AMA 98 – Jeff Macke Talks Inflation

 

 

Jeff Macke is the host of Breakout on Yahoo Finance and was an original cast member of CNBC’s Fast Money. He is also the author of Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse, which he talks a little bit about on today’s show. In this episode, you’ll find Jeff and Jason addressing some Doomsday theories as well as talk about inflation and deflation in currency.

 

Key Takeaways:
4:50 – Jason is staying at hotels for half of the price because he’s been using services like Hotwire.com.
8:30 – People are having a hard time finding jobs. Investment bankers are becoming Uber drivers just to make some money.
11:45 – Jeff believes there are plenty of jobs available, just not jobs people want. Jeff says if you get a job you don’t want now, it’ll help provide you some money and help you work towards something you are passionate about.
13:00 – Jason is exciting about robotic technology and the self-driving car.
17:30 – Jeff is still nervous about the stock market. The stock market is doing better now, but it’s still pretty unstable.
19:52 – Jeff is not sure if we’re going to see a huge inflation in our money, but at the same time he doesn’t see how the deflation outcome would work too.
22:00 – Jason believes it’s important to prepare your money for both inflation/deflation scenarios. He explains how to do that in this segment.
24:30 – Never forget that economics is a social science

 

Tweetables:

It is an incredible time to be alive

With these future robots they say they’ll maintain themselves and fix themselves – maybe they’ll just take over the world!

This has been a very easy market to criticize and bad mouth for the last 5 years, since the stock market bottomed.

 

Mentioned in this episode
Clash of the Financial Pundits by Jeff Macke
www.Hotwire.com
www.Priceline.com
www.Lyft.com
www.Uber.com

 

Transcript
Introduction:
This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit www.HartmanMedia.com
Jason Hartman:

Welcome to the podcast for the American Monetary Association. This is your host Jason Hartman and this is a service of my private foundation, the Jason Hartman Foundation. Today, we have a great interview for you so I think you’ll enjoy it and comment on our website or our blog post, we have a lot of resources there for you, you can find that at AmericanMonetaryAssociation.org or the website for the foundation which is JasonHartmanFoundation.org. Thanks so much for listening and please visit our website and enjoy our extensive blog and other resources there.
It’s my pleasure to welcome Jeff Macke to the show – he is host of Breakout on Yahoo Finance,  an original cast member of CNBC’s Fast Money and author of  Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse. Jeff, welcome, how’re you doing?

Jeff Macke:
I’m doing well, thanks for having me.

Jason:
Good, good. Hey, it is great to have you. You just took a really interesting trip across the country and you saw some interesting stuff – give us a little feedback on your trip.

Jeff:
I grew up in retail – my father worked to target, so he’d go from target to target and he taught me that the best way to learn how a business is going and how people are doing is to not be the guy who yells at the person at the service desk, but rather to be the person who asks them how they’re doing. Whether it’s a waiter or a business owner or someone you’re sitting next to, just listen to their problems and hear them out. What I heard out there is that this economy is booming. It’s not in a bubble sense, and it’s not in a sense where portrayal seems to be something along the lines of Mr Burns or Snidely Whiplash preying on these poor 99% of people. I think this is a much more broad-based type of economic recovery and I think people are doing a little better than anyone wants to admit. I’m not sure why that is, but I was really struck by the nature of the economy just between what we’re reading about in the popular press and the sense of optimism being expressed by the way people are investing and behaving in the economy itself. I think it’s a great time to be a consumer right now, in particular.

Jason:
Certainly, technology has pushed down the cost of everything – well, not everything, but at least consumer products in terms of electronic and tech products. With the tools we’ve got for this nearly frictionless global commerce system we’ve got called the Internet, we have  price discovery, comparison shopping, reading reviews, getting better products, manufacturers making products because they’re listening to customer feedback.

