Transcripts. Bannon’s War Room. Ed Dowd Gives His Assessment of Economy as Deep Depression Appears Imminent. November 16, 2022.
Topic: The Economy and the upcoming depression that appear imminent. Ed Dowd. November 16, 2022.
Transcripts from Bannon’s War Room on Rumble: Ed Dowd Gives His Assessment Of Economy As Deep Depression Appears Imminent
Published November 16, 2022.
Steve Bannon
But Ed you also have done some great capital markets work and you’ve really been someone that audience has taken to as you given kind of your overall assessment of where the economy is going. You've and I want to if we can get the document, right on the PDF. I'll spit that out in a second, the PDF, up on the site in Memphis and get it up.
People you work with have done a report on the overall economy and Ed can you take a few minutes before we start talking about the mortality, the vaccine and your research there and your new book. I want you to give your assessment of where we are in mid-November of 2022 with the American economy and the global economy.
Ed Dowd
Sure, my team is two PhD physicist, Carlos Alegre, and Yuri Nunes. We started a hedge fund, but Carlos had already come up with economic models to predict the economy. He has a hedge fund model that he's running the currently predicts all sorts of asset classes and he put this report out in November and basically, it confirms what I said to you a couple weeks ago, which is that we're going to see a deep deep recession in Q1 and Q2 along the lines of 2000, 2001, and also 1990.
Now it can get even worse with any kind of systemic problem, any kind of accident or hiccup in the financial system will exacerbate that and make it even worse. So that's what we're looking at. The bottom line is these are economic models, early cycle indicators that predict the trajectory of the economy. And in November of 21, we have what we call our expansion index, it was 60% compete, and December 21, it peaked to 65 and started rolling over in January. That's when the stock market peaked.
And right now, it's at - 90% which indicates very severe recession on the horizon. And this is bad news for the economy, bad news for people who have jobs, who might get laid off. It's bad news for the banking system, bad news, just all around.
Steve Bannon
So up until a couple weeks ago the standard response, because we've been doing a lot of what we call under the hood analysis of the way of the lived experience of people and how that manifests itself in numbers. And the rebuttal we would always get is that well the consumer is still strong and unemployment's still low. We said, yeah but if you look just below that, the consumer is still strong because they're increasing debt and now it's out the sixteen point five trillion dollars of debt. And that was a lot of it was taken out in lower interest rates. Now there's interest rates start to explode and so people and inflation is so high, people are living off their credit cards. And now they're in a vicious cycle.
Today Amazon set to lay off thousands, right? Amazon going to lay off thousands and Jeff Bezos comes out and says, hey I think it's a good two people should not be buying like cars and houses or buying things. They should be hunkering down right now because we're about to hit a firestorm.
In addition, I've got the Wall Street Journal talking tech firms, right here. The tech firms, drop office space in swift nationwide retreat. Commercial real estate, particularly the big cities that have become havens for kind of these mini–Silicon Valleys are now, people just walking away from the leases.
Is that what's leading, are those the early indicators you see? because when Cortes and I go through this, it looks to us like we are very rapidly, not just deceleration, we're about to go off a cliff in the in the first couple of quarters. There's a great article that was out today about FED forecasting and the FED forecast still doesn’t forecast recession. They say, one of the reasons the FED doesn't do that is that it's so politicized, it's afraid to actually do the real modeling, it's got to be there, because they make an assumption in the modeling that they will have monetary policy that will coordinate with fiscal policy to lesson everything.
So, at worse everything is a soft landing. What's your assessment on the details of? Why do you think we're heading in not just a recession? You think we could be heading to a major recession, along the lines of the internet crash of early 2000 or the real estate crash.
People forgot we had two bubbles. We had we had the internet bubble an the stock market that crashed in the first couple of months of 2000. We had the first quarter and it led to a major recession for a couple of years. We had the real estate asset bubble from the savings and loan that the crashed in the early 90s. I think it cost Bush 41 the election. Are those along the lines that you and your partners see that you're looking at?
