The Compound and Friends - Brian Wesbury's Dow 35,000 call, Twenty Rules for Retirement Investing with Ben Carlson

Episode Date: December 18, 2020

This week on The Compound Show, Josh talks with Brian Wesbury, Chief Economist at First Trust Advisors about his Dow 35,000 call for 2021, what to make of recent stimulus negotiations, his latest take on the Federal Reserve, reopening and the resurgent virus, how vaccines will affect the economy and more. You can read more from Brian at his blog on the First Trust website: https://www.ftportfolios.com/ Ben Carlson (A Wealth Of Common Sense, Animal Spirits podcast) joins the show to reveal his twenty rules for retirement - how to save, how to invest and how to make all of your dreams for the future come true with the money you're earning today. Ben's book, 'Everything You Need To Know About Saving For Retirement', is available as paperback or Kindle on Amazon right now. If you're enjoying the show, be sure to leave us a rating and a review - they mean a lot and go a long way! Thank you! Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

It would be literally impossible for you to walk away from today's program, this week's program, and not feel a lot smarter than when you first walked in the door. There's just no way. It would be totally impossible. I have Brian Westbury on the show this week. Brian Westbury is the chief economist at First Trust Advisors. First Trust is a shop based out of Wheatley, Illinois. They run about $130 billion or so. And Westbury is insanely bright. Such a smart guy. He's an economist. He's a markets guy. We're going to talk about everything going on right now in the economy, why his forecasts have been so on target in recent years. We're going to talk about the libertarian maskless paradise that is Florida, the reopening, the Fed, what's going on with stocks, what's going on with interest rates, and you're going to get a lot out of that. And I was so happy to have Brian

on the show. So we're going to do that. And we also have Ben Carlson on the show. Ben is in the midst of putting out his newest book. It's his fourth book. And this one is all about the basics, the basics, the building blocks of building a life for yourself financially, what you need to do to save for retirement. And he did this amazing piece for Fortune magazine where he has a column called 20 Rules for Saving for Retirement. So Ben is the head of institutional asset management at my firm. And when $20 million potential clients walk in the door and their endowments or they're running a pool of assets for multiple uses, that sort of thing. Ben is who we throw at those situations. And if you're reading Ben at A Wealth of Common Sense, you know how sharp he is. And he's also one of the best writers of our generation, financial writers, and not just investing, but personal finance.

So what Ben did with this new book is a mixture of the two, saving and investing, and he's going to run down his 20 rules for saving for retirement. And again, no matter what level you're at as an investor and no matter where you are in the process of saving for your retirement, this stuff is like, this is the stuff that you have to know. It's so much more important than a lot of the things that people talk about when they talk about finance. They want to talk about Bitcoin and SPACs. And I want to talk about that stuff too. But this is like the building block. So not only do I want you to listen and pay close attention to what Ben teaches us, but I want you to share this with as many people in your life as you think need to hear it. And I think you'll enjoy it a lot. So we're going to do Westbury. We're going to talk to Ben. Before we even go there, I just want to mention a couple of things. The first is on the signed books. And I want to thank you guys. I think we've raised close to $20,000 or over $20,000 at this point.

And it keeps going. And the books that you guys are sending me, I'm signing hundreds of them and sending them out. So it's happening. And I know a lot of you on social media, you're posting the picture of the book with the signature. And it really, it makes me feel so grateful that you guys are into it and that we're helping people. So, but what I want to say is some of you sent books directly to me from Amazon. And in most cases, there was a gift receipt that said the name of the person who wants it back and the address. But in some cases, I just got a package with a book in it and there's nothing to identify who it came from. So if that's you, reach out to my firm. That's info at ritholtzwealth.com and just let them know

that you haven't gotten my book back yet. And we'll confirm whether or not we sent it. And if we didn't, maybe it's a situation where you had a book sent to me from Amazon and there's no identifier. And we'll get that figured out. I'm working hard to get these back to you guys. I know a lot of them are Christmas presents. I'm doing my best. And we're sending tons of these envelopes out all over the country. So I want to say thank you and I want to tell you what to do if you think you sent me a book a while ago and still haven't gotten it back. That might be the reason why, especially if you had it sent from Amazon. The other thing I want to mention is something new that we just launched.

We've been tinkering with it for a while. This is something that people have been asking us for forever and I think it's going to be a lot of fun. So not everybody has time to read all of the amazing content that we're writing at the firm. Barry's blogging, Ben Carlson, Nick Maggiuli, Batnick, Blair Ducanet, Tony and Dina Isola, me. We're putting out a lot of stuff. And I understand it can be overwhelming. What we're doing is a new podcast called The Goldmine. It's available right now. You could find it on the same app that you're listening to this. I think it should be there. I know it's on iTunes and I know

it's on Spotify already. The Goldmine is basically our best posts each week. We'll probably put up two or three of them. The author who wrote the post is reading the post to you. Oh my God, right? How easy is that? And you could just play them one after another, after another. They're like four minutes long, seven minutes long. So obviously the stuff that we do that's very chart heavy,

we're not gonna read that because it'll get lost in translation. This is the stuff that we write that can be narrated. I think you guys are going to be into it. And we've gotten a lot of really great feedback on it already. I'm not sure if the format it's in will be the final format, but Tadis Visconti is heading up the project. If you read financial blogs, then you know who Tadis is.

He is the curator-in-chief of the financial internet, the greatest of all time. Tadis is the author of Abnormal Returns, which I think is a 15-year-old blog at this point. And there is not a day that's gone by over the last 15 years that he hasn't read everything that everyone wrote and then curated it into the Abnormal Returns link fest. Well, Tadis is my firm's director of investor education, and he's responsible for all of the ongoing client education that we do. And he's gonna run the goldmine as the curator of basically an audio link fest.

Is that, I don't know if that's the right way to explain it, but it's pretty cool. And of course, Duncan Hill, who works with me on this podcast on our YouTube channel, is involved in the quality control. We want it to sound good. We want it to sound uniform. And that's a little bit of a challenge because we're all using different equipment, different software to create these audio blog posts. But I think it'll come out good. And you can go up there. There's a few episodes posted already. I'm going to throw one up soon too. And these are basically just us reading you what we wrote. And if that's the way that you

prefer to get your information about what's happening in the markets and what you need to know about investing, well, we're giving it to you. And I hope you guys love it. And if you do, as I've said to you before, the most important thing that a podcast audience can do is reward the podcast they like with ratings and reviews, especially on Apple, especially on Google and Spotify. So if you're listening to our stuff and you're into it and it's helping you and it's making your life better, then by all means, leave a review and that will be a signal to the algorithm to rank it more highly.

of you, and that will be a signal to the algorithm to rank it more highly. And then our stuff will be listed above some of the stuff that's not really helpful for investors. And we won't use any names, but if you're a fan, that's how you can be involved. That's how you can help. So, okay, that's all I wanted to say. So we're going to talk to Ben, and then we're going to get into Brian Westbury. And again, it's impossible for you to walk out of this podcast not feeling more knowledgeable than when you came in. And that's what it's all about. So I hope you enjoy. Duncan, do the disclaimer.

