Markets Tank: Fed Predicts Economic Crash, Will Chaos Continue? | Jim Bianco

Markets are taking a massive slide today on Monday, March 3rd. The Nasdaq is down 2.5%. The S&P is down 1.8%. Bitcoin is down 8% on the day, just after reversing its previous correction last week, going up the previous day. We’ll talk about that.

Gold’s up 1.5%. The Treasury yield is down, and the dollar is down as a result. Oil’s sliding, just a lot of volatility. At the start of the week, Jim Bianco is here to break down what’s happening today.

He is the president of Bianco Research. Welcome back to the show, Jim. Good to see you.

Thanks for having me. Let’s just start with today’s market action and then move on to some economic updates. What is happening with the markets today? What exactly is all this volatility responding to, Jim? You know, I think what the volatility is responding to in bigger picture is the Trump administration has been taking a very different tack than what people are used to.

Between tariffs, sovereign wealth funds, the pushing to Europe to pay for their own security, Europe responding by agreeing that they were going to step up their defense budgets by, you know, hundreds of billions of dollars. This is unlike anything we’ve seen. And the volatility I think we’ve seen is twofold.

One, markets, whether you’re talking about risk-off markets like Treasury securities, they’ve been rallying, whereas European bonds, their risk-off markets, have been seeing yields go up. And that’s very unusual to see both of them move opposite each other. Now, why is that happening? I think it’s a simple fact.

Europe’s going to spend hundreds of billions of dollars on security, more supply. Presumably, they’re going to shoulder some of the world security burden so the U.S. can shoulder some less, less supply. So I think that that’s really been one of the bigger catalysts behind what’s been happening with interest rates.

Stocks, a lot of people are trying to make a case that the economy is falling apart. I’ll push back on that a little bit. I don’t think that the economy is there right now.

Yes, I agree we’ve been seeing big intraday moves in the stock market, third day in a row of at least 1%, one down, one up, now another one down. But we’re only about 4.5% off the all-time high, which was set less than two weeks ago. So if the market falls apart further from here, you might have a case.

But right now, it looks more or less like a normal correction in stocks. And they’re starting to try and over-interpret interest rates by falling rates, meaning that something bad is happening with the economy. I think it’s more about supply or that our deficit is going to fall because our military spending might have to fall as opposed to that our economy is in trouble.

Are they also overreacting or over-anticipating the effect of tariffs on the economy? Take a look at the CNBC article I have on the screen here. According to the article, the markets were reacting to also the announcement that the tariffs on Canada and Mexico will begin. This is not really news.

It’s been telegraphed already. Trump’s administration said reciprocal tariffs start on April 2nd. But very importantly, tomorrow tariffs 25% on Canada and 25% on Mexico, and that will start.

So that made the markets puke. But again, Jim, it’s not like Trump has not said this already. I don’t know.

It’s not like Trump hasn’t said this already. I’d like to joke with you. I’m old enough to remember last month and I’m old enough to remember December when the idea of tariffs were inflationary and that was supposed to kill the bond market.

Now the idea of tariffs are recessionary. Okay. Maybe the real question is what is the idea of tariffs going to be next week at this point that we can’t even settle on what tariffs are supposed to be? Are they inflationary because they raise prices or are they recessionary or are they both? Are they stagflationary? Is that what we’re going to go to next week? Are they non-issue? So we haven’t quite figured out what tariffs are because the way Trump uses tariffs, he uses them both as a form of revenue and he uses them as leverage.

Look at what’s happened to Mexico in just the last 48 hours. He’s saying that they’re going to put more tariffs on Mexico. Mexico is trying to appease the Trump administration by not getting the tariffs.

And they said Mexico said they’ll put 10% tariffs on China, Mexico to China. They’ll add 10% tariffs if you back off of us. So they’re being effectively used as leverage.

So that would have a very different meaning than if they were going to be used as revenue. So I still don’t think that’s why I said part of what’s happening with these markets is we’ve got a whole new set of dynamics that we’re still not quite sure of. We can’t even figure out if they’re inflationary or recessionary.