Ed Dowd
Yeah. So, what are lytic cycle, indicators started to deteriorate at the beginning of the year, and they’ve only gotten way worse. And if you really want to understand what's going on, the FED really doesn't understand the economy anymore. There's a lot of people I talk to on Wall Street, hedge funds that say that the FED uses unemployment is a big part of forecasting. Employment doesn't drive the economy like it used to. We become a financialized economy. So, the stock market and the bond market is the economy. And as those go lower it has a knock-on effects and multiplier effects and this is a disaster. So, you're going to see what I call the great Global Margin Call, that's already begun earlier this year and just going to continue.
And we don't make a lot of things here anymore. A lot of the wealth is paper. Well, if it's been bit up by Fed easing money and you know anecdotally, I see it here on Maui. There's a Google executive who I knew who bought a home and now he’s selling the home and he didn’t even occupy it within like three months because he didn't say why, but I suspect he's feeling a lot poorer with the stock options under water, and he was doing everything with loans.
So, this is what happens, people feel poorer and they're raining in their horns and economic activity from the wealthy and the top 10% which was kind of holding up the economy is just disappearing overnight, people are not feeling good.
Steve Bannon
Your Global Margin Calls are going up because interest rates are going up all over in the exploding. I think England announced today they got the inflation up again, 11.4% highest, I think inflation they’ve had since World War Two. The global Margin Call is this three hundred trillion dollars of debt and I think 90 trillion since the CCP virus hit now. That was all structured on essentially zero interest rates. The chickens are coming home to roost there because now interest rates are pop-up. That the global Margin Call that you're talking about?
Ed Dowd
Yeah correct, and the dollar is a sign of that. The dollar has weakened a little bit recently, but I suspect the dollar will continue versus other indices to go up because a lot of this debt is dollar-denominated. The bottom line is Steve, since the early days of my career, I've watched low-interest-rate cycles turn into disasters as they raise interest rates. In the 90s that was the S&L crisis and then there was a mortgage bond crisis in the mid-90s and then we had the.com crisis and then we had the financial housing crisis.
Every time the FED lowers, there's excess, there's fraud, the leverage goes somewhere, usually we don't know where and someone's holding the old maid. And I suspect there's a lot of old maids out there that are going to come to fruition as this unwinds. And that FTX is just one example, the UK pensioner problem was an example, there's going to be many, many more. I mean this is the this is the bubble to end all bubbles. So, I suspect multiple months of discovery of massive frauds and unwinding and deleveraging of all sorts of institutions.
Steve Bannon
This is what happened in England, when they had the (inaudible) problem they found out that they had that the pension funds because in zero interest rates, low interest rates couldn't get the return to meet their actuarial tables we're doing all types of things with derivatives and leverage that hey didn't know that a pension funds should be doing that to get the returns they needed to kind of meet the requirements they have for these actuarial tables. I think we're of see a lot of that. You know, they're already discussions of for instance the situation like the Bitcoin situation or the cryptocurrency situation. That may have many other ramifications because it could have been people there that were, had very leveraged bets. Bets that are based upon very arcane derivatives that are very tough for people to understand and how they interconnect. So, no. Just but from your perspective, the first quarter of next year, because a lot of people saying hey if it happens it’s the second quarter third quarter towards the end of the year. You guys are saying, hey we don't like what the first quarter looks like, people should strap in.
Ed Dowd
Yeah, Q1 will be bad and Q2 will be probably called even worse. We're looking at minus 3% quarter over quarter, in Q1 and Q2. Q2 could be the trough. But again, I can't predict the systemic issues that may be uncovered as the tide rolls out. That's the biggest problem. You know, Steve when you think about Wall Street, Wall Street has made a living off of low interest rate environments that go on too long, creating structured product, Byzantine product that only they understand, selling it to less sophisticated institutional investors and when the tide rolls out, there's usually a blowup somewhere. And I think this has been one of, you know, we had low interest rates for 12 years. I mean I can't imagine all the bombs that are waiting to explode in people's portfolios across the globe. And I'm not talking individuals, I’m talking about supposedly professional institutional people who thought they knew what they were buying but never would have imagined interest rates would do this. And of course they've done this. This is what happens every rate hike cycle.
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It feels like there will be no place to hide. It seems the best place to keep money is in a savings account or money market. 😳