WEBVTT - Death of the Buyback? 0:00:12.840 --> 0:00:16.040 Hello, and welcome to What Goes Up, a Bloomberg weekly 0:00:16.120 --> 0:00:19.680 market podcast. I'm Sarah Pontac, a reporter on the Cross 0:00:19.680 --> 0:00:22.360 Asset Team and on Mike Reagan, a senior editor on 0:00:22.400 --> 0:00:25.079 the Markets Team. This week on the show, the risk 0:00:25.239 --> 0:00:28.760 rebound continues as some countries and states in the United 0:00:28.760 --> 0:00:32.560 States begin their economic reopenings. The next two weeks become 0:00:32.640 --> 0:00:35.320 crucial as more data rolls in on the virus and 0:00:35.760 --> 0:00:38.760 on consumer habits. You could say our guest this week 0:00:38.840 --> 0:00:41.840 is a little bit skeptical. Not only does he not 0:00:42.000 --> 0:00:44.400 believe in the risk rally, but he says the stock 0:00:44.520 --> 0:00:47.840 market is forever changed, with buybacks no longer the fourth 0:00:47.880 --> 0:00:51.480 they once were. Well, Sarah, one force that will continue 0:00:51.560 --> 0:00:54.920 to remain is our tradition the craziest thing I saw 0:00:54.920 --> 0:00:57.320 in markets this week. We will of course finish out 0:00:57.320 --> 0:01:00.360 the show with that segment, and as always, you see 0:01:00.400 --> 0:01:03.120 something crazy and markets, give us a call on the 0:01:03.160 --> 0:01:07.760 podcast hotline at six ft six three to four three 0:01:07.800 --> 0:01:11.240 four nine oh and leave us a voicemail maybe we'll 0:01:11.240 --> 0:01:13.319 play it on the show. And you can also tweet 0:01:13.360 --> 0:01:16.679 to us at Podcasts with the craziest things you saw 0:01:16.840 --> 0:01:19.120 in the markets this week? I'm gonna go ahead and 0:01:19.160 --> 0:01:21.720 throw it out there, Mike, my my crazy thing this week. 0:01:22.000 --> 0:01:25.520 It comes with a potential request from callers. Uh, so 0:01:25.560 --> 0:01:27.679 we're going to try to get you to keep them 0:01:27.760 --> 0:01:30.920 rolling in a special request from callers, special because I 0:01:30.959 --> 0:01:33.360 need help with it, all right. Somehow I feel like 0:01:33.400 --> 0:01:34.800 I'm gonna be the butt of this joke, but I 0:01:35.080 --> 0:01:39.240 will not. I'll hear you and Sarah, as you said, 0:01:39.240 --> 0:01:42.440 our guests this week, Uh, it's a little bit skeptical 0:01:42.600 --> 0:01:45.800 about this rebound in stocks, and to be quite honest, 0:01:46.000 --> 0:01:48.240 so so am I. So that's why I'm glad to 0:01:48.240 --> 0:01:49.760 have him on the show. I'm not above a little 0:01:49.760 --> 0:01:52.360 bit of confirmation bias. You know, I'm not too proud 0:01:52.400 --> 0:01:56.240 for that. We all know that by this point. But 0:01:56.400 --> 0:02:00.600 he's uh reading his notes this week, really insightful, mart stuff, 0:02:00.720 --> 0:02:04.320 but not only that, hilarious, often hilarious at times. So 0:02:04.880 --> 0:02:07.640 very happy to have him on the show. His name 0:02:07.720 --> 0:02:11.320 is Vincent de Luard. He's the director of Global macro 0:02:11.720 --> 0:02:16.359 Strategy at the brokerage I N T l F C. Stone. Vincent, 0:02:16.400 --> 0:02:18.880 welcome to the show. Well, thanks for having me. It's 0:02:18.880 --> 0:02:21.960 a pleasure and I'm a big fan of yours. So, uh, 0:02:22.320 --> 0:02:24.200 that's one of you guys out there anyway, that's your 0:02:24.200 --> 0:02:26.840 confirmation bias right off the top of the show. That's right, 0:02:26.919 --> 0:02:30.920 that's right, that's right, we got one. So uh, you know, 0:02:30.919 --> 0:02:34.400 if it's it, As as Sarah Um alluded to in 0:02:34.400 --> 0:02:37.200 the introduction, you are a little skeptical about this rally, 0:02:37.400 --> 0:02:40.720 walk us through sort of, Um, the main reasons why. 0:02:40.720 --> 0:02:44.480 I mean, obviously, the bear case frequities right now is 0:02:44.520 --> 0:02:47.560 pretty obvious, right, But you know, there's the school of 0:02:47.600 --> 0:02:50.600 thought that you know, you have to sort of believe 0:02:50.600 --> 