What Everyone’s Getting Wrong About the Economy Right Now

Recession fears are rising, stagflation is back in the conversation, and cracks may be forming in private credit.

Are we heading for a slowdown—or just another false alarm?

We break down what’s signal vs. noise and what actually matters right now.

Want a free Portfolio review? Feel free to schedule a call with our team today-

https://lifegoalinvestments.com/contact/#get-started

Transcript

SPEAKER_00 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabetic dupe of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together. So strapped in. This one hits hard. Let's go.

SPEAKER_01 0:22

Alrighty, folks. We haven't had the opportunity to catch up with Taylor from Life Goal Investments in a minute. And I have a laundry list of things to run through with him. So it'll be interesting to see which one he wants to start with. But before we get started, Taylor, how you doing? It's been a minute. Topel holes are good.

SPEAKER_00 0:37

Everything's great, my man. Business is great, family's good. We're having fun, weather's getting nice. We're coming out of hibernation. Markets are crazy. So there's a lot to talk about. Let's do this.

SPEAKER_01 0:47

So I got a list, I don't know, of eight or nine things. So I have stagflation, deflation, private credit, rate hikes, inflation, 200-day average, AI job loss, Iran, 6040 portfolio having worst month since 2022. Where the heck do you want to start? I I I don't know.

SPEAKER_00 1:05

We're going to take them as you fire them at me because that is just too much. None of this was known to be announced to me prior to this conversation, but uh let's do it. You pick them off one at a time and we'll go to work.

SPEAKER_01 1:16

Yeah, well, let's start with probably the most pressing thing, which is uh the conflict with Iran. Uh again, you have just today, just this morning, President Trump coming out trying to talk down the market. It feels like the stock market believes him. Although I would argue that other parts of the market don't believe him. Obviously, we also have heard the Houthis are now joining the fight. And I don't know about you, but it certainly seems to be getting worse, not better. But uh, what say you? This has been going on for roughly, roughly 30 days now.

SPEAKER_00 1:44

Yeah, yeah. I think that we have poked a beast that might be more prepared than what we anticipated them to be, with a threshold and a tolerance for pain for higher than than what we anticipated it being. I think that this is a very tough thing for him to taco. And I think that's a scary proposition. And I think that the market has reacted to that over the past three weeks. The first two weeks were okay, we're in this, we're gonna send some missiles, we're gonna take out some some facilities there, some of their key leaders. And then I think that the market came to this realization that this is more serious, it's more ingrained. If we're gonna do anything with legitimate nature and have any point of finality on any of it, this is gonna be a more drawn-out thing. And and that's what's scaring the hell out of the market.

SPEAKER_01 2:31

Yeah, I I want to echo that because again, it seems to be I think there was maybe in some faction, people thought this would be another version of Venezuela. You kind of go in, get in, get out, surgical. You know, it's over in a weekend, maybe a couple of weekends. Uh I never thought that I have I have receipts. I've been talking about this since the beginning. This was gonna take longer. I also had the horrible feeling from day one that boots on the ground would be required. And that just that's just another level. And it's a level, frankly, that I still don't want to see, but I think is coming. And you know, then then you're gonna have now you have just other parties joining the fray. And the the big thing for me that I don't think a lot of people understand, it's it's not US and Iran, it's US, Iran, and Israel, and now maybe the Houthis. And once you start adding more and more players, the less and less control, uh, even though we have the biggest stick, it's it it can get it can get out of hand really quickly.

SPEAKER_00 3:27

I I think that we have not realized that Iran, in them poking everybody through a kind of terrorism type stance over the past 20 years, 30 years, 50 years for whatever reason, um, they also have dug in themselves. And they knew that at some point there was gonna be an offensive that came at them that was superior to their abilities to defend themselves. And so they had to get really, really creative as to how they were gonna protect themselves. And I think that we're realizing that there is more there than that than what met the eye to begin with. I think that we were a little get a little arrogant on the front end of this, thinking that we would pull a Venezuela. Um, and the reality is, I don't think that we can leave because if we leave now, Iran is in control of the Strait of the United States. Exactly. And until we could rightfully say that no, we have control and we are bilaterally controlling it with XYZ, other country, they are so dug in around this. And when we hit them, they basically said they flailed. And they said that our only defense to this superior attack is to go at all of our neighbors. Now, they weren't necessarily friendly or unfriendly with the neighbors, but we are gonna go scorched earth on global oil supply. And that is their only defense, and that is something that they're holding their guns to. And so now we come back at them and say, okay, you go scorched earth on them. We're going scorched earth on you. That's the threat. And you know, it's not in the United States, we don't realize how fortunate we are. So you see this massive separation in oil prices in WTI, which is West Texas, and Brent, which is global. So you have now a 10 point higher percentage jump in Brent than you do in WTI, which is showing our prowess as an oil producer, but it is more pronounced in the liquefied natural gas space. The liquefied natural gas that they are bringing into Europe right now is up roughly 60 to 70 percent. We're down, we're marginally down with our liquefied natural gas domestic prices since the onset of this war. So we don't realize that uh and you can understand why the Europeans are are rightfully saying, I we don't want anything to do with this because we're bearing the brunt of this. You guys are not.

