Episode Transcript
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Speaker 1 (00:00):
How do you create an estate plan, what happens with
regard to retirement, how do you plan? How do you
get ready for long term care and prepare yourself? And
today we are going to have a very special guest
who's going to join us momentarily, and that is Hugh Johnson.
And Hugh has been a guest for us on a
few different occasions. He has spoken at conferences that we've hosted,
(00:23):
and Hugh is someone who can really shed light on
all of the chaos that's going on out there. And
if you're not watching what's going on, I know a
lot of people have tuned out and just said it
is too much, it is too complicated. I can't can't
keep up with the rapid pace of the news and
(00:43):
the things that are being thrown around, And how do
you make sense of it? And how do you find
the truth? How do you find accurate information? This is
something that I struggle with, and I know my family
struggles with. And we sit around the day table and
I try to get deeply involved and I'm very passionate
(01:03):
about it, and and my kids look at me and say, Dad,
you know what you're doing right now isn't going to
make a difference, but I still disagree. I still think
that there are ways that we can make differences, and
I think we have to have public discourse and honest,
rational discussions about things like public policy, education, healthcare, the
(01:28):
things that really make our country different. The way that
I grew up and my dad, who was working for
New York State at the time, was we want to
make the world better for the next generation. And I
know that's a matter of opinion as to how you
do that, but cutting budgets, cutting positions, cutting staff is
(01:49):
a risk. Spending too much money on programs that don't
make sense, that don't produce a result, and that don't
help us grow our economy, educate our children, care of
our seniors. Those are all the things that government's supposed
to do, and it's challenging in today's divisive political environment.
(02:11):
And so we are very very happy to be hosting
today someone who is going to be joining us and
furiously trying to get him on the phone, and that
is Hugh Johnson. And Hugh is an economist. He is
someone who you hear very frequently on CNBC, Bloomberg, the
(02:31):
Wall Street Journal. And we're going to dive into topics
like the unemployment rate, the Fed interest rates, inflation, and
if you haven't been watching, the stock market just keeps
setting record highs. And is that something that can continue?
(02:51):
Are we developing a bubble or is it something where, hey,
this is pace that can continue because of the programs
and the policies and the tax cuts that have been
put in place. Corporations are in solid cash positions. There's
a lot of money out there. There's a lot of
cash out there, a lot of potential investment out there.
And is that going to lead us forward? Is that
(03:13):
going to keep the market humming along at the rate
that it is going. So when we look at it
from a state planning perspective, and I sit down with
my clients and we don't get too far into this
although a lot of people and I can tell you
that I used to try to steer away from politics
and steer away from the current events of the day.
(03:37):
But clients right now are becoming more engaged. And I
just had a client in yesterday who was talking to
me about his involvement, his engagement in local politics and
where do you get started? How do you begin? And
he has gotten on a local board, local government board,
(03:57):
and gotten involved in his town and looking at how
to create a quality of life. And when you look
at local government, I've had Peter Crummy on this show
a number of times, who was our colony town supervisor,
and he had was colony town judge for twenty years,
but I think he was miscast in that role. I
think town supervisor is what Peter really was born to do.
(04:19):
And so Peter Crummy is someone who takes local government
to another level. And we had Peter in here. And
when you look at your quality of life, you don't
appreciate it until something shuts down. Right now, the government
is shut down, but I've had in my home the
water shut down, electricity shut down, the fundamental things that
(04:41):
we rely on. What if your police force wasn't there
and they didn't have the ability to take care of
the things that you need taking care of on a
day to day basis. Local government is where we start.
So I encourage people to do the things that need
to be done on a local basis. First, get involved
in things that you can influence. Maybe you can influence
(05:04):
politics in Washington although go to your local congressmen, go
to your senators, email them, call them, go to their
their rallies, their public rallies, and do the things that
need to be done, but do things on a local
basis first, and work your way up. You get to
the local politics, you get to the regional politics, county politics,
(05:26):
and then you get to national politics, which kind of
filters down throughout all of those levels. New York State
is deeply impacted by what's going on in Washington, and
your home is deeply impacted by what's going on in both.
So with that, let me bring on our guest, Hugh Johnson.
(05:47):
Good morning, Hugh, Good morning, lou And that was the
longest VAMP I've had to do in a while, but
thanks for being patient, and let's get started with you
know what I have to say this, what the he
the hell is going on out there?
Speaker 2 (06:04):
It's a tough question. It's obviously there's a lot of volatility.
I think the number one word that everybody refers to
these days is uncertainty, and that that could be everything
from fiscal policy, tariff policy, all of the kinds of
risks they're associated with. Some of the things we're exteeen
(06:24):
coming out of Washington, the deportation and immigration rules, the
so called Big one, Big beautiful bill, a lot of
uncertainty that has a lot of uncertainty with regard to
the size of deficits going forward. So and of course
the financial markets. How the financial markets. Everybody looks at
the financial markets and scratches their heads and wonders, how
(06:47):
can the market be performing so well when we have
so much uncertainty with regard to public policy. So, you know, lou,
I guess the number one word is is uncertainty. And
it's making life very difficult for business people obviously trying
to make decisions in a world of tariffs. And it's
also making a lot of difficulty uncertainty difficulty for investors.
(07:09):
So let's just use the word on certainty and try
to sort it out.
Speaker 1 (07:13):
Okay, So how do we bring not me certainty, but
how do we bring a calm to our clients and
our listeners and say, you know, this is all of
this is happening around us, and it is likely a
pendulum that will swing in one direction and it usually
swings back in the other direction. What we're hoping is
(07:34):
for someone who can hit the ball down the middle
and do this on a basis where where you're adopting
policies that aren't fringe policies, that aren't radical left, radical right,
that are things that are just good for the country.
But let's start with inflation, because that's something that we
had talked about, you and I over the last few years,
(07:54):
and looking at the FED and looking at the inflation
rate and rate cuts and how we get inflation under control,
and where do you think that's going today and where
we stand with the FED meetings that are coming up.
Speaker 2 (08:10):
Yeah, it's a big issue. There are two big issues
that face the Federal Reserve. Obviously labor market conditions, that's
one of them. In the second one, which is the
one you mentioned, which is inflation. And you've got to
spend a little bit of time on both issues because
they're very, very important to the Federal Reserve and the
decisions they're going to make with regard to interest rates,
(08:30):
and the FED is faced with an extremely tough situation.
The labor market conditions are not doing well. In other words,
they're starting to I don't want to say contract, but
they're certainly not doing well. We don't have good labor markets,
healthy labor market conditions. They're not really bad, but they're
not good.
Speaker 1 (08:48):
And one of the ironies is we're going to shut
down you and we can't get a numbers. The last
jobs report didn't come out, No.
Speaker 2 (08:56):
It didn't come out, but there are a lot of
us that spend time, well, the ADP Report on employment
did come out, and that's from ADP, and some of us,
myself included, spend some time on the ADP report. And
what we try to do statistically, and this is what
nerds are made for. What we try to do is
(09:17):
make a reasonable estimate as to what the employment numbers
might have looked like if indeed they did come out.
