November 24, 2025 • 48 mins
Strider Elass, Senior Economist at First Trust, joins the ROI Podcast to discuss tariff turbulence, DOGE’s spending purge, AI’s productivity potential, and what drove (and dragged) the US economy in 2025.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Ryan (00:11):
Well, here we are as we approach the end of 2025.
Thanksgiving's right around thecorner, and the economy uh
seems like maybe it'soutperformed compared to what
some of our expectations werecoming into this year.
The stock market has had somenew volatility that's been
introduced.
We've got tariff policies thathave caused tremendous amounts
(00:33):
of volatility in the market, andin some of the economic data,
we're looking at governmentshutdowns that were just
recently relaxed.
People are focused onartificial intelligence.
There's a lot going on rightnow.
In today's episode of the FirstTrust ROI Podcast, I'm joined
by senior economist Strider Lasto help me make sense of some of
(00:55):
what's happening, especiallywith respect to the U.S.
economy.
Thanks for joining us on thisepisode of the First Trust ROI
Podcast.
So, Strider, this is, I think,the official first time that
we've done the podcastvirtually.
And I'm not sure how I feelabout it, to be honest.
(01:15):
I I really enjoy a face-to-faceconversation, so we will
definitely have you on againwhere we can do this
face-to-face.
Um, but at the same time, youknow, you're on the West Coast,
I'm on the East Coast.
Um in this particular instance,I was just glad to get you uh
on the podcast.
So um forgive me for uh forcingthis to be virtual, but uh
(01:37):
we'll do it in person next time.
Strider (01:41):
Oh, I'm so glad it worked out.
It's great to be with you.
I I would rather be with you inperson too.
It's always fun.
But uh virtual, we'll do it.
Ryan (01:48):
We're recording this right before Thanksgiving.
Um we've all got a lot to bethankful for.
Um and we're also recording atpost NVIDIA earnings, which um,
you know, it seems like JensenWang has a lot to be thankful
for as well, um, although we'vewe've had a lot of volatility.
So I want to talk about a lotof the things that are happening
around the world, including AI.
(02:10):
Um, but one of the things thatjust ended as we're recording
this, maybe within the lastweek, was the government
shutdown.
And uh I've been wonderingabout this from an economist
standpoint.
Um how is this just one ofthose narratives that everyone
thinks is bigger than it is?
I know your your data flow isless because of um the
(02:34):
government shutdown, but youknow, how how does that impact
your ability as an economist tounderstand what's going on in
the economy?
Does it have a big impact or asmall impact?
Um, maybe you could talk aboutthat for a moment.
Strider (02:48):
Sure.
Yeah, I mean, with with thegovernment shutdown, a lot of
obviously the government datastopped.
The Fed was still providingsome data, and then there's a
lot of other private industriesthat provide data as well.
So you can still get a generalidea of where the economy is
heading, where things are going.
I would say if the governmentshutdown lasted six months or a
(03:09):
year and we weren't getting anyof that data, which everybody
was so used to getting for uhyears and years and years and
years and years, uh that wouldstart to put a wrench in things
in a big way.
But uh it made things a littlebit more interesting, uh, to say
the least.
But you can get a general ideaof where things are, and and now
since the government'sreopened, we are starting to get
(03:31):
some reports that weren'treleased that have just been
released uh late, and some justwon't even get released ever,
uh, which is is kind ofinteresting in itself.
But in terms of where theeconomy is today relative to
where it was before thegovernment shutdown, I don't
think things look really toodifferent from the data that we
continue to get through thegovernment shutdown and even
(03:51):
some of the data that's come insince.
Ryan (03:53):
Yeah, it seems like the one thing that people were
mainly um talking about anywaywas you know, the what the Fed
was gonna do without all thisinformation that they were, you
know, they're missing out on.
And I think that even snuckinto um some of the market
pricing for what uh Feds waswhat the Fed was gonna do with
with respect to rate cutsthroughout this year.
(04:15):
Um it seems like there has beenuh well, maybe a full cut taken
out of what might happenbetween now and the end of next
year.
Um do you have a sense of wherethe Fed is going?
Um are we still in a cuttingcycle?
And and do you think it islikely that the Fed is gonna
(04:36):
turn more hawkish or will theybe as dovish as the market has
priced in?
Strider (04:40):
Yeah, I I still believe we're in a rate cutting cycle
for sure.
Now the question is, will theFed cut in December or not?
Uh I'm starting to lean moretowards they're not.
The market as well isdefinitely leaning towards their
they're no longer going to cutin December, which is a dramatic
change from just where thingswere uh a week or two ago.
And I think it does make it alittle bit harder.
(05:02):
I mean, when when ChairmanPowell spoke at that last press
conference, he he made it clearthat the room was pretty much
split between whether it was agood idea to cut or not in
December.
And with the governmentshutdown, I think the stream of
data, as we just talked about,was less.
And so we're not getting a lotof the inflation reports that
(05:22):
they're used to seeing, andwe're not getting the employment
reports like we were.
Um, and so they're gonna haveless data available to them for
that December meeting.
And if I think if they do wantto punt and uh push it into next
year, they they have enougharsenal uh to be able to do that
to say that, hey, we just areare data dependent and we don't
(05:44):
have enough data, or we haven'tbeen able to see enough that
makes us feel comfortable thatwe need to cut.
Uh I generally think theyshould continue to be cutting
here.
I think on the employment side,especially, things are
continuing to weaken.
And yes, inflation's hoveringaround 3% and is ticked back up
a little bit, but uh I don'tbelieve that's going to last.
(06:05):
I think we will continue tomove closer towards 2% in the
coming year.
Ryan (06:09):
You know, let's let's stay on that uh the employment and
the strength of the U.S.
consumer for a minute.
Um, you know, that's somethingthat um for those that that
don't know you, you're you'rethe author of the Three on
Thursday report that uh hasbecome very, very popular at
First Trust, where you takesnapshots of three different
(06:30):
data points and you kind of putthem together and and talk about
the narrative that thatunderlies that.
Um and one of the recent onesyou guys did was um looking at
household debt and credit.
Um and you know, I was lookingat that report, and it just
seems like we are at an all-timehigh in the level of debt, but
you know, then again, it usuallykind of climbs up and to the
(06:51):
right.
That's that's tends to be thepattern uh over many, many
years.
Um and I guess you know, we'rewe're talking about interest
rates.
Is there a concern that youknow rates are gonna be too high
for all those uh consumers thathave a lot of debt?
Um, or is that something thatis maybe overblown?
Strider (07:10):
Yeah, so uh the three on Thursday is really fun to put
together.
It's a lot of just interestinginformation.
And if anybody ever has ideasand they want to forward them
along, I'm always happy to lookat anything that's out there.
Uh, but in in terms of thatspecific report, it is true
household debts sitting atrecord or pretty much close to
record highs.
And I think every year peopleuse this as almost a crutch to
(07:33):
say the economy's not in goodshape.
Look at households, because in2007-2008, I mean, we had a
financial crisis and theconsumer was over-levered.
But what I'd say is sodifferent this time around is
really if you look at householddebt, you take it back a hundred
years, almost every year thatmeasure is sitting at record
highs.
So just knowing the level ofhousehold debt doesn't really
(07:53):
tell us too much.
The only times it's reallydeclining is is during
recessions or pretty much flat,and then it starts to move
higher again after in therecovery.
But uh so you need to compareit to something else.
And usually when households aretaking out debt, they're taking
out debt to purchase assets.
And when you look at householddebt relative to assets, it was
very true from 2000, really toabout 2009, household debt
(08:17):
relative to assets was growingpretty rapidly, but it peaked
around 2009, and since then uhit's actually plummeted.
So household debt as a share ofassets is actually sitting at
some of the lowest shares thatwe have seen uh since the 1960s.
So, although uh debt's atrecord highs, assets have grown
so much faster than overallhousehold debt.
(08:38):
And to me, that's a key point.
But number two, when whatyou're talking about with
interest rates, I think is veryimportant today because interest
rates have gone up a lot.
But when you actually zoom intowhat household debt's actually
made up of, about 70% ofhousehold debt is just in
mortgages.
And so in 2006, 2007, that wasa huge issue because about 40%
(09:01):
of those mortgages outstandingwere adjustable rates back then.
And so people got into a lot oftrouble, inventory skyrocketed,
demand fell off a cliff, we hadthe housing collapse.
But when you look at wherethings are today, with 70% of
household debt and mortgages, ofthose mortgages outstanding,
only about 4.8% of thosemortgages are adjustable rate
(09:23):
mortgages.
95.2% are fixed.
And where it's even moreinteresting is well, what are
they actually fixed at?
And we have uh about 27% ofmortgages outstanding today that
are fixed at less than 3% oneither a 15-year or a 30-year.
We have another about 31% thatare fixed between 3 and 4%.
(09:46):
So we have more than 50% ofmortgages outstanding that are
actually fixed at less than 4%.
I look at that as a huge, hugebenefit uh to households.
And uh, by far the biggest debtthat most households have is
that mortgage.
And the fact that the averageinterest rate outstanding on
that debt across all mortgagesis 4.3% is amazing to me.
(10:11):
And it's something that um Ithink is a massive benefit to
households here.
Ryan (10:15):
Yeah, and that's also probably the reason why there's
some weird dynamics that havehappened with the housing market
because nobody wants torefinance that really
advantageous mortgage rate andwhen they have to buy a new home
and pay six, seven percent.
And so that has uh an impact onthe level of supply that's
hitting the market, right?
Strider (10:35):
Oh, definitely, yeah, definitely.
I think a lot of people havekind of scratched their heads
over the last couple of yearsand and thought, well, demand's
falling off a cliff.
Why aren't home why aren't homeprices nationwide just
collapsing?
And I think a lot of people arestill worried that that's to
come.
And home prices nationwide arepretty much flat.
They're up maybe percent, uh,maybe percent and a half year
(10:57):
over year.
So nothing really to write homeabout, but they're not
collapsing.
And I think moving forward overthe next couple of years, they
they won't collapse either.
Because, yes, although demand'svery, very low, as you just
said, supply is very, very low.
People aren't willing to puttheir homes on the market to buy
an equivalent priced home whereall of a sudden they might be
paying double or triple thatmortgage payment that they're
(11:18):
originally paying.
It just does not make sense.
And so uh, no matter if peopleare happy with their current
home or not, what they are veryhappy with is the unbelievably
low interest rates that maybemight be once-in-a-lifetime type
of a deal that they have inplace that they're not willing
to give up whatsoever.
Ryan (11:35):
There's another interesting chart on that same
report where you looked atdelinquency rates, um,
especially the one that I foundreally interesting was uh
delinquency rates for studentloan debt.
