← Tom Bilyeu's Impact Theory
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- [00:00]
Tom Bilyeu
Best thing that's ever happened to you financially. Go easy.
- [00:03]
Guest Analyst / Economic Commentator
Sold my car on Carvana. Amazing offer, really.
- [00:06]
Tom Bilyeu
I hit 200 on a scratcher. Did the scratcher come to your house
- [00:10]
Guest Analyst / Economic Commentator
and hand you a check? No. How many scratchers did you hit to get that? I hit a button on Carvana.com once. Okay, that's fair. It's like the lottery, except you always win.
- [00:21]
Tom Bilyeu
Not like the lottery at all, actually.
- [00:23]
Guest Analyst / Economic Commentator
Exactly. Inexplicably good offers worth bragging about. Sell your car today on Carvana.
- [00:29]
Commercial Announcer
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- [00:29]
Guest Analyst / Economic Commentator
Fees may apply.
- [00:31]
Commercial Announcer
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- [01:00]
Guest Analyst / Economic Commentator
This is a guy named Jeff Snyder. His YouTube channel is called Eurodollar University. I believe it'll certainly come up on screen in a second. And he's doing a breakdown of the CPI that we just saw. And should people be excited because obviously inflation has come way down. Should you be excited about this or should you be paranoid?
- [01:19]
Tom Bilyeu
Big results from the cpi. In fact, what you're going to hear a lot of as we go through the Numbers is since 2020, because there's a lot since 2020. And by the way, this is not all gasoline. In fact, the most important parts since 2020 are not gasoline. In addition to that, and actually similar to it, there is a twist, a major twist going on in the oil market and on the oil futures curve. So we've got a literal twist and an unexpected twist.
- [01:44]
Guest Analyst / Economic Commentator
One of the things that I think is very important for people to understand this is a drum I've been beating from time immemorial. There is a difference between crisis led deflation and innovation led deflation. Now people are gonna try to tell you that deflation is always bad and it just isn't true. Things should get cheaper over time. The thing that people are afraid of is if you're in an environment where people are paranoid that they begin holding their money. This is what happened to Japan. So everybody starts taking out unimaginable amounts of debt because their, their property market is just red, red hot. It finally overinflates the Bubble bursts and then everybody is left scrambling. A lot of people lose their wealth because they're overextended. And so people start going, no matter how much dear Japan, you start inflating the currency, I'm just not going to start spending money again. I'm going to pay down my debt and I'm just going to be fiscally conservative or conservative in my own house since fiscal technically means government spending. So I'm going to be very conservative with my wealth. And so now you get the stagnation in Japan. Okay, so there is, that's a real thing. And I get why. And prices, by the way, start coming down because nobody's spending money. And so they try to entice you by making things cheaper. I get why people are worried about that kind of crisis led deflation. Cause it gets very hard to get your country growing again. And when you're not growing, there's not that level of optimism, enthusiasm, investment. And so your country literally just sort of stagnates. Now listen, Japan is an amazing place. So even in the middle of stagnation, it's not like they became a hellhole for cultural reasons that we're not going to talk about today. But I get why people are worried about that. However, just as a PSA reminder, there is a positive type of deflation. And so what Jeff is trying to parse for people is this is going to get a drumbeat of this is the good deflation. So you guys should be excited that inflation is going down. This is wonderful. And the reality is that this isn't, at least if Jeff is correct, this isn't the kind of deflation that you want to see. This is being brought on by something that's crisis driven.
- [03:50]
Tom Bilyeu
Remember what central bankers are after here, what they keep talking about, why we need to hike rates. And there's a good chance the Fed is still going to hike rates. Though with the CPI report there's less of a chance they may do it more than once. They're going to trichet themselves. But remember what the Fed is actually talking about. They're not talking about oil prices directly. What they're saying is that oil prices are going to spill over or they're afraid maybe there's a positive ch that oil prices spill over into other prices. So they're really looking at the core rate or the core core rate or the super core rate or basically services prices.
- [04:21]
Guest Analyst / Economic Commentator
It drives me crazy that there's so many different ways of slicing and dicing the inflation rate. And I think a big part of this is. Some of it is. Look, especially traders need to understand what's really happening, what's the signal from the market. But I also think that the government uses it to manipulate the life out of you. But for people wondering, so core, if you're looking at core cpi, you're trying to remove energy and food because those can fluctuate rapidly. They're also two of the most important things that people spend money on. So for the average person, that matters a lot. But for a trader, less so because over time those fluctuations tend to wash out.
- [05:00]
Tom Bilyeu
Let's talk about the cpi. CPI for the month of June came in shockingly weak. Analysts were expecting a small decline in the monthly rate because of gasoline prices. Energy shock, you know, in June, oil prices were down. Gasoline prices weren't down nearly as much as oil was, but at least energy prices retreated.
