Plain English with Derek Thompson - Why the U.S. Could Be Headed For the Weirdest Recession Ever

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Today’s episode is about a US economy and a stock market, and a crypto industry, and an inflation reality.


That all seems to be getting weirder and weirder, and weirder every single week.

Today’s guests are returned guests Michael bat, Nick and Ben Carlson of results.

Wealth management co-host at the animal spirits podcast.

And in this episode, we play a game of finish the sentence.


I picked some of the most common sentiments that I’m hearing around the econ and finance World sentiments.

Like, the scariest thing about this Market is dot dot dot.

The most hopeful thing about the US economy is dot dot dot.

The bull case for crypto remains dot dot dot.


And they fill in the blank and then we debate their answers to fill in the blank and then we debate the debate around the answers, but I want to start with 3, simple facts about the US economy, three numbers.

That should shape our understanding of what’s happening.


Right now.

The first number is 22, the Federal Reserve has a mandate to keep prices stable and it has targeted and inflation rate of two percent.

The actual inflation rate is eight point three percent. 8.3 is a long way from to inflation is by this measure four times higher than it should be.


That is why all of this waves, his hands at the stock market is happening.

Right now.

The FED is raising rates, and the purpose of raising rates is to raise the price of money, that will reduce investment, less investment means, less demand.

So, it sounds a bit violent, but the feds mandate is to destroy a bit of demand until inflation comes down.


And the problem is that there are a lot of numbers between 8 point 3 and 2.

And so, The very real worry, is that as the FED is trying to drag inflation down.

It will drag growth down with it.

The second number is 11.1 11.1 in China.


Retail sales in April were down 11.1 percent from a year ago.

That is the biggest drop in Chinese retail sales since March 2020.

The month when the global economy went into shock, this is bad, it’s bad.


For all sorts of reasons, but particularly looking at us economic statistics, if domestic demand is being destroyed here in America, that means that America needs overseas growth to make up the difference.

But where is this growth supposed to come from Europe?

Is a basket case.

China suffocating its economy.

For some reason.


This covid 0 policy is pursuing without mRNA vaccines.

So you have Rising interest rates in the US combined with it to celebrating China, not a great picture for growth.

And brings us to number three, the third number is 2001 in 2001.


The US had a brief technical recession.

Following a stock market crash bang a decline in investment then and a decline in exports because our trading partners weren’t doing so hot.


So, I am not officially predicting a recession right now or in this episode, but I think if the The US economy does have a recession.


I’m just telling you history, never repeats, but it rhymes.

I’m Derrick Thompson.

This is plain English.


Michael and Ben, welcome back to the podcast.

Great to be here.

Great to be here.

This is your third time, back in the podcast.

Is that right?

I think you’re one of the first three time, visitors.

I feel like every time you come back on the show The economy’s gotten ten times weirder like you were on the first time and we was like, oh there’s this unprecedented supply chain, mess will never have something like this again.


You can make the second time.

Inflation is a 40-year high that you back a third time.

We’ve got a crypto crash growth.

Stocks are experiencing their form of Armageddon.

China’s Lost His goddamn mind with Omicron, Putin’s invaded Ukraine and we still have a supply chain mess and forty two thirty five-year High inflation.


So I wonder if we should just like maybe that’s just me that the last time you guys come on and maybe the economy will finally normalize and I’ll get back to the only bull market right now is in content that is right.

It’s gonna get much weirder by the way dark.

I think it is.

And we’re going to talk about exactly how it’s gonna get weirder.


So what I wanted to do today is play a game, a fill-in-the-blank basically game of Finance econ, Mad Libs.

So I’m going to set us up for seven fill in the blanks and then you guys are going to finish this sentence for me.


So to start my very first sentence is the single most shocking or depressing Market statistic, right now is what, this is, a question for both Michael and Ben.

So, Who want to take this one?

First, the single most shocking or depressing Market statistic?


Right now, is what I do since I’m bald, I’ll go first.

All this is there’s a theme here and it’s not good.

I’ll start with this in October 2000, 21.

I think we all remembered this Zoom, the video company or the teleconference, accompany past ExxonMobil in market cap.


Right now Exxon.

So what is it?

That was October 21.

It’s I do not even like a year later.

Exxon is 14 times larger and that is from a combination of Zoom collapsing, and Exxon going vertical.


I’ll give you two more quickly more than one in ten.

Large cap, stocks are down more than 60 percent from their highs, more than one in ten.

And lastly, then this is this is sort of the epicenter of this.

Is the arc complex.


Now, Arc is a high beta high-flying ETF of Tesla and coinbase that Robin Hood and all of the stay-at-home stock winners from the pandemic from from our conception in late 2014 to their peak in February of 2021.


It was up over seven hundred percent from October from early 2014 through 2021.

That’s annualized a gazillion.

Sent a year, right?

It did phenomenally.

Well, the S&P 500 over the exact same time was up. 125 percent.


All of that spread has now disappeared from the Inception Arc is now under performing the S&P 500.

Wow, so there was a period.

Where was performing six times better than the S&P 500.

But when you look at the entire story now is performing worse.

Like that is an incredible Priscilla, traveled in less than two years and a great microcosm.


For what we’re seeing, which is this this shift from narrative-driven company’s growth driven companies to Value driven companies, profit driven companies, like investors have basically said for years and years were, especially between in 2020 and 2021.

We are betting on the future.

We’re betting on stories for betting on the next decade, buddy.


Our meeting betting on me.


Well, and we had, we had so I think there was something like 15 million new brokerage accounts opened in 2020, and 2021.