Let's go. Welcome to The Compound Show with downtown Josh Brown. Josh is the CEO of Ritholtz Wealth Management. All opinions expressed by Josh or any podcast guest are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Hey, I'm here with Ben Carlson right now. Ben is the author of A Wealth of Common Sense and my colleague at Ritholtz Wealth. Ben works with institutional clients at the firm,

but Ben is basically writing a book a year at this point. Do I have that right? Is that your pace? Your current pace? Maybe 18 months. How about that? Every 18 months. Your new book is so perfect for this moment because you have so many investors who've discovered investing, like new investors. And a lot of them have leapfrogged. They didn't even start at personal finance. They jumped right into trading stocks. So what you're doing here, I think, in this book is giving them like the real basic building blocks to save for retirement and to actually

make smart decisions now in their 20s and their 30s that can impact the rest of their lives. Am I framing that right? Yeah. And the first book I wrote was all about investing in the markets. And I looked at this as like the prequel. This is the stuff you have to do beforehand. So it doesn't matter if you're Warren Buffett, the second coming, if you can't save money first and put aside some capital, it doesn't matter how good of an investor you are. So it's kind of taking a step back. It's like the Phantom Menace then?

Yeah. I don't know. I never got into the Star Wars prequels, but yeah. I'm not a prequel guy, but this is important because this is the stuff that people really need. So you did a post at, so first of all, the book is called Everything You Need to Know About Saving for Retirement. I like how you just say right what it is, right in the title. And people,

as soon as they see it, they know what they're getting pretty much. Very straightforward. Yeah. And this came about because we were talking to some people in our firm who said, hey, listen, I have 401k investors who just don't have the time or energy or the interest in paying attention to the stuff that you guys put out all the time. They need a simple guide just to give them the building blocks of where they need to start. And that was the idea with this. It's so funny. You're talking about Dan LaRosa. So Dan is one of our in-house 401k specialists. And he'll go to a business and he'll meet with the employees who are like doing their best to put, you know, a few thousand bucks into their 401k.

And then we're doing these blog posts about like cyclically adjusted PE ratios and, and like, uh, and it's like, it's like, uh, at a certain point you have to realize you're, you're speaking Martian to certain audiences. If you get to the point where you're debating, I put 6% in small caps or 8%. If you get to that point, you're debating i put six percent in small caps or eight percent if you get to that point you're bet you're better off than the vast majority of people in this country in terms of their money it's so funny because we're slitting throats over that stuff too like like on financial social media we're like friendships ending friendships we're ready to go to war over that all right let's get so let's get into this post so you did this really great post um i, to introduce the book to your audience at Fortune,

where you have a column. And it's really, really simple. We're going to run through this 20 most important personal finance laws to live by. And the first one, I could have guessed it. I didn't know this would be your first one, but I could have guessed it would be in here. Avoid credit card debt like the plague. Which plague? The one we're trying to avoid right now? I didn't even think about writing that. Jesus, Ben. That's a little close to home right now. It's obvious advice, but why is it so important? It's still kind of mind boggling to me that credit card rates average like 15, 16%. It's the only interest rate in the world that hasn't come down basically, right? So that's just a

negative form of compounding. It almost doesn't matter what you do with your money in terms of investing. You probably can't beat that bogey. I didn't even think about that. Why are credit card rates high teens if mortgages are 3%? People always say it's unsecured debt, but it still is crazy to me that those rates have not come down with everything else. Okay. So you can't invest if you're also paying somebody 18 percent because you can't earn 18 percent on that money, at least not reliably. That's an enormous negative compounding there, right? Right. It's absurd. Okay. So step one is, am I in debt to a credit card company

at an absurd APR? And if I am, I'm not ready to invest yet. I mean, I hate saying it that way, but it's pretty cut and dry, right? Yeah. I mean, there are certain kinds of debt where you can invest alongside it. Student loan debt is not that bad. And for some people, that's an investment at least, a mortgage. But if you have credit card debt, that should be priority number one. Okay. Credit score. So I know you would never toot your own horn, but you are known around the firm as having a legendarily high credit score, like almost uncomfortably high, almost to the point where you could then bestow credit on others. So I don't want to ask you how you got to this point, because I know you're very modest, but why is building credit your second

rule? Yeah, I have a AAA credit rating within the firm. I mean, if you think about it, if you ever put one of these spreadsheets of your mortgage and think how much interest you're going to pay over the life of your loan, if you can get a lower rate on that because you have a good credit score and you can maybe refinance your mortgage because you have a good credit score, you can save like hundreds of thousands of dollars over the life of a loan for something like that. Car payments too, the same thing. All this money you're paying on interest if you're using this debt, it can really build up and getting access to credit when you need it or at times when you don't need it, just to build it up, just having that credit.

So even having a credit card, but as long as you're paying it off on a monthly basis, just building that credit is really important. Actually, that's a great way of thinking about it. Having a lesser amount of negative compounding taking place is a form of positive compounding versus the alternative. Right. Okay, so having a low credit score gives you a less negative return on whatever debt you have out there. Right. Maybe I'm talking in circles. All right. Income is not the same as savings. gives you a less negative return on whatever debt you have out there. Maybe I'm talking in circles.

All right. Income is not the same as savings. Say that again for the people in the back. Right. We all know people who make a ton of money and they have all these toys in their garage or whatever, but they have nothing in savings. Then they probably have debt up to their eyeballs too. And it doesn't matter how much you make if you're not putting anything aside. So that's so simple.

But that's just the truth of building wealth. Wealth is the stuff that you just don't see. So where I come from, New York City is the capital of that. Like everybody makes a ton of money. You really can't live in Manhattan if you don't make a ton of money, but it costs you so much to live there that it's hard to imagine the best savers being New Yorkers. I can't picture it, at least,

from what I've seen. Saving is more important than investing. Yeah, especially for like half the country, right? That just hasn't saved yet. The stat I found from the Federal Reserve, it's a few years old, but probably not that much different. They found the median savings for people 55 to 61 is $21,000 in retirement savings. That means half of those people have less than $21,000. So you could look at all the returns over the last 40 years for stocks and bonds in the US are unbelievably high. A 60-40 portfolio gave you 10% a year or something over 40 years. It didn't matter if you didn't put any money aside to invest in that and take advantage

of it. So the investment returns don't matter if you're not putting money aside. Saving is the prequel to investing. to invest in that and take advantage of it. So the investment returns don't matter if you're not putting money aside. Saving is the prequel to investing. You can't, you really can't do the second thing without doing the first thing. Okay, live below your means, not within your means. This is like a psychological trick you play on yourself where you basically say, yeah, I'm doing well,

but not really that well. And just kind of forcing yourself to act as though you don't make as much as you make. Very hard to do. Someone told me early on, right when you get out of college and you start in the working world, just pretend like you're still living in the dorms for two years and have that same lifestyle where you go out to the bars, but you don't upgrade your lifestyle and buy a new car and get the nicest house and apartment and just keep it similar so you can start setting aside some money. And that's hard to do, that lifestyle creep.

But I think just starting out where you're living behind your paycheck a little bit is not a bad way to get ahead. Counterpoint, how are you going to get somebody to want to date you if you're walking around like you're still in college and your wallet's empty? Hopefully you married your college sweetheart. And honestly, yeah. And honestly, you really shouldn't be dating seriously right out of college. You should be focused on your career and listening to my podcast.

All right. If you want to understand your priorities, look at where you spend money each month. Right. Like forensic, like an x-ray. This is the truth about what you care about. It's black and white. It's on your credit card bill. And this is like the one thing that most personal finance experts never tell you about.

