Speaker 1So here we've got the Fed saying they may raise rates again. Why? Do you think that's going to bring down the price of oil? I don't think it's going to. In fact, oil's not going to come down until they get some kind of agreement on the war or find a way to open the strait. It has nothing to do with how high the Fed funds rate is. Our policy officials are just missing what's going on in almost 90% of the United States economy because all we get is headlines about AI and how great the MAG-7's doing. We have been fixated and obsessed with inflation for five years in this country, okay? And that's created a certain environment for everything, economy, stock market, bonds, everything. I think that could change this year.
Speaker 2Jim, it's great to have you back on.
Speaker 1It's always good to be with you guys. Thanks. For having me.
Speaker 2Yeah, as always. So you've spent decades helping investors, I think, kind of step back from the noise and try to understand and get their arms around the bigger sort of economic picture and the things at play. And lately, you've been writing about and framing the U.S. economy in a pretty unique way as this bust-booming type of scenario or economic backdrop. And that's kind of going to be one of the things we're going to talk about today, among a number of other things. The Fed. Inflation and sort of how the markets are, I guess, evolving and developing from your perspective. All of the content that you always see here when Jim's on with us comes from his sub-stack. Jim's kind enough to share some of the charts and some of the things that he's focusing on and writing about. But please go over to sub-stack. It's Pulse and Perspectives is the name of his sub-stack subscription. You can sign up for free. There is a paid version as well, but really appreciate when our audience supports the people that are coming on with us and spending so much time with us and our audience. Okay. So with that, Jim, we always want to start with you. Where we always start with you is kind of just get your general thoughts. And it might not be that much different than where we were last month, but sort of your thoughts on the economy and any important changes that you would highlight that have happened over the last 30 or 60 days from your perspective.
Speaker 1Yeah, I'm still, I guess I'm still in the camp of, and we'll talk about this a little bit more in a few minutes, but there's a good big chart. Chunk of this economy is pretty weak, growing pretty weak. I don't think we're going to have recession. I still think that's less likely, although I'd say it's a little more likely than it maybe was a couple months ago. But I think we'll get into it. What he's aware for is that the overall economy in aggregate is getting pretty close to fall speed. It already has in terms of employment, getting close there in terms of overall growth. Ultimately, I still think that, you know, in the crisis in Iran, it's not helping the situation because it's adding more downward pressure on growth overall. And I think ultimately we're going to have to have to come in with greater policy stimulation from both monetary and fiscal authorities to sort of change this situation, if you will. And I'm still looking for that. I think that that's a real positive ultimately. And I think that we're going to have to come in with greater policy stimulation from both monetary and fiscal authorities to sort of change this situation, if you will. Both bonds and stocks. And I think that we'll be higher in both between now and the end of the year. And I still kind of are looking at that light. I also think that bonds will also be rising because I think the bond yields are going to ultimately be coming down. Now, a lot of this is going to depend on when or if maybe the hostilities end in Iran or how that plays out. And that's certainly going to depend on when or if the hostilities end in Iran. And that's certainly dragging on longer than I anticipated. You know, and he kind of asked about that too, Justin, where that's going to go. And I thought we would have reached some agreement by now. But I guess I look at the United States and what they've done is doing about all they could do as far as taking out military capabilities within Iran. There's not much less to bomb unless you're going to get into some other things like infrastructure and things like that. Kind of mean-spirited bombing, if you will. And we're kind of, I think Trump has shown he wants to get out. I think Iran has blinked a few times wanting to get out of this. I think ultimately they're going to find that. Now, it might well be that we're going to have to find a solution to the strait before we officially end hostilities. And that might be a forced solution on Iran. I don't know. But I do think we're closer to the end of this than not being. And that's kind of where I'm at. If we're not. You know, that could be a wild card yet. I still think the bigger risk from all this would be a major terrorist attack from Hezbollah terrorists in the United States than it would be any conflicts that we get involved with there. But so I'm constructively imposed towards the markets. I really think, though, we've got to quit focusing so much on fighting inflation. And we'll come back to that and focus more on trying to promote greater growth that's fully participatory across the economy and not just in tech, tech air.
