WEBVTT - Ed Yardeni Discusses Global Investment Strategy 0:00:02.240 --> 0:00:06.840 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:09.039 --> 0:00:11.399 This week on the podcast, I have a special guest. 0:00:11.520 --> 0:00:14.600 His name is Dr Edyard Danny and I've known him 0:00:14.680 --> 0:00:18.960 for a long time. He has been putting out research 0:00:19.120 --> 0:00:25.239 for decades. I always find is data driven commentary to 0:00:25.280 --> 0:00:29.159 be very very interesting. He's he's a realist when it 0:00:29.240 --> 0:00:32.400 comes to looking at the markets, looking at the economy, 0:00:32.600 --> 0:00:37.760 and figuring out uh the relationship between the two. UH. 0:00:37.800 --> 0:00:41.479 He also has a degree of infamy on Wall Street. 0:00:41.600 --> 0:00:45.920 He's essentially the person who invented the phrase bond vigilantes 0:00:46.000 --> 0:00:49.120 and talked about the role of the bond market in 0:00:49.360 --> 0:00:54.720 keeping policymakers honest. UH. And he also includes UH movie 0:00:54.760 --> 0:00:59.080 reviews and in his weekly commentary he writes daily but 0:00:59.200 --> 0:01:02.400 we get a weekly film review, which is always charming. 0:01:03.040 --> 0:01:06.959 I find his work to be very interesting and somewhat 0:01:07.040 --> 0:01:10.679 unique amongst the economists of the world. So, with no 0:01:10.760 --> 0:01:18.880 further ado, my interview with Dr Eduardney. I'm Barry Ridhults. 0:01:19.000 --> 0:01:22.560 You're listening to Masters in Business on Bloomberg Radio. My 0:01:22.640 --> 0:01:26.480 special guest today is Dr Edyard Denny. He is president 0:01:26.600 --> 0:01:30.840 and chief investment strategist at your Denny research. He has 0:01:30.880 --> 0:01:34.240 a long and storied career on Wall Street, beginning in 0:01:34.280 --> 0:01:37.080 the early days where he was chief economist at such 0:01:37.120 --> 0:01:41.320 August firms as E. F. Hutton and then later Prudential Securities. 0:01:41.640 --> 0:01:47.360 He eventually became chief investment strategist at giant German investment 0:01:47.400 --> 0:01:50.360 house Deutsche Bank. Uh. This was many years ago. He 0:01:50.360 --> 0:01:52.760 worked at the Federal Reserve in both Washington, d C. 0:01:53.440 --> 0:01:56.000 And New York City. He has a new book out, 0:01:56.480 --> 0:02:02.000 Predicting the Markets, a professional autobiography. Dr Edyard Denny. Welcome 0:02:02.040 --> 0:02:05.440 back to Bloomberg. Very thank you so much. So let's 0:02:05.480 --> 0:02:09.040 start at the early parts of your career. You worked 0:02:09.040 --> 0:02:11.760 at the FED, both both at the New York Fed 0:02:11.880 --> 0:02:14.840 and the Federal Reserve in d C. And then you 0:02:14.919 --> 0:02:19.160 transition to Wall Street. What was that changeover like? It 0:02:19.240 --> 0:02:22.920 was pretty smooth? Quite quite honestly, Um, I was at 0:02:22.919 --> 0:02:25.720 the Federals or Bank of New York for a little 0:02:25.760 --> 0:02:29.880 over a year. Uh. Part of that, I basically finished 0:02:29.919 --> 0:02:32.960 my PhD dissertation now at the Federal Reserve Board for 0:02:33.000 --> 0:02:34.680 a few months. So I don't want to give you 0:02:34.680 --> 0:02:37.359 the impression that I had a long stint down in Washington, 0:02:37.480 --> 0:02:39.600 but I spent the year at the Federals Bank in 0:02:39.600 --> 0:02:41.080 New York, and then I got a call from a 0:02:41.080 --> 0:02:46.960 headhunter UM who placed economists and banks, and I said, 0:02:47.160 --> 0:02:50.480 would you be interested in taking a job at E. F. Hutman. 0:02:50.560 --> 0:02:53.400 I jumped at it because I I did actually want 0:02:53.400 --> 0:02:55.000 to go to Wall Street. I didn't want to stay 0:02:55.000 --> 0:02:58.600 in government when I was a kid. Well, wax nostalgic 0:02:58.639 --> 0:03:02.000 here when I was a kid. I just have such 0:03:02.000 --> 0:03:06.320 a vivid recollection of the E. F. Hunting commercials and 0:03:06.320 --> 0:03:08.120 I'll put a link up to this on on the 0:03:08.120 --> 0:03:12.800 post about this. They were seminal, they were there was 0:03:12.880 --> 0:03:15.680 nothing else like. They were a premier firm. What what 0:03:15.760 --> 0:03:19.160 was it like in those days at such an Olvis 0:03:19.200 --> 0:03:22.040 farm like EF. Well, I I felt that, you know, 0:03:22.400 --> 0:03:25.040 I was set for life. I mean moving into the 0:03:25.080 --> 0:03:27.840 EF Hunton back then. Uh it was a premier firm, 0:03:27.880 --> 0:03:31.520 not just in retail but also in the institutional field. 