The Secular Bull Market Isn't Dead: Jim Paulsen on Why Tariffs Won't Break It

[00:00:00] A Tariff Is Not Inflation By Any Strest to the Imagination. It's hard to get a recession when your players are all financially healthy, have oodles of excess liquidity, and they're all been cautious. If his whole idea is to make us more competitive by raising tariffs on foreign goods, I would argue that a much better way to do this is drop the value of the US dollar. It's only high to them because they got this artificial 2% rule where suddenly 2% is

[00:00:29] become the gospel inflation rate. I don't understand anymore where that came from. Every market, the bond market, stock market, the commodity market, the dollar market are screaming deflation risk. And here we have the Federal Reserve saying, I'm worried about inflation. I think that when we get through this, we're going to have probably several more years yet of the secular bull market. Hi, Jim. Thank you very much for coming back on Excess Returns. We really appreciate it.

[00:00:59] Oh, thanks so much for both of you to have me. It's always a pleasure. We were planning on doing the markets in turmoil episode with you today, but the SMT is actually up. So I think we got to kind of cancel that and maybe move on. It looks probably, it'll probably be a turmoil again before too long. If it's have this big of a shock, we're probably going to be up and down for a while. It looks like to me. So do you, do you guys know, just as an aside, has CNBC done that yet? Because I know it's like the greatest country and indicator of all time when they do it.

[00:01:28] Like, have they done it this time? I don't think they have. I don't know. I haven't watched that really closely, but you're right. Generally, they have some nighttime episode. So market turmoil, then you can buy. It's it. I don't know if they've had that yet. It's probably something we should check into, Jack. But I do think it's, you know, when the markets are going through this type of event and this type of volatility, you know, investors are trying to understand and grapple with what we're being presented with.

[00:01:57] And the reason that, I mean, we love having you on, Jim, but I think this is an important episode because you can bring some context to this. I mean, you've your entire career, you've experienced all different types of investing environments, looked at the economy. Talked about and looked at investor behavior and psychology and financial conditions and how those all come together and influence and sort of influence the market and influence

[00:02:27] the economy. So, you know, we couldn't think of any better guest to sort of talk through this with to see, you know, what comes out of it. And again, it's not, you know, who there's a there's a lot of different outcomes, possibly one thing that you'll find with Jim that we really appreciate. It's not about making these dark, big, bold predictions. It's about, you know, being rational and thinking long term. So that's why this is an important, I think, discussion with a great guest today.

[00:02:52] And by the way, for those that are listening to this, you can follow Jim on Substack. He's under Paulson Perspectives. That's his newsletter. He's also on Twitter at Jim W. Paulson or X now. They always say Twitter, but X. And so and if you find value in this conversation, you'll please subscribe to the channel. We appreciate it because that helps us bring back great guests like Jim. So, Jim, you know, thanks again for joining us. You bet. You bet.

[00:03:20] So let's start out higher level here with you because and I'm really interested to see sort of how you approach this, which is, you know, given your experience with declines like this in your entire career, like what advice would you give investors? And it's not specific to the terrorists. It's like these types of things that disrupt markets as much as they have. And they don't come along a lot. But, you know, what would be your general advice to investors on how to get through them?

[00:03:50] Well, I've always told my wife and my kids who have little portfolios, but I've always told them when it goes down, just don't look until it goes back up. That's because it's not all that bad of us because oftentimes when you get into these emotional periods, you end up making some bad decisions. And it's true on the top of markets, too, I think, you know, when you're when everyone

[00:04:18] logs in every day to count how much they went up, that that should tell you something that probably it's it's a little high. I would I guess I don't see to me so far in this one, I don't see it's a lot different than a lot of just normal corrections that we've had and for normal reasons almost.

[00:04:43] And I know one part of it is the tariffs, but I actually got bearish and defensive in mid December. And when I started writing that piece, I said what was bothering me at that time was the old investment adage of buy on the cannons and sell on the trumpets.

[00:05:05] And so as we headed towards year end last year, I could I could just hear most of last year we spent with nothing but cannons. We had two world, you know, global geopolitical conflicts going on that will keep getting worse. We had a war for the for the White House that was a constant battle all year year long. We had a Fed that refused to ease and just kept tightening and raising interest rates,

[00:05:34] even though inflation was long past over that cycle. And I think, too. So there was a lot of cannons that sort of kept me in, if you will, a lot of things people are still worried about. But then what happened? Well, the wars, both of them, you know, there was a lot of truces or pauses going on, people saying we're going to get these taken care of. And it felt like that was going to happen as they're winding down. The war for the White House,

[00:06:02] of course, ended. That was over. The Fed actually started easing for the first time in the entire bull market in mid-September. And so we came into into the new year with with a new Fed and new president. It all felt with all the promises like a new era we were ending into. And all I could hear was trumpets and the cannons sort of died away. And so to me, that was one of the first things that

[00:06:28] got me to think about what's going on. It just felt like I heard too many trumpets wailing. And then secondly, and probably most importantly, was what causes almost all pullbacks, in my view, was economic policies turned restrictive in contract sharing. And you go back, the 10-year yield

[00:06:49] went from $3.60 in September up to $4.80 by mid-January. The dollar hit by mid-January, and real terms reached just a couple percent. It's quite shy of its all-time record high in March of 1985. And it had risen about 10 percent just over the last 12 months in January. That you could argue

[00:07:15] we had the almost one of the most restrictive U.S. dollar policies ever since it's floated in early 1970s. We had money growth, and still do, by the way. We have monetary M2 money supply growth, which is less than the rate of nominal GDP growth. And it's insufficient pace to maintain the growth rate of the economy. That's why the economy has been slowing almost every year for the last three or four years because monetary growth just isn't sufficient. That wasn't a problem when you had real GDP of five

[00:07:44] slowing to four or four to three. But now we're at two and a half, and we're going to slow to two or less. And every time the M2 growth has been below the nominal GDP growth rate, the next year, real GDP growth slows. And since 1960, it's slowed on average by a full percentage point. And then we had a little uptick in inflation. Modeling prices went up the last part of last year.

