How to Talk To Your Clients About Ray Dalio (EP. 482)

20:33I don't know you know people live beyond their means but this costs money a heated driveway ah there's

20:38Ben Carlson:that's probably more common where you are the biggest house on our block has a heated driveway and i'm always i'm always so jealous of them because their driveway is perfectly clear in the in the winter without all big ice chunks and such but think about modern houses compared to the houses that we grew up in i feel like most houses have an island or many do yes it's not rare at all yeah that's the thing there's a lot more I feel like it's more subtle now the rich stuff what about how could I not say mudroom yes if you build your own mudroom twice then you're rich alright the trailer for artificial has which is the Sam Altman movie starring Andrew Garfield gave serious social network vibes.

21:31Did you see it?

21:33Ben Carlson:I'm not going to watch that. I'm not going to watch the new Mark Zuckerberg one. I'm sorry. You don't have to apologize. That's your prerogative. They're trying to make it like social network. I feel like they're trying too hard. Could be right. The new trailer for the new M. Night movie, which... Wait, wait. I thought you were anti-trailer. Now we're back on trailer? Well, that's a fair point. That's a fair point, Ben. There are some trailers that you can't avoid. So here's the trailers that I do avoid The independent ones Like Obsession Backrooms I raw dog it The Invite No idea what was it about But there are some trailers That when you go to the theater You can't avoid them Because they show them Before the movies right?

22:12Wait M. Night Shyamalan Did a movie with Nicholas Sparks?

22:15Ben Carlson:Who's Nicholas Sparks? He's the guy who did The What's the Oh is he Beast? No He Yeah he did like Love Story What was the Ryan Gosling Love Story? Nope he did The Notebook that's a bizarre combination to me. Wait, is he an actor? No, he's an author who wrote the book he did the movie The Notebook. Alright, anyhow, I am I love M. Night, I can't quit him even though his movies are very, very The Josh Hartnett movie was unwatchable. Trap, I loved it. Awful. I loved it. Terrible. Very well, extreme highly watchable. Highly watchable. So the new one is with Jake Gyllenhaal and I am Alright. I am not feeling it.

22:56It looks pretty poopy.

23:01Ben, you've been saying this, and we got a few emails about this, that Apple has really stepped up their game. Someone did say that. I thought you said that.

23:09Ben Carlson:I did. Someone else emailed us that. Apple is turning into HBO. The quality of stuff that they put out now, Silo is a very good show. But the marketing is such dog shit. I don't even know what's on the... So my wife and I watched Mayday, which as you know I'm a Ryan Reynolds Stan he's had every time you say that I die a little he's had some ups and downs in his career I'll put it that way so there's this movie called Mayday it came out on Apple my wife and I are looking for something to watch and we go wait there's a new Ryan Reynolds movie on Apple it is highly entertaining it has so they have a lot of Top Gun references in the movie it takes place in the 80's it's kind of Top Gun meets Behind Enemy Lines meets every Ryan Reynolds movie you've ever seen with him telling jokes and being sarcastic.

23:55Ben Carlson:And it is highly entertaining. For a movie that goes straight to streaming, I'm telling you, give it a try. It's called Mayday. My wife and I got done with it and go, I can't believe how entertaining that was. I don't think I will. Okay. So my daughter now has moved on to the Twilight movies. But wait, hold on. Sorry. Just real quick on the Apple thing. The reason why I brought it up is because they destroyed last night at the Emmys. They cleaned up. most awarded network by far. It makes sense. I had a head of Max, Netflix, prime and all the others. I mean, they're obviously spending a lot of money because they have so many big names.

24:27Ben Carlson:All right. What were you saying about your daughter? So she's watching the twilight movies, which I'd never watched before. I remember the books were huge. Kristen Stewart and Robert Pattinson. It's kind of actually impressive. Robert Pattinson is such a big actor now that he didn't get sort of pigeonholed in that. But so you've seen this meme before of the guy standing on the, and looking, this is the hoity toity meme. It's Michael, Michael Sheen. Is that the guy's name? This looks like Jason Porrera, the financial advisor with hair. I never realized this meme, the origin, it's in one of the Twilight movies.

