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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Master's in

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Speaker 1: Business with Barry Ridholts on Bloomberg Radio.

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Speaker 2: This week on the podcast, I have another extra special guest.

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Speaker 2: Doctor Eduard Danny is a really legend on Wall Street.

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Speaker 2: He is both an investment strategist and an economist, and

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Speaker 2: I'm very comfortable saying he does that better than anybody else.

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Speaker 2: He has had a number of major market calls and

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Speaker 2: economic calls that have been notable, not just because they

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Speaker 2: were right, but for the way he uses the data

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Speaker 2: to reach the right conclusion. He has consistently been bullish

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Speaker 2: since the market bottoms in March o nine. He has

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Speaker 2: talked about where a recession is and isn't coming. He's

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Speaker 2: more or less nailed what the Fed was going to do,

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Speaker 2: even though a lot of these calls have been outliers

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Speaker 2: and very contrarian compared to the rest of the world

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Speaker 2: of finance. Ed as a neighbor of mine lives the

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Speaker 2: next town over. I've known him for a long time

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Speaker 2: and I've just marveled at how he thinks about markets

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Speaker 2: and the economy, and government and data. I subscribe to

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Speaker 2: his daily notes and find them to be tremendously useful

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Speaker 2: in contextualizing the fire hose of data, looking at what's

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Speaker 2: important and what's not and how much of this stuff

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Speaker 2: is just noise. I found this conversation to be informational, educational,

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Speaker 2: and fascinating, and I think you will also, with no

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Speaker 2: further ado, my interview with doctor Edyard Denny. Doctor Edyard Denny,

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Speaker 2: Welcome back to Bloomberg, Barry.

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Speaker 1: It's always a pleasure. Thank you for having me.

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Speaker 2: Well, well, thank you for coming. It's always good to

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Speaker 2: see you. We're neighbors. We probably don't get to see

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Speaker 2: each other as much as we did pre pandemic.

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Speaker 1: We have to catch up.

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Speaker 2: We still have some bad pandemic habits that we have

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Speaker 2: to break. Let's talk a little bit about your background.

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Speaker 2: You have a fascinating academic background, a PhD in economics

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Speaker 2: from Yale, and your thesis advisor is Nobel Laureate James Tobin.

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Speaker 2: Tell us about working with Tobin.

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Speaker 1: Well, it was certainly an honor and to work with

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Speaker 1: somebody who won the Nobel Prize for his contribution to economics.

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Speaker 1: But sometimes it wasn't that easy to understand his theories

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Speaker 1: because they were mathematical and got complicated. But as a

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Speaker 1: result of that, I turned to Janet Yalen. Janet Yalen

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Speaker 1: had graduated from Yale in their PhD program six years

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Speaker 1: before I attended, and she took meticulous notes. You know,

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Speaker 1: she must have been one of those, you know, very

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Speaker 1: focused students sitting in the front row of Tobin's class

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Speaker 1: six years before I got there, and she took meticulous notes,

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Speaker 1: just great notes, and they were xerox. And I think

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Speaker 1: most of us who studied under Tobin basically got through

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Speaker 1: Yale got our PhDs because of Janet Yellen's notes.

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Speaker 2: That's really interesting. The undergrad at Cornell and then a

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Speaker 2: master's degree also at Yale. That seems like a lot

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Speaker 2: of education. Was the plan to go into academia or

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Speaker 2: was it always Wall Street?

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Speaker 1: Well, I didn't really know what I wanted to do

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Speaker 1: when I was an undergraduate, so I took everything from

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Speaker 1: a couple of courses of engineering, physics, math, political science,

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Speaker 1: and economics. And based on all that, I realized I

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Speaker 1: wasn't any good at math or at physics, so I

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Speaker 1: had to go into something a little softer and easier.

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Speaker 1: So I did go into a combination of politics and

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Speaker 1: economics and then for my masters, I went to the

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Speaker 1: International Relations program at Yale, which combined economics and political science.

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Speaker 1: And then as I ended that two year program, I

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Speaker 1: realized I accumulated enough to basically do a PhD in

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Speaker 1: four years there as well, on top of you, not

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Speaker 1: an extra four years one more year ago. Yeah, and

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Speaker 1: then I just had to write a PhD dissertation. And

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Speaker 1: I'd seen too many of my fellow students who are

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Speaker 1: kind of hanging around the graduate program because they couldn't

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Speaker 1: quite finish their PhD dissertations. I decided I was going

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Speaker 1: to get out of there quick, and so I wrote

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Speaker 1: a dissertation, empirical one that confirmed a lot of Tobin's theories.

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Speaker 1: He absolutely loved it, and let me move on from there.

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Speaker 2: So you graduate with a PhD in economics in nineteen

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Speaker 2: seventy six. We're going to talk about inflation later, but

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Speaker 2: I have to ask a lot of your peers who

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Speaker 2: graduated in the mid seventies. It seemed to really leave

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Speaker 2: a mark on them. Unlike most of them, you nailed

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Speaker 2: inflation on the way up, you nailed it on the

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Speaker 2: way now. So many of them seemed to be scarred

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Speaker 2: by their nineteen seven experience. Why did that whole era

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Speaker 2: of economists, and I'm including like big names like Laurence Summers,

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Speaker 2: why did they get this so wrong?

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Speaker 1: I think that they first start out with theories and

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Speaker 1: then look for data to support it. And I can't

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Speaker 1: really generalize about the economics profession, but I think there's

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Speaker 1: enough attention to just you know, dealing with the facts,

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Speaker 1: with the data, and with historical events. I lived through

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Speaker 1: a lot of those historical events and learned from them.

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Speaker 1: But I observed that, you know, inflation was in fact

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Speaker 1: brought down in a very conventional way in the late

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Speaker 1: seventies early eighties with very tight monetary policy. And then

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Speaker 1: in the eighties I observed that we were saying de

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Speaker 1: industrialization in America, but that was because of globalization, right,

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Speaker 1: and which was deflation, which is deflationary. And in fact,

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Speaker 1: I think it was in the early eighties, I don't know,

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Speaker 1: I think it was eighty two eighty three. I predicted

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Speaker 1: that we're probably going to see a period of disinflation,

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Speaker 1: and part of that was also based on my view

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Speaker 1: that as globalization prevailed, that'd be more global competition that

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Speaker 1: would keep a lit on inflation.

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Speaker 2: And you also wrote a piece in twenty twenty three

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Speaker 2: about why conventional forecasting models were so wrong, and a

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Speaker 2: lot of people, in particular, you mentioned Jamie Diamond had

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Speaker 2: been expecting a recession. It seemed like almost every economist

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Speaker 2: was expecting a recession and it never showed. Again, what

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Speaker 2: did you get right? What did they get wrong?

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Speaker 1: Well? I think most economists very logically believe that if

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Speaker 1: the Fed's going to go from zero on the FED

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Speaker 1: funds rate to five and a quarter percent, how could

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Speaker 1: we not have a recession. My argument was that while

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Speaker 1: the Feds certainly was tightening, they were also normalizing. I mean,

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Speaker 1: so you had to not only look at where interest

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Speaker 1: rates had gotten to, but where they came from. And

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Speaker 1: they came from zero. So the really abnormality was the

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Speaker 1: ultra ezy monetary policy that we had from the Great

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Speaker 1: Financial Crisis to the Great Virus Crisis. And I felt

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Speaker 1: that the economy was demonstrating that it could handle it,

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Speaker 1: that it would be in fact relatively resilient. And of

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Speaker 1: course you have to get the consumer right. And along

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Speaker 1: the way, I concluded that while Jamie Diamond and others

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Speaker 1: were focusing on the consumer running out of so called

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Speaker 1: excess saving the idea that was that you know, consumers

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Speaker 1: that accumulated two to three trillion dollars for during the

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Speaker 1: two months of shutdowns, and then for all the helicopter

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Speaker 1: money that was deposited in their accounts. I was pointing

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Speaker 1: out increasingly that wait a second, the baby boomers have

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Speaker 1: seventy five trillion dollars in retirement assets, and you know what,

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Speaker 1: they're starting to retire.

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Speaker 2: I love that chart. You actually showed that chart today. Yeah, wealth,

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Speaker 2: it comes from the flow of funds cost SERF. But

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Speaker 2: when you look at the millennials and the gen xers,

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Speaker 2: wasn't everybody predicting the boomers were going to go broke

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Speaker 2: they wouldn't have any money retired. Seventy five almost seventy

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Speaker 2: seven trillion dollars. That's a lot of money.

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Speaker 1: It's a lot of money. It's an ull time record high.

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Speaker 1: The household sector in its entirety has over one hundred

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Speaker 1: and fifty trillion dollars in net worth and that's assets

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Speaker 1: minus liabilities, and it's all sorts of different assets. Its houses,

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Speaker 1: its stocks, it's pensions, it's the whole, the whole thing.

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Speaker 1: So that's at a record high. And the baby boomers

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Speaker 1: own half of that roughly seventy five trillion dollars. And

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Speaker 1: then the younger generations are kind of looking at Mom

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Speaker 1: and Dad starting to retire, said, you know, I wish

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Speaker 1: you a long and happy retirement, but don't spend it all.

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Speaker 1: And so I think the savings rate's going to remain

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Speaker 1: extremely low because the baby boomers are not saving anymore,

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Speaker 1: They're spending. And I think that the younger generation can

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Speaker 1: actually look forward to some substantial as being substantial beneficiaries

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Speaker 1: of inherited wealth.

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Speaker 2: Let's roll back to the work that you did with

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Speaker 2: James Tobin and one, I believe he won the Nobel

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Speaker 2: Prize yes for his work on fiscal spending. So when

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Speaker 2: you have the Cares Act one, which was ten percent

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Speaker 2: of GDP, as the Cares Act two and then the

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Speaker 2: Cares Act three, shouldn't that offset whatever the Fed's going

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Speaker 2: to do? And by the way, five percent isn't outrageously Hi,

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Speaker 2: that's kind of average. Well.

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Speaker 1: I think that's another good point is that not only

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Speaker 1: did the consumers turn out to be resilient and they

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Speaker 1: remain resilient, they're still spending and labor market has been

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Speaker 1: really tight. The reason for that of course is the

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Speaker 1: baby boomers are spending more on going out to restaurants, traveling,

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Speaker 1: health care services. So guess what employment is doing all

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Speaker 1: those industries all time record. You don't get a recession

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Speaker 1: when construction and total parallel employment are at all time

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Speaker 1: record highs. That's the other reason why the economy has

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Speaker 1: done well is there's been a tremendous amount of fiscal

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Speaker 1: spending that has led to a record spending on infrastructure.

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Speaker 1: I mean you can actually see it in the data.

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Speaker 1: It's not just there was an act and then nothing happened.

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Speaker 1: There was a lot of spending, and then of course

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Speaker 1: on shoring received a lot of tax benefits. So we've

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Speaker 1: seen construction of factory facilities just exploding to the upside.

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Speaker 1: And again those are all construction jobs, and they're going

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Speaker 1: to need employees and so on.

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Speaker 2: So nice Tailwhen we'll come back to that a little later,

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Speaker 2: let's stay with the early days of your career because

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Speaker 2: I really find it kind of unique. You're an economist

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Speaker 2: at the New York Fed in seventy six and seventy seven.

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Speaker 2: You're fairly young and new. Then what were you working

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Speaker 2: on when you were at the New York Fed?

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Speaker 1: Well, just by happenstance. They put me on writing memos,

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Speaker 1: updating data. It wasn't really exciting stuff, but focused on

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Speaker 1: the same things the loan industry. I mean, you can't

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Speaker 1: think of anything like more boring. It's like and useless

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Speaker 1: than analyzing the savings and loan industry in the in

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Speaker 1: the late seventies.

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Speaker 2: Right before it blew up.

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Speaker 1: And then it blew up, and then I'm suddenly on

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Speaker 1: Wall Street and I have a lot of knowledge of

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Speaker 1: just what was going on in the SNL industry. So

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Speaker 1: it really helped me to understand that crisis.

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Speaker 2: So here's what I find so fascinating and unique about

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Speaker 2: your career. You have been chief investment strategic at places

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Speaker 2: like Deutsche Bank and Prudential, but you were also chief

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Speaker 2: economists at E. F. Hutton, Prudential, Base CJ. Lawrence, which

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Speaker 2: eventually gets bought by Deutsche Bank. Like, that's a rare

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Speaker 2: pair of hats for one person. Aware tell us a

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Speaker 2: little bit about how you managed to do both jobs.

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Speaker 1: I did start at as an economist. I think I

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Speaker 1: was at E. F. Hutton for about a year or two,

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Speaker 1: and then the chief economists decided to move on, and

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Speaker 1: so only a couple of years into Wall Street career,

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Speaker 1: I was chief economist of E. F. Hutton, so that

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Speaker 1: was pretty exciting. But I learned a lot from the

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Speaker 1: strategist I worked with. There's a fellow by named Greg

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Speaker 1: Smith who was a strategist at EF Hutton. Jim Moltz

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Speaker 1: was a well regarded strategist c J. Lawrence, and so

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Speaker 1: I learned a lot from them, and an opening became

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Speaker 1: available to be a strategist at c J. Lawrence, which

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Speaker 1: by then had become part of deutsch Bank Securities, and

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Speaker 1: I jumped at it, and I said, look, I think

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Speaker 1: I can do both jobs. And it just to me

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Speaker 1: made sense to do both jobs because I don't know

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Speaker 1: how you can be a well informed strategist without understanding

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Speaker 1: of the economy.

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Speaker 2: So when you were working for Lawrence as part of

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Speaker 2: and eventually become chief investment strategy at Deutsche Bank, what

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Speaker 2: was that like? Given the fact that they're based in

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Speaker 2: Germany Many. I don't want to say most, but many

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Speaker 2: of their clients are European. How did that change how

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Speaker 2: you looked at the world.

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Speaker 1: Well, I didn't really work for Deutsche Bank per se.

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Speaker 1: I worked as the chief economists strategist for deutsch Bank Securities,

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Speaker 1: which was still to a large extent based in the

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Speaker 1: United States and had international clients, but we certainly had

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Speaker 1: plenty in the US. So the transition from CJ. Lawrence

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Speaker 1: being independent to CJ. Lawrence evolving into deutsch Bank Securities,

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Speaker 1: nothing really changed for me. Quite honestly. What was very

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Speaker 1: visible as Deutsche Bank spent a tremendous amount of money

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Speaker 1: on expanding and so they hired the Frank quadtrone group.

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Speaker 1: Sure yeah, and in the research investment banking department for

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Speaker 1: a couple of years. At the time Quatrone brought Amazon

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Speaker 1: to the marketplace, and I'm kicking myself, you know. I mean,

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Speaker 1: there was I think thirteen bucks before all the splits,

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Speaker 1: but it was an exciting time.

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Speaker 2: Let me ask you about that exciting time. Your arm

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Speaker 2: wall in the eighties and nineties arguably the biggest bull

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Speaker 2: market of our lifetime. We'll see how far this one goes.

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Speaker 2: Where we are today, What was it like in that

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Speaker 2: era when people were still stock pickers, active mutual funds

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Speaker 2: were attracting the flows. Everybody thought they could beat the market.

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Speaker 2: We didn't quite have all the data yet. Tell us

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Speaker 2: what that era was like, as a chief strategist on

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Speaker 2: the street.

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Speaker 1: Well, the eighties were certainly interesting, and near the tail

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Speaker 1: end we had the crash in the stock market. The

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Speaker 1: one day crash I scrambled to kind of understand what

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Speaker 1: was going on, concluded as portfolio insurance, and that the

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Speaker 1: week before the Houseways and Means Committee was starting to

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Speaker 1: talk about taxing some of these transactions that were going

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Speaker 1: on in M and A, and so a lot of

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Speaker 1: the M and A stocks got hit quite hard. And

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Speaker 1: my conclusion that it was largely a government a reaction

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Speaker 1: to possible government regulation, and that probably would pass. And Restinkowski,

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Speaker 1: who was the head of the House Committee at the time,

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Speaker 1: did in fact pass on it. In December suddenly he

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Speaker 1: just kind of evaporated. So I concluded within a couple

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Speaker 1: of days that we were probably making it low in

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Speaker 1: this bear market that only lasted really a few days.

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Speaker 1: I mean officially it was October to December.

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Speaker 2: But well, to be fair, I want to say by

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Speaker 2: August of eighty seven, SMP was up forty something percent

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Speaker 2: and we finished the year plus one percent. So that's

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Speaker 2: quite a wackage that would constitute bear in my book.

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Speaker 1: Right in the early nineties, I started to recognize the

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Speaker 1: technology revolution that was going on.

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Speaker 2: And I got they were early and vocal.

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Speaker 1: Well, I was early in Vocal and as a matter

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Speaker 1: of fact, I walked into a Barnes and Noble store

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Speaker 1: I think in nineteen ninety four, early nineteen ninety five,

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Speaker 1: and I'm pretty sure that I was the first one

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Speaker 1: to have a website the Internet, obviously on Wall Street,

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Speaker 1: and I know no other economists. I don't know how

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Speaker 1: I got away with the Deutsche Bank. Why they would allow,

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Speaker 1: you know, doctor Edyard Denny's economics network to be featured

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Speaker 1: on the Internet without any any real mention of who

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Speaker 1: I worked for.

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Speaker 2: Well maybe that's the German ownership didn't understand us compliance world,

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Speaker 2: I suppose so at that time, who knows? You launch

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Speaker 2: in January seven, not that much earlier than the financial crisis.

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Speaker 2: Tell us what led you to launching your Danny Research.

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Speaker 1: Well, I had been on Wall Street for many years.

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Speaker 1: It was getting a little stale. The lawyers were starting

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Speaker 1: to take over, and there are more limits on what

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Speaker 1: you could write about or who you could talk to,

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Speaker 1: even in your own shop. Yet to get approval to

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Speaker 1: go down to the trading desk, it just wasn't as

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Speaker 1: exciting as it had been in the early two thousands,

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Speaker 1: and suddenly, out of the blue, I got a call

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Speaker 1: from Jim Olschlager, who runs Oak Associates in Akron, Ohio.

