Deflation & Housing Market CRASH, AI Bubble EXPLODES (Uncut) 02-09-2025

WARNING: Deflation & Housing Market CRASH, AI Bubble EXPLODES | Edward Dowd

We have early cycle indicators that for, you know, forever have been a pretty good predictor of downturns and, of course, recoveries in the economy. And we were on public record saying as such, we were wrong, and a whole host of other economists were wrong as well. And in 23 and 24, we saw a new economic variable.

It’s the elephant in the room. It’s illegal immigration. You know, for your audience to understand how big of an economic impact this was, normally net legal migration is a million a year.

So we had 10 to 15 million come in, a lot of it in the last two years of the Biden administration. And this really affected the economy. And that’s why we had a major reason why we had the unprecedented deficit spending that we saw in the U.S. Hello, and welcome to Soar Financially, a channel where we discuss the macro to understand the micro.

My name is Kai Hoffman. I’m the Edge AR mining guy over on X and of course, your host of this channel. And I’m really looking forward to welcoming first time guest Edward Dowd.

He’s the founder of Finance Technologies and somebody been looking forward to having on this channel for a while now. And I’m glad we could make it work this time and really looking forward to this discussion. We’ve just chatted for about 10 minutes before hitting the record button.

And I’m sure we could probably fit three hours of content in into this conversation. Let’s see if we can squeeze it into 40. But we’ve got lots to discuss.

Lots going on, especially in the U.S. and in the markets, of course. So let’s dive right in. But before I switch over to my guest, quick reminder, there’s a free way to support our channel.

Just hit that like and subscribe button. Helps us out tremendously. And we do appreciate it.

Now, without much further ado, Edward, it’s great to have you on the program. Thank you so much for joining us. Great to be here.

Thanks for having me on. Yeah, I’m absolutely looking forward to the next 40, 45 minutes here with you. As I mentioned, we have lots to talk about.

There’s so much going on right now. It’s really tough to keep up. I told you it’s like my head is still spinning.

Project Stargate, the USA debacle. What else did I write down? The tariff debates. Just in general, there’s so much going on.

It’s really tough to stay on top of. But before we dive into all of that, Edward, since it’s your first time on the channel, I have to ask you, what’s your general assessment of the financial markets and the economy right now? Well, so we just put out our first paid research report, U.S. Economy 2025, Dangers of a Deep Worldwide Recession. We see a recession forming in the first year of President Trump’s term.

And we should have had a recession at the end of 23, beginning of 24. We have early cycle indicators that forever have been a pretty good predictor of downturns and, of course, recoveries in the economy. And we were on public record saying as such, we were wrong.

And a whole host of other economists were wrong as well. And in 23 and 24, we saw a new economic variable. It’s the elephant in the room.

It’s illegal immigration. You know, for your audience to understand how big of an economic impact this was, normally net legal migration is a million a year. So we had 10 to 15 million come in, a lot of it in the last two years of the Biden administration.

And this really affected the economy. And that’s why we had a major reason why we had the unprecedented deficit spending that we saw in the U.S. You have to understand, we had 8 percent deficits in GDP. The last time we had that, there was a crisis.

It was called the Great Financial Crisis. We had 8 to 10 percent deficits. So why did we have 8 to 10 percent deficits the last two years? The crisis was to get the Biden administration elected and kind of keep the economy from rolling over.

And the illegal immigration has propped up housing. It increased the velocity of money because a lot of the deficit spending went to NGOs, went to illegals directly, and they spent that money immediately. And we’re already starting to see the impact of the Trump administration.

We’re starting to see early indicators that that economic juice is all rolling out and it’s going to affect the capital markets going forward. And I think a lot of people have been put to sleep by the last two years because a lot of economic indicators have been suggesting the economy isn’t good, it’s not. The main reason why Trump was elected was the economy for the middle class.

Real wage growth was minus 2 percent going into the election. For Ronald Reagan, we had a similar statistic, minus 2 percent real wage growth for the average person. He got elected in a landslide.

Same thing for Bill Clinton in 1992. Famously, James Carville, his campaign manager, said it’s the economy, stupid. So anytime you get this kind of debacle in the middle class, you change administrations and that’s what we just saw.

No, absolutely. And I think we’ll need to dissect that a little bit and what that is going to look like and what is that going to look like perhaps over the next 12 months. It’s really difficult to predict any way further than that.

We can all get our crystal balls up, but I even have a hard time predicting the next three months here what they will look like. How do we unravel this? Maybe we’ll start with a basic question just to get everybody on the same level. When you talk about economic indicators, can you specify what are you looking at and what do you base your decisions on and your forecasting? Well, a lot of it is secret sauce that we don’t reveal because our competitors would figure out.

