9:21
In this video, we're going to break down critical information on what TS Lombard warns us about institutionally as what could absolutely destroy this economy and it has to do with high inflation and yet another mistake from the Federal Reserve. At the same time, we have Kathy Wood taking the opposite opinion that even though the current employment data we saw is recessionary, she thinks that deflation is going to take over and our economy is absolutely going to boom and that Kevin Walsh is absolutely the best thing since sliced bread. Okay, maybe I'm being a little extreme there, but in my opinion, these are very important perspectives because they're going to show you the same exact warning signs
that you should pay attention to when analyzing your portfolio. What companies do you want to be exposed to? What type of companies do you not want to be exposed to? What investments are better than others? And this is the macro backbone that helps us shape that worldview for the next decade. So without further ado, let's get into it. Let's start with the Kathy Woodian argument. Then what we're going to do is we'll go back to the TS Lombard piece and we'll go through this in detail of what's going on because it's almost a direct response to Kathy. And then I'll give you my opinion and the critical takeaways. Those critical takeaways will make the most sense if you pay close attention to we're about to say because
these are the important parts. The very first and most important part comes from Kathy Wood's argument on what the yield curve is actually telling us. Now, this is quite interesting because the yield curve has recently been flattening. That's a way of saying that all of a sudden we are seeing a decline in the difference between the 10-year Treasury and the 2-year Treasury. And a lot of people look at that and say, "Hey, you know what? What like why is this happening? This is quite funky." Kathy Wood's argument is that well, what's happening is the 2-year yield is actually going up. On the short term, we're seeing that inflationary pressure, but on the long term, markets are actually pricing in deflation. And so,
in other words, she's saying the bond market is agreeing with her that deflation is coming. And the reason she thinks that deflation is coming is because she believes that productivity by workers going up is exactly what ends up driving deflation. And you're going to see two arguments on this. To evidence her take on deflation. She also, of course, does what everyone who likes deflation says, and that is they refer to true inflation. Well, but Kevin CPI might be 4%, but look at true inflation. It says it's under 2%, which is under the target. Okay, that's fine. So, let's write down the arguments on each side and figure out what we end up thinking will be true and how to make money from
this because that's what matters. So Kathy Wood says we're going to get productivity, a productivity boom, uh, which will actually drive prices down. She also says true inflation is already inle reflecting that inflation is actually lower than expected and that the Fed taking time sort of pausing with these task forces uh, forces is actually a good thing. So pause is good and dovish. So it helps that deflation thesis play out so the Fed doesn't end up making a mistake. That'll end up being a very important part in just a moment. The bond market is also pricing in deflation. So Kathy says all this
deflation is going to end up leading growth to explode and that we don't have to be worried about our long-term US debt because we're going to massively outgrow it. people are still on net buying and countries are still net buying treasuries even though she did acknowledge that China and India and Japan have had to sell uh Japan especially to stabilize their currency. She thinks you don't have to be worried about that just focus on what we know and what we know is these things are all good for deflation and growth.
Now, the thing that hits her in the face and she acknowledges it, but she kind of glosses over it is literally the employment data that we got on Friday, which, you know, I was hoping she would have a really good analysis on this, but I don't think she really had a good explanation on this. She argues that the US household employment rate on a 3month average, so smoothing the volatility out a little bit, has gone negative. And this negative read usually only happens in a recessionary time. You can see sort of the line periods here where you have recession and then they're under the dotted line. So the shaded area is representing recession here under the dotted line. And that now
we're under the dotted line much more than that near underdtted line moment over here. And that this is problematic. She does not have a reason for this or she has a theory but not a good reason for this. Part of what is driving this so far, just so you could see the last employment numbers, in case you didn't see them, we missed by about 50%. Part of that was driven by healthc care employment growing slower than our usual trend of 38,000. We only got 22,000 and leisure and hospitality actually went negative61,000 in June despite the soccer games, right? The World Cup reflecting quote weaker than usual seasonal hiring. Kind of weird. And then obviously over here we have the civilian labor force plummeting by 72,000
workers and this is now worse than where we were in June of 2025. So we are now year-over-year down about 1 million workers in our economy if you compare those two red numbers here. And the labor force participation rate has been falling. She says that maybe this is because the government is really bad at analyzing what entrepreneurs are doing. Like people just, oh, I'm going to take AI and I'm going to go run a startup and that, you know, hey, you know, everybody can make money and the Bureau of Labor Statistics is really bad at evaluating that these are people who haven't left the labor market. They're just running startups.
