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Speaker 1: Look ahead, imagine more, gain insight for your industry with

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Speaker 1: forward thinking advice from the professionals at Cone Resnick. Is

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Speaker 1: your business ready to break through? Find out more at

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Speaker 1: Cone Resnick dot com slash Breakthrough. This is Masters in

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Speaker 1: Business with Barry Ridholts on Bloomberg Radio. This week on

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Speaker 1: the podcast, my special guest is Dr Edyar Denny. He

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Speaker 1: has a storied career on Wall Street UH prudential base SHEF.

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Speaker 1: Hutton and probably best known for his work at Deutsche Bank.

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Speaker 1: He now runs your Denny Research and has a fairly

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Speaker 1: substantial institutional client base. This was really a very wide

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Speaker 1: ranging conversation about traditional economics and how we use that

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Speaker 1: as a basis of analysis of equity and bond investing.

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Speaker 1: He is not a typical economist in that he really

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Speaker 1: got started on the bond side and then moved to equities,

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Speaker 1: and I find a lot of his perspective to be

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Speaker 1: atypical and very very interesting. UH And obviously his clients

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Speaker 1: agree with that because he UH advises a lot of

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Speaker 1: very substantial mutual and hedge funds and they really care

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Speaker 1: a lot about what his perspectives on the world economy is.

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Speaker 1: He is both simultaneously enthusiastic and constructive about the future

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Speaker 1: growth in the United States, but raises a lot of

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Speaker 1: concerns about things globally, including debt in China, demography in Japan,

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Speaker 1: and some of the other long term issues from globalization

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Speaker 1: and automation and what it might mean for employment going forward.

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Speaker 1: But but he's not a permabule of Perma bear. He's

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Speaker 1: he's flip back and forth over times. And I found

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Speaker 1: him to be surprisingly constructive about the U s economy. Uh.

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Speaker 1: He thinks we're late in the cycle, but nowhere near

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Speaker 1: over and and that was really interesting his explanation for that. So,

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Speaker 1: without any further ado my conversation with Dr Edyard Denny.

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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: My special guest today is Dr Edyard Denny. He is

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Speaker 1: founder and chief investment strategist at Yard Denny Research. He

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Speaker 1: has a storied career. He has been on Wall Street

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Speaker 1: for twenty five years. Early in his career, he was

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Speaker 1: chief economist at E. F. Hutton we all remember and

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Speaker 1: love those commercials, as well as working at Prudential Securities

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Speaker 1: and C. J. Lawrence. Uh. He began his career at

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Speaker 1: the Federal Reserve in both Washington and New York, served

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Speaker 1: in the US Treasure He eventually he became chief strategist

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Speaker 1: at Deutsche Bank Securities. He started out with the b

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Speaker 1: a uh in in economics at Cornell as well as

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Speaker 1: a PhD uh in economics at Yale, where he studied

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Speaker 1: under Nobel Laureate James Toadman, Dr Eduard Denny. Welcome to Bloombar.

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Speaker 1: Thank you very much, Verry. So you have a really

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Speaker 1: interesting career what I call the golden era of Wall Street.

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Speaker 1: What was it like back then? I think it, Uh,

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Speaker 1: it was golden, I think because it sort of the

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Speaker 1: tail end of the partnerships when Wall Street firms uh

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Speaker 1: were responsible for their actions and people don't realize a

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Speaker 1: partnership is joint and several liability. So not only are

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Speaker 1: you responsible for your own behavior, you're responsible for what

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Speaker 1: everybody else the firm is doing. Let me tell you

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Speaker 1: that focus people's attention on risk. But it turned into

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Speaker 1: the wild we pretty quickly early in my career because

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Speaker 1: a lot of the firms went public and uh we

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Speaker 1: started to see um all kinds of trading desks open up. UM.

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Speaker 1: For my career, it was great because I had a

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Speaker 1: tremendous demand for what I did for a living, from

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Speaker 1: the commodity people, from the equity people, the bond people.

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Speaker 1: As a matter of fact, although most of my career

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Speaker 1: has been focused on equity strategy, the reality is the

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Speaker 1: early part of my career at If Hutton was made

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Speaker 1: on the bond market. Uh. I had some great calls

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Speaker 1: back then, and um so I had just for me

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Speaker 1: as an economist and then as a strategist. Um the

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Speaker 1: fact that Wall Street went into more and more businesses

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Speaker 1: and had more and more trading desks, and things got

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Speaker 1: more volatile and more dependent than information that was great

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Speaker 1: for me. It's amazing how many great equity analysts began

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Speaker 1: on the fixed income side. It's really very overlooked. I

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Speaker 1: have a list in my head of people in Looting,

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Speaker 1: A number of guests on the show who started out

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Speaker 1: and fixed income, and with that background gave them a

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Speaker 1: lot of insight into why is that. I think it

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Speaker 1: gives you a tremendous advantage. And I I wish I

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Speaker 1: had really spent more time on the fixed incomes side,

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Speaker 1: because I spend it more on kind of the macro side,

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Speaker 1: not on the credit side, and with the benefit of hindsight,

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Speaker 1: being a credited analyst on the bond side or having

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Speaker 1: some insights there would have been very helpful in two

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Speaker 1: thousand and seven. As a matter of fact, one of

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Speaker 1: my counts in San Francisco, strategists there, came to New

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Speaker 1: York in two thousand and eight and called me up

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Speaker 1: and said that I don't have any time to see

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Speaker 1: I'm saying just fixed income strategists. And it was bridgiant

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Speaker 1: because he really early on got really spooked by what

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Speaker 1: he what he heard. So I think, you know, the

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Speaker 1: reason that it's important to know what's going on the

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Speaker 1: credit side, and that's where the trouble often starts. Too

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Speaker 1: much too much debt, sure, too much debt, too much leverage,

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Speaker 1: people wait too far out over their skis on the

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Speaker 1: equities eyed things can look fine, but really a lot

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Speaker 1: of trouble. Absolutely. You know, I look at your the

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Speaker 1: early part of your career, you very easily could have

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Speaker 1: been an academic. You studied with Tobin legendary. You end

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Speaker 1: up at at the FED in the research department. That's

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Speaker 1: practically an academic position. I know that's morphed over the years.

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Speaker 1: I only stated at the federals Are Bank in New

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Speaker 1: York for for a year. I spent a short period

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Speaker 1: of time at the Federals Are Banking Washington, d See, Uh,

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Speaker 1: spending some time writing my dissertation. Honestly, my role model

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Speaker 1: was actually Henry Kaufman. Uh. Yeah, back when I was

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Speaker 1: an undergraduate at Cornell, actually kind of cold call Kaufman

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Speaker 1: and I asked him if he'd come and speak and

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Speaker 1: to a group of us, and he wasn't able to

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Speaker 1: do it. But uh, I was an early admirer of his.

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Speaker 1: And as a matter of fact, my wife's uncle, Charles,

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Speaker 1: was at Song and Brothers um and with Kaufman as

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Speaker 1: and and in some ways, I mean she there there

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Speaker 1: are been legends she passes on to me is that

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Speaker 1: her uncle kind of created the Kauffman's job. So uh,

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Speaker 1: there's always sort of a kinship there. But I mean

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Speaker 1: I didn't know anything about that at the time, but

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Speaker 1: I you know, the the role of a chief economist

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Speaker 1: on Wall Street appealed to me, and uh, Kauflin really

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Speaker 1: was the fellow who blazed the trail. So so you're

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Speaker 1: you're at the IVY studying economics, you you find your

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Speaker 1: way to the Federal Reserve. How do you make that

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Speaker 1: transition to actual finance to Wall Street from academic So

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Speaker 1: so what what was what? What led you there? It

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Speaker 1: was easy. I was I was bored at the Fed. Uh,

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Speaker 1: I was writing these memos that were just put in

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Speaker 1: the file. As it turned out, they put me on

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Speaker 1: a very important subject, which was a regulation queue and

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Speaker 1: the savings and loan industry. So, I mean that came

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Speaker 1: in real handy for the SNL crisis in the late

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Speaker 1: eighties and the early nineties. So I I thought it

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Speaker 1: was prepared for all that. But you know, the transition, well,

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Speaker 1: she was easy. A head Hender called me up and said,

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Speaker 1: if Hutton's looking for somebody to uh be an economist

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Speaker 1: on the fixed income a little fun side, And It's like, whoa,

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Speaker 1: this is exactly the job I'm looking for because that

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Speaker 1: was what Henry Kaufman did. Henrykauflin focused on the flow

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Speaker 1: of funds and the outlook for interest rates. And so

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Speaker 1: I mean I got the job one, two three. It

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Speaker 1: was great. I'm old enough to remember when the flow

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Speaker 1: of funds was something that people really retracts every week.

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Speaker 1: It was a big deal. And now it seems it

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Speaker 1: was huge. Yeah, if you're a called Kaufman. Actually, uh,

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Speaker 1: you know, spent an enormous amount of time. I had

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Speaker 1: a big staff predicting where the flow of funds was

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Speaker 1: going to go, and uh, I always thought it was

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Speaker 1: a little bit uh over the top, you know, I mean,

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Speaker 1: can you really forecast, you know, tough forecasting a couple

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Speaker 1: of members a little own hundreds of flow of funds numbers.

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Speaker 1: But he went through the exercise, and I guess I

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Speaker 1: worked for him until it didn't. I'm Barry rid Halts.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: guest today is Dr Edyard Denny. He is the founder

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Speaker 1: and chief strategist at Your Denny Research, which can be

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Speaker 1: found at the website well blog dot yard Denny dot

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Speaker 1: com is open to the public dot blog dot your

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Speaker 1: Denny dot com. Let's let's talk a little bit about

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Speaker 1: economics and economists and they're discontents, my favorite, my favorite

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Speaker 1: supe favorite. So let's start with just economic indicators. What

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Speaker 1: are some of your favorite things to look at in

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Speaker 1: helping you assess both the state of the economy and

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Speaker 1: the overall stop market. You know, if you limited me

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Speaker 1: to one. I really like the crb raw Industrial Spot

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Speaker 1: Price Index and stop Spot Price Index for all commodities

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Speaker 1: or industrial thirteen industrial commodities. It does not include any

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Speaker 1: patrol in products. It doesn't include any wood products, which

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Speaker 1: is why I like it, because I think petrolium and

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Speaker 1: would have their own supply and demand. The main reason

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Speaker 1: I like it is because it's work. It's been available

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Speaker 1: for years, it's available daily, and it's a very sensitive

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Speaker 1: indicator of the global economy. Uh, and sometimes you get

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Speaker 1: a little funky with it. I've kind of for many

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Speaker 1: years been calculating the boom Bus Barometer, and that's simply

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Speaker 1: that commodity index divided by initial unemployment claims, So it's

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Speaker 1: it's a weekly number. So you're taking the commodity index,

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Speaker 1: which is a global indicator, but looking at US unemployment.

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Speaker 1: But looking at US unemployment, I mean, let's face it,

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Speaker 1: the U s economy in the past and continues to

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Speaker 1: be a major driver of the global economy. So it's

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Speaker 1: still working. I mean, it's conceivable that one of these

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Speaker 1: days the US won't be as important as it still is,

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Speaker 1: and that indicator won't be as helpful when we look

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Speaker 1: at initial claims but the commodity price index has been very,

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Speaker 1: very helpful. But you know, like all indicators, you know,

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Speaker 1: I got to know when to hold them went and

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Speaker 1: it went to fold them run Sometimes when they don't

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Speaker 1: seem to work, they're they're helpful and in forcing you

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Speaker 1: to think about what's what's different this time around? And uh,

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Speaker 1: you know, with a recent drop in the industrial commodity

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Speaker 1: prices until earlier this year, um I concluded there wasn't

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Speaker 1: that the global economy was falling into recession. Whether we're

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Speaker 1: just way too much supply of these commodities. Uh. So

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Speaker 1: we've seen something similar with the Baltic Dry Index because

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Speaker 1: people used to track that obsessively and then there were

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Speaker 1: just a ton of new ships that came out suddenly.

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Speaker 1: That's right. It didn't indicate anything other than excess. It's

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Speaker 1: a great point. So you gotta know when these indicators

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Speaker 1: are useful on when they're not. This here be still

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Speaker 1: useful of the Baltic isn't useful because you're just way

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Speaker 1: too many ships out there. So that's uh. But but

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Speaker 1: you know, I mean other than that, I mean, there's

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Speaker 1: there's really nothing that I don't look at. I mean,

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Speaker 1: I'll look at West Coast container traffic. I'll look at

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Speaker 1: the rail you know, that's something I mean, I'm not

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Speaker 1: the only one looking at this stuff. I mean, rail

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Speaker 1: car loadings is something we look at closely. U. But

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Speaker 1: we try try not not to ignore anything. We mentioned

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Speaker 1: the Baltic dry indecks. What sort of economic indicators do

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Speaker 1: you think are a little overhyped or that perhaps investors

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Speaker 1: should not put as much weight on as they actually did. Well,

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Speaker 1: I think we give a tremendous amount of weight every

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Speaker 1: month to the employment numbers um and they always get

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Speaker 1: revised and repeatedly. And uh, not only that, but it's

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Speaker 1: just you can really sink in that swamp that they

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Speaker 1: hand out every every month. It's just so much data

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Speaker 1: and information. We we try to cut to the chase.

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Speaker 1: Maybe it's because I'm, you know, simple minded. I need

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Speaker 1: to keep keep my mind focused on and one or

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Speaker 1: two variables. But we do is we calculate something called

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Speaker 1: the earned income proxy. And what that is simply is

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Speaker 1: you take, okay, how many people are working, how many

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Speaker 1: hours are they working, and what's their wage. It turns

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Speaker 1: out that's exactly what the the Bureau of Labor Statistics

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Speaker 1: does to get an initial estimate for wages and wages

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Speaker 1: is what drives the consumer to a large extent, are

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Speaker 1: so um number of people working, how many hours they're working,

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Speaker 1: and what's their hourly wage? That gives you total total wages?

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Speaker 1: And then do you know you can use the month

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Speaker 1: over a month change and uh, you know, like the

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Speaker 1: last month, the everybody was disappointed by the peril number

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Speaker 1: it was. It was not a big number. It was disappointing.

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Speaker 1: But when you looked at hours and wages um, the

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Speaker 1: earning income proxy was up like zero point seven percent.

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Speaker 1: It's a big movement. I'm at a more over a

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Speaker 1: month basis and it was a great harbinger of retail

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Speaker 1: sales being better than expected. So let me ask you

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Speaker 1: about an ongoing issue that people keep having problems with,

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Speaker 1: which is measuring productivity. If you believe the data, we've

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Speaker 1: seen no real productivity gains. I know you run a

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Speaker 1: relatively small office and you're incredibly productive. I run a

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Speaker 1: small office and I know what we do with a

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Speaker 1: dozen or so pe people, right, we couldn't have done

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Speaker 1: with less than fifty people ten So, so why aren't

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Speaker 1: we seeing any gains in the productivity statistics? You know,

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Speaker 1: I think it takes a long time for the government

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Speaker 1: statisticians to recognize that they're missing something, and it could

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Speaker 1: take ten, fifteen, twenty years, and then it could take

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Speaker 1: him another five to ten years to do a special

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Speaker 1: study to try to figure out what they're missing, and

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Speaker 1: then they finally come up with a revised number. Um.

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Speaker 1: You know, in capital spending, remember that R and D

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Speaker 1: used to be expensed and now all of a sudden,

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Speaker 1: it's included a long term investment. Yeah, now it's long

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Speaker 1: term investment. Um. Software. I'm not even quite sure how

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Speaker 1: you measure that, but there's a measure of software. I

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Speaker 1: don't know. My my company is totally virtual. Everybody works

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Speaker 1: from overword and we send all of our information to

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Speaker 1: the Amazon Cloud. I'm not pitching their service, but we

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Speaker 1: send it to the cloud and everything is done remotely.

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Speaker 1: We used to have two servers sitting in a server farm,

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Speaker 1: and the productivity of those machines had to be extremely low.

