ReSolve’s Riffs on Monetary Trifecta – Money Supply, Inflation and Asset Prices with Jeff Weniger

​This is “ReSolve Riffs” – live on Youtube every Friday afternoon to debate the most relevant investment topics of the day.

For the last 12 years, the Fed and other major central banks have exerted overwhelming influence and power over investors’ behavior and capital markets. Since the pandemic began, governments have been forced to step up and unleash a fiscal tsunami to help ailing economies during the deepest recession in living memory. To make sense of this convoluted macroeconomic environment, we invited Jeff Weniger (WisdomTree) for a wide-ranging conversation that included:

  • Birthrates in western countries and their impact on growth
  • Fiscal and monetary policies
  • The power of narrative in driving animal spirits
  • Inflation and the velocity of money
  • Mega cap stocks and other market distortions

We also discussed how families have adapted to shelter-in-place measures and the implications on the jobs and housing markets. Jeff shared data and multiple anecdotes, which made this both highly informative and very entertaining.

Thank you for watching and listening. See you next week.

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Jeff Weniger, CFA
Director, Asset Allocation

​Jeff Weniger, CFA serves as Director, Asset Allocation at WisdomTree. Jeff has a background in fundamental, economic and behavioral analysis for strategic and tactical asset allocation. Prior to joining WisdomTree, he was Director, Senior Strategist with BMO from 2006 to 2017, serving on the Asset Allocation Committee and co-managing the firm’s ETF model portfolios.

Jeff has a B.S. in Finance from the University of Florida and an MBA from Notre Dame. He is a CFA charter holder and an active member of the CFA Society of Chicago and the CFA Institute since 2006. He has appeared in various financial publications such as Barron’s and the Wall Street Journal and makes regular appearances on Canada’s Business News Network (BNN) and Wharton Business Radio.

TRANSCRIPT

Mike:00:00:00-Background. Show goes on. All right. Welcome to another edition of ReSolve Riffs. It is my pleasure to have Jeff Weniger, the Director of Asset Allocation on from Wisdom Tree. And Jeff’s one of the few renaissance men that I will associate with and we’re looking forward to a wide-ranging conversation on all things that are macro and micro and all the crows. I just want to remind everybody that this is a happy hour session so cheers. I have a nice tequila with soda water and limes and strawberries. It’s like a bowl of fruit and a bomb of tequila.

Adam:00:00:49It’s adventurous of you today.

Mike:00:00:50Yeah, I am. I’m really feeling adventurous. I said, I’m gonna let it loose and let the imagination fly. So having said that, let’s make sure everyone understands this is for entertainment purposes and if you’re going to get investment advice, don’t get it here. But you can have some fun here. So with that, what’s going on? Jeff? What are you looking at these days? What’s got-

Adam:00:01:13Come-on, did you even introduce Jeff?

Mike:00:01:14Oh, I did. You were you were getting a drink.

Adam:00:01:17At the bar.

Mike:00:01:18You were at the bar.

Backgrounder

Adam:00:01:20Okay. Famous as he is obviously omnipresent on Bloomberg CNBC and all the kids shows, Sesame Street. But I just wanted to make sure in case you’ve been hiding under a rock, you don’t know Jeff, here he is. And Jeff is the perennial host of the Chiefs Lunch which Mike and I and Rodrigo have had the pleasure of attending over the years in Toronto, and I guess you probably host those all over the country and all over the US and maybe all over the world?

Jeff:00:01:57 Yeah. Well, with COVID-19 obviously that came to a screeching halt. But that’s one of the things I really enjoy about the job is getting around and doing basically what we’re doing right here, except physically, around a table talking strategy, talking markets and really going in any direction that might be relevant to people that are just thinking about the world. And that’s one of the things about being in the investment business is, suddenly we are all four of us and every single person who’s had thinking about dialing into this on a Friday afternoon, we’ve all become amateur epidemiologists. Before that, we were amateur experts on Greek politics, and then after that we became amateur experts on British politics and on and on it goes down the road. And you just really have to think about what is your view on the entire world when you’re thinking about investing these days, and so those lunches are fantastic. I enjoy them because you put a bunch of people around the table that are just brilliant and you basically shut your own trap and just listen to what they have to say. And so it’s been fun having you guys at those and we’ve talked about everything in those in those lunches from you think you’re talking about street consensus on S&P earnings but next thing you’re talking about US drug policy or anything that might be topical at the time.

Adam:00:03:17With no shortage of opinions, that’s for sure. Absolutely have some thoughts on. High conviction opinions very loosely held.

Jeff:00:03:28Everybody has a view but basically this is my land right here, these screens. This is the nexus of operations these days, and we’re trying to get a handle on COVID as much as the next person, trying to get a handle on not necessarily what you think…it’s just like with the market. It’s not what you think about valuations or what you think the market is going to do. It’s what you think everybody else is going to-

Adam:00:03:57Oh my god, you’re going to give Mike a chance to use his canes beauty contest metaphor again

Jeff:00:04:02…

Mike:00:04:06It describes everything. It’s subsumes it all.

The Beauty Contest

Adam:00:04:11All right. So what are you looking at in the beauty contest right now? What is kind of six page or page six news or page 13 news that you think may move to page six, and then may move to page two or page one right now.

Jeff:00:04:26It depends on if you’re talking micro 2020 or whether you’re talking generational. I’ll give you an example of something that I’ve been throwing out on the table. I don’t know if it’s first rank stuff, or fourth or fifth rank stuff. Everyone, and I mean everyone is looking around their own household in a COVID third quarter of 2020 world and then extrapolating out to 2025 or 2030 from that, and in some regards they’re absolutely correct, work from home, for example. And in other regards, they’re completely missing the point. I’ll give an example. In this household we have a small army of children and it is an absolute bear, like now, to work, put in the hours that you want to work and then also function as a schoolteacher. And so, there’s a notion going around that yes, the marginal propensity to procreate will collapse on account of COVID. I know you guys probably want to talk about money supply or the stock market, but to hell with that.

Mike:00:05:42Population growth is everything.

Jeff:00:05:44Population growth is-

Adam:00:05:45I’ve always been bent on procreation.

Jeff:00:05:48Okay, so you think about Jeff and Jessica Weniger. Would they want to have another baby? And the next door neighbour or whatever the case may be, and right now the opportunity cost feels very…it’s a big obstacle. It’s a big brick wall because of the worlds in disarray, there’s job insecurity and so on. But beyond this, and this was something I was tweeting about the other day, actually to essentially no response. I didn’t know whether anybody wants to be on the record saying we think that that the western world may see a population growth rate or rise in fertility, because it’s been basically for 40 or 50 years on the wane. Even though when you look at those charts, it’s not an absolute decline. There are bumps along the way, or ticks up.

