

Gold is above there, down 10% in a week.

It got beat up badly. Still up for the year, but man, did it get beat up.

Peak from the peak to now. Gold is down almost 16%. It is in correction

almost 16%. It is in correction territory. Copper down 15.4% from its uh

territory. Copper down 15.4% from its uh highest close. Uh it is in correction

highest close. Uh it is in correction territory. Silver down 41%, it is in

territory. Silver down 41%, it is in bare market territory all the metals suffered.

Silver down 15%, copper 7%.

Aluminum uh uh that is interesting being that it it it would have a positive correlation with energy costs. Uh it is

uh it is down. Uh platinum, palladium down as well. oil down slightly, but you know, you wouldn't know it just with the volatility. By the time you got to

volatility. By the time you got to Friday, you felt it was higher and higher, and the market kept pricing in higher and higher. Oh, we're going higher on interest rates. But if you

step back and looked at it, it was down week over week. It was down, but still look at that. 70% up from the beginning of the year. Natural gas uh down for the

week down 16% but I mean we don't need natural gas going into the spring and summer season now.

Um wheat up 17 1.5% since the beginning of the year. Corn 6% soy 12.6%

uh pork 7% beef 1.5%.

Uh food all higher energy other than natural gas all higher.

uh not doing not doing very well. April

uh FOMC, look at this. You got 6.2% probability of plus 25 basis points. I

thought we were done with that, but here we are. The problem is right back on

we are. The problem is right back on your desk. I think this is the right

your desk. I think this is the right move. Honestly, I I I think that's the

move. Honestly, I I I think that's the right move. I think the market has it

right move. I think the market has it wrong. The market is trying to outpow

wrong. The market is trying to outpow Powell. It is being more Powell than

Powell. It is being more Powell than Powell is. Powell said clearly, "We see

Powell is. Powell said clearly, "We see we see one rate cut this year and the market's saying, "No, why? Hold my beer.

I'm going to be more Powell than Powell and let's price in rate hikes." Worshes

first. Let's put that question mark on there because we don't know if it will be Powell's first

uh of of his post tenure uh um meeting or if it'll be Worsh's first. Market is still looking at 6.2%

first. Market is still looking at 6.2% 2% probability of a rate hike carried over from uh from from uh April

reverse repo. Um I don't know that this

reverse repo. Um I don't know that this is worth watching anymore. We're getting

close to zero and bouncing around zero.

822 million repo is nothing. Reserves I

think that's where we're going to sit right around the 3 trillion for a while.

TGA pretty much hugging around the 850 billion which is their target. So

actually Titan 3.6 62 is below the effective federal funds rate. Whereas, if we look at money

rate. Whereas, if we look at money market rates, they're all higher than the effective federal funds rate. The

private market considers itself safer than the public treasury market. Here is

the projections for 2026, by the way.

And it's not just uh uh uh uh Powell that's saying we see one cut. This is

this is the 19 governors. The median

3.375.

That is one cut in 2026. The market's

saying, "No, we insist. We insist that there'll be a rate hike. We don't even believe you. You're not even going to

believe you. You're not even going to get you guys are the ones doing this and you're not even going to get that done."

But then again, you know, the Fed does have a terrible a terrible record at forecasting even what they themselves will do. They have a terrible record

will do. They have a terrible record forecasting. So, I'm not going to beat

forecasting. So, I'm not going to beat up the market too much on this one.

Um, look at that 30-year. We did print a five handle for a day. There was 5.99 for a day and here we are 6.22%

shooting themselves in the foot.

Nothing is working out for this administration.

14 months in and nothing is working out.

ICE was a disaster really executing people in the street. Iran is the dumbest move I think that that that that

he's made so far. Powell, they had their way out. There's another dumb move.

way out. There's another dumb move.

If this were a company, I would be agitating for an active investor to come in uh and take the company away from management and fire management, but it's not.

It's a management team that cannot execute with problems they don't even recognize. If this were a company, this

recognize. If this were a company, this would be a screaming short and I am getting close uh to that uh to that conclusion myself that the government

anything to do with the government I think is a screaming short. Uh let's

revisit uh something we saw in first year economics economics 101. We worked

with our supply and demand curves and we shifted curves just to see what kind of general conclusions we can get to. We

look at demand driven inflation and supply driven inflation. And here we're looking at shifts in either the demand or the supply curve, not movements along a supply

curve. movement along a supplier demand

curve. movement along a supplier demand curve says well if prices were higher uh from equilibrium if prices went up suppliers would want to supply more but

consumers would demand less which would open up a surplus gap and if prices dropped consumers would demand more but suppliers would supply less because it's less profitable

uh then you have a shortage which could be made up by imports. So we're not talking about movements along the supply curve or the demand curve but shifts in

it. GPUs copper and gold to some extent

it. GPUs copper and gold to some extent uh display this. There has been a step increase in the demand for GPUs which means at any given price more will be demanded. No matter where the price

demanded. No matter where the price happens to be more will be demanded even if the price goes up. So you have a demand curve that shifts and when you

have that you have a new equilibrium price that is higher P star and more quantity will be supplied because suppliers are saying give me a higher price I'll find a way to get you more

and some places have some limits on what they can supply. We'll look down here at what happens when the supply curve is less sensitive to changes in price. This

is memory. If you are running at full capacity, there's not much you can do.

But you can see that if you have demand driven inflation, you get an increase in uh in price. That if you raise the cost of borrowing, what you're hoping to do

is slow down the amount of borrowing.

And with fractional reserve banking, if you have a dollar of deposits and your fractional reserve is one, you create about $10 uh in in extra money that is

floating out there. That is the money creation power of credit. So if you can convince one person to not borrow a dollar, you take uh demand out of the

system. But this demand, if I don't

system. But this demand, if I don't spend this dollar and I don't spend it somewhere else, this company over here says, "Well, we don't need as many employees as we used to have."

That's how it gets the price level down.

