1826: Reaganomics, TINA, Jeff Snider Part 2 - Yield Curve, Treasury Market, Interest Rate Hikes

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Welcome empowered investors from 189 countries worldwide. So we have got part two of our discussion with Jeff Snyder. Today we're going to talk more about the hidden system, the hidden financial system, the global financial system that runs the world and that is none other than the Euro dollar. So we'll have Jeff here in just a moment, but I forgot on Monday to announce our giveaway winners. Remember, every week we have two winners that win a 50Amazon gift card. Now we might change the prizes in the future but right now it's a $50Amazon gift card and so you can win that very, very easily. You know folks, these little raffles that we have, these little giveaways, it's not like there's a million people entering. I'll just tell you. So all you need to do, there are two winners every week. One, anybody who writes a review on Apple podcasts platform can win and these are picked at random. And anybody who writes a comment on current YouTube videos from that week where we're doing the contest. Okay, so current video, you know, there's a couple every week, so you can write your comment on any of those. I believe that's how it works. So let me just share the slide with you and show you the winners before I introduce a new friend that can really help you with investment decisions. And she will be with us actually before Jeff Snyder is here to talk about Eurodollar University. But I think you'll really like this new friend. I introduced her to our empowered investor inner circle group last night. We have a monthly zoom meeting and I introduced her and she's an important person to know this day and age. So you meet her in just a moment. But first let's go to this. So the winners are Raging Doge Blade. Okay, these handles, I don't know. So this is an itunes or Apple podcast review. Jason Hartman is the boss. I've been listening to Jason since last year and he has changed and influenced my view on real estate. Every morning when I work out, I listen to Jason and his guide to freedom. I love the concept of inflation induced debt destruction. IIDD very important. I highly recommend this podcast to everyone even if you don't plan on investing. And you know what, I'm glad you said that. Because even if you are not at a stage where where you are investing yet just learning about this stuff, obviously we cover a lot more than real estate on the show. Life, success tips, economic concepts, macroeconomics. It's just so important this day and age to understand all of this really, really important stuff. Anyway, thank you for the review and you won $50Amazon gift card. So to collect your prize, you must do it within 30 days of the announcement and go to Jason hartman.com.