Yeah, I don't think so. I think that's actually this is where I'm going to come in with my opinion. I think that's a wrong opinion. I actually think that labor data that we're seeing right here and so we'll put this in as green for sort of a Kevin color uh I actually think is a deflationary argument. So we've had this labor market that's like boomed coming out of the fourth quarter. We were really slowing down last year and the opposite of what Ghoulspeed told us has happened so far. We hit a level like zero on break even and we've really come out of that. But history will tell us if normal history continues, which is
what Goulsby said, that usually you don't just stop at a line and then you turn up, you keep going down with the labor market. So far, labor has recovered, but this last labor report was bad again. So, I'm going to put labor over here, and we'll say sort of labor asterisk because the data is noisy, but we know the labor market drives everything. Because if the labor market drives us into a recession, we're going to get massive deflation. It doesn't matter what the other arguments are, right? A small note on Cathy's take of like just use AI and create a startup. I actually think it's really hard to do that. I think you need tens of millions of dollars to actually be able to pull that off. Well, uh, I think
we're doing that at Reinvest, but that's in part because I think we went from a lot of workers working GNA stuff in the office, you know, legal, accounting, paperwork, leases, whatever. Uh, research on, you know, paperwork related stuff, markets for real estate or whatever. That kind of research AI could do now in some extent. Uh, and that spending for us has been moved to software developers, right? We cut our GNA expense like 60 70%. A fraction of the workers there, but we still spend roughly the same because now we're blowing money on I shouldn't say blowing, we're spending money on workers who, in my opinion, are creating productive tools. That actually is part of Kathy Wood's productivity argument.
If you're spending X dollars on salary just to keep the lights on, you know, general and administrative expenses, that doesn't grow the business. But if you're spending now if you're shifting that money from there to people who can grow the business by creating new products or services then the business can grow. That's a productivity uh boom argument. The problem is what you'll actually see is TS Lombard on the side over here thinks that productivity could actually be inflationary. And the reason they say it could be inflationary is because the gains of productivity don't necessarily have to go to the workers.
They could end up going to the company. Now, in fairness, if the company is paying stock comp, that should trickle back to the employees. But you could see both of them actually are on opposite sides of the same argument. Oh yeah, productivity, but that's going to drive prices down. over here. TS Lombard will end up saying that productivity can actually drive prices up as companies can preserve their margins. Why can companies preserve their margins? Well, it has to do with this argument here that you're seeing AI release substantially more applications than ever before on the app store. But reviews for apps and apps with significant usage have actually both been declining, suggesting it's actually
not that easy to start a company and gain traction with artificial intelligence. That there's a lot that goes into that and maybe the best beneficiaries would be the biggest companies, not the smallest companies. So Kathy Wood really runs this circle around, wow, everything is booming. uh productivity is going to boom. Ignore this horrible jobs report, this, you know, loss of a million workers over here. Let's ignore that because that's weird. Even though that is a deflationary argument, right? Let's ignore that and kind of gloss over that and just, wow, we're going into a boom and Kevin Worsh is going to wait to raise rates and hopefully he never does. That's good for us. Okay. Yeah, those are deflationary takes. That's fine.
