The Compound and Friends - Why Brian Wesbury is Bearish

Episode Date: January 3, 2025

On episode 172 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Brian Wesbury, Chief Economist at First Trust Advisors to discuss his outlook on 2024, Recessions, Monetary Policy, Bitcoin, being an Eagle Scout and more! This episode is sponsored by iShares by BlackRock! To learn more, visit: ishares.com/bitcoin! IBIT is the largest spot bitcoin ETP by AUM as of 11/30/24 and most traded spot bitcoin ETP by 20-day avg. trading volumes from 1/11/24-7/24/24. Source BlackRock and Bloomberg. This information must be accompanied by a current iShares Bitcoin Trust ETF prospectus, which may be obtained by clicking here. Please read the prospectus carefully before investing. Investing involves a high degree of risk, including possible loss of principal. An investment in the Trust is not suitable for all investors, may be deemed speculative and is not intended as a complete investment program. The iShares Bitcoin Trust ETF is not an investment company registered under the Investment Company Act of 1940, and therefore is not subject to the same regulatory requirements as mutual funds or ETFs registered under the Investment Company Act of 1940. This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This material is strictly for illustrative, educational, or informational purposes and is subject to change. Investing in digital assets involves significant risks due to their extreme price volatility and the potential for loss, theft, or compromise of private keys. iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. ETFs invested in digital assets are speculative and involve a high degree of risk. Before making an investment decision, you should consider carefully the risks included in the prospectus. The trading prices of many digital assets, including bitcoin, have experienced extreme volatility in recent periods and may continue to do so. Extreme volatility in the future, including further declines in the trading prices of bitcoin, could have a material adverse effect on the value of the ETF shares and the shares could lose all or substantially all of their value. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

The secret of going to Colorado is from the moment you wake up in the morning and you're flying there, you got to drink water. Start drinking water. Start drinking water from the moment you wake up. Because of the altitude. Yeah. Now, am I skinnier when I'm in Colorado? How does that part work?

You can kick a ball and hit farther and you can hit a golf ball farther. That's for sure. I don't know about being skinnier though. So we did an event last year in Colorado Springs. Right, at the Broadmoor. Broadmoor. Yeah, beautiful. You know what though?

Timed a little bit too soon in the season. Right. We did it in March. Yeah. We froze. It can be perfect in March. This year we're going to do it in May. Yeah, it'll be, it could be absolutely spectacular.

The Broadmoor is super cool. The golf area where they have all the memorabilia from the tournaments. They have a lot of stuff there. Oh yeah. No, it's a very famous course. They used to have a big tournament there. And the bowling lanes was probably the highlight of the trip. Yeah, dude.

I mean, the last night when all the content was over, the people that put the conference on, myself included, said, let's go bowling. And that was hilarious. Dude. Yeah. Side of the bar there, they have that humongous fireplace. And I've had many a good cigar out there. Yeah. That's a good scene. And you are a West Coast Florida guy or no?

No. I lived in Chicago for 35 years. No, no, no. But I was asking, you don't have a place down there? No, I'm looking. I'm looking in Naples. But we have a bunch of guys in Naples right now. Because I know you're friendly with Belsky and he's now there. Yeah.

I see him there all the time. We're going to Naples in a few weeks. It's so hot right now. Yeah. I see him all the time. Belsky. Whenever I go to the Fox studio there, Belsky's right before me or right after me. It's funny.

He wears shorts, by the way, for his hits. Yeah, he does. You guys have a different outlook, right? Yeah, I haven't seen his outlook lately. I'm bearish, but I think he is bullish. So I don't know how bullish. How bearish? Like on a he is bullish. So I don't know how bullish. How bearish? Like on a scale of...

Well, we're going to find out. As soon as we click action, we're about to find out. Well, you know, here's... On a scale of Rubini to husband. Where do you... Where do you from? I'm not a Rubini or a husband. I haven't been bearish in a long...

People used to call me a permable. That was the biggest argument. Permable. He's a permable a permable a permable So I had some guy come up to me before his speech the other day and he goes, you know You used to be a permable now. Now you're a perma bear. So then you're not perma I'm like by definition if like to repeat that sentence to yourself and listen Ask yourself if that makes sense. When did you start turning to the dark side?

Kind of last year. Okay. Yeah. I mean, I, I mean, we'll say this, but I always think we had a car wreck. COVID was a car wreck. We broke our leg in four places. The ambulance showed up, pump is full of morphine. And then they take you to the hospital and they go, how are you feeling?

And you go, man, I've never felt better. And that's where I think people are. Would you rather have not had the morphine? Yes. I would have rather not. I would have rather not had the car wreck. We should have never locked down. I don't know if I love that.

I feel like the steroid analogy is better than the morphine analogy. I just think it sped up things that would have taken 10 years, happened all at once. Yeah. And I know we're going to get into that. Five years worth of wage growth, 10 years worth of stimulus. Oh, but it's interesting, if we didn't have the lockdown,

we wouldn't be here. Right. Right? Like in the financial situation that we're in, everything would have been different. Yeah, everything would have been different. And I mean, and I know we're going to get into this, but I mean, the gap between the wealthy and the not wealthy,

people who own wealthy, people who own assets versus people who don't, has just exploded. I mean you look at delinquencies and credit cards and auto loans and it's, they're going through the roof and it's because anybody that didn't have assets got crushed with all this, all the steroids and morphine. Can I ask you a question that you are uniquely positioned to answer? If that's really such a huge issue, and I think it is too, why are they all voting Republican? No, seriously. Yeah. Well, it's a good...

I mean, this whole thing is interesting because somehow Trump didn't get blamed for all the steroids. In other words, like maybe Fauci did. No, no, no. He has the working class vote. Right. The union leadership voted for Kamala. The union members voted for Trump.

But they put the policies of big spending and all the money printing, the things that caused the inflation, I believe that they blame Democrats and Biden for it. Even though it started under Trump. Well, they both did. Yeah, yeah, they both. I mean, it started under Trump, no doubt about it. Even though it started under Trump. Yeah, they both. Right? Yeah, they both. I mean, it started under Trump, no doubt about it.

But Biden gets blamed. Trump did the shot and Biden did the chaser. Yeah, there you go. That's exactly right. Although, I mean, Biden kept spending. The deficits we've had in the last two years, some most irresponsible government policies that maybe in the history of the country we've had in the last two years, it's the most irresponsible government policies that maybe in the history of the country we've ever had.

But the irony is they paid for it in the election results. Yeah, they did. It's not supposed to work that way. If you're the president that's throwing money at everyone, you're supposed to win again. If you're Santa Claus. Yeah, if you're Santa Claus. That's how bad these policies were.

They were so bad that the wage hikes that everyone got and all this free money actually worked against the administration. You would think it would be the opposite. Yeah. I think Charles Payne said it fantastically. I think he said he goes a lot of my brothers said quit giving me money. my brothers said, quit giving me money. Like quit, just let me have an opportunity. And he goes, and finally people have woken up to that. That they threw so much at us and they told us, just count on us. And he goes, people started to get offended by it. Michael and I were walking the other day

and talking about this and we were saying, the message of, no, no, no, you're working class. Nobody wants to hear that shit. People don't want, no, you're working class. Nobody wants to hear that shit. People don't want to hear that they're working class and that they're somehow like, you're supposed to be down and out. That was sort of the democratic message. It's like, no, no, no, no, no, you need us

to take care of you. And I think more people this time said, what if I didn't need you to take care of me? What if what the other guy is saying is that I could climb out of this? And you know whether or not you can is a different conversation, but I think that resonated more. Yeah, they were offended by it. Totally agree. Yeah, I don't think anybody wants to see themselves as like wards of the state.

Right. So losing that. Speaking of wards of the state, Nicole, get on in here. Wards of the firm. Yes. All right. Happy New Year, Nicole. What episode is this? Today's show is sponsored by iShares by BlackRock. Bitcoin adoption continues to accelerate, but for many investors, holding Bitcoin directly

can be complex. Introducing iBit, the iShares Bitcoin Trust ETF. iBit offers you convenient exposure to Bitcoin through an exchange traded product, eliminating the operational, tax, and custody complexities with holding Bitcoin directly. iBit has also been the most traded Bitcoin exchange traded product, providing investors with potentially lower transaction costs. To learn more, visit iShares.com slash bitcoin or talk to your financial planner. Investing in digital assets such as bitcoin involves significant risks, including possible loss of principal.

For more information on the iShares Bitcoin Trust ETF, including a link to the prospectus, please see the show notes. Our cast mates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Oh boy. All right. First episode of the year.

I must say, we have outdone ourselves in terms of casting for this episode. I don't know is there anyone that you'd rather have heard from than Brian Westbury today? No, zero people. Zero people. This is awesome. Hey guys we are back. Hope everybody had a beautiful, happy, safe, healthy holiday season. We have a very special guest with us today. Brian Westberry is the chief economist at First Trust Advisors, a financial services firm with over $260 billion in AUM. Brian is also a member of the board of trustees at Hillsdale College.

