Everything You Know About the Bond Market Just Inverted

[music] Welcome to Traders the Trader Edge. I'm Jim Yurio. That's by Chino. Special thanks to Trady Air for having us on their hub. That's it's they they're an amazing company. Also, thank you guys for following us at unfilteredinvestor.com. Some of you who subscribe and just about four minutes ago I got stopped into the Amazon long that we talked about in our newsletter. Bobby, are you in too or no? >> I am in now. Now that you're reminded me that the price was good. I got in. I actually talked about that trade on uh on Charles Payne's show on Monday. So it's uh it's pretty much out there so people know we're doing it. >> Okay. Good. And the Intel one that that we were in before I got out of the last of mine because I didn't set the trailing stop because I had gotten out three threequarters of it. Anyway, I'm not going to talk. Bobby and I aren't going to talk very much here because we have one of our favorite guests despite the fact if you guys have can block your camera because he's wearing a White Sox jersey and we just we just can't. Actually, you know what's funny is that I don't even hate the White Sox. I like kind of like the White Sox. They're a young team. They play hard. But anyway, what a day to have him in when Bonilds are all over the place. Let's bring in Jim Biano. [music] >> [music] >> Okay. Okay. Here we go. Gloat a little bit first. Just say it. >> Well, the game's >> the game is in one hour, so we got to be done in 59 minutes. >> Okay. and and apparently on according to social media there was already 45,000 people tailgating by noon today. >> That's fantastic. This I think it's a cool story. They were the worst team in baseball for the last two years. Correct. Three years. >> Three years and then all of a sudden they're great. I don't see how that happens if you because I don't watch them very much. I watch the Cubs probably three times a week. Is there three different things or players that all of a sudden sparked it and turned the whole thing around? >> Yeah. Yeah. I'd say that there's there's a couple things. First of all, you're right. Two years ago, they lost 121 games. If you're not a baseball fan, that's the worst season in like the 149 year history that they've been playing baseball by any team ever. And here we are one game away from the league championship series. They've won four games in a row on the um on the uh playoffs. right now is, you know, baseball is Well, first of all, the team had 15 players make their major league debut this year with the team. >> Yep. >> That's almost a record. And no team that's had that kind of number has ever made the playoffs. They barely made the playoffs. They were the last of the three wild card teams. But you know the problem, you know the thing about playoff baseball, playoff anything. If you if you pick the first week of October to be hot, you're going to do something. And that's exactly what they're doing. You know, they were they played like this in May and they played like this in early August, but you want to be rolling in early October. Unfortunately, the other side of town, the north side, was not. They picked uh the the two wrong days to basically collectively score one run over two games. >> It's funny. One of the things I guess that's always bothered me about socks fans and I've told the story a million times. Jimmy's heard it on this show. Remember David Letterman's top 10 list. >> It was what, like the late 80s, early 90s. >> I go to a game at uh at the time it was Kamiski. Let me rephrase that. I go to a game at Wrigley. I'm a Cubs fan. And over there they're selling shirts, top 10 reasons to be a Cubs fan. And then I go to Kamiski and they're shelling shirts. Top 10 reasons to hate the Cubs. So they were more obsessed with the Cubs at that time than they were the Socks. This team, I was in Houston. I went to one of the games against the Astros. Uh single seats were really cheap. The place was actually empty. I sat like 15 rows up uh just behind first base and the White Socks just eviscerated them. They're just such a fun young team to watch. I think most Cubs fans are kind of okay with the Socks winning, whereas Socks fans aren't always like that. >> That bothers Socks fans even more, right, Jim? Or no, that's what I better people. >> Yeah, Socks fans, I mean, Socks fans have an inferiority complex. There's no doubt about it. It's been a Cubsy town uh forever. And by the way, here's your fun stat. I I I tweeted this out about an hour ago. August 8th, the Guardians, who they're playing, Cleveland Guardians, were were in um the Southside at Guaranteed Rate Field. To get in the stadium was $31. Today, it's $296. That's a 9x increase in two months. Bitcoin wishes it could do that. [laughter] >> I also I responded to that with just sort of tongue and cheek. I said, "Inflation, question mark." And some socks fan called me a and said it was supply and demand. Like, isn't that [laughter] sort of part of inflation? Whatever. I just responded to him with I responded to him with mama says eyes dumb and don't know stuffs. I just left. [laughter] >> Can I say one more thing? About three weeks ago, I was doing the morning show on AM560 and they were talking about the pope the pope. Two popes ago, they were talking about socialism and I said in all seriousness, I go, you know, I know we're not as Catholics, we're not supposed to question the pope, but I began to in the last uh what is it papal whatever run. I said the guy was a socialist. Again, if you're someone is a socialist, that means he's hasn't studied the history of economics enough and or he's a low intellect. And this pope's no better. He's a Socks fan. And the other hosts are like, [laughter] I know this is a Chicago radio show, but I want you people to know I regret nothing. >> Right. Right. But you're right. I mean, this could be the biggest turnaround in not only baseball history if they if they do something. >> It's awesome. >> Yeah. But it could be the biggest turnaround ever. And it started when the Pope Socks fan the socks fan became the Pope. Yeah. You know, is there a coincidence there? >> So cool. >> Okay. This, you might not know this, but sometimes we talk about actual market on this show, Bianca. So, let's roll with that. Okay. You the auction today went pretty well, right? >> Yeah, it did. >> So, over the last >> It went fantastically well, actually. >> Okay, good. So, over the last week, I've had four different people talking to me, whether it be at the health club. Some friends text me or call me saying, "Well, I'm thinking of buying bonds here." You know, 4.3 tenure. This is the the whole of the story. We've gotten to a level 5.3. >> We've gotten to the level, right? Didn't I say 5.3? Whatever. Yeah, >> you said 4.3, but yes, don't cheat us out of a level that's attractive. No. >> Yes. Exactly. I