Lead-Lag Live
Welcome to the Lead-Lag Live podcast, where we bring you live unscripted conversations with thought leaders in the world of finance, economics, and investing. Hosted through X Spaces by Michael A. Gayed, CFA, Publisher of The Lead-Lag Report (@leadlagreport), each episode dives deep into the minds of industry experts to discuss current market trends, investment strategies, and the global economic landscape.
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Lead-Lag Live
Wall Street's Blind Spot: Why Most Analysts Miss the Budget Deficit Story with Jay Hatfield
The financial world is plagued by misconceptions about the budget deficit, with both political parties incentivized to make our fiscal situation appear worse than reality. Diving into the actual numbers reveals a fundamentally different picture than what dominates headlines.
Examining Congressional Budget Office projections shows they completely omit approximately $300 billion in annual tariff revenue. When properly accounted for, next year's projected deficit falls to roughly $1.4 trillion or 4.5% of GDP—a level that becomes sustainable when compared to our nominal economic growth rate. The relationship between debt sustainability, economic growth, and monetary policy creates a more nuanced story than the oversimplified crisis narratives that dominate public discourse.
The Federal Reserve's current policy has resulted in an extraordinary 9% annual contraction of the money supply, a condition not seen since the Great Depression. This monetary tightening creates deflationary pressures that will eventually force rate cuts—likely beginning in September. Understanding these dynamics provides crucial context for investment decisions across asset classes.
For equity markets, our analysis maintains a year-end S&P target of 6,600 despite near-term challenges. The market appears fully valued with earnings expectations running high, particularly for technology companies, creating potential volatility through August and September. Small-cap stocks, despite recent underperformance, stand to benefit significantly from upcoming Fed rate cuts, particularly those with strong balance sheets and meaningful dividends.
The most profound insights often come from following the money supply data that mainstream financial media consistently overlooks. Whether you're positioning for potential market turbulence or seeking income through high-yield bonds yielding around 8%, having a clear-eyed view of these economic fundamentals provides an edge in navigating what promises to be an eventful conclusion to 2024.
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I want to get your take on where we are in terms of the market for the last part of the year.
Speaker 2:So we've been consistent that, with no corporate tax decrease, which is what we had that our target was $6,600. And we had that target when we were at $5,000, and we still have that target. And that's the value of our research is we have underpinning data that supports 6,600. So we don't panic and cut it like most of Wall Street did when it went to 5,000, nor do we increase it randomly.
Speaker 1:My name is Michael Guy, publisher of the Lead Lag Report. Joining me is Mr Jay Hatfield. This is a sponsored conversation by Infrastructure Capital, one of my clients, and maybe you've seen that. I've interviewed Jay and seen how right he's been on a number of things and I think he and I are actually very aligned here. But let's talk about something. You teased me, jay, at the beginning, prior to going live, you got some new research you've done on tariffs and the deficit prior to going live.
Speaker 2:You got some new research you've done on tariffs and the deficit, yeah. So it's kind of shocking how much disinformation you know, aka talking points get put out about the budget deficit so specifically and it's understandable, because both Democrats and Republican deficit hawks want to make the deficit seem worse than it is. So we actually get cuts and I do too but we still have to make money trading stocks, so we have to be objective. So, specifically, a whole bunch of talking points about how, basically focusing on the tax bill relative to this theoretical, ridiculous scenario where the Republicans would just let it expire, so all the deficit reporting was relative to that, so it wasn't. So I think that number was moved around at the last minute, but roughly say, 2.5 trillion allegedly added to the deficit. The reality was that there was a minor cut, almost not worth mentioning, but, say, 50 billion a year, which would be 500 million in their swap math. They multiplied everything by 10 because it's over 10 years. So minor cut. Basically, you add the from an incremental perspective. Because the other talking point was well, all this tax cut went to the wealthy. Well, that was what happened in 2017. This tax cut, the incremental tax cut, went to tip for tipped wages, social security and overtime, which are not earned by the wealthy pretty much Even most of the wealth. If you still get income, your social security gets wiped out. So that doesn't matter that much. For a macro perspective I think it matters and it's not that stimulative to the economy because you're not helping capital formation. But so that was the deficit.