Is that the school from Back to Future? What was that called? Yeah, I don't think so. John? No? All right. Yeah. Okay. Hillsdale College. Before First Trust, Brian had various senior economist roles, including chief economist for the Joint Economic Committee of the U.S. Congress. This U.S. Congress? That's right. Yeah, not the before one. And has written two books, including It Is Not As Bad As You Think in 2009. Great title for 2009.

Mr. Brian Westbury, thank you so much for coming. This is your first time on The Compound and Friends, although I've had you on my solo podcast before. Yeah, you have, Josh. I don't know what took us so long, but we're so thrilled to have you here. Tell people before we get into the meat of what we're gonna talk about. Tell people a little bit more about First Trust. Yeah. First Trust 32 years old now. Started maybe 33. Anyway, started back in early

1990- 1991. We're called First Trust because the roots of our firm invented the first unit investment trust of municipal bond. So that's why we're called First Trust. I mean, it sounds like, oh, First Trust, what a boring name. Well, there's really a reason for it. UITs were ETFs before they were ETFs. Exactly. It's the same legal structure.

So the UIT has now turned morphed. We still are the leader. We're 85% of the market of UITs. We're number six in the world, I guess, in ETFs. And have about 260 billion. We're private. We're never going public. And I'm not the CEO, but that's what our CEO, Jim Bowen, says. Because you want to be private these days, especially when you don't follow the narrative of the rest of the world. We'll never be

SG. We'll never be DEI, we'll never be DEI, and we want to stay private to make sure it stays that way. Our focus, and this is our co-founder Jim Bowen, who's the CEO today, is on the financial advisor. So you will never see our name in the outfield of a stadium, you'll never see our name on a stadium because we spend our resources on the advisor. We believe the advisor has the relationships with the client. So what we want to do and that's what I'm...

You're not B2C. No, we're like, we're B2C. We're B2B. Business to advisor. Yeah, B2B, I guess is the way to put it. And that's our focus. So that's where we spend all our money. Meetings, I give 180, a lot of stakes, a lot of meat. We should have our own ranch, by the way. But I do 180 speeches a year. So that's what I do.

Yeah, I travel, I live on an airplane and in a ballroom with... So you're like a standup economist. Yes, I am a little bit. I want to start with this chart that... So one of the things about last year, half the gains came from multiple expansion for the S&P 500, but half came from earnings growth. And earnings growth is expected to be good yet again this coming year. I know that you're a person that goes back to basics and says, well, are profits growing

or are they not growing? From my perspective, the profit part is easier to figure out than the interest rate part. In other words, we had four rate cuts this year, 25 basis points, and 100 basis points higher in the 10 year. I can't tell you what interest rate is going to be a year from now. I don't think the earnings picture will be terribly far off from the consensus. Do you agree with me that's the easier part to get right? Absolutely.

Okay. Although, I have a little worse outlook for the earnings picture. We want to hear that for sure. Yeah, this goes back to the... I just believe and you know, you called it steroids, I'll call it morphine, that all that money printing, all that government spending and handouts that we did because of COVID was morphine or steroids or however you want to say it because it artificially boosted the economy. I think it artificially boosted tax receipts to the federal government. I think it artificially boosted revenues. I mean, look at Amazon. Amazon doubled its

workforce during COVID. All the mom and pop stores were shut down. Who won? The S&P 500, the tech companies especially, because we all zoomed and did all this stuff. So I think there was a real push to artificially inflate those earnings. And I think earnings forecast for this year, well, you're right, they're easier to get than the 10-year, I think they're a little too high. We're gonna pay a price. If we have a recession, they'll be weak. Would you not have done it? You're not saying we shouldn't have done it.

You're saying don't be fooled by what it was. Well, I think we did more than we should have. I don't think we should have locked down. I don't think we should have locked down. I think we should have followed the Swedish model. But I mean, obviously that's water under the bridge. And I don't have to, but once you do lock down, that's called the taking, right?

I don't let you open your restaurant, your bar. Now I got to compensate you. It's called just compensation in the constitution, right? So I have to give you just, or in the law. And so once we locked down, we had to do that. Now, the last two years, we've had under 4% unemployment and no world war. We're still stimulating. And we're still having a $2 trillion deficit. So that was the big mistake.

But what if we had the bus in 2022 already? Like, so all of the over hiring that these companies were forced to do, right? Because the world changed overnight and Amazon couldn't keep up with all of the... So they already all paid the over hiring that these companies were forced to do right because the world changed overnight and Amazon couldn't keep up with all The right so they already all paid the price because the stocks went up and they went all the way back down Right and there was the year of efficiency I think in 22 right Mike met It was right sizing uber was first to that and they did all that we had the boom in the bus like or do you think? That there's more to come yeah I think there's more to come but this is a debate even inside my shop.

Bob Stein is my deputy chief economist. One of his points is that, hey, we never, even though we had all the stimulus, all these steroids, all this morphine, all this money, like all this spending, we didn't really get mal investment, which is what comes from Mises and Hayek. We never got a bubble, like in 06 and 07 in housing. In growth equity we did. I'm not saying earnings PE ratios didn't go way high for the MAG7 and all that, but it wasn't like 07 and 08 in housing or 7 or 99. I mean, in the stock market.

We have the SPAC bubble in 21. We had the series F through Z for the giant growth equity companies. But these are financial. These are, I think these, that's not really overbuilding junk infrastructure. Right. Like what they do in China. I'm not saying we didn't have some bubbles. I think we might have a bubble in Bitcoin right now.

But, but, and we'll get to talk about that, but they weren't as big as the bubbles were in 98, 99 or in housing. Is that good or bad? Yeah, it's good because if you don't have the big bubble, then you don't have the big crash. It's weird because if you put $5 trillion in an economy, how do you not get a bubble? And so we have to debate why that might not happen.

I still think there is a bubble. I think there was a bubble. If you compare earnings today to where they were in 2019, it's absolutely amazing. But they really haven't grown in the last two years. And so maybe that's the correction. We just go sideways. So you talked about stocks in the last year. Here's two years. The S&P 500 is up 62% in two years. Earnings are up 5%. So to me, that's the multiple expansion. And I think it's a sign of how much we're overdone.

Now we're not overdone like 99. We're not. We're 20% overvalued. But if earnings stay up, the market will stay up. If Musk and Ramaswamy and they can cut deregulation and AI and Ozempic and all this stuff like make us boom, then guess what, I'm wrong. So you think that could earnings be flat

and stocks be down 15, 20%? Yeah, it could, yeah. They should be. I mean, and it's especially because of interest rates. So the model we use, real simple, profits, I just call it a capitalized profits model. John, let's hit that chart. So this is where I wanted to go next. So that's a great segue.

Describe for, because some of the people are listening to this. So just describe to people what's on the chart and why this is your model. Yeah. So this chart goes back to 1955. It shows the S&P 500. All right. And I kept this as simple as you possibly can when you're valuing stocks. I mean, people use all kinds of dividend discount models and et cetera, et cetera, but there's two important-

We just use the 200-day moving out, so we're simpler than you. Yes, yeah, but I just use two components. Number one, profits. And by the way, I don't use S&P 500 reported profits. I use NYPA. I use the government profits that come from what's called the NIPA accounts, national income, product accounts. And that's data that's reported to the IRS. Okay, so I figure if you're a company and you report earnings to the IRS you owe taxes So you really did make it? All right, so that's why I ignore the S&P 500 does that deviate greatly from the report and earnings of the S&P 500? Not greatly

It's it's not a massive difference, but there are no that use. Okay. That's like sugar in the raw to continue your Exactly, and so I take those profits and then I discount them. It's quarterly report? Quarterly numbers. Okay. And then I discount those by the 10-year treasury yield every quarter. So every quarter we have three pieces of data. Forward or backward?

It's all just real time. So it's all like we do it quarterly. So every piece of data is for the fourth quarter. Every piece of data is for the fourth quarter every piece of data So this week you have last quarter's data. Yep, and we and you have the 10-year current. Yeah, so we use fourth quarter profits The 10-year you can do whatever you want with it. You could use last quarters. We could adjust it for this quarters And then we have the S&P and And if you give me two of those, I'll calculate the third. It's just an average, like for over 70 years of data.

And so what the show, this model, for the last 15 years, up until this past year, I was bullish. I mean, people are like swine flu. I'm like, bye. They're like, Brexit, bye. Fiscal cliff, bye. Like murder hornets, I'm like, bye. They're like, Brexit, bye. Fiscal cliff, bye. Like murder hornets, I'm like triple bye.

