Peak Prosperity - Inflation: What’s Your Number?

Episode Date: January 16, 2025

Chris and Paul discuss inflation as a government policy issue, and its impact on purchasing power and retirement.Peak Financial Investing

Nothing in this program should be considered investment advice. It is for educational purposes only. Please hit pause and read this disclaimer in full. If these markets run for another two years, Chris, I mean, I don't think they will, but it's not outside the realm of possibility, just because that momentum can carry longer than anybody can expect. And if they run for another two years, the ultimate end is going to be far worse than what it would be if we deal with it now

because that's just more tender in the economy to catch on fire whenever we have those troubles. The following is the audio version of a video released at peakprosperity.com. Visit peakprosperity.com to watch the video and to find other insightful content such as articles, discussion forums, and exclusive subscriber-only content. Hello and welcome everyone to this edition of Finance U. I am your host, Dr. Chris Martinson of Peak Prosperity, also of Peak Financial Investing. And hey, we're back with Paul Kiker today. Hi, Paul. How you doing? Doing good, Chris. It's good to see you again.

Great to see you. I'll be seeing you in person soon. I'm coming down to visit North Georgia. Looking forward to that. I'm really looking forward to that. I'm going to take you to a very nice little fishing spot so you can catch a monster trout so that's going to be that's going to be fun to entertain you in that area so I'm alright well pics or it didn't happen we'll see

if we can get some pictures of some nice fish so hey a lot of stuff going on I really want to talk to you about Paul we had a very good response to last week's people like the charts and they really loved hearing about how you approach planning and portfolio management and planning. And the big part of that was inflation. That seemed to be like what, like there's a few key things, right? What age are you planning to retire at? How much do you think you're going to need? But inflation was like this thing, this monster

that really bit stuff up. So we got an inflation reading today. I want to go through it because I think it really, it's important and it bears in on everything. So we've got to talk about this inflation. They say it's cooling down, but I have questions. And then I do want to talk about, will they rescue the markets with Trump in power? I think we know what I'm referring to with the they in quotes. And then finally, if we have time, there's some stuff in housing and in jobs that are clearly screaming recession, but maybe it's different this time. So I'd like to get to that if we could. So this was the silly propaganda on Yahoo Finance this morning when I woke up. As stocks soarar as inflation cools,

and they have a picture of a guy who I think we're supposed to think is a stock trader. We all know it's just computers now, blinking lights. That guy probably retired in 2009, but they have a picture of him. But down here in this lower corner, Paul says, key inflation metric comes in cooler than expected. But first, the headline from the Bureau of Labor Statistics. There's the link down below. And here's monthly month over month inflation going back a year. So you got 12 of these little bars on here.

And it's been sort of holding steady July, August, September, October with 0.2 percent monthly increases. And then it's 0.3. Then it's 0.4 in December. That's a 4.9% annualized rate of inflation, but obviously it goes up and down. But if it's stuck at 0.4 for the next 12 months, that's nearly a 5% rate of inflation. Hold that number because that's actually not all that different than what we've actually experienced for the past five years. Here's the chart that came along with it. I think this is why we saw, as you and I are talking, I think stocks are up hundreds of points, you know, and bonds are down. Big market reactions to this idea blew. All items is now, as I've just mentioned, is going up from September to October, November,

December. Inflation is going up. But core, this isn't super core, like super tramp. This is core all items with no food or energy, which is take the food and energy out. If you had to live without food or energy, this way, your experience would be this red line. And this is the, this is what the algos are super excited about. Some statisticians at the BLS managed to somehow knock a tenth of a point off of that from there to there. That's what they're super excited about. Paul, I want to gut test this with you. This is the table that came with that. I do this. I'm a geek. I go into the tables. And they say here, if we're just going to gut check this together does it feel to you here if we said from over the 12 months over the last year from december of 24 back through a year to december of 23 does

it feel right to you that food is up two and a half percent over the last year in no way whatsoever and especially especially considering my wife asked me to go to the grocery store and I picked up a couple of ribeyes because I like ribeyes. I get home and I got a lecture over inflation and, and Holly doesn't, you know, she, she's not all into this for what I do. I mean, we talk about it from time to time, but I get this huge lecture that you have to wait for the sale because we're spending so much more money on food and, and it's tight because she's very frugal, which is great. I'm appreciative of that. But first time ever, I think I've had a massive lecture on, on not knowing that Thursday wasn't the best day to buy.

So there's no, there's no, well, the people who are doing the shopping, of course, are, are, they know that's a laughable number, right? You know, I don't know what happened over the last few years, but that two and a half percent, I consider that a little bit insulting. And as well, all the way at the bottom, medical care services, they tell me is up 3.4% year over year. But for some reason, Paul, my health insurance premiums go up double digits every single year. A 3% increase would be amazing, right? And hidden in there, the deductibles always climb. So instead of 2000 deductibles, now it's 3000.

That also plays like a cost increase as far as I'm concerned. And it's buried and hidden. Point is, I think the Bureau of Labor Statistics, Paul, I don't know what they're up to, but I call them the Bureau of Lying Statistics. And this is insulting. There's no way that's true. No. There's just no way. No, not for thinking people.

If you're so far detached from the reality of the average individual building algorithm programs on Wall Street or massive hedge funds, maybe you believe that. Maybe your algorithms believe it, but the average person doesn't. Especially when you go to healthcare, you're getting less quality of service for a higher price and harder having to wait massive timeframes to be able to get in for any specialty. So, you know, you calculate all that in there, it's more than just the prices, you're getting less quality and less care and having to endure pain for larger, longer periods of time. So yeah, that's very well. It's a lie. It is. Last year, I had a spot on my neck, and I was like, oh, I better go get this looked at. So I called the dermatologist up, and a year. That was their first appointment, was a year.