0:03:32.160 --> 0:03:36.160 Just a very very classic firm. UH modern offices down 0:03:36.840 --> 0:03:41.080 on State Street. And Uh, I kept pinching myself. I 0:03:41.080 --> 0:03:44.120 couldn't believe that I landed at this great firm, and 0:03:44.160 --> 0:03:46.200 I just was looking forward to being there for the 0:03:46.200 --> 0:03:48.880 rest of my life. Uh. And then and then I 0:03:48.880 --> 0:03:51.760 started talking to some of my new colleagues, and I 0:03:51.880 --> 0:03:54.880 know some of the older ones had kind of a 0:03:54.960 --> 0:03:57.840 resume where they'd worked at different firms, and I couldn't 0:03:57.880 --> 0:04:01.120 understand why they jumped around so much. And uh lo 0:04:01.320 --> 0:04:04.200 and behold, my resume kind of looks the same way. Now, 0:04:04.560 --> 0:04:06.640 you know. That's how you how you get a new position, 0:04:06.680 --> 0:04:09.600 a new pay, raise, more stock options. That and sometimes 0:04:09.600 --> 0:04:14.160 these firms don't don't stay in business. Well, Hutton ended 0:04:14.240 --> 0:04:19.120 up merging with Hutton. Yeah, but that's because Hutton had 0:04:19.200 --> 0:04:22.960 some legal issues, to put put it mildly, and so 0:04:23.000 --> 0:04:24.839 they got taken over by Jarson. But I left about 0:04:24.880 --> 0:04:30.320 a year before that happened. Uh. And then I went 0:04:30.320 --> 0:04:34.760 over to Prudential Bach at the time because George Ball 0:04:34.960 --> 0:04:37.640 was the head of Hutton and he went to Prudential Bach. 0:04:38.080 --> 0:04:42.080 Very famous person on Wall Street? Is it? Is it? 0:04:43.040 --> 0:04:45.280 I'm trying to think of who would be the equivalent 0:04:45.320 --> 0:04:48.719 of George Ball today. He was He was a star, 0:04:49.279 --> 0:04:51.440 definitely was a star. Could you could we say he 0:04:51.480 --> 0:04:53.159 was the Jamie Diamond of the Year or is that 0:04:53.200 --> 0:04:55.040 going to I think that might be going a little 0:04:55.040 --> 0:04:57.000 bit too far. I mean Jamie Diamond is in a 0:04:57.040 --> 0:05:01.200 class of his own. But Ball was, you know, master 0:05:01.360 --> 0:05:03.800 the universe back then. And how did you end up 0:05:03.800 --> 0:05:06.320 working your way to Deutsche Bank, which was then was 0:05:06.400 --> 0:05:10.720 a giant bank in German und a little bit of 0:05:11.080 --> 0:05:17.320 actually Actually from Prudential, I went over to UH. C J. 0:05:17.480 --> 0:05:20.920 Lawrence at Hyman, who's you know, the all time great 0:05:21.000 --> 0:05:24.960 star in our business, particularly as an economist, decided to 0:05:25.000 --> 0:05:29.280 go off on his own and presently created I S 0:05:29.320 --> 0:05:32.280 I Group, which turned out to be a very very 0:05:32.320 --> 0:05:35.080 successful firm. But he also created a opening at UH. 0:05:35.480 --> 0:05:38.120 I have to thank Himan for creating an opportunity to 0:05:38.120 --> 0:05:40.839 c J. Lawrence and UH. For me, c J. Lawrence 0:05:40.880 --> 0:05:44.080 was an opportunity to really focus much more on working 0:05:44.080 --> 0:05:48.200 with institutional investors. I had a great experience with the 0:05:48.800 --> 0:05:53.719 Prudential and working with retail investors, but CJ. Lawrence is just, 0:05:53.920 --> 0:05:57.359 you know, it's it's nice to change careers within careers, 0:05:57.520 --> 0:05:59.520 as long as the it's not nothing too radical. And 0:05:59.600 --> 0:06:02.240 c J. Lawrence itself was a very classy firm in 0:06:02.279 --> 0:06:04.760 that area. And then from launch you ended up at 0:06:04.800 --> 0:06:08.120 Deutsche Well. C J. Lawrence was owned by Morgan Grenfeld. 