WEBVTT - Interview With Edward Yardeni: Masters in Business (Audio) 0:00:00.440 --> 0:00:04.440 Look ahead, imagine more, gain insight for your industry with 0:00:04.480 --> 0:00:08.480 forward thinking advice from the professionals at Cone Resnick. Is 0:00:08.480 --> 0:00:11.559 your business ready to break through? Find out more at 0:00:11.640 --> 0:00:19.279 Cone Resnick dot com slash Breakthrough. This is Masters in 0:00:19.360 --> 0:00:25.279 Business with Barry Ridholts on Bloomberg Radio. This week on 0:00:25.320 --> 0:00:28.640 the podcast, my special guest is Dr Edyar Denny. He 0:00:28.760 --> 0:00:33.879 has a storied career on Wall Street UH prudential base SHEF. 0:00:33.960 --> 0:00:38.960 Hutton and probably best known for his work at Deutsche Bank. 0:00:39.440 --> 0:00:43.400 He now runs your Denny Research and has a fairly 0:00:43.440 --> 0:00:48.600 substantial institutional client base. This was really a very wide 0:00:48.720 --> 0:00:53.840 ranging conversation about traditional economics and how we use that 0:00:53.920 --> 0:00:57.920 as a basis of analysis of equity and bond investing. 0:00:58.640 --> 0:01:02.800 He is not a typical economist in that he really 0:01:02.840 --> 0:01:05.520 got started on the bond side and then moved to equities, 0:01:05.560 --> 0:01:09.760 and I find a lot of his perspective to be 0:01:11.120 --> 0:01:16.000 atypical and very very interesting. UH And obviously his clients 0:01:17.120 --> 0:01:21.280 agree with that because he UH advises a lot of 0:01:21.400 --> 0:01:26.600 very substantial mutual and hedge funds and they really care 0:01:26.640 --> 0:01:30.240 a lot about what his perspectives on the world economy is. 0:01:30.600 --> 0:01:37.800 He is both simultaneously enthusiastic and constructive about the future 0:01:38.000 --> 0:01:40.840 growth in the United States, but raises a lot of 0:01:40.880 --> 0:01:47.560 concerns about things globally, including debt in China, demography in Japan, 0:01:47.960 --> 0:01:52.360 and some of the other long term issues from globalization 0:01:52.560 --> 0:01:56.720 and automation and what it might mean for employment going forward. 0:01:56.800 --> 0:01:59.480 But but he's not a permabule of Perma bear. He's 0:01:59.520 --> 0:02:02.640 he's flip back and forth over times. And I found 0:02:02.720 --> 0:02:08.200 him to be surprisingly constructive about the U s economy. Uh. 0:02:08.240 --> 0:02:11.080 He thinks we're late in the cycle, but nowhere near 0:02:11.760 --> 0:02:15.920 over and and that was really interesting his explanation for that. So, 0:02:16.040 --> 0:02:20.160 without any further ado my conversation with Dr Edyard Denny. 0:02:23.400 --> 0:02:27.760 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:02:28.600 --> 0:02:32.640 My special guest today is Dr Edyard Denny. He is 0:02:33.600 --> 0:02:37.240 founder and chief investment strategist at Yard Denny Research. He 0:02:37.440 --> 0:02:40.919 has a storied career. He has been on Wall Street 0:02:41.200 --> 0:02:44.240 for twenty five years. Early in his career, he was 0:02:44.320 --> 0:02:47.679 chief economist at E. F. Hutton we all remember and 0:02:48.040 --> 0:02:51.600 love those commercials, as well as working at Prudential Securities 0:02:51.639 --> 0:02:54.600 and C. J. Lawrence. Uh. He began his career at 0:02:54.600 --> 0:02:58.440 the Federal Reserve in both Washington and New York, served 0:02:58.919 --> 0:03:02.720 in the US Treasure He eventually he became chief strategist 0:03:03.120 --> 0:03:06.919 at Deutsche Bank Securities. He started out with the b 0:03:07.160 --> 0:03:10.400 a uh in in economics at Cornell as well as 0:03:10.400 --> 0:03:14.920 a PhD uh in economics at Yale, where he studied 0:03:15.080 --> 0:03:20.280 under Nobel Laureate James Toadman, Dr Eduard Denny. Welcome to Bloombar. 0:03:20.360 --> 0:03:22.600 Thank you very much, Verry. So you have a really 0:03:22.720 --> 0:03:27.840 interesting career what I call the golden era of Wall Street. 0:03:29.760 --> 0:03:33.320 What was it like back then? I think it, Uh, 0:03:33.800 --> 0:03:35.720 it was golden, I think because it sort of the 0:03:35.760 --> 0:03:40.400 tail end of the partnerships when Wall Street firms uh 0:03:40.520 --> 0:03:45.040 were responsible for their actions and people don't realize a 0:03:45.160 --> 0:03:49.240 partnership is joint and several liability. So not only are 0:03:49.240 --> 0:03:51.960 you responsible for your own behavior, you're responsible for what 0:03:52.080 --> 0:03:54.680 everybody else the firm is doing. Let me tell you 0:03:54.760 --> 0:03:59.440 that focus people's attention on risk. But it turned into 0:03:59.480 --> 0:04:02.120 the wild we pretty quickly early in my career because 0:04:02.160 --> 0:04:05.680 a lot of the firms went public and uh we 0:04:05.760 --> 0:04:11.080 started to see um all kinds of trading desks open up. UM. 0:04:11.240 --> 0:04:14.080 For my career, it was great because I had a 0:04:14.120 --> 0:04:17.120 tremendous demand for what I did for a living, from 0:04:17.120 --> 0:04:19.880 the commodity people, from the equity people, the bond people. 0:04:20.560 --> 0:04:24.040 As a matter of fact, although most of my career 0:04:24.080 --> 0:04:28.520 has been focused on equity strategy, the reality is the 0:04:28.560 --> 0:04:31.120 early part of my career at If Hutton was made 0:04:31.120 --> 0:04:33.279 on the bond market. Uh. I had some great calls 0:04:33.320 --> 0:04:36.640 back then, and um so I had just for me 0:04:37.200 --> 0:04:40.599 as an economist and then as a strategist. Um the 0:04:40.640 --> 0:04:43.680 fact that Wall Street went into more and more businesses 0:04:43.960 --> 0:04:46.440 and had more and more trading desks, and things got 0:04:46.640 --> 0:04:49.440 more volatile and more dependent than information that was great 0:04:49.480 --> 0:04:54.080 for me. It's amazing how many great equity analysts began 0:04:54.200 --> 0:04:57.560 on the fixed income side. It's really very overlooked. I 0:04:57.600 --> 0:05:00.240 have a list in my head of people in Looting, 0:05:00.240 --> 0:05:02.719 A number of guests on the show who started out 0:05:02.720 --> 0:05:05.760 and fixed income, and with that background gave them a 0:05:05.800 --> 0:05:08.720 lot of insight into why is that. I think it 0:05:08.760 --> 0:05:12.600 gives you a tremendous advantage. And I I wish I 0:05:12.680 --> 0:05:15.440 had really spent more time on the fixed incomes side, 0:05:15.480 --> 0:05:18.159 because I spend it more on kind of the macro side, 0:05:18.200 --> 0:05:21.480 not on the credit side, and with the benefit of hindsight, 0:05:22.440 --> 0:05:24.880 being a credited analyst on the bond side or having 0:05:24.880 --> 0:05:27.080 some insights there would have been very helpful in two 0:05:27.080 --> 0:05:29.960 thousand and seven. As a matter of fact, one of 0:05:29.960 --> 0:05:34.520 my counts in San Francisco, strategists there, came to New 0:05:34.600 --> 0:05:37.440 York in two thousand and eight and called me up 0:05:37.480 --> 0:05:38.960 and said that I don't have any time to see 0:05:38.960 --> 0:05:41.919 I'm saying just fixed income strategists. And it was bridgiant 0:05:41.960 --> 0:05:45.440 because he really early on got really spooked by what 0:05:45.480 --> 0:05:48.279 he what he heard. So I think, you know, the 0:05:48.320 --> 0:05:50.360 reason that it's important to know what's going on the 0:05:50.360 --> 0:05:53.360 credit side, and that's where the trouble often starts. Too 0:05:53.440 --> 0:05:56.320 much too much debt, sure, too much debt, too much leverage, 0:05:56.320 --> 0:05:59.440 people wait too far out over their skis on the 0:05:59.480 --> 0:06:02.520 equities eyed things can look fine, but really a lot 0:06:02.520 --> 0:06:06.599 of trouble. Absolutely. You know, I look at your the 0:06:06.640 --> 0:06:09.159 early part of your career, you very easily could have 0:06:09.160 --> 0:06:14.000 been an academic. You studied with Tobin legendary. You end 0:06:14.120 --> 0:06:17.240 up at at the FED in the research department. That's 0:06:17.279 --> 0:06:21.839 practically an academic position. I know that's morphed over the years. 0:06:22.120 --> 0:06:23.840 I only stated at the federals Are Bank in New 0:06:23.920 --> 0:06:26.679 York for for a year. I spent a short period 0:06:26.680 --> 0:06:29.640 of time at the Federals Are Banking Washington, d See, Uh, 0:06:29.960 --> 0:06:33.680 spending some time writing my dissertation. Honestly, my role model 0:06:33.720 --> 0:06:36.880 was actually Henry Kaufman. Uh. Yeah, back when I was 0:06:36.920 --> 0:06:41.400 an undergraduate at Cornell, actually kind of cold call Kaufman 0:06:41.440 --> 0:06:43.320 and I asked him if he'd come and speak and 0:06:44.000 --> 0:06:47.159 to a group of us, and he wasn't able to 0:06:47.200 --> 0:06:50.359 do it. But uh, I was an early admirer of his. 0:06:50.520 --> 0:06:56.520 And as a matter of fact, my wife's uncle, Charles, 0:06:57.600 --> 0:07:04.040 was at Song and Brothers um and with Kaufman as 0:07:04.160 --> 0:07:06.280 and and in some ways, I mean she there there 0:07:06.320 --> 0:07:08.400 are been legends she passes on to me is that 0:07:09.080 --> 0:07:12.880 her uncle kind of created the Kauffman's job. So uh, 0:07:13.280 --> 0:07:15.520 there's always sort of a kinship there. But I mean 0:07:15.560 --> 0:07:17.280 I didn't know anything about that at the time, but 0:07:18.520 --> 0:07:22.440 I you know, the the role of a chief economist 0:07:22.480 --> 0:07:25.520 on Wall Street appealed to me, and uh, Kauflin really 0:07:25.640 --> 0:07:31.560 was the fellow who blazed the trail. So so you're 0:07:31.600 --> 0:07:35.200 you're at the IVY studying economics, you you find your 0:07:35.240 --> 0:07:37.960 way to the Federal Reserve. How do you make that 0:07:38.040 --> 0:07:43.760 transition to actual finance to Wall Street from academic So 0:07:43.760 --> 0:07:46.880 so what what was what? What led you there? It 0:07:46.960 --> 0:07:49.400 was easy. I was I was bored at the Fed. Uh, 0:07:50.040 --> 0:07:51.960 I was writing these memos that were just put in 0:07:51.960 --> 0:07:55.440 the file. As it turned out, they put me on 0:07:55.480 --> 0:07:57.800 a very important subject, which was a regulation queue and 0:07:57.800 --> 0:08:00.560 the savings and loan industry. So, I mean that came 0:08:00.560 --> 0:08:03.000 in real handy for the SNL crisis in the late 0:08:03.000 --> 0:08:06.000 eighties and the early nineties. So I I thought it 0:08:06.080 --> 0:08:10.920 was prepared for all that. But you know, the transition, well, 0:08:11.000 --> 0:08:13.120 she was easy. A head Hender called me up and said, 0:08:13.160 --> 0:08:17.360 if Hutton's looking for somebody to uh be an economist 0:08:17.440 --> 0:08:20.760 on the fixed income a little fun side, And It's like, whoa, 0:08:20.840 --> 0:08:23.000 this is exactly the job I'm looking for because that 0:08:23.080 --> 0:08:26.360 was what Henry Kaufman did. Henrykauflin focused on the flow 0:08:26.400 --> 0:08:29.920 of funds and the outlook for interest rates. And so 0:08:30.200 --> 0:08:32.280 I mean I got the job one, two three. It 0:08:32.360 --> 0:08:34.920 was great. I'm old enough to remember when the flow 0:08:34.960 --> 0:08:39.240 of funds was something that people really retracts every week. 0:08:39.320 --> 0:08:41.280 It was a big deal. And now it seems it 0:08:41.360 --> 0:08:45.040 was huge. Yeah, if you're a called Kaufman. Actually, uh, 0:08:45.800 --> 0:08:47.600 you know, spent an enormous amount of time. I had 0:08:47.600 --> 0:08:50.400 a big staff predicting where the flow of funds was 0:08:50.480 --> 0:08:52.760 going to go, and uh, I always thought it was 0:08:52.800 --> 0:08:55.760 a little bit uh over the top, you know, I mean, 0:08:55.800 --> 0:08:59.000 can you really forecast, you know, tough forecasting a couple 0:08:59.040 --> 0:09:02.720 of members a little own hundreds of flow of funds numbers. 0:09:02.720 --> 0:09:05.160 But he went through the exercise, and I guess I 0:09:05.200 --> 0:09:07.680 worked for him until it didn't. I'm Barry rid Halts. 0:09:07.840 --> 0:09:11.840 You're listening to Masters in Business on Bloomberg Radio. My 0:09:11.920 --> 0:09:16.000 guest today is Dr Edyard Denny. He is the founder 0:09:16.000 --> 0:09:20.040 and chief strategist at Your Denny Research, which can be 0:09:20.080 --> 0:09:23.800 found at the website well blog dot yard Denny dot 0:09:23.800 --> 0:09:26.400 com is open to the public dot blog dot your 0:09:26.480 --> 0:09:29.160 Denny dot com. Let's let's talk a little bit about 0:09:29.240 --> 0:09:33.360 economics and economists and they're discontents, my favorite, my favorite 0:09:33.360 --> 0:09:37.520 supe favorite. So let's start with just economic indicators. What 0:09:37.960 --> 0:09:40.560 are some of your favorite things to look at in 0:09:40.600 --> 0:09:43.480 helping you assess both the state of the economy and 0:09:43.520 --> 0:09:46.840 the overall stop market. You know, if you limited me 0:09:46.880 --> 0:09:51.400 to one. I really like the crb raw Industrial Spot 0:09:51.400 --> 0:09:55.319 Price Index and stop Spot Price Index for all commodities 0:09:55.400 --> 0:09:59.640 or industrial thirteen industrial commodities. It does not include any 0:09:59.679 --> 0:10:01.960 patrol in products. It doesn't include any wood products, which 0:10:01.960 --> 0:10:04.000 is why I like it, because I think petrolium and 0:10:04.040 --> 0:10:06.480 would have their own supply and demand. The main reason 0:10:06.559 --> 0:10:08.440 I like it is because it's work. It's been available 0:10:08.480 --> 0:10:11.800 for years, it's available daily, and it's a very sensitive 0:10:11.840 --> 0:10:14.840 indicator of the global economy. Uh, and sometimes you get 0:10:14.840 --> 0:10:17.400 a little funky with it. I've kind of for many 0:10:17.440 --> 0:10:21.880 years been calculating the boom Bus Barometer, and that's simply 0:10:22.000 --> 0:10:26.600 that commodity index divided by initial unemployment claims, So it's 0:10:26.640 --> 0:10:30.000 it's a weekly number. So you're taking the commodity index, 0:10:30.200 --> 0:10:33.920 which is a global indicator, but looking at US unemployment. 