It's like, it didn't matter. We were under. No, you have, because I read you every week. The light blue line is the capital profits model minus the S&P 500? Well, the dark blue line is the S&P, the light blue line is the forecast, is the fair, it's the fair value. So you can see for 15 years,

we were massively undervalued. And then interest rates shot up in the last couple of years. And that's really the driver that brought that light blue line. And it is now for the first time in 15 years below the S&P 500. Or in other words, our model says for the first time in 15 years below the S&P 500. Or in other words, our model says, for the first time in 15 years, the market's overvalued. Now it was overvalued for a year. So I've been bearish shush shush for a year. All right? So let me ask you this.

Doesn't the source of the profits matter? Because if it continues to come from the Mag-7 stocks who really don't give a shit what the tenure is, what does the tenure have to do with Nvidia's earnings powers right now? Literally nothing. Right, so you would stipulate that. Yeah, other than it's a discount mechanism.

So the market, if Nvidia earns a dollar and interest rates are five, it's worth, in a sense, less than if it's a state or two. So you're using that as a discount mechanism, not as a cost of capital type thing. Got it, okay. No, yeah. Now, what we've been telling-

Was that one of your big surprises, though, for last year? Because- It's how much those banks have in line up. How little those companies cared, whether the overnight Fed funds rate was 5% or 0%. Right. It was almost like a non-event.

It was definitely a non-event. It was definitely a non-event. It might have actually worked in the inverse. They were printing money on the cash side of their balance sheet with the higher rates. It actually helped them. Yeah, I totally, well, and I mean, if you look at Apple, they had a lot of debt on their books at way less than current market rates. And, I mean, their CFO is brilliant. I mean, they did just magnificent things,

buying back all their stock, all that stuff. But we can all look at the P-E ratios for those companies that are 37, 38, 39. I mean, that's historically overvalued. And everybody is betting that AI is this massive profit producer, but it hasn't worked yet. So it's not exactly the same because 3Com, remember Palm Pilot, I mean, you know, in 99.

I used to sell that stock to people and tell them they were gonna get the Palm spin-off. Yeah, exactly. That was like my, I probably opened a hundred retail brokerage accounts pitching that story. I mean that company was so far ahead of the world. It was brilliant. I had a PalmPilot.

I traded futures on my PalmPilot. Mine had a pen. But then it, yeah, mine had a pen and then it blew up. But all that technology, I mean I don't know about the exact software behind it all, but everything that Palm Pilot can do is in your iPhone today. It was right. They were right. They were just early. They were right on the innovation, wrong on the timeline for which this would be profitable. And that's what worries me about AI. AI is the real deal.

It's going to help hospitals, doctors. It's going to help all of us get diagnosed better, faster, cleaner. That is the source of the overvalued. Putting aside the rate on the 10-year treasury in your model, if the market turns out to have been overvalued, I guess we'll find out in a year. That's the source, optimism related to the AI opportunity. No doubt. So Apple, probably a beneficiary of some of this future hope, revenue is flat for the last couple of years.

Literally, revenue is not growing. The stock was up 30% last year. Now, the margins are going up because of the source of the revenue. But again, flat revenue, stock up 30%, and not a small stock either, one of the top two in the world. Exactly. And that's the stuff of the revenue. But again, flat revenue, stock up 30% and not a small stock either, one of the top two in the world. Exactly, and that's the stuff that worries me.

And so when we go talk to financial advisors, our CIO, Dave McGarroll, he's got some unbelievable ways of showing this, but if you look at the top 50 stocks in the S&P 500, it's 37, 38 PE. You look at the top 50 stocks in the S&P 500, it's 37, 38 PE. You look at the bottom 50 stocks. I mean, you got companies like Dover, which is increased. It's a $30 billion company.

It's increased its dividend for 60 years in a row. And yet it's like three, it's three basis points. And it's going that way. Market cap evaluation. Is the right word monotonically. That's a stair step. Am I using that right? I think so. Yeah.

Okay. Yeah, it's a stair step. And it also correlated with performance last year. Yeah, and their P-E ratio is, the P-E of the bottom 50 is 14, 13. I'm not remembering exactly, but don't quote me on that number, but it's like, it's something like that. So I've been saying that I think one of the biggest risks for the market in the first quarter is Nvidia's earnings February 25th or 6th. They'll report one of those two days. Not because they're gonna have a bad report. It's just that the ante up.

Let me show you this chart. Like they have to ante so much higher each time to maintain people's enthusiasm. Let me show you this chart. So I had a chart, kid. It's on my computer. I'll turn it around in a sec. Nvidia is up 835% over the last two years. It has not fallen more than 10% in a single day.

I would guess that that might not have ever happened where a stock had a two-year run of 840% and not a single day more than down 10%. So here's what happened to Nvidia. What we're looking at is the gray bar is Nvidia forecasted 12-month earnings, pushed forward 12 months versus what they actually did. And you could see the bar just went vertical, but they continued to pull vault even higher than that.

But at some point, they're going to miss. At some point. And if and when they do, the stocks would go down 20% on the day. They have competitors coming online with chips. Competing with their own customers. Yeah, yeah, exactly. And the question is how long will Google, Google Metal,

I mean, they're investing twice as much of their revenues in chips and new tech and R&D than they ever have. And maybe if you go back to their very roots, like maybe they invested everything they ever made in the next generation of whatever it was. But right now, they're making more money than they've ever made, but they're also investing more money than they've ever invested. So I want to point out- And if they slow down, Nvidia goes from 300% growth to 150 to 75 to 20 and now all of a

sudden that multiple doesn't make sense anymore. Microsoft is the worst performer of the Mag 7 last year, up 12%. Which is less than half of the S&P's performance. It's about a third of the NASDAQ's performance. They're the biggest spender on Nvidia. They are the number one customer. Not just Microsoft, but OpenAI, which Microsoft basically funds. They have the Copilot product, which is arguably the first large scale SaaS AI product, B2B product, for the enterprise.

That's like maybe a sneak preview of what happens with all of these hyperscalers that are rolling out these services. Even if they get traction with the services, doesn't necessarily mean shareholders will reward them. And if it goes into reverse and Microsoft shareholders say, why is the stock down? Maybe stop spending. That's a chain reaction that I worry about. And I'm an Nvidia long. So you're more bearish than I am,

but I'm, I think, experienced enough to understand. Nvidia will be the last company to see this coming. They're the caboose. They're the people that are taking in the spending. The companies at the front end are the ones that you have to watch for. What's great about Nvidia reporting late February is they're last. So if you hear from Zuckerberg and Sundar and they all say full speed ahead,

don't worry about Nvidia's ratings. Totally agree. You don't hear that, it's different. They probably will. I mean, I can't... Given all the recent comments, of course they're going to say that. It would be a shock if all of a sudden they stop or slow down. Because it's a war, right?

It's a war and for Alphabet it's existential for Alphabet. Yeah, if Google spends 11 billion, then Alphabet has to spend 12. And so they're in a war right now and they have the money to spend. So I don't think Nvidia is going to crash tomorrow or anytime soon. That's not what I'm saying. What I am saying is if AI doesn't pay off with profits, it's going to eventually happen. Here's another one. And I also think we're going to have a recession.

I really do. And it's bubbling up from the bottom. So I want to go into your employment chart. One of the things that I was surprised by last year, how well the labor market's held up. Right. We're not really worried about AI taking jobs anymore, I guess. That was like a thing that we worried about

for 10 minutes last year. Agentic AI is going to be the theme, the tech theme of 2025. Agentic AI will absolutely take customer service jobs and incinerate them in a way that LLMs on a standalone basis will not. Benioff told us this is the year of agentic AI. He oughta know, what does he have,

450 of the top 500 companies in America on Salesforce. If they are literally able to tell a manager, instead of having 20 employees under you, you now have 12, we're replacing those eight with chat bots and automated services. Okay, that's something I worry about, but let's take your employment short. Hang on, on that point, can you have unemployment

tick up meaningfully and margin expansion and earnings? Well, if it's all generated by higher productivity, yeah. So would that be bad? I guess that's the economic answer. You all want to be low on consumer discretionary in that scenario. Would that be bad for the stock market? Productivity is never bad for profits or the stock market. Productivity never is. Although, what this could cause is fear.

Like, if you lose your job, you're not spending. So, there's all kinds of forces. And the question is how quickly does that productivity turn into new jobs and new arenas? Because that's the history of America, right? Like the history of the Western civilization. The pie grows. Yeah, we invent steam engines and that means we don't need sailing ships and so if you make sales you're done, buggy whips, all that stuff. But we, we have the pie grow, we have jobs created elsewhere, and then that stops the negative part.

One of the predictions in this vein is that I think by the end of 2025, there could be more AI agents employed at corporations than people in one year. Yeah, it could happen. There's no doubt. Because you might have five different agents that you are employing to help you with various parts of your job. Those were probably jobs that would go to a kid coming out of University of Chicago. Maybe you take three of them instead of five of them. Oh yeah, to do research.

