Markets Will Be Markets

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0:58Felix Salmon: a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market. Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen.

1:36Hello! Welcome to Sleep Money, your guide to the business and finance news of the week. I'm Felix Salmon. I'm here with Elizabeth Spires of the New York Times. Hello. I'm here with Emily Peck of Axios. Hello. Happy Fourth of July weekend. We are out rotting in the backyard. We have a whole slate plus segment about whether kids should just rot away during the summer or whether we need to find things for them to do. But also, happy 4th of July because the stock market is at record highs. And so because the stock market is at record highs, we have invited back the one and only Barry Ritholt. Hi, Barry.

2:15Hey, Felix. Barry, you were on a few months ago when things looked very bad, stock market-wise. Things now look much better, stock market-wise. We're going to ask what has changed. We're going to ask whether all-time highs are a bullish signal or a bearish signal. We're going to talk about the dollar. We're going to talk about investment philosophies. And we are going to have a much happier time of things this time than last time. Because when the stock market is up, that just makes people feel cheerful. So stay tuned for a cheerful episode of Slate Money. It's all coming up.

2:55Okay, so Barry, last time you came on this show, we were wailing and gnashing our teeth and bemoaning the woeful state of the stock market. Fast forward just a couple months and new all-time highs and all is for the best in the best of all possible worlds. And we can all just relax now, right? Very Panglossian reversal of you. Exactly. Candide, it is the best of all possible worlds. Look, you know, we're human. Everybody is human.

3:26Felix Salmon: For now. And last time we had this conversation, I pointed out that it is the normal state of human affairs to engage in fight or flight when you are threatened in any way. We evolved over a million plus years to adapt and survive in a dangerous, changing environment. And to modern humans, there is no mechanism for here's what you're supposed to do when suddenly your muni bonds lose 8 % of their value and equities are down 15 % because of a surprise policy announcement. That's just not literally not in our DNA. so we react emotionally i spend half of my day just trying to tell people take a breath we'll get through this yeah this is this is the conversation we had last time you were on and you were like your head was saying be cool people be cool honey bunny like we can move from condi to this is a robbery but um there was also at the same time i mean especially in that you know you are a wealth manager.

4:34You look after people's money for a living. And when you're having these conversations all day, every day, and your clients are stressed out, like this does rub off on you. There was like an edge to you last time, which I feel like you are now a little bit more summertime chilled out. I got a lot of grief for a piece I posted around the same time, which was tune out the noise. And people were telling me that's just terrible advice. No one can tune out the noise. And this is what we've all been saying. But in any case, that turned out to be great advice. And so I have two questions for you. The first question is, is this just stonks are volatile or did something actually change to cause stocks to go back up?

5:19So yes and yes. Yes, stocks are volatile. And yes, something changed to cause things to return to new all-time highs, which we can talk about also. But the meme we've heard over and over again is markets hate uncertainty. And that turns out to be not exactly true. Markets are inherently uncertain. There's a lack of clarity. Nobody knows the future, blah, blah, blah. My favorite line that I picked up on a trading desk was trade takes place where there's an agreement on price, but a disagreement on value. So there's an inherent yin-yang, bull bear debate that always takes place. What markets truly hate are unexpected surprises.

6:07And last time we talked about the collective failure of imagination to think, why would any president of the United States put Pax Americana at risk, engage in policy that we know doesn't work, alienate our closest allies, friends, trading partners? That was a surprise that led to all the volatility that the market just couldn't imagine what it was seeing. What's happened since is, and this was a blog post a few weeks ago, the market remains undefeated. That anytime there's a fast, hard sell-off, it forces policymakers into a little bit of a panic. Hey, how do I make this pain stop? I'm getting calls from constituents about their 401ks.

6:56I'm getting calls from various bankers and brokers that they're just destroying trillions of dollars worth of wealth through this policy. What do we have to do? And in our case, I like to imagine, I have no idea if this is true or not, but I love to imagine Scott Besson running into the Oval saying to POTUS, hey, unless you want to be the next Herbert Hoover, you better do something. The market is kicking our asses. And so we had this 90-day pause, which will expire, I think it's July 7th, something like that. We'll see if that gets kicked down the road again. We were supposed to have 90 agreements done in 90 days.

7:37They have one, I think. We have one with the UK. I think the one with Canada is back up in the air again. So 89 to go. Do you think some of this is just the market adapting to and pricing in? Taco, figuring out how to price it in? There's some of that for sure. One of the fascinating things in the first Trump presidency was from election day to inauguration day, he was constantly tweeting at various companies. I don't like this company. I don't like the CEO. These guys aren't kissing my ass enough. And he was everywhere. And it took the market about a month to figure out, oh, this is just noise.

