Bogleheads® Conference 2018 - John Bogle and Bill Bernstein Fireside Chat
00:00:00.000 | Okay, a number of years ago, Jack asked if he and Bill Bernstein could have an informal
00:00:07.660 | non-political chat as part of the agenda.
00:00:13.480 | And we all know what Jack wants, Jack gets.
00:00:16.920 | It's become a regular part of our conference agenda ever since, and it's now affectionately
00:00:21.800 | known as the Fireside Chat.
00:00:25.080 | Jack's companion for this Fireside Chat is a retired neurologist who helped co-found
00:00:30.120 | Efficient Frontier Advisors.
00:00:32.960 | He's written a number of best-selling titles on both finance and economic history.
00:00:38.340 | He holds both a PhD in chemistry and an MD.
00:00:41.840 | Please welcome one of the smartest guys I know, Dr. Bill Bernstein.
00:00:52.320 | And the disclaimer that I always have to say, Jack and Bill, the Bogaheads community is
00:00:59.280 | a politics-free group, and we respectfully request that you honor that and refrain from
00:01:04.800 | discussing anything political.
00:01:07.640 | Other than that, the floor is all yours.
00:01:09.700 | Take it away, Bill.
00:01:10.700 | Okay.
00:01:11.700 | Well, thanks.
00:01:12.700 | I guess I mumble so badly that I get two microphones.
00:01:20.160 | The first thing I wanted to bring up is just a segue from your comments, Jack, about Fidelity's
00:01:26.120 | zero expense ratio funds.
00:01:28.440 | When I first read about them, the thing that came immediately to my mind was one of the
00:01:33.120 | most notorious tech funds of the late '90s, a company called eMachines, and their business
00:01:40.580 | model was giving away computers for free so they could advertise and make money on the
00:01:46.120 | advertising, and it seems to me that's what Fidelity is doing as well.
00:01:51.960 | And the question is, is how do you really think that's going to play out for Fidelity?
00:01:56.280 | Well, I think it's going to draw a lot of business.
00:02:01.280 | The advertising is pretty blunt, it's pretty clear who they're taking aim at.
00:02:06.920 | When we see our name and when we see Vanguard in big capital letters, bold-faced, you can't
00:02:13.640 | have any doubt about the name of the game they're playing, and it's a tough game.
00:02:21.360 | I get letters from people saying, "You always told me to buy the lowest cost index fund.
00:02:26.560 | What do I do now?"
00:02:29.160 | And it's a perfectly good question, and the answer is a little complex.
00:02:34.640 | I'm not sure.
00:02:35.640 | I have no idea, actually, what Vanguard is going to do in response.
00:02:38.280 | I have some things that I would think would be well done in response, working on larger
00:02:43.360 | accounts.
00:02:44.360 | But we are, as I think everybody understands, we are in kind of a box, because if we did
00:02:53.120 | our index funds at no cost, which is an option always available to us, they will be obviously
00:02:59.240 | subsidized by the Wellington Fund shareholders and the Prime Cap Fund shareholders, the shareholders
00:03:04.240 | of all our actively managed funds, and the shareholders of all our other index funds.
00:03:08.800 | If we did just the S&P 500, and they don't, actually, Fidelity's fund is not an S&P 500
00:03:16.760 | fund, the big one, the one they're working on.
00:03:19.600 | And I think the reason for that is that if they use an S&P 500, S&P gets away with murder
00:03:25.520 | and would probably be charging one basis point just for using their name.
00:03:31.560 | And when you want to be a zero, one basis point is a killer.
00:03:35.100 | But there is an issue of implementation.
00:03:37.840 | What have we really got here?
00:03:38.840 | They have their own indexes.
00:03:40.960 | Will it do better than the S&P?
00:03:41.960 | I have no idea.
00:03:42.960 | I'm not saying it won't.
00:03:43.960 | It might do better sometimes, worse others, that's the most likely scenario.
00:03:48.640 | So I would just regard it as very tough competition.
00:03:53.200 | And as I think I said in my remarks earlier, it's what I would do if I were Fidelity.
00:03:58.360 | You know, they're out of the game, get in the game with a bang, and become one of the
00:04:03.000 | big four and now the big three.
00:04:05.320 | And that's their goal, although one wonders a little bit why it's their goal.
00:04:09.120 | I mean, they've got this immensely profitable company doing everything else.
