Rumors of Job Market Demise Have Been Greatly Exaggerated | Jack Farley & Max Wiethe
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The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. Thank you. Let's close this door. Very pleased to welcome to Monetary Matters, my good friend and business partner, Max Weethy. How you doing, Max? Doing well, Jack. Excited to be sitting in your chair. Let's get right into it. It was the big jobs report today. Unemployment ticked up a little bit. How did you read it?

So 227,000 jobs added for the month of November. That would be a big, big month if the market was expecting 100,000, but it was expecting 200,000. So it was only slightly above expectations. The unemployment rate, which is derived from the household survey, did tick up as the number of

people who were not employed actually went down by 368,000. So down 368,000 in the household survey, up 227,000 in the non-farm payroll, but it is the non-farm payroll that Wall Street pays attention to. The unemployment rate comes from the household survey, and that's why it ticked up, I believe, from 4.14% to 4.24%. So a full 10 basis points going up. This was not like earlier in the year when it went from 4.2% to 4.3%, but it went from

4.24% to 4.30% and it's actually six basis points. So the unemployment rate did go up a lot, but I think the SOM rule is not really in play anymore. But I want to talk about the retail sector because if you look at what sectors added jobs,

The retail sector lost 28,000 jobs. And I've been seeing this narrative out there that that is a really bad sign because the lifeblood of the economy is spending and consumer spending and going out to shop. And in November, Black Friday,

Getting ready for Christmas and retail employment went down, non-profit payrolls for retail went down by 28,000. This is a disaster. I crunched the numbers and I'm relatively confident that that take is just completely wrong. And let me tell you why. So over the past 10 years in November, the average number of retail job gains for the month of November, going back 10 years, is 640,000.

And half of the time it was a negative number and half of the time it was a positive number. So for example, last year in 2023, it lost 42,000 jobs in 20, before that 2022 in November down 22,000. It also lost 22,000 in 2019 and in 2016. So this whole thing of everyone, these retailers hire like crazy in November. It's just really not true. Also the sector of retail is in kind of secular decline because of online shopping. So there are, there are,

Almost as many people worked in retail 10 years ago as, as working in now. And,

To quote Tony Soprano, this isn't the 70s anymore. This ain't the 70s. And I'm not a kid. The real growth in the retail sector was in 1960s and 1970s and 80s. And it really has stalled out. And also, let's go back, not just looking at every November over the past 10 years. Let's look at every month going back 10 years, starting in 2015, November. The average monthly gain per month since then has been 29%.

Not 29,000, not 2,900, 29. So basically the sector hasn't moved in 10 years with some ups and downs. So the fact that this sector lost 28,000 jobs right before Black Friday, right before Thanksgiving, just a narrative. I don't believe it.

How do people, I mean, it's been 10 years. Obviously, this data is not hard to come by. Like, how do these narratives become so sticky and so pervasive when it's right there? Well, it isn't right there. You had to download the report from Fred. You had to look at every single month of November. If you're a regular quant geek, I'm sure you know how to do that in five seconds. For me, I had to figure out another way to do it. So it's not right in front of you. And I think that's reason number one. Reason number two, everyone likes bad news.

everyone wants there to be a narrative or people are interested. It's grabs headlines. If people click on it, if, Oh my God, here's a sign that there's a crisis. Yeah, definitely. I mean, I just put out a post today of like a fund manager that I interviewed on my own show. And he was like, yeah, launching in 2008 was fantastic because look, when, when the shit hits the fan, like that's when people are making changes. That's when people are paying attention to their money years like this, when your PA is up,

a lot for many people who have caught crypto and other big trends. Yeah, maybe you don't think you need to make any changes in your investments. You don't really need to be paying attention to financial media.

Yeah. Stocks only go up. Crypto only goes up, right? Yes, forever. But what about another sector? I know healthcare was one that you wanted to touch on today. Right, Max. So retail lost 28,000 jobs in the month of November. Private education and health services gained 79,000. And that has been extremely strong. And Max, this has been also a narrative that, oh, manufacturing and

finance and all these other jobs, retail, they're weak and it's only healthcare and government. Well, I mean, does the government and healthcare not pay you? These in some cases can be lower quality jobs,

lower paying jobs. But if you make a prediction that the unemployment rate is going to go to 6%, and then it goes, it doesn't, it goes to 4.1%, you can't say, oh, well, it's only doing this. Now people are looking at private payroll. So that is a societal, I'd say not really an economic issue. And Max, I'm going to make a comparison between the healthcare sector in terms of employment and Danaher, the company Danaher.

which I do not own, but I've seen in 2021, someone talked about how it was, it had output down hard, had outperformed the S and P on a one year time basis on a three year time basis, five year, 10 year, 20 years. And back to going back to inception, I believe Donahair is one of the best performing stocks in terms of annualized going back into since inception. I don't really know what it does. It's a conglomerate. I've never owned it, but I'm just bringing down an example. I compare that to the healthcare industry. Why? Well, the,

The Bankrete Capital Advisors, they have this fantastic tool created by Eric Pakman that I really like to use. And it's a great way of visualizing what sectors have contributed to job growth and which hasn't. So healthcare and social assistance, which is a slightly deeper down level than just private education and healthcare, but healthcare and social assistance has been the

most number of jobs added on over the past month, over the past year, over the past two years, over the past three years, over the past five years, over the past 10 years, over the past 15 years, and over the past 20 years. That is why it is the Danaher. So this, this country is a country where the healthcare employment has just absolutely exploded. And what is one thing that healthcare employment does not care about at all interest rates.