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Speaker 1: And Jim was looking for somebody to work with him

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Speaker 1: as a strategist in Akron, Ohio. So I talked to

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Speaker 1: him and it sounded like a great opportunity. He made

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Speaker 1: me an offer I couldn't refuse. So I accepted it

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Speaker 1: and it was a three year deal and it worked

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Speaker 1: out fine. But after two years I kind of missed

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Speaker 1: just doing what I had been doing on the street. Meanwhile,

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Speaker 1: Jim had allowed me to continue to write and to

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Speaker 1: keep in touch with my client base. So I left

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Speaker 1: in the end of two thousand and six and January first,

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Speaker 1: two thousand and seven we started. I started there Denny

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Speaker 1: Research as an independent research provider.

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Speaker 2: Did you move to Ohio or I actually commuted.

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Speaker 1: They have a great airport there, Canton Akron Airport is

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Speaker 1: a wonderful.

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Speaker 2: Airport, Farmingdale, l LaGuardia.

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Speaker 1: LaGuardia And I'd leave on a Sunday and sometimes hang

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Speaker 1: around there until it was there Thursday. But so I

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Speaker 1: just kind of commuted and that was okay with Jim

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Speaker 1: and I worked out fine, And of course I did

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Speaker 1: some market with him, so I would kind of meet

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Speaker 1: him at different parts of the country and we'd market together.

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Speaker 2: Huh, let's talk about your clients. I'm assuming they're primarily institutional.

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Speaker 1: Well, they have been primarily institutional, you know, since I've

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Speaker 1: been on Wall Street, I guess you know. I did

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Speaker 1: work for some firms that also had a huge retail

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Speaker 1: base with like prudentials, so I certainly had a lot

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Speaker 1: of interaction with both institutional and retail. When I moved

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Speaker 1: to CJ. Lawrence is primarily institutional. It was all institutional, really,

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Speaker 1: and then when I went off on my own, I

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Speaker 1: continued with an institutional bent. The research was aimed at

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Speaker 1: a fairly sophisticated professional investment community. But about two years

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Speaker 1: ago we realized that there's a demand for what we

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Speaker 1: do among individual investors. So we came up with something

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Speaker 1: called R Danny quick Takes dot Com and that's a

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Speaker 1: daily and it's shorter, and it's to the point, and

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Speaker 1: it is what I've always done, which is kind of

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Speaker 1: combined strategy and economics.

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Speaker 2: I was going to say, you also put a lot

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Speaker 2: of information online. Yes, that's there for free, right. I

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Speaker 2: don't mean like a chart here or there, huge runs

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Speaker 2: of data and charts and it's updated like daily.

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Speaker 1: Yeah, it's automatically updated.

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Speaker 2: How do you manage to handle all this that seems

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Speaker 2: like a lot of work that you're essentially giving away.

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Speaker 1: Well, several years ago, I didn't see the point of

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Speaker 1: doing all these charts manually over and over again. And

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Speaker 1: you know, when you run this chart, where is it?

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Speaker 1: And so we came up with an in house program.

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Speaker 1: This was when I was still on Wall Street. An

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Speaker 1: in house program that ran these charts automatically when the

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Speaker 1: data was available from our data vendor, and updated the

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Speaker 1: charts and then put the charts in a proper place

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Speaker 1: in the PDFs that focused on those particular topics. It

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Speaker 1: worked great. I mean I think it was in some

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Speaker 1: ways a very crude artificial intelligence tool. You know, she

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Speaker 1: mentioned AI at least once in our interview. Year.

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Speaker 2: Oh, we have lots of AI to talk about a

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Speaker 2: little later.

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Speaker 1: Yeah. But so anyways, this this smart program figured out

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Speaker 1: how to paying the vendor and say anything new for me,

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Speaker 1: and if there was, everything would be updated automatically. And

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Speaker 1: we're still doing that and look, and that's your Denny

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Speaker 1: Denny dot com here and now, if nobody was looking

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Speaker 1: at our charts, I would still have the whole thing

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Speaker 1: because that's what I used to write. And so what

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Speaker 1: I'm doing is basically sharing the puzzle pieces, and anybody

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Speaker 1: who wants to see how how I put the puzzles

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Speaker 1: together has to subscribe to our research.

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Speaker 2: And just to put some flesh on those bones. You

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Speaker 2: post on valuation, the global economy, the US economy, inflation, credit,

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Speaker 2: consumer spending, employee markets, pretty much anything that there's a

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Speaker 2: regular data stream, it updates automation.

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Speaker 1: That's correct.

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Speaker 2: Huh, it's really really intriguing. Let's talk about putting some

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Speaker 2: of those puzzle pieces together. You talk about the megacap eight,

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Speaker 2: the Magnificent seven plus Netflix.

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Speaker 1: I like movies as very so I'm a well aware

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Speaker 1: any want to leave the Netflix out of there.

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Speaker 2: Let me steer you away from the New Wonka movie

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Speaker 2: because it's terrible. But how important are these eight stocks

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Speaker 2: to the overall market this year and last?

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Speaker 1: Well, I mean arithmetically, they're very important. They're about twenty

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Speaker 1: eight percent of the market cap of the S and

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Speaker 1: P five hundred, so they they're huge in terms of

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Speaker 1: their impact. And some people look at that and say, well,

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Speaker 1: that's not healthy. It's a sign that this market is vulnerable,

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Speaker 1: and I'm empirical about it. It is what it is.

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Speaker 1: These are Greek companies that they're here to stay. They've

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Speaker 1: had a couple of sell offs that turn out to

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Speaker 1: be great opportunities to get get into those stocks. So

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Speaker 1: I think we have to find in that when you

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Speaker 1: look at the evaluation multiple the S and P five hundred,

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Speaker 1: maybe it's not the historical average of fifteen anymore. Maybe

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Speaker 1: it's something more like something north of that, maybe even

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Speaker 1: closer to twenty, which is where we are right now.

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Speaker 1: And nobody seems to be particularly bothered by it, because

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Speaker 1: these are companies that in fact have earnings, have customers,

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Speaker 1: have a tremendous amount of cash flow, and don't seem

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Speaker 1: to be that interest rate sensitive. They've got all the

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Speaker 1: money in the world to expand, and they're always looking

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Speaker 1: for new businesses.

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Speaker 2: Michael Mobison put out a piece a couple of years

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Speaker 2: ago talking about the intangibles that this market is not

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Speaker 2: like the market of one hundred years ago, where you

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Speaker 2: had giant factories, big foundries, massive demands for labor, material

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Speaker 2: and income. A lot of the wealth today, a lot

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Speaker 2: of the assets of these companies today are intangibles. They're copyrights,

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Speaker 2: their trademarks and algorithe well, ep IP, all this intellectual property.

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Speaker 2: Are we rationalizing a price of your market or is

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Speaker 2: that a fair explanation.

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Speaker 1: I think it's a fair explanation. I think it's also

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Speaker 1: important to realize that the bull market we've had, in

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Speaker 1: the upward trend in the stock market, certainly reflects the

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Speaker 1: fact that the country is getting wealthier and wealthier. I

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Speaker 1: know this is a very controversial subject because once you

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Speaker 1: start getting into income and wealth, people talk about income

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Speaker 1: and wealth inequality. But I think a fair amount of

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Speaker 1: that is related to demography and as we said before,

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Speaker 1: the record household net worth, record net worth for the

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Speaker 1: baby boomers, and so there's a lot of money out

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Speaker 1: there that needs to be invested. We're seeing that even

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Speaker 1: in the government bond market. I mean, we all know

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Speaker 1: that a lot of people have been pouring money into

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Speaker 1: Nvidia and some of the other megacap eight though it

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Speaker 1: seems to be the rally within those eight is even

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Speaker 1: starting to narrow a bit of late.

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Speaker 2: Someone called it the fabulous.

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Speaker 1: Yeah, but you know that that will be meaningful until

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Speaker 1: it isn't you know. I mean, I don't know that

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Speaker 1: you want to bet against Elon Musk and you know

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Speaker 1: what he's doing with the Tesla. But that's been an underperformer.

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Speaker 2: Yeah, that's got cut in half over the past couple

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Speaker 2: of years. Yeah. So, you know, people talk about the

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Speaker 2: megacap eight as proof that the market is narrowing, and

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Speaker 2: that's negative, but a quote of yours quote, the newble

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Speaker 2: market has actually been fairly broad all along.

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Speaker 1: Discuss well, again we start with the data and then

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Speaker 1: come to the conclusion rather than the other way around.

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Speaker 1: And so a lot of people have been looking at

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Speaker 1: various measures of market breadth, like the ratio of S

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Speaker 1: and P five hundred equal weighted to S and P

435
00:24:45,119 --> 00:24:47,720
Speaker 1: five hundred market cap weighted, and it's been going down.

436
00:24:47,800 --> 00:24:50,840
Speaker 1: So clearly the market's getting narrower. But when you actually

437
00:24:50,920 --> 00:24:53,320
Speaker 1: look at it the one hundred plus industries that are

438
00:24:53,320 --> 00:24:55,680
Speaker 1: in the S and P five hundred, what you see

439
00:24:55,800 --> 00:24:59,840
Speaker 1: is that the sectors that have the megacap eight in

440
00:24:59,880 --> 00:25:03,679
Speaker 1: the have done extremely well because of the outperformance of

441
00:25:04,240 --> 00:25:07,119
Speaker 1: you know, the mega cap eight stocks. But then you

442
00:25:07,160 --> 00:25:09,360
Speaker 1: also see that well waiting a second. There's a lot

443
00:25:09,359 --> 00:25:12,560
Speaker 1: of stocks that are up and industries that are up

444
00:25:12,840 --> 00:25:15,160
Speaker 1: a measly twenty percent, which is kind of bull mark

445
00:25:15,200 --> 00:25:18,160
Speaker 1: a territory. So I think it's kind of a relative game.

446
00:25:18,200 --> 00:25:20,960
Speaker 1: I mean, some stocks, particularly the mega cap eight, have

447
00:25:21,000 --> 00:25:24,119
Speaker 1: done remarkably well, and there's been lots of others that

448
00:25:24,160 --> 00:25:29,280
Speaker 1: have done unremarkably well but very decent returns.

449
00:25:30,320 --> 00:25:33,200
Speaker 2: So another quote of yours I found kind of fascinating.

450
00:25:33,320 --> 00:25:35,840
Speaker 2: People keep talking about in video like it's a bubble.

451
00:25:36,480 --> 00:25:39,920
Speaker 2: But the Nvidia stock price is up about the same

452
00:25:39,960 --> 00:25:43,080
Speaker 2: amount as in Vidia earnings, Right, how can that be

453
00:25:43,119 --> 00:25:43,560
Speaker 2: a bubble?

454
00:25:44,800 --> 00:25:46,480
Speaker 1: I don't think it is a bubble. It just looks

455
00:25:46,520 --> 00:25:49,400
Speaker 1: like a bubble on a chart. You know, anything that you.

456
00:25:49,359 --> 00:25:50,840
Speaker 2: Know goes vertical like that.

457
00:25:50,960 --> 00:25:54,600
Speaker 1: Yeah, when everything goes vertical like that, Look at some

458
00:25:54,800 --> 00:25:58,399
Speaker 1: point in video, because it's getting so much press, so

459
00:25:58,480 --> 00:26:00,200
Speaker 1: much buzz, and it is making so much money with

460
00:26:00,240 --> 00:26:02,639
Speaker 1: such high profit margins, is going to attract a lot

461
00:26:02,720 --> 00:26:06,800
Speaker 1: of capital into competitors. And it's already doing that, you know,

462
00:26:07,000 --> 00:26:09,720
Speaker 1: and video could be put out of business like overnight.

463
00:26:09,760 --> 00:26:13,840
Speaker 1: If somebody suddenly came up with a quantum computer that

464
00:26:13,840 --> 00:26:17,119
Speaker 1: that worked and you know operates. You know, lightning speed

465
00:26:17,119 --> 00:26:21,800
Speaker 1: compared to half lightning speed of in videos chips, but

466
00:26:21,840 --> 00:26:25,360
Speaker 1: in video keeps innovating. And that's that's what's so exciting

467
00:26:25,400 --> 00:26:30,959
Speaker 1: about technology. Technology is always moving forward. It's actually a

468
00:26:30,960 --> 00:26:35,159
Speaker 1: source of deflation because technology prices decline, and in addition

469
00:26:35,240 --> 00:26:37,320
Speaker 1: to that, technology boosts productivity.

470
00:26:37,800 --> 00:26:42,159
Speaker 2: So we've seen this sort of single stock going vertical before.

471
00:26:42,240 --> 00:26:44,920
Speaker 2: We've seen it with Intel, we've seen it with Cisco.

472
00:26:45,600 --> 00:26:48,359
Speaker 2: There's always one company that you know is in the

473
00:26:48,480 --> 00:26:51,400
Speaker 2: right space and the right captures lightning in a bottle,

474
00:26:51,600 --> 00:26:55,000
Speaker 2: and you know, all bets are off. But it sounds

475
00:26:55,080 --> 00:26:58,399
Speaker 2: like we're not that late stage for Nvidio here.

476
00:26:58,520 --> 00:27:01,720
Speaker 1: Well, you know, a lot of in the past couple

477
00:27:01,760 --> 00:27:04,320
Speaker 1: of years, we've all been comparing the current decade, the

478
00:27:04,359 --> 00:27:08,960
Speaker 1: twenty twenties, to previous decades. I've seen similarities between the

479
00:27:09,000 --> 00:27:14,960
Speaker 1: twenty twenties and the nineteen twenties. Productivity, technology excitement started out.

480
00:27:15,160 --> 00:27:17,080
Speaker 2: The new fangled car had come out.

481
00:27:17,160 --> 00:27:19,640
Speaker 1: Yeah, it started out really depressing, and somehow or other

482
00:27:19,720 --> 00:27:22,159
Speaker 1: it just turned out to be there wearing twenty twenties.

483
00:27:22,160 --> 00:27:25,440
Speaker 1: So there's that analogy. Then, as we discussed earlier, there's

484
00:27:25,480 --> 00:27:29,400
Speaker 1: the nineteen seventies, and that there's some analogies there. I mean, look,

485
00:27:29,440 --> 00:27:34,200
Speaker 1: if the Middle East insanities eventually or at some point

486
00:27:34,480 --> 00:27:36,359
Speaker 1: actually caused the price of oil to spike up to

487
00:27:36,400 --> 00:27:38,280
Speaker 1: one hundred and higher, it is going to be the

488
00:27:38,359 --> 00:27:41,320
Speaker 1: nineteen seventies all over again. But so far it hasn't been.

489
00:27:41,560 --> 00:27:43,560
Speaker 1: I don't think it's going to be. But then there's

490
00:27:43,600 --> 00:27:46,479
Speaker 1: the nineteen nineties. And people have asked me, if this

491
00:27:46,560 --> 00:27:49,400
Speaker 1: is the nineteen nineties, where are we in the nineteen nineties,

492
00:27:49,640 --> 00:27:54,639
Speaker 1: I said, well, probably more like December fifth, nineteen ninety six.

493
00:27:55,560 --> 00:28:00,879
Speaker 1: That's when National Zuberance, the Irrational Xuberant speech by Alan Greenspan,

494
00:28:01,320 --> 00:28:03,960
Speaker 1: and you know, he did a hamlet on us. He says,

495
00:28:04,080 --> 00:28:07,040
Speaker 1: how do we know if we've got irrational exuberance in

496
00:28:07,320 --> 00:28:10,439
Speaker 1: the market, And the market actually sold off on that, figuring,

497
00:28:10,480 --> 00:28:13,160
Speaker 1: oh my god, he's thinking irrational exuberants. He just asked

498
00:28:13,160 --> 00:28:15,359
Speaker 1: the question. And then the way he answered is that

499
00:28:15,400 --> 00:28:18,000
Speaker 1: maybe we don't because inflation has come down and you know,

500
00:28:18,040 --> 00:28:20,680
Speaker 1: we're doing all the right things. So I think we're

501
00:28:20,720 --> 00:28:24,240
Speaker 1: more like in nineteen ninety six than in nineteen ninety nine.

502
00:28:24,760 --> 00:28:27,560
Speaker 1: Still early on and again, if this is the Roaring

503
00:28:27,600 --> 00:28:29,600
Speaker 1: twenty twenties, the decade still has a waye to go.

504
00:28:29,880 --> 00:28:33,520
Speaker 2: Huh, really interesting. Let's talk about some of the things

505
00:28:33,520 --> 00:28:36,919
Speaker 2: that other people seem to be getting wrong. Quote, you

506
00:28:37,119 --> 00:28:40,920
Speaker 2: don't get a recession when unemployment is at all time lows.

507
00:28:41,320 --> 00:28:46,640
Speaker 1: Explain Well, the pessimists would respond to that by saying,

508
00:28:47,000 --> 00:28:49,520
Speaker 1: if you look at a chart of the unemployment rate,

509
00:28:49,560 --> 00:28:52,320
Speaker 1: it's always at a cyclical low of sometime in an

510
00:28:52,320 --> 00:28:55,880
Speaker 1: all time low right before recessions, which which is absolutely true.

511
00:28:55,920 --> 00:28:58,400
Speaker 1: So when you see it like this, this low, you

512
00:28:58,440 --> 00:29:01,360
Speaker 1: do have to start to worry about the historical precedents.

513
00:29:01,480 --> 00:29:03,120
Speaker 1: I think a lot of the people have gotten it

514
00:29:03,160 --> 00:29:05,600
Speaker 1: wrong so far. They may still get a recession. I'm

515
00:29:05,600 --> 00:29:08,600
Speaker 1: not saying it's impossible, but a lot of them look

516
00:29:08,600 --> 00:29:11,520
Speaker 1: at charts and said, look, the Yeeld curve has been inverted,

517
00:29:11,840 --> 00:29:13,920
Speaker 1: and every time it's been inverted in the past, that's

518
00:29:14,000 --> 00:29:17,320
Speaker 1: led to a recession. Leading indicators have been declining, and

519
00:29:17,360 --> 00:29:20,440
Speaker 1: every time that's happened, that's been a recession. But I

520
00:29:20,480 --> 00:29:23,880
Speaker 1: think that what many of them got wrong is that

521
00:29:24,000 --> 00:29:26,840
Speaker 1: the process by which we get to recessions is the

522
00:29:26,920 --> 00:29:29,480
Speaker 1: key here to understanding why we haven't had a recession.

523
00:29:29,840 --> 00:29:33,440
Speaker 1: The inverted yeel curve in the past really did a

524
00:29:33,480 --> 00:29:36,800
Speaker 1: good job of predicting a process that led to recession.

