George Gammon  02:06

Sure. Well, it’s one chart. It’s a chart for home prices adjusted for inflation and size going back to 1900. If you look at that chart, you’ll see how dramatic of a bubble we were in in 2006. In fact, from 1900 to the late 1990s, the housing prices in the United States were flat adjusted for size and inflation, which makes a lot of sense if you think about it because housing should be tied to wages, and wages are loosely tied to inflation.

But then, in the early 2000s, you just see this chart go parabolic straight up till we hit a peak in 2006, and it comes crashing all the way down to 2012. But now, in fact, many markets were higher than we were in 2006. So, I don’t know that there’s anyone that would say we weren’t in a housing bubble back then. So, if we were in one back then, how are we not in one now if prices, even in real terms and in a lot of markets, are higher?

And then, if you look at the price-to-income ratios and a lot of other metrics like that, it’s staggering. But keep in mind that real estate is local and it’s very inefficient. That’s the benefit of real estate. Whereas gold, as an example, or stocks, if gold is selling for $1,500 an ounce, you can’t get someone to sell it to you for $900. It’s not going to work that way.

But with real estate, if you find a motivated seller, you could find someone to sell you their house for a 2012 price, especially if you know what you’re doing. If you take that to an extreme, when you get into markets like Columbia that doesn’t have an MLS or Zillow or anything like that, the market just gets even more inefficient. So, the more inefficient the market is, the more that’s going to benefit the people who understand and know what they’re doing, but the more it’s going to hurt people that don’t have a lot of experience.

Preston Pysh  04:22

Yeah, I think a lot of people forget that you can’t arbitrage the price. Like you can, call it gold, where you can physically move it. With real estate, you’re not physically moving anything. It staying there, so that’s such a huge component of it that you’re hitting at.

George Gammon  04:39

It’s a downside to real estate, for sure. One of the things I’ve been thinking about recently is Chris Cole’s paper, The Allegory of the Hawk and Serpent, where he outlines his dragon portfolio. Everyone always asks the question: Okay, I get it, but how do you go long volatility if you don’t understand options or doing all those things. I’ve been trying to think through how to go long volatility, but I think some types of real estate could be long volatility.

I don’t know if you heard the interview that Hugh Hendry had with Raoul Pal at Real Vision, but it was fascinating to me because Hugh looks at real estate as a macro hedge fund manager, really. He bought these villas, all these properties in St. Barts, and his rationale there was to go long volatility. For Raul, it was the same thing with his place in little Cayman. And so, I guess my point is if you’re trying to construct that type of portfolio, if you get outside the box, there could be some ways to do it through real estate. But to your point, if you don’t know what you’re doing and you buy it in the wrong jurisdiction and you don’t have diversification, you’ve got problems.

Preston Pysh  05:56

I don’t know if this a long-term trend, and I’m curious to hear your opinion on this, but we’ve had an exodus from major cities, call it New York, LA. We’re seeing the prices for rent drop significantly. Is this short term? Is this a long-term trend? What are your thoughts on that?

George Gammon  06:20

My buddy, Jason Hartman, is a real estate expert. I’m always talking to him. In fact, I’m going to grab breakfast with him in the morning. He called a few months ago saying, “I think people are going to leave these high-density urban areas and start moving out to the suburbs.” We’ve seen that play out.

I think that just with my little YouTube side hobby, it’s evident. When we first started, I had all my employees or editors working out of a central office. But then, when COVID came, we went into lockdown. I was in Medellín, Columbia. They had to work from home, so we figured out how to do that. So now, I’m in Fort Lauderdale. I’m going to the Caribbean next week. We just keep going right where we left off because everyone’s accustomed to working from home. We’ll never go back. Even if I’m in Medellín, we’ll never go back to working in an office. It’s pointless. And we figured out how to do it and to do it potentially even better through the internet. I think a lot of businesses in the United States are going to do the same thing.