They all tell you how to be frugal and how to save. No one ever teaches you how to spend money. Yeah. Right? Like no one sets you down and says like, this is the stuff you should spend on. And by the way, the rest of the stuff that you don't care about, just try to minimize it as much as you can. Right.

Automate everything. I love this. I wish that this was possible when I was in my 20s. Like none of, none of this stuff that, that you have access to now even existed. Um, but automating like takes all the decision-making and all the procrastination out of the picture. Because we don't, we have like a finite amount of willpower. We can't make, force ourselves to save what's left over after the month. So you have to like put your savings on autopilot,

pay your credit card bill automatically, all your other bills. So you're not trying to find... And that way it saves you from stupid late fees and overdrafts and all these stuff. So it's all happening behind the scenes without you ever having to lift a finger. So you do it one time and it's done. Okay. This is a great one. Number eight, get the big purchases right. So obvious, but yet not so obvious because we don't make a big purchase every month. We make like a million little purchases every month. So like this thing with getting caught up in the minutia of Starbucks and all these things, but in reality, like get the car right, get the house right, and these other things will have less impact. Those are your fixed costs. And they also come

with like ancillary costs that you don't think about when you own a house. And so getting those big fixed costs right and understanding them, then you can spend on the Starbucks latte every day if you want and not have to worry about it. Right. Because you didn't go overboard with the SUV lease or the rental that's over your head. Build up your liquid savings account. What does that mean? rental that's over your head. Build up your liquid savings account. What does that mean? I think you just have to have a barbell where even though today you're earning nothing on that account, they call them high yield online savings accounts anymore. Maybe they got rid of that. But just having some money set aside for things that are going to come up regardless.

So it's funny because people call it an emergency savings account. And I kind of don't like that name because a lot of this stuff is things that happen. Ordinary emergencies. Yeah. And they happen infrequently, but it's your car breaks down or you need to replace something in your house or fix it. So start setting aside little amounts of money each month in that savings account. And that way you don't have to have a freak out when something happens and then it throws off the rest of your financial plans. Okay. Cover your insurable needs. This is probably less relevant for most young people. They don't really have much to insure yet. They're not married. There's nobody like that they're going to be leaving wealth to when they go. But I guess it's a good thing to start

thinking about if there's like a husband and wife or a wife in the picture or a baby, you know. Yeah. When you have a family. But yeah, I had a friend one time who got pitched a life insurance policy. He was single. And I said, who are you trying to insure against? But yeah. Dog. Yeah, you're going to be okay. He probably got pitched the life insurance policy

as an investment though. Probably. Like a whole life policy, overfunded. We use it to invest in the market, blah, blah, blah. This is the stuff that I didn't start worrying about until I had a family. And my wife goes, what happens if something happens to you and you get hit by a bus? So that's the kind of thing that this is about. All right. This is a big one. 11, always get the match. Free money is free money. I always have conversations with people who are like, I don't know if I should do it.

Most places will give you 3%. By the way, this is a 401k employer match. Yeah, if you're lucky enough to have a 401k and a match, which I know some companies have gotten rid of this year. But I know a lot of people that typically it's you get 3% from the employer if you put in 6%. And people aren't putting enough in to get that, which is crazy. It's like turning down a bonus from your employer.

Why would you do that? It's actually the check that I mind least writing every month as an employer. I sit with Bill, we go through the cost of running the firm. We don't want to just pay money all the time every day. But paying money into the 401k plan for the match that our employees have saved, I feel like this is us contributing to us. So I, you know, I think most employers who care about their employees probably look at it that way.

So yeah, if it's an option, you gotta get yourself in the mix. All right, save a little more each year, like kind of ratchet up and say like, all right, last year I put away 600 a month. Let's, I'm gonna go for750 a month this year, right? Like kind of set a higher target? I think you have to start small because no one starts out day one,

I'm going to run a marathon and you run 26 miles. You start really small and work your way up. And one of the ones I found is like, let's say you get a 3% raise each year. Save half that raise and then you can spend the rest on yourself. So that way you don't see it and have that regret minimization where you don't have the loss aversion of it, like your paycheck to yourself going down. So you just ratchet it up a little bit till you hit your target because it's hard to get a big savings target right off the bat for most people. Yeah. Look, if you're working hard, you gotta, you gotta give yourself the increase in lifestyle

that comes along with making a little bit more money, but you don't have to give yourself all of it. Like you have to enjoy, look at a certain point, like you're not living forever and that balance is really hard. But I think if you make rules, you can live with them. Like if you get some sort of bonus every year,

set aside 30 or 40% where you say, I'm going to go wild. I'm going to go on a trip. I'm going to spend a bunch of money on clothes. I'm going to go out with my friends and buy them appetizers if we ever do that again. And with the other part, I'm going to take it. I'm going to pay down some debt. We're going to save. So give yourself an out. Figure out a percentage. Yeah, have some rules behind that.

I think that's great. 13, choose your friend's neighborhood and spouse wisely. I mean, we could do two hours on this. So many of the financial ruins that I've seen have come from not doing this well. There's a crazy study that shows that people who win the lottery, the people who live in their neighborhood end up going broke more than they do because they try to keep up with the people who won the lottery.

It's insane, right? Like you see someone else buying a boat and you go, I gotta buy a boat too. And I agree, like you have to enjoy yourself. But if you're having friends who are just going crazy and spending money all the time and that's not your principles, then trying to keep up with them is just going to drive

you insane. Dude, I bought a jet ski this summer. And I always wanted one, like in my defense. Like 20 guys that I'm friends with, like dads in town, all bought jet skis like right afterward. I don't think that they all were trying to keep up with me. I just think like their wives saw me me doing it and so we're just like well if sprinkles is letting josh do it then it's

probably not the dumbest thing and all of us like use the excuse that like summer camp was canceled so it's like the thousands of dollars we're not spending on that uh we better get a jet ski to keep the kids entertained my kid was on a jet ski like three times. Keeping up with the Browns. Yeah, nice. I never do stuff like that either, but I'm so happy I did it. I'm not a boat guy at all. All right, where were we?

Talk about money more often. Do you find that money is still as taboo as it used to be? I feel like it's loosening up. It could be. One of the weird things about someone who produces content and the podcasts and blogs and books and stuff, people open up to you about money topics that they probably would never tell their friends or their family, maybe their spouse. They give you exact dollar figures. And I'm not saying you have to do that. But I think there are a lot of people who just don't

talk about it enough and get it on the table in terms of like, what are we comfortable spending here? How much do we save? Because if you're bad with money, it makes you want to talk about it less because it makes you feel bad about yourself. So I think part of it is just like being okay with saying like, okay, I'm bad with my money now, but I want to get to a better place and I need someone to help me if I can't do it myself. Well, I got to be honest with you where I live, everyone's obsessed with money. It's all anyone ever talks about. So I know it's not like that. I know it's not like that elsewhere in America or elsewhere in the world. Yes, in the Midwest, we don't talk about anything.

