00:00:04
this is basically 30 years Professor
00:00:07
after your original research we're going
00:00:10
to talk a lot about the new material a
00:00:12
lot of there's a lot of new material but
00:00:14
maybe the central premise uh in years
00:00:17
like days like today yours like 2022 is
00:00:21
it still stocks for the long run well
00:00:22
it's interesting because the first
00:00:24
edition which came on May 1994 used data
00:00:28
through the end of uh 1992.
00:00:33
and I looked back and what was the
00:00:35
long-term real return as you know I
00:00:37
began 1802 onward it was 6.7 percent
00:00:40
real
00:00:42
and then I updated it till June of this
00:00:45
year
00:00:46
and it's 6.7 real exactly the same last
00:00:51
30 years despite all you know the
00:00:54
financial crisis the coveted
00:00:56
the real return with 6.7 per year it's
00:01:00
remarkably durable
00:01:03
um and then we also know it's remarkably
00:01:06
volatile in the short run but the
00:01:09
durability of the
00:01:10
Equity or Equity premium as you might
00:01:13
say although then you have to subtract
00:01:14
what you think about bonds
00:01:16
um is is really quite remarkable
00:01:19
I think one of the the big new chapters
00:01:22
in the book and the most important thing
00:01:24
may be arguably for the market this year
00:01:26
is the real rate on bonds uh and should
00:01:30
we talk about the equity risk premium
00:01:32
talk about the historical equities
00:01:34
premium bonds real rates what are
00:01:36
driving bonds lower yeah for longer yeah
00:01:39
well actually there's five new this is
00:01:41
the biggest revision of all of them it's
00:01:43
also the most time between them have
00:01:45
actually five new chapters and one of
00:01:47
them just on uh on the interest rates
00:01:49
and stock prices and
00:01:52
uh what I find and others have found
00:01:57
um although sometimes I don't know
00:01:59
whether the Federal Reserve recognizes
00:02:01
it is how much of a drop in real
00:02:04
interest rates
00:02:05
I'm not talking about exposed I'm
00:02:07
talking about exante but I'm looking at
00:02:09
tips bonds as a global phenomenon
00:02:13
uh tips were floated in the United
00:02:16
States in January of 1997 at three and a
00:02:20
half percent real
00:02:22
in 2000 they went almost to four and a
00:02:25
half percent real and by the way that
00:02:28
was the real around the world
00:02:31
um I was four to five percent real
00:02:34
ex-anti
00:02:37
um until the latest tightening they were
00:02:40
all negative
00:02:41
they all dropped negative and I'm
00:02:43
talking about 10 years this is not short
00:02:45
term
00:02:46
uh and it's been steady
00:02:48
I ascribe it
00:02:50
really to to four different causes of
00:02:54
the collapse of real yields around the
00:02:56
world
00:02:57
um one is slower growth
00:02:59
and that's composed of two things first
00:03:01
of all slower population growth and
00:03:05
slower productivity growth
00:03:08
um I mean this year productivity is
00:03:10
totally collapsed in in a way that is
00:03:12
we've never seen before in the United
00:03:14
States actually uh it's not discussed
00:03:17
much but uh the figures are almost
00:03:19
unbelievable how bad productivity has
00:03:22
been uh this year
00:03:24
um but productivity is down real growth
00:03:26
is down population growth is down listen
00:03:28
you know you do any real rates follow
00:03:31
growth take your oil equation and
00:03:34
remember it's the uh first derivatives
00:03:37
are our growth rates so that's one of
00:03:40
the factors I also think there's
00:03:41
increasing risk aversion I think that
00:03:43
may be due to the we're Aging in the
00:03:45
population
00:03:47
um uh becomes more risk-averse uh that
00:03:50
holds wealth
00:03:52
um not too sure the magnitude on that
00:03:54
but I think that that's certainly one of
00:03:56
the factors but one of the biggest
00:03:58
factors
00:03:59
uh and again until this year
00:04:02
is the tremendous flip in the
00:04:06
correlation between stock and bond
00:04:08
returns
00:04:10
um
00:04:11
during the 50s 60s and 70s even early
00:04:15
80s the the beta was positive of of bond
00:04:19
in stocks
00:04:21
um since really uh the 90s it had went
00:04:25
to zero and then it went negative
00:04:28
um and and that's as you as you know I
00:04:30
mean a negative beta asset is going to
00:04:31
have a lower rate of return
