WEBVTT - How to Think About Inflation (and Other Stuff) With Jim Bianco 0:00:06.200 --> 0:00:13.480 Well, can you trilliance? I'm Joe in America. Tunis Eric H. 0:00:13.840 --> 0:00:16.880 We have a good, great guest today, Jim Bianco of 0:00:17.000 --> 0:00:20.279 Bianco Research, and I have a few things that I 0:00:20.320 --> 0:00:21.640 want to talk to him about. What do you want 0:00:21.680 --> 0:00:23.920 to talk to him about? A couple of things. I mean, 0:00:24.000 --> 0:00:26.160 one of the words that we're hearing more and more 0:00:26.280 --> 0:00:30.360 is inflation. And we saw bond yields go up last week, 0:00:30.480 --> 0:00:34.760 and we saw how how big time equities reacted off 0:00:34.800 --> 0:00:38.159 of that, and you realize there's a fragility between bonds 0:00:38.159 --> 0:00:40.440 and stocks. You had both bonds and stocks going down. 0:00:40.520 --> 0:00:44.080 Inflations are inflation fears are getting stronger, and Jim tweets 0:00:44.120 --> 0:00:46.920 about this quite a bit. And so this dynamic of 0:00:46.960 --> 0:00:51.800 inflation and how it will affect people's portfolios is one thing. 0:00:51.920 --> 0:00:54.600 And the other thing I think is ARC, and ARC 0:00:54.680 --> 0:00:57.280 to me is probably the poster child of some of 0:00:57.320 --> 0:01:00.959 these stocks that are counting on low rates right um 0:01:01.040 --> 0:01:02.960 low rates there is good for these sort of high 0:01:03.000 --> 0:01:07.040 valuation stocks. And also the fears around ark and concentration risks. 0:01:07.040 --> 0:01:08.399 And I've seen him to be about this a lot 0:01:08.440 --> 0:01:12.280 as well. And so these are two major stories that 0:01:12.440 --> 0:01:15.920 are really dominating the past couple of weeks in my view, 0:01:16.000 --> 0:01:18.560 And and he's somebody who thinks about this stuff constantly. 0:01:18.840 --> 0:01:21.039 As long as we're gonna talk to him about inflation, 0:01:21.080 --> 0:01:23.959 we gotta, I think, also ask him about bitcoin, because 0:01:24.080 --> 0:01:25.560 that's the thing a lot of people think is a 0:01:25.640 --> 0:01:31.560 hedge to inflation, and there's all this chatter around bitcoin ETFs. Yeah, 0:01:31.600 --> 0:01:33.760 and I can tell you from from following him that 0:01:33.840 --> 0:01:35.720 he's thinking about that a lot. And what I like 0:01:35.800 --> 0:01:39.280 about Jim is he's, um not dismissive. You know, there's 0:01:39.319 --> 0:01:42.160 people who just dismiss bitcoin, They dismiss arc, they dismiss 0:01:42.640 --> 0:01:45.520 they're just very dismissive. Um, he's not. He kind of 0:01:45.560 --> 0:01:47.680 tries to figure it out, understand where it's coming from. 0:01:47.760 --> 0:01:51.080 And I think that that's an asset as an analyst 0:01:56.200 --> 0:01:59.880 this time on trillions, how to think about inflation, I mean, 0:02:00.040 --> 0:02:06.080 other things with Jim Bianco. Jim, welcome at Trilliance. Hey, 0:02:06.080 --> 0:02:08.760 thanks for having me. So Jim, I gonna ask you, 0:02:08.880 --> 0:02:11.760 what what what do you do? What's the you know, 0:02:11.840 --> 0:02:15.440 your your president of Bianco Research, obviously doing a lot 0:02:15.440 --> 0:02:17.639 of analysis, but like break it down for us, what's 0:02:17.639 --> 0:02:21.560 your job? Whatever? I wanted to be. Uh, That's why 0:02:21.639 --> 0:02:24.840 I like it. But seriously, I'm a macro researcher and 0:02:25.000 --> 0:02:28.040 I'm an independent person. So I tend to look at 0:02:28.080 --> 0:02:32.920 the macro space by saying, Okay, what isn't being emphasized enough? 0:02:33.840 --> 0:02:37.360 What do I think people have wrong that I should explain? 