Then Kathy brings up the growth argument. She brings up this uh idea about the ramp capital study. Remember how I did the breakdown on the ramp capital study where David Saxs comes out and basically pulls the you know white house narrative of oh see uh narrative violation entrylevel headcount rises 12% for highintensity adopters of AI and firms making the largest AI investments grew employment by 10% following adoption. Okay, we did a whole video breaking this down. The video is actually called the jobs uh exposing the AI job apocalypse. Highly encourage you watch it, like the video as well. Exposing the AI job apocalypse.
Basically, one of the key takeaways, and there's a lot in this that I think you should watch, but one of the key takeaways is that the companies that actually gained employment were tech companies and mostly VC funded companies. The other companies didn't actually see any kind of increase in hiring. And the study was only on ramp users, which are typically more likely to be startups or newer companies anyway. So, we don't know how many jobs are being lost at legacy businesses. That's a problem. Kathy Wood didn't go into those details. I thought that was actually disappointing for Arc Invest. I think they could have gone a lot more granular into the data and they didn't, which usually they do. And so, I was
disappointed by that. I'm not bagging on them. I'm just saying, you know, hey, I feel like you could have done a little bit more research on that. I feel like you kind of read a tweet from David Saxs and took it for gold, which you should never take a tweet for gold because we all know most short form super short form content is engagement farming. It's deep dive videos or research. That's usually where the thinking is. And that's what we're doing here too. This is hard, right? We've got these deflationary arguments. Well, what does TS Lombard say for inflationary arguments? And how do we put all of that together? Look at this. TS Lombard says that many pundits believe that AI is a powerful deflationary force. That thesis
is wrong, particularly during the current buildout phase where hyperscalers are engaged in massive infrastructure projects, the equivalent of a major stimulus program. Now, watch the labor market because if employment reacelerates, the debate will be settled in favor of the hawks. But that ends up being a big oopsy dupy at the end of this document. Stand by. All right. So, the first thing that TS Lombard comes in and says is that the buildout of artificial intelligence is inflationary. And this is true. I don't think anybody can argue that uh in fact if you look at the congressional budget office for the chips act or uh for the inflation reduction act these uh infrastructure building projects were known to be inflationary upfront and
they are expected to be deflationary in the long-term future. In fact, a great way you could see this is by looking at chart 16 from TS Lombard. They say that uh memory prices basically as a proxy I should write proxy instead of what I written there. There we go. Misspelled that. Memory prices as a proxy for compute demand. Uh this here showing a chart of memory prices skyrocketing. And they're using this as a proxy for compute demand in my opinion is kind of wild first of all or insane because memory prices are kind of unique. memory prices don't actually build out as fast as other components uh in a capitalistic economy. That's because memory is basically a commodity and it comes down everything in profitability for memory and really
chip manufacturing comes down to something known as capacity utilization. This is kind of like what the defense contractors do as well. They have to engineer some sort of shortage on purpose. They want to build a backlog because if they have a backlog, they know there's going to be work for their workers tomorrow. If they're always filling the backlog 100%, they don't know if a new contract is going to come in tomorrow. So, they purposefully keep their factories at 100% or they lose money. Micron lost billions of dollars in 2023. Now, they're making billions of dollars. That flip-flop is exhausting for those companies because they have to fire people and then they lose quality workers and then they have to try to
hire them back and the boom times and all that is inefficient. It takes time. The boom and bus cycle sucks. So they try to prevent that. Yet ironically, Micron is adding a crapload of capacity. Mark these dates. This capacity expansion is insane. I'm going to come back to those dates as well. know that SKH Highix and Samsung are doing it as well, but I'm going to write down uh capacity expansion, which I mean I guess you could really call it supply, right? So, capacity expansion aka an increase in supply. So, take a look at this. Uh a wafer fab coming out in mid 27 for DRAM. Advanced package manufacturing, high bandwidth
