Latest / Masters in Business / Jeremy Siegel on the Stock Market Under Covid-19 (Podcast)

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Jeremy Siegel on the Stock Market Under Covid-19 (Podcast) · Masters in Business

0:02
Speaker 1: This is Master's in Business with Barry Ridholts on Bloomberg Radio.
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Speaker 1: This week on the podcast what Can I Say? An
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Speaker 1: extra extra special guest toward a force presentation from Professor
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Speaker 1: Jeremy Siegel. You know him from all his books, Stocks
0:19
Speaker 1: from the Long Run, Wisdom Tree, Wharton at the University
0:22
Speaker 1: of Pennsylvania. Siegel holds court and explains to us exactly
0:28
Speaker 1: what's been going on in the stock market, in the
0:30
Speaker 1: bond market, what's going to happen in inflation, why the
0:35
Speaker 1: sixty forty portfolio is dead, and why you should have
0:40
Speaker 1: a little bit of gold in your long term investments.
0:44
Speaker 1: You know we I've spoken to the Professor Siegel numerous
0:47
Speaker 1: times before, he's been on the show previously. He's just
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Speaker 1: a delight. He's so knowledgeable you could understand why he
0:54
Speaker 1: is frequently voted favored professor at University of Pennsylvania, the
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Speaker 1: Wharton School. He I'm just gonna stop gushing and say,
1:04
Speaker 1: with no further ado, my conversation with Jeremy Siegel vis
1:11
Speaker 1: is Master's in Business with Barry Ridholtz on Boomberg Radio.
1:16
Speaker 1: My extra special guest this week is Professor Jeremy Siegel.
1:20
Speaker 1: He is the Russell E. Palmer Professor of Finance at
1:23
Speaker 1: the Wharton School at the University of Pennsylvania. He is
1:27
Speaker 1: the author of numerous books, probably most famously Stocks for
1:31
Speaker 1: the Long Run, which is now in its fifth edition.
1:34
Speaker 1: He is frequently voted favorite professor at Wharton. Jeremy Siegel,
1:39
Speaker 1: Welcome to Masters in Business. Thank you, Barry. Happy to
1:42
Speaker 1: be with you today, right, Glad to have you back.
1:46
Speaker 1: Last time we were here, we were discussing something completely different. Today, obviously,
1:54
Speaker 1: the pandemic, the lockdown has caused all sorts of economic changes.
1:59
Speaker 1: How do you see what's going on today impacting the
2:03
Speaker 1: market and the macro economy. Yeah, and this is important.
2:07
Speaker 1: As you know, Bury, My background is kind a PhD
2:10
Speaker 1: in economics with the specialty and monetary theory and policy.
2:14
Speaker 1: I went into finance afterwards because it was an interest,
2:16
Speaker 1: but actually my training was money debt, Federal Reserve, aavior
2:21
Speaker 1: and all the rest. And very early on in March,
2:25
Speaker 1: when the pandemic was raging and markets were tanking, I
2:30
Speaker 1: looked at what was going on and I said to myself, Wow, um,
2:37
Speaker 1: we've had unprecedented stimulus by the Federal Reserve. But this
2:42
Speaker 1: is what's very very important, um uh, in terms of
2:48
Speaker 1: shaping how I look at what our future is going
2:51
Speaker 1: to be macro economically, then we can take a look
2:54
Speaker 1: at the structures of jew which industries are going to
2:57
Speaker 1: do better. Before the financial crisis, the two thousand seven
3:02
Speaker 1: eight banks held zero excess reserves. They were tied against
3:07
Speaker 1: the limits, and it was very little by the way
3:09
Speaker 1: we're talking, you know about fifty billion dollars research. They
3:12
Speaker 1: basically went the crisis basically said hey, you can't do
3:16
Speaker 1: that anymore. And because of requirements and on all the rest,
3:21
Speaker 1: the FED started expanding its balance sheet hugely, but almost
3:26
Speaker 1: all the expansion of the balance sheet went into excess
3:31
Speaker 1: reserves held by the banks. They didn't lend it out.
3:36
Speaker 1: In other words, there was very little increase in what
3:40
Speaker 1: we would consider the traditional monetary statistics M one, M
3:45
Speaker 1: two um and I'll talk a little bit about that later.
3:49
Speaker 1: The big difference this time is not only has there's
3:53
Speaker 1: been a huge increase in the balance sheet again of
3:57
Speaker 1: the FAT, but to a much greater extent. This money
4:04
Speaker 1: is going right into checking accounts, right into transactions accounts,
4:08
Speaker 1: right into payroll accounts, right into the bank accounts of
4:12
Speaker 1: individuals of businesses in a way that I have never
4:16
Speaker 1: seen before. And I mean, I'm a historian of monetary statistics. Now,
4:20
Speaker 1: I brought up just a moment ago, M one, M two.
4:23
Speaker 1: They're not talked about very much anymore, but when I
4:26
Speaker 1: was going through school, they were like things you looked
4:28
Speaker 1: at and when we're having big inflation. M one is
4:32
Speaker 1: basically all transactions accounts that are held by people, their
4:38
Speaker 1: debit accounts. They're checking accounts there you just be called
4:42
Speaker 1: now accounts, their transactions accounts, and it also includes all
4:47
Speaker 1: the currency outstanding. But that's a pretty stable amount. Those
4:50
Speaker 1: accounts are very very uh important. Those accounts in the
4:56
Speaker 1: eight weeks after the virus hit, from the middle of
5:01
Speaker 1: March the next eight weeks increased by almost I had
5:07
Speaker 1: never seen that before. In the entire year that followed
5:11
Speaker 1: the Lehman crisis, the increase in the M one money
5:14
Speaker 1: supply was that year. That's amazing. So so let me
5:20
Speaker 1: ask you the other side of that question. The Fed
5:24
Speaker 1: obviously cut rates to zero. They injected three trillion dollars
5:27
Speaker 1: in liquidity, but we also saw on the fiscal side
5:32
Speaker 1: three trillion dollars in stimulus passed by Congress how impactful
5:37
Speaker 1: was the combination of fiscal plus monetary students? Absolutely huge.
5:44
Speaker 1: You know, I was privileged. You know, my first teaching
5:48
Speaker 1: job after I got my pH d was at the
5:50
Speaker 1: University of Chicago, and I was I was, as we
5:53
Speaker 1: talked about earlier, a colleague of Milton Friedman, and um,
5:58
Speaker 1: I remember you know him saying to me, he said,
6:01
Speaker 1: you know, excess reserves are good. You know, it's good
6:05
Speaker 1: stimulus for the economy. But if those excess reserves get
6:09
Speaker 1: pushed in either M one or M two, they're going
6:12
Speaker 1: to be far more potent, far more potant. And that
6:18
Speaker 1: is exactly what is happening this time that did not
6:22
Speaker 1: happen last time. And I think that as we get therapeutics, vaccines,
6:27
Speaker 1: as our economy opens up, this liquidity that is in
6:33
Speaker 1: this economy there, the fact is not going to get
6:36
Speaker 1: rid of it. I mean, it basically committed to zero
6:38
Speaker 1: rates of fit and the government is not going to
6:41
Speaker 1: put a taxi increase on to absorb all this. I
6:45
Speaker 1: think we're going to have a huge spending boom next year.
6:49
Speaker 1: And I think, for the first time, and I know
6:53
Speaker 1: this is a sharp minority view here, for the first
6:57
Speaker 1: time in over two decades a word going to see inflation.
7:02
Speaker 1: That has been a bugaboo for a while. We've seen
7:05
Speaker 1: more people start to talk about that. We're recording this Tuesday,
7:09
Speaker 1: May sixteen. What did you make of the May retail
7:13
Speaker 1: sales report? Up right? And liquidity? Hey, you know how
7:19
Speaker 1: many people got you know, all those canceled planes, so
7:23
Speaker 1: they all got credited. They're checking. I've had people tell
7:27
Speaker 1: me for the first time they have credit balances on checking.
7:30
Speaker 1: Savings rate is what double digits now for the first time.
7:33
Speaker 1: You know. About three weeks ago, Brian Moynernion had a
7:36
Speaker 1: b o A. He was there and he said, are
7:39
Speaker 1: small we We've seen a increase in people's checking account
7:45
Speaker 1: These are small people. These are these are people that
7:47
Speaker 1: had less than five thousand hours, he said, compared to
7:50
Speaker 1: last time, We've never seen such an increase. I mean
7:53
Speaker 1: it was extraordinary. Now again, we can't mean most people
7:57
Speaker 1: don't want to travel now, restaurants our very beginning to open.
8:01
Speaker 1: All of this is suppressed purchasing power. My feeling is
8:07
Speaker 1: this is exactly what the stock market sees, and that's
8:11
Speaker 1: why I turned very bullish really late in March and
8:16
Speaker 1: never wavered from that despite what was going on in
8:20
Speaker 1: terms of the shutdowns and and all the rest, and
8:24
Speaker 1: I remain from also, I made the call in in
8:27
Speaker 1: April I said that the low bond rate that we
8:31
Speaker 1: saw in the tenure bond in March is going to
8:35
Speaker 1: be the lowest in our lifetime. It end, it's going
8:38
Speaker 1: to end the forty year bull market in bonds. I
8:43
Speaker 1: made some very bold calls um, and so far, so good.
