This “Futures Edge Ep 55 : The AI Episode with Tony Nash” video discussion is originally published on https://youtu.be/ugFUvz_DYEY
Transcript
Jim
Welcome to the Future Edge podcast. I’m Jim Iuorio, always the assistant to nobody, executive producer, brains behind the operation, and co-host Bob. Today we have our friend, Tony Nash, the founder of the AI firm Complete Intelligence, who also has a kick-ass podcast called The Week Ahead, on which I was fortunate enough to be a guest and really enjoyed the conversation. You generally host it with Tracy and Albert, correct?
Tony
Yeah, quite a lot. We do it with Tracy and Albert about two-thirds of the time. Thank you for that, by the way. I really appreciate it, Jim.
Jim
Oh, no, I loved it. First of all, let’s get the nonsense out of the way. What’s your favorite drink?
Tony
Oh, coffee.
Jim
No, you don’t drink?
Bob
Not what he meant.
Tony
No, coffee. Coffee is it. I write about coffee, post about coffee, and coffee is my favorite drink.
Bob
Well, you are a fucking nerd dude, by the way.
Jim
Coffee. I think if I had to quit either coffee or booze, I think booze would be harder, but I think coffee would be damn close. I think coffee is something that I rely on.
Bob
Coffee would be much harder for me.
Jim
Yeah. How many cups of coffee do you drink a day, Tony?
Tony
Only four.
Jim
Okay, I drink about four cups a day too. I was about to ask you what your favorite show that you have watched recently was. Have you guys seen the show Shrinking with Harrison Ford and Jason Siegel?
Tony
No.
Jim
That’s your assignment for the week. It’s pretty damn funny. Harrison Ford in a comedic role was really interesting, and he killed it, I thought.
Bob
Can I throw something out here before Tony tells us his favorite show? Is it a cliche that I love Sylvester Stallone and Tulsa King? Is that a cliche?
Jim
Yeah, it’s a dago cliche.
Bob
I’m stereotyping myself, right? Is that what I’m doing?
Jim
No doubt about it.
Bob
The mobster now in Tulsa, Oklahoma. I’m down here in Southwest Florida, pretty.
Jim
Tony, before you answer the question, speaking of mobsters, you should read the Bill O’Reilly book, Killing the Mob, particularly if you’re from Chicago. It was amazing. Did you read it, Tony?
Tony
No, I did not. But it sounds great. We should read it.
Bob
Shut up and let him answer questions.
Tony
Staying on The Mob, the best show that I’ve seen over the past year. It was on Paramount Plus, and it’s about the making of The Godfather. I can’t remember the…
Bob
Offer. It’s called The Offer.
Tony
The Offer. Yeah. It was fantastic. Really?
Jim
I want to watch that. Particularly because they talk in Bill O’Reilly’s book, they talk a lot about Sidney Korsak, who was basically the biggest guy in the Mob. He was in LA and he was the Mob accountant for all the outfits. So he was the fixer, they call them. And he’s the one who hired David Evans, who made the Godfather. Right. The Mafia hated it at first, and then they loved it after it was made, which is so funny, and started adopting some of the traditions that were brought back from the movie The Godfather.
Tony
They talked through some of that in this movie about how they negotiated with the mob to allow the movie to be made. It was really well done, actually, if…
Bob
You guys want to read something good called Family Secrets. Okay, Jimmy, since you’re a restaurateur and you’re both very familiar with the Chicagoland area, you will recognize 90% of the restaurants and places that they mentioned in that book because it’s all about the Chicago outfit and the Calabrese brothers and the Kid and all that. It’s fantastic.
Jim
What was the name of the mob joint in Norwich or Norwood Park? It was an Italian restaurant that was all like my buddy who worked for the state’s attorney, they had files on these mob guys and they had like, hangouts and there was all it was the same restaurant. I used to go there occasionally. You guys don’t remember the name of it?
Bob
Talking about Capri or Sicily Restaurant?
Jim
Neither of those sound familiar. If you said it, I’d know it. But it was so funny because now there’s a place in Arlington Heights now which I think is a bunch of mob wannabes. It’s like a bunch of 80-year-olds, maybe they were back in time. But it’s a pretty funny place called Palm Court. We go there, and they have like a guy singing Lou Rawls and Dean Martin and a bunch of old Dagos dancing. It’s fantastic. Okay, let’s get to Tony. By the way, remember Tony’s here we have his brain, his knowledge, and we could talk about mob stuff the whole time. So we had a series of numbers over the last week that are beginning to suggest some level of stagflation. My opinion is that until strength in the labor market is obviously not part of stagflation, is it too early to start worrying about it? Tony, what are your thoughts?
Tony
I think it is. I think you saw some really strong quarterly reports this past week. I think banking is not as bad as people had feared. There’s some strength in tech. You see some of the services company restaurants and even some of the consumer goods companies that are still reporting price hikes. So the price hikes would be inflation. But there is a very small slowdown in their volume, right? And so they’re still growing the top line. And so it’s not as if people can’t buy because they can’t afford it. You’re also seeing service wages, especially in the middle of the country, still be very strong. And so people in the middle of the country are making more money and they’re spending it, right?
And what’s also happening is you saw, I think, eight or 9% rise in Social Security earlier this year. And so you have a bunch of old people, they’re not saving the money, right? They got a 9% pay rise and they’re going out and spending it. So we do have more money coming in. I don’t necessarily see that we’re kind of entering a recession. I do think that we’re going to have a slower Q Two and a slower Q Three. Our forecast indicate that we’ll see kind of a 0.2.3 growth rate in those quarters, and then we’ll take back up in Q Four. So we have a lot of economists talk about, well, we’re going to have a recession in the back half. I don’t think it’s the back half. I think it’s the middle part of the year that we should really worry about. And when we get to the last quarter, I think we’re going to be in much better shape. Okay.
