Ed Dowd warns that despite market illusions, the real economy faces deterioration from negative wage growth, an oil shock, and a bursting AI bubble. He predicts a credit freeze in private equity as liquidity dries up, urging investors to hold significant cash and U.S. Treasuries while allocating 5% to 10% to physical gold. Dowd cautions that political stimulus will only delay the inevitable hangover from structural asset bubbles, advising ordinary people to prepare for potential 40% market drops rather than chasing risky crypto or overvalued homes. [Automatically generated summary]
Transcriber: CohereLabs/cohere-transcribe-03-2026, sat-12l-sm, and large-v3-turbo
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Custom Shoutouts and Backdrops00:01:46
Ladies and gentlemen of the interwebs, how goes the battle?
You're looking at a screen on something called shoutout.fans forward slash viva fry.
And this is the link that aggregates all of the links of my interwebs content.
Let me bring myself in here for one second.
A while back, Crowder, Steven Crowder's dad, called me up and said, We've got an amazing idea.
It's called Shoutout.
And it's sort of like, I guess it's like Cameo.
He called it, you know, it's a video signature or a video autograph.
And it's this now, it's a thing where you.
It'll be custom videos and called shout outs.
Stephen's on the platform, a bunch of people on the platform.
And I've said, I had this like up a month ago.
And then I said, I'll find a good day to launch it.
I'll find a good day to launch it.
And lo and behold, it's a month later.
And because I had no other intro video to start the show with today, go to the platform.
It's called shoutout.fansviva.
And you can get to all of the streams that we've got going on, website, merch.
And there are, you know, if you want a shout out, custom happy birthday video, Merry Christmas.
Congratulations on a wedding.
The link is there, and I'll be sure to mention this many times over so that people can know where to go to get it.
But without further ado, we're going to get into today's show.
We've got Ed Dowd back on.
Viva's doing cameo now.
Well, it's not called cameo, it's called shout out.
And the way you can also get custom videos is just drop a super chat, rumble rant, join our Viva Barnes Law.
Locals.com community.
Although I always reserve the right to not read some comments that are going to get me or others into trouble.
So, all right, that's it.
With that said, Ed Dowd is coming back on the show.
We're going to talk about some stuff.
Dangerous Liquidity Regimes00:15:27
Barnes is in the backdrop.
So, now, gentlemen, you can activate your microphones and bring yourselves in.
And while we do that, I'll show what I got in the backdrop here.
I have got Megalodon teeth, which I should not have in the backdrop.
And that's it.
Gentlemen, how go the battles or goes the battle, respectively, for both of you?
It goes well.
Hawaii treating you better than the Straits of Our Muse is treating the world?
Well, we had some floods, like 200 year floods that kind of wrecked a lot of the islands a little bit.
We're still recovering from those.
Kind of some strange weather.
It's been a bad month constant rain, flash flooding, that kind of thing.
Barnes, I'm being told your audio might be low.
Let me see if I can bring you up on my end.
And if you can, I can't jack you up anymore on my end.
And while Barnes gets his audio jacked up a little bit, you've been on the show now, I want to say at least three, I say two, three times.
But for those who have not yet met you, give the 20,000 foot overview before we start getting into some of the financial talk of the day.
Oh, I worked early in my career on Wall Street at HSBC as a fixed income bond salesman.
Went back to business school, then went back into the equity side of Wall Street.
Worked at DLJ briefly during the dot com boom, saw a lot of fraud.
Went to the buy side to manage equity portfolios.
Eventually ended up at BlackRock, where I had a 10 year run managing a $2 billion large cap growth portfolio that would go to $14 billion by the time I left.
Then I've been entrepreneurial ever since.
And then most recently, I got.
Internet famous for my work on the COVID vaccines and the data that was showing up everywhere.
Wrote a book called Cause Unknown and basically proved that something horrible happened when the vaccines were released.
We're still dealing with the aftermath of that.
As far as I'm convinced, the vaccine was a disaster, caused excess deaths, disabilities, and injuries.
And we're still in the aftermath of that.
The vaccine is still on the market.
And it looks like the Trump administration, as far as I can see, is buried.
Anything COVID and anything COVID vaccine related.
It's a taboo subject.
How early is it out there in Hawaii?
It's 9 a.m.
So, looking at the markets in general, Clay Travis, who's my favorite retard of the day finder, if you want a retarded post, just find Clay Travis's post.
He was telling everybody the markets are going great.
They're going to be booming, that they're just going to keep going up, that there's nothing to worry about.
I don't know if he even knows what the private credit market is.
What's your sort of overarching view of where we're heading in terms of the markets, but also the everyday economy for ordinary people over, say, the next six to 18 months?
Let's start with the real economy.
So, Trump primarily won because it was the economy stupid.
Real wage growth was minus 2% heading into the election.
And anytime that happens, there's a change in the presidential fortunes of the previous administration.
So, Reagan came in and beat Carter with minus 2% real wage growth.
Clinton came in and beat George Bush.
Carville famously said it's the economy stupid.
And Trump had the same.
Set up going into the 2024 election.
So I think about the marginal voter.
There's a lot of us on Twitter and X and social media that follow every little news item.
But at the end of the day, the economy is the most overriding factor.
So where are we now?
A year and change into the Trump administration.
The economy for the real average American is going to be worse.
And so forget about a lot of the betrayals that people are talking about.
The economy, it's the economy, the economy, and Trump is going to get wiped out.
Midterms.
I don't see any way he can change that.
And with the oil price shock, it only makes things worse.
It's going to cause demand destruction.
And the real economy was starting to roll over before the Iran war.
Homes are overvalued by about 30%.
The real estate market is dead.
That's 20% of our economy.
We have an AI bubble that's in the process of bursting.
And then we have China, which really people don't talk about.
China's entering the acute phase of its real estate crisis.
So, there's going to be a lot of impacts in Asia.
So, the fundamentals before the war were bad.
This only makes it worse.
The stock markets are hitting new all time highs.
And that doesn't bother me.
The markets will eventually figure this out.
Valuations are at all time highs.
The Warren Buffett indicator is off the charts.
And historically, looking forward, tenure returns on a market at this valuation are zero, including dividends.
So, that implies a big drawdown between now and then.
And Warren Buffett was recently interviewed, and people asked him if he was buying on the Iran war dip.
And he said 5% drops don't interest me.