00:04:13.360 | And I think it's just to preserve their mutual fund business, which is probably, I'm guessing
00:04:18.080 | here, 25% of their total revenues.
00:04:21.440 | I'm not sure exactly.
00:04:23.800 | And I'm not sure exactly, I'm really just venturing a total guess.
00:04:28.760 | So they're doing it.
00:04:32.080 | I hope nobody is, in retrospect, you know, moves $3 million over and tells me that they're
00:04:38.580 | saving $10,000 a year or $6,000 a year, something like that, and then gets their tax bill for
00:04:45.040 | selling the Vanguard fund at $3 million and paying $200,000, well, I don't know what it
00:04:51.360 | would be, a couple hundred thousand dollars anyway of taxes, which would eat up that income.
00:04:57.280 | But we feel it now.
00:04:58.280 | I mean, I don't have the data for you, but we see it in our own data, that Fidelity is
00:05:05.840 | making a pretty big splash here.
00:05:07.760 | And we'll have more.
00:05:08.760 | They just did this in August, I think.
00:05:11.360 | And so we have the August data and the data I showed you, but we'll have September, which
00:05:16.920 | will be very revealing.
00:05:17.920 | There'll be a trend there.
00:05:19.480 | There'll be October and the data will come in.
00:05:23.320 | Vanguard has the data for Vanguard for all these periods.
00:05:26.760 | I do not, and that's fine.
00:05:29.480 | I don't need it.
00:05:30.480 | I'm just reporting what is, and we will find that out.
00:05:33.880 | But you never know where the next competitive threat is going to come from.
00:05:38.080 | And everybody, we know who everybody is shooting at.
00:05:41.200 | Everybody in this business is shooting at, and they're all, all of you here in this
00:05:45.080 | room, they're shooting at the Bogleheads, that's who, and the big Bogle himself, and
00:05:52.240 | -- at least some of the time.
00:05:57.720 | So I don't see that there's a good competitive, a really good competitive response.
00:06:02.680 | I don't think there's a winning competitive response.
00:06:05.680 | There may be an ameliorating competitive response, and I think there is, but that's up to Vanguard.
00:06:12.440 | I think that it might behoove Vanguard to point out to members of the fourth estate
00:06:17.720 | how generous the owners of Fidelity's active funds are for subsidizing the zero expense
00:06:25.680 | funds.
00:06:26.680 | Well, there's a lot of that going on, subsidization, and actually, and I tell this story, it's
00:06:35.760 | one of the landmarks in my book, and it made it possible for us to be a competitor in this
00:06:40.720 | business seven or eight years ago, 1993, I think it was, actually, more than that, fifteen
00:06:45.360 | years ago, because we had a very proscribed formula, set up a series of formulas, telling
00:06:52.720 | us in our original service agreement that established Vanguard how to allocate expenses
00:06:58.600 | between all of the funds in the group, and it was very formal, like number of shareholders,
00:07:03.520 | number of transactions, executive time, that would be something you just allocate, and
00:07:11.760 | direct and indirect expenses, classic, for doing that.
00:07:19.080 | I could see that we were in a box, because we were starting to have price competition.
00:07:23.880 | We had cost competition.
00:07:25.640 | We knew what the costs were, and so I put in a proxy, we put in a proxy, giving us the
00:07:32.000 | right to match competition in our pricing for the funds, to use that as another indication.
00:07:39.660 | We kept the original standards, cost allocation standards, so that we could also consider
00:07:45.000 | meeting competition, meeting competitive prices, so that's enabled us to do what we've done,
00:07:49.780 | but I don't think anybody's going to want to, I hope not, by the way, anybody's going
00:07:54.660 | to want to go to zero on new investments in our funds, because it would be so apparent
00:08:00.220 | somebody else was doing just what you say, Bill, subsidizing the fund, and there's going
00:08:04.680 | to be a little bit of that no matter what you do, and you never know who's subsidizing
00:08:08.900 | it, but we do the best job on that, we can, and are still able to compete.
00:08:13.160 | Okay, well, I want to shift gears now and talk about the much bigger picture.
00:08:19.160 | We try to stay away from macroeconomics, because speculating about it doesn't really do the
00:08:23.680 | average investor much good, but there's some things that are out there that I think that
00:08:27.920 | are of great concern.