So a little more meat on the bones for Michaels.

I got.

So the Russell 3000, if you want an index fund right in your 401k, you an index fund, you own, just the whole US Stock Market.


It sound like sixteen or Seventeen percent right now.

That’s not fun.

But it’s also relatively normal every few years.

You should expect that to happen.

But if you’re one of these people that got into you, Open your Robin Hood app and you just had to, I’m going to trade stocks, one other, very 10 stocks.

In the Russell 3000 is down, 90% of worst of all time highs.


One of the ten, what are the five is on 80% or Worse?

These aren’t just like little Corrections.

These are like, you got your face ripped off.

Almost half of all stocks at on 50% and the.

So this is the The Darlings Peloton and Robin Hood and coinbase and teletype and zoom but also if you own Facebook stock your down. 50% Amazon is down 40%.


So all of the companies that people really love are getting crushed right now.

So if you decide to do, I’m going Pick some stocks because it sounds easy.

I’m going to be the next Warren Buffett and this is your your entrance into the stock market investing and you had an awesome year in 2020.

Now is the other side of that where you have a hangover and you’re just like, what, what happened here?


What am I supposed to do?

Because I did not sign up for this, with your sis adage.

I suppose in investing that says, you should invest in what, you know, it’s ironic.

Because if you look at the pandemic, you’re like, all right, what did people know in 2020 21.

Well, they got up in the morning.

They rode their Peloton, they zoomed for work.


And then they watch Netflix, if your portfolio was literally just exclusively Peloton, zoom, and Netflix.

You’re done what 80% like, legitimately I think you might be down 80% if you invested.

Netflix’s the is the worst stock in the S&P 500 this year.

They’ll like 70%, It’s unbelievable.


And even the Peloton has literally Peloton lost 93 percent.

Its value six cents, six or seven cents on the dollar.

I mean, that’s, that’s wild.

It is crazy.

Do you guys think that just as with the Cam bubble bursting you could say at the time.


Oh my God, software was way overrated.

These kind of companies are not going to make it in a in a materials economy.

They’re not going to compete with oil or steel or these, you know, but obviously they did like obviously software did to a certain extent, eat the World by that same token.


You think that in the ashes of the growth stock portfolio.

There are some like little baby Phoenix, Has that will rise and five ten years from now.

Some of these companies who knows, which, but some of these companies are going to be absolute rock stars.


Like Amazon is a good example from 20 years ago.

Amazon, got destroyed in 2000, 2001.

Jeff Bezos.

Basically said, I don’t care.

I’m still going to pursue my day one strategy and and then he became, you know, the richest man in the world.

Largest e-commerce company in the world.


Do you think something like that is going to happen with some of these growth stocks as well?

Here’s what, here’s the problem when that happened.

Amazon want lost 95% of its value from the peak in. bubble.

I’m guessing it was a billion dollar market cap.

These companies are still massive.


Even with the gigantic decline Peloton still has a five billion dollar market cap.

So you mentioned these baby Phoenix’s, they’re not babies.

Zoom is still a 25 billion dollar market cap trivia and came public at over a hundred billion dollars.

How many ribbons reveals the electric truck company electric truck company.


Go ahead.

Its Revenue was zero.

So why is this happening particularly?

Lee with growth stocks.

Well, prior to the inflation coming, you know, spiraling out of control.

And when all of, when we had so much free money, when money costs, nothing, when you could borrow it for free.


Basically, it didn’t matter whether a company was going to pay you back today or whether it was going to pay you back, you know, 10x in the future because money did it called take your time.


And so this is the theme of the last decade was Silicon Valley subsidizing.


All of our losses.

Yeah, DraftKings, gold, you know, lose 400 million dollars, a quarter, whatever it is all good because we’re trying to, you know, it’s all about, can it’s all about growth.

Well, we’re not in that world anymore.

And now, when interest rates are going up, when money costs, something when inflation is what it is, people are much more sensitive to the promise of profits and ten years.


Like no, no.

No, you had your, you had a decade to figure this out.

You had a decade to deliver me some cash flow, and it’s over those.

Days are gone.

So why growth stocks at the same thing?

It’s just are long-duration.

Asks us.

He told me to disagree more with my co-host here.


I’m going to take umbrage with this one.

All right, because I think anytime there’s Innovation people go too far.

So if you look back at the tech bubble from 95 to 99, interest rates were six percent.

People didn’t need low interest rates to go crazy back then.

Anytime their Roadie evasion in the economy.

Like go back to Railroad stocks in the 1800s.


So here’s why this is the most unsatisfying answer in the world.

The reason that stocks crashed.

Times is because they went up so much.

If you look from the bottom of the bear Market in the great financial crisis in 2009, to the end of 2021, the NASDAQ 100, which is just an index of growth tech stocks goes up 25% per year 1600 in total.


So, sometimes the reason that stocks get crushed, like, obviously the fed and inflation and interest rates.

That was the narrative shift there.

But part of the reason stocks get crushed, is because they went up so much on the upside and they can’t, that can’t last forever.

So I think that’s part of it too.

Is just that you had this amazing run in the 2010s were Software ate the world and the returns.


Backed it up.

And now this is the other side of that.

Can I give you both of you?

Like I don’t want I don’t want to be like marriage counselor here, but I think you’re both right.

You know, I I’m hearing a lot of Truth on both sides.


In apart.

We are seeing a large crash because valuations went up so much like it sounds like a tautology, but I think it is true at the same time.


I totally buy the idea that when money is cheap then investment is easy and losses feel cheap.

And so you’re willing investors are willing to subsidize.

