Antitrust Lawsuits, Bitcoin, & Interest Rates With Jeremy Lakosh

Jeremy Lakosh [00:00:00] Sometimes I wonder, would the Central Bank be better if it wasn't run by human beings, but run by an algorithm that responded to certain immediate moves in the economy? You

Vance Crowe [00:00:15] Know, people talk about, oh, I go over to Europe and I don't eat their GMO food. But the reality is it's just that Europeans aren't allowed to grow GMOs and they can grow them in Spain, but they are allowed to import them. And so much of what they import in order to make their own processed foods are GMO crops that are grown in the United States.

Jeremy Lakosh [00:00:36] There's few things in this world that are more frightening than powerful government bureaucracies that are in total fear themselves when they are panicking about something, there's no telling the amount of destruction that they, that they could cause. Am Jeremy Lakosh a retirement community CEO, living in Eureka, Illinois, and you are listening to the Vance Crowe podcast.

Vance Crowe [00:01:06] Welcome back to the podcast. I'm glad you're here today, Jeremy Lakosh returns to talk about DE economy. Longtime listeners of the podcast will recognize that this is an incredibly popular author on the website Seeking Alpha, which allows great investors to be able to talk about their strategies and models. We're very fortunate because I've developed a relationship with Jeremy every once in a while when I have questions about all the things going on in the economy that I'm able to call him up and sit down to talk about crazy things that are happening that might seem out of reach. When you listen to most news shows about the economy today we're gonna talk about that 50 basis point cut that the Federal Reserve made to interest rates and how this now reverberates out into the rest of the economy, including China and the European markets. We also talk about regulations and how some of these new antitrust lawsuits put on by the DOJ are really not good for us. And we do have a small conversation both about Bitcoin and the Japanese Yen carry trade. This is not the normal podcast that people have about economics because there are a lot of times when Jeremy is talking about things that are words I'm familiar with but don't really understand, I'm able to slow him down and be like, wait a second, let me see if I understand this and let me try and explain it in a different way and see if that's right. And Jeremy is infinitely patient and very articulate for his ability to be able to lay these things out in ways that any of us can understand.

Vance Crowe [00:02:38] This is a great podcast and I think you're going to enjoy the insights that Jeremy brings. We're gonna get to that in just a moment, but I am about to head into speaking season where I am invited around the US to give talks to different audiences, often agriculture audiences about the way that I perceive the world. Sometimes I talk about strategy, sometimes I talk about negotiations. But this winter season, I'm going to be giving a talk that has become very popular called Changing Minds. In this talk, I describe how it is that the human mind changes when they have the opportunity to tell their life stories. Hundreds of times I have seen that when people sit in this studio or online, they talk about their lives and they share things that are really important to them, things that they haven't gone back and thought about in a really long time, and that the end result is that after they leave this studio, it's like they've turned a chapter and started to say, alright, I've been able to look back on what I did. Now what am I doing? And this has prompted people to make big changes in their lives, maybe take their first vacation in 40 years, or finally move off the farm and in with your sister in order that you can relax and finally make those life changes that have been hard to do. So this talk changing minds is not just about that, that it happens, that people's minds change, but also what I've learned about how to get people to open up and want to share their stories.

Vance Crowe [00:04:08] How do you prompt somebody to share those really important details about their life so that they can become more flexible? Ultimately, I believe that it is a way of persuasion to be able to understand another person so well that you can tell their story, that they've been comfortable enough to open up to you, that you can find common ground on issues that have been very difficult. I see this not only in the lives of legacy interview customers, but I also see it in my own life, both with my own parents and my in-laws that the ability to talk about where you came from and how you did it often opens them up to be able to talk about where we're heading in the future. If you are interested in having me come address your audience and we can tailor this talk changing minds to fit what you guys need, maybe it's to a young audience that wants to talk about how do I get my parents to open up and let go of some of the things they're clinging onto or to an older audience to talk about the value of sharing stories and what it can do for you to be able to find somebody that wants to hear your stories and how do you make that happen? Then go to vancecrowe.com and look me up. We can have a short chat about your conference that's coming up and what that audience needs to get out of it, and then we can tailor that talk to meet your audience. Or if you're interested in having me interview one of your loved ones to be able to get their life stories out so that they can turn that chapter and move on to something new, go to Legacy Interviews dot com to find out more.

Vance Crowe [00:05:40] Alright, without further ado, let's head to the interview with my good friend Jeremy Lakosh. Jeremy Lakosh, welcome back to the podcast.

Jeremy Lakosh [00:05:50] Thanks for having me back, Vance.

Vance Crowe [00:05:52] Well, the big news has been that the Federal Reserve, the Wizards have come down from their mountain and they have decided to cast a spell on our economy in hopes to stimulate it by saying the magic words that they're cutting the interest rate by 50 bips, which ultimately is just one half of a percentage point. What in the world does one half of a single little percentage point matter to a modern economy?

Jeremy Lakosh [00:06:19] So yeah, it's, it, it was a little bit of a surprise to see the drop of 50 basis points. A lot of folks were expecting 25, but what was interesting about this move last week is the fed telegraphs what they're going, or what they're planning to do in advance in an economic projections report. And this report actually showed that they were going to speed up rate cuts compared to what they were gonna do three months ago. And so the 50 basis point reduction isn't so much that big of a deal, but what the Fed said last week was that they're gonna reduce the Fed funds rate by an additional 225 basis points over the next 18 months. And so what they're, what they're saying is that they believe the net neutral interest rate in our economy is just under 3% and that they can somehow cut us all the way down there while inflation is above 2%, but it's gonna go down to 2% while that stimulus is occurring. And so that's where I have a little bit of skepticism regards to this rate cut path that they're taking. Not so much that they're moving down from a restricted level, but where that final point is.

Vance Crowe [00:07:47] So if we were to slow this down a little bit and talk about what they've been trying to do, what they, when they were raising interest rates, their goal was to make borrowing money more expensive so that that way people that had money available had to spend it rather than go out to the market and try and borrow it. Because if you borrow it at a higher interest rate, now you've gotta make more money in order to be able to pay that back. So what this has the net effect of is you don't continue to expand your business. You actually start contracting how many people you can hire, in fact, letting people go. Then those people don't have a job, so they stop spending money at things like restaurants or on other things that they don't need. And this starts slowing down inflation because there's less dollars chasing the same amount of goods. Is this an accurate representation? And then what is the, you know, 50 bips have to do with how that all works out?

