WEBVTT - Ed Yardeni Says The Roaring Twenties May Be Back 0:00:04.080 --> 0:00:06.520 Welcome to Meren Talks Money, the podcast in which people 0:00:06.559 --> 0:00:09.080 who know the markets explain the markets. I'm mere in 0:00:09.080 --> 0:00:11.560 sumset Web. This week we bring you a conversation with 0:00:11.640 --> 0:00:14.560 veteran market economist Eddie Adenny, the president and founder of 0:00:14.600 --> 0:00:17.480 your Denny Research. I've been reading his work for years 0:00:17.840 --> 0:00:19.960 and highly recommend it. You can read it as well 0:00:19.960 --> 0:00:22.000 if you visit one of his websites here Denny quick 0:00:22.040 --> 0:00:26.599 Takes dot com ed. Hello, thank you so much for 0:00:26.640 --> 0:00:28.320 joining us today. We really appreciate it. 0:00:28.600 --> 0:00:28.960 Thank you. 0:00:29.400 --> 0:00:32.199 Now, there's so much to talk about today, and so 0:00:32.280 --> 0:00:34.720 much positive stuff to talk about, is what I'm hoping 0:00:34.760 --> 0:00:37.840 for here, and you have an excellent record of being 0:00:37.840 --> 0:00:40.680 both optimistic and correct. 0:00:40.600 --> 0:00:43.640 Right well, thank you for staying that. 0:00:44.840 --> 0:00:47.320 So what I want to talk about today is where 0:00:47.360 --> 0:00:49.639 you see us going from here. We won't bother meandering 0:00:49.640 --> 0:00:51.840 around the past too much. I want to talk about 0:00:51.920 --> 0:00:55.720 the odds of something brilliant happening over the next couple 0:00:55.760 --> 0:00:57.920 of years, and the odds of something awful happening over 0:00:57.920 --> 0:00:59.680 the next couple of years. And in one of your 0:00:59.720 --> 0:01:01.640 recent notes, and I will say, by the way, anyone 0:01:01.680 --> 0:01:05.200 who's listening who doesn't know ed I'm a very enthusiastic 0:01:05.240 --> 0:01:07.200 reader of all his work, and if been following me 0:01:07.240 --> 0:01:09.920 for a while, you will have seen him quoted everywhere, 0:01:10.000 --> 0:01:14.000 so you'll know a little about Rethinks already. So Ed 0:01:14.040 --> 0:01:19.400 in a recent note, you talked about three possible things 0:01:19.440 --> 0:01:22.319 that could happen, three possible historical periods that the next 0:01:22.400 --> 0:01:24.720 few years could be. Right about what could be like? 0:01:24.760 --> 0:01:26.959 And you mentioned the nineteen seventies. I don't think we 0:01:27.000 --> 0:01:29.160 really want that. The nineteen nineties. We wouldn't mind the 0:01:29.200 --> 0:01:32.800 late nineteen nineties, would we And the nineteen twenties, which, 0:01:32.800 --> 0:01:34.440 of course we didn't really have a Roaring twenties in 0:01:34.480 --> 0:01:37.040 the UK, but you definitely had one in the US. 0:01:37.360 --> 0:01:42.040 So shall we start with the bad things that might happen? 0:01:42.160 --> 0:01:44.319 The bad decades? We might follow them? We can end 0:01:44.319 --> 0:01:48.160 on a high note, right, So what might be similar 0:01:48.200 --> 0:01:53.040 to the nineteen seventies? You give that a twenty percent probability. 0:01:53.800 --> 0:01:58.720 Well, the nineteen seventies from a macroeconomic standpoint stood out 0:01:58.760 --> 0:02:02.960 as being inflationary, and there's been a lot of concern 0:02:03.560 --> 0:02:09.160 that we may repeat that experience because back then we 0:02:09.200 --> 0:02:13.520 had two energy shocks in nineteen seventy three and again 0:02:13.560 --> 0:02:15.880 in nineteen seventy nine, and they both came out of 0:02:15.919 --> 0:02:19.639 the Middle East, and as a result of that, as 0:02:19.800 --> 0:02:24.600 energy prices went up, it spread throughout the economy. Energy 0:02:24.639 --> 0:02:28.360 is extremely important to the economy, clearly, and so it 0:02:28.400 --> 0:02:31.440 spread into wages, and from wages it came back into prices, 0:02:31.880 --> 0:02:35.160 and so we had a wage price rent spiral. People forget, 0:02:35.200 --> 0:02:37.840 but rent inflation was also a big problem in the 0:02:37.919 --> 0:02:42.280 nineteen seventies. Well, it could be DejaVu all over again 0:02:43.040 --> 0:02:45.520 in the current decade. It doesn't feel like it to 0:02:45.560 --> 0:02:49.760 me right now, because inflation has come down dramatically, but 0:02:49.840 --> 0:02:53.639 it came down dramatically in the nineteen seventies following the 0:02:53.720 --> 0:02:56.800 nineteen seventy three shock, and then we got hit again. 