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How the Fed could turn us all into ‘billionaires’ | E.B. Tucker

Tuckers Report: FEDs Interest Rates Could Push Economy Past Breaking Point

  • EB Tucker has stated that the Federal Reserve’s interest rates will break substantial pieces of the economy, and they will rescue select members
  • He believes this is no longer free markets but state-controlled capitalism
  • He advises to not let it be you, as something is going to break
  • In his report for The Tucker Letter, he provides a direct message for how to navigate these scenarios and manage a portfolio on behalf of a trust
  • His chart from today’s issue shows what the FED has done and that rates might be finished going up
  • He compares this situation to the movie Ford vs Ferrari where Ken Miles pushes his opponent beyond their limit
  • Past a certain point, the FED is at 7000 RPM and the economy will break if it goes beyond that
  • Expectations have now matched the current rate level so they may be close to being done.

Fed Reserve Move Could Lead to US Brawl: Selective Capitalism and Bank Backstopping in Play

  • The Federal Reserve is trying to raise interest rates to create pain in the US and strengthen the dollar so that it can be used as a weapon to achieve policy goals
  • The US is engaging in selective capitalism, protecting certain people while average people suffer
  • Now is not the time to gamble but to avoid the coming brawl
  • The government has backstopped banks partly in order to maintain credibility in the system and prevent people from withdrawing their money too quickly.

Faith in US Finance System on the Line as Zombie Companies Rise

  • The United States system of finance is ultimately based on faith
  • The current economical climate has created a situation where businesses are not generating enough positive cash flow to pay the interest on their debt and are instead becoming “zombie companies”
  • These companies have been able to borrow money at close to zero percent interest rates, but when it comes time for them to refinance they may not be able to get loans at the same low rate
  • Certain sectors such as high growth Tech are more likely to contain zombie companies
  • Investors must be realistic about what value these companies have in order for the system to continue.

When to Act in an Unstable Economy?

  • People are not in full panic mode yet
  • Commercial lending is all but frozen and the ripple effect impacts everyday person
  • Banks are likely to consolidate, not completely disappear
  • One should wait for maximum fear before taking action due to the economy
  • When people are not afraid enough at the top and too scared at the bottom is when one should act.

Navigating a Wave of Surprises: An Investors Guide to State Controlled Capitalism

  • The current system of state controlled capitalism involves surprising measures from regulators, such as the FED buying junk bonds at full price
  • This creates a boom and bust cycle with panics that can be predicted, and if one misses it, they are in big trouble
  • Inflation is high and costs are not going to lower
  • In order to stay ahead, investors have to ride the wave and be prepared for the panic events.

Economic Anxiety: How Rising Costs Impact People and Neighborhoods

  • People are making adjustments to their purchasing decisions in order to get by
  • Wages are sticky downwards and mortgages are unaffordable for many people, creating massive pain
  • The FED has stopped raising rates and the Canadian Central Bank may do the same
  • Historically, the FED has kept rates elevated for 8-12 months before lowering them
  • However, it is difficult to predict what will happen with mortgage rates next year
  • Should prices come down, comps and neighborhoods will also decline as a chain reaction
  • FED bailouts are only available to select people and those near power centers are more likely to benefit.

E.B Tucker Shares Strategies for Weathering Economic Downturn

  • E.B Tucker discussed how the current system may remain after this downturn, and that one should position themselves for the downturn
  • He created The Tucker Letter which is released every other Thursday and can be accessed for free or through a paid subscription
  • He discussed buying companies to add to a portfolio with the intention of keeping them long-term, rather than gambling
  • He suggested banks may become cheap soon and should be considered when adding to a portfolio, but cautioned against buying too early as they could get significantly cheaper.

