Economic Insights from Joseph Wang

He's back. Yes, Joseph Wang, aka TheFedGuy12 on X or Twitter. We're lucky enough to have him back for the third discussion. Folks, if you don't remember our first discussion, he blew my mind when six, maybe eight months ago, he talked about crash up. Frankly, it had never been a concept I thought about. A lot of people at the time were talking recession, recession, recession. Wow. Let's give Joseph his flowers. He was right. He was early. Pretty amazing call, Joseph. How are you doing? Thanks so much, Michael. It's great to be back. And yes, it's been an amazing year, right? So I remember last December, there's so many people everywhere just dooming around. And at that time, the S&P 500 was comfortably below 5,000. I told everyone we're going to have a tremendous, tremendous year. I gave a 6,000 target. Again, it's all public on Twitter. And now here we are, 6,000. So My gosh, we really did crash up. Unbelievable, really. Well, and to your credit, it was really in all kinds of assets, right? Again, we talk about a lot of doom and gloom, recession, stock market. But there was just as many crash bros and doomers about real estate, housing. You know, they just they've just been wrong. I you know, one of the things I wonder, because you have a YouTube channel as well, is doom in scary headlines gets clicks. gets followers. I wonder if these people really believe the garbage that they're putting out there. Random topic, what do you think? Do you think these people truly believe it? I think some of them do and some of them don't. Both of us have YouTube channels, so we understand how this works. Yes, if you sell gloom and doom, your count is going to go up a lot. People, for whatever reason, are attracted to doom and gloom. Maybe it's fear. I don't know. I've actually meant... some prominent doomers before. And, you know, some of them actually do have, let's say, getaway houses and, you know, bunkers, stuff like that. Some of them literally do. So some of them actually do believe this stuff. So for them, yes. But I think other people maybe are just shopping for views. But listen, guys, I understand the temptation to be attracted to doom and gloom, but that can be very bad for your financial health as we've seen over the past year. No, I think there's, I think there's a couple of things when you, when you have YouTube channels, really anything in life, you could chase impact or chase money. And on YouTube X, any of these platforms, if you're going to chase money, the easiest path is fear, right? It's a human condition, right? Fight or flight. Lots of people want permission to do nothing. And that's what they seek. And then they just get stuck in these doom loops. They do nothing and they stay broke. And then there's people like us, which are making honest efforts to untangle this complex economy, to untangle what might be a problem, right? Because I don't know about you, Joseph, I think we're going to have a recession someday, and we'll call it, we'll talk about it. But also there's lots of upside, i.e. crash up when the S&P is below 5,000. You called 6,000, it hit 6,000. Nice job. So Michael, I completely agree with you. So like yourself, I would like to have a channel where we have some honest conversations to try to help people understand the world to make good decisions. If all we wanted was a huge channel, I would tell you, buy gold, buy guns, everything's going to crash. And there are people who do that and they're wrong every year. And it seems like their channel just grows anyway. So it's really quite ridiculous. I don't fully understand it. But I want to have an audience of thoughtful people who are interested in learning and understanding how the world works. So I will never resort to selling doom and gloom. No, when you chase impact, the rewards are slower, but oh, so much more valuable. And I know you've seen that. So thank you for all you do. Well, let's kind of unravel where we are. We've already given your flowers for your call. Nailed it. Just perfect. But we're sitting at the end of year 2024. We've now, I think, are eight days post-election. and election results, because a lot of people thought it would take days or weeks to resolve. It is resolved. We know who's coming. Does anything about the election results give you pause, give you concern? Does it reaccelerate, crash up? Where are we today? Help people understand where we are today. So I think that we are probably towards the end of the bull market and the next year will not be as good, not even close. So I'm you know crash up is kind of an ongoing thing i think you know if you have a longer time frame of course stocks tend to go up But we're at a place where things are changing in a big way. Now, first, I'll talk about what I think is going to happen maybe the first couple months and then maybe just throughout the next year. Now, heading into the election, there's a lot of slower economic data. And that's really understandable because Vice President Harris and President Trump have very, very different visions of the world. And if you are a business, it's really difficult to make decisions on this. Now, for example, I know many people. who watch this channel on to real estate, you know, a big part of that is opportunity zones, right? So and tax rates. So if you have, let's say, a President Trump or a Harris one, you'd have very different legislation that would affect that. And you just can't plan for that. And many surveys show that as well. So heading into the election, a lot of people pausing. But now that we have clarity, I think a lot of a lot of businesses can kind of go forward with their plans. So I think we should see. an uptick in economic activity. And in addition to that, since President Trump did win, we all know that he's a tariff man. And if you have tariffs, I think that scares a lot of businesses because they don't know what will happen. No one does. So you're going to have an increase in purchases from abroad because businesses are trying to get ahead of the tariffs and buying all the foreign components that they need right now. So right now, I can see us having a brief spout of economic activity. But beyond that, though, President Trump's victory, I think, really is a fundamental shift in how the world works in the global order. There's going to be big changes domestically in the U.S. and internationally as well. Now, I think of Vice President Harris as more of a status quo person, but President Trump very much more of a, you know, America first, different way of doing things. I guess we'll start with talking a little bit about President Trump's foreign policy and why that's going to affect the stock market in a big way. So President Trump didn't just win the popular vote, but he also won Congress. So he has, I would think, a popular mandate to really implement his policies. A big difference between this presidency and the last is that a lot of the people in Congress now are on Team Trump, Team MAGA. These people, they owe their seat. to Trump. Now, in the beginning, Trump was kind of a new guy. People weren't really sure whether or not this was just kind of a brief aberration or whether or not this is a big change in American politics. Now they know this is a big change and you have to be part of Team MAGA or you are not going to make it in the Republican Party. So I fully expect him to be able to carry out his goals. Now, if you listen to him talk about his goals, first and foremost, when it comes to economic policy. is about tariffs. So a lot of people will look at this and say like, oh, tariffs, very, very scary. You're going to raise costs on everyone. It's going to be bad for the economy. But you have to listen carefully to how President Trump uses this. He's very blunt. He's going to use tariffs as a tool to negotiate trade deals. So in a recent interview, he was like, we're going to have tariffs. They're going to be so high. that no one is going to be paying them. Everyone is going to have to do what we tell them to do. And what we want them to do is to build factories in America. Now, if you actually look closely, well, if you look at the data, the US does have a tremendous trade deficit when it comes to goods. A trade deficit just means that we buy more from foreigners than we sell to them when it comes to goods. This deficit has grown over the past couple of decades, well, past few decades, and it's now $1 trillion a year. very, very large. So that means that Americans buy $1 trillion more of goods than they sell abroad. So this is net on the net basis. So he doesn't like that. But if you actually look at just what we are buying, what kind of sticks out is that a lot of the things that Americans are importing, it's not, it is made abroad, say in China or something like that. But a lot of it is actually American companies who manufacture abroad and sell back home. For example, Apple, of course, iconic products, iPhone and stuff like that. They don't manufacture anything in America. It's all made in China or somewhere in Asia. And so when we're importing or buying stuff from Apple, that shows up as the U.S. importing goods from China. But in practice, you know, it's really just buying from an American company. This can be you can kind of look at this through many lenses as well. Same thing for Mexico. We. import a lot of stuff from Mexico. A lot of it is just American car companies with factories in Mexico. So when you look at the trade deficit in this way, it's not so much about China is winning, Americans are losing, and so forth. What it's really about is American companies have versus American workers, where American workers right now, they're wanting to have a bigger share of American profits. So this trade deficit thing, it's really just American companies taking advantage of cheaper labor abroad to increase their profits. So if this America first policy were to be successful, what it really means is that big American companies are going to have smaller profit margins. Obviously, that's not going to be good for the market, right? Now, there's going to be a lot of things. There's a lot of moving parts here. There's going to be corporate tax cuts to try to soften this. I'm pretty sure the Fed is going to cut rates as well. So there's a lot of moving parts. But the whole way that they're trying to reshape the world order is to make it so that we have a stronger, bigger middle class. Because over the past few decades, we see the top 1% just kind of becoming bigger and bigger and the middle class shrinking. And they want that to reverse. And to reverse that, I think it's good for the country. It's going to be good for most Americans, but I think it's not going to be good for the stock market. So I think this is going to be a volatile phase next year. Now, one other thing I'd add is that when you're looking forward, there's a political calculus at play. Now, there's not another presidential election for another four years, but in a couple of years, again, we have midterm elections. They don't want to lose, right? No one wants to lose. So in order to get this big plan done, it has to be front loaded. It has to be front loaded and aggressive because if you do this now, market will tank. But by the time we have your elections in a couple of years, we can