have uh I'm going to use some technical language here. I've been on the bond market for about six years. uh and uh coming from a guy who's a bond guy who actually manages an index that there's a bond ETF on that was kind of a weird position to be in. >> But um one of the reasons I had not liked the bond market was I have said that the yields were the bond market was too expensive, yields were too low that they weren't properly reflecting the growth of the economy. And I said once they get to five something that would do it. Well, everything from the fiveyear to the 30-year right now is at least 5% all the way up into the 560s for the uh 30-year and barely 5% or so for the five-year. And that's the first time we've had that whole yield curve above 5% in 20 years, 19 years to be exact. So all of a sudden the bond market I think is properly reflecting the state of the economy. And that's why I I warmed up and I said I'm buying bonds for the first time in six years. I'm not aggressively long bonds. But if yields keep going up, I'll keep buying more bonds because I think that there's a good return there. Uh I can explain why five is appropriate later, but I'll I'll leave you with some bond math. You said there'd be no math, but there's going to be math. And the bond math is the five the the 10-year yield is 5.3% roughly. If the 10-year yield goes to 6.3% as a bond investor, I would lose about 1.4%. That's it. The price would basically move against me by about seven or about 6.8% and then I'd get 5.3 in a coupon and then I'd lose 1.4%. If the yield goes from 5.3 to 4.3, I make about 14%. So the math is that is the first time we've had the math that skewed in 20 years as well, too. So the math is working for me. So, you know, I am not saying they're going to go to 6.3, but I'm just saying that the math works. And I would I might ask you guys the rhetorical question. If I'm wrong and bond yields go to 6.3 and I've lost a percent and a half, what are you gonna what do you think's gonna happen to the stock market if it if it winds up doing that, you might wind up losing more than one and a half% stock market. >> So there's I have a two-part question here too because because okay, I've long I know you know that I've had this belief and I don't know if you agree with me or not. I believe there's a level where perhaps the Fed starts buying bonds or perhaps the market starts to think that the Fed is on the cusp of buying bonds and it puts a short-term ceiling. Um, that's the first part of the question. I wonder if you agree with that at all. And second, if France and maybe even Japan, if that starts to unwind like it's beginning to or maybe even is unwinding, what does that do to our bond market? Because I surmise that maybe it brings buyers into our market. if you can't buy France and Japan. So, let's do both those questions. First, the Fed, then second, France and Japan. >> All right. So, basically, you're asking me, if I could, if I could rephrase your first question, is the Fed is the house, not Scott Bessant is the house. >> Bingo. Bingo. >> And and but what we're arguing is that there is a house. There is a magic uh person that could buy bonds or manipulate bonds to bring their their prices lower. One quick word about that and then the answer I think is they can't and I'll explain why. But first a bigger overarching uh there's a lot of people that talk about we've got too much debt. We need yield to curve control. The Fed's going to buy bonds. Even the president's talking about you know getting funds rate to between zero and 1%. The the underlying theme of all this is interest rates are a madeup number. So let's just make up a lower number. And there and I'm arguing that there is a fundamental on where bonds I would I can explain it later but it's around 5%. Now that I've said that if it is around 5% and we start to see some kind of forced activity to suppress interest rates called the financial repression in the 2010s to 2020s to push those down. I don't think it would take be taken very well by the bond market at all because there's a con there's an underlying concern about inflation in the market right now. I've overused this line, but it works. That's why I overuse it. Bond traders can stop panicking when the Fed starts panicking. If you start if you as the Fed or the Treasury or both says screw everything else, let's just jam the bond market down to 2% and mumble something about lowering um you know, debt costs and stuff. Bond investors might respond to that by saying, "I'm out of here." If you're not gonna, it's a fixed income security. I'm gonna get the same amount of money next year, the year after, the year after. And if you're going to potentially put me into a debasement situation where you devalue my money so that the money I get on my fixed income security next year and the year after is worth less, I don't want anything to do with this and I'm gonna leave. Now, let me contrast that with what you're talking about. France and Japan. I think right now I think what's happened is we've inverted the markets. Normally everybody in Europe wakes up and says what the US do let's repric the European bond markets to whatever the US is doing. I think for the moment not forever but for the moment we're looking at going what did France do and let's repric our market towards France because their market is under extreme pressure right now. They've got they've got protests. They've got bad budget deficits. They've got a sick economy. They've been borrowing like crazy. And it's all showing up in their bond market. For the moment, you're right, Jimmy. For the moment, I think it's just it's been a drag on our market. But we're not that far away from French French oats, that's what they're called, oat investors saying, "Screw this. Let's get in the US. Let I I want my money back in the US. We're we're that close away from it happening, especially after what happened today. The the French bond market got eviscerated today. That's why we printed 536 on the 10-year note earlier today before the stellar auction brought those yields right back down. So, I think France is in a difficult spot right now and for the moment, it's kind of a negative for our market. >> All right, a couple of comments I want to read before I go into my question. The first one is from our buddy Wedge. Uh, w says, "The long end has me intrigued. Seeing the 20-year zeros over 4.9% is extremely interesting if not for the experience of the 1970s." U, I'll leave you guys to comment on that before I read the next one. >> He, you know, I've the the experience of the 1970s was ever higher levels of inflation. I'll nuance that. What I've been arguing the problem with inflation is is that we can't disinflate and you know that we're stuck at threeish and we can't get back under two. That's what I think our problem is. Not that we're stuck at