We don't talk about anything here in the Midwest. And we're talking about everyone else's money. It's like, honestly, it's out of control to the point where you'll see a couple, you know, like eating dinner in a local restaurant, but you'll know like their driveway has cracks in it. And like, literally be like look look at these two can you imagine bottles of wine have you seen what their driveway looks like

so i don't think we have that problem where i come from all right material purchases won't make you happier in the long run bullshit no i'm just kidding well the jet ski maybe they can't the jet ski actually has been like a really big increase in my quality of life but that is that's an experience though you paid for an experience over and over again right yeah i think that's that's a good point i think a lot of it is i mean this is like the happiness research and you know i think that there's probably gonna be explosion in experiences when this vaccine hits i think people are gonna go nuts so so i think having that bottle up has maybe made people realize this more but the other side of this this is you don't always have to spend money to be happy. Some of the

stuff that I do with my kids, just take them to the park or a bike ride or something like that, that doesn't cost anything. Those little things and that garbage time can mean a lot more than taking them out and buying them a movie or something, whatever it is. Yo, it's crazy because most of my fondest memories with my son are him on a baseball field. And the town baseball is almost free. It's so cheap. I almost feel like they should be charging us more given how much experience we've gotten out of that for our money. So I think it's a really good point.

Read a book or 10? Yes. Yes. Slay. I think that's one of the best investments you could make. $10 to $20 for a book. And this is someone who has put in hours and hours of research, maybe years of their life to think about this. Most books that are nonfiction are evergreen. How many personal finance books could have been written in 1950 that would be applicable today? Most of them, besides the accounts and that sort of stuff. But the basic building blocks aren't going to change. I think Munger said something like,

you don't go to church to hear the 11th commandment, right? It's the same. It's a building block. So if you just read a few, find stuff that works for you. Not everything's going to work for every person or personality, but picking up a book and just reading a little bit of what these experts have written is not a bad place to start for most people. Besides your book, Everything You Need to Know to Save for Retirement, what else would you tell people to get on the topic of personal finance? Ramit? Yeah, Ramit is great. I Will Teach You to Be Rich. Jason Zweig's Your Money in Your Brain. That's over most people's heads though, Your Money in Your Brain.

Yeah, the behavioral side. I think if you're a financial advisor and you're not pushing the millionaire next door, that book is... I think that was essential for me in terms of understanding that you don't have to be showy to build wealth and some of those things. I like that. I read that one like 25 years ago or 23 years ago or something. That one still stands, yeah. Yeah. Nowhere you stand. Everyone should have a back of the envelope idea of their true net worth. How often should people be keeping score of their debts versus their assets and fixating

on that? Is it annual? I wouldn't mind like a one-year checkup for people just to see where we are. Did we improve this year? Did we get better? Did we reach our goal? One of the things about setting some expectations and goalposts is you make them pretty loose and then you figure out like, okay, if we reached it, what did we do right? And if we didn't, what did we do wrong?

And maybe we can make some corrections along the way. I think it's just a way to give yourself some goalposts knowing that those will be moving goalposts. Okay. Taxes matter. Number 18. I think they matter a lot. And especially for young people, just taking advantage of things like tax deferred retirement accounts and not over-trading in your investment accounts and just simple stuff like that. I think my dad, when I was in high school, made me do my tax returns every year. And just doing something as simple as that, just to try it for yourself. Wait, why did you have tax returns in high school? Were you a teacher in high school?

No, just working summer jobs. So my dad would make me do my own tax returns. How long did it take for you to do your taxes, scooping ice cream? Yeah, I mean, five minutes. But I learned it. So now I still, you know, I finally handed it over to Bill Sweet in the last couple of years. But I think just understanding this stuff and where you can find some things is helpful for people because it is so utterly complicating. But I think trying to do it yourself and understanding where you can save a little here and there is helpful.

Well, where you made the mistake was not getting an off-the-books job in high school. That's what you're supposed to. That's true. Black market economy. All right, this is the last two, and these are like critical. Number 19, make more money. This is my advice.

I speak to student groups everywhere. It's like, forget about investing. Focus on your career. Invest in advanced degrees. groups everywhere. It's like, forget about you. Forget about investing. Focus on your career. Invest in advanced degrees. Invest in experiences where you can network with people like that's what you need to do right now. You don't need to worry about is Google going to outperform Facebook? It's totally irrelevant. Yeah. Here's the stuff that I was heard when I first started my career was just be happy you have a job or like, how can you make more money in this economy? And I think that stuff is just nonsense. Like you have to figure out how to improve your career, make more money.

Like, guess what? The easiest way to save more money is to make more money. That's right. Hustle. No one's going to become. I said this on TikTok and people flipped out on FinTalk. I was like, listen, you're not going to become a multimillionaire trading stocks from nothing. Sorry.

Like it literally is not going to happen. And anyone selling you a course that like they're going to teach you how to do it has not themselves done it. So just stop. You're really going to make your money by getting great at a job that you love doing. That's how you're going to make millions of dollars. You can make millions. It's just not going to be speculating in stocks. And people flipped out hearing that because they've been trading for six months and they know everything.

But okay. Last one. Don't think about retirement, but financial independence. All right. What's the difference? So there was this new book called – I'm going to try to – I'm kind of – all right, all right, all right. You're a Dazed and Confused fan confused fan yeah dude that that was not good it's like all right all right all right I don't think mine's good either so the guy who directed it and wrote it Richard Linklater it was

based on his book and he talked about in this it was based on his life the movie was he talked about in his book that was an oral history of it how he saved 18 grand when he was in his 20s and it allowed him to take five years off of work and live off that money to basically become a movie director and writer. Oh, wow. And for young people, I think they have this, they have a hard time appreciating like, yes, you're 401k and stuff and saving for when you're going to ride off into the sunset, but also giving yourself a margin of safety now to take some risks. That's the whole idea about

saving is just giving yourself some opportunity and just the ability to do something that maybe you wouldn't otherwise if you didn't have the financial stability. So it doesn't have to be getting 65 and then taking all this money. It could be taking some risks now because you've saved and planned wisely. Yeah. I think Barry Ritholtz is taking your advice on this one because every time I bring up his retirement, he laughs at me. I think he's going for financial independence. He's not going for retirement anytime soon. But look, I think if you're one of the people fortunate enough to find something that you love doing and you could do it for a long time, then it's not about getting out of that career.

It's about like doing that career on your own terms as you get older and want more or less responsibility. And that's, I think that's a real, now there are people that aren't that fortunate and they're doing something they hate, but it's what they're qualified to do. And for those people, they're really trying to retire fast. That's what's happened with these fire people, these people who are saved 80%. I get it though. I could, I could totally relate to that. If you had a job% of their income. Dude, I get it though. I could totally relate to that. If you had a job that you hate, the soul crushing, I get it too. Right.

It's not for me, but it doesn't have to be for me to be the right thing. So I'm with that. All right. So once again, we want everybody to get this book and you're selling it online. It's on Amazon. It's really easy. You're selling the paperback for $8 and the Kindle for $5. What would be anyone's excuse to not pick like 10 copies of this up and give it to all the young people in their life?

That's what everyone should do, right? Yeah. Yeah. Bezos is making more money on this than me. I'm trying to get you to sell this thing. Come on. Little pizzazz. This is for young people.