- [05:18]
Guest Analyst / Economic Commentator
Man, I really hope you guys are looking at your screens. So he's got mapped out here that what he calls the phase shift. So when I say that, that's a phrase that I got from Jeff, you'll see it in the interview. We talk about this. The. When you see the inflation rates for basically Covid and you realize that the subsequent inflation rates are. Those are not like, oh, prices have dropped back down. That's just. It's growing off of that elevated number at a slower rate. But you're still at the peak, dude, where those numbers like skyrocketed to that is wild. Like, it really seeing it that starkly, I think people forget that Covid bumped prices up massively and they never came back down. And so that's why, dude, I am so mad at myself that I was just not economically literate when Covid was happening. And so I remember when they said, I think this is going to be really hard on kids. Like they're going to have, you know, whatever amount of time out of school. It's going to be really damaging. We're not really going to see the effects for a long time. And I just thought, I don't know. That doesn't seem like you're either going to see it right away or you're not. If kids are fine in the moment, they're going to be fine long term. And the same is true of the economy. It's like, okay, well, prices will go up for a minute, but they're going to come back down. Like, I don't understand why people are talking about, oh, it's going to take years to play out. And now I'm realizing this shit takes years to play out. It takes years for you to see, dude, when you're a nine year old, two years is an ungodly amount of time. And so two years of not being able to see somebody's full face actually does have a knock on effect that we don't know what it's going to be. And it will take years to find out. Doing your senior year in high school from home is going to have a knock on effect. It's going to take years to find out and we'll see. But it's like we're all products of our time and those play out in some of the weirdest ways possible. And so the way like I, I wouldn't have told you that people's response to this was going to be first of all to print money like fucking mad. I didn't see that coming. I didn't even understand what money printing was. And then I certainly wouldn't have told you. Oh, people are just going to credit card spend and they're not going to reduce their monthly bills, they're just going to go crazy, which they've done now for years. And the thing that I think people lose sight of is costs jumped way the hell up and they're still going up from that new astronomically high rate. They're going up from the high rate. When we're in all these tax debates and I'm like, people are like, we just need a little more tax and everything's going to be fine. I'm like, back to this. You, Gary, have understood, yes, there's a problem. This is your problem. Your problem isn't that you need more tax dollars. The problem is you just made everything more expensive while disempowering the worker like systematically for the last 20 plus years through globalization and technology and some other things. But it's like everyone is like, what, what easy thing. Who win, they bad. Like it's the fucking dumbest, lowest resolution, not even tied from a cause and effect perspective. And so I'm like, you have a glaring problem. It's a real problem. You've got to fix this fucking problem. And if you don't fix this problem either by making the middle class richer or, or by finding a way to bring these down, which by the way, don't fucking keep inflating the currency and suddenly you can take advantage of technology actually making things cheaper. Dude, it drives me nuts. And when you see a graph like this and you're like, oh, found my problem. It's like everything is fucking astronomically straight. Vertical line more expensive.
- [08:52]
Tom Bilyeu
Yeah, PI fell by nearly half a percent in the month of June alone, which is the most since April of 2020. And it's not even close. This is the biggest monthly decline since April of 2020, and one of the very few monthly declines in the last many years that are very near that rate. So again, a marching band full of red flags here. It's not just motor fuel. We're talking about something else. And of course the Fed's talking about, hey, we need to worry about rate hikes or we need to hike rates because inflation's out of control. Or it could potentially be out of control. They were not expecting this at all, even though they should have been.
- [09:28]
Guest Analyst / Economic Commentator
Now, I know he's trying to do YouTube hooks here and keep people engaged, but I will just give you the spoiler alert. This is all about demand destruction. So when you have people going, I just can't afford shit anymore, then apparently Americans at least will just try to credit card spend their way through it. They'll spend their savings. But eventually you reach the end of that road. And by the way, this is a precursor of what you can expect when the US government reaches the end of its road from a debt perspective. Eventually you are forced into austerity and that does not go well.
