WEBVTT - Ed Yardeni on Long-Term Bull Market 0:00:00.240 --> 0:00:11.119 Bloomberg Audio Studios, Podcasts, radio News. This is Master's in 0:00:11.240 --> 0:00:14.720 Business with Barry Ridholts on Bloomberg Radio. 0:00:15.320 --> 0:00:19.840 This week on the podcast, I have another extra special guest. 0:00:20.440 --> 0:00:24.600 Doctor Eduard Danny is a really legend on Wall Street. 0:00:25.000 --> 0:00:28.920 He is both an investment strategist and an economist, and 0:00:29.320 --> 0:00:32.840 I'm very comfortable saying he does that better than anybody else. 0:00:33.400 --> 0:00:36.800 He has had a number of major market calls and 0:00:36.960 --> 0:00:41.440 economic calls that have been notable, not just because they 0:00:41.479 --> 0:00:45.320 were right, but for the way he uses the data 0:00:45.960 --> 0:00:50.440 to reach the right conclusion. He has consistently been bullish 0:00:50.920 --> 0:00:54.080 since the market bottoms in March o nine. He has 0:00:54.320 --> 0:00:58.320 talked about where a recession is and isn't coming. He's 0:00:58.600 --> 0:01:01.200 more or less nailed what the Fed was going to do, 0:01:01.720 --> 0:01:04.400 even though a lot of these calls have been outliers 0:01:04.400 --> 0:01:07.600 and very contrarian compared to the rest of the world 0:01:07.640 --> 0:01:10.200 of finance. Ed as a neighbor of mine lives the 0:01:10.240 --> 0:01:13.039 next town over. I've known him for a long time 0:01:13.160 --> 0:01:19.199 and I've just marveled at how he thinks about markets 0:01:19.240 --> 0:01:23.400 and the economy, and government and data. I subscribe to 0:01:23.440 --> 0:01:28.280 his daily notes and find them to be tremendously useful 0:01:28.520 --> 0:01:32.720 in contextualizing the fire hose of data, looking at what's 0:01:32.760 --> 0:01:35.639 important and what's not and how much of this stuff 0:01:35.720 --> 0:01:41.640 is just noise. I found this conversation to be informational, educational, 0:01:42.120 --> 0:01:44.959 and fascinating, and I think you will also, with no 0:01:45.040 --> 0:01:52.400 further ado, my interview with doctor Edyard Denny. Doctor Edyard Denny, 0:01:52.480 --> 0:01:54.320 Welcome back to Bloomberg, Barry. 0:01:54.320 --> 0:01:55.840 It's always a pleasure. Thank you for having me. 0:01:55.960 --> 0:01:58.840 Well, well, thank you for coming. It's always good to 0:01:58.840 --> 0:02:02.360 see you. We're neighbors. We probably don't get to see 0:02:02.360 --> 0:02:04.400 each other as much as we did pre pandemic. 0:02:04.720 --> 0:02:05.520 We have to catch up. 0:02:05.640 --> 0:02:08.960 We still have some bad pandemic habits that we have 0:02:09.040 --> 0:02:11.720 to break. Let's talk a little bit about your background. 0:02:11.760 --> 0:02:16.520 You have a fascinating academic background, a PhD in economics 0:02:16.520 --> 0:02:21.680 from Yale, and your thesis advisor is Nobel Laureate James Tobin. 0:02:21.960 --> 0:02:24.080 Tell us about working with Tobin. 0:02:24.320 --> 0:02:27.600 Well, it was certainly an honor and to work with 0:02:27.600 --> 0:02:32.239 somebody who won the Nobel Prize for his contribution to economics. 0:02:32.960 --> 0:02:38.320 But sometimes it wasn't that easy to understand his theories 0:02:38.360 --> 0:02:42.640 because they were mathematical and got complicated. But as a 0:02:42.680 --> 0:02:47.080 result of that, I turned to Janet Yalen. Janet Yalen 0:02:47.280 --> 0:02:51.760 had graduated from Yale in their PhD program six years 0:02:51.760 --> 0:02:55.840 before I attended, and she took meticulous notes. You know, 0:02:55.880 --> 0:02:58.280 she must have been one of those, you know, very 0:02:58.320 --> 0:03:01.120 focused students sitting in the front row of Tobin's class 0:03:01.440 --> 0:03:05.399 six years before I got there, and she took meticulous notes, 0:03:05.840 --> 0:03:09.119 just great notes, and they were xerox. And I think 0:03:09.120 --> 0:03:13.440 most of us who studied under Tobin basically got through 0:03:13.560 --> 0:03:17.359 Yale got our PhDs because of Janet Yellen's notes. 