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the Federal Reserve is going to putinterest rates at a place where it'sgoing to break substantial pieces of theeconomy and then they're going to rescuethey're going to rescue select membersof this economy it's not capitalism it'sstate controlled capitalism I don'tthink it's a conspiracy I think it'svery obvious uh the problems that areemerging right now commercial realestate you're seeing all these thingsbreak down some of the weaker banks arebreaking down and I think we have moreto go and so my message to people issomething's going to break don't let itbe you we're entering an era ofstate-controlled capitalism no longerfree markets says EB Tucker author ofThe Tucker letter and these are theconsequences for the everyday consumerwelcome to my show EB important messagesyou have for us today thank you forbeing here thanks for having me and I'mso excited about about your show and andI appreciate you asking me to be one ofthe first guests to come on it's anhonor well it's an honor to host you asalways EB I've known you for a whileyou're you're an excellent umanalysts uh now we're going to betalking about your analysis today giveus a summary of one of your first uh fewuh reports that you've done on the theTucker letter and we'll set the stagethat way well here's here's the problemI I had a fairly substantial career infinancial publishing I wrote lots ofletters people you know a lot of peopleknown me through that for many manyyears and uh as people know in 2020 I Igave that up and part of the reason Igave it up was that you know I startedhearing from people that the messagefrom me to them was cluttered byadvertising and by tacky marketing andit was distorting the the the purpose ofof reading my my work which was for meto tell you how I see things right nowand to help people navigate so I I gavethat career up you know I wrote a bookwe've been friends through that wholething so I've been in your show manytimes but I started hearing from peoplelook we need help now we need to knowwhat's happening we need to know what'sgoing on uh as you say it's not you knowdo this do that that's that's not reallythe deal the deal is hey guys I'm at thedesk this is what I see going on this iswhat I'm doing about it so in the Tuckerletter which you can find you have a direct messagefrom me I mean people can read this theycan catch up with what we've been doingand they can see that I'm actuallyshowing the portfolio that I'm managingon behalf of a trust where I'm thetrustee and it's very important in thistrustee to navigate these types ofscenarios you know let's today talkabout to me this has been really reallyclear what's happening you know theFederal Reserve is going to put interestrates at a place where it's going tobreak substantial pieces of the economyand then they're going to rescue they'regoing to rescue select members of thiseconomy it's not capitalism it's statecontrolled capitalism I don't think it'sa conspiracy I think it's very obviousuh the problems that are emerging rightnow commercial real estate you're seeingall these things break down some of theweaker banks are breaking down and Ithink we have more to go and so mymessage to people is something's goingto break don't let it be you and it'sactually it's not that hard to navigatethis stuff once you're You're Soberabout the setup and and we're reallyit's important for us to see what we'redealing with here I've got a chart andan issue that came out today by the wayissues come out every every otherThursday at 9 00 a.m the issue that cameout today shows what the what these guyshave done uh I think the rates mightactually be finished going up I don'tknow if we need to go up much more butthe whole system is rattling right it'sit's rattling and you can feel it withCredit Suisse you can feel it withamericanas going bust in in Brazil withan accounting situation you can feel itwith dream sill if you remember allthese things archigos you all the FTXall the cryptos make a list of all thesethings that have rattled they're theconsequences of 20 years of free moneyand so that's that's that's what's underpressure Ford versus Ferrari ever seenthat movie Ford versus Ferrari yes allright well there's a seen at the endwhere Ken miles is racing down I believethe last lap and he's racing hisopponent the Ferrari driver and they'reneck to neck and Ken knows that at acertain point the engine will just stalland break and so he's pushing hisopponent to rev up to I think 8 000 RPMor something like that and that remindsme of of your story about the FEDbecause past a certain point the feds at7000 RPM right now you're saying pastthis point the economy is going to breakthe engine is going to break they'vealready started expanding the balancesheet by the way I have a chart in theretoday where when they had the the svbsituation they actually pumped moneyinto the system so the the balance sheetonly came down for just a teeny tiny bitso it's not going to be this scenariowhere you're dealing with this foreverthat's why the rates had to go straightup David that's why the chart isstraight vertical because if they didthis over a long time it would be anavalanche straight vertical putseverybody into freeze mode you knowwe're installing we're going to rollercoaster you go up top and they they waitat the top and then give you a little alittle fake out and then they drop youdown this is what we're doing we're inthis top of the roller coaster waitingand they're dangling us over the cliffand then you know all it takes is enoughso we see the whites of people's eyesand then then they come in with anotherrescue that's the system that we're inokay but you also said that I thinkthey're done raising the Federal Reservehas died I