00:00I want to ask you, you know, you have had a lasting career on Wall Street, and you and I
00:04were just
00:04kind of reminiscing about the times that we've talked over over the past years. You've seen
00:09numerous cycles. I love when someone has. How would you describe today's cycle?
00:14Okay, so I think there's elements of today's cycle that we've seen before. You know, I think we can
00:20see elements in this cycle on the economy side to the environment of late 1990s, right? When we had
00:26innovative technology, there was heavy investment going into it. So similar to what we're seeing
00:31today, but there are also very big differences between the two, right? The investment happening
00:35today is coming from companies that have earnings. Late 1990s, that wasn't the case. Yeah, so there
00:41are very, I think, very important differences, but then also similarities, the impacts on productivity
00:46growth. So in the economy, you know, I think we can say we've seen some parallels, but we have to
00:51distinguish. And the other thing I think is interesting is if we think about the Fed and
00:56how the Fed evolved over the various leaders that we've had for the past couple of decades,
01:03say. And now, in some sense, when you look at the Fed under Kevin Warsh, there does seem to be
01:08maybe some shift back to the way things were before, during the Alan Greenspan Fed, when
01:14communications weren't as extensive as they had been since Greenspan. I think that those changes
01:20started under Greenspan. And now I guess there's this feeling that maybe it went a little too far
01:26and it's better for the Fed to talk last. So, you know, it is interesting to see how things can
01:30sort
01:30of shift between the eras. What about the era of stock bond correlation? Because you noted that,
01:38you know, things are changing. Maybe bonds aren't a safe haven that they used to be. Is that because
01:44of this new Fed era that we're in? I don't think so, because I think that that correlation broke down
01:48before we had the Fed transition. And so, you know, one of the things that we noted is that
01:54that ballast that bonds that they provided in the past, we weren't really seeing it anymore. And so
02:01that the correlations were more aligned than we would have liked them to. So we started looking
02:08at what other assets can investors use to protect themselves. And gold was one of them. That's an asset
02:14that we've been recommending for quite some time. And, you know, that's, it's an interesting one
02:20because gold has obviously moved around a lot in the past several months, which raises questions
02:25about, you know, whether it's still providing a ballast. And our answer is we think it is. We, you
02:30know, our view on gold is much more of a secular view. And we think that it has an important
02:35place
02:36in investors' portfolios in this environment where we have, you know, the equity market, you know,
02:42performing very well. But, you know, questions about, you know, the certain sectors of the equity
02:47market, you know, in the AI space, are we going to see the returns from all the investment that's
02:51being done? And then in the bond space, all the questions about we have globally fiscal ratios that
02:58are concerning to people. And I think that's in the back of investors' minds and maybe one of the reasons.
03:03Is that different this time around? Because, again, I would go back 15 years or so and we'd have
03:10this conversation about concerns about the fiscal position of the United States or other countries.
03:14Is it different, though, in terms of the fiscal state of not only the U.S., but other governments,
03:19as you point out? Well, I think that one of the differences is just the levels of debt, right?
03:26So we need to, at least if we're looking at in terms of GDP, which a lot of people will
03:30argue
03:31maybe that's not the best way to look at it. But it is a very common way to look at
03:34it.
03:35Kind of a clean metric, I would say. It's a clean measure. But there's even, you know,
03:38people in very senior roles like Janet Yellen who, as Treasury Secretary said, that we should be
03:43looking at other things like the interest cost of that debt in real terms, for example. But,
03:49you know, as you said, a clean way to look at it is look at debt ratios, debt deficits relative
03:55to
03:55GDP. And those are high. And so we have debt as a share of GDP. You'd have to go back
04:00to World War II
04:01to see levels similar to what we're seeing now. We have very large deficits in an economy that is in
04:06good shape. And I think that's the aspect that might be a little bit concerning to investors,
04:11that if we have deficits this large, when the economy is growing quite solidly, you know,
04:16what happens when we inevitably have that downturn and spending has to go up?
04:20Because how do you grow yourself out of it if you're doing kind of already well?
04:24Or how do you stabilize, right? One of the hopes of deficit spending is that it provides a temporary
04:31stabilization for the economy to kind of find its footing. And the concern, I think, is that given
04:36that deficits are already so large, you know, will there be that fiscal room to provide that
04:42stabilizing force the next time we have a downturn, whenever that is?
04:45To what extent does the strong consumer kind of provide a little bit of cushion here for
04:51that scenario? Because you noted that the consumer has been pretty healthy. They've been spending.
04:57And I think that has a lot to do with the labor market. You know, we had an employment report
05:01last week on Thursday. I think a lot of people sort of wrote it up as being somewhat disappointing.
05:07But I would say, you know, we have to look at the trends in that report. And we have employment
05:11growth that's still averaging $100,000 per month over the last three months, you know,
05:16close to that for this year thus far. And you compare that to 2025 when employment growth really
05:22didn't grow at all. And then think about that growth in the context of labor supply that's growing
05:28very slowly. So to bring that back to the consumer, it looks like job growth is strong enough to absorb
05:34entrance into the labor force. Wage growth is pretty solid. And I think that that's what's providing the
05:39support to the consumer and why the consumer is holding up quite well.
05:43And of course, we would remind everybody, and we talk about this, the K-shaped economy,
05:46not all consumers are doing well. We still see a lot of consumers in America, you know,
05:52struggling just to get by. Having said that, if the labor pool is not increasing, and we've talked
05:58about the impact of immigration and people not coming in to expand the workforce, that plays into
06:04my worries about how do you expand growth, if you also restrict the size of the available labor pool.
06:10But it also speaks to existing workers, maybe getting paid more, great. But it also speaks to
06:17wage inflation and inflationary concerns. Is that a problem? And got about 35 seconds.
06:22Yeah, so I think that's really important there. But I think I would tie that back to AI, where we
06:26sort of started off, right? And we have that situation where we don't have the labor supply that
06:30we've had in the past. But we do have this other source of output in AI, and that boosts productivity
06:36growth. And so I do think that, you know, we have a growth outlook as a trend that is better
06:41than it
06:41was 10 years ago, even with slower labor force growth, because AI sort of picks up some of the
06:47some of the missing workers that we don't have anymore. Which goes back to Alan Green's band,
06:51productivity gains.
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