00:04:33
and uh stocks are uh treasuries are
00:04:37
negative beta assets they they really
00:04:39
are now they're not this year we'll talk
00:04:41
about that but
00:04:43
um and certainly you've had they've
00:04:45
correlated with stocks but in the past
00:04:47
during all the crisis the financial
00:04:49
crisis treasuries were up covet crisis
00:04:52
treasuries were up whenever there's a
00:04:54
shock
00:04:55
to demand
00:04:58
um and stocks go down treasuries go up
00:05:00
well factor in a negative beta from a
00:05:04
positive beta
00:05:05
and you know tell me what what the
00:05:08
return should do and it goes down as it
00:05:11
should and that's a major factor if you
00:05:14
actually just take some of the raw betas
00:05:16
and look at it you can explain the two
00:05:18
two to three percentage points of the
00:05:20
decline in real yields from that so you
00:05:22
have all these factors
00:05:25
that are making for the decline in in in
00:05:27
in in the real yields and it's really
00:05:30
quite persistent and quite worldwide so
00:05:33
you started the year uh at negative one
00:05:35
percent the tenure tips you're getting
00:05:37
back to one one now and and when you
00:05:39
said tips start at three and a half that
00:05:41
was like the 200 year real return on
00:05:43
bonds that was exactly what is so what
00:05:45
is your expected return for bonds going
00:05:47
forward at one percent on the 10-year
00:05:49
tips are we where do you think we are
00:05:51
well it's interesting because just
00:05:53
before tips came out because I had done
00:05:55
stocks for the long run I got a call
00:05:56
from the media and they said uh Dr
00:05:58
Siegler the treasury is going to float
00:06:00
tips what do you think they're going to
00:06:02
float at I said well I guess three and a
00:06:04
half percent that's their 150 year
00:06:05
average
00:06:07
um and indeed they floated at three and
00:06:09
a half percent
00:06:10
um and then continue to Rise
00:06:13
um for the next uh three and a half
00:06:16
years and then began and by the way
00:06:18
again Meriden we were actually late as a
00:06:22
country coming to tips most other
00:06:23
countries in the world had them and even
00:06:25
European countries did not have
00:06:27
systematically high inflation but the
00:06:29
tips just then steadily just down in
00:06:32
down and down 20 30 basic points a day
00:06:35
excuse me a year a year a year a year
00:06:37
down to minus one minus one and a half
00:06:39
at one point
00:06:41
actually you can almost explain the
00:06:42
whole decline in the stock market just
00:06:44
by the rise in tips I mean if you think
00:06:46
there's a five percent six percent real
00:06:47
Equity premium and you raise the real
00:06:49
rate by two percentage points you don't
00:06:51
do the math
00:06:52
uh it's not that earnings have changes
00:06:54
that that discount rate is is really
00:06:56
changed but I think what's I I think
00:07:00
I think it I think the real rate
00:07:02
actually is going down I think it's this
00:07:05
tightening the market thinks the FED has
00:07:08
got to produce a really strong real rate
00:07:11
to stop the inflation
00:07:13
um now the interesting thing about the
00:07:15
real raid
00:07:17
let's go to the short term your way when
00:07:19
we have the tips long-term real way so
00:07:21
what what is what is real rate going
00:07:22
forward well
00:07:25
I mean the the treasuries are three and
00:07:28
a half the nominal treasuries are three
00:07:30
and a half so what do you think the
00:07:31
average rate of inflation is going to be
00:07:34
um if you think it's two and a half to
00:07:35
three you get you know you know about a
00:07:39
half percent on that I think it's
00:07:41
actually short uh it's my feeling
00:07:43
actually that the short-term real rate
00:07:45
equilibrium short-term real rate and I
00:07:48
think is minus one half percent
00:07:51
um and it's gone down over the period uh
00:07:54
so you have a term structure on on real
00:07:56
rates and I think it's about minus so
00:07:59
what's really important about this is
00:08:02
the Fed thinks it's plus 0.5 percent
00:08:05
um so they're gonna they think that
00:08:07
they're gonna have to tighten a lot more
00:08:09
to get a pinch on the economy where I
00:08:12
mean I think they don't have to tighten
00:08:14
as much as
00:08:17
um they think they do I mean you know in
00:08:20