It reduces demand. And when you reduce demand, companies will size to the level of demand. you do end up with

of demand. you do end up with unemployment in a situation like that.

Uh now that really works through the mechanism of credit is that credit becomes more expensive. So the consumer makes the decision to say I will not use

as much credit.

That doesn't really work at the level of the consumer very well. So when the Fed raises interest rates to take care of these kind of uh price surges, now I

just use GPUs. You can think of these supply and demand curves as being the supply of all products and services and the demand for all products and services

and the price level is the equilibrium point. Well, by raising interest rates,

point. Well, by raising interest rates, uh the idea is we're going to slow down demand. At the consumer level, it

demand. At the consumer level, it doesn't really work that way. you have

to really raise rates uh to get uh a decrease a significant enough decrease to fix unemployment. And every time

every time the Fed has raised interest rates, very rarely have prices come down because interest rates went up. Prices

have usually come down because something else happened. more often than not it

else happened. more often than not it was you broke something and now we're in a recession or supply improved uh uh supply improved

in that particular area but very rarely was it just a pullback by the consumer saying well it's so expensive to borrow now I don't think I'm going to do it that is demand-driven inflation and the

interest rate can do something on that but you got to really work hard let's look at memory to understand why memory prices are going up so much is there's

only so many clean rooms. Supply just simply doesn't respond to price very well. So if you get an increase uh in

well. So if you get an increase uh in demand uh you shift that demand curve outwards uh you get a much higher increase in price with almost no

increase in quantity.

uh this is the short the short run here to determine when supply is going to expand you have to look at capex uh because that is where uh new capacity

would come online is with a lot of building of capex and eventually you'll have a whole bunch of supply enough capex that comes online such that you're intersecting the demand curve somewhere

much further as soon as you get some capex notice what happens to price now drops to here and you tend to overbuild so price really corrects in these situations. When you have these steep

situations. When you have these steep supply curves and every company is saying we need to add capacity now and everyone does. Boom. You move that

everyone does. Boom. You move that supply curve outward. Prices do crash.

That is why memory is cyclical like that because of this type of supply curve.

Let's look at supply driven inflation and we'll see why the uh interest rate really doesn't work.

uh for this you have uh less supply at every given price and not because there has been any significant choice made by producers just something has happened where supply comes offline and you get

an increase in price but a decrease in quantity and that's the point it's supply driven there just isn't isn't anything so you have this increase in

supply a decrease in quantity uh and it depends on on the steepness of that demand and supply curve that dictates how high that price will go. Raise

interest rates all you want. You can't

fix you cannot fix this. What you're

hoping to do at that point is say, well, if we raise interest rates enough, maybe we can shift the demand curve inwards and shift the demand this way. And

that's how you're hoping that you'll get prices to come back down by by shifting demand in the face of uh a supply constraint.

This is just not how the consumer responds unfortunately. So, let me uh

responds unfortunately. So, let me uh clear some space and let's draw out uh the actual supply and demand for

loanable funds. Here is a supply curve,

loanable funds. Here is a supply curve, a simplified supply curve. And I'm going to draw two demand curves because we do have two demand curves. So, I do want

you to think about this. Actually what

we'll do is rather than one curve we'll show two market segments two market segments al together and here

is supply on both uh here is a typical demand curve and here is this demand curve here funny looking demand curve isn't it and

uh this is the interest rate and this is the quantity of loanable funds under both scenarios there's your interest rate your quantity of loanable funds funds and uh we're going to raise the

interest rate. So we'll raise the

interest rate. So we'll raise the interest rate to IR uh over here and we expect the demand for loanable funds uh to decrease. And remember now if you can

to decrease. And remember now if you can decrease the quantity of loanable funds um with the with this uh effect uh because we have fractional reserve banking you take a lot of money out of

the system you take a lot more demand out of the system than just $1.

Uh and if the demand curve looked like this, we'd be okay. And the demand curve looks like this as we go from consumer uh and this is let's say this is a

lowincome uh consumer all the way to uh commercial uh and this would be mature commercial.

Here is a growth oriented. They're less

sensitive to the interest rate. And as

you move from a low-income consumer to a highinccome consumer to low to high income, low propensity to consume etc. It's a spectrum that you move across.

This probably represents this corner over here.

This group over here is represented this way. This group over here, by the way,

way. This group over here, by the way, is called price sensitive.

They're price sensitive because if you change the interest rate, they are sensitive to those changes in rates and they will respond. that is the smaller part of the market. The consumer makes

up most of GDP. The consumer is not price sensitive. They are payment

price sensitive. They are payment sensitive.

Payment sensitive is uh uh a condition where go ahead and raise interest rates.

What I'm going to do is I'm going to change that 5-year loan to a six-year loan and I'm going to manage my payment.

I will manage the payment that I have to make. And I'll be sensitive to the

make. And I'll be sensitive to the payment, but not the interest rate. So,

I want this $50,000 car. Give me a three-year loan. You're telling me it's

three-year loan. You're telling me it's $820 a month. I can handle that. Oh,

sorry. Interest rates went up. It's now

$910 a month. O any way we can get that down. Well, we can extend it to four

down. Well, we can extend it to four years. It'll be 805. Oh, that's even

years. It'll be 805. Oh, that's even cheaper than 820. Okay, let's go to 805.

They're payment sensitive, not interest rate sensitive. They will still buy that

rate sensitive. They will still buy that car. They'll just do it over four years.

car. They'll just do it over four years.

So, you go ahead and you raise that interest rate. And because the demand

interest rate. And because the demand curve is very steeply sloping as interest rates go up, it expands. As

interest rates go down, consumers will see that at very low rates. It's like,

why wouldn't I? Why wouldn't I buy a car at 0% interest? Why wouldn't I get a mortgage at 2.9%. Right? I don't I don't blame them. So there's the interest rate

blame them. So there's the interest rate higher and look at quantity. Quantity

barely budges.

