Tune in to this episode (PLUS a webinar announcement) as co-hosts, Bob Fraser and Ben Fraser, dig into the data and talk about recession risks, inflation, historical stimulus, unemployment, interest rates. What does the stimulus and consumer confidence have to do with recession? Find out in this Top of Mind episode.

Get started and download your free economic report today at https://aspenfunds.us/report

Connect with Bob Fraser on LinkedIn https://www.linkedin.com/in/bob-fraser-22469312/
Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/

Watch the episode here

Listen to the podcast here

Transcription

Ben Fraser: This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics and interview successful investors.

Looking for passive investments done for you. With Aspen funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you and alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned.

We focus on macro driven alternative investments. So your portfolio is best positioned for this economic environment. Get started and download your free economic report today.

Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire podcast. Today we’re gonna do another top of mind episode, and so in this series it’s generals, Bob and I getting together, sharing some thoughts on the economy, on real estate, on what’s the big questions that investors are thinking about right now.

And today we wanted to come in and just talk about recession. , right? This is a big question on a lot of investors’ minds. They’ve been hearing and seeing all the headlines that recession is looming, it’s gonna be bad, and it’s, the Fed is destroying the economy, et cetera, et cetera.

So there’s all these, big headlines floating out there. But as you have maybe come to know with us, we love to dig into the data. And Bob actually gave a keynote presentation just a few weeks ago at a conference and it was awesome. It was really diving into the underlying data of what’s going on in the economy and really where are we at.

And so this is just intended to be a little bit of a teaser because we’re actually gonna be doing a webinar and he’s gonna go through those same slides that he gave as a keynote and really break down with great data. So you’re gonna. Stay tuned and get notified of that. So we can get on our mailing list if you’re not already.

But we’re gonna kinda just give some of the high level thoughts and some of the things that we’re seeing and just hopefully answer some questions and just give you some good thoughts of where we’re at. Bob, everyone’s asking are we in a recession, right? And I think before we even a answer that question is, how do we get to where we are?

We’re beginning of 2023. and, we’ve seen the Fed raise interest rates and the fastest and shortest time period in history. The fastest increase because of this massive inflationary pressures. And so how do we get here? What were some of the cause of this inflation?

Bob Fraser: And as as we dive into all this, I just wanna say, at the keynote I did, everybody was shocked at the data. It’s, there’s so much noise out there. Yes. It’s getting clear. Everyone’s just so thankful. Oh my gosh. You broke it down. You gave clear understanding of where are why, and I understand the big picture now, and in order to make good decisions and it’s amazing, and some people said, oh my gosh, you’re so bullish. And then other people said, oh my gosh, I wet my pants. . And maybe that’s the definition of a good presentation because, it’s not all, it’s not all a hundred percent in one way or the other. And excited. Yep. . And so we want to really break this down accurately and really help people.

And so how do we get here? And this is one of the things that I want to point out is that what happened with this stimulus has never happened in history before. Okay. So the kind of stimulus the Fed did, 

Ben Fraser: so during Covid, 

Bob Fraser: During Covid the Fed’s been in existence around a hundred years.

And typically what they’ve done when they wanted to. Boost the economy get it out of the doldrums is they basically lowered interest rates and the Fed only controls short-term interest rates. So long-term interest rates are market based uh, based on an auction. . So that, but that’s a very weak kind of mechanism, right?

Because, okay so they can make it cheaper for you to borrow, but what so you borrow money, cheap money and you go expand your factory, and then maybe you hire a person and then maybe you buy a little more stuff. So it’s a, it’s trickle down, but what. You just laid off half your workers, you lost most of your business.

You’re not interested in expanding. I give you a credit card with cheap part. You’re like, no thanks. I don’t need it. And that’s exactly what happens. And so then they basically, in 2008, they experimented during the great financial crisis with some new mechanisms and Right.

And they did some bailout programs, or they literally pushed money into the system, massively funded up private enterprises. With the TARP program and the bank bailouts, and they started a federal reserve, a monetization program where they printed money and bought stuff and , and all the hard money guys like me at the time was going, okay, this is gonna, this means hyperinflation when the, when you start monetizing debt didn’t happen.

In fact, we just had record low deflation, so it forced me to rethink everything. And I spent a lot of time just really looking at DA data freshly and getting a new set of eyes and so that was that. But then what happened? And of course whatever people get away with, they’ll try 10 times more the next day, right?

So now Covid comes and they try a brand new mechanism. , and it was literally a joke back in the early two thousands. Ben Bernanke said, Hey, everybody’s worried about in deflation. And he said, oh, I consult deflation. I could just helicopter money to people, drop money from helicopters and we can stop deflation.

That’s in essence what they did. They helicoptered money and set money to individuals and Wow. Is that. Than anything else. Okay. And here’s the picture. So I give, you’re a businessman who owns a factory and I give you a million dollar credit card at cheap interest. Is that gonna boost the economy?