SPEAKER_01 5:55

Yeah, that's that's been one of the things I've been trying to get my audience to understand is this is gonna be a world, this is now a worldwide impact. My fear is it jumps to worldwide conflict, right? Right, you start to drag in other parties because they're suffering, and you know, then pr pretty soon, you know. I I don't know how many have got to get together before you have World War III, but I I agree with you. This is all about the Strait of Hermuz. Uh, I don't see how this gets better before it gets much worse. Uh, I don't know how you can take those islands without boots on the ground. Um and it's just the bad.

SPEAKER_00 6:29

The other big outstanding factor is I think that the world has to realize that this is roughly a proxy war as well. So this is us against the east, and the east being China and Russia, and predominantly China. So I I I don't know. There's there's a lot of gray area. Um, you can read a lot of things that come from slightly suspect sources, but it seems like China is supporting Iran, not only by buying.

SPEAKER_01 6:55

I mean, just look at I mean, just follow the money.

SPEAKER_00 6:57

Well, and I'm not even just saying that though. I'm not saying just the purchase of the oil, which is the massive support that they absolutely need, but I think that there's probably military intelligence that comes with China towards towards Iran as well. Um, and they look at this and they're like, hey, you know, I'm not saying we're best friends with Iran, but hey, if our enemy, our largest enemy, which is the United States, the global power of the world, if we can support someone that's attacking them, by all means, let's do it.

SPEAKER_01 7:22

So we'll close on this topic because we could probably talk about this for an hour by itself and we have a whole laundry list of things to get to. I'll close on this question. Do you have any hope that this is over and put to bed by the end of April?

SPEAKER_00 7:34

If it is, I don't think the United States comes out with a good look, right? Because there's no way that that Strait of Hermuz has any certitude that we are controlling it versus Iran controlling it by that point. We need to go in and and and really, unfortunately, to your point, use brutes on the ground. I just don't see it happening. I think you're right.

SPEAKER_01 7:54

All right. Well, we'll move on from that again. We can catch up on that next week. Uh, how about the 6040 portfolio? This this I'm I'm kind of having flashbacks to 2022, I think it was, where the 6040 portfolio was flailing. Uh, March. It's again, we have one or two trading days left, but uh I just saw over the weekend the 6440 portfolio is having the worst month since 2022. What say you?

SPEAKER_00 8:15

Yeah, yeah. Bonds getting cooked. Like that's the reality of it. Usually, um, and and this happens during periods of of uncertainty and heightened nervousness of investors. What you have is correlations coming to one on, and it's gold too, right? Gold selling off as well, which is which is an interesting one. You would think, hey, we're going into a foreign country. You would think there's going to be flight to quality, flight to safety. That's gold. It's an inflationary pressure. You would think that's a flight to gold, but it's not, right? And so at the end of the day, the market's looking at this and saying, one, there is so much uncertainty right now. It's funny that you still see earnings expectations by the major analysts on the streets increasing for the SP 500, even with all this uncertainty that's outstanding, even with oil prices shocking higher 50%. Um, you have this massive uncertainty outstanding. They still have earning expectations going higher. Now, I think that that's what analysts are saying. And I think the market is questioning it because it doesn't make sense to get us a pretty significant sell-off in short order against the backdrop of earnings expectations going higher. But it's really the inflationary pressure that the market's worried about that's causing bonds to sell off. Bonds predominantly trade on inflation expectations. And it's funny the difference of inflation expectations that you can see right now. So one year out, 12 month forward, inflation expectations went from two six, and they started moving up, ratcheting up before the war was actually officially outbroken. And you have them move from two six to five, two, which is a massive, massive move in short order, right? That's nuts. And so with that, markets start to digest. Hey, if I have a bond and you know, inflations are going to be higher, therefore, new bonds are likely to be coming to market at a higher interest rate. I'm gonna sell that bond and potentially buy a new one. Um, so that's what's playing out there. But it is interesting when you zoom out and you look longer term, you look five years out, inflation expectations really haven't moved absolutely any. And so I think that probably bonds in the short term are are overcooked, oversold. Um, but you know, we've talked at length, Michael, and and and you watch enough of our channel on social media that you see that we talk all the time about the value of alternative assets. Alternative assets are that harbinger, that safety point during a period of inflation. They were in 2022, and they are right now as well.

SPEAKER_01 10:34

Yeah. So again, like shout out Life Goal Investments for doing that. Um, let's talk about the market breaking the 200 day. I mean, everybody on Wall Street, every chart person uh has to be looking at the 200 day. We broke that. Uh, it kind of feels like this is the first leg of a downturn, probably like past times, COVID 2008, we'll have a relief rally, but then comes the second leg down. Yeah, is that kind of what uh what you see out there?