And that’s why you’re seeing a lot of gyrations in these markets and we’re trying to make broad categories out of all of this. Importantly, economic data came out for manufacturing construction released on Monday. Manufacturing construction data were a little bit soft, Jim.

Take a look at the GDP now forecast. I think you tweeted about this as well. I haven’t seen this in a long time, Jim, a negative reading.

And not just negative by a few basis points. It’s negative by 1.5%. It went from positive 3% all the way down to negative 1.5% in a matter of what? One reading? Two readings. Yeah, two estimates.

So I mean this is what happened here. So I think you have to start to dissect this a little bit. And you’re right that it’s fallen a lot.

Trade is really what’s driving this. The trade deficit came out Friday and it was a monster negative number. Now what does a monster negative trade deficit mean? It means that we imported a whole ton of stuff as relative to what we exported.

Our exports were about the same but there was a gigantic surge of imports. Why was there a surge of imports? Two things. One, people trying to beat the tariffs was one thing that was being imported a lot of.

Second thing that’s not getting talked a lot about was also in the imports was gold. Because of the COMEX LME arbitrage, a whole ton of gold has been imported into the United States. Which is not really an economic action.

That’s a financial arbitrage. But the way that the numbers work is trade deficits are negative on GDP. If you build a car outside the United States and you import it, the way that the numbers feel is that’s loss production.

That is not GDP in the U.S. So it’s a negative. You want to build the car in the U.S. and export it. That would be positive.

So this giant surge of imports that came into the U.S., whether it’s gold, whether it’s trying to beat the tariffs, drag this number down. Now, that’s pulling forward the imports that would have happened in March, April, May, June. We’re not going to keep pulling it forward.

Eventually what’s going to happen is we’re going to have no imports. Because we’ve already imported it. It’s already here.

And then you’re going to see a big snapback in trade. And you’re going to see a big snapback in the GDP number. Maybe it doesn’t happen next month, but it will happen in the next few months.

And today, the thing that drove it down today was the Institute of Supply Management’s new order index fell a lot. It’s the same thing. No one wanted to make an order ahead of tariffs.

Well, now that we’re starting to at least get clarity, they’re coming tomorrow. And tomorrow night is the State of the Union address. And Trump literally said, minutes before we came on, he was asked about the tariffs and he said, I’ll discuss that tomorrow night.

So we should get some more clarity about these tariffs tomorrow night in the State of the Union address. We should see some orders restart. Now that I know what the lay of the land is, we’ll start to see that pick up again.

And you’ll start to see that number rebound. Well, this is probably not the end of the tariff saga. We can probably expect new announcements on tariffs further down the line, Jim.

Let’s just take a look at my screen here. This is the S&P 500 heat map. And the question is, what should we do as investors to prepare for potentially more unanticipated announcements on tariffs? We don’t know what’s going to happen.

But the idea is to prepare for the unexpected, if we can do such a thing. Today, the consumer defensive sector did OK. Utilities did OK.

Actually, all utilities did pretty well. And household defensive personal products did quite well. Health care did OK.

So it’s really looking like the defensive sectors are holding up quite well. The cyclical tech companies got hammered. What’s the play here? Are we just sticking with defensives for the rest of the year? Yeah, I think so.

And if you really want to go defensive, if you want to look at the first two months of the year, what has been the best asset class to perform has been the risk-off asset class in the bond market. The bond indexes are up about 2.6%, 2.7% year to date. They’re doing better than cash.

They’re doing better than the stock market. They’re doing better than the crypto market right now. And so why is it that that’s happening? You’ve got to remember, let’s back up to January.

Let’s back up to two weeks ago when we were at the all-time high. The all-time high in the S&P was less than two weeks ago. What did we have at the all-time high? We had some very extreme valuations.

We have very, very high valuations, whether it’s the P-E ratio, the Shiller-Cape ratio, price to book, market cap to GDP. What does that mean? Everything has to go right. Now we’ve got this uncertainty with tariffs.

We’ve got these changing dynamics between Europe and the United States. If we had 15 or 12 forward P-E in the S&P 500, it might not be a big deal. But when you’re pushing 25 forward P-E in the S&P, which is one of the highest valuations, and you’re paying dear for stocks, you need everything to go right.