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Speaker 1: We weren't using them very much. But now the Amazon Cloud,

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Speaker 1: I had to believe that the servers that Amazon has, uh,

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Speaker 1: those those servers are being used very intensively. But we're

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Speaker 1: working twenty four by seven, So you know maybe maybe

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Speaker 1: you know, we're putting out more output, but we're also

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Speaker 1: working long hours because we're I mean, you're you're accessible

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Speaker 1: on weekends and nights. We use a program called Slack,

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Speaker 1: so not only is it as secure communication program, but

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Speaker 1: we upload files and we share things and it's just

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Speaker 1: basically made everybody reachable any time. I think, I think

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Speaker 1: the productivity numbers are either right or they're wrong. Either

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Speaker 1: you know, uh the statisticians have it more or less right,

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Speaker 1: or else they're missing a lot of output. The truth

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Speaker 1: maybe somewhere in between. But look, the reality is a

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Speaker 1: lot of the jobs that have been created been created

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Speaker 1: in the service sector, and we're only now starting to

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Speaker 1: see technology entering the service sector. Uh. There's this robot

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Speaker 1: Pepper that soft Bank is marketing and selling, and apparently

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Speaker 1: MasterCard is using it in some restaurants in Japan. I mean,

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Speaker 1: you know, we already have uh LaGuardia. You know, it's

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Speaker 1: the so called Third World airport. We have iPad sitting

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Speaker 1: there where you can order what you're gonna what you

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Speaker 1: want to restaurant that, by the way, that's in one

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Speaker 1: of the renovated terminals, that's the Delta terminal. Absolutely that

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Speaker 1: was renovated, and um, I just read Fox con laid

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Speaker 1: off sixty people. You look, at the end of the day,

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Speaker 1: why do we really care about productivity in the answer

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Speaker 1: is because he determines the standard of living. I'm Barry Ridhults.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: guest today is Dr Edyard Denny. He is the president

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Speaker 1: and chief investment strategist at Your Denny Research. A long

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Speaker 1: and storied career, he was chief economist at IF Hotton,

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Speaker 1: chief investment strategist at Deutsche Bank, and one of the

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Speaker 1: first people to begin warning about a computer glitch that

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Speaker 1: was potentially problematic. You you very famously warned about the

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Speaker 1: Y two K bug years years in advance. Your background

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Speaker 1: is that of an economist. How on earth did you

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Speaker 1: ever stumble into that odd little programming glitch? And before

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Speaker 1: you answer for you young uns who may not remember this,

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Speaker 1: it turns out that lots of computers were programmed with

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Speaker 1: only two digits for the year, and I guess people

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Speaker 1: forgot that eventually the century it will end. So instead

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Speaker 1: of going to two thousand, after the concern was it

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Speaker 1: was just going to roll over to nineteen O one

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Speaker 1: or nine hundred and that would cause all manner of mayhem.

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Speaker 1: So so how did you stumble onto that issue? Yeah,

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Speaker 1: I UM, I guess during my wonder years. Um, you know,

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Speaker 1: I uh. I went to elementary school in Cleveland, O

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Speaker 1: High Oh, and then we moved to San Jose, California,

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Speaker 1: which even back then was Silicon Valley. My father worked

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Speaker 1: for IBM. It was in a science club, and UH

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Speaker 1: learned four trend programming, so I've always had a interest

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Speaker 1: in that. And when I went to UH cornell Um,

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Speaker 1: I started out in engineering and just couldn't take differential equations.

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Speaker 1: It was way too hard, and physics was way too hard.

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Speaker 1: It's funny you say that. I started out applied mathematics

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Speaker 1: physics at Stony Brook. By the time I hit my

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Speaker 1: senior year, it's like, gee, you know, I'm up too much.

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Speaker 1: So yes, I became an economist. But when I switched

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Speaker 1: over to Arts and sciences, I still stayed with physics

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Speaker 1: for one one last gasp and took a course in

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Speaker 1: semiconductors and a course in UH material science really and

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Speaker 1: and assembly programming. And I really like programming, but you know,

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Speaker 1: I never really mastered it. I just kind of enjoyed it. Uh.

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Speaker 1: And actually I think I was probably the first economists

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Speaker 1: on All Street with his own website. I don't know

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Speaker 1: how I got away with it. My firm let me

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Speaker 1: actually put Dr Edyard Denny's Economics network on it. I

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Speaker 1: remember that, and I would imagine they had no idea

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Speaker 1: what a website was. They had no idea what the

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Speaker 1: compliance department. Certainly no, no, there's no lawyers around. And

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Speaker 1: so I had my own website. It was fantastic, UM

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Speaker 1: and UM in the early nineteen the nine nineties for me.

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Speaker 1: The eighties for me was when I was forecasting disinflation

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Speaker 1: and I was very bullsh on bonds. The nineteen nineties,

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Speaker 1: my focus, with the benefit of hindsight, turned out to

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Speaker 1: be larger in technology. N I started to argue that

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Speaker 1: we were in the early stages of high tech revolution. Uh.

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Speaker 1: It was a great call. And as a matter of fact,

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Speaker 1: I think back then the SMP five tech companies were

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Speaker 1: about eleven percent of the market cap, and I predicted

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Speaker 1: they get to seven seventeen percent. I think they got

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Speaker 1: to twenty five percent of our market cap. And um,

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Speaker 1: along the is that as that call worked out. UM

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Speaker 1: my contry instincts came out a little bit, and uh,

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Speaker 1: you know there were some of these ye two K

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Speaker 1: companies that were fixing the problem, and so I I

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Speaker 1: started to look into it. I mean, basically, the forecast

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Speaker 1: was working out real well, and sometimes when something's working out,

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Speaker 1: don't don't mess with it. Um. But um, when I

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Speaker 1: saw that Alan Greenspan was starting to be a cheerleader

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Speaker 1: for the tech revolution and was saying this is gonna

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Speaker 1: be a once in a century development and uh was

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Speaker 1: that like circle in nine? Yeah, but by nine he

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Speaker 1: was actually he gave a speech called the the uh

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Speaker 1: I think it was called the Technology Lottery, something to

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Speaker 1: that effect. Basically he was saying that, uh yeah, tex

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Speaker 1: tax seam overvalued. It's kind of questionable why a FED

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Speaker 1: chairman should should be talking about evaluation. I think they

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Speaker 1: were afraid that the bubble was going to burst, and

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Speaker 1: he was. He was, and especially after the nine speech,

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Speaker 1: famous irrationalist suberant speech four years early. I think he

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Speaker 1: thought there was a credibility. He wanted to show that

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Speaker 1: he was on top of it. But as you know,

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Speaker 1: is he made it very clear that he wasn't in

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Speaker 1: the bubble bursting business. That he cleaned up the mess

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Speaker 1: after it happened, and so I started to worry a

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Speaker 1: little bit more about the mess, and UH it seemed

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Speaker 1: to me that White u K could create a problem. UH.

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Speaker 1: And so I did start to write about that issue,

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Speaker 1: and UH, suddenly I started to attract all these white

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Speaker 1: touquet people, not not the fringe people, but UH, investment

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Speaker 1: technology chiefs were calling me up and said, you know,

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Speaker 1: it's good to have somebody outside of the industry kind

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Speaker 1: of raising the flag. And as a matter of fact,

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Speaker 1: it turned out that the sp F companies spent fifty

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Speaker 1: billion dollars on the problem. UH, and as a result,

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Speaker 1: we didn't have a problem. UH. So that that was

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Speaker 1: that was a good thing. I think with the benefit

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Speaker 1: of hindsight, UM, I I can to the right conclusion

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Speaker 1: for for the wrong reason why du Que didn't cause

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Speaker 1: a recession. Everything was was fixed. White UK led to

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Speaker 1: contribute it to the technology bubble, which then burst in

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Speaker 1: two thousand. I'm Barry Ridholtz. You're listening to Masters in

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Speaker 1: Business on Bloomberg Radio. My special guest today is Dr

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Speaker 1: Edyar Denny of your Denny Research, UH, formerly chief strategist

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Speaker 1: at Deutsche Bank. You know before we get into the

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Speaker 1: details of the global economy. I would be remiss if

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Speaker 1: I didn't ask. So you've worked at US based banks

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Speaker 1: like Prudential and E. F. Hutton, R. C. J. Lawrence. Alright, alright.

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Speaker 1: Deutsche Bank, on the other hand, is this giant German

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Speaker 1: bank with branch offices here in the US. What is

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Speaker 1: the cultural differences like between a US bank headquartered in

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Speaker 1: New York and an outpost of a European bank that

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Speaker 1: might have a different philosophy or world deal. Well, you know,

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Speaker 1: C C J. Lawrence when I joined it in the

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Speaker 1: early nineties was owned by Morgan Grenfeld, but very arms length.

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Speaker 1: And then Morgan Grenfell was bought by Deutsche Bank, also

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Speaker 1: very arms length, and it took a while before the

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Speaker 1: regulators in the US allowed the foreign banks to have

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Speaker 1: any influence on on C. J. Lawrence. So you started

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Speaker 1: at a company that was brought by Morgan Grenfell and

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Speaker 1: then and eventually you came back to that later in

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Speaker 1: your career. No, no, no, no, no no no. It

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Speaker 1: was just the same, just the same for same different

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Speaker 1: party exactly. So I mean the bottom line is I

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Speaker 1: was there for basically, you know, the ninety nineties and

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Speaker 1: I really didn't see much impact at all, because you know,

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Speaker 1: Americans still basically ran the shop, and certainly on the

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Speaker 1: on the equity side. It was only the kind of

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Speaker 1: late period there that it became a little bit more international.

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Speaker 1: But I didn't really see much of it because when

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Speaker 1: when we've spoken to people for MUBS or credit Swiss,

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Speaker 1: maybe it's just the Swiss, but it seems that there's

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Speaker 1: a somewhat although you could say the same is true

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Speaker 1: with Barclays and and the British is a little bit

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Speaker 1: of a different philosophical mindset. Maybe that's amongst the sea

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Speaker 1: level execs and by the time it filters down to

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Speaker 1: the U S staff. I don't know that. I don't

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Speaker 1: know if it's US versus foreign so much as it

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Speaker 1: is big versus small. Uh. If Hutton was relatively small,

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Speaker 1: Prudential Beich was relatively small, believe it or not, back then,

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Speaker 1: um c J was small. But uh, you know, let's

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Speaker 1: you start talking about Deutsche that's that's a big, big bank.

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Speaker 1: I think. I think big organizations there's a lot of

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Speaker 1: politics and uh, they seem to change their strategy and

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Speaker 1: a regular basis, right every every quarter or so, so

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Speaker 1: so let's talk a little bit about the global economy

427
00:24:51,080 --> 00:24:54,120
Speaker 1: and the U S economy you mentioned earlier. The U

428
00:24:54,200 --> 00:24:56,720
Speaker 1: S seems to be the locomotive that's driving a lot.

429
00:24:58,000 --> 00:25:00,560
Speaker 1: So how do you compare how the US is doing

430
00:25:00,800 --> 00:25:05,879
Speaker 1: versus Japan, Europe and emerging markets. Well, the US is

431
00:25:05,920 --> 00:25:09,840
Speaker 1: doing great in some ways. It's reminiscent of the nineteen nineties.

432
00:25:10,200 --> 00:25:13,520
Speaker 1: Remember back then there was the high tech revolution, and

433
00:25:13,680 --> 00:25:15,840
Speaker 1: uh it was very US centric. If you wanted to

434
00:25:15,840 --> 00:25:19,000
Speaker 1: invest in in technology, you pretty much had to be

435
00:25:19,040 --> 00:25:22,600
Speaker 1: in the in the US. UM. When I was on

436
00:25:22,720 --> 00:25:26,320
Speaker 1: the all Street, I recalled Dell boxes and everywhere you

437
00:25:26,359 --> 00:25:28,399
Speaker 1: have to be careful not to trip over them. I

438
00:25:28,440 --> 00:25:31,159
Speaker 1: remember that when I first started, uh, you know, and

439
00:25:31,920 --> 00:25:34,480
Speaker 1: in the early nineties, it was a rare person who

440
00:25:34,520 --> 00:25:37,639
Speaker 1: got a laptop. And then suddenly everybody's getting PCs and

441
00:25:37,720 --> 00:25:42,240
Speaker 1: laptops and everything. So, uh, you know, the the the

442
00:25:42,280 --> 00:25:47,160
Speaker 1: whole the whole environment. Uh on. Technology changed pretty dramatically,

443
00:25:47,640 --> 00:25:50,600
Speaker 1: but again, the US was where you wanted to be. Uh.

444
00:25:50,960 --> 00:25:53,520
Speaker 1: We had an emerging market crisis in nineteen ninety seven

445
00:25:53,560 --> 00:25:58,359
Speaker 1: in Asia, the Russian Death crisis in nine. The Europeans

446
00:25:58,680 --> 00:26:01,800
Speaker 1: were suffering from what they called rose clorosis, and they

447
00:26:01,800 --> 00:26:05,080
Speaker 1: remember and they were trying to Yes, well, they're back

448
00:26:05,119 --> 00:26:07,719
Speaker 1: to it, but they were just starting to put together

449
00:26:07,800 --> 00:26:10,159
Speaker 1: the euro So the the world feels to me kind

450
00:26:10,200 --> 00:26:12,880
Speaker 1: of like the second half of the ninety nineties, where

451
00:26:13,000 --> 00:26:15,600
Speaker 1: the US was doing well and everybody else was kind

452
00:26:15,600 --> 00:26:19,119
Speaker 1: of fumbling along. What's different this time maybe is the

453
00:26:19,160 --> 00:26:22,200
Speaker 1: user is actually more diversified, and we're doing well in technology,

454
00:26:22,200 --> 00:26:24,240
Speaker 1: we're doing all in finance, we're doing well in healthcare.

455
00:26:24,440 --> 00:26:27,719
Speaker 1: Just across the board, we're doing extremely well. And um,

456
00:26:28,119 --> 00:26:29,840
Speaker 1: you know, I think we did respond to the two

457
00:26:29,880 --> 00:26:34,000
Speaker 1: thousand and eight crisis by restructuring a lot of the excesses.

458
00:26:34,119 --> 00:26:37,720
Speaker 1: And uh, lawyers are you know, running rampant on on

459
00:26:37,800 --> 00:26:41,680
Speaker 1: Wall Street, and banks have become regulated utilities, and look,

460
00:26:41,720 --> 00:26:44,560
Speaker 1: we just had this energy debacle, and uh, it hasn't

461
00:26:44,600 --> 00:26:47,080
Speaker 1: taken us down in the financial system, which I think

462
00:26:47,119 --> 00:26:50,359
Speaker 1: has proof positive that we've learned something from from that experience.

463
00:26:50,480 --> 00:26:53,679
Speaker 1: And the usual suspects came out and said, here comes

464
00:26:53,720 --> 00:26:56,480
Speaker 1: two thousand and eight again, all these bad loans to

465
00:26:56,560 --> 00:26:58,800
Speaker 1: the energy complex and go to bring the economy to

466
00:26:58,800 --> 00:27:03,040
Speaker 1: a halt, you know, for the hills. I was called

467
00:27:03,040 --> 00:27:05,680
Speaker 1: into one of my accounts at the beginning of the

468
00:27:05,760 --> 00:27:08,280
Speaker 1: year a mutual fund of New York and UH thirty

469
00:27:08,320 --> 00:27:10,480
Speaker 1: people in the room usually get fifteen people in the room.

470
00:27:10,840 --> 00:27:13,639
Speaker 1: And and there was a lot of concerns about those issues.

471
00:27:13,680 --> 00:27:16,240
Speaker 1: You know, how could seventy drop in the price of

472
00:27:16,240 --> 00:27:19,520
Speaker 1: the world not lead to a debacle? How how could

473
00:27:19,600 --> 00:27:22,280
Speaker 1: we not see the Chinese value in the currency. So,

474
00:27:22,400 --> 00:27:23,920
Speaker 1: I mean, look, a lot of those issues are still

475
00:27:23,960 --> 00:27:28,199
Speaker 1: out there. But this pool market has been really driven

476
00:27:28,280 --> 00:27:32,560
Speaker 1: by UH central banks providing ultra easy monetary policies and

477
00:27:32,640 --> 00:27:35,520
Speaker 1: corporate to finance managers, particularly in the US, buying back

478
00:27:36,119 --> 00:27:39,040
Speaker 1: their shares. And so so far we really we've had

479
00:27:39,040 --> 00:27:41,520
Speaker 1: a lot of panic attacks and followed by relief valllies

480
00:27:41,520 --> 00:27:44,960
Speaker 1: in the stock market. But back to the global story. UM,

481
00:27:45,760 --> 00:27:49,280
Speaker 1: it's hard to detect much of a pulse in UH.

482
00:27:49,359 --> 00:27:53,040
Speaker 1: In the Eurozone UM in production production is actually flat

483
00:27:53,359 --> 00:27:56,480
Speaker 1: for the past two years, which is it's kind of

484
00:27:56,520 --> 00:27:59,440
Speaker 1: weird because car sales have actually been pretty good. In

485
00:27:59,560 --> 00:28:03,000
Speaker 1: retail sales have been actually pretty good. So's there over

486
00:28:03,040 --> 00:28:06,080
Speaker 1: there over there? Now? Is that a function of low

487
00:28:06,320 --> 00:28:08,919
Speaker 1: costs of credit? It must be. It must be that

488
00:28:08,960 --> 00:28:11,919
Speaker 1: you know, consumers are still consuming over there, but you

489
00:28:11,960 --> 00:28:14,840
Speaker 1: know they're exports clearly are stuffering because the global economy,

490
00:28:15,240 --> 00:28:19,399
Speaker 1: on balances is growing at a subpar pace. Japan is

491
00:28:19,720 --> 00:28:23,280
Speaker 1: uh in a coma, and China is slowing down dramatically.

492
00:28:23,359 --> 00:28:28,600
Speaker 1: China is the world's maybe biggest ever bubble of all times.

493
00:28:28,840 --> 00:28:31,360
Speaker 1: Why why do you say bubble? That's interesting? Well, bubbles.