[00:08:10] That's why the Fed ultimately quit easing. So you think about the tightening, higher rates, higher dollar, lack of sufficient money growth, and an uptick in inflation. What's that going to do with a lag? It's going to slow things down. And so I felt like we were going to head to a period where real GDP growth in 2025 was going to hit to 2 percent or less, the stall speed. We got a point rate probably ticks up, and we're going to have a recession scare. Now, I would say,

[00:08:38] I haven't even talked about tariffs yet, but I would say that's mostly kind of what's kind of played out. You got to remember that the S&P 500 in mid-March was down 10 and a half percent from its high. So we fell, at least by closing levels, what, to 17 and a half percent the other day? Okay. So the president's presser, you know, caused it to drop another seven, seven and a half percent

[00:09:04] or something. But the reality is more than half of this correction was done long before the presser even came on the sea. I would argue that the real underwriting catalyst was tightening policy leading to slowdown and resurrecting recession fears. If you think about it, since the Fed started easing in last September, that was about the first time that imminent recession fears for a little

[00:09:29] while dissipated. People, I guess not. Now we're okay. Fed made it in time. We're okay. Up to that point, there was chronic recession fears because of the inverted curve and other reasons. And my point about that is, is that it almost stands to justice about the time we forget about recession is when we have a real chance of getting one. And so I would say to me, those are some of the factors. Now,

[00:09:54] the tariff was certainly a piling on. And to me, a tariff is not inflation by any stretch of the imagination. I think that's a silly premise put forth by the Federal Reserve, but we'll come back to that. It's a very, it's a tariff by any other name is a tax. And if, if, if President Trump was perceived to come out and say, I'm going to raise taxes on all of global output across the world,

[00:10:23] no one would be saying that that's going to have inflationary fallout. Everyone would say that that's a restrictive contractionary force pushing us in the direction of, of recession. And so that, this is another contractionary force on top of what was already there adding to slow down fears that can bring away. Um, and so what, what, the reason I bring this up is to me, what, what I was

[00:10:49] concerned about last December was policy tightening that had already occurred irrespective of tariffs. And I saw the trumpets blaring louder than the cannons, which tells me there was complacency building in a, in a manner. And we also had high valuations and all that other stuff. Okay. So a lot of those things you think about, that's pretty normal stuff to get a pullback in, which is kind of what we got. Um,

[00:11:15] and we've got a couple of added ingredients here, but you always have added ingredients in every one of these that are kind of unique and new. What gives me the most, I guess, confidence about this is a couple of things. We can come back on the tariffs, but to me, the experience of the world and particularly the United States and particularly in the modern era with tariffs on a broad scale is

[00:11:44] minuscule, really minuscule. We had one tariff period in our histories, Smoot-Hartley, and that was enacted in this, in the middle of 1930 when the economy was already in a recession or even a depression by then. We didn't know it. I don't think it was Smoot-Hartley that caused it. We don't even know if it would make it worse because I think that all would have happened even without that. But that's what everyone

[00:12:13] paces their judgment on about this is, oh man, this is a disastrous depressionary event because we are, we have, uh, never done anything. Uh, we just don't do this in the world. The only other time we had any increase in tariffs was in the mid fifties to mid sixties from about five to about eight percent rate. And during that period, the economy was great to the whole thing. Um, what Trump is talking

[00:12:37] about so far is around 20%, somewhat similar to what we had 1930, but we have no precedent to know if you do this when you're not already in the depression, whether that is necessarily a death blow. We don't know that we, it isn't. Um, but I'm not so sure it's necessarily as bad as people think. It's certainly a tightening policy, but we already had some of that in place. Second thing, and then

[00:13:03] I'll quit here on opening is I'm amazed and have been for years here at how strong financially the private sector of this economy is. And it is for one reason, really fear that has really been elevated and never done away. I would say it started with the great financial crisis of 08, 09,

[00:13:31] uh, and the, the tremendous bankruptcies that occurred and housing loss and so forth and bank problems. And then it's been exacerbated by going through a, a domestic death count pandemic event. Uh, and also then, uh, by 2022 and then, uh, ongoing since then we have had the confidence levels as measured for the consumer sector kind of persistently go down and never come back up.

[00:14:01] We're still, uh, the current consumer confidence index, see, we're said is lower than about 90, 97% of the time right now, since they've been keeping that back to 1960. Uh, even though we've been in the five year uninterrupted economic recovery and the three year bull market, my point about that is because there's been so much pessimism, there's been a lot

[00:14:24] of cautiousness. And so what, what have we been doing since 08 or 07 household debt to, uh, debt to, uh, uh, uh, income ratios have been coming down steadily. They're now as low as they've been in decades. And the debt service ratios are almost at a record low since we've been keeping the data back to 1980. Um, households are in the best bandwidth sheet shape they've been in decades and they're

[00:14:51] loaded with excess buying power, excess dry powder liquidity, $7 trillion in household mutual, mutual funds sitting on the sidelines. That's about one and a half times that the amount of mutual funds, a cap, uh, money market mutual funds that existed at the, at the worst of the 08 crisis. It's about one of the quarter times, the worst of the pandemic. They're sitting on a lot of dry powder. Then lastly, they're pessimistic, which means they're cautious and everyone's been expecting a recession

[00:15:19] for so long. It's hard to get a recession when your players are all financially healthy, have oodles of excess liquidity, and they're all been cautious. And so I think it's going to be difficult to recess this economy for that reason. Uh, everyone is, is in such good financial shape. It's hard to bring this

[00:15:40] thing down. Um, and so to the extent that this event, this is not like 2000 when we had this run up in the stock market that was predicated on companies. The only attribute they had was dot com in their name. They had no earnings or sales. Didn't matter. This is not like that. This is not like 08, 09.

[00:16:05] When we had, uh, many, many millions of homeowners that had bought way out over their skis and banks that were, uh, bad loaned up to their gills. Uh, this is nothing close to that. We're almost the opposite of those two things from the standpoint of durability of the private sector. I mean, that to me gives me a lot of confidence. Emotion can take this thing anywhere and that's going on. And there's a real bite to this because I think economy is going to slow and earnings are going to slow.