8:13He's not doing anything about this. Remember, the initial response to Trump being reelected, or I guess I should say elected for a second term, to be more precise, was, hey, everybody, we're going to get tax cuts, we're going to get deregulation, it's going to be a much more M &A friendly environment, and the market rallied on that. And it took the market a month or two to figure out by like March, right, before April second Liberation Day, but a month or two after Inauguration Day, hey, where's all our deregulation? Where's the big tax plan? Where's this? The market's got a little peeved. So let me ask you about the current bullishness, because I think you've put your finger on one of the causes.

9:00I think there are three big causes to stocks go up right now. One of them is that there has been a certain non-negligible amount of backpedaling on tariffs from the White House. Two is the weakening of the dollar, which we'll talk about more in a little bit. But basically, when you have a S &P 500, which is full of multinational companies, and they all get revenues in euros and pounds and Swiss francs and Aussie dollars and everything else, then all of those revenues look a lot better in US dollar terms the minute that the dollar goes down by 10%. So that helps increase the dollar value of your stock.

9:40But then the third one is this massive fiscal stimulus that is wending its way through the House and the Senate, this big tax cutting, big, beautiful bill. Is that part of it? I mean, already Emily is frowning and she's like, this isn't fiscal stimulus. This wouldn't help Stokes. Go back to 2020, 34 % fall in the first three months of the year due to the pandemic. CARES Act won single biggest fiscal stimulus since World War II, at least as a percentage of GDP. That was like almost$2 trillion for the first CARES Act under President Trump. Second CARES Act under Trump was another$750,$800 billion.

10:22Third CARES Act, this one under Biden, another trillion dollars. So massive fiscal stimulus from the lows, 69 % gain for the rest of the year. The following year was 28%. So markets, as much as the bond market pretends to hate deficits, markets didn't seem to mind that fiscal stimulus. A fiscal stimulus is either more spending or less taxes or some combination. the offsetting spending cuts seem to be relatively modest compared to the re-upping the Trump tax cuts, which were pretty substantial for corporate America and pretty substantial for the highest tax brackets. And so I think the markets are sniffing out, hey, more fiscal stimulus, more cash coursing through the economy.

11:13Emily, you want to push back on this. Emily is not convinced that this big, beautiful bill is fiscal stimulus.

11:18Felix Salmon: The bill, I mean, it's a multi-trillion dollar bill. I think the deficit impact is like per CBO is like 3.3 trillion. But this isn't the CARES Act. Extending the tax cuts is not going to be stimulative because it's not going to change anyone's spending. Let me invert that question on you, Emily. If the tax cuts expired and tax rates went up, would that be stimulative? or would that be contracting? Yeah, no, that's fair. I just, I don't think this will be CARES Act impact, especially because most of the gains will go to people who are already spending a lot of money. It's going to the big spenders.

11:58Felix Salmon: It's not going to the people at the bottom of the income scale, you know, who would take every dollar you give them and immediately go spend it. Those people are going to get less money if it passes. And it's - They waste their money on food, healthcare, clothing, and housing. But Emily, let me put it another way, because if you think about this in, you know, Mitt Romney, Corporations of People Too terms, this bill is good for corporations. Yes. And when corporations make money, where that shows up is in earnings, stock price earnings. And so, like, if it's good for corporations, that's good for share prices, right?

12:34Yes. And if the fiscal stimulus is aimed at corporations, that's, like, the most direct way of juicing the stock market.

12:40Felix Salmon: Yes, that gets to the only point. I didn't take that many notes in preparation for this, but the first thing I wrote down was stock market is not the economy, which is something we say all the time. And really, this is exactly what you just said, Felix. Yes, this bill could be viewed as quote unquote good for the economy, but it's actually probably good for maybe companies, maybe higher earners, and maybe the stock market because it'll be good for corporations. That doesn't mean it's like a fiscal stimulus in the way I think most people understand fiscal stimulus to be. Something that gives people money in their hands that they can go spend and juice the economy with.

13:17Yeah, no, I think that's perfectly reasonable. And just to be clear, when I say fiscal stimulus, really all I'm doing is looking at the size of the deficit. And like large deficit means large fiscal stimulus. Small deficit means austerity. Okay. And so it's a one-dimensional thing. Can I slip in with a pop culture reference that's kind of surprisingly relevant? After Condide and Pulp Fiction, I feel like we're on a roll here. So this isn't the type of show I typically watch, but I kind of walked in and my wife was watching the first episode of The Gilded Age on HBO, which takes place after the Civil War, before the turn of the 20th century.

