Shownotes
The U.S. election next week. Even those of us that hate following this have no choice but to bite the bullet – so this week, Rob and Jacob make predictions, offer scenarios, and most importantly, try to impart some advice about how to think about what is going to happen in the next 4 years no matter who resides in the White House.
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Timestamps:
- 00:00 - Introduction
- 02:46 - Election Scenarios and Market Implications
- 04:43 - Economic Indicators and Predictions
- 10:06 - Cultural and Political Dynamics
- 15:40 - Market Reactions and Future Projections
- 26:52 - Market Reactions to Potential Trump Victory
- 28:56 - Impact of Fiscal Spending and Inflation
- 30:39 - Equity vs. Bond Markets
- 33:42 - Gold, Bitcoin, and Commodities
- 36:03 - Illegal Gold Mining in Latin America
- 37:31 - Potential Harris Victory and Economic Policies
- 41:55 - Historical Perspectives on Economic Policies
- 46:06 - Investment Strategies Amidst Volatility
- 50:44 - Long-term U.S. Economic Outlook
- 56:56 - Concluding Thoughts and Future Outlook
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Referenced in the Show:
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Jacob Shapiro Site: jacobshapiro.com
Jacob Twitter: x.com/JacobShap
CI Site: cognitive.investments
Subscribe to the Newsletter: bit.ly/weekly-sitrep
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Cognitive Investments is an investment advisory firm, founded in 2019 that provides clients with a nuanced array of financial planning, investment advisory and wealth management services. We aim to grow both our clients’ material wealth (i.e. their existing financial assets) and their human wealth (i.e. their ability to make good strategic decisions for their business, family, and career).
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Disclaimer: Cognitive Investments LLC (“Cognitive Investments”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Cognitive Investments and its representatives are properly licensed or exempt from licensure.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor
This podcast uses the following third-party services for analysis:
Podtrac - https://analytics.podtrac.com/privacy-policy-gdrp
Transcripts
Hello listeners.
Jacob Shapiro:Welcome to another episode of the Jacob Shapiro Podcast.
Jacob Shapiro:This is the last podcast that I will be recording before the election.
Jacob Shapiro:We are recording on Thursday, October 31st.
Jacob Shapiro:You will get another episode from us on Monday with Will Freeman.
Jacob Shapiro:A really great episode about Latin American politics.
Jacob Shapiro:But this is our pre election episode.
Jacob Shapiro:We didn't put out an episode last week because both Rob and I have been traveling and also I was trying to get some ducks in a row for podcast going forward for the next couple of weeks and prepping for the election.
Jacob Shapiro:So here we are, we address the election and you know, I say this in the podcast, but I want to say it here too.
Jacob Shapiro:If you're coming to us for partisan views or for what is right or what is wrong, Fox News, msnbc, all those other places, they do it much better than we do.
Jacob Shapiro:We're trying to just give you an objective sense from a markets perspective and from a geopolitics perspective what's at stake in this election, what direction we think it's going to go in some of the scenarios.
Jacob Shapiro:What happens if Trump wins, what happens if Harris wins?
Jacob Shapiro:How you should be thinking about that.
Jacob Shapiro:That is the level at which we are talking about things in this podcast.
Jacob Shapiro:So if that's not what you want to listen to, like you don't have to listen and if that is the type of analysis that you want.
Jacob Shapiro:Most of my listeners are good at self selecting that kind of objective analysis.
Jacob Shapiro:Great.
Jacob Shapiro:We are so happy to have you.
Jacob Shapiro:If you want to talk to me about anything that we are doing in the context of elections, if any of the things we talk about in terms of portfolio management or investment, if those things are sort of resonating with you, email me at jacobuggnitive.investments and we can talk about that.
Jacob Shapiro:Last but not least, if you reached out about CI Club, thank you so much for reaching out.
Jacob Shapiro:I have not been able to reply to each and every one of you.
Jacob Shapiro:I've replied to a few of you, but our team has all of your emails, all of your contact information.
Jacob Shapiro:There will be more information coming out about that in the next week or two and there is still time to express interest.
Jacob Shapiro:Again, jacobognitive.investments.
Jacob Shapiro:if you want to send in some more interest about that, if you don't know what I'm talking about, we did a whole episode about Club CI It's a couple episodes ago.
Jacob Shapiro:You can check it out.
Jacob Shapiro:Okay, enough for me.
Jacob Shapiro: about the geopolitics of the: Jacob Shapiro:Yeah.
Jacob Shapiro:Cheers and see you out there.
Jacob Shapiro:All right, Rob, we are recording on Halloween here in the United States.
Jacob Shapiro:Is Halloween a big deal in France?
Jacob Shapiro:Are there people dressed up running around, or is this still a uniquely American phenomenon?
Rob Freeman:There's little gleamings of it, like, I just went to the grocery store to pick up lunch, and the woman behind the counter had a big witch's hat on, which I've never seen too much before.
Rob Freeman:But there's no trick or treating.
Rob Freeman:That's the disappointing thing.
Rob Freeman:I haven't seen any of that.
Jacob Shapiro:Okay, so you're not.
Jacob Shapiro:You're not prepared for children to come to your door later this evening, or it is evening there already.
Rob Freeman:We're getting there.
Rob Freeman:No, I am not.
Rob Freeman:So any children who are listening to this and hoping to knock on our door and get candy, don't even bother.
Jacob Shapiro:They should not get it.
Jacob Shapiro:Okay, well, so it's Halloween.
Jacob Shapiro:The election is coming up next Tuesday.
Jacob Shapiro:We have fastidiously avoided focusing too much on the election.
Jacob Shapiro:We haven't been able to ignore it completely, but we've been focusing on other things.
Jacob Shapiro:But, Rob, I don't think we can avoid it any longer.
Jacob Shapiro:It is certainly the question that both of us are getting most often, whether it's from a portfolio perspective or a macro perspective or a consultant.
Jacob Shapiro:Like, everybody is asking, what do you think about the election?
Jacob Shapiro:So I thought what we would do is I thought we could sort of, at a very high level, sketch out the possible scenarios that are in front of us and talk about what the implications are for markets and geopolitics.
Jacob Shapiro:I thought we might also do a little retrospective on the last four years, maybe talk about expectations from when Biden was first elected to where we are now.
Jacob Shapiro:And then, just for listeners both new and old, remember that we have no desire to be partisan whatsoever here at all.
Jacob Shapiro:If I do my job correctly, by the end of this podcast, you'll have no idea who I'm voting for.
Jacob Shapiro:Although if you've listened for long enough, you probably know what it's going to be.
Jacob Shapiro:But this conversation, we are going to try to pitch at just the facts, ma'am.
