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- [00:00]
Podcast Host
This is an iHeart podcast.
- [00:02]
Commercial Narrator
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Ed Dad
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Commercial Narrator
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- [00:55]
Ed Dad
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Commercial Narrator
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- [01:37]
Commercial Voice
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- [02:05]
Ed Dad
This is the kind of stuff that revolutions are built on. And if this doesn't get fixed, I worry about tax revolts at some point.
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Mark Moss
At some point we should have it right now. How dare they collect another dollar from us if they can't stop the fraud.
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Ed Dad
I mean really what matters is no one believes the official story at all.
- [02:21]
Mark Moss
You think the recession has already started and the thing that fire finally makes everyone see would be this AI bubble popping.
- [02:28]
Ed Dad
They're all kind of financing each other, so that's a problem. Now Kevin Warsh is interesting and if the stock market goes down 20% in four weeks, let's see what he does.
- [02:37]
Mark Moss
And you add mortality trends on top of already falling birth rates.
- [02:41]
Ed Dad
Of course they blame for that. I myself have another opinion, which I won't mention on YouTube.
- [02:46]
Mark Moss
Yeah. But could AI and automation save this demographic cliff from collapsing everything? All right, Ed, let's just go ahead and start with a big one. You know, you've been managing money for a long time. I think you manage $14 billion of BlackRock. And you've got a lot of calls that are seemingly counter to the main narrative. And you got a call right now that cuts against what most people are saying, what most of my audience is positioned for, and that is that you think the recession has already started quietly. Most people haven't picked up on it yet. And the thing that finally makes everyone see it would be this AI bubble seemingly popping. Do I have that right? And if so, explain that.
- [03:26]
Ed Dad
Yeah, absolutely. So a lot of people look at stock market as the health of the economy. And while traditionally that's been true, there's been a definite degradation in and people, they've called it, they named it in the Wall Street Journal and other publications, the K Street economy, where the top 10% are doing 50% of the consumption and the other 80% are struggling mightily. And you can't have an economy that's going to continue to grow when the 80% are starting to miss credit card payments, auto loan payments, and now foreclosures are starting to take up and those little small cash flows eventually affect everything. And the AI bubble is the last credit impulse we're seeing that's keeping the stock market up. And your audience needs to know that 45% of the market cap of the S&P 500 is AI or AI adjacent. And the semiconductor industry, which is notoriously very cyclical, is now 19% of the S&P 500 index. And this is the last impulse we think. And when that pauses, and we think it might be in the beginning stages of pausing, you're going to see the stock market start to reflect the reality on the ground. And the other thing I want to note is that the jobs numbers have been every month quietly revised down in subsequent non farm payroll reports to the point where there's a report called the Quarterly Census of Earning and Wages, which in my whole career none of us ever paid any attention to because it's nine months lag. But it is reality. It's the report card of the employment situation nine months later that has been wrong. Or non farm payroll has been wrong to the tune of eight standard deviations in 24 and four standard deviations in 25. So the jobs numbers we're seeing quietly get revised lower. So that's kind of a problem. And that's why you're seeing this disparity in the two economies at the moment.
- [05:30]
Mark Moss
The jobs numbers have been constantly revised later quietly, as you said, sort of they posted and then they sort of go back and revisit that. And to your point, we saw a lot of that in 2425, seemingly through the last administration cooking the book, so to speak. Has that changed in the last year with the new administration?
- [05:47]
Ed Dad
In 25 it was wrong to the tune of four standard deviations. So no, it's better than eight. But in 26, but in 2626 it's quietly the most recent report. They revised down the numbers. It's a little better. But we'll see what happens as we roll forward.
- [06:04]
Mark Moss
Okay, now there's so the air bubble, I want to dig into that. But I think there's also two other converging risks that you're, that you've been focusing on, which is one, housing and then also China. And so is it the convergence of those three that really lead to this or just one? Is one of them more important than the other?
- [06:24]
Ed Dad
All three are kind of important, interplay between each other. So China, they just reported their fourth quarter GDP last night and it came in at 4.3%, well below expectations. So the strength of the Chinese economy in our humble opinion is getting worse. They're hitting the acute phase of their housing crisis which started in 2021. But they had long live projects that kept construction, generally speaking kind of afloat. So construction was only down 20% when we put out a report at the beginning of this year. It's now worse. Construction year over year is now year over year. Growth has gone negative. Net fixed investment went negative in the fourth quarter of last year and then popped up a little bit. But overall they're now hitting the acute phase where their long live projects are rolling over and there's no new stimulus. So that's why you're hearing cries from economists that China needs to do a stimulus package because they are experiencing a slowdown in their economy which you know will have impacts in Asia. Japan is the largest trading partner in both exports and imports of Japan. And also, you know, where there's, everybody's talking about the yen carry trade and the Japanese yen that could go at any moment. So that, that's an, that that's like that that's a contagion risk in Asia. Then we have housing which is slowly rolling over that was propped up in 23 and 24 by the illegal immigrants. The Fed actually put out a report recently that they believe that the illegal immigration caused home prices to be 30% overvalued. That's now on the margin going the other way because the borders shut down, the mass deportations haven't happened. Quite frankly, if they had happened, home prices would be a lot lower. So they've kind of slow rolled that. And then the AI bubble is a stock market phenomenon and a lot of the people there are going to end up losing money because the valuations are high, it's being funded by debt and the return on investment for AI hasn't materialized yet. And then underpinning AI is private credit. And private credit is currently frozen. And private credit mark was the incremental driver of credit growth in the US in 24 and 25. We have in our economic report the graph showing that that's mean, that means that banks, the loans that banks made were to private credit and private equity. Not really the real. Well it is the real economy. But it was, it was to these guys. And in the last, you know, credit impulse and the growth of the private credit industry has been so big and so fast that marginal credit and new, new credit created has probably been to credits that aren't that, that sound. And I'm going to be putting, I have a new substack called Ed Daoud beyond the Narrative. I'll be putting out a piece I think tonight on private credit and try to explain to the layman what's going on there.