- [10:03]
Tom Bilyeu
Was down a little bit. In fact, the annual rate declined. Like I said, it's not just gasoline. The annual rate slid from above 4% back to around 3.5%, well below expectations. Moving in the right direction though, again for the wrong reasons. The core rate, which is important, like I said, what the Fed is really talking about, their economists speak and their econometric models. What they're saying is what happens is energy prices go up. As we know, and as energy is such an important input into all sorts of businesses, whether it be goods, goods economy businesses, or services businesses, energy costs go up. Say a service provider, they like to focus on service providers. Service providers sees their electricity bill go up, some of their diesel fuel costs go up because they're, you know, they're driving around probably. So you got diesel fuel costs go up, energy costs go up, input costs go up. And what does the service provider do? Well, in a ceteris paribus world of economists, the service provider is going to raise their prices, they're going to try to get back as much, if not all of that increase in energy costs from their customers. And as a service provider raises their prices, that leads to another service provider raise their prices, which leads to a goods economy producer raising their prices. Next thing you know, if our brave, heroic Federal Reserve officials don't step in with their laughably irrelevant quarter point rate hikes. That's supposed to put the brakes on all this. Without their rate hikes, it leads to this spiral, this runaway of second round effects. The second round effect is energy prices go up. That's the first round. Then say service providers start raising prices as a response. And then third round effect is it gets broader and broader and broader. Next thing you know, you're in the 1970s. That's the fear. That's at least what they're saying. And you already know it's crap because we went through this last year with tariff inflation, which the market said there would be no tariff inflation. And guess what? There wasn't tariff inflation. Yes, the cost of some goods went up, but broader inflation did not break out. And there was zero chance it was ever going to break out for the same reasons we're seeing here, which is businesses are seeing their input costs go up. That is absolutely true. But they're also finding out if they didn't know, they cannot pass those costs on to customers because their customers can't afford it. And if the customers can't afford it, only one or two things happens. One, they raise their prices and volumes fall off, which is what retailers have been telling us, including Walmart. Walmart said we're going to cut our prices. They're not raise them. Or the second thing is they just have to absorb the higher input costs. And in response to that, rather than leading to further consumer price rates and consumer price increases, those businesses who see their margin squeeze, especially smaller and midsize businesses, start cutting back on their own costs. Cutting their own costs, which usually means trimming hours of workers, maybe converting them to part time instead of full time, and in some extreme cases, getting rid of them. Which by the way, is exactly what the labor data has been showing through the energy shock. Not just the establishment survey recently, but more so all the rest of the
- [12:47]
Guest Analyst / Economic Commentator
labor data policies have consequences. So if people start mentally mapping this in the right way, here's what happened. We engineered a virus in China. That virus got loose, people started getting sick. Governments the world over were all like, never let a good crisis go to waste. Because I don't think they released the shit on purpose. But never let a good crisis go to waste. Let's use this as an opportunity to really lock people down. Let's take control of social media, let's shut people up. There's only one argument, and it's ours. And we're going to tell you what's true. And we're closing things down for two weeks just to slow the spread. Psych. Just kidding. We're closing down for fucking two years. And we're going to arrest you. Even if you're out on the beach and you're not near anyone because we fucking told you to stay at home and you're not doing it. So we're going to arrest you. You own a gym. Sorry, tough break. Your gym goes out of business, we're going to come padlock the door. All kinds of absolutely insane shit that none of us should have ever stood for. And they leveraged fear against everybody and just took all this draconian control. Now, unfortunately, because of the way that economies work, that policy is going to have absolutely, staggeringly large consequences that are going to last for a very long time. That psychotic desire for power on behalf of the government is why the middle class is getting the shit kicked out of them now. And they're gonna fucking try to blame billionaires until the end of time, but the reality is they made everything more expensive by locking everything down. He walked through it. He went through it kind of fast. So I don't know if people really think about it. 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So then the next supplier in the chain. So it's like you might have three or four steps more, seven, eight steps of all these different product and suppliers feeding you things before your end product makes its way to the customer. And I know this firsthand. A drought in California impacted the cost to us of almonds, which impacted our profit margin on protein bars. Right? And it is a never ending string of a thousand things like that that influence the cost of something to a customer. And so even if I as Walmart or the end person, I actually thought about this with video games, even if I go, oh, I'm going to outsmart the market, I'm going to take smaller margins and I'm going to put something out that's cheaper. So hey guys, you can come to me, don't worry, the cost is lower and now I should be able to gobble everything up. The problem is that my margins have probably just gotten thinner and thinner. So me trying to quote unquote, outsmart the market by lowering my costs may put me into where I have either little to no margins, like Xbox literally has 3% margins for other reasons. But I'm just saying, like, you can get yourself into a position where your margins are so low you're in actual like danger of going out of business, or you may put yourself in a position where you're losing money on every sale that you make because of all the people that are selling you things, all of their prices went up. So even if I try to lead the charge on lowering prices, I've got to get all of them to lower their prices. They're not going to want to do it because they've got people feeding them. And so it's the fact that the government did not understand economics well enough to go, we can't shut down the global supply chains. We can't do it. We can wait and see how many people die. And there is a point at which, okay, fuck, we're like losing 30 million people. You know, you're losing 10% of the population. Then obviously at some point people are just freaking out so much like, you've got to do something. But just as a reminder, please look up the exact number. Ryan. The Spanish flu of 1918 killed something between like 30 and 50 million people globally on the back of World War I. So World War I killed however many millions, we lost that many more to the Spanish flu. And still you didn't have the kind of like draconian lockdowns that we had during COVID Like that shit crazy. So the, the knock on effects economically are not easy to unwind in the same way that a tumor is not easy to cut out. So fuck these kids for what they did. That shit is wild.
- [21:15]
Tom Bilyeu
Not exactly surprising. The Fed is looking at the possibility of second order effects of inflation that the markets, the economy, common sense, basically everything is said, not really going to happen. So they're surprised when in the month of June, the latest numbers that just came out this morning, the BLS says the core CPI rate was down fractionally. As you can see in the chart here that I'm showing you, it's the first decline in the core CPI rate since May of 2020. So once again we've got a marching band full of red flags because the core rate, this is not about gasoline, this is not about food, this is everything else. The core rate is where you would see second order effects show up. If second order effects are showing up, and the thing is, second order effects are showing up, they're just not inflation, second order, they are demand destruction, second order effects. That's why we're seeing weak prices in the cpi, in the core CPI and all the rest of the channels as well. So the core rate, year over year slipped again, down a little bit. Never really got much out of control, which is consistent with the tips market, as we'll get to that. But all the rest of the CPI details, they say the same thing. The Fed is, like I said, focusing on services were for a target. If there were going to be second order effects, you'd see it in services. So the services, less rent of shelter, which isolates the services, part of the economy that's not susceptible to the imputations of shelter. So we're not getting into all that fakery. And again, negative.