0:02:56.919 --> 0:03:00.000 And it's conceivable given that the Middle East once again 0:03:00.320 --> 0:03:03.880 is boiling, and that there's a potential. Not a potential, 0:03:03.880 --> 0:03:05.360 but it sure looks as though a lot of the 0:03:05.400 --> 0:03:09.200 conflicts are spinning out of control. If that starts to 0:03:09.240 --> 0:03:12.920 affect the price of oil and pushes it up dramatically 0:03:13.000 --> 0:03:17.520 because of supply disruptions caused by the conflicts over there, 0:03:18.120 --> 0:03:21.680 then it would be very similar to the nineteen seventies again, 0:03:22.280 --> 0:03:25.880 and so I think it's certainly a possible scenario, given 0:03:25.919 --> 0:03:29.240 the way things are going over there. But what's interesting 0:03:29.280 --> 0:03:32.320 to me is will the news has been awful. The 0:03:32.400 --> 0:03:36.320 price of oil has been remarkably tame subdued. It's down 0:03:36.400 --> 0:03:41.320 still sharply from its peak of last year in September 0:03:41.360 --> 0:03:47.040 twenty seventh, and that's despite the war between Israel and 0:03:47.080 --> 0:03:55.360 Hamas and the escalation of tensions by Rand's proxies in Syria, Iraq, 0:03:55.600 --> 0:03:58.640 Yemen and so on, and of course the disruptions to 0:03:59.040 --> 0:04:03.080 Red Sea shipping. So put that all together and we've 0:04:03.080 --> 0:04:06.200 got a geopolitical crisis. But so far, the price of 0:04:06.240 --> 0:04:09.480 oil has been remarkably tame, and I think that's because 0:04:09.560 --> 0:04:12.760 China is in a recession, Europe center recession in the US, 0:04:12.880 --> 0:04:15.560 but the US is doing pretty well. So all in all, 0:04:16.360 --> 0:04:20.839 from an economic standpoint, so far, so good. From from 0:04:20.839 --> 0:04:24.200 a geopolitical standpoint, not so much. It's quite quite quite 0:04:24.200 --> 0:04:24.960 a bad situation. 0:04:25.960 --> 0:04:29.680 Yeah, And there's still a chance that putting putting oil aside, 0:04:30.520 --> 0:04:33.040 the disruption to shipping through the Red Sea could have 0:04:33.240 --> 0:04:35.520 implications through the supply chain and we could have an 0:04:35.560 --> 0:04:39.920 inflationary impetus from that regardless of the oil price. 0:04:40.200 --> 0:04:43.080 Well, it's you know, so ships aren't going to Sewers Canal. 0:04:43.120 --> 0:04:46.000 And then from what I understand, there's an issue with 0:04:46.360 --> 0:04:49.599 the level of the Panama Canal which has also reduced 0:04:50.040 --> 0:04:53.520 the ability to get a lot of ships through that 0:04:53.800 --> 0:04:58.440 way to other routes. So, yes, I think you're absolutely 0:04:58.480 --> 0:04:59.520 correct and bringing that up. 0:05:00.440 --> 0:05:01.560 I mean, it is one of the things that we 0:05:01.600 --> 0:05:04.479 worry about relentlessly on this podcast. We worry about inflation 0:05:04.520 --> 0:05:06.040 a lot. I mean, there was a similar point in 0:05:06.080 --> 0:05:09.160 the nineteen seventies of where we are now. Inflation is 0:05:09.200 --> 0:05:12.160 dead and that's that it's all fine and behaved as 0:05:12.200 --> 0:05:15.040 the worm, when of course it hadn't actually been destroyed, 0:05:15.040 --> 0:05:17.440 and back it came, and in spades twice. 