And I've done that work, and what I see when
I do the work, and I say this very skeptically
because it's hard to do this statistics, the correlation between
the ADP Report and the Bureau Labor Statistics employment report
(09:42):
is not quite that good. But it's not You don't
dismiss it, but it's not quite that good. And if
I did that work, which I did, it showed that
in September employment conditions were not good. In other words,
we had a decline in the number of jobs that
were quote created, in other words, lost during the month
of September. And that's the number which I wouldn't take
(10:04):
too seriously, but it told me what I saw on
the ADP report, which is the US economy lost jobs
during the month of September. Now, keep in mind, we
did lose month jobs in the month of July, and
labor market conditions have venditaria r i in. In other words,
we're adding to jobs each month one month we didn't.
(10:25):
We're adding to jobs, but at a slower and slower
and slower pace. And now, if I were to take
a guest based on the ADP numbers and doing that statistics,
I'd say we lost jobs in the month of September.
So that's not particularly good news. When you take a
look at the inflation numbers, inflation at the same time
is heading a little bit higher or is expected to
(10:47):
rise a little bit more than we've seen so far.
So you've got higher inflation, lower jobs. If you're in
the federal reserve, you're on the federal open market. What
do you do. Do you lower interest rates to try
to help the jobs market? Well, that's not particularly good
nuds because of it accelerates the economy. You might get
higher inflation. Or do you just leave interest rates unchanged.
(11:10):
This is a real top job for the Federal Reserve.
And it goes back to that word which I mentioned
at the beginning, which is uncertainty. What will the Federal
Reserve do? And it looks to me so inflation might
edge a little bit higher, but it's not going to
edge higher for a long time. It's going to be
let's call it transient, which is the word that Chairman
Powell has been using.
Speaker 1 (11:32):
And I think that all of the confluence of these factors, tariffs, jobs, inflation,
all of the things, taxes, the tax law, I think
is fueling the stock market right now. The tax cuts
have caused companies to look at this and say, okay,
our net earnings are going to be much better because
of the tax cuts. We can reinvest, we can do things.
(11:53):
And companies have performed well. You know. Well, we'll talk
about the stock market in a minute, but let's go back.
I have on my wall in my office something high.
Rosen was a client of mine and became a friend
of mine. And I was a cartoonist, a political cartoonist. Yes,
and those of us that are old enough know him
because he was published nationally, but he was right here
(12:13):
at times. Union was his primary paper, and I have
a picture on my wall that Hi gave me of
the original George Bush H. W. Bush in a car
with Alan Greenspan outside the car zero percent inflation rates
and they're trying to get the car started, you know.
They they took the rates to zero and couldn't get
(12:34):
the economy engine going. And that's someplace we don't want
to head. Because you and I talked about a word
all earlier in the year called stag fleetion. Just talk
about that and is that something that is a possibility
for us?
Speaker 2 (12:48):
So that's exactly what I'm getting at, which is the
numbers right now hint of stag plation. I kind of
shy away from the word stag plation, but if it implies,
as it does, that economic conditions and I really refer
to employment conditions are going to be less than good,
are going to be poor, which I think is the
case of the outcome for September. Yes, we've got stagflation,
(13:13):
or we got the stag of stagflation, and of course
theflation part inflation. Are we going to see rising inflation? Well,
we've seen rising inflation. The Federal Reserve has done a
great job in bringing the rate of inflation down but
right now, with the pariffs, we're likely to see a
little bit of an upward push on the rate of inflation.
(13:34):
So it's a combination of labor market conditions not doing
very well, that's the stag and inflation starting to edge
a little bit higher. That's the flation. And then you've
got stagflation. So those are the conditions that we're facing
right now. And it's not just you and I Lou
that are facing those conditions. It's the Federal Reserve and
(13:55):
that makes their decision very difficult.
Speaker 1 (13:58):
And if that hasn't gotten your attention, I don't know
what will. We're gonna have to take a short break, Hugh,
and when we come back, we're gonna cover the government shutdown,
which is we're living through right now, the Supreme Court,
and the Fed market risks and what the markets are
gonna do in light of Tariff's, OBBA public policy, all
the things that we're seeing, and for that we are thankful, Hugh,
(14:19):
that you could join us today. For our listeners, stay
with us. We're gonna be right back after this short
break and we are back. Welcome back to Life Happens.
I'm Lupiro, your host for this morning and I have
with me live this morning, Hugh Johnson, noted economists who
and I've given your background, Hugh, You've been an Albany
native for a long time, worked at first Albany Corporation.
(14:43):
But your public persona now is as an economist working independently,
I believe, And you have your own company, and you've
been on a number of different national media outlets. And
this is not a local problem, folks, And this is
not just a local show. This is covering the whole country.
And Hugh your company, just tell us a little bit
(15:03):
about what you're doing now and how you're keeping up
with all of this chaos.
Speaker 2 (15:08):
Well, it is chaos. It is hard to keep up
with it. I'm using all the same tools that I
used to use. Obviously, it's a little more difficult when
the government shuts down. And the big problem when the
government shuts down is you can't get the numbers that
you are used to getting out of the Bureau of
Labor Statistics, the Bureau of Economic Analysis or whoever.
Speaker 1 (15:27):
And let me just ask a question right there.
Speaker 2 (15:29):
The economic analysis is tough.
Speaker 1 (15:32):
I've been bothered by this, and I'm hoping that a
lot of people are bothered by this. But when the
government is getting bad numbers, they're firing the messenger. And
how you going forward? You're an economist, you need those numbers.
How do we rely on those numbers? Because what's happening
is the degradation of the truth and of the accuracy
of the information that we're getting as consumers. How do
(15:56):
you stay in tune with that, and how do you
find ways to verify what is being put out by
the federal government.
Speaker 2 (16:04):
I think I can put people at ease to some extent.
Keep in mind that what has just happened is the
Federals are the Trump administration has just fired and Tony,
who is the person e j An Toni was selected
(16:25):
or nominated to be the new bureau head of the
Bureau of Labor Statistics. And there was a great deal
of concern among the economist community, to include myself, that
he was not qualified and he was just fired or
he was withdrawn. He has withdrawn his nomination to be
the head of the Bureau of Labor Statistics. So that's
(16:47):
at least that it gives me a little bit of
a sense, not a strong sense, but a sense that
the administration is responsive to getting people in these important
positions that are qualified. But keep in mind, and this
is much more important, is that the head of the
Bureau of Labor Statistics does not, under the best of circumstances,
(17:10):
see the labor market conditions or even the inflation numbers
until just before they're released, so it's unable to really,
let's say, change them. Therefore, I would encourage folks who
are listening to us not to lose heart that the
integrity is being compromised. It's obviously a concern and it's
(17:34):
very important, but I don't think based on the way
the Bureau of Labor Statistics operates, that we're seeing the
threat of a compromise of the variinity of the numbers
that we're seeing come out of the Bureau of Labor Statistics,
Bureau of Economic Analysis, Census bureaus or whatever. I think
they're good numbers, but we have to watch it carefully
(17:57):
because that's very important.