- [09:26]
Mark Moss
Yeah, so I want to dig into each one of these individually and go through them. So let's start with the AI bubble. Um, now you've been talking about AI bubble for quite a while. As a matter of fact we talked last over a year ago now and we were talking about it back then. My thought, I, I just want your distinction here because like everything's in a bubble, right? Everything's always a bubble. But like what, what point of the bubble are we in? And so when I look at, you know, the AI bubble compared to say like the dot com bubble, when the dot com bubble burst in 2000, it seemed like back then we had a problem where, you know, know because the technological cycle that we were in, we had overbuilt demand or we had overbuilt supply. There was all the websites, but there was no demand. Nobody was online buying anything. In 2000, less than 10% had people had ever bought anything. And so we had all these web band.com, pets.com, but nobody could use those and so of course the bubble burst. It seems like today two things are happening with AI Bubble number one, we can't keep up with the demand. It seems like the demand is moving faster than we can keep up with for a number of reasons. Maybe capex spends, but also just raw materials, energy data centers, et cetera are also holding that back as well. So it seems like we're not growing near fast enough for demand, which seems to me different than dot com. So how are you looking at it? What are your signs to show you it is in a bubble and you think that bubble is getting close to bursting?
- [10:46]
Ed Dad
A lot of people talk about, you know, the, the, the pets.com and all those stocks that kind of went to zero. There was a, there was a other huge infrastructure build going on during the dot com days which was the telecom infrastructure build out the dark fiber. And a lot of the market cap was in those companies, the Ciscos, the Nortels, the Lucent, the WorldComs, et cetera. And that was an infrastructure build. And then that was,
- [11:15]
Commercial Voice
it was, it
- [11:15]
Ed Dad
was too much infrastructure for the amount of supply and profits that were available. A lot of these new telecom companies used the junk bond markets to float their valuations. They showed tremendous amount of growth just like AI is. But they ended up not making any money because there was a glut of dark fiber that ended up being a good thing because that collapsed. That dark fiber didn't go away and was recapitalized at pennies on the dollar. And then the Internet took off and you know, quite frankly, Apple's smartphone benefited from the amount of dark fiber that was laid during the dot com boom. In the AI there is a demand, but what's the demand? The demand is. And just like in the dot com days, every company felt threatened by every brick and mortar company felt threatened by the dot com phenomenon and the fact that these online company stocks were accelerating while the brick and mortar stocks were going down. So every, every Fortune 500 company spent money on a dot com pilot and they, and, and, and so that created a lot of revenue for a lot of these companies. Similar situation. Everybody has an AI pilot and what we're finding is they're now questioning the return on investment. And token pricing exploded in the first quarter of this year. And so a lot of people that were using the token, the token maxing situation are now readjusting and saying hey, that's a little too expensive. And now there's price competition and there's talk of, of, you know, price cuts from Zuckerberg OpenAI threatened price cuts, they want to go public. And then we have the China Deep seek models that are people are using because a lot of people are finding out they don't need the frontier model, they need the model that's three or four months behind at much cheaper prices and it's good enough. So we're kind of. And then one of the other gating factors on the infrastructure build out is power and water. It's just not there. So let's say there is demand, there's not enough power to meet that demand. So capex will pause which would cause a lot of the valuations to of the companies that are benefiting to go down. The companies that are really benefiting are the pick, the pick and shovel guys, the semiconductor companies, Nvidia, Micron, the memory guys. And we just saw Micron go from a 60 billion market cap to a 1 trillion market cap. Now I wish in hindsight I had figured that out. I didn't think that these companies would continue to do this kind of crazy infrastructure building through what is looking notoriously like a commodity like industry at the moment.