Yeah, definitely. Well, I guess my question would be there's sort of like two obvious mainstream narratives for that. One would be the aging of the country and the aging of the baby boomers and that as we get older and fatter and less healthy, we need more people in health care. And the other would be the rise of the health care administration and the administrative nature of health care that is becoming more

If you look at the number of people who like work at a hospital, like what percentage of them are healthcare providers and what percentage of them are administrative. And I know that percentage has, has exploded and similar things in education. So when you think about this, this growth of the healthcare sector, like what do you think is driving it? I, I think it's every, it's everything you said. And I think that the American healthcare industry has very high administrative costs and those people have jobs. So it's,

You could say one reason of the strength of the economy is based on that. That doesn't mean it's a good thing or a bad thing, but economically, I believe that is accurate. Well, Jack, I think that you made this comment before. That's a societal problem, not an economic one. The jobs are there, they are paid, and I guess-

the growth of administration within these sorts of sectors might have societal problems as it might be more difficult or more expensive to get the healthcare that you need. But the reality is that is what is driving the economy forward. Yes. Okay. Now I know as far as employment goes, there's really two ways to look at it. You've got the establishment surveys, which are looking at institutions and

and businesses, and then you have the household surveys. And it has been a big deal, the divergence between what households are saying and what the establishment surveys are saying. How big is this divergence? How wide is it? How persistent has this divergence been? And how does it resolve?

So as I referenced earlier, last month, the employment level declined by 355,000. The month before, it declined by 368,000. And that has occurred in the month of November as the nonfarm payroll actually went up. So these things are...

are very correlated and they often, but not always move in the same direction. But this is, it has diverged before, but it's never diverged like this. And I think Max that a year ago, this is something that people on the

podcast circuit or on Bloomberg would talk about. Maybe they wouldn't talk. Even the economists at Goldman Sachs wouldn't talk about it. The ex-economists from Goldman Sachs who has their own research service, they would talk about it. It was not people who are in the center of the economic world. It is

a little bit on the periphery. Whereas now, we went to an event on Wednesday run by the wonderful people at the Global Interdependence Center where we are both members. And Bloomberg was nice enough to host it that you were hearing some serious former central bankers as well as some current central bankers talk about these very issues, about how just, wow, the nonfarm payroll data, which we look at is so strong, yet the employment level is very, very weak. Now, the employment level is

It's not, it has not gone in a strong downtrend. It is basically flat over the past year, but it is not going up and to the right like the non-farm payrolls.

Yeah, and I think there are a number of topics, not just this divergence that seemed to be popping up at this conference that you had been hearing about. If you are a listener to economic podcasts like Monetary Matters or other commentators who are on Twitter, these are things like, I can't believe that they're talking about this now. This is something that we've been hearing batted about for a while now. But I'm not going to let you weasel out of this, Jack.

I did ask one other question, which is how does this divergence resolve? Do you have a view of how this will go? Who is right? Is it households or is it institutions? I mean, it depends on your bias. If you have a recession bias and you've been calling for a recession, I'm sure you're going to say that it's going to resolve in the way of the household surveys proving right. And if you've been a no landing or soft landing guy, you're probably going to say that it resolves as the establishment survey.

Max, I think a weak point of mine is how economic data is measured. In fact, I think that's a weak point of most people who are not very in the weeds economists. So I think if I had been going through the QCEW and other economic data and talking to people who measure, they talk to people who do that establishment survey, they talk to people who do the household survey, I can give you a confident answer. I just can't.

Yeah. Well, and interestingly enough, like one of the main topics was the deterioration of data quality and that the U.S., which has the best economic data in the world, things are moving in the wrong direction in terms of the quality of the data and that the people who are setting policy based off of this are, you know, acutely aware that the data they're getting is worse than it was a decade ago in terms of this employment data.

Yes. And the survey response rates have declined sharper. So you think that, oh, well, in 2024, the data must always be better than 1994 because things always get better.

Often things do get better over time, but that's not necessarily the case. And the response rates in the 90s and in the 2000s was way higher than it is now. So we can question, is the data giving a false picture? I think maybe it is giving a false picture. One thing I disagree with is that it's intentional. I think it's just the data and people aren't responding to the surveys. I don't think it is people in D.C., corrupt bureaucrats,

Okay, that may very well be true. And we do align on that understanding of it. But I think the question would be the confidence with which policymakers act.

Despite this weakness of the quality or despite the lower quality of data that that policymakers and those who articulate policy decisions are not going to come out there and say, well, we don't really know.

Yeah. One thing I will say is that if there is a problem with the quality of the data, and by the quality, I mean the data is wrong, I think it will be wrong in the direction of the downside, both for employment and for inflation. Definitely for inflation because I just think there's a lot of lags with rents and there's a lot of reports of how actual rental prices are.

are actually flat to down year over year. And also maybe the price will go up 5%, but you'll get a month off. So really it's actually down 1% effectively. And yeah,

So basically, shelter inflation, which is now running at 5%, is actually a lot lower. Now, of course, there still are people who are having to renew their lease and they're being hit with 9%, 10% inflation, but it's about the aggregate. And I think in the labor market, yeah, I didn't want to answer your question, but now I will. I guess my gut says that if the data is wrong, it's wrong to the downside. Again, to go back to the interview that I released this week with

Chris Brown, he talked about when the data came out that showed like Harris winning in Iowa. And he was like, what's more likely that Harris is going to win Iowa or that like this data was bad data? Like, so sometimes, sometimes you do have to ask yourself, like, okay, what is the obvious trend? What is the obvious historical trend?

reference point and it would be like, okay, suddenly, like, a Democrat is going to win Iowa, like, or maybe was this poll done poorly? It's a bit harder here. There's less dominance, obviously, because of the cyclicality of employment of where where things go. Yeah, here's what I'd say. I say that the household survey is not recessionary in and of itself and the employment level that basically the data that looks bad. It's just,

The economy is not adding jobs. It's just holding them flat, which is not a good thing. You want the economy to be adding jobs. But...

I guess if the labor force is growing marginally and then employment is staying flat, that's why the unemployment rate is going up. But the unemployment rate went from 3.4% to 4.2% in over a year. I mean, there are countries such as Canada, our friends to the north, that the unemployment rate now is like in the 6.8%, where the SOM rule has just been triggered. So yeah, I think the American economy continues to outperform the rest of the world.

