← Bulwark Takes
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- [00:01]
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- [00:23]
Katherine Rampel
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- [00:31]
Carvana User (Caller)
Hey, sweetie. Your mother showed me this Carvana thing for selling the car. I'm gonna give it a try. Wish me luck. Me again. I put in the license plate. It gave me an offer. Unbelievable. Okay, I accepted the offer. They're picking it up Tuesday from the driveway. I haven't even left my chair. It's done. The car is gone. I'm holding a check. Anyway, Carvana, give it a whirl. Love ya.
- [00:54]
JVL
So good you'll want to leave a voicemail about it. Sell your car today on Carvana. Pick up fees. Ma'. Am.
- [01:01]
Katherine Rampel
Hello, everyone. This is JVL here with my very close friend Katherine Rampel, author of the Receipts newsletter@the bulwark.com to talk about the latest economic news. And surprise, it's not great. Not great. We got an inflation report this morning, Catherine. I'll just read off the headline. Consumer prices rose 3.3% in March as energy prices spiked due to Iran conflict. 3.3% sounds like a lot. Yes.
- [01:35]
JVL
It's not a little line go up. Yes, line go up. Exactly. That. That red line at the end. To be clear, the thing that the Federal Reserve pays more attention to is a version of the blue line, which is when you strip out food and energy prices. Not because the American public does not care about those things. Obviously people very much care about what they're paying at the pump, for example, but because they tend to be kind of volatile. So the thing that the Fed pays attention to is slightly better than the thing that the general voter pays attention to. But at some point, they may converge in being both bad because. Yeah, because it. Like for now, they can strip out energy prices or energy price growth, but energy as an input into almost everything else, right? Like the baseball glove you get or whatever. Like any goods you get get shipped around the world using energy. So if the war continues, if, or at the very least, if there are disruptions in oil markets, we will start to see even the thing that the Fed pays more attention to get more bad as well.
- [02:46]
Katherine Rampel
It's not. It's not just Transportation and shipping. It's also packaging, which is really dependent on, you know, petrochemicals and the energy needed for production. Right. I mean, all of these inputs wind up.
- [02:59]
JVL
Yes, yeah. I mean, even. Yeah, like you mentioned packaging. But that's because plastics are made from petrochemicals and so lots of plastic is getting disrupted because of these supply chain problems. Likewise, a thing that I did not know about until recently, helium. So a huge portion of the world's helium also transits through the street of Hormuz because it's a byproduct, I guess, of making natural gas. And there are very few helium deposits of their own kind around the world. So lots of it comes through the strait, through the Middle East. And helium, it turns out, is an input not only in your children's birthday party balloons, but also semiconductors. Very important for semiconductors. MRIs. Helium is used to administer MRIs. So there are a lot of these other things that people may not think about that are also going to get more expensive as a result of this war.
- [03:57]
Katherine Rampel
What if we, I'm just spitballing here, shipped the helium by using it to float helium containers in big balloons like. Like balloon boy, like up. Or lots of little balloons like up. Right. We use that and we use the helium to ship the helium and just leapfrog the straight. Maybe that's something we could look into.
- [04:19]
JVL
Yeah, you should mention it to the White House. I bet Donald Trump, who wanted to inject bleach into bleach, right? Yeah.
- [04:26]
Katherine Rampel
Shine a light. I hear that if you.
- [04:27]
JVL
I hear that he wanted to nuke hurricanes. Right. So like he's an outside the box thinker like you.
- [04:34]
Katherine Rampel
Ah, so this is all. Not all, but this is largely due to the highest. Give me what is the exact stat on gas price jump. Is this the largest month on month gas price jump in. On record. On record, yeah. Do we have a graphic on that? Well, this is line go up.
- [04:54]
JVL
Yeah, this is.
- [04:55]
Soul Gummies Advertiser
Whoa.
- [04:55]
Katherine Rampel
Line go up.
- [04:56]
JVL
This is gas price prices which go up very much. So I'm sure this is not news to anybody watching us talk about it. The thing that is the superlative is if you look at how much line has gone up in the past month, it is at an all time record high. So like the exact dollar amount of gasoline I believe has been higher. But it's that growth, that very rapid growth, recent growth.
- [05:26]
Katherine Rampel
Dt. Yeah.
- [05:27]
JVL
Yes, thank you, thank you for, for the calculus reference. Yes. So that is what is new, that it's the highest, the fastest increase in gasoline prices since the government began keeping records of monthly gas prices back in 1967. So, yeah, that's, that's the chart. It's like, it's much messier to look at, but this is month over month and you can see the line go up at the very end and it goes up a little more than prior spike, which I think was like in 2008 or something.
- [06:00]
Katherine Rampel
Yeah, that's a. Well, that seems bad.
- [06:04]
JVL
I mean, politically. Hey, man, keep it in the ground. All those climate people maybe could be happy. Except we can talk about why they're. Why, why the climate is doomed to. Because of this. But yeah, not great for general consumers at the very least.