Maybe not. But I go and wire every human being. in America, a million dollars. Just wire ’em the money. Literally the they open up their account a million dollars. Every man, woman, and child. What would happen, ? What would happen? Would it, would people quit their jobs? . Uhhuh, , Uhhuh, . Would people start to spend Uhhuh

Would they open up Robinhood accounts and start to buy cryptos? Yep. They would. Would they? Would they go plan, go to air, plan their Airbnb vacations? They start going out to eat and go out to drink and heck yeah. The only problem was there’d be no workers to serve them to drinks, cuz everybody quit.

And this is exactly what happened. We saw massive gains in wages. We saw massive exiting in the workforce. We’ve seen massive savings. And so literally there is the the, in us in households, there has never been this much cash sitting in the bank. Super flush. So what happened? This is.

Created a massive distortion. Massive distortion, and it’s still not worked out of the system yet. And so that’s the background. It’s created all this inflation. It’s created, and there’s a few other things, like energy but it’s created all this inflation and created this incredibly strong consumer.

What? Yes. 

Ben Fraser: You made the point too that, the other kind of piece of this, you have now a massive amount of demand that’s just ready to spend the economy, but also the supply side. The capacity is a big factor in this too. And so when there’s this much stimulus and we’re at capacity economically, that is very inflationary.

Bob Fraser: And thi this is what, I’ve become more of an m T guy, modern monetary theory, and this is what the hard money. Economists miss. All right. The gold bugs let’s you print money you’re gonna create massive inflation. No, you don’t actually.

And the key is when you print the money. So if if you have a factory ban and you’re making, 500 widgets a month. And I come and all of a sudden, and you’re winning at half capacity. You can make a thousand widgets a month and you’re dying because you’re can, you’re barely keeping the doors open, the lights on, and I come and say, Ben, I wanna buy another 500.

I’m gonna print money and buy 500. Widgets from you. A month, you’re going, awesome. Are you gonna raise your prices? No. You’re wiping the sweat off your brow. You’re like, I can pay my bills. I’m good. It’s not inflationary because you’re, you don’t have to expand capacity. You don’t have to hire anybody.

Raise new rates. You have to buy new buildings. Now, on the other hand, if you’re making a thousand widgets a month, . And you’re at capacity, you are cranking, you’re busting out. You don’t, you’re all, your people are working hard. There’s no access room in your building.

Everything’s maxed, right? And I come and say, I’m gonna, I wanna buy 500 widgets a month from you. You’re gonna say, I can’t do it. Or I’m gonna, I’m gonna have to expand. I’m gonna have to hire more people, give more, give weight, give raises, pay overtime, whatever. You follow me? It’s inflationary. Yep. And so the key is when you do stimulus spend, When there is no demand or low, super low demand to create demand, it’s not inflationary.

And when you spend into uh, into a where where there is no excess capacity, it is massively inflation. And what did Biden do? This is the 1.9 trillion stimulus. , and I’ll point out the Bush and Obama stimulus in the great financial crisis and the Trump stimulus. At the beginning of Covid we were in, we did need it.

There was a massive deficit in demand. There was a huge, air pocket. We hit right in demand. But then the last one that Biden did the 1.9 trillion, we were at capacity, there was massive supply chain issues. What do you do when you have, you can’t ship anything. Everything’s, there’s no inventory anywhere, and you go, you c create 2 trillion in excess demand.

Duh. , honestly, this is where our, , our politicians, it’s, they’re so pitiful. They’re just so pitiful. They need to learn economics 1 0 1, so it’s as obvious what happened and so talk, talk about the 

Ben Fraser: consumer. So now, I all this cash been pumped in the market.

The thought that I and the charts I’ve been seeing, this is what’s so interesting cuz it’s a little bit misleading because the savings rate has been dropping massively, right? So now everyone’s freaking out like, oh my gosh. All that savings that people had is all gone. But the point is that it’s a derivative.

It’s the change in savings, right? Over time, it’s not actually gross savings. And so one of the charts you pulled out, and we’ll show this in the webinar, was just the cash. The consumer’s balance sheets is mindboggling. Tell us that number. Yeah. 

Bob Fraser: Yeah. So there’s 5 trillion in excess cash sitting on, sitting in banks, in household bank, 5 trillion.

We’ve never seen anything like this. It’s never been higher than 1 trillion. And all of a sudden it’s spiked up during the covid. It’s, 

Ben Fraser: so it’s literally a hockey stick chart when you show the chart, it’s unbelievable chart. It’s crazy. 

Bob Fraser: Yeah, just cash. You look at consumers retail sales up 30% over, over trend.