So I was like, oh, that's outrageous. I called other ones. They were worse. I was like, how did this, when did that happen? You know? People are like, oh, you would hate Canadian health care, Chris. You know, there's these incredible wait times. would hate Canadian healthcare, Chris. You know, there's these incredible wait times. I'm like, yeah, we're facing them now.

All right. So to really show cement in what an absolute geek I am, I actually read, I never do this, but I actually read through the whole BLS report. And you know what I found at the end, Paul? I found this little note saying that, I don't know what this means yet, but I'm deeply suspicious. Everybody should keep an eye out for this. Starting February 12th, 2025, with that release, they say here, the following CPI indexes, let me get my highlighter out just to really drive this home. They say here, the following CPI indexes will continue to be published at the national level, but will be discontinued for metro areas, census divisions, and regional areas. So no longer, no granularity. Is Topeka different from Burbank, right? You know, none of that. Just one national index for, see if you can spot the

trend here, electricity, pipe utility gas utility gas energy services fuels and utilities household energy oh yeah also electricity per kilowatt hour and um utility pipe gas per therm you know what that's going to happen here paul they're trying to hide something from us which when you when it's kind of like that old joke remember Remember they said, you know, if you have a hand in boiling water and a hand in ice water, an economist would tell you on average, it's just perfect, right? They're going to average this. And it's just totally not because California has ridiculous gas prices compared to Oklahoma. They should not be averaged. No, we should be able to compare those regions. They're

not going to do that anymore. Well, and how our business is going to make decisions. So what does that make it harder for you if you're in California and you choose to calculate the cost of all of those expenses to your bottom line and you want to look at Texas or you want to look somewhere else and now all of a sudden you don't have this data, so you got to hire somebody else to go do the math or to get on the ground and figure it out, that to me would, at first glance, would limit how easy it would be for businesses to move across the nation. And it's going to make it harder for individuals who want to retire to lower cost and better managed areas to identify those areas. Oh, I hadn't thought of that.

So let's imagine you're a company and you're reimbursing people for miles traveled, right? Well, it would matter if your people are traveling in rural Oklahoma versus, you know, urban California. It would be very different experiences. If you're reimbursing, yeah, anything that's tied to the CPI, right, now just suddenly got very vague. You know what? Gold and silver are my top choices to protect my wealth against inflation and economic instability. Now, with all the monetary debasement and all these geopolitical risks going on, hedging your wealth has never been more important. I recommend that everybody own some gold and silver, physical, in your hot little hands. But what if you want to hold it

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peak.fan slash GoldCore to secure your six months of free storage. Again, that's peak.fan slash goldcore. I'm suspicious, and part of the reason I'm suspicious is that, Paul, everything I'm seeing right now says that Biden is leaving Trump. If it's not a goose egg, it's a poison pill. He's leaving him a real hard situation, and so he just put all these sanctions on Russian tankers and Iranian tankers. So guess what? Price of oil is up 11% this year.

That's going to feed into everything. So we can see here, oil's sort of been in this long wedge for a long time. It just broke out here. It's actually over 80 domestically at the time of this. Brent is over 80. But that's up 11%. That's going to feed into energy. And, oh, good news.

That's just at the same time the BLS has said, you know what we should do? We should stop counting energy accurately. Let's make a big blended thing. And that allows them to do one of their favorite things, which is throw out the highs and the lows. You know, if Oklahoma is real low and California's real high, we just take those out. And that's not the national experience anymore. The center is the national experience. Even though if you're in California paying seven, that's what you're paying.

And gas, natural gas, we have full doubling in less than a year. From August at two, Now we're at four. That's been something that's reduced inflationary pressures over the past decade, decade and a half, because those prices have been rock bottom. But now all of a sudden, because of poor decisions over in Europe and everything else that's taken place, you're starting to see higher prices and natural gas now. And that's going to be dramatically inflationary across the board. And what else was it I heard? I read something yesterday. I saved it on my bookmark, but I did not get a chance to go back and look at it. I saw a headline, which could be wrong, that says Biden finally implemented some sanctions on Russian oil

that have been kind of hanging in the background on his way out the door. Are you familiar with that headline, Chris? I am. So further exacerbating everything. It looks like everything they're doing is trying to lay landmines for the next administration. Well, not just that, but 635 million acres just got taken off the books by using Section 12A of this Maritime Coastal Act or something or other. So Biden signs that executive order. And that subsection 12A has only been used a few times

in history. This is the first time it's been abused at this level, but it happened. And so, A, Trump is going to have to undo that. And that'll be a giant court battle, you know, because people, Greenpeace, whatever, the usual suspects will say, no, let's fight that. So anyway, that'll just take extra time. So we have that. I'm about to release a big report and I'm diving into energy again this year that says that the shale plays, they're not tapped out, but they're not growing anymore. And people aren't quite ready for that from a narrative standpoint yet, but they're doneologically we have the data maybe we're right maybe we're wrong but if we're right and people aren't ready for that so we're not going to be able to dial up drill baby drill in the coastal areas there is nothing on shore like there's five million holes have been poked

in the ground like we found all the oil and gas by the by the braille method right it's happening and there's probably a few leases here and there in federal land. But I mean, you know, honestly, it's not if we needed to in an emergency open up the taps. Our SPR is in a real sorry state because Biden drained most of it. Yeah. Right. Criminally negligent. He takes off our coastal areas, right?

Ties that up for time and then sanctions russia all like oh yeah i'm leaving next i'm leaving in less than a week and he's doing all this stuff and so uh this is this is really bad to me paul this is like that renter you hated who left like feces on the doorknob on their way out like they just trashed the place so our energy policy just got trashed here you go good luck cleaning up this mess right well get ready for more of this and get that's that's why oil is spiking right now is because of the the russian sanctions so if your gas is 10 11 more expensive yeah that where you've got to get those little stickers out that Biden says, I did that. You've seen those stickers people put up on the gas station? I think people need to be ready for that next year.