[00:16:33] And those are real events, which typically leads to corrections or even bears. But, um, I do think that, um, there's quite a bit of staying power in the private sector, which gives us support. And then I've liked what I've seen so far in terms of, since we've really had this collapse now, there's a lot of good things that have been going on. I think that will lead to revival at some point. Um, I, I just last Justin last comment. I, I, the best times, I mean, in history,

[00:17:03] not just me saying, but the best time in history to be a buyer, not as a trader necessarily, but as an investor or when yourself and everyone around you is emotionally, uh, spent and excited and over the top with, uh, gloom and dew, that is, that's always been a good time. Not necessarily for next week,

[00:17:27] next month, next few months, but it's awful good probability for a year out or more of great time to buy. So there was a lot there and I think we'll definitely spend some time unpacking some of your thoughts on the tariffs and their possible impact, or maybe why they may not impact things as much as people think. But I want to ask you, did you see yesterday when, I don't know if you happened to

[00:17:54] see on CNBC when they announced that someone thought Kevin Hassett said there was going to be a 90 day delay on the tariffs and the, and the S and P spiked, like it was like a thousand point turn in like a minute. And then, you know, they, they were trying to verify that and they couldn't verify it. So the market ended up going back down. And I'm just wondering like both on the declines and on the

[00:18:18] recoveries, and I can't help if I'm like anchoring to like what happened during COVID and that, you know, 30 day waterfall decline and then the bottom and then turning out of that on a rocket ship. But do you think there's any evidence to show that like declines are happening faster and also recoveries are happening faster? Or what would you say to that? Um, I don't know if I agree with that, Justin, so

[00:18:45] much. It could be, I haven't studied it and it might be, I get the point you're making. It's a legitimate point. Um, and I'm just answering this on gut, but, um, hello. I've seen a lot of other periods like that. Maybe not, you know, people make a lot because there was only other four other periods where we had 10% decline

[00:19:06] over two days. Right. Um, and, uh, and I get that, but we've had a lot of periods like what we experienced over those two days, whether it was quite the magnitude or not. Um, there's been a lot of them just in my time, uh, going back a little, you know, 40 years, I certainly experienced some of those, where they were really dramatic. The worst one of course was 1987. Um, but I just think, you know,

[00:19:36] we, we, we, we, we blow the VIX up over 50 and, um, you're going to get just tremendously wild swings. And we're going to have that for a little while. And that kind of happens after any, any one of these, uh, complete, uh, dives in the stock market has certainly was the case in, uh, 08, 09, late at 08 and 09. It was certainly the case after 87, certainly the case after 2020. Um, you know, there was quite a bit of

[00:20:02] that even after.com, even though it didn't stream on any one day. And I, I don't know if I really see that that's irregular or uncommon. If you go back further, you certainly see some tremendously prior to World War II, there was tremendous volatility that were very comparable to this almost more frequently then than what we have in more of the modern era. Um, dramatic moves. I, I just think that,

[00:20:28] you know, I, I get your point as some, I can even understand why that might be the case with, with the, the, the pace at which news travels today, we're all on our phones, we're all, uh, tied in. And every tick is so important. You know, when I started the business 40 years ago, I didn't even know what the market was doing until I went to lunch and saw in the local banks, you know, digital clock, what the Dow was doing for the day. I mean, we, we would just study annuals and look over

[00:20:54] information and not know until midday. Um, so today it's every ticket. We watch those tick and Bloomberg machines and the like, I think that you can make an argument that that's exacerbating, say, exacerbating, uh, volatility, but just living through it. I don't know. I don't know if I really see that. Um, because I, I still think that, um, there's been plenty of episodes that I've even lived

[00:21:19] through much like we had last week, maybe not exactly that magnitude. Uh, but, but I will say that I, I almost look, if you want to end the crisis, it seems to me, that's what you kind of really need is that kind of fear and panic that you get people to rise to that level. And if you do, um, that generally is a good sign of your closer to the end, the beginning of it. What do you think going back to the tariffs? What do you think about the economic arguments for the

[00:21:47] tariffs? I mean, it seems like I'm, I'm on Twitter and I know you are pretty regularly as well. It seems like most economists are not very in favor of the tariffs, but you know, the arguments in favor have been, you know, around reshoring or around, we're going to generate revenue to reduce income taxes or, you know, global trade is unfair to our disadvantage and these are helping. Like, how do you think about those economic arguments? Um, I'm not an advocate of tariffs. I think they're much like other taxes or interventions into the free marketplace. They lead to dead

[00:22:16] weight losses of activity in the economy. This, this is no different than a tax use of taxation or regulation. They all have the downside of creating dead weight losses. And, um, I personally, I, I, um, I, I don't understand bringing stuff back to the United States because I think there's a lot of things we

[00:22:42] used to do in this country that we will no longer do. And the reason we won't do that anymore is because we no longer have a relative competitive advantage. There's an in trade, there's a thing called relative convert advantage in every economy, even the worst economy in the world has a relative competitive advantage in something, not necessarily an absolute advantage, but relative advantage, which means they're better suited to produce that relative to other economies. We have moved away

[00:23:09] from being a low skill labor heavy economy. Other economies have come on the scene that are low skilled labor heavy. And there's many things that they can do on a relative competitive advantage basis, a lot better than the United States can do. It's not that we couldn't do it better, but in order to do it, we'd have to take higher skilled labor and apply it to these, these low skill processes. And we, we give up greater value of what we, we sacrifice to do that,

[00:23:38] that we gain by producing the low skilled job. So to me, I don't think we'll ever bring them back because they have a, they, they now have a, a relative career advantage based on their resource makeup, which is different than our resource makeup. And, and we really can't compete on a relative competitive advantage basis, nor should we, it'd be a failure if we did take it back. So if, if that's

