Ted Oakley - Oxbow Advisors - Interview Series 2024 - Jim Bianco - May 13, 2024

0:02 [Music] hello everyone I'm Ted Oakley managing partner at Oxbo and we have

0:14 always a special guest in Jim biano and Jim uh we not only take

0:20 his service but we count him as a friend and Jim we're glad to have

0:24 you today P thanks I look forward to the conversation I'm going to give

0:29 you a couple of kudos to start out with because uh I'm one

0:32 of those people that remembers May of 2020 when you said that the bond market

0:39 bull market was done it was over and a number of people thought ah

0:42 I don't know about that and yet that end up being correct and uh

0:48 I'll give you another one you've had some really great calls on this year

0:52 U you know some some months back you know when everybody thought there'd be

0:56 six Cuts this year or more you said I I don't think so I

1:00 think that's what we're going to get so I always like to give credit

1:03 to people because that's a tough business

1:04 and so you're you're you're you're on top

1:06 of it right now oh thanks I'm saving up the chits for the famine

1:11 that comes when you get a couple of calls WR I know the feeling

1:16 anyway well listen uh your title you know talking about is the 5%

1:20 tenure still uh still in play I know what's been going on lately um

1:25 and I read your uh Financial Times oped last week very good by the way

1:31 I'd recommend to anybody but uh take it from there we'll uh we'll

1:35 see what you have to say here Jim thanks yeah so let me start

1:38 bigger picture and um the bigger picture is the economy seems to constantly be

1:44 surprising to the upside and I'm talking

1:47 about constantly over the last 18 months

1:49 or so both in terms of growth and in terms of inflation now

1:53 that it's seemed to swing up now why is that and I I always like

1:58 to remind everybody that whenever you have

2:00 a financial crisis or recession and we

2:04 had both in 2020 the economy changes changes Now worse change is not dystopian

2:10 it gets different and coming out of 2020 what we saw or what we've

2:16 seen is higher levels of spending and those higher levels of spending are coming

2:19 in two forms they're coming in fiscal form the go government's deficit to GDP

2:25 is 6% that is typically associated

2:27 with a recession that's how much the government

2:29 is spending if you want to put it in a different way 22%

2:33 of the US economy is currently the government

2:36 is GDP is coming from from the government

2:39 sector and that is extraordinarily high in only 2009 in 2020 the depths

2:46 of those recessions was it higher than it is now all the other recessions

2:50 that came before it we never got the the government to 22% we're in year

2:55 four of a recovery and also if you look at the consumer the consumer

2:59 is spending too and the statistic I'll give you is from 2010 to 2020

3:04 the savings rate in the US was 6% so total personal income all

3:11 your W2 and your investment income and whether or not you got any government

3:15 transfers like welfare Social Security less disposable

3:18 spending you were spending 94 cents of every

3:20 dollar you were holding back six to save 2010 to 2020 since 22

3:26 it's been less than three so we're spending more money right now now we

3:32 could go in the psychology of why we're doing it maybe it's PTSD

3:35 at the lockdowns Revenge travel has become

3:39 kind of a permanent thing or maybe it's

3:41 a belief that now that we've gotten we've we've broken the glass and we've

3:46 sent people stimulus checks for thousands

3:47 of dollars I don't need to save because

3:50 in the next downturn they'll just mail me more money why because they mailed

3:53 me a lot of money in the last downturn so that's kind of the new

3:57 trained habit but the combination of personal

4:00 spending and government spending has been pushing

4:03 this economy stronger than people think and that's why we don't have a recession

4:08 don't have a soft landing and we have sticky inflation at around 3%

4:15 now how long will that last till the next recession because you know something

4:20 will come along and cause us to have another recession whether that's later

4:24 this year or in 10 years and then things change again and we'll see what

4:29 type of session we have and the composition of how it unfolded and then

4:35 we'll figure out how people change so bringing it sooner or bringing it up

4:38 to date in the last couple of weeks we've seen some numbers like

4:43 the payroll report was a little bit below expectations a little bit of a higher

4:50 jump in initial claims the um the week

4:53 before we recorded the University of Michigan

4:55 consumer sentiment survey was a little bit

4:58 weaker not too concerned that those are

5:00 pretending some kind of slowdown because economy

5:02 had been running very hot for the last

5:05 several months so there might be a period where runs a little bit

5:09 cooler but nothing like a soft Landing or recession so with that backdrop I've

