Is This The Start Of A Financial Crisis? | Jeff Snider

22:46Can you explain that to me? Because I'm not sure I fully understand. Like, why would a credit crisis not become a liquidity crisis? Like, what are the different things there? Yeah.

22:55Jeff Snider:Because in a credit crisis, what it really means is that there are hidden losses in lending, right? You lent to people that you probably shouldn't have. Those loans are worthless. Everybody has to take their losses. They're widespread. But it doesn't necessarily lead to all the stuff we just talked about. You can have a credit crisis that never goes past stage one. So the credit crisis is there's lots of losses to be taken by this person, this person, and that person. But it doesn't lead to distressed sales because maybe it's not that big of a deal. Some of these funds that take losses are not sharp enough that it leads to a complete draining of their liquidity facilities.

23:30Jeff Snider:They're never forced into selling assets at distressed prices, which is really what gets into the crisis. So there are lots of losses. And in some cases, there are firms go out of business, banks go out of business. But it doesn't lead to systemic problems further down the road because it doesn't lead to – it doesn't create the downside across markets. it doesn't lead to the real depression in prices, the sort of domino effect that you talked about when a lot of forced selling, distressed sales lead to further distressed sales. The link in the chain is broken by something that proves to be more resilient.

24:07Jeff Snider:Therefore, just as a bunch of credit losses that need to be taken by the system, the system takes those losses usually over a prolonged period of time, but it never really goes past stage one or maybe early stage two. So is the idea there that it doesn't snowball into sort of public markets, banks were able to sustain that with their balance sheet instead of having to go and like tap repo markets in the Fed and things like that. Is that the right way of thinking about it? Yeah, so you can think about it like in the example of the S &L crisis, you had a lot of smaller banks who were exposed and actually got into repo, but a lot of smaller banks were exposed to mortgage crisis, but they didn't have to sell their assets because there were larger banks, these euro dollar banks, who were available to buy the assets from them before it became a cascading effect.

24:49Jeff Snider:So in other words, There were bigger banks that were willing to supply funds to the marketplace as needed to keep it all relatively stable. And relatively is doing a lot of work, a lot of the work here. But it was relatively stable that it didn't become a systemic break like 2008 or 1929, 1930, because there was capacity in the system to be able to absorb not just the losses, but those who took the losses, but also to stand behind and provide new funds and new liquidity as necessary to maintain, you know, some minimal level of capacity before it really did snowball into something bigger. If you had to put like a percentage on it, how likely do you think it is that we go into sort of full blown stage three here?

25:31Jeff Snider:Oh, it's really, really impossible to tell. What I would say is that it's a non-trivial risk at this point. So, I mean, greater than nothing, but certainly not, you know, potentially a base case. though I will say the markets have been pricing something like this for years now. And as we continue to go along, everything seems to move in the same direction as what markets have been telling us to expect the entire time. So that's not exactly a positive scenario to begin with. And what I mean by that is markets have been saying over the long run, interest rates were going to go down. They were going to go down by a lot and they were going to stay there for a very long time.

26:06Jeff Snider:And so for the last several years, I've been sitting here telling other people to sit here and think about how do we get from there? Or how do we get there? How do we get from where we were, say, in 2022 and 2023, where central banks were hiking rates and everybody thought interest rates were going to go into the double digits, to the market telling them, no, interest rates are going to go down. They're going to go down by a lot and stay there for a very long time. And as we continue to progress, you see weakness in the economy. We see job losses take place last year. That's the macro side of it.

26:33Jeff Snider:And on the financial side of it, we've got a private credit bubble that is certainly going bust. that would fit into a range of scenarios that lead us to interest rates going down and staying there for a very long time. So if it does get to stage three, that would certainly fit the forecast that the markets have been sending for several years now, several years during the entire period when this stupidity was building up in the private credit space. So that's why I say the potential for a stage three is probably higher than we would like it to be because it fits within the scenarios that we've been looking for for years.

27:05Jeff Snider:That still doesn't mean it's a done deal. it's going to take place or that the results of it will be catastrophic. It just means that there will be significant enough disruption, disorder and deflation that it does lead to a situation where we have, you know, the economy's down, more job losses, unemployment's rising on the macro side. There's financial volatility. There's losses to be taken. There's going to be, you know, disruption and certainly in the stock market. But if it goes that direction, all that kind of stuff that you associate with it, that would fit into the overall framework that we're looking at.

27:36So the chances are high enough to be paying attention.