recover, right? So we'll be riding the recovery wave up and claiming credit for it. So anything that has to be done, and I fully believe them, that this is a... This is a determined Trump administration. He doesn't have another term, right? It can only run for president twice in the United States. So for him, this is about fulfilling his promises, cementing his legacy, trying to do what he's always dreamed of. You can see final videos of President Trump since the 1980s talking about his concerns about trade. So this is something he believes in. And we can see he has his appointments. Robert Lighthizer reappointed to run his trade. So this is going to be a big change in the. global order and it has, and it's not going to be good for the markets, but there are still other places that you can, other assets that I think would benefit from this. Yeah. So I think there's a lot in there I want to peel back. And it's really funny where you closed. I've been telling people in the real estate game that I think 2025 is going to be, you know, the last painful year. Cause I think, I think things get, and again, when I say painful, I mean, transactions, right? Where it is, you know, historic lows, if you adjust for population. So let's talk about this because one of the things I think about tariffs, and again, you have to appreciate Trump's first book, Art of the Deal. He's a dealmaker. He's a notoriously hard negotiator. And I fully expect him to wield the tariff threat 60%, 100% aggressively and to your point, quickly. But I don't think that actually gets implemented. I think the tariffs will be so large and so big that it will force negotiations. And it's about fairer trade, right? Free trade, it's fair trade. I think the US has been taken advantage of in trade for a long time, per your comment about Trump back in the 80s saying that. It's as true today as it was then. So I think a lot of that. Second, I think- that there needs to be some kind of rational decisions about what kind of stuff we just simply must make at home. I think one thing was very clear in the pandemic in the early part of it. We were reliant on people that frankly don't like us for some of our PPE, right? And that has to be unacceptable going forward. So I do expect at least a small manufacturing boom. Maybe it's in biotech. Maybe it's in pharmaceuticals. I don't know. But I do think there will be more stuff produced in the U.S. To your point, that's inflationary, right? It costs a U.S. employee more per hour than a Taiwan or Chinese or Vietnam employee. But I am not sitting here shaking my boots that we're going to have tariffs on all foreign countries, on all foreign things. I get the threat. I understand the sledgehammer. I expect it to be far more like a scalpel. and very strategic but maybe i'm wrong what do you think So like you suggest, it's really hard to implement these things. Now, let's look at what happened the first Trump term. He was putting a lot of tariffs on China, right? What actually happened? Well, actually, this is what happened. So the Chinese sold to Vietnam and the Vietnamese sold to the US. So what happened was nothing changed. They just kind of rerouted trade. So being able to really have a... calibrated policy to put pain on the people who they want to put pain on to get the desired effect is difficult. So I think that's going to take a lot of thought. But they've done this. This is not the first. So they've had four years to try to test things out. So I think they will be more effective this time. An interesting tool that Robert Lighthizer has floated before is currency. So he's saying last time he only did tariffs. This time he's saying maybe we can do currencies as well. So They're going to do different things. About inflation, I think that's highly possible. And I think the market expects that. But I think we should also think about other potentials as well. So you're exactly right. If we make things more in America, it's going to cost more, right? American workers are more expensive than, say, very, very low-wage workers elsewhere in the world. But there's another path towards this. That is to say that instead of... companies passing on those higher labor costs to the consumer by raising prices maybe they will just have narrow profit margins yeah they eat margin yep this sounds silly but it actually does happen in the european union right now they're having tremendous upward pressure in wages and what's actually happening is that their companies are just having slimmer margins and so there's there's uh the companies are suffering and rather than the uh the consumer through higher inflation. So that is a possible route. I don't know if that's what's going to happen. I think it's probably going to depend a lot on industries. Some industries are really competitive, so they really just can't pass the costs on. And some industries are not competitive and maybe they will just add, increase their prices. So I'm not sure, but it is a very strong possibility that this would raise prices. Yeah. So to your point, again, in an excellent insight, one that I didn't have, to kind of put a time block on this, we're thinking first six months of the term, again, it's going to be, to your point, front loaded, right? We're going to see these things early. So we have the pain and then we start the recovery by midterms. Is that reasonable? Yeah. I think that has to be the way it's done. Yeah. Okay. All right. I like that. I'm going to switch gears on you a little bit. Obviously, you know that the Fed's cut twice. I'm going to go back to the first cut, which was a 50 basis point, which I think surprised a lot of the market because, again, the odds are like 91%, 25%, 9%, 50%. They win 50%. But what's happened in the long-term rates, 10-year, and thus the mortgage market, which I care about, is they've ripped rates, right? Rates were as low as 6.1%. They're now over 7% in the mortgage market. The 10-year note, I think, was like 3.6. Now it's 4 something. Did that surprise you that the long end went up when the Fed started their cutting cycle? So I would look at this in a couple of ways. I was surprised by the 50 basis point cut, but not so much about the long end. The reason is that heading into that first cut, I think the market was very scared about recession. They weren't sure what was going to happen. And now that the Fed is... I think wanting to get ahead of that, that means there's less recession risk in the market. And so there's less people kind of piling into the 10-year treasuries. So that's one thing. And since then, we've also had a lot more positive data. And so the market is actually pricing in much fewer cuts now. Again, less concern of recession, fewer cuts, you get a higher 10-year yield. Now, one last thing that's happening a lot, and this is more recent, is what economists call the term premium is increasing. So if you're looking at a 10-year treasury yield, let's say we're at four and a half today. Now, part of that is the market's expectation of the path of interest rates over the next 10 years. Part of that is a little bit of a risk premia investor's demand because of the volatility and uncertainty with the path of fit policy. That's actually increasing notably lately. And I think that's understandable. I mean, you have this new Trump administration. I have no idea. Are they just going to blow out the deficit and just massively stimulate? or what are they going to do? So the market is a bit more concerned about the future of interest rates. So they're having a bigger term premium. So I think that explains the 10-year yield. The mortgages, as you note, is... in large part, what the 10-year is, but there's also that spread between mortgage rates and 10-year. And I think part of that is due to just increased volatility in the markets. And that should hopefully dive down a little bit now that we have the election results and everything was clearer than we feared. Yeah. One of the things, again, I think the bond market was right again. I think the bond market was telling us that there was going to be less rate cuts. And now that we're here, I think a lot of people are acknowledging that instead of having 100 basis point cuts next year, we're going to have something less than that. Something that I thought was interesting, Fred President Barkin said yesterday, I read this morning, that basically the last 30 years were very much a low inflation environment, but the next 10 years could be more inflationary with higher deficits, deglobalization, and population aging. What do you think of that? Do you think the next 10 years will average higher than the previous 30? I have no doubt that will be the case. I mean, I think of population aging as tremendously inflationary, right? What happens if half the country just retires and stops working? Well, I mean, a lot of these people have a lot of savings. They've accumulated over their life. If you're a boomer, you were born into a world where you just bought a house, your house goes up several times in value, your stocks go up to the moon. And so you could continue to consume them. go on cruises, go on restaurants and so forth. But then who's going to do all that work, right? So if you have mass aging in a world where the boomers are affluent, they can continue to consume without producing. And I think that mismatch between the demand for goods and services and the supply of goods and services is highly inflationary. Now, to be clear, there are also possibilities where, let's say, Elon is successful in creating an army of Tesla robots. who just do work for free, and that would be very deflationary. But unless that happens, I think that we're in a decade that will be more inflationary than the last. So I think I agree with President Barkin there. And just to note, though, there are also people who think that aging populations is deflationary, noting that lower growth and so forth. But I don't think that's persuasive to me. No, I agree with you. I think, again, you know... There's always this thought that the silver tsunami, again, I'm a real estate guy, is going to just dwarf the real estate market. And it just never made sense to me that these people don't have clocks on them. They don't all go at the same moment. You don't get this wave of activity. And again, I saw some notes from National Association of Realtors that boomers are already the largest seller of homes. So this is not a new thing. I think they were 43% of the market of sellers were boomers. where millennials were obviously the largest buyers of homes, which makes perfect sense on the age of buyers and sellers. I want to go-Michael, do you think they'll sell their home and just live off the proceeds? Or do you think they would just pass it on to their kids as a wealth transfer, something like that? Because people talk about this great wealth transfer. I don't know if it's really happening. My guess, again, I talk with a lot of folks in this age group, is it will be some percentage of both. I think that's true. I think some will sell and downsize and live off the money, my mother being a perfect example of that. But I think most of them, so greater than 50%, will pass it on to their heirs. And especially today, I mean, think about where rates are today. I know boomers who are living in a 4,000 square