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um you know how the thing works if the pulse of the economy goes down then the policy makers like doctors you know rush to the patient and inject it with a whole lot of uh stimulation and so what they did is um they wrote wrote out a bunch of checks and they're writing out a lot of checks which are about about seven times five to seven times the size of the whole and they got that money out and what that did was of course the government doesn't have money the they get print money they so they have to borrow that money but the federal reserve can print money and so the same thing that is happening um like on march 5th 1933 is the same thing now in terms of that big stimulation so the way it works is real interest rates are so bad money's so cheap and it's so abundant that it changes a lot of financial assets and it causes those financial asset prices to rise and when they rise future expected returns go down to start to approach those of bonds and the risk-free return and so that's what that's what we've gone through so you you see it domestically you see it also in the currency in the dollar you see it in um other assets gold uh bitcoin and so on so what the world has got a lot of liquidity and now we're at in a spot where we're going to have the supply demand question the big question is uh the supply demand question because we're gonna have to sell a lot of debt and i don't know if you want me to go into that but we're gonna have to sell a lot of debt and then the question is how that goes will the demand be there or will the fed have to monetize more that's the dynamic yeah i do want to get into that debt question but but first of all i want to go back to stimulus which maybe is before that and am i to understand then that you think there's too much stimulus coming from washington at this point right it depends like you say too much too much for what too much for the supply demand yes probably okay we'll get into that too much because um like fast a lot of people needed to get a lot of money okay if you look at the needs um and a lot of things like okay air on the side of too much there was you know we have a we have a big uh wealth gap we have a big opportunity gap we have big gaps that are issues uh we see it here i work my wife particularly in the state of connecticut works with disengaged and disconnected um students high school students in poor neighborhoods and so on and you see their conditions and and what the budgets are there are a lot of needs so i'm not saying the needs are not there i'm saying just the right way the machine works the reality of it is um you know you're gonna you're you're making this big supply-demand move but that it's not like it doesn't have risks and costs associated with it so from the market's point of view it's a real big deal yeah so does that mean you sort of flood the zone to mitigate and obviate these sort of social problems and sort of by definition you're going to overshoot and then we have to deal with those consequences yeah because like like debt at the end of the day it's going to be one way or another it's either going to be when somebody borrows or and you're using that debt is that going to produce productivity so that in hard money terms that that money can be paid back in a way where okay it it paid off in a productivity increasing way or is that not going to be paid off and somebody's always going to pay but it's going to be the bondholder it's going to be the cash holder who is going to pay if that doesn't come back with real productivity and pri right now it was an emergency situation with covid mixed with a political situation to disperse a lot of money and that's what we have but it's not ending there because that's the new policy so can i infer then that you're suggesting we're going to have an inflationary period ahead because of this what you're just outlining there are two types of inflation okay let me just clarify your supply demand inflation like if demand is pressing up against capacity to produce things and maybe that's labor maybe that's um capacity constraints and so on and so forth prices rise because of that and then there's monetary inflation and monetary inflation is because the currency and the value of money goes down and um so you can see like in the 1970s stag flashing you could see not inflation is not coming from the first of those types of inflation it is coming from the second of those types of inflation and the way that would occur is because people don't want to own bonds to me it's pretty crazy to want to own cash or bots okay we can get into why that is but if you if you have that movement out of like that type of financial assets to other assets which we are seeing then that has the effect first of causing financial inflation in other words one investor an investor shifts it to another investment and they go up in value and then that wealth effect has an effect on those items that those acquire people who require the money want to spend on so maybe it's on penthouses or maybe it's on something else but it depends how that's spent i'm more worried about the monetary inflation which will which would look something like a currency defense it means that what happens is as money let's say people don't like bots and then they start to sell bots and bonds then go down in value because they have a capital loss and they don't offer anything in interest rates negative real interest rates and so on they don't like that then the federal reserve or other central banks are faced with the choice of either rates rise and that is bad for financial asset prices and it's bad for the economy or they make the purchases they make money and they make the purchases of that and that then produces more of a monetary inflation so it's the second that i'm more concerned with but the supply demand of debt uh will be i think the big driving influence uh and i want to emphasize this because so many people say okay well they look at this stock or they look at this but what you saw was the v bottom in all markets and so on and that was due to debt and money dynamic happening so that's the biggest dynamic to pay attention to so with that v bottom do you mean a year ago yeah that's what i'm saying you could i think it was april 8th or 9th the exact same action was taken basically almost as happened on august 15 1971 and which was also the exact same action which was taken on march 5th 1933 in other words the big jolt the separation in terms of that value of money that that dynamic and that is the new paradigm and so what does that mean so on the one hand you're seeing this rotation in equities from growth stocks to cyclicals number one is that going to continue and then number two the 10 years up 100 basis points this year uh is that going to continue well um what's happened a lot of new ideas new technologies new things come along and they make fabulous revolutions and they and they grow things and that's great um but there's a tendency of investors to extrapolate the past and get uh and not pay too much attention to price and when that happens you start to emerge as somewhat of a bubble uh by our measures the bubble is not as what it was in 2000 and not what it was in 1929 but it's kind of like halfway there if i look at the types of uh qualities in other words and so what that means from a value point of view if you're calculating you know what can i realistically expect um you um it's expect to return shrink relative to the others however the um kind of the meat and potatoes type of companies uh didn't benefit as much from those and and they're fairly stable and so on and so that's why you're starting to see that kind of rotation now that can change uh it can come and go in these phases like when people get stimulus checks and then you know they might be hot on you know the exciting things and they run up again and so on but that that's going on and of course uh there's bitcoin and other things that are going on um so uh however the big thing is plenty of liquidity and ridiculously low interest rates now on you ask about the 1.6 i think we've been we have been in a 40-year bull market in box so now you look at that one point six percent that's a negative one percent uh about real okay that's a so so you're guaranteed and you ask yourself if you're gonna hold a bond any investment the only purpose of an investment is so you can sell it to buy something you want um and and so when you look at what is the length of time it's going to take me to get my money back if i uh give an investment nowadays in the united states i'm going to have to wait about 50 years to get to get back the buying power to start and then i'll start earning money if i'm in other countries uh some europe and uh japan i will i will have less and if i'm measured in all those countries in real terms i'm gonna have less money so basically what that means if i is if i just bought anything that didn't depreciate in real terms if it just matched inflation i'd be better off than than to have those things and so um now i don't think those rates um those rates will only stay down there i think if the federal reserve does what it did it like in the 1930s in the war period which is to put a cap on rates to make um in short-term interest rates low in relationship to the cap like back in the 30s and the war years they made one percent was the short-term interest rate and two and a half percent was the bond yield so it was profitable to buy those bonds funding it with one percent and you got two and a half percent that could put a lid on it but because those two assets cash and bonds were such bad investments relative to other things there was the movement to those other things still and then the government outlawed them i mean things like uh gold outlawed gold that's why also outlawed bitcoin as um you know good probability and um and that um they also establish foreign exchange controls because they don't want the money to go elsewhere you
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