- [14:07]
Mark Moss
If you hold bitcoin, I want you to think about something just for a second. Not how you store it, but who gets it when you're gone. Most self custody bitcoiners have never tested if their family could access it if they were gone. Knowing where the keys are isn't the same as knowing how to use them. That's the technical side. But what they most often miss is the legal side. So even if your family found the keys and they knew how to use them, there's no legal structure telling them the bitcoin is theirs or how it's supposed to pass to them. You see Bitcoin that isn't properly retitled and documented could end up in probate. So it's not one problem, it's two. Yes, can your family physically access it, but is there a legal framework that says it's theirs? So if you want to find out, take a short two minute quiz and get your inheritance readiness score. Just go to unchained.com markmoss again that's unchained.com SL Mark Moss and it's definitely worth two minutes to find out that it's actually handled or not. I understand what you're saying in the token Maxine and maybe some of the the prices are going to come down, they want to go public, maybe they gain more, more market share, etc, but then you also then sort of pivoted into but we, we do have those Supply constraints. And so if we are slow rolling the rollout because of commodity supplies, both, both in energy, raw, raw materials, whether that's copper, etc. Or it's energy, they don't have enough energy or water, whatever it is, I mean, doesn't that slow it down enough from accelerating too fast? And then, so, so that, number one, and then number two, you said some of these companies, you know, not the, not the frontier companies, so not the LLM providers, but then some of the microchip companies like Micron or Nvidia. But I thought you were also calling Nvidia sort of like the Cisco of, of this, of this year, sort of a, sort of a thing.
- [15:44]
Ed Dad
Well, you know, if you, if you, if you look at what's going on in the AI complex, Nvidia has kind of gone nowhere quietly over the last three to six months. It's getting cheaper on a PE ratio because this is something people need to understand about semiconductors. I was a tech investor back when I ran a growth fund. When semiconductors are cheap on pe, the market's telling you it's peak earnings and peak margins quietly. And usually you want to buy semiconductor companies at trough margins and you know when they're losing money. If you want to play the cycle 100% correct right now, even if there is a capex pause, if there is a capex pause,. Nvidia will miss numbers. Micron will all these companies that have really benefited from the acceleration of the infrastructure build will go down. And right now the semiconductor index is 19% of the, of the S&P 500. So there's a lot of market, the way people have been playing the AI infrastructure build us through mostly semiconductors and some of the Mag 7, the Mag 7 have quietly started to underperform because of their cash flow is starting to go negative and they're investing tons and tons of CapEx into the AI infrastructure build. And the market's saying hey, maybe the ROI here is not going to be as good. So the market's starting to bifurcate a little bit here. So the mag7 are being punished for their capex build words. Before last year, every time they announced a capex raise, their stock was rewarded. And recently Goldman Sachs came out and said that the credit market, remember the credit markets are funding most of this build out. And what ended the party in the dot com boom with the credit market said no mas. They just said no more. And so the bond guys are going to end the party, not the equity folks. The bond guys always end the Party and Goldman Sachs came out this week and basically said they think that the amount of supply of bonds needed to raise capital for the infrastructure build out is going to be difficult to place because fixed income investors are questioning the return on investment. So the bond market will determine what's really going to happen here.
- [18:00]
Mark Moss
Now it seems like most analysts, including myself and a lot of people I follow, are seemingly maybe almost caught off guard by how resilient and creative the market can be. Like, let's just take the Iran situation. I mean, analysts that I follow and respect were kept posting charts about, you know, the ships going through the Suez Canal and, or, I'm sorry, the homer Strait. And they're like, you know, if this doesn't change in 45 days, the whole market's coming down. But it didn't. Right? The market reroutes and similar. Back to this AI boom. And we can talk about the Iran situation later. But back to the AI boom, to your point, you know, you see these signs, but sometimes timing, it becomes very difficult. And I know that a year ago you thought maybe the I bubble peaked. It seems like again, timing can be difficult. So rather than trying to figure the timing out, you're looking at the signs. And so I guess what you're saying is the signs that you're looking for is the bond market breaking down. And then is that like a leading indicator? And, and we're not quite there yet, but you're keeping your eye on it.
- [19:05]
Ed Dad
Yeah, that's a leading indicator. And look, when we talked last year, I looked The S&P 500 has gone up 18% since what I was talking about last year. So in the short term I've been wrong to the tune of 18%. And you are correct, there are signs. And right now, as I'm speaking, there is no indication that this bull market is over yet. And this is one of the things people keep asking me, oh, has it peaked? Well, I don't know yet. I need more market confirmation. And we won't know the market is peaked until we get some structure to the market, meaning we get a nice drawdown, which by the way, there's a lot of people that are calling for a drawdown into the fall, you know, anywhere from 5 to 15%. So let's say we get that drawdown, then we get a rally. There will be a rally. We are only in a bear market if that rally fails and then goes to new lows. So as a, as I'm speaking, do not go out and short the market because we don't know. We don't know yet. We're not in an official structural bear market, but the sign posts are there and a lot of money can be lost before we go into a bear market, especially in the semiconductor industry. The semiconductor industry is notoriously cyclical and will peak and start to go down well before any bad news shows up, for instance, in the dot com bubble. And by the way, the parabolic move in the semiconductors in April, May and part of June was just like the dot com bubble. The SOX index went up 60 plus percent in like nine weeks. And it peaked in the dot com bubble in a similar structural fashion and started to deflate. The first bad news fundamentally didn't show up until September of 2000 when intel announced a miss. So the stocks will figure this out before the actual bad fundamentals show up. And I can't confirm that the semiconductor index has figured that out yet. It's down about 12, 13% from the highs it put in a couple weeks ago. But caution is warranted in semiconductors at the very least. And the general market overall. We've never seen valuations like this. You know, every indicator's off the charts. The Shiller pe, the Buffett indicator, everything we're seeing suggests if you're thinking long term, if you put a million dollars, if you throw and kane to equities today, you're going to earn 0% over 10 years, including dividends at these valuations. So that timing again, as you say, is awfully difficult. But when this happens, I think it's going to be because we've been kicking the can down the road because of the legal immigration that really, you know, bolstered the economy in 23 and 24. The piper, when it's paid is going to be fast and swift.
