Jason Hartman talks with in house economist, Thomas. They discuss what a recession is and look forward to what is yet to come. In the second half of the show Jason welcomes back Harry Dent. Harry discusses the economy, company buybacks, quantitative easing, and peak spending trends.
Investor Testimony 0:00
My goal is maybe get into real estate also to help my friends do what I’ve been able to do
Investor Testimony 0:05
before asking me about it, you know, so, and spend more time with my family, and hopefully grandkids. My daughter’s married three years now. So maybe in the near future, we’ll have grandkids to take care of.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really Do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:09
Welcome to Episode 1427 1427. Thanks for joining us today. our in house economist Thomas is here with me. And there’s a lot to talk about in the economy. But he presented some numbers, and they weren’t as bad as I expected. Thomas, welcome back.
It’s good to be with you, man. It’s good
Jason Hartman 1:30
to have you out. Did you ever think you would witness an event like this in your lifetime? Thomas, this is, this is absolutely amazing What’s going on?
No, I didn’t. It’s odd. I never thought that there would actually be a choice to have a recession. This is a recession by choice, something we’ve never seen before.
Jason Hartman 1:48
It’s a good way to put it. Yeah. And you’re calling it the great little recession. I don’t think you mean little by its breadth although we that remains to be seen but You probably mean little by its link, because I don’t think anybody’s anticipating this to be too long. Well, I don’t know. What do you think
now? Hopefully this doesn’t bleed into July, August, September. Oh, well, you’re just talking about
Jason Hartman 2:12
months. I was talking about years, you know, that mean, the Great Depression, you know, I don’t know, technically, how long the Great Depression in the 30s lasted, you know, and there’s really no academic definition for depression. Now recession. By the way, what you told me today was interesting, I thought it was always just two consecutive quarters of flat or declining GDP was a recession. Okay. But there’s actually a committee that decides much later if it’s a recession or not, right. Tell us about that.
Yeah. Members of the National Bureau of Economic Research, they get together and they’re careful about deciding when a recession happened. So usually, when they declare a recession, it’s not useful at all,
Jason Hartman 2:56
because how much later is it after the fact
if right now Turns out to be a recession. They won’t declare it to be a recession until the middle of 2021. Oh my gosh, wow.
Jason Hartman 3:09
Talk about looking in the rearview mirror that’s not even worth thinking about what they say.
Yeah. That’s something mostly academic economists. Yeah, they’re very academic. Okay, so you’ve got some stats for us. I was actually kind of pleasantly surprised. I thought this would look a lot worse than it does fire away. Yeah. So today’s employment report came in at 4.4% unemployment rate, and 701,000 jobs lost and current reason why that’s not as bad as what it should be is the BLS. The Bureau of Labor Statistics is gathering this data from employers as of March 15. And the big jumps in the initial unemployment insurance claim. So what’s happened the past couple of weeks, they missed the 3.3 million filing week and the 6.6 million filing weeks. We know employment is at one 10 million lower than what they reported.
Jason Hartman 4:02
Okay, but 10 million people doesn’t change the percentage that dramatically does it? I mean, it changes it for sure. It’s terrible, but it doesn’t make it 25% unemployment.
Right. Yeah. To get to 25% unemployment. Let’s see, we got 153 million employment base.