Jeff:
It’s incredible. They talk about it a lot in retail, and we just did it ourselves, but it extends so far beyond just that retail model. I had exactly one hotel reservation, and that was at Disney Land because that’s one of the few places on Earth where you can’t just walk in and figure out a way to go see it – it genuinely does get sold out. I’ll tell you what, using just a smartphone, I was able to book boutique hotels with people who had gone ahead and taken the economic risk to build themselves and start to find locations. I could  expose my family to stuff that we otherwise wouldn’t have seen as recently as 5-10 years ago, simply because we wouldn’t have found  it. You have price discovery and product discovery – if you’re clever with how you use the Internet and this technology to your advantage, it’s going to control the prices – not just in terms of electronic, but also in your hotel room, in your flight, in terms of the bang for your buck – you’re getting what you pay for, which we haven’t really ever seen in history. It’s incredibly encouraging if you look at it from the big picture perspective.

Jason:
I would agree with you completely, Jeff. It is an incredible time to be alive, and I’ll give you a personal example. About 5-6 years ago, I discovered Hotwire, and I started using it and I discovered all sorts of new hotels I would have never known about and I would have never picked. By golly, I’m staying at hotels now for half the price I used to pay. You could call that the economy and the financial crisis, or you could call it technology, or you could call it a blend of all the above. The interesting thing about it is all these new incredible business models we’re seeing. When it comes to Hotwire, for example, hotels can have a risk-free way, and the same with Priceline (I don’t want to be agnostic; I’m not promoting the brand, I’m just saying that conceptually, it’s an interesting technology) because it allows the hotel to give away a better price without putting it on their brand. They can hide their brand  name until after you book the property, and so they can go ahead and advertise a lower price without you knowing who they are until afterwards. That’s an incredible idea and it’s only possible because of modern Internet-oriented technology.

Jeff:
And if you marry that with human interaction, and I’ve got a funny story about Priceline because one of the ways I was able to use technology to my advantage was when Priceline had messed up the one reservation we did have! I found an alternative just because I was friendly and got to talk to the person at the front desk who happened to work in another hotel in the Venice area. It was extraordinary, and so when you merge this technology with a sense of cultural  optimism and a little common sense and face-to-face human interaction, it’s almost alchemy. It’s such an incredible time.

Jason:
It’s definitely amazing. Then let’s talk about ride-sharing opportunities with companies like Lyft and Uber and the rest of them. We’re putting to work assets that have just been dormant, whether they be people assets and human resources or cars that were sitting in garages before and are now being used. It’s just so much more efficient, it really, really is incredible. We ain’t seen nothin’ yet, as the old saying goes. The next five years are just going to blow all of our minds, with biotech and nanotech.

Jeff:
If you think about the inefficiency out there. They put out a pricetag, I think it was about $17 billion and people said, ‘Well that sounds outrageous’. If you think about the economic inefficiency if you fly into Manhattan or JFK, you’ll find you’re several hundred people-deep, waiting for cabs, you’ve got a dozen cabs waiting there, and they’re all flowing through one dispatcher standing centrally. That’s the same business model they had 50 years ago. It’s literally the exact same model and it’s wildly inefficient. You’re wasting millions of dollars every single day by just standing there. Someone’s created this app where not only does it work at JFK, but you’re also creating markets where you can’t just go outside and hail a cab. In the vast majority of this country, it’s just not something you can do and you just can’t get a ride; you can’t hail a cab, you can’t call a cab – we don’t live in that world. It’s probably Chicago, New York and LA as the three cities where you can walk outside and hail a cab from the curb. Now, all of a sudden, you’ve opened that up to any market in the United States through this Uber and Lyft type of model. It’s incredible. It’s light-years from where we were.

Jason:
It is a light-year advance. Let me take the pessimistic side for a moment. We hear all of this bad news, we hear about the unemployment rate and the underemployment rate, which means that people with college degrees and massive student loan debt now topping $1 trillion – possibly the next bubble; I’d love your comments on that – are delivering pizza, working at Starbucks, driving an Uber car. I’ll give you a great example. I was in an Uber car a few weeks ago and I always ask the drivers if they do this full time, what their background is, what they did before. I’m always curious about that, as you are. This guy said he was an investment banker and worked on Wall Street, and here he is, driving an Uber car. I’m thinking ‘Oh my gosh, our economy is not allocating resources very well, is it? This guy’s got a Master’s degree!’

Jeff:
I don’t know, I haven’t met him but I’ve worked with a lot of investment bankers and he’s probably adding more societal value to the world now.

Jason:
[Laughs]. Fair enough, fair enough, I’ll agree with you there!