And um, you know, that's that'sanother weird dynamic because
we went through COVID where thegovernment essentially paused
people's uh payments.
(11:56):
They said you don't have tomake payments on your student
loan debt, so there were nodelinquencies, and then more
recently the chart shows that itsurged.
So, what do you think's what'sbehind that?
What's going on there?
Strider (12:07):
Yeah, I I think really what happened was during COVID,
especially when it wascompletely paused, and people
thought maybe we'll get theseactually um forgiven by the
government that they weren'tpaying them, and they weren't
paying them for a couple ofyears, and then they're supposed
to start paying them, and thegovernment said, Well, we're
gonna give you another year ofleniency where you're not gonna
(12:30):
technically be in default, butuh we'd like it if you start
paying us.
But if you don't, it's not abig deal.
And people decided to still notpay those back.
And I think what's happened ispeople, especially with all the
inflation that we've seen,people just got very comfortable
not making those paymentsanymore and in fact started to
spend that money that they'd beputting away to make those
(12:52):
payments.
And so when eventually thiscame due, uh, all of a sudden
what we saw was a massive spikein defaults.
And in fact, if you look atthose loans that are uh 90 days
plus delinquent, um, they'veskyrocketed to about 14%, which
is the highest that we've seenuh really going back in history
(13:13):
for student loans to at least2,000.
Um but what's interesting isyou can break it out by, excuse
me, you can break it out by ageas well.
And it's really those that are50 years and older um that are
really struggling withdelinquencies right now, that
are uh 90 days plus delinquent.
And and that uh level is almostaround 20% of loans outstanding
(13:37):
that are delinquent 90 daysplus right now.
Ryan (13:40):
So 50 years and older, that means that I mean maybe all
those people didn't graduatewhen they were 22 or something
like that, and maybe there'ssome grad school debt and some
you know doctoral work orsomething like that.
But if you were if you're justtalking about undergrad debt, if
you're over fifty, you've hadthat debt outstanding for 30
years?
Is is there a big chunk ofpeople that are 50 plus that
(14:02):
still have college loans?
Strider (14:04):
I I I assume I guess so.
I uh you know, I haven't Ihaven't dug through the exact
numbers of them, and I'm notsure if we can actually get that
number from the Fed.
But uh yeah, I mean it's it'spretty uh eye-opening, I think,
that it's that category ofeverybody uh that's the most
delinquent right now.
Ryan (14:26):
Okay, so um I wanna I want to pivot a little bit towards
um one of the things that hasbeen talked about all year, and
that is tariffs.
Um we we've you know had a lotof discussions on the podcast
about tariffs, on the newscycle.
Tariffs have you know come andgone and come and gone and come
and gone.
(14:46):
Um as the discussion on tariffshas evolved this year.
It seems to me that the Trumpadministration seems like it's
become more and more kind of allin.
Like they've pushed the chipsin.
You know, early on it seemedlike the the rationale for
tariffs was that uh we weregonna equalize the playing field
with trading partners.
And you know, my my optimistictake was maybe that this would
(15:09):
be a tool that could be used toyou know put tariffs on, so
everyone says, okay, we're gonnaeliminate tariffs.
But you know, the rhetoricdoesn't seem to favor my
optimistic view.
Um maybe I'm wrong on that, butI'm curious what your take is.
You know, what's the ultimategoal here?
Um, and and you know, what'sthe impact been and in any any,
(15:30):
I don't know, what's youroutlook going forward?
Strider (15:32):
Yeah, you know, I think the thing that Trump and I have
most in common more thananything else is that we both
just don't know what he's gonnado tomorrow.
So I I wish I knew what theultimate outcome was going to
be, uh, but I don't.
Uh but but uh I will give youkind of my my thoughts on where
things are.
Uh I completely agree with youin the sense that I believe too
(15:55):
when he came into office thistime around that he was going to
use the same kind of tacticsthat he used when he was
president the first time around.
And really those tactics werelook, you look at all of our
biggest trading partners, everysingle one of you charges higher
tariffs on goods coming intoyour country on average than we
do on goods coming into ourcountry.
So either you lower yourtariffs to get more in line with
(16:17):
us, or we're gonna raise ourtariffs to get more in line with
you.
And that's the rhetoric that heused when he was president the
first time around.
And um, you know, what he didraising tariffs the first time
around, I don't I don't agreewith higher tariffs.
But did it work?
Yeah, you look at all of ourmajor trading partners, and
every single one of them haslower tariffs on average in
(16:39):
place today than where they wereuh when uh President Trump
became president in 2016.
And so when you think about itfrom that uh point of view, I
would say, okay, he was going todo the exact same thing this
time around.
And if he didn't put thatpressure on, tariffs would have
been higher across the world forsure.
So we come into this presidencyand it seems like that's what
(17:02):
he's doing.
Uh, but I think pretty quickly,once he started to raise
tariffs, he realized, wow, thiscan actually be quite a big
revenue, a revenue generator forthe United States.
And um and I think the way helooks at it is, hey, or the way
it's portrayed to the public islook, it's it's not U.S.
companies, it's not U.S.
(17:23):
citizens that are going to bepaying these tariffs, it's the
countries.
China's paying this tariff, oruh Taiwan's paying this tariff,
or Italy, whatever country itis, they're the ones who are
paying the tariff.
But the reality is, no, itfalls majorly majority of it
falls on uh the US uh companiesor U.S.
consumers that it's passed onthrough the companies.
(17:45):
And and just to give you anidea of where things are today
and why this has been such agood revenue generator, is if
you look at our effective tariffrate in 2024, it was 2.3%.
So that means, and that'sacross all countries.
So that means if you importedsomething on average for a
dollar, you paid a dollar andtwo to get that into the United
(18:06):
States.
Well, today that effectivetariff rate's moved up to 9.8%.
So instead of a dollar two toget it into the United States,
you now have to pay $1.10.
But across all of our tradingpartners, it looks very
different.
So for instance, you're lookingat China, which we know is a
big importer.
They're now the third biggestimporter into the United States.
(18:27):
They they used to be number oneand then they moved down to
two, and now they're down tothree.
And a big reason is because ofhow large the tariffs are in the
United States that are beingput on Chinese goods.
Last year in 2024, it was 11%.
So a dollar's worth of goodsthat was purchased would cost
$1.11 to get into the UnitedStates.
(18:48):
Well, now it's up to 40%.
So that's gone from $1.11 to$1.40, and that's across all
goods from China.
So that's an effect, that's theactual effective tariff rate
that we're seeing on goodscoming in.
I mean, that that is that'shigh.
Now, companies, some companieshave been able to absorb that.
(19:08):
Other companies are passing iton.
Uh, but I think the biggerissue, and that's not talked
about near enough, is really thethe uncertainty around the
tariffs.
I've got four kids, as I knowyou.
Do you have four or five?
I can't remember.
Four, yeah.
We both have four kids, sowe're doing our part, right?
We're we're contributing tosociety.
(19:29):
Four kids is a lot.
Um, but my two oldest, I have anine-year-old and a
seven-year-old, they love toplay the game Candyland.
And uh every weekend we pullout the Candyland board.
If you don't remember, prettysimple little board like this.
All you do is you flip over acard.
It either has one color on it,it's got two colors on it, or
it's got a character, and youjust do whatever the card tells
(19:49):
you to do.
Well, my oldest, uh, she isvery rules-oriented.
She would never cheat or breakthe rules.
Um, you know, even if she'slosing, doesn't matter.
My second oldest, um, now she'sshe likes to, if she's not
winning, she figures out a wayto win.
And uh, you know, so the rulesstart to change pretty quickly.
She might turn over a card, shedoesn't like it, she'll turn
(20:12):
over another one.
We say, hey, you can't do that.
Well, she just keeps doing it.
And anyway, the game gets sofrustrating that we quit almost
every time.
If she's losing, uh, we justquit because she changes the
rules all the time.
It's no fun.
Anyway, somehow we keep playingthat game every single week.
But the point of that is thatif the rules are constantly
changing, you just can't playthe game.
(20:33):
And it doesn't matter if therules are good or bad.
I mean, you obviously want goodrules, not bad rules, but as
long as the rules are consistentand people are able to play by
those rules, then you can playthe game.
And the way that I look at theeconomy today, especially for
small and medium-sizedbusinesses, is that they're not
looking for the next month forproduction.
They're looking out three, six,nine months out right now for
(20:56):
what they need to be bringinginto the United States.
And they don't have theluxuries like a lot of larger
companies where they can switchmanufacturing to different
countries, so on and so forth.
And so if they don't knowwhether the tariffs from China,
let's just say, are going to be40% three months from now, or if
they're gonna be 80%, or ifthey're gonna be 20%, or 150%,
(21:18):
and they're trying to makedecisions three, six months out
today because it takes monthsfor that stuff to be produced
and then another month for it tobe shipped over on the sea, it
makes it very hard to be able torun a business.
And so I think no matter whathappens with the tariffs, uh,
are they are they hurting theeconomy?
I'd say, yeah, they are hurtingthe economy.
(21:39):
Isn't enough to take us intorecession?
No.
But I think what's hurting theeconomy more is really the
uncertainty around the tariffs.
And so what I hope is that atsome point here, hopefully in
the near future, we just getcertainty on where these tariff
rates are going to stay andwhere they're gonna be for the
foreseeable future.
Ryan (21:57):
Does that need to be this may be a question for Bob Stein,
uh, but but is that uhsomething that has to be passed
into legislation for it to bemore permanent?
Or is this because it seemslike you know, some some of the
ways that tariffs have been umhave been introduced and put on
to trading partners, you know,it's kind of executive order,
(22:18):
but that doesn't tend to bepermanent.
That tends to be, you know, thenext guy could come and take it
away, and maybe the courts willtake it away.
Um but it it does seem that theTrump administration wants to
make a lot of these tariffs andthe policies to be to be
permanent, right?
Strider (22:33):
And that that actually would be a great question for
for Bob.
I I don't I don't know whetheror not they can be permanent,
permanent, uh, but I think theycould be at least permanent for
the next couple of years underunder President Trump.
And that alone I think would behelpful to just have some
certainty.
Right now it's day-to-day,right?
Like think about just a coupleweeks ago where the president
(22:54):
was threatening on putting anextra 100% on on uh China uh in
terms of already the oneroustariffs that are there.
Um so that that's what'sconcerning to me.
But I I do I do believe that alot of these tariffs that are in
place that have been put inplace for national security
purposes by the president thatreally have no reason, there's
(23:14):
no national security threat,will be removed.
I think the Supreme Court willuh vote just like every other
court has voted so far so far,that they're just not
constitutional.
But with that, I mean, theTrump administration is is very,
very smart.