I mean, I just ask perplexity. And it gives me sites and like, you know, whereas, you know, six months ago, I picked up the phone and I called my office and I said, hey, put somebody on this. Well, now you just ask perplexity or, I don't know which one you use. I use perplexity. I like it.

I use them all. If you, I like to get wrong answers on multiple screens. Yeah. But if, so, all right, so let's look at your chart. Tell us what you're seeing here. Yeah, government jobs are up 2 percent. Private sector jobs are up like one and a half. What time frame?

Since this is like basically. Well, this goes back to basically the pandemic, but they crossed in late 22, early 23. These are these two trillion dollar budget deficits that we've been running. It takes the form of government jobs. Government and healthcare jobs. Healthcare is not on here. Just government straight out versus the private sector and that's the percentage growth over the previous year.

So in other words, government jobs up 2% in the past year, private sector jobs up about 1.5%. Is this likely to reverse now given the political situation? Well, see, this is all right. So this is where I wanted to go with this. I believe half of our GDP growth and we've been growing two and a half percent of the last two years is because of government spending and these deficits. So I am not a deficit guy. I'm not a Keynesian. I do not believe in Keynesian economics, and you can spend your way to prosperity. However, in the short term, you push a lot of money in.

It's like the morphine or the steroids. It can make you feel better or stronger. It can make the numbers look better. But here in New York, for example, the governor, Cathy Hogle, look better. But here in New York, for example, the governor, Kathy Hochul, did a press conference, I want to say six, seven, eight months ago, where she talked about most of the jobs, a majority of the jobs created in the previous year in New York state, where Medicaid was Medicaid paying kids, where Medicaid was Medicaid paying kids, grandkids, to stay at home and take care of grandma. What? Oh yeah. Half? What do you say, most of the jobs?

Most, a majority. Straight words out of Kathy Hochul's mouth. She was going, we can't, and it's costing the state $5 billion a year. But the new rules in Medicaid allow a member of the family to get a salary like they're a nurse. Yep, exactly. Okay. At home care.

And the states are paying for this. Yeah, and the government block grants the states. They give money, the federal government does, to the states. And anyway, so that's just one category of jobs, but it's a huge one. And so if you put government and healthcare, healthcare is mostly government anyway. So that's just one category of jobs, but it's a huge one. And so if you put government and healthcare,

healthcare is mostly government anyway. So government and healthcare together, it's over half the jobs in the past two years have come from just those two. That doesn't sound sustainable. No, it's not. And especially when you have Musk and Rameswamy coming in saying they want to cut two trillion dollars.

You think that's really gonna, you think that's just Twitter shit or that's really gonna happen? Musk and Ramaswamy coming in saying they want to cut two trillion dollars. You think that's really gonna, you think that's just Twitter shit or that's really gonna happen? I think they want to do it. Wow, so do I. You know, Jimmy Carter hired Alfred Kahn. He was a professor at Cornell. He was the guy who took over the Civil Aeronautics Board. He's the only guy ever, could have been a woman, but ever to take over a government agency and shut it down.

Like people that come in and run Health and Human Services, like Jack Kemp, he didn't get rid of it. He actually grew it when he was there. So they claim they're gonna shut government agencies down. But that- Was Alfred Kahn serving as the CEO of three different trillion dollar companies? No, he was not. He was a professor. He was a professor and Carter hired him as the inflation czar.

And then he tried to quit, but he wouldn't let him. That guy is fascinating. He's one of my heroes. But just a quick aside, he was so he was outspoken like Musk is. He was so, like, he didn't care what he said. He works for Carter, he starts talking about recession. Carter's whole team just blows up. They're like, what the, like, you can't do that,

you can't say that word. And so he started calling it a banana. And he's like, okay, I won't call it a recession, I'll call it a banana. And he's like, okay, I won't call it a recession, I'll call it a banana. And then the banana industry got mad at him for calling it a banana, so he changed it to Kumquat. And this guy was a character. Anyway, the whole point of bringing him up

is that he actually did it. Then when Reagan came in, it was W.R. Grace. It was called the Grace Commission. And they came up with like 2,000 proposals to cut spending. Back then, I think it was 400 billion in spending that he found that they could cut, and they never got any of it done. And so here we, I think Musk and Ramosami are serious,

but they haven't run into the bureaucratic buzzsaw yet. They talk a lot. They're also not elected officials and they can't sign anything. It's going to be really hard. So Brian, let me wind you up. But here, one quick side. So if, let's just say, we cut this deficit from $2 trillion to $1 trillion, well, we just lost a lot of job growth, And that may be enough right there to cause a recession. Like, in other words, if we stop all this

stimulus, just cold turkey, it hurts. Like, you go off, I don't know from experience, but if you stop air when you go into withdraw. How does this conversation go? So Scott Besson bursts into the Oval Office and he says, and he says, Mr. Trump, it looks like a recession is now likely and the stock market is plunging. And Trump says, who did it? And he says, the doge geniuses. Oh, we'll get them the hell out of here. Right. We're not doing any of these things. And pick up the phone and call pal and tell him to cut rates and start printing money again. That's probably started today. All right. Federal budget madness. Show us what's on this chart. What does this mean to you?

Yeah. Look at these. It's really hard to tell because we have such huge, big budget deficit. So this is all the budget deficits or surpluses all the way back to 1930, obviously World War II. And then you can see 08, 09, and then you see COVID. But the reason we put this together is look at the last two years, 6.2 and 6.4% of GDP, the biggest deficits ever other than 08, 09, other than COVID and other than World War II. And we've had unemployment, you know, so the, the, the 1981 was 6% smaller than today's.

Uh, but that was Reagan, but he, he was fighting the cold war and he had 10% unemployment. Today we were not in a world war and we have under 4% unemployment. So why are we doing this? Yeah, this is- Because it's easier for people who want to get elected every four years or every six years to just give everybody everything. Yeah, exactly. I mean, we... Can I point something out on this chart though and ask your opinion about it?

Yeah. Uh-huh. I heard Bill Clinton talk about how his administration was the last time we had a budget surplus as though he did something. What we actually had was a stock market bubble. And everyone paid taxes on those gains. And that's how you get a quote unquote balanced budget. In real life, you got one in the late 60s after that stock market extravaganza.

And then you see you got one in the mid 40s after all the stimulus spending from the war translated into stock market bubble profits. You only ever don't have a deficit after a year in which the S&P 500 goes up 50% or the NASDAQ goes up 100%. That's how you quote unquote balance the budget. It's tax receipts from a stock market bubble. And if you don't have that,

then you're always gonna be in some deficit. Yeah, I totally agree. Although we've had unbelievable stock markets and now we have worse deficits. Now we don't even try anymore. Yeah, we don't even try. Okay. Thanks, we're Tissel's harvesting. Right.

And Clinton also did, he did do welfare reform. You know, you have to work to get welfare. And so government spending wasn't growing under him. It wasn't growing as fast as the economy, let's put it that way. But the key, so yes, stock market, totally agree, gains helped him. Capital gains, tax, windfall after a stock market bubble.

That's how you balance a budget. Totally true. He also cut defense spending a lot. If I'm not mistaken, in his eight years, it started from 6% of GDP and it went all the way to 3. So he cut government spending on defense a ton and you had a bubble in the market. Yeah. Pushed revenues up. Combination we ended up with surpluses. Well this time, I'm gonna throw a few numbers out here. In 1789, we became a country. Our budget

was zero. 219 years later, it was three trillion dollars. All right, now that's a ton of money. I get it. Dr. Seuss is the only one that knows what a trillion is. But, but three trillion from in the last 16 years, we went from three trillion to six and three quarters trillion. That's how much spending we've done. 16 years we've spent more, added more to spending than we did in the previous 219 years. The Fed in the last 16 years, if you if you have a hundred dollar bill in your wallet, 60 of those dollars were created in the last 16 years. 40 were created in the previous 2 years. Proud of those dollars? 40 were created in the previous 219. That's how much morphine or steroids we've added.

And hardly anybody talks about it, but I think it's made everybody that has assets, like we think everything's fine. We're like the guy with a broken leg in the emergency room going, man, I've never felt better. Because I can't feel anything. But if I give you a denominator, the size of the economy, and then I give you the size of the global economy

in which the United States dominates, does that somewhat lessen the severity of how steep that rises? Yeah, it, what? It's not in a vacuum, I guess is my point. No, it's not. And I'm not, I'm trying to find the perfect way to say it shortly, and that is that the Austrians,

like if you will, they never, we don't need any more money printed. He's talking about Schwarzenegger, Michael. Yeah, Austrians like Mises and Hayek, and even Friedman, who wasn't an Austrian, but he knew them, but he was their ilk. If you have a massive increase in productivity, you can absorb all that. It's like having a sponge.

