WEBVTT - Ed Yardeni Says It’s Not as Bad as You Think 0:00:00.160 --> 0:00:16.440 Bloomberg Audio Studios, Podcasts, radio News. 0:00:17.640 --> 0:00:19.959 Welcome to Meron Talks Money, the podcast in which people 0:00:19.960 --> 0:00:22.160 who know the markets explain the markets. 0:00:22.200 --> 0:00:25.320 I'm Merensumset Web. This week I'm speaking with Edir Danney, 0:00:25.360 --> 0:00:26.880 President at Yadanney Research. 0:00:27.200 --> 0:00:29.840 Ed is the economists and investment strategist who coined the 0:00:29.960 --> 0:00:33.320 term bond vigilantes in the nineteen eighties. It's made quite 0:00:33.400 --> 0:00:36.760 a comeback since Donald Trump's reelection, most recently around the 0:00:36.840 --> 0:00:39.919 question of whether an extended bond sell off will make 0:00:39.920 --> 0:00:42.400 it difficult for Trump and his allies in Congress to 0:00:42.440 --> 0:00:45.479 push through their big, beautiful tax bill. We're going to 0:00:45.479 --> 0:00:47.280 get into this talk about how the bond market is 0:00:47.320 --> 0:00:50.080 pressuring governments across the board. We're going to talk about 0:00:50.080 --> 0:00:52.960 equity markets. We're going to talk about gold, bitcoin, and 0:00:53.000 --> 0:00:56.400 what Ed is writing about at the moment. Ed welcome 0:00:56.440 --> 0:00:58.520 to Meron Talks Money. Thank you for joining us again, 0:00:58.720 --> 0:01:02.120 very kind, Thank you very much. Now we should probably 0:01:02.160 --> 0:01:04.640 start with exactly what I said in the introduction. We 0:01:04.640 --> 0:01:07.640 should start with what is going on with developed world 0:01:07.680 --> 0:01:08.360 bond markets. 0:01:08.400 --> 0:01:10.160 Yields rising all over the place. 0:01:10.160 --> 0:01:13.360 That was particularly in Japan, but quite a lot going 0:01:13.400 --> 0:01:15.120 on in the US as well. 0:01:16.040 --> 0:01:20.319 The global bond market, particularly in developed countries, is seeing 0:01:20.360 --> 0:01:25.560 some stress clearly. I think there's mounting concerns about fiscal accesses, 0:01:26.040 --> 0:01:31.280 unsustainable fiscal policies that need to be addressed politically, and 0:01:31.319 --> 0:01:34.720 there's not any confidence that the politicians have the willingness 0:01:34.760 --> 0:01:36.880 to tackle these things now. I think we're seeing it 0:01:37.319 --> 0:01:41.200 most clearly and immediately in Japan right now, where the 0:01:41.480 --> 0:01:45.320 twenty year bond auction went off rather poorly, the thirty 0:01:45.360 --> 0:01:48.560 year and the forty year yields rose along with the 0:01:48.600 --> 0:01:51.800 twenty years, so that was kind of the beginning of 0:01:52.320 --> 0:01:56.720 the alarm bell being sounded in the Japanese credit markets. 0:01:57.120 --> 0:01:59.919 The ratio of their debt to GDPs over two hundred percent. 0:02:00.480 --> 0:02:04.520 The central Bank has purchase much of the bonds issued 0:02:04.560 --> 0:02:08.679 by the treasury in Japan, and now the Bank of 0:02:08.760 --> 0:02:11.800 Japan has recognized that they have an inflation problem, so 0:02:12.600 --> 0:02:17.080 that policy basically terminated two years ago, and now it's 0:02:17.120 --> 0:02:20.480 all coming back to haunt them. Here in the United States, 0:02:20.680 --> 0:02:24.079 things are still going relatively well. The ten year yield 0:02:24.200 --> 0:02:27.160 has been remarkably stable around four and a half percent, 0:02:27.200 --> 0:02:30.000 which seems to be fine. It's just that thirty year 0:02:30.040 --> 0:02:33.480 treasury yield. The spread has widened over the tenure, and 0:02:33.560 --> 0:02:36.120 we're getting closer to five percent, and so there is 0:02:36.160 --> 0:02:40.560 an unease that the bond market. The bond vigilantes in 0:02:40.600 --> 0:02:43.600 the United States are watching what's going on with the 0:02:43.600 --> 0:02:47.640 budget negotiations very closely, and if they're not happy with 0:02:47.760 --> 0:02:51.520 what the results are, there's a potential here for something 0:02:51.600 --> 0:02:55.440 similar to what's going on in Japan, kind of a protest, 0:02:55.480 --> 0:02:58.200 if you will, by the bond vigilantes, and that raises 0:02:58.320 --> 0:03:01.760 the question of whether the politicians will recognize that and 0:03:01.880 --> 0:03:03.320 respond appropriately to it. 0:03:04.240 --> 0:03:07.360 Pretty interesting, isn't it. This pops up periodically, doesn't it. 0:03:07.360 --> 0:03:10.799 And it's obvious to everybody that levels of Japanese debt, 0:03:10.919 --> 0:03:13.440 levels of US debt, of course, they're not sustainable. 