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Why is it that investors often tend to doubt these continuous bull markets? So your thesis of the "roaring twenties", which by the way, you have been saying for some years now. You've been writing about it. Actually, it was in August 2020 that we put it in writing. And at the time it seemed quite delusional, but, you know, if you count on your fingers, you'll see that we're actually in the seventh year, not the sixth, of the " Roaring Twenties" and it will end at the end of 2029.
So we have three more years to go, but the basic thesis is that there will be no recession. The economy is resilient. The economy will continue to grow. Perhaps we will have a rotating recession that affects different industries at different times. And you may recall that during the early years of the decade, there was much fear of a recession in '21, '22 and '23.
At that time we said we were experiencing the most widely anticipated recession of all time. It simply wasn't going to happen. And look, it made sense back then that almost everyone feared that a recession was inevitable, because the Fed had an inflation problem after coming out of lockdowns and the pandemic; Everyone was anxious about being confined .
So we all went shopping right when the supply chain disruptions hit . And that led to a spike in inflation, and the Fed had to raise the federal funds rate from zero to 5.5% in about a year and a half. And then Russia invaded Ukraine, and oil prices rose. So we did indeed have a bear market in 2022, and bear markets are usually caused by recessions, but there was no recession.
So it turned out to be a fairly short, conventional bear market . A 25% drop with a 9-month period in which the shares were declining. I saw it as a great buying opportunity and so far everything is going well. But the economy has been resilient. It withstood the Fed's initial tightening in '21, '22 , '23; we had a small financial crisis in March of '23 that did not last long.
The Fed crushed it, providing liquidity quite quickly. We had tariffs with Trump last year. We have a war this year. Now we have bond yields rising. So there have been many stress tests for the economy, and it has passed them all. Because consumers are increasingly driven by the retirement of baby boomers.
You know, almost a third, I think really a third of households in the United States are older people now, 65 years or older, and most of them are baby boomers, but there are also people in households older than baby boomers. So we have the largest group of elderly people retiring that has ever existed with the greatest amount of wealth in history, $120 trillion in net worth .
When interest rates rise for retirees, they see it as a good way to get more money in their money market funds. They do n't really care much about what's happening in the job market because they're retired. And they're living the high life. And they are also helping, by the way, their young adult children who have affordability problems.
So I'm not a big believer in the so-called K-shaped economy. I think it's more of a G-shaped, generational economy. The older people have done very, very well. Younger people are definitely having affordability issues, but many of them are getting help from the older generation. What are the short-term consequences of all this capital expenditure?
You know, there are a lot of people, we've had some people on the podcast who say that this is what's keeping the economy going. It's as if the rest of the economy isn't doing well, and this capital expenditure on AI is keeping the economy afloat, and if this goes wrong, we'd have serious problems on our hands.
I mean, do you think that's right? Well, those people didn't have happy childhoods like mine. So that's it. My answer to that is, what's your problem? You know, I mean, it is what it is. I mean, you can't just make it disappear and say, and only hypothetically say, I guess you can, you can say that, you know, hypothetically, well, if this disappears, then there's nothing, and if that's all there is, then that's all there is and everything falls apart.
You know, those are the permanent bass players . Permanent bears will take it out of the stock market at the top, they will take it out in the middle, and they will take it out at the bottom. It will never be on the stock market. He will never smile if he listens to permanent bass players. This is all so [ __ ] depressing.
So I would say it's not just capital spending that's strong. And by the way, well, the development of artificial intelligence is forcing us to do things we should have done a long time ago; For example, our electricity grid is sadly outdated globally and we are improving it very, very quickly. Um, but I would say that, uh, the story about artificial intelligence is part of the reason why the economy is doing well.
The consumer... I'm surprised that economists have completely ignored the fact that a third of households are of retirement age, and that can be seen in the monthly data. They are retiring. Social security beneficiaries can be viewed annually. And the rate of retirements is increasing dramatically. People don't retire if they don't feel financially secure.
And many people who retire feel financially secure, not just because they receive social security, but because, as I said, baby boomers grew up listening to Spock on Star Trek: " Live long and prosper." They have lived a long time, and in previous years they had nothing in terms of net worth, and now collectively they have something like one hundred trillion dollars in wealth.
The silent generation, who could pass on some of their wealth, that means another twenty trillion dollars for the baby boomers, and then, you know, the baby boomers will try to spend it as fast as we can. So obviously they have the attitude of: well, you know, the kids didn't listen to us, they did n't clean their room, we didn't like their friends, so let's spend it all and leave them nothing.
Of course, that is not the case in most families. I see it for myself and for my parents, who say, "You know, I can help my children when I'm dead, or I can help them now." And that's why I think there's a lot of intergenerational support, which is why the consumer has been very strong. And if you look at the areas of strength, much of it seems to be attributable to the baby boomers.
Things like healthcare are booming, obviously, but so are cruise travel. I get seasick, but I have friends and relatives who used to go once every three years, and now they go three times a year on these cruises. One of my relatives texts me from the cruise ship saying, "Ed , I know you get seasick, but you really have to come, it's so much fun being on these cruises." Oh, and by the way, we're paying for premium class, so I know you don't want to be on a ship with four thousand people, but it really feels like you're only with a few hundred people when you pay premium.
And then he sends me a message saying, "And whatever you do, keep the market going up because we can't spend money as fast as...you know, as fast as we spend money, the stock market keeps increasing our net worth." Perhaps that is the fatal flaw of these crazy twenties . People tell me that the 1920s ended badly, which is true with the Great Crash, and I believe that was a result of the Smoot-Hawley Tariff.
Uh , I don't think we're going to have a Smoot-Hawley tariff. We had tariffs last year, we still have them, and they're not really sinking the economy. Maybe it's something else. Maybe it's a debt crisis, you know. People like Ray Dalio have been spreading pessimism for quite some time now, saying that's what's going to bring us down.
So, if we have a calamity in the stock market, that could end up ruining the consumer.
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