0:02:37.440 --> 0:02:38.919 What do I think they have right that I think 0:02:39.000 --> 0:02:43.280 needs to be amplified, And so in within the macro realm, 0:02:43.520 --> 0:02:47.720 I tend to kind of find those topics, uh and uh, 0:02:47.800 --> 0:02:50.280 you know, choose which one I want, and I can 0:02:50.360 --> 0:02:53.359 be very colectic, you know. In the fall, Uh, there 0:02:53.440 --> 0:02:56.040 was I was doing a lot with polls on the 0:02:56.080 --> 0:02:59.080 election and about how I thought that the election was 0:02:59.080 --> 0:03:02.320 going to be far closer than people thought it was 0:03:02.360 --> 0:03:05.000 going to be um you know, and my big whipping 0:03:05.000 --> 0:03:07.600 boy back then was Nate Silver, who was giving um 0:03:08.080 --> 0:03:11.519 Trump something like a nine percent chance of winning the election. 0:03:12.040 --> 0:03:14.040 I still thought it was gonna lose, but I thought 0:03:14.040 --> 0:03:17.160 it was more like a race than it was a 0:03:18.280 --> 0:03:22.840 nine race. Uh as as well too. I my Bailey 0:03:22.880 --> 0:03:25.120 Wick has always been the bond market, and it's all 0:03:25.160 --> 0:03:26.960 I always kind of start there because it's kind of 0:03:27.000 --> 0:03:30.760 the most natural market for a macro researcher because it 0:03:30.800 --> 0:03:35.280 brings in policy and it brings in economics, which I 0:03:35.320 --> 0:03:38.440 spend a lot of time doing as well too. What 0:03:38.560 --> 0:03:41.280 I don't do a lot of as a macro researcher 0:03:41.360 --> 0:03:44.440 is individual securities. So if you're looking for que SIPs 0:03:44.480 --> 0:03:47.360 or tickers, I might not be your guy. I've got some, 0:03:47.480 --> 0:03:50.960 but not really as as my big Bailey Wick And 0:03:51.040 --> 0:03:54.400 who are your clients? Institutional investors around the world. I 0:03:54.400 --> 0:03:57.640 am affiliated with a brokerage firm called Arbor Research and 0:03:57.640 --> 0:04:01.800 Trading out of Chicago here and they've got offices you know, 0:04:02.000 --> 0:04:05.000 in Chicago and New York and in London and salesman 0:04:05.040 --> 0:04:07.280 in Chicago, New York, in London, and so we have 0:04:08.320 --> 0:04:11.600 clients all over the all over the world. Uh. And 0:04:11.840 --> 0:04:14.160 we also sell our research as part of a research 0:04:14.160 --> 0:04:17.359 subscription basis if you don't want to subscribe to it 0:04:17.400 --> 0:04:20.359 as a or you don't want to do brokerage business 0:04:20.480 --> 0:04:25.080 as an institutional UM manager And so, Jim, I see 0:04:25.080 --> 0:04:27.040 you tweeting about et s now and then they seem 0:04:27.040 --> 0:04:31.120 to be worked into your workflow. Um, how are they 0:04:31.160 --> 0:04:34.040 related to you? Are you? Are they a natural investment 0:04:34.040 --> 0:04:36.760 tool for the people you're writing research for or are 0:04:36.760 --> 0:04:39.680 you more looking at them as ways to read sentiment 0:04:39.800 --> 0:04:43.160 and get intel from the market and investors both. I 0:04:43.200 --> 0:04:46.240 think that there's a number of institutional investors and we 0:04:46.279 --> 0:04:48.200 have a number of wealth managers. I like, I love 0:04:48.279 --> 0:04:50.360 to tell this story. We have a number of wealth 0:04:50.360 --> 0:04:52.800 managers as clients. And I was talking to a wealth 0:04:52.839 --> 0:04:55.400 manager on the West Coast. This is, you know, four 0:04:55.480 --> 0:04:59.920 or five years ago, and he was saying to me, uh, yeah, 0:05:00.000 --> 0:05:02.919 I like high yield and I've instructed my desk to 0:05:02.960 --> 0:05:05.799 buy high yield. I was like, really, you've got a desk. 0:05:05.880 --> 0:05:08.520 You're a wealth manager, got a desk. And he goes, well, 0:05:08.560 --> 0:05:10.440 it's kind of my wife on a PC and I 0:05:10.480 --> 0:05:12.359 told her to buy me some h y G you know. 0:05:12.560 --> 0:05:14.880 So that's kind of there's a lot of there's a 0:05:14.920 --> 0:05:18.440 lot of institutional managers that when they say that they're 0:05:18.520 --> 0:05:21.679 long a particular sector, short of particular sector, they're talking 0:05:21.680 --> 0:05:23.719 about the e T s that they've bought or sold 0:05:24.320 --> 0:05:29.239 as well too. And they provide a tremendous resource into 0:05:30.040 --> 0:05:34.240 sentiment by looking at the