0:03:13.480 --> 0:03:15.119 This is not sustainable long time. 0:03:15.200 --> 0:03:18.000 You can't have one hundred percent of your debt GDP ratio, 0:03:18.040 --> 0:03:20.320 you can't have two hundred percent. And sure, maybe you 0:03:20.360 --> 0:03:22.120 can net out a little bit with what the central 0:03:22.120 --> 0:03:25.440 Bank holds, et cetera, but you've still got a major problem. 0:03:25.600 --> 0:03:27.960 But it pops up and it goes away. It pops 0:03:28.040 --> 0:03:31.440 up and it goes away. It's never actually dealt with, 0:03:31.800 --> 0:03:34.360 and we know, there aren't really very many ways to 0:03:34.680 --> 0:03:35.400 deal with it. 0:03:35.360 --> 0:03:36.840 So we just put it off, put it off. But 0:03:37.320 --> 0:03:38.840 is this time any different? 0:03:39.400 --> 0:03:41.440 It's a good question. I've been doing this for over 0:03:41.480 --> 0:03:46.520 forty five years, and for that entire period on a 0:03:46.640 --> 0:03:51.720 regular basis, naysayers, pessimists, doom sayers saying this time we're 0:03:51.720 --> 0:03:54.680 finally going to have to pay the price for our sins. 0:03:55.040 --> 0:03:58.000 You know, borrowing is sinful, and eventually you have to 0:03:58.320 --> 0:04:01.200 pay the price for that. And yet here we are 0:04:01.200 --> 0:04:05.040 with the stock market almost worldwide at a record high. 0:04:05.160 --> 0:04:08.440 Economy is still growing in the United States. It's slowed 0:04:08.480 --> 0:04:12.600 down in Europe. It's had a little negative quarter in Japan, 0:04:12.720 --> 0:04:15.840 but all in all, the economies have done quite well. 0:04:16.080 --> 0:04:18.279 You have some very smart people today like read Dalia, 0:04:18.520 --> 0:04:21.640 walking around telling us that a debt crisis is imminent, 0:04:21.720 --> 0:04:24.680 and well, it looks like he may be getting it right. 0:04:24.720 --> 0:04:27.400 In Japan. It really just hasn't happened yet. In the 0:04:27.520 --> 0:04:29.760 United States. We had a glimpse of what it could 0:04:29.760 --> 0:04:32.400 look like in twenty twenty three when the bond deal 0:04:32.480 --> 0:04:34.960 went from four to five percent. We had a minor, 0:04:34.960 --> 0:04:37.720 little glimpse of it. On April eighth of this year 0:04:37.839 --> 0:04:41.000 twenty twenty five, when the bond yell rose from four 0:04:41.000 --> 0:04:43.440 to four and a half percent on April eighth, and 0:04:43.480 --> 0:04:47.440 that was basically in protest of Trump's tariff turmoil, and 0:04:47.520 --> 0:04:50.720 the response was very quick by the administration to postpone 0:04:51.120 --> 0:04:54.880 the reciprocal tariffs anyway, So the bond vigilantes are still 0:04:54.880 --> 0:04:57.800 out there. They're still interested in maintaining law and order. 0:04:57.839 --> 0:05:01.400 They prefer that fiscal and monetary policies are disciplined so 0:05:01.440 --> 0:05:04.680 that they don't have to take on that role, but 0:05:04.800 --> 0:05:08.960 they're ready if they have to assert their concerns. The 0:05:09.000 --> 0:05:11.800 only question is if they do, is whether the politicians 0:05:12.000 --> 0:05:15.680 will respond. And of course this is a great opportunity 0:05:15.680 --> 0:05:18.320 for the bond vigilantes to get the attentions of the 0:05:18.360 --> 0:05:21.599 politicians in the United States because we are negotiating a budget. 