They've had lots of time toprepare for this, and so they
already have other ways toimplement tariffs in the wing.
(23:35):
So although we might see alittle bit of tariff relief, I
think it's still gonna be um alot higher than what most people
expect.
Ryan (23:42):
I think uh maybe the the tool to win public sentiment is
what uh the president uhintroduced maybe last week or
the week before, the the conceptof paying everyone two thousand
dollars in revenue that is umis said to have come from tariff
revenue.
And you know, two thousanddollars, I don't know how many
(24:04):
uh how many taxpayers thatactually would impact, but that
that's a substantial amount ofof money that you're that you're
handing out.
Strider (24:14):
Yeah, it I mean it is.
And uh the reality is itwouldn't go to every taxpayer,
that's for sure.
But but uh I mean if if youlook at how much has been
brought in so far in revenuesfor this year uh through customs
duties, it's it's about $240billion.
We're probably gonna be closeto when all said and done for
the year, around $300 billion incustoms duties for 2025.
(24:38):
That's up from about $100billion in 2024.
And if the tariffs, the waythey are, stay in place, you
could bring in about $350billion a year uh in customs
duties.
But the reality is who's payingthose customs duties?
And at the end of the day, uhit is the American citizen or
the American company that'sreally paying those taxes.
Ryan (25:01):
One of the um one of the objectives, I think, of of
tariffs, at least one of thestated objectives, and it
becomes more difficult becauseof the sort of transitory nature
of some of these tariffs, aswe've been discussing, but is to
bring manufacturing onshore, toincentivize semiconductor fabs
to be built in the U.S.
(25:21):
You know, the the Bidenadministration also wanted the
same thing, but their tool waswe're gonna introduce these
spending plans like the CHIPSAct, and that's how we're gonna
incentivize building thesesemiconductor fabs.
Trump says we don't want to dothat.
Uh we want to do it throughtariffs, and so it's just a
different set of incentives.
But either way, it seems likethere's a lot of semiconductor
(25:43):
plants that are either in theearly planning stages or you
know, well underway in terms ofconstruction.
Um, is that something that youthink is going to continue for
the next several years or isthis a shorter-term phenomenon?
Strider (25:57):
No, I I I think it's gonna be going on for quite some
time.
I do believe we're gonnacontinue to see more and more
manufacturing coming back to theUnited States, but it's really
going to be more kind ofsemiconductors, those type of
things, high-tech manufacturingthat will be in the United
States.
It makes no sense to bring umyou know textile manufacturing
(26:18):
back to the United States,shoes, clothing.
Those are very labor intensive.
And it it you just it doesn'tmake sense.
And so most of the factoriesthat will be built will be very
high-tech factories that are runby very few people, but mostly
robots, robotics, and and othermachinery that is very, very
high-tech.
(26:38):
And to give you an idea,though, in the United States,
well, first off, the UnitedStates is still the world's
second largest manufacturer, uh,which I think a lot of people
forget.
And it goes China, which theysurpassed us, I think it was
back in 2013, as becoming theworld's largest manufacturer,
and then it's the United States.
And then there's a massive dropbefore you get to number three
for manufacturing.
(26:59):
Um, but when you lookspecifically at semiconductors,
I think another thing that'sthat's pretty interesting too is
that in the United Statestoday, we have 95 semiconductor
fabrication plants currently.
And the only country that hasmore semi-plants than us is
Japan.
Japan has 103 of them.
(27:19):
And the difference though inthe United States is so many of
our uh fab plants are basicallybuilt uh for research and
development.
We're the ones who are reallycreating uh the way that chips
need to be manufactured andbuilt.
And so you look at a you lookat a country like Taiwan, why
it's so important, althoughTaiwan only has 80 fab plants,
(27:42):
they're all built for uh highmanufacturing capacity uh of
chips and wafers.
And so uh Taiwan itself and whyit's so important to the world
is 68% of all semiconductoroutput goes through Taiwan,
comes out of Taiwan.
That is a national securityissue.
And so for that reason alone, Ithink we will continue to see
(28:05):
more and more semiconductors uhplants, especially being built
in the United States.
And the CHIPS Act did have ameaningful impact on that.
I think about $53 billion worthof the CHIPS Act went directly
to these new semi-plants thatare being built.
Um, but it wasn't just that.
There's been another $600billion since 2020 that's gone
(28:30):
into uh manufacturing ofsemiconductor plants, uh, which
is a massive amount ofinvestment.
And currently there's about 22plants that are either under
construction in the UnitedStates or being planned.
So I still think we're in theearly stages of this, and this
is something that's going tocontinue for whether there's
subsidies for it or not.
(28:50):
I think it's something that isin high demand and that's not
going to go away anytime soon.
Ryan (28:54):
It has been interesting because, you know, my hometown
of Syracuse, New York, uh,Micron announced, I believe it
was in 2022, that they weregoing to spend somewhere around
$100 billion to build four chipfabs between maybe now and 2030,
no, 2040, I think.
Um, anyways, so here we arethree years later, and they have
(29:17):
yet to break ground.
And some of that has to do withenvironmental regulation, some
of it has to do with themigratory pattern of an
endangered species of bats thatare, you know, there's like 20
million acres of uh habitableland for bats in in New York
State, but they're reallyfocused on the you know 500
(29:37):
acres that Micron would have toclear.
Um regardless, um they haven'tbroken ground yet, but it seems
like it's a multi-year processonce once they do.
I just wonder, you know, itseems like you've got to make
the regulatory efficiencybetter.
And and you know, I know theTrump administration has only
(29:59):
been in office.
For less than a year now.
But you would think that thatwould be really on on high on
their list of priorities.
I know they've focused on uhcurtailing regulations in a lot
of ways, but but it it seemslike with some of these really
um well these these buildingprojects that have national
security implications thatthey'd really want to make ways
(30:21):
for that to move along morequickly.
Strider (30:24):
Yeah, I don't disagree.
And I think regulation, cuttingregulation is is one of uh the
administration's biggest goalsover the four years.
And I think they've alreadydone a fair amount of of cutting
red tape, but there is a lot ofred tape that that needs to be
cut.
I mean we're we're across theboard, anything to do with
construction in in any state, itseems like, uh, is very slow
(30:48):
because of all the red tapethat's involved.
And and I think, yes, obviouslysome of that is needed because
we want safety regulations andwhatnot, but but a lot of it I
think could be fixed and andjust done away with.
Ryan (31:02):
Um that that brings to mind Doge.
Um remember Doge?
It seems like uh that was a bigpriority for a while, but I
haven't heard much about Dogelately.
The Department of Governmentefficiency, you know, the Trump
administration was gonna comein, they were gonna um make some
cuts to programs and makethings more efficient.
(31:22):
And um and it's really toughto.
I mean, you heard a lot ofthings that were being cut, but
I think the normal person everyday doesn't really see it unless
you're living in Virginia ormaybe around DC.
Um, do you have any sense onwhere Doge is today?
Strider (31:39):
Yeah, you know, I was I was so excited when the
president was elected for thebiggest reason that I really
thought that we were going tosee some pretty sizable changes
to the size of government.
And uh the Department ofGovernment's efficiency got put
in place and Elon Musk wasrunning it, and we know anything
(32:00):
that Elon Musk touches, uh he'sable to accomplish uh even the
impossible.
I mean, everything he's done,he's taken that which is
impossible and he's made it areality.
And uh so I thought, you know,government trying to shrink the
size of government, that's animpossibility.
But we have Elon Musk, andmaybe he's gonna be able to do
(32:22):
it.
Well, it turns out that evenfor Elon Musk, I guess it was
just too big of a task.
And uh when you look at what'sreally going on with the
Department of GovernmentEfficiency, what they're
actually able to cut on theirown without Congress, it's just
really not that significant.
Any cuts to government aregreat.
And I think they've done, youknow, they've they've been
(32:45):
making some cuts.
But the reality is thatmajority of government spending
is really mandatory spending uhthat goes out to individuals,
it's transfer payments toindividuals.
And when you look at SocialSecurity, Medicare, Medicaid,
um, you look at other mandatoryspending, really about 87% of
(33:07):
government spending, you couldtechnically say it's not really
mandatory, but you couldtechnically almost put it in to
the mandatory category if youinclude defense spending in
there and you include netinterest payments as well.
And so that really only leavesabout 13%.
That's non uh non-defensediscretionary spending.
And even if you cut all of thatspending tomorrow, um, so it's
(33:30):
you know close to a trilliondollars, let's just say you cut
all that spending tomorrow, um,it's less than a trillion, but
around there, even if you cutall that tomorrow, within four
years, all those other mandatoryprograms that have automatic
growth rates to them willsurpass all of that savings.
So the reality is if you everwant to get government spending
(33:51):
under control or even slow thegrowth rate of government
spending, which that in itselfmakes a huge difference, I think
you do need to start to go intosome of these mandatory
programs and figure out ways tomake them a lot more efficient,
get rid of the fraud and abuse.
And I think that's somethingthat the Department of
Government Efficiency uh haslooked into and could do.
But the issue is that you needCongress to sign off on the
(34:14):
majority of that.
And to get anything throughCongress these days just seems
uh uh like uh a big, big uphillbattle.
Uh the same thing kind ofhappened back in the 1980s, too,
with President Reagan.
He wanted to cut governmentspending as well, and so he put
together a commission.
It was called the GraceCommission because it was headed
by a guy named uh Peter Grace.
(34:35):
And Peter Grace was a bigfiscal conservative CEO of WR
Grace, and and he, for 18months, along with 160 other
business executives, gottogether and combed through
government spending.
And at the end of it, they theyput together an actual book.
It was called the GraceCommission Report.
They gave it to Congress andanybody else that wanted to look
through it, and they foundabout $425 billion that they
(35:00):
believed over the next threeyears, if if they cut that $423
billion, um, that by the year2000, our debt outstanding would
be about a trillion dollars.
And they said, if we don't dothis, though, by the year 2000,
we think debt's gonna be morearound $11 to $12 trillion.
And so Congress took all thisinformation and they said, oh my
(35:22):
goodness, this is unbelievablework.
I mean, you guys put your heartand soul into this, and and
what did they do?
Basically nothing, no cuts.
And so here we sit today, kindof in the same situation, but
about $38 trillion in debt,running $2 trillion deficits.
And uh, I don't I don't thinkCongress is going to act any
differently this time around,unfortunately.
Ryan (35:42):
You know, I I I suppose one of the optimistic takes that
could happen with with respectto uh kind of how to get out of
the large amounts of debt wouldbe to grow the economy.
I I mean that would be maybethe most um plausible way if you
were able to use things likeartificial intelligence or you
(36:04):
know technology to be able togrow the uh grow the economy.