Speaker 1 (17:59):
Thank you, and I feel assured by that to you.
Thank you for putting my concerns at rest. But let's
go back to your work as an economist, and I
know you followed the FED very very closely, and that's
that's a big part of the driver of our economy.
And we've talked about the things that are going on there.
You know, one one FED governor was was discharged and
(18:23):
came back. There's litigation, you know, kind of volatility there,
and and the FED is going to turn over. The
board is going to turn over at some point in
the not too distant future. We have an October meeting,
we have a December meeting. What are you looking at
in the short term and then what do you see
as longer term for the FED.
Speaker 2 (18:42):
Well, it's an extremely important question, and it's an extremely
complex question, difficult to answer. Let me answer it this way.
First of all, the Supreme Court has told us already
that the decision by the Appeals Court that that one
of the governors that is being effectively fired by the
(19:03):
or they're attempting to fire her, the Trump administration cannot
yet be fired. They're going to hear the entire case
or the entire issue, but for now, the federal government
or the Trump administration cannot fire Lease the Cook as
a governor of the Federal Reserve. That's number one. The
(19:24):
second point, and again I'm going to have trouble staying grief.
But the second point is this the Federal Reserve is
structured in a way that it almost prevents the administration,
the current administration or any other administration from really compromising
the independence of the Federal Reserve. You have to get
into the complexity of the structure of the Federal Reserve.
(19:47):
It's a wonderful job that was done in the Federal
Reserve Act of twenty nineteen thirteen by those that created it.
It's very difficult to impact or to eliminate, or to
invade the independence of the Federal Reserve. It can be done,
but it's not going to be It's not going to
be easy, and it will depend very heavily on what the
(20:08):
Supreme Court decides when they see or hear this case
in January. But it's very difficult to do. Given the
way the turnover works on the governors and the voting
members of the Service, it's going to be very in
a word, it's going to be very difficult for this
administration to get the majority of the twelve votes that
(20:29):
are needed to make any decisions with regard to interest
rates our monetary policy. Very difficult to do. So, if
you were to ask me, I would say that the
independence of the Federal Reserve even given the firing of
Governor Cook, even if that goes through, and I doubt
that very seriously, if it'll go through, that she will
(20:50):
be fired, I doubt it. But even if she were fired,
it would be extremely difficult to get the majority of
the twelve votes for the Trump administration, to get the
majority play of the twelve votes, and therefore to make
or invade monetary decisions and interest rate decisions. I think
that the independence of the Federal Reserve is safe for now.
Speaker 1 (21:11):
That's good news and just for our listeners. If that
were to change, there would be a ripple effect, not
just in our country but around the world, because that
Federal Reserve and American fiscal policy are gold standards, and
our dollar is the gold standard, and that is important
for us as a country and for the world to
maintain that. So just kind of for big picture purposes,
(21:34):
the importance of those FED, the FED independence, and the
FED decisions in terms of the world.
Speaker 2 (21:39):
Economy, it's extremely important. And in this respect, think about this,
we're actually in some ways a follower. We have structured
our Federal Reserve both in nineteen thirteen and beyond in
a way that is it's very difficult to compromise the
(22:02):
independence of the Federal Reserve. The reason we've done that,
the reason we've protected that independence, and I wish that
the members of the Supreme Court were listening to me now,
was because other countries around the world that preserved that independence.
And as a result, we've learned from those that follow
that independence and those that have let the independence go,
(22:25):
We've learned that having that independence are having the decisions
of the Federal Reserve made by desned governors, economists, other
federal reserve means that you're likely to get a better
outcome when it comes to the production or the performance
of the economy and the performance of inflation. We know,
we know, we've seen it work in countries, and we've
(22:47):
seen it not work. We've seen the problems that come
up when we've seen that that independence has been compromised
in countries. It doesn't work. We've got lots of history
on our side.
Speaker 1 (22:58):
So in thirty seconds, because we're gonna break for the news,
what do you see coming up in October and December.
Speaker 2 (23:05):
My view is, first of all, it's a little bit uncertain,
but my view is that the Fed will cut rates
in October and will cut rates in December. Depends on
the data, depends on the numbers we see, although nobody's
going to be seeing many numbers. But I think that's
going to be the outcome based on what I've seen
so far. So I think the Thil Reserve will reduce
rates in October, we'll reduce dates rates in December. We'll
(23:27):
reduce rates one time at least one time in twenty
twenty six and one time in twenty twenty seven. Let's
call it a guest not a forecast.
Speaker 1 (23:36):
And that's good news for the markets. We're going to
come back after the news and talk about that. How
do you look at this from an investor perspective? What
does this all mean to your portfolio? Thanks to Hugh
Johnson for being with us, Stay with us for the
second half. We'll be back right after the news and
we are back. Welcome back to Life Happens. I'm Lou Piro,
(23:56):
your host with this morning, and Pier O'Connor and Strauss
as your sponsor for this show. We are very fortunate
today to have Hugh Johnson on, who is a noted economist,
and Hugh, you are coming to us from your home
up in uh Maine.
Speaker 2 (24:12):
No.
Speaker 1 (24:12):
I mean Vermont, Vermont, ok, Oh, Dorset. I played paddle
tennis at the Dorset Club up there. So the weather here, Hugh,
is just spectacular. We used to call this Indian summer,
but I think every year the September and early October
become more summer like every year, and it's it's not
(24:35):
Indian summer anymore. It's just an extension of summer. How
is the weather up there in Vermont?
Speaker 2 (24:40):
It looks it steals and looks like summer. I mean,
the sun is about to come out and the weather,
the temperature is supposed to get up to almost seventy today,
maybe even a little higher, so it kinda is very
summer like. And we don't have much turning of the
leaves yet. We have some, but not much. So it's
(25:00):
much more summer like than October like.
Speaker 1 (25:02):
Well it's interesting you say that, because in this area
leaf peeping they call it, are coming up and staying
for a weekend and going out and enjoying the vibrant
colors of the leaves. You don't get those until you
get a frost and it snaps and you get the
real gold and reds to deep breads. So that hasn't
quite hit yet.
Speaker 2 (25:21):
No, no, not yet. We're hoping crossing our fingers on that.
Speaker 1 (25:26):
And so the weather's been warm, but the stock market
has been hot. What is your take on that and
how long can we expect that these kinds of returns continue?
Speaker 2 (25:40):
I wish I knew the answer, Loo. I will say this,
We've had twenty four bow markets since eighteen ninety, and
we've had twenty three bear markets that have been accompanied
by recession. Sooner or later, this bow market will end.
It's gotten past what has been the long term average.
(26:01):
Even though it's gotten past the long term average for
bow market durations and magnitude, keep in mind that there
are plenty of bull markets that do go past the average,
and they could last a pretty long time. The average
being about good, go another day, three years, We don't
know right now. It's being driven by positive economic conditions.