threeish on our way to five or six. Now, if you tell me the Middle East blows up and we get $200 plus oil, then maybe we will get five or six. But short of that, why can't we disinflate? What kept the inflation rate under 2% from 2010 to 2020? In December of 2001, the WTO, the World Trade Organization, let in China. After that, we saw in the US goods deflation for the next 18 years. China just kept sending us cheaper and cheaper and cheaper stuff and prices went down and down and down. And that left pushed the whole entire inflation complex to under 2%. And central bankers, I wrote a piece about this a couple weeks ago. I called it central bankers mistake brains with a Chinese trade de tra trade deal. And so they thought, oh, we got this under control. Now you get the postcoavid and we've had uh we have del globalization. We have tariffs. We've had chronic supply chain problems. The newest one now is tankers and uh oil tankers around the world. >> And we've had two wars. >> That disinflation of goods is now positive 2% inflation. That's what's holding us up. We can't get goods inflation back below zero anymore. And I'll throw out two other quick things. I'll throw out one other thing in an example. One of the things I think reason is is if you look at Trump's policy on China, it's Biden's policy with tariffs. The the Dem This is one thing in Washington they kind of agree on. Don't trust the Chinese. Be very careful of the Chinese. In 2016, if you look at the postmortems, why did Hillary lose the election? One of the postmortems was basket of deplorables is what she said. And Obama said when she he was campaigning for her, "What's Trump going to do? Wave a wand." And they interviewed a union worker who was a Democrat his whole life. And he summed it up well. He said, "She said I'm a deplorable." He said, "Get over it. I'm not getting my job back." He says, meaning Trump, "He's going to get me my job back. Even if he's lying to me, who do you think I'm going to vote for at this point? And so that's so the lesson learned was ever globalization just squashing prices down down there is a price to pay. It was paid by the working class by the manufacturing base and that they've learned that. So I don't think we're going to go back to goods deflation. That's why we're stuck at three. Final thought for you for my economist friends that say, "No, no, no. We're going to have used cars go down price or this is going to go down in price and we're going to see goods prices get well behaved again." I I would suggest to them the following. There's um a Chinese automaker BYD stands for Beyond Your Dreams and they make a bunch of cars uh in China. One of the cars they make um is called the Seal. It looks exactly like a Tesla Model S. It is the same wheelbase. It is the same size. The battery has the same amount of mileage. Brand new 2027 electric car. All the bells and whistles. Self-driving. $15,000. They make another car that looks like a Mini Cooper. Uh it's electric 2027 zero miles is self-driving. $10,000. We ban those cars in the United States. You are not allowed to have one in the United States. If you go to Mexico, maybe up to a third of the cars in Mexico are BYDs. If you believe no, we need globalization. Okay, let's start. Then let's not pussyoot around with, you know, a couple of trinkets here with used cars. Let's just open up the doors. Let's just let in the $15,000 Chinese cars. And then five minutes later, we could just file chapter 11 for the auto industry, Detroit in the state of Michigan, half of half of Tennessee and South Carolina. So this is what we'll never do that. And this is why we're not going to get goods deflation anymore. By the way, just a quick Trump is when Trump has asked about letting BYDs into the country, he said no, but they're welcome to make the cars in the United States with union workers and then they could sell them here. they ain't going to be $15,000 if they do them that way. Uh so I I think that that's an example of oh no, look at goods deflation and all. Well then let's just bring the BYDs in. Let's just not screw around. It's the biggest manu It's the biggest part of manufacturing in the United States is auto is the automotive industry. Let's just go all in if if you really believe that. And I say that sarcastically to get my point across. That's why I think we're stuck at 3% inflation. We can't get goods down anymore. So the 70s argument is everinccreasing inflation. I'm not there unless you tell me things are going to get sideways in the Middle East. I'm more we're stuck at three and that's why five is the appropriate level for interest rates which is why I like them. >> Um I want to put up Kane for life's comments. I assume he means Miami Hurricanes which if I were 63 and ran a 44 that would have been my choice of school to play football at. came for life says if the tenure hits 6.3 there's an old Irish saying Katie bar the door now that actually goes to a question I have three questions I want to ask you this is one of them um when I did Charles Payne's show on Monday he asked me about interest rates and he said you know all the economists and strategists said 5% 4.75% stocks going to have problems and here we are at new all-time highs I said to him I was one of those guys I said five and a quarter percent yet we hit five and a quarter percent and the NASDAQ and the S&P hit an all-time high. So, I'm wrong about that, right? Are we moving the goalposts as we say those things or because now like I agree with what you guys said earlier. Oh, 6% six and a quarter% that's a problem. Where's the problem? And why wasn't the five and five and a quarter% a problem? J. >> So, first can I say pain for life? You guys are ranked number four. The Irish are ranked number three. So, I just want to get that up. [laughter] >> Um, I know that's kind of Catholics versus convicts thing. That was petty. That was honestly petty. Go ahead. >> Yeah. Oh, by the way, they do play each other in a couple of weeks. So, that'll be one of the games of the year. Um, but um here's the thing. So, I I teased with this idea of what is the appropriate level of interest rates for an economy 100% zero like Japan had a few years ago. Five, eight, seven. How do we know where should interest rates be? I would argue it's nominal growth. Nominal growth is inflation and real growth. So one of the things I see on social media, I'm too online like everybody else is everybody says, "Well, inflation, you know, real growth doesn't cause inflation. So why are we freaking out and seeing higher interest rates?" Because it's nominal growth that causes is the proper level for interest rates. So if you get more real growth, that pushes up nominal growth. If you get more inflation, that pushes up nominal growth. Why is it nominal growth? I've argued that the nominal growth for the US economy is somewhere between five