0:03:17.480 --> 0:03:22.240 That's really interesting. The undergrad at Cornell and then a 0:03:22.320 --> 0:03:25.280 master's degree also at Yale. That seems like a lot 0:03:25.280 --> 0:03:28.600 of education. Was the plan to go into academia or 0:03:28.639 --> 0:03:29.880 was it always Wall Street? 0:03:30.040 --> 0:03:32.120 Well, I didn't really know what I wanted to do 0:03:32.160 --> 0:03:35.680 when I was an undergraduate, so I took everything from 0:03:36.080 --> 0:03:40.480 a couple of courses of engineering, physics, math, political science, 0:03:40.840 --> 0:03:43.080 and economics. And based on all that, I realized I 0:03:43.200 --> 0:03:45.880 wasn't any good at math or at physics, so I 0:03:45.920 --> 0:03:47.960 had to go into something a little softer and easier. 0:03:48.000 --> 0:03:50.800 So I did go into a combination of politics and 0:03:50.840 --> 0:03:53.880 economics and then for my masters, I went to the 0:03:53.920 --> 0:03:59.320 International Relations program at Yale, which combined economics and political science. 0:03:59.800 --> 0:04:03.520 And then as I ended that two year program, I 0:04:03.560 --> 0:04:07.480 realized I accumulated enough to basically do a PhD in 0:04:07.520 --> 0:04:10.080 four years there as well, on top of you, not 0:04:10.160 --> 0:04:12.640 an extra four years one more year ago. Yeah, and 0:04:12.680 --> 0:04:15.280 then I just had to write a PhD dissertation. And 0:04:15.880 --> 0:04:19.000 I'd seen too many of my fellow students who are 0:04:19.760 --> 0:04:23.680 kind of hanging around the graduate program because they couldn't 0:04:23.720 --> 0:04:27.680 quite finish their PhD dissertations. I decided I was going 0:04:27.680 --> 0:04:29.800 to get out of there quick, and so I wrote 0:04:29.839 --> 0:04:33.880 a dissertation, empirical one that confirmed a lot of Tobin's theories. 0:04:33.880 --> 0:04:38.479 He absolutely loved it, and let me move on from there. 0:04:38.960 --> 0:04:42.120 So you graduate with a PhD in economics in nineteen 0:04:42.200 --> 0:04:46.560 seventy six. We're going to talk about inflation later, but 0:04:46.640 --> 0:04:49.320 I have to ask a lot of your peers who 0:04:49.440 --> 0:04:53.039 graduated in the mid seventies. It seemed to really leave 0:04:53.279 --> 0:04:57.839 a mark on them. Unlike most of them, you nailed 0:04:57.839 --> 0:04:59.600 inflation on the way up, you nailed it on the 0:04:59.600 --> 0:05:02.640 way now. So many of them seemed to be scarred 0:05:02.720 --> 0:05:07.080 by their nineteen seven experience. Why did that whole era 0:05:07.240 --> 0:05:11.320 of economists, and I'm including like big names like Laurence Summers, 0:05:12.080 --> 0:05:13.479 why did they get this so wrong? 0:05:14.400 --> 0:05:19.600 I think that they first start out with theories and 0:05:19.640 --> 0:05:23.120 then look for data to support it. And I can't 0:05:23.160 --> 0:05:27.160 really generalize about the economics profession, but I think there's 0:05:27.360 --> 0:05:30.240 enough attention to just you know, dealing with the facts, 0:05:30.279 --> 0:05:33.440 with the data, and with historical events. I lived through 0:05:33.480 --> 0:05:37.400 a lot of those historical events and learned from them. 0:05:37.800 --> 0:05:42.680 But I observed that, you know, inflation was in fact 0:05:43.360 --> 0:05:45.960 brought down in a very conventional way in the late 0:05:46.000 --> 0:05:49.839 seventies early eighties with very tight monetary policy. And then 0:05:50.200 --> 0:05:53.080 in the eighties I observed that we were saying de 0:05:53.160 --> 0:05:56.960 industrialization in America, but that was because of globalization, right, 0:05:57.040 --> 0:06:00.520 and which was deflation, which is deflationary. And in fact, 0:06:00.640 --> 0:06:02.800 I think it was in the early eighties, I don't know, 0:06:03.120 --> 0:06:06.000 I think it was eighty two eighty three. I predicted 0:06:06.040 --> 0:06:09.400 that we're probably going to see a period of disinflation, 0:06:09.839 --> 0:06:12.920 and part of that was also based on my view 0:06:12.960 --> 0:06:17.600 that as globalization prevailed, that'd be more global competition that 0:06:17.640 --> 0:06:18.880 would keep a lit on inflation. 