You’ve seen, for example, in the last quarter century, the Swedes and the French did manage to have pronatalist policies kick in a little bit. And I would note the side note, which is the carbon footprint issue where people have more children there are the more difficult it would be to fight climate change, but what I’m getting at is I don’t think that anybody is thinking deeply enough about what does your household dynamic look like in 2022 or 2023. Once one or both of those cohabitating partners are now able to completely eliminate everything that was such the bane of their existence pre COVID. For me walk over there to the Red Line, put my face in some guy’s armpit, ride the Red Line down to the Loop. Beginning there is where maybe my productivity is not tip top because these guys we’ve seen the basketball game last night this type of thing. Come back on the Red Line or the Brown Line. Walk again – oh, some kid has soccer practice, but now I’m stuck in traffic going to soccer practice because Lakeshore Drive…By the way, I’m making references to the city of Chicago for this…Lakeshore Drive is stuck. But the soccer practice is three hours away.

All these things are things that in the near term you see as an inhibitor to your desire to have the next child. Once you start to whittle those things away, there’s no more traffic, it’s easy to get to a five o’clock practice especially if you’re sitting here in t-shirt and shorts. All of these things start to whittle away which is the near term that the one marshmallow, now the two marshmallows and 15 minutes thing that the scientists did 40 or 50 years ago, all of the dividends that you get down the road from having a Thanksgiving dinner in the year 2040 with a brood of children around the table. All of those things start to present themselves and all the issues that you had trying to get these kids to school at eight o’clock in the morning and then still be able to do your emails. Well, it’s worrying.

Adam:00:08:45It’s a huge quantum leap here. Like, people are at home. On Twitter, everyone sees my dog. On Twitter, everybody’s panicking about the plans for school reopening. They’re going on alternate days or different grades on different days or different times of the day or whatever. There’s this huge panic. The two spouses who want to get out to work at the same time, you got to have a child home on odd days. How are we closing the gap? I’m hearing you describe this quasi utopian future of everybody will live on their own schedules, operate out of their households which obviously, some fraction of us can do, are managing to do I think quite well at the moment. And I think we can all see or many of us can see how that will improve over time. But there’s still a lot of just concrete realities of the logistics of managing a family while also trying to get out or, two spouses having to be productive at home or et cetera. How are we crossing that chasm?

Crossing the Chasm

Richard:00:09:55Or, bringing a vaccine in between those two events I think might be part of that equation that Jeff is getting at

Jeff:00:10:04 Well, the thing is the question about that vaccine that the British just warned the other day that this might have to be a seasonal thing, that you’re going to have to go every autumn and get a re-up because these antibodies are going to wane on you. But that’s only a logistical problem. It’s a minor nuisance if you just have to do that forever, run that long term..

Adam:00:10:22It would be like the flu vaccine?

Jeff:00:10:25Yeah, it would be like doing that. You’d have to get two or three sessions and that might be part of the new reality. If you think Adam, there is a pretty well-known documentation that the hurricane effect that’s oftentimes talked about with maybe, that’s not going to happen this year for several reasons. When there’s the job insecurity right near in your face at the moment, you are not necessarily saying let’s go have another baby. But I do think that out beyond this, it does start to become almost that, you use the word utopia, I don’t know that it’s a utopia because there is a large swath of the populace will not be able to do that. For example-

Mike:00:11:08That’s what I was thinking.

Jeff:00:11:10She has to physically be at work because she’s walking, working down at the hospital. But I don’t. And so really only all it takes is some of the examples that we were getting is, you don’t actually need both of the cohabitating partners to be able to work from home, you just need one, to change a lot of the dynamics. And so one of the things that I was writing about is, I gave three examples. One example was, somebody has a job in Milwaukee, somebody has a job in Chicago, which that’s a common thing around here. And so you live in a middle city. The other example I gave was a young couple in Brooklyn who has now decided to go to upstate New York. And then the other example was, just moved away from wherever back home, was for a job opportunity and now able to go back home. If you think about that third one which I think is critical, so I’ve seen this, we’ve all seen this through the years. You guys know Toronto, okay? So somebody from Mississauga, they came to downtown Toronto or change it. They came from across the country. So they were in Calgary and moved to Toronto to pursue a career. In so doing, they’ve gotten away from their sister and the brother and their mother and father, as well as the spouse’s sister and brother, mother and father who are back in Calgary. Right here we have in Chicago. Everybody that you know, this one’s from Indiana, this one’s from Wisconsin, this one’s from Michigan, You’re in Chicago because that’s where the job was. You want to be back in Ann Arbor where your sister lives, move next door to your sister. Now suddenly, you’re combining daycare forces. Maybe you get somebody to come in, watch your sister’s kids and watch your kids. You just cut your daycare bill by 50%.

And what we know is that for many households, the daycare bill can be higher than the rent bill. I mean, what does it cost to put a single kid in into a daycare or to have a homeworker come in and watch two or three kids? It’s prohibitively expensive. For Americans it’s the equivalent of university tuition. And a lot of this is melting away. And so I think that there’s at least a possibility that we could hypothesize that in an out year 2022 to 2026, the birth rate that it’s slipped below 2.6 replacement 2.6 children per woman as a stable population, and had been slipping, you know, it’s 1.9 or so in the  United States that maybe all of these demographers are completely wrong, because I don’t know maybe one of you guys knows the number. But how many of us are working from home? It’s 10’s of millions in the United States alone. And think about it from this household, we have this infant, I’ve never had such a smooth sailing experience with an infant of all of our children. Reason being, Mike I’m not going down to Midway to catch an early Porter flight to land at Billy Bishop to go talk to you guys at an 8:30 or 9am breakfast which I just got four hours of sleep, and maybe the baby was crying. I’m right here in Chicago.

Mike:00:14:09So how do you think about the counterbalance of that, though. The fact that I believe now I’m speculating, but I believe that population growth generally comes from the lower middle class structures, there’s a socio economic factor about how many kids are being had. And then if you look at that area, and you look at the job insecurity that they have had, or may continue to have in that in that domain, I wonder if there isn’t a contraction in the birth rates in that cohort that might offset some of the, I’ll call it white collar, I guess.

Jeff:00:14:50There may be a decrease in white collar as well. Okay, when you look at the chart and I actually put this out on Twitter within the last couple hours, continuing claims data in the United States. It blows the global financial crisis out of the water. So, if you thought we had an employment problem or a societal issue that gave rise to Occupy Wall Street and so on in the wake of a …, that is a cakewalk compared to this.

Mike:00:15:25Yeah. GDP print wasn’t pretty either.

Jeff:00:15:28Yeah. And so I mean, it’s like all these other charts where it’s just…and you’re looking at 17 million on continuing claims. And you’re exactly right, how long is it going to take everyone to get that down to a steady state of two to three or 4 million people continuing? Because you always have some level of population on unemployment based on labour rigidities. How many years might that take because out of work people do not try to have children and so that is, I think you’ve nailed it, the countervailing force right there, that is the single largest issue. And that really boils down to just how much stimulus we’re putting back into the system. And it goes to a lot of the stuff that we’re talking about with money supply and the sheer extent of fiscal and monetary stimulus to try to get small businesses to keep people from getting canned really and the problem is, that what looked like an improvement in the labour markets for about three months running is starting to roll over at this point.

