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Seven years in. We're so far so good. Real GDP, all time record high stock market, all time record high. Uh, so far, so good. Just three more years. Uh, I mean, there are issues ahead. Uh, but it's amazing how well the economy has performed despite all the shocks that it's had to absorb since the beginning of the decade.
So far, so good, as I said. And, well, you are the quintessential card counter when it comes to looking at fixed income markets. And, you know, your work on debt levels in the US, in France and abroad. But, you know, you're referring to bond yields back to their quote unquote old normal here in your latest, you know, talk to us about the old norm.
Well, I love it. Well, uh, you know, I, there's, uh, an expression that, uh, people used to, uh, explain where interest rates are right now and that is, uh, higher for longer. Right. And, uh, I don't know that that that just doesn't it rubs me the wrong way. Quite, quite honestly, I don't think it's higher for longer.
I think it's normal for longer. We're back to normal rates. Uh, the abnormal rate environment was between the great financial crisis and the great virus crisis. Right before the Great financial crisis, we were running between 4 to 5% that occasionally spiked above 5%. Deja vu all over again. And you rightly point out that, you know, it's basically if you look at household earnings of treasuries or any or corporate earnings, it's minuscule compared to where it has been in years past.
Yet, you know, now we look at the size of the U.S. Treasury market, and people are actually equating the fundamentals of the U.S. economy to the level of yields. Is that something that we can kind of wrap our arms around and get used to and see in other countries? Well, uh, when it comes to the U.S., uh, one of my Guideposts for trying to figure out where bond yields should be is to look at the growth rate of nominal GDP.
And the growth rate of nominal GDP right now is 6.3%. Uh, we're below that. Uh, at uh, were less static. That was 5.19%. Um, I would say that if we got anywhere close to that, I'd worry. But right now, uh, it looks like normal for longer. And you're doing with. You should do any research. Again. The research.
I can't say enough about his daily essay. Look for that at your research. We protect the copyright of all of our guests. So I finished last night the Wigglesworth a fabulous debt. And like Sidney, Homer shows up on page 29 as Shaw's in there at the end of the book of Schema. Uh, as well. Mary Child shows up in page 372.
Your Danny is in the prologue. He's he shows up and Roman numeral XII and Robin put you in early and often because of this great phrase, bond vigilantes. I would suggest there's a ginormous consensus now that the vigilantes are out there. What is the level of our vigilante ness right now? Well, right now they're sightseeing in France.
That's that's where the band vigilantes. But even France has come in a little bit. I mean, a land speech. Yeah, yeah, yeah. And you haven't really seen the contagion into Italy. Exactly. Yeah. Look, the bond vigilantes are not the only players on the bond market. There's central banks. Uh, there's a ministries of finance.
Uh, uh, foreign investors. Uh, there's a whole bunch of players. And I think what we're seeing here is that there's a lot of, uh, cash out there that is finding that these bond yield bubbles are bright, very attractive indeed, in the way I would link in your work with doctor. Your Danny's work is this bond vigilantes fear.
Oh, no. Japan's bringing all their money back to Tokyo. Disgust. Well, I'm so happy you brought up Japan because, you know, I missed that. Your Dennis Monday webcast, uh, live webcast. And he was talking about the parallels between Japan and, of course, China. So, Ed, for our audience, please, if you could just enlighten us, tell us a little bit about the similarities and what makes, uh, this time, I guess, a little bit more, uh, worth watching?
Well, uh, everybody is kind of focused on the bond markets around the world. They should also focus on what's going on in the bond market in China. Their yield is actually historically low, uh, you know, extremely low. They've got deflation over there. And there is a sense of, uh, uh, the Japanese model kind of, uh, creeping into to China, the China just, uh, uh, recently restructured its banks.
It took all of its rural banks and folded them into the into large banks. That doesn't mean that that solves the problem. Not at all. There's still all those bad loans that they just can't get their act together and just restructuring their credit system. That's that's really what they need to do. But they just they haven't done it.