- [21:55]
Mark Moss
Yeah, that's why rather than trying to nail down timing, I like to try to understand the mechanisms that we're watching that would cause this. I think that's much more helpful for
- [22:03]
Ed Dad
someone that the credit markets, everybody should be focusing on the credit markets and what they're doing. The problem we have, and this is going to be out in the piece I put out tonight or tomorrow on private credit is private credit is essentially the new junk bond market, but it's more opaque, less transparent and more illiquid. So it's actually harder to know what's going on because there's no public quotes for the most part, whereas the junk bond market traded daily and you could see spreads widening and the private credit
- [22:37]
Mark Moss
market's marking their own book, which is a Whole nother thing.
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Commercial Voice
Correct.
- [22:40]
Ed Dad
That's one of the traps. And the head of the BlackRock Private Credit Fund was just fired because they had two instances of Mark's going from 100 to zero in a month.
- [22:51]
Mark Moss
I want to, we'll come back to that because I want to talk about housing. We'll get into the private credit but just sticking on this just for a minute longer. A couple things that I'm thinking about. So two things. So I did a interview recently with James Thorne. He's one of my new favorite followers on, on Twitter I think it's Dr. J strategy I think is his Twitter handle. But he's talking about how, you know, when you look at different cycles through history or different periods. He thinks that everything should be re rated and what people are looking at price to earnings ratios are too high for right now. The prices are too high. He thinks that the PE ratio should be much higher. And so everything gets re rated and we're not actually expensive, we're actually cheap because in this period PE ratio should be much higher. And so when we look at like how do we determine if things are as you're saying, too expensive. Too expensive compared to what? Right. RPE ratios too high today for the cycle that we're in I think would be one question I would have especially considering that our denominator, the dollars have been so artificially inflated because when you start looking at stock prices in gold for example, you see a completely different picture.
- [23:59]
Ed Dad
One thing we, we, we can say is that S and P earnings have been phenomenal but it's been a very total S and P earnings but has been very bifurcated in, in the top echelon of the tech companies and a lot of their profits are due to these revaluations of their investments on their books. So Google's last quarter 50% of their earnings came from the SpaceX valuation, marking that up. So I think we're, you know, this is reflexive reflexivity. Earnings have been good because their investments have been going up, their cash flow is going the wrong way and that's a problem because cash is ultimately how we value companies. PEs can expand, they can contract, but cash flow is the ultimate king and cash flows are going the wrong way and a lot of the other S and P constituents and they're going to invite in the MAG7 because of their CapEx infrastructure build. We saw this with Nortel Networks. I was a tech analyst in the dot com days and I had been a fixed income investor prior and I was relatively new Tech investor, and Nortel was killing it on its sales acceleration and its earnings acceleration. But then I looked at their 10k in 2000 and their free cash flow was like 50 million. So for billions and billions in sales, their free cash flow is 50 million. And when I investigated, I found out they were doing vendor financing. So a lot of what's going on in the AI situation, circular vendor financing, they're all kind of financing each other. So that's a problem. And it's reflexivity that works until it doesn't. And again, the ultimate authority in this will be the bond markets, the credit markets.
- [25:53]
Mark Moss
Okay, so I got to tell you what I've been doing with my money lately. I moved my cash over to river, and before you ask, yes, I still pay all my bills in dollars. Everything works the same. But here's the real difference. You see, river pays me 3.3% on my cash and they pay it in bitcoin. So my money that was just sitting there doing nothing at all in the bank, it's now stacking bitcoin while I sleep. And I started thinking like, my bank takes my deposits, they loan those deposits out, they make 12, 17, 24%, and they pay me 0.04%. I mean, I mean, honestly, that's kind of a shakedown when you think about it. Now, Rivers, FDIC insured, they use full reserve, they charge no fees. So I don't know why I didn't do this sooner. So click the link down below and get a hundred dollars in bitcoin just for getting started. So all eyes on that. What do you think about the potential, or I guess looking at signs, the, the sign of what the Trump administration is doing, specifically Scott Basin and now bringing on Kevin Warsh. And so Kevin Warsh at the Fed seems to be much more accommodative to what the Trump administration is trying to do in, by reinsuring this. So there's a big push for both energy projects as well as, you know, the tech race, the AI race, and sort of having a Fed that's more accommodative to that. So changing the way that we calculate inflation to potentially be more accommodative to help that grow. And when you look at the jobs reports, it seems like some of the most important jobs are the construction jobs. There's a lot of construction jobs. Call our jobs coming back online. How could that influence your decisions here?
