00:00:00.000Hey everybody, today in the Charlie Kirk show, a rather comprehensive financial episode here about the economy.
00:00:05.000If you have any anxiety about the economy, this is the episode for you within two incredible experts, Maria Bartaromo and David Sachs, the mastermind behind PayPal, one of the masterminds behind PayPal, alongside Peter Thiel and Elon Musk.
00:00:18.000You can email me your thoughts as alwaysfreedom at charliekirk.com.
00:01:04.000His spirit, his love of this country, he's done an amazing job building one of the most powerful youth organizations ever created, Turning Point USA.
00:01:13.000We will not embrace the ideas that have destroyed countries, destroyed lives, and we are going to fight for freedom on campuses across the country.
00:02:31.000Now 8.6 continues to be the highest since 81 because the comp there is 8.9 to 11.8%.
00:02:39.000And if we look at year over year core, also hotter than expectations, up 6%, following 6.2%.
00:02:48.000Now, no one has their finger more to the pulse of what's really happening in the markets, what's happening in the economy than the legendary Maria Bartaromo.
00:03:11.000Yeah, I think it's pretty much you go back to the very fundamental definition of inflation.
00:03:17.000Like you just said, too many dollars chasing too few goods.
00:03:21.000And this was the threat when the Democrats started pushing their spending plan at the beginning of Joe Biden's presidency.
00:03:31.000We all know that he signed the COVID relief package in March of 2021.
00:03:35.000And at that time, when he first entered the White House, inflation was at 1.4% in January of 21.
00:03:43.000So little by little, it has gone up and up and up with all of the spending.
00:03:48.000They tried to push through a $5 trillion Build Back Better agenda.
00:03:53.000And that also stoked the expectations of more money.
00:03:57.000But I would say, you know, and then the infrastructure package in November of last year.
00:04:00.000And then, of course, on top of, you know, once we got to like almost 8%, 7.5% inflation, then Russia invaded Ukraine and added to it.
00:04:09.000I would say one worry that I would have right now is I don't think we've seen the peak.
00:04:13.000I don't see any evidence of the peak because when you go back to that COVID relief package, you see that there are hundreds of billions of dollars that have gone to states that have not been appropriated yet.
00:04:58.000Look, the bond market has seen prices decline.
00:05:03.000And when prices decline, yields go up.
00:05:06.000And we're seeing yields go up on the expectation that rates are going to continue to stay elevated.
00:05:11.000When you have a differential between the two-year yield and the 10-year or the 30-year, it's called an inverted yield curve.
00:05:20.000And when you have in the past seen the inverted, when the yields become inverted like that, where one is much higher than the other in terms of the rate, that indicates that a recession is at hand.
00:05:34.000I personally would say we're probably in a recession right now.
00:05:37.000We know that we already had a contraction in the first quarter, 1.5% lower.
00:06:42.000Because if you think a company is going to make XYZ in earnings, then you can say, okay, well, I'll buy that stock based on what the potential for earnings are.
00:06:53.000And that's why we may very well see further declines in this market long term.
00:06:57.000Having said that, we're already seeing some sizable declines year to date.
00:07:00.000So we could see a little bit of a rally over the near term.
00:07:03.000But I would sell into it because you still have the broader macro story that is weakening with the Federal Reserve raising rates into a weakening economy.
00:07:12.000You know, you look at the mortgage market right now, the mortgage rates right now, 30-year fixed rate mortgage, 6%.
00:07:18.000Lenders are, you know, are looking at 6%, 6.25%, even though it hit last week, 5.7%.
00:07:24.000That is called demand destruction because a homebuyer goes into the market, they say, okay, I want to buy a home.
00:07:30.000They see this, they're getting sticker price from the price of the home.
00:07:34.000And then they say, wait, I want to get a mortgage.
00:07:36.000It's going to cost me 6% for 30 years.
00:07:47.000On a micro, at least some people that work with us, they're moving into Phoenix to come work with us at Turning Point USA on the show.
00:07:53.000And they said, Charlie, I'm renting for the next year or two.
00:07:55.000They said, I'm not getting involved in this.
00:07:56.000And that's going to have ramifications and property values and other things.
00:08:00.000So, I want to ask you, Maria, in the couple minutes we have remaining, what would you do if you were the Treasury Secretary, the head of the Federal Reserve?
00:08:08.000Obviously, it's a hypothetical, but they really don't have much left at their disposal except saying, we're going to have to slow this down.