And do you believe the loan data that you're getting out of China, or even for that matter, M2 and monetary supply data? Because, you know, I have been crunching some numbers lately with some friends at a data, and some of the things that we're coming up with are just incredible about the bilateral lending to emerging market countries, I guess way, way before.
Are you writing your morning note, doctor? You're just doing these things and it's not me. I'm learning. But talk to us a little bit about how you look at that data coming out of China. I mean, is it to be trusted? Well, you know, I have any data that supports my stories is a good data. And, uh, I think it supports the story that consumers aren't spending.
Retail sales growth is absolutely zero in both nominal and real terms. Uh, there is a lot of signs of deflation. Home prices are still falling, right? Um, I mean, it looks pretty bad, which is consistent with the the view I have. So I have no problems with the data. I mean, and not only that, but the bank loan data is like, what, $40 trillion?
And ours is about, what, 12, $13 trillion? So their credit system is basically out of control and they're dealing with us for sure. Lovely conversations. Warning you do any research. We welcome all of you the way you choose to listen to us. Major shout out on Bloomberg podcasts. Thank you so much for your support.
This report. They're growing each and every day, and I want you to discuss what we started the show this morning. My research essay of the year is Robert, not Kim Harvey Duke in their team saying, get back to your Disney fundamentals. Or you look at the income state and then stop looking at price, uh, ratios.
For example, gross profit underneath revenue is a top line profit. The banks have never been this gross profit rich now right. With nominal GDP, if it comes down, do we risk diminishing gross profit? Well, uh, the assumption the question is really in the assumption of nominal GDP hike, I could see inflation moderating over the next few years.
Uh, I think we are in the roaring 2020s with a, uh, a technology led, uh, productivity boom. Uh, if that's the case. And, uh, if inflation moderates, we should actually have more real growth. And so nominal growth would still be quite good. but there's no doubt that we're in a, uh, earnings boom. Uh, and that's partly because revenues have been very strong.
In fact, the global economy has been remarkably resilient to all. Its all the shocks it's face as we see an S&P 500 revenues. So if Jamie Diamond's lucky and gets a cup of coffee with you I mean I can see gardening up daily. I got a tour of I got a tour of his new building. It's awesome. Did you see the Jalen Brunson jersey?
Yeah it's unbelievable right. I mean he's he's an intern over there. And now for the next season. And I'm looking at the great fear of everyone is we don't know the x axis. Have you changed your study of how far out there is out there in these tumultuous times? Well, uh, right now I'm working on the in the 2020s.
Uh, I may I may conclude that, uh, we're going to have the roaring 2030s if this if this works out, However, the problem with the 2030s is they rhyme with the 1930s, and that was a period of horrible geopolitical crisis that led to World War two. And, uh, the geopolitics environment doesn't look very healthy out there, that's for sure.
So that there are definitely things to worry about that are always, ah, a stock market always seems to climb a wall. Well, the worry is these same things that you're doing, and we're spending a lot of time talking about the level of growth and how the markets are really just growing. It's it's gangbusters out there, but it's central bank weak globally.
You know we're getting inflation prints each and every day Germany Italy Spain I mean give the US tomorrow. Talk to us about break even. Talk to us about the role of inflation in this market. I mean we know about affordability issues here in the US. Do you see that being a risk to, you know, to your forecast for equities here.
Yeah I mean inflation is is always uh, an issue for forecasters. Uh uh, if you get it right, uh, then you're going to get your portfolio, uh, uh, working for you. If you get it wrong, you're you're going to lose money. Yeah. Um, I, um, I kind of had to stick my base case, of course, is that, uh, productivity, which is right now growing around 2%, uh, is going to go to 3 to 4%, but somewhat delusional.
But if you look at previous, uh, productivity booms, that's par for the course. And and this productivity boom probably has more going for it than previous ones. Wow. I mean, the exponential impact of 3 to 4% productivity growth, if you just do your little, uh, you know, nominal GDP character. Um, that's that's not that's not nothing.