So Warren Buffett has been early like we've been early.
This economy has been floated, the Biden administration floated it with illegal immigration and $1.5 trillion.
Did Ed just go mute?
All right.
Sorry.
Yeah, you got an incoming call.
Yeah, I got rid of it.
The Biden administration committed massive amounts of fraud with the immigration.
We figured they floated through the NGO system and agencies about one and a half trillion of our treasure to these people.
That floated the economy because they spend the money as soon as they get it.
The border has been halted, but the deportations aren't there.
So now we're just living in the aftermath of that juice.
That was infused into the economy.
And so our outlook is quite grim.
And people asked me a couple of weeks ago, what's the stock market going to do?
I said, look, Trump's going to create an illusion of peace.
The markets will rip.
It could go to a new all time high.
And here we are, but nothing's changed.
It's only gotten worse.
And what people need to focus on is ultimately credit is the engine of the economy.
And the last two years of credit growth from the banking system has been to private credit, private equity.
And other non depository financial institutions.
So, the marginal growth has been to the shadow banking system.
Private credit is effectively frozen at the moment.
And we're going to start seeing outflows from that credit engine of the economy.
And we're going to see liquidity decrease and consumers that are already strapped.
We're going to see housing come under pressure.
It's all going to manifest.
The markets may figure this out sooner rather than later, but it's all going to manifest over the summer into the fall.
Let me ask you one question.
Not to get into the politics of the Iranian conflict, there's a question that I don't necessarily understand the answer to or have it yet.
The blockade of the Straits of Hormuz, set aside good or bad, what people were saying is well, now there are 120 some odd vessels, empty vessels on their way to America to load up with crude oil.
And people say that's great for the American economy.
Then others are saying it's going to increase demand and thus increase cost.
And so, without getting into the political wisdom of it, What's the practical effect, assuming that it is in fact the case that these empty vessels are going to come to America to load up on crude oil?
What impact is that going to have on global crude oil prices?
You know, it's a global market.
The futures price is like a total supply demand.
And right now, the futures markets are disconnected from the physical barrel.
The barrel is still trading around 130, 140.
The futures are at 92.
So there are people suspecting the Treasury is involved and doing shenanigans.
I don't know what the truth is, but I just said the paper markets and the physical markets are at odds.
And look, supply shocks like this, Take time to work through the system.
It's working through the system.
We saw an immediate impact.
We put out a piece for free calculating two scenarios, and we calculated that inflation for the month of March would come in around 3.26.
It came in at 3.3, so our estimate was dead spot on.
If oil doesn't crash here soon and these supply chain disruptions work their way through the system at $125 oil, we see inflation peak out.
By May at five, these are predictions five percent.
If we get an extreme scenario and things escalate and we get $250 oil, we peak out headline inflation of 11 by August.
What if this is a price shock and it's different, it's not an inflation shock, it's a price shock.
And the impact is this corporate profits go down because they can't pass on the cost to the consumer because the consumer is already strapped, demand actually declines, so it's a margin squeeze.
And then layoffs come.
So, you know, we're already seeing layoffs going into this year.
This is only going to exacerbate the situation.
So the markets are kind of, in my humble opinion, just reacting to headlines.
There was a short covering squeeze.
And anybody I talk to on Wall Street that knows what's going on is not chasing this and is using this as an opportunity to distribute and reduce risk.
Yeah, it's fascinating.
I mean, Americans don't know that we are still a crude oil net importer, not exporter.
And that, you know, it's natural gas and other things that we export that are net.
But crude oil, we still net import.
And those ships showing up, all they would do is jack up the price in the U.S., even if it were.
And most of it, we don't have net to export.
We just don't.
It's just Trump hoping to dodge, you know, buy off a little time in the markets.
Speaking of which, before we get to the private credit issues, which I think are badly.
Miss, you know, not well understood enough amongst ordinary, everyday Americans or even people in Congress, frankly.
When I brought this up to them, they have no idea what I'm talking about, which is just like back during the subprime crisis, I was doing a lot of litigation for public interest law firms.
Oh, in 2002, 2003, 2004, we would go to regulators and lay out the subprime problem and say, look, this is an issue.
Here's what's happening.
And we couldn't get any attention because everybody was making bank off of it one way or another, even the politicians.
I see similar with the private credit market.
That this is blowing up in all kinds of places.
You even have Jamie Dimon saying the cockroaches are coming.
And there seems to be little acknowledgement of this in DC, little acknowledgement of this in the White House, little acknowledgement of this amongst the ordinary person.
But so, two questions.
One, can you explain what the private credit market is?
And then just briefly, have you been impressed at how Trump has been able to utterly manipulate the paper markets on this?
I mean, clearly, I call him Soros Scotty Bessett.
He knows how to manipulate markets.
He learned from George Soros and some others.
And I've been impressed at their obvious manipulation of the paper oil markets.
But this runs the risk of those markets no longer being seen as reliable or trustworthy and all the rest, and how that could have people like Chris Martinson are saying that could lead to a double, you could drastically increase the price even more than otherwise would be the case by that kind of manipulation on the back end.
You're just buying short term time, not long term solutions.
But are you surprised at how much the markets have been susceptible to Trump's manipulation?
Oh, we're just about to have peace.
Every Monday, every Friday, escalation, every Monday, just about to have peace.
What do you think about that aspect?
And then, can you explain to people just what a huge warning sign the private credit market risks are in the marketplace?
Two things, yeah, I'll start with the market manipulation.
Look, market manipulations have gone on forever.
And what they do is they create bigger hangovers eventually because people are chasing price while the underlying fundamentals deteriorate, especially credit.
Credit is usually the key here.
So the damage that's going to be done once this unfolds will be bigger than what it would have been if he had done nothing.
So, the risks are high, manipulations always fail.
They can kick if they can down the road, but they can't, they always have to pay the piper.
That's number one.
Number two, on price, oh well, and the other thing people need to understand is liquidity is quite low.
And liquidity can work on the downside and to the upside.
So, this 10% rally has been, people are doing historical measurements of how uncommon this is.
It's like a two, three standard deviation event, a nine, 10% rally in 10 days.
Is off the charts, but that's because there was no liquidity on the way up and everybody had to cover their shorts.
So liquidity works both ways in a bear market.
It takes prices down fast and it can take them up fast.
So this is a very dangerous liquidity regime.