Jacob Shapiro:Like, think about the scenarios and not give you any of the partisan nonsense.
Jacob Shapiro:If you want that, Fox News and MSNBC and a host of other things are available to you.
Jacob Shapiro:Steve Bannon is out roaming the streets again, too.
Jacob Shapiro:You can listen to his podcast again because he's.
Jacob Shapiro:He's out of jail.
Jacob Shapiro:He only got four months instead of the years that he should have out of defrauded, Defrauding people out of their money for building the wall.
Jacob Shapiro:Anyway, Rob, I guess I'll just start with the simplest question.
Jacob Shapiro:I'll ask you the question that everybody's been asking me.
Jacob Shapiro:So it's my own little form of revenge.
Jacob Shapiro:Who do you think is going to win on Tuesday?
Rob Freeman:Is.
Rob Freeman:I have no idea.
Rob Freeman:An acceptable answer.
Rob Freeman:I know they always say when you're doing media, never say, I don't know.
Rob Freeman:But I really, I have no idea.
Rob Freeman:It's a toss up.
Rob Freeman:Who do you think?
Jacob Shapiro:Yeah, it's also sort of like the rule of improv comedy that if you're doing improv, you can never say no.
Jacob Shapiro:You always say yes.
Jacob Shapiro:So I guess there's a rule in media that you should never say, I don't know.
Jacob Shapiro:You know, I, since about February or March, I have been warning both our investment clients and a few of the consulting clients.
Jacob Shapiro:I still have.
Jacob Shapiro:Not that I had a high confidence interval with this, but that I thought Trump was probably going to win.
Jacob Shapiro:Like, if you put a gun to my head and said, most likely scenario, I think it's a second Trump administration.
Jacob Shapiro:And that was before the switch to Harris, before the assassination attempts, all the crazy things that have happened since then.
Jacob Shapiro:And it really just comes down to two simple facts.
Jacob Shapiro:The first is if you.
Jacob Shapiro:And this is both from national Gallup polls, around 52% of the electorate is saying that the economy is the most important issue to them, full stop.
Jacob Shapiro: mportant issue for them since: Jacob Shapiro: So in: Jacob Shapiro:This, this year, it's 52.
Jacob Shapiro: If you go back to: Jacob Shapiro:So we're not talking a huge difference here, but a meaningful, you know, 8 to 10 percentage points people saying the economy is more important.
Jacob Shapiro:And then the second thing that Gallup has is that they ask them which candidate would do better handling the economy.
Jacob Shapiro:And 54% say Donald Trump and 45% say Kamala Harris.
Jacob Shapiro:So unlike a lot of the, the polls and the swing states, and when you're thinking about who's actually going to come out to vote, all of which are within the margin of error, which I think substantiate your view to just say, I don't know, because not even the pollsters have any clue.
Jacob Shapiro:Nine percent's out of the.
Jacob Shapiro:Out of the.
Jacob Shapiro:What's the phrase, why did that just go out of my head?
Jacob Shapiro:Out of the.
Jacob Shapiro:What is the thing in statistics?
Rob Freeman:Margin of error?
Jacob Shapiro:Yes, margin of error.
Jacob Shapiro:I just said it to myself and it just disappeared.
Jacob Shapiro:9% of that poll is out of the margin of error.
Jacob Shapiro:So I actually think the race is fairly simple.
Jacob Shapiro:It will come down to the seven or eight swing states.
Jacob Shapiro:And is that 9% mark, not 9% difference between managing the economy?
Jacob Shapiro:Is that going to show up with the folks that are in the swing states voting?
Jacob Shapiro:And the reason I just have my doubts about, aside from the fact that, okay, like if economy is the most important issue and most a lot, not a large, like many people, many more people are saying that they trust Trump to deal with that more than Harris, then that's tell number one.
Jacob Shapiro:Tell number two is just in the swing states themselves.
Jacob Shapiro: n Biden eked out a victory in: Jacob Shapiro:Like, he could do that in a way that really landed with the tens of thousands of voters that are going to literally swing those states.
Jacob Shapiro: me onto the national stage in: Jacob Shapiro:But I go back to the way that she performed in her one debate with Trump where she was incredibly eloquent and charismatic about a range of issues, especially her responses about women's health care as somebody with a daughter now and another on the way, like, really?
Jacob Shapiro:That landed home for me.
Jacob Shapiro:But when you ask her about the economy, whether in the debate or since then, she sounds like a robot.
Jacob Shapiro:She has not been able to generate any kind of feeling or empathy or plan around the economy itself.
Jacob Shapiro:And so that number has stayed locked in place that people think Trump is better to deal with the economy.
Jacob Shapiro:And I think that's just sort of where it is.
Jacob Shapiro:So I think it's Trump.
Jacob Shapiro:The flip side, if I'm playing devil's advocate, you know, and many of the listeners who have been with us for a while know that I've been crisscrossing the country speaking at various gigs recently.
Jacob Shapiro:And a few of those gigs have been in some of the Midwestern swing states.
Jacob Shapiro:And it's not that people are out there saying I'm going to vote for Harris, but I do get the sense, at least from some of those folks that I've met in places like Wisconsin or Michigan that they're tired of Trump, that it grates on them, his entire, the whole presentation, all of the scandal surrounding him, they're just sick of it.
Jacob Shapiro:They're like, do we, is this really the best option that we have?
Jacob Shapiro:And so I think Kamala's best hope is that voter turnout for Trump is suppressed and, and that she can push enough of her people to the polls.
Jacob Shapiro:And a few of the swing states, maybe it's Georgia, maybe it's somewhere else, and she, she can sort of eke out the victory that way.
Jacob Shapiro:So I think she has a viable path to victory.
Jacob Shapiro:I just think that her road is much harder and that she has not been able to get the albatross of the economy off her back.
Jacob Shapiro:And it's, honestly, it's been the worst part of her campaign.
Jacob Shapiro:And unfortunately for her, it's the part that probably matters most for the electorate.
Jacob Shapiro:And Rob, this might be a good way for us to back into our conversation about what this means in particular for markets.
Jacob Shapiro:The most shocking thing about everything I just said should be that Americans are worried about the economy.
Jacob Shapiro:Like, the economy is doing great.
Jacob Shapiro:I was just looking at the Wall Street Journal this morning, and they have an op ed that says the next president inherits a remarkable economy.
Jacob Shapiro:The high quality of recent economic growth should put a wind at the back of the White House's next occupant.
Jacob Shapiro:Unemployment is down.
Jacob Shapiro:Inflation.
Jacob Shapiro:You and I both think inflation is going to be more volatile, but it's come much more in line than, than it was even a year or two years ago.
Jacob Shapiro:You just sort of tick off all the boxes and the economy looks fairly good.