0:06:19.240 --> 0:06:21.520 And you also wrote a piece in twenty twenty three 0:06:21.800 --> 0:06:25.839 about why conventional forecasting models were so wrong, and a 0:06:25.839 --> 0:06:29.920 lot of people, in particular, you mentioned Jamie Diamond had 0:06:29.960 --> 0:06:33.800 been expecting a recession. It seemed like almost every economist 0:06:33.839 --> 0:06:38.760 was expecting a recession and it never showed. Again, what 0:06:38.880 --> 0:06:40.719 did you get right? What did they get wrong? 0:06:40.800 --> 0:06:47.040 Well? I think most economists very logically believe that if 0:06:47.040 --> 0:06:49.159 the Fed's going to go from zero on the FED 0:06:49.200 --> 0:06:52.440 funds rate to five and a quarter percent, how could 0:06:52.480 --> 0:06:56.160 we not have a recession. My argument was that while 0:06:56.160 --> 0:06:59.760 the Feds certainly was tightening, they were also normalizing. I mean, 0:07:00.160 --> 0:07:03.159 so you had to not only look at where interest 0:07:03.200 --> 0:07:05.760 rates had gotten to, but where they came from. And 0:07:05.800 --> 0:07:10.280 they came from zero. So the really abnormality was the 0:07:10.360 --> 0:07:12.680 ultra ezy monetary policy that we had from the Great 0:07:12.680 --> 0:07:16.880 Financial Crisis to the Great Virus Crisis. And I felt 0:07:16.880 --> 0:07:19.240 that the economy was demonstrating that it could handle it, 0:07:19.280 --> 0:07:22.160 that it would be in fact relatively resilient. And of 0:07:22.160 --> 0:07:25.480 course you have to get the consumer right. And along 0:07:25.520 --> 0:07:29.480 the way, I concluded that while Jamie Diamond and others 0:07:29.560 --> 0:07:32.880 were focusing on the consumer running out of so called 0:07:32.920 --> 0:07:36.280 excess saving the idea that was that you know, consumers 0:07:36.320 --> 0:07:39.920 that accumulated two to three trillion dollars for during the 0:07:39.920 --> 0:07:43.280 two months of shutdowns, and then for all the helicopter 0:07:43.400 --> 0:07:46.800 money that was deposited in their accounts. I was pointing 0:07:46.800 --> 0:07:50.600 out increasingly that wait a second, the baby boomers have 0:07:50.720 --> 0:07:54.080 seventy five trillion dollars in retirement assets, and you know what, 0:07:54.120 --> 0:07:55.160 they're starting to retire. 0:07:55.840 --> 0:08:00.600 I love that chart. You actually showed that chart today. Yeah, wealth, 0:08:00.920 --> 0:08:05.520 it comes from the flow of funds cost SERF. But 0:08:05.760 --> 0:08:08.400 when you look at the millennials and the gen xers, 0:08:09.080 --> 0:08:11.760 wasn't everybody predicting the boomers were going to go broke 0:08:11.800 --> 0:08:14.680 they wouldn't have any money retired. Seventy five almost seventy 0:08:14.720 --> 0:08:18.000 seven trillion dollars. That's a lot of money. 0:08:18.040 --> 0:08:19.880 It's a lot of money. It's an ull time record high. 0:08:20.240 --> 0:08:23.559 The household sector in its entirety has over one hundred 0:08:23.560 --> 0:08:28.040 and fifty trillion dollars in net worth and that's assets 0:08:28.120 --> 0:08:31.640 minus liabilities, and it's all sorts of different assets. Its houses, 0:08:31.680 --> 0:08:34.360 its stocks, it's pensions, it's the whole, the whole thing. 0:08:34.760 --> 0:08:37.760 So that's at a record high. And the baby boomers 0:08:37.960 --> 0:08:41.400 own half of that roughly seventy five trillion dollars. And 0:08:41.440 --> 0:08:44.840 then the younger generations are kind of looking at Mom 0:08:44.880 --> 0:08:47.760 and Dad starting to retire, said, you know, I wish 0:08:47.840 --> 0:08:51.200 you a long and happy retirement, but don't spend it all. 0:08:52.240 --> 0:08:54.600 And so I think the savings rate's going to remain 0:08:54.920 --> 0:08:58.680 extremely low because the baby boomers are not saving anymore, 0:08:58.240 --> 0:09:01.760 They're spending. And I think that the younger generation can 0:09:01.800 --> 0:09:06.400 actually look forward to some substantial as being substantial beneficiaries 0:09:06.720 --> 0:09:07.679 of inherited wealth. 