494
00:28:31,400 --> 00:28:34,160
Speaker 1: You know we were talking about earlier in in our

495
00:28:34,280 --> 00:28:37,600
Speaker 1: discussion about why it's so important to focus on debt

496
00:28:37,960 --> 00:28:42,160
Speaker 1: UH and UH in thinking about financial markets. UM. The

497
00:28:42,680 --> 00:28:45,520
Speaker 1: number there's floors me is when you look at bank

498
00:28:46,440 --> 00:28:50,760
Speaker 1: loans outstanding in China UH in dollars, there were five

499
00:28:50,840 --> 00:28:54,640
Speaker 1: trillion dollars in two thousand and eight, their fifteen trillion dollars.

500
00:28:54,720 --> 00:28:58,400
Speaker 1: Now they've tripled. So over this same period, we've seen

501
00:28:58,440 --> 00:29:01,160
Speaker 1: our bank loans go up by about a trillion UH.

502
00:29:01,200 --> 00:29:04,160
Speaker 1: They certainly haven't tripled. UH. Now, how much of that

503
00:29:04,320 --> 00:29:08,520
Speaker 1: is just driven by everyone forgets China is still essentially

504
00:29:08,520 --> 00:29:14,360
Speaker 1: controlled sort of communists regime dabbling in capitalism. How much

505
00:29:14,400 --> 00:29:18,280
Speaker 1: of this is the central makers saying lend money to

506
00:29:18,360 --> 00:29:21,680
Speaker 1: businesses or pulled back. It's probably so. I mean, I

507
00:29:21,800 --> 00:29:26,800
Speaker 1: I think China is being driven by the government trying

508
00:29:26,840 --> 00:29:29,480
Speaker 1: to keep this thing from falling apart. But Japan kind

509
00:29:29,480 --> 00:29:32,520
Speaker 1: of went down the same road. Remember they were the

510
00:29:32,720 --> 00:29:36,760
Speaker 1: debt to GDP ratios. They also had their you know

511
00:29:37,160 --> 00:29:41,680
Speaker 1: MITI remember the Industrial Policy Committee that's set down and

512
00:29:41,680 --> 00:29:44,960
Speaker 1: said til Ritsu that that everything you have Mitsubishi motives

513
00:29:44,960 --> 00:29:49,560
Speaker 1: and Mitsubushi banking and Mitsubishi real estate and control planning

514
00:29:49,640 --> 00:29:52,719
Speaker 1: doesn't work. It works for a while until it blows up,

515
00:29:52,760 --> 00:29:55,080
Speaker 1: works till it does, and it works until So let's

516
00:29:55,080 --> 00:29:57,440
Speaker 1: talk about China, and I don't want to talk about

517
00:29:57,880 --> 00:30:00,600
Speaker 1: a lucky outcome or a or a worse case scenario.

518
00:30:00,800 --> 00:30:05,480
Speaker 1: Come Let's let's say China continues to run into problems.

519
00:30:05,840 --> 00:30:09,320
Speaker 1: How does that play out going forward? I think we

520
00:30:09,440 --> 00:30:13,400
Speaker 1: we have a we have a good example of where

521
00:30:13,480 --> 00:30:17,160
Speaker 1: China's going, maybe where Europe's going, and eventually, well we're

522
00:30:17,200 --> 00:30:19,240
Speaker 1: going though, I I don't think we're going to go

523
00:30:19,280 --> 00:30:21,760
Speaker 1: down that same road. And that's Japan. You know, Japan

524
00:30:22,560 --> 00:30:25,680
Speaker 1: was early on with the too much debt not enough.

525
00:30:26,040 --> 00:30:27,960
Speaker 1: They started out with the bubble, and you know, China

526
00:30:28,000 --> 00:30:29,640
Speaker 1: is going to be the Japan is gonna be the

527
00:30:29,640 --> 00:30:33,760
Speaker 1: world's largest economy. I remember Rockefeller center, and oh they're

528
00:30:33,760 --> 00:30:36,040
Speaker 1: coming and buying all that stuff, and they thought that

529
00:30:36,040 --> 00:30:38,160
Speaker 1: they could take it back to Japan. But that was

530
00:30:38,200 --> 00:30:41,080
Speaker 1: the fearback. And so when that bubble burst, what do

531
00:30:41,160 --> 00:30:43,880
Speaker 1: they do? They lower their interest rates to zero. They

532
00:30:43,880 --> 00:30:46,960
Speaker 1: were early on with a quantitative easing. They were actually

533
00:30:47,080 --> 00:30:49,800
Speaker 1: late on negative interest rates, but they caught up earlier

534
00:30:49,840 --> 00:30:53,400
Speaker 1: this year. The demography is terrible, the fertility rates collapsed,

535
00:30:53,400 --> 00:30:57,280
Speaker 1: and no immigration, no immigration, the entire society is just

536
00:30:57,440 --> 00:31:00,640
Speaker 1: rapidly aging with not a lot of Now China in

537
00:31:00,640 --> 00:31:02,480
Speaker 1: many ways just a bigger version of all that. The

538
00:31:02,960 --> 00:31:06,160
Speaker 1: demography is terrible. The one child act now they they've

539
00:31:06,200 --> 00:31:08,480
Speaker 1: gotten rid of that, but it's gonna take a while

540
00:31:08,560 --> 00:31:11,840
Speaker 1: to work. And they've been generation well, they've very interviewed

541
00:31:11,880 --> 00:31:13,920
Speaker 1: couples and the couples say, well, thanks, but no thanks,

542
00:31:13,960 --> 00:31:17,000
Speaker 1: it's too expensive to have a kid. Yeah, so it's

543
00:31:17,000 --> 00:31:19,400
Speaker 1: not it's not obvious that that's going to turn things around.

544
00:31:19,600 --> 00:31:21,960
Speaker 1: It's not gonna do anything for them anytime soon. You know.

545
00:31:22,040 --> 00:31:24,440
Speaker 1: The The old concern was will China grow old before

546
00:31:24,440 --> 00:31:27,440
Speaker 1: it grows rich? And uh, there's more and more evidence

547
00:31:27,480 --> 00:31:31,280
Speaker 1: saying that it's chronicled faster than has grown rich. That's amazing.

548
00:31:31,440 --> 00:31:35,920
Speaker 1: What about the US consumer, long the driver of much

549
00:31:35,920 --> 00:31:39,880
Speaker 1: of the global economy. Can the US consumer keep consuming?

550
00:31:39,880 --> 00:31:42,760
Speaker 1: And what about the ongoing de leveraging We've been well,

551
00:31:42,840 --> 00:31:45,800
Speaker 1: God bless American God bless the American consumer. I mean,

552
00:31:45,840 --> 00:31:49,080
Speaker 1: one one thing that American consumers are very good at

553
00:31:49,200 --> 00:31:53,239
Speaker 1: is consuming. Uh and uh, they really haven't let us

554
00:31:53,240 --> 00:31:57,640
Speaker 1: down over over the years. And I think there's some concerns,

555
00:31:57,720 --> 00:32:00,080
Speaker 1: you know that the baby boomers who were yuppies and

556
00:32:00,120 --> 00:32:02,960
Speaker 1: now they're getting older, are aren't doing the kind of

557
00:32:03,040 --> 00:32:06,200
Speaker 1: spending they used to. And maybe maybe the millennials aren't

558
00:32:06,200 --> 00:32:08,960
Speaker 1: going to pick a pick up the ball um or

559
00:32:09,160 --> 00:32:12,440
Speaker 1: the baton as as well. But the thing this shows

560
00:32:12,480 --> 00:32:17,240
Speaker 1: that consumers consume their incomes and uh, you know, employment

561
00:32:17,240 --> 00:32:21,040
Speaker 1: has been growing, wages have been growing. Again, there's this

562
00:32:21,240 --> 00:32:25,959
Speaker 1: uh myth out there that Americans, uh, wages have stagnated

563
00:32:26,000 --> 00:32:29,440
Speaker 1: for the past twenty years. That's based on one statistic

564
00:32:29,480 --> 00:32:33,720
Speaker 1: that's collected by the Census Bureau UH to measure poverty.

565
00:32:33,760 --> 00:32:38,000
Speaker 1: And it's measured before taxes, it's measured before entitlements. UH.

566
00:32:38,040 --> 00:32:40,560
Speaker 1: So it's uh, it's it's not a good measure of

567
00:32:40,840 --> 00:32:44,400
Speaker 1: the purchasing power. The consumers actually have um so. People

568
00:32:44,440 --> 00:32:47,200
Speaker 1: who want to find more of your writings, they go

569
00:32:47,360 --> 00:32:51,360
Speaker 1: to blob dot your Denny dot com. We've been speaking

570
00:32:51,440 --> 00:32:55,479
Speaker 1: with Dr edyar Denny of your Denny Research. If you

571
00:32:55,680 --> 00:32:58,480
Speaker 1: enjoy this conversation, be sure and come back and check

572
00:32:58,520 --> 00:33:01,240
Speaker 1: out our podcast, True is where we keep the tape

573
00:33:01,360 --> 00:33:06,120
Speaker 1: rolling and continue chatting about all things economic. Feel free

574
00:33:06,160 --> 00:33:10,680
Speaker 1: to check out my daily column on Bloomberg dot com.

575
00:33:10,880 --> 00:33:15,320
Speaker 1: Follow me on Twitter at rit Halts. I'm Barry Hults.

576
00:33:15,440 --> 00:33:18,960
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.

577
00:33:20,200 --> 00:33:22,680
Speaker 1: Are you looking to take your business to the next level?

578
00:33:22,920 --> 00:33:26,600
Speaker 1: The accounting, tax and advisory professionals from Cone Resnick can

579
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580
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581
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582
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583
00:33:44,360 --> 00:33:50,680
Speaker 1: Slash Breakthrough, Cone Resnick Accounting Tax Advisory. Welcome to the

584
00:33:50,720 --> 00:33:53,120
Speaker 1: podcast portion of our show. I don't know why I

585
00:33:53,200 --> 00:33:56,920
Speaker 1: do this every time, I just feel feel obligated. Uh ed,

586
00:33:56,960 --> 00:34:00,200
Speaker 1: Thank you so much for doing this. People have me

587
00:34:00,320 --> 00:34:03,200
Speaker 1: about you, and I said, I know you for quite

588
00:34:03,200 --> 00:34:06,680
Speaker 1: some time. We actually live in adjacent towns and have

589
00:34:06,800 --> 00:34:10,960
Speaker 1: gone out to dinner with our respective spouses. UM, I

590
00:34:11,000 --> 00:34:13,319
Speaker 1: have a ton of questions for you. But before I

591
00:34:13,400 --> 00:34:18,480
Speaker 1: forget you, just reference the millennials versus the Boomers in

592
00:34:18,520 --> 00:34:21,759
Speaker 1: the last segment. So let's talk a little bit about

593
00:34:21,800 --> 00:34:25,680
Speaker 1: the difference between the two of them. The Boomers clearly

594
00:34:25,760 --> 00:34:30,360
Speaker 1: passed their peaks spending the years other than medicinal marijuana.

595
00:34:30,480 --> 00:34:33,680
Speaker 1: I couldn't guess what the average boomers spending money on.

596
00:34:34,400 --> 00:34:38,360
Speaker 1: UM and the millennials seem to be a very different

597
00:34:38,920 --> 00:34:43,239
Speaker 1: consumer cohort, at least so far. Maybe they'll follow in

598
00:34:43,280 --> 00:34:46,680
Speaker 1: their parents footsteps, but it seems they're less inclined to

599
00:34:46,760 --> 00:34:51,000
Speaker 1: buy a car between between rideshare and Uber and everything

600
00:34:51,040 --> 00:34:55,359
Speaker 1: that right, they're living more in the cities, except when

601
00:34:55,360 --> 00:34:57,520
Speaker 1: they're living at home with their parents, and usually there's

602
00:34:57,520 --> 00:35:00,759
Speaker 1: an extra car lying around there. How DI from an

603
00:35:00,800 --> 00:35:07,759
Speaker 1: economic perspective, our millennials versus the Boomers, well, the you know,

604
00:35:07,880 --> 00:35:12,319
Speaker 1: the the boomers got married earlier in their lives than

605
00:35:12,360 --> 00:35:15,279
Speaker 1: the millennials. Uh, the average age of marriage for both

606
00:35:15,520 --> 00:35:18,320
Speaker 1: men and women has extended. Maybe that has something to

607
00:35:18,360 --> 00:35:21,080
Speaker 1: do with social networking. You're gonna have plenty of dates

608
00:35:21,160 --> 00:35:25,040
Speaker 1: whereas uh Si left. Yeah, I mean when when I

609
00:35:25,080 --> 00:35:28,480
Speaker 1: was going to college, you know a lot of people

610
00:35:28,520 --> 00:35:31,680
Speaker 1: married their high school and college sweethearts. Uh. And then

611
00:35:31,719 --> 00:35:33,480
Speaker 1: the next thing you did is maybe you moved to

612
00:35:33,520 --> 00:35:36,440
Speaker 1: the city, and then six months later you got pregnant,

613
00:35:36,520 --> 00:35:38,960
Speaker 1: moved to the moved to the bourbs, and then got

614
00:35:38,960 --> 00:35:41,480
Speaker 1: a couple of cars and then upgraded to a bigger house.

615
00:35:41,480 --> 00:35:44,279
Speaker 1: And so it was. It was a different lifestyle than

616
00:35:44,320 --> 00:35:47,520
Speaker 1: the millennials are used to. And you know, at some

617
00:35:47,600 --> 00:35:51,360
Speaker 1: point they may you know, tire of you know, dating

618
00:35:51,360 --> 00:35:55,680
Speaker 1: different people uh on a regular basis, and find their

619
00:35:55,920 --> 00:35:58,400
Speaker 1: h that their true soul mate and settled down and

620
00:35:58,440 --> 00:36:02,240
Speaker 1: decide time to have keys. But you know, the later

621
00:36:02,360 --> 00:36:04,440
Speaker 1: you wait to get married, odds are you're gonna have

622
00:36:04,520 --> 00:36:08,719
Speaker 1: fewer kids. And so I think the demography is I've

623
00:36:08,760 --> 00:36:11,640
Speaker 1: always believed that demography is very, very important. Everybody thinks

624
00:36:11,640 --> 00:36:13,879
Speaker 1: it takes too long to have an impact. I don't

625
00:36:13,920 --> 00:36:16,480
Speaker 1: think that's the case at all. I think it explains

626
00:36:16,520 --> 00:36:18,799
Speaker 1: a lot. The time is going to go by, whether

627
00:36:18,840 --> 00:36:21,799
Speaker 1: you're looking at the demography or not. So why not

628
00:36:21,920 --> 00:36:24,880
Speaker 1: at least be aware or of it. And the United

629
00:36:24,880 --> 00:36:28,399
Speaker 1: States has a relatively high birth rate compared with other

630
00:36:28,880 --> 00:36:31,960
Speaker 1: industrialized nations. How big of an advantage is that it's

631
00:36:31,960 --> 00:36:35,560
Speaker 1: a huge advantage of fertility rates have collapsed around the world.

632
00:36:35,840 --> 00:36:39,800
Speaker 1: Europe is flat, Japan is negative. It's nobody's got I

633
00:36:39,880 --> 00:36:43,279
Speaker 1: don't think there's one explanation. I think, uh, uh, you know,

634
00:36:43,400 --> 00:36:46,239
Speaker 1: when women have become economically freer in a lot of

635
00:36:46,280 --> 00:36:49,120
Speaker 1: these countries, and I don't want to have as many kids,

636
00:36:49,200 --> 00:36:51,160
Speaker 1: But the same is true in the US. How do

637
00:36:51,200 --> 00:36:54,239
Speaker 1: you explain that? Or is the US that diverse culturally

638
00:36:54,719 --> 00:36:58,680
Speaker 1: that New York is not, Chicago is not. I think

639
00:36:58,719 --> 00:37:03,000
Speaker 1: I think it's diverse culturally, and uh, there's there, there's

640
00:37:03,000 --> 00:37:06,080
Speaker 1: still uh. I mean, religion has a lot to do

641
00:37:06,160 --> 00:37:09,360
Speaker 1: with with with people who are religious tant to have

642
00:37:09,400 --> 00:37:12,560
Speaker 1: more kids, and so I think and getting married earlier

643
00:37:12,600 --> 00:37:15,000
Speaker 1: and stay married, or at least that was the old theory.

644
00:37:15,040 --> 00:37:17,759
Speaker 1: I don't know if the data. It used to be

645
00:37:17,840 --> 00:37:19,799
Speaker 1: that you'd have to have a lot of kids to

646
00:37:19,840 --> 00:37:23,239
Speaker 1: take care of you and your old age and the farm. Well,

647
00:37:23,280 --> 00:37:26,160
Speaker 1: now the government takes is expected to take care of you.

648
00:37:26,280 --> 00:37:28,480
Speaker 1: So what's the point of having kids. So I think

649
00:37:28,520 --> 00:37:31,520
Speaker 1: that's had an impact. And but um, for one reason

650
00:37:31,640 --> 00:37:34,040
Speaker 1: or another, there are lots of reasons why fertility rates

651
00:37:34,280 --> 00:37:37,319
Speaker 1: have stayed Uh at we really had replacement, We're not

652
00:37:37,360 --> 00:37:41,080
Speaker 1: really you know, slightly above, lightly above maybe when when

653
00:37:41,120 --> 00:37:44,440
Speaker 1: most most of Europe is either slightly under or or

654
00:37:44,480 --> 00:37:47,560
Speaker 1: significantly under. And then you look in Asia, and at

655
00:37:47,640 --> 00:37:50,760
Speaker 1: least in Japan and China. I can't speak about Korea

656
00:37:50,880 --> 00:37:56,120
Speaker 1: or Vietnam or India appears to be above replaced. But

657
00:37:56,120 --> 00:38:00,439
Speaker 1: but the big developed powers like Japan and China, they're

658
00:38:00,520 --> 00:38:03,320
Speaker 1: running a negative of fertility rate as well. Yeah, and Russia.