I wrote it. There's a whole chapter for teachers who get screwed over in their finances quite a bit in their 403Bs. Yeah. For young people, I wrote it. There's a whole chapter for teachers who get screwed over in their finances quite a bit in their 403Bs. And I think if you're a person who's in the investment world and you don't need this, and you think it's beneath you because it's personal finance, give it to someone in your life who could use it. Because I know everyone has someone in their life who needs that little jumpstart with their finances. Absolutely. There's no doubt about it. And I get asked this question, where to begin? So this is my new answer to where to begin. Start with this. Once you've read this, we could start talking about investing. Like that's going to

be my new, my new way that I, that I get people started who are asking me advice, how to start. All right. This is great. So again, the book is called everything you need to know about saving for retirement available online right now, go, go grab it. And you guys, how many more animal spirits are you doing this year? You're doing one, the podcast, this week, next week? We're doing one this week, actually. It should come out the same day as this about your financial starter kit. So starting out your financial life and everything you need to know. All right. So we'll have blanket coverage on the new book. So congratulations on that.

And we'll send everybody to this fortune piece that we just went over today as well. All right, I'll talk to you later. All right, I'm here with Brian Westbury. Brian is the chief economist at First Trust Advisors, which manages over $130 billion in everything from ETFs to separate accounts, structured products, mutual funds, you name it. Everything from ETFs to separate accounts, structured products, mutual funds, you name it. Brian has been serving in various important roles since 1982, including as chief economist for the Joint Economic Committee of Congress in 1995 and 1996. Brian does this weekly economic and market commentary piece called Monday Morning Outlook. It is a must read for

institutional investors and RIAs. I've asked him to come on and talk about his outlook from monetary policy, fiscal stimulus, the reopen, the vaccines impact, and a lot of other stuff he's been writing about. Brian, thank you so much for coming on The Compound Show. Really appreciate it. Josh, it's great to be with you. I wish you wouldn't have said 1982. You're making me feel old. All right. 2002, I meant. 2002. All right. So let's not bury the lead because about two hours ago, as of this taping, we heard from Jerome Powell and the Federal Open Market Committee, but they're really not saying anything

that's surprising this time around. Is that your read on it? Yeah. No. We all expected them basically to keep their dot plot, which basically is what all the members expect short-term interest to be in future years, about the same. And they did. There's only one member of the Fed right now who expects rates to go up and not by very much by 2022. So guess what? Rates are low for a long time. The only surprise, the only one was that they raised their forecast of GDP in 2021. They lowered their unemployment rate in 2021. And some people were saying, hey, if you've raised your growth rate and your expectations for the economy, isn't that going to mean inflation is going to pick up and maybe you might raise interest rates?

And basically, in the Q&A, question and answer after the release of the statement, Jerome Powell said, no, we look at all of that as transitory. And so in other words, it's a bounce back from the pandemic and the shutdowns. It's a one-year thing, and we're thinking it's going to take a lot longer for the economy to fully recover. OK, so the Fed is every bit as dovish as they were yesterday as they are today. And most of the stuff that's going to happen and affect the economy is totally out of their

control anyway. And I think the big picture thing for markets is probably that it's a renewed affirmation that they will continue to buy $120 billion worth of securities every month. Right. Buying mortgage bonds for some inexplicable reason with home prices up 8% this year. Is it overkill at this point to do 80 billion treasuries, 40 billion MBS every month?

You know, Josh, it is overkill. The M2 measure of money, this is the one Milton Friedman always told me to watch, is up 24% in the past year. The Fed, you know, the first round of quantitative easing, you know, go back to the 08-09 crisis all the way really through 2015. They pumped all this money in and bought all these bonds, but it never really made it into the economy because they squashed. Remember, we hated banks after 08 and 09. So they raised capital requirements.

They increased regulation. And that meant all that money just went into excess reserves just in this. It didn't get lent out. Right. This time, we forced banks to lend with the Small Business Association, PPP loans. We bought bonds from the Treasury. The Treasury took that cash and gave it to people to spend. And as a result, the money supply has exploded.

So this continuation of bond purchases, it makes me worry about, and I'm already worried about inflation in the future. But they're now adding fuel to that fire. I couldn't agree with you more. What if they just said, okay, we're going to start tapering these purchases because the mortgage bond market is fine and 3.5% is low enough. 2.5% is not necessary on a 30-year mortgage. half percent is low enough. Two and a half is not necessary on a 30-year mortgage. And instead of doing that, we're going to direct this flow back to Treasury and let Treasury do another round of those direct payments to people. Because we know for a fact that when you give money to people who actually need to spend it, it turns out they go out and spend it and that's more effective.

it. It turns out they go out and spend it and that's more effective. Why won't they just do that? What's the holdup? Yeah. I think a lot of this goes back to 08, 09, that they're still fearful that the whole market is going to melt down. And I don't mean to open this as a topic, but people can go read our old stuff if they want. But one of the key problems back in 08-09 is that we had this accounting rule called mark-to-market accounting. And we don't have that rule anymore. So this idea that the corporate bond market or the mortgage bond market is going to somehow get into trouble, it just isn't there. So I don't get this. And also, banks are massively capitalized. The only thing I can figure is that they want some money to go toward real estate because opening again and then having to be fixed and reinvested in. And maybe they want some money toward real estate for those purposes. But this

is not about a meltdown in the economy. It's really all about replacing shutdown related losses, which you're exactly right, should just be going through the treasury and they shouldn't be messing around in these other markets. But we have what we have. Now you have Yellen at treasury and she understands that the Fed is not equipped to do Main Street anything and she won't be at the Fed, she'll be at treasury. So that could open the door to that. It's funny that you mentioned mark-to-market accounting. My theory on why the stock market bottomed suddenly in March of 2009, that happened concurrently with the suspension of mark-to-market. So the banks all of a sudden weren't forced to blow out of positions. It was

like the first time they had a chance to stop selling. So I think that's a good point that you make. Yeah, that's exactly right. And right now, today, I mean, banks, we have record, basically record capital levels. If you look at capital versus loans, loans to deposit ratios, we're in better shape banking wise than we have been since the 70s. And the reason I bring up the 70s is not because it was a great economic time, but that was really before credit cards, you know, exploded onto the scene. So there wasn't as much debt back then. And today, our banking system is better capitalized than even then before credit cards. And that's

why this whole idea of supporting them, it's not the same as 08, 09. In fact, this is, in my opinion, the weirdest recession we've ever had on record. It's so weird. It's the recession where everyone bought a boat. I really don't know how to explain it. And when you were back at the University of Chicago, they probably never put a textbook in front of you that told you you'd have a housing boom in a recession, 0% interest rates, record high stocks. Out in Colorado, I have some property out there on the Colorado River, and I have never seen more drift boats, rafts on the river. And everybody called them stimulus rafts. That's what they called them. So everybody bought one.

I bought a stimulus watercraft this year. I got it. And my excuse was the kids can't go to summer camps. I'm going to have to keep them occupied. So I got away with that one. My wife let me get away with that one. All right. I want to ask you about speaking of credit cards. We saw this really interesting thing happen this year, probably also unprecedented, or maybe it's not, you would know better, where people actually repaired their household balance sheet during the recession, not after. Like that's one of the things they did with the direct payments should we how should

we think about that should we be happy about that or is that not necessarily a positive you know what i would argue that it's it's kind of a little bit of both so to to go back and look at it first of all there there are a lot of people that were able to work virtually in other words they they never had an interruption in their business as a result. But their expenditures went down. No vacations. You know, later on, they bought a boat, all that stuff. Profits went through the roof because, heck, if you're a, I mean, let's think of a law partnership.