0:05:22.200 --> 0:05:25.440 Yeah, let's go back to Japan brief. Maybe there is 0:05:25.760 --> 0:05:28.640 a genuine crisis brewing there there. I know I've written 0:05:28.640 --> 0:05:30.360 that art call myself quite a lot of times over 0:05:30.400 --> 0:05:33.120 the last couple of decades, but maybe it's real this time. 0:05:33.160 --> 0:05:37.280 You do have this phenomenally high ratio and you have 0:05:37.560 --> 0:05:39.840 very long time yield, well over three percent now when 0:05:39.839 --> 0:05:42.000 we were used to them long term knocking around one 0:05:42.000 --> 0:05:42.799 percent or below. 0:05:43.200 --> 0:05:44.359 It is quite a big deal. 0:05:44.880 --> 0:05:45.080 Huge. 0:05:45.160 --> 0:05:48.680 Yeah, if that does develop into a genuine crisis, what 0:05:48.720 --> 0:05:49.280 does that mean? 0:05:51.480 --> 0:05:54.680 I tend to be an optimist at heart. So the 0:05:54.680 --> 0:05:58.880 notion that the pessimists have been promoting that one day 0:05:59.760 --> 0:06:02.599 they'll be auctions in the United States and now maybe 0:06:02.600 --> 0:06:06.159 in Japan where nobody will show up, or the Japan 0:06:06.200 --> 0:06:09.200 and the United States will default on their payments, I 0:06:09.200 --> 0:06:12.479 think that's nonsense. We saw in twenty twenty three a 0:06:12.560 --> 0:06:15.039 mini debt crisis with a yield going for four to 0:06:15.080 --> 0:06:18.039 five percent, as I mentioned, and at five percent there 0:06:18.160 --> 0:06:20.480 was just a ton of buying. So there's always going 0:06:20.520 --> 0:06:23.960 to be some yel at which there'll be investors saying, 0:06:23.960 --> 0:06:27.560 you know what, this is pretty good. This will probably 0:06:27.600 --> 0:06:31.040 slow the economy down and bring inflation down, and who knows, 0:06:31.080 --> 0:06:34.159 maybe they'll even cause the politicians to get the message. 0:06:34.520 --> 0:06:37.359 But the bond vigilantes are not the only players in 0:06:37.400 --> 0:06:41.080 this game. The central banks are involved, the treasuries are involved. 0:06:41.480 --> 0:06:44.240 In the United States, and November first, twenty twenty three, 0:06:44.720 --> 0:06:48.480 Treasury Secretary Jenny Yale and basically told the bond vigilantes. 0:06:48.560 --> 0:06:50.479 If you don't like my bonds and my notes, you 0:06:50.520 --> 0:06:53.440 know what, I won't issue any additional ones. I'll just 0:06:53.480 --> 0:06:57.440 issue the usual load, but I'll do what I need 0:06:57.720 --> 0:07:00.960 extra in the bill market, and that like a charm. 0:07:01.240 --> 0:07:04.720 There's ways that the central banks and the Treasury can 0:07:04.760 --> 0:07:08.800 still buy time and to avoid a day of reckoning. 0:07:08.839 --> 0:07:11.520 But if there's a day of reckoning, the deficits are 0:07:11.960 --> 0:07:14.200 a man and a woman made problem. They can be 0:07:14.240 --> 0:07:17.440 easily fixed. All we have to do is slow down 0:07:17.440 --> 0:07:21.120 the pace of outlays and increase the pace of receipts. 0:07:21.200 --> 0:07:25.160 It's the political challenge of getting that accomplished that has 0:07:25.200 --> 0:07:29.280 stymied any progress on deficits. It's just, you know, Americans 0:07:29.320 --> 0:07:32.680 and maybe Japanese and Europeans and others don't do pain 0:07:32.800 --> 0:07:36.280 very well. And we would just as soon pay for 0:07:36.720 --> 0:07:41.640 entitlements by issuing debt rather than raising taxes. At some 0:07:41.720 --> 0:07:44.280 point that could come back to haunt you, and it 0:07:44.320 --> 0:07:47.160 may very well be at this point, but it doesn't 0:07:47.200 --> 0:07:49.400 have to be doomsday, kind of like what happened in 0:07:49.400 --> 0:07:52.400 two thousand and eight. There was a financial crisis, all 0:07:52.440 --> 0:07:54.840 hands on deck, and we did respond to it. The 0:07:54.840 --> 0:07:57.960 politicians responded to it. They came up with a program 0:07:58.000 --> 0:08:01.239 called TARP to bail out the banks. The first round, 0:08:01.280 --> 0:08:05.080 the stock market hated and took a huge dive on it. 0:08:05.400 --> 0:08:07.640 One week later they came up with a new, improved 0:08:07.640 --> 0:08:10.400 TARP that fixed things. So this could be a process 0:08:10.440 --> 0:08:12.280 