That'S Jason hartman.com ask and just tell us you are the winner because we don't know how to contact you with these funny screen names and handles that you use. So just tell us you're the winner and we will email your Amazon gift card. Okay, so for 50 bucks. Now, the second winner for last week is Zen Economics, who commented on YouTube and I can barely read this, by the way, he said, you really think there will be a crash, Tom? Doesn't that have a specific definition of a 20% decline? I think we'll see an increase this year something like 8%, which, by the way, I think you've been following me a while. Zen Economics, because that's actually what I predicted. Oh, no, sorry. I predict an 8% increase in rents and a 12% increase in prices this year. We'll see if I'm right about that. You know, if you've been following me for the last 18 years, you know that my predictions are damn good. Yes, they are. They are. Except the one area where I absolutely suck. Do not listen to me when I try to predict interest rates, because I have been a miserable failure at predicting interest rates. Yep. So who can predict rates, right? Even Jerome Powell, our Federal Reserve chair, can't predict rates. And arguably he controls them. Well, not mortgage rates, but he controls all the other rates that influence the mortgage rates. Anyway, sorry for the blurriness on this. Ashley is going to fix that for upcoming shows. So I can't read all these, all these comments and reviews, but thank you for commenting on the YouTube channel. Thank you for commenting or reviewing on Apple podcasts or formerly itunes. And you get your $50 gift card. So now let's introduce my little friend. What is the line from Scarface? Say hello to my little friend. Right. So this woman is very important when it comes to investment decisions. And I'm going to introduce her right now for you. Let me introduce our friend that you need to know. And she is really pivotal right now in today's market. I talked about her last night on our Inner Circle call, and it is none other than Tina. Why is Tina so important and who is she and what is Tina all about? What is Tina telling us about investing, about how to maximize our return on investment? Well, Tina is actually not a person. She is an acronym and she stands for There is no alternative. You may have heard this before in the investment and personal finance world. And this is the definition from Investopedia. Great resource, by the way. Tina, There is no alternative. So it says there is no alternative, often abbreviated as Tina is a phrase that originated with the Victorian philosopher Herbert Spencer and later became a slogan for British Prime Minister the Iron Lady, Margaret Thatcher. You can tell I'm improvising here, that's not what it says exactly. But in the 80s, and remember Margaret Thatcher and Ronald Reagan back then, they really revolutionized governance and, and economics. And, you know, I had the good fortune way back in about 1989, I believe it was to meet Arthur Laffer. He is the creator of the Laffer Curve, which influenced. And he was an advisor to Ronald Reagan, of course, and that really influenced economics even to this day, very, very significantly. But between Margaret Thatcher and Ronald Reagan. And by the way, this is a tangent alert, so I'm going to get back on track here. And two seconds, in two shakes of a lamb's tail, I will be back on track. But they influenced governance and economics so much, and, you know, mostly for the better, dramatically better, but not. Certainly neither of them were perfect and were benefiting from and suffering from their decisions and their influence to this day. But look, rather than debate that, overall on the whole, I think they were both great, and I think they were much better than the alternative. I mean, think about it. Think of what we could have had in the United States instead of Ronald Reagan. Well, we could have had another Jimmy Carter term. That would have been a disaster. It was clearly a disaster. Not to say Jimmy Carter wasn't a good man. I think he's a good man, but he was not a good president. And then we could have had Walter Mondale. That would have been terrible. Okay, I will stop with the sound effects now. So Walter Mondale and remember Reagan's famous reframe. Another tangent alert here. When Mondale asked about his age and Reagan brilliantly replied back, something to the effect of I will not for political purposes exploit my opponent's youth and inexperience.

As an issue in this campaign. Right. And it was just brilliant. I mean, Mondale actually said at that moment he realized he lost the election and it was just brilliant. I mean, Reagan was just incredibly quick witted, funny. He was just such a great president. But not perfect by any means. I'm not excusing everything Reagan did. Reagan did some stuff that did not work out well. Clearly the war on drugs has been an absolute disaster. No sound effects. Okay, so you know a lot of things. I mean, look at nobody's perfect, right? Even Donald Trump. Not perfect. Oh, I know. I'm going to get some hate mail for that one. In fact, tomorrow night I'm going to see Donald Trump because I am going to Mar a Lago. And by the way, some of you who reached out about that event, hopefully you got your tickets. Remember, I announced it on the podcast. Really a great insider perk as listeners to the podcast where I could get you in on that friends and family deal to go to Mar a Lago tomorrow night. So I will see you there. Please come up and introduce yourself because I don't know all of you who bought your ticket, but we did send you the link as long as you got that note to us on time. And they had to close the ticket sales for that event at Mar A Lago. And Trump will be speaking there, of course, and he will be there. But the Secret Service needs 72 hours to run the background checks on all the people who purchased tickets for the fundraiser for Carrie Lake, the gubernatorial candidate for Arizona. Anyway, love them or hate them, I'm going to see Trump tomorrow night and I'll be at Mar a Lago. So I'll report on that on a future episode, probably Monday, and hopefully I'll have some good video for you. That place is like a modern day castle. It's truly amazing. Mar a Lago. Anyway, the Tina acronym, there is no alternative. And so what is the point here of me talking about Tina and introducing you to Tina? It's because with higher interest rates and of course we all know the prices have gone up on properties, investors are complaining, they're complaining about. Look, I can no longer achieve the kind of returns I got two years ago or even a year ago or certainly not five or ten years ago. Right. But you have to understand something. Number one, what is your alternative? You're going to do stocks. I mean the stock market's on the verge of major problems. Most analysts think that you're going to do cryptocurrencies, highly, highly risky, one dimensional asset class largely. And listen, like I've said since the beginning when I discovered Bitcoin, you know, over 10 years ago, I would love nothing more than to see Bitcoin succeed wildly. But there are problems and headwinds because the two most powerful forces ever, governments and central banks, do not want to see Bitcoin or any other crypto other than their own succeed. So what's your alternative is going to be gold, silver, you know, stocks, bonds, mutual funds. I mean, what are you going to do that's better? And you know that the rents have not caught up and you know, there's more appreciation in the system. So Tina is important to understand there is no alternative. What else are you going to do? Leave your money in the bank and let inflation just and taxation eat it away? Yeah. So what's your alternative? We're going to have a better analysis of that hopefully on Monday because yesterday on one of our internal meetings we talked about that in depth because you know, we're listening to your feedback and we want to respond to that. Anyway, I got to go. Let's get to Jeff Snyder. Be sure to check out, if you haven't received a copy already, get our little mini book, pandemicinvesting.com. it's free. It's a great little mini book, a primer on some of my philosophies and how they work in today's era. Pandemicinvesting.com and here is Jeff Snyder with part two of the Hidden Economic System.