Jim
Now, the stock market seems to be relatively buoyant. I point to the fact $7 trillion was injected into the economy over a relatively short amount of time. But there’s something to me that looks kind of ominous. If you look at the Russell compared to the Nasdaq, or let’s just say if you did equal weighted in the SP, it be down for the year. But cap weighted is up for the year, meaning the big companies, people are buying their shares. To me, it almost kind of smacks a flight to quality. Do you think that I’m reading too much into it or no, no, I.
Tony
Don’t necessarily think you’re like flight to quality right now, as people are spooked, it’s a natural thing to do, right. And you have the Fed start to dial down on or start to increase the rate of QT up until the banking scare a month ago. And so some of that money was being taken off the table and other things. So I think as that money is taken off the table, people want to move to quality because the smaller companies they’re just not sure about. But I think what we’re seeing in some of these earnings that there are some companies that are actually doing okay. People have kind of figured some of this stuff out. They’re getting more efficient with staff, especially in tech. They’re getting more efficient with staff, and they’re really learning how to pass their costs on to their customers.
Bob
Bobby Gany yeah, so I want to push back a little bit on the stack inflation thing, which you might have guessed. Tony Tweeted today, jimmy, we tagged you in. I don’t know if you got a chance to see it, but Tony said with the strong earnings, are we still talking about stagflation? And I jumped in with a yup, and I said, okay, let’s talk about that. And then, Jimmy, I actually have a question for you because one of our members on the Path Trading partners, YouTube, asked a question and asked me to ask you. So when you give me an opportunity to do that, I will. So I maintain that stagflation is the worst possible economic situation. Some people, like Charles Payne from Fox News thinks deflation is worse than stagflation. I can understand that argument. It’s it’s kind of tougher to get out of. The stagflation argument to me, sort of plays out like this. We had GDP go from 2.6% to 1.1%. So there is a slowing economy, still growth, actually still respectable versus the last 20 years. Right, guys? But versus the last 20 years, I wouldn’t call it generally respectable. And then you had both PCE numbers surprised to the upside in some forms.
Now, I would argue, and Jimmy’s been correct about this, the supply chain part of the inflation has virtually gone away, but the wage part is still biting. And that’s where we saw in the ECI numbers, the employment cost index numbers, also surprised to the upside. So my fear is this. And one of the things I said to our members is, you guys stop spending because the economy is slowing down. I really don’t want stagflation to happen. Okay? Quit our service. Do whatever you have to do. Just stop spending.
Jim
Right?
Bob
Well, some of the things like wage salesman I know, I’m awful. I am awful at this shit. Anyway, some of the things in terms of the wage growth and the increased Social Security stuff, to me smack a little bit inflationary. And it bothers me because when you look at the labor numbers, which is what a lot of economists and analysts and guys we had on the show point to as a strong part of the economy, every Fed hike cycle has ended in a recession except 1994. And every single time after the recession started, the unemployment rate rose by a lot and fast. But it was after the recession started. So my fear is that I think where we get lost in the argument is are we in a recession now? No. Are we going into one?
Jim
I think yes.
Bob
So where am I crazy?
Tony
Well, I don’t think you’re necessarily crazy. I think there is not 0% chance of a recession. There is not 0% chance of stagulation. So everything I say is just kind of and we all have recency bias whenever we analyze generally. Right. I think what Jim said is we had $7 trillion or $8 trillion pushed into markets very quickly. Right, okay.
Tony
And so that’s the sugar high that we saw, particularly in 21. Right. And we kind of weaned off it a little bit in 22. And right now we’re facing those hard trade-offs. Right.
But with that much money pushed into the market and the supply chain constraints we saw from COVID we saw goods inflation just a rocket ship. Right, right.
And then what happened? People couldn’t necessarily buy all the stuff they wanted to buy, so they demanded higher wages. So there’s a delay between goods inflation and wage inflation. Right.
And so now that goods inflation has generally subsided, wage inflation, there’s going to be a lag because we saw Walmart give that big raise to all their staff in January and then that kind of cascaded to everyone else. And we saw Social Security and all these different wage rises come around. It’s going to take a while for that to cascade through. And then will we completely normalize? It depends on how we normalize is normalizing back to 2019 levels? Unfortunately, I don’t think we’re going to do that right now without serious economic damage. So I think all we’re looking for is some sort of balance point where we have this kind of sugar in the economy that has kind of diffused through the economy. Right.
It’s had all of its effects on the cost of goods and wages. And now that it’s diffused through the economy, we have to start figuring how to normalize how do we take it out? Right.
And we have to be really careful about that with higher wages. So will wages get high to a point where people start coming into the economy, people who haven’t been in the economy for a while? Right.
Because in 2020 we saw a lot of people check out of the economy, but we also have baby boomers who are retiring at an accelerating rate. So we may have a point where we have people who are out for either voluntary reasons or maybe they’re not necessarily don’t necessarily have the best skills or something like that. We may see people come back into the economy that might put wage downward pressure on wages, but I think it’s going to be maybe a year before we start to see that we’ve really got to see wages continue to rise.