Speaker 2:Focus was, oh, they blew up the deficit. But the reality is there was this minor cut. We cut those who had the tax cuts I mentioned and then reduced the IRA subsidies and reduced eligibility for Medicaid. So the net of those two was a minor cut. But even the CBO's numbers showed that we're about $1.9 trillion this year and this is on the new tax bill and $1.7 next year. But if you look at the CBO's numbers which we did and then did our own forecast they totally don't include tariffs. So the $1.7 trillion. So we're not making some weird thing up. We're starting with CBO numbers and just adjusting for tariffs. They're running at least $300 billion right now, but we're using $300 billion. To be conservative.
Speaker 2:That gets a $1.4 trillion deficit next year and that's only 4.5% of GDP and that's important because GDP normally grows around 5%, 3%, nominal, 3%, real, 2%, inflation or some combination of those two. So that means that the debt is sustainable. It's roughly one times GDP. You're going to hear a bigger number. Same thing talking points. People want to report the whole debt, and so that ignores the fact that Federal Reserve owns about $7 trillion, social Security Administration a couple trillion. So the net debt held by the public is roughly one times GDP and it's going to stay that way at least for the next year or two.
Speaker 2:There could be an uptick, or likely to be an uptick, if there's nothing done about Social Security but, more importantly, medicare. But it is possible to grow out of that. We're forecasting 3% growth. And then the last point on that topic is and you'll hear other assertions, but I can go through the data if you care but what drives economic growth is savings and investment. There's a study from the IMS saying it's 70% correlated. I would say it's closer to 100, but statistically about 70 is as high as you get, and so that's across the globe. So if you save 300 billion from tariffs and then that gets invested by corporations, that should add about 0.2% to the long-term growth rate of the US economy, which is important because we do. You know that's not huge, it's still significant. We need to grow our way out of the over-promising on Social Security and Medicare. But so that's a mild positive for rates. I'd still say the key driver of rates is not the budget deficit but actually Fed policy. You can talk more about that as well.
Speaker 1:Yeah, let's, let's get into that. I mentioned that I was myself on a show earlier and one of the topics was around is Powell going to finish this term and all the drama that we see, and how would the market reaction be if Powell were fired or not fired? How much of Fed policy is Powell versus everybody else in the Fed?
Speaker 2:Well, that's kind of the core point is that you have on the. It's important with the Fed to distinguish between the Federal Reserve Board and the FOMC. So there's seven quasi-permanent board members and then five rotating regional bank presidents. So the Fed chair historically is reluctant to have dissents in the core Federal Reserve Board. Two of them are Republicans. Both of them have come out for a July cut.
Speaker 2:They don't buy the Fed's, we think, fallacious analysis of the tariffs. Specifically, the Fed's fear, which is irrational and not supported by any data, is that the threat of tariffs will first of all affect CPI significantly, which it hasn't, and we did predict that because oil is actually offsetting it decline in oil, that is. But there was a little bit of an uptick last month and could be some more. But it's one time and this expectations theory of inflation that people say oh well, there's tariffs, so we're going to have higher inflation and I demand higher wages. Well, there's no one in the United States who can demand higher wages. They're like 5%, but they're going to get their normal increase anyway. They're like utility work for, like utility unions, regulated, basically regulated industries that can survive having unions. So that's an antiquated notion. So the Fed is completely off base needs to cut rates.
Speaker 2:But what we think will happen I mean it would be OK to fire Powell. In our opinion there would be a dip in the markets and that would be a buying opportunity. But the real point is not that significant because you still have four Democrats, two Republicans and then the Fed chair. I would call the Fed chair more of a Democrat right now, but he's really more neutral. He's like the herder of cats. So because there's two Republicans that are going to probably dissent on this pause, he'll probably negotiate with them, say, well, we're going to pause now, but we'll basically lock in a September or signal a September cut, and I think that'll be favorably received. And you've seen that in the bond market, where we are as high as 450, which is not sustainable, by the way, that's when mortgages go up over seven. But now to 433, when the Fed actually starts cutting, I think we'll go below four. So we're bullish on rates and the Fed still works, with or without the Fed chair.