24:57Ben Carlson:My daughter's watching this and he's a vampire. And I go, that's the meme. Oh my, I was Leo in the movie going, that's the meme. I also had no idea. And I have to be honest, I don't even know what this meme is representing. I don't get it. It's someone, we could use this meme for what is something that's, it's a person who's acting hoity-toity and rich. Okay. I'm better than you. Got it. Okay. So I rewatched Aliens for the first time in a long, long time after listening to it on the rewatchables. I watched it with my son, too, a week ago. And I watched the extended cut because on the rewatchables they were talking about it being an option.

25:38So I watched it. and it's a pretty important omission that in the extended cut, you find out that Sigourney Weaver, which by the way, two things. Sigourney Weaver was f***ing incredible in that movie. Unbelievable, number one. Number two, Sigourney is not a real name, is it?

26:02Ben Carlson:I can't imagine. It's the type of thing that I thought about it, like I was thinking about how good she was, I said, wait a minute, that's not a real name, is it? You know, there's no other Sigourneys. anyway when she was gone I got a snort out of Daniel so she was in the pod cryogenically sleeping or whatever for 57 years and her daughter died when she was in outer space and so her maternal instinct toward Newt who is definitely the weak link of the film was a huge part of the story and they cut it out I didn't realize that either after watching the movie my son fell in love with Bill Paxton And for the whole week, he kept saying, come on, man.

26:41Ben Carlson:Everything he said, man, at the end of my son kept saying that to me. Come on, man. So that movie, could you imagine seeing that in 1986? It, I mean, some of the flying stuff didn't work, obviously, but it is amazing. So I watched the last 20 minutes with my kids and they were jaws on the ground. It has, that movie has precursors to Avatar. With the yellow thing, yeah. I know you're an Aliens fan. And I still think that the original Alien is far superior to the sequel. Well, you could be wrong. That's okay. I mean, Alien's a great movie, but far superior is insane. All right. So anything else, Ben?

27:23Any final thoughts?

27:25Ben Carlson:No. Future Proof is, once again, amazing. There's 5 ,600 people here. And we got our shot. We'll send the production team our picture of us. We always get our shot at the initial cocktail party. I mean, that's one of the best parties of the year. The first night cocktail party. That's unreal. Everyone, the vibe is just immaculate. The sun is setting. There's thousands of people in this one space. There's music on. There's Monday night football. It's really hard to explain how cool of an event this is if you don't come to it. That's right. That's right, Ben. All right. Here is our conversation with Colin Rush.

28:01And we're back. So after the camera turned off, Duncan asked me if I wanted to apologize to Matthew Reese because apparently he did quite well at the Emmys last night for Widow's Bay. And what else, Duncan? Okay, so I thought he was exceptional in Widow's Bay, but I didn't care for him in Beast Inside Me. I thought he was great. I won't apologize.

28:22Ben Carlson:The Americans is one of the most underrated shows of the past 15 years as well, and he's awesome in that show. I highly recommend if you're looking for something to binge, watch that show. So it's good. It sometimes takes a big man to him and he's right. Fancy. Hello. Let's go. Let's make some noise. Oh, this guy almost took a tumble. That would have been something. Ah, all right. I feel like we're sitting on the same side of the table at a restaurant right now. You look really close to me. Bring it in. Bring it in. Ah, all right. So this is Animal Spirits. For those in the audience that don't know us, my name is Michael.

29:05Ben's name is Ben. And in thinking about what we were going to do for this event, I was struck by a lightning bolt of inspiration. Second time I've used that analogy at this event. Here's what happened. And two weeks ago, an advisor slacked me and said, hey, one of my clients is asking about interest rates. You know, just wants to know what we're thinking about our fixed income allocation. And so I gave him some talking points. He said, hey, let me just, I'll forward you the article that he was talking about. So, all right. Gave him a talk of points about what we should say, how we're thinking.

29:56I saw the article. I clicked on the headline. And the headline was, is somebody smoking marijuana? Smell it? The headline was this. It's Time Magazine.

30:10Ben Carlson:Only at Future Proof, I guess. It's Time Magazine. Okay, it's a Time Magazine. Very mainstream article, publication. And the title is The Bond Market Supply and Demand Problem by Ray Dalio. And I read the intro and Ray Dalio said the big debt cycle degenerative process that follows these dynamics can easily, easily be seen and understood by studying historic cases across many countries. and is as predictable as demographic changes. Really, it's that easy, Mr. Dalio. Anyone who has studied monetary history and should know that all monetary orders have eventually broken down and blah, blah, blah.

30:53I called my advisor and I said, I demand to be on the call. I can't take this guy anymore. Mr. Ray Dalio has been scaring our clients for 10 years plus, and I won't put up with it anymore. Right?