Bob
I think you definitely make a compelling case that this could be different, that there could be a soft landing built in the year. I hadn’t thought of it from a perspective, even though Jimmy has said it over and over again, but I tune them out. I hadn’t thought of it from a perspective of, okay, so the sugar high is out now and there’s actually time to normalize the rate rises with the price rises where it can actually come down. And by the way, to your point, Tony, people who say there’s never been a soft landing are wrong. I mean, 1994, the Fed did engineer, quote, unquote, a soft landing.
Tony
It did happen, yeah. But I think it’s going to be a hard landing for some people. For those people who’ve been laid off from tech companies or whatever. Right. It’s already been a hard landing for them. Right. And so it just depends on how broad that hard landing is. Right.
And so can those guys get other jobs? Maybe. Is it going to be 300 grand a year checking in for 2 hours a day? Probably not. But will they be able to get other jobs that’ll soften their landing? So it depends on how broad that landing is.
I remember in the early 90s there was a recession that nobody else talks about anymore. Okay, my parents were both laid off from their job. Actually, they weren’t laid off from their job. They were at a company, they both worked for the same company, where every three months, they had to reinterview for their same job. Okay.
And so they had kind of this rolling rehiring within the company. It was terrifying for them, right, that you couldn’t make long-term plans. But at that point, in that recession, employment in places like New Jersey was 18%. Okay, so again, we talk about the 2000 recession, we talk about 2008, but 1991 was really bad, and they had to reinterview every three months, and that lasted, I think, two years or something like that.
That’s not there right now. Like, everyone is kind of complaining about having to end work from home or whatever, and complaining about not getting whatever kind of benefits with their job, rather than just having a job, period, right. So we still have so much workforce demand, so much lack of supply, that I don’t think we’re anywhere near how difficult things were in 1991. And until we get there, I really don’t think we see a really hard landing. And again, it’s a relative kind of perception. The smallest hiccup will be portrayed in media as a hard landing because somebody’s having a hard day, and it sucks. It sucks for them. And I’m really sorry that people have to go through this, but it’s all relative, and we really haven’t seen a hard landing for at least a decade. I mean, 2009 would be the last time.
Jim
So tell me this, Tony, because you look at and I like what you’re saying here. I’m not convinced of soft landing yet, but I like the word you’re saying. The money supply, m two money supply, there’s been four times in history, independent, this one, that the m two money supply contracted by more than 2%. Three of those times were a depression. 18, 70, 19, 20, 19, 29. The fourth time, I think it was a panic of some sort in like the 1890s. Right now, our m two money supply has come down two and a half percent, more than two and a half percent. Why is it different than them? Actually, I have an answer. I’m curious what your answer is, because I have an answer, too, that it is different. Why do you think it’s different?
Tony
I think it’s different because a lot of that was one-time government spending. And so people understood that PPP was one time. People understood a lot of these payouts were kind of one-time payouts. And so it’s like, okay, let’s back up the truck, take the handout. We took PPE in my company, and I’m not embarrassed about it at all, because not even more, we took the PPP, and we knew that it was one time. Right.
And so you take it, you survive, and then you live to continue the business or continue a household or whatever. So I think people are mentally prepared for the fact that this cut government spending was a one-time deal. Right.
Jim
That’s my opinion as well, by the way, too. I thought the fact that we inject the 7 trillion, 8 trillion, whatever we’re talking about here, to expect a little bit of a mean reversion, I think is relatively reasonable. So I do genuinely believe it’s different this time and again. I’m not saying I think it’s soft landing because I do think there’s a bifurcation in the economic condition. I think there was a big wealth transfer of that money we were talking about. A lot of it went to the higher end. I think people are struggling on the lower end. Tyson Foods just announced a 10% reduction of workforce. So this is different now than tech companies that were bloated and hired a shit ton of people over two years. Tyson Foods didn’t hire people. So I like what you’re saying about the soft landing. You can justify those things and still see those layoffs coming and think it’s going to be okay.
Tony
Yeah, I think, well, here’s where it’s going to be different, okay? It’s going to be different over the next two years with white-collar jobs. Okay?
And this is where kind of you roll your eyes and go, okay, he’s going to start talking about AI. But I think we will really start to see a reduction of white-collar jobs because of technology. It’s not going to happen immediately. It started a little bit, but I think we don’t really start to get traction on there for probably two years. Okay, so when we see Tyson Foods cut jobs, that’s different. Maybe part of that is automation, part of that is demand induced, but we’ll really start to see your finance people, your accounting people, your marketing people, people who say make really good money are educated, but let’s say they live their whole day or a good portion of their day in Excel. Anything that any of us do in Excel can be automated. Anything. And so these jobs where people went to school, say in the 90s or 2000s and got an MBA, got a corporate job, all that stuff, what we’re going to start seeing in two, three years time is initially there will be an augmentation of their jobs using AI, ML, whatever you want to call it. Over time, what management and boards will realize is that a lot of the time that these white-collar professionals are spending is on relatively mundane tasks, okay? And so they can’t necessarily be outsourced somewhere because it’s sensitive information. But they’re repeatable mundane tasks and ask anybody who’s white collar if they’re really honest with you, they’ll tell you a good portion of their job is kind of routine, boring stuff, right? Not just in meetings on the phone. It’s kind of reports they have to make or data they have to analyze or things that have to be written or whatever, right? And so we’ll start to see some of those structural adjustments in white-collar jobs in a couple of years’ time. That’s when we’ll hear a lot of screaming and a lot of pain from that class of worker that we haven’t really heard from in a couple of decades at least. Right.
But going back to kind of the softish landing, of course, there will be turbulence. Right.