00:08:30.100 | Because of the recent tax cuts, the federal deficit is going to approach about a trillion
00:08:34.320 | dollars, there's already almost 22 trillion in outstanding treasury debt out there, on
00:08:42.080 | which the interest, the current servicing costs, are only 276 billion dollars a year.
00:08:48.440 | If you do the math, that means that Uncle Sam is financing his debt at 1.3%.
00:08:55.120 | That is going to be changing very rapidly.
00:08:59.680 | The good news is that the term of that is about six years or so, the average term of
00:09:04.200 | that debt, so it's going to take a while for the ottoman to hit the fan.
00:09:09.220 | But the bad news is that when it does, it's not going to be very pretty.
00:09:14.720 | If servicing costs go up to the historical range of 6% treasury debt, which is, six year
00:09:21.460 | treasury debt, which is around 5%, that puts the servicing costs at a trillion dollars
00:09:27.480 | a year, out of federal tax receipts of about 3.4 trillion a year.
00:09:33.920 | So do you think that's of concern?
00:09:36.480 | And that's even before we get to the issue of corporate debt, which is also becoming
00:09:42.600 | very frothy and very covenant light out of control as well.
00:09:48.360 | So during the next downturn, corporations are not going to have a walk in the park either
00:09:52.240 | servicing their debt.
00:09:53.360 | So do you worry at all, do you think that's of concern to the people in this audience?
00:10:03.040 | We used to say, people used to ask me, "What keeps you awake at night?"
00:10:06.960 | And my answer would be the same now, Bill, as it has always been, "Nothing."
00:10:14.440 | If staying awake all night would help solve the problem, by God, I'll stay awake all
00:10:18.120 | night.
00:10:19.120 | But let me, your question is much more serious than that, and I believe we're going to
00:10:28.560 | have a trillion dollar deficit this fiscal year, that would be the 2019 fiscal year,
00:10:35.600 | a trillion dollar deficit.
00:10:37.880 | And I won't get into politics, I hope this isn't politics, but let me just say that giving
00:10:45.960 | a $10 trillion, I think it is, over time, tax cut to businesses, and a $5 trillion,
00:10:56.280 | I can't remember the numbers, but say $100 billion tax cut to corporations, and a $5
00:11:03.440 | billion tax increase to individuals, which is what's happening over time, say the next
00:11:10.960 | decade, verges on economic insanity.
00:11:15.820 | And I'm tempted to say political brilliance, but I won't say that.
00:11:23.240 | So I look at it as, let me go back a little further, and say almost every bubble that
00:11:33.800 | we've had in the history of the world has been brought about by debt.
00:11:41.760 | And our debt in the United States is out of control.
00:11:45.320 | I mean, it's in control, but nobody pays any attention to it.
00:11:50.440 | And I don't want to get into politics, but it is amusing to think that the Republicans
00:11:54.720 | of fiscal hawks have been the ones responsible for this.
00:11:58.520 | That's not necessarily for or against it, but it is interesting to see that they're
00:12:02.640 | total, in the face of political reality, have given away on economic reality.
00:12:09.520 | So we have high consumer debt, we have not particularly high automobile debt, high credit
00:12:16.060 | card debt, and the whole new, you probably know this.
00:12:19.920 | The biggest single piece of debt in this country, by far, is student loans.
00:12:27.040 | And can they all be paid off?
00:12:28.640 | How can they possibly be paid off?
00:12:30.160 | I mean, it was a bad deal in the beginning to suggest, particularly from the private
00:12:35.080 | colleges, that you go here and you'll be able to make so much money that we can charge
00:12:41.080 | you a lot, and you'll go out in the world and make a lot of money.
00:12:43.760 | It isn't that easy.
00:12:45.520 | There are only so many good jobs in America, good, high-paying jobs.
00:12:50.200 | And so you put all that debt together, there's still a lot of mortgage debt, there's still
00:12:55.480 | home equity debt.
00:12:58.600 | There's debt sort of everywhere.
00:13:00.520 | And I think that is where the next crisis, if it comes, and it probably will, I have
00:13:06.800 | no idea when, is going to be the basis for that.
00:13:10.640 | Too much borrowing.
00:13:12.280 | Well, that segues into another subject, which is, you mentioned the B-word, bubble, and
00:13:22.840 | debt, quite accurately identified that as the source throughout history, over the past
00:13:28.920 | several centuries of bubbles, is what positive, there's the negative signs, which is the underlying
00:13:36.120 | condition, the amount of debt that's eventually going to have to be liquidated.
