The Capitalist Investor - Episode 134

Nothing these days is normal –– gas prices, food costs, inflation, and inverted yield curves are all onto worrisome paths. This week on “The Capitalist Investor,” Derek, Tony, and Luke talk about extremes and the warning signs the economy is giving off. While people are still spending, there’s still some panic going around. But when will the mass panic ignite? Will it be in the next month? Will it come in November with the midterm elections? In Episode #134, the guys focus on what’s happening around us and although facing such unpredictable times, aim to predict the economy’s future.

Outline of this Episode:

  • [2:30] Biden’s student loan policies are bad attempts to buy votes 
  • [15:00] The *third* inverted yield curve as another warning 
  • [22:10] Red states’ economies are winning post-pandemic 

Ultimately, Biden’s foolish student loan plan is all about scooping up voters

Haven’t we learned that there’s no such thing as free money? We’ve paid the price for these past two years but apparently the Biden administration hasn’t caught on and continues to talk about giving away money. 

We’re experiencing many negative things right now all over the country: very expensive fuel costs, increasing food bills, and wild inflation rates across the board. There’s just a generally bad feeling present across a lot of different areas. But what the Biden administration is focusing on right now is student loan debt forgiveness and flooding more money into the economy. 

The current plan is complex and involves many different actions like protecting defrauded borrowers and an overall loan forgiveness program. Many believe they are just using this plan to spearhead the $10,000 forgiveness policy across the board. But we think they are spewing out this policy simply because midterms are approaching –– and loan forgiveness –– it affects everyone across the political spectrum. By knocking off debt, they are simply trying to buy voters who may be on the fence this upcoming November. 

If a student debt forgiveness plan is enacted, there’s going to be generations of parents and grandparents offended and angry. But on the other hand, people in their 20s and 30s will gain some sort of benefit and be rallied to vote, especially if they didn’t have much of a reason to before. But the issue isn’t just about inflation and giving away money –– it’s also centered into the culture of what college has become today. 

College today is too easy of an access to a mounting debt

What happened to the days when you went to college because you did well in high school, thought about your future, and competed for scholarships? Today, college is pushed on by every single person who goes to high school, although they may not even need it down the road.  

It’s a fundamental problem we have in society. College is an investment for the future, if someone is paying $30,000 for an education, they have to make sure it’s going to pay off and be a worthwhile investment. But today, people are jumping on board, enrolling without a plan, and racking up high degrees of debt they feel unable to climb out of. 

College is the biggest outlier in basic economic behaviors. Usually with everything else, once people get priced out, they stop spending on it. When gas is more expensive, people travel less. When cars get too expensive, they don’t buy them. But as education gets more expensive, there’s no give and take. No matter the price, people continue to go to college. 

Maybe the issue isn’t people going to college, but the extreme costs of it. When will education get cheaper? Will it happen if people stop going and can no longer afford it? Will it follow a basic supply and demand model? 

That’s what it will come down to: if we want to fundamentally change the system, we have to start pushing for other ways to get educated. 

The issue is that debt is so easily accessible right now when people go to college, even though colleges continue taking in millions –– sometimes billions –– of endowments that students never get to benefit from. If we strike the debt issue, people can plan better. That’s the way education needs to go. 

At the end of the day, it feels like Biden’s student debt forgiveness plan is all about buying votes and solving issues by creating worse issues for the future. Politicians love to speak about anything that resonates with possible voters. But there’s no such thing as free money, and deep down, we have to rethink our education system and find a better way for people to get educated. 

For the third time, the inverted yield curve is hinting towards a recession

If you haven’t paid attention the last two times, the two-year and 10-year treasury curves have inverted once again and we’re taking that as another warning sign. 

During regular times, if you get a two-year CD, it should pay about three percent. And if you get a ten-year, you will hope it would pay around five percent. But right now, it’s flipped and the two-year is paying more than the 10. 

This isn’t a trend that should happen –– nonetheless happen three times within a year. What it means is that people are losing faith in the short-term economy, betting on the long-term, and buying up long-term 10-year bonds. People are worried there will be issues in the short-term which signals there’s a possibility of a recession coming around the corner. 

The yield curve inverting once again is very rare; it usually doesn’t invert so much but when it does, it stays inverted and goes back up. But in the past year, it’s inverted and reverted to its normal curve multiple times. Although the inversions have been short-lasted, they are still indicators of what’s to come.  

We don’t quite think the market has priced in a long and deep recession though. We haven’t seen much of a reaction quite yet. Yes, inflation is hot. Although credit card balances are starting to stabilize a bit, people are still spending. So, what does this mean? Are people gearing up and getting prepared for the pressure? When will the true panic set in? 

These times aren’t normal, and nobody is completely sure what’s to come with inflation and GDP readings at this point. It’s a coin flip but in our opinion, there’s greater than a coin flip chance we’re heading towards a recession. 

What’s phenomenal about economics is that you can stick your head outside and see what’s going on. Pay attention to the lines at gas stations and when they begin to shorten. Observe your local grocery store for less crowded aisles. Keep an eye out for less people. Where there’s less people, there’s less spending and that’s a precursor to what’s coming next. 

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Episode 79:
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Episode 111:
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