Jason Hartman 4:23
Yeah, yeah, I was gonna say 150 million, right. So you got to have a quarter of that. That’s a lot of people unemployed. So, even 10 million people, as bad as that is in number. Remember, the population has increased. So what I always say to the listeners, which is I can’t stand you know, this how to lie with statistics that has always done every day and it’s so misleading. They’ll say, Well, during the Great Depression, we had X number of millions of people lost their job, but the population was dramatically smaller back then, what’s meaningful is a percentage, a per capita number, a ratio, a relationship? It’s not meaningful to hear gross numbers, it’s meaningful to hear percentages. Now, try telling that to the person who’s unemployed. I know I get it, okay. But when you want to analyze something, you must analyze percentages. Okay? That’s the meaningful way to analyze things. So, anyway, some of the doom and gloom errs are saying we’re going to see this unemployment rate exceed the Great Depression, it’s going to be 25 30%. Let’s hope they’re wrong. But right now, it’s it 4.4%, right. That’s not that bad, yet. It’s gonna get worse. We know that for sure. And just to give you a point of reference, in the middle of February, okay, it was 3.5% in the middle of January, it was 3.6% going Back to march of 2019. It was 3.8%. Okay, so there’s a couple of reference points, again, what’s meaningful is always reference. You’ve got to have reference to understand something. Okay? And let me give you a longer reference. Back in April of who knows how far the stock goes back now, march of 2010. It was 9.9%. Okay, it’s gonna get worse. We all know that it’s gonna get a lot worse. But right now, you know, there’s your number. Okay. Comparison, wise, Thomas, tell us what it was during the Great Depression in the Great Recession. I think we might have already given that away. But
yeah, the unemployment rate peaked at 25%. In the Great Recession, or in the Great Depression in the 30s in the 30s. And then the Great Recession saw 10% Peak. If you add those 10 million jobs that were lost the past couple of weeks, then We’ll probably see an unemployment rate in when it’s released the first week of March of 8%. But that’s 10 million up to now. So right, here’s another couple weeks before Yeah,
Jason Hartman 7:12
definitely. But let’s let’s just unpack that for a moment. Okay. So social distancing has been going on now for over a month. quarantines have been happening in many places for several weeks, if not a month. Plus, I’m not really keeping track of that closely enough to be right on so don’t quote me on any of that. I may be wrong, but have all the jobs that are mostly going to hit the unemployment rolls. Have they already been lost? Or is there a whole nother swath? I mean, all the restaurants are closed. You know, Amazon and Walmart are hiring like crazy. So some industries are expanding. A lot of online stuff is expanding, obviously. But what’s gonna be like the next wave. I mean, is there another big wave of unemployment waiting to happen or Has it mostly happened? Probably nobody knows the answer. But what do you think?
Yeah, the employment base for say, retail and tourism is something around 40 million jobs.
Jason Hartman 8:11
And have they all filed unemployment yet or no,
if we’re only at down 10 million so far, okay. It’s gonna get a lot worse. There’s some out there and
Jason Hartman 8:19
yeah, that’s gonna get a lot worse. Okay, point of reference on unemployment. 25% Great Depression in the 1930s. Great Recession, you know, 2008 2010 depending on how you want to look at it. 10% right now 4.4%, but you’re estimating the recession by choice will be what, what’s your projection?
Oh, I think we’ll probably peaked out at around 14%. That could be optimistic. I don’t know. There’s a part of me that thinks that. I think this is going to start the retirement phase for a number of workers that will just drop out of the labor force,
Jason Hartman 8:57
right and they’ll basically retire you Maybe they’ll start a home based business or have a little side hustle, but they’ll be largely retired. I think if that
doesn’t happen, then the unemployment rate will certainly rise above 14%. Okay, how bad can
Jason Hartman 9:12
it get? I mean, do you believe some of these doom and gloom predictions of 25 30% unemployment? Is that realistic? Could it be that bad? I mean, your number, your 14% number, by the way, is 40 million jobs lost, right?
Yeah, that has included in it that people would drop out of the labor force. You know, if it doesn’t happen, then we might get 25 30% unemployment. Wow.
Jason Hartman 9:39
Wow. That’s just staggering to even think of it. It’s awful, but we’re gonna get I think we’re gonna see a real push toward universal basic income. Certainly the welfare state is going to increase even if it’s not UBI and also, we are going to see a dramatic expansion of a Rental Housing Assistance Program like a section eight, maybe it’ll just be an expansion of that program or there’ll be a new program with a different name. I don’t know, nobody knows, you know, the government can print unlimited fake fiat currency to ad nauseum, right? They can just go on forever with that pretty much. The gold bugs say they can, but they’ve been proven wrong. over and over and over again. Peter Schiff has been proven wrong over and over and over again, even though he’s super interesting to listen to. I don’t know. Okay, what about housing and retail sales? Talk to us about those.