But I think it’s possible that as long as that supercore inflation is persistent, the Fed doesn’t really have a choice. They have to continue pulling back because that supercore inflation is hitting everybody because these are services jobs, right? So everyone is hit by services jobs inflation. People who go to Walmart to shop, people who go to McDonald’s. McDonald’s pushed their price by almost 9%, I think, over the last quarter or last year. I mean, everyone’s hit by this stuff, and it’s largely on job costs and wages. Everyone is hit. And so the Fed has to move on it. So we’ll see more investment in productivity. We’ll see more focus on productivity because people just can’t continue to be pushed on price. We’re not there yet, but people just can’t continue to be pushed on price. It’s just unaffordable at some point.
Jim
Okay, you’ve mentioned AI before, too, and I like a lot of things you’re saying. Another that one company, that MCD company, I’m not allowed to talk about it. My daughter may or may not be an exec at that company, but whatever. Let’s not talk about that. Anyway, so how far are we from AI, where we could have seamlessly had one of us on this call be AI-generated and people won’t know? Are we years away from that, or no?
Tony
Oh, no, I don’t think we’re far from that. Let me give you a very tangible example of what we do. And for your watch. I don’t intend this to be a sales pitch, but this just can help you understand what’s possible. Okay?
So we do really boring stuff at Complete Intelligence. We’re an AI company. And so what we do is we help companies to augment and automate their budgeting process and their forecasting process. Okay?
So we have a customer. Their annual revenue is about $12 billion. They have, on an annual basis, about 400 people working on their annual budget. Okay?
It takes them three months, so that takes them three months to do. It cost them maybe six million dollars, five to six million dollars to go through that process. Okay?
When we worked with that company, the first time we did their budget, it took us 48 hours. We were 0.3% off of what those 400 people took three months to do. Okay?
Now, a year later, we circled back with the finance executive who we worked with, and he said, you guys absolutely nailed our budget number. At the beginning of the year, not only did you nail it. You did it for six layers deep within the general ledger. Okay.
The people that they have working on their budget do it three layers deep within their general ledger. Okay.
And these are relatively highly paid white-collar professionals who are doing this stuff. Okay.
There are 400 of them. I’m not saying we would replace them, but we certainly take a huge load off of their workload for three months of the year. Right.
And so can they do different activities? Can they do with fewer people, those sorts of things? Right.
And so these are the kind of things it’s not super sexy, it’s not Palantir doing CIA stuff or whatever. It’s really mundane stuff that really impacts the bottom line and headcount of a company. Right.
And so this is where I think the really interesting stuff in AI is, is ChatGPT interesting? Yeah, absolutely. I don’t have to hire an entry-level analyst anymore and have them take six months to come up to speed. Right.
I can actually go into ChatGPT and have something written up that it would take four to six months for an entry-level analyst to learn how to write. It takes me 15 minutes. Right.
So these things but just to let you know, kind of when I talk about white collar jobs and AI starting to be augmented or automated, I’m talking about the really boring stuff that, quite honestly, people really don’t like to do. Right.
And so we help those things to those roles to be much more productive, and we help those executives to get a much more accurate view on their business.
Bob
So, first of all, Tony, you’re a pretty ethical, honorable guy. I was on your podcast as well, and you couldn’t have been nicer or kinder. So I want you to tell people how they can get a hold of you. We have some pretty high net-worth listeners.
Tony
Okay.
Bob
You’re not on here to pitch your company. I want you to tell people in the middle of the podcast rather than the end where people might have kind of drifted off already since Jim and I are so freaking boring, where you can.
Jim
I’m excited as hell.
Bob
He never moves from that position in the chair. He literally sits like this.
Tony
He’s got a long day.
Bob
He’s actually AI. He’s not a real person. Tell me where they can reach you, Tony, before I ask you the question.
Tony
Sure. I’m on Twitter. @TonyNashnerd. T-O-N-Y-N-A-S-H nerd. My email tn@completeintel.com so I own the nerd thing. I’m not afraid of it. I get it. But, yeah, contact me. I’m happy to talk to any of your viewers.
Bob
Okay, so another thing, by the way, right now, being a nerd is cool, so don’t act like you’re admitting something that’s embarrassing right now.
Jim
It’s a flex. It’s not enough.
Bob
Yeah. All of a sudden it’s a flex these days where I don’t know who even made it a flex. I used to flex in front of nerds and try and scare them off.
Jim
It’s the Big bang theory.
Bob
That’s what it is. Big bang theory.
Jim
A long way in normalizing, which I think was very interesting. Yeah.
Jim
Big bang culture thing.
Bob
So here’s my question, Tony. Good. So I actually have very recently and I don’t think there’s any problem with me talking about this I used to have to call an attorney for every little thing, and it got so ungodly expensive that I started just kind of looking for templates online. And in simple agreements, I would just write my own and take my chances, because in a worst-case scenario with a client, like we do in Pat trading partners, we do like, boutique analysis for smaller firms. So I would just write simple documents and be like, what’s the worst that could happen? They don’t pay me for a month. It’s probably still less than I would add to pay a lawyer to write up this document. I recently used Chat GPT 4.0 to create an easement between myself and my neighbor so that our fences could connect. That goes into perpetuity. So number one, are certain white collar managers going to be slightly timid to hire you? Because obviously some of the mundane tasks they do make them valuable? And number two, do you think there’s a larger economic effect on white collar jobs? For example, my easement that I’m not going to be paying a lawyer for that comes with AI.