As companies that lose lose lose on a per user basis, over time to build a total addressable Market of, you know, a billion people and hopefully eventually get evaluation of something like a trillion.


You had a lot of investors believing that their companies could conquer the world like Amazon did.

And so they put all this money into the Ubers and everything else.

I remember, I called this a couple years ago.

When is, when I write this article October 20, 19, I wouldn’t article called about the millennial Urban subsidy.


I said, if you wake up, On a Casper mattress.

Remember those workout with a Peloton before breakfast?

Uber to your desk?

At we work order doordash for lunch, take a lift home and get dinner through Postmates.

You’ve interacted with seven companies, that will collectively lose, nearly 14 billion dollars this year.


That was 2019.

That was the peak of the millennial Urban subsidy investors, giving money to companies who gave money to Consumers, who would use those businesses.

So that the market of, As businesses would grow and the investors would tell themselves eventually enough people will use these products that will be able to raise prices.


Such that the unit, economics, flips from negative to positive.

And the company will be worth roughly one, good jillion dollars, but that calculus doesn’t work.

When you have the Federal Reserve saying interest rates are going up, 50 basis points now and 50 basis points later and 50 basis points.


After that.

That’s a sign that money is going to get expensive.

The millennial Urban subsidy can’t be indefinite and all these companies.

These are falling back down to gravity at a speed accelerated by the fact that they went up.

So high, is that a fair way to synthesize what you guys were saying?


Yeah, but my favorite part is that these tech.

People say we’re changing the world and the FED raises rates 50 basis points and it’s like, okay, the world changing their mind.

Never mind has a well-known fed apologists and he’s not wrong.

In the sense that people have gotten out of control with speculation when interest rates were five six, seven percent.


However, The party ended today because of interest rates.

Let’s like make no mistake.

Can be very clear that this was a low interest rate environment, free money.

And now we’re moving out of that.

I want to go to number two, on my list of fill in the blank and here are switching from negative to positive.


This one is for both of you.

The thing that gives me hope about the market right now is what been straight with you.

All right.

This is normal like every correction in history and a stock market.

It has had its own set of reasoning is and it’s in, it’s always bad news.


That causes it the stock market wouldn’t fall for wasn’t bad news.


We’ve got inflation at 40 or highs.

You’ve got a war going on that food shortages.

We’ve got the pandemic still kind of breathing down our neck.

We’ve got all this stuff and yet all that stuff has happened.

We’ve had two crashes in the last 24 months in the stock market and yet despite that since the start of 2022, stock market in the u.s.


Is up almost 30 percent.

And total say that again, say it again.

And that’s a really, really important step.


So from the beginning of 2020, The S&P 500 is up, almost 30 percent, despite a 34% crashed endemic, a percent inflation, in the current bear market right now.

The stock market in the US economy are incredibly resilient.


So anyone trying to every time we have one of these pickups people try to say this is it, this is the end of the system it’s going under and we’ve lived through so much worse than this.

It’s just hard.

That every time you look back in history.

It seems like well, we know how that ended so I should have just it was a great buying opportunity.


But now so that that’s that’s my thing is just I’m constantly Mystic.

Because I think people want to get better.

And that’s the thing that you can hang your head.

And I think that it’s normal for the stock market to correct every once in a while.

Otherwise, you wouldn’t get higher returns and other Financial assets.

The S&P 500 is higher today than it was in early, March, 20 21 the next 13 months ago.


That’s 13 months.

And two weeks ago.

We’re up.

I mean, we’re not at much, we’re up like one point, but we’re up over 13 months and two weeks ago.

So I think, I think it’s important to take the Long View here.

You don’t even have to take like, you know, this 7D year of you.

That stocks are always up over a 15 or 20 year Horizon.


Just take the the medium term view stocks are up over the last 13 months and two weeks.


What about you?

Yeah, just to Ben’s point about how good things.

I’ve been, it’s hard to believe that the returns over the last three years, 2019 was up 29%.

This is the S&P 500 2020, the year of the pandemic, the S&P 500 gained 16 percent.


So, okay, 29% 16% And then last year we followed up with the Eighty-seven percent, return.

That cannot continue indefinitely, right?

We all know that to be true.

Doesn’t make the losses feel any easier, but context is absolutely critical.


So what gives me hope the S&P 500?


I went back to 1950 and I looked at all the periods of time when the S&P 500 has been down 20 percent or more from its eyes.


I cheated a little bit, I use 19% because we’ve got we had a lot of like periods over the last decade where we didn’t quite fall 20%.

We felt 19%.

So whatever I use 90%.



So on average, over the next 12 months stocks have gained 13 percent on average that compares to a nine percent annual average return.


So returns are higher how often they were positive 86% of the time.


And I’m sure that if I zoomed out even further and said over two year period 3 or that it, you know, eventually you go to 100% of the time.

Yep, and the other, the other set that I got from from you guys.

Is it the average bear Market?

Takes about 500 to 600 days to get back to break, even, right?


Which means that after you hit bottom and I don’t know if it Bottom now, or if we’ll be at bottom in a month or two months.

But after you hit bottom, it takes about a year and a half to come back to where you were before the correction, that’s not forever.

Like, I understand that there’s a lot of people who are in there, you know, upper 50s and 60s who are looking to retire soon.


I hope they weren’t in growth stocks.

I hope they didn’t put Entire portfolio into Redfin and Peloton because yikes if they did.

But for most people who are in this for the years long game, the decades-long game, they won’t even have to wait a decade on average for stocks to recover.


They have to wait, barely a year and a half.

So the pain is real.