Jacob Shapiro:But Americans are not telling people that it feels good to them.
Jacob Shapiro:And we're about to see whether they're going to vote on that basis, too.
Jacob Shapiro:So there's my little answer to you.
Jacob Shapiro:I don't know if it's satisfying or not.
Rob Freeman:I would like to piggyback on a few things there before we get into the nitty gritty of markets, because in your substack you wrote it's the economy, stupid just this last week.
Rob Freeman:And I hear what you're saying, but I think there's a big element there of people will respond to polls in a way that corresponds to how the question is asked.
Rob Freeman: mind than at any period since: Rob Freeman:But at the same time, we did a whole podcast on this and people can come listen to that.
Rob Freeman:I think there's much deeper and more important issues and sort of visceral things going on that are driving support for Trump or any sort of insurgent candidate.
Rob Freeman:And that's driven by a lot of primarily cultural things.
Rob Freeman:And I said in that interview, and I'll say it again, I don't think that that trend is going to turn around until you have exhaustion set in, at least if you look historically at how that's turned, you know, in the past.
Rob Freeman:So, you know, I was in, in the US Last week visiting family in rural Connecticut.
Rob Freeman:And I can tell you, for what it's worth, support there for Trump is huge.
Rob Freeman: iceably higher than it was in: Rob Freeman:And it's very noticeably not about the economy.
Rob Freeman:Like there are people with flags and signs and everything all over their lawns.
Rob Freeman:And it almost feels, I don't know, like there's almost an aspect of menace to it, if that makes sense, like people poking others in the eye.
Rob Freeman:And I don't think that's about inflation or unemployment or the things that we're used to thinking about.
Rob Freeman:It's a much deeper thing.
Rob Freeman:So anyway, I won't rehash all of that, and we've already spoken about that at length, but I do think that's an element that people who like to reduce everything to economics tend to overlook.
Jacob Shapiro:Yeah, I hear you.
Jacob Shapiro:And I'm in, in metropolitan New Orleans where literally every single sign is Harris Walls, obviously, or there's even Republicans for Harris signs that are out here.
Jacob Shapiro:You're not expecting a whole lot of Republican support here in the city of New Orleans.
Jacob Shapiro:But, but just two points on what you just said.
Jacob Shapiro:The first is the New York Times actually had an incredible information graphic that they posted yesterday that was looking at where people have moved in different neighborhoods over the last couple of years.
Jacob Shapiro:And they found that people are sort of self selecting.
Jacob Shapiro:So Republicans are moving to more solidly or heavily Trump neighborhoods from a voter perspective and Democrats are moving to more solidly or heavily Biden, places that voted in the last election.
Jacob Shapiro:So I do think you're getting a little bit of an echo chamber.
Jacob Shapiro:We already have this with the media that we consume.
Jacob Shapiro:People don't consume the same media anymore.
Jacob Shapiro:But I think even in the people that they're interacting with, you're just surrounded by people of a like minded nature.
Jacob Shapiro:So maybe you go into a neighborhood in rural Connecticut and you're right, maybe they're foaming at the mouth for Trump and everything is great.
Jacob Shapiro:And maybe you go to, well, probably not a neighborhood, but a small city nearby and they're probably foaming at the mouth for Harris and calling all of the Trump guys fascists in that neighborhood.
Jacob Shapiro:And there is something disturbing there about the future of the US Electorate.
Jacob Shapiro: fication trends going back to: Jacob Shapiro:And then you had independents as a smaller faction.
Jacob Shapiro:Folks who identify as independent have gone up to 42%.
Jacob Shapiro:And now people who identify as Democrats is down to 29% and as Republicans down to 27%.
Jacob Shapiro:So that if we're looking for exhaustion, like, that's a form of exhaustion right there, that's Nixon, Silent majority sitting there and saying, can we please turn on some other movie?
Jacob Shapiro:We are tired of this.
Jacob Shapiro:Now, I don't.
Jacob Shapiro:It's not far enough along yet as a trend that it was able to affect the 24 race.
Jacob Shapiro: ave a sneaking suspicion that: Jacob Shapiro:Because, I mean, that's another thing here with both of these candidates.
Jacob Shapiro:There's nothing new here, and there's no.
Jacob Shapiro:Even from a policy perspective.
Jacob Shapiro:This is something I've been saying that I've been getting some flack for.
Jacob Shapiro:But I really do think it.
Jacob Shapiro:There's not a lot of difference between these two, at least when it comes to foreign and trade policy.
Jacob Shapiro:Like, we're talking about America first, protectionist, sort of demagogic ideologues on both scores.
Jacob Shapiro:We're talking about tariffs versus taxes.
Jacob Shapiro:Like, it's all just.
Jacob Shapiro:It's all in the details.
Jacob Shapiro:It's not a huge difference.
Jacob Shapiro:So, I don't know.
Jacob Shapiro:My silver lining that I've been telling people is, yeah, 24, like, it's been a melodrama, but literally nobody likes it.
Jacob Shapiro: And maybe in: Jacob Shapiro:I don't know.
Jacob Shapiro:Maybe that's.
Jacob Shapiro:Maybe that's too optimistic.
Rob Freeman:No, I think that's the right metric to look at is anything that can show you, you know, people looking and craving normalcy.
Rob Freeman:So, anyway, just getting back to the fiscal situation and the economy, I think let's dig into that because this really is tied into markets and it's really important.
Rob Freeman:So what is the real status of the economy right now?
Rob Freeman:Just for a Very quick snapshot.
Rob Freeman:The status is pretty good.
Rob Freeman:I think you could say we're in sort of the autumn of the business cycle, where things are still looking quite strong.
Rob Freeman:On the services side, it's been remarkably durable.
Rob Freeman:The one sort of area that's been really slowing down is non residential construction.
Rob Freeman: grams that were introduced in: Rob Freeman:So you're seeing essentially that level off and start to trickle lower from a very high plateau.
Rob Freeman:And that's very important because that is dictating a lot of how people feel about the economy right now in terms of cyclical swing factors.
Rob Freeman:You can look around and see that they're building data centers, they're building warehouses, they're building manufacturing facilities.
Rob Freeman:That area has been on fire.
Rob Freeman:So the fact that it's slowing down, I think is really quite important because when you look at what markets expect and what markets are focused on, really, there's sort of this overarching assumption that stimulus, infrastructure, government, fiscal spending is going to remain in full gear.
Rob Freeman:So just to take one specific example, to show you that I'm not just full of crap, I want to bring up my perpetual punching bag, Nucor Steel.
Rob Freeman:Again.
Jacob Shapiro:Listeners, take a shot.
Jacob Shapiro:We're adding Nucor Steel to Thomas Cromwell.