and six. As I mentioned, between the five-y year and the 30-year, we're between five and six. Why do I think it's between five and six? Because I think we're threeish something on inflation. As I mentioned before, twoish something on real growth. We're going to be a little hotter than that in the third quarter, maybe the high threes, but that's going to offset earlier in the fourth quarter of last year in the first quarter. we were like around 1%. But we have been averaging a run rate of about 24. >> So that puts your nominal growth around five or six. How's that work? >> If you have a 5% economy, what does that mean? That means if you randomly pick investments, you invest in stocks or you invest in businesses, I don't know, like you know, restaurants in Palletine, Illinois or you invest in Yeah. Yeah. you invest in stocks or businesses or partnerships or anything, randomly pick stuff. What do they randomly grow at? 5%. They grow at the growth rate of the economy. Your house and everything else. They maybe your house grows faster, others might grow slower, but on average the whole thing grows at five. What if you could borrow at two? What does that mean? If if everything's growing at five, that means a 3% and a 4% investment work. You borrow two and you you can invest in below average things. you would drag down the growth rate of the economy. If you have five as your interest rate and five as your growth, that means the average interest, the average investment breaks even. You're incentivized to find better than average and you're punished for worse than average. That I say that because I've been emphasizing too low an interest rate is a problem. Obviously, everybody knows too high an interest rate is a problem, but too low is a problem. It creates speculative excesses and it creates inflation and it creates malinvestment. That's probably pro probably bunch of you do stupid That's what malinvestment you >> That's not for our audience. You do stupid with your money, right? >> Yeah. Exactly. Exactly. U go back and look at 2010 to 2015. Zero interest rates. A lot of metrics would tell you that the economy grew about as fast between 2010 and 2015 as it did in the 1930s. Why? because we had a lot of zombie companies and we had a lot of bad investments that hung on because I could borrow at rock bottom rates and keep these lousy businesses going. Lousy businesses need one of two options. Either to restructure or liquidate. They don't need zero money to continue to be a lousy business. So, if you're growing at five, you want 5% interest rates. If you're growing at 20, you want 20% interest rates. If you're growing at zero, you want zero. I think we're growing at five. Three-ish inflation, twoish a halfish real growth. So fiveish should be our in our interest rates. So that's where we are right now. Katie bar. So getting to your point about what if we go to six and a half or six and a quarter. Now you're making the case that interest rates are grow are higher than the average of the the economy. That if I pick a good idea, hey, I got this investment, it's returning me over 6%. But the amount of money that I the the cost I got to pay for money to make this investment to to do this investment puts me at a loss. Now I'm being punished for an better than average in investment. That's when you run into trouble. So why is the stock market at an all-time high? Because it doesn't perceive these level of interest rates as being out of line with the growth of the economy. That's the question is when do we get to a le interest rate level that if I have to borrow at this level and invest in the entire economy remember I'm talking about the entire economy not oh but you know AI stocks would do better than that sure but then there's a lot of other businesses that won't but if I can borrow at a level that um is where the entire economy is growing it works and that's what I think the message from the stock market is that these are appropriate levels of interest rates Bobby, you or me because I got one. >> So it was the first you have mentioned AI was at 25 minutes exactly. Um and you just said the AI stocks. So am I to take that implicit in that? Do you not believe in the disinflationary effect of a disruptive technology like this? Do you not believe that within the next year, you know, productivity increases are shooting through the roof. um you know more so at any more gains than at any other time even more so than 1997 to 2003 with the mass adoption of the internet uh do you think AI is disinflationary you mentioned that 3% not being able to get below it uh what will the effects be there >> yeah I think it can be and I think it will be but I don't think that it is immediately right now disinflationary meaning not this year not next year maybe not 28 but when you get into 2030 and stuff I really think it's really going to start to kick those disinflationary effects but also the growth effects will kick in as well too. Um so uh you know that you'll get higher real growth less inflation but nominal growth might be might be you know elevated and then the appropriate level for interest rates is elevated. Let me make I haven't mentioned it. Interest rates are the price of money. The price of money is the most important thing in the economy. Every decision you make I didn't say the best investment. I said the most important thing. Um, every decision you make to buy a business, to buy a stock, u to do anything, you start with how much money, how much does it cost me to borrow money? And that sets the tone for whether or not a business or a stock or other investment is a good idea. What does it cost me to borrow money? Or if I don't do this investment and I just park my money in a bond, I would get the same amount of money. and would I be better off or at least break even by just you know putting it in a bond market as opposed to something else. So that's a very very important number. So if growth in AI is going to lead to more real growth and less inflation and higher nominal growth, interest rates aren't going to necessarily come down right now. Couple of quick things about AI. One, I think it's just more inflationary than anything else because all we're doing is building stuff. We're building data centers. We're running out of carpenters. We're running out of plumbers. We're, you know, cement and everything else as we have this massive data center buildout. >> So that's inflationary, but eventually we'll get that through and then we'll get some more productivity out of that. So over the short term, the next year or two, uh that will be inflationary. Second thing is the reason I said not this year, not next year or the year after that you're going to get that productivity enhancements. RAMP does some studies. Ramp is um a payment processor for for corporations and they say that of all of their customers and they've got