0:10:33.960 --> 0:10:35.760 But looking at US unemployment, I mean, let's face it, 0:10:35.800 --> 0:10:38.400 the U s economy in the past and continues to 0:10:38.440 --> 0:10:42.160 be a major driver of the global economy. So it's 0:10:42.160 --> 0:10:45.079 still working. I mean, it's conceivable that one of these 0:10:45.160 --> 0:10:47.440 days the US won't be as important as it still is, 0:10:47.960 --> 0:10:50.280 and that indicator won't be as helpful when we look 0:10:50.280 --> 0:10:54.319 at initial claims but the commodity price index has been very, 0:10:54.400 --> 0:10:57.560 very helpful. But you know, like all indicators, you know, 0:10:57.600 --> 0:10:59.040 I got to know when to hold them went and 0:10:59.040 --> 0:11:02.200 it went to fold them run Sometimes when they don't 0:11:02.200 --> 0:11:06.040 seem to work, they're they're helpful and in forcing you 0:11:06.120 --> 0:11:09.640 to think about what's what's different this time around? And uh, 0:11:09.720 --> 0:11:12.280 you know, with a recent drop in the industrial commodity 0:11:12.320 --> 0:11:16.559 prices until earlier this year, um I concluded there wasn't 0:11:16.559 --> 0:11:19.400 that the global economy was falling into recession. Whether we're 0:11:19.400 --> 0:11:22.480 just way too much supply of these commodities. Uh. So 0:11:22.920 --> 0:11:25.720 we've seen something similar with the Baltic Dry Index because 0:11:25.720 --> 0:11:29.439 people used to track that obsessively and then there were 0:11:29.480 --> 0:11:32.040 just a ton of new ships that came out suddenly. 0:11:32.360 --> 0:11:35.760 That's right. It didn't indicate anything other than excess. It's 0:11:35.800 --> 0:11:38.080 a great point. So you gotta know when these indicators 0:11:38.160 --> 0:11:40.640 are useful on when they're not. This here be still 0:11:40.720 --> 0:11:43.160 useful of the Baltic isn't useful because you're just way 0:11:43.160 --> 0:11:46.719 too many ships out there. So that's uh. But but 0:11:46.800 --> 0:11:48.360 you know, I mean other than that, I mean, there's 0:11:48.679 --> 0:11:50.640 there's really nothing that I don't look at. I mean, 0:11:50.679 --> 0:11:53.760 I'll look at West Coast container traffic. I'll look at 0:11:53.760 --> 0:11:55.920 the rail you know, that's something I mean, I'm not 0:11:56.000 --> 0:11:57.640 the only one looking at this stuff. I mean, rail 0:11:57.679 --> 0:12:01.920 car loadings is something we look at closely. U. But 0:12:03.000 --> 0:12:06.000 we try try not not to ignore anything. We mentioned 0:12:06.040 --> 0:12:09.400 the Baltic dry indecks. What sort of economic indicators do 0:12:09.440 --> 0:12:12.920 you think are a little overhyped or that perhaps investors 0:12:12.960 --> 0:12:17.200 should not put as much weight on as they actually did. Well, 0:12:17.440 --> 0:12:20.120 I think we give a tremendous amount of weight every 0:12:20.120 --> 0:12:23.360 month to the employment numbers um and they always get 0:12:23.360 --> 0:12:28.560 revised and repeatedly. And uh, not only that, but it's 0:12:28.600 --> 0:12:30.719 just you can really sink in that swamp that they 0:12:30.880 --> 0:12:33.880 hand out every every month. It's just so much data 0:12:33.920 --> 0:12:37.040 and information. We we try to cut to the chase. 0:12:37.320 --> 0:12:39.439 Maybe it's because I'm, you know, simple minded. I need 0:12:39.480 --> 0:12:42.000 to keep keep my mind focused on and one or 0:12:42.040 --> 0:12:44.920 two variables. But we do is we calculate something called 0:12:45.000 --> 0:12:48.920 the earned income proxy. And what that is simply is 0:12:48.960 --> 0:12:51.440 you take, okay, how many people are working, how many 0:12:51.480 --> 0:12:54.360 hours are they working, and what's their wage. It turns 0:12:54.360 --> 0:12:58.000 out that's exactly what the the Bureau of Labor Statistics 0:12:58.040 --> 0:13:02.840 does to get an initial estimate for wages and wages 0:13:02.920 --> 0:13:05.040 is what drives the consumer to a large extent, are 0:13:05.559 --> 0:13:09.640 so um number of people working, how many hours they're working, 0:13:09.679 --> 0:13:13.560 and what's their hourly wage? That gives you total total wages? 0:13:13.720 --> 0:13:15.360 And then do you know you can use the month 0:13:15.360 --> 0:13:17.400 over a month change and uh, you know, like the 0:13:17.480 --> 0:13:20.960 last month, the everybody was disappointed by the peril number 0:13:21.000 --> 0:13:23.880 it was. It was not a big number. It was disappointing. 0:13:24.440 --> 0:13:27.440 But when you looked at hours and wages um, the 0:13:27.480 --> 0:13:30.320 earning income proxy was up like zero point seven percent. 0:13:31.400 --> 0:13:32.640 It's a big movement. I'm at a more over a 0:13:32.679 --> 0:13:35.959 month basis and it was a great harbinger of retail 0:13:35.960 --> 0:13:39.840 sales being better than expected. So let me ask you 0:13:40.240 --> 0:13:44.439 about an ongoing issue that people keep having problems with, 0:13:44.520 --> 0:13:48.680 which is measuring productivity. If you believe the data, we've 0:13:48.679 --> 0:13:52.640 seen no real productivity gains. I know you run a 0:13:52.720 --> 0:13:56.640 relatively small office and you're incredibly productive. I run a 0:13:56.679 --> 0:13:59.000 small office and I know what we do with a 0:13:59.040 --> 0:14:01.960 dozen or so pe people, right, we couldn't have done 0:14:02.000 --> 0:14:06.240 with less than fifty people ten So, so why aren't 0:14:06.240 --> 0:14:09.680 we seeing any gains in the productivity statistics? You know, 0:14:09.760 --> 0:14:12.560 I think it takes a long time for the government 0:14:12.600 --> 0:14:17.800 statisticians to recognize that they're missing something, and it could 0:14:17.800 --> 0:14:21.280 take ten, fifteen, twenty years, and then it could take 0:14:21.360 --> 0:14:24.560 him another five to ten years to do a special 0:14:24.600 --> 0:14:27.080 study to try to figure out what they're missing, and 0:14:27.120 --> 0:14:30.200 then they finally come up with a revised number. Um. 0:14:30.240 --> 0:14:33.800 You know, in capital spending, remember that R and D 0:14:34.000 --> 0:14:35.800 used to be expensed and now all of a sudden, 0:14:35.800 --> 0:14:38.960 it's included a long term investment. Yeah, now it's long 0:14:39.040 --> 0:14:42.720 term investment. Um. Software. I'm not even quite sure how 0:14:42.800 --> 0:14:46.160 you measure that, but there's a measure of software. I 0:14:46.200 --> 0:14:48.880 don't know. My my company is totally virtual. Everybody works 0:14:48.920 --> 0:14:52.760 from overword and we send all of our information to 0:14:52.800 --> 0:14:55.960 the Amazon Cloud. I'm not pitching their service, but we 0:14:55.960 --> 0:14:59.200 send it to the cloud and everything is done remotely. 0:14:59.240 --> 0:15:02.160 We used to have two servers sitting in a server farm, 0:15:02.960 --> 0:15:06.080 and the productivity of those machines had to be extremely low. 0:15:06.400 --> 0:15:09.520 We weren't using them very much. But now the Amazon Cloud, 0:15:09.560 --> 0:15:12.440 I had to believe that the servers that Amazon has, uh, 0:15:12.440 --> 0:15:15.680 those those servers are being used very intensively. But we're 0:15:15.680 --> 0:15:18.880 working twenty four by seven, So you know maybe maybe 0:15:19.360 --> 0:15:21.320 you know, we're putting out more output, but we're also 0:15:21.360 --> 0:15:25.000 working long hours because we're I mean, you're you're accessible 0:15:25.240 --> 0:15:28.400 on weekends and nights. We use a program called Slack, 0:15:28.880 --> 0:15:31.840 so not only is it as secure communication program, but 0:15:31.880 --> 0:15:36.040 we upload files and we share things and it's just 0:15:36.280 --> 0:15:40.080 basically made everybody reachable any time. I think, I think 0:15:40.080 --> 0:15:42.560 the productivity numbers are either right or they're wrong. Either 0:15:42.720 --> 0:15:46.560 you know, uh the statisticians have it more or less right, 0:15:46.720 --> 0:15:49.320 or else they're missing a lot of output. The truth 0:15:49.360 --> 0:15:52.120 maybe somewhere in between. But look, the reality is a 0:15:52.120 --> 0:15:54.040 lot of the jobs that have been created been created 0:15:54.040 --> 0:15:56.880 in the service sector, and we're only now starting to 0:15:56.960 --> 0:16:01.120 see technology entering the service sector. Uh. There's this robot 0:16:01.160 --> 0:16:05.040 Pepper that soft Bank is marketing and selling, and apparently 0:16:05.080 --> 0:16:08.440 MasterCard is using it in some restaurants in Japan. I mean, 0:16:08.480 --> 0:16:12.440 you know, we already have uh LaGuardia. You know, it's 0:16:12.480 --> 0:16:17.120 the so called Third World airport. We have iPad sitting 0:16:17.120 --> 0:16:19.720 there where you can order what you're gonna what you 0:16:19.720 --> 0:16:22.400 want to restaurant that, by the way, that's in one 0:16:22.440 --> 0:16:27.080 of the renovated terminals, that's the Delta terminal. Absolutely that 0:16:27.160 --> 0:16:30.600 was renovated, and um, I just read Fox con laid 0:16:30.600 --> 0:16:34.560 off sixty people. You look, at the end of the day, 0:16:34.560 --> 0:16:36.840 why do we really care about productivity in the answer 0:16:36.920 --> 0:16:40.560 is because he determines the standard of living. I'm Barry Ridhults. 0:16:40.720 --> 0:16:44.720 You're listening to Masters in Business on Bloomberg Radio. My 0:16:44.800 --> 0:16:48.560 guest today is Dr Edyard Denny. He is the president 0:16:48.640 --> 0:16:54.400 and chief investment strategist at Your Denny Research. A long 0:16:54.480 --> 0:16:57.760 and storied career, he was chief economist at IF Hotton, 0:16:57.880 --> 0:17:02.640 chief investment strategist at Deutsche Bank, and one of the 0:17:02.720 --> 0:17:07.640 first people to begin warning about a computer glitch that 0:17:07.760 --> 0:17:12.040 was potentially problematic. You you very famously warned about the 0:17:12.200 --> 0:17:16.840 Y two K bug years years in advance. Your background 0:17:16.920 --> 0:17:19.480 is that of an economist. How on earth did you 0:17:19.560 --> 0:17:24.080 ever stumble into that odd little programming glitch? And before 0:17:24.080 --> 0:17:27.720 you answer for you young uns who may not remember this, 0:17:28.400 --> 0:17:30.960 it turns out that lots of computers were programmed with 0:17:31.000 --> 0:17:35.560 only two digits for the year, and I guess people 0:17:35.600 --> 0:17:39.280 forgot that eventually the century it will end. So instead 0:17:39.280 --> 0:17:43.280 of going to two thousand, after the concern was it 0:17:43.359 --> 0:17:45.520 was just going to roll over to nineteen O one 0:17:45.720 --> 0:17:49.720 or nine hundred and that would cause all manner of mayhem. 0:17:49.760 --> 0:17:52.520 So so how did you stumble onto that issue? Yeah, 0:17:52.600 --> 0:17:56.520 I UM, I guess during my wonder years. Um, you know, 0:17:56.560 --> 0:17:59.639 I uh. I went to elementary school in Cleveland, O 0:17:59.760 --> 0:18:03.720 High Oh, and then we moved to San Jose, California, 0:18:03.760 --> 0:18:07.560 which even back then was Silicon Valley. My father worked 0:18:07.560 --> 0:18:10.800 for IBM. It was in a science club, and UH 0:18:11.359 --> 0:18:15.280 learned four trend programming, so I've always had a interest 0:18:15.320 --> 0:18:18.160 in that. And when I went to UH cornell Um, 0:18:18.600 --> 0:18:22.520 I started out in engineering and just couldn't take differential equations. 0:18:22.560 --> 0:18:24.560 It was way too hard, and physics was way too hard. 0:18:24.600 --> 0:18:27.040 It's funny you say that. I started out applied mathematics 0:18:27.200 --> 0:18:30.239 physics at Stony Brook. By the time I hit my 0:18:30.400 --> 0:18:34.320 senior year, it's like, gee, you know, I'm up too much. 0:18:34.400 --> 0:18:37.719 So yes, I became an economist. But when I switched 0:18:37.720 --> 0:18:40.080 over to Arts and sciences, I still stayed with physics 0:18:40.080 --> 0:18:43.639 for one one last gasp and took a course in 0:18:43.680 --> 0:18:47.960 semiconductors and a course in UH material science really and 0:18:47.960 --> 0:18:51.919 and assembly programming. And I really like programming, but you know, 0:18:51.960 --> 0:18:55.520 I never really mastered it. I just kind of enjoyed it. Uh. 0:18:55.560 --> 0:18:59.840 And actually I think I was probably the first economists 0:18:59.840 --> 0:19:02.520 on All Street with his own website. I don't know 0:19:02.560 --> 0:19:04.359 how I got away with it. My firm let me 0:19:04.400 --> 0:19:08.760 actually put Dr Edyard Denny's Economics network on it. I 0:19:08.800 --> 0:19:11.359 remember that, and I would imagine they had no idea 0:19:11.359 --> 0:19:13.000 what a website was. They had no idea what the 0:19:13.040 --> 0:19:16.360 compliance department. Certainly no, no, there's no lawyers around. And 0:19:16.640 --> 0:19:20.280 so I had my own website. It was fantastic, UM 0:19:20.400 --> 0:19:24.119 and UM in the early nineteen the nine nineties for me. 0:19:24.560 --> 0:19:27.560 The eighties for me was when I was forecasting disinflation 0:19:27.600 --> 0:19:30.080 and I was very bullsh on bonds. The nineteen nineties, 0:19:30.160 --> 0:19:33.199 my focus, with the benefit of hindsight, turned out to 0:19:33.200 --> 0:19:37.720 be larger in technology. N I started to argue that 0:19:37.760 --> 0:19:41.320 we were in the early stages of high tech revolution. Uh. 0:19:43.000 --> 0:19:45.399 It was a great call. And as a matter of fact, 0:19:45.440 --> 0:19:48.560 I think back then the SMP five tech companies were 0:19:48.560 --> 0:19:51.320 about eleven percent of the market cap, and I predicted 0:19:51.359 --> 0:19:53.520 they get to seven seventeen percent. I think they got 0:19:53.520 --> 0:19:57.840 to twenty five percent of our market cap. And um, 0:19:59.359 --> 0:20:03.600 along the is that as that call worked out. UM 0:20:03.600 --> 0:20:06.080 my contry instincts came out a little bit, and uh, 0:20:06.760 --> 0:20:08.720 you know there were some of these ye two K 0:20:08.880 --> 0:20:12.199 companies that were fixing the problem, and so I I 0:20:12.240 --> 0:20:14.760 started to look into it. I mean, basically, the forecast 0:20:14.800 --> 0:20:17.960 was working out real well, and sometimes when something's working out, 0:20:17.960 --> 0:20:21.520 don't don't mess with it. Um. But um, when I 0:20:21.560 --> 0:20:24.200 saw that Alan Greenspan was starting to be a cheerleader 0:20:24.240 --> 0:20:26.960 for the tech revolution and was saying this is gonna 0:20:26.960 --> 0:20:31.080 be a once in a century development and uh was 0:20:31.119 --> 0:20:35.720 that like circle in nine? Yeah, but by nine he 0:20:35.800 --> 0:20:38.800 was actually he gave a speech called the the uh 0:20:39.520 --> 0:20:42.560 I think it was called the Technology Lottery, something