00:13:40.480 | Do you see any positive signs of bubbles out there, any behavioral signs of bubbles that
00:13:44.200 | worry you at all?
00:13:45.200 | I mean, Bitcoin, for example, Bitcoin, there's no question that there were the behavioral
00:13:49.440 | signs.
00:13:50.440 | Do you see any behavioral issues out there among investors that point to a bubble?
00:13:54.920 | Well, you know, that's really an interesting point, and I can't avoid a political, I guess,
00:14:02.360 | it's an economic comment, but also a political comment.
00:14:06.240 | Everything that is happening today is great for the short term, and terrible for the long
00:14:11.440 | term.
00:14:12.440 | And I'm not only talking about the fiscal situation, but I'm talking about, and these
00:14:17.640 | issues are really important, the gap between, the incredible gap between the wealthiest
00:14:22.840 | fraction, wealthiest 1% of America and everybody else, and particularly the lowest 15%, and
00:14:29.200 | I'm talking about an attenuation, acceleration of the gap between white and black, which
00:14:35.200 | is clearly there.
00:14:36.760 | You know, immigration built this country, and if you don't believe that, look in your
00:14:41.200 | own family trees, my traceable in-laws, grandparents, great-grandparents, come off the boat from
00:14:49.320 | Scotland in 1866, so I'm a child of immigrants, or a grandchild, and to stamp on immigration,
00:14:56.840 | what's been such a force for good in the country, all these things, and they're less tangible.
00:15:03.000 | It doesn't matter a heck of a lot on any of those issues, those broad social issues.
00:15:08.080 | But in the long run, it makes all the difference in the world.
00:15:12.080 | So what does that say?
00:15:13.140 | We have, Bill, a market focused on the short term, with a prayer that everything will be
00:15:20.000 | all right.
00:15:21.200 | And I haven't even gotten into climate change.
00:15:23.800 | I got here in Philadelphia, where every day we're 10 degrees above normal, and this is
00:15:28.880 | only one season.
00:15:29.880 | And then I read that the administration, this is not a political comment, happily, the administration
00:15:35.360 | predicts that the temperature of the world by 2100 will be 10 degrees higher than it
00:15:44.840 | is today.
00:15:45.840 | No, I'm sorry, 7 degrees higher than it is today.
00:15:50.680 | Just imagine what that's going to do to everything that we think about and do, and leave aside
00:15:57.720 | the upheaval in the climate that we're getting even now, the bigger hurricanes, the bigger
00:16:03.240 | rainstorms, and all that.
00:16:06.880 | So we're really on dangerous ground, and yet the market goes blithely along.
00:16:12.840 | And I do, in a sense, worry about that.
00:16:16.640 | As I tell people, I've been for quite a few years around 50/50 stocks and bonds, and I
00:16:23.560 | spend half of my time wondering why the heck I have so much in stocks, and the other half
00:16:28.600 | wondering about why I have so little.
00:16:32.080 | This is the investor's dilemma.
00:16:34.760 | By the way, that's one of the metrics I use to identify a proper stock/bond allocation
00:16:40.760 | is that you spend an equal amount of time regretting having too much or too little.
00:16:46.440 | You've got the perfect allocation.
00:16:51.040 | Let the record show that I'm really doing my best here to stay away from politics.
00:16:57.640 | On to another subject which is completely non-political.
00:17:01.200 | Over the past 40 or 50 years, the percent of GDP being paid to workers as salary has
00:17:12.320 | decreased from 52% to 42%, which is huge.
00:17:19.640 | Where is that extra income going?
00:17:22.560 | Well, it's going to us in this room, and the balance on the other side of the balance is
00:17:32.480 | that it's not going to people who are working for us.
00:17:37.080 | And so the question is, is that something that you worry about simply as an equity holder?
00:17:44.480 | Concerned about it.
00:17:45.480 | Nothing keeps me awake.
00:17:48.480 | But of course that's a problem.
00:17:53.700 | It's fine to say that we should avoid political problems and political issues, but there's
00:17:59.680 | no divorcing political issues from economic issues and from social issues.
00:18:04.640 | They're all part of what constitutes the United States of America and her role in the
00:18:08.960 | world.
00:18:11.120 | You can see that shrinking.
00:18:12.320 | You can see China rising.
