Inflation Headed DOWN From Here, Despite Tariffs | Steve Hanke

Summary

• Inflation Outlook: Steve Hanke suggests that despite conventional wisdom, inflation is trending downwards, with the current money supply growth rate indicating disinflation rather than inflation.
• Tariffs and Economic Impact: Hanke argues that tariffs are not inherently inflationary but act as an economic drag, likening them to a sales tax that reduces trade gains and economic activity.
• Market Conditions: The current economic environment is characterized by a weakening economy and overvalued markets, with Hanke warning of potential bubbles and the difficulty in timing market exits and re-entries.
• Investment Strategy: Investors are advised to avoid making drastic all-in or all-out decisions and instead focus on rebalancing portfolios to manage risk amidst market uncertainties.
• Monetary Policy Critique: Hanke criticizes the Federal Reserve's focus on interest rates rather than the money supply, advocating for a monetary policy framework centered on the quantity theory of money.
• Economic Risks: Potential geopolitical and economic risks, such as ongoing trade tensions and global conflicts, could negatively impact market sentiment and economic stability.
• Advice for Investors: Hanke emphasizes patience and careful portfolio management, suggesting that investors should be prepared for potential economic downturns and maintain a balanced investment approach.

Transcript

So right now the rate of growth is four and a half. The rate consistent with hitting a 2% inflation target is about six. And that suggests to me what that inflation that the trend of inflation the course of inflation is is down. It's it's >> okay. So so disinflation is >> disinflation. Right. What I think I'm hearing you say then, Steve, is despite maybe conventional wisdom, tariffs should not be inflationary. Um, but they should be an economic drag. >> Yes, I think the economy is steadily weakening and and will eventually end up in a recession. [Music] Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. As the world awaits Federal Reserve Chairman Jerome Pal's speech at Jackson Hole today, the question on everyone's mind is where's inflation headed from here? Is it set to surge as the Trump tariffs start being felt in full force? Or is it set to trend downwards to the Fed's 2% target rate due to a slowing economy? To discuss the latest possibilities and probabilities, we've got the good fortune to sit down today with Steve Hanky, professor of applied economics at the John's Hopkins University in Baltimore, Maryland. Steve, thanks so much for joining us today. >> Great to be with you, Adam. >> Thanks, Steve. Well, look, lots to talk about today. And as I just said there, um the day that this video is coming out, uh should be the day that Jerome Powell is going to have his big speech uh at Jackson Hole. of recording this the day before. Uh he'll be there at Jackson Hole with all the other great economic boombas. Um so there's sure to be, you know, lots of grand thinking released after this weekend. Um I want to talk about what you think is going to come out of that. Really quickly before we do though, Steve, just because it's been a little while since you've been on the program, um let me ask this intentionally general question just to help viewers kind of get a sense for where your thinking is right now. What's your current assessment of the economy and the financial markets? I think the economy is steadily weakening and and will eventually end up in a recession. As far as the markets are concerned, I I think they're overhyped, overpriced, and and and in bubble territory. The pro the problem with that, Adam, is it's fine to be able to detect a bubble. A lot of people are starting to, you know, wor worry about a bubble, but it's very difficult to predict whether the bubble will actually pop and when that would occur or or whether the air will just slowly go out of the bubble and we'll have valuations reach, shall we say, reasonable levels and and we don't know when that would start and and how long it would take. So there you have it. you you asked the question and and and and your intro set the table pretty well for a variety of things we can talk about. >> Great. Well, looking forward to rolling up our sleeves and diving in. I just want to say your your very concise answer there and I appreciate how direct you were. Um reminds me of two quotes. Uh one is from John Husman who says that bubble markets force you to make a choice. Um look like a genius now or look like a genius later. And there's a lot of people who are thinking they're geniuses. Now the question is is will they feel that later if indeed it is a bubble and it does pop. Um so anyways you say okay uh economy on its way to recession markets on its way to some sort of reckoning because it's a bubble. So of course the second quote that pops into my head is oh okay beyond that Mrs. Lincoln how do you enjoy the play? >> I love the quotes. Let let me follow up with a little thought with regard to the the market and bubbles and that is there there there are actually two decisions that people have to make with regard to bubbles may maybe three but the two I was thinking about if you if you decide to go out that that's one decision but if you if you decide to go out you're eventually going to have to decide when to get back in >> and and and and It turns out that the the record of people going pulling out and then going back in is is not good. >> Correct. Now, that's very true. And in fact, Steve, you may or may not know, but I have um financial advisors that come on this channel every week to kind of give a market update, but also just be very transparent about how they're managing their clients books. And they have a lot of horror stories. one of people who got out like in 2008 who still haven't found a way back in because they feel like the market just keeps, you know, running away from them. But um to your point, they talk an awful lot about, you know, human nature generally forces us to get out of the wrong times or get into the wrong times or um as the market starts recovering, we start bargaining, you know, with the universe. Oh gosh, I missed the run. You know, if it comes back down again, I'll jump in. But the market just, you know, continues to grind higher from there. So there's a lot of of uh evidence to your point there Steve which is as an investor you want to be very careful about making kind of binary all-in and allout decisions. >> Exactly. So uh that gets to another point and that that is um my own experience is that you know you you you have to be very patient. It's it's kind of a Charlie Mer rule. You have to be very patient and and uh you know you you can be looking at something for two or three years before you buy it. Mo most most people just can't do it. They they aren't I'm a stoic and and the reason I'm a stoic it was brought up when I was a boy of course I was in rural Iowa and and people tended to be although they didn't read any of the great stoics they they were stoics by practice because >> the weather dominates everything and there's not too damn much you can do about the weather if you're if you're an in the egg business >> right so if the weather doesn't care about your opinions. >> That's right. So, you become kind a little bit stoic. Uh and and so that's that's one another factor. Now the other thing with regard to since we started on this markets and portfolio another thing is that for young shall we say younger folks the prudent thing is probably to be a little bit biased to just staying in staying the course. But but older people uh should be looking at their portfolios because they probably have big capital gains and and let's say they have a traditional, you know, want to use a 6040 rule. 60 60% stocks, 40% bonds. Let's let's just assume that's the case. Well, now if they went back and looked at their portfolio, maybe it's like 80 or 85% stock, right? Because they have a huge capital gain. So the recommendation there would be rebalance the thing. >> So Steve, we we actually know from the data sadly that um uh the uh what is it? You know retirees basically have the highest exposure to stocks in their portfolio as a percentage of their portfolio than they ever had right now. Well, that's an interesting observ I I didn't I wasn't aware of that, but that I I'm not surprised, by the way, that that's why I said what I said. >> Yeah, it's corroborative of what you just said. Yeah, exactly. >> But but that that that would be my instinct. And the reason the the reason for that is following and and this gets back to the thing that makes the economy go around and and kind of my theme song, money dominates. It's all about the money supply. And what happened with the pandemic, we had a huge increase in the money supply. Uh at at one point we actually had the money supply growing at, you know, a little over 18% per year, which is a most rapid rate of growth in the money supply measured by M2 since the founding of the Federal Reserve in 1913. So what happens after that big injection? The first thing that happens, asset prices start going up. So real estate goes up, land goes up, stock market goes up, all all assets start going up. And and who owns the assets? Well, the the the people with a positive net position on their balance sheet are people are older, young, younger people, it's negative or or some older people, it's negative, too. But the bottom line is to give you an I just to put this thing into context, Adam, if you looked at the billionaires in the United States and took their wealth as a percent of GDP in January of 2020, the month before the pandemic hit, it was 14.1%. Now that percentage is 21.7%. So who who made out by this surge in the money supply, surge in inflation, surge in asset prices that we've