0:05:17.800 --> 0:05:20.960 I think what's different this time is that the FED 0:05:21.080 --> 0:05:25.280 is much more sensitive to inflation. It took them a 0:05:25.279 --> 0:05:28.960 little while to recognize that it was a problem in 0:05:29.160 --> 0:05:32.760 twenty twenty two, but they scrambled and they I think 0:05:33.240 --> 0:05:35.360 went from behind the curve to ahead of the curve, 0:05:35.960 --> 0:05:39.560 the inflation curve, and so I think the Fed's credibility 0:05:40.480 --> 0:05:43.520 on fighting inflation has actually improved quite a bit. The 0:05:43.560 --> 0:05:45.440 other thing is I think we've discovered that quite a 0:05:45.440 --> 0:05:48.440 bit of the inflation we've experienced has turned out to 0:05:48.440 --> 0:05:51.120 be transitory, and it has been very much related to 0:05:51.160 --> 0:05:54.680 the pandemic and the supply disruptions related to the pandemic, 0:05:55.040 --> 0:05:59.039 and so far those disruptions were much more widespread and 0:05:59.120 --> 0:06:02.479 much more inflation than what we're seeing so far in 0:06:02.480 --> 0:06:03.920 the current situation. 0:06:04.680 --> 0:06:06.520 Yeah, it's hard to write it off though, isn't it. 0:06:06.640 --> 0:06:09.280 Yeah, I give it a twenty percent subjective probability, so 0:06:09.560 --> 0:06:12.560 you know, and then there's two other scenarios exactly. 0:06:12.640 --> 0:06:14.120 And I was going to say that what he said 0:06:14.120 --> 0:06:16.080 the other day, Grunt snaps, as we are moving from 0:06:16.080 --> 0:06:18.680 a post war world to a pre war world, and 0:06:19.120 --> 0:06:21.800 you know, nothing is a forerunner of inflation more than war. 0:06:21.839 --> 0:06:24.400 It's pretty much. It was a leading indicator of inflation 0:06:24.520 --> 0:06:25.080 coming So. 0:06:25.800 --> 0:06:29.000 Wars our inflationary wars are definitely inflationary historically. 0:06:29.640 --> 0:06:32.400 If inflation were to come back or whatever, it's already 0:06:32.400 --> 0:06:34.880 coming back. Numbers slightly higher than than expected in the 0:06:35.040 --> 0:06:38.600 UK this week. It's hard to see rates coming down 0:06:38.680 --> 0:06:41.480 in the way that most people seem to expect, isn't it. 0:06:42.880 --> 0:06:46.200 Well, it becomes in the nineteen seventies. Again, the scenario 0:06:46.240 --> 0:06:50.120 there was that Paul Volker came in the late seventies 0:06:50.200 --> 0:06:54.920 and basically decided that he had to let monetary policy 0:06:56.360 --> 0:06:59.240 wreck the economy in order to bring inflation down. And 0:06:59.360 --> 0:07:05.159 that's been sort of the key thought process of pessimists 0:07:05.200 --> 0:07:08.839 since twenty twenty two, since the FED started raising interest rates. 0:07:09.600 --> 0:07:11.880 The basic concept was that there's no way we're going 0:07:11.920 --> 0:07:15.520 to bring inflation down without a recession. Historically, it typically 0:07:15.600 --> 0:07:18.520 takes a recession to bring inflation down, but I think 0:07:18.560 --> 0:07:21.160 one of the reasons that hasn't happened is because the 0:07:21.280 --> 0:07:23.360 Chinese and the Europeans have done us a great favor. 0:07:23.440 --> 0:07:26.600 They've had a recession, and because of the particularly the 0:07:26.680 --> 0:07:31.800 recession in China, there's been falling goods prices. So we 0:07:31.880 --> 0:07:33.640 still do a lot of business with China, and this 0:07:34.160 --> 0:07:38.200 certainly had a deflationary impact on the global economy and 0:07:38.200 --> 0:07:41.200 particularly the US. So we didn't have to have a 0:07:41.240 --> 0:07:44.080 recession in order to bring inflation down. They did it 0:07:44.120 --> 0:07:44.440 for us. 0:07:44.560 --> 0:07:47.280 Yes, it's given us. What is it you who calls 0:07:47.280 --> 0:07:51.040 it immaculate disinflation? Right, it's given us that we've been 0:07:51.120 --> 0:07:55.400 very lucky. Okay, So that's a twenty percent likely head, 0:07:55.440 --> 0:07:57.280 but pretty much everyone else he comes on the podcast 0:07:57.320 --> 0:07:59.160 gives it about an eighty percent likely hit. So we're 0:07:59.160 --> 0:08:02.000 already moving forward nicely with the optimism here, thank you. 0:08:03.520 --> 0:08:06.800 The second the second possibility that you actually only have 0:08:06.840 --> 0:08:10.680 only quite recently started talking about it as a distinct possibility, 0:08:10.720 --> 0:08:15.040 which again you give twenty percent, is the late nineteen nineties, 0:08:15.200 --> 0:08:17.960 which went