And once the credit system starts to come under serious duress, we're going to see cracks and eventually we'll get the bear market correction that I'm predicting.
On private credit, a little history behind it.
So after the great financial crisis, the banks were regulated.
And they couldn't take a lot of risk because of the capital constraints.
So, a little known cottage industry began called private credit.
And, like anything, it starts off small and it was probably a good thing.
It did fill the gap.
But as the asset class grows, and the fees initially were quite good, so it creates imitators.
So, imitators come in and everybody gets in on the game.
And then this thing starts to be sold.
To pension funds and used to be at first private investors, then it went to pension funds, insurance companies, and then they started, they thought it'd be a great idea to create private credit retail funds for high net worth individuals, and there we go.
And so, you know, at the end of any kind of fee scheme, which is what this, you know, it did solve some lending problems in the beginning, but the fees were too high, which attracted imitators.
In the last two years, the marginal credit, as I said, was private credit, and that asset class has grown 50.
On the conservative side, 50% in the last two years, some estimates 70%.
That's what we call a blow off top.
And I guarantee you the last two years of underwriting standards have been thrown out the door.
And to make matters worse, private credit is marked, you know, the marks are not done by the market.
Japan's Demographic Debt Crisis00:11:53
You know, these are not publicly traded securities.
If these were publicly traded securities, people would be shocked at where these would be trading.
The market would already be figuring out there's credit stress.
So they're not.
And it's opaque and it's not transparent.
So these private credit funds get to mark their own books.
And today I highlighted, and I think you retweeted it, Barnes.
You know, there was a TCW private credit fund that wrote down the equity of their Red Lobster holding to zero, basically 98%, but kept the bonds apart.
And everybody knows in finance that's absurd.
Enterprise value is equity plus debt minus cash and cash equivalents.
And when an equity is a residual value claim on all cash flows and assets, when that goes to zero in the real world, if there were public markets, the debt would already be trading at 70, 60 cents.
So the TCW decided to write down their equity and keep the bonds at par.
So there's no market pricing mechanism, there's no third party.
Person doing this, it's them getting to decide.
Now, that's all fine and good when the asset class is growing.
You can pretend and extend.
They have something called payment in kind loans, pick bonds, where the company can no longer pay the interest on the debt.
So they just add more debt to the loan and claim that they're getting paid.
And it's not actual cash.
So as liquidity starts to dry up and we get some famous defaults like we do with First Brand, Tricolor Auto, and these others.
People started to question private credit.
They started heading for the exit.
Slow and behold, the gates go up and from the process of a liquidity problem.
And that whole $2 trillion engine of the economy that we saw the last two years has been basically effectively frozen.
So this is going to work its way through the system.
There'll be knock on effects.
And let's say you were a high net worth individual and you put in $50 million into a private credit fund and you wanted your money back, you got eight cents on the dollar back.
It's trapped.
The money is trapped.
So these are non bank institutions lending money out.
The risk is if.
What's the actual, not the risk, but the indicator that people are no longer borrowing or they're no longer lending at reasonable rates?
Well, no.
The risk has already occurred.
Everybody wants their money back and they threw up.
The good news for them, the bad news for the investors, they threw up the gates.
So they're not giving you your money back.
Because a lot of people, I mean, sophisticated institutions knew there was something called gates, but a lot of high net worth individuals, that was probably not really talked about when it was being sold.
A lot of brokers made tons of money selling this product.
The fees and the greed on this, just like in subprime, were tremendous.
Somebody said there's been about $40 billion in fees collected in the private credit ecosystem over the term of this asset creation.
That's a lot of money.
And speaking of which, the other aspect of a lot of the private equity is how much they have got into buying up a lot of sort of mid tier businesses across the country and how much we got like recreation of the first Wall Street movie or Barbarians at the Gate.
I'll give two illustrations.
One you could sort of see with Red Lobster come in, buy it, actually then sell off the real estate, make them re rent it.
I mean, basically just kind of strip them bare, go to standardized food if you've been out to a chain restaurant.
You figure out the food is crap and all tastes the same.
It's because they went sort of down in quality to save cost.
And they really don't have an incentive to actually make the business work in the way that this sort of equity stripping was doing.
So there's been that pernicious effect of private equity as well, aside from the fact they made bad investments that they're now trying to dodge and put a gatekeep on the redemptions.
And so there's that attribute.
Can you speak to how that has had negative effects on the real economy and why a lot of restaurants are disappearing, chains are disappearing?
The jobs that go with it disappearing and how it impacts local, you know, the local market space and the like.
Yeah.
Private credit and private equity have gotten to such a size that they're swallowing the economy.
So there's something called in Wall Street, there was a scheme called rolling up roll ups.
And valued pharmaceuticals rolled up small pharmaceutical companies.
They would fire staff and then jack prices.
And it worked until it didn't because the company got too big and they couldn't grow anymore because they had to make an acquisition too big and the debt markets finally revolted.
That's what's going on with private equity.
They come in, they buy an asset, they do lots of financial engineering, they usually cut costs and the quality of the product goes down and the top line eventually follows.
So it's detrimental to the economy long term.
In the short term, it looks like a great financial engineering scheme.
But when it's done in mass, like it has been, it's hollowed out the economy.
Now, you mentioned China.
So I remember discussing with people some years ago that aside from their big demographic problem they have going forward, that another practical issue with China was that it was the clear signs of a massive real estate bubble.
And they're still, I mean, like their response to the global financial crisis was to almost artificially create jobs in the construction industry, spun off in real estate, sell their own version of the home dream.
You know, housing had gone up for like 20 years in a row in China, so they could make the pitch.
The, you know, most of people's net.
You know, when they talk about how much the Chinese save, well, a lot of that's in housing.
It's bad luck, feng shui, or whatever, to rent it out so they don't rent it out.
But now you've got, you know, ghost towns and ghost cities.
They overbuilt.
The housing value has been collapsing now for years.
And that has all these knock on effects on consumer spending, public confidence in China, on the construction employment.
So you talk, and then that's going to have knock on effects on the global economy.
Can you talk about what the risks are from China having economic issues currently?
Yeah, we did a deep dive on China.
We have two reports available on our website at finance technologies.com with a PH.
I mean, these reports are so extensive, and we think we cracked the code.
Bottom line is, people forget this, but after the great financial crisis, China was a big part of this global stimulus that brought us out of potentially a very long, sustained recessionslash depression.