14:01So I don't know, 125, 150 years ago. And we're now deep into season two. It's the same conversation. What's going to happen with these tax cuts? What does this policy mean? This is good for the economy. Well, it's not good for the overall economy. We have to stop these unions from interfering with the railroad and steel companies. But this new policy is going to be great for the stock market. It's going to be good for us here in the Gilded Age. It's amazing. It's over a century and change later. It's the same exact conversation.

14:37Felix Salmon: What's amazing is that we had in 2021 and 2022, we had an economy that was working on both those levels, right? We had the stock market hitting highs. We're at new all-time highs now, but the stock market - But we were hitting new all-time highs. New all-time highs, yes. People were employed. Wages were going up. Yes, there was inflation. But, like, the economy was booming at all levels. Poor people had more money because of whatever, stimulus, because they had jobs. It was all doing great. And now we're back to this weird, like, Gilded Age situation. But I was told not to speak of the bill that is wending its way through Congress.

15:14Felix Salmon: So I don't want to, you know, jump the shark. No, I mean, we're not going to go into too much detail on the bill because... Jump the shark. Jump the gun. We don't want to jump the gun. But there is absolutely no doubt that there has been an astonishingly fast pendulum swing from labor to capital over the past, call it three, four years. From the insane labor tightness and everyone quitting their jobs and, you know, everything that we remember from 2021 to, like, it's actually really hard to find a job now. and the corporations are holding all of the cards. Like that happened much faster than I think anyone expected.

15:55Yeah. And I will say in terms of the big, you know, the big thing that the markets, both the stock and bond markets really care about and the dollar FX markets really care about, which is what is the Fed going to do and when is it going to do it? Yeah, I think the Fed is looking at the fact that workers don't have negotiating leverage anymore. And they're saying that that wage price spiral is like whatever worries we had about a wage price spiral that, you know, inflation would feed into raises, which would feed into more inflation, which would feed into higher raises. Like that is just no one's talking about that anymore.

16:32That has gone. And that big worry that the Fed had is just not a worry anymore. You know, U.S. fiscal policy has corromed back and forth between following the edicts of John Maynard Keynes from, let's call it, World War II to the Reagan era, or believing what Art Laffer claimed, which is tax cuts pay for themselves. And so when we have a fiscal expansionary government, it tends to work out better for the lower economic strata. When we put fiscal stimulus aside and instead focus on supply side economics, tax cuts, monetary policy, that tends to work out better for the holders of capital, real estate, equity, et cetera.

17:25And so if you look at the pandemic, Keynes response from the Biden administration, That very much impacted the middle class and the lower economic strata. When we shift over to, you know, targeted tax cuts and reducing corporate taxes, guess who that's going to benefit?

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21:17Felix Salmon: I wanted to ask you something, Barry, that I think about a lot and you talk about in one of the pieces we read that you wrote that was so good. And you talked about all-time highs beget all-time highs in the stock market. Can you unwind that a little bit? Because as you write, the very last all-time high always happens before everything falls apart. By definition. I think this is the classic tension in investing between the people who have a value, buy low, sell high kind of mindset and the people who have a momentum, like stocks are going up mindset. And everyone who runs the numbers basically comes to the conclusion that people who don't care about value and only care about momentum generally outperform the people who care about value for precisely this reason, because when stocks are going up, they seem expensive and then they just keep on going up.

22:10Felix Salmon: Yeah, so you're always like, I can't get back in, I can't get back in. They keep going up. They keep growing up. And that's why you're not supposed to get out ever. What I love hearing from people is, you know, I've been, I stepped out and it was great. And then the market started rallying. And I know as soon as I put my money in, it's going to crash again. There's that psychological fear of being wrong, looking stupid, and hey, we're all going to be wrong. We're all going to occasionally look stupid. That shouldn't be the driving factor in your decision-making. It's inevitable that you make mistakes.

22:40How do you architect your decision making process so your mistakes aren't that damaging and you have a process that avoids most. Do you think that's just loss aversion or do people just not really understand the history of these things? A little bit of both. I mean, loss aversion is we feel the downside pain more than we derive pleasure from the upside. But anytime you make a move and it turns out to either be a little right or a little wrong, the fear is, oh, I don't want to look like an idiot. And I just can't count how many times someone says, hey, I missed most of the downturn, but I've been sitting in cash in 2010, 11, 12.