SPEAKER_00 11:11

Yeah, we were just talking this morning with our investment committee, and it's funny that you just have this like if you're actually watching me, you could see my hand move. This just kind of rolling over. It's not like there's this massive just gap downwards. The market's been, you know, effectively where it is right now since September of last year. And it kind of rose. And then it wasn't this like snap downwards, it's just this kind of rolling over. And usually a rolling over that's really smooth and really persistent, like it's been, doesn't come with this all of a sudden pop from a bottom, bang, and we're back off to the races. It just doesn't make sense that selling pressure is slow and steady right now. And slow and steady selling pressure doesn't beget rapid reversal buying pressure that causes markets to zoom higher in very short order. That's just not how markets digest things. So the 200-day moving average is kind of that that level of demarcation. And now we're beneath that level of demarcation. And so it goes from being support when you're above it, where the market bounced down and it hits it and it bounces off of it. And it really is hard to break through that 200-day moving average. But once you've broken through that 200-day moving average, it goes from a floor to a ceiling and it's really hard, and there has to be some real catalyst in order to propel it back through to the high side.

SPEAKER_01 12:30

Yeah, I couldn't agree more. Again, it's gonna be very interesting to watch. Again, I think the president is obviously very much he looks at the stock market. It's clear he does. He's trying to talk up, you know, that the conflict is near resolution. It certainly doesn't feel that way. The chessboard does not look like we're in an immediate winning position. I'm not saying we're not going to win. I didn't say that. I said it doesn't look like we're winning today. Like you can't declare victory today, until you get control of the strait and it's you know, it's it's like it was before, you can't declare victory. At this point, that is victory.

SPEAKER_00 13:04

Yeah, yeah. And I at the end of the day, like, let's call a spade a spade too. Like, we don't really know what we're being told is true or untrue, right? Because you know, before it's like, hey, we're in talks with Iran, and Iran's like, no, we aren't. We're not. And and so I'm I'm sure, you know, regardless, there there are certainly talks that are going on. There's there's no doubt about it. What are we, you know, we're not even sure who we're negotiating with.

SPEAKER_01 13:28

That's one thing that I think is who's really in power. It's probably I would imagine when you start taking out 80% of the senior leaders, there's probably factions of the juniors going, no, it's mine, it's mine, no, it's yours.

SPEAKER_00 13:39

Yeah, I got it. And the other question is like, do they actually put at the helm who they think they actually want at the helm? Because that's like the beheading slate. Yeah, it's like who's next? Your enemy number one. Like, do you want to put your best guy in that in that spot, or do you actually have someone that's beneath the surface that's really running the organization, the IRG? Um, I I don't know the answer to that.

SPEAKER_01 14:01

Yeah, well, let's talk about the Fed next. Uh, that wasn't actually on the list, but I want to put it there because I actually said something, it looks like I got it right after the Fed meeting. I made this call on the dot plot, and let me know what you think of it. So, again, the dot plot comes out, the SOP, and they basically say inflation is going higher, but also is growth. And what I said that that the next morning was nobody got this. Folks, you missed it. The Fed just told you they're gonna hike, right? These rate cut ideas are off the table. Right, you're not gonna cut when GDP is up and inflation is up. They're trying to set it up. And now, since then the two-year notes hit four percent. Um, I actually went on my channel and and already said I was wrong about 2026. I was on record saying four rate cuts in 26. I now think we will have one rate hike in 2026. So, what do you think about that? Do you think the Fed really did a dramatic 180?

SPEAKER_00 14:56

Oh, I think they did a dramatic 180, but I think there is zero chance in hell we get a rate hike this year. Okay. Um, so we went from three rate cuts to now, to your point, the three rate cuts being priced in the market, two and a half, call it, somewhere between two and three rate cuts being priced in, to now a higher likelihood of a rate hike than a rate cut.

SPEAKER_01 15:16

Yeah, there are zero odds of a rate cut all year as of this morning.

unknown 15:20

Yep.

SPEAKER_00 15:20

Yeah. So I think you have to zoom out a little bit and understand what's actually at play here is the way I view it. So we have this massive spike in inflationary pressure based on oil prices going higher. And I think that when you look at things in short order, oil drives inflation higher. There's no doubt about it, right? There's oil in everything, you know, not only the gas pump and the prices that we see there, but also literally everything. Plastic is a function of oil. Everything that gets delivered has diesel associated with it. Everything we use is plastic and oil related. But at the end of the day, if you have sustained higher oil prices, what that does is it takes a discretionary dollar away from somewhere else being spent in the economy and it puts it at the gas tank and it puts it as higher prices on the underlying goods that we consume. Longer term, sustained higher oil prices is a deflationary pressure.

SPEAKER_01 16:15

100% agree. Yeah, it's demand destruction. That's exactly yeah, correct. That's what yeah, but there is a there is a uh a lead lag in all of it. So I'll I'll just play out what I see uh again on my on my chessboard. So again, uh first off, we'll start with CPI. CPI comes out Wednesday. Yep no, next next Wednesday.