Yeah, I think retail sales, that’s the biggest downside. Obviously employment. That’s the biggest downside if you’re unemployed, but in terms of how it compares to other economic downturns. Each month, we could probably lose 55 billion in retail sales. So if you annualize that, that’s there’s 2.4 trillion in retail sales each year grows around 5% And Cheers. Okay, now help help
Jason Hartman 11:01
help me with this calculation. I’m so glad you said the total number because the the last number is not meaningful unless you know the total number. So you have a reference point or ratio a percentage. Okay. But I thought that Okay, oh, that’s retail sales that doesn’t account for the entire consumer economy, right? Because, you know, you always hear consumption is about 70% of the s&p, right. And, you know, 70% of the broader economy in general, I guess. But the economy is what it’s going to be about, well, not this year, but $18 trillion or so 20,000,000,000,002.4 2.5 trillion is not 70%. So how do you arrive at that number
when the Commerce Department goes out and collects information from the retailers, they don’t get everybody, they’re just going to mostly to the big retailers,
Jason Hartman 11:59
right? Does does a retailer include a car dealership, for example? Or? Yep, no, it does. Okay, it doesn’t just include Macy’s. Well, the Macy’s will probably not be around after this, at least not not in physical form. Because the Macy’s is obviously in trouble. But they’re everybody’s scrambling to move online. And as I said, a crisis like this just brings the future forward, it brings it closer to us, because it pushes us all into Necessity is the mother of invention, right? And so it pushes us to take the next step. And people that formerly were not using online tools are now using them. Companies that weren’t using them, you know, they maybe had an initiative but it’s like, we’ll get around to this in five years will really make our e commerce component better. Now, they’re doing it today because they they’re forced, it’s an emergency. They got to do it to survive. So it’s creative destruction happens. A lot quicker in a crisis like this, and you know, it would have happened anyway, but it would take longer. So, you know, that’s actually a good thing. That’s actually one of the good things that comes out of this is Joseph Schumpeter’s creative destruction happens faster, which, which I think is actually cathartic. I think that’s good. That’s good for everybody. You’re such
a positive guy.
Jason Hartman 13:21
Well, I mean, look, I mean, why not have the future sooner rather than later? You know, I mean, let’s push progress. This pushes progress. It’s it’s good in that way. Hey, you’re the one that said you wanted to share an inspirational quote, go for it. It wasn’t my idea.
What’s your quote? Thinking of Apollo 13 right when the oxygen tank failed? lunar module was in danger of not returning to Earth.
Jason Hartman 13:45
Right, right. We probably saw the movie with Tom Hanks.
And gene Krantz lead flight detector overheard people say that this could be the worst disaster NASA ever experiences and and the rumor is that the response was with all the Respect, I believe this is going to be our finest hour. So, you know, I don’t know, I was trying to count up, how many decisions will be made between now and when the economy needs to rebound, you know, for us to avoid a depression. And you know, if you think 325 million people and 140 million households, it’s mostly, you know, that the leaders have not in front of kids making decisions, right. 140 million people, they’re making economic decisions, say 100 a day. And you’ve got, you’ve got millions of decisions that don’t really make a decision of whether we entered a depression or whether we experienced the greatest recovery ever now.