that last a few weeks. If we do, in fact 0:08:12.320 --> 0:08:15.360 get something that feels very much like a dead crisis, 0:08:15.560 --> 0:08:17.840 doesn't have to be the end of the world, would it. 0:08:17.920 --> 0:08:20.440 Maybe it not be such a bad thing. Get it 0:08:20.520 --> 0:08:20.880 over with. 0:08:21.040 --> 0:08:23.280 It's that thing we all know is coming right hanging 0:08:23.320 --> 0:08:25.520 over us for decades. In a way, it'd be quite 0:08:25.560 --> 0:08:26.760 nice to get it out of the way, have a 0:08:26.760 --> 0:08:30.080 bit of a reset, force everyone to rethink their fiscal priorities, 0:08:30.120 --> 0:08:32.600 and just get moving again in a better way. 0:08:32.960 --> 0:08:35.480 The way I've built with that uncertainty is I've said, look, 0:08:35.800 --> 0:08:38.400 I'll worry about it when the bond market worries about it. 0:08:38.480 --> 0:08:41.160 And that's been a useful way to watch it because 0:08:41.240 --> 0:08:43.200 people have been worrying about it all the time, have 0:08:43.800 --> 0:08:46.920 missed the great equity market. There was opportunities in the 0:08:46.920 --> 0:08:50.160 bond market. You don't want to get too pessimistic about it, 0:08:50.240 --> 0:08:55.079 because there's pretty straightforward solutions. They just require some political will. 0:08:55.480 --> 0:08:58.400 And you're optimistic on the US economy as a whole. Right, 0:08:58.480 --> 0:09:01.800 Lots of conversation about coming recession over the last few months, 0:09:01.800 --> 0:09:04.760 and you now think it's about a thirty five percent Chanson. 0:09:04.920 --> 0:09:07.520 I love the way you describe this recession. You call 0:09:07.559 --> 0:09:10.080 it the gotto recession, the one that we're always waiting 0:09:10.120 --> 0:09:13.560 for and never ever arrives. And you'll view that hasn't changed, 0:09:13.600 --> 0:09:13.920 has it? 0:09:14.280 --> 0:09:17.480 The past three years We've had the most widely anticipated 0:09:17.480 --> 0:09:20.400 recession of all times that never happened, as you said, 0:09:20.520 --> 0:09:24.720 the goodeaux recession, the no show recession. And I bet 0:09:24.760 --> 0:09:28.000 on the resilience of the consumer. I'm a baby boomer. 0:09:28.000 --> 0:09:29.680 I'm still working for a living, but a lot of 0:09:29.679 --> 0:09:32.800 my friends are retiring. And collectively the baby boomers have 0:09:32.920 --> 0:09:36.280 eighty trillion dollars in net worth. That's half the net 0:09:36.320 --> 0:09:39.280 worth of the household sector. The savings rate is probably 0:09:39.320 --> 0:09:41.720 going to turn negative here because they're not earning money, 0:09:42.559 --> 0:09:45.400 but they have a ton of assets and they are 0:09:45.440 --> 0:09:49.640 spending that money. In addition, the fears that capital spending 0:09:50.200 --> 0:09:53.680 was going to take a dive because of the uncertainty 0:09:53.720 --> 0:09:57.439 with tariffs, now, and with monetary policy over the past 0:09:57.440 --> 0:10:00.600 three years, I don't think that's playing out well. Some 0:10:00.679 --> 0:10:04.199 capital spending is going to be postponed. More than fifty 0:10:04.240 --> 0:10:07.359 percent of capital spending is now in technology and technology 0:10:07.400 --> 0:10:09.960 capital spending is something that's almost imperative. You have to 0:10:10.000 --> 0:10:15.280 spend on technology in order to stay competitive. And to 0:10:15.520 --> 0:10:19.679 give Trump some credit, because everybody focuses on the fact 0:10:19.679 --> 0:10:22.520 that it's created a lot of turmoil, which you would 0:10:22.520 --> 0:10:25.920 think is basically bad for capital spending. At the same time, 0:10:26.559 --> 0:10:31.439 you know, he keeps collecting these IOUs from foreign governments 0:10:31.480 --> 0:10:35.040 and foreign companies saying that they intend to spend hundreds 0:10:35.080 --> 0:10:38.560 of billions in the United States for on shoring. Imshoring 0:10:38.600 --> 0:10:41.439 has been going on over the past four years since 0:10:41.679 --> 0:10:45.400 Biden created some legislation