a lot of customers in a cross-section of the economy that they say that 57% that was the last number I saw earlier this week are paying for AI but most companies by surveys are are when you ask them are their workflows or serious enhancements to your business because of AI meaning that you've either cut your costs or you found new revenue sources because of AI. It's only about 2 or 3% of companies that are saying yes to that question. So the other 54% are paying 20 bucks a month for Claude and they still haven't quite figured out what to do with it. My point is they will figure out what to do with it. But I don't think that will be in February or it will be in August of next year. It'll still be another year or two away. But I do believe they will. And I do believe you will see that disinflation probably kick in in three or four years, but if it's offset with higher growth rates, nominal growth may not come down and that these interest rates might stick around and that would be appropriate. We're at 5% growth because we're at five real and zero inflation. Then we still need 5% interest rates. >> Love it. Take We'll take a quick break. Luis, will you put up the banner? This the part of the show or ask people watching for a small favor. I know it'll be probably a bunch of you guys said, "Should I do it? Should I not do it?" Please, just do it because you're interested or do it just as a favor to us. But scan that QR code and try Trade Air Pro for three months for free. We talked to options traders of all different levels. Some been doing it for decades. Some have been doing it for only weeks. They all say the same thing about Trade Pro. It is the deal. You won't be sorry that you tried it. Please do us a favor. Scan that QR code. Try Trade Air Pro for free. And now back to the show. They also have $100 intraday margins on micro indexes. So if you want to do some quick trades or hedging on micro ES or or micro NASDAQ futures, $100 margin for the day. >> Trade [laughter] does. >> Yeah, Trade Air does. That's awesome. It's on that banner. >> Um 35 cents commissions, I believe. Anyway, don't quote me on that. Click the uh thing that was up there. Um Jim, I got two last questions for you, and they're both uh referenced from somebody else. Uh you're probably familiar with Eric Norland who's the uh economist at the CME Group >> and he told we had him on a couple weeks ago or a couple days ago and he said that we have to have 2% inflation because 2% inflation is basically like defaulting on our debt uh at a rate of about 2% a year. He said that's basically across the economy. Now a friend of mine watched that show and he asked me to explain it to him and I did the best I could and I didn't do a very good job. So, I want you to explain it in plain English. What did he mean by it's kind of like a 2% default or disagree with that? >> Well, I mean 2% inflation, there's a couple of there's a couple of issues with inflation. Is that by having 2% inflation, that means your money is your dollar is devalued 2% every year. So, if I have a dollar in a year, if we have two percent inflation, whatever I could pay for a dollar today will be worth I could uh I could get 98 cents worth of it in >> That's the way I explained it. I said if I owe you a hundred bucks and I wait a year to pay you and it's 2% I basically am paying you $98 instead of 100 effect. >> Exactly. So, that's that's that. But what I think he meant because I didn't see the context is that this is the concept of inflating away the debt and that what that what that concept of inflating away the debt is is that remember I said it's a fixed income security and that your coupon is fixed every year and if inflation goes up your coupon is worth less and less that means your bonds are worth less and less and that your economy expands so much because of inflation that the amount of debt you have relative to the size of your economy goes down. That's what inflating away the debt means. Now, here's the problem with inflating away the debt. That inflation hits who? It hits the poor. >> It hits the poor. And it hits the poor real hard. So, when somebody says, "Oh, we'll just inflate away the debt." >> Okay? And then when a bunch of people with torches and pitchforks come after you, don't be surprised because they're not they're the ones that are going to lose on inflating away the debt. Governments fall. society's end because we've tried to inflate away debt throughout human history. That is not a good option. It's, you know, I've used the example of, hey, I know a quick way I could lose 15 pounds. Cut off my right leg. Okay, I lost 15 pounds. But it's not necessarily the best way to go about doing it. >> Hold Jim, can I can I interject ask a question real? Because you just said something that that really resonates. You said society's fall from excess inflation, and I agree with that 100%. History proves that that's the case. Do you think Mumami Katie whatever her name is in Seattle all these D the party of DSA is that like again I'm not saying societyy's going to fall but that is the first shot fired correct >> I think it is I mean you know I think what their mistake is is that they see us the the socialist wing always has this view right they see us as being bulletproof so we could we could rail about whatever inequities or unfairness we see in modern society because there's to them there's no tradeoff that if we wind up explaining you know giving more money to you know in terms of socialism and everything else it's just more people get more money well where's that money come from what's that impact on the economy and their argument is nothing just we're just going to take it away from people that don't need it and give it to somebody else there is an impact there is a tradeoff on everything that we do and that why and The problem I have with them is they don't consider that tradeoff ever. Mandami, you know, wants his pet to tear tax and he wants in, you know, California wants to put in um a wealth tax and $1 trillion of wealth has relocated a bunch of tech moguls have relocated out of California. Even if they get their tax, they're going to wind up with less money. And so, you know, their their argument is this conceit. Well, we could put tax rates wherever we want. No one's ever going to leave, you know. No one's ever going to change their They're just going to pay more. We're from Chicago. We're from Illinois. We did this to Ken Griffin. And now Ken Griffin is giving money to his hometown, which is currently Miami, and it's no longer Chicago. And he lost in terms of what he's doing. >> Yeah. >> Part of the reason I left. Real quick, uh I I was talking to um Oh, I lost my train of thought. tax. Oh, I did some math on that wealth tax that Bernie Sanders is proposing, that 5% on billionaires and Elon Musk, assuming that he doesn't have that money sitting in a