It’s basically real world indicators that lead the economy and the GDP. So, you know, Carlos Alegria, my partner, is a Ph.D. physicist and Ph.D. in finance and he developed these models at hedge funds and it’s an ECI. We’re going to start publishing it and getting a subscription service, but it’s a host of early cycle indicators that are predictive over time of where GDP is going, where the economy grows going.

And so the interesting thing about our ECIs is they were down showing recessionary levels. Then around October of 23, they started rising again. And that’s happened before in prior recessions.

And then it’s a false signal that rolls over. We thought it was a false signal, but it kept rising, but it never got into expansion territory. So the unprecedented deficit spending and what we call fiscal dominance and illegal immigration never really got the economy into expansion territory.

It just kind of kept it from completely rolling over. And that’s what we see going forward because all of President Trump’s policies are going to… I mean, he wants to cut the fiscal deficit. He wants to stop illegal immigration.

And those were the two things that were kind of the last thing holding up the U.S. economy. And if you look at the rest of the world’s GDP, it’s not good. So the U.S. has kind of been the only one kind of hanging on the last two years.

And that’s attracted a lot of capital to our asset markets, quite frankly. And we have a stock market that is at record valuations. The Warren Buffett indicator is at all-time highs.

We have a market that has been driven basically by seven stocks. And so 40 percent of the S&P index is seven stocks from a market cap basis. We’ve seen this right before other recessions.

We saw it in 2000 with the dot-com boom. And we saw it going into the housing crisis. The market became very narrow and peaked in December of 2007 before it gave up the ghost.

You can also make the case that the stock market used to be a good indicator, a predictive indicator of the economy. But that was when fundamental investors were most of the volume. When I was managing money at BlackRock in 2007, 70 percent of the volume in the stock market was fundamental investors, looking at all sorts of things.

And it was kind of the collective wisdom of the mind of humans. Since the Great Financial Crisis, only 5 percent of the volume is from fundamental investors. The rest is from passive indexes and algorithmic trading.

So I would suggest that the market is not as predictive as it used to be. Oh, definitely not. There are way too many indicators.

It’s difficult. I’m running a YouTube channel trying to discuss economic developments and my head is spinning on a daily basis. Every little event is becoming a massive elephant.

It used to be a little ant, now it’s a massive elephant, maybe due to social media as well. It’s very difficult, I tell you, to stay on top of things here. I’m trying to understand, President Trump seems like he’s ripping the Band-Aid off.

And I’m questioning, and maybe we can discuss that for a second, how smart that is. I’m not phrasing it right, but the Immigration Act, for example, we have ICE patrolling and ICE going to construction sites and then deporting illegal immigrants. Is that the right way to approach it? And I’m more concerned about the economic effects here.

We can leave the social effects out. That’s a different discussion, but more the economic effects here, like ripping that Band-Aid off. Will that shock the economy? And what’s the lag here that we can look at? Well, it’s already started to shock the economy.

The velocity of money was saved by the illegal immigrants. So the velocity of money, it’s been downtrending for a long time since the year 2000. Velocity of money in the U.S. has been kind of in a decline.

When Biden got elected, the velocity of money fell precipitously during the COVID shutdowns and then it bounced, but it kept rising. And a lot of that was due to the illegal immigration. In the fourth quarter, you can see the velocity of money.

If you go to the Federal Reserve website, it’s already peaked and rolling over in Q4. So velocity of money is already rolling over. And when Trump got elected on November 5th, a lot of illegals already started to self-deport.

So a lot of people are already leaving the country on their own. And that’s already affected new tenant rents. New tenant rents in the fourth quarter, which are a leading indicator of home prices and the economy and the housing market, plummeted in Q4.

There’s a note of caution on that, in that it’s a very volatile series. It’s only calculated every three months. But it did indicate that the Trump effect is already starting to occur.

Now, that’s interesting, because I think I’ve listened to another podcast the other day and they were talking about empty construction sites because the workers didn’t dare coming to work anymore. So I’m looking also for the negative effects on the economies, like if construction doesn’t happen because the workers are just not there or strawberry pickers in California, for example, is a really good example there. What were the ramifications there? I’m really trying to understand what the impact on the economy could be.

Yes, deflation to a degree, as you mentioned, meaning lower cost for goods or rent and housing and shelter. But I want to be a bit more precise, if that makes sense. I’m just trying to wrap my head around it.

Well, you know, the agricultural workers are a very small portion of this. A lot of these people came in. We don’t think even a lot of them found jobs or were working.