27:39Jeff Snider:Yeah, I mean, that's probably the best way to put it. Because, you know, when you put a number on something, the numbers change. The probabilities change all the time as we get more and more information. So, I mean, I think that's probably the best description I've ever heard anybody say. It's enough to pay close attention to it. Hey, I'll take that. When you say the markets have been pricing in, like, low rates for a long time, even during sort of the fastest rate hike in history, they've been pricing this in. Is that right? And where have they been pricing that in? Ford markets, interest rate swaps, the yield curve.

28:11Jeff Snider:The euro dollar futures curve, the old euro dollar futures curve, the far superior euro dollar futures curve, inverted back in December of 2021. So that was the markets. And whatever the Fed's going to do in the short run, interest rates are likely to go lower after a certain period of time. So never since then. The curves have been completely upended. So you had inversion in the yield curve, the treasury market yield curve, March of 2022. and it had been inverted and heavily inverted and historically inverted from March of 2022 on and off in the initial stage, but all the way until September of 2024.

28:44Jeff Snider:So the market was saying, eventually, once the Fed gets its inflation hysteria out of its system, rates are going to go down and they're going to go down by a lot and stay there. So from the very beginning, from the very beginning 2021, the markets have said, over time, this is what we should expect. Not interest rates going into the future, going into double digits, It's soaring into the skyward. It's not the 1970s. There's no lingering inflation. We should expect things to go the other way. And I mean, to me, that seemed to make sense because the economy tailed off right in 2022. It didn't fall into a recognizable recession, but it was every bit the recession.

29:19Jeff Snider:We've seen the job market weaken along the way in the macroeconomy, not just in the US, but across the entire world. And that makes sense too. You think about what happened in 2021 and 2022 while all this financial irregularity and stupidity was going on, the entire world of the vast majority of it was impoverished. You had prices that soared ahead and incomes that didn't come close to making up the difference. So in other words, everybody fell further behind almost at once. It was like this one big slap in the face. How is that ever going to work out any other way in the future? Especially as these middle market players, these shadow banks were extending credit on really stupid assumptions that everything was just going to work out fine.

29:57Jeff Snider:It just got worse and worse and worse over time, but it did so in a way that wasn't recognizable to most people and what they think of and when they hear the term recession. But the macroeconomic-based case has always been from 2021 onward that we would end up in this situation for that reason, because you can't impoverish the vast majority of the world and expect it all just to work out fine and dandy. So when you say that rate cuts are basically baked in the cake at this point, like Kevin Walsh is obviously almost likely coming in as Fed chair in May, I think. what do you think the difference he will make there will be?

30:33Because, and maybe it's worth explaining why you think the Fed doesn't matter as part of that answer for anyone that's not heard you before.

30:38Jeff Snider:Yeah. Thanks for anticipating my answer. I really appreciate it. No, it won't matter. Jay Powell, Warsh, or anybody else who got the job, whether it was Waller or maybe even Jeff Schmid from Kansas City, who is the biggest hawk on the committee, wouldn't matter. What the markets are saying is that conditions develop to the point where the Fed has no choice. You know, like 2008. Before 2008, the Fed had no intentions of lowering interest rates. In fact, when they look at inversion in euro dollar futures in 2007, they said, what the hell is the market pricing? We don't see anything bad taking place.

31:10Jeff Snider:We're not going to cut rates. We just raised them. We just stopped raising rates. Why would we cut rates? So it's not it's what the market is saying is regardless who's at the Fed, conditions are going to be such that they have no choice but to respond in the way that we think they're going to respond, which is if we have a credit crisis that leads to higher unemployment. it doesn't matter what anybody at the Fed says today, they're going to lower rates and they're going to lower rates by a lot. It's not the Fed's choice. It's the conditions around the Fed that the market says the Fed will have to respond to, which is why lower interest rates, contrary to popular perception, lower interest rates are not stimulus.

31:49Jeff Snider:It is officials reacting to what's taking place in reality. So that's why interest rates go down during recessions rather than interest rates go down and stop the recession from happening. They're responding to the recession that's developing or the financial crisis, whatever comes along with it. So that's what the market is saying. The market is saying the Fed is likely, balance of probabilities, to respond to whatever conditions they are, respond in a way that, like they did in previous cycles, they're going to bring rates down, not all at once, as we've seen. I mean, this is a drawn-out cycle.

32:21Jeff Snider:It's one of the most drawn-out rate-cutting cycles that we've seen. but over time, eventually they get there and they get there because they don't have a choice. I don't know if I've ever asked you this question because I know you don't like the Fed but do you think we should get rid of the Fed? It's not that I don't like the Fed. It's the, well, I mean, there's lots of questions about the Fed. The Fed isn't what people think it is and the Fed isn't what the Fed advertises itself to be. That's what I really have a problem with. The Fed has you believing that's this money printing engine when it doesn't have a money printer.