As I like to say. No, it's not, nothing is. Well, what's the biggest misconception you see in what I'm going to call the Barron's crowd? I love to read Barron's in the spirit of it. And this this is what's the biggest misconception of the short termism out there right now. Well, I think a lot of people uh, uh, with all due respect to what you do, uh, uh, read the headlines in the media, the headlines always seem to be in the financial press about, uh, Washington.
It's always about monetary and fiscal policies. We're totally obsessed with with the fed. And that's, uh, Scott Benson that the Treasury's. I call it a parlor game. Yeah. Well, uh, I guess what I've learned over the years that I've been doing this for a while is that it's amazing how well the US economy and stock market do, despite despite Washington.
Uh, I that's kind of my mantra. I keep repeating it to myself when I read these very depressing headlines of how Washington is getting all of our policies all screwed up. Now, you know, I mean, you know, Dirk Wheeler of Citigroup would agree with you. I mean, he says that forget about the noise of geopolitics.
The only real factor that has had any sort of durability on growth is oil. And so I ask you, you know, we're in an environment and people are equating what's going on to geopolitics, to Ukraine, to around, etc. but really it's about the price of oil. So is this sort of a is this an oil crisis or I mean, has a market just looked through that, been able to exhibit enough resilience to not even worry about it?
I mean, are you concerned at all? Well, I would generalize or I might try to say it's amazing how well the U.S. economy, global economy and stock markets have done, despite the latest spike in oil prices. Right? We had a spike in 2022 and everybody worried that that would, uh, create a recession along with fed tightening.
We had a bear market. And then everybody realizes like, wait a second, this is an amazing opportunity to buy stocks because there is no recession. We had the most widely anticipated recession of all times. That wasn't happening. And that was my call back then. And over the arc of Robin Wigglesworth book, the fancy guy's changes.
You know, it's he has a whole chapter on Louis Ranieri and Michael Milken and others in high yield and elbows in that. And then we get to the derivative business. And I would suggest with respect to the street today, everybody's focused on hedge funds, CTAs, leverage that are their leverage out there that could upset the applecart or shadow leverage your concern.
And that's where all the trouble usually starts. It starts in the credit markets, not so much in the stock market, or at least, uh, we have to recognize that, uh, uh, the credit markets, uh, is, is sort of the, uh, area where you get your speculative excesses. And, uh, certainly in the I feel there's a speculative excesses going on with all the financing that's happening there.
Um, look, uh, the difference between the, the great financial crisis and the current environment is I don't think that the banks are as, uh, involved in all the excesses as they were back then. So we had systematic risk back then, and we saw it big time, uh, in the great financial crisis, uh, this time around, let's say something blows up in the, in the I field, uh, I think you'll see the AI community, uh, rushing to, to shore the, the problem up.
And by the way, Washington is basically, you know, tied at the hip to the eye industry. And I think you see a lot of moves to support any, uh, any excesses, a blow up. I gotta get one more in here. We celebrate, uh, Michael Woodward at Princeton and of course, always at Columbia and his Nobel Prize.
He would make real clear that certitude doesn't work, the hallmark of what he and John Taylor did within Taylor's rule in Woodward's respect for uncertainty. Should the dots maintain, or should we get rid of the dots and have a more uncertain dialogue? We talked about the dot plot, the plot of Please Don't Take It Away.
I mean, I hope we have the time I need, I need, I need it, I needed, this is it. So I'm a content provider. I need I need something to write. Listen to him. I'm by his side. I like the Douglas, I don't think. Is it of use in gaming out interest rate strategy? Look, any way you look at it, uh, Kevin Walsh can't muzzle, uh, his colleagues there.
They're going to give speeches. They're going to, you know, I mean, if we don't have the dot plot. Exactly. Uh, and on a chart, we're going to be able to figure out the dot plot just by listening to the speeches.
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