Adam:00:16:34Jeff just a heads up your audio is a little bit unsteady. So I don’t know if you can lean in a little bit or

Mike:00:16:43It sounds like you’ve got a little bit of background noise being picked up by your microphone, some like white noise or something. It just kind of forces your voice down a little bit.

Jeff:00:16:53All right. Well let’s see how that goes.

Mike:00:16:55Yeah. When you lean in a little bit more, it corrects.

Adam:00:16:59I don’t want anyone to miss those pearls, man.

Mike:00:17:05Well, I think one of the things that you put out on Twitter that I thought was interesting as well is the valuations on some of the mega caps that are so beloved and so owned, and maybe you can expound on that a little bit, what it means to have something trading at above 10 times its sales and what are the implications for that? Because I think that’s maybe underappreciated-

Mega-Caps

Adam:00:17:29… too. But that combination is interesting

Jeff:00:17:34Say that again, Adam. Say it again.

Adam:00:17:36Well just huge companies trading at large multiples to sales, relative to both history and to other companies in the market. And then have such a large fraction of total market cap focused in some of those companies.

Richard:00:17:59I’ll just add the caveat before you jump in Jeff, how surprising was the earnings beat that we had for some of these mega caps particularly Amazon and Apple? So that was pretty, for the bears. It was really a cold shower right there. So, I would just kind of temper the view without reupping of expectations, those mega caps again.

Jeff:00:18:25Yeah, and there was three or four of them today. Then the opposite side of the coin was…this was basically the growth versus value question and it was Chevron and somebody else in the energy patch just totally laid an egg too, which was the other side of it. That is the tradeoff. So there’s several things going on. There’s the movement towards ESG for one. And two, the ESG being environmental social and governance parameters and so gender equity, carbon footprint, these concepts within a corporate. And to the extent that those types of Big Tobacco issues confront value stocks and energy. It’s like the back of this era. That’s the other side of the trade. And so you’ve seen the move into, you’re making references to Silicon Valley here, they tend to be on the right side of the coin generally when it comes to ESG issues. Being socially progressive, and so forth. And then you see them all getting bid up. A firm like Tesla $270 billion is theoretically at the forefront of the Green Revolution that we would all want to be ushering in theoretically.

And I say that theoretically, because we don’t know whether or not some of the methods by which you would put together the components of the battery are necessarily ethical, namely, who is actually physically getting the cobalt out of the Democratic Republic of Congo. We know that we have Elon Musk saying we will ethically source it from mega corps as opposed to the 20% of the cobalt that’s actually taken by schoolchildren by hand in what is essentially a quasi-slave trade, and who is buying that elicit cobalt, only rogue nations it would seemingly be the Chinese Communist Party that’s doing that.

So there’s all these other moving parts within ESG as well that perhaps are not necessarily considered when we think about just to speak to battery technology. One of the things that I think confronts us and like you said something about the 10 times sales references that’s within Microsoft, 11 times sales you get Facebook, nine times sales, and we’ve been kind of joking with respect to Facebook. You probably can’t see in the lighting I have this silver hair. So I’m not exactly a young buck. And I say this as someone who I feel like maybe it’s so cliché to mentioned Orwell. I was the only one that actually read it in 1984 and got freaked about it apparently because I’ve never been on Facebook. I’m only on it by proxy on account of Jessica is on Facebook with the kids. So if somebody from my school wanted to find me, they could find me by using last name. But the issue that I have with Facebook that I’ve said is it’s Facebook and it’s WhatsApp. It’s Oculus and it’s Instagram. That’s the business model. The joke is, if you’re concerned about Facebook valuations, let’s talk about it, hit me up on Myspace, hit me up on Friendster and we can chat about because, I mean, was it today or was it yesterday that Trump basically said we’re going to force the Chinese to liquidate the US arm of TikTok. An account of Tick Tock is essentially a spying arm for the party. And so one of the things that’s critical as we sit here, and we’re talking about a Facebook, beat the street, and Apple beat the street, but we had four of the executives of basically the FAANGs right, the main man on the top of the S&P 500 hauled in front of Congress. What was that yesterday?

Mike:00:22:09Yeah. I was just going to say, “to the hill”.?

Jeff:00:22:13So, you go back in the annals of history, we did defenestrate Microsoft 20 years ago when Microsoft was on top of the world. It’s on top of the world again, and it didn’t really hinder the business prospects of that.

Richard:00:22:27And they just put a bid in for TikTok’s US business I don’t know if you saw just before we went on live, apparently they’ll buy TikTok’s US business.

Adam:00:22:36I’m sure that’s just a

Richard:00:22:40Microsoft has put in a bid

Jeff:00:22:42You see, this is what I’m talking about. Because we had…help me guys. Uber in the delivery space was going to buy DoorDash or…help me guys, help me out.

Richard:00:22:59 Yeah. It’s DoorDash.

Jeff:00:23:00So that was the number one and number three player, I believe. And then we’re all supposed to just take that and say, Oh, that’s fine. Number one, let’s just accumulate number three, and let’s just let that happen. And think about, so what would that be in soft drinks? That would be Coca Cola buying Dr. Pepper Snapple. Something like that? … we’re just totally fine with that. And so, you get to this point where that’s news. You just laid that one on me. Why is that? Microsoft needs more power. We need Microsoft to have more societal power. And one of the things that I think is a bear case for the top of the S&P 500 fellows is it doesn’t matter who you pull into your living room to talk about this issue. I can get a Berkeley leftist in here. I can get a Trump voting right wing in here. And they are universally, there’s only two issues that those two camps are together on. He tough on China. And can we do something about Silicon Valley, that’s your only-

Richard:00:24:03But the anti-trust regulators have stepped out, they went out to buy some smokes about 20 years ago and they never came back. That’s been going on.

Jeff:00:24:13And then there’s …look, here’s the other side of it. You have a strong argument if you lay this one on me. They say if you break up Amazon the sum of the parts is worth more than the business right now. So maybe I’m on here saying there’s a matter of time before they try to take a crack at Amazon and maybe that ends up helping Amazon shareholders and I’m just dead wrong. We have to think open mindedly about these things.

Adam:00:24:38… like if you go back to the nifty 50 back in the-

Mike:00:24:46With the Baby Bell’s.

Adam:00:24:47Yeah. Then clearly the conglomerates. So the conglomerates, and it was a different structural relationship between the components. But they definitely tried to create these sort of quasi monopolies without a vertical integration that big tech giants have. They really just wanted to have big diversified businesses within or under a single umbrella. That’s not quite the same as the current paradigm with the big tech giants. But still, we had this situation where you had a lot of different franchises, big powerful franchises under a single roof sharing economics. There was a strong anti-trust movement in the early 70s, they broke these guys up and clearly that this nifty 50 conglomerate phase of the markets was very good for markets. And the breakup of these big conglomerates was a period that was where stocks underperformed. Now, there’s a lot of narratives you can spin around that right. We had lots of macroeconomic dynamics competing for explanatory power on with us. But certainly we can say there has been precedent for big monopoly style conglomerates that were broken up. It was sun and roses or wine and roses when they were operating as conglomerates. And when they broke them up, it was a much less favourable time for equities. Now, I don’t know if there’s a…certainly there’s lots of competing dynamics but there’s precedent.