checking account, would have to sell when you account for slippage, right, which I have to think about as a trader, probably about 200 million shares of Tesla in the first year. And then over a a subset of years, he's going to not be the majority shareholder of Tesla anymore, which means he's gonna be completely disinterested, let alone SpaceX. >> We'll front the out of that trade, too. Just to be clear, that's front run that trade. Anyway, >> let let's be honest. Let's be honest. A wealth tax is basically the end of private property because basically the government is saying that 2% of your private property is mine every year. that in theory in 50 years your company becomes a government agency um at that point. So it is just a wealth. It is just confiscation of private property. And the other problem is wealth tax, right? What if Bernie walked in here and said, "I think that the Trader Edge is worth a billion dollars. You know, you guys owe me a lot of money right now because uh I need 2% of a billion dollars." You know, that's the other problem. How do you value a lot of this stuff? Nobody knows. >> It's worth more than that. We'd take that. We'll write you that check in a second, Bernie. It's worth three billion. But anyway, Jimmy, can I just jump in here? >> Assuming you could sell it to somebody for a billion dollars. Jimmy, [laughter] can I just jump in here with something? I I have as of late have become I have a huge huge problem with property taxes. Tell me I'm wrong. I mean, I understand funding schools and the way that they're working it in Florida is they continually increase the exemption. Used to be 100,000. This year it's 150,000 of your value on your home that's not taxed. Uh in two years it's going to be 250,000 of the value of your home is untaxed. and to the point where it gets to zero, if it ever does, they're going to exempt the money it takes to run the schools. Now, if we had the Chicago Teachers Union, the money it takes to run the schools would just continue to increase every single year. But I have a fundamental problem with property taxes. Am I wrong or am I just like an angry Italian? >> No, because property taxes is another confiscation of wealth. I mean, it's my private property. I own it. Every year the government comes to me and says a portion of your private property is now mine and you can either >> unrealized gains, >> right? You can e, you know, if your if your property taxes are 1% a year, they're basically saying 1% of your home is to governments every year. You can either give them 1% of your house or you give them the equivalent value money of tax bill of 1% of the house. You know that is the problem with p with private property. I mean with uh with wealth taxes or property taxes they are confiscation of private property. Now we allow it and we you know that that's one of the reasons why we have income tax is because we ran into this problem you know before they instituted income tax in 1913. So, it is a it is a big problem in terms of going down this route of confiscating private property either through a wealth tax or property tax or anything else. And you're right, you could go with a simple example, $200 million worth of Tesla that you could wind up, you know, selling Tesla. But when you have a private company, what are the Chicago White Socks worth? What were they worth two weeks ago? What are they worth now? Who decides? And then who decides that the owner of the White Socks, whether it's Justin Ishba in a couple years or it's Jerry Rhinorf right now has to pay. What do they how do they come up with these numbers? Sure, there's a bunch of public companies that's a little bit more straightforward in those calculations. But when you have private companies, how do you come up with these numbers? And that's always going to be a big problem when you start in with a wealth. Look, we already have that with private with with property tax, right? you always you always challenge it and you contest it and that you know as far as what they put as the value of your home versus the property tax. This is always a problem because nobody knows. We're just making up numbers. >> And by the way, so and I this is going to pivot back to markets because I do want to talk about some markets too, but the property tax thing too, but irritates the out of me is that in in a town the wealthier people and the bigger homes on the bigger property get taxed a lot more. They don't use the schools more. They actually probably use the government services less. And I don't I I believe in some level of progressive taxation, but I don't love the fact that it's become just such a common thought in the Lexcon of the US that the rich people have to pay for everything. There has to be a benefit to being successful. And that doesn't mean that the government puts their hands in your pockets all the time. Is that a a bad thing to say? Are people going to come with >> No. No. You know, the problem the problem with this is is that if you ask in polls, should the rich pay more taxes? the overwhelming majority of people say yes. And then if you ask the second question right after that is are you rich? The overwhelming majority of people say no. So it's just another way of saying somebody else pay it. I'm not paying it. That's why >> to take a survey as to what they should have for lunch. You know, we know what's going to happen there. Yeah. >> Right. Exactly. Exactly. Okay. >> So, let's pivot to markets. I actually have a question for you guys. >> Let's hit it. Um the U Michael Pon Kemblist at JP Morgan has a measure of 41 AI stocks. Um okay, it's the Max 7, it's the semis, it's the some of the equipment makers and a couple of others. They're all S&P companies. As of yesterday, they made a new all-time high as 49.2% of the S&P. Call it 50%, right? We're just less than 1% away. 41 [snorts] AI related companies now are 49% of the S&P 460 everything else is 51% of the S&P are you worried about that >> what I did just yesterday I sold out of every last share of my SMH which is the ETF the chips ETF sold out every last share of it and replicated that with an option play and again I don't want to get too nuanced I just these guys will understand I'll just be real quick about it for every one call I sold at the money that had like five weeks left. I bought 2% above the money three calls uh that had six weeks left in them and then I sold one call way up there just to make one of them a call spread. The reason I did this is because it reflects the fear I have of everything getting so lopsided. I don't want to have the shares. I don't want to have unlimited risk to the downside anymore. And when this cracks, it could crack hard. I do think the only way it can keep moving higher is if it keeps exploding higher. I don't picture it grinding for a year higher. I don't that to me that doesn't make sense. Micron