00:00How concerned are you that we get a Federal Reserve that's more accommodative for a variety of reasons that leads to even more risk taking this idea that not only did the Fed cut rates indicated more rate cuts, but also is adding to its balance sheet in a way that could potentially prop up demand?
00:15Well, you know, I was thinking about this when I was waiting to see you today. You know, most of the people listening to this program, including me and you, are interested in the free markets.
00:31And we think free markets should set the prices of things. And the Fed manipulations are a form of price controls.
00:40You know, they control the price of money. And if the Fed puts money artificially cheap.
00:48Then it induces behavior like risk taking. It forces people into riskier activities because the returns on safe activities are so low.
00:58It tends to reinforce the view that there's a Fed put that if there's a problem, the Fed will solve it.
01:06And that contributes to risky behavior. These are all bad, bad things.
01:11And, you know, I believe that the Fed should be passive most of the time and only come to the rescue if the market is if the if the economy is seriously overheated and tending towards hyperinflation or seriously.
01:27Under active and not creating jobs. I don't think that's the case right now.
01:36I don't think there's a and you can see in the divided open market committee that there's a difference of opinion.
01:42So I don't think that action on the part of the Fed is compelling right now.
01:45And, you know, there are people who think that rates should be a lot lower than they than they are today.
01:52I just don't see that the merit in that right now going forward.
01:56I remember back in 2015, 2016, 2017, where rates were incredibly low.
02:02You were saying people just need to lower their expectations for returns because ultimately you have to look at the risk free rate.
02:08You don't want to reach too much at a time where people are greedy.
02:11Where are we right now in terms of what types of returns people ought to expect based on the current income rates?
02:19Well, the lower base interest rates are everything scales off that.
02:26So, you know, I mean, the Fed funds rate at three and a half is below history.
02:34It's these are not high rates. They're only high relative to the last 15 years.
02:38But this is a low rate. So everything scales off that.
02:44Most things will give moderate returns in the debt area.
02:48I think prospective returns are moderate.
02:52OK, not lush, but not inadequate.
02:57The trouble is that the S&P, based on its P.E. ratio relative to history, appears to be priced to provide a very low prospect of return.
03:12Historically, if you bought at this P.E. ratio, your return over the next 10 years averaged in the very low single digits.
03:20So I think we're in a moderate return scenario.
03:25The problem is that how do you get a high return in a moderate return scenario?
03:30And most people's resort is to take a lot more risk.
03:36And that's something I don't like to do other than when it's compelling.
03:41You had a personal note, an addendum at the end, and we led off with that idea of what artificial intelligence and machine learning will do to the labor market.
03:52It's something clearly on the Fed's mind, clearly on investors' mind.
03:55You're talking about concerns that there is going to be cannibalization from human jobs.
03:59How do you see this playing out?
04:01How are you kind of grappling with this when you look at investments, when you look at fiscal deficit, when you look at the backdrop for the financial system?
04:07Well, look, Lisa, here I'm not talking about investing or economics.
04:12I'm talking about society.
04:13And it's very worrying to me.
04:16And, you know, I've gotten some very nice response from people I respect to the memo.
04:21And one of them said he thinks we've seen this in response to the Internet over the last 25 years.
04:29But it has not raised unemployment because the Internet eliminated white-collar jobs that were replaced by blue-collar jobs, like, you know, people who pick stuff in warehouses and send it out in e-commerce.
04:45So the job count is not down, but job quality is down.
04:50And I think that this is very worrisome.
04:54And as I said in the addendum, when we lost jobs to automation and offshoring, I think that that coincided with the opiate epidemic and not only in amount, but also in location.
05:16And I think it's a natural consequence of people sitting around all day.
05:23And even if we can find a way to replace their income, I worry about purposelessness.
05:32And, you know, we get so much job, so much from our jobs other than a paycheck.
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