Jeremy Lakosh [00:08:41] Yeah, so I, I would even roll the tape back a little bit further. We got into the restrictive rate hikes because of the way we responded to the pandemic. We throttled the labor force by sending 25% of the labor force home. We created a good shortage, which then caused prices to spike. Those prices were seen as transitory at the time. You know, when everybody gets back to work, everything will be fine. But what ended up happening is the goods inflation translated over into the service sector and began to affect things like housing, utilities, everything under the sun. And so that point became evident that if something wasn't done, we were gonna have a real big pricing problem on our hands. And that's when the Federal Reserve decided to do 75 basis point hikes back to back to back, and eventually they got up over 5% and held them there while they waited for inflation to come down. So now they, when they held at five to 5.5%, what they were looking for wasn't a crash in inflation, they weren't looking for it to just go away overnight. They were looking to see that it would gradually come down towards 2%. And they were looking at the core, they were looking at things that didn't include food and energy. They were looking at pricing in the economy that is traditionally stable. And so it was over 5% when all of this rate hiking started and it began to slowly, gradually come down.

Jeremy Lakosh [00:10:19] Now, where we ran into some issues is from about three and a half percent on down. The rate of change really slowed had. So what basically is happening is that I think the economy is getting more use to higher interest rates than what the Fed may think. But, but the fed's argument is that they also have a mandate to protect the labor market, and the labor market is now weakening and unemployment is beginning to rise. And so they have to bring rates a little bit further back down to protect the labor market. And so the 50 basis point cut is essentially a signal that if, if they stay where they are right now, if they stay at the five, five and a half percent, they're going to bring the labor economy down into a very weak position, which would then cause the consumer to pull back harder than what we would want and would cause inflation to actually drop to deflation and create further growth problems in the economy. So what they're trying to do is they're trying, this is what the soft landing is. We gradually bring rates down. We hope that inflation continues to come down with it, and we hope that the labor market stays strong. And in this case, the, the current unemployment rate, I believe is 4.2 or 4.3%. The Fed wants it to stay under 4.5% through the end of next year. So that's what the soft landing is that they're trying to pull off.

Jeremy Lakosh [00:11:50] Unfortunately, I think it's like threading a needle. It's, it's much easier said than done. And I think we're entering in 18 months of very precarious economic activity that could threaten to pull the Fed either way, either back up or much lower, much faster.

Vance Crowe [00:12:12] Okay, so now I'm with you on where they went with that half percentage point. Yeah. But you mentioned that at the same time they were doing something in the back door, you know, by saying, Hey, we're gonna make all these much, much bigger cuts over the next few months. I mean, my sense when I was, 'cause I was around banking as the interest rates were going up, was that this was an inducement for people to go borrow now because they knew money was gonna be more expensive later. I, if you're signaling to the market that you're gonna continue to make cuts, doesn't this prevent people from saying, Hey, I'm gonna make use of a half a percentage point down instead saying, well, if I can hold off and, and wait till you go down, you know, several percentage points, that's gonna be a lot better for me. Doesn't this slow down how much people wanna get into borrowing money?

Jeremy Lakosh [00:12:59] Yeah, so there is a risk of lending actually slowing further than what the Fed wants and and causing more economic slowdown than, than stimulus because people in the marketplace are looking ahead. They're looking to what's going on six months from now, what's going on a year from now? And so yes, if the Fed is projecting a much lower interest rate a year from now or or further organizations are going to hold back on making immediate investments. And so yeah, you do have this, again, it's, it's, this is a very unknown period of time and this is usually when some of the more precarious things happen where you could see inflation spike back up and the Fed has to come in and raise rates. Or you could see situations where there's a drop in credit demand, there's a drop in investment, there's a drop in labor, and now all of a sudden the Fed has to speed up what it's doing and stimulate more to try to get the economy back on track. This is, this is the tossup moment. The next 18 months is really a really a tossup moment for what's gonna happen for the rest of this business cycle. And and fortunately if you're out there and you're wor worrying about the election, I don't think, I think this issue is bigger than whoever wins the election.

Vance Crowe [00:14:31] Oh, really? Because my sense is that the Federal Reserve is now subservient to the treasury, and the treasury is the person that runs, that is chosen by the president. So my sense is that this is entirely political. You have a different sense.

Jeremy Lakosh [00:14:47] Well, that is true, but what I'm saying is no matter who wins the next election, this, these problems are going to be exactly the same. I don't see anybody out there that's going to reduce the federal deficit. I think borrowing is gonna be just about identical. Whether there's a Harris administration or a Trump administration, I think that whoever is in the Department of Treasury is, is going to exert the same amount of influence over the Fed that's being exerted. Now, I think that the behavior between the Congress and the Federal Reserve in some of these hearings that we see will not change whether it's a Democrat controlled Congress or a Republican controlled Congress.

Vance Crowe [00:15:33] So, you know, we've known each other for years. I am absolutely of the mindset that the Federal Reserve is not able to control the economy in the way that it's presented. You know, the idea that they have a soft landing. I've been an extreme pessimist about this for a long time, although so far I've not been proven correct. I mean, so far they've been able to, you know, keep the, the thing in the guardrails, you're not that way. You don't seem like you're an extreme pessimist about the Fed in the same way that I am. Is that right?

Jeremy Lakosh [00:16:03] I would say I'm a moderate pessimist. I see there is a, there is a role to essential bank to support a currency. I kind of fall along the lines of what Milton Friedman talked about in that the bank should step in and support the currency during certain existential events. What we're seeing though is we're seeing the central bank not support the currency when it's needed, but constantly intervening in the economy, which is a totally different philosophy than what Milton Friedman had had put out there. And so that's where, you know, sometimes I wonder, would the Central Bank be better if it wasn't run by human beings, but run by an algorithm that responded to certain immediate moves in the economy versus the human beings, which the Fed, you know, to your point, while, while we have not seen any issues right now, we saw 'em in 2007, the Fed was over accommodative prior to that cycle, and when they went to Titan, the asset bubble of the housing market crashed and they had to go to zero rates. We saw it in the 1990s, the mid 1990s. The Fed was actually in the very cycle it's in right now, trying to go down to a neutral rate when there was a foreign exchange crisis that caused them to reverse course. And so the soft landing is a very, very, very hard thing to pull off because you have human beings who are data dependent when it comes to raising rates, but very reactionary when it comes to lowering them.