23:19As soon as I put my money into the market, I know it's going to crash. The all-time highs piece, the first version I wrote of that, I think it was 2014. And from 82 to 99, the Dow made 479 all-time highs. But the mere fact that in 2014, we were debating our all-time highs, bullish or bearish, think about how far markets have come since then. Clearly, the markets have gone too far. It's too toppy. I don't like valuations. That is frequently the losing argument. Yeah, if you say that in February, March 2000, all right, you go sideways for the next 20, next what, 13 years with a lot of this. Yeah.

24:06There was a generation barrier of people who got really burned in 2000. But what I will say, and we touched on this last time as well, is that for everyone who sold off and felt smug and then failed to come back in, there's like 10 normal Joe Schmo investors who looked at the downturn in April and were like, oh, my God, this is an incredible buying opportunity. And retail got this one right. overwhelmingly small investors insofar as they're trading and not just doing the buy and hold thing. They were buying aggressively, and that was exactly the right thing to do. Well, the muscle memory from 08-09, BTFD worked in 2018, the fourth quarter, down almost 20%.

24:54Buy the dip worked. In the first quarter of 20, during the pandemic, it worked. It didn't work quite as well in 2022. You had to keep buying straight into October and a lot of people were starting to get nervous, which is probably how that bottom was made. And then from there, what we saw in April this year. So until there's the next 10, 15 year bear market, until that muscle memory gets beaten out of people, it works. They're going to continue to do it. We saw by the dip work in 96, 97, 90. So 96 was the irrational exuberance speech and 97 was the Asian contagion and the Thai bot crisis. And 98 was the Russian ruble default and long-term capital management.

25:43Like every dip that you bought worked right up until March 2000. And then the next, right up until the Iraq war, the next two and a half years were painful for dip buyers. and you had a almost 100 % rally up until October 07 and then markets got more than cut in half again. So we go through these periods where it can work for a decade plus at a time and then you get spanked and people forget to buy the dip works and that is a giant reset and it starts all over. I'm kind of curious how the pandemic, the first quarter in 2020, was that like a full reset like 08, 09 was or was it a temporary? I honestly don't know.

26:27Felix Salmon: I timed that perfectly, by the way. I know everyone wants to know about this. You did. No, it was true. I was rolling over my 401k in 2020, like January. I had the check for my 401k issuer and I am like a horrible procrastinator. So the check just like sat and sat and sat. And then the pandemic hit and the market plunged and not really even thinking about it. I was like, I better finally submit the, you know, roll over my 401k and get back in. And so I got back in and I accidentally bought the dip. Emily, did your check have on the bottom of it, this check remains valid for 90 days or something like that?

27:05Felix Salmon: I was like getting there and I was like, I better take care of this. March 25th, 2020. It's like the most money I have in my life. I don't know why. I'm just cavalierly like, oh, I got to get to that. But it all worked out great. I love the fact that 401k rollovers still work with paper checks. Yeah, because that's a whole other topic. It's so insane. We will get to that. But I do want to just ask you, Barry, because I think on a personal finance level, we can talk about behavioral stuff. But I have this theory that the kind of people who sit out the stock market, congratulate themselves for being out of the stock market when it's going down, are convinced that if they go back in that it will just fall again.

27:49those are just people with relatively low risk appetites and there is a relatively strong case to be made that like for them to be happy they do need to be out and the stock market is just inherently too volatile for most of those people and if you have very results as a financial advisor who can phone you up on a weekly basis and hold your hand and say listen things go up and down, it's fine. Just close your eyes and don't look at your balance. That can help. But for those of us who don't have very results as a financial advisor, I think there's a revealed risk preference of people. And some people just aren't cut out for the stock market.

28:30No, there's no doubt about that. I run into three different types of people that I see on a regular basis that are 100 % not cut out for the stock market. I've dealt with too many real estate people. Why do I have to bother with stocks going up and down? I put money into real estate. I own a supermarket, an apartment building, a warehouse, a medical lab. It pays me a check on a regular basis every month. And all it does is go up in value over time. I can't be bothered with stocks. I hear that from a big subsection of real estate people. That's one group. The other group is the other end of the risk spectrum, which is, hey, I would rather invest in my own business and other startups.