Jacob Shapiro:If at any point Rob mentions those two things on the podcast.
Jacob Shapiro:Time to take a drink.
Rob Freeman:Yes.
Rob Freeman:Nucor Steel, my old friend.
Rob Freeman:So this is a great one to talk about though, because it is truly a bellwether.
Rob Freeman:Like steel is used for everything.
Rob Freeman:But here's the situation with Nucor Steel.
Rob Freeman:Nucor Steel's earnings are collapsing because they had a huge tailwind from these stimulus programs.
Rob Freeman:And as the non residential sort of a construction boom has come off the boil, steel prices have collapsed and volumes have started to drop, you know, low double digits year over year.
Rob Freeman: in earnings and in: Rob Freeman:So earnings have collapsed.
Rob Freeman:The expectation, however, is extremely bullish.
Rob Freeman:Everyone has buy ratings on Nucor Steel.
Rob Freeman:Everyone, whether you look at Wall street or buy side investors is saying, oh, well, this is going to be great.
Rob Freeman: arnings next year and then in: Rob Freeman:But there's no real basis for that.
Rob Freeman:And I pick up on that because that is very reflective of a lot of investment themes that are sort of animating markets right now is sort of this sort of nebulous belief that whoever wins, they're going to spend a shit ton of money.
Rob Freeman:Something is coming down the pipe, some program, some stimulus, they're going to cut taxes, they're going to introduce another infrastructure stimulus on top of the one that's already two thirds through the pipe.
Rob Freeman:That is the dominant narrative.
Rob Freeman:And I think it's really important to think about when you think about where markets are likely to go from here, because that's underwriting a lot of the current valuations in the industrial part of the economy.
Rob Freeman:And the industrial stocks, which have been notably strong in the last few months as the tech story has started to peter out.
Jacob Shapiro:That's interesting.
Jacob Shapiro:Do you think the market has, because one of the things I've heard commonly in the last couple of weeks, and it's literally just the last few weeks, is that I've heard the phrase the markets are pricing in a Trump victory.
Jacob Shapiro:Do you feel that way or do you feel like the market is more voicing uncertainty?
Jacob Shapiro:Because if it is pricing in a Trump victory, yes, there's the promises of stimulus and things like that.
Jacob Shapiro:But there were two things that sort of caught my eye this week as I was doing my normal, well, actually three things as I was doing my normal reading.
Jacob Shapiro:The first is the Trump administration is actually starting, it looks like, to prepare plans to severely limit not just illegal immigration into the country, but legal immigration.
Jacob Shapiro:And we've already seen that labor costs have gone up considerably.
Jacob Shapiro:The second thing, and I think you and I both got a question about this at a meeting we were in yesterday, this idea that Donald Trump is going to empower Elon Musk to somehow participate in the government and slash federal spending by as much as $2 trillion, which is absolutely mind boggling.
Jacob Shapiro:But, but that's out there.
Jacob Shapiro:And then another thing that really caught my eye was if you start, if you listen to some of the, you know, the investor calls for companies that were reporting in Q3, they were talking about how they might prepare for tariffs if Trump won.
Jacob Shapiro:And so, for instance, here's the CEO of Columbia Sportswear saying we're buying a bunch of stuff today for delivery next fall and we are set to raise prices.
Jacob Shapiro:So companies that are buying a bunch of inventory today expecting that there will be these huge tariffs and that the prices are going to go up massively and they want to have that and then pass along the price of the consumers.
Jacob Shapiro:And maybe this is far too anecdotal, but, you know, my wife is due with our second in a couple of weeks.
Jacob Shapiro:We went ahead and bought a new stroller.
Jacob Shapiro:I remember the last time we bought a stroller for our first daughter.
Jacob Shapiro:It took like weeks for the thing to get here to ship everything else.
Jacob Shapiro:I put in the order for that thing on Sunday, it was here on Tuesday.
Jacob Shapiro:I mean like all of the kinks that we got used to in the supply chain, like there was no kinks with this.
Jacob Shapiro:They were like, do you want some extra attachments and do you want some extra adapters?
Jacob Shapiro:Like we've got everything you could possibly want.
Jacob Shapiro:Like, please buy it right now.
Jacob Shapiro:So anyway, three pieces there, take them in whatever direction you want.
Rob Freeman:As to whether markets are pricing in a Trump victory, I'm not sure that they are.
Rob Freeman:I think that's a lazy way of saying they're pricing in more demand side stimulus.
Rob Freeman:And that's likely to happen no matter who wins because as you point out, the actual policies being proposed are not particularly different.
Rob Freeman:The idea seems to be that there's going to be federal spending, sort of a bolus regardless.
Rob Freeman:And you can see that, as I said, in a company like Nucor Steel or any industrial cyclical company, you know, people are talking about, well, if Trump wins, you know, there could be another infrastructure stimulus or it's going to be really good for American manufacturing.
Rob Freeman:And they are associating protectionism with demand strength.
Rob Freeman:And I think that shows the sort of ignorance of what happens in these cases.
Rob Freeman:Because if Trump wins, I guess you could say markets are pricing it in because the 10 year US treasury yields is creeping back up every day and is now back up to 4.3%.
Rob Freeman:The overnight interest rate is 4.75%.
Rob Freeman:So what are markets telling us about future inflation?
Rob Freeman:Inflation expectations we've talked about recently how if you parse through the survey data, inflation expectations appear to be perhaps getting a little bit unhinged.
Rob Freeman:And no one is talking about 10 year yields.
Rob Freeman:But that is the elephant in the room when you think about what are markets really pricing in.
Rob Freeman:And I think that's, I think the, you know, there's the old adage in markets that bond markets are much smarter than equities.
Rob Freeman:And I think there's some truth to that.
Rob Freeman:And if you look at what bonds are saying, they're telling us whether it's pricing in a Trump victory or more even odds, it's hard to Say whoever wins inflation is going to be the beneficiary at the end of the day.
Rob Freeman:And that means higher bond yields and equities do not reflect that.
Rob Freeman:They're reflecting the Goldilocks scenario where you get all the demand side stuff continuing, but none of the negatives.
Rob Freeman:So you get tariffs.
Rob Freeman:Oh, that's going to be great for US Manufacturing, but, oh, it could totally destroy US Demand because inflation is going to surge.
Rob Freeman:It's very similar.
Rob Freeman:I was rereading a very good book which is called Nixon's Economy, Booms, Busts, Dollars and something.
Rob Freeman:I forget the subtitle, but I think it's an interesting period to look at.
Rob Freeman: ended up tilting us into the: Rob Freeman:There's something to be taken from that example, I think.
Jacob Shapiro:And what did you make of the Musk Trump slashing spending by $2 trillion thing?