00:18:13.960 | I'm not sure what that means, but it doesn't mean anything good when they start taking
00:18:18.360 | over islands in the Sea of China, so-called, and the Sea of the Philippines and building
00:18:24.680 | little tiny reefs in the huge airports.
00:18:27.600 | It must take a lot of sand to do that.
00:18:32.600 | Competition in the world, America's place in the world, is threatened.
00:18:37.680 | It doesn't have to be given up.
00:18:40.840 | But what we're doing now is taking the nation away from its, what's the phrase they use,
00:18:50.840 | American tradition or the uniqueness of America.
00:18:57.520 | And that's been our biggest asset.
00:18:59.960 | Where does everybody want to go in the world when they're not in the U.S.?
00:19:04.120 | They want to go to the U.S.
00:19:06.440 | That's a good sign, and I recognize you can't take as many immigrants as you might like
00:19:11.640 | to take.
00:19:13.040 | But they're all bound up, I think, Bill, in one part covered by your question, and the
00:19:18.400 | part goes even beyond that, into one big issue, and that is what kind of a country do we want
00:19:24.280 | this to be?
00:19:26.040 | And I want it to be a better country than it is.
00:19:29.800 | I think it was a better country than it is.
00:19:33.640 | And I tell people, this is a political statement, but it falls both ways.
00:19:37.920 | I consider myself an extreme conservative.
00:19:41.000 | I love the country, I love our institutions, I love our entrepreneurship, I love our ability
00:19:47.200 | to do what we want, liberty, if you want to call it that, and I want to keep those things
00:19:53.200 | as much as we can.
00:19:54.800 | But I all of a sudden become a liberal to say that to keep those things, we have to
00:20:01.080 | make sure that the people in America who are not here in this room get well taken care
00:20:05.640 | of.
00:20:07.540 | The underclass of America is large, average income $15,000 a year, I think.
00:20:13.880 | Imagine that, anyone in the room, imagine that.
00:20:17.040 | So I guess the phrase I was searching for before was American exceptionalism.
00:20:22.560 | We're starting to lose that, and so I become so conservative that I want to be liberal
00:20:30.040 | enough to handle all of those who are not in the most favored places in America.
00:20:36.440 | Well I don't think there's any way of spinning this next question politically, so I'll ask
00:20:40.380 | it, which is that if you look at the number of publicly traded companies in the United
00:20:48.000 | States, around 1970 there were 8,000 publicly traded companies, now there's 4,000.
00:20:55.960 | And so that raises several issues.
00:21:00.360 | Number one is, why do you think that it's happening?
00:21:03.960 | Is it all the fault of Sarbanes-Oxley?
00:21:08.460 | Is it the rise of private capital as a source of funding, you don't need public capital
00:21:13.040 | anymore?
00:21:14.040 | Are there other reasons?
00:21:15.040 | And then the second part of the question is, what does that mean for the people in this
00:21:21.560 | room?
00:21:22.560 | I mean, the number of publicly traded companies that we can invest in is slowly shrinking.
00:21:28.280 | Well, first that's the data.
00:21:32.200 | I think the data are somewhat worse than you say, because I think the number of public
00:21:36.240 | companies remaining is more like 2,800 or 3,000 as compared to 4,000.
00:21:41.840 | But I'd also note that that 8,000 was probably--I don't have the data firmly in mind--was probably
00:21:47.240 | a very high point.
00:21:48.240 | In other words, when we got into the late 2000s, an awful lot of new companies came
00:21:52.760 | in.
00:21:53.760 | And probably the fairest comparison is we used to have an index called the Wilshire
00:21:58.360 | 5,000.
00:22:00.360 | So we're now, I would say, the best baseline is 5,000.
00:22:04.240 | And we're now down to 3,000, let me say.
00:22:07.520 | So the shrinkage is large, but not quite as large as it's failed to be.
00:22:13.840 | Second, if you look at the data, almost all the companies that are leaving are very small
00:22:21.840 | companies, small and very small.
00:22:24.440 | And they--some of them, I guess, don't like to have to register with it or file information
00:22:30.240 | with the government.
00:22:31.240 | I think that's a very small part of it.
00:22:33.040 | Some of them just didn't make it.
00:22:34.800 | You know, in these boom years that led up to the market peak in 2000, the companies
00:22:42.920 | blossomed and then went away, a lot of tech companies.
00:22:46.780 | So I don't think it's as serious an issue as you say, but I do think it's a very serious
00:22:52.800 | issue.