bad at all until nineteen nineteen ninety thousand 0:08:17.960 --> 0:08:20.320 punds suddenly got bad. But the late nineteen nineties they 0:08:20.320 --> 0:08:22.440 were a hoot, right, that wouldn't be all bad. 0:08:22.520 --> 0:08:25.320 Well, Speculative bubbles are wonderful as long as you remember 0:08:25.360 --> 0:08:27.880 to get out right before the bubble bursts. You can 0:08:27.920 --> 0:08:30.120 certainly make a tremendous amount of money in a very 0:08:30.120 --> 0:08:32.960 short period of time. But you can also lose your 0:08:33.000 --> 0:08:37.320 mind and conclude that you know, it's a new era 0:08:37.440 --> 0:08:39.920 and everything is just amazing and it's going to be 0:08:39.960 --> 0:08:43.960 amazing forever. And then not only do you keep speculating, 0:08:44.040 --> 0:08:48.320 but you leverage the speculation, so there is a potential 0:08:48.360 --> 0:08:51.720 for irrational exuberance similar to what happened in the late 0:08:51.800 --> 0:08:54.840 nineteen nineties. And yeah, all of a sudden I'm seeing 0:08:54.840 --> 0:08:58.600 a lot of similarities. I mean, in videos a great company. 0:08:58.640 --> 0:09:03.200 I don't recommend to buy, sell, or hold individual stocks, 0:09:04.000 --> 0:09:06.240 but it is an amazing company. I mean, they went 0:09:06.280 --> 0:09:09.280 from making a lot of money selling chips for gaming 0:09:09.400 --> 0:09:12.760 to selling a lot of chips for mining bitcoin, and 0:09:12.800 --> 0:09:19.720 then suddenly they were the only people selling picks and 0:09:19.760 --> 0:09:24.360 shovels for the gold rush in artificial intelligence. So the 0:09:24.440 --> 0:09:27.920 company's stock price has just kind of gone straight up, 0:09:28.040 --> 0:09:34.280 especially since open ai introduced chat GPT in November of 0:09:34.400 --> 0:09:37.560 twenty twenty two, and the stock's been hot. But so 0:09:37.920 --> 0:09:42.320 of other stocks like Microsoft, anything that's remotely related to 0:09:42.480 --> 0:09:47.000 artificial intelligence has been really off the charts, and I'm 0:09:47.040 --> 0:09:52.079 struggling whether it's hoopla or hype. I think some combination 0:09:52.200 --> 0:09:54.840 thereof I think it's going to take a while before 0:09:55.080 --> 0:09:58.520 AI makes a huge difference to our economy, but I 0:09:58.520 --> 0:10:00.520 think it'll make some difference. I Meanwhile, there's a lot 0:10:00.559 --> 0:10:03.160 of other technologies that I think will be very good 0:10:03.200 --> 0:10:08.600 for my base case, But for this scenario, the similarities are. 0:10:09.080 --> 0:10:13.800 You know, a tech bubble, tech lead bull market that 0:10:14.400 --> 0:10:18.600 becomes increasingly narrow focused on the large cap companies that 0:10:19.280 --> 0:10:21.840 are likely to benefit. Back in the late nineteen nineties, 0:10:22.559 --> 0:10:27.400 the stock that really took off was Cisco. Cisco makes 0:10:27.440 --> 0:10:30.880 a lot of equipment for the Internet, and the stock 0:10:31.320 --> 0:10:34.840 went up eightfold from nineteen ninety seven to two thousand, 0:10:35.600 --> 0:10:40.320 and then it collapsed for all sorts of reasons. But 0:10:40.600 --> 0:10:46.240 the reality is Internet certainly continued to proliferate. But I 0:10:46.240 --> 0:10:50.559 think for the reason Cisco collapses because everybody bought their equipment, 0:10:51.679 --> 0:10:55.720 partly for the for the Internet expansion, and partly because 0:10:55.760 --> 0:10:58.800 of the concerns about the Y two K problem. So 0:10:58.840 --> 0:11:02.199 when we crossed into the new millennium, companies had spend 0:11:02.200 --> 0:11:05.800 a tremendous amount on redoing their technology, and then suddenly 0:11:06.000 --> 0:11:10.040 all that demand kind of vanished at the turn of 0:11:10.120 --> 0:11:14.360 the clock. So it's conceivable that we could have that 0:11:14.440 --> 0:11:17.600 kind of scenario. We're maybe in the early phases of 0:11:17.600 --> 0:11:18.559 it right now. 0:11:19.520 --> 0:11:21.200 But to get into that kind of melt up, we'd 0:11:21.200 --> 0:11:23.680 need to