- [27:23]
Ed Dad
Well, the construction job in the housing market has been going the wrong way, and the data center build out has been picking up the slack if that pauses, then we're going to have a true construction recession, which, you know, if housing continues to do what I think it's going to do, that may overwhelm the jobs being created from the data center build out, which could pause at any moment depending on what the bond markets do. Now, Kevin Warsh is interesting. It remains to be seen what he's going to do. On his first FOMC meeting, a lot of us were surprised. He's decided to get rid of Fed forward guidance, which is a big deal, because now he's a believer in letting the markets figure it out. And so that introduces more volatility. And in a world that's very highly levered, volatility is a problem. So that was an interesting new insight and I think it's the correct decision. This forward guidance really kind of distorts the capital markets and lets people take on too much risk. So he's kind of taken away that. In terms of calculating inflation, I think that's net. Net a good idea because I think a lot of the inflation statistics are just spurious and it's hard to figure out what's really going on.
- [28:41]
Mark Moss
So.
- [28:42]
Ed Dad
And you know, he's also known for saying in the past whether he's going to do it again remains to be seen. He doesn't want to utilize the Fed balance sheet, which, you know, that's not good for risk assets. If he sticks to that, we'll see what happens when he's tested. Every new Fed chairman gets tested. And if the stock market goes down 20% in four weeks, let's see what he does. But this is an interesting pick in my humble opinion. And interestingly enough, when he held rates, Trump didn't scream at him like he screamed at Powell. But, you know, he may be more hawkish than Powell. We'll find out.
- [29:22]
Mark Moss
Yeah, I didn't take it as hawkish. It seems like definitely that's a regime change for sure. And he doesn't want to utilize QE or the Fed balance sheet, as you said, because he wants to push the. He's not opposed to the money supply expanding. He just doesn't want the Fed or the QE to be the money supply expenditure. He wants to push the credit creation to the banks.
- [29:40]
Ed Dad
Right?
- [29:40]
Mark Moss
He wants to push it to the banks.
- [29:42]
Ed Dad
Yeah, so he wants to push it to the banks. But the problem is the banks from a regulatory standpoint, were clipped, had their wings clipped after the great financial crisis. And that's why we have the emergence of private credit and private equity. So now we have kind of a shadow banking system rather large. The private credit market is deter is somewhere between, you know, 2 and 3 trillion currently, which is a huge shadow banking system. And then you throw private equity in there. We're talking two kind of shadowy. When I say shadowy I don't mean it's not a knock on it, just that it's not transparent what's going on there. And they do get to mark their own books. So this is going to be very interesting to see what happens. And you are correct, most of the credit creation that occurred in 23 and 24 and the expansion in the money supply was to private credit. It wasn't the Fed. And people look at the Fed buying 40 billion now, 10 billion of T bills every month. That wasn't really QE, that was more to manage reserves. And even if people want to call it qe, it's not a lot of money to can consider qe. Not fast enough. So I think the Fed hasn't been, you know, there's a lot of FUD on Twitter. Everyone says that the Fed injected 9,9 billion into the markets today. That's just repos. It's, it's management of the money supply on a technical daily basis.
- [31:14]
Mark Moss
So that, that we have to keep an eye on that. It's an ever changing situation. We'll have to, have to, have to see how that can affect everything. Which is again why I try to understand the mechanism behind these things. Because obviously none of us know we have to kind of look at the signposts and see sort of which way we're going. Let's jump over to housing. And you had talked about maybe this housing market correction that could come home prices are maybe 30% overvalued. I think what you were sort of assigning to the immigration situation, I think they came back and corrected that and said that home prices aren't up 30% but 30% of the home price appreciation was accredited towards the immigrants. Either way it pushed it to be. Yeah.
- [31:51]
Ed Dad
So the 30% actually just happened to match what we've been saying that we've done the work and home prices given our affordability index are 30% too high. And you know that's been proven out in the homes for sale versus homes sold. We've never seen such a wide gap between the two. So that's a big, big problem. And the real estate market is essentially dead at the moment. There's just not a lot of transaction volume. And housing existing home sales are back at 2008 levels. So the market is kind of dead or frozen at the moment.
- [32:27]
Mark Moss
And when you say that, are you talking about the activity, like the units being bought and sold?
- [32:31]
Ed Dad
Yeah, the activity levels. So what's going on is 60% of the home sellers are boomers and it's usually not their primary residence, maybe a secondary home. And they're refusing to lower prices because some of them don't have a lot. A large majority of them don't have to sell. But if there is a bear market, I suspect we'll see some sales or listings and price cuts generated if there's an equity bear market. Because then the boomers won't be feeling as good as they feel now.