This is the consumer. This is why the interest rate doesn't work very well on the consumer. Now you can go to the bank

the consumer. Now you can go to the bank and the bank can say well uh being that interest rates are higher right now uh you might rely on the bank saying we're

raising our credit standards. You need a certain FICO score. Now, to get this, you need uh a certain capacity to get a home loan. You have to pass a certain

home loan. You have to pass a certain stress test. Maybe they raise the

stress test. Maybe they raise the quality of the people they lend money to. Uh well, they can always go to

to. Uh well, they can always go to alternative lenders uh which is which is the shadow banking system which is grown very large.

So, they don't need the banking system.

So the interest rate I had said this as as as we were raising rates and and watching economic activity 2022 2023 2024 I made the case that it could be

that the economy is so interest rate insensitive now with all of the derivative products that organizations have to manage interest rate risk uh and

consumers more willing to manage payment than price. Uh it could be that the

than price. Uh it could be that the interest rate is just not very useful at all. And while the Fed was pairing down

all. And while the Fed was pairing down its balance sheet and supply chains were improving, inflation came down. Not

until the Fed decided to start building its balance sheet again did inflation start to get sticky again. Ah, something

going on there. So, look at what's going on here. You're still going to get the

on here. You're still going to get the consumer showing up at the bank to borrow or showing up somewhere saying, "Let's manage the payment. Let's not

worry about the interest rate. Let's

manage the payment.

Vehicle sales increased in 2022, 2023, 2024, 2025. As interest rates went up,

2024, 2025. As interest rates went up, vehicle sales went up. That does not sound like a a rate sensitive uh buyer.

For housing, uh we have the opposite effect. So, you could point to housing

effect. So, you could point to housing and say, but it worked in housing. But

housing on its own, the price is so unaffordable to begin with. I don't

think it was the interest rate that did it. It was the fact that housing prices

it. It was the fact that housing prices never pulled back and housing accelerated in price while wages did this. The gap of affordability increased

this. The gap of affordability increased significantly.

Let's think about something else. Now,

rather than thinking about uh the uh interest rate, I'm going to draw out another chart for you and I'm going to show you how you can get a one for one.

Remember now you had uh the uh supply of loanable funds and you had the demand of loanable funds that had uh a chart that looked like this that if you raised the interest rate you barely budge the

quantity that'd still show up and borrow money.

Well, what if you did something else instead of working on demand? Let's draw

that demand curve again. There's our

demand curve. There's our supply curve.

Here's our interest rate. Here's the

quantity of loanable funds. Right?

Instead of um trying to convince the consumer not to show up, what if you just removed the reserve?

What if you removed reserve systems from the banking system? You just said, "Let's just take them out." That means uh you take your balance sheet and you run your balance sheet down. You would

get a shift inwards of the supply curve, which means you move upward on the demand curve. But look at this. Now

demand curve. But look at this. Now

you're starting to get uh almost a one for one drop that even if these people do show up saying we're insensitive to the interest rate, we're sensitive to the payment. The system as a whole says

the payment. The system as a whole says but we have less money to lend anyways.

It's not a question of you can go to an alternative lender to get it or you can go somewhere else and get it or you could just pay the higher rate. It's it

just doesn't exist to lend to you to begin with. That's a one forone

begin with. That's a one forone relationship.

And if you have that one forone relationship, you don't actually have to raise the interest rate at all. You can

actually lower the interest rate. You

can lower the interest rate. And as long as you keep taking reserves out of the system, look what happens. You'll still

get less and less uh quantity of loanable funds. And that's how you get

loanable funds. And that's how you get the price level down. So the in the interest rate is uh almost uh uh uh uh

well I would say almost it's an ineffective tool to begin with especially with consumer demand and it's a super ineffective tool when you have a

supply constraint. It does not work

supply constraint. It does not work because it works on demand not supply.

So, if you want to get inflation down, this is the difference between Powell and Worsh. Powell would beat the hell

and Worsh. Powell would beat the hell out of demand uh for as long as they can until they reach their goal. Here's the

problem is the balance sheet keeps going up, which means more liquidity ends up in the system, which means more loanable funds. They're putting more loanable

funds. They're putting more loanable funds in the system, and you're raising interest rates at the same time you're feeding the beast.

You raise interest rates for a group of people who are payment sensitive and not price sensitive and at the same time you're putting more loanable funds into

the marketplace. You're creating the

the marketplace. You're creating the very monster you claim to be fighting.

But if you said, "Well, never mind the interest rate. Instead of uh uh adding

interest rate. Instead of uh uh adding to loanable funds, let's subtract from loanable funds. Then it's just not

loanable funds. Then it's just not available to be lent out." I'm going to show you uh two charts. Let me see if I can find these guys here. Uh, I was

going to Well, actually, you know what?

Let's wait till the next screen and I'll show you these two charts because the next screen has three charts and I'm going to overlay these two charts. I'm

going to show you two very different regimes because the obvious question that was thrown to me is, well, hang on a second there, buddy boy. We had this kind of

stuff going on. You had the Fed building its balance sheet way back in the in the teens and there was no inflation. Now

you're saying that that's the cause of inflation. Defend yourself. So defend

inflation. Defend yourself. So defend

myself. I will. Okay. The five charts I'm going to use, three on the screen.

I'll bring two more on shortly are all from Fred. Uh and the starting point is

from Fred. Uh and the starting point is January 1st, 2010 until the present so that you can uh get the same data that I

currently have. And you could check all

currently have. And you could check all the numbers that I have and s be satisfied that these are the actual numbers uh just so that you have something to refer to as well. Let's go

back to 2011. The period between 2011 and the end of 2015, this 4-year period.

Uh here is uh crude oil prices, WTI.

Uh the bottom um support line here, it looks like a support based on where the price is. 78 bucks roughly up to about

price is. 78 bucks roughly up to about 110. The average was about $945 over

110. The average was about $945 over this period of time. That was the average WTI price. We're at 9727

uh 11 years later. We're pretty much at the same price 11 years later, but we've had inflation over that period of time.