Speaker 2Do you have any sense of what you think the market would, like, react to if the street, let's say, stayed closed for longer than any of us can anticipate? Like, what if it's an extended period of time? What if it's, you know, late summer or something like that and the strait is still not really
Speaker 1fully reopened? You know, I got buddies that I respect in this business. They tell me that, you know, crude oil prices are going to go up to $150, $200 a barrel and, you know, sort of disastrous levels. I don't think they're going to be right, but they scare me because I respect them. And it's sort of scary to think about that. And no one really knows for sure. I think, though, that even if it drags on, that I think we're going to find new avenues to bring oil to the world marketplace. We'll find other ways. We'll find other ways to get that done. There'll be other countries that'll step up, I think, and provide oil to Europe from other sources or whatever. And so probably that outcome, even if it drags on, won't be nearly as detrimental as people can dream up on any given day how bad it would get. I also think that, you know, I kind of suspect U.S., if need be, we will make some progress in opening up at least some flow of ships out of the strait, whether we have to do it militarily or whatever. But I think we'll find that we'll make progress there. But I also think other countries will bring additional fuel supply to the situation. But I don't know. I thought it'd be over by now already. So I can take that for what it's worth.
Speaker 2Yeah. Yeah. Sort of a little bit of a hard pivot here. But did you have any thoughts on the latest Fed meeting? And I guess, you know, I think some people were somewhat surprised with Powell deciding to stay on the Fed. During this sort of like transition period, did you have any thing that jumped out at
Speaker 1you there? Not so much. I think that the Fed is, I've always kind of had the view the Fed's dictated by the economics. And if growth gets bad enough, they ease. Inflation's bad enough, they don't. I kind of think we're headed to where growth is going to kind of overtake inflation here. And it will force the outcome for the Fed, whether it's Warsh or whether it's Powell or whoever. I think at some point, they just can't ignore certain things going on and have to respond. But it is, it's a great reality television show. Two fifth graders on the playground calling each other names, tit for tat. And that's what it feels a lot like. And it just seems unseemly. It's the free world leaders, I think. But it's probably. Not real important on my list as far as investing.
Speaker 2Yeah. And some in some weird way, you know, Trump wanted lower rates. But if the lower rates are because of slower growth, that's not necessarily a good thing. I mean, what do you think? Do you think there there's still a likelihood that, you know, they're going to cut here this year? I do.
Speaker 1I think, as I say, I think I think it's going to be more forced to cut and that'll come out a little clearer. And a little bit why I feel that way, but I think there's a big chunk of the economy that's already kind of flatlined and they may start to wag the dog overall, even over what technology is doing. And if that's the case, it's going to force a refocus by everyone, including policy officials towards, you know, making sure we don't lose the economy into the depths of recession, as opposed to fighting a temporary inflation caused by a temporary. Hostility of the world. I think we're going to get easy. I do. And I think the bond yields will come down as well. I haven't exactly been right on that in recent years, but in some regards, I haven't been wrong either. They haven't gone up either. You know, no one's been right unless you just said they weren't going to change. Some people probably have said that. But I would I bet on the down on the under, I guess.
Speaker 2Do you have any thoughts on I mean, the market's kind of hanging in here, but it seems like in the last. Maybe two weeks, it's been back to the same old stuff that's technology. technology is performing well. I mean, we just had like kind of pretty good earnings from most of the mag seven, I think, um, last week it was a big earnings day and, you know, they kind of came through for the most part. And so do you have any just thoughts on, on any of, any of those trends that are happening in the market, both from the market standpoint, hanging in here and also like some of the rotation that maybe we've been seeing recently?