(26:25):
They're not great. I've mentioned the labor market, and the
labor market is starting to struggle, but nevertheless, it looks
as though we're going to have positive employment conditions as
we look a little bit further out. That's number one.
Number two looks like real gross domestic product, which is
our scoreboard for the economy, is going to continue to
(26:48):
be positive. I'm looking at two point eight percent in
the third quarter of the current quarter versus three point
eight percent in the second quarter. And importantly for investors,
and I think they see this, is that earnings, the earnings,
corporate earnings well for twenty twenty five, twenty six, and
twenty seven are likely to be double digit and positive.
(27:10):
So if those earnings come through, if the Federal Reserve
reduces interest rates and longer term interest rates decline in
response to the Federal Reserve reducing short term interest rates,
get interest rates down, you get earnings doing better. The
investors see that, and as a result, they're buying stocks now.
Will I will caution everybody that although that's really a
(27:34):
good scenario, I think the stock market is in my view,
and everybody answers this question differently. I don't know. Some
will be right, some will be wrong. I think we're
a little bit pricing now or overvalued, maybe by as
much as nine percent. We're at the level we're likely
to end twenty twenty six AD, but we're above the
(27:56):
level we should have or it should average in the
fourth quarter of twenty twenty five. So pricey now. Short term,
we might have a little gim in the stock market,
but all within the context of as I see it,
an ongoing bull market driven by good earnings and a
reasonably okay economy, and certainly by interest rate reductions by
(28:19):
the reserve, and it decline in long term interest rates.
That's very complex, very hard to follow, but I hope
you get sort of the drift at least this is
my view. Who knows, So let's.
Speaker 1 (28:30):
Peel that back a little bit more, because there's a
lot to digest in looking at all of these factors.
The stock market, I don't disagree, has has a mind
of its own, and that's based, I think largely now
on those corporate earnings that you just talked about. And
you know, the labor market statistics can go down, inflation
(28:50):
could tick up. But what's driving corporate earnings, I think
are two things. One, and it's kind of a revolution,
is the AI revolution and the ability of companies to
produce more with less and to just do things on
so much more efficient basis. And I don't know what
(29:12):
the productivity numbers look like right now, but I'm guessing
that productivity worker productivity has gone up tremendously.
Speaker 2 (29:19):
The actually the productivity numbers have kicked in a little bit,
but the stock market is discounting reflecting a much bigger
gain in productivity than we've seen already in two thousand
and twenty twenty five. So, if you're asking what really
is driving a lot of investors, what is driving in
(29:41):
part of the marketing. Remember, the economy is a function
of the growth rate of the labor force and employment
on the one hand, and the growth of the productivity
of that labor force on the other hand. One of
the problems we're facing is that the growth rate of
the labor force and employment has been hurt or has
been curtailed by the deportation and immigration restrictions coming out
(30:07):
of the Trump administration in Washington. Now that's not good news.
That's affected or hurt or curtailed the growth of the
labor force. Eventually, though, we're going to see hopefully the
growth of the labor force maybe be to some extent restored.
But the real driver is, just as you mentioned, is
(30:29):
the expectations or forecasts or the impact of artificial intelligence
on the economy. And it would appear to many investors,
savvy investors, that the market has not entirely discounted or
reflected the strong growth in productivity that we're likely to
see twenty twenty six, twenty seven and beyond. Maybe it's
(30:52):
even as high, and maybe it's even two thousand and thirty,
who knows. But I think that you've mentioned what's really
the big driver. Product It is going to be a
big driver. And I might add that it's not just productivity,
but we've seen a very strong growth in consumer spending
over the course of twenty twenty five so far, and
(31:12):
that's particularly true of the current quarter. The third quarter,
surprisingly strong consumer.
Speaker 1 (31:18):
Spending, and that's always a big part of our economy
because our economy is a consumer driven economy. So the
question becomes, then if jobs are being cut, and I'm
going to throw maybe a kind of a straw man
argument out there, and this is a replacement theory for jobs,
and that is that AI will someday take tens of
(31:42):
millions of jobs and put people on the street. And
the one that used to be talked about a lot,
but it hasn't really panned out. I'm going back now
three four five years ago, is the driverless vehicles and
the ability to have trucks that can transport themselves across
the country without those and I think the number was
sixteen million people make their living driving and if that
(32:05):
wore't happen, if we were to automate automobiles and put
driverless cars on the road, that would have a shockwave
throughout the system. And I think there are many jobs
that could have that kind of impact. Is this reality?
Is this something that will happen but not for ten years?
What do you see in that?
Speaker 2 (32:23):
I wish I knew, Lou. That's a great question, and
unfortunately everybody's got a different answer, and I don't have
the answer, but I will say that it's extremely important.
Keep in mind, though the history of the US economy,
and I say this because I'm just sort of a
a genital defect optimist, and that is when we went
(32:44):
from an agriculture delivered driven economy to an industrial economy
in nineteen twenty and beyond, we were very worried about
the replacement the loss of jobs in the agriculture sector
of the US economy, and indeed those jobs were lost.
We had a tremendous decline in the number of people
(33:06):
working in the agriculture industry, and that was offset by
a lot of innovation and creativity, and an expansion of
the industrial economy which offset the losses in the agriculture economy.
There are many now that say that the losses that
will be created by the introduction of AI to the
(33:27):
US economy will be offset by the equal amount of
innovation which will create new jobs and opportunities. I don't
see that yet. I'm not smart enough to know or
to forecast that that's going to happen. But that's the hope, dreams,
let's call it, maybe even fantasy of those of us
that are watching the economy and hoping that that's going
(33:50):
to be a part of the explanation of the outcome.
And that's integrated in now, it's being integrated into a
forecast made by investors collect actively in a rising stock.
Speaker 1 (34:02):
Market, right, And that's a great historical perspective. And I
think there's maybe one other phenomenon, which was the Internet,
which when that came in, people thought the Internet was
going to take thousands or millions of jobs away. But
the Internet became a tool and it became a tool
for people to use. But are we at a precipice
where the Internet in AI together with AI now thinking
(34:28):
for us and I think that's the difference between going
from an agricultural job to an industrial job to a
technological job. If that job is not doesn't need your
brain to do it. If AI is replacing the thought
process that goes through and does the menial tasks today
that are like robotics inside of a warehouse or something
(34:50):
like that, now take it to the next level and
they're doing more meaningful jobs without the necessity of the
human brain. And I think that might be a paradigm
shift in this AI phenomenon.
Speaker 2 (35:05):
You're raising issues which again no answers. Unfortunately, I want
everybody to take right down the name of a book
this time is It's Different, and the name of it
that's written by Reinhardt and Rogoff, two professors at Harvard,
and it's been criticized, widely criticized, but nevertheless, there are
parts of that book which are worth reading simply to
(35:30):
get at or try to get at the issue. You
just bring up this time it's different. And every time
we say that this time it's different, you know, it
turns out that it's not that different. In other words,
history repeats itself, well, maybe it rhymes, and it doesn't
repeat it so as we've heard so often, but nevertheless,
(35:52):
maybe we'll be lucky enough that there will be the
creation of a whole new panoply of jobs or things
that and we have to worry about that for our grandchildren.