And a lot of this stuff puts uncertainty into the market. And that’s why I think you’ve been seeing a lot of these gyrations. So the problem the market also faces is this valuation problem that it has.

Right now, I’ve been arguing, just to put a framework on this, that over the next several years, I suspect you’re going to see 4% returns in cash, 5% returns in bonds, and 6% returns in stocks. Bonds will give you most of what the stock market’s going to give you, with a lot less volatility. A bad year in the bond market now is up 1% or up 2%.

And so the dynamic of how markets are turning around is upping too. So when you say get defensive, I would say, yeah, look at the bond market. Because it’s going to give you most of what the stock market’s going to offer you, with a lot less returns.

I don’t think we’re going to continue to see these 20% years, like we saw last year and the year before. That’s what produced this overvaluation. Now we’re going to have a long period of sideways to kind of catch up with the valuation numbers.

So a return to the 60-40 portfolio would work again, Jim? Yes, because remember we used to call Tina, there is no alternative. The whole idea of the 60-40 portfolio originally was, buy stocks because they always go up a lot. Own bonds because they’re crash insurance.

Well, we found in 2022, bonds are no longer crash insurance. Now the 60-40 portfolio is, stocks are a little riskier with a little bit higher return. Bonds are a little less riskier with lower return.

But on a risk-adjusted basis, they’re kind of the same thing. There is an alternative. It’s called the bond market.

Now I know a lot of people don’t like that because they always walk in every year and go, there’s some major multi-trillion dollar asset class that’s going to go up 20% or 30%. Which one is it going to be this year? And that’s the game we play. I don’t think there is one anymore.

Unless you want to say gold is going to be that one, you might be able to say that, but gold I don’t ever think is going to be a core holding of anybody’s portfolio. It’s only going to be like a 5% or 10% holding in a portfolio and it’s doing very well. But if you’re talking about stocks, bonds, cash, international and domestic in bonds and stocks, I just think that we need to adjust our thinking that there isn’t one of those stocks, bonds, cash, international or domestic that’s going to be going up 20% every single year all the time.

And we just have to jump on the horse that’s going to go up 20%. They’re all going to rotate around into these lower single-digit returns. And we’re going to have to start to look other ways.

In other words, not at asset classes to make money, but at themes and at stock picking. Something we haven’t had to do for about 20 years. That might be coming back into vogue.

I’m going to come back to gold in just a minute, Jim, but you mentioned the 10-year earlier, so let’s take a look at the 10-year right now and let’s relate this to inflation. So the inflation, the core PCE, which is what the US Federal Reserve has been tracking as its preferred measure of inflation was 2.6% in January. And I wonder whether or not the 10-year yield, which has just basically fallen from its 2025 high of 4.7%, 4.8%, now down to 4.166%. That’s a big jump downward.

I wonder if that’s tracking lower inflation expectations because certainly 2.6%, although as expected, is still not anywhere near 2%, the Fed’s target. It’s still sticky. So why is the 10-year dropping is my question? Yeah, so you’re right.

If you look at the chart that’s on the screen, we’re well off the September lows and we’re back to the lows that we saw back in early December right now on the 10-year yield. So we’re not breaking new ground on the 10-year yield, at least not yet as far as falling. As far as inflation expectations go, they’re not good.

Even today, the ISM number, prices paid, was 62.5, a two-and-a-half-year high. That means that almost two out of every three companies are reporting that they have to get higher input prices out of the ISM. The inflation expectation numbers from the University of Michigan were the highest numbers in 30 years.

There is a general unhappiness among the public. Trump’s approval rating is falling because of egg prices and everything else is not falling fast enough. We have an inflation problem, and that is very well seen in the market.

So why are rates falling if we have an inflation problem? Because we’re going to spend a lot less on the deficit because of defense and possibly because of doge. I think that those are the two driving forces right now, that what you thought we were going to have to issue in bonds over the next couple of years is being dramatically scaled back because of doge and Europe’s going to step up and start spending money on defense. That’s what we got going.

Now, does that produce both of those? Because the other flip side of doge is supposed to be regulation cuts, tax cuts, to unleash the animal spirits of the private sector. The European defense cuts are coming with infrastructure spending. Their stock markets are going up a lot because they’re going to start to stimulate like crazy.