Maybe that makes the share ofdebt a little bit smaller than
it might otherwise be.
Maybe that raises tax revenue.
Um maybe that's overlyoptimistic, but um I do want to
talk a little bit about AIbecause that's what everyone's
talking about.
Um so am I am I painting just apie in the sky picture?
(36:27):
Is AI uh does it have thecapability?
Does technology have thecapability of helping to grow
our way out of some of the debtproblems we have?
Strider (36:37):
I think it definitely will over time, but but I think
just to go back first to yourprevious point, uh I'd say the
issue uh is not so much the debtside of it that I'm concerned
about, it's why we continue toaccumulate all of this debt.
And it's because we're spendingso much more money than we're
bringing in.
And so many say, well, whydon't we just raise more
revenues?
(36:57):
Why don't we have the rich paytheir, you know, their fair
share?
Um but uh the reality is thatif you look back over time, it
doesn't matter what you've taxedpeople.
We've seen marginal rates inthe 90s, we've seen them in the
30s.
Revenues as a share of theeconomy, as a share of GDP, come
in right around 17.5%, all theway back to 1950.
(37:19):
Kind of bounces around, but ifyou went from zero to 100 on a
line, it looks just like a flatline at about 17.5%.
Now, the problem is that onaverage, since 1950, we've been
spending about 20% of GDP forgovernment.
And so that's why we alwayshave a deficit.
But the problem today, andreally if you look over the last
(37:41):
15 years, very rarely hasgovernment spending even gotten
close to 20% of GDP, not belowit, just even close to it.
Uh, it's been far, far, farabove that.
In fact, today it's stillsitting around 24% of GDP.
But you take a look at revenuestoday, revenues are sitting
right at 17.5%, or basicallywhere they need to be.
(38:03):
And so to me, the issues on thespending side, and as you said,
with AI and whatnot, maybe thatdoes cause us to grow faster in
the future.
And so let's say nominal growthright now, nominal growth,
let's just say it's between fiveand six percent.
If you can get governmentspending, you can still grow
government spending, but youjust need to grow spending
(38:25):
slower than the nominal GDP.
And that means that spending asa share of the economy will
start to come down.
And the problem is that for forreally the last 15 years or so,
very rarely have we hadgovernment spending uh growing
at a rate that was even close tohow fast the economy is
growing.
It's been growing well abovethat.
(38:46):
And that to me is the bigconcern.
But looking at AI in general, Imean, I think it will have
dramatic impacts on the economy,especially obviously from an
investment standpoint, um,already it's having an
incredibly meaningful impact onthe economy.
If you look just over the firsttwo quarters of this year at
(39:07):
GDP, at real GDP growth, um,business investment, but
specifically business investmentjust in equipment, uh equipment
and software has uh grown, uhhas added, contributed to real
GDP growth as much asconsumption has.
Now, what's unique about thatis consumption makes up 70% of
(39:29):
GDP in the calculation.
This subcomponent of equipmentand software spending uh
basically makes up 4%.
And yet it contributed theexact same to growth as
consumption did.
That's amazing to me and justshows you how much investment is
going into uh uh AI right now.
(39:50):
Uh I believe where we are inthe situation today with AI and
where we are in the markets uhreally can be summed up uh you
know pretty pretty clearly by aguy named Roy Amara.
And uh Roy Amara, he passedaway in 2007, but he was uh a
researcher, an unbelievablybright guy, a futurist, um, just
(40:14):
some some really interestinginformation.
But he coined this phrase, Ithink it was back in the 1970s,
where he said we tend tooverestimate the effect of tech
in the short run, butunderestimate it in the long
run.
And uh he calls it Amara's law.
And uh the reality is, I mean,this is back in the 70s that he
coined that, but I think we gothrough these stages and AI,
(40:36):
there's no doubt that AI isgoing to be, uh it already has
been, but I think in the future,just absolutely game-changing
for every single industry.
I think we will see massiveproductivity gains, but it's not
going to be tomorrow.
I think it's gonna take atleast five, 10, 15 years for
people to really uh be able torealize the gains from this.
(40:57):
So in the short run, just asAmara says, we tend to
overestimate the effects of newtechnologies.
And when I look at uh the stockmarket today, especially from a
market cap-driven perspective,it just seems like things have
gotten far too ahead ofthemselves by almost any metric
that you look at.
Uh, but I do believe the waythat we think is in a linear
(41:20):
fashion.
It's very hard for us tounderstand exponential growth
and in a big way, looking outespecially over the future.
And so that's why I thinkAmaro's also correct that we
tend to underestimate uh thefuture, how good technology will
be.
And with artificialintelligence, especially, uh, as
knowledge continues to build onitself like never before, I
(41:43):
think the future's justunbelievably bright.
Ryan (41:45):
I think that's a good way to look at it.
Um, you know, someday uh weneed to have some sort of a like
strider's law.
And what do you need to be aneconomist and get your own law?
Is that like do you make it upyourself and just put your name
on it?
Strider (41:57):
That's exactly you just you just make it you just make
it up yourself and call it afteryou and you hope it catches on.
Ryan (42:03):
Okay, so that's actually um that's that's uh one of the
things I was gonna ask you aboutum is you know what what's on
the one hand, what makes youwhat do you think are risks to
the economy that most people areoverlooking?
And then I want you to offsetthat with uh maybe what makes
(42:24):
you optimistic about theeconomy.
And you know, I think you kindof laid out a case right there
for uh for optimism.
Is there anything that you kindof think is under the radar
that people should be payingattention to that's a bit more
risky that maybe they're thatthey're ignoring at this point?
Strider (42:40):
Yeah, uh yeah, that's a that's a great question.
I mean, to me, the biggest riskstill is just the size of
government.
I I think something really doesneed to be done about just how
big governments become uhbecause it is unsustainable.
Um, maybe it's sustainable fora couple years, but it's really
not sustainable to continue tobe this size or bigger uh for
the foreseeable future.
(43:01):
And to me, that's the biggestconcern.
And I was hopeful that thisadministration was going to take
it in the opposite direction.
And we've seen a little bit ofprogress, so I do give them
credit, but uh it's just there'sa lot further that we need to
go uh in that direction.
The other thing I'd say islooking at interest rates in
general, I think a lot of peopleare shielded, as I said, uh
(43:21):
especially on the the middleincome scale where their biggest
asset is is uh um a home andthey have a mortgage and they're
locked in at this very lowinterest rate.
But I I I just am a littlestill concerned about the
commercial side of things,especially office buildings.
We all know that that's been ahuge issue, and many of those
(43:44):
loans are continuing to comedue, and they just they get
kicked down, the can just keepsgetting kicked down the road.
But the reality is that theycan't refinance these because
they're worth 30 to 50 percentless than when they were
purchased, and they haveoccupancy rates that aren't even
close to where they were uhpre-COVID.
And so that falls specificallyon uh small and medium-sized
(44:08):
banks in a big way.
Um, they own the majority ofcommercial lending.
And so uh to me, that'ssomething that I just think is
worth continuing to keep an eyeon.
I know people believe that ifthe Fed continues to cut, that
means that interest rates arecoming down, which uh is true.
But again, we just don't knowif the Fed is going to continue
(44:29):
to cut in a meaningful fashionuh when they believe that we're
getting close to neutral here atsome point.
Ryan (44:36):
I I try to end the podcast episodes with a same question,
especially for someone who'sjoining me for the first time,
um, and that is is thereanything that you've read
recently?
Um I'm looking mainly for bookrecommendations.
And you know, if you want togive me an economics book
recommendation, that's fine.
But really, you know, I'mtrying to figure out what else
(44:58):
are you reading?
Is there anything that you'veread recently or that's on your
reading list that you wouldrecommend uh viewers and
listeners of the ROI podcast tocheck out?
Strider (45:08):
Yeah, I'd say, let's see here.
I think the first one that I'mI'm still reading it right now,
but it's called Chip War.
And it's it's written by a guynamed Chris Miller, and uh it's
it's all about semiconductorsand really the whole history of
semis.
It's a very, very fascinatingbook.
It's not dense, it's it's areal easy read, and it's um it's
(45:31):
very entertaining and justamazing to see how things have
gone through progression, whereit started, everything.
So I would definitely recommendthat book.
I think it's been a fun read.
And again, I'm not all the waythrough it, but so far, so good.
Um, the other one I'd say thatI'd recommend that I finished a
little while ago was a book thatwas called um, it's called the
(45:52):
The Anxious Generation.
And that was written by a guynamed Jonathan Haidt.
And uh The Anxious Generationum is really a data-driven book
about um, you know, I have fourkids, as you have four kids, my
kids are nine and under.
And it's really about socialmedia and smartphones and how um
(46:14):
really when those came onboard, and I'm I mean, I, you
know, I am, I think thesmartphone is one of the most
amazing pieces of technologythat's ever been created because
it allows us to consumeinformation like never before.
But at the same time, there'sbeen a lot of negatives that
have come about too, especiallyfor the younger generation with
(46:36):
depression and anxiety and andall these other um issues that
have really been driven from thesmoke from the phone.
And and the the lack ofresearch that's been done in a
big way on this is kind of mindblowing.
But he's been able to compileeverything that's out there.
And and the what he's found isthat yes, phones have a massive
(46:59):
impact on your child's abilityto function and even to their
minds to be able to grow.
And so I think I couldn'trecommend it enough for for
really anybody to read because Ithink it's pretty eye-opening.
I know it was extremelyeye-opening for me, something I
was already concerned about.
I'm even more concerned about.
But I what I love about it ishe gives really concrete steps
(47:22):
too that if this is somethingthat worries you, how you can go
about uh trying to fix this inyour family or your child's life
uh to help make them a bettercitizen as time goes on.
Ryan (47:33):
I think that's a really uh great recommendation.
That's one that that uh I haveread as well.
And um yeah, there's there's alot of great advice, not not
least of which is let your kidsbe kids and let them play.
And you know, he he recommendsthe concept of free-range kids
where you don't have to be ahelicopter parent all the time.
(47:53):
Um, and and I think uh you knowthere's some there's some truth
to that as well.
I certainly remember when I wasa kid, we just head out, and I
think everyone who's about myage, the the parents got
together and said, Okay, justtell the kids to be home when
the street lights come on.
Strider (48:09):
Yeah, exactly, exactly, right?
I missed that.
And it's a great book.
Ryan (48:13):
Really good book.
All right, well, great.
Uh appreciate thatrecommendation, Strider.
Thanks for coming on thepodcast.
Hopefully, next time we can dothis in person, but uh do
appreciate you joining us.
Strider (48:24):
It was such a pleasure to be with you, Ryan.
Hope we can do this again soon.