think they're close to beingdone I mean if you notice theexpectations uh on the this Bloombergbehind me is quite handy you know it hasexpectations have now matched thecurrent rate level I don't know thatthere's much purpose in going higher letme give you a real world example let'ssay that you have an apartment buildingin an urban city like New York Citythat's worth 100 million dollars andyou've taken a loan on that five yearsago now most commercial loans are fivesix seven years and you took a loan onthat building at say three percent andnow you have to re-up the loan next yearand the rates are six percent so so thatbuilding is underwater and the lender isgoing to say we can only loan you youknow 70 million instead of 90 millionthis time and you got to come up withthat 20 million and you don't have itand so this is the situation that thewhole economy is in you know you don'tput a 30-year mortgage in an apartmentbuilding there's no really it's veryrare that there's such a thing and we'refacing this scenario I'm looking at thisstuff every day where the commerciallending Market is frozen and the wholesystem that we have today it's so easyto understand 20 years ago the FEDdecided we have to make money just atiny bit cheaper at every turn and thatmakes people feel rich okay so you havea 200 000 house you take a loan on ittwo years later you got to repair thepool it's worth 210 you take a fivethousand dollar equity line you spendthat money you never really pay it backtwo years later it's worth 220. ohyou're you're back with your head abovewater you see how this goes the wholesystem is like this and that's why ifthe FED keeps going and the FED crasheseverything out there's no system tocontroldo you understand what I'm saying thethe part the apartment building if itgets foreclosed on well then all theother apartment buildings around it arenow valued lower you see it's it's ait's a tidal wave and so my point is isthat that's why they had to go straightup in the air is to make the whole thingRattle and shake out a few scenarioslike an svb a credit Suite there's goingto be more there's going to be more ofthese things but people don't understandthat we've only just seen the teeny tinylittle reduction in all this free moneywhen they turn that corneryou're going to have to be investedproperly because things are going toblow up the FED is going to losecredibility and you've got to be readyfor that but it could be three months itcould be three weeks it could be sixmonths but it's not going to be threeyears believe it so so the FederalReserve let's assume they don't raiserates anymore let's assume the last onethey had it two weeks ago was the lastone uh the question is you know how longthey're going to maintain rates atelevated levels and if that is enough tobreak the system that you're talkingabout we'll get into that a little bitdeeper uh but if that's enough to breakthe system simply by not pivoting andreducing rates what do you thinkit's possible because what happened whatis happening now if you notice is thatthe svb account holders were a veryprivileged class of people these areyour Tech Founders all these differentpeople and they exceeded the federalInsurance deposit limits and so whathappened is that the government steps inand backstops these people so whatyou're seeing is selective capitalismin real capitalism the bank would havefailed the stockholders have gotten zeroand most of the loans would have endedup being bought for distressed pricesbut this is not capitalism what this isis this capitalism for some people sothat's State Control Capital so the FEDright now is trying to raise rates tocreate pain to suck money back into theUnited States I just came back lastnight from the UK I was there for aboard meeting I'm all over the world I'mtelling you the what the US is doing isputting serious pain on other parts ofthe world there's a strategy to thatthey have to create the dollar strengthso they can run around the world and usethe dollar as a weapon to to havecertain policy goals met so that'swhat's happening right now so they haveto keep doing this but they're going tocreate pain in the U.Sso the game plan is keep this strongrate regime going fix pain in the U.Sfor certain people now if your averageperson that you know was overextendedand now you've got to roll over yourloan at 10 or I don't know try gettingan auto loan an auto loan I you I'm notin the market for not alone but an autoloan could be 10 now people just can'tafford that right so you're just youknow you you you're fueling the brunt ofthis however the fed's goal is willprotect strategically important groupswhile we we ratchet up the strength ofthe dollar giving us a power on theworld stage you know all the reasons forthat that's the scenario that we're innow in that scenario does it sound likea good time to gamble absolutely notthere's there's about to be a huge Brawlon the casino floor it's not the time togamble okay it's the time to avoid beingcaught up in the brawl okay but EB justjust to push back a little bit on theFED bailing people out and you knowmaking a state control capitalism I'veheard the argument that svb was bailedout partly because the feds and and uhand the treasury wanted to send amessage that they would support Banksand backstop any further running thebanks that's supposed to provideconfidence to investors and depositorsbecause if they didn't do that it wouldbe even worse people would take theirmoney out at an even faster Pace rightabsolutely so there's 17 and a halftrillion of Bank deposits in the US youknow it's it's it's a lot of moneythere's not 17 and a half trillion ofactual money so if you don't maintaincredibility in the system then you'reyou're you're you have a huge problemand then you have