terms of of getting that pinch on the
00:08:23
economy and I think if they tighten too
00:08:25
much they're going to really
00:08:27
um precipitate a recession but that's
00:08:30
just an interpretation by the way if you
00:08:32
take a look at long-term fed funds what
00:08:34
they think is the neutral rate you know
00:08:36
since they've been doing the Dot Plot
00:08:38
next week we're going to get the dot pot
00:08:39
I mean if you go all the way back you
00:08:41
know when they started these uh 25 years
00:08:43
ago uh they thought the um for two
00:08:46
percent inflation the right fed funds
00:08:48
rate was four and a half percent
00:08:51
which is a two and a half percent real
00:08:53
rate
00:08:55
um now they think it's half so they
00:08:57
themselves have realized but I actually
00:08:59
think that the real rate has dropped
00:09:01
even more
00:09:03
than what they think and that does have
00:09:04
consequences obviously for their their
00:09:06
Titan out
00:09:08
so if you haven't been following the
00:09:10
professor's views he came into this year
00:09:12
the most hawkish on the street calling
00:09:14
for the most aggressive rate hikes and
00:09:16
coming back to behind the markets we had
00:09:17
Don Cohn former fed Vice chair in
00:09:20
December when the market was saying
00:09:21
three hikes he was saying eight hikes
00:09:23
way more aggressive he's been spot on
00:09:26
the whole bed cycle now there's a
00:09:29
chapter in stockstrong run on the
00:09:31
pandemic and the money supply Jay Powell
00:09:33
has said the money supply
00:09:36
has not been predictable of inflation
00:09:38
you're the exact opposite view what's he
00:09:41
getting wrong what what is this oh boy
00:09:43
yeah I mean
00:09:45
so I I I've been calling Jay Powell's
00:09:48
monetary policy the third worst in the
00:09:50
his 110 year history of the FED I may
00:09:52
actually raise it to the second worst
00:09:54
but
00:09:55
um we'll see what happens the worst of
00:09:58
course is the Great Depression where we
00:10:00
all know
00:10:01
they let all the banks failed when they
00:10:03
were actually formed to prevent exactly
00:10:04
that from happening
00:10:06
um but uh it you know it was actually
00:10:10
incredulous to me I mean Craig knows I
00:10:12
mean people weren't new I mean I I was
00:10:15
when when the pandemic hit and the money
00:10:17
supply exploded I said this is a cause
00:10:19
inflation I've never you've never seen
00:10:20
in that 25 M2 money supply increase
00:10:24
Milton Friedman did from you know from
00:10:26
uh 1870 onward there has never been a
00:10:30
money supply increase that fast ever
00:10:32
ever
00:10:34
and and then in 2021 they increased by
00:10:39
12 or 13 I said this is this is just
00:10:44
absolutely crazy
00:10:46
um this is just going to produce a
00:10:47
tremendous amount of inflation and it
00:10:49
did
00:10:50
um I was definitely the hawkish by the
00:10:52
way saying eight increases that's two
00:10:54
percent well now they're talking about
00:10:55
four percent by year in that's 16
00:10:58
increases right
00:11:00
I remember when I called on CNBC back
00:11:02
then for three or four increases he said
00:11:04
oh my God you know the
00:11:06
that there will never be by the way in
00:11:09
we're going to have a meeting next next
00:11:10
week in the September 2021 meeting
00:11:15
this was their projection for this
00:11:18
December's fed funds rate
00:11:22
being fomc members gave their opinion as
00:11:24
they're supposed to
00:11:25
eight of the 16 said there is no
00:11:28
increase for rates whatsoever this year
00:11:32
this was last September when inflation
00:11:35
was already heating up speculation was
00:11:38
rampant in all asset markets
00:11:41
eight of the 16 said no increase five
00:11:46
said we'll need one 25 basis point
00:11:49
increase and three the most hawkish
00:11:53
Venture that we might need 50 basis
00:11:57
points by December of this year
00:12:00
could you be more wrong than that it's
00:12:03
impossible to be more wrong than that it
00:12:06
it amuses me when people are so oh my
00:12:09
God the FED is going to stay tight this
00:12:11
long and this long as if they know what
00:12:13
they're doing as if they have any
00:12:15
concept of what they're going to do in
00:12:18
2023 clearly in 2021 they had zero
00:12:21
concept of what they were going to do
00:12:23
this year
00:12:25
