>> Okay, a number of years ago, Jack Ice and Bill Bernstein could have an informal chat as part of the agenda. We all know what Jack wants, Jack gets. So it's become a regular part of our conference agenda ever since, and it's now affectionately known as the Barside Chat.

So without further ado, I'd like to briefly introduce the two participants of this non-political discussion. >> >> I have to say that every year. >> >> Okay, our distinguished guest of honor is the founder of the Vanguard Group and president of Vanguard's Global Financial Markets Research Center. He created Vanguard in 1974 and served as chairman and chief executive officer until 1996, and as senior chairman until 2000.

He entered the investment field immediately following his graduation from Princeton University, magna cum laude, with a degree in economics in 1951. If I listed all of his honors and achievements, which most of you already know, we wouldn't have any time left for the Barside Chat. So I'll dispense with that, and I ask you to please welcome our special guest of honor, Mr.

Jack Vogel. >> >> Jack's companion for this Barside Chat is a retired neurologist who helped co-found Efficient Frontier Advisors. He's written a number of best-selling titles on both finance and economic history. He holds both a PhD in chemistry and an MD. Please welcome one of the smartest guys I know, Dr.

Bill Bernstein. >> >> It's all yours. >> Okay, well, I have been sternly warned that any speakers who mumble will be promptly cut off, so please, before that happens, start shouting, stop mumbling. >> >> I'm going to lead off, Jack, with a question that is kind of a counterfactual.

Let's assume that it's 20 or so years ago, and the success of your concept of a popularly available retail fund has succeeded. You've got the Index Trust 500 fund, the total stock market, you're starting to dabble in international markets, and maybe even some slice and dice in the US market, and that's working out pretty well.

And let's start from that point forward. What would you have done differently from that point forward? >> Are you allowed to think before you answer a question in this day in America or not? >> You have as long as you need. >> Okay, but I guess if I had to do it over again, what would I do differently?

Well, you only went back 20 years, and Vanguard was pretty much formulated almost immediately, 40 years ago as it happened. And so 20 years ago, I guess if I had done, would do anything differently, I would probably have a little less impact on marketing, be less of a marketing person.

Some of the funds I started, Vanguard Quantitative Portfolios it's called, later named, Vanguard Growth and Income, Vanguard Asset Allocation, which Bert Malfield used to say, it'll never work. And it worked for 20 years, and then it stopped working. And I should have known, man, I should have had a 25-year time horizon.

And so starting some funds that really, probably I shouldn't have started. And we continue to do a little bit of that, I'm not too, these aren't my problems. Because I could do it any differently if I wanted to. Things like the managed payout portfolio. I think anything that thinks it can improve much on indexing is fundamentally, that's the burden that every fund has to have.

Will it do better than the market index? I just don't see how you can say that. On the other hand, we all have, even Bogle, after all these years of learning better, of knowing better, still has too much of a marketing hat on. It's not that we need the money.

My God, $3 trillion? What does that mean to somebody who's written a book called Enough? >> >> So, I'm more worried about that. But you end up kind of thinking, or I did, it was a good idea to kind of preempt other people from coming into the field. So we didn't want to allow people to have something that would properly be a Vanguard show at higher prices.

So we basically said, we're gonna start this fund or that fund, index funds of various types. And basically say, stay out of here, you're not gonna be able to compete with us. I think we maybe could push that too far, and I think maybe I pushed it too far.

But in terms of deep progress, in terms of policy, strategy, structures, which I'll talk a little bit about later. I just plain don't have any deep regrets. Little regrets or something else again. I've made so many mistakes that in my life, that I tell people. My wife has forbidden me to write any more books.

And I said, if I were to write another book, it would be the longest book I've ever written. And it would be called Mistakes I Have Made. >> >> And that would go way back in my early career, when I was just so stupid, it defies description. But the big advantage I have, I think, is I was willing to learn from my stupidity.

And we all should be able to do that. Learning from your own mistakes is much deeper and more profound. We're learning from other people's mistakes, because somehow the lesson isn't quite as sharply drawn as to when you just kind of shoot yourself in the foot or in the brain or some other place.