0:09:07.960 --> 0:09:10.560 Let's roll back to the work that you did with 0:09:10.679 --> 0:09:13.840 James Tobin and one, I believe he won the Nobel 0:09:13.880 --> 0:09:17.960 Prize yes for his work on fiscal spending. So when 0:09:18.000 --> 0:09:21.400 you have the Cares Act one, which was ten percent 0:09:21.480 --> 0:09:23.600 of GDP, as the Cares Act two and then the 0:09:23.600 --> 0:09:27.720 Cares Act three, shouldn't that offset whatever the Fed's going 0:09:27.800 --> 0:09:31.280 to do? And by the way, five percent isn't outrageously Hi, 0:09:31.360 --> 0:09:32.960 that's kind of average. Well. 0:09:33.000 --> 0:09:35.839 I think that's another good point is that not only 0:09:36.240 --> 0:09:38.640 did the consumers turn out to be resilient and they 0:09:38.760 --> 0:09:41.760 remain resilient, they're still spending and labor market has been 0:09:41.800 --> 0:09:46.080 really tight. The reason for that of course is the 0:09:46.080 --> 0:09:49.920 baby boomers are spending more on going out to restaurants, traveling, 0:09:50.480 --> 0:09:53.760 health care services. So guess what employment is doing all 0:09:53.760 --> 0:09:56.760 those industries all time record. You don't get a recession 0:09:56.800 --> 0:09:59.959 when construction and total parallel employment are at all time 0:10:00.320 --> 0:10:03.320 record highs. That's the other reason why the economy has 0:10:03.360 --> 0:10:05.920 done well is there's been a tremendous amount of fiscal 0:10:06.000 --> 0:10:12.680 spending that has led to a record spending on infrastructure. 0:10:12.720 --> 0:10:14.320 I mean you can actually see it in the data. 0:10:14.320 --> 0:10:16.720 It's not just there was an act and then nothing happened. 0:10:16.720 --> 0:10:18.800 There was a lot of spending, and then of course 0:10:18.840 --> 0:10:21.920 on shoring received a lot of tax benefits. So we've 0:10:21.960 --> 0:10:27.160 seen construction of factory facilities just exploding to the upside. 0:10:27.240 --> 0:10:29.960 And again those are all construction jobs, and they're going 0:10:30.040 --> 0:10:32.600 to need employees and so on. 0:10:33.040 --> 0:10:35.400 So nice Tailwhen we'll come back to that a little later, 0:10:35.800 --> 0:10:38.400 let's stay with the early days of your career because 0:10:38.480 --> 0:10:41.040 I really find it kind of unique. You're an economist 0:10:41.080 --> 0:10:44.040 at the New York Fed in seventy six and seventy seven. 0:10:44.120 --> 0:10:47.760 You're fairly young and new. Then what were you working 0:10:47.760 --> 0:10:49.120 on when you were at the New York Fed? 0:10:49.960 --> 0:10:55.400 Well, just by happenstance. They put me on writing memos, 0:10:55.880 --> 0:10:59.719 updating data. It wasn't really exciting stuff, but focused on 0:10:59.760 --> 0:11:02.199 the same things the loan industry. I mean, you can't 0:11:02.400 --> 0:11:05.760 think of anything like more boring. It's like and useless 0:11:06.160 --> 0:11:09.720 than analyzing the savings and loan industry in the in 0:11:09.760 --> 0:11:11.480 the late seventies. 0:11:11.720 --> 0:11:12.760 Right before it blew up. 0:11:12.880 --> 0:11:16.040 And then it blew up, and then I'm suddenly on 0:11:16.080 --> 0:11:18.920 Wall Street and I have a lot of knowledge of 0:11:19.559 --> 0:11:21.800 just what was going on in the SNL industry. So 0:11:22.320 --> 0:11:24.640 it really helped me to understand that crisis. 