525
00:29:36,840 --> 00:29:39,680
Speaker 1: So what was that process? The FED would be tightening,

526
00:29:40,040 --> 00:29:43,720
Speaker 1: raising interest rates, and then at some point along the way,

527
00:29:43,760 --> 00:29:45,600
Speaker 1: the bond investors would start to say, you know what,

528
00:29:46,280 --> 00:29:48,480
Speaker 1: I know, I could get a higher yield than a

529
00:29:48,480 --> 00:29:51,280
Speaker 1: two year than a ten year, but you know the

530
00:29:51,320 --> 00:29:53,600
Speaker 1: ten years okay here because if the FED keeps raising

531
00:29:53,600 --> 00:29:55,840
Speaker 1: interest rates, I want them to keep raising interest rates

532
00:29:55,840 --> 00:29:58,440
Speaker 1: because something will break and then I'll be very happy

533
00:29:58,440 --> 00:30:01,040
Speaker 1: owning a ten year bond because those yield will come

534
00:30:01,240 --> 00:30:05,160
Speaker 1: tumbling down. And so what the inverted deal curve? It

535
00:30:05,200 --> 00:30:08,160
Speaker 1: doesn't cause recessions. And I wrote a little study this

536
00:30:08,440 --> 00:30:11,040
Speaker 1: in twenty nineteen, so I've been thinking about this for

537
00:30:11,040 --> 00:30:13,400
Speaker 1: a while. What the point of that piece was that

538
00:30:13,800 --> 00:30:16,120
Speaker 1: what happens when you get an inverted yeal curve is

539
00:30:16,160 --> 00:30:19,320
Speaker 1: the bond market starts to anticipate a financial crisis and

540
00:30:19,400 --> 00:30:22,040
Speaker 1: lo and behold, something does break and then that becomes

541
00:30:22,040 --> 00:30:25,000
Speaker 1: a credit crunch, and that's what causes a recession. So

542
00:30:25,040 --> 00:30:27,280
Speaker 1: you need to see a crisis, a credit crunch in

543
00:30:27,280 --> 00:30:31,240
Speaker 1: a recession. That's been sort of the usual way it happens.

544
00:30:31,400 --> 00:30:33,960
Speaker 1: And this time around, the inverted youal curve got it

545
00:30:34,000 --> 00:30:37,600
Speaker 1: absolutely right. Again. We had a financial crisis in March

546
00:30:38,040 --> 00:30:40,720
Speaker 1: of last year that lasted all of two days before

547
00:30:40,760 --> 00:30:43,640
Speaker 1: the Fed FED came in and provided a tremendous amount

548
00:30:43,640 --> 00:30:45,520
Speaker 1: of liquidity and we never had a recession.

549
00:30:45,840 --> 00:30:49,760
Speaker 2: How often do we get an inverted yield curve starting

550
00:30:49,800 --> 00:30:52,400
Speaker 2: with FED funds rates at zero? This seems to be

551
00:30:52,520 --> 00:30:54,080
Speaker 2: almost a case of first impression.

552
00:30:54,840 --> 00:31:00,800
Speaker 1: Yeah. Well, again, the pessimists, the crowd of naysayers, had

553
00:31:00,840 --> 00:31:04,320
Speaker 1: a very logical possession, and that is, how could you

554
00:31:04,360 --> 00:31:06,800
Speaker 1: see rates go from zero to five and a quarter

555
00:31:06,840 --> 00:31:09,800
Speaker 1: five and a hare percent without something breaking, without having

556
00:31:10,120 --> 00:31:12,240
Speaker 1: a recession. And the answer is, yeah, they were right,

557
00:31:12,280 --> 00:31:14,640
Speaker 1: we get something broke. But the Fed had so much

558
00:31:14,680 --> 00:31:18,320
Speaker 1: experience during the Great Financial Crisis and again during the

559
00:31:18,360 --> 00:31:22,640
Speaker 1: Great Virus Crisis playing whack a mole in the credit market. See, now,

560
00:31:22,800 --> 00:31:25,560
Speaker 1: some that'd be a liquidity crisis and they'd whack it

561
00:31:25,640 --> 00:31:29,800
Speaker 1: and create another liquidity facility overnight. And that's what they

562
00:31:29,800 --> 00:31:32,080
Speaker 1: did last year. Overnight. They you know, on a weekend,

563
00:31:32,320 --> 00:31:35,520
Speaker 1: they came up with a liquidity facility that calmed everything down,

564
00:31:35,600 --> 00:31:38,280
Speaker 1: so the crisis did not turn into a credit crunch

565
00:31:38,280 --> 00:31:41,520
Speaker 1: and therefore did not turn into recession. High interest rates,

566
00:31:41,560 --> 00:31:45,680
Speaker 1: I think we've been learning here don't inherently cause a recession.

567
00:31:46,000 --> 00:31:49,240
Speaker 1: Obviously they've they caused the recession in the housing market.

568
00:31:49,360 --> 00:31:51,960
Speaker 1: But I've been making the point for the past two years.

569
00:31:51,960 --> 00:31:54,800
Speaker 1: We'll be very careful because the housing market, it was

570
00:31:54,840 --> 00:31:58,160
Speaker 1: single family housing and went to recession. Multifamily did quite well.

571
00:31:58,200 --> 00:32:00,000
Speaker 1: And so I said, you know what, let's talk about it.

572
00:32:00,000 --> 00:32:02,400
Speaker 1: This is rolling recessions. And I've been doing this for

573
00:32:02,440 --> 00:32:04,520
Speaker 1: a while, so in the mid eighties. I think I

574
00:32:04,560 --> 00:32:07,040
Speaker 1: came up with the term rolling recessions back then when

575
00:32:07,160 --> 00:32:11,000
Speaker 1: energy prices collapsed and everybody thought that the recession in

576
00:32:11,480 --> 00:32:14,360
Speaker 1: Texas and Oklahoma was going to go national and it didn't.

577
00:32:14,880 --> 00:32:17,880
Speaker 2: Huh. Interesting, Let's stick with the Fed because there are

578
00:32:17,920 --> 00:32:20,560
Speaker 2: some really interesting quotes of yours. I want to throw

579
00:32:20,640 --> 00:32:24,440
Speaker 2: your way. Quote there's really no need for the Fed

580
00:32:24,760 --> 00:32:28,320
Speaker 2: to lower interest rates could be the most controversial thing

581
00:32:28,360 --> 00:32:31,080
Speaker 2: I've heard you say the past few months. Tell us

582
00:32:31,080 --> 00:32:34,040
Speaker 2: why you think the FED is fine at five to

583
00:32:34,080 --> 00:32:34,800
Speaker 2: five and a quarter.

584
00:32:34,960 --> 00:32:40,240
Speaker 1: Well, I think the Fed fed officials have this notion

585
00:32:40,440 --> 00:32:45,600
Speaker 1: that the real interest rates matter. That if the Fed

586
00:32:45,600 --> 00:32:49,480
Speaker 1: funds rated five and a quarter five and a half

587
00:32:49,560 --> 00:32:54,040
Speaker 1: percent and the inflation rate is five or six percent,

588
00:32:54,120 --> 00:32:56,240
Speaker 1: then you obviously don't you know, you have a very

589
00:32:56,400 --> 00:32:59,400
Speaker 1: low real interest rates and inflation just at interest rate.

590
00:33:00,160 --> 00:33:02,400
Speaker 1: I have a problem with that whole concept anyways, how

591
00:33:02,400 --> 00:33:06,680
Speaker 1: do you inflation are just an overnight rate and what

592
00:33:06,760 --> 00:33:09,719
Speaker 1: behavior does that actually impact? But now they're saying, you know,

593
00:33:09,760 --> 00:33:12,120
Speaker 1: now that inflation has come down, let's say to three percent,

594
00:33:12,720 --> 00:33:14,520
Speaker 1: that the real rate's gone up, and oh my god,

595
00:33:14,560 --> 00:33:16,520
Speaker 1: it's going to be restrictive. It's going to push the

596
00:33:16,560 --> 00:33:20,000
Speaker 1: economy into recession. I said, that's not my model for recessions.

597
00:33:20,000 --> 00:33:24,400
Speaker 1: My model is inverted Yilker's financial crisis, credit crunch, recession.

598
00:33:24,440 --> 00:33:28,080
Speaker 1: And I don't see that that happening. So the economy

599
00:33:28,120 --> 00:33:32,800
Speaker 1: is demonstrating that there's no call for a freezing. But

600
00:33:33,320 --> 00:33:37,000
Speaker 1: there is this view that comes from Milton Freedman that

601
00:33:37,080 --> 00:33:41,280
Speaker 1: there's this long and variable lag between monetary policy and

602
00:33:41,320 --> 00:33:45,320
Speaker 1: the economy, and I dispute that. I say, well, actually

603
00:33:45,360 --> 00:33:47,760
Speaker 1: there's no lag at all. That's just tell me when

604
00:33:47,800 --> 00:33:49,959
Speaker 1: the crisis is going to hit then the next day

605
00:33:50,000 --> 00:33:51,640
Speaker 1: will be the credit crunch. In the day after that

606
00:33:51,680 --> 00:33:52,560
Speaker 1: will be the recession.

607
00:33:52,760 --> 00:33:56,280
Speaker 2: To be fair to Milton Friedman, back in the seventies,

608
00:33:56,840 --> 00:33:59,560
Speaker 2: we had a lot less data. The Fed didn't even

609
00:33:59,640 --> 00:34:04,160
Speaker 2: announce like people the young folks today don't realize. There

610
00:34:04,240 --> 00:34:06,520
Speaker 2: wasn't even a Fed announcement that rates had been changed.

611
00:34:06,920 --> 00:34:10,040
Speaker 2: You had to track the bond market and money supply

612
00:34:10,120 --> 00:34:12,840
Speaker 2: to have a sense that was going on. So maybe

613
00:34:12,880 --> 00:34:15,360
Speaker 2: there was a long invariable lag in the seventies or

614
00:34:15,400 --> 00:34:18,600
Speaker 2: even the eighties. But today the Fed tells us what

615
00:34:18,640 --> 00:34:20,480
Speaker 2: they're going to do, then they go out and do it.

616
00:34:21,360 --> 00:34:25,680
Speaker 2: There's no surprises. Another phrase of yours that relates directly

617
00:34:25,719 --> 00:34:28,960
Speaker 2: to this, Wall Street seems to be expecting four or

618
00:34:28,960 --> 00:34:33,520
Speaker 2: five six cuts. You've been saying fewer and later maybe

619
00:34:33,560 --> 00:34:37,520
Speaker 2: two or three cuts. And that's maybe and maybe maybe not. Yeah,

620
00:34:37,680 --> 00:34:40,360
Speaker 2: So I know a lot of people that are banking

621
00:34:40,880 --> 00:34:44,200
Speaker 2: on rate cuts coming. Yeah, you're much less convinced.

622
00:34:44,200 --> 00:34:47,239
Speaker 1: I think it's people who would like to see the

623
00:34:47,239 --> 00:34:49,759
Speaker 1: bullmarkt continue and think that the only way that's going

624
00:34:49,840 --> 00:34:53,440
Speaker 1: to happen is if the FED provides the sweetener to

625
00:34:53,880 --> 00:34:57,400
Speaker 1: make that happen. But I think the stock market's already

626
00:34:57,400 --> 00:35:00,520
Speaker 1: demonstrated that they'll take the trade. And in other words,

627
00:35:00,520 --> 00:35:03,279
Speaker 1: if the deal is rates don't come down, but the

628
00:35:03,280 --> 00:35:08,360
Speaker 1: economy remains fairly strong and earnings come in strong and

629
00:35:08,040 --> 00:35:11,120
Speaker 1: we have another technology boom, then we can live with that.

630
00:35:11,480 --> 00:35:16,160
Speaker 2: Your latest report, your latest topical study in praise of profits.

631
00:35:16,840 --> 00:35:19,880
Speaker 2: Those people who have been claiming zero interest rate policy

632
00:35:19,920 --> 00:35:22,840
Speaker 2: and quantitative easing are the only things that were supporting

633
00:35:22,840 --> 00:35:25,560
Speaker 2: the stock market in the twenty tens, and now that

634
00:35:25,680 --> 00:35:28,920
Speaker 2: rates have gone up, you're going to see how important

635
00:35:28,960 --> 00:35:32,440
Speaker 2: the FED was to equity prices. That's not proving to

636
00:35:32,480 --> 00:35:33,680
Speaker 2: be true. Yeah.

637
00:35:33,760 --> 00:35:38,480
Speaker 1: Yeah, I think that's another problem with macroeconomic models and

638
00:35:39,440 --> 00:35:42,239
Speaker 1: the financial press, quite frankly, and that is always just

639
00:35:42,360 --> 00:35:47,360
Speaker 1: focus on the FED and on Washington and the policy makers.

640
00:35:47,920 --> 00:35:50,560
Speaker 1: And I keep pointing out that it's amazing how well

641
00:35:50,600 --> 00:35:54,640
Speaker 1: this country has done for so many years, despite Washington,

642
00:35:55,239 --> 00:35:57,880
Speaker 1: despite the meddling of the government. And what we have

643
00:35:57,960 --> 00:36:01,360
Speaker 1: to do is give ourselves our selves credit. Us working stiffs.

644
00:36:01,360 --> 00:36:04,319
Speaker 1: We go to work every day and we try to

645
00:36:04,560 --> 00:36:07,640
Speaker 1: do things that make things better for us, our families,

646
00:36:07,640 --> 00:36:11,400
Speaker 1: our communities, and you know what, we succeed despite the

647
00:36:12,239 --> 00:36:15,640
Speaker 1: meddling of Washington, and that's what kind of gives me

648
00:36:15,719 --> 00:36:19,960
Speaker 1: hope that as crazy as things are in our political system,

649
00:36:20,600 --> 00:36:23,839
Speaker 1: the economy just continues to deliver. And anybody who you know,

650
00:36:24,360 --> 00:36:28,040
Speaker 1: didn't like democratic president that bet against the stock market,

651
00:36:28,080 --> 00:36:31,320
Speaker 1: anybody who didn't like a Republican president that better against

652
00:36:31,320 --> 00:36:35,200
Speaker 1: the stock market that missed some pretty awfully good returns.

653
00:36:35,520 --> 00:36:37,880
Speaker 2: I heard Obama was going to kill the stock market.

654
00:36:37,960 --> 00:36:40,919
Speaker 2: Didn't happen. I heard, Oh, now Trump is in, He's

655
00:36:40,960 --> 00:36:44,280
Speaker 2: going to kill the stock market. Didn't happen. This Biden's

656
00:36:44,280 --> 00:36:47,040
Speaker 2: going to kill your market, Yeah, didn't happen to happen.

657
00:36:47,280 --> 00:36:50,160
Speaker 2: I mean the takeaway is pay attention to profits and

658
00:36:50,200 --> 00:36:52,040
Speaker 2: ignore what's going on in DC.

659
00:36:52,160 --> 00:36:57,600
Speaker 1: Companies, businesses, whether they're public or private. We're all become

660
00:36:57,880 --> 00:37:02,880
Speaker 1: very very good at managing in challenging times, and sometimes

661
00:37:02,960 --> 00:37:06,160
Speaker 1: those challenges come from the government. It shouldn't be that way.

662
00:37:06,560 --> 00:37:09,080
Speaker 1: The government should be on our side, not kind of

663
00:37:09,120 --> 00:37:12,520
Speaker 1: picking our pockets, and yet we do remarkably well.

664
00:37:12,760 --> 00:37:16,520
Speaker 2: So one of the things you said about inflation I

665
00:37:16,600 --> 00:37:19,960
Speaker 2: found both to be fascinating and unique and very insightful.

666
00:37:20,440 --> 00:37:23,439
Speaker 2: You were the first person I saw that pointed out

667
00:37:24,120 --> 00:37:27,879
Speaker 2: CPI tends to go down as fast as it went up. Yeah,

668
00:37:28,000 --> 00:37:30,400
Speaker 2: there's a symmetry here. When you get a giant searge,

669
00:37:30,680 --> 00:37:33,360
Speaker 2: you'll get a giant collapse, which is what we saw

670
00:37:33,520 --> 00:37:35,799
Speaker 2: in twenty two and twenty three. You go back to

671
00:37:35,840 --> 00:37:39,279
Speaker 2: the seventies, it's long, it's slow, it builds its structural

672
00:37:39,680 --> 00:37:42,319
Speaker 2: that sticks around for a long time. Again, I have

673
00:37:42,400 --> 00:37:45,960
Speaker 2: to ask, what is it that makes this so symmetrical?

674
00:37:46,040 --> 00:37:46,839
Speaker 2: Why is it that one?

675
00:37:46,880 --> 00:37:50,200
Speaker 1: Well, the seventies was, with the benefit of hindsights early,

676
00:37:50,440 --> 00:37:53,560
Speaker 1: so far an outlier. You had two energy shocks. You

677
00:37:54,680 --> 00:37:58,759
Speaker 1: started out the decade with Nixon devaluing the dollar by

678
00:37:58,760 --> 00:38:01,800
Speaker 1: closing the Golden Windows. The dollar took a dive. Commodity

679
00:38:01,840 --> 00:38:05,280
Speaker 1: price a sword the anchovies didn't show up in Peru,

680
00:38:05,400 --> 00:38:08,759
Speaker 1: so that affected soybean prices somehow or other. I wish it.

681
00:38:08,840 --> 00:38:10,399
Speaker 2: Yeah, well butterfly, Yeah, yeah.

682
00:38:10,400 --> 00:38:13,680
Speaker 1: It was really crazy kind of stuff. And inflation was

683
00:38:13,719 --> 00:38:18,040
Speaker 1: coming down after you know, the seventy three energy crisis,

684
00:38:18,280 --> 00:38:20,360
Speaker 1: but then we had one in seventy nine and it

685
00:38:20,480 --> 00:38:24,400
Speaker 1: went back up. Also, labor unions were very powerful. The

686
00:38:24,440 --> 00:38:27,719
Speaker 1: thirty percent viral sure thirty thirty five percent of the

687
00:38:27,800 --> 00:38:31,040
Speaker 1: labor force had union contracts and they had cost of

688
00:38:31,080 --> 00:38:35,160
Speaker 1: living adjustments. Now I think something like ten percent of

689
00:38:35,200 --> 00:38:38,520
Speaker 1: the labor force is the private sector labor force as

690
00:38:38,560 --> 00:38:41,719
Speaker 1: you UNII, so the and they don't coloes aren't widespread,

691
00:38:41,800 --> 00:38:45,040
Speaker 1: so you didn't have this kind of automatic wage price spiral,

692
00:38:45,080 --> 00:38:47,239
Speaker 1: which is what we had in the nineteen seventies. But

693
00:38:47,320 --> 00:38:50,040
Speaker 1: in the current situation, Look, we had a terrible pandemic.