- [06:18]
Katherine Rampel
Now we have a ceasefire. Ish. Which is to say that the Trump administration is pretending there's a ceasefire even if Israel and Iran are not. Supposedly, the strait was opened immediately, even though it does not seem to be the Lloyd's List, which shows. Matt, you may be able to find something, a graphic on this. I just saw one a little while ago, but there was a Lloyd's List which just shows number of ships transiting the Strait per day. And it still seems to be like, like that.
- [06:56]
JVL
Yeah, one.
- [07:00]
Katherine Rampel
So I was optimistic is not the, the right word exactly. But I had thought, okay, we got our, you know, Trump promises genocide and then he gave us this very predictable cease fire. And the terms of it are very bad for America and quite good for Iran. But all things equal, this is still probably the best of all the bad possible off ramps, for instance, because we are, we are approaching some gates in timing where the costs do not, like, no longer increase linearly. Right. So as you approach the spring planting season that all of a sudden the disruption in fertilizer precursors becomes like really, really important if we don't get like, if the ceasefire doesn't actually hold and the straight does rain. Oh, that. That's the. Thank you, Matt.
- [07:57]
JVL
Look at this.
- [07:57]
Katherine Rampel
I mean. That's right.
- [07:59]
JVL
Yeah.
- [08:01]
Katherine Rampel
So like, I don't know, like, how could. I mean, there are lots of questions here, but one of one is how concerned do you think people should be about whether or not the ceasefire turns out to be real? Ish. And is the market pricing in the ceasefire because it's the stocks sort of look flat in all of this.
- [08:24]
JVL
Yeah, last I looked they were.
- [08:25]
Katherine Rampel
The market seems to think like, don't worry, everything's in hand, we don't have any more. The market seems to think there isn't a lot of uncertainty.
- [08:34]
JVL
Yeah, it's confusing, particularly if you look at spot prices in recent days. I Don't know what they are today, but spot prices for those watching are what it would cost if you wanted a barrel of oil right now, a
- [08:49]
Katherine Rampel
physical barrel of oil, not a piece of paper saying that you own a barrel of oil.
- [08:53]
JVL
Right. Usually when you hear people talking about oil prices, they're talking about oil futures prices. So how much you would pay for a barrel of oil three months from now, let's say, and the number three months from now is usually more expensive than the number today because there's a bit of uncertainty, you know, prices go up, etc. Right now, or at least the last I had looked, it was the opposite, where the price, while you talk, search for either oil, crude oil, spot prices, or there's a specific term. I don't think of it. Okay, sure, sure, sure. Anyway, normally the future price is higher than the current price. Recently it's been flipped and at least as of a day or so ago, spot prices were at their highest level on record. Which reflects the fact that it is really hard to get oil right now, today because of that chart that you just saw showing that there are very few ships transiting through the strait. So there's like this air gap, as is, as I've heard other people use that term, meaning that like stuff, the stuff that was already pumped and got through has been shipped to its final destination. And now like we're dealing with this period where stuff isn't getting through, stuff isn't getting pumped, oil isn't oil and natural gas for that matter, are not being produced because countries are running out of storage, etc. So it's really hard to get your hands on a barrel of oil today, physical barrel of oil today, so it's gotten very expensive. But if you look at prices, they suggest that markets think that it'll get easier in a few months. And so that's why the future price is lower than the current price as. Which, as I said, is not normally how it works. Now the question is, are traders making the correct bet on that, that like, things will normalize pretty soon? If you listen to things like what I think it was the CEO of Chevron has said, it's that maybe markets are like being a little too optimistic. And the reason why the futures price is not higher is that markets are like making a bunch of assumptions about what's going to happen between now and June that may not be based in reality. Now you mentioned JVL that there is a ceasefire deal, there's a toll, maybe that ships are having to pay in order to go through, which is also a new cost that companies have to deal with, which off the record oil executives and traders will complain about. But, like they're too chicken shit to talk about it on the record, of course. So there is this toll thing that's going through. So maybe stuff will loosen up. Maybe we'll start to see more traffic go through on the condition that tol are paid, on the condition that the transactions are done in like crypto instead of your favorite topic, the petrodollar. But even that is really not going to solve the problem right away because like I said, there's this air gap where it's like you have this period we're soon going to be dealing with a period where stuff wasn't getting produced, stuff wasn't getting through. And so even if everything went back to normal with the straight today, that doesn't mean prices are going to, prices at the pump are going to go back to normal anytime soon. Maybe they will eventually. But if you look at forecasts for like, how much will oil cost, how much will gasoline cost? They may not be as high as like the worst case scenario, but they're still a lot higher than people thought before the war began. So it's like somewhere at the spot price. Oh yeah. What is it?
- [12:51]
Katherine Rampel
Jasmine? Thank you. So we're like, like 130 and a bit down from. It was like 144 last.
- [12:59]
JVL
Yeah, that was the record high.
- [13:01]
Katherine Rampel
But you can, you can see the divergence between the futures and the spot prices starting like as people started getting their head around the actual disruptions. And that's why I said like, it does sort of, you know, we've got this Schrodinger cease fire that maybe works or maybe it doesn't. I have just sort of assumed that it would because I think, think it's in Iran's interest for it to work at this point. Unless they just want to play for more.
