WEBVTT - Barry Ritholtz: Use Your Disillusion II 0:00:06.000 --> 0:00:08.440 Welcome to Trillions. I'm Joel Webber and I am Eric 0:00:08.480 --> 0:00:13.160 bel Tunis. We're still talking with Barry rid Holes because 0:00:13.160 --> 0:00:16.759 we couldn't stop. The first ever double episode or double 0:00:16.800 --> 0:00:20.319 album of this podcast if you've just joined. He runs 0:00:20.560 --> 0:00:23.799 rid Holts Wealth Management. It's an advisor, heavy et F 0:00:23.880 --> 0:00:28.240 user and also a Bloomberg Opinion calumnist. And yeah, and 0:00:28.400 --> 0:00:30.600 big guy on Twitter. You know a lot of people 0:00:30.640 --> 0:00:34.080 know this guy. He's phenomenal and we were so fascinated 0:00:34.120 --> 0:00:37.280 by him. We just kept going. You left, you have 0:00:37.400 --> 0:00:39.520 to walk away. I know I had a hard stop. 0:00:39.800 --> 0:00:41.919 You like to stay, that's your favorite term, and I 0:00:41.920 --> 0:00:44.400 had to go. But Barry was just in it. Well, 0:00:44.440 --> 0:00:46.560 he wasn't done, you could tell, and so you took 0:00:46.600 --> 0:00:48.479 one for the team. You stayed with him and talk 0:00:48.520 --> 0:00:50.840 for another forty five minutes. It was it was longer. 0:00:50.920 --> 0:00:53.840 We had to edit it down. Uh. And you know 0:00:54.040 --> 0:00:56.440 the best part about talking with Barry is just that 0:00:56.520 --> 0:01:01.040 he's he's a fabulous interview and of you were so 0:01:01.080 --> 0:01:02.760 that was we just kept It was like we brought 0:01:02.760 --> 0:01:05.080 out a couch and he laid down on the couch 0:01:05.160 --> 0:01:07.200 and we just kept going. Yeah, you can tell talking 0:01:07.240 --> 0:01:11.840 to him that he's thought about most everything. So here's 0:01:11.880 --> 0:01:18.640 this equel use your disillusions too with Barry Ridthholtz. So 0:01:18.680 --> 0:01:22.840 you've done twos interviews for Masters of Business. What do 0:01:22.880 --> 0:01:26.320 you think are that things that you've really learned? That 0:01:26.680 --> 0:01:29.679 the things that made you go ah ha, what are those? 0:01:29.880 --> 0:01:33.520 There's a handful of things that continue to surprise me. 0:01:34.200 --> 0:01:37.600 Um and I think at this point I'm a pretty 0:01:37.600 --> 0:01:40.600 good read it when people are just b SNG for spin. 0:01:41.600 --> 0:01:45.880 So first, the role of luck in successful people's lives. 0:01:46.600 --> 0:01:50.600 This isn't false humility. This is when you have people 0:01:50.680 --> 0:01:55.559 like Leon Kooperman and Howard Marks and Ray Dalio say, 0:01:55.680 --> 0:01:58.760 you know, it helps to be smart, but you gotta 0:01:58.760 --> 0:02:02.200 get lucky. I've heard that over and over and over 0:02:02.240 --> 0:02:04.160 again from people. But how do you how do you 0:02:04.200 --> 0:02:08.360 think people get lucky? Well, there's an old line about 0:02:08.480 --> 0:02:11.320 luck is what preparation meets opportunity, and there's a lot 0:02:11.360 --> 0:02:14.480 of that that's absolutely true. And I think if you're 0:02:14.560 --> 0:02:18.079 born to middle class parents in the United States and 0:02:18.160 --> 0:02:22.440 the latter half post war era, you're lucky. You're ahead 0:02:22.440 --> 0:02:24.440 of you guess what you were born on third base? 0:02:24.480 --> 0:02:28.560 You got your your head of eighty or maybe the 0:02:28.560 --> 0:02:32.440 rest of the world's population. I was born in Brooklyn, 0:02:32.639 --> 0:02:35.519 I lived outside either in New York or outside of 0:02:35.520 --> 0:02:38.160 New York my whole life. That's a huge bit of 0:02:38.240 --> 0:02:41.880 luck for me, and somehow I wander into finance. That's 0:02:41.880 --> 0:02:45.640 tremendously lucky. When you when you when when Ray Dalio 0:02:45.800 --> 0:02:49.400 talks about that, when, um, I'm just going down the list. 0:02:49.480 --> 0:02:53.880 When Cliff Astenest talks about serendipity, When when people like 0:02:54.040 --> 0:02:57.120 that say, hey, you know, I know I did well 0:02:57.160 --> 0:03:03.680 in school. Um, well, sometimes there's there's just fortuity. I 0:03:03.680 --> 0:03:06.160 don't know how you make yourself lucky. But but when 0:03:06.560 --> 0:03:10.400 and when Nobel Laureates say that, When when Richard Faylor 0:03:10.560 --> 0:03:14.120 or Danny Kahneman or Robert Schiller says it helps to 0:03:14.120 --> 0:03:18.000 be lucky, you don't dismiss. So that's that's one thing. 