I have two grandboys, grandsons, and believe me, when I
wake up at night, in the middle of the night,
I think about things like this.
Speaker 1 (36:12):
And there's another factor that comes with this that you know,
it doesn't really play into some of the things we're
talking about now, but that is income and wealth disparity.
When the people that have resources and are able to
benefit from stock market increases and technology increases and the
values of their companies doesn't necessarily trickle down and there's
(36:32):
a word that we haven't talked about yet, those in
those gains don't trickle down to the working class, to
the people who are you know, going to work one job,
getting out of that job, going to the next job,
going home raising kids. That there is a shift and
that that's been going on now for probably forty years
(36:53):
where we have a concentration of wealth and income and
how does that play into this from a public policy perspective,
and should we be thinking about that.
Speaker 2 (37:04):
You hit the nail on the head when you said
public policy. The issue is primarily an issue of public policy.
And the One Big, Beautiful Bill did one thing. It
extended the tax cuts, as you know, Lou and you
know better than anybody. It extended the twenty seventeen tax
reductions beyond twenty twenty five when they were going to sunset.
(37:29):
And embedded in the two thousand seventeen tax reductions was
the income disparity that you've been referring to, and that's
primarily a function of public policy. It's very troubling for
those that are not on the right side of the
political aisle, those that are on the left side and beyond.
(37:52):
It's very troubling. But it has its troubling for very
good reasons. And there is that income disparity and then
hopefully will over time change as it becomes better understood.
But you absolutely hit the nail on the head. You're
asking questions, You're bringing up issues which are very difficult
for economists or even thinkers people that are listening to
(38:14):
this program to really answer. And this is these are
really important issues.
Speaker 1 (38:20):
I think this is why people need to get involved
at a grassroots level, because these will be the issues
of our day. What world will our children live in?
What will this look like twenty thirty, forty fifty years
from now? Are we leaving them in a better place?
And we're going to come back and look more closely
at tariffs and the OBBA, and then look at the
(38:40):
current government shutdown. What's causing it? Why are we shut
down right now? What are the policy differences? In this
view brings us back to the public policy issues, and
we're going to come back for our last segment. Stay
with us, Hugh Johnson, Loupiro. You're listening to Life Happens
Radio every Saturday morning at nine am on Talk Radio WGY.
We'll be right back and we're back. So, Hugh, how
(39:05):
do we get here? And then how do we get
out of it?
Speaker 2 (39:10):
Well, you're getting back to the same thing, which is
the important policy differences between the Democratic Party and the
Republican Party. And how do you get out of it? Well,
first of all, you've got to get just different parties Democrats,
Republicans and the Light House to sit down and talk
(39:31):
and compromise. Compromise has not been a big part of
the policy process in Washington, as we both know. And
so how you get out of it. You don't get
out of it unless there's compromise, and that means on
both the side of the Democratic side of the aisle,
if that's the way to say it, as well as
(39:52):
the right Republican side of the aisle. I'm not particularly optimistic,
but you're getting right at the issue. It's a example,
especially when you talk about Medicare and Medicaid and the
desire of the Democratic Party to revive the Medicare and
Medicaid for those that need it. Those and there are
plenty of people that need it, but you're not You're
(40:15):
not going to resolve it if Schumer and the Democratic
Party stay stuck on insisting that we revive or get
recover the problems with health care. And so there's got
to be compromise, and Loua, if you know how to
get compromise in Washington, I'm going to vote for you
(40:37):
today and send you directly to Washington and turn you loose,
because that's what's that's what's missing.
Speaker 1 (40:44):
Well, if I could, I would. That's not a job
that anyone could take lightly or do easily. But I
think the real battle here was waged back in June,
and that was the debate over the cuts in the OBBA,
the Big Beautiful Bill and the healthcare cuts and the
(41:06):
tax cuts, and it was there wasn't very little compromise
in that it was a party line vote and a
very narrow vote, and that's where we got to today.
The OBBBA is what brought us the healthcare cuts. The
Democrats are trying to use leverage that is the shutdown,
(41:27):
and it's a blame game. I blame the President, I
blame the Republicans. The Republicans blame the Democrats. But this
is a fundamental public policy issue, Hugh, that we can't
resolve I think, on a legislative basis anymore, because there
is no dialogue and there is no compromise. And the
compromise should have come in the OBBBA, but that's the
(41:49):
law today.
Speaker 2 (41:52):
It's unfortunate, and you're getting right at it. I mean,
it's the problem is the lack of compromise. And you've
got the midterm elections coming up, and everybody's got their
eye on what they do or say or stand for
and how what's going to be the impact on the
midterm elections. As you know, Lou And I'm not saying
(42:13):
this because I'm a Democrat or a Republican. I'm a
registered independent and I'm going to sort of stay there.
But nevertheless, as you know that it's a big issue now,
and historically there's a change of our leadership or parties
a majority in the House of Representatives based on the
historical outcomes of midterm elections. We'll see. I don't see
(42:35):
that yet, but it's going to be very, very important.
And me, I know we can't wait until the midterm
elections in order to find the compromise that reopens the
federal government. We don't have that much time. We can't
do that. We can't afford that kind of time. We've
got to have compromise right now. But the midterm elections,
(42:59):
it's not for They're also weighing very heavily on the
positions of both parties on this debate.
Speaker 1 (43:06):
I've always felt that the government functioned better when you
had divided houses, when you had the Republicans and one
maybe the Senate and the Democrats had the House. To me,
that forced compromise because one house couldn't put a bill
out without the other house supporting it. And right now
you've got they've run the table, they've got the House,
(43:30):
the Senate, the Presidency, and some would say the Supreme
Court to lean in one direction, and so we don't
have that balance that forces compromise. I belong to an
organization that I've talked about on this show numerous times,
and we're down. We're about fourteen years old now. It's
called No Labels. And I had one of your fellow
(43:51):
economists on this show a couple of times by the
name of David Walker, and he was the Controller General
of the United States, the country's accountant under Bill Clinton
when he and New Gingrich balanced the budget. David Walker
was part of that process, and that's something that we
just can't get back to for whatever reason. And Clinton
(44:13):
and Gingrich and their parties and the people working in
government balanced the budget, which today is not even thought about.
Speaker 2 (44:21):
You, well, you've got you have. It comes down to people,
and it comes the kinds of people that are at
the it should be at the negotiating table. And I'm
going to try to avoid saying what I want to say,
but if it's if the people that are part of
the process only care about the outcome for themselves and
(44:44):
their political lives, which we certainly see with with some
of the political representatives that we have in Washington. I
guess I'm being careful. If they care only about themselves
and their political lives, only care about themselves, you're never
going to get there. You have to have people like
(45:05):
Tip O'Neil. I think you probably remember people that would
walk across the aisle, sit down, talk, compromise and an
important word, compromise and reach agreements. It's a function of
the people, and we don't have the right people.
