This Happened Twice in 100 Years... Both Times, Stocks Fell 49%

Market Breadth Mirrors Historical Downturns [00:00:00]

• The breadth of the U.S. market is showing extreme weakness, with 86% of the S&P 500 in bear market territory.
• This situation is comparable to January 1973 and early 2000, periods preceding significant market crashes where the S&P 500 dropped nearly 50%.

• "The breadth in the U.S. market has only been this bad twice in all of the last 100 years."

Soaring Bond Yields Unnoticed by Stocks [00:00:00]

• Long-term interest rates, reflected in U.S. Treasury yields, have been relentlessly rising.
• The 10-year Treasury yield closed at 5.16%, a 19-20 year high, with an intraday high of 5.22%.
• The 30-year yield hit a 22-year high at 5.49% intraday.

• "But what's also amazing about what's happening in the bond market is the fact that it's having no impact on the overall stock market."

Stock Market Complacency [00:00:00]

• Stock market investors are aware of rising bond yields but appear unconcerned, rationalizing that "this time it's different."
• They believe rising rates do not impact stocks or the economy significantly.

• "They've noticed it, but they just don't seem to care."

Global Yields on the Rise [00:00:00]

• Yields are not just rising in the U.S.; they are increasing globally, including in Japan.
• Japan's 10-year JGB yield is above 3%, and the 30-year yield is at a record high of 4.13%.

• "Yields are rising around the world. And this is a major problem for economies and for the stock market."

Housing Market Under Pressure [00:00:00]

• Mortgage yields have surpassed 7%, with the 30-year fixed-rate mortgage nearing 8%.
• The Trump administration's order for Fannie and Freddie to buy long-term mortgages has artificially suppressed rates but is causing losses for these entities.

• "And the only reason why they're not substantially higher, the only reason that a 30-year fixed-rate mortgage is not already at 8% is because the Trump administration ordered the GSEs, Fannie and Freddie, to buy long-term mortgages."

Oil Prices Fall, Yields Rise [00:00:00]

• Oil prices have fallen from around $100 a barrel to $92, despite a lack of resolution in geopolitical conflicts.
• Historically, oil prices and bond yields had a strong correlation, but this has broken down, with yields rising regardless of oil price movements.

• "Well, now the bond market has broken out of that and bond yields are rising regardless of what happens to the price of oil."

Fed Rate Hikes Ineffective? [00:00:00]

• The Federal Reserve's recent rate hike, intended to signal seriousness about fighting inflation, has not stopped rising bond yields.
• Probabilities for further rate hikes have increased, but the market seems to be shrugging off these developments.

• "Bond yields show no sign that they're going to stop rising even though the Fed delivered that symbolic rate hike that everybody thought was required."

Consumer Confidence Plummets [00:00:00]

• Consumer sentiment has dropped significantly, with the University of Michigan Consumer Sentiment index falling from 51.7% to 48.1%.
• Year-over-year inflation expectations have risen, with one-year expectations at 4.6% and five-year expectations at 3.4%.

• "I don't know what fantasy world people are in if they think the consumer is in such good shape."

Inflationary Psychology and Hoarding [00:00:00]

• Consumers are buying goods out of fear that prices will rise further, leading to pulled-forward spending and potential hoarding.
• This behavior can create a self-perpetuating spiral of rising prices and demand.

• "This is the type of inflationary psychology that can really spiral because now you have hoarding."

Stock Market Deception [00:00:00]

• Major stock market averages appear strong, but this masks the weakness in the vast majority of individual stocks.
• The average stock in the S&P 500 is 19% below its record high, and 60% of all S&P 500 stocks are in bear market territory.

• "So on average, 86% of the S&P 500 is a bear market."

Historical Precedents for Market Crashes [00:00:00]

• The current market breadth situation has only occurred twice in the last 100 years, both preceding major crashes.
• In 1973, the S&P 500 dropped 48.2%, and in 2000, it fell 49.2%.

• "And in both cases, the S&P dropped nearly 50%."

Bill Ackman's Controversial Advice [00:00:00]

• Investor Bill Ackman is criticizing the Fed's rate hikes, arguing they will worsen inflation and deter investment in AI.
• He suggests raising the inflation target to 2.5%-3% and ceasing rate hikes.

• "Ackman is saying, look, stop hiking rates and raise the inflation to 2.5% to 3%."

U.S.-China Relations Stagnate [00:00:00]

• The meeting between President Biden and Xi Jinping yielded little concrete progress on key issues like Iran's nuclear program or China's trade with Russia.
• Tariffs and trade policies are harming the U.S. economy more than trading partners.

• "A lot of pomp and circumstance, a lot of photo ops, but really much ado about nothing."

Europe Pacific Bank Lawsuit [00:00:00]

• The speaker is suing the IRS for violating FOIA in relation to the shutdown of his bank, Europe Pacific Bank.
• FOIA requests reveal that IRS agents believed the bank was involved in tax evasion and money laundering, despite official statements claiming insolvency.

• "I wanted to see the communications regarding my bank and why my bank was shut down because I knew that the bank didn't do anything wrong."

IRS Misled Public on Bank Closure [00:00:00]

• IRS chief Jim Lee was prepared to announce the bank's closure for tax evasion and money laundering, unaware it was a PR stunt.
• Internal communications show a Memorandum of Understanding between the IRS and OSIF, contradicting claims of independent action.

• "Well, how do you act independently if you have a memorandum of understanding to act together, right?"

Receiver's Incompetence and Greed [00:00:00]

• The receiver appointed to Europe Pacific Bank has allegedly mismanaged the liquidation, returning funds to only 78 out of 3,500 customers in over four years.
• The receiver has paid himself over $850,000, costing the bank $2.2 million, while customers have received nothing.

• "The greediest people are the people who work for government. I've always said that."

Government vs. Free Market [00:00:00]

• The speaker contrasts the slow government receivership with his bank's ability to return funds to 4,500 customers in under two years before the shutdown.
• He argues that the receivership was unnecessary and a deliberate act to damage the bank's reputation for publicity.

• "This is the difference between the free market and government."

Republican Inaction on IRS Issues [00:00:00]

• Despite Republican promises to address IRS overreach, there has been no action in Congress to investigate the alleged weaponization of the IRS.
• The speaker criticizes Republicans for using the IRS as a campaign issue without taking substantive steps.

• "But when it comes down to actually doing something to put a stop to the harassment, they are all talk and no action."