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2023. There there are a lot of sectors of the economy that have been waiting for bonds to get back to the new normal. Those are lower levels that are here. We just talked about Home Depot, how people aren't tapping their home equity lines of credit like they used to be. You can look at all of the debt that's building up for the hyperscalers and beyond that.
All of that activity is based on the idea that, you know, 4 to 5% and definitely not higher than that are not necessarily in the cards. Yeah, I think the the the bond market is actually finally working the way it should work. It's allocating capital efficiently. Uh it wasn't doing that when the Fed was basically rigging the bond market by keeping the bond yield close to zero by dropping the federal funds rate at down to zero.
Uh so, this this is kind of back to market-driven interest rates. Now, of course, that also means that the bond vigilantes are are much freer to express an opinion than they were when the Fed was controlling things. And uh they obviously are concerned about the debt. They're concerned that maybe the Fed isn't being vigilant enough about inflation.
They're concerned about the price of oil. Obviously, the Strait of Hormuz is not not a safe passage still. And so, there there are concerns, but at the end of the day, the bond deal wouldn't be here if the economy wasn't doing well. So, I view it as a vote of confidence in the strength of the economy.
Now, I was going to say, you listed that long list of worries and yet you were pretty optimistic about the equities future. Yeah, I mean, a lot of that has to do with the the earnings. The economy has been extremely strong and that's translated into what I call FEMO, fabulous earnings momentum, to distinguish it from FOMO, fear fear of missing out.
FOMO was kind of what we had during the bubble in 1999. I don't think we have that situation right now. Okay, describe that. Let's let's dig in a little deeper to that because there are two camps on that, too. Mhm. who say this is very reminiscent of the huge build-up that we saw and a lot of things that are happening.
You have not thought that for a very long time. For a long time you've been convinced that this is kind of a roaring bull market. Yeah, well And you've been right to this point. Yeah, I've been calling it the roaring 2020s. Obviously making an analogy with the 1920s. The naysayers come back and say, "Well, that didn't end very well."
You're right. And Andrew wrote a great book on that entire experience. But we did we have stress tested the economy numerous times even with the tariffs. And tariffs is one of the contributors to the calamity at the end of roaring 1920s. What's that? Smoot-Hawley that Yeah, Smoot-Hawley was passed May
1930 May of 1930. You look at the charts and commodity prices collapsed. Credit collapsed. Everything that could go wrong went went wrong. This time around we had something comparable. Maybe not as severe. We didn't have the retaliation. We didn't have quite the same experience. are being refunded in a lot of these cases.
Yeah, exactly. It's actually actually stimulative. Yeah, when you think about it you've got the hyper scalers stimulating the economy with a tremendous amount of capital spending. You got baby boomers like myself. I'm still working for a living, but a lot of my friends are retiring. And the baby boomers collectively have something like a hundred trillion dollars of net worth.
And as they retire guess what? Their disposable income goes to zero cuz they're not getting a check anymore. And they're living off their net worth. And that means when interest rates go up they're actually happy cuz they have money market funds. And those those rates get up. They don't particularly concerned about the labor market because guess what?
They're they're retired. So there's a lot of resilience in the economy that's showing up in earnings. Right now analysts are collectively looking for $408 a share for the S&P 500 next year. But that number keeps going up every single week. And I think by the end of the year it'll be 415 times 20.2 or so, and you get to 8,400 by the end of the year.
So, full speed ahead for the equity markets as far as you're concerned, but you are a student of history. What are the red flags that you're on the lookout for that would Well, you know, I I I think clearly when you you do a list of the the worry list, and I update my worry list on a regular basis just to make sure that I stay disciplined in thinking about these things.
Um the worry list at the top is still geopolitics. It's uh oil. But, it is fascinating that notwithstanding what's going on, I guess oil is liquid, and somehow or other it's it's it's getting out of that uh part of the world, and oil prices have haven't soared, but to your point uh yeah, the the I I coined the phrase bond vigilantes back in 1983.
And back then I wrote that the bond vigilantes were concerned that if the sheriffs, the the fiscal and monetary authorities, don't keep law and order, uh well, th- then they'll do it. They'll they'll be vigilant. Well, back then I wrote that they were concerned about uh $250 billion of deficits. Now, we got 1 and 1/2 to 2 trillion.
So, we're kind of testing the the outer limits of of where the bond vigilantes are really going to start protesting. Um they they did that in 2023 with and it's a market, and at at a right yield, buyers came came in and at a rate that did not clobber the economy.
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