Speaker 1 (45:22):
It's just that when Ronald Reagan got shot, Tip O'Neil
was the first person at the hospital in the room.
That's right, because they had a friendship that overcame their
political differences. And we have to be able to debate, dialogue, discuss,
and at the end of the day reach a decision,
and then both sides have to get behind that decision.
(45:44):
And that's hard to do because it may be against
your fundamental beliefs, but it may be the best thing
going forward. And the government has certain responsibilities education, healthcare,
things that people take for granted in some cases, but
we can't take them for granted anymore because each of
those institutions is being significantly impacted. And healthcare is something
(46:09):
we deal with on a day to day basis for
our clients. And I can tell you from the perspective
of an attorney representing a lot of people going through
the healthcare system and having gone through the system myself recently,
it has some significant problems. And the cost of healthcare
in America is just so far out of control that
the government, Medicare, Medicaid, private insurance, they just can't keep pace.
Speaker 2 (46:36):
You're hitting nails on the head continuously, and it's unfortunate.
And unless they're significant change, political change, new people in Washington,
I don't see how this is going to get resolved
anytime soon, particularly the current administration. Some of the people
in the current administration clearly clearly don't really care whole
(47:00):
lot about the proper distribution of all of the good
things about this country. They care primarily about their own
political fortunes. And that's that's just never going to work.
Speaker 1 (47:13):
Yeah, And you know, as we say, it cuts both ways.
There are certainly people on both sides looking to get
their own economic interest and political interests satisfied through their
positions in the government. As I said, the pendulum has
swung way over in one side at some point, and
(47:34):
this is something that everyone should remember. The pendulum will
swing back, and it could swing back harder the other
way at some point in time. It's just a matter
of time.
Speaker 2 (47:42):
It could it could do. A president Ford once said,
He once said, the pendulum has now come full circle.
Speaker 1 (47:51):
You sure it wasn't Yogi bear?
Speaker 2 (47:54):
He said that, And that was one of the many
things that he said that was pretty entertaining. That useful,
but entertaining.
Speaker 1 (48:01):
And I like you, I am a registered independent. I
grew up in a Republican household. I myself was a
Republican for many, many years. But I just saw this
polarization and the need to create a new middle class
politically of people who are willing to look at issues
and not say I have to be right every time
(48:25):
or I'm going to be wrong. Well, right and wrong
are our relative terms when you're talking about public policy. Yes,
and so we got about a minute left, and I
want to give you the last word. Where should where
should people be putting their money? Is the stock markets
still safe?
Speaker 2 (48:43):
You? Yeah?
Speaker 1 (48:45):
You know.
Speaker 2 (48:46):
To answer that question, I look at two things. I
look at the performance of the markets themselves, because investors
collectively generally get it right, and the markets have been
bullish or sending us bullish signals or signals that are
optimistic about prospects for the economy or the foreseeable future.
Maybe that only means two thousand and twenty six and
(49:08):
twenty seven, but nevertheless, the message of the markets has
been positive. And I also do a lot of number
crunching on the economic numbers that we get and that
I see to try to determine what's going to be
the results.
Speaker 1 (49:23):
That is the last word. Thank you, have a great week,
and you too,
How do you create an estate plan, what happens with
regard to retirement, how do you plan? How do you
get ready for long term care and prepare yourself? And
today we are going to have a very special guest
who's going to join us momentarily, and that is Hugh Johnson.
And Hugh has been a guest for us on a
few different occasions. He has spoken at conferences that we've hosted,
(00:23):
and Hugh is someone who can really shed light on
all of the chaos that's going on out there. And
if you're not watching what's going on, I know a
lot of people have tuned out and just said it
is too much, it is too complicated. I can't can't
keep up with the rapid pace of the news and
(00:43):
the things that are being thrown around, And how do
you make sense of it? And how do you find
the truth? How do you find accurate information? This is
something that I struggle with, and I know my family
struggles with. And we sit around the day table and
I try to get deeply involved and I'm very passionate
(01:03):
about it, and and my kids look at me and say, Dad,
you know what you're doing right now isn't going to
make a difference, but I still disagree. I still think
that there are ways that we can make differences, and
I think we have to have public discourse and honest,
rational discussions about things like public policy, education, healthcare, the
(01:28):
things that really make our country different. The way that
I grew up and my dad, who was working for
New York State at the time, was we want to
make the world better for the next generation. And I
know that's a matter of opinion as to how you
do that, but cutting budgets, cutting positions, cutting staff is
(01:49):
a risk. Spending too much money on programs that don't
make sense, that don't produce a result, and that don't
help us grow our economy, educate our children, care of
our seniors. Those are all the things that government's supposed
to do, and it's challenging in today's divisive political environment.
(02:11):
And so we are very very happy to be hosting
today someone who is going to be joining us and
furiously trying to get him on the phone, and that
is Hugh Johnson. And Hugh is an economist. He is
someone who you hear very frequently on CNBC, Bloomberg, the
(02:31):
Wall Street Journal. And we're going to dive into topics
like the unemployment rate, the Fed interest rates, inflation, and
if you haven't been watching, the stock market just keeps
setting record highs. And is that something that can continue?
(02:51):
Are we developing a bubble or is it something where, hey,
this is pace that can continue because of the programs
and the policies and the tax cuts that have been
put in place. Corporations are in solid cash positions. There's
a lot of money out there. There's a lot of
cash out there, a lot of potential investment out there.
And is that going to lead us forward? Is that
(03:13):
going to keep the market humming along at the rate
that it is going. So when we look at it
from a state planning perspective, and I sit down with
my clients and we don't get too far into this
although a lot of people and I can tell you
that I used to try to steer away from politics
and steer away from the current events of the day.
(03:37):
But clients right now are becoming more engaged. And I
just had a client in yesterday who was talking to
me about his involvement, his engagement in local politics and
where do you get started? How do you begin? And
he has gotten on a local board, local government board,
(03:57):
and gotten involved in his town and looking at how
to create a quality of life. And when you look
at local government, I've had Peter Crummy on this show
a number of times, who was our colony town supervisor,
and he had was colony town judge for twenty years,
but I think he was miscast in that role. I
think town supervisor is what Peter really was born to do.
(04:19):
And so Peter Crummy is someone who takes local government
to another level. And we had Peter in here. And
when you look at your quality of life, you don't
appreciate it until something shuts down. Right now, the government
is shut down, but I've had in my home the
water shut down, electricity shut down, the fundamental things that
(04:41):
we rely on. What if your police force wasn't there
and they didn't have the ability to take care of
the things that you need taking care of on a
day to day basis. Local government is where we start.