Does that mean that we could see strong growth in inflation? I would bet yes, but that’s probably going to be a second half of the year story. Right now, what everybody’s seeing is people are getting laid off from the government. Elon’s coming in, cutting spending left and right.

Europe is going to spend more money. We could cut our defense budget. What you thought was a crowding out in bonds because we had all of these bonds that we were going to have to issue, now we’re going to have to issue a lot of bonds, just not as many as we even thought just a couple of weeks ago.

I think that’s what’s got this bond market rallying. And there’s a bit of a spook going on because stocks have been very volatile as well, too. Yeah, that too.

I’m sorry? Yeah, exactly. I was going to mention economic growth expectations like the GDP forecast for the Atlanta Fed have been going down. If you were just to back up and take a look at the macro picture here, let me just pull up the S&P 500 chart one more time.

We have here sideways chop, like you said, all-time highs not too long ago, but basically sideways chop since the beginning of December, Jim. 2025 has not been a great start. Well, we haven’t had a great start, rather, to the year 2025 when it comes to risk assets.

Do you think then that there’s still a story, a narrative for bullish action for the rest of the year given that we talked about volatility and uncertainty with the tariffs? The Ukraine war has not been resolved. As you know, the Oval Office visit for Zelensky was a disaster. What’s the bullish narrative anymore? Do we still have one? I still think we have one, but I would argue, first of all, you’re right.

What you highlighted in the chart is that we’ve had sideways choppy action basically since the post-election period on the market right now. So it hasn’t been a good start in that it hasn’t gone up, but it hasn’t been a disastrous start either. And if you look at the chart we have, look at that rally you had since November of 2023.

So you’ve had a giant rally in the market for the last couple of years. So now we’re into the congestion phase of it. I’ll emphasize again, what is unusual is that we seem to be bouncing around at 1% to 2% days here, but we’re still holding within that range.

I don’t think that the stock market is necessarily at this point destined to lose you a lot of money. I just think given the valuations, it’s going to rebound back to the old high. Well, that’s a 4% gain.

That’s really all it’s going to take, 5% at the most to get you back to an all-time high. But there isn’t going to be a 15% or 20% gain in this market because of these high valuations. You’d need to have monstrous earnings in order to have these high valuations.

Well, if you had monstrous earnings, you’ll have monstrous GDP, you’ll have inflation, you’ll have 5.5% or 6% bond yields at the same time. I don’t think you can have a scenario here where the stock market goes up and bond yields go down. So if you think the stock market is going to rebound and go to 7,000, it’s going to take yields up with it too.

But I think really what we’re going to have is more of this chop. It’s going to go on longer than we think. And as it goes on longer than we think, I think that it’s going to just frustrate a lot more people.

And we need to adjust ourselves. After two big years in the market, all-time highs, near-record valuations, the market cap to GDP is over 200%. It’s one of the highest numbers we’ve seen in the last 80 years.

It’s going to be hard for the market to add gains from this point forward. It doesn’t mean you have to lose a lot of money. It’s just that those big gains might be behind us.

Let’s compare the performance of the S&P to that of gold. You mentioned gold earlier. And let’s just take year-to-date.

Year-to-date, gold’s up 8.5%. The S&P is down 1.2%, so kind of flattish down. Why the outperformance of gold relative to stocks? Keep in mind that all throughout last year, gold stocks and bonds, sorry, gold stocks and Bitcoin, rather, all hit new all-time highs. Yeah.

And I also point out real quick about last year, something that was unique. The S&P was up 25% last year. Gold was up 26% last year.

That is the first time that both gold and the S&P had been up that much in the same year. Usually, one goes up, the other goes down. They’re kind of opposite hedges of each other.

And that really hasn’t really worked this year. Now, this year, the stock market’s slowing down. I think it’s a valuation story.

Gold has still got the bit going, you know, on it. I would argue that gold, what is gold? It is a thing you buy in a period of uncertainty. Uncertainty could come in many forms.

It could come in the form of inflation. It could come in the form of political turmoil. It could come in the form of realignment.