And they knew, or they should have known, that their Population plateaued in 2015, and they continued to overbuild despite that.
And they knew that they should have known that they were going to hit a demographic wall in 2020, but they overbuilt so much housing.
There's now 20 to 25 years of housing.
They continued to do it because it kept their people employed.
But once that cracked and they started the real demographic decline, that's been going down the tube.
New starts are down 70% since 2021.
Construction took longer to roll over.
That's only down 20%, but it's going to hit peak acceleration this year because they had long live projects.
So, what they had to do to offset that, because internal consumption just plummeted, they had to export.
So, their exporting has just increased tremendously since 2020.
And that's what's been keeping the lights on in their economy.
The other thing that people talk about is that China is going to overtake the US.
China In 2019, it was 80% priced in US dollars.
China's GDP was 80% of the US.
Priced in dollars now, it's 60% of the US.
And their GDP priced in US dollars has been effectively zero growth for four years.
So China is under serious duress.
And this price shock is only making matters worse.
So the knock on effects are Japan and Korea, the biggest trading partners of China.
And Japan, as we know, We're all worried about someday the yen carry trade blowing up.
And China, Japan has its own Hobbesian choice to make either save their economy or save the global financial system from a deleveraging.
And so we're getting to some stress points.
And at some point, I don't know when it's going to be, but China and Japan get involved here in a serious way.
So it says China's population has been decreasing for the last five years, give or take, but the numbers are sort of marginal when you're dealing with a population of 1.4 some odd billion, and that there's something 80 to 100 million vacant homes because people can no longer afford the homes.
To a layperson, what on earth does a housing crisis in China have to do with the American economy or the global economy?
Especially since, I mean, my understanding is China's not exactly a consumer of.
American goods, it's vice versa.
So, to the extent China still mass produces, America still consumes.
What does the housing crisis in China have to do with impacting global economies or America?
Well, because it's going to cause credit issues in Asia.
They're one of the biggest importers of commodities.
And as their economy rolls over, commodity demand will start to roll over.
And there'll be issues and knock on effects in Asia, which will eventually work their way over here via financial problems.
Credit.
It always comes down to credit.
And speaking of credit, you mentioned the famous yen trade.
There's been a wild bond movement in the Japanese markets.
Can you explain, for the people that aren't familiar with it, what that trade is and how, if that unravels in a certain way, it's going to come right back into the US financial markets and the credit system?
Yeah.
So Japan notoriously had zero interest rate policy for decades.
And the trade was you borrow in yen, and a lot of Japanese institutions did this, but other people played it as well.
You borrow in yen and you buy higher yielding assets abroad, either bonds or equities or whatever it is, real estate, whatever, it didn't matter.
And it was an arbitrage, and it worked for a long time.
Now, Japan has got inflation, demographic issues, extreme debt issues, and yields are going up.
And the fear is that the Bank of Japan has to raise interest rates to one short term interest rates to 1% this June, and that'll cause a deleveraging event potentially.
And so the trade is all done on massive amounts of margin debt.
NVIDIA Power and AI Bubbles00:09:07
And once the selling begins, it kind of cascades.
And that's why Japan, you'll notice every now and then Besson has to go to Japan to talk to them.
And usually there's some sort of deal struck.
Andor dollar swap liquidity lines are opened up.
But at some point, Japan has to make a choice for their own people.
They haven't yet, but I suspect Bessett will put a lot of pressure on Japan not to raise rates.
Ed, before I get any further, I do have to welcome Liberty Defender, who gets the viva barnslaw.locals.com bell.
Welcome to the channel, Liberty Defender.
Ed, you mentioned something in the beginning.
I was just trying to take notes, but this makes my brain go mush like Bitcoin and trying to understand that.
But you mentioned an AI bubble popping.
And I mean, people understand sort of what the AI bubble is in general, which is the next field of technology that everyone thinks is going to be like the tech bubble in the early 2000s, late 90s.
What does the AI bubble sphere encompass, and what is the risk of this AI bubble collapsing in terms of not meeting expectations of what everyone thinks AI is going to do in the future?
Well, so AI is real, just like the internet was real, but there's something called tech hype cycles.
Railroads were real, but there's an excitement and there's a rush to get into the new thing.
Too much capital chases the opportunity.
There's an overbuild and an overfunding.
And then the reality sets in that the revenue uptake is not as fast as people expected.
And then the debt collapses on itself.
Same thing, AI is no different.
It's a hype cycle.
It's now become clear to many people that a lot of these data centers that are being announced are not going to actually get completed because of power constraints.
And there's also commodity like pricing pressure in the ecosystem, OpenAI.
Is struggling for revenue.
Anthropic is now charging by the hour.
So there's, and switching costs are virtually zero between these engines.
I was talking to an institutional investor who uses Anthropic and he's going to switch because the costs have been too high.
And he said the switching costs are zero.
He's going to go to OpenAI and he doesn't care.
He's pricing.
So we've created a ginormous, it sounds super interesting, but at the end of the day, it's a commodity.
And commodity pricing with this much debt investment doesn't end well.
That doesn't mean AI is going away.
That's when the real opportunity and the real winners emerge.
If you look at the dot com bust, the only one that really came out of that and went on to glory was Amazon.
Everything else is kind of in the dust.
Google IPO'd after the dot com bust, Facebook IPO'd after the dot com bust, Apple took advantage of all the cheap broadband out there because they were able to create a smartphone.
If broadband was too expensive, the smartphone would have never taken off.
So, Apple benefited from the bust.
So, look for opportunities in the bust.
That's when the real opportunities come.
This is the hype.
And NVIDIA is supplying, is the arms merchant, just like Cisco was the arms merchant to the telecom internet boom.
And once that bubble burst, Cisco went down almost 80, 90% and just recently got back to its all time highs 26 years later.
I suspect that the same kind of thing is going to happen to NVIDIA.
Nvidia is going to go down 80, 90% when it's all said and done.
But their growth rates were funded by this overbuild and this hype.
And Nvidia made it worse by funding AI startups and then selling them chips and then demanding that because I've funded your startup, you buy my chips.
So this is classic hype bubble activity.
Nvidia is not going to keep growing like it has been.
And NVIDIA stock has really gone nowhere for the last six, seven, eight months.
It's chopped around and it's gotten cheaper in valuation.