And I agree with Mark Sandy on that point. Okay. So I want to get into some of the other conversations that happened at this GIC event. As you mentioned, there are a lot of former central bankers there, economists, and even some active central bankers. And, and,

I was surprised, again, about somewhat of the lag between the conversations there and what we see in this sort of podcast world. But they were talking about the same sort of important conversations that you do hear about here. And a lot of the conversation was about central bank independence. Is that a threat? Is that a threat or is that under threat?

for political reasons, literally when you think of Trump saying he's going to fire this central banker if they're not going to do what he wants, like that's direct lack of independence. But then there's the sort of like tail wagging the dog, lack of independence of like fiscal dominance. So that was clearly on the mind of central bankers as well as

some of the other things that they were focused on were reassessment of policy frameworks, which I think there was one former central banker who was like, if you're reassessing the framework every five years, do you really call it a framework? Or is it more of an adaptive thing? Frameworks should have a, I think he said timelessness, a degree of timelessness, which these are the types of things that former central bankers say much more often than active central bankers. They do tend to be

a bit more critical. But what was the tone that you took away from the event? That was what struck me, and perhaps it's my own bias. I agree with you. I think...

The former central bankers are very honest and forthright and direct people. And they are talking about many of the issues that are at the forefront that people on the macro podcast circuit and the economists and the researchers are talking about it as well. And these are some heavy hitters. We won't name names, but in some cases, like the heaviest of hitters. And I think that...

when it comes to the fiscal people talk about fiscal dominance a lot i inter interpret fiscal dominance as the government debt is so large that monetary policy ceases to be effective or at least is now less effective we'll give an example in 1980 and 1981 when debt to gdp was very very low in the us volcker raised interest rates almost immediately caused a recession interest rates went back down

Inflation went back up, the economy exited recession, then he raised interest rates again, and then it immediately entered a recession right again. And so when I say immediate, I'm talking about a matter of one to two months. And that entire recession out of recession, recession happened in the span of 18 months of 1980 to 1981. I mean- Highly effective, highly potent monetary policy. Yes. We are not in that world anymore. I mean, I don't think where the US economy is-

humming along with some with some wobbles, but it's humming along and

The Fed started to raise interest rates like two and a half years ago, and interest rates have been high, and I would say restrictive, for well over a year. And inflation has come down, but you haven't seen a real amount of weakness in terms of spending and in terms of employment. So I would say that the monetary policy has been less effective. That's not necessarily a bad thing. But I think that has to do with just the stock market.

not necessarily of government debt, but just the liability and interest rate sensitivity structure of the American economy. Many citizens have a exit mortgage that they took out when interest rates were very low. And when the mortgage rate goes from two and a half percent to 7% on the margin, new home buyers and borrowers get totally screwed. But if you locked it in at 2.5 or 3%, as so many did, you don't feel that pinch at all. Likewise, many

very wealthy and large corporations borrowed in the bond market at very low interest rates. And they continue to be fine. They locked in their low interest

interest rate. And some companies have been paying down debt. I think Delta's interest expense is actually lower now than it was in 2021. It's kind of a niche scenario because they borrowed incredible amount of money because they were bailed out by the government and otherwise would have gone bankrupt. But I think that in the high yield bond market, high yields are somewhat high, slightly elevated, but because spreads are so low, high yields are not nearly as high yield

Yields are not nearly as high as you would think, given that the Fed went from zero to 5.5 and now 4.75. So I believe that Alberto Musselum himself, current president of the

Federal Reserve Bank of St. Louis, and this is on the record, it's on the Bloomberg podcast YouTube page, so I can repeat this. He said that, and I'm going to paraphrase, that if you look at the overnight risk-free rate, it is quite restrictive. That's what the Federal Reserve controls. But if you look at capital markets, financial conditions are somewhat loose. Again, I'm paraphrasing. He also said that

to paraphrase that he sees a risk that if the Federal Reserve cuts interest rates too soon, that term premium could widen in the bond market and that the 10-year yield, the 30-year yield could go up. And that could cause a weakening in the labor market or a downturn. And again, I'm paraphrasing. That's interesting, Max, because that is almost exactly what Andy Constance said to me one to two weeks ago. So talk about people saying stuff on monetary matters, former hedge fund managers, former...

chief economists, but not current Federal Reserve presidents saying this. And then you go into meetings and the Federal Reserve presidents are saying it as well. Quite interesting. Yeah. And I guess, look, your definition of fiscal dominance is like the accurate run. I'm talking about are central bank activities actually dominated by these fiscal considerations? And I think the most obvious example of this would be like the Bank of Japan. Like,

The question is not whether their monetary policy is potent or not. It's are the decisions that the Bank of Japan is making, how influenced are they by the fiscal situation? I think that that is a far more interesting question than this sort of potency question. That is interesting.

I don't believe that in the Federal Reserve, there's a lot of evidence of people saying the bond market is too big. The government is just spending willy nilly. We've got to bail them out.

In terms of the stock of debt, I think if you look at the functioning of the Treasury market, that is where the Federal Reserve steps in. And they did that in March of 2020. But again, it was a market functioning factor. It was not that the government was borrowing so much money because the government borrowing was mainly almost exclusively, I believe, in the very short term bill market, which is always very liquid.

There was issues with the 10-year note and the 30-year bond. However, that wasn't because the Treasury was issuing them. That was because they already existed and there was a basis rate blowing up. I'm not an expert on this. I don't mean to sound like an expert on this. But since you bring up Japan, I will say that I think the Japanese citizenry, it's my understanding that they have been very unhappy with the weak yen and therefore that actually the

In Japan, the government does have an input, let's say, in the Bank of Japan's policy, and there

It would therefore be politically attractive for the Bank of Japan to actually raise rates. Whereas in the past, it was unattractive for them to raise rates because they want cheap money because there's a deflationary, disinflationary world. Now, the Japanese citizenry is very angry about that. They can't go to Hawaii anymore because the yen is at 160 to the dollar. So the Bank of Japan needs to raise interest rates and strengthen that yen.

