 I want to talk about all of that. I also want to mention that Ben Shapiro did a segment two days ago, I think two days ago, on the real estate Doom Loop. So you can find that on the Ben Shapiro show if you search Ben Shapiro. He covers a lot of different news items. But this was the first, and I think the title of the video is this, right? Real estate Doom Loop, Economic Doom Loop. Are we heading towards Armageddon? And I found his analysis. How should I put it? Interesting. His analysis, interesting in one particular way. And we will talk about that as well. And in particular, I mean, Ben Shapiro kind of says, throughout, this is the consequence of the Biden economy. This is the Biden economy. This is the fragility of the Biden economy. This is the Doom Loop of the Biden economy. Biden economy. And so what I found interesting about it, I'll just say this now, and maybe we can return to this, is that when you listen to commentaries, and look, Ben Shapiro has 7 million, 6.7 million subscribers, so a lot of people are listening to these shows. But what you hear when you listen to his economic analysis is basically partisan politics. It reminds me a lot of Rush Limba used to do this a lot. The whole analysis was partisan. The economy was going to hell and collapsing and a disaster and Doom Loop been awful and horrible when Democrats were in power. And the economy was doing quite well. And people didn't appreciate how well the economy was doing and how robust the US economy was when the Republican was in power. And it didn't matter what the reality was. It didn't matter what was actually going on in the real world. It didn't matter what the data actually presented or what was actually happening. All that mattered was the fact that, you know, a Democrat was in the House, it was in power, or the Republican was in power. And so when you listen to economic analysis out there, from partisan people, MSNBC, Fox, Ben Shapiro, or the equivalents on the left, and, you know, Nor Smith, who is an economist, who I follow on Substack, is the same way on the left. Like, right now, the US economy is booming. It's unbelievable. It's so great. The Biden, Biden, he calls it the Biden economy and Biden economic policy. It's all success. It's all rosy. It's all beautiful. It's all amazing. And it really is a challenge unless you look for real economic analysis. It really is a challenge to figure out what's actually going on. What is really going on? What is happening? What is good? What is bad? And then the other aspect of this that I think is really important is who's responsible? So let's say we're heading towards some kind of catastrophe right now, and we're going to go into a deep recession, which is certainly possible. But who's responsible? Is it Biden's fault? Is that how it works? And when the economy did really well, let's say during the 1990s, was that Clinton's fault? Was it was the economy in the 2000s, Bush's and Obama? I mean, we attribute success and failure to our political leaders in ways that they simply do not deserve, plus or minus. Now, you can often attribute particular outcomes to particular policies. I don't know, was the financial crisis really a Bush crisis? To some extent, certainly some economic challenges, some economic challenges, or some causes of the great financial crisis in 2008 were caused by specific Bush policies. But they were also caused by policies going back to the Great Depression, to FDR, regulatory institutions, for example. They were also caused, to a large extent, by the policies of Ben Bernanke as Federal Reserve Chairman. They were caused by the whole mentality of Alan Greenspan as Federal Reserve Chairman even before that. And they were caused by certain regulatory things that Bill Clinton had done during the 1990s. And you could even take it back to things that Congress did in 1980. And it all came together in this crazy storm during 2008. And it's quick and easy to blame whoever happens to be in the White House at the time. It's their fault. But it doesn't. Life, reality, and economics certainly don't quite work that way. Like inflation, is inflation really Biden's fault? Well, to some extent, sure. He spent a lot of money into 2021. And after the big stimuli of COVID, they continued to spend money, of course, bipartisan to some extent, Republicans voted for it, whether it was the Inflation Reduction Act, what a joke, NN, or the CHIP Act, or numerous other things. They spend money like there's no tomorrow. That's all true. But isn't this inflation really, if you really want to attribute the entire what's going on in the economy and the inflation, isn't it, to some extent, caused by the quantitative easing that happened during the entire 2010s that is after the financial crisis? Isn't it, to some extent, a consequence of Trump's stimulus of the economy during 2020 as a result of COVID? You can't just attribute the inflation to Biden's stimulus if Trump's was just as big, if not bigger the year before. That's got to have played a role as well. And of course, what about the fact that under Trump, spending as a percentage of GDP, government spending as a percentage of GDP continue to increase dramatically from 2016 to 2019? Has that got anything to do with inflation? Well, of course it does. And you can't understand this doom loop that Wall Street Journal is talking about. And you can't understand the zombie companies. And you can't understand the susceptibility of the US economy today to crisis without