foot home that if they were to sell and let's just say get debt, plenty of them could pay cash, but let's assume they get debt. Their payments would be more on a smaller home, right? Because they probably refied and they got a 2% or a 3% mortgage. So this interest rate lock-in is real. And something I called early and likely we'd be proven right is the turnover. The average turnover, I believe going into this cycle was eight years. I think we're going to 12, 13, 14 years before this thing is all said and done because people are just going to stay put because it doesn't make sense to move. It doesn't make financial sense to move, in my opinion. Well, Michael, my mortgage rate is 2.75 and I am never selling this. Exactly. If I move, I'm just going to rent it out. It never makes sense. It's an asset. So valuable, so valuable. It'll be the best asset for... I mean, think about it. And it's tax deductible too, right? That interest. So it's even lower. It's just ridiculous. Yeah. You're printing money. It's good for you. Congratulations. I want to go to Fed President Lori Logan. She was out talking about three risks to the outlook. I want to go to number three because I think this is... the most important thing and why I think 2025 is going to be painful for real estate, commercial, residential. Here we go. She basically said yesterday, the neutral right is likely higher than we thought before. And it's very close. It could be very close to where we are right now. So how I translate that as a novice, we used to think it's in the threes. Now we think it's in the fours. That's how I translate that. You're exactly right. What she's telling you is that, hey, maybe we don't need to cut it as much as we thought. Bingo! So, you know, that's part of the reason why the 10-year is around four and a half, right? The Fed is thinking that maybe we don't have to cut as much. So, like we've been discussing, the next 10 years is going to be different from the last 10 years. I don't think we'll ever go back to zero interest rates again. No, I hope not. And so that leads us to a very interesting problem. So. let's say mortgage rates get stuck around 6% and house prices are so high. What's going to happen to all these people who want to buy homes, especially so people are buying their first home. Now, Chair Powell was asked about this and he's like, yeah, well, real wages are catching up and after a few years, your wages go higher. I don't feel like that's a politically acceptable answer. Well, it's the answer that people don't want to hear. It's the answer I've been telling people for two years now. The housing market is broken. We have fundamentally changed the traditional housing market. First-time buyer, trade up, move up buyer, luxury. The move up buyer is out to your point. 2.7, never selling, making a rental. You're out of the market. You won't be a move up buyer. You will simply be another, you're not selling and buying. That's why the move up buyer is so important because you are a seller and you are a buyer. That is out of the game. So we're going to have less transactions. I've actually told people, and again, we may disagree on this and that is totally okay. I think the average mortgage rate in 2025 will be 7%, not 6%. I think it gets better in 2026, to your point, right? Once we get to the other side of the early pain, but I don't think the market's ready. I think 2025 on a transaction basis will be worse than 2024. And we're only going to do like 3.9 million existing home sales. I think 2026 is going to be the- or 2025 will be the cycle bottom. I see a lot of pain. And then if you go to commercial, cap rates, lower NOIs, horrible debt structures, extend and pretend, we are going to have some true pain in commercial multifamily office. Commercial banks, we're going to have some consolidation, acquisitions, whatever you want to call it. I see quite a bit of pain in 2025. What do you think about the prospect that maybe we have some kind of populist legislation similar to what Vice President Harris proposed where maybe we just give all the new home buyers just a lot of money to go and buy homes? Do you think that-Well, I'll answer it both ways. As a person who owns more than a couple of single family homes that are that, would be tremendously valuable to me personally. I think anything we do to add demand to a broken housing market is idiotic and catastrophic. We would essentially be giving homes to people that aren't ready. That's exactly what we did in the great recession. Last time it was bad and horrible lending. Now you're going to give people who can't save for a down payment, the down payment. You give people 25 grand, prices will go up 50 or 75 grand because it's a levered investment. So, okay. Then they buy that. Then. They've already proven that they can't save money. So the first time the roof goes out or a $5,000 AC or the water or whatever, we're just going to create another foreclosure wave in two, in three, in four years. It's a horrible idea. We need to incent supply. I was lucky enough to speak at Resi Day, Lance Lambert from Resi Club. And everybody got asked, all the speakers got asked, if you had a magic wand, how would you fix this? And I said, if I could do anything today, I would take the average square foot of a brand new build down 10% because that just means you build smaller homes. We don't need 2000 square foot entry level housing. Let's go build some 13, some 1150, shoot some 950 square foot homes. That's what we need to fix this. That's how we fix this. You don't create more demand for a scarce asset. It's I mean, I would hurt my head to see that happen. I guess the government is just going to have to buy a whole bunch of those Elon Musk tiny homes and just plant them everywhere. I mean, seriously, I don't care if it's 3D printed container homes. We need to incent the creation of smaller homes. I mean, think back to the 1950s, 60s, 70s. That's what we were building. Unfortunately, regulations makes it too expensive, so they build McMansions. It's the wrong idea. To your point, if you travel, if you look across the world in Canada and Europe, for example, the people there have homes that are much, much smaller than American homes. I would think that they would actually wish to have... the homes are sized, but it is possible to have small homes and have more people have ownership. Yeah. Well, the other thing you said earlier is you expect some more rate cuts. So I think right now the market is expecting another 25 in December. Are you on board with that? Yeah, I'm on board with that. Honestly, I think it'd be just so ridiculously political if they just cut 50 basis points right before the election and then like, yeah. Actually, I don't feel like cutting anymore. So, okay. So we are going to get the 100. I'm with you. I think they're going to take it down 100. But here's a controversial take. I think there's a non-zero chance that that's the last rate cut for 12 months. No, I can be on board with that. That's true. So like you were quoting, Laurie was talking about maybe the neutral rate being higher than we expect. So that's... you know, that's basically saying that we probably don't have to cut that much. Yeah. Now, there's a strong argument for that. If you look at the economic data, if you look at the stock market, for example, going to the moon. But I think something that could throw that path off is if we do have very disruptive trade wars next year, because if we do have, you know, just tremendous amounts of, you know, bull in a China shop kind of moves, then I think that's going to force the Fed's hand to cut rates to China. soften the blow a little bit. So we're going to have to see what happens with the Trump administration. So let's see if we get some extremes because I love the way you think. So one extreme is December's the last cut, no cuts, 25, non-zero chance. Let's try to get the other side. What's the, I don't know what you would call it, worst case, best case scenario? What is the maximum amount of cups that you can kind of think as of today? So I think just to add to your no cuts scenario, we know. Pretty sure that we're going to get tax cuts, right? We're going to get the renewal of the Trump tax cuts. No doubt. Maybe additional corporate tax cuts. There's no doubt about that. Yep. So that's a strong, that's strongly argues for the no-cut scenario. Now, let's say that we do have tremendous amounts of tariffs next year, right? Causes Europe to implode, causes China to implode, causes Canada to implode. if we have a global recession, that's going to impact the US as well. It's going to impact the US in a couple of ways. The US exports some stuff. It's not a big part. So that's going to have lower demand from abroad. But I think the bigger channel that it impacts the US is through inflation. So if you have a recession elsewhere, the commodity prices are going to go down a lot. And so as inflation comes down a lot, so you have a Fed that's going to be off. wanting to cut rates because inflation is too low. Could it get as bad as to actually have deflation? I mean, again, worst case scenario, China, Canada, Australia, Europe, recession worldwide. Could we actually see true deflation? I don't think that's likely. I mean, it's possible. So I'd say if the stock so what I'm looking at right now is that a lot of the demand in the U.S. is really just driven by stock market gains, right? And you have the stock market go up. you're basically adding money to people's brokerage accounts. So they have a lot of money. Wealth effect. The wealth effect. It's very real, especially when you're pumping Bitcoin to like 90,000, right? Yeah, 92, baby. 92. So I think that's a big part of the strong U.S. economy story. Now, if you have recession abroad, if you have a huge decline in assets, risk assets in the U.S., yeah, I think you could have a recession here and maybe that could happen. could drive prices lower. So there's a lot of things that could happen. But if we do just have just tariffs and stuff like that, no huge, huge accident elsewhere, we could easily have another 100 basis point of cuts. Well, actually, let me think about that. Yeah, no, I could see 100 basis points. So maybe a cut a quarter. So I think that's possible as well. All right. So somewhere between zero and four X, some cataclysmic thing. Yeah, yeah. I think that that makes sense to me. So if that's if those are the two extremes, what would you call your base case, your wild guess for if you were to pick a number? So my base case is that we have one cut in December. And at that time, the Fed will just say so we get a dot plot in December. And I think the Fed is not going to be telegraphing very many cuts next year, maybe one or two. OK, but then we get the Trump administration come in. I think they do big moves, shake up the world order. I think that's going to hurt the stock market a lot. I think that's going to force the Fed to to cut more than expected. Yeah, because the negative wealth effect is equally real. Yes. Yes. I think that's going to happen. But then I think we'll shake it off. And then 2026, things get back on track. It's funny. It's funny how we came to the same conclusion. And I've got videos out the last couple of weeks saying exactly that. I expect a fair amount of pain losses in 25, but 2026 will be better. Actually, let me ask you this. So let's say that we do have a correction in the stock market. So wealth effect go down. But because of that, we also have rates go down. So maybe the mortgage rate comes down a bit. What should these two effects do you think has a bigger impact on? on the real estate market. On the one hand, people have less money to buy stuff. On the other hand, rates are more attractive. Oh, I think at this point, we've had empirical evidence that you could actually go back and look. Rates matter. It's more important than the market. Oh, no question. Because again, what we have proven is we have marginal demand building. Rates at seven or above, dead. Rates get to below six and a quarter, game on. So rates matter. Yeah. If man. Joseph, if we ever got a 599, it would be wild. And that's part of the reason I hope we stay at seven so we can start to heal the broader market. We can start to have wage inflation. Because again, to your earlier point, it's not sexy to say wages, we're having true wage growth, right? Affordability today sucks. It's horrible. Almost 1981, horrible. But are prices going to fall in any meaningful way? I don't think so. Are rates going to go down? I hope not. And that just means wages. So we're going to be trucking along. And again, there's evidence that we've been here before. If you go look at 1978 to 1994, and you look at existing home sales, we did 4 million, roughly 3.986 million home sales in 1978. We didn't break that number until 1994. Wow. That's a long time afterwards. 