0:06:08.120 --> 0:06:10.320 When I went over there and more, and Grenfeld was 0:06:10.360 --> 0:06:12.800 owned owned by Deutsche Bank, and there was all sorts 0:06:12.839 --> 0:06:16.839 of regulatory reasons why Deutsche Bank couldn't get into the 0:06:16.880 --> 0:06:22.800 investment business. But those regulations changed and eventually C. J. 0:06:22.920 --> 0:06:27.320 Lawrence's name disappeared and it just became a series of 0:06:27.360 --> 0:06:31.000 things like Deutsch Deutsche Bank Securities and and and the like. 0:06:31.200 --> 0:06:34.480 So I I I stayed in the same office, and 0:06:35.160 --> 0:06:38.320 you know, the firm's name changed around me. So you 0:06:38.480 --> 0:06:41.839 trained as an economist, how do you affect that transition 0:06:41.920 --> 0:06:47.200 to market strategist? There were investment strategy Well, you know, UH, 0:06:47.640 --> 0:06:51.080 life as UH is full of opportunities and you just 0:06:51.080 --> 0:06:53.840 have to kind of hope that they come your way 0:06:53.920 --> 0:06:56.839 or or make the opportunities come here away. What happened 0:06:57.279 --> 0:07:03.200 at Deutsche Bank Secure Aries is that the Jim Moltz, 0:07:03.240 --> 0:07:06.920 who was my mentor in many ways he was a strategist, 0:07:06.960 --> 0:07:10.240 that was the economist. I was providing economic data information 0:07:10.280 --> 0:07:15.120 to him and he translated into marketable action ideas and 0:07:15.160 --> 0:07:19.320 of course had his own ideas. But Jim moltwent over 0:07:19.440 --> 0:07:23.040 enjoyed the I s I you enjoined at Hyman and 0:07:23.400 --> 0:07:27.200 so they did replace Jim with Tom Galvin, who was 0:07:27.240 --> 0:07:29.440 the auto analyst, and he did a great job for 0:07:29.480 --> 0:07:31.960 a couple of years as a strategist, but then he 0:07:32.040 --> 0:07:35.760 decided to go off to the by side and manage money. 0:07:35.800 --> 0:07:38.040 So there was just opening and I just jumped out 0:07:38.040 --> 0:07:40.080 and I said, hey, guys, you know, I'd be more 0:07:40.120 --> 0:07:42.680 than happy to do two jobs and pay me a 0:07:42.760 --> 0:07:45.080 little bit more, and I'll do economics and strategy, and 0:07:45.800 --> 0:07:48.960 somehow or other they agreed agreed to that. So when 0:07:49.000 --> 0:07:51.960 did the movie reviews come into your research? Because you're 0:07:52.080 --> 0:07:56.400 fairly amongst many things you're you're somewhat infamous for including 0:07:56.440 --> 0:08:00.360 movie film reviews. Well, you're a commented I joke around 0:08:00.400 --> 0:08:03.280 that the reason I do movie reviews is in case 0:08:03.360 --> 0:08:06.000 this career doesn't work out. In this in case this 0:08:06.120 --> 0:08:09.960 job doesn't work out, I could always become a movie reviewer, right, 0:08:10.320 --> 0:08:12.880 But my wife and I have always enjoyed going to movies, 0:08:13.000 --> 0:08:15.280 and uh, I guess really it was in the early 0:08:15.400 --> 0:08:17.680 nineties when I moved to C. J. Lawrence. We'd have 0:08:17.760 --> 0:08:22.720 these Monday morning conferences with the salesforce relating to them 0:08:22.800 --> 0:08:27.520 what I thought, what Jim Maltz thought on the strategy side, Right, 0:08:27.600 --> 0:08:30.480 I thought on the economics side, and I just started saying, hey, 0:08:30.600 --> 0:08:34.080 by the way, I saw the following a movie on Friday, 0:08:34.160 --> 0:08:36.960 and UH, I'd say a couple of comments about it, 0:08:36.960 --> 0:08:39.280 whether I like them or not. And more often than that, 0:08:39.360 --> 0:08:42.400 I try to, especially once I started writing these things up, 0:08:42.880 --> 0:08:45.640 I try to relate it to UH to the markets. 0:08:46.200 --> 0:08:48.880 But two thousand and four is the first one I 0:08:48.880 --> 0:08:52.760 actually have on the website. So when they go back 0:08:52.840 --> 0:08:55.360 quite a ways, this book is filled with all sorts 0:08:55.360 --> 0:08:58.640 of quotes that I really enjoy. I'm going to start 0:08:58.679 --> 0:09:02.880 with a long one, and let's have you comments on it. Economists, 0:09:03.040 --> 0:09:09.440 especially of the pessimistic persuasion, rarely pay attention to technological developments. 