Jeff:
I hear you on the underemployment thing. It’s interesting but it’s one of those things that’s hard to define. I would never want to hire someone who didn’t think they were underemployed because you always want that sense of ambition and upward striving, but we do need a societal rethink on how we go about it and what the goal of our college education is. I’m not sure how much of a value you can place on some of the softer sciences. I’m a Psych major with a Film Studies double major type of construct out of college. Those have both served me relatively well socially and in a lot of different ways, but I’m not sure what value they themselves have in terms of what job you should be able to do or should be entitled to after that. I think that the real issue for the culture is not whether or not your college degree is going to get you entitled to learn a living at a certain amount of money, but whether or not you’re a hard worker and you have the ability to add economic value is going to get paid. As long as it’s not a situation where you can’t find a job, if your goal is to make money and you’re unable to do that, we’re okay.
There are some jobs that are simply never going to pay that well because the capitalist system doesn’t benefit them in that way, and that’s really where the question is. We’re now getting so many more college degrees and so many more people are going to college, and they’re graduating and they’re simply not coming out with skills that are necessarily commercially applicable. It’s a huge problem and it’s growing, but it’s not one that I think tips over the economy, despite the fact of the staggering sums that are at work there. There is enough money and enough  wherewithal that we’re not going to put ourselves out of business through our own student debt.

Jason:
Okay, so what’s going to happen with that student loan debt? It’s not dischargeable.    Are these kids really going to be just indentured servants? Many of them  are underemployed.

Jeff:
It’s a matter of whether they’re able to find jobs or if they’re choosing to work towards their passion or towards just a commercial application. The American Dream is not to be paid a ton of money just to do anything that your heart desires. The truth is that you’ve got to put some elbow grease into it and work. It’s not indentured servitude. My first job out of college was working at Macy’s, and I sold men’s shoes. I didn’t love that job, I’ll be honest with you, and so I worked hard to get out of that job and to be upwardly aspirational. It worked out well for me, but it took some effort and that was a hard adjustment. That was something that was just part of training society. I’m not sure what the answer  would be. It’s an ugly  side of this capitalist system, but you know what, it’s going to take work and it’s going to be something where people are going to not necessarily live a lifestyle where they can live their dreams. They’re going to have to do some stuff that they wouldn’t necessarily  dream about with the idea that maybe it’ll pay off over time as they work their way towards what their vision for themselves is. That’s a vision not necessarily for when they’re a 22-year old, but for when they’re 45 or 50 years old.

Jason:
You know what’s fascinating to me, Jeff? I have not reconciled this. I’m going to admit to my audience that I think about it all the time and I want to know, I want to have a prediction for what this is going to mean because I think it’s going to be huge. It’s the area of robotics. I recently watched a 10-minute video which was very interesting; it talked about how 45% of the jobs nowadays can be automated within the next several years. One of the main ones – we talked about Lyft and Uber as transportation, but we’re on the heels of the driverless car, and that just changes the game in so many ways. They had one of those driverless semi-trucks here in Arizona recently. They demoed it in Germany and the guy just sits there while the truck drives itself and delivers things all over the nation, or all over the world, I should say! Transportation is a huge area of employment. Can these cab-drivers re-tool and do something else or are they just going to be permanently unemployed? I don’t know.

Jeff:
I don’t know either. It’s important for the audience and for you and I to remind each other that these are not necessarily new problems; the printing press put a lot of people out of work as well. I don’t say that lightly. All these inventions have displaced what was skilled labor in the past, and this has been a constant evolution.

Jason:
It’s always been positive, and computers put a lot of people out of work, but then we needed people to work on the computers. I don’t know, with these robots they say they’ll maintain themselves and fix themselves – maybe they’ll just take over the world!

Jeff:
That’s the scary part. Them turning on us is actually a much more scary thing than them putting us completely out of work. The one thing the future has missed is the George Jetson sort of lifestyle where folks were inventing labor. it’s like when you watch those really retro futurist predictions from the early 60s when housewives would sit around and dishwashers would give them so much free time they wouldn’t know what to do with themselves. We’ve managed to figure out things to do with ourselves all along, so I think as long as we keep the robots from turning on us, it should work out to our benefit.