had? Well, people who owned assets. Well, they tend to be on on a on a demographic basis older people. So, so, so right away, intuitively, I I know that they they must be very heavy into equities. Uh well they are um they also just to your point though um you know who benefits from the policies that we've we've been pursuing. Um it's not just equities that have run up right you know it's >> it's real estate although not so much commercial these days I mean it's it's everything else you cryptos gold whatever. Um so if you are fortunate enough to own assets you've done very well. um if you don't own assets, you've just gotten clobbered by the increase in cost of living and you've you haven't had any any tailwinds from assets to help you. And it's interesting you're bringing all this up here, um Steve, and I do promise we'll get to inflation in just a second, but I literally just released a a video on this exact topic about two hours before our recording here. Um and here is the chart that I made the centerpiece of the video, Steve. And you'll see here it's a measure of net personal wealth in the US and the top 10% is really running away from the bottom 90% but that's nothing compared to the top 1% uh and and how fast uh really exponentially their wealth has been running away from from everybody else. So you know those who have the assets uh the more assets you have the the better off you're doing here. So obviously this um you know this this o opens a lot of questions about sort of the direction of society um both as you have extreme wealth concentration like this uh from the halves to the have nots but there's also as you were talking earlier there's a demographic element to this too where you know wealth is correlated with age and you've got these younger generations that are trying to come up and they just can't form capital the way that previous generations were able to do at their Yeah, this is a great chart. Now, now what what's what's the sourcing on that? What what's a if if I want to go look at the raw data and not a chart, what where do I find this? >> Yeah, to to to be honest, um I I don't know off the top of my head. I pulled this from an article from um quote the raven, which is a substack. Um I am in contact with the uh the author there and so I can ask him what the data set is and and >> yeah that that' be great. Now this is very interesting now this chart it's actually better than my billionaire thing. My billionaire thing says the same thing but but you you you you've got it more refined. Now what's the lesson in this? The lesson we we come to is actually something that is contained in in my new book that I co-authored with Matt Sukki. It's called Making Money Work. You might put that up on on the video when you uh when you produce it. And and and we argue that one of the key things and objectives of monetary policy should be neutrality. And neutrality that when when the money supply changes one way or another, it it should be neutral as much as possible in terms of its effect on different sectors of the economy and and different income groups. >> And and and your your chart shows this. This is what the the Fed in conjunction with the fiscal authorities in Washington have done. they the the politicians have have made for a nonneutral monetary situation and that that's the Fed that's the Fed and the fiscal part of the thing is also in there because taxing and spending is not neutral. it it favors certain groups other groups and it and it turns out >> that think about it whe whether you're conservative or whether the limousine liberals are running Washington they're all doing the same thing they're favoring special interest groups and they're making the income distribution in the United States worse and worse and worse and and of course what what what does that give fuel for number one it gives fuel kind of ideologically for people on the left. All the Marxists jump on this thing and raise hell about it. And and I think that's bad. And that's a kind of at the theoretical level, but at the practical level, it it makes society un anxious and and and as you as you pointed out, we're finding now what happens with young people. They graduate from college with a lot of debt. and none of the assets they haven't accumulated any assets. You know, when I graduated from college, I I I had a huge portfolio actually. I I mean, not portfolio, balance sheet. Now, why did I do that? I I had that because I was working on the farm and and all kinds of construction jobs and everything else. When I was in high school, even even when I was in junior high, even when I was in grade school, I I was making money. I I had a bank account and there was something in the bank account. >> So So then I went to college and and I had usually I had three I I was going to college and trying to avoid flunking out. And in addition to that, I always had three jobs at the same time. I I was I was working as as an assistant for a professor, a gopher as they call them. I I was working as a bartender at Tulagis in Boulder, Colorado, where the University of Colorado is located. In that day, by the way, that Tulogis was pumping more beer than any beer joint in the United States. You can you can Google a thing. It's a very famous thing, by the way. and and I also had a part-time job at the university, the maintenance department, you know, the running around, you know, fixing broken windows and that kind of stuff. So, so that was one thing. Then I then I started graduate school and was a research assistant, had a had a research grant and in addition to that, of course, by the time I got was a graduate student, I I was on a full tuition. I wasn't paying any tuition. And then fortunately I fell into a job as an assistant professor at the Colorado School of Mind. So I was making out like a bandit. So when I graduated from college, what did I do? What about the first thing I did is bought a 24 unit apartment building. >> Oh wow. Very very impression for a young >> no debt. I mean the the balance sheet I learned very quickly when I was a kid there's nothing more important than a balance sheet >> um or or a healthy balance sheet but yes um >> well that that's that's true >> yeah so Steve you know I would say look you you can still there's still opportunity to get ahead but it is I think and I think you see similarly I think it's a lot harder right So I mean one we can argue whether today's generation has the same work ethic as you did and I'll I'll put that aside for a moment but >> let me answer the question they don't. >> Okay but okay but but even that let's put it aside for a second let's assume let's even let's assume they do right. Yeah. >> First off, the cost of college education has increased faster than I mean almost any other good or service that we can think of over the past couple decades, right? It's been right at the top there. So, college is a lot more expensive relatively. Um the essentials of life are much more expensive relatively, housing, things like that, right? It's it's if if if someone graduating now wanted to buy a similar apartment building or even forget that just a starter home, it's price as a percent of median income is much higher than it was back in your era. And the ability to earn an income uh coming out of college, I think is also getting diminished. Not that you can't do it, but we're seeing that the unemployment rate amongst uh recent college graduates is now entering, you know, kind of recessionary levels. We're seeing that companies are pretty much now beginning to say, and they have for a while with with outsourcing and and previous automation, you know, they're they're starting to get rid of the entry-level jobs with technology. AI looks like it's probably going to pour gasoline on that. So, there is just a much steeper hill to climb. And again, I'm not saying that you can't be scrappy and and be successful here, but I do think you have a steeper hill that you got to climb to do it now. >> Yeah, I think I I think everything you said I agree with. And and my my observation is that uh the the problem with the universities, first the tuition. Why does that go up? It goes up. The administrations at the university are are just huge now. I mean there's so there's a provost there's an assistant provos this a that a that a dean a just a failen of at John's Hopkins University for example where I'm a professor I've been a professor now going into my starting my next week I'll start my 57th year >> holy cats >> so so so I' I've been around a while and I watch what's going on and and the administration the the layers of administration are just Unbelievable. And and whenever I make this ob observation, my colleagues remind me that Hopkins relative to most universities is lightly administered. >> It's so depressing. >> But but so so so this this the tuition thing is it's all an administration thing. But Steve, sorry to interrupt, but what enabled the bloat of administration and it was the fact that the government got into the student lending game and basically pushed out the private lenders and was willing to give loans for whatever colleges were willing to to charge for tuition. >> Yeah. Well, that that that was that was part of the thing. The other part is that there are a lot of federal mandates that that that force administrations to increase in size. You got to have a regulator for DEI and you got to have a this and a that and so forth. So, so there's there's a mix of things, but the the bad news on the cost increase side, it's it's all mandated either directly or indirectly from the government. And it's fed by the bureaucracy. What what do what do bureaucrats do? Their main thing is to expand their bureaucracy, >> right? Justify the bureaucracy's existence and then expand it. Yeah. >> Yeah. Right. I mean so so so that's that's one part of the picture. The the the