to 0:20:42.600 --> 0:20:46.000 that effect. Basically he was saying that, uh yeah, tex 0:20:46.119 --> 0:20:49.680 tax seam overvalued. It's kind of questionable why a FED 0:20:49.760 --> 0:20:53.280 chairman should should be talking about evaluation. I think they 0:20:53.359 --> 0:20:55.600 were afraid that the bubble was going to burst, and 0:20:55.680 --> 0:21:00.480 he was. He was, and especially after the nine speech, 0:21:00.640 --> 0:21:04.960 famous irrationalist suberant speech four years early. I think he 0:21:05.160 --> 0:21:07.919 thought there was a credibility. He wanted to show that 0:21:07.960 --> 0:21:11.080 he was on top of it. But as you know, 0:21:11.400 --> 0:21:14.119 is he made it very clear that he wasn't in 0:21:14.160 --> 0:21:16.720 the bubble bursting business. That he cleaned up the mess 0:21:17.240 --> 0:21:19.560 after it happened, and so I started to worry a 0:21:19.600 --> 0:21:22.560 little bit more about the mess, and UH it seemed 0:21:22.560 --> 0:21:26.040 to me that White u K could create a problem. UH. 0:21:26.080 --> 0:21:31.159 And so I did start to write about that issue, 0:21:31.320 --> 0:21:35.000 and UH, suddenly I started to attract all these white 0:21:35.000 --> 0:21:40.000 touquet people, not not the fringe people, but UH, investment 0:21:40.200 --> 0:21:43.720 technology chiefs were calling me up and said, you know, 0:21:43.840 --> 0:21:46.720 it's good to have somebody outside of the industry kind 0:21:46.720 --> 0:21:48.840 of raising the flag. And as a matter of fact, 0:21:48.880 --> 0:21:51.679 it turned out that the sp F companies spent fifty 0:21:51.720 --> 0:21:55.160 billion dollars on the problem. UH, and as a result, 0:21:55.240 --> 0:21:58.080 we didn't have a problem. UH. So that that was 0:21:58.400 --> 0:22:00.399 that was a good thing. I think with the benefit 0:22:00.440 --> 0:22:05.000 of hindsight, UM, I I can to the right conclusion 0:22:05.040 --> 0:22:07.200 for for the wrong reason why du Que didn't cause 0:22:07.440 --> 0:22:10.639 a recession. Everything was was fixed. White UK led to 0:22:10.960 --> 0:22:15.080 contribute it to the technology bubble, which then burst in 0:22:15.160 --> 0:22:19.439 two thousand. I'm Barry Ridholtz. You're listening to Masters in 0:22:19.520 --> 0:22:23.560 Business on Bloomberg Radio. My special guest today is Dr 0:22:23.800 --> 0:22:28.719 Edyar Denny of your Denny Research, UH, formerly chief strategist 0:22:29.000 --> 0:22:32.160 at Deutsche Bank. You know before we get into the 0:22:32.240 --> 0:22:35.320 details of the global economy. I would be remiss if 0:22:35.320 --> 0:22:38.840 I didn't ask. So you've worked at US based banks 0:22:38.880 --> 0:22:42.320 like Prudential and E. F. Hutton, R. C. J. Lawrence. Alright, alright. 0:22:42.440 --> 0:22:45.760 Deutsche Bank, on the other hand, is this giant German 0:22:45.800 --> 0:22:49.320 bank with branch offices here in the US. What is 0:22:49.359 --> 0:22:54.320 the cultural differences like between a US bank headquartered in 0:22:54.400 --> 0:22:59.000 New York and an outpost of a European bank that 0:22:59.160 --> 0:23:02.760 might have a different philosophy or world deal. Well, you know, 0:23:02.840 --> 0:23:04.680 C C J. Lawrence when I joined it in the 0:23:04.680 --> 0:23:09.040 early nineties was owned by Morgan Grenfeld, but very arms length. 0:23:09.320 --> 0:23:12.680 And then Morgan Grenfell was bought by Deutsche Bank, also 0:23:12.800 --> 0:23:14.919 very arms length, and it took a while before the 0:23:14.960 --> 0:23:18.560 regulators in the US allowed the foreign banks to have 0:23:18.600 --> 0:23:22.440 any influence on on C. J. Lawrence. So you started 0:23:22.440 --> 0:23:25.320 at a company that was brought by Morgan Grenfell and 0:23:25.359 --> 0:23:28.719 then and eventually you came back to that later in 0:23:28.720 --> 0:23:30.560 your career. No, no, no, no, no no no. It 0:23:30.640 --> 0:23:34.040 was just the same, just the same for same different 0:23:34.320 --> 0:23:37.719 party exactly. So I mean the bottom line is I 0:23:37.800 --> 0:23:41.080 was there for basically, you know, the ninety nineties and 0:23:41.119 --> 0:23:44.239 I really didn't see much impact at all, because you know, 0:23:45.400 --> 0:23:49.399 Americans still basically ran the shop, and certainly on the 0:23:49.440 --> 0:23:51.320 on the equity side. It was only the kind of 0:23:51.440 --> 0:23:55.960 late period there that it became a little bit more international. 0:23:56.080 --> 0:23:58.200 But I didn't really see much of it because when 0:23:58.400 --> 0:24:01.880 when we've spoken to people for MUBS or credit Swiss, 0:24:02.320 --> 0:24:05.480 maybe it's just the Swiss, but it seems that there's 0:24:05.520 --> 0:24:07.680 a somewhat although you could say the same is true 0:24:07.720 --> 0:24:10.880 with Barclays and and the British is a little bit 0:24:10.920 --> 0:24:16.080 of a different philosophical mindset. Maybe that's amongst the sea 0:24:16.160 --> 0:24:19.080 level execs and by the time it filters down to 0:24:19.119 --> 0:24:22.040 the U S staff. I don't know that. I don't 0:24:22.040 --> 0:24:25.800 know if it's US versus foreign so much as it 0:24:25.880 --> 0:24:29.640 is big versus small. Uh. If Hutton was relatively small, 0:24:29.840 --> 0:24:33.320 Prudential Beich was relatively small, believe it or not, back then, 0:24:33.880 --> 0:24:36.520 um c J was small. But uh, you know, let's 0:24:36.520 --> 0:24:39.160 you start talking about Deutsche that's that's a big, big bank. 0:24:39.240 --> 0:24:42.399 I think. I think big organizations there's a lot of 0:24:42.400 --> 0:24:45.399 politics and uh, they seem to change their strategy and 0:24:45.440 --> 0:24:48.639 a regular basis, right every every quarter or so, so 0:24:48.640 --> 0:24:51.040 so let's talk a little bit about the global economy 0:24:51.080 --> 0:24:54.120 and the U S economy you mentioned earlier. The U 0:24:54.200 --> 0:24:56.720 S seems to be the locomotive that's driving a lot. 0:24:58.000 --> 0:25:00.560 So how do you compare how the US is doing 0:25:00.800 --> 0:25:05.879 versus Japan, Europe and emerging markets. Well, the US is 0:25:05.920 --> 0:25:09.840 doing great in some ways. It's reminiscent of the nineteen nineties. 0:25:10.200 --> 0:25:13.520 Remember back then there was the high tech revolution, and 0:25:13.680 --> 0:25:15.840 uh it was very US centric. If you wanted to 0:25:15.840 --> 0:25:19.000 invest in in technology, you pretty much had to be 0:25:19.040 --> 0:25:22.600 in the in the US. UM. When I was on 0:25:22.720 --> 0:25:26.320 the all Street, I recalled Dell boxes and everywhere you 0:25:26.359 --> 0:25:28.399 have to be careful not to trip over them. I 0:25:28.440 --> 0:25:31.159 remember that when I first started, uh, you know, and 0:25:31.920 --> 0:25:34.480 in the early nineties, it was a rare person who 0:25:34.520 --> 0:25:37.639 got a laptop. And then suddenly everybody's getting PCs and 0:25:37.720 --> 0:25:42.240 laptops and everything. So, uh, you know, the the the 0:25:42.280 --> 0:25:47.160 whole the whole environment. Uh on. Technology changed pretty dramatically, 0:25:47.640 --> 0:25:50.600 but again, the US was where you wanted to be. Uh. 0:25:50.960 --> 0:25:53.520 We had an emerging market crisis in nineteen ninety seven 0:25:53.560 --> 0:25:58.359 in Asia, the Russian Death crisis in nine. The Europeans 0:25:58.680 --> 0:26:01.800 were suffering from what they called rose clorosis, and they 0:26:01.800 --> 0:26:05.080 remember and they were trying to Yes, well, they're back 0:26:05.119 --> 0:26:07.719 to it, but they were just starting to put together 0:26:07.800 --> 0:26:10.159 the euro So the the world feels to me kind 0:26:10.200 --> 0:26:12.880 of like the second half of the ninety nineties, where 0:26:13.000 --> 0:26:15.600 the US was doing well and everybody else was kind 0:26:15.600 --> 0:26:19.119 of fumbling along. What's different this time maybe is the 0:26:19.160 --> 0:26:22.200 user is actually more diversified, and we're doing well in technology, 0:26:22.200 --> 0:26:24.240 we're doing all in finance, we're doing well in healthcare. 0:26:24.440 --> 0:26:27.719 Just across the board, we're doing extremely well. And um, 0:26:28.119 --> 0:26:29.840 you know, I think we did respond to the two 0:26:29.880 --> 0:26:34.000 thousand and eight crisis by restructuring a lot of the excesses. 0:26:34.119 --> 0:26:37.720 And uh, lawyers are you know, running rampant on on 0:26:37.800 --> 0:26:41.680 Wall Street, and banks have become regulated utilities, and look, 0:26:41.720 --> 0:26:44.560 we just had this energy debacle, and uh, it hasn't 0:26:44.600 --> 0:26:47.080 taken us down in the financial system, which I think 0:26:47.119 --> 0:26:50.359 has proof positive that we've learned something from from that experience. 0:26:50.480 --> 0:26:53.679 And the usual suspects came out and said, here comes 0:26:53.720 --> 0:26:56.480 two thousand and eight again, all these bad loans to 0:26:56.560 --> 0:26:58.800 the energy complex and go to bring the economy to 0:26:58.800 --> 0:27:03.040 a halt, you know, for the hills. I was called 0:27:03.040 --> 0:27:05.680 into one of my accounts at the beginning of the 0:27:05.760 --> 0:27:08.280 year a mutual fund of New York and UH thirty 0:27:08.320 --> 0:27:10.480 people in the room usually get fifteen people in the room. 0:27:10.840 --> 0:27:13.639 And and there was a lot of concerns about those issues. 0:27:13.680 --> 0:27:16.240 You know, how could seventy drop in the price of 0:27:16.240 --> 0:27:19.520 the world not lead to a debacle? How how could 0:27:19.600 --> 0:27:22.280 we not see the Chinese value in the currency. So, 0:27:22.400 --> 0:27:23.920 I mean, look, a lot of those issues are still 0:27:23.960 --> 0:27:28.199 out there. But this pool market has been really driven 0:27:28.280 --> 0:27:32.560 by UH central banks providing ultra easy monetary policies and 0:27:32.640 --> 0:27:35.520 corporate to finance managers, particularly in the US, buying back 0:27:36.119 --> 0:27:39.040 their shares. And so so far we really we've had 0:27:39.040 --> 0:27:41.520 a lot of panic attacks and followed by relief valllies 0:27:41.520 --> 0:27:44.960 in the stock market. But back to the global story. UM, 0:27:45.760 --> 0:27:49.280 it's hard to detect much of a pulse in UH. 0:27:49.359 --> 0:27:53.040 In the Eurozone UM in production production is actually flat 0:27:53.359 --> 0:27:56.480 for the past two years, which is it's kind of 0:27:56.520 --> 0:27:59.440 weird because car sales have actually been pretty good. In 0:27:59.560 --> 0:28:03.000 retail sales have been actually pretty good. So's there over 0:28:03.040 --> 0:28:06.080 there over there? Now? Is that a function of low 0:28:06.320 --> 0:28:08.919 costs of credit? It must be. It must be that 0:28:08.960 --> 0:28:11.919 you know, consumers are still consuming over there, but you 0:28:11.960 --> 0:28:14.840 know they're exports clearly are stuffering because the global economy, 0:28:15.240 --> 0:28:19.399 on balances is growing at a subpar pace. Japan is 0:28:19.720 --> 0:28:23.280 uh in a coma, and China is slowing down dramatically. 0:28:23.359 --> 0:28:28.600 China is the world's maybe biggest ever bubble of all times. 0:28:28.840 --> 0:28:31.360 Why why do you say bubble? That's interesting? Well, bubbles. 0:28:31.400 --> 0:28:34.160 You know we were talking about earlier in in our 0:28:34.280 --> 0:28:37.600 discussion about why it's so important to focus on debt 0:28:37.960 --> 0:28:42.160 UH and UH in thinking about financial markets. UM. The 0:28:42.680 --> 0:28:45.520 number there's floors me is when you look at bank 0:28:46.440 --> 0:28:50.760 loans outstanding in China UH in dollars, there were five 0:28:50.840 --> 0:28:54.640 trillion dollars in two thousand and eight, their fifteen trillion dollars. 0:28:54.720 --> 0:28:58.400 Now they've tripled. So over this same period, we've seen 0:28:58.440 --> 0:29:01.160 our bank loans go up by about a trillion UH. 0:29:01.200 --> 0:29:04.160 They certainly haven't tripled. UH. Now, how much of that 0:29:04.320 --> 0:29:08.520 is just driven by everyone forgets China is still essentially 0:29:08.520 --> 0:29:14.360 controlled sort of communists regime dabbling in capitalism. How much 0:29:14.400 --> 0:29:18.280 of this is the central makers saying lend money to 0:29:18.360 --> 0:29:21.680 businesses or pulled back. It's probably so. I mean, I 0:29:21.800 --> 0:29:26.800 I think China is being driven by the government trying 0:29:26.840 --> 0:29:29.480 to keep this thing from falling apart. But Japan kind 0:29:29.480 --> 0:29:32.520 of went down the same road. Remember they were the 0:29:32.720 --> 0:29:36.760 debt to GDP ratios. They also had their you know 0:29:37.160 --> 0:29:41.680 MITI remember the Industrial Policy Committee that's set down and 0:29:41.680 --> 0:29:44.960 said til Ritsu that that everything you have Mitsubishi motives 0:29:44.960 --> 0:29:49.560 and Mitsubushi banking and Mitsubishi real estate and control planning 0:29:49.640 --> 0:29:52.719 doesn't work. It works for a while until it blows up, 0:29:52.760 --> 0:29:55.080 works till it does, and it works until So let's 0:29:55.080 --> 0:29:57.440 talk about China, and I don't want to talk about 0:29:57.880 --> 0:30:00.600 a lucky outcome or a or a worse case scenario. 0:30:00.800 --> 0:30:05.480 Come Let's let's say China continues to run into problems. 0:30:05.840 --> 0:30:09.320 How does that play out going forward? I think we 0:30:09.440 --> 0:30:13.400 we have a we have a good example of where 0:30:13.480 --> 0:30:17.160 China's going, maybe where Europe's going, and eventually, well we're 0:30:17.200 --> 0:30:19.240 going though, I I don't think we're going to go 0:30:19.280 --> 0:30:21.760 down that same road. And that's Japan. You know, Japan 0:30:22.560 --> 0:30:25.680 was early on with the too much debt not enough. 