creation and deletion of shares 0:05:34.839 --> 0:05:37.800 and looking at the n A V premiums and discounts 0:05:37.880 --> 0:05:40.120 as well too, you can get a lot of glean 0:05:40.200 --> 0:05:42.640 a lot of information about the psyche of the market 0:05:42.760 --> 0:05:45.000 as well. So they work for me on both ends 0:05:45.040 --> 0:05:49.760 in that respect. So let's talk about ARC, which is 0:05:49.800 --> 0:05:52.360 the E t F topic of the moment. You've been 0:05:52.400 --> 0:05:54.520 following ARC. I have, we all have. I mean, you 0:05:54.560 --> 0:05:56.159 can't take your eyes off of it. When you see 0:05:56.160 --> 0:05:58.479 a company go from three billion to fifty billion in 0:05:58.520 --> 0:06:01.599 a year, it's a amenon. You know, are craze. We 0:06:01.680 --> 0:06:04.120 have many terms for it, but I just want to 0:06:04.160 --> 0:06:06.560 get your just first overall. Take I think right now 0:06:06.600 --> 0:06:09.400 the big debate is, Okay, this company has killed it, 0:06:09.800 --> 0:06:12.720 They've grown fast, and now you've got this sort of 0:06:13.040 --> 0:06:16.440 a bunch of warriors, not totally clear their motive, but 0:06:16.520 --> 0:06:19.520 people are talking about, oh, there's concentration risk. Some of 0:06:19.560 --> 0:06:22.200 the stocks that the funds own, they own, you know, 0:06:22.320 --> 0:06:25.359 more than twenty of the SHARE's outstanding, could be a 0:06:25.400 --> 0:06:28.279 dozen of those roughly, and so they're worried, well, what 0:06:28.320 --> 0:06:32.640 if there's outblows, there's gonna be a liquidity issue and potentially, 0:06:32.760 --> 0:06:35.200 and I heard one guy today was like, ARC is 0:06:35.200 --> 0:06:37.720 gonna is the new long term capital management, which so 0:06:37.800 --> 0:06:40.080 you're really seeing a lot of hyperbole as well. What's 0:06:40.080 --> 0:06:42.040 your take on it right now? Well, first of all, 0:06:42.200 --> 0:06:44.640 at the top, let me disclose that I own all 0:06:44.640 --> 0:06:47.040 five of the ARC funds, so I am a big 0:06:47.040 --> 0:06:50.680 fan of Cathy Wood and the structure of ARC. So 0:06:51.720 --> 0:06:54.800 keep in minding my comments come from an admirer of 0:06:54.839 --> 0:06:58.159 the fund. Now that I've said that, I think there's 0:06:58.200 --> 0:07:01.400 a lot of people that are very they're very jealous. 0:07:01.480 --> 0:07:04.520 They're jealous of the performance of of ARC. Might be 0:07:04.600 --> 0:07:09.159 jealous of of Cathy as well too. Um, I won't 0:07:09.160 --> 0:07:12.240 say that they're sexism, but I just did as well too. 0:07:12.280 --> 0:07:14.800 But but let me let me be, let me be 0:07:14.920 --> 0:07:18.440 a specific. Yeah, they've got an issue with with the concentration. 0:07:18.600 --> 0:07:21.480 So did Warren Buffett in the nineteen eighties. He was 0:07:21.560 --> 0:07:24.880 as concentrated as she was by having a you know, 0:07:25.040 --> 0:07:28.840 a handful of of companies that he owned that he 0:07:28.920 --> 0:07:31.040 was He sat on the board of most of them 0:07:31.680 --> 0:07:34.679 as well too, So we've not this is not new, 0:07:35.200 --> 0:07:39.160 And yes it does pose a risk, and no less 0:07:39.160 --> 0:07:44.040 than ARC and WOULD themselves are regularly putting out YouTube 0:07:44.120 --> 0:07:48.200 videos in research explaining that risk. And yes they do 0:07:48.400 --> 0:07:52.440 disclose every day what they're doing in their fun they 0:07:52.480 --> 0:07:54.200 have to buy law because they're an e t F 0:07:54.480 --> 0:07:56.640 and they go the extra mile by emailing out all 0:07:56.680 --> 0:07:59.680 of their trading every day as well too, So it's 0:07:59.680 --> 0:08:03.280 a very very transparent fund. Uh. As far as the 0:08:03.400 --> 0:08:07.480 idea that it's going to get so bad and that 0:08:07.560 --> 0:08:10.320 the outflows out of ARC are gonna get so bad, 0:08:10.960 --> 0:08:12.600 and that there's a bunch of people that are gonna 0:08:12.600 --> 0:08:14.720 say I told you so, I