And you have clients, you know, you're in Chicago, but you have clients in Cleveland. And you're not sending people out. You're doing everything virtually. So expenses went way down. That's one side. The other side is, heck, with $600 a week, we replaced more than the income that was lost for a lot of people. And that allowed the savings rate to go through the roof. So you're absolutely right. We saw people from, yes, there was a K-shaped recovery, no doubt about it. People in the service industry are still out of work in many places. Disneyland isn't open in California. And so, but that top part saw their incomes stay up. Expenses go down. The bottom part saw there more than 100 percent of income was replaced by government spending. So it is. However, and this is the downside to that.

We're going to have to repay that at some point in the future. You can't. It's true that we can roll our government debt, et cetera. But at some point that that needs to be paid back. Now, is it three years from now, 10 years from now, 50 years from now? We'll have to wait and see. tax, which I think will repair the treasury's balance – Congress's balance sheet. All right. So I want to ask you something you wrote. I found this interesting. I get tempted every once in a while, but this is you. We also can't help but notice that some big companies are pulling up stakes and moving their tents from California to Texas, while others are either moving from New York City to Florida or seriously considering it. These are big headline grabbing moves, but probably just the tip of the iceberg.

My friend, Sheryl Penny, did this a year ago. He was way ahead of the curve. Pre-pandemic, he picked up Dynasty Financial Partners out of Midtown and he said, I'm going to St. Petersburg. minus the financial partners out of Midtown. And he said, I'm going to St. Petersburg. I'm out of here. And built himself a new HQ, moved everyone, all their families, got them into private schools. This is just how it's going to be now, right?

Like there's no going back. You with me on that? I totally am. Until the prices get so low in New York and California that people start going the other way. But I actually believe that, you know, this has been coming for a long time. The pandemic and the shutdowns seem to be heavier, not the pandemic itself, but the shutdowns do in, let's say, New York and California. That just added fuel to this fire. But, you know, so what we're seeing is high taxes, you know, a kind of really interventionist government.

And it's chasing people to low tax states. And then, you know, the joke amongst conservatives, I don't even know if it's a joke because people really cry about it, is that when these when people from california and new york move to texas and florida move to nevada move to colorado they turn them purple yeah they turn them purple or blue and then they end up with the same problems there and so you can see this thing going over the decades and eventually going back once you know once you end up with bankruptcy in places like – I mean Detroit is just the first. We are going to have other cities and even states face the problems that Detroit did almost a decade ago now. All right. So I want to ask you about the Q1 outlook.

So we're now in a situation where things have gotten sufficiently bad enough that we're essentially having a Pearl Harbor or a 9-11 each day in deaths. And there's no need to show a map of where COVID is because it's every county, every state. It's just, it's full blown. And maybe it's as bad as some people thought, worse than other people thought it would ever get. And certain governors are locking down more stringently than others. But at the end of the day, only the vaccine and warmer weather are going to stop this. I think we all agree on that. So you said this, the pace of recovery will depend heavily on renewed shutdowns and the speed of a vaccine rollout.

We watch high frequency data, including TSA checkpoint flow-through, open-table reservations, rail traffic, gasoline usage. These weekly or daily measures turned up in May, signaling a second-half recovery, but now they've leveled out and, in some cases, weakened. So I don't think, like, the January-February data is going to be as hot as what we saw this summer and fall for obvious reasons. But will it get so bad that it tips us into a new recession or you don't think so? Yeah, my Josh, my feeling is the answer to that question is no.

We may we may have a slight negative quarter in the first quarter. However, well, here, for example, we just got retail sales data. And if you go back to March, April, May, we saw numbers minus 30 percent in a month. Catastrophic. Yeah. Today, we're only down about 4% from a year ago. And so I think comparing the shutdowns, it was 15 days to slow the spread. Everything shut down back in late March, early April, everything. Now we've opened up a lot of things. We've learned to operate with the virus, open manufacturing plants and keep distance, construction sites,

all kinds of things. And we never really got back to 100% occupancy in restaurants or bars. We were maybe 25, maybe 50. So this shutdown round, first of all, it's not universal like the first one. There are some states, Florida, nobody wears masks. I mean, it is amazing. And I don't see them turning. So I just don't see this as leading to anything like what we saw in the spring. There might be some slowdown, December, January, February. But once we get frontline healthcare workers and the truly vulnerable vaccinated, which should happen by February, March, I'm not talking about herd immunity, but the truly vulnerable people, I think we're going to see relaxation of the shutdowns and we're going to see more people willing to go out because the risks of infecting grandma won't be the same as they were. So I think that from a moral standpoint, they're doing the right thing, vaccinating the most vulnerable and elderly people and frontline workers.

most vulnerable and elderly people and frontline workers. But if they really wanted to stop the spread, and if they were to prioritize something other than lowering the death rate, like actually stop the pandemic, I would be giving it to college kids. That's where the spread is happening. People that go to bars, people that are maskless, people that are at parties, it's 20 somethings, it's 30 somethings, but they're probably way less likely to die. So it's really tough to stop this, which is why I feel like the vaccine is, you know, we have to really we have to really just think like, all right, the first quarter is going to suck. But we've looked through it so far.

We'll look through it for another three months. I think that's right. You know, I also believe I have a son in college. He he he was quarantined for two weeks, made it through just fine. So did his roommate. So did everybody on campus that has gone through their quarantine process. And so it's really interesting, you know, because there's this big debate about, you know, if you get it, do you have antibodies? Is that the same as the vaccine? I mean, I have my own point of view on all this, and I don't want to have a big argument about it. But the point I would get to is that with the vaccine rolling out, with infections having, you know, surged again, we are getting closer and closer and closer to herd immunity.

surged again, we are getting closer and closer and closer to herd immunity. And plus, on top of it, people are getting tired of it. And as a result, there's this push to reopen in spite of the numbers. You know, so one side says, oh, we have to be really scared. We have to be really careful. And yes, governors are locking down, but there's a whole nother side that's saying we're going to open up regardless and we'll take the risk. And so those are the, and I think there's more and more people falling into that category. I brought up Florida. We both did with the moving to Florida. I also talked, I mean, people, I have been in South Florida four or five weeks out of the last couple of months and people don't wear masks. And if you look at, and if you look at

the course of the virus in Florida, it's, it is not surging like it is in States where there are big shutdowns and, and everyone wears masks. So it think people end up going to Florida, end up going to Texas. I think elderly people in Florida are in these compounds that are no visitors in, no visitors out. Like my wife's parents are in a development. Nobody can come in. That's just how they're living, and that's how they will. The dining room's closed, a lot of deliveries, and that's really it. And that's maybe keeping things from getting totally out of control.

Right. I think that's probably true. But I do agree with you. There's a growing consensus. I'm watching this kid, the barstool, Dave Portnoy. Yep. and this kid, the barstool, Dave Portnoy. He's got like millions of people retweeting or favoriting every time he says, look, you're stopping people from earning a living. It's inhumane.

So there is a growing consensus that's moving, I think, in that direction. I think you're right about that. And I think it's starting to transcend traditional political or partisan ideas. I think it's just like, come on, we got to make it through. We can't sit home. Right, exactly. So we're going to get a stimulus, and I know you wanted to talk about that. It's not going to be as big as some people wanted.

