저자: Bloomberg Podcasts · 외국인
다듬은 글
Well, I think that the the unproductive bubbles I would describe as financial fads. Portfolio insurance was one, subprime mortgages was another. Just, you know, financial activities that become fashionable, zoom into popularity, get overhyped and then recede. But then there are bubbles which are based on technological progress, starting with the steam engine, the railroad, the radio, the automobile, computers, internet, etc..
And these actually push society ahead and change it irreversibly. But in the process, there is a bubble surrounding their implementation, which is overly accelerated and overly financed and goes to excess and end up destroying a lot of capital, but leave society greatly changed. And I'm sure that I is in the latter category in terms of effect on society.
And the question is, will the implementation prove to have been excessive in scope and in in the way it's financed? Just because something is excessive doesn't mean that you can't invest in it. No, but but, you know, when when when in error, when investors hate everything. And we'll touch you with the ten foot pole.
Chances are it's going to be on sale because nobody has pushed up the price. In fact, their disinterest has pushed down the price. But when everybody likes something is excited about something, chances are it may be overhyped and overpriced. So you just have to be careful. So that's where we are right now.
You said you can invest, you can do this, but you just have to be careful. What is being careful look like? Does it mean focusing more on debt versus equities, more in equities versus debt, more on small companies versus big ones? What does that look like? Well. What I say in the memo is that it's okay to lend for activities, even if they're uncertain, but not if they are, if the outcomes are purely conjectural.
I mean, in order to be a smart lender, you have to have good visibility on the extent to which the thing has is likely to repay interest in principle. If it's just purely conjectural, it's not. You shouldn't be a lender. And in fact, it's I think the memo says that where that's the case, you should actually if you want to participate, you should be in the equity.
So at least you get the upside. The lender has no upside. You make it 9% loan. All you're going to get is 9%, no matter how well the thing does. You certainly shouldn't do that in in in activities that have a high probability of not paying off at all, because then you have unlimited downside and limited upside.
That's absolutely the wrong combination. So you think right now in some circumstances, the equity might actually be a better option than the debt because of that potential? Exactly. Because the point is that if you if you go into some startup which has the possible, you know, let's say a small possibility of a of a raging success, you know, you wouldn't lend to it because you have a high probability of losing all your money and no probability of participating in the success.
That's a bad trade. So you always talk about this risk reward pendulum, the risk and fear that this sort of fear and greed pendulum right now. And yesterday we saw Oracle come out and talk about having to borrow more money, having to spend more, and people are selling off the shares. Does this make you feel good?
Does this make you feel like there actually is some discretion? Well, yeah. Well, I think that I think that it's you know, Buffett says the less prudence with which other conduct their affairs, the greater the prudence with which we must conduct our own affairs. So when other people are acting imprudently and mindlessly and carefree, we should be worried when other people are showing appropriate concern.
And that's a positive sign that the market is applying some discipline. The greatest some of the greatest moments that I've seen, some of the greatest signals of danger in the markets had been when people were not applying any prudence at all. Like in oh six, for example. So if people are reacting harshly to too aggressive, possibly risk indicating activities, yes, that's that's a healthy sign.
And this market is is seems healthier than that than the 2000 market to me. How concerned are you that we get a Federal Reserve that's more accommodative for a variety of reasons that leads to even more risk taking this idea that not only did the Fed cut rates, indicated more rate cuts, but also is adding to its balance sheet in a way that could potentially prop up demand.
Well, you know, I think about this when I was waiting to see you today, you know, most of the people listening to this program, including me and you are interested in the free markets. And we think free markets, you set the prices of things. And the Fed manipulations are a form of price controls. You know, they control the price of money.
And if the if the Fed puts money artificially cheap. Then it induces behavior like risk taking. It forces people into riskier activities because the returns on safe activities are so low, it tends to reinforce the view that there's a Fed put that if there's a problem, the Fed will solve it, and that contributes to risky behavior.
These are all bad, bad things. And, you know, I believe that the Fed should be passive most of the time and only come to the rescue if the market is if the if the economy is seriously overheated and tending towards hyperinflation or seriously under active and not creating jobs. I don't think that's the case right now.
I don't think there's a and you can see in a divided open market committee that there's a difference of opinion. So I don't think that action on the part of the Fed is compelling right now. And, you know, there are people who think that rates should be a lot lower than they than they are today. I just don't see that the merit in that right now going forward.
I remember back in 2015, 2016, 2017, when rates were incredibly low, you were saying people just need to lower their expectations for returns because ultimately you have to look at the risk free rate and you don't want to reach too much at a time where people are greedy. Where are we right now in terms of what types of returns people ought to expect based on the current income rates?
Well, the lower base interest rates are everything scales off that. So, you know. I mean, the Fed funds rate at three and a half is below history. It's these are not high rates. They're only high relative to the last 15 years. But this is a low rate. So everything scales about that. Most things will give moderate returns in the debt area.
I think prospective returns are moderate. Okay. Not lush, but not inadequate. The trouble is that the S&P, based on its p e ratio relative to history, appears to be priced to to provide. A very low prospect of return. Historically, if you bought at this p e ratio, you return over the next ten years, averaged in the very low single digits.
So I think we're in a moderate return scenario. The problem is that how do you get a high return in a moderate return scenario? And most people's resort is to take a lot more risk. And that's something I don't like to do other than when it's compelling. You add a personal note, an addendum at the end, and we led off with that idea of what artificial intelligence and machine learning will do to the labor market.
It's something clearly on the Fed's mind, clearly on investors, mind you talking about concerns that there is going to be cannibalization from human jobs. How do you see this playing out? How are you kind of grappling with this when you look at investments, when you look at fiscal deficit, when you look at the backdrop for the financial system?
Well, look, Lisa, here, I'm not talking about investing or economics. I'm talking about society. And it's very worrying to me. And, you know, I've gotten some very nice response from people I respect to the memo. And one of them said he thinks we've seen this in response to the Internet over the last 25 years, but it has not raised unemployment because the Internet eliminated white collar jobs that were replaced by blue collar jobs, like, you know, people who pick stuff in warehouses and send it out in e-commerce.
So job count is not down, but job quality is down. And and I think that this is very worrisome. And as I said in the addendum. When we lost jobs to automation and offshoring. I think that that coincided with the opiate epidemic and not only in amount, but also in location. And I think it's a natural consequence of people sitting around all day.
And even if we can find a replay, a way to replace their income, I worry about purposelessness. And, you know, we get so much more so much from our jobs. Other than a paycheck and you can't replace that stuff. So I worry for society.
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