That’s an enormous number. You look at, you. The unemployment that just numbers that just came out shocked everybody, not me. I, we’re going to continue to see lower unemployment numbers. The consumer is extremely healthy. You look at debt service coverage ratio, the amount of money that’s being spent to cover debt service, even with higher interest rates, it’s still low.

And yeah so we saw c savings spike up during covid and now come down to normal. And now because of inflation, it’s lower than normal, but still, we still have all that big F excess that of savings. Consumer debt is low. Like I said, real income is strong, so record high, real wages, inflation adjusted wages has taken a tick because down because of inflation, but it’s still up massively in the last few years.

The wealth effect, right? This is when people feel wealthy because their house went up in value, their stocks went up in value. Wealth effect is still in force. It’s it again, hockey sticked during the covid crisis, and yet it’s had a little bit of retrenchment, but it’s not coming down.

Americans still feel wealthy and are wealthier than they have ever been so we’ve got this, we’ve got this, here’s the four recession and the against recession. On the four recession, we’ve got tightening credit, right? Standard. Low consumer confidence, it’s actually lower than it was in 2008.

Got inflation squeezing consumers. And we’ve got this global recession likely coming out of Europe soon. And because we’re tied into the global economy, if another economy has recession, while that reduces demand crisis for us, for ourselves. So tho those things are there. Yeah. But then, 

Ben Fraser: And to pause there real quick, cause I do think it’s important like you’re saying.

Look at both sides, right? Because if we had a crystal ball, we’d be trillionaires and any other economist that says they know it’s gonna happen, right? They’re lying because we don’t, but it’s really, what’s the abundance of evidence? You gotta look at both sides. And, the consumer confidence is concerning because as we’ve talked about before, , g d P is made up 70% by consumer spending.

So if the consumer is not confident in the economy, that will drive lower G D P, right? Which is, the technical measure for recession. But that, that is concerning. But we’re about to share some of the, the positives, right? Kinda the silver linings, which I would say is more than the silver lining.

It’s. . The evidence is pretty. 

Bob Fraser: But, so consumer confidence is lower than 2008, which is nutty because 2008 we were really, were a global financial great depression. There’s the, it, 2009 it was scary what was going on. This is nothing like that. And so I think it, I think the consumer is a confidence thing.

Really flex the, reflects the emotional state of consumers, which of course it does. It’s a poll. But it’s probably driven a lot by the partisanship, the wars, and the, the, all the C O V D, aftermath and distrust and government and distrust in everybody. So I, that’s a, but there is real legitimate concern here for recession and the Fed.

The Fed has a very big lever. And if they want to put us in recession, they certainly can. And that’s the big question. Will they do it? They’re going after their target is 2% inflation, which I think is gonna be extremely difficult to get to, which we can, we’re gonna hit on our webinar.

Why? And so the question is, are they gonna keep pushing to try and get to a number that they can’t get to? Then they will absolutely push us into recession. Or will they change their number, their target and say, okay, we’re okay with 4% inflation for a while. But then also, so the Fed has got this big hammer and they’re banging on our economy, but.

They’re gonna have a heck of a time getting us into recession because of, massive consumer spending, literally record breaking, consumer spending, high consumer savings, low debt service, strong job market, strong wealth effect. Record real income and record cash, so the consumer is extremely healthy right now and that may sound different than the headlines, but it’s just a fact.

The numbers go there and, it’s the poorest to the poor who are doing the most suffering. The, that are, they’re being hurt most By inflation, the average American is doing quite well, and and we’ve got this dichotomy. And Goldman is, Goldman Sachs, one of the smartest guys in the room.

We’re basically predicting a soft landing. And I’m tentatively going with that right now. I think that’s where we’re gonna be, but, but also, yeah, tune in and hear the full thing. Yeah. 

Ben Fraser: And to your point, the Fed does have a big lever and they could mismanage it and then it, makes it a lot harder than a harder soft landing.

But it is it’s hard to believe even if we go into recession, two negative G D P growth quarters consecutively then. With the consumer this strong it’s likely gonna be not very deep and probably not very long. Compared to other recessions. Yeah. 

Bob Fraser: We had two negative GDP growth quarters and they didn’t call a recession so the recession officially is when the government says we are in recession the agency there.

And so we, but we pulled right out of it. Because they, this was Covid anomalies, so Yeah. Will they, what, will they do it or not? I don’t. 

Ben Fraser: Awesome stuff. I’m super excited to do this webinar cuz it’s some really great information. So for all those out there that are curious to hear more, wanna see the charts, we will have those slides being able to be downloaded.

So tune in for the webinar. We’ll be early March. We won’t have the date locked in yet but we will lock it in very shortly and get on our mailing list. So either the podcast mailing list at the billionaire podcast.com, sign up or you can go to Aspen funds.us and we’ll be announcing that webinar very shortly.

Thank you so much for tuning in and I hope you’re enjoying this podcast. Thanks so much.