Anomaly Of A Recovery

• Capital Record: From Muddling to Stumbling
• Apolitical Answers
• Chicken or Egg
• The SIC Begins, Dallas, and New York

We did the first Strategic Investment Conference 18 years ago. I remember one of the partners in the firm that cohosted the event telling me as I walked up to the stage, “John, it doesn’t get any better than this. Don’t screw it up.”

He was wrong. Every year the attendees told me it was better than last year. About 10 years ago people started saying and writing the SIC was the best investment conference they had ever been to anywhere. And luckily, every year has been better. This year?

This year the SIC is the GOAT—the Greatest of All Time. Just look at the speakers. Tell me when there has ever been an investment conference that had such a lineup top to bottom. You might have another favorite speaker, but the totality of talent? I am simply salivating.

You’ll also get video and audio (podcast form) recordings, transcripts, and slides, so you don’t have to be there live for all the presentations. Livestream plus recordings, alternating days to give attendees time to process, break times during the event days, no travel involved... I don’t know what we could have done to be any more accommodating to attendees’ needs. And then, of course, there’s the heavily discounted price for your SIC 2021 Pass. For just $395, you’ll get 25+ hours of programming with 48+ prominent speakers.

I don’t know what else I can do to make it any better. This truly is the Greatest of All Time. It’s as if Bird and Jordan and Lebron could all play in one game. You know you want to be there. Sign up now and I’ll see you at the SIC!

Capital Record: From Muddling to Stumbling

David Bahnsen is one of the most original thinkers I know, which is why he is all over TV and podcasts, and is rated one of the best money managers in America. His father was an esteemed theologian back in the 1970s and 1980s whom I had the privilege to personally know and publish. He tragically died way too early, and David had to pick himself up at a very early age to get where he is today. There is a long story there, and I can’t tell you how deep my respect goes.

As far as original thinking goes, the apple did not fall far from the tree. David does a podcast for National Review called Capital Record. We did a two-part series. The following is an edited partial transcript of the first part. Next week I will share some of Part 2.

Please note that some of the best ideas here will be David’s. I always learn a lot when I am with him. If there is something in brackets […] it means I inserted it today. Let’s jump in:

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David Bahnsen: Hello and welcome to another episode of Capital Record, very excited today to have what I believe is one of the most influential economists and writers in my adult life, who I've been reading religiously for my entire career, is a very well-known financial pundit, macroeconomic thinker, and hopefully so much of his wisdom is going to come out in our conversation. The gentleman I refer to is John Mauldin. John also penned a book in 2003 called Bull's Eye Investing. I read John's entire book and was really quite moved by his rare ability.

As some of you know, financial writers often can fall into a trap where they go for a brand. I'm going to be a permanently optimistic guy or often in the newsletter publishing world, the brand of being that doom and gloom pessimistic person all the time. John carved out a niche as an actual free thinker, which is all too rare, a lot of objectivity. He can be wrong. He can be right like any other economist, any other thinker, any other writer. But he is right or wrong out of an earnest pursuit of truth and earnest pursuit of objective understanding of economic challenges and situations. He intellectually wrestles with topics. And I've learned a great deal from John. We've become very close friends and have dined together for hours upon hours, many times, discussing many of the things we're going to discuss in the podcast today and have a friendship that enables us to run different things past each other as we seek to better understand the economic challenges of the day. So he's involved extensively in capital markets and in a number of aspects of the investment field.

But John is a thinker and writer and has been a great influence, hopefully, on many of you and certainly on myself. And so I'm going to invite John into a conversation today around the economy, the last 20 years of economic challenges, the next 20 years of economic reality. And we're going to dive into these things and see where the conversation goes. So we're looking forward to another episode here with you of Capital Record.

John, I've been reading you since the very, very beginning that you've been putting out macroeconomic commentary. Since then we’ve had Y2K and a tech crash. We had a financial crisis. We've had all kinds of Federal Reserve machinations the last 10 years. We've had ups and downs in China. And now we've had COVID and here we are. You coined the phrase “Muddle Through,” I believe about 20 years ago now.

John Mauldin: I'm getting old.

David Bahnsen: Yeah, I'm just playing catch-up with you. But the Muddle Through Economy, would you say that description has been pretty accurate for what we're going through?

John Mauldin: Well, let's go back 20 years ago and look at the context. In 2001 we’d come off a recession and then we had 9/11, which gave us even more of a recession. Now I am like you, I'm a big technological optimist. I am really long humanity and maybe we'll get into that. What I mean by long humanity, I think human progress is on an accelerating pace. But that being said, I'm [currently philosophically] short government. I didn't see how we would get through the rest of the decade without another one. I certainly wasn't expecting the level of the traumatic Great Recession in 2007–8. But I said then we're going to muddle through the decade, likely to have 2% GDP growth for the entire decade. People called me too bearish. And as it turned out, I was an optimist. We did 1.9%.

Economics 101 says that GDP is productivity times the number of workers. I mean, it's just a simple number. The number of workers was falling as Boomers retired and we had milked a lot of the tech-driven productivity gains. Consumption and services became such big parts of the economy, and they aren’t as responsive to productivity growth as manufacturing had been.

Looking forward to the 2020s, I think 2% growth will be hard. I think 1% to 1½% growth will probably be more characteristic because technology will be eating the service jobs and other low-income jobs.

David Bahnsen: Let’s separate the economic growth challenges coming out of COVID from the really macro. When we take a step back and look at the 20 years we've just lived through, my own view is that we had a certain degree of real GDP growth that was becoming a new trend line post financial crisis, and it was less that the postwar trend. And then, of course, the COVID moment pulled us off that number. And now, as you point out, we're going to have an anomaly of a recovery because of everything coming back online in this post-vaccine society. But then we're going to pick up where we stopped.

But let's fast-forward to the other side of the recovery, and this is where I'm going back to your muddle through point of 20 years ago. We had a kind of asterisk recession due to COVID, and we're going to have a footnoted recovery because of everything rebounding. But when we get back to some degree of normal, we're going to have a national debt at least $6 trillion bigger than it was, plus bigger deficits of well over a trillion a year, even after this initial cost absorption. Has all this changed the way you see the next 20 years?

John Mauldin: I actually changed my “muddle through” metaphor here about a year ago. I think this decade we’ll be stumbling through instead of muddling because, as Milton Friedman said, the most permanent thing in the world is a temporary government program. We're going to run, this year, well over a trillion in off-budget deficit spending and trillions more in regular budget deficit. We're going to be $40 trillion in debt by 2025. That’s 180% debt to GDP. That looks like Japan and Europe.

David Bahnsen: Well, John, if you get debt to 180% of GDP, and I'm not sure we'll get that high, but I accept your numbers, then it doesn't look like Europe. Then Europe has to play catch-up to us.

John Mauldin: They have worse problems than we do. They’re way behind the vaccination curve. And that's not good for us because we need the world to get vaccinated. All that death does slow down the economy. That's why I said if we could get 2% growth this decade, I'd just book it right now and say thank you.

Another SIC for the History Books!

Ron Baron, David Rubenstein, Cathie Wood,
Richard Fisher, Byron Wien

In our second all-virtual Strategic Investment Conference, dozens of world-class speakers agreed to join us this year.

Watch more than 25 hours of solo presentations, spirited panels, and lively fireside chats on how to navigate the new normal we’re finding ourselves in—economically, socially, and politically—and new strategies to profit in this changed environment.

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