659
00:38:03,360 --> 00:38:05,799
Speaker 1: Russia has got a terrible fertility Oh really, I haven't

660
00:38:05,840 --> 00:38:08,440
Speaker 1: thought about that. So so what does this mean to

661
00:38:08,480 --> 00:38:12,680
Speaker 1: the future of these countries economies? Well, I think one

662
00:38:12,719 --> 00:38:15,880
Speaker 1: of the great challenges looking ahead. Um. I kind of

663
00:38:15,960 --> 00:38:18,279
Speaker 1: learned my lesson from White que not to get to

664
00:38:18,360 --> 00:38:22,800
Speaker 1: get too millennial about these things. But you know, a

665
00:38:23,280 --> 00:38:26,279
Speaker 1: longer term, I mean, demography is destiny. I mean, you know,

666
00:38:26,360 --> 00:38:28,520
Speaker 1: you know who's born, you know what the fertility rates are,

667
00:38:28,560 --> 00:38:30,920
Speaker 1: you know how much longer people are living. How do

668
00:38:30,960 --> 00:38:33,880
Speaker 1: we take care of all these old people? Um? Is

669
00:38:33,880 --> 00:38:36,920
Speaker 1: that is Japan is kind of there. I say that

670
00:38:37,040 --> 00:38:40,440
Speaker 1: half jokingly. On my summer reading list, I have the

671
00:38:40,440 --> 00:38:45,360
Speaker 1: book Rise of the robot and Japan remains a massive

672
00:38:45,440 --> 00:38:51,799
Speaker 1: export power. If are they capable and they're fairly automated

673
00:38:51,880 --> 00:38:55,480
Speaker 1: in a lot of their factories, how far can this

674
00:38:55,640 --> 00:39:01,600
Speaker 1: robotics revolution go? Can they replace the low birth rate

675
00:39:01,640 --> 00:39:05,840
Speaker 1: in places like Japan and China at least for manufacturing.

676
00:39:06,200 --> 00:39:08,319
Speaker 1: It's still kind of raises the question who's gonna pay

677
00:39:08,360 --> 00:39:10,000
Speaker 1: for all that? I mean, if you got you know,

678
00:39:10,360 --> 00:39:13,239
Speaker 1: people getting older and older not able to work. They

679
00:39:13,280 --> 00:39:15,520
Speaker 1: need robots, but you know they need to eat, they

680
00:39:15,520 --> 00:39:19,800
Speaker 1: need medication, they need transportation. Well, Switzerland, you gotta guarantee

681
00:39:19,840 --> 00:39:22,839
Speaker 1: thirty tho dollar year salary coming up. Well again, these

682
00:39:22,840 --> 00:39:26,279
Speaker 1: things all work until they don't work. I mean, you know, uh,

683
00:39:26,760 --> 00:39:29,279
Speaker 1: I mean right now, central banks printing money is working

684
00:39:29,320 --> 00:39:33,480
Speaker 1: until it doesn't work. So um, I you know, I

685
00:39:33,480 --> 00:39:37,319
Speaker 1: don't think anybody is really trying to figure out how

686
00:39:37,440 --> 00:39:41,480
Speaker 1: we manage in the future. It's not good for our kids. Um,

687
00:39:41,520 --> 00:39:43,960
Speaker 1: but maybe they're too young to u But there are

688
00:39:44,040 --> 00:39:46,120
Speaker 1: less and less of them, so it doesn't matter. I

689
00:39:46,160 --> 00:39:49,120
Speaker 1: guess it doesn't matter as much. You mentioned central banks

690
00:39:49,239 --> 00:39:53,160
Speaker 1: quee and zero interest rate policy. I would be remiss

691
00:39:53,200 --> 00:39:56,600
Speaker 1: if I did not bring that up to discuss. So

692
00:39:56,920 --> 00:39:59,760
Speaker 1: what is the impact of what the FED has done

693
00:40:00,000 --> 00:40:05,439
Speaker 1: in terms of low rates and quantitative easing? Did they

694
00:40:05,480 --> 00:40:10,480
Speaker 1: help solve the financial crisis by adding all this liquidly?

695
00:40:11,040 --> 00:40:13,200
Speaker 1: And then what does it mean long term? And what

696
00:40:13,200 --> 00:40:15,279
Speaker 1: what's the end game? How do they get out of this? Well,

697
00:40:15,640 --> 00:40:19,200
Speaker 1: they solved the crisis that I think in some ways

698
00:40:19,200 --> 00:40:22,839
Speaker 1: they were complicit in create. In creating. Listen, Greenspan took

699
00:40:22,960 --> 00:40:27,399
Speaker 1: rates after nine eleven down to it was below two

700
00:40:27,440 --> 00:40:29,680
Speaker 1: percent for a couple of years, and it was actually

701
00:40:29,800 --> 00:40:32,319
Speaker 1: under one percent for a year, which was you know,

702
00:40:32,360 --> 00:40:34,520
Speaker 1: you go back to the fifties and early sixties. You

703
00:40:34,520 --> 00:40:37,560
Speaker 1: could see rates dip below one percent for a moment

704
00:40:37,840 --> 00:40:40,359
Speaker 1: and then it's gone, not like here's twelve months of

705
00:40:40,840 --> 00:40:43,800
Speaker 1: one percent or less. And Berninkia was giving a speech

706
00:40:43,880 --> 00:40:47,520
Speaker 1: on the Great Moderation and saying that central banks have

707
00:40:47,560 --> 00:40:51,480
Speaker 1: conquered the business cycle. A capitalistic system has its ups

708
00:40:51,520 --> 00:40:54,760
Speaker 1: and downs. I mean, people have to deal with failure

709
00:40:54,800 --> 00:40:57,719
Speaker 1: if they've speculated too much, and if the central bank says,

710
00:40:58,080 --> 00:40:59,839
Speaker 1: don't worry about it, we'll give you the green span

711
00:41:00,000 --> 00:41:02,319
Speaker 1: at the Bernankey, put the yell and put you know,

712
00:41:02,360 --> 00:41:04,520
Speaker 1: it creates too much speculation, too much access, and too

713
00:41:04,560 --> 00:41:07,160
Speaker 1: much debt. As I mentioned before, there's nobody that's doing

714
00:41:07,200 --> 00:41:09,880
Speaker 1: that on a bigger scale right now than than the Chinese.

715
00:41:09,960 --> 00:41:12,680
Speaker 1: It's just an enormous amount of debt relative to what

716
00:41:13,080 --> 00:41:17,200
Speaker 1: eventually their economy can carry. So would we have This

717
00:41:17,280 --> 00:41:19,239
Speaker 1: is a pet peeve of mine, and I try not

718
00:41:19,280 --> 00:41:21,640
Speaker 1: to bring up too many of them, But would we

719
00:41:21,680 --> 00:41:25,080
Speaker 1: have been better off in the two thousand and eight

720
00:41:25,320 --> 00:41:29,759
Speaker 1: o nine crisis letting more banks, if not do a

721
00:41:29,760 --> 00:41:34,319
Speaker 1: full Lehman face splat on the pavement, but do a

722
00:41:34,360 --> 00:41:38,040
Speaker 1: full bankruptcy reorg and maybe Uncle Sam is the dead

723
00:41:38,120 --> 00:41:42,600
Speaker 1: or in possession financer clean up these banks, rip the

724
00:41:42,600 --> 00:41:45,280
Speaker 1: band aid off. I have to think the equity market

725
00:41:46,080 --> 00:41:48,680
Speaker 1: would not have bottomed at six six six. Maybe we

726
00:41:48,719 --> 00:41:51,480
Speaker 1: would have seen something much worse, But would we have

727
00:41:51,520 --> 00:41:55,440
Speaker 1: been healthier in the long run? Well, I think I

728
00:41:55,719 --> 00:42:00,399
Speaker 1: don't disagree with the notion that QUE one and help

729
00:42:00,440 --> 00:42:02,799
Speaker 1: to end the crisis. I don't know that QUE three

730
00:42:02,840 --> 00:42:05,640
Speaker 1: and four, all those other quis, I think they just

731
00:42:06,400 --> 00:42:08,799
Speaker 1: I think the central banks have become just kind of

732
00:42:08,840 --> 00:42:12,200
Speaker 1: like drug dealers, to to the economy and and and

733
00:42:12,239 --> 00:42:16,440
Speaker 1: to the wants to go through withdrawal nobody wants and uh,

734
00:42:16,680 --> 00:42:22,160
Speaker 1: you know, um again capitalism, this guy, it's winners and losers.

735
00:42:22,360 --> 00:42:24,880
Speaker 1: I like to show Shark Tank on TV and now

736
00:42:24,960 --> 00:42:28,120
Speaker 1: they're doing some segments showing what it's like after people

737
00:42:28,440 --> 00:42:32,919
Speaker 1: get supported, and uh, winning is a lot of people

738
00:42:33,000 --> 00:42:34,800
Speaker 1: lose after they win because they don't know how to

739
00:42:34,840 --> 00:42:37,440
Speaker 1: manage their inventories and they fail, and some of them,

740
00:42:37,560 --> 00:42:40,320
Speaker 1: you know, dust off and start all over again. But

741
00:42:40,560 --> 00:42:43,320
Speaker 1: we we just don't have that kind of you know,

742
00:42:43,560 --> 00:42:46,440
Speaker 1: central banks have kind of softened this up, and I'm

743
00:42:46,480 --> 00:42:48,640
Speaker 1: not quite sure how we get out of this miss

744
00:42:49,480 --> 00:42:54,240
Speaker 1: So right now, all the chatter has been on Juno

745
00:42:54,360 --> 00:42:58,520
Speaker 1: July's interest rate increase in in two thousand and sixteen.

746
00:42:59,120 --> 00:43:02,000
Speaker 1: For a while, look like every time the Fed looked

747
00:43:02,440 --> 00:43:05,880
Speaker 1: like they were serious about an increase, the equity markets

748
00:43:05,920 --> 00:43:09,560
Speaker 1: would throw a hissy fit. Here we are at coming

749
00:43:09,600 --> 00:43:13,759
Speaker 1: to the end of the second quarter of sixteen, and

750
00:43:13,880 --> 00:43:16,319
Speaker 1: it looks like markets are starting to accept that, hey,

751
00:43:16,440 --> 00:43:19,520
Speaker 1: maybe the Fed is serious, and maybe the last rate

752
00:43:19,560 --> 00:43:23,560
Speaker 1: increase was December. Maybe we're gonna see one or two

753
00:43:23,640 --> 00:43:27,080
Speaker 1: rate increases this year. Is that putting us on the

754
00:43:27,239 --> 00:43:30,440
Speaker 1: path to some form of normalization? I hope? So, I mean,

755
00:43:30,640 --> 00:43:35,560
Speaker 1: you know, the word normalization is a very healthy word.

756
00:43:35,600 --> 00:43:38,319
Speaker 1: I mean, we all want normal although one percent FED

757
00:43:38,400 --> 00:43:41,759
Speaker 1: funds rate isn't what I would consider normal. No, it's not.

758
00:43:42,120 --> 00:43:45,799
Speaker 1: But there are some structural forces out there that had

759
00:43:45,880 --> 00:43:48,480
Speaker 1: nothing to do with the FED, like Agian demographics I

760
00:43:48,560 --> 00:43:52,640
Speaker 1: think is slowing the global economy down. Technology is fundamentally

761
00:43:53,160 --> 00:43:58,359
Speaker 1: disruptive global competition otherwise known as globalization. So there are

762
00:43:58,480 --> 00:44:01,279
Speaker 1: the there are forces at work here that, uh really

763
00:44:01,320 --> 00:44:05,760
Speaker 1: have structurally changed the outlook for inflation and for growth,

764
00:44:05,840 --> 00:44:08,120
Speaker 1: and so maybe interest rates are going to stay historically love.

765
00:44:08,440 --> 00:44:11,720
Speaker 1: So let's talk a little bit about you mentioned slowing

766
00:44:11,800 --> 00:44:15,000
Speaker 1: growth due in part to demography. What do you think

767
00:44:15,080 --> 00:44:20,160
Speaker 1: of the secular stagnation argument? Do you buy into that? Is?

768
00:44:20,520 --> 00:44:23,520
Speaker 1: How responsible is demography? And or is this something that

769
00:44:23,600 --> 00:44:27,359
Speaker 1: we eventually will innovate a way out. I buy into

770
00:44:27,480 --> 00:44:30,839
Speaker 1: secular stagnation is a description of what we're going through.

771
00:44:31,600 --> 00:44:34,600
Speaker 1: Um And since I buy into it, I'm buying into

772
00:44:34,640 --> 00:44:37,360
Speaker 1: the words secular in other words, could could last a while.

773
00:44:37,840 --> 00:44:41,120
Speaker 1: I don't buy into the Larry Summer's idea that we

774
00:44:41,280 --> 00:44:45,600
Speaker 1: need more government policy to to get us out of

775
00:44:45,680 --> 00:44:48,839
Speaker 1: this mess. Um, you know, I mean the next thing

776
00:44:48,960 --> 00:44:52,200
Speaker 1: that government may very well do is helicopter money. Uh.

777
00:44:52,280 --> 00:44:54,400
Speaker 1: It doesn't really mean that they're gonna rent helicopters and

778
00:44:54,480 --> 00:44:59,239
Speaker 1: drop money. It means more infrastructial infrastructure spending. The rest

779
00:44:59,480 --> 00:45:04,040
Speaker 1: fiscal directly financed by by the by by the federal government.

780
00:45:04,640 --> 00:45:06,920
Speaker 1: The problem is we we we proved earlier on a

781
00:45:06,960 --> 00:45:09,200
Speaker 1: few years ago that we're not shovel ready. There's too

782
00:45:09,239 --> 00:45:12,319
Speaker 1: many regulations and it's not clear that you know, even

783
00:45:12,360 --> 00:45:15,040
Speaker 1: if we did something like that, it would really show

784
00:45:15,200 --> 00:45:18,800
Speaker 1: showing in our infrastructure. It would be nice if that

785
00:45:18,960 --> 00:45:22,359
Speaker 1: was the case. Uh. You live not too far from

786
00:45:22,480 --> 00:45:27,000
Speaker 1: Chicken Valley Road, which has finally, after years of falling apart,

787
00:45:27,400 --> 00:45:33,680
Speaker 1: repaved and so the it took a major hurricane to

788
00:45:33,800 --> 00:45:38,520
Speaker 1: just a couple of horrible winner So my my again.

789
00:45:38,600 --> 00:45:42,480
Speaker 1: Another pet peev on infrastructure is our local airports are

790
00:45:42,520 --> 00:45:46,960
Speaker 1: fairly terrible. They arrange for mediocre to terrible. Although to

791
00:45:47,040 --> 00:45:52,640
Speaker 1: be fair, the renovated terminals in JFK are pretty nice

792
00:45:53,160 --> 00:45:55,960
Speaker 1: and I think it's terminal for at Laguardi of the

793
00:45:56,360 --> 00:45:59,640
Speaker 1: newest delta terminal, the one that has all the iPads

794
00:45:59,719 --> 00:46:03,080
Speaker 1: to order food. That's a pretty all things considered. The

795
00:46:03,160 --> 00:46:05,839
Speaker 1: rest of the airport is it dumping And that's such

796
00:46:05,880 --> 00:46:08,880
Speaker 1: a short runway, it's no fun coming in anytime. It's wendy.

797
00:46:09,320 --> 00:46:12,960
Speaker 1: But that said, the US really could stand for a

798
00:46:13,200 --> 00:46:17,640
Speaker 1: massive infrastructure upgrade. You travel right here in Europe. You're

799
00:46:17,680 --> 00:46:20,759
Speaker 1: an Asia preregularly. I'm astonished. The last time I was

800
00:46:20,840 --> 00:46:25,759
Speaker 1: in Brussels in Italy, they were apologizing for their conditions

801
00:46:26,280 --> 00:46:28,160
Speaker 1: of their roads, And I'm like, who do I have

802
00:46:28,280 --> 00:46:30,440
Speaker 1: to pay off to get roads like this? And they

803
00:46:30,520 --> 00:46:34,279
Speaker 1: think the roads are bad? No, I I can't. I

804
00:46:34,520 --> 00:46:37,759
Speaker 1: don't know why we're such a miserable situation other than

805
00:46:38,760 --> 00:46:43,879
Speaker 1: government regulation. And uh, I mean we we do spend money,

806
00:46:44,239 --> 00:46:46,080
Speaker 1: but it just doesn't seem to show up in uh,

807
00:46:46,520 --> 00:46:49,719
Speaker 1: in the infrastructure. We we haven't really, So here's I'm

808
00:46:49,760 --> 00:46:51,960
Speaker 1: not in favor of cranking up taxes. And I know

809
00:46:52,280 --> 00:46:55,600
Speaker 1: all the candidates for president have their own tax schemes,

810
00:46:56,200 --> 00:46:59,479
Speaker 1: but dear lord, the gasoline tax has been frozen since

811
00:46:59,600 --> 00:47:03,359
Speaker 1: nineteen three and and I just tanked up the other day.