0:09:09.840 --> 0:09:13.360 Yet these developments regularly transformed the course of human history. 0:09:13.679 --> 0:09:17.280 Human nature may not change much over time, but technology 0:09:17.320 --> 0:09:21.679 often does, does so in ways that profoundly impact human societies, 0:09:22.200 --> 0:09:27.360 their economies, and financial markets. So first, why don't economists 0:09:27.360 --> 0:09:31.400 pay attention to technology? And and then secondly, why have 0:09:31.559 --> 0:09:34.360 you found it to be such an attractive area? I 0:09:34.400 --> 0:09:36.200 guess a lot of them don't view it as being 0:09:36.679 --> 0:09:41.560 part of their job setting, their job description. Um, they 0:09:41.559 --> 0:09:45.080 tend to be fairly narrowly focused on whatever it is 0:09:45.120 --> 0:09:48.280 that they choose to focus on and a graduate school, 0:09:48.320 --> 0:09:52.880 so they're either microeconomists or macro economists or monetary economists, 0:09:53.360 --> 0:09:56.040 and um, you know, I'm not too up to date 0:09:56.120 --> 0:09:58.240 on what they're teaching in grad school these days, but 0:09:59.040 --> 0:10:02.280 I don't think they're are really any courses that focus 0:10:02.360 --> 0:10:08.319 on how technology impacts economies impacts the way uh uh 0:10:08.640 --> 0:10:12.240 economies evolve, which is kind of bizarre because when you 0:10:12.240 --> 0:10:15.360 think about one of the first economists was Mauthis, and 0:10:15.440 --> 0:10:18.960 Mauthis predicted that they be food shortages and what he 0:10:19.000 --> 0:10:24.160 didn't anticipate was technological innovation and agriculture. Um, clearly he 0:10:24.280 --> 0:10:27.760 misunderstood the rate of change and innovation. Yeah, and not 0:10:28.320 --> 0:10:30.920 then you also have to understand or try to think 0:10:30.960 --> 0:10:35.400 about how human beings respond to technological innovations. So again 0:10:35.440 --> 0:10:41.760 going back to the Malthusian uh dire warnings. Uh So, 0:10:41.840 --> 0:10:46.319 as uh technology improved the ability of agriculture defeat everybody, 0:10:46.600 --> 0:10:48.800 you didn't really need anybody to be out in the 0:10:48.800 --> 0:10:52.040 fields anymore. You needed far fewer workers. So you saw 0:10:52.120 --> 0:10:55.760 tremendous urbanization. And guess what, when people go to cities, 0:10:55.800 --> 0:10:59.040 they have fewer kids. So all this concerns that populations 0:10:59.080 --> 0:11:02.280 will grow faster than the food supply just totally blew 0:11:02.360 --> 0:11:06.319 up because technology cured the problem. But you know, economists, 0:11:06.600 --> 0:11:09.520 you know I I went back recently and I looked 0:11:09.520 --> 0:11:14.280 at Samuelson's classic textbook on economics, which is what most 0:11:14.320 --> 0:11:17.720 most economics students study when they first get into the field. 0:11:18.000 --> 0:11:20.520 And if you go back to you know, this first book, 0:11:20.559 --> 0:11:22.640 I think in the mid forties, and look at the 0:11:22.679 --> 0:11:25.319 latest one, which is written by Samuel Lynn and Nordhouse, 0:11:25.720 --> 0:11:29.800 you'll see that they define economics as, uh, the study 0:11:29.840 --> 0:11:34.839 of how you allocate scarce resources optimally. And I was 0:11:34.920 --> 0:11:38.360 the radiant after and I kind of added this to 0:11:38.520 --> 0:11:41.480 my book after I've written most of it. I said, no, 0:11:41.600 --> 0:11:44.839 that's not really true. When when something is scarce, guess 0:11:44.840 --> 0:11:49.599 what entrepreneurs come in and they figure out new technologies 0:11:49.600 --> 0:11:52.319 to make things less scarce or to substitute for the 0:11:52.400 --> 0:11:57.079 scarce areas. And micro economics actually teaches that, you know, uh, 0:11:57.120 --> 0:11:59.840 there's no such concept of there's no such thing a scarcity. 