694
00:38:50,080 --> 00:38:51,839
Speaker 1: I mean you have to you know, you have to

695
00:38:51,880 --> 00:38:55,200
Speaker 1: be realistic. You have to, you know, go with the

696
00:38:55,239 --> 00:38:58,680
Speaker 1: flow of what's actually happening instead of just imposing a model.

697
00:38:59,160 --> 00:39:01,120
Speaker 1: And with a lot of the models missed is hey,

698
00:39:01,200 --> 00:39:05,160
Speaker 1: we had a pandemic. It disrupted supply chains and that

699
00:39:05,600 --> 00:39:08,720
Speaker 1: lasted for a certain period of time and they got fixed.

700
00:39:09,000 --> 00:39:12,120
Speaker 1: And by the time they got fixed, consumers had already

701
00:39:12,120 --> 00:39:14,960
Speaker 1: gone on a buying bench for goods and said, you know, no,

702
00:39:15,080 --> 00:39:17,600
Speaker 1: mass they didn't really need any more goods, and they

703
00:39:17,960 --> 00:39:21,160
Speaker 1: swung over the services and so goods inflation has come down,

704
00:39:21,200 --> 00:39:24,360
Speaker 1: by the way. I think the other thing that the

705
00:39:24,400 --> 00:39:27,520
Speaker 1: folks missed on why not getting inflation right is they

706
00:39:27,560 --> 00:39:29,640
Speaker 1: didn't look at it globally. I mean, it was a

707
00:39:29,719 --> 00:39:34,880
Speaker 1: layup that certainly it became obvious in earlier early on

708
00:39:35,000 --> 00:39:39,080
Speaker 1: last year that China was in an property bubble depression.

709
00:39:39,480 --> 00:39:41,040
Speaker 1: And again, I've been doing this for a while, and

710
00:39:41,080 --> 00:39:43,920
Speaker 1: I saw it in Japan in the eighties. I saw

711
00:39:43,960 --> 00:39:47,320
Speaker 1: it in the United States in two thousand and seven,

712
00:39:47,360 --> 00:39:51,239
Speaker 1: two thousand and eight, And these property bubbles, they it

713
00:39:51,280 --> 00:39:53,319
Speaker 1: takes five to seven years to get out of the

714
00:39:53,360 --> 00:39:56,400
Speaker 1: deflationary consequences of them. And now people are starting to

715
00:39:56,400 --> 00:39:59,480
Speaker 1: recognize that the Chinese are so desperate to goose up

716
00:39:59,480 --> 00:40:03,160
Speaker 1: their econo that they're going wild in production. They're producing

717
00:40:03,200 --> 00:40:07,040
Speaker 1: a lot of cheap cars and appliances, and they're exporting

718
00:40:07,080 --> 00:40:10,279
Speaker 1: them around the world, and that's extremely deflationary.

719
00:40:10,560 --> 00:40:13,960
Speaker 2: Huh, really intriguing. Let's talk about housing for a moment.

720
00:40:14,440 --> 00:40:17,800
Speaker 2: Lots of folks are deeply concerned about commercial real estate.

721
00:40:18,760 --> 00:40:20,640
Speaker 2: I know you've been a little more sanguine than some

722
00:40:20,719 --> 00:40:23,520
Speaker 2: of the doom sayers in that space. What's going on

723
00:40:23,560 --> 00:40:24,759
Speaker 2: with commercial real estate?

724
00:40:24,920 --> 00:40:27,920
Speaker 1: Well, again, I put the commercial real estate story in

725
00:40:27,960 --> 00:40:30,839
Speaker 1: the context of rolling recessions. And by the way, now

726
00:40:30,840 --> 00:40:35,920
Speaker 1: we're seeing some rolling recoveries. For example, demand for goods

727
00:40:35,920 --> 00:40:40,279
Speaker 1: by consumers is now starting to show more activity. But yeah,

728
00:40:40,320 --> 00:40:43,359
Speaker 1: The idea was that, Okay, we are in a rolling

729
00:40:43,360 --> 00:40:46,440
Speaker 1: recession of the commercial real estate market. But commercial real

730
00:40:46,520 --> 00:40:49,920
Speaker 1: estate is a very diverse kind of market.

731
00:40:50,480 --> 00:40:54,799
Speaker 2: It's multi family homes, its warehouses, its medical facilities, it's

732
00:40:54,840 --> 00:40:55,720
Speaker 2: not just offices.

733
00:40:55,800 --> 00:40:57,520
Speaker 1: Yeah. The other thing I point out is that in

734
00:40:57,560 --> 00:41:01,920
Speaker 1: the Great Depression, there was no distress asset funds. And

735
00:41:01,960 --> 00:41:05,120
Speaker 1: again this came from my understanding of the SNL crisis

736
00:41:05,520 --> 00:41:09,560
Speaker 1: is the SNL crisis was finally resolved with the Resolution

737
00:41:09,600 --> 00:41:13,239
Speaker 1: Trust Corporation, the RTC, and Wall Street said, hey, this

738
00:41:13,320 --> 00:41:15,680
Speaker 1: is a great idea. Why don't we do this. Why

739
00:41:15,680 --> 00:41:18,200
Speaker 1: don't we like put together a lot of money and

740
00:41:18,320 --> 00:41:20,760
Speaker 1: just wait for something to blow up and buy stuff

741
00:41:20,800 --> 00:41:23,200
Speaker 1: at twenty five cents on the dollar, you know, and

742
00:41:23,239 --> 00:41:25,640
Speaker 1: then we have plenty of cash to fix these things

743
00:41:25,640 --> 00:41:28,239
Speaker 1: and restructure them. I heard about them all going out

744
00:41:28,440 --> 00:41:33,160
Speaker 1: out of business in Arizona. That's now a pickleball facility.

745
00:41:32,640 --> 00:41:38,480
Speaker 1: And so it's we have a remarkably good industry that

746
00:41:38,600 --> 00:41:41,400
Speaker 1: knows how to deal with distressed assets and clear the

747
00:41:41,440 --> 00:41:44,080
Speaker 1: market so that instead of having a calamity in the

748
00:41:44,120 --> 00:41:47,680
Speaker 1: banking sector, somebody loses a lot of money in their portfolio.

749
00:41:47,760 --> 00:41:50,600
Speaker 1: It's reduces your rate of return in some portfolios, but

750
00:41:50,640 --> 00:41:52,799
Speaker 1: somebody gets a really good deal out of it and

751
00:41:52,880 --> 00:41:54,880
Speaker 1: turns it around and is hiring people again.

752
00:41:55,200 --> 00:41:58,600
Speaker 2: Right, there's no such thing as toxic assets, only toxic prices.

753
00:41:58,640 --> 00:41:59,040
Speaker 1: Correct.

754
00:41:59,320 --> 00:42:02,400
Speaker 2: So let's talk about residential real estate. What's happening in

755
00:42:02,440 --> 00:42:07,839
Speaker 2: that space. Clearly a huge shortfall in supply. How long

756
00:42:07,880 --> 00:42:09,360
Speaker 2: does it take for that to get fixed?

757
00:42:09,560 --> 00:42:16,120
Speaker 1: Yeah, that's that's a very complex situation, and I think

758
00:42:16,200 --> 00:42:21,960
Speaker 1: it reflects a whole bunch of different developments. Certainly one

759
00:42:22,000 --> 00:42:24,640
Speaker 1: of them is that a lot of people refinance their

760
00:42:24,640 --> 00:42:29,080
Speaker 1: mortgages at record low mortgage rates, and they're kind of

761
00:42:29,080 --> 00:42:31,120
Speaker 1: hesitant to sell our house. They don't want to sell

762
00:42:31,120 --> 00:42:33,319
Speaker 1: our house and buy another house if they still need

763
00:42:33,320 --> 00:42:34,960
Speaker 1: a mortgage. At these kind of mortgage rates.

764
00:42:35,200 --> 00:42:37,359
Speaker 2: They were three and a half percent, it's seven percent.

765
00:42:37,560 --> 00:42:39,799
Speaker 1: Yeah. Yeah, So that's a bad trade. Not only that,

766
00:42:39,880 --> 00:42:41,840
Speaker 1: but it's like it makes you feel smart living in

767
00:42:41,840 --> 00:42:44,360
Speaker 1: a house where you're not paying much in a mortgage.

768
00:42:44,440 --> 00:42:48,320
Speaker 1: And by the way, forty percent of people who own houses,

769
00:42:48,640 --> 00:42:50,640
Speaker 1: forty percent of them don't even have a mortgage. That

770
00:42:50,680 --> 00:42:53,560
Speaker 1: goes back to the story. But the older Americans, the

771
00:42:53,840 --> 00:42:56,560
Speaker 1: baby boomers, you know, don't really have much in the

772
00:42:56,600 --> 00:42:59,560
Speaker 1: way of expenses. But maybe they're not moving either. I mean,

773
00:42:59,560 --> 00:43:01,480
Speaker 1: a lot of peop people maybe moving down south. But

774
00:43:01,520 --> 00:43:04,480
Speaker 1: some people are saying, you know, it wasn't a bad

775
00:43:04,480 --> 00:43:07,520
Speaker 1: winner here in New York. Maybe we'll stay, maybe we'll

776
00:43:07,520 --> 00:43:10,200
Speaker 1: get us a small place in Florida. So there's a

777
00:43:10,239 --> 00:43:12,920
Speaker 1: lot going on here. But look at the home builders.

778
00:43:12,920 --> 00:43:15,360
Speaker 1: Who would have thought with mortgage rates at these levels,

779
00:43:15,360 --> 00:43:17,520
Speaker 1: that the home builders would be, you know, such great

780
00:43:17,520 --> 00:43:20,839
Speaker 1: performers in the stock market. But it's this great opportunity

781
00:43:20,840 --> 00:43:22,839
Speaker 1: for home builders. I think a lot of this has

782
00:43:22,880 --> 00:43:25,040
Speaker 1: to do with the regulation. It's hard to get land,

783
00:43:25,080 --> 00:43:27,239
Speaker 1: it's hard to get permission to do what you want

784
00:43:27,280 --> 00:43:30,359
Speaker 1: in building and building housing. So I think a lot

785
00:43:30,360 --> 00:43:33,080
Speaker 1: of that is really more once again the government meddling.

786
00:43:33,200 --> 00:43:37,040
Speaker 2: But that's local government, not national government. You know, you know,

787
00:43:37,280 --> 00:43:40,440
Speaker 2: you underbuild single family homes for a decade as the

788
00:43:40,480 --> 00:43:45,640
Speaker 2: population grows. I'm more surprised we didn't anticipate this coming

789
00:43:46,080 --> 00:43:50,799
Speaker 2: sooner rather than later. Everybody felt post financial crisis, oh

790
00:43:50,840 --> 00:43:52,680
Speaker 2: that's it. We're never going to see a demand for

791
00:43:52,800 --> 00:43:53,400
Speaker 2: housing again.

792
00:43:53,480 --> 00:43:56,400
Speaker 1: And it's having a tremendous impact on younger people that

793
00:43:56,760 --> 00:43:59,319
Speaker 1: you know, some of them are still living at home

794
00:43:59,520 --> 00:44:03,719
Speaker 1: and they're delaying obviously having families. And even if they

795
00:44:03,840 --> 00:44:06,160
Speaker 1: have an apartment, they may be delaying having families. So

796
00:44:06,200 --> 00:44:10,120
Speaker 1: this is having demographic consequences that will have an impact

797
00:44:10,320 --> 00:44:10,959
Speaker 1: along the way.

798
00:44:11,120 --> 00:44:14,920
Speaker 2: We saw reduced household formation during the twenty tens, but

799
00:44:15,000 --> 00:44:16,880
Speaker 2: that seems to be picking up again, right. I know

800
00:44:16,920 --> 00:44:21,120
Speaker 2: that's something you track. When household formation rises, demand for

801
00:44:21,200 --> 00:44:22,799
Speaker 2: houses tend to follow.

802
00:44:22,560 --> 00:44:27,600
Speaker 1: Right absolutely. And so again we've had this rolling recession

803
00:44:27,640 --> 00:44:30,880
Speaker 1: that's hit housing, single family housing, and yet home prices

804
00:44:30,880 --> 00:44:34,120
Speaker 1: all time record high. So you really have to be

805
00:44:34,400 --> 00:44:37,799
Speaker 1: very flexible in looking at this economy and recognize how

806
00:44:37,840 --> 00:44:40,520
Speaker 1: things change, and you know how models it used to

807
00:44:40,560 --> 00:44:42,200
Speaker 1: work don't work anymore.

808
00:44:42,400 --> 00:44:45,360
Speaker 2: Let's talk about fiscal stimulus. You wrote a really interesting

809
00:44:45,360 --> 00:44:48,320
Speaker 2: piece a couple of weeks ago. We had the Cares Act.

810
00:44:48,600 --> 00:44:51,520
Speaker 2: CARES Act one was ten percent of GDP, CARES Act two,

811
00:44:51,520 --> 00:44:55,200
Speaker 2: CARES Act three, CARES Act three under the Bond administration,

812
00:44:55,280 --> 00:44:58,600
Speaker 2: the two previous CARES Act under the Trump administration, the

813
00:44:58,719 --> 00:45:02,440
Speaker 2: Chips Act under the current administration, the Infrastructure Bill, the

814
00:45:02,440 --> 00:45:08,040
Speaker 2: Inflation Reduction Act. Many of these are not single year spends,

815
00:45:08,080 --> 00:45:13,120
Speaker 2: but decade long programs. Given the work you've done with

816
00:45:13,280 --> 00:45:17,239
Speaker 2: Tobin on fiscal stimulus, how big a wind is at

817
00:45:17,320 --> 00:45:21,080
Speaker 2: the back of this economy, given the coming decade of

818
00:45:21,160 --> 00:45:22,120
Speaker 2: fiscal spend.

819
00:45:22,840 --> 00:45:25,279
Speaker 1: I think again, the answer is in the data. And

820
00:45:25,400 --> 00:45:27,920
Speaker 1: what the data shows is that you know, there's this

821
00:45:28,040 --> 00:45:32,160
Speaker 1: monthly report I called Construction Put in Place that comes

822
00:45:32,160 --> 00:45:35,840
Speaker 1: out from the government, and it's every month. The numbers

823
00:45:35,880 --> 00:45:40,520
Speaker 1: are phenomenally strong outside of residential construction. So what we're

824
00:45:40,520 --> 00:45:44,399
Speaker 1: seeing is that infrastructure spending all time record high. All

825
00:45:44,440 --> 00:45:49,000
Speaker 1: these programs really are translating into actual dollars being spent

826
00:45:49,120 --> 00:45:53,279
Speaker 1: on rebuilding or building new infrastructure. When you look at

827
00:45:53,760 --> 00:45:58,080
Speaker 1: the private sector construction of structures, you see that manufacturing

828
00:45:58,640 --> 00:46:03,239
Speaker 1: facilities are so so we're building lots of those, you know,

829
00:46:03,640 --> 00:46:08,200
Speaker 1: EV plants and battery plants and semiconductor plants and so on.

830
00:46:08,520 --> 00:46:12,040
Speaker 2: You've been talking about onshoring, so the reverse of what

831
00:46:12,080 --> 00:46:15,439
Speaker 2: we saw in the eighties and nineties of offshoring. How

832
00:46:15,560 --> 00:46:20,040
Speaker 2: significant an economic factor is. And obviously a lot of

833
00:46:20,040 --> 00:46:23,880
Speaker 2: this traces back to the pandemic when we couldn't get

834
00:46:24,000 --> 00:46:27,799
Speaker 2: you know, medical protective equipment or masks or really it

835
00:46:27,840 --> 00:46:31,840
Speaker 2: was shocking to realize how much crucial infrastructure we decided

836
00:46:31,880 --> 00:46:37,000
Speaker 2: to outsource. How substantial a chunk of the economy can

837
00:46:37,120 --> 00:46:39,759
Speaker 2: all this onshoring be, and how long lasting is this?

838
00:46:40,600 --> 00:46:46,840
Speaker 1: Well, that's a great question. I'm thinking that, as you said,

839
00:46:46,840 --> 00:46:50,240
Speaker 1: it's got legs, it's gonna be with us for a while.

840
00:46:50,680 --> 00:46:54,080
Speaker 1: And then, of course, once these facilities are built, there's

841
00:46:54,080 --> 00:46:56,439
Speaker 1: going to be a lot of automation and robotics there,

842
00:46:56,440 --> 00:46:59,920
Speaker 1: but they're still going to need to be supported. I mean,

843
00:47:00,440 --> 00:47:03,400
Speaker 1: even artificial intelligence, given what we know about it today,

844
00:47:03,520 --> 00:47:05,880
Speaker 1: requires a tutor to say no, no, no.

845
00:47:05,600 --> 00:47:07,600
Speaker 2: You're you know you're stop hallucinating.

846
00:47:07,960 --> 00:47:11,000
Speaker 1: Yes, not hallucinating. Right, So humans are still going to

847
00:47:11,040 --> 00:47:14,360
Speaker 1: be essential. And we've got a very tight labor market

848
00:47:14,400 --> 00:47:18,160
Speaker 1: for particularly for skilled workers, and as a result of that,

849
00:47:18,320 --> 00:47:21,359
Speaker 1: I think that the onshoring effect continues. I mean, we've

850
00:47:21,360 --> 00:47:24,399
Speaker 1: got really cheap energy here. Natural gas prices are low,

851
00:47:24,560 --> 00:47:25,640
Speaker 1: record record.

852
00:47:25,400 --> 00:47:27,359
Speaker 2: Oil production, I mean old time lies.

853
00:47:27,880 --> 00:47:30,720
Speaker 1: I mean, you know, you you reduce your transportation costs

854
00:47:30,719 --> 00:47:33,720
Speaker 1: if you produce here rather than elsewhere. But the labor

855
00:47:33,920 --> 00:47:36,000
Speaker 1: problem is a problem, but I think it gets solved

856
00:47:36,040 --> 00:47:39,680
Speaker 1: with the innovation, with technology and providing robotics, automation.

857
00:47:40,120 --> 00:47:42,960
Speaker 2: What about the high skilled immigration that used to be

858
00:47:43,040 --> 00:47:45,360
Speaker 2: a big part of the labor market in the nineties.