see but we need to see rates falling fast. 0:11:24.000 --> 0:11:26.520 So we'd need to see everyone getting concerned that inflation 0:11:26.640 --> 0:11:28.360 was going to fall to two percent or below, and 0:11:28.400 --> 0:11:30.920 then we'd need to see actual rate cuts come through 0:11:30.960 --> 0:11:31.559 from the Fed. 0:11:31.600 --> 0:11:35.800 At least, it's a fascinating scenario to think about, because 0:11:37.040 --> 0:11:40.920 you know, put yourself in the shoes of FED shared 0:11:41.400 --> 0:11:43.960 your own Powell, he's just more or less said that 0:11:44.000 --> 0:11:47.120 they're done raising interest rates, that it's restrictive enough, And 0:11:47.160 --> 0:11:49.200 he and a few other FED officials have said, you know, 0:11:49.800 --> 0:11:52.760 if we do keep making progress and bringing inflation down, 0:11:53.160 --> 0:11:55.520 we will have to think about lowering the Fed funds 0:11:55.559 --> 0:11:58.240 rate because if we don't do that, then the inflation 0:11:58.320 --> 0:12:01.679 adjusted FED funds rate actually be going up. And so 0:12:02.280 --> 0:12:04.440 we don't want to be more restrictive than we are, 0:12:04.559 --> 0:12:07.400 so we might have to consider lowering rate. So, just 0:12:07.640 --> 0:12:11.880 having said all that, the markets have had a tremendous rally. 0:12:11.880 --> 0:12:15.280 I mean, we're up thirty five percent since the bottom 0:12:15.320 --> 0:12:19.440 of the bear market back on October twelfth, twenty twenty two, 0:12:19.840 --> 0:12:23.600 and a lot of that has been led by technology, 0:12:23.640 --> 0:12:30.000 which is very very much of a high beta sector. 0:12:30.559 --> 0:12:34.360 That's the best way leverage, way to play an economy 0:12:34.400 --> 0:12:38.600 that's growing without interest rates going up any further. And 0:12:38.800 --> 0:12:41.560 if the market starts to sense that the federally is 0:12:41.600 --> 0:12:45.040 about to cut interest rates, imagine how much higher things 0:12:45.559 --> 0:12:49.360 might go. So, I mean, I think Fred Chert, Jerome 0:12:49.400 --> 0:12:52.000 Pile knows all that, and I think he might very 0:12:52.000 --> 0:12:55.480 well start to push against it and say, you know what, 0:12:55.520 --> 0:12:57.679 we're actually not in any rush at all to lower 0:12:57.679 --> 0:13:01.160 interest rates. I mean, look, the economy doing well, inflation's 0:13:01.160 --> 0:13:05.479 coming down, what's the rush to lower interest rates. Nevertheless, 0:13:06.240 --> 0:13:09.680 if the FED becomes less relevant because we're not spending 0:13:10.120 --> 0:13:13.520 you know, nights and days wondering how much higher they're 0:13:13.559 --> 0:13:16.120 going to take interest rates, the markets can focus on 0:13:16.160 --> 0:13:20.040 the fundamentals and on the hype. And right now, the 0:13:20.080 --> 0:13:23.280 fundamentals look obviously good for the economy, and there's plenty 0:13:23.320 --> 0:13:25.680 of hype about AI. 0:13:26.320 --> 0:13:27.599 Yeah. I mean, it feels like it would be a 0:13:27.600 --> 0:13:30.319 great shame for the FED to start cutting rates aggressively 0:13:30.360 --> 0:13:32.760 again when they finally got them to a level that 0:13:32.800 --> 0:13:34.080 feels historically normal. 0:13:34.280 --> 0:13:34.760 I agree. 0:13:35.000 --> 0:13:37.760 So in less there was a wopping great recession, it 0:13:37.760 --> 0:13:41.240 would make sense, surely for central bankers around the world 0:13:41.280 --> 0:13:43.839 to go, thank god, we have an opportunity to normalize here. 0:13:44.040 --> 0:13:47.480 Let's try and stay somewhere around four percent, because that's 0:13:47.600 --> 0:13:49.560 roughly where they've been for the last three thousand years, 0:13:49.559 --> 0:13:50.880 and it's kind of works well. 0:13:51.080 --> 0:13:53.760 I think you make an excellent point, is that in 0:13:53.800 --> 0:13:56.840 some ways. While we all know that the central banks 0:13:56.840 --> 0:14:00.079 have been tightening, they've also been normalizing. We had a 0:14:00.160 --> 0:14:02.880 very abnormal period from two thousand