00:22:53.800 | And, you know, I kind of wonder when I see one more damn merger--darn merger after another.
00:22:59.480 | And I think when we see a lot of that, I wonder, why are we doing this?
00:23:06.840 | Why does national policy allow all these mergers?
00:23:12.880 | Teddy Roosevelt would have been out there with a shotgun.
00:23:17.480 | And he's my classic Republican, if that's--I hope that's not a political comment.
00:23:23.440 | I mean, he'd been dead a long time now.
00:23:28.000 | And so I worry--I'm concerned about it.
00:23:36.120 | But more than that, the underlying reasons that we allow companies to get bigger and
00:23:40.000 | bigger and bigger as a matter of apparent national policy is, I think, the wrong way
00:23:47.560 | to be going.
00:23:48.560 | I think we ought to be much stiffer in antitrust, much stiffer in everything we do to make these
00:23:54.760 | things--and much stricter even, Bill, much stricter in accounting.
00:23:59.560 | You know, how many mergers are done just to muddy up the figures?
00:24:04.640 | You know, you can do whatever you want when you read pro forma 99.5 percent of the time.
00:24:09.680 | Not all the time.
00:24:10.680 | When you read pro forma, boy, put your hand over your wad.
00:24:15.400 | Somebody's playing games with the numbers.
00:24:17.480 | And that's an important part of all this.
00:24:20.120 | And the synergies--we're going to make it up with synergies.
00:24:26.360 | Those synergies are always talked about and almost never realized.
00:24:30.080 | This is savings, because you don't need two chief financial officers, blah, blah, blah.
00:24:34.560 | And they just don't seem to materialize.
00:24:37.320 | So I'm unhappy with it.
00:24:39.840 | I hope it won't go any further.
00:24:43.200 | And there must be some limit, because you may only have to own one stock to have the
00:24:48.080 | S&P 500, which I would think would be very bad.
00:24:51.520 | Okay.
00:24:52.760 | Well, it's, you know, it's 2018, so you have to ask the decadal question.
00:24:59.600 | I can remember almost 10 years ago to the date we were all together and we were in San
00:25:06.000 | Diego and you were talking about the collapse of Lehman.
00:25:12.280 | I remember that your voice rose about two or three octaves when you simply said the
00:25:16.520 | word.
00:25:19.880 | And do you think we're in a better place, a worse place now?
00:25:27.960 | I think I know what the answer is, but I want to hear what you think.
00:25:30.640 | Well, I think we're in a better place now than we were in 2008, because the particular
00:25:35.800 | debt was financial debt and mortgage debt.
00:25:39.420 | And then the creation of these idiotic, for want of a better word, mortgage certificates,
00:25:46.040 | mortgage-backed certificates, which mortgages, which had no value, made money for the people
00:25:54.000 | that gave them the money, made money for the people that were buying houses.
00:25:59.040 | They gave them the best deals possible, even more than the value of the house.
00:26:02.800 | And then they sell them, and then they sell them to somebody else and they're put into
00:26:05.740 | a certificate and everybody forgot that there were people at the bottom of the pile that
00:26:10.560 | could not possibly pay their mortgage debt.
00:26:13.120 | And that is not happening now.
00:26:14.800 | I'm not saying there's none of it, but that is not the excessive thing and not the
00:26:19.040 | junk thing.
00:26:21.000 | So I do think we're in a better place now, but not a lot better place, and the market
00:26:27.960 | is telling us we're in a lot better place.
00:26:30.800 | I think that's right.
00:26:34.760 | I think that in some ways we're in a worse place, because we had relatively high interest
00:26:40.560 | rates and five big banks that couldn't fail.
00:26:43.960 | Now we've got much lower interest rates to start from, and we've got four big banks
00:26:48.600 | that are too big to fail, that are managing a higher percentage of financial assets.
00:26:55.080 | But on the other hand, as you point out, the epicenter of the debt crisis in 2008 was real
00:27:04.360 | estate.
00:27:05.360 | If the value of stocks falls by half, that's owned by maybe 10% of rich people and their
00:27:09.540 | net value, their net worth goes down by 50%.
00:27:12.960 | It's not that big of a deal in terms of the overall economy.
00:27:15.840 | But if 25% of the population owns an underwater house, that really does affect spending, and
00:27:23.280 | I think that's why what happened back then was so catastrophic and isn't likely to happen
00:27:29.200 | now.