that stimulated it, and I think 0:10:45.440 --> 0:10:46.719 it will continue to go on. 0:10:47.960 --> 0:10:53.320 Okay, So relatively confident about the US economy and as 0:10:53.320 --> 0:10:57.880 a result, still confident about the US market. And there's 0:10:57.920 --> 0:10:59.400 one thing you said that it's the kind of thing 0:10:59.400 --> 0:11:01.480 that makes me a niny bit nevs about the US 0:11:01.480 --> 0:11:04.240 market is that you mentioned the savings rate going negative 0:11:04.280 --> 0:11:06.600 and the baby boom is moving very firmly from their 0:11:06.760 --> 0:11:13.400 accumulation period into their decumulation period, and that changes the flows. 0:11:13.440 --> 0:11:17.599 It does, But I'm also thinking that there's going to 0:11:17.679 --> 0:11:22.240 be younger generations that are increasingly investing in the stock market. 0:11:22.360 --> 0:11:24.839 As I said, the baby boomers are sitting on a 0:11:24.960 --> 0:11:28.199 record eighty trillion dollars of net worth. We've never had 0:11:28.280 --> 0:11:32.679 a retiring generation this rich, but it's a nature of 0:11:32.760 --> 0:11:37.760 the beast. Young folks don't have much in net worth 0:11:37.800 --> 0:11:40.480 and over the years they accumulate it, and so the 0:11:40.520 --> 0:11:43.640 younger ones are in that process now. And I don't 0:11:43.640 --> 0:11:45.079 think the baby boomers are going to be able to 0:11:45.120 --> 0:11:47.080 spend eighty trillion dollars. I think there's going to be 0:11:47.480 --> 0:11:53.600 a lot of inheritances, and based on my own experience 0:11:53.640 --> 0:11:56.559 and my discussions why a fellow baby boomers, I think 0:11:56.559 --> 0:11:59.880 there's a lot of intra generational income and wealth chance 0:12:00.200 --> 0:12:03.480 is going on right now. So I think that's what's 0:12:03.520 --> 0:12:06.400 been missing in the discussion of the consumer. Everybody's been 0:12:06.400 --> 0:12:08.839 talking about as though there's only kind of one kind 0:12:08.880 --> 0:12:12.040 of consumer experience. In fact, there's many, And the baby 0:12:12.080 --> 0:12:15.160 boomers are doing very well. The younger folks aren't doing 0:12:15.200 --> 0:12:18.600 as well. That's where you're seeing delinquency ratios going up. 0:12:18.640 --> 0:12:21.240 But the parents are definitely helping out. 0:12:21.920 --> 0:12:23.559 In my next life, Ed, I'm going to be the 0:12:23.640 --> 0:12:26.960 child of an American baby boomer. That's what I'm aiming for. 0:12:27.240 --> 0:12:28.280 Yeah, it's a good position. 0:12:28.600 --> 0:12:31.520 Yeah, everyone who believes in reincarnation should definitely be aiming 0:12:31.559 --> 0:12:35.120 for exactly that. So you're one of what comes what 0:12:35.440 --> 0:12:37.560 backs up. What you say is that the buyers of 0:12:37.600 --> 0:12:40.000 the dips all the way through this volatility of the 0:12:40.040 --> 0:12:42.760 last few months, the buyers have been retail investors, ordinary 0:12:42.760 --> 0:12:44.760 people picking up on the dip, haven't they. I haven't 0:12:44.760 --> 0:12:47.320 seen any of those U shaped dips that you might 0:12:47.360 --> 0:12:49.320 have got maybe in the old days. Now everything is 0:12:49.600 --> 0:12:53.320 very the market goes down, retail buyers come in, market 0:12:53.360 --> 0:12:53.800 goes up. 0:12:54.600 --> 0:12:58.199 Absolutely. I mean the fun flows data that is available 0:12:58.600 --> 0:13:01.679 showing that retail investor are the ones that are keeping 0:13:01.720 --> 0:13:05.040 this market going. They're in a good position because I 0:13:05.080 --> 0:13:08.400 think it seeped into their consciousness that stocks really have 0:13:08.480 --> 0:13:10.959 to be abled for the long run. Somehow, I think 0:13:10.960 --> 0:13:13.960 they appreciate that more than the baby boomers really appreciated it, 0:13:14.559 --> 0:13:18.640 And I think that they're viewing sell offs as opportunities 0:13:18.720 --> 0:13:21.240 to buy stocks. And I think they have a long 0:13:21.320 --> 0:13:25.240 term mentality. Again, I may be generalizing from my