SPEAKER_00 16:35

Yep.

SPEAKER_01 16:36

And uh last reading was 2.4. I believe it's gonna have a three handle. Good. Yeah, I think it's gonna have a three, it might even have a three-one. Good. Uh again, the base effect is nothing. It's gonna come in at a 0.6 or 0.7. It's just like you guys, it's just math, right? It's just math at this point. So I think CPI is gonna be screaming. Uh, then they have a Fed meeting at the end of the month, they're gonna do nothing, right? One month is nothing, but the next three months are pretty light base effects, so a 0.5, a 0.6. We could have a CPI back at four percent in 90 days. Yeah, yeah, it's just math. And I don't know how the Fed doesn't because this is what I again just the chessboard. So that happens over the next 90 days. The Fed is boxed in and I think they're gonna deliver that one rate hike. But to your point, what will already be happening is demand destruction because every oil crisis since the 70s, actually since the 50s, has led to a recession. So I think what happens is yes, we get this 90-day pop, it looks artificially screaming higher. The Fed is forced to react, then the recession things hit and they go on a massive rate cutting cycle in 27. That's kind of what I see.

SPEAKER_00 17:45

I think there's so much political. So I I don't think that's a stupid thought. Let me be clear. There you go, Michael. You're not gonna have all the time. You're not a complete moron. I don't think it's a crazy thought, but I think at the end of the day, you also have to realize that there is a massive political pressure for the incoming Fed chair to cut, right? So they're not gonna cut. Let me be clear. If inflation's moving the wrong direction, they're not gonna be cutting. I I completely agree with you upon that. But at the end of the day, to your point, like we we have to have learned some sort of lesson from the rearview mirror. You cannot fix supply-side shocks with higher higher interest rates. Um, but you know, it's not to say that that it absolutely couldn't happen. I just think that if you have a market selling off and then you couple on top of it higher interest rates, which tightens credit markets, it gets nasty. And we know that there's a massive K-shaped economy, right? And the K-shaped economy goes back to the fact that we know that the lower end of the K has been in trouble. The higher end of the K has been sitting incredibly pretty because financial markets have made us richer and richer, that top shape of the K.

SPEAKER_01 18:53

But that's that's exactly why I think they're gonna be forced to hike. It's because the lower end of the K is not in the stock market, the lower end of the K is not in these other assets. They don't give a rat's ass that we're five percent highs, they're not involved.

SPEAKER_00 19:07

Yeah, but what happens to credit card debt and stuff like that when they start yanking higher on that?

SPEAKER_01 19:12

Yeah, it's it again. I don't think it'll be an easy decision, but I'll I'll still stand on and call in one rate hike this year. It and to your point, I think it leads, I think it it becomes a knee-jerk reaction that forces them to cut very quickly thereafter. Because to your point, you can't have this strangle of the economy and then strangle it again.

SPEAKER_00 19:29

By the way, they've done this in the past, they have. I know they've done this in the past. Like, we we know that the result isn't good, so hopefully, we paid attention to what we've done in the past and we've learned some lessons along the way. But it is funny, Kevin Warsh, at the end of the day, like he he was a long-term hawk.

SPEAKER_01 19:46

So oh, absolutely was. He wants the he wants to shrink the balance sheet. I don't think anybody's picking up on that. He wants that balance sheet, which is also gonna drain liquidity.

SPEAKER_00 19:54

Yep. He doesn't want the the fake QE that we have going on right now going on. No, he doesn't want that.

SPEAKER_01 20:00

All right. Well, I have inflation on the list. Uh, my my thoughts on inflation obviously is gonna be it's gonna print a three handle this month. And I think there's a chance that CPI headline hits four uh in 90 days. Is that is that out of the realm of possibilities?

SPEAKER_00 20:12

No, I I don't think it is, but I also don't think the Fed gives a shit about what headline CPI says, um, admittedly. So I think they're just gonna back everything out and say we're gonna look at core PCE, which the oil isn't gonna have a massive impact on, the food that is gonna see higher prices based on higher oil costs is and fertilizer not passing through the straight of humus, which we haven't talked about that. Yeah, um, but there's more supply bottleneck there than just oil in that strait and fertilizer being another massive one, which is going to cause farmland uh, you know, to not be as productive, and therefore you're gonna have higher food costs.

SPEAKER_01 20:46

Um in lower yields, and I mean it's just all kinds of bad.

SPEAKER_00 20:51

Yep. But I I think at the end of the day, I guess my point is um I think they just look right through it and they say, hey, we're not focused on this. I I did think one thing was was really interesting in the last Fed meeting. Um, and it almost feels like Jay Powell's just, you know, taking a shot everywhere he can at Trump now, just because Trump crushes him all the time. But he said, listen, the other thing that we have not fully chewed through is the remaining outstanding tariff kind of inflation that he he made a highlight of that several, several times. And he said, Hey, why haven't we had this inflation rollover that we expected? We expected tariffs to be a one-time bump, and we haven't fully chewed through that yet. So um he he casted some shame on Trump and Trump's tariffs policy. Um, but yeah, and and that still you know exists. But I think broadly speaking, that they they stare right through the oil costs increase on on headline and they just focus and dial in on PCE and and focus their attention there.