um they just followed the data but but
00:12:27
going back to your old question because
00:12:29
I wrote an article back then saying how
00:12:31
much inflation to have and ignore it I
00:12:34
mean maybe you know I was four years of
00:12:36
University Chicago my first teaching
00:12:37
position uh last four years Milton
00:12:40
Friedman was there and I you know read
00:12:41
all the monetary and yeah year to year
00:12:43
there's not a close relationship well
00:12:45
when you have 20 increase 25 and then
00:12:49
follow it by 12 you take a look at the
00:12:52
data you're always going to have it in
00:12:53
place always
00:12:54
and he denied that there was going to be
00:12:56
the he said there's relation between the
00:13:00
two and yes that's true and not on a
00:13:02
year by year year basis but when you
00:13:03
explode it you know Friedman said to me
00:13:06
18 to 24 months later you explode the
00:13:08
money supply you're going to have that
00:13:09
inflation
00:13:10
and what really upsets me so so much
00:13:14
about this policy is okay Jay Powell is
00:13:18
not a monetary Economist you know he
00:13:20
came from private Equity actors Etc
00:13:23
okay
00:13:25
other fomc members dissented
00:13:30
the staff gave
00:13:33
very you know oh yeah there's not going
00:13:36
to be inflation and everyone bought it I
00:13:38
mean uh it it shocks me
00:13:41
the Texans were not learned uh and that
00:13:44
maybe one or two of them said this is
00:13:46
crazy
00:13:48
I mean they were we all we all know I
00:13:50
mean they were buying mortgage-backed
00:13:51
Securities in the biggest housing boom
00:13:54
in history by the way I was in boom in
00:13:56
the last two and a half years
00:13:58
in the case Schiller index is greater
00:14:01
than preceded the Boom receded the
00:14:05
financial crisis to show you how rampant
00:14:09
that was and the FED still felt
00:14:12
compelled to buy billions of dollars to
00:14:16
of mortgage-backed Securities I mean the
00:14:19
policy that was founded was in my
00:14:21
opinion inexcusable I think we hit the
00:14:23
inflation topic uh okay yeah I'm I'm
00:14:26
just upset about a guy so I you know I
00:14:29
am he gets fired up he definitely gets
00:14:30
fired up so we talked about Bond returns
00:14:34
being below average
00:14:36
um yeah we were at this conference a few
00:14:38
years ago with Bob Schiller and we had
00:14:40
the cape discussion yeah talk about
00:14:42
where you see our stocks
00:14:45
in the book we talk about the cape ratio
00:14:47
uh yeah four four months of the last 40
00:14:51
years did the cape ratio have a
00:14:54
prediction the cape ratio is we all know
00:14:57
it's been over we bearish
00:14:59
um
00:15:00
there are several reasons I talk a lot
00:15:02
about it and many of you know about my
00:15:03
article in the faj where I said a cape
00:15:05
ratio a new look I talk about the
00:15:07
deficiency of the cape ratio I talked
00:15:09
about the
00:15:10
the deficiency of using reported
00:15:14
earnings under the news fa fasbi
00:15:17
standards that way understated earnings
00:15:21
and therefore as a result overstated the
00:15:24
valuation of the market
00:15:26
I've also and this is not just the first
00:15:29
edition I've talked about what I think
00:15:31
is I think the equilibrium it's funny
00:15:35
I'd say six and a half percent six and a
00:15:37
half percent the inverse of that is a 15
00:15:38
p e ratio right
00:15:40
um I actually think the right p e ratio
00:15:43
for the market is 20 in equilibrium
00:15:46
and I do it not because the real
00:15:48
interest rates are lower although they
00:15:50
are and you could make an argument that
00:15:53
way unless you think it's just risk if
00:15:56
it's just an increase in risk aversion
00:15:57
then you wouldn't necessarily make that
00:15:59
argument but nonetheless I've often made
00:16:01
the argument that uh transaction costs
00:16:04
for an index portfolio are basically
00:16:05
zero noun and as a result
00:16:09
um the equilibrium price of Securities
00:16:11
should be higher
00:16:13
um just to be more concrete back in the
00:16:17
19th century and you're getting six and
00:16:18
a half percent you weren't getting six
00:16:20
and a half you probably had one and a
00:16:22
half percent of transactions costs just
00:16:24
to try to keep a diversified portfolio
00:16:26
that's five percent real five percent
00:16:28
real is a 20pe
00:16:31
