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Jeff Hirsch on Why Big Federal Spending Plus Inflation = “Superbooms” · Masters in Business

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  Speaker 1: Ifiko boom boom boom boom boom boom boom boom ah
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  Speaker 1: pies boom boom boom boom boom boom boom.
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  Speaker 2: The newly elected president, even before he was sworn in,
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  Speaker 2: threatened to take over Greenland, recapture the Panama Canal, and
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  Speaker 2: to make Canada the fifty first state. I'm Barry Riddolts,
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  Speaker 2: and on today's edition of At the Money, we're going
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  Speaker 2: to discuss whether the saber rattling has implications for your portfolio.
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  Speaker 2: To help us understand all of this and its implications
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  Speaker 2: for your portfolio, let's bring in Jeff Hirsh, editor in
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  Speaker 2: chief of Stock Trader's Almanac, an author of twenty eleven's
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  Speaker 2: super Boom, Why the Dow Jones will hit thirty eight
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  Speaker 2: eight twenty and how you can profit from it and
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  Speaker 2: full disclosure. Jeff wrote a piece I want to say
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  Speaker 2: it was like twenty ten, talking about the upcoming super
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  Speaker 2: boom driven by the combination of war and inflation, and
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  Speaker 2: basically said the data suggests we should hit thirty nine
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  Speaker 2: thousand by twenty twenty five. And I called him out
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  Speaker 2: on this nonsense. This is the single craziest thing I
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  Speaker 2: had and by the time you and I finished that
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  Speaker 2: conversation and you showed me that data was overwhelming. Not
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  Speaker 2: only did I you convince me, but I wrote the
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  Speaker 2: forward to that book that ended up coming out in
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  Speaker 2: twenty eleven. So let's discuss what war plus inflation means.
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  Speaker 2: In the late nineteen seventies, your dad very famously said
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  Speaker 2: the combination of the Vietnam War and the oil embargo
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  Speaker 2: driven inflation was going to lead to a five hundred
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  Speaker 2: percent bull market, which kind of shocked everybody when he
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  Speaker 2: came out with it. But that analysis turned out to
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  Speaker 2: be exactly right. Explain the thinking behind this.
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  Speaker 1: Yeah, we've still got some of the old thirty four
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  Speaker 1: to twenty T shirt. It's now thirty four to twenty
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  Speaker 1: T shirts, But yeah, that's right. In seventy six, founder
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  Speaker 1: of the Almanac, my late great father Yalehurst, discovered this
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  Speaker 1: amazing perennial pattern and how this phenomenon is based upon
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  Speaker 1: the exorbitant governance spending creates high inflation, and how the
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  Speaker 1: subsequent decline of purchasing power of the dollar drives the
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  Speaker 1: market to incredul this new heights. You yourself, you know,
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  Speaker 1: were incredulous at the time. Cycles based on the previous
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  Speaker 1: moves from from World War One, World War two, and Vietnam,
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  Speaker 1: which is what Yale was keying on and the associated
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  Speaker 1: massive government spending and the inflation caused by it.
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  Speaker 2: And then the subsequent version that you were writing about
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  Speaker 2: was Iraq and Afghanistan. And there was some surges of
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  Speaker 2: inflation during the financial crisis kind of eased back when
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  Speaker 2: when the FED took rates down to zero. Tell us
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  Speaker 2: a little bit about what you were looking at in
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  Speaker 2: ten that said, hey, we get to thirty nine thousand
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  Speaker 2: in fifteen years.
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  Speaker 1: Yeah, I remember, you know what, I remember your actual post.
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  Speaker 1: I think the headline was WTF.
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  Speaker 2: That's right, that's right. We were about ten thousand on
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  Speaker 2: the Dow at that time. You were calling for going
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  Speaker 2: from ten to almost forty. It felt like it was ridiculous.
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  Speaker 1: I mean, we had Yale's work behind us. That amazing
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  Speaker 1: chart that that I redid of his where it shows
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  Speaker 1: the you know, it's the log chart of the Dow
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  Speaker 1: which shows the inflation, the CPI and the moves.