other part of the picture so the cost has gone up but also the the level of instruction and by the way the number of universities and junior colleges and everything else is is expanded massively since remember I I I entered the university when I was 17 years of age and that was in 1960. the there there there weren't there weren't that many universities in by the way now now every every podunk college is is a university every po every every every place that was a podunk college grants PhDs of all things I mean it's a joke it so the so the level of the whole thing has gone down and the practical side of that e even at great universities by the way where where I've always I've either been associate you're out there in California, I think. >> I haven't recently. >> And where was one of one of I've only been a professor at three universities, all great. Colorado School of Mines, number one mining school in the world. >> Great school. >> John's Hopkins University, one of the top 10 universities in the United States. University of California, Berkeley. >> And and and and what all these things with the exception of mines. Mines, they're all engineers. So they teach them how to do something at the Colorado School of Minds. They they they don't have any problem getting jobs. Believe me, they but the the general universities are in general not training people how to do things. So So in my courses, I emphasize I teach them professionalism. You you got to be there. You got to be paying attention. So forth and so on. And and I teach them actually how to do things. uh that graph that you had up there, they they they know how to do it. They know where to get the data and so forth and so on. So this is this is a big problem because I and I know this and for a fact because all my students and this has been written up in Bloomberg and Baronss and other publications. My students 100% get their top picks on Wall Street. They all go to Wall Street at the top and and the people who employ them always call back and they say, "Oh, you got any more of these people? It's just great." You know, >> after 10 days, Joe Blow was up to full speed. We didn't even have to train the guy or gal. And and and I said, "Really?" I said, "How long do you normally have somebody in training?" and they say, "Oh, minimum six months, may maybe a year or so before they before they can do anything useful." And and what does that mean for somebody who's hiring? It means it's very expensive. They have to invest a huge amount in human capital to train these people so they can, you know, push a pencil or do it do whatever they're doing, >> right? And not all of them work out. So there's there's wastage there. So I very much appreciate, Steve, you being this transparent being inside the system and being inside, you know, a highly respected organization like Johns Hopkins, uh, to be able to to call this out. A lot of people in the system will will not call these things out, especially the the the the delilution and the quality of the education system. And I know you and your class is an example, sorry, is an exception. Um, but um, kudos to you for doing that. In fact, I was just having a talk with um Greg Lukianoff, who's a co-founder of the book, The Coddling of the American Mind, and he talked about how um employer, big employers have been telling him, hey, you know, a lot of the graduates were getting from these Ivy's and other, you know, bigname schools, they're just not working out. In fact, we're actually reducing our recruiting efforts there. And and Greg was like, can you guys please publicly say that? because, you know, his whole point is like we we kind of can't address the problem until we admit we have it. So, I appreciate you being so transparent. >> Well, it's easy for me to do. >> All right. Well, look, I could talk about this all for the entire interview as as regular viewers of this channel know, I I come on talk about this topic a lot. That being said, though, I' I'd be remiss not to bring it back to inflation because you're one of the top specialists out there on inflation. And I want to remind folks in the years I've been interviewing you, um I'm sure we're going to talk about the quantity theory of money and you rely heavily on that um that formula for for good reasons to predict where inflation is going. And that allowed you and your partner to make the prediction that the CPI was going to rise to 9%. Uh, and this was when CPI, I think, was at like 3 or 4%. And 9% sounded crazy high, but you were proven correct within a very short period of time. You then correctly predicted it was going to start declining um, uh, quite severely, which it then did. So, kudos to you on that. Back to the things I talked about in the intro here with Jackson Hole. Where do you see inflation going from here? Okay, that that's a little bit of there's kind of two parts to this that >> unpack it any way you need to. >> Yeah. Okay. So, so ba based on the quantity theory of money uh the qu the money supply is is is essentially u where the stock of money today is more or less where it was about two and a half years ago. So you basically had a contraction Adam in the money supply and now it's started increasing a little bit and the rate of growth in the money supply in the United States is 4 and a.5%. If we use M2 as a measure of the money supply and the rate that is consistent with hitting an inflation target of 2% and based on the quantity theory of money would be a little just a tad over 6%. Let's just call it 6%. So right now the rate of growth is 4 and a half. The rate consistent with hitting a 2% inflation targets about six. And that suggests to me what that inflation the the trend of inflation the the course of inflation is is down. It's it's >> okay. So so disinflation is >> disinflation right. We're at 27 2.7 now. This this month. Well, the month before was 2.7. Every everyone said because of tariffs it was going up. Well, I I said no, it was probably going to stay the same or go down or certainly not go up very much. So, so that's that's the underlying cause and behind where inflation is going because inflation is always and everywhere a monetary phenomenon. How much money in the system it dictates where the overall aggregate inflation like this consumer price index where that's going. So, it's going down. >> Okay. So, sorry to interrupt Steve, but just so I can clarify. >> Yeah. For the folks that have been pointing to M2 and saying, "Hey, M2 is rising. Therefore, expect more inflation." You would say, "Yes, M2 is rising, but it is not rising fast enough to be inflationary. We're still in deflation given the current rates." >> Right. Right. Exactly. That's that's exactly a good summary. And and one way to put it that monetary policy now is tight. It is tight. And why is it tight? It's tight because the money supply at four and a half percent is less than the rate consistent with the 2% target of 6%. So, so we're we're we're in a tight money zone and that's why the thing is trending down. That's the that's the big trend pushing the thing. Now, there's a little there's a little problem and that is we have this whole regime changing with tariffs and and what what are tariffs? Well, tariffs, who pays them? Number one, f forget what they tell you in Washington DC. The importer, the American importer pays all the tariffs. Foreigners don't pay the tariff. Americans pay the tariff. And and so that means what? That means all imported goods are going to be faced with a sales tax. and and that that tax will be added to the price of whatever these imported items happen to be and and it's very high right now. The the alle budget office calculates that the tariff rate the effective tariff rate that we are going to be facing right now 18.2%. It it the Smooth Holly tariffs which were the highest in in the United States and the and and put a stake in the heart of the Great Depression in 1930. The Smooth Holly tariffs they they were only just a little bit over 19%. I think they were 19.7%. And now we're at 18.2. So this this sales tax is huge. Now to put it into context and I was actually just working on this this morning. If you look at the estimates of what they think the revenues will be that will be generated from these sales taxes or as they call them tariffs. uh it it will amount to about half of the so-called tax cut that was associated with the big beautiful budget bill that was just passed. So we just passed a much advertised by Trump and company and and and many other people. The big beautiful bill. The big beautiful bill extended the tax cuts of 2017 and and ma made those permanent, >> right? Not not an incremental benefit, but it preserved what was there before. >> It preserved what was there before. So So what what what has happened with the tariffs? We in a in a way you can think of money going in the taxpayers's pocket because he's not gouged by increases t in taxes. is due to the big beautiful bill, but it's going to be taken out about 50% of that bundle going into these pocket. Half of it's going to be taken away with these tariffs, which are sales tax. So, it's so it's a very it's a very big deal. C >> can I can I dig into this a little bit? I don't want to interrupt your flow if Okay, if you don't mind. Um, so I follow your logic so far. Let let me just ask and this is no agenda. I'm literally these are just honest questions I have. So, first off, is this the same as sort of the Smoot Holly tariffs um in that era? Um and the reason why it might be argued that it's different is that um these tariffs are being used to renegotiate new trade deals, right? So in other words, um yes, uh the the the tariff may be placed on certain products from company X, sorry, country X. Um but we may be getting all sorts of additional favorable terms on trade with that company like that country like they're going to