Jason Hartman 14:44
Well, the one thing we know about this is it’s unlikely that it will be long lasting. So that’s the good thing. It’s going to be sharp and severe. I think we already can all sense that. But it doesn’t seem like it’s gonna last very long. I mean, there’ll be little lingering effects, no one can deny that but you know, a lot of innovation comes out of this. I mean, look at Blue like, Look, compare it to wars, right? This is really a version of a war. I mean, Trump is claiming he’s a wartime president. And he’s right, actually, you know, it’s just that the enemy is a virus we can’t see it’s an invisible enemy, as opposed to, you know, being another country. Right. And whenever you have war, you have number one, a giant public works project. You know, that’s what pulled us out of the Great Depression in the 30s was the biggest public works project of all time. And it was called World War Two. Okay. It wasn’t called the New Deal. It was World War Two, right. So then now you have this situation and you have this massive public works project okay. Which is number one, all of the bailouts I know that’s not a works project like but look at there is no A positive value that comes directly out of destroying other people’s buildings, which is what a war is right and killing their people. Okay? But you have a ton of innovation, because there’s never more urgency to invent and innovate and have creative destruction. And I’m saying that in a good way not destroying buildings, is when bombs are dropping on your head and you have a big threat. And look at all of the innovation that’s already happening in the economy so, so quickly, right now. So that really is amazing. And it’s going to be interesting to see how it all plays out. So Thomas, stay safe and stay well and we look forward to having you back on next month. We’re going to have some pretty big numbers. This is going to be a tough month for everybody. The news is not going to be good this month. So prepare yourself that we will all get through it. And remember is Robert Schuller, his great book that I read many, many, many years ago, entitled tough times, never last but tough people do. Let’s get to part two of our show. If you need us reach out Jason Hartman calm or one 800 Hartman. Thomas. Thanks again, look forward to having you back again with you. It’s my pleasure to welcome a returning guest back to the show, Harry dent, the prolific author that I discovered back in 1995, and I’ve been following for many years. He’s an economic demographer. I think that’s the proper way to say it, he can correct me if it’s not, and he has some interesting things to share with us today. For those of you listening, I just want you to know this will also be on our YouTube channel because there are several visual aids that Harry came prepared with charts and graphs and interesting stuff to look at. So after you listen to this, if you’re not watching the video, feel free to go to the YouTube channel, and you can actually see it there. But for those of you listen Not able to watch, we will try and describe the charts as well so that you get the best of both worlds. Harry, welcome back. It’s great to have you. I think this is your eighth time on my show, right?
Yeah, sounds right.
Jason Hartman 18:10
Yep. Something like that. And you’re coming to us today from where you live in Puerto Rico. Correct. Puerto Rico, yes, better weather than Florida. Everybody thinks it’s hotter. Down here. It’s less hot and extremes. lower cost, especially for a beachfront condo compared to South Beach where I used to live. And the taxes advantages are incredible down here for people from the United States. The Puerto Rico tax benefits are literally the best deal in American can get in the entire world, because the IRS is one of the only taxing authorities on earth that actually taxes Americans on all worldwide income. But Puerto Rico has a very unique exemption to that. Many of my friends have moved there to take advantage of it. Of course, the famous or infamous Peter Schiff lives there. Yeah. And you saw him
Yes. Today we were at a conference both of us on panels, different panels, but yeah,
Jason Hartman 19:03
good stuff. Yeah, I saw him in Dorado beach when I was there in November.
Harry Dent 19:07
So what I call gringo Disneyland. You think you got to move down here and can’t live in the best of American style. You’re wrong. And Dorado is a great example.
Jason Hartman 19:16
It’s a Ritz Carlton resort. It’s gorgeous. But Harry, I’ll tell you it is very expensive. The real estate in
Harry Dent 19:21
Toronto that the rest of it’s affordable. I’ve got a $500 square foot condo that would be $2,000 for the similar location and quality in South Beach where I used to live. So that’s Yeah, Toronto. You’re right Toronto’s above I wouldn’t be buying and Dorado.
Jason Hartman 19:37
Yeah, very expensive. Well, hey, listen, you are famous for your predictions on all aspects of the economy. We’ve got a chart up now that says QE quantitative easing creates Frankenstein markets on crack 120% overvalued. And then it says births are lagged for peak spending. versus the real Dow Jones Industrial Average. Now, I was actually talking about this on my show just yesterday about how births need to be lagged. So for example, you talk about the peak spending time and the peak earning time and people’s career. And so you can’t say, Well, you know, there’s a lot of people being born today, you need to look back what 46 years right?
Harry Dent 20:24
Yeah, kid kids are liability. Kids cost kids growing up causes inflation, especially as they enter the workforce and businesses have to invest after governments and education and parents raising them. What’s key is people spend money dramatically higher from workforce entry, age 20, on average, into 46. For the boomers, it’s now 47. For the millennials now more driving the economy incredibly, increasingly, and it’ll be it looks like to be about 48 for the millennials to follow. So yeah, it that this is my first breakthrough indicator Jason back in the late 80s. When I saw how big this boom was going to be because the beta Boom was so giant, it just moving forward the birth index adjusted for immigration which I can also do accurately for the peak spending of the average person household and it’s it tells you when the economy is going to boom and bust it called everything perfectly. I mean, again, I this indicator I came up 1988 I said this booms gonna peak by the end of 2007. And it did and we’ve been living on quantitative easing ever since after the baby boomers slowed down on their spending, right, the next generation doesn’t come along till about 2023 the millennials, and this shows how much the markets been overvalued simply because of quantitative easing.