16 years. So again, we could stay. depressed for quite a while. And again, why I think 2025 is the worst is because again, 1978 to 1982, four years, we went from 4 million to sub 2 million. And then the next year, 82, we popped 30%. So I'm like, hey, it doesn't repeat. History doesn't repeat, but it often rhymes. So that's why I think 2025 is the cycle bottom for transactions. And then we start healing in a pretty meaningful way in 26 because rates will fall. That's where I'm at. So maybe next year will be a good time to buy. And then you could. Boom. Buyer's market, baby. I'm telling everybody around me. It's a buyer's market, right? Disrespectful offers follow up. Because again, as you know, real estate has really two sellers. There's the want to sell. Hey, give me my price. I'll sell else. I'll stay want to sell. And then. there's the need to sell, the AKA motivated seller. In a seller's market, you can't find the difference. In a buyer's market, these people that want to sell, no real price cuts. They just let the listing expire, go on with their way. But these people cut every two weeks. And again, if you're following, you're doing the work, you're writing disrespectful offers, I'm hearing almost every day, Joseph, of people getting... 20, 25, 30% off list price because some people have to sell. So are you making a distinction between the resale market and the new construction? Correct. Yeah, that's all resale. Correct. Okay. So the builders probably, unless they have like inventory setting there, they don't really need to sell. No, as you know, but for the audience, the builders are playing an entirely different game, right? And I say this as somebody who was shopping for an existing home sales, but bought new. I did this exact same thing. Builders are, they're playing a different, they're eating margin. They're discounting rates to 499, 30 year fixed, 599, whatever. Whatever it takes to move inventory. Mark Cagney More importantly, my hope is builders right now are downsizing what they're building. I think it was Pulte Homes, it might've been Lenar, I think it was Pulte basically saying, we're selling just as many homes, but smaller and attached. Right. So, again, I think builders are in the catbird seat. I think builders have a great year in 25, assuming they get their product mix right. They're already using the nearly record profit margins. All right. So they have to eat a little. but they're going to move a lot of inventory because you want to know when a 5% mortgage rate feels good. When somebody else is charging you eight, it's an easy game. Yeah. I mean, the builder stocks have gone to the moon. Their margins are much higher than they were pre-pandemic. It's been really good for them, strangely. Yeah. Strangely. So you brought up Bitcoin earlier. I think you'd be remiss. I don't know if you follow it. To be clear, just so you know, I put 1% of my net worth. Well, that's not 1%. It's probably 2% now, right? Well, it's about the same because I have a lot of other assets. But again, I did this in 2018. So again, I'm not a trader. It's truly just an insurance policy for me. But yeah, it's mooning. Is this just FOMO? Is this President Trump being the first crypto president? Is this a Congress that's very crypto friendly? Gary Gensler being fired? Do you look at this at all? I do. You know, Trump went to that Bitcoin conference, tremendous Bitcoin conference, gave a speech, won the Bitcoin vote. And now I guess the Bitcoin is responding to that. I mean, I hear headlines maybe trying to exempt Bitcoin from taxes, capital gains taxes and stuff like that. Making a Bitcoin reserve. That's what I heard. Getting rid of Gary Gensler and all that stuff. So for me, the biggest threat to crypto is government, right? Regulation. Yeah, regulation. You're basically having this asset that is competing with government issued currencies that government usually doesn't like competition. So if you don't have that risk there, then that's really positive for crypto in general. So I can see that. Personally, I don't own any crypto. I'm a no-coiner. I don't really know what crypto is for except to make the number go up. It's very good at making it go up. It's very good at what it does. Yeah. Again, not to rehash history, but for new viewers, I put 1% of my net worth because I have a buddy of mine who's a big crypto guy. And he's like, you got to do it. You got to do it. You have to have an insurance policy, which makes sense. I have insurance policy on my real estate. So I saw it as an insurance policy on fiat. I bought it all in like four days and I've never looked at it since. But Yeah. From 18,000 or so to 92, it's been a fun ride, I guess. But let's get back to what should the average person be doing? Because again, most of the people who watch this show are employees. Even if unemployment went from the low fours to five, most of them are going to still be employees next year. If you're right about the stock market, you're going to be in for some short-term pain, meaning lower prices. Most of us have long-term horizons. What would be your advice to a family friend who's kind of that situation about next year? Don't overreact. Get ahead of it. What are you telling people? So like I mentioned before, we've really surged this year. And I think we have very obvious turmoil in the coming months. So I'd be very cautious right now. So again, you know, maybe that is so. The way that I think about it, and people tell you to not time the market, I think all the money is made in timing the market, right? Let's say that you bought at the COVID lows, or if you bought in 2009, then you just kind of rolled the wave up. So if you just look at the market, it goes up, and then sometimes it just goes down, and it goes up, it goes down, and we've been going up for a long time. So I personally would be very, very cautious here, and have a longer time frame that there'll be other opportunities for you to... probably other opportunities for you to get in at lower prices. That being said, I would be more open-minded in thinking about what the world will look like in the future. There's a lot of uncertainty because I don't know if President Trump's plan of remaking the world is going to be successful. But if it is, things that regular people buy, I think it's going to be more demand for stuff like that, be it, let's say, entry-level homes or things like that, and things that rich people buy. you know, Gucci bags or whatever, maybe less demand for that. So there's, there could be this huge redistribution in the world. And that's going to be have a big impact on the supply and demand of many things, which in turn will impact the profit margins of many companies. So I don't know what that world is going to look like right now. And I'm seeing, seeing some hints of that, you know, if you're a blue collar worker, for example, you're doing quite well. If you're a white collar worker, not so much. I remember reading a story in the Wall Street Journal. I did, I read that too, yeah. Where somebody was saying that, you know, I can pay $90,000 and I can get as many MBAs as I want, but I offer over $100,000 for a garbage man and I just can't get any. So I think there's going to be a shift in the world in how things work. So I just be a bit more open-minded because sometimes the future does not look like the past. Well, it's really funny you bring that up. Wall Street Journal had an article two or three weeks ago I talked about on my show talking about the next millionaires are in the trades. Oh, yeah. Yeah. And I think that's absolutely right. I actually went on to create some videos saying Gen Z wake up, right? I think Gen Z has the first chance to not be trapped with college debt and useless degrees. I think they can go into the trades early instead of four years in college, four years in the trades apprenticeship, and they can be making six figures, shoot, before they're 25. So I think there's so much value. And I think blue collar, I think our economy is shifting. I think the economy in the decade- will be different. I think the blue collar will strengthen. And again, I think that's a great thing. As somebody who has a Rolodex of plumbers, painters, electricians, 90 plus percent are over 50. I plan on owning real estate for another several decades. We need a generation to come in behind them. And you could print money if you go into a trades as a young person. So I fully encourage that. I see the statistics suggest that more and more young men are just not going to college and just doing something like that because it makes a lot more sense, right? That's a great ROI. College honestly never was for everyone. I think it was a really bad idea to kind of force it on everyone because everyone has different skills, different interests, and a lot of the things that you teach in school today is just nonsense anyway. It's just memorization. It's not helpful. Well, thank you for being here. Thank you for the third go around. I appreciate it. You have an amazing YouTube channel. Again, it's youtube.com slash at FedGuy12. What's the schedule? When does videos come out? Tell people where and why they should follow. Well, first off, thanks for having me. And if you're interested in hearing more from my point of view, so every week I have a YouTube video on my channel, FedGuy12. You can just search for it, Joseph Wang, where I debrief everyone about what happens in the market. past week. It's for educational purposes. Folks, you've got to follow once a week, easy follow. I think they come out on the weekends, right? Saturday, I think. Saturday. Yeah. Again, easy follow. One of my first listens Saturday morning. Joseph, you're amazing. Keep doing your great work. Thanks so much, Michael. You got it.