812
00:47:03,400 --> 00:47:06,600
Speaker 1: It was twenty six dollars. It's the cheapest high test

813
00:47:06,680 --> 00:47:10,960
Speaker 1: I've ever seen fill up a tank. I'm happy to

814
00:47:11,120 --> 00:47:14,000
Speaker 1: see that go up to twenty or thirty tents if

815
00:47:14,560 --> 00:47:17,239
Speaker 1: the money goes to bridges and row you know, I mean,

816
00:47:17,400 --> 00:47:20,680
Speaker 1: we we did have and during this administration, in the

817
00:47:20,680 --> 00:47:25,760
Speaker 1: beginning administration, they are are the American Recovery and something

818
00:47:25,840 --> 00:47:30,120
Speaker 1: has billion dollars and but what's supposed to be infrastructure,

819
00:47:30,120 --> 00:47:32,120
Speaker 1: but it really wasn't. So about a third of it

820
00:47:32,360 --> 00:47:35,319
Speaker 1: was temporary tax scots. If you're gonna make a tax cut,

821
00:47:35,840 --> 00:47:38,319
Speaker 1: economic theory says it needs to be permanent to really

822
00:47:38,360 --> 00:47:42,800
Speaker 1: have an impact, and temporary extension of unemployment. So that

823
00:47:42,960 --> 00:47:45,839
Speaker 1: was like a two hundred billion dollars of which we've

824
00:47:45,920 --> 00:47:49,600
Speaker 1: seen some improvements. But you know this is with the

825
00:47:49,680 --> 00:47:52,799
Speaker 1: benefit of hindsight, we could have spent two to four

826
00:47:52,880 --> 00:47:57,280
Speaker 1: trillion dollars over a decade and really just just barely

827
00:47:58,360 --> 00:48:01,640
Speaker 1: just really barely started doing at The good news is

828
00:48:01,760 --> 00:48:04,799
Speaker 1: both candidates seem to be in favor of infrastructure SPA.

829
00:48:05,440 --> 00:48:07,439
Speaker 1: Let's see if they come up with an intelligent way

830
00:48:08,160 --> 00:48:12,040
Speaker 1: um um to fund that. But all this fiscal conversation

831
00:48:12,440 --> 00:48:14,800
Speaker 1: is really a way to get to a back doorway

832
00:48:14,840 --> 00:48:17,440
Speaker 1: to get to a different question, which is have we

833
00:48:17,600 --> 00:48:22,120
Speaker 1: reached the end of what monetary policy can do? I

834
00:48:22,520 --> 00:48:25,799
Speaker 1: think we have, UM, and I think financial markets UM,

835
00:48:26,640 --> 00:48:31,120
Speaker 1: I've kind of signaled that, UM. You know, we haven't

836
00:48:31,120 --> 00:48:34,120
Speaker 1: seen the markets go down because you never know when

837
00:48:34,160 --> 00:48:36,800
Speaker 1: a central bank we'll try another shock and awe, but

838
00:48:36,920 --> 00:48:39,040
Speaker 1: we just don't get shocked and add the way we

839
00:48:39,160 --> 00:48:42,120
Speaker 1: used to no response. You've you still see it in Japan.

840
00:48:42,560 --> 00:48:44,560
Speaker 1: So the way I look at it, the US is done,

841
00:48:44,800 --> 00:48:48,800
Speaker 1: Japan is sort of halfway through, and and Europe is

842
00:48:48,880 --> 00:48:53,200
Speaker 1: just getting started. The problem is, UM, it's based on

843
00:48:53,320 --> 00:48:56,760
Speaker 1: demand side management, right. If you can demand side manager

844
00:48:56,800 --> 00:48:58,480
Speaker 1: and explain what you mean by that, I means you know,

845
00:48:58,560 --> 00:49:01,640
Speaker 1: these easy money and you're gonna stimulate demand. Uh, you know,

846
00:49:01,840 --> 00:49:05,239
Speaker 1: very very kenzy. I think the problem is that we're

847
00:49:05,320 --> 00:49:08,160
Speaker 1: overloaded with debt, right, So I think that's where the

848
00:49:08,239 --> 00:49:12,000
Speaker 1: central bankers are are just aren't in tune with reality.

849
00:49:12,400 --> 00:49:14,360
Speaker 1: They've been doing this for so long that they're just

850
00:49:14,520 --> 00:49:18,719
Speaker 1: way too much debt relative to income and so easy money. Empirically,

851
00:49:18,800 --> 00:49:22,000
Speaker 1: we can see it's just not being very very stimulative anymore. UM.

852
00:49:22,400 --> 00:49:26,480
Speaker 1: So here's here's a friend's argument, who is on the

853
00:49:26,640 --> 00:49:30,120
Speaker 1: bond side, on the credit side, says, the Fed has

854
00:49:30,200 --> 00:49:33,160
Speaker 1: kind of painted themselves into a corner because there's so

855
00:49:33,320 --> 00:49:36,200
Speaker 1: much debt. If they actually were to take rates up

856
00:49:36,239 --> 00:49:38,640
Speaker 1: to three and a half four percent, now, think of

857
00:49:38,719 --> 00:49:40,759
Speaker 1: what you're doing with all this massive amount of debt

858
00:49:40,840 --> 00:49:42,960
Speaker 1: you've just put out there, And what is that going

859
00:49:43,040 --> 00:49:45,600
Speaker 1: to mean for the economy if everybody is buried under

860
00:49:45,640 --> 00:49:48,560
Speaker 1: their debt services And in some ways we were lucky

861
00:49:48,640 --> 00:49:53,160
Speaker 1: that some structural secular forces have kept inflation down. Imagine

862
00:49:53,200 --> 00:49:57,080
Speaker 1: if all this liquidity really did bring back CPI inflation,

863
00:49:58,040 --> 00:50:00,600
Speaker 1: then the central banks for credibility what have to raise

864
00:50:00,680 --> 00:50:04,960
Speaker 1: interest rates, which would be disastrous. And so that's a

865
00:50:05,120 --> 00:50:09,399
Speaker 1: that's another fascinating question. Why has inflation been so low

866
00:50:10,080 --> 00:50:12,840
Speaker 1: for so long? And remember you go back to I

867
00:50:12,880 --> 00:50:15,640
Speaker 1: want to say two thousand and ten, there was a

868
00:50:15,800 --> 00:50:18,279
Speaker 1: very famous letter published in the Wall Street Journal from

869
00:50:18,360 --> 00:50:23,239
Speaker 1: a number of really smart bond guys, equity guys, fund

870
00:50:23,280 --> 00:50:26,839
Speaker 1: managers warning that hey, all this QUEUEI and and zurup

871
00:50:27,000 --> 00:50:30,439
Speaker 1: is going to cause hyper inflation, and instead we saw

872
00:50:30,640 --> 00:50:34,640
Speaker 1: disinflation and the risk of deflation. I think one of

873
00:50:34,719 --> 00:50:39,840
Speaker 1: the big factors has been globalization and uh I impacked

874
00:50:39,880 --> 00:50:43,879
Speaker 1: on the labor market especially. I I have a chart

875
00:50:43,960 --> 00:50:45,840
Speaker 1: that I show of the cp I going back to

876
00:50:45,960 --> 00:50:49,680
Speaker 1: eighteen hundred. It's a monthly chart, and obviously it's changed

877
00:50:49,719 --> 00:50:51,640
Speaker 1: over the years. It used to be carosen and grain,

878
00:50:51,719 --> 00:50:54,640
Speaker 1: now a whole bunch of other things include services, much

879
00:50:54,680 --> 00:50:57,560
Speaker 1: more now than it did back then. And uh what

880
00:50:57,760 --> 00:50:59,480
Speaker 1: that chart shows when you look at the level of

881
00:50:59,520 --> 00:51:02,520
Speaker 1: the CPO, I just it just screams at you, and

882
00:51:02,600 --> 00:51:06,240
Speaker 1: that is um, inflation tends to be associated with wars,

883
00:51:06,840 --> 00:51:10,919
Speaker 1: and deflation tends to occur during peace times and after

884
00:51:10,960 --> 00:51:14,400
Speaker 1: a long enough peacetime, you sort of have price stability.

885
00:51:15,000 --> 00:51:17,320
Speaker 1: UM send me that short I'll post it when we

886
00:51:19,719 --> 00:51:23,479
Speaker 1: I think what that confirms for me is that micro

887
00:51:23,600 --> 00:51:26,600
Speaker 1: economics has become more relevant or is more relevant than

888
00:51:26,640 --> 00:51:29,719
Speaker 1: macro economics and things about the households. Economics is going

889
00:51:29,760 --> 00:51:32,920
Speaker 1: to be more significant than what I want. What I

890
00:51:33,000 --> 00:51:36,320
Speaker 1: mean is macro economists are looking at too big, at

891
00:51:36,360 --> 00:51:40,400
Speaker 1: the big picture. The micro economists looking at market structure,

892
00:51:40,680 --> 00:51:43,799
Speaker 1: and uh so they're saying, Okay, are the markets competitive

893
00:51:43,960 --> 00:51:47,520
Speaker 1: or they're monopolized? In war times, it's very little competition,

894
00:51:48,000 --> 00:51:50,040
Speaker 1: and you tend and then you can't trade with your enemies.

895
00:51:50,040 --> 00:51:52,040
Speaker 1: It's hard to trade with your friends, so you tend

896
00:51:52,080 --> 00:51:54,000
Speaker 1: to have a lot of inflation, a lot of the

897
00:51:54,080 --> 00:51:57,800
Speaker 1: labor forces in the trenches, peace breaks out. That's globalization.

898
00:51:57,880 --> 00:51:59,960
Speaker 1: This is not the first round of globalization we've ever had.

899
00:52:00,120 --> 00:52:02,839
Speaker 1: We had after this, the War of eighteen twelve, after

900
00:52:02,920 --> 00:52:06,800
Speaker 1: the Civil War, after World War One, and it's just

901
00:52:08,160 --> 00:52:11,720
Speaker 1: what happens is you now can trade with people around

902
00:52:11,760 --> 00:52:15,200
Speaker 1: the world and there's more competition. Is really what happens,

903
00:52:15,480 --> 00:52:18,000
Speaker 1: you know, you mentioned trading with people around the world.

904
00:52:18,560 --> 00:52:22,160
Speaker 1: Last week we had professor Stephen Pinker of Harvard who

905
00:52:22,800 --> 00:52:26,239
Speaker 1: two books ago wrote The Better The Better Nature of

906
00:52:26,280 --> 00:52:31,520
Speaker 1: Our Angels wha looking at why globally despite the headlines,

907
00:52:32,960 --> 00:52:35,520
Speaker 1: the amount of crime, the amount of violence, the amount

908
00:52:35,560 --> 00:52:38,839
Speaker 1: of wars or at record lows. So so when you're

909
00:52:38,920 --> 00:52:44,440
Speaker 1: trading with China and Russia and Japan and Germany, and

910
00:52:44,760 --> 00:52:48,800
Speaker 1: where go around the world, Korea, wherever Vietnam, President Obama

911
00:52:48,880 --> 00:52:52,480
Speaker 1: was just in Vietnam, you're much less likely to launch

912
00:52:52,520 --> 00:52:56,359
Speaker 1: a bombing attack on the place where you're getting your

913
00:52:56,400 --> 00:52:59,840
Speaker 1: supply chain to make your your your goods. So is

914
00:53:00,080 --> 00:53:03,720
Speaker 1: is possibly a long piece that we're entering. That means

915
00:53:03,840 --> 00:53:08,839
Speaker 1: that globalization is going to be ongoing. Deflation or at

916
00:53:08,880 --> 00:53:12,640
Speaker 1: least disinflation is not likely to go away. And and

917
00:53:12,800 --> 00:53:16,400
Speaker 1: we have really a very different economy than we had

918
00:53:16,520 --> 00:53:20,000
Speaker 1: last century. You never want to jinx it. Uh, you know,

919
00:53:20,120 --> 00:53:23,080
Speaker 1: I'm sure, like if I had that right before World

920
00:53:23,120 --> 00:53:28,760
Speaker 1: War One, I'm sure somebody permanently high plateau remember globalization,

921
00:53:29,000 --> 00:53:31,520
Speaker 1: and you know, everything like just hunky dory. I mean,

922
00:53:31,560 --> 00:53:33,839
Speaker 1: we're dealing here with humans here, and but but these

923
00:53:33,840 --> 00:53:37,480
Speaker 1: are big secular I think another way to put it

924
00:53:37,680 --> 00:53:41,399
Speaker 1: is there's just so much money now that's at risk

925
00:53:41,719 --> 00:53:44,239
Speaker 1: with globalization. People are making a lot of money with

926
00:53:44,440 --> 00:53:49,200
Speaker 1: free trade um. And there's a lot of complaints about

927
00:53:49,280 --> 00:53:52,480
Speaker 1: the income inequality, but the world on a on average

928
00:53:52,480 --> 00:53:54,800
Speaker 1: has become more equal. I mean, we've we've lost some

929
00:53:54,920 --> 00:53:58,360
Speaker 1: income here, but other countries of emotional markets have and

930
00:53:58,600 --> 00:54:02,560
Speaker 1: and the population and the most empowerished. That's why it's

931
00:54:02,600 --> 00:54:05,680
Speaker 1: a more peaceful world. People have more of a steak

932
00:54:06,280 --> 00:54:12,320
Speaker 1: in maintaining peaceful relationships and and and and engaging in commerce.

933
00:54:12,520 --> 00:54:16,520
Speaker 1: Professor Pinker had said something that I thought was really fascinating,

934
00:54:16,600 --> 00:54:22,360
Speaker 1: which was we see a surprising little impact on crime

935
00:54:22,560 --> 00:54:27,959
Speaker 1: and war from affluence, except when people have zero hope,

936
00:54:28,040 --> 00:54:31,920
Speaker 1: nothing to live for. The all the most impoverished nations

937
00:54:32,360 --> 00:54:36,000
Speaker 1: that were in lots and lots of civil wars last century,

938
00:54:37,120 --> 00:54:40,080
Speaker 1: many of them have worked their way out of that state,

939
00:54:40,840 --> 00:54:43,400
Speaker 1: and the wars tend to go away. They tend to

940
00:54:43,440 --> 00:54:46,600
Speaker 1: be more economically productive. And trade is a big cause,

941
00:54:46,640 --> 00:54:48,440
Speaker 1: and it makes all the sense in the world. I mean,

942
00:54:48,840 --> 00:54:52,080
Speaker 1: when people have aspirations and the thing they can do better,

943
00:54:52,840 --> 00:54:55,920
Speaker 1: they're gonna do better. Uh. If you cut them off

944
00:54:55,960 --> 00:54:59,560
Speaker 1: from those and they have nothing to lose, then they

945
00:54:59,640 --> 00:55:02,799
Speaker 1: behave like that. So crime war, civil war old. That's

946
00:55:04,239 --> 00:55:08,239
Speaker 1: so you men should income inequality? Um, what are your

947
00:55:08,320 --> 00:55:11,480
Speaker 1: views on what that means? Here in the United States,

948
00:55:12,000 --> 00:55:15,800
Speaker 1: at least in the developed world. There have been lots

949
00:55:15,840 --> 00:55:19,160
Speaker 1: and lots of complaints. Be it picketty, be it I

950
00:55:19,239 --> 00:55:21,560
Speaker 1: could give Robert Frank There's a whole run of folks

951
00:55:21,920 --> 00:55:25,880
Speaker 1: who have looked at numbers and said, yes, the distribution

952
00:55:26,280 --> 00:55:29,600
Speaker 1: of wealth has changed, but it hasn't changed so much

953
00:55:29,680 --> 00:55:33,520
Speaker 1: as the middle class versus the upper class. It's changed

954
00:55:33,920 --> 00:55:38,319
Speaker 1: most dramatically in the upper class versus the upper upper

955
00:55:38,400 --> 00:55:42,799
Speaker 1: upper the point oh one of of earners. What does

956
00:55:42,880 --> 00:55:47,479
Speaker 1: that mean and what should we do about it? If anything? Well,

957
00:55:48,000 --> 00:55:53,640
Speaker 1: I think this process of globalization, free trade uh has

958
00:55:53,800 --> 00:55:58,120
Speaker 1: created more income equality on a global basis. But you know,

959
00:55:58,440 --> 00:56:00,200
Speaker 1: and by the way the data supports you on that,

960
00:56:00,320 --> 00:56:03,840
Speaker 1: then there are far less people living completely in poverty

961
00:56:03,920 --> 00:56:07,080
Speaker 1: than there were fifty years. The problem, though, is if

962
00:56:07,160 --> 00:56:09,000
Speaker 1: you were making a lot of money as an auto

963
00:56:09,080 --> 00:56:13,120
Speaker 1: worker or some manufacturing and suddenly the job is not

964
00:56:13,239 --> 00:56:17,560
Speaker 1: even there, obviously, you're gonna feel dispossessed. You're gonna feel like,

965
00:56:17,640 --> 00:56:19,759
Speaker 1: you know something, something's been taken away from you. So

966
00:56:19,920 --> 00:56:21,520
Speaker 1: I think we have to acknowledge that. I mean, we

967
00:56:21,600 --> 00:56:25,080
Speaker 1: can't just like pretend that's that's not the case. Um.