31:10Ben Carlson:It's enough. So hang on. So I actually got an email from our client. This is a month ago. He said, okay, Ray Dalio is worth over$20 billion. So he knows something, that's for sure. And the guy has run one of the most successful hedge funds in history. He said a lot of people certainly believe in his thinking, not saying he's wrong, but are you down with his current thinking or at least some of it? And so Michael and I thought, well, who better to talk about the dynamics of macro than someone that we've learned a lot about? So Cullen Roche, originally of Pragmatic Capitalism, which has now been retired, now at Discipline Fund.

31:42Ben Carlson:So Cullen, come out. We've learned more about macro from Cullen. I know. So please welcome Cullen Roche. Let's go. He's a local from Southern California. So all right. The title of the show today is how to talk to your clients about Rydalio. We've got a problem. Cullen's got some insights. All right. So yeah, the 10-year just pierced 5 % for the first time since 2023. I'm not saying that all of his concerns are completely unwarranted, but I feel like I'm taking crazy pills. Sure, there is risk with bonds, but why aren't we talking about the reward? It is finally time, high time, I should say, to be enjoying fixed income.

32:31Colin, am I crazy? there's nuance in this discussion that i mean first of all i think there's not well ray's obviously brilliant in a lot of ways um when you write a book about how countries go broke i think you you fall into a position where you naturally have to then defend there's no

32:50Ben Carlson:backtracking from he that's literally the name of one of his books how countries go broke and you guys know i mean i wrote i've written in egregiously embarrassing amount of you know content on this topic because in large part, I went through this whole process after the GFC where when the Fed was doing QE and everything was going on after the financial crisis and the government is spending all this money and stuff, I had a lot of clients who were asking that very question. This is going to either cause hyperinflation or the country is going to go broke. And that period was really interesting for me because at that time, I'm actually contacting a lot of people in Japan because Japan had done all this stuff for 20 years.

33:29And I'm talking to people like Richard Koo and famous macro economists who had been having these conversations in Japan for 20 years, where the Japanese thought the same things. The country's printing a lot of money. We're doing QE. The country's going to go broke. And I learned a lot during that period in large part because how countries go broke is very specific and very nuanced. And I think that the thing that's really important about the United States is not only that the United States can print its own currency, but the United States very specifically does not borrow in a foreign currency.

34:01And that's really the crucial aspect that I think distinguishes the United States from a lot of countries that actually go broke.

34:09Ben Carlson:So the one thing that worries most people is, okay, the debt has gone from, I don't know, 25 trillion before the pandemic to 40 trillion now. Interest rates are rising. So that means, of course, the borrowing costs are higher interest as a percentage of GDP is higher uh debt to GDP is as high as it's been since world war ii and it's like this is happening not in a crisis this is happening in a kind of not booming economy but a growing economy yeah right so in deficit spending is so high and it doesn't seem like either political party is ever going to change their stripes it feels certainly feels like nothing stops this train of government spending so is there anything about the government debt that concerns you.

34:46Yes. And I think that's where the nuance comes in, is that when you have these discussions with people, I think you have to specify, first of all, what is the risk? Because when we talk about countries going broke, when a country goes broke, it impacts all of the debt. It means that you default on every single liability that the government has. And that creates an emotion where you feel like you have to eliminate all of that asset from your portfolios. And that's, I think, simply not the right risk in the United States. The risk is not that the country is going to go broke. The risk is that a lot of this government spending can cause inflation.

35:21And we all kind of know, like the interesting thing about COVID is that when we see the government really try to create inflation, the government can succeed. They spend, you know, one of my favorite data points from that period was that government spending as a percentage of GDP went up to 40%. And it's averaged about in the last 25 years, it's ranged from like 20 to 25 percent. And we're back down to that 25 percent range. So we kind of know that when the government tries hard enough, they can cause big time inflation. So if default is not a risk in the United States, then the conversation you need to have with clients is that, well, what is the risk?

36:00The risk is inflation and inflation impacts different assets in very different ways. And I think that's where the nuance and the there's elements of Dalio's argument that are very right in the sense that the longer you are, especially on the Treasury curve, the further out you go, the more exposed you are to less and less inflation protection. And I think that's an environment where today becomes really interesting because the dynamics have changed even since COVID. Because when you look at things like a 10-year Treasury or a 10-year tips yield is at 2.6 % today, that's really attractive. It means that if inflation averages 5 % over the next 10 years, the client is going to get roughly a 7.6 % nominal return over the 10-year period on an asset that is essentially risk-free over the entire 10-year period.