Mike:00:26:26What I find so interesting about that is just some coincidences to another very interesting period where the robber barons became such a concentration of wealth occurred. So we now have a concentration of wealth that rivals the period of the robber barons. What were the coincident factors? Well, you had technologies that were evolving at a pace that there were no rules for, how are you going to regulate having a railroad so you’re taking a horse and buggy across the nation and you put a railroad in. And so that railroad was the fiberoptic run of 1999, 2000 where at the end there was lots of bankruptcies in the railroad. There’s lots of bad stuff that was done. But you could get from New York to San Francisco in about four or five days. And the same thing happened with the race for fiberoptic. And then you have all of these resulting businesses, you have Standard Oil, you have the Steel Mecca’s, you have all of these things happening at the same time. Regulation is behind the pace because the evolution of the technology is so quick, there is no regulation. So if you look at regulation in any other business, other than technology, it’s pretty significant. We’re in finance, how’s that regulation treating you since 1929? And then you go into technology and there is none because it’s all green field. It’s all brand new. How you going to regulate it?

Jeff:00:28:05You guys just mentioned so many things that I want to hit on.

Mike:00:28:08Yeah, let’s go. Let’s go for it.

Jeff:00:28:09… the Baby Bell’s. I wanted to mention something about General Electric in there. And then also now we’ve got section 230 of the Communications Act in my mind too with reference to the tech stuff. So let’s hit all of those. One of the things Adam, if I’m not mistaken, I think the great case study is ITT, which was the big conglomerate from the nifty 50 and building it up because the more you acquired firms, the more you’re some of your parts because there was this belief system in the late 60s if I’m not mistaken that the conglomerate was the way to run a business and then that all did come apart. One of the things that was so critical was that ’73, ’74 crash of the stock market, so the S&P, the Dow, whatever you want to look at from 1973, 1974 lost half of its value, but it was really the top of the market that died the most then. And it was so funny. If somebody did make an Eastman Kodak nifty 50 reference on the web yesterday and beat me to the punch because I was trying to think of something witty to say about that. Eastman Kodak was one of the nifty 50 which is just, of course they, had they invented digital photography in 1975 and totally missed that boat, which is critical to remember because when you think about the firm’s that we’re talking now about Facebook and Microsoft, which are just total dynamos and Google. You think back then going back 50 years, Xerox was just top of the world. Eastman Kodak was nice, Sears Roebuck when we used to call it Sears Roebuck. These were top of the heap. There’s General Harvester, I believe, is in that group. There’s a bunch of them that just died on the vine for many years on account of valuations at the time now.

Now, thinking about some of the others, the more recent conglomerates was we had a $500 billion valuation on General Electric at the turn of the century. And I don’t even want to know what General Electric’s market cap is now, guys, it’s just a complete fall from grace. And just a real question is to whether or not Jack Welch was really the brilliant mind that he was made out to be. And then the other thing that you guys mentioned here that I thought was so critical was, Mike, when you’re talking about the technology is going faster than we can even catch up. We’re operating on this 20th century regulatory regime with respect to journalism. It’s left us-

Regulating Journalism

Adam:00:30:35Yeah, well that’s a whole other really super thing to talk about.

Richard:00:30:37Yeah, I was going to mention that there’s an added layer of complication here, which is the idea of free speech, and Twitter isn’t put in that conversation, because it’s not a mega cap, but it is perhaps the most widespread vehicle for information right now, and how Facebook and Twitter have both been this point of controversy on both sides of the aisle. And so you would imagine that there’s some kind of regulation on the horizon because everybody’s accusing the other side of regulating speech and things like that. So that’s an added layer of complication that I’m assuming when the regulatory hammer comes down, that’s going to be a big part of that equation.

Jeff:00:31:21Yeah. Just think about whenever you’re talking about existential risk to theses, there was a time about a year ago where one of the risks to investing in the Middle East was, wow, they’re going to allow individuals to sue the Kingdom of Saudi Arabia for 9/11 and that could upset diplomatic relations for example. And now one of the issues is, can you cut down evaluation of a Facebook on, just wanted her husband defamed on Facebook and Facebook was doing whatever and you get Trump is saying, Marco Rubio is saying that, you have Chuck Schumer and Nancy Pelosi too. So it’s like everybody. And they say, well, now we can sue Facebook. I mean, that’s a really…suddenly the business model has been thrown in. And again, it goes back to, or the kids just treat that one like they did Friendster and Myspace.

Adam:00:32:25Yeah. I think it’s always the assertion that they are actually legitimately content businesses. That we can equate Facebook and the New York Times. Because think, I think there are some clear differences that we can point to that. Obviously New York Times pays reporters, reporters create content on behalf of New York Times and New York Times publishes them, whereas I don’t think you can say that anybody pays Facebook contributors.

Jeff:00:32:55Facebook actually just ate that deal with BuzzFeed and the New York Times to pay them for their content. And I don’t know who else might have been in that. So you now basically have this, I’m sitting here I got my newspaper down there. All it’s done is it’s transferred from that paper that’s sitting on the floor to this. It’s rather than me reading the New York Times here, I’m just reading it on Facebook.com. And so where is it all mixing in? It’s just one of these issues where you get this at market extremes where anything that’s on the table do. I think maybe the general public would be able to sue Facebook? Maybe, maybe not. Do I think the kids are going to dump Instagram and go to the next thing? Maybe not? They haven’. They’re still doing it. They did fall in love with TikTok. But you just get to this point in markets where let’s just completely ignore existential risks.

You know, I’ve got Coca Cola and Pepsi sitting here in the next store or we’re going to make believe Pepsi’s not there. Like it’s just a matter of time before the kids find something new that they’re engaged in. And the other thing I think is critical guys is to the extent that in the post crisis world it was all about, there’s a lack of growth and it’s a disinflationary trend, therefore buy tech stocks. So it was disinflationary. You wanted to be long USD, you want to be long US growth, US tech stocks, and then everything you didn’t want to have was the opposite side of that trade. Any emerging currency you didn’t want, emerging equities you didn’t want, you didn’t want anything in fossil fuels-

Adam:00:34:28Well, I mean, it turns out ex post that you didn’t want any of those things. The disinflationary tech oriented growth theme was the only game in town. So it was tech oriented growth and everything else. And so, every other attempt at diversification, whether it was diversification within your stock market or diversification around a variety of global other asset classes, either internationally or stuff like commodities or factor investing or what have you. Everything else experiences huge redemptions, major headwinds in contrast to US oriented tech growth which captures all of the economics and all of the market cap and valuation expansion.

Richard:00:35:22How much is the Feds role in this? The primary driving force, the whole idea of Tina and the expansion of monetary base and lower rates into eternity? How much is that driving all that?

