00:00You've always been a glass half-full guy. Are we half-full right now?
00:05Certainly in the stock market we're half-full. I think the stock market is more than half-full.
00:10The economy, you know, if you look at what they used to call the misery index,
00:16some of inflation, unemployment, it's actually, we think that for the month of July,
00:20it's better than it's been 75% of the time over the last 50 years.
00:23But if you look at consumer confidence, it's worse than it's been about 98% of the time.
00:27So it certainly doesn't feel, it is more than half-full, but it actually feels like it's worse.
00:31Back when I first met you, I think there was just a Bloomberg terminal.
00:35We lived off the value line, which is a big, thick book, folks, that we tripped over once a week.
00:41Are we doing asset management worser now because of the media,
00:46because of the frenzy of social and the speed of information?
00:49I think we still have the same sort of challenges.
00:52I mean, there are things that we do better.
00:54I think there are more solutions out there for investors.
00:56I think people who get good advice can do very well.
00:58And it's been a wonderful stock market for many, many decades.
01:02I mean, if you go back to the last 40 years, we've averaged over 11% in the S&P
01:06500.
01:07We did not see that coming.
01:08No, at no point over those last 40 years would you have said 11% is a normal return.
01:13So that much has been good.
01:14I think the products available is good.
01:17Where I think we've got problems is people are being fed such biased information
01:23and such confusing information from both sides.
01:26I mean, that it's very hard for people to get a good, balanced sense of where the economy and markets
01:31are.
01:31The last time the S&P 500 rose for more than three straight years was 2007.
01:39There's five straight years of gain.
01:40So it feels like something's going to give at some point.
01:43But the policy from this administration suggests that things will keep going.
01:46Well, I think we need to recognize that over the decades there's a reason for that 11% return.
01:51It's because over the years the game has kind of got rigged in favor of the stock market.
01:55We've gone from defined benefit plans, which are kind of balanced, to defined contribution plans,
01:59which are just all in in stocks.
02:01Over 80% of the assets are in stocks.
02:03We've got a trillion dollars of stock buybacks last year just for the S&P 500 company,
02:08$600 billion in dividends.
02:10All that money is going into the stock market.
02:11And we have a very K-shaped economy.
02:13And that's not very good for people selling to the broad mass of consumers,
02:20but it's very good for those who are essentially the beneficiaries of the spending of the very rich
02:25because what do the rich do?
02:26Well, they buy stocks and bonds.
02:27And that's been pouring money into the market.
02:29So I think the market is really outperforming the economy by a lot.
02:32You mentioned the K-shaped economy.
02:33Scott Besson, the Treasury Secretary, denies that the U.S. economy is K-shaped.
02:37He says it's more of a C-shape,
02:39pointing out that there's been wage gains among the bottom quartile of earners picking up.
02:43You mentioned a misery index.
02:44It feels like wage gains is a new misery index.
02:47Well, I think the thing is that if you look at – first of all, I'm not sure where he's
02:52getting those data from,
02:53so I think we need some clarity there.
02:55But if you look at the growth in production, non-supervisory worker earnings,
02:59and then you look at all wages, they're going up the same pace.
03:03So there is really no gap there.
03:04But where there is a gap is if you then go away from wage income and say,
03:08OK, how about dividend income?
03:10How about capital gains?
03:11It's clear that people at the top are doing much better than everybody else.
03:15And the other thing is that if you look at this morning's employment report,
03:19basically American business can't find workers, and American workers cannot find a raise.
03:23We've got no job growth.
03:24We've had the labor force has fallen by 1.3 million people over the last year.
03:29Wages are going to be below CPI inflation year over year for a fourth straight month.
03:34So workers are not getting a wage increase.
03:36And that's actually – that bodes pretty ill for people trying to sell to the great mass of consumers
03:41because if you don't have any more workers and they're not making any more money in real terms,
03:46pretty hard to process.
03:47And this goes to the hallmark of what we're trying to do here.
03:49Scarlett and I really agree that it's personal finance, but you know what?
03:52There's half of America flat on their back, and Mr. Kelly mentions that as well.