00:27:30.200 | All right, well, one last question.
00:27:34.580 | I don't think that it's political to observe that there's been a decrease in the comedy
00:27:42.400 | of public discourse in this country.
00:27:45.560 | It would be political to try and blame someone.
00:27:47.680 | I wouldn't dare ever do that.
00:27:53.000 | And so the question is, what do you think are the limited implications for investors,
00:27:59.320 | and do you think that it's a problem in the larger political sense of our country that
00:28:06.920 | is going to heal itself and mend itself at some point?
00:28:14.500 | And answer this in non-political terms.
00:28:16.440 | Yes, absolutely.
00:28:17.440 | Absolutely.
00:28:18.440 | Yes.
00:28:19.440 | Yes.
00:28:20.440 | So I certainly won't talk about fake news.
00:28:22.880 | No, no, no, no, no.
00:28:27.280 | I think it's tragic the way the power of the press has been more or less subverted to a
00:28:35.200 | certain number of people anyway, and told you don't need to pay any attention to them.
00:28:40.860 | Please listen to me.
00:28:43.580 | Listen to the Internet, you would think, with the Russian interference, obviously, the interference
00:28:47.580 | in the last election campaign.
00:28:49.520 | People would now become aware that the Internet is talking about the medium for fake news.
00:28:54.320 | I mean, it's an outrage, and the loss of our privacy is an outrage.
00:29:02.040 | But particularly the idea that what you're seeing there on your little computer, if you
00:29:06.400 | do these old "I don't do this" stuff, all this texting, or, you know, "What does that
00:29:12.480 | number sign mean?
00:29:15.320 | Call this number?"
00:29:16.320 | Cashmark.
00:29:17.320 | Cashmark.
00:29:18.320 | Cashmark.
00:29:19.320 | I don't even know what it means, but I think it says, "You better get over here quick."
00:29:28.720 | So I don't do that.
00:29:30.240 | And the press in the United States has been singularly responsible.
00:29:37.160 | Not always, not all newspapers, and now they're vilified.
00:29:41.800 | And the people that believe they're vilified, Cadre that believe they're vilified, is large.
00:29:49.420 | And they've been vetted, they've had editors going over it, they have fact-checkers, my
00:29:55.580 | God you wouldn't believe the fact-checkers, finest little things in the world, and they're
00:30:01.840 | giving us what I believe is the straight story of America today.
00:30:06.000 | And to disown that gives us a feeling that all is well, and I would say all is not well.
00:30:14.640 | There's so much going on that's important to the country, and we spend so much time
00:30:19.440 | on trivia and little tiny things, and I won't get into the Supreme Court thing, I mean the
00:30:25.680 | implications of that are of course much more than trivia, the person on the Supreme Court
00:30:29.560 | was conservative-leaning.
00:30:31.920 | But the issue, you know, we'll resolve these issues eventually, but only if we can wake
00:30:38.800 | up people to vote, number one, to vote, because the absentee voting, the voters that don't
00:30:45.720 | show up, registered voters who don't vote, is shocking, and the whole underlying strength
00:30:52.880 | of democracy is to have everybody vote, and believe me if everybody votes we have a very
00:30:57.560 | different kind of America.
00:31:00.120 | So I worry about, by the way Bill, the money involved in the electoral process, the fact
00:31:05.800 | these, I saw Sheldon Adelson has devoted $100 million to the coming campaign, he's a big
00:31:14.400 | Las Vegas something, Macau, he owns gambling joints, I'm sorry, gambling establishments,
00:31:24.480 | all over the world, and he's my idea of a fraud, God knows how many people got paid
00:31:31.720 | off to get a franchise in Macau, or even for that matter in Las Vegas, and yet he's regarded
00:31:37.520 | by Forbes as a great businessman, I'm sorry to be in his company by the way, they regarded
00:31:43.560 | me that way, I may not be much, but I'm more of a businessman than he is, talking about
00:31:48.360 | damning with fake praise.
00:31:51.080 | So no, these are big issues, and soft issues, and divisive issues, and you know, I'm a little
00:32:02.720 | bit reminded, this anecdote is in the book, in a section called Presidents, I talk about
00:32:09.760 | the presidents that I've met, briefly mostly, and the one I talk a little bit more about
00:32:15.000 | is that I was invited to dinner at the White House in May of 1970, and the stock market
00:32:21.840 | was falling apart, and some genius in the White House PR staff decides that it would
00:32:27.720 | help investor confidence, they asked about 25 or 30 people like me, heads of financial
00:32:33.080 | institutions, which I was then, and I guess still am, no I'm not still, but to the White
00:32:40.560 | House for dinner.