So for oil WTI to be the same relative price today, in other words, to feel the same way it did back then, it cannot be the same

price. Something that's been the same

price. Something that's been the same price for 20 years while wages have gone up over that period of time is much much

much cheaper today. Imagine

if a uh case of beer were the same price today as it was in 2025. Or imagine if a car was the same price today as it was

in 2025. You'd say that is massive

in 2025. You'd say that is massive deflation because you could buy two of those cars today

versus just one, right? So what would the price of oil have to be to keep up with inflation? $131 a barrel based on

with inflation? $131 a barrel based on what the average inflation rate was over that period of time and over here uh we

calculated out from 2015 to now as 3.07% per year on average mostly because of this period of time here it was uh the uh massive increases during that period

of time that made the average look higher but you'd have to increase that price at that rate. So there's 3.07 07 for 11 years. 9450 take the average price

you get to about 131 $132 a barrel.

We're at $97 a barrel. So in other words, gas oil today is some 35 30 to

35% cheaper than it was 11 years ago when we had no inflation. Here is 2011.

There's the price level. There's 2015.

the same beginning and ending periods I used here. Average inflation 1.49%

used here. Average inflation 1.49% per year with uh crude oil that was relatively much more expensive back then

and there's no inflation.

Here's the money supply.

Uh here is the beginning and ending period of the growth in the money supply. And if you can look how nice and

supply. And if you can look how nice and smooth this is, it tended to grow very nicely. If you extrapolate this out,

nicely. If you extrapolate this out, you can see just the sheer amount of excess money supply at that time. And

look at the money supply. There is

inflation over here that if you carried this out, this 1.5, if I'm trying to draw, well, actually, you know what? Why

don't we just actually draw a line? Why

don't we just get a ruler out and see how straight a line we can draw? There

we go. We could draw a nice straight line.

And we'll do the same thing on uh money supply over here. Draw a nice Whoops.

Hang on there. Come on, buddy boy. There

we go. And we'll draw a nice straight line. There we go. Actually, let me put

line. There we go. Actually, let me put it in red so that we can see the difference there. Anything from the red

difference there. Anything from the red to the blue is excess money supply.

Anything from this line to here based on the projection is excess inflation.

Excess money supply. Excess inflation.

It's almost uh almost a one for one. And

you'd look at those charts and say, "Wow, you could overlay them and they could be the same chart."

Um, so let's just uh look relatively take 9450 and uh we'll take the uh price level 227 uh 97. This is the average of these two numbers. All I did was I just,

you know, if you have a sort of a nice linear trend in here, 1.49% per year.

Let's take an average because I'm just taking an average here. 4145.

Uh and if we look at the current price and we look at the current price level 0 297 that means deflation that lower that number goes uh that is deflation. So

even with energy where it is right now um based on where we were uh during that period of time it's much cheaper.

uh it is it if we just looked back at history we would say I don't understand it was a period of deflation in energy and the market thought that uh that energy prices were going to be

inflationary what is inflationary is this thing right here and as you keep adding to the balance sheet you keep adding to the balance sheet you keep adding to the balance sheet the distance between the money supply and what

otherwise would have happened continues to widen is it any surprise that inflation starts to widen the argument that was thrown out to me is, "Hey, we

had this. We had this from the great

had this. We had this from the great financial crisis all the way through to 2020.

You didn't really have inflation.

Defend yourself." And I will. Deflation

or inflation um is not um is I don't know that we would be uh helpful by pointing out exports and imports and saying, "Aha,

that's the cause of our inflation."

Right? GDP has four components. C plus I plus G plus X - M. It's not X - M. So it

must be in C plus I plus G. I I don't think so. And that's rarely the cause of

think so. And that's rarely the cause of inflationary potential is I uh C is your biggest cause of inflation. Not G. Now

G, you may say, wait a minute, the government caused the inflation. The

government spending is different than governments handing people money. any

transfer payment that goes from the government to the household uh is is counted as household income, not as government income or uh government spending. That's that's controlled for.

spending. That's that's controlled for.

Um let's uh let me show you two charts here and it'll start to become clear I think where the inflationary potential happens to be. Uh and we'll start with this one. What is this? This is the

this one. What is this? This is the unemployment rate. So let's go back to

unemployment rate. So let's go back to 2011 to 2015. The period that that I showed you in 2011 the un unemployment rate was close to about nine I think it

was 9.1% at the beginning of 2011. When

you get to at the end of 2015 uh you had 5.7% versus 4.3 4.4%.

Uh you had fewer people going home with paychecks. the total amount of wages and

paychecks. the total amount of wages and salaries were significantly lower. You

had a much higher unemployment rate at that time. Let's look at the balance

that time. Let's look at the balance sheet over that period of time. And this

is the growth. This is 2011 just a little over 2 trillion and it was a respectable growth and you had a plateau for a period of time. You had real increase during this period of time and

you ended somewhere around 4 and a.5

trillion. But you can see uh this sort of pathway along with that high level of unemployment.

When we get here though, look at the massive increase uh in the Fed balance sheet during this period of time. And

look at the difference in the unemployment rate. The unemployment rate

unemployment rate. The unemployment rate uh this is unemployment here. This is

2.5. This is why I was sitting. We got

as low as I mean 3 and a half% at one point. So, a whole bunch of people had

point. So, a whole bunch of people had paychecks and you had the government sending out even more money to people.

How uh the balance sheet affected the money supply here is that this money flooded the banking system with

liquidity. You still had to go hatinand

liquidity. You still had to go hatinand to the banking system and say, "Can I please borrow some money?"

And with uh an average unemployment rate over that period of time of 6 and a half 7% there's only 93% of of of those employed that could go to the bank

because they had a job.

Uh when you get to 2022 2023 those reserves were not flooding the the banking system with liquidity. They were

flooding people's bank accounts with liquidity. So they didn't even have to

liquidity. So they didn't even have to go to the bank hat in hand and say please can I borrow some money? Not only

that, you had an extremely low level of unemployment where everyone was walking home with paychecks and wage inflation um was the best it's ever been.