0:02:52.840 in the price action and the power of the price 0:02:52.880 --> 0:02:55.920 action itself. And I think it's it's turning a lot 0:02:55.960 --> 0:03:00.000 of people into believers in this rally, the fact that, um, 0:03:00.080 --> 0:03:03.200 it has moved so much off the bottom in a 0:03:03.280 --> 0:03:06.359 fairly consistent straight line. I mean, there's been some big 0:03:06.360 --> 0:03:10.440 down days in this rebound, but you know, the volatility 0:03:10.440 --> 0:03:13.160 has calmed down to some degree. Um, walk us through 0:03:13.760 --> 0:03:17.840 what you're expecting in the near term. Well, it's usually 0:03:17.880 --> 0:03:20.000 the best way to look like a fool, but I'm 0:03:20.440 --> 0:03:24.760 gonna do it anyway. That's what we specialized on. Good 0:03:24.840 --> 0:03:28.200 good in general. You you know, it's very rare to 0:03:28.200 --> 0:03:30.640 see such a clear V shaped rebound. I guess you 0:03:30.680 --> 0:03:32.760 can point back to do somebody two thousand and eighteen. 0:03:32.800 --> 0:03:35.800 But that's the and maybe that's why it was. There 0:03:35.880 --> 0:03:40.680 was such an an angst amongst especially retail investors, to 0:03:40.680 --> 0:03:43.280 to to get back in right, because people, oh, this 0:03:43.400 --> 0:03:45.280 is the first pullback we had in the last one 0:03:45.360 --> 0:03:46.840 was so short. You know, it was on Christmas Day. 0:03:46.880 --> 0:03:49.240 You couldn't do anything. So actually, I think you're Sarah 0:03:49.280 --> 0:03:52.120 who wrote a piece on this kind of increasing in 0:03:52.120 --> 0:03:55.640 retail trading, and we findsight right, it was pretty obvious, right, 0:03:55.680 --> 0:03:59.080 you you lock everybody down, you send them checks. I mean, 0:03:59.120 --> 0:04:01.560 most people are actually making more money today, even the 0:04:01.640 --> 0:04:04.000 ones who lost their jobs because in the endempartment benefits 0:04:04.040 --> 0:04:06.400 have been increased to clost a thousand dollar a week 0:04:07.200 --> 0:04:10.040 um plus the one thousand dollar a month similar check. 0:04:10.400 --> 0:04:14.120 Nothing to do. Casinos are closed. Stock marketing its biggest 0:04:14.120 --> 0:04:17.840 pullback ever. You had all the retail broker runing, our 0:04:17.880 --> 0:04:20.960 commissioned three trading, so it's kind of a perfect storm. 0:04:21.040 --> 0:04:24.960 And that again, it would be preposterous for me to 0:04:25.520 --> 0:04:28.679 you know, get the walls. We know don't don't trade 0:04:28.680 --> 0:04:30.400 stock at the time to say is one of the 0:04:30.400 --> 0:04:32.839 shoeshine and gives you a stop tip. Well, you know, 0:04:32.880 --> 0:04:35.400 obviously the right now, these retail people are up double 0:04:35.480 --> 0:04:37.919 digit and I look like an idiot sitting on cash. 0:04:38.480 --> 0:04:41.360 But I think a lot of professional investors are are 0:04:41.400 --> 0:04:45.359 equally confused by this and are still expecting another wave 0:04:45.400 --> 0:04:48.799 of of the clients retesting the role, if not taking 0:04:48.839 --> 0:04:52.080 them bull to be my expectation, Vincent, I love this 0:04:52.160 --> 0:04:54.520 line that you have in one of your recent reports. 0:04:54.520 --> 0:04:57.479 You say April's face ripping rally has created a tremendous 0:04:57.520 --> 0:05:01.400 amount of introspection, self doubt and second guessing among bears. 0:05:01.480 --> 0:05:03.800 What did I miss that every other investor has seen? 0:05:04.120 --> 0:05:07.240 How can market action be so disconnected from reality? Does 0:05:07.320 --> 0:05:09.880 the rest of the world experience a radically different reality 0:05:09.920 --> 0:05:11.960 from mine? Is the world crazy? Or is it me? 0:05:12.240 --> 0:05:14.800 And I think to a sense, there are a lot 0:05:14.839 --> 0:05:20.200 of people, many many people thinking along those lines. And 0:05:20.279 --> 0:05:23.680 you talked about the retail trading aspect, and I think 0:05:23.720 --> 0:05:28.960 it's so interesting because there is this subscription, this idea 0:05:29.200 --> 0:05:31.600 that usually at the lows and a steep sell off, 0:05:31.600 --> 0:05:34.719 you see retail flee the market because they're so scared. 