Speaker 1:Really, you think that Trump saying we should be like sub 1% is him being serious?
Speaker 2:Well, I'm certainly serious, but wrong in the sense that we have probably the only firm in the world maybe that can estimate inflation at every interest rate. So right now we're at 4.33. The money supply is shrinking about 9% a year, which is a round number, is about $500 billion. That's 1.3% above what we think is the fair value, which would be 3%. So it takes about $600 billion to move the interest rate and that's annual increase in the money supply. So right now they're shrinking at $600.
Speaker 2:We estimate to get it to grow the normal rate, which would be about $300, would take a 3% rate and then if you took it down another 100 base points, that would be 600 billion and then another 100 would be 1.2 billion. So you'd be increasing the money supply at 1.5 billion. It's roughly we use round numbers six trillion. This is all trillions. If I said billions Trillion. So 15 or 1.5 over six is 25%, the normal growth's five. So you'd have maybe not 20% inflation but you'd have double-digit inflation.
Speaker 2:So it'd just be a replay of the stupidity that the Fed perpetrated during the pandemic. They increased the money supply 70%, then they shrank it to 60. It took four or five years. We grew at 38 and we had 22% inflation. So if you want 1% rates you're going to get double digit inflation. But look the insight that you're never going to get from anybody else, because they won't really fully understand money. The monetary policy is for the Fed to peg rates. They have to either increase or decrease the money supply that debases the currency and the prices of the ratio of currency to real goods. So if that gets out of whack produces inflation. This is Milton Friedman's used to be theory. It's not been proven to be just absolutely correct because of the pandemic.
Speaker 1:Yeah, and I'm sure that Trump would blame the Fed if inflation occurred under that scenario.
Speaker 2:Anyway, even the way that he is, it would be a huge policy mistake, but I don't think there's anybody. Trump is not President Trump's not proposing a completely random candidate who doesn't understand at least something of what I just said. And they may not quantify it the way I did and may not look at the money supply, but they will know that if you reduce rates to 1% you're going to have significant. Maybe they won't say double digit, but although they can be quite stupid, as they were and that's the only word, like when I'm going to television, they freak out, but that's the only real word because, keep in mind, when they were saying transitory PPI was double digits, housing was going up 20% annually. This is year over year already up 20, not just one month up 20. Oil was up 30%. It was completely obvious that we were going to double-digit inflation. It's just that they looked at the lagged CPI and it hadn't been running up yet.
Speaker 1:You had mentioned to me that you thought the markets were starting to look in quotes dicey, which I happen to agree. I'm blown away at how we seem to be back in meme stock media all over again, although maybe I shouldn't be blown away given the way retail tends to come in at these junctures. I want to get your take on where we are in terms of the market for the latter part of the year here.
Speaker 2:So we've been consistent that, with no corporate tax decrease, which is what we had that our target was 6,600. And we had that target when we were at 5,000, and we still have that target. And that's the value of our research is we have underpinning data that supports 6,600, so we don't panic and cut it like most of Wall Street did when it went to 5,000, nor do we increase it randomly. So the key thing to think about a target is well, if it's a year-end target, it's based on 26 earnings 19,000, 26 earnings. So it shouldn't be that we get to the target in mid-year. So we're you know you could argue our target. We don't do mid-year targets, but it's 6,300. We roughly started 6,000, a little bit below. Now we're at 6,300. We're saying 6,600. So we're clearly fully valued and it's giving a signal to at least lighten up on your positions.
Speaker 2:Then the two other dynamics that make it dicey, and dicey means it can go either way. It doesn't mean negative, it's not bad. It it dicey, and dicey means it can go either way, doesn't mean negative, it's not bad, it's dicey. So the other dicey thing is that we have earnings and we don't really know how they're going to turn out, because all it really matters for the overall market is tech. Earnings expectations, as you're indicating, michael, are high, so that's going to be dicey.