Ryan (48:28):
And thanks to all of you as well for joining us on this
episode of the First Trust ROIpodcast.
We'll see you next time.
Well, here we are as we approach the end of 2025.
Thanksgiving's right around thecorner, and the economy uh
seems like maybe it'soutperformed compared to what
some of our expectations werecoming into this year.
The stock market has had somenew volatility that's been
introduced.
We've got tariff policies thathave caused tremendous amounts
(00:33):
of volatility in the market, andin some of the economic data,
we're looking at governmentshutdowns that were just
recently relaxed.
People are focused onartificial intelligence.
There's a lot going on rightnow.
In today's episode of the FirstTrust ROI Podcast, I'm joined
by senior economist Strider Lasto help me make sense of some of
(00:55):
what's happening, especiallywith respect to the U.S.
economy.
Thanks for joining us on thisepisode of the First Trust ROI
Podcast.
So, Strider, this is, I think,the official first time that
we've done the podcastvirtually.
And I'm not sure how I feelabout it, to be honest.
(01:15):
I I really enjoy a face-to-faceconversation, so we will
definitely have you on againwhere we can do this
face-to-face.
Um, but at the same time, youknow, you're on the West Coast,
I'm on the East Coast.
Um in this particular instance,I was just glad to get you uh
on the podcast.
So um forgive me for uh forcingthis to be virtual, but uh
(01:37):
we'll do it in person next time.
Strider (01:41):
Oh, I'm so glad it worked out.
It's great to be with you.
I I would rather be with you inperson too.
It's always fun.
But uh virtual, we'll do it.
Ryan (01:48):
We're recording this right before Thanksgiving.
Um we've all got a lot to bethankful for.
Um and we're also recording atpost NVIDIA earnings, which um,
you know, it seems like JensenWang has a lot to be thankful
for as well, um, although we'vewe've had a lot of volatility.
So I want to talk about a lotof the things that are happening
around the world, including AI.
(02:10):
Um, but one of the things thatjust ended as we're recording
this, maybe within the lastweek, was the government
shutdown.
And uh I've been wonderingabout this from an economist
standpoint.
Um how is this just one ofthose narratives that everyone
thinks is bigger than it is?
I know your your data flow isless because of um the
(02:34):
government shutdown, but youknow, how how does that impact
your ability as an economist tounderstand what's going on in
the economy?
Does it have a big impact or asmall impact?
Um, maybe you could talk aboutthat for a moment.
Strider (02:48):
Sure.
Yeah, I mean, with with thegovernment shutdown, a lot of
obviously the government datastopped.
The Fed was still providingsome data, and then there's a
lot of other private industriesthat provide data as well.
So you can still get a generalidea of where the economy is
heading, where things are going.
I would say if the governmentshutdown lasted six months or a
(03:09):
year and we weren't getting anyof that data, which everybody
was so used to getting for uhyears and years and years and
years and years, uh that wouldstart to put a wrench in things
in a big way.
But uh it made things a littlebit more interesting, uh, to say
the least.
But you can get a general ideaof where things are, and and now
since the government'sreopened, we are starting to get
(03:31):
some reports that weren'treleased that have just been
released uh late, and some justwon't even get released ever,
uh, which is is kind ofinteresting in itself.
But in terms of where theeconomy is today relative to
where it was before thegovernment shutdown, I don't
think things look really toodifferent from the data that we
continue to get through thegovernment shutdown and even
(03:51):
some of the data that's come insince.
Ryan (03:53):
Yeah, it seems like the one thing that people were
mainly um talking about anywaywas you know, the what the Fed
was gonna do without all thisinformation that they were, you
know, they're missing out on.
And I think that even snuckinto um some of the market
pricing for what uh Feds waswhat the Fed was gonna do with
with respect to rate cutsthroughout this year.
(04:15):
Um it seems like there has beenuh well, maybe a full cut taken
out of what might happenbetween now and the end of next
year.
Um do you have a sense of wherethe Fed is going?
Um are we still in a cuttingcycle?
And and do you think it islikely that the Fed is gonna
(04:36):
turn more hawkish or will theybe as dovish as the market has
priced in?
Strider (04:40):
Yeah, I I still believe we're in a rate cutting cycle
for sure.
Now the question is, will theFed cut in December or not?
Uh I'm starting to lean moretowards they're not.
The market as well isdefinitely leaning towards their
they're no longer going to cutin December, which is a dramatic
change from just where thingswere uh a week or two ago.
And I think it does make it alittle bit harder.
(05:02):
I mean, when when ChairmanPowell spoke at that last press
conference, he he made it clearthat the room was pretty much
split between whether it was agood idea to cut or not in
December.
And with the governmentshutdown, I think the stream of
data, as we just talked about,was less.
And so we're not getting a lotof the inflation reports that
(05:22):
they're used to seeing, andwe're not getting the employment
reports like we were.
Um, and so they're gonna haveless data available to them for
that December meeting.
And if I think if they do wantto punt and uh push it into next
year, they they have enougharsenal uh to be able to do that
to say that, hey, we just areare data dependent and we don't
(05:44):
have enough data, or we haven'tbeen able to see enough that
makes us feel comfortable thatwe need to cut.
Uh I generally think theyshould continue to be cutting
here.
I think on the employment side,especially, things are
continuing to weaken.
And yes, inflation's hoveringaround 3% and is ticked back up
a little bit, but uh I don'tbelieve that's going to last.
(06:05):
I think we will continue tomove closer towards 2% in the
coming year.
Ryan (06:09):
You know, let's let's stay on that uh the employment and
the strength of the U.S.
consumer for a minute.
Um, you know, that's somethingthat um for those that that
don't know you, you're you'rethe author of the Three on
Thursday report that uh hasbecome very, very popular at
First Trust, where you takesnapshots of three different
(06:30):
data points and you kind of putthem together and and talk about
the narrative that thatunderlies that.
Um and one of the recent onesyou guys did was um looking at
household debt and credit.
Um and you know, I was lookingat that report, and it just
seems like we are at an all-timehigh in the level of debt, but
you know, then again, it usuallykind of climbs up and to the
(06:51):
right.
That's that's tends to be thepattern uh over many, many
years.
Um and I guess you know, we'rewe're talking about interest
rates.
Is there a concern that youknow rates are gonna be too high
for all those uh consumers thathave a lot of debt?
Um, or is that something thatis maybe overblown?
Strider (07:10):
Yeah, so uh the three on Thursday is really fun to put
together.
It's a lot of just interestinginformation.
And if anybody ever has ideasand they want to forward them
along, I'm always happy to lookat anything that's out there.
Uh, but in in terms of thatspecific report, it is true
household debts sitting atrecord or pretty much close to
record highs.
And I think every year peopleuse this as almost a crutch to
(07:33):
say the economy's not in goodshape.
Look at households, because in2007-2008, I mean, we had a
financial crisis and theconsumer was over-levered.
But what I'd say is sodifferent this time around is
really if you look at householddebt, you take it back a hundred
years, almost every year thatmeasure is sitting at record
highs.
So just knowing the level ofhousehold debt doesn't really
(07:53):
tell us too much.
The only times it's reallydeclining is is during
recessions or pretty much flat,and then it starts to move
higher again after in therecovery.
But uh so you need to compareit to something else.
And usually when households aretaking out debt, they're taking
out debt to purchase assets.
And when you look at householddebt relative to assets, it was
very true from 2000, really toabout 2009, household debt
(08:17):
relative to assets was growingpretty rapidly, but it peaked
around 2009, and since then uhit's actually plummeted.
So household debt as a share ofassets is actually sitting at
some of the lowest shares thatwe have seen uh since the 1960s.
So, although uh debt's atrecord highs, assets have grown
so much faster than overallhousehold debt.
(08:38):
And to me, that's a key point.
But number two, when whatyou're talking about with
interest rates, I think is veryimportant today because interest
rates have gone up a lot.
But when you actually zoom intowhat household debt's actually
made up of, about 70% ofhousehold debt is just in
mortgages.
And so in 2006, 2007, that wasa huge issue because about 40%
(09:01):
of those mortgages outstandingwere adjustable rates back then.
And so people got into a lot oftrouble, inventory skyrocketed,
demand fell off a cliff, we hadthe housing collapse.
But when you look at wherethings are today, with 70% of
household debt and mortgages, ofthose mortgages outstanding,
only about 4.8% of thosemortgages are adjustable rate
(09:23):
mortgages.
95.2% are fixed.
And where it's even moreinteresting is well, what are
they actually fixed at?
And we have uh about 27% ofmortgages outstanding today that
are fixed at less than 3% oneither a 15-year or a 30-year.
We have another about 31% thatare fixed between 3 and 4%.
(09:46):
So we have more than 50% ofmortgages outstanding that are
actually fixed at less than 4%.
I look at that as a huge, hugebenefit uh to households.
And uh, by far the biggest debtthat most households have is
that mortgage.
And the fact that the averageinterest rate outstanding on
that debt across all mortgagesis 4.3% is amazing to me.
(10:11):
And it's something that um Ithink is a massive benefit to
households here.
Ryan (10:15):
Yeah, and that's also probably the reason why there's
some weird dynamics that havehappened with the housing market
because nobody wants torefinance that really
advantageous mortgage rate andwhen they have to buy a new home
and pay six, seven percent.
And so that has uh an impact onthe level of supply that's
hitting the market, right?
Strider (10:35):
Oh, definitely, yeah, definitely.
I think a lot of people havekind of scratched their heads
over the last couple of yearsand and thought, well, demand's
falling off a cliff.
Why aren't home why aren't homeprices nationwide just
collapsing?
And I think a lot of people arestill worried that that's to
come.
And home prices nationwide arepretty much flat.
They're up maybe percent, uh,maybe percent and a half year
(10:57):
over year.
So nothing really to write homeabout, but they're not
collapsing.
And I think moving forward overthe next couple of years, they
they won't collapse either.
Because, yes, although demand'svery, very low, as you just
said, supply is very, very low.
People aren't willing to puttheir homes on the market to buy
an equivalent priced home whereall of a sudden they might be
paying double or triple thatmortgage payment that they're
(11:18):
originally paying.
It just does not make sense.
And so uh, no matter if peopleare happy with their current
home or not, what they are veryhappy with is the unbelievably
low interest rates that maybemight be once-in-a-lifetime type
of a deal that they have inplace that they're not willing
to give up whatsoever.
Ryan (11:35):
There's another interesting chart on that same
report where you looked atdelinquency rates, um,
especially the one that I foundreally interesting was uh
delinquency rates for studentloan debt.
And um, you know, that's that'sanother weird dynamic because
we went through COVID where thegovernment essentially paused
people's uh payments.