If you’re the sort of person who needs to check in on your 401k every hour on the hour, you’re going to feel nothing but pain doing that.

Don’t do that.

You have the option to block that page for the next few months, go.


Oh, do anything else.

The world will get better?

Unless of course, you know, keep death, aliens Etc.

Then but if you’re in, if you’re saving in your 401k every week, other week month, whatever it is on your pay period.

You’re buying stocks at lower prices and higher dividend yields and lower valuations.


If you’re a net saver over five plus years ahead of you.

That’s a good thing.

You want to buy stocks when they’re down Alta.

I was I was saying this last week all-time Highs are the enemy of a young person you want the ability to buy stocks when they’re down and going nowhere because that just The up for the next cycle, when we do a bull market and you’re buying one and you bought when they were lower.


So when things go higher, you have more shares invested, it’s all value yet.

It’s all value.

That’s a great point.

I do.

Can I go to the next one or Michael?

You want to follow up on the on the whole point?

I’ll just just.

All right fine.

Well the thing about so our friend Colin roach was a great quote on this and Ben’s right?

You should be on your knees praying for lower prices.


It doesn’t feel good.

Assume the your net saver that you’re contributing to a 401k.

Every two weeks Cullen.

Hush said the stock market is the only store where prices fall and customers run out something like that.

You should be doing the opposite.

Yeah, it’s funny.

I hadn’t thought about the idea that, yeah, if you are saving 401K, especially if you’re in a company that matches that every every few weeks now, you are buying at these lower valuations that almost certainly to Michael’s Point are going to go up, not just in the next few years, but like maybe starting in the next few months.


That’s that’s that’s a nice, a nice glimmer of hope fill in the blank.

Number three.

This one is for you, been specifically, stocks will stop falling if Fed chair Jerome.

Powell does or says, What?

Well, I mean, the easy one here would be here if he, if he just lowered rates, but I think so much of what goes on in the FED is psychological.


I wish that I would have replaced.

Every economics book ahead in college with a psychology book because it would have helped me a lot more because I read an in college and economics that, if you pull this lever and interest rates inflation will do this.

And if inflation does this, then this will end.

The economy does not work like that, especially the markets.

So I think the FED is really been talking this down and I think that they got a little nervous that they missed the fact that inflation was gonna be way higher than they thought.


Because if you remember, they were the ones saying, we’re going to let inflation run hot.

They said we’ve never done that before coming out of the great financial crisis in 2008.

It took a lot longer to get back to full employment.

So we’re going to inflation 1 hat and guess what?

It worked from an employment perspective.

But now they’re saying, whoa, we need to tap the brakes and do the pumping hard.


We need to stop all of our quantitative.


We need to raise interest rates.

We’re going to raise interest rates until things potentially go into recession.

A few of the FED chairs of said that.

So I think what they could do if they wanted to thread the needle, I think they say, listen, we’re going to raise rates and we’re Try to slow inflation because that’s important to us because price stability as part of our mandate, but we’re not going to let the country go into recession.


If it’s if we can help it.

Yeah, like the market would believe that?

Yeah, the mark would say.




No big deal.

I’m just saying that if the FED said we have your back and we’re not going as much as we can.

We’re not going to let a recession happen.

I think the market would Breathe a huge sigh of relief because they’re now saying if we have to send it into her session, we will and I think that’s the thing that’s scaring markets to death right now.


Is that the it seems like the It is going to follow through on this as much as they can.


Why is this Jedi mind trick not sticking for you.

Why do you doubt that?

John Powell could basically get in front of the mic today tomorrow?

And essentially say look, we are interested in Tammy inflation.


But the moment we get data showing that the US economy is tipping toward a recession.

We’re going to Halt everything and make sure that that doesn’t happen.

Why wouldn’t that give investors confidence?

They have not they have not earned the Of the doubt, they were wrong on transitory inflation.


So was I, but guess what?

I don’t want.

The Federal Reserve, I could be wrong.

They were wrong to continue to purchase mortgage bonds as late as they were.

So I don’t think the market will give them the benefit of the doubt when Powell said that or that 75 basis points are off the table Market screamed higher, but then gave it all back.


The next day, what they can say to stop.

This is we’re no longer.

We’re going to pause on the interest rate hikes, but that’s not what they should be doing because inflation is out of control and it’s not Only a supply chain issue anymore.

It is bleeding over into services.


So we they can’t do anything about the supply chain.

It is what it is, but they can cool off the man and they have to.

Yeah, right, exactly raising into.

They don’t have to go ahead.

They could let they could let things run a little hot still and say, you know what, we’re going to be happy with 4% inflation rate, set of our Target of 2 because the supply chain stuff really is out of our hands and we’re just going to let inflation go a little higher than it has been in the past.


People going to have to get used to that.

They could say instead of Derailing the economy in sending into recession.

We’re just going to let things go a little longer and see what happens.

We’re going to get to macroeconomic analysis and about 10 minutes, but been last follow-up for you.

On this point, GDP in the first quarter of 2022, declines.


It declines for a variety of slightly janky.

Reasons to decline wasn’t very strong.

Consumer spending is is very good, exports declined, a little bit of business investment declined as well.

Is it possible?

Is it possible?

That we’re at the beginning of a recession right now.


I mean, two consecutive quarters of negative GDP.

Growth is a technical recession.

Now, it might not feel like a recession to most Americans, but like that’s what the word means.

So you say that, you know, the Fed chair needs to come out and say, you know, we don’t want the US economy entering recession.


We’re by the technical definition.

We’re halfway there.

So should should Jerome be out in front of a microphone right now?