so now you can since since indexation is
00:16:34
Costless you can now really you're just
00:16:36
getting the same return so really what's
00:16:38
demanded is a five percent real in a
00:16:41
zero cost world that's a 20 p e of the
00:16:43
market it's certainly not a 15p of the
00:16:45
market which is a lot of people that's
00:16:47
another failure of the capriatios it is
00:16:50
a number there's many failures of the
00:16:51
cape ratio um that I pointed out that's
00:16:54
just another one another there's also
00:16:56
the the BuyBacks and the earnings
00:16:58
General Trend and all that that's
00:17:00
another issue there's also something
00:17:02
called the aggregation effect I won't go
00:17:05
into all these separately but yeah and
00:17:08
then with that to Jacob Levy conference
00:17:10
where we argued about whether stocks
00:17:12
would still outperform bonds yeah
00:17:14
we there's a lot of talk on factors
00:17:16
momentum is a factor that you get some
00:17:19
coverage
00:17:20
um
00:17:21
you have a whole four new chapters on
00:17:24
value uh and is value investing dead you
00:17:26
want to give an update on what you
00:17:28
thought about that I expanded I had I
00:17:30
had one on value and size premiums about
00:17:33
four now basically on that
00:17:37
um and uh in in bowing my head to John
00:17:39
Cochrane I have a chapter called the
00:17:41
factor Zoo
00:17:44
um and I I talk about momentum and all
00:17:46
the other factors and one of the really
00:17:50
yeah and and you guys have been talking
00:17:52
about this I know in the conference
00:17:54
um also but one thing that I really
00:17:57
found
00:17:58
is
00:18:00
how much things have changed since 2006.
00:18:03
in other words the last 15 years
00:18:05
basically
00:18:07
the factor effect on virtually all of
00:18:10
them
00:18:11
has disappeared
00:18:13
there's been virtually no fact or effect
00:18:16
from 2006 onward now I'm not saying
00:18:19
that's it true in every Market in every
00:18:20
single time period but it is really
00:18:23
Stark what has happened we all know what
00:18:25
happened to value and size didn't you
00:18:27
know haven't worked many of those
00:18:28
related to the value didn't work but
00:18:30
even momentum if you take it from you
00:18:33
know if you accumulate that factor you
00:18:35
see the graph and all that basically
00:18:37
it's level many others are trending
00:18:40
downward so a lot of things seem to
00:18:43
change I don't know why I mean is it it
00:18:46
was you know it started of course the
00:18:48
crash in value with the financial crisis
00:18:51
and it hit the banks and that really put
00:18:53
them behind and I don't know if it
00:18:54
infiltrate it into others and then of
00:18:56
course it was the big growth stocks now
00:18:58
we have had a resurrection this year
00:19:00
certainly in value stocks but it's only
00:19:02
honestly retraced half
00:19:05
of what value stocks lost
00:19:07
[Music]
00:19:08
over the last three or four years I mean
00:19:11
so I mean it has retraced some of it I
00:19:14
mean there are some like asthma that was
00:19:16
oh it's just you know still one of the
00:19:18
biggest gaps and it's going to do that
00:19:20
but it just retraced the approximately
00:19:22
half of that but it's really interesting
00:19:24
in the pre-2006 strong factors
00:19:27
after
00:19:29
2006 not strong I think the only one
00:19:31
that maintained itself and by the way
00:19:33
this is around the world
00:19:35
uh because I did the international
00:19:37
factors too since 2006 not as strong as
00:19:40
the United States but around the world
00:19:43
Emerging Market was only one that
00:19:44
actually retained a lot of a lot of the
00:19:46
factors
00:19:48
um but there was a big Market difference
00:19:50
then
00:19:51
so you talk about in the book growth is
00:19:54
not return as a concept is that so given
00:19:57
the the the the 15 years change anything
00:20:00
for you I had I had the big story which
00:20:03
I've used in several editions about IBM
00:20:05
and and uh Center of New Jersey uh had
00:20:09
you bought them in the fifth before IBM
00:20:11
became famous and did the computer and
00:20:13
sort had you bought them then and held
00:20:16
them to the day IBM
00:20:18
had much faster Revenue growth per share
00:20:21
earnings growth per share and and
00:20:23
margins and every other factor that Wall
00:20:26