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  Speaker 3: I mean, there's there was some you.
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  Speaker 1: Know, people talk about these cycles with you know, the
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  Speaker 1: seventeen and a half year, the eighteen year sixty What
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  Speaker 1: did they talk about these sort of arbitrary lengths of time.
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  Speaker 1: We looked at it, and what Yale discovered was that
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  Speaker 1: these events in history that create these these cycles, like
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  Speaker 1: Archduke Ferdinand getting assassinated in nineteen fourteen, the Germany sign
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  Speaker 1: of the Armistice in twenty eighteen, the Gulf of Tonkin
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  Speaker 1: resolution in sixty four, Saigon falling into seventy five, and
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  Speaker 1: then for us currently, what we were seeing, what we
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  Speaker 1: were seeing at twenty ten was this development of after
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  Speaker 1: nine to eleven, which was an act of war, and
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  Speaker 1: ahead of the time we were looking, we had already
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  Speaker 1: gone into to Afghanistan. We were the whole saber rattling.
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  Speaker 1: There was a bye bye vibe we put out in
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  Speaker 1: twenty two when.
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  Speaker 3: We in O two.
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  Speaker 1: Excuse me when we went in there, But we were
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  Speaker 1: looking for the end of this huge military involvement overseas.
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  Speaker 1: US boots on the ground in massive numbers is what
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  Speaker 1: created this pattern, or initially created it, and we were
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  Speaker 1: looking for the end of the combat, you know, in Afghanistan,
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  Speaker 1: to sort of spark the end of the war, end
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  Speaker 1: of the secular bear market, and the beginning.
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  Speaker 3: Of the of the boom, and I think we.
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  Speaker 1: All kind of have looked back little heinsins around twenty thirteen.
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  Speaker 1: I think that little bear market bottom in fifteen and
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  Speaker 1: sixteen kind of you know, signifies the end of that
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  Speaker 1: secular bear not the ultimate bottom. I mean, we don't
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  Speaker 1: measure the secular bear market from seventy four to two thousand,
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  Speaker 1: measure eighty two.
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  Speaker 2: Right, that was the new highs that were set, and
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  Speaker 2: arguably this cycle new heis was set in twenty thirteen
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  Speaker 2: that eclipsed seven and two thousand. So I recall early
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  Speaker 2: on in the COVID crisis and the first CARES Act,
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  Speaker 2: and I read a fascinating analysis that pointed out the
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  Speaker 2: fiscal stimulus of CARES Act one and two was about
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  Speaker 2: ten percent of GDP. I think was just Kars Act
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  Speaker 2: one about ten percent of GDP. You had to go
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  Speaker 2: all the way back to World War II, and then
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  Speaker 2: after that the Marshall Plan to see ten percent of
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  Speaker 2: GDP as of fiscal stimulus, And I wonder how that
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  Speaker 2: equates to the equivalent of war plus the obvious subsequent
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  Speaker 2: inflation we experienced in one twenty three is the quote
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  Speaker 2: unquote war on COVID very parallel to what we've seen
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  Speaker 2: in the past.
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  Speaker 1: One hundred percent very parallel and and that's something we've
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  Speaker 1: spoken about. And it's it's really about overall federal spending.
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  Speaker 1: I mean, the evolution of this pattern of federal spending.
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  Speaker 1: It's not just war but spikes like you just mentioned
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  Speaker 1: in federal spending like we had in COVID where it
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  Speaker 1: goes above trend. I mean this probably started to change
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  Speaker 1: a little bit going back to FDR with the New
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  Speaker 1: Deal ahead of World War Two, and then the federal
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  Speaker 1: highway you.
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  Speaker 2: Know, spending the state highway system.
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  Speaker 1: Yeah, that continued after World War Two. So it's it's
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  Speaker 1: really about you know, past federal spending driven by war
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  Speaker 1: conflicts and you know, but spending outside of the normal
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  Speaker 1: budget and COVID and the you know, Inflation Reduction Act,
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  Speaker 1: the CARES Act are prime examples of massive government spending
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  Speaker 1: driving inflation and superbooms.