- [22:42]
Guest Analyst / Economic Commentator
The reason he's putting so much attention on this is if your services are declining and you're not talking about shelter, you're not talking about gas and that's still going down. You have demand destruction. People just aren't going and buying the things that they used to buy. Whether that's massage or going into a restaurant or whatever, it's just you're getting a pullback.
- [23:01]
Additional Guest / Panelist
To your point. When we first announced it, it was like, oh well, that's because the Iran war, the gas price went down. So that's where it's driving. He's like, no, you take that out, this is down. You take that out, this is down. And seeing those other ramifications of it,
- [23:11]
Guest Analyst / Economic Commentator
he's going to get to the long tail of the oil curve in a second, which is very important. To understand because it is a weird discrepancy. If you're not, if you're just trying to map this as a supply disruption, the long tail of the curve will
- [23:25]
Tom Bilyeu
be very confusing red flags. It tells you that there's, there is more demand destruction in the inflation numbers than there's anything resembling inflation. Let me say that again, across the entire cpi, the inflation numbers for June, there is much, much more evidence for demand destruction then there is even a hint of evidence for second order inflation or even any inflation for that matter. These are red flags because they speak about the macro economy and macroeconomic weakness. While the Federal Reserve right now, the Fed chair up on Capitol Hill saying we're still worried about inflation because of oil prices, again making the mistake that the Fed did or the ECB did in 2008. That's why we call it tricheting. And the Fed is increasingly committed to that. Course though these numbers are going to be strong enough that maybe some of the on the fence FOMC voting members are going to have to straddle themselves off the fence or fall off the fence from straddling it.
- [24:17]
Guest Analyst / Economic Commentator
One of the things I think might be worth a deep dive is how did economists miss 2008? Was it a private debt question? Is it misunderstanding what's actually driving inflation? And so you get the people that are putting the economic policy in place, they're misreading the signals. There's another economist that I pay attention to, Professor Steve Keen I believe is his name, and he's talking about that. He was like, 2008 is really a story about failing to understand how money is created and how private debt impacts the economy. And so it'll be interesting to see these two. I don't yet know if they agree or disagree, but looking, They've both mentioned 2008 was a misread of the signals. And by the way, on behalf of the people in charge of your economy, this is where. Cue that video of Biden's senior economic advisor who doesn't understand modern monetary theory.
- [25:17]
Tom Bilyeu
The government definitely prints money and then
- [25:19]
Guest Analyst / Economic Commentator
it lends that money by selling bonds. Is that what they do?
- [25:27]
Tom Bilyeu
Yeah, they same thing when you look at all the rest of the consumer price numbers, excluding food, energy and shelter. So again, if you were expecting second order effects from higher energy prices, this is exactly where it would show up. So you got services prices in there as well as some good prices. We don't have the energy stuff, we don't have the food stuff, we don't have the shelter stuff. So not the volatile stuff, this is where the inflation the Fed talks about, this is where it would be if it's there, but it's not there. Instead you have more demand destruction indications in the rest of the CPI than you do inflation. Again, weakest in this part of the bucket, which is the rest of the CPI experience since May of 2020. This is, this should be an eye opening red flag moment.
- [26:11]
Guest Analyst / Economic Commentator
Let me, let me say what he's saying in a different way. The reason he keeps banging the drum about worse since 2020. What he's trying to say is, remember Covid, Remember how psychotic that period was? You're now seeing things approaching being as bad as they were in 2020, or at least they haven't been anywhere near this bad since 2020. So this is not something that's mild. This is if you want to understand why everything feels so broken. If you want to understand why like the war is not causing energy prices to move the way that you were expecting them to move, this is because you have something even bigger than the war in Iran, which is causing a disinflationary impulse. So imagine the war is, is disrupting supply, so you have upward pressure on prices, but the downward pressure is so extreme that it's not entirely neutralizing it. On the like right now, in this moment, the front side of the curve as they call it. Remind me never to, even as I understand all of these terms, not to use them if I can avoid them whenever possible. But like the immediate moment when you're buying the oil, like, shit, I need it today. That what they call the front end of the curve, like, sure, that's going to go up a little. Not nearly as much as people thought it was going to. And then the sort of near term long tail people are like, man, it's all downward pressure from here. That is, that's a statement, man. And if he listen, I think the signals are there. I know better than to think that oh, he's got it right or I've got it right. It's like this is be very humble in the face of data and data interpretation. But it is pretty interesting for anybody who's looking at their screen like between where we're at in 2020, you don't get a lot of these downward beats and you don't get one as big as this.