Frankly, it had never been a concept I thought about. A lot of people at the time were talking recession, recession, recession. Wow.

Let's give Joseph his flowers. He was right. He was early. Pretty amazing call, Joseph. How are you doing?

Thanks so much, Michael. It's great to be back. And yes, it's been an amazing year, right?

So I remember last December, there's so many people everywhere just dooming around. And at that time, the S&P 500 was comfortably below 5,000. I told everyone we're going to have a tremendous, tremendous year.

I gave a 6,000 target. Again, it's all public on Twitter. And now here we are, 6,000. So My gosh, we really did crash up.

Unbelievable, really. Well, and to your credit, it was really in all kinds of assets, right? Again, we talk about a lot of doom and gloom, recession, stock market.

But there was just as many crash bros and doomers about real estate, housing. You know, they just they've just been wrong. I you know, one of the things I wonder, because you have a YouTube channel as well, is doom in scary headlines gets clicks.

gets followers. I wonder if these people really believe the garbage that they're putting out there. Random topic, what do you think? Do you think these people truly believe it?

I think some of them do and some of them don't. Both of us have YouTube channels, so we understand how this works. Yes, if you sell gloom and doom, your count is going to go up a lot. People, for whatever reason, are attracted to doom and gloom. Maybe it's fear.

I don't know. I've actually meant... some prominent doomers before. And, you know, some of them actually do have, let's say, getaway houses and, you know, bunkers, stuff like that. Some of them literally do.

So some of them actually do believe this stuff. So for them, yes. But I think other people maybe are just shopping for views.

But listen, guys, I understand the temptation to be attracted to doom and gloom, but that can be very bad for your financial health as we've seen over the past year. No, I think there's, I think there's a couple of things when you, when you have YouTube channels, really anything in life, you could chase impact or chase money. And on YouTube X, any of these platforms, if you're going to chase money, the easiest path is fear, right?

It's a human condition, right? Fight or flight. Lots of people want permission to do nothing.

And that's what they seek. And then they just get stuck in these doom loops. They do nothing and they stay broke. And then there's people like us, which are making honest efforts to untangle this complex economy, to untangle what might be a problem, right? Because I don't know about you, Joseph, I think we're going to have a recession someday, and we'll call it, we'll talk about it.

But also there's lots of upside, i.e. crash up when the S&P is below 5,000. You called 6,000, it hit 6,000. Nice job.

So Michael, I completely agree with you. So like yourself, I would like to have a channel where we have some honest conversations to try to help people understand the world to make good decisions. If all we wanted was a huge channel, I would tell you, buy gold, buy guns, everything's going to crash. And there are people who do that and they're wrong every year.

And it seems like their channel just grows anyway. So it's really quite ridiculous. I don't fully understand it. But I want to have an audience of thoughtful people who are interested in learning and understanding how the world works. So I will never resort to selling doom and gloom.

No, when you chase impact, the rewards are slower, but oh, so much more valuable. And I know you've seen that. So thank you for all you do. Well, let's kind of unravel where we are. We've already given your flowers for your call.

Nailed it. Just perfect. But we're sitting at the end of year 2024. We've now, I think, are eight days post-election. and election results, because a lot of people thought it would take days or weeks to resolve.

It is resolved. We know who's coming. Does anything about the election results give you pause, give you concern?

Does it reaccelerate, crash up? Where are we today? Help people understand where we are today.

So I think that we are probably towards the end of the bull market and the next year will not be as good, not even close. So I'm you know crash up is kind of an ongoing thing i think you know if you have a longer time frame of course stocks tend to go up But we're at a place where things are changing in a big way. Now, first, I'll talk about what I think is going to happen maybe the first couple months and then maybe just throughout the next year. Now, heading into the election, there's a lot of slower economic data.

And that's really understandable because Vice President Harris and President Trump have very, very different visions of the world. And if you are a business, it's really difficult to make decisions on this. Now, for example, I know many people. who watch this channel on to real estate, you know, a big part of that is opportunity zones, right? So and tax rates.

So if you have, let's say, a President Trump or a Harris one, you'd have very different legislation that would affect that. And you just can't plan for that. And many surveys show that as well.

So heading into the election, a lot of people pausing. But now that we have clarity, I think a lot of a lot of businesses can kind of go forward with their plans. So I think we should see.

an uptick in economic activity. And in addition to that, since President Trump did win, we all know that he's a tariff man. And if you have tariffs, I think that scares a lot of businesses because they don't know what will happen. No one does.

So you're going to have an increase in purchases from abroad because businesses are trying to get ahead of the tariffs and buying all the foreign components that they need right now. So right now, I can see us having a brief spout of economic activity. But beyond that, though, President Trump's victory, I think, really is a fundamental shift in how the world works in the global order.

There's going to be big changes domestically in the U.S. and internationally as well. Now, I think of Vice President Harris as more of a status quo person, but President Trump very much more of a, you know, America first, different way of doing things. I guess we'll start with talking a little bit about President Trump's foreign policy and why that's going to affect the stock market in a big way.

So President Trump didn't just win the popular vote, but he also won Congress. So he has, I would think, a popular mandate to really implement his policies. A big difference between this presidency and the last is that a lot of the people in Congress now are on Team Trump, Team MAGA. These people, they owe their seat. to Trump.

Now, in the beginning, Trump was kind of a new guy. People weren't really sure whether or not this was just kind of a brief aberration or whether or not this is a big change in American politics. Now they know this is a big change and you have to be part of Team MAGA or you are not going to make it in the Republican Party. So I fully expect him to be able to carry out his goals. Now, if you listen to him talk about his goals, first and foremost, when it comes to economic policy.

is about tariffs. So a lot of people will look at this and say like, oh, tariffs, very, very scary. You're going to raise costs on everyone. It's going to be bad for the economy.

But you have to listen carefully to how President Trump uses this. He's very blunt. He's going to use tariffs as a tool to negotiate trade deals.

So in a recent interview, he was like, we're going to have tariffs. They're going to be so high. that no one is going to be paying them. Everyone is going to have to do what we tell them to do. And what we want them to do is to build factories in America.

Now, if you actually look closely, well, if you look at the data, the US does have a tremendous trade deficit when it comes to goods. A trade deficit just means that we buy more from foreigners than we sell to them when it comes to goods. This deficit has grown over the past couple of decades, well, past few decades, and it's now $1 trillion a year. very, very large. So that means that Americans buy $1 trillion more of goods than they sell abroad.

So this is net on the net basis. So he doesn't like that. But if you actually look at just what we are buying, what kind of sticks out is that a lot of the things that Americans are importing, it's not, it is made abroad, say in China or something like that.

But a lot of it is actually American companies who manufacture abroad and sell back home. For example, Apple, of course, iconic products, iPhone and stuff like that. They don't manufacture anything in America. It's all made in China or somewhere in Asia.

And so when we're importing or buying stuff from Apple, that shows up as the U.S. importing goods from China. But in practice, you know, it's really just buying from an American company. This can be you can kind of look at this through many lenses as well.

Same thing for Mexico. We. import a lot of stuff from Mexico.

A lot of it is just American car companies with factories in Mexico. So when you look at the trade deficit in this way, it's not so much about China is winning, Americans are losing, and so forth. What it's really about is American companies have versus American workers, where American workers right now, they're wanting to have a bigger share of American profits. So this trade deficit thing, it's really just American companies taking advantage of cheaper labor abroad to increase their profits.

So if this America first policy were to be successful, what it really means is that big American companies are going to have smaller profit margins. Obviously, that's not going to be good for the market, right? Now, there's going to be a lot of things.

There's a lot of moving parts here. There's going to be corporate tax cuts to try to soften this. I'm pretty sure the Fed is going to cut rates as well. So there's a lot of moving parts. But the whole way that they're trying to reshape the world order is to make it so that we have a stronger, bigger middle class.

Because over the past few decades, we see the top 1% just kind of becoming bigger and bigger and the middle class shrinking. And they want that to reverse. And to reverse that, I think it's good for the country. It's going to be good for most Americans, but I think it's not going to be good for the stock market. So I think this is going to be a volatile phase next year.

Now, one other thing I'd add is that when you're looking forward, there's a political calculus at play. Now, there's not another presidential election for another four years, but in a couple of years, again, we have midterm elections. They don't want to lose, right? No one wants to lose.

So in order to get this big plan done, it has to be front loaded. It has to be front loaded and aggressive because if you do this now, market will tank. But by the time we have your elections in a couple of years, we can recover, right?

So we'll be riding the recovery wave up and claiming credit for it. So anything that has to be done, and I fully believe them, that this is a... This is a determined Trump administration.

He doesn't have another term, right? It can only run for president twice in the United States. So for him, this is about fulfilling his promises, cementing his legacy, trying to do what he's always dreamed of.

You can see final videos of President Trump since the 1980s talking about his concerns about trade. So this is something he believes in. And we can see he has his appointments. Robert Lighthizer reappointed to run his trade.