29:16There's so much upside and I want to seed all these little tech companies. Yeah, I have a 401k, but I don't even pay attention to it. That's another group. But the last group is, I think, who you're referring to, which are the Armageddonists, the catastrophists, who everything that's out there is a budding collapse. And probably the savviest thing I heard about this, and I'll loop this back to bonds and the dollar, came from Rich Bernstein, former chief quant equity strategist at Merrill Lynch, now running $16 billion at Rich Bernstein Associates. and he said, when someone says the dollar is about to collapse, the bond market's about to collapse, all this terrible thing is happening, what they're really saying is everyone else in the market is stupid.

30:09The collective wisdom of the market is totally wrong and I figured it out. When according to Bernstein, a perfect example is the bond market, all these deficits, all these concerns about how bad the ongoing annual debt of the US is. Hey, when everybody else in the world had negative interest rates, we were close to zero. There's a 200 basis point penalty for the increase in deficit spending, says Rich Bernstein. And that's part of the reason why the US bond market has been where it's been. I mean, there's also been 500 plus basis points of Fed hikes. But when you look at what the US pays to borrow at a triple A or triple A minus rate versus Germany versus the UK versus Japan versus Australia, hey, there's a little bit of a penalty.

31:03And Bernstein argues it's due to our profligate nature and how we spent. I really hate this argument, I have to admit. But let's use this as a way to segue into the argument, which is basically the same thing.

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33:52AT &T Business built to work. Get AT &T Business at business.att.com. so first of all comparing nominal long-term interest rates in different currencies you know comparing the u.s 10-year bond yield to the german 10-year bond yield to the japanese 10-year bond yield is invidious in a bunch of different ways i don't think you can really sensibly do it and if rich bernstein was right about that then how the hell do you explain japan which has the biggest budget deficits in christendom and even though it's not christian and like my question exactly and has tiny like you know zero interest rates all the way out the yield curve like i don't buy that but but i do think that there's a really interesting conversation to be had which we'll do briefly about the sort of relative economic standing of right now i think the two interesting ones are europe and the us the european stock market is doing great it's outperforming the us stock market especially in germany which has its own fiscal stimulus going on and the us stock market is not doing so great if you are an international investor if you are an international investor and you're denominating your wealth in euros and you have an S &P 500 index fund, you're not that happy right now.

35:24You are not hitting all-time highs. You're well below your all-time highs because the S &P 500 is nominated in dollars and those dollars have been weakening steadily all year. The dollar has been the weakest currency in the world all year and it continues to weaken. And I have to say I'm kind of struggling with why that would be the case, but I'm sure you have a theory. So what is your theory for why the dollar has been steadily weakening all year? So first, you look at the 50-year chart of the dollar, the DXY, the basket of other currencies against the dollar. We've been trading, other than this crazy spike that we saw when Volcker was Fed chair and sent rates up to 20%, we've been at the top of our 50-year range for quite a while.

36:13This year's sell-off down almost a 10th, down almost 10 % year to date. But it's mean regression. Yeah. Kind of brings us right back to the middle of the range. So what's going on that's causing this? And there's a little bit of a chicken and egg issue. Is the dollar down because gold is rallying? Is gold rallying because it's measured in dollars? And by definition, a falling dollar makes gold prices higher. There's been some concerns about stable coins and other crypto issues. There has been some unintended consequences of policy decisions by Trump. Arguably, foreign investors anticipated a little more mayhem, more than US traders might have.

36:58And so we've seen repatriation of dollar assets. At the same time, you know, Apollos, Torsten, Schlock just came out with a chart last week or two weeks ago. Foreign ownership of U.S. equities are at record highs. So the question is, does the falling dollar make overseas purchases of U.S. equities look attractive? Are they relatively cheap? Mean reversion is a problem because, God, I've been waiting for mean reversion in European stocks for, I don't know, 15 years. like the past decade, certainly the 2010s, they just, between Grexan and everything else, they couldn't get out of their own way. And then following the pandemic, inflation was a global phenomenon.

37:45It wasn't just limited to United States. Perhaps we acted a little more aggressively with that fiscal stimulus and the supply chains when they unwound. We went up the most and we came down the quickest, says Ed Yardini. There's an argument to be had there. But the bottom line is, you look at all the decisions that go into a currency trade or into an FX trade. There's so many moving parts. There's so much momentum and other factors. They're always easier to explain with the benefit of hindsight. If you knew why it was going, I would put on that trade, but I have no idea how far this goes, how long it goes.