0:05:34.760 --> 0:05:36.040 At that point in time, but if you look at 0:05:36.040 --> 0:05:38.400 the data, I mean, it looks like retail time this 0:05:38.560 --> 0:05:41.559 just right, there was a boom in accounts opening in March, 0:05:42.320 --> 0:05:45.520 people getting in trading, this idea that yeah, maybe they're 0:05:45.520 --> 0:05:47.520 equating it to gambling they have nothing else to do. 0:05:47.600 --> 0:05:49.440 But it kind of makes me think, then if we 0:05:49.480 --> 0:05:53.680 do start to see economies start to reopen and we 0:05:53.760 --> 0:05:57.960 start to see your average your average Joe going back 0:05:58.040 --> 0:06:01.560 to work, if that is the person who is trading 0:06:01.760 --> 0:06:04.000 or at least a decent amount of the demand in 0:06:04.000 --> 0:06:06.839 this market, when that happens, there's is there the possibility 0:06:06.880 --> 0:06:09.160 that we see a fall off in demand because they 0:06:09.160 --> 0:06:11.320 don't have that time to sit at home anymore. Well, 0:06:11.440 --> 0:06:13.000 I mean that would be kind of the you know, 0:06:13.600 --> 0:06:16.679 sell the opening view right where you know your rally 0:06:16.760 --> 0:06:20.640 during the lockdowns and then the actual big downdraft will 0:06:20.640 --> 0:06:22.839 happen when economy because I tend to be on that view, 0:06:22.880 --> 0:06:24.880 partly because I think the I don't want to get 0:06:24.880 --> 0:06:27.039 into the medical aspect, but it seems to me that 0:06:27.240 --> 0:06:29.520 whatever will happen next is going to be very different 0:06:29.520 --> 0:06:32.000 from from before. When we're still living in this illusion 0:06:32.520 --> 0:06:35.080 that Okay, well, you know, if we all wear a 0:06:35.240 --> 0:06:37.680 mask and stay at home and do it for long enough, 0:06:37.760 --> 0:06:39.800 everything we'll be back to normal. And people have not 0:06:39.839 --> 0:06:43.240 readjusted to that. But going back to your point on 0:06:43.279 --> 0:06:46.840 supply and demand, which I thought was interesting, and buy 0:06:46.880 --> 0:06:48.679 backs especially, I mean that was one of the reasons 0:06:48.760 --> 0:06:52.760 why I was barished before COVID nineteen UM, was that 0:06:52.839 --> 0:06:55.479 we were seeing buy back slowing down dramatically. Even in 0:06:55.560 --> 0:06:59.000 January before COVID hit, the US buy back announcement went 0:06:59.080 --> 0:07:03.080 down by six to se Now, obviously, I mean COVID 0:07:03.200 --> 0:07:06.039 is going to flow a ranch on this. Um. You know, 0:07:06.120 --> 0:07:09.159 buy backs have been the single larger source of equity 0:07:09.200 --> 0:07:12.400 demand for the stock market for five years now. Uh. 0:07:12.440 --> 0:07:14.480 You know, we're looking at close to nine billion a 0:07:14.560 --> 0:07:17.560 year last year. Uh. And if I look at all 0:07:17.560 --> 0:07:21.000 the other segments possible buyers of stock, you know what 0:07:21.120 --> 0:07:24.280 the's pension from structural selling for demographic reason. Banks, it's 0:07:24.320 --> 0:07:27.920 regulatory broken years. You want to, you know, reduce your inventories. 0:07:28.200 --> 0:07:31.000 Even foreigners used to be by net bias, but since 0:07:31.040 --> 0:07:33.800 we had the kind of collapse in all prices, obviously 0:07:33.800 --> 0:07:35.520 stuffering while fronts are a lot more likely to be 0:07:35.560 --> 0:07:37.960 sellers of uss s and there are to be buias. 