You give them money, they will spend it.

You give them money, they will spend it.

Who was giving them money? You can say, well, the government gave money. Who

enabled the government to give them money? The Federal Reserve. by

money? The Federal Reserve. by

increasing the amount of liquidity they added to the system, gave the Treasury all this money, which then sent out checks directly to people, completely

bypassing the banking system altogether.

And now you have a Fed that is doing the same thing, saying, "Hey, let's add even more reserves to the system, even more loanable funds." And you have an

loanable funds." And you have an administration saying, "Hey, let's send a bunch of checks, $1,766 to all servicemen, and let's think about sending $2,000 to every American because

we're bringing in trillions and trillions of dollars with tariffs.

The enemy are these guys. The enemy are these guys, right? You don't stick your hand in a lion's cage. Why? Because it's

going to be bitten off, right? That's

the consumer is the lion inside the cage. You don't go throwing dollars and

cage. You don't go throwing dollars and dollars into that cage cuz what's a consumer going to do with it? Going to

spend it. Worsh's idea is let's take that money out of the system. Let's

reduce the amount of loanable funds. If

we reduce the amount of loanable funds, we're not sticking our hand in the cage.

Period. So the lion can't bite our hand off. We're not even giving the

off. We're not even giving the opportunity. We're just removing it from

opportunity. We're just removing it from the system. Um given where we are now,

the system. Um given where we are now, it is the solution.

uh I don't know that a balance sheet solution would have been the solution in 2005 because if you go back to 2005 um assets were very very low a balance

sheet solution and there was inflation uh going into 2006 2007 Bernani was raising rates that was very very

demand-driven inflation at that time um there was no real balance sheet to work with so that problem solving it with a balance sheet problem wouldn't have

effective, but you get to these tipping points where you no longer have a demand problem. It is a supply problem. And

problem. It is a supply problem. And

you're compounding the supply problem with an increase in loanable funds available. You're actually increasing

available. You're actually increasing the amount of loanable funds to an interest rate insensitive consumer.

What do you think is going to happen? So

that is the argument I have for why Wars would be effective now but probably wouldn't have been effective in 2011 2012. Well, first of all, there was no

2012. Well, first of all, there was no inflation at that period of time. But

let's go back to 2006 2007. Why Wars

would not have been effective then is because there was no balance sheet problem. It truly was a demand problem.

problem. It truly was a demand problem.

But in 2021, 2022, clearly it was a supply problem.

So, let's compound that now that we have fewer goods and services. Let's flood

the system with money. Let's bypass the banking system. Let's dump it into

banking system. Let's dump it into consumer's bank account. And oh my god, inflation. How is this possible? I know,

inflation. How is this possible? I know,

says the Fed. Let's raise interest rates. Ah, inflation is coming down.

rates. Ah, inflation is coming down.

We'll raise interest rates and we'll stop building the balance sheet.

Inflation comes down. This is good.

Let's lower interest rates and let's start increasing the balance sheet. Oh,

inflation's going back up. What is going on? The interest rate doesn't do a damn

on? The interest rate doesn't do a damn thing. It's the balance sheet. Okay,

thing. It's the balance sheet. Okay,

let's do uh some AI work here. I used

Opus 4.6 extended for this extended thinking with internet search turned on. I gave this to Deepthink and Deepthink was nowhere

near uh the level of analysis that Opus was at. Plaude is by far superior uh to

was at. Plaude is by far superior uh to Gemini and to Deep Think and to Open AI.

Uh I pay for all three. I'm seriously

considering dropping one of them, more than likely Open AI uh and probably downgrading my uh Google uh subscription. So, I'm going to give them

subscription. So, I'm going to give them a few more months to prove themselves.

But Claude is by far by far the best.

gave it this prompt. Uh, and this was on Saturday. I tried not to lead it, but I

Saturday. I tried not to lead it, but I got to give it some background. Iran and

US hostilities are a fastmoving target.

Trump is apparently looking for a way out, and Iran has a record of not backing down.

Search the internet to bring yourself up to date with the current situation. Uh,

as of now and today, uh, if you say that, as of now and today, it will know, okay, it's this date on the calendar at this time. Just say as of now and today.

this time. Just say as of now and today.

Speculate about the next 24 to 48 hours.

Whether you see a way out or given the personalities and motivations of each side. What is the likely course of

side. What is the likely course of events?

I have used an analogy several times to describe this situation. You don't pick a fight with a crazy kid at school because while you may be able to beat him, that kid will keep coming back

again and again. He will show up in the middle of the night at your house, douse it in gasoline, and light it on fire.

The only thing you can do with the crazy kid is leave him alone or kill him. You

can't beat him. Who here is the crazy kid? Because that does sound like Trump

kid? Because that does sound like Trump as well. He'll never leave you alone.

as well. He'll never leave you alone.

He'll never leave you alone. I've said

many times with this guy, you don't want him in your life. If he wants an interest rate cut and you you decide to take a stand, resign or just give it to him because you don't want him in his

life. So, he could be the crazy kid.

life. So, he could be the crazy kid.

Which side determines this is over when they say it is over?

And uh we're going to go through this because I think it's important just just to see uh how Claude can bring things back to you. And it gives me uh um

points uh on on uh that I can go search online. It gives me all the references

online. It gives me all the references as well. So uh it is great at

as well. So uh it is great at synthesizing.

This is day 22 of what be being called operation epic fury. The state of play here. War entered its fourth week. More

here. War entered its fourth week. More

than 1,400 people killed in Iran, including at least 204 children. I don't

care what you think of an enemy. When

you get to the children part, that is the part that that that probably the ugliest part of war altogether. I want

you to imagine your own children for those of you that have it that are collateral damage uh in a war of egos really. And this is what this is.

really. And this is what this is.