Saying we’re going to stop interest rate increases because we’re too terrified of q1 2012.

To growth.

Well, that’s the funny thing about it is, I think the FED is just raising interest rates so they can lower when the future.


If and when we do go in, if it’s now or six months down the line or two, so I think that’s going to happen eventually anyway, whether they’re going to reverse course and maybe that that’ll happen if inflation is higher anyway, but it’s like pulling sometimes.

It’s like pulling the bows.

You can fire the arrow like they don’t they don’t have any tension and their interest rate games.


They got it.

They got to build it by pulling back the bow.

You’re right.

If we do go into a technical definition of a recession and I think people have this is kind of tation of a recession as like like the world is coming to an end and we’re crashing because of 2008.

Like you could have a minor recession that people don’t really know for six or nine months in the future.

When the National Bureau of economic research actually says, all right, we’re calling it.


So that certainly is possible that we could be heading into one and a lot of people wouldn’t feel it in their pocket books right now or feel it in their their employment Outlook.


I think it’s important to say that while in well recessions when you think about them feel like utter decline all around you.

It sounds like the concept of just like total economic Decay, but there many many times not only I mean in the, in the Great Recession which I think technically started in December 2007, and 2008 recession, 2001 recession.


A lot of times.

You don’t know, you’re in a recession until months and months later and the National Bureau of economic research the nber, which checks if he calls these things looks back and said, oh yeah, six months ago.

When you thought your in a growing economy.

No, actually, that was the beginning of recession.

These things are just a little bit.



Michael S Point here, you know, when people were getting tested Or antibodies like back in 2020 and it’s like, oh, yeah, you had covid and people like I did, I don’t like that’s that’s what it could.

Then be our could be like you only find out by the recession when it’s already over.



This next one is for you.

The long term bull case for crypto is blank and I want to set things up here by saying that there’s a lot of people even people in The Tech Community.

There are talking about this moment in crypto is being something like bubble, but for web 3, but for these cryptocurrencies and all these, all of these companies that are working on the blockchain.


So Michael, the long term bull case for crypto.

Still is what all right, first of all, I am a long-term Bill crypto Ball but never, I’m not a laser.

I not a laser eyed person.

I’m not a laser eyed person.

I do believe in crypto.


So okay, but by the way, that this could be bubble, Bitcoins down 56 percent, which is basically, it’s not nothing but come on.

Wake me up when it’s at 10,000, which certainly not off the table, right?

Why can’t pick one go to 10,000 easily could and should be doing Bitcoin now, is that high 20s?


It’s at 29,000.


All right.

So I I never believed the Bitcoin, like the Bitcoin fixes this or Bitcoin is an inflation hedge or or store of value.

And think that I think a good analogy that I do believe in is just simply Bitcoin is a digital gold.


What is gold?

It’s based on belief and I get the jewelry as whatever.

But for all intensive purposes.

It’s a belief story.

And I think that that is why I am long term bullish on bitcoin.

I don’t really think that you need to overcomplicate it.

I don’t think it’s money.

I Envision myself ever paying for something with the coin, maybe one day.


Who knows?

But today it’s far too volatile for anybody to either want to pay for things or certainly on the on the to accept the payment is Bitcoin.

Bitcoin sounds crazy.

Right now.

There’s another part of crypto that I’m bullish on, which is the Smart contract platform.


Ethereum is the most is the most popular one.

So just digital assets, digital ownership.

These are all the gurjit a talking points.

I’m not like a credible expert, but what are people talking about?

So a very simple example.

Sample of this in NF.

Teas are artists that are able to get repaid every time there is a transaction, right?


And artists, sell something musician, sell CD, whatever.

They get paid once.

Now, in inside the contract, you can make it so that there’s a, you know, a Perpetual royalty things like this.

Obviously utilities been spoken about a lot.

One example that people give is like, just exclusivity of say, a restaurant the high-end restaurant, right?


You’ve got like season tickets via nft.


I See a couple long-term use cases for n of T is I can be kind of interesting to a certain extent.

I think that some of the most interesting use cases for entities or kind of like an American Express card.

It’s like you, you buy access to a club that gets you all sorts of points and gets you all sorts of early exclusive deals in certain restaurants and clubs.


And that’s cool.


It’s like a little bit, Soho house a little bit American Express.

It’s but it definitely isn’t the.

We’re coming to save the world solution that I think a lot of web 3.

It’s were promising.

It is a neat.

Addition to a consumer economy.

Not a world saving solution to the problems of web to one.


Follow-up question about digital gold, you know, more about investing than I do.

But typically, if you’ve got gold in your portfolio, that is a hedge against the sort of equity declines that we are seeing today.

Instead of supposed to be, I’m not I’m not a gold bug myself.


But theoretically the are going for gold is that it’s a hedge against.

Should have Equity the clients you see today?

Otherwise, why would you invest in it?

If it’s just other Equity, then why not buy more Facebook?

Why not just buy more Amazon?


Why allocate that toward a material, rather than a stock.

But right now, it’s pretty clear.


That Bitcoin is acting like a steroidal Tech stock.

It’s just falling like other tech stocks except a little bit more like a little bit more than Amazon basin, the same as meta, not as much as Netflix and red fan and Peloton, but it’s falling in line.


With these tech stocks, which tells me that it’s just acting like a part of the typical Tech portfolio.

What’s the argument against that?

It’s a risk asset.

It’s the worst Castle, your hundreds of right and this is a cop-out but I think it’s true.

I don’t want to sit here and pretend I know equipped was gonna be like a five and ten years.


Like I have no idea what it’s going to become, but I think it’s going to be a much bigger part of our Lives.