Speaker 1Yeah, I, um, you know, this comes on the heels of a pretty big rotation away from tech as well. Right. And, and if you look at some of that, what I call broader marketplace and tech, the relative performance of tech and the mag seven, for that matter, is still below their relative highs last October. They've made a big recovery of that, but they're still have not broken out above those highs. Either one of them, the S&P 500 tech relative, nor the mag seven. And broad-based measures are still way, above their low where they were in October. So relative performance since, since this kind of sell-off or change in leadership started is still more with the broad camp than the new era camp. Now we'll see. It wouldn't take much more and that could change. Um, I'm, I think that tech is not going to take leadership, uh, the rest of this year. I, I don't think they're going to fall apart. I don't see a crash in tech. I just see it underperforming kind of the themes that we're we started to see happening since late last year. And if you think about it, the key to me on that was policy easing. I mean, we, we started easing late last year and when we did, lo and behold, tech started to struggle and everything else started to do a little better. And then when the pause came because of the war, right? And now we're even threatening rate hikes, guess what? Tech's doing better. Broad market's not doing as well. So the key in my view, Justin, to that is, is that we're not doing as well. We're not doing as well. Do we get an economy that brings policy juice again, or do we not? And I think tech's got other issues too, that I'll be writing more about later this week, if anyone's interested, um, that could bring some pressures to bill. Um, the one thing I would point out is it's an interesting sentiment right now among investors. I feel it's not irrationally exuberant necessarily. I wouldn't say I feel that way, but I feel like it's an interesting sentiment right now among investors. It's not pessimistic, certainly with record highs of the S and P and tech doing well. It's more complacent to me. It just, it's, it's not even quite complacent. It's more like, you know, I know these things are high and I know I have too much of it. Um, and I shouldn't have this much in this one little area, but gosh, it just keeps going up. And so in the meantime, I'm just going to let it ride. I don't really understand what will change it or not. In the meantime, I'm just going to stay with it. I'm just going to let it ride. I kind of feel like that's where we are sentiment wise. And if, if now at this point tech rolls over again on a relative basis, I think that could cause even bigger portfolio changes by current investors that I think are still, let's face it. We're all probably overweighted the new era more than we probably should be relative to a lot of the rest of the stuff out there. And it might take some additional, like another failure on them rallying again before we make those changes. But I think the reality is that we're all probably overweighted the new era. We could, uh, that might well happen yet this year. Again, I don't, I don't see them collapsing. I would not sell out of that stuff. I think tech's going to be there five years from now and you want to be participatory, but I think we might get a few years where this other stuff does a lot better than tech. Just one more
Speaker 3before we get into the charts. You mentioned the idea that the mag seven has kind of taken leadership relative to the broad market plays. We've seen the same thing with the U S versus international in the wake of this crisis. I mean, do you think that's the same type of thing where this might be a temporary thing? I mean, you've talked previously about how the, how important it is for the U S versus international. I mean, do you think that's important? The dollar is for that. Do you, do you see the same thing about international versus U S? Yep.
Speaker 1When I talk about broad plays, I'm talking about small caps, mid caps, uh, in the United States. I'm talking about, uh, Russell 1000 value, uh, index. I'm talking about the equal weighted S and P index as opposed to the market cap weighted. Uh, you could throw my micros in there. You certainly could throw the, uh, international stock market X U S and merging markets. All I think all in the same bucket. These are things that are going to make a difference in the market. I mean, it's going to make a difference in the market. It's going to make a difference in the market. Cyclical sectors of the S and P. These are things that need policy juice. Uh, in reality, the last time we had policy juice in this country at any meaningful way was the 2020 21 bull market when we're responding to the pandemic and we brought everything. I'll talk about this in a minute to the party. And guess what? During that bowl, about two years long, not quite. That was the last time that small caps, cyclical stocks, value stocks, beat technology stocks marginally during that bowl. Ever since we took the juice away, tech's been winning. So again, I think that comes down to that situation, but international stocks are certainly there. How can we expect international stocks to do well when the dollar almost goes up to an all time record high, you know, which is what it did prior to last fall when it finally started to come off. And since it's come off, some of the international stocks are showing some light, particularly emerging, particularly emerging. ex-China, which is a separate situation. And it's still doing pretty well. It's almost at a new relative high again, as we speak. So I do think, Jack, it goes back to that. That's my guess.
Speaker 3Picking up on what you said earlier about people maybe being too focused on inflation, you wrote a great article recently, Inflation Obsession, question mark, about this idea and about the idea that a lot of people are talking about, well, the 70s is coming again. And you don't think that's the case. And you had a great chart one in there, which is the annual CPI inflation rate versus the trailing for your average annualized labor force growth. And can you talk about that and why you think these inflation fears are overblown?