got news for you. 0:08:14.760 --> 0:08:16.960 If it gets that bad, it's gonna get that bad 0:08:17.000 --> 0:08:20.120 for you too. It's not. ARC is not gonna blow 0:08:20.240 --> 0:08:22.840 up and the SMP is gonna just sit there and 0:08:22.880 --> 0:08:26.280 go sideways while that's happening. If you're talking about ARC 0:08:26.360 --> 0:08:29.520 being in a long term capital type of problem, the 0:08:29.640 --> 0:08:32.040 SMP is gonna look a lot like last March as 0:08:32.040 --> 0:08:34.679 far as what it will be doing at the same time. 0:08:35.200 --> 0:08:39.080 So I I don't understand this this hatred. Yeah, you 0:08:39.160 --> 0:08:42.120 could make the case if you want, that this the 0:08:42.200 --> 0:08:45.160 sector that she's playing in, is overdone. There might be 0:08:45.200 --> 0:08:48.720 a stiff pullback there was last week as we are 0:08:48.880 --> 0:08:52.760 talking about, and there might be further downside. That's one story. 0:08:53.320 --> 0:08:56.000 But to say that they're going to come on glued 0:08:56.720 --> 0:08:59.320 is essentially in my mind saying the whole market's gonna 0:08:59.360 --> 0:09:03.320 come on glued because there is a strong correlation between 0:09:03.320 --> 0:09:05.760 those stocks and the rest of the market. They're not 0:09:05.760 --> 0:09:08.959 going to go down and fall apart while everything else 0:09:09.000 --> 0:09:11.480 you're just gonna sit there and do nothing. Yeah, Jim, 0:09:11.520 --> 0:09:12.960 I completely agree with you. I just want to had 0:09:13.000 --> 0:09:16.080 a couple of little tidbits here. One is that ARC 0:09:16.160 --> 0:09:18.920 also owns some pretty big names. They're able to sort 0:09:18.920 --> 0:09:21.640 of manage liquidity, and they've only seen a week of 0:09:21.640 --> 0:09:24.200 outflows and those outflows were one point five percent of 0:09:24.200 --> 0:09:27.800 the assets. And like you said, when if if she 0:09:28.360 --> 0:09:30.280 if her and her phone went down last week, well, 0:09:30.480 --> 0:09:32.160 a lot of things were down last week. And this 0:09:32.200 --> 0:09:34.760 reminds me of a lot of ETF issues where you 0:09:34.800 --> 0:09:38.839 can create these scenarios on paper and they really end 0:09:38.920 --> 0:09:41.959 up with you have to be able to you might 0:09:42.000 --> 0:09:46.240 have like a World War three scenario before that plays out. Uh. 0:09:46.240 --> 0:09:49.160 And I think people do try to isolate it instead 0:09:49.160 --> 0:09:51.079 of just sort of considering it is one thing in 0:09:51.120 --> 0:09:54.880 a bigger picture, because also fifty billion isn't that big um. 0:09:54.920 --> 0:09:57.320 But we have looked also at e t F s 0:09:57.320 --> 0:10:01.400 that have really risen up this quickly, and typically outflows 0:10:01.400 --> 0:10:03.880 do not come out as fast as they went in 0:10:04.320 --> 0:10:06.360 because there's people who are waiting to buy the dip. 0:10:06.720 --> 0:10:08.599 You know, she got a big core fan base, so 0:10:08.720 --> 0:10:10.240 there could be a tug of war, there could be 0:10:10.280 --> 0:10:12.480 a rebound, and there are also could people who just 0:10:12.520 --> 0:10:14.440 forget they bought it or are just in for the 0:10:14.480 --> 0:10:17.240 long term. So I think this scenario that all of 0:10:17.280 --> 0:10:18.920 a sudden, there's going to be a run on her 0:10:18.920 --> 0:10:21.280 e t F and the flows are gonna be so 0:10:21.360 --> 0:10:24.280 bad she gets stuck in a liquidity issue and you 0:10:24.280 --> 0:10:26.880 know the and somebody even said she's gonna have to 0:10:26.880 --> 0:10:29.720 be bailed out. I mean, this is getting pretty ridiculous. 