07:31

Another thing, Preston, that I just heard the other day is how many universities aren’t going back to school in the fall. A lot of them are just going to, I forgot, maybe one month in, and then the rest of the year will just be online. So, a lot of these students are moving out of these college towns, like Tucson, as an example, where they’ve got the University of Arizona. They’re just moving back in with their parents or moving out of the cities or just going back to wherever there’s a lower cost of living where they don’t have to worry about COVID or whatever, and they’re just doing their classes from home. That’s going to have a massive economic impact on those local communities, from the standpoint of the rents, the restaurants –all the services, the bars, the cafes, the shops. It’s like the Titanic, right? Once it starts, you might be able to move it, but it’s going to take a long time to turn that boat around.

Preston Pysh  08:35

Yeah, no. I’m with you. I’m thinking of some of these schools that are downtown in some of these big cities and you think of that population of the student body not being there, having no incentive to come back. If the schools forced the students to come back, will have a liability on their hands. If these students would catch COVID and, let’s just say, God forbid, some of them die, the circumstances, even the medical expenses, if they are able to kick it, they can turn back to the school and hold the school liable because they were forced to be there when it was clearly demonstrated the previous semester that they didn’t need to be.

I think we’re seeing all these schools that are now making it optional. And I mean, come on, if you’re a student and you don’t want to live in downtown DC or downtown New York, not wanting to pay for that room and board any anymore, now these schools are stuck with these infrastructures. So, talk to us. What are these schools to do with the infrastructure? What do these businesses do with the infrastructure?

George Gammon  09:44

I think businesses are going to have a lot of problems. There are going to be bankruptcies and foreclosures. It’s going to fall, potentially, on the banks. I think, inevitably, the Fed will bail them out, but see, there it goes back to the same argument that Brent Johnson has been having with the swap lines. It doesn’t bail out these countries or entities because it’s not a liquidity problem. It’s a solvency problem. It’s the exact same thing as what we’re talking about. It’s not the fact that the Fed or main street four-letter alphabet soup program will give them a loan even if they didn’t have to pay back, but it’s that those students aren’t coming back. That business isn’t going to come back next year or the year after, so that’s a cashflow issue. That’s a solvency issue. If you don’t have the cash flow coming in, you’re just throwing good money after bad. I don’t see how that fixes itself anytime soon.

10:52

There’s also the concern of a lot of social unrest. I’ve been out of the United States, thank goodness, for almost a year, so I’ve just been watching from afar what’s been happening with these riots and looting. I mean, if you’re living in downtown New York or Chicago or any of these high-density urban areas; if you’re among the people I think will most likely start moving out to the suburbs and maybe even a little bit further because of a possible transition to a different lifestyle. People may be thinking, “Maybe it’s time I should move to someplace where, if I had to, I could grow some of my food. I could have just an RV.” I think we’re already moving there with a lot of the millennials, and this might just bring it on that much faster.

Preston Pysh  11:43

We’ve talked to numerous guests about similar ideas, and how all this is playing out with these central banks. The thing that our audience just screams for is: Well, where do I go? Where do I go with my money? The answer always comes back to something scarce, gold, you name it, but when I look at how some stocks have performed for this year, 2020, the NASDAQ is making new all-time highs. And, when we peel into that and dig into what companies are driving that it’s FAANG. It’s the FAANG stocks that are driving all this. So, talk to us about your opinion on people that are investing in some of these FAANG stocks.

George Gammon  12:25

First of all, I think some things are cheap. I think commodities are very cheap right now. I think that’s interesting. If you get outside of the United States, I think there are some opportunities for value investors and traditional types of stocks, but you’ve got to do some homework.

It goes back to starting with the question of: Is it cheap or is it expensive? This is what I preach non-stop on my channel, in the comments, on my Twitter feed. I see so many people with their starting point as asking the question: Is it going to go up or down in price? Or is the market going to go up or down? That’s their starting point. When they start with that, they just try to figure it out. But think about it. You know this as well as I do. No one can time the market. No one can predict tops and bottoms. Nobody. But for some reason, as human beings, we’re just driven to start at the question.