It's going to be tough. And that may be across the board, Chris, because one thing that's interesting is not actionable yet, but it will be soon as commodities has actually risen to the top as a target in our investment strategies. And that's been quite some time since we've seen commodities rise in this type of environment as a target above international and some of the others. So if that continues, there'll be other strategies that are going to be focusing in that area. And once that money starts running there, because they're so undervalued across the board, and especially if inflation accelerates, then that's going to further exacerbate the situation. And that's going to be pretty painful for the average American because wages just haven't been keeping up with the cost of living.

And I thought it was very interesting that inflation was relatively stable for several months with a lag effect after the Federal Reserve started cutting interest rates going into the election. All of a sudden, you know, panicking into, oh, we got to cut interest rates. And now with a lag effect, we're experiencing the situation we are now. And they're celebrating the fact that it wasn't a blowout number, in my opinion. Oh, yeah, it was less than expected. They must have been expecting it to be a lot higher with all the gaming of the numbers under the surface. Yeah, I think it's all kabuki theater at this point, because my experience is so different from what they tell me it is. I'm just going to trust myself. So can we talk about inflation? Because I really liked what you did last time, where, again, the three big things for people trying to figure out how to plan for their future

obviously is, well, are you going to retire? If so, at what age? And then what's your inflation expectation? And as we covered last time, these markets aren't just expensive, but by many measures, they're historically never been as expensive as they currently are, which means that your future expected returns, expected might be different. The expected returns, using that as a financial phrase term, are low. They're zero to negative across several of these measures. So I turned to Truflation. I can't say I'm super familiar with it. They say they track 30 million items. This is like they had the billion prices thing that ran for a while out of MIT, where it's just some algos, some program goes

out and says, how much do things cost today, right? Even with 30 million items, that's a big number, so it's probably pretty close, but it doesn't tell you some stuff. I don't know how you would get property tax increases, for instance. Ours are going nuts here where we live. Health premium increases, that's going to be hard to track as well. Health deductible increases and auto insurance, those are trickier because there's no one published rate for auto insurance, right? It kind of depends where you live and your record and the cars you own and things Variables like that right so they say they get data sources from they got triple-a on here

We got car gurus. We're getting you know used car prices got gas buddy gas buddy Does a good job tracking gas prices all across the nation you got Hilton on here, so we could get rental I mean, I'm in a hotel services insuraf, things, Redfin, Trulia, so we're getting in Zillow, so we're getting real estate. Okay. They add it all up and they say, well, you know, right now people are experiencing, if they're buying these 30 million things, about a 3% rate of inflation. That's not that far off of what the government has said. And at the same time, it's also, Paul, notice it's been rising since September of last year. Okay. But what caught me was this one. And this is what I wanted to talk to you about today. 26.10%. That's over a five-year period here. I marked the years out with little things so we could see them more easy. So this is year

one, two, three, four, five, from 2020 through 2024, coming into 2025 here right at the end. 26% total inflation across those five years, with really the bulk of that happening just in the past four years, starting there. It was kind of a zero. So in four years, 26%, but let's take it for five years. So they have a little inflation calculator. And I said, well, you know, if I had a hundred thousand dollars of income in 2020, how much would I need today to just keep that even Steven? And the answer is 126,410, meaning inflation cut my pay by twenty six thousand four hundred ten dollars over that period of time so how do you plan for something like that can we can we plug that into your program and see what happens because i don't know if i don't i wasn't this

shocks even me that's a five percent rate of inflation roughly just doing the numbers in my head yeah and and so when I first started utilizing the program, you know, this is all theory when you're younger and you don't quite have the conviction that you do now where I've got some gray hairs and been through all kind of this bumpy ride over the past 26 years. But what I can tell you in working with retirees, so the benefit that I have is, you know, specializing in retirees or near retirees, just because that's kind of the largest area in the North Georgia market that I've served over the longer period. I have seen people that didn't take my warnings about inflation seriously, and they were either too conservatively invested or they spent too

much money. And I've also seen the negative impacts that that's made on their life towards the end of it. So to me, that number, and when I talk to people, they don't, when I send the questionnaire out, the hardest question for everybody to answer is how much after-tax money do you need in today's dollars? Don't worry about what you need in the future. I'm going to plan and stress test for that. But how much money do you need to live on today? Chris, that's the hardest question for most people to answer. And the reason is our industry goes, hey, Chris, nice to meet you. I'm glad so-and-so referred you to come see me.

How much money do you have to invest? And I'm just going to pick a round number, guys, just to make math simple. Chris, you say, well, I've got a million dollars to invest. Well, here's a questionnaire. Tell me, you know, how conservative you are, right? Or how aggressive you are. Well, here's what I can tell you. I've tested this with clients because one thing, one thing I do is I'm very curious about, about long-term and what we're doing. So I want to know, does that path really work? So I'll test people when the market is down and negative people test a lot more conservative. And here's this piece of paper right now, people test a lot more aggressive. Okay. I mean that they just do because we've got

the markets are good. You feel like things are, you know, the government is going to bail it out. Trump's going to save the economy. You hear these stories like, oh, Trump is going to do just like Reagan did in 1981, and the markets are going to take off for the next 20 years. But people forget the market was a lot cheaper back then, and we had already come through a sideways period. My point being is that number matters so much, and most people don't't understand and the reality is inflation is your greatest risk to success and that's kind of what has what's driven our strategy is how do we play this game that we're forced to play and help people navigate it and try to survive long term