0:30:26.040 --> 0:30:27.960 They started out with the bubble, and you know, China 0:30:28.000 --> 0:30:29.640 is going to be the Japan is gonna be the 0:30:29.640 --> 0:30:33.760 world's largest economy. I remember Rockefeller center, and oh they're 0:30:33.760 --> 0:30:36.040 coming and buying all that stuff, and they thought that 0:30:36.040 --> 0:30:38.160 they could take it back to Japan. But that was 0:30:38.200 --> 0:30:41.080 the fearback. And so when that bubble burst, what do 0:30:41.160 --> 0:30:43.880 they do? They lower their interest rates to zero. They 0:30:43.880 --> 0:30:46.960 were early on with a quantitative easing. They were actually 0:30:47.080 --> 0:30:49.800 late on negative interest rates, but they caught up earlier 0:30:49.840 --> 0:30:53.400 this year. The demography is terrible, the fertility rates collapsed, 0:30:53.400 --> 0:30:57.280 and no immigration, no immigration, the entire society is just 0:30:57.440 --> 0:31:00.640 rapidly aging with not a lot of Now China in 0:31:00.640 --> 0:31:02.480 many ways just a bigger version of all that. The 0:31:02.960 --> 0:31:06.160 demography is terrible. The one child act now they they've 0:31:06.200 --> 0:31:08.480 gotten rid of that, but it's gonna take a while 0:31:08.560 --> 0:31:11.840 to work. And they've been generation well, they've very interviewed 0:31:11.880 --> 0:31:13.920 couples and the couples say, well, thanks, but no thanks, 0:31:13.960 --> 0:31:17.000 it's too expensive to have a kid. Yeah, so it's 0:31:17.000 --> 0:31:19.400 not it's not obvious that that's going to turn things around. 0:31:19.600 --> 0:31:21.960 It's not gonna do anything for them anytime soon. You know. 0:31:22.040 --> 0:31:24.440 The The old concern was will China grow old before 0:31:24.440 --> 0:31:27.440 it grows rich? And uh, there's more and more evidence 0:31:27.480 --> 0:31:31.280 saying that it's chronicled faster than has grown rich. That's amazing. 0:31:31.440 --> 0:31:35.920 What about the US consumer, long the driver of much 0:31:35.920 --> 0:31:39.880 of the global economy. Can the US consumer keep consuming? 0:31:39.880 --> 0:31:42.760 And what about the ongoing de leveraging We've been well, 0:31:42.840 --> 0:31:45.800 God bless American God bless the American consumer. I mean, 0:31:45.840 --> 0:31:49.080 one one thing that American consumers are very good at 0:31:49.200 --> 0:31:53.239 is consuming. Uh and uh, they really haven't let us 0:31:53.240 --> 0:31:57.640 down over over the years. And I think there's some concerns, 0:31:57.720 --> 0:32:00.080 you know that the baby boomers who were yuppies and 0:32:00.120 --> 0:32:02.960 now they're getting older, are aren't doing the kind of 0:32:03.040 --> 0:32:06.200 spending they used to. And maybe maybe the millennials aren't 0:32:06.200 --> 0:32:08.960 going to pick a pick up the ball um or 0:32:09.160 --> 0:32:12.440 the baton as as well. But the thing this shows 0:32:12.480 --> 0:32:17.240 that consumers consume their incomes and uh, you know, employment 0:32:17.240 --> 0:32:21.040 has been growing, wages have been growing. Again, there's this 0:32:21.240 --> 0:32:25.959 uh myth out there that Americans, uh, wages have stagnated 0:32:26.000 --> 0:32:29.440 for the past twenty years. That's based on one statistic 0:32:29.480 --> 0:32:33.720 that's collected by the Census Bureau UH to measure poverty. 0:32:33.760 --> 0:32:38.000 And it's measured before taxes, it's measured before entitlements. UH. 0:32:38.040 --> 0:32:40.560 So it's uh, it's it's not a good measure of 0:32:40.840 --> 0:32:44.400 the purchasing power. The consumers actually have um so. People 0:32:44.440 --> 0:32:47.200 who want to find more of your writings, they go 0:32:47.360 --> 0:32:51.360 to blob dot your Denny dot com. We've been speaking 0:32:51.440 --> 0:32:55.479 with Dr edyar Denny of your Denny Research. If you 0:32:55.680 --> 0:32:58.480 enjoy this conversation, be sure and come back and check 0:32:58.520 --> 0:33:01.240 out our podcast, True is where we keep the tape 0:33:01.360 --> 0:33:06.120 rolling and continue chatting about all things economic. Feel free 0:33:06.160 --> 0:33:10.680 to check out my daily column on Bloomberg dot com. 0:33:10.880 --> 0:33:15.320 Follow me on Twitter at rit Halts. I'm Barry Hults. 0:33:15.440 --> 0:33:18.960 You've been listening to Masters in Business on Bloomberg Radio. 0:33:20.200 --> 0:33:22.680 Are you looking to take your business to the next level? 0:33:22.920 --> 0:33:26.600 The accounting, tax and advisory professionals from Cone Resnick can 0:33:26.640 --> 0:33:31.160 guide you. Cone Resnick delivers industry expertise and forward thinking 0:33:31.200 --> 0:33:36.160 perspective that can help turn business possibilities into business opportunities. 0:33:36.680 --> 0:33:41.160 Look ahead, gain insight, imagine more. Is your business ready 0:33:41.200 --> 0:33:44.200 to break through? Learn more at cone Resnick dot com 0:33:44.360 --> 0:33:50.680 Slash Breakthrough, Cone Resnick Accounting Tax Advisory. Welcome to the 0:33:50.720 --> 0:33:53.120 podcast portion of our show. I don't know why I 0:33:53.200 --> 0:33:56.920 do this every time, I just feel feel obligated. Uh ed, 0:33:56.960 --> 0:34:00.200 Thank you so much for doing this. People have me 0:34:00.320 --> 0:34:03.200 about you, and I said, I know you for quite 0:34:03.200 --> 0:34:06.680 some time. We actually live in adjacent towns and have 0:34:06.800 --> 0:34:10.960 gone out to dinner with our respective spouses. UM, I 0:34:11.000 --> 0:34:13.319 have a ton of questions for you. But before I 0:34:13.400 --> 0:34:18.480 forget you, just reference the millennials versus the Boomers in 0:34:18.520 --> 0:34:21.759 the last segment. So let's talk a little bit about 0:34:21.800 --> 0:34:25.680 the difference between the two of them. The Boomers clearly 0:34:25.760 --> 0:34:30.360 passed their peaks spending the years other than medicinal marijuana. 0:34:30.480 --> 0:34:33.680 I couldn't guess what the average boomers spending money on. 0:34:34.400 --> 0:34:38.360 UM and the millennials seem to be a very different 0:34:38.920 --> 0:34:43.239 consumer cohort, at least so far. Maybe they'll follow in 0:34:43.280 --> 0:34:46.680 their parents footsteps, but it seems they're less inclined to 0:34:46.760 --> 0:34:51.000 buy a car between between rideshare and Uber and everything 0:34:51.040 --> 0:34:55.359 that right, they're living more in the cities, except when 0:34:55.360 --> 0:34:57.520 they're living at home with their parents, and usually there's 0:34:57.520 --> 0:35:00.759 an extra car lying around there. How DI from an 0:35:00.800 --> 0:35:07.759 economic perspective, our millennials versus the Boomers, well, the you know, 0:35:07.880 --> 0:35:12.319 the the boomers got married earlier in their lives than 0:35:12.360 --> 0:35:15.279 the millennials. Uh, the average age of marriage for both 0:35:15.520 --> 0:35:18.320 men and women has extended. Maybe that has something to 0:35:18.360 --> 0:35:21.080 do with social networking. You're gonna have plenty of dates 0:35:21.160 --> 0:35:25.040 whereas uh Si left. Yeah, I mean when when I 0:35:25.080 --> 0:35:28.480 was going to college, you know a lot of people 0:35:28.520 --> 0:35:31.680 married their high school and college sweethearts. Uh. And then 0:35:31.719 --> 0:35:33.480 the next thing you did is maybe you moved to 0:35:33.520 --> 0:35:36.440 the city, and then six months later you got pregnant, 0:35:36.520 --> 0:35:38.960 moved to the moved to the bourbs, and then got 0:35:38.960 --> 0:35:41.480 a couple of cars and then upgraded to a bigger house. 0:35:41.480 --> 0:35:44.279 And so it was. It was a different lifestyle than 0:35:44.320 --> 0:35:47.520 the millennials are used to. And you know, at some 0:35:47.600 --> 0:35:51.360 point they may you know, tire of you know, dating 0:35:51.360 --> 0:35:55.680 different people uh on a regular basis, and find their 0:35:55.920 --> 0:35:58.400 h that their true soul mate and settled down and 0:35:58.440 --> 0:36:02.240 decide time to have keys. But you know, the later 0:36:02.360 --> 0:36:04.440 you wait to get married, odds are you're gonna have 0:36:04.520 --> 0:36:08.719 fewer kids. And so I think the demography is I've 0:36:08.760 --> 0:36:11.640 always believed that demography is very, very important. Everybody thinks 0:36:11.640 --> 0:36:13.879 it takes too long to have an impact. I don't 0:36:13.920 --> 0:36:16.480 think that's the case at all. I think it explains 0:36:16.520 --> 0:36:18.799 a lot. The time is going to go by, whether 0:36:18.840 --> 0:36:21.799 you're looking at the demography or not. So why not 0:36:21.920 --> 0:36:24.880 at least be aware or of it. And the United 0:36:24.880 --> 0:36:28.399 States has a relatively high birth rate compared with other 0:36:28.880 --> 0:36:31.960 industrialized nations. How big of an advantage is that it's 0:36:31.960 --> 0:36:35.560 a huge advantage of fertility rates have collapsed around the world. 0:36:35.840 --> 0:36:39.800 Europe is flat, Japan is negative. It's nobody's got I 0:36:39.880 --> 0:36:43.279 don't think there's one explanation. I think, uh, uh, you know, 0:36:43.400 --> 0:36:46.239 when women have become economically freer in a lot of 0:36:46.280 --> 0:36:49.120 these countries, and I don't want to have as many kids, 0:36:49.200 --> 0:36:51.160 But the same is true in the US. How do 0:36:51.200 --> 0:36:54.239 you explain that? Or is the US that diverse culturally 0:36:54.719 --> 0:36:58.680 that New York is not, Chicago is not. I think 0:36:58.719 --> 0:37:03.000 I think it's diverse culturally, and uh, there's there, there's 0:37:03.000 --> 0:37:06.080 still uh. I mean, religion has a lot to do 0:37:06.160 --> 0:37:09.360 with with with people who are religious tant to have 0:37:09.400 --> 0:37:12.560 more kids, and so I think and getting married earlier 0:37:12.600 --> 0:37:15.000 and stay married, or at least that was the old theory. 0:37:15.040 --> 0:37:17.759 I don't know if the data. It used to be 0:37:17.840 --> 0:37:19.799 that you'd have to have a lot of kids to 0:37:19.840 --> 0:37:23.239 take care of you and your old age and the farm. Well, 0:37:23.280 --> 0:37:26.160 now the government takes is expected to take care of you. 0:37:26.280 --> 0:37:28.480 So what's the point of having kids. So I think 0:37:28.520 --> 0:37:31.520 that's had an impact. And but um, for one reason 0:37:31.640 --> 0:37:34.040 or another, there are lots of reasons why fertility rates 0:37:34.280 --> 0:37:37.319 have stayed Uh at we really had replacement, We're not 0:37:37.360 --> 0:37:41.080 really you know, slightly above, lightly above maybe when when 0:37:41.120 --> 0:37:44.440 most most of Europe is either slightly under or or 0:37:44.480 --> 0:37:47.560 significantly under. And then you look in Asia, and at 0:37:47.640 --> 0:37:50.760 least in Japan and China. I can't speak about Korea 0:37:50.880 --> 0:37:56.120 or Vietnam or India appears to be above replaced. But 0:37:56.120 --> 0:38:00.439 but the big developed powers like Japan and China, they're 0:38:00.520 --> 0:38:03.320 running a negative of fertility rate as well. Yeah, and Russia. 0:38:03.360 --> 0:38:05.799 Russia has got a terrible fertility Oh really, I haven't 0:38:05.840 --> 0:38:08.440 thought about that. So so what does this mean to 0:38:08.480 --> 0:38:12.680 the future of these countries economies? Well, I think one 0:38:12.719 --> 0:38:15.880 of the great challenges looking ahead. Um. I kind of 0:38:15.960 --> 0:38:18.279 learned my lesson from White que not to get to 0:38:18.360 --> 0:38:22.800 get too millennial about these things. But you know, a 0:38:23.280 --> 0:38:26.279 longer term, I mean, demography is destiny. I mean, you know, 0:38:26.360 --> 0:38:28.520 you know who's born, you know what the fertility rates are, 0:38:28.560 --> 0:38:30.920 you know how much longer people are living. How do 0:38:30.960 --> 0:38:33.880 we take care of all these old people? Um? Is 0:38:33.880 --> 0:38:36.920 that is Japan is kind of there. I say that 0:38:37.040 --> 0:38:40.440 half jokingly. On my summer reading list, I have the 0:38:40.440 --> 0:38:45.360 book Rise of the robot and Japan remains a massive 0:38:45.440 --> 0:38:51.799 export power. If are they capable and they're fairly automated 0:38:51.880 --> 0:38:55.480 in a lot of their factories, how far can this 0:38:55.640 --> 0:39:01.600 robotics revolution go? Can they replace the low birth rate 0:39:01.640 --> 0:39:05.840 in places like Japan and China at least for manufacturing. 0:39:06.200 --> 0:39:08.319 It's still kind of raises the question who's gonna pay 0:39:08.360 --> 0:39:10.000 for all that? I mean, if you got you know, 0:39:10.360 --> 0:39:13.239 people getting older and older not able to work. They 0:39:13.280 --> 0:39:15.520 need robots, but you know they need to eat, they 0:39:15.520 --> 0:39:19.800 need medication, they need transportation. Well, Switzerland, you gotta guarantee 0:39:19.840 --> 0:39:22.839 thirty tho dollar year salary coming up. Well again, these 0:39:22.840 --> 0:39:26.279 things all work until they don't work. I mean, you know, uh, 0:39:26.760 --> 0:39:29.279 I mean right now, central banks printing money is working 0:39:29.320 --> 0:39:33.480 until it doesn't work. So um, I you know, I 0:39:33.480 --> 0:39:37.319 don't think anybody is really trying to figure out how 0:39:37.440 --> 0:39:41.480 we manage in the future. It's not good for our kids. Um, 0:39:41.520 --> 0:39:43.960 but maybe they're too young to u But there are 0:39:44.040 --> 0:39:46.120 less and less of them, so it doesn't matter. I 0:39:46.160 --> 0:39:49.120 guess it doesn't matter as much. You mentioned central banks 0:39:49.239 --> 0:39:53.160 quee and zero interest rate policy. I would be remiss 0:39:53.200 --> 0:39:56.600 if I did not bring that up to discuss. So 0:39:56.920 --> 0:39:59.760 what is the impact of what the FED has done 0:40:00.000 --> 0:40:05.439 in terms of low rates and quantitative easing? Did they 0:40:05.480 --> 0:40:10.480 help solve the financial crisis by adding all this liquidly? 0:40:11.040 --> 0:40:13.200 And then what does it mean long term? And what 0:40:13.200 --> 0:40:15.279 what's the end game? How do they get out of this? Well, 0:40:15.640 --> 0:40:19.200 they solved the crisis that I think in some ways 0:40:19.200 --> 0:40:22.839 they were complicit in create. In creating. Listen, Greenspan took 0:40:22.960 --> 0:40:27.399 rates after nine eleven down to it was below two 0:40:27.440 --> 0:40:29.680 percent for a couple of years, and it was actually 0:40:29.800 --> 0:40:32.319 under one percent for a year, which was you know, 0:40:32.360 --> 0:40:34.520 you go back to the fifties and early sixties. You 0:40:34.520 --> 0:40:37.560 could see rates dip below one percent for a moment 0:40:37.840 --> 0:40:40.359 and then it's gone, not like here's twelve months of 0:40:40.840 --> 0:40:43.800 one percent or less. And Berninkia was giving a speech 0:40:43.880 --> 0:40:47.520 on the Great Moderation and saying that central banks have 0:40:47.560 --> 0:40:51.480 conquered the business cycle. A capitalistic system has its ups 0:40:51.520 --> 0:40:54.760 and downs. I mean, people have to deal with failure 0:40:54.800 --> 0:40:57.719 if they've speculated too much, and if the central bank says, 0:40:58.080 --> 0:40:59.839 don't worry about it, we'll give you the green span 0:41:00.000 --> 0:41:02.319 at the Bernankey, put the yell and put you know, 0:41:02.360 --> 0:41:04.520 it creates too much speculation, too much access, and too 0:41:04.560 --> 0:41:07.160 much debt. As I mentioned before, there's nobody that's doing 0:41:07.200 --> 0:41:09.880 that on a bigger scale right now than than the Chinese. 