That’s what we have right now. When I talked about Europe is stepping up to pay for security, Europe is stepping up to support Ukraine, the U.S. is pulling back, we are having a realignment of the world order that we haven’t seen since World War II. And that realignment has created a tremendous amount of uncertainty.

The uncertain instrument that you would buy is gold. Why is gold performing more than, say, Bitcoin? Well, Bitcoin has already had its big rally. It’s reached very high valuations.

While gold is reaching new record highs, if you look at it on a long-term basis, like 40 years or something like that, it is not necessarily as overvalued as the rest of them. Add into that that there’s been tremendous physical buying of gold, and as I mentioned, part of the import numbers might be that physical gold is being shipped from London to New York because of the arbitrage between the LME and the CME. Why is that happening? Because people want to own physical gold.

There is a mindset shift around this realignment. So gold is going. And what it’s telling me is there’s a period of uncertainty.

But what that uncertainty is, like I said, one form of uncertainty is inflation. And gold somehow gets tagged as being the inflation instrument. It’s not only that.

There are other forms of uncertainty. And this realignment, what we’re seeing with all the politics around the Ukraine, around the Middle East war, around the relationship with Europe, around Europe’s defense spending, we’re looking at a world that could be very different in a couple of years. And people are very nervous because they don’t know what’s coming next and gold is a natural haven to go to.

By the way, I pulled up this chart and I’ve extended it back to a couple of years now, going back to 2019. Does it make sense to you logically that gold and the S&P 500, which is what I have here on the screen, have traded basically in lockstep since the last five years or so? And that hasn’t always been the case if you just scroll back through history. They haven’t always moved in tandem.

Are we just starting to see a more closer realignment of asset classes with each other? In other words, a correlation to one across all asset classes? Is that the trend now? I think that, yes. And I think that the catalyst for that trend is monetary policy. You know, one of the arguments that somebody would ask me is why were they both up 25% last year? And the answer I’ve been giving is the Fed was easy last year.

They cut the funds rate, you know, four 25-basis-point cuts, two of them in the same meeting, a 50-basis-point cut. So stocks rallied because they got cheap money. Gold rallied because we got cheap money.

And it was worried that that cheap money was going to lead to a malinvestment somewhere or some kind of misallocation. And that is where I think we’re starting to see, because remember earlier I said the ISM prices paid numbers bad, the Michigan University of Michigan inflation expectation numbers were high. This is what gold was worried about in 2024 with the easy money from the Fed.

Now you throw in the realignment and money is continuing, gold is continuing to go. Stocks are kind of stalling out here because of the realignment. Because, look, we’re paying huge relative-to-earnings to own stocks.

I need big earnings. And if I’m going to have to talk about tariffs, if I’m going to have to talk about arguments with Europe over our relationship with them, that could put the kibosh on earnings. And at a time when I’m paying 25 times for stocks over earnings, that that could be a problem.

And that’s why I think you’re seeing the stock market chop around sideways trying to figure out what’s going on next. Okay, well another asset class that’s been chopping around sideways is cryptocurrencies. Take a look at my screen now once more.

This is Bitcoin. Huge rally on Sunday. We’ll talk about why.

And then it dropped 8% today in one day. It’s not like Bitcoin has never seen 10% drops and gains in a single day, but it’s still a big move. So what happened was Trump announced on March 2nd that, and I’ll just read this post on TruthSocial, a U.S. crypto reserve will elevate this critical industry after years of corrupt attacks by the Biden administration.

Keyword, crypto reserve, not Bitcoin reserve. He’s extended it now to XRP, Solana, Cardano. I will make sure the U.S. is the crypto capital of the world.

I mean, he’s just name-dropping a few crypto asset classes, assets rather. Who knows what else could be in this potential crypto strategic reserve. What is your first impression of this? I know you’ve been critical of a Bitcoin strategic reserve before.

You’ve talked about that on my show before. What do you think of a crypto reserve? It’s equally critical of it. So let me use, let me just get a little specific here.

The word reserve. The word reserve in a financial concept is supposed to be something that the central bank does and that it is a backing for the currency. Prior to 1971, the U.S. currency was backed by gold.