0:07:38.000 --> 0:07:40.240 So that really leaves you a huge gap. And I 0:07:40.840 --> 0:07:44.040 think you're absolutely right that retail investors feel that gap 0:07:44.520 --> 0:07:48.080 in April. But as you point out, these flows are 0:07:48.480 --> 0:07:51.640 traditionally fickle, especially if it is you know, if you 0:07:51.880 --> 0:07:54.120 think of someone who's opening account just a month ago, 0:07:54.760 --> 0:07:56.680 I mean, what happens is the stock market drop by 0:07:56.680 --> 0:07:58.800 ten percent, or what happens is that person goes back 0:07:58.800 --> 0:08:01.000 to work. As you point out, like I don't think 0:08:01.080 --> 0:08:08.000 we investage sustainable replacement for the buyback bid. I picture 0:08:08.040 --> 0:08:10.600 all these new retail traders as the people who were 0:08:10.640 --> 0:08:14.160 on draft Kings and Fandel a couple of months ago, 0:08:14.240 --> 0:08:16.040 and now that sports has shut down, they have nothing 0:08:16.040 --> 0:08:19.360 else to do, and once there's something to gamble on, uh, 0:08:19.440 --> 0:08:22.880 they'll be They'll be right back on Fandel maybe uh 0:08:22.920 --> 0:08:26.240 perhaps and oversimplification there, but you know, VI's it. The 0:08:26.280 --> 0:08:29.200 other the flip side of that coin is okay, it 0:08:29.240 --> 0:08:32.840 looks like retail got bullish about buying this dip. When 0:08:32.880 --> 0:08:35.600 you look at sort of the professional end of things, Um, 0:08:36.480 --> 0:08:38.840 there is a lot of barishness in the positioning. You know, 0:08:38.840 --> 0:08:43.000 if you look at the cftc UH positioning data, a 0:08:43.200 --> 0:08:48.240 huge short still exists on SMP five futures. Um, is 0:08:48.280 --> 0:08:50.960 it kind of sort of both forces acting at once. 0:08:51.000 --> 0:08:54.520 Possibly like that the market moving against this massive hedge 0:08:54.559 --> 0:08:57.720 fund short on the index futures and a little bit 0:08:57.760 --> 0:09:01.360 of retail omp behind it as well. Is that possible? Yeah? 0:09:01.520 --> 0:09:03.680 I was thinking so. And that's that's also always seeing 0:09:03.720 --> 0:09:08.400 with our clients. UM. I mean, you could see you 0:09:08.520 --> 0:09:11.920 had some market this location in March. Um, you know, 0:09:11.960 --> 0:09:14.400 when we had these big down days when both the 0:09:14.400 --> 0:09:17.120 treasury market and the stock market was setting off. You 0:09:17.160 --> 0:09:21.719 had big discounts on several ets. So there was some 0:09:21.840 --> 0:09:24.480 math and spike of on voting. There was some aspect 0:09:24.520 --> 0:09:26.160 that made it look like a bottom, and I think 0:09:26.200 --> 0:09:29.040 we saw a little bit of that institutional pick comeback then. 0:09:29.520 --> 0:09:32.080 But I would say like since mid April, really, I 0:09:32.120 --> 0:09:34.640 think is when when most people thought, oh they's gone 0:09:34.800 --> 0:09:37.000 kind of like you know, you go to the first retracement. 0:09:37.120 --> 0:09:40.280 I mean, I'm not a technical realist, but the notion 0:09:40.360 --> 0:09:42.040 that you know, you retraced about six percent of your 0:09:42.080 --> 0:09:44.559 losses and then you know you there's another down like 0:09:45.120 --> 0:09:48.360 that hasn't happened. Another thing that worries me since mid 0:09:48.400 --> 0:09:52.160 April is kind of the divergence between high yeal spreads 0:09:52.200 --> 0:09:56.079 and stocks um So pretty much since the being of 0:09:56.120 --> 0:09:59.120 the crisis, you had, at least basically the stock market 0:09:59.160 --> 0:10:03.880 was taking excuse the trunk market, uh which way, which 0:10:03.840 --> 0:10:07.600 I've always spreads, he spreads wide done stock strock, he spreads, 0:10:07.800 --> 0:10:11.280 shrank stocks rules, and then that relation broke down since 0:10:11.320 --> 0:10:15.200 mid April, where we have seen spreads at least stay 0:10:15.280 --> 0:10:16.920 the same, if not wide a little bit, and the 0:10:16.920 --> 0:10:20.080 stock market just keep going up. So of course a 0:10:20.160 --> 0:10:23.680 big component of the rally is also stimulus, both from 0:10:23.679 --> 0:10:26.320 the government and then also from the FED. And bear 0:10:26.400 --> 0:10:29.960 with me because I've heard this floated recently. Uh, maybe 0:10:30.360 --> 0:10:32.840 a majority of people will think it it's a bit crazy, 0:10:32.880 --> 0:10:36.640 But in a way, we have seen investors trying