- [13:31]
JVL
Well, I mean, they have a lot of leverage right now because now that the straight has been blocked, they can always threaten to block it again. So, I mean, obviously Iran has sustained a lot of damage and the Iranian people have sustained a lot of casualties as well. As a result of our war.
- [13:52]
Katherine Rampel
Not a thing. Iranian regime typically cares a lot about. Civilian casualties.
- [13:58]
JVL
Yes, they have, yes, committed plenty of their own, certainly protester killings earlier this year. But in terms of like their actual influence, their actual power over the region, in many ways it's actually grown quite a bit because they can always threaten to like put down the toll booth or to to block ships, tankers, other commercial vessels in the future. And so, like, everybody has to do what they say, or at least, you know, that they have a lot more leverage than they used to.
- [14:38]
Katherine Rampel
This is the difference. The analogy I've made is this is the difference between North Korea saying that they have a nuclear weapon and North Korea doing two nuclear weapons tests that everybody can say, yeah, right. And so it is one thing for a country to claim to be a nuclear state, which changes your strategic calculus in dealing with them, but there is also the uncertainty. Maybe they're bluffing, maybe they're not. Once they demonstrate they have. And Iran has always threatened to close the strait, but nobody really knew if they could do it. And now it's clear, not only can they do it, but they can do it in the American Navy. Can't stop them.
- [15:13]
JVL
Yeah. And they can do it kind of
- [15:14]
Katherine Rampel
on the cheap, whatnot.
- [15:16]
JVL
Yeah, yeah, they can do it on the cheap. You know, like the. I forget what the exact numbers were, but the missile defense systems, the technology that we have to block the drones costs, like, orders of magnitude more than the actual drones themselves. It's like $30,000 versus a couple of million or something like that.
- [15:38]
Katherine Rampel
Yeah.
- [15:40]
JVL
So, yeah, they can do it on the cheap. Yeah.
- [15:43]
Katherine Rampel
Well, the asymmetry of this is that in order to block the straight, you don't have to be able to stop 100% of. Of traffic.
- [15:51]
JVL
Yeah.
- [15:51]
Katherine Rampel
You need to be able to blow up a couple ships. Like, if you can. If you can hit a couple ships, that's enough. And so things that the Trump administration does not seem to have thought through. So to go along with all of this, we also have some consumer sentiment data.
- [16:09]
JVL
Yeah, that was ugly.
- [16:14]
Katherine Rampel
So this brings to one. Consumer sentiment is one of my least favorite things, because I spent the Biden years setting myself on fire saying, why do people think that this is 2008? Like, this is during the Great Recession, some. Some meaningful percentage of all homes in America were foreclosed on. Like, you know, the unemployment rate was very high. Like, it was. It was bad. And what we had was, like, record low unemployment with some uncomfortable inflation, you know, and we had mortgage rates going up to something that, again, in 1990, would still have been seen. Would still have been seen as an incredibly cheap mortgage rate. We're now down, US consumer sentiment down to 47.6, lowest it's been on record.
- [17:14]
JVL
Yeah.
- [17:15]
Katherine Rampel
And I can kind of get that now. Like, this is. And I think you and I had a conversation about this, like, three months ago during one of these where we got consumer sentiment numbers. And you and I both said it's kind of like the Biden administration again, like the economy is not good, the economy is shaky and weak, but people are acting like the sky is falling. This like with the war going on and prices spiking and like the US Ability to influence the world around us and the prospect of losing control of free navigation, of international waterways, like now I'm finally willing to say, like, okay, this makes sense. Okay.
- [17:56]
JVL
Yeah, I mean, I, this I understand. Yes. So I have many thoughts about all of this, which is I actually still don't think it's nearly as bad as the deepest, darkest depths of the financial crisis and the Great Recession because you don't have double digit unemployment, you don't have gazillions of foreclosures, you don't have this sort of like earth cratering below. You feel that, you know, that we were all going to be in free fall that we had back then. So I do not think it is bad. It is as bad in concrete, hard data terms as it was then. Part of what has changed since then to today is that the responses to surveys like this have gotten a lot more partisan. This was the case under the Biden administration as well as the Trump administration, and it was the case to some extent under George W. Bush and Obama as well. But it's gotten magnified a gazillion fold in the sense that when, if you are a Republican, if there's a Democrat in the White House, you think the economy sucks kind of no matter what, and vice versa, if you are a Democrat and there's a Republican in the White House, House. So everything like kind of gets, looks worse in terms of averages. But if you what, what matters right now is what's happening with like independent voters and also what's happening with Republican voters because like I said, Democratic voters are going to say that the economy is bad right now while Trump is in the White House, kind of regardless of what the data show. What's interesting is that Republicans have soured much more on the economy, as have independents. So, you know, you have to kind of take these numbers with a grain of sal. But they are reflecting real problems, as you mentioned. They are reflecting real concerns about rising prices. And in fact, the University of Michigan little research center that puts out those data said that when they asked people about whether their finances are getting better or worse, people volunteered when they said they were getting worse concerns about gasoline prices and other indicators of rising inflation. So that's clearly an issue here. There's also a fair amount of worry about what the job market will do. Right now unemployment is relatively low. Not a lot of people are getting laid off. Also not a lot of people are getting hired. We're kind of in this stasis right now. There's just not a lot of churn, period. We've had a few months where on net we did lose jobs. And over the past year I think we're, we are close to flat. If the Fed thinks that like it's overstating things that actually over the past year maybe we have lost jobs, but it's not like the massive widespread layoffs that we saw again in 2008, 2009, let's say. But there's worry that because things feel kind of easy and because no one is hiring, if I lose my job, what are the chances that I can find a new one? And what happens if all of these factors that we've been talking about, including rising input costs because of higher energy prices, will that affect my employer? Will they be looking for cost savings? Will they let me go? And then there are other risks in the economy too. You know, like we've talked about this before, but AI is to a large extent propping up the overall US economy. This was true even before the war. And AI, there's a lot of bad money going after good. And so what if, what if things blow up there? What if as I said, like helium prices go up? And you wouldn't think that would affect AI, but it actually does because it raises the cost of semiconductors. So there are a lot of different knock on effects that I think some of them people are aware of and can articulate and some of them just translate into this general uneasiness about where the economy is heading, where the United States is heading and what that means for people's job security and general financial security.