Jason Hartman 21:38
Slow down for a second, okay, I want to just get some foundational things, make sure the listeners and viewers understand them. So first of all, what is the age of someone’s peak earning power and peak spending? What are those two are they they’re about the same, right? They’re
Harry Dent 21:53
about the same. It was 46 for the baby boomers. 36 years 37 today For the millennials and and when I look at in the past and Europe, and Australia and other markets, I deal with most other places. It’s about 47.
Jason Hartman 22:08
Okay, so is that peak spending and earning are they
Harry Dent 22:12
spending? Well, the spending is what matters to the economy because people as they get a little older, they they save more. The spending is the critical back that earnings peak close to that, but the spending is what correlates with the markets the most.
Jason Hartman 22:26
Okay, great. So 46 years old for the baby boomers, for millennials, they’re a year behind and it’s 47.
Harry Dent 22:33
Now that’s built into this lag. So the lag is naturally extended to 47 as we switch to millennials in this chart,
Jason Hartman 22:41
okay. Now, you also mentioned Zola finials, and I haven’t heard anyone refer to it that way. But that’s Generation Z, right? Yes. Okay. So understanding these demographic cohorts is very important. As I’ve said many times, baby boomers, you know, depending on who you ask about 76 million Americans Millennials about 80 million Americans, my generation in between the two tiny little generation about 46 million I guess Gen X Gen
Harry Dent 23:08
Xers that’s that’s the downs. That’s the lower birth generation which had caused the downturn after 2007.
Jason Hartman 23:15
Well, sorry about that, folks. Yes, I’m in this little lonely generation with,
Harry Dent 23:21
well, you’re the lead. Because you get to buy everything at the bottom. You can you know, okay, so so you’re actually you know, it’s an advantage My father was in the smaller generation. Born in the 30s, early 30s. Before the baby boom, every house, everything he bought, always went up. drove him up coming after him.
Jason Hartman 23:40
Ah, yeah, that’s interesting
Harry Dent 23:42
millennials that drive up things for the exercise.
Jason Hartman 23:45
Oh, yeah. Okay, interesting. You know, especially real estate. interesting idea. Yeah, definitely. Okay, so what does this chart tell us? So we’ve, so really, we’ve been living on quantitative easing coming out of the Great Recession, which means effectively, you know, the easing of the money supply the increase in the money supply. Part of it is, you know, money creation, money printing, as they say, not really printed much nowadays. What does that mean? I mean, what tell us what that means.
Harry Dent 24:11
Okay, real quickly. This is very important. It’s not actually a substantial increase in the money supply. Normally what the central banks have done in the past, they lower interest rates, they make money more available, they do expand the money supply and create more reserves for banks, so banks will tend to lend money. What happened with the Federal Reserve when we came into the great recession is they didn’t realize consumers and businesses had already overborrowed, overbought housing overexpanded businesses and capacity. They didn’t need to borrow. And of course, banks tighten up. So so that didn’t work. What what ended up happening is Federal Reserve in doing quantitative easing, rather than just reserves and lower rates. Quantitative Easing is not putting money into the bank system and lending it is money. Literally buying financial assets like bonds, which puts more money into the pool that’s actually chasing financial assets. And that drives up financial assets. So what this chart is showing, while the economy kept slowing, and you gotta remember, this is the slowest recovery in all of history 2% average real growth versus four or 5%, or more and past recoveries, and that’s with all with $16 trillion printed by by Central Bank, but the money did not go into the banking system did not go into consumer lending, which does expand the money supply we got and this is why the gold bugs were wrong. We did not get an inflation surge or hyperinflation. What we have is the greatest financial asset bubble in history great in the roaring 20s in the stock market. I mean, it’s true of real estate, Real Estate’s gone up everything else to bonds are in a bubble, but real estate is the strongest bubble and where the benefits the most from low interest rates. More money chasing financial assets. And so what this thing is showing this blue line in the background shows where the economy should be in stocks normally followed that Justin for inflation. But even with this weak recovery, which would have been worse than weak, it would have been a down economy without all this stimulus. stocks have gone straight up, like it’s the best economy in history, and they now are 120% overvalued. And I’ll show just let me still one board chart, that the dat 120% difference is the difference between the black line here which is earnings per share of stock versus the blue line which is total corporate earnings, which came back up after a recession strong stimulus and they’ve hardly grown since earnings per share had been grown because companies are buying back their stocks the third chart you know 5.6 remember the Fed printed about 3.7 trillion central banks around the world about 16 trillion toe 3.7 was printed 5.6 trillion because Have the low long term rates, and then the flush money in the economy 5.6 trillion have gone to buying stocks back shrinks the number of shares, which leverages greatly leverages the earnings per share and therefore the stock price. So this artificial bubble in stocks that has nothing to do with the economy, which the blue line shows you where it should be,
Jason Hartman 27:22
okay, okay, slow down on that one. So you’re It sounds like you’re saying that the stock market is really not increasing in value as much as it would seem. It’s it’s simply generated by smoke and mirrors of stock buybacks that are increasing the numbers in the stock market, right.