You could take, I know individuals couldn’t do it, but central banks could do it. You could take $35 of gold, hand it to the Federal Reserve, $35 of currency, hand it to the Federal Reserve, and they would give you back one ounce of gold. That’s what I mean by there was a gold reserve to back it.

Now we use the word reserve in strategic oil reserve and stuff like that, a lot of meanings. So if you’re talking about a crypto reserve, are we going to back the dollar by gold? It’s backed by nothing. It’s a fiat currency.

I don’t think we’re going to do that. It would have to be done by the Federal Reserve. It would need an act of Congress.

That’s not going to happen. Are we talking about that the New Sovereign Wealth Fund is going to hold these cryptocurrencies? Probably that’s what they mean. Now, there’s two questions there.

Are they actually going to buy these things? Or does the Justice Department, through its criminal and fraud investigations, has already acquired all of these currencies, these cryptos, excuse me, ADA, XRP, Solana, ETH, and Bitcoin, and they’re just going to transfer them to the crypto reserve, to the Sovereign Wealth Fund. They’re done. There’s no transaction.

Just literally hand the thumb drive to Scott Besant, Pam Bondi, the Attorney General hands the thumb drive to Scott Besant. There you go. Now we’re done.

We have a crypto reserve. Nothing has really changed. Is that what they mean? Or do they mean they’re actually going to actually borrow money and purchase these things? That is unclear.

Friday, there’s going to be a crypto conference hosted by David Sachs, President Trump’s AI and crypto czar. We should get more clarity on this. Now that I’ve said all of that, what’s going on here? The market got excited on Sunday that we were going to get a crypto reserve.

It assumed the government’s going to come, the government’s going to be the biggest whale ever, and it’s going to come with billions of dollars and it’s going to buy the hell out of these cryptos and send them to the moon. I’ve argued this is bullish for the short term and could be destroying it for the long term. You are centralizing the ownership, the ownership, not the distribution, the ownership of crypto into the hands of a big player who will have enormous influence.

And yes, the crypto crowd makes a mistake, but Bitcoin is decentralized in its production, in its creation of Bitcoin. So therefore, who cares about the ownership? The ownership can be as important as the production of it. And if the government owns it, they will have enormous influence over it.

What is crypto trying to be? It is trying to be an alternative financial system. You can’t be an alternative and have the legacy system own you at the same time. The legacy system will dictate rules or will dictate or threaten to sell you down every time you do something it doesn’t like, punish you.

So be careful getting in bed with the government if your goal is to create an alternative financial system. And so that’s why I think that I’ve been against this idea. I think what you want to do as the crypto space is you want to create something else.

If Uber was bought by Yellow Taxi in its infancy, we would never have Uber. If Netflix was bought in its infancy by Blockbuster, we’d still be driving to the store to get CDs to watch movies. So you want to be this true new idea, disruptive force against the legacy, not be owned by the legacy.

That’s the risk that you face with a government reserve. I think they got all excited about it yesterday. Maybe the cold hard reality is coming in today because all the gains that these cryptos got, especially ETH and Bitcoin, off of the pop-off of the reserve story is completely reversed right now, less than 24 hours later.

Hopefully I would think there is a realization this is not such a great idea in the long term. Sure, in the short term, the whale could jam the price higher, but that’s all we’re talking about. But in the long term, you rue the day that you have the government as a giant owner of your cryptocurrency.

Well, first of all, it looks like in the short term these crypto assets are still following stock markets like we saw today, right? Yes, they are still trading as risk on assets. They are still trading as a form of that, and they’re not establishing themselves as an alternative to the financial system. I know a lot of people criticize me on social media for being negative on crypto.

I am, in my heart, still very bullish long term on crypto. I like its story of being a disruptive new alternative financial system. The problem is the Maxis and everybody else got in the way and said, no, we’re a short term casino.

Number go up, and all of this other stuff, you know, everybody’s got to have diamond hands, and we’re going to all go buy Lambos. That is getting fundamentally in the long term bullish story of crypto. It’s getting in the way of it right now.