Jason:
When Elias Howe invented the sewing machine, women complained because they wouldn’t have anything to do – how would they make themselves useful in society, right? It seems as though they worked that out, but there’s always a transition time, and this doesn’t happen all in one day. It’s not like they put up the Berlin Wall, right? This is a gradual evolution, but it’s a pretty big deal. Yes, those predictions have always been there, I agree with you completely.

Jeff:
And ultimately, we’ve touched on it a few different ways, but the ugly side of it is that this is going to happen to the system. We’ve spoken about transportation, drivers in particular,  and if you look at cabs and you see the way that the cab industry is fighting the evolution of the world, it’s telling. They’re really expediting their own extinction by demonstrating just how inefficient they really are and how antiquated that system is. As individuals, what you have to do is be thinking ahead of that. If you’re a cab driver out there and you’re protesting Uber by fighting against it to protect your rate..

Jason:
You’re a dinosaur.

Jeff:
You’re a dinosaur and you’ve just got to know what’s going on. As the adage goes: If you don’t know who  the sucker at the table is, the sucker is you. You can’t be a dinosaur or you’re in big trouble.

Jason:
Right. That’s great advice. Talk about the markets for just a moment, if you would, and tell us what you think about the overall economy. We’ve certainly been talking about that, but maybe just give some of the more specific indicators, if you want – the stock market, the real estate market, whatever you like.

Jeff:
I think the stock market has been one that has just been feasting on skepticism for so long, and in my game, and in my book  Clash of the Financial Pundits, we talk a lot about profits of doom. This has been a very easy market to criticize and bad mouth for the last 5 years, since the stock market bottomed. I think it was March 2009 when the S&P 500 was 666 – a very demonic bottom. It’s been very easy to criticize this and call it artificial and to say that the Federal Reserve is printing money and the government is, in essence, lifting itself off the ground by its own ears, which is kind of impossible. If you bet that way, you lost and you lost big. There’s been this bipartition of people who had been part of this market and had been benefiting from it with some sense of distress because we have had two major, significant crashes in the last 15 years, which is not to be ignored. You also have people who have simply sat it out from the side lines and have bet on the sky falling over and over again.
The truth is that the sun’s going to explode some day, but it’s a lousy bet. Betting on this Doomsday scenario just means that there’s no place to cash in, so in terms of the stock market, I continue to be nervous about it; so many things can go wrong, but ultimately the economy has struggled through. Corporate earnings are decent, not terrific. Balance sheets are better by far than they have been for ages. Companies literally can’t figure out what to do with themselves in terms of how to put money to work, and I think the government is just the right level of screwed up right now that they’re not able to implement anything – it’s kind of keeping it out of the way, but I think that’s one of the bigger impediments to having the job growth in this country because I think we’re going to start in-sourcing some jobs that we’ve been out-sourcing to foreign nations for years. That’s going to provide a real tailwind for us if we can get in early.

Jason:
A lot of that tailwind is going to come from manufacturing and from 3D printing – it’ll be in  small, short-run, artisan-type manufacturing. Chris Anderson’s got a great book called  Makers. You may have read it; it deals with the future of 3D printing. What an awesome technology! That’s just going to put a lot of people back to work in the US. It’s going to be in-sourcing and on-shoring labor, I agree with you there. It’s a fascinating one.
Okay, so inflation or deflation in the future? What do you think?

Jeff:
I think we’ve been fighting deflation, and no-one wants to use the word because the Federal Reserve and the powers that be simply have no solution for deflation. As a result, we’re kind of in this environment where we’ve been printing so much money and we really don’t have either. There’s tension between two horrific outcomes – one which is uncontrolled inflation, which is  supposed to have  been manifesting itself for years now, and yet hasn’t got a foothold simply because the economic cycle is overpowering it. Can I choose ‘flation’ between inflation and deflation?

Jason:
‘Flation’? Just flation?