Harry Dent 27:43
Yes, yes. And company stocks are going up mostly because of the leverage of shrinking the number of shares rather than the growth in the economy, which again, 2% average since 2009. This whole recovery, the slowest recovery By far, and all, even the great, the Great Depression, we came screaming out of that stock crash from 1933 Ford. So this is a fake economy and particularly an artificially overvalued stock market, which means and here’s the important thing, stocks which have only been bought this fourth line by the red line is companies buying their own stocks. Everybody else is basically neutral. So investors aren’t even net buying stocks, and in what is creates the big financial bubble in stocks at most crash, which you’ll see in the fist chart here. People in Wall Street keep saying, well, this isn’t a bubble because of this or that and then look at this bubble. We’ve had four bubbles to minor, the big one with tech and 2000, which everybody agreed was a bubble. Now look at this bubble, this bubble makes all of them look like nothing. This is the greatest bubble in history is global. The real point here and I want to focus on this chart.
Jason Hartman 28:54
Well I have a question is the entire I mean, look, you say the economy is fake. And you’re not wrong about that. But it hasn’t always been kind of fake and like most countries around the world are these fake propped up economies through funny fiscal and monetary policy. I mean, you know that that’s not exactly unique to the last 10 years. Is
Harry Dent 29:17
it right? No, it’s not me. I’ll give you a quick example federal,
Jason Hartman 29:21
I always like to ask, compared to what, right? Yes, it’s true that the economy is built on smoke and mirrors. But it’s been that way for a long time. And this is very important. And
Harry Dent 29:34
let me make this crystal clear. Okay. Governments always stimulate the economy, right, try to prevent recessions, lower interest rates, they always push things. This they’ve never done quantitative easing on this man. This is a this is a cannon bazooka compared to a pistol. Okay, got it. So so the Federal Reserve was created. We didn’t have a Federal Reserve before 1913. And guess what happened? They kept lowering interest rates every time there was the least slow down, and then kept the economy from rebalancing and shaking out bad companies and bad loans, which which keeps you more imbalanced. And we just got a bigger and bigger bubble in the 1929. And then 20 years after the Fed was created in 1933, we were at the bottom of the worst depression and all of us history 25% unemployment, blue chip stocks, like Ford and General Motors and RCA back then it’s like Microsoft and Apple and Google today, down 89%. They created a bubble because of constantly stimulated and then a crash. But the difference is, the stock market still generally went with that spending wave I had, it just gets higher than it should be. And then it crashed with the economy what we have this time, our economy that should have kept going down with slower spending, but all this stimulus made the rich people now let me here’s another important statistic, very simple 20 the top 20% Households the most employment in this country, college educated professional workers own 88% of the financial assets outside of people’s own home. 88% That’s some they’ve made, they’ve been made rich by this bubble. They’re spending more than ever, everyday households that did not benefit who own very little stocks, and they own smaller homes that didn’t bubble as much because they’re in everyday places. And that’s why they’re much better value now. So they’re not experiences so they’re spending very slowly in the high end. Now that 20% you say, but it’s only 20% they control 50% of the consumer spending. So 20% controls 50%. So here’s how I would describe our 2% growth economy. Zero for everyday people. 4% for the affluent, and we averaged 2% and a normal boom, both would be spending we’ve been averaging four.