968
00:56:26,080 --> 00:56:29,240
Speaker 1: But I don't think politically we want to get carried

969
00:56:29,239 --> 00:56:36,440
Speaker 1: away with this notion that Americans are are not doing well. Um.

970
00:56:36,840 --> 00:56:39,800
Speaker 1: I think we we need to really focus on the

971
00:56:39,880 --> 00:56:43,000
Speaker 1: fact that this country on average is doing well. But

972
00:56:43,400 --> 00:56:46,000
Speaker 1: you know, and acknowledge it. Part of that average, of course,

973
00:56:46,120 --> 00:56:49,600
Speaker 1: is the rich are getting richer. Um. But look, um,

974
00:56:50,719 --> 00:56:53,720
Speaker 1: you know it's it clearly gets into the whole politics

975
00:56:53,800 --> 00:56:58,800
Speaker 1: of taxation and whether we're taxing enough. Um. I happen

976
00:56:58,880 --> 00:57:03,520
Speaker 1: to believe that, uh, jobs and wages are created by

977
00:57:03,680 --> 00:57:09,520
Speaker 1: profitable companies for sure. So I'm all for uh, what

978
00:57:09,680 --> 00:57:14,000
Speaker 1: I call entrepreneurial capitalism. I'm against chrony capitalism, and I

979
00:57:14,080 --> 00:57:16,840
Speaker 1: think I think a lot of the excess is that

980
00:57:17,280 --> 00:57:21,240
Speaker 1: the income inequality people are looking at rightly, so are

981
00:57:21,400 --> 00:57:26,760
Speaker 1: in the chrony capitalism arena. But capitalism has blamed for it,

982
00:57:27,000 --> 00:57:29,800
Speaker 1: and I think it's uh, it's it's when chrony capital

983
00:57:29,960 --> 00:57:34,240
Speaker 1: star and cahoots with politicians that we get our income inequality.

984
00:57:34,680 --> 00:57:36,480
Speaker 1: I mean, one of the highest standards of living in

985
00:57:36,520 --> 00:57:39,440
Speaker 1: America today's in Washington, d C. I wonder why that

986
00:57:39,560 --> 00:57:42,600
Speaker 1: might be the case if you look at it's so

987
00:57:43,120 --> 00:57:45,400
Speaker 1: let me back up a sec. When you look at

988
00:57:45,440 --> 00:57:48,160
Speaker 1: who's doing well and who's not doing well in the US,

989
00:57:48,880 --> 00:57:50,840
Speaker 1: you can control for a number of things. If you

990
00:57:50,920 --> 00:57:55,480
Speaker 1: can control for degree of education, that's very insightful. If

991
00:57:55,560 --> 00:57:58,520
Speaker 1: you can control for what sector of the economy you're

992
00:57:58,520 --> 00:58:02,560
Speaker 1: working in. That pro had some information, But it's surprising

993
00:58:02,800 --> 00:58:08,200
Speaker 1: at how many winners and losers there are geographically Minnesota

994
00:58:08,480 --> 00:58:13,800
Speaker 1: doing fantastic, Seattle, Portland, San Francisco, Boston, New York. But

995
00:58:13,960 --> 00:58:17,080
Speaker 1: what really is the standout more than any period I

996
00:58:17,160 --> 00:58:20,360
Speaker 1: can remember over the past half century, Washington, d C.

997
00:58:20,800 --> 00:58:25,840
Speaker 1: And all the surrounding environments, house to fire, absolutely blown up.

998
00:58:25,920 --> 00:58:28,320
Speaker 1: Politics is a good business. It I don't think it

999
00:58:28,400 --> 00:58:31,240
Speaker 1: always was as lucrative of businesses now I don't know

1000
00:58:31,280 --> 00:58:33,680
Speaker 1: if that's the lobbying side, and some of the Supreme

1001
00:58:33,760 --> 00:58:38,440
Speaker 1: Court cases that changed and gamed and gamed. It seems

1002
00:58:38,480 --> 00:58:42,000
Speaker 1: like the past since two thousand, the past twenty fifteen

1003
00:58:42,080 --> 00:58:47,840
Speaker 1: or so years, it's really exploded, so so that that's interesting.

1004
00:58:47,960 --> 00:58:51,360
Speaker 1: So in terms of what we should be looking at

1005
00:58:51,440 --> 00:58:54,840
Speaker 1: income inequality, I get the sense that you would like

1006
00:58:55,000 --> 00:59:00,880
Speaker 1: to see the US corporate tax code revamped, changed, simplified,

1007
00:59:00,960 --> 00:59:03,120
Speaker 1: And I think I think the entire tax code that

1008
00:59:03,560 --> 00:59:05,800
Speaker 1: it needs to be simplified for for the good of

1009
00:59:05,840 --> 00:59:10,120
Speaker 1: all of us. I mean, clearly it benefits tax lawyers. Um.

1010
00:59:10,680 --> 00:59:13,520
Speaker 1: But if we clean up the corporate tax code, he said,

1011
00:59:13,760 --> 00:59:17,040
Speaker 1: talking his own book. UM, I got the sense you

1012
00:59:17,120 --> 00:59:19,520
Speaker 1: think that it would be more hiring and more employment

1013
00:59:20,080 --> 00:59:23,600
Speaker 1: if if that was if there were less impediments. So anything,

1014
00:59:23,680 --> 00:59:28,280
Speaker 1: anything in my mind that increases profit legitimately, uh, and

1015
00:59:28,480 --> 00:59:31,560
Speaker 1: in a competitive entrepreneurial system is going to create more jobs,

1016
00:59:31,880 --> 00:59:33,720
Speaker 1: and it's going to create more wages because there'll be

1017
00:59:33,760 --> 00:59:36,400
Speaker 1: more demand for labor and and wages will go up.

1018
00:59:36,480 --> 00:59:39,040
Speaker 1: So yeah, I think it also gets into the issue

1019
00:59:39,040 --> 00:59:42,080
Speaker 1: of the double taxation of dividends um and how how

1020
00:59:42,160 --> 00:59:45,040
Speaker 1: we value stocks. I mean, we just raise taxes on

1021
00:59:45,120 --> 00:59:49,480
Speaker 1: dividends a few years, so that's now what are we

1022
00:59:49,560 --> 00:59:51,840
Speaker 1: a twenty three something? Yeah? I mean I'd like to

1023
00:59:51,880 --> 00:59:56,400
Speaker 1: see the stock market go back to dividend discount evaluations

1024
00:59:56,440 --> 00:59:59,160
Speaker 1: where we all we really care about is there's the

1025
00:59:59,200 --> 01:00:01,320
Speaker 1: company been paying it dipen in and are they increasing it?

1026
01:00:01,720 --> 01:00:04,280
Speaker 1: Everything else is accounting fluff. So so what do we

1027
01:00:04,400 --> 01:00:07,280
Speaker 1: at about two point eight percent or so on the

1028
01:00:07,640 --> 01:00:10,480
Speaker 1: I'm doing this for memory on the SMPI dividend yields.

1029
01:00:10,560 --> 01:00:13,280
Speaker 1: It's actually answer about that alright, plus or mind us

1030
01:00:13,280 --> 01:00:16,840
Speaker 1: a little bit. What happens to that number if and

1031
01:00:16,920 --> 01:00:19,120
Speaker 1: when the FED things rates up to one and a

1032
01:00:19,160 --> 01:00:22,560
Speaker 1: half two percent, Because right now the argument is, hey,

1033
01:00:22,640 --> 01:00:24,439
Speaker 1: you get a two point nine percent dived and yield

1034
01:00:24,560 --> 01:00:26,560
Speaker 1: or two point seven percent dive in yield, and you

1035
01:00:26,640 --> 01:00:29,320
Speaker 1: get all the upside of of the best of corporate

1036
01:00:29,360 --> 01:00:34,120
Speaker 1: America when you could buy a safe three treasury yield.

1037
01:00:34,320 --> 01:00:38,680
Speaker 1: What does that mean for sp I? I think, you know,

1038
01:00:38,800 --> 01:00:42,040
Speaker 1: one of the things that I've learned over the years

1039
01:00:42,160 --> 01:00:43,800
Speaker 1: is I wish I had a lot more money when

1040
01:00:43,840 --> 01:00:47,400
Speaker 1: I was younger. Just put it all in dividend yielding stocks. Well,

1041
01:00:47,480 --> 01:00:50,880
Speaker 1: with the benefit of hindsight, for sure. I mean, there's

1042
01:00:50,920 --> 01:00:54,760
Speaker 1: nothing like putting your money in a company that's increasing

1043
01:00:54,800 --> 01:00:58,520
Speaker 1: its dividend over the years. Um, you know, if you

1044
01:00:58,800 --> 01:01:01,320
Speaker 1: sleep all at night, you you just kind of stick

1045
01:01:01,400 --> 01:01:04,880
Speaker 1: with it. And so I would say for younger folks

1046
01:01:04,960 --> 01:01:06,960
Speaker 1: that's not a bad thing to do. And um, you know,

1047
01:01:07,280 --> 01:01:09,760
Speaker 1: eliminating the double taxation of dividends would be nice thing.

1048
01:01:10,240 --> 01:01:13,760
Speaker 1: So in a tax defered account. Um, I'm under the

1049
01:01:13,840 --> 01:01:17,200
Speaker 1: impression that going back to I want to say, nineteen

1050
01:01:17,720 --> 01:01:20,800
Speaker 1: six and again I'm I'm doing this from memory, almost

1051
01:01:20,920 --> 01:01:26,880
Speaker 1: half of the Dow returns have been reinvested dividends, that right,

1052
01:01:27,520 --> 01:01:30,120
Speaker 1: if not more so, And you would think, what's two

1053
01:01:30,160 --> 01:01:32,600
Speaker 1: and a half three percent? But over time that that

1054
01:01:32,760 --> 01:01:35,840
Speaker 1: really compounds. All right, let me see what there was

1055
01:01:35,880 --> 01:01:38,560
Speaker 1: one or two other questions I wanted to get through

1056
01:01:39,800 --> 01:01:43,440
Speaker 1: before I start going to my standard questions. Although we've

1057
01:01:43,520 --> 01:01:49,439
Speaker 1: really covered a lot of these um one less since

1058
01:01:49,520 --> 01:01:52,919
Speaker 1: you since you covered both economics and the markets, there's

1059
01:01:52,960 --> 01:01:55,080
Speaker 1: one question that always comes up that and you're the

1060
01:01:55,120 --> 01:01:59,439
Speaker 1: perfect person to ask this. So it seems very often

1061
01:01:59,560 --> 01:02:02,400
Speaker 1: like the markets are out of sync with the economy.

1062
01:02:03,040 --> 01:02:06,479
Speaker 1: You know, how do you reconcile that which drives which

1063
01:02:06,760 --> 01:02:12,160
Speaker 1: or is it mutual? I think it's mutual. The the

1064
01:02:12,240 --> 01:02:15,040
Speaker 1: stock market can't get too out of out of sync

1065
01:02:15,440 --> 01:02:18,520
Speaker 1: with with the economy, unless, of course, we're in a

1066
01:02:18,520 --> 01:02:21,600
Speaker 1: speculative bubble situation, and which case it can come back

1067
01:02:21,640 --> 01:02:24,080
Speaker 1: to bite us, which is what we've seen a few

1068
01:02:24,160 --> 01:02:27,080
Speaker 1: times here over over the years where what they're talking

1069
01:02:27,120 --> 01:02:30,600
Speaker 1: about the market being the stock market or the housing market.

1070
01:02:30,920 --> 01:02:34,880
Speaker 1: When ascid values get way out of sync with reality

1071
01:02:34,960 --> 01:02:38,080
Speaker 1: because of speculative excesses, that can come back and create

1072
01:02:38,120 --> 01:02:43,880
Speaker 1: a financial crisis and a recession. So um again. I

1073
01:02:45,240 --> 01:02:48,960
Speaker 1: most economists, macroeconomists tend to focus on the business cycle.

1074
01:02:49,000 --> 01:02:51,400
Speaker 1: I prefer to focus on the profit cycle. I think

1075
01:02:51,440 --> 01:02:54,120
Speaker 1: it's the profit cycle that drives the business cycle. The

1076
01:02:54,200 --> 01:02:59,160
Speaker 1: business cycle is basically sort of again a demand side construct. It's, uh,

1077
01:02:59,360 --> 01:03:03,280
Speaker 1: how do we stay mulate demand so that business does better?

1078
01:03:03,400 --> 01:03:06,520
Speaker 1: And I'm thinking more from a supply side standpoint, you know,

1079
01:03:06,560 --> 01:03:09,360
Speaker 1: how do we have companies generate more profits so that

1080
01:03:09,440 --> 01:03:12,400
Speaker 1: they'll want to expand capital and hire people, and then

1081
01:03:12,560 --> 01:03:16,520
Speaker 1: those people go and spend money. Um, So they're clearly

1082
01:03:16,640 --> 01:03:19,280
Speaker 1: there's it's it's not one. It's not one direction that

1083
01:03:19,440 --> 01:03:22,120
Speaker 1: works both ways. So let's talk a little bit about profits.

1084
01:03:22,240 --> 01:03:25,760
Speaker 1: We we've had corporate profits at or near record highs

1085
01:03:26,360 --> 01:03:31,240
Speaker 1: for the past six years. We've seen profits come down

1086
01:03:31,520 --> 01:03:35,480
Speaker 1: when oil prices plummeted. That was almost or maybe a

1087
01:03:35,520 --> 01:03:39,080
Speaker 1: little over ten percent of the smp UM and their

1088
01:03:39,120 --> 01:03:43,720
Speaker 1: profits basically just collapsed. Where are we in the profits

1089
01:03:43,760 --> 01:03:47,080
Speaker 1: cycling and what's the most important thing to watch for

1090
01:03:47,800 --> 01:03:53,480
Speaker 1: as that moves forward? Well, and I an historical cyclical basis,

1091
01:03:54,320 --> 01:03:56,560
Speaker 1: were relating to the expansion phase. I mean, when we

1092
01:03:56,640 --> 01:03:59,720
Speaker 1: had the recovery, which is V shaped and that was

1093
01:03:59,760 --> 01:04:05,200
Speaker 1: based simply two then uh, we recovered back to the

1094
01:04:05,480 --> 01:04:08,480
Speaker 1: previous high and have been moved on to two new

1095
01:04:08,560 --> 01:04:11,800
Speaker 1: eyes at at a slower pace. So that's sort of

1096
01:04:11,840 --> 01:04:15,400
Speaker 1: the the expansion. What really hasn't happened yet is margins

1097
01:04:15,480 --> 01:04:18,520
Speaker 1: haven't compressed. Usually profit margins compressed at this point in

1098
01:04:18,520 --> 01:04:21,760
Speaker 1: the cycle because companies get to slap happy. Business is great,

1099
01:04:21,800 --> 01:04:24,880
Speaker 1: they hire too many people, they spent too much because

1100
01:04:24,960 --> 01:04:27,000
Speaker 1: the two thousand night. They're being very careful not to

1101
01:04:27,040 --> 01:04:31,520
Speaker 1: do at this time. So the margins haven't regressed to

1102
01:04:31,600 --> 01:04:34,400
Speaker 1: the mean as they say. They stayed at a record

1103
01:04:34,520 --> 01:04:37,840
Speaker 1: high and that may very well continue to be the case.

1104
01:04:37,960 --> 01:04:40,600
Speaker 1: So profits are going to be driven by the growth

1105
01:04:40,680 --> 01:04:44,880
Speaker 1: of revenues, and revenues will be driven by global economic activity,

1106
01:04:44,920 --> 01:04:47,760
Speaker 1: which looks pretty punk. It looks so you know, maybe

1107
01:04:47,800 --> 01:04:52,280
Speaker 1: looking at three growth globally and maybe two to three

1108
01:04:52,320 --> 01:04:56,760
Speaker 1: percent inflation. Six not terrible, but that's probably what profits

1109
01:04:56,800 --> 01:04:58,560
Speaker 1: are gonna grow, and it's probably what the market's gonna do.

1110
01:04:58,920 --> 01:05:01,040
Speaker 1: Isn't that more or less the average? We've seen six

1111
01:05:01,120 --> 01:05:05,160
Speaker 1: percent profits, even though the analysts of forecasting for forever

1112
01:05:05,520 --> 01:05:08,080
Speaker 1: analysts tend to be too optimistic and have to lower

1113
01:05:08,160 --> 01:05:11,880
Speaker 1: their numbers. Um. But yeah, I think that's true. I mean,

1114
01:05:11,960 --> 01:05:15,600
Speaker 1: we're kind of an average. So so what should investor

1115
01:05:15,720 --> 01:05:18,840
Speaker 1: be looking at for signs that either profit compression is

1116
01:05:18,920 --> 01:05:22,400
Speaker 1: coming along or that the cycle is you know, at

1117
01:05:22,440 --> 01:05:27,720
Speaker 1: the end of its row. Um. The problem with the

1118
01:05:27,760 --> 01:05:31,200
Speaker 1: profit margins data as it's available only quarterly, with a lag.