no system to controlokay so you know it's very interestingthat the the bank that took over svb I Iwas actually born in the town that thatthat bank is headquartered in and I andI've met the family that runs that bankand it is some of the the best peoplethat you can ever do business with it'sreally amazing to to see that that FirstCitizens Bank on the other side of thecountry from svb I mean this is liketobacco farming eastern North Carolinapeopleextremely strong extremely responsibleyou know huge roots in the ground and sothe the FED obviously wanted to put thattrouble into the hands of a strong of astrong organization that's what they didbut to your point you have to maintaincredibility or the system doesn't workthat's the deal you have to you have tokeep the facade strong and and so yesthat was a 42 billion dollar request fordeposits out of 17 and a half close to18 trillion trillion trillion dollars Imean think about that so the systemsurvives on faithfaith is the Cornerstone of the UnitedStates system okay not gold not realassets faithall right so let's walk through yourscenario suppose the Federal Reserveraises interest rates again or even ifcurrent rates uh rate levels are enoughto break the system what breaks firstwalk us through this domino effectthat's about to happen well I don't Idon't I don't think they I don't thinkthere's necessarily a plan of whathappens first I want you to startthinking about zombie companies nowpeople at home should understand azombie company does not generate enoughpositive cash flow to even pay theinterest on its debt and the zombiecompany became a zombie because it wasable to borrow money at close to zeropercent levels even though it had noprofits sometimes no sales uh verylittle very little adequateinfrastructure to survive a recession arecession is what we used to have duringcapitalism now we have a sustained boomwith the occasional brief Panic sowhat's what's going to happen is is thatwhen these zombie companies win um forinstanceClass B Class C office real estate thatmeans not the beautiful brand newbuilding but the building that was builtyou know many decades ago that somebodybought with a huge loan hoping that itwould go up in value and they could sellit pay the loan off and keep thedifference which is actually a smartmoveuh when this loan has to be reworked andthe coffee shop down below went out ofbusiness or closed or whatever uh thethe office says 25 of people work fromhome so we don't need as much space therents are down the costs are up themaintenance man needs a raise the bankor the lender which is usually aRegional Bank which is why you're seeingall the regional Banks hurt so much sayswe can only give you 65 percent of theloan that we gave you beforeone of these is fine by the way theTrump building and and uh 40 Wall Streetis is going to face the same problem Imean this is like New York is basicallyunderwater from a commercial real estateperspectiveat the moment so I don't think raidsneed to go any higher what we what whathappens now is time it's like a stockchart a stock chart can either correctby going down or correct over time bygoing sideways because time is the sameas is falling on a stock chart and soall we need is time so you start gettinginto maturities of these loans orcompanies that say now we have to re-upand we have loans that we took threeyears ago at one percent we have to goback to the market the market wants tocharge us eight percent and the salesare the same and the costs are up wedon't know what to do do you see howthis plays out so I think from the fed'sperspective how long can we can we pushthis before see right now nobody'scomplaining when I meet with peopleDavid they say come on give us somestocks to buy that are going to go upthat's what they say to me and I say youguys this is not the time to be doingthat this is the time to be bracingyourself so that you're not one of theones that ends up with a rubble on yourheadum I you know a lot of people in like inthe comments on my new show habits sayhey David give us some good news foronce I'm going to ask you that before webefore we uh end the call Bibi I want toask you for some good news but let'sfinish off on this discussion becauseyou brought some very good points if youwere a zombie company let's say ifyou're a CEO of a zombie company firstof all keep our question which sectorwould you likely be in right now whichsectors contain the most zombiecompanies in seconds what would you doif you had to refinance at a much higherrate right now keeping in mind that thedebt the interest expenses you had topay you're paying now are probably basedon loans you locked in years ago at amuch lower rates but now you've got torefinance either later this year or nextyear and you're in deep trouble rightwhat do you do that's right I I would bein full first of all the sector probablywould be high growth Techthat would probably be the sectorbecause that was a sector that benefitedtremendously like any idea got fundedyou know if you think about the last 10years you know you say I'm gonna I'mgonna um improve this industry this ismy idea you know and you get you know100 Grand in funding and evaluation of amillion and then you get a millionevaluation of 10 million remember allthese stories and then next thing youknow you know you have a 100 milliondollar company but you've only raisedlike three million dollars right so so II don't think these businesses areworthless I do not think that they'relargely worthless I think they're justworth less there's a difference betweenbeing worth less and being worthless Ithink that these businesses have got tobe more realistic and as they come backthey're going to come to investors likeme who are going to say I'm willing toinvest in this