So this is going to be a big change in the. global order and it has, and it's not going to be good for the markets, but there are still other places that you can, other assets that I think would benefit from this. Yeah. So I think there's a lot in there I want to peel back. And it's really funny where you closed.

I've been telling people in the real estate game that I think 2025 is going to be, you know, the last painful year. Cause I think, I think things get, and again, when I say painful, I mean, transactions, right? Where it is, you know, historic lows, if you adjust for population.

So let's talk about this because one of the things I think about tariffs, and again, you have to appreciate Trump's first book, Art of the Deal. He's a dealmaker. He's a notoriously hard negotiator.

And I fully expect him to wield the tariff threat 60%, 100% aggressively and to your point, quickly. But I don't think that actually gets implemented. I think the tariffs will be so large and so big that it will force negotiations.

And it's about fairer trade, right? Free trade, it's fair trade. I think the US has been taken advantage of in trade for a long time, per your comment about Trump back in the 80s saying that. It's as true today as it was then.

So I think a lot of that. Second, I think- that there needs to be some kind of rational decisions about what kind of stuff we just simply must make at home. I think one thing was very clear in the pandemic in the early part of it. We were reliant on people that frankly don't like us for some of our PPE, right? And that has to be unacceptable going forward.

So I do expect at least a small manufacturing boom. Maybe it's in biotech. Maybe it's in pharmaceuticals. I don't know.

But I do think there will be more stuff produced in the U.S. To your point, that's inflationary, right? It costs a U.S. employee more per hour than a Taiwan or Chinese or Vietnam employee.

But I am not sitting here shaking my boots that we're going to have tariffs on all foreign countries, on all foreign things. I get the threat. I understand the sledgehammer. I expect it to be far more like a scalpel. and very strategic but maybe i'm wrong what do you think So like you suggest, it's really hard to implement these things.

Now, let's look at what happened the first Trump term. He was putting a lot of tariffs on China, right? What actually happened? Well, actually, this is what happened. So the Chinese sold to Vietnam and the Vietnamese sold to the US.

So what happened was nothing changed. They just kind of rerouted trade. So being able to really have a... calibrated policy to put pain on the people who they want to put pain on to get the desired effect is difficult. So I think that's going to take a lot of thought.

But they've done this. This is not the first. So they've had four years to try to test things out. So I think they will be more effective this time.

An interesting tool that Robert Lighthizer has floated before is currency. So he's saying last time he only did tariffs. This time he's saying maybe we can do currencies as well. So They're going to do different things. About inflation, I think that's highly possible.

And I think the market expects that. But I think we should also think about other potentials as well. So you're exactly right.

If we make things more in America, it's going to cost more, right? American workers are more expensive than, say, very, very low-wage workers elsewhere in the world. But there's another path towards this. That is to say that instead of... companies passing on those higher labor costs to the consumer by raising prices maybe they will just have narrow profit margins yeah they eat margin yep this sounds silly but it actually does happen in the european union right now they're having tremendous upward pressure in wages and what's actually happening is that their companies are just having slimmer margins and so there's there's uh the companies are suffering and rather than the uh the consumer through higher inflation.

So that is a possible route. I don't know if that's what's going to happen. I think it's probably going to depend a lot on industries. Some industries are really competitive, so they really just can't pass the costs on.

And some industries are not competitive and maybe they will just add, increase their prices. So I'm not sure, but it is a very strong possibility that this would raise prices. Yeah.

So to your point, again, in an excellent insight, one that I didn't have, to kind of put a time block on this, we're thinking first six months of the term, again, it's going to be, to your point, front loaded, right? We're going to see these things early. So we have the pain and then we start the recovery by midterms.

Is that reasonable? Yeah. I think that has to be the way it's done.

Yeah. Okay. All right. I like that. I'm going to switch gears on you a little bit.

Obviously, you know that the Fed's cut twice. I'm going to go back to the first cut, which was a 50 basis point, which I think surprised a lot of the market because, again, the odds are like 91%, 25%, 9%, 50%. They win 50%.

But what's happened in the long-term rates, 10-year, and thus the mortgage market, which I care about, is they've ripped rates, right? Rates were as low as 6.1%. They're now over 7% in the mortgage market. The 10-year note, I think, was like 3.6.

Now it's 4 something. Did that surprise you that the long end went up when the Fed started their cutting cycle? So I would look at this in a couple of ways. I was surprised by the 50 basis point cut, but not so much about the long end. The reason is that heading into that first cut, I think the market was very scared about recession.

They weren't sure what was going to happen. And now that the Fed is... I think wanting to get ahead of that, that means there's less recession risk in the market. And so there's less people kind of piling into the 10-year treasuries.

So that's one thing. And since then, we've also had a lot more positive data. And so the market is actually pricing in much fewer cuts now.

Again, less concern of recession, fewer cuts, you get a higher 10-year yield. Now, one last thing that's happening a lot, and this is more recent, is what economists call the term premium is increasing. So if you're looking at a 10-year treasury yield, let's say we're at four and a half today. Now, part of that is the market's expectation of the path of interest rates over the next 10 years. Part of that is a little bit of a risk premia investor's demand because of the volatility and uncertainty with the path of fit policy.

That's actually increasing notably lately. And I think that's understandable. I mean, you have this new Trump administration.

I have no idea. Are they just going to blow out the deficit and just massively stimulate? or what are they going to do? So the market is a bit more concerned about the future of interest rates. So they're having a bigger term premium.

So I think that explains the 10-year yield. The mortgages, as you note, is... in large part, what the 10-year is, but there's also that spread between mortgage rates and 10-year.

And I think part of that is due to just increased volatility in the markets. And that should hopefully dive down a little bit now that we have the election results and everything was clearer than we feared. Yeah.

One of the things, again, I think the bond market was right again. I think the bond market was telling us that there was going to be less rate cuts. And now that we're here, I think a lot of people are acknowledging that instead of having 100 basis point cuts next year, we're going to have something less than that.

Something that I thought was interesting, Fred President Barkin said yesterday, I read this morning, that basically the last 30 years were very much a low inflation environment, but the next 10 years could be more inflationary with higher deficits, deglobalization, and population aging. What do you think of that? Do you think the next 10 years will average higher than the previous 30?

I have no doubt that will be the case. I mean, I think of population aging as tremendously inflationary, right? What happens if half the country just retires and stops working?

Well, I mean, a lot of these people have a lot of savings. They've accumulated over their life. If you're a boomer, you were born into a world where you just bought a house, your house goes up several times in value, your stocks go up to the moon. And so you could continue to consume them.

go on cruises, go on restaurants and so forth. But then who's going to do all that work, right? So if you have mass aging in a world where the boomers are affluent, they can continue to consume without producing. And I think that mismatch between the demand for goods and services and the supply of goods and services is highly inflationary.

Now, to be clear, there are also possibilities where, let's say, Elon is successful in creating an army of Tesla robots. who just do work for free, and that would be very deflationary. But unless that happens, I think that we're in a decade that will be more inflationary than the last. So I think I agree with President Barkin there.

And just to note, though, there are also people who think that aging populations is deflationary, noting that lower growth and so forth. But I don't think that's persuasive to me. No, I agree with you. I think, again, you know...

There's always this thought that the silver tsunami, again, I'm a real estate guy, is going to just dwarf the real estate market. And it just never made sense to me that these people don't have clocks on them. They don't all go at the same moment. You don't get this wave of activity. And again, I saw some notes from National Association of Realtors that boomers are already the largest seller of homes.

So this is not a new thing. I think they were 43% of the market of sellers were boomers. where millennials were obviously the largest buyers of homes, which makes perfect sense on the age of buyers and sellers. I want to go-Michael, do you think they'll sell their home and just live off the proceeds?

Or do you think they would just pass it on to their kids as a wealth transfer, something like that? Because people talk about this great wealth transfer. I don't know if it's really happening. My guess, again, I talk with a lot of folks in this age group, is it will be some percentage of both. I think that's true.

I think some will sell and downsize and live off the money, my mother being a perfect example of that. But I think most of them, so greater than 50%, will pass it on to their heirs. And especially today, I mean, think about where rates are today. I know boomers who are living in a 4,000 square foot home that if they were to sell and let's just say get debt, plenty of them could pay cash, but let's assume they get debt. Their payments would be more on a smaller home, right?

Because they probably refied and they got a 2% or a 3% mortgage. So this interest rate lock-in is real. And something I called early and likely we'd be proven right is the turnover. The average turnover, I believe going into this cycle was eight years. I think we're going to 12, 13, 14 years before this thing is all said and done because people are just going to stay put because it doesn't make sense to move.

It doesn't make financial sense to move, in my opinion. Well, Michael, my mortgage rate is 2.75 and I am never selling this. Exactly.

If I move, I'm just going to rent it out. It never makes sense. It's an asset.

So valuable, so valuable. It'll be the best asset for... I mean, think about it.