32:51Jeff Snider:And in fact, if you put a gun to Jay Powell's head, he would admit it to you. In fact, it's a dirty secret they never talk about. One thing you never hear come out of Jay Powell's mouth is money, money supply, money circulation, money, anything. They say monetary policy, but that's really interest rate policy. It's not monetary policy. They are not targeting a money supply. They're not doing anything with money supply. So they've given this impression that they're a monetary institution when they're not, which is my biggest beef with the Fed, is they are pretending to be what they are absolutely not.

33:20Jeff Snider:So can we get rid of the Fed? That part of it, yes. Now, that doesn't mean that some parts of the Fed are salvageable. For example, I use the Fed all the time in terms of information. It is one of the few sources of information into these dark spots that we otherwise would not have because of the Eurodollar system and its opaque nature offshore, hidden in the footnotes of bank balance sheets. And a lot of stuff doesn't even show up on bank balance sheets or shadow bank balance sheets in these days. So the Fed does have some use. It uses its power of subpoena and regulatory authority, macroprudential power to force some kind of transparency.

33:57Jeff Snider:Not nearly enough. But the idea that the Fed controls the economy and the monetary system and then can generate predictable positive outcomes by moving the federal funds rate around, that's total horse crap. So it's just a statistics and PR agency at this point. Yeah. I mean, you listen to what I mean, how do the feds when they talk about interest rate policy, what they say is it works through long and variable lags that immediately should raise alarm bells. What they're saying is if we raise rates, we have no idea when the effect of raising rates will take place. At some point, the outcome that we were anticipating by raising rates will take place and then we'll take credit for it.

34:37Jeff Snider:In other words, it could take three years. I mean, think about it this way. The Fed, as you mentioned already, most aggressive, quickest rate-hiking campaign in its history, yet here we are three, four years later still talking about inflation risk. Why is that the case? Long and variable legs. They anticipated the outcome, and they're waiting for that outcome to show up so they can take credit for it. It's essentially turning correlation into causation, which is what the Fed has been doing basically its entire history, but more so since the euro dollar development in the 60s and 70s. So whenever the Fed does something, most people don't pay attention to what it is they do.

35:12Jeff Snider:And if it correlates with the outcome the Fed is, you know, they've taught you to believe in, you think the Fed is responsible for it. But like I said, you know, if that was the case, we would never have recessions because the Fed lowers interest rates heading into a recession. We get the recession anyway, which leaves the Fed to say, well, it would have been worse if we hadn't lowered rates. That's the other way they get around this. Long and variable lags or jobs saved like in 2008. Well, it would have been 1930s if we hadn't acted with QE. So that's my problem with the Fed. It's giving people the wrong impression about what it is and what it actually does.

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38:18Jeff Snider:What do you think about the sort of eroding independence of the Fed with Trump pressuring Powell and then bringing Walsh in. And presumably Walsh is going to do, I'm sure they've had long conversations and he'll do whatever Trump really wants there. It's just another extension of the mythology. The idea that the Fed is this all important institution, which by the way, is absolutely central to its policies. Its policies are expectations policies, which means you have to believe in it. I mean, the Bank of Japan's former government, the colorful Hirohiko Kuroda back in 2015 gave away the game when he said, it's like Peter Pan.

38:52Jeff Snider:If you believe you can fly, then you can fly. That's what their policies really are. What they believe is if you believe that the Fed lowering the federal funds rate, which is not an important rate to begin with, but if that somehow helps the banking sector or the financial markets or the economy or something, if you believe that and then you act on that belief, then you become the policy, which is, again, horse crap, because that's not how the world actually works. But in order for that to work, everybody has to believe the Fed is this all-powerful institution. So everything the Fed has done and how it has evolved since the 1990s in particular, and there's a reason why the 1990s had started down this road, it has to maintain this aura, which is why we have these press conferences with Jay Powell standing up in front of the podium with that bank of flags, really impressive, and all the most major mainstream media asking the questions.

39:42Jeff Snider:It's a ritual. It is a religious ritual so that the Fed maintains this aura of power and capability, right? And so the idea of the Fed's independence falls under that entire paradigm. Because if the Fed's independence is threatened, that somehow threatens the mythology that has been built up around the Fed. when the marketplace, the marketplace where all of this would make it, if the Fed's independence mattered one bit, like the treasury market would have said, oh, crap, this is a big deal. We've heard about the Trump administration threatening the Fed's independence since last year. And we went through the same thing in 2019.