00:08:15.000I mean, they went so hard, so heavy, so quickly, lowering rates so abruptly, you know, in a reaction to the lockdowns and to the virus, it's almost as if they metaphorically emptied their clip, and now we have to almost live off of the declining sugar hide that was self-induced.
00:08:30.000From either from a monetary stimulus standpoint or a fiscal stimulus standpoint, is there anything left that can be done, or do we just have to accept the reality?
00:08:37.000We have to swallow the cough syrup and get used to it.
00:08:40.000No, we really need to ensure that the market believes there's enough oil and gas on the market.
00:12:01.000I will say, though, that Gavin Newsom creating a truth social account, I think, is a mark of political brilliance.
00:12:08.000It makes him look not like a woke liberal, that he's willing to go on conservative platforms and he's willing to engage in dialogue and interaction.
00:12:16.000He's also going to receive probably a fair amount of anonymous accounts that are going to be saying nasty things towards him.
00:12:23.000And he'll be like, oh, look at how terrible conservatives are.
00:12:25.000I come on their platform and they treat me so terrible.
00:12:27.000Kind of create the victim a little bit.
00:12:29.000It's a way for Gavin Newsom to kind of get in the headlines and say, look, I went on Trump's social media app.
00:12:48.000I have to just say, if you look at if you're Joe Biden and you see this, there's no way that Biden, I think, will end up being the nominee in 2024.
00:12:57.000Whether he runs or not is besides the point.
00:12:59.000I do think that the Hunter Biden inquiry and criminal inquiry is a way to keep Joe Biden in his box to get him to step down and eventually have Gavin Newsome run.
00:13:07.000And Gavin, I think, is going to Gavin might run and other Democrats might run.
00:13:12.000But for most Democrats, I think they would be much more in support of someone like Gavin Newsom, because he sounds like Bain when he talks, than someone like Kamala Harris, who just cackles all the time.
00:13:26.000I know that's more of kind of an in-the-weeds type thing, but you don't go create an account on Donald Trump's social media application if you're not trying to make a point that you want to be a Democrat leader against the Republican eventual or the eventual Republican nominee.
00:13:45.000And I don't do not underestimate Gavin Newsome.
00:13:49.000I think he would be a far more difficult candidate for us to defeat, especially in places like Arizona.
00:13:56.000I don't think Gavin Newsom would resonate at all in Georgia or in Florida or Pennsylvania, but I think that Gavin Newsom would be very difficult to beat in a general in a state like Nevada, Arizona.
00:14:09.000I think we could bring it across the finish line.
00:14:11.000But Gavin Newsom is all the same radicalism that you've seen with Biden, even more so, with a little bit more charisma, an ability to be more articulate.
00:14:22.000But I think Michigan and Wisconsin, I don't think they would go for a California governor.
00:15:09.000The vice president has been kind enough to take on managing this part of the portfolio for me, just as I did for when I was vice president for my former president.
00:15:24.000But it is something that, and I've asked her to personally do this.
00:15:30.000You can't understand a word he's saying.
00:15:33.000This is all happening, by the way, why The Atlantic, the press release propaganda arm of Lorene Powell Jobs, who is the widow of Steve Jobs, writes the article why Biden shouldn't run in 2024 by Mark Leibovich.
00:16:09.000It's 86, one swing voter, said in a recent focus group, referring to the hypothetical age Biden would be at the end of a very hypothetical second term.
00:16:17.000In recent weeks, I've spoken to 10 official and unofficial advisors to the administration who have spent time around the president during these deranged and divided days in America.
00:16:26.000What has this been like to him, is what I've been asking essentially.
00:16:29.000They say, for the most part, Biden is coping fine, you know, despite the fact there's 8.6 inflation, his depressed approval ratings, his vice president worse approval numbers, the looming wipeout in the midterms, and all other delights attending to Biden as he awaits the big rounded number birthday he has coming up in a few months.
00:16:55.000That's really, let me just, let me just reread this.
00:16:58.000They say, you know, for the most part, Biden is coping fine, you know, despite the 8.6% inflation, his depressed approval numbers, his vice president's worse approval numbers, the looming wipeout in the midterms, and all other delights attending to Biden as he awaits the big round-numbered birthday as he comes, as he's coming up in a few months.
00:17:31.000But here's another recurring theme I keep hearing, notably from people predisposed to liking the president.
00:17:36.000Quote, he just seems old, one senior administration told me at a social function a few weeks ago.
00:17:42.000So they're finally coming around to the fact that Joe Biden is kind of old.
00:17:46.000You know, Joe Biden signed a proclamation on World Elder Abuse Awareness Day.