I think there’s so much bullshit like offensive bullshit in the space.

I don’t like but I think it’s going to be much bigger in the future than it is today.

I can’t say much more beyond that but as far as like gold being a hedge, Deflation also bullshit.

We’ve had the highest highest inflation in 40 years and gold over.


The last year is down 2%.

Yeah, so I think we could put I think we can put that myth to bed as well.

Which we’ve been we’ve been relegated against gold is inflation Hedge for a long time, but that’s done.

I mean gold is a commodity becomes a commodity.

Yeah, I guess my feeling is like if gold is bullshit and Bitcoin is next gold and that just means that Bitcoin by syllogism.


Is this bullshit.

It’s digital bullshit.

Then any anything you want to pick up here before we move on to the macroeconomy.

I mean, In the the hardest thing to wrap your mind or with crypto is that you have the extremes of supreme charlatans on one side and then really, really smart people building on the other side.


And that’s the thing that’s hard to record brain around.

Is that, you know, that these people are they’re charlatans that are selling and pumping and dumping all this stuff.

But there’s also some really smart tech people who decided to just throw their whole life into this thing.

And that’s the hard part for me that like I have both of these competing ideas going.

Wait, I can’t do these.


People were just selling and then they’re just pumping and they’re just they ever they make it like this cult-like thing.

I cannot get my head around that but then wait, there’s this group of smart people over here who are going all in on this thing and following smart people into stuff like this is typically a good idea.

So that’s that’s my problem with this.

That’s my cognitive dissonance here.


I have the exact same cognitive dissonance saying have I have I told you guys my electricity refrigerator metaphor.

Think of it.

I’ve done a few.

I don’t know if I’ve done this on the show, but basically the way I feel about crypto is that the the advocacy scene is divided into these two, very confusing camps.


You have extremely smart people that can Describe to you exactly how the blockchain works.

It sounds like kind of scientific magic.

And you have other people that sound like anthropomorphised fortune cookies, where they just talk about how it’s going to solve all the problems of human nature.

And it’s kind of like how if you were alive in the 1840s and you were hearing about this new thing called electricity, but there was only two kinds of groups.


One group is telling you exactly like how photons move through space and you’re like, oh, that’s kind of neat.

I can see maybe how that could do some stuff for society and then another group was like, we’re going to steal the light.

The gods and spread it throughout the world and you’re like, what does that even mean?

Like just tell me, are you going to build an electric icebox?


Let’s call it a refrigerator.

Like are you going to build a refrigerator or not?

And that’s why I feel about crypto right now.

It’s like, tell me what the fuck is going to do for me.

Do I get a refrigerator or not?

Do I get a light bulb or not?

Do I get?

I don’t know what a radio that I plug into the wall or not.


Like what does electricity actually do?

Do for my life.

And I understand from the crypto World, when they say, oh, it’s digital gold.

Okay, fine.

Maybe it’s just, you know, the the next generation of a bullshit commodity.

I understand, especially when they say things like this is good for Capital flight out of countries or Capital liquidity out of countries that have to tell Terry and control over the currency.


Okay, I get that too, but that’s not really the US.

I just want to know, give me my refrigerator illusion.

Give me my refrigerator example, if we go another five years after they had all this capital and all this brain power head.

Flood into the space.

If in five years, there’s still no no discernible traitor use case.


Yeah, if there’s nothing like that, that the general public can go.

Oh, this makes sense.

If in five years don’t have that then I might I’m willing to change my mind about this and go.


It really is all just sales it because there’s nothing behind it yet.

But I mean, think about in the early 90s or the mid 90s.

We had a well.

Instant messenger was the first thing for the internet that really like light bulb for me.


You know, that was people were building from 95 to 99.

But you got the AOL Instant Messenger.

You’re like, oh I can talk to my friends, I can.

An like you had this use case for regular people, that they knew what to do something with it.

You don’t have they ever crypto.

I think that’s.


I think that’s fair.

I’ll let Michael finish this off.

But like, when, bubble burst in 2000, you could see in the ashes, the future of the world like Amazon crash, but it really was the future crashed.


But, you know, going online and ordering shit and having it brought to your door that really was the future webvan online.

Groceries, that crashed.

What’s the future of groceries?

It is in fact being delivered.

So like in the ashes of, Well, you really did have this glimpse of the 2022 economy and I’m just curious about to what extent does that hold here.


Because that likey that in, not the ashes of the of the of the crypto crash because it’s not nearly as bad as 2000 was for for software stocks.

But but what, what are the glimmers of the future that we really are already seeing right now?


Well, I’ll just say that.

Fortune favors the brave.


First of all, just want to throw that out there.

So important dark, first of all, okay.

I tried to sell my, here’s an example.

Like people talk about, like, permissionless and sensors.

And whatever I tried to sell my Knicks tickets on StubHub.

It was like a matinee game.

I forgot that I had seats and I tried to sell, let’s say they were and they’re playing the Nuggets.


Like not a bad game, but I couldn’t go first.

I’ll stop up.


I don’t know, 25%, 25%.

Rake seems a bit excessive, but I couldn’t go below a certain dollar amount.

If my seats were $150.

I couldn’t go below $100.

So, I had to eat the entire laws, because StubHub decided how much I could sell my tickets for.


What is that?

Krypto blocking fixes this Earth to Derek, maybe the maybe the downside of that is.

Why hasn’t blockchain fixed this?

Like there’s there’s layups out there that exist that you.

It seems surprising.

That it hasn’t had any insurance.


What do you mean?

You have to check my County records?