5:15 been arguing higher interest rates and we've

5:18 been getting higher interest rates and when

5:21 we got to about 470 to 475 I said from a tactical standpoint

5:29 look we started the be at the end of December we were at 380

5:33 on yields as late as early February we were still under 4% we jumped

5:38 all the way to 470 I thought maybe we'd get rate the 10-year yield back

5:43 to five to five and a half five five and a half so

5:46 at 470 from a tactical standpoint I said okay most of the move is done

5:51 um you know and there's an old saying on Wall Street you know

5:54 the pigs get fat and Hogs get slaughtered and so I'll take what I can

5:59 get for most of that move and kind of tactically move to a neutral

6:03 stance thinking there still might be one more push up in interest rates

6:08 to get us near 5% what I suspect that will do is that will

6:15 get us very um we'll get a capitulation we'll get a lot of people talking

6:20 about bearishness Jamie Diamond wrote in his annual

6:23 letter that we could see interest

6:25 rates go as high as 8% yeah that you know that's where we're going

6:28 to go that kind of talk is what you'll get and that will set

6:31 us up I think for the end of this move and probably a multi-month

6:37 rally in bonds not to change what you said before I still think you

6:42 know 2020 was the low yield and we're in a multi-year bare Market towards

6:46 higher rates many many years we're going to be dealing with higher rates

6:50 but this phase might be close to ending and it's all about spending we are

6:55 spending the government's spending people are

6:58 spending and it's very hard to have a recession when they're spending and it's

7:03 very hard to bring inflation down when you

7:05 get this level of spending Jim let me ask you on the government spending

7:10 obviously it's a number that should be going on when we're having you know

7:12 a downturn in the economy not like it is now so what happens if

7:17 you get a downturn in the economy do they have any room no that's

7:22 a good question you know usually the government likes to use that kind

7:26 of kenian thought process that when the economy

7:29 turns down spend like crazy to try

7:31 and stimulate it but then the flip side of that supposed to be when

7:36 the economy starts to pick back up which it has been doing for the last

7:38 year year and a half is to rein in that spending uh because

7:44 it's not necessary anymore so the next downturn do they have room to increase

7:50 spending sure they have room to increase

7:53 spending but that if that spending brings

7:56 about a consequence of higher inflation then

8:00 it won't do any good because they'll

8:03 try and spend but the result could be that dreaded s word stag inflation

8:10 weak weak real growth and higher inflation

8:13 and that would produce higher interest rates and that would not make that kind

8:18 of increased spending anything stimulative so yeah

8:22 I think they could be very very limited unless the downturn the future downturn

8:27 is so bad that it just puts aside the fears of inflation and that we

8:34 just have to deal with a downturn quick word about downturn real quick

8:38 there's an economist named Rudy dor Bush and he used to work

8:43 with the fed and stuff and he he pointed a famous line that Bernan used

8:45 to use all the time a lot of economists use it actually and that is

8:51 that um recession uh economic expansions do not die of old age they're murdered

8:56 and so people look at the economy and say it's going to roll over

9:00 it's going to pop you know and stuff economies don't do that what typically

9:06 causes a recession is a murder what's a murder a spike in oil prices

9:12 geopolitical crisis suffocatingly High interest rates

9:15 and that's not 5% a financial crisis like

9:18 a housing crash something comes along and breaks the economy and I think

9:23 that this economy will continue to expand

9:26 until something breaks it now if that break whatever it happens to be is so

9:31 catastrophic you could say forget about inflation

9:34 it's just it's taking care of that problem

9:37 then yeah the government spending could

9:39 really ratchet up without there being any

9:42 inflationary impulse but if that break is

9:45 something more traditional then that government spending

9:47 could produce higher inflation and not be

9:50 re you know responsive or stimulative at all and you would have uh how

9:55 many how many meetings we have now two or three before election yeah right

10:01 now there's three more fed meetings before

10:03 the election there's June 12th and the Market's

10:05 got like about an 8% chance that the fed's going to raise rates

10:09 at that that's what's pricing then there's July 31st which happens to be right

10:13 between the Republican and Democrat conventions Market's

10:17 putting about a one-third chance the fed's

10:19 going to raise or cut rates excuse me at that meeting September 18th is

10:24 the next uh meeting after that that's

10:26 seven weeks before the election Market's about

10:29 50 50ish or so fed might cut rates at that meeting and then the next

10:33 meeting after that is November 7th which is two days after the election so

10:38 you're I think your if I've read you correctly your thought process is

10:43 that they are they are not partisan but they are political I think that's

10:48 the wording you used that that's reason why they would not probably make a move

10:53 you don't get a something in June then it's probably out right so partisan

10:57 not political what that me means is that no they don't sit around

11:01 the fomc conference going you know Trump said he's going to fire Paul if he

11:07 becomes president and Arthur laford is heading

11:10 a group that's looking for the next fed chairman and Arthur laford looked around