Tony
Yeah, absolutely. We see this all the time. When people realize what we can do. There’s kind of that holy crap moment where people realize, oh, my gosh, we have 400 people working on this stuff and these guys can process it in 48 hours. When people realize that, it’s impressive, but it’s kind of scary, right? When I think about how are you using a lawyer? You’re using a lawyer to manage risk, right? And so why do you call a lawyer? Because you want someone else you can call and say, hey, that guy told me that this was the right thing to do. So you’re basically outsourcing your risk to them, right, so that they can create a document for you. In what we do, when a CFO walks out of their office and they see 50 people or 100 people, those people are effectively managing risk for them, right? And so nobody really thinks of AI in terms of risk management, but actually those people are managing risk for a CFO. Okay?
And so when we do what we do, we’re automating that risk element and we’re making it much more consistent. Right.
How risky is it for you to forecast your budget for the next year? Right?
If you get it wrong and you give the street the wrong number or the wrong guidance or whatever, it can be really bad. Right.
But for everything we do and ChatGPT and other AI tools work the same way. We have a statistical basis for everything we do. So everything we do, we tell our customers our error rates for every single line item for every month. Okay?
And we actually have a publicly facing platform called CI Futures that people can subscribe to to see the S&P 500 stock forecasts. They can see equity markets, they can see currency forecasts, they can see commodity forecasts, and they can see global economics. It’s $20 a month. So really cheap, right? But we disclose our error rates on that platform so that people can understand the risk associated with what we do. Right?
And so I think we have a more educated society. You have more confidence in using GPT 4.0 because you’re confident in the underlying tech, the broad based adoption of it, and the kind of statistical, although you’re probably not too aware of it, the statistical underpinnings of it, right. Because all it’s doing is, all GPT is doing is going out and doing a bunch of, say, Google searches all at one time, looking at the incidence of a topic or a word, and then putting that together for you on an incidence basis. Right?
So you want a legal agreement for an easement, and it goes out and says, okay, legal agreement for easement. What are the words that are used in those agreements? How are they structured? And what’s the incidence of the order of that stuff? And it’s summarizing it up and it’s putting it together for you. Right?
And so that’s just a statistical analysis that is reducing your risk because it’s looking at what most people do, right? What do most of those agreements say? And so what we’re doing when we forecast, say, a supply chain cost or an expense budget or a revenue budget or something, is we’re looking at a lot of data. We do trillions of calculations to do this stuff. And we’re telling people, you know what, statistically this is likely what’s going to happen in that very deep line item within your budget in September of 2023, something like that. Right.
And so they have a higher degree of confidence in what we’re doing. It’s faster, higher degree of confidence, and it’s better. Right.
And your question about people who are nervous about it yes, they are. And you know what, I’m an investor in companies, in publicly traded companies. Do I want to know that they hire 5000 people in their finance team and it could be taken down to, I don’t know, 3500? I would want to know that. Right.
And so is there inefficiency, in these finance teams or marketing or other teams? Absolutely. Right. So that’s what this technology is doing. It’s allowing investors to look at the companies they invest in and go, hey, company A, why are you not looking at this technology to deploy in your company to actually make your workers more productive? That’s really what it’s all about.
Bob
You’re the boogeyman to a lot of middle managers, Tony. Go ahead, Jimmy.
Jim
Absolutely. Can we flip back to markets for a second? Because I do want to talk about the buoyancy in the stock market, particularly the last couple of days. I’m having a difficult time understanding it, particularly after we saw that the GDP number, which, like we said earlier, showed both slowing economy and inflation, that’s being persistent. What do you make of it? Why do you think the market is going higher?
Tony
We had nominal GDP at 7-8%. I don’t remember the exact number, but you have a nominal GDP number that is the same as it’s been for the past couple of years with all of the government stimulus. Okay. Real GDP is different, of course, because it factors in inflation. Right?
And so we have inflation at five to six or whatever. So that’s discounted to one point whatever percent it came out at. Right. You’re still growing nominally at the same rate you’ve been with all of the COVID stimulus. I think that’s part of the reason that people are looking at this economy and going, yeah, we really thought that pullback was coming. We really thought the economy was slowing. But in fact, statistically, on a nominal basis, it’s still running at the same rate. If we factor in inflation, then it pulls down, then it looks like it’s slowing. Right.
So as you deconstruct the data that come out, it’s not really bad. And if you look at that nominal run rate and you say, okay, if we could get inflation down, then that nominal rate actually looks really good. Right.
And so it’s possible I’m not saying this is probable, because it’s not in our outlook, but it’s possible that if the Fed can actually get inflation down while keeping nominal growth, maybe not at seven plus, but let’s say it’s at five plus, then we’re in amazing shape as an economy, right? Is that likely? Again, I don’t think it’s likely, but it’s possible. Again, here’s what I always say for people with economic data, okay? And if you see me on Twitter, I always say, Wait for the revision. Always wait for the revision. Because this first release that you see is really a bunch of government statisticians doing a best guess, with very little data, actually. Okay?
And so when we see retail sales, when we see CPI, when we see GDP, whatever, we see it’s government statisticians basically doing a sample of a sample of a sample and getting a quick number out to us to give us an indication of what’s actually happening in markets. But there’s three or four revisions to a bunch of these numbers, so we won’t know for two years what the GDP number really was.
Jim
That’s a good takeaway, by the way, from the show, because I think that’s interesting and something I don’t think about quite enough.
Tony
Nobody does.
Jim
Yeah, nobody does. Right. When you look at how gold, bitcoin, silver have performed so well over the last few months. Put a fine point on that. How do you explain it?