0:11:24.920 --> 0:11:28.320 So here's what I find so fascinating and unique about 0:11:28.360 --> 0:11:32.720 your career. You have been chief investment strategic at places 0:11:32.760 --> 0:11:36.360 like Deutsche Bank and Prudential, but you were also chief 0:11:36.440 --> 0:11:41.160 economists at E. F. Hutton, Prudential, Base CJ. Lawrence, which 0:11:41.240 --> 0:11:44.720 eventually gets bought by Deutsche Bank. Like, that's a rare 0:11:45.040 --> 0:11:47.880 pair of hats for one person. Aware tell us a 0:11:47.920 --> 0:11:50.920 little bit about how you managed to do both jobs. 0:11:51.000 --> 0:11:53.200 I did start at as an economist. I think I 0:11:53.320 --> 0:11:55.800 was at E. F. Hutton for about a year or two, 0:11:56.679 --> 0:11:59.560 and then the chief economists decided to move on, and 0:11:59.640 --> 0:12:02.360 so only a couple of years into Wall Street career, 0:12:02.400 --> 0:12:04.960 I was chief economist of E. F. Hutton, so that 0:12:05.000 --> 0:12:08.000 was pretty exciting. But I learned a lot from the 0:12:08.040 --> 0:12:10.880 strategist I worked with. There's a fellow by named Greg 0:12:10.920 --> 0:12:14.840 Smith who was a strategist at EF Hutton. Jim Moltz 0:12:15.320 --> 0:12:19.960 was a well regarded strategist c J. Lawrence, and so 0:12:20.080 --> 0:12:22.840 I learned a lot from them, and an opening became 0:12:23.320 --> 0:12:27.240 available to be a strategist at c J. Lawrence, which 0:12:27.280 --> 0:12:30.320 by then had become part of deutsch Bank Securities, and 0:12:30.440 --> 0:12:32.439 I jumped at it, and I said, look, I think 0:12:32.440 --> 0:12:35.040 I can do both jobs. And it just to me 0:12:35.160 --> 0:12:37.880 made sense to do both jobs because I don't know 0:12:37.880 --> 0:12:42.960 how you can be a well informed strategist without understanding 0:12:43.000 --> 0:12:43.680 of the economy. 0:12:44.320 --> 0:12:46.800 So when you were working for Lawrence as part of 0:12:46.880 --> 0:12:50.920 and eventually become chief investment strategy at Deutsche Bank, what 0:12:51.080 --> 0:12:53.520 was that like? Given the fact that they're based in 0:12:53.559 --> 0:12:56.600 Germany Many. I don't want to say most, but many 0:12:56.679 --> 0:12:59.600 of their clients are European. How did that change how 0:12:59.600 --> 0:13:01.240 you looked at the world. 0:13:01.440 --> 0:13:05.000 Well, I didn't really work for Deutsche Bank per se. 0:13:05.120 --> 0:13:08.960 I worked as the chief economists strategist for deutsch Bank Securities, 0:13:10.080 --> 0:13:12.679 which was still to a large extent based in the 0:13:12.800 --> 0:13:16.319 United States and had international clients, but we certainly had 0:13:16.480 --> 0:13:20.760 plenty in the US. So the transition from CJ. Lawrence 0:13:21.000 --> 0:13:25.280 being independent to CJ. Lawrence evolving into deutsch Bank Securities, 0:13:25.520 --> 0:13:29.319 nothing really changed for me. Quite honestly. What was very 0:13:29.400 --> 0:13:32.920 visible as Deutsche Bank spent a tremendous amount of money 0:13:32.960 --> 0:13:37.720 on expanding and so they hired the Frank quadtrone group. 0:13:38.640 --> 0:13:43.040 Sure yeah, and in the research investment banking department for 0:13:43.400 --> 0:13:47.559 a couple of years. At the time Quatrone brought Amazon 0:13:48.360 --> 0:13:51.240 to the marketplace, and I'm kicking myself, you know. I mean, 0:13:51.280 --> 0:13:54.240 there was I think thirteen bucks before all the splits, 0:13:54.559 --> 0:13:56.240 but it was an exciting time. 0:13:57.240 --> 0:13:59.520 Let me ask you about that exciting time. Your arm 0:13:59.600 --> 0:14:04.360 wall in the eighties and nineties arguably the biggest bull 0:14:04.480 --> 0:14:07.640 market of our lifetime. We'll see how far this one goes. 0:14:08.559 --> 0:14:11.640 Where we are today, What was it like in that 0:14:11.840 --> 0:14:16.720 era when people were still stock pickers, active mutual funds 0:14:16.800 --> 0:14:21.160 were attracting the flows. Everybody thought they could beat the market. 0:14:21.440 --> 0:14:24.200 We didn't quite have all the data yet. Tell us 0:14:24.240 --> 0:14:26.640 what that era was like, as a chief strategist on 0:14:26.680 --> 0:14:27.080 the street. 