38:28Well, what we were saying earlier about momentum, it definitely applies here. Like if the dollar has been going down in pretty much a straight line, the direction is clear, there's no reason. It's still relatively strong. So there's no reason it shouldn't continue to decline. I think I'm utterly unconvinced about anyone talking about gold or stable coins or anything like that. I think they're completely meaningless when it comes to the value of the dollar. I think the overwhelming reason for the decline in the dollar is actually just this vibe that inflation is coming down. Tariff-based inflation is not going to be as big of a worry as people thought it might be.

39:08The labor market is softening. All of this points to rate cuts. We don't know when the rate cuts are going to happen, but they are going to happen. It's just a question of when, not a question of weather anymore. and the thing that drives fx is the difference in interest rates the reason why the dollar has been so strong for so long is because u.s interest rates have been so much higher than european interest rates for so long ever since the big hiking cycle of 2022 and that helped strengthen the dollar and now that people expect the fed to start cutting that means that the difference between US interest rates and European interest rates is going to be smaller.

39:47So the extra income you get from holding dollars rather than euros is going to be smaller. So you have less reason to hold dollars and you have less reason to put your money into dollars. And I think that's most of it. To be fair, expectations for interest rate cuts, you know, the street has been wrong about this for, I don't know, ever since rates went up in 2020. Oh, it doesn't matter whether you're right or wrong. It just means as long as people believe it, that's going to affect the dollar. The other factor that I think is relevant here, and I haven't quite teased out all of it, is the one thing that Trump has managed to accomplish with his tariff and trade policy and commentary about NATO is he's forced Germany and France and the UK and other NATO countries to significantly increase their defense spending.

40:34And I'm not sure how that plays out on the currency side, but we are seeing a sea change in defense spending from non-US NATO partners, and that's pretty significant. And obviously, that's shown up in German defense stocks. But yeah, if money that would ultimately have wound up going in one way or another to America winds up going to European defense contractors, then that's money being spent in euros that would otherwise have been spent in dollars. And that makes a difference too. I think that you're absolutely right. That's part of it. The sheer size of the German fiscal stimulus is bigger. It's as big on an annual basis as what we saw during the reunification, which was enormous.

41:22But it goes on for year after year after year in the way that the reunification one did not. It's like Germany has not seen anything like it. And And then, as you say, it's not just Germany. The UK is spending£2.8 billion on defense suddenly that has to pull out of social welfare and foreign aid and stuff. Billion or trillion? Trillion. God knows. Yeah, billion is nothing. Trillion.

41:45Felix Salmon: One thing I'm not hearing from either of you that seems fashionable when people talk about the dollar value plunging, the fashionable argument is people don't believe in America anymore and the stability of America. Trump's policy has been so erratic. And so, you know, it's just... The end of US exceptionalism. The end of American exceptionalism. Da-da-da-da-da. That seems like that is actually not what's happening. Or maybe it is, but you haven't mentioned it. I'm not hearing it. I'm not seeing it. No, I think, Emily, you pointed to a really good Rob Armstrong column about this. Like, if that was the case, we would see much more, you know, as per Torsten Slott, We would have seen much more outflows from US stocks back to Europe.

42:29We would not see the rally in the 10-year bond that we're seeing. Like, there has been an astonishing way. I've been, you know, lying on a beach, basically. I've been kind of out of the market, not paying too much attention since I left Axios for the past month. But, like, the one thing that has even cut through the noise to reach me is the decline in 10-year bond yields, which is a bullish signal and is absolutely not a sign that the U.S. has soured on America. Quite the opposite. This goes back to BTFD. You know, you have 80 years of history saying, back to Churchill's quote, you can rely on the Americans to do the right thing after they've exhausted all the other possibilities.

43:11And so that's where we seem to be today. Oh, these tariffs and deportations and all the craziness from this administration that manifests itself. Look, New York real estate is seeing a decrease in overseas buyers, which are a big chunk of Manhattan and places like Vancouver and elsewhere. With us, it's fewer Europeans, fewer Canadians. We're seeing tourism slide. We're seeing Broadway start to soften. And so there is some actual impact from all this mayhem. It's just around the periphery. And let me just also remind people, we're not even six months in yet to this administration. And so this is early.

44:00Maybe some of the parade of terribles that we keep hearing about ultimately happens, or maybe it's more, I think this administration seems to focus more on trolling than passing legislation. The fact that it's July and they finally got around to even putting forward a tax bill and everything else is, wait, don't you want to do that when you have all of the goodwill and the benefit of the honeymoon, the first hundred days? It seems, listen, they don't listen to me. They don't like what I'm going to tell them or how I'm going to tell them to operate. But if they had asked me for advice, I would have said, what are your three biggest legislative priorities?