memory in 27. Another fab in Boise, Idaho, wafer manufacturing end of 28. Singapore wafer fab second half of 28. Taiwan wafer fab 2028. New York the first of four mega fabs to be built on this particular site should complete by 2030. So they could pick up those New York tax credits and leftover chipsack credits. Smart. But this is a massive manufacturing expansion. 1 2 3 4 5 six. They've got about 15 plants right now. So this is somewhere around a well and you would expect that these new plants would be more efficient. I would estimate that this probably increases their capacity by about 50%. Even though
it's about a 35ish 37ish% increase in facilities, probably increases their capacity by about 50%. That's deflationary when you build that out and it sort of assumes that the capex buildout is going to be inflationary and have infinite demand forever, which I don't think is the best assumption, but whatever. So going back to the TS Lombard piece, I don't think anybody can argue that the AI buildout is not inflationary. It's definitely inflationary. We know that. But an argument that they make which is very interesting is what they call the J curve which is also inflationary. The J curve is basically where here we are not using AI, not using AI and then all of a sudden, oh, now we're using AI and we're actually not really good at using AI
yet. So, we're actually going to go through this inefficient period of time where the green dotted lines are like your base level of efficiency and then you become more inefficient at first, which is inflationary, right? You're spending money token maxing where you really shouldn't be spending money token maxing. And then only when you realize it and then become more efficient do you actually net become more efficient. But that this phase right here between these two green lines is inflationary. Okay. So now we have to write that down on our list over here. We're gonna call the buildout inflationary productivity.
Each side has their argument. We're gonna call the Jcurve inflationary. Okay, J curve, not to be confused with Jerome Powell or my son Jay. Um, in addition to this, they say that delaying interest rate hikes, the mistake they say that Warsh is doing will actually end up booming employment more and stoking inflation even more. Delayed hikes. Now, they have been a fan of raising rates for a while. In fact, the very day after this report came out, the jobs report came out and then they had a sort of mayulpa oh taken at face value. This was a great employment report for the
doves. Now, it was driven by bad reasons which are recessionary, a plunge in labor force participation. This is not good. But darn, I guess that's going to delay rate hikes even more, which is actually what they argue. They say like any reason the Fed uses to delay rate hikes will just drive more inflation. Now they do in fairness gloss over that we've had 40 years of disinflation and there are reason for that right you know most of that was driven by um globalization manufacturing in China and it really reduced goods prices for us which is a positive. The last five years of inflation have heavily been driven by well six years of COVID uh panic obviously. Then we had Russia uh and Ukraine as a war. We had
the Red Sea supply chain shortages for a moment. We had a banking crisis. The Fed basically unlimited backs stopped. Uh and then of course we had the Iran Hormuz situation. There have been other inflationary shocks. The tariff shock is another good one. Right? These are a lot of inflationary impetuses that the market has really stood up against so far. I mean, obviously, we've seen inflation elevated, but the economy has mostly held up so far, which is impressive, but how much more can this freaking economy take, right? Anyway, so they argue that the Fed's going to boom employment by delaying hikes uh delaying uh rate hikes even more. And by doing that, they're al they're going to accelerate the wealth effect. Basically
company stock prices go up they generate the wealth effect that leads to more business spending and more consumer spending because stocks are up. Now in addition to wealth effects so basically people stocks up people want to spend more money. TS Lombard makes the argument that artificial intelligence is going to become more concentrated by big companies basically like Google and Meta and Microsoft and those companies are going to be able to collude against or with each other against us by taking our geographies, our browsing histories, our needs, our pain points and actually charging us more for those products. So, I'm going to write that down as a collusion argument which would be really