you know take off tariffs in their country and our goods so we're going to sell more there. they might actually move their manufacturing to US plants uh to avoid tariffs and create US jobs. Um you know, in other words, it's not just a sales tax. There are potentially other benefits coming along with that sales tax that may offset it or at least partially. >> Well, you have to work through these so-called benefits. I mean, you're you're basically giving the propaganda of tariffs, the benefits of tariffs. There there are no benefits of tariffs. The the these so-called advantages or disadvantages because when you work the numbers, you you anyway you cut it, it's it's going to cut about two. It's a wide range depending on how you do the bench calculations. But using kind of standard methodologies and doing bench calculations, it these tariffs will cut into American GDP and cut it by about 2 to 8%. It's a it's a big range. I know, but there there's just no way you can you can come up with a benefit out of that. I mean, it's just a a wrecking ball. Tariffs are a wrecking ball. and and and this leverage thing, I would add, they're worse than Smoot Holly because Smoot Holly was fixed and and there was a commission actually to re-evaluate these in a in a systematic way. There were rules of the game that were being followed. They they were terrible and and and one reason we had had such a a deep and long Great Depression was Smooth Holly. There's no question about that. But but but it was all systematized. There was a template for for handling changes in the Smooth Holly tariffs and so forth. There there is nothing in this because Trump's using this for leverage. You say, "Well, that and you you put the positive Trumpus spin on it. I'll put a negative spin on it." Trumpus and that is we have a tariff today on you. But but what if you don't deliver what you say you're going to? then then I'm going to jack the tariff up on you. >> It gets worse. >> And that and that's what's going to happen in Europe. You said all these investments coming in. The EU promised to send 600 billion in right additional investment in the United States. Well, the EU has no authority. They they can't mandate that private companies in Europe invest 600 billion dollars in the United States. The whole thing is smoke and mirrors. And and by the way, most of these things aren't aren't written on paper. They're not signed by anyone. We we don't know what in the world is actually going to happen. So So there's there's not the fixity about the bad smooth holly tariffs. There is a great deal of uncertainty about and flexibility in this idea that we're we're not just using leverage for economic reasons, but for kind of as a weapon of choice. I mean th this is this is warfare we're talking about. >> Okay. And that that actually makes great sense to me which is yeah you you these tariffs aren't just fixed at 18.2%. Your example Europe doesn't deliver what they say they're going to. So Trump says okay great. I'm bumping them up to 40% now. Right. Yeah. >> Right. Right. Or some or some of the loopholes that he's allowed supposedly and we don't know about the loopholes. He's allowed certain loop. Maybe he'll decide to close the loopholes. >> Yeah, >> we we don't know. The problem with with the president, he's he's a very murial personality and and murial personalities you you can't predict from one day to the next what in the world they're going to do. >> Well, by definition that you can if they're mercurial. So let let me just ask you this question and this sure this is a it current administration talking point but but just tell me if there's anything here here or not which is let's go back to my example let's let's say South Korea we say we're going to put a you know x% tariff on your on Subarus uh unless you make them here in American factories right so if they do if they do do that nobody pays the the tariff on the Subaru because it's getting now manufactured in America. So you Americans get same price Subarus except they get >> No, hold on, hold on. You made an assumption that's incorrect. Why do they produce Subarus and and uh offshore? Because it's cheaper. When they produce them in the United States, it's going to be more expensive. The price tag is going to go up. >> Okay. So it may not be same price Subaru is what you're saying. >> No. Yeah. you you you've assumed I mean you're you're you're like a professor in a classroom you know on a blackboard you say assume that you know th this is this is what the economists you know in the classroom they they say they use the Latin phrase keterus parabus >> right all things being equal yeah >> okay so so okay but to your point all right so let let's use your point there let's just say one way or another subarus get more expensive so Americans may substitute and just say well okay I'm going to by American. Now, um are there any benefits from that of the substitution to a non-tariff domestic product? >> No. >> Okay. >> You're you're you're going from low cost to higher cost. That that's the way to all of these things once you really work it out. The the the configuration of manufacturing in the world is is and is settled be kind of in a general equilibrium as we call it in economics. and things settle where where there's a comparative advantage of settling it there. David Ricardo, the great British economist, worked all this out a long time ago. The comparative things end up where they have a comparative advantage to being being produced and and that's and that's the way it is. Now Trump wants to upset the apple cart and change all of that and he says I don't like the way the market has done this. That's he's basically saying I don't like this market arrangement. I want to rearrange the deck chairs in another way. And when you do that that simply makes you go from optimal or I'm in quotes optimal low cost to some higher cost regime. >> Okay. So, so any free market enthusiast should hate this because it's nothing wrong with natural market forces. >> You can you can label what what's going on. And this is a continuation of Biden, by the way. It's it's not Trump. Biden had exactly the same philosophy. The the the difference in Biden, of course, he he wasn't the sharpest knife in the drawer and wasn't as fast and as comprehensive as Trump, but but the ideas are the same. The philosophy is the same. And the philosophy is an interventionist philosophy where the government knows best. Trump knows best. He wants the CEO of Intel fired because he doesn't think the guy's any good. He he wants this to happen and that happen and and and he micromanagement. He's he he wants to run the American economy as Trump enterprises. But but don't forget that's exactly what Biden was doing. A and that's been a a pattern. We've been sliding down this slippery slope for What do you think Obama was doing with Obamacare and and all these other interventions? >> Well, it's it's this is this is just like the academic the bloat in academia we we talked about earlier, right? Which is just government wants more power over time. >> Yeah. Yeah, it's it's it's ultimately it's it it is a power game and what we say everything is becoming more politicized and you you can't do anything now in life without having a politician having their finger involved in the thing. you're facing some regulation or or some sanction or some or or or you're receiving maybe a subsidy. If you've got a good lobbyist and you're on the right gravy train, >> you you you have a big thing. But let's get back to the inflation thing. We're we we really could have a a great and very long brainstorming session here, but let's >> useful. Let me just ask one question about tariffs related to inflation so you can include it. >> Yeah. that that that's what I was going to come back to. I I said due to the inflation is always and everywhere a monetary phenomenon. How much money in in the system will give you the general price level and whether it goes up whether it goes down where where it is. But there's a lot of movement within within the general level and then then that comes back to the tariff thing. >> Yeah. So, so when you said that that the money supply is increasing but not enough uh to push the inflation rate up, right? We're going to be disinflating. It does seem like you think that tariffs are going to be um you know taking money out of Americans pockets. Um a lot of people will call those price increases inflationary. Do you does this get added on to the money supply increase or is this actually >> No, what what it does it changes the relative price of things? So, so things that are imported with a tariff, if I'm bottle buying a bottle of wine now and from France and paying a 25% tariff, obviously it's, you know, increases the price of the French wine >> and it'll go up relative to a California Chardonnay. Yeah. >> Right. Right. relative to California wines. So, so that that's one thing that happens. But, but if the stock of money remains constant, that that increase in if I'm spending more on my French wine, I don't have as much to spend on California wine or other things and the price of those won't go up as fast. So, that's why the aggregate stays kind of the same. You might get, by the way, you might get little a little one-time pop in the general price level due to these relative price adjustments because prices are sticky and and but and and you might get a little pop up, but that'll start trending down again. >> But but the but the but the price increase that you see on these particular imported products for that that is not inflation. that is a relative price increase of those items relative to other things in the overall economy. >> Okay. So that's a very important point which a lot of people out there are saying tariffs equals inflationary. You are saying no, you you may see prices pop to a certain extent