Jacob Shapiro:I mean, it's sort of so crazy that I don't even know whether to bring it up.
Jacob Shapiro:But it's also like they're talking about it, so we have to talk about it.
Rob Freeman:I think that much like Trump, Musk will basically do whatever he thinks is popular.
Rob Freeman:And I don't think he is a staunch fiscal conservative.
Rob Freeman:I mean, I don't know.
Rob Freeman:But again, getting to something that you talk about in the context of geopolitics a lot, you have to look at the incentives.
Rob Freeman:And no government, you know, Trump's included, has made any significant cuts to federal spending in the last decades.
Rob Freeman:So it's not clear, absent, you know, some new change in the structural incentives, why they would start doing that now.
Rob Freeman:That seems like jaw, jaw to me.
Jacob Shapiro:Yeah, well, I'm just, I'm, I'm bringing it up because you mentioned that it looks like market expectations are for increased federal spending.
Jacob Shapiro:But what if it is a Trump victory?
Jacob Shapiro:And what if he follows through on 60% tariffs on China and 20% tariffs on Mexico?
Jacob Shapiro:Let's cut down the fiscal spending.
Jacob Shapiro:Let's say he makes it a goal to cut spending by 500 billion rather than the 2 trillion figure?
Jacob Shapiro:Not saying he does it.
Jacob Shapiro:I'm saying what if he says that as a goal as he's coming in?
Jacob Shapiro:Like, what, what does the combination of those things do to markets?
Jacob Shapiro:Do Markets just go oh my God.
Jacob Shapiro:And like completely freak out the opposite direction.
Jacob Shapiro:Do you think that they can price in that sort of eh, like whatever.
Jacob Shapiro:They can say whatever they want to say but like we're going to get through this sort of thing.
Jacob Shapiro:I'm circling around the scenario of if it is a Trump victory, do you see sort of a massive surge in inflation overnight on the back of the concerns about tariffs or do you see the opposite because of concerns about inflation surging?
Jacob Shapiro:I'm just trying to find my way through the woods.
Jacob Shapiro:Like what do you happens the next day or the next week?
Rob Freeman: hat it will be similar to the: Rob Freeman:I mean then if you look at the 10 year yields, it jumped massively the day after the election.
Rob Freeman:I think markets are probably pricing in a pretty high probability that he will be reelected or at any rate that if he's not it won't be that different in terms of policies, you know, the one exception being tariffs of course.
Rob Freeman:So I mean I don't know how to answer your question other than to say that ultimately we're experiencing kind of the, if you want to use a Saturday night comparison, it's you know, 10pm on Saturday night and we're all feeling good and the beer is flowing and you know there's going to be the inevitable wake up and realization hangover the next morning.
Rob Freeman:It's just a matter of when that happens.
Rob Freeman:Because if you look at the trends of fiscal spending, this isn't like, you know, the usual, I mean people have been talking about the federal debt since I was a kid and it's never mattered very much.
Rob Freeman:Well now it's matters because the sheer numbers involved are huge.
Rob Freeman:Like we're going to do 2 trillion of deficits this year and the economy is at full employment.
Rob Freeman:I mean that's just for context.
Rob Freeman:That's like 8% of GDP.
Rob Freeman:So very quickly the numbers add up and the interest rate sort of drag on the federal budget is getting very, very significant.
Rob Freeman:So that's only to say that at some point rising inflation is going to create a political response.
Rob Freeman:And the political response by definition is going to be one of we have to clamp down, we have to bite the bullet here.
Rob Freeman:I don't think it's going to be Trump to deliver that message.
Rob Freeman:Maybe he will, but probably you're talking about the next administration or he'll have to do a very big U turn.
Rob Freeman:But I just, it's hard to imagine him running on that platform in any way, shape or form.
Rob Freeman:I think probably he'll look at price controls or other sort of remedies that don't involve, you know, a message of, of sobriety.
Jacob Shapiro:Well, one thing and what you're saying, I just want to drill down at this a little bit, I mean, and correct me if I'm wrong, it sounds to me like you're saying that equity markets and bond markets are looking at this a little bit differently.
Jacob Shapiro:So if the 10 year yield is rising, they're worried about inflation, they're worried about the Fed coming in and raising rates.
Jacob Shapiro:So liquidity being a problem, whereas equities are up, up, up, there's going to be more federal spending.
Jacob Shapiro:All of this geopolitical trade wars and things like that is net positive for American manufacturers.
Jacob Shapiro:So either for Trump or Harris, or maybe it's the same for both of them.
Jacob Shapiro:Are both of those wrong?
Jacob Shapiro:Are both of those right?
Jacob Shapiro:If somebody's thinking about investing right now, where do you hide out?
Jacob Shapiro:Or do you just take it off the table and say both of these markets don't have it wrong?
Jacob Shapiro:It's probably going to be something that we don't even know yet and we're seeing irrationality on both sides.
Jacob Shapiro:Are you picking bond markets?
Jacob Shapiro:Are you picking equities or are you picking neither?
Rob Freeman:When in doubt, always trust the bond market.
Rob Freeman:I think that's the approach.
Rob Freeman: s is similar to the very late: Rob Freeman:I think what you're looking for here is the growing realization that inflation was not a temporary thing, that the issues.
Rob Freeman:And again, this is going to be a surprise because the Fed has no incentive to suggest until the data is unavoidably obvious, that inflation is anything but a temporary thing.
Rob Freeman:But if you look at inflation expectations, if you look at what bond markets are telling you, if you look at forward indicators of price pressures, even now with energy and food prices in the floor, they're still remarkably durable.
Rob Freeman:Everything points to inflation rearing its head again.
Rob Freeman:And the issue there is not just about the data.
Rob Freeman:It's not about building your financial model.
Rob Freeman:It's the sentiment, it's the psychological shock that oh shit, this is the new normal.
Rob Freeman:And when you think about how that sort of reflects out in the long duration of equities and what they price in, in terms of Expectations that could be a real landmine for risk assets and markets.
Rob Freeman:So it's a time to be very cautious and you will have excellent opportunities to buy great assets.
Rob Freeman:I can almost guarantee that.
Rob Freeman: Especially if the: Rob Freeman:And I think probably it's not a bad one, but even then you could have bought.
Rob Freeman: %: Rob Freeman:That was a pretty darn good time to be buying.
Rob Freeman: Not in: Jacob Shapiro:Is this also, you think, part of the reason we've seen, I mean, it's funny, like the inflation narrative.
Jacob Shapiro:Like if you look at Brent crude and this has been true all year, I mean, oil is rejecting the notion of this and you've talked about agricultural commodities too.
Jacob Shapiro:But if you look at something, say like the price of gold since the beginning of the year, I mean, we've had a pretty big run up in that.