0:10:29.760 --> 0:10:32.720 I think it's the worst case scenario. If everything's going 0:10:32.800 --> 0:10:35.480 to hell. It's possible she could have a little trouble 0:10:35.520 --> 0:10:37.480 with a couple of stocks and it could trade at 0:10:37.480 --> 0:10:40.400 it's like discount, if there's a pull on the e 0:10:40.520 --> 0:10:42.720 t F to get out, But I don't know, I 0:10:42.800 --> 0:10:45.640 just don't see anything worse than that. What it would 0:10:45.679 --> 0:10:49.160 be your worst case scenario, Jim, You know, looking at 0:10:49.240 --> 0:10:51.560 some of the e t f s in the in 0:10:51.600 --> 0:10:54.959 the credit space, especially h y G. Let's talk worse 0:10:55.040 --> 0:10:57.760 case you remember there's payment in kind. If things get 0:10:57.800 --> 0:11:00.840 bad enough, you could just hand that you just in redemption, 0:11:00.840 --> 0:11:02.480 you can just hand them the shares, is what you 0:11:02.480 --> 0:11:05.280 could do. You don't have to liquidate the shares and 0:11:05.320 --> 0:11:07.800 hand them and hand them cash. That's if you get 0:11:07.920 --> 0:11:12.679 into the worst case scenario. So there is not necessarily 0:11:12.760 --> 0:11:15.720 that case. We've seen that with UM, Like I said, 0:11:15.800 --> 0:11:17.360 in is a matter of fact. With h y G 0:11:17.559 --> 0:11:20.480 they high yield e t F. That's an actual strategy 0:11:20.520 --> 0:11:23.520 as far as uh UM. You know, payment and kind 0:11:23.679 --> 0:11:26.400 in for in terms of handing shares and receiving shares 0:11:26.720 --> 0:11:29.600 as part of the trading strategy of that fund as 0:11:29.600 --> 0:11:32.160 well too. So that would be you know, I think 0:11:32.240 --> 0:11:34.600 under the worst case scenario. But let's also remember I 0:11:34.640 --> 0:11:37.360 know she was much smaller, but one year ago, one 0:11:37.480 --> 0:11:41.360 year ago, her strategy was she was buying a lot 0:11:41.400 --> 0:11:45.200 of big liquid names, you know, the Microsoft's, the Apples 0:11:45.240 --> 0:11:47.920 of the World and stuff, and then in the sell 0:11:47.960 --> 0:11:50.880 off in March, liquidated those names to pick up a 0:11:50.960 --> 0:11:55.880 lot of the lesser liquid, higher flyer names as well too. 0:11:56.160 --> 0:11:59.480 And I've seen some of her research thing that's the 0:11:59.520 --> 0:12:01.920 strategy I want to employ in the next downturn. And 0:12:01.920 --> 0:12:05.240 then finally, I'll say one other thing too. In the 0:12:05.280 --> 0:12:08.720 last two weeks, she's come out repeatedly and said she 0:12:08.800 --> 0:12:11.480 expects a stiff correction in the market. So I think 0:12:11.480 --> 0:12:14.480 part of the thing about them getting in trouble is 0:12:14.600 --> 0:12:17.640 they're caught flat footed and something they don't anticipate. Well, 0:12:17.640 --> 0:12:20.560 she's been anticipating a correction in the market, so I 0:12:20.640 --> 0:12:23.880 have to believe that. You know, she's been strong positioned 0:12:23.880 --> 0:12:26.320 for it, been ready for it. It's not shocking her. 0:12:26.600 --> 0:12:29.560 She's not staring at the ceiling at night wondering what's 0:12:29.559 --> 0:12:32.560 going on because our funds are are are selling off. 0:12:32.640 --> 0:12:35.160 Is bad because it was literally two weeks ago she 0:12:35.240 --> 0:12:38.800 said she was ready for something like this. So, Jim, 0:12:38.960 --> 0:12:41.280 I want to actually take a moment and like talk 0:12:41.320 --> 0:12:45.560 about the fixed income world, since that's something that you're 0:12:45.640 --> 0:12:48.880 you're deeply rooted in as well. How existential of a 0:12:48.960 --> 0:12:53.200 moment is this for for fixed income and bonds. I 0:12:53.240 --> 0:12:58.280 think it is fairly existential because my view, and it's 0:12:58.320 --> 0:13:00.520 becoming more of a view in the mark it is 0:13:01.080 --> 0:13:04.440 we're about to turn tact here and start to see 0:13:04.480 --> 0:13:06.800 something we haven't seen in maybe thirty years and that 0:13:06.960 --> 0:13:11.800 is inflation. We're now really openly looking at that idea. 0:13:12.440 --> 0:13:15.120 Over the last twenty five or thirty years, we there, 0:13:15.240 --> 0:13:17.920 we've had bouts where people have talked about inflation, but 0:13:18.000 --> 0:13:22.000 it really hasn't materialized to any great degree. And