But I mean, they haven't, I mean, they've raised interest rates very, very small amount and it is well below the level of inflation. So it does beg the question why, if their goal is to keep inflation under control and they haven't done that, I mean, isn't the obvious answer because of this fiscal problem? I'm talking about the future and I think my comment, if it is correct, is

may suggest that the Bank of Japan may raise rates significantly. I think some part of the curve, and I'm embarrassed I don't know the details, but... Yeah, I did see that chart. I don't know if it has since flipped back, but it was definitely one that was...

was floating around. So I want to get into one of the questions that I think every single panelist, speaker, presenter at the GIC conference was asked, and it was, are current US policy rates restrictive? I think we got a yes across the board from almost everybody except for one former central banker who, I forget whose range he cited, but he said that it could be as high, I think, as

the R-star could be as high as like 6% or something like that based off of a range that he gave. So only one person said that he did not think that current policy rates were restrictive, but he did put a level much higher. I mean, what did you think about the consistency with which people seem to say that rates are restrictive at these levels?

Yes. And that individual who was a former Federal Reserve president, he when he cited, you know, 5.5, 6%, that was the nominal R star, not the real R star. So it's not real star 6%, then plus two of 8%. He was not saying yeah, yeah.

But I mean, I think interest rates are restrictive at four points. The interest rates at 4.75%. It's going to be 4.5% in a few weeks. And inflation is at 3%. So that's a real interest rate of 1.5%. That's higher than it is, has been historically. There we go. But does that, and then, but simultaneously, every single person who cited this and who said this was like, and the economy has never been stronger.

So there's a, maybe it is restrictive, but you know, I study physics in school. Air resistance is restrictive, but depending upon the mass and the speed, the velocity at which an object is going, that restriction could be effectively non-existent.

Right. That's very different than there is a brick wall in the way of of this object that is moving along. And those are restrictive means very different things. So, yeah, I was just struck by every single person's like, oh, yeah, it's definitely restrictive. But economy is humming along so fast. So, well, first of all, Max, your physics knowledge.

eludes and amazes me, but everything is relative. You say it's not a brick wall. A brick wall is nothing to a missile. So I think the US economy in nominal terms is hard to exaggerate just how hot it was in 2021 and 2022. Why? The economy is about growth rates.

And the economy was in a depression in March and April of 2020. So in April 2021 and April 2022, the growth rate from that trough was extremely high. In some cases, 40%. And then by 2022, it was 15%, 12%. So the economy...

interest rates of 5%, 5.5% have been restricted. They have slowed the nominal growth or nominal spending, whatever growth metric you want to talk about from 12% to 5%. And so that restriction has caused inflation to go down, nominal stuff to go down, but inflation has fallen by much more than the nominal stuff that has gone down. So actually real growth has gone up.

And that is why the economy is so good. It's good only if you adjust it by inflation, which has gone down.

In nominal terms, the economy growth rate is lower than it's been by the past three years. But again, it's just been so high over the past three years. Look, the answer is I don't think that's really I just don't think you can have it both ways. And this is like one of those like economist things. I don't see how you can out of one side of your mouth be like, yeah, the policy rate is like far too restrictive. We need to get it down and then also be like economy is so fucking strong. I just don't it. It may very well be true.

It may very well be true, but it's one of those things that like when you talk to people about inflation, they go, yeah, but the prices aren't going down. And then and then be like, well, it's about rate of change. Well, then maybe you should find a new way to talk about this thing. Yep. Max, there is the way that people feel and about about inflation.

And that matters 100% when there's an election. And how economists view it matters, and how investors view it matters 0% when there's an election. I'm not really talking about that. I'm talking about markets and judging whether...

judging economic growth, like real, real growth is at 3%. And that's very good for two years ago. Inflation was at nine. But I guess going back to like the, the potency of monetary policy, like perhaps it's not that monetary policy is any less potent. It's that they're like futzing around with like, uh,

the theoretical level of restriction and less like the empirical result of it. Did the economy retract as a result of our monetary policy actions? Is it resulting in measurable slowdown in the economy or not? In nominal terms, it is, yes.

The rate of economic growth has gone down, but the inflation has gone down by more. So real growth has gone up. All right. Well, let's move on to what really matters, the market. We are in this 12th month of what has been a ridiculously hot year for stocks. What are you making of it? I mean, you've got people on one side who...

Say it's another one of the bubble of all bubbles. And then you've got a whole other group of people who's up forever. I mean, I have been bullish on the market. I don't really know. I just happen to be bullish on stocks that go up. I haven't really made a call on the S&P, nor will I. I feel like the higher the market goes...

the higher valuations go. And therefore in a rational world, the lower longer-term return expectations should go. And if we live in a rational world, that is how it should work. In a short-term world though, no one loves. And short-term can be one, two, three years. So yeah, the market was probably a little overvalued in 1988, 1999. The bears got destroyed. And some of those bears were the smartest micro-investors ever, such as Dan Druckenmiller. And I don't think he got destroyed, but he did talk, he has talked about how he was...

fighting the bubble a lot of the way up and then he got

bullish at the, at the top, which just should make all of us humble. But I've just got a few stats for us, Max. So year to date, the S and P has done about eight 28%. And if the market did nothing from here until the last day of the year, let's say it's up 28% for the entire year. That would be better than 84 out of the past 95 years. So going back to 1929, ominous place to start. I know the S and P has had a better year to date year only 11 times. And

That would put it in roughly the 88th percentile. However, that is doing calendar math. Oh, January 1st to December 31st. That's totally random just because of the way that the Gregorian calendar is and the stars and the moon. The way I like to look at it, which I think is slightly better, is one year rolling returns. So unfortunately, my data only goes back to 1980. But based on where we are now, the market is currently up, let's see,

33, 34%. And going back to 1980, that puts us in the 95th percentile. So the market, however you slice it, has done enormously well. The bulls are celebrating, the bears have been destroyed, but I think it might be even more that way than the year-to-date return suggests. Okay. And do you see anything standing in the way of this?