and eight, the Great 0:14:02.920 --> 0:14:06.840 Financial Crisis through the Great Virus Crisis in twenty twenty 0:14:06.840 --> 0:14:11.240 two where central bankers were just obsessed with bringing inflation 0:14:11.400 --> 0:14:16.720 back up to two percent. Those were the days, right, 0:14:17.800 --> 0:14:20.480 and so they put interest rates at zero, they had 0:14:20.560 --> 0:14:26.880 quantitative easing. Quantitative tightening was not something that they envisioned 0:14:27.120 --> 0:14:30.120 at all. And at the same time, some of them 0:14:30.360 --> 0:14:33.040 had negative interest rates. So we're we're kind of back 0:14:33.080 --> 0:14:35.480 to normal. So why not leave it that way for 0:14:35.520 --> 0:14:38.440 a while? What's the rush to lower interest rates? And 0:14:38.520 --> 0:14:43.080 if they do lower interest rates, then they really have 0:14:43.200 --> 0:14:47.160 a risk of instead of worrying about price inflation, they 0:14:47.200 --> 0:14:48.880 may have to worry about asset inflation. 0:14:50.320 --> 0:14:52.480 And then of course they if they do cut again 0:14:52.520 --> 0:14:55.320 when we're not in an actual recessorary situation, they've got 0:14:55.360 --> 0:14:57.600 nothing left if we do move it. That's right, another 0:14:57.680 --> 0:14:58.640 nasty period. 0:14:58.840 --> 0:14:59.000 Come. 0:14:59.040 --> 0:15:01.840 I to ask you, as lets sign asmastide, do you 0:15:02.280 --> 0:15:05.480 have any thoughts about where the two percent target came 0:15:05.520 --> 0:15:08.000 from and whether it's valid. You know, we spend a 0:15:08.080 --> 0:15:10.000 lot of time on all our podcasts and all our 0:15:10.080 --> 0:15:13.680 articles talking about two percent and the importance of two percent, 0:15:13.720 --> 0:15:16.880 and John and I have traced it to a paper 0:15:16.880 --> 0:15:18.920 written in New Zealand a couple of decades ago, but 0:15:18.960 --> 0:15:22.120 we can't go back. Yeah, and that's it, right. 0:15:22.720 --> 0:15:24.560 I think you're right. I think the New Zealand was 0:15:24.560 --> 0:15:27.200 the first central bank, or among the first, to have 0:15:27.240 --> 0:15:30.440 an inflation target, and it kind of caught on. It 0:15:30.800 --> 0:15:35.880 became sort of an obsession with macro economists that maybe 0:15:35.880 --> 0:15:40.120 if the FED targeted some very low inflation rate, we 0:15:40.160 --> 0:15:45.120 could have nirvana. And you might recall there was a 0:15:45.160 --> 0:15:48.680 description of a period there in the eighties and the nineties. 0:15:48.680 --> 0:15:52.880 It was called the Great Moderation that the central banks 0:15:52.920 --> 0:15:58.080 had figured out how to calibrate their policy so that 0:15:58.160 --> 0:16:03.600 inflation would be very low, very moderate, and the economy 0:16:03.640 --> 0:16:07.200 would continue to grow. And it looked like a pretty 0:16:07.200 --> 0:16:10.360 good scenario until the central bank started to go wild 0:16:11.000 --> 0:16:15.840 about deflation, being terribly concerned about deflation, and suddenly they 0:16:16.000 --> 0:16:18.840 become obsessed about getting inflation up to two percent. I 0:16:18.880 --> 0:16:22.720 had no problems with inflation below two percent personally. I mean, 0:16:22.800 --> 0:16:25.000 I think most of us who had jobs, and most 0:16:25.000 --> 0:16:28.120 people did have jobs. Low inflation is a good thing, 0:16:28.160 --> 0:16:31.800 and zero inflation is fine, but they were paranoid that 0:16:31.880 --> 0:16:33.800 if it got down to zero, my god, it could 0:16:33.840 --> 0:16:36.840 turn into deflation. You're just need a little bit more cushion. 0:16:36.920 --> 0:16:39.480 So it's kind of nonsense, quite honestly. 