Vance Crowe [00:17:52] Yeah, I mean, I heard Powell saying during this conference when he stands up and he says, we're gonna lower it by 50 pips, they asked him, Hey, well you are doing this, you say in response to data, that data came out in July, but you guys didn't meet in July, so would you have lowered the rates in July? And he said, yeah, I think we probably would've. And so it's like this, to me, this bizarre world in which it is both political and being run by a bureaucracy that has these rules about when they can and can't meet and the markets, you know, can be turned on and off. And it, it's like, to me the soft landing is, is a myth that keeps, it's like a load bearing myth that allows them to continue to mess around with the economy that people are like, well, maybe they can do it. And you know, I think that ultimately, you know, by moving all these levers around, the entire global economy is impacted by these levers. And you're gonna kick something off that sends a wave, a tsunami back to the United States and, and can't be handled, can't be predicted, and certainly can't be handled.

Jeremy Lakosh [00:18:58] Correct. We are the global reserve currency of the world. And so what we do can affect international markets and what happens in those international markets can affect the United States. It should be no coincidence to anybody that China, right after this surprise cut has come out and announced a ton of stimulus to support their economy. China is highly, highly dependent on their currency being weak to the US dollar. And when the US monetary authority lowers its interest rate, it is weakening the US dollar relative to other currencies. So now you're inadvertently strengthening the Chinese currency, which hurts its ability to export goods and services to the United States and to other countries. And so China has to respond by doing something stimulative. And it doesn't help that China is in the middle of a real estate asset repricing, we'll call it a repricing 'cause some people are calling it a crash. Some people are calling it something else. Their assets are repricing. They've got empty buildings all over the place. They've got banks that are in trouble. They've got real estate companies that are failing. They're going through what we went through in 2007, 2008. And so the last thing they need is for their trade arm to be cut and to hurt their economy.

Jeremy Lakosh [00:20:30] So they're dumping as much of their currency as they can out onto the market to keep the trade part of their economy going.

Vance Crowe [00:20:39] Okay, so let's talk about this because I think when people hear like weakening or strengthening currencies, it doesn't really make a ton of sense. But if we, we were to break this down and then get to the part of, well, why are they dumping their currency onto the market? When you say that they're lowering, if, if the US dollar weakens now all of a sudden that means that they can buy less goods from China. Is that, and then so then they do buy less goods from China,

Jeremy Lakosh [00:21:06] Right? So it now becomes more expensive for Americans to buy from China because if China stays on the same currency regime and they don't make any changes, and we drop our interest rate, China's currency becomes more expensive to Americans and therefore their goods become more expensive. And so you have essentially this issue where we demand less of China's goods, its services due to that, and China's economy shrinks accordingly.

Vance Crowe [00:21:41] And so now China is sitting there saying, uhoh, we've gotta do something to stimulate our economy. I was looking over the last couple of days of what they've been doing, and I think a lot of economists thought their first moves in the last week were gonna be their last moves, but now they just keep doing it. So they've already lowered their current mortgage interest rates by a half a percent. So you woke up yesterday morning and the Chinese government who, who, who holds all the interest rates on their mortgages says, ah, you only have to pay, you get to pay half a percent less. They have a big reduction in the reserve requirements for their bank. So they reduce that by a half a percentage point, meaning if you're a bank and you normally have to have 10%, I don't know what China's system is, but let's say you have to have 10% of the money that you loan out sitting in reserves. Now they've just lowered that by a half a percentage point. So that's freed up over $142 billion worth of M two money. The, the, the amount of money that they can lend based on how much they have to have for capital reserves and many, many other stimulating things. So you described this as being similar to the 2007, 2008 crisis in the us What do you think, how does this play out? They're, they're really hitting this with both barrels.

Jeremy Lakosh [00:22:58] So even though China could have further economic weakening that could affect America, there are some positives to what's going on. For example, China now holds way less several hundred billion less in US treasuries than they did five or six years ago. Again, because they have to raise liquidity, China has to sell US dollars. And so they're selling US treasuries. You know, for years they were buying US treasuries and we were talking about how this is a national security threat and how it's a big problem. I believe the last statistic I saw was that it, it's down $300 billion. They, they hold $300 billion less US treasuries than they did five or six years ago. And so the United States is less dependent on China as a broker or a holder or an investor of US treasuries than it was before because China is in a cycle where it needs cash and it's selling those. And so I expect to continue to see China selling US treasuries and getting to a point where if it gets too low, China will have to begin to borrow money and take on a public deficit in order to fund its activities. And I don't know, I don't know ultimately what that would look like because China's economy is so much different than ours.

Jeremy Lakosh [00:24:30] So much different. And so it's easy to think, oh yeah, they could just borrow money and be fine. You know, there's, there's too many moving parts to judge that on one trajectory.

Vance Crowe [00:24:43] So when they sell their treasuries, this means they've been holding a little piece of paper that says, you know, at the end of 10 years you, you bought, let's say a hundred million dollars worth of treasuries and we're going to give you, I don't know, 110 million, 105 million. I don't know what it would be, but, and if they sell it, they then get us dollars back. So how, what is it that they purchased in and when they sell it, what do they get back? And now how does that impact them?

Jeremy Lakosh [00:25:12] So what they're doing is they're doing an open market operation where they are going to take that, either convert it into US dollars and then do a currency exchange into their currency, dump the dollar out, pull up their currency. Or a lot of these central banks have gotten very creative over the years with swaps. I think they can go from selling US treasuries to lifting their currency up simultaneously. They don't need to take possession of US dollars and then dump them. I'm pretty sure dumping the treasury is, is all that they need to do. But basically at the end of the day, they're trying to get more of their currency to dump onto their domestic market and they, they have to sell us treasuries as part of that strategy.

Vance Crowe [00:26:03] As I'm hearing you describe this and China, what they're gonna have to do, I, it makes sense why the Federal Reserve would telegraph that they're gonna continue to make these rate cuts. Because if the other countries around the world start saying, okay, I know where this is headed, I've gotta make these reactions proactively so that that way I don't get stuck as they make wild moves. What do you think should other countries rely on the Federal Reserve saying we're heading all the way down there over the next 18 months? Or do you think the Fed may reverse course and and go back upwards if they get the numbers they don't like seeing?