SPEAKER_01 21:44

All right. Well, let's get to the big one. I remember I think you and I joked about this six or nine months ago when when Jerome Powell said, I don't see the stag or the flation. I don't know how you can't look at today's environment and go, There's some stag and there's some flation. What say you?

SPEAKER_00 21:58

Yeah. So he had. Funny comment the other day, and I think he addressed it pretty darn well. He said that I talk about stagflation, and he said, you know, if if you want to make the argument that inflation is going, you know, at the time not materially higher, that inflation is creeping higher, and that unemployment is ticking up modestly. He said, you know, yes, you could broadly define that as some very light form of stagflation. He said, I define stagflation what happened in the 70s, right? And I think it's fair. I think that we are really parsing data. And at the end of the day, like inflation, now, mind you, like this shock that's coming right now that is going to come to your point, it should be at least relatively one-time oriented and oil prices move higher. They might sustain longer. I get it. But at the end of the day, this is an exogenous event that caused inflation to move like it did, uh or like it will rather. And I think that it can be largely stared through until it persists, right? And if it persists, then it becomes a problem. And then on the unemployment front, yeah, it's one of those things where we don't have massive hiring or firing right now. So it's kind of that subdued market. And you don't have employment growth almost whatsoever. If you look at history, there's never really a time outside of kind of recessionary leading into coming out of environments where there's no hiring. But we've also made this massive shift in our immigration policy. And so it's kind of a net neutral, if you will, where hiring and firing are both really, really low, but that's a function of where immigration came from. And Jerome Powell spoke to this. Um, and I thought he did a pretty decent job. But yeah, if you want to start picking through the numbers and saying I can't see stag orflation, I think you can. It's just it's just modest still.

SPEAKER_01 23:42

Yeah, I don't, I would and I would argue wait 30 or 60 days. You're gonna see it's gonna be screaming in your face. Uh so which side of it, to be clear. Well, I think inflation is clearly gonna be. I think I again I think I think higher oil leads to lower production, right? And we're gonna get there next. So I I don't know, right? You got inflation at 4%, you have GDP sub one. That's like the definition on the screws of stagflation. It is, it is.

SPEAKER_00 24:06

That's fair, that's fair. Um, I think that you don't see any kind of material bleed through it. Listen, the economy could have been slowing before. Let me be clear on that. I know I and yes, I think it was, but yeah, so it I and I tend to agree on that. But at the end of the day, like the slowdown in the economy that we're gonna experience from this event is is not going to be for some time, right? That's that's that's as I see it again.

SPEAKER_01 24:30

We have to that's a Q4, Q1.

SPEAKER_00 24:33

Yep, yep. That's that longer term people can start to not afford things and it and it bleeds through. I think that's kind of how you have to view that.

SPEAKER_01 24:41

Yeah. Well, let's get to that deflation demand destruction. Because again, I think what people don't realize is oil shocks really are demand destruction and cause deflation, which just blows everybody's minds. How would you kind of at a dinner table or a restaurant tell a friend, yes, you have you have a bump in inflation, but let me tell you what the big boogeyman is, and that's deflation. How would you kind of tell that story?

SPEAKER_00 25:01

Yeah, deflation seems like the world's greatest problem and until your until your economy goes through it, right? If you don't believe us, ask the Japanese who went through it for basically 30 straight years and their economy didn't grow one iota. Um, at the end of the day, it's not hard to look back and say 10 out of the last 11 recessions were a direct function of oil price spiking. And so oil prices spiking causes economies to slow down. That causes deflation, right? And if the deflation is sustained and prolonged, that is a much bigger problem, although it doesn't seem it than prices going higher. If you realize Michael and Taylor sitting here and we're like, hey, we could go out and make that investment, or we could just keep our money in our pocket for a year and then go out and make that investment, that's how an economy truly slows. And why would you make an investment now if the anticipation is that prices are going to be lower 12 months from now? You won't. You'll wait. And that is a function of sanding the gears of the economy, driving it to a screeching halt.

SPEAKER_01 25:59

Yeah. Again, yeah. This is this oil in my my fear is oil is still over 100 bucks and probably hits 150 in the next six months because I don't I don't see a short into this quagmire, which is really unfortunate. And then to your point, I think it becomes a worldwide recession, right? You already have the Philippines and Thailand declaring emergencies, right? Europe is gonna fill it with natural gas. This, this, this, this is gonna be a worldwide deflationary spiral, perhaps.