11:16 and said I think Arthur laugher should

11:18 be the next fed chairman and so you that was like when Dick Cheney

11:22 said that you know he headed the vice presidential group and said I think

11:25 Dick Cheney should be the vice president uh and so uh I think

11:30 that they're not partisan and that they're not sitting I I say all that so

11:33 that I set up this they're not sitting around the conference table saying man

11:37 we don't want that we don't want Paul to be fired we don't want

11:39 art laford to be the the the chairman so how do we sync

11:43 the Trump campaign they do not do

11:46 that but political political they know that July

11:49 meeting Republican and democra Convention they know

11:50 that September meeting is seven weeks before

11:53 the election they don't want to be part of the narrative they do not

11:57 want to do anything that makes Trump and Biden didn't talk about them they

12:00 want to be invisible that's why i' I've often joked that to a rut

12:05 was May which they didn't do june which has only got an 8%

12:09 chance or bust bust meaning after the election only if the data weakens enough

12:15 to give them an opportunity to cut rates but as I said before it

12:20 hasn't been weakening so maybe it does

12:22 you know these are all forecast and forecast

12:24 could be wrong maybe it does and they they do cut rates but I

12:28 think that you know if we don't get in June I'm looking after

12:30 the election at the earliest if the data weakens but with what you're seeing

12:36 I think what you're saying is that we still have a chance at the five

12:40 or more in the in the short run or do you think that I

12:44 guess that's a question that we stay at 5 per interest 5% 5%

12:48 on 10 tenure we have a shot at it still yes I still think

12:52 we have a shot at 5% 10 years largely because short-term interest rates you know

12:56 the funds rates going to stay 5 and a quarter to 5 and a half

13:00 the uh the two-year rate the week before we were recording did briefly

13:05 go over 5% and we could see you know in Market parland a flattening

13:09 of the yield curve or an uninversity year yield um which is in a lower

13:18 long-term rate than the two-year yield which is an inverted yield curve might

13:22 become a little bit less inverted and we can make a run towards 5

13:26 perc and that's why I've been focusing more on that five to five

13:29 and a half because I think if the answer is are could rates go above

13:34 5 a half% I think that would take a Fed hike in order to really

13:37 do that you know talk about not wanting to be part of the election

13:41 go ahead Jay and Hike rates and watch yourself be part of the election

13:46 uh so even if the economy were to speed up even if inflation

13:48 were to continue to surprise I think the bar at least until November

13:54 to try and raise rates is extraordinary high now it's a very low probability be

14:00 a rate hike but um I don't think it's it's zero at this point

14:04 and let me ask you this on the economy whether that would break down

14:08 and the FED would look at that and think well things are weaker I'm

14:13 assuming from hearing you that consumer spending

14:16 would be the number one thing that's

14:18 driving it uh obviously housing is just stuck where it is in productivity so

14:24 so uh but I'm I'm hearing you say that we're leaning on consumer spend

14:30 to keep yeah consumer and and government

14:33 spending I think spending is what's driving

14:36 this um you know the um the FED is focused on the unemployment rate

14:40 and the unemployment rate for 27 straight months has been below um uh 4%

14:46 you got to go back to 1970 to find another streak of 27 months

14:51 of the unemployment rate below 4% now if the main number is also below

14:56 4% then you got to go back to 1953 it'll be 71-year record so

15:01 why is the unemployment rate so low I think there's two issues there I

15:05 think one is what you pointed out the spending look if people are spending

15:09 money if the government is spending money there's going to be jobs and there's

15:13 going to be employment and that's why the unemployment rate is so low

15:16 the other more nuanced answer I would give you about unemployment is that I

15:21 do think and we've talked about

15:22 this in previous conferen uh previous podcasts excuse me

15:28 that the 2020 change the whole mindset of the of work and ushered

15:33 in remote work not work from home that would be five days a week

15:36 but remote work being partially in an office partially at home and it also

15:42 has changed especially for the nonprofessional uh uh uh side of the economy jobs

15:49 are more transactional people take a job they'll do it for a while they'll

15:53 quit um they'll they'll they'll do something like take the summer off why would

15:59 they do that I mean talking about nonprofessional jobs because they know

16:02 that in the fall they can come back and find another job um and I know

16:06 from anodot that I've I've heard from people that you know hire clerks

16:11 and hire cashiers that they kind of come and go more than they did now

16:15 in the professional class let's define professional

16:19 classes somebody who got a college degree

16:22 and somebody who's parents paid a lot for that college degree no you're not

16:26 taking the summer off and going to the beach you're going to get

16:29 a professional job and you're going to go to the office every day if that's