[00:24:04] what Trump is after, I think that's deadly wrong. Now I, I think that any tariff in the world creates inefficiencies and you could argue unfairness. And so I, I totally get the argument that why should they have any tariffs on our goods? I, this, that's just all compete. We all have relative competitive advantages. Let's do what we're best at and go at it. Um, and I do get that. And if we can create a situation to lower all tariffs in the world, that'd be a good thing. That'd be a good

[00:24:34] thing. Um, and there's there, I think he makes some decent points about, you know, we'd probably sell some Ford automobiles in Japan if there was no tariffs, uh, and, and likewise. Uh, but to me, there's a much better way, uh, to, to get at this. If you want to, if, if his whole idea is to make us more competitive by, you know, raising tariffs on foreign goods, I would argue that a much better

[00:25:01] way to do this is drop the value of the U S dollar. I wrote a piece about this just recently, a few months, just come months ago or a month ago. I can't remember, but my, my whole feeling is the dollar in real terms, as I mentioned, is close to almost record highs going back to 1970 since it floated. It's, it's got really close in January to its highs that it reached in March of 1985.

[00:25:25] And it's up 50% over the last decade, 50% over the last decade. Um, which would be equivalent to putting increasing, in essence, the dollar, when it goes up 5% is like putting a 5% tariff on every, uh, U S product that there is every U S product and service. It instantly makes foreign

[00:25:48] products 5% cheaper to domestic consumers. And it instantly makes all U S products 5% more expensive to foreign buyers. That is the ultimate tariff destruction of U S competitiveness. And we've allowed this to go up 50% in the last decade to one of its highest levels ever in our history. And we're wondering why we have a trade depth. I mean, to me, if you want to make us more

[00:26:14] competitive drop the value of the U S dollar. If the dollar comes down, I know that that goes against people's, you know, idea that somehow a strong dollar means a strong America and a good America and the right thing. But I don't think it has anything to do with it. It's like an interest rate. It's no different than that. If we have the highest interest rates in the world, no one would be saying that that makes us successful. But somehow we do that with the value of the dollar. I think the fact the

[00:26:40] dollar has been so high and blown a hole in our trade deficits for quite a while is primarily because we have held the rate structure of this country so disturbingly high relative to many, many things you can look at, including foreign rates. And when you do that, you drive up the value of the U S currency.

[00:27:03] So I think that would be a much better way to attack this situation, uh, would be to cheapen the value of the dollar if we really want to increase our, our competitiveness. Um, I, I wholeheartedly agree, Jack, that, uh, tariffs are contractionary economic policy. As I say, it's hard to judge, I think for anybody,

[00:27:27] just how contractually they are, as opposed to, let's say raising taxes out of the federal budget deficit or something. Um, I, I, I just don't know if we have enough data to figure that one out on a broad, on a broad scale, but it's certainly a contractionary force. Um, and you know, if, if, if we effectively took tariffs to infinity all across the globe, it wouldn't mean that there would be no

[00:27:54] economic activity. That's not what it would mean at all. Every, there'd still be economic activity. It just, we totally isolated with the inter-run borders. It'd just be what you could generate among yourselves, each economy. That would be a huge loss in global activity and for every economy, but it wouldn't mean that it'd go to zero, uh, you know, over that situation. So it, it is different.

[00:28:19] I mean, if you raise rates enough in the United States by itself, that could do, it won't take it to zero, but it could do a lot of damage on the domestic economy. Um, whereas if I, if I disallow any foreigners to buy from us, that's going to hurt us, no doubt about that. But there's still a lot of activity that goes on outside of that. I, I just, as far as raising revenues, I think it's a horrific

[00:28:44] way to reuse. It might be among the worst ways to do it. Um, I, if, in fact, I guess my own cynical way, if this is what Trump has chosen, then I would argue that it was, it's because he found this loophole to go around any checks and balances. And I'm just amazed we can implement this type of tariff program in this country without having to go through any of the normal checks and balances set up by our

[00:29:12] founding fathers. That is the legislative process, or even maybe the United Nations, because it's a global tax. We didn't have to go through anybody. You could just have this one guy in the White House decide to do this and he did it. And it might be that, you know, he also wants to raise revenue and he can't, he can't pass anything through Congress. So he could just do it this way. But I,

[00:29:36] it's a, it's a horribly inefficient and not only that, but probably, you know, very regressive and, and a lot of other problems with this type of taxation for revenue generation. I think that last point you made is not getting enough coverage and is a really important point, which is, should one person be able to make this kind of decision? I mean, you've got a lot of people in favor of these or against these, but I mean, the way the U.S. is meant to be built is with checks and balances. And we, we basically have a situation where whether you agree or disagree, one person

[00:30:05] is making all these decisions in these press conferences and it has a huge, huge impact on, on the world. I think it's a bad, it's a, it's a trend that's been happening across the country for quite a while. I would argue it's getting worse and worse. And, uh, I would argue it started with Obama with executive orders. Okay. The use of those. And now basically all Trump has done in his entire

[00:30:29] office is executive orders. Hasn't even gone to the, it, I'm amazed by how there's been a blackout in the Congress really since Trump took office, really no news, no need to even know what they're doing. Um, there's a thing called, I think with this specific thing, what I understand, I could be wrong about this, Jack, I'm not a political expert, but I think it's because they're, that you call them

[00:30:54] tariffs and not taxes, that it goes around the, uh, congressional mandates to go through Congress. But presidents have also used, uh, which was a big battle in the last thing, uh, emergency, uh, you know, prices to be able to do things after declaring the state of emergency. We, we used that in Minnesota here by governor Waltz used it dramatically in the aftermath of the pandemic

[00:31:19] for quite some time to do a lot of stuff without having to go to the legislative process. I don't like what's happening with executive orders or with emergency powers or with, uh, worse than all of this to me is using the courts as a substitute for legislation. That is a disgrace and a misuse of what this was set up for in the first place, but that's kind of what we're falling into. You know, if we do have

[00:31:46] a challenge against this, it will go to the courts. It'll probably be something that will have to go to the Supreme Court and determine whether a tax is a tariff or a tariff is a tax, uh, for example. Um, but it, it, um, there's a reason in the brilliance of our founding fathers, um, they created one of the

[00:32:07] most frustrating, irritating systems ever to run a country. And they did it on purpose because they really didn't want much to be done. I think they set up this comical process. We got 450 people over here, a hundred people over here. What's one person over here. And if you guys all agree on something, you let me know that's good. But otherwise we're just going to let the private sector manage this sucker.