0:14:27.240 --> 0:14:32.000 Well, the eighties were certainly interesting, and near the tail 0:14:32.080 --> 0:14:35.000 end we had the crash in the stock market. The 0:14:35.040 --> 0:14:37.760 one day crash I scrambled to kind of understand what 0:14:37.840 --> 0:14:42.000 was going on, concluded as portfolio insurance, and that the 0:14:42.000 --> 0:14:45.160 week before the Houseways and Means Committee was starting to 0:14:45.200 --> 0:14:48.400 talk about taxing some of these transactions that were going 0:14:48.400 --> 0:14:50.280 on in M and A, and so a lot of 0:14:50.280 --> 0:14:53.160 the M and A stocks got hit quite hard. And 0:14:53.280 --> 0:14:56.800 my conclusion that it was largely a government a reaction 0:14:56.920 --> 0:15:02.360 to possible government regulation, and that probably would pass. And Restinkowski, 0:15:03.080 --> 0:15:05.440 who was the head of the House Committee at the time, 0:15:05.960 --> 0:15:08.280 did in fact pass on it. In December suddenly he 0:15:08.360 --> 0:15:11.360 just kind of evaporated. So I concluded within a couple 0:15:11.440 --> 0:15:13.680 of days that we were probably making it low in 0:15:13.720 --> 0:15:16.520 this bear market that only lasted really a few days. 0:15:16.520 --> 0:15:19.400 I mean officially it was October to December. 0:15:19.480 --> 0:15:22.240 But well, to be fair, I want to say by 0:15:22.320 --> 0:15:25.960 August of eighty seven, SMP was up forty something percent 0:15:26.400 --> 0:15:30.400 and we finished the year plus one percent. So that's 0:15:31.080 --> 0:15:33.920 quite a wackage that would constitute bear in my book. 0:15:34.040 --> 0:15:37.560 Right in the early nineties, I started to recognize the 0:15:37.600 --> 0:15:39.800 technology revolution that was going on. 0:15:39.760 --> 0:15:41.960 And I got they were early and vocal. 0:15:42.080 --> 0:15:44.080 Well, I was early in Vocal and as a matter 0:15:44.120 --> 0:15:47.640 of fact, I walked into a Barnes and Noble store 0:15:47.920 --> 0:15:51.520 I think in nineteen ninety four, early nineteen ninety five, 0:15:52.080 --> 0:15:54.240 and I'm pretty sure that I was the first one 0:15:54.280 --> 0:15:58.240 to have a website the Internet, obviously on Wall Street, 0:15:58.480 --> 0:16:01.640 and I know no other economists. I don't know how 0:16:01.680 --> 0:16:04.440 I got away with the Deutsche Bank. Why they would allow, 0:16:04.520 --> 0:16:07.560 you know, doctor Edyard Denny's economics network to be featured 0:16:07.960 --> 0:16:11.720 on the Internet without any any real mention of who 0:16:11.720 --> 0:16:12.160 I worked for. 0:16:12.560 --> 0:16:16.680 Well maybe that's the German ownership didn't understand us compliance world, 0:16:16.680 --> 0:16:19.720 I suppose so at that time, who knows? You launch 0:16:19.800 --> 0:16:24.840 in January seven, not that much earlier than the financial crisis. 0:16:25.000 --> 0:16:28.880 Tell us what led you to launching your Danny Research. 0:16:29.360 --> 0:16:32.200 Well, I had been on Wall Street for many years. 0:16:32.400 --> 0:16:35.080 It was getting a little stale. The lawyers were starting 0:16:35.120 --> 0:16:39.120 to take over, and there are more limits on what 0:16:39.200 --> 0:16:40.840 you could write about or who you could talk to, 0:16:40.880 --> 0:16:43.400 even in your own shop. Yet to get approval to 0:16:43.680 --> 0:16:46.160 go down to the trading desk, it just wasn't as 0:16:46.200 --> 0:16:50.080 exciting as it had been in the early two thousands, 0:16:50.120 --> 0:16:52.240 and suddenly, out of the blue, I got a call 0:16:52.440 --> 0:16:57.400 from Jim Olschlager, who runs Oak Associates in Akron, Ohio. 0:16:57.920 --> 0:17:02.200 And Jim was looking for somebody to work with him 0:17:02.200 --> 0:17:05.480 as a strategist in Akron, Ohio. So I talked to 0:17:05.560 --> 0:17:08.200 him and it sounded like a great opportunity. He made 0:17:08.240 --> 0:17:11.520 me an offer I couldn't refuse. So I accepted it 0:17:11.560 --> 0:17:14.200 and it was a three year deal and it worked 0:17:14.200 --> 0:17:16.439 out fine. But after two years I kind of missed 0:17:16.920 --> 0:17:19.840 just doing what I had been doing on the street. Meanwhile, 0:17:19.880 --> 0:17:23.159 Jim had allowed me to continue to write and to 0:17:24.240 --> 0:17:28.440 keep in touch with my client base. So I left 0:17:28.440 --> 0:17:31.920 in the end of two thousand and six and January first, 0:17:31.920 --> 0:17:34.600 two thousand and seven we started. I started there Denny 0:17:34.640 --> 0:17:37.600 Research as an independent research provider. 