Speaker 1Right. Well, historically, going back centuries, really, if you look across the globe, any economy around the globe, probably the most important factor that drives growth across economies is the rate of resource growth in the economy, land, labor, and gap, and primarily labor. Those economies that have the strongest growth in labor force or labor supply, have generally the strongest sustainable real GDP growth rates. And those that don't are the opposite. Let's face it, in the developed world, Europe to Japan to us, we've all been talking in recent years about how hard it is to get growth because our labor supplies are drying up. So if you want to look at inflation in the 1970s, that thing was totally the opposite of what we've had since 2020. That was an inflationary environment that came about, from excess demand situation where we stimulated demand in the economy far greater than supply capabilities. And we had excess demand driving up price inflation over that period of time. This chart kind of gets to that. The blue lines, annual inflation, the red line is the four-year average annualized growth in labor force. And you can see that we came out of World War II in the early 50s and had labor force growth that was very modest, 1% or less most of the time. And then we didn't have much inflation as a result because we didn't have much growth. That's basically what it was. And then starting in about 1965, you can see labor force in this country surged. And as it did, so did inflation because demand, everyone got a job, everyone got an income, everyone got desires, and we added leverage on their credit cards and household spending in the 70s. And guess what? We had way too much demand for supply, and we had too much demand for supply. And we had too much demand for supply. And we had way too much demand for supply. And we had massive runaway inflation for almost 15 years. Okay. Now, in that environment, when you have excess demand, the correct policy is to slow demand, slow it down, so it's more in line with curtailed supply. That's what Volcker ultimately did, right? He killed off demand and brought inflation down. It's very different of what we've had since in recent years. We haven't had for 20 years. We're back to the same old system. We're back to the early 50s, where we can barely get 1% labor force growth a year. If you have zero productivity and 1% labor force growth, you know how fast you can grow? One. 1%. So we're back to that. And there's no way we get excess demand out of 1%. We're actually growing labor force in the last several years about a half a percent a year. There's no way that's going to create excess demand over supply capabilities. This is a hugely disinflationary environment. And we're back to that. Now, how'd we get inflation then? Well, this time it's been supply side problems. It's been a pandemic that shut down global supply capabilities for a short period, caused prices to go way up, even if there was virtually small demand. It wouldn't have mattered. Then we had a tariff, which supposedly was going to push inflation up. That's another supply side problem. And now we have a war, which has created a supply problem. And come on, we're not going to get inflation. We're going to get a lot of these commodities, which is causing their prices to go up. But are any of those two things demand driven? No. And sustainable? No. They're both temporary, number one. And more important to that, they're not tied to aggregate demand. So here we got the Fed saying they may raise rates again. Why? In fact, oil is not going to come down until they get some kind of agreement on the war, or find a way to open the strait. But what that will do is slow aggregate demand even further. And it's already so weak, we're knocking on the door of basically zero. So it makes no sense in today's world, even going back to the pandemic, to apply demand-side economic policies to a supply-side problem. Historically, out of Keynesian economics, we've always learned for decades that how you dealt with things was if growth was too weak, you eased your demand-side policies to pick it up. And if it got too strong and inflation started to rise, you tightened. Because we felt that everything was a demand-side issue. That's not. It's been the opposite of that today. And I would suggest that what we really need today is we need to change the supply-side problem. Which has nothing to do with our economic policies. They can't affect it. But in the meantime, we ought to pick up our demand-side, which is, if anything, it's too weak. And I don't think there's a risk of inflation here because we have relatively weak demand. And the only way we're going to fix inflation is fixing the oil supply right now. So I think we're misusing signals. Inflation's up. I don't think that means you have to tighten. I think it's a different world when that was required. Anyway, that's kind of my take. I think we've got a disinflationary world. And don't forget, our economy's driven. If anything is growing, there's one thing that's growing. Massively disinflationary, deflationary sector called technology. Which we did not have in the 1970s.
Speaker 3Would you think any differently about the current supply problem versus the one post-pandemic? I mean, it seems like this one is much more focused on specific areas. I mean, it's not just oil that goes through the street of four moves, but it doesn't seem to be as broad. It's not as broad as what we saw post-pandemic. Do you think about it differently because of that?