- [22:04]
Katherine Rampel
Yeah, I mean when I said that I understood it for the first time, I, I again hard agree with you. Not as bad as it was in late 2008, but we do have like all of a sudden a great deal of uncertainty.
- [22:18]
JVL
Yes.
- [22:18]
Katherine Rampel
And it's not just like tariffs which can be imposed and then unimposed. Like it's like actual logistical and so. Well, how are we going to get this stuff from point A to point B? And who's gonna can we do free trade if all of a sudd. Not sort of free and open and anyway.
- [22:38]
JVL
Yeah. And you know, we're also helping a bunch of our adversaries at the same time. Again, I don't know how much of this your typical consumer is really aware of.
- [22:50]
Katherine Rampel
Oh, the great good American people are very sophisticated, Catherine. They're, they're, they are dialed in. Trust me.
- [22:56]
JVL
Look, it's not their job to pay attention to like, big geopolitical changes in the world and what's happening to the petrodollar.
- [23:02]
Katherine Rampel
You can possibly ask them to be citizens who are attuned to how the world world functions around them. You know what?
- [23:09]
JVL
You and I have different views.
- [23:10]
Katherine Rampel
Sarah are exactly right about this. It's true. It's true. We could never ask people to understand how the world works. That's, that's asking too much.
- [23:19]
JVL
I think we have.
- [23:20]
Katherine Rampel
We want to do something fun. Oh, I'm going to show you guys a live beatdown on tv courtesy of Pete Buttigieg in a minute.
- [23:30]
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- [25:01]
Katherine Rampel
Wow. This explains why Sam is always so nice to me when I talk with him.
- [25:06]
JVL
Very chill guy, that Sam. That's true.
- [25:09]
Katherine Rampel
I promised people some gladiatorial entertainment. Now I'm going to deliver. This happened this morning right before we hopped on said on day one it would go down. He came in on day one and now it's up. It's up to 3%. It was 21.5% promised it would go down four years over four years. It was 21 and a half promised it with you Democrats own the affordability. Listen to me, period. Why did the president fail? You don't think Democrats look at Aaron Russell in the back. Why did the president fail to keep his promise to lower prices, in your opinion? I'm laughing because this is this, this piece of it is basic. The president did say that he was. He wanted to be in office to bring inflation down and he has not brought inflation down. That's all. He drove it up. He not only failed, he drove it up. Mr. Secretary, let's talk have had a minimal. A minimal. You tell a family where I live that $1,000 per household is minimal. Stop the fight.
- [26:10]
Kevin Hassett
Oh.
- [26:11]
Katherine Rampel
Oh, no. Mom.
- [26:13]
JVL
Love it.
- [26:13]
Katherine Rampel
You love it how it's I, I do love. Is interesting as a political question that the, the response from Republican hacks like Joe is shifting into actually, it was worse under Biden. Right? Like they've given up. The things are great. This is the new golden age. They've given up. Things are going to be even better in just a minute. Just you wait. And they're now. Well, things were worse. How does that work as a.
- [26:55]
JVL
It doesn't seem likely to me to be a winning political slogan. And I actually don't think that they've given up on the things will get better. The golden ages around the corner. We could have a whole montage of all of the times that like Lutnick has said next quarter things are going to be awesome. Let me tell you two weeks in two weeks they're going to be Kevin Hassett. I don't know if we have the video of it, but Kevin Hassett was on cnbc. I believe it was y yesterday. Maybe it was Fox Business anyway and promised that we were going to get 4 or 5% GDP growth this year. For context, pretty much every other every independent economic forecaster from the Congressional Budget Office to the OECD to blue chip surveys of Wall street economists who are, by the way, not exactly like, you know, red commie liberals. They're just paid to get things right. All of these forecasters are predicting now like somewhere around 2% growth, 1.9, 2.1% growth. Somewhere like so like basically less than half.
- [28:00]
Katherine Rampel
Let me, let me fix this for you. Yes, let me fix this for you. Those people are predicting inflation adjusted GDP growth. If you unadjusted from inflation, I bet we get 5%. I bet Kevin was really talking about nominal growth.