0:17:37.840 --> 0:17:40.840 Did you move to Ohio or I actually commuted. 0:17:41.119 --> 0:17:44.000 They have a great airport there, Canton Akron Airport is 0:17:44.040 --> 0:17:44.919 a wonderful. 0:17:44.520 --> 0:17:47.159 Airport, Farmingdale, l LaGuardia. 0:17:47.320 --> 0:17:52.080 LaGuardia And I'd leave on a Sunday and sometimes hang 0:17:52.119 --> 0:17:54.760 around there until it was there Thursday. But so I 0:17:54.800 --> 0:17:57.440 just kind of commuted and that was okay with Jim 0:17:57.480 --> 0:17:59.560 and I worked out fine, And of course I did 0:17:59.560 --> 0:18:02.280 some market with him, so I would kind of meet 0:18:02.320 --> 0:18:05.199 him at different parts of the country and we'd market together. 0:18:05.480 --> 0:18:10.199 Huh, let's talk about your clients. I'm assuming they're primarily institutional. 0:18:11.320 --> 0:18:15.280 Well, they have been primarily institutional, you know, since I've 0:18:15.280 --> 0:18:18.400 been on Wall Street, I guess you know. I did 0:18:18.440 --> 0:18:20.960 work for some firms that also had a huge retail 0:18:21.359 --> 0:18:23.600 base with like prudentials, so I certainly had a lot 0:18:23.640 --> 0:18:26.480 of interaction with both institutional and retail. When I moved 0:18:26.480 --> 0:18:31.240 to CJ. Lawrence is primarily institutional. It was all institutional, really, 0:18:31.600 --> 0:18:36.639 and then when I went off on my own, I 0:18:36.680 --> 0:18:41.080 continued with an institutional bent. The research was aimed at 0:18:41.080 --> 0:18:46.240 a fairly sophisticated professional investment community. But about two years 0:18:46.280 --> 0:18:49.560 ago we realized that there's a demand for what we 0:18:49.640 --> 0:18:52.920 do among individual investors. So we came up with something 0:18:52.920 --> 0:18:55.960 called R Danny quick Takes dot Com and that's a 0:18:56.040 --> 0:18:58.520 daily and it's shorter, and it's to the point, and 0:18:58.560 --> 0:19:03.240 it is what I've always done, which is kind of 0:19:03.280 --> 0:19:04.960 combined strategy and economics. 0:19:05.359 --> 0:19:08.040 I was going to say, you also put a lot 0:19:08.080 --> 0:19:12.720 of information online. Yes, that's there for free, right. I 0:19:12.720 --> 0:19:15.880 don't mean like a chart here or there, huge runs 0:19:16.000 --> 0:19:19.679 of data and charts and it's updated like daily. 0:19:19.840 --> 0:19:21.280 Yeah, it's automatically updated. 0:19:21.400 --> 0:19:24.000 How do you manage to handle all this that seems 0:19:24.040 --> 0:19:27.440 like a lot of work that you're essentially giving away. 0:19:27.720 --> 0:19:33.040 Well, several years ago, I didn't see the point of 0:19:33.760 --> 0:19:36.399 doing all these charts manually over and over again. And 0:19:36.720 --> 0:19:38.280 you know, when you run this chart, where is it? 0:19:38.359 --> 0:19:41.680 And so we came up with an in house program. 0:19:41.760 --> 0:19:43.800 This was when I was still on Wall Street. An 0:19:43.800 --> 0:19:47.399 in house program that ran these charts automatically when the 0:19:47.480 --> 0:19:51.399 data was available from our data vendor, and updated the 0:19:51.480 --> 0:19:54.000 charts and then put the charts in a proper place 0:19:54.359 --> 0:19:58.040 in the PDFs that focused on those particular topics. It 0:19:58.119 --> 0:20:00.760 worked great. I mean I think it was in some 0:20:00.840 --> 0:20:04.439 ways a very crude artificial intelligence tool. You know, she 0:20:04.520 --> 0:20:06.480 mentioned AI at least once in our interview. Year. 0:20:06.480 --> 0:20:08.359 Oh, we have lots of AI to talk about a 0:20:08.400 --> 0:20:08.880 little later. 