It can be equally painful. So I don't, no deep regrets. >> Well, that segues into another question, which is, should Van Gogh be advertising? >> Well, that was my marketing hack. And I didn't know how else, cuz we had no sales force. And how else to get the information out of the Van Gogh fund.

So we had kind of an introductory fund that was likely to hack the page. It was sort of eternal. And we had a new fund, we kind of told the world that we were going to do it. Absolutely laid down the rule, which we have continued to observe. No performance advertising, no yield advertising.

I'm a little too far back. I didn't obey that warning. Now I can hear the echo, that's good. >> >> So sorry about that. You missed nothing. >> >> But it was supposed to be very modest. It was. And I have to concede that I wasn't too spittin' with spending $50 million of our shareholders' money on Vanguarding, our sort of campaign slogan.

I don't think we need that. But I have conceded that you have to have a name like that with gang at the end. It's a good thing we weren't Merrill Lynch. >> >> And I wish I had a little bit of advertising. Because then when you start advertising, it would be very observable.

But I did a little, and I don't think we really do a lot now. I don't know what the cost of the Internet is. I'm just not familiar with that. But we do quite a bit along those lines. And it's okay. It's not gonna, the cost involved in terms of unit costs are really quite trivial.

I don't change our expense ratio. And I own it. But I'm more into the principle of saying, as I did at the very beginning, as Ralph Waldo Emerson, build a better mousetrap and let the world be a path, and the world will be a path to your door. And that was how we began a long time, we'll talk about later.

And so I think advertising is not a good thing. But very limited in the way we do it, it's okay. A lot of people are out there, particularly in the go-go years. Not the go-go years, but in the late 90s with all the tech funds and so on. They're advertising their returns.

How would you like 40% a year? I, for one, would like 40% a year. I just don't know how to get it. And so, it's not as bad as marketing. Advertising is not as bad as marketing. Because marketing, when you think about it, what is marketing? Marketing is finding out what clients want and giving it to them.

And that's the way beer works. That's why we have light beer, I guess. I don't do light, I do ale, just for the record. And rarely, sometimes in the summer. But you're always trying to find out that these big consumer products companies do this, or are doing this all the time, and trying to add a little bit of something to something else, and sell a little bit more.

Because that's what they think the public wants. And it's a good idea for cereal, probably a good idea for automobiles, and beer, and God knows what else. But I think a terrible idea for investing. And the great public out there usually wants the wrong thing. What they read in the paper in the last two or three weeks.

Imagine how many gold funds there would be around, after gold had that huge run, I guess about two and a half years ago. Maybe three years ago, two years ago. So, I know it sounds old-fashioned, but I'd let your term speak for itself, record speak for itself. People start to trust you, as many, many people trust Vanguard, and have that the way you basically build business.

I don't think we need to worry about that again for a long time. And we have happily a formula that really always can't go wrong. And I tell people, we haven't promised you a fund that beat the market 15 years in a row. We haven't promised you a Magellan fund that gets to a hundred, gets to a billion dollars and is now about 20 million.

We had a good performance and then a bad, money flows in and out. We're right down the middle. And as I constantly advise people, and I advise all of you, we make no guarantee except we will give you your fair share of the return of any portion of the market, particularly stock and bond market that you would like to invest your money in.

And that fair share means if the market goes to hell in a handbasket, your investments will go to hell in a handbasket. And we should say that. Maybe you shouldn't use a word like hell. Maybe you should too, I don't know. Going to heck in a handbasket doesn't cut it.

So, that's it. Thank you. I mean it sort of reminds me of the famous Henry Ford aphorism, that if you ask the public what it wants, it will tell you it wants a faster course. The Shiller P/E, the CAPE, Cyclically Adjusted P/E Ratio has gotten a lot of attention.

It's become a real topic of conversation, which is worrisome in itself. You know, it's still around, what, 25 or so. You know, what do you think of Shiller's measure? Do you think it can be improved upon? Should we not be paying so much attention to it? Well, anyone that has a formula to tell you whether the market is high or low, is kidding, either trying to kid you or has been kidding themselves.