kids 0:13:25.280 --> 0:13:28.200 and some others that I've talked to, but with my 0:13:28.280 --> 0:13:31.240 limited sample that I've talked to, I'm surprised by their 0:13:31.600 --> 0:13:34.920 steadfastness and how they didn't freak out with the market 0:13:35.280 --> 0:13:38.520 selling off, whereas my baby boom generation I remember lots 0:13:38.520 --> 0:13:41.120 of freak out situations. As a matter of fact, I'm 0:13:41.120 --> 0:13:44.600 pretty proud of my forecasting record and calling bottoms, And 0:13:44.640 --> 0:13:46.760 one of the reasons I'm so good at it is 0:13:46.840 --> 0:13:49.000 I've got a relative who always calls me upright at 0:13:49.040 --> 0:13:50.680 the bottom and says that he should I get out. 0:13:52.200 --> 0:13:55.199 So I've witnessed more of that among my peers. 0:13:55.760 --> 0:13:57.920 Okay, interestingly, I think we will got one of those, 0:13:58.080 --> 0:14:00.600 one of those relatives. Maybe the rest of us recognize 0:14:00.600 --> 0:14:02.559 it as well as you do. Yeah, so you think 0:14:02.559 --> 0:14:04.920 they're right to be buying in now? There is still 0:14:05.080 --> 0:14:06.800 I would say, from the other side of the Atlantic, 0:14:06.840 --> 0:14:09.160 you look across to the US and certainly we feel 0:14:09.160 --> 0:14:11.559 a lot of concerns about the US market and evaluations 0:14:11.600 --> 0:14:14.680 is still very high. There's an enormous amount of uncertainty. 0:14:14.760 --> 0:14:17.679 Anything could happened from here. The idea that America is 0:14:17.720 --> 0:14:21.080 permanently exceptional. That spell seems to have broken a bit, 0:14:21.600 --> 0:14:25.800 and so we would wonder if those retail investors pouring 0:14:25.840 --> 0:14:28.520 money into the US market might not be wiser to 0:14:28.560 --> 0:14:30.640 be looking overseas. 0:14:31.160 --> 0:14:34.560 I've been promoting the idea of stay home rather than 0:14:34.600 --> 0:14:38.680 go global since twenty ten. That doesn't mean I'm telling 0:14:38.680 --> 0:14:42.240 people not to invest overseas. I've just been recommending over 0:14:42.360 --> 0:14:45.680 waiting the United States, and I may overstay my welcome 0:14:46.080 --> 0:14:48.480 with that concept, but I'm sticking with it. We do 0:14:48.560 --> 0:14:52.760 have seven exceptional companies here, the Magnificent seven, and this 0:14:53.000 --> 0:14:56.960 recent correction was basically led by them. They had more 0:14:56.960 --> 0:14:59.320 than just a correction, They had a bear market. They 0:14:59.320 --> 0:15:02.120 were down like twenty five percent. The overall market was 0:15:02.160 --> 0:15:05.240 down eighteen percent for the S and P five hundred, 0:15:06.680 --> 0:15:10.120 and there was a lot of concern that they were 0:15:10.160 --> 0:15:12.400 spending too much on AI and would never get a 0:15:12.440 --> 0:15:15.320 return on that. And they came back and said, We're 0:15:15.360 --> 0:15:17.200 still going to spend that kind of money because we'd 0:15:17.200 --> 0:15:19.640 still think we're going to get a return on it. 0:15:19.760 --> 0:15:22.280 You know, some of these are cloud companies, and the 0:15:22.400 --> 0:15:26.200 demand for computing is only going to increase in this 0:15:26.640 --> 0:15:29.680 what I call the digital revolution that started in the 0:15:29.720 --> 0:15:32.960 mid sixties. If that's the case, these are continue to 0:15:32.960 --> 0:15:36.680 be exceptional companies. Not much debt, a lot of cash flow, 0:15:37.080 --> 0:15:41.440 tremendous innovations, and they are uniquely Americans. It doesn't mean 0:15:41.440 --> 0:15:45.240 that there aren't great companies overseas, but everybody seems to 0:15:45.280 --> 0:15:50.280 recognize the exceptionalism of these companies, which does reflect many 0:15:50.320 --> 0:15:52.920 aspects of the exceptionalism of the US economy. 0:15:53.600 --> 0:15:56.720 And are you worried about earnings in the near term. 0:15:57.120 --> 0:15:59.200 I'm reading a couple of your notes. I see that 0:15:59.200 --> 0:16:02.320 you've been writing a bit about earning. Earning his consensus 0:16:02.320 --> 0:16:03.720 focused softening slightly. 