Max, no one knows. And if it was my job to be at work at a big bank and have S&P 500 predictions, it would be my job. I'd be paid pretty well, I assume, but I would be my job to just

put my finger in the air, have a target and then be wrong. And if I'm wrong, then I get vilified. If I get right, if I'm right, I get celebrated. Like I'm sort of genius, but really it's just, it's just luck. So I don't know who the, who the hell knows. Yeah. I mean, we haven't seen like new supply come on. If you think about the blow off in, in 21, like we saw all those SPACs come to market. We saw a lot of, of crappy companies, um,

come out. Like we're not quite seeing that yet. I mean, maybe meme, you could argue meme coins are the equivalent this cycle or this time around, but you know, we certainly are not seeing that. I mean, I do wonder somewhat, look, I think about taxes and whatnot. Do you really, do you want to sell in December and pay taxes in a few months? Or do you want to, do you want to sell in January and, and have a year before you have to pay your taxes? That, that,

That is something that I think might take us through December. What happens after that, I'm not sure. But certainly, I don't think anybody wants to lock in a bunch of gains right now and end up having to pay taxes on them in a few months. Yeah, I guess... I don't really know. I feel like people pretend that...

they can predict like the seasonal flows. I mean, I don't really know. I'm a little bit of a skeptic of that. I guess if you have losses, you want to sell them this year. That way you can realize those losses, but you can always just realize it next year. I don't know. So can you explain that? Yeah, basically. Okay. I own, let's say I bought a bunch of Bitcoin like last December. I don't know exactly what it was at, but let's call it like 35, 40.

If I sell it in the beginning of 2025, and I want to lock in those gains, right? I believe that the cycle has ended or whatever. If I sell it now, I took the gain now. And whether it's short-term gains, whether it's long-term gains, depending on however it is, it's still part of the tax year of 2024. And so when I go to do my taxes in the spring, that will be a part of it. But if I sold it in January, it's...

Yes, I still owe the same amount in taxes, maybe different if it's long-term versus short-term, but it's for 2025. And so that bill is at least put out. And I might realize more losses, especially if I'm somebody who believes that this is, we're getting extended, might have more losses to offset those throughout the year of 2025. And so that would be something that would have me thinking,

Has me not worried about a big December sell-off.

I don't see anything that would make somebody want to pay all those taxes in a few months versus getting to wait, potentially offsetting them after we've had such a ripper of a year. That makes sense. Yeah. I mean, I guess if you look at the entire S&P 500, it looks over a lot of it. I mean, all of it looks overvalued, but there definitely are pockets of areas that are very attractive, like

I don't own this company, but actually I won't even say the name, but it's a company that has a price. It's gone up like a hundred percent this year, but it still has a price to earnings ratio of seven and it's buying back stock. So does that sound overvalued? No.

I mean, of course there's FICO, which has a trailing price to earnings ratio of 120, which yeah, I'm not terribly excited about a price to earnings ratio of 120, which in terms of an earnings yield, that's less than 1%. So that would be like basically 80 basis points yield, which is pretty bad compared to a 10-year note of above 4% and then cash rate of also above 4%. So yeah, there are pockets that are overvalued. There are pockets that are not overvalued.

Overall, the S&P is relative to history, richly valued. There's no ducking that. S&P is expensive relative to history. It's expensive relative to other foreign markets, which it often is because American companies tend to compound at a higher rate and have assumably a lower geopolitical risk. That has been the historical assumption. It is also expensive relative to cash.

And it is relative to expensive relative to bonds. It is, I don't think it's the one thing it's not expensive to is credit. High yield spreads are like 3% and investment grade credit spreads are, and high yield spreads are extremely, extremely tight. So yeah,

I think that if you're an allocator who's allocating between stocks and corporate bonds, stocks are not unattractive. We assume, well, it's stocks versus cash versus the 10-year note. But I think a lot of these people in the endowments and institutional investors are like stocks versus high-yield bonds versus private credit versus private equity. So relative to those other risk assets, maybe stocks are slightly less unattractive. I don't know. What do you think about that?

Well, I think that none of the things that you're talking about are what are driving markets clearly at this point, which is why I was getting into the tax. It like people are making money like that and the psychological, like,

of other people making money or you making money are, I think, what is probably driving markets more so than how people feel about the earnings yield of whatever it is that they're buying. So I don't disagree with your analysis. I only agree

point out that clearly that's not what is driving things. I do want to take it back to one of the topics that came up a lot at GIC. It didn't dominate the conversation. I don't think anybody really wanted to turn the whole thing into a political debate, but clearly tariffs and what the policy is going to be moving forward is a huge unknown.

And potentially has massive ramifications for stocks. And we are not going to know exactly what the policy is going to be until January and the months after that. So the potential shock of tariffs is still like the big unknown. And where we are now, we don't have to worry about that.

until January. I think that there might not be the IPO market and new supply coming on or SPACs or anything like that, that sort of like marks the end of this. I do. And look, depending upon what the policy decisions are, like it might end up pushing us even higher and making this thing go on even further. But I think there was near universal agreement that

the current pricing of equities does not factor in blanket tariffs. Max, so I think there was near universal agreement that tariffs could have shock-like potential. And when you hear that from someone who's on a podcast versus when you hear it from a

former central banker who, as I said, some of the heaviest hit in the world, it hits different. But I'll say, I don't think they're central bankers. They didn't really talk that much about the stock market at all. So I think you're saying shock like potential is bad for markets. Sure. But you're the one making that conclusion, not the central bankers. I'm pretty sure it might not have been the central banker. I think it might've been the economist or

for Moody's Analytics, who said that it is most certainly not priced in. Yeah, Mark Zandi said that, sure, yeah. Yeah, Mark Zandi said that, and I don't think anybody in the room necessarily disagreed with that. It wasn't a very bold statement to make. It was, I think, matter of fact, but