So, as an example, going back to the FAANG stocks; people would say, My gosh! I’ve made a killing on Facebook or on Netflix, whatever, and so I made the right decision. But that takes me back to my days playing Blackjack. That’s what I did when I first started off as an entrepreneur. It really helped me. But just using it as an example that I think most people can understand, it’s like you and me, Preston, at a Blackjack table. We’ve had a few drinks; we’re playing; I know what I’m doing; you might not know what you’re doing, and you get a 19, and you say, “You know what? I’ve had a few drinks. I’m feeling lucky. I’m going to hit on this nineteen.” And I say, “Whoa, whoa, Preston. I wouldn’t do that. The odds are not in your favor.” And you say, “Oh, forget you, George! You’re just too conservative. Have some fun! Live a little” The dealer hits, and you get a two. You get blackjack, and you turn around and look at me and say, “See? If I listened to you, I would have missed out on all of these gains!”

That’s like the people that buy the FAANG stocks or buy Tesla or stuff like that. “Look at you, you’re crazy! Tesla at $1,200 a share. If I wouldn’t have bought it, I would’ve missed out on all these gains.” Right. But you’re going against the probabilities. And although you may have made money, if you continue to do that long-term over the next 10 or 20 years, you will go bust. It’s inevitable.

14:55

So, it goes back to the question, and some people have different answers for this. Going back to the Blackjack table; Did Preston, in our example, do the right thing? Did he make the right decision? He got blackjack. Is he? Some people would say, yeah. And everyone that’s saying that you should have bought FAANG stocks would say yes. He should have hit because he made money. He made the right decision. I would say, and I think Ben Graham and Warren Buffett and every other value investor out there would say: No. He should not have hit on nineteen. Even though Preston won, he made the wrong decision. If people could just remove the outcome from their decision-making process, I think they would be so much better investors. In Blackjack, you don’t care if you win or lose a hand. It’s irrelevant. You have to divorce yourself from even having an emotional attachment to that. You just make sure that you play every hand correctly based on the probabilities. I, personally, would rather lose money on a stock knowing that I made the right decision from a probability standpoint than make money on a stock knowing that I just got lucky.

Preston Pysh  16:18

We’ve talked a little bit about there not being sound money right now, and that the central bankers are printing like crazy around the world. There’s just total debasement. Do you think that what we’re seeing in FAANG stocks is a result of market participants looking at those companies and saying, “These assets that these companies own are not going to be impaired. These things are going to be around for decades, and they’re also intangible, in many cases, where they don’t have a lot of capital expenses, like the infrastructure stuff we were talking about earlier.”? They definitely have the infrastructure, but not to the tune of like TangerOutlets and things like that on a revenue per tangible asset basis. So, when they’re looking at these FAANG companies and they’re saying, “Hey, these have intangible assets sitting on their balance sheet. They’re companies that are going to be around for a while. There they’re highly technical. They’re at the forefront of artificial intelligence. Why don’t I just treat that like sound money? And why don’t I just own that and bid the price?” And they just keep piling into it. Do you think that that’s what market participants are doing by bidding those FAANG stocks? Is that how they’re viewing it or do you think it’s just total exuberance?

George Gammon  17:33

No, I think you’re giving them way too much credit. I don’t think there’s any relationship whatsoever in the stock market today and fundamentals or the real economy. I think they’re completely removed. It’s sad to say that, but it’s all about liquidity. It’s all about capital flow. I think that the reason these FAANG stocks are going up is that these pension funds have to get yield, and the Fed has starved them of yield for so long.

Put yourself in the position of a pension fund manager. What are you going to do? You’re 50% an underfunded like CalPERS, as an example, and you’ve got to somehow come up with a 7% return. That’s just to meet your original obligations if you were 100% funded. I mean, they’ve got to make like, who knows 10, 15% compound returns over the next 10, 15 years. I’m not sure. But that forces them to go further and further out the risk curve. And it’s not just with the FAANG stocks. I mean, they’re levering up to go into the FAANG stocks. They’re levering up and to go into private equity. It has nothing to do with fundamentals. They’re just looking around saying, “How on earth can we possibly achieve this objective? This is the only way we can do it, so we might as well just throw a Hail Mary and just pray for the best, and then hope the Fed bails us out.” We have a Fed put. I think now we have a government, but, and they’re just hoping, man, maybe if they do so many stimulus packages and we get all these Davey Day traders, they take their stimulus checks and start a Robinhood account and go into the stock market, lifting up the FAANG stocks, maybe that’ll bail out the pension funds. I think that’s their only game plan.