SPEAKER_00 26:30

Yeah, yeah. And and it again, this is one that it'll be very interesting. To my point before, I don't think there is an easy taco out of this, to be clear. Um, but I think we're gonna try to taco our way out of this. I'm not entirely sure how you do it politically. Um, you could certainly, you know, one of the things that Trump has intelligently done is not drawn a line in the sand as to this is our goal. He can't do that. Like hard and fast. This is what we are here to accomplish. I think that at the end of the day, now it's become a straight of her moose game. But I think going into it, it probably was more likely we want to seize the enriched uranium.

SPEAKER_01 27:10

Yeah, probably.

SPEAKER_00 27:11

Which was the nuclear, the nuclear kind of facility and and making sure that they don't have the ability to do anything from a weaponization on the nuclear front. But now I think this is becoming more economic duress, and our focus has potentially shifted away from the imminent threat of nuclear behavior to this is an economic, you know, disaster. And now they're they're quote unquote letting a few ships through as a uh appeasement. I can't make sense of that at all. Yeah um, so I'm not sure entirely what's going on there, but I I guess my back to my point of like the ability to tackle out of this is still there. I don't think it's the right thing to do necessarily at this point, but it's still there because we have not said we are in Iran to do XYZ.

SPEAKER_01 27:54

We haven't defined the victory so we can declare anything victory.

SPEAKER_00 27:57

Correct.

SPEAKER_01 27:57

Yeah, makes total sense.

SPEAKER_00 27:58

And Trump is is is the greatest marketer of all time.

SPEAKER_01 28:01

Yeah, let's switch gears to something kind of in in right field based on all the other conversation. That is private credit, right? There are lots of people seeing what's going on with private credit, a lot of funds, you know, kind of hitting their limits and gating uh withdrawals. Uh lots of talk about AI investments and software companies, you know, that that being kind of the apex of the pain. What are your thoughts on what's going on with private credit today?

SPEAKER_00 28:23

I think there's a massive misunderstanding of private credit, massive misunderstanding of private credit. So, two things. Um, let well let's let's talk about AI software spillover into private credit, into that space. Um, so one of the big arguments is that these private credit players have big software exposure. So 25%, right? And it makes sense over the long term why it's the same reason why investors love Salesforce, workday stock, et cetera, is because this is sticky, recurring revenue, right? And that is what they looked for. And so they are exposed, the private credit players, to that software space. And the argument being made is that, well, look at what the public equity market has done with those software stocks, down sometimes 30, 40, even 50% in extremes. Why have you not seen a reaction in the price of private credit? It's coming, they're gonna rug pull you.

SPEAKER_01 29:19

Right.

SPEAKER_00 29:19

And I think that is just a dramatic misunderstanding of the difference in equity and where you sit on the capital structure in private credit. So there's two things. One, private credit is the top of the capital structure, right? So you need this thing to completely go default and there be nothing left at the end of the day. Right. And that is how you experience pain on a private credit loan, right? So it eats through all the equity. So these founders that have launched these companies and poured their blood, sweat, and tears into them, they need to go kaput, right? And then it eats into that senior secure debt, right? The other piece of it is a lot of these are private equity backed. So they have the backing of a Blackstone, et cetera. The Blackstone really wants that equity not to go to zero. So they're gonna step in with their funds and backfill, right? But the really the biggest nature and the difference between the two is the length and longevity that the investor needs to think about them through. So you have a difference in terminal value on these software companies, and that is what you're getting a reaction to in the stock price. And what I mean by that is five, 10 years out when AI agents can step in and do some of this CRM type work that is overly simplistic, which is what they're making it out to be. Okay, so now you have cash flows getting hit five and 10 years out, and so therefore, the terminal value of the company is lower, and that is why you're having equity prices re-rack lower. These loans are two to four year loans. You need meaningful impairment and cash flow in the next two to four years in order to see real distress in that private credit space. So at the end of the day, like private credit, broadly speaking, little secret, everyone, it's positive you're to date.

SPEAKER_02 31:05

Yeah.

SPEAKER_00 31:05

With all of this noise, with all this noise. So I'm not making the case that there isn't some private credit loans that are out there that aren't good.

SPEAKER_01 31:11

There are clearly some bad.

SPEAKER_00 31:12

Yeah, clearly there are. Don't get me wrong. But I think that this overblown hysteria that's taking place in the market, and and listen, they're gating, yeah. Gating, which means investors cannot get their money back. That is not a bug, that's a feature, right? That is what you pay these companies to do is protect me as a shareholder from Michael and every other shareholder saying, I'm out, forcing the portfolio manager to sell at distress valuations and return capital. And that's just not what they're meant to do. They're gonna gate and they're going to allow this loan to continue to make the payments, which the companies currently are. They're gonna continue to have the performance trickle on as it as it did. Um, and and that's why the performance is positive. But I get it, investors don't like it when they say, hey, you can't have your money back. Yeah, and it gives an amazing headline.