It seemed in our report a very small, you know, a fraction of those people actually got jobs. A lot of them were put up in housing through the NGO system. A lot of them got money to spend immediately.

And that just went into the system. It wasn’t productive spending. It was kind of a waste of the treasure of the US.

So that is going to have that’s the most dramatic impact on the construction news. That’s anecdotal. And I would tell you that in the report that if people buy it, they’ll see we go through new homes and supply.

New home supply is at a high. It’s almost where it was during the great financial crisis before it peaked. We look at permitting and permitting is already stopped.

New permits have already stopped because they see there’s no demand. And what’s been holding up the economy is what we call completions. And completions are from breaking ground and finishing the project.

That’s about to end. And maybe some of the anecdotes of the construction sites being empty is that the project’s been halted. I know for a fact anecdotally that people in Maui that are in the construction business, some of my friends, have been told after they’re done building the $20 million home, there’s no new project in the pipeline.

They might get laid off. So this is just classic economic supply demand. The housing market was already very fragile after COVID.

But it’s been held up by the illegal immigrants. Now, people say, well, are illegal immigrants buying homes? No, they’re not. But they need to find places and shelter to live.

And there’s multifamily homes, single-family homes. And people own multiple properties for renters. That was a big supply pressure on the price and kept prices elevated.

If you look at the real price of homes, ex-inflation, it’s been stagnant for the last year in the U.S. Globally, real home prices are dropping. So this is not just a U.S. problem. In our report, we look at the global real estate situation.

And prices have been rolling over on a real basis. Some countries worse than others. So this eventually has an impact on construction.

Housing is one of the biggest components of any economic activity. And it’s rolling over globally. And it’s going to start to roll over pretty dramatically in the U.S. And we’ll start to show up in the numbers.

We think, you know, obviously, if we’re talking about dangers of a deep worldwide recession, deflation will become the buzzword, not inflation. And the new tenant rents index dropping leads the all tenant rents, which gets into the shelter component of the CPI. Inflation is going to come down throughout the year.

It’s just mad that these trends continue. I’m just writing it down, inflation. I want to come back to that in a second.

But just another anecdote from my end. A friend of mine is selling a house in the Vancouver area and she was happy to announce that they slashed prices by $100,000. Or the price by $100,000.

So I thought it was an interesting development because in the Vancouver area, having to slash house prices, like either you completely overvalued your home or the market is very soft right now. In the Vancouver area, that is usually not the case. So I thought there was an interesting post I saw of hers on Instagram the other day.

We’re also seeing indications of problems in Texas and Florida where there was a lot of home building and a lot of demand because people were moving out of blue states during COVID because a lot of people wanted to get away from draconian COVID measures. So there’s local markets already having issues. On Maui, prices haven’t come down yet, but there’s no transactions.

I’m friends with someone in the real estate business and the pending home sales are at the lowest, they’re below COVID levels. And below, I think, the lowest I’ve seen in a very long time. So there’s no transactions going on.

So what does that mean? And we know that mortgage rates are high. So the adjusting mechanism is price. And as more and more houses come on the market, what you’re seeing in Vancouver is probably an indication of that.

Price is how you adjust. And the problem with that eventually is it might cause some issues with the banking system. In our report, we’re not predicting a systemic issue, but we predict classic feedback loops of credit tightening, the economy kind of slowing down, an official recession, and then a recovery.

I mean, recessions are not necessarily bad. And in fact, I would argue that asset prices coming down in the stock market and the real estate market would be good for the millennials and people who are desperately saving up to buy homes. And then we’ll just have a classic economic cycle.

The problem was we should have had this in 2023-2024. Obviously, there were political considerations. And literally $2 trillion deficits is what we believe saved the economy.

My head is spinning. There are so many directions I want to take this, but I do have one more follow-up. If we would have had the recession in 2023 or 2024, would it have been a soft landing or a hard landing? And now that we’ve delayed it, is it going to be a harder landing depending on where we are and what you predict? Well, so that’s the problem, right? When you delay or kick the can down the road… And again, I think the elephant in the room was the immigration.

And so a lot of people made bad asset allocation decisions based on an economy they thought was strong and sustainable. So you had the Fed looking at non-firm payroll numbers, which there’s a lot of debate about that. It’s diverged from the House Health Survey.

They’re looking at maybe employment numbers that are too high or statistically fudged during the election. You have corporations making bad decisions and you have the capital markets making bad decisions. So when you don’t take the pain, you build up more excess in the system, more leverage, and it could make the recession that should have come, this one will be probably a little deeper, more worrisome, but it has to happen.

There’s no way around it. Especially if Trump is going to keep his campaign promises, it’s actually a sign he’s restructuring the economy for the middle class. If we don’t get a recession and we get continued asset price inflation, it’s going to come at the expense of the middle class.