so what i'll do is i'll share my screen with you and we'll just kind of play with some numbers here. So I can't make that much larger, but I will try to make this a little bit larger over here so that viewers can see it a little bit easier. So that blue sweep of bars, I assume that's years across the X axis and dollars on the Y, and it's just asking and answering the question, given a certain rate of inflation, how much money would you need in one of those future years, which is the height of that bar? Is that right? Yes, that is. So let's start with something real quick, because what our industry does is they say, oh, you know, you'll never need to plan for more than three and a half percent inflation but if you go back and look at the numbers since 1970 we've been running approximately four percent total since 1970

so let's say let's say you've got 35 years okay so i just wanted to play with this number a little bit longer let's make it nice and round so a hundred thousand dollars and let's assume that's after tax at three and a half percent inflation a year. Now, what this does is we budget for, and most people don't take pay raises every year, they have for the past several years, but we budget for increases in that retirement plan. So what I can say is we start with a hundred thousand now at three and a half percent. Let's say you retire at 60, three and a half percent inflation. By the time you're 70, you're going to need $141,000 a year in income just to maintain the same standard of living that you will at the age of 60. And that's because your car insurance has gone up.

Food is more expensive. Your property taxes have gone up. Doctor visits are more expensive. The carpenter coming over is more expensive. Everything is more expensive, just to be clear about what that means. Yes, yes. But you know, what I have found is that's hard for people to think of from a long-term standpoint. What I point out to them is I say, you know, when I was eight years old, my grandmother would give me $20 for Christmas. And when I was 25 years old, she'd give me $20 for Christmas. You know Because you've got to think about what people are doing for their grandkids

and put it in. But, yeah, everything goes up. I mean, Chris, how much more is your property taxes today than what they were 10 years ago? Or car insurance or cars, you know just how much that is. And cars wear out. Refrigerators, appliances don't last as long as what they used to. So you're having to buy them more frequently because you've got that destruction that I believe corporate builds in there so that they can sell

more products. So, but this is real and you know, and people think, Oh, so if this person's 60 at three and a half percent inflation, by the time they're 70, they're going to need 141,000. By the time they're 80, they're going to need 198,000. And by the time they're 90, they're going to need 280,000 in income just to maintain the same standard of living that they, that a hundred thousand would buy in today's dollars at the age of 60. And I have people argue with me over time. And for you listeners that are out there, I got to tell you in 26 years, I have walked people through this path. I've had, I don't know, maybe over 100 clients that we've worked with, you know, from the ages

of 70 to the end of their life. I know what people are going to be facing in the future in general, kind of like actuarials can plan for insurance. I don't know what's going to happen to you specifically, but I know what in general you're going to be facing in the future. And I can tell you hands down, inflation is the greatest risk that people are going to run into from a long-term standpoint. Now I'll say from a market valuation standpoint, right now, a market decline can really upend somebody's retirement goal. But the one persistent thing that's going to be there is inflation. So that's at three and a half. So let's look at that 10-year number and the 20 20 year number just so it's fresh. So you guys remember this, uh, three and a half percent inflation, a hundred thousand, 10 years from now, you're

going to need 141 and 20 years from now, you're going to need 198,000. So that's at three and a half percent inflation. So let's go to five and a half, which is essentially what we've been tracking for the past couple of years, right, Chris? Yep. So 10 years from now, okay, instead of 141,000, you're going to need 170,000. In just 10 years? Just in 10 years, an extra 30,000. So that three and a half to five and a half sounds minor, but think about impact. That's an extra $30,000 that you either have to have your assets produced for you, or you're going to have to absorb that in your quality of living. And you're going to have to take less travel. You're going to have to drive cars longer. You go out of 20 years

and you're looking at 291,000. 291 off of a hundred. We started at a hundred, right? Yes. So, so within 20 years, that means that if I, if I, my portfolio can't deliver for me, I'm going to be taking a 66% standard of living cut. Assuming I can even afford my, to keep my house because my property tax has gone up that much. You are correct. And then, you know, if it's 30 years out, you're fortunate enough to retire young enough. It's 60 and you live to be 90. Okay. Because there's people that don't think they're going to get there.

And I've got a client that's been hugging me for the past 12 years or real uncomfortable to begin with. He's like, I mean, cancers and sicknesses and all kinds of things. And he's like, he'd give me a hug. He's like, you know, I probably won't make it to see you till next year. That was like 14 years ago. And I keep telling him, you better hug me, you know, and thank goodness we planned ahead because, because, you know, he's lived far longer than anybody expected, but at five and a half percent

inflation, 30 years into retirement, you know he's lived far longer than anybody expected but at five and a half percent inflation 30 years into retirement you're going to need 498 000 a year in income just to maintain the same standard of living 100 000 well wow so so that's that's dramatic from a long-term standpoint and we have to plan for this we have to plan for it. We have to plan for it. Because this is something that is persistent and continues to day in and day out affect somebody's lives. But so many people don't think they will, but it's not outside the realm of possibility just because that momentum can carry longer than anybody can expect. And if they run for another two years, the ultimate end is going to be far worse than what it would be if we deal with it now, because that's just more tender in the economy to catch on fire whenever we have those troubles. But what happens to somebody that's too scared, so I'm going to bury it in the backyard, and they don't trust the strategy that can help them manage risk, and they're constantly letting their emotions make their decisions, that inflation doesn't care about your emotions.

