Here's The Latest Outlook From Lacy Hunt, Ed Dowd, Lyn Alden + A Dozen Other Experts

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**Adam Taggart** (1:01)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Well, Thoughtful Money's spring online conference was held this past weekend, and I'm delighted to say the event was a real success. That was due primarily to the amazing lineup of speakers who presented and took live audience Q&A throughout the insight-packed 11-hour day. For those of you who didn't attend, I thought you'd enjoy hearing some of the conference highlights. The day started with Lacy Hunt, former senior economist to the Federal Reserve, explaining how when an oil price shock slams the new economy as vulnerable as ours was right before the war, well, nothing good results.

**Lacy Hunt** (1:39)
One of the most essential aspects of an oil shock is that it's a global event. It's not a domestic event.
Oil is critical in every major economy's production function. And so when supplies are withdrawn and prices rise, there have to be major recalculations. And with oil and related products, it's very difficult for simple adjustments to be made because oil has price inelastic demand. They're not very good substitutes. So if you go into the gasoline station and the price is up, and you don't like it and your tank is empty over the short run, you have very little that you can do to avoid the impact. The key factor that one has to take into heavy consideration is that the shock is not the only thing that matters. It's the initial conditions matter. And so you have an unsteady or teetering economies, and the supply curve shifts inward, point number six. And the net result of that is that it's going to raise prices and lower GDP.

**Adam Taggart** (3:16)
Luke Gromen then made the case for a pronounced stagflationary recession ahead, expressing his substantial concern for the economic damage the current war in Iran is inflicting on the highly indebted global economy.

**Luke Gromen** (3:28)
It's going to be a crisis that will be worse than COVID and 8 combined.

**Adam Taggart** (3:33)
Well, sorry, bigger than COVID and what combined?

**Luke Gromen** (3:37)
2008

**Adam Taggart** (3:38)
2008 Okay. Sorry. All right. That's not a small statement. No.

**Luke Gromen** (3:45)
The gap in perception versus reality of this is as big as anything I've seen in my 30 years in research. This reminds me so much of 4Q07, where what we were hearing on the ground in the seat I was in at the time was so bad that I was calling friends and loved ones saying, make sure you have under $100,000 in the bank, under the deposit limits at that time, because there's going to be a lot of banks failing next year. At the same time, I was making those calls. The S&P 500 was hitting an all-time high. People were like, oh, everything's fine. I think this gap in perception versus reality is even wider.

**Adam Taggart** (4:24)
Ed Dowd echoed Luke's recession concerns, though with a more deflationary bias, noting that the war's high oil prices are already creating liquidity squeeze across the central supply chains.

**Ed Dowd** (4:36)
This oil price shock is causing a liquidity problem across supply chains. And if you look at the chart of the US dollar, it put in a nice low about a month ago. It's putting in a monthly swing low, and it's at 100 now. So as we roll through time, we expect the US dollar to catch a bid and be a lot higher by the end of this year. That will be indicative of a liquidity problem, a dollar shortage as credit defaults rise, and supply chain issues magnify.

**Adam Taggart** (5:10)
Michael, Howell came on to explain that now that global liquidity is deteriorating, that is highly correlated with lower asset prices ahead.

**Michael Howell** (5:19)
This is a five to six-year cycle. It's a cycle, as we would argue, which is about debt. It's a debt refinancing cycle, and that's an important thought to hold. Basically, what you've got now is liquidity conditions are starting to deteriorate. They're coming down. They're not falling in absolute terms significantly yet. This is much more a slowing of the growth rate. But nonetheless, we're seeing that inflection and asset markets respond to inflections in growth, because they tend to be priced at the margin. This is why that's important. The reason for showing the central bank chart earlier is that, just to say that what we're getting here is that the deterioration is coming fundamentally because of the private sector, not because of what central banks are doing. Now, why is the private sector deteriorating? Largely because money is beginning to move into the real economy from financial markets. Now, that's not necessarily only fueling real growth. It could be just basically compensating for higher inflation, or as we speak now, higher oil prices. But basically, all money that's anywhere must be somewhere. So if it's not in financial markets, it must be in the real economy. And vice versa, and that's broadly how the system works. So what we're facing now is tightening liquidity conditions. And that's basically a fact.