0:03:18.680 --> 0:03:21.480 The second thing is is how many people are willing 0:03:21.520 --> 0:03:24.560 to say I was wrong. I got this wrong, and 0:03:24.600 --> 0:03:27.640 I realized I had to make a change otherwise I 0:03:27.840 --> 0:03:31.920 was I was in trouble. The ability to be have 0:03:32.080 --> 0:03:35.320 some humility and put your ego aside and recognize the 0:03:35.360 --> 0:03:38.840 real world um is another theme that comes up over 0:03:38.880 --> 0:03:42.400 and over again. I'm impressed how often And I've added 0:03:42.440 --> 0:03:45.320 that as a standard question on the podcast. Hey tell 0:03:45.400 --> 0:03:47.400 us about a time you failed and what you learned 0:03:47.440 --> 0:03:54.880 from it? Oh god, Um, so I have a lot 0:03:54.920 --> 0:04:00.440 of failures. Um I uh, I'm I tend to be 0:04:00.520 --> 0:04:04.960 dismissive of of people. I I sometimes get frustrated when 0:04:04.960 --> 0:04:07.480 I'm trying to explain something that's obvious to me. How 0:04:07.480 --> 0:04:11.520 do you not understand this? Mark Andreas, and I'm dropping 0:04:11.600 --> 0:04:14.520 names left and right, keep going. Mark and Reason tells 0:04:14.520 --> 0:04:18.640 the story that their favorite investors are the guys who 0:04:18.680 --> 0:04:21.560 they like peppering with questions, peppering with question and these 0:04:21.560 --> 0:04:24.719 guys are getting frustrated. Hey man, you're supposed to be smart, 0:04:24.760 --> 0:04:27.400 You're Marked and Reason. How do you not understand this? 0:04:27.720 --> 0:04:31.120 He tells that story like you could see. These guys 0:04:31.120 --> 0:04:33.960 are just they've thought it out so well, and it's 0:04:34.000 --> 0:04:37.120 such a deep part of who they are. They're frustrated 0:04:37.160 --> 0:04:41.279 that that he the venture capitalist, doesn't get it. And 0:04:41.360 --> 0:04:43.719 he tells the story. It's very charming. He speaks even 0:04:43.760 --> 0:04:46.880 faster than I do. Um. I love that story because 0:04:46.920 --> 0:04:50.159 I totally relate to that, And sometimes I'm frustrated this 0:04:50.279 --> 0:04:52.400 is obvious how do you not get that? So that's 0:04:52.400 --> 0:04:57.560 a really terrible, UM personal habit. I think that's a 0:04:57.560 --> 0:05:01.560 big failure that I've been working on. UM. There have 0:05:01.760 --> 0:05:06.120 been decisions I've made over the years that I look 0:05:06.200 --> 0:05:08.760 back and I just, oh, my god, how did I 0:05:08.800 --> 0:05:11.840 make that decision that was so terrible? UM. I think 0:05:12.240 --> 0:05:15.800 a strength is your ability to recognize error and reverse yourself. 0:05:16.160 --> 0:05:20.039 So I'm pretty agnostic. As as much UM as this 0:05:20.120 --> 0:05:24.800 room can barely contain my my oversized sense of self, 0:05:25.240 --> 0:05:28.359 I am very comfortable admitting error and saying we have 0:05:28.440 --> 0:05:30.839 to fix this, this is a mistake. There are a 0:05:30.839 --> 0:05:34.960 bunch of of errors that are just way too embarrassing 0:05:35.000 --> 0:05:38.320 to even bring up. But trust me when I say 0:05:38.960 --> 0:05:42.040 I've made lots of errors. I've made lots of failures. 0:05:42.320 --> 0:05:46.640 That my my favorite part about failing is new ones, 0:05:47.080 --> 0:05:49.280 Like I try not to repeat the same errors. I'll 0:05:49.640 --> 0:05:51.920 let all right, we've done that. Let's make a different 0:05:51.960 --> 0:05:53.960 mistake and see what we can learn from that. I 0:05:54.240 --> 0:05:57.560 think that's a healthy philosophy. What's a challenge that you're 0:05:57.600 --> 0:06:02.800 wrestling with right now? That's an interesting question. So anytime 0:06:02.800 --> 0:06:08.000 you're looking at the future, anytime you're trying to figure out, UM, 0:06:08.040 --> 0:06:10.520 what you want to be in what your company wants 0:06:10.560 --> 0:06:15.279 to be. You're kind of projecting and extrapolating out, but 0:06:15.560 --> 0:06:20.600 really beyond a quarter or two, everything gets really really fuzzy. 