[00:32:35] And what we've done, well, that I think worked pretty well, except it's just so ridiculously, uh, frustrating and we can't ever get anything done. And there's truth in that, but I think that's what our founding fathers thought was best. And now we've got players that are totally in running that process to do things, but it, it, it lends itself to a dictatorship is what it does. And I don't think it's a healthy development. How do you think about forecasting in a world like this?

[00:33:03] This is, it would seem like, I mean, we know inflation and GDP and things like that are very hard to forecast no matter what, but as a forecaster, when you've got a situation where there could be a press conference and things have completely changed, and then there could be another press conference and things have changed the other way. Like, how do you think about like forecasts in an environment like this, that's so volatile and it's not something you can use data to try to figure out? Well, I still do it the same old way. Yeah. Yeah. I wouldn't end. I don't know. I have a chance. I approach our side. All right. All right.

[00:33:33] The wind's blowing. That's right. All right. Um, you know, I, I think, I don't know myself, Jack, I think the truth is that, um, uh, I, I, I still come back. And the truth is that I'm not sure all of these events really changed that much. Uh, overnight. I mean, I, I just don't think it's the case. I think, you know, long before he gave a presser, there was some idea that Trump was going to raise tariffs and, uh, you know,

[00:33:59] that was out there. And, um, I think that what I was, what I was saying earlier too, was there was, to me, what's, what's driven a lot of what we have done here was the tightening of policy that went on long before we even came into Trump's term or, or started this year. Um, I think that's really a catalyst. If we didn't have that, if we had the opposite coming into this could be a totally different reaction to this from, from everything. And I, I, I know it seems like, like,

[00:34:28] I, I just kind of like the fed meetings to me. I I'm not sure we gain a darn thing from the fed pressures that we didn't know prior to them even meeting. Um, but we spent two or three days of this absolute volatility swinging all over the place. And then a week later, it's just like, we're back to where we were. And so you can say that, oh my gosh, you know, how do you, how do you manage money through what the fed may say or do or whatever? But the reality

[00:34:56] is it, it creates a trader's haven. And I absolutely agree with that, but I don't know how much impact it really have, you know, over the, uh, course, um, in terms of the investment climate, as far as, uh, day in and day out comments going on. Now it matters that he enacted tariffs. I'm not saying that doesn't matter. It does matter, but that, that didn't necessarily happen all that one day.

[00:35:23] It would, it was becoming, it was coming for some time and came within the construct of a market that was already in a correction prior to the announcement, you know, so that all added to the emotion of it. I think in a way, I don't know if that's changed much either. I mean, you can go back and there's a lot of dates, you know, even with Volcker back in the day. So big, big moments, you know, or some announcement was made or go back to go back to, uh, Watergate or whatever.

[00:35:49] A lot of things have happened. Missile crisis. There's a lot of things that happened through time, um, that it very similar. I don't think it changes the center thing. What I would keep an eye on is not really what our policy, what, not really what our leaders are saying so much. I'd keep an eye on what, what's actually going on with policies, uh, and whether those are tilting themselves towards contraction

[00:36:14] or stimulus and accommodative positions. That to me has been the most consistent, useful indicator. That in a healthy understanding and dose of humility and realizing that we're all forecasting something that's pretty unforecastable. So you better be ready to be wrong a lot as well. It's right. You, you alluded to confidence earlier, and that was one of the big takeaways from our first interview with you is this idea that confidence hadn't really come up despite this major bull market.

[00:36:44] And that was a reason back then for you to be optimistic that, you know, when confidence does come up, that's really a positive. Do you think this derails confidence now? All this craziness is going on? No, I think it's hold it down. Uh, I think it's going to hold it down longer. And I think to me, the way I look at this right now is we've got a, a cyclical corrections going on. Maybe it officially be a bear market. I never understood that distinction anyway, 20%, but, um, but whatever

[00:37:11] it is, it's, it's a cyclical turmoil. Let's call it that. And, um, I think that when we get through this, we're going to have probably, uh, several more years out of the secular bull market. And I think the reasons for that, one of them is just what you lay out. I'll tell you what the, the whoever in this country, or maybe it isn't a certain individual as it is a process, but whoever

[00:37:38] can physically, uh, improve, uh, improve the confidence of the players in this country, it's going to be, there's a tremendous amount of dividends that will be paid from that. Not only politically, not only, uh, uh, people's wellbeing, but in the stock market, it will be huge. And I think the fact that you have confidence and pessimism maximized or confidence, low pessimism

[00:38:05] maximized today is a huge asset for the future. It's a huge reason not to get too bearish today, because there's a lot of possibilities to improve that as we go forward. In addition to that, the fact that balance sheets and liquidity are so pronounced, that's a huge bullish tilt to it going forward that could be used effectively, uh, to drive things growth in the economy,

[00:38:31] as well as growth in the stock market going forward. So, um, I, I, um, I think we've delayed all that. And it may be, maybe it's not so much that it's unfortunately delayed. Maybe it's just, it's, it's, it was time to refresh things. You know, I haven't got you, but I mean, we did, we've, we've already done some really good things with this correction. You know, we brought down

[00:38:57] valuations, we've, we brought down concentration. We've, uh, surged panic, which means you took everyone and they got now a bunch of buying power on the sidelines waiting for the beatings to stop. Uh, and we're, and we're, we're starting to bring the policy cavalry. We're reversing interest rates. We're reversing the dollar or, you know, we're bringing the policy cavalry to, to recycle. And maybe,