So I'm curious. You've got me curious about and maybe you know, and maybe you have this off the top of your head, but what year did Alan Greenspan make the famous statement irrational exuberance? Was it before or after that? I'd be curious.

I am so glad you brought that up because that goes into the Eurodollar story too. Believe it or not. That was December of 1996. He made.

Oh wow. It was much earlier.

Yeah, people remember it. People our age obviously remember it because of the dot com bubble, stock bubble and people.

Well, and Schiller wrote a book on it too. Or two books. Yeah.

And they got it all wrong. That's not what Alan Greenspan was referring to at all. He was referring to the Eurodollar. Not specifically, but what Alan Greenspan was saying in December of 1996 was money supply trends had veered off paths years ago. That's an exact quote. What he meant was just what I said at the outset. The monetary system had evolved into this Eurodollar system, which meant all of these traditional monetary definitions and statistics like M1, M2 and M3, those had been obsolete for decades. So by the early 1970s, M1 and M2 were just, they were no longer reliable. And so what he was saying in 1996 was we don't keep track of money. We can't keep track of money. So how would we know if the stock market is behaving rationally or irrationally? That's what he was actually saying. We don't do money. We can't. It's too complicated. It's offshore, it's in the shadows. So we don't know if asset markets are actually behaving rationally or irrationally.

That's very interesting.

So you put that in the middle 2000s context, Jason. It's the same thing. How do we know if the credit bubble is behaving rationally or irrationally? Well, let's look at treasury yields. They are a perfect signal that something was not right. Alan Greenspan and Ben Bernanke and all those people were, hey, there's no, you know, housing never goes wrong, don't worry about it. When the treasury market was very clearly worried about something, which is why growth and inflation expectations, therefore low bond yields intersected with short term rates and created a flat and then inverted curve.

So do you agree with his statement about M1 and M2 being unreliable? And then I want to ask you about M3,3 and getting rid of that, but what do you think about that?

Oh yeah, M1 and M2 were basically M1 became obsolete way back in the 1960s. And M2, there was an original M2 that wasn't as comprehensive, it sort of evolved. But even then M2 was probably obsolete by the 1970s. And for reasons of Eurodollar, there's things like repo, there's things like money market funds that developed, you know, this ledger system offshore, all these things. And so the Fed and economists started moving toward an M3 which they tried to incorporate. You think about what's an M3. It's not an M2, that's things like institutional money market funds, it's things like Eurodollar deposits, it's things like repo that they could Never actually capture the full broad range of those things. So by 2005, 2006, the Fed said they yanked it. We give up. It's not because they were trying to hide monetary growth, because that was.

That was the theory. You know, a lot of people were very upset about that. They thought, oh, this is just a big scam. They're covering up. They don't want to. They don't want us to know the money supply.

And actually being honest, Jason, that's the weird thing about it.

That's amazing.