0:20:08.960 --> 0:20:13.480 Yeah. But so anyways, this this smart program figured out 0:20:13.480 --> 0:20:17.919 how to paying the vendor and say anything new for me, 0:20:18.400 --> 0:20:22.159 and if there was, everything would be updated automatically. And 0:20:22.240 --> 0:20:26.119 we're still doing that and look, and that's your Denny 0:20:26.800 --> 0:20:28.919 Denny dot com here and now, if nobody was looking 0:20:29.640 --> 0:20:31.800 at our charts, I would still have the whole thing 0:20:31.800 --> 0:20:34.639 because that's what I used to write. And so what 0:20:34.680 --> 0:20:38.040 I'm doing is basically sharing the puzzle pieces, and anybody 0:20:38.040 --> 0:20:40.320 who wants to see how how I put the puzzles 0:20:40.480 --> 0:20:42.800 together has to subscribe to our research. 0:20:42.800 --> 0:20:45.359 And just to put some flesh on those bones. You 0:20:45.400 --> 0:20:50.479 post on valuation, the global economy, the US economy, inflation, credit, 0:20:50.560 --> 0:20:55.199 consumer spending, employee markets, pretty much anything that there's a 0:20:55.280 --> 0:20:57.520 regular data stream, it updates automation. 0:20:57.600 --> 0:20:58.160 That's correct. 0:20:58.359 --> 0:21:02.159 Huh, it's really really intriguing. Let's talk about putting some 0:21:02.240 --> 0:21:07.240 of those puzzle pieces together. You talk about the megacap eight, 0:21:07.440 --> 0:21:09.800 the Magnificent seven plus Netflix. 0:21:10.760 --> 0:21:13.560 I like movies as very so I'm a well aware 0:21:13.720 --> 0:21:15.440 any want to leave the Netflix out of there. 0:21:15.520 --> 0:21:17.840 Let me steer you away from the New Wonka movie 0:21:17.880 --> 0:21:24.359 because it's terrible. But how important are these eight stocks 0:21:24.400 --> 0:21:26.760 to the overall market this year and last? 0:21:27.280 --> 0:21:30.920 Well, I mean arithmetically, they're very important. They're about twenty 0:21:30.960 --> 0:21:33.280 eight percent of the market cap of the S and 0:21:33.320 --> 0:21:37.359 P five hundred, so they they're huge in terms of 0:21:37.400 --> 0:21:40.560 their impact. And some people look at that and say, well, 0:21:40.560 --> 0:21:45.359 that's not healthy. It's a sign that this market is vulnerable, 0:21:45.920 --> 0:21:48.440 and I'm empirical about it. It is what it is. 0:21:49.040 --> 0:21:52.400 These are Greek companies that they're here to stay. They've 0:21:52.400 --> 0:21:55.560 had a couple of sell offs that turn out to 0:21:55.560 --> 0:21:59.119 be great opportunities to get get into those stocks. So 0:21:59.160 --> 0:22:00.800 I think we have to find in that when you 0:22:00.800 --> 0:22:03.760 look at the evaluation multiple the S and P five hundred, 0:22:03.800 --> 0:22:07.640 maybe it's not the historical average of fifteen anymore. Maybe 0:22:07.680 --> 0:22:11.400 it's something more like something north of that, maybe even 0:22:11.640 --> 0:22:14.080 closer to twenty, which is where we are right now. 0:22:14.520 --> 0:22:17.120 And nobody seems to be particularly bothered by it, because 0:22:17.119 --> 0:22:20.320 these are companies that in fact have earnings, have customers, 0:22:20.480 --> 0:22:23.480 have a tremendous amount of cash flow, and don't seem 0:22:23.520 --> 0:22:26.600 to be that interest rate sensitive. They've got all the 0:22:26.640 --> 0:22:29.080 money in the world to expand, and they're always looking 0:22:29.080 --> 0:22:29.960 for new businesses. 0:22:30.240 --> 0:22:32.360 Michael Mobison put out a piece a couple of years 0:22:32.400 --> 0:22:37.840 ago talking about the intangibles that this market is not 0:22:38.200 --> 0:22:41.159 like the market of one hundred years ago, where you 0:22:41.280 --> 0:22:48.480 had giant factories, big foundries, massive demands for labor, material 0:22:48.680 --> 0:22:52.400 and income. A lot of the wealth today, a lot 0:22:52.440 --> 0:22:56.200 of the assets of these companies today are intangibles. They're copyrights, 0:22:56.200 --> 0:23:02.360