0:06:21.200 --> 0:06:22.880 And so you don't know what the economy is going 0:06:22.920 --> 0:06:24.320 to do. You don't know what the mark is gonna do. 0:06:24.360 --> 0:06:26.560 You don't know what sort of scandal is going to 0:06:26.640 --> 0:06:29.960 come along that either helps or hurts your underlying business 0:06:30.040 --> 0:06:34.080 or news event or whatever. And so I'm I'm wrestling 0:06:34.120 --> 0:06:37.919 with So we've been growing really rapidly. We started with 0:06:37.920 --> 0:06:41.560 with five people and ninety million dollars. It's now ten 0:06:41.839 --> 0:06:44.520 x on the assets and five x on the people, 0:06:45.120 --> 0:06:47.680 and I wonder at what point do we like have 0:06:47.760 --> 0:06:52.400 to throttle back? Uh. I did an interview with Ken Fisher, 0:06:52.520 --> 0:06:57.600 who who's fascinating guy runs a hundred billion dollars probably 0:06:57.680 --> 0:07:01.279 the most successful r i A in the contrary and UM, 0:07:01.320 --> 0:07:03.120 and our farm is also on our I A. When 0:07:03.240 --> 0:07:06.960 when Eric says you're an advisor, I interpret that as 0:07:07.160 --> 0:07:11.920 you you manage a registered investment advisory. So when we 0:07:12.560 --> 0:07:15.080 UM when I had a conversation with him, he's like, 0:07:15.160 --> 0:07:17.120 you guys are about to be a billion dollars. You're 0:07:17.120 --> 0:07:20.720 about to be five years old. Suddenly everybody who has 0:07:21.240 --> 0:07:25.040 those restrictions they come off, and there's a different group 0:07:25.080 --> 0:07:27.000 of people who are waiting in the wings to talk 0:07:27.040 --> 0:07:29.920 to you, but have been unable to buy their own 0:07:30.280 --> 0:07:33.960 by laws. What are you talking about, Kenna, I know 0:07:34.080 --> 0:07:37.240 of no such thing like that, So I hope he's right, 0:07:37.720 --> 0:07:40.480 But that's going to be an interesting challenge when when 0:07:40.480 --> 0:07:42.480 we get to that. So I have like an imaginary 0:07:42.560 --> 0:07:45.080 pool of water that you just kind of like eventually 0:07:45.080 --> 0:07:49.240 wait into. You know, institutional is a very different business 0:07:49.240 --> 0:07:53.800 than high net worth and families and or even you know, 0:07:54.240 --> 0:07:57.200 UM modest net worth on the on the robo side, 0:07:57.200 --> 0:08:01.160 on the on the lift off is are are automated 0:08:01.360 --> 0:08:07.320 UM investor. It's a very different arc of conversation. When 0:08:07.360 --> 0:08:09.640 most people come to us, they know who I am, 0:08:09.760 --> 0:08:13.080 they know Josh, they know Ben. You know, it's always 0:08:13.440 --> 0:08:15.000 one of the guys in the office was telling a 0:08:15.080 --> 0:08:19.520 story that they're they're speaking to somebody and the person says, 0:08:19.720 --> 0:08:21.520 you know, I was reading bat Nick the other day 0:08:21.560 --> 0:08:23.920 and it's like, wait, we call him Batnick? How are 0:08:23.960 --> 0:08:28.840 you calling him Batnick? So it's it's it's that's a 0:08:29.000 --> 0:08:34.360 very different interaction than writing up responding to an RFP 0:08:34.520 --> 0:08:37.199 for an uh an investing statement and what does the 0:08:37.240 --> 0:08:39.920 portfolio look like and what does the cost structure look like? Bloah. 0:08:40.320 --> 0:08:43.200 So I think that's a really interesting side of the 0:08:43.200 --> 0:08:45.960 business that I don't want to say we've neglected. We 0:08:46.120 --> 0:08:48.600 just haven't focused our attentions on it because we've been 0:08:48.600 --> 0:08:52.719 busy with everything else. I'm kind of fascinated by that 0:08:52.800 --> 0:08:56.079 and somewhat concerned, Hey, is this something we could bite off? 0:08:56.200 --> 0:08:58.160 Do we have the skill set, do we have the personnel? 