40:24Jeff Snider:People forget we went through the same stuff in 2019. The market does not care one bit because the market knows the difference here, the difference between mythology and reality. If the Fed's independence is threatened, no one really cares because it won't make a difference where it actually matters. But you say it's horse crap, but like markets, real markets do move when Powell says stuff. So you think that's just enough people believing the mythology essentially and trading on that mythology rather than actual reality? Yeah, in the short run, absolutely. Huh, interesting. You can line up, look at, you can run any correlation you want between Fed policies and market movements.

41:02Jeff Snider:They don't last beyond the short run. Even QE, everybody thinks QE money printing led to the stock market going up. There is zero correlation, zero correlation between the Fed's balance sheet and the stock market. See, I've heard you talk about this before, so I know your sort of reasoning there, but for anyone that's not, that might be a bit of a shocking statement. Do you want to explain why you think that? It's not why I think that. It's what the numbers say. But there is this short run impact. And by the way, it's not just the stock market. The bond market fell for it, too. If you look at bond market history back to the early QE days, even euro dollar futures fell for it, which is embarrassing.

41:38Jeff Snider:When the Fed first announced QE back in December of 2008, what happened? The opposite of what was supposed to happen, right? The Fed was going to buy a bunch of U.S. Treasuries, which you're taught to mean if the Fed's buying U.S. Treasuries, then Treasury prices should go up and bond yields go down. That's not what happened. The very first QE, bond yields went up, and they went up by quite a lot. And what that was, was the market saying, we believe this, this QE stuff might actually work. It might get us out of the crisis. So the bond market had a response. The stock market had an initial response.

42:08Jeff Snider:And then it got disabused of that notion pretty quickly. But in the short run, there are these psychological impacts where you think, well, maybe this stuff could work. And if it's going to work, then I certainly don't want to own a U.S. Treasury because safety and liquidity is not what you want to own in a reflationary period. You want to own stocks. So if this stuff works and you believe QE works, you're going to want to buy a ton of stocks. Same thing happened in QE, too. bond yields went up rather than down, and stock prices certainly went up in August of 2010 when Ben Bernanke announced QE2.

42:35Jeff Snider:So there is a short-run relationship with perceptions of what the Fed could do, especially if these policies are new and untested, even though they had been tested in Japan. The idea was the U.S. execution would be different than the Japanese execution. But either way, there is a short-run impact where people think maybe this stuff could work. I don't really know what it is. I don't know what it does. But hey, possibly it could work. The Fed is doing something big. Everybody's talking about how big it is. So maybe I'm going to buy some stocks and sell some treasuries because it could work out that way.

43:05Jeff Snider:But it never lasts that long because in reality, that's not how the world really works. That's certainly not how the monetary system works. It doesn't work on Peter Pan belief. It works on actual money and monetary circulation more than anything else. So there are short run periods and people only remember the short run periods. They only remember the times when the Fed announces QE and the stock market soars. They don't remember all the times when the Fed stops QE and the stock market still soars or when they're doing something different and the stock market does something different. So over time, there is zero correlation.

43:35Jeff Snider:There are short run correlations, but they don't maintain themselves over time because in a dynamic marketplace, QE and the Fed's balance sheet don't really matter to the operation of intermediate and long term properties. But during like COVID, when the Fed did print a bunch of money, forgive the, I know you maybe don't agree with that framework, but you know what I'm saying. That's what everybody says. I mean, yeah. But no one would say that the economy was in a good place while the world was locked down, like the real economy, but stock markets did soar. So is that not correlation? But was that the Fed or was that something else?

44:08Jeff Snider:Was that just simple correlation? So I would argue that it wasn't the Fed at all. What else would it be? The federal government. It was the federal government reopening the economy or at least creating a pathway to reopen the economy. That led to further second and third order effects, including the price illusion, which was really the price shock. So you had the economy that was shut down artificially, not for economic reasons, which allowed it to be reopened artificially, which led to a complete turnaround. So in 2020, it was slow at first and it really got going at the end of 2020 to early 2021.

44:42Jeff Snider:That wasn't the Fed printing money. that was the federal government reversing its policies or at least creating a pathway to plausibly reverse its policies and people reacting ahead of that. Okay. One of the other questions I have around the Fed is, like, they've obviously got the dual mandate, one of which being jobs. How are they going to manage... There's actually three. Okay. Well, we explained that in the answer too. But how are they going to manage that with AI seemingly starting to take jobs? I don't know if you saw, but Block announced yesterday that they're getting rid of nearly half of their employees.