business I'm just gonnaI'm not quite willing to pay the the themultiple that you've had before that iscalled being realistic and Davideveryone that knows me knows that I'm apsychology I'm like a psychology but offyou know it's philosophy and and I'mtelling you that that it is verydifficult for people to to admit thattheir company is worth less than theythink in their mind okay they haveeverybody has an idea of what it's worthand when you suggest otherwise it's verydifficult for them to to agree with youin fact at first they tell you that youdon't know you're talking about secondthey tell you that you're wrong they'llfind someone else then they exhaust alltheir effort finding someone else andthen they they finally can't come backto you because they're too embarrassedand this is how the cycle goes now theopposite is true at the bottom okay theopposite is true at the bottom andstocks when when you've got a stock youcan't give away and the industry is down90 percent now you're in a place whereyou can pick through and find Winners ifyou remember I bought a bunch of realestate in 2009 and 10 in the US nobodywas buying real estate all thesejabronis with you know used Maseratisand you know loans andhard money lenders following them aroundthese guys were they didn't exist theywere living with their mom there wasnobody buying houses nobody nobodynobody okay so I was the only one infact Realtors wouldn't even show me thehouse no I was paying ten dollars asquare foot people can't believe it butit's true I have all the rest I sold allthese things last year I have a huge taxbill coming up in two weeks the point isis that psychology governs these marketsokay philosophy should govern yourapproach to these markets you've got tounderstand these things and thesecompanies are not willing to admit thatthe previous value where they raisedmoney is too high so that process takestime and nothing you cannot talksomebody out of delusion if you if youencounter somebody that's that'sdelusional you have to let them work itout themselves and so that's going tohappen very slowly over the next yearand so we want to sit on the sidelineswe don't want to tell them they'redelusional because nobody takes thatwell we want to sit back and wait andthat's why you've got to be patientright now because if you buy the wrongasset at the moment you know you'regoing to be part of that adjustmentperiod it's very painful you saidsomething very important earlier yousaid that commercial lending is all butFrozen tell us about the Ripple effectsof commercial lending being frozen howdoes that impact the everyday guyhuge so people need to understand youknow my grandfather was in bankingthat's how I know the people that thatare buying Silicon Valley Bank andRegional banks are always going to be apart of our system they're never goingto they might turn into utilities ofsorts but they're always being part ofour system because these are the are thethe key lenders for big projects youknow the the National Banks likeJPMorgan or something JP Morgan is isnot going to do a a great job of oflending in Greenville South Carolina toa property developer you know they theyjust they can't possibly know all thosemarkets you know a community bank or aregional bank with a presence in thetown is the big lender and so this istypically where the process begins forfinancing a lot of development-orientedactivity and so these Banks right noware having a huge problem they're havingto pay higher rates on savings they'rehaving to pay higher rates fromborrowing money from the Fed they boughtfixed rate long-term debt instrumentssome of them have which are tremendouslyunderwater you know as the as rates goup so they're having a capitalizationissue and at the same time to makematters worse depositors are pullingmoney out of the bank for two reasonsnumber one out of fear which is a bitcrazy because where are you going to gonumber two is because expenses are upand people haven't quite realized thatthey're the subjects of inflation and sothey're having to spend a little bitmore and a little bit more they have alittle bit of savings whatever they'rerunning through this extra money and sothis is about the worst scenariopossible for banks you know the bankstocks are going to go down moreI I think Bank stocks actually will endup being you know at some point a dealbecause they can only go down so much Imean the the businesses are not uhworthless because they they're afundamental piece of the of the economythey're unlikely they're likely toconsolidate there might be some thatfail into each other but they're notlikely to go away we might have lessBanks after this is over but we're notgoing to have no banks and umand so this is where the pain point isif you're an investor on the sidelinesthis is what you want to watch right Imean it's not really I mean I have theannual report here on my desk for one ofthe banks where I'm a stockholder andI'm reading this thing and I'm decidingyou know what do I want to do I I feellike I understand what's ahead for themand and the next few months are going tobe nasty but there there will be aturning point and that Turning Pointprobably becomes a very interesting timeto have exposure in in the and the Tucker letter we wewill probably take a look at banks atsome point uh once the full brunt ofthis is has been felt yeah so I thinkthat's the key question people want tounderstand is what is this Turning Pointyou mentioned being patient severaltimes well what exactly are we waitingfor tell us about this Turning Pointso you want the you want the you want tosee the whites of their eyes and thatthat's the that's the the deal I meanyou know when you're at maximumnegativity when maximum fear when you'reat that point it's probably time to totake