understanding inflation. And therefore, the Fed's response to inflation by raising interest rates. But is that the right response to inflation? Is that what's decreasing inflation right now? Is it the Fed raising interest rates? Is that what increases, decreases inflation? Or is inflation coming down anyway because there was a one-time shock to the money supply? It increased dramatically during COVID. Prices had to adjust to reflect the increased money in the economy. They adjust upwards. Once that they've adjusted and you're not continuously flooding them out with new money, inflation should just dissipate. Maybe inflation would have gone away no matter what the Fed had done. Maybe not. Maybe what the markets are really looking at with inflation is government spending and government deficits. I mean, these are complex issues. And yet, almost all the commentary out there tries to boil these complex issues down to partisan politics. And I'm just saying beware. Even if it's somebody as smart as a venture peer or venture peer has become more and more, sadly, more and more partisan. Of course, being more and more partisan has led to him growing bigger and bigger and bigger, more and more successful. So maybe we should all be more partisan because maybe that is the source of real success in this business. But the reality is that if you're interested in economic analysis, beware. And there is one other form of economic analysis that you have to be careful of out there, which often sounds much more reasonable and rational and is not nonpartisan. And that is the economic policy that always sees doom and gloom around the corner. That is constantly seeing the next crash and collapse and disaster just around the corner. I mean, probably the best example of that is Nui El-Wabini, who is a well-known bear who is often, often, often declared the end and the decline of the US economy, the end of the stock market bull, the next doom loop, the next disaster. And Nui El-Wabini, of course, is well known because he was one of the people who predicted the 2008 Great Financial Crisis. And really, that's how it works. If you predict crisis every year, sometimes you're going to be right. And when you are right, you're considered a guru, a hero, a prophet, somebody who can see the future. And therefore, everybody starts following you and you continue to predict doom and gloom. Some people drop off when they realize it's not happening. But you're always going to have a core people who are going to stick with you no matter what because doom and gloom cells, catastrophizing cells. So just in this context, in March 30th, March 30th of 2023, this year, March 30th, Nui El-Wabini put out an article. The title of the article was The Coming Doom Loop. The Coming Doom Loop. And of course, the Wall Street Journal article is titled Real Estate Doom Loop Threatens America's Banks. And again, just to give you some context about this, a little bit of historical context, even about this use of the term of this idea of doom loop. I did a search, Doom Loop Wall Street Journal. And it's interesting what comes up. Well, first, and we'll talk about this, we've got the San Francisco Doom Loop, which I've talked about, and we can talk about that as well. But at 22, last year, this is a Wall Street Journal title. Doom Loop fears are putting Italian banks to the test. Italian banks are still around and OK, last time I looked. This is 2020, December 30th, 2020. So right at the end of 2020, but midst of COVID, Wall Street Journal title. Banks pile into government debt, setting up. Guess what it's setting up? A Doom Loop. In another title, another one in 2022, Doom Loop fears haunt Italian banks. This is 2018, right? 2018. So this is four years before the Doom Loop haunts Italian banks. In October 2018, invest this fear Italian Doom Loop as Bond Selov deepens. So the Italian Doom Loop has been going on for a while, yet Italy still stands. Or again, in 2018, May of 2018, Wall Street Journal, bank investors fear a turn of European Doom Loop. 2019, Italy's Doom Loop imagined and real, right? At least they recognize they might be an imagined section of it. And then just so you don't think this is about Italy and Europe, in February 11th of 2016, the Wall Street Journal had an article titled, Doom Loop fears cast pale over bank shares. So as far back as 2016, people viewed American banks as entering a Doom Loop. And 2013, Europe's bank government Doom Loop still holds. And again, 2016, why smaller banks pay price for Europe's Doom Loop? And I don't know if we can go much further than that. The term was coined in 2001. So my guess is that if I went back far enough, I would find lots of references. And what I just gave you is just the Wall Street Journal. If you do a generalized search on Doom Loop, you get all kinds of stuff going back to all kinds of years from all kinds of newspaper sources. So generally, Doom Loop sells papers or sells media or sells clicks or is click bait. Click bait. We'll see if having Doom Loop in the title of this talk today, the show will increase of viewership. I don't know. Hard to tell. Hard to tell. Even the economists, June 22nd, 2022, what is the Doom Loop in the eurozone? It's literally, literally everywhere. So what is a Doom Loop? I mean, Doom Loop basically is the idea that something collapses or something defaults, something goes bad. And there are consequences to other parties in the economy. So for example, in the case of what the Wall Street Journal is