Tony
I think it’s just a function of the dollar coming down. I think it’s kind of the reverse of that. I think it’s people pushing a recession narrative and wanting to kind of look for a safe asset. And so that’s really, I think, all it is. I don’t hate gold. I don’t love gold. I’ve been in and out of gold over the past year or so. Not on a regular basis, but I’m not in it now. But I think it’s useful when it’s useful, but it’s not something that I’m looking at. I did have a crypto investment a couple of years ago. I was in doge for like, six weeks, and I got in at got out at $0.76. So I did okay on that. But it’s a bigger suckers market in crypto, I believe. It’s not money. It’s an asset. Okay?
Crypto is an asset. It’s not money. And so I saw it as an opportunistic asset. I got in and out. I didn’t make a huge amount of money. I just wanted to see what could happen. Did a lot better than I thought it would do. And I’m just not a huge crypto fan because I just don’t see where it’s going, especially when we’re talking about central bank digital currencies and other things. It’s just what are you going to do? If every investor in the US. Can’t fight the fed in their trading every day, then how is a cryptocurrency going to fight the fed with a central bank digital currency?
Jim
Bobby, do you agree with that? Do you think that there’s no use case scenario for crypto going forward?
Bob
What bothers me about crypto, I don’t think there’s no use case, but I agree when Tony says it’s not money. I think it could become money, but to me it’s very strange because nothing is technically money unless we get rid of income taxes, because the only thing that gives the fiat currency value is that it’s an acceptable form of payment for your taxes. Otherwise nobody would trade that paper. Why would anybody hold just pieces of paper that’s backed by nothing? Which is and Jimmy and I, you and I have talked about this both privately. And last week I did a WGN radio show where the guy said to me, bitcoin is favored by drug dealers. And I said to him, I was in studio down on Michigan avenue, and he said, favored by drug dealers? I said, pull out whatever you got in your pocket. He pulled out a bunch of cash. I go, so is that and so is that not backed by anything except that you can pay your taxes with it. You can’t pay your taxes with bitcoin. But I’ve had private arguments with people. I wish I could remember this woman’s name.
I watched this young woman who’s a Bitcoin fan, and she was arguing with Peter Schiff, right? And she said, Bitcoin is money. And he said, no, it’s not. And she said, yes, it is. No, it’s not. And she says, yes, it is. Because I pay people Bitcoin and they pay me in Bitcoin. And I said, okay, that’s fine, fair enough. But I just gave a 15 year old kid a pair of Jordans I don’t wear anymore to come and cut up a bunch of boxes for me and put them into my recycle bin. That doesn’t make Michael Jordan’s shoes money, just that he was willing to accept it to do the work. Right.
What makes it money is the ability for everyone. Or I shouldn’t say the ability the willingness for, let’s just call it the majority of the population to accept it in a transaction. We’re nowhere near that.
Tony
Yeah. I want to be clear. I don’t hate crypto. I don’t think it’s bad or anything. I’m not making a moral judgment call on it.
Bob
I didn’t take it that way, Tony.
Tony
And if people want to invest in it, I really don’t care. But it’s changing the topic just a little bit. I’ll make an analogy. It’s like Argentina using the CNY for trade settlement, right? All they’re going to do is two currency transactions when they pay in CNY, okay? Because everything in trade is either in dollars or euros, everything in international markets. So they may pay in CNY, but really they’re going to be checking what the dollar value of that trade transaction is, right? You can say the same thing for crypto. Does your brain work in I’m going to go buy a banana in crypto? No, you think of it in dollars, right. Or euros or whatever, right? And so, sure, you may transact in crypto, but it’s just circumvention of the dollar system because that’s what the ultimate nomination of that value is, right? And so until we start thinking about things valued in crypto, right, until I can go to the gas station and they say, oh, this is however many Bitcoin or whatever, I have no idea what their numbering scheme is. I just don’t see it as currency. I spent most of my life in Asia.
I worked with a lot of currencies like Sri Lankan Rupee and Vietnam dong and all that kind of stuff. Those are currencies. They’re nationally traded. They’re traded every day, all that stuff. So you don’t have to be the US dollar or the Euro or CNY to be a currency. There are minor currencies all around the world.
Jim
So why don’t we outline something real quick? Because I got a question to you about the de dollarization, but I want it to be known that I can hear the name of the Vietnam currency now and not snicker and laugh. This is growth.
Tony
Congratulations.
Jim
Okay, very good. So the de dollarization thing, I did think that it was a big mistake what the Russia freezing assets kind of weaponizing the financial system. I still am of the camp that I’m not particularly concerned of any sort of global de dollarization thing. I mean, the reserves are still there just does not seem to be a suitable substitution. Are you on the same camp or.
Tony
Are you concerned China still pegs the CNY to the dollar? Every day. They announce every day what their USD CNY conversion rate is. Every day. Okay, so does that tell you that there’s de dollarization? Whenever people talk about CNY, I would say you do realize that the PBOC literally uses numerology to decide their interest rate. They literally use numerology.
Jim
Okay, what does that mean?
Tony
It means it has to be a pleasing number that ends in an eight. Okay.