But clearly, we printed so much money that we got inflation. So it didn't work, at least in the short term. The question is, will it work in the long term? That's the same thing we were talking about with earnings. Can we absorb all this money without inflation by having a massive increase in productivity? So the market seems to be unconcerned about the debt and the deficit.

Yeah, totally don't care. Look at the dollar, not even the stock market. Like the dollar, if there were some worries, I would think that's probably the first place it would show up. Now you would say, well, the 10-year is maybe a little bit worried, but who knows why that's rising? There could be a myriad of reasons for that.

So if we're a year from now, two years from now, and nothing, there's no event, there's no catalyst, we're just having the same conversation, would you say maybe that the artificial stimulus didn't really matter as much as I thought it would? Yeah, and that goes back to, I mentioned a couple of names here. Bob Stein is my deputy chief economist,

used to be the top economist in the treasury under Hank Paulson. He's like, maybe we haven't seen the negative effect of this bubble bursting because we never really had the mal-investment, the bad investment from all this money. Maybe all this stuff is good. We invented, I mean, like I read a report the other day, Ozempic is going to increase GDP growth by 2% a year.

Like, make everybody healthier. People have more energy. they spend less of their time being treated for illness. Yeah, we get rid of obesity, in other words. Obesity is a very costly thing you get rid of. I think 2% is crazy. It might add 0.2% to GDP, but not 2%. But what I'm getting to is, there are people that AI, Starlink, you know, all like these things are the real deal and autonomous vehicles, all that. We could have this massive increase in productivity. And then that goes back to Michael, your question, like how many jobs does it cost? Is that the downside?

That's the Ed Yordany kind of model of the new roaring 2020s idea is that there's so much innovation happening that to focus on anything else is to miss the point. And he's been for four years so far. Yeah, absolutely right. I was right the first two years. We're undervalued, but then interest rates went up and now we're overvalued. You're one of the people that has written the most about money supply. Yeah.

And you think that it's the most underappreciated factor in what drives everything. Yeah. And not a lot of people seem to talk about it. The Fed doesn't really want to talk that much about it. You're on your soapbox about M2, money supply. So let's throw this chart up. What is it that you think everyone's missing and why is this something that people should be paying more attention

to? Yeah so this is a chart of year over year so you know December over the previous December growth in M2. This is not the level the growth of growth rate of M2. So what is the average growth rate of the money supply back 60 years? You know if you go from 1960 to today, I'm going to try the average five, six, seven, somewhere right in there. Okay, and three years ago it hit 30? Look at that, yeah.

I mean, whenever I look at this chart, I always go, which one of these is not like the others? Did we correct enough? Well, that's where the inflation came from. It's really clear. I mean, it was one of the easiest forecasts I ever made. Who disagrees with you about this? Jerome Powell.

How does he disagree with that? He just says money doesn't matter. Overtly or? First of all, this is one of my pet peeves. You want me to get on my soapbox? You want me to get on my soapbox? Please close the door. How many reporters are in the room with Jerome Powell?

36. 36. Okay. Not one of those 36 has ever asked him about the money supply. Not one. Can't be true. Really? Nobody?

Not one. The only question I know that he's gotten about the money supply came from Senator Kennedy. Senator Kennedy, you're like, the squirrel got the raccoon by the tail? Like that guy. All right. And he asked him- Was he Louisiana?

He's a character. Yeah, he's south somewhere. Yeah, gosh, I should know this. Anyway, sorry, Senator Kennedy. But he is a character, but he asked about the money supply directly to Powell. And Powell said, you know, we all used to talk about that when we were in school,

but I think it's time for us to unlearn what we think we know about the money. No, he dissed Milton Friedman, like didn't use him by name, but he said, we need to unlearn everything we've ever learned. What's the money supply? Can you define it for the listener and for Michael? This is M M2 is all checking accounts all savings accounts all CDs coins coins cash and currency

So that's it's all the deposits in all the banks. What is the number? What is the number? It's about 21 trillion dollars And M3 includes Bitcoin. Yes.. M3 includes a little bit longer. I've never paid attention to M3 because they had some stuff in there. How does the money supply grow or contract? Alright, well, in this case, they do it with quantitative easing. And it grows by the Federal Reserve adds reserves to the bank. So let's say you're Citibank and they buy $10 billion worth of bonds that you own

and they give you $10 billion worth of cash. That's growth in the money supply. Well, they take the bonds and then yes. And then what happens is you lend it out, all right? But you have to keep some back for reserves and then you lend it out. All right? But you have to keep some back for reserves, and then you lend it out. That ends up, somebody buys an apartment in Manhattan, and then that ends as a deposit in the bank of whoever sold that to them. And then they lend it out, and it's called the money multiplier.

So these banks take this money, and I'm giving you a money and banking class in about two minutes. It should take four hours. And then that's how you multiply the money supply. But what the Fed has done since Bernanke took over is they started doing QE. So they were buying trillions of dollars worth of bonds from the banks, flooding all that money into the banks. And then what they did is the Fed went

there and said, Hey, guess what, city JP Bank of America, you have to hold more capital, you, you, you can't. And in other words, they made them hold the cash and not start lending it out. And so they may increase liquidity rules. Jamie Dimon complains about this all the time. He goes, if you keep tightening these capital rules on me, I can't make a loan. Well, that's the whole reason they have them because they're flooding the banking system with cash. And that's because we had two crises, 08 and then COVID. And the Fed decided, oh, we're just going to flood the system with money. And that's the way we're going to keep the pain off. But it'll turn into inflation unless we bottle it up in the banks.

So they increased capital rules and liquidity rules so much that they they made the banks hold on to all these reserves. During Covid, we actually relaxed the liquidity rules. And the reason we did it was because we wanted the banks to make those PPP loans. Remember during COVID, like, so you shut down your bar and you get a loan to pay your employees, which are, you didn't have to pay back eventually, but we want the banks made all those loans. Well, they could not have made them if we didn't relax the rules. And so what happened is that's why the money supply shot up. And then about a year later, I think in, so we shut down in 2020.

March of 2020. And then about June of 2021, they put the rules back into place. And then that's when the money supply collapsed. And that's when you get Silicon Valley Bank six months later. Exactly. But why didn't, wouldn't you have thought, if you saw this chart,

you would have said, what the happened, how bad is it? And it didn't get that bad. Right. And so here's, so first of all, when the chart went through the roof, like when the, that's when I, middle of 2020, you can go back, I started writing about inflation,

like really pounding the table in June, July of 2020. I think I've written 30 articles on inflation. And it was the easiest forecast I ever made. And everybody's going, no, no, no, because Bernanke did QE and we didn't get inflation, so we're not going to get it this time. I'm like, yeah, but Bernanke didn't have that increase in M2. This is an easy forecast. And then boom, inflation was here. Why do you think Powell speaks so dismissively then? If it's so obvious and looking at the

chart and listening to your story, it sounds that way. Does he know and there's some other reason why he's dismissing it or does he not understand it? Well, first of all, the Fed never wants to take the blame. Like, you go back to the 70s. Who does? Yeah, you go back to the 70s, they were saying the same thing. It's transitory, it's all because of the dollar, it's because of Saudi Arabia and the oil embargo,

it's because of a drought and wheat or like who knows? They made up 50 million excuses just like they did here. It's Putin, it's supply chains, it's like they did all of that same stuff. So that's number one. Number two, and this is more nefarious and please don't think, listen me out before you think I'm wearing a tin foil hat. Turn on the TikTok camera, John. It's the aliens. Yes, there are Martians that landed.

No, no. It's the probes. Yeah. The Federal Reserve, I remember when I said 60, 60 of every $100 that's in your wallet was created in the last 16 years. The Federal Reserve massively changed monetary policy in 2008, and no one talks about it. We went from a scarce reserve model where banks had 10% reserves. Every single bank in this country had a federal

funds trading desk, and every day they traded hundreds of billions of dollars of federal funds. Then once we did QE, we flooded the banks with money. Banks now have 35% reserves, not 10 anymore, and everybody's over-reserved. You only need 10. That's kind of the law, the rule. Because we're still fighting the last war? Well, they're not willing to drain it all

back out. So they put it in. Now, what this really means is that the Fed has grown massively. So the Fed, when all this started in 07, the Fed had $800 billion on its books. That was its balance sheet. Today, it's over seven trillion on its books. So it used to be one tenth the size of the banking system. Now it's one third the size of the banking system. The Fed is bigger than, you add up all the top 10 sovereign wealth funds in the world, the Fed's bigger than all of them combined. I don't know that the Fed deserves credit for this,

but we also, in that time, we haven't had a real recession outside the manmade one from COVID. Right. Exactly. And isn't that good? Well, partly. Yeah, I'm always by when we don't have a recession. No recession in 15 years outside of the two months of COVID where we shut the economy down deliberately. Right. Yeah. So, I'm going gonna lead this little comment off with this. I hate Keynesian economics. I hate it. Because all you ever talk about is what government is doing.