reporting about the Doom Loop that is threatening banks today, the commercial real estate. Well, we know commercial real estate, primarily office buildings. And what I find interesting is that not really in the journal, they don't really differentiate between commercial real estate generally and office buildings, which they should, but it's hard to get data on it. But the reality is office buildings, particularly in the major cities, San Francisco and New York, Chicago probably, and many other cities, maybe many other cities. There is very high vacancies, very high vacancies. On a national basis, vacancies I think I saw in office buildings of somewhere around 18% in San Francisco and New York, it's significantly higher than that. Other places is obviously lower than that. That is the average. Now, what happens when you have vacancies? It all starts with people working at home. People working at home not going to the office. Companies, as a consequence, realize that they don't need so much office space. So they don't renew their leases or they shrink the size of their office space and they let the people work from home. Maybe they rotate people from home. Maybe they only have people coming in to work three days a week. But what that generates is less use of office space, less need for office space. So you get vacancies. And you get now office space sitting there and building owners trying to rent it out. But a lot of companies are going virtual. A lot of companies don't want office space. They don't want to rent. They would rather have their employees work virtually and employees would rather work from home. So therefore, new companies are not buying or renting this office space. So now what's happening is building owners have their income slowly ratcheted down as these leases come due and they're not being renewed. So that's the beginning. That's the initiator of the doom loop is working from home. Less office space needed. People now renewing their leases. Income for owners of office buildings going down. Now almost all office buildings are purchased or built with mortgages, basically like you buy a home with a mortgage. Almost all residential homes in the United States have mortgages. So it makes a lot of sense for a variety of reasons, which we can talk about if you want. You can ask about it, to use debt in order to finance a real estate acquisition. And so a lot of banks and private lenders and all kinds of other lenders have lent money to real estate developers, real estate owners, to build or to buy office buildings. They lent, leased them out. And then they use the rent to pay off the mortgage. And what's left is their profit. Now what happens is as vacancy rates increase, as fewer and fewer and fewer people are leasing in your building, your income is declining and declining and declining. And at some point, that income is going to go below your mortgage. That is, you'll owe more money on a monthly basis to pay back your mortgage than you're getting in rents. And now you're in a real cash flow challenge. And one option you might have is you might say, OK, I'll sell the building. I want to get out of this. This is eating me alive. I want to get out. I want to sell. I'll do something else with my money. If you bought the building based on a certain assumption of rents, of income, of vacancies, and now vacancies have gone up, rental income has come down, the value of the building is significantly lower. That's one factor. The second factor is, and I've said this to you guys many times, but it's worth emphasizing, as interest goes go up, all values of all assets go down. Everything else, health constant, it goes down. Because whatever you expect your income to be in the future is now discounted into the present at a higher interest rate, which makes it worth less. So the value of the building has gone down. The income of the rents has gone down. Your mortgage payments have not changed at all. And if you want to refinance your mortgage, interest rates are going to be higher, your monthly payments will be higher. If your mortgage comes due and you have to pay it off, well, usually what happens is you do that by refinancing, but you can't afford to refinance. The valuation is much lower. So you can see how a lot of owners of office buildings are either selling their office buildings at huge losses, or they're basically just defaulting on their mortgages. They're basically handing the keys of the building to the bank. We saw a number of examples of this in San Francisco. And one dramatic example of this in San Francisco was the very large, which used to be pretty dominant, hotel, the Hilton, right near Union Square. Basically, not enough people were coming. Not enough. They couldn't rent the rooms out at rates. They could bring enough income to pay off the mortgage. So the owner of the Hilton hotel in San Francisco, this hotel used to be one of the places to have conferences. It's a massive hotel. It was always book solid. It generated real high rates. Couldn't pay the mortgage anymore. And he handed the keys to the bank. Now, banks often give a mortgage. Like when you get a mortgage on your home, you usually have to put 20% down. On commercial real estate, office buildings, and things like that, it's usually 60%. Could be 50%. Could be 40%. So the bank has some margin to play with. The building might have been worth $10 million. And it got a mortgage for $5 million. So as long as it hasn't dropped below the $5 million mark, it