Speaker 1Yeah, I don't think it's near as serious. I mean, I really don't. I'm not saying we won't get a little, you know, we're going to get an uptick in CPI reports for a few months. But unless you think this thing's going to drag on for a couple years or something. And even then, even if it does, let's say we sit at $100 oil for the next two years. Guess what? Inflation will be a one-year problem and then it'll go back to where it was. And where it is, is probably pretty low. Back below 3% or 2% to 3% again. It would have to keep going up in order to become a constant inflationary problem. Because unlike an excess demand problem, once this runs through the system at higher prices and people adjust to that, inflation comes back down again. So, the pandemic was a much more serious supply problem. Everything shut down. And even that one came right back down again. I mean, we took it from 9.1 to below 3 within a year. Okay. And I don't think it was the Fed that did that. They only started tightening like two, three months before it peaked. I think it was just that the global supply problem ended. And guess what? As soon as it did, inflation went away. And I think we're in the same situation today. But here's the Fed and everyone else saying, "Oh, we got to tighten to fight inflation." I don't think it's going to do any good. So, let's ease. That's kind of where I'm at.
Speaker 3I have to thank you, Jim, because I'm always looking for good titles for our YouTube videos. And in the article we're going to talk about next, give me one, because this idea of the U.S. economy is bust-booming is your most recent article. And so, I guess probably as we get into chart one from that article, the first thing I should ask you is to define that. What is bust-booming?
Speaker 1Somebody, since I put that out, asked me why it wasn't boom-busting. Or, you know, I have no answer for it. But I think that what I'm kind of looking at, I think what we got in the economy going on is we got really bifurcation in the economy and we've kind of known about this for a while, where you got this tech sector, new era sector doing really well, and then there's everything else. And actually, this has been going on for decades, as we'll talk about, but it's getting pretty extreme. It's finally getting pretty extreme, in part because tech's getting larger and having even greater impact, but also more and more is not participating of the economy. So, this chart just starts out and looks at the size of what I define new era spending, and it's probably not even all new era spending, it's just a small slab of new era investment spending. It's investment by businesses on information processing equipment and intellectual property product spending. Those two things, as a percent of real GDP, back when the bull market started in 1990, the red dot there on the left shows that it was 3% or less of the economy. That was a very small piece of the economy. Now, if you think about it, if you think about the economic growth that it really caused at that period of time, you can see that's grown steadily ever since. We're now up to 13.2% of the economy by this very small segment of investment spending, now comprises 13.2%, and it's going to keep going. I don't know, seven years from now, could we have 20% of GDP comprised by a little bitty small segment? It's getting bigger and bigger. When it was this small at 3%, it didn't wag the entire economic dog near as much as it is today. And I'll show that in kind of the next chart here. This chart looks, bull market by bull market, I just looked at different bull markets we've had, first one being 90 to 2000 there, looks at what was the cumulative percent change in real GDP in each bull market that was comprised by just this small segment of new era investments. Back in the bull market of 1990, the GDP, a new era spending comprised 3% of the economy, but it accounted for almost 15% of the gain in total GDP during that bull market. And you could see that that's grown rather steadily at every bull market sense. I'll come back to the 2020, 2021, but we now in this bull market, the one we're in, it's accounted for almost 30% of the total gain in GDP in the economy. It's 13, there's about 11 something when it started, but my point is it's, it's count, it's counting for almost double the gain in real GDP that it did in the entire 1990s bull market. So it's, it's getting very large, almost a third of the, of economic performance is now tied to this one little small sector. Now, I want to point out, why didn't 2020 to 2021 bull market seem to suffer from that? Well, I think it's because of what we talked about earlier. That was the really one of the few bull markets where we had massive policy stifles. We had 28%, 26%, I think it was, year on year growth in the M2 money supply to try to get out of the pandemic. We had 18% deficit spending. We've never had that even in the biggest bull market. It was one of the biggest war in post-war history. We had a very steep yield curve over that period of time. We had a weak dollar. We were bringing everything to end that pandemic. And the result is, is it picked up all parts of the economy, not just new era, but everything did well in the economy. And it was reflected in the stock market, which had broad, broad participation across all sectors. And indeed, as a result of that, it only