Once in his life was saying, we can't keep track of money. And it goes back to what GreenSpan said in 96, we, we have so much trouble keeping track of money, why bother even trying? So what they said in 2005 was, we can't keep track of this stuff. So we're not even going to. We're not even going to spend a million dollars to keep the numbers going. Which I think was the mistake. The mistake wasn't that they were covering something up. The mistake was they should have said, we really need to do a better job keeping track of money, even though it's going to be incredibly difficult and nobody's been able to do it for decades. We should have taken M3 and developed it further rather than just giving up on it. And the reason they gave up on it was because of this rate hike nonsense. They really believe that if Alan Greenspan or Ben Bernanke got on TV and said, I'm hiking rates, everybody would just assume that that was tightening in the monetary system. They would act that way when they really had no idea if that was the case.

Very interesting. So, Jeff, I want to make sure we cover because we could talk for a day or two on this, of course. And, you know, it was good when you and George and I had lunch and I listen to you guys really going back and forth about this stuff. But what is your prediction about where we're going in terms of interest rates, equities, market? I mean, are they just going to keep pumping this bubble up? You know, if you listen to Harry Den, who's been on my show 11 times now, you know, over probably 11 years, he's just been saying the bubble's going to pop forever and it just keeps inflating. You know, it's like. And that's one of the problems, I feel, find with a lot of the economists out there and the gurus, you know, what they're saying makes sense, right? Everybody's astonished at the math. You know, over $30 trillion now. You know, in terms of obligations and all these unfunded mandates. And they're just going to print, print, print. And the bubble can't go forever. But the thing is, nobody knows how far it can go.

Well, let me back up first, Jason, because the Eurodollar story, it means that the Fed does not print. The Fed creates bank reserves, which are not a form of useful money in this context. Which is the reason why before last year, all these claims the dollar was going to go to zero, that inflation was going to get out of control, never happened. When you heard that from the very first quantitative.

Clearly, we're not talking to Peter Schiff.

Exactly. So why didn't that happen? And look at the yield curve. The chart we're still showing you here explains everything for you. It tells you that no money was actually printed because contrary to popular perception, low interest rate are a sign of tight money, not loose money. Let me repeat that. Low interest rates, historically, everywhere, not just in one case or another, not just in one time period, but everywhere. Low bond yields are a defined, prohibitive signal that money has been tight and continues to be tight. Again, think about why that is. Growth and inflation expectations and long term yields. And historically, during the Great Depression, what did interest rates do during the 1930s? People probably don't realize they went low and went lower and lower and lower. Not higher. They went lower because safety and liquidity was in demand during the deflationary 1930s, just like the deflationary 1990s in Japan. On the flip side, the 1970s, the great inflation. What happened to bond yields during the great inflation? They went up, they skyrocketed, they got up into the double digits. So what we're taught about interest rates is completely backwards. And Milton Friedman called this the interest rate fallacy, which I think is a perfect title for it, because we believe the wrong thing. So we look at this chart here and you can see 2008 very clearly where bond yields and mortgage rates fell. That wasn't because the Fed reduced interest rates or they engaged in quantitative easing. It didn't print money in the bond market. The treasury yields are telling you the Fed is creating bank reserves, which is not the same thing as printing money. So that's why we had this disinflationary period for almost a decade that nobody could explain. The dollar only got stronger because there was lack of dollars in the Eurodollar system. Bond yields fell. We never saw the treasury market blow up like it was supposed to because the demand for safety and liquidity was always there. And you look at 2017 and 2018, you can see the Fed in interest rate hikes then too, because they thought in 2017 and 2018 the global economy had strengthened and that the US unemployment rate had declined substantially so that inflation was going to arrive by 2019. And you could see how again in 2017, 2018, the bond market said, nope, disagree with you. Bond yields stayed low, the Fed hiked rates, the yield curve flattened and then eventually inverted. And guess what happened in 2019? The Fed ended up cutting rates, not raising rates. There was no inflation. There was none of that. So the idea that the Fed has printed a bunch of money and that explains everything, the biggest market in the world is disagreeing with that and has.