on the tariff goods, although you expect those pops to sort of dissipate over time, >> right? And the pops with the the the if the if they show up in the general price level, it will be just a one-time show up and and then it goes away because the of the of what's happening with the background money supply numbers. Now let let me give you an example of how this works. So that that is less theoretical. In the 1970s, you know, we had the two oil shocks in 1973 and 1979 and and Japan imports all of its oil and and the price of oil goes way up. That that would that would be equivalent of imposing a tariff on oil imports in Japan. Yeah. There wasn't a tariff. it just the price went way up. And the Bank of Japan in 1973 said, "Well, we'll accommodate that price increase in crude so it doesn't hurt everybody as much." And they they goose the money supply and what happened? You had in you had inflation went up and everybody in Japan says, "Oh, we have inflation because the price of oil went up." No, you had inflation because the Bank of Japan decided that they were going to let the money supply go up to accommodate the price of oil going up relative to everything else. Then 1979 came and the Bank of Japan learned their lesson. The price of oil went up, but the Bank of Japan did not goose the money supply. And what happened? Inflation didn't go up. The price of oil went up relative to everything else being bought in Japan, but but the price of all other goods and services tend to be muted. It went or went down and the overall price index as a result in Japan stayed, you know, more or less the same as it was before the price increase in oil. So, so the second time the price increased in Japan for oil in 1973 was a different ballgame and and it didn't create inflation. The first one everybody got it wrong. They said, "Oh, the price of oil is going up. That's causing inflation." >> It was the monetary response that >> Right. Right. Yeah. We had two different monetary responses. >> Okay. So, what I think I'm hearing you say then, Steve, is despite maybe conventional wisdom, tariffs should not be inflationary. Um, but they should be an economic drag. >> Yes. >> Okay. Um, so >> now now why why are they an economic drag? Let's let's just use a simple example. Let's let's assume that you're You know, you're you're selling me something and you're you're in some foreign country. You're so tagged is selling Hanky something and tag it off in some foreign country someplace and and and you sell it to me for the price and on the terms that we agree to. And and that means if you're willing to sell it, you you benefit. There's a benefit. And if I buy it, I also benefit. So the the seller and the buyer benefit and and something is generated that economists call gains from trade. That's what that's why trade wouldn't occur if there weren't gains from it. So they're gains. Now what's the tariff do? The tariff is a sales tax that goes into those gains and sucks part of them out and and puts them in the US Treasury. Now at the margin and everything in economics happens at the margin though there there'll be there'll be a lot of transactions where the gains from trade are are not as great as the tariff tax that's being imposed on those transactions and and and in those cases the transactions won't occur there there there no possible net gains from trade if the tax you're imposing is greater than the before tax net gain from trade that was anticipated. >> Makes sense. >> So that so that that's that's why what you said is correct. That that's to explain why economic activity and trade will go down. Taxes make things go down, not up. Taxes taxes don't stimulate things, they crush things. So, okay. So, let's let's get to where the rubber then meets the road here. So, we have um Jerome Pal, who by the time this video releases tomorrow, Steve, uh if Pal hasn't talked already, he'll be talking within the next couple hours. Um and the world is, you know, waiting with baited breath to hear what he has to say. Um, given your outlook, um, I mean, it sounds to me like you think that that the Fed will likely start cutting, and I don't necessarily looking to get you to commit to that. You think they'll do a rate a cut in in September, which the market still believes they will, but um, but over the next year, presumably the Fed would be cutting if it's seeing the same things that you are. Correct. >> Well, no, they they're not seeing the same things. They don't even look at the money supply. I'm looking at the money supply. My my point is that he will be talking about what he'll be talking about a lot of data. He's data dependent. He's looking at all the economic data. So he'll talk a lot about economic data and then reach a conclusion about where the one thing the Fed pays attention to besides economic and financial data or are the Fed funds rate. That's what you were talking about the interest rate Fed says. >> So then then he'll jump to that. That that's the wrong way to go. Monetary policy is not about interest rates. It's about changes in the money supply. He should be talking about the fact that the money supply is growing too slowly and ways to allow it to increase a little bit faster rate. So that he should be talking about quant taking quantitative tightening off. They're still tightening reducing the size of the balance sheet at the Fed. That's one thing. He should also be pushing ahead for actually something they're pushing for, and that's to take these uh supplemental liquidity requirements off commercial banks because those liquidity requirements require banks to reserve on on safe assets like treasury bonds the same way they reserve for risky assets. So as a result it would give the banks more capacity to make good loans right now >> to make loans and then velocity would increase right >> well well we just economic activity would increase >> okay >> uh velocity would stay the same >> okay >> so so my my my point and and this we're talking now today um is I forgot what date it is the 21st >> it's the 21th 1st of August. >> Yeah. 21st. As as we're speaking today, the 21st of August, John Greenwood and I just uh published a column in Forbes magazine. Forbes, excuse me. That was that was a a Freudian slip. Um the title is monetary policy is not about interest rates. It's about the money supply. and and and to give you an idea of how you can get and I'll use justiite two examples in the United States to illustrate why interest rates are irrelevant. Everybody focuses and you you use the right word which we use by the way in our article you said everybody's waiting with baited breath >> for what what's going to happen to the Fed funds rate and I'm saying with Greenwood that's all irrelevant. It's >> saying it's the wrong thing to watch. Okay. >> And here's why. Let's go to the great financial crisis. Let's take two huge episodes where where interest rates everybody focused on interest rates just got it all wrong. One is a great after the great financial crisis. If we look at the US between 2010 and 2019, the Fed lowered the Fed funds rate to a quarter of a percent. the rock bottom quarter percent and and they left it there. They also engaged in three episodes of quantitative easing. And so everybody traditionally they said, "Oh, easy money. We're going to have some people were even saying we're going to have a hyperinflation." Wrong. The money supply grew at very close to Hanky's golden growth rate consistent with the 2%. It grew between 2010 and 2019 at 5.8% Adam. And and where did inflation grow over that period? 1.8% per year. >> So So the the people focused on the interest rate just got it all wrong. We we we had monetary policy that ended up being more or less right on the right on the dot. Now what happened with the pandemic? We had a different situation. We had again 2020 2024 Fed funds were pushed down to a quarter of a percent again and we had largecale quantitative easing. And everybody looking at that said, "Oh, we're not going to have inflation now. Now they turned their they said, "Oh, we're not we're going to have just what we had after the great financial crisis. We had very low Fed funds rate. We had all these three quantitative easings and and God, we we didn't have any inflation. Same thing's going to happen this time. And and people like Greenwood and I said, "No, no, no, no, no." The the this time the money supply shot up and it averaged over that period of time uh 17.3% per year between March 2020 and March 2022. >> Yeah. As a result, we had what you said. The inflation did what? It went up to 9.1% in June of 2022 and averaged over that whole period 7%. So, so the moniitorist got it right and and the people focused on interest rates like Paul and and every one of those central bankers, by the way, that is what they will be talking about whether they're going to increase or decrease their base rates. every single one of them will end up talking about that. And and and by the way, that's what Trump and Powell are quibbling about. Powell is holding steady and and Trump wants to have a 3 percentage point reduction in the Fed funds rate, but but their philosophy and their their view of things is the same. And it's wrong. They're looking at interest rates. Monetary policy is not about interest rates. It's about changes in the money supply. >> Right. So they're arguing about pulling the wrong lever. >> Right. Exactly. So I I' I'd say in in a way their their fight is kind of ridiculous. Uh and and in in another way, ironically, Trump actually has a point. He's he's basically saying they're too tight. But he he should be embracing the quantity theory of money. Say you're too tight. The money supply is growing below Hanky's golden growth rate of 6%. Rather than fooling around with all this battle over the Fed funds rate and trying to fire governors, the central bank and all