can still be sold. But part of the problem with some of these buildings are dropping dramatically in valuation. And therefore, banks, therefore, are going to take a hit. So the doom loop here is, again, work from home, higher vacancies, lower rents, owners defaulting on their mortgages. Banks stuck with office space, office buildings, that they have to sell at a loss. Banks taking a loss, which they can't afford, because we saw earlier this year, deposits were flowing out of the banks, and the banks having a hard time with this. And then, of course, banks start getting into trouble. Banks taking a loss means banks are less likely to lend money to new borrowers, which means people trying to refinance buildings that might still have enough vacancy there that they're thinking, OK, I can still keep it going, but they need to refinance their mortgage, go to the bank to ask for a new mortgage. Banks say, oh, no, no, we're not doing that anymore. We're taking losses in our current portfolio, so we're not doing any more real estate lending. So more defaults, because they can't finance in order to get a new mortgage. So more defaults mean more losses, and that's the spiral. And, of course, if banks go down, they stop lending to small businesses, to medium-sized businesses, to large businesses. Those businesses now can't afford to grow, but they might even have to shrink, because now they can't afford to pay whatever debts they have. The banks won't lend them any money to pay off other debts. They start shutting down, they lay off people, and you see how this spirals. This is the doom loop. It loops into a recession. And, of course, the only way we are told to get out of the doom loop is that government steps in and bails somebody out, bails out the businesses, or bails out the banks. But somebody gets bailed out to renew the lending. The economy is driven by, again, according to this idea, the economy is driven by lending, and therefore what we need to do is pour money into the banking system, or bail out all the businesses so that banks are confident again to lend money, and then the opposite of the doom loop happens. The virtuous loop happens, and everything grows, and everything sustains. And that's what they're saying is going to happen or likely to happen, and they give some examples, they lump all commercial banks together and they do argue that regional and local banks have seen their commercial real estate portfolios increase dramatically. But again, there are all kinds of commercial real estate. There's commercial real estate that is office buildings. There's commercial real estate that is retail buildings, malls, strip malls, standalone stores, Starbucks. Those are all commercial real estate. And yet it's not clear that what's happening in the office building is necessarily going to happen to strip malls. That could be true in San Francisco. And again, this is why you have to look at the details. In San Francisco, it might be true because people are not coming to work in the downtown. Stores are closing in the downtown, but those stores are probably opening up somewhere else. Commercial real estate is also manufacturing, manufacturing plants, small, medium, large, manufacturing plants. It's also warehouses. It's lots of things. Commercial real estate is a big category. The one area of commercial real estate that's really struggling right now, more than any other, is office buildings. I mean, I don't know that shopping is struggling that much. Consumers still seem to be spending. And while it's true that e-commerce, that Amazon has hurt become more to shopping, it hasn't created a disaster. I mean, it's not like the malls are completely closed. They've revamped, they've changed. They've, you know, the fewer malls and they're different, but you still have strip malls. You still have lots of shopping that gets done physically, not just virtually. And the doom loop that everybody thought would happen because of Amazon, because of e-retail never happened. And I suspect, now I don't know because the office building doom loop could indeed happen, I suspect that we're not entering a doom loop in office real estate either. Office real estate vacancies are very high in certain places. Certainly San Francisco is in a doom loop. Although even in San Francisco, I suspect that there are people right now eyeing San Francisco real estate and saying, hmm, might be a great buying opportunity. This city might actually come back. And the two reasons at least that I can think of, why San Francisco will at some point likely come back. One, it's one of the most beautiful cities in the world. Top three, top three beautiful cities in the world. It's a fun city, it's an interesting city, and it's an unbelievably beautiful city. People will want to live in San Francisco. Now there are problems, like shoplifting being legal, like homelessness in downtown being legal, that have to be solved, but they will be solved. In one way or another, they will be solved. People will want to come back to San Francisco. And second, there's just an enormous amount of talent in San Francisco. You can make fun of San Francisco or you like, you can focus on the homeless problem, on the shoplifting problem, and it could be that certain parts of San Francisco never come back, although never of course is a very long time. But the reality is that South of Market is a beautiful thriving, dynamic place, and the amount of talent per square mile in parts of San Francisco is probably