The entire QE period in the United States.

I mean, Jeff, how do you go to a cocktail party with a bunch of economists? This flies in the face of what we've been taught, right?

I say, just look at the charts. What I say, you don't have to take my word for it. Again, Alan Greenspan, 1996, he admitted the truth there. And that wasn't the only time. There were several famous speeches throughout the 1990s and early 2000s where Greenspan basically said, we don't do money, we don't know how. And then if you do any kind of historical research.

But you have to admit, though, Greenspan talked in hieroglyphics, right?

I'm talking to private conversations. You look at, say, the FOMC transcripts where he didn't talk in Fed speak, he actually talked openly. There's a famous quote from June of 2000 where he said, basically what he said, what he called the proliferation of financial products was so extreme, we can't base monetary policy on money because we can't find it. We don't even know what it is.

Well, there's something to be said for that. I mean, I agree, but what does.

The Fed have to do? But the Fed, all it has is bank reserves. It can engage in currency swaps with private counterparties, which is more aligned with what the actual Eurodollar does. It can engage in securities lending, although it does, to a certain extent, it doesn't do all of the things that the Eurodollar system had developed over the decades, so that when everything went wrong in 2008, the Fed was a bystander. All it could do was say, we'll increase the level of bank reserves and hope that's enough. But that's why it didn't work. That's why we had a financial crisis to begin with. And so after the financial crisis, during the quantitative easing period, the Fed just kept creating more and more bank reserves because bank reserves aren't money and they weren't fixing the problem. And again, don't take my word for it. It's right there on the screen on the chart of bond yields. Low bond yields are the definitive sign of tight money. Which brings us to 2022. The difference is obviously that consumer prices have accelerated dramatically over the last year, but yet bond yields have only risen a little tiny bit, especially in the historical context. So we're already sort of getting conflicting signals here, especially as over the coming weeks, it's less than a month now, the Fed is expected to start hiking interest rates again. At least that hiking its interest rates again. The bond market is saying, yeah, the Fed is going to hike interest rates, but it's not the same thing as say, raising rates.

Interesting. So where are we going? What is next? What, what do you predict? That's what we are all dying to know based on this ideology which is flies in the face of a lot of what we hear out there or the vast majority of what we.

Oh, it contradicts everything you've been taught from the beginning. It's absolutely, it's unorthodox as it gets. But again, the evidence is right there. So what does that mean for the rest of 2022 going forward? One thing we can tell from the yield curve and other markets too, things like Eurodollar futures, there's a tremendous amount of skepticism as to why the Fed is hiking rates. Now why is the Fed hiking rates? Obviously consumer prices. But Jay Powell said in an attempt.

To cool the economy.

Yeah, but he said last year that the inflation was transitory because it wasn't inflation, it was a supply shock. And he was right about that. That's what the bond market is actually pricing. So he changed his tune late last year, not because of that, but because he thought, well, we're not really a central bank, we don't do money. So we do this expectations based policy where we move short term rates around and try to influence behavior. So briefly, economic theory holds that if consumers start to get acclimatized or normalized to high rates of CPI for whatever reason, that will feed into inflationary pressures, even though there's no evidence for this. This is one of the things that drives central bank theory. And the other thing is the unemployment rate, tight labor markets, the idea that there's competition for workers, that will drive up wages, therefore that'll drive up consumer prices. The Phillips curve, even though it's been shown over, especially the last decade, where the U.S. unemployment rate in particular doesn't capture the participation problem. Therefore, it's not necessarily a very good judge of inflation pressures through the Phillips curve either. So Jay Powell said the unemployment rate's falling in 2021 into 2022. It's down to around 4%. Now we have this danger of inflation expectations which there's no evidence that actually plays any role. So they're hiking rates, as you just said, Jason, they think they need to tap the brakes on the economy to get inflation under control. In the bond market, the yield curve, as in 2017 and 18, as in 2005 and 2006, the yield curve has flattened dramatically. It hasn't inverted, though. It almost inverted just a week ago. While the Eurodollar futures curve, which is a snapshot of three month Libor in the future, which we don't need to talk about here, the Eurodollar futures curve is inverted and.