So I encourage people to do the things that need
to be done on a local basis. First, get involved
in things that you can influence. Maybe you can influence
(05:04):
politics in Washington although go to your local congressmen, go
to your senators, email them, call them, go to their
their rallies, their public rallies, and do the things that
need to be done, but do things on a local
basis first, and work your way up. You get to
the local politics, you get to the regional politics, county politics,
(05:26):
and then you get to national politics, which kind of
filters down throughout all of those levels. New York State
is deeply impacted by what's going on in Washington, and
your home is deeply impacted by what's going on in both.
So with that, let me bring on our guest, Hugh Johnson.
(05:47):
Good morning, Hugh, Good morning, lou And that was the
longest VAMP I've had to do in a while, but
thanks for being patient, and let's get started with you
know what I have to say this, what the he
the hell is going on out there?
Speaker 2 (06:04):
It's a tough question. It's obviously there's a lot of volatility.
I think the number one word that everybody refers to
these days is uncertainty, and that that could be everything
from fiscal policy, tariff policy, all of the kinds of
risks they're associated with. Some of the things we're exteeen
(06:24):
coming out of Washington, the deportation and immigration rules, the
so called Big one, Big beautiful bill, a lot of
uncertainty that has a lot of uncertainty with regard to
the size of deficits going forward. So and of course
the financial markets. How the financial markets. Everybody looks at
the financial markets and scratches their heads and wonders, how
(06:47):
can the market be performing so well when we have
so much uncertainty with regard to public policy. So, you know, lou,
I guess the number one word is is uncertainty. And
it's making life very difficult for business people obviously trying
to make decisions in a world of tariffs. And it's
also making a lot of difficulty uncertainty difficulty for investors.
(07:09):
So let's just use the word on certainty and try
to sort it out.
Speaker 1 (07:13):
Okay, So how do we bring not me certainty, but
how do we bring a calm to our clients and
our listeners and say, you know, this is all of
this is happening around us, and it is likely a
pendulum that will swing in one direction and it usually
swings back in the other direction. What we're hoping is
(07:34):
for someone who can hit the ball down the middle
and do this on a basis where where you're adopting
policies that aren't fringe policies, that aren't radical left, radical right,
that are things that are just good for the country.
But let's start with inflation, because that's something that we
had talked about, you and I over the last few years,
(07:54):
and looking at the FED and looking at the inflation
rate and rate cuts and how we get inflation under control,
and where do you think that's going today and where
we stand with the FED meetings that are coming up.
Speaker 2 (08:10):
Yeah, it's a big issue. There are two big issues
that face the Federal Reserve. Obviously labor market conditions, that's
one of them. In the second one, which is the
one you mentioned, which is inflation. And you've got to
spend a little bit of time on both issues because
they're very, very important to the Federal Reserve and the
decisions they're going to make with regard to interest rates,
(08:30):
and the FED is faced with an extremely tough situation.
The labor market conditions are not doing well. In other words,
they're starting to I don't want to say contract, but
they're certainly not doing well. We don't have good labor markets,
healthy labor market conditions. They're not really bad, but they're
not good.
Speaker 1 (08:48):
And one of the ironies is we're going to shut
down you and we can't get a numbers. The last
jobs report didn't come out, No.
Speaker 2 (08:56):
It didn't come out, but there are a lot of
us that spend time, well, the ADP Report on employment
did come out, and that's from ADP, and some of us,
myself included, spend some time on the ADP report. And
what we try to do statistically, and this is what
nerds are made for. What we try to do is
(09:17):
make a reasonable estimate as to what the employment numbers
might have looked like if indeed they did come out.
And I've done that work, and what I see when
I do the work, and I say this very skeptically
because it's hard to do this statistics, the correlation between
the ADP Report and the Bureau Labor Statistics employment report
(09:42):
is not quite that good. But it's not You don't
dismiss it, but it's not quite that good. And if
I did that work, which I did, it showed that
in September employment conditions were not good. In other words,
we had a decline in the number of jobs that
were quote created, in other words, lost during the month
of September. And that's the number which I wouldn't take
(10:04):
too seriously, but it told me what I saw on
the ADP report, which is the US economy lost jobs
during the month of September. Now, keep in mind, we
did lose month jobs in the month of July, and
labor market conditions have venditaria r i in. In other words,
we're adding to jobs each month one month we didn't.
(10:25):
We're adding to jobs, but at a slower and slower
and slower pace. And now, if I were to take
a guest based on the ADP numbers and doing that statistics,
I'd say we lost jobs in the month of September.
So that's not particularly good news. When you take a
look at the inflation numbers, inflation at the same time
is heading a little bit higher or is expected to
(10:47):
rise a little bit more than we've seen so far.
So you've got higher inflation, lower jobs. If you're in
the federal reserve, you're on the federal open market. What
do you do. Do you lower interest rates to try
to help the jobs market? Well, that's not particularly good
nuds because of it accelerates the economy. You might get
higher inflation. Or do you just leave interest rates unchanged.
(11:10):
This is a real top job for the Federal Reserve.
And it goes back to that word which I mentioned
at the beginning, which is uncertainty. What will the Federal
Reserve do? And it looks to me so inflation might
edge a little bit higher, but it's not going to
edge higher for a long time. It's going to be
let's call it transient, which is the word that Chairman
Powell has been using.
Speaker 1 (11:32):
And I think that all of the confluence of these factors, tariffs, jobs, inflation,
all of the things, taxes, the tax law, I think
is fueling the stock market right now. The tax cuts
have caused companies to look at this and say, okay,
our net earnings are going to be much better because
of the tax cuts. We can reinvest, we can do things.
(11:53):
And companies have performed well. You know. Well, we'll talk
about the stock market in a minute, but let's go back.
I have on my wall in my office something high.
Rosen was a client of mine and became a friend
of mine. And I was a cartoonist, a political cartoonist. Yes,
and those of us that are old enough know him
because he was published nationally, but he was right here
(12:13):
at times. Union was his primary paper, and I have
a picture on my wall that Hi gave me of
the original George Bush H. W. Bush in a car
with Alan Greenspan outside the car zero percent inflation rates
and they're trying to get the car started, you know.
They they took the rates to zero and couldn't get
(12:34):
the economy engine going. And that's someplace we don't want
to head. Because you and I talked about a word
all earlier in the year called stag fleetion. Just talk
about that and is that something that is a possibility
for us?
Speaker 2 (12:48):
So that's exactly what I'm getting at, which is the
numbers right now hint of stag plation. I kind of
shy away from the word stag plation, but if it implies,
as it does, that economic conditions and I really refer
to employment conditions are going to be less than good,
are going to be poor, which I think is the
case of the outcome for September. Yes, we've got stagflation,
(13:13):
or we got the stag of stagflation, and of course
theflation part inflation. Are we going to see rising inflation? Well,
we've seen rising inflation. The Federal Reserve has done a
great job in bringing the rate of inflation down but
right now, with the pariffs, we're likely to see a
little bit of an upward push on the rate of inflation.
(13:34):
So it's a combination of labor market conditions not doing
very well, that's the stag and inflation starting to edge
a little bit higher. That's the flation. And then you've
got stagflation. So those are the conditions that we're facing
right now. And it's not just you and I Lou
that are facing those conditions. It's the Federal Reserve and
(13:55):
that makes their decision very difficult.