action because what happens is atthe top people are not afraid enough atthe bottom they're too afraid it's verydifficult to to once you see things thisway it becomes quite lonely as wellbecause you're going against the thesociety but people are not afraid I meanI mean look you know I'm overseas allthe time I'm in the major citiesyou can't get a Rolex still you can'tget I mean it's crazy I mean people therestaurants are full it's nuts peopleare not they know something's going onand they know that there's somethinggoing on is not good for them butthey're not in all out panic modethat's why we have more time to go whenyou see them in panic mode like forinstance in 2010people were negative on the stock marketbut that was a great time to buy stocksthat was right on the cost of Bernanketelling everyone he was going to printmoney and as much money as necessary tomake stocks and house prices go up yousee what I'm saying so so right now theyou know people the general sentiment ispeople know something's wrong butthey're not they're not in panic modearen't you aren't you concerned that ifthis time around let's say you havemaximum fear in your words wouldn't thatimply that the system has already brokenBeyond repair and that there's no hopefor investors at allwell the okay betting against the systemis not I was having dinner in Londonwith some guys and I was saying look yougot to realize something the systembetting against it has not been a wisebet uh the the ability to think about ittwo weeks ago everybody thought theirBank was going to fail now everybody'spretty much forgotten about that so likethe ability for for the U.S system tomaintain credibility even though it itdoes appear to have big problems the theability to maintain that has been prettypretty remarkable and soum I think it's very hard to bet oncollapse uh of the of the worldsuperpower in the short run and actuallyI don't think it's a very good betbecauseum that that's a scenario that doesn'twork out well for people I think what'smore likely is that if you fast forwardfive years that the nominal value ofassets and the cost of of things youneed is much higher I think that whatpeople miss about the last 20 years isthey actually have not become wealthierthey just have more money and so what'sgoing to happen over the next few yearsif you play it right is that you've gotto ride that wave the cost of things isgoing up the your your asset values aregoing to go up your real wealth might ormight not go up depending on how youposition yourself but I think that thatpeople need to see that the the theprice printed on something is probablygoing to go higher and in the short runthere's going to be maybe a panic eventand that Panic event is somewhat briefand you have to endure that Panic eventI've got a chart in today's issue of theTucker letter that that shows some pastPanic events and what you got to see isthese are not recessionsthese are just continuous booms with theoccasional train wreck and I think weneed to be ready for more of that that'swhat's coming and you don't want to getcaught up in that you don't want to beyou want to be strung out where you getfrozen out if you got frozen out of thecoven crash you really missed out I meanthat was a that was a bad situation andso and so if you can see things fromthat perspective I think you're you'rebetter positioned okay so tell us aboutsome of these panic events that are inthis chartpast Panic yeah so so yeah so I mean ifyou go back you know so I've been doingthis for a long time and we used tostudy leading indicators and recessionsand you know we we would go out and doum uh we would go to stores and you knowwe would like survey the people thatworked there and we were always tryingto to figure out uh casinos we wouldalways visit casinos and see if peoplewere gambling more or less and this wasa way that we predicted recessions inadvance and there were certain stocksthat benefited but that's duringcapitalism so now when we have statecontrolled capitalism it it looks likecapitalism people believe that it'scapitalism but what it is is is thatit's these brief panics where things getvery very tense for a very short periodof timeand then The Regulators do unexpectedthings that would never happen in a freemarket for instance in during covid ifyou recall the market went down about 35percent 33 something like that in threeweeksso the U.S market lost 13 trillion ofvalue and have a chart of this in theTucker letter it see people can see itit went down uh by about 13 trillion inthree weeks 30 and then it turned aroundbecause the FED announced that theywould buy junk bonds in the market thejunk bonds are bonds issued by companiesthat can't really afford to repay themif there's any trouble and so the FEDbought those at full price and what'shappened is that reverse the market andshot it back up 35 in about 10 weeks soif you missed that you were in bigtroublethat was a huge I mean that was a thatwas a huge Panic event and so that's notsomething that happens in capitalismbecause in capitalism investors wouldhave to buy the junk bonds and investorssay the junk bonds are worth 50 cents onthe dollar because the companies arerisky but the FED said they're worth 100cents on the dollar so that changes theMarket's Behavior so right now themarket the Market's starting to expectthe FED to be done with rates if they'regoing to go higher that'll hit themarket really hard if they're donethat'll send the market a different wayso this is a state-controlled capitalismthis is not an investors making thesemoves if investors are making thesemoves then things work out a bitdifferently you said earlier You'reExpecting nominal prices to go back upare you assuming inflation is going toreturn or am I misquoting you