Do I have the title or do I not you can this that that’s a digitization problem.

That that’s, that’s a government digitization problem.

I don’t mind.

We need blockchain technology to solve problems.

Is that are basically just about digitizing that which currently exists in the physical world and then putting it in some spreadsheet that is secured by a government password.


Like all of them.

Why do you will need distributed technology to solve that problem?

I, honestly don’t know.

I don’t know.

But all of this stuff, all of these Legacy systems that were built in the 1970s.

I think it’s just too much to like rebuild.

You’re just building on top of building.

I thought that building.

So when I send money from my JPMorgan account to Ben’s Lehman Brothers account, They’re checking like okay Michael has his money and then like just all the processing time for that.


It just seems archaic and I think that’s probably what it’s going to be.

It would be they want to remake the financial system and that would be so you can trade quicker.

You can have you can figure out loans easier because it’s all it’s all out there right on the distributed Ledger.

You know, who owns?

What loans, I think that’s the kind of thing that people are hoping for is that it’s going to help rework the financial system and it will I’m a bit.


Well II, I am becoming More doubtful.

But I am retaining a sort of Kernel of moderate crypto optimism within that skepticism.

All right, let’s move on to the macroeconomy.

This is for both of you.

Let’s go faster, this question because I got two more.

The thing that scares me most about the US economy right now is what been nine times since the 1940s inflation is placed above 5% every one of those nine times ended in recession.


That’s the only way we’ve been able to bring inflation under control.

So Be Jerome, Powell could say something in thread the needle, I think it’s gonna be really hard to not slow the economy, a little bit to bring inflation down.

So I think that that that’s that’s something I’m worried about right now that it’s really hard to sell inflation without a slow and demand and output.



They the FED is in the job of destroying demand in order to bring inflation down.

But this is a consumer economy.

If you destroyed a band too quickly or just too much, then growth turns - and that is the definition of a recession.


We haven’t even seen inflation hit.


The consumer yet.

There was a stat today for Bank of America.

Us luxury spending is up eight percent year over year in March and April like II, Hermes handbags and whatever.

So we haven’t even seen the slowed down yet.

We haven’t seen layoffs yet.



I mean, they’re starting to take up a little bit and fed funds.

Rate are still super low.

They’re talking about like seven more hikes.

So we haven’t even begun to see the effects and I think Consumer confidence has fallen off the cliff and in many cases, like investing in all of this is like why do textbooks not work?


Because it’s not for me like it’s about investor confidence and we haven’t even seen like, pullbacks at all.

So that is part that I think is Marcin.

I totally give it both of you.

This is this is what I had for the answer.

That question.

The thing that scares me most about the US economy right now, what you want in a healthy economy, what you want in a growing economy.


Is let’s say three things Rising wages, Rising wealth, and Rising confidence.

What’s happened to real wages right now?

Inflation-adjusted wages are declining for the majority of workers wages wage increases happen, you know, maybe once a year inflation is increasing constantly every single month, at least the, you know, the second derivative is may be coming down, but inflation is still very, very high wealth.


Equities are getting demolished right now.

People aren’t certainly aren’t feeling the wealth effect.

Moment, and consumer confidence has been very low for awhile.

That’s a little bit tricky because consumer confidence, the last 5-10 years has been very partisan Lee tinged, when there’s a Republican president, Republicans are very, very confident, the economy when this Democratic president, Democrats were confident at the economy, but right now, consumer confidence in the economy is low.


And I just think with this combination of low real wage growth, if - real wage growth, plus High inflation, plus a decline in equities plus just the beginning.

NG of Fed rate increases, my odds of a recession are going up and up and up been in a recent podcast episode you guys.


Did you said this would be the weirdest recession ever.

I want to ask about that.

So fill in the fill in the blank.

This would be the weirdest recession ever because what almost 12 million job openings in the u.s.

Right now.

The highest before Dependable 67.5, there’s six million people that are unemployed right now.


So there’s A lot of job openings as people unemployed, that can change a little bit quickly.

I’m sure people can take those off if the economy slows but the labor market is scorching hot right now, credit card debt in the u.s.

Is 10% lower than was prepend emic.

People paid off their debts during the pandemic, home equity increased by seven trillion dollars from the end of 2019.


Until now from 19 trillion to almost 27 trillion, people have a ton of money.

So if you, if you own a house and two thirds of the country does right, the homeowners braid is 66% or something.

You had 18 months to lock in.

In borrowing at three percent or lower.

And so, if you’re a homeowner in this, in this country, that’s the best inflation hedge that you have your house prices up your paint, your fixed payment has stayed the same inflation is eating to that debt.


And so I don’t know that the consumer has ever been in better and better shape to withstand a recession and the fact that there’s a labor shortage and wages have gone up.

So it’s easier for people to negotiate a job.

Like we saw in early 2020.

Maybe that can change on a dime, but I think it’d be a very bizarre.


Because really, it’s not like we’re over-leveraged like we’re in the past going into 2008.

We’re not, you know, things are pretty good shape for the, for the balance sheet of most consumers.

They can they can probably withstand a Slowdown in many ways.

So in 2001, there was a six-month technical recession, even though consumer growth was really strong consumer demand was really strong and we had a six-month or technical recession triggered by in part bubble and maybe a little bit by the shock from 9/11, but it was largely because of Two things.


Number one exports declined because some of our trading partners got a little bit poorer and there were two business, Investments, pulled back, maybe as the results of, bubble bursting.


Can you see us having essentially, the 2001 micro recession, Redux where you have a little bit of an equity pull back that causes business investment to decline?


And then you look around the world at our trading partners.

