WEBVTT - Bogle: savers are taking it on the nose

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash, and I'm Karin Moscow.

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<v Speaker 1>US Dock Index futures are signaling. Equities may halt their

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<v Speaker 1>best winning streak in five months after worsening economic data

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<v Speaker 1>from Asia reignited concern over the outlook for global growth.

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<v Speaker 1>We checked the markets every fifteen minutes throughout the trading

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<v Speaker 1>day on Bloomberg SNP EMNY futures down eleven points down,

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<v Speaker 1>EMNY futures down seventy eight and NASADAC EMNI futures down

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<v Speaker 1>twenty six. DAX in Germany's down three tenths per cent ten,

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<v Speaker 1>Your treasury up twenty thirty seconds, the yield one point

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<v Speaker 1>eight three percent yield on the two year point eight

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<v Speaker 1>seven percent. NIMEX screwed oil down six tenths per cent

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<v Speaker 1>or twenty two cents at thirty seven sixty eight A barrel.

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<v Speaker 1>Comics gold is up eight tenths per cent or ten

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<v Speaker 1>dollars thirty cents to twelve seventy four forty ounce. The

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<v Speaker 1>euro a dollar ten thirty nine, the N one twelve

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<v Speaker 1>point eight nine and that's a Bloomberg business flash. Tom

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<v Speaker 1>and Mike Karen Mosco, thank you very much. We're talking

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<v Speaker 1>with Jack Bogle. He's of course the founder retired CEO

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<v Speaker 1>of the Vanguard Group, and we're talking about investing for

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<v Speaker 1>for the average person out there. I want to ask you, Jack,

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<v Speaker 1>what do you think of the phenomenon of negative interest

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<v Speaker 1>rates and how they hit the average person. I note

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<v Speaker 1>that Nika, the Japanese newspaper, reporting that all eleven Japanese

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<v Speaker 1>asset managers who are running money market funds are closing

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<v Speaker 1>them because they can't make make them work with negative

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<v Speaker 1>interest rates. The numbers just aren't there. Well, let me

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<v Speaker 1>say this, if this is a pretty much unprecedented it's

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<v Speaker 1>only right now in Japan, although it could spread a

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<v Speaker 1>little further around the world. But Japan has always been

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<v Speaker 1>notable for the very lowest interest rates, and uh, I

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<v Speaker 1>think it's imponderable. Um, the typical saver in the US,

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<v Speaker 1>and is certainly including in the US, has really been

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<v Speaker 1>badly hurt by this dropping interest rates. And you know

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<v Speaker 1>that it's just a toutology that low interest rates are

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<v Speaker 1>great for borrowers and terrible for lenders. And there's no

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<v Speaker 1>way around that that equation, and so there our our

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<v Speaker 1>savers in the United States have been taken on the

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<v Speaker 1>nose for you know, pretty close to a decade now.

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<v Speaker 1>So I don't look at it as a very good situation.

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<v Speaker 1>But I think we're in a period of such low

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<v Speaker 1>inflation that you can't you you aren't going to be

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<v Speaker 1>able to look for much higher yields of the bond

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<v Speaker 1>area for as far aheads the audienc which I quickly

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<v Speaker 1>add is not very far. Jack Bogle, my grandfather, once

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<v Speaker 1>showed me his bond blodder from another time in place

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<v Speaker 1>the twenties, and he showed me the day that he

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<v Speaker 1>made a three percent coupon, and he said that was extraordinary.

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<v Speaker 1>That if you could get three percent, Mike, and not

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<v Speaker 1>two point two five or two and eight, that was

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<v Speaker 1>living large. Is that where we're heading to, Jack, Well, all,

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<v Speaker 1>we're I'm not sure what instrument that is, but they

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<v Speaker 1>is at one point eight or one point nine to

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<v Speaker 1>at one point nine percent, that's very low. But on

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<v Speaker 1>the other hand, what you have to take into account

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<v Speaker 1>is we're in a time but very low inflation, and

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<v Speaker 1>the real yields on bonds and stocks are not all

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<v Speaker 1>that bad. Believe it or not, Mr. Artical standpoint. You know. Yes,

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<v Speaker 1>in since nineteen fifty, uh, the average yield of a

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<v Speaker 1>stock bond portfolio has been about four and a half

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<v Speaker 1>percent nominal. But when you take inflation out of that period,

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<v Speaker 1>the average the average yield of stock in same stock

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<v Speaker 1>and bond portfolio fifty fifty we're using here, is nine

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<v Speaker 1>tenths of one percent um. So there's a big difference

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<v Speaker 1>between four point five and point nine. But it seems

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<v Speaker 1>like it seems like investors almost would rather have this

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<v Speaker 1>gets to the negative interest rate question too. Almost would

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<v Speaker 1>rather have an eight percent return with nine percent inflation.