yeahinflation's here I mean I'm definitelyit's here right now I mean the the thingis is that people are distracted at themoment you know they they do not reallyunderstand is it going to go higherthough is inflation going to go muchhigher afterwards it's pretty high rightI mean you're having numbers come outthat are you know six percent this rangebut but I'm experiencing quite a bitmore inflation I mean I'm having uh Ihave lots of people working for me anddoing all these things and I'mexperiencing higher than six percentinflationum I'm seeing it in insurance I'm seeingit in fuel building materials food laborsoftware uh all the every single pointon the curve I'm seeing inflation muchhigher than six percent and I don'tthink any of these people David aregoing to lower pricesI mean believe me like my Gardener isnot going to lower the priceokay we just are having this discussionright now there needs to be a wageincrease I'm going to give the wageincrease I'm happy to do it but I doubtthat a year from now we're going to havea wage decreaseI don't think so so so what I'm sayingto you is these costs are here to stayand I don't think people have wrappedtheir head around that yet I thinkthey're they're they're running throughthe couch cushions and going you knowusing up extra saved money getting bythey're making and in the current issueof the Tucker letter we talk about thecompany that we're recommending isshowing how certain certain sector ofthe product that they that they provideis seeing stability other sectors areseeing down is very very interesting sowe're quoting out of the annual reportthere I think people are makingadjustments to their purchasingdecisions and those adjustments helpthem get by wages are sticky downwards Imean the biggest cost for most consumersthat's that's let's Analyze This housinguh car car payments let's say you're ahomeowner you've got to pay yourmortgage everyone's wondering then whenare my mortgages much higher it's goingto go back down you're going to go uphigher before they go back down well Imean I I I think if they even stay herethey're unaffordable for people andpeople haven't yet come to therealization that if you're buying a astarter house let's say a starter houseis you know three to six hundredthousand depending on where you live ifyou're buying that starter house atthree percent mortgage or seven percentmortgagethat is a huge amount of moneyI mean that is a over the life of theloan that it's a massive increase inmoney and so what that means is that youprobably can't afford that much you givethe prices to come down and if the pricecomes down then the comps come down andthen the neighborhood comes down alittle bit you see how this goes there'sa chain reaction I don't I don't I Idon't know that mortgage rates need togo much higher in Canada they they'vecreated massive painmassive pain you notice the CanadianCentral Bank has stopped raising ratesat the moment and part part of it isbecause Toronto will be underwater Imean most people have a variable loanthere the U.S they have fixed loans Imean this is it's so easy to see this Imean there's there's people just can'tthey can't carry on now if they'remillion dollar condo in Toronto is worth900what happensI mean that's a huge situation that'speople's biggest asset okay sohistorically uh the FED has kept rateselevated for about eight months to 12months before lowering them do you thinkfor sure enoughshorter short amount yes do you thinkthe FED feng shui will come back downnext yearand if so mortgage rates well they comeback down next yearwell I don't I don't know I don't knowhow much will come down but I thinkpeople need to watch for is this is adynamic situation not static I thinkpeople need to watch for when when thepain is at a maximum place and then whatthe FED does next because this this thisincrease in the FED balance sheet thathappened with svb nobody's talking aboutthis I mean I have it in the newsletterbut nobody's talking about it so rightnow they're able to selectively increasetheir balance sheet to help certainpeople and nobody notices so how longcan they do that maybe a little longerthan you think I mean if if averagepeople are having trouble that they'reable to bail out connected people thatcan go on for a little whileso so I I think people need to forgetabout going back to three percent orsomething I mean they have to askthemselves what's going to happen if thevalue of my house is subject to thebuyer's ability to borrow which is goingdown it's a big problem finally I wantto just come back to I think one of thekey points that you brought up in thisinterview today which is that the thefeds are going to bail out select peopleand you don't want to be left from thesidelines or who are these people whatkinds of people are going to be wellyou'll see over time and what happensyou'll see everybody else you'll seeover time I mean nobody could havepredicted that they would buy junk Bondsin 2020 I meanum some people did predict that svbwould would fail nobody predicted thatit would be treated the way that it wastreated it's very very difficult to knowand I think the question comes down towho is perceived as being strategicallyimportant and you can't answer thatquestion because you're not in the FEDcommittee I mean there's there's there'salways there's always considerationsbeing made as to how squeaky is thatwheel uh there was there was acongressman that asked uh uh would youknow if his local Bank in in Oklahomawas having the same problem you knowwould he get the bail out and I mean theobvious answer is no because uh the theeffective poll on Washington is very lowso you've got to understand I mean thisis a scenario where your distance fromthe center of poweris very important you know and so ifyou're