China is as absolutely lost their minds like that economy is Having severe deceleration in part because their largest cities Shanghai and Beijing have basically been shut down.

You see all sorts of construction, declines, all sorts of other business investment and consumer demand, and consumer confidence to clients and China.


And if you look at Europe, there’s a war in Eastern Europe and their energy markets are absolutely disgusting.

So could you see declining exports declining business investment potentially, you know, kicking us into a 2001 style recession this year or early next year.

Oh, we’re to get the cloning exports.


I saw that.

At like China, smartphone shipments, are down, 40 percent year-over-year poof.

But enough of the - what has me optimistic.

Is it possible that consumer spending wisest in the next recession?


I mean, could things get that weird?

Where consumer spending drives the economy, and that rises and Rose?

I don’t know.

But to Ben’s point, I was going to say that not only have consumers never been better position for potential downturn but so are corporations.

They borrowed so much money.

At such low rates that yes, maybe investment will pull back, maybe layoffs will pick up, but they have never been in a better position to whether a downturn so we can get a moderate recession.


I know everybody’s mind goes to the next.

Two thousand eight, that is very different than what we’re experiencing today.

There is not like just inherent leverage in the system that’s going to, you know, blow up.

Obviously, you know, we don’t know where this goes, but I would just maybe end it with this like, okay.


So what do you do with all?

This right?

It’s all very confusing there, like mixed noodles.

How do I think about my portfolio for most people listening who are not in retirement today?

The idea is not to make like a good call.

So you could like pat yourself on your back, your friends like, this is a fantasy football, right?


So it’s very easy to be like, yeah.

I got out of the market.

No big deal.

No big deal.

It’s almost impossible to get back in because the market bottoms way before the bad news does, right?

So the market will the bad news will keep happening and the We’ll see if you go down.


You like, well, I don’t understand.

Dow rallies on X bad news.

That’s always what habits.

It’s impossible to get back in.

So why you even invest in the first place?

It’s not for today.

It’s for 5, 10, 15, 20 years from now, so who can’t, who cares?

But in the grand, scheme of things, we are going to get through this, do not panic.


It might get better and make it worse before it gets better.

But eventually the pessimism will end.

I’m glad they were ending on an optimistic note because that’s where I wanted to end Ben.

Why don’t you give your optimistic?

Loss and I will end with mine.

All right.

So you use the analogy of 2001 recession.


I think that still think this pandemic thing is analogous to the war.

So World War Two, it is huge spike in inflation.

Actually went to 19 percent.

Annually, we had a minor recession in 1948 49 then the Korean War started in early 1950.

We had another inflation Spike and then another recession in 1953 1954.


And another minor one in the late 1950s.

The 1950s is probably one of the best decades ever for the economy.

Boom times announced.

It was also the best decade ever for the US.

Market, I’m not saying that we’re setting up for that, but sometimes having these recessions can be good because it shakes out the excesses in the system.

So it doesn’t have to be the worst thing in the world.



It’s not a great thing.

If you lose your job, your business or whatever, but sometimes we need to dust it off a little bit.

It’s like the Nascar car going into the pit stop, right?

You need to stop a little bit.

Take a breath, take a break.

You don’t need to have stocks going up. 20% a year every year.

So take a little breather shake things out a little bit, you know, repair yourself and then then go about your day and then things are fine.


I think that’s the way that we look at.

Means is, you don’t always have to be the worst thing in the world.

Sometimes we actually need them to slow people down and remind people that little slap on the wrist that like, you can’t just take excessive risks all the time.

I’m really glad you brought up WWII again, because I remember we were talking about this metaphor.

The last time you were on the podcast.


I think you’re totally right.

That WWII happens.

The global economy is completely warped in order to deal, with the war effort, the war ends.

There’s all sorts of supply chain gunks because saying of the Ford factory which had to making a bunch of Tanks now is to make a bunch of sedans to takes a while to You know, essentially we configure the machines at making stuff up.



I have no idea how a machine makes a car.

But basically that’s obviously what has to happen in the next few years because the supply chain comes on a little bit late.

There’s a supply chain crunch, inflation goes High, it leads to a recession.

But what happens after that.

Now we’re in 1949.

We’re about to enter the 1950s which everyone thinks of in retrospect somewhat accurately.


As a golden time, for the US economy, in terms of job growth and low unemployment and wealth creation.

You can have Micro recessions and still be set up quite well for for the long run.

The last thing I would add all of that is want to reiterate the first that I said, which is that the average bear Market doesn’t last, you know, three years at last a year and a half and over fifteen year, Horizons stocks are literally always up.


And number two.

This is a consumer economy.

Like we’re not Shina.

We’re not some small developing nation that relies on exports to pull up the middle class or a big-ass checking account with the u.s.

Is like a checking account with.

Standing army and people’s checking accounts are Sensational right now.


Historically speaking.

They made a lot of money, whether they owned a house or whether they, hopefully we’re investing in the last few years and not just in Peloton and Redfin.

People have a lot more wealth than they had a year and a half or two years ago.

And if we do have a six-month recession, we’re in a better place to deal with it.


Then we were say in 2011, coming right off the Great Recession or even 20 years ago when we were all significantly poorer in.

In in various ways.

So for those reasons, I think we are likely to have a recession and it’s likely to be short mild and hopefully we’ve got a Redux of the 1950s from an economic standpoint coming after us.



Michael Ben.

Thank you so much for joining me and I will see you probably again.

Another two months when the economy is yet again, 10 times we were there and we have even more things to talk about.

But thanks for coming on this time.


Thank you very much for listening.


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