8:48
Speaker 1: In fact, one's got to, uh, you know, be modest um.
8:55
Speaker 1: You know, things start going your way and you think
8:57
Speaker 1: you're a genius until they don't. Well, Mr, market is
9:01
Speaker 1: very good. I think that that we're going to look back,
9:07
Speaker 1: all of us are going to look back at two
9:10
Speaker 1: thousand and twenty and say, wow, we those that was
9:15
Speaker 1: the low of interest rates, not for a decade, a
9:19
Speaker 1: generation and maybe forever. Wow, that's quite that's quite a
9:25
Speaker 1: forecast right there, generational, if not eternal bonds. Yeah. Well,
9:31
Speaker 1: I don't know any of it's gonna be around eternally.
9:35
Speaker 1: Maybe maybe even human kind won't be around there. But
9:38
Speaker 1: you know, in summary, this huge amount of debt and
9:40
Speaker 1: money and liquidity is Yeah, let me tell you a
9:46
Speaker 1: really interesting story which I've told to non experts. They
9:50
Speaker 1: say that that they say really helps them to understand
9:53
Speaker 1: what's going on. Everyone, you know, I talked about the
9:56
Speaker 1: last pandemic nineteen eighteen, and everyone, of course now knows
10:03
Speaker 1: the story that it was worse than in the city
10:05
Speaker 1: of Philadelphia, where I'm now sitting right here talking to
10:09
Speaker 1: I live right in the city. We all know that
10:13
Speaker 1: the pandemic exploded because there was a bond sale, liberty
10:19
Speaker 1: bond for World War One, because the government had to
10:24
Speaker 1: raise money and they didn't call off again. That's how
10:27
Speaker 1: we raised money back then. We raised money because the
10:32
Speaker 1: government had to have bond sales. We had a federal reserve.
10:37
Speaker 1: But you know why the Fed couldn't buy those bonds
10:40
Speaker 1: because we were on a gold standard that said you
10:43
Speaker 1: can't buy bond unless you've got a gold to back
10:45
Speaker 1: up every dour. So the feed said, no, sorry, I
10:49
Speaker 1: can't buy your bond and love to help. You got
10:52
Speaker 1: to sell them to the public. Now, what's the difference today, Well,
10:57
Speaker 1: we didn't have three trillion dollars. Is the fight the
11:01
Speaker 1: war against COVID? Did you see any bond sales? Did
11:07
Speaker 1: you see any you know, calls to patriotism by COVID
11:11
Speaker 1: bonds so we can fight this epidemic and keep people
11:15
Speaker 1: income and food and all the rest. You didn't see
11:18
Speaker 1: what not only did you not see? You one you
11:21
Speaker 1: saw the government cut taxes by over a trills to
11:25
Speaker 1: get even less revenue. And well that's possible because the
11:31
Speaker 1: Federal Reserve bought all those bonds. As that's quite fascinating. Yeah,
11:39
Speaker 1: but that history is critical because to make the long
11:45
Speaker 1: story trying and people say, which is the man who
11:47
Speaker 1: is paying for this war on the COVID nineteen and
11:51
Speaker 1: I say, you don't see it now, but it's going
11:54
Speaker 1: to be the bondholder. Let's talk a little bit about
11:57
Speaker 1: the stock market today we have. It's hard to avoid
12:01
Speaker 1: noticing the big keep getting bigger. The fang stocks are
12:05
Speaker 1: really beating everything else, Facebook, Apple, Amazon, Google, Microsoft, The
12:12
Speaker 1: giant tech companies seemed to be dominating. What's it going
12:16
Speaker 1: to take for the rest of the market to catch
12:19
Speaker 1: up to the giant tech companies. Well, I don't know
12:23
Speaker 1: if they were going to catch up all the way,
12:26
Speaker 1: but obviously as as the economy opens up, as therapeutics
12:34
Speaker 1: and and or vaccines get developed, that reduced that fear.
12:38
Speaker 1: You will see the so called cyclical economy sensitive stocks
12:44
Speaker 1: do better than clearly. But that all said in the
12:48
Speaker 1: big macro picture, this pandemic just made a huge shift
12:54
Speaker 1: to showing how much as a society we rely on technology,
12:59
Speaker 1: and technology actually uh has made out some outcomes better. Uh.
13:09
Speaker 1: Then if we could make a wave a magic wine
13:11
Speaker 1: and the virus disappears, and we could go back to
13:15
Speaker 1: the old ways. But but hey, why should we you know,
13:19
Speaker 1: why why shouldn't we not have a zoom meeting? Isn't
13:22
Speaker 1: it isn't it better than h It's simpler and easier. Yeah,
13:27
Speaker 1: I could, you know, go down to the office and
13:29
Speaker 1: and and have that meeting. And in some cases I
13:32
Speaker 1: may really have to, but for many meetings I don't
13:35
Speaker 1: have to do I need to take that business travel
13:39
Speaker 1: I mean, uh, I mean all this accelerated this this
13:45
Speaker 1: this shocked us into a new mode that things that
13:51
Speaker 1: some things are just better. It's not just the virus.
13:54
Speaker 1: So in some ways, and the market is recognized that
13:58
Speaker 1: that's why, you know, basically, the the fang did better.
14:01
Speaker 1: Now the thing also did because we had to rely
14:03
Speaker 1: on the technology. It was good thing that will really
14:10
Speaker 1: derail fang um in a way. And you honestly, I
14:14
Speaker 1: think it's it's antitrust, government action, et cetera, one way
14:18
Speaker 1: or another. Again, I think the whole market is going
14:20
Speaker 1: to do well. As I said, you know, the feeding
14:23
Speaker 1: of the liquidity in and I think we're going to
14:25
Speaker 1: snap back. But you know, and I think relatively during
14:30
Speaker 1: this snap back, you know, the fang will tend the leg.
14:33
Speaker 1: But you know, when we look at the relative fang
14:37
Speaker 1: tech and let's say the end of two thousand twenty one,
14:41
Speaker 1: we have there everything else relative and now they're they're
14:44
Speaker 1: they're gonna be they're gonna be um up. Now they're
14:47
Speaker 1: already up, but there's this is a this is a
14:50
Speaker 1: step function that gave them a huge boost, which um
14:56
Speaker 1: in a way. You know, I don't see it easily derailed.
15:01
Speaker 1: So given all that, what did you make of the
15:04
Speaker 1: violent move in March? It was the fastest drop down.
15:10
Speaker 1: March was one of the twenty worst months in market history.
15:15
Speaker 1: Why did we have such a violent overreaction? What was
15:19
Speaker 1: the market seeing? Then? You know, it was a reaction
15:23
Speaker 1: from oh, this is just a virus in China to
15:27
Speaker 1: oh my god, this could be the pandemic of and
15:33
Speaker 1: it went from complacency to panic, and it it went
15:37
Speaker 1: to panic also because we weren't we had resulently running
15:42
Speaker 1: on a sanitizer. We ran out of mask. We got
15:45
Speaker 1: terrible advice from the c d C, in my opinion,
15:49
Speaker 1: terrible advice, terrible preparation, and all of a sudden, it
15:52
Speaker 1: was like you're on your own, and then the government's panicked.
15:56
Speaker 1: And I think the closed downs and and why it
15:58
Speaker 1: was done was dreamily destructive in the way that it
16:02
Speaker 1: was done, done in the pendulum, just one the other way,
16:06
Speaker 1: and the market just absolutely in tainted with it. So
16:11
Speaker 1: I'm gonna guess. I'm gonna guess, given what you said
16:13
Speaker 1: about the combination of fiscal and monetary stimulus and how
16:17
Speaker 1: it all found its way into M one and M two,
16:20
Speaker 1: you probably weren't surprised that the market began to recover.
16:24
Speaker 1: But this has been like a two months forty something
16:28
Speaker 1: percent snap back. Did the speed and strength of this
16:32
Speaker 1: recovery surprise you, Well, it's very interesting, you know. And
16:37
Speaker 1: you asked that when before the March fourteenth, and I
16:42
Speaker 1: called that weekend the crash weekend. I think we all
16:46
Speaker 1: have a story where all of a sudden started developing,
16:48
Speaker 1: everything and things closed down, and but things were getting
16:52
Speaker 1: a little dicey, and the market head to a couple
16:54
Speaker 1: of spills in February, and I was on all the
16:58
Speaker 1: media and I was asked about, oh my god, you
17:02
Speaker 1: know what will affect on the market, And I said
17:05
Speaker 1: the following. I said, stocks are the longest term assets
17:10
Speaker 1: that we have. You know, theoretically they go on forever,
17:13
Speaker 1: or they get absorbed by another firm that keeps on
17:15
Speaker 1: going on. If you would wipe out a hundred percent
17:20
Speaker 1: of their earnings over the next twelve months, and then
17:26
Speaker 1: in any you know, listen, I'm a professor, any valuation
17:30
Speaker 1: model you use, how much would the stocks go down?