0:12:00.400 --> 0:12:02.280 Something is scarce, as the price goes up, you can 0:12:02.320 --> 0:12:04.480 still get it, you just gotta pay a higher price 0:12:04.520 --> 0:12:07.520 for it. And that encourages entrepreneurs to come in and 0:12:08.600 --> 0:12:11.280 figure out how to lower that. My favorite example is 0:12:11.480 --> 0:12:14.240 in New York City, if you want the helicab, it 0:12:14.480 --> 0:12:17.440 used to be next to impossible when you wanted it, 0:12:17.800 --> 0:12:21.240 and then uber came along and suddenly there are cars everywhere. 0:12:21.679 --> 0:12:23.880 And by the way, the value of that medallion at 0:12:23.880 --> 0:12:27.960 four millions because it's eleven cents. That's it. That scarcity 0:12:28.080 --> 0:12:32.160 led to a technological innovation. Absolutely, it's so so that 0:12:32.240 --> 0:12:38.319 really raises the question, why are we missing technology from 0:12:38.400 --> 0:12:44.000 our economic textbooks. Why hasn't the dismal set figured this out? Well, 0:12:44.040 --> 0:12:48.600 you know, economics started out being called political economy, uh, 0:12:48.600 --> 0:12:53.320 and which included philosophy, included economics, included history. It was 0:12:53.360 --> 0:12:58.480 a broad ranging, uh, study of human nature and how 0:12:58.559 --> 0:13:02.959 it interacts with the environment, and technology was was part 0:13:03.040 --> 0:13:07.000 of that. And somewhere along the way economics became very 0:13:07.240 --> 0:13:11.600 stratify stratisfied. I think I would I blame Keynes for 0:13:11.640 --> 0:13:14.959 a lot a lot and uh, you know, when Keens 0:13:15.000 --> 0:13:18.920 invented macro economics, that meant that anybody who didn't study 0:13:18.920 --> 0:13:23.880 macroeconomics was kind of a micro economist. And it's kind 0:13:23.880 --> 0:13:28.520 of divorced the study of economics from reality. In my opinion, 0:13:28.760 --> 0:13:31.920 it became too theoretical. And yet Keynes was a very 0:13:31.960 --> 0:13:37.120 savvy investor. He understood how economics interacted, which leads me 0:13:37.160 --> 0:13:40.520 to another quote from the book. Investing is in a 0:13:40.559 --> 0:13:43.720 moral pursuit. It's not about right or wrong, good or evil, 0:13:44.240 --> 0:13:50.480 it's about bullish or bearish. Well, uh, I guess it 0:13:50.640 --> 0:13:55.200 was when when Obama got elected. Um, there were there 0:13:55.200 --> 0:13:59.040 were a lot of policies that were being discussed that 0:13:59.200 --> 0:14:02.760 I I thought were just much too interventionist in the economy. 0:14:02.760 --> 0:14:07.360 And uh I, um, I was sort of politically biased 0:14:07.400 --> 0:14:09.839 in my writing. And one of my accounts kicked me 0:14:09.880 --> 0:14:11.760 in the butt and said, you know, I don't pay 0:14:11.760 --> 0:14:14.480 you to do Fox News. I don't pay you, you know, 0:14:14.559 --> 0:14:17.280 for your political views. I pay you for what you've 0:14:17.440 --> 0:14:20.000 done in the past, which is kind of seem clearly 0:14:20.600 --> 0:14:22.840 where the signal is and away from the noise and 0:14:22.880 --> 0:14:26.680 a lot of politics as noise. Absolutely, and uh it 0:14:26.920 --> 0:14:29.480 kind of like brought me to my senses and being 0:14:29.520 --> 0:14:33.400 an entrepreneurial capitalist realizing that this guy's an important account, 0:14:33.760 --> 0:14:36.480 I started to realize, you know, I mean, basically the 0:14:36.520 --> 0:14:38.960 market was telling me this is not what you really 0:14:39.000 --> 0:14:40.640 need to be doing. What you need to be doing 0:14:41.080 --> 0:14:44.360 is focusing on is it bullish or bearish? That is 0:14:44.400 --> 0:14:47.960 it good or bad. Don't be a policy don't criticize 0:14:47.960 --> 0:14:51.440 the policy makers. Tell me what they're gonna do. By 0:14:51.440 --> 0:14:53.440 the way, that's my pet theory for why so many 0:14:53.440 --> 0:14:57.000 hedge funds have been underperforming the past decade. They thought 0:14:57.080 --> 0:14:59.440 they were sitting in think tanks when they were actually 0:14:59.480 --> 0:15:02.200 managing of people's money, and we got distracted. That's right. 0:15:02.240 --> 0:15:05.040 So I tell people I'm not a preacher. I don't 0:15:05.040 --> 0:15:08.560 do good or bad. I don't do uh right or wrong. 