0:16:04.480 --> 0:16:07.560 Yeah, in the near term, there's certainly concerns. The Trump 0:16:07.720 --> 0:16:11.960 tariff turmoil has been moderated somewhat, but there's still plenty 0:16:12.000 --> 0:16:15.360 of it out There, still plenty of uncertainties related to 0:16:15.560 --> 0:16:19.440 where this is all going to lead. The tariff itself, certainly, 0:16:19.440 --> 0:16:23.000 the basic tariff of ten percent is in effect a 0:16:23.120 --> 0:16:26.840 tax on corporation, so it's got to hurt. We recently 0:16:26.840 --> 0:16:30.440 saw the President respond to a big retailer by saying, 0:16:30.560 --> 0:16:33.920 don't dare raise raise your prices, And if they do 0:16:34.000 --> 0:16:37.600 raise don't raise their prices. That'll affect their profit margins. 0:16:38.080 --> 0:16:42.240 And there's found to be some kind of stagflationary scenario 0:16:42.440 --> 0:16:45.920 unfolding here the next few months, with higher inflation and 0:16:46.040 --> 0:16:49.400 slower growth. But I think the market's looking past all that. 0:16:49.520 --> 0:16:52.000 I think the market has come to conclude that the 0:16:52.040 --> 0:16:55.160 president needs to get this behind him as soon as possible. 0:16:55.600 --> 0:16:59.000 The midterm elections are coming next year. You can't really 0:16:59.040 --> 0:17:03.120 afford to have a sesshould occur now or certainly not 0:17:03.240 --> 0:17:07.240 early next year, and so I think the market perceives 0:17:07.240 --> 0:17:10.159 that he will continue to blink, and that along the 0:17:10.160 --> 0:17:13.640 way he'll declare victory and move on to this big, 0:17:13.720 --> 0:17:16.800 beautiful tax bill, which the jury is out on that 0:17:16.880 --> 0:17:19.520 whether it's big and beautiful or big and ugly. I'm 0:17:19.760 --> 0:17:22.280 waiting to see how the bond market votes on all that. 0:17:22.800 --> 0:17:25.760 But it's a volatile time right here, and I think 0:17:26.040 --> 0:17:30.760 retail investors are right to see his opportunities to buy, 0:17:31.080 --> 0:17:33.480 let's say, buy on the dips. So I think that 0:17:33.640 --> 0:17:34.720 will continue to work. 0:17:35.359 --> 0:17:36.760 So a bit of a melt up into the end 0:17:36.800 --> 0:17:37.200 of the year. 0:17:37.280 --> 0:17:40.159 Maybe well, you know, I'm struggling with the question of 0:17:40.200 --> 0:17:42.439 whether we're going to have a melt up in the 0:17:42.520 --> 0:17:45.720 stock market or a melt down in the bond market. Obviously, 0:17:46.160 --> 0:17:48.000 if we have a melt down in the bond market, 0:17:48.040 --> 0:17:49.600 we're not going to get a melt up in the 0:17:49.640 --> 0:17:52.639 stock market. You know, I've told my accounts that I 0:17:52.680 --> 0:17:55.720 reserve the right to change my forecast as often as 0:17:55.720 --> 0:17:59.080 the President seems to change his mind. But I do 0:17:59.200 --> 0:18:04.520 try to maintain some objectivity and stability in my forecasting. 0:18:04.600 --> 0:18:07.479 And I think the market's right. This too sholl pass. 0:18:08.119 --> 0:18:12.720 And We've got a tremendous amount of technological innovations ahead 0:18:12.760 --> 0:18:18.240 of us, whether it be humanoid robotics, more automation, autonomous driving, 0:18:18.520 --> 0:18:22.520 artificial intelligence. All these technologies are are not pie in 0:18:22.560 --> 0:18:26.120 the sky. They're here and they're being implemented. I think 0:18:26.119 --> 0:18:28.679 they're going to have a tremendous impact on productivity. So 0:18:28.720 --> 0:18:32.840 I've been talking since twenty nineteen that this decade could 0:18:32.840 --> 0:18:36.120 be turned out to be the Roaring twenty twenties. First 0:18:36.160 --> 0:18:38.639 half of the decade worked out great so far, you know. 0:18:38.720 --> 0:18:41.560 Then it looked like things started to slip up here 0:18:41.800 --> 0:18:44.280 for a Roaring twenty twenty scenario, But I think it's 0:18:44.320 --> 0:18:47.040 making a comeback here and it's based on the idea 0:18:47.080 --> 0:18:51.879 that technological innovations will boost productivity because there are shortages 0:18:52.480 --> 0:18:57.840 of skill labor, and productivity means better economic growth, lower inflation, 0:18:58.000 --> 0:19:02.320 better profit margins, and higher real wages and makes everything better. 