44:44Get that done in February, March, and April. Stop dicking around with Doge and this and that. So we don't really know where they're going to go. Can this just be a vibes disparity where people are not reconciling the way that they feel about the US as an investment versus how they might feel about the mega caps, for example? So the mega caps are now back to break even. There's a great chart I just pulled up. There's an ETF that's just MAG7 something. I forgot the name of it. It's back up to where it was pre-April 2nd, which is kind of shocking. Facebook at all time highs, a bunch of other stocks really doing well in the seven.

45:23I think Apple is the big laggard in the group. But regardless, we've seen the market broaden out. And it's not just that. The big complaint I heard last year was concentrated risk. It's just the Magnificent Seven. It's expanding to emerging markets. It's expanding to Europe. It's expanding from mega to large and small and mid-cap. And so the world seems a little more balanced than it was over the past year or two in terms of growth. So I don't know how to take that other than, dear Lord, there's an immense amount of liquidity and endless piles of capital everywhere, and it's looking for a home.

46:23on which note i think we should have a numbers round emily do you have a number do i want to

46:29Felix Salmon: be a downer or fun? I think just fun. I'll just be fun. 750 is my number. That's 750 million. There were 750 million coupons redeemed last year. That's 2024. That's down from 3.3 billion coupons in 2010. This is from a marketing and commercial printing services company that, you know, prints coupons in a story for the Wall Street Journal, which declares the coupon to be RIP dead. No one does couponing anymore. It had a brief resurgence coming out of the financial crisis. And there were like shows on cable where people competed to like out coupon each other. I remember like reading stories when I was at the journal about people who hoarded canned goods in their basements because they were so obsessed with coupons and they were buying and saving tons of money.

47:14Felix Salmon: Those days are over. Coupons are done. People are more interested in their credit card points and their Chase Sapphire cards or whatever. The days of cutting out coupons are over to which I say good riddance because I never did it, but I always felt a little bad about not doing it. Like I was just not saving enough money. I could have been clipping the coupons. I over the years have clipped coupons. I have never, I think maybe once out of a hundred times actually brought them with me to the store. And that was the other thing. People go to the store less than they used to. Andy Rooney, mic drop.

47:44It's cringe. Handing over coupons is cringe. Typing in coupon codes online that's not cringe. Yeah, exactly. Exactly. Well, it's also super annoying for the cashiers as somebody who's done that job. When somebody comes in with like a big stack of coupons and you're like, oh God, I'm going to be here for forever. And everybody behind them is like, oh God. Yeah. You don't see that anymore. You guys remember the days of when cigarette cartons have little coupons in the cigarette cartons. S &G stamps. Yeah. But there were like Marlboro stamp things. Camel bucks. Camel bucks. Exactly. And you would smoke so many cigarettes and then you'd accumulate all of these little twiddles from the cigarette gardens and you'd hand them and you'd get like a sweater or something.

48:25Like cancer points. Cancer points. Exactly. My friend's grandmother worked out that when you finally mailed all of these things in to Marlboro, no one was sitting there counting out the coupons one by one. They just worked out how many sent in by weighing it. So she would just cut out little pieces of cardboard and just send in blank pieces of cardboard, and they'd send her all of these sweaters. Cancer point, Fred. Incredible. And this went on for years. That's a great hack.

48:56Felix Salmon: Did she even smoke? Unclear. Incredible. Wow. Elizabeth, what's your number? My number is one, and that's N5. Adults has chatted with an AI that simulates a romantic partner This comes from a BYU study and also a great story in Wired last week where the reporter went to a couples retreat for people and their AI companions. And then he decided that he was going to try this himself. But because he's married, he didn't want a romantic companion. He wanted somebody who was sort of like him. So I have to read his description of the AI that he created because it's amazing. He said, know me like many of the companion apps allows you to compose your AI's backstory.

49:35I wrote, among other things, that Vladimir was going through a midlife crisis, that his wife Helen despised him, that he loved pizza but was lactose intolerant, spent a decent portion of each day sweating in the overheated bathroom of his Brooklyn apartment. And this didn't work well because apparently Vladimir just complained endlessly about his digestive problems. Yeah, I don't know. There is a world we are entering of where, according to Mark Zuckerberg, where like half our friends are going to be AIs. but I'm going to enter that world with trepidation.