And nobody knows this. Take the Shiller P/E, last 10 years ago, it was right where it is now. I think it's around 25 or 26, and it hadn't changed. So, it's giving a warning now that the market is too high. It was giving a warning then that the market was too high.

And since then, the market has gone up 60 percent. Earnings and dividends have gone up, well, earnings have gone up, I think, 70 percent. Dividends have gone up 100 percent. So, it was a false signal 10 years ago. Some look at it and enjoy it. I do, and I often use it when I go on CNBC.

And it's trying to deflate everybody's expectations. But there is no answer. Shiller is fun to look at, it's intelligent. Don't just look at the last year's earnings and the next year's earnings. We'll do a little bit of history, but it doesn't tell you very much of anything. We can get right down to the greatest hazard.

Yeah, I would certainly agree with that. You know, if you, people are always fond of saying, well, gosh, the historical average is 16 and a half or whatever it is. But, you know, to get that number, you've got to include data that goes all the way back almost to the Civil War, which was a different era when industrial stocks were selling four times.

I mean, that, that's, that's gone. And if you look at it over the last 50 years, you use it to draw a regression slope where the normal value appears to be closer to 20. So I think the value of 26 really doesn't tell you all that much. Well, let's, let's ask the shift gears a little bit and get into some personalities.

Let's, let's go to the sunglass question. Which is that, you know, there have been star managers for forever, starting with what, Ivor Kruger and then Jeremy Tsai and, you know, Peter Lynch and Bill Miller and now another guy. And I'm wondering, do you think the public has, has learned anything or do you think that the birth rate is higher than the learning curve?

Well, the problem with this business is it has a kind of distribution arm that has to sell something. And if you want to talk about, you've got a client out there and you want to sell them a certain thing, it has to have a good performance. And there's nothing else for you to show up and say, well, our expense ratio is only 10 basis points instead of 100.

I think your client is thinking, "Duh, what does that matter?" Particularly since the 100 doesn't even cover what the fund spends, like transaction costs, marketing costs, and things of that nature. So, it's an action business. Investment advisors basically feel the need to tell you to do something. Portfolio managers, and I keep thinking of it, and this is an interesting point.

I keep thinking of Peter Lynch, manager of the Magellan Fund, going to see Ned Johnson on January 2nd of a given year. And he says, "Ned, or Mr. Johnson, I looked at my portfolio and I think it's fine for the year, and I'll see you a year from now.

I'm not going to do anything in one year." The odds are 51 percent that that will improve the fund's performance during the year. It's improved. And all that transaction, it costs money. And sometimes it adds value, but more often than not, it's value. Well, it's returns. But the portfolio manager, and people are saying, "What are you doing?

You've got to be doing something." And turn off all those, I won't get into the scandal we have about our Pennsylvania judges, and yet, their pornographic emails. But that's another story. But you feel the need to do something. Trustees of an endowment fund feel the need to do something.

Investment advisors feel the need to do something. Financial advisors or RIAs feel the need to do something. And I'll give you one little anecdote. I was speaking out in Milwaukee a few years ago, and I went through my little platform of bonds and stocks to keep the ratio right, and don't do anything else.

So, one of the financial RIAs in the room comes up to me afterwards and said, "Look, I know your advice is right, but think of me a minute. Think of me." He said, "I've got a client." And he comes in and set up his portfolio in 65 percent stocks, 35 percent bonds, and he comes back a year later.

He says, "What do I do now?" He said, "Nothing. Nothing." He said, "I guess that's okay to go a whole year without doing anything." Comes back a year later, says, "I must be doing something now, I didn't do anything last year. How about this year?" "Don't do anything." Comes back a year later, this is now the third year, "I got to do something now, this is just crazy." And the advisor says, "No, stay the course, stay exactly where you are." And he said, "The client then says to me, 'What do I need you for?' How do I answer that question?" And I said, "The answer is easy.