And I believe wealth is created by entrepreneurs. It's not created by government. You can't print your way to wealth. You can't spend your way to wealth. You know, you can't, that doesn't work. You have to invent new things. All right. You got to be Elon Musk. You got to be the big, you have to solve people's problems and charge money for it. Yes, exactly. And have them willing to pay for it. And they think they get more value than they give you. And that's, that's how wealth is created. The government should support that endeavor, not try to be the cause of it. Yeah. Okay. And so the reason I lead all this off is this way, is that it's all we talk about is government

anymore. And even me. And I hate it. All right? So money supply collapsed after they put the rules back in for liquidity, and yet the economy didn't have a recession. And I think there's two reasons. Number one, it took longer than normal to absorb all the money. Number two, we collapsed

the money supply, but we boosted the deficit. So you've had $2 trillion deficit. So in other words, you replaced the stimulus from money and spending, and now you don't have stimulus from money anymore, but you have stimulus from spending. And so I think the government kept us from experiencing the recession that we should have experienced if you just look at it in M2. But why is that bad? Well, it's bad because it grows the government. And so, I mean, now we could go philosophical here

a little bit. Our government, when Bill Clinton left, non-defense, I'm gonna exclude defense, was 15% of GDP. That's what we spent, 15 out of every $100. Today, it's 21% of GDP, all right? If you add the federal government, it's 21, plus then add defense, that's three.

So they spend 24 cents out of every dollar, $24 out of every hundred. State and local government spending's 20. And then we all have to comply with regulation. So compliance that we all deal with, taxes, all that stuff, that's another 7% of GDP. And you add all of that up, government takes 51% of everything we produce, 51%.

So no wonder people can't afford houses. I mean, if you take 50% of everything Pauline makes and give it to Peter, neither one of them can afford a house. If you take everything Pauline makes and give it to Peter, now he can them can afford a house. If you take everything Pauline makes and give it to Peter, now he can buy a house, but she can't. And so this is why houses aren't affordable. The government and if all we're doing is growing by creating jobs for people to stay home

and we're borrowing from other people to pay them to stay home to take care of grandma, which I think is a valuable thing in life and family. But we used to do that without the government paying for it. And one of the reasons we have to do it is because everybody, 50% of everything we produce, they take. And so that's what worries me is that you can get away with this for a while. It's like a heroin addict.

It feels good. It feels addict. It feels good. It feels good. It feels good. You gotta keep going back. Keep going back. What's the way to unravel that paradigm without causing even more harm than whatever harm you're generating by perpetuating it?

Well, that's- Nobody wants to be responsible for that. Nobody does. But it's called tough love and it's unfortunate. I wish we didn't have, see this is one of the things. So I know you're gonna see that this time around. If the market goes down, then we think everything's a failure, right?

We've just decided that. And I think that's what the Greenspan put is what it's about and we've had it Bernanke put, we've called it different things. And now since 08, we're addicted to this stuff, really addicted. But when Reagan came8, we're addicted to this stuff, really addicted. But when Reagan came in, we paid a huge price. Like the market went up toward the election

because they knew he was going to win. Then right after the election, the market went up. And then 1981 was ugly. The S&P fight, we had a nasty recession in America. The market went down. It went down the first half of 82. Because they were cutting spending? They were cutting spending,

and they had to fight inflation. There is a difference back then, because we had 10% inflation when he came in. So they had to, Volcker had to jack rates up way high, caused a recession, and they cut spending. And you put the combination of those two things down, the market got crushed for 18 months. And then his policies that were better, tax cuts, regulatory cuts, less government,

all of a sudden then the 80s and 90s boom took off. But it started, it didn't start until halfway through 82. We've organized the entire economy around the benevolence of stock market returns. There is no going back. We have $158 trillion in household net worth. The majority of that is literally in the stock market. We are minting millionaire households literally by the hour.

All of that is coming as a consequence of higher stock prices, stock-based compensation, stock options, venture-backed companies going public, although not as many as we'd like. That's the basic premise of how America works now. I don't know how you get out of that. No, you don't. And I kind of think that's always-

It might be better than the alternatives to do it that way. I kind of think that's always been true, but I mean, we all know. How many 401ks were there in their early 80s? None. It's not always been true. They had pensions. Well, what you're maybe it's not always true that we're minting millionaires, like, like the way you put it, but I'm saying the way we've created wealth, it's, it's because of venture-backed companies, it's because of companies growing in stock market

and all of that. But it hasn't always been true that it's been driven by all this money printing. Yes, right. And that's what worries me, is that you can't artificially stimulate it, you can't print your way to true prosperity. You can't. Now, there's the way I'm wrong. The way I'm wrong. And I wrote a book in 1999

talking about it was called The New Era of Wealth. And it, I mean, you look at the the benefits of networks. You know, I mean, remember when we used to talk about this, it's like, what was the very, the very first fax machine ever made cost $50,000, right? 150, I don't know. But it was worthless, because nobody else had a fax machine, right? So you had this thing, but you couldn't fax anybody.

And then now, then what happened is the price of fax machines kept coming down while their value kept going up. And it's the same. You go to bed at night, your iPhone's worth whatever it is to you. The next day, there's two more apps that you can download. You might not like them, but somebody does. Your phone's worth more. That's the world of networks, right? And so my whole book of that, my whole book was about how this is, and if you look at the wealth in the last 20, 25, 30 years, that's where it's come from.

And now you got Starlink putting everybody together and there's billions of people that can be on the internet instead of just half of that. So you don't sound too bearish. You sound just like a... I'm just worried that we haven't paid a price for COVID yet. It's like we locked this economy down. But 2022 was a bad year for the stock market.

Maybe not for the real economy, but these stocks got destroyed. Yeah, they did, but the P-E ratio never went down. I mean, when Reagan won, the P-E ratio was eight. But that's... Eight. It's another world. It's another world. Well that's why everybody

keeps telling me. Well profit margins grew 8% last year. Pretty aberrant. They normally grow 2% a year. I totally agree. No. So should we have an eight multiple in a market where companies are growing margin? No. I'm not saying we should. I'm just saying we haven't had anything like that. And we haven't ever printed this much money. We haven't ever borrowed and spent this much money. We haven't ever done these things. At the same time, we haven't ever had the technology that has the promise. So it's like, we've got two, maybe I'm talking about government too much. Maybe I just need, you know, one theory that I've always

believed in and maybe this is talking myself out of being bearish, but I'm not going to because I think we're gonna have a recession, but is that no matter how dumb the government is, we were smarter. We always figure a way around it. I don't think the Americans have any faith in the government. When they're asked the question, the only group that they have lower confidence in than Congress are journalists. Okay, Congress is effectively toothless at this point. Donald Trump is a private citizen.

He has a very strong opinion about what should happen with TikTok. TikTok is supposed to be shut down on January 19th. The Supreme Court said you have 270 days from the time of this ruling to disband the relationship between TikTok in the US and China. And if you don't do it, the service gets shut down. Coincidentally, the date was supposed to be January 19th. It's the day before the inauguration. Trump's attorneys are now going to be heard in front of the Supreme Court for why they shouldn't be shut down on the 19th

because he's going to come in on January 20th and in his own words, he is the greatest user of social media ever. I'm not even joking. This is what's literally being argued and the Supreme Court's going to listen to it. So what that means is that the decision made in Congress, that the court is there to uphold, no longer means anything.

Right. If this happens and you know it will. Yeah. Because it's 2025. Right. So this is bipartisan. I think in the Senate, it was 79 to 18 in favor of shutting down TikTok apps in a separation from China. Right.

In the House, it won. It won tremendously. But so, who gives a shit about government? They don't even make rules anymore. Now what you basically have is this hyper, hyperbolic kind of executive oversight, executive branch oversight of the country, either party. The money is coming from businesses, effectively, Citizens United. So basically it's like this coalition of the Elon Musk's and the Peter Thiel's and now Bob Iger and Tim Cook and everyone who's going to pay for the inauguration.

They set policy, not Congress. And why do we worry about government at all? They're not going to do anything productive about the deficit. Yeah. Well, that's... They're not! In my opinion, they have to. I believe our biggest problem in America is just the pure size of the government. We wouldn't fight as much. We wouldn't have as much, like, homeless.

We wouldn't have... I believe, I believe that's just the pure unadulterated size of the government is out of control. They're involved in every single aspect of life. And I get it that you can just kind of shut your eyes and go about your life and go to the football game and go to the baseball game and go to the basketball game and get on TikTok.

People are happy to do. And don't even care. But in the end, they spend over half of everything we produce. So all this AI, all this great technology, and yet half of all the things that all the profit margins, all that stuff goes to fund government. And I think they're out of control. I think this experiment by the Fed of abundant reserves is gonna lead to real problems down the road.