[00:39:23] maybe it was simply, it doesn't really matter what it was that created this. It was just time to have a correction. We haven't had a correction since the fall of 2023. Um, and you know, maybe it was just time for that. And that kind of sets up another couple of your leg in the bowl after we get through this. You talked about the Fed being too tight. And, and one of the things people have been looking for here is the Fed to come to the rescue. And I just want to put this tweet you,

[00:39:51] you wrote, cause I thought it was interesting. I didn't know this. Um, the S and P 500 has declined about 9.3% in just two days as shown since 1965 has only happened seven previous times. In every instance, the federal reserve instantly eased the feds funds rate. If they don't need to sue, it'll be truly unprecedented. So why do you think that is? I mean, what, why do you think that they haven't done anything yet? And do you still think they're too tight? I do. I do think they're too tight. I think they'll be forced to ease because I think economy's going to slow down. I think earnings are going to start to help with the next thing to happen is

[00:40:21] you'll see earnings warnings and reduction by companies, you know, of their outlooks and things. I think it's going to bring in the, the fed here. Uh, you know, to me, it only takes at this point, we're at 4.2% unemployment. It only takes a slight uptick in unemployment for the fed having to capitulate basically. Um, you know, why, why is this the question? One is the, the era of post pandemic

[00:40:47] has been a complete unprecedented year for the federal reserve. And so in some sense, they're, they're being very consistent in being totally unprecedented in what they're doing. Yeah. It's inflation took off from a half a percent in mid 2020, right after the pandemic collapse.

[00:41:10] It went from a half a percent to 9.1% by June of 2022. The fed did not even start raising the funds rate off zero until early 2022. Can't remember the exact date, like March or April. By the time inflation peaked at 9.1%, the funds rate was still 1%. Okay. Basically no tightening at all. There has never been another instance, at least in post-war history where you've had a surge in

[00:41:40] inflation by that magnitude without the fed responding at all. Essentially. That was totally unprecedented. Then inflation broke from 9.1% in June of 22, and it went down below 3%. Okay. And the fed tightened the whole way down. That's also equally unprecedented. When the inflation rate breaks almost every time the fed would ease in the past, this fed tightened. Okay. So they, they tight,

[00:42:08] they, they were easing when they should have tightened, then they tighten when they should have eased. And now they refuse to ease when the market is in obvious stress, ultimately going to come. What are the reasons today? I I'm unsure. I mean, they express some things. Uh, they have a panic about inflation.

[00:42:29] They fall out of tariffs. Um, Hey, I think that's absurd. I don't, as I say, tariffs are nothing but a contractionary event. It's like raising taxes. And here we got this body saying they're worried about inflation. Well, number one, the current inflation rate right now is 2.8% at CPI. If you go back historically, that's not far above average of what we've run throughout our post-war era.

[00:42:57] Period. They, they, it's only high to them because they got this artificial 2% rule where suddenly 2% has become the gospel inflation rate. I don't understand anymore that came from. I can't find where that came from. The 2% is the, like the, the beautiful thing to have anything different from that. You gotta, you gotta

[00:43:17] fight it. Um, I think that we've got inflation pretty well under control and, uh, the fed should look at what's happening right now with a crumbling financial market and every market within the financial market is screaming, not inflation. They're screaming deflation. Bond yields are collapsing. The, the break

[00:43:42] even rates, the embedded inflation rate in bond yields are collapsing. Credit spreads are blowing out. Okay. The stock market is collapsing, not because of inflation concerns, because of recession concerns. The commodity market is S&P gold and sass commodity price index is down 12% down again today from as high

[00:44:06] in January, 12% crude oil just dropped below 60 today on the futures. Okay. They're not worried about inflation in the commodity markets. The dollar during 2021 22, when the inflation was rising, the dollar rose dramatically. Dollars coming straight down, right? You know, every market, the bond market, stock market, the commodity market, the dollar market are screaming deflation risk. And here we have the

[00:44:35] federal reserve saying I'm worried about inflation. I do not understand it except to say that they've been doing sort of unprecedented moves, uh, for, for some time. And, um, I, I guess it's got to get worse. The other thing that I object to a little bit is they say we're got to wait for more reports before, um, we can move. The problem with that is, is economic reports are a chronic look in the rear view

[00:45:05] mirror at what is going on. Whenever we get a report today in the economy, it's already a month or more old. Okay. Um, and if you're going to manage things by looking through the rear view mirror, that's, that's becomes a problem for policy officials as a leading entity. Um, I would argue that one of the most leading indicators of economics performance, not a perfect one by any stretch to imagine is the

[00:45:31] markets. Okay. They, yeah. Are they emotional? Do they move too far each way? Absolutely. Is there emotion wrapped up in it and bad forecast as a result? Yes. But is there anything better forecasting what's coming than the markets and maybe past policy, which is partly markets? Um, I don't think so. And so for the federal reserve, who's in charge of, of managing the economy to keep it out of recession

[00:45:57] or without inflation to, to say that I'm not going to listen to the financial markets at all. I think they're stupid. I think it's stupid, uh, to have that as your approach. I think they should be listening more to that and they should be responding. And I think ultimately they'll probably have to because it'll get bad enough in the economy. Just one more for me before I hand it back to Justin. I want to ask you about one of the things that surprised a lot of investors is this idea that, you know, in the first Trump administration, they were very focused on the stock market.

[00:46:26] Now they seem to have primarily focused on the 10 year and all the benefits of getting that down. Like, what do you think about that strategy, about that idea of focusing on the 10 year? Justin Donald I get why they're thinking that because I kind of believe that too. I think our, our rate structure is way too high. I'm, I'll put out something probably in the next few weeks again about that. I've written about it before. But if I look at, if you overlay, if you just think about it, uh, Jack, that we had, uh, the bond yield was low and the inflation was low in 2020.