859
00:47:45,400 --> 00:47:48,840
Speaker 1: I'm struggling with that immigration issue. I mean, we're talking

860
00:47:48,920 --> 00:47:52,240
Speaker 1: that tens of thousands or hundreds of thousands, are talking

861
00:47:52,600 --> 00:47:53,320
Speaker 1: a few million.

862
00:47:53,719 --> 00:47:56,880
Speaker 2: This is shortfall of bodies to fill jobs.

863
00:47:57,160 --> 00:47:59,640
Speaker 1: Yeah, but you've got the migrants coming in, and the

864
00:47:59,719 --> 00:48:03,520
Speaker 1: question is at what point will they be allowed to work,

865
00:48:03,560 --> 00:48:07,040
Speaker 1: At what point will they be actually reflected in the

866
00:48:07,080 --> 00:48:10,440
Speaker 1: official statistics, and how many of them will actually be

867
00:48:10,520 --> 00:48:12,960
Speaker 1: left here depending on the politics. I mean, there's one

868
00:48:13,000 --> 00:48:16,520
Speaker 1: presidential candidate that has basically said that he's going to

869
00:48:16,520 --> 00:48:17,319
Speaker 1: send them all back.

870
00:48:17,680 --> 00:48:20,600
Speaker 2: So how realistic is that. We've heard that before. It

871
00:48:20,600 --> 00:48:21,880
Speaker 2: doesn't really happen, does it.

872
00:48:22,120 --> 00:48:25,480
Speaker 1: Well. The reality is that what we need is a

873
00:48:25,560 --> 00:48:27,360
Speaker 1: lot more legal migration.

874
00:48:27,200 --> 00:48:30,240
Speaker 2: Legal So when I talk about immigration, I'm really talking

875
00:48:30,239 --> 00:48:35,640
Speaker 2: about Silicon Valley and C suite executives and high skilled

876
00:48:35,719 --> 00:48:40,960
Speaker 2: people coming from places like China and India and Vietnam

877
00:48:41,120 --> 00:48:44,960
Speaker 2: and Turkey and other places where Eastern Europe where they're

878
00:48:45,040 --> 00:48:49,640
Speaker 2: highly educated in the STEM area, which we certainly could

879
00:48:49,719 --> 00:48:49,960
Speaker 2: use more.

880
00:48:50,000 --> 00:48:53,680
Speaker 1: We could use more of absolutely, and for many of them.

881
00:48:54,080 --> 00:48:57,560
Speaker 1: They want to be here, they'd love to be invited here,

882
00:48:57,840 --> 00:49:00,719
Speaker 1: and it's it's safer here. You know, if you're in Taiwan,

883
00:49:00,840 --> 00:49:03,680
Speaker 1: well why not bring more people over from there? From

884
00:49:03,680 --> 00:49:07,360
Speaker 1: Eastern Europe? Well, you know, with skills. But legal migration

885
00:49:07,480 --> 00:49:10,000
Speaker 1: is the way to go because then you know that

886
00:49:10,040 --> 00:49:11,719
Speaker 1: the people that are coming in are going to be

887
00:49:11,760 --> 00:49:14,800
Speaker 1: working as opposed to being a burden on the social system.

888
00:49:14,800 --> 00:49:18,600
Speaker 1: But that gets so political these days, it's hard to

889
00:49:18,640 --> 00:49:19,360
Speaker 1: talk about.

890
00:49:19,400 --> 00:49:23,200
Speaker 2: You mentioned legs. Let's talk about legs. Quote, this is

891
00:49:23,239 --> 00:49:27,080
Speaker 2: a long term bullmarket. Discuss where we are in this

892
00:49:27,120 --> 00:49:30,640
Speaker 2: bull market and how long could the long term be.

893
00:49:31,160 --> 00:49:36,200
Speaker 1: Well, look, I think what clearly everybody knows and certainly

894
00:49:36,239 --> 00:49:39,279
Speaker 1: has had a big impact on the psychology and the

895
00:49:39,280 --> 00:49:42,399
Speaker 1: thought process that went to thinking about the past couple

896
00:49:42,400 --> 00:49:46,560
Speaker 1: of years, is that recessions cause bear markets. The bear

897
00:49:46,640 --> 00:49:50,040
Speaker 1: market anticipates that the way things are going in the

898
00:49:50,080 --> 00:49:53,320
Speaker 1: credit system, we're going to get a bear market to stocks.

899
00:49:53,880 --> 00:49:57,799
Speaker 1: And what happens is earnings expectations go down, and then

900
00:49:57,920 --> 00:50:01,440
Speaker 1: valuations go down and earnings get really whacked because not

901
00:50:01,480 --> 00:50:04,120
Speaker 1: only do revenues go down, but the profit margin goes down.

902
00:50:04,400 --> 00:50:07,239
Speaker 1: So everything goes wrong, and the only question is are

903
00:50:07,280 --> 00:50:09,680
Speaker 1: you going to be down twenty five percent or fifty percent?

904
00:50:09,760 --> 00:50:11,799
Speaker 1: And is it going to last a year or is

905
00:50:11,800 --> 00:50:14,279
Speaker 1: it going to last several years? And so there's a

906
00:50:14,320 --> 00:50:16,600
Speaker 1: lot of uncertainty around that, and people say, get me out.

907
00:50:16,600 --> 00:50:19,480
Speaker 1: I don't want to take risk. So I think to

908
00:50:19,520 --> 00:50:23,160
Speaker 1: have an opinion about how long this bull mark's going

909
00:50:23,200 --> 00:50:24,960
Speaker 1: to last, you have to have an opinion of well,

910
00:50:25,040 --> 00:50:27,359
Speaker 1: when if we didn't get a recession now we had

911
00:50:27,360 --> 00:50:30,839
Speaker 1: the most anticipated recession of all times the past two years,

912
00:50:30,840 --> 00:50:34,719
Speaker 1: the Godeaux recession, the no show recession. Maybe it'll show up.

913
00:50:34,760 --> 00:50:38,640
Speaker 1: But if you agree with me that that historically you

914
00:50:38,719 --> 00:50:42,520
Speaker 1: need to see that tight monetary policy causes financial crisis,

915
00:50:42,560 --> 00:50:46,120
Speaker 1: credit CORENCH recession, and that's not very likely, especially now

916
00:50:46,160 --> 00:50:48,520
Speaker 1: that the FED has pretty I think I don't think

917
00:50:48,520 --> 00:50:50,560
Speaker 1: they're going to be raising rates again, and if we

918
00:50:50,600 --> 00:50:53,040
Speaker 1: get into trouble, I think they will lower interest rates.

919
00:50:53,080 --> 00:50:54,759
Speaker 1: So it's how do you get a recession when the

920
00:50:54,800 --> 00:50:57,719
Speaker 1: Fed now is on the right side of the monetary

921
00:50:57,760 --> 00:51:01,400
Speaker 1: policy cycle and they have room to rates if that's necessary.

922
00:51:01,440 --> 00:51:03,799
Speaker 1: But I raised the question of whether that will even

923
00:51:03,880 --> 00:51:07,120
Speaker 1: be necessary, because I think the economy remains resilient. I

924
00:51:07,120 --> 00:51:09,960
Speaker 1: think interest rates are appropriate where they are right now,

925
00:51:10,440 --> 00:51:12,839
Speaker 1: and so I don't see a recession. And I've been

926
00:51:12,840 --> 00:51:16,719
Speaker 1: promoting the idea of the roaring twenty twenties scenarios.

927
00:51:16,800 --> 00:51:19,000
Speaker 2: Well, its twenty four, so you're saying four or five,

928
00:51:19,040 --> 00:51:23,080
Speaker 2: six more years to go. Yeah, So it's interesting because.

929
00:51:22,840 --> 00:51:25,480
Speaker 1: And those could be the biggest of the roar.

930
00:51:25,640 --> 00:51:28,680
Speaker 2: Always the end of the bull market is the greatest gains.

931
00:51:29,160 --> 00:51:32,040
Speaker 2: So when we look back at the past two years,

932
00:51:32,040 --> 00:51:34,880
Speaker 2: we're recording this towards the end of the first quarter

933
00:51:34,920 --> 00:51:39,040
Speaker 2: in twenty twenty four, twenty twenty two, SMP was off

934
00:51:39,320 --> 00:51:42,719
Speaker 2: not quite twenty percent, about nineteen percent, the NAZDAK down

935
00:51:42,760 --> 00:51:48,440
Speaker 2: about thirty percent. No real recession on an inflation adjusted basis.

936
00:51:48,719 --> 00:51:51,759
Speaker 2: You had a couple of negative quoters of GDP, but

937
00:51:51,880 --> 00:51:57,440
Speaker 2: you never had the full broad requirements of an actual recession.

938
00:51:57,920 --> 00:52:00,640
Speaker 2: And then the great recovery in twenty two twenty three.

939
00:52:02,200 --> 00:52:04,880
Speaker 2: Where does that leave us standing here? You mentioned not

940
00:52:04,960 --> 00:52:08,080
Speaker 2: too long ago that hey, this market's come a long way,

941
00:52:08,400 --> 00:52:09,640
Speaker 2: maybe it's time for a breather.

942
00:52:09,960 --> 00:52:14,200
Speaker 1: Yeah. About a year ago, really now, I predicted that

943
00:52:14,239 --> 00:52:16,600
Speaker 1: we would get to fifty four hundred by the end

944
00:52:16,600 --> 00:52:19,239
Speaker 1: of this year, not that far away. That's that's the

945
00:52:19,280 --> 00:52:21,640
Speaker 1: problem I'm having here, is like, I don't want to

946
00:52:21,640 --> 00:52:23,040
Speaker 1: see this by the middle of the year.

947
00:52:23,520 --> 00:52:25,960
Speaker 2: I was going to say, you go away in August

948
00:52:26,000 --> 00:52:27,239
Speaker 2: and take the rest of the year off.

949
00:52:27,400 --> 00:52:29,560
Speaker 1: The same thing happened last year. By the way, I

950
00:52:29,560 --> 00:52:32,080
Speaker 1: thought we'd get to forty six hundred, we got to

951
00:52:32,080 --> 00:52:34,920
Speaker 1: forty eight hundred, but we got to forty six hundred

952
00:52:35,120 --> 00:52:36,719
Speaker 1: by the middle of last year's to the end of

953
00:52:36,760 --> 00:52:39,480
Speaker 1: last year, and so yeah, I said, well, yeah, I'm

954
00:52:39,520 --> 00:52:41,080
Speaker 1: not going to raise my forecast here, and then I

955
00:52:41,120 --> 00:52:44,600
Speaker 1: did actually anticipate the correction that we had ten percent,

956
00:52:45,000 --> 00:52:47,240
Speaker 1: and then that was down. The low was made October

957
00:52:47,320 --> 00:52:50,120
Speaker 1: twenty seventh, and it's been vertical since then. As the

958
00:52:50,160 --> 00:52:50,680
Speaker 1: age and.

959
00:52:50,600 --> 00:52:54,080
Speaker 2: Just to put this in context, you take the sell

960
00:52:54,080 --> 00:52:56,440
Speaker 2: off in twenty twenty two, you take the recovery in

961
00:52:56,480 --> 00:52:59,840
Speaker 2: twenty twenty three, and the average over those two years,

962
00:53:00,239 --> 00:53:03,040
Speaker 2: you're flat for two years. Yeah, that's why every time

963
00:53:03,080 --> 00:53:05,160
Speaker 2: people say, oh, we've come so far, so fast. Yeah,

964
00:53:05,400 --> 00:53:07,719
Speaker 2: flat over two years doesn't seem that fast, not much

965
00:53:07,760 --> 00:53:11,240
Speaker 2: of a return, that's exactly right. So you're talking about

966
00:53:11,280 --> 00:53:15,520
Speaker 2: AI again. Many people seem to like to talk about

967
00:53:15,560 --> 00:53:18,120
Speaker 2: that as a bubble. What do you see going on

968
00:53:18,200 --> 00:53:19,160
Speaker 2: in that sector?

969
00:53:19,920 --> 00:53:24,800
Speaker 1: Well, I think at this point, given what I've experienced

970
00:53:24,880 --> 00:53:29,120
Speaker 1: personally with things like chat GPT, you know when I

971
00:53:29,160 --> 00:53:32,719
Speaker 1: think the roaring twenty twenties have started to get discounted

972
00:53:32,760 --> 00:53:36,160
Speaker 1: in the stock market. On November thirtieth, twenty twenty two,

973
00:53:36,600 --> 00:53:41,799
Speaker 1: that's when open Ai introduced chat GPT, and so I

974
00:53:41,800 --> 00:53:44,800
Speaker 1: immediately signed up for the twenty dollars a month version

975
00:53:44,840 --> 00:53:45,080
Speaker 1: of it.

976
00:53:45,239 --> 00:53:50,200
Speaker 2: Pretty reasonable, right, twenty dollars a month through your Microsoft account.

977
00:53:50,320 --> 00:53:52,680
Speaker 1: Yeah, And I thought, man, this is really great. Maybe

978
00:53:52,680 --> 00:53:56,200
Speaker 1: it'll write my research for me and I can just

979
00:53:57,840 --> 00:54:00,520
Speaker 1: do it from the beach. And I found out that

980
00:54:00,560 --> 00:54:05,279
Speaker 1: I was spending more time finding the mistakes that you know,

981
00:54:05,400 --> 00:54:06,319
Speaker 1: I mean, it's.

982
00:54:06,320 --> 00:54:08,440
Speaker 2: You know, I mean, it's only going to get better.

983
00:54:08,560 --> 00:54:10,400
Speaker 1: It's only going to get better. I mean, right now,

984
00:54:10,600 --> 00:54:13,000
Speaker 1: it's kind of like auto fill. You know, where you're

985
00:54:13,080 --> 00:54:16,080
Speaker 1: typing on word and it starts to anticipate what the

986
00:54:16,120 --> 00:54:18,880
Speaker 1: next word might be. So it's kind of like autofill

987
00:54:18,920 --> 00:54:21,800
Speaker 1: and speed and steroids. I mean, it actually gets you

988
00:54:21,840 --> 00:54:24,880
Speaker 1: back to the old idea that Benjamin Franklin gave us,

989
00:54:24,920 --> 00:54:28,560
Speaker 1: which was a speed. You know, haste makes waste, and

990
00:54:28,640 --> 00:54:31,200
Speaker 1: so it's too fast. It sounds kind of credible. And

991
00:54:31,560 --> 00:54:35,560
Speaker 1: I saw somebody did a some really beautiful videos and

992
00:54:35,640 --> 00:54:38,120
Speaker 1: one was a bull in a china shop and the

993
00:54:38,120 --> 00:54:40,960
Speaker 1: bull kept hitting all the china and none of it broke.

994
00:54:41,280 --> 00:54:43,680
Speaker 1: So you know, the editor has to go back and

995
00:54:43,920 --> 00:54:48,239
Speaker 1: explain to the artificial intelligence that when the bull hits

996
00:54:48,280 --> 00:54:51,239
Speaker 1: that you got to show what is being broken. So

997
00:54:51,520 --> 00:54:56,160
Speaker 1: it requires a tremendous amount of handholding, babysitting, editing from

998
00:54:56,160 --> 00:54:58,759
Speaker 1: what I've seen so far, but so much money is

999
00:54:58,800 --> 00:55:04,160
Speaker 1: being thrown in this area. It's basically just hypercomputing. It's

1000
00:55:04,520 --> 00:55:07,400
Speaker 1: the ability to anticipate what's going to come next. But

1001
00:55:07,520 --> 00:55:10,200
Speaker 1: some human is going to continue to need to monitor

1002
00:55:10,239 --> 00:55:10,720
Speaker 1: these things.

1003
00:55:11,000 --> 00:55:14,880
Speaker 2: I have personally found that I spend less time with

1004
00:55:15,160 --> 00:55:18,839
Speaker 2: Google when I'm researching a topic and more time with

1005
00:55:18,920 --> 00:55:23,120
Speaker 2: either Chat gbtor Perplexity, which is either Claude or I'm

1006
00:55:23,160 --> 00:55:27,800
Speaker 2: forgetting the other engine that drives that because it organizes

1007
00:55:27,880 --> 00:55:31,040
Speaker 2: the answers in such a usable ways. And Google has

1008
00:55:31,160 --> 00:55:33,919
Speaker 2: just become a MESSI of ads. Yeah, they were getting

1009
00:55:33,920 --> 00:55:36,279
Speaker 2: away with us for a long time and suddenly people

1010
00:55:36,280 --> 00:55:40,120
Speaker 2: will accuse them of being a monopoly. Clearly they're not.

1011
00:55:40,440 --> 00:55:43,279
Speaker 2: If a simple app can eat their lunch the way they.

1012
00:55:43,239 --> 00:55:46,759
Speaker 1: Well, that's the wonderful thing about technology is capitalists use

1013
00:55:46,840 --> 00:55:49,279
Speaker 1: technology are always looking for opportunities to put somebody out

1014
00:55:49,320 --> 00:55:52,360
Speaker 1: of business that's got a great business model. I understand

1015
00:55:52,360 --> 00:55:55,360
Speaker 1: that the CEO of Nvidia runs the company with the

1016
00:55:55,400 --> 00:55:57,920
Speaker 1: assumption that it's going to go out of business unless

1017
00:55:58,000 --> 00:56:00,840
Speaker 1: he's constantly thinking about what the next new new thing is.

1018
00:56:01,400 --> 00:56:04,840
Speaker 1: And you know, he started out with gaming and then

1019
00:56:05,120 --> 00:56:09,439
Speaker 1: went to bitcoin mining, and those worked until they didn't work.

1020
00:56:09,480 --> 00:56:12,759
Speaker 1: And now he's got GPU and he realizes that there's

1021
00:56:12,760 --> 00:56:14,240
Speaker 1: going to be something after GPU.

1022
00:56:14,800 --> 00:56:17,800
Speaker 2: Since you mentioned bitcoin, I saw a quote of yours

1023
00:56:18,440 --> 00:56:23,680
Speaker 2: asking the question, is bitcoin digital tulips? Tell us about bitcoin.

1024
00:56:23,920 --> 00:56:28,040
Speaker 1: I don't want to get any hate emails from people who.

1025
00:56:27,880 --> 00:56:30,400
Speaker 2: Love have fun being poor doctor ed.