And so one of the things to keep that comment, to go back, why does the Fed say the money supply doesn't matter? Well, first of all, they want to ignore inflation, but they are becoming, if they keep doing this, we will have a national bank. All right. And this is not, I mean, Alexander Hamilton wanted a national bank. So this is like, America is a history of experimenting with banking.

All right. This is not a tin foil hat comment, but they're getting so big that they now run monetary policy with regulation and and I believe this is unconstitutional that Loper decision it's the opposite of Chevron you know so they got rid of Chevron the Fed right now is making a hundred billion dollars a year of losses all right and I know I shift gears here a hundred billion a year in losses how are they keeping the lights on? Like the treasury.

No, they're Bitcoin holders. So maybe that's a good segue. So what are your thoughts on the coin? Yeah, I mean, I think everybody should own some. Michael's like, all right, I just sat through all this other shit, can we talk about Bitcoin? Stop. You've published on Bitcoin recently.

A little bit. A little bit. You're not like going deep on Bitcoin, but you do have this table. Can we throw this up? Yeah. Oh, yeah. We did our three on Thursday. So this is the holders of Bitcoin. You note public companies own 2.8% of it. Most of that is Sailor. ETFs now own 6.2%.

Satoshi allegedly owns 6.2%. Satoshi, allegedly, owns 5.2%. Where's Scottie Pippen? Still to be mined 1.2 million Bitcoin or 5.7%. Private companies, governments are in here. Bitcoin that's lost. 18% of Bitcoin is lost. Who's the oil other holders? Retail investors? Yeah, just everybody. Brian, do you think Bitcoin is going up purely on ETF flow supply and demand or do you think it's respond to

monetary fiscal policy? I think both. I think there are people out there who think Bitcoin will become a money and by the way if Bitcoin became the currency of the United States It'd be a million dollars a coin like we have a 20 20 plus trillion dollar GDP and 21 million by well, there's lost What did that be so inflationary? Actually went up that high actually no, so so if everything else would lose value Yeah, everything if you actually if you compare the S&P 500 to gold or to bitcoin, it's not doing well at all

like like in other words if you adjust for the value of the dollar and like in in Bitcoin or in gold and so the the s&p 500 hasn't had that much of a rally this may surprise you if you made me King of the Fed, I like saying dictator, dictator of the Fed, because then that riles everybody up, right? Like, wants to be a dictator. Just for a day. Number one, I would go back to a scarce reserve model.

And I know we didn't really discuss that. Number one, you would take a selfie. Yeah, like, yeah, take a selfie in front of the... A dictator! Yeah. And then, but if you pushed it even further, I'd go do a gold standard. And actually, a Bitcoin standard would work too,

like a gold standard. Why? Why? Can we try that? Because then they couldn't do quantitative easing. They can't do it. So during COVID, if you wanted to lock the economy down and you wanted to borrow $5 trillion to pay people not to work,

all right, where would you get the money? You'd have to go into the Treasury market and issue $5 trillion worth of bonds and sell them to people who are willing to pay for it. But you know what they did? They sold them to the Fed. So quantitative easing lets government borrow money at will and pay the price for having people pay the price through inflation because they bought all those bonds with printed money. And if you were on a Bitcoin standard, you can't make any more of them. What if I say this is a strength, not a weakness though, we're the

only country in the world that can do what we do. Yeah, see, that's modern monetary theory. And what they say is you can borrow and print as much as you want and never pay a price. And by the way, they would argue that we shouldn't have had the inflation that we did. And that is one, I think in the short run, that's what proves modern monetary theory wrong. What's their theory that you cure inflation via taxing people more? Tax people more. That's not going to be popular.

Yeah. That's what that's what's the... By the way, that's another thing that this abundant reserve model has done. So the Treasury has an account. Actually, we have a chart in there of it. The Treasury has an account. It's called the Treasury General Account. John, chart six?

For decades, it can affect monetary policy, by the way. So this just goes back to 1990, but I could push it all the way back to the 50s and 60s. So after the financial crisis, it gets poppin' and then it never goes back. So the Fed and the Treasury kind of settled on this idea that the Treasury could have about $5 billion in this checking account,

because then it wouldn't affect the money supply. But then what happened when they started doing quantitative easing in 2008, the Treasury started putting more and more money into this account. Now, how does the Treasury get money in here? So what they do is they sell Michael a bond or they tax you. And the Treasury takes that money in and instead of spending it, you know, paying it to Social Security or welfare or whatever, they put it into a checking account at the Fed. Why do they want to do that? Well, what it

does is it takes money out of M2. So this is modern monetary theory. So they take money out of your checking account, put it in theirs, and that does not, this chart, this Treasury General account does not count in M2. So now the Treasury is part of monetary policy. This never was the case before. It used to only be the purview of the Fed. Now the Treasury is involved. And so there's a couple of things. Today the Treasury has $750 billion in that account. So there's three things I'll say real quick. Number one, we hit the debt ceiling today. All right? And then we- I knew I felt something.

Yeah. Yes. We hit the debt ceiling- Around one o'clock? Yeah. Yeah. Okay. Exactly.

And then there was like, there's a $54 billion bond thing that it'll get us through like January 14. So really, we don't hit it till then. And then what Janet Yellen has said is, oh, then we're in trouble, we got to take extraordinary measures. No, we have $750 billion in the checking account. We can run the government for four months on that. Like even with a $2 trillion deficit. Like that's that And then we have April is tax month, so you're going to get a bunch of money then. We don't face any... Is that money earning interest for the treasury? It is. All right. Does it own treasuries? I believe...

It's becoming very meta. It's like, but here's the deal, we're paying for it. So all us taxpayers are paying the interest on that debt that lets them hold it in there. And so they've extracted 750 billion from the money supply. When they start spending that, it's going to come back into the money supply. Why don't they just do a buyback?

Yeah, well, that's what I- That's inflationary when they start spending it. If you made me king of the Fed, I'd say, I don't want this account anymore. I would debank the Fed. Like, that's what I would do. I would debank the Fed, I'd say, I don't want this account anymore. I would debank the Fed. Like that's what I would do. I would debank the Fed. I would tell them, forget it, you're gone. And I don't want your money anymore. Put it in a real bank or just get it out of here. And because I don't want this. And so this is the... Why does the treasury have $750 billion in cash. Like why?

Looking at your chart, this took place under both Republican and Democratic administrations. It started under George Bush. I think the big- So this doesn't look ideological. This looks technocratic. Ben Bern- So I don't know how much time we have left, but here's one of my biggest dilemmas for the management of the United States. You're George Bush, Ben Bernanke and Hank Paulson come to you.

Former chair of Goldman, this guy this close to the Nobel Prize, Ben Bernanke, come to you and they go, if you don't sign on to TARP and to quantitative easing, the whole world financial system is going to collapse. Were they wrong? Yes, they were wrong. I think we were collapsing. No, they were wrong. We needed to change market to market accounting, which is a whole other show. But we should have never had market to market accounting.

You would have said, let it burn. No, it wouldn't have burned. I would have changed market to... I testified in front of Congress in March of 2008, change market to market accounting. They did it a year later. Well, it was too late. By the way, they did QE in September of 2008. TARP in October.

TARP in October. And guess how much the market fell in the next six months? It kept going down. Another 40%. Yes. When did it stop? March of 2009. When they changed market to market accounting. If they would have changed market to market accounting in June of 2008 before they ever

did TARP. I know you're right. I know you're right about this, but I also know that that was probably more complex than anybody wanted to debate. What they wanted to do is throw money at it. Yes. And that's, but that's my biggest thing. So you go to Bush Paulson Bernanke

greatest minds ever Tell him he has to do this. Of course, he's gonna do it He's the what he doesn't know anything and and by the way all Steve Forbes Newt Gingrich Gary Wolf from myself There were a bunch of us that were saying change mark to market change mark tomorrow and we never got to him Brian They had a they had, they had a vote, they had a vote and the Republicans defeated TARP the first time. They listened.

And the stock market plunged a thousand points that afternoon. Well, I know. I watched it from a bar. But I know. But I would argue if people really knew what was going on, they wouldn't have done that. Okay. And so, and then that's why they passed it later on. Because then, and by the way, in the midst of all that,

that's when, you know the way George Bush defended it? This is how far they convinced him. He actually said, look, I get it. But we had to violate free market principles in order to save the free market. Yeah. Well, think about that. Like, I mean, I had to kill that guy to save the Ten Commandments.

You're leaving out the precursor, which is we took a chainsaw to all the rules governing banks and mortgage brokers and real estate developers for the four years leading up to this. So that's why you had to. Mark to market accounting was the cause of the crisis. We had gone, anyway, I wrote a whole book on this. All right, but here's the point. I believe the question was about Bitcoin, sir.