Just tell him you need me to keep you from doing anything." And there really is, and we make fun of it. But there's a lot of truth in that. This is a business where activity is big. Never have admired it as it is today. I mentioned the spider thing turning over at that awful rate, and it traded, I guess I mentioned this to Christine Vance earlier.

The spider traded $160 billion in the last five days, and the assets of the spider are $160 billion. It's a five-day turnover of 100 percent, an annual return over of 5,000 percent, and I'm the kind of person that thinks three percent of the turnover is kind of pushing him on my side.

And there's a big difference between three percent and 5,000 percent. So, the trading environment obviously riches Wall Street and impoverishes therefore the investor. So, that's why stay the course works. >> Yeah. There's a wonderful front line from about 50 years ago, that featured tech funds, the hot tech funds of the late '90s, and there was about a 30-second clip of Garrett Van Wagner, who was a famous tech fund manager at the time, with one phone in each hand shouting the words to each phone, and even then it just gave me the willies.

I thought there's something wrong here. All right. Well, let's shift gears a little bit here and talk about some ladies. The first lady I want to talk to you about is Mary Jo White. I have a- we talked about this last night. I have an odd sense of disquiet about that you pointed out that she is a prosecutor, and we would hope that she would perhaps use those skills in her job.

But I don't think that's necessarily a good fit for her skills. I think that the job of being the SEC commissioner is a chairman of the SEC, is a more broad moral and if you will. I'm wondering if you have that same sense of disquiet about her. >> Well, I think she was clearly brought in with the idea, at least a major part of the appointment.

Leaving aside the fact that most administrations really want to have more women in them and most of them do these days is that she's a prosecutor, a tough prosecutor, A, and B, she knows Wall Street. She's been a lawyer in there for, I don't know, 35 years or something, 40.

In that sense, if the mission is prosecute, get people in jail, get big penalties, she was a good choice. Unfortunately, that's a very narrow, as Bill says, a very narrow version of what the SEC does. They're there to protect the consumer, the investor. It's got to be a big complicated business.

They are outgunned at every level by these costs, by the high-frequency traders. I don't know who at the SEC can out-talk the high-frequency traders about that complex business, which is probably not a bad business, it's got to be regulated more. But it's speed in the markets and they had tremendous lead times.

Then she's also affected and people have done very little talk about this. I talked a little bit about it at the Senate Finance Committee when I testified there on September 16th as their lead witness and it was about the retirement system. But I was talking about regulation and the Don Frank law itself, as well as the Department of Trade Regulations, are allowed to impose standards of fiduciary duty on everybody involved in the system except the people that manage money.

How can that be? I mean, they're not allowed to impose the standard of fiduciary duty on money managers in either case. That's ridiculous. That's the most important fiduciary, the most important toucher of other people's money around. But she can't go beyond what the Congress gave her. So I'm trying to make a little excuse for her.

I think she's integrity laden. I think she's maybe over her head as an administrator of this huge agency. I think she must struggle each day with figuring out there's so many things going on in the system. She must be struggling. I don't know who she has that's really good in terms of division heads.

I'm not so good. I think the guy who's running the mutual fund division. I think it's okay, but not a hell-raiser like the ones I used to work with. We used to go along famously. I don't even know this guy. On the other hand, I'm not the preeminent figure anymore.

Yeah. I mean, I guess I expect too much. When I look out at the brokerage industry and the investment company industry, I see a moral swamp. I keep waiting for the person who's the SEC chairperson to deal with that, and it just never happens. Mary Jo White, I think, takes a very legalistic narrow view of things and says, "Is the law being broken?" The problem is the law itself.

Unfortunately, the law itself doesn't make it legal, most of the activities that I think exercise, Jack, myself. Well, I'll bring another lady in, and this is so political that I don't want Mel to hit his ejection button, so I won't even mention her name. But this woman, who's a very prominent woman, has said that the President of the United States cares more about Wall Street than about Main Street.

I'm wondering what you think about that. Do you think that's true? No, I don't think so. We are wrapped up in an outrageous political system, where there is so much money coming out of Wall Street, and you even get somebody, a Democrat, like Chuck Schumer, who is, I think, I'm not sure which committee he's headed down there with.