The Role of the Fed in Inflation

Jeff:00:35:40There is no alternative. That’s a …, the reference you just made. I think that’s absolutely critical. Whenever you have something that when you’re talking about regime change. I mean, look in the last 60 to 120 seconds, what were we talking about, big macro, right? US dollar, tech, growth stocks. We weren’t talking a bit about what we’re doing before to Twitter and Facebook, micro. Macro has been that the Fed has been able to inflate away without any real effect here on everyday consumer prices or so that goes to the thesis. And in order to get big regime changes, US dollar off.

People buying emerging markets again, whatever the case may be. You have to have something generationally upsetting. Something that really rocks us. Maybe it was COVID 19. I mean, it seemed to me that COVID-19 is that thing. One of the things that I think is a little disturbing is that we have so indoctrinated ourselves into this belief system that, oh yes, the western world has a greying society therefore, we can never have inflation because I said it myself 500 times, therefore I believe it. If I can get you to say something enough, you’ll believe it. I can tell you that the sky is green and you’ll start to marginally believe that. And so we all do this to ourselves. We’re getting old. We’re only 10 or 15 years behind Japan, Japan can’t get any inflation. Well, I’m here to tell you, you expand that money supply large enough. But enough of that amount, you’ll get inflation and I use this example-

Mike:00:37:16While you’re in the US dollar. US dollar appreciates and you’re going to see inflation in the US.

Jeff:00:37:22Mike, I’ve been I’ve been warning people. One of the things is, you know how sometimes things build on themselves? We get that dollar index, which is 93. Okay, so you got to picture the dollar index, it’s spiked to 104 it’s at 93 now. You get that to touch 89 and change then, here comes the headlines. Oh, we just lost Mike. We don’t care about Mike anyway. You get that dollar index down to 89 then the headline is going to be dollar touches 11 year low. That might be enough to perpetuate a dollar bear story. Now granted, everybody is a dollar bear, everybody so maybe we’re all rolling and it’s going to keep on surging. But sooner or later it starts to be a self-fulfilling prophecy. Everybody says, COVID doing work from home and so they buy work from home. And that was a self-fulfilling prophecy building on something that’s been going on. Growth stocks have been going on for 13, 14 years now.

Mike:00:38:13I always get it wrong when I come in on the 14th year of a bull market. Usually when I get really excited and go all in, never, it’s not worked yet. I’m just saying.

Jeff:00:38:26It’s so funny because we’ve been unwinding that commodity super cycle since when crude oil blew out. That was the summer of ‘08 at this point. But you know, one of the things that I think is so funny about perceptions and I tell to anybody who will listen to me is, the box of Kellogg’s cornflakes down at my Jewel Osco is the same price as it was 10 years ago. And I get to take a train ticket in Chicago, it’s still $2.75 and it’s been that way since we moved here fourteen years ago. But we have runaway healthcare expenditures.

Mike:00:39:05Education.

Jeff:00:39:06Yeah. Bring up a chart of the Manheim US Used Vehicle Index, which is now spiked. It looks like the gold chart, the used vehicle Price Index by Manheim looks like a chart of gold. It’s unbelievable. I’m talking about things that actually matter. Kellogg’s cornflakes doesn’t matter. That’s $4. A new car because your other one broke down and you got and you need to go in your pocket for 10 or 15 or $20,000, and you have $372 in your bank account. It matters because you have to take out 5% lending at 60 months or so or 72 months or 84 months. That type of stuff they’re doing. Tuition, I mean that we don’t need to go down that path. You guys know that story. So healthcare, tuition, auto prices, median existing homes, a home that’s already been constructed that you’re buying from the previous family. Pushing 300K in the United States now. Everything that matters is in inflation. The S&P 500 is at 3200. And that’s a five bagger sort of bull market. Silver’s in a bull market, copper is going to be $3 again, everything’s going up. That we talked about inflation. There’s no inflation, it seems to me it’s like we’re just looking at headline CPI, not paying attention to stuff. It’s actually breaking families.

Mike:00:40:27I tend to agree and then I’ll just Jekyll and Hyde that and I’ll say, well, but still look at the labour force that we have coming online, look at how we can still export a lot of that inflation, the production, whatever, we can get that done elsewhere. But again, then I come back and say, well, the US dollar is lower than all of that stuff that you’re exporting, isn’t quite as cheap as it used to be in an absolute fashion. So it’s an interesting. I go down this circle and I’m like, I don’t know where I fall on this.

Richard:00:40:59You’re talking about pre-COVID growth. Because with deglobalization and the cold war that is starting to really ramp up and all the trade policies that we’ve seen during the Trump presidency, I don’t know how able the US is to export that.

Mike:00:41:19If they can repatriate those supply chains, and all of a sudden, probably things get a little bit more expensive.

Jeff:00:41:24There is a school of thought on this. Is that Biden becomes victorious. And then the West has to form a coalition against an isolated China, and that therefore suddenly Biden is on the next plane to Berlin to perhaps make nice with the Germans on trade negotiations for example. Seemingly trade relations with Europe or Canada or Mexico would be improving under a Biden administration, now you just need to prognosticate that probability of Biden which I think is critical for discussion. Now, if you look at and I’ll say this. When we look at the Biden campaign page, it’s so difficult to gauge because remember Biden needs to win the upper Midwest. So he has to be tough on China. But is it a reincarnation of the Obama administration? Or is it maybe a continuation of the Trump administration much to our surprise? Maybe you could argue something like that where China is on the person on the streets radar. Go back 10 or 20 years and ask somebody you went to high school with what do you think about China, the rise of China? Yeah, it’s great. Soon they’ll be democracy or I don’t really give it much thought. And now everybody gives it thought, that’s China is a perhaps a hostile actor, or at least the Chinese Communist Party is a hostile actor. And so now you have Biden entering the fray and US, Chinese trade relations are on the wane under with what you stated, which is the deglobalization concept between China and its foes. But now maybe Joe Biden is in Ottawa, maybe working on trying to clear up all the issues and shake some hands, and play some golf, and go down to Mexico and make make nice with the other trading point.

Adam:00:43:20The point is those types of relationships don’t achieve the same type of labour arbitrage disinflation that you get from outsourcing to the developing world. You may get labour or more productivity expansion from stuff like capital investment and automation. So there’s other ancillary dynamics that might play a pretty large role. But what you don’t have is that same sort of almost endless disinflationary force that you experienced over the 2003 to 2012 period for global manufacturing where they just moved all of our major manufacturing to the developing world and took advantage of the fact that there was such a disparity in wages.

Mike:00:44:12That’s a great point, Adam. It’s not an absolute thing. It’s a relative thing. Relatively speaking, the advantage is not as great as it was 20 years ago.

Adam:00:44:25Or it needs to come from another dynamic, right? Again, maybe you’re displacing workers in the developing world because you need to preserve your low costs. The only way you can do that is by investing in infrastructure, in automation and technology. Now at zero rates you can invest as much as you want in new capital investment, whatever new computers, AI, robotics, et cetera. That could provide another major sustainable, disinflationary growth period. But it remains to be seen what the impact of that is. And I think we’re moving from one regime of disinflationary growth to the promise of another but we haven’t yet seen the deliverable on that promise.