[00:46:55] Inflation went up to nine, one, come back down to two, eight. Bond yields went from a half percent up to about four and a half. And they're still at four and a half, even though the inflation rate went from nine, one to two, eight, even though nominal GDP went from 18% down to five, even though real GDP went from 10% down to two and a half. Even though commodity prices went up and have fallen 30%,

[00:47:19] now almost 40% from their highs. Bond yields have not come back down. There's several other things too, indicators that tell me that while they went up with it, they didn't come down. And you got to ask the question, why is that? And I would argue one reason is because who's the, who's the guy or the people that finally raised rates, but never brought them back down. And you know, maybe bond yields can

[00:47:46] only move so far on their own without having the short end stick, you know, pulling it. So I, I kind of concur with that. Now, what I don't think is great at all is, you know, I, I don't, I don't appreciate at all President Trump's bully, bully attitude of how he goes about his business every day, and that's part of how he runs things. But I think it's despicable for a leader of free world

[00:48:11] to have that type of approach and personality as we hold out to the world and our, our youth and everything else. I don't care if you're Republican or Democrat, I don't think that's a good way to go about it is what I'm saying. Um, he, I think a lot of his ideas may be okay, but his, how he's, how he's going about it doesn't make a lot of sense. And I think to threaten the Federal Reserve chairman is totally inappropriate. I just think that's, that's wrong. Um, now on the other side

[00:48:38] of that, if the Federal Reserve and I'm not convinced they are, but if Powell is refusing to ease out of spite to trunk, as opposed to out of what's right for the country, then they're both on the same footing in my view of not really continuing to pay attention to what's most important. Um, you know, and I, I do think the rate structure is too high and needs to come down. And I'm hoping

[00:49:04] that it's not a petty war between who's in the White House and who's at the Federal Reserve that, that's keeping it up from happening. Um, and I, I don't really think it is. I, I just don't believe that's why the Federal Reserve is doing what it's doing. I think it just, you know, is generally concerned yet about tariffs influence on inflation and they're going to make sure. I, I don't, I think they're wrong in that assessment, but I don't know any more than they do if that's true or not. But, um,

[00:49:34] I do think that, um, getting the interest rate structure down to better reflect inflation rate that I think is probably, uh, with a slowdown in the economy, probably going to add to 2% on CPI. Um, could get, could certainly, uh, a 10 year treasury of threes each would be a lot better than 420 or whatever. And it would, I think do a lot of good things for confidence in the economy as well as

[00:50:02] just growth in general. One of the things with Trump is that for the most part, he kind of does do what he says he's going to do. So I'm wondering like with things like deregulation, doge and reduction in spending, the tax bill that they're going to try to push through and then immigration, like, how do you, there's a lot there, but, and I guess some are positive,

[00:50:32] some are negatives. Like, how do you think about all of those things in the balance of what's going on in the economy? Not too much right now, Justin, but I mean, um, some of that, you know, I don't have a problem with getting a handle on who's in our country and, and, you know, slow and shutting down the process of just letting people come in. And, um,

[00:50:58] so I think the way they've handled that is a bit brusque and aggressive and disrespectful to some degree, but who am I to know how it's best to go about that? Um, but I think, I think again, the idea is fine. And what they should do is if they're going to do this, gather up people that are not supposed to be here and, and put them out of the country that that's okay. But they, at the same time that

[00:51:24] they do that, they should also, in my view, set up a new system for letting people in because we need people in this country, we need demographic growth. And that is almost just as important as our security is getting more demographic growth. We ought to just, I don't know why it's so difficult to set up a system of checks and balances on people and deciding the criteria we're going to use to let people in,

[00:51:49] because I think we need to do that. I hope we get to that point, uh, as well. As far as Doge, you know, I, I think there's waste in government too. There's gotta be, but the process there again, by how they're going about this to me, makes no sense. I, it doesn't seem like it's anyone's done any research and looked into it and said, okay, where are the, where are the excesses, the, the waste,

[00:52:12] uh, what, what areas and, and, uh, you know, what people are responsible, what, who aren't the, uh, that takes some time to study it and to have a reasonable approach to it rather than just, uh, mass cutting. Uh, certainly it hurts confidence by doing it that way. Um, not to let, not least of which the people lose their, their jobs, but they're the product, but the idea of it makes sense to me as

[00:52:38] far as, you know, having waste in the government sector. That's the differences in, in the private sector, private sectors cut jobs all the time. Every time we give a slowdown, there's somebody who's going to hack jobs and a lot of people are going to lose their jobs. Probably a lot of them didn't, didn't really deserve it. That happens a lot of times in the private sector. You know, there's just a hack. We got a hack because we're losing money. There's no such check on the government sector. And I do think it makes sense, uh, what he's doing there, but you know, that that's another

[00:53:04] negative that's coming through, um, is a policy that's, it's going to have impact if it continues the pace it is and the speed by which it goes. Um, and you know, tax cuts, if they can get them through, I don't know if they'll be able to, but if they do that, so that's a definite policy, that's a stimulant. And you know, right now I'd welcome that just to, to bring some stimulus to

[00:53:28] the party right now, uh, overall. Um, so I, I, I still think, I don't know if Trump follows through and everything he says. I think there's a lot of bluster or less foul through a lot of this stuff, but, but we'll see, you know, he certainly's followed through a lot on his tariffs and, um, you know, some of the rest of them, I may be wrong, but it seems like some of those other

[00:53:52] things have slowed down a little bit. Doge has slowed, I think a little bit, Musk leaving too. And even immigration seems a little slower. Certainly the efforts to bring peace have slowed down a little bit too in some of these geopolitical conflicts. So we'll see if that, if he follows through and continue to be able to move things along as fast as he has, or whether some of those slow down. Yeah. Wow. What, what are your feelings on the debt level of the country? Like right now,

[00:54:21] I think we're at like roughly 120% debt to GDP. And I think there's studies out there that show, you know, once a developed country or maybe history would show once a developed country gets to that level of debt, it can become like problematic. So how do you kind of think about that? Um, in the context of sort of just where we are?

[00:54:45] Um, I'm not too worried about it, I guess. I, uh, when I started this business in the early eighties, shortly after I started, we had, uh, the largest peacetime deficits ever under Reagan. And, uh, everyone told me that, you know, it was the end of the world and that was, that was awful and whatever. And it just seems like that's always been the case with government and government policies, government debt, everything government. It's a, it's a real hot button for all of us.

