Stephanie Pomboy: Just How Screwed Are We?

**Adam Taggart** (0:01)
And we should be live. Welcome to Thoughtful Money. I'm Thoughtful Money founder and your host, Adam Taggart. Welcoming you here for another monthly session with the Macro Maven herself, Ms. Stephanie Pomboy. Steph, how are you doing?

**Stephanie Pomboy** (0:16)
Good. It's not nighttime here, but we're making it so.

**Adam Taggart** (0:22)
Okay, now, as I said earlier, you look super professional there. I feel like I'm sharing the nightly news.
And look, folks, I got to say, we're starting a few minutes late here if you're watching the live stream. Stephanie has had really the day from hell, and I so appreciate you still making the time to speak to this audience here.

**Stephanie Pomboy** (0:43)
This is the highlight of my day, Adam. Are you kidding? I'm glad to have a break from whatever insanity is headed my way next.

**Adam Taggart** (0:51)
So, my goodness, if I'm the highlight of your day, you're having a real bad one.

**Stephanie Pomboy** (0:55)
Not at all, but I've been looking forward to it. There's so much to talk about. I'm super excited for the conversation.

**Adam Taggart** (1:01)
Good. Well, same here. And so, Stephanie, as you know, I have to name these things in advance. And I pulled today's name as a variant from the recent debate that you did with Mike Leibowitz on Zero Hedge. So, I've titled this one, How Screwed Are We to make it a little bit more PG-13 than what Zero Hedge made theirs.
Lots to talk about, but I am curious, are there any key takeaways from that debate that you want to share with this audience, or at least at a high level, if we're talking on the screwed meter, where do you think we are right now?

**Stephanie Pomboy** (1:41)
Well, we've added around some interesting theories on why it is that Trump selected Kevin Warsh as the Fed Chairman, which seemed to be probably the single most unlikely candidate, since he had been clamoring for rate cuts and easier policy. So that, I guess, would be the thing on there that I thought was most interesting and provocative. And I know you and I can dig into that and will, I'm sure, shortly. So that's it. But there's plenty to discuss around the rates complex and the Iran situation and all the usual fun stuff.

**Adam Taggart** (2:19)
So let's just roll up our sleeves and then dig right into it. We can tackle this in any order you like. Do you want to start with Warsh? Do you want to start with the higher yields? Do you want to start with Iran? Like where are you focused most right now?

**Stephanie Pomboy** (2:34)
Well, I think that the Warsh and the yields conversation kind of dovetail nicely together. And, you know, obviously, I guess to kind of dive right into it, I think that the whole, to me, as I look at what's new, I think the thing that has changed in the last week that is really significant is this shift from the market expecting Fed rate cuts to expecting now some modest chance of a hike.

**Adam Taggart** (3:07)
Of a rate hike, yeah.

**Stephanie Pomboy** (3:09)
I don't think you can overstate the importance of that. Now, maybe I'm imbibing too heavily my own cool aid of the last four years, but you will recall, and so will many of your audience who never hesitate to remind me what a broken record I am, that from the moment the Fed raised rates in 2022, I was warning that this was going to be a problem because our economy cannot handle the truth when it comes to higher rates because in that era of free money, basically, in the post-COVID extravaganza, as I like to call it, everybody from the federal government, the corporate sector to consumers, but especially, I've been focused on the corporate sector, backed up the truck and borrowed heavily at rates that were essentially the lowest in our lifetimes.
So, I hear people now, the bulls dismissing this backup in rates as not bringing them to levels that are particularly punitive on a long-term time horizon. But my point is and always has been, what was a high rate in 1970 is absolutely irrelevant today, because if you borrowed at zero in 2019, and you're borrowing costs, you're now rolling that paper at four. A lot of companies simply cannot do that. Now, that's obviously not a real life example, but junk-rated companies were borrowing at four pre-fed rate hikes, and their borrowing costs are now north of seven on average. So, you've got companies that were borrowing at four that are paying 10 and you've got companies that are paying six. But whatever, it's been a substantial increase, and-