- [27:55]
Tom Bilyeu
For the general public who's thinking the economy sounds resilient because the payroll report is positive and maybe GDP is too. This is not a positive sign. And of course most consumers the K shaped economy nonsense. But Most consumers who are in the bottom part of the K understand this intuitively, understand it with common sense. And this is why we see consumers consumer surveys all over the map, incredibly pessimistic, not, not happy about job prospects and income prospects. Because they know the demand situation is weak. Not that they know it in some kind of top level macroeconomic context, but from their own personal experience, the numbers match up with what people are experiencing and telling surveys. So whether it be the University of Michigan or the Federal Reserve bank of New York's own survey of consumer expectations which do not show inflation, they don't show inflation expectations among consumers. What they do show is fears over jobs and incomes. The kind of stuff that is consistent with weak demand. The kind of weak demand that would show up in some of the most negative CPI rates since 2020. Lots of red flags over the CPI report and not inflation red flags, the other kind of red.
- [29:04]
Guest Analyst / Economic Commentator
All right, think about it this way. When you get inflation, what's going on is people are feeling rich man, money's everywhere, money's flush. You've got more money chasing the same amount of goods. You have a discrepancy between what's actually available to buy and the amount of people chasing it with money. So you can get that by hurting supply. But if you haven't hurt supply and people are feeling flush with cash and they're going out and we're getting inflation, cause everyone's getting excited, that does not feel like right now. So that's why people have been like, oh well, we've got a supply shock. That's really gotta be the problem. No, that was the phase shift in Covid that created that problem. And that's why everything is now elevated. But the problem is right now people are not feeling flush. People are not feeling like yo, let the good times roll. That is not the vibe. I don't see anybody saying that. So if you know, other than oil, which we are stripping out of these numbers, other than oil, there's no supply disruption on the things that we want. So what exactly is making the deflation happen? The answer is people don't feel flush, they don't have the money. There's less money chasing the same amount of goods. When you have more money, when you have same money chasing less goods or more money chasing same goods, you're going to get inflation. But if you have less money chasing same goods, you're going to get deflation and crisis led deflation. And so that is like if you just want to get it from a vibes perspective, you can feel that the vibe is not yo, these are the good times. And because it's not yo, these are the good times both psychologically and the fact that people, because they've burnt through their savings now and they've burnt the racked up their credit card debt, there just really isn't enough. People don't have enough money in their personal wallets to go out and make the good times roll. And that's what you're seeing in the numbers.
- [30:50]
Additional Guest / Panelist
So from a consumer standpoint, he mentioned it in the presentation earlier, Walmart dropped their prices. So I can get way more Twinkies than I could have gotten last month. So this is a win for me. But what should we be worried about? Because it on, on mass in the individual level to this point again, it's like, yeah, this is, this is actually supposed to happen. Forget the greedy corporations, let's make more money. You know what I mean? What is something, what's that other shoe that's going to fall that we might not see in the short term?
- [31:14]
Guest Analyst / Economic Commentator
So if you think of people are going to buy the amount of Twinkies that they plan to eat, I don't know how this became about Twinkies, but you're going to buy the amount of Twinkies that you're going to eat. Walmart is saying, oh, we, the reason that we're changing the price here is because people stop buying them. So now I'm just trying to get back to my normal volume of sales to get back to my normal volume or maybe at least try to move in the right direction. I'm going to lower price, but that means that I'm now making less money and that corporation is going to try to do something to maintain their profit margin. They'll eat some of it, but they're not going to be able to eat all of it because there are just certain margins. I know everybody gets in a twist about the family has all this money again. These companies are at a size that the amount that they're pulling out on an annual basis just isn't, isn't enough to change the outlook of the company so we can talk about whether they should be paying the workers more. It's a different story. But in terms of like the actual profit margins, what they end up doing is going fuck. The only thing that we can control because we can't control the inflation on the incoming goods that are hurting my profit margin. So I've got to do something with my labor costs. And so they start, they reduce their price to try to get people in, that squeezes their margins more. And then they've got to start letting people go. And then that person gets let go, then they can afford less things, like less shoes, less whatever at another store. So then that store is like, fuck, now I'm in a bad spot. I can't, I'm not getting the revenue that I used to be getting. So I'm going to lower my prices now. But to do that, that's eating my margins again. So they first got eaten because the person got laid off at Walmart that now isn't shopping at my store. So I lower my prices, that hurts my margin. Now I'm trying to get that back. So I have to let somebody go. And so then that has a knock on at another store. And that's how this burns across the economy. So it's like, yeah, for a minute, we were talking about this earlier. For a minute it's like there's a discrepancy. You haven't lost your job, you're still making money, you're feeling good, you go, oh shit, Twinkies are back down. Love it. I'm going to get my Twinkies. Not realizing there is like this cascade of people losing their jobs, which then hurts the economy because people don't have the cash, they don't feel flush, they're not going out. And so everybody just constricts. And when, when it constricts, what they're really saying is people lose their jobs, they lose their income, which then means they're not buying from somebody, which means somebody else is going to lose their job. And then that's just how this spiral starts.