to 0:10:37.080 --> 0:10:41.960 front run the feds purchases of credit by buying credit ets. 0:10:42.000 --> 0:10:45.000 You've seen massive flows into some of those funds. What 0:10:45.120 --> 0:10:47.960 about the idea, and call me crazy, but what about 0:10:48.000 --> 0:10:50.120 the idea that maybe you have some investors out there 0:10:50.160 --> 0:10:52.360 thinking that we will get to the point where the 0:10:52.360 --> 0:10:53.719 Fed's going to have to come out and say that 0:10:53.760 --> 0:10:56.120 they're buying equities in some form of another, and they're 0:10:56.120 --> 0:10:59.560 trying to front run that as well. No, no, no, 0:11:00.000 --> 0:11:02.120 I I don't think that's crazy at all. I'm am 0:11:02.160 --> 0:11:05.160 in that camp. I think this is how this ends 0:11:05.840 --> 0:11:09.000 this and again because of that supply and demand factor, 0:11:09.679 --> 0:11:12.920 right you have, I mean I will there will be 0:11:13.000 --> 0:11:16.000 some buybacks less right, maybe like Microsoft or the companies 0:11:16.000 --> 0:11:18.960 will buy backs, but buying large buybacks as the main 0:11:19.960 --> 0:11:23.160 marginal bios stock is a story of the two thousand 0:11:23.240 --> 0:11:26.840 tents um and that will leave a permanent five billion 0:11:26.880 --> 0:11:30.600 plus gap in the equity supply and demand picture. And 0:11:30.720 --> 0:11:32.240 I think that's, by the way, something that you see 0:11:32.280 --> 0:11:35.560 across every de block market, and it's demography. At the 0:11:35.640 --> 0:11:39.000 end of the day, as society's age, people need to 0:11:39.000 --> 0:11:40.960 sell stock to bi bones and eventually they need to 0:11:40.960 --> 0:11:43.600 sell bonds to go into cash. That's what That's why 0:11:43.720 --> 0:11:46.360 the stock markets have gone nowhere in Japan, in Europe, 0:11:46.800 --> 0:11:48.560 the US really has been the exception, and I think 0:11:48.559 --> 0:11:50.839 it has been the exception because the US as such 0:11:50.840 --> 0:11:55.000 an unusual amount of buyback activity, so as you remove that, 0:11:56.280 --> 0:11:57.920 you will need to fit it. Like I said, I 0:11:57.920 --> 0:12:00.960 don't think the retail did. This is a cute story, 0:12:01.120 --> 0:12:03.760 it's wonderful. I'm black people are making money. But I 0:12:03.760 --> 0:12:06.440 don't think it's a it's's sustainable, so something that I 0:12:06.559 --> 0:12:09.280 only see one possible actor, and that's the FED. But 0:12:10.400 --> 0:12:11.840 and I mean, you know you've seen the Bank of 0:12:11.920 --> 0:12:15.560 Japan do it before. It's certainly been floated before. I 0:12:15.600 --> 0:12:18.240 think it was Bernanki and Ye and actually suggested buying 0:12:18.280 --> 0:12:21.240 buying mets at some point. So I'm sure it's there, 0:12:21.400 --> 0:12:23.640 but it's there, I think at a lower price point. 0:12:23.640 --> 0:12:26.800 I mean, it nothing surprised me anymore, but it would 0:12:26.840 --> 0:12:29.880 surprise me if at ten percent, you know, the all 0:12:29.920 --> 0:12:31.439 time high, the FED say okay, you know what I've 0:12:31.440 --> 0:12:34.640 gotta do, buy stocks. Yeah, at that point about the 0:12:34.679 --> 0:12:38.840 retail uh commission free trading, you know, it's it's commission 0:12:38.880 --> 0:12:40.720 free to buy, it's commisition free to sell as well. 0:12:40.840 --> 0:12:44.079 So I do wonder if that is ultimately a source 0:12:44.160 --> 0:12:48.480 of more of altility. Um So, Sarah, I, I didn't 0:12:48.480 --> 0:12:50.600 think that was a crazy question. It was borderline. It 0:12:50.720 --> 0:12:54.280 was borderline, all right. I'll take borderline. Borderline porderline is 0:12:54.559 --> 0:12:58.360 a success. It's victory in my book. But Vicent seems 0:12:58.400 --> 0:13:02.160 to specialize in crazy things, which is a good guest 0:13:02.200 --> 0:13:04.760 for us. So I'm gonna read one of the titles 0:13:04.800 --> 0:13:08.160 of a recent report from you, Vincent, A crazy but 0:13:08.280 --> 0:13:12.680 logical call for stag inflation. Um, this one's really interesting 0:13:12.720 --> 0:13:15.200 to me. And you talk about sort of this. You know, 0:13:15.240 --> 0:13:17.719 we've we've hear a lot about the wealth divide in 0:13:17.760 --> 0:13:20.679 the US. You also talk about the generational divide. How 0:13:20.720 --> 0:13:27.360 the younger generation um, us younger generation, right, Sarah, all 0:13:27.480 --> 0:13:32.400 us young people wink wink um are obviously being forced 0:13:32.480 --> 0:13:37.080 to shoulder the burden of the sacrifice in this situation. 