I’m not kidding. It’s not the only factor, but it is one of their considerations. And so you can’t have a central bank that is setting their rates, whether it’s a repo rate or an interest rate or whatever, using numerology. I mean, that’s just not credible. And if people would look into the inner workings of the PBOC, they would understand that CNY is just not a credible international currency. Regardless of what Xi Jinping wants you to believe, and regardless of what all of the kind of anti dollar people want you to believe, it’s just not practical. The other part is this Belt and Road initiative, which is kind of more of a joke than a reality. It’s all nominated in dollars. It’s all nominated in dollars. A Chinese national program now, okay, so the part outside of China I’ll say is all nominated in dollars. So if there really was a de dollarization underway, why would the Chinese government be funding trillions of dollars of infrastructure in US. Dollars and not in CNY. Those loan agreements, those equity agreements, they’re all in USD.
Jim
By the way, I agree with you 100%. I am not particularly concerned about de dollarization, but I will going to push back for a tiny bit on something. Six, seven years ago, I would have said the notion of a dollar collapsing was a .1 percentage. And I think that’s changed and I think now it’s a 1% possibility, which I think is ridiculous for us to be making these moves. Poor stewardship of the currency, what we did in Russia, it’s at least something to be concerned about. Or you have no concern over it.
Tony
What’s the alternative? Like we’re all going to trust in the ECB? I’m sorry, it’s not the currency we want, but it’s the currency we have. Right? Right.
So if you look at the Fed’s behavior, the central bank itself matters a lot. It matters more than the currency itself. Okay?
And so if you look at the Fed’s behavior, they have meetings, they have notes, they respond to media and so on and so forth. Are they as transparent as we want them to be? No. Do they do the things we want them to do? No. Do they have a bunch of bureaucrats working with them? Yes, but when you look at other central banks on a relative basis, it’s actually better. Right, right. Sorry. Go ahead.
Jim
I tweeted something about a week ago, and I said, we don’t have to have a good currency. We can even have a shitty currency. We just have to have the best currency. Right? That’s what you’re saying, right?
Tony
Right.
Bob
It’s that best house on a bad block thing.
Tony
And I don’t say this to be dismissive at all. I take the dollar as the kind of US holder of value very seriously, but I’m just not sure what that other vehicle would be. Look at the structure of the European economy. It can’t be the euro. Right?
Look at the UK and some of the policy decisions they’ve made. It can’t be the pound. Look at China. I was talking with Michael Ncolettos about a month ago, and he was saying M two in China, the amount of M two issued in China is something like three times the value of their GDP. Okay?
Now, M two in the US is something like 90% of the value of GDP. Right?
So China has three to four times the amount of money in circulation compared to GDP when we make it relative to the US. Right.
So how can that be seen as a credible currency? They just are not managing the number of fund tickets that’s in their economy. Right.
And then again, when you look at Japan, look at their central bank policies, look at their demographic structure, the Japanese yen is just not a credible currency. So I just want to understand, first of all, what is a real currency that we can use? Not crypto, which is an asset. Okay.
And what is a central bank that we can trust, that has sufficient money in circulation, that is usable? And I think I don’t know of another solution right now. Again, as an American, I don’t want the dollar debased. I don’t want it abused. I don’t want all that stuff. I want solid money policy. Right.
Have we had it for a while? Actually, we haven’t. Right.
And so things need to change, and we need a more responsible, certainly more responsible spending in DC. And we need a more responsible Fed. But I think on a relative basis, it’s kind of the best we got.
Bob
So, Tony, I want to say this correctly. We have a responsible Fed, relatively speaking. Is that correct?
Jim
You guys agree with me, by the way.
Bob
I know again, that’s the worst house. What is that? The best house in the bed? I don’t know. They saw, but they’re the best one out there. So from a perspective of that, you think a soft landing is possible? Stop me anywhere where I misrepresent you. Okay? You think a soft landing is possible? Am I wrong on that?
Tony
I’ll say uncomfortably soft landing because we’re going to have chop at points, right? So, yeah, we can have an uncomfortably soft landing.
Bob
So I have come around to the idea that the Fed might be cutting rates. I don’t think this year the CME Fed watch tool has the first rate cut pricing in September if things are okay. So if things are okay, why the hell would they do that? And this is why. There seems to be this sort of mismatch between what people are trading and I want to stress the equity markets is not GDP, the economy is not stocks. Right. There’s been several times in history well, not several, but there have been times in history, 73, 74 in the US. Where GDP was strong and stocks were negative. Same thing with Japan in the 90s. They had good GDP, but their stock market couldn’t recover. So these things are detached. They’re not as correlated as people think. But if we actually have good earnings, which no one can argue, we had good tech earnings. Right. We have terrible market breadth still, but we had good tech earnings. May continue next week. We have 709 companies reporting next week.
Tony
With market exxon Chevron reporting really well. There are some parts of the economy that are doing corporate green. Corporate green.
Jim
Go on, Bob.
Bob
Why would they cut rates? Why would they if things are going to be semi? Okay, and Jimmy, this leads me I want to ask Tony respond to that, and then I have to get this question out because it was asked of me. You said in the last podcast that you think we’re going to have a nontraditional recession. What does that mean? So go ahead, Tony.
Tony
Okay, so I’ll just parrot what somebody said to me earlier today. They said bond investors are the worst investors over the last three years. Okay.
Bob
Small data set.
Tony
Sure. What’s that?
Bob
Small data set, right? Relatively speaking, yeah.
Tony
But they haven’t performed very well at all over the last three years. Right. And it’s largely bond investors who are looking at that because it affects their bonds. There is this persistent desire among bond investors to have a recession that’s just baked into the pessimism of being a bond investor, I guess. Right. And I think if we look at earnings, certainly, especially those reported over last week, but also when we have the globally systemic banks report a week and a half ago, those were not bad earnings at all. Right.