- [33:32]
Tom Bilyeu
Just to throw this out there, we just scheduled this. I'm having another webinar on August 9, which is a Sunday. And to Eurodoll University fans and people who watch this channel for a long time, or just people who understood what happened in 2008. Yes, August 9th. I picked that date for a reason. Tune in to figure out why that is. If you're not, if you're not sure already. We're also going to continue from our last webinar series, which proved to be really popular, talking about how to use these Eurodollar signals as Eurodollar information. The curves, the esoteric signals in a portfolio management context. How to look at where to place your money. Allocate money based on. On whichever conditions the marketplace is telling. Again, we, we focus on the market. In the last webinar it went through what the methodology is here at Eurodell University, why we focus so much on the signals that we do. I also went through why the mainstream doesn't focus on those signals and it's, it's a story. You gotta, you gotta check that out. The, the webinar. The, the last webinar from June just a couple weeks ago was on the YouTube channel. So if you want to check that out, highly recommend that because it goes through the history of where we went to from we took a different path than the rest of the mainstream and history shows that they chose the wrong path. Plus went into the over the background details about portfolio management and using this stuff in a portfolio management context. We're going to go further into that to talk about pivot points and phase shifts and how to, how to, how to. How to really put dial this stuff into the overall portfolio management investment framework that we talked about. So yeah, Sunday, August 9th we'll have fun on August 9th. We'll talk about what August 9th really means as well as it's 5:30pm Eastern time. The link in the description to sign
- [35:07]
Guest Analyst / Economic Commentator
up can't learn too much about the economy.
- [35:08]
Tom Bilyeu
Back to what we got today though, the told you part, nothing that the CPI reported should have been a surprise because we saw it coming in the TIPS breakeven rates. And remember, Tips breakeven is nothing more than a relative measure of demand for inflation protection. It's not to be taken literally, the break even rate of 230 basis points doesn't mean the five year break even rates like 232 basis points. That does not mean the market expects the CPI is going to average 2.32% over the five years of that that security. That's not what it's saying. These are relative measures. When you see the break even rate go up, that just means that there's more demand for inflation protection through the CPI that's paid out by the Treasury Department than there was before. And if breakeven rates fall that means there's less demand for CPI protection because the marketplace doesn't think the CPI's are going to be worthwhile investing in the TIP security.
- [35:58]
Guest Analyst / Economic Commentator
You don't need to protect me from inflation. If there is no inflation, we see
- [36:02]
Tom Bilyeu
break even rates fall quickly. That tells you the market is looking at inflation conditions or what goes into inflation conditions and thinking something big has changed here, which means I need less inflation protection which is consistent with the inflation numbers that we just what we just went over. So first of all, the TIPS market has said for the last several years there is no additional inflation risk whether it be last year when we talked about tariff inflation, the tips market said not happening. And of course it didn't happen. Whether it was in 2024 when everybody was talking about sticky inflation higher for longer, the tips market said, nope, not happening there. But more importantly, more recently, the Iran conflict, the tips market, first of all, even though the, even though the break even rate got to a multi year high, as you can see in the chart, it wasn't that much of a multi year high. It wasn't really that much different than early last year. So the marketplace said, yes, there's going to be some direct impact from oil prices on the cpi, which makes the TIPS security a little bit more valuable. So break even rates went up, but they didn't soar ahead as if the market was pricing inflation risk or any substantial inflation risk. And since the middle or the end of the really the middle of May, end of May and through June, break even rates have been absolutely plummeting and they've been plummeting quickly and made a huge move in doing so, which is a key red flag signal that we are consistent with everything that we just went over.
- [37:24]
Guest Analyst / Economic Commentator
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- [39:51]
Guest Analyst / Economic Commentator
Thanks for sticking around. Let's get right back into the action.
- [39:56]
Commercial Announcer
All right.
- [39:56]
Guest Analyst / Economic Commentator
What I love about all of this stuff is what he's making clear is once you know where to look, then there really are answers to some of your biggest economic questions. When tariffs were coming down the road, I wasn't looking at this like, oh, there's going to be signals in the economy. I can go check and see what in aggregate the crowd of very well educated investors think is going to happen. Now, it's not a guarantee that that's how things are going to play out. This is why the market is best understood as gambling. This is people placing bets. But if you want to know what people actually believe, you can see where they're putting their money. So again, these things are not causative. It's not like the market going and saying, oh, we don't think that we need tips protection means that you don't need tips protection. However, it does allow you to like, if you're on who Wants to Be a Millionaire, you get to ask the crowd, you get to find out what is the group of people who are putting their actual own hard earned dollars against this bet. What do they think? And, and so you get an aggregate answer. It's very, very interesting. And man, part of the reason I'm so into this is I'm constantly thinking about what, what should I be doing with my own money? I talk about this stuff all the time. I was just quizzing the guys the other day. I'm like, do you guys, okay, you hear me record all this stuff? You see me write all this stuff? You know how my thinking's been evolving? Do you guys do anything with this? Like, are you actually managing your Money differently because it's actually influencing how I manage my money. And so having a deeper understanding of the signals that you can look at so that you can actually do something different with your own money is very freeing. It makes me feel like this is way less of a black box and I have somewhere to go. Trust me, I always approach this stuff with humility, knowing that there are things that I can't see, that there are way more variables than I understand certainly at this point. But man, is it very empowering to start to build a map of where to look when you see a certain concern looming on the horizon.