0:13:37.120 --> 0:13:40.520 You know, Um, younger people obviously are much lower risk 0:13:40.880 --> 0:13:44.520 uh to death from the virus. There at a sort 0:13:44.559 --> 0:13:47.360 of more i don't know, precarious point in their careers 0:13:47.360 --> 0:13:50.120 where maybe perhaps more vulnerable to layoff or in the 0:13:50.160 --> 0:13:53.360 type of service job that is more vulnerable to layoff 0:13:53.400 --> 0:13:56.160 in this environment. So that's it's just just walk us 0:13:56.200 --> 0:13:59.680 through this crazy but logical call for stagflation. How do 0:13:59.720 --> 0:14:03.800 you see the potential first stagflation as we get through 0:14:03.920 --> 0:14:07.080 sort of the reopening and what comes next? Right? Well, 0:14:07.120 --> 0:14:10.760 I mean, first start with the generational aspect, because I 0:14:10.760 --> 0:14:12.880 think it is the ultimate driver for the call for 0:14:13.040 --> 0:14:16.000 for staculation. So, yeah, as you pointed, out. You know, 0:14:16.440 --> 0:14:19.360 before going into COVID, we have this all debate about 0:14:19.400 --> 0:14:22.280 inequality and it's almost hilarious. You see, all these billionaires 0:14:22.320 --> 0:14:26.360 are doubles, you know, like talking about inequalities. Uh. And 0:14:26.560 --> 0:14:28.720 you know all these field of studies like oh, the 0:14:28.800 --> 0:14:31.320 gender pay gap and the race and these are all true. 0:14:31.360 --> 0:14:33.600 I'm not I'm not not making a case. But by 0:14:33.680 --> 0:14:37.840 and large, the single best predictive of how wealthy you are, 0:14:37.880 --> 0:14:39.720 it's how old you are, and and you could be 0:14:39.880 --> 0:14:41.680 you could say, well less normal. It takes time to 0:14:41.680 --> 0:14:45.200 build wealth, but not across time. We've seen the relative 0:14:46.240 --> 0:14:50.080 position of the it's sixty press cohort versus the and 0:14:50.200 --> 0:14:54.440 the third cohort has it's been going in opposite directions, 0:14:55.000 --> 0:14:57.800 partly because of programs which just as medicare, such as 0:14:57.840 --> 0:15:01.000 Social Security, which that are effective transfer from one generation 0:15:01.040 --> 0:15:04.440 to the other. And also I think the from downtall 0:15:04.640 --> 0:15:07.760 reason for it is the rising asset prices relative to wages. 0:15:08.160 --> 0:15:09.400 But at the end of the day, when you're young, 0:15:09.480 --> 0:15:12.040 you don't have assets. Your your asset is the human capital. 0:15:12.520 --> 0:15:17.040 If wages don't go up, well that asset doesn't go up. Conversely, 0:15:17.080 --> 0:15:19.040 when asset prices go up and you're an old person, 0:15:19.120 --> 0:15:21.680 usually your own assets so you can buy more work, 0:15:21.920 --> 0:15:26.000 more labor with your capital. I mean, one stantard I 0:15:26.040 --> 0:15:29.920 love is that the you had to work for four 0:15:30.000 --> 0:15:32.440 days and the federal minimum wage to buy one sharing 0:15:32.600 --> 0:15:36.480 is and five two days around two months. That is yeah, 0:15:36.600 --> 0:15:40.640 that's on the basic star, right. So we had that 0:15:40.960 --> 0:15:42.760 building in right, and you could see it in the 0:15:42.880 --> 0:15:45.640 okay boomer memes, right, I mean there was this this 0:15:46.120 --> 0:15:49.800 feeling and it was poorly expressed because our generation is 0:15:49.800 --> 0:15:53.160 not very self aware, and you know, but that, okay, 0:15:53.200 --> 0:15:55.640 something we're