Well, he gave a timeline, two years, and he wants to reform the country. I don’t know off the top of my head when the midterm elections are. Midterm must be in two years, obviously.

Yeah, in 20 steps. So I think that’s his deadline, that he wants to reform it. The first year is probably going to be really rough.

That’s why I think he’s really pushing out reforms as quickly as he can, because that’s what I mean. My head is spinning. Before the record button, we were talking about Project Stargate, USA tariffs, and many other topics, of course, that he’s just pushing through.

So he’s really trying to rip the Band-Aid off before the midterms. This is just like Ronald Reagan. Ronald Reagan came in, and in 1981 and 1982, we had a recession.

But he restructured the economy, he cut and slashed taxes, he deregulated, and then the second two years of Ronald Reagan’s administration was a booming economy. That’s kind of what I think the Trump administration hopes to accomplish, is take the pain, get the economy going the right way, get the middle class feeling some relief, and we’ll see what happens. I mean, that’s kind of the model.

The difference is that Ronald Reagan didn’t have the deficits we had today. The slashing of government spending is going to be, while necessary, and we know there’s a lot of fraud and waste, it will impact GDP. An interesting question popped in my head here, Ed, and it’s about just, what is the endgame here? What does this look like? Yes, he’s making corrections.

The question is, how long will those corrections last? It seems like, if we have a graph that goes up at a 45-degree angle, just goes straight up, and we have Trump come in, there’s a bit of a dent, but do you see that graph continuing at the same velocity as before? Do we actually have a chance to make a proper change? A chance for proper change? Do you get my point? Are we kicking the can down the road? Okay, we’re taking a little pain here, but in the end, the trajectory is still the same, even in four years, a new president, the trajectory is the same, and in eight years, we’re going to have the same discussion again. Nothing’s going to change forever. Well, if we don’t restructure the economy, the fiscal dominance is really the problem, because fiscal dominance crowds out private investment, and what we’re finding from a lot of the discoveries from the Doge team is a lot of the government’s spending was excessive fraud and waste, and it’s not a productive, while it may temporarily boost GDP numbers, it’s not an investment in the economy, it doesn’t improve productivity, there’s no asset being formed, new companies, new construction projects, it’s basically money that we are borrowing from the future, adding to the interest rate burden, and eventually we have a crisis and the country goes bankrupt.

I think we’re a long way from that, and I think if Trump and his team can manage this properly and deregulate, cut some taxes for the middle class, let the animal spirits rise, we’ll have a corrective course measured. Scott Besson wants to reduce deficits to 3% from the current 8%, and he wants to do that by the end of the term. I think that’s manageable and doable, and it’s the only hope we have, otherwise we’re on a course of really bad destabilization in the world economies from the US getting potentially down the road into a debt crisis.

It’s not imminent, but if we don’t course correct, it’s a disaster. And that’s why gold has been rising, primarily because of these deficits and this insane spending that’s been going on. It’s an interesting debate, because we were talking about with other guests here on the channel about the monetary system, that it needs an overhaul, and that the US dollar is losing all its purchasing power, and we should return to a gold standard, or let’s call it a real asset-backed standard, can be whatever it is, can be oil, can be gold, whatever it is, it doesn’t really matter, but a different monetary system.

So my question, maybe I’m confusing two concepts here, but financial and monetary. I’m probably confusing the two systems here, but it feels like we’re just kicking the can down the road. Yes, we’re trying to make some adjustments, but we’re doomed anyway.

Are you catching my drift? Do we need to go back and make even more drastic changes, if that makes sense? I live in the world of what’s before me, and it looks like the Trump administration wants to continue the dollar system and shore it up and make it better, and the best way to do that is to correct our own problems at home. If you notice, the dollar is appreciating, and the reason why it’s appreciating is one of the reasons, because currency movements, there’s a whole host of reasons why currencies move. Even though the dollar is depreciating in value over time, the other currencies are having bigger issues than us, and so we’re what we call the cleanest shirt in a dirty laundry.

And I think if you look at what Trump said, what Besson said, they want to make the dollar, you know, strong. They don’t want any more talk about this, the BRICS talk that really, one of the big reasons why the BRICS became so bold is the Biden administration basically did something we’d never seen before early on in the Ukraine war. They took the Russian bank off the Swiss system, which is a weapon.

Other countries said, hey, that could happen to us if we don’t agree with the U.S. down the line. Then they, right in the fourth quarter of last year, said they were going to take the Russian reserves they had frozen and use it to fund the Ukraine war, which is sad. Internationally, this is the first time that’s been done.