0:08:58.520 --> 0:09:01.280 Do we have the intellectual child ups to play in 0:09:01.320 --> 0:09:04.839 those waters? I think we do, or can easily shore 0:09:04.920 --> 0:09:08.480 them up with one or two highers. But to me, 0:09:09.400 --> 0:09:13.240 if if Eric is right about hey, is this active 0:09:13.280 --> 0:09:18.199 to passive transition taking place on the institutional side. I 0:09:18.240 --> 0:09:21.240 think it is. And whether we can and swim in 0:09:21.280 --> 0:09:24.360 the that ponds time will tell. But that's something I'm 0:09:24.440 --> 0:09:26.800 I'm really thinking about and kind of fascinated by. What 0:09:26.800 --> 0:09:29.840 do you think you need to swim in it? I 0:09:29.960 --> 0:09:32.880 think you need a multi year Gibbs track record. I 0:09:32.880 --> 0:09:35.440 think you need a number of I hate the word products, 0:09:35.480 --> 0:09:39.040 but a number of institutionally focused products that are more 0:09:39.080 --> 0:09:44.280 than simply plane jane Um indices. We never want to 0:09:44.280 --> 0:09:47.880 try and sell performance to people because then I think 0:09:47.920 --> 0:09:50.840 that's the worst side of the business. Because every you 0:09:50.840 --> 0:09:53.360 look at the turn rate at a lot of active shops, 0:09:53.679 --> 0:09:57.319 and I don't mean giant active shops, I mean any decent, 0:09:57.840 --> 0:10:01.840 well regarded shop with a relatively good track record that 0:10:02.000 --> 0:10:05.360 is the least sticky money that money moves. I'll give 0:10:05.360 --> 0:10:07.800 you a perfect example. I won't mention the name because 0:10:07.840 --> 0:10:11.760 I don't want to embarrass anybody, because I think they're right. Also, 0:10:11.800 --> 0:10:13.800 that's why I don't want to embrass them. So value 0:10:13.800 --> 0:10:17.400 has significantly underperformed growth for most of the past decade. 0:10:18.120 --> 0:10:21.000 Value typically goes through these long periods of time where 0:10:21.000 --> 0:10:26.000 it underperforms growth, but over over longer periods of time, 0:10:26.160 --> 0:10:31.520 value actually significantly outperforms growth, not by a small margin, 0:10:31.600 --> 0:10:34.880 by a nice junk of of performance. So if you're 0:10:34.920 --> 0:10:38.000 a value shop with a great long term track record 0:10:38.280 --> 0:10:40.720 and your past five years you've you've lagged by a 0:10:40.760 --> 0:10:45.720 percent or three, I'm amazed how money flies out of 0:10:45.800 --> 0:10:50.720 there um and and when you see these outflows, you 0:10:50.760 --> 0:10:53.360 know that's the net outflow. You're not seeing the full churn. 0:10:53.960 --> 0:10:56.480 A lot of these firms are adding ten billion dollars 0:10:56.920 --> 0:10:59.720 as they lose eleven billion dollars, so they're seeing a 0:10:59.720 --> 0:11:02.920 billion in and and outflows, but really it's a multiple of 0:11:02.920 --> 0:11:06.080 that because of that gurn rate. And I'm I'm just 0:11:06.200 --> 0:11:09.360 astonished at you know, what have you done for me? Lately? 0:11:10.480 --> 0:11:16.800 Seems to be the institutional active theme And what a 0:11:16.840 --> 0:11:20.960 surprise that there is a move too passive, because you know, 0:11:21.440 --> 0:11:24.880 West Gray at Alpha Architect wrote a wonderful piece. I 0:11:24.920 --> 0:11:27.960 think Jack Vogel or one of his other guys um 0:11:28.360 --> 0:11:31.880 was on this. Even God would get fired as an 0:11:31.880 --> 0:11:35.760 active manager because God, with a perfect knowledge and omniscience 0:11:35.800 --> 0:11:40.040 of what various factors, what various attributes of a portfolio 0:11:40.040 --> 0:11:43.439 are Gonnau perform still means you go through an occasional 0:11:43.720 --> 0:11:46.560 down draft when you When you look at Amazon and 0:11:46.600 --> 0:11:49.920 Netflix and Apple, all of them have suffered, and Google 0:11:49.960 --> 0:11:54.280 for that matter, draw downs multiple times in their history. 