1026
00:56:30,560 --> 00:56:33,280
Speaker 1: Well, that's that's the thing is. I want to confess

1027
00:56:33,320 --> 00:56:35,960
Speaker 1: that I've got a tremendous amount of fomo, you know

1028
00:56:36,360 --> 00:56:38,880
Speaker 1: when it comes to bitcoin. You know, I kept looking

1029
00:56:38,920 --> 00:56:41,600
Speaker 1: at it that you know, when it was two digits

1030
00:56:41,600 --> 00:56:44,200
Speaker 1: in price and three digits and it just kept going

1031
00:56:44,280 --> 00:56:46,160
Speaker 1: up and up, And I said this is this this,

1032
00:56:46,360 --> 00:56:48,799
Speaker 1: this has got to be a bubble. It may still

1033
00:56:48,880 --> 00:56:50,920
Speaker 1: be a bubble in the sense that it's there is

1034
00:56:50,960 --> 00:56:56,279
Speaker 1: a comparison with the tool of bubble in Holland centuries ago,

1035
00:56:56,680 --> 00:56:59,800
Speaker 1: but there's a huge difference, and that is once a

1036
00:57:00,080 --> 00:57:02,160
Speaker 1: u the tulips are sold to all the suckers. And

1037
00:57:02,560 --> 00:57:05,040
Speaker 1: at Amsterdam that was the end. You know, that was

1038
00:57:05,040 --> 00:57:07,840
Speaker 1: the beginning of the end of the bubble burst real quick.

1039
00:57:08,280 --> 00:57:11,919
Speaker 1: What's unique about bitcoin is it's a market that's opened

1040
00:57:11,960 --> 00:57:15,680
Speaker 1: twenty four by seven on a global basis, and there's

1041
00:57:15,800 --> 00:57:18,440
Speaker 1: a lot of people like myself with Fomo. I'll probably

1042
00:57:18,480 --> 00:57:19,320
Speaker 1: get in at the top.

1043
00:57:20,160 --> 00:57:21,880
Speaker 2: Let me know when you buy, so I could tell

1044
00:57:21,960 --> 00:57:23,680
Speaker 2: on I have a little bit. I have a little

1045
00:57:23,680 --> 00:57:25,680
Speaker 2: bit of bitcoin and a little bit of ether that

1046
00:57:25,720 --> 00:57:28,240
Speaker 2: we bought a couple of years ago. I mean, maybe

1047
00:57:28,280 --> 00:57:30,480
Speaker 2: I'm break even. I don't even pay attention to it.

1048
00:57:30,960 --> 00:57:33,919
Speaker 2: I think of it as like a single company, like, hey,

1049
00:57:33,920 --> 00:57:36,080
Speaker 2: it's an Amazon or an Apple, and if it works out, great.

1050
00:57:36,160 --> 00:57:38,480
Speaker 1: I have not tell anybody that they're wrong right to

1051
00:57:38,520 --> 00:57:41,520
Speaker 1: have it. I mean, I just you know, you need

1052
00:57:41,840 --> 00:57:44,440
Speaker 1: on a global basis, you continue to have buyers, and

1053
00:57:45,240 --> 00:57:46,080
Speaker 1: so far, so good.

1054
00:57:46,440 --> 00:57:48,080
Speaker 2: It would have been nice to buy it when it

1055
00:57:48,160 --> 00:57:50,000
Speaker 2: was one hundred bucks. That would have been, that would

1056
00:57:50,000 --> 00:57:50,200
Speaker 2: have been.

1057
00:57:50,200 --> 00:57:53,600
Speaker 1: Look, I'm an old fashioned kind of econdom miss strategy.

1058
00:57:53,640 --> 00:57:56,160
Speaker 1: So I need earnings, I need dividends, I need rents.

1059
00:57:56,160 --> 00:57:58,480
Speaker 1: I need something I can I can value. I don't

1060
00:57:58,480 --> 00:57:59,960
Speaker 1: really have any any of that.

1061
00:58:00,320 --> 00:58:03,160
Speaker 2: You're not a commodity investor, really not really No.

1062
00:58:03,240 --> 00:58:05,160
Speaker 1: I mean commodities go up, they go down, you know,

1063
00:58:05,200 --> 00:58:08,000
Speaker 1: and it's the old story. The best cure for high

1064
00:58:08,000 --> 00:58:11,520
Speaker 1: commodity prices is high commodity classic. But again, that makes

1065
00:58:11,520 --> 00:58:15,000
Speaker 1: a bitcoin different because you know, the algorithm is such

1066
00:58:15,040 --> 00:58:18,720
Speaker 1: that higher prices don't lead to more supply, though it

1067
00:58:18,760 --> 00:58:22,480
Speaker 1: does lead to more competitive doge coins and things like that.

1068
00:58:22,600 --> 00:58:25,440
Speaker 2: Huh really interesting. Let's talk about the book that you

1069
00:58:25,520 --> 00:58:28,800
Speaker 2: put out not too long ago, Predicting the Markets. You

1070
00:58:29,000 --> 00:58:34,280
Speaker 2: cover four decades as an economist and a strategist on

1071
00:58:34,360 --> 00:58:37,600
Speaker 2: Wall Street, and you put out so much research every day.

1072
00:58:37,840 --> 00:58:40,520
Speaker 2: How on earth did you find the time to put

1073
00:58:40,560 --> 00:58:41,160
Speaker 2: this together?

1074
00:58:41,920 --> 00:58:44,760
Speaker 1: Well, I don't play golf, okay, so that saves a

1075
00:58:44,800 --> 00:58:47,000
Speaker 1: lot of time. I do play tennis, yeah, and that's

1076
00:58:47,000 --> 00:58:49,480
Speaker 1: only about an hour. But I really enjoy it. And

1077
00:58:49,680 --> 00:58:52,400
Speaker 1: when it comes to the book, you know, I've been

1078
00:58:52,400 --> 00:58:55,000
Speaker 1: doing this for a while, you know, more than four decades,

1079
00:58:55,040 --> 00:58:59,280
Speaker 1: and by twenty fifteen sixteen, I got inspired to like

1080
00:58:59,520 --> 00:59:02,280
Speaker 1: put together there what I'd learned and mistakes made and

1081
00:59:02,720 --> 00:59:06,600
Speaker 1: insights accumulated. I felt like, you know, anybody who's just

1082
00:59:06,680 --> 00:59:09,080
Speaker 1: kind of getting into the business, they're not going to

1083
00:59:09,080 --> 00:59:12,560
Speaker 1: be able to experience what I experienced. It's exactly what

1084
00:59:12,600 --> 00:59:16,680
Speaker 1: the title says. As a professional autobiography, I actually did

1085
00:59:16,840 --> 00:59:18,760
Speaker 1: have quite quite a good time writing it.

1086
00:59:19,000 --> 00:59:25,440
Speaker 2: And you talk about predicting everything from stocks, bonds, commodities, currencies, earnings.

1087
00:59:26,640 --> 00:59:30,920
Speaker 2: How challenging is it predicting the future when you know

1088
00:59:31,000 --> 00:59:33,040
Speaker 2: the world is so uncertain and there are so many

1089
00:59:33,120 --> 00:59:34,040
Speaker 2: random events.

1090
00:59:34,520 --> 00:59:36,640
Speaker 1: Well, that's what makes it so interesting, right is you

1091
00:59:36,680 --> 00:59:40,760
Speaker 1: know there's no clear way to get it right all

1092
00:59:40,800 --> 00:59:41,240
Speaker 1: the time.

1093
00:59:41,600 --> 00:59:44,400
Speaker 2: But you've gotten it a lot more right than most people.

1094
00:59:44,680 --> 00:59:47,040
Speaker 2: And we'll go through a quick list of things. I

1095
00:59:47,120 --> 00:59:50,200
Speaker 2: have to ask you what you saw in each of

1096
00:59:50,240 --> 00:59:53,680
Speaker 2: these that led you to the right prediction. Starting with

1097
00:59:54,360 --> 00:59:59,160
Speaker 2: in the early eighties, you identify disinflation coming from globalization

1098
00:59:59,800 --> 01:00:02,960
Speaker 2: and technology, and the bullish result of that into the

1099
01:00:03,000 --> 01:00:05,840
Speaker 2: equity markets. What were you looking at that led to

1100
01:00:05,880 --> 01:00:06,560
Speaker 2: that conclusion.

1101
01:00:07,160 --> 01:00:11,560
Speaker 1: Well, in the early eighties, my focus was on disinflation

1102
01:00:12,080 --> 01:00:17,120
Speaker 1: attributable to the FED tightening up on monetary policy, and

1103
01:00:17,160 --> 01:00:19,640
Speaker 1: that we would have a pretty severe recession and that

1104
01:00:19,720 --> 01:00:22,800
Speaker 1: would potentially be deflationary, and.

1105
01:00:22,720 --> 01:00:25,800
Speaker 2: We ended up with a double what was it eighty

1106
01:00:25,840 --> 01:00:27,320
Speaker 2: and eighty one or eighty and eighty two.

1107
01:00:27,400 --> 01:00:34,040
Speaker 1: Yeah, But then along the way it globalization became a

1108
01:00:34,040 --> 01:00:37,600
Speaker 1: big deal in terms of my analysis, especially with the

1109
01:00:37,680 --> 01:00:39,640
Speaker 1: end of the Cold War in the late nineteen eighties.

1110
01:00:40,040 --> 01:00:43,840
Speaker 1: I had observed, based on the USCPI going all the

1111
01:00:43,880 --> 01:00:46,840
Speaker 1: way back to the eighteen hundreds, the CPI has these

1112
01:00:46,880 --> 01:00:50,840
Speaker 1: peaks historically, they're not random, They're actually associated with wars.

1113
01:00:51,520 --> 01:00:56,160
Speaker 1: And so my thought was that wars are obviously inflationary.

1114
01:00:56,720 --> 01:01:01,600
Speaker 1: You know, world trade gets cut off, competition is cut off,

1115
01:01:01,720 --> 01:01:05,400
Speaker 1: Commodity prices go up during war times. And so I said, well,

1116
01:01:05,440 --> 01:01:07,360
Speaker 1: wait a second, So if this is the end of

1117
01:01:07,720 --> 01:01:10,600
Speaker 1: a great war, the Cold War was, you know, there

1118
01:01:10,680 --> 01:01:14,200
Speaker 1: was some heat to it between the Vietnam and Serbia

1119
01:01:14,280 --> 01:01:17,440
Speaker 1: and all that, but it was maybe even a continuation

1120
01:01:17,560 --> 01:01:20,680
Speaker 1: of World War Two in some ways.

1121
01:01:21,000 --> 01:01:24,120
Speaker 2: Big spike in the mid forties early fifties and inflation.

1122
01:01:24,280 --> 01:01:28,760
Speaker 1: Yeah, that was actually one of the models that I

1123
01:01:28,800 --> 01:01:31,320
Speaker 1: looked at for thinking about the current situation, is that

1124
01:01:31,560 --> 01:01:33,960
Speaker 1: we had this huge spike in the after the war

1125
01:01:34,280 --> 01:01:37,320
Speaker 1: in durable goods inflation because all the soldiers came back

1126
01:01:37,800 --> 01:01:41,440
Speaker 1: and they wanted cars, and Ford was building bombers, and

1127
01:01:41,520 --> 01:01:43,760
Speaker 1: so it took him a couple of years to retool,

1128
01:01:44,240 --> 01:01:47,360
Speaker 1: and then all those durable goods inflation came down like

1129
01:01:47,400 --> 01:01:50,320
Speaker 1: a stone, just the way it did in the current environment.

1130
01:01:50,360 --> 01:01:52,840
Speaker 1: When we saw durable goods inflation going up with the

1131
01:01:52,840 --> 01:01:56,600
Speaker 1: supply disruptions, and then once the disruptions were ameliorated, it

1132
01:01:56,680 --> 01:01:57,600
Speaker 1: came right back down.

1133
01:01:57,880 --> 01:02:00,840
Speaker 2: I think that's the best parallel to the post. And then, yes,

1134
01:02:00,960 --> 01:02:03,960
Speaker 2: I agree people talk about the seventies and the nineties.

1135
01:02:04,000 --> 01:02:07,240
Speaker 2: Really you think about moving from a wartime footing to

1136
01:02:07,320 --> 01:02:11,680
Speaker 2: peace time footing and that whole transition and and up consumer.

1137
01:02:11,400 --> 01:02:15,000
Speaker 1: Demas So when the Cold War came to an end

1138
01:02:15,040 --> 01:02:17,200
Speaker 1: and the late edies of Berlin Well comes down, most

1139
01:02:17,280 --> 01:02:20,280
Speaker 1: economists are saying, this is going to be terrible for inflation,

1140
01:02:20,320 --> 01:02:22,960
Speaker 1: because all these people behind the Iron Curtain are going

1141
01:02:23,000 --> 01:02:25,160
Speaker 1: to want everything. It's going to be terrible for interest

1142
01:02:25,240 --> 01:02:27,640
Speaker 1: rates because they're going to need to borrow money. You know,

1143
01:02:27,640 --> 01:02:29,240
Speaker 1: it could work the other way around. It could be

1144
01:02:29,240 --> 01:02:33,800
Speaker 1: that all these people create bigger markets, more competition, more

1145
01:02:33,840 --> 01:02:37,280
Speaker 1: globalization as we call it now. Detente was a very

1146
01:02:37,320 --> 01:02:38,880
Speaker 1: powerful disinflationary force.

1147
01:02:39,400 --> 01:02:42,560
Speaker 2: Really interesting in ninety three. We talked about this earlier,

1148
01:02:42,600 --> 01:02:44,400
Speaker 2: but I want to spend a little more time on this.

1149
01:02:45,120 --> 01:02:50,400
Speaker 2: You called technologies growing impact the high tech revolution. Like

1150
01:02:50,560 --> 01:02:55,640
Speaker 2: that's a big, weighty phrase. What made you realize, Hey,

1151
01:02:55,680 --> 01:02:59,160
Speaker 2: this is more than just an incremental shift in how

1152
01:02:59,200 --> 01:03:03,040
Speaker 2: we spend money, this is revolutionary. What were you looking at?

1153
01:03:03,160 --> 01:03:04,680
Speaker 1: I have to admit him a bit of a geek.

1154
01:03:04,720 --> 01:03:08,440
Speaker 1: I grew up in California, in Campbell, California, which is

1155
01:03:08,480 --> 01:03:11,440
Speaker 1: right next to San Jose, and my father worked for IBM,

1156
01:03:11,840 --> 01:03:14,960
Speaker 1: and this was back in the sixties, and he used

1157
01:03:15,000 --> 01:03:18,280
Speaker 1: to bring home for tray and Cobol manuals and things

1158
01:03:18,320 --> 01:03:22,120
Speaker 1: like that. I had a lot of technology around me

1159
01:03:22,160 --> 01:03:24,960
Speaker 1: in California. I wish they wouldn't have moved back to

1160
01:03:25,000 --> 01:03:27,320
Speaker 1: the Northeast because I'd probably be a billionaire by now

1161
01:03:27,360 --> 01:03:29,640
Speaker 1: because I would have got into all that and the

1162
01:03:29,680 --> 01:03:35,200
Speaker 1: better weather and better weather. But yes, I've always had

1163
01:03:35,240 --> 01:03:38,800
Speaker 1: this fascination with technology, and it's been my view that

1164
01:03:39,440 --> 01:03:46,000
Speaker 1: economics has been badly merchandised as the optimal allocation of

1165
01:03:46,040 --> 01:03:49,720
Speaker 1: scarce resources. That's just a depressing idea that what, there's

1166
01:03:49,760 --> 01:03:51,400
Speaker 1: only so much and we all have to figure out

1167
01:03:51,440 --> 01:03:53,920
Speaker 1: the best way to distribute it. Well, no, no, no,

1168
01:03:54,120 --> 01:03:57,240
Speaker 1: economics is actually about technology solving that problem.

1169
01:03:57,920 --> 01:03:59,600
Speaker 2: It's about abundance, not scarcity.

1170
01:03:59,640 --> 01:04:03,720
Speaker 1: Yeah, and so I started to you know, I was

1171
01:04:03,760 --> 01:04:06,760
Speaker 1: an early believer on the Internet, and so early that

1172
01:04:06,920 --> 01:04:09,880
Speaker 1: in nineteen ninety five, as I mentioned before, I had

1173
01:04:09,880 --> 01:04:13,320
Speaker 1: my own website and you know, I had publications on there.

1174
01:04:13,320 --> 01:04:16,560
Speaker 1: They didn't the charts didn't automatically update. I wrote some

1175
01:04:16,640 --> 01:04:18,960
Speaker 1: of it. But then I had a software programmer who

1176
01:04:19,000 --> 01:04:21,560
Speaker 1: knew what we was doing, kind of really polish it

1177
01:04:21,600 --> 01:04:25,440
Speaker 1: off again. At Deutsche Bank, which you know, CJ. L

1178
01:04:25,480 --> 01:04:29,160
Speaker 1: R's Deutsche Bank, we had Frank Quatron's team coming in

1179
01:04:29,160 --> 01:04:31,920
Speaker 1: in the nineties, so there was a lot of technology

1180
01:04:31,920 --> 01:04:35,440
Speaker 1: analysts and so our morning meetings were full of discussions

1181
01:04:35,480 --> 01:04:38,840
Speaker 1: about technology and what impact it was doing. I mean,

1182
01:04:38,880 --> 01:04:41,200
Speaker 1: even when I was at EF Hutton, which was in

1183
01:04:41,280 --> 01:04:44,360
Speaker 1: the eighties, there was a lot of excitement about a

1184
01:04:44,400 --> 01:04:49,040
Speaker 1: company called Mitel, which was a telecom company. And as

1185
01:04:49,080 --> 01:04:53,440
Speaker 1: a matter of fact, you know, even back then there

1186
01:04:53,480 --> 01:04:55,680
Speaker 1: was there was a lot of hoopla about all this stuff.

1187
01:04:55,720 --> 01:04:57,720
Speaker 2: Way did quadt Trone end up? Was it? Credits? Was

1188
01:04:57,800 --> 01:04:59,040
Speaker 2: first Boston? I remember it was.

1189
01:04:59,160 --> 01:05:01,840
Speaker 1: I don't think, I think, I think, I really don't know.

1190
01:05:01,880 --> 01:05:04,200
Speaker 1: I think eventually he went off on his own, but

1191
01:05:04,880 --> 01:05:06,320
Speaker 1: you know, he did extremely well.

1192
01:05:06,920 --> 01:05:10,640
Speaker 2: When was it clear to you that the technology revolution

1193
01:05:11,400 --> 01:05:13,000
Speaker 2: had morphed into a bubble?