(11:56):
They said you don't have tomake payments on your student
loan debt, so there were nodelinquencies, and then more
recently the chart shows that itsurged.
So, what do you think's what'sbehind that?
What's going on there?
Strider (12:07):
Yeah, I I think really what happened was during COVID,
especially when it wascompletely paused, and people
thought maybe we'll get theseactually um forgiven by the
government that they weren'tpaying them, and they weren't
paying them for a couple ofyears, and then they're supposed
to start paying them, and thegovernment said, Well, we're
gonna give you another year ofleniency where you're not gonna
(12:30):
technically be in default, butuh we'd like it if you start
paying us.
But if you don't, it's not abig deal.
And people decided to still notpay those back.
And I think what's happened ispeople, especially with all the
inflation that we've seen,people just got very comfortable
not making those paymentsanymore and in fact started to
spend that money that they'd beputting away to make those
(12:52):
payments.
And so when eventually thiscame due, uh, all of a sudden
what we saw was a massive spikein defaults.
And in fact, if you look atthose loans that are uh 90 days
plus delinquent, um, they'veskyrocketed to about 14%, which
is the highest that we've seenuh really going back in history
(13:13):
for student loans to at least2,000.
Um but what's interesting isyou can break it out by, excuse
me, you can break it out by ageas well.
And it's really those that are50 years and older um that are
really struggling withdelinquencies right now, that
are uh 90 days plus delinquent.
And and that uh level is almostaround 20% of loans outstanding
(13:37):
that are delinquent 90 daysplus right now.
Ryan (13:40):
So 50 years and older, that means that I mean maybe all
those people didn't graduatewhen they were 22 or something
like that, and maybe there'ssome grad school debt and some
you know doctoral work orsomething like that.
But if you were if you're justtalking about undergrad debt, if
you're over fifty, you've hadthat debt outstanding for 30
years?
Is is there a big chunk ofpeople that are 50 plus that
(14:02):
still have college loans?
Strider (14:04):
I I I assume I guess so.
I uh you know, I haven't Ihaven't dug through the exact
numbers of them, and I'm notsure if we can actually get that
number from the Fed.
But uh yeah, I mean it's it'spretty uh eye-opening, I think,
that it's that category ofeverybody uh that's the most
delinquent right now.
Ryan (14:26):
Okay, so um I wanna I want to pivot a little bit towards
um one of the things that hasbeen talked about all year, and
that is tariffs.
Um we we've you know had a lotof discussions on the podcast
about tariffs, on the newscycle.
Tariffs have you know come andgone and come and gone and come
and gone.
(14:46):
Um as the discussion on tariffshas evolved this year.
It seems to me that the Trumpadministration seems like it's
become more and more kind of allin.
Like they've pushed the chipsin.
You know, early on it seemedlike the the rationale for
tariffs was that uh we weregonna equalize the playing field
with trading partners.
And you know, my my optimistictake was maybe that this would
(15:09):
be a tool that could be used toyou know put tariffs on, so
everyone says, okay, we're gonnaeliminate tariffs.
But you know, the rhetoricdoesn't seem to favor my
optimistic view.
Um maybe I'm wrong on that, butI'm curious what your take is.
You know, what's the ultimategoal here?
Um, and and you know, what'sthe impact been and in any any,
(15:30):
I don't know, what's youroutlook going forward?
Strider (15:32):
Yeah, you know, I think the thing that Trump and I have
most in common more thananything else is that we both
just don't know what he's gonnado tomorrow.
So I I wish I knew what theultimate outcome was going to
be, uh, but I don't.
Uh but but uh I will give youkind of my my thoughts on where
things are.
Uh I completely agree with youin the sense that I believe too
(15:55):
when he came into office thistime around that he was going to
use the same kind of tacticsthat he used when he was
president the first time around.
And really those tactics werelook, you look at all of our
biggest trading partners, everysingle one of you charges higher
tariffs on goods coming intoyour country on average than we
do on goods coming into ourcountry.
So either you lower yourtariffs to get more in line with
(16:17):
us, or we're gonna raise ourtariffs to get more in line with
you.
And that's the rhetoric that heused when he was president the
first time around.
And um, you know, what he didraising tariffs the first time
around, I don't I don't agreewith higher tariffs.
But did it work?
Yeah, you look at all of ourmajor trading partners, and
every single one of them haslower tariffs on average in
(16:39):
place today than where they wereuh when uh President Trump
became president in 2016.
And so when you think about itfrom that uh point of view, I
would say, okay, he was going todo the exact same thing this
time around.
And if he didn't put thatpressure on, tariffs would have
been higher across the world forsure.
So we come into this presidencyand it seems like that's what
(17:02):
he's doing.
Uh, but I think pretty quickly,once he started to raise
tariffs, he realized, wow, thiscan actually be quite a big
revenue, a revenue generator forthe United States.
And um and I think the way helooks at it is, hey, or the way
it's portrayed to the public islook, it's it's not U.S.
companies, it's not U.S.
(17:23):
citizens that are going to bepaying these tariffs, it's the
countries.
China's paying this tariff, oruh Taiwan's paying this tariff,
or Italy, whatever country itis, they're the ones who are
paying the tariff.
But the reality is, no, itfalls majorly majority of it
falls on uh the US uh companiesor U.S.
consumers that it's passed onthrough the companies.
(17:45):
And and just to give you anidea of where things are today
and why this has been such agood revenue generator, is if
you look at our effective tariffrate in 2024, it was 2.3%.
So that means, and that'sacross all countries.
So that means if you importedsomething on average for a
dollar, you paid a dollar andtwo to get that into the United
(18:06):
States.
Well, today that effectivetariff rate's moved up to 9.8%.
So instead of a dollar two toget it into the United States,
you now have to pay $1.10.
But across all of our tradingpartners, it looks very
different.
So for instance, you're lookingat China, which we know is a
big importer.
They're now the third biggestimporter into the United States.
(18:27):
They they used to be number oneand then they moved down to
two, and now they're down tothree.
And a big reason is because ofhow large the tariffs are in the
United States that are beingput on Chinese goods.
Last year in 2024, it was 11%.
So a dollar's worth of goodsthat was purchased would cost
$1.11 to get into the UnitedStates.
(18:48):
Well, now it's up to 40%.
So that's gone from $1.11 to$1.40, and that's across all
goods from China.
So that's an effect, that's theactual effective tariff rate
that we're seeing on goodscoming in.
I mean, that that is that'shigh.
Now, companies, some companieshave been able to absorb that.
(19:08):
Other companies are passing iton.
Uh, but I think the biggerissue, and that's not talked
about near enough, is really thethe uncertainty around the
tariffs.
I've got four kids, as I knowyou.
Do you have four or five?
I can't remember.
Four, yeah.
We both have four kids, sowe're doing our part, right?
We're we're contributing tosociety.
(19:29):
Four kids is a lot.
Um, but my two oldest, I have anine-year-old and a
seven-year-old, they love toplay the game Candyland.
And uh every weekend we pullout the Candyland board.
If you don't remember, prettysimple little board like this.
All you do is you flip over acard.
It either has one color on it,it's got two colors on it, or
it's got a character, and youjust do whatever the card tells
(19:49):
you to do.
Well, my oldest, uh, she isvery rules-oriented.
She would never cheat or breakthe rules.
Um, you know, even if she'slosing, doesn't matter.
My second oldest, um, now she'sshe likes to, if she's not
winning, she figures out a wayto win.
And uh, you know, so the rulesstart to change pretty quickly.
She might turn over a card, shedoesn't like it, she'll turn
(20:12):
over another one.
We say, hey, you can't do that.
Well, she just keeps doing it.
And anyway, the game gets sofrustrating that we quit almost
every time.
If she's losing, uh, we justquit because she changes the
rules all the time.
It's no fun.
Anyway, somehow we keep playingthat game every single week.
But the point of that is thatif the rules are constantly
changing, you just can't playthe game.
(20:33):
And it doesn't matter if therules are good or bad.
I mean, you obviously want goodrules, not bad rules, but as
long as the rules are consistentand people are able to play by
those rules, then you can playthe game.
And the way that I look at theeconomy today, especially for
small and medium-sizedbusinesses, is that they're not
looking for the next month forproduction.
They're looking out three, six,nine months out right now for
(20:56):
what they need to be bringinginto the United States.
And they don't have theluxuries like a lot of larger
companies where they can switchmanufacturing to different
countries, so on and so forth.
And so if they don't knowwhether the tariffs from China,
let's just say, are going to be40% three months from now, or if
they're gonna be 80%, or ifthey're gonna be 20%, or 150%,
(21:18):
and they're trying to makedecisions three, six months out
today because it takes monthsfor that stuff to be produced
and then another month for it tobe shipped over on the sea, it
makes it very hard to be able torun a business.
And so I think no matter whathappens with the tariffs, uh,
are they are they hurting theeconomy?
I'd say, yeah, they are hurtingthe economy.
(21:39):
Isn't enough to take us intorecession?
No.
But I think what's hurting theeconomy more is really the
uncertainty around the tariffs.
And so what I hope is that atsome point here, hopefully in
the near future, we just getcertainty on where these tariff
rates are going to stay andwhere they're gonna be for the
foreseeable future.
Ryan (21:57):
Does that need to be this may be a question for Bob Stein,
uh, but but is that uhsomething that has to be passed
into legislation for it to bemore permanent?
Or is this because it seemslike you know, some some of the
ways that tariffs have been umhave been introduced and put on
to trading partners, you know,it's kind of executive order,
(22:18):
but that doesn't tend to bepermanent.
That tends to be, you know, thenext guy could come and take it
away, and maybe the courts willtake it away.
Um but it it does seem that theTrump administration wants to
make a lot of these tariffs andthe policies to be to be
permanent, right?
Strider (22:33):
And that that actually would be a great question for
for Bob.
I I don't I don't know whetheror not they can be permanent,
permanent, uh, but I think theycould be at least permanent for
the next couple of years underunder President Trump.
And that alone I think would behelpful to just have some
certainty.
Right now it's day-to-day,right?
Like think about just a coupleweeks ago where the president
(22:54):
was threatening on putting anextra 100% on on uh China uh in
terms of already the oneroustariffs that are there.
Um so that that's what'sconcerning to me.
But I I do I do believe that alot of these tariffs that are in
place that have been put inplace for national security
purposes by the president thatreally have no reason, there's
(23:14):
no national security threat,will be removed.
I think the Supreme Court willuh vote just like every other
court has voted so far so far,that they're just not
constitutional.
But with that, I mean, theTrump administration is is very,
very smart.
They've had lots of time toprepare for this, and so they
already have other ways toimplement tariffs in the wing.