0:19:02.359 --> 0:19:07.000 And so I'm still counting on that, and I'm trying 0:19:07.000 --> 0:19:12.199 to get positive feedback from the stock market, and I 0:19:12.320 --> 0:19:16.040 have been until this correction, but we thought it would 0:19:16.040 --> 0:19:17.439 be a correction. We didn't think it would be a 0:19:17.440 --> 0:19:21.200 bear market. So far, so good, and within the market's 0:19:21.320 --> 0:19:25.920 kind of back to signaling that the Roaring twenty twenty 0:19:25.960 --> 0:19:29.120 scenario might still be very much intact. 0:19:29.520 --> 0:19:32.040 Yeah, although I suppose it is possible. In fact, history 0:19:32.080 --> 0:19:34.920 shows us is over and over again. I'm a financial 0:19:35.000 --> 0:19:38.600 walking tour of Edinburgh yesterday and we walked around the 0:19:38.680 --> 0:19:40.440 railway station and all that kind of thing and talked 0:19:40.440 --> 0:19:43.119 about the various booms and busts and how often it 0:19:43.160 --> 0:19:48.760 is that you have an amazing technological revolution, Yeah, alongside 0:19:49.240 --> 0:19:53.480 disastrous investing environment. These two very often go hand in hand. 0:19:53.560 --> 0:19:56.119 So the assumption that because you have a decade or 0:19:56.119 --> 0:19:59.840 two decades of astonishing technological advancement, it is not a 0:20:00.080 --> 0:20:03.680 even that alongside that an awful lot of people make money. 0:20:03.920 --> 0:20:06.840 Generally a lot of people lose money. And it's in 0:20:06.920 --> 0:20:10.359 the second way when the productivity gains really come through 0:20:10.760 --> 0:20:12.639 that the next lot make the money. 0:20:13.080 --> 0:20:16.760 Yeah, I guess it's Schaumpater's notion. 0:20:16.520 --> 0:20:17.960 Of creative destruction. 0:20:18.480 --> 0:20:22.119 Creative destruction for the help the idea that capitalism, by 0:20:22.160 --> 0:20:27.000 its very nature is constantly innovating and coming up with solutions. 0:20:27.160 --> 0:20:30.320 You know, when I studied economics, it's like a lot 0:20:30.400 --> 0:20:35.840 of first year students. I read Samuelson's book on economics, 0:20:35.840 --> 0:20:39.439 and he defined economics as the study of how you 0:20:39.600 --> 0:20:44.080 optimally allocate scarce resources. It sounds like a very depressing 0:20:44.600 --> 0:20:46.720 concept that you, oh, my god, there's only so much 0:20:46.760 --> 0:20:48.919 and we have to figure out how to divvate up. 0:20:48.920 --> 0:20:51.679 And then you get into these debates of whether the 0:20:51.720 --> 0:20:56.480 government should do it through Marxism or state run economies, 0:20:56.640 --> 0:20:59.040 or should it be done by the marketplace. I think 0:20:59.119 --> 0:21:04.040 economics is all about technology solving the problem of scarce resources. 0:21:04.200 --> 0:21:07.080 The way we know scare resources are scarce is because 0:21:07.119 --> 0:21:10.199 the prices go up, and then some entrepreneurs says, I 0:21:10.240 --> 0:21:13.840 can do this better cheaper with these kind of technologies, 0:21:14.080 --> 0:21:17.120 and that's what makes it so exciting. But it's very dynamic, 0:21:17.640 --> 0:21:20.959 and while you're creating, you're also destroying, and that's where 0:21:21.040 --> 0:21:23.520 a lot of the tensions come in. But I think 0:21:23.560 --> 0:21:25.760 we're very much in that kind of environment right now. 0:21:26.240 --> 0:21:26.520 Okay. 0:21:26.600 --> 0:21:28.800 I like the idea that economic should not be about 0:21:28.840 --> 0:21:31.439 allocating scares resources. We've been talking about that a bit 0:21:31.520 --> 0:21:34.160 on the podcast recently, saying that the whole aim should 0:21:34.160 --> 0:21:38.159 be to find, create, offer more and more resource so 0:21:38.200 --> 0:21:41.399