[00:55:13] It's just the emotional hot button and, uh, affects all of us and what we think and affects us. And I, I just think we overplay the debt of the government way more than its actual influence. If I had the ability to tax, raise taxes on everyone else in this country, whenever I wanted to, um, I could run a pretty good debt to income ratio too, and still be just fine. Um,

[00:55:40] a lot of that 120% is owned by the government itself. Uh, other government agencies or the Federal Reserve has a chunk of it that they rebate the interest costs back to the government every year. Uh, we certainly have developed countries like Japan and others that have survived well, well higher ratios than this. I just think that the real thing that people play up is that we're going to go bankrupt and there'll be a run on the dollar and everyone will go away. And I,

[00:56:07] I think we're so far from that. Um, if there, I mean, I will say that if there was a real problem with government debt in the United States, the one place people would come if that really happened would be the United States for safety. Cause you know, it's, it's almost that way. Um, I think the last point I'd make Justin is that, um, what we do have is some of the strongest financial,

[00:56:36] private sector financials we've had in many decades. Like I said, I would take that over government phase every day of the week. If I've got a strong private sector, because let's face it, how does the government survive? Who finances it? Who, who keeps that 120% debt ratio so it doesn't wipe us out? It's not the government. It's the private sector. And as long as that private sector is okay,

[00:57:04] government's fine. And that's kind of where I look at that. I, I think it's worse if we put it the other way around where we have the private sector financial, uh, lack of financial integrity of the government sector. Okay. I don't know. All right. Let's end on this. So Jim Paulson buys a lottery ticket, wins, wins a million bucks. And you have to allocate that million dollars today. That's in cash to

[00:57:34] assets that you believe are going to be maybe not the very best, but you know, you're taking a two to five year time horizon. Like how would you divvy that portfolio up? Like what areas look attractive to you? Um, and then, you know, what areas maybe that are a little bit more consensus that you may or may not avoid? Like, how would you, how would you approach that? Well, I think I'd divvy it up equally between the, uh, the twins, the Vikings and the Timberwolves.

[00:58:03] We're going to, uh, let's hear I go with it. Um, and the twins need it. They need it. They need it. They need it. Yeah. What's not any money? Just, just call the twins. Um, well, you know, that's a really, really tough question. Good question. I guess, um, what I would do now is, um, I would, uh, I'd be,

[00:58:25] I'd be more fully invested, uh, uh, with whatever my parameters are. I'd be more closer to the fully invested edge of the, of the equities right now, even though I do think bond yields are going to come down or bonds are going to go up. I think if they do come down, I think equities are going to do even better than bonds, even though bonds would probably go up too. So I would have diversification. I wouldn't violate my diversification parameters, but I would have a lot of it in equities and, and be

[00:58:53] more towards your maximal parameters right now. We just gone through a 20% drop and, um, uh, in that, in that market and a lot of fear banks, some of the reasons I talked about in there though, what I would do now is I think the volatility is going to be here for a little while. And I think because the fed hasn't responded this, the late, it's going to take a while to pull us out of this a little bit. It might take some more carnage on earnings, on the unemployment economy to really get

[00:59:20] full policy support, even though we do have some good policy support that already in play, lower commodity prices, faster, uh, or lower interest rates, um, lower dollar. You know, I think liquidity is picking up because you and I determine the empty money supply to some degree. And as we get scared, we hold more liquid balances and that raises the money supply growth rate. But we do need, I think, uh, federal reserve support. And I'm, the other thing I didn't talk

[00:59:48] about was fiscal support is coming too, because the economy slows tax receipts automatically go down and welfare expenditures automatically go up. So all that will happen. But my point is, is I would take advantage of this volatility when it pulls back to, to reduce some of your defensive winners that have really done well. I mean, just look at what some of these have done low S&P, low vol index, the relative of that or staple stocks, uh, utility stocks, even with pharma. Some of those have really

[01:00:15] scored big, uh, give it into aristocrats, some of those, uh, and move some of those funds back to what you'd say, octane. And, um, I would look at some of the cyclicals there. I think consumer discretionary stocks have just gotten plowed here. And I think that'd be a good place to go buy right now. Um, I'd also like,

[01:00:37] uh, the industrials, um, in that, in that mix. Uh, normally, uh, normally I'd say financials, but you know, they had a nice run right prior to this. I'm not sure I'd, I'd go heavily there, but I would with consumer discretionary and industrials. I think I would, um, I would still buy tech. I think that when I look back at technology, I'm not sure it's going to lead the next

[01:01:03] period of bull run, but I think it will lead off the lows of this cycling. In other words, when we decide that this crisis is over and we lift strongly for a couple months, I think tech will be play a role in that. Uh, they'll lift hard too. Now, after that, you may want to come out of there might be additional leadership, but off the lows, I think I would, I would do that. Um, I'm,

[01:01:28] I, I really think that small cap stocks probably have that same in them too. If, if we finally decide the crisis over, we lift small caps. So I tilt a little down the cap. I don't even know if you have to go all the way to small, but just lower your, your cap till a little bit. If we do recover, then there might be some other little tilts you want to do down the road. Let's say if we come off the lowest big for six months, I might want to move away from tech. I maybe think about large cap

[01:01:57] value or international a little bit at that point. But right now I do think leadership really off the lows for the first six months. If we come out of this, we'll be concentrated back in the, in the cyclicals and in technology again over that pole. And that's kind of where I'd, I'd sit at the moment. That doesn't mean I have everything there, but just a, a tilt just in that direction. It's great, Jim. It's always so awesome. Well, thanks for, yeah, thanks for having me. I really appreciate it. Thanks for listening to me

[01:02:26] a lot of loan here. I appreciate it. Thank you, Jim. You bet. Thanks so much for tuning into this episode. If you found this discussion interesting and valuable, please subscribe on YouTube or your favorite podcast platform, or leave a review or a comment. We appreciate it. No information on this podcast should be construed as investment advice. Securities discussed in the podcast may be holdings of the participants or their clients.