unmatched anywhere in the world in terms of worth creating talent, entrepreneurial talent, AI talent, programming talent, it's there. And it will, you know, that kind of talent just doesn't disappear all at once. It's gonna fight for San Francisco. But yeah, San Francisco right now is in a doom loop, a doom loop caused by the vacancies that we talked about and the vacancies cause, you know, shops to close because nobody's coming to the downtown, so nobody's shopping, so shops are closed and restaurants are closing. And then the people who work at the shops and restaurants don't have jobs. And, you know, maybe they're moving to the suburbs and maybe those shops are out in the suburbs, but the fact is the downtown San Francisco becomes, you know, people are not there as a consequence of they're not there. People notice the homeless people less, so there's less pressure to do anything about homeless people. So more and more homeless people show up and they dominate more and more of the streets. And of course the shoplifting situation causes major stores to shut down as they have all around Union Square in San Francisco. And it becomes dirty and filthy and no stores and no shops and no restaurants. And because of that, businesses say, hmm, I don't think employees are ever gonna come back even if we forced them to come back. They don't wanna come back to San Francisco, so maybe we should move somewhere else. And you get this self-reinforcing doom loop. Now I suspect that's what's gonna happen is that some smart people are gonna buy a bunch of San Francisco real estate for cheap. They're gonna go to city hall and they're gonna find a way to line the pockets of the white people in city hall to change their policies with regard to homeless people and with regard to shoplifting. As a consequence of them, you know, they'll have a huge economic interest to clean up San Francisco because if San Francisco's cleaned up the value of the commercial real estate that they bought at really, really cheap prices will skyrocket. And you get the opposite of doom loop, a virtuous loop, right? And as people come back, they came out of homeless people, they lobby more, they become more aggressive, stores will come back, you know, they'll vote out the district attorney, they'll bring a district attorney in who is gonna, you know, and San Francisco won't suddenly become some Republican conservative bastion, but it will at least be a more level-headed place as it was maybe 10 years ago. Even then, it had a homeless problem but nothing like what's going on today which is just disgusting, you do not wanna go to certain places in San Francisco today. So San Francisco's definitely in a doom loop right now which I think will be reversed ultimately but it's definitely in a doom loop right now and again, I think there's a lot of smart money eyeing how to get out of this doom loop. Do you see economy, and you could argue New York is in a bit of a doom loop but it doesn't look like it. A lot of people are moving back to New York. Violent crime rates in New York are very low. The New York area, broadly, is one of the least violent places in the United States. It's significantly less violent than most of the South, for example, and certainly much of the Appalachee area in the country and much of the rest of the country. It's one of the safest parts of the country is the area around New York, including New York City itself. We think New York, violence, murders in the streets, it's not happening. All you have to do is look at the numbers, right? Actual numbers rather than impression and fear. So New York really has a problem because of one second, because really because of the work from home, although a lot of businesses are encouraging their employees to come back and to come back to the office. But Midtown and other places, what you're seeing is office buildings will be converted to condos because rents right now are very high in New York so there is a real opportunity to rent out places, to turn them into condos and to rent them out. I'm seeing a lot of hotels that I used to stay out along Lexington Avenue, Midtown where office vacancies are really being heard. I see a lot of those hotels are renovating. It's not clear if they're renovating to become condos or they're renovating to become different hotels, but a lot of renovation is going on there to change things, to make it more profitable. It's not clear that all of those are gonna go bust, that all of them are gonna go bankrupt, that there's no upside. Again, my guess is that they're investors looking for deals, looking for opportunities to buy this real estate. Other places and other parts of the country office vacancies are nowhere near as bad as they are in San Francisco and maybe in Chicago. My sense is that vacancies in places like Dallas and Austin, maybe Phoenix and in Denver are nowhere near as high and nowhere near as problematic. Science skeptical about the doomsayers in terms of banks collapsing and because of this doom loop associated with commercial real estate. I think they're measuring commercial real estate wrong, they're not measuring it right. And I think they are not, so they're aggregating office buildings with a lot of other types of commercial real estate that are not hurting. Multifamily residential, there's a boom right now in multifamily residential construction. Also, there's a big difference between construction loans which are always riskier and actual mortgages. There are a lot of nuances