- [33:07]
Mark Moss
Yeah, I mean, certainly the real estate. I started my career in real estate and I learned that there is no such thing as the real estate market. There's a thousand real estate markets. We've certainly seen areas like Austin or now, right now Florida as a whole. And certain areas of Florida are extremely weak. Extremely weak. Where I'm at here in Southern California, every home is still setting record prices and they sell in weeks. So it's interesting, of course here in my pocket in Southern California, but you can go to parts of LA and they're dead as well. So we can certainly see that. But I know you're taking the market as a whole. I'm curious. When I look at the Case Shiller index and I overlay it with the Fed balance sheet, it almost seems like a perfect proxy for inflation. So do you see that sort of diverging where home prices are not that and they can start rolling over even though we might see the Fed balance sheet or the money supply expand?
- [33:59]
Ed Dad
New tenant rent started coming off dramatically in the fourth quarter of 2024 when Trump was elected. A lot of people self deported. So new tenant rents came down huge. Statistically we've shown that's a huge leading indicator for all tenant rents which eventually to home prices. So CPI 42% of CPI is housing and housing related items and that is slowly starting to deflate. You're going to hear a lot of talk coming over the next 12 quarters about core inflation. Now core inflation is trending lower despite the oil price spike. And we just had the most recent CPI number that surprised to the downside. We were estimating 3.7% for this month. They came in at 3.5. So housing is very slow rolling. And I think over time it's going to continue to come under pressure. And you are right. You know, a lot of the home price cuts have been in the southern red States along the border, the blue cities are so sticky that we don't think that'll last too much longer.
- [35:09]
Mark Moss
So does this become some sort of a contagion event where everybody sort of gets affected by this and potentially even brings down the economy?
- [35:16]
Ed Dad
Yeah, yeah. Housing is 20% of of consumption or 20% of the economy, 25% of U.S. consumption. So that market is slowly starting to fade. And there's a lot of construction jobs that roll into that. Right now we have nine months of new homes inventory, which is last seen at the great financial crisis peak. So inventories are growing in the new home. Home builders are cutting prices. Existing home sellers are not cutting prices, but the home builders are because there's no demand.
- [35:49]
Mark Moss
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- [38:01]
Ed Dad
We think inflation is going to come down and mathematically let's assume for now that the Iran war is essentially over, even though we had some flare ups this weekend. So we think inflation likely peaked in May due to the oil price spike. Oil is going to trend lower again. This is all, I can't tell you if the war starts up again in the bombing and that's all different ballgame. But let's assume we saw the peak oil price. Oil is going to continue to drift lower. China is a big marginal buyer of oil. They got problems. So oil before the war was on it's way a lot lower. We had a $30 price target in the depths of a recession that we were calling for. So we think inflation's going to trend lower, core is going to go lower and the Fed will end up cutting, we'll end up cutting rates. Now people say oh that's good for markets. You got to look at history. When the Fed starts cutting after a period of raising interest rates and a plateau, it's generally speaking not a good thing because they're cutting because the credit markets are in turmoil and it takes a while for that monetary transmission to work. So in the dot com bubble, they started cutting in may of, of 2000, I believe, and we didn't bottom until two years later in the great financial crisis. They started cutting actually in 07 and then we didn't bottom until 09. So when we're in an economic slowdown, the Fed will cut, but unless they do massive qe, it won't save asset prices. So that's the unknown. If the Fed comes out and does a bazooka event with the stock market down 20%, then we'll, we'll call the bottom and get bullish. But we haven't, you know, we don't know.
- [39:53]
Mark Moss
Especially with the new Fed chair's opposition to qe.
- [39:57]
Ed Dad
Correct, we don't know. What we don't know is what the policy response is going to be to when the crisis finally arrives. And when the crisis finally arrives, everyone will be hiding under their desks and we'll be starting to get more bullish.
- [40:10]
Mark Moss
I want to pivot into data that seemingly nobody wants to talk about. But you have talked about it quite a bit and you been publishing data on, I believe, about mortality data. And a lot of this obviously coming from what happened during the COVID era and the high rates of cancer, the high rates of death, the sudden death that seems to be hitting people a lot. And you add the mortality trends on top of already falling birth rates, on top of aging populations across all the developed world. Elon Musk has been pretty outspoken saying that the greatest, the greatest risk we have for humanity is declining population for those, those reasons. What does that collision of falling birth rates, aging population and mortality trends look like over the next decade and how does that affect the markets?
- [40:59]
Ed Dad
Well, let's start with China. We've done a lot of demographic work in China and that's one of the big underpinnings of our research reports that we put out. They, they, they peaked demographically in 2015 and plateaued until 2021 or 2020, I should say. And then they started a precipitous decline. They are losing into 2032 about 150 million of prime age workers, meaning people are aging out of their prime working years into the sunset years. And the spending profile on those consumers is vastly different. And so their demographics are going the wrong way. They're aging. And same thing in Korea. South Korea is a disaster. Their birth death rate is disaster. Japan, same thing. Japan has got a new demographic decline going on, re accelerating. So we have Asia demographically going the wrong way. Europe is a basket case. We got the southern European countries with bad demographics being supported economically by the other countries that have done a lot of illegal immigration, which has kind of offset that. But societal costs are huge. And in the US we were beginning to have a demographic problem, but then we plopped 20 million people into the country, which kind of solved that temporarily. But if you want to look at excess deaths, excess deaths coming out of the COVID era, they peaked at, in 2021 at nationally at 31%, which was a disaster.