And it's tax deductible too, right? That interest. So it's even lower. It's just ridiculous. Yeah.

You're printing money. It's good for you. Congratulations. I want to go to Fed President Lori Logan. She was out talking about three risks to the outlook.

I want to go to number three because I think this is... the most important thing and why I think 2025 is going to be painful for real estate, commercial, residential. Here we go.

She basically said yesterday, the neutral right is likely higher than we thought before. And it's very close. It could be very close to where we are right now.

So how I translate that as a novice, we used to think it's in the threes. Now we think it's in the fours. That's how I translate that. You're exactly right. What she's telling you is that, hey, maybe we don't need to cut it as much as we thought.

Bingo! So, you know, that's part of the reason why the 10-year is around four and a half, right? The Fed is thinking that maybe we don't have to cut as much.

So, like we've been discussing, the next 10 years is going to be different from the last 10 years. I don't think we'll ever go back to zero interest rates again. No, I hope not. And so that leads us to a very interesting problem.

So. let's say mortgage rates get stuck around 6% and house prices are so high. What's going to happen to all these people who want to buy homes, especially so people are buying their first home. Now, Chair Powell was asked about this and he's like, yeah, well, real wages are catching up and after a few years, your wages go higher. I don't feel like that's a politically acceptable answer.

Well, it's the answer that people don't want to hear. It's the answer I've been telling people for two years now. The housing market is broken.

We have fundamentally changed the traditional housing market. First-time buyer, trade up, move up buyer, luxury. The move up buyer is out to your point.

2.7, never selling, making a rental. You're out of the market. You won't be a move up buyer.

You will simply be another, you're not selling and buying. That's why the move up buyer is so important because you are a seller and you are a buyer. That is out of the game. So we're going to have less transactions. I've actually told people, and again, we may disagree on this and that is totally okay.

I think the average mortgage rate in 2025 will be 7%, not 6%. I think it gets better in 2026, to your point, right? Once we get to the other side of the early pain, but I don't think the market's ready.

I think 2025 on a transaction basis will be worse than 2024. And we're only going to do like 3.9 million existing home sales. I think 2026 is going to be the- or 2025 will be the cycle bottom. I see a lot of pain. And then if you go to commercial, cap rates, lower NOIs, horrible debt structures, extend and pretend, we are going to have some true pain in commercial multifamily office.

Commercial banks, we're going to have some consolidation, acquisitions, whatever you want to call it. I see quite a bit of pain in 2025. What do you think about the prospect that maybe we have some kind of populist legislation similar to what Vice President Harris proposed where maybe we just give all the new home buyers just a lot of money to go and buy homes? Do you think that-Well, I'll answer it both ways. As a person who owns more than a couple of single family homes that are that, would be tremendously valuable to me personally.

I think anything we do to add demand to a broken housing market is idiotic and catastrophic. We would essentially be giving homes to people that aren't ready. That's exactly what we did in the great recession. Last time it was bad and horrible lending.

Now you're going to give people who can't save for a down payment, the down payment. You give people 25 grand, prices will go up 50 or 75 grand because it's a levered investment. So, okay.

Then they buy that. Then. They've already proven that they can't save money.

So the first time the roof goes out or a $5,000 AC or the water or whatever, we're just going to create another foreclosure wave in two, in three, in four years. It's a horrible idea. We need to incent supply. I was lucky enough to speak at Resi Day, Lance Lambert from Resi Club. And everybody got asked, all the speakers got asked, if you had a magic wand, how would you fix this?

And I said, if I could do anything today, I would take the average square foot of a brand new build down 10% because that just means you build smaller homes. We don't need 2000 square foot entry level housing. Let's go build some 13, some 1150, shoot some 950 square foot homes.

That's what we need to fix this. That's how we fix this. You don't create more demand for a scarce asset.

It's I mean, I would hurt my head to see that happen. I guess the government is just going to have to buy a whole bunch of those Elon Musk tiny homes and just plant them everywhere. I mean, seriously, I don't care if it's 3D printed container homes. We need to incent the creation of smaller homes. I mean, think back to the 1950s, 60s, 70s.

That's what we were building. Unfortunately, regulations makes it too expensive, so they build McMansions. It's the wrong idea. To your point, if you travel, if you look across the world in Canada and Europe, for example, the people there have homes that are much, much smaller than American homes.

I would think that they would actually wish to have... the homes are sized, but it is possible to have small homes and have more people have ownership. Yeah.

Well, the other thing you said earlier is you expect some more rate cuts. So I think right now the market is expecting another 25 in December. Are you on board with that?

Yeah, I'm on board with that. Honestly, I think it'd be just so ridiculously political if they just cut 50 basis points right before the election and then like, yeah. Actually, I don't feel like cutting anymore. So, okay.

So we are going to get the 100. I'm with you. I think they're going to take it down 100. But here's a controversial take. I think there's a non-zero chance that that's the last rate cut for 12 months. No, I can be on board with that.

That's true. So like you were quoting, Laurie was talking about maybe the neutral rate being higher than we expect. So that's... you know, that's basically saying that we probably don't have to cut that much.

Yeah. Now, there's a strong argument for that. If you look at the economic data, if you look at the stock market, for example, going to the moon.

But I think something that could throw that path off is if we do have very disruptive trade wars next year, because if we do have, you know, just tremendous amounts of, you know, bull in a China shop kind of moves, then I think that's going to force the Fed's hand to cut rates to China. soften the blow a little bit. So we're going to have to see what happens with the Trump administration. So let's see if we get some extremes because I love the way you think.

So one extreme is December's the last cut, no cuts, 25, non-zero chance. Let's try to get the other side. What's the, I don't know what you would call it, worst case, best case scenario? What is the maximum amount of cups that you can kind of think as of today?

So I think just to add to your no cuts scenario, we know. Pretty sure that we're going to get tax cuts, right? We're going to get the renewal of the Trump tax cuts. No doubt.

Maybe additional corporate tax cuts. There's no doubt about that. Yep.

So that's a strong, that's strongly argues for the no-cut scenario. Now, let's say that we do have tremendous amounts of tariffs next year, right? Causes Europe to implode, causes China to implode, causes Canada to implode.

if we have a global recession, that's going to impact the US as well. It's going to impact the US in a couple of ways. The US exports some stuff. It's not a big part.

So that's going to have lower demand from abroad. But I think the bigger channel that it impacts the US is through inflation. So if you have a recession elsewhere, the commodity prices are going to go down a lot. And so as inflation comes down a lot, so you have a Fed that's going to be off. wanting to cut rates because inflation is too low.

Could it get as bad as to actually have deflation? I mean, again, worst case scenario, China, Canada, Australia, Europe, recession worldwide. Could we actually see true deflation? I don't think that's likely.

I mean, it's possible. So I'd say if the stock so what I'm looking at right now is that a lot of the demand in the U.S. is really just driven by stock market gains, right? And you have the stock market go up. you're basically adding money to people's brokerage accounts.

So they have a lot of money. Wealth effect. The wealth effect. It's very real, especially when you're pumping Bitcoin to like 90,000, right?

Yeah, 92, baby. 92. So I think that's a big part of the strong U.S. economy story. Now, if you have recession abroad, if you have a huge decline in assets, risk assets in the U.S., yeah, I think you could have a recession here and maybe that could happen.

could drive prices lower. So there's a lot of things that could happen. But if we do just have just tariffs and stuff like that, no huge, huge accident elsewhere, we could easily have another 100 basis point of cuts.

Well, actually, let me think about that. Yeah, no, I could see 100 basis points. So maybe a cut a quarter. So I think that's possible as well.

All right. So somewhere between zero and four X, some cataclysmic thing. Yeah, yeah. I think that that makes sense to me.

So if that's if those are the two extremes, what would you call your base case, your wild guess for if you were to pick a number? So my base case is that we have one cut in December. And at that time, the Fed will just say so we get a dot plot in December.

And I think the Fed is not going to be telegraphing very many cuts next year, maybe one or two. OK, but then we get the Trump administration come in. I think they do big moves, shake up the world order. I think that's going to hurt the stock market a lot. I think that's going to force the Fed to to cut more than expected.

Yeah, because the negative wealth effect is equally real. Yes. Yes. I think that's going to happen.

But then I think we'll shake it off. And then 2026, things get back on track. It's funny.

It's funny how we came to the same conclusion. And I've got videos out the last couple of weeks saying exactly that. I expect a fair amount of pain losses in 25, but 2026 will be better.

Actually, let me ask you this. So let's say that we do have a correction in the stock market. So wealth effect go down.

But because of that, we also have rates go down. So maybe the mortgage rate comes down a bit. What should these two effects do you think has a bigger impact on? on the real estate market. On the one hand, people have less money to buy stuff.

On the other hand, rates are more attractive. Oh, I think at this point, we've had empirical evidence that you could actually go back and look. Rates matter. It's more important than the market. Oh, no question.