You know, he got lots of questions. There was debate about whether policy was restrictive. As I said, almost every single person, whether they commented on that or not, received some degree of questioning about it. When Mark Zandi said, yeah, markets are obviously not pricing in

broad-based tariffs. That one, I think everybody just took that. Yeah, it's about right. Yes. And I think there will be a lot of people who are hurt by tariffs, but there will be some tariff beneficiaries. I think Citrini has done some interesting work, which is

We covered somewhat in our interview. I'm happy to say I will be interviewing Citrini once again in December. I just want to give Max a taste of who else I'll be talking to on Monetary Matters. So I'll be talking to Felix Zuloff. That should be coming out very soon. I'll be talking to Vincent Delawal, Daniel DiMartino Booth, Michael Howell, Daryl Duffy, who is talking about a heavy hitter, a

one of the most well-respected monetary economists on the planet. And then I'll also be talking to a former regulator who I will now have remained nameless. But that is one thing that, you know, so much uncertainty of Trump's presidency. I think one thing that is a little less uncertain is that there will be increased deregulatory pressure or more likely less regulatory pressure on the financial sector. So that means increased M&A, which benefits

merger and acquisition banks that do that kind of stuff. It also perhaps could strengthen banks because they could do take over each other and form, have some synergies. But also basically Basel III and proposals that require banks, particularly large banks, to hold more capital won't go through. So that is a topic that I'll be speaking with someone from who is very, very plugged into DC.

just about that whole world. And I also want to know just about the non-bank financial sector as well. If banks are actually a little less deregulated, might that actually hurt non-banks because non-banks have been such a beneficiary of the handcuffs or handcuffed light that have been on the banks since 2009? Yeah, I mean, they've definitely been the non-bank. Private credit has definitely been a beneficiary of the unwillingness of

traditional lenders to step in and whether that's regulatory or whether that's a business decision. I mean, clearly the degree to which lending from banks to these non-banks has increased would lead one to believe that there is still appetite for lending out there. So it might be regulatory in nature. But yeah, I mean, I think M&A obviously benefits, but I'm still not sure when the IPO window opens.

Like if you read like marketing material or like blogs from high banks, there's always green shoots in the IPO market. So I don't know where to get some, I mean, other than just seeing things finally coming to market, like I don't know where to get any, any sense of that side of the market. Well, Max, I think one thing investment bankers, not that you and I are in that business or ever have been, but I think that they do is they do what works. So for example, land bridge, right?

a company that you IPO in June, even after its decline, it's what 20% decline over the past few weeks, it is up 170% since his IPO. So if there was another oil company, a company that just owns tons of land that people could drill on and generate royalties, but also

perhaps some interest in people building data centers to use the natural gas for maybe Bitcoin money, but maybe the data centers and artificial intelligence, then they would do that. But I think there is a lot of IPOs that have IPO'd over the past year that have worked because a lot of stuff has worked in markets. And I think that there will be more IPOs.

I think there will be just because the market's done so well. I mean, I don't have any proof of that, but it's just a feeling. Well, so I put out a podcast with Dan Rasmussen, who has a rather critical view of private equity, and a friend of mine who is a lawyer who mostly does work with employee buyouts of private companies.

So these are where the existing employees, maybe alongside private equity or whatever, are buying out

the existing usually family owners of it. And I knew that this existed and that people have done this, but it was really interesting the way that private equity is now almost embracing this. And the cynic in me, the skeptic in me was like, well, they're having such trouble bringing IPOs to market. Who's the mark? If retail is not the mark, and then why not the employees? And so you can

kind of seem like the good guys. Okay, what we're really doing is we're empowering these employees and we're creating this alignment here. It's a great story. Who doesn't want to hear that the employees or the keys are being handed over from the family that built it to the people whose lives they've improved and who've built their lives around working at this company? It's a great story. And I'm sure it's one that maybe with co-investment in these sorts of things from private equity, maybe they can get some favorable feedback

tax treatment or whatever on the buyouts. I don't know how that's going to evolve, but my head was like, okay, it's really interesting that we're not seeing IPOs and suddenly private equity is saying, we should be having employees buy out these companies. So who knows? Maybe it's not going to be the IPO market that these private companies start changing hands. That's a really interesting theory. You'd probably write about that. I forget who, I was reading a report

just about how there's basically three buyers for private equity companies, another private equity company. Like 40% of transactions. Yeah. An IPO or a strategic buyer, i.e. another company. And the IPO market has been closed. Strategic buyers are just a little pessimistic about valuation. So it's been a lot of private equity buying other private equity companies, but also just holding on and they're not being distributions of money because there's no realizations or low realizations.

I think one thing that, again, I don't want to say it's new just because it's just because it's I heard about it or now the audience has heard about doesn't mean it's new. I mean, these things have existed for 15 years, but private equity continuation vehicles. Basically, they they took they take companies that didn't sell that and that are still in the portfolio and they're getting a little long in the tooth and they put it into a new vehicle that now the investor.

The new investors have a chance to invest in that. The private equity general partner, GP, can invest in that. And also I saw a report from Bloomberg that now hedge funds are getting into private equity continuation vehicles. So necessity is the mother of invention and we'll see how these things go out.