The Velocity of Money

Mike:00:45:14And how do you get the animal spirits up on that? How do you get banks lending right now? We talked about a little bit about the velocity of money. That the liquidity that’s being provided is trapped in the banks, because the banks don’t want to lend because you can’t, how do you lend with the expectation that you’re going to get paid back or what’s your loan loss provision, like it’s a

Adam:00:45:40Balance sheet things that have been introduced over the last 10 or 15 years? So you’ve had this major move from on balance sheet lending at the bank to finance business expansion to off balance sheet and we’ve come into contact with that where there is a tsunami of cash in Non-bank financial institutions, private equity, infrastructure funds, sovereign wealth funds, et cetera that we came into 2020 with $1.5 trillion in pre committed money, or private equity investment. That money’s got to go somewhere. Where’s it going? It’s not like you have the manufacturing sector in the developed world focused on expansion right now. You’ve got a lot of plants are still closed. So where’s that money going? And so you got this-

Richard:00:46:34But after all with opportunity cost so low, there’s probably no such thing as a bad project. But I think where Mike was going with that-

Mike:00:46:43What I was saying might not be the wisest.

Richard:00:46:46Yeah. But I think Mike was headed for kind of like a 1980’s, 1990’s Japanese window guidance, loan policies. I think he’s going Princes of Yen a little bit there.

Mike:00:46:58Well, but you can do it two ways, right? One is you force the liquidity into the system. But we need a pull, you need a demand. So I think what Biden’s trying to accomplish with a $2 trillion Green Deal is, hey, let’s get something to get excited about. Just like the new deal was, let’s build some dams and roads.

Richard:00:47:18A narrative.

Mike:00:47:19Yeah. We need a narrative to drive the animal spirits. Now, if you think about walking that out, if you think about let’s drop a couple of hundred year bonds. We’re going to drive a new Green Deal, 2 trillion bucks, finance it. Now I’ve got engineering contracts, I’ve got solar that’s coming of age, pretty good tech in solar now and think of what we could do with that, battery tech. Now we’ve got all of the downstream implications of figuring that out, sort of what you said Adam, oh robotics, like let’s get that next generation of productivity fast tracked, but I’ve got to stimulate animal spirits and you know I’ve got to be the lender of last resort but also the buyer of last resort.

So, I’m going to fund these through the federal government to make sure that the contractors have the base rate and profitability to establish that. And then I let the machine start to go. So we get the solar panels, the wind tunnel through the middle of the US. I’m let my imagination run wild here. So then that provides the bid for the Petro dollars. So, we need 25 years to transition from all these Petro states and these EM states, Chile and the copper pot down there. We need these resources to build all of this infrastructure on the Green Deal. It’s going to take 25 years, that gives them those emerging countries that are resource based the opportunity to have some time to sell those resources into developed countries, developed world, Europe and the US. Those dollars get recirculated, they pay down for those projects but there’s this slower reduction in the petrodollar, steps in the intervening period. And at the end of 25 to 50 years you now have this sort of green global economy. I’m painting the picture there that is, hey, let’s get everybody excited because that gets the velocity of money going. Now, the funny thing is, I feel like, I’m Yosemite Sam and I’m chasing Bugs Bunny and I’m lighting the match. And I happen to be sitting in the cave full of dynamite because the velocity of money increases this much. I think it’s going to be epic.

Adam:00:49:34Yeah, give me a lever long enough and I’ll move the world, right? Right now the lever is infinite length and so just a small movement can spark some pretty substantial externalities on the inflationary rate.

Richard:00:49:49Let me take the other side of that, Mike, because I think the velocity of money argument is a highly a demographic component here, can’t be overstated. So the propensity on the marginal dollar for those who actually own those dollars is to save right now because those dollars are held by the business, right? So there is a generational aspect to this that I think might take maybe five to 10 years more as those dollars trickle down into the Gen-Xers and the Millennials who will have a higher propensity to consume and I think we might be getting into some fourth turnings stuff here but I think they are the-

Mike:00:50:32That’s why I say you we skate to one song and one song only.

Jeff:00:50:44Okay, when Mike was talking I was like now we have Strauss and Howe in this. That was a fourth turning reference that was just laid on the table. Mike, when you were originally talking, I was going to start going down the path of destabilizing Russia because you’re talking about Petro dollars and petroleum. But then laid the word epic with respect to monetary velocity and in the history of conversations about velocity it’s never been this interesting. This concept which is usually so wonky is so very easy to understand if anybody will ever bother to, and it’s essentially. This goes back to Friedman, Milton Friedman. You can take an economy, you take the money supply, and you multiply it by the speed with which that money changes hands through society, that’s the velocity. You get back and forth, that’s the velocity of money. Putting the money under our bed really slowly it comes out but then if it’s Venezuela or Hungarian inflation or Myanmar inflation, it goes fast. You get your paycheck paid in 1990s Brazil, you cash that paycheck and you spend it.

Mike:00:51:48There’s a Brazilian right here on the call.

Jeff:00:51:50Yes. Okay. So that’s where someone gets a correlation between the two. Examples, oftentimes it takes me two or three minutes to explain this but I think it’s absolutely critical for the listener. It’s two of us on an island. So Adam, it’s me and you on an island, we’ve been marooned, and we have to form a society but you know what you just want to live on the other side of the island. And between us we have $100. And the velocity of money is 5.5. Coincidentally, that was US velocity of money in 2019. And that 5.5 represents you and I coming together and exchanging whatever it is we exchange. I sometimes say I do repair work on your hut, and you because you’re very good at gathering the coconuts, you sell the coconuts to me, and we get together every few months, and we exchange it 5.5 times. And so our GDP is $550. There was $100 that was in our pocket when the ship sank. And what happens is, when the hurricane comes through to devastate our island, we can’t really get together that frequently anymore. And so we have a deflationary depression. The velocity of money has collapsed because I can’t physically get across the island to trade with you until we clear this debris or get well from our hurricane.

And so, our economy has sunk from $550 to some lower number. The counter example then is, now we’re back to normal a year has passed the Hurricanes gone, we’re back to $550 economy where M times V, 100 times 5.5. But then suddenly somebody has like message in the bottle to make a reference to the song from the 80s. There’s a message in the bottle, except there’s money in the bottle. There was $50 bill in the bottle, and now our money supply has gone up to $150. But there’s no change in the number of repairs I need to do to your hut or the number of coconuts that you’re going to sell me because I only drink so much coconut water through the year. So, the only thing that’s happened is that the velocity has been at some stable state. But the money supply was the only variable that moved and went up 50%. And so, what people oftentimes say I think this is what Mike was alluding to is money velocity is low right now, therefore, let’s just go have a beer and forget about it.

Well, if it’s low, and it was also low last year, then there’s been no change to the V part of M times V but the only thing that went moon shooting is M, money supply, M1 money supply up 34% year over year. Now, when you look at 5.5, which is the speed with which we’ve changed it back 5.5 times last year, when the data came out from the federal reserve for the first quarter now, we were still in airplanes, still doing our thing in the first quarter, it came down to 5.26. The question is, what will it come down to in the second quarter? And critically, if we come back to five, five point X in 2021, then we have a real problem at hand, because we’re right back to what stable state with the degree with which we engage in purchasing coffee and automobiles from each other.