(23:35):
So although we might see alittle bit of tariff relief, I
think it's still gonna be um alot higher than what most people
expect.
Ryan (23:42):
I think uh maybe the the tool to win public sentiment is
what uh the president uhintroduced maybe last week or
the week before, the the conceptof paying everyone two thousand
dollars in revenue that is umis said to have come from tariff
revenue.
And you know, two thousanddollars, I don't know how many
(24:04):
uh how many taxpayers thatactually would impact, but that
that's a substantial amount ofof money that you're that you're
handing out.
Strider (24:14):
Yeah, it I mean it is.
And uh the reality is itwouldn't go to every taxpayer,
that's for sure.
But but uh I mean if if youlook at how much has been
brought in so far in revenuesfor this year uh through customs
duties, it's it's about $240billion.
We're probably gonna be closeto when all said and done for
the year, around $300 billion incustoms duties for 2025.
(24:38):
That's up from about $100billion in 2024.
And if the tariffs, the waythey are, stay in place, you
could bring in about $350billion a year uh in customs
duties.
But the reality is who's payingthose customs duties?
And at the end of the day, uhit is the American citizen or
the American company that'sreally paying those taxes.
Ryan (25:01):
One of the um one of the objectives, I think, of of
tariffs, at least one of thestated objectives, and it
becomes more difficult becauseof the sort of transitory nature
of some of these tariffs, aswe've been discussing, but is to
bring manufacturing onshore, toincentivize semiconductor fabs
to be built in the U.S.
(25:21):
You know, the the Bidenadministration also wanted the
same thing, but their tool waswe're gonna introduce these
spending plans like the CHIPSAct, and that's how we're gonna
incentivize building thesesemiconductor fabs.
Trump says we don't want to dothat.
Uh we want to do it throughtariffs, and so it's just a
different set of incentives.
But either way, it seems likethere's a lot of semiconductor
(25:43):
plants that are either in theearly planning stages or you
know, well underway in terms ofconstruction.
Um, is that something that youthink is going to continue for
the next several years or isthis a shorter-term phenomenon?
Strider (25:57):
No, I I I think it's gonna be going on for quite some
time.
I do believe we're gonnacontinue to see more and more
manufacturing coming back to theUnited States, but it's really
going to be more kind ofsemiconductors, those type of
things, high-tech manufacturingthat will be in the United
States.
It makes no sense to bring umyou know textile manufacturing
(26:18):
back to the United States,shoes, clothing.
Those are very labor intensive.
And it it you just it doesn'tmake sense.
And so most of the factoriesthat will be built will be very
high-tech factories that are runby very few people, but mostly
robots, robotics, and and othermachinery that is very, very
high-tech.
(26:38):
And to give you an idea,though, in the United States,
well, first off, the UnitedStates is still the world's
second largest manufacturer, uh,which I think a lot of people
forget.
And it goes China, which theysurpassed us, I think it was
back in 2013, as becoming theworld's largest manufacturer,
and then it's the United States.
And then there's a massive dropbefore you get to number three
for manufacturing.
(26:59):
Um, but when you lookspecifically at semiconductors,
I think another thing that'sthat's pretty interesting too is
that in the United Statestoday, we have 95 semiconductor
fabrication plants currently.
And the only country that hasmore semi-plants than us is
Japan.
Japan has 103 of them.
(27:19):
And the difference though inthe United States is so many of
our uh fab plants are basicallybuilt uh for research and
development.
We're the ones who are reallycreating uh the way that chips
need to be manufactured andbuilt.
And so you look at a you lookat a country like Taiwan, why
it's so important, althoughTaiwan only has 80 fab plants,
(27:42):
they're all built for uh highmanufacturing capacity uh of
chips and wafers.
And so uh Taiwan itself and whyit's so important to the world
is 68% of all semiconductoroutput goes through Taiwan,
comes out of Taiwan.
That is a national securityissue.
And so for that reason alone, Ithink we will continue to see
(28:05):
more and more semiconductors uhplants, especially being built
in the United States.
And the CHIPS Act did have ameaningful impact on that.
I think about $53 billion worthof the CHIPS Act went directly
to these new semi-plants thatare being built.
Um, but it wasn't just that.
There's been another $600billion since 2020 that's gone
(28:30):
into uh manufacturing ofsemiconductor plants, uh, which
is a massive amount ofinvestment.
And currently there's about 22plants that are either under
construction in the UnitedStates or being planned.
So I still think we're in theearly stages of this, and this
is something that's going tocontinue for whether there's
subsidies for it or not.
(28:50):
I think it's something that isin high demand and that's not
going to go away anytime soon.
Ryan (28:54):
It has been interesting because, you know, my hometown
of Syracuse, New York, uh,Micron announced, I believe it
was in 2022, that they weregoing to spend somewhere around
$100 billion to build four chipfabs between maybe now and 2030,
no, 2040, I think.
Um, anyways, so here we arethree years later, and they have
(29:17):
yet to break ground.
And some of that has to do withenvironmental regulation, some
of it has to do with themigratory pattern of an
endangered species of bats thatare, you know, there's like 20
million acres of uh habitableland for bats in in New York
State, but they're reallyfocused on the you know 500
(29:37):
acres that Micron would have toclear.
Um regardless, um they haven'tbroken ground yet, but it seems
like it's a multi-year processonce once they do.
I just wonder, you know, itseems like you've got to make
the regulatory efficiencybetter.
And and you know, I know theTrump administration has only
(29:59):
been in office.
For less than a year now.
But you would think that thatwould be really on on high on
their list of priorities.
I know they've focused on uhcurtailing regulations in a lot
of ways, but but it it seemslike with some of these really
um well these these buildingprojects that have national
security implications thatthey'd really want to make ways
(30:21):
for that to move along morequickly.
Strider (30:24):
Yeah, I don't disagree.
And I think regulation, cuttingregulation is is one of uh the
administration's biggest goalsover the four years.
And I think they've alreadydone a fair amount of of cutting
red tape, but there is a lot ofred tape that that needs to be
cut.
I mean we're we're across theboard, anything to do with
construction in in any state, itseems like, uh, is very slow
(30:48):
because of all the red tapethat's involved.
And and I think, yes, obviouslysome of that is needed because
we want safety regulations andwhatnot, but but a lot of it I
think could be fixed and andjust done away with.
Ryan (31:02):
Um that that brings to mind Doge.
Um remember Doge?
It seems like uh that was a bigpriority for a while, but I
haven't heard much about Dogelately.
The Department of Governmentefficiency, you know, the Trump
administration was gonna comein, they were gonna um make some
cuts to programs and makethings more efficient.
(31:22):
And um and it's really toughto.
I mean, you heard a lot ofthings that were being cut, but
I think the normal person everyday doesn't really see it unless
you're living in Virginia ormaybe around DC.
Um, do you have any sense onwhere Doge is today?
Strider (31:39):
Yeah, you know, I was I was so excited when the
president was elected for thebiggest reason that I really
thought that we were going tosee some pretty sizable changes
to the size of government.
And uh the Department ofGovernment's efficiency got put
in place and Elon Musk wasrunning it, and we know anything
(32:00):
that Elon Musk touches, uh he'sable to accomplish uh even the
impossible.
I mean, everything he's done,he's taken that which is
impossible and he's made it areality.
And uh so I thought, you know,government trying to shrink the
size of government, that's animpossibility.
But we have Elon Musk, andmaybe he's gonna be able to do
(32:22):
it.
Well, it turns out that evenfor Elon Musk, I guess it was
just too big of a task.
And uh when you look at what'sreally going on with the
Department of GovernmentEfficiency, what they're
actually able to cut on theirown without Congress, it's just
really not that significant.
Any cuts to government aregreat.
And I think they've done, youknow, they've they've been
(32:45):
making some cuts.
But the reality is thatmajority of government spending
is really mandatory spending uhthat goes out to individuals,
it's transfer payments toindividuals.
And when you look at SocialSecurity, Medicare, Medicaid,
um, you look at other mandatoryspending, really about 87% of
(33:07):
government spending, you couldtechnically say it's not really
mandatory, but you couldtechnically almost put it in to
the mandatory category if youinclude defense spending in
there and you include netinterest payments as well.
And so that really only leavesabout 13%.
That's non uh non-defensediscretionary spending.
And even if you cut all of thatspending tomorrow, um, so it's
(33:30):
you know close to a trilliondollars, let's just say you cut
all that spending tomorrow, um,it's less than a trillion, but
around there, even if you cutall that tomorrow, within four
years, all those other mandatoryprograms that have automatic
growth rates to them willsurpass all of that savings.
So the reality is if you everwant to get government spending
(33:51):
under control or even slow thegrowth rate of government
spending, which that in itselfmakes a huge difference, I think
you do need to start to go intosome of these mandatory
programs and figure out ways tomake them a lot more efficient,
get rid of the fraud and abuse.
And I think that's somethingthat the Department of
Government Efficiency uh haslooked into and could do.
But the issue is that you needCongress to sign off on the
(34:14):
majority of that.
And to get anything throughCongress these days just seems
uh uh like uh a big, big uphillbattle.
Uh the same thing kind ofhappened back in the 1980s, too,
with President Reagan.
He wanted to cut governmentspending as well, and so he put
together a commission.
It was called the GraceCommission because it was headed
by a guy named uh Peter Grace.
(34:35):
And Peter Grace was a bigfiscal conservative CEO of WR
Grace, and and he, for 18months, along with 160 other
business executives, gottogether and combed through
government spending.
And at the end of it, they theyput together an actual book.
It was called the GraceCommission Report.
They gave it to Congress andanybody else that wanted to look
through it, and they foundabout $425 billion that they
(35:00):
believed over the next threeyears, if if they cut that $423
billion, um, that by the year2000, our debt outstanding would
be about a trillion dollars.
And they said, if we don't dothis, though, by the year 2000,
we think debt's gonna be morearound $11 to $12 trillion.
And so Congress took all thisinformation and they said, oh my
(35:22):
goodness, this is unbelievablework.
I mean, you guys put your heartand soul into this, and and
what did they do?
Basically nothing, no cuts.
And so here we sit today, kindof in the same situation, but
about $38 trillion in debt,running $2 trillion deficits.
And uh, I don't I don't thinkCongress is going to act any
differently this time around,unfortunately.
Ryan (35:42):
You know, I I I suppose one of the optimistic takes that
could happen with with respectto uh kind of how to get out of
the large amounts of debt wouldbe to grow the economy.
I I mean that would be maybethe most um plausible way if you
were able to use things likeartificial intelligence or you
(36:04):
know technology to be able togrow the uh grow the economy.
Maybe that makes the share ofdebt a little bit smaller than
it might otherwise be.
Maybe that raises tax revenue.