The inversion grew dramatically over the past week or so. What these markets are saying is they disagree again with the reasons why the Fed is raising rates. The market does not believe that consumer prices are being driven by legitimate inflation. They're being driven by temporary supply shock factors that are already starting to wane. Even though we didn't see it in the US Consumer price index recently, pressures around the rest of the world have already shown themselves to. They're starting to come down. And so the markets.

Okay.

So you're saying that as far as consumer prices are concerned, you do agree that inflation is transitory, right?

I don't think it's inflation. And people think I'm.

It's supply, demand shock.

Yes. People are thinking I'm making a semantic argument or I'm not. I'm making a categorical army argument. Because as Milton Friedman said a long time ago, inflation is always and everywhere a monetary phenomenon. So if you don't have the money, you don't have the inflation. And as you can see in the yield curve, there is no money. There is no money printing. We had a supply shock, which is a temporary deviation from inelastic supply given A rightward shift in the demand curve leads to prices going up, but those always adjust over time. Given enough time, we'd expect consumer prices to settle down. And that's what the market is pricing right now. We're starting to see the settling down part of the transitory supply shock. It's not money printing, it's not inflation. And the market is betting it's not going to stick around very long. And that the Fed is wrong about why it's raising rates.

Wow. Interesting stuff. Interesting stuff. So what can we expect, for example, for this massively overheated real estate market? If this may sound odd, as a real estate guy, but I'd love to see it cool off a bit. Not too much, but a bit. It's just very hard to operate in a market like this. I mean, there's so much demand, Jeff, and the construction materials costs are just skyrocketing. I was reading an article this morning about steel prices up 110%. It's incredible.

Yeah.

How does that look?

Right? I mean, yeah, it's everything. And again, that's the supply shock from the COVID recession. It's not money printing. Although there is an element of psychology to it, especially in the real estate market, and I think I echo your sentiment too, is you'd like to see the real estate market cool off, not crash. Right, Right. We want it to come back down to revert to more of a legitimate.

Or more of a balanced market.

Yeah. Something like where it's not just ridiculously overheated. And I think that's really kind of what the market, the treasury market, the money markets are actually saying is that the macro implications of transitory consumer prices actually could be beneficial in something like real estate construction because of commodity prices eventually come down where supply and demand factors start to more balance out than they've been able to over the last year. That could help. But the downside case to that is that if the macro economy part of this is if the low growth and inflation expectations and low bond yields are correct, then we have a generalized global economic slowdown that's coming. The Fed is hiking into that's coming either this year or next year, probably later this year than later next year. So, yeah, maybe lower commodity prices, disinflation in general terms, but at the same time, the downside to that is lower economic growth for a global economy that hasn't really recovered from the 2020 recession.

Yeah. Wow. Okay, so a little more than that in terms of how it looks. Just give us any more thoughts in terms of mortgage rates.

That might be the good news. The good news again, because the treasury market, not the Fed, sets mortgage rates. The flattening of the yield curve says the treasury market is resisting higher rates, which means mortgage rates should resist the Federal Reserve's impulses too. That doesn't mean they're not going to rise, just like bond yields are up this year and they've been up since August of 2020 by about a point and a half at the long end. So they have risen somewhat, but it's not going to be like the Fed is going to raise rates to 8% and mortgage rates are going to go double digits over the next 18 months or so. The bond market is saying there's no chance of that happening. If mortgage rates rise any further than they have over the last couple weeks, it's not likely to go much further than they are now. And then we get into curve inversions and flattening and things like that, where it may be that the market starts to bet that rates actually start to decline at some point, given the macro implications of a weaker global economy. No inflation, transitory consumer prices, transitory commodity prices coming back down. So it may be that we get a little bit of a rise in mortgage rates, but then they trend back lower at the end of this year into next year, maybe next year or whatever. So the market is saying there's a ceiling on credit rates as well as a downside potential building in them at some point in the future.