It didn’t happen during World War II. It’s never happened before. So these countries under the Biden administration were squawking quite a bit, and Trump wants to put that conversation behind and make the dollar systems as vibrant as it can be.

Now, we can debate whether that is a good idea, but if that’s the case, then that’s why we talk about what we talk about in our report and why we think what’s coming is coming. Is there going to be a new monetary system? Should there be? That’s a different debate. I think it has to happen eventually, but is it going to happen immediately? No.

Yeah, that’s where I’m at. I think I’m confusing two concepts here. I’m thinking too long term ahead, just coming from the gold angle here on our channel as well.

So having too many discussions about what should the monetary system look like moving forward? What will it look like on the BRICS as well? You touched on it briefly. He’s Donald Trump. 100% tariffs on BRICS countries if they were to continue with the de-dollarization trend and potentially introduce a new currency as well.

It’s an interesting, ever-evolving situation here. But let’s get back to my notes. Let’s get back to what I originally Let’s talk about Bess and Trump wanting to lower interest rates in the US.

What’s the goal here? What’s the plan? Is this just driven because of the US debt or is there an ulterior motive to make America great again? Trump says he wants interest rates to go lower. A president saying it, you can say whatever he wants. I think he’s going to get lower interest rates, but not for the reason he wants.

The market forces are going to cause the Fed to chase a recession all the way down. And so, the Fed raised interest rates unprecedented rate of rate hikes, the fastest we’ve ever seen from zero to five and a half. And that caused, we all know over the last two and a half years, horrible bond returns.

Bonds have been in a bear market, the longest bear market, for a long, long time. And then they had to start cutting in September because they started to see something was going on in the plumbing of the system. People suspect they did it to bolster the stock market for the election purposes, but they had to cut because the three-month T-bill was starting to run lower and it was running lower because there’s things going on behind the scenes.

Interest rates are still way too high. So, monetary policy is still too tight and there’s a lag with monetary policy, usually 18 months. And, you know, they plateaued interest rates for a while and now they’ve cut.

And where money is still tight and that’s going to ripple through the economy and cause a slowdown. So the Fed is going to be chasing this all the way down. They’ve been looking at employment numbers that appear to be robust, between the non-farm payroll numbers and the household survey.

Traditionally, they kind of, you know, go in the same direction at the same time. Non-farm payrolls have been rising while household surveys have been flat. So this is kind of a discrepancy we’ve never seen before.

We talk about it in our report and I wholeheartedly believe Trump’s going to get his lower interest rates, but not because he says he wants them. It’s just going to happen. That’s interesting.

I was watching the press conference and reading the transcript and it almost got snippy there when he got asked whether he had any contact with President Trump and whether he’s going to low interest rates based on any comments that the president made. And he was like, no, pretty snippy actually, almost passive-aggressive commentary there, which was interesting. Let’s talk about inflation.

I mentioned we’d get back to that. We talked about tariffs to a degree as well, but do you think any of the policies that Donald Trump is installing or trying to push through are inflationary? You mentioned deflation might be the buzzword, but I do want to talk about inflation because I see the numbers ticking up slightly and a lot of guests on this show mentioned that we’ll probably see a return to very high interest rates, 9%, 10%, even higher percent here. I’m curious what your thoughts are on that and what that will look like.

I don’t think we’re going to see that at all. New tenant rents are telling you… Housing is a big part of the CPI number. And again, the elephant in the room is illegal immigration.

The housing market is stagnant. It’s price levels and new home supply. Forget price levels.

New home supply is almost where it was during the Great Financial Crisis. So this is going to be, I think, the biggest trade we’re going to see of our lifetimes where bonds are going to be bought in a risk-off scenario and equities are going to eventually… I’m not calling it crashing, but we could see something like 2000 where the stock market went down 50% over two years, which is not the end of the world. I mean, we need a correction.

I think tariffs are a sideshow. Trump uses them as a negotiating tool. He starts with crazy and then he gets to the table and then they negotiate.

He’s lost 25% tariffs on Canada and Mexico and he’s already kicked the can down the road and then because they’re starting to do what he wants them to do, put troops at the border, whatever Canada had to do. So I think it’s noise. During the first Trump administration, same thing.

This was a negotiating tactic and what’s coming from his policies and the illegal immigration going the other way is going to overwhelm any kind of inflationary impact and any tariff that he does stick and hold to. So I think from our perspective, tariffs are noise in our humble opinion. They’re going to be overwhelmed by what’s coming.

Sorry, I was coughing. I keep forgetting to unmute myself when I cough. We’ve seen that in the first presidency as well.