But I want to warn people when semiconductors get cheap, that's the market telling you the revenues and earnings are probably not real and there's going to be a hiccup down the road.
You buy semiconductors when the PE ratio is absurd, meaning there are no earnings.
It's counterintuitive.
Semiconductors are some of the most cyclical companies on the planet.
And this AI bubble.
Has only made people forget that semiconductors are cyclical, in my humble opinion.
But also, actually, Robert, just before you, I just want to add something or clarify something the energy demands and the energy constraints.
I mean, this is where my minimal understanding of AI, I think I can understand this, where the technology itself requires massive amounts of energy, these centers that they want to build throughout America and poses some risks to farmers and others.
A, what is the runaround or is there a workaround of these energy constraints and property constraints?
And B, not investment advice, but Is that not another field of opportunity andor another area of risk where you're going to come up, you get people buying massive amounts of land and sort of a concentration of the power of whatever AI is going to be through land ownership?
Well, let's talk about CapEx.
So last year, the big AI companies like Microsoft and Oracle and Facebook and Amazon, because they're all spending tremendous amounts of money on AI.
Their stocks were rewarded for announcing higher than expected CapEx.
Now, in the first quarter, they announced higher than expected CapEx, but their stocks were punished.
And that's the market telling you that it doesn't believe that CapEx is going to come to fruition because there's been work and analysis done on the margin showing that there's no, the bottleneck, the supply constraint used to be NVIDIA chips.
Now it's power and water.
And there's just not enough on the grid to support the announced CapEx data center projections.
So, there's, you know, these are physical.
You need physical power, and that's not done overnight.
You got to increase the infrastructure.
It costs money.
Who's going to pay for that?
So, it's a bottleneck that's not going to get, you know, fixed anytime soon.
Michael Burry of Big Short Fame has been talking about the big risks and the AI bubble.
And it's similarly easy.
He's talked about a lot of the, it's about like three other factors the circular funding that's going on.
You know, that the same hundred million ends up adding, you know, two billion to the economy, and it's just the same hundred million going like that.
The issue that Michael Burry is one of the ones he's highlighted.
Second, political blowback.
There's efforts to create a sort of federal preemption of any state and local law.
Those have, you know, run on some tough political shoals, you might say.
That there's more and more blowback locally against these data centers, given the energy cost, given the water impact on the local community, that they're not exactly big job creators.
They may add a lot more to the GDP than they do the jobs.
So you've got the general political blowback on AI.
You've got the local political blowback on AI.
And then you've got AI's deep ties to a lot of people in the Gulf states, those AI centers that are being targeted by Iran in the Gulf.
So, how much do those other risks enhance the AI bubble risk?
They're huge risks.
It is layer on top of what is the natural cycle over hype.
It's not good.
You know, the AI bubble, bubbles are bubbles and they always burst.
And I predict we're in the process of that happening.
And at some point, NVIDIA is going to miss a quarter of earnings and that'll be the day that it dies finally.
But, you know, the Oracle is down, I think, 40, 50% since its peak last year.
And that's a warning sign.
The credit default swaps on Oracle and Core Weave, which is not yet public, are advancing.
That doesn't mean they're going to go bankrupt.
What that means is the cost of finance their debt is going up.
And, you know, that's, you know, one of the big tells, and people forget this, is at the end of last year, Sam Altman and his CFO, Sarah Fryer, you know, basically floated the idea of a government financing bailout and basically wanted cheap financing from the government.
Real Estate Rents and Risks00:15:16
That's all you needed to hear in my mind to know that, you know, we're late days in the AI ecosystem.
Good.
I'm just going to, well, maybe we're going to get to questions afterwards, but this might be the summary question.
We'll get to this one at the end.
Robert, sorry, you go ahead.
The one other factor I wanted to cover, another risk point for the U.S., is U.S. real estate.
That the prices went way up during COVID.
They haven't come back down to anywhere connected to the real economy.
The interest rates that were starting to go down are now, during the Iran war, going right back up.
Where do you see the U.S. real estate?
Economy going and how that, because of the construction industry, not just your brokers and people like that, but if there's not a lot of ground to do a lot more permits because there's already oversupply or the costs are simply too high to build an affordable property, the knock on effects on that economically.
Where do you see the U.S. real estate economy going over the next six to 18 months?
Yeah, so housing is huge.
And we've been following housing, put out a bunch of real estate reports last year, and it's rolling over.
And one of the biggest leading indicators of home prices are rents.
New tenant rents and feeds into all tenant rents, feeds into equivalent owners' rents versus home prices.
Right now, it's cheaper to rent a house than it is to buy.
Okay, that's not normally the equilibrium point.
That's something that tells you that home prices need to correct quite a bit, and they are in the process of that happening.
New permits peaked in 2022 and have been coming down ever since.
Normally, that would indicate the beginning of a housing problem.
What kept the housing market afloat was the illegal immigration, put pressure on rents, kept prices from coming down that much, and also there was a multi family housing boom.
People don't talk about this.
So, the problem is going to be in multi family housing.
We overextended there.
We saw numbers that peaked at the 1970s multi family housing boom, which is, you know, Boomers are coming into the job market.
They rented first and they bought later.
So, a lot of this speculation is going to be less stranded.
And construction jobs held up because of multifamily housing, because those projects tend to be a lot longer than single family homes.
Single family homes take about a year from permit to end time.
Multifamily structures, five or more units, take a lot longer.
So, we're going to start seeing construction layoffs soon.
And the housing market is essentially dead.
Homes for sale.
Uh, versus homes sold usually track each other.
We now have a 650,000 unit, 650,000 unit gap, the likes of which we've never seen before.
So basically, the real estate market is frozen, and the only way this that it gets fixed is through price.
The sellers tend to be older, and the buyers tend to be younger, and the buyers don't have the money.
Uh, so there's more obviously more for sale than are being purchased.
What about, um, Corporations or corporate entities buying up properties in the States?
Is that a phenomenon as well?
That happened a while ago.
They're net sellers now.
They're not happy.
They're not doing well in their investments.
Rents are the key to all of this.
When you start seeing rents go down, cash flows go down, and you had insurance costs go up and property taxes go up, a lot of these people are underwater.
So they're net sellers at the moment.
And they were never a big part of the market, anyways.
I know that got a lot of hype, but they just weren't as big as advertised.