45:14Which is not AI, though. Well, I mean, there's obviously a lot of people that say they hired way too quick in like 2020, 2021, and they had a lot of like a way too big headcount.

45:24Jeff Snider:That's what Jack Dorsey said. That's what he said himself. He said, hey, look, we fell for the illusion too. We did what Amazon and everybody else did. We hired way more people than we needed. Now they're just blaming AI for the layoffs when it was really just being wrong about the economy. But I think given enough, like given a few years, I think AI will start replacing real jobs. And I think even though that may not be the only reason that Block have done this, I do think it's part of the reason. Like Jack has been, you know, at the forefront with this like vibe coding revolution. Like what do the Fed do if AI does start replacing a large number of white collar jobs?

45:55Jeff Snider:Nothing. The Fed can't do anything. The Fed can't mean its mandates. They have to pretend to do something, though. They have to pretend. That's really the issue. Right. And so, again, the mandates are full employment, stable prices. And the third one that people don't know about, which was forced on them in the 1970s because the Fed did not do what everybody said it was going to do or what the Fed is supposed to do. That's not a thing, too. Just to digress a little bit here. I'm going to rant a little here. People don't realize the Federal Reserve was a joke for the vast majority of its history.

46:26Jeff Snider:That's not me saying it. That's the mainstream media, the marketplace, the banking sector, everybody, politicians. After the 1930s, the debacle in the 1930s, the Fed was relegated to the back bench. It was underneath the Treasury's thumb. And even when it so-called got independence in 1951, nobody looked at the Fed to do anything. It was basically left to try to manage Treasury auctions. That's what the Fed did from early 1950s to the 1970s. And then the Fed sat there unable to explain where the great inflation came from, let alone stop it. So up until Volcker in the 1980s, even after 1980s, it really wasn't until 1990 that people started to look at the Fed differently.

47:06Jeff Snider:And it wasn't because of anything the Fed did. It was because of the great moderation that showed up. And the Fed couldn't even explain why the great moderation showed up. But the point I'm making is this idea of the Fed being an all-powerful technocratic institution is a modern invention. It is something that was created largely out of the inability for people to explain where the great moderation came from. And so Fed officials, starting with Greenspan, but really Ben Bernanke was the chief one, started taking correlation and said, look, we evolved away from quantitative monetary measures in the 1970s and beforehand.

47:41Jeff Snider:We started targeting the federal funds rate. Maybe that's where the great moderation came from. So this ocean of prosperity in the 1990s was our doing through moving the federal funds rate around. If you stop and think about it, you think about how ridiculous that sounds. But because nobody had any idea where the great moderation came from, and because it was such a unique period of prosperity, maybe it was the Fed. And so the legend of the Fed was born out of a singular instance in an otherwise long history of being a complete and utter failure and joke. So what we're really seeing is the Fed return to type here.

48:17Jeff Snider:People are realizing slowly that the Fed is still the same joke that it was. It's just that it hasn't completely fallen into, it hasn't been completely accepted that way just yet, because there is still a lot of people who depend upon either having Jay Powell the god or Jay Powell the villain, which is very useful to a lot of people, right? Why does the politicians keep the Fed around? Because when times are good, the president can point at the Fed chief and say, I appointed that guy. He made the economy great. I'm a genius. And when the economy's bad, what can he do? Like Trump, that Jay Powell's an idiot.

48:52Jeff Snider:He's dumb. He's stupid. He's incompetent, right? The Fed is nothing more than a political lightning rod. So to bring this back to your question, sorry about that. With artificial intelligence, the Fed would, if we get higher levels of unemployment, I think they would be more measured in their rate. They would still bias toward lower rates, but they would be more measured because what they would say is, look, this is a labor supply demand issue, not something that what they call monetary policy can actually fix. And then the price stability, again, not within the Fed's mandates. And the third mandate, which is stable interest rates.

49:29Jeff Snider:Just to explain that, what the Fed has said is why they never refer to the third mandate. And it is required by Congress. It is in the law, the amended Federal Reserve Act. The reason they don't bring up a third mandate is because they say if we take care of the first two, by default, the third one takes care of itself. If we have maximum employment and stable prices, then we will have stable interest rates. So we focus on the first two. Therefore, we don't have to worry about the third. When everything that we've seen during this period shows that that's not the case. We don't have stable prices.

50:03Jeff Snider:We don't have full employment. And interest rates, they are certainly not stable. And even when even 2010s, you could characterize the interest rates as stable. They're supposed to be stable at moderate levels. That's the word that is used in the statute. They sure as hell weren't stable at moderate levels during the 2010s. They were entirely too low because low rates aren't stimulus. They're a reflection of conditions. So the Fed fails on every one of its mandates. AI is not going to help suddenly help them. It's just going to add to their challenge. Yeah, it's because one of the things that, again, you may disagree with this, but I if If AI does actually start replacing real white collar jobs to be proven out, but we'll see.