The only thing that’s changed is there’s now all these incremental trillions of dollars floating around and I don’t know that there’s enough people that appreciate it. And I think this goes to another conversation. 1970s inflation, Richard Nixon and Jimmy Carter and before Carter, Jerry Ford, I wasn’t alive. I’m mid-career and I wasn’t alive. And perhaps the only reason I had any real appreciation for 1970s inflation is because my old man was lined up around the block in January of ’80, trying to buy some programmes. And so, I actually was raised with this natural fear of inflation solely because of the old man’s experience in 1970. It’s all inflation is right around the corner. And so you grow up this way and then you meet a bunch of people that all we’ve ever known is interest rates have been coming down, disinflation, gasoline is $2 a gallon in the United States. I mean, when we reached the trough in US gasoline in the 1990s it was a buck but it was a matter of routine to pay three or four dollars a gallon. So no concerns. Nobody can even conceptualize some sort of oil shock or just rampant ugly 5,6,7 percent CPI. And I think it’s a serious risk.

Adam:00:56:13Yeah. I agree. And I mean, this is not just a 2020 question. Obviously 2020 has taken phenomenon that’s been in place since really 2007 or 2008. And I think you could argue all the way back to Greenspan in 2000 when he preempted the y2k issue with a flood of money. But this has been building for a while, the lever, we sort of think about the money supply is the length of the lever and velocity is the amount that you’re moving one, that’s all sides of the lever in order to get that movement on the long end of the lever. The lever has been growing and growing and growing at an accelerating rate as a function of all of this, whatever you want to call it effectively money printing. And now it’s just we’ve quantum leaped by an order of magnitude because of actions in 2020. But it’s not like it’s just a 2020 issue. It’s just that 2020 has put up icing on the cake. And so you’ve got this lever that’s been growing longer and longer, you have not seen a pickup in velocity over that same period. In fact, they’ve been growing the money supply to offset a steady decline in the velocity for arguably 20 years. And so, the lever now is insanely long, and nobody believes that anyone’s going to move it. The effects are going be interesting to observe.

Mike:00:57:51How many acts does a play have? Three. Why? Well, because you got to tell a story. Human behavior just doesn’t change right away. It’s got to work in 2000. It’s hey, work again in 2008, shit, this is easy to line them up and let them go. I think policymakers have a very strong belief in their ability to actually manifest the fact that if you’re a clear communicator of the central bank about your intentions with monetary policy, it has actual predictable implications for asset prices. It makes them steady and makes them grow. And so, you’ve had this theory that’s now been proven out in several cases, largely proven out the actions in ‘08 worked. The actions in 2020 are working but there’s three acts to a play. And then there’s an end and you start a new play at some point. Maybe I don’t, I’m not sure but.

Jeff:00:58:57And the other thing is, there’s this notion that’s, all right now that the US government’s going to meet on Saturday morning, and they’re going to hash out the next set of $600 and 1200 dollars, and then we’ll be fine. Well, we opened this podcast, we’re talking about the 17 million continuing claimants. We’re not going to roll into US Thanksgiving or Christmas, and suddenly we’re going to be at full employment. There is going to be money that has to come from the federal government in the United States, for a long period of time of which none of us know. There was already a deep budget deficit in the United States last year, it was 4.9% of GDP. The street is pricing in 20% of GDP, they’re wrong. It’s going to be 25 or 30% of GDP, for calendar ’20. And then in calendar ’21 they’re looking at slight double digit, slight 10 or 11 or 12% of GDP, which is worse than the worst budget deficit the US experienced in the global financial crisis. That’s in a steady state everything’s somewhat okay 2021. 2022 put another 10 to 12% on it. Are we still doing this in 2023? You start running some serious budget deficits. The only way to, and it’s on account of you have to put money back into the system to try to keep this game going. It’s very inflationary. I don’t understand really why nobody’s really talking about well, the US debt dynamics are going to look like Italy in just a matter of time.

Richard:01:00:31The creditworthiness of the US is going to be the next domino in this equation. But the problem is when you have the marginal buyer of treasuries issued being the Fed and its primary dealers, holding them in inventory, as long as they can keep that game up, this market can just continue.

Adam:01:00:51You don’t express your bets on the creditworthiness of the US in the credit markets. You would express the-

Richard:01:00:58The dollar. Exactly. And what we’ve seen in the last week or two is an expression of that. And so it might be the beginning of this and gold reacting as well kind of plays into this narrative. But I mean, as Jeff was mentioning earlier, this might be that peak that doesn’t really follow through and we might-

Fiscal Consolidation

Adam:01:01:24You know, everyone talks about the US dollar in the US and their fiscal and monetary policy efforts. But, the US doesn’t act in isolation. It’s not like the US dollar is going to fall off a cliff. If US policy is aggressive, but less aggressive than the policy actions of other global actors. We haven’t even seen, we just started to see how the governments in the EU or the EMU, are beginning to formally cooperate now on fiscal policy. The issuance of common debt. And these are baby steps, but they’re in incredibly important qualitatively directions. And if they can get their fiscal act together in cooperation with their monetary act, which has already been highly aggressive since 2008. You could see really substantial competition between the EMU and the US in terms of who’s going to-

Richard:01:02:28Yeah, but the Euro will benefit from that. This fiscal consolidation in the US I would posit is actually bullish for the Euro, because it conveys a strength to the euro. The easing side of the equation. They’ve been a lot more reluctant because of the, how do they call it? The northern countries that are less willing to ease, I think-

Adam:01:02:54That’s what the Bundesbank has been telling me-

Richard:01:02:57Not to mention the Bundesbank, for sure. But I mean, the fiscal council I think has actually bullish for the euro. But to your point, Canada just went full hand on the printing press this week which was kind of remarkable. They were steady, steady, steady and all of a sudden, like Jeff was describing it, it just went-

Mike:01:03:15What do you call that right now?

Jeff:01:03:18…  to Canada’s credit rating a few months ago. Adam, you’re exactly right when US doesn’t operate in a vacuum, one of the nations that had the most stimulatory fiscal responses to this was the Germans. The Germans went as a percentage of their GDP. They went all in. They had the concept for several years, the black zero. And it was a very politically popular concept balance –  that, this is crazy guys. Balance the budget. I know, wow, it’s really wild. The Germans had done that for five or six years running, which so long as your GDP is growing and you have a zero budget deficit than your than your debt to GDP ratio, changes this the situation from 25 years ago, Germany being the sick man of Europe is what they used to call it. And then that 80 or 85% debt to GDP ratio went down to something like 60. But now, just to unlock it-

Adam:01:04:18Isn’t this what Keynes prescribed? Everybody is a Keynesian now. But Keynes wasn’t all about stimulus all the time. He was about, when times are good, then you begin to sock away savings. And then that’s available for you to spend when times are rough-

Richard:01:04:43It’s cyclical

Jeff:01:04:51I’ll tell you who else did it and credit to them. The Greeks. People don’t realize this but before-

Mike:01:04:58 I didn’t know that really.