to these loans. And I think that just like all the other articles that have doom loop in the title, whether this comes true or not is questionable. If I had to think about something in the US economy that is worrisome, I think there are lots of places to look and certainly this is one of them. It's not that this should be dismissed. It's something to consider. It's something to evaluate. It's something to study and figure out. But there's so many problems in the US economy. Why focus here? I mean, maybe the biggest problem is government spending, government deficits, government debt that is through the roof. As we said this year that ends at the end of September is looking at a $2 trillion government deficit. Double what it was last year. Double what it was in 2019, which was already a high year. And getting to the levels of 2020, 2021 when we had all the COVID stimulus. If you wanna look at distortions and problems in the economy, you know, when should look at all the malinvestment that is being produced by Biden economics, the inflation re-investment act, the CHIP Act and a bunch of that. We're building a lot of manufacturing plants. There's a lot of energy, a lot of money, a lot of resources going into building manufacturing plants. Are they ever gonna be viable? Are they ever gonna be profitable? Are they ever gonna be able to stand at their own two feet without government subsidies? If you're worried about something, look at all the malinvestment going into the so-called clean energy. If you're worried, I would worry about private equity funds that rely on cheap debt to buy companies and they are gonna have to refinance. So there's a lot in the economy, which was, there's a lot of economic activity today that is still kind of running on the energy, energy in the form of loans from the zero interest rate environment of the last decade, pre-inflation. That will run out at some point. What happens then? The fact that China is in real economic crisis is going to have an impact on America. It's gonna have an impact on the world. The fact that Europe, particularly Germany, is in economic crisis. And the fact that there's a war in Ukraine. All of these things are things to worry about, to be concerned about, and to really think through in terms of challenges. And would I be surprised if we had a recession in the next few months? No, but of course, I am the least, I hope I'm one of the least catastrophizes out there. And yet I've been expecting a recession for the last year, any month now. And it hasn't happened because of the incredible resilience and flexibility of the US economy. And maybe because the US economy right now is artificially boosted, being boosted with government spending, which ultimately will have to be paid for one way or the other, but ultimately is when. So my point here is not that we're not gonna have a recession, not that we are gonna have a recession. But more to say, and this is why, you know, if I came out strongly for a recession, I'd have a lot more followers. But it's to say that economics is hard. Economic prediction is hard. Figuring out all these variables and what impact they have is difficult. I expect low, slow, cumbersome economic growth over the next decade. I just think that the manifestation of all the distortions and the perversions that are caused by regulations and government spending is gonna generate below 2% growth, you know, mile, including recessions, probably on the milder side and just stagnation rather than falling off a cliff. Now, one day we might fall off a cliff. I just don't think it's happening anytime soon. Is inflation gonna go up or is it gonna stay where it is? I suspect that inflation is gonna stay elevated for a while. I don't think the Fed's increasing interest rates is the real cure for inflation. I think a real cure for inflation will actually be what I've said this for a long time. I said, Republicans will ultimately try to put a break on Biden's spending. And maybe that break will come this fall when they shut down the government over something who knows what. And maybe that'll serve as some kind of break on spending. And maybe that break on spending will ultimately result in slower inflation. But again, there are a lot of moving parts. Right now, M2, which is a measure of the money supply, has been really going down dramatically. So you'd expect inflation to actually come down and maybe the collapse in money supply is gonna cause a recession. But there is a, this is a real challenging time. It's very difficult to predict with any kind of accuracy what's gonna happen. And if you could, if I could predict these things, I would be a billionaire. I mean, anybody who claims to be able to predict macroeconomic movements and is not a billionaire, something's wrong with them. Because if you can time the market in any kind of sense, if you can be right, even, you know, if you can be right over 50% of the time, if you can be right 70% of the time, you should be a billionaire. And by the way, George Soros is a billionaire because he was right about these kind of things much more often than he was wrong, particularly around valuations of currencies. That's how he made his fortune. So some people have a proven track record of being right about these things. And it's funny because George Soros is our enemy ideologically, but he's really, really good at the macroeconomic stuff, you know, being tell how economies are gonna do over the long run and how they're gonna be impacted.