50:40And I think probably base case for me would be it will. What happens to all the people that are unemployed? And do you think we see some kind of UBI? And if we do, do you see that as actual stimulus? Because it's real money going to real people in the economy rather than just creation of bank reserves.

50:57Jeff Snider:Again, if you think about it, Ceteris Paribus taking the last part first, it looks like stimulus. but it's actually not because you have to account for the conditions that led to it in the first place. So we're redistributing money through UBI, assuming that's what happens. But it's intended to offset a hole that was created from the loss of jobs. So would it actually be stimulus? Well, in a centrist-parabus world where you're just starting from scratch, yeah, it looks like stimulus. But it's actually, would UBI be an effective replacement and alternative for lost incomes, lost earned incomes through productive jobs?

51:29Jeff Snider:And looking at it that way, which is the proper way to look at it, it's not stimulus. It's actually, you can argue it's better than zero, right? It's better than the alternative, potentially better than the alternative. I don't think the long-run consequences would be better than the alternative. But in the short run, you could say it's better than having people have no jobs and no incomes. But it's certainly not stimulus because it's not offsetting what real earned income does for an economy, which is most consumers are more likely to spend more freely. businesses too when they're when when incomes are generated through natural organic and economic processes then when they're redistributed through some predetermined bureaucratically arbitrarily determined number which was what ubi would be by by the federal government or any government for that matter so ubi would not be an effective offset to lost jobs so the question is whether or not we have lost jobs i'm probably a little bit more optimistic than you about that i don't think I don't think AI eliminates job.

52:27Jeff Snider:I mean, yes, it will definitely eliminate some jobs, but I don't think that's what we're not looking at a catastrophic loss of employment. I look at it as as AI being a potential, you know, human robot partnership where it makes human workers so much more productive. In that case, it doesn't eliminate workers. It eliminates hours worked. So I can see us going, for example, from a five day work week to a four day work week with some people actually having a three day work week because AI will make human workers so much more productive that just like when we went to a five-day work week in the 1920s, businesses will first start out using that as a recruiting tool.

53:04Jeff Snider:Look, come work for me. I'll pay you really well. Plus, you only need to work four days a week. And eventually, that filters for the rest of the economy as that level of productivity really does take place in the real economy, which I think it will, although I think it'll take a lot longer than people are anticipating right now. It might be 10 years from now rather than next year or the year after. But I think long run, yes, there will be some jobs that are eliminated because that's the natural economic process. But by and large, we're not looking at mass dystopian levels of unemployment. We're looking at a positive future where we all have to work.

53:33Jeff Snider:We don't have to work as much. We can all work a hell of a lot less and still produce the same amount of output and probably produce a lot better output because AI, if it works the way it's intended to and what people think, I mean, it has the possibility to, we'll all be better at what we do. Well, that's a way more optimistic outlook. I like that. And that's what deflationary technology should always have been. Like it should be us at an office less and being more creative more. Yeah, you do more. You get more out of less, right? That's what free market economics and capitalism is supposed to do.

54:03Jeff Snider:You have a set of finite parameters and you learn how to use your techniques and processes better so that you get more out of what you're doing for putting less in. So just to go back to the potential that we're entering or in a financial crisis, how do people position themselves? Like what should you be looking at as a way of sort of surviving this? Well, I mean, the easy answer is just safety and liquidity. So, I mean, duration and treasury markets, because, well, not necessarily long duration, but some level of duration. If we do get to a situation where rates are going to go down by a lot because the marketplace sees that even before you get to confirmation of the crisis coming, but the market sees the probabilities rise to a certain point, what you're going to see is short-term interest rates, medium-term interest rates are going to go down a hell of a lot more than long-term interest rates.

54:57Jeff Snider:So the yield curve will steepen out substantially, but do so from the front end. So like the two-year, for example. The two-year right now is a little bit under 3.4%, setting a new multi-year low, which is another signal leaning in the direction of that type of steepening. If that's correct, the 10-year sitting at 4%, if we assume the 10-year doesn't go, it's actually a little bit low 4%, but if it doesn't go any lower, the yield curve wants to be about 200 basis points steep, upward sloping. It had been inverted for a long time, as we discussed before. It is uninverting. It hasn't gone through the entire un-inversion process.

