No, I would say I love this comparison with that debate and how it was a pivotal moment and a shift in the confidence about the outlook. I think it's a really interesting parallel to this realization last Friday with payrolls in the markets that, hey, wait a second, maybe the Fed isn't going to act preemptively. You know, to me, it was Wall Street's equivalent of the Democrats discovering that Biden was incapacitated. I mean, the signs were there for a long time and everyone ignored them. Same with the economy and the idea that we were heading into recession, if not in recession already, much less the long and lugubrious history of the Federal Reserve getting it wrong every single time. So it struck me as kind of a parallel awakening, as it were, from that political one to the financial one. All

right. I could peel the onion on each of these questions all day long, but I'm going to move on a little bit to something I know you guys talk an awful lot about inflation, deflation, basically your inflation outlook. I mean, I know that this is the question that's been batted about for what grant, you know, since you've been doing interviews, what 15 years or so the great inflation. Not quite that long, but pretty close. Oh, pretty close. All right. So I just looked at true relations numbers. And I assume both of you guys are familiar with true inflation. They're just a private that has an alternate way of calculating their version of CPI. And it's based on a basket of millions of goods and services. So it's not, you know, a lot of Excel models. Like the BLS uses this is supposed to try to be more like a real world estimation. Surprisingly, their numbers don't differ all that much from the CPI in terms of their methodology. So I say that because if you don't like the numbers, I'm going to tell you, assume maybe reality is a little bit higher. But in the US, since January 2020, they calculate count-pounded inflation as 25%, over 25%, which means in just the past four years, the purchasing power of your wealth, if you're an American, got cut by a quarter. You lost a quarter of its purchasing power in just four years. In the UK, that's over 37%. And these are largely due to emergency policies, but these were policies that the public didn't get a chance to vote on. And here we are just a short number of years later, and you know, people are living with the after effects of this. So, you know, they're, I'm curious to just at a high level, get your guys a sense of the the implications of this. Obviously there are things like just the diminished prospects of having less purchasing power. Obviously there's an increase. This has only increased the wealth divide because this pain isn't felt evenly. Like yes, everybody feels the same diminishment of purchasing power but if you hold assets, particularly financial assets, those gained in price faster than this rate of inflation so you're coming out of this in a net better position. But of course, financial assets are owned by a much smaller percentage of the overall population. So that wealth imbalance that we had going into COVID has only gotten worse. So as you guys look at the inflation landscape, what do you see as the implications of this pretty dramatic hit that currency purchasing power just took? Why don't we start with you, Grant?

let Steph go into the numbers, but I think the really important shift here, and it's actually fascinating. If you ask people, what's the CPI? They'll quote you a percentage. CPI, the I stands for index, right? It's not a percentage. People will tell you that the CPI is 2.6% or 2% or the CPI is coming back to 2%. That's just the rate of change. And this is the really, really important thing. And that's why this compound inflation idea that you talked about there, Adam, is so important. Because obviously, when it compounds, the prices go up 2%, 2%, 2%. When they speed up, if wages are going up at the same level, you don't really have that much of a problem, really. Things are getting more expensive, but you're not struggling to make ends meet. What we've seen post COVID is a sharp rise in inflation. And it's now the eye part of this, the component of the CPI, the index, which just keeps going up and keeps going up. It's the perfect bottom left, top right chart as you would expect it to be. But it's crossed the threshold of unaffordability for a lot of people. So it doesn't matter that it's the inflation's come down. The inflation's now only 2.6% or 2%, and they should get back to 2%, because it's 25% over four years and that's unaffordable for people. And so it's amazing that they've managed to, to be able to quote and have people think of CPI as a percentage number for so long. some people in the markets. What they're looking at is their grocery bill and their restaurant bill and the cutbacks they have in a main step. I'll let you talk about your pet spending and stuff like that because you've done such great work and finding these things that really speak to where people are being forced to make changes in their spending habits in places they would never ordinarily do. So that's where we are. And the genie is well and truly out the bottle now unless you can either raise wages so people can afford these things again or get prices down, not just slow the rate of increase. You are going to see all the things that we're seeing and it's not just a market phenomenon, it's a societal phenomenon. You know, go back to the 1970s, all the things we're seeing now with the with the exception of the wokeness, but the the race riots, the anger, the kind of palpable boiling point that people have. A lot of it is down to this inflation problem. It's down to the frustration they feel about not being able to keep up with the cost of living, with, you know, a new generation that are going to be the first generation not to do better than their parents for, you know, countless generations. This is a very real world phenomenon now. It's not an economist number. It's not a number that the Fed can spout from the podium in the press conference and tell you what a great job they're doing in lowering inflation. This is a real world problem and real world problems require real world solutions. And unfortunately, I'm not sure that most of these central banks, all governments are in a position given the debt levels, given the balance sheet constraints, assuming there are any, to provide the solutions required to solve this problem quickly and quietly. And that's, I suspect, going to be a highlight of the rest of the summer and into the election in November. Okay,