And a lot of people blame BlackRock.
It was Blackstone.
People get the two confused.
Blackstone was the one buying the homes.
But this is the question like, people want homes to be affordable, but they're most people's primary assets.
So having a valuable asset, but also having prices come down so that new buyers can afford them, what's the balance there?
Because it seems like if the prices go down, it's good for buyers, but then people lose the value in their one and only biggest asset.
Well, you know, the market's going to continue to do what it's going to do.
So, demographically, most of the homes coming for sale are from deceased boomers.
And that's only going to increase as time goes on.
A lot of boomers have done well.
They have nice stock portfolios and maybe a couple rental properties.
And maybe they're thinking about selling a rental property.
Some people are Airbnb people.
Slowly but surely, they're still anchored mentally in their 2022 prices.
And there's a lot of rage, delisting and relisting.
And so it's kind of this stalemate until something breaks.
And it's starting to break.
In the southern states, it's already broken.
The blue cities have yet to feel a lot of pressure.
They will as the economy worsens.
And I suspect if there's a big NASDAQ correction or a stock market correction, boomers will feel suddenly less wealthy and it may spur them to shore up the liquidity.
And lower prices.
And once they start doing it together, that's when people rush for the exits.
You said people are cheaper to rent than to buy.
I presume that's also because of mortgage rates.
And now, also going back to the beginning, when you mentioned this immigration bubble where illegals are undocumented, they were getting prepaid whatever credit cards, which they were then putting into the economy so that it looked like things were going good.
They needed housing.
And now that at least immigration has been capped or curtailed, that sort of free money in the economy is drying up.
What is a practical solution that could remedy the problem?
Would it be to reduce mortgage interest rates?
Yeah.
Oh, no.
Interest rates are going to come down, but they're not going to like why they're coming down.
They're going to come down because there's a credit crisis.
And it usually takes 18 months for those interest rates to work their way into the economy.
There'll be lots of layoffs.
So interest rates are going to come down, but there'll be a lot of pain first.
There'll be a lot of distressed sales.
You need a clearing of the system.
And look, I'm not a gloom and doomer.
I think this is going to be great for millennials and boomers are going to take the pain at some point, and they just have to.
Speaking of which, I find the president's position that he doesn't want to do anything that reduces housing prices.
That aside from, I don't think that's a political winner.
I mean, everything's been for, of, by, and for the boomers.
It seems like economically, even the tax policy turned out that way.
They're getting like three, four times the tax benefit that everybody else is.
But one of the problems I had with it is to me, it was illusory.
If I have a house that is, say, it's real market value is $450, but it's currently thought of at $600,000.
But the bank won't lend it to me as if it's $600,000.
They're going to say it's $450,000.
I can't rent it out like it's $600,000.
I'm only going to rent it out like it's $450,000.
And I can only sell it if it's at $450,000.
Isn't that really just, you have a little bit of the psychology of the wealth effect, but isn't that more just illusion than actual real value to your asset?
You have paper value that isn't real?
Real value eventually comes down to the cash flow from the rental markets.
And they're telling you home prices are vastly overpriced.
But we measure home prices need to come down 30% minimum to get people back in the market.
And the way these things work, it's always an overshoot.
So it might be more than 30%, but then a sharp reversal.
But ultimately, people forget this.
Ultimately, everything comes down to cash flows.
And the liquidity in the economy is drying up.
People's cash flows are going the wrong way.
And ultimately, this pretend and extend nonsense just fails.
And when it fails, it's going to fail fast.
The longer we pretend everything's hunky dory, And paper this over, the worse the hangover is going to be.
And it's going to be, it'll happen so fast that the policymakers won't be able to respond quick enough.
Impossible question to ask.
But in terms of what can be done, practically speaking, to turn things around to the extent the economy is going to play a major factor at the midterms, is there any, I don't even know if it's a quick fix or an impossibly quick fix, any superficial touch ups that can be done now to at least make things look better come the midterms so that?
Republicans either don't get hit quite as hard or mitigate their losses?
Well, during the great financial crisis, Bush was coming into an election year.
There was an understanding that things weren't hunky dory.
And the administration had to do whatever the administration has to do.
They had to pretend that everything's fine, just like we're seeing now.
And people forget, but George Bush floated some stimulus checks in 2008.
Ultimately, that didn't do anything.
Trump could try to, for political purposes, float some stimulus checks.
That'll make people feel a little better, but ultimately it won't stop what's coming.
And I'm a big believer in cycles.
And, you know, Trump, during his tariff stuff, he had full control over the dials because that was an exogenous event that he had total control over.
These cycles and the endogenous things that are going on, no administration has any control over.
They just have to play themselves out.
With the Iran war, he has some dial ability, but Iran has a vote.
But the fundamentals that were before the Iran war were unraveling.
So, this is people have forgotten about the fundamentals that were becoming unglued.
The bond markets were starting to price in a little bit of concerns on growth.
Now, everyone's focused on the war.
I think that's the wrong thing to focus on.
It only adds risk.
And the fundamentals just haven't changed.
In fact, they've only gotten worse.
I think Viva has a few questions if you have a few more minutes.
Yeah, we got some.
Let me bring up a couple.
I won't, Ed, I won't abuse your time to read the sponsored ones.
But Hachi says, Viva, what are your thoughts on, Viva, don't ask me.
What are your thoughts on the potential of China getting Canadian candidates to pose and run for?
Oh, that's a political question.
Pose and run, then switch parties.
We'll do the econ.
I'll deal with the politics of China in Canadian politics in a separate show.
But over in our vivabarnslaw.locals.com community, the obvious question, which is in there, We're going to get to.
Eurodollar says that the problem with housing is banks are only lending to institutions, says Kate Trimbach.
I think you mentioned that.
Buma, this is the million dollar question.
People have minimal assets to invest or protect at this point.
Ed, I'm not a wealthy person and I'm retired.
Where would you suggest that my assets be placed at this time?
This is what I'm telling people.
I was a little early, but I'm more adamant now.
The way to get through this is cash is a position.
People think cash is trash.
Cash is a position when you have a potential 40 to 50% drought on the market and a credit crisis.
That's why Warren Buffett is almost 40% cash.
Cash provides you flexibility on your finances should you find yourself without a job.
Cash also provides you the opportunity to buy low when everyone's panicking.
So I've been recommending high levels of cash allocation to people's portfolios, whatever you're comfortable with.