Because again, what we have proven is we have marginal demand building. Rates at seven or above, dead. Rates get to below six and a quarter, game on. So rates matter.

Yeah. If man. Joseph, if we ever got a 599, it would be wild. And that's part of the reason I hope we stay at seven so we can start to heal the broader market.

We can start to have wage inflation. Because again, to your earlier point, it's not sexy to say wages, we're having true wage growth, right? Affordability today sucks. It's horrible.

Almost 1981, horrible. But are prices going to fall in any meaningful way? I don't think so.

Are rates going to go down? I hope not. And that just means wages. So we're going to be trucking along.

And again, there's evidence that we've been here before. If you go look at 1978 to 1994, and you look at existing home sales, we did 4 million, roughly 3.986 million home sales in 1978. We didn't break that number until 1994. Wow. That's a long time afterwards. 16 years.

So again, we could stay. depressed for quite a while. And again, why I think 2025 is the worst is because again, 1978 to 1982, four years, we went from 4 million to sub 2 million.

And then the next year, 82, we popped 30%. So I'm like, hey, it doesn't repeat. History doesn't repeat, but it often rhymes.

So that's why I think 2025 is the cycle bottom for transactions. And then we start healing in a pretty meaningful way in 26 because rates will fall. That's where I'm at. So maybe next year will be a good time to buy.

And then you could. Boom. Buyer's market, baby.

I'm telling everybody around me. It's a buyer's market, right? Disrespectful offers follow up.

Because again, as you know, real estate has really two sellers. There's the want to sell. Hey, give me my price. I'll sell else.

I'll stay want to sell. And then. there's the need to sell, the AKA motivated seller.

In a seller's market, you can't find the difference. In a buyer's market, these people that want to sell, no real price cuts. They just let the listing expire, go on with their way. But these people cut every two weeks.

And again, if you're following, you're doing the work, you're writing disrespectful offers, I'm hearing almost every day, Joseph, of people getting... 20, 25, 30% off list price because some people have to sell. So are you making a distinction between the resale market and the new construction? Correct.

Yeah, that's all resale. Correct. Okay.

So the builders probably, unless they have like inventory setting there, they don't really need to sell. No, as you know, but for the audience, the builders are playing an entirely different game, right? And I say this as somebody who was shopping for an existing home sales, but bought new.

I did this exact same thing. Builders are, they're playing a different, they're eating margin. They're discounting rates to 499, 30 year fixed, 599, whatever. Whatever it takes to move inventory. Mark Cagney More importantly, my hope is builders right now are downsizing what they're building.

I think it was Pulte Homes, it might've been Lenar, I think it was Pulte basically saying, we're selling just as many homes, but smaller and attached. Right. So, again, I think builders are in the catbird seat. I think builders have a great year in 25, assuming they get their product mix right.

They're already using the nearly record profit margins. All right. So they have to eat a little. but they're going to move a lot of inventory because you want to know when a 5% mortgage rate feels good. When somebody else is charging you eight, it's an easy game.

Yeah. I mean, the builder stocks have gone to the moon. Their margins are much higher than they were pre-pandemic. It's been really good for them, strangely.

Yeah. Strangely. So you brought up Bitcoin earlier.

I think you'd be remiss. I don't know if you follow it. To be clear, just so you know, I put 1% of my net worth.

Well, that's not 1%. It's probably 2% now, right? Well, it's about the same because I have a lot of other assets.

But again, I did this in 2018. So again, I'm not a trader. It's truly just an insurance policy for me. But yeah, it's mooning.

Is this just FOMO? Is this President Trump being the first crypto president? Is this a Congress that's very crypto friendly?

Gary Gensler being fired? Do you look at this at all? I do. You know, Trump went to that Bitcoin conference, tremendous Bitcoin conference, gave a speech, won the Bitcoin vote.

And now I guess the Bitcoin is responding to that. I mean, I hear headlines maybe trying to exempt Bitcoin from taxes, capital gains taxes and stuff like that. Making a Bitcoin reserve. That's what I heard.

Getting rid of Gary Gensler and all that stuff. So for me, the biggest threat to crypto is government, right? Regulation.

Yeah, regulation. You're basically having this asset that is competing with government issued currencies that government usually doesn't like competition. So if you don't have that risk there, then that's really positive for crypto in general.

So I can see that. Personally, I don't own any crypto. I'm a no-coiner. I don't really know what crypto is for except to make the number go up.

It's very good at making it go up. It's very good at what it does. Yeah. Again, not to rehash history, but for new viewers, I put 1% of my net worth because I have a buddy of mine who's a big crypto guy. And he's like, you got to do it.

You got to do it. You have to have an insurance policy, which makes sense. I have insurance policy on my real estate.

So I saw it as an insurance policy on fiat. I bought it all in like four days and I've never looked at it since. But Yeah.

From 18,000 or so to 92, it's been a fun ride, I guess. But let's get back to what should the average person be doing? Because again, most of the people who watch this show are employees. Even if unemployment went from the low fours to five, most of them are going to still be employees next year.

If you're right about the stock market, you're going to be in for some short-term pain, meaning lower prices. Most of us have long-term horizons. What would be your advice to a family friend who's kind of that situation about next year? Don't overreact.

Get ahead of it. What are you telling people? So like I mentioned before, we've really surged this year.

And I think we have very obvious turmoil in the coming months. So I'd be very cautious right now. So again, you know, maybe that is so. The way that I think about it, and people tell you to not time the market, I think all the money is made in timing the market, right? Let's say that you bought at the COVID lows, or if you bought in 2009, then you just kind of rolled the wave up.

So if you just look at the market, it goes up, and then sometimes it just goes down, and it goes up, it goes down, and we've been going up for a long time. So I personally would be very, very cautious here, and have a longer time frame that there'll be other opportunities for you to... probably other opportunities for you to get in at lower prices.

That being said, I would be more open-minded in thinking about what the world will look like in the future. There's a lot of uncertainty because I don't know if President Trump's plan of remaking the world is going to be successful. But if it is, things that regular people buy, I think it's going to be more demand for stuff like that, be it, let's say, entry-level homes or things like that, and things that rich people buy. you know, Gucci bags or whatever, maybe less demand for that. So there's, there could be this huge redistribution in the world.

And that's going to be have a big impact on the supply and demand of many things, which in turn will impact the profit margins of many companies. So I don't know what that world is going to look like right now. And I'm seeing, seeing some hints of that, you know, if you're a blue collar worker, for example, you're doing quite well. If you're a white collar worker, not so much. I remember reading a story in the Wall Street Journal.

I did, I read that too, yeah. Where somebody was saying that, you know, I can pay $90,000 and I can get as many MBAs as I want, but I offer over $100,000 for a garbage man and I just can't get any. So I think there's going to be a shift in the world in how things work.

So I just be a bit more open-minded because sometimes the future does not look like the past. Well, it's really funny you bring that up. Wall Street Journal had an article two or three weeks ago I talked about on my show talking about the next millionaires are in the trades.

Oh, yeah. Yeah. And I think that's absolutely right. I actually went on to create some videos saying Gen Z wake up, right? I think Gen Z has the first chance to not be trapped with college debt and useless degrees.

I think they can go into the trades early instead of four years in college, four years in the trades apprenticeship, and they can be making six figures, shoot, before they're 25. So I think there's so much value. And I think blue collar, I think our economy is shifting. I think the economy in the decade- will be different. I think the blue collar will strengthen.

And again, I think that's a great thing. As somebody who has a Rolodex of plumbers, painters, electricians, 90 plus percent are over 50. I plan on owning real estate for another several decades. We need a generation to come in behind them. And you could print money if you go into a trades as a young person. So I fully encourage that.

I see the statistics suggest that more and more young men are just not going to college and just doing something like that because it makes a lot more sense, right? That's a great ROI. College honestly never was for everyone.

I think it was a really bad idea to kind of force it on everyone because everyone has different skills, different interests, and a lot of the things that you teach in school today is just nonsense anyway. It's just memorization. It's not helpful.

Well, thank you for being here. Thank you for the third go around. I appreciate it.

You have an amazing YouTube channel. Again, it's youtube.com slash at FedGuy12. What's the schedule?

When does videos come out? Tell people where and why they should follow. Well, first off, thanks for having me. And if you're interested in hearing more from my point of view, so every week I have a YouTube video on my channel, FedGuy12. You can just search for it, Joseph Wang, where I debrief everyone about what happens in the market.

past week. It's for educational purposes. Folks, you've got to follow once a week, easy follow. I think they come out on the weekends, right? Saturday, I think.

Saturday. Yeah. Again, easy follow. One of my first listens Saturday morning.

Joseph, you're amazing. Keep doing your great work. Thanks so much, Michael. You got it.

Transcript for:Economic Insights from Joseph Wang

Transcript for:
Economic Insights from Joseph Wang