in fairness, 0:13:22.520 --> 0:13:26.120 as of right now, it hasn't materialized. But I think 0:13:26.120 --> 0:13:30.080 the evidence is the strongest that's ever been that we're 0:13:30.120 --> 0:13:33.680 going to see inflation, and that is going to be 0:13:33.840 --> 0:13:36.920 a big game changer. I think in the fixed income 0:13:37.000 --> 0:13:39.840 space that a lot of people are not ready for it. 0:13:39.920 --> 0:13:47.920 For instance, inflation is historically not good for equities. I 0:13:47.960 --> 0:13:51.160 don't everybody says it is good for equities. They said 0:13:51.200 --> 0:13:53.640 that in the early seventies when we first got inflation 0:13:53.679 --> 0:13:56.360 to the best hedge for inflation was equities. By the 0:13:56.440 --> 0:13:58.640 late seventies, we realized it was one of the worst 0:13:58.679 --> 0:14:02.040 and hedges company can't raise prices as fast as their 0:14:02.040 --> 0:14:05.760 input costs, and their margins get squeezed. That's what typically 0:14:06.200 --> 0:14:09.120 happens in terms of inflation. And the other big one 0:14:09.160 --> 0:14:14.600 for inflation is the sixty forty portfolio, the bedrock of 0:14:14.640 --> 0:14:18.720 the wealth management business. And why you see these really, 0:14:18.840 --> 0:14:21.960 I believe why you see these relentless inflows into fixed 0:14:21.960 --> 0:14:26.080 income ETFs is based on the idea that you don't 0:14:26.120 --> 0:14:29.720 have inflation because they tend, stocks and bond prices tend 0:14:29.760 --> 0:14:32.800 to move opposite each other in the lack of inflation, 0:14:33.280 --> 0:14:36.160 you know, or yields and stocks moved together. I'm saying 0:14:36.160 --> 0:14:38.720 the same thing again, and we've we've even coined a 0:14:38.760 --> 0:14:42.960 phrase for risk on, risk off. Well, in an inflationary environment, 0:14:43.560 --> 0:14:45.840 you have not a sixty forty portfolio, but you have 0:14:45.840 --> 0:14:48.200 a hundred zero portfolio. Either both stocks and bonds are 0:14:48.200 --> 0:14:52.040 going up together or both of them are going down together. 0:14:52.440 --> 0:14:54.680 And we started to see the beginnings of that happening, 0:14:54.760 --> 0:14:57.800 especially last week. Both stocks and bonds went down together 0:14:58.280 --> 0:15:03.040 last week as well too. If this inflationary environment comes, 0:15:03.800 --> 0:15:07.240 then the whole basis of a lot of wealth management 0:15:07.320 --> 0:15:12.640 strategies has to be rethought because that forty leg stops 0:15:12.720 --> 0:15:15.160 working and then they're gonna have to figure it out. 0:15:15.240 --> 0:15:17.240 One last thing, I remember why a person goes to 0:15:17.280 --> 0:15:20.640 a wealth manager. If you're bullish, you just go buy 0:15:20.760 --> 0:15:23.400 ARC or you buy the SMP. You don't need to 0:15:23.440 --> 0:15:25.880 go see a wealth manager. You go see a wealth 0:15:25.880 --> 0:15:28.520 manager because you you want to participate in the market, 0:15:28.560 --> 0:15:31.760 but you're afraid, so they're they're ready made answer, and 0:15:31.800 --> 0:15:34.280 it's not been a wrong answer has been the sixty 0:15:34.320 --> 0:15:38.280 forty portfolio or some variation on that. Well, if that 0:15:38.440 --> 0:15:42.240 stops working, then all of these clients that wealth managers 0:15:42.280 --> 0:15:44.720 have are going to start asking questions, why is my 0:15:44.760 --> 0:15:47.560 portfolio falling as fast as the market if both stocks 0:15:47.560 --> 0:15:50.080 and bonds are falling. I thought that forty leg was 0:15:50.120 --> 0:15:53.520 supposed to protect me, because it certainly didn't help me 0:15:53.560 --> 0:15:55.880 when the market was going up. I always left behind 0:15:56.240 --> 0:15:58.880 the big rally in stocks. So I think that there 0:15:58.960 --> 0:16:03.000 there is going to potentially be an existential point with 0:16:03.080 --> 0:16:05.440 the bond market if we were to see this inflation 0:16:05.760 --> 0:16:16.560 materialized