In the classical thinking, not your thinking, but in the classical thinking, I just don't know that the Fed could raise rates very much. It just seems like there are too many tender spots in the economy. Now granted, of course, it feels like it's just on fire right now, but underneath the hood, it's really kind of a different story, isn't it?

Yeah. And that's, you know, that's the money illusion that consumer prices have created, this illusion of a red hot economy, when in fact you look at all the volume stat, and I'm not talking about real estate specifically, but volume statistics in the actual economy, whether it's industrial production or global trade, the volumes of trade, we're still significantly less than 2019 and 2018. We haven't rebounded to a new global high yet. And that's been masked by what's happening in consumer prices, which have created this illusion that the economy's on fire, the Fed needs to step in. And asset markets like real estate, as well as stocks and digital currencies and crypto things like that have only reinforced and fed into that perception that everything must be on fire. And the Fed has printed way too much money and all these other things when the deep fundamental markets like the bond market are saying it's not happening. We didn't really recover. We had a bout of consumer prices that were for other reasons. And now we're starting to see the real global economic state start to materialize after we get through this artificial influence of 2021. So, you know, classical economists, you're right. There's this idea, it sounds just like a macro economist talking about something they call R star, which says interest rates are low because the economy is just awful. But even if you take that at face value, what does that say about the economic and growth potential even going forward under those terms?

I mean, just simply looking at it, though, at the real estate market, if rates stay anywhere near this low, it just seems like it's just going to keep going crazy. I mean, there's just no supply.

Yeah. And I think that speaks to the macro weakness. Right. Because the real estate market isn't like the middle 2000s market where everybody was in real estate, everybody was the low end, the high end, the middle tiers, everybody was succeeding. This is a bifurcated market where those at the low end that are struggling because the economy hasn't really recovered, they're not participating, as you just said.

Yeah.

They're not selling their houses, they're not moving up because they can't. So supply is restricted. And in one sense, we're seeing the same phenomenon in real estate that we saw in the real economy last year, where it was a supply demand imbalance for artificial reasons. And a lot of it has to do too, with people who are buying up real estate because they think they have to. They think they have to protect themselves against inflation because the Fed printed the money printer go brrrr. All that stuff. And so there's this psychology that goes into real estate as well as the stock market. The stock market's probably even a better example of how you have to protect yourself from the Fed. When the real economy, where real estate actually is more exposed to real factors. You see this bifurcation, this bottleneck where a whole lot of demand is being shoved into a smaller part of the, a smaller cross section of the entire overall hole simply because there's this illusion that the economy is red hot and on fire when there's this whole big part of it that actually isn't, that actually is really legitimately hurting.

And when you say that, you're referring to, at least to a large extent, the wealth gap, right?

Yes.

And I couldn't agree more. And that's the problem with this dysfunctional situation we've got. And I think it is toxic. It really just transfers wealth to the top. You know, call it cantillion effect, whatever. You know, a lot of people just don't get to play the game. And if you can't play the game, then you're Just left behind. And it's so unfair. It's so sad. It really is.

And the biggest problem is the last decade, the economy has never. We just, we talked about earlier the participation problem. Think about what that means. It means a lot of Americans. And it's not just an American problem. It's just a global problem.

All over. Yeah, Yeah.

A lot of Americans, a lot of workers were put out of work, you know, a long time ago and they never went back. And so it's not even. You can't even get in the asset markets. You don't even have a job. You're depending upon, you know, just unemployment or disability insurance, your government, some kind of government program.

I mean, the only good news, some of those have started their own business, they freelance, etc.