rallied 300% in eight weeks time. That's weird. That's weird. I think and I had it at the time. I took my money. I still have some micron on but I have about a third of the position I had before. But yes, I'm scared as hell. Bobby, you >> Yeah. I think one thing I one problem I have with the AI trade is that if if it's not affecting if market breath is getting worse as the AI trade hits new highs that means it's not spreading across the broader economy and over time the people who use these AI companies and their products they're just not going to pay for the stuff because they're busy paying for food. So I hate to bring it down to the the smallest common denominator like that but Brett last week was at 25%. I mean, it was horrible. >> And you go back to the last time we had stocks down double digits on a percentage basis, uh, Breath was at like 15. So, it's it's not supportive of the overall market to see this kind of thing happen. You have to see Brett do better. >> I would agree with you, Jimmy, that the way that AI companies or tech companies rally is they don't grind higher. They kind of do nothing. And, you know, like you mentioned, the chips were, you know, were were the the ultimate example that earlier this year. they do nothing and then you look you go when did these things double? I the last time I looked was three weeks ago, you know, and that's kind of the way that they that's kind of the way that they go and then everybody gets excited after they double. They pile in and then they correct 40%. Uh you know, and so you know, so yeah, I got to own you my warning to every My warning to retail traders is, oh yeah, that's why you got to own these stocks because when they double, you'll you'll wind up with the double. Yeah, but when they double, you'll d you'll double in at the high and then you'll get the big correction if you're not careful. You know what's what's irritating? Because I say these things. I want to put this out there so people hear too. I since I started my career, I put everything into my tax deferreds and I have traded it very well over the years. So most of my trades are in the tax deferred. If I was looking at my SMH position or my micron position in a non- tax deferred account, I I might look at it differently and buy puts. I just put that out there as public services. So >> I want to read what Gerald put up here. I agree as well where he's talking about the the property tax thing. I agree as well. I've served on local government finance boards. It does become cumbersome. However, a strong local education system and high quality roads do add value to the underlying property. However, go ahead, Jim. You go ahead. You're >> I I I completely agree. Everybody picks the place they live in large part because of this of the infrastructure and the schools if they have a family and and everybody's willing to pay to get the proper infrastructure in schools. The question is, do we want to give up our private property to be confiscated to pay for it? Is there a different way or an other way to pay for these things? And there, you know, you you hear this all the time, too. Now, other people tend to like, well, I don't have any kids. Why do I have to pay for the school? And then there's families that say, oh, my kids go to private school or go to Catholic school. Why don't I get a voucher so that I could be exempt from paying th those those uh those taxes as well? I have a problem with that too because the reason you pick town X to live in is it has a good school. Now, if you're going to gut the school of its of the of the money and the resources to be a good school, it's not going to be a good town anymore to want to live in. But like I said, at the same time, I don't want you confiscating my property because like I said, what happens if you give me a tax bill for my private property and I say I ain't going to pay you. You're going to take my house away from me eventually. You're going to take my private property away from me. And >> I'll say that because I, you know, we we have Corey D'Angelus. We've had him on and we've had Carrie Ingram and I am for school vouchers, but I agree with you about the only reason I'm for them is because I think I want it to be more competitive for students and I think the public schools will rally and become better because of vouchers in my personal opinion, but the reasons you say are definitely belong on the con side of the whiteboard pros and cons, >> right? You know, if I was to use an example, um, if you wanted to institute vouchers and I'll just pick some examples, right? like uh Hinsdale, Illinois or if you want to take Wetka, Illinois, these are some of the strongest school systems in the state of Illinois. And if you offered vouchers in Hinsdale, you don't have to go to Hinsdale and Central High School. You don't have to go to New Trier. If you if you're familiar with the Chicago area, you know what I'm talking about. These are very, very well- reggarded high schools. Yeah. And uh most people would say, I don't need the voucher. I'm happy to send my kid to that school. Now, if you're in the city of Chicago and you say, I want to send my, you know, would you want a voucher to send not send your kid to Von Stuben or to Douglas High School? You'd say 100% of the families would take the voucher to get their kids out of those schools. And so, yes, you're right. They're good for competition. And there are some places in the country like Hinsdale or Wetka that that would win the competition fight right now. Chicago would not win the competition fight. >> Yeah. Yeah, I want to put up a couple more comments that came in. Um, first one is from our friend Widge, and that's just a comment complimenting me, so I have to read it. The market indexes are reflecting the population. The consumer sentiment best represents 460 stocks. That's a spot-on point, Bobby. That I think that's a great comment. Um, [laughter] >> but is one, by the way, but can I just jump in on that? We we publish this chart every so often. You know, people ask about the K-shaped economy and what I show as the K the K is stocks going up and consumer sentiment going down. And what is why and that is unusual because prior to 2020 stocks and and consumer confidence moved in lock. Why are they Kaying like that? one going up, another going down because of the wealth effect, because of the concentration of ownership of stocks at the top up end, higher end, and because of affordability concerns. Who is at the top of the K? Do you own assets? Do you own a home? Do you have some stocks? You're the top of the K. Who's at the bottom of the K? You rent and you live paycheck to paycheck. If you rent, you live paycheck to paycheck. If your paycheck isn't going up by the inflation rate and since 2020 the average paycheck is not, you're falling behind. If you're at the top of the K and you own