Jeremy Lakosh [00:26:42] I think we can figure out pretty quickly whose economy is strong and whose is weak around the world. Because with the Federal reserves saying they're gonna lower interest rates over the next 18 months, that's telling us that the price of US treasuries is going to go up. So it would benefit any investor, foreign or domestic to buy US treasuries because as the rates go down, the prices go up and you can earn an attractive capital return when you sell them. So if an economy, a foreign nation is selling US treasuries while interest rates are going down, that's telling me that they're in a position where they are forced to do that in order to stimulate their economies versus buying US treasuries and building their reserve up further and enjoying the capital appreciation benefits that go with it.

Vance Crowe [00:27:40] Do you see anybody out there soaking up treasuries with the money they have?

Jeremy Lakosh [00:27:45] The G seven has been, as a collective group, a buyer of US treasuries. They were the biggest buyer of US treasuries when the pandemic response, when the, the, the market was flooded with debt, if the G seven were to begin selling US treasuries, I'd be more concerned about our debt markets because they're holding about $2.6 trillion of US treasuries. The, the world, the foreign, the foreign holders of US treasuries is somewhere around seven and a half to 8 trillion. And so the G seven is playing a, a big, big role in that, in, in terms of purchasing those, there isn't anybody else that I can think of that is a major purchaser outside of that group. But the Treasury Department does release monthly the holders of US treasuries. So you can actually see the flows, the changes of, of each of the countries. And China is the most notable seller of that group.

Vance Crowe [00:28:57] Well, I just heard an interview with that Jon Stewart did with Christine Lagarde, who used to be the French finance minister, then she was running the EU currency, now I think she's with the ECB, which I, I understand is the Federal Reserve of the European Union. And she and John had this like weirdly joyful conversation about dropping interest rates and she said, yeah, you know, we actually just did this before you did. You guys dropped it 50 bips. Well we dropped it 25 bips and then a little bit later we dropped at 25 more bips. What is going on with that, the European Union also dropping and how, how is this playing into the larger economy?

Jeremy Lakosh [00:29:40] So I wanna start by saying Christine Lagarde is an interesting person because she is probably, her and Jamie Dimon are the only two people I think left on the world financial stage that were in positions of power when the financial crisis hit oh 7 0 8. So she's been around a long time in Europe and basically what's going on over there is their growth story has unraveled their, their economic growth is under threat there more so than it is here in the United States. And so they're cutting interest rates for a slightly different reason. Europe will tolerate more inflation than the United States will, they have no problem with 4%, 5% inflation. So it's easier for them to cut interest rates than it is for us. And in fact, they had negative rates for a period of time with the ECB prior to doing their rate heist. I'm kind of surprised that they haven't cut more just knowing the European sentiment and their tolerance for inflation. But yeah, what

Vance Crowe [00:30:57] Does that, what does that mean? They, they're more tolerant of inflation. I mean, like their people don't care if their food gets more expensive or they don't, they don't like their, the people that are in control own assets. And so they're watching their wealth go up as the value of the, the money in your bank goes down.

Jeremy Lakosh [00:31:14] Europeans are more socialist or more left-leaning on the political spectrum. So they're okay with price inflation because they're more dependent upon the government to solve those issues. They also are more tolerant of higher unemployment. Europe has for a long time had way higher unemployment than the United States. It's the same thing. So they tend to be more in favor of policies that involve more government spending, more deficit spending. And the consequences of those policies have been higher inflation, higher unemployment.

Vance Crowe [00:31:53] Well, and they're also watching their industrial base just get eroded right out from underneath them. When the Germans worked out a deal with the Russians to have a natural gas pipeline built so that that way they could have cheaper electricity and the energy to run their factories and they used to be a powerhouse, when that mysteriously blew up, then all of a sudden the amount that they have to spend in order to make their factories run goes way up so they become less competitive. It seems to me that the European industrial base has hollowed out worse than Detroit and has very little hope of coming back anytime soon.

Jeremy Lakosh [00:32:30] Yeah, we could learn a lot from Europe. They are a chapter ahead in the story of what we're trying to pursue here in the United States. There are various environmental policies that have blown up in the faces of various governments in Europe. We've had, I don't know how many different agricultural groups protesting over there because they can no longer produce their product at a competitive price due to the restrictions that government takes on. And, and I think some of that pipeline issue probably did have to do with environmental policy as well. Environmental policy in Europe, you pretty much cannot do anything with respect to coal or hydrocarbon generation anymore. I, if you have an additional demand for it, it's gotta be imported. If you do it domestically, you're violating pretty much any air pollution law that they have. And so we should be paying more attention to what the Europeans are doing and what the economic consequences of what the Europeans are doing is because we're playing that story just 20 years behind here in the United States.

Vance Crowe [00:33:45] Well, I mean, so many of their economic policies cut off their nose, spite their face. And it, what's funny about it is something like GMOs, you know, people talk about, oh, I go over to Europe and I don't eat their GMO food. But the reality is, it's just that Europeans aren't allowed to grow GMOs and they can grow them in Spain, but they are allowed to import them. And so much of what they import in order to make their own processed foods are GMO crops that are grown in the United States. I don't think that that's ultimately done because it's, it's good for the environment or better for their farmers. I think it's done to, yeah, keep farmers propped up. They they have to be much, much less efficient. And because they're less efficient, it makes those, it makes who are the few people that do own farmland and assets able to sustain themselves. So they don't want this collapsing farmer market and they're doing all these weird things that seem totally backwards if you're looking at it objectively that people want less expensive food, healthier food, I don't know. It's not a good situation in Europe.

Jeremy Lakosh [00:34:52] Yes. Yeah. I I think Europe's separate from their economy. Well, it's kind of part of it, it's a subset, but the way that they trade is another very, very good lesson. You know, needing to import your energy, needing to import your food. A lot of times they shake that off as well. We're a mature economy that's been around, you know, hundreds and hundreds of years and because of the way we're structured today, that's just how we have to set things up. I don't think that's true at all. I think they have the capability on the continent to grow their own food. They did it for hundreds of years. I think it's just poor economic policy that is causing this to happen.

Vance Crowe [00:35:38] Yeah. As I watch things, decisions that happen that cause inflation, I look at it and say, well, who are the asset holders? They're, they're ruling class because if the value of your dollars or euros or whatever goes down because you have to spend more money to buy things, but that also increases the price of it. So people that own a house now are getting to feel that appreciation. It costs more dollars to buy your house. Your house didn't actually become more valuable. But relative to other people, you're, you're growing. So the the ruling class, the ownership class doesn't get harmed nearly as much and in an inflated currency as those that are, that are the have nots. So the rich get richer and the poor get poorer.