I think a lot of the private credit money that's being raised is being lent to companies so that private equity companies can pay a dividend. I don't have the stats on that, but I think it is. I know it's definitely happening, but I don't want to pretend like I know more than I, more than I do. Yeah. And obviously I played the cynic a little bit on this employee, employee buyouts and my friend, obviously it's his business and he is, is

a proponent of employees buying out businesses. And so he did point out that they're like aligning employees as owners can have operational benefits. If you are an employee and suddenly you went from, I own nothing, I'm just making a salary to if the company is more profitable, if we're more thrifty, if we...

operate more efficiently, I see the benefits of that as an owner. Clearly, you can see how that alignment might work. And so if you can co-invest as a private equity company alongside the employees, and so the employees are seeing the benefits of their own labor, that it might work out well for the private equity investors as well. So that's the non-cynical take. I do have to throw that one out there. Yeah. And a great macro thinker and writer and

podcast guest and well, the friend of mine, Jared Dillion, when he came on the Monetary Matters, he talked about shorting private equity. And I don't think that that trade has worked out. I mean, I just know Blackstone, Apollo, these stocks are at all time highs and continue to go up. I think Apollo and Aries are both like on the short list of potential S&P 500 additions on the most recent rebalance. Wow, I didn't know that. Yeah, I mean, Aries and Apollo are

That business model, I will say it impresses me. Of course, the valuations are extreme. And as I've said before, I am very impressed by Mark Rowan and what the Apollo team has built. But I do think, even though I wouldn't necessarily short these companies, definitely, but I do think that there's some truth to what Jared Dillion is talking about. And I think in particular,

particular, like when the private equity industry started. And it's also my understanding, there was like leveraged bio transaction that happens in the 60s and 70s. And even the 1920s, it just wasn't called leveraged bios, it didn't become an industry. But one of the first private equity deals that became well known, I think was the buyout of Gibson's greetings cards. And I don't know the exact details, but it basically was bought on 80 to one leverage and with a three to one or

So insane multiples and the returns were like 50 times. So when the private equity industry is extremely small, you can find deals that you do like that. Now there are thousands of private equity companies. So the idea that you're going to take these dental companies and roll them up and generate huge efficiencies, and you're not going to generate the same amount of returns as

gives us greetings cards. And Mark Rowan has publicly said that he thinks IRRs, internal rate of return for private equity deals, will be lower than they have in the past. I think maybe Apollo can say that because I think the Apollo IRRs have been... Gross IRRs have been like 40%. Net IRRs are 20%, 21%. And of course, that's an internal rate of return. So what the investor actually sees is probably slightly to substantially lower than that. But yeah, I mean, I think...

it is what it is yeah all right jack well are there any macro themes i mean we obviously it's less of a macro theme but like you know trump and and what policy is actually going to materialize in 2025 i think is pretty dominant in terms of the known unknowns for 2025 but what are the other things that you are are interested to see develop there's

Obviously, we've made tremendous progress on inflation, but still above target, depending upon what measures you're looking at. Is that fight going to be finished in 2025? What are the other things that you think we're going to get a little bit of finality on? I have a weakly held belief that inflation is finished. And by finished, I don't mean going to 0%. I mean going to 2%. I just think rental, shelter, CPI is...

very lagging and coincident data tells me that actual rental inflation is lower. Does that view factor in the Trump elephant in the room? Because he's a real estate guy? No. Oh. No, just the view that inflation... I mean, obviously...

Look, there's plenty of people who will tell you that tariffs are not inflationary, but I think they're wrong. So if we do have tariffs, if we do deport workers, it's...

seems to be inflationary. Does this view that inflation is done? Does it factor in those potential changes, which are maybe months away? Yeah, maybe if I were to critique my own view, I'm not seriously enough considering the view that Trump policies will actually be

Substantially inflationary. Yeah, maybe they are. Okay. All right. So the monetary matters house view is inflation is done, but perhaps not quite factoring in

these political uncertainties coming next year. What are some other monetary matters house views for 2025? I don't know, man. You don't know? Do you want to like, are they going to cut in December? Oh yeah, they're going to cut. That's an easy call. I mean, it's priced at 90%. So yeah.

It's an easy call. It was a hard card to make when a former Federal Reserve president on Wednesday made it when it was priced at 60%. But it is priced at 80%. I think they're going to cut. One thing I don't understand is why the somewhat robust job markets data caused the market to price in a higher chance of a cut. I guess it's just it wasn't insanely strong. But how much were people preparing for? 400,000 NFP? I don't know. Yeah. Yeah.

I feel like we're exiting a world. I feel like I'm increasingly surprised. I feel like by reactions to data, because last jobs report was super weak, adding 12,000 jobs. And probably a lot of that was hurricane and other factors. And the bond market, instead of rallying, it actually sold off. So I think I'm seeing data and the market is reacting in a different way than

than I think, which was definitely not the case. Like in 2022, inflation came hot, bonds sold off. The job market was insanely strong, bonds sold off. And I think now, not only do you need to predict the data correctly, which I have obviously no edge in, nor do I try, but you need to make perhaps counterintuitive calls on how the market's going to react to the data if you're going to trade macro, which I mostly don't.

The obvious example of that is when they finally did make the pivot, the way that Bonds reacted with everybody, rather than Bonds rallying on the start of the new cutting cycle and were headed back down lower.

in terms of the front end, like log into the curve really went the other way. Max, we will leave it there. Thank you for being my partner in crime on this episode. Yeah, to people at home wondering why is Max coming in? Max is my business partner and host of the Other People's Money show. And we've had a lot of guests on Monetary Matters. I figured this is a day where it's just

talk to the founders, have it be a little bit more casual. But again, we've got some very, very big heavy hitters. Other heavy hitters like Max on Monetary Matters, like I'll be talking to Felix Zulauf on Monday. That, of course, will be airing on Wednesday. Max, you've had some heavy hitters on other people's money. Tell people what is the thesis of other people's money, as well as, Max, we've been getting in the comments a little bit of people questioning, why are we having this other people's money show?

Maybe it's a little bit boring. Some people, one guy so bold as to say, Jack, you are ruining your channel. But when Max interviewed someone who has compounded at a thousand percent year total since he started his fund in 2008. So Max, why are you ruining my channel? When of course it is our channel. Well, Jack, I mean, I'm mostly just trying to tear you down from the inside, but, but no,

The point of the show is that there are, what are we going to do? Are we both going to interview the same people asking them the same questions about markets? Like we need to have a bit of differentiation. And there are plenty of other very good podcasters out there who are doing things alongside you focused on markets, macro, monetary policy, what has happened, what will happen, and

So I don't think I have much to add to that. It's nice every once in a while to come on here and do that. But there really is a dearth of content about the business of investing.