16:33 what needed to be but that's not the majority of jobs in the United

16:36 States the majority of jobs in the United States would be you know kind

16:39 of below that level and so the transactional nature nature of jobs is really

16:45 showing up you're seeing more part-time work

16:47 you're see and part-time work for non-economic

16:49 reasons there is actually category for that so the job market is changing

16:53 and because of that churn I think

16:55 that's also structurally keeping the unemployment rate low

16:57 as well on that work from home I mean you came out you know

17:02 a number of years back and said hey the game's changed here you need

17:06 to wake up uh but if you talk to a lot of commercial real

17:09 estate people it's almost as if well they'll be back it's it's no problem

17:13 they'll be back and I don't think you believe that I think you

17:17 believe that no that's a structural change right now you know remote work like

17:22 I said remote work from home is five days a week remote work is

17:25 not is a couple of days let's say two days at home three days

17:29 in the year office there's always going to be a need for people

17:33 to congregate in a central place called an office it may not be 5 days

17:36 a week eight hours a day it may be two and a half days

17:40 a week a half a day one day two days or three days or four days

17:43 or something like that and that's

17:44 to be determined by each individual circumstance

17:47 and so we have to kind of rethink what work is and we have

17:51 to rethink why we go there and we have to then start to think

17:55 about how much office space we need uh and that is is going to be

18:01 a real issue I think moving forward

18:04 as commercial real estate especially office real

18:07 estate tries to um you know figure out what this new environment is going

18:12 to be now there's an argument that people make too oh don't worry

18:16 the next recession they'll come begging back

18:18 to the office I beg to differ people

18:21 assign a monetary value to work from home the next recession your employer will

18:28 say yeah I'm not going to give you a raise but you can have

18:31 another day at home oh you just gave me a raise because you gave

18:33 me another day at home if you want people back in the office 5

18:37 days a week pay them pay them more money to show up every day

18:41 but we um employers are not of that mindset right now but so yes

18:46 we always need we always have a need to go centrally located to collaborate

18:51 because we're doing this via Zoom this podcast and I like to say Zoom is

18:57 better than not zoom but it is not in person nothing can replace

19:03 in person and so a lot of of service sector jobs a lot of remote

19:07 type of jobs you have your job comes down my job comes down

19:11 to two things right things I have to do and people I have to collaborate

19:15 with whether it's co-workers vendors or customers

19:18 collaboration is best done face to face

19:21 things I have to do sometimes that best done at home so no one

19:26 walks in every 3 minutes and asks me did I see the game yet

19:29 yesterday or what are you doing this weekend and I just get it done

19:33 and I get it done in in a way that I could concentrate

19:36 on it so there is a value to remote work because we have a proficiency

19:41 that we want to do in our jobs so I don't think we're going

19:44 back five days and I don't think we're going to stay home five days

19:47 but I think it is a new environment and what that means is

19:51 that the office has to be kind of to use the Disney term reimagined and maybe

19:56 we're just about we're just starting to get there right now well you sure

19:59 wouldn't have those expansive offices and expansive

20:02 Works spaces when you when you only

20:04 got together two days a week and uh and that would certainly you know

20:09 that probably helps I'm not sort of a question to you but that probably

20:12 helps consumer spending a bit too because I'm not I'm not spending gas to drive

20:17 an hour to get you know get to the office but on that same

20:20 note on consumers what do you say about the people that say uh

20:24 on the buy now pay later and the plans that are out there car payments

20:29 that are a super high level what do what do you say to people

20:32 about that is that really affecting the consumer or eventually will or or do

20:37 you think that's just part of the process I I I would put

20:40 it as part of the process and that it will eventually um uh affect

20:47 the consumer um I think that in this mode as long as the consumer

20:53 continues to spend that that those buy now pay laders and all those other

20:58 schemes will continue continue to sort of kind of work there'll be defaults

21:01 and there'll be problems it'll be the next

21:04 downturn if the consumer decides that they're

21:07 done spending and if the consumer or can't pay those anymore now keep

21:13 in mind there's two levels of spending going on here right one is there's more

21:18 nominal spending because of inflation is cumulatively

21:22 made things more expensive what I'm referring

21:24 to is we're just buying more units we're just buying more stuff we're buying

21:28 different types services but more of them because you know the 3% in um

21:33 on uh savings rate versus the 6% savings rate is basically we're just buying

21:38 more stuff and that seems to be an attitude change that we're having

21:43 but yeah all those things will keep us going and how long will this last

21:48 till that murder happens you know thinking of what's the state of the Middle

21:52 East and stuff like that I like to tell everybody look would anybody be

21:57 shocked if we wake up one day and there's screaming headlines all over

22:00 the Internet that there's an event that had happened and we say uhoh Here Comes