the rest of it. >> Right. Well, so okay. So great. So it sounds like you think this in spite of itself the Fed may actually be more successful than perhaps it even wants to be at bringing down the official uh CPI to 2.0%. Because if we're flying, you know, with with um a a declining altitude, I guess to to murder the analogy here, um we're we we don't have enough money supply to be pushing inflation up. It's disinflating as you said earlier, right? So presumably through your calculations, I'm curious >> where do you see us headed >> inflation wise? I imagine it's below the Fed's 2.0% target. the the target are below. I I I've I've always thought and this might be thrown off by these temporary little popups due due to the tariffs, but I I I think there's a fairly good chance that we'll end up at 2% or below at some point in in the year. We, you know, we're running now, you know, it's getting late in the year. We don't have that many months left. >> So, would you say you think we'll get to 2% or below in the year? Are you talking rest of 2025? You're talking next 12 months. >> G, give me a break. Give me 12 months. >> Okay, good. That's all I just wanted to clarify. Okay. So, within the next 12 months, you think >> the Fed possibly very much in spite of its its current focus may actually succeed. And and do you think there's a danger of it succeeding more than it wants to where inflation gets a one-handle and the Fed is all of a sudden saying, "Hey, wait a minute. We've got we're back to wanting more inflation like they were saying precoid Not not really. I I think given the turmoil that's going on, they they they want a steady as you go thing. They're they're not they're they're they're not going to be in the business of making sharp changes. >> They're they're in a hunkered down mode. You have the president of the United States and and and all all these, you know, sub secretaries and, you know, kind of basically non- entities. I I mean, you you had somebody taking shots at the at Cook, the governor of the of the Fed. I mean, he's he's a low-level political appointee. He he he's not even a secretary of a department or anything. So if if if the if you have incoming fire, what what do you do if somebody's shooting at you? What do you do? >> Right. >> Well, you barricade yourself in your house and hunker down. >> Exactly. You hunker. Yeah. Well, um, >> you you you don't get you you don't get out there wa w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w w waving a right white white flag or whatever or or you know the charge of the light brigade from the Fed is not going to happen >> right well so similar question though for the president will he regardless of what Powell does uh will he get what he wants right which is basically inflation expectations will come down >> what he what he should get Actually, a week ago, I had a two-hour meeting at the White House and and and delivered making money work to, you know, one of one of the right people. He should, if he wants to redesign the Fed and and get away from what they're doing and get on the right track and and base things on the quantity theory of money, getting that back at the center of the thing, which which by the way, Paul and all of the people at the Fed have thrown overboard. So you you want to get it on board and you want to get com you want to get commercial banks back at the center and rational banking regulation and all those things. You you you you you read Suki and Hanky making money work very carefully because that that's basically what that book does. It it is a three-legged stool getting the quantity theory of money back in the picture and getting away from this interest rate obsession. Look at the money supply. Point number two, well, who produces most of the money? Commercial banks produce most of broad money in the United States. So, you have to have rational good regulation because that's part of bank regulation is part of monetary policy. And the third thing is to have neutral money. You you you don't want these distortions and and various sectors being favored relative to other sectors. Various groups in the economy being favored over other groups. You want neutral money. So quantity theory of money, keep your eye on the money supply. Point number two, keep your eye on banks and bank regulations because they produce most of the money. The Fed doesn't. And three, the monetary framework and money supply should be neutral. >> Steve, I gota say that comes back to that chart. That's why that chart you had is excellent because if you had a neutral monetary policy, by the way, if that if that had been your framework, you you wouldn't have those that huge spike in >> Right. They would move in tandem. >> Yeah. Everything would be be kind of a little flatter. the lines. >> Yeah. So, I I got to imagine that most people viewing this video, Steve, are saying, "Amen, brother." Like, we this makes total sense. We'd love to see this. I can say from the the Fed watchers that I interview regularly on this channel, you know, one of their chief criticisms of the Fed is that it it doesn't have a framework. uh that they they kind of just sort of wing it like hey we'll we'll we'll know as pal likes to say we'll know the neutral rates by its ax like almost kind of like pornography like I can't tell you what it is but when I see it I'll know it type of deal where you're saying no there needs to be a real framework for this that's based on the quantitary theory of money that should be at the center and then you have your other two requirements that seem absolutely rational um so I think I think a lot of people would would would love that so you know there does seem to be an appetite right now for at least revisiting kind of how the Fed is structured. We've heard Treasury Secretary Bessant talk about that and of course the president's made his own comments. Do you see there being an opportunity to introduce this type of reform, you know, anywhere in the near future? >> Well, that that that's what I'm trying to do. I mean, the playbook is making money work by Matt Suki and Steve Hanky. It's it's all in there. So, so everybody who's thinking about should >> Yeah, it was just released on May 6. So, I mean, give me a break. I I I'm I'm working on it. I mean, you know, as I say, I I handd delivered the thing to the >> I like to hear that you went to Capitol Hill in the White House and you actually were handing out copies to the >> I I I gave a two-hour briefing so at a at a great session. >> I'm curious how was it received? Whoa. But but I'm talking to professional people. There there there weren't any political appointees in the room. >> Oh, okay. >> I mean, the these weren't political people. These were the professional people that that deal with these things. But but they and they they invited and I I didn't invite myself. I I was invited and I uh made my thoughts known and uh and there was quite a bit of interest in it. I mean, it was like it was more like being in a graduate seminar, you see. >> Okay. But but I like the fact that there was pull there for you that this wasn't you trying to pry the door open. That this was people there saying, "Let's get this guy's ideas in here." >> I rule number one in Hanky's rule, but you you don't invite yourself to places like the White House. >> Um All right. All right. Well, look, let me let me get back to the question I was asking earlier, which is might the president actually get what he wants here um despite what Pal does. Meaning, I think the big reason that that Trump is browbeating Pal is because he wants to reduce borrowing costs for the government, for corporate America in general. >> Okay, that that's really the wrong argument. You know, number number one, he he you might see the Fed funds rate go down because the economy is slowing, the labor market's getting weaker, and what you said before, the Fed has no model, but they're data dependent. So, they look at all these data coming and what the the data coming today are symptoms of what the money supply did two years ago. But they're they're looking at the data now. As you say, they got their finger in the wind. They're looking at the data. Everything's slowing down. So what do you do? >> They look at the one instrument they only look at as the Fed funds rate is the Fed funds rate lower and they'll lower it. So So it might look like Trump's getting his way. >> But sorry to interrupt, but I just want you to include this in your answer. Well, I'm I'm saying almost irregardless what they do with the federal funds rate, if inflation is coming down, then inflation expectations should come down and then bond yields should come down because they are a function of inflation expectations. Correct. >> Yeah. Well, that that that's true, but but you've got a Trump factor going in these that the the trade war and everything is putting a premium on interest rates. that that's why interest rates usually the sequence is the money supply contracts inflation goes down and yields go down. Now if you look at the 10year it it it actually it did go down but it's gone back up. It's about 4.3. I don't know what it is today. >> Yeah. It's right around 4.3. It's been bouncing back and forth between 4.0 and 4.5. Yeah. >> Yeah. So so but but the point is it it hasn't gone down. inflation has been has gone down and kind of stuck, but the the bond yield hasn't gone down. Why? Because of the tariff uncertainty, the regime uncertainty, all these uncertainties. Now, back to the borrowing cost. But by the way, and Trump's calculation, he says, "Well, if you lower the Fed funds rate by three percentage points, we're gonna save I don't know how many billion dollars. I can't remember some triple digit billion dollars of savings." But but the >> assuming they refinance the treasuries this year at the very short end of the curve. Yeah. >> Yeah. Well, no, but