0:41:09.960 --> 0:41:12.680 It's just an enormous amount of debt relative to what 0:41:13.080 --> 0:41:17.200 eventually their economy can carry. So would we have This 0:41:17.280 --> 0:41:19.239 is a pet peeve of mine, and I try not 0:41:19.280 --> 0:41:21.640 to bring up too many of them, But would we 0:41:21.680 --> 0:41:25.080 have been better off in the two thousand and eight 0:41:25.320 --> 0:41:29.759 o nine crisis letting more banks, if not do a 0:41:29.760 --> 0:41:34.319 full Lehman face splat on the pavement, but do a 0:41:34.360 --> 0:41:38.040 full bankruptcy reorg and maybe Uncle Sam is the dead 0:41:38.120 --> 0:41:42.600 or in possession financer clean up these banks, rip the 0:41:42.600 --> 0:41:45.280 band aid off. I have to think the equity market 0:41:46.080 --> 0:41:48.680 would not have bottomed at six six six. Maybe we 0:41:48.719 --> 0:41:51.480 would have seen something much worse, But would we have 0:41:51.520 --> 0:41:55.440 been healthier in the long run? Well, I think I 0:41:55.719 --> 0:42:00.399 don't disagree with the notion that QUE one and help 0:42:00.440 --> 0:42:02.799 to end the crisis. I don't know that QUE three 0:42:02.840 --> 0:42:05.640 and four, all those other quis, I think they just 0:42:06.400 --> 0:42:08.799 I think the central banks have become just kind of 0:42:08.840 --> 0:42:12.200 like drug dealers, to to the economy and and and 0:42:12.239 --> 0:42:16.440 to the wants to go through withdrawal nobody wants and uh, 0:42:16.680 --> 0:42:22.160 you know, um again capitalism, this guy, it's winners and losers. 0:42:22.360 --> 0:42:24.880 I like to show Shark Tank on TV and now 0:42:24.960 --> 0:42:28.120 they're doing some segments showing what it's like after people 0:42:28.440 --> 0:42:32.919 get supported, and uh, winning is a lot of people 0:42:33.000 --> 0:42:34.800 lose after they win because they don't know how to 0:42:34.840 --> 0:42:37.440 manage their inventories and they fail, and some of them, 0:42:37.560 --> 0:42:40.320 you know, dust off and start all over again. But 0:42:40.560 --> 0:42:43.320 we we just don't have that kind of you know, 0:42:43.560 --> 0:42:46.440 central banks have kind of softened this up, and I'm 0:42:46.480 --> 0:42:48.640 not quite sure how we get out of this miss 0:42:49.480 --> 0:42:54.240 So right now, all the chatter has been on Juno 0:42:54.360 --> 0:42:58.520 July's interest rate increase in in two thousand and sixteen. 0:42:59.120 --> 0:43:02.000 For a while, look like every time the Fed looked 0:43:02.440 --> 0:43:05.880 like they were serious about an increase, the equity markets 0:43:05.920 --> 0:43:09.560 would throw a hissy fit. Here we are at coming 0:43:09.600 --> 0:43:13.759 to the end of the second quarter of sixteen, and 0:43:13.880 --> 0:43:16.319 it looks like markets are starting to accept that, hey, 0:43:16.440 --> 0:43:19.520 maybe the Fed is serious, and maybe the last rate 0:43:19.560 --> 0:43:23.560 increase was December. Maybe we're gonna see one or two 0:43:23.640 --> 0:43:27.080 rate increases this year. Is that putting us on the 0:43:27.239 --> 0:43:30.440 path to some form of normalization? I hope? So, I mean, 0:43:30.640 --> 0:43:35.560 you know, the word normalization is a very healthy word. 0:43:35.600 --> 0:43:38.319 I mean, we all want normal although one percent FED 0:43:38.400 --> 0:43:41.759 funds rate isn't what I would consider normal. No, it's not. 0:43:42.120 --> 0:43:45.799 But there are some structural forces out there that had 0:43:45.880 --> 0:43:48.480 nothing to do with the FED, like Agian demographics I 0:43:48.560 --> 0:43:52.640 think is slowing the global economy down. Technology is fundamentally 0:43:53.160 --> 0:43:58.359 disruptive global competition otherwise known as globalization. So there are 0:43:58.480 --> 0:44:01.279 the there are forces at work here that, uh really 0:44:01.320 --> 0:44:05.760 have structurally changed the outlook for inflation and for growth, 0:44:05.840 --> 0:44:08.120 and so maybe interest rates are going to stay historically love. 0:44:08.440 --> 0:44:11.720 So let's talk a little bit about you mentioned slowing 0:44:11.800 --> 0:44:15.000 growth due in part to demography. What do you think 0:44:15.080 --> 0:44:20.160 of the secular stagnation argument? Do you buy into that? Is? 0:44:20.520 --> 0:44:23.520 How responsible is demography? And or is this something that 0:44:23.600 --> 0:44:27.359 we eventually will innovate a way out. I buy into 0:44:27.480 --> 0:44:30.839 secular stagnation is a description of what we're going through. 0:44:31.600 --> 0:44:34.600 Um And since I buy into it, I'm buying into 0:44:34.640 --> 0:44:37.360 the words secular in other words, could could last a while. 0:44:37.840 --> 0:44:41.120 I don't buy into the Larry Summer's idea that we 0:44:41.280 --> 0:44:45.600 need more government policy to to get us out of 0:44:45.680 --> 0:44:48.839 this mess. Um, you know, I mean the next thing 0:44:48.960 --> 0:44:52.200 that government may very well do is helicopter money. Uh. 0:44:52.280 --> 0:44:54.400 It doesn't really mean that they're gonna rent helicopters and 0:44:54.480 --> 0:44:59.239 drop money. It means more infrastructial infrastructure spending. The rest 0:44:59.480 --> 0:45:04.040 fiscal directly financed by by the by by the federal government. 0:45:04.640 --> 0:45:06.920 The problem is we we we proved earlier on a 0:45:06.960 --> 0:45:09.200 few years ago that we're not shovel ready. There's too 0:45:09.239 --> 0:45:12.319 many regulations and it's not clear that you know, even 0:45:12.360 --> 0:45:15.040 if we did something like that, it would really show 0:45:15.200 --> 0:45:18.800 showing in our infrastructure. It would be nice if that 0:45:18.960 --> 0:45:22.359 was the case. Uh. You live not too far from 0:45:22.480 --> 0:45:27.000 Chicken Valley Road, which has finally, after years of falling apart, 0:45:27.400 --> 0:45:33.680 repaved and so the it took a major hurricane to 0:45:33.800 --> 0:45:38.520 just a couple of horrible winner So my my again. 0:45:38.600 --> 0:45:42.480 Another pet peev on infrastructure is our local airports are 0:45:42.520 --> 0:45:46.960 fairly terrible. They arrange for mediocre to terrible. Although to 0:45:47.040 --> 0:45:52.640 be fair, the renovated terminals in JFK are pretty nice 0:45:53.160 --> 0:45:55.960 and I think it's terminal for at Laguardi of the 0:45:56.360 --> 0:45:59.640 newest delta terminal, the one that has all the iPads 0:45:59.719 --> 0:46:03.080 to order food. That's a pretty all things considered. The 0:46:03.160 --> 0:46:05.839 rest of the airport is it dumping And that's such 0:46:05.880 --> 0:46:08.880 a short runway, it's no fun coming in anytime. It's wendy. 0:46:09.320 --> 0:46:12.960 But that said, the US really could stand for a 0:46:13.200 --> 0:46:17.640 massive infrastructure upgrade. You travel right here in Europe. You're 0:46:17.680 --> 0:46:20.759 an Asia preregularly. I'm astonished. The last time I was 0:46:20.840 --> 0:46:25.759 in Brussels in Italy, they were apologizing for their conditions 0:46:26.280 --> 0:46:28.160 of their roads, And I'm like, who do I have 0:46:28.280 --> 0:46:30.440 to pay off to get roads like this? And they 0:46:30.520 --> 0:46:34.279 think the roads are bad? No, I I can't. I 0:46:34.520 --> 0:46:37.759 don't know why we're such a miserable situation other than 0:46:38.760 --> 0:46:43.879 government regulation. And uh, I mean we we do spend money, 0:46:44.239 --> 0:46:46.080 but it just doesn't seem to show up in uh, 0:46:46.520 --> 0:46:49.719 in the infrastructure. We we haven't really, So here's I'm 0:46:49.760 --> 0:46:51.960 not in favor of cranking up taxes. And I know 0:46:52.280 --> 0:46:55.600 all the candidates for president have their own tax schemes, 0:46:56.200 --> 0:46:59.479 but dear lord, the gasoline tax has been frozen since 0:46:59.600 --> 0:47:03.359 nineteen three and and I just tanked up the other day. 0:47:03.400 --> 0:47:06.600 It was twenty six dollars. It's the cheapest high test 0:47:06.680 --> 0:47:10.960 I've ever seen fill up a tank. I'm happy to 0:47:11.120 --> 0:47:14.000 see that go up to twenty or thirty tents if 0:47:14.560 --> 0:47:17.239 the money goes to bridges and row you know, I mean, 0:47:17.400 --> 0:47:20.680 we we did have and during this administration, in the 0:47:20.680 --> 0:47:25.760 beginning administration, they are are the American Recovery and something 0:47:25.840 --> 0:47:30.120 has billion dollars and but what's supposed to be infrastructure, 0:47:30.120 --> 0:47:32.120 but it really wasn't. So about a third of it 0:47:32.360 --> 0:47:35.319 was temporary tax scots. If you're gonna make a tax cut, 0:47:35.840 --> 0:47:38.319 economic theory says it needs to be permanent to really 0:47:38.360 --> 0:47:42.800 have an impact, and temporary extension of unemployment. So that 0:47:42.960 --> 0:47:45.839 was like a two hundred billion dollars of which we've 0:47:45.920 --> 0:47:49.600 seen some improvements. But you know this is with the 0:47:49.680 --> 0:47:52.799 benefit of hindsight, we could have spent two to four 0:47:52.880 --> 0:47:57.280 trillion dollars over a decade and really just just barely 0:47:58.360 --> 0:48:01.640 just really barely started doing at The good news is 0:48:01.760 --> 0:48:04.799 both candidates seem to be in favor of infrastructure SPA. 0:48:05.440 --> 0:48:07.439 Let's see if they come up with an intelligent way 0:48:08.160 --> 0:48:12.040 um um to fund that. But all this fiscal conversation 0:48:12.440 --> 0:48:14.800 is really a way to get to a back doorway 0:48:14.840 --> 0:48:17.440 to get to a different question, which is have we 0:48:17.600 --> 0:48:22.120 reached the end of what monetary policy can do? I 0:48:22.520 --> 0:48:25.799 think we have, UM, and I think financial markets UM, 0:48:26.640 --> 0:48:31.120 I've kind of signaled that, UM. You know, we haven't 0:48:31.120 --> 0:48:34.120 seen the markets go down because you never know when 0:48:34.160 --> 0:48:36.800 a central bank we'll try another shock and awe, but 0:48:36.920 --> 0:48:39.040 we just don't get shocked and add the way we 0:48:39.160 --> 0:48:42.120 used to no response. You've you still see it in Japan. 0:48:42.560 --> 0:48:44.560 So the way I look at it, the US is done, 0:48:44.800 --> 0:48:48.800 Japan is sort of halfway through, and and Europe is 0:48:48.880 --> 0:48:53.200 just getting started. The problem is, UM, it's based on 0:48:53.320 --> 0:48:56.760 demand side management, right. If you can demand side manager 0:48:56.800 --> 0:48:58.480 and explain what you mean by that, I means you know, 0:48:58.560 --> 0:49:01.640 these easy money and you're gonna stimulate demand. Uh, you know, 0:49:01.840 --> 0:49:05.239 very very kenzy. I think the problem is that we're 0:49:05.320 --> 0:49:08.160 overloaded with debt, right, So I think that's where the 0:49:08.239 --> 0:49:12.000 central bankers are are just aren't in tune with reality. 0:49:12.400 --> 0:49:14.360 They've been doing this for so long that they're just 0:49:14.520 --> 0:49:18.719 way too much debt relative to income and so easy money. Empirically, 0:49:18.800 --> 0:49:22.000 we can see it's just not being very very stimulative anymore. UM. 0:49:22.400 --> 0:49:26.480 So here's here's a friend's argument, who is on the 0:49:26.640 --> 0:49:30.120 bond side, on the credit side, says, the Fed has 0:49:30.200 --> 0:49:33.160 kind of painted themselves into a corner because there's so 0:49:33.320 --> 0:49:36.200 much debt. If they actually were to take rates up 0:49:36.239 --> 0:49:38.640 to three and a half four percent, now, think of 0:49:38.719 --> 0:49:40.759 what you're doing with all this massive amount of debt 0:49:40.840 --> 0:49:42.960 you've just put out there, And what is that going 0:49:43.040 --> 0:49:45.600 to mean for the economy if everybody is buried under 0:49:45.640 --> 0:49:48.560 their debt services And in some ways we were lucky 0:49:48.640 --> 0:49:53.160 that some structural secular forces have kept inflation down. Imagine 0:49:53.200 --> 0:49:57.080 if all this liquidity really did bring back CPI inflation, 0:49:58.040 --> 0:50:00.600 then the central banks for credibility what have to raise 0:50:00.680 --> 0:50:04.960 interest rates, which would be disastrous. And so that's a 0:50:05.120 --> 0:50:09.399 that's another fascinating question. Why has inflation been so low 0:50:10.080 --> 0:50:12.840 for so long? And remember you go back to I 0:50:12.880 --> 0:50:15.640 want to say two thousand and ten, there was a 0:50:15.800 --> 0:50:18.279 very famous letter published in the Wall Street Journal from 0:50:18.360 --> 0:50:23.239 a number of really smart bond guys, equity guys, fund 0:50:23.280 --> 0:50:26.839 managers warning that hey, all this QUEUEI and and zurup 0:50:27.000 --> 0:50:30.439 is going to cause hyper inflation, and instead we saw 0:50:30.640 --> 0:50:34.640 disinflation and the risk of deflation. I think one of 0:50:34.719 --> 0:50:39.840 the big factors has been globalization and uh I impacked 0:50:39.880 --> 0:50:43.879 on the labor market especially. I I have a chart 0:50:43.960 --> 0:50:45.840 that I show of the cp I going back to 0:50:45.960 --> 0:50:49.680 eighteen hundred. It's a monthly chart, and obviously it's changed 0:50:49.719 --> 0:50:51.640 over the years. It used to be carosen and grain, 0:50:51.719 --> 0:50:54.640 now a whole bunch of other things include services, much 0:50:54.680 --> 0:50:57.560 more now than it did back then. And uh what 0:50:57.760 --> 0:50:59.480 that chart shows when you look at the level of 0:50:59.520 --> 0:51:02.520 the CPO, I just it just screams at you, and 0:51:02.600 --> 0:51:06.240 that is um, inflation tends to be associated with wars, 0:51:06.840 --> 0:51:10.919 and deflation tends to occur during peace times and after 0:51:10.960 --> 0:51:14.400 a long enough peacetime, you sort of have price stability. 