36:52Isn't that good? That's really attractive. So I think there's an element there where you can still say, you know, should you be buying 30-year treasuries? That's still maybe a little crazy to me. And that's the element where Dalio is maybe right. But geez, I mean, like a T-bill is yielding 4.6 % today. Hallelujah. I mean, like if you've got a one-year liability and you're trying to communicate to a client that, hey, you know, you're buying a new car in 12 months, and we're going to put this money in a one-year T-bill, and you're going to yield 4.6 % that whole time, that's like a no-brainer. You're getting basically probably an inflation-adjusted return on that asset.

37:32And you have zero probability of that asset going to zero because of default. So that's where the nuance is really important inside this conversation. All right. Let me get away from the nuance and just go full bore one more time. Um, so I'm sure this drives you nuts as it does me. You, you more so, cause you know this stuff better than I do, but Dalio is talking to a public audience, right? Like time magazine is a general listener, a readership. And he said to understand the U S position today, imagine that you are running a big business called the U S government. I'm sorry, which big businesses?

38:10None that I know. Does Apple print their own money? Uh, I don't think so. Then he goes on to say like, federal debt held by the public is six times annual revenue. And how is this relevant? $240 ,000 per American household? Okay. Yeah. What does that even mean?

38:29Ben Carlson:Cullen, you always point out the fact that you have to look at the assets too. There's got to be a denominator there. But I think one of the things that I've come to realize is that I think to be a hedge fund manager, you have to be generally pessimistic in some ways. If you listen to people like Paul Tudor Jones and Stanley Druckenmiller, I think they're disposition naturally is pessimistic. Whereas most advisors, I think, have more of an optimistic bent to them. And I think you have to think about the personalities too and the fact that he's a salesman. He's always been a salesman. And how do you get people to invest in a hedge fund?

39:00Ben Carlson:You scare them. Yeah. Yeah. I mean, that's a good point. I mean, as a hedge fund manager, you're probably persistently more concerned about risk management. And it's the things that can blow you up that are worrisome. Whereas for your average household, your biggest risk is really, what is it? Probably long-term inflation and being able to fund your short-term needs. And so that's, I think, a perspective that in general, most of us who are helping households, we probably have a big equity overweight, just inherently, because most of our liabilities are probably in the future. They're probably tilted towards equities in some way.

39:33And that means that inherently, there's a balance there to some degree of how you're going to manage the asset allocation. But in the long run, if you're helping households, there's a lot of logic in having a default optimistic position where you just sort of say that, hey, we have to be optimistic to some degree because the equity market is the best hedge against the long run risks that most of us face. Colin, you think a lot about asset allocation. You're an advisor to your own clients. in the post GFC period. I really do feel like interest rates, the Fed pushed people out onto the risk spectrum.

40:12That's not an opinion. Everybody was saying that. And it's true, especially as an advisor. It was a difficult conversation to be delivering a 1.4 % nominal yield on bonds to our clients, charging 75 basis points or whatever you charge. Like that was a hard conversation to have. And so slowly but surely, 60-40 became 65-35, became 75-25, 80-20 in some cases. And it worked very well for everybody that did embrace risk. Now, 60-40 is back. People are talking about it's dead. It's so back. You can actually deliver a very attractive, real, after-tax, after-fee returns.

40:59Ben Carlson:Here's the pushback that I've heard. Okay, so you can get, call it 5 % in high-quality bonds today, which people would have crawled over dead bodies to get 10 years ago, right? Because this is the highest yields we've had in, I don't know, 17 years or something, since before the GFC. The pushback now is, of course, no one wants to own bonds in a bull market. Like, why do I care about 5 % when the stock market is going up 15 % per year? But then people say, well, if I'm getting 5%, take away inflation, take away taxes, what's left? That's bull market behavior. It is, because obviously - Nobody says it in a bear market.

41:30Ben Carlson:Obviously, you're paying taxes in the stock market, too, and you're paying taxes, and you're taking inflation out of that as well. But it seems like people are looking for excuses to not own bonds. Well, I mean, this is also sort of classic bear market behavior, where, I mean, when the equity market goes down a lot, people have the same exact reaction, where they start looking for all the other alternatives. And what you're seeing in the bond market in the last, you know, really since COVID basically, is that exact same phenomenon where prices have gone down a lot and people are now, now they're all scared of it.