wrong, like always boomers with the Social Security 0:15:55.720 --> 0:15:58.320 and just to work harder, like than eating, pay for college, 0:15:58.360 --> 0:16:01.400 stop extra like that ang among the millennial gen z 0:16:02.560 --> 0:16:05.120 was building up. And then on top of that you 0:16:05.200 --> 0:16:07.920 add in the COVID crisis, and the COVID crisis is 0:16:08.280 --> 0:16:11.880 it's I mean, it's been designed by a demographer or 0:16:11.880 --> 0:16:17.200 an economist. I mean basically, the disease sematically kills the old, 0:16:17.240 --> 0:16:21.280 spares the young, and then the cure hurts the young 0:16:21.360 --> 0:16:23.640 to save the old. So we've asked for another one 0:16:23.640 --> 0:16:27.640 of these transfers, like please, young generation, screw up the economy, 0:16:27.720 --> 0:16:30.320 don't go to work, try to juggle raising kids that 0:16:30.320 --> 0:16:33.400 I'm not at school with zoom meetings. Think about the 0:16:33.440 --> 0:16:36.760 people who are driving the Amazon trucks. The nerves is 0:16:37.160 --> 0:16:39.360 so that the old people can be safe. And maybe 0:16:39.360 --> 0:16:41.600 it was the ethical thing to do, I certainly believe. 0:16:41.960 --> 0:16:44.760 I mean, if I think of my parents, obviously I 0:16:44.800 --> 0:16:47.720 would have done that. But it's a transfer. It's a 0:16:47.760 --> 0:16:50.160 transfer on top of a situation that was very unequal, 0:16:50.240 --> 0:16:52.560 and I think as we as we reopened, will have 0:16:52.640 --> 0:16:55.480 to address that concern and many of the things that 0:16:55.520 --> 0:16:58.800 the younger genda, if you will, UH, the ideas like 0:16:58.880 --> 0:17:02.520 medicare full beause, like universal basic income, student land force, 0:17:02.560 --> 0:17:05.159 student let known forgiveness. All these things will have to 0:17:05.200 --> 0:17:07.200 be on the table and that will be the drive 0:17:07.640 --> 0:17:25.879 for kind of infacionary bodies for the next decade. You know, 0:17:26.119 --> 0:17:28.520 we've talked on the show about how this event could 0:17:28.520 --> 0:17:30.920 be sort of a tipping point for so many different 0:17:31.440 --> 0:17:34.040 aspects of the world in the economy, I wonder if 0:17:34.080 --> 0:17:36.840 this is one of them. If the sort of policy 0:17:37.080 --> 0:17:40.160 on the other end of this UH starts paying attention 0:17:40.200 --> 0:17:42.240 to those younger voters a little bit more, maybe we 0:17:42.320 --> 0:17:45.680 get some sort of student loan forgiveness something, some kind 0:17:45.720 --> 0:17:50.120 of bailout for the millennials my generation generation next, we're 0:17:50.200 --> 0:17:52.640 we're screwed, no matter what. I mean, we're just yeah, 0:17:52.840 --> 0:17:56.960 we're just you know, Vincent, Vincent, just going along with you, 0:17:57.160 --> 0:18:02.920 just yes, absolutely absolutely. But I consider myself an honorary millennial, 0:18:03.000 --> 0:18:06.040 So maybe maybe somehow I'll get it on the gravy train. 0:18:06.119 --> 0:18:08.680 But does do you think that's right? I mean, could 0:18:08.720 --> 0:18:12.600 this sort of shift the whole dialogue a little bit 0:18:12.720 --> 0:18:16.919 left on the political spectrum to a sort of kinder 0:18:16.960 --> 0:18:21.800 and gentler policies towards especially the younger generation that, as 0:18:21.800 --> 0:18:26.000 you point out, um, have struggled to gather wealth, uh 0:18:26.040 --> 0:18:29.080 and and influence in this economy. Um. You know, people 0:18:29.359 --> 0:18:33.240 that graduated in the global financial crisis, maybe just at 0:18:33.240 --> 0:18:35.800 the point where you know, they have the down payment 0:18:35.800 --> 0:18:37.720 for a house and now all of a sudden they're 0:18:37.800 --> 0:18:40.919 hit with this um. You know, is that is that 0:18:41.000 --> 0:18:43.600 a tipping point? Do you think? Yeah? I think so. 0:18:43.760 --> 0:18:45.800 And and by the way, it's hard to see it 0:18:45.840 --> 0:18:48.719 now because it's Katy, the boomer class is still very 