He’s shocking off, right? It’s like when he canceled the Paris Accord and it’s like, no, we’re done. We’re not playing by the rules anymore because nobody else is playing by them. Why should we? It’s not that he’s against protecting the climate.

He just wants it to be a fair process, which makes sense. Who can argue against that? So it’s the same principle in my opinion. Right.

Let’s use another example. We saw an announcement. He’s going to take over Gaza.

So a lot of people reacted. But if you know Trump in his mind, he said that and I don’t think he told Netanyahu. Netanyahu looked at him like, what are you talking about? So what he does is he reframes the conversation to negotiate.

So I don’t think we’re going to be building, you know, Trump casinos in Gaza. I think I think that was just a way to say, hey, look, do you guys really want us in there taking over the situation or do you guys want to come to the table and negotiate yourselves? I don’t think Palestinians nor Israel wants the US owning the Gaza Strip. Let’s be honest.

I don’t think American citizens want that either. So he floats the idea and reframes the conversation. This is this is what he does.

So as analysts, you know, you and I and others are going to have to, like, look at what he says, not react, you know, with emotions. But oh, OK, that sounds crazy. And maybe it is crazy.

But unless other people start to have a different conversation with Trump, the crazy could end up happening. Not likely, but it’s a way to negotiate to a different outcome. Exactly.

Now, I was looking how to get I was googling this morning how to get a McDonald’s franchise license in Gaza. So what that would look like. So but all jokes aside, shock and awe.

It works. It brings people to the table. And then you start up here and then you really meet in the middle.

Right. So that’s usually how that works. The art of the deal.

It’s called and it’s a book he’s written about. And that’s how you negotiate. I think everybody, anybody, any analyst needs to read that book.

I read it in his first term. So you just get the book, read it. And then when you see these things, don’t get emotional about them.

Think about what the end game is. And I was going to say I didn’t dare admit it like eight years ago, but I’ve read it when I was in university. I watched all the Apprentice shows back in the day as one does when they’re 22 year old, 21 year old and very impressionable.

Right. No, really, really interesting. One topic I still want to talk about.

And you touched on risk off and that triggered the question. We need to talk about risk on environment that we that we might be in or whether that is coming to an end right now. And that is also triggered by potential black swan there.

I call the deep sea black swan. Here is like, have we left the risk on environment? Like NVIDIA is down 17 percent or it was also a bit of a shock to the market. NVIDIA crashed 17 percent, wiped out six hundred billion dollars in market cap in one day, which is like the GDP of between Ireland and Argentina.

I think I look up on Wikipedia or whatever. It was, which is an insane number. So 25th or so, there’s only 25 countries that have a higher GDP than the market cap.

NVIDIA lost. If you put that into context, that’s just insane in my opinion. But are we currently transitioning into the risk off period is my question.

Well, I think that’s going to happen inevitably when the GDP numbers start rolling over. Velocity money rolls over. Bank credit is already getting tight and that’ll work its way to the economy and there’ll be an aha moment where people stop thinking about inflation and start thinking the other way.

So that’s coming. It’ll unfold throughout the year, but it is interesting to look at the stock bubble, which is really the only thing that’s been holding the indices together for the last year. Seven stocks.

So let’s take Deep Seek off the table for a second because Deep Seek in my mind is just a catalyst. This was going to happen regardless because the classic bubbles like we had the dotcom bubble, we had the real estate bubble. Bubbles start with dreams, capital starts to dream and a lot of capital is thrown at the bubble sector on dreams.

And then eventually, let’s use the dotcom bubble. There were dreams of a new economy from the Internet and there was not enough bandwidth. So we had a huge infrastructure build in bandwidth.

There was a whole ecosystem of telecom equipment companies, software companies, new telecom companies that were providing the bandwidth, Quest Communications, Windstar, Worldcom. And so all this bandwidth was funded and it caused Cisco’s stock to explode, Nortel, and you remember all this. Those were the real stocks, not the dotcom jokes that all went to zero really early on in 2000.

And so this bandwidth was overbuilt, overcapitalized. A lot of these companies went bankrupt there was a bust and pricing and then the bandwidth didn’t disappear. It was bought at pennies on the dollar and then, you know, this classic bubble, pricing comes down and then the real Internet economy took off with lower prices.

Web 2.0 companies like Facebook and Google and YouTube, you name it. They all took off. Amazon was one of the only companies that rose from the ashes of the dotcom bubble.

So this was going to collapse regardless. Let’s just use Nvidia as an example. What’s fueling the dreams of the AI bubble are Nvidia chips and Nvidia chips need to be bought to produce these AI compute systems and there was this rush to get Nvidia chips.