The new supreme leader uh has issued a statement marking the Persian New Year paying tribute to fallen fighters, praising the public for standing firm. on the US side signals

standing firm. on the US side signals are contradictory to the point of incoherence. Now, I didn't say anything

incoherence. Now, I didn't say anything in my prompt, but he's Claude is right about this. Trump told reporters Friday

about this. Trump told reporters Friday he doesn't want a ceasefire, saying you don't do a ceasefire when you're literally obliterating the other side, claiming Iran has no navy, no air force,

no equipment left. But in nearly the same breath, he posted on True Social that the US is getting very close to meeting our objectives and we consider

winding down our great military efforts.

Meanwhile, the USS Boxer carrying thousands of Marines has left California for the Persian Gulf. USS Tripoli with more than 2,000 Marines is expected to

arrive soon from Japan. You don't wind down by sending thousands of Marines forward.

And as I narrate this, the headline I saw this morning was Trump gave Iran 24, no, 48 hours to open the Straight of Hormuz or he's going to start destroying

their their electrical grid and put them all in darkness.

He doesn't want to, you know, but uh that's the threat that he made whether he will or won't. Problem with this situation is you have a bully and a

crazy kid. Can you figure out who the

crazy kid. Can you figure out who the bully is and who the crazy kid is? I

wanted to see if Claude could figure it out. On the Iranian side, uh the posture

out. On the Iranian side, uh the posture is unyielding. The foreign minister

is unyielding. The foreign minister stated flatly, "We are not seeking a ceasefire because we do not want this scenario to be repeated again after some

time. Rather, we want the war to end

time. Rather, we want the war to end completely and permanently.

We never asked for a ceasefire and we have never asked even for negotiation. We are ready to defend

negotiation. We are ready to defend ourselves as long as it takes.

Iran is demonstrating that this just isn't talk. Iranian armed forces

isn't talk. Iranian armed forces announced their 70th wave of attacks launching missiles and drones towards Israel and US bases in the Gulf. And we

do know as of now uh that one uh several of their missiles did hit their sight and killed uh quite a few Israeli citizens innocents in all of this.

Again, that's the ugly part of this. I

wish they would just fire uh at each other's um government buildings, right?

Fire at the Pentagon, fire your missiles at at at Israeli defense or or or wherever the government happens to sit.

the Nesset uh and just kill each other, but they kill the kids and and innocent people who just go along saying we don't want this, but here we are. That's that

I disagree with, but here we are. Iran

fired ballistic missiles at the joint US UK Diego Garcia military base in the Indian Ocean. Now, this is a big deal.

Indian Ocean. Now, this is a big deal.

Some 2,370 mi from Iran's coast. A

statement of reach if nothing else. And

that's what it was, a statement of reach. So the Wall Street Journal had

reach. So the Wall Street Journal had this story where they showed Iran and they drew this big dotted circle around Iran to show what countries lied within that circle of where they could reach

with their missiles. And Iran has already said if you stay out of this, we'll leave you alone. Uh oh, by the way, look at all the European capitals

we can hit. And it has said about the straight of Hormuz, look, you guys are free to go through the straight of Hormuz as long as you're not one of the countries attacking us. So, Japan, if

you want to send your ship through here, that's fine. Now, I don't know if that

that's fine. Now, I don't know if that also means if you're loading up at a country that is hosting a US base, are you still okay or are you considered to

be part of the fight? That wasn't clear.

But their statement back was, "Look, everybody can go through the straight of Hormuz. We have no problem except

Hormuz. We have no problem except American and Israeli ships. If you're if you're throwing bombs at us, no, you can't go through." Interesting

statement. But this statement of reach, I got to say, if you're looking at the chessboard, uh, to sacrifice a piece, because they had to lighten up this missile to get it there, it really

didn't have very much, but to to to sacrifice a piece to make a statement, that was a that was a pretty good move.

Iran hit Qar's key Raslafan LNG facility, cutting about 17% of output for as long as 5 years. This is a

problem. Iranian drones stuck Kuwait's

problem. Iranian drones stuck Kuwait's Mina Al Ahmadi. I know I'm killing these names, I'm sorry. Oil refinery again, sparking fires. An F-35 jet was forced

sparking fires. An F-35 jet was forced to make an emergency landing after being struck by what is believed to be Iranian fire. Potentially the first successful

fire. Potentially the first successful hit on a US aircraft in this war. I'm

reminded of Game of Thrones where uh they were able the other side was able to take down one of the dragons thereby showing that you can kill a dragon. They

took down an F-35 or force an F-35 down thereby showing that they can be done.

Right. Economic blowback is now acute.

Brent settled at 112 a barrel Friday, highest since the war began. Goldman

Sachs suggesting elevated prices could persist through 2027.

Administration is now temporarily lifting sanctions. This is wild. This is

lifting sanctions. This is wild. This is

wild. Temporarily lifting sanctions on Iranian oil already on ships. A stunning

reversal when you when you're actively bombing the country whose oil you're unsanctioning.

Wild next 24 to 48 hours.

In the very near term, expect continued strikes in both directions. Uh that is what we're we're getting. I did this on Saturday. I'm narrating this on Sunday.

Saturday. I'm narrating this on Sunday.

USIsraeli air campaign will keep grinding Iranian military infrastructure. Iran will keep launching

infrastructure. Iran will keep launching salvo, smaller ones rationed at Israel, Gulf States, US bases. The straight of Hormuz stays choked. Oil keeps climbing.

The global economy keeps bleeding.

Trump wants to declare victory and leave.

Um, I think it's spot on on that.

This has been his pattern in every situation. He wants the dramatic

situation. He wants the dramatic announcement, the photo op, the deal.

He said the US could end the war right now, but claimed he wants to press on because I think we've won.

He's already framed the exit. We've

destroyed their military. We killed

Kmeni. We wrecked their nuclear program.

Mission accomplished. The problem is that winding down unilaterally doesn't end a war when the other side hasn't agreed to stop.