42:01When the time to be scared, of course, was in 2019, when a 10-year treasury note back then had a modified duration of eight and a half and was yielding 1%. I mean, the risk reward there was insanely low. Whereas today, that same exact instrument still has a modified duration of eight and a half, but it's yielding 5%. So your cushion is so much better in this sort of environment that the risk reward has substantially changed. And I think that's one of the reasons I love talking to clients about time horizon based investing in large part, because this is such an easy concept to communicate to somebody that when you're buying a five-year treasury note, that thing has a modified duration of what, 4.8 or so.

42:43It's yielding 5%. The cushion inside of that instrument is completely offsetting the interest rate risk inside of a one-year period. And so you can communicate that concept to somebody where, look, we're gonna buy bonds out to five years because we know that at five years, your cushion is virtually offsetting exactly what the interest rate risk in that instrument is. We're going out to 10 years, 20, 30. Okay, now maybe we're setting ourselves up for a little bit of, you know, behavioral risk where, you know, if you're buying 10 or 20 year treasury bonds and the Fed decides to raise rates and interest rates go up by 2, 3 % more, who knows what happens in Iran and all the craziness with inflation.

43:23And suddenly you start getting more of this whipsaw in treasury bonds. Well, you know, that's a risk you've got to communicate to people. But I think when you can communicate that, especially that zero to five year time horizon is really easy to communicate to people. And they get it because they understand people don't understand modified duration. They don't understand factor investing in style boxes and stuff like that. But they understand, hey, I'm buying a one year treasury bill. I'm getting four point six percent on this. No, duh. That's that seems pretty compelling. Yeah, I agree with you.

43:56Not to not to be so arrogant as to say this, but I will say it. I feel like absent something going off the rails and Ray Dalio being correct, that there is real risk. OK, so absent the 10 year going from five to eight, which would be really bad. Here's what I'm going to say. I don't think bonds can hurt us anymore. Like they did. I think people are still scarred from 2022. too, understandably so. But you can't say this about stocks, where you show a client, okay, here's what we know for sure. If the 10-year rises 150 basis points, yes, price will fall 3.8%, whatever it is. But people aren't thinking about the other side of the coin, which is, first, not just the income, but what happens if the economy does slow down?

44:48There's also going to be a benefit, an uncorrelated, negatively correlated, hopefully benefit, which has not existed. And I get that people are like, shell shocked. But I really think that as you can tell, I'm beating this dead horse. I got a question for Cohen on this.

45:02Ben Carlson:So the Fed raised rates today, right? My question is this, does it matter as long as the hyperscalers are spending so much money on AI? Like, how far would the Fed have to take it to solve the economy? If the only thing that seems to matter is, is the AI, the AI build out? It It seems like the only way to really slow the economy is to slow that build out. And what good? And so the Fed raising rates is not going to stop the war in Iran. It's not going to stop hyperscalers from building this out unless the debt burden got so high that they couldn't borrow. Like what is actually going to slow the economy?

45:36I mean, that's the the ironic thing about Warsh being the guy who's raising rates is that the guy who probably controls interest rates is the guy in the White House right now. So I'm actually, like I've been saying all year that the probability of them raising rates was very low. Because I was shocked. I would be shocked going into the midterms that anyone would continue to push. So you didn't think there was going to be a rate increase today? I mean, at the beginning of the year, I did not think there was going to be rate hikes. I thought there was going to be rate cuts, if anything. So, I mean, we're getting into variables that are inherently unpredictable to begin with.

46:09Because nobody can predict exactly, you know, the, I mean, you're playing, you know, 3D chess when you get into inflation. To your credit, like you didn't know there was a war coming. You don't know. Right. So. Right. And nobody thought the war would would persist as long as it has to this point. So, I mean, who knows? Like, here's the thing. If we really, you know, we go all in on Iran and let's say that oil goes to 300 bucks. What happens to inflation in that environment? I mean, it probably goes, who knows, six, seven, maybe eight percent. Who knows? Because oil has this, you know, this huge impact on everything because it impacts diesel fuel and diesel fuel impacts all the trucks around here.