- [28:18]
JVL
Could be. I think you may have figured it out.
- [28:22]
Katherine Rampel
I'm just solving problems left and right.
- [28:24]
JVL
I know, I know. You're like, yeah, all of these outside of the box ideas. You know what?
- [28:32]
Katherine Rampel
Matt has it.
- [28:32]
JVL
Let's, let's, yeah, let's play it.
- [28:34]
Katherine Rampel
Let's listen to my.
- [28:35]
Interviewer
Kevin, what would you say the impact is on the US Economy so far? I mean we know, Kevin, that we just came off of the worst quarter for stocks in several years. We know that oil prices have risen 50%. What would be your expectation for the impact on economic growth in the coming quarters?
- [28:55]
Kevin Hassett
Well, I mean absent this event then, when you and I talked about this last time, I said that because air is creating so much productivity because President Trump's policies, the drag and the taxes are causing an investment boom and investment investment boom that considers or continues right to this, this day. You know, we just got advanced herbals numbers that said that orders for capital goods and shipments of capital goods are at an all time high. All of that is happening because of optimism that President Trump not only will resolve this in the short term, but in the long term his policies are going to create a golden age. And so I began the year with a guess that we'd probably be in the 4 to 5 range for economic growth because of the, of all this. And I'll stick by those numbers. I think this is a temporary distraction that will very, very quickly go away. You saw that when you saw the market celebrate yesterday when they, when they thought that this would be over. I think our excellent negotiating team will, will finish the job and then we'll be back on track to one of the best years ever.
- [29:57]
Interviewer
Wow. So you still look for 4 to 5% growth for this year.
- [30:03]
Kevin Hassett
Yes, that's right, that's right. Because productivity is already giving us two and a half. And so if we get a little out of everything else that you could get way north of three.
- [30:11]
Katherine Rampel
Look, you can get way north of three after saying four to five.
- [30:14]
JVL
Okay, hey, directionally that is correct. Four, four to five, way north of three. Will it happen? Look, it would be nice. I am not someone who is rooting for a recession. I have been pretty clear and consistent on that.
- [30:30]
Katherine Rampel
Only bad people do that because the people who suffer, terrible, broken people for
- [30:38]
JVL
a recession, Catherine, the people who suffer the most from recession are the most vulnerable. You know, it's like the rain falls
- [30:47]
Katherine Rampel
on the just and unjust alike.
- [30:50]
JVL
It'll fall harder on. Yes, on, on the poor people in any event. And in any event, yes, like I said, the forecasts from pretty much everyone else are for much lower growth than that. And there are a lot of things that are boosting the economy, like sort of artificially, including we have a big fiscal stimulus that's coming through this one big beautiful bill. You know, those are tax cuts. Tax cuts are a fiscal stimulus. So that's, that's a tailwind for the economy. But Donald Trump keeps on jumping in the way and finding new ways to stress the economy, economy to make things worse, through tariffs, through politicizing the Fed or attempting to politicize the Fed through the war, through deporting a huge portion of our agricultural labor force. Pretty much every major economic thing that he has done has hurt the economy. And that is why you see these sort of like modest, they're not terrible number, like 2% growth, 1.9% growth. What the, the Fed and CBO and Goldman Sachs or whatever the things that they are predicting. That's not terrible. It's not a recession. It does not imply a recession.
- [32:08]
Katherine Rampel
But without the tailwinds, it might be, we hadn't just done the big tax cut.
- [32:13]
JVL
Yeah, exactly. I mean, I think things would be worse. And like I said, some of the things that are boosting the economy, propping up the economy look a little tenuous on their own, including AI. Like you just heard Kevin Hasset talk about how AI is creating this productivity boom. And in some ways, yeah, it is boosting productivity and will probably continue to do so, at least in certain industries. But there's also a lot of data center building, a lot of investment that's going into the development of AI that is probably not going to stick around because it's like all of these companies having an arms race for who can develop the best product in the end. And not all of them can. So some of them are going to be losers in what may be a winner take all market and they're going to pull their investment. And so then what happens then? Right? You're going to, you're going to potentially have a lot of layoffs. You're going to at the very least not have that big boost that we've been having from this industry. And none of that is taken into account in any of these forecasts. So, look, maybe it's possible that we get that much more Pollyanna ish outcome that Kevin Hassett is predicting. Of course, one might be a little bit skeptical of his optimistic predictions in general, given other infamously bad optimistic predictions he has made in the past.
- [33:39]
Katherine Rampel
35,000, 36,000.
- [33:41]
JVL
36,000. Don't undersell it, Dow. 36,000. Yeah, he said that the stock market was going to go to 36,000 eventually. He was like, decades later. Yes, that was true.
- [33:51]
Katherine Rampel
Twenty years later, he was right.
- [33:54]
JVL
Actually, my favorite wrong Kevin Hassett prediction is from COVID which is the infamous cubic model. Do you know what I'm referring to?
- [34:04]
Katherine Rampel
I do remember this.