like I think we are. Let me be Devil's 0:16:16.560 --> 0:16:19.080 advocate here, and you know there's that You ever heard 0:16:19.120 --> 0:16:22.840 that Rolling Stone song? It's just your nineteeh nervous breakdown, sure, 0:16:23.160 --> 0:16:25.920 sort of making fun of, Oh, here's here you come 0:16:25.960 --> 0:16:28.640 again with another nervous breakdown. I feel like I've seen 0:16:28.680 --> 0:16:32.440 this movie nineteen times. Before rates start going up, how 0:16:32.480 --> 0:16:35.240 to prepare for rising rates, rising rates, rising rates, and 0:16:35.280 --> 0:16:37.760 then stocks start to go down a little bit. Everybody 0:16:37.760 --> 0:16:40.240 freaks out and the FED comes in and says something 0:16:40.280 --> 0:16:42.800 that just makes it all good. Rates decline, stocks go 0:16:42.880 --> 0:16:46.200 back up. We're partying again. And what what makes you 0:16:46.240 --> 0:16:48.560 think we're not going to go back to that again? 0:16:48.720 --> 0:16:51.680 And this is a new paradigm. You're right, this is 0:16:51.760 --> 0:16:55.000 this is a story that we've heard in the past. Now, 0:16:55.720 --> 0:16:58.400 in defense of me, I only became an inflation east 0:16:58.720 --> 0:17:00.680 last summer, so I'm fair lead new to this. I 0:17:00.760 --> 0:17:04.840 was a big bond bollum until last summer as well too. 0:17:05.400 --> 0:17:09.360 But what I think is changing now is the perception 0:17:10.080 --> 0:17:15.320 of inflation itself, modern monetary theory, universal basic income. We're 0:17:15.400 --> 0:17:20.120 mailing people money as well. We're talking about checks and 0:17:20.359 --> 0:17:24.960 an extra three hundred dollars of unemployment insurance going out. 0:17:25.000 --> 0:17:28.160 And by the way, I understand completely why we're doing it. 0:17:28.840 --> 0:17:32.240 But what I've often argued is if there is no 0:17:32.320 --> 0:17:35.919 consequence to us mailing out all of this money, that 0:17:36.680 --> 0:17:40.040 we pass the stimulus package and the poor get some help, 0:17:40.520 --> 0:17:43.800 and the unemployed get some assistance to their next job, 0:17:43.840 --> 0:17:45.920 and the rich to find the rich. As anybody owns 0:17:46.119 --> 0:17:49.240 equities or assets, if you want to even draw broader, 0:17:49.760 --> 0:17:52.840 see the value of their portfolio go up. Everybody wins, 0:17:52.880 --> 0:17:55.320 so let's do another one, and let's do another one. 0:17:55.680 --> 0:17:58.000 Why wouldn't you do another one. If you pass a 0:17:58.040 --> 0:18:03.040 big stimulus package and you mail checks and everybody wins, 0:18:03.520 --> 0:18:05.800 then do another one and you you you enter kind 0:18:05.800 --> 0:18:08.960 of a U B I m MT world. And that's 0:18:08.960 --> 0:18:11.280 where I think you get the stimulus for inflation. So 0:18:11.359 --> 0:18:15.960 that's been my argument. Now I've also argued you don't 0:18:16.000 --> 0:18:18.720 have inflation. Now, it is a bet that it's coming 0:18:19.240 --> 0:18:21.760 immediately ahead of us in the next sixty days. Is 0:18:21.760 --> 0:18:24.920 what economists called the base effect. In April and May 0:18:24.920 --> 0:18:28.320 of last year, when the shutdowns happened, the prices of 0:18:28.359 --> 0:18:31.480 everything plummeted because everything was closed, and then everybody had 0:18:31.480 --> 0:18:34.080 supply and there was no customers, so they were cutting 0:18:34.119 --> 0:18:37.960 prices to move inventory. That rolls off in the next 0:18:38.080 --> 0:18:40.800 one or two inflation reports. So the year over year 0:18:40.880 --> 0:18:45.000 change of inflation is going to jump dramatically. Everybody knows it. 0:18:45.320 --> 0:18:48.800 Chairman Paul has said it a million times. It's going 0:18:48.840 --> 0:18:51.840 to happen. Be don't be surprised. So you've got your 0:18:51.880 --> 0:18:56.080 ready made excuse for higher inflation over the next sixty days. 0:18:56.680 --> 0:18:59.200 My bet is that in the second half of the year, 0:19:00.160 --> 0:19:02.800 we're gonna start looking around and going, well, that base 0:19:02.800 --> 0:19:05.880 effect didn't go away, and maybe it didn't go away 0:19:05.920 --> 0:19:09.600 because we've got all of this stimulus that we've put 0:19:09.600 --> 0:19:13.040 into the economy. One last off for you. A lot 0:19:13.040 --> 0:19:16.600 of economis say you can't have inflation without wage inflation, 0:19:16.640 --> 0:19:19.440 and there isn't really much in the form of wage inflation. 