0:15:08.800 --> 0:15:12.040 I'm an investment strategist. I do bullish or bearish, and 0:15:12.120 --> 0:15:14.320 sometimes you can let your political views. If you let 0:15:14.360 --> 0:15:16.680 your political views get no way, you could be bearish 0:15:16.720 --> 0:15:18.760 and miss a great bullmarket, no no doubt about it. 0:15:18.800 --> 0:15:21.240 One last quote, I'll go out on a limb and 0:15:21.280 --> 0:15:25.760 predict there will be another financial crisis in our lifetimes. However, 0:15:25.920 --> 0:15:31.680 like previous ones, it will offer great opportunity for buying stocks. So, so, 0:15:31.760 --> 0:15:34.880 how soon is the next financial crisis coming? And at 0:15:34.880 --> 0:15:37.120 what levels should we be well? So, those are all great, 0:15:37.240 --> 0:15:40.320 great questions, and I'm not going to pretend that I 0:15:40.320 --> 0:15:43.640 have clairvoyance to tell you exactly when these things are 0:15:43.640 --> 0:15:46.640 gonna occur. But you know, over the past forty years, 0:15:47.040 --> 0:15:51.800 I've observed that recessions happen, uh, and very often they're 0:15:51.840 --> 0:15:55.360 preceded by a financial crisis. And what's happened in the 0:15:55.400 --> 0:15:59.400 past is um credit was too easily available, and it 0:15:59.440 --> 0:16:02.640 was too cheape, and uh, people gotta get caught up. 0:16:02.680 --> 0:16:05.080 And how smart they were, I mean bull you know, 0:16:05.280 --> 0:16:08.120 bull markets make a lot of people very smart. Um 0:16:08.640 --> 0:16:11.400 borrowed a lot of money and then uh, suddenly we 0:16:11.440 --> 0:16:14.720 got an inflationary boom. The fan had to step on 0:16:14.760 --> 0:16:18.640 the brakes and uh low and behold, a lot of 0:16:18.720 --> 0:16:22.000 debtors just couldn't keep making their payments and the whole 0:16:22.000 --> 0:16:23.920 thing came on glued. And history is full of this. 0:16:24.000 --> 0:16:27.960 I mean, it's just, uh, it's a traditional boom bust cycle. Um. 0:16:28.040 --> 0:16:30.240 So let's let's look a little closer at the boom 0:16:30.240 --> 0:16:33.520 bust cycle and the two thousands. At least before the crisis, 0:16:34.080 --> 0:16:38.040 you had easy credit and cheap money. Correct. Today we 0:16:38.080 --> 0:16:42.280 have not so easy credit and money was cheap, but 0:16:42.360 --> 0:16:45.200 it's getting a little less cheap. Where are we in 0:16:45.240 --> 0:16:49.080 that long term boom bust cycle. Well, I'm you know, 0:16:49.280 --> 0:16:52.080 I always like to think a little bit outside the box. 0:16:52.160 --> 0:16:56.480 But but but always uh stimulated by what the data 0:16:56.520 --> 0:16:59.600 is telling me. And uh what what the data is 0:16:59.640 --> 0:17:02.400 telling me, What the experience of the past few years 0:17:02.400 --> 0:17:05.840 tells me is maybe just maybe we could have rolling 0:17:05.840 --> 0:17:10.199 recessions that kind of roll through different industries at different times. 0:17:10.200 --> 0:17:12.760 So didn't we just have a pretty severe recession and 0:17:12.800 --> 0:17:17.280 the energy and commodity space in two thousand and The 0:17:17.280 --> 0:17:19.880 answer rhetorical question, The answer is yes, it was very severe. 0:17:20.320 --> 0:17:22.600 The amazing thing is how quickly we came out of 0:17:22.640 --> 0:17:26.000 it in two thousand and sixteen. And that's because one 0:17:26.040 --> 0:17:28.639 of the big differences between the current environment and the 0:17:28.720 --> 0:17:32.240 nineteen thirties is that in the nineteen there's no such 0:17:32.320 --> 0:17:35.960 thing as distressed asset funds that we're looking to buy 0:17:36.359 --> 0:17:38.680 things that fifty cents on the dollar. Now there are, 0:17:39.160 --> 0:17:41.720 so when things fall apart, there's money that just kind 0:17:41.720 --> 0:17:45.280 of pours in to buy these things really cheap, and 0:17:45.280 --> 0:17:48.760 that kind of keeps the system from really imploding completely. 0:17:49.480 --> 0:17:51.720 We just had a recession. We're probably still in a 0:17:51.800 --> 0:17:55.399 recession in the shopping malls and the retailing industry, and 0:17:55.440 --> 0:18:00.639 we're seeing how that industry is restructuring itself. Uh um, 0:18:00.800 --> 0:18:05.160 So that may be the way things continue to unfold. 