Well, let's go there now. You think it's $900 billion to a trillion dollars. Right. You think everyone gives a little. So we will indemnify businesses from covid lawsuits. And at the same time, we will do some state and local relief, especially states with big populations. This is a win either way, though, right? Yep. You know, just today, I've seen stories that say they're going to give up on state and local and indemnification. And so then it'll come in a little less than 900 billion, and it'll be directed at business and people. So we'll wait and see. But none of that really worried me that

much. I definitely don't want to bail out states for pre-COVID problems. But let's leave that aside. Like your state. Yeah, like Illinois. It's a disaster. We do not deserve to be bailed out. But what we do need to bail out is the people we have forced to close and forced out of their jobs. And Portnoy is absolutely right about that. We need to give them freedom or bail them out, one or the other. And so they could never, in my, politics and watching these bills move through, you know, I've watched it for, since, unfortunately, everybody knows, since 1982. These things die and come alive, like, all the time. And then all of a sudden in the middle of the night out of the back room, they boom, they happen.

And that's going to happen this time. It has to happen before Christmas. And it will. And it will bail out. It will give money to people. Can they get money to people though? What's today? Well, that's not until January.

And that's not until January. And that's the that's where. So we used to have a forecast of five percent growth in the fourth quarter because that's the way the data were going. And then the first quarter was the question. Now it looks like December is going to be weak because this money isn't going to get there. And so that brings us down to, let's say, 2% fourth quarter. But it means we might get two or three in the first. So they could have, in essence, because of the timing of the stimulus bill, we could end up with no real double dip in the economy from a quarterly perspective, from the GDP perspective. Right, the way the calendar works out. Okay. I want to go to 2021. So first of all, you nailed the 2020 call.

There was a little bit of a complication somewhere in between, but in December of December of 2019, your 2020 forecast on the S and P was 36 50. I think we're about 3,700 now. So pretty damn close. So basically you're saying like you had to lower in the middle of the year, your expectations a little bit, and that's obviously understandable. It would be crazy if you didn't, but even with this pandemic, stocks got to where you thought they'd be. And I want to go into your process a little bit here before we talk about

your 21 outlook, because I know it involves interest rates and a little bit here before we talk about your 21 outlook, because I know it involves interest rates and a fair value on the S&P 500 in that context. So how did you get this year right? And then we'll talk about next year. Yeah. And Josh, I want to just tell everybody that's listening, I don't know if I can handle the tens and tens and 50,000 people that listen to you, but we are willing to share our model. It's not that complicated. What we do is we use a capitalized profits model. So we don't

use S&P 500 profits. Those are the reported profits of the company. We go to the GDP accounts. And so every quarter, the government releases an estimate of corporate profits for the economy as a whole. And these data come from the IRS, they come from the Treasury. So they're numbers that corporations are paying taxes on. That's one of the reasons I like to use these data. And then we discount them by the 10-year treasury yield. And it's just a simple math thing. You take profits divided by the current interest rate in the quarter. And we have over 60 years worth of data. And so we know profits, we know the 10-year treasury, and we know where the S&P is during that quarter. And then if have to, I guess,

maybe think about sentiment to get the multiple right, the discount rate, or not necessarily? Well, what we do, because we use the past 60 years, what we're saying is, you know, these are all, I mean, obviously for 60 years, every quarter is different, all kinds of different things going on. Sentiment is different, all of those things. So we don't worry about the PE ratio. And in fact, the lower the interest rate is, the higher the PE ratio can be anyway. So that's accounted for. And then we're using actual reported profits. We're not trying to guess what profits will be. We use the actual reported profits and then interest rates. So here's, for example, in the third quarter of this year, so we take the reported profits, they're out now. If you use a 0.7%, which is where the 10-year was in the third quarter, I'm not even going to tell you, Josh, what this model says.

Because when you discount profits at a 0.7% interest rate, the whole model explodes. I mean, I will tell you, it's over $12,000 on the S&P. Yeah, why not? Yeah, I don't believe 0.7 is the right discount rate. So what we do is we go in and purposely we change the discount rate because we think the Fed is artificially holding the yield curve down. And we're now using a 2% 10-year in our model. And it's about 90 basis points today. So you're saying even if the 10-year treasury interest rate doubles from here, the S&P is still reasonable. Yes, exactly. And

if you go back over the last 10 years and use this model, well, heck, let me give you a little history of it. In 1999, it said the market was overvalued by 60%. And that was the dot-com bubble. We didn't have the profits to support since 2009, the market has been undervalued relative to our best estimate of fair value. And just in case anybody wonders, right now today, and I know you were going to ask me, so I'm jumping the gun a little bit, but our model says 5,100 is what the S&P is worth. And our forecast will not get to 5,100 because there is sentiment issues, as you brought up. There are questions about what policies will be next year, how the pandemic will roll out, all of those things. So we still don't think we're going to get all the way up to 5,100. So even though that's our fair value target, where our judgment comes in is how close we might get to that. And so even this year when we put 3,650 on the S&P, it wasn't as high as we could have gone with the model. And so that's the guesstimate part. So you're shaving some points off out of conservatism because you recognize

that there are exogenous things, not necessarily a pandemic, but exogenous things that will come along that will potentially affect that. So what's interesting about 2009, if you were just – if let's say your model was built on reported earnings for the S&P 500, then you would have missed that 60% undervalued call because you literally had the biggest earnings wipe out in one year of all time, but it was deliberate. It was write-offs to clean up the books, and it was these market-to-market sales and all kinds of stuff that's not real or is only real in a transitory way. So your model, you're saying, was able to skip that whole thing, ignore the 99% wipe out in reported earnings, and just focus on taxes being paid? Right. And that's partly because we use economy wide corporate profits. So in other words, this includes, you know, all the small businesses, it's the partnerships, it's, it's every, it's all the profits in the economy. And I fully understand that that opens people up to say, well, wait a minute, how can you compare the S&P 500 to

that? And I would argue, well, just look historically, this model has worked really, really well. What percentage is the S&P of that whole pie? Is it 20%? No, it's probably more than that. Just because of the S&P 5. Yeah, exactly. So it's probably more than that. But it gives us the underlying trend. And what you're referring to with 09, I mean, banks were writing off hundreds of billions of dollars. Chrysler and General Motors, they went bankrupt. And they were bigger in the S&P. They were really important back then. Yes, exactly. So they did. You know, if you looked at the S&P 500 profits as a whole and you took out financials, you took out the auto companies, the numbers looked a lot better. But what we were able to do by using this corporate, this economy-wide corporate profits is look at the economy as a

whole, as an earnings machine. Who taught you this? Did you invent this or did somebody turn you on to it? Actually, you know who turned me on to it was Arthur Laffer. And I mean, this goes all the way back to the 80s. And I really began to use it and follow it because of him. And so I can't say I invented it. And it's just a really simple approach. And it just made sense to me. Now, we do make a couple of adjustments. For example, in the corporate profits number, believe it or not, I think this will blow people's mind. In the government's

estimate of corporate profits, we include Federal Reserve profits. And so it's part of it. And we actually take them out. And when I say we, I mean us collectively. The government puts them in. We're like, that's not a corporate profit. That's that's a spread on a bond and the holdings that that they're making. And so we've wiped that out. We take this past quarter. It was ninety four billion dollars profit that the Fed made. And we exclude that from these numbers. So we do make a couple of little tweaks to it. And then the biggest tweak we make is we don't always use the discount rate that the Fed is giving us. So for example, if they're going to hold the whole yield curve