0:18:48.800 --> 0:18:50.960 much in control. I mean, just look at you know, 0:18:51.400 --> 0:18:55.440 Joe Biden versus Trump or Nancy Broozian trum. But anytime 0:18:55.480 --> 0:18:58.400 I see these people on on TV, I keep thinking 0:18:58.440 --> 0:19:01.240 about the amount of a physical decay. They are the 0:19:01.359 --> 0:19:04.919 very embodiment of that. And and you know the the 0:19:05.080 --> 0:19:07.000 quarter part Haming way, how do you go bankrupt? You know, 0:19:07.080 --> 0:19:09.719 first slowly and then all at once. As far as 0:19:09.720 --> 0:19:12.160 the boomer generation, you can certainly see with with someone 0:19:12.200 --> 0:19:16.440 like like Pelosi or or tro Biden, like the decade 0:19:16.480 --> 0:19:18.760 is not happening all at once. And if you look 0:19:18.800 --> 0:19:21.960 at Congress, I mean, how many of the these people 0:19:22.000 --> 0:19:24.199 are going to be alive in five years? I mean 0:19:24.240 --> 0:19:26.320 the death ray. Really, you know, for for a long 0:19:26.359 --> 0:19:28.480 time it's nothing, and then you get to a seventy 0:19:28.480 --> 0:19:31.120 five boom and you know, by age ninety, everybody's dead. 0:19:31.400 --> 0:19:34.280 So we are getting into that boomer generation is getting 0:19:34.440 --> 0:19:37.359 into into that that high death zone, which would be 0:19:37.400 --> 0:19:41.840 consistent with the steeping point idea. As far as like inflation, 0:19:42.040 --> 0:19:43.520 I think at the end of the day, it is 0:19:43.560 --> 0:19:46.879 the most convenient way to address this problem. What do 0:19:46.960 --> 0:19:48.840 we need in order to fix this? Where we need 0:19:48.920 --> 0:19:51.160 lower serprices so that young people can buy a house 0:19:51.200 --> 0:19:54.520 and start making babies, uh, and then we need higher 0:19:54.520 --> 0:19:58.199 wages uh. And then we need inflation so that the 0:19:58.240 --> 0:20:01.320 debt gets I mean, because yeah, there are also equid 0:20:01.400 --> 0:20:03.000 issues like if we can so also a little dead, 0:20:03.040 --> 0:20:04.600 Well what about the people who paid back on this 0:20:04.800 --> 0:20:07.439 food to meets a lot easier to have like ten 0:20:07.520 --> 0:20:10.120 years of infacion at seven percent By the end, everybody 0:20:10.200 --> 0:20:12.040 is paid off. But we haven't done any of the 0:20:12.119 --> 0:20:16.040 hard things. And that's that's the most politically satisfying way 0:20:16.119 --> 0:20:18.800 to solve the crisis. So, say we were to get 0:20:18.840 --> 0:20:21.000 to that point and we do see a big pickup 0:20:21.040 --> 0:20:23.480 in an inflation to deal with what we're seeing, Now, 0:20:23.840 --> 0:20:26.160 what does that mean for portfolios? Then? I mean, how 0:20:26.200 --> 0:20:28.119 do you even think about going about investing at that 0:20:28.119 --> 0:20:30.440 point in time? Get the heck out of bonds? I 0:20:30.480 --> 0:20:34.120 guess for one thing? Yeah, not now, but yeah, yeah, 0:20:34.119 --> 0:20:38.320 I think so. Um, I think, well, first of all, 0:20:38.760 --> 0:20:43.359 it's helpful because the hardest position of being a bear 0:20:43.480 --> 0:20:45.919 for the past two years, which is my case, is 0:20:45.960 --> 0:20:48.280 being well what do you do your money? And I go, 0:20:48.400 --> 0:20:50.919 you think stocks are expensive, you're gonna buy bombs? Okay, 0:20:51.000 --> 0:20:54.000 Well nothing cheap, right? Well no, actually, there's one thing 0:20:54.040 --> 0:20:56.480 that's cheap, and that's infacion sensitive. That'st so in facier 0:20:56.520 --> 0:20:58.119 in general, I mean you can buy you can actually 0:20:58.160 --> 0:21:00.760 get paid to get into infasition swap meaning like you know, 0:21:00.800 --> 0:21:03.119 every like if you look at Europe or Jepan, the 0:21:03.320 --> 0:21:06.720 market sproceing inflation, even the US break even where negative 0:21:06.760 --> 0:21:08.280 I think all the way to five years now it's 0:21:08.320 --> 0:21:11.640 gone back to two. So it is truly I think 0:21:11.680 --> 0:21:15.960