[CC may contain inaccuracies] How big of a bind is the Fed and right now. This is weird extraordinary times. If you look back at early
2008 and 2009 there were three other instances in the aftermath of the financial crisis that we had six consecutive months of
falling car sales. There's clear. So we've never seen this outside of a large recession. This is clearly more than a
semiconductor story. Here we have housing that is beginning to roll over as well. And many other signs are proliferating
worldwide. That global growth is slowing. There's a bottleneck. Recession fits very obvious. It looks like we might be headed
into an industrial recession as well. I'm going to be paying close attention to Germany's business confidence confidence data
that come out later today. And on top of that it looks like we're also going into an earnings recession. So there are a lot
of slowdown indicators and yet we have runaway inflation. We have every sign that this bottle neck recession is global in
nature. And what a lot of people are not talking about is that in exchange for working 24/7 at the biggest ports on the West
Coast that there might be a lot of payback coming into July the 1st of 2022. We could be talking about a big strike among the
longshore workers among port workers. And really that's on nobody's radar screen. If we start to hear rumblings about that
you will really see inflation be persistently higher. And it's beyond the middle of 20 22 we're talking about here.
But what you constantly you hear a lot of guests on the show say this is a supply side issue and the Fed shouldn't really be
reacting to it. And yet you see markets are pricing in several hikes by the end of next year. Do you think that the market is
is right on that call that they're going to have to hike a little bit more faster to to deal with these inflationary
pressures. Well there is always going to be payback in some form for the
Fed getting so far behind the curve or the Fed refusing to start tapering especially its mortgage backed securities purchases
even as home prices ran amok. So I don't think that the markets are necessarily incorrect in what they're pricing in. That said
I could still see I'm going to speak to the other side of my mouth. I could still see the Fed prematurely pulling the plug on
tapering. If it if it slows the markets enough that's why I say it's going to be a policy error or a policy error. It's very
difficult to tighten into a slowing economy. And yet it looks like they're going to be forced to do just that. But fighting
fighting stagflation with the current tools in central bankers toolboxes it's not an easy thing to do. Stagflation is a
different beast. You know it's just that the Fed may have to tighten more
aggressively than what's been factored in against that. It's a very difficult place to be especially heading into a
midterm election year that is promising to be very contemptuous. It's going to cause a lot of headline risk going into 2020 too.
I mean if you look at what happened in 2011 2012 and 2013 consumer staples gold. These were long maturity bonds. You know
we're not where we're seeing a flattening of the yield curve but that's because we're seeing shorter maturity rates come up even
though longer maturity rates seem to have found something of a ceiling. Again these are signposts of stagflation. But your
longer maturity bonds did outperform in such an environment. If we look back to the last time there was this much political rank
or at the same time of economic upset in the US economy. Is it inevitable that higher yield will leave lower stock
prices. That's not reflected in the equity markets right now. There is not much reflected in the equity markets right now. I
think what we're seeing is the power of passive investing which is enormous because of the weight by which many many American
workers for one KS feed into the stock market. Every single time they get they get they get paid. There is money that's pulled
out. The multiplier effect is estimated to be some around 17 times. Share buybacks are pushing record levels and you've still
got the Fed pumping a hundred and twenty billion dollars worth of liquidity into the stock market. So there is there's a
massive offsetting force that helps explain why stocks seem to have a floor underneath them. But again all of these things can
change if the perception even begins to emerge that especially junk bond issuers are going to have a harder time accessing
capital markets at a time when U.S. corporate debt has exploded from ten trillion dollars prior to the pandemic to pushing
eleven point five trillion dollars. If you add high yield bonds together with leverage loans you've already passed the three
trillion dollar milestone. There's a lot of debt that's still in the system. Credit is still an issue. And I think that that's
where you would look for the first crack because that is what we saw in 2013. We saw a credit market event spill into and bleed
into the stock market. What's also changing is the energy space. This credit crunch and
we're seeing oil is surging about closer to ninety dollars a barrel. How might this play out. Who might get hit. Which asset
classes are you looking at. Well I think I think it's fairly obvious that consumer
discretionary and again consumer discretionary deeply underperformed small cap stocks underperformed in similar with
similar backdrops. Ninety dollars a barrel is really going to start to cut into U.S. consumers wallets their paychecks.
Deloitte came out with a with a survey last week that showed that lower income Americans this holiday season were planning on
spending 22 percent less. We have to recall that food inflation is still very prevalent here in the United States. In addition
to to what's happening with energy prices the best hope that we can have right now is Mother Nature. We just have to hope that
that the La Nina effect doesn't have. Does it make for a very cold winter. But it's also a global phenomena. It's pushing up
energy prices. So we're going to become meteorologists in the months to come.