Now the crazy kid, Iran is the crazy kid. And that's

exactly it. Iran is the crazy kid. Even

if you declare victory and leave, Iran's going to have different things to say about it. At this point in time, you

about it. At this point in time, you have made Iran more dedicated towards a nuclear weapon, not less. You haven't

deterred them. You have you have pushed them on because they're going to say, "You see, you see this is only going to keep happening. We need one now. Period.

keep happening. We need one now. Period.

We need one now." And what are they going to do with it to those bases in the Middle East? What

are they going to do with it if they get range to the bases elsewhere?

The US is the bigger kid, stronger, better equipped, can win any straight up fight. And the US just walked up and

fight. And the US just walked up and punched Iran in the face hard. Killed

the Supreme Leader, destroyed the navy, flattened air defenses, wrecked nuclear facilities. By conventional military me

facilities. By conventional military me metrics, it's a route. Trump is correct.

But from a military standpoint, they're finished.

But that's exactly the point of your analogy. You can't beat the crazy kid.

analogy. You can't beat the crazy kid.

Winning the fight isn't the same as winning Iran's entire strategic identity. going back to the revolution

identity. going back to the revolution of 1979 is built on the idea that they endure. They don't capitulate. They

endure. They don't capitulate. They

absorb punishment and keep coming. The

IRGC's institutional DNA is asymmetric warfare, strategic patience, and the willingness to impose costs far out of proportion to their conventional

strength. They've now demonstrated this

strength. They've now demonstrated this in real time. They can't stop the bombing, but they can shut the straight of Hormuz, hit oil refineries across the

Gulf, fire missiles at Diego Garcia, damage an F-35, kill American service members, destabilize Lebanon, and send oil to $112 a barrel. They've already

damaged Qatar's LG infrastructure for potentially 5 years.

Iran doesn't need to win the war militarily. They just need to keep

militarily. They just need to keep imposing costs that exceed what America is willing to pay. And this is where the asymmetry is devastating for the US. The

war is optional for America. It is

existential for Iran.

That is an amazing sentence. I wish I would have wrote that. The war is optional for America. It is existential for Iran. The regime's survival, its

for Iran. The regime's survival, its legitimacy, its very reason for being is now at stake. They literally cannot surrender.

The minister's framing is telling. I say

the minister because I I can't pronounce his name and I don't want to butcher it.

The war is not our war. We did not start it. They see themselves as the agrieved

it. They see themselves as the agrieved party defending against unprovoked aggression. And much of the world agrees

aggression. And much of the world agrees with them since Oman's foreign minister said a breakthrough had been reached just before the strikes began. and Iran

had agreed to downgrade its enriched uranium and accept full IAEA verification.

So who determines when this is over?

Iran does. Not because Iran is stronger, but because Iran's threshold for acceptable pain is effectively infinite.

They'll keep taking hits and keep swinging back. While America's threshold

swinging back. While America's threshold is bounded by gas prices, con congressional patience, stock markets, allied cohesion, and the 2026 midterms,

Trump himself is already signaling he wants out after 3 weeks. Iran is saying they'll fight as long as it takes. The

US can destroy Iran's military. It's

largely doing so, but it cannot from the air destroy Iran's will or its capacity for asymmetric retaliation.

The Strait is Iran's gasoline can. The

proxy networks are Iran's gasoline can.

The ability to hit soft targets across the Gulf is Iran's gasoline can. And

they've already lit it several of them on fire. Oh, so they've already lit

on fire. Oh, so they've already lit several of them on fire. Do I see a way out in 24 to 48 hours? No. Neither did

I. What I see is a grinding escalation spiral. Trump wants to declare victory

spiral. Trump wants to declare victory and step back. Iran will interpret any American draw down not as magnan magnanimity. I got it. But as weakness

magnanimity. I got it. But as weakness and will claim victory themselves just as they did after the 12-day war in 2025.

The fundamental problem remains.

The US started something that it can end on its own timeline only if Iran cooperates and Iran has no incentive to cooperate. Every day the straight stays

cooperate. Every day the straight stays closed. Every refinery that burns in

closed. Every refinery that burns in Kuwait or Qatar, every dollar added to the price of oil, that's Iran demonstrating to the world that attacking them has consequences,

which is the only deterrent they have left.

No matter what you think of Iran, by the way, I want you to think for a moment that you are them. What you have to in any conflict, no matter how much you hate the other side, you have to imagine that you are them for a while. And you

have to be gracious at least. You can't

say, "Oh, they're stupid and ignorant."

You have you have to assume that they have a level of intelligence. You have

to make them the best version of themselves that they can be and then say, "What would they do if I did this?

What would they do?" You're not just going to walk in and win. If you were Iran, what other choice would you have?

You almost have to look at Iran's side and say, "You got to give it to them. I

mean, they're executing on this one. You

got to give it to them." As much as you probably disagree with the way they run their country and the way they treat their people, given their response and how they've

been responding, you sort of have to tip your hat to them a little bit on this one. The most likely path in the next 48

one. The most likely path in the next 48 hours is that Trump continues to talk about winding down while the military continues to escalate.

Iran continues firing salvos. It's a

back channel through Oman or Qatar begins to take shape. But a real off-ramp requires Iran to be offered something it can frame as a win. These

last few sentences tell me this this is doesn't have an ending.

The offramp requires Iran to be offered something it can frame as a win. And

right now with Trump saying he doesn't want a ceasefire and calling the new supreme leader a lightweight, there's no face saving exit being offered. And you

don't get the crazy kid to go home by humiliating him in front of everyone.

Read that last sentence. You don't get the crazy kid to go home by humiliating him in front of everyone?

What is Trump more likely to do?

Declare victory and say, "Yran, they're tough. I got a lot of respect for that

tough. I got a lot of respect for that leader." Or is he going to say, "We

leader." Or is he going to say, "We killed them. We destroyed them. They're

killed them. We destroyed them. They're

nothings. They're nobodies. They're

they're they're monsters. They're

villains. They're sick. We'll beat him again. That crazy kid's not going home.

again. That crazy kid's not going home.