00:17:52.000Quote, on this World Elder Abuse Awareness Day, let us recommit to delivering all older Americans the promise of a comfortable and peaceful life with dignity.
00:18:05.000The Atlantic continues to write, though, that aside from reinvigorating the Democrats, Biden could instantly burnish his own legacy by opting out of 2024.
00:18:18.000He spared the country from more Trump in 2020, stepped in, calmed the thing down, and God love you for that, Joey.
00:18:24.000You should be thanked up and down the boardwalk, ice cream, cone in hand, sooner rather than later.
00:18:30.000All right, we'll table that discussion for the time being.
00:18:32.000You guys can email us your thoughts, freedom at charliekirk.com.
00:18:34.000I think Gavin Newsom is going to run for president in 2024, and either primary Joe Biden or Joe Biden will step aside for multiple reasons.
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00:19:56.000It's, you know, this inflation report we had last Friday, the 8.6% inflation, I think really knocked markets for a loop.
00:20:05.000The basic reason is that prior to last Friday, you had this narrative that inflation had peaked.
00:20:11.000And the main reason for that is not that price levels were going down, but because inflation is measured on a year-over-year basis.
00:20:20.000And so as you started to lap bigger and bigger comps from the end of last year, because remember this inflation started last summer, it started around 5% by the end of the year.
00:20:30.000So the theory was that as you started measuring against bigger and bigger numbers last year, the inflation rate would settle down this year and you'd start to see month over month decreases.
00:20:42.000And there was an inflation report, not CPI, but a different measure a few weeks ago where you start to see a month over month decrease and it looked like this lapping effect was starting to take hold.
00:20:53.000And so I think that was the prevailing narrative is that we were expecting inflation to peak kind of go down and settle down through the rest of the year.
00:21:01.000Friday's number a week ago really blew that up where you had this increase from 8.3 to 8.6% inflation on a month over month basis.
00:21:12.000So I think at this point we're in unchartered territory because since inflation has not peaked yet, since it's still increasing on a month over month basis, this is deeply unsettling to markets because we just don't know where we're at anymore.
00:21:26.000Why do you think the theory was so wrong?
00:21:29.000I mean, I was told by experts a year and a half ago that there will be no structural inflation, that our productivity technology will keep it down.
00:21:39.000How did the financial experts miss this so terribly?
00:22:15.000I never heard the word transitory used so much last year.
00:22:20.000The right response in hindsight would have been for the Fed to stop QE immediately.
00:22:26.000They basically were continuing QE for another nine months after that original 5.1% inflation print.
00:22:34.000They actually didn't stop QE till the end of Q1, which was just a couple of months ago.
00:22:39.000QE basically means that the Fed is intervening in markets to buy assets like government bonds and thereby increasing the size of their balance sheet.
00:22:50.000The reason why they do that is if they're buying bonds, it actually means that the yield that U.S. T bills need to offer goes down because they're creating the demand to buy it themselves.
00:23:03.000If those bonds were being sold onto the open market and the Fed wasn't intervening, then the implication would be the U.S. government would have to offer a slightly higher yield on those bonds to attract new investors.
00:23:16.000So essentially, they were subsidizing interest rates and artificially keeping interest rates low through QE.
00:23:24.000And then on top of that, you had the Fed funds rate, which is the sort of the interest rate that the Fed gets to set.
00:23:32.000So there was not only no reaction by the Fed last summer, they actually continued with QE kind of pumping liquidity into the market for another nine months.
00:23:45.000What they should have done was immediately stop QE.
00:23:48.000They could have waited a quarter before raising rates.
00:23:51.000They could have said, okay, this is alarming, but we're going to wait and see one quarter if it's transitory.
00:23:57.000But they at least should have stopped with the QE.
00:23:59.000Because they didn't, because they didn't do that.
00:24:02.000You saw in private equity, basically VC markets, a real asset inflation, effectively a bubble in the second half of last year.
00:24:10.000Now, all of 2021, in hindsight, the asset prices were inflated, but especially in the second half of 2021, you got this enormous asset inflation.
00:24:56.000But it's actually worse than that because the dollar bill they have is also worth less, 10%, 12%, 15% less year over year.
00:25:04.000So you're at, you're on your balance sheet, you look 30% poorer if you bought at the top of the market where you are now.
00:25:10.000And then your dollar bill is also 15% to 20% less, depending on where you live.
00:25:15.000So about two minutes remaining, do you think it was political what the Fed did then?
00:25:20.000Because the way you explain it is quite honestly inexplicable to me how a group of experts could say, yeah, let's just keep on buying bonds.