0:18:05.200 --> 0:18:06.600 So I don't want to say there will never be 0:18:06.640 --> 0:18:09.439 a recession again, but we may just have these kind 0:18:09.480 --> 0:18:12.560 of rolling recessions without the kind of the gut wrenching 0:18:13.320 --> 0:18:17.800 six eighteen month downturn that we have experienced during the 0:18:17.840 --> 0:18:20.160 past forty years that I've been in looking at things. 0:18:20.240 --> 0:18:22.919 The economy is that bulkanized that you could getting narrow 0:18:23.600 --> 0:18:28.240 energy or commercial real estate recession and it doesn't spill 0:18:28.280 --> 0:18:30.240 over to the rest of the broad economy. Well that 0:18:30.440 --> 0:18:35.840 you know, maybe I'm showing my inherent optimism and kind 0:18:35.840 --> 0:18:39.280 of aiming in that direction. I mean, clearly, uh you know, 0:18:40.480 --> 0:18:43.399 given current events, if we have a trade war. In 0:18:43.440 --> 0:18:45.399 my book, I do write about the Great Depression, and 0:18:45.560 --> 0:18:48.120 I do believe that the Great Depression was at least 0:18:48.119 --> 0:18:52.360 triggered by the trade wars, by the and all that. So, 0:18:52.480 --> 0:18:54.520 you know, I mean, it's certainly conceivable to have a 0:18:55.680 --> 0:18:58.960 economy wide global recession. I want to talk a little 0:18:58.960 --> 0:19:02.720 bit about com oddities and and what you describe as 0:19:02.760 --> 0:19:06.080 your favorite indicator, but I have to start with a 0:19:06.200 --> 0:19:10.119 quote of yours the best or or a quote that 0:19:10.160 --> 0:19:12.760 you write in the book, The best cure for high 0:19:12.760 --> 0:19:17.760 commodity prices is high commodity prices, obviously referring to market 0:19:17.800 --> 0:19:22.040 forces either bringing more supply on or or reducing demands. 0:19:22.520 --> 0:19:26.080 So from that, why do you come to the conclusion 0:19:26.760 --> 0:19:30.960 that raw industrial spot price index is the best of 0:19:31.000 --> 0:19:36.200 all economic indicators. Well, commodity markets are probably the most 0:19:36.200 --> 0:19:41.480 competitive markets. They're also very efficiently organized. We have we 0:19:41.520 --> 0:19:44.320 have some pretty good institutions where these things are traded 0:19:44.440 --> 0:19:50.119 where uh they're they're self regulating to a large extent. 0:19:50.240 --> 0:19:54.359 So the exchanges have a long history of being very 0:19:54.440 --> 0:19:59.080 honest brokers between supply and suppliers and demanders of commodities. 0:19:59.359 --> 0:20:03.960 You're in user consumers. These aren't like speculative maybe I 0:20:04.000 --> 0:20:06.199 want to own stops or not. These are people who 0:20:06.200 --> 0:20:08.960 are actually buying commodities and using them in and that's 0:20:09.200 --> 0:20:12.440 that's that's right. Um. By the way, is as a 0:20:12.520 --> 0:20:15.280 side note here that I'm not convinced that some that 0:20:15.600 --> 0:20:19.480 commodities really should be viewed as an asset class because 0:20:19.480 --> 0:20:23.840 I think that, uh, mostly the commodities do have end 0:20:23.920 --> 0:20:26.399 users that actually want to use them as opposed to 0:20:26.440 --> 0:20:29.720 just kind of stockpile them. Commodities don't really have d 0:20:29.880 --> 0:20:32.360 and E. They don't have dividends that they don't have earnings, 0:20:32.359 --> 0:20:34.960 so they're they're a different kind of animal. But would 0:20:35.000 --> 0:20:36.960 you say the same about gold, because I know the 0:20:37.000 --> 0:20:40.000 emails from the goldbugs are about to start. Yeah, well, look, 0:20:40.720 --> 0:20:44.000 i'm I'm gold is a unique commodity. It's the only 0:20:44.040 --> 0:20:45.840 one that I know of that that has its own 0:20:45.880 --> 0:20:48.959 fan club. And they call that they called gold bugs. 0:20:49.200 --> 0:20:52.160 And I say that respectfully. I don't say that, you know, Uh, 0:20:52.520 --> 0:20:55.439 I just don't do gold. I I need dividends, I 0:20:55.440 --> 0:20:59.800 need earnings. I have nothing against owning some golden portfolio. 