Nvidia is getting $40,000 per GPU which is an insane amount of money. It requires billions of dollars. And so what do people, what do human beings do to get their access to the chips? They double order.

They order so they can get higher up in the queue to receive their chips. And so there’s been double ordering going on. There’s been money invested in these startups and they’re using Nvidia chips as collateral for some of the debt deals that have been done.

So it’s classic economics 101. It was going to peak out and then momentum was going to go the other way. All the people who would invest in this money were going to realize they were going to lose their shirts.

So bankruptcies started to occur. So DeepSeek is just maybe a catalyst. You know, whether you believe DeepSeek or not changed the economic model of AI, meaning they can do it much cheaper.

It was going to happen anyways. Pricing had to come down. There needed to be a bust so that pricing could then develop AI for real with revenue generating opportunities.

No one’s making money on AI right now. So you have AI companies without really any revenues being funded by private equity with Nvidia chips as collateral. You know, how do you think that ends? It doesn’t end well.

Yeah, Project Stargate, $500 billion investment, which seems to be falling short. And I’m questioning now is like, is it falling flat on its face as well? Sort of what you’re mentioning, like overfunded, not successful. I’m looking at Palantir up 43% year to date as a beneficiary of the spending boom.

Like, is that the same scenario? Is that exactly what we’re seeing right now? Palantir, I think, is ripping primarily because of the closeness of the founder Peter Thiel to the Trump administration. So there’s this belief, it’s a play on restructuring the government, that they’re going to get a lot of government contracts and their software is going to be used to make the government efficient. So that’s a one-off.

OK, I’m throwing that together then. OK, sorry. Yeah, that’s a one-off.

But let’s talk about Stargate and OpenAI and that big announcement in Trump’s office with Larry Ellison and Sam Altman. So if you read the details of the story, Project Stargate actually started under the Biden administration. They said they were going to commit 100 billion, which hasn’t been fully funded.

They’ve already built 10 data centers. And so the project started under Biden. They get up there in the press conference and tell President Trump, we couldn’t have done this without you, which was just basically kissing the ring.

And they rebranded the old project a new name, Stargate. And then they mythically announced a $400 billion investment. They got SoftBank to come in.

And, you know, SoftBank is notorious for pumping hypes. They have their own problems. So there’s really no money available for the $400 billion.

They say it’s private investment. I think they wanted Trump to offer to fund some of it with a government private partnership. I don’t think he bid on that.

And then Larry Ellison made fantastical salesman-type claims that mRNA will be using AI to cure cancer with individualized cancer vaccines. So classic Larry Ellison hype. AI can’t do that.

AI is a large language model compiler. It’s not going to sequence DNA. It’s not ready for that.

So that was just, in my opinion, hype and kissing the ring of Trump because there was a plan under the Biden administration to basically create a monopoly in AI kind of secretly run by the government. They told, and Mark Andreessen blew the lid on this, they told everybody in the room, don’t invest in any AI startups. We’re not going to allow them to actually be successful.

So with the change in transition of the Trump administration, the dreams of open AI’s monopoly has been crushed. They went to Washington to kiss the ring to see if they could figure something out. And then deep state comes.

And so this is classic bubble behavior that eventually, and bubbles are not necessarily bad things. I mean, there was a railroad bubble in the 1870s where they overinvested in building railroads. Those initial investors lost their money, but then you had a railroad system built.

Prices plummeted and the economy benefited from that infrastructure. I view this infrastructure bubble just like that as well. Prices will collapse.

The initial round of investors will get wiped out. But then pricing comes down and AI will become ubiquitous for everybody else because, you know, prices are now reasonable. You said like small startups are not allowed to live.

It triggered a national security question for me. AI is extremely important on the national security side. How can that be controlled? I don’t want to get too, how do you call it, conspiracy theorist, but I’m not sure what the right word is here.

But just spinning it further, should the government control AI in that regard? Is that a national security topic or should the open market control it? The open market should control it. And the reason why the government shouldn’t be involved is because they’re going to pick winners and losers. And the winners will, of course, have to figure out a way to pay off the politicians that rewarded these contracts to them.

So it’s inherently corrupt. It’s inherently bad. Once the government’s involved in something, it’s closed down innovation.

Competition is not necessarily a bad thing. I mean, Mark Andreessen basically, what he didn’t say was, he was in a room. They said, don’t invest in AI startups.

We’re not going to allow them. When someone says we’re not going to allow them, what does that mean? What that means is they’re going to regulate the poor little AI startups to death and just, you know, use lawfare and the apparatus of government to shut them down. Yeah, I know.

And that’s just, I don’t know. I don’t want to see that. I want to live in a free market economy, right? Yeah.