And I think that that has been a big problem with the cryptocurrency, that if we could get back to our knitting, we’re trying to create something new, something different, a new type of way to store value, a new type of way to exchange money, a new type of way to hold money that is, you know, that is permissionless, decentralized, that cannot be taken away from us in any way, or manipulated by governments. And I’m not so much speaking about the US government as the rest of the world, especially lesser developed countries. I’m all in on that story.

I am all in on that story, and it’s a product that is needed. It is something that is capable of happening, and there’s demand for such a thing. But if the product is going to be number go up, and the product is going to be short term degenerate gambling, that is going to get in the way of that long term story.

And yeah, you’ll make some money for a little while, but you’ll pay the price in the long term if you’re not careful. And one final point I want to bring up is that last week Bybit got hacked. Exchange, crypto exchange, the largest hack in crypto history, I believe $1.5 billion worth of assets hacked.

People online were calling for Ethereum to be rolled back to stop funds from being transferred to the Lazarus Group, which is a North Korean backed hacking group. The point I’m making here is that if Ethereum could, in theory it hasn’t been done by the way, but Ethereum could in theory be rolled back, the same thing could be done for the other coins that are proposed to be in the crypto reserve. Solana, ADA, so on and so forth.

Immutability in theory could be broken. Why would you want that in a reserve? I mean, you can’t break immutability for gold or oil or any other hard asset, right? Yeah, you’re right. They talked about forking it at that point and rolling it back and that would have been devastating if they wound up doing it.

The ETH Foundation was put in a bad situation. Roll it back, fork it, and you risk the long term viability of it as being an immutable source. Don’t fork it and then you get criticized that you’re helping to fund terrorists.

You were kind of in a no wait situation and the Ethereum Foundation already set the precedent from 2016 with the DAO hack. When DAO was hacked, decentralized autonomous organization was hacked and they did fork it and that’s why we’ve got Ethereum Classic, which was the old one, and we’ve got new Ethereum. They set that precedent nine years ago.

It’s a very tricky precedent and unfortunately, they don’t look like they’re going to do it because the Ethereum Foundation is kind of trying to say, we’re trying to be an alternative financial system. We’re trying to be something new and something different and we’re not just trying to be a casino chip that you could quickly degen a lot of money out of real quick, real fast. I’m glad that they didn’t do it.

As much as it’s unfortunate, these exchanges like ByteBit, which was a Dubai exchange, they need to do a better job of not getting hacked and people that keep their money in a hot wallet on these exchanges need to be a little bit more careful on what kind of exchange they’re keeping them on because all of these exchanges are subject to hacks and they better be up on trying to prevent them from happening. Okay, final question. I’ll let you go, Jim.

In light of everything we talked about, are we headed for a recession with the GDP now forecasting it turning negative with uncertainty around tariffs stemming growth, for example, that’s a concern? Is a recession on the horizon? I would argue that the answer is no, it is not on the horizon. The reason I would argue is, I’ve said this for a long time, the natural state for an economy, a capitalist economy, is to grow. Don’t do anything to the U.S. economy.

Don’t speed it up, don’t slow it down. It will grow. Now, you could argue given the set of circumstances we have, it will grow below its potential as opposed to at its potential or above its potential, but it’s still a positive number.

What is a recession? Rudy Dornbusch was an economist in the 1970s at MIT, and he had a famous line, economic expansions do not die of old age, they’re murdered. Something comes along and murders the economy. That’s what a recession is, and I like to joke those murder weapons have historically been 9-11, wars, COVID shutdowns.

Economists are not qualified to tell you when we’re going to have a murder on the economy. There are other types of events that would happen. Is Trump’s change, is our relationship with Europe, tariffs, you know, all of this combined, is that the murder weapon that could cause a recession? Maybe, but I would argue at this point, I would say no, it isn’t.

Could we see subpar growth? Sure, given what we saw with GDP now, I think it rebounds, but maybe it doesn’t rebound fast enough for the first quarter, and it comes in the second quarter. I don’t think we’re going to see a recession until you say there is an event out there that is going to change people’s behavior, like a COVID shutdown, like a war that sends oil prices shooting to the moon. Currently, we’re 4% off the all-time high, we’re at full employment with 4.1% unemployment rate right now.