Speaker 2:It's really next week because Google and Tesla are kind of the poor bastard childs of the Mag 8. So really the four next week are going to determine what happens to market. And then we're really close to the end of earnings season, ending into August and September, which almost always are not that good or even bad, which almost always are not that good or even bad. So we have that combination of pending earnings that can go either way, maybe a little bit risky on the downside, full valuation, and then this impending August September timeframe. So I think that's why you're seeing the market stall. It's not a full-out sell signal, but we're playing musical chairs and we don't know exactly when the music's going to stop. It's not going to be Armageddon, but we'll have some sort of a pullback, almost certainly in August. September might be driven by tariff headlines or just general profit taking, particularly some of those meme stocks you mentioned, just a kind of neutralist market. You could also call it dicey, but dicey doesn't mean negative.
Speaker 1:Yeah, I think seasonality-wise, typically around mid-late July fixed bottom starts to turn up, consists with the August September time. From a portfolio management perspective, do you do anything based on that that view?
Speaker 2:we do. We we cycle, unlike most managers. We do cycle our exposure to the market, not like a hedge fund. So we have a hedge fund. We could very well take our exposure from 100 to 125 to zero using puts and some other just selling longs. So we don't do that. But if we, if it's pretty obvious like now it's pretty obvious the market's pretty good, so we're close to fully invested and then we have some gigantic gains.
Speaker 2:We made some great calls at broadcom goldman sachs. So we don't just blow it all out like we're a hedge fund. But you know we would trim back on those positions, write more covered calls on an ICAP. We do that on individual names. Certainly would do it on the riskier names. That reduces your short term exposure to the market. So we do it at the margin. But it's not like if we're totally wrong about August and September that we won't participate in the rally. We'll just have like 90% exposure and do 90% of the rally. And conversely, if the market's way down, we're going to be down, but without risk there's no return.
Speaker 2:It's very difficult to run a hedge fund where you cycle the exposure every day. Certain people like Steve Cohen can do it, but it's better to be invested in the long run You're going to do way better. So we're always invested. We just shade it to be a little bit longer and a little bit less long if we think the markets are, you know, very attractive, attractive, neutral, depending on sort of that.
Speaker 2:Five ratings in the market and it's pretty obvious, like you could probably get if you had 90 or, say, 100 financial professionals. You probably could get 90 to agree like, okay, yeah, the market's kind of neutral right now. You could get 90 to agree, like after the tariff tantrum was announced or tariff liberation day, the market was bad and then it stabilized during earnings and everybody would probably agree well, now it's maybe neutral. So these aren't difficult calls to make. You just look at the tape, just have to be a market whisperer. You don't need to have like strange proprietary indicators, wake up in the morning and look at your screen and you can see what's happening. So just, we act a little bit on that in our ETFs, a lot in our hedge fund, but sometimes you can miss big rallies and hedge funds.
Speaker 1:So that's why they typically underperform. You mentioned cover calls, you mentioned ICAP, so let's touch on both.
Speaker 2:Well, we really like that fund because arguably it's where we're adding the most value. So we write very short term calls using our valuation models and, where we have gains, to produce a lot of what's called theta or decay. And that's what you want, I would argue. And that's what you want, I would argue. There's some option strategists who almost exclusively argue for buying premium and if you do that over long periods of time, you'll see that you're almost certainly going to lose money. You might hit a couple big ones, well, but on average they're going to expire. So we're playing that. Of course we have stock that backs it up. So, worst case, we take profits on the stock that's close to our profit target. Otherwise, in the next week or two it'll expire and we don't get run over in rallies like everybody loves Jeffy. But they don't do what we do where they're writing individual calls. They're writing index calls through notes, but it's basically index calls. That converts it to what looks like pure income. But there was writing calls. So you notice like they're underperforming this year. That's because they're overwritten on the index and the index is up a fair amount on the S&P. So we avoid that by doing it very short term If we start to lose what's called beta or exposure to the market, we can deal with that in the short run. We can buy those very short term calls back. We can add stock If it gets called away. We can add it on Monday If it gets called away on Friday. So all of that allows us to dynamically adjust that exposure I was mentioning. So we look at a net of options, whereas JEPI or in other funds like that not to pick on them, but index riding funds if the market starts running then their exposure to the market drops a lot and they don't participate.