accounted for about 15% of the bull. Of the entire change in GDP, that was because basically, it accounted for about the size that new era spending was. New era spending, I think, was about 11% or 12% at the start of the 2020 bull. We look at the chart ahead of it, we need to, but it accounted for about 15% of the total gain in GDP, and it was about the size that it was. That means that the rest of the economy also participated and accounted for the rest. But today, we're going to see that. Today, we have an economy where about 80, I think it's 87% of the economy is outside of the new era. At most, 13% is new era, and that's accounting for almost a third, which means there's only about two-thirds left for the other 87%. It's getting so big, the bifurcation, that it's starting to create two entirely different economies, one booming, one busted right now. If we go to the next chart, this gets to the heart of the matter. How much is the rest of the economy growing? Not the new era, but how much is the rest of the economy growing? And if you go back to the bull market of the 1990s, even though you had a very concentrated bull run in tech stocks, look at that. The other parts of the economy, about 80% or something, were still growing at 3.5% annualized in real GDP terms. No problem. It was not only a boom for tech, it was a boom for non-tech as well. If I look at the early 2000s. If I look at the early 2000s bull, still had good growth in the rest of the economy, 2.5% annualized growth. Very bad after the growth rate in the rest of the economy. In fact, there was very bad growth everywhere after the great financial crisis, if you remember, that we had in 2008-09. The growth rate there over that entire bull run was 1.8% per annum, despicable growth. And we suffered. And indeed, that's why we kept interest rates at zero in this country for so long. It kept money growth growing. We had big deficit spending because we were trying to lift the growth rate after the great financial crisis. crisis that we had. Then in the 2020 post-pandemic bull, we had good growth again, as I mentioned earlier, because we stimulated everything so hard. But look what we're doing now. We're back to almost stall speed at 2.1% growth in the 87% of the economy that's not new era. And that's getting deathly close. That's not just in the recent period. That's for the entire bull market. There's a reason why the concentration of this bull market in the stock market was so extreme, because 87% of the economy hasn't participated, or virtually very little. And so the stock market reflects that with extreme concentration and much of the rest not doing well. Let's look at the next chart of where we are right now, just in this bull market. Just focus on this bull. The red line, they both go back, start at 1.0%. indexed in the third quarter of 2022, which is when the bull market started on October 12th of 2022. The red line is the growth in that small portion, which is new era investment spending since the bull market began. The blue line is the rest of the economy, rest of real GDP, which is about 87% of real GDP. For the entire bull market there, since the third quarter of 2022, new era investment spending, the red line has grown 5.8% per annum. And the real GDP excluding the new era is 2.1, which we talked about earlier. But what's really concerned is what's happened in the last six quarters. In the last six quarters, new era spending has accelerated at almost 8% annualized pace, while the older economy is basically flatlined at 1.1%. And here we are, in the last 18 months, just to give you, with real GDP for the older economies up 1.1%, non-farm payroll growth has grown at 3/10 of 1% for 18 months. Labor force has grown at 6/10 of 1%, and the unemployment rate is up by a percentage point. Now, that's for six quarters in a row. And last week, I heard the Federal Reserve say that our policy is in a position today that we think we can wait and see. And we got some Fed members saying we should raise rate. We got a president that basically seems fine with continuing the conflict and keeping another energy tax on an already 87% weak economy after putting on tariffs before that, and limiting our immigration in this country. Because our labor force is growing so rapidly, Evadel. My point is, our policy officials are just missing what's going on in almost 90% of the United States economy, because all we get is headlines about AI and how great the Mag 7 is doing. They are doing great. Their earnings are fantastic. Okay? That's, that's Wonderbar. If earnings are great, but they don't result in producing jobs in the rest of the economy, then it's not sustainable. You cannot do this forever. And I think that's the problem we're going to run into a little bit here, is we're going to find out that our real problem in this country is not inflation. It's that almost 90% of the economy is flatlined overall. Real quick on the next chart, just to show what's just happened. It's been pretty streamed. This is just the annual growth in red of the new era sectors and the annual growth in blue in the 87% old era. And I highlight just two parts. It's always been the case that the red has been greater than the blue. Makes sense. New era grows faster. But what is, if you look back historically, generally, they at least moved in the same direction. So if new era was accelerating, so