And there are a lot of people out there. And I can tell you from the conversations that I have with people who are actually in this business that the dearth of content out there has caused a dearth of understanding. Which is an opportunity. Yes, which is an opportunity. So that's really what it is. What is the underserved market here? The underserved market is not hot takes and macro calls and stock picks.

There are people who do that very well and they have great viewerships as a result of that, but it's not a market that I want to go compete in. I much would rather focus on a market that I think is underserved and that is predominantly professionals.

I jokingly say that there's three types of listeners to any podcast. There are the actual people, the people who are in the business. They're doing it every day. You talk about what traders are doing, and that guy who's listening is one of those people. And they can either say that is exactly what's happening or it's not what's happening. Then you have the people who are aspirational, who are on the fringes. Maybe they're students. They've just started out in their career. No, they're not on a desk pulling the trigger.

on some of these big trades, but they're analysts who are involved in getting information to those people who are making the decisions. And then you've got the people who are observers who maybe they understand that they are on the outside of this thing, but they want to look at it. And then there are the people who they're on the outside and they think they're on the inside.

That maybe is an entirely different subset of people. And this show is really for the first two people that I mentioned. The people who are in the business or really want to be and they have a path to it. So we do get comments from people who say, I don't understand who is listening to the show. And the reality is that the show probably doesn't suit you in the same way that your show does, Jack.

So I think that that's really where some of those comments are coming from. And it might not even, it wouldn't suit the former heads of the central banks who we were meeting. Like it's, you can be, you can be a heavy hitter and not wanting to start a hedge fund or trying to grow your hedge fund. Like it is a very, very niche that is underserved and that's why we're doing it. But you know, a lot of people are interested in,

oh, I want to talk to Steve Cohen about how he has generated alpha over his multi-decade career. That is probably a smaller audience than macro, but it is a way bigger audience than, Steve, how did you start your business? How did you get GP capital? How did you raise money? How do you actually grow a hedge fund? Nothing to do with investments. Although I think you should be doing a little bit more on the alpha. I mean, I do want to know, Chris Brown, where's all this alpha?

a thousand percent alpha coming from. And, but yeah, I think it is, you are right. That is very underserved about how to actually start a hedge fund. Yeah. And we are going to branch the show out. Actually the next two guests that I have booked, they are about the investment management industry, but we're getting a little bit outside of hedge funds. So I'm talking to somebody about the long only world, long only investment boutiques in the United Kingdom.

That'll be the next episode that comes out next week. And then actually somebody who you and I have both interviewed more on markets and macro, Warren Pies of 314. He has had one of the most successful active ETF launches, I believe, of...

And so I really want to talk to him about the research business and how that evolved into an asset management business in the form of an active ETF. Because I mean, the number of ETFs that are coming to market is just staggering. It feels like almost everybody, if you talk to them about starting investment management business, it's a huge debate. Should we do a private fund? Hedge funds are in decline, or should we do an ETF?

Myself, I like to say if you can justify it, like 2 and 20 is a much better business model than 100 bps, which is going to be under pressure as well, like in perpetuity. But clearly, active ETFs are increasing in popularity, but they're still very hard to garner assets.

So very interested in talking to Warren about that other side of his business. But to your point, Jack, I'm going to drip in a little bit more trading content, talking about strategies. And all of you and your comments, we do hear you and we do want to make something that serves you. The show will still be tailored towards a more professional audience, but

But, you know, we don't want our viewers to be bored or anything like that.

If you want a little bit more trading content, we hear you and I will definitely work on working that into other people's money, whether it's within these episodes or if it's additional interviews to supplement the current series. So Jack, it has been a lot of fun sitting in the Monetary Matters chair, getting to hear your side of things. Maybe next time we do this, I'm going to hold your feet to the fire and make you give us a stock pick. Well,

Well, the next time I think we'll do this could be the day of Fed Day. Got a lot of great guests right after Fed Day. But I think for Fed Day, you're going to be on the clock, Max, talking to me. So I think I'll have a lot of hot takes, but I'll be fired up just by Powell and that energy. I don't know if you'll be able to get a stock pick out of me. I did talk about LandBridge on, I think, the Paul Sankey interview. So that is up like 60% since then.

but I did not participate in that. So that's the people's alpha, not my alpha. Yes. Okay. All right, Jack. Well, let's leave it there. Thank you. People can find me on Twitter at Jack Farley, 96, much more importantly, people can find max on Twitter at max. We fee W I E T H E and OPM underscore pod or OPM pod just at OPM pod. And you can watch it here on YouTube. We have, if you're listening, uh,

Right now on Monetary Matters, I'm sure you've seen the episodes come across on Monetary Matters. We are going to continue to do that for a little while, but we have our own feed and it's really helpful for us to grow the show, to be able to showcase that we've got this audience that's really interested in the professional side of finance.

If you can go and look and follow and listen to that on the Other People's Money podcast feeds, if you are a Spotify, Apple, or other podcast listener. So we really appreciate that. And yeah, if you don't like the show, please keep telling us. We want it to be better. So as much as Jack and I will back ourselves in the comments on YouTube, don't pull any punches.

Yeah, don't pull any punches. And also, if other people's money isn't for you and you just like Monetary Matters, that's fine. But also maybe something you like other people's money, but you think it could be better, then bring the heat on Max. And same, if you think Monetary Matters could be better, bring the heat on me. I could be polite in my response to you. I could bring the heat back to you. But either way, we really appreciate it. And we really appreciate reviews on Apple Podcasts and Spotify. If you say something nice about us on YouTube,

comment. It marginally helps the algorithm, but it just makes us feel great and we appreciate it. But it really does help us on Apple Podcasts or Spotify if you leave a review. So thanks again. Also, Max and I do have another thing cooking. We're not ready to disclose it, but our media business is only one side of our business. We've got something else cooking. More to come. Until next time. Thanks again. Thanks, Jack. Thank you. Disclose this door.