bad. uh collude or we'll call it um collude and uh consolidate. So collude and uh consolidate basically consolidating gains into big companies, companies that have millions of dollars, right? Or billions of dollars, frankly. So collude and consolidate inflationary thesis. It's probably one of their least supported with evidence. I think that's more of just sort of like a fear of theirs. And then this is where they get to an interesting point is they actually say that artificial intelligence does something for labor that a lot of people don't think of. They refer to this as the augmentation of labor. I think this is actually a very interesting argument. The way I imagine the our augmentation of labor is
kind of like this. So we had a company that has you know a bunch of GNA people. Now we've moved that to R&D and they could use AI and create more products and services faster which means the company is able to make more money which obviously becomes really impactful when a company starts reporting that they're making money from AI but there's a delay to that right it takes years for that to show up in the actual earnings reports uh and for people to start seeing a compounding growth effect what's remarkable about that is there's this lag time basically where people put on this tool belt and then it could take two or 3 years for those gains to actually show up. And the tool belt is
really what they mean by an augmentation of AI. To simplify it, let's imagine you were a cop and you did not have a duty belt, it's called. So you didn't have a tool belt at all. So anytime you needed uh, you know, your radio, you had to go back to the car. Oh, you need a different weapon, you have to go back to the car. You want to get the taser, you got to go back to the car. Need handcuffs, got to go back to the car. Need a reload, got to go back to the car. You know, you're limited by what you could hold in your pockets. Then you give cops these giant duty belts. Now you get strap clicking and now I've got my gun. I got my crossdraw taser and I
got my body cam and I got all these attachments. You're like a walking machine of components and tools. Got my baton right here. I got my flashlight right here. I got my handcuffs back here. You whatever. You know, my radio tapped over here. whatever. I think of AI as kind of like that. It's like you're a cop without a duty belt and then you're a cop with a duty belt. And it kind of takes time for that augmentation to show up in numbers, but you know that productivity boom is happening. Now, in fairness, there's really no data that says over the long term, uh, margins are going to expand and companies will not reduce their prices. They say there is no guarantee that companies will reduce
their prices because of the augmentation of labor. Instead, margins at companies might go up. You can't really prove that in my opinion, and I think that's why they don't prove it. Historically, our economy is a market economy. more businesses with lower barriers to entry because they're augmented by tools are able to generate uh more wealth for more people and prices generally come down over time. That's my opinion. Their argument is nope. Companies are just going to get richer and make more money. That's the tool belt thesis they have. That's why it's in the inflationary side. We know that over time technology creates jobs and expands the wealth effect. You know, GDP per capita per
head goes up. ATMs, for example, led to more tellers, easier to make bank branches. Uh, looms made it easier to make cloth. You know, the labor it took to make cloth fell by 98% in the 1800s. Cloth usage skyrocketed. AI skyrocketed how many radiologists we employed. Jensen Wong always says that spreadsheets actually skyrocketed the number of accountant and analyst jobs that we had. Net more than the bookkeepers we lost. 60% of employment in 2018 was made up of jobs that did not exist before World War II. So that means there's a greater than half percent chance or greater than half chance. The job you have today did not exist before World War II. A YouTuber certainly
didn't sit around didn't exist back then. App developer and software didn't didn't exist back then. Right? We're doing all of those developing AI. I mean, we've been working um uh well, back then we called it big data or neural nets. Uh you know, we were working that starting back in 2018 before this was a formal enterprise, you know, reinvest. But anyway, uh it's actually like there's no doubt in my mind that long-term train America is going to do well. I don't think there's a debate there. I think the debate is are we going to see rapid deflation or are we going to see inflation? Whose argument is correct? That's the big question because evaluate this for a moment. We got a lot of information here. Productivity causes deflation.