But yeah, there's definitely the gig economy. But even that, there's, there's, you know, there's a debate and argument about whether or not that that's a close substitute for a traditional job type because there's not a lot of security in the gig economy. Maybe there's some upside there, but are people participating in the gig economy by necessity or because there's opportunity there? And I think the answer is, again, the participation problem, where the economy doesn't work. It hasn't worked in over a decade. And so people at the bottom, those who aren't working and those maybe who are, but they're not getting paid what they maybe should be getting paid, they get left behind and they have to watch other people get rich on real estate speculation or dogecoin or something like that. And they think the Fed printed money. Let's burn everything down, let's start all over again when the real issue is right there in front of you. The bond market is telling you what's been wrong since 2008. We have a tight monetary situation that has led to de globalization, lack of economic growth globally that nobody has any answers for.

So with your methodology, and maybe this will be the last kind of point we cover, because I know we got to wrap it up, but with your methodology, Jeff, how far into the future can you see? Is this something that's a really more of an immediate thing where you can look at, hey, what's going to happen the rest of the year? Or can you look out five, 10 years with, you know, when you get your head around the euro dollar and just the way you see things, your worldview.

Yeah. Well, be careful. Nobody has a crystal ball, of course. Right. And the other thing is, you can't look at the bond Yields, or you can't look at Eurodollar futures and take them literally either. So what bond yields or Eurodollar futures, What these curves are telling us are probability distributions. And they're probability distributions that have arisen based on their participation. These large banks that created money or destroy money, the actual Eurodollar system, what are their perceptions, what are the probabilities that are being bet in these markets? And you can get a sense of, maybe a better sense of the long run because the short run is dynamic and it's hard to pin down. But starting with the intermediate and longer term, when you see bond yields being low, you see Eurodollar futures curves flatten out as low as they have. That's not a very good commentary on the long run forward. And what they're actually saying right now is even after yields have risen over the last six months or so, they're saying that the 2000 and 20s might be even worse as far as global economic potential is concerned than it had been in the 2010s. So if you want to start out with a very depressing and pessimistic viewpoint of the coming decade, that's what the bond market and the money markets are telling us, that nothing has changed positively since March of 2020. And in fact there's a very good likelihood that we went into this Covid overreaction recession in 2020 that actually did a lot of long run economic harm, which actually makes intuitive sense because you don't just shut down the economy and expect to come out of it scot free. So the bond market's saying long run potential is not really great. In the short run you can make some judgments based on the shape of the curve. For example, I mentioned inversion. I mentioned the yield curve flattening, which is, which is depending on the level of flatness in each of these curves or the inversion and the other one, that can give you a sense of some more immediate concerns or immediate danger potential. So you can use the curves to give yourself some sense of what might happen in the short run too.

Yeah, good to know. Well, Jeff, it's great talking to you. I just wanted to share one thing. I sent this to Ken and George yesterday and I was walking by a restaurant near my house and this sign, just speaking of this sort of dysfunctional situation we have and how all of the powers that be create all sorts of unusual hardships for people, right. A sign in a restaurant window, it said, we are very short staffed. Thank you for your patience. If you're out of patience, please ask for a job application.

Nice. Yeah. You know, all of this stuff makes it hard to get workers. It's just, it's very imbalanced right now, isn't it?

And it's only getting worse, right? I mean, our perception of how things are actually do match these low bond yields that are saying despite everything that happened last year, you know, potential is really not that all, you know, it's really not there even going forward.

Yeah, really amazing. Give out your website or whatever, contact you want to share, Twitter, whatever.

I post a lot of research focused on the Eurodollar system, as well as the implications, the macro implications of what's going on in the monetary system, how to read these curves and interpret these various very important signals. At my company's blog, it's Alhambra Investments. The website is alhambrapartners.com I also have a podcast with my co host, Emil Kalinowski. It's called Eurodollar University. Again, we go into detail about the monetary history, the inner workings of the system, as well as interpreting whether all these various markets are telling you about how things are going in the money, how things are going in the economy, and what to do about them.

Good stuff. Jeff Snyder, thank you so much for joining us.

Thank you for having me, Jason. I'm glad we got a chance to finally get to get together and talk about these things.

Me too. It was really enjoyable. Thank you.

All right, take care of.

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