- [41:49]
Additional Guest / Panelist
Especially you being a cause and effect person. It's, it's interesting now to actually see the economic data that will prove this cause and effect. What the media is saying one thing, but the people who are actively putting their money to protect it from inflation, they think the other thing. And just like with the prediction markets, once you follow the money, you start to see the people who will bet on it are the people that actually have that information versus the people who, you know, talk about it.
- [42:12]
Guest Analyst / Economic Commentator
So true.
- [42:13]
Tom Bilyeu
Now, whether it's the five year break even rate or all the rest of the break even rates, the marketplace has been saying this entire time, yes, there's an energy shock, but the energy shock is more likely than not to lead to demand destruction, not to inflation. Nothing is ever zero, especially in a complex marketplace like this. But the market, the tips market, was pretty clear. It's not a zero percent chance because nothing is zero, but it's as close to zero in a complex system as you're going to get. And of course that's exactly what we're seeing, the 10 year break even similar, maybe even a little bit more forceful on the downside. And one of the, one of the things that you can do and one of the things that we often do here at Yellow University, part of our methodology is you compare the five year break even or other maturities too, but compare the five year break even to the ten year break even. And what that told you was not only is the five year break even saying that there was very little chance of inflation risk, Broadly speaking, the 10 year break even rate was less, less than the 5 year break even rate, which meant that whatever CPI effect there was going to be from oil prices, it wasn't going to last very long. Of course, that's exactly what we're seeing show up yet again. So the tips market is sort of taking a victory lap here. Even though June is just one month, June was such a shocking month that it's going to, it's going to resonate beyond just the month of June or just the month of July that we're in as we move forward here. Even though the CPI is likely to rebound with oil price prices next month, it's the underlying mechanics that maybe you don't see when the CPI is up based on oil and that is the weak, weak demand conditions that are consistent with the demand destruction part of it. Again, the see the TIPS market was saying nothing, none of this should be a surprise. Weak demand conditions, nothing was none of the ingredients that were, that should have been there for an inflation second round effects, all that stuff were present, especially when you look at some of the longer term numbers like the 5 year, 5 year forward rate, as you can see even going back to 2022, the five year five year forward rate, which is sort of longer term inflation expectations, structural inflation expectations, longer term. The marketplace has said Even back in 2022, this was not the 1970s all over again, this wasn't inflation, it was a supply shock, a phase shift. And then every energy shock that we've experienced since then, whether it was in 2023 with OPEC and it's, you know, Saudi Arabia's lollipop, their stupid lollipop that backfired big time. 2024, Yemeni rebels, oil prices surged again. 2025, tariff inflation. 2026, Iran inflation. The long run inflation expectation from the marketplace has been consistent. It's not inflation. There are short run impacts on the cpi, sure from each of those things. But the demand situation, the monetary situation is not consistent with any type of inflation risk whatsoever.
- [44:48]
Guest Analyst / Economic Commentator
So here's a big part of why I think this is playing out. Because you do have to reconcile with, you've got the 1973 oil embargo has massive supply disruption and it doesn't lead to demand destruction and so not, not in energy related things, but it is leading to demand destruction now outside of energy and energy itself. And so you have a response now that's different to what happened in 1973. And so the question becomes why is this playing out differently? I have a feeling, though I have not checked the data so this could end up not being true. But I have a feeling that what you're looking at is as we're coming into the 1970s, we had real wage growth through the 50s and 60s. And so there was a cultural sense of like, okay, I'm feeling good, I'm getting richer. We hadn't yet been clobbered with the inflation in the 70s. And so people are coming into that with just a totally different mentality than we have now, which is the exact opposite. My real wages haven't grown in decades or not much. And so there's a lot of anxiety around that. And so now that people have burned through savings, they burned through credit cards, we're getting hit with these disruptions at a point, whether you're talking about COVID or you're talking about the Iran war where it destroys demand instead of pushing people to be like, well, we got to keep all the things that require energy going. It's like, no, it's, the economy is so weak because of that weakness in real wage growth that people are just like, I'm just out of cash, man. I'm just tapped out. Even if I wanted to pay more for this, I just can't, I don't have the money. Again, that's very much a hypothesis as opposed to a thesis, but I wouldn't be surprised if that ends up holding true.
- [46:38]
Tom Bilyeu
Baller keep chasing the inflation ghost up some kind of tree, some kind of haunted tree or something. I don't know what the correct analogy is here. So that's the tips market. Now let's talk about what's going on in oil because it's really interesting what's happening here today. Now as we know, the Iran conflict has flared up again, which should not have been a surprise either because the what's going on in Iran. And this is something, by the way, that I talked about with Brent Johnson yesterday and that's something I should bring up too.