- [42:45]
Mark Moss
That, that. And just, just so I'm clear, that's excess. And so we have like sort of a normal trend of deaths. And then you're talking now we're 30% above the trend line.
- [42:55]
Ed Dad
Yeah. So that the peaked in 2021 and now it's running between 5 and 10%. These are my numbers. This is Swiss Re put out a report I think in 2024 saying that excess mortality is here to stay for the next five to 10 years, at least until 2030. And of course they blame Covid for that. I myself have another opinion, as you know, which I won't mention on YouTube, but my opinion is different.
- [43:30]
Mark Moss
If you want the full opinion, go see what he says on X where he can actually talk about it. We're not going to talk about here on YouTube.
- [43:36]
Ed Dad
Yeah, exactly. But excess deaths are still running above normal and we have declining birth rates. Now we could do a birth study. The problem is it would take a lot of money and, and time. So if any billionaire wants to give us a million dollars to do that study, we'll do it. But right now we're not doing it because it would take thousands of hours of work and we did all our Covid research for free. So we're done with the business model of free. But without, without what we can say is birth rates are going down. We just haven't proven it mathematically yet.
- [44:20]
Mark Moss
Peter Zion has done a ton of work on the demographic cliff. Harry Dent Jr. Wrote a book called the Demographic Cliff, which is what brought it to my attention. Whatever that was, I don't know, 15 years ago or so. Again, Peter Zion's done a lot of work and he was so bold as to say, like China would collapse within a decade because of this. I'm not sure if you agree with that, but the question that I have for you is while everyone is afraid that AI and automation is going to take all the jobs, could AI and automation save this demographic cliff from collapsing everything?
- [44:53]
Ed Dad
That's what Larry Fink has said. I think the reality is somewhere in between. I think the problem is AI is not ready for prime time. In fact, I was just reading today on X, the proliferation of AI consulting firms has exploded. So we're going to take jobs, but we're creating a new industry. This reminds me of the Y2K explosion of people being hired to take care of that. So in a very funny way, it may create more jobs initially than take away eventually. I think AI and robotics are coming, but it's not anywhere near ready for prime time. So there's going to be an adjustment period as the demographics overwhelmed. But yes, you're correct. I could save a lot of what's going on, but it's not, it's not in the near future.
- [45:49]
Mark Moss
It doesn't need to be in the near future because this is a 10 year problem. But we'll see how that offsets it. Let's move into. I know we got to sort of wrap this up. I'm curious if we look five years out from now, and I know you've cited the CBO math, the CBO, the Congressional Budget Office, they forecast out 30, 30 years, spending levels, deficit levels, debt levels, all of these things. My guess is they're way undershooting the target. They're probably way too conservative in that math. You know, we're pretty clearly in a period of fiscal dominance. And so if we look at the CBO math and the period that we're in, it seems like if we zoom out five years looking at what they project federal tax revenue to go to interest on the debt entitlements, that would probably exceed, you know, the money bringing in, which only accelerates us even faster. So, you know, given the fact that you're sort of a little bit bearish on, well, a little bit pretty bearish on the economy forecasting this, this drop, and we don't know what's going to happen if we zoom out five years looking at like CBO projections, how does that change things?
- [46:50]
Ed Dad
Well, you know, look, there's gonna, there's gonna have to be cuts in the government at some point and a measure of austerity to demographics. We're not there yet. And I guarantee you if we have an economic recession, we're going to get monetary policy and fiscal stimulus. The good news is five years out, I'm actually a little more bullish, primarily because once we get this correction, the real economy can take off again. If you have home prices go to realistic levels and people can afford homes, it'll generate economic activity and the cycle is reborn. Cycle cycles aren't the end of the world. Cycles are cycles and you know, one person's pain is, is another person's gain. So asset prices going down, especially in real estate and homes, would be a boon to the, the Gen Z and the millennials and some Gen Xers. And I think that those people have a different spending profile than the boomers who are just sitting in their homes watching Fox News and cnn, drinking cocktails. So I think, I think I'm actually bullish once we get the correction, at least for a couple years, we'll see, we'll have to see how the math sorts itself out. But that's, that's. And barring any World War three situations or anything like that, I'm actually bullish once we get the, this kind of, this correction.
- [48:11]
Mark Moss
So short term, bearish, long term, five years or longer bullish.
- [48:16]
Ed Dad
Correct.
- [48:17]
Mark Moss
Short term, bearish. Being 12 month bearish, long term bullish, being five year bullish.
- [48:22]
Ed Dad
Timing on this has been really hard because we were looking for our economic indicators which had worked for 20 plus years historically. We're calling for a recession in 23, 24. We didn't get it, but we didn't count on one and a half trillion dollars being spent on bringing in 20 million illegal aliens and giving them each one of them about 60,000k which immediately they spend into the economy. And that's all in, you know, shelter, EBT cards, health care benefits, you name it. And some, some of them actually got money to buy homes, believe it or not, we're finding that out. So we didn't expect that to happen. And the Pipers do. And we're in the 18 year housing cycles of. 18 years. We're at 18 years. This is just the way cycles work.