And are they telling us that we’re entering a recession? I just don’t see it. So I think September, like, again, I don’t want a recession by September, but I actually don’t think there will be a recession by September. I actually think that things are persistently strong again, because we have that strong nominal GDP growth with relatively high inflation. So if we had stagflation, we would have high inflation and a smaller GDP number than inflation. Right.
Tony
But I think with where we are now. I don’t see us kind of on the precipice going into Q Two, going to Q Three and saying, oh gosh, we’re going to fall off a cliff, right. I just don’t see that. And again, I think part of it is because people saw those government payments as one time or limited time, right? And people have kind of buckled down and said, this is over. We have to figure something else out, and they’ve just continued to spend.
Jim
So, Bobby, to answer the question that the viewer asked, and it kind of relates to what Tony just said too, about the payments, I think that there’s a massive change in our economic condition. I think there was massive wealth transferred from the bottom 60% to the upper 20%. I think those two people still have a shit ton of money. I ride the L. I ride public transportation in Chicago. The amount of people who appear to be living on the fringes has exploded to me, even when it was going on, I was saying to people, no, you’re going to get two $400 checks, and I’m going to get massive appreciation in the four homes I own and the stock market portfolios I own. This is favoring me, not you. And I think that that’s happened in a big, big way, and I think we don’t have the tools to calibrate and figure out we can do Ginny coefficients to measure wealth inequality, but I think there’s this massive wealth inequality, and I think the government then gets involved and tries to support the lower end. Makes it even worse. It’s a yoke, it’s not a gift. And I think we’re in kind of a fucked up way right now in our economic condition. Do either of you guys agree with me on that?
Tony
Tony, I don’t disagree with you, but when we see things like supercore inflation rising, that tells me that those wages for service workers are rising in a persistent manner. And I don’t think that’s all bad. Right.
I think that’s helping the folks at Walmart, the folks in the service sector, get better wages. And they’re not getting it through government regulation. They’re getting it through the market working. Right.
And so employers have realized they have to pay more. It’s not some local city government saying you have to pay $20 an hour or whatever. It’s the market working. Does it take a long time? It does, and that sucks, but the market is working. People who work at the lower end are getting more money. People who work in the middle are getting more money, and people in the middle of the US. Who have typically lagged pay rises on the coasts are getting more money now. Okay. And so we’re seeing that makes me feel better.
Jim
Yeah.
Tony
So markets are working again. Markets sometimes take a long time to work. Right. When it comes to pay, I do.
Jim
Worry that the government is going to see what I have identified, like I’m coming in to fix it. And we all know what happens when they fix it. Bobby, do you got another question before we go?
Bob
Well, no, I just want to add on to what you guys are talking about here. What you just said, Jimmy, and what Tony explained just as clearly is why I fear Stagflation so much, why I actually said to the people who pay us, stop paying us for a little while. Because in my opinion, by the way, if you join, if you hire complete intelligence, we will not be getting paid for that. So don’t worry, there’s no discount code here that’s coming out after the show. No, but what the government will do to try and fix Stagflation is the Fed ill advisedly, so fears a recession more than inflation? I think they should fear inflation more because inflation hurts the poor and it’s a tax on the poor. And the government, because they’ll be in election close by, will send out checks to help people deal with the inflation that’s still there while the economy is slowing down, which will just spark an even worse situation. So my fear is that if we get Stagflation, not only is Stagflation bad in and of itself, but the government’s response, and including the Fed in, that will be awful for 2025 and 2026, and for the lower middle class and the poor, it will be hell on earth.
If they do that in the next five or six years, they’ll crush people. And that’s my biggest fear about Stagflation, why I hope I’m wrong about it coming?
Tony
Well, we see what’s happening in Europe with the payment for energy.
Jim
So here, both of you, lightning round real quick. I’m sorry, Tony, I didn’t mean to talk over you. I just have one quick question. I do it all the time. Yeah, it’s a shortcut thing. Can we have stagflation if we don’t have high energy prices? Tony?
Tony
Yeah, of course. We can have all kinds of we can have high food prices and have stagflation. So I think having high energy prices would certainly make it easier. But sure, high food prices or high rents or high housing, that sort of thing, I mean, major components. Yeah, absolutely. We could do that.
Bob
My answer is very similar. Yes. But it would be a hell of a lot harder with low energy. Yes.
Jim
I just think of the cost push and the energy embargoes made it a lot easier. Let’s wrap it. Unless anyone’s got something real pressing that’s going to set everyone on their ear. Guys. Good.
Tony
Thank you so much.
Jim
Yes, it’s a lot of fun. I love to do a deep dive, particularly get to know you a little bit better. This is awesome. And thanks for plugging your AI. I think that’s a really cool thing. Have a great weekend. What are you doing tonight?
Tony
Tonight I’m just resting. It has been a dramatic week. So I’m just going to shut it down tonight as a Nerd dragons. That’s right.
Jim
I’m going to a figure skating competition that’s going to be 3 hours long for my niece. She’s not even my daughter. She’s not even blood to me. She’s my wife’s niece. And I’m going to a three goddamn hour figure skating competition.
Bob
You saved yourself by saying you’re going for a relative, so that way take.
Tony
It for the team. Jim exactly. Dads and uncles everywhere. I appreciate you.
Jim
She’s one of my favorite nieces, even though she’s not blood to me. But I really like her, so I’m glad to support her.
Tony
Great.
Jim
I will see you guys. Have a great weekend.
Tony
Thank you so much. Thank you.
Bob
Thanks, Tony.