1119
01:05:32,200 --> 01:05:35,040
Speaker 1: We we look at some data that's actually available weekly,

1120
01:05:35,120 --> 01:05:40,520
Speaker 1: but it's based on analyst consensus expectations. UM. I think

1121
01:05:41,000 --> 01:05:43,360
Speaker 1: at the end of the day, it's still gonna be

1122
01:05:43,440 --> 01:05:45,840
Speaker 1: a perception of what do you think the economy is doing?

1123
01:05:45,880 --> 01:05:48,840
Speaker 1: If the economy just continues to chug along like this,

1124
01:05:49,120 --> 01:05:51,960
Speaker 1: muddle along, and that's what the global economies is doing,

1125
01:05:52,040 --> 01:05:55,480
Speaker 1: maybe kind of lagging behind, but still growing, I think

1126
01:05:55,480 --> 01:05:59,640
Speaker 1: you can pretty much count on earnings growth matching revenues

1127
01:05:59,640 --> 01:06:02,120
Speaker 1: growth in the stock market giving you kind of mid

1128
01:06:02,200 --> 01:06:05,880
Speaker 1: single digit returns. Hey, that's not if that's if that's

1129
01:06:05,920 --> 01:06:08,440
Speaker 1: what we're looking at. That's not the worst sort of

1130
01:06:08,640 --> 01:06:11,959
Speaker 1: environment at all, considering we're still you know, six seven

1131
01:06:12,040 --> 01:06:14,840
Speaker 1: years and if you don't dividend paying stocks will continue

1132
01:06:14,880 --> 01:06:17,560
Speaker 1: to pay you the the dividends, and uh yeah, this

1133
01:06:17,720 --> 01:06:20,640
Speaker 1: is just not an environment to do anything, really trick

1134
01:06:20,640 --> 01:06:23,240
Speaker 1: to your jazzy. So six plus two and a half

1135
01:06:23,400 --> 01:06:25,440
Speaker 1: eight and a half nine percent is not the worst

1136
01:06:25,480 --> 01:06:27,640
Speaker 1: sort of not the worst sort of thing. All right,

1137
01:06:27,720 --> 01:06:30,760
Speaker 1: So let's get to some of my favorite questions. We

1138
01:06:30,920 --> 01:06:33,080
Speaker 1: talked a bit about your background and what you did

1139
01:06:33,200 --> 01:06:36,080
Speaker 1: before you were on the street. Let's talk about your

1140
01:06:36,120 --> 01:06:39,040
Speaker 1: early mentors. You mentioned Henry Kaufman. Who else was an

1141
01:06:39,080 --> 01:06:42,520
Speaker 1: early mentor to you? Well, again, Henry Kaufman was a

1142
01:06:42,560 --> 01:06:44,880
Speaker 1: mentor from AFAR. I mean I sort of aspired that

1143
01:06:45,520 --> 01:06:48,400
Speaker 1: I liked what he the job he had, and you know,

1144
01:06:48,520 --> 01:06:51,320
Speaker 1: kind of followed his career path in some ways. Uh.

1145
01:06:51,600 --> 01:06:55,360
Speaker 1: Greg Smith was an investment strategist that I worked with

1146
01:06:55,480 --> 01:07:00,120
Speaker 1: very closely at UH at EF Hutton and Prudential all

1147
01:07:00,160 --> 01:07:03,080
Speaker 1: that I moved over to C. G. Lawrence and Jim

1148
01:07:03,160 --> 01:07:07,720
Speaker 1: Maltz was the investment strategy fail. So you know, some

1149
01:07:07,760 --> 01:07:11,920
Speaker 1: of these guys are sort of uh legends within within

1150
01:07:12,040 --> 01:07:15,080
Speaker 1: the business of investment strategy. So I learned a lot

1151
01:07:15,160 --> 01:07:18,400
Speaker 1: from them and kind of segued into being investment strategist.

1152
01:07:18,960 --> 01:07:25,360
Speaker 1: Economists aren't really taught academically too. To help people be

1153
01:07:25,560 --> 01:07:28,920
Speaker 1: good investors, you have to learn that on the streets.

1154
01:07:28,960 --> 01:07:32,360
Speaker 1: So I think I had some good mentors along those lines.

1155
01:07:32,600 --> 01:07:34,880
Speaker 1: So so what that that raises a good question? What

1156
01:07:35,120 --> 01:07:38,040
Speaker 1: investors do you think you've learned from over the years.

1157
01:07:38,400 --> 01:07:43,960
Speaker 1: In terms of famous or colleague you worked with? Um? Well, um, again,

1158
01:07:45,000 --> 01:07:50,520
Speaker 1: not all these people are household media stars, but the

1159
01:07:50,680 --> 01:07:54,280
Speaker 1: warm buffet aside. Yeah, I mean Warren Buffett and and

1160
01:07:54,440 --> 01:07:57,560
Speaker 1: I haven't crossed paths, but you know, I've I've had

1161
01:07:57,640 --> 01:08:00,520
Speaker 1: regular conversations almost weekly with all a boy name of

1162
01:08:00,640 --> 01:08:05,800
Speaker 1: Hank Herman, who uh runs what L Reid uh and

1163
01:08:06,200 --> 01:08:09,360
Speaker 1: uh you know, we we've I've learned a lot from

1164
01:08:09,480 --> 01:08:12,720
Speaker 1: him early on and when I was doing particularly well

1165
01:08:12,760 --> 01:08:19,080
Speaker 1: in the bond markets forecast. Um. Van Hoysington's uh very

1166
01:08:19,160 --> 01:08:22,719
Speaker 1: well well regarded names. I think it's especially unemployment data.

1167
01:08:22,800 --> 01:08:24,960
Speaker 1: And I think in some ways he really is the

1168
01:08:25,040 --> 01:08:28,639
Speaker 1: bond king. Uh. You know, I mean Bill Gross gets

1169
01:08:28,680 --> 01:08:30,840
Speaker 1: that label. Uh and a couple of other people have

1170
01:08:30,920 --> 01:08:35,160
Speaker 1: been labeled bond kings, but uh, Van Hoysington's has been

1171
01:08:35,880 --> 01:08:40,240
Speaker 1: bullish on bond since the early eighties and good timing

1172
01:08:40,360 --> 01:08:44,840
Speaker 1: and manager portfolio with very very good returns. And he's

1173
01:08:44,920 --> 01:08:48,840
Speaker 1: the one that I kind of got the phrase hat

1174
01:08:48,920 --> 01:08:52,840
Speaker 1: sized bond yields back when Bonnier. Uh. I walked into

1175
01:08:53,040 --> 01:08:55,639
Speaker 1: also and I said, you know, Van, I think bond

1176
01:08:55,720 --> 01:08:58,400
Speaker 1: yields could go to seven percent. I said, yeah, you know,

1177
01:08:58,720 --> 01:09:03,040
Speaker 1: his Texas drawl had sized bond yields. So I picked

1178
01:09:03,120 --> 01:09:05,000
Speaker 1: up on that and I worked really well for me

1179
01:09:05,000 --> 01:09:07,320
Speaker 1: in the eighties. So I have to thank him for

1180
01:09:08,000 --> 01:09:11,000
Speaker 1: helping uh my career in the early part of of

1181
01:09:11,120 --> 01:09:13,640
Speaker 1: that period. So let's talk about some books. What are

1182
01:09:13,720 --> 01:09:17,559
Speaker 1: some of your favorite be a nonfiction market related fiction.

1183
01:09:17,920 --> 01:09:21,880
Speaker 1: I like history a lot um and um, I like

1184
01:09:22,320 --> 01:09:28,080
Speaker 1: uh biographies. Uh um. I've been particularly fond of reading

1185
01:09:28,360 --> 01:09:32,240
Speaker 1: uh biographies of the founding fathers uh and sort of

1186
01:09:32,320 --> 01:09:35,320
Speaker 1: what they're they're philosophical. Ben sure, I'm a big fan

1187
01:09:35,400 --> 01:09:39,240
Speaker 1: of Madison. Uh so Yeah, who wrote the most recent

1188
01:09:39,920 --> 01:09:42,920
Speaker 1: Madison bio? I I mean I got three or four

1189
01:09:42,960 --> 01:09:45,120
Speaker 1: books on the shelves and uh, I'm not good to

1190
01:09:45,200 --> 01:09:49,960
Speaker 1: remember any authors, but um then UM, I like reading

1191
01:09:50,200 --> 01:09:53,680
Speaker 1: uh the so called you know Robert Barons. Uh. Some

1192
01:09:53,800 --> 01:09:57,520
Speaker 1: of them weren't really Robert Barons. So so that's like Carnegie.

1193
01:09:58,800 --> 01:10:02,439
Speaker 1: Ye who else is in that less well child? You

1194
01:10:02,920 --> 01:10:06,320
Speaker 1: certainly Rockefeller, you know, I think his uh you know

1195
01:10:06,479 --> 01:10:13,280
Speaker 1: he uh. He was sort of attacked for putting a

1196
01:10:13,320 --> 01:10:15,360
Speaker 1: lot of people out of out of business, but a

1197
01:10:15,400 --> 01:10:18,560
Speaker 1: lot of more small little businesses that weren't doing very efficiently,

1198
01:10:18,640 --> 01:10:21,880
Speaker 1: and his number one interest was to lower the price

1199
01:10:22,000 --> 01:10:24,200
Speaker 1: of carosene so it would be more affordable to a

1200
01:10:24,240 --> 01:10:26,759
Speaker 1: lot more people. So he probably did more to increase

1201
01:10:26,800 --> 01:10:29,519
Speaker 1: standards of living that many other people uh in in

1202
01:10:29,720 --> 01:10:33,719
Speaker 1: in uh in industry. So I like, I like reading

1203
01:10:33,760 --> 01:10:37,400
Speaker 1: the controversies about you know, people who kind of believe

1204
01:10:37,439 --> 01:10:40,120
Speaker 1: that these people were Robert Barns, and then what was

1205
01:10:40,160 --> 01:10:42,800
Speaker 1: the real story. Some of them were absolutely Robert Barrens.

1206
01:10:42,800 --> 01:10:45,599
Speaker 1: They were chrony capitalists, but some of them were really

1207
01:10:45,640 --> 01:10:48,880
Speaker 1: committed to, you know, providing a better product and service

1208
01:10:48,960 --> 01:10:51,240
Speaker 1: to to the consumer. Give me, give me one more

1209
01:10:51,320 --> 01:10:55,840
Speaker 1: book to put down for a trilogy here. Well, look, um,

1210
01:10:56,800 --> 01:11:01,479
Speaker 1: you know what, at the risk of you know, sounding trite,

1211
01:11:01,520 --> 01:11:05,040
Speaker 1: I mean I uh, I mean Adam Smith the Wealth

1212
01:11:05,080 --> 01:11:08,719
Speaker 1: of Nations and combined with the theory of moral sentiments

1213
01:11:09,320 --> 01:11:13,240
Speaker 1: is certainly uh the Bible for me. I don't think

1214
01:11:13,280 --> 01:11:15,800
Speaker 1: anyone is going to call Adam Smith trite, at least now,

1215
01:11:16,040 --> 01:11:22,679
Speaker 1: and at least, you know, pretending that you know, it's important.

1216
01:11:22,720 --> 01:11:24,760
Speaker 1: I mean it is. I mean, I'm not pretending. I

1217
01:11:26,240 --> 01:11:29,040
Speaker 1: learned a lot from that book. So, but but you know,

1218
01:11:29,360 --> 01:11:35,080
Speaker 1: as I did from Milton Friedman's Monetary History. Um, but

1219
01:11:35,920 --> 01:11:37,760
Speaker 1: I have to say I didn't really learn much from

1220
01:11:38,360 --> 01:11:40,640
Speaker 1: the General Theory by John Maynard Keynes. I mean, I

1221
01:11:41,000 --> 01:11:44,720
Speaker 1: studied in a keensie and discipline, but it never kind

1222
01:11:44,760 --> 01:11:47,360
Speaker 1: of made sense to me, quite honestly. So you're you're

1223
01:11:47,479 --> 01:11:50,679
Speaker 1: more of a freedman night than a keensie. I'm more

1224
01:11:50,840 --> 01:11:58,640
Speaker 1: um Madisonian, you know, constitutional economist, I think, you know,

1225
01:11:59,040 --> 01:12:05,000
Speaker 1: and environment where entrepreneurial capitalists, not chronic capitalists are, are

1226
01:12:05,439 --> 01:12:08,120
Speaker 1: set free and don't get in each other's way by

1227
01:12:08,200 --> 01:12:12,240
Speaker 1: hiring lobbyists. Um, I like, I like people who you know,

1228
01:12:13,680 --> 01:12:15,160
Speaker 1: wake up in the morning trying to figure out how

1229
01:12:15,200 --> 01:12:17,479
Speaker 1: to make it a better world for consumers. So so

1230
01:12:17,640 --> 01:12:19,960
Speaker 1: let me ask you this question, what should we do

1231
01:12:20,960 --> 01:12:26,759
Speaker 1: about this bullmarkt and lobbyists, about the never ending parade

1232
01:12:26,800 --> 01:12:30,519
Speaker 1: through the holes of Congress, of of special interests and

1233
01:12:30,720 --> 01:12:36,160
Speaker 1: people who don't care about Madison, who don't care about

1234
01:12:36,200 --> 01:12:39,680
Speaker 1: Adam Smith. But basically, you're paid to be mercenaries on

1235
01:12:39,800 --> 01:12:44,000
Speaker 1: behalf of the system has become horribly corrupt. So how

1236
01:12:44,040 --> 01:12:47,320
Speaker 1: do you fix that? It's it's so corrupt that I

1237
01:12:47,400 --> 01:12:51,240
Speaker 1: don't really know how you fix it. Do you do?

1238
01:12:51,320 --> 01:12:54,360
Speaker 1: You overturn some of the legislation or some of the

1239
01:12:54,400 --> 01:12:58,000
Speaker 1: Supreme Court decisions. Start out with one term, you know,

1240
01:12:58,160 --> 01:13:00,800
Speaker 1: I mean the fact that you know I guess there's

1241
01:13:00,840 --> 01:13:03,120
Speaker 1: a congressman that just came up with an anonymous book

1242
01:13:03,160 --> 01:13:05,560
Speaker 1: about what it's really like to be a congressman. And

1243
01:13:05,800 --> 01:13:08,920
Speaker 1: there's apparently nothing new and there other than telling us

1244
01:13:09,040 --> 01:13:11,600
Speaker 1: what we know. And it takes you spend all your

1245
01:13:11,640 --> 01:13:14,519
Speaker 1: time raising money and then you're beholden to the people

1246
01:13:14,640 --> 01:13:17,800
Speaker 1: you you raise money with. I mean, it's unfortunately, is

1247
01:13:17,840 --> 01:13:20,439
Speaker 1: kind of the human condition people. This is where I

1248
01:13:20,439 --> 01:13:23,599
Speaker 1: actually agree with disagree with Adam Smith. Adam Smith said

1249
01:13:23,640 --> 01:13:27,600
Speaker 1: the capitalism is based on selfishness is actually based on insecurity.