I'm going to put a pin in that because I want to come back to that. That last point, and it's specific to something you just tweeted out the other day relevant to it, but Steph, let's let you pick up the baton here. Well,

there's so much to say on this. First off, I obviously 100% agree with everything that Grant outlined about the important difference between the rate of increase versus the absolute level. And the burden that that is placing on average consumers and I don't think it's any surprise that three out of five Americans think we're in recession and that it actually started last March. And it's because of this inability to afford absolutely everything, despite the headline inflation numbers coming down. And I would further underscore, I know you looked at the true inflation, there's a fellow named John Williams, who has a website called Shadow Stats. And he has for decades tracked, you know, sort of has his own way of measuring inflation and growth, etc. Avoiding some of the monkey business, let's say, that these government statistical agencies use and as- Right, and starting

to wrap up with, but John largely uses the old equations that we used to use- Exactly. That.

Exactly. He uses what he calls a pre-Clinton CPI that is before they started doing these hedonic adjustments, which basically say if you bought a car today and you don't have to manually roll down the window, therefore the price of that car is massively lower, you know, because you can push a button. So somehow that's deflationary. Using that logic, I would argue that we've experienced massive deflation since caveman times when we used to have to go and hunt our, you know, bison for dinner rather than strolling down the aisle at Kroger. So anyway, that's another story. But by his measure, the peak inflation, which the BLS puts at, what was it, 9-1 or 9-2, was over 18%. So he clocked the growth in inflation at twice the pace. So presumably the average American's even deeper underwater in terms of real incomes. Speaking of real income, since I am the data nerd here, within the University of Michigan survey, they have a number of components. One of the ones that is most telling about where we are is the outlook for real income. Do you think your income will outpace inflation? That hit the worst reading in the history, the survey, and that survey goes back to the 80s. So just let's put this in context. People think that their income outlook is worse today than it was when unemployment was 10% at the depths of the global financial crisis, the Great Recession. So they're more dire now. Imagine what the situation will be for them as the unemployment rate moves from four, three to five, to six, to seven. And as Grant alluded to, you can see they're already pulling back on all kinds of spending, including things that I would view as non discretionary like your pet. I highlighted that because it struck me as, you know, the last things you're going to pull back on will be medications for yourself or food and medications for your pet. we've seen a decline in pet spending in real terms for 20 months in a row now, the longest stretch we've seen in history, during the great recession, we saw 19 months of declining. So we're already worse. And again, the unemployment, you know, shoe hasn't really dropped yet. And obviously you see that reflected in some of the stock prices of these companies. And then you expand the lens to consumer discretionary spending in general, and it's getting hammered. And as Grant was talking about this, I was thinking, there's a psychology around inflation. And we've probably most vividly seen this in Japan on the other side, where the psychology of deflation became so embedded that you really couldn't get out of it because people thought, why would I buy this today when if I wait a month or a year, it'll be even cheaper, I may as well forego spending now and buy later. And one would presume that the opposite mentality would be happening today where people say, look, if I don't hurry up and buy this car, this washing machine, whatever that we need, if I don't buy it now, it's going to be so much more expensive three months from now. So I got to do it now. If we're seeing that behavior, then we're really in trouble because the consumer spending numbers are so dismal and it doesn't show any sign of sort of anticipatory spending. So to the extent there is an inflation psychology, clearly consumers are completely spent up, lent up, and now they're just struggling to get by. So boy, that's depressing.

hey, unless you can deal with inflation if wage growth is growing at or above the rate of inflation. I'm pretty sure I know the answer to this. But Steph, do you see anything in the data that suggests that that's going to happen here? Or are wages heading in the wrong ways, wage growth heading in the wrong direction?

I'm just looking at employment, the history of employment broadly. And when you go up, you interviewed Claudia Som recently, but even putting aside the Som rule, if you just look at when you've seen periods where the unemployment rate has moved up half a percentage point, just not even on a three month average basis, or just normally from, you know, we went from three, four to now we're at four one but even after we had only moved up half a percentage point from there on average you go up another 2.9 percentage points. That's the average excluding COVID when the unemployment rate went to whatever 20 some odd percent. So I excluded that assuming that was a very anomalous situation. But that suggests if we were at three four and we go up basically 2.9, you know, you're looking at an unemployment rate that's going to be north of 6% in short order, if you look at a history, you know, a historical chart of the unemployment rate, it isn't some gentle, you know, rolling hills, it's looks like a credit spread chart. And so you tend to move sharply higher and I don't see any reason why it would be different this time. If you cast back, Adam, probably two years ago, when we were talking about the idea that there was this labor hoarding situation going on, because companies couldn't get workers to come back after they were being paid to sit at home post COVID. Now that they actually reached full staffing, which took a lot of work on their part to do, I think there's been a real reluctance as the economy seemed to be slowing to lay people off and you see that in the employment data that what they did was they cut hours and they move people to part time rather than full time and that's why you've seen the drop in full time job growth. Right. And hires have gone down too. Right. And everyone's had to take out second and third jobs because their hours were getting cut. So and you and I talked way back then about this idea that we could go from a labor hoarding environment to a labor shedding environment if people, you know, companies perceived that the slowdown was going to be more material. And so I think we could be reaching that moment if the assessment of where we're headed continues to deteriorate. And I guess, you know, the outlook for the next administration will factor largely into that, or at least it'll be one of the many factors. But right now, my is that you'll continue to see pressure on wages. Very long-winded answer to your question. No, no,