22:05 $200 crude oil no no one would be surprised we I hope to God

22:08 it never happens but that's that would be the type of murder that I

22:12 was referring to on the economy and if you got that type of event

22:17 then yeah consumer spending and all that that will that will change real fast

22:21 but until you get that event I think the status quo will continue well

22:25 I might switch to the stock and bond markets a bit because you've talked

22:29 talked a lot about the fact that if you could get 5 to 5

22:31 a half% that that's about 23ds of the what the stock returns probably would

22:36 be or or the stock returns may be less than that the next 10

22:40 years but I guess my question to you would be it seems as though

22:46 that the Euphoria is totally back in the stocks in the housing I mean

22:51 everybody feels Rich right now because

22:53 their houses are high their stocks are high

22:55 and yet it nobody seems to be worri about any of that does

22:59 that any any of those things bother you or how do you see it oh

23:03 yeah oh yeah I mean the day we're recording um you know me mem

23:07 stops the old 2021 mem stops GameStop doubled in the day that we're recording

23:12 because we're back to doing that again and we're starting to see you know

23:17 um cryptocurrencies are starting to jump again

23:20 and we're starting to see the technology

23:22 star started to really start to Roar um super micro computer in Nvidia just

23:28 having spect spacular gears and then horrific

23:31 type of 40% Corrections along the way

23:33 in super microcomputer so the the the the animal spirits are here and that kind

23:39 of goes with you know the spending that if there's kind of an animal

23:44 spirit type of mentality to the economy so yeah we're starting to see

23:49 that kind of stuff now to what you mentioned earlier I think what's also

23:53 happening and I don't have any data to back this up but it's just

23:58 kind of a um an antidote that I'm seeing people are in and first

24:02 of all there is data to back up the first part that there it

24:06 you know Dr Jeremy seagull put an update to his book stocks for the long

24:11 run in it last year he said what is the long-term prospects for the stock

24:16 market if you bought the S&P 500 Index Fund and you just held

24:19 it for 10 years and then checked it 10 years later like Warren Buffett

24:23 tells everybody what they're supposed to do you should expect 8% a year 16%

24:28 one year zero than one year you know but average about an 8%

24:33 that sounds about reasonable well in 2019

24:36 when money market funds were zero and bond

24:38 funds were under 2% we used to scream the word tina there is no

24:42 alternative you can't sit around in bond

24:44 funds because you're not getting anything get

24:46 in the stocks okay but in 2024 when a money market fund is 5.4%

24:52 and a bond fund is yielding over 5% which most of them are right

24:55 now people look around and use the money market fund as an example

24:59 because that's the easy one to understand okay I can get 2third maybe up

25:04 to 70% of that long-term appreciation in the stock market with a $1 Nev

25:09 every day now it's not going to last forever but as we talked about

25:13 earlier it could very well it has lasted for a year and it

25:16 could continue to last until after the election and maybe when the FED If

25:21 the Fed finds a reason to cut rates then maybe I'll shift into a bond

25:25 fund that's got a higher yield I'll get most of the stock markets returns

25:30 with less of the stock market's risk the bond market in the first

25:34 half of this year started off poorly it was down 3% stocks if stocks

25:41 started down 3% no one would ever consider that to be poor that's kind

25:45 of the way that they go but that but this so people are starting

25:48 to look at bonds now the antidote I would give you is I'm hearing

25:53 more and more that people are saying what is the new 60/40 portfolio the old

25:58 60 40 portfolio used to be 60% in a broad basket of stocks 40%

26:05 in bonds they seem to be arguing that the new portfolio might be 50%

26:09 in bonds 55% in bonds and the other you know but a bigger

26:13 waiting in bonds but without that stock waiting you got to get into Arc

26:18 and you got to get into the Magnificent Seven and you've got to maybe

26:22 have a little bit of hot sauce in crypto so that when you buy

26:26 into the stock market you just don't want the broad-based stock market look

26:30 at midcap stocks and small cap stocks

26:31 they're they're struggling you want to you want

26:35 to be in racer stuff but you don't want to have you know the majority

26:38 of your money in that racer stuff you that's what the the higher yield

26:43 that bonds are offering you gives so that's your base and then you put

26:47 that hot sauce if you want to that's the term that has been thrown

26:51 out there on top of it now I look at that and go man

26:55 that is kind of like the talk you get at a high is what

26:58 that sounds like you know uh that uh I have to go for the super

27:03 racy you know get me in the super micro computer in Nvidia and mag

27:07 7 and and and why don't I have three to five% bitcoin and it's

27:11 like you know that is the kind of talk you get near a peak

27:15 and that seems to be the mentality so yeah the animal spirits are alive

27:20 and well so Jim I ran the numbers just last week December 20 2021

27:25 and I took a 6040 portfolio and I ran it through May the 1st

27:30 just a week or so ago and the the 90-day treasury Beat It hands

27:36 down for that period just the straight

27:38 just just 90-day treasury here's my question

27:41 to you in your oped at the financial times you I think you were

27:45 implying if I understood correctly and you can correct me if I'm wrong

27:48 but I I think I understood that you thought well there's a there's a certain