He could do something about this outrageous, this is a really good example of this outrageous tax treatment legislatively, in which hedge fund managers get their returns of capital gains rates and not ordinary income rates. If a Democrat, he should be for that. Where does Senator Schumer get all his money from?

Wall Street. So even the liberals in Congress don't dare to take on the hedge fund industry. I think that's wrong. I think that's tragic, and I think Obama has talked a little bit about this, but he's limited by the university's regulations around him, and he too was supported by Wall Street.

That seems to be fading quite a bit. I'm not sure anybody's supporting him now, which probably means he's doing a great job. Think about that for a minute. No, I don't think he's against the individual investor at all, but more in favor of Wall Street than the individual. He's got the right values.

He seems to maybe be, as the conventional wisdom tells you these days, maybe he has a policy of being too deep a thinker and not strong enough an actor, and not a deep enough thinker and too strong an actor. So we're somewhat contrasted there. Okay. Well, let's back up again a little bit.

This time only six years. I mean, if I could back up 30 years, and I think for anybody in this room could back up 30 years, what we would have done is obvious, which is we would have purchased Microsoft with the IPO we wanted at the beach. We would have invested in Vanguard funds.

So with that benefit of hindsight, let's go back to September 15th, 2008. You have two of the biggest financial corporations in the world that either are going to go bankrupt or about to go bankrupt. How would you have handled it differently? Obviously, it was handled tolerably well. Knowing what you know now, what would you have done differently?

Well, I mean, I'm not an expert in why the Fed and New York Fed, and particularly the Secretary of the Treasury did what they did, but I think they did what they could do. They're limited, I happen to believe, stimulus package from the margin. There was no, as emerging from the litigation between Hank Greenberg against AIG or against the government's treatment of AIG.

There's no question that the government had to do something, and they were on the edge of bankruptcy. Whether they did it perfectly, whether people like Goldman Sachs were protected from taking haircuts on the paper they had with AIG. I wondered about that then and I wonder about that now.

But I wasn't there. You have to take into account a lot of things in the financial system. The lubricate space we do in the US starts to fall apart. So particularly under pressure, I don't think you could have done any better. Sure, little things might have been done better, but they had to let me even go.

There's arrogant guys up there, pretty disgraceful the way they handled the finances of that firm, and they were not the only ones. I also thought the money market people got off very, very lightly, faking their asset value, what they call institutional money markets. So there are other things that they might have done better, but that ended up in litigation and the government just didn't win the case.

That's always hard to win when you're outgunned with high-priced lawyers. So I think in an imperfect world, that system of financial crisis was handled as well as it could be. I think that increasingly comes out of the reading of the testimony. I guess it's now over, the AIG trial.

Yeah. Gene Fama did a very interesting interview about a year ago. Jeff Summers in the New York Times, and he said he would have just nationalized banks, and Jeff Summers, you'd almost see his jaw drop. He said, "That's not exactly the answer I would expect from a Chicago libertarian." Fama held his ground, he said, "Yeah, that's what I would have done." The interesting thing about that reply, I think, is that it would have avoided a lot of the political fallout, people who were angry that the government bailed out Wall Street and not Main Street.

Something else we chatted about briefly last night, Jack, is obviously we live in a world now that it's a DC world. It's a defined contribution world. The BP pensions, the old traditional pensions are slowly going away. Was the shift from DB to DC, defined benefit pension plans, traditional pension plans to defined contribution plans a mistake?

Well, it's not a mistake conceptually because that's the way the world is going. Corporations want that pressure off their P&Ls. But it's given us a system that is not working well at all. It's moved the whole shift of risk from the corporation, which can handle it presumably, over to the investor, most of whom cannot handle the risk.

We tried to turn a savings plan, a trip plan into a retirement plan. If you have a retirement plan, I've written a lot about this, talked about it down at the Senate testimony. You can't take money out of your retirement plan whenever you want. You can't borrow from it.

Think of what would happen to Social Security if you could do all those things. You wouldn't be working for anybody. The wife needs a new rug, there goes your retirement. Too bad. So it's basically the defined contribution system is what we're faced with, what's going to grow. I can even see the states and municipalities going from defined benefit.