0:21:00.680 --> 0:21:03.800 Most strategist will tell you, you know, sure, go ahead 0:21:03.800 --> 0:21:07.200 and on some gold. But that's I've had some good calls, 0:21:07.240 --> 0:21:10.560 a few good calls and and and gold, but you know, 0:21:10.960 --> 0:21:14.879 nothing that stands out in any meaningful way. But to 0:21:14.920 --> 0:21:18.359 your question about the c rb ROW Industrials um, it's 0:21:18.600 --> 0:21:21.720 it's an index that's been around since the fifties and uh, 0:21:22.119 --> 0:21:25.199 first monthly, then weekly, now daily, and I found that 0:21:26.080 --> 0:21:30.320 it's very highly correlated with global economic activity and therefore 0:21:30.320 --> 0:21:34.120 also US economic activity because the US matters, UH so much, 0:21:34.600 --> 0:21:36.960 so I watch it on a on a daily basis 0:21:37.240 --> 0:21:40.080 for an indication of what the global economy is doing. 0:21:40.080 --> 0:21:42.800 It's got thirteen raw industrials. It does not have a oil, 0:21:42.800 --> 0:21:44.920 it does not have lumber, which I think both those 0:21:44.920 --> 0:21:49.560 commodities have their own unique supplied demand characteristics. And I 0:21:49.600 --> 0:21:51.879 like the divided by initial unemployment claims, and I call 0:21:51.960 --> 0:21:56.000 that the boom bust barometer. So raw spot price index 0:21:56.119 --> 0:22:00.159 divided by initial unemployment claims. So that's that's become a 0:22:00.200 --> 0:22:03.080 weekly indicator. And what's the signal that, hey, a recession 0:22:03.160 --> 0:22:05.760 is coming. Well, it's really a coincident indicator. But it's 0:22:05.760 --> 0:22:07.800 available weekly, so you know, I don't have to wait 0:22:07.840 --> 0:22:11.400 for some of the monthly data. UM. So, for example, 0:22:11.480 --> 0:22:14.240 the CRB raw industrials and next took a dive in 0:22:14.240 --> 0:22:16.600 the second half of two thousand fourteen and two thousand 0:22:16.640 --> 0:22:21.360 and fifteen, signaling that something was happening in the global economy. 0:22:21.680 --> 0:22:23.920 It was getting weaker UH. And then it hit a 0:22:23.960 --> 0:22:27.240 bottom in early two thousand sixteen, and UH alerted me 0:22:27.320 --> 0:22:30.840 that global economic activity was improving. And then I started 0:22:30.880 --> 0:22:33.480 to see it in some of the indicators that we 0:22:33.600 --> 0:22:36.879 use for forecasting corporate earnings, and it all sort of 0:22:37.080 --> 0:22:40.080 kind of came together earlier this year, and we're recording 0:22:40.080 --> 0:22:45.879 this in April, you had said, I think inflation is dead. 0:22:46.560 --> 0:22:48.840 So what do you mean by that and what is 0:22:48.880 --> 0:22:53.960 it suggest to bond investors? Going, well, it's it's not 0:22:54.119 --> 0:22:58.199 a a new mantra for me. I've been basically of 0:22:58.280 --> 0:23:01.680 that opinion since UH for forty years of my uh 0:23:01.880 --> 0:23:04.560 my career. I mean, it wasn't dead in the late 0:23:04.600 --> 0:23:10.800 seventies when I started my career, but when Vulcar adopted 0:23:11.640 --> 0:23:16.480 UH monetary policy UH procedures that led to interest rates 0:23:16.520 --> 0:23:19.280 going straight up, I concluded that he would in fact 0:23:19.280 --> 0:23:22.440 break the back of inflation. And the amazing thing, the 0:23:22.600 --> 0:23:26.400 remarkable thing was how quickly inflation came down once policy 0:23:26.520 --> 0:23:30.320 really aimed at bringing it down. And I was I've 0:23:30.359 --> 0:23:34.240 been a disinflationist, which means it doesn't mean falling prices, 0:23:34.359 --> 0:23:38.359 means that the price inflation, the rate of inflation comes down. 0:23:38.720 --> 0:23:42.120 And I've been a disinflationist throughout my entire career. And 0:23:42.200 --> 0:23:44.399 maybe at some point I need to just you know, 0:23:44.920 --> 0:23:49.560 let go the Cliver victory art or well, you know, 0:23:49.680 --> 0:23:52.640 I hope in my next forty years, God willing or 0:23:52.680 --> 0:23:56.400 you know what, what whatever part of that, I continue 0:23:56.440 --> 0:24:00.240