assets, maybe your paycheck isn't going up by the inflation rate, but your portfolio is. Zillow says your home's going up. All right, I still got the same four-letter word for what I see at the store, but I just pay it and move on with my life. But if you're in the bottom of the Kay, I gotta I can't buy this stuff anymore. I have to buy less because I have the same because my income is not keeping up with prices. So that's where the K I think definitely comes in on this economy. And that's why you can't overstate the importance of affordability. Um, my biggest concern with the importance of affordability is the DSA Democrat crowd is very good at properly pronouncing the word affordability, but I'm yet to see how they're going to fix the problem of affordability if they win at that point. >> So, I just want to real quick, Jimmy, there's two more comments I want to put and then you can have the wrap-up question because I know Bianca's got to go. Uh but just in a response to Gerald uh Longobarti, Florida is moving toward property taxes only for schools, not for anything else. So it's kind of unfair to say, you know, you can't have a good school system without property taxes because Florida's moving toward just paying for schools. Uh a lot of the roads are local here, so that's a little bit different than than a lot of other places. Uh Doogie says, "Speak as a not rich guy. I feel my burden is heavier tax-wise. It's a smaller number than a rich guy pays, but it's a bigger impact on my finances. I want you to both comment on that. And then real quick, wedge, this is not a question, so let's keep Dooall's comment up there. We'll put it back. Luis, we'll put it back. Which says, real quick before you guys wrap, I've watched all of Bianc's rational descent videos and highly recommend them to everyone. >> So do I. I have, too. And so do I. So back to Duke's comment. You guys comment and then I'm done for. >> No, I will. I'll start for sure. is that I'm not when I'm saying that rich people are are um uh in the radar and they try to take all the money. I'm not suggesting that poor people pay a greater share. Poor people pay a less share, too. I actually think that most of the problems in a country like the United States and a state like Illinois is because they collect far too much revenue. To put that in perspective, the budget for the state of Florida, which has twice as many people as the state of New York, is half of the state of New York. These places are taking too much money. I'm in your camp, Doogie, to get to get you to pay less money, too. I want the bond market to flex its muscles, whether it be in Illinois or the federal government, and say, "Hey, you guys borrowing a little too much money. Cool it." And that hasn't happened yet. Biano. >> Yeah, I agree. And I also would also say the other problem, too, is that um how do I say this nicely? And I won't say it nicely. >> The city of Chicago collects enough money. I mean, they're they're collecting $35,000 of students right now. That is enough money to give a proper education to students. If you're collecting $35,000 a student, the problem is we waste so much of that money. We just abs, you know, the the proper term is we piss it down our leg and then we wind up screaming. We don't wind up punishing the teachers or the administrators that wasted the money. Not the teachers are bad, but you want to punish them, too. But for wasting the money, we always say, "All right, $35,000 and the schools are falling apart and everything. We need more." No. How about you fire everybody to say 35 grand a student is plenty to give a decent education. If you can't do it, then you're out and we're going to find somebody else who can make it work with this budget. But government never thinks that way. >> The parents, we'll give you 20,000 of that 35,000. You educate your own kid. >> I do. >> They'll do a great job with it. I believe that. >> Yeah. I I my brother is a school teacher and this dawned on me like 10 years ago. Every year he's allowed a certain budget uh to spend on supplies and stuff. By the end of the year, if it's like a $2,500 budget and he's like, "Shit, I haven't spent my money." He has to rush and buy a couple computers. So, what he has to do is spend that money because if he doesn't spend the $2,500, his budget will be cut for the next year. What kind of perversion is that for normal incentives? That is just to me it is mindb Yeah. But the last before we go and I want to go we you said bonds. Are there any other things you're looking at as where money should be for the next three months, six months, year? >> So bonds are a good place to be if you're looking at a stable income type of investment. Now if you're looking at things that are a little bit more risky, have higher expected returns with higher volatility, I'm really liking commodities right now um in general. And uh and one of the reasons that I'm liking commodities is the three things that determine a commodities return is this change in the spot price uh your collateral yield. You know, you put up your margin and you get interest on your margin and your roll yield whenever you roll. And a lot of commodities right now are in backwardation. And when you what that means is that when I sell the near month and I buy the next month out, I'm buying a lower price and it usually accretes up than the price. If you have bought energy this year, like an energy like uh USO or something like that, most of your return is not from the price going up, although there's some of that. I don't want to discount that. It's we keep selling $100 oil at what at expiration and we buy the next contract which is trading 89 and guess what a month later that 89's $100 and then we sell it we buy the next one's 92 and that one goes to 99 and that's where you keep making your money. That's why I like commodities. What that says is the commodity markets are very tight. That there's a there's a squeeze in the commodity markets right now. And that's why that you you've been getting your money on the world yield and why things like DBC and USO and everything else has been doing very well. Full disclosure, I am an owner of DBC. >> So am I. Uh that's gonna that's going to wrap it. He's Jim Biano. He's one of our favorite guests to talk to and please check him out. Your show is outstanding. What's it called again? Rational Descent. Yeah, Rational Descent where we we we try to push back against consensus and not be, you know, Looney Tunes what doing it. >> No, and I I love it. It's fantastic. Um, you guys should definitely watch it. It's a great show. Um, thank you to Tradier. Thank you guys who have checked us out at unfilteredinvestor.com. I'm Jim Yurio. That's Bob Aino. This has been the trader edge. >> Go. [music] You know how the financial world goes. Here comes the buzzkill. 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