The government printing their money doesn't care about their emotions. And even if they stop printing money, we've got global forces now that are making it a lot harder to keep those inflationary pressures down. So I believe inflation is going to be embedded from a long-term standpoint outside of a major Great Depression, which is not something anybody wants to go through. It's good for those of us that are prudent and manage risk, but it's not good for the passive investors that'll just absolutely be wiped out if that's what happens. Sven Henrik just this morning, he tweeted and he said, listen, we all know the Fed's going to have to go back to printing. We just don't know what they're going to call the program this time. QT, QE, Twist, some cute name, right? You know, but they're going to have to go back to printing at some point. And that's what the

Fed's been trying to balance. It's like, how high can they make inflation without, like, the pitchforks coming out? You know, I think that's what they've been struggling with a little bit. Now, people have caught on, and it's been terrible, terrible, Paul, to have things like Twitter, now X, where people can actually find real information and discover this stuff. And what's astonishing, I don't know if you saw this quick little trend, but TikTok, they're talking about, like, banning it or something like that. So kids, you know, the under-40 crowd, 30s, 20s, they've been flocking over to this Chinese communist app called, I think, Redbook.

And they don't care. Like, it's in a language they don't speak. They don't care because it's not that they were going to start putting these levels of filtration and control down. And they're like, no, we don't want that. Right. Because they want the actual they want to just be able to talk freely about whatever they want to talk about. Same thing has happened on X. It's dangerous now because, Paul, people understand and know that this inflation isn't this mysterious thing that nature delivers because our solar system went through a bad part of the galaxy kind of thing. This is a policy. The Federal Reserve creates the policy, and it's in cahoots,

hand in glove with Congress over spending. And that's how it's been. And we had this emergency in 2020, which now that we know about COVID wasn't an emergency, but we treated it that way. And then those emergency levels of spending never went backwards. No, no. Never stopped. No. It's still an emergency. something has to break at some point in the future. I mean, and the greatest evil that we could put upon our citizenry is a hyperinflationary environment. Terrible.

You go back and look at the countries throughout history, Germany and Argentina and Zimbabwe, and, you know, it's cause and effect is what it is, but there comes a point where it gets out of control. I don't know where that is. There's a lot of smart people think that we're close, but I think we're pushing the edge. And I also think that the government just got arrogant. I mean, we're human and we forget that sometimes. I mean, the same weaknesses that we'll

have in our individual lives with emotions and, you know, we can all think back to periods of time in the past and we're like, wow, I was a little arrogant during that period of time, but that's how you get wisdom. But as a country, I think we pursued foolish, theoretical, intellectual, elitist attitudes. What did you say? Abstract. Abstract attitudes. Yeah. And there's a big difference between theory and reality. You know, you take a

theory and then you have to put it into reality to see if that theory stands up. Well, we haven't had enough time for all of this theory to work out. We know throughout history it hasn't. You know, my concern is, you know, Trump's coming into landmines that are set up around the edges. There's complacency with market participants right now because they think that the Fed's going to bail it out. What if there's forces under the surface that are going to keep them? What if the bond market takes the punch bowl away, right? What are we going to do? I mean, it'd be great if interest rates were to go down and this administration would be able to stretch those terms out a little bit and make it better for the citizenry across

the board. But what if interest rates don't come down for forces because of energy, these landmines that are set out there? That could be very devastating for the overall market. It really could. And at some point, the average participant is going to run out of slack in their budget to be able to absorb this inflation. So far, there is this, I've got a

little bit less money, but I don't understand why. And now I think people are starting to wake up to the fact that, yeah, this is more than just me not handling my budget as good as I need to. This is government policies that we're reaping the fruit of the seeds that they sowed recklessly over the past 10 years, and even more so over the past four. Indeed. So great. So let's talk about that. This is a question we didn't get to last time, but I really want to get to this question. I want to know, so we know that the Fed, the PPD stands for Plunge Protection Team. There have been forces out there that have clearly given the markets helping hands, you know, and they have some rationale for it. It's never a good time for the market to go down. But when you strip away the gobbledygook, a lot of these programs, Paul, they play to me like green energy. You know, it sounds good. But

when you strip away a few of the details, you're like, oh, that's a lot of money going into some well-connected pockets, isn't it? Right. Same old story. Nothing new under the sun. So the question, though, is because of Trump now, does this change? Because we know maybe maybe the question is maybe there would be less of a helping hand if they know that that was helping hand was going to help Trump. I've seen people who are just that anti-Trump that they would just as soon cut off the nose to spite the face potentially. So we just saw a re-steepening of the yield curve, right? And we've seen them before, but the last four times we saw them were 1990, 2000, 2008, and then once again in 2020. And

thankfully, COVID came along to allow the Fed to punch bowl the heck out of that particular re-steepening. But we're there again. All four of those times in the past have been associated with economic downturns, right? We know that bonds are signaling something awkward here as well. The 10-year has been creeping down in price, up in yield. We know there was some huge emergency in October of 23. You and I have discussed it a bunch. And here we are. We don't know what that means yet, but we do know that there was this great emergency in 2023, and there's been a lot of money printing ever since, right? If we dial in on this, we can see that since that great emergency down there of October 30th, there was about $350 billion of new M2 broad money was

created somehow magically in the system. That used to be a big number, $350 billion, Paul. I know it looks like a wiggle here, but that used to be real money, you know, $350 billion. But we're up a trillion plus, okay, since then. So that's a lot of money creation, and that money creation was done to give that helping hand to the markets. Here we are. Question. Trump gets inaugurated on the 20th, which is coming up soon, of this month of January 2025, and then he takes office. If markets swoon in March, do you think we see $350 billion of mysterious money creation in a couple of weeks? From my perspective, I think it's highly unlikely.

And for a couple of reasons, at least what I would hope. Look, if I'm Trump, I want to get in here, and you've got to get some of these excesses out, and you've got to get it out of the way now. And I would be honest about the landmines that they set in place and just communicate to the American people like we're adults instead of like we're a bunch of stupid fools, which is talking down to us instead. Now, will he do that? I don't know. But what if they do come out and start printing another $350 billion? What's that going to do to inflation right now? And what's that going to do to bond yields?