55:32Jeff Snider:When it does get through the process, which it will, the yield curve should be about 200, 300 basis points steep between the front end and the long end. So just doing some quick back of the envelope calculations, assuming the 10-year doesn't move any more than where it is right now, the front end of the yield curve would have to be down around 2 % in order for it to completely un-invert and be 200 basis points steep. So there's a lot of opportunity in that part of the yield curve, right at the two-year spot on the curve, and then even treasury bills, though. I mean, there's no really price speculation in bills.

56:03Jeff Snider:But if you're buying a two-year treasury right now, not only are you getting around 3.5 % of a coupon, you have lots of price appreciation built into it. So a curve steepening, bull steepening type of trade would work really well here, assuming that it continues to go in this direction, though. So like I said, we've been looking at this for years. And as we continue to go through year after year after year, we see more evidence of that taking place, not less evidence. So it's a relatively easy thing to do. But that's, I mean, tragedy market's easy. You want to take a little bit more risk. You could buy gold or something like that.

56:37Jeff Snider:I would buy a ton of Bitcoin. If Bitcoin gets down around, you know, 50 ,000 or less, if the market overshoots on the downside, I'm going to pack up the truck for Bitcoin or something like silver. because those are the things that you're going to want to own in a period of instability, gross instability in a whole lot of different ways, including the economy and the marketplace. So yes, there's a lot of caveats and a lot of ifs and a lot of probabilities, but as those probabilities start to pile up and it looks like more concretely, that's where we're going, that's where you really want to be.

57:08Jeff Snider:All the traditional tools that safe haven to get you through unstable periods. That's cool to hear you talk about Bitcoin in that way because you've always been sort of a little skeptical of Bitcoin. Is it just the fact that it's pulled down so much from its highs that you're interested at this point? Or have your sort of opinions changed on it slightly? No, my problem with Bitcoin, it's not really a problem. It's understanding what it is and where it's going. Not price, but actual function. Bitcoin is not replacing the US dollar. Bitcoin is competing with gold as a safe haven portfolio asset.

57:41Jeff Snider:That's why it behaves a lot like the Nasdaq. It's competing with the stock market or gold. So people look to Bitcoin as potentially a, you know, since it has a relatively small market cap, there is potentially, there's more and more people get interested for any reason, doesn't matter what it is. There's a lot of upside potential from Bitcoin. Even though it doesn't replace the dollar, it doesn't become the next big currency, it can still become a highly appreciative asset, speculative asset or, you know, a store of value asset, certainly. So if Bitcoin goes down with that level of price appreciation, the asymmetry works in your favor because there are so many long run positives to owning Bitcoin.

58:20Jeff Snider:If we see Bitcoin at 20 ,000, you've got to be buying every last thing that you can every last bet you can get. So my issue is I don't see Bitcoin becoming a currency system, but I see it becoming what it already is, which is a preeminent digital form of portfolio asset. And there's nothing wrong with that. We can use a digital form of portfolio asset, especially one that has limited supply and limited availability. There's nothing wrong with that whatsoever. It's just, it's not a dollar. It's not a competition for the dollar. That's really where I have the argument. So we've had that conversation on the podcast before and your issue is around like the inelasticity of Bitcoin.

58:56I'll just link that in the show rather than getting to that again, because we've covered that in pretty good depth, I think. So one of the things that I like in terms of the framing of how Bitcoin performs in the short term, how the price moves, is Luke Grohman's theory that it's like the last functioning smoke alarm for liquidity. Obviously, Bitcoin rolled over at the end of last year. Do you think that is global liquidity drying up or like the smoke alarm that it's about to dry up?

59:23Jeff Snider:Yeah, I think it's both a liquidity signal as well as a risk taking signal. It's sort of the marginal. It's at the margins of people's perceptions of whether or not they want to take risk or whether or not want to remove risk. That's part of the institutionalization of Bitcoin through Wall Street and funds and everything else. That's what it kind of becomes is sort of the easiest thing to sell in a downturn, in this downturn anyway, assuming that's what we have. Portfolio manager, hey, Bitcoin had a tremendous year last year. It's really easy to get out of it. Plus, as it becomes, price goes down, portfolio managers don't want to own it because their clients will fire them for owning it.

59:58Jeff Snider:So it becomes the marginal risk setter. It tells you something about the perception across the financial markets to take additional risk or to take additional risk off the table. So for me, yeah, that's one of the things that really stuck out is that Bitcoin had – it really is – it hit the high in October, but it started to roll over in July. When we see a lot of stuff roll over in July, private credit in particular, you look at the BDC prices in the stock market, you look at leveraged loan prices, for example, there is a pretty solid correlation, at least a rough correlation. between Bitcoin as a risk gauge and what we've seen in, for example, the reversal of the private credit bubble.