The governments, state-level governments are the biggest, by far the biggest defined benefit plans. They're going to eventually, I think, go to, well, the labor unions there are so strong. That's going to be a hard thing to do, but the economics fit that. We've got to make a much better defined contribution.

Very difficult to withdraw. Only allow low-cost funds into the system, maybe even only index funds. Easy for me to say, but the fact of the matter is, all these defined contribution beneficiaries together, I think it's around five trillion dollars worth, own the stock market as a group. But they're trading with each other back and forth, buying this fund and that fund and selling others.

They're not going to do nearly as well at paying high costs. So we have to have those kind of elements in the system, and we have to have more mandatory contribution rate. Right now, a corporation can just come out and say, "I'm not going to pay you anything this year." That's usually, by the way, the values in the market are the best they're going to be in a long time.

Because they do this when markets are low, and because that's business as well. So it's a lot of fixing. While I will say this, I'll tell you a little anecdote. I was doing, that was a 60-year legacy party seminar for a day, in the Museum of Finance in New York about a year and a half ago.

I did an interview with Paul Volcker at lunch, and it was a television journalist, I can't remember who it was, who interviewed us. She asked me what I thought about Social Security, and I'd say the same thing about the fine benefit, fine contribution plan. I said, "Look, it's got to be fixed, and the fixes are simple.

It would barely be noticed, maybe not for a long time, maybe not forever, small changes in cost of living adjustments, small change in retirement age, a higher minimum deduction, salary cap, 115,000, maybe 135,000 or something, which we did only very few people. I said, "If you would make all of these czars of the Social Security plan, I would say czars of the fine contribution plan too.

We'd fix it in an hour." Paul said, "Couldn't we fix everything?" I think we probably could, or at least maybe we could. I want to turn the tables on you a minute, Bill, because I've got a couple of questions for you. I was hoping you would wait after that.

Okay, go ahead. The line of my questioning comes, it has to do with the markets. That is, we can all look at Schiller PEs and regular PEs, and we can always look ahead to earnings, which I'm quite confident are quite forced, and then we'll do, I'll talk a little bit about that later on.

But I was inspired if you're thinking about staggering risks that we see out there in the world today, that the market seems to totally ignore. You've got this terrorism going on in the Middle East, and the Middle East is more unstable than it's ever been. I think even more unstable than Lawrence of Arabia for that matter.

But for a long time in Chinese society, that very religious, in the name of religion, big crimes are being committed. This awful thing where someone being beheaded is somehow a worse thing than someone being shot in the head. I'm not sure the victim cares that much, but that's frightening.

Increasing intransigence of China, and the slowing of growth in China, and there's slowing of growth in China. Another problem, Ebola doesn't look like a big problem, because it doesn't seem to be able to be transmitted like that. I guess we had the bird flu a few years back, which was really a dangerous thing, because it got everywhere.

But disease, unprecedented, unpredictable things. The weakness in the European economy, particularly important in the global world. So there are all kinds of huge risks out there that the market, it seems to be ignoring as far as I can tell. So my question to you, what I did was that when I thought about this, what could I ask Bill?

I didn't realize he was going to take all my time asking me, was I got out a copy of his book called The Investor's Manifesto. It says, "Preparing for prosperity, Armageddon, and everything in between." So I immediately went to the index and looked up Armageddon. It wasn't there. So I thought Bill could tell me what's going to happen.

What I'm describing is almost an Armageddon. All these risks converge, almost an Armageddon scenario. So what do you say about Armageddon? >> Well, first of all, that word, the subtitle is all Bill Fulton's fault. >> I finally figured it out when I found it in the index. He said, "How does it sound?" Bill and I said, "Sure." It sounds good to me, whatever sounds.

But more seriously, I think that human beings are prisoners of saliency. The image of someone having their head cut off, the mental image of something bleeding out from their urethras, from a horrible disease that you really can't treat. Those are things that really get our attention. But I think if you were to go back into a time machine to say 70 years ago, when we were staring down the likes of Hitler and Stalin, or even 50 years ago, when one man really saved the world from being incinerated, it was a man by the name of Vassily Arkhipov who was a commissar on a submarine who prevented his commanders from pressing a nuclear button on that submarine.