0:19:19.480 --> 0:19:23.000 Well that's true for now, But what I've argued is 0:19:23.040 --> 0:19:27.800 you have personal income inflation. Astounding number is personal income 0:19:28.000 --> 0:19:30.360 is a total income you make. Wages is a big 0:19:30.400 --> 0:19:33.520 part of it. You know, unrealized gains on your securities 0:19:33.600 --> 0:19:37.040 is a big part of it. Twenty five of that 0:19:37.160 --> 0:19:43.560 number comes from government transfers. That is, stimulus checks, unemployment, 0:19:43.720 --> 0:19:48.800 social Security, disability, veterans benefits, whatever else the government mails. 0:19:48.840 --> 0:19:51.760 It's an astounding number. Used to be pre pandemic, around 0:19:51.800 --> 0:19:54.879 eight or nine percent a quarter of the income of 0:19:54.920 --> 0:19:57.440 the United States is mailed to them from the government 0:19:57.680 --> 0:20:03.160 right now, and the savings rate is tremendously high, well 0:20:03.200 --> 0:20:07.800 over right now. So that's given everybody a ton of money. 0:20:07.840 --> 0:20:09.919 So that as soon as they get their vaccine and 0:20:09.960 --> 0:20:12.159 as soon as they feel a little bit better, and 0:20:12.200 --> 0:20:15.560 everybody says we're gonna come roaring back. They've got money 0:20:15.600 --> 0:20:18.199 to burn, and I think it will show up in 0:20:18.240 --> 0:20:22.439 the form of inflation, and if it doesn't, then the 0:20:22.560 --> 0:20:24.639 argument will be, we'll send some more money out. It 0:20:24.960 --> 0:20:26.720 was all good. We sent them all money out, and 0:20:26.760 --> 0:20:29.040 only good things happen and no bad things happen. So 0:20:29.119 --> 0:20:32.160 we'll just keep going until we eventually get there. That's 0:20:32.240 --> 0:20:35.760 the basis of my inflation argument now. And you're right, 0:20:36.240 --> 0:20:38.920 there is various variations of this. There was a variation 0:20:38.920 --> 0:20:41.320 of this and O eight when we said with que 0:20:42.000 --> 0:20:44.439 there was a famous letter that was signed by about 0:20:44.480 --> 0:20:46.920 sixty people on Wall Street that Jeremy Bernaki, you're creating 0:20:47.000 --> 0:20:49.920 hyper inflation with all this qui and it never happened. 0:20:50.040 --> 0:20:52.760 And so I get it that there there is that 0:20:52.880 --> 0:20:56.640 skepticism and it could be wrong again too. Uh. So 0:20:56.680 --> 0:20:58.720 we'll see how this plays out for the second half 0:20:58.760 --> 0:21:02.760 of the year. When you think about um uh, this 0:21:02.800 --> 0:21:06.560 inflation talk, Jim, I mean, it's it's very easy to 0:21:07.000 --> 0:21:09.879 picture it as this boogeyman like like we had in 0:21:09.880 --> 0:21:12.920 the seventies, right, But it's also part of what you're 0:21:12.920 --> 0:21:14.840 saying here is like we we don't necessarily know how 0:21:14.880 --> 0:21:16.840 big of a boogeyman this could be too, right, Like, 0:21:16.880 --> 0:21:20.399 it could be a little bitty version of of that boogeyman. 0:21:21.000 --> 0:21:22.840 But because we haven't had it for so long and 0:21:22.840 --> 0:21:25.160 we have no sense of how this whole thing could 0:21:25.200 --> 0:21:29.240 get metered, we don't know how big this of a phenomenon, 0:21:29.320 --> 0:21:32.840 this inflation talk could turn into. You're exactly right. So one, 0:21:33.000 --> 0:21:37.399 when I say I'm an inflation east there's two thoughts 0:21:37.440 --> 0:21:40.240 that come through people's minds. If you're a little bit younger, 0:21:40.320 --> 0:21:43.679