0:11:54.640 --> 0:11:57.280 So it doesn't matter how good a manager you are. 0:11:57.679 --> 0:12:00.640 If you're long Apple, if you're long Google, if you're 0:12:00.640 --> 0:12:05.120 along Netflix and it's down, your clients are screaming at you. 0:12:05.520 --> 0:12:09.240 Despite the fact that Hey, I'm omniscient. I'm telling you 0:12:09.840 --> 0:12:12.320 Apple is going to be the biggest market cap in 0:12:12.320 --> 0:12:15.480 the world. Google is going to be right behind it. Netflix, Flixes, 0:12:15.520 --> 0:12:19.720 and Amazon are gonna grow. Just ride it out. You're fired. 0:12:19.920 --> 0:12:22.720 Would you pick that guy up? Oh? God, as a 0:12:22.760 --> 0:12:25.920 portfolio manager? Um, as long as we get a fair 0:12:26.040 --> 0:12:28.960 few negotiation, I'll put him on stamp. What's that top 0:12:29.000 --> 0:12:31.400 line of his resume? It looks like it just says God. 0:12:31.440 --> 0:12:35.680 It's one word resume, God, God? Do you really need 0:12:35.720 --> 0:12:38.839 more than that created the heavens in the earth? No, 0:12:38.960 --> 0:12:41.840 you don't need a what's this little thing about the flood? 0:12:41.840 --> 0:12:44.079 Can we have a conversation refined print on that one? 0:12:44.240 --> 0:12:46.360 I I don't think so. But it's called the Bible. 0:12:46.800 --> 0:12:50.480 So another kind of meta question for you. When you 0:12:50.520 --> 0:12:53.640 look at what you do, how you use et f s, 0:12:53.800 --> 0:12:56.680 how you manage people's money, what do you think could 0:12:56.679 --> 0:13:03.480 disrupt you? Well, you know, there's an inevitable market crash 0:13:03.559 --> 0:13:06.760 out there. It's somewhere off in the future, and hopefully 0:13:06.880 --> 0:13:10.160 the day before we don't say something like I don't 0:13:10.200 --> 0:13:12.959 see your market crash coming for years and let's let's 0:13:13.240 --> 0:13:17.520 we're gonna introduce leveraging options. We want we want everybody 0:13:17.520 --> 0:13:20.520 fully right fully taking a vent. So other than like 0:13:20.600 --> 0:13:25.000 an unforced, really stupid error like that. Uh, you know, 0:13:25.080 --> 0:13:28.120 the next recession is going to be a challenge. Trump 0:13:28.240 --> 0:13:32.120 is continually a challenge, not just because our clients are 0:13:32.200 --> 0:13:35.439 left of center or right of center, whatever. It's just 0:13:35.559 --> 0:13:39.400 a random element that people have a hard time dealing with. 0:13:39.880 --> 0:13:43.040 I am constantly having the argument that you have to 0:13:43.120 --> 0:13:46.560 separate the you know, the hand waving noise, the old 0:13:46.600 --> 0:13:51.800 cap tweets, anything that doesn't impact discounted cash flow, profits 0:13:51.800 --> 0:13:55.640 and revenue, um, you have to ignore. So now we're 0:13:55.640 --> 0:13:59.080 not going to war with I ran that's a Russia distraction. No, 0:13:59.320 --> 0:14:02.360 we're not. He not well, if he fires Mueller or not, 0:14:02.800 --> 0:14:05.000 he'll have to deal with the repercussions of it. But 0:14:05.240 --> 0:14:11.440 none of that impacts profits. Trade war and tariffs, even 0:14:11.480 --> 0:14:14.640 though we've been told they're easy to win, it turns 0:14:14.640 --> 0:14:20.240 out that may not actually be true. And my worst 0:14:20.240 --> 0:14:23.960 case scenario is, and I'm on record saying ignore the 0:14:24.000 --> 0:14:27.120 president until he does something really stupid, because most of 0:14:27.120 --> 0:14:30.000 this is noise that doesn't matter. This is the first 0:14:30.440 --> 0:14:32.960 you know, the camel's nose under the tent. This is 0:14:33.000 --> 0:14:37.240 the first entry to all Right, you've said and done 0:14:37.240 --> 0:14:42.160 a number of things that are sort of shocking and unprecedented. 0:14:42.240 --> 0:14:44.560 Let's just say it's not business as usual in d C. 0:14:44.720 --> 0:14:47.440 Because you're draining the swamp and all that other fun stuff. 