So, there we are. I don't know how this ends. Uh this is something that that he

ends. Uh this is something that that he probably should never have gotten into.

Congress can still say it's over.

It is a war declared by one man on his own and it will be over. as he says, "When I feel it in my bones, that's dictatorship." By the way, do you know

dictatorship." By the way, do you know he's getting his picture on a currency?

Uh first living uh sitting and living president ever to have his picture on uh on a currency. And I guess the committee that was in charge of this commemoranderative coin for the 250th

anniversary was filled with Trump loyalists. And of course, they all voted

loyalists. And of course, they all voted unanimously for putting Trump's picture on it. Dictatorship, man. It's

on it. Dictatorship, man. It's

dictatorship. It's a slow creeping dictatorship. It is the first time in

dictatorship. It is the first time in history that a war has been declared, I believe, in the US by the president alone.

No approval from Congress. And where's

Congress on this? It's like, yeah, okay.

Well, he did that, but no more. Okay,

let's look at S&P.

Uh, the week coming up has very low-level economic data. nothing

significant and only three companies are reporting. No really big significant

reporting. No really big significant companies. Q2 uh doesn't really start

companies. Q2 uh doesn't really start till uh mid second week of April. So we

have a bit of a chasm to get through.

The only thing that we have is is is uh the Iran uh US uh issue and and and how that's going to affect

things and and it is affecting things forward four quarter operating earnings 3198 that is going to have to come down. The

market has recorrected on a whole bunch of things but here it is still sticky at 31998.

Either it's right and the market is going to have to re reper back in what it priced out or this is going to have to come down. Closing S&P 6506 we are at

20 times forward earnings starting to be a more respectable forward earning multiple given what we have as a backdrop instead of 23 down from 20.93

all with higher implied volatility. Last

IV was 23.2%.

Um other than uh the forecast for operating earnings, there is no good news here. S&P uh down at 64857.

news here. S&P uh down at 64857.

It has lost the 50, the 100, and the 200. It is 1.8% below the 200 day moving

200. It is 1.8% below the 200 day moving average.

Uh it is down 6.97 or 7% off its high.

10% correction is at 627. You're sitting

at 648. It's $21 down. That's mid

Wednesday. You could be there.

Looking at IWM, it is down 10.3% from its high closing only January 22nd. Uh

it has a lot against it. Uh beta is being thrown out. Uh but higher uh borrowing costs affect smaller cap companies more directly.

Correction correction territory.

However, IWM is below its 50, below its 100, but still above its 200 day moving average. It's in correction territory,

average. It's in correction territory, but still hasn't taken out the 200. The

200 is 24118.

We're 240 uh uh 24222, a dollar down. It's almost nothing. 43%.

You could be you could be in correction territory. Uh Monday at 9:31,

territory. Uh Monday at 9:31, IGR 8.84. This is the S&P small cap. Uh

IGR 8.84. This is the S&P small cap. Uh

8.84% down. Triple Q uh 6.46 uh% off its high. 10% down puts it at 571. We're sitting at 593 again. You

571. We're sitting at 593 again. You

could see that by Wednesday afternoon.

Uh taking out the 50. Taking out the 100 but not the 200. The 200 is at 592.86.

They're 59372.15%.

They're at the 200 day Monday morning 9:31. They could probably take out the 200 day along with IWM.

Then all three indexes uh would be below the 200 day moving average with one in correction and two uh approaching correction more than

halfway towards uh correction. And we

have nothing this week. I can't point to the economic calendar and say, "Here we go. There's this or there's this."

go. There's this or there's this."

There's low-level economic data that will be meaningless. There are no earnings really this week that can set the tone. Oh, there might be some alpha

the tone. Oh, there might be some alpha here and there based on earnings, but nothing that will really set the tone.

And then in April, you have the banks that report first.

And the banks have not had a good year so far. and their guidance is going to

so far. and their guidance is going to be uh I think significant that will set a tone.

All we have this week is is um both sides.

I don't know that Israel really is determining much in all of this now that they've got the US in. It is

one one supreme leader on one side and one supreme leader on the other side.

That will determine which way you want to go.

One supreme leader is a bully. The other

supreme leader is the crazy kid. We know

who the crazy kid is. Now, the bully, even in high school, even in grade school, the bully never ever wants to get into a fight because they risk getting a bloody nose. Trump has a bit

of a bloody nose on this one. All right,

some blows are landing. The bully can beat up the crazy kid, but the bully doesn't want the fight. The bully just

wants to see fear.

I can guarantee.

Well, I shouldn't say I can guarantee.

I'm in no position to guarantee anything. I would place in a very high

anything. I would place in a very high probability 99.99999% that when this is over for as long as Trump is in power, he

will never ever hit Iran again.

That's how you get rid of a bully. You

punch him back. Oh, you're going to take a beating, but it's better to get beat once than to get beat a hundred times.

You punch back. You just got to land a few shots on the bully. The bully will leave you alone after that because you don't show any fear. The bully doesn't

want that. Just wants to beat you.

want that. Just wants to beat you.

That's Trump. The crazy kid is the crazy kid. We got to fight between a bully and

kid. We got to fight between a bully and a crazy kid with neither one of them wanting to look weak and both of them wanting to declare victory. I don't see

I don't see a solution here.

Um I don't know what I'm going to do this week, but uh the longer this looks like it's going to continue on, the more I have to make a decision about what's

right for my money. Uh and and and think, you know, maybe it's time uh to pair down some positions in the US.

Um, I'll see how ZQ goes this week, but uh, it is possible that I just decide that you know what, unless this administration can get its act together, what's the point? Because it could

possibly be a Powell Fed for the rest of the year due almost entirely to the belligerance and the ego of one

man. Much as this war, much as the pain

man. Much as this war, much as the pain that many Americans are going to feel over this is due unilaterally to the decision of your supreme leader.