Preston Pysh  19:27

That’s what we’ve seen to date. And when we look at what I expect them to do moving forward –I’m really curious to hear what your expectation for them moving forward is –it seems like we’re just going to have more of the same, which would cause the FAANG stocks to just keep going up, I guess, right? What are your thoughts on how much more money are they going to make? Globally, the number I’ve seen is around $5 trillion, and it’s still accelerating. How much more do you think we’re going to see by year’s end? And then what impact is that going to have on the equity market if they would do another $5 trillion to $10 trillion before the end of the year?

George Gammon  20:06

Yeah. Well, I want to be clear to everyone. It’s not that I’m a stock market bull or bear. Fundamentally, obviously, I’m a huge, huge bear, but I can argue for the stock market going up on one day, and the next day I can argue for it going down. Same thing with the dollar. So, if you’re asking me to argue for this stock market to go up, I think you got to look right at the TGA.

20:27

Luke touched on this in your interview with him and Grant the other day, and I thought that was fantastic. I talked to him about it the other day on my show, and I think he said it was $1.6 trillion a few weeks ago, when he was talking to you, and now it’s up over $1.7 trillion, I believe. That’s the bazooka that I think the administration is going to come in and spend into the economy through, call it a second round of stimulus packages, and that’s going to increase the M2 money supply. That’s the one thing that the fed can’t do by printing bank reserves, directly affect M2. The treasury can spend money on the economy. That increases M2 and bank reserves, which is like doing $1.6 trillion of quantitative easing within a matter of two months. If we go back to the last round of stimulus checks, CNBC did a study that showed that the income bracket between $35,000 and $75,000, their levels of trading increased 90% the week after they got their stimulus check.

Everyone’s looking at this and seeing all these people, all these “gurus”, on YouTube making all this money with their rented Lamborghinis, and they’re just playing with the house’s money. They’re saying, why not? Why not buy it? It may hurt when it’s bankrupt, but I can get pennies. I think the Fed’s going to come and bail them out. But why not just take a flyer? It’s just almost the same type of mentality that you have with the pension funds. The Fed is issuing them out.

22:04

Another thing that I think people need to realize about what’s proposed for the next round of stimulus is that they’re going so far as to giving people $4,000 tax credit just for taking a vacation. Yeah, the TRIP. Only the government could think of a name like that. They’re trying to use some sort of PR to push it through, but yeah, they’re proposing to give people a $4,000 tax credit to take a vacation, and they’re giving their kids $500 a head. This is part of this potential stimulus package. Could it be $9 trillion? Could it be 10 trillion? Who knows how big this thing is, especially when you add in the fact that I think this latest round of unemployment and stimulus is just going to turn into a permanent UBI for sure.

Combine that with the TGA, from now until the election, and you know darn well that any administration going to try to buy votes by boosting the economy and the stock market prior to the election, But I think the Trump administration, for sure, is going to be willing to do that. So, you have $1.6 coming in from the TGA, you have who knows how much coming in from additional spending from this next stimulus round, and what percentage that flows into the market.

23:33

Another problem here, Preston, is humans have recency bias. They think that whatever has happened over the past couple of months is just going to happen indefinitely. And all of their buddies got rich by “buying the dip” back in March. So, if we have another dip that goes down slightly prior to all of this quantitative easing and all this liquidity comes in, everyone is going to think, “Oh my gosh, all my buddies got rich back in March. I can’t miss the boat this time.” And they’re just going to pile all of that money into the market, and you could see it going to $40,000. Again, I’m not saying that it will. It’s always about probabilities. There are no certainties whatsoever. And I’m not saying that’s my base case, but you could argue for it, for sure.

Preston Pysh  24:32

You just walked the dog on the market going even higher, which I think is a very real possibility. I think if we would talk through the market going low or because they hadn’t added enough stimulus to keep this thing propped up and it starts to go through that bust, I think undoubtedly the government stepping in and printing double, triple, whatever they did back in the March-April timeframe, I don’t know how they could possibly let it go into a deflationary spiral as we had in the 1920s to 1930s.

