I think it is time to start reckoning with this possibility of forever inflation. We're going to see 3, 4, 5% inflation in the United States for a sustained period of time, possibly forever, because it's not just the problems we're seeing now, but we're looking at leadership's response to those problems, and they don't seem to really care. They seem to think that the way we're going to get out of this debt spiral is to spend our way out of it, to spend all the money on the bond buybacks to get the yields down, which of course over the long term makes the problem even worse.
Today's number: 95. That's the percentage of finance students who identify as straight of any college major. True story. We had my ex-wife decided we should have an open relationship and the rules were we could have sex with anybody and we would never see each other again.
How are you, Ed?
Doing very well. How are you?
I'm doing well. It's a beautiful day here in London. I'm unfortunately heading out again on Sunday to the West Coast for my first regent meeting, which I'm excited about.
Yeah, maybe explain a little bit the situation there.
Oh, Ed, I don't like to talk about that stuff. I wish you hadn't brought it up. I wish you hadn't brought it up. Now, we're talking about all kinds of interesting stuff.
What are the regents? What is that?
The regents are the board of directors that oversee the University of California. And what I didn't realize, and most people don't realize, is that it's a $54 billion enterprise. And about 35 billion of it is the hospital system. Basically, the University of California can be fairly called a hospital system or healthcare system that offers classes. I did not know that.
I did not know that either.
It's also the greatest economic elevator in history, which is why I'm excited to be on. It takes more people from the lowest quintile to the top quintile, I think, than well, maybe Cal State, but it's um you saved my ass. Saved my ass, Ed.
Are there any other famous people on that board? Who's the company?
Uh not famous, but much more credible. Um well, the governor is on the board, the lieutenant governor, Lenny Soplos. It's kind of a full circle moment. My friend Elenni and I were friends in business school and she's on the board as Lieutenant Governor.
But it's a bunch of very impressive people who quite frankly are just more credentialed and substantive. Um although I am pissed off. Let's bring this back to me. All the media was Governor Nuome appoints podcaster to board of UC regents. Would you describe me as a podcaster? That kind of upset me.
What would you prefer to be known as, professor?
Well, I don't know. I've done a few other things other than podcasting.
I know you've done a lot of things, but that is what you are right now.
I would say I'm an academic and an entrepreneur, but anyways. Anyways, but you asked who else is on the board. It's a bunch of uh it's people from from the finance industry. It's everyone from the vice chairman of UTA, one of the largest talent agencies to business people to health care professionals. And a lot of the chancellors, I mean, they're technically the CEOs, the chancellors, so they're not on the board. They report into the board. But it is an enormous board. I think it's 24 or 26 people. Anyways, I'm I'm headed out to UCLA for my first my first regent meeting. What are you doing this weekend?
This weekend, let's see. It's my girlfriend's birthday, or it was yesterday, so we had dinner, but then we're going to celebrate with friends, which will be very fun. We'll have a little party. Uh and then I go to another wedding. Uh, it's probably like my hundredth wedding um of the year it feels like.
So, and I'm being serious here. You know what the best gift you can give anyone for their wedding is?
Get ridiculously [__] up and have an amazing time, a visible amazing time at their wedding. That's all they want. They want a total party. When you go to someone's wedding, the best gift you can give them is to dance, be social, just have an amazing time. That is all the bride and groom want. They want to have the best party. They want to be talking about what an epic party it was for years. And the best thing you can do for the bride and groom is is just have an amazing time.
Yeah, that's right. Collaborative effort. Totally agree. We got to host a party sometime, Scott. You and I, I think we know what we're doing.
See, the problem is I don't like to hang out with you guys because I'm worried you'll be disappointed and nobody needs to see me um having a good time. So, yeah. Do you notice how Katherine and I at a very distinct early hour peace out?
Yeah, I have noticed that at every event. Yeah.
I think you're too worried about it, though. My personal take, but who knows? Maybe.
Well, you haven't seen me [__] up, bad. Yeah, I don't know. You you don't you don't you don't know where the where the devil goes to to drink that holy water. Uh anyways, um should we talk about AI?
Yeah, we got a lot to talk about. We got to talk about AI. We got to talk about oil, inflation, interest rates, the Federal Reserve. We got to talk about Apple, John Turner, say foldable iPhone. We have a lot to talk about. So, let's get into it. The war with Iran has entered its seventh month, and the conflict is escalating yet again. Last week, oil hit $107 per barrel for the first time since May. The spike came after the US destroyed five Iranian oil tankers in retaliation for attempted strikes on a Navy warship. Meanwhile, concerns about persistent inflation fueled a global bond selloff. The US 30-year yield reached its highest level since 2007.