a person that's on the way on theoutside you you don't have any sort ofum connection to to power and so you'vegot to be realistic I mean you can't begambling you can't be gambling right nowyou know soum as you watch this unfold just realizethat there's going to be selectivethere's going to be selective treatmentit's not a market in a market thefailing bank has to find market supportand Market support might be very low butif it was very low then the bank nextdoor goes down and then the bank nextdoor goes down and then people realizethey're 17 and a half trillion ofdeposits and there's a lot less actualmoney oh no I better get my money yousee how this goes well how are you goingto get your money you know you can onlyget a hundred dollar bill you know thereused to be a 500 bill sopeople just the the the their system isprobably going to surviveit's probably going to survive and soyou you've got to stop trying to bet ontotal catastrophe and realize that thatthe the this is going to carry on andthe likely event is that five years fromnow I might be a billionaire I mean it'snot because of success I mean you knowwe might be having a thousand dollarlunch I mean that'sthat's not even that good okay so mypoint is is that if if you can controlthe rate of inflationand you can slowly over time controlasset prices going up people feel richyou understand how this is a goodexample is with your house if it slowlyrises in value you keep against Torontoeverybody feels Rich because we have amillion dollar studio apartment but thething is they kept borrowing the wholetime another 50 another 50 another 50another 50. and the whole way up theyfeel rich and then the thing goes downjust that much and they start panickingso so that's the that's the the systemthat we that we're in and we're probablygoing to be in that system after this soyou gotta you got to be positionedthrough that downturn that's the type ofstuff we're talking about in the Tuckerletter I really want peopleto come and directly hear from mebecause that's that's what I've beenhearing is missing when's your nextletter coming out EB so every otherThursday at 9 A.M comes directly to yourinbox and uh today was the today whenwe're talking the issue came out twoweeks from now I don't bother you inbetweenum 26 issues a year and uh subscriberscan see the portfolio they can check theupdate at any time but free people canalso read it David when I was a youngguy I was hungry for learning that'swhat I wanted to do was to learn andthere were people that that helped melearn in the early days and I wantpeople to be able to learn for freethere's you know you will hit a paywallat a certain point but there's a lot ofinformation that is free that people canabsorb and help them on their Journeythat that's really important to me welllet me just end on this note I meanfirst of all thank you for educating usthere's a lot of hungry people out thereyearning for a lot knowledge watchingthis program so thank you for beingthere for us uh EB you're you're tellingus that the system is likely going tosurvive when the fear is over whatsectors will likely do while youmentioned Banks could be an option whatelse give us a teaser in your portfoliothanks thanks the thing is is that banksare going to get really cheap that'swhat people don't even understand andyou don't want to gamble you don't wantto say oh it's cheap now because youmight say this Bank seems cheap now butit might get cheaper so like in today'sissue I'm I'm showing people the chartthat I use to see if something's youknow safe to buy or not and the bankssay no that's that's what the chart saysso I I don't ever want to catch thebottom of something like I don't want topay the cheapest possible price becausenormally if you do that it's just luckor you get run over by a by a dump truckI mean that's that's the thing thattypically happens but when this thingturns you want to have something thatyou that you're watching you know youwant to have a bank that you're watchingthat when this turns is likely to be alarge Bank going forward and and sowe're buying things we're trying to tomake a collection of companies that makemoney that that have a place in thesystem that are going to survive in thelong run and that are not stuck on youknow zombie loans and and businessesthat have a lot of fluff that requiredzero percent interest rates to surviveyou know we don't own any banks rightnow we're watching Banks I mean but butin the meantime you got to have a listyou got to have a watch list of thingsthat you want uh you know the company webought today which I for subscribers Idon't want to reveal the company but isis one of my favorite Holdings you knowI bought it last year myself I explainedto people how I found the company how Ihow I discovered it I'm infatuated withtheir business I think it's very strongit's a business that I want to own I'man owner of that business not a gamblerI'm not buying that hoping to flip itI'm buying that business because Ireally like that business I wish I ownedthe whole thing and that's the type ofmental realities we want to have so inthe portfolio there's room for One Bankmaybe two but it's not time yet I meanyou we haven't seen a full flush and andyou want to wait for that even if youdon't pay the lowest price you want towait for that because every time it goesdown again it looks cheap it looks cheapbut it's not cheap because it might godown more so we're waiting for that turnand it's just not time yet EB Iappreciate your time today excellentanalysis thank you for coming on theshow everyone should check I'll put a link in thedescription below thank you again maybeI'll speak to you in a couple weeksthank you thanks for having me all rightand thank you for watching don't forgetto subscribe