Federal Reserve chairman Jay Powell back on Capitol Hill today for day two of his testimony he will be in front of the house Financial Services committee this morning stocks tumbled yesterday after his comments that rates may have to go higher to reign in inflation watch this the latest economic data have come in stronger than expected if the totality.
Of the data were to indicate that faster tightening is warranted we'd be prepared to increase the pace of rate hikes joining me now is the bear traps report founder and New York Times best-selling author Larry McDonald Larry it's great to see you thanks so much for being here I want to get your take on Jay Powell yesterday what did you make of the.
Speech well it's kind of like he's overcooking the goose you know they're playing catch up and while they were doing quantitative easing in 2021 uh inflation started to rage and now they're trying to catch up art Maria r21 Lehman systemic risk indicators that look at equity and Credit Point to one of the.
Highest probabilities of a crash in the stock market looking out 60 days wow 60 days you're saying you're going to see it we're going to see a crash in the stock market within 60 days yes because um the the withdrawal of capital from the middle class families is so spectacular uh for every one percent.
Increase now a lot of these economists and Wall Street people they throw around oh the fed's hiking bases you know 100 basis points 50 basis points the bottom line is for every one percent increase in rates and we've done almost five percent now uh every one percent takes 50 billion dollars out of the pockets of middle class families uh auto loans.
Right now are approaching 14 almost 20 percent of auto loans are a thousand a month and so the middle class families are getting hammered here and so the consumer pressure is you know violent but on on the high end you know the wealthy are doing well with excess savings and higher interest rates yeah well look I'm glad you brought up rates.
Because we're talking about the two-year above five percent today mortgage rates uh just out moments ago the 30-year fixed rate up again now to 6.79 percent last week I mean Larry the last time we saw a mortgage rate shoot up this way we saw real demand destruction people were walking away from their mortgages a new Fannie Mae survey finds Americans are.
Pessimistic about their personal financial Outlook 31 percent of Americans said that they expect their personal finances to improve over the next year but that's the lowest reading since 2010. Larry before you get into what we're looking at in terms of rates and the impact I want to bring Adam Johnson in here because he's on the.
Other side of this trade Adam you're not expecting a recession no I'm not expecting a recession and and my argument is that the two e's of earnings in employment employment's at an all-time high and earnings while not stunning are better than field feared and revenues are actually Rising five percent Larry I'm curious you made the.
Comment that there's some sort of pending crash coming up in in 60 days uh I mean that's a pretty good statement I mean that's what he's getting from his limit indicators he talks to so many institutions every day but but I mean 60 days Larry I mean are you really you do you really believe that your your indicators are are right and that.
There's some sort of Crash when you have the most amount of people ever making the most amount of money ever spending the most amount of money ever and it's translating into earnings that uh while not Stellar are enabling revenues to actually rise go ahead Larry well remember um if you have 10 million dollars in the.
Stock market two years ago you're flat okay so there's a lot of people that have had money in the market for a long time all these failed rallies that's beating on the psychology of investors number one number two 10 million dollars in cash today generates 510 000 a year in treasuries in one you know.
One-year Treasures wow okay think about that a year ago you're talking this was seventy thousand dollars we have to do the math here okay common sense so you're even in the market you've been in the market for two years in these moronic Fang stocks that have gone nowhere right the most crowded trade on Earth you're flat to down after two.
Years and now you're looking over at a money market fund or a one-year Treasury and you get five hundred and ten thousand dollars of Interest risk free when a year ago you were getting 70. all right in other words what you're saying Larry what you're saying Larry if I'm hearing you right now I'll I'll let you run with this uh is that effectively the.
The average investor is smart enough to reckon recognize there's now a choice between stocks and bonds so that average investor is going to say I'm going to sell my stocks and I'm going to go buy bonds and just make five percent is that basically where you're getting the notion that's exactly what he's saying there's real competition now to stocks.
If I'm going to make half a million dollars in fixed income what the hell am I uh you know dithering around in the stock market if in fact I'm worried about a profits recession is that right let me ask you a question Maria Elaine gazzarelli in the 80s right and and you were probably too young for the trip she was a real long time bull.
Well she was a long time bull but you know what flippter is her model she had this risk-free model versus equities and it made her so famous because in the summer of 2007 the risk-free rate up went up so much she flipped to bearish because of that risk-free rate threat to equities I'm seeing a similar Dynamic now another an incredible stat is twos.
Tens or a hundred basis points inverted so that means the two-year treasury is a hundred basis points more than 10. that's threatening but then on top of that you look at the underperformance of the regional Banks so your Regional banks are your classic Canary in the coal mine they're underperforming the s p by like six seven eight percent over.