Jeremy Lakosh [00:36:22] Yeah, very, very true. You, your wealth disparity will grow during an inflation inflationary period. And in the United States it's even more complicated because we have so much consumer debt. So now your consumers that are taking on debt are further impacted when you have to fight inflation with higher interest rates, which requires more pain to get out of, and therefore your wealth disparity becomes more permanent.

Vance Crowe [00:36:55] Yeah, I don't really know very much about what's going on with consumer debt now, you know, because for a while there you hear all these headlines that are like, oh, it's getting bad. Oh, there's more consumer debt. But eventually, I mean, it doesn't, it doesn't seem to have this collapsing impact or some narrative that's clear to understand consumer debt continuing to go up into the right.

Jeremy Lakosh [00:37:17] Yeah, it's still, it's still growing. The delinquencies are on the rise, but they're coming off of very low pandemic levels. The, I have seen a couple of indicators that have said that consumer debt is performing about the same as it did in 2010, which was a really bad year, but it isn't, it, it isn't a huge time bomb just yet. Now the leading indicator there would be the labor market. If the labor market were to suddenly really go south and we saw an unemployment rate going north of 5%, I think our consumer credit defaults would, would skyrocket and we would see some trouble. Although it would be segregated. You're not gonna see big banks collapse. You're not gonna see a lot of financial institutions go under, they have very little consumer debt on their balance sheet. It's gonna be some of these sole consumer lender processors that would, that would bear the pain.

Vance Crowe [00:38:18] Yeah. I don't know how much you followed this. I just saw the headline that Visa just got this antitrust lawsuit put against them by the Department of Justice, and thankfully Nancy Pelosi's husband was able to sell about $500 million worth of, of that stock before the DOJ investigation. So it looks like it did very well because once Visa got hit with that lawsuit, they lost a ton of market cap. So really hands off to the Pelosis for making another great trade.

Jeremy Lakosh [00:38:49] Yeah, yeah. That situation has always been amusing to me. You know, there was a 60 minutes reporter, he is now retired, I cannot think of his name, but he actually asked Nancy Pelosi in a press conference about how her and her husband got to get Visa stock prior to the IPO. They were actually able to buy it pre IPO and her res. Well, she really didn't even give a response. She was kind of like, excuse me, but that yeah, that was back in

Vance Crowe [00:39:20] The day when Yeah, how dare you ask that, that I, yeah, she, I i she freaks out is like, you know, how, how could you possibly say that I'm using insider trading when I'm clearly using insider tradings?

Jeremy Lakosh [00:39:31] Yeah, yeah. And I, for the life of me, I cannot remember that, oh, Steve Kroft, it was Steve Kroft who is now retired from 60 Minutes. He was probably their last good investigative journalist. Yeah. How I, I think she wasn't expecting that question from CBS news, but,

Vance Crowe [00:39:51] You

Jeremy Lakosh [00:39:52] Know, their, their reporting led to a law being passed against insider trading, which was then reversed when everybody stopped watching. And now they're able, members of Congress are able to go back to trading stocks and everything based on any and all information that they have access to the, the Department of Justice and the antitrust, the FTC chair specifically, and the antitrust division. They've really turned into micromanagers when it comes to some of the lawsuits that they're filing. For example, they filed a lawsuit banning the merger of Capri Holdings and Tapestry, which combined would make like a $15 billion company, which is nothing in the, in the grand scheme of, of market cap. But they're upset because it may create a monopoly in the market of luxury women's purses. And, you know, I'm sitting there thinking, is this, all that these folks have time to do is to police a merger between two companies that, again, quite frankly, maybe they'll make the s and p 500 when they're combined, but it's not something that is going to hurt the American consumer. It's not even a necessity product. It's not like we're talking about a food processor or an airliner or a transport company.

Jeremy Lakosh [00:41:23] We're talking about luxury, luxury grade purses. And so yeah, the, the Capri Holdings tapestry case is currently underway and, and I'm watching closely because I own shares of, of Capri because I think the deal's gonna, the, the lawsuit's gonna collapse and the deal's gonna go through.

Vance Crowe [00:41:45] I mean, it's totally absurd that the DOJ does this stuff or that that, that they even have this power. To me, there is no such thing as a natural monopoly. The only time you ever get a monopoly is when you have some sort of regulatory body that says, Hey, we're gonna control how you can do business. And then all of a sudden there's only two or three large companies that can handle getting over those bureaucratic leaps. And so then you're basically creating this monopoly through your regulation. But in the world of a free market, if there's one company that comes in and, and soaks up all of the business in that area, and then they start doing things like raising prices, well then a new entrant comes into the market and undercuts that. And I think we saw that in the o in the oil and gas industry before they went in and started saying, oh, we've got these antitrust. Every time Rockefeller tried to buy up everybody and then raise prices, then a new entrant would come into the market, start producing it at a cheaper price, sell it for a lower price, and start gaining market share. And so in the real world, in a, in a, in a free market, there are no monopolies. The only thing the DOJ is doing is policing a problem that they created.

Jeremy Lakosh [00:42:57] Yeah, yeah. You're describing the health insurance industry to a TI mean, we've got maybe four or five large publicly traded health insurance companies in the United States. It, it did not use to be this centralized. And so when, but when the Affordable Care Act came along and said that about 30 million Americans had to have health insurance, and oh, by the way, if you are controlling a health insurance company, you have all these new regulations you have to abide by suddenly consolidation was the only way you could function. And in the end, the consumer loses because, like here in Illinois, we're only allowed to look at three different companies for health insurance options. So at that point, you know, the consumer has very little choice. The, the insurance companies do great. I mean, look at United Healthcare stock since the Affordable Care Act has passed. I'm sure the Pelosi's were holding that at some point. It's through the roof. And so yeah, the, the government is clearly creating these monopolies. And then on the other side, an example that, that you, you talked about with the market kind of coming in and taking over, I would use Google as an example there, where the market has been allowed to function properly at the benefit of the consumer. Look at how good Google's product has been over the last 20 years in terms of search engines and search capability and the transmission of knowledge for a society.