Jacob Shapiro:So what are those indicators, you think, for what you're talking about?
Jacob Shapiro:How do you put commodities and precious metals and even crypto into the picture that you're painting?
Rob Freeman:Yeah, I think you have to look at the price of gold and the price of Bitcoin because they're both telling you something very important.
Rob Freeman:Gold is the traditional metric.
Rob Freeman:Everyone knows what that's all about.
Rob Freeman:But the thing that's striking about Bitcoin is that bitcoin is absolutely on a tear, despite the fact that kind of risky small cap stocks, the sort of things that bitcoin previously was moving in lockstep with, are not doing well right now.
Rob Freeman: the speculative plaything of: Rob Freeman:And what that suggests is sort of anecdotally what we're hearing in a lot of places, which is that people are realizing that the federal budget is getting debauched and the currency is getting debauched and, you know, and preparing themselves accordingly.
Rob Freeman:And that's how it works.
Rob Freeman:Like, if you look at any of these historical examples, it's never obvious at first.
Rob Freeman:It always feels like really good times for quite a while until it spirals and volatility spikes out of control.
Rob Freeman:And, you know, that sounds very doomerish, but.
Jacob Shapiro:Well, no, you're saying now is the time for caution.
Jacob Shapiro:You're not saying the sky is falling, but you're just saying be prepared because there are some disturbing storm clouds on the horizon.
Jacob Shapiro:Rob, I haven't told you this yet.
Jacob Shapiro:And podcast listeners haven't even heard this yet because the episode where I talk about this a little bit with our guest comes out on Monday.
Jacob Shapiro:It's going to be an episode about Latin America, and we only tangentially talked about it there.
Jacob Shapiro:But this was an absolutely wild statistic that has been stuck in my head ever since I recorded that podcast earlier this week.
Jacob Shapiro:Again coming out on Monday, that Will Freeman is his name and he was citing data that suggested that 11%.
Jacob Shapiro:11% of global gold production comes from illegal wildcat mining in Latin America, full stop.
Jacob Shapiro:I thought that figure was absolutely shocking.
Jacob Shapiro:Maybe I just don't know the gold market well enough, but I feel like a lot of times when we're, when we're hearing about Bitcoin and the, the skepticism around cryptocurrencies, it's, oh, it's being used for all these nefarious means and for weapons and, and drugs.
Jacob Shapiro:And is that really where you want to be?
Jacob Shapiro:Gold is safe.
Jacob Shapiro:Gold is apolitical.
Jacob Shapiro:Not if a bunch of drug cartels are running around Latin America mining gold because the price of cocaine has gone down.
Jacob Shapiro:I don't know, I just thought that was absolutely mind boggling.
Jacob Shapiro:It probably doesn't affect the gold market at all.
Jacob Shapiro:I just, I don't know.
Jacob Shapiro:Is that as mind boggling to you as it was to me, or am I behind the times?
Rob Freeman:I think it's maybe an indicator of how little sort of mainstream gold mining is, has really gone on.
Rob Freeman:If 11%, like, you know, drug cartels are very innovative, but to put in place the kinds of massive capital you need to do mining on a large scale, like you need a large publicly traded company to do that.
Rob Freeman:So I think it shows that the supply response has not been particularly strong from the normal channels to the extent where that number could stick out like a sore thumb like that.
Jacob Shapiro:Okay, well, let's go back to the economy for a second because, and maybe I've been remiss about holding us back 35 minutes and 28 seconds until I asked this.
Jacob Shapiro:But so what if, what if we're wrong?
Jacob Shapiro:What if it's Harris?
Jacob Shapiro:Does that change anything meaningfully in your opinion?
Jacob Shapiro:Does that maybe push some of the doom a little bit further out?
Jacob Shapiro:Because she's not talking about 60% tariffs the day she comes into office.
Jacob Shapiro:She's basically promising more of the same.
Jacob Shapiro:So is there, you know, I've said that if you're looking at, from a macro level at Harris and Trump policies, they are the same flavor of policies, but tactically they're very different.
Jacob Shapiro:So are you less afraid if it is a Harris victory?
Jacob Shapiro:Is there something different to do if it's a Harris victory or is it really just the same?
Rob Freeman:I think directionally it's the same.
Rob Freeman:The magnitude is less.
Rob Freeman:She doesn't have any particularly new ideas from what I've seen.
Rob Freeman:I think you're right to point out it will be much of the same.
Rob Freeman:Much of the same means, you know, a continuation of the policies of the last four years which have been kind of the hallmarks were the ira, the CHIPS act, you know, industrial policy, maybe not implemented particularly well or with much enthusiasm and more, you know, yay, rah rah than actual shovels in the ground if you look at the numbers and what's actually happening.
Rob Freeman:But I would expect that kind of to continue.
Rob Freeman:Probably a little more focus on trying to be responsible in terms of the deficit.
Rob Freeman:Very likely that would be at least optically falling on higher income people, capital gains rate potentially going higher, which would be received very badly.
Rob Freeman:So but for the most part we're talking about minor changes because I mean the situation that we're in was really created by both parties the last two administrations.
Rob Freeman:You know, Trump's at the table in terms of when deficits started to really blow out.
Rob Freeman: It was in: Rob Freeman:That was the point when sort of government receipts essentially flatlined and spending accelerated.
Rob Freeman:Spending is still going up because the vast majority of spending is non discretionary.
Rob Freeman:It's Social Security, it's Medicare and it's defense, which is kind of unavoidably going to go up given the environment that we're in.
Rob Freeman:So yeah, I would expect with the tariffs sort of extreme scenario off the table, I think that would be much better for risk assets.
Rob Freeman:That would sort of take some of the real really bad scenarios off the table and I think make things more normal.
Rob Freeman:But normal has been not normal.
Jacob Shapiro:So.
Jacob Shapiro:Yeah, and I think this is a good.
Jacob Shapiro:Well, first of all, when you said that, I mean, part of me just thinks maybe we're making this too difficult.
Jacob Shapiro:Like maybe it's literally just invest in biotech and invest in defense and probably you'll be fine because that's where most of people's interest and the spending is probably going to go.
Jacob Shapiro:And whether you look at biotech companies or you look at the defense companies, just look at a chart of Lockheed or some of these other big defense players doing incredibly well.
Jacob Shapiro:Just on the Israel Middle east drama, get a couple, you know, more significant conflicts in there or things like that, things are gonna go up.
Jacob Shapiro:But to your point, I think it's good also to do a little bit of a retrospective, which is, you know, you said Trump set the table, corporate tax rate.
Jacob Shapiro:Maybe the story would have been different if not for Covid, but then Covid meant that there were, you know, we stimulated the economy even more, and in the moment, there was good reason to do it.