no, he he but they don't borrow at the short end of the curve. They they No, they they don't borrow at the Fed funds rate. They can borrow at the short end of the curve. But the Fed funds rate, that's an overnight rate, >> right? >> All these all these calculations are based on the Fed funds rate going down three percentage points. It it's just the wrong arithmetic. The back of the envelope is not that the average duration on treasuries is six and a half years, >> right? >> It's not it's not overnight. >> It's not overnight. But hasn't Bessent said he's going to continue what Yellen started, which is 10 trillion that's coming up for maturity this year. He'll just do it in short-term. >> Yeah. that that that he's going to keep doing that that he he says which which I think is probably a bad idea and and and it's a bad idea because it will push the 10-year yield up and the 10-year yield is a thing that mortgages are based on, >> right? >> It's not going to provide relief there if that sticks. >> You end you end up by shooting yourself in the foot by doing this. Bess Besson's too smart in a too smart by half. This is a stupid idea. >> Okay. >> And and and and more of the same. We get we get ironically Trump f following the Trump secretary of Treasury following in the footsteps of Biden's secretary. >> Oh, I know. Which they were super critical of during the campaign trail. >> Oh, yeah. Yeah. >> Yeah. >> This is this is life in Washington, DC. Welcome to Washington DC. >> DC. So let let me just ask you this. So I get your point which is okay if inflation expectations come down bond yield should come down but they're worried about all the trade uncertainty right now. But as as we're getting into this year, at least in theory, we're getting more certainty around trade, right? Trade deals are getting struck. We're kind of knowing what the tariffs are going to be for most countries, at least for now. Um, we're even having certain things like maybe there's going to be a ceasefire in between Russia and Ukraine. Like like it seems like as 2025 >> you you must be kidding. You you you already put your finger on Trump as a mercurial character and you said he's using this as a leverage and club. So that hasn't gone away. It's not smooth holly where the thing was fixed. It's dynamic. It it could go south in a hurry as far as But but it's not it's not like liberation day where everybody was just reeling from oh my god these crazy numbers and you know how the hell is this going to work? Like we're we're beginning to get like okay this is how it's going to be with Japan at least for now. This is going to be with the EU at least for now, right? I mean isn't that taking some uncertainty out? >> I know you're out there in California. What in the world are you smoking? >> Okay. Well, I mean look, these are legitimate questions that folks are asking. So dispel them. My my view is that this thing remains very very uncertain and in play. You mentioned the Ukraine war. It's very clear to me that Russ Russia has certain non-negotiable demands that that they've made for a long time. These are all known that the the Americans are so stupid they can't get it through their head what the demands are, I guess. And and there'll be no ceasefire. Russia is not going to agree to a ceasefire. Now, the one thing they're interested in is a permanent peace. I don't think they're going to get there anytime soon. So, this this this battle is going to continue. So, so your assumption that somehow the air is going to be cleared in Ukraine is it's not going to happen. >> Well, I'm not necessarily assuming that we're going to get there. I guess what the question I'm trying to ask is is um do you see there being a reduction in the um bond yield premium that is currently priced in for uncertainty or is that going to persist? >> No, no, I don't. And in fact, I I think the likely the overriding likelihood is that the the the the air is going to start coming out of the stock market bubble. That's one thing we have. You you're giving a rosy scenario. We the the the tariffs are you're you're kind of in a relief rally mode. You say, "Oh god, the tariffs, they could have been a hell of a lot worse than they are now. Now we know what they are. They might be terrible, but we know." And isn't that wonderful? Let's have a big relief rally. That that that's that's basically what's going on in Wall Street right now. And and and I think eventually people on Wall Street are going to wake up and they're not going to be smelling the roses. They're going to be smelling something else. >> Got it. Well, look, if we don't get I if we don't start getting lower borrowing costs so we stay at high for longer or god forbid bond yields go up even higher and higher for longer, that's going to pull that that's economic gravity, right? >> That's where we're going. >> That's where we're going. Okay. So you don't you so great point because this is what I was trying to lead the whole thing up to. While you potentially see inflation coming down, right, disinflation, yes, you don't necessarily see bond yields coming down. >> No, I think real yields will go up. >> Okay. Real yields will go up, which will I mean that's kryptonite to to the economy. They have a way to to by the way real yields have been you know we we've been living in a world for quite some since the great financial crisis where real yields were abnormally low and and unsustainable. Now, I think they're reverting back to the mean kind of. So, so e even forgetting Trump or anything else, if you just if you just revert back to the mean, we we got a ways to go. >> Okay. So, so you're you're in some ways you're referring to the classic chart that we've seen of bond yields, you know, starting from 1980 coming down from double digits to, you know, very low. And the question has been, have we bounced off a low and are we now going to go into potentially multi-deadal, you know, secular trend of rising bond yields? Sounds like you're saying for the foreseeable future, yeah. >> Yeah. I I think the the bull the the huge bull market bonds is is is over. I mean, if if you look, by the way, at at the trend line from the start of the bull market and bonds, the 10-year, it's I I just looked, I cheated a little bit. The 10 years is yielding 4.33 right now. And and and where where it should be on the trend line, it's like about 27 or 28. >> So, so it's broken out completely. I mean, the bull market's just completely gone. >> Okay. So then, as we look into the end of this year, but more importantly, starting next year, I I looking through your eyes, Steve, it's hard not to see 2026 as maybe a pretty rough year, both for financial assets and for the economy in general. >> I think that's a fair assessment. at third at 30,000 feet I'm I'm I'm I I I don't really see that many bright spots and and and the bright spots, you know, you got stocks like Palunteer and stuff like that. The Economist has a great article on Palunteer and and the article is the most overvalued stock in the world, right? >> And they they have a bunch of comparative statistics and it it's pretty pricey. It's they say it's it's much greater than Cisco was before the >> 2001 crash >> crash. I I can't remember what it was, but I was recently told what its price to sales was and it was mind-blowing. You know, that the the 10 times price to sales that Scott McNeely um railed on with Sun Micros Systemystem back during the com bust had seemed like a high watermark, but this was way >> Yeah. This is on a different planet. Yeah. Um, okay. So, you know, hard >> this gets back to my point. Yeah, we're in a bubble. I mean, and we this is the most overvalued stock in the world, but but who says when it's going to pop or or if or if it's going to pop or if it just slowly >> a slow deflate. So, look, valuations are terrible timing metrics, right? you know, the market can get can stay irrational longer than you can stay solvent. We we've heard that whole quote. I gotta say, though, I mean, we don't know. But Steve, I gotta imagine that you would take the um as a if you were a betting man, you would take on this pop having a notable pop versus just a a slow grind, you know, to back to normal value or sideways grind for a long time. back to normal valuations just because so many of these valuations are so historically extreme right now and you expect further degradation of the economy. It it this doesn't sound like a recipe for a slow grind for years. >> Yeah, you you might be right. We we could go through that scenario because if look what I said about Ukraine, you know, a lot of a lot of people thinks things are going to be settled, you know, and I and I don't think they will be settled. And I think Russia, by the way, has won the war and and and and the Russian meat grinder will just continue grinding. That's why Putin has no interest in a ceasefire whatsoever. >> He he has a big interest in a permanent peace, by the way. >> Sure. Yeah. And I think >> to stop and keep what he has. Yeah. >> I think what they should do is do do what that happened in 1955 when Austria became neutral and and the peacekeepers and this is clearly an idea that that the Russians have go along with the peace the peace the neutrality how was that maintained in Austria? The Soviets had a seat at the table. The Brits did, the French did, and the Americans did, and they kept it neutral. It worked. It worked perfectly. So that that's that's what they should do in Ukraine. The problem is the Europeans and the United States are having a hell of a time coming to reality and realizing we lost the war. Mhm. >> For forget reading the propaganda in the American papers, the Wall Street Journal, the New York Times, you you name it. Forget it. It's over. Any anyone who knows anything about military operations knows that this thing this thing's been over for