The bond market already seems to be on edge and wanting to take the punch bowl away. So maybe we've reached the point of diminishing returns there. But I don't believe that anybody outside of who he's bringing in with the administration, whoever the deep state is, we've seen them lie. We've seen them cheat. We've seen them, you know, do all kinds of things to try to keep him from getting an office there. And I don't believe that they're going to be friendly to him. And the problem is it's going to be impacting the lives of the American people, uh, uh, over what their egos and their pride or their, their desire to, well, probably more than that, covering up the secrets that they have in the background and what they've done

to the American people. So I don't, I don't necessarily expect you're going to have this, you know, whole government cohesion from the deep state to try to save the markets. My anticipation is secretly they're hoping that he'll be similar to Hoover. If I remember correctly, Hoover was a Republican who was presiding in office over the Great Depression. And I don't know the number, so you guys will have to correct me, but I heard somebody say it was 25 years. I should know my presidents better, but 25 years before another Republican was elected again. So, you know, I'm afraid we have that kind of

battle going on in the background going, we may have lost the battle, but, you know, at the expense of the American people, we're going to try to win the war. That's my concern. Yeah. I don't know if you saw it, but James O'Keefe, they just did another sting where they must have got some pretty enough girl to sit down with a guy who is a contractor for working with Pentagon official, former Pentagon officials. Anyway, this guy spills the beans and says, oh, keep this secret. He's been fired. He got fired within 24 hours from his position.

But he said, we're working with generals, ex-generals who are very interested in, you know, tangling up Trump, making sure that, you know, he doesn't, you know, get any of his stuff done. And just anyway, just talking openly about how they're planning to undermine the presidents of the United States, which for a military person is treasonous. That's not OK. Right. He's your commander in chief. The reason CINC is meaningful commander in chief is that that's how you that's how we've kept our our balance of power in this country.

So when that gets undermined, dude, you're in banana republic territory. I don't know how we got here. But the point is that when people are openly talking about resisting Trump in ways that are treasonous, I got to kind of can I do have questions as to whether or not we're going to see the same helping hands out of, out of the machine to keep everything running smooth for him. No. Well, and what's so, so that's serving their own agenda, Chris, I know you know this, but it's serving their own agenda because what really surprised me about the election is he won the popular vote and gets the house and the Senate with all of the games that were going on behind, that was a clear mandate by a majority of the American people that says, we want a different path, but they refuse to let go of that path. I want to ask you, though, because you asked me, do you think that they'll turn around and start printing and juicing the market sooner

rather than later if we have a swoon in February or March? Not if it's what I'll call a garden variety thing. I think they'll just sort of let that run and let Trump deal with that and all of that. But what they're scared about, and I think this transcends politics and hatred of Trump, is if something comes along that creates what they call a systemic issue that could potentially systemically break the system. Now, we all know nobody understands how the financial markets work anymore. Nobody, right? It's just too complicated.

The interaction of all these different pipes and tubes and connections and things, and a lot of the things that are driving the markets and creating the risks aren't even known, right? Over-the-counter derivatives contracts are pieces of paper, right? You and I could come up with a very large, highly leveraged bet with each other that's—you just—like, you can't—you could not know that outside of our relationship, right? There would be no—nobody could sort of oversee the particulars of that to understand what risks you and I had exchanged for money. So at any rate, there's a whole lot of it. It's kind of dark, kind of opaque. It operates at light speed.

Nobody quite knows. So the whole thing has to kind of work. If they saw something that threatened that functioning, they'll do what they did during TARP. Remember, Hank Paulson wades in with a page and a half. I need three quarters of a trillion dollars, which sounded like a lot then, right? Or it'll be martial law and skunks will fall out of the air. We don't know, right?

He said a lot of bad things. Right. So I do think that if they if they get that systemic. Worry, they'll print whatever it takes. And they'll have every rationalization in their head to do that. But but let me go. Let me go here then with that, because I think they've been holding off a recession for so long with so much money printing.

There comes a time, Paul, when you just can't do much with it anymore. And I'm wondering what to make of this. So we talked about the steepening yield curve. So this is just local. This is Amy Nixon out of Texas. She posts this stuff all the time and talks about, I think she just did this one a couple days ago. This is central section of Plano, Texas, right?

So she said, just what do we got here? New spring listings haven't even come to market yet. Mortgage rates above 7%. Mortgage application demand is at perfect 30-year lows, but supply is rising. Okay, so you have rising supply. Kobe Essie letter again saying mortgage demand is collapsing. This kind of shocked me. I hadn't seen it in a chart. We have the same level of mortgage demand today that we had in 1995. That's amazing.

Isn't that amazing? Yes, it is. And especially thinking about all the homes that have been started new construction that are that are in the process have been finished and in the process of being finished and we're back to that level wow mortgage demand is at 1990 levels and obviously what do we have? 60% more population since then? Something like that? Yeah. And the average saver has far less money saved now than what they did then.