Jacob Shapiro:I react very negatively to people who talk about the COVID stimulus in a negative light, because I remember how scary it was at the time.
Jacob Shapiro:I mean, we.
Jacob Shapiro:We didn't know whether we were going to be able to go out of the house for six months, like we were all watching station 11 or the last of Us and thinking, you know, is a dystopian zombie universe about to come for us?
Jacob Shapiro:So I get why we did it in the moment, but it came on the back of the corporate tax rate and spending already being blown out.
Jacob Shapiro:And that, that gets us to the situation where we are today.
Jacob Shapiro:All of which is a way of asking, you know, how do you think historians will look back at Biden's economic record?
Jacob Shapiro:Do you think that they will look on it favorably?
Jacob Shapiro:Do you think that they will look on it unfavorably?
Jacob Shapiro:I mean, I know a lot of that depends on what happens next.
Jacob Shapiro:But, you know, he had a big spike in inflation, but he's gotten us to this Goldilocks economy where most of the data tells you that things are going well.
Jacob Shapiro:So I just wonder how you think people will look back on this.
Jacob Shapiro:Four years of economic policy.
Rob Freeman:I think it was the right thing to do.
Rob Freeman:I agree with you.
Rob Freeman:If the question is how will people look back on it?
Rob Freeman:I think they're going to look back very unfavorably.
Rob Freeman:And the reason is you never know the counterfactual.
Rob Freeman:It's fresh enough in our memories to remember what the counterfactual was, which was out of control, global pandemic, everything shut down because the worst case scenarios didn't happen.
Rob Freeman:I think it'll be very difficult for people in the future to really imagine what sort of range of probabilities were being dealt with when some of the original stimulus went through.
Rob Freeman:That said, I think people are going to look back and tie this into the narrative of accelerating irresponsibility.
Rob Freeman:I think there's going to be a lot of anecdotes that live long in the memory of people who just got $250,000 checks from the government and supposedly used those to support employees or whatever, and just went and bought stuff with it, which personally, we know many anecdotes like that and it sticks in your craw.
Rob Freeman:And I think especially if we're right about the longer term trajectory of inflation, it's going to be viewed, I think, in retrospect, as the great excuse, the great excuse to do what politicians wanted to do anyway, which was spend money.
Rob Freeman:And if you look at the sort of cadence of stimulus programs, the original programs that were taking place earlier in the pandemic I think were well justified.
Rob Freeman:The later ones, I think are much more questionable, especially because we are well on the way to sort of normalization and recovery.
Rob Freeman:And in many ways you could argue that they were sort of pouring gasoline on a fire that was already going pretty well.
Rob Freeman:And certainly in hindsight, I think that's probably how they're going to look.
Rob Freeman: os that we're mapping out for: Jacob Shapiro: n consulting company in March: Jacob Shapiro:So I could not keep a couple of people employed that I wanted to keep employed because there was no money coming in and I couldn't get anything from the, from the pandemic stimulus.
Jacob Shapiro:And I thought it was, you know, whoever designed this, like who you want to be supporting is probably the small businesses and the startups.
Jacob Shapiro:That's the engine of the economy that keeps it going.
Jacob Shapiro:These other bigger institutions probably didn't need the support.
Jacob Shapiro:So when you think about how those things actually got enacted, that almost got a little bit personal for me.
Jacob Shapiro:And I still think about that.
Jacob Shapiro:But I love the idea of the great excuse.
Jacob Shapiro:I think that that one might actually stick.
Jacob Shapiro:So hopefully historians will look back and listen to this podcast at this point in time.
Jacob Shapiro:Well, Rob, I think we're closing in on the end of the podcast.
Jacob Shapiro:So what are key takeaways?
Jacob Shapiro:Is it really just get out your popcorn and watch the election and prepare for some volatility or what are some tangible things that you think listeners can do as they're preparing to go down this rabbit hole that starts on Tuesday.
Rob Freeman:From an investment standpoint, a lot of what we just said is very gloomy sounding.
Rob Freeman:I don't mean to make that the whole picture.
Rob Freeman:We're focused on a very specific thing, which is federal deficit, dollar interest rates, things like that.
Rob Freeman:Not to sound like a politician myself, but the fundamentals of America remain very strong.
Rob Freeman:And we say on this podcast a lot that the things that matter are sort of human capital, knowing how to do things, technology.
Rob Freeman:The rest is just kind of balance sheet structuring.
Rob Freeman:And on the former issue, the US is going from strength to strength in many ways.
Rob Freeman:So I don't have fundamental worries about the US in a longer term sense at all.
Rob Freeman:That said, what you need to do is you need to be flexible and you need to be nimble and you need to pick your shots.
Rob Freeman:That is the ultimate takeaway from an investment standpoint because it is going to be a get out your popcorn sort of period in time in sort of a bittersweet way.
Rob Freeman: ly if you want to look at the: Rob Freeman:If you were opportunistic, if you retained a lot of liquid dry powder.
Rob Freeman:I know that sounds like an oxymoron, liquid dry powder.
Rob Freeman:It's both liquid and dry.
Rob Freeman:But you know what I'm saying, mixing my metaphors and wait for events to offer you extraordinary opportunities.
Rob Freeman:Because the problem that people have, the mistake that they make when they're leaving the sort of period that we've just experienced for several decades and entering the period that we're entering, which is a higher volatility sort of environment, is they neglect sort of the time factor.
Rob Freeman:The fact that you want to step in when everyone is freaking out and they will freak out just like they will have periods of euphoria.
Rob Freeman:And that's what has been the, you know, the background of the last few years.
Rob Freeman:You can see this starting to build.
Rob Freeman:So there will be great opportunities to buy all sorts of income oriented assets, all sorts of long duration sort of innovation assets, and also to diversify into international markets, into strong currencies elsewhere.
Rob Freeman:You're going to have plenty of opportunities to do this.
Rob Freeman:And that's where the growth and the sort of safe havens to make it through the storm are going to lie for the most part.
Rob Freeman:But if you think you can just kind of ride it out and be passive, I'm repeating the same stuff on this podcast all the time.
Rob Freeman:That's just going to leave you very dissatisfied.
Rob Freeman:Whether you're talking about bonds or risk assets and equities.
Jacob Shapiro:Yeah, I vividly remember even a month or two ago, a lot of the investment banks coming out with research reports that were basically like, hey, lock in yields now, because it's never going to go higher than this.
Jacob Shapiro:I think some of those reports will look fairly bad in retrospect.
Jacob Shapiro:Last question, though.
Jacob Shapiro:And I'm curious how you do this because we talked a little bit about the deficit and about government debt, and yet you're also saying not a lot of concerns about the fundamentals and about the long term of the United States.