was old era, and vice together. They both went up and down together, kind of like economy was getting better or economy is getting worse. But there's been two instances where this stopped. One was back here in 2004-2005, when I got it highlighted by the rectangle box. New era growth accelerated from about 5% to 12%, while old era growth went from 4% down to 1%. And it's just happened in the last six quarters again here of late, where we just pointed out that period of time where new era has picked up. We're in a situation where not only is the difference in growth very extreme between the small sector and the much bigger sector, but the big, big not growing sector is not even participating in expansions that are accelerating. I think that's a real issue and a real problem that we're into. The last chart, there's been a puzzle the whole time why confidence is so bad on Main Street. We've got some of the lowest confidence readings we've ever had. Worse than the 2008 to 2010 financial crisis. Worse than any other time in post-war history. This is a short period of time, just back to 2000. But I overlay the confidence index in the United States, U.S. consumer sentiment in blue with the inverse of the difference between real GDP and excluding real GDP, X the technology sector. And basically what I'm saying here, when that red line goes down, the overall technology sector is way outperforming what real GDP excluding technology sector is doing. I think it's mystery solved a little bit here. Why do people feel so bad on Main Street? Because most of them have their bread and butter with 87% of the older economy. They're not a big participant in the one part that's booming. So I don't know. I think this has been going on for a while. We've all known that we've got this one sector booming and the rest not. A lot of us investment people say, "Well, what's to worry about? Earnings are still going up. It's great." Yeah, but I'll tell you, if you got six months, six or six quarters where there's no job creation, no hope for anyone for the future, I just think that's not going to be sustainable. And so I do think that we're being duped into believing that the demand is signaling runaway inflation in this country. And as a result, we're maintaining a tightening focus to fight inflation when underneath this, we've got real growth kind of the lights going out on. And I think ultimately it's going to require greater sort of massive policy support. And I think it ultimately, if it brings that, I think a lot of these broader market areas will pick up with that support.
Speaker 3Well, my first take, Jim, is that we've got to get the Fed a subscription to Paulson Perspectives here because they're spending all this money for all this expensive data. Yeah, they can run over the cliff with-
Speaker 1Very affordable price.
Speaker 3Even if we had to get one for every one of the governors, it would still be a very affordable price for them. And they could see some of this data that maybe says something a little different than what they're seeing.
Speaker 1Yeah, they probably tuned me out long ago, Jeff.
Speaker 3My second question though, is in terms of the new era stuff, I guess I could have two takes. The new era spending has obviously been driving the economy. One take could be, that's going to be a huge problem. If new era rolls over, it's a huge problem for the economy. But another take could be, if this juice finally comes, the rest of the economy can kind of take over and we can sustain, even if new era doesn't keep doing what it's doing, we still can do pretty well. And like, which one of those do you think is right?
Speaker 1Yeah, I kind of go with the second on that. I really think that that's probably how this thing plays out most likely, that maybe tech does start to roll over a little bit. It scares me a little bit with tech because I don't think any of us under what the tech, I've talked about this in the past, the tech cycle has divorced itself from the normal cyclical forces of the economy. That's why you've got the old parts of the economy are very much cyclically depressed. Tech isn't. They're divorced from it. And that's good in a way, but I think it's left us though, not really understanding what drives tech in this country. We don't really know the forces that cause it to do well or maybe do that. And so we might all get shocked if it just suddenly dies because I don't think we fully understand yet the tech cycle in this country. We certainly understand old era cycles, inventories and sentiments and policy tightening. And we get that. We don't, I don't think, even myself. So I do have a fear that tech just rolls over and we don't really know why it just does. But I guess I put the odds of that in what you brought up, that it's slowed. It's probably already doing that a little bit. And we recognize that we've got a big chunk of the economy that needs help and we bring the juice. And I think that old era growth could help revise new era growth again and probably keep the economy overall out of recession. And if that occurs, all of it could continue to go up while we're doing this. But you know, there's a lot that could go wrong in that equation if, if a new era. Would die quickly before we really start easing, things like that. I worry a little bit about that, but I think that's less likely than what I just laid out there.