0:51:15.000 --> 0:51:17.320 UM send me that short I'll post it when we 0:51:19.719 --> 0:51:23.479 I think what that confirms for me is that micro 0:51:23.600 --> 0:51:26.600 economics has become more relevant or is more relevant than 0:51:26.640 --> 0:51:29.719 macro economics and things about the households. Economics is going 0:51:29.760 --> 0:51:32.920 to be more significant than what I want. What I 0:51:33.000 --> 0:51:36.320 mean is macro economists are looking at too big, at 0:51:36.360 --> 0:51:40.400 the big picture. The micro economists looking at market structure, 0:51:40.680 --> 0:51:43.799 and uh so they're saying, Okay, are the markets competitive 0:51:43.960 --> 0:51:47.520 or they're monopolized? In war times, it's very little competition, 0:51:48.000 --> 0:51:50.040 and you tend and then you can't trade with your enemies. 0:51:50.040 --> 0:51:52.040 It's hard to trade with your friends, so you tend 0:51:52.080 --> 0:51:54.000 to have a lot of inflation, a lot of the 0:51:54.080 --> 0:51:57.800 labor forces in the trenches, peace breaks out. That's globalization. 0:51:57.880 --> 0:51:59.960 This is not the first round of globalization we've ever had. 0:52:00.120 --> 0:52:02.839 We had after this, the War of eighteen twelve, after 0:52:02.920 --> 0:52:06.800 the Civil War, after World War One, and it's just 0:52:08.160 --> 0:52:11.720 what happens is you now can trade with people around 0:52:11.760 --> 0:52:15.200 the world and there's more competition. Is really what happens, 0:52:15.480 --> 0:52:18.000 you know, you mentioned trading with people around the world. 0:52:18.560 --> 0:52:22.160 Last week we had professor Stephen Pinker of Harvard who 0:52:22.800 --> 0:52:26.239 two books ago wrote The Better The Better Nature of 0:52:26.280 --> 0:52:31.520 Our Angels wha looking at why globally despite the headlines, 0:52:32.960 --> 0:52:35.520 the amount of crime, the amount of violence, the amount 0:52:35.560 --> 0:52:38.839 of wars or at record lows. So so when you're 0:52:38.920 --> 0:52:44.440 trading with China and Russia and Japan and Germany, and 0:52:44.760 --> 0:52:48.800 where go around the world, Korea, wherever Vietnam, President Obama 0:52:48.880 --> 0:52:52.480 was just in Vietnam, you're much less likely to launch 0:52:52.520 --> 0:52:56.359 a bombing attack on the place where you're getting your 0:52:56.400 --> 0:52:59.840 supply chain to make your your your goods. So is 0:53:00.080 --> 0:53:03.720 is possibly a long piece that we're entering. That means 0:53:03.840 --> 0:53:08.839 that globalization is going to be ongoing. Deflation or at 0:53:08.880 --> 0:53:12.640 least disinflation is not likely to go away. And and 0:53:12.800 --> 0:53:16.400 we have really a very different economy than we had 0:53:16.520 --> 0:53:20.000 last century. You never want to jinx it. Uh, you know, 0:53:20.120 --> 0:53:23.080 I'm sure, like if I had that right before World 0:53:23.120 --> 0:53:28.760 War One, I'm sure somebody permanently high plateau remember globalization, 0:53:29.000 --> 0:53:31.520 and you know, everything like just hunky dory. I mean, 0:53:31.560 --> 0:53:33.839 we're dealing here with humans here, and but but these 0:53:33.840 --> 0:53:37.480 are big secular I think another way to put it 0:53:37.680 --> 0:53:41.399 is there's just so much money now that's at risk 0:53:41.719 --> 0:53:44.239 with globalization. People are making a lot of money with 0:53:44.440 --> 0:53:49.200 free trade um. And there's a lot of complaints about 0:53:49.280 --> 0:53:52.480 the income inequality, but the world on a on average 0:53:52.480 --> 0:53:54.800 has become more equal. I mean, we've we've lost some 0:53:54.920 --> 0:53:58.360 income here, but other countries of emotional markets have and 0:53:58.600 --> 0:54:02.560 and the population and the most empowerished. That's why it's 0:54:02.600 --> 0:54:05.680 a more peaceful world. People have more of a steak 0:54:06.280 --> 0:54:12.320 in maintaining peaceful relationships and and and and engaging in commerce. 0:54:12.520 --> 0:54:16.520 Professor Pinker had said something that I thought was really fascinating, 0:54:16.600 --> 0:54:22.360 which was we see a surprising little impact on crime 0:54:22.560 --> 0:54:27.959 and war from affluence, except when people have zero hope, 0:54:28.040 --> 0:54:31.920 nothing to live for. The all the most impoverished nations 0:54:32.360 --> 0:54:36.000 that were in lots and lots of civil wars last century, 0:54:37.120 --> 0:54:40.080 many of them have worked their way out of that state, 0:54:40.840 --> 0:54:43.400 and the wars tend to go away. They tend to 0:54:43.440 --> 0:54:46.600 be more economically productive. And trade is a big cause, 0:54:46.640 --> 0:54:48.440 and it makes all the sense in the world. I mean, 0:54:48.840 --> 0:54:52.080 when people have aspirations and the thing they can do better, 0:54:52.840 --> 0:54:55.920 they're gonna do better. Uh. If you cut them off 0:54:55.960 --> 0:54:59.560 from those and they have nothing to lose, then they 0:54:59.640 --> 0:55:02.799 behave like that. So crime war, civil war old. That's 0:55:04.239 --> 0:55:08.239 so you men should income inequality? Um, what are your 0:55:08.320 --> 0:55:11.480 views on what that means? Here in the United States, 0:55:12.000 --> 0:55:15.800 at least in the developed world. There have been lots 0:55:15.840 --> 0:55:19.160 and lots of complaints. Be it picketty, be it I 0:55:19.239 --> 0:55:21.560 could give Robert Frank There's a whole run of folks 0:55:21.920 --> 0:55:25.880 who have looked at numbers and said, yes, the distribution 0:55:26.280 --> 0:55:29.600 of wealth has changed, but it hasn't changed so much 0:55:29.680 --> 0:55:33.520 as the middle class versus the upper class. It's changed 0:55:33.920 --> 0:55:38.319 most dramatically in the upper class versus the upper upper 0:55:38.400 --> 0:55:42.799 upper the point oh one of of earners. What does 0:55:42.880 --> 0:55:47.479 that mean and what should we do about it? If anything? Well, 0:55:48.000 --> 0:55:53.640 I think this process of globalization, free trade uh has 0:55:53.800 --> 0:55:58.120 created more income equality on a global basis. But you know, 0:55:58.440 --> 0:56:00.200 and by the way the data supports you on that, 0:56:00.320 --> 0:56:03.840 then there are far less people living completely in poverty 0:56:03.920 --> 0:56:07.080 than there were fifty years. The problem, though, is if 0:56:07.160 --> 0:56:09.000 you were making a lot of money as an auto 0:56:09.080 --> 0:56:13.120 worker or some manufacturing and suddenly the job is not 0:56:13.239 --> 0:56:17.560 even there, obviously, you're gonna feel dispossessed. You're gonna feel like, 0:56:17.640 --> 0:56:19.759 you know something, something's been taken away from you. So 0:56:19.920 --> 0:56:21.520 I think we have to acknowledge that. I mean, we 0:56:21.600 --> 0:56:25.080 can't just like pretend that's that's not the case. Um. 0:56:26.080 --> 0:56:29.240 But I don't think politically we want to get carried 0:56:29.239 --> 0:56:36.440 away with this notion that Americans are are not doing well. Um. 0:56:36.840 --> 0:56:39.800 I think we we need to really focus on the 0:56:39.880 --> 0:56:43.000 fact that this country on average is doing well. But 0:56:43.400 --> 0:56:46.000 you know, and acknowledge it. Part of that average, of course, 0:56:46.120 --> 0:56:49.600 is the rich are getting richer. Um. But look, um, 0:56:50.719 --> 0:56:53.720 you know it's it clearly gets into the whole politics 0:56:53.800 --> 0:56:58.800 of taxation and whether we're taxing enough. Um. I happen 0:56:58.880 --> 0:57:03.520 to believe that, uh, jobs and wages are created by 0:57:03.680 --> 0:57:09.520 profitable companies for sure. So I'm all for uh, what 0:57:09.680 --> 0:57:14.000 I call entrepreneurial capitalism. I'm against chrony capitalism, and I 0:57:14.080 --> 0:57:16.840 think I think a lot of the excess is that 0:57:17.280 --> 0:57:21.240 the income inequality people are looking at rightly, so are 0:57:21.400 --> 0:57:26.760 in the chrony capitalism arena. But capitalism has blamed for it, 0:57:27.000 --> 0:57:29.800 and I think it's uh, it's it's when chrony capital 0:57:29.960 --> 0:57:34.240 star and cahoots with politicians that we get our income inequality. 0:57:34.680 --> 0:57:36.480 I mean, one of the highest standards of living in 0:57:36.520 --> 0:57:39.440 America today's in Washington, d C. I wonder why that 0:57:39.560 --> 0:57:42.600 might be the case if you look at it's so 0:57:43.120 --> 0:57:45.400 let me back up a sec. When you look at 0:57:45.440 --> 0:57:48.160 who's doing well and who's not doing well in the US, 0:57:48.880 --> 0:57:50.840 you can control for a number of things. If you 0:57:50.920 --> 0:57:55.480 can control for degree of education, that's very insightful. If 0:57:55.560 --> 0:57:58.520 you can control for what sector of the economy you're 0:57:58.520 --> 0:58:02.560 working in. That pro had some information, But it's surprising 0:58:02.800 --> 0:58:08.200 at how many winners and losers there are geographically Minnesota 0:58:08.480 --> 0:58:13.800 doing fantastic, Seattle, Portland, San Francisco, Boston, New York. But 0:58:13.960 --> 0:58:17.080 what really is the standout more than any period I 0:58:17.160 --> 0:58:20.360 can remember over the past half century, Washington, d C. 0:58:20.800 --> 0:58:25.840 And all the surrounding environments, house to fire, absolutely blown up. 0:58:25.920 --> 0:58:28.320 Politics is a good business. It I don't think it 0:58:28.400 --> 0:58:31.240 always was as lucrative of businesses now I don't know 0:58:31.280 --> 0:58:33.680 if that's the lobbying side, and some of the Supreme 0:58:33.760 --> 0:58:38.440 Court cases that changed and gamed and gamed. It seems 0:58:38.480 --> 0:58:42.000 like the past since two thousand, the past twenty fifteen 0:58:42.080 --> 0:58:47.840 or so years, it's really exploded, so so that that's interesting. 0:58:47.960 --> 0:58:51.360 So in terms of what we should be looking at 0:58:51.440 --> 0:58:54.840 income inequality, I get the sense that you would like 0:58:55.000 --> 0:59:00.880 to see the US corporate tax code revamped, changed, simplified, 0:59:00.960 --> 0:59:03.120 And I think I think the entire tax code that 0:59:03.560 --> 0:59:05.800 it needs to be simplified for for the good of 0:59:05.840 --> 0:59:10.120 all of us. I mean, clearly it benefits tax lawyers. Um. 0:59:10.680 --> 0:59:13.520 But if we clean up the corporate tax code, he said, 0:59:13.760 --> 0:59:17.040 talking his own book. UM, I got the sense you 0:59:17.120 --> 0:59:19.520 think that it would be more hiring and more employment 0:59:20.080 --> 0:59:23.600 if if that was if there were less impediments. So anything, 0:59:23.680 --> 0:59:28.280 anything in my mind that increases profit legitimately, uh, and 0:59:28.480 --> 0:59:31.560 in a competitive entrepreneurial system is going to create more jobs, 0:59:31.880 --> 0:59:33.720 and it's going to create more wages because there'll be 0:59:33.760 --> 0:59:36.400 more demand for labor and and wages will go up. 0:59:36.480 --> 0:59:39.040 So yeah, I think it also gets into the issue 0:59:39.040 --> 0:59:42.080 of the double taxation of dividends um and how how 0:59:42.160 --> 0:59:45.040 we value stocks. I mean, we just raise taxes on 0:59:45.120 --> 0:59:49.480 dividends a few years, so that's now what are we 0:59:49.560 --> 0:59:51.840 a twenty three something? Yeah? I mean I'd like to 0:59:51.880 --> 0:59:56.400 see the stock market go back to dividend discount evaluations 0:59:56.440 --> 0:59:59.160 where we all we really care about is there's the 0:59:59.200 --> 1:00:01.320 company been paying it dipen in and are they increasing it? 1:00:01.720 --> 1:00:04.280 Everything else is accounting fluff. So so what do we 1:00:04.400 --> 1:00:07.280 at about two point eight percent or so on the 1:00:07.640 --> 1:00:10.480 I'm doing this for memory on the SMPI dividend yields. 1:00:10.560 --> 1:00:13.280 It's actually answer about that alright, plus or mind us 1:00:13.280 --> 1:00:16.840 a little bit. What happens to that number if and 1:00:16.920 --> 1:00:19.120 when the FED things rates up to one and a 1:00:19.160 --> 1:00:22.560 half two percent, Because right now the argument is, hey, 1:00:22.640 --> 1:00:24.439 you get a two point nine percent dived and yield 1:00:24.560 --> 1:00:26.560 or two point seven percent dive in yield, and you 1:00:26.640 --> 1:00:29.320 get all the upside of of the best of corporate 1:00:29.360 --> 1:00:34.120 America when you could buy a safe three treasury yield. 1:00:34.320 --> 1:00:38.680 What does that mean for sp I? I think, you know, 1:00:38.800 --> 1:00:42.040 one of the things that I've learned over the years 1:00:42.160 --> 1:00:43.800 is I wish I had a lot more money when 1:00:43.840 --> 1:00:47.400 I was younger. Just put it all in dividend yielding stocks. Well, 1:00:47.480 --> 1:00:50.880 with the benefit of hindsight, for sure. I mean, there's 1:00:50.920 --> 1:00:54.760 nothing like putting your money in a company that's increasing 1:00:54.800 --> 1:00:58.520 its dividend over the years. Um, you know, if you 1:00:58.800 --> 1:01:01.320 sleep all at night, you you just kind of stick 1:01:01.400 --> 1:01:04.880 with it. And so I would say for younger folks 1:01:04.960 --> 1:01:06.960 that's not a bad thing to do. And um, you know, 1:01:07.280 --> 1:01:09.760 eliminating the double taxation of dividends would be nice thing. 1:01:10.240 --> 1:01:13.760 So in a tax defered account. Um, I'm under the 1:01:13.840 --> 1:01:17.200 impression that going back to I want to say, nineteen 1:01:17.720 --> 1:01:20.800 six and again I'm I'm doing this from memory, almost 1:01:20.920 --> 1:01:26.880 half of the Dow returns have been reinvested dividends, that right, 1:01:27.520 --> 1:01:30.120 if not more so, And you would think, what's two 1:01:30.160 --> 1:01:32.600 and a half three percent? But over time that that 1:01:32.760 --> 1:01:35.840 really compounds. All right, let me see what there was 1:01:35.880 --> 1:01:38.560 one or two other questions I wanted to get through 1:01:39.800 --> 1:01:43.440 before I start going to my standard questions. Although we've 1:01:43.520 --> 1:01:49.439 really covered a lot of these um one less since 1:01:49.520 --> 1:01:52.919 you since you covered both economics and the markets, there's 1:01:52.960 --> 1:01:55.080 one question that always comes up that and you're the 1:01:55.120 --> 1:01:59.439 perfect person to ask this. So it seems very often 1:01:59.560 --> 1:02:02.400 like the markets are out of sync with the economy. 