- [34:05]
JVL
Yeah. Yeah. So he predicted in, like, spring, maybe like late April, early May of 2020, that Covid cases were going to drop to zero by mid May of 2020. And he did that by plugging some data into Excel and then saying, press the button and Excel come up with every single regression model you can. And one of them was the cubic line of best fit, which most people would never bother with. And that happened to, you know, produce a little nice arc, like a little parabola of cases go up, cases go down, which was coincidentally, exactly the number that they were looking for. And he was, like, mocked mercilessly. You talk to any economist about Kevin Hassett and you mentioned the cubic model, and you will immediately get a laugh. Because for nerds, this was a very damning example of he's just trying to reverse engineer the result that Donald Trump clearly wanted him to do, regardless of how embarrassing it would be when that forecast did not materialize. But that's Kevin Hassett's job. It's Peter Navarro's job. It's to say, Peter Navarro even says this explicitly. His job is to come up with the evidence that supports Donald Trump's intuition. That is literally what he has said. That's not how economists, researchers in general, are supposed to operate, but that's how the people surrounding Donald Trump operate. And as a result, you get often very implausible, comically implausible predictions about COVID about the stock market, and about gdp.
- [35:54]
Katherine Rampel
No price. No price for Kevin Hassett for being wrong. It is funny. We talk about incentives often. Kevin Hassett is where he is in life precisely because he was willing to go out and say things which would obviously turn out to be wrong.
- [36:10]
JVL
Yes.
- [36:11]
Katherine Rampel
Had he been doing good modeling and good predicting, he'd just be another dude at a think tank. That's great. All right, I want to switch gears and talk about prediction markets. You wrote a great piece for your newsletter, Receipts about a bunch of insider ish trading things that have happened recently. I just want to let you give like the, the 92nd version of that. And then I have some fairly puritanical questions that I'd like to ask you because I think these things are the devil.
- [36:48]
JVL
So the top line is that if you are making any kind of trade or investment decision based on anything that Donald Trump touches and you don't have inside information, you are a chump. Because the people, people who do have a direct line to the President are getting information about military strikes, maybe about jobs numbers, basically about anything that they can bet on and make money off of. So if you do not have, if you are not privy to that information, somebody is going to take advantage of you. And it's like I don't even understand why anybody would participate in prediction markets with anything that Donald Trump touches, knowing that he's probably blabbing to his friends and donors and kids, kids and Mar a Lago members about what he's going to do. And so again, it's not just about prediction markets. There have been a bunch of suspicious trades around oil, for example. When was this? A couple of weeks ago on one of the many times when Donald Trump said something market moving that turned out to be bull. It was something like our talks with Iran are very productive. And, and coincidentally, just before he said that huge 17 minutes, 17 minutes, literally minutes before he said that there was a bunch of huge trades in oil markets. I think it was like half a billion dollars worth or something.
- [38:21]
Katherine Rampel
500 million.
- [38:22]
JVL
There you go. And it's not like maybe people got lucky. Certainly it's possible to bet on. Trump always chickens out Taco. And that therefore, you know, maybe people thought like high oil prices were not sustainable because he was going to back down in some way or he was going to have productive talks with the Iranians. But the timing was just uncanny. And so you have a lot of examples like this where people just happen to like create a polymarket account immediately before we invaded Venezuela and only make bets on whether we were going to invade Venezuela and other Venezuela related topics. You can see the records actually of various users of Polymarket. They're under pseudonyms, you know, they have a handle so you don't know who they are, but you can see when was the account created, what did they bet on and did they have a perfect record. And lo and behold, there are a bunch of Accounts for whom? This is true about Venezuela, it's true about Iran. You know, people making bets on whether the Iranian supreme leader, the Ayatollah was going to leave office. They happened to make that bet on exactly the right day. And maybe it's coincidence, maybe people got really lucky. But it certainly looks like somebody had some inside information and are making money off of it, which is odious in its own right. It also means again that they are making money at somebody else's expense. This is a zero sum market market. Somebody wins the bet and somebody loses the bet. And you know, there's also the fear of course that people are not only using information that they have on decisions that have already been made but are not yet public, but maybe shading their decisions based on what will make them the most money. And we don't know that it's happening, but we might never know if it were happening. And I think there are a bunch of reasons why. Again, this is morally odious. Suggests that we have political leaders who may not be putting our national security in their, you know, prioritizing our national security when they're making decisions about military strikes or whatnot. But they're also like robbing a lot of people blind. Particularly when it's things like what's happening in oil markets or in equity markets. You know, there I think we can talk about like who participates in prediction markets which are a newish to gamble. But there is a lot of money that changes hands in oil markets and in the S&P 500 that normal people may not even realize like this is affecting your 401k when somebody is front running you because they have inside information about our military action or some market moving economic indicator or what have you. They are making money off of you.
- [41:29]
Katherine Rampel
So I think we have to disaggregate the, the prediction markets from like the stock market in the futures market. Because you can legislate that stuff. Like you can legislate, hey, if you work for the Pentagon and you are involved in the planning of a strike, you are not permitted to go and purchase oil futures the day before or something like that. Now you would have to have an SEC that was functional. We don't have one of those right now.
- [42:02]
JVL
Yeah, we can talk about that in theory.