Jeremy Lakosh [00:44:33] You can do a Google search now and find tons of things that you'd have to drive to a library to find out 25, 30 years ago a huge benefit to our society. And, and the only way they've been able to keep their market share up and it, it has been declining in terms of search, but the only way they've been able to keep it up is to get better and better and better. They wouldn't be doing Gemini if open AI hadn't come along. They, they are responding to threats and they're doing it in the right way to benefit the consumer.

Vance Crowe [00:45:07] Yeah. And one of the things that you notice is as a company gets to that declining phase is there are more entrants. They don't keep up, they have too much bureaucratic red tape inside. Then what they do is they turn to the government and they say, you know what? These other people aren't safe. They should have to have these rules on them that, that, you know, make sure that you track what everybody searches. Because what happens if somebody's a terrorist and they're using search for bad things? And then you start adding in that regulation and you make it harder and harder for a new entrance to come in. And it is a story that plays out over and over and over again, totally stifling innovation. Going back to the healthcare situation, you know, one of the, the things that has driven up our healthcare costs is the electronic medical records. And it's like they did, they, you know, it's like you need to go to a doctor. That doctor needs to take notes that they can share with other people and share with you. So now how are we gonna make sure that your medical records are good enough, strong enough, and secure enough that your stuff's not gonna get stolen? Well, what we're gonna do is we're gonna create regulations about how you have to do this and who certifies it. And so then you get these large bureaucratic organizations, the first few entrants there. They put tons and tons and tons of money not into divining dis building a really great electronic medical record system, but instead putting it towards the lobbying arm and the regulations arm to make sure you're filling out all the paperwork, you're, you know, complying with all their security checks. You're not making a better product. You're only making it harder for other people to come in.

Vance Crowe [00:46:40] And if you talk to any small medical company that's trying to start up, one of the biggest things that holds them down is the price of electronic medical records. And we ultimately, as the consumer bear those costs.

Jeremy Lakosh [00:46:54] Not only do you bear it that way, but if you go to a hospital and you are transferred from one part of the hospital to another, you as the patient or the patient's representative has to repeat everything you said at the last stop. So

Vance Crowe [00:47:13] You have a

Jeremy Lakosh [00:47:13] Staff member who asks you the exact same questions and you have to repeat it all again. And my wife and I were dealing with this when my son was hospitalized with RSV because there was constant movement based on his treatment plan. You had to move up critical levels and then down critical levels. And finally, at one time I said to somebody, I go, can't you just go back and read what we told the person? And I mean, she was asking us the identical questions and her response was something along the lines of that she did not have access to that information. They had cre there was so much rules and so much regulation that that one department of the hospital wasn't allowed to see what the other department was entering. And so as the consumer, you end up having your productivity tax 'cause you're wasting your time repeating yourself over again. But you also have your quality of healthcare impacted. You know, my, my son was with RSV in a situation that required almost going on a ventilator. And so they, there were times where they had to make some quick decisions regarding his care. That would've been greatly slowed if I was sitting there yammering for the fourth time about what his date of birth is and you know, what allergies he has and and what medications he's on.

Vance Crowe [00:48:32] Well, and the way that this should get solved is a dad with a child with RSV that's sitting there so annoyed by this that, that he is like losing his mind, decides I'm gonna spin up an app that makes it really easy for you to answer these questions, for it to be transferred from one doctor to another, that you as the private citizen get access to it and, and it, and it interoperates between systems. And then they go to different doctors and say, Hey, let me show you this system and how it works and why it's secure. But that young entrepreneur that is trying to resolve a problem can't possibly do it because of the regulations that are there for them to even begin this process is so onerous, is so extreme that they have no hope of entering new products into the market. So there's never any competition. So these large organizations just continue to get more and more bloat fill out more and more regulations and nothing gets better. It's, it's a form of, of communism. We just don't call it that. We don't really have a word describing this in our like mindset of being capitalists.

Jeremy Lakosh [00:49:38] There is a word that's been thrown around that I like and that is cartel. I really like that term cartel because what you end up seeing happen is you have those two or three big players and they all kinda work in coordination, whether they're communicating with each other or not. They almost behave exactly the same way to stifle competition. The, the word cartel. That, the reason I like it, it first came up when the, the judiciary committee of the house called GM a cartel. That was the global responsibility of advertising group that that tried to, tried to circle social media and tell them what to do and what to say and what to allow. That's a lot how a, a lot of these companies are operating. They, they don't even have to coordinate with each other. They, they basically already know what they need to do to keep the market closed.

Vance Crowe [00:50:38] Yeah, I like that. Calling 'em a cartel and, and like, you understand why these companies end up participating in the cartel? 'cause you either are in or you are out and the people that are out don't have any cho like any chance to get back in. And so you, you, these are people just responding to the market conditions and following in their interests. Speaking of cartels this, in the last week, there has been a bombshell that just came out about, of course my favorite subject, Bitcoin and a thing called Operation Choke Point. So there is a podcast all out there called TFTC and it's hosted by a man named Marty Bent. He had a woman named Caitlin Long on his PO podcast. And they discussed how the, if we recall the banking cascading problem that happened not last spring, but the spring before that, where these banks were all of a sudden completely insolvent SVB crashes. You know, there's all these banks that you're saying, oh, they were totally irresponsible, they didn't have enough reserve money. Well, it turns out that it is a lot more complicated than this and it largely has to do with the, the federal agencies coming into these banks and saying, yeah, even though you have the capital that you're supposed to have, we don't like the way it's structured, so we're gonna radically change things. Jeremy, you probably understand this story on a level. I don't how, what's your overview of Operation choke point and how it kinda rolled out into the, a a small thing about Bitcoin rolled out into the rest of the world?

Jeremy Lakosh [00:52:10] Yeah, I mean I've, I've done a little bit of reading on it and you know, I'm seeing it a little bit as I think the government is concerned about banks taking on other assets and treating them the same way as they would the US dollar. I wouldn't even call it other currencies, quite frankly. I just call it other assets and being custodians of other assets. And I don't think they're gonna be successful in terms of blocking this out just because you've got the SEC at the same time authorizing other derivatives tradings with respect to cryptocurrency. And so eventually there's gonna have to be some custodian involved in some way, shape or form. And there really isn't any other institution out there that I'm aware of other than these either banks or investment banks. And so I think it's a lot of smoke and mirrors centered, centered around trying to demonize the cryptocurrency market and, and keep banks out of getting involved. And you gotta keep in mind too, we're dealing with the federal government who, you know, all these banks that collapsed back in the beginning of 2023 and the ones that collapsed back in oh eight, yet all these regulations in place and they still didn't know that there was a problem. I mean, they're having a tough enough time regulating dollar denominated US banks in their mind, they probably see something like cryptocurrency as way over their head, way beyond their realm of thinking.