1:02:03.040 --> 1:02:06.479 You know, how do you reconcile that which drives which 1:02:06.760 --> 1:02:12.160 or is it mutual? I think it's mutual. The the 1:02:12.240 --> 1:02:15.040 stock market can't get too out of out of sync 1:02:15.440 --> 1:02:18.520 with with the economy, unless, of course, we're in a 1:02:18.520 --> 1:02:21.600 speculative bubble situation, and which case it can come back 1:02:21.640 --> 1:02:24.080 to bite us, which is what we've seen a few 1:02:24.160 --> 1:02:27.080 times here over over the years where what they're talking 1:02:27.120 --> 1:02:30.600 about the market being the stock market or the housing market. 1:02:30.920 --> 1:02:34.880 When ascid values get way out of sync with reality 1:02:34.960 --> 1:02:38.080 because of speculative excesses, that can come back and create 1:02:38.120 --> 1:02:43.880 a financial crisis and a recession. So um again. I 1:02:45.240 --> 1:02:48.960 most economists, macroeconomists tend to focus on the business cycle. 1:02:49.000 --> 1:02:51.400 I prefer to focus on the profit cycle. I think 1:02:51.440 --> 1:02:54.120 it's the profit cycle that drives the business cycle. The 1:02:54.200 --> 1:02:59.160 business cycle is basically sort of again a demand side construct. It's, uh, 1:02:59.360 --> 1:03:03.280 how do we stay mulate demand so that business does better? 1:03:03.400 --> 1:03:06.520 And I'm thinking more from a supply side standpoint, you know, 1:03:06.560 --> 1:03:09.360 how do we have companies generate more profits so that 1:03:09.440 --> 1:03:12.400 they'll want to expand capital and hire people, and then 1:03:12.560 --> 1:03:16.520 those people go and spend money. Um, So they're clearly 1:03:16.640 --> 1:03:19.280 there's it's it's not one. It's not one direction that 1:03:19.440 --> 1:03:22.120 works both ways. So let's talk a little bit about profits. 1:03:22.240 --> 1:03:25.760 We we've had corporate profits at or near record highs 1:03:26.360 --> 1:03:31.240 for the past six years. We've seen profits come down 1:03:31.520 --> 1:03:35.480 when oil prices plummeted. That was almost or maybe a 1:03:35.520 --> 1:03:39.080 little over ten percent of the smp UM and their 1:03:39.120 --> 1:03:43.720 profits basically just collapsed. Where are we in the profits 1:03:43.760 --> 1:03:47.080 cycling and what's the most important thing to watch for 1:03:47.800 --> 1:03:53.480 as that moves forward? Well, and I an historical cyclical basis, 1:03:54.320 --> 1:03:56.560 were relating to the expansion phase. I mean, when we 1:03:56.640 --> 1:03:59.720 had the recovery, which is V shaped and that was 1:03:59.760 --> 1:04:05.200 based simply two then uh, we recovered back to the 1:04:05.480 --> 1:04:08.480 previous high and have been moved on to two new 1:04:08.560 --> 1:04:11.800 eyes at at a slower pace. So that's sort of 1:04:11.840 --> 1:04:15.400 the the expansion. What really hasn't happened yet is margins 1:04:15.480 --> 1:04:18.520 haven't compressed. Usually profit margins compressed at this point in 1:04:18.520 --> 1:04:21.760 the cycle because companies get to slap happy. Business is great, 1:04:21.800 --> 1:04:24.880 they hire too many people, they spent too much because 1:04:24.960 --> 1:04:27.000 the two thousand night. They're being very careful not to 1:04:27.040 --> 1:04:31.520 do at this time. So the margins haven't regressed to 1:04:31.600 --> 1:04:34.400 the mean as they say. They stayed at a record 1:04:34.520 --> 1:04:37.840 high and that may very well continue to be the case. 1:04:37.960 --> 1:04:40.600 So profits are going to be driven by the growth 1:04:40.680 --> 1:04:44.880 of revenues, and revenues will be driven by global economic activity, 1:04:44.920 --> 1:04:47.760 which looks pretty punk. It looks so you know, maybe 1:04:47.800 --> 1:04:52.280 looking at three growth globally and maybe two to three 1:04:52.320 --> 1:04:56.760 percent inflation. Six not terrible, but that's probably what profits 1:04:56.800 --> 1:04:58.560 are gonna grow, and it's probably what the market's gonna do. 1:04:58.920 --> 1:05:01.040 Isn't that more or less the average? We've seen six 1:05:01.120 --> 1:05:05.160 percent profits, even though the analysts of forecasting for forever 1:05:05.520 --> 1:05:08.080 analysts tend to be too optimistic and have to lower 1:05:08.160 --> 1:05:11.880 their numbers. Um. But yeah, I think that's true. I mean, 1:05:11.960 --> 1:05:15.600 we're kind of an average. So so what should investor 1:05:15.720 --> 1:05:18.840 be looking at for signs that either profit compression is 1:05:18.920 --> 1:05:22.400 coming along or that the cycle is you know, at 1:05:22.440 --> 1:05:27.720 the end of its row. Um. The problem with the 1:05:27.760 --> 1:05:31.200 profit margins data as it's available only quarterly, with a lag. 1:05:32.200 --> 1:05:35.040 We we look at some data that's actually available weekly, 1:05:35.120 --> 1:05:40.520 but it's based on analyst consensus expectations. UM. I think 1:05:41.000 --> 1:05:43.360 at the end of the day, it's still gonna be 1:05:43.440 --> 1:05:45.840 a perception of what do you think the economy is doing? 1:05:45.880 --> 1:05:48.840 If the economy just continues to chug along like this, 1:05:49.120 --> 1:05:51.960 muddle along, and that's what the global economies is doing, 1:05:52.040 --> 1:05:55.480 maybe kind of lagging behind, but still growing, I think 1:05:55.480 --> 1:05:59.640 you can pretty much count on earnings growth matching revenues 1:05:59.640 --> 1:06:02.120 growth in the stock market giving you kind of mid 1:06:02.200 --> 1:06:05.880 single digit returns. Hey, that's not if that's if that's 1:06:05.920 --> 1:06:08.440 what we're looking at. That's not the worst sort of 1:06:08.640 --> 1:06:11.959 environment at all, considering we're still you know, six seven 1:06:12.040 --> 1:06:14.840 years and if you don't dividend paying stocks will continue 1:06:14.880 --> 1:06:17.560 to pay you the the dividends, and uh yeah, this 1:06:17.720 --> 1:06:20.640 is just not an environment to do anything, really trick 1:06:20.640 --> 1:06:23.240 to your jazzy. So six plus two and a half 1:06:23.400 --> 1:06:25.440 eight and a half nine percent is not the worst 1:06:25.480 --> 1:06:27.640 sort of not the worst sort of thing. All right, 1:06:27.720 --> 1:06:30.760 So let's get to some of my favorite questions. We 1:06:30.920 --> 1:06:33.080 talked a bit about your background and what you did 1:06:33.200 --> 1:06:36.080 before you were on the street. Let's talk about your 1:06:36.120 --> 1:06:39.040 early mentors. You mentioned Henry Kaufman. Who else was an 1:06:39.080 --> 1:06:42.520 early mentor to you? Well, again, Henry Kaufman was a 1:06:42.560 --> 1:06:44.880 mentor from AFAR. I mean I sort of aspired that 1:06:45.520 --> 1:06:48.400 I liked what he the job he had, and you know, 1:06:48.520 --> 1:06:51.320 kind of followed his career path in some ways. Uh. 1:06:51.600 --> 1:06:55.360 Greg Smith was an investment strategist that I worked with 1:06:55.480 --> 1:07:00.120 very closely at UH at EF Hutton and Prudential all 1:07:00.160 --> 1:07:03.080 that I moved over to C. G. Lawrence and Jim 1:07:03.160 --> 1:07:07.720 Maltz was the investment strategy fail. So you know, some 1:07:07.760 --> 1:07:11.920 of these guys are sort of uh legends within within 1:07:12.040 --> 1:07:15.080 the business of investment strategy. So I learned a lot 1:07:15.160 --> 1:07:18.400 from them and kind of segued into being investment strategist. 1:07:18.960 --> 1:07:25.360 Economists aren't really taught academically too. To help people be 1:07:25.560 --> 1:07:28.920 good investors, you have to learn that on the streets. 1:07:28.960 --> 1:07:32.360 So I think I had some good mentors along those lines. 1:07:32.600 --> 1:07:34.880 So so what that that raises a good question? What 1:07:35.120 --> 1:07:38.040 investors do you think you've learned from over the years. 1:07:38.400 --> 1:07:43.960 In terms of famous or colleague you worked with? Um? Well, um, again, 1:07:45.000 --> 1:07:50.520 not all these people are household media stars, but the 1:07:50.680 --> 1:07:54.280 warm buffet aside. Yeah, I mean Warren Buffett and and 1:07:54.440 --> 1:07:57.560 I haven't crossed paths, but you know, I've I've had 1:07:57.640 --> 1:08:00.520 regular conversations almost weekly with all a boy name of 1:08:00.640 --> 1:08:05.800 Hank Herman, who uh runs what L Reid uh and 1:08:06.200 --> 1:08:09.360 uh you know, we we've I've learned a lot from 1:08:09.480 --> 1:08:12.720 him early on and when I was doing particularly well 1:08:12.760 --> 1:08:19.080 in the bond markets forecast. Um. Van Hoysington's uh very 1:08:19.160 --> 1:08:22.719 well well regarded names. I think it's especially unemployment data. 1:08:22.800 --> 1:08:24.960 And I think in some ways he really is the 1:08:25.040 --> 1:08:28.639 bond king. Uh. You know, I mean Bill Gross gets 1:08:28.680 --> 1:08:30.840 that label. Uh and a couple of other people have 1:08:30.920 --> 1:08:35.160 been labeled bond kings, but uh, Van Hoysington's has been 1:08:35.880 --> 1:08:40.240 bullish on bond since the early eighties and good timing 1:08:40.360 --> 1:08:44.840 and manager portfolio with very very good returns. And he's 1:08:44.920 --> 1:08:48.840 the one that I kind of got the phrase hat 1:08:48.920 --> 1:08:52.840 sized bond yields back when Bonnier. Uh. I walked into 1:08:53.040 --> 1:08:55.639 also and I said, you know, Van, I think bond 1:08:55.720 --> 1:08:58.400 yields could go to seven percent. I said, yeah, you know, 1:08:58.720 --> 1:09:03.040 his Texas drawl had sized bond yields. So I picked 1:09:03.120 --> 1:09:05.000 up on that and I worked really well for me 1:09:05.000 --> 1:09:07.320 in the eighties. So I have to thank him for 1:09:08.000 --> 1:09:11.000 helping uh my career in the early part of of 1:09:11.120 --> 1:09:13.640 that period. So let's talk about some books. What are 1:09:13.720 --> 1:09:17.559 some of your favorite be a nonfiction market related fiction. 1:09:17.920 --> 1:09:21.880 I like history a lot um and um, I like 1:09:22.320 --> 1:09:28.080 uh biographies. Uh um. I've been particularly fond of reading 1:09:28.360 --> 1:09:32.240 uh biographies of the founding fathers uh and sort of 1:09:32.320 --> 1:09:35.320 what they're they're philosophical. Ben sure, I'm a big fan 1:09:35.400 --> 1:09:39.240 of Madison. Uh so Yeah, who wrote the most recent 1:09:39.920 --> 1:09:42.920 Madison bio? I I mean I got three or four 1:09:42.960 --> 1:09:45.120 books on the shelves and uh, I'm not good to 1:09:45.200 --> 1:09:49.960 remember any authors, but um then UM, I like reading 1:09:50.200 --> 1:09:53.680 uh the so called you know Robert Barons. Uh. Some 1:09:53.800 --> 1:09:57.520 of them weren't really Robert Barons. So so that's like Carnegie. 1:09:58.800 --> 1:10:02.439 Ye who else is in that less well child? You 1:10:02.920 --> 1:10:06.320 certainly Rockefeller, you know, I think his uh you know 1:10:06.479 --> 1:10:13.280 he uh. He was sort of attacked for putting a 1:10:13.320 --> 1:10:15.360 lot of people out of out of business, but a 1:10:15.400 --> 1:10:18.560 lot of more small little businesses that weren't doing very efficiently, 1:10:18.640 --> 1:10:21.880 and his number one interest was to lower the price 1:10:22.000 --> 1:10:24.200 of carosene so it would be more affordable to a 1:10:24.240 --> 1:10:26.759 lot more people. So he probably did more to increase 1:10:26.800 --> 1:10:29.519 standards of living that many other people uh in in 1:10:29.720 --> 1:10:33.719 in uh in industry. So I like, I like reading 1:10:33.760 --> 1:10:37.400 the controversies about you know, people who kind of believe 1:10:37.439 --> 1:10:40.120 that these people were Robert Barns, and then what was 1:10:40.160 --> 1:10:42.800 the real story. Some of them were absolutely Robert Barrens. 1:10:42.800 --> 1:10:45.599 They were chrony capitalists, but some of them were really 1:10:45.640 --> 1:10:48.880 committed to, you know, providing a better product and service 1:10:48.960 --> 1:10:51.240 to to the consumer. Give me, give me one more 1:10:51.320 --> 1:10:55.840 book to put down for a trilogy here. Well, look, um, 1:10:56.800 --> 1:11:01.479 you know what, at the risk of you know, sounding trite, 1:11:01.520 --> 1:11:05.040 I mean I uh, I mean Adam Smith the Wealth 1:11:05.080 --> 1:11:08.719 of Nations and combined with the theory of moral sentiments 1:11:09.320 --> 1:11:13.240 is certainly uh the Bible for me. I don't think 1:11:13.280 --> 1:11:15.800 anyone is going to call Adam Smith trite, at least now, 1:11:16.040 --> 1:11:22.679 and at least, you know, pretending that you know, it's important. 1:11:22.720 --> 1:11:24.760 I mean it is. I mean, I'm not pretending. I 1:11:26.240 --> 1:11:29.040 learned a lot from that book. So, but but you know, 1:11:29.360 --> 1:11:35.080 as I did from Milton Friedman's Monetary History. Um, but 1:11:35.920 --> 1:11:37.760 I have to say I didn't really learn much from 1:11:38.360 --> 1:11:40.640 the General Theory by John Maynard Keynes. I mean, I 1:11:41.000 --> 1:11:44.720 studied in a keensie and discipline, but it never kind 1:11:44.760 --> 1:11:47.360 of made sense to me, quite honestly. So you're you're 1:11:47.479 --> 1:11:50.679 more of a freedman night than a keensie. I'm more 1:11:50.840 --> 1:11:58.640 um Madisonian, you know, constitutional economist, I think, you know, 1:11:59.040 --> 1:12:05.000 and environment where entrepreneurial capitalists, not chronic capitalists are, are 1:12:05.439 --> 1:12:08.120 set free and don't get in each other's way by 1:12:08.200 --> 1:12:12.240 hiring lobbyists. Um, I like, I like people who you know, 1:12:13.680 --> 1:12:15.160 wake up in the morning trying to figure out how 1:12:15.200 --> 1:12:17.479 to make it a better world for consumers. So so 1:12:17.640 --> 1:12:19.960 let me ask you this question, what should we do 1:12:20.960 --> 1:12:26.759 about this bullmarkt and lobbyists, about the never ending parade 1:12:26.800 --> 1:12:30.519 through the holes of Congress, of of special interests and 1:12:30.720 --> 1:12:36.160 people who don't care about Madison, who don't care about 1:12:36.200 --> 1:12:39.680 Adam Smith. But basically, you're paid to be mercenaries on 1:12:39.800 --> 1:12:44.000 behalf of the system has become horribly corrupt. So how 1:12:44.040 --> 1:12:47.320 do you fix that? It's it's so corrupt that I 1:12:47.400 --> 1:12:51.240 don't really know how you fix it. Do you do? 1:12:51.320 --> 1:12:54.360 You overturn some of the legislation or some of the 1:12:54.400 --> 1:12:58.000 Supreme Court decisions. Start out with one term, you know, 1:12:58.160 --> 1:13:00.800 I mean the fact that you know I guess there's 1:13:00.840 --> 1:13:03.120 a congressman that just came up with an anonymous book 1:13:03.160 --> 1:13:05.560 about what it's really like to be a congressman. And 1:13:05.800 --> 1:13:08.920 there's apparently nothing new and there other than telling us 1:13:09.040 --> 1:13:11.600 what we know. And it takes you spend all your 1:13:11.640 --> 1:13:14.519 time raising money and then you're beholden to the people 1:13:14.640 --> 1:13:17.800 you you raise money with. I mean, it's unfortunately, is 1:13:17.840 --> 1:13:20.439 kind of the human condition people. This is where I 1:13:20.439 --> 1:13:23.599 actually agree with disagree with Adam Smith. Adam Smith said 1:13:23.640 --> 1:13:27.600 the capitalism is based on selfishness is actually based on insecurity. 