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Unknown A
I tend to be sort of in.
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Unknown B
The Stevie Cohen camp. It's not like the bottom is going toa fall up, but there's like a lot of room for concern. I guess it's the best way to put it. Nick, I don't know if you can find that clip at fii, but he had a very precise summary of how he saw the world and I frankly just agreed with everything that he was saying. So he probably can say better than.
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Unknown C
I when you take a brew of tariffs. On top of that we have slowing immigration and in addition now you have Doge. I mean, that's austerity. We think growth is going to slow to one and half percent from two and a half percent in the second half. And so I'm actually pretty negative for the first time in a while and it may only last a year or so, but it's definitely, I think the best gains have been had and wouldn't surprise me to see a significant correction.
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Unknown A
I think a couple of very specific thoughts. The first is that you're starting to.
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Unknown B
See this compression of the Mag 7 towards everybody else.
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Unknown A
So this is the forward PE of these guys.
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Unknown B
And so what you're starting to see is everybody else starting to capture back some of the ground people are processing what the real upside of of the Mag 7 IS.
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Unknown A
Now, if you go to the other chart, what this starts to show you.
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Unknown B
Though is that Mag7 is really price to perfection. And so you have to believe that.
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Unknown A
The world kind of stays the way.
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Unknown B
That it is, otherwise you're going to have some amount of mean reversion.
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Unknown A
So I think the stock market on.
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Unknown B
The margin is a little expensive and not particularly that attractive.
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Unknown A
Second, the bond market has basically said, okay, we are going to give you credit, that DOGE is going to work.
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Unknown B
And that tariff are going to work.
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Unknown A
So we've had some pretty meaningful compression.
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Unknown B
In the 10 year, which I think is really interesting. I think it's very good for Bess and for Trump. And I think I've mentioned this before, but we got to go in and you refinance $10 trillion in the next six months.
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Unknown A
So you could see this thing maybe.
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Unknown B
Even get under 4% if we get a good string of data.
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Unknown A
The real problem I think though is that if you look back and say, what does this look like? The example that I would give you guys is in 2010 in the United Kingdom, the deficit as a percentage of GDP was 10%. And the UK government embarked on a multi year austerity plan and they said, we're gonna get the deficit as a percentage of GDP back in line. And ultimately by 2016, it got to 3%, which is where we are trying to get to. And right now we're a little bit under 7%.
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Unknown B
We're trying to get it to 3%.
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Unknown A
So it's interesting to ask what happened? And there the bond market gave the UK government a ton of credit, so they kept rates relatively low and they brought them back from where they were. That seems like what's happening here. Yeah, the stock market kind of went sideways to a little bit down. Let's see what happens here. But the real big thing is in the uk, all of this created tremendous dissatisfaction and you had Brexit. So I think the question that I have is if we go through a prolonged austerity program and the frustration amongst the American populist builds, what's the release valve there? The release valve was voting to leave the EU here. It'not qu. It's not obvious to what a release.
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Unknown D
Electing Trump was step one. And I don't know if there's something even more populist than Trump.
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Unknown A
No, I think he is the mechanism of implementing the austerity. I think people want this austerity. Just the question is, what happens when the actual byproducts of that austerity are felt by people for six or seven years?
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Unknown B
I don't know what the answer is.
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Unknown D
You've been talking a little bit about this. I don't know if it was a couple weeks ago you were tweeting about the great Reset Theory, and there's whatever that is. The third or fourth turning people have been talking about. You want to maybe encapsulate your thoughts.
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Unknown A
I think you have to figure out what the goal is. So one goal is. You could say that the Republicans want.
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Unknown B
To have consistent political power.
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Unknown A
Right. That's a reasonable goal.
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Unknown B
The Democrats want that too. Right.
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Unknown A
A different goal would be to do what Freiedberg said. We're gonna go and take the lumps.
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Unknown B
Because we are going to defend the dollar and the credibility of the United States.
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Unknown A
We're just gonna make sure that structurally.
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Unknown B
It'S sound and take the pain that's necessary to reset.
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Unknown A
That could be a goal. I think the reality is something in the middle where you can't be in one camp and you can't be in the other.
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Unknown B
Cause I don't think you can get anything done.
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Unknown A
And somewhere in the middle. I think the thing that I have.
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Unknown B
Been thinking a lot about is when.
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Unknown A
Will somebody sniff out what the great coalition is that preserves political power, whether that's the Democrats or the Republicans. The reality is that you will have a consistent majority if you get three cohorts of people together. Cohort number one are the people that frankly don't have many assets and are the working in middle class, meaning they don't necessarily own homes, they don't necessarily have investments in the stock market, so they don't particularly care about what's happening there. Okay, that cohort dominates. There was a clip of a discussion at Harvard just this past week about the different political coalitions that voted for Trump versus Kamala Harris. The most important takeaway that I took from it is that if you make $100,000 or more a year, you're a reliable Democratic voter. If you went to college, you're a reliable Democratic voter. Everything else is a reliable Republican voter.
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Unknown A
But, but the thing to remember is that bucket of everything else is growing faster than that first bucket. So you have this coalition of the asset light working in middle class and then you have other people, patriotic business people and patriotic business owners and technology people that care about innovation that MAGA has been able to corral into a coalition. My point is if that is the consistent, reliable thing that cements political power, multiple elections from now, and we've seen this before in the past where Republicans can go on a three term run or a four term run, Democrats have as well in the past. It is bad news for the stock market and it is bad news for asset owners because it doesn't reward the constituents. Back to Freiedbrook's point. So if you are going to feed your constituents and your constituents don't own stocks and your constituents don't own homes, or they are so wealthy that they can be inoculated from a massive drawdown in those asset categories, what do you think the winning strategy is?
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Unknown A
That is my rough working version of what our version of Brexit is. Right. So if you have many, many years of austerity, what does it really result in? I think if you wanna cement political power, I think it requires a walking down of these asset markets in a meaningful way. That's stocks and that's real estate and I just don't see any other way around it.
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Unknown D
Fascinating. The good news is, I think from my perspective is.
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Unknown A
But by the way, sorry, last thing I would say that's a total theory and I could change my mind as I get more data. But I'm just saying, like, I'm just trying to work through the possibilities and in the distribution of outcomes that's sort.
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Unknown B
Of where my head's at right now.