Speaker 3Just one more for me before I hand it back to Justin. How do you think about the impact market on the economy. So kind of the reverse of what people usually think. Because there's been a lot of charts we've seen on the podcast recently about this idea that way, way more people have money in the stock market now. And so this idea of the stock market goes down, it's going to drive the economy down. And I was thinking about that in the context of what you've been saying, because tech is such a huge part of the stock market. Would we see a big effect if tech went down and drove the market down? Would we see more than a usual impact on the market or on the economy because of the
Speaker 1market being down? We could, we could. But I really think that the 87% of GDP that's produced by people on Main Street, they may own some stocks in their pension plan. And there's no doubt about that. They own more than they used to in the 60s and the like. But I think the bigger thing for them is still a job with a decent income. And that's still, I think, what wags the dog among those. Certainly, there's a lot of the upper income part of the distribution much more sensitive to the stock market. And it would definitely change their attitudes if that cracked. And if you have a full-on stock market crash, it's probably reflecting a recession and that would hurt everybody, right? But I think it would be more if tech started just to underperform, not do very well, maybe just be flat while other things were going on. And I think that's a big part of the problem. And I think that's a big part of the what everyone fears right we won't need as many people we won't need as much of this or that so they'll they'll be a weakness uh because there'll be an excess supply of resources that we can't fully employ that's what's feared see what i'm saying yes that is a huge if that's right if you buy into that if that's what we think you better be easing like a bench because that means that that all this excess supply in the economy is going to need policy juice to try to help those parts they're going to have to get through this transition period before we have an economy which creates enough jobs equal to the population in other words we we need that just argues you need more help in stimulus not less because that would be a disinflationary deflationary sluggish growth environment if you took the ai story to its limit that we didn't need anybody
Speaker 2guess what that means guess what that means for you jack more time for podcasting
Speaker 1yeah exactly and more ai tools i guess to help
Speaker 2me as well jack jack's
Speaker 1gonna need that stimulus check i don't know um uh so all right all right
Speaker 2always always uh great conversation with you jim we always like to end is you guys you know as you think about the rest of the year what's the most important things you're you're paying attention to we've covered a lot on today's call uh you know call on in this presentation and we'll see you next time bye bye maybe some of this is is what you you will be paying attention to but what's on uh what's top of mind well
Speaker 1you know i i guess for me um you know certainly i wish the iranian hot crisis would find a place where we would be able to move on a little bit from that um and there's not much we can do about it so probably don't have to worry too much about it investors have had time to vet it i i'm a little worried about the tech cycle and still investigating a little bit about it but i'm a little worried about the tech cycle and still looking into what drives that i haven't been very successful at it figuring that out but i i think it's out there and there's something that could create a very dark story there that turns it down um you know what were all the causes even in in 2000 when that went down well part of that was policy tightening no doubt part of it was companies that didn't were making money and earnings and you know that's very different today but but i i do worry about that coming out of left field a little bit although again i'm not sure what to do with it although it does factor a little bit with my desire to want to diversify a little bit and then the other thing i just point out is um you may want to think about finally having a little bond in the portfolio again long bonds uh that no one really thinks about and i'm not sure why they would at the moment but i kind of think we might be happy if you put one or two in and we'll probably get a pretty good risk adjusted return on that with stocks overall here in the up in the upcoming uh so i don't know those are some of the things i guess i'm i'm focused on i think one more thing i just brought you i really think that one of the biggest things that could happen here i've made this point but we're making one more time that is a huge change that i don't know if people are totally focused on is we have been fixated and obsessed with inflation for five years in this country okay and that's created a certain environment everything economy stock market bonds everything i think that could change this year and if that finally changes that would be the really the first time it's in five years that we've gone from primary focus on inflation to primary focus on growth that's a big change and everyone should give some thought to if that happens is my portfolio in position or at least give it some
Speaker 2thought great good stuff jim we will see you again in uh the beginning of june really appreciate your time
Speaker 1yeah unless the weather's too nice out here that day so thanks you guys always a pleasure thank you
Speaker 4for tuning into this episode if you found this discussion interesting and valuable please subscribe on your favorite audio platform or on youtube you can also follow all the podcasts in the excess returns network at excessreturnspod.com if you have any feedback or questions you can contact us at excessreturnspod gmail.com no information on this podcast should be construed as investment advice securities discussed in the podcast may be holdings of the firms of the hosts or their clients
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