quite a while, by the way. >> Right. Well, I mean, again, sort of short of NATO, the US getting kinetically involved, what would displace Russia from where it is right now? Well, nothing's got the ability to do. >> They're they're on the verge of literally annihilating the Ukrainian army? I mean, Ukrainian army, you see these poor Slos, you know, 55, 60 years of age in the military. I mean, they probably have people as old as me on the front line. Yeah, which is, you know, again, a human tragedy. So, anyway, Steve, um, nobody knows. You're probably right. Um, I'll hope for better outcomes than that, but >> yeah, what what we're saying is the following or what I'm saying, I'm not saying we we're saying it, but I think you're probably on more or less on the same page. at at at 30,000 feet. There are number of fact exa as we say in economics to use jargon exogenous factors out there that could could all turn negative and be a deadly cocktail changing sentiment in the mood in the market. the irrational exuberance that we have in the market, all these assets and everything now that that that could be destroyed in a hurry if things don't go the way the propaganda says it's going to go in the Middle East, in Ukraine, in South Asia, the economy. >> Yeah. this that that you know you have a whole failings of things that actually I think there's a significant non-trivial probability they they'll go bad. I I I I I think people are are sleepwalking into or shall we say are a bit delusional. They haven't really thought these things through. So, um, let me ask you this, Stephen, and then then I've got to wrap it up here. Um, but, um, so you you're right that the animal spirits are running crazy right now. Wall Street, you know, exuberance extremely high. Um, things have cooled off a little bit over say the past week, week and a half, but I mean, we're still close to all-time highs and we have these ridiculous valuation metrics on many stocks. Palunteer being probably the biggest example or one of the biggest. But let me ask you this. Like try to make the case for why we should be exuberant right now. I have a really hard time doing it. Like >> Oh, I have a total hard time doing it. And by the way, if you look by the the one thing that's pulled back a little bit is the NASDAQ. And they're make a big deal out of that. You know that as they say the tech heavy NASDAQ, but Christ, it's right up there. I'm looking at the threemonth uh chart and right on my iPhone and it it's yeah, it's come off but it's it's it's as high as it's it's higher than it was on August 1st it was 20,650 and today it is closed at 21,172. It's higher in in the month of August. It's gone up. >> I was gonna say pull back to a year or two years. Like you can't even see this wiggle. >> Yeah. No. So So So that's where we're at. I mean, you know, you you say it's made a correction a little bit. Oh, yeah. It's down three or four days, but you know. >> Yeah. It but it's my point is it's still kind of near the red line of hyper extreme. Like, so what's I can't come up with a with a narrative to say, well, this justifies why it should be there. It's not like the economy is going crazy. It's not like we've got some massive shoes to drop in the future that should really change things asset price-wise for the better. >> Uh, well, if you you've got to look at micro things that might be well priced and and you get, you know, Buffett, what did Buffett do? Well, he's had an a ton of cash, but he did just invest some money in United Healthcare. Yeah. >> Yeah. No, but why? Because he thought it was an overshot on the downside and was cheap. >> Right. Right. Which I mean, again, that's how you should invest, right? Is >> you know, it's the f it's the first time he's laid out over a billion bucks for quite a while. >> He's still got a lot of cash. And and and by the way, by by the way, he he sold some more Apple, >> right? which he's been doing consistently for a good while now. >> Um, all right, Steve. Well, look, >> so I view that, by the way, as kind of a portfolio adjustment. Like the older people that have have, you know, have have gone way away from the 6040 rule or stocks have gone way up, so they're 85 instead of 60 top end. And he's he's sold some Apple just to rebalance. I mean, he's had huge capital gains in there. I I view Apple as not not a negative necessarily on Apple, but just a little rebalancing of the portfolio. >> Okay. Well, which everybody should do when you have your gains have become lopsided, right? It's just again it's just smart rebalancing, position sizing, diversification. Um, we we won't go there, but we could have an interesting discussion about Apple as a company that has not been growing its revenues much for years, yet still gets a quite a nice multiple, but that's a different story. Um, so let's let's wrap it up here, Steve, on this last question. And first, I want to I want to appreciate just tell you I appreciate the discussion we've had because look, it's my job to probe. It's my job to ask the questions that I know people are asking. You did a very good job of fielding them all through this conversation. So, thank you for that. But if we can if we can end up where we started, which is okay, so we have all of these risks here. We have a slowing economy that's maybe on its way to recession, as you said at the beginning. We have um you know, a lot of our financial assets in bubble territory. Um it doesn't look like uh you know, borrowing costs are going to come down anytime in the foreseeable future. That's not a great cocktail. So, do you have any any advice for investing strategy in a market like this? >> Well, I think the one point that I made early on, if don't don't get yourself all worked up and excited and and jump decide you're going to jump out and get spooked out of the stock market. I >> don't go 100% to tea bills. >> Right. Right. Don't don't do that because you're eventually going to have to make another key decision and that's when to get back in. So, so you might have your timing right wrong on getting out and you might also end up having your timing wrong on getting back in, which is typical, by the way. So, so be be careful. And the main thing we talked about is rebalance the portfolio. Make certain you've got the thing balanced out in a reasonable way. And uh buckle up your seat belt. >> Okay. All right. Well, look, um, Steve, for folks that want to get their own personal copy of Make Money Work, where can they go get that? Like Amazon, anywhere books are sold. >> Amazon. It's all It's all over the internet. You buy it at Walmart or Amazon or any of these any any place that sells books online. It wy is a publisher and making money work is widely widely available online. Okay. And for folks that would like to follow you and your work in between today's video and the next time you come on this channel, where should they go? >> Uh on X or Twitter as they used to call it. Just Steve_hanky and they can follow me there. >> All right. And Steve, when I edit this um I'll put up the cover of the book so folks know exactly what it looks like. Folks, I'll have a link to the book in the description below this video. Um, I'll also do the same thing, Steve, with your uh ex Twitter handle there. Um, >> be great. >> I can't I can't thank you enough, folks. Please thank Steve for his uh his very detailed and generous uh sharing with us here today by hitting the like button and then clicking on the subscribe button below as well as that little bell icon right next to it. And also folks, if uh you want to take Steve's buckle up advice to heart there, uh unless you have a very successful track record as a DIY investor managing your wealth successfully through periods like the one Steve thinks we're entering into, I think that most people watching this video would benefit from the guidance of a good professional financial adviser uh who can come up with an appropriate strategy for them in terms of navigating their financial assets from here. um and then executing that for them as well. Uh if you've got a good one who's already doing that for you, great. Don't mess with success. But if you don't or you'd like a second opinion um from one that meets the criteria that we talk about here on this channel, then highly recommend that you consider uh scheduling a free consultation with one of the financial advisory firms endorsed by Thoughtful Money. These are the firms you see with me on this program week in and week out. To schedule one of those consultations, just fill out the very short form at thoughtfulmoney.com. And as a reminder, these consultations are totally free. Uh there's no commitment to work with these firms. It's just a free public service that these firms offer to help as many people as they can. Also, if you are looking for, you know, our our deepest and most intense guidance on how you can prepare for what likely lies ahead in 2026, well then, uh you should sign up uh for the upcoming fall online conference that Thoughtful Money is hosting. Uh, this one's going to be on Saturday, October 18th. Uh, I just announced in yesterday's video, so you can get all the details either by watching that video or by going to thoughtfulmoney.com/conference where you can get all the details, but you can also buy your tickets at the early bird price discount, which is the lowest price that we're offering. Uh, also, if you are a uh subscriber to Thoughtful Money's premium Substack, uh, make sure you check your email there. you've gotten a code from me that'll let you get an additional $50 off of that early bird price. Um, all right, Steve. I can't thank you enough, my friend. Thanks so much for sharing your >> Thanks for having me, Adam. Enjoyed it immensely. >> All right. Well, right back at you and look forward to doing this again soon. Uh, and everybody else, thanks so much for watching.