So that’s that. Ed, I have two small topics we need to tick off real quick before we wrap up our conversation. That’s the dollar and gold.

You touched on gold before. So I quickly want to talk about the development of the U.S. dollar, what your thoughts are on that, the currency. You said it’s been upticking, but it sort of stopped trending up at about a 110 at the Dixie.

And I’m curious what your thoughts are for the U.S. dollar moving forward and how it will impact the economy. Well, so the dollar is interesting. It had a huge run a couple of years ago and then it corrected.

And the dollar, you know, if you look at the dollar long term, it has cycles to it. My friend Tim Wood is a cycles analyst and he believes there’s a four-year cycle in the dollar. And there is, and I’ve seen it.

If you look at the dollar since the great financial crisis, every four-year cycle low has been higher than the previous four-year cycle low and the four-year cycle top has been higher than the previous four-year cycle top. So if you look at the long term chart of the dollar, it’s in a bullish trend, regardless of what, why, or it just is. So the dollar, until technically it breaks and we get a four-year cycle low below the prior four-year cycle low, the dollar is up and to the right long term with, you know, wild gyrations in between.

The dollar has been rising since Trump got elected. I also think it has to do with a global dollar shortage. As economic conditions tighten in other countries, they scramble for dollars, dollar liquidity.

And I think that’s part of what we’re seeing. So the dollar, you know, I’m not going to say the dollar is going to explode upward, but I think the dollar is probably fine. I think in any kind of recession, the dollar will weaken a little bit because there’ll be a sale of U.S. assets in a risk-off scenario, but that should be temporary.

Gold long term is something that you should probably own. Gold has cycles as well. And one thing, if you just look at strict correlations, interest rates going down historically hasn’t been good for gold.

That may change, that correlation may disconnect, but interest rate hikes tend to be good for gold and lower interest rates tend to be bad for gold. So I don’t think gold’s going to fall out of bed. In any kind of risk-off scenario, especially if you think about what happened during the Great Financial Crisis, and if there’s a big margin call and a lot of fear and panic, which hopefully there isn’t, but there might be, gold will be sold because you sell what you can, not what you want to.

No, absolutely. Maybe one final question, and it’s an interesting one. Does Trump want a stronger or weaker dollar right now? He wants a weaker dollar, but he may not get that.

The dollar’s going to do what the dollar’s going to do. In a global, deep worldwide recession, there would be a scramble for dollar liquidity. So there would be these different forces, us lowering interest rates, but people scrambling for dollars.

That’s kind of like where it goes. No one knows, but it should keep a bid underneath the dollar. No, I appreciate that.

And maybe one very last question, and again, I mentioned to you earlier this is not financial advice or anything, but if you had a million dollars to invest right now, how would you allocate that money? If you get our report and read it, the trade is right there in your face. In any kind of… What asset class has been terrible the last two years? Bonds. I’m not talking sovereign bonds.

Forget bonds tied to credit like corporate bonds or chunk bonds. Just straight sovereign bonds, especially the U.S. In a recession, they tend to go up in value, down in yield. And as our scenario plays out, bonds will be the place to be or key bills.

If you look at what Warren Buffett’s doing, he’s decided to pick the short end of the curve, the safest bond bet. He’s got all his money in key bills. He owns more than the Federal Reserve because I think he was early to the trade, as were we.

He sees what we see, and he’s going to do what Warren Buffett does. He’s going to come in at the bottom and buy. So, Ed, extremely appreciative of your time.

You hinted at your report a number of times. Where can we find it? We’ll put a link down below as well. And where can we follow more of your work? I know you’re also on X as well.

Yeah, so I’m on X. It’s at D-O-W-D-Edward, so dot Edward. I’m on Getter at Edward Dow. I post mostly on X, though.

Our website is Financetechnologies.com, so with a P-H. And if you’re interested in the report, and again, it’s targeted for an audience that manages other people’s money or is high net worth, there’s a go to the product page button right at the top of our homepage. Now, fantastic.

Ed, really appreciate your time. It’s great to have you on the program. Great to meet you as well.

Thanks so much. And I hope to have you back on soon and just catch up. And now your Outlook 2025 is playing out.

Maybe we’ll catch up in June or so to sort of a halftime report. And we’ll take a look how things are going. So thank you so much.

Thank you. And everybody else, thank you so much for tuning in. I hope you enjoyed this conversation here with Ed Dowd.

I tremendously did. My head is always spinning when I have a new guest on. There’s so many directions we could take our conversations in because I have a ton of notes prepared usually for these interviews.

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And we’ll be back with lots more here on SOAR Financially. Thank you so much for joining us.