Jeff:
We can go with 1.5% – it works for me. I just don’t see the prices rising the way some of the real skeptics out there bill. We’ve been discussing a lot of nice trends, and if you’re in-sourcing jobs and you have economic growth, you have corporations with decent balance sheets, I’m not sure how you end up with a deflationary outcome. With the information working to our benefit, I’m not sure how you get rampant inflation when you have a nice capitalistic check and balance system in place in terms of price discovery. So it’s a pretty decent scenario. Is it perfect? No, of course we’re going to have outlying events, but we just haven’t seen that inflation that we were supposed to get from all that money printing. I don’t think that the folks were wrong on inflation for the last 5 years that would  change this Doomsday scenario to a deflationary environment  – I don’t think it’s any more valid. Again, sometimes the sky just doesn’t fall. If you go outside and look up, it’ll turn out that the sky is still aloft.

Jason:
In other words, it doesn’t fall in either direction – either inflation or deflation. It’s a status quo type of Phillips Curve model where it just moderates and targets inflation, which the Fed always has. Deflation is something that is tough to stop. I guess they can just print money into oblivion, and especially when they’ve got the reserve currency. It’s interesting because the government is so screwed up and every indicator would indicate inflation, right? That’s in terms of a monetary perspective, but technology is so amazing that it empowers the consumer, like you say, with massive amounts of price discovery literally in the palm of their hand. That is a strong force to keep inflation in check, isn’t it?

Jeff:
Some of the ways they’ve been printing money went to some of the corporations themselves. With their balance sheets, they’ve literally just started accumulating cash. That shows that it’s harder than you think to control inflation and create a situation where people have cash. It’s about the velocity of money and trying to get people to spend money when they don’t want to is pretty difficult, whether it’s a corporation or an individual.

Jason:
The interesting thing is investing for it, though. In my eyes, you’ve got to prepare for either scenario, right? If it’s inflation then commodities and long-term, low, fixed-rate debt is going to be an asset to you: rental properties, income properties. If you have deflation, you’re just going to be looking for yield anywhere you can get it. You’ve got to have dividend-paying stocks or cash-flowing assets – to the gold-bugs, good luck eating your gold!

Jeff:
Right, right.

Jason:
They’re going to be dying! And they have been. They’ve been wrong for so long. I remember Howard Ruff in the 70s, and then I had him on my show a couple of years ago. It’s like, I don’t know, maybe he’s finally going to be right, but I’m not seeing it yet, at least.

Jeff:
I write about this in the book because there are a couple of ways you can make a living as a pundit: one is to make people money, which is pretty hard to do, and the other is just to scare them.

Jason:
Right, that would be the legitimate way – make them money.

Jeff:
Sure, and that’s part of what’s motivated me. I’m trying to keep people out of the rat-traps of finance and not participating. I had a hedge fund and I liked that work, but I like working with larger audiences more and trying to explain Wall Street while still participating in it is much more gratifying to me. What you see as part of that is the industry that is just selling fear because it always sounds so smart. It always sounds like you’re so in the know that this currency’s going to collapse, even though the argument doesn’t make a ton of sense when you get down to the nuts and bolts of how your gold bricks are going to buy bread, beer and tea. That never made much sense to me, but at the same time, they’ve sold a lot of newsletters, a lot of books and a lot of gold-mining and gold-chip certificates. It’s the entire industry of the Doomsday scenario; they printed money for everyone except their investors.

Jason:
Right, well that’s true. I would agree with you there, and I tell you, those guys seem like they’re right because they’re just doing the math. This is not just about math. There’s way more going on in the world than math. You can talk about $17 trillion this and that and $60-$200 trillion in entitlement obligations over the next two decades. Yeah, fine, but it’s not math. This is not just about math, it’s about technology and it’s about battleships and nuclear missiles and the reserve currency and throwing one’s weight around. I’m not saying that’s right, I’m just saying that’s what it is.

Jeff:
Never forget that economics is a social science. We’re not doing moon shots here, we’re trying to figure out how people are going to behave.

Jason:
Yeah, very good point. Well, hey, this has been a great discussion Jeff, and give out your website and tell people where they can find you and read your great material.

Jeff:
Head over to Yahoo Finance. I’m there every day with Yahoo Originals and you can find my work, along with a bunch of other contributors. We’ve got kind of an all-star cast so I would encourage everyone to make it their homepage and check us out.

Jason:
Good stuff, well Jeff Macke, thank you so much for joining us today.

Jeff:
Absolutely, it was my pleasure.

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