- [42:03]
Katherine Rampel
Like that. That's a, that's a thing. Yeah. Also in your piece, the prediction markets are separate and I, I guess I would ask you, is there any reason that prediction markets should be legal? Because they are, I feel like crypto, they don't really have any Use case, except to engineer wealth transfers. And like, with crypto, I mean, they. They sort of invite criminal activity. Right. I mean, crypto invites criminal activity. It invites people to use cryptocurrency for illegal activities. It also invites corruption and grass where people stand up coins for the sole purpose of allowing people to bribe them by buying their coins, which are worthless. Right. It's. It's just like legalized.
- [42:59]
JVL
Or to get oil through the Strait of Hormuz.
- [43:02]
Katherine Rampel
Or to get oil through the Strait of Hormuz. But I. I think that's basically the same for prediction markets. And it's not clear to me why Poly Market or Kalshi should be legal in America.
- [43:16]
JVL
I think I'm less puritanical maybe than you are on this point.
- [43:22]
Katherine Rampel
That's not hard.
- [43:23]
JVL
Okay. I don't think that they are. I think they are a tool, a tool that can be used or misused. And there actually are use cases for prediction markets that I think are helpful. Like, oftentimes they're actually helpful in looking at who's going to win elections, for example, because people are putting skin in the game and they are making predictions not based on what they want want to happen, but what they believe will happen. And to some extent, actually inside information can be useful to the public. Right. If you know what these markets are pricing a particular outcome at. There's like, you know, in regular markets, we talk about price discovery. Here you're talking about, like, potentially helping people understand the likely outcome. I mean, we do forecast for similar reasons. Right. This is a form of a forecast, but it's sort of like a crowdsourced forecast. So I don't think it's like, on its face bad. It's a form of gambling. We allow a lot of other kinds of gambling, including inside.
- [44:25]
Katherine Rampel
I got a lot of thoughts about that, too.
- [44:27]
JVL
Okay. I mean, again, I think this is one of these things where it's like, I'm not a gambler. I've been to Atlantic City. I've been to Las Vegas, and like, the idea of. Of gambling stresses me out. I know other people like it. It's a hobby.
- [44:46]
Katherine Rampel
Understood.
- [44:47]
JVL
But I don't think we should ban it. I think that there need to be guardrails, certainly for prediction markets, particularly if we're talking about using. I mean, probably using classified information is already illegal. I think there have already been arrests for things like that in the past, although I don't know the law on it. So I don't object to these industries existing or, you know, like, I don't Think we should ban all sports gambling, even if it's not something I'm into. But I think you want to have like. I also don't think we should ban alcohol, even though people abuse alcohol. So, you know, I think it's like things in moderation and have some guardrails. It's a hobby. Yeah.
- [45:35]
Katherine Rampel
Tell me this is a larger conversation. Okay, but I, I would say the, the thumbnail version of my, my views on this are that activities that carry with them enormous economic risk and risk which ultimately gets borne by society. Right. It is. I mean people who get involved in gambling are risking themselves, but also then the economic can do winds up having that tab gets picked up by everybody else. It's like with smoking, you know, you get a lot of people smoking all the time and getting cancer. Well, that shows up in like Medicare costs. These things do get socialized. And so to the extent you want to allow some of these things, I understand that. But they need to have a lot of friction to them in order to mitigate the larger costs. And what we have had, especially just with the mobile computing revolution, is the expansion of activities which once carried a lot of friction to being totally frictionless. And not just frictionless, but predatory. So you have your sports gambling app, it is in your phone, in your pocket with you at all times. And if you stop gambling, the company that is using all of your data knows how to lure you back in by saying, hey, we'll give you $25 for free. And you know, just do this bet. Here's a three team parlay that we know, we know you're a Bills fan. And so here's a good bet. Don't come bet on the bills. Right. And that when you have not just like frictionless, but also then big data, allowing the companies which conduct the gambling to be really predatory in the pursuit of their customers bad. You want to tell people that they've got to get on a bus and go to Atlantic City to a sports book to gamble for a day. I can live with that. But that this is different. And I think we're starting to get some pretty good societal data based on state by state where states which have legalized sports gambling versus not, not and the outcomes, especially for young men, are quite bad with sports gambling. And so that's why.
- [48:02]
JVL
I mean, I hear you. I think, as I said, I think there's.
- [48:07]
Katherine Rampel
But I'm a nanny state guy.
- [48:08]
JVL
Yeah, I was gonna say, I mean I, I guess I'm more libertarian than you on these kinds of issues. I Mean, the other thing that I would mention, which is not about like, what is the right thing to do, but what is the politically advantageous thing to do, is that it's going to be very hard to outright ban a lot of these things right now. In part because. Which is again a different question about the merits, but because it is disproportionately young men, for example, who are participating in these kinds of betting markets. And whether it's sports gambling or prediction markets markets, I think it's going to be really hard to crack down on it unless you want to drive away those voters who are right now up for grabs. So that's it. I'm sure that is part of the calculus for politicians in both parties. Like do they want to be the nanny state on this and piss off all of the manosphere listeners because they are cracking down on calshi.