Speaker 2:So we don't want that. We want the decay expiration that produces income. We want it very short term. That takes a ton of work, but that's what we enjoy doing, that's what we're good at doing and so we expect that to continue to add a lot of value add income. Been increasing the dividend on ICAP it's outperforming its peers this year and very high quality companies as well. So typically these companies do well, relative to the S&P, at least in a downturn, and even if they don't, they're going to be around. Most of them are going to be around forever. They're super high quality large cap. I think our fund, the average market cap is about $130 billion, so these companies are not going away anytime soon. So a great asset class to write calls hold in the long run generate income all good dividend payers. So we really like that strategy in this market.
Speaker 1:Yeah, and to your point, it's done. Well, if we get more volatility, how do you think it could conceivably perform?
Speaker 2:Well, it would depend on how much, you know, we do adjust our exposure. But, to be fair, we are bullish about the market and we do have some higher beta names like Goldman Sachs in that. So if we took that down significantly then we would, would you know, not lose a ton of of return. But if we just sat there where we are because we have a pretty big position 5% then they're higher beta, so it underperform. But if you're a longer term investor, well, hopefully we do something about it. It write calls and reduce our exposure. But even if we didn't do that, we're still bullish about the year. So you get a little bit of drawdown in august, september and then a boom and in the fourth quarter. And that's really if you want to beat the market and beat hedge funds. It's pretty easy to do. You just stay invested in and deal with a little bit of volatility.
Speaker 1:Of course, you got a number of funds, one of which is BNDES. On the bond side, I put out a question on X yesterday. I said what's the biggest contrarian trade of all? Right now? A lot of people said healthcare and several noted bonds. So let's talk about sort of bonds as an investment here and BNDs in particular.
Speaker 2:So the best way to think so BNDs is a high yield bond fund. There's a fund we compete BND with. Bnd is their ticker, they're an investment grade. It's called an aggregate fund or ag fund. They yield four, we yield eight. So if you buy an ag fund like BND, you get a lot of interest rate risk, say, 80% correlated to the treasury and really zero to negative exposure to stock market. With BNDES you get about a 0.3 exposure to stock market and 0.2 to interest rates, since interest rates and stock market tended to be negatively correlated not always like in 22, but normally you kind of end up with something that doesn't really do a lot in most markets but yields eight, do a lot in most markets but yields eight.
Speaker 2:So if you're a conservative investor like me, I've been adding it to it in my IRA and I don't ever look at the price. We launched it at 50, it's at 47.80. It's, of course, paid a ton of dividends, so that was a positive return. But if you just don't want to worry about the market, if you are worried about an August September pullback, we are bullish on rates, as we indicated, because of the Fed rate cuts and global rate cuts continuing at some level. So, and even the budget deficit, although that's not the key driver. So if it, even if it goes up, I wouldn't sell all of your ponds. So we think we'll head to the 4% level when we get more rate cuts. So that will be a tailwind.
Speaker 2:You know, if you really just want to bet on rates, you should buy BND. But if you want an all-weather fund, maybe rates stay here. Maybe we're wrong. Go higher, maybe the stock market goes a little bit lower. With BND, yes, you're just going to get your 8, won't move around that much. We'll move around some, but just those percentages I mentioned 30 stock market, 20 to the bond market. They tend to offset. So you're going to get not a lot of movement in price and a good amount, or really good amount, of income, about 8% or over 8%. So that's a good conservative holding that we think will do well, because both the stock market and bond market in our models is going to be higher at the end of the year. So it'll be appreciating. But even if you don't, you still get your 8%.
Speaker 1:Yeah, and those yields are still important, independent of whatever the Fed does. I mean as a number, it's a good number to have.
Speaker 2:Well, right, Because the way to sort of estimate in your head what the interest rate sensitivity is is you take the spread as a total of the total income. So in other words 8%, the Treasury is at 430. So you've got 370 of spread. Bnds is yielding around four and the treasury is at 430. So you've got closer to 100% exposure to interest rates and with ours it's I mean, it's not 50, but it's way less than that, because you're getting a lot of extra return, because you're taking credit risk and so higher yields produce lower duration and lower sensitivity to interest rates.