0:14:48.080 --> 0:14:50.520 This is the first thing that you look at, even 0:14:50.800 --> 0:14:53.560 the tax cuts, which every analysis of them have said, 0:14:53.920 --> 0:14:57.040 this is not a well crafted tax reform, but hey, 0:14:57.040 --> 0:14:59.360 it's a couple of trillion dollars. And by the way, 0:14:59.360 --> 0:15:01.760 clients hate one. I say this. I know you may 0:15:01.800 --> 0:15:04.760 not be the biggest fan of especially if you live 0:15:04.800 --> 0:15:06.440 in a blue state and you lost your state and 0:15:06.520 --> 0:15:08.880 local taxes. So we have a lot of clients in 0:15:08.920 --> 0:15:16.280 California and New York and and Oregon and and um uh, Connecticut. 0:15:16.360 --> 0:15:18.680 We don't you know, people in debt Texas and people 0:15:18.720 --> 0:15:21.240 in Florida. They don't have to worry about that. But 0:15:21.360 --> 0:15:23.840 it's just still a couple of trillion dollars. And yeah, 0:15:23.840 --> 0:15:27.040 it's bad for the deficit, blah blah blah, but give 0:15:27.080 --> 0:15:28.680 me a trillion dollars, I'll throw you a hell of 0:15:28.680 --> 0:15:31.880 a party. Someone much smarter than me once said, this 0:15:32.000 --> 0:15:37.360 is the first thing that this administration has done that 0:15:37.720 --> 0:15:43.000 you could see the immediate effect in the economic data. 0:15:43.240 --> 0:15:47.080 We're starting to see the push through for inflation, and 0:15:47.200 --> 0:15:49.440 that could lead to a series of dominoes that has 0:15:49.480 --> 0:15:51.640 a very negative consequence for the stock mark. Can we 0:15:51.680 --> 0:15:54.560 talk more about that inflation? Like, I mean, that has 0:15:54.600 --> 0:15:56.680 been such a theme for so long, Like, I mean, 0:15:56.720 --> 0:15:59.960 that's basically what hedge funds have lost their low INFLA 0:16:00.000 --> 0:16:03.400 as lower for longer has been. I've been in that camp. 0:16:03.440 --> 0:16:06.800 And yet you know, as interest rates start to end 0:16:06.920 --> 0:16:09.680 up a little bit, we start to maybe enter a 0:16:09.760 --> 0:16:12.360 world where that debt that we're all looking at gets 0:16:12.400 --> 0:16:15.480 a lot more expensive. Because sure, that's a big issue. 0:16:15.560 --> 0:16:19.480 So although I don't think it's the apocalyptic issue that 0:16:19.520 --> 0:16:23.240 the the the faux deficit hawks have have pretended. So 0:16:23.680 --> 0:16:27.360 play this out with me, like, what how much longer 0:16:27.360 --> 0:16:30.320 can it stay low? And what does that end game 0:16:30.360 --> 0:16:33.440 look like for us as investors? So to me, the 0:16:33.480 --> 0:16:38.680 biggest two variables in inflation are commodities highly dependent on 0:16:38.720 --> 0:16:43.080 the dollar, and wages. We've started to see wages tick 0:16:43.200 --> 0:16:49.080 up on the endpoints of the wage distribution curve. So 0:16:50.120 --> 0:16:52.360 we've seen a number of states and cities raise the 0:16:52.400 --> 0:16:56.040 minimum wage that's ticked up if you're a Walmart, a Starbucks, 0:16:56.040 --> 0:16:59.240 a Target. You've raised wages at a number of other 0:16:59.280 --> 0:17:03.000 companies just because there aren't enough bodies and people who 0:17:03.080 --> 0:17:06.240 used to get hired who were perhaps not here fully illegally, 0:17:06.960 --> 0:17:10.399 that that labor pool has gone away. So that's a 0:17:10.560 --> 0:17:16.640 very sort of um that tends the non legal immigrants 0:17:16.720 --> 0:17:18.840 tend to be a cash business, so we're not seeing 0:17:18.880 --> 0:17:21.000 that in the data, and they tend to be low 0:17:21.040 --> 0:17:24.600 age workers taking jobs that Americans Americans don't want to 0:17:24.640 --> 0:17:27.240 wash dishes or pick tomatoes or any of the other 0:17:27.680 --> 0:17:32.480 or working Trump's kitchens. Right, So so you end up 0:17:32.520 --> 0:17:36.480 with that hasn't had a wage and impact, hasn't an 0:17:36.520 --> 0:17:40.159 inflation impact, either officially or unofficially. But when we look 0:17:40.240 --> 0:17:42.360 at the tariffs and we look at so we've seen 0:17:42.440 --> 0:17:45.840 some wages go up. On the low end, we've seen, uh, 0:17:45.880 --> 0:17:48.360 the unemployment rate went up, but for the right reasons, 0:17:48.400 --> 0:17:50.920 more people coming back into the labor force. We like that. 0:17:51.720 --> 0:17:55.920 On the high end, you've seen the STEM jobs science, technology, engineering, math, 0:17:56.280 --> 0:18:00.439 and of course anything involving technology, coding, software, whatever. But 0:18:00.560 --> 0:18:03.760 those have consistently been well paying jobs with good benefits. 