Productivity causes inflation. The buildout causes inflation. Yeah, but pausing is dovish. And the bond market says we're going to get deflation. And the last labor market report was bad. And capacity is expanding. In fact, your very own chart 12 TS Lombard tells us that most of that excess capacity that you say is inflationary actually ends in 2028 and 2030. There it is. Long wait times on AI supplies ending in 2028 and 2030. Boom. You can see it right here. You kind of draw a line top to bottom and you can see where those things end. I remember memory even earlier more like the end of 27 over there. Okay. the J curve. Well, the J curve of that inflationary turnaround, we're already
kind of seeing that roll over companies that, you know, that was really what I would call the token maxing phase. We're past that. So, the buildout's going to be deflationary. The J curve period will turn deflationary. Delayed hikes, all right, we can argue about that. This colluding and consolidating, it's it's a risk, you know, that's why we have antitrust laws. This is a fair risk that the gains are going to consolidate amongst the biggest companies. Actually, one of the reasons why I think companies like Meta and Microsoft and Google or even Amazon probably going to be the biggest winners of this cycle. I think the biggest losers through this are going to be the companies that are bought at peak prices
because of the AI buildout drive that ends up fading. you know that compute side, the neocloud, the core side that ends up collapsing in the next decade. The rich cash generating companies, they're the ones who make most of the money. In fact, the worst recessions are debt driven. Think great recession. Long, painful to get out of, took a lot of money printing to get out of. Much lighter recession was actually the.com bust. Bust was only 8 months long.
Obviously, a lot of stocks fell a lot, but that was mostly an equity-led recession. People's stock values went down. Debt recessions where people get wiped out of their homes are very, very long and painful. So far, this buildout has really been driven by not even the cash on company's balance sheets, though in part has mostly been driven by cash flow. That's why I say as soon as these companies snap their fingers and say, you know what, we're not going to spend as much money on capex anymore, all of these inflationary concerns evaporate. Okay, so I think the buildout is inflationary, but I personally think the moment Meta says we're going to reduce our capex, the buildout disappears. Wow,
I was not expecting it to do that. The buildout disappears. The inflationary pressures, I think it's cuz it's out and it's drying out. That's what it is. Uh the buildout inflationary pressures go away. Oh, this is no good. Oh, that's like a reinvest color though. That's kind of nice. The J curve we think is sort of a temporary issue. The collude and consolidate fine. The tool belt, the augmented labor. Augmented labor only works if people are being hired. If companies start turning around and firing people and nobody's getting absorbed because you're in a recession, it doesn't matter how augmented you are, you're going to be out of a freaking job. So, let's think about this for a moment.
The red flags that we want to watch for are Uturns, changing points in the economy. Where have we recently seen one? Meta. Three months ago, Mark Zuckerberg told us that there was a loop. I'm going to pull it up because I think it's actually really important. There's a loop of capex spending. And what that means is, hey, if we have a neural net that we're building now, well, next year we're just going to have to make a better one. So, we're going to have to keep spending on capex to support the newest and next and greatest models. There it is. We have our next set of more advanced models in
training right now. And that work will I think just continue. I mean, that's a loop and I don't think we're going to be done anytime soon. Okay, that was right here on April 29th. Well, here we are 2 months and a week later. Mark Zuckerberg says AI agent tech progressing slower than expected. And this is where Mark Zuckerberg expects more significant AI benefits within the next 3 to 6 months. This is basically the monetization that bets on restructuring the company haven't come to fruition yet and they will and that'll lead to more money which is you know great EPS up. He's trying to really pump the stock up over here and they have been laying off
employees. Uh but the point is they're focusing now on efficiency gains. Positioning Meta to capitalize on efficiency gains from artificial intelligence work. Okay. Now that's important. Why is important? Because it's an early flip. It's an early rotation in ah okay capex is potentially starting to slow. In fact I wrote a lot of this down. Look at this. The rapid arrival of deflation would obviously be a recession, right? But ignore recession for a moment. What really matters more is identifying the keys coming up to that. It's capex slowing down at hyperscalers, growth rates turning negative for the producers of memory, compute costs go down, layoffs ensue, and then, you know, worst case it takes a decade of money printing to actually
get people back to work. Now, we think people broadly will benefit in the long term from AI, but in the short term, and I suggested this at the beginning, both could be true. You could have inflation right now and you could be walking into a recessionary setup and then you want to decide who wins and when does it potentially show up. Well, we talked about when the capex uh when the capacity of supply comes online. We haven't seen the capex peak yet. that is critical for your long-term investments. We think that 2027 to 2029 could be where you should be prepared for that and TS Lombard actually gives a warning as to what that moment might be. Given these developments, we think investors