but great question. And in that transition from labor hoarding to labor shedding, you know, one of the points we were putting under it is that that tends to happen quite quickly. That again, that's sort of a sentiment shift, right? Where they realize like, you know what, we're not going to make it through this period, we've got to start cutting costs and we've been holding these people on for as long as we can, now we get to start getting rid of them. And you talked earlier about this, I've been showing this chart a lot recently but this is just the unemployment rate and as you can see here, what it does between recessions is that after a recession it starts coming down and it goes down, down, down, down, down. It gets very quiescent. And then it starts turning up and then it spikes dramatically and that's the pattern at every one of these. And it even happened in COVID but I'm not going to use COVID because that was kind of an outlier but pretty much every recession and living history here follow this pattern and if you look over here, now we've come down, we've bottomed and now we're starting to come up and so you have to have some sort of really compelling argument why it's going to be different this time to not expect this thing to start jumping again. And of course, we just saw the triggering of the Som role which suggests that unemployment is really starting to grow right now. I interviewed Anna Wong who's the chief economist for Bloomberg Economics. She's got the highest outlook on the street for unemployment by the end of the year and she's still a mainstream economist. She's not someone who's usually making really extreme calls but she's got it at four and a half percent by the end of this year. I'm actually going to take the over on that. But she even Anna said, look, if we're going into a recession, that number could easily get five, six, seven higher. But she did say by the end of this year, if we're at four and a half percent, that's going to feel like a recession to people. Sort of like Grant was saying is we're potentially transitioning into this time where pretty soon the debate may be over, right? Because still even now there are data points you can use to cherry pick, right? And somebody could say, hey look, the GDP grew at 2.8% last quarter. What's wrong guys? I mean, isn't this great? So it's going to be interesting to see what happens. But in the interest of time, let me move on to my next question here. Grant, you posted I thought an excellent just sort of explanation of inflation by Jim Walker on your Twitter feed the other day. And I can't quote the whole thing because it's too long, but I pulled some key quotes out of it. He said, the natural state of the economy is to generate deflation, aka productivity growth. He then claims that central banks fight this natural state because it makes it harder for governments, not people or corporations, but harder for governments to pay down debt. And he ends with this. The generation of inflation by central banks is an effort to provide governments with an easy way out of their debt problems through inflation rather than fiscal prudence. So we have this sort of imbalance of what I think people would say is sort of the healthy benefits of natural deflation that are being deliberately overwhelmed by central planning intentions. And honestly intentions that at the end of the day aren't in the best interests of the people or companies inside the nations themselves. It's just so that the power structure can keep the game it wants to play going on for as long as it can. Please, take just a moment to sort of share your thoughts on this.

Yeah, look, Jim's a brilliant guy. I was, I was talking with him a couple of days ago and he really helped my eyes on a lot of things. And, you know, this quote, which Jim published probably five, six years ago, I just thought was a very well articulated summation of how the system works. I don't want to use the word system, pejoratively, just the financial system we're in here. It's important to understand this at kind of turning points because when everything's good, it doesn't really matter when everyone's doing okay. It doesn't really matter. But you know, if you me and Steph's wages are unchanged and the price of goods is coming down, we're pretty happy, right? Life is the opposite of what it is now. Things become more affordable. you take pressure away and if you're an individual or a company, you tend to be much better at managing your credit exposure because you can't get it. Now it's going to give you credit if you have a bad credit rating. If you can't pay off your monthly payments, you tend to either have to decay bankruptcy or default on the loan or whatever you have to do. We live under a very different set of rules to governments and they've had this ability to, you know, put the thumb on the scales for many, many decades now, but through those decades, what's been happening in the background is this, these debt to GDP ratios have been getting bigger and bigger and bigger and bigger. And I was talking with Russell Napier today and we were talking about the conditions when Margaret Thatcher came to power. We were talking, very similar and the steps that she took to try and write the ship in the UK, she could do because Britain's debt to GDP was 30 odd percent back then.