00:25:28.000Like let's continue with quantitative easing.
00:25:39.000Yeah, I don't know exactly what their motivations were.
00:25:42.000It could just be that they're very slow to react.
00:25:44.000I mean, I've generally just been kind of unimpressed with Powell and Yellen.
00:25:48.000They just don't seem like that alert or sort of, you know, hands on the wheel, like, you know, alert to me.
00:25:57.000They've been sort of complacent and reactionary.
00:26:00.000So I don't know if it's just sort of like a competence issue or whether there's some other motivation, but I think the performance has been pretty bad.
00:26:06.000But just going back a second to the point you were just making, I think there's a couple of different effects going on.
00:27:03.000And so then people are less likely then to invest and to take risks.
00:27:08.000David, I want to ask you about the ramifications this could have for startup culture and for entrepreneurs, because I know personally a lot of wealthy people that were just thrown around money in the last year and a half, because if you had a deck, they would invest in it.
00:27:22.000Like, I am going to create the next Dropbox.
00:27:25.000I think we're going to see a kind of slow-motion car crash over the next six months of a lot of these bad investments that are just not going to be able to continue to survive.
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00:28:39.000Do you think that we are going to see a mass amount of, I don't want to say bankruptcies, but just kind of businesses folding because of kind of the faulty investment and as a byproduct of all these cheap dollar bills floating around the last 18 months?
00:28:53.000Yeah, I mean, I think there's what I call deferred mortality risk.
00:28:58.000Anytime that you have a lot of starts being created, a good number of them just aren't going to make it.
00:29:04.000That's just sort of baked into the cake.
00:29:06.000But it was so easy to fundraise over the last couple of years that not many companies ever kind of got that come up.
00:29:13.000And so you're able to, even the bad companies were able to raise quite a bit of money.
00:29:17.000So I think what you're going to see is that a lot of companies that never should have raised or, you know, basically should have been weeded out through our Darwinian capitalist process.
00:29:30.000They are now going to have a really hard time fundraising.
00:29:32.000And yes, you will see increased startup mortality over the next two years.
00:29:36.000So without going into specifics, but if you could kind of guide us through some generalities, where are you placing your capital right now?
00:29:44.000I think that would be interesting for people to know.
00:29:46.000I mean, you know, don't divulge any information you're not comfortable with, but just kind of general trends, you know, because people, we just got an email.
00:29:52.000They said, Charlie, I'm down 45% in the last six months.
00:31:04.000I'm not recommending that anyone necessarily buy it because I don't know where the prices go from here.
00:31:08.000But, you know, I tend to think that these SaaS companies, these cloud software companies, they're great businesses and they will continue to grow.
00:31:37.000Well, I don't know anything that's non-public about this, but my interpretation of that town hall meeting he had to with the employees the other day is I would slightly revise upwards the chance that this deal actually happens.
00:31:51.000It was looking shaky the last few weeks because Elon's been complaining about the bot problem.
00:31:56.000But I tend to think the fact that he was willing to do the town hall meeting with the employees would be a bullish signal that he actually intends to close the deal.
00:32:06.000I totally and completely agree with that.
00:32:08.000And do you think the price of Tesla going down is going to impact this at all?
00:32:12.000I mean, just this is speculation right now, but he'll figure out a way to finance, I think, this no matter what.
00:32:19.000I mean, do you think that might be part of the calculus as well?
00:32:25.000I mean, I think it's clearly not helpful that his net worth has been cut by whatever percentage over the, you know, 30, 40, 50% over the last few months.
00:32:35.000But he still has the wherewithal to do the deal if he wants to do the deal.
00:32:42.000He has a number of well-heeled partners with deep pockets and big funds who've stepped up.
00:32:49.000So I think he still has the wherewithal to do this deal.
00:32:53.000It may not be as comfortable for him personally, but I didn't hear anything in the town hall that led me to believe that he is walking away from this or squeamish about it.
00:33:05.000I think maybe he wants to renegotiate the price, which would be appropriate if the bot problem is bigger than 5%.
00:33:12.000So it'll be interesting to see if that happens.
00:33:13.000If I'm on the Twitter board and Elon wants to renegotiate the price, I would be open to that because if Elon walks away, Twitter's stock price is going to crater because they're affected by what's happening in the market as well.
00:33:27.000In addition to that, the company is in chaos.
00:33:30.000So, you know, it'll be interesting to see where this ends up.
00:33:33.000I guess what I would bet on, although not a lot of money, would be that the deal actually closes and Elon maybe gets some price concession out of them.