00:32:41.560 | I got off the train in Washington, dial up 40%, I'm sorry 400 points, or 40 points or
00:32:48.640 | something big for that day, on news of meeting, the fact that these people like me are by
00:32:53.200 | the way a pretty ordinary crowd, had anything to do with getting the stock market up, I
00:32:58.240 | don't know.
00:32:59.240 | So we go to dinner with the president, and it was in the state dining room, and this
00:33:05.120 | little square table, and right across from me is that brooding portrait of Abraham Lincoln,
00:33:12.240 | and right below him is Richard Nixon.
00:33:17.640 | And so he gets up and he had all of the Joint Chiefs of Staff, Council of Economic Advisers,
00:33:23.160 | all those people talk to us, and then he said, "Are there any questions?"
00:33:30.920 | Nobody stood up, not one person in that room, and I thought after a moment's hesitation,
00:33:38.960 | the hell with it.
00:33:43.520 | So I stood up, and this part of the question is very relevant for today.
00:33:49.200 | I said, "Mr. President, you reassured us all about our military strength, and how well
00:33:53.640 | we're doing in Vietnam, how well we're doing in Vietnam."
00:33:56.680 | He did reassure us of that, and how the Federal Reserve will fill its usual role of lender
00:34:01.180 | at last resort, and the economy is doing well, and so on.
00:34:06.680 | But you haven't touched on the issue that I think is really the responsible for what
00:34:10.840 | is dividing America today.
00:34:14.000 | In view of your campaign pledge to bring us all together, what are you going to do about
00:34:21.400 | it?
00:34:22.400 | The silence could be cut with a knife, and he looked first angry, and first astonished
00:34:34.720 | that this investment group would even be thinking about bringing us all together.
00:34:41.200 | I think annoyed that that was the first and it turned out to be almost the only question
00:34:45.080 | he got, and something he didn't really want to deal with.
00:34:49.460 | He really looked like someone had hit him in the face with a wet washcloth, but he did
00:34:53.480 | try and answer it.
00:34:54.480 | He appointed Chancellor Herd of Vanderbilt to head a commission on looking at the divisions
00:34:59.080 | in the schools, things of that nature, and so he gave a kind of a fumbling answer, but
00:35:03.280 | he clearly was not happy with it.
00:35:05.040 | "Well, he was there, and I was here, so when you go out the door that's there, have
00:35:12.040 | you figured it out yet?
00:35:13.040 | We're going to be in the same place?"
00:35:15.760 | So I walked out the door right next to President Nixon, and I said, "You know, I hope you
00:35:19.960 | didn't think my question was rude."
00:35:21.440 | "Oh, no, no, no," he said, "that was exactly the right question, and that's why
00:35:26.000 | I'm doing what I'm doing," or something like that, something very lukewarm.
00:35:29.720 | But the divisions in this country, we should be united on so many things, and we are not
00:35:36.800 | united today.
00:35:39.560 | And so I think we have to face up to that fact and do what we can as citizens, and we
00:35:45.720 | sit in this room and we'll do like I wrote about the universe, what I wrote about the
00:35:49.820 | universe.
00:35:50.820 | You know, it's so big and we're so small, but that doesn't mean that one person doesn't
00:35:54.880 | make a difference.
00:35:56.680 | So I think we have to try and do better as individuals, and I've tried to do better
00:36:00.840 | not as an individual, but in a corporate sense, try to contribute something to the world,
00:36:06.320 | and something to make America better, spread stock ownership among people who get a fair
00:36:12.320 | shake.
00:36:13.320 | This is a crusade, and it was so easy, because they were getting such a lousy shake before.
00:36:22.080 | So that's too much rambling, and I think you've heard quite enough from me today.
00:36:27.760 | Okay.
00:36:28.760 | Well, that was fun.
00:36:29.760 | I think we better give it back to Mel before his hair catches on fire.
00:36:34.720 | Thank you, Jack and Bill.
00:36:35.720 | We're going to take a...
00:36:36.520 | [Applause]
00:36:42.520 | [BLANK_AUDIO]