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  Speaker 2: So it's a new era, it's a new presidency. There
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  Speaker 2: has been emphasis on things like military spending, energy production,
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  Speaker 2: spacel like exploration. Uh, they're carrying over the previous emphasis
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  Speaker 2: on AI and data center builds. How do you look
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  Speaker 2: at that? How does federal policy and spending in those
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  Speaker 2: areas seem parallel to pass military spendings. How does that
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  Speaker 2: affect your projections?
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  Speaker 1: I mean it's quite parallel, but it's part of my projections.
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  Speaker 1: I mean, we've updated our super forecast. I think we've
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  Speaker 1: got some further upside to you know, sixty two thousand
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  Speaker 1: and change, which I've written about probably by you know,
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  Speaker 1: average ten percent game of year, probably by twenty thirty.
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  Speaker 1: And that's all now based because it was what starts on.
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  Speaker 1: But right now, you know, it's about tech. It's all
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  Speaker 1: about tech. Ukraine and Israel have shown us and proven
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  Speaker 1: that the conflict is all about tech. Now, got drones
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  Speaker 1: and cyber wars. You know, i'd expect the US military
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  Speaker 1: to be spending and ramping up tech. So all that
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  Speaker 1: military spending you may find its way into technology. I mean,
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  Speaker 1: let's call it defense tech.
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  Speaker 2: And you see that in companies like Pallenteer and Lockheed
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  Speaker 2: not just drones but single jamming and there's just an endless.
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  Speaker 3: Array of security.
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  Speaker 2: Yeah, it's clearly causing a big boom and fiscal spending.
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  Speaker 2: But let's bring this back to the newly elected president Trump. Canada, Greenland, Panama, Canada.
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  Speaker 2: I keep I can't believe we're talking about Canada take off,
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  Speaker 2: so that sort of saber rattling. Do you need a
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  Speaker 2: hot war for the same thing to take effect or
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  Speaker 2: do you just need the government's fiscal spending and the
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  Speaker 2: threat of war to lead this to the same sort
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  Speaker 2: of cycle.
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  Speaker 1: I think it's not so much the threat of war.
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  Speaker 1: It's overall federal spending and you know, saber rattling. Yet
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  Speaker 1: it's saber rattling. You know, I'm not convinced anything is
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  Speaker 1: going to happen there per se, But it's really about
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  Speaker 1: the spending in general. And if we're going to be
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  Speaker 1: doing deals with Greenland, UH for security and raw materials
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  Speaker 1: that would be beneficial. We've got you know, China doing
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  Speaker 1: deals in Africa and around the world. There's there's there's
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  Speaker 1: definitely a new push for for global you know, security
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  Speaker 1: and global dominance, and we've got to play in that field.
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  Speaker 1: And and Trump's kind of showing doing a show of strength,
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  Speaker 1: but he's a deal maker. Whether you know you like
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  Speaker 1: the man or not, or voted for him or not,
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  Speaker 1: He's going to try to do everything in his power
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  Speaker 1: to leave a legacy, like we spoke about previously, of
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  Speaker 1: you know, a prosperous economy, a raging bull market, and
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  Speaker 1: you know, global peace and security is what he's going
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  Speaker 1: to try to do, and that's going to help our economy.
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  Speaker 1: All the spending, whether it's stargate or military otherwise, is
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  Speaker 1: going to create jobs and keep the economy going. I mean, uh,
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  Speaker 1: it's really all about the economy, is Jim Carvel likes
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  Speaker 1: to say.
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  Speaker 2: It's the economy stupid? Of course. So so let's look
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  Speaker 2: at sectors. We've mentioned defense, what about energy? What about
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  Speaker 2: consumer staples? Is there any specific sector effect to this
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  Speaker 2: warplus inflation long term cycle.
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  Speaker 3: I think it's tech. I really think it's too tech.
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  Speaker 1: I mean you're talking about uh, you know, drones, robotics,
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  Speaker 1: AI energy for sure, because we've got to power everything.