George Gammon  25:08

They might not have a choice. If you look at Japan, they own 60% of the bond market. We’re kind of Japan 2.0, and their market still went down, so it’s definitely possible. Jeff Snyder points out all the time.

Another thing, too. The Fed can do quantitative easing infinity. They can commit a trillion dollars a day in the repo market. They can do all of these programs, but they still kind of rely on a third party to get the money into the real economy. The government doesn’t. The government can spend it directly into the real economy, but still, they need people to take action. If people just saved the money or if people didn’t go into stocks, then the market could crash. So, until the government –and I would not put this past them, –but until the government and the Fed start buying stocks directly, they’re still having to rely on the commercial banking system, on the public to do their bidding, so we kind of has built up a Pavlovian response to the Fed doing quantitative easing. That means the market goes up, but it doesn’t necessarily have to do that.

Again, I would encourage people to look at Jeff Snyder’s work on this, where he shows the Fed’s balance sheet going back to 2008 and compares that to the stock market. There’s not a direct correlation there at all. It’s more of a psychological approach, and that’s why the fed always tries to talk the market higher. They don’t have that many tools to do it directly. That said, I definitely think, in the future, if the market went down by, call it another 20-25%, they would come in and start buying equities. Who knows? The government might as well.

Preston Pysh  27:07

Last question for you, George. Who are two or three people that you follow like a hawk on Twitter or any type of platform that you capture a ton of value from?

George Gammon  27:21

Well, maybe not on Twitter, but it’s definitely going to be a Milton Friedman, Thomas Sowell, and Jim Rogers. But there are so many people, Preston. I mean, I would throw your podcast in there, Macro Voices, Jeff Snyder, and Emil Kalinowsky, too, my really good buddies. They just came out with a new show on YouTube, Making Sense, that they turned into a podcast. There’s so much content out there that’s absolutely amazing, and I think we’re going into time right now that, regardless of what your belief system is on the Fed or value investing, we’re going into unchartered waters, that’s for sure. I think that people can either be educated or they’re going to be a victim. I would much rather have your entire audience, and try to encourage people, to be educated because there’s no reason not to be right now with all of the amazing content that’s out there.

As far as some of the books, too, of course, Intelligent Investor. All your listeners, I’m sure, read that. But also, the Market Wizards books really helped me. That’s the first thing that turned me to Jim Rogers. It was his interview that he had with Jack Schwager in the original Market Wizards books, where he talks about buying Germany, and he talks about all of these things that he did back in the sixties, seventies, and eighties that help you understand that mindset of buying things when they’re unloved. Right now, the only thing that I think is unloved in the United States is commodities.

Preston Pysh  28:53

George, give folks a handoff to where they can learn more about you.

George Gammon  28:59

Sure. You can just type in my name on Google. It’s George Gammon. You can find me on Twitter. You can find me on YouTube, georgegammon.com– anything like that, and I’ll pop up.

Preston Pysh  29:14

Well, we appreciate you taking the time to come on the show today. I loved the chat. Hopefully, we can do this again in the future, George,

George Gammon  29:23

I look forward to it.

Preston Pysh  29:25

Okay. At this point in the show, I want to transition over to two renowned investors, Ray Dalio and Jeff Gundlach. Both of them are billionaires. Many people will tell you that Ray Dalio is one of the best investors alive today. The first clip that I’m going to play for you is of Ray talking about how far central banks are willing to go. Like, what are their limitations? How are they going to respond based on this scenario we’re seeing right now? This response was recorded in July of 2020, so give this a listen.

Ray Dalio  29:58

Central banks are willing to go and need to go as far as it takes to keep the system afloat. And because we’re in the late stages where we have a lot of debt, you are going to see central banks’ balance sheets explode. They have to because the choice is the sinking ship.

I’ve studied the rises and declines of reserve currencies because I think we’re at a key moment. I studied the rise and decline of the Dutch guilder, British pound, –the rise and decline of currencies throughout history. And it’s a perfect track record. When the time comes where you’re faced with political disruptions like if there is enough money, there will be enough money.