- [49:08]
Mark Moss
You mentioned that we're going to need some sort of austerity in the government and that's never popular. It's almost impossible to get through. But what is extremely unpopular, at least to the public, not, not, not among the politicians, was extremely unpopular to the, to the masses, to the public, is the fraud. We're talking hundreds of billions, probably tens of trillions of dollars of fraud that's going on, that's being so obviously exposed. Like Nick Shirley's going around and just going, oh look, here's 7,000 doctors in this one building right here. It's like so apparent. My question would be, you mentioned we need some form of austerity. Well, it seems like we could probably shave a couple trillion dollars off just by stopping the fraud. There seems to be massive appetite for that from the public anyway. I guess so. Two part question, number one, do you think that would be enough to sort of be that austerity we need number one. And number two, do you think there's a political appetite to get that done?
- [50:05]
Ed Dad
There's definitely appetite amongst the populace and I was very excited when Trump first entered office and we saw what was going on with Doge and they exposed USAID, all the NGOs. I mean the amount of money we give to NGOs is just ridiculous. We don't know how this money's used. Is it just enriching people? So yes, we could get rid of this fraud. The problem is the deep state bureaucratic ticks seem to be pushing back on that. And also temporarily, if we cut off all the fraud tomorrow magically with the wand, it would impact the economy and in a very, very short basis, it would be a Reduction in gdp, because that money is going out to people and getting spent this fraud. But long term, the savings to the taxpayer and everybody else will be very much more productive. But there's no political will to do that. And a lot of these people are making money off the system as it currently is. So this is the kind of stuff that revolutions are built on. And if this doesn't get fixed, I worry about tax revolts at some point. I'm not calling that, but that's out there.
- [51:22]
Mark Moss
We should have it right now. How dare they collect another dollar from us if they can't stop the fraud? I mean, really.
- [51:27]
Ed Dad
Yeah. And it's trillions. It's not, it's not a small number.
- [51:31]
Mark Moss
It's trillions. And it goes back to we talked about before we started talking, which was, I was referencing this book that I read from Martin Gurry. He was an XCI analyst called the Revolt of the Public. And basically the Revolt of the Public was, he was talking about ever since the Internet came out and he really started documenting the Arab Spring in 2012 and, and how the CIA was using free speech and social media to sort of kind of foster these uprisings. And of course we saw just this week in the EU they're passing new regulations to of course censor free speech. But as long as we have free speech and we have social media, the uproar, the uprising, the rage that we get from these types of things, it's seeming like, I don't know how much more it can keep percolating. I mean, how dare they continue to spend trillions of dollars of fraud and do Nothing. I mean, 7,000 addresses in one location were just discuss, covered by just some random guy on the Internet to do nothing to stop that while they continue to raise our taxes and continue to push these billionaire taxes, et cetera. It seems like it's going to have to come to a head here pretty soon, at least. I don't know, maybe I'm, maybe I'm foolishly optimistic about that.
- [52:35]
Ed Dad
No, you're, you're not wrong. I mean, let's look what happened this weekend with the two senators. Lindsey Graham's death and Mitch McConnell's apparent proof of life. No one believed either stories. Now, I'm not here to tell you what I think because it doesn't matter what I think. What matters is no one believes the official story at all. No one whatever is officially being presented. People just don't buy it. And that's a problem. No one believes anything anymore. And the numbers of those people are only rising. You know, I'm, I'm out in the world on Maui and, you know, I take a pulse of the common man by just talking to people on the beach and at restaurants and acquaintances. And it's gone from very divided to more. You know what? This is all a game. Like the blue and the red fighting is slowly going to the way of let's agree to agree that this is a, this is a con on both sides and that that's, that's a healthy attitude change. It's not the, the, the yelling and screaming that I, that happened when I didn't get involved in it, but I saw during COVID it's turning into you. You were, you're a blue team member, I'm a red team member. But we're both getting screwed. There's more and more of those conversations
- [53:57]
Mark Moss
as there should be fraud should not be political. We either want to stop it or not. Like, why is that, why is that political?
- [54:06]
Ed Dad
So.
- [54:08]
Mark Moss
Well, we could, we could definitely spend another hour talking about that. But I know we're sort of at the, at the end of our time here. You kept referencing report that you're going to be putting out, I think you said tonight. Where can people go follow your work and find out more about these reports you put out?
- [54:21]
Ed Dad
Yeah, so I just started a. I launched a new substack last week called Ed dad beyond the narrative. It's going to cover finance, Covid, truth, politics, culture, you know, in terms of like what the real narrative is and health and fitness, mostly finance. You can follow me there. I also, all our economic research is available@finance technologies.com with the pH. I'm on X out, Edward, and I have a private website where you can reach. Reach me for consulting, which has been going very well. A lot of people want to talk to me one on one.
- [54:56]
Mark Moss
Great. We're going to link to all that in the show notes down below so you can go find that if you want to go look him up. And we'll wrap it up with that. Thanks so much.
- [55:03]
Ed Dad
Appreciate it. Mark, great being here again. Thank you.
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Mark Moss
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