It's a thing you should look up. It's an interesting story. I think if you went back and you told people 50 or 70 years ago, the biggest threat we have now is from people who want to go back to the 7th century and can't even manufacture their own bicycles.

I think they would have laughed at us. I think the problems that we're facing now are trivial compared to those problems. And I think that's one of the reasons why expected returns, why prices are so high and why expected returns are lower. Now the other reason why that's the case and has nothing to do with risk is simply the fact that there's a lot more capital in the world.

And this is a complex subject, but if you go back 5,000 years, nobody had capital. We're talking about subsistence level societies. And the people needed capital. They needed to buy farm implements and buy seed. So that one person who had capital could get an enormous price for it. And as societies become wealthier, that physics, if you will, changes.

So the richer a society becomes, the lower the returns. And maybe the returns we're going to get really aren't commensurate with the risks. I think that's right. I think the problem is not that risks are so high. I don't think they are high compared to the world 50 or 70 or 80 years ago.

I just think that the returns are so low commensurate with the relatively small risks that we have. You know, that's something that I was going to ask you about, but I'll comment upon and maybe get a response from you, Jack, which is that, and I'm sure you'll talk about this more later on this morning, is if you look at the expected return of a prudent mixed portfolio, a 60/40 portfolio, it's lower than it's ever been in human history.

You know, zero return on bonds, maybe a 3% or 4% return on stocks. That's not much more than 2% real return on your capital. And that, I think, is really the worrisome thing for people who want to retire. You've got this squeeze, if you will, between lower returns, and then people are going to be living longer.

I've been looking at some of the younger people in this audience, and you know, you're going to live to be 100. If you want to retire at age 55, you'd better-- What do you mean only the younger people are going to live to be 100? I've been talking to a cop for this for six.

They're going to have a better chance than I do, that's for sure. And you know, if they want to retire at age 55, well, maybe people in this room will do it, but not many other people will. Well, the interesting thing is that we see whatever it is we see, I have to be really concerned about the state of the world today.

And I don't quite, myself, know what to do about it. I mean, I could go heavily into cash, as always, you know, roughly in this day and age, probably 60 percent stock, 65, something like that, counting all the different accounts I have. My retirement plan would be higher, that's my biggest asset.

And my personal account would be lower. But personal account is mostly intermediate-term munis. So I'm happy to be there, as happy as I could be this year. As I've ever been, you know, 8 percent return, most of which is tax-free, is not to be seized at. So, but I still puzzle that the big risks are undefined and out there somewhere.

And that kind of a situation basically doesn't get a response from the stock market. And whether it should or not, I mean, I happen to know one particular investment advisor who has all his clients, has had for years, 60 percent short-term treasures. And he says he knows the event is coming, he's got to be ready, he's got to protect our assets, that they have to give up a few gains or a lot of gains in the search for protection when the great day or the bad day or the evil day comes.

Well, that's the way it is. Now, I'm not sure that's a viable strategy. I think his clients would get a little wondering if he knows what he's doing. But if you're ahead of the crowd, people are always going to wonder what you're doing. So, I don't have any answers to it either, but I do think that everybody in the room, I would feel very guilty if I didn't warn everybody that this is a risky, risky world we live in.

And I don't know what to do about it except a reasonable conservative position. And Armageddon is, I tell people, if Armageddon is having some kind of a foreign object strike the US, well, it won't matter whether you're in stocks or bonds. That's the good news. Or to put a little top on that, I reviewed this in a different context earlier.

We all know the world is going to hell in a handbasket, but it never quite gets there. Never quite gets there. So, I think you should be aware of risk. I don't know what to tell you to do about it. I don't know what to tell myself to do about it.

When I start to panic, I would just read one of my books. Thanks, Jack and thanks, Bill. And we're going to take a short break now. And in 20 minutes, Jack will start his comments.