The economic data has been a little bit wobbly, but nothing unusual. There’s nothing out there in the data that suggests that the economy is falling apart. Falling apart is an outside exogenous event.

It doesn’t fall apart on its own. It can grow slow on its own, but it needs that outside event. And I don’t think it’s tariffs, I don’t think it’s our relationship with Europe at this point.

So that’s why I would answer the question, sure, some slow periods, but I wouldn’t be overly concerned about it. But in the larger, no, I don’t think we’re going to have a recession. I think people misconstrue what a recession is.

Yeah, I think that viewpoint is shared by a lot of people, by the way. Speaking of murder weapons, I attended a conference a couple years ago, Janet Yellen was a speaker, she said that, echoing what you said, recessions are caused by two things, financial imbalances and the Fed. I think the audience laughed at that remark.

But to your point, yeah. She’s right, because one of those murder weapons has, you know, Dornbusch went on with his original thing and said, one of the murder weapons is the Fed just jacks rates up too much. They’ve been cutting rates in the last six months.

They’re not jacking rates up too much right now. You know in the Econ 101 textbooks that they make us read in business school, you see these graphs, these oscillations of the normal business cycle. You have expansions and you have recessions and contractions and expansion again and that’s supposedly being taught to us as normal parts of the business cycle.

You’re arguing that it is no longer a normal part of the business cycle to have economic contraction. We need an exogenous event, correct? Correct. Is that a recent development that’s changed or has it always been like this? No, I think it’s always been that way.

I think what they were talking about, that sine wave of the economy going up and down, I think that exists above zero is what it exists. It exists in a capitalist economy that it constantly grows. It can have a negative quarter here or there, but that’s not a recession.

It exists within that phrase that we kind of have booms and then we have a little bit of mini bust and stuff but then this exogenous event is what pushes us below zero. Remember, since the end of World War II, 90% of the years have not been recession. Recession has only happened 10% of the time since the end of World War II.

And almost every single one of them, you could point to a war, political upheaval, financial crisis, the Fed has raised rates too much, COVID shutdown, housing bust in 2008, and $145 crude oil is what we had in 2008. You could point to those types of things that pushed us into contraction. That’s what you need for recession.

So when I hear people talking about the economy looks terrible, yeah, we’ll grow at 1%. No, we’re going to have a recession. No, people don’t change their attitude unless something comes along like a COVID shutdown and says, honey, we’re not buying a car this week.

We were going to go out and buy a car, but look at what just happened in the world. We’re not going to buy a car. We’re not going to move, you know, or something like that.

That’s when you get a recession. No one is saying that. We’re going to buy a car, but I keep reading about these tariffs, so forget it.

We’re not going to buy a car. That is not happening right now. Now, there could be an event coming that causes people to think that way.

We’ll not be able to predict it. We’ll just have to react to it when it happens, but that has not been the case. So that’s why I say no to the recession story.

Excellent. Thank you, Jim. Where can we follow you? Biancoresearch.com as my website.

Biancoadvisors.com is our ETF. It’s a total return fixed income ETF, tickered WTBN. And the word Bianco Research, you can follow me on YouTube or on X Twitter and Jim Bianco on LinkedIn.

Lots of places to find me. That’s interesting. I didn’t realize you had a total return fund.

What’s in your ETF? It’s a total return fixed income fund. WTBN is its ticker symbol, so it’s a bond fund. It’s designed to be an actively managed fund.

We actively manage an index and WTBN tracks our index and it’s designed to outperform say like the Bloomberg Aggregate Index and the like. And we’ve been in business for about 15 months and we had a very good first year. We were in the upper 20th percentile of the 470 funds in our category, which is the core bond category.

So if you’re looking at this idea of stocks, bonds, cash returning kind of similar types of numbers, and you’re looking at bonds, I’ve got a fund. And I’ll just leave it at that before I get in trouble with the SEC. Alright.

Well, happy to talk more about that next time. WTBN. Okay.

Thank you very much, Jim. We’ll put the link down below and make sure to follow Jim there. And we’ll speak soon, Jim.

Take care. Thank you. Thank you for watching.