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  Speaker 1: I actually currently have a position in the gas and energy. Uh,
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  Speaker 1: you know, explorers and producers, the the equipment people there,
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  Speaker 1: the x C S XOLE is the seasonal trading for
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  Speaker 1: us as well.
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  Speaker 3: I'm not sure.
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  Speaker 1: Staples is the uh the place to be, but you know, uh,
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  Speaker 1: general retail and buying a thing is up. But I
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  Speaker 1: think energy and tech and all this new technology that
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  Speaker 1: is that we're fighting wars with that we're operating everything
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  Speaker 1: on is where it's at.
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  Speaker 3: I mean, you got to own the cues basically.
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  Speaker 2: Right the cues. There's a black rock ETF run by
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  Speaker 2: the guy who's run their technology group for a long time.
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  Speaker 2: I want to say it's their Artificial intelligence ETF. The
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  Speaker 2: symbol is b AI, and I don't know, some crazy
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  Speaker 2: chunk of it is in Nvidia, Microsoft and then everybody
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  Speaker 2: else in that space. And it's sort of like a
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  Speaker 2: cues on steroids. It's like two XQUS.
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  Speaker 3: And then there's the healthcare AI.
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  Speaker 1: We just heard you know, Allman and Ellison talking about it,
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  Speaker 1: you know, in the White House with Trump there.
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  Speaker 3: It's hopefully it'll help.
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  Speaker 2: Us Sam Allman from Open AI and Larry Ellison from Oracle.
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  Speaker 1: Yeah, how we could cure cancer and do disease analysis.
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  Speaker 1: There's a small microcapstock I have that's trying to do
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  Speaker 1: medical you know AI to better diagnose and get you
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  Speaker 1: better proper treatments and identify things with all your numbers.
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  Speaker 3: You know.
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  Speaker 1: Medical data, as you know is still analog huge, but
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  Speaker 1: it's not quite digitized enough yet.
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  Speaker 3: So that's I think there's some future there.
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  Speaker 1: So add that to the list of technologies is you
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  Speaker 1: know medical and healthcare AI.
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  Speaker 2: So to wrap up, we have a massive shift from
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  Speaker 2: just monetary policy in the twenty tens following the financial
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  Speaker 2: crisis to the COVID spend, the military build up, the
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  Speaker 2: AI build up, the energy build up. These are all
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  Speaker 2: policies and sectors of the economy that have been running
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  Speaker 2: fairly hot for the past five or so years. The
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  Speaker 2: new administration is expected to really supercharge this and if
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  Speaker 2: historical patterns hold up, according to Jeff Hearst of This
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  Speaker 2: Stock Trader's Almanac, we could see this market continuing to
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  Speaker 2: rally for the rest of the decade, somewhere in the
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  Speaker 2: high single digits, low double digits. If is that a
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  Speaker 2: fair way to describe your perspective?
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  Speaker 3: For sure?
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  Speaker 1: Think about AI and all the related tech, about where
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  Speaker 1: we were in like ninety two to ninety five with
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  Speaker 1: Windows ninety.
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  Speaker 2: Five, right, you know, early Internet days.
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  Speaker 3: Early Internet days.
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  Speaker 1: Look, my view is that we're kind of at that
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  Speaker 1: period of time in this technological boom. I remember the
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  Speaker 1: other part of the supermom equation that I added to it,
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  Speaker 1: on top of warrant inflation and peace was the culturally
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  Speaker 1: enabling paradigm shifting technology which AI and all of its
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  Speaker 1: related ancillary items that we that we spoke about are
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  Speaker 1: part of and I think we're at that, you know,
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  Speaker 1: early mid nineties timeframe.
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  Speaker 2: So to wrap up, if you're a long term investor
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  Speaker 2: and you are constructive about both the economy and the market,
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  Speaker 2: you should be looking at sectors like defense and energy
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  Speaker 2: and technology, and you should not be surprised that the
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  Speaker 2: current BOOL market might have a whole lot further to run.
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  Speaker 2: I'm Barry Rittolts, and this is Bloomberg's at the Money