27:53 kind of stock Bond portfolio that can come back some now but you have

27:58 to really watch where your your coupons and where you put the duration did

28:02 I did I hear that correctly or read it correctly yes so the opad

28:08 which was in um uh Friday um May 9th uh Financial Times was written

28:14 in response to Bill gross wrote

28:15 his monthly investment letter Bill's retired but he

28:18 still writes his mon monthly investment letter

28:20 and he proclaimed Total return uh fixed

28:23 income Total return dead now it's important

28:26 to understand he invented it you know

28:27 he he invented it in the 1970s the idea that you want to mix

28:32 a coupon plus price appreciation and so it was significant that he said

28:36 it was dead and what I said in the oped was that a certain

28:40 type of Total return is dead because what he had played for those decades

28:45 at pinco very successfully was falling interest rates and to be what we call

28:49 in the bond market long duration and to be just betting forever and ever

28:53 and ever that interest rates were going to continue to fall and yeah yeah

28:57 and he made a lot of money and he turned Pimco into a multi- trillion

29:03 dollar asset manager and it was huge now he said that that's dead and I

29:07 I'll agree with them there that if

29:09 you're buying bonds because you think interest

29:11 rates are going to go down and push the price up that may not

29:15 be the case but now that we're in 2024 and we're stuck in a world

29:21 not stuck but we have a world that offers you 5% coupons 5%

29:27 money market funds and the like total return means something different it means

29:32 that if you buy into a bond fund um you're going to get 5% coupon

29:36 now the bond fund manager's job is to hold that coupon don't lose

29:42 that coupon now if there's an opportunity

29:45 to present itself by overweighting some sectors underweighting

29:49 other sectors maybe even playing for lower

29:52 interest rates or higher interest rates maybe

29:54 you can add a little Total return on top of that and maybe push

29:59 the overall return to closer to six or something like that uh but don't

30:05 turn it into zero um over a longer period of time that's what I'm

30:09 saying is a certain type of Total return is dead but this type

30:13 of Total return still exists now how do I know that that's the case look

30:18 at the flows in the bond funds look at the flows in the money

30:21 market funds they are really there's still

30:25 money coming into these sectors why because

30:27 people are looking at 5%% or if because people are looking at 5%%

30:28 or if because people are looking at 5%% or if you're in a corporate bond

30:31 fund 6% um and and they're saying yes sign me up for that I'll

30:35 take that that gets me most of the way towards my goals of what

30:39 I want to get and that's where that whole idea of what do I

30:41 do with the rest of it hot sauce you know you know you're not

30:45 going to just buy the Russell 2000 you're gonna buy you know you're gonna

30:48 buy The Magnificent Seven stocks or an index of The Magnificent Seven stocks I

30:52 have to say variation of that in that if you look at all three

30:56 of our strategies and we have about 45 per it's that's in one year

31:01 or less treasuries and you know it's paid us for a long time now

31:04 it's actually paid us probably average 525 530 and I think I think that's

31:09 what you're talking about you have to be careful that you don't go

31:13 a long way out and get locked up and then all of a sudden it's

31:17 the wrong timing because that then you're right back in the mud again if

31:21 if that happens that way right and one of the things I think you're

31:25 starting to see too in terms of let me talk a little bit

31:29 about the ETF space uh full disclosure I do run an actively manage fixed

31:33 income ETF as well but what you're also starting to see in the ETF

31:38 space is there's been a giant explosion of actively managed e uh Bond ETFs

31:43 for this exact reason is that there's a yield and I'd like to get

31:47 that yield but I don't want to jump on that 5 per yield and then

31:52 watch interest rates go up and watch interest you know and watch the returns

31:56 flitter away so people are turning to actively

31:59 managed bond funds now why are they

32:01 returning the actively managed bond funds dirty little secret about uh the index

32:06 investing world we all know that we all know all the stories and everything

32:10 that like 80 or 90% of actively managed stock funds cannot beat the S&P

32:17 500 but the majority of actively managed bond funds can beat a broad-based index

32:24 like the Bloomberg aggregate why I'll give you a simple answer as to why

32:28 there's more there's more nuances in there but the simple answer is in equities