Um maybe that's overlyoptimistic, but um I do want to
talk a little bit about AIbecause that's what everyone's
talking about.
Um so am I am I painting just apie in the sky picture?
(36:27):
Is AI uh does it have thecapability?
Does technology have thecapability of helping to grow
our way out of some of the debtproblems we have?
Strider (36:37):
I think it definitely will over time, but but I think
just to go back first to yourprevious point, uh I'd say the
issue uh is not so much the debtside of it that I'm concerned
about, it's why we continue toaccumulate all of this debt.
And it's because we're spendingso much more money than we're
bringing in.
And so many say, well, whydon't we just raise more
revenues?
(36:57):
Why don't we have the rich paytheir, you know, their fair
share?
Um but uh the reality is thatif you look back over time, it
doesn't matter what you've taxedpeople.
We've seen marginal rates inthe 90s, we've seen them in the
30s.
Revenues as a share of theeconomy, as a share of GDP, come
in right around 17.5%, all theway back to 1950.
(37:19):
Kind of bounces around, but ifyou went from zero to 100 on a
line, it looks just like a flatline at about 17.5%.
Now, the problem is that onaverage, since 1950, we've been
spending about 20% of GDP forgovernment.
And so that's why we alwayshave a deficit.
But the problem today, andreally if you look over the last
(37:41):
15 years, very rarely hasgovernment spending even gotten
close to 20% of GDP, not belowit, just even close to it.
Uh, it's been far, far, farabove that.
In fact, today it's stillsitting around 24% of GDP.
But you take a look at revenuestoday, revenues are sitting
right at 17.5%, or basicallywhere they need to be.
(38:03):
And so to me, the issues on thespending side, and as you said,
with AI and whatnot, maybe thatdoes cause us to grow faster in
the future.
And so let's say nominal growthright now, nominal growth,
let's just say it's between fiveand six percent.
If you can get governmentspending, you can still grow
government spending, but youjust need to grow spending
(38:25):
slower than the nominal GDP.
And that means that spending asa share of the economy will
start to come down.
And the problem is that for forreally the last 15 years or so,
very rarely have we hadgovernment spending uh growing
at a rate that was even close tohow fast the economy is
growing.
It's been growing well abovethat.
(38:46):
And that to me is the bigconcern.
But looking at AI in general, Imean, I think it will have
dramatic impacts on the economy,especially obviously from an
investment standpoint, um,already it's having an
incredibly meaningful impact onthe economy.
If you look just over the firsttwo quarters of this year at
(39:07):
GDP, at real GDP growth, um,business investment, but
specifically business investmentjust in equipment, uh equipment
and software has uh grown, uhhas added, contributed to real
GDP growth as much asconsumption has.
Now, what's unique about thatis consumption makes up 70% of
(39:29):
GDP in the calculation.
This subcomponent of equipmentand software spending uh
basically makes up 4%.
And yet it contributed theexact same to growth as
consumption did.
That's amazing to me and justshows you how much investment is
going into uh uh AI right now.
(39:50):
Uh I believe where we are inthe situation today with AI and
where we are in the markets uhreally can be summed up uh you
know pretty pretty clearly by aguy named Roy Amara.
And uh Roy Amara, he passedaway in 2007, but he was uh a
researcher, an unbelievablybright guy, a futurist, um, just
(40:14):
some some really interestinginformation.
But he coined this phrase, Ithink it was back in the 1970s,
where he said we tend tooverestimate the effect of tech
in the short run, butunderestimate it in the long
run.
And uh he calls it Amara's law.
And uh the reality is, I mean,this is back in the 70s that he
coined that, but I think we gothrough these stages and AI,
(40:36):
there's no doubt that AI isgoing to be, uh it already has
been, but I think in the future,just absolutely game-changing
for every single industry.
I think we will see massiveproductivity gains, but it's not
going to be tomorrow.
I think it's gonna take atleast five, 10, 15 years for
people to really uh be able torealize the gains from this.
(40:57):
So in the short run, just asAmara says, we tend to
overestimate the effects of newtechnologies.
And when I look at uh the stockmarket today, especially from a
market cap-driven perspective,it just seems like things have
gotten far too ahead ofthemselves by almost any metric
that you look at.
Uh, but I do believe the waythat we think is in a linear
(41:20):
fashion.
It's very hard for us tounderstand exponential growth
and in a big way, looking outespecially over the future.
And so that's why I thinkAmaro's also correct that we
tend to underestimate uh thefuture, how good technology will
be.
And with artificialintelligence, especially, uh, as
knowledge continues to build onitself like never before, I
(41:43):
think the future's justunbelievably bright.
Ryan (41:45):
I think that's a good way to look at it.
Um, you know, someday uh weneed to have some sort of a like
strider's law.
And what do you need to be aneconomist and get your own law?
Is that like do you make it upyourself and just put your name
on it?
Strider (41:57):
That's exactly you just you just make it you just make
it up yourself and call it afteryou and you hope it catches on.
Ryan (42:03):
Okay, so that's actually um that's that's uh one of the
things I was gonna ask you aboutum is you know what what's on
the one hand, what makes youwhat do you think are risks to
the economy that most people areoverlooking?
And then I want you to offsetthat with uh maybe what makes
(42:24):
you optimistic about theeconomy.
And you know, I think you kindof laid out a case right there
for uh for optimism.
Is there anything that you kindof think is under the radar
that people should be payingattention to that's a bit more
risky that maybe they're thatthey're ignoring at this point?
Strider (42:40):
Yeah, uh yeah, that's a that's a great question.
I mean, to me, the biggest riskstill is just the size of
government.
I I think something really doesneed to be done about just how
big governments become uhbecause it is unsustainable.
Um, maybe it's sustainable fora couple years, but it's really
not sustainable to continue tobe this size or bigger uh for
the foreseeable future.
(43:01):
And to me, that's the biggestconcern.
And I was hopeful that thisadministration was going to take
it in the opposite direction.
And we've seen a little bit ofprogress, so I do give them
credit, but uh it's just there'sa lot further that we need to
go uh in that direction.
The other thing I'd say islooking at interest rates in
general, I think a lot of peopleare shielded, as I said, uh
(43:21):
especially on the the middleincome scale where their biggest
asset is is uh um a home andthey have a mortgage and they're
locked in at this very lowinterest rate.
But I I I just am a littlestill concerned about the
commercial side of things,especially office buildings.
We all know that that's been ahuge issue, and many of those
(43:44):
loans are continuing to comedue, and they just they get
kicked down, the can just keepsgetting kicked down the road.
But the reality is that theycan't refinance these because
they're worth 30 to 50 percentless than when they were
purchased, and they haveoccupancy rates that aren't even
close to where they were uhpre-COVID.
And so that falls specificallyon uh small and medium-sized
(44:08):
banks in a big way.
Um, they own the majority ofcommercial lending.
And so uh to me, that'ssomething that I just think is
worth continuing to keep an eyeon.
I know people believe that ifthe Fed continues to cut, that
means that interest rates arecoming down, which uh is true.
But again, we just don't knowif the Fed is going to continue
(44:29):
to cut in a meaningful fashionuh when they believe that we're
getting close to neutral here atsome point.
Ryan (44:36):
I I try to end the podcast episodes with a same question,
especially for someone who'sjoining me for the first time,
um, and that is is thereanything that you've read
recently?
Um I'm looking mainly for bookrecommendations.
And you know, if you want togive me an economics book
recommendation, that's fine.
But really, you know, I'mtrying to figure out what else
(44:58):
are you reading?
Is there anything that you'veread recently or that's on your
reading list that you wouldrecommend uh viewers and
listeners of the ROI podcast tocheck out?
Strider (45:08):
Yeah, I'd say, let's see here.
I think the first one that I'mI'm still reading it right now,
but it's called Chip War.
And it's it's written by a guynamed Chris Miller, and uh it's
it's all about semiconductorsand really the whole history of
semis.
It's a very, very fascinatingbook.
It's not dense, it's it's areal easy read, and it's um it's
(45:31):
very entertaining and justamazing to see how things have
gone through progression, whereit started, everything.
So I would definitely recommendthat book.
I think it's been a fun read.
And again, I'm not all the waythrough it, but so far, so good.
Um, the other one I'd say thatI'd recommend that I finished a
little while ago was a book thatwas called um, it's called the
(45:52):
The Anxious Generation.
And that was written by a guynamed Jonathan Haidt.
And uh The Anxious Generationum is really a data-driven book
about um, you know, I have fourkids, as you have four kids, my
kids are nine and under.
And it's really about socialmedia and smartphones and how um
(46:14):
really when those came onboard, and I'm I mean, I, you
know, I am, I think thesmartphone is one of the most
amazing pieces of technologythat's ever been created because
it allows us to consumeinformation like never before.
But at the same time, there'sbeen a lot of negatives that
have come about too, especiallyfor the younger generation with
(46:36):
depression and anxiety and andall these other um issues that
have really been driven from thesmoke from the phone.
And and the the lack ofresearch that's been done in a
big way on this is kind of mindblowing.
But he's been able to compileeverything that's out there.
And and the what he's found isthat yes, phones have a massive
(46:59):
impact on your child's abilityto function and even to their
minds to be able to grow.
And so I think I couldn'trecommend it enough for for
really anybody to read because Ithink it's pretty eye-opening.
I know it was extremelyeye-opening for me, something I
was already concerned about.
I'm even more concerned about.
But I what I love about it ishe gives really concrete steps
(47:22):
too that if this is somethingthat worries you, how you can go
about uh trying to fix this inyour family or your child's life
uh to help make them a bettercitizen as time goes on.
Ryan (47:33):
I think that's a really uh great recommendation.
That's one that that uh I haveread as well.
And um yeah, there's there's alot of great advice, not not
least of which is let your kidsbe kids and let them play.
And you know, he he recommendsthe concept of free-range kids
where you don't have to be ahelicopter parent all the time.
(47:53):
Um, and and I think uh you knowthere's some there's some truth
to that as well.
I certainly remember when I wasa kid, we just head out, and I
think everyone who's about myage, the the parents got
together and said, Okay, justtell the kids to be home when
the street lights come on.
Strider (48:09):
Yeah, exactly, exactly, right?
I missed that.
And it's a great book.
Ryan (48:13):
Really good book.
All right, well, great.
Uh appreciate thatrecommendation, Strider.
Thanks for coming on thepodcast.
Hopefully, next time we can dothis in person, but uh do
appreciate you joining us.
Strider (48:24):
It was such a pleasure to be with you, Ryan.
Hope we can do this again soon.
Ryan (48:28):
And thanks to all of you as well for joining us on this
episode of the First Trust ROIpodcast.
We'll see you next time.
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