should expect a new Fed chair to eventually re reverse his deflationary AI thesis, not unlike the U-turn we saw from Allen Greenspan in 2000. basically where Alan Greenspan in 2000 said, "Hey, we're going to raise rates and he flip-flopped. Instead of holding rates, he decided to raise rates and that ended up marking the peak of the dot mania. The economy can handle higher rates in the short term, but 2027 could be much more challenging." Huh. Now, that's very interesting. So my take is that it basically takes decades to get new jobs into reality. We inflate and inflate until we slowly begin to leak out of this bubble. The capex rolls over to negative. Employment
slows. That's where the pain happens. And that's where I've put together this ah dare it. I don't want to call it a cheat sheet because it's more like a messy sheet of notes, but some real bottom line takeaways on this and what to think about when it comes to your money. So look at this. AI is good. History shows that long term it will create jobs. GDP per capita will go up and it'll be a success. Where it's a failure, the failures will die off unless, of course, they're bailed out by the Fed, like you know, banks. Oh, the bailouts, bailout companies are usually the biggest losers. Think about the railroad companies, the energy producers for the rail uh for the electrification era,
Cisco, RCA, you know, radios. this these were all massive losers. So, you have to be really careful about the hype. Avoid the hype. And that doesn't make them bad companies. Just be because Cisco was hyped up in 2000 doesn't make it a bad company. It was just overpriced. Uh and optimism that the spending would go on forever was misplaced because it never goes on forever. The AI build out of the impression that memory prices will skyrocket forever dies with capex rolling over. Market compression then creates negative a negative wealth effect that causes a substantial rise in unabsorbed layoffs. That's my line.
Okay, I take credit for that. Unabsorbed layoffs is a really key phrase that people don't pay much attention to because right now you hear, oh, 10,000 layoffs and then the unemployment rate goes down. You know, part of that is participation, people being removed from the labor market, and the other is just we're just not laying off that many people. But eventually, you get to the point where the cup of laid-off people is full. You can't swallow the pill anymore, so to speak. Uh, and so then you get unabsorbed layoffs, and that's really bad. That's when you really get uh recessionary layoffs or employment rates. Right now, we're absorbing because the stock market is at all-time highs. You're not really driving
efficiency needs at companies. Disciplined companies know this. And I think this is what I try to drive home is and these are the lessons that I think we teach on the channel here is I look at Reinvest my company not as this is not a pitch for you. We're not raising money right now or anything. It's just a way for you to know when I look at our company Reinvest I look I go discipline in how you spend money and what you allocate to and how you grow the business is how you survive. You go all in on some hype train right now. You sound really smart, drop out of college to get into the hardware chip race, and everybody loves you and you're a hero, and then before you know it, a recession hits, and you're bankrupt, and nobody
wants your stuff. That is not how to build a long-lasting company. That is a great lottery ticket yolo. I don't think Reinvest is a lottery ticket yolo. For me, it is. It is a slow, long-term, disciplined, methodical way to invest and grow in a conservative and safe manner. # no guarantees don't sue me. Obviously, that's you the premise that I've been building since day one with this company. And so, you know, avoiding that hype is critical. This means we are right now in a place of unfettered optimism about the long-term future, but we should also be hedged for a very real recession. Right? So being hedged is having optionality, having cash, having limited debt. You don't want to be the
the debt, you know, individual that goes bust and then, you know, you lose it. Did you know twice as many people in the United States disappear themselves every single year because of depression related to financial stress uh as people die in house fires. And like 4,000 people die a year in houseires in America, which is also really scary. But anyway, in the 2001 crash, the Fed policy helped us out by March with easy money. In Feb of 2009, we got bailed out by QE. December 2018, Jerome U-turned on rates. Right. The Fed eventually starts printing money. March of 2020, unlimited money printing. Uh March of 2023, de facto FDIC guarantee. But WASH has a different history. And this is why
discipline is even more important. Now, this right here tells you that discipline is the most important right now. Wash has a history and a reputation of being anti-money printing and anti-balance sheet. That is the worst kind of recession for people with debt. We have gotten really used to hyperfast Fed puts where the Fed just bails us out. Well, what happens when we cut rates to zero because the capex cycle has rolled over, the boom is over, prices are falling, growth is negative, and jobs are rolling over. And then Kevin Walsh cuts rates, but then it's like, "Hey man, you need to turn the money printer on." And then you know what he says?