Jeremy Lakosh [00:53:50] They just don't wanna deal with it.

Vance Crowe [00:53:54] So there's a lot going on here. And maybe to take a step back, what happened was there was a bank, silver Gate Bank that, and they had the assets that they needed to in terms of people are borrowing this money that they have and they had accumulated Bitcoin, they had enough Bitcoin to be able to cover if there was a run on the bank. And so there were people that came and said, Hey, we're seeing all this stuff go on with whatever his name is, Bankman-Fried. And, and they, so people came in to get their money from Silvergate and guess what? Silvergate had all of it. A hundred percent of it didn't lose a single dollar. The run that happened on that bank didn't really occur, but the feds came in and said, you know what, we don't like that you're using Bitcoin to, to support yourself, to, to be this, you know, basically a fully reserved bank as opposed to a fractional reserve bank. And they said, we don't like that, so we're gonna shut it down. And this was largely around when Elizabeth Warren was making this like, you know, Bitcoin is a threat to us, we shouldn't allow it. It's an unregulated market. Well, fast forward to now, they, they're saying like, look you guys, by saying that Silvergate couldn't do this, caused so much of that cascading bank run. And there are people that lost millions upon millions of dollars. I, I interviewed Rick Holton, their, their bank, they could no longer get access to their money. And this all happened because a, a a, a senator and some bureaucrats decided they were gonna jump in here and start interfering with a market that was working perfectly fine.

Jeremy Lakosh [00:55:30] Yeah, there's, there's few things in this world that are more frightening than powerful government bureaucracies that are in total fear themselves when they are panicking about something. There's no telling the amount of destruction that they, that they could cause I was familiar with Silvergate from a conceptual standpoint, I believe Silvergates shut down within days of, of Silicon Valley Bank. I think that all happened at at at exactly the same time. But it do, yeah, it doesn't surprise me that the government came in and quashed something that they probably didn't try to seek to understand first.

Vance Crowe [00:56:19] Well now it just came out that BNY Mellon, which I guess is a large banking institution, has started lobbying the government to say, well, we would like to start custodying Bitcoin at our bank and this is a big deal. This is making it so if the government does approve that and it, it would surprise me that BNY Mellon, which such a large organization would go make this public if they didn't think it was already a done deal. And so it seems like banks are going to be able to hold Bitcoin as a reserve asset, but that's not the only big news going on. The big news that could bring trillions of dollars into the Bitcoin market is that now you are going to be able to start doing options trading on ETFs. So give us a little rundown. What does it mean to be able to do options trading on Bitcoin?

Jeremy Lakosh [00:57:09] Yeah, so there are ETFs out there that trade on Bitcoin. Various investment firms have them. I have been leery of investing in those mainly because they open and close with the markets. So instead of buying, you could buy Bitcoin, you know, at eight o'clock at night on a Sunday. Well, you can't do that though with an ETF. So if there's a big swing in the price of Bitcoin and the market's closed, you can't participate in that until the market is open. So that's a big draw drawback of the ETF. However, however, introducing options on ETFs is an attractive way for investors to essentially reserve a spot in line and yet collect income in order to do it. And, and I'll explain that I trade some US securities with what I call cash secured put options. So let's say a stock is trading at $17 a share and I wanna buy it at $15 a share. I will set aside $1,500 of cash and I will sell a $15 option and I get paid income for doing that. If the stock drops below 15 and the person I sold the option to takes it, I end up owning the shares. If the stock does not drop and it ex and the option contract expires, I don't do anything, but I get to keep the income that I collected.

Jeremy Lakosh [00:58:40] And this could be particularly attractive when the security is a little bit more volatile, which Bitcoin is. And so the way I see it is investors will have the opportunity to do a cash secured, put option on an ETF, potentially at a price 15, 20% below what it currently is trading at and collect premiums while they're getting in line to buy. So that, that makes the pro and con of the ETF when it comes to, to Bitcoin more balanced in my opinion. Because right now I'm not aware of a mechanism out there where I, I can, I can collect income off of Bitcoin without technically owning it. This would be the first one.

Vance Crowe [00:59:31] And my understanding is that the way that this is gonna bring trillions of dollars or the potential to bring trillions of dollars into the market is that if you're an, a company like Apple and you have a whole bunch of cash sitting on your balance sheet and you're saying, well, we know that's just getting lit on fire due to inflation, so what we're gonna do is we're going to buy like Bitcoin ETFs to be able to store our money in, in the past they wouldn't want to do that because like you said, Bitcoin could drop, you know, 10%, 15% overnight and the markets are closed, so you can't run in there and sell to try and offset your losses. But by having these options to be able to put, put and call options on there, now these, these large institutions that wanna make sure they don't have their money burning off to inflation can invest in there and still have an up and a downside to, to be able to know, well, as long as it stays within these parameters, then it's gonna be okay. And that Bitcoin is in fact the very first instrument that is truly scarce, that you can't create more of it that allows people to do this options trading and that this will become attractive on a scale that other, other options for them to put their money into. Don't give them.

Jeremy Lakosh [01:00:48] Yeah. Yeah. It's, it's all of those things. And, and I would, I would add one other caveat here. There are a lot of people who are watching the ETF market and they wanna make sure that these Bitcoin ETFs are trading at a true representation of Bitcoin. So they're gonna give it a lot of time. They're gonna look at the performance of the ETF against the performance of the Bitcoin for 1, 2, 3 years. And so if the ETF can perform in tandem with Bitcoin, you will see more money start to come in to either the ETF itself or the, the options derivatives as it gains credibility. One of my biggest annoyances with certain ETFs out there, and there's several linked to commodities, is for whatever reason, they're not tied to the price of commodities. Natural gas is a great example. If you would've bought the natural gas ETFI think it's called Boyle, BOIL, when it first came out, you would've lost a ton of money versus just buying natural gas futures. And so it'll be important for investors who are thinking about this method to back test these ETF performances against the price of Bitcoin to make sure it's giving you a true representation.

Vance Crowe [01:02:16] Why, explain that to me. Why would an ETF not map directly to the price of the raw commodity?