Speaker 1:Speaking of duration, I think it would be good for small caps. Arguably, if rates do fall, I think deregulation is beneficial for small caps, but obviously you want to have cost of capital being less and you do have a small cap fund as well. Let's talk about small caps especially from the standpoint of the fact that small caps really haven't hit the prior highs of the year, while large caps have.
Speaker 2:They've definitely been out of favor. And there's a misunderstanding. There's a notion that small caps are all over levered and really exposed to interest rates. And if you look at it, which we've analyzed, they really have about the same leverage as large cap companies, a little bit more floating rate but not significant. So that's not the real reason they're interest rate sensitive.
Speaker 2:The reason they're interest rate sensitive is the sector allocation, particularly in value funds like S-CAP tend to favor financials and we're looking for substantial dividend yields too. So financials, reits, utilities and a very small allocation of tech. Even the overall Russell 2000 is only 10% tech. The overall Russell 2000 is only 10% tech. So not just small caps but really like today, in today's market rates are rallying and tech is weak and everything else is strong. So interest rates typically produce a rotation at the margin out of tech into old economy. And you mentioned health care. They have good dividends in health care and utilities. There is health care and significantly in small cap index. So it's really more the sector allocation than it is that these companies are just crazily financed and taking all this interest rate risk. It's just the sectors they're in have interest rate sensitivity so and also they have beta. Small caps are strange in that the market's doing really well. Usually they're off-perform. If it's stalled like this, then the interest rates become the key driver.
Speaker 1:Yeah, I will say it's been interesting that it seems like small caps maybe have stalled a bit. It looked like they were going to try to make a and you'd think that that's going to be a problem for all things, and small caps still will get. Well, you know one.
Speaker 2:There's always like there's always a fly in the ointment, like if it was so easy to get short the market in August and September, like everybody would do it at the end of July and then it would never work Right. But the fly in the ointment is, if we're correct about the Fed, it's going to be a Fed rate cut in mid-September. That's going to be great for small caps. So there are positive catalysts beyond earnings out there. I mean, of course the Fed could not cut, but they absolutely should. We're going to have deflation if they don't.
Speaker 2:The housing market I'm out in San Francisco. There was a report yesterday the housing market's weak in San Francisco. Like how can that be? There's this big tech boom going on. Well, it's because rates are sky high. So if it's weak in San Francisco, it's weak across the country. We know what it is from other data. But so we can't have that forever. We have to have lower rates. That's going to benefit small caps and the sectors within small caps. So non-tech I mean I wouldn't bet against tech right now, but it's fine to be invested in the other sectors because they will benefit when we get these Fed rate cuts.
Speaker 1:And let's talk about S-cap as the way to play that.
Speaker 2:So we are a higher quality than the index. So we I mentioned we're value, but we're also have only securities with significant dividends have low leverage. So even if this overall sector was levered to levered it's not, but if there was we wouldn't have that problem because we have less leverage, good dividend coverage and then stocks that traded reasonable P ratios compared to growth, so peg ratios including yields. But so with our companies it matters. But you can use peg ratios on tech stocks. So there's no yield and you should at least look at the peg ratio. Like we recommended Palantir on Fox business about a year and a half ago. I it was at 30, it was cheap to its growth right, and now it's like trades 150 times and grows at 30. So that's a five peg markets at a two peg. So we look at reasonable growth with yield stocks. You say growth plus yield, so peg will peggy if you will um. But that way you stay out of trouble. You know palantir may continue to work but it may miss earnings. Like look out below um, very high expectations, a lot of risk. So we're in the lower risk reasonably. You know companies trading a reasonable multiples, paying dividends, good credit quality, good dividend coverage and that's worked really well.
Speaker 2:And we do write index calls, but a lesser amount than the ones I was picking on before. Like peggy. They run. They can write almost 100, we write 30 and we only do weekly. So we also do it short term like we do with icap, but we don't do individual options on small caps because they don't have weekly options, so you don't get all that decay or theta.