I'm not telling you to go to 100% out of everything, but you need cash as a buffer.
And it's also a great way to take advantage of opportunities.
Cash is my favorite asset right now.
And I presume you mean American currency and not any other currency that might be worth considering?
I love the US dollar.
I think it's going to go a lot higher.
I think we're still the cleanest shirt in a dirty laundry.
And you got to remember one thing if things get really bad, the US government is going to make sure it's financing itself first.
Then everybody else gets the money later.
The U.S. government's not going away anytime soon.
I'm not one of these dollar doomers.
There is a new monetary system coming, but cash and especially U.S. Treasury bonds and bills are still the place to be.
What do you think about gold?
Gold should be a part of everyone's portfolio.
The advantage of gold is there's no counterparty risk and it's not a liability.
It's literally just pure physical.
Wealth.
The problem with gold is you have to store it, you have to vault it, and you need to still be in the banking system.
So I always recommend 5% to 10% gold.
Read this one up here.
It says, How much of our financial woes are due from our 401ks invested in Wall Street?
I always thought it was a recipe for theft when they started it in favor of company pensions.
Oh, yeah.
So basically, they offloaded corporations.
It was a clever way to offload a lot of costs onto yourself.
And, you know, you fund it yourself.
And there's a lot of 401k plans out there.
They're not fraudulent, a lot of them are pretty good.
But, you know, They always recommend the 60 40 portfolio, 60% equities, 40% bonds.
And it's done well over the years.
The problem is, it's not going to do well over the next couple of years.
It's an amazing thing.
So, if you sit on cash, you got to worry about inflation and just losing the value because it's sitting in a bank.
If you sit on gold, you either have to store it or you have to buy, have a fund that manages it, or you have to take the risk of hiding it somewhere in your house.
Same thing with silver, physical assets of precious metals.
We didn't touch on Bitcoin, and I don't know if you, or any crypto for that matter, or if you're using Rumble Wallet, not the sponsor of today's show, but get it.
Gold back or gold tethered crypto.
I don't know what your level of knowledge is of crypto, Bitcoin in particular.
Hold it.
What percentage of your portfolio do you think you should have in that?
So I'm a math guy, and crypto is notoriously correlated with the NASDAQ.
So If you own the NASDAQ, if you own crypto, you own the NASDAQ.
And crypto peaked in October of last year.
So the correlation has actually come down.
It's not as high as ever.
That says one of two things.
The NASDAQ has to underperform dramatically to catch up to crypto, or crypto is going to rally quite a bit.
Crypto Correlation with NASDAQ00:02:50
My bet is the NASDAQ is going to come down to crypto.
So crypto, it's an asset class.
I'm not involved.
My partner is a bigger expert in the crypto space.
He likes Monero, which is a privacy coin.
Privacy coins have done better than public coins.
So, look, it's a risk on asset.
And if I'm right on what's coming, it'll be a risk off asset as we progress.
So, it's not a short term store of wealth, in my humble opinion.
Just explain what that means risk on versus risk off asset.
So, a risk off scenario is when you go into a recession, there's a credit issue, and everything gets sold.
So, it's like what happened in the dot com bubble and more notoriously in the great financial crisis.
Risk off means anything that's got high correlation to risk assets and crypto does will get sold and liquidated as people scramble for liquidity.
And that's why I like cash and T-bills because those are the most liquid assets on the planet.
So, someone says you can't use gold.
Well, you can actually, but you're dealing in different increments in terms of what you use it for.
Like you can actually exchange for things of equal value.
And one of the other realities is you want to sell your gold.
You do have to sell it at like 80%, well, say 90% of the spot price of the day.
So, you're losing whatever you made in terms of what a gold shop or a pawn shop or whatever is going to give you back for that money, for that gold.
So, you lose it there as well.
So, you're losing 10% easily of whatever your profits are based on.
The spot price.
It's all impossible.
The hardest thing is just to actually make money and then hold on to money.
Any alternative investment ideas that you can think of that maybe are a little bit off the grid?
Well, if you have more risk tolerance, one of our calls to institutions is the best asset class of 2026 is going to be the long bond, the 10, the 20 year, and the 30 year duration.
And people say, oh, that's crazy.
Interest rates are going up.
Well, if we get what's coming with the credit destruction and a deflationary scare, and even if the deficits blow out, the long bond is ruled by two things inflation expectations and growth expectations, both of which we are predicting will collapse.
And that'll be the most asymmetric trade of the year because everybody's underweight.
US Treasury long bonds, everybody's underweight duration.
And in a deflationary scenario, they perform quite well.
And we think that's what's coming.
But that's only if you have a higher risk tolerance, if you want to make money, if you just want to keep your money, buy T-bills or stay in money market funds.
Deflationary Scenarios and T-Bills00:08:15
Where can people follow your work at and go and get some of those reports for those that want that as well?
Yeah, so our firm website is financetechnologies.com with a PH.
We have a number of reports available.
I'm also found on X at Dowd Edward, D O W D Edward, and I have my own website at Dowd.com if you want to follow me there as well and sign up.
And this is the proper website.
I showed it before.
It's Foundation.
Okay, Foundation Technologies.
I'll give everybody the link.
And I'll have to digest some of this.
You know, politics and law is a little bit easier to understand than the economy because all of this sounds like man made.
It is what it is, man made stuff that I don't know how it works.
And just, you know, you hope to buy something good and have it go up in value.
Any stock picks, just to end with one last recommendation?
Yeah, no, I don't get any individual stock picks.
It's always dangerous.
Well, the only people who get good stock tips these days are.
Those really close to the White House, shall we say?
Ed, thanks a lot, Ed.
We're going to carry on.
So I'm going to read some chats that have nothing to do with you.
So I don't want to monopolize your time for that.
Fantastic stuff.
You'll come back on and we'll see where this goes between now and November 2026.
Absolutely.
Thanks, guys.
Godspeed.
Thanks, Ed.
I think there were a couple people you wanted me to make fun of, right?
To Marcus.
Take the Donald Trump approach.
Burn some more bridges.
Burn a few here.
Burn a few over there.
Robin, the.
The people freaking out about your 25th, they don't understand.
They're the new Groypers.
They're the new Islamofascists coming in.
Islamofascists, Islamofascists.
Let me bring up some of the.