1194
01:05:13,040 --> 01:05:16,680
Speaker 1: In the late nineties, When Alan Greenspan started to talking

1195
01:05:16,720 --> 01:05:20,000
Speaker 1: about justifying what had happened in the stock market as

1196
01:05:20,040 --> 01:05:24,120
Speaker 1: a lottery, what was that. It was nineteen ninety nine.

1197
01:05:24,320 --> 01:05:29,840
Speaker 1: He gave a testimony about the stock market and he said, well,

1198
01:05:29,880 --> 01:05:32,240
Speaker 1: you know, yeah, things look stretched, but you know, you

1199
01:05:32,320 --> 01:05:34,280
Speaker 1: have to look at the stock market as a lottery.

1200
01:05:34,720 --> 01:05:38,360
Speaker 1: People buy a lottery ticket. It's not necessarily a rational thing,

1201
01:05:38,440 --> 01:05:40,800
Speaker 1: but you know, the payout is so great that it

1202
01:05:40,840 --> 01:05:45,640
Speaker 1: attracts a lot of buyers. So he gave what I

1203
01:05:45,680 --> 01:05:49,920
Speaker 1: call the lottery testimony, and that was one aspect of it.

1204
01:05:50,720 --> 01:05:53,480
Speaker 1: The thing that really nailed it for me, you know,

1205
01:05:53,600 --> 01:05:57,920
Speaker 1: it really was amazing timing was Barons ran a piece.

1206
01:05:57,960 --> 01:05:59,680
Speaker 1: I think it was actually at the beginning of two

1207
01:05:59,680 --> 01:06:02,720
Speaker 1: thousand and maybe at late nineteen ninety nine, where they

1208
01:06:02,760 --> 01:06:05,959
Speaker 1: said that all these dot coms were burning cash and

1209
01:06:06,040 --> 01:06:07,440
Speaker 1: they weren't going to get another round.

1210
01:06:07,800 --> 01:06:11,600
Speaker 2: Amazon dot Bomb, I think was the headline of I

1211
01:06:11,640 --> 01:06:16,439
Speaker 2: don't remember if that was Howard Marx or Baron's or both. Yeah,

1212
01:06:16,840 --> 01:06:20,360
Speaker 2: but that was January two thousand. The timing was pretty good.

1213
01:06:20,400 --> 01:06:22,840
Speaker 1: I think also Jeff Bezos made the front cover of

1214
01:06:23,240 --> 01:06:26,120
Speaker 1: Time magazine and that was the Curse.

1215
01:06:26,600 --> 01:06:30,040
Speaker 2: December ninety nine. Yeah, it was a quarter later. It

1216
01:06:30,080 --> 01:06:33,560
Speaker 2: was done. Let's talk about the two thousands. You identified

1217
01:06:33,600 --> 01:06:38,000
Speaker 2: the coming commodity boom after China joined the World Trade

1218
01:06:38,080 --> 01:06:43,040
Speaker 2: Organization in two thousand and one. In hindsight, that's perfectly obvious.

1219
01:06:43,560 --> 01:06:45,520
Speaker 2: A lot of people missed it. What led you to

1220
01:06:45,560 --> 01:06:46,320
Speaker 2: that conclusion.

1221
01:06:46,520 --> 01:06:50,520
Speaker 1: I'd seen lots of photographs and a few videos of

1222
01:06:50,520 --> 01:06:53,680
Speaker 1: what China looked like in the nineteen eighties. Not China overall,

1223
01:06:53,680 --> 01:06:56,520
Speaker 1: but you know, some of the urban areas Shanghai and

1224
01:06:56,520 --> 01:06:59,520
Speaker 1: things like that. They're all riding bicycles. They're all riding

1225
01:06:59,520 --> 01:07:02,400
Speaker 1: bicycles the nineteen eighties. And then I'm looking at some

1226
01:07:02,480 --> 01:07:05,120
Speaker 1: of these pictures of what's going on after they joined

1227
01:07:05,160 --> 01:07:10,360
Speaker 1: the World Trade Organization in two thousand and eleven and

1228
01:07:10,560 --> 01:07:14,800
Speaker 1: two thousand and one. They're all riding cars, and I'm

1229
01:07:14,840 --> 01:07:18,760
Speaker 1: reading about how you're getting all this migration away from

1230
01:07:19,640 --> 01:07:21,840
Speaker 1: the villages to the towns.

1231
01:07:21,520 --> 01:07:23,040
Speaker 2: And farms of the city.

1232
01:07:23,120 --> 01:07:25,840
Speaker 1: Yeah, from the farms of the city, and so urbanization

1233
01:07:26,280 --> 01:07:29,480
Speaker 1: always has a tremendous impact on an economy. We started

1234
01:07:29,480 --> 01:07:32,320
Speaker 1: to see all these ghost cities being built because the

1235
01:07:32,400 --> 01:07:36,760
Speaker 1: Chinese viewed empty apartments as a good place to stash

1236
01:07:36,880 --> 01:07:39,960
Speaker 1: some of their wealth. The commodity demand was pretty obvious,

1237
01:07:39,960 --> 01:07:42,400
Speaker 1: and you could see it in the charts, and I

1238
01:07:42,560 --> 01:07:48,120
Speaker 1: was recommending overweighting materials, energy and industrials MAI. This is

1239
01:07:48,160 --> 01:07:53,960
Speaker 1: after I and everybody else recommended TMT, you know, technology,

1240
01:07:54,160 --> 01:07:56,800
Speaker 1: media and telecom. That was what we all did in

1241
01:07:56,840 --> 01:07:59,600
Speaker 1: the nineteen nineties, and then in the two thousand there

1242
01:07:59,680 --> 01:08:00,680
Speaker 1: was MAI.

1243
01:08:01,360 --> 01:08:04,080
Speaker 2: So let's talk about the period leading up to the

1244
01:08:04,120 --> 01:08:07,760
Speaker 2: Great Financial Crisis. It was a lonely time to be

1245
01:08:07,800 --> 01:08:11,640
Speaker 2: a bear. Everybody was pretty bullish. What led you to

1246
01:08:11,680 --> 01:08:15,880
Speaker 2: turn bearish on financial stocks before the GFC?

1247
01:08:16,040 --> 01:08:18,880
Speaker 1: Yeah, Look, I don't want to take any credit for

1248
01:08:18,920 --> 01:08:23,360
Speaker 1: getting that market right rather than getting the financials, which actually,

1249
01:08:23,360 --> 01:08:25,320
Speaker 1: what I think about it was a pretty good call.

1250
01:08:26,439 --> 01:08:29,600
Speaker 1: But yeah, I think in two thousand and seven we

1251
01:08:29,640 --> 01:08:34,920
Speaker 1: started to get lots of news suggesting that the subprime

1252
01:08:35,479 --> 01:08:38,400
Speaker 1: mortgage market was going to take the could take the

1253
01:08:38,439 --> 01:08:43,519
Speaker 1: system down, and so I recommended underwaiting financials. You know,

1254
01:08:43,880 --> 01:08:46,640
Speaker 1: the better call would have been just get out of financials.

1255
01:08:46,680 --> 01:08:51,560
Speaker 2: I recall being on TV in early seven talking about

1256
01:08:51,960 --> 01:08:56,680
Speaker 2: derivatives and subprime and the anchors laughed at me. In hindsight,

1257
01:08:56,760 --> 01:09:00,559
Speaker 2: we all know what happened. Yeah, but throughout seven there

1258
01:09:00,720 --> 01:09:03,960
Speaker 2: wasn't a lot of love for anyone who was bearished. No, No,

1259
01:09:04,280 --> 01:09:06,040
Speaker 2: what sort of pushback did you get at the farm

1260
01:09:06,120 --> 01:09:08,920
Speaker 2: when you were talking about by then you had already

1261
01:09:09,160 --> 01:09:09,960
Speaker 2: launched your own.

1262
01:09:09,840 --> 01:09:11,559
Speaker 1: Firm at two thousand and seven.

1263
01:09:11,640 --> 01:09:13,800
Speaker 2: Yeah, So what sort of pushback did you get from

1264
01:09:13,840 --> 01:09:17,280
Speaker 2: clients saying underweight financials? Here was there?

1265
01:09:17,439 --> 01:09:19,960
Speaker 1: What was the response like, Well, you know, I've been

1266
01:09:20,000 --> 01:09:22,280
Speaker 1: around for a while, as I've said a few times

1267
01:09:22,479 --> 01:09:25,800
Speaker 1: on the program here, and I've got very good relationships

1268
01:09:25,800 --> 01:09:28,160
Speaker 1: with these people, and you know, many of them have

1269
01:09:28,200 --> 01:09:31,720
Speaker 1: been listening to me and you know, talking to me

1270
01:09:31,800 --> 01:09:34,880
Speaker 1: for years, so they kind of respect my opinion. I

1271
01:09:34,880 --> 01:09:37,680
Speaker 1: didn't really get much pushback. I mean, you know, I

1272
01:09:37,720 --> 01:09:39,519
Speaker 1: explained why, and they said, that makes sense.

1273
01:09:39,640 --> 01:09:42,280
Speaker 2: What about the bottom call March two thousand and nine.

1274
01:09:42,920 --> 01:09:46,759
Speaker 1: I'm very proud of that one. I was at Merrill Lynch,

1275
01:09:46,760 --> 01:09:49,719
Speaker 1: one of my accounts was Mary Lynch Asset Management in Princeton.

1276
01:09:50,240 --> 01:09:52,840
Speaker 1: Walked into the meeting. We were all depressed. You know,

1277
01:09:53,240 --> 01:10:00,639
Speaker 1: this was actually March sixth, two before. Yeah, so March sixth,

1278
01:10:00,800 --> 01:10:03,920
Speaker 1: the official I think was March ninth. But so I

1279
01:10:03,960 --> 01:10:06,840
Speaker 1: come out of the meeting and some one of the

1280
01:10:06,840 --> 01:10:09,120
Speaker 1: traders kind of walked by. I said, how's the market?

1281
01:10:09,200 --> 01:10:12,720
Speaker 1: Said it just hit six sixty six in the S

1282
01:10:12,760 --> 01:10:15,680
Speaker 1: and P five hundred. I said, that's the double number.

1283
01:10:16,920 --> 01:10:17,639
Speaker 2: By that number.

1284
01:10:17,880 --> 01:10:22,240
Speaker 1: Yeah, so actually I used that in marketing. My thought,

1285
01:10:22,280 --> 01:10:23,479
Speaker 1: I said, you know what this is like the Da

1286
01:10:23,520 --> 01:10:26,439
Speaker 1: Vinci code. You know, it's that six sixty six? Was

1287
01:10:27,160 --> 01:10:31,519
Speaker 1: was it? But no, I I thought that, you know,

1288
01:10:31,640 --> 01:10:34,479
Speaker 1: the bull bear ratio, which I tend to follow quite

1289
01:10:34,479 --> 01:10:38,639
Speaker 1: a bit, was down to zero point six. Everybody was bearish.

1290
01:10:38,880 --> 01:10:41,280
Speaker 2: Everything was at an extreme in March on nine. I mean,

1291
01:10:41,360 --> 01:10:43,559
Speaker 2: whether you look at sentiment or what have.

1292
01:10:43,640 --> 01:10:48,240
Speaker 1: You, there's also there was the issue of mark to market,

1293
01:10:48,520 --> 01:10:55,599
Speaker 1: and I had started a conversation with Gary Ackerman, who

1294
01:10:55,680 --> 01:10:58,160
Speaker 1: was a congressman from from Queen's I actually went to

1295
01:10:58,160 --> 01:11:01,120
Speaker 1: his office and I said, you got you got to

1296
01:11:01,120 --> 01:11:03,680
Speaker 1: stop this mark to market stuff. It's it's like a

1297
01:11:03,680 --> 01:11:08,760
Speaker 1: doom loop. And he listened. He didn't say anything. But then, uh,

1298
01:11:09,600 --> 01:11:13,719
Speaker 1: it was in March, I think March, right around after

1299
01:11:13,760 --> 01:11:16,839
Speaker 1: we bought him that he gave a speech in Congress

1300
01:11:16,880 --> 01:11:19,680
Speaker 1: in which he said they were going to hold the

1301
01:11:19,720 --> 01:11:24,400
Speaker 1: hearings and try to determine why why the regulatory agency

1302
01:11:24,439 --> 01:11:26,200
Speaker 1: hadn't eliminated mark to market.

1303
01:11:26,479 --> 01:11:29,320
Speaker 2: There was a fasby rule change not long after that.

1304
01:11:29,320 --> 01:11:33,599
Speaker 2: That's right, the Financial Accounting Standards Board. In the beginning

1305
01:11:33,640 --> 01:11:35,920
Speaker 2: there was some mark to make believe we used to

1306
01:11:35,960 --> 01:11:38,719
Speaker 2: call it. But at a certain point, if you're holding

1307
01:11:38,840 --> 01:11:42,600
Speaker 2: treasuries there in your hold to maturity account, why do

1308
01:11:42,640 --> 01:11:43,400
Speaker 2: you have to market?

1309
01:11:43,520 --> 01:11:45,920
Speaker 1: Exactly? It's exactly. That was the point I made, and

1310
01:11:46,280 --> 01:11:48,839
Speaker 1: Ackerman bought into it, and he was on the committee

1311
01:11:48,880 --> 01:11:52,479
Speaker 1: that made a difference. So with all kind of so

1312
01:11:52,520 --> 01:11:55,519
Speaker 1: I kind of knew what was going on in Washington,

1313
01:11:56,080 --> 01:11:58,439
Speaker 1: which is occasionally you know, it's giving me some some

1314
01:11:58,479 --> 01:11:59,840
Speaker 1: insights and that.

1315
01:12:00,600 --> 01:12:04,679
Speaker 2: So you've been pretty steadfastly bullish throughout the twenty tens

1316
01:12:04,720 --> 01:12:07,920
Speaker 2: and twenty twenties. What has kept you on the right

1317
01:12:08,000 --> 01:12:10,280
Speaker 2: side of this bull market trend this whole time?

1318
01:12:10,320 --> 01:12:13,160
Speaker 1: As a matter of fact, during that period, I kept

1319
01:12:13,240 --> 01:12:16,000
Speaker 1: a log book or a diary of what I call

1320
01:12:16,040 --> 01:12:21,080
Speaker 1: panic attacks, and so, you know, when Brexit occurred, people.

1321
01:12:20,800 --> 01:12:23,960
Speaker 2: Got all twenty thirteen something like that.

1322
01:12:24,160 --> 01:12:28,200
Speaker 1: Yeah, something like that. Anyways, when bregsit occurred, there was

1323
01:12:29,600 --> 01:12:31,800
Speaker 1: expectations that the market would take a dive, and it

1324
01:12:31,880 --> 01:12:34,040
Speaker 1: did for two days, and I said, okay, there's another

1325
01:12:34,080 --> 01:12:36,800
Speaker 1: panic attack. Because you know, the Great Financial Crisis was

1326
01:12:36,800 --> 01:12:40,160
Speaker 1: so traumatic that ever since then, people have been looking

1327
01:12:40,160 --> 01:12:42,800
Speaker 1: over their shoulders for the next calamity.

1328
01:12:43,520 --> 01:12:47,240
Speaker 2: Isn't it always that way? Don't these dislocations create a

1329
01:12:47,280 --> 01:12:50,080
Speaker 2: sense of PTSD amongst investors?

1330
01:12:50,120 --> 01:12:52,559
Speaker 1: Yeah? I think that's true. That's absolutely true.

1331
01:12:52,680 --> 01:12:55,960
Speaker 2: I have to ask you about you've been tracking the

1332
01:12:56,000 --> 01:12:59,920
Speaker 2: importance of the baby boomers to major trends. Is it true?

1333
01:13:00,479 --> 01:13:02,599
Speaker 2: Demography is destiny? Is that act?

1334
01:13:02,840 --> 01:13:07,600
Speaker 1: Yeah? Yeah, I mean most economists don't really study or

1335
01:13:07,960 --> 01:13:11,960
Speaker 1: do much work on demographics because it's just too slow,

1336
01:13:12,200 --> 01:13:16,240
Speaker 1: you know, to have any immediate impact, and all the

1337
01:13:16,320 --> 01:13:18,960
Speaker 1: cool kids are looking at, you know, the business cycle

1338
01:13:19,000 --> 01:13:22,479
Speaker 1: and calling the next recession. But I think demography is

1339
01:13:22,520 --> 01:13:25,960
Speaker 1: extremely important. It's been very helpful to me and understanding

1340
01:13:25,960 --> 01:13:28,759
Speaker 1: the US. But I got an interest in the subject

1341
01:13:28,840 --> 01:13:31,479
Speaker 1: because of a baby boomer, and there's seventy five million

1342
01:13:31,520 --> 01:13:33,320
Speaker 1: of US, or at least that's how many were born.

1343
01:13:33,720 --> 01:13:35,360
Speaker 1: I had this notion early on in my life that

1344
01:13:35,439 --> 01:13:39,600
Speaker 1: I was special and really important. Then I started to

1345
01:13:39,680 --> 01:13:43,320
Speaker 1: work for a living and started to study the economy.

1346
01:13:43,360 --> 01:13:45,040
Speaker 1: I realized that I was just one of seventy five

1347
01:13:45,080 --> 01:13:48,240
Speaker 1: million stiffs doing the exact same thing, nothing special about

1348
01:13:48,240 --> 01:13:51,240
Speaker 1: me at all. But it did give me some As

1349
01:13:51,240 --> 01:13:53,200
Speaker 1: Peter Lynch said, you know, sometimes just look at your

1350
01:13:53,200 --> 01:13:56,120
Speaker 1: life and look around you, and I'll give you some

1351
01:13:56,280 --> 01:13:59,559
Speaker 1: real insights. So demography is important, extremely important. Obviously with

1352
01:13:59,600 --> 01:14:04,960
Speaker 1: regards to China, it's it helped me understand that. I

1353
01:14:05,000 --> 01:14:06,519
Speaker 1: mean I have for the past few years. I've been

1354
01:14:06,520 --> 01:14:09,960
Speaker 1: saying China's not investable, partly because of the demographic issue.

1355
01:14:10,520 --> 01:14:12,479
Speaker 1: The consumers aren't going to be as red hot as

1356
01:14:12,600 --> 01:14:16,400
Speaker 1: people were anticipating. But it's also the government run by Maoist.