46:42And that impacts everything that's being delivered. And who knows how long all that's going to last? So, you know, that's the risk. You know, I'm inclined to agree with you, Mike, that that is an outlier risk. But you're getting into like inflation predictions then, which are, you know, I've spent most of my career trying to model and understand inflation. And I'll be the first person to tell you that nobody knows what inflation is going to do over the course of the next 6, 12, 24, 24 years. You know, who knows? It's just market pundits like to say the cure to high prices is high prices. And on the one hand, that obviously makes sense.

47:18I saw a stat today that the average gas price is whatever it is. It's like$4.60, I think, nationally. That's costing consumers. What is it in California?

47:25Ben Carlson:$12.60? Yeah. Yeah. $6.50, I think I saw the other day. That's costing consumers, I think, an incremental$100 billion possible. $10 billion. Whatever it is, it's a big number. I don't know if it's$10 billion or$100 billion. Whatever. My point is this, or my question is this. if is that enough to slow the consumer down finally? Like, is does gasoline matter to the economy anymore? The screwy thing about interest rates, especially, and this is one thing that is pretty empirically understandable, is that it works. The Fed's policies work mainly through the real estate market. They slow debt consumption, basically.

48:02And the main way households consume debt is through mortgages. And the real estate market has been obliterated. Frozen. Yeah, it's completely frozen. So prices haven't gone down, but prices have actually stagnated, which is kind of phenomenal given the supply constraints that you have in the real estate market. And so I think to Ben's point, like, yeah, the Fed has probably done a lot of what it can do in terms of slowing the economy with interest rates and how much more work can be done. Yeah, I doubt that this rate hike is going to have a big impact on inflation in the next few years, especially if you continue to see the big AI spend.

48:41I mean, the real problem with the whole AI issue right now is that these companies are obviously spending huge amounts of money on investment and data centers and everything. And that's causing this very, what I think is sort of a near-term boost in inflation because that's flowing through to electricity and you're starting to see the impact of that in the short term. I think AI is incredibly disinflationary in the long run, meaning that I think the rate of inflation slows because of AI, just because, I mean, once you get to a point where robots really are meaningfully doing a lot of the work across lots of components of the economy, unit labor costs collapse.

49:20And there's so many deflationary knock-on effects of that, that in the long run, it's hard for me to envision a world where AI isn't extremely disinflationary. And the weird thing going back to Dalio and all that is that the government probably has to get more involved in everything because of that. Because if you start to ever see real job losses and real wage collapses, well, the government then starts to inherently get more involved in everything because they're the offset. They're the only entity that can actually come in and actually pay people in an environment where there's real meaningful job losses.

49:53Ben Carlson:So if you're like trying to rank recession risks right now, how much of a risk is it that for whatever reason, there's not an ROI there, the debt costs get too high, the burden that the hyperscalers do whatever pull back in a meaningful way. To you, is that the biggest recession risk that there is? Good question. I mean, in terms of stupid things to try to predict, I think I would rank trying to predict recessions is probably my top one. But I'll be stupid and say that, yeah, I mean, the hyperscalers are probably the biggest risk to, because when you look at the, what's been offsetting real estate for the last, I mean, it's crazy when you look at like residential investment and, you know, investment as a whole from corporations, it has actually been declining pretty substantially over the last five years.

50:39And that's in large part, but data centers have been offsetting the whole frigging thing, which is incredible. So, you know, if you start to really get a pullback in data center investment and AI investment in general, what does that do to GDP? Then you're entering Mike's world where all of a sudden real GDP is slowing and all of a sudden, two or three years out from now, the Fed maybe is looking at a situation where maybe we've pulled out of Iran, the economy's slowing, and all of a sudden you're looking at an environment where everyone's talking about rate cuts again. All right. So let's just give Dalio bone and say that he's not dumb and he definitely definitely is not dumb.

51:18He said, looking forward, it appears most likely that things will get worse. And I estimate that projected deficits will cause federal debt to rise to roughly 55 to 60 trillion over the next decade. Is there a breaking point? Like, okay, so let's assume that it does go to 55 to 60 trillion trillion dollars. I mean, it is going there, right? Yeah. So yeah, I mean, And that sounds like that is where we're going, right? So what's the risk? Seriously, what is the risk? The risk is inflation. Will the government spending cause big time inflation? And I think some of the confusion with this or some of the fear mongering around this is just the sheer size of the numbers.