17:34
Speaker 1: If it's telling for they should go down by five
17:37
Speaker 1: So if a hundred percent wipe out in the year,
17:40
Speaker 1: if you get that normal in a year, and we
17:44
Speaker 1: could debate that obviously, but at that time, you know,
17:47
Speaker 1: that was not an unreasonable and still is not. But
17:50
Speaker 1: even before the set act at all this, I said,
17:53
Speaker 1: if we have a terrible year that wipes out S
17:56
Speaker 1: ANDP earnings to zero by the way, the current estimate
18:01
Speaker 1: decline in SMP. But let's say I even said, let's
18:04
Speaker 1: go terrible. This is so bad it wipes out a
18:07
Speaker 1: spre But let's assume in one we get back to
18:11
Speaker 1: only twenty nineteen levels. Stock market should go down five.
18:18
Speaker 1: I think that's what the mat shows. That's impressively. Yeah.
18:23
Speaker 1: And and actually I said it's going to go down
18:26
Speaker 1: more because fear always drives it down more. But the
18:30
Speaker 1: theory says, if you have, you know, a V that
18:34
Speaker 1: you can see coming up, and we can talk about
18:37
Speaker 1: V and W and all that, but you know that
18:40
Speaker 1: that that recovery there should not cause a thirty four
18:46
Speaker 1: decline in the S and P, which of course happened
18:49
Speaker 1: between you know, February and March. Let's talk a little
18:54
Speaker 1: bit about inflation. You know, we we've heard right after
18:58
Speaker 1: eight o nine we're gonna see it up tick inflation
19:00
Speaker 1: because of all the actions of the Fed. Very famously,
19:05
Speaker 1: a bunch of conservatives and libertarians sent an open letter
19:09
Speaker 1: to Ben Bernanke. I think that was warning of hyper
19:13
Speaker 1: inflation and the collapse of the dollar. Neither ever showed up.
19:17
Speaker 1: Why do you think we're going to see inflation eventually?
19:22
Speaker 1: And what does that mean for the bond market? Yeah,
19:24
Speaker 1: and that this is really important, and these distinctions are
19:27
Speaker 1: really important. Yeah, you have very famous, people like John
19:31
Speaker 1: Taylor was Under Secretary Treasury, often mentioned to be FED chair.
19:35
Speaker 1: You know, Paul got it. But they came to me
19:38
Speaker 1: and said, Jeremy, you want to sign this letter, and
19:40
Speaker 1: I say, no, I'm not signing that letter. Why are
19:43
Speaker 1: you not signing that letter? The QI we've never seen anything.
19:47
Speaker 1: Because I said, it's going into excess reserves. I see
19:51
Speaker 1: a little bump in the money supply and that, but
19:54
Speaker 1: nothing else. This is all cushion around the bank. They're
19:59
Speaker 1: just not lending it interest rates or zero. So I mean,
20:03
Speaker 1: I don't think this is going to feed into it.
20:06
Speaker 1: So let me stop you. I said, I'm just not
20:10
Speaker 1: signing because I just I don't think this is right now.
20:12
Speaker 1: So let me let me just clarify what you're saying
20:15
Speaker 1: so people understand exactly what you mean. So in O
20:18
Speaker 1: eight oh nine, the FED introduced all of these new
20:21
Speaker 1: policies TAMP and TARP and all these different things to
20:25
Speaker 1: help banks stabilize, deal with bad mortgages, get a lot
20:28
Speaker 1: of the junk off their books. And when they flooded
20:32
Speaker 1: the system with all this cash, the banks basically took
20:36
Speaker 1: this money, put it on their savings account, didn't lend it,
20:40
Speaker 1: didn't spend it. They just kept it there for safety reasons.
20:44
Speaker 1: And that's why you're saying we never saw that uptick
20:46
Speaker 1: in inflation. Exactly. They kept it at what we call
20:49
Speaker 1: access reserves, way above what there are mandatory requirements against accounts.
20:54
Speaker 1: They were trillions above it, and they just want didn't
20:58
Speaker 1: want to go like it happened in two thous They
21:01
Speaker 1: didn't want to be caught short, everyone wanted liquidity, and
21:04
Speaker 1: the banks wanted it, the regulators wanted it. They all
21:07
Speaker 1: wanted it was not lent out. That's the critical difference
21:14
Speaker 1: what I see today is it's lent out in fact
21:18
Speaker 1: that the PPP program is go to the banks and
21:21
Speaker 1: get your loan and put in your account. You know
21:23
Speaker 1: that the government's cotton checks giving people money putting in
21:28
Speaker 1: your account. That's the difference today. And I think that's
21:33
Speaker 1: the difference that that people didn't catch and maybe I
21:37
Speaker 1: caught it because this is something I this was something
21:41
Speaker 1: I had studied so intentionally intensely for years and again
21:44
Speaker 1: had the benefit of the great mentor Milton Friedman to
21:47
Speaker 1: teach me. He said, excess reserves a stimulatory and that's
21:50
Speaker 1: what the FETE should have done in the Great Depression.
21:52
Speaker 1: But more potent is if that gets pushed into M
21:56
Speaker 1: one and M two, you're going to see a much
22:00
Speaker 1: much stronger effect. And that is what I am seeing today.
22:05
Speaker 1: So let me ask you a related question, because I
22:08
Speaker 1: remember having conversations with you in the middle of the
22:12
Speaker 1: financial crisis on television and elsewhere. Did Congress miss the
22:17
Speaker 1: opportunity for a big fiscal stimulus in O eight oh nine.
22:22
Speaker 1: Might that have helped the recovery and perhaps avoided some
22:26
Speaker 1: of this increasing gap in income and wealth. That's a
22:32
Speaker 1: good question. I mean, there are many those that that
22:35
Speaker 1: thought there, you know, that we needed more push on
22:41
Speaker 1: an actual text cuts on more stimulus. I mean there
22:48
Speaker 1: was a cash for cars um cash for clunkers for
22:55
Speaker 1: clunkers that did actually that was funded, and that did
23:00
Speaker 1: cause a little bit of a spirit. One thing is
23:02
Speaker 1: very important, though, very remember what sparked the financial crisis
23:11
Speaker 1: was the first and oversupply of housing. Too many people
23:16
Speaker 1: got into housing and bad you know, that was all
23:19
Speaker 1: that bad lending that enabled people with no money down
23:22
Speaker 1: to get into that. So what we we had to
23:25
Speaker 1: do back in two thousand and nine and ten, which
23:30
Speaker 1: we had to work off a tremendous amount of excess
23:33
Speaker 1: supply of housing that there there were really no excesses
23:38
Speaker 1: in terms of production before this COVID crisis. We don't
23:42
Speaker 1: have to work that out. Remember how starts fell to
23:46
Speaker 1: the lowest point in seventy years following the financial crisis.
23:51
Speaker 1: I don't think we're going to get very much of
23:52
Speaker 1: a fall at all now. Not only that people's home
23:55
Speaker 1: equity was wiped out with the biggest crash in home price.
23:59
Speaker 1: We're not going to have any of that now, none
24:01
Speaker 1: of that. It's actually going the opposite direction with seeing
24:07
Speaker 1: we had impediments working out working off huge excess inventory
24:11
Speaker 1: and housing wipe out of home equity for millions of Americans,
24:16
Speaker 1: ten millions of Americans, you know, soaring bankruptcies of housing.
24:21
Speaker 1: I mean, yes, we're having the business problem now, but
24:25
Speaker 1: then we had the problem of the biggest asset is
24:29
Speaker 1: still home equity and individuals more than stocks, that was
24:33
Speaker 1: wiped out for so many people or diminished dramatically. Not today.
24:38
Speaker 1: So let's stay with the FED for another moment. What
24:41
Speaker 1: do you think of Powell's actions, first working with Black Rock,
24:46
Speaker 1: buying ETFs and now buying specific bonds where does this
24:52
Speaker 1: end well, put out all the stops, you know, just
24:57
Speaker 1: the FED saying I'm going to do something. Does it
25:01
Speaker 1: you know, I know about that. You know, if people
25:02
Speaker 1: think the FACT could do it, then all of a
25:04
Speaker 1: sudden says I want the rate to be there. The
25:07
Speaker 1: market will push the rate there. So the PET says,
25:09
Speaker 1: I want to lower spreads, which did get out aline
25:11
Speaker 1: in February. We do no dysfunctional market. I'm going to
25:15
Speaker 1: make sure that you know, they don't. Well, once they
25:17
Speaker 1: said they're going to do that, actually the spreads are
25:19
Speaker 1: going down, and so did they really need to do
25:23
Speaker 1: you know the announcement we saw yesterday and not really
25:26
Speaker 1: they want to listen, they have to go through incredibility,
25:28
Speaker 1: said they're gonna do it. So to do a little bit,
25:29
Speaker 1: I I assure you that they're going to get rid
25:31
Speaker 1: of it, you know, once things normalise. They just like
25:34
Speaker 1: they're getting rid of the mortgage backs. Their goal was
25:37
Speaker 1: to get back to an all treasury portfolio. They're gonna
25:41
Speaker 1: eventually get rid of all these um as they did
25:44
Speaker 1: during the financial crisis and in terms of lending and
25:47
Speaker 1: all that, you know, they got and they had other
25:48
Speaker 1: positions overmat they had an equity position in a I
25:52
Speaker 1: g um back then. So yeah, so so you know,
25:57
Speaker 1: I I think it's a matter of credibility. I said,
25:59
Speaker 1: I'm gonna do it. I don't really need to do
26:01
Speaker 1: it now. It doesn't really matter now. What really matters
26:05
Speaker 1: is what happened to those checking accounts and not so.