Jeremy Lakosh [01:02:26] The, the biggest reason, and this is my opinion, but the biggest reason is because the investment managers managing the ETF will either put too much money into cash versus the actual commodity futures, or they'll put too much risk into certain commodity futures. They'll take volatile high risks that will then blow up in their face. It's really hard to tell, but it's really hard to tell why it's happening. But essentially what, what clearly seems to be occurring is the people who manage the ETF money aren't putting it out there in the, in the commodities market in a balanced way. There's another ETF corn, CORN for corn, which actually has outperformed the price of corn over the last, I believe, five years. And so that has actually been a more stable area to put money versus the commodity. But again, I can't explain it. My guess is they've got, they've got part of the asset allocation in either maybe US treasuries or just straight cash that helps offset some of that market volatility. But the natural gas one, your guess is as good as mine. It it, you, you take, you take a map of boil BOIL and compare it to natural gas and it's a total mass.

Vance Crowe [01:03:49] Well, it is gonna be very interesting to see how this plays out. I can say I, for one, would rather hold my own Bitcoin keys than be able to sell at any time day or night and not have to wait for the markets to open up. But I'm, I'm interested to see where these options take the price of Bitcoin. Alright, one final story I want to talk about, and this kind of relates to the global economy, the Japanese yen carry trade, the thing that made the markets start to have a little bit of a sneeze and then somehow we got past it. What should people know about that Japanese yen carry and is the problem over?

Jeremy Lakosh [01:04:29] So this goes back to our conversation on China and what central banks do have an impact around the world. Here's what was going on in Japan. Japan had set their interest rates exceptionally low, I believe it was 0.25%. And what investors were doing was they were borrowing Japanese yen and they were taking those proceeds and buying stocks with them, which was great. It was fueling the Nikkei, fueling the Japanese market. Then the central bank came along and they raised 25 basis points. Now that doesn't sound like much, but if I'm borrowing at 0.25% and I'm now borrowing at 0.5%, that means my interest expense has just doubled. My debt service has just doubled and you're telegraphing further rate hikes down the road. So what ended up happening was that trade unwound investors sold a ton of Japanese equities and used the proceeds to pay down debt. It caused enormous volatility in the Japanese market, and I think some in the South Korean market as well. The Japanese market dropped 13% in one day, and then we saw it come over here to the United States. We had huge drops in the Dow Jones Industrial average in the s and p 500, and ultimately the Japanese central bank backed off of, of further rate hikes. But again, that's not all guaranteed. That sounds good, but if inflation starts to take off in Japan, they're going to have to do something about that.

Jeremy Lakosh [01:06:07] So it's not over yet. It's far from over With respect to that, and I do have, I do have on my to-do list, I wanna build a, a statistical model that will follow the Japanese economy so I can get a better understanding of it. But this highlights how every industrial economy in the world has a certain relationship with our economy and how these little things like a carry trade can, can blow up in our faces.

Vance Crowe [01:06:37] Yeah, and from what I understand, when people were doing this carry trade, it was kind of like the, you know, the free Monty money printer that you got, you get to get access to really cheap capital. And the fact that the Japanese said, I I I we're actually gonna go back, we aren't gonna keep doing these rate cuts, meant that as soon as those investors believed that they went right back to doing Japanese yen carry trades. And so now that that problem, that that shook the market a little bit could come back and there's probably others that are similar to this, we just haven't identified 'em in the same way. Hey,

Jeremy Lakosh [01:07:08] Yeah, Japan's interest rate was well below the world average, so that made them an attractive stopping point for this. And my understanding is a lot of these investors were international, wasn't domestic investors, so you had money pouring in from countries around the world investing in ja Japanese equities. And so, yeah, I mean the, that relationship, if you take it over to India, for example, it may not be interest rates, but it may be the price of their currency that could affect the United States. In China. It is the price of their currency that affects the United States. Back in 1998 when we had a major financial crisis, it all started when Thailand ran out of foreign reserves and had to depreciate their currency. Nobody even knew that that was an issue until it happened. And so because of all of those little pieces, the international economic scene is, is way more muddier than people think. And it's why I'm constantly telling folks, if there's a problem, it's probably gonna come from outside versus within our country because of all that complexity.

Vance Crowe [01:08:22] So this whole time we've been talking about one-off things, you know, this part of the economy, that part of the economy. But as we wrap up, what do you think is the holistic way to look at the global economy? How things are going and where they're going?

Jeremy Lakosh [01:08:37] Well, I think for the near term, people need to watch the labor market in the United States. I think that if we have an unemployment rate go to 4.5, 4.6 even, maybe 4.7%, you're gonna see the Federal Reserve become far more aggressive with their rate cuts. Even if inflation is above 2%. They, they firmly believe that higher unemployment will lead to deflation. So they're not going to listen to whatever the inflationary data is 'cause it's in the rear view mirror. They will start cutting quickly regardless of what the consequences are. And so that is, I think, a key, very key near term thing to look at long term. What people should be looking at is how much capital is out in the world economy to support US debt. And there's actually a, a, a statistic that you can read that will tell you that it's called bid to cover. Right now, for every dollar of treasury bonds that are being offered out to the global economy, there's $2 and 50 cents bidding on it. 15 years ago it was $3. So it's slowly starting to go down. When that number gets below $2, that's when you're gonna see more scarce resources chasing, you know, a $35 trillion debt behemoth. And that could lead to some big time problems for our economy.

Jeremy Lakosh [01:10:11] So it's not so much the amount of debt that the United States is borrowing, but how much money is there to support that borrowing that I'll be watching.

Vance Crowe [01:10:22] No, no, absolutely. Fascinating. Well, that is no surprise why you are such a popular art author on Seeking Alpha. So if people wanted to subscribe to your newsletter and, and how you put your writing out, where would they go to do that?

Jeremy Lakosh [01:10:38] So if they went to seeking alpha.com and they just type my name Jeremy Lakosh in the search bar, it will go directly to my profile page. You'll see my picture and there's a, a button right next to it that says Follow. You could follow what I'm doing pretty easy way to, to, and, and I take messages on there as well. So you don't even have to email me, you can message me through Seeking Alpha.

Vance Crowe [01:11:05] Well, Jeremy Lakos, I'm always grateful whenever you hop on here to talk about the economy or whatever else is going on. Thanks so much for coming on.

Jeremy Lakosh [01:11:13] Yeah, always a fun time. Thank you Vance. Ah.