1:00:37Jeff Snider:So that's how I would look at Bitcoin. And like I said, if Bitcoin goes lower for whatever reason, just because it happens to be the easiest thing to sell, that just presents a tremendous buying opportunity. Yeah, I mean, down here in the 60s, I think it's already good value. It may go to the 50s, who knows? But you know how this goes, Dan? I mean, markets always overshoot. And Bitcoin's history, right? I mean, Bitcoin goes way up and then it goes down by what 80 90 and then goes way back up again um so i mean i don't think people would be shocked if it gets down to around 80 down from its high which would be what um 30 000 something like that i mean 30 000 you gotta be thinking about buying a ton of it yeah i mean if we get there i will be selling everything i've got to buy more um but you and me both i'll provide some leverage we see if we can find some leverage someplace just to close out i know you you're kind of tight on time.

1:01:26But and this is quite a big question to close out with. Going into the midterms end of this year, Trump is going to want the economy running as hot as possible. Do you think he's got a chance of getting there? Do you think this could be a really strong year in the markets?

1:01:38Jeff Snider:No, see, it's always the what people want versus what they can actually deliver. Same thing with the problem with the Fed. One of the biggest things I try to get people to get out of is the mindset that governments can achieve whatever they set their mind to, because we see examples of this not happening everywhere. The recovery after 2008 never happened, didn't happen. China is a perfect example. The Chinese have been stimulating their economy for years, and it only gets worse and worse and worse. Governments don't have unlimited capacity to achieve the goals that they set out. In fact, they have very limited capacity, far more limited than you think, which is one reason why, again, go back to the marketplace.

1:02:16Jeff Snider:The marketplace has not budged. There is nothing in the marketplace right now that suggests, and believe me, market participants know the Republicans and the Trump administration want the economy on the right track before we get long before we get to November. This talk about a boom in 2026 is not priced anywhere in the market. And if it was, we would have the reverse calculation of what I just went through. If there was any if there was a plausible path to the Trump administration simulating the economy this year, what we would see is the yield curve steepening out in the other direction. So short term rates would be stuck at 350.

1:02:51Jeff Snider:The Fed wouldn't need to cut rates anymore, right? Because it would be responding to a strong economy, which means that the long end of the yield curve would had to be at least 200 basis points above the short end, which gets you the 10 year around five and a half, if not 6 % or higher. It's not moving in that direction. And if this was a realistic possibility in the near term, you better believe the marketplace would be already moving in that direction. So what the market is saying is, yes, we realize that Trump would love the economy to be red hot running into November. We just don't see any way for that to take place.

1:03:22Jeff Snider:The conditions, labor market is too sour. People, I want to point this out. I don't know even how to put this in the right word. We had zero job growth last year. I don't know why people don't know that more. We had no jobs grow, no jobs in the entire U.S. economy, an economy with 160 million people working. We had zero job growth in 2025. And somehow that's not going to have a negative impact on 2026. So the point is, the market is saying, look, we've been in this rut for years. It only gets worse. It only seems to move in one direction. It doesn't matter what the government wants to do. It's the conditions that we have.

1:04:02Jeff Snider:And then, unfortunately, they progress too far to the wrong direction that we're kind of stuck in this direction, kind of stuck in moving this way. Plus, you throw a private credit mess on top. And let's not forget, maybe the stock market pops because the AI bubble is no longer supporting that narrative. I mean, there's a number of financial risks that are out there on top of the macroeconomic weakness. It's a very small possibility that the Trump administration is able to deliver what it wants to deliver. I think that's what the markets are all saying. It's going to be an interesting 2026. Jeff, I always love speaking to you.

1:04:37Every time I feel like I'm getting a grasp of what's going on in the economy, I speak to you and realize I need to start again. But thank you for coming on the show. Really appreciate it.

1:04:46Jeff Snider:Always, Dan. I always love talking with you and catching up and revisiting. Yeah. So tell everyone where they can go to find out more about your work in case they want to check it out. Yeah. Just look for Eurodollar University. I've got a YouTube channel. I've got subscription services where if you really want to get deep into the weeds about what all these signals are, what they mean, what they're doing, which I mean recent events suggest that you need to do that more now than ever to really stay abreast of what's taking place and what's really happening and what it means what it potentially leads to down the road like I said the subscription services you can find at Eurodollar University the website is eurodollar.university or just search for Eurodollar University Awesome Thank you Jeff appreciate this and hopefully I'll speak to you again in a few months Yeah soon Yeah thank you

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