We still have a pretty robust jobs economy but for everything we discussed before about the uncertainty of where we are on the
tightening cycle what comes next. What does that say to an investor. Well right now we're in an in-between stage right now
right. So you if you go back just not too many months ago it became evident that we had a self-sustaining inflation that
there was going to be a tightening monetary policy. The markets priced that in yields went up. You got the tightening of policy.
It's still happening. It's not over. Marcus got a little bit excited about the dip in some of the
inflation. They started to bite on that yield. But we've already given up half of the yield rise that occurred. And that actually
means the Fed needs to do more than if the yields had stayed up where they were. Right. Including equities. So. So we're still
in this thing. We're still in this tightening cycle. And like I said there are really there's gonna be a mixture of three
things. And you don't know what the mix is yet because it's too early to tell. But you're going to get some mixture of weak
growth high inflation and rising interest rates. The more the interest rates rise the more it's the weak growth the less the
interest rate rise the more it's the high inflation. And if the Fed takes that foot off the brake you're going to that inflation
improvement is going to go away. And you know they're going to favor growth. So you don't know what which which how they're
going to play it quite yet. So what we try to do in this kind of environment is is maintain some balance. Right. Diversification
obviously don't. Not too heavily committed to any one direction but also even within the equity market. You know structuring
equity portfolios that have a cash flow and balance sheet base under them so that if you are tightening is very aggressive that
there is a strong enough balance sheet to hold that up to sustain their their their position in the markets or
sustain a positive cash flow. And I think that the companies that are you have a lot of debt in relation to enterprise value
or vulnerable profit margins that sort of thing. You know are they are the type that are most vulnerable for that
environment. So it sounds like an awful lot hinges on the Fed. Surprise surprise Jackson Hole. Coming up next week OK. A lot to
pay attention to. Jay Powell always a safe. Remember last year at this point. He was talking about transitory. Still that
doesn't work so well this year. How much guidance can the Fed give us about exactly where they're headed and some other
questions that Bob just talked about. Well it's hard to hard to know. I do think we're gonna get a financial crisis. Some we're
somewhere pretty soon. It's always been part of the tightening cycle.
But like you point out David you know last year it was really about transitory. He had five because you what you went through
five different things that were proved transitory. And I personally think the Fed is now on the other side of the wrong
foot. You know now they're doing the entrenched. And you know a year ago I thought bond yields would go to 5 percent and Fed
funds go to 5 percent. And I'm not quite sure what's happened but you know money growth has slowed dramatically and my prices
have come down dramatically. And now I'm saying pricing power coming down. And so I think we've made a lot more progress on
inflation than I expected. And that's why the market was going up until today. But that's that's if inflation keeps coming down
then the market is going to appreciate that. So one thing I don't understand Bob we heard why Ed thinks the Fed's job maybe
is going to be easier actually with some of the things that have happened. But financial conditions actually have not tightened.
Actually if anything that is somewhat looser that makes the Fed's job harder does increase in recent weeks. Yes. Yeah. I
mean the first half the first half of the year that literally the first quarter the markets were doing the Fed's job entirely.
And then the Fed joined in. And once the Fed joined in and the market saw some positive signs of inflation you know they
actually pulled back. And so bond yields came back down. Equity yields you know came back down.
And so you know that as you said about half of the tightening that the markets were applying has been retracted. If if yields
had stayed where they were it would be that much less that the Fed needs to do. But the
fact that the yields have actually dropped some can kind of given back some of the work that they were doing. Is that much
more that the Fed needs to do. And so I think you know it's
Ed referred to last. You know you raised it. And you know we talked about last year's Jackson holes. But
they were clearly wrong about transitory inflation. If you actually look at the indicators that they follow and they tend
to be lagging indicators. I haven't heard yet an explanation about how they. Think
inflation. Why they think there is an inflation why they think that that was wrong and I think that that causes some say caused
you to question how well this trust this process is going to be managed is very
very tricky. Well that's a really powerful point I think. Does the Fed need to explain to us what went wrong and why they're
not going to do a mistake again for us to really believe in this time. Be helpful. But you know from my vantage point as you can
see what they missed was that fiscal stimulus quantitative easing led to a 30 percent increase in the money supply and that
did it. And if you look back at that Jackson hole they completely missed that. Now money growth is plunging and my
prices are coming down. All sorts of signs that early signs. And so the job is not over by any means but there's progress. And if
you look back at the 70s when inflation peaked the stock market started to respond to that. When you had a very high inflation
period like we have now. Do you agree with that. In all likelihood we'll have some sort of financial crisis that that's
what happening happens in serious tightening cycles. The odds are pretty good. Yeah yeah. I mean we haven't had
enough tightening yet to really have that but odds are good. Yeah I mean we haven't had the downturn yet. If there's going to
be a downturn it hasn't happened yet. It's going to be hard to bring inflation down. How are you going to bring nominal
spending down from 10 percent to 5 percent without a significant contraction in credit. You need to slow credit growth by about
half. Money growth is slow but you need to slow credit growth in half. But it's still rising. You're going to have to you're
going to have to hold interest rates up enough. And that's one thing. That's when bad things happen.