Ed Dowd: USA Facing A 'Toxic Cocktail' of Trouble In Stocks, Credit, Trade & Housing

**Edward Dowd** (0:00)
So we have an AI bubble that could burst at any moment. We have a real estate crisis brewing, and we have a trade wars, and we have credit issues. So this is a very toxic cocktail.

**Adam Taggart** (0:23)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Today's guest suggests that for much of the past three years, the economy and financial markets have been boosted by a sugar high cocktail, which includes prodigious fiscal stimulus from the government, massive AI capex outlays from the private sector, and a wave of incremental consumer spending from the waves of millions of illegal immigrants. But now he warns that the sugar high is behind us. If true, what will the repercussions be? Well, to find out, we're fortunate to welcome to the program for the first time, Edward Dowd, founder of macroeconomics consulting and research firm, Phinance Technologies. Ed, thanks so much for joining us today.

**Edward Dowd** (1:04)
Adam, thank you for having me on. An honor to be here.

**Adam Taggart** (1:07)
Thank you. It's a real pleasure. This is sort of one of those incredibly overdue meetings. I've had people tell me forever, I've got to get you on the program, Ed. I've known that we've sort of followed each other on X. I'm sorry it's taken so long, totally my bad, but very appreciative that you're coming on now.

**Edward Dowd** (1:27)
Well, it's good timing because I think we're at a crossroads in the capital markets. Had we talked a year ago, I would have been convicted, but I'm even more convicted now in what we're seeing.
It's going to be a very interesting next six to 12 months in my humble opinion. I'm glad maybe the strange way we delayed it until now.

**Adam Taggart** (1:48)
Okay. Well, that's good. We'll call that the universe is doing us a solid. All right.
Let's spend the next hour digging into exactly that. Why you think the capital markets are at this crossroads, what you think is likely to happen next, and what the ripple effects of that are going to be. If we can though, just so folks can understand how you see the world, I want to ask you a question that I used to ask a lot when I was interviewing people for the first time since I haven't interviewed you before. It's a perfect time to do it. It's an intentionally broad question, but I just think it again helps people think how you see the world. What is your current assessment of the economy and the financial markets right now?

**Edward Dowd** (2:26)
The financial markets and the economy, well, there's a complete disconnect between the two.
The real world economy has been in trouble for quite some time, and it's been stimulated and papered over by a couple of things. One was, unfortunately, we did have some non-farm payroll numbers that seemed to have magically been revised down in the turn of about a million or so. You can call it broad or statistical incompetence, but that was during the election year, the Biden administration, and the numbers are coming out, they're not good. So we had non-farm payroll numbers that were, let's just say, wrong, and that had implications for the economy.

**Adam Taggart** (3:14)
But wrong to the upside, right? They were artificially rosy.

**Edward Dowd** (3:17)
Artificially rosy. To the tune of, and this is something I learned, my whole career, I was in fixed income in my early career at HSBC, then I went to the sell side, did equity research, then went to the buy side and became a portfolio manager. So I've spent both credit and equity markets. My whole career, I never knew of a report called The Quarterly Senses of Earnings and Wages.

**Adam Taggart** (3:43)
The QECW?

**Edward Dowd** (3:44)
Yeah, yeah. The QCEW.

**Adam Taggart** (3:47)
QCEW, yeah.

**Edward Dowd** (3:48)
Did not know what that was. And the reason why we did not know what that was is because it was like, you know, historical data that was eventually, you know, it's the survey of 16 million actual pay, you know, all the employers wrapped up, and that's the actual data, the nonfarm payroll number, which I've known my whole career, and we trade on, and we look at is the estimate. The reason why we find out about this report, and you know, Lacey Hunt was the one who turned me on to it, is because the disparity between the two get to the point of seven sigmas, seven standard deviations, which, you know, which when you think about that, it indicates one of two things or both, statistical incompetence or fraud. So, you get the non-farm payroll number gets reported, it's an estimated, it's about 600,000 firms, I think surveyed, and then the QCEW on a very long leg, about a year later comes along with the actual numbers. Well, they usually over time are pretty close. There's some discrepancy, but over time, they're pretty close. There was one time there was a big statistical error that was during the Great Financial Crisis, but more often than not, it's just not that big of a deal. We discovered at the end of last year, going into this year, and Lacey Hunt discovered this, we checked the work, we said, yep, that's correct, and then I think Daniel D. Martino and a bunch of other people have talked about this.