- [49:14]
Katherine Rampel
Who would want to stop tech billionaires from making more money by siphoning dollars out of unsuspecting, unsuspecting people who are getting fleeced on their platforms?
- [49:24]
JVL
Yeah, well, like we do, we already have laws against fraud, as you alluded to before. We do not enforce them. We, we. Last year, actually, last fiscal year we had the lowest number of white collar prosecutions at the federal level on record going back to the 80s. And that's partly a long term thing that white collar prosecutions have been trending downward, but it's also largely a Donald Trump thing. And so, and again, this is so like there were prosecutions of, I don't know, people in crypto who were defraud, you know, rug pulls, people defrauding unsuspecting users. I don't know about in prediction markets per se, but in a lot of these other ways that are essential ways that democratize gambling, financial gambling, those kinds of things. There have been intermittent efforts to enforce the law on more traditional laws, not things written necessarily specifically for these markets. And that was always going to be a difficult battle because the technology is going to, just like the people working in tech are going to be ahead of the people trying to regulate tech. But there were at least efforts to crack down on this stuff. And then this administration has stopped enforcing and has been pardoning the President has been pardoning people like CZ from Binance for defrauding people. So there are a lot of ways in which I think there are more, there are going to be more chumps out there essentially because a, the people on the other side of the bet who have a line to the President are gonna have, you know, have Inside information, and they can use that against you. B, if, you know, if there is actual funny business going on, nobody's gonna crack down on it. C, people who have cracked down on it are getting. People who have been prosecuted or pled guilty are getting pardoned. D, more people want to cheat, right? Because nobody wants to be the one chump who's not cheating. This is true when it comes to tax compliance and it's true when it comes to market manipulation. To the extent people can, you know, get aligned to the president, donate money to the president, more people are going to do that. And I don't know how many letters I'm up to at this point, but E, I would say that, that the administration is trying to encourage more risky financial behavior from the public. You know, we're talking about things like prediction markets, but also there was this 401k rule that the administration just proposed like a week ago that basically. Yeah, that makes it possible for normal people to invest their retirement savings in really risky assets. Where here I am more of a nanny state person.
- [52:21]
Carvana User (Caller)
Why not?
- [52:21]
Katherine Rampel
Right?
- [52:23]
JVL
You know, they're basically making it easier and encouraging people to invest their 401ks in crypto, in private equity, in private credit. Right. As private credit is maybe going to blow up. You know, this is a way of, like, if you don't, you know, there's this idea of the greater fool theory. Do you know this term that there are, you know, that like, you can have a bubble, a speculative bubble of some kind, because even if everybody knows, knows it's a bubble, because it's like, well, there'll always be someone dumber than me to buy this worthless bag of shit, essentially, and I can pass it along. And that's sort of what happened with the housing bubble. Like, everybody kind of knew things, or not everybody, but a lot of people, sophisticated traders, knew that home prices, for example, were inflated, were overpriced. But it's like, I can sell it onto somebody dumber than me. In this particular case, when you run out of greater fools who are willing to buy the bag of shit, for example, a bad private credit loan, if you expand the universe of people, more unsophisticated, potential buyers, more fools, you can continue the chain of the greater fool and you can keep the bubble going for a little bit longer until it eventually bursts. And that's basically what this administration is doing.
- [53:44]
Katherine Rampel
What could possibly go wrong?
- [53:46]
JVL
What could possibly.
- [53:46]
Katherine Rampel
All right, Katherine, thank you. We'll be back next Friday, probably with more fantastic economic news because everything's going great. And the new golden age will start then. Good luck, America.
- [54:03]
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- [54:25]
Katherine Rampel
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- [54:33]
Carvana User (Caller)
I sold my car in Carvana last night.
- [54:35]
JVL
Well, that's cool.
- [54:36]
Carvana User (Caller)
No, you don't understand. It went perfectly. Real penny. They're picking it up tomorrow. Nothing went wrong.
- [54:42]
JVL
So what's the problem?
- [54:43]
Carvana User (Caller)
That is the problem. Nothing in my life goes to smoothing. I'm waiting for the catch.
- [54:47]
JVL
Maybe there's no catch.
- [54:48]
Carvana User (Caller)
That's exactly what a catch would want me to think.
- [54:51]
JVL
Wow. You need to relax.
- [54:52]
Carvana User (Caller)
I need to knock on wood. Do we have wood? Is this table wood?
- [54:54]
JVL
I think it's laminate.
- [54:56]
Carvana User (Caller)
Okay. Yeah, that's good. That's close enough.
- [54:57]
JVL
Car selling without a catch. Sell your car today on Carvana. Pick up these. May apply.
- [55:03]
Carvana User (Caller)
Hey, sweetie. Your mother showed me this Carvana thing for selling the car. I'm gonna give it a try. Wish me luck. Me again. I put in the license plate. It gave me an offer. Unbelievable. Okay, I accepted the offer. They're picking it up Tuesday from the driveway. I haven't even left my chair. It's done. The car is gone. I'm holding a check anyway. Carvana. Give it a whirl. Love ya.
- [55:26]
JVL
So good, you'll want to leave a voicemail about it. Sell your car today on Carvana. Pickup fees may apply.