0:18:03.760 --> 0:18:06.480 And stock options and what have you. But those continue 0:18:06.480 --> 0:18:10.800 to rise. When you see the rent costs in places 0:18:10.800 --> 0:18:13.920 like San Francisco, that's just telling you the tech world 0:18:13.960 --> 0:18:17.080 is booming. And until the tech world stops booming, those 0:18:17.119 --> 0:18:19.760 rents are going to continue to stay high. Uh So, 0:18:19.920 --> 0:18:23.080 it's very regional. It depends on the industry, it depends 0:18:23.119 --> 0:18:26.600 on the region, It depends on your education level, how 0:18:26.680 --> 0:18:31.120 much your wages are going up. But now we're starting 0:18:31.119 --> 0:18:35.560 to see um so that's not a big inflationary issue wages. 0:18:35.760 --> 0:18:38.560 But when we look at commodities, what is half the 0:18:38.640 --> 0:18:43.240 cost of car cars medals? What was selling sixteen seventeen 0:18:43.240 --> 0:18:46.960 million cars a year and exporting a bunch and importing 0:18:46.960 --> 0:18:50.480 a bunch. That's potentially problematic. You look at what happened 0:18:50.480 --> 0:18:53.920 with Harley Davidson, You look at some of the appliance companies, 0:18:54.359 --> 0:18:58.520 so Whirlpool and who else said something. Uh GM GM 0:18:58.560 --> 0:19:02.680 basically had decent numbers, but said perspectively, we see this 0:19:02.720 --> 0:19:04.919 is right. We see this as a problem. This is 0:19:04.920 --> 0:19:07.960 gonna affect our our sales, this is gonna affect our profits. 0:19:08.240 --> 0:19:11.400 The tariffs are really problematic for us. So you end 0:19:11.560 --> 0:19:14.560 up with you know, if you want to call it 0:19:14.600 --> 0:19:17.719 self inflicted wounds or unforced there. That's before we get 0:19:17.800 --> 0:19:22.399 to this insanity of using a depression era um, a 0:19:22.480 --> 0:19:26.480 depression era a law to send twelve billion dollars to farmers. 0:19:26.760 --> 0:19:29.520 How about this, let's not have a trade war. I 0:19:29.560 --> 0:19:31.800 know it's I know that's a radical view. I know 0:19:31.880 --> 0:19:35.280 that's crazy, but it seems ridiculous to say, all right, 0:19:35.680 --> 0:19:39.320 we're gonna have an eighteen billion dollar export tariff and 0:19:39.359 --> 0:19:42.000 we're gonna give you twelve billion dollars of it. Why 0:19:42.119 --> 0:19:47.879 are the taxpayers funding tariffs for one sector just farms? 0:19:48.320 --> 0:19:51.600 What about the manufacturers? What about the people who who 0:19:51.640 --> 0:19:55.119 are are writing software? What about Apple and and that 0:19:55.280 --> 0:19:59.199 sector that's gonna suffer from from these tariffs. It just 0:19:59.240 --> 0:20:02.479 seems that, you know, if it ain't broke, don't fix it. 0:20:02.920 --> 0:20:06.920 I know everybody in the White House seems to think 0:20:06.960 --> 0:20:11.800 that the United States is on the losing ends of 0:20:11.800 --> 0:20:17.399 of the world trade. When you break that down in 0:20:17.600 --> 0:20:25.360 specific details, that's true for people with less education, less skills, 0:20:25.960 --> 0:20:29.960 in certain geographies in the country, in certain industries. So 0:20:30.160 --> 0:20:32.879 maybe rather than take twelve billion dollars and give it 0:20:32.920 --> 0:20:36.040 to farmers, which essentially is you're giving it to China. 