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<v Speaker 1>Then they would have five percent return and two that's

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<v Speaker 1>some money illusioning. No, that makes no mathematical sense. But

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<v Speaker 1>we look at the real returns, the nominal returns first. Yeah,

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<v Speaker 1>I mean, I'll go that, Mike. Let me quote you.

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<v Speaker 1>This is the Vanguard Total Bond Fund, the legendary v

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<v Speaker 1>b t I X Jeck Bogel basically invented this industry. Uh.

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<v Speaker 1>Fun performance three point four eight two point zero nine

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<v Speaker 1>one point nine three one point six nine percent spread

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<v Speaker 1>out over the last five years. I mean, Mike, we

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<v Speaker 1>forget it's single digit world. Uh, what do you do

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<v Speaker 1>when't You're in a situation as we've found at the

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<v Speaker 1>beginning of this year, when nothing when when everything is

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<v Speaker 1>correlated negatively put it that way, when nothing works well,

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<v Speaker 1>I think what you do is stay the course. And

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<v Speaker 1>I know what you do not do is go out

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<v Speaker 1>and reach for yield and take a lot of extra risk.

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<v Speaker 1>I'm a very strong proponent of staying within the returns

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<v Speaker 1>earned by the bond market and earned by the stock market,

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<v Speaker 1>and then not trying to think you're smarter than the market.

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<v Speaker 1>In my very first book, bobilon mutual fund, I said,

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<v Speaker 1>don't think you were smarter than the market. Nobody is.

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<v Speaker 1>It's to all these opinions come together, and I think,

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<v Speaker 1>what's left out of these factors is this this at

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<v Speaker 1>least consideration there weren't such a low inflation world that

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<v Speaker 1>they're the lowest I can ever recall. And I go

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<v Speaker 1>back a long way, um, and I guess that I

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<v Speaker 1>don't remember what they were in the thirties, I confess,

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<v Speaker 1>but it's the the average return, as I mentioned a

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<v Speaker 1>minute ago on that treasury was five point seven and

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<v Speaker 1>that's a that's a pretty that's a pretty healthy number.

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<v Speaker 1>Compared to where we are today, to say the least.

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<v Speaker 1>But it's a nominal number. And once you take out

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<v Speaker 1>the the inflation, if it comes way to handle less

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<v Speaker 1>than one percent, and so it's a tough time for investors,

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<v Speaker 1>but you have to do something. You know, putting your

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<v Speaker 1>money under the mattress is a good idea, and I'm

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<v Speaker 1>very safe there. Putting in the bank savings deposit is

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<v Speaker 1>going to be having even lower yields about to say,

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<v Speaker 1>maybe a little higher the money market funds actually because

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<v Speaker 1>banks aren't been bound to the levels of the markup return.

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<v Speaker 1>But I think it comes down to stay thought stocks

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<v Speaker 1>and brons and if you don't, if you say I'm

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<v Speaker 1>through with this, I'm gonna put it all in cash,

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<v Speaker 1>who's gonna tell you when you get back in. So

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<v Speaker 1>you gotta be right twice, right to get out and

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<v Speaker 1>then right to get back in. That's a that's a

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<v Speaker 1>that's a bull order. Jack. Good to catch up Jack

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<v Speaker 1>Bogel with Vanguard, of course, and his good work over

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<v Speaker 1>many decades to UH the investment UH knowledge in the

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<v Speaker 1>investment psychology of America. Mr Bogel will celebrate an eighty

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<v Speaker 1>seventh birthday Mike in May, which is a very cool

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<v Speaker 1>and beautiful thing. Yes, yes, uh negative twelve. We need

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<v Speaker 1>to get to get the markets open here in five

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<v Speaker 1>and a half minutes. Negative twelve on futures down future

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<v Speaker 1>is negative eight nine. I don't see much angst out there, folks.

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<v Speaker 1>Mostly it's just a jumble to the market looking for guidance.

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<v Speaker 1>Part of the guidance, of course, is um FED speakers

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<v Speaker 1>coming up as we get to March sixteen. Not really

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<v Speaker 1>going to quiet period, say the least some meetings for

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<v Speaker 1>your calendar March sixteenth, April twenty seven out to June

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<v Speaker 1>fift before we get to the fourth of July. We

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<v Speaker 1>can say that because it is gorgeous in New York

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<v Speaker 1>this week. MIKEL McKee and Tom Keane, this is Bloomer's surveillance.

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