52:01And I think when people see$40 trillion, they say, holy cow, that's just a gigantic number. How can that possibly be sustainable? and it's crazy though because the United States is such a humongous economy. I mean, when you talk about the total financial assets of the entire economy, we're talking about$450 trillion. So like, yeah, the debt, the government debt is big, but all the other assets are way, way bigger. And so, yeah, I mean, those numbers can change and the equity market would change that or real estate prices would change it. But even so, the size of the government's issued assets are still and the scope of things, you're talking about the economy that is the richest economy that has ever existed in the whole world.

52:44Say a lot of our clients that didn't hear. And this is the thing that I always try to communicate though, is that this is the entity that can tax the wealthiest society that has ever existed in all of mankind. And so when you're talking about whether or not this entity cannot afford, what you really start getting into is you start talking about a discussion about, well, are you then inherently sort of, or implicitly making a prediction about the wealth of the United States and will the innovative fervor of everybody in this room and everybody who resides in the USA, will we suddenly stop innovating and making the world's best products?

53:23You're making a really macro bearish argument in that sense because that's where the government ultimately derives its ability to fund everything. Can I ask you a question about the inflation? The coolest person in the world just drove by. Pause for a second. So I have a question about inflation. Okay, government spending, issuing debt, theoretically can cause inflation. My question to you is this. Isn't all of the government spending on just a few things, on social services, on defense spending? So how does that stuff filter into the real economy and cause inflation? I don't see the mechanism.

54:03I mean, it does. Because you have to consider the counterfactual, where if the government wasn't doing all these things, these people wouldn't have the income and the ability to necessarily consume all the things that they can because the government is giving them the ability to do so, in essence. So there's that counterfactual. But even in this sort of an environment, it's interesting, even with the debt dynamics as big and bad as they supposedly are, we still have headline CPI is 3.6%. that's actually not even that high. That's literally the long run average, essentially. Yeah. So, I mean, I know that, you know, I don't want to like sugarcoat it.

54:42And I know that inflation is different across different parts of the economy and for different people. But it's especially interesting in the case of like, you know, people with who are getting Social Security and things like that, because those are people that I mean, I see it every day in my job. I mean, those people consume less and less as they get older and older. Like, I mean, they're not, and that's part of the longevity debate with all this, is that as you get older, you know, the economy is getting older and those people consume less and less. So, yeah, they're theoretically, they're getting more funding from the government, but they're not the people that are the big drivers of consumer price inflation.

55:18They don't drive inflation, the 82-year-olds? Yeah.

55:20Ben Carlson:So my last question on Dalio, who, I mean, he's too busy and burning, man. He doesn't care what we think, obviously. But so I think the biggest risk people keep saying is, well, there's going to be like a buyer strike against. That's going to be the thing. Like they're going to get too worried about debt and deficits in the United States. And there's going to be a buyer strike on treasuries. So my question is the opposite. No, people are going to die for all that. So my question is, like, what is the alternative to treasuries? Or couldn't couldn't the government just say, you know what? The Fed is going to lower rates.

55:46Ben Carlson:We're going to fund the whole government through short term borrowing. If there really was some sort of crisis in the treasury market, aren't there a million ways around it? I mean, that's the funniest part of this whole conversation is really when you get into these conversations about the USA going bankrupt or something and you look at basically every single other government option in the whole world, they're all worse. So, yeah, you can say that China's just as indebted as we are. Maybe worse. Right. So you can say that, yeah, we're a dirty shirt, but we're the cleanest dirty shirt in the closet.

56:18So it's one of these things where, you know, even when you look at reserve currency status, I mean, we're still held as 60 percent of all foreign currency reserves, which is the next closest one is Europe. It's like 22 percent or something. And so it's not even close. And would anybody put European debts on the same level as United States? It's a joke. It's just not even. And the next closest one is Japan. Japan's like four percent of all reserves. And I could argue maybe there's an argument that Japanese government debt is maybe similarly quality as United States debt. But even so, you look at their economy, it's way smaller, less innovative.

56:55I don't see where, what's the alternative? I guess in a relative world of currencies, what's the alternative? What's the alternative? I think that's a good place to end it. Colin, that was awesome. Thank you very much for helping us learn how to talk to our clients. about Mr. Dalio. One announcement. We are hosting an Animal Spirits Happy Hour at 5.45. We're behind the State Street. Awesome State Street setup. So we'll see you then. Thank you, everybody. Also, shout out to the guys

57:29Ben Carlson:in the front room and at every Animal Spirits live event. These guys. Thanks, everyone.

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