- [47:06]
Guest Analyst / Economic Commentator
Oh, I've started a couple other channels
- [47:08]
Tom Bilyeu
including a channel to talk about Eurodollar talk. Did some conversations yesterday with Hugh Hendry and Keith Weiner, our good friend Keith Wiener at Monetary Metals. If you don't know Keith Weiner, you should tremendously smart guy, knows his history, knows the gold market in and out. And of course Brent Johnson. I'm going to talk to Ken McElroy today. You've got Ed Dowd, got, you know, Mike, I mean, rock stars, tons of people over at your Economic Talk. Check that out. Subscribe to that channel. These, these conversations will be coming out in the very near term. But we were talking about how Brent and I, we're talking about how complex the situation is in the Middle East. And so this is going to linger on for quite some time. And as it's flared up again, as you would expect, you know, supply situation becomes questionable again, again, especially with the blockade, oil prices are responding. So you've seen front month contracts And WTI futures go from the 60s up until almost it got into the 80s earlier this morning. It's right around 79.50 today. But today, look at, look at the price changes that are going on today. So front month contract, August delivery up a $42 it's. But it was up more than that but $1.42, almost 2%. September delivery, not nearly as much, only up a dollar. October Delivery only up $0.30. But then look beyond that, November delivery, the three month benchmark down. So oil prices are up near term and they're increasingly sold off further into the future, which is as Clown Waller is pointing to demand destruction. So what the market is saying is that yes, the flare up in the Middle east is there's a good chance it's going to disrupt supply again in the near term, which is going to raise the, the desperation or at least urgency to buy oil in the short run. But selling contracts further into the future because the market is saying oh, the situation in the macro economy, not good. Despite what the Federal Reserve says or politicians or the stock market or at least small segments of the stock market. The oil market is saying, look, we were on thin ice to begin with with this energy shock, an increase in oil prices that keeps gasoline, gasoline around $4 wholesale or $3 wholesale or higher. It's actually three, three and a quarter today that keeps retail gasoline up around 424, 30, maybe even 450. It's going to lead to demand destruction in the U.S. in Europe, across Asia. Therefore, we're going to buy oil in the near term because there's going to be some desperation for supply. But we don't need to buy oil for a very long time because we're thinking oil is going to become cheaper down the road as demand continues to fall, fall off further and further and further.
- [49:42]
Guest Analyst / Economic Commentator
What's going on in China is a big part of this equation. And you have right now the two biggest economies in the world both sick and not doing well. The US for reasons we've been talking about here, largely an echo of COVID What's going on in China is tied to their housing crisis. Certainly that's my belief. And so you've got the two biggest economies in the world in bad shape looking at what's going on with the oil prices. And China for one is not doubling down. They were drawing on their reserves briefly, but they were actually, even with the disruption from the Strait of Hormuz, they were able to at the beginning, able to keep building into their reserve tank. So that's pretty extraordinary. That tells you that what happened in the housing crisis has caused a majority massive downturn both in diesel and consumer needs for regular gas. So when you get into a position where you can actually destroy energy demand, which has for 50 years been considered inelastic, you know that you're in pretty rough shape. All right, with all of this, first of all, shout out to Jeff Snyder. I'm so grateful I found him. He's utterly fascinating. Be very thoughtful, always approach this stuff with massive amounts of humility. But the story that you're being told about what's going on in the economy just isn't the story. I think the vast majority of people just don't understand it well enough. And so be very careful. The more you can get towards what are the actual signals? What can we look at? Where are people betting their money to get closer to ground truth, the better off you're going to be. But these are very complex systems. So I for one am going to walk away from this saying, okay, this is my thesis of what's going on right now. But I'm very active going to seek disconfirming evidence because I'm making, all of us are making every day a bet based on where we put or don't put our money on what we think is going to happen in the future and in the inflationary environment that we all live in. Don't be confused by a momentary downturn. Remember what happened to all of us during COVID You've got to find a way to be able to make ends meet by putting your money to work. So just be thoughtful about all of it. Another shout out to Straight Arrow News. Love those guys. Thank you so much for supporting everything that we're doing here on the channel. The QR code is on your screen. Go to san.comtombilleu to get the unbiased truth on the stories that matter. That's very important. Making sure that you are not getting spin, that you're not being propagandized, that is hugely important. And if we want to keep this sponsor and keep doing what we're doing here, we are trying to get to a hundred app downloads, guys. So if that speaks to you and you want new, that's truly unbiased, go check them out. That would be amazing. It'd be a huge way to support the channel. My next AI masterclass is coming up Wednesday, August 5th at 1pm Pacific for free. I'm gonna teach you guys how to launch a company using AI. The link to sign up is in the description. Until then, be legendary. All right, peace. Let's talk about a pattern that is guaranteed to be killing your progress. You know what you need to do. You need consistent nutrition. We all do. You need vitamins, probiotics, greens. We all know that we should be doing more of it. When your morning gets chaotic, you skip it. When you travel, you skip it. When your routine breaks, everything tends to break and that inconsistency compounds against you every single day. AG1 is designed to solve the execution problem. One scoop 8 ounces of water and you're done. You're getting 75 plus ingredients, vitamins and minerals, pre and probiotics, nutrient dense superfoods. Everything that used to require six, seven different supplements and perfect planning now have happens in one drink that takes about 30 seconds to make. Right now, AG1 is giving you $87 worth of free gifts with your first subscription. You get a welcome kit, travel packs, vitamin D3 plus K2 and flavor samples. Click the link in the show notes or visit drinkag1.comimpact to claim this offer.
- [53:41]
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