SPEAKER_01 32:02

Yeah, I love the fact that you brought up gate. I actually brought that up. Uh I read an article, shout out to Lance Roberts. He wrote a substack called Subprime Crisis 2.0. Will private credit be the trigger? And it was a rather long article, but I read it. And really, there were kind of two things. One, you brought up gates. Uh, and again, we're trying to compare this to 2008 because everybody thinks the next GFC is coming. And one of the reasons the GFC happened is because there were no gates on the loans. So when everybody sold, it just it was literally a movie theater on fire with everybody running to the exits, and that was a problem. So gates are a feature, not a bug. The second thing, and this is wild to me. Um, we we had about 1.2 trillion in subprime loans in 07-08, about 1.2 in originations. Unfortunately, because of CDOs and synthetics, of the derivatives, of the derivative, of the derivative, that 1.2 became 62.2 trillion.

SPEAKER_00 32:59

Yeah.

SPEAKER_01 33:00

Today, we have 1.7 in private credit. There is no derivative of a derivative, of a derivative. So we are exactly 3% of the chaos of the GFC plus gates. So it's just not.

SPEAKER_00 33:13

And by the way, if you're worried about private credit, which is senior secured top of senior senior, yeah, exactly. What should you probably be a little bit more worried about that sits beneath that, which is a four times larger asset class, which is private equity, right? And I'm not making the case that private equity, you should be running hand hair on fire, getting crazy about that either. But that goes first before the credit side of things go first. That is a function of corporate structure and the capital stack. Exactly right. So, and and then you have people come out and like so let's talk about a couple other things here. So if you look back at 2022, 2022, private credit was the all-star of all investment asset classes in the nastiest fixed income bond market that we had literally since the Revolutionary War, private credit's up 10%, right? In the nastiest of nasty environments. And so, but what happens is is the narrative starts to get blown out of proportion, and then every media outlet starts to play on it, and then everyone becomes this expert because they read three recent articles on private credits, and all of a sudden the doom and gloom starts to take place. And then you have someone like Jamie Diamond step in and say, Hey, we've got one cockroach, which was Tri-Color and First Brands. There's lots more out there. Well, guess what? Private credit is taking the business from JP Morgan Bank, and so therefore, private credit is taking investor capital and going directly to companies, circumventing the bank that sits in the middle, typically taking a three-point spread on it. So, what is Jamie Diamond gonna say? He's trying to protect his business and create this big obnoxious thing over here that's private credit to force people back through the banking system so he can do more business. There's incentive.

SPEAKER_01 34:58

Yeah. He's talking his book. Shocking Jamie Diamond would do that. Yeah, yeah. I'm shocked. Yeah, nobody ever does that. Well, the final topic I have on my laundry list, we crossed everything out except for AI and job losses. Obviously, a big headline a couple weeks ago, block whacking 40%, rumored 20% at Meta. Where do you come down on this AI? Are we gonna just lose all entry-level white collar and just everybody's got to become a plumber and electrician? Where do you where are you at this AI apocalypse?

SPEAKER_00 35:25

I uh as a kid that grew up in a one red light, blue collar as it comes town. I love the hysteria that you see when a white-collar job comes up comes under pressure. Like, oh, oh, oh, the rich people are gonna get fired, and all of a sudden everyone loses their goddamn mind on Wall Street and they're like, hey, wait, they're they're they're coming after me now. Before when it was an economic slowdown, like we were all good, but maybe we didn't need to build the next house and the construction worker got fired. Now they're coming after me. This sucks. So I think that um there's some hysteria playing out there. I I do think that we have efficiencies in in the business that we run through AI. Um, I don't know that it's necessarily the kind of mental capacity side. I think it's more of the, hey, we track all of this economic data, and it used to take us going out and farming it ourselves and finding each underlying data point, and now we can throw it in Claude and have all that data sucked in immediately. Right now we still have to digest it and understand what it's telling us and and interpolate that data into making decisions. But I do think that there is that kind of college grad type role that that that probably has a little bit more pressure where people start to second guess, hey, I I know I'm not great at AI just yet, but I think we're getting better. And I think that we can systematize some of this stuff to not have that next, you know, 22-year-old hired for 50 grand and instead pay five grand to some AI, you know, kind of clawed type system and have it do it effectively, know that it's coming from right sources, know that the data is being calculated correctly, etc. I I get it. I get it.

SPEAKER_01 37:08

Yeah. Well, where do you when you step back and you look at let's let's say you're looking back at AI in a decade, do you think AI will have destroyed more jobs or created more jobs in total?

SPEAKER_00 37:22

I because of human nature, and because we have done this so many times, the internet's gonna get you fired, the uh locomotive, the you know, the car, the uh the tractor, uh the whatever it is, I think it's gonna create more jobs than it than it destroys. I in short term, I don't know that you can necessarily say that, right? Over time, I think that's where we wind up. In the short order, we we start to replace some jobs with it.

SPEAKER_01 37:50

Yeah, I think that's that, and that's exactly why I said a decade, because I think it I think a decade is long enough for us humans to do what we've always done is is create the next, you know, the next thing. And you're right. I think in the short term, I mean, if you put short term like 18 months, I'm not taking that bet. 18 months now more job losses.