0:16:39.760 --> 0:16:41.480 Okay, good because that's what I thought that it was 0:16:41.560 --> 0:16:44.160 kind of nonsense. So I'm glad to hear you confirm that. 0:16:44.200 --> 0:16:46.760 Of course, that period you talk about the Great Moderation, 0:16:46.880 --> 0:16:48.560 that was the period when our chandler dot to see 0:16:48.560 --> 0:16:51.840 to bolish boom and bust, which will not sure about that. 0:16:52.080 --> 0:16:54.280 It gives them something to do, you know, they can 0:16:54.320 --> 0:16:57.760 write papers about it and then try to implement policies 0:16:57.800 --> 0:17:01.760 to achieve that target. I guess it's a way to 0:17:01.800 --> 0:17:05.199 sell their importance. But I think the central banks have 0:17:05.240 --> 0:17:10.040 become way too important in our investment lives and our 0:17:10.080 --> 0:17:13.160 business lives because they are so meddlesome and. 0:17:13.160 --> 0:17:14.600 We also, I mean, if you look at the way 0:17:14.600 --> 0:17:17.760 that inflation has come down over the last year or so, 0:17:18.080 --> 0:17:20.159 it's not a given that that has anything to do 0:17:20.240 --> 0:17:23.280 with central banks. Anyway. They're very good at claiming credit. 0:17:23.400 --> 0:17:26.240 But you could say that the previous period of disinflation 0:17:26.320 --> 0:17:28.760 has nothing to do with them, and the inflation was 0:17:28.800 --> 0:17:31.000 something to do with them with the frantic money printing, 0:17:31.400 --> 0:17:34.399 but that coming down again wasn't necessarily anything to do 0:17:34.480 --> 0:17:36.520 with them. Well, a lot of taking credit where it 0:17:36.600 --> 0:17:37.359 might not be you. 0:17:37.359 --> 0:17:39.240 You and nice should go on a road show because 0:17:39.240 --> 0:17:45.359 it seems like we agree. And I'm sorry, I don't 0:17:45.359 --> 0:17:48.400 mean to finish your sentences off, but you know, I'm 0:17:48.480 --> 0:17:51.919 inspired by the spin your putting on things, because the 0:17:51.920 --> 0:17:54.720 same spin I've been putting on is, you know, you've 0:17:54.720 --> 0:17:57.000 got to be empirical, you've got to be data dependent. 0:17:57.040 --> 0:17:59.560 They keep saying they're data dependent, and yet they come 0:17:59.640 --> 0:18:04.240 up with it Kakamami theories that they try to force 0:18:04.320 --> 0:18:08.520 the data to fit. But you're absolutely right. I think 0:18:08.600 --> 0:18:14.000 we're we've learned that inflation isn't just a monetary phenomenon. 0:18:14.040 --> 0:18:16.639 I won't say that it's not a monetary phenomenon, but 0:18:16.720 --> 0:18:19.120 it's not just a monetary phenomenon. There are a lot 0:18:19.160 --> 0:18:21.960 of moving parts there, and I think historically when you 0:18:22.000 --> 0:18:24.560 look at inflation, it tends to be very spiky. The 0:18:24.640 --> 0:18:27.520 faster it goes up, once it peaks, it comes down 0:18:27.560 --> 0:18:30.320 almost as fast, and it does tend to be spiky. 0:18:30.320 --> 0:18:33.600 The seventies is actually an aberration, and again I think 0:18:33.640 --> 0:18:35.280 a lot of that had to do with the geopolitical 0:18:35.320 --> 0:18:36.520 crises in the Middle East. 0:18:37.520 --> 0:18:38.840 That's why we need to keep an eye on those 0:18:38.920 --> 0:18:41.919 geopolitical crises we've got at the moment, right, should we 0:18:41.960 --> 0:18:44.040 move on to the good bit? The good bit, the 0:18:44.080 --> 0:18:46.520 bit that you give a sixty percent probability to the 0:18:46.600 --> 0:18:50.080 Roaring twenties. And John and I have been really, really 0:18:50.119 --> 0:18:52.560 hoping for a Roaring twenties. We started talking about it, 0:18:52.640 --> 0:18:54.480 I think when you first did we read that and 0:18:54.480 --> 0:18:56.840 we were like, Yes, that's what's going to happen, that's 0:18:56.880 --> 0:18:59.200 what we need. And since then there's been kind of 0:18:59.240 --> 0:19:01.200 precious little kind of a Roaring twenties. 