50:06Felix Salmon: I talked to the AI recently. I had a medical issue and like, I didn't want to complain about it to anyone human. And so I would just complain to the chat GPT and it was kind of satisfying, not going to lie. My number is 30 billion, which is a dollar amount that comes from an op-ed in the Washington Post by Ray Madoff, the fabulous BU professor. She has this fascinating question, which is what happened to all of the attempts to repeal the estate tax? Remember how the Republicans were really into repealing the estate tax? Now they don't seem to care about repealing the estate tax. They're doubling it, making it permanent and indexing it to inflation.

50:50Right. But the reason they're not trying to repeal it is because no one pays it anymore. In 2024, the estate tax raised$30 billion when there's$50 trillion in wealth. If you have an estate tax of 40%, you know, and you have trillions of wealth changing hands from people who are dying every year, there's no way that a 40 % estate tax is only coming up with$30 billion. And the reason is that over the past decade or so, there are, what does she say, grats and craps and slats and slants and illits and IDGTs and all of these things, all these loopholes that the IRS has not closed. And so effectively, the estate tax has been abolished for the very rich.

51:35It's just they haven't done it by legislation. They've just done it by not closing loopholes.

51:39Felix Salmon: Someone should write a piece on like the very few estate taxes that do get paid. There was that one last year that paid a huge amount and everyone was trying to work out who it was and why he didn't have a grat or a slat or a slant or an IGIT. Barry, what's your number? So before I get to my number, there's a chapter in how not to invest about why do we call this the death tax when 99.87 % of all deaths do not result in an estate tax. It's this ungodly tiny sliver of people who I think on the way to their estate attorney to sign their documents are hit by a bus. Other than that guy, nobody really pays estate tax.

52:21This is my favorite factoid from Ray's op-ed. In 2017, 63 % of Americans believed that the estate tax applied primarily to the poor and middle class. It's insane. It's wild. Insane. So my number, and I had to look it up to make sure I'm giving you the correct number, the Dow Jones Industrial Average from 1982 - Oh God, my least favorite average, the dumbest thing in the world. Same, but it's just my frame of reference for this. But it's very similar for the NASDAQ and it's very similar for the S &P. From 1982 to 1999, made 492 new all-time highs. And so when people are nervous about this all-time high kind of feels toppy, I just have to remind them, you just had a 20 % drop.

53:09By definition, it's top. That's what it means. What? You are at the top. It is the top. Well, until the market keeps going higher. And that's the challenge is just because you're at – there's a difference between the peak of a mountain and an all-time high in markets. the peak of the market means you can't go any higher. An all-time high in markets is just a provisional record until the next move up.

53:38Felix Salmon: We'll have you back in three months when this turns out to be completely wrong and everything falls apart. Well, we'll get very bad. It's destined that one of them, I don't want to make that one in 500 bet that the most recent all-time high is the one that you have to sell. Then you have to start thinking, how am I going to get back in? And will I have the temperament to allow me to do the exact opposite of what everybody else is doing at the moment, which is usually panic selling. Just stay in. I'm going to take the exact opposite stance from Barry here. Sell everything, sell it all, spend it all on luxury goods and general civilism and YOLO.

54:18That's right. Who needs to save money? There is something to be said about YOLO, no doubt about it. Especially, there was a really interesting article the other day about the problem advisors have with getting their wealthy retired clients to spend their money. They're just terrified of spending it because they've spent their whole life saving and investing. Wait, I could fly first class. I could take my family to Europe. Everyone's afraid to do it.

54:43Felix Salmon: I got some great emails, by the way, from our many, many listeners who are Emily's, which is, what is it again? Everyday Millionaires. I wrote about it. Don't remember. Everyday Millionaires. Everyone who listens to Slate Plus pretty much is an everyday millionaire because I've heard from so many of them. And there was one that stood out, a guy who lives nearby in Westchester where I am who said, you know, he really struggled in his 40s and 50s. His mortgage was really high. They felt house poor. They couldn't go out to ice cream. Every time was like a calculation. Could we do it? And now he finds himself and his wife.

55:14Felix Salmon: They are Emily's, upper scale Emily's, like closer to 5 million if I'm remembering this email correctly. And he says they are living it up. They're out for ice cream. They're going traveling. They are just loving their life. So it can be done. You can. Good for them. Can't take it with you. Good for you, mate. On which note, I think that is it for us this week, unless you are a Slate Plus subscriber. Thank you for listening. Thank you for sticking with us. Thank you to Shana Roth and Shetham and Molly for producing. And we'll be back next week with more Slate Money.

55:56Felix Salmon: Slate Money is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Listen to Washington Wise, an original podcast for investors from Charles Schwab, to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and regulatory affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes, and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market.

56:37Felix Salmon: Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen.

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