SPEAKER_00 38:09

Who is this asshole from Anthropic that's the CEO that keeps coming on? Who who is their PR person?

unknown 38:14

I don't know.

SPEAKER_00 38:15

That's allowing him to say that we're gonna replace 50% of jobs or whatever dumbass thing he's saying. Like, what what are you doing? You think you're doing good by your company doing that?

SPEAKER_01 38:23

You know what he is, you know what he's this is what I think is going on is all of these AI folks are trying to raise money. Yeah, and the only ROI they have is labor. Yep. So they're saying stupid things like that, not realizing uh I and A, I don't even think they believe it. I think it's the only way they can go get the next hundred billion dollars.

SPEAKER_00 38:42

Well, it's hysterical right now to see uh Sam Altman flail.

SPEAKER_01 38:46

Yeah.

SPEAKER_00 38:46

I mean, one, he just comes off as a PRICK, and I think that everyone roots against him. Um, but he now what you know what you're starting to realize that Chat GPT has become more of a retail-driven user base. And we all know that the big money comes when you can get corporate adoption. And Anthropic is eating their lunch there. So, what now chat GPT and and and open AI and Sam Altman is doing, they're saying, hey, private equity, we'll guarantee you a 17%.

SPEAKER_01 39:14

17%.

SPEAKER_00 39:15

Yeah, or 17 and a half, 17 and a half percent, right? And so what they're trying to do there, it's not stupid. I mean, it's it's crazy, but it's not stupid. What he's trying to do is he's trying to get the buy-in from those private equity companies to invest their capital there because what they're gonna do is they're gonna force it down the stack on all of their underlying companies. So you're gonna create demand that's sticky corporate demand by that private equity company that purchases you to then force it down on their underlying companies and have them be your user base. And by the way, AI learns with data, right? So the more used it is, the better it gets, and the you know, the the snowball on the flywheel keeps turning. So it's a creative, kind of harebrained idea. I I don't know. And when you look at the terms of things, like I'm sure it's not literal guarantee of 17 and a half, like the like plenty of outs, plenty of outs. Yeah, there's there's plenty of outs, right? If the company does well, we'll guarantee you 17 and a half. Um, or you'll get preferred performance over the other shareholders, etc. But at the end of the day, like it is a crazy headline to say, hey, we'll guarantee you 17 and a half. Like, what moron wouldn't take that?

SPEAKER_01 40:22

Yeah, no, there you go. Well, I don't have anything else on my topic. Something did come to me though. I wanted to ask you, I always do this to you, try to put you on the spot. What do you think the chances are of a recession being declared in the next 12 months? Zero to 100.

SPEAKER_00 40:37

Yeah, I I think it's still light. I think it's still light around 25-30 percent.

SPEAKER_01 40:42

Um you're with uh what Goldman Sachs, I think, recently said went up from 20 to 30 percent.

SPEAKER_00 40:48

Yeah, so okay. I I I just think that the US economy, and and granted, like you know, if the global economy catches a cold, like we're gonna get it too. Don't get me wrong. But I think the US economy right now is in the driver's seat because we are we are very insulated from this, yeah, comparatively speaking. Yeah, yep. Yeah, it's just our energy independence that and and and not only energy independence, but like now you're also starting to see European countries go like, Hey, uh can we get some of that? Do should we should we continue to go to Russia for this? Because uh they've proven to be bad actors, and now by the way, the Middle East, like um maybe we can't get that that that quite as cheap as what we thought we could, and maybe we pay a little bit more to have a better partner long term. Yeah, you know, politically, I don't know that we're making friends out there right now, but I still think that we're perceived to be a better player than both those other two alternatives.

SPEAKER_01 41:35

Yeah, I think I I think of all the craziness, we're still better than those two. I agree with that. Well, I'm curious, do you have anything else that's top of mind that you're thinking about?

SPEAKER_00 41:42

Uh, you know, before we put together a laundry list there, that was impressive. We we banged down through eight or nine topics very quickly, and they were all kind of top of mind. Uh, I thought uh, as always, I appreciate the heck out of you because you read and and you study more than anybody else in this space. So congrats to all the success you've had. Well deserved.

SPEAKER_01 42:02

I I appreciate that.

SPEAKER_00 42:03

Where can people find you? Yeah, find us at Life Goal Investments on whatever platform you watch, where they're at LifeGoal Investments doing daily 60 second type videos.

SPEAKER_01 42:12

Yeah, you got to definitely check them out on Instagram. It's one of my sources. Really gets me thinking. I don't know how he shoves 10 minutes of material into 60 seconds, but he does it each and every day. Give him a shout out. Life Goal Investments. Thank you buddy.

SPEAKER_00 42:24

You're the man. Quick ask. If you're enjoying the show, hit the follow and drop a rating. It helps more folks find our podcast. Thanks so much. The information discussed in this video is for educational purposes only and should not be considered investment, tax, or financial advice. Investing involves risk, including possible loss of principal. Always consult a qualified financial professional before making any investment decisions. Past performance is not indicative of future results.