But here's the, That was a good one. The second point I'm getting to is, and you said this happened under all kinds of administrations, you're Trump, Fauci, the smartest epidemiologist in the world, they come to you and they go, if you don't lock down the economy, three million Americans are gonna die. And here's what we have to do. We have to print $4 trillion, spend $5 trillion, pay people to sit at home. This is what we have to do.

Social distance, all this shit. So you're President Trump, what do you do? So you're George Bush or you're Trump. So we are now in this place where every crisis requires government to do things that we've never done before except in World War II. And we had to win a world war. And so now, in short.

I think inflation adjusted. We spent more on COVID than fighting the Nazis and the Japanese. Probably. I haven't seen those numbers, but I wouldn't disagree. And look at our 401Ks. Yeah. And look at video now.

Yeah. And that's what I'm getting to. And so I just feel like these two crises have led us to get... We've grown our government massively as a share of GDP. We're all mad at each other. And I think because everybody's fighting over a piece of the pie, and that's the problem with government, it's a fixed pie. So everybody has to fight politically to get a piece where as if it's the free market, you work your butt off

to get a piece. All right? And we're now using the government to redistribute resources. And I just worry for every AI and Ozempic and Starlink and great new technology we have out there, we're also pushing hundreds and hundreds of billions of dollars toward things that we shouldn't be, like subsidizing solar and wind and electric. And because the private sector wouldn't do this. And how do I know that? Because when Google needs power for AI,

where do they want to get it? Nuclear, not solar and wind, which by the way, you do a Google search on solar and wind every top 20 stories. This is the greatest thing ever. Prices are plummeting. It's more profitable. Thank God we're doing this.

It's saving the world. But then when they need energy, it's not where they go. So to your point, Michael and I did a wrap up of 2024. The number one performing stock in the S&P 500 this year was Vistra Energy, which is supplying, privately supplying power to the AI. Oh, really? Yeah.

Number one, it actually outperformed Nvidia. It's the first time in 20 years that we've had a utility as the number one performer of the year. The best performing stock of the new year, we have one day in the can, EQT, which is an Appalachian natural gas provider directly into power centers. Like that's, they're regionally located in the perfect place for it. So to your point, I want to go out on a little bit of a lighter note and ask you, before you put us on a gold standard, you've talked about publicly your time as an Eagle Scout and this is an achievement that you earned in August 1976. I was

about seven months away from being born. You were in the Boy Scouts of America in Columbia, Missouri and you've talked about this. It's a special thing to become an Eagle Scout. I think here only 2% of all Scouts had ever gotten to the Eagle Scout rank. Why is this, why was this important to you as a young man? What should people know about this? You want me to start a fire right now with Flint and like, Steele? Yeah, prove it.

We could do that right now, see? How about I could tie you up in knots that you could never get out of? No, I could set up a campsite. No, Eagle Scout is about leadership. And it happens when you're pretty young, 16, 17, you're in a troop, you have to prove that you can lead to get jobs done. And every Eagle Scout has to do an Eagle Scout project.

This is government funded? No, it is not government funded. And it was started by Baden Powell. And it really came out of England and spread wildly throughout the United States. Here's an interesting fact. Every, it happens to be man, sorry, but every man that's ever walked on the moon

is an eagle scout. No. Is that true? True, absolutely true. How many men have walked on the moon? I don't know, 22. Probably zero though, right? No. Yes. It all depends. I know a bunch of people who say zero. But every man who ever has walked, you learn leadership, you learn well, here's, I'll finish on this. This is our Eagle Scout salute. And we say trustworthy, loyal,

oh no, I'm going to blow it. Don't do that. Yes, I'm going to blow it. Trustworthy, loyal, honest. Revoke him. Yes. Trustworthy, loyal, honest. I said it last night. I'm like, I was practicing,

because I knew this was coming up. Wait, did you know? Trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean, and reverent. That is what a Boy Scouts is. Did you know that you were a leader prior to having attained this rank within the Scouts? Is this something that you said, I'm a leader,

therefore I should be this? Or did it just become apparent through that process? It's kind of, I mean, you're young when you start in scouting. Cub Scouts leads to Boy Scouts, so you're really young, but you constantly have, we earn merit badges. I know it sounds like, like corny, but as you grow and then you can become a leader of your squad and you have to and then you're an older kid

and you can tell the younger kids, like, don't worry, you're gonna have to get up and go to the bathroom. I mean, like crazy things. It's about growing up, you know? Like, don't worry, get up and go. It's not scary over there. You're not gonna get bit by a bear or whatever it is.

And so you kind of, it's wild. It's coming of age, but with tasks in front of you. And you have to do it as a team. Are we missing some of this? Yes, we're missing a lot of it. You read the piece in the journal today, or yesterday, about this epidemic of 30-year-old men who just don't know what they're, they want to do right?

They want to live the life that their parents expected them to live. They just don't know how. There's no guidance, there's no order to anything. They're told go to college, they do that. It doesn't lead to an outcome. Are we being guessless? Is that even true?

Just because they reported, right? They have some stats that I read and I said, I wouldn't have known this, but it feels this way. You know, there's a bunch of things that I've noticed over the years, you know, watching. I mean, when I grew up. I have a 15 year old son, so I think about this. Yeah, when I grew up, men held the door open for women.

They would sacrifice their life for a woman. And you know, so we have a lot of these shootings where you read about everybody hiding under their desk and very, very few people. I think 40 years ago it wouldn't have been that way. And I think today, everybody's hiding under their desk. Like very few young men know what it means to be a man. And I'm kind of sounding like Jordan Peterson right now. But I, and I think this is one of the reasons why people are flocking to him. And I happen to know a bunch of 16, 17, 18, 19 year old

young men who will put on a tie and go see Gordon Peterson speak. Oh, Jordan Peterson. Yeah, Jordan Peterson speak. And they will put on a tie to do it. And they want to be men. And if you look at the voting patterns, which what's fascinating is how- Gen Z men broke for Trump in a major way.

Broke hard. And I think that's a reaction that we don't have enough of this. The Boy Scouts, it's really disappointing because they not, I'm perfectly fine for young men and young women working together to grow, to make each other better. But the Boy Scouts is for boy scouts.

And we should have never let women in. And I've kind of lost- Well, they have Girl Scouts. Yeah, well, I know. And that's the way it always was. And, but all of this movement for equity and inclusion and I think the Boy Scouts have given up and I think it's changed in a really bad way.

I feel terrible saying that. That the pendulum is swinging back and we're gonna start appreciating, we're gonna start appreciating people for what they are and stop classifying them based on, you know, all of these things that we were told, this group has to get this, this group's getting too much of this,

we have to take some away. It feels like the national mood is swinging away from that. I believe it is. I believe it is. I believe it is. So maybe that's like a silver lining of some of the things that you're concerned about. I would say about starting a person scout group, but you're saying it's not a good idea? You would make a great people scout. Like I think there's all kinds of ways.

Nicole, right? I think there's all kinds of ways to grow. Like there's a million of ways to grow. Like there's a million different ways to grow. And I think for young men trying to find their way in this world, Boy Scouts was fabulous, all right? I mean, how many, we all know families where a kid doesn't know what they wanna do when they're out of high school,

and they go into the military, and then boom, they become- They blow up a Tesla truck in front of a casino. Yes. Boom. Yeah. All right we're not going to go there. Brian Westbury ladies and gentlemen. Was this as much fun for you as it was for us?

It was very much fun. I hope we get to do it again. Give me a nod. Did he have fun? Okay. You know him better than we do. Yeah. All right.

All right. Listen we read all your stuff. I'm constantly sharing your stuff within the firm. That's true. I'm a huge fan of the work that you do. I've learned a lot from reading you over the years. I want to tell people how they can learn more about First Trust and read your research. Where should they go?

Yeah, well, I think if you just do a Google Brian Westbury First Trust, it'll come up with ftportfolios.com somewhere. And then on there, you just click on my blog and you can sign up for our email. We send out Monday morning Outlook is my favorite. We have three on Thursday. There's a bunch of things and I promise we will never market to you ever, ever, ever.

Unless I write a new book, I'll tell you to please go get it. But other than that, we will never market to you ever, ever, ever. Unless I write a new book, I'll tell you to please go get it. But other than that, we will never do that. And you are at Westbury on X. Yep, on X, without a T, with no T. That's very important. Westbury, right, because we have a town of Westbury on Long Island.

And you are Brian Westbury on LinkedIn, and you're active there as well? Yes. All right, guys, make sure you're following Brian. Make sure you check out ftportfolios.com for the latest from Brian's team. Thank you so much for coming here. We appreciate it. Thanks Josh.

And we did a little selfie thing. Alright. Special thanks to John for running the boards today. Solo, well done. Robson Studio, Nicole, guys great great job this week, great job to everyone. And thank you Compound Nation. We'll talk to you soon. Thanks for watching!