Jason Hartman 31:53
Okay, so the moral of that is the rich are getting richer. The middle class is disappearing. Or at least the lower part of the middle. Yeah, some of the middle class is moving up and moving into that upper middle class. But the lower middle class is is declining, sadly and the poor are still poor. Yeah. Okay, next chart.
Harry Dent 32:14
Okay, so we looked at by Batman point $6 trillion. That’s what’s made the stock, right? This is new money. This is shrink. This is leveraging stocks, it’s companies taking money out of their strong cash flow in an artificial economy that would be much weaker without super low interest rates and all of this stimulus, that it’s affecting the upper class, and they’re just shrinking their shares, it’s leveraging they are leveraging their own shares, which says two things, Jason, they’re going to go up way faster, which that first chart showed how much they’re overvalued. 120%, which means they’re going to crash more when they come down on and all of a sudden, their stockholders are going to say two or three, four years from now. Oh, why aren’t we buying our stocks back now that they cheap. Oh, you know why we spent all of our cash flow buying them when they were expensive companies now? I tell people it was the shoeshine boys. You know the dumb money. I hate to say it buying stocks in 2019. It is the fortune 500 executives and the richest people in this country. Most buying stocks everyday people are not driving this stock bubble. It I showed that all here’s it. Here’s the next chart.
Jason Hartman 33:24
I got a question, though, before you move on about stock buybacks. You know, a lot of people criticize stock buybacks, Harry, but I’m wondering, is it really that bad? I mean, when when a company buys back its own stock. It’s kind of doubling down. Right. It’s showing faith in itself, isn’t it?
Harry Dent 33:43
Harry Dent 33:45
I mean, look, here’s
Jason Hartman 33:46
one of the metrics people look at is they look at what are the insiders doing. And if the insiders are selling, investors lose faith in that company. Here. Essentially what the buybacks the insiders are buying. I mean, maybe it’s the Treasury. account but
Harry Dent 34:01
yes, they are buying if you’re doing it in normal times, if you just like slowly over a boom like the 50s and 60s, bottle them or you stock Yeah, you just you’re just making a little more advantage a little more leverage for things. When you buy into a bubble like this and I just, you know, steep his bubble and all of history, you’re taking precious cash flow, which company Believe me, the companies in the 30s that survived a bubble crash of this level. The ones that survived were General Motors that had better cash flow and could get through it the other ones went under and so the surviving companies buy their assets for nothing takeover their customers, cash flows, everything you’re using your cash flow in a boom to leverage your stock and make it bubble like so it will crash more and the worst consequence you won’t have that cash in the downturn to survive and then to reinvest and leave your competitors in the rearview mirror. So yes, if You did it normally and over time and judiciously it’s just like having okay. It’s like having a glass of wine a day. Most people say oh, that’s good for you relax a little bit. You have a couple bottles a day. No, that’s not that’s what this is. This is a couple of bottles in the late stages of a greatest bubble and these pumps is telling you Jason I’m saying this today so I can remind people few years now these are going to look like the stupidest people in history that bought took their share these successful companies to their shareholders money and gambled it on their own stock leveraging it up as as the stocks weren’t doing okay as well and basically screwed their shareholders. Okay, that Interestingly though, will redistribute some wealth
Jason Hartman 35:46
back into the middle.
Harry Dent 35:48
We don’t need Bernie Sanders This is going to be the fastest wealth redistribution from the rich to the every day, just like in the 30s the rich got richer in the 1929 and into 75. You know, For many they they lost some of their advantage and share of wealth and income that’s going to happen here very quickly and wealth. Very, very rare. Simpson doesn’t own this bubbly stock houses and doesn’t own a lot of bubbly stocks. Okay, this will be continued on
Jason Hartman 36:17
the next episode. Thank you for listening and happy investing. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website Hartman. Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show. We would very much appreciate it Add and be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.