We've got a task force looking into the money printer. We'll know when the task force decides. Oh. Uh, do you know when that might be? Because a lot of people are bankrupt and companies are going under and the economy is in the toilet and GDP is negative. you know, can you give us any hint as to when you might be actually able to bail out the economy, please? I don't give forward guidance. Like, can you see how right now not providing forward guidance is doubbish, but in a crisis that could be the death of the econ. Well, I'm not going to say the death of the economy, could be like the boot on the neck of the economy
while it's already in the gutter. That's where the companies that are deleveraged win. Now, you have to have the balls at the time of being deleveraged to win. There were plenty of people in 2008 that had plenty of passion. They just didn't have the balls to deploy it. You know, my opinion is that hopefully, you know, let's let's say later this year, just as an example, I'll just give you my POV. Let's say later this year, we uh we do another raise with some kind of yield. People really like the yield. You know, we've paid out uh probably nearly a couple million dollars in yield payments to people who have invested in House Act uh just over the last, you know, couple years here. And if we come up with
another raise where we offer yield again to folks and people are able to invest in that round and be part of the our growth story, what's actually really incredible is I think we can build a company that before the next sort of recession. We could potentially build a company that has $2 to $250 million in assets. Not talking about market cap. I already think we're close to a $200 million cap uh market cap. But if we had about, let's call it $250 million in cash assets, you know, mostly real estate because that's what we do. We reinvest into real estate. $250 million of real estate could represent a down payment of about, you know, call it 35% on real estate when rates go to zero.
when and if rates go to zero, which I think they will, uh that would represent a down payment potentially on $714 million of real estate, which is kind of crazy uh because, you know, you could you borrow a lot. Now, you have to be careful because obviously if you borrow at the wrong time, it's a problem. But it's really interesting because that's why we buy deals below value, right? That's our goal is to buy real estate at a wedge. If we had to buy wedge deals on $500 million of real estate and then we got a 20% discount on each deal that we bought, we think we would instantly be up $100 million of equity. In other words, we would take half of today's company market cap and just add it on
during such an event. And I'm just being really transparent about those sort of ideas and plans and sort of visions. But it's the rewards acrew to those who are unleveraged. And then of course, you know, when you get back to the boom side, it's it gets even more ridiculous. Anyway, so I'm optimistic on training uh Train America, but I'm really cautious on what's overhyped. People who are not disciplined scares me and I want to get through with all of you who watch my channel winning on the other side. Deleverage and pay attention and be prepared. Worsh will be hawkish in a bust and that's going to suck.
The companies that probably win big will probably be the companies that are selling off right now like Microsoft, Google, and Meta. I think they're going to have the cash flow to pick up a lot of money at the bottom because even if their growth stops, they generate so much freaking cash, they're going to be able to go around and buy whatever they want. And that's where big money goes. That's my take that reconciles all of this. Thank you so much for watching. I know it was a long one. Hope you liked it and we'll see you in the next one. Goodbye and good luck. Why not advertise these things that you told us here? I feel like nobody else knows about this.
We'll we'll try a little advertising and see how it goes. Congratulations, man. You have done so much. People love you. People look up to you. Kevin Papra there, financial analyst and YouTuber. Meet Kevin. Always great to get your take.