26:08
Speaker 1: The access reserves are plentiful. They even give another trillion
26:11
Speaker 1: access reserves stays. The next reserve is not gonna do much.
26:14
Speaker 1: If it gets into the pockets of individuals, that is
26:19
Speaker 1: a different story. And my final question on bonds and inflation.
26:24
Speaker 1: You recently said the forty year bullmarket in bonds is over.
26:30
Speaker 1: Does that mean we're looking at a bear market in bonds?
26:33
Speaker 1: And where can let's use a ten year treasury yields?
26:37
Speaker 1: Where can that yield go? We ever gonna see five
26:41
Speaker 1: yield on that? What does that mean for inflation? So
26:44
Speaker 1: what do you see happening with bonds for the next
26:47
Speaker 1: decade or so? I see bonds as I say, I
26:50
Speaker 1: think this is low yield, and I see them creeping
26:52
Speaker 1: up continuously. There's still and you know, treasuries are viewed
26:55
Speaker 1: as an excellent short run hedge asset. They become they
27:00
Speaker 1: a cushion the portfolio and the Dow drops two thousand,
27:02
Speaker 1: your your treasuries are up, and people like that. So
27:05
Speaker 1: there's a huge demand for that's called the h demand
27:07
Speaker 1: negative beta for those technicians and that that do portfolio
27:12
Speaker 1: and analysis. Um. But so there's a huge demand. But
27:17
Speaker 1: with this liquidity in the economy, as we say, I
27:20
Speaker 1: expect moderate inflation. I'm not talking about hyper inflation, and
27:25
Speaker 1: so I'm nowhere near that. I expect inflation to move
27:29
Speaker 1: up next year to two three, four five percent and
27:35
Speaker 1: maybe run again in the same way. So cumulatarly, I
27:40
Speaker 1: expect inflation maybe to go up the price level, consumer
27:44
Speaker 1: price level go up ten twelve percent over the next
27:46
Speaker 1: few years, maybe fifteen now you know, back and don't forget,
27:50
Speaker 1: we had almost fifteen percent inflation one year back in
27:53
Speaker 1: the terrible years of the light seventies. So again, and
27:56
Speaker 1: this this is what I call moderate inflation. I expect
27:58
Speaker 1: bond yields to RNs from the current half percent to
28:02
Speaker 1: one one and a half, two, two and a half, three,
28:05
Speaker 1: there's still a great hedge short term hedge three three
28:09
Speaker 1: and a half On treasuries maybe four. You're going to
28:12
Speaker 1: do worse than inflation. So you're not to keep up
28:15
Speaker 1: on inflation, but you're not expecting and you're going to
28:19
Speaker 1: have capital losses if you rule those long term. Huh,
28:23
Speaker 1: but you're I don't get the sense that you're expecting
28:26
Speaker 1: the sort of persistent inflation we saw in the nineteen seventies.
28:30
Speaker 1: Once all the stimulus, once the pig is through the python,
28:33
Speaker 1: so to speak, everything should sort of slide back to
28:36
Speaker 1: normal and inflation should ease. Yeah, and then then we
28:39
Speaker 1: give you just a couple of figures. You know, we
28:41
Speaker 1: talked about the three trillion dollars or whatever you know
28:43
Speaker 1: about that war on COVID and everything like that. Well,
28:47
Speaker 1: you know, we we have twenty trillion dollars worth of
28:50
Speaker 1: government death. If you have fifteen inflation, you wipe out
28:53
Speaker 1: three trillion dollars and revalue it. So basically, you that's
28:57
Speaker 1: how you paid for it. You know, Inflation is another
29:02
Speaker 1: way to tax people. It's it's it's attacked on the
29:04
Speaker 1: bond holders. Other ways actually the tax people and maintain
29:07
Speaker 1: the bond holders. But you know, my boys, it's going
29:11
Speaker 1: to be the former. So basically what what you know,
29:14
Speaker 1: what the three trillion dollars etcetera, And so on, basically
29:17
Speaker 1: a fifteen kumo percent. Again, this is over several years
29:22
Speaker 1: rate of inflation. We'll wipe out the three trillion dollars
29:26
Speaker 1: of that excess amount and bring you back down to
29:29
Speaker 1: levels that you know, that you that you had before.
29:33
Speaker 1: Let's talk a little bit about what's been going on
29:36
Speaker 1: in the marketplace lately, because it's been a little crazy,
29:40
Speaker 1: especially with the return of the day traders. Robin Hood
29:45
Speaker 1: does free stock trades. We've seen this become a new
29:49
Speaker 1: pastime for the under forty set, for the millennials and
29:53
Speaker 1: and others. Do you see any parallels between today? Uh? Not.
30:00
Speaker 1: I mean it's fun, I know the truth. I mean,
30:02
Speaker 1: don't don't forget sports. Betting is shut down. Where are
30:05
Speaker 1: they going? Oh let's go to the stock market. Casinos
30:08
Speaker 1: are just reopening. Oh where can I work in a gamble?
30:12
Speaker 1: Let's go to the stock market. I see a lot
30:15
Speaker 1: of that. I mean, um, yes, some of them are
30:18
Speaker 1: going to stay, but most of them are, you know,
30:22
Speaker 1: gonna you know, most of them gonna lose some money
30:24
Speaker 1: and they're gonna say, hey, I'm gonna go go better
30:26
Speaker 1: on sports. People who are determined to lose money gambling
30:30
Speaker 1: are going to find some outlet for it. Or I
30:33
Speaker 1: mean people go to casinos not only to you know,
30:36
Speaker 1: with the hope of winning, but having fun. I mean
30:38
Speaker 1: they're willing to lose a certain amount, you know. You
30:42
Speaker 1: know a lot of people go and say, you know,
30:43
Speaker 1: I have you know, five dollars. Yeah, I'm gonna have fun.
30:47
Speaker 1: I'm gonna have spring that out as much as I can.
30:49
Speaker 1: And you hope that you know that, and and and
30:51
Speaker 1: and all the rest. I mean maybe some of these
30:54
Speaker 1: day traders are also thinking in terms of that. We often,
30:57
Speaker 1: even even I and others say, hey, take take ten
31:00
Speaker 1: percent of your portfolio, have fun, play with it, see
31:03
Speaker 1: how you do. But you know the rest should be
31:05
Speaker 1: long term invested. So you know, these these are players
31:10
Speaker 1: we are nowhere near. So Barry were really important, but
31:13
Speaker 1: nowhere near. I mean, uh, and and we talked about
31:20
Speaker 1: you know, I mean, I you know, I mean recently,
31:25
Speaker 1: I was recently in CNBC and I was asked, what,
31:27
Speaker 1: Dr Siegel, You've been right to big Bush, but aren't
31:29
Speaker 1: you always Bush? And I didn't say it at that
31:32
Speaker 1: time because they asked to asked a question about and
31:34
Speaker 1: I told him when I wrote my book and what
31:36
Speaker 1: I learned on stocks for the long run. Back in
31:39
Speaker 1: two thousands, I remember this one of those opeds that
31:44
Speaker 1: was one of the most red red in Wall Street Journal,
31:46
Speaker 1: which is get out of tech stocks. I have a
31:50
Speaker 1: very vivid recollection of you writing that up. I want
31:52
Speaker 1: to say it was January or Mark it was actually was.
31:56
Speaker 1: It was almost to the day that nasdack peaked at
31:59
Speaker 1: five thousands, and that was of course dumb luck. But
32:02
Speaker 1: I mean it was entitled big cap tech stocks are
32:06
Speaker 1: a sucker's bat and I have get hate mail berried
32:10
Speaker 1: after that. That's how you know you're right, when you
32:14
Speaker 1: get all that hate mail, that's how you know. Yeah,
32:17
Speaker 1: so you know I'm not always boys. This is important.
32:20
Speaker 1: And the internet stocks, of course we're crazy. But the
32:23
Speaker 1: tech So this to give you an idea, the text
32:26
Speaker 1: sector of the S and P five, these were not
32:30
Speaker 1: Internet companies. They O L was the only one that
32:32
Speaker 1: was on there and was making money back then. Then
32:34
Speaker 1: this these are the IBM s. These are you know,
32:38
Speaker 1: the Intels and and and and the Microsoft and all
32:41
Speaker 1: the rest. The tech sector was selling for ninety times earnings. Wow,
32:48
Speaker 1: I mean, what is it today? I mean, you know,
32:54
Speaker 1: and by the way, interest rates were, you know, mammothly
32:57
Speaker 1: higher than they are today. I remember one investors said,
33:01
Speaker 1: I'm getting you out of these speculative stocks. I'm putting
33:04
Speaker 1: you uh in IBM, which is only selling for fifty
33:08
Speaker 1: times earnings, considered a conservative stock at that time. So
33:11
Speaker 1: anyone who tries to compare today is not looking at
33:17
Speaker 1: what the valuations are. I mean, I was very cognizant that,
33:21
Speaker 1: you know, I said, there's no big cap companies and
33:25
Speaker 1: they you had these multi today. Of course they're a
33:28
Speaker 1: trillion doar companies, but I was looking at anything over
33:30
Speaker 1: a hundred billion back then, twenty years ago, and I said,
33:34
Speaker 1: these these companies are not worth a hundred and fifty
33:37
Speaker 1: times earnings. History tells you they're They're just not worth that.