So that just really puts into perspective the inflexibility within the budgets of potential homebuyers. So what we got here since mid-September, 30-year mortgage rates have risen 110 basis points back above 7%. So you have ridiculously expensive homes, right? Like this is just an average city. You see anything on there that's, what's the lowest number? 420, 382 is the lowest. 348, I see a 348, but everything else is 5, 6, 7, 800,000. That's expensive, right? You know? Yeah. So, yeah, you got that. So, listen, lower demand, higher supply just means sooner or later prices, either product

doesn't move or prices get cut. So I'm starting to see my first signs, Paul, of price cuts happening. And we're not to spring yet. And spring is going to get this flood of product on, people wait for spring, very traditional market housing behavior. But these are pretty significant warning signs right now. Housing is a big pillar of everything. Well, and I'll tell you in the North Georgia mountain area, my wife was pointing out, I don't really look at local rates that much. I just kind of watch everything, but she's looking at home. She likes to look at homes, especially getting ideas. And she starts, she's making comments about how prices are softening in the area. And I'm hearing real estate agents that are talking about how things are slow. You know,

Hey, send somebody my way. I'm getting phone calls like that are talking about how things are slow. You know, hey, send somebody my way. I'm getting phone calls like that. And we're supposedly one of the faster growing areas of the country. So it's on a local level here as well. And if that's happening already, because most people just can't wait till spring to come around, that's going to save the day. But I don't think it's going to change action and and and sell as much if we get to the spring and mortgage rates are still over seven percent on the 30 year because because something's going to have to give you know we go back to that

inflationary number chris and people you know unless you've gone from 100 to 126 000 in income over that true inflation number you've got less money that you have left over in your budget, and now you're talking about interest rates going from just interest only on a $400,000 loan going from 12,000 to 28,000. That's even further squeezing people, and banks are getting a lot more restrictive on their lending right now too. So liquidity is still still loose but it is starting to so so there there are signs that the momentum in the markets are are kind of rolling

over so i would expect the market just stop market to have this massive battle back and forth and volatility is going to pick up until until there's the realization that, you know, things may not necessarily be as strong as they seem because higher interest rates are really going to start to impact the economy. Yeah. Yeah. They're going to have to. Now, this reminds me, Paul, so I was just hearing, I'll keep this all very vague, about somebody and their partner. No good reason. They both lost their jobs. You know, very good jobs, like C-level.

It's okay, you know, but it's been months and just waiting. Nothing's really come along. And I'm reminded back in 2008 and 2009, I remember hearing these similar stories. And I would just like to counsel people. I don't know who needs to hear this. But if you lose your job in this environment with these recession things bearing down on us, you cut your expenses to the bone as fast as possible. You don't assume you're just going to get that next job real soon, right? Because we saw people do this. They maintained the country

club, the kids in the private school, the vacations that they got used to. They maintained all of that until it became painfully clear that those jobs weren't coming back for them, you know, and then they regretted spending all that money. I mean, it's a hard lesson, but you got to adjust your lifestyle instantly if you run into any hardship there. You know, you lose your job. Don't expect it. With these kinds of, this kind of data here.

Okay. And this, right, this is from Global Markets Observer, again on X. US temporary health services jobs falling at what are typically recessionary paces. I mean, you can see here, they fell, and then we came into this recession, fell, came into this recession, were falling, came into the 2020 recession,

which of course they V-bottomed, but were falling again. So that's temp jobs. Same thing out of manufacturing job. This is job openings, not jobs. But again, you can see like, yeah, we had this huge spike post 2020, but this level of decline, normally it's pretty sedate. So we had this little decline here in this recession, and that was coming in through 2007, 8, 9. But anyway, those are just some signs that something's going on. So, again, the warning is to just remember what happened in 2008, 9. Those who survived the best when they lost their jobs cut their expenses instantly, as fast as they could.

Yes, yes, they did. And that's really good advice, Chris. I'm glad that you brought that up. That also comes along with the fact that, look, last year was a surprisingly good year in the overall markets. If you're a passive investor, I'm encouraging people to look out the 24 months of emergency fund right now. Buy some treasury bills, buy some inflation protected if you need to,

but harvest some of those profits to put yourself in a solid position. Because if we have a run-of-the-mill recession, good, you got some capital to redeploy. But if there are landmines and we as the American people get caught up in this, you know, like two divorced parents that are trying to

destroy each other and end up destroying the kid and their hatred towards fighting for each other or one hatred towards another. We got to protect ourselves at this point and harvest some of that, make sure you're in a position. That's great advice, Chris. I mean, I can't tell you how many people I saw was like, look, mathematically, you can't hold on to these properties. And they tried to hold on to everything thinking that it was going to be a minor decline. And they ended up losing everything when they started calling the notes on the loans. And if they had anything to do over with again, they would have made really hard, humbling decisions fast to lower their expenses and protect themselves. Yeah. I mean, that's just

the rule of things. Now, we haven't had a recession in a while. People have kind of forgotten. We haven't had a real big market drawdown in a while. So maybe we'll have to remember these things together. But, you know, the point here is we've all gotten used to the idea that the fed's going to be there bail us out make sure that everything numbers go up and to the right i think it's a reasonable thing to have um an idea that that's probably what's going to happen but you shouldn't have all your chips on that right you know no no you know you put all your chips on either red or black at the roulette table up comes up green every so often you know it happens right you got to be ready for that well and two people have to understand you're not going to be able to pick the top or pick the bottom that's just

impossible i mean it is there there there are people to get lucky and do it from time to time i've done it on a couple of occasions, pure luck, thought that it was brilliant to begin with, but with little gray hair comes some wisdom. But you've got to make the prudent decisions over time and build resiliency in your overall financial plan and some adaptability. You know, it's okay to walk close to the exits and be ready to run, but you don't necessarily want to just run for the exits

over one little bit of piece of data i will say this though i have uh i was expecting a bounce in the market because we were short-term oversold there's still going to be that that buy the dip momentum we've got buybacks that are gonna we're at the peak blackout of buybacks and what that means is large corporations are in a blackout period which means they cannot buy back their their shares that's liquidity that comes into the market potentially next week so maybe we get a good bounce here but i think this is based on the data that we're looking at what our tools are telling us right now this is something where you want to take advantage of any bounce and and cut out some weak positions in the portfolio and position yourself for what I think is going to be excessive volatility over the next six months. I think this is going to be pretty volatile.