Speaker 2:And also small caps are either great or terrible, but rarely mediocre. So Coke reported this morning 70, it's down like 30 cents. So we have a lot of calls written on Coke. Well, that's fine, but there is a C-O-K-E.
Speaker 2:There was a small cap company, it's a bottler for Coke and we owned it. It was super cheap in our models and they mentioned share repurchase and they're up 30%. So Coke can, ko cannot, announce a share repurchase and be up 30, but C-O-K-E can. This is not a good business to write calls, in our opinion, on small caps because they're too far out, like monthlies, and the volatility is kind of digital like they get acquired. Like ko, it's extremely unlikely to be acquired, but coke could be by ko possibly, but probably not because they were spun off from them but by some otherler or some other company that wants to own it. So we think it's a superior strategy to write a small amount of calls for index calls for small caps, but don't do that, you know, particularly in larger sizes, for large caps, because it's better to write the individual calls.
Speaker 1:Anything that we missed, jay? I mean, I feel like we were all worried about war not too long ago, all worried about oil prices. Suddenly, and suddenly, everyone forgot about that.
Speaker 2:Well, you should have read some of our notes, because we were. You know we're great forecasters of oil prices but terrible traders of oil. So to be fair. But we look at global supply and demand. It's imbalanced. So unless you wipe out the oil facilities, it's going to stay in balance. So when oil is at 75, we said, oh, it should be around 70. Oil went to 60, we should say it'd be around 70. So but it is positive that it's down for the year. So that's important.
Speaker 2:And then, just in terms of wrapping up, I would just reemphasize to not ignore the money supply like everybody else does. It shrank 9% year over year. It's what drives inflation. That's why we're headed to deflation. That's why the Fed is going to have to cut. It's going to be deceleration in employment. Goldman is on board for that as well. The last employment report was actually quite weak 74,000 private jobs.
Speaker 2:Pay attention to the money supply. That's why the Trump 1% doesn't work is you have to increase it too much. But it's also why he's correct about the current Fed. They're so tight they're having to shrink the money supply by 9%. That's really hasn't happened since the Great Depression, so it's a very risky thing to be doing? They're getting away with it because housing never really recovered from the great financial crisis, so it can't really crash. And then we have this tech boom that's offsetting it. But eventually the Fed will figure it out. They can't forecast anything, but they can look. They're OK to bad, at least looking at current data. So they'll figure it out and we'll have lower rates and that would be bullish for stocks and bonds.
Speaker 1:That definitely would be nice if that's the case, jay, for those who want to track some of that research that you alluded to, so that they don't miss out, or can they find it?
Speaker 2:InfraCapFundscom and you can get our adjusted CPI. We do CPI-R, so that's real time corrects for the BLS's terrible methodology and also the global money supply, which is critical for predicting the overall markets in the world and global bond prices. So never going to get that data from anyone else. For some reason nobody seems to care about it, but it's what drives the markets.
Speaker 1:And then same side for learning about the funds. I certainly think BNDES is interesting here and SCAP, and that's my only bias, because I think there's a tailwind, and I'll just quickly mention, too, that we do have a monthly webinar.
Speaker 2:We talk about our map research, which is highly proprietary. I don't hear about it anything similar to what we're saying, like no one's forecasting the budget deficit next year. It's very easy to do and you have to be maybe you have to be a CPA, like me, and be able to use a spreadsheet but so very proprietary data, but also an opportunity to find out more about our funds, ask questions about funds and even if you don't own our funds, you hear what existing holders are asking, and we enjoy it because we learn a lot from our clients. So that's a monthly webinar that you can sign up for on our website.
Speaker 1:And folks, I'm a big fan of J Hatfield and Infrastructure Capital. Please learn more about their funds, check out the research and I'll see you all on the next episode of Lead Lag Live, which will literally be in about 10, 15 minutes back to back today, folks. Thank you, jay, appreciate it.
Speaker 2:Thanks, mike, that was great. Cheers everybody.