33:42
Speaker 1: I recall something you had said, maybe it was in
33:46
Speaker 1: the late nineties or early two thousand's, but given the
33:50
Speaker 1: spike we've seen in I p O S, I have
33:52
Speaker 1: to ask you the question again. You have written I
33:56
Speaker 1: p O s typically disappoint Do you still believe that's
34:00
Speaker 1: you know what and and and that included that data there.
34:04
Speaker 1: I POS have done a little better in the last
34:06
Speaker 1: twenty years, But don't forget the I p O. There's
34:08
Speaker 1: there's two things. They're getting it at the I p
34:11
Speaker 1: O price, which is almost always good, and then there's
34:16
Speaker 1: getting it when it starts trading, and that ain't so good.
34:21
Speaker 1: It's good, sometimes not good others Right now, I think,
34:25
Speaker 1: and I'm just off the top of my head, but
34:27
Speaker 1: probably since the bubble, let's say some two thousand to
34:32
Speaker 1: two thousand three, if you got it when their first trading,
34:34
Speaker 1: you probably are still probably match the SMP, maybe a
34:38
Speaker 1: little bit better. Before then you underperformed if you if
34:42
Speaker 1: you if you started buying them when you could, if
34:46
Speaker 1: you if you got them at the you know I
34:48
Speaker 1: p O, if you knew the broker and he could allocate,
34:50
Speaker 1: you did good business with him, then you were winners.
34:55
Speaker 1: Quite interesting. I mean, let me ask you this question,
34:58
Speaker 1: was was Google remember? No? No? I remember when Google
35:01
Speaker 1: went public, no one really wanted because they refused to
35:04
Speaker 1: do a road show and get it. I think, what
35:09
Speaker 1: was it opened at eight? You know, so there have
35:13
Speaker 1: been good ones then, but those were you know, there's
35:16
Speaker 1: you know, up to that point, it was it was
35:18
Speaker 1: a loser's game. Um. Today, I would say if you
35:22
Speaker 1: look back fifteen or twenty years, even if you bought
35:25
Speaker 1: them when they first traded because they were concentrated and
35:27
Speaker 1: tech intected, will you probably are ahead of the S
35:30
Speaker 1: and P. Pretty interesting. Let's let's stick with valuation for
35:34
Speaker 1: a minute. You have written a lot about CAPE, which
35:38
Speaker 1: was essentially the cyclically adjusted PE price to earnings ratio
35:42
Speaker 1: created by your pal Bob Schiller. What do you think
35:46
Speaker 1: of where CAPE stands today? It hasn't worked especially well
35:51
Speaker 1: as a timing tool. Maybe it gives you some insight
35:54
Speaker 1: into future expectations. What are your thoughts? Well, you know,
35:58
Speaker 1: and yeah, Bob Showers of my oldest friend, Oh no, no,
36:01
Speaker 1: over a half a century great economists, when the Nobel
36:04
Speaker 1: Prize completely deserved. His work is great, as I've mentioned before,
36:09
Speaker 1: and I think maybe in our previous one I wrote
36:12
Speaker 1: an articles in F A J. I said the CAPE
36:14
Speaker 1: is giving off wrong signals now, and I said it's
36:18
Speaker 1: giving off wrong signals because he uses a ten year
36:21
Speaker 1: average of reported earnings and back fast by we change
36:27
Speaker 1: how it does reported earnings, and so as a result
36:31
Speaker 1: of that, it caused much more fluctuation in earnings and
36:35
Speaker 1: particularly crashed earnings during the Great Financial Crisis, and that's
36:39
Speaker 1: why it's been bearished almost every year since it is.
36:48
Speaker 1: I said, it's way too bearish, and um uh, and
36:52
Speaker 1: I gave other reasons. It's also change in dividend the
36:55
Speaker 1: behavior that also changes earnings growth, and there's there's a
36:58
Speaker 1: there's other problems with it. So I don't think it's
37:02
Speaker 1: a great tool. However, valuation matters, and I do look
37:06
Speaker 1: at what I think is normal earnings, and and I
37:10
Speaker 1: do think that the PE ratio. I think a normal
37:14
Speaker 1: PE ratio today on normal earnings is eighteen to twenty.
37:17
Speaker 1: That's above the historical average. But I believe, given not
37:21
Speaker 1: only low interested not only that, but the ability to
37:25
Speaker 1: index and get a you know, zero cost totally diversified
37:28
Speaker 1: portfolio spreads risk around such uh, that eighteen is the
37:36
Speaker 1: new normal PE ratio. Doesn't mean it can't go down
37:39
Speaker 1: to fifteen twelve, and doesn't mean it won't call up.
37:44
Speaker 1: Obviously this year we're talking really high because he's gonna
37:47
Speaker 1: be down, but then again they're going to be bouncing back.
37:52
Speaker 1: Quite fascinating. Let me let me mix it up with
37:55
Speaker 1: you a little bit with two other related questions. So
38:00
Speaker 1: I know you're not a believer in hyper inflation, but
38:03
Speaker 1: one of the things some of the let's call him inflationistas,
38:08
Speaker 1: have been worried about. Has been the overall level of
38:12
Speaker 1: US debt now annually in the trillions. The cumulative debt
38:16
Speaker 1: is about a hundred and six percent of GDP. What
38:21
Speaker 1: do you think of all this debt? What does it
38:23
Speaker 1: mean for stocks? What does it mean for private capital?
38:26
Speaker 1: We used to fear crowding out, but we really haven't
38:29
Speaker 1: seen much of that. The big increase in debt has
38:33
Speaker 1: coincided with the gremendous increase in demand for the debt
38:37
Speaker 1: has a hedge asset. The some of John Campbell and
38:41
Speaker 1: others economists and others, and I actually was a believer
38:46
Speaker 1: in this many years ago. The biggest reason for the
38:48
Speaker 1: decline in long term bonds, he yes, his low inflation
38:53
Speaker 1: and liquidity in all sorts of life expectance. I mean,
38:57
Speaker 1: I can go into those, but actually that now treasury
39:01
Speaker 1: debt is the hedge asset of choice to cushion shocks,
39:07
Speaker 1: and that by whole treasury debt, it will go up
39:10
Speaker 1: when bad things happen, and that is causes huge demand,
39:14
Speaker 1: and that that that's eaten up all that increase and
39:17
Speaker 1: has kept the interest rates really down. However, as I
39:21
Speaker 1: you know said at the Euroy part of our discussion today,
39:25
Speaker 1: this big increase in debt and money is going to
39:30
Speaker 1: feed into inflation, moderate inflation. Um, you know very it
39:36
Speaker 1: reminds me like what happened world Ward two. We got
39:39
Speaker 1: to that the GDP ratio. Um. We also increased the
39:43
Speaker 1: money to buy the FED was back then, you know,
39:46
Speaker 1: we were off the gold standard roses help us out.
39:48
Speaker 1: It was buying a lot of that debt too. There
39:51
Speaker 1: was no inflation because we were on rationing and all
39:53
Speaker 1: the rest. And then all of a sudden afterwards we
39:55
Speaker 1: got inflation, and we got a boom, and people saying,
39:59
Speaker 1: why is this happening? And it was debt in money,
40:02
Speaker 1: and we got debt in money, and that's going to
40:05
Speaker 1: be again not hyper inflation again. I'm I'm not predicting
40:11
Speaker 1: any I'm not even predicting double digit I'm not even
40:14
Speaker 1: predicting high single digits, although no one can be exact.
40:19
Speaker 1: But I'm predicting inflation rates that we haven't seen for
40:23
Speaker 1: several decades. And that is one of the again the
40:27
Speaker 1: classic reasons of how do you pay for the war
40:30
Speaker 1: on COVID, Well, you inflate away some of the debt
40:33
Speaker 1: that has been floated to pay for it. So people
40:38
Speaker 1: have been fearful of deflation. A three to four percent
40:41
Speaker 1: inflation rate. That doesn't sound like it would be the
40:45
Speaker 1: worst thing in the world. It isn't. I mean, deflation
40:47
Speaker 1: is really harmful, and you know the feed is to
40:51
Speaker 1: be committed and everyone else. When we saw what happened
40:53
Speaker 1: in the thirties, that was, you know, that terrible failure
40:56
Speaker 1: of policy to prevent that. If they if they just
40:59
Speaker 1: did the reserves and kept the banks allied, they would
41:02
Speaker 1: they would have prevented the defoet we decline in the
41:05
Speaker 1: CPI index. Wow, between thirty three, I mean it was terrible.
41:12
Speaker 1: Everyone with debts and they're all denominate indowers just and
41:14
Speaker 1: they were unemployed. There was bankruptcies everywhere. You've got to
41:18
Speaker 1: avoid that deflation. But you know what moderate inflation, Yeah,
41:22
Speaker 1: there'll be those little scream hey, fad, you're you're not
41:25
Speaker 1: you got to present target. Why don't you do anything? Listen,
41:27
Speaker 1: for years we were a little below and now you know,
41:32
Speaker 1: we'll go a little above. We need to absorb some
41:34
Speaker 1: of these unemployed people and it's still going to be
41:37
Speaker 1: high unemployment. By the way, even though the economy is
41:39
Speaker 1: going to be strong, firms are permanently going to be
41:43
Speaker 1: letting off people because they're going to see that they
41:45
Speaker 1: just need less, and they're going to let that inflation
41:47
Speaker 1: rate go above target. I think for quite a number
41:50
Speaker 1: of years you mentioned employment and firms hiring. What did
41:55
Speaker 1: you make of the MAZE Employment Situation report that seems
41:59
Speaker 1: to prize a lot of people by else now, I mean,
42:05
Speaker 1: it's really hard to classify and and honestly, I didn't
42:08
Speaker 1: get that excited about it. I mean, you know, it's
42:11
Speaker 1: all all the data we're getting in is rear view mirror. Yeah.