0:19:01.720 --> 0:19:04.560 Well, you know, at the beginning of the decade, I 0:19:04.600 --> 0:19:09.159 did start to think about the possibility that the twenty 0:19:09.200 --> 0:19:12.600 twenties could be like the nineteen twenties if nothing else 0:19:13.280 --> 0:19:17.280 kind of rhymes. And they do say that history doesn't 0:19:17.320 --> 0:19:20.920 repeat itself, but it does rhyme. And it was interesting 0:19:20.960 --> 0:19:24.400 that the nineteen twenties before that, just before the nineteen twenties, 0:19:24.800 --> 0:19:28.400 there's a horrible war. It was called the Great War. 0:19:28.440 --> 0:19:31.080 They didn't have World War iiO to call it World 0:19:31.119 --> 0:19:34.600 War one at the time, and it was horrible, and 0:19:34.640 --> 0:19:37.440 not only did people die from the war itself, but 0:19:37.840 --> 0:19:42.040 then because of all the diseases that the soldiers gave 0:19:42.119 --> 0:19:46.200 one another in the trenches. We had the Spanish flu 0:19:46.400 --> 0:19:51.639 in the late in nineteen eighteen nineteen nineteen, and so 0:19:51.720 --> 0:19:55.879 we had a pandemic, We had a war, and in 0:19:55.960 --> 0:19:58.720 the United States, and I think around the world in 0:19:58.800 --> 0:20:02.439 thee twenty there was a recession. And back then they 0:20:02.480 --> 0:20:06.200 still still talk call these things depressions. So it must 0:20:06.240 --> 0:20:09.520 have been pretty depressing to think about the outlook for 0:20:09.600 --> 0:20:12.000 the nineteen twenties at the beginning of the decade. And 0:20:12.040 --> 0:20:15.040 yet it turned out to be the roaring nineteen twenties 0:20:15.040 --> 0:20:20.320 because of technological innovations, things as high tech as plumbing, 0:20:21.000 --> 0:20:30.479 the auto manufacturing adapted more efficient ways of producing things, 0:20:31.440 --> 0:20:33.400 and as a result of that, we had a tremendous 0:20:33.440 --> 0:20:39.440 productivity boom. And productivity is a wonderful, wonderful economic variable 0:20:39.480 --> 0:20:42.639 because the more you can get productivity to grow, the 0:20:42.640 --> 0:20:46.960 more output you get per worker. By definition, you get 0:20:47.240 --> 0:20:51.240 less inflation, you get wages rising faster than prices because 0:20:51.560 --> 0:20:55.840 people workers do tend to get paid their real wage 0:20:57.840 --> 0:21:02.360 in productivity. So it was a great period. It ended 0:21:02.440 --> 0:21:06.960 badly in nineteen twenty nine nineteen thirty, though I point 0:21:07.000 --> 0:21:09.640 out that it was not because of the It wasn't 0:21:09.680 --> 0:21:13.600 the economy's fault. It was because of this smooth ally tariff. 0:21:13.600 --> 0:21:18.280 But that's a whole nother subject. But so there are similarities. 0:21:18.280 --> 0:21:21.600 Now we've had a pandemic. I think we've got a 0:21:21.640 --> 0:21:25.040 technology revolution that started in the nineteen nineties. It was 0:21:25.040 --> 0:21:29.359 fairly crude back then. If you could replace secretaries with 0:21:30.080 --> 0:21:34.920 selectric typewriters who were on selectric typewriters with Word, or 0:21:34.920 --> 0:21:39.240 if you could replace a lot of bookkeepers with the 0:21:39.320 --> 0:21:43.240 Excel spreadsheets, then you could increase productivity. But the technology 0:21:43.359 --> 0:21:48.000 wasn't all that applicable to businesses across the board the 0:21:48.040 --> 0:21:50.639 way it is now. I think now every company is 0:21:50.680 --> 0:21:53.719 a technology company. You either make it or you use it. 0:21:53.760 --> 0:21:55.840 If you don't use it, you're going to lose it, 0:21:56.240 --> 0:21:58.280 You're going to go out of business. So there's a 0:21:58.320 --> 0:22:01.359 lot of pressure in companies to use alogy to increase productivity, 0:22:01.400 --> 0:22:05.040 particularly since there's a chronic labor shortage. So you put 0:22:05.040 --> 0:22:07.720 that all together and I think we're in the early 0:22:07.760 --> 0:22:10.720 stages of a productivity growth boom, and I think it's 0:22:10.760 --> 0:22:13.600 already sort of been. The data is already there to 0:22:13.640 --> 0:22:17.800 show that it's happening. Back in twenty fifteen, on a 0:22:18.040 --> 0:22:22.080 five year trailing basis, the productivity growth rate was zero 0:22:22.119 --> 0:22:25.480 point five percent at an annual rate. So in the 0:22:25.520 --> 0:22:28.960 five years prior to the late twenty fifteen there's only 0:22:29.119 --> 0:22:33.280 zero point five close to zero then, I mean, and 0:22:33.359 --> 0:22:35.760