artificially low, we're going to end up putting a higher discount, a higher 10-year treasury in there. So you're saying 4,200 on the S&P 500 by year-end 2021, about 35,000 on the Dow Jones. So that's basically like a 15% return for the equity markets. And it looks like we'll finish this year at something like a 15% year, which is still blowing my mind. And I think you see the 10-year getting as high as 1.5%, which would be a big jump from today. But I think it would be a positive to see some yield curve steepening. So let's say the Fed is not going to move next year. They're going to keep pushing down on the overnight rate. But then you get something like 1.5% on the 10-year, everybody makes money, lenders, banks, asset managers. So that sounds like a pretty nice year. Of course, a monkey wrench can come from,

we now know another dimension or Jupiter. But I like your scenario. Talk more about that. I hope you're right. I hope you're right. Yeah, that's exactly right. And remember, you know, so at 4200 on the S&P 500, which which is our forecast for year end 2021. I think if I'm wrong now, obviously we could get a meteor or something, another pandemic, whatever. And and and everything's off the table. war with china and anything really right yes they're good you know but but i think if i'm wrong about that i'll be too low uh and remember our our forecast for the valuation is 5100 um and then the you know it's almost perfect because the yield curve tends to steepen. The vaccine is rolling out. Value stocks have been crushed relative to growth this year. And I think we can see a rotation into those areas.

This is not the way we forecast. But just kind of one thing to look at is that the aggregate of all S&P analysts right now from the bottom up are showing industrials, the S&P industrial category, 69.1% earnings growth in 2021. And so, I mean, you can see the sectors. In financials, they have explosive earnings as well. That would go along with this yield curve steepening. And then the final point I would make about this is that, you know, obviously, you know, we all joke S&P 5 versus S&P 495. And so what if the tech guys crash? Well, and I think there's some people that worry about that. But the way I look at it is we've had eight years of growth for these tech

companies in eight months. Without them, we could never have gotten through this in this last eight months. And now they can pass the baton to a new group of companies. Right. And they'll slow down in their growth rate, their expansion, but they're not going to shrink. So this idea that we're going to give back any of this growth, I don't buy it. One of the reasons that profits are going to do so well next year is the costs are way down. And costs are down because of these tech companies, which means they're even more of a central part than they ever were. And so I think it's a rotation, but the side that we're rotating out doesn't get hurt. And so the rest of the market starts to catch up. All right. So I want to ask you, so here's the meteor that I think is possible and it can happen quickly. We have a runoff in the

Senate, two seats. If the Democrats take both, they have a tie with the Republicans in the Senate, I believe. And then Kamala Harris as VP comes in as tiebreaker. It doesn't guarantee higher taxes, but the stock market will panic either way. You got a corporate tax rate of 21. That could go back theoretically to 28. And then what that does is it inhibits dividends coming back, buybacks coming back to the extent that we had them or dividend growth. And just generally speaking, negative sentiment. And maybe that's where the first correction of 2021 happens. And it happens like early January.

Is that like what probability would you assign to that? Is that like what probability would you assign to that? I guess my well, my probability is is informed by two things. One, I look at there were 14 House races in Georgia. They have 14 congressional seats. Republicans won eight. Democrats won six. But more importantly, Republicans in those House races got 97,000 more votes than Democrats.

And as a result, I'm going to assign relatively low odds to that scenario. But having said that, you're absolutely right. 51-50, I think, will be, if it were to go both seats to the Democrats, it would scare the market initially in the year. But we rallied all during Obama. I mean, I remember Sean Hannity telling me every night we were going to have a depression the next day, get out of stocks. And we kept arguing, no, no, no. The power of the U.S. entrepreneur is so great. We can handle the higher taxes. We can handle more regulation. And I guess the best news about 5150 from my perspective is no court packing, no Senate packing, no Green New Deal, no Medicare for all, because you can't get that through with 51 votes. So yeah, we'll have higher taxes and more regulation, but we've already been there.

You need a two-thirds vote for those major items, and it's not going to happen. Nope. It will not happen. So I'm not – hopefully nobody saw a glee in my face about that or anything, but I just look at this as an analyst and as a market participant. This is audio only, Brian, but I can see you with a tambourine and a – I get what you're saying, but it's not about what you want politically. It's about how the market will react to the development. Exactly. Absolutely. So yes, so we will have taxes. We will have tax and regulatory increases if we have a 51-50 Democrat majority. But we've already been through that with Obama,

if you will, President Obama, and the market was fine. And so it just depends on earnings. I think I've given myself enough leeway with our forecast. I've been conservative with the interest rate. And so I'm optimistic about 2021. Once we get through those first couple of months, it's going to be pretty good. Biden doesn't seem like a big stock market guy. I don't think he could tell me where the Dow Jones is off the top of his head, right? I highly doubt it. Okay. And then I don't think he's a big anti-bank guy either. He's a Delaware guy, which is like credit card country, corporate court country. I don't know he's a big anti-bank guy either. He's a Delaware guy, which is like credit card country, corporate court country. I don't know.

Like he doesn't strike me as somebody who wants to come in and smack around Goldman Sachs. Like that's not really where we are in the sentiment cycle toward the street right now. So I don't think there's any compelling reason to – OK. So you agree with me on that? Absolutely. OK. OK, so you agree with me on that. And then.

Absolutely. OK. And then if anything, he actually is going to it's not deregulation, but he should be dismantling these destructive tariffs. So he's actually a bigger free trader than Trump and Trump's team have been like in reality, maybe not in rhetoric, but in reality. Right. Yeah. So actually, if you go back to the four years of Trump, we would have grown real GDP at a 3% rate if it weren't for the tariffs. And the tax cuts, the deregulation would have boosted growth over 3% if it weren't for the tariffs.

boosted growth over 3% if it weren't for the tariffs. Now, at the same time, I do believe that China needs to enter into the World Trade Agreement as a full member. They've entered the sphere of the real world. It's time to grow up, time to stop being called a developing nation and having special tariffs. So in a way, Trump highlighted that. And I hope that that happens. But you're absolutely right. Biden, to the extent that the tariffs hurt growth during President Trump's tenure, I think under Biden, they will be less of a negative. So you kind of have an offset, a better tariff environment, but a little bit worse regulatory and tax environment. All right. Well, listen, where do we want to send people so they can hear more of your insights? I know we're going to send them to First Trust or is it what is it?

FTPortfolios.com or what's the right? That's a perfect place to go. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com.

FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. FTPortfolios.com. We also have a shortened website, FTPLP, a limited partnership, ftplp.com. And that gets you right to my stuff. I'm on Twitter

at Westbury. You can yell at me all you want on there. People do all the time. So you're good on Twitter. I think you hold your own there. I haven't been there for almost a year now, eight months or something. I don't miss it, but you're good on Twitter. But we're going to send people there. We'll send people to the site. And hopefully you'll come back as your predictions start to bear fruit

and your forecasts start to play out. We'll talk about it next year. Sound good? Would love to, Josh. All right. Thanks so much for having me. Oh, it's my pleasure. Thank you, Brian. Really appreciate it. Talk to you out. We'll talk about it next year. Sound good? Would love to, Josh. Thanks so much for having me. Oh, it's my pleasure. Thank you, Brian. Really appreciate it. Talk to you soon. Thanks for listening. Check us out at thecompoundnews.com for daily investing and

market insights. You can watch all of our videos at youtube.com slash thecompoundrwm. Talk to you next week. at youtube.com slash thecompoundrwm. Talk to you next week.