Street did the standard of New Jersey
00:20:28
now Exxon Mobil beat it in total return
00:20:31
over the period
00:20:33
um valuation trumps growth in the long
00:20:37
run it also works with with countries
00:20:40
this has been pointed out I actually put
00:20:42
on the second edition I expanded it uh
00:20:44
then there's been articles Jay Ritter
00:20:46
wrote an article on and several others
00:20:47
did
00:20:48
um the country with the best stock
00:20:50
returns of the last 120 years the South
00:20:52
Africa sazo had the slowest GDP growth
00:20:55
of all the countries the reason why it
00:20:57
had the best returns is because it had
00:20:58
the lowest valuations so I mean it's
00:21:01
it's you guys know this but in long run
00:21:03
the valuation just trumps the
00:21:07
the growth
00:21:08
um in other words growth stocks just
00:21:10
become too expensive on average to
00:21:13
support the fact the their valuation so
00:21:16
I I just I want to make that lesson
00:21:19
clear so people know about that still
00:21:22
occur maybe we'll get one final question
00:21:24
then open up to the audience so is that
00:21:25
in terms of allocation questions
00:21:28
um U.S somewhat like the growth Market
00:21:31
International is sort of like the value
00:21:33
market is is yeah I mean that's
00:21:35
basically you know what what happened to
00:21:37
Europe and the rest of the world where
00:21:38
they were valued stocks I mean that you
00:21:41
know when you talk about why did
00:21:42
International
00:21:43
underperform
00:21:46
um as much as it did uh now Europe has
00:21:49
special problems right now but up till
00:21:51
then really you could almost all explain
00:21:52
it by just the values and growth
00:21:54
phenomena
00:22:11
with the did you say vix yeah
00:22:15
um first part was the 60 40 portfolio 60
00:22:18
40 portfolio I mean Jeremy and I we've
00:22:20
been working on 75-25
00:22:22
because the gap between stocks and bonds
00:22:25
is just is this higher than than average
00:22:28
much higher
00:22:29
um so even with the extra volatility on
00:22:31
stocks short run volatility on stocks
00:22:34
we've actually done simulations that
00:22:37
show the probability of running out of
00:22:38
money it's actually less with a 75-25
00:22:40
portfolio than is with 60 40. under
00:22:42
reasonable assumptions forward-looking
00:22:44
assumptions real rates on stocks and
00:22:47
bonds five percent real on stocks zero
00:22:49
on bonds now bonds are one stocks are
00:22:52
probably five and a half to six right
00:22:54
now in my opinion uh Niko we've been
00:22:57
there five
00:22:58
um so we found that um let me let me say
00:23:02
the following
00:23:04
when people said I I remember back 20
00:23:07
years ago when people said what we need
00:23:10
is a security that matches the vix
00:23:13
and I said why do you want that and they
00:23:16
said oh because it has a negative beta
00:23:18
and it'll it'll stabilize our portfolio
00:23:22
and I said
00:23:23
don't you know what a Vic Security will
00:23:26
do over time
00:23:27
it'll keep on going down and down and
00:23:31
down and in fact it did it would
00:23:33
probably I think it went from a million
00:23:34
to ten or something like that I've been
00:23:36
in reversible at 25 times
00:23:40
so all they were doing to the it was
00:23:42
funny how people misunderstood
00:23:46
they went wild for this vix thinking it
00:23:48
was a hedge
00:23:51
um
00:23:52
and they thought it was stable they said
00:23:55
oh vix is 10 to 15. so it's stable it
00:23:59
doesn't deteriorate and they of course
00:24:01
didn't understand that the security kept
00:24:03
on deteriorating and oh they were doing
00:24:05
really really paying the put premium we
00:24:07
all know that we all know the
00:24:08
equivalents you can do that I don't I'm
00:24:11
telling you that because that's
00:24:13
that's what I remember about the vix
00:24:16
anyone else
00:24:17
yes
00:24:48
check your like online purchases are we
00:24:52
in a recession or could we catch a
00:24:55
recession from China and Europe well you
00:24:59
know
00:25:01
there's a lot of questions so I've had
00:25:03
two opinions on FedEx's problems one
00:25:07
said it's 60 macro 40 FedEx yeah there
00:25:11
was 70 macro and 30 percent FedEx they
00:25:15
always the the
00:25:18
70 FedEx they all gave most of the
00:25:21
problem to to FedEx
00:25:23
but I mean let me mention
00:25:27