JD Vance appearance at Turning Point, the event, it was almost all empty.
And it was all kids coming to complain about Israel and the Epstein files.
Yeah, look, so this, it's not that I don't trust anything anymore.
I've now been sort of not bitten to the shyness level.
I don't know what's real anymore.
I, you know, people, I saw the videos of an empty thing and I was like, okay, it might be security.
They might not be able to have the events at the same time.
That's good.
So, They couldn't get the tickets.
People just didn't come, which is the first time in years that they've had that low attendance.
No, but the problem is that, you know, whoever it is, the they, whether you think it's just Tyler Robinson and his furry boyfriend or, you know, furry activists or, you know, well, remember Dave Chappelle said, We know who they are.
Remember that?
They started a live joke routine.
Whoever they are, not saying who they are.
Now, some of the crumble rants I didn't want to read with Ed in the room.
Kick off your health journey, not this one, Biltong, the one above it, by getting some tasty high protein meats next.
Biltong is packed with B vitamins, iron, zinc, creatine, and more.
BiltongUSA.com.
My favorite snack is Biltong.
So, BiltongUSA.com.
It's a great snack.
Healthy, good, good, you know, well done, you know, tasty.
It is amazing.
And apparently, according to DominantOne, healthy women.
Oh, Biltong likes healthy women when they put Anton's sperm and juicy meat in their mouths from BiltongUSA.
Don't read this out loud.
I'm just not reading with our guest.
Then we got, I got some Biltong on my foot this morning.
I had a foot on Anton's sperm and juicy meat.
Don't read this out loud.
King of Biltong is busy packing Anton's sperm and juicy meat.
It's your pleasure.
Okay.
Don't read this out loud.
What was I going to say, also, Robert?
It was over on vivabarnslaw.locals.com.
There was some from Encryptus who says, Hey, I'll miss you.
Been hard at work this time.
Poked my head up again.
Love you guys.
Always a pleasure.
Remember other Viva?
I have a lot of news about Amos Miller.
If we meet at the farm, I wasn't able to make it down for that.
Did I get all the rest of these?
Now, Robert, before I go, I'm doing a vehicle vlog.
I just want to pick your brain on two things the superseding indictment in Brian Cole Jr.
Yeah.
Can you imagine doubling down on dumb?
Well, no new facts are alleged.
Why didn't they?
But we're going to get into this in the Rumble Premium side.
We're just going to go find whom to raid.
Oh, and by the way, everybody, if you're still watching on the Rumble platform, I enjoy the trolls.
I don't mind.
I just want you to understand you are the ones who look like the idiots.
That's what you need to understand.
Chat up OA, it's good for the algo, but you look like the idiots when you come in here.
I'm not getting into the quartering drama.
I don't care about freaking gossip.
I'm not even getting into the, what's his name?
The not clavicular ODing.
Like, this is.
This is interpersonal gossip.
He's a kick guy doing effing drugs and ODs, apparently, live on kick.
Like, this is high school level bullshit.
We covered a couple of these.
You remember that guy they beat up for social media in France and whatever?
It's so bad.
These are kids who don't have proper parental influences in their lives.
You know who doesn't have that problem?
The Amish.
It was great this weekend.
And for those out there, tickets are now for sale.
For the 1776 Law Center.
You just go to 1776lawcenter.com for the Quarter Century Celebration of America Conference.
I'm actually going to see if Ed can make it down, but we got Alexander McCorris, Larry Johnson, Daniel Davis, Taste Hughes, Greg Hartley, Scott Rouse.
It's going to be amazing.
The one and only Viva Frat will also be there present.
I'm coming down.
This is going to be on our way back from Montreal.
So we're going to be doing, I think, to the extent I got to go back to commie Canada, Montreal, Chattanooga, Florida.
I don't know how many members of my family I'm going to have.
I'm going to have Louis the Lobster.
Speaking of which, apparently, there's a new Tennessee law that's being proposed about when kids can appear on social media.
They have to consent and they got to get a piece of the action.
So the little one can be like, Dad, I need at least 5% on this one.
Don't worry.
He gets it anyhow.
I'm going to bring down a bunch of Louis the Lobsters.
We're going to sign these in person.
It's going to be fantastic.
August 1st, August 2nd.
Correct, Robert?
That's right.
Literally the first weekend of August, first two days of August.
And the 1776lawscenter.com.
We got a cap on how many tickets we got.
So go ahead and hop in and get them whenever you can.
But it'll be a lot of fun.
Good conference.
We met at the event, at the Amos Miller event.
Folks met this chef who's a long standing White House chef.
He was like there in the eighties and nineties, so that he wants to help be part of the seventeen seventy six event.
So that's cool, too.
So it'll be a lot of fun.
I have chef, I have White House.
We even had a really cool poster made by one of our board members who made a really cool poster for it.
I'm going to hold off on my White House chef jokes because it might still be too soon.
We're going to go raid Redacted.
So say hi to them.
Let's see what their headline is today.
If you want to opt out, you can opt out.
Stick around if you're in Rumble Premium or Viva Barnes Law.
Locals.com.
And their headline today is this.
Somebody asked, why not, Chef?
I thought Obama took care of that guy.
Comedy is time, tragedy plus time.
But even so.
Yeah, that's a Woody Allen joke in one of his movies.
He's like, you know, yeah, comedy is tragedy, but plus time.
I always forget the plus time part.
And Woody Allen also said that marriage is adoption plus time.
But a beam, but a boom.
I made that up.
I just made that up.
That could have been my one minute on comedy.
That was pretty good.
That was pretty good.
All right, so we're going to go into the Rumble after party.
We're going to talk about the.
Well, we're going to go over it, obviously, in greater detail on Sunday.
I'm having on tomorrow Stuart Rhodes of the Oath Keepers.
Oh, yeah, that's great.
They finally reversed that.
It wasn't for noble purposes, though.
That's what I want to pick your brain about, Robert.
We were going to do this in the after party.
Enrique Tario, Stuart Rhodes coming on tomorrow.
We're going to talk about that.
I'm going to do a car vlog tonight about the superseding indictment, but I want to pick Barnes's brain first.
So we are updating to Rumble Premium and VivaBarnesLaw.locals.com.
Shout out.
What is it called?
It's called shoutout.fans forward slash Eva.
Robert, I have no idea how this is going to work.
I did a 10 minute presentation video wise for Jason Levine.