1250
01:13:28,720 --> 01:13:31,800
Speaker 1: It's insecure people that are that are trying to now

1251
01:13:32,320 --> 01:13:34,880
Speaker 1: make their customers come back by providing them with something

1252
01:13:34,960 --> 01:13:39,080
Speaker 1: really good. Unfortunately, there's other insecure people that just higher

1253
01:13:39,120 --> 01:13:42,839
Speaker 1: lobbyists or you know, rest control of the political system

1254
01:13:43,240 --> 01:13:47,360
Speaker 1: and and and corrupt it. So I I'm you know,

1255
01:13:47,479 --> 01:13:50,000
Speaker 1: it's it's it's great to see that America still means

1256
01:13:50,200 --> 01:13:55,040
Speaker 1: has maintained a lot about entrepreneurial spirit and that entrepreneurs

1257
01:13:55,400 --> 01:13:59,160
Speaker 1: can still do well. But there's an enormous amount of

1258
01:13:59,200 --> 01:14:02,000
Speaker 1: corruption at the tical level. And as we were discussing,

1259
01:14:02,080 --> 01:14:04,680
Speaker 1: that's evident in the standard of living in Washington. D

1260
01:14:04,800 --> 01:14:08,720
Speaker 1: c Um look we we had Roynald Reagan and we

1261
01:14:08,800 --> 01:14:11,640
Speaker 1: had Margaret Thatcher, and look where we are today. I mean,

1262
01:14:12,400 --> 01:14:16,080
Speaker 1: we aren't any better off. UM. I don't really know

1263
01:14:16,240 --> 01:14:18,880
Speaker 1: how you fix the system politically. I mean you really

1264
01:14:19,000 --> 01:14:25,040
Speaker 1: need uh prosecutors who go after um bad people who

1265
01:14:25,080 --> 01:14:28,840
Speaker 1: are out to uh corrupt the system. UM. But that's

1266
01:14:28,880 --> 01:14:30,880
Speaker 1: only if there's a law against what they're doing. If

1267
01:14:30,920 --> 01:14:33,920
Speaker 1: what they're doing is legal, how do you start? What

1268
01:14:34,160 --> 01:14:36,439
Speaker 1: laws do we have to change? And we don't have

1269
01:14:36,560 --> 01:14:40,559
Speaker 1: time to solve the problem of corrupt lobbyists. But at

1270
01:14:40,560 --> 01:14:42,800
Speaker 1: a certain point someone has to look at this and

1271
01:14:42,920 --> 01:14:47,560
Speaker 1: say the system has become completely off the rail. I

1272
01:14:47,680 --> 01:14:50,920
Speaker 1: think a lot about this problem, but I haven't come

1273
01:14:51,000 --> 01:14:54,200
Speaker 1: up with a solution. And and it's it's it's you know,

1274
01:14:54,320 --> 01:14:56,560
Speaker 1: my day job is not to be a preacher. I

1275
01:14:56,640 --> 01:14:58,920
Speaker 1: don't do uh, you know, good or bad. I don't

1276
01:14:58,960 --> 01:15:02,000
Speaker 1: do good or evil. I do bullish or bearish. And

1277
01:15:02,520 --> 01:15:04,920
Speaker 1: what what I'm when I'm amazed by is how well

1278
01:15:05,439 --> 01:15:10,120
Speaker 1: our economy and our financial markets have done, despite despite

1279
01:15:10,200 --> 01:15:14,640
Speaker 1: the corruption, despite the politicians. It's quite amazing. UM. So

1280
01:15:14,760 --> 01:15:17,400
Speaker 1: let's shift gears and talk a little bit about UH,

1281
01:15:17,600 --> 01:15:22,439
Speaker 1: the financial services industry speaking of lobbying, what what are

1282
01:15:22,560 --> 01:15:26,280
Speaker 1: some of the major changes that you think are significant

1283
01:15:26,920 --> 01:15:32,240
Speaker 1: since you you joined the industry. Well, Um, on the

1284
01:15:32,720 --> 01:15:38,439
Speaker 1: perspective of my, uh, my business, I have several hundred

1285
01:15:38,479 --> 01:15:42,360
Speaker 1: institutional accounts and UH I talked to them on a

1286
01:15:42,439 --> 01:15:46,639
Speaker 1: regular basis, and more and more of them are upset

1287
01:15:47,320 --> 01:15:51,479
Speaker 1: about et f s, especially the mutual fund industry, so

1288
01:15:51,960 --> 01:15:55,840
Speaker 1: upset and it's kind of cutting into their business. Um

1289
01:15:56,800 --> 01:16:00,240
Speaker 1: and uh and then every now and then you've got

1290
01:16:00,280 --> 01:16:04,120
Speaker 1: some of these uh wild days of the markets up

1291
01:16:04,160 --> 01:16:05,720
Speaker 1: a lot or down a lot, where you kind of

1292
01:16:05,760 --> 01:16:09,040
Speaker 1: wonder whether it's a combination of the algorithms and the

1293
01:16:09,080 --> 01:16:12,800
Speaker 1: high frequency traders and t fs that are all making

1294
01:16:12,920 --> 01:16:16,880
Speaker 1: this uh more volatile market which then turns the the

1295
01:16:17,600 --> 01:16:20,800
Speaker 1: retail investor off completely. In other words, we may be

1296
01:16:20,960 --> 01:16:24,800
Speaker 1: losing retail investors not just two mutual funds, but also

1297
01:16:25,240 --> 01:16:28,240
Speaker 1: to to E t F SO to passive index more

1298
01:16:28,280 --> 01:16:30,560
Speaker 1: than anything. Yeah, I think there's a concern about that

1299
01:16:30,840 --> 01:16:33,000
Speaker 1: for sure. I mean that's a big change. It's a

1300
01:16:33,000 --> 01:16:34,720
Speaker 1: big change. I mean it's not just a concern. I

1301
01:16:34,760 --> 01:16:37,000
Speaker 1: mean you can see it in the mutual fund numbers.

1302
01:16:37,600 --> 01:16:40,960
Speaker 1: Money is coming out of there. It has been going

1303
01:16:41,040 --> 01:16:43,320
Speaker 1: into E t F, so you could also see it

1304
01:16:43,360 --> 01:16:46,720
Speaker 1: in the trading volumes. The trading volumes are down significantly,

1305
01:16:47,400 --> 01:16:50,519
Speaker 1: so that that's an interesting and major shift in the past.

1306
01:16:51,000 --> 01:16:54,400
Speaker 1: What what are the major changes that we should be

1307
01:16:54,560 --> 01:16:59,519
Speaker 1: watching for coming up in the future. Well, again, maybe

1308
01:16:59,520 --> 01:17:01,640
Speaker 1: a little knowledge is a dangerous thing, and so I

1309
01:17:01,680 --> 01:17:04,519
Speaker 1: have a little knowledge about technology. I'm always interested in

1310
01:17:04,600 --> 01:17:08,280
Speaker 1: technology and how it's impacting our economy and disrupting things.

1311
01:17:08,360 --> 01:17:10,840
Speaker 1: I think a lot of economists really don't pay enough

1312
01:17:10,840 --> 01:17:13,880
Speaker 1: attention to technology and they get really pessimistic. And suddenly

1313
01:17:13,920 --> 01:17:17,000
Speaker 1: some technology comes along the way, like fracking that loads

1314
01:17:17,080 --> 01:17:20,200
Speaker 1: the price of oil and game changers, a game game changer,

1315
01:17:20,280 --> 01:17:24,200
Speaker 1: and uh, you know, it's impossible to forecast that, but

1316
01:17:24,960 --> 01:17:27,080
Speaker 1: it doesn't mean you can't follow it when it's starting

1317
01:17:27,120 --> 01:17:31,080
Speaker 1: to make the headlines. And I'm intrigued by this blockchain technology,

1318
01:17:31,120 --> 01:17:36,519
Speaker 1: which is a software algorithm behind bitcoin, and um people

1319
01:17:36,640 --> 01:17:39,799
Speaker 1: figured out that, Uh, you know, whether you're for against bitcoin,

1320
01:17:39,920 --> 01:17:43,720
Speaker 1: the software technology itself, it was really quite intriguing and

1321
01:17:43,800 --> 01:17:47,720
Speaker 1: it very secure, very very fast transaction identification. And the

1322
01:17:47,840 --> 01:17:52,280
Speaker 1: fact that companies like Goldman and JP Morgan are spending

1323
01:17:52,320 --> 01:17:55,479
Speaker 1: billions on it suggests that literally billions. Do you think

1324
01:17:55,520 --> 01:17:58,320
Speaker 1: there's billions in investments? I mean they've been articles spending

1325
01:17:58,360 --> 01:18:01,280
Speaker 1: that not talking about hundreds of you know, one to

1326
01:18:01,520 --> 01:18:04,000
Speaker 1: three billion, a lot of money, a lot of on

1327
01:18:04,600 --> 01:18:08,240
Speaker 1: one technology. Uh. They really see a potential here for

1328
01:18:08,360 --> 01:18:11,479
Speaker 1: it to uh dramatically lower their back office costs, which

1329
01:18:11,560 --> 01:18:14,800
Speaker 1: that has implications for employment in an area that used

1330
01:18:14,800 --> 01:18:19,000
Speaker 1: to be an important source of jobs. But it could

1331
01:18:19,800 --> 01:18:24,519
Speaker 1: have an impact on counterfeiting, it could. I mean, you know,

1332
01:18:24,600 --> 01:18:30,679
Speaker 1: I've I've become a kind of a little bit cranky

1333
01:18:30,760 --> 01:18:34,040
Speaker 1: complainer about central banks and their impact on us. I mean,

1334
01:18:34,320 --> 01:18:37,439
Speaker 1: wouldn't it be interesting if we had a economic system

1335
01:18:37,520 --> 01:18:39,880
Speaker 1: that didn't have a central bank, where somehow the money

1336
01:18:40,000 --> 01:18:45,160
Speaker 1: was created digitally through uh this kind of blockchain technology.

1337
01:18:45,560 --> 01:18:48,720
Speaker 1: I mean, the FED was set up initially just to

1338
01:18:48,800 --> 01:18:53,920
Speaker 1: help with the seasonal issues of corn production and the

1339
01:18:54,000 --> 01:18:57,720
Speaker 1: all two regular panics that seem to have stricken right

1340
01:18:58,000 --> 01:19:00,240
Speaker 1: every every few years, and now the question as well,

1341
01:19:00,320 --> 01:19:04,799
Speaker 1: it's actually contributed to those panics by trying to moderate

1342
01:19:04,880 --> 01:19:08,280
Speaker 1: the business cycle. UM. So I'm just kind of intrigued

1343
01:19:08,320 --> 01:19:11,720
Speaker 1: by where fintech is. It's called UH is leading, It's

1344
01:19:11,720 --> 01:19:15,360
Speaker 1: not just blockchain, but it's certainly an important part of

1345
01:19:15,439 --> 01:19:20,960
Speaker 1: it and probably is going to continue for the foreseeable future.

1346
01:19:21,120 --> 01:19:25,960
Speaker 1: So so now we're down to my last two favorite questions. UM,

1347
01:19:26,720 --> 01:19:31,080
Speaker 1: just in time. Uh, let's say a recent college grad

1348
01:19:31,200 --> 01:19:34,479
Speaker 1: or a millennial came to you and and said, Dr Ed,

1349
01:19:34,520 --> 01:19:37,400
Speaker 1: I'm thinking about a career in finance. What sort of

1350
01:19:37,439 --> 01:19:42,439
Speaker 1: advice would you give them? I would say that, please

1351
01:19:42,600 --> 01:19:49,120
Speaker 1: learn how to write, Please read a lot um, you know,

1352
01:19:49,479 --> 01:19:52,360
Speaker 1: just the two hours reading and writing. I don't really

1353
01:19:52,400 --> 01:19:55,720
Speaker 1: need arithmetic. I don't really need it. I think there's

1354
01:19:55,720 --> 01:19:59,320
Speaker 1: too much arithmetic, especially in economics. Uh yeah, there's too

1355
01:19:59,400 --> 01:20:07,719
Speaker 1: much quantity of analysis and that that today just don't

1356
01:20:07,760 --> 01:20:12,880
Speaker 1: have enough math skills and it just yes, okay, but

1357
01:20:12,920 --> 01:20:15,840
Speaker 1: I'm talking. You asked me about finance, and uh, you know,

1358
01:20:16,120 --> 01:20:19,280
Speaker 1: I mean finance has become become almost too much quantitative

1359
01:20:19,320 --> 01:20:22,160
Speaker 1: and too much algorithm. And I don't know that just

1360
01:20:22,400 --> 01:20:25,280
Speaker 1: other than designing an algorithm that than kind of does

1361
01:20:25,320 --> 01:20:27,720
Speaker 1: its own thing, I don't know how you make a

1362
01:20:27,840 --> 01:20:31,080
Speaker 1: career out of that. Um, but I know that you're

1363
01:20:31,120 --> 01:20:34,720
Speaker 1: not going to find too much competition, uh, in any

1364
01:20:34,880 --> 01:20:38,560
Speaker 1: in any business, in any industry. UM. If you're a

1365
01:20:38,600 --> 01:20:42,000
Speaker 1: really good writer with with with with a fairly broad

1366
01:20:42,080 --> 01:20:44,880
Speaker 1: sweep of knowledge. They're just not that many people that are,

1367
01:20:45,600 --> 01:20:48,080
Speaker 1: you know, renaissance men and women who are interested in

1368
01:20:48,600 --> 01:20:52,040
Speaker 1: a lot of different subjects and can write intelligently about it.

1369
01:20:52,120 --> 01:20:54,920
Speaker 1: So I would say, learn how to write, please, because

1370
01:20:54,960 --> 01:20:59,400
Speaker 1: I you know, I keep trying to expand my operation

1371
01:20:59,560 --> 01:21:03,479
Speaker 1: and uh, it's finding people who can write is very,

1372
01:21:03,600 --> 01:21:07,479
Speaker 1: very difficult. Huh, that's quite fascinating. Um, And I can't

1373
01:21:07,479 --> 01:21:11,280
Speaker 1: say I disagree with you, although I'm I'm aware of

1374
01:21:11,360 --> 01:21:14,880
Speaker 1: a number of people who are outstanding writers. But maybe

1375
01:21:14,960 --> 01:21:17,280
Speaker 1: that proves your point. If if you're if you count

1376
01:21:17,360 --> 01:21:19,880
Speaker 1: in your head half a dozen or so people whose

1377
01:21:19,920 --> 01:21:23,760
Speaker 1: writing skills you really admire, I guess it means it's

1378
01:21:23,800 --> 01:21:26,720
Speaker 1: not that many people. I mean it's really communicating, you know,

1379
01:21:26,960 --> 01:21:33,280
Speaker 1: I mean the ability to have conversations, intelligent conversations with

1380
01:21:33,680 --> 01:21:36,640
Speaker 1: all kinds of different people in a business setting. And

1381
01:21:36,920 --> 01:21:40,080
Speaker 1: uh and otherwise, and I think we're kind of losing that.

1382
01:21:40,240 --> 01:21:44,800
Speaker 1: Maybe it's you know, the tweets, the social networking. We're

1383
01:21:44,840 --> 01:21:48,280
Speaker 1: just characters, makes it hard to really develop an idea,

1384
01:21:48,479 --> 01:21:51,920
Speaker 1: that's right. So final question, and and my favorite one,

1385
01:21:51,960 --> 01:21:55,200
Speaker 1: of all, what is it that you know about economics

1386
01:21:55,360 --> 01:21:59,120
Speaker 1: and investing that you wish you knew twenty five years ago? Well,

1387
01:21:59,160 --> 01:22:01,800
Speaker 1: I think we teach done it. I wish I had

1388
01:22:01,880 --> 01:22:05,240
Speaker 1: more money, uh twenty years ago, thirty years ago, and

1389
01:22:05,280 --> 01:22:07,880
Speaker 1: I wish you'd put it all in dividend yielding stocks

1390
01:22:07,920 --> 01:22:11,120
Speaker 1: and you know, not not fooled around with all the

1391
01:22:11,320 --> 01:22:16,840
Speaker 1: you know, hot tips. Uh. I would say that over

1392
01:22:16,920 --> 01:22:19,720
Speaker 1: the years, I've learned that hot tips are you know,

1393
01:22:19,880 --> 01:22:23,280
Speaker 1: sure way to lose money. So definitely stay away from

1394
01:22:23,360 --> 01:22:26,000
Speaker 1: that that stuff. I'd say, over the years, I've learned

1395
01:22:26,040 --> 01:22:30,880
Speaker 1: that uh, you know what tax of uh shelters and

1396
01:22:31,000 --> 01:22:35,000
Speaker 1: other means that investments that are focused just on lowering

1397
01:22:35,080 --> 01:22:39,439
Speaker 1: taxes uh tend not to work out either. You know,

1398
01:22:39,479 --> 01:22:42,160
Speaker 1: if you lower your profits, you lower your taxes. Yeah,

1399
01:22:42,280 --> 01:22:45,240
Speaker 1: that's right. Well, uh, ed, thank you so much for

1400
01:22:45,360 --> 01:22:48,920
Speaker 1: doing this. I I appreciate how generous UH you've been

1401
01:22:49,000 --> 01:22:52,960
Speaker 1: with your time. If you've enjoyed this conversation, be sure

1402
01:22:53,000 --> 01:22:54,760
Speaker 1: and look up and inch or down an inch on

1403
01:22:54,880 --> 01:22:58,200
Speaker 1: Apple iTunes and you can see the other ninety five

1404
01:22:58,320 --> 01:23:03,040
Speaker 1: or so such questions. UH, such conversations we've had with

1405
01:23:03,200 --> 01:23:07,840
Speaker 1: various people over the past two years. I would be

1406
01:23:07,960 --> 01:23:11,840
Speaker 1: remiss if I did not thank Taylor Riggs, my booker,

1407
01:23:11,960 --> 01:23:16,879
Speaker 1: for helping to put together these conversations. Uh. Mike Batnick

1408
01:23:17,000 --> 01:23:19,920
Speaker 1: is head of research who helps us do the deep

1409
01:23:20,000 --> 01:23:24,799
Speaker 1: dive into finding interesting things to talk about. And Charlie Valmer,

1410
01:23:24,840 --> 01:23:27,439
Speaker 1: who is down in d C doing some lobbying of

1411
01:23:27,600 --> 01:23:29,559
Speaker 1: his own, which is why he's not in the control

1412
01:23:29,600 --> 01:23:33,439
Speaker 1: booth where he belongs. Uh. You've been listening to Masters

1413
01:23:33,479 --> 01:23:44,599
Speaker 1: in Business on Bloomberg Radio look Ahead, Imagine more, gain

1414
01:23:44,720 --> 01:23:47,920
Speaker 1: insight for your industry with forward thinking advice from the

1415
01:23:47,960 --> 01:23:51,800
Speaker 1: professionals at Cone Resnick. Is your business ready to break through?

1416
01:23:52,360 --> 01:23:55,880
Speaker 1: Find out more at Cone resnick dot com slash Breakthrough