Jeff:01:05:00Greece had a budget surplus. The austerity measures were so deep and even Spaniards got it together to, Spaniards got their system together and became you can see that in Spanish bond spreads rolled up the German bunds. It really came together in recent years that the one that was from the old Southern peripheral nations, the only one that never really cleaned up its act in recent years was Italy, but Spain-

Mike:01:05:24Right, they were the PIGS.

Jeff:01:05:27Yeah, that’s what they called them. That went around for a while. And then there was the follow on that never really came on the BIITS. Remember the bits the current account nations Brazil, India, Indonesia, Turkey, and Africa. They were supposed to be dollar crisis in the BIITS. That was somebody you want to try to make a name for yourself as a strategist to come up with these acronyms and who came up with FAANGs? I think it was Jim Cramer maybe. You know what? Forget these podcasts. We just need to come up with an acronym.

Mike:01:05:56Yeah, we just need to come with an acronym.

Jeff:01:05:59Let me know when we come up with a good acronym, we’ll put our names on.

Zero Bound

Mike:01:06:05I love that. There’s one question, what happens when the 10 year government goes negative? And we have this conversation, when you drill down this hole, it goes deep man, there’s a lot of shit that just does not make a lot of sense.

Jeff:01:06:23Now Philbrick, you have a Freudian slip, not what happens when the 10 year goes negative what happens is, that person said, what happens if the 10 year is negative.

Adam:01:06:30Amen, brother. Amen.

Mike:01:06:33My bad.

Jeff:01:06:35… that has recently, going by memory here by 2018, where it’s something like 3.26 I want to say on a US 10 year Treasury. So it’s something to consider. Something to consider that what happens if we get a few ugly CPI prints and then suddenly we have to start bringing up the issue of quantitative tightening again. That person was right to use the if question. Interest rates could go only go one or two ways, they can certainly go negative.

Mike:01:07:03The language was changed to at the Fed to accommodate for not a zero bound but a lower bound. It’s interesting.

Richard:01:07:14The banking lobby in the US seems a lot stronger than the banking lobby in Europe. I think it would be a lot harder to imagine, not impossible definitely not impossible. The language change in the Fed minutes definitely opened the window. Let’s call it a window for that. But seems like a harder pill to swallow in the US, the negative race? I don’t know. Jeff, do you have any strong thoughts on that?

Jeff:01:07:40Well, guys, I just told you that there’s a possibility the birth rate could rise. I think I might be the only one that can conceptualize or at least entertain that thesis. And so therefore, it would seem to me that if the deflation story is perpetual greying of society, and that work from home as a concept reverses that, then the path of least resistance for interest rates is higher.

Adam:01:08:05Every time you say it, you talk about how the birth rate could rise, I keep thinking about that survey that they performed near the beginning of lockdown where they survey people about whether their sexual activity was going to increase or decrease during lockdown. And all the men said, like 80% of them said, yep, it’s going to increase it, although like 20% of women said it was going to increase.

Mike:01:08:28So then 20% of women were busy.

Jeff:01:08:32It’s only that we do differentiate between…again, I don’t think that somebody’s looking to. I think there will be a decline in 2020 and probably maybe into 2021, for the reasons that you said earlier in the podcast Mike. It’s when you have 17 million people on continuing jobless benefits. They’re not exactly saying, let’s go have another child. But I think structurally, we could be looking at a situation where we’ve taken a considerable burden out of the rat race. The rat race, for 10’s of millions has been greatly ameliorated, and it needs to be priced into our accounts.

Mike:01:09:06That is big, right? You’ve got two hours of productivity in everybody’s day, that is going to somewhere else. The average commute was about an hour to and from a workplace. So that has been reduced dramatically across the board. So there is some amount of gain that comes from that. Whether it’s all like societal gain, you’re having a better life, or you’re more productive.

Adam:01:09:33I think your point was really strong, too Mike. I buy some of that, absolutely. You remove some of the frictions you add some time to everybody’s day, not everyone’s day, though. The point is you only add time to the days of people that work in information oriented jobs. Which is very small but growing portion of the developed economy. But it’s offset also by the by the fact that one of the biggest negative predictors of the number of children that you’re going to have is your level of education. So you’ve got level of education predicts whether or not you’re a participant in the knowledge economy. It also negatively predicts the number of children you’re going to have. And so I think these are two competing dynamics and it’ll be interesting. I agree, Jeff, to see how this all plays out.

Jeff:01:10:31Well, and then the other thing is also we’ve delayed the family formation.

Mike:01:10:36I wanted to mention that. If you’re a bachelor, right now, we’ve got one of our partners is a bachelor. He’s like this is a train wreck.

Jeff:01:10:46Yeah. People at that prime childbearing age are not getting together and meeting and that could end up being another issue in basically any courting. It’s critical to consider how long will this go on? If we reopened then what we basically done is we’ve accelerated the work from home by 10, 15, 20 years in a matter of three to six months. Which is fine if we’re all back in the game in the third or fourth quarter and being on airplanes and stuff, because there’s a vaccine. But this thing is droning on, then we have to be more sympathetic to Butler’s argument here. Where, no dating, no babies right, in your house.

Mike:01:11:29Well, gentlemen, that has been one hour and 11 or 12 minutes, and has gone across many different domains and aspects. That was awesome. That’s exactly what the happy hour is about. It’s just us getting together and shooting the poop if you will. I enjoyed it thoroughly. And I appreciate you taking the time Jeff, that’s great having you on and I knew we were going to get into the sphere of your renaissance manhood and you were going to take this in directions that that we couldn’t anticipate, I loved it. And I appreciate your time. And I appreciate everybody who’s chimed in with some questions and all that good stuff. And we’ll see you next week. We’ve got a great lineup coming over the next four or five weeks as well.

Adam:01:12:15And to Jason’s point. You’re right. We got to work on the finish. We were not in a permanent residence yet. You got to keep it cool this time.

Mike:01:12:22Are we getting a room rater? Is a guy doing a room rater on us right now?

Adam:01:12:25Yeah, exactly.

Mike:01:12:27We were going to use the COVID excuse. that-

Adam:01:12:31That’s right. The only reason you can see the art is because I’ve shaved my head, man. There’s so much more surface area behind me you can see because the hair is not in the way.

Jeff:01:12:39That guy has a great profile pic. That’s a cool.

Adam:01:12:45I know. Looking off into the distance with that great hair.

Mike:01:12:49And the good beard.

Adam:01:12:49Nice beard.

Mike:01:12:52Well, gentlemen, cheers.

Richard:01:12:53Thanks guys.

Adam:01:12:55Cheers, guys. Thanks Jeff.

Jeff:01:12:55Thanks Fellas. Great talking with you.

Adam:01:12:58All right. Have a great weekend.

Richard:01:12:59Bye guys.

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