So Scott, we always have to talk about this because it really is what's driving the markets. I mean, oil, Brent crude breaching $105. We had Labor Day gas prices at their highest levels in American history. Diesel prices have hit a record high. That impacts the rest of the economy because diesel is essential for freight and fertilizer and much more. Here are some price increases that we have seen since the start of the war. Corn prices are up 16%, wheat prices are up 23%, cotton 32%, rice 49%, diesel 57%.
So prices are rising everywhere. We're getting better signals as to what the inflation picture actually is. But that is now being uh priced in because we're seeing that bond yields are rising even further despite Scott Bessant's attempts to suppress them. Your thoughts on the macro picture, oil, inflation, and now rising yields.
Countries don't cease to exist because they're invaded. They cease to exist because they go broke. And the way they go broke is through inflation, where their purchasing power just falls and they can no longer borrow money and and they essentially enter into this kind of downward spiral. And the inflation in the United States is pretty dramatic. It's a 40% cumulative price increase since January of 2020. That's crazy.
I mean, that was when COVID started. The majority of Americans have not seen a 40% increase in their earnings and their wages to compensate. So, essentially, this is a decline in the standard of living for the majority of Americans or the consumer.
American households have taken a pay cut that they did not vote for. Uh, their bankruptcy number is the real tell. Corporate bankruptcy is up 12% which is the greatest in over a decade. And it's concentrated across small and medium-sized businesses which don't have the ability to, you know, hedge floating rate debt. They're kind of the shock absorbers for inflation or monetary policy and they've been, you know, you know, their chassis been broken, if you will, or just snapped. Whenever you have something like this, you do have winners and losers. This arguably is a transfer of wealth from people at the pump to homeowners in Odessa, Texas that have seen their home prices up 77%. Exxon, Saudi Aramco, Chevron. There are a lot of Americans making a lot of money off of higher energy prices. We are a net exporter of energy and the largest producer. But it again transfer of wealth from everyone at the pump and almost every product incurs a price increase because it came to you using diesel fuel. Right? So you have again you have wealth transfer from diesel dependent families, school buses, drive-throughs to land owners sitting on the Permian basin. And Trump trading oil stocks while overseeing the policy, you know, it's gone from a conflict of interest to a business model. He's got, I think, almost five or registered almost $5 million in gains during a war. He's prosecuting incompetently and then he just puts out a thing saying he doesn't actually care about the money he's making or price increases. Uh so this is what is this? This is a this is a regressive tax dressed up as a foreign policy story. It'll be very interesting to see if Worsh decides to go for the kind of profile and courage and say I am immune. I cannot be replaced and tries to or does in fact raise rates. Um but the $100 oil has all sorts of um unintended consequences.
And it does seem increasingly like he will raise rates. I mean if we just look at the odds of a September rate hike, which we will get the answer to this week, it is now up to 65% on Kalshi. Go back to June, the odds of that happening were 15%. And then of course we're seeing it reflected in yields which are I mean the the rise in yields this week and the week before and the week before that is stunning. I mean the bond markets are literally screaming right now. The 30-year yield hit 5.35% which is the highest level since 2007 and the 10-year has breached 4.9%. And this is all despite the fact that Bessant is tripling or did triple the bond buyback program to $6 billion. He's done all the made all these efforts to try to get yields down. Didn't work. Bond investors said, "No, this still isn't working for us." And I think they're paying attention to multiple things. Of course, the oil, the length of the Iran war, uh but probably most important is this unsustainable debt that we clearly are showing no signs of even caring about or taking seriously. National debt surpassed $40 trillion. Our fiscal deficit this year under Trump is on track for $2 trillion. We now pay $1.25 trillion in interest payments, more than we spend on national defense. That's expected to double as a percentage of our federal revenue over the next decade. So eventually we're going to be spending more on interest than anything else. I think that is what investors, the bond investors are so worried about and rightly so. And then in the middle of that, Trump at his Trump of Palooa, this midterm convention, which no one really tuned into and which they were giving out free tickets for people to attend, he says, in fact, I've got a clip. I'll just play it for you. This is what he says. If the Republicans win the House of Representatives and the United States Senate, both of them, because of our economic tremendous economic success, like in in history, we've never had anything like what's happening, but because of our tremendous strength and success economically, I will issue a dividend to every adult citizen in the United States of America for $5,000.
$5,000 to every US adult a bribe to vote Republican at the midterms, which would cost the United States $1.35 trillion, which we would add onto our existing $2 trillion deficit. This is just I don't have the force for it.