30:56

The question will be what the value of the money is and how far they can go. What are the limits to that? The limiting factor has to do with the demand for that money and debt. In other words, debt is a bond, a promise to receive a lot of currency. And so, when it gives no good return or bad return, and there’s a printing of a lot of currency, clearly, it’s not desirable, relative to other things, for private investors. However, the central bank can buy it, too. And so, the limit has to do with the limit of demand, and that limit of demand has to do with the central banks’ purchases of that because they can buy it; and hence, there’s no problem. So, you look at periods of time in history where was most of it that have ever taken place to try to define the limits, and the war years was exemplary. I think the most analogous period we’re in now was 1930 to 1945.

I’ll explain the various ways it was analogous, but more importantly, I’d like to deal with the question of the limits. And so, you first had the depression. In that depression, when you hit zero interest rates, you had the printing of money and the buying of financial assets. Then, you had a lot of fiscal policies, programs that produce large deficits, which then were monetized by more of that. And then, you went into the war years. Those years are very similar to now in terms of the need for a lot of money and credit produced an enormous amount of money in credit, but it was managed by the central bank in a way where they were de facto taking that on. It was a good example of testing the limits of that.

33:01

Now, we went into periods where we tried to turn to an alternative source of wealth. It could be stocks, gold, or other assets. Those became the boundaries. What would happen, in terms of this limit, is if something transpired where the dollar, as a reserve currency, had the holders outside make another better market, –it could, it could be gold, it could be stocks, or it could be an alternative currency– Like in the earlier session, which I listened into, China has a reserve currency. There will need to be an alternative process. When that happens, and I think it will happen, then it looks like a currency defense. What I mean by currency defense is if money leaves that asset, if those who are holding bonds don’t want to hold the bonds because they have lousy returns in the printing of a lot of money, and they want to go to something else, and that starts to accelerate, should that happen, then what that does is, as money leaves, it puts the central bank in the position of having to decide whether it buys more bonds to fill in that gap, or it lets interest rates rise. Well, they can’t let interest rates rise. There’s too much debt. Also, interest rates rising means that asset prices will go down, and it’s too vulnerable.

So, like all currency defenses, what it means is that they then have to accommodate that, and the act of accommodating that in and of itself is a big problem. Should that happen, that would be terrible for the United States.

35:01

Earlier, I heard about the discussion of privilege. The United States dollar is a tremendous privilege, and we are certainly pushing the limits of that. And if we were to think that the dollar was to be any other currency, because of us pushing the limits, if that were to happen, it would probably be the biggest disruptor, not only to the markets but to the whole world’s geopolitical systems.

Preston Pysh  35:32

All right. Ray discussed a lot of other things a particular interview that he was doing. One of the things that I found interesting is the question came up: Where do you go with your money? How do you invest? Where do you put it? And this is how Ray responded:

Ray Dalio  35:49

Think of it this way. You don’t want cash and I don’t think you want bonds because you get no interest, right? You get a negative real rate, so you get taxed at that negative real rate. So, from a holding point of view, it’s got no return. And then the central banks’ going to print plenty more of it, and produce and supply. So, there’s a move to what is a storehold of wealth. Think about it. what is a good storehold of wealth? If you look at history, through times, it’s almost a reciprocal of the value of money. We see that from financing. When you think a company or individual thinks, “I can borrow money at this level, and I can lend it at that level or combine my stock back at that level,” you see that kind of movement.

And so, history sees that different storeholds of wealth are almost the mirror image or the reciprocal of the value of money. That storehold of wealth is equities. In other words, if you were to think about certain types of equities that are not, let’s say economically sensitive, like if you just buy a company and so on, and you think it’s the reciprocal of that, and you realize that they have to book liquidity in the system, then it’s equities, gold, it is what is the thing that is the reciprocal of the value of money that you have to hold your wealth in.

Preston Pysh  37:38

All right. So, those were the comments that I wanted to play from Ray Dalio. Now, I’m going to play some comments from Jeff Gundlach. Jeff’s specialty is fixed income, as many people are aware. But he was asked the question about whether we were going to have this V-shaped recovery that everyone keeps talking about, and this was Jeff’s response.