0:20:36.680 --> 0:20:40.320 Why don't we do what smart countries around the world, 0:20:40.440 --> 0:20:43.439 like Germany have done, and say for the people that 0:20:43.560 --> 0:20:48.159 global international trade which has helped keep global peace and 0:20:48.240 --> 0:20:52.679 helped boost the economy around the world, Let's do what 0:20:52.720 --> 0:20:55.760 they do and train these people to get the skills 0:20:55.800 --> 0:21:00.080 to get into better paying jobs. If you were if 0:21:00.080 --> 0:21:02.480 you used to make socks at a mill in North Carolina, 0:21:02.680 --> 0:21:06.680 I'm sorry, but that's a very low cost industry that's 0:21:06.720 --> 0:21:09.720 moved elsewhere. Yet Americans are not very good at having 0:21:09.760 --> 0:21:13.159 that conversation. Um, well, it depends do we want to 0:21:13.200 --> 0:21:15.760 be realistic and do we want to be adults or 0:21:15.760 --> 0:21:21.320 do we just want to yell at our perceived enemies. Yeah, 0:21:21.359 --> 0:21:26.400 but the it's easy to do that until inflation comes 0:21:26.480 --> 0:21:28.639 up and the Fed titans and we have a recession 0:21:29.520 --> 0:21:34.000 wholly unforced error. And the unforced error, I'm guessing if 0:21:34.040 --> 0:21:36.399 you went to masters of business, that would be one 0:21:36.400 --> 0:21:38.639 of the things that they would say that they would 0:21:38.640 --> 0:21:41.199 try to avoid our unforced airs. You know I have 0:21:41.440 --> 0:21:43.760 I don't ask that question. I asked you know who 0:21:43.880 --> 0:21:47.879 your mentors? What are you reading? Tell us your favorite books? Um, 0:21:47.920 --> 0:21:51.320 what what's the you know, what's the thing that most 0:21:51.400 --> 0:21:55.280 people don't know about you but should like questions like that, 0:21:56.320 --> 0:21:59.480 this is such a specific question to such a specific 0:21:59.560 --> 0:22:05.439 set of policy things that it's shocking. And you know, 0:22:05.520 --> 0:22:09.720 the outraged cycle has just exhausted everybody, so you're not 0:22:09.880 --> 0:22:14.000 getting the intelligent debate. You know. I used to call 0:22:14.080 --> 0:22:17.359 myself a Jacob Javits Republican growing up in New York. 0:22:17.760 --> 0:22:20.040 Here's a guy who was against the war in Vietnam, 0:22:20.280 --> 0:22:25.160 was against unfunded spending, and that includes um, that includes 0:22:25.320 --> 0:22:29.359 entitlements and tax cuts. But believe the government shouldn't be 0:22:29.359 --> 0:22:32.680 in the bedroom. The government had nothing, no business saying 0:22:32.720 --> 0:22:35.120 who could get married, whether you can use birth control, 0:22:36.240 --> 0:22:39.840 abortion rights, etcetera. And I thought, oh, that makes a 0:22:39.840 --> 0:22:44.240 lot of sense. And around twenty years ago, the Republicans 0:22:44.359 --> 0:22:48.119 just made a hard tack to the right and left 0:22:48.240 --> 0:22:52.080 rationality behind. And it took a long time for a 0:22:52.119 --> 0:22:56.040 lot of mainstream Republicans to sort of bolts. You look 0:22:56.080 --> 0:22:59.680 at guys like uh Rick Wilson or Bill Crystal at 0:22:59.680 --> 0:23:03.199 the end, r oh, they are a National Review, They're 0:23:03.320 --> 0:23:09.040 not They're Reagan Republicans. They're not Trump Republicans. And under 0:23:09.160 --> 0:23:11.520 Bush you had people like Bruce Bartlett, who was in 0:23:11.560 --> 0:23:14.280 the Reagan administration on the Bush administration saying I don't 0:23:14.320 --> 0:23:17.560 recognize the Republican Party, and a lot of people thought, 0:23:17.880 --> 0:23:20.080 come on, Bruce, you're being a little you're exaggerating a 0:23:20.080 --> 0:23:24.480 little bit. Turns out he was right, and he identified 0:23:24.480 --> 0:23:28.000 a schism before the cracks were visible and the House 0:23:28.000 --> 0:23:32.600 started to fall apart. The adults in charge of the 0:23:32.600 --> 0:23:36.040 Republican Party just can't seem to bring themselves about to 0:23:36.160 --> 0:23:39.399 saying we're the party of free trade, We're the party 0:23:39.480 --> 0:23:44.359 of non government intervention. What is right that it's so, 0:23:44.560 --> 0:23:49.199 I don't recognize this Republican Party and their affiliation. The 0:23:49.200 --> 0:23:53.320 party affiliation was pre Trump. I don't know what what 0:23:53.520 --> 0:23:57.000 happens post Trump, or maybe I'm wrong, Maybe the entire 0:23:57.160 --> 0:24:02.680 former Reagan Democrats moved to UM moved to the Republican Party. 0:24:02.720 --> 0:24:08.160 But it looks like poorly thought out economic policies could 0:24:08.280 --> 0:24:12.200