The last six nine months a year so the regional banks are telling you something really bad is happening under the surface of commercial real estate auto loans residential there's really massive cracks under the surface and that's why the market probably goes down 10 20 maybe 30 percent the next 60 days 10 20 30 percent in the next 60 days what do.
You do and what do you say about the jobs picture we've got the February jobs report out on Friday we're waiting on ADP it's going to be out in 30 minutes time we'll see what the ADP numbers show in 30 minutes but for the jobs number we're expecting 203 000 jobs added to the economy Larry we're expecting the unemployment rate to Hold Steady at 3.4.
Percent the ADP report which is out in 30 minutes is also expecting job growth of 200 000 private sector jobs so how do you have a recession how do you have a stock market sell off a crash when we get this kind of job growth well if you look back 2000 right the biggest number in jobs right before the 2000 drawdown two thousand two thousand.
Two thousand one the strongest number in the previous like year and a half was literally right before the market buckle and one of the weird things is and Adam's alluding to this and I can see what Adam's making a good point jobs are strong but if you look at when I talk to behind me we run an Institutional institutional chat with about 650.
Institutions and investors around the world and one of the things they're talking about is when you have this January number that was so spectacular yeah it's gotten a lot of people excited about a soft Landing but if you look back the last 20 30 years when you have this seasonal adjustment in January typically the February when you have.
That spectacular kind of outperformance which is seasonal typically there's like a mean reversion in February and March and that's why you probably get like some nice move down in jobs which will give the which actually help the FED a little bit if if we unemployment goes up it'll give the FED a little breathing room yeah right so that may some ways.
Help but in that case you want to be long gold miners and things that will benefit Emerging Market equity things that will benefit from the FED cutting rates well I I will say Stephanie pomboy has been calling for this for a while but real quick Larry based on all of your research and your conversations with all those institutions where do you.
Hide away from gold is that it I mean gold is a hedge you you say buy the gold miners in the stock market are there any other areas to hide within the stock market if in fact these predictions are right that we're going to see a stock market crash within 60 days okay one of the things we're looking at is from from 2001 to 2003 four I was on.
The Layman trading floor in that period and when you went around the trading floor after the after the.com crash the most popular investment was European Global equities and if you look at a chart Adam can pull this up for you later but if you look at a chart of the global equities xus okay Global equities um X United States.
Versus the NASDAQ versus the s p you're breaking a multi-year down Channel you're talking about 10 15 years of mass about performance from the United States now for the first time you're seeing Spectacular outperformance from Global equities msci xus which we would say that is where the outperformance is going to be well I mean look okay.
What you're saying is that U.S stock sell-off and Europe doesn't I have a hard time I have a hard time believing that that in fact if the U.S sells off we get a stock market crash the rest of the world doesn't follow and that msci index is loaded with Chinese stocks so there's that issue as well the China threat.
Yes uh the ew well first of all you're 100 right in the initial drawdown the European equities will will underperform with the us but they'll outperform the us over the next two years okay the ewu portfolio is a golden portfolio of value Global equities ew it's it's referenced as the United Kingdom but it's really it's a Hall of Fame basket of like.
Global value equities yeah that's I think that hard asset basket that's the basket that's going to outperform um what we call Financial assets in the United States of growth stocks all right Larry will be watching is there a trigger for this stock market crash is it more inflation data is it more economic data that misses estimates.
Uh the trigger will be like the s p earnings everybody's expecting the street is expecting 226 dollars yeah that's price for Perfection so what happens is when when we deteriorate in jobs the next two three months that will bring into question the s p earnings and the s p earnings are probably 190. so if that'll that'll trigger it and that's.
The Stephanie Palm boy narrative that's where she's been saying on this program now it's going to be a profits recession uh well I guess that's what makes a market Larry if you're selling it looks like Adam's going to be buying I am buying okay that's what makes a market Larry McDonald it's great to see you sir thank.
You so much
Inflation is a lot extra gross to other folks than a collapsing stock or property market because it straight affects other folks's mark of living, which they in an instant no doubt feel. It is no longer surprising that the most standard market sentiment is extraordinarily pessimistic. In right this moment's economic system, help is severe if we are to outlive.
Ah lawful, is that the same rupture that Michael Bury acknowledged was once “right here now” 8 months within the past and for the time being in between then and now the S&P went up 10% in 8 months.
Gorgeous dialog. Somebody is continually predicting a market rupture, indirectly they are going to be lawful.