1357
01:14:16,720 --> 01:14:19,880
Speaker 2: Huh, really interesting last question before we get to our

1358
01:14:19,880 --> 01:14:23,599
Speaker 2: favorite questions. I know you track sentiment and pay attention

1359
01:14:23,640 --> 01:14:25,920
Speaker 2: to what goes on with that. Over the past couple

1360
01:14:26,000 --> 01:14:30,240
Speaker 2: of years, especially following the surgeon inflation, the sentiment has

1361
01:14:30,280 --> 01:14:33,720
Speaker 2: been worse than the eighty seven crash, worse than the

1362
01:14:33,760 --> 01:14:39,240
Speaker 2: dot com implosion, worse than the COVID lockdown, and worse

1363
01:14:39,320 --> 01:14:43,679
Speaker 2: than the Great Financial Crisis. How does this make any sense?

1364
01:14:44,400 --> 01:14:46,920
Speaker 1: It's a great setup for the Roaring twenty twenties, right, I.

1365
01:14:46,840 --> 01:14:49,200
Speaker 2: Mean, climbing the wall of worry? Is that what it's

1366
01:14:49,200 --> 01:14:50,559
Speaker 2: going to be, climbing wall of worry?

1367
01:14:50,720 --> 01:14:53,080
Speaker 1: I mean, there's so many things to worry about.

1368
01:14:52,880 --> 01:14:54,519
Speaker 2: But there's always things to worry about.

1369
01:14:54,520 --> 01:14:56,680
Speaker 1: There's always things to worry about. I don't know. I mean,

1370
01:14:56,880 --> 01:14:59,799
Speaker 1: this pretty scary stuff right now. On a geopolitical basis,

1371
01:15:00,560 --> 01:15:02,000
Speaker 1: we didn't talk about that, but.

1372
01:15:02,240 --> 01:15:06,080
Speaker 2: Ukraine, Middle East.

1373
01:15:04,960 --> 01:15:09,400
Speaker 1: Russia, I mean all that, it's it's all concerning. Stock

1374
01:15:09,439 --> 01:15:12,519
Speaker 1: market doesn't seem to care, and I think that's because

1375
01:15:12,560 --> 01:15:14,800
Speaker 1: the oil market hasn't really had an issue with it

1376
01:15:15,240 --> 01:15:17,760
Speaker 1: so far. So that's something to watch out for.

1377
01:15:18,080 --> 01:15:20,760
Speaker 2: All right, So let's jump to our favorite questions that

1378
01:15:20,840 --> 01:15:24,400
Speaker 2: we ask all our guests, and you're the perfect person

1379
01:15:24,479 --> 01:15:27,160
Speaker 2: to ask the first question. Tell us what you've been

1380
01:15:27,160 --> 01:15:30,479
Speaker 2: streaming these days, what's been keeping you entertained. It could

1381
01:15:30,520 --> 01:15:32,320
Speaker 2: be either shows or films.

1382
01:15:33,200 --> 01:15:36,759
Speaker 1: I'm a big fan of Netflix and the other movie

1383
01:15:36,960 --> 01:15:40,519
Speaker 1: movie channels. My wife and I do enjoy. We don't

1384
01:15:40,520 --> 01:15:42,240
Speaker 1: go to theaters the way the way we did, and

1385
01:15:42,240 --> 01:15:45,519
Speaker 1: so we do usually watch a movie at home on

1386
01:15:45,560 --> 01:15:49,040
Speaker 1: a Friday night. There's been a lot of really good,

1387
01:15:49,840 --> 01:15:54,320
Speaker 1: good flicks. One that I particularly thought was amazing was

1388
01:15:55,040 --> 01:15:55,840
Speaker 1: American Fiction.

1389
01:15:56,920 --> 01:15:58,880
Speaker 2: Just came out, just came really looks great. I want

1390
01:15:58,920 --> 01:16:00,080
Speaker 2: to and I want to count of me.

1391
01:16:00,360 --> 01:16:02,840
Speaker 1: I don't want Academy Awards. I'm not sure for what,

1392
01:16:02,880 --> 01:16:05,800
Speaker 1: but screen if I was doing yeah, I think so,

1393
01:16:05,880 --> 01:16:08,920
Speaker 1: but I would have nominated. I would have. I think

1394
01:16:08,920 --> 01:16:10,400
Speaker 1: it was nominated for Best Picture.

1395
01:16:10,640 --> 01:16:11,559
Speaker 2: And it's a great cast.

1396
01:16:11,640 --> 01:16:14,880
Speaker 1: Also, it's a great cast, and it's got a lot

1397
01:16:14,880 --> 01:16:19,160
Speaker 1: of irony of it about identity politics, and it's political

1398
01:16:19,200 --> 01:16:20,800
Speaker 1: without being political. It's very human.

1399
01:16:21,280 --> 01:16:24,240
Speaker 2: Yeah, so that's in my cueue give us another one.

1400
01:16:24,640 --> 01:16:28,760
Speaker 1: I saw Oppenheimer. But meanwhile, Spielberg keeps coming up with

1401
01:16:28,840 --> 01:16:32,840
Speaker 1: these great docu dramas about World War two and up

1402
01:16:32,880 --> 01:16:36,280
Speaker 1: in the Air. Yeah, Masters of the Air on Apple.

1403
01:16:36,320 --> 01:16:39,360
Speaker 2: That looks really fascinating, really really good. I saw a

1404
01:16:39,400 --> 01:16:44,760
Speaker 2: clip of one of the aerial dog fights. It's unbelieved, unbelievable, right,

1405
01:16:44,800 --> 01:16:46,879
Speaker 2: you're like right there, yeah, oh.

1406
01:16:46,760 --> 01:16:49,240
Speaker 1: Yeah, but when you realize that they got in these

1407
01:16:49,520 --> 01:16:52,880
Speaker 1: bombers recognizing that their chance of coming back was at

1408
01:16:52,880 --> 01:16:56,800
Speaker 1: best fifty percent at best, so you know they were

1409
01:16:56,840 --> 01:17:01,800
Speaker 1: really just the bravery there was, the achievement was was

1410
01:17:01,840 --> 01:17:05,320
Speaker 1: absolutely extraordinary. I do like World War two kind of

1411
01:17:05,800 --> 01:17:06,639
Speaker 1: docu dramas.

1412
01:17:06,800 --> 01:17:09,680
Speaker 2: I know you saw Offenheimer. I assume you saw a Barbie.

1413
01:17:10,360 --> 01:17:11,719
Speaker 2: Any of the films you want to mention.

1414
01:17:12,479 --> 01:17:16,640
Speaker 1: I think it's Griselda. It's it's a it's a docudrama

1415
01:17:17,160 --> 01:17:24,760
Speaker 1: about a lady who was a huge cocaine dealer in

1416
01:17:24,760 --> 01:17:28,120
Speaker 1: in Miami, and she was very entrepreneurialship she figured out

1417
01:17:28,160 --> 01:17:30,920
Speaker 1: that that there was a huge market and selling cocaine

1418
01:17:30,920 --> 01:17:33,439
Speaker 1: to upper middle middle class people.

1419
01:17:33,880 --> 01:17:37,200
Speaker 2: And the wife from from Modern Family, I'm drawn a

1420
01:17:37,200 --> 01:17:39,120
Speaker 2: blank on her. Yeah, yeah, she's hilarious.

1421
01:17:39,160 --> 01:17:43,160
Speaker 1: Oh she's she was phenomenal. The acting was was absolutely great.

1422
01:17:43,280 --> 01:17:46,040
Speaker 2: Huh. Let's talk about some of your early mentors who

1423
01:17:46,080 --> 01:17:47,599
Speaker 2: helped to shape your career.

1424
01:17:47,880 --> 01:17:52,680
Speaker 1: Well, I recall being at Cornell University and I was

1425
01:17:53,320 --> 01:17:55,839
Speaker 1: a member of a group that kind of brought in

1426
01:17:55,840 --> 01:18:00,680
Speaker 1: interesting speakers on economics and politics, and uh so I

1427
01:18:01,120 --> 01:18:05,240
Speaker 1: pitched Henry Kaufman over at Salomon Brothers, and I gave

1428
01:18:05,320 --> 01:18:07,400
Speaker 1: him a call ask him if he'd have any interest

1429
01:18:07,439 --> 01:18:10,519
Speaker 1: in coming and giving a talk to us. But he

1430
01:18:10,720 --> 01:18:14,559
Speaker 1: sort of was my role model. I wouldn't. He certainly

1431
01:18:14,600 --> 01:18:17,200
Speaker 1: wasn't my mentor. I liked the idea of being on

1432
01:18:17,240 --> 01:18:20,000
Speaker 1: Wall Street and being an economist, so I'd say he

1433
01:18:20,479 --> 01:18:22,799
Speaker 1: was kind of relevant in that regard.

1434
01:18:23,280 --> 01:18:25,439
Speaker 2: Let's talk about some books. What are you reading now

1435
01:18:25,479 --> 01:18:27,040
Speaker 2: and what are some of your favorites.

1436
01:18:27,200 --> 01:18:30,679
Speaker 1: Well, I think it's called The Engineers That Won World

1437
01:18:30,680 --> 01:18:35,320
Speaker 1: War Two, and I'm reading that. I had read another

1438
01:18:35,960 --> 01:18:40,160
Speaker 1: book about a liberator bomber. So that's why I really

1439
01:18:40,280 --> 01:18:44,640
Speaker 1: enjoyed the Spielberg Show. Other than that, these days, I

1440
01:18:45,360 --> 01:18:47,760
Speaker 1: haven't had a lot of time to read because we've

1441
01:18:47,800 --> 01:18:53,839
Speaker 1: been upgrading our chart system and I introduced this new product,

1442
01:18:54,160 --> 01:18:57,320
Speaker 1: the Quick Takes, So that's that's kept me pretty busy.

1443
01:18:57,360 --> 01:18:59,160
Speaker 1: So I'm writing a lot more than I'm reading.

1444
01:18:59,320 --> 01:19:02,479
Speaker 2: So let's get to our final two questions. What sort

1445
01:19:02,520 --> 01:19:05,320
Speaker 2: of advice would you give to a recent college grad

1446
01:19:05,840 --> 01:19:09,200
Speaker 2: interested in a career, either as an economist or an

1447
01:19:09,200 --> 01:19:11,280
Speaker 2: investment strategist or both.

1448
01:19:11,880 --> 01:19:15,800
Speaker 1: I think first and foremost is a learner write. Unfortunately,

1449
01:19:15,920 --> 01:19:20,439
Speaker 1: for my minimal observations about younger folks these days, they

1450
01:19:21,439 --> 01:19:23,839
Speaker 1: don't really know how to write. Maybe that's because everybody's

1451
01:19:23,880 --> 01:19:27,040
Speaker 1: texting and sending messages that way. You know, knowing something

1452
01:19:27,040 --> 01:19:32,040
Speaker 1: about grammar and being able to communicate in writing is important,

1453
01:19:32,040 --> 01:19:35,400
Speaker 1: but so is being able to do so verbally. You know,

1454
01:19:35,439 --> 01:19:38,280
Speaker 1: we live in a very media oriented kind of world

1455
01:19:38,280 --> 01:19:41,240
Speaker 1: these days, so I think that's important. History has always

1456
01:19:41,280 --> 01:19:46,040
Speaker 1: been important in my way of thinking about the markets.

1457
01:19:46,680 --> 01:19:50,160
Speaker 1: There's a long history to the stock market, and now

1458
01:19:50,240 --> 01:19:52,719
Speaker 1: that's history has become more relevant than ever. People are talking,

1459
01:19:52,840 --> 01:19:56,600
Speaker 1: is it the nineteen twenties, at the nineteen seventies, is

1460
01:19:56,680 --> 01:19:59,640
Speaker 1: in the nineteen nineties, And so it helps if you

1461
01:19:59,680 --> 01:20:03,439
Speaker 1: have a certain grounding and how that all works. I

1462
01:20:03,439 --> 01:20:07,479
Speaker 1: would even say geopolitics understanding you know, what are the

1463
01:20:07,600 --> 01:20:10,519
Speaker 1: risks in the Middle East, who are the players, what

1464
01:20:10,560 --> 01:20:13,320
Speaker 1: are the history of that area. Having a good solid

1465
01:20:13,360 --> 01:20:17,759
Speaker 1: background and all of that I think is helpful most importantly,

1466
01:20:17,800 --> 01:20:20,719
Speaker 1: don't get hung up with the learning from somebody who's

1467
01:20:21,160 --> 01:20:23,599
Speaker 1: selling a model that explains everything. Huh.

1468
01:20:24,040 --> 01:20:26,640
Speaker 2: Really interesting. And our final question, what do you know

1469
01:20:26,640 --> 01:20:31,559
Speaker 2: about the world of investing and research analysis today? You

1470
01:20:31,600 --> 01:20:34,040
Speaker 2: wish you knew thirty or forty years ago when you

1471
01:20:34,040 --> 01:20:35,120
Speaker 2: were first getting started.

1472
01:20:35,280 --> 01:20:39,800
Speaker 1: This may sound remarkably trivial, but I wish I knew,

1473
01:20:39,840 --> 01:20:43,280
Speaker 1: but I didn't really fully appreciate the power of dividend investing.

1474
01:20:43,600 --> 01:20:46,559
Speaker 1: The people that I see that have the biggest smiles

1475
01:20:46,560 --> 01:20:50,599
Speaker 1: on their faces in my cohort of baby boomers are

1476
01:20:50,640 --> 01:20:54,160
Speaker 1: the ones who've been long term investors. They bought stocks,

1477
01:20:54,240 --> 01:20:57,920
Speaker 1: they bought property, they invested for the long haul, and

1478
01:20:57,960 --> 01:21:00,599
Speaker 1: they didn't get pushed out of the market, you know,

1479
01:21:00,640 --> 01:21:04,960
Speaker 1: by volatility. They found opportunities the benefit of hindsight. I

1480
01:21:05,000 --> 01:21:07,759
Speaker 1: would have invested personally, and I would have stocks today

1481
01:21:07,760 --> 01:21:10,120
Speaker 1: that I would have bought many many years ago, which

1482
01:21:10,160 --> 01:21:11,080
Speaker 1: which I don't.

1483
01:21:11,120 --> 01:21:12,760
Speaker 2: Just the power of compound.

1484
01:21:12,320 --> 01:21:17,120
Speaker 1: The tower compounding, even a company like and it's just

1485
01:21:17,160 --> 01:21:20,360
Speaker 1: not not even dividends. I mean, if you think about Microsoft,

1486
01:21:20,360 --> 01:21:22,839
Speaker 1: there was a point where Microsoft, you know, in the nineties,

1487
01:21:23,280 --> 01:21:25,760
Speaker 1: was you know, the hot place to be, and then

1488
01:21:25,880 --> 01:21:28,240
Speaker 1: for many, many years it wasn't the hot place to

1489
01:21:28,240 --> 01:21:29,719
Speaker 1: be and look at it now.

1490
01:21:29,800 --> 01:21:32,120
Speaker 2: Just past Apple for the biggest market cap again.

1491
01:21:32,640 --> 01:21:36,160
Speaker 1: So you know, if you just have a diversified portfolio

1492
01:21:36,160 --> 01:21:39,960
Speaker 1: of well managed companies, I think the idea of buying

1493
01:21:40,000 --> 01:21:43,600
Speaker 1: companies where the founders are still there seems to be

1494
01:21:43,640 --> 01:21:47,559
Speaker 1: also a useful insight into what companies who want to

1495
01:21:47,560 --> 01:21:50,720
Speaker 1: invest in. People who kind of view their companies as

1496
01:21:50,760 --> 01:21:53,840
Speaker 1: their babies, that they created them, they want to make

1497
01:21:53,840 --> 01:21:58,479
Speaker 1: them better. It doesn't always work. Uber's management had a

1498
01:21:58,560 --> 01:21:59,599
Speaker 1: change along the way.

1499
01:21:59,640 --> 01:22:02,160
Speaker 2: We were work as well, but you know, I could

1500
01:22:02,160 --> 01:22:04,599
Speaker 2: give you a hundred other examples where it has worked.

1501
01:22:04,840 --> 01:22:07,559
Speaker 2: Thank you, Ed for being so generous with your time.

1502
01:22:07,640 --> 01:22:11,160
Speaker 2: We have been speaking with doctor Edyard Denny. He is

1503
01:22:11,200 --> 01:22:15,000
Speaker 2: the president and founder of your Denny Research. You can

1504
01:22:15,000 --> 01:22:20,920
Speaker 2: find all of his research and writings at yardenny dot com.

1505
01:22:21,280 --> 01:22:24,280
Speaker 2: If you enjoy this conversation, well check out any of

1506
01:22:24,280 --> 01:22:27,280
Speaker 2: the previous five hundred or so we've done over the

1507
01:22:27,320 --> 01:22:33,480
Speaker 2: past nine years. You can find those at iTunes, Spotify, YouTube,

1508
01:22:33,880 --> 01:22:37,760
Speaker 2: wherever you find your favorite podcasts. Be sure and check

1509
01:22:37,800 --> 01:22:42,280
Speaker 2: out my new podcast at the Money, ten minute Conversations

1510
01:22:42,320 --> 01:22:46,400
Speaker 2: with your favorite masters in Business guests discussing the most

1511
01:22:46,439 --> 01:22:51,240
Speaker 2: important subjects for your money, earning it, spending it, and

1512
01:22:51,320 --> 01:22:55,280
Speaker 2: perhaps most important of all, investing it at the Money

1513
01:22:55,479 --> 01:22:59,879
Speaker 2: on Bloomberg Radio and in your Masters in Business podcasts.

1514
01:23:00,960 --> 01:23:02,720
Speaker 2: I would be remiss if I did not thank the

1515
01:23:02,720 --> 01:23:06,280
Speaker 2: crack team that helps put these conversations together every week.

1516
01:23:06,760 --> 01:23:09,920
Speaker 2: Juan Torres is my audio engineer. A Tick of Albron

1517
01:23:10,080 --> 01:23:14,000
Speaker 2: is my project manager. Anna Luke is my producer. Jean

1518
01:23:14,080 --> 01:23:17,040
Speaker 2: Russo is my head of research. Sage Bauman is the

1519
01:23:17,080 --> 01:23:21,960
Speaker 2: head of podcasts here at Bloomberg. I'm Barry Retolts. You've

1520
01:23:22,000 --> 01:23:27,160
Speaker 2: been listening to Masters in Business on Bloomberg Radio.