because I mentioned this before
00:25:30
the the biggest Pro the biggest question
00:25:34
today
00:25:35
which why did Jay Powell and the FED
00:25:37
never address in Jackson Hole was how we
00:25:41
could add
00:25:42
three and a half million workers to the
00:25:45
workforce
00:25:47
this year as we have through the payroll
00:25:49
and the household doesn't matter what
00:25:51
you look at
00:25:52
and have negative GDP growth
00:25:57
I
00:25:58
I find it shocking and yet no one has
00:26:01
talked about it
00:26:04
so are we in a recession
00:26:07
or not
00:26:09
explain to me how that can happen
00:26:12
is the data bad
00:26:15
is it that bad
00:26:17
that has or is the productivity
00:26:19
collapsed by an order of magnitude
00:26:21
greater than it's ever collapsed before
00:26:24
in the 75 year history that we've had it
00:26:27
since 1947 is that possible and if so
00:26:31
why has that happened
00:26:33
isn't that also worthy of
00:26:37
thinking about if you're thinking about
00:26:38
monetary policy
00:26:41
I don't hear a peep from anyone about
00:26:43
from the administration nor from the FED
00:26:46
about this
00:26:48
um I don't know how you can run monetary
00:26:50
policy without understanding this
00:26:52
because I clearly don't
00:26:55
um
00:26:56
if you look at the payroll report we're
00:26:58
going on in recession looking GDP we had
00:27:01
two quarters of negative and this
00:27:03
quarter now looks now under one well
00:27:05
today even
00:27:06
um the you know the FED now went down to
00:27:09
one half percent even with robust
00:27:12
payroll another unbelievable negative
00:27:15
productivity growth after the two
00:27:17
biggest productivity negative growths in
00:27:20
history I mean what is happening to the
00:27:22
U.S economy is it collapsing or
00:27:26
are we just hiring people who are doing
00:27:28
absolutely nothing
00:27:31
I think it's worthy of some explanation
00:27:35
um before you launch on you know raising
00:27:38
the real rate by more than ever before
00:27:42
I think we have one more question and
00:27:45
then we have to wrap it up
00:27:49
rates it says for about one year the
00:27:51
return is four percent and for the next
00:27:53
five to ten years it decreases and
00:27:56
decreases even more further by 3.5 3.4
00:27:59
so does that signify that the government
00:28:01
is uh thirsty for the investment but the
00:28:04
rate of returns are so low for the
00:28:06
future as well
00:28:09
well you know there's there's let me
00:28:12
just put one thing in your mind to think
00:28:15
about forward
00:28:17
the way the CPI is constructed is so
00:28:20
lagged
00:28:22
and so imperfect
00:28:24
that even though real estate prices are
00:28:27
going down yes going down
00:28:30
you will see real estate and cost of
00:28:34
housing which is 43 percent of the core
00:28:37
CPI continue to rise for the next 18
00:28:40
months it is that lagged
00:28:44
so if chairman Powell is looking at the
00:28:47
CPI he's going to get a totally
00:28:49
distorted view of inflation
00:28:51
inflation my opinion is very little
00:28:54
going forward I think we had a 12
00:28:56
inflation over last year if it was done
00:28:58
properly because we had a 40 increase in
00:29:02
housing prices and 25 in rentals go look
00:29:07
at the CPI what will you find eight
00:29:09
percent
00:29:10
because of the way they do it
00:29:13
um so when you talk about what the real
00:29:16
rates are you have to talk about what
00:29:18
has inflation been and what is it going
00:29:20
to be forward by the official statistic
00:29:22
it's going to be much higher
00:29:25
than what it is actually
00:29:28
now what it is actually is your true
00:29:30
real ray
00:29:32
so keep that in mind when you think
00:29:35
about going forward what real rates are
00:29:37
they're much closer to the nominal rates
00:29:40
than certainly the rate of inflation
00:29:42
would make you think
00:29:43
we are going to have to make that the
00:29:45
last question but if you want to keep
00:29:46
update with the professors weekly views
00:29:49
on the mark behind the market serious
00:29:50
132 there's a podcast listen to behind
00:29:53
the markets every week get professors
00:29:55
hot takes first 10 minutes of show every
00:29:57
week thank you so much for coming here
00:29:58
Professor thank you thanks for for
00:30:01
having us thank you very much enjoyed it
00:30:03
thank you