42:17
Speaker 1: I mean I when I get up in the morning,
42:20
Speaker 1: what I do is I look at all the virus reports.
42:22
Speaker 1: I look through every country in the world. I look
42:23
Speaker 1: at the states. I see the trends. I read all
42:26
Speaker 1: the reports, and and and and and I see what
42:30
Speaker 1: kind of reopening is. I look for what's happening there.
42:34
Speaker 1: That is the forward looking it makes getting that confidence
42:39
Speaker 1: back and getting getting the therapeutics in the vaccines that
42:43
Speaker 1: excites me. The rear view mirror, Yeah, it was better
42:46
Speaker 1: than expected. Retail sales bounce like we got today did
42:50
Speaker 1: surprise me. The main bounce from the april's crater um.
42:55
Speaker 1: And and this shows that you know, people want to
42:58
Speaker 1: get back out if they you know, social distance and
43:03
Speaker 1: we protect the vulnerable groups. We can do this. And
43:07
Speaker 1: and with the better treatments to death rate is weigh down.
43:10
Speaker 1: The mortality rate is way down, even from people they
43:13
Speaker 1: have to go to the hospital. We definitely this report
43:18
Speaker 1: that this morning about uh, you know, the steroid that
43:22
Speaker 1: actually can reduce deaths by thirty percent of those people
43:25
Speaker 1: on ventilators. But this is just the beginning of many,
43:27
Speaker 1: many types of therapeutics that's going to reduce this death rate.
43:32
Speaker 1: And you know, we get this death rate back down
43:35
Speaker 1: to what is what the seasonal flu, which is you know,
43:39
Speaker 1: point one percent maybe point three point four point five percent,
43:43
Speaker 1: certainly for the more elderly. It's still higher maybe one
43:46
Speaker 1: percent for vulnerable. I mean, I don't know if we
43:49
Speaker 1: can get it quite that low, but if we get
43:50
Speaker 1: it close to that low, then hey, there's no reason
43:55
Speaker 1: why we can you know, return to those activities. But
43:59
Speaker 1: this shock and what we've experienced is not going to
44:05
Speaker 1: fade even withal these medical advances. What what do you
44:11
Speaker 1: make of some of the increases we've seen in the
44:14
Speaker 1: sun Belt and out west. If you look at the
44:17
Speaker 1: areas that were hardest hit first New York, New Jersey, Connecticut, Massachusetts, Pennsylvania,
44:24
Speaker 1: back out to the northeast, the rest of the country
44:27
Speaker 1: is starting to see not so much on the morbidly
44:30
Speaker 1: but on the infection rates really moving up. Florida, Arizona
44:35
Speaker 1: has become really and though the very recent debt again
44:38
Speaker 1: is down, they never they caught a second way. It's
44:41
Speaker 1: not really it's a kind of a first wave going
44:43
Speaker 1: through there, and it hits vulnerable and susceptible people really first.
44:47
Speaker 1: It's not really second wave, but first started Northeast. They've
44:51
Speaker 1: gone down dramatically, and I am not surprised when they
44:55
Speaker 1: opened up and and they don't have good social distancing.
44:58
Speaker 1: But their wave UM is the first wave, and it
45:03
Speaker 1: is not as severe as what are the Pennsylvania actually
45:08
Speaker 1: did fairly well, we should take a look and extremely
45:11
Speaker 1: well now. But New York, Jersey, Massachusetts where the biggest
45:16
Speaker 1: act of the biggest peaks. I don't think we're gonna
45:19
Speaker 1: have that wave. Uh. And by the way, some the
45:21
Speaker 1: very very recent data is as actually UM again it
45:25
Speaker 1: could change, is encouraging that big spike over the weekend
45:29
Speaker 1: seems to be again, we're gonna have to look at that. Uh,
45:33
Speaker 1: you're gonna have it. This COVID nineteen is gonna be
45:36
Speaker 1: in the background. It's a coronavirus. There's millions of them
45:40
Speaker 1: out there. It's going to be for years. The question
45:42
Speaker 1: is to be able to treat it, to get down
45:43
Speaker 1: to levels that hey, this is any any other disease.
45:48
Speaker 1: My feeling is there will be no more shutdown. There
45:52
Speaker 1: will be emphasis is on on distancing. There should be
45:55
Speaker 1: enforcement because many of these states have rules about people
46:01
Speaker 1: inside way or masked, whether they choose to enforce them. Well,
46:05
Speaker 1: if it spikes, you better enforce it. But you're not
46:08
Speaker 1: going to shut down the way you did back in March.
46:11
Speaker 1: I that there there's no reason for that. Uh, and
46:15
Speaker 1: there's no appetite for them. Well, I hope you're right
46:19
Speaker 1: about that. I have to ask you a question about colleges.
46:23
Speaker 1: You you've been teaching college students for quite a long
46:26
Speaker 1: time now, and some people have come out and saying
46:31
Speaker 1: this has been a wake up call for colleges. This
46:33
Speaker 1: will be the death knell for many second and third
46:37
Speaker 1: tier schools. Obviously, you teach at an Ivy League school.
46:40
Speaker 1: People like Professor Scott Galloway at and what you stern
46:42
Speaker 1: have said, a huge percentage of schools out there are
46:47
Speaker 1: going to see hard times and they're gonna be closures.
46:51
Speaker 1: What do you think the future of education looks like
46:55
Speaker 1: post pandemic? Well, I agree, second and thirdain fourth tear
47:01
Speaker 1: tier schools and maybe in the second tier school gonna
47:03
Speaker 1: really have trouble. I think the first tier schools are
47:05
Speaker 1: going to do fine. But you know, you know the
47:08
Speaker 1: truth that the matter is that a lot of the second, third,
47:11
Speaker 1: and fourth year certain fourth tier schools boomed because of
47:16
Speaker 1: the student loan program, which I think was not done
47:20
Speaker 1: correctly and burden people too much. And we won't go
47:23
Speaker 1: into it. But at that time, a lot of schools, hey,
47:25
Speaker 1: I can charge tuition like Harvard, guess what they get
47:29
Speaker 1: the loans? And and then all of a sudden, these
47:31
Speaker 1: people say, yeah, but I'm not getting the type of
47:34
Speaker 1: you know when I when I graduate from I'm not
47:36
Speaker 1: getting the type of wages I can. You know that
47:38
Speaker 1: differential I was promised that would allow me to pay
47:41
Speaker 1: it back in three or four years, and that was
47:43
Speaker 1: misinformation about that. They extrapolated those from the first and
47:48
Speaker 1: second year, and then there were other problems and so yeah,
47:51
Speaker 1: they're going to have to reduce dramatically and some of
47:53
Speaker 1: those will go out of it. I think the first
47:55
Speaker 1: year the first tier schools are going to be as
47:57
Speaker 1: strong as ever. And I still think that people want
48:02
Speaker 1: to be on campus as students love to be on campus.
48:05
Speaker 1: There will be distance learning, and even before COVID nineteen,
48:10
Speaker 1: there was a discussion what's called the flip classroom, which
48:13
Speaker 1: is that you would get the basic instruction online, you
48:16
Speaker 1: would come into lecture hall than ready to discuss rather
48:22
Speaker 1: than uh standard uh you know, uh learning module. I
48:26
Speaker 1: mean that began before COVID, and it's possible that the
48:30
Speaker 1: you know, the the virus will accelerate that trend. Sound
48:34
Speaker 1: sounds like a much more efficient use of the professor's time.
48:38
Speaker 1: Don't don't have him just tell the students something they
48:41
Speaker 1: could have read before. I mean I had to repeat
48:43
Speaker 1: myself three times. I mean, you know, I had to
48:47
Speaker 1: do three classes and I had a lunch break. But
48:50
Speaker 1: you know, man, I was effective on that and I
48:52
Speaker 1: had energy to do that. But um, and in many ways,
48:55
Speaker 1: I said, gee, if I could record this once and
48:58
Speaker 1: they could watch it any time they want, and we
49:00
Speaker 1: could just come in here having read it and discussed
49:03
Speaker 1: the real meaning it would be. It would be a
49:05
Speaker 1: more enriched experience. And again that was that was already
49:11
Speaker 1: beginning to be in play before covid um. I think,
49:15
Speaker 1: well you might, you know, expect that definitely. To accelerate
49:19
Speaker 1: makes a lot of sense. Before we get to our
49:22
Speaker 1: speed round with our last five questions, I have one
49:25
Speaker 1: last question about stocks. You have said that the average
49:31
Speaker 1: real return on stocks real total return is about seven
49:36
Speaker 1: percent per year over two centuries, and the long run
49:41
Speaker 1: average correct. Alright, so so I know you're not a
49:45
Speaker 1: big fan of forecast, but what do you see as
49:48
Speaker 1: the average real total return of stocks for the next
49:52
Speaker 1: two centuries? Um? Five, five and a half? Maybe real? Wow,
50:01
Speaker 1: quite fascinating. I'm glad. I'm glad. I uh. Comparing that
50:05
Speaker 1: the bonds right vastly superior to bonds, it's it's it's
50:11
Speaker 1: even better than compared to bonds. It's even better than
50:15
Speaker 1: when it was between six and a half and seven.