03:56Well, here are some comments from J.P. Morgan Asset Management.
03:59I think it's really important.
04:02Cash isn't always king.
04:04First of all, there's a 90% probability one person in a couple, you know, is 65.
04:09They reach 85.
04:10Somebody's going out to 85.
04:12Since 30 years ago, a 60-40 portfolio has outperformed cash one-month basis 65% of the time.
04:20And if you go out one year, two years, five years out, it's an absolute layup.
04:24Why in God's name are we so much in cash?
04:28Well, because I think we've got sort of a bipolar market.
04:32I mean, people are either going, they feel like they've got to hit a home run,
04:36and they put it all into Bitcoin or meme stocks or whatever, or they huddle in cash.
04:40And it's because I think people don't understand that, you know,
04:43the whole point about investing is not to come up with the secret thing that's going to beat the market.
04:48All you've got to do is latch on to the market.
04:50You make a few basis points here and there from good management, avoiding stupid companies.
04:55But overall, if you just bet on the forest, you don't have to pick the exact tree.
05:00But what happens is we've really got two types.
05:01We've got those who are just way too risk-taking, you know, investing in Bitcoin or whatever.
05:08And then you've got a lot of people just huddling in cash because they're seeing what on the social media
05:12feed,
05:13and the social media feed is telling them you need to be very scared and you need to be very
05:16angry.
05:16And that is just preventing a lot of people from actually getting invested.
05:19I want to talk about those young people who are going all in, you know, going into Bitcoin, going into
05:23prediction markets.
05:24Do we assume that as they get older, they'll grow out of that mindset?
05:28Oh, this is a key question.
05:29Well, I think they can, and I think that institutionally we can help them out by just, you know, let's
05:37default, put some money into 401k.
05:39But I think it's also a matter of education.
05:41People really need to understand that it's, you know, Wall Street is not, you know,
05:44I guess even if you look at all these terms, you see all these numbers, all this confusion.
05:49It's not that difficult.
05:50It's about basically investing in American business.
05:53And if companies are making good money, they can repay that out in dividends or in coupons.
05:57You know, invest them.
05:58It's not rocket science.
06:00And I'm afraid sometimes people think it is, and therefore they think they've got to have some really smart idea
06:05to beat them up.
06:05On Bloomberg Money, we avoid what's going to happen at Jackson Hole.
06:08What's the Fed going to do?
06:10But something we really want to know in each and every firm, and you're advantaged by Kassman, Feroli and the
06:15others,
06:16how do you use economics within wealth management, within retirement, within someone's personal finance?
06:23Well, we, a lot of it, you know, first of all, you have to figure out things like, okay, where's
06:29the dollar going, for example?
06:31If the dollar's been coming down for the last two years, if we think it's going to come down some
06:34more,
06:34that will amplify the return on international investments.
06:38American, you know, right now the U.S. is 64% of global stock market capitalization, which is an enormous
06:44number.
06:44And yet, almost all American investors have got less than 36% of the money in international.
06:51Everybody's underweight in international.
06:52And if you think the dollar's going to come down, put some in there.
06:55And then also just, you know, looking at different sectors, we can see where these AI earnings are coming from.
07:01They are very impressive.
07:02But also, you know, recognize that, you know, there will be bumps along the way.
07:07And the market is very concentrated.
07:09People's portfolios have drifted into being very concentrated.
07:11So you have to sort of try to get more balanced.
07:13What was it like when you're coming out of the gorgiosity of Dublin, Ireland, when you parachuted in Lansing, Michigan?
07:22What was the first day like at Michigan State?
07:25Well, my mother had sent me over with a lot of Irish sweaters and blankets because she thought it would
07:30be so cold because she'd only heard about snow in Michigan.
07:33And I arrived and it was 90 degrees.
07:35So that was a bit of a shock to the system.
07:37But I will say this, that the rest of the world knows much more about America than America knows about
07:42the rest of the world.
07:43So people, you know, when I got back the first Christmas back to Ireland, people said, what surprised you?
07:48Apart from the weather, nothing.
Comments