Jeff Gundlach  38:00

Well, my baseline scenario is that a V-shaped recovery, so-called, is highly optimistic. I don’t think it’s plausible. What it implies is that you can take 20% of the entire workforce, the labor force of the United States and put them in jeopardy, put them on unemployment benefits, have them produce nothing, and instead receive money that’s being lynched by the federal reserve to buy the bonds. It could do that, and nothing bad happens when it gets hurt. It just doesn’t seem very likely to me that you can have that type of hardship roll over the economy. It’s like nothing happened. You know, it’s like the ServPro economy. Like, it never even happened. And I just don’t believe that.

When I first started worrying about the COVID-19 being a real thing, which was in the first week of March, I did an interview and I was asked, “What do you think about this virus?” And I said, “I don’t know what the consensus viewpoint is about how bad this is going to get and what the jam’s going to be to the system, but whatever that consensus view is, I want to take them over. There’s going to be worse than that.” When it comes to the economic outlook, going forward here from July 1st– By the way, welcome to the third quarter and second half of 2020, I’m glad the first half is over.

39:26

I think that, whatever the consensus is on the so-called shape of recovery, I’m taking the under. I think that you cannot have this type of economic disruption and fear that has been instilled in people’s psyches– I don’t think there’s a good appreciation for how much economic fear there is. I can, well-imagine the people that were making $70,000 a year, and they suddenly got furloughed or laid off, and they look in their bank account and they’re hoping to see something there, but, unfortunately, there was no magic genie who showed up and deposited money, and their balance is still $5. And so, they’re suddenly looking into an economic black hole. And I think that’s a major jolt to the psyche of those people. I have a feeling that there’s going to be more of that that goes on.

As I said, these programs roll off. So, some of the people are going to start getting economic anxiety about that. But beyond that, I believe that the people who are making $100,000 to maybe $150,000 might be at risk, also, in another wave of layoffs because those people also don’t have any savings by and large, but also the government is unlikely, I think, to come to the rescue for those types of people, quite as readily as they did for people who are living more paycheck to paycheck in a real literal kind of sense.

40:54

It just seems to me that this economic situation, from a job and wage perspective, is fundamentally deflationary. We have all of these people that are working and are at risk, and you might decide if you work at home and other things, that there are more efficient ways of doing things and what we did prior to February of 2020. I could see that there could be a round of middle management layoffs come around because people might be revealed for not being that productive when you’re doing work at home. For me, it’s easier to tell who’s doing work because who’s responding to the emails, who are contributing to the team’s meetings, and all that sort of thing. I just think that companies will realize that they can right size with the knowledge they’ve gained through this pandemic. And so, we could see people who are making $120,000 a year and have de minimus savings, if they get a pink slip, they’re going to be in a real panic because there’s not a lot of jobs open for people that are in that position, and that will put downward pressure on wages.

Also, we know that the economy is going to be unevenly affected. We know those big cities are likely to suffer an exit. We know that prices on apartments and homes in the San Francisco area are declining. That’s also happening relative to Manhattan real estate. That means that other parts of the country are going to start to see, perhaps, an inflow of population. We’ve been tracking in double line the requests for showings of homes in various parts of the country, and it’s very uneven. Some parts were leaning more on the suburban. It’s a reversal of the trend that we had a decade ago, and so there’ll be an uneven type of effect of the economy.

42:55

The other thing that’s going to happen that isn’t being talked about nearly enough is the states are in trouble. The tax revenue from the states has completely collapsed and it’s unlikely to improve. And so, a lot of states are going to be looking for, or some of them already asked for, more government bailouts. There’s a long queue of entities that want or need government bailouts, and that’s just going to keep further pressuring the situation. I think the economy is going to feel the effects of the recession that we’re in now for quite some time to come. I think it’s very unlikely that we’ll get back to our peak economic growth even in 2021.

Preston Pysh  43:41

All right! Well, that’s all we have for this week’s episode of The Investor’s Podcast. I appreciate everyone joining us. Hopefully, some of the comments that George Gammon and I had, and then some of the things we played from billionaires Jeff Gundlach and Ray Dalio have helped you guys piece some of this very complex and very confusing puzzle together. With that, we look forward to seeing you guys next week.