50:19
Speaker 1: Does Does that mean that the people who are using
50:22
Speaker 1: treasuries and and high grade corporates in their portfolio to
50:26
Speaker 1: offset the volatility of stocks should have a little more
50:30
Speaker 1: equity and a little less. Absolutely, I mean absolutely, and
50:33
Speaker 1: in fact, you know, and um, you know, I wanted
50:36
Speaker 1: avoid any I don't want to we uh with some
50:39
Speaker 1: tree advertising here because I you don't want to give
50:41
Speaker 1: you comics. But I just want to say that we
50:45
Speaker 1: the old is not gonna do it. Bonds is way
50:50
Speaker 1: too much and the returns are going to be bad.
50:52
Speaker 1: And you know, we were now recommending and we think
50:56
Speaker 1: that that the profession will evolve as a retiem in
51:00
Speaker 1: portfolio towards the proportion. So is the new sixty exactly.
51:08
Speaker 1: It's funny because in my shop and I don't want
51:10
Speaker 1: to do an advertising, but we're closer to seventy thirty
51:13
Speaker 1: for what was sixty. People's lifespans are longer. You have
51:18
Speaker 1: to it's not retire at sixty eight and drop dead
51:21
Speaker 1: at seventy two. There's an expectation that people are living
51:24
Speaker 1: into their nineties and they don't want to run out
51:27
Speaker 1: of money. Absolutely, you know, yeah, you know nowadays when
51:30
Speaker 1: you reach sixty sixty five, I mean many people are
51:33
Speaker 1: going to have that thirty years you know, which stock
51:36
Speaker 1: speed bonds and then at a time. So so one
51:40
Speaker 1: last question I have to ask you related to that,
51:43
Speaker 1: we've seen a pretty substantial rally in gold over the
51:47
Speaker 1: past five years. What do you think about gold within
51:50
Speaker 1: a portfolio. Well, for the first time, we will with
51:53
Speaker 1: some tree and it's part of you know, there's somebody
51:56
Speaker 1: calls the sea called portfolio which we're using. My recommend
52:00
Speaker 1: dations have have been we've added some gold, um A
52:04
Speaker 1: slaw a small flies and long run because of my
52:09
Speaker 1: moderate inflationary scenario. Um. I think that that protection, that
52:14
Speaker 1: inflation protection. I think stocks are really good as also
52:17
Speaker 1: moderate inflation. But we added gold. So yeah, um I
52:23
Speaker 1: uh and that's the first time cover that's happened, and
52:25
Speaker 1: that's just happened last a few months. Um and um um.
52:31
Speaker 1: I think it's a it's a it's a good balance
52:34
Speaker 1: and I'll give you good returns. I'm confirming my priors
52:39
Speaker 1: we did something very similar because it was pretty clear
52:42
Speaker 1: you're not going to see the sort of return from
52:44
Speaker 1: tips and treasuries that we've seen for the past forty years.
52:48
Speaker 1: And while while we don't think bitcoin is an investable asset,
52:53
Speaker 1: there is something to be said for gold, at least
52:55
Speaker 1: as a as a trading vehicle. It's more, even more
52:59
Speaker 1: than trading vehicle now. But I agree with you. I'm
53:02
Speaker 1: not a fan of bitcoin, but um, you know I
53:06
Speaker 1: have moved towards modest gold position. Yes, quite fascinating. All right,
53:12
Speaker 1: So let me jump to my five favorite questions. I
53:15
Speaker 1: ask all our guests. You can feel free to go
53:17
Speaker 1: as short along as you like on any of these.
53:20
Speaker 1: And let's start with, since you've been sheltering in place
53:24
Speaker 1: and lockdown at home, what are you streaming these days?
53:28
Speaker 1: Tell us what you're either watching or listening on Netflix
53:31
Speaker 1: or podcasts or whatever. Yeah, I mean, well, as I
53:35
Speaker 1: said in the morning, get up and I actually check
53:37
Speaker 1: all COVID stories, and I look at the websites. I
53:40
Speaker 1: look at John Hopkins, I look at the world things.
53:43
Speaker 1: I check all debts. I mean, I to me, I
53:45
Speaker 1: I devour all that data for trends. Um. I listened
53:50
Speaker 1: to Scott got Leave. I think he's great, And I mean,
53:53
Speaker 1: and it's one of the best minds better in Fauci
53:56
Speaker 1: in my opinion, in terms of really understanding what's going on.
53:59
Speaker 1: STAT is a service that that Yeah, that looks at
54:04
Speaker 1: a lot of this, Although I don't like some of
54:06
Speaker 1: their articles. Seen the little slanted but they keep keep
54:09
Speaker 1: you on the forefront there. Um um yeah, we we
54:15
Speaker 1: we got Netflix. Uh, we watched Spike we'se um um
54:21
Speaker 1: five Blood uh new release yesterday. Um. I love documentaries. Uh,
54:28
Speaker 1: so I watched them whenever I can. And for news. Yeah,
54:32
Speaker 1: something we've done which is totally unlike us. But we
54:35
Speaker 1: never when Friday Night lights remember that, you know that? Yeah,
54:39
Speaker 1: we we never saw it when it came out. And
54:42
Speaker 1: I'm kind of a football plan my son is um
54:45
Speaker 1: and I asked my wife, I said, would you Yeah,
54:48
Speaker 1: and she watched a few and she said, you know,
54:49
Speaker 1: you know, I don't get the football part of it,
54:51
Speaker 1: but I like the series, so you know, after all
54:54
Speaker 1: the bad news when you get about viruses forty five minutes. Um,
55:00
Speaker 1: we watched an episode in the evening. Nothing what we
55:04
Speaker 1: are now. I think we're in season three now. Nothing
55:07
Speaker 1: like a little pure escapism to help you forget the craziness. Um.
55:12
Speaker 1: You mentioned Milton Friedman, tell us about your mentors who
55:15
Speaker 1: influenced your career and lend you to becoming the Jeremy
55:19
Speaker 1: Seagull we know and love today. Well, thank you, Milton Friedman.
55:23
Speaker 1: I mean I was at Colombia's an undergraduate and I
55:26
Speaker 1: read Capitalism and Freedom, which I didn't know him, of course,
55:30
Speaker 1: you know, and I said, oh my god. Yeah. And
55:32
Speaker 1: and and then when I was at M I t
55:35
Speaker 1: and I read Monetary History of the United States, which
55:38
Speaker 1: is such an influential book for me. His chapter The
55:41
Speaker 1: Great Contraction, which is also you know when you know
55:45
Speaker 1: he talked to Ben Bernankey he said that chapter also
55:49
Speaker 1: influenced me so much. And of course he used the
55:55
Speaker 1: lessons of that chapter to save us from another great depression,
56:00
Speaker 1: and in my opinion, in his actions, uh, just ten
56:03
Speaker 1: years ago during the financial crisis. So I mean that
56:07
Speaker 1: that that was unbelievable in terms of a book, and
56:11
Speaker 1: of course one of the things cited by the Nobel
56:13
Speaker 1: Prize committee and giving him the Nobel Prize. So Milton Friedman,
56:16
Speaker 1: in my intellectual mentor, I mean, I think my going
56:22
Speaker 1: going back is my family and my mom. She was
56:24
Speaker 1: always very academic, always stressed academics, and introduced me to
56:28
Speaker 1: the world um and and traveled with me at the
56:33
Speaker 1: very early age, back in the nineteen early sixties around
56:36
Speaker 1: the world, which was not done back then, and it
56:39
Speaker 1: opened my eyes and I think my interests in the
56:42
Speaker 1: world really was was was really you know, increased during
56:47
Speaker 1: that period of time. UM. But I've had a lot
56:51
Speaker 1: of people who have been Paul Samuels and uh, one
56:55
Speaker 1: of my advisors m I T and I just wrote
56:57
Speaker 1: a a fast rift the article about his works and
57:01
Speaker 1: finance reviewing him. I mean, he's he's always been someone
57:06
Speaker 1: I've idowis is probably the best pure economists of the
57:10
Speaker 1: of the twentieth century. UM. Yeah, so let's you mentioned
57:14
Speaker 1: a few books. Let's talk about what are you reading
57:17
Speaker 1: these days and what are your favorite books that you
57:20
Speaker 1: might want to recommend to listeners. But yeah, you know,
57:25
Speaker 1: I I tend to read more than more than books.
57:30
Speaker 1: I do read a treminous amount of newspapers and magazines
57:34
Speaker 1: and op heads and all that to get opinion. UM.
57:38
Speaker 1: I really enjoyed Churnow's Hamilton's book. UM. I mean I
57:44
Speaker 1: happened to live in an I rise in Philly where
57:47
Speaker 1: I look on to the first Bank of the United
57:48
Speaker 1: States out my window, and I said, wow, he had
57:51
Speaker 1: the foresight to know we needed one. And then we
57:55
Speaker 1: gave it up, and we had a second bank, and
57:56
Speaker 1: we gave that up, and finally we had the Federal Reserve. Um.