32:32 your biggest weightings are your Allstars

32:35 your Magnificent Seven stocks and if you're not

32:38 fully in on all those stocks all the time you can't beat the index

32:42 but in bonds uh oftenly your biggest

32:46 weightings are your problem children your over

32:49 levered companies your countries that borrow too much debt your low in in coupon

32:53 mortgages you can see that they're problems you can underweight or avoid them

32:58 and then they become problems and you outperform the index so that's why I think

33:03 fixed income total return in terms of or active management to use it better

33:08 is is seeing a Resurgence because we're starting to realize you just don't want

33:11 to buy the index because most active managers can beat it anyway um and so

33:16 you want to start to think about picking the active managers or the sports

33:20 metaphor I've used is equity investing is like golf you play the course

33:26 the S&P 500 Bond investing is tennis

33:28 you play the other opponent which is another

33:31 Bond manager uh and that's really who

33:33 you're really competing against the index itself

33:35 is somewhere in the middle of the pack um you know and so there's

33:41 lots of managers that can beat it but then you want to pick the managers

33:44 that you're know going to win Wimbleton to stick with my uh my metaphor

33:48 one step further well I I've uh just for everybody's knows we've included during

33:54 this particular interview two or three or four times now the symbol for uh

33:59 your exchange rate of fund and I think you're doing well with it

34:01 I certainly see the numbers are better

34:04 than the averages and that's been interesting

34:06 let me ask you this if you were to get a 5% 10-year treasury

34:09 we're call it 450 now where do you think the when it backed down

34:15 and started going the other way where do you think that would go

34:19 to well now again I I still think there's one more push up because I

34:23 just don't think but I bet that I mean if you got that then

34:28 the other way way I you know if the if if I think that there

34:31 is a long-term bare Market in bonds and the last low in December was

34:39 380 I think that the next pullback down in yields will probably not go

34:44 below 380 unless we have a recession and I don't think we are going

34:47 to do that you know unless that murder weapon shows up so let's say

34:50 four and a quarter or somewhere around that line boy that's if if

34:55 you do the math and bonds in a broad-based bond index it's a six

34:58 or seven percent return potential if you get to 5% and you and then

35:03 interest rates fall down the four and a quarter and then that sets the stage

35:08 later on unless of course that murder shows up and you have a recession

35:11 that you can have another push higher into 2 25 or into 26

35:16 but I think if you start thinking about the bond market in those terms

35:20 and managing in those terms then yeah you know if if eight% is what you

35:25 could get in the stock market with volatility and a seven or 8% return

35:31 for most people is a good investment return what the bond market is doing

35:38 is offering you a yield or as my friend Jim Grant of Grant's interest

35:42 rate Observer says it's nice to have an interest rate to observe again we

35:46 have one now and that does change the game now it was extraordinarily painful

35:50 from 2020 to 2022 to go from zero interest rates to 5% to get

35:56 to this point and that was hor horrific period and a lot of people

36:00 are permanently scarred that hate the bond market including maybe Bill grow uh

36:05 but now that we're at 5% it's a different game in the bond market

36:10 well I know I ran uh you know I ran some numbers today just

36:15 today and if you had the tenure at five and you went down

36:18 to and you went down to three and a half uh it would be about

36:22 an 8% return on the capital portion of them the principal if you

36:24 had the fiveyear go down one point it'd be about a 4% return here's

36:29 my question to you is it worth it for the average investor to try

36:35 to go beyond that one or twoyear look that we have right now to try

36:42 to get that maybe one time 8% for the average investor I'd say no

36:47 I'd say for the average investor you know look at the gift that you're

36:52 getting at 540 on a money market fund and take that and you get

36:57 a $1 na every day and remember what should the stock market return you around

37:02 8% look it might do better than that this year but it did worse

37:06 than that in 22 uh you know and when you kind of measure it

37:09 all out you know like I said 65 70% of it now maybe there's

37:14 a period in the future where the FED really is going to cut interest

37:18 rates and bring that return down on that money market fund and you might

37:22 want to look to short-term bonds maybe you want to look to an active

37:26 manage um um strategy that will do that for you that's another possibility

37:30 but if you're just if you're wondering what can I do with my money straight

37:35 up that is a good place to start look like I said at the end

37:40 of the day if you can churn out a seven or eight% return

37:45 every year you're doing very well you're getting most of that right there

37:49 in a money market fund thank you very much now you can figure out what

37:53 am I you know you don't put 100% of your money in a money

37:56 market fund you put most of it in there now what do I do

37:58 with the rest of it in order to try and you know you know

38:02 get a little bit of a kicker on that um you know you don't

38:05 have to go super micro computer or Bitcoin or something like that but you

38:09 can go something else that you think might give you a little bit better

38:13 you know whether it's a broad-based stock fund or an active managed uh stock