We've been through a period of time where there's negative correlation and there's positive correlation. 2022, and let's talk about that for a minute. 2022 was a surprise year for most investors because you had the stock market go down 20%, S&P 500, let's just say approximately 20, and then you had the bond market and the AGG go down approximately 20%. So in the past, this negative correlation means that stocks go down, bonds go up to offset that volatility. Okay? That's been the traditional relationship throughout time.

I think 2022 was a birth pain and a warning. It's like, you know, just from my faith standpoint, I think God is so merciful to us and he gives us warnings before judgment comes. But we have to pay attention to those things, and we have to seek wisdom. So 2022 being a period of time that says, okay, here's a little snapshot. If we continue down this path, what's going to happen in the future? The bond market's going to rebel, and the stock market's going to rebel. And all of a sudden, you've got individuals that had 60% equities and 40% bonds and fixed income portfolio that had the greatest volatility that they've seen in their investing lifetime and what we've seen outside of 40 years.

So we're back to that unusual environment again, starting in 2025. You got the bond market and the stock market operating with positive correlation. Bonds were going down. Stocks were going down in December. Bonds are going up. Stocks are going up here after this rally. Something else that's unusual, Chris, you've been a gold investor for a long time. If I had to ask you a quiz, if we're doing a pop quiz, and I said, here's the environment,

the dollar's going up and interest rates are going up, what's gold going to do? How would you answer? It's going down. What's gold going to do? Down. Yeah, down. It's going down. I don't even have to think about that one. I know that answer. Because we've suffered the pain of that, right, over time in the past.

But guess what? I've watched interest rates like a hawk over the past year, and gold's consolidated. But starting about mid-December, you've got the dollar up relatively dramatically. You've got gold that's not up dramatically, but it looks like it's re-accelerating again, and you've got interest rates up. So that's a negative correlation, dollar up, gold down, that we haven't seen in some time. Now we have a positive correlation. And what's really interesting is the

dollar is growing substantially over Trump tariffs and the Trump trade. But one thing we have to take into consideration, I'm curious to see what's going to happen to earnings in the second quarter if the dollar stays strong. Because in the last quarter, somewhere around 50% of the earnings of the mega tech and the magnificent seven came from overseas. So a dollar stronger puts pressure on their earnings. And is the market going to have to take that into consideration? So there is a lot of moving parts out there right now that have been handed to this Trump administration.

And if they get in there and stir things up as Trump says that he's going to, then these are probably going to be situations that are going to further exacerbate the market. So I will tell you, in my opinion, the best I can say is buckle up, pay attention to your strategies. This is going to be a wild ride for 2025 and keep your emotions in check

because your emotions can get you in big trouble take the time think clearly think about the consequences of the decisions and if you're fortunate enough to have a strategy like we have a strategy understand it's not going to be perfect but follow the rules of those strategy because because they'll help you navigate kind of like a pilot when it's a sunshiny day anybody that's flown a plane is going to be okay, for the most part. But when it's rain and cloudy and fog, that's where a lot of your do-it-yourself or pilots or individual pilots

that aren't professional get killed because they're not instrument rated. So pay attention to your instruments, and if you're not instrument rated, when it comes to the markets, try to find somebody who is that can help explain the strategy so that you can understand it and then take the leap of faith and follow it. Because we all have to choose. Passive investors are taking a leap of faith that this time is different. They're taking a leap of faith that the government's going to bail them out. If you're running a risk-managed strategy, you're taking a leap of faith that that strategy is going to be able to navigate the market ahead. Whatever the decision that we're going to make, it's going to take a little bit of a leap of faith and that courage to follow that journey. Because if we let our emotions take over, that's where we make

mistakes. I think that's why the old advice is to have a hot temper and a short fuse count to 10 before you open your mouth, because if we're making emotional decisions, we make bad decisions. And that's the biggest problem with investors in the market, and that's the psychology of the investment process that eats so many people alive. Very well said, Paul. And as we come into the end of our time with that, I'm just going to direct people to Peak Financial Investing. If you want to talk with Paul and or his amazing team, go to peakfinancialinvesting.com and you fill out a very simple form there. And somebody from Paul's team will be in touch with you within 48 business

hours. And people were so excited after last week's piece, Paul, I, I, we, we got an email from somebody on a Saturday saying, Hey, where's my outreach? And we're like, dude, we said business hours. So glad they're excited. Very happy for that. Um, but yes, people are pretty excited to talk to you now. So, um, I'm very glad to have you there because we need the voice of wisdom in these times. Absolutely. Well, and for what it's worth, the one thing that Proverbs tells you, and the Bible says, if you'll ask for wisdom, God will grant it. And I don't feel like I have all the wisdom that I need, but I will tell you, I ask for it every single day and believe that he'll provide it. And if we're, if we're seeking it, we're seeking it diligently. It will, we'll see it. It may be

subtle, but we'll see it. And then next we have to have the courage to follow that path because we all look at others and, and, you know, especially where we are in life and look back and, and those slightly different paths make a huge difference down the road. You don't feel it for the first 12 to 24 months, but when you get five to seven to 10 years out there, that path less traveled is the one that brings, you know, relatively speaking, much more prosperity and much more peace. And, and more than anything, you know, having a well thought and considered path that's adaptable can, can bring more peace to help people sleep at night and know they're doing everything that

they can prudently do to navigate what is clearly an unknown future. Well said again. All right, Paul, have a great weekend, and we'll see you next on a fishing river. I'm looking forward to it, Chris. That's going to be fun. I hope that I happen to be beside you or close to you if those big 26-inch trout, hopefully a brown trout, are biting. Me too. Me too. All right. Thanks, everyone else, for listening. We'll be back next week with another edition of Finance U. Until then, signing off, I'm Chris Martinson.

All thanks again. Thank you.