58:00
Speaker 1: But you know that's my subject matter. And UM, you
58:05
Speaker 1: know that book His Genius, I think was was so important.
58:13
Speaker 1: UM and of course became the you know, a Broadway
58:17
Speaker 1: hit play. UM. But you know, his his his life
58:22
Speaker 1: was definitely an inspiration. If if you can recommend one
58:27
Speaker 1: Milton Friedman book to somebody who wants to learn more
58:31
Speaker 1: about his writing and his philosophy, which one would you recommend?
58:36
Speaker 1: There's so many there's there's there's so many anthologies. I
58:39
Speaker 1: mean there is, UM. If you want to know what
58:43
Speaker 1: really changed history, what what Bernankey acted on and prevented that?
58:47
Speaker 1: If you really there, they've taken The Monetary History United
58:50
Speaker 1: States is like eight hundred pages. But there's a chapter
58:53
Speaker 1: taken out of that called the Great Contraction that went
58:56
Speaker 1: into a paperback. I don't know if it's still printed,
58:58
Speaker 1: but I probably can get UM which said, this was
59:02
Speaker 1: their failures. We could have prevented the Great Depression and
59:06
Speaker 1: the world would have changed. Yeah, in my opinion, I
59:09
Speaker 1: mean to go pack and we could talk about that. Fascism,
59:13
Speaker 1: kinmunism all really rear their ugly head during the Great
59:19
Speaker 1: Depression because of the feeling that a free market economy
59:24
Speaker 1: was a failure and could never be saved. And I
59:27
Speaker 1: think to appreciate that it could have been saved and
59:32
Speaker 1: how important that would have been to history. And we
59:34
Speaker 1: should never forget it is something you should do. And
59:38
Speaker 1: and if I recall, didn't Ben Bernanke specifically say that
59:43
Speaker 1: to Milton freedmanthday. He he was the you know, the
59:49
Speaker 1: head of ceremonies for his ninetieth birthday party. He stood
59:53
Speaker 1: up there. This is well before the financial crisis, because
59:56
Speaker 1: mon Freeman died two thousand six, before the financials two
59:59
Speaker 1: thousand four. He was ninety, stood up in front of
1:00:03
Speaker 1: a group of people. I couldn't be there because of
1:00:06
Speaker 1: another engagement, and I kicked myself for not being there.
1:00:09
Speaker 1: But he said, Milton, the influence of your book, and
1:00:14
Speaker 1: I'm going to promise you the Great Depression shouldn't have happened,
1:00:18
Speaker 1: and because of what you did and wrote, it's not
1:00:22
Speaker 1: going to happen again. We we will not let it
1:00:26
Speaker 1: happen again. He said that in two thousand six to
1:00:28
Speaker 1: the face of Milton Friedman two thousand four. Two years later,
1:00:32
Speaker 1: Fridden passed away. Two years later, Bernanke had to take
1:00:38
Speaker 1: the playbook from that Mammoth monetary history and put it
1:00:44
Speaker 1: into effect and save us from the great Pale. How
1:00:48
Speaker 1: incredibly precedent in some thousand and four and our final
1:00:52
Speaker 1: two questions, what sort of advice would you give to
1:00:55
Speaker 1: a recent college grad who came to you and said,
1:00:59
Speaker 1: Professor se Siegel, I'm interested in the career in investing
1:01:03
Speaker 1: and equities and finance. Oh great? What? Everyone everything that.
1:01:08
Speaker 1: My My advice is two things. Everyone says, go into
1:01:13
Speaker 1: what you love, okay, But I think there's a deeper
1:01:16
Speaker 1: thing you should go into. Go into what you're good at,
1:01:20
Speaker 1: what you think, what you when when you're talking or
1:01:23
Speaker 1: thinking or reading. Oh yeah, I get that real fast.
1:01:26
Speaker 1: Oh yes, I get that fast. Don't go into what
1:01:29
Speaker 1: you think you should be or someone else thinks you
1:01:33
Speaker 1: should be, or all that. Where do your mind goes
1:01:37
Speaker 1: that you say, you know what, I'm pretty good at this.
1:01:42
Speaker 1: That's what you should pursue. That's the area you should
1:01:46
Speaker 1: go into it. And even in the area of finance.
1:01:48
Speaker 1: I mean, for instance, I'm a macro guy. I look
1:01:49
Speaker 1: at the big picture. I'm not great to pick an
1:01:51
Speaker 1: individual stocks that don't try to I'm not even a
1:01:54
Speaker 1: sector guy. Um, take your specialty, what you're good at
1:01:58
Speaker 1: what you think. Well, um, and you pursue that area.
1:02:03
Speaker 1: That's that's what I tell people. Quite fascinating. And our
1:02:06
Speaker 1: final question, what do you know about the world of
1:02:10
Speaker 1: stocks and investing today that you wish you knew fifty
1:02:14
Speaker 1: years ago when you were a young buck right out
1:02:17
Speaker 1: of school. Well, I wish I knew everything, and I
1:02:21
Speaker 1: knew in stocks for the long run that I wrote
1:02:24
Speaker 1: you know, first came out edition and I guess twenty
1:02:29
Speaker 1: six years ago, Uh, how good stocks were? Uh, they're
1:02:33
Speaker 1: not just speculations and their long term investments. Um um?
1:02:38
Speaker 1: And uh? Also, how do you control your emotions? Um?
1:02:43
Speaker 1: And I listen, I'll tell you another thing. I think.
1:02:46
Speaker 1: Don't try to time the market. Boy, isn't that Look
1:02:49
Speaker 1: at all these guys, I mean, and you know a
1:02:53
Speaker 1: lot of people this is really important. And I think
1:02:56
Speaker 1: we've talked about this before. A lot of people who
1:02:57
Speaker 1: say I'm only going in the index, don't worry, I'm
1:03:00
Speaker 1: good news. But then when they only go into index
1:03:01
Speaker 1: and they don't pick stocks, then they go into timing
1:03:05
Speaker 1: and they actually do worse. You know. So timing is
1:03:11
Speaker 1: timing the market, and you can see what's happened. Um,
1:03:18
Speaker 1: I mean, just to end, you know, with one really
1:03:21
Speaker 1: important story. Someone I had dinner with somebody, um the
1:03:27
Speaker 1: first week of March or um actually last week February,
1:03:32
Speaker 1: and he said, I sold all my stocks. I'm out.
1:03:36
Speaker 1: I think this is going to be a total disaster
1:03:38
Speaker 1: for the economy, and um, I don't. I don't want
1:03:42
Speaker 1: any part of it. And I said, well, you know
1:03:45
Speaker 1: I gave my thing. Well we had zero runnings. It's
1:03:49
Speaker 1: I wouldn't do that. Well afterwards, I said, oh my god,
1:03:52
Speaker 1: he was really right. Well he was right for about
1:03:55
Speaker 1: three weeks. Now, if he got in on mar yeah,
1:03:59
Speaker 1: that great. But you know what, I haven't checked with him,
1:04:03
Speaker 1: but I know from what he was saying, I bet
1:04:04
Speaker 1: he didn't. And you know what he's behind. If he
1:04:09
Speaker 1: had stayed in stocks, he looked for like a genius
1:04:12
Speaker 1: for three weeks, and now he's behind the name of
1:04:17
Speaker 1: the book. The name of the book is not stocks
1:04:20
Speaker 1: for the next three weeks, it stocks for the long Rueah.
1:04:22
Speaker 1: I mean, people they praise, Oh my god, I got out,
1:04:25
Speaker 1: look at how good I was. And then he said, yeah,
1:04:27
Speaker 1: but did you get back in um um um. You
1:04:34
Speaker 1: know what I mean? Barry for sure, for sure we've heard,
1:04:37
Speaker 1: We've heard. Hey, listen, Capitulation takes place when enough people
1:04:41
Speaker 1: dump stocks. That's how you get a low in March
1:04:44
Speaker 1: or March two thousand and nine, or or March. Well,
1:04:48
Speaker 1: that was the peak in March two thousand, But when
1:04:51
Speaker 1: everybody panics and sells, that's what sets the base for
1:04:55
Speaker 1: the next move higher. That's exactly right. Thank you, Professor
1:05:00
Speaker 1: Siegel for being so generous with your time. If you
1:05:03
Speaker 1: enjoy this conversation, well look up an inch or down
1:05:06
Speaker 1: an inch on Apple iTunes and you could see any
1:05:09
Speaker 1: of the previous three D plus conversations we've done over
1:05:12
Speaker 1: the past six years. Or go to your favorite podcast
1:05:16
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1:05:23
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1:05:26
Speaker 1: love your comments, feedback and suggestions right to us at
1:05:31
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1:05:35
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1:05:41
Speaker 1: up from my daily reads at Rid Halts dot com.
1:05:44
Speaker 1: You could follow me on Twitter at Rid Halts. I
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Speaker 1: would be remiss if I did not thank the crack
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Speaker 1: team that helps put this conversation together Each and every week.
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Speaker 1: Michael Batnick is my head of research. Mike Boyle is
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Speaker 1: my producer, a teaker. Valbrunn is our project manager. Marufo
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Speaker 1: is our audio engineer. I'm Barry Retults. You've been listening
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Speaker 1: to Master's in Business on Bloomberg Radio