Executive Summary
In this episode, I had the pleasure of speaking with Ed Dowd about the current state of the housing market, the macroeconomic landscape, and the potential impacts of immigration and AI on the economy. We delved into the complexities of the housing market, the surprising trends in inflation, and the potential for a recession. Ed shared his insights on how these factors could shape the economic future, and we explored the implications for individuals and investors alike.
Housing Market Dynamics
The housing market is experiencing significant shifts, particularly in the South, with a 268% surge in inventory across Florida and Texas. This is largely due to high mortgage rates and a boom in construction, but with declining permits, indicating a potential downturn. The affordability issue is pushing more people to rent rather than buy, which could lead to a decrease in housing prices. Immigration also plays a role, as it affects rental markets and could lead to further pressure on housing prices.
Inflation and Economic Indicators
Ed and I discussed the current narrative of inflation, which has been a major concern. However, with rents coming down, the official inflation measures might soon reflect a decrease. This could lead to a surprising downside in CPI throughout 2025, affecting the Federal Reserve’s actions. The broken transmission mechanisms of the Fed’s rate changes and the issues with the reverse repo market were also highlighted as factors complicating the economic landscape.
Immigration and Economic Impact
The influx of 10 to 15 million illegal immigrants has been a significant economic variable, contributing to inflationary pressures by increasing demand for goods and services. This has also affected the velocity of money, which had been declining but saw an uptick due to this new spending. With Trump’s policies potentially reversing this trend, we might see a deflationary impact as the flow of immigrants slows.
AI and Market Speculation
We touched on the AI boom, drawing parallels to the dot-com era. The current hype around AI, particularly with companies using Nvidia chips as collateral, could lead to a bubble burst. The emergence of DeepSeek, which offers a more cost-effective AI solution, might accelerate this process. While AI holds promise, the current market dynamics suggest a potential overvaluation that could correct sharply.
Key Data
- 268% inventory surge in housing across Florida and Texas.
- 10 to 15 million illegal immigrants entering the U.S. in recent years.
- 39% of the S&P 500 index concentrated in seven names.
Predictions
- CPI will surprise to the downside throughout 2025.
- A recession is likely to be declared starting in the fourth quarter.
- The AI market could see a significant correction due to overvaluation.
Implications
- Housing prices may decrease, making buying more affordable in the future.
- Inflation rates could drop, affecting interest rates and economic policies.
- AI technology could become more accessible as prices for infrastructure decrease.
by jhgoodwin 