1:13:28.720 --> 1:13:31.800 It's insecure people that are that are trying to now 1:13:32.320 --> 1:13:34.880 make their customers come back by providing them with something 1:13:34.960 --> 1:13:39.080 really good. Unfortunately, there's other insecure people that just higher 1:13:39.120 --> 1:13:42.839 lobbyists or you know, rest control of the political system 1:13:43.240 --> 1:13:47.360 and and and corrupt it. So I I'm you know, 1:13:47.479 --> 1:13:50.000 it's it's it's great to see that America still means 1:13:50.200 --> 1:13:55.040 has maintained a lot about entrepreneurial spirit and that entrepreneurs 1:13:55.400 --> 1:13:59.160 can still do well. But there's an enormous amount of 1:13:59.200 --> 1:14:02.000 corruption at the tical level. And as we were discussing, 1:14:02.080 --> 1:14:04.680 that's evident in the standard of living in Washington. D 1:14:04.800 --> 1:14:08.720 c Um look we we had Roynald Reagan and we 1:14:08.800 --> 1:14:11.640 had Margaret Thatcher, and look where we are today. I mean, 1:14:12.400 --> 1:14:16.080 we aren't any better off. UM. I don't really know 1:14:16.240 --> 1:14:18.880 how you fix the system politically. I mean you really 1:14:19.000 --> 1:14:25.040 need uh prosecutors who go after um bad people who 1:14:25.080 --> 1:14:28.840 are out to uh corrupt the system. UM. But that's 1:14:28.880 --> 1:14:30.880 only if there's a law against what they're doing. If 1:14:30.920 --> 1:14:33.920 what they're doing is legal, how do you start? What 1:14:34.160 --> 1:14:36.439 laws do we have to change? And we don't have 1:14:36.560 --> 1:14:40.559 time to solve the problem of corrupt lobbyists. But at 1:14:40.560 --> 1:14:42.800 a certain point someone has to look at this and 1:14:42.920 --> 1:14:47.560 say the system has become completely off the rail. I 1:14:47.680 --> 1:14:50.920 think a lot about this problem, but I haven't come 1:14:51.000 --> 1:14:54.200 up with a solution. And and it's it's it's you know, 1:14:54.320 --> 1:14:56.560 my day job is not to be a preacher. I 1:14:56.640 --> 1:14:58.920 don't do uh, you know, good or bad. I don't 1:14:58.960 --> 1:15:02.000 do good or evil. I do bullish or bearish. And 1:15:02.520 --> 1:15:04.920 what what I'm when I'm amazed by is how well 1:15:05.439 --> 1:15:10.120 our economy and our financial markets have done, despite despite 1:15:10.200 --> 1:15:14.640 the corruption, despite the politicians. It's quite amazing. UM. So 1:15:14.760 --> 1:15:17.400 let's shift gears and talk a little bit about UH, 1:15:17.600 --> 1:15:22.439 the financial services industry speaking of lobbying, what what are 1:15:22.560 --> 1:15:26.280 some of the major changes that you think are significant 1:15:26.920 --> 1:15:32.240 since you you joined the industry. Well, Um, on the 1:15:32.720 --> 1:15:38.439 perspective of my, uh, my business, I have several hundred 1:15:38.479 --> 1:15:42.360 institutional accounts and UH I talked to them on a 1:15:42.439 --> 1:15:46.639 regular basis, and more and more of them are upset 1:15:47.320 --> 1:15:51.479 about et f s, especially the mutual fund industry, so 1:15:51.960 --> 1:15:55.840 upset and it's kind of cutting into their business. Um 1:15:56.800 --> 1:16:00.240 and uh and then every now and then you've got 1:16:00.280 --> 1:16:04.120 some of these uh wild days of the markets up 1:16:04.160 --> 1:16:05.720 a lot or down a lot, where you kind of 1:16:05.760 --> 1:16:09.040 wonder whether it's a combination of the algorithms and the 1:16:09.080 --> 1:16:12.800 high frequency traders and t fs that are all making 1:16:12.920 --> 1:16:16.880 this uh more volatile market which then turns the the 1:16:17.600 --> 1:16:20.800 retail investor off completely. In other words, we may be 1:16:20.960 --> 1:16:24.800 losing retail investors not just two mutual funds, but also 1:16:25.240 --> 1:16:28.240 to to E t F SO to passive index more 1:16:28.280 --> 1:16:30.560 than anything. Yeah, I think there's a concern about that 1:16:30.840 --> 1:16:33.000 for sure. I mean that's a big change. It's a 1:16:33.000 --> 1:16:34.720 big change. I mean it's not just a concern. I 1:16:34.760 --> 1:16:37.000 mean you can see it in the mutual fund numbers. 1:16:37.600 --> 1:16:40.960 Money is coming out of there. It has been going 1:16:41.040 --> 1:16:43.320 into E t F, so you could also see it 1:16:43.360 --> 1:16:46.720 in the trading volumes. The trading volumes are down significantly, 1:16:47.400 --> 1:16:50.519 so that that's an interesting and major shift in the past. 1:16:51.000 --> 1:16:54.400 What what are the major changes that we should be 1:16:54.560 --> 1:16:59.519 watching for coming up in the future. Well, again, maybe 1:16:59.520 --> 1:17:01.640 a little knowledge is a dangerous thing, and so I 1:17:01.680 --> 1:17:04.519 have a little knowledge about technology. I'm always interested in 1:17:04.600 --> 1:17:08.280 technology and how it's impacting our economy and disrupting things. 1:17:08.360 --> 1:17:10.840 I think a lot of economists really don't pay enough 1:17:10.840 --> 1:17:13.880 attention to technology and they get really pessimistic. And suddenly 1:17:13.920 --> 1:17:17.000 some technology comes along the way, like fracking that loads 1:17:17.080 --> 1:17:20.200 the price of oil and game changers, a game game changer, 1:17:20.280 --> 1:17:24.200 and uh, you know, it's impossible to forecast that, but 1:17:24.960 --> 1:17:27.080 it doesn't mean you can't follow it when it's starting 1:17:27.120 --> 1:17:31.080 to make the headlines. And I'm intrigued by this blockchain technology, 1:17:31.120 --> 1:17:36.519 which is a software algorithm behind bitcoin, and um people 1:17:36.640 --> 1:17:39.799 figured out that, Uh, you know, whether you're for against bitcoin, 1:17:39.920 --> 1:17:43.720 the software technology itself, it was really quite intriguing and 1:17:43.800 --> 1:17:47.720 it very secure, very very fast transaction identification. And the 1:17:47.840 --> 1:17:52.280 fact that companies like Goldman and JP Morgan are spending 1:17:52.320 --> 1:17:55.479 billions on it suggests that literally billions. Do you think 1:17:55.520 --> 1:17:58.320 there's billions in investments? I mean they've been articles spending 1:17:58.360 --> 1:18:01.280 that not talking about hundreds of you know, one to 1:18:01.520 --> 1:18:04.000 three billion, a lot of money, a lot of on 1:18:04.600 --> 1:18:08.240 one technology. Uh. They really see a potential here for 1:18:08.360 --> 1:18:11.479 it to uh dramatically lower their back office costs, which 1:18:11.560 --> 1:18:14.800 that has implications for employment in an area that used 1:18:14.800 --> 1:18:19.000 to be an important source of jobs. But it could 1:18:19.800 --> 1:18:24.519 have an impact on counterfeiting, it could. I mean, you know, 1:18:24.600 --> 1:18:30.679 I've I've become a kind of a little bit cranky 1:18:30.760 --> 1:18:34.040 complainer about central banks and their impact on us. I mean, 1:18:34.320 --> 1:18:37.439 wouldn't it be interesting if we had a economic system 1:18:37.520 --> 1:18:39.880 that didn't have a central bank, where somehow the money 1:18:40.000 --> 1:18:45.160 was created digitally through uh this kind of blockchain technology. 1:18:45.560 --> 1:18:48.720 I mean, the FED was set up initially just to 1:18:48.800 --> 1:18:53.920 help with the seasonal issues of corn production and the 1:18:54.000 --> 1:18:57.720 all two regular panics that seem to have stricken right 1:18:58.000 --> 1:19:00.240 every every few years, and now the question as well, 1:19:00.320 --> 1:19:04.799 it's actually contributed to those panics by trying to moderate 1:19:04.880 --> 1:19:08.280 the business cycle. UM. So I'm just kind of intrigued 1:19:08.320 --> 1:19:11.720 by where fintech is. It's called UH is leading, It's 1:19:11.720 --> 1:19:15.360 not just blockchain, but it's certainly an important part of 1:19:15.439 --> 1:19:20.960 it and probably is going to continue for the foreseeable future. 1:19:21.120 --> 1:19:25.960 So so now we're down to my last two favorite questions. UM, 1:19:26.720 --> 1:19:31.080 just in time. Uh, let's say a recent college grad 1:19:31.200 --> 1:19:34.479 or a millennial came to you and and said, Dr Ed, 1:19:34.520 --> 1:19:37.400 I'm thinking about a career in finance. What sort of 1:19:37.439 --> 1:19:42.439 advice would you give them? I would say that, please 1:19:42.600 --> 1:19:49.120 learn how to write, Please read a lot um, you know, 1:19:49.479 --> 1:19:52.360 just the two hours reading and writing. I don't really 1:19:52.400 --> 1:19:55.720 need arithmetic. I don't really need it. I think there's 1:19:55.720 --> 1:19:59.320 too much arithmetic, especially in economics. Uh yeah, there's too 1:19:59.400 --> 1:20:07.719 much quantity of analysis and that that today just don't 1:20:07.760 --> 1:20:12.880 have enough math skills and it just yes, okay, but 1:20:12.920 --> 1:20:15.840 I'm talking. You asked me about finance, and uh, you know, 1:20:16.120 --> 1:20:19.280 I mean finance has become become almost too much quantitative 1:20:19.320 --> 1:20:22.160 and too much algorithm. And I don't know that just 1:20:22.400 --> 1:20:25.280 other than designing an algorithm that than kind of does 1:20:25.320 --> 1:20:27.720 its own thing, I don't know how you make a 1:20:27.840 --> 1:20:31.080 career out of that. Um, but I know that you're 1:20:31.120 --> 1:20:34.720 not going to find too much competition, uh, in any 1:20:34.880 --> 1:20:38.560 in any business, in any industry. UM. If you're a 1:20:38.600 --> 1:20:42.000 really good writer with with with with a fairly broad 1:20:42.080 --> 1:20:44.880 sweep of knowledge. They're just not that many people that are, 1:20:45.600 --> 1:20:48.080 you know, renaissance men and women who are interested in 1:20:48.600 --> 1:20:52.040 a lot of different subjects and can write intelligently about it. 1:20:52.120 --> 1:20:54.920 So I would say, learn how to write, please, because 1:20:54.960 --> 1:20:59.400 I you know, I keep trying to expand my operation 1:20:59.560 --> 1:21:03.479 and uh, it's finding people who can write is very, 1:21:03.600 --> 1:21:07.479 very difficult. Huh, that's quite fascinating. Um, And I can't 1:21:07.479 --> 1:21:11.280 say I disagree with you, although I'm I'm aware of 1:21:11.360 --> 1:21:14.880 a number of people who are outstanding writers. But maybe 1:21:14.960 --> 1:21:17.280 that proves your point. If if you're if you count 1:21:17.360 --> 1:21:19.880 in your head half a dozen or so people whose 1:21:19.920 --> 1:21:23.760 writing skills you really admire, I guess it means it's 1:21:23.800 --> 1:21:26.720 not that many people. I mean it's really communicating, you know, 1:21:26.960 --> 1:21:33.280 I mean the ability to have conversations, intelligent conversations with 1:21:33.680 --> 1:21:36.640 all kinds of different people in a business setting. And 1:21:36.920 --> 1:21:40.080 uh and otherwise, and I think we're kind of losing that. 1:21:40.240 --> 1:21:44.800 Maybe it's you know, the tweets, the social networking. We're 1:21:44.840 --> 1:21:48.280 just characters, makes it hard to really develop an idea, 1:21:48.479 --> 1:21:51.920 that's right. So final question, and and my favorite one, 1:21:51.960 --> 1:21:55.200 of all, what is it that you know about economics 1:21:55.360 --> 1:21:59.120 and investing that you wish you knew twenty five years ago? Well, 1:21:59.160 --> 1:22:01.800 I think we teach done it. I wish I had 1:22:01.880 --> 1:22:05.240 more money, uh twenty years ago, thirty years ago, and 1:22:05.280 --> 1:22:07.880 I wish you'd put it all in dividend yielding stocks 1:22:07.920 --> 1:22:11.120 and you know, not not fooled around with all the 1:22:11.320 --> 1:22:16.840 you know, hot tips. Uh. I would say that over 1:22:16.920 --> 1:22:19.720 the years, I've learned that hot tips are you know, 1:22:19.880 --> 1:22:23.280 sure way to lose money. So definitely stay away from 1:22:23.360 --> 1:22:26.000 that that stuff. I'd say, over the years, I've learned 1:22:26.040 --> 1:22:30.880 that uh, you know what tax of uh shelters and 1:22:31.000 --> 1:22:35.000 other means that investments that are focused just on lowering 1:22:35.080 --> 1:22:39.439 taxes uh tend not to work out either. You know, 1:22:39.479 --> 1:22:42.160 if you lower your profits, you lower your taxes. Yeah, 1:22:42.280 --> 1:22:45.240 that's right. Well, uh, ed, thank you so much for 1:22:45.360 --> 1:22:48.920 doing this. I I appreciate how generous UH you've been 1:22:49.000 --> 1:22:52.960 with your time. If you've enjoyed this conversation, be sure 1:22:53.000 --> 1:22:54.760 and look up and inch or down an inch on 1:22:54.880 --> 1:22:58.200 Apple iTunes and you can see the other ninety five 1:22:58.320 --> 1:23:03.040 or so such questions. UH, such conversations we've had with 1:23:03.200 --> 1:23:07.840 various people over the past two years. I would be 1:23:07.960 --> 1:23:11.840 remiss if I did not thank Taylor Riggs, my booker, 1:23:11.960 --> 1:23:16.879 for helping to put together these conversations. Uh. Mike Batnick 1:23:17.000 --> 1:23:19.920 is head of research who helps us do the deep 1:23:20.000 --> 1:23:24.799 dive into finding interesting things to talk about. And Charlie Valmer, 1:23:24.840 --> 1:23:27.439 who is down in d C doing some lobbying of 1:23:27.600 --> 1:23:29.559 his own, which is why he's not in the control 1:23:29.600 --> 1:23:33.439 booth where he belongs. Uh. You've been listening to Masters 1:23:33.479 --> 1:23:44.599 in Business on Bloomberg Radio look Ahead, Imagine more, gain 1:23:44.720 --> 1:23:47.920 insight for your industry with forward thinking advice from the 1:23:47.960 --> 1:23:51.800 professionals at Cone Resnick. Is your business ready to break through? 1:23:52.360 --> 1:23:55.880 Find out more at Cone resnick dot com slash Breakthrough