38:18 investor or even a limited partnership if

38:20 you think you you've got some Potentials

38:22 in something like that um along the way but that's kind of the way

38:27 that you gotta start to think about this the problem is you know what's

38:32 happening with a lot of people is that they're not thinking about boy if

38:34 I could get 7% a year I'm doing pretty good and I can get

38:38 five and3 or something like that in a money market fund most people are

38:41 thinking I want 7% a month and I want I know what can I

38:44 get into that's going to give me 7% a month and the Bitcoin guys

38:48 want 7% a day is what they want right now uh and uh you're

38:53 going to get 7% a day both directions that's the problem that you face

38:57 when you start taking taking that kind of risk and you know Jim if

38:59 you go back over you know four five six decades the average person does

39:05 not understand the number that you get

39:07 from having a balanced portfolio it wouldn't be%.

39:10 and balanced portfolio it wouldn't be%.

39:11 and balanced portfolio it wouldn't be%.

39:11 and they you know if when you try to be realistic with them

39:14 to saying this is what you should look for and we always try

39:17 to say hey you need to have a certain you know a few

39:20 few points over inflation that's where we're coming from here to tr keep buying

39:24 power but it seems as though today that Wall Street soem on this idea

39:29 that look it doesn't matter when you go into it it all all

39:32 the same and I think we think it does we think timing is

39:36 certainly important in here and I I

39:38 know people today don't probably don't realize

39:40 this but the S&P today if you just go back to December 21

39:45 has not compounded very much relative it's not that seven or eight so

39:49 uh oh it's a couple of percent it's like two or something like

39:53 that since the end of 21 is what it's compounded at so what you

39:57 say makes a lot sense that okay if I could get part

40:01 of my portfolio less than 12 or 18 months in the treasury and get you

40:06 know five plus uh you know there's nothing wrong with that right you

40:09 know and I think that it comes down to a mentality is that let

40:15 me say this bluntly you should work to make your wealth and then

40:20 your wealth should help augment it by getting a 7% return but too

40:24 many of the bitcoiners and the and the hot money crowd thinks

40:29 that that they need to gamble their way to riches and I'm sure and you

40:35 know what at the end of the day you know it's like

40:37 the lottery somebody always wins the lottery

40:39 right but the vast majority of people

40:41 that take that strategy nearly everybody who doesn't win the lottery that takes

40:44 that strategy winds up losing at the end of the day and so I think

40:48 that that's really the way that you want to start to think about

40:51 like you said what do I need my money to do I need

40:54 my money to you know increase in value it needs to beat the rate

40:58 it needs to beat the inflation rate by a certain amount and what

41:01 does a balanced portfolio come in because the other thing you want to insulate

41:06 yourself from which even I do Ted I know you do you want

41:10 to insulate yourself from your own emotions you know you don't want to say

41:13 I want to be all I'm 35 years old and I'm gonna hold

41:16 this for 40 years and I want to be all in a magnificent

41:19 seven stocks okay you can say that and then they correct 60% and then

41:25 you panic you absolutely panic and you do something you really wish you

41:28 didn't do and that's where the balance portfolio comes in you'll get there

41:32 but you also will won't wind up having to have a knot

41:36 in your stomach along the way well um I suppose we call that around here

41:41 at Oxbo uh piece of my money you can sleep well at night

41:45 and know that everything's not going down

41:48 together right I think that's what people

41:50 have to think about with serious money is how are you protected

41:54 but uh Jim as always in your slides of course we'll see see some

41:58 of those we've seen some of those during the interview and you have

42:02 the you have the greatest base of slides of info of anybody and so

42:07 everybody will see your website and your Twitter handle and they'll see

42:11 the numbers here and see the uh what your exchange trated fund the symbol

42:15 of that they can go see all of that and I would highly recommend

42:19 people to take a look at what you do you know we've done it

42:23 for years and uh I don't know where you get that how you

42:26 put the database together but it is excellent I have to tell you

42:29 well I I'll I'll uh I'll say this real quick you know I've

42:32 always said to my kids one of the best skills you can do is

42:36 learn a language it could be French it could be Chinese

42:38 or in my case it could be python or it could be R and I've

42:41 learned how to code and it's really helped to put together that s

42:44 database of stuff it really has because you come up with some some slides

42:48 that that that are nobody else has I mean I have this stuff

42:51 that's really great but listen as always thank you very much for being here

42:57 uh hopefully we come back and get with you next year thank you

43:00 look forward to it next year thank you thanks a lot hello everyone I

43:05 just want to say if you like this video and you want to see

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