Jacob Shapiro:And when I get asked that question, I was asked it last week, I usually cite that Wharton study that says, yes, debt is a big issue in the United States and if it doubles from here, as it probably will the next 15 to 20 years, when you get to the end of that doubling.
Jacob Shapiro:Yeah, that's the point at which things will get very, very difficult for the United States.
Jacob Shapiro:So I always say, look like, yes, we're robbing Peter to pay Paul, but the bill's not going to come due for the next 15 or 20 years and probably there'll be some other cataclysm that will move people away from the like.
Jacob Shapiro:We're talking about very long time horizon things here.
Jacob Shapiro:And if you're waiting for that doom scenario to come about, you're going to miss 15 years of growth or whatever.
Jacob Shapiro:You're going to miss the sugar high that's going to come here going forward.
Jacob Shapiro:How do you square optimism about US Fundamentals with the fact that the deficit is being blown out and that deficit spending is going to increase no matter who wins, and that there is no move towards fiscal conservatism, at least on the horizon in US Politics.
Rob Freeman:I think the things to look at in terms of actual fundamentals for the US are not necessarily financial.
Rob Freeman:Finance is how you keep score.
Rob Freeman:And sometimes you need to reset the game board.
Rob Freeman: you're talking about Japan in: Rob Freeman:And within 10 years they were back on their feet because they had those fundamental strengths and advantages.
Rob Freeman:Germany, I mean, you can look at many, many historical examples.
Rob Freeman:Britain, US after the Civil War, we basically had a giant monetary reset.
Rob Freeman:And anyone who owned assets us after World War II, you know, we repressed interest rates, we blew out inflation.
Rob Freeman:If you look at the CPI numbers pre war versus post war, like anyone who owned bonds was just screwed.
Rob Freeman:Like you it was a confiscation of wealth.
Rob Freeman:And that's what inflation is, that's what currency debasement is.
Rob Freeman:It's a reset of the game board.
Rob Freeman:It's a confiscation of existing wealth, but not human capital, not know how.
Rob Freeman:Unless in the process of that confiscation, in the process of that reset, you get truly, you know, revolutionary societal problems, which I think, I mean, you can opine on that, but I don't think we're, we're quite there, you know.
Jacob Shapiro:Yeah.
Jacob Shapiro:The British Empire analogy is the one that I always go to because I think it has the most in common with the United States.
Jacob Shapiro: he United States in the early: Jacob Shapiro:So in the context of the Napoleonic wars, they had decades of living large and then suddenly they faced Napoleon and they had to spend even more to defeat Napoleon.
Jacob Shapiro:And then it took them a period of decades to wind it down, but they did.
Jacob Shapiro:But the thing that allowed Britain to do that was India.
Jacob Shapiro:If not for India, we're probably not talking about the British Empire.
Jacob Shapiro:I think in the 19th century it was the ability to conquer India with superior technology and the British trading companies and all those other things that I think gave Britain the steroid shot in the arm that it needed to carry it not just through World War I, but all the way to World War II.
Jacob Shapiro:And in some ways that's the disturbing scenario because if you're, if you're the United States, like, you're right.
Jacob Shapiro:Hyperinflation is one way maybe to get out of the debasement of the currency situation.
Jacob Shapiro:Another is to win a war and to confiscate wealth from somewhere else or to set up a framework in which things go better for you.
Jacob Shapiro:I think that was actually the British model.
Jacob Shapiro:So sometimes when I'm feeling very pessimistic, that's the scenario I go towards.
Jacob Shapiro:And I worry about US China relations when I think about that.
Rob Freeman:Yeah, maybe.
Rob Freeman:But I think it's also, we're in a situation where society is just so much richer than it ever was historically.
Rob Freeman:So it's really hard to look at these historical examples and say that it's going to play out in the same way.
Rob Freeman:And even then there's a lot of cause for optimism.
Rob Freeman:Like the Roman Empire almost completely fell apart in the 200s.
Rob Freeman:I mean, almost like the roads broke down, you know, just complete chaos.
Rob Freeman:And yet they bounced back and had a good 200 year run of strength after that.
Rob Freeman:So don't underestimate how durable sort of These human capital and cultural factors can be.
Rob Freeman:And on that front, the United States is sitting pretty.
Rob Freeman:So England is a little bit weird, too, because they also made a very specific choice after the Napoleonic wars to defend the pound.
Rob Freeman:They were implementing a deflationary policy.
Rob Freeman:I don't think you could even get away with that today because in order to do that, you basically have to screw over 90% of your population.
Rob Freeman:And at that point, that's great if they can't vote and they don't have enough money to make it from one day to the next and can't mobilize or do much.
Rob Freeman:But today, you take away someone's PlayStation for 10 minutes and it's a political crisis.
Rob Freeman:So I think it's just fundamentally different now.
Rob Freeman:And again, it's always fun to talk about this sort of stuff and to make the historical examples and to opine about hyperinflation and stuff.
Rob Freeman:But let's just keep in mind that we have to remember the proportions of how bad is bad and what does it really mean to be bad.
Rob Freeman:And when you're talking about financial assets versus truly bad outcomes for civilization and society, I think those are two different things.
Rob Freeman:And I'm not sure that even, you know, the hyperinflation examples of the past are great ones to look at, in part because so many of them came out of truly bad scenarios like societal collapse.
Rob Freeman:You know, hyperinflation historically was always a supply issue.
Rob Freeman:Hyperinflation happened because all of your factories got blown up in a war or, you know, 30% of your population got massacred in the 30 years war or these terrible, terrible things.
Rob Freeman:The US is nothing like that.
Rob Freeman:Our problem is we're too generous with our retirees and we're cutting taxes too much.
Rob Freeman:So all told, that's a pretty good problem to have.
Rob Freeman:And it's one that can get resolved in a lot of different ways.
Rob Freeman:And probably the equilibrium is some sort of inflationary outcome.
Rob Freeman:I think that's true.
Rob Freeman:But when you look at true currency debasement, true hyperinflation, historically, that's been associated with nightmares, and we're not remotely in that.
Rob Freeman:Life is pretty good.
Jacob Shapiro:Life is pretty good.
Jacob Shapiro:But not to sound the America first narrative too much, but the factories left here without firing a shot.
Jacob Shapiro:If the factories are behind a 60% tariff wall in China, I mean, you're not gonna be able to flip the switch that quickly.
Jacob Shapiro:All right, I don't know.
Jacob Shapiro:We have to leave it there because I have to go on and record another podcast.
Jacob Shapiro:So, Rob, I will speak to you after the election.
Jacob Shapiro: be we'll be Talking about the: Jacob Shapiro:Cheers, man.
Jacob Shapiro:It.