Speaker 1 (13:58):
And if that hasn't gotten your attention, I don't know
what will. We're gonna have to take a short break, Hugh,
and when we come back, we're gonna cover the government shutdown,
which is we're living through right now, the Supreme Court,
and the Fed market risks and what the markets are
gonna do in light of Tariff's, OBBA public policy, all
the things that we're seeing, and for that we are thankful, Hugh,
(14:19):
that you could join us today. For our listeners, stay
with us. We're gonna be right back after this short
break and we are back. Welcome back to Life Happens.
I'm Lupiro, your host for this morning and I have
with me live this morning, Hugh Johnson, noted economists who
and I've given your background, Hugh, You've been an Albany
native for a long time, worked at first Albany Corporation.
(14:43):
But your public persona now is as an economist working independently,
I believe, And you have your own company, and you've
been on a number of different national media outlets. And
this is not a local problem, folks, And this is
not just a local show. This is covering the whole country.
And Hugh your company, just tell us a little bit
(15:03):
about what you're doing now and how you're keeping up
with all of this chaos.
Speaker 2 (15:08):
Well, it is chaos. It is hard to keep up
with it. I'm using all the same tools that I
used to use. Obviously, it's a little more difficult when
the government shuts down. And the big problem when the
government shuts down is you can't get the numbers that
you are used to getting out of the Bureau of
Labor Statistics, the Bureau of Economic Analysis or whoever.
Speaker 1 (15:27):
And let me just ask a question right there.
Speaker 2 (15:29):
The economic analysis is tough.
Speaker 1 (15:32):
I've been bothered by this, and I'm hoping that a
lot of people are bothered by this. But when the
government is getting bad numbers, they're firing the messenger. And
how you going forward? You're an economist, you need those numbers.
How do we rely on those numbers? Because what's happening
is the degradation of the truth and of the accuracy
of the information that we're getting as consumers. How do
(15:56):
you stay in tune with that, and how do you
find ways to verify what is being put out by
the federal government.
Speaker 2 (16:04):
I think I can put people at ease to some extent.
Keep in mind that what has just happened is the
Federals are the Trump administration has just fired and Tony,
who is the person e j An Toni was selected
(16:25):
or nominated to be the new bureau head of the
Bureau of Labor Statistics. And there was a great deal
of concern among the economist community, to include myself, that
he was not qualified and he was just fired or
he was withdrawn. He has withdrawn his nomination to be
the head of the Bureau of Labor Statistics. So that's
(16:47):
at least that it gives me a little bit of
a sense, not a strong sense, but a sense that
the administration is responsive to getting people in these important
positions that are qualified. But keep in mind, and this
is much more important, is that the head of the
Bureau of Labor Statistics does not, under the best of circumstances,
(17:10):
see the labor market conditions or even the inflation numbers
until just before they're released, so it's unable to really,
let's say, change them. Therefore, I would encourage folks who
are listening to us not to lose heart that the
integrity is being compromised. It's obviously a concern and it's
(17:34):
very important, but I don't think based on the way
the Bureau of Labor Statistics operates, that we're seeing the
threat of a compromise of the variinity of the numbers
that we're seeing come out of the Bureau of Labor Statistics,
Bureau of Economic Analysis, Census bureaus or whatever. I think
they're good numbers, but we have to watch it carefully
(17:57):
because that's very important.
Speaker 1 (17:59):
Thank you, and I feel assured by that to you.
Thank you for putting my concerns at rest. But let's
go back to your work as an economist, and I
know you followed the FED very very closely, and that's
that's a big part of the driver of our economy.
And we've talked about the things that are going on there.
You know, one one FED governor was was discharged and
(18:23):
came back. There's litigation, you know, kind of volatility there,
and and the FED is going to turn over. The
board is going to turn over at some point in
the not too distant future. We have an October meeting,
we have a December meeting. What are you looking at
in the short term and then what do you see
as longer term for the FED.
Speaker 2 (18:42):
Well, it's an extremely important question, and it's an extremely
complex question, difficult to answer. Let me answer it this way.
First of all, the Supreme Court has told us already
that the decision by the Appeals Court that that one
of the governors that is being effectively fired by the
(19:03):
or they're attempting to fire her, the Trump administration cannot
yet be fired. They're going to hear the entire case
or the entire issue, but for now, the federal government
or the Trump administration cannot fire Lease the Cook as
a governor of the Federal Reserve. That's number one. The
(19:24):
second point, and again I'm going to have trouble staying grief.
But the second point is this the Federal Reserve is
structured in a way that it almost prevents the administration,
the current administration or any other administration from really compromising
the independence of the Federal Reserve. You have to get
into the complexity of the structure of the Federal Reserve.
(19:47):
It's a wonderful job that was done in the Federal
Reserve Act of twenty nineteen thirteen by those that created it.
It's very difficult to impact or to eliminate, or to
invade the independence of the Federal Reserve. It can be done,
but it's not going to be It's not going to
be easy, and it will depend very heavily on what the
(20:08):
Supreme Court decides when they see or hear this case
in January. But it's very difficult to do. Given the
way the turnover works on the governors and the voting
members of the Service, it's going to be very in
a word, it's going to be very difficult for this
administration to get the majority of the twelve votes that
(20:29):
are needed to make any decisions with regard to interest
rates our monetary policy. Very difficult to do. So, if
you were to ask me, I would say that the
independence of the Federal Reserve even given the firing of
Governor Cook, even if that goes through, and I doubt
that very seriously, if it'll go through, that she will
(20:50):
be fired, I doubt it. But even if she were fired,
it would be extremely difficult to get the majority of
the twelve votes for the Trump administration, to get the
majority play of the twelve votes, and therefore to make
or invade monetary decisions and interest rate decisions. I think
that the independence of the Federal Reserve is safe for now.
Speaker 1 (21:11):
That's good news and just for our listeners. If that
were to change, there would be a ripple effect, not
just in our country but around the world, because that
Federal Reserve and American fiscal policy are gold standards, and
our dollar is the gold standard, and that is important
for us as a country and for the world to
maintain that. So just kind of for big picture purposes,
(21:34):
the importance of those FED, the FED independence, and the
FED decisions in terms of the world.
Speaker 2 (21:39):
Economy, it's extremely important. And in this respect, think about this,
we're actually in some ways a follower. We have structured
our Federal Reserve both in nineteen thirteen and beyond in
a way that is it's very difficult to compromise the
(22:02):
independence of the Federal Reserve. The reason we've done that,
the reason we've protected that independence, and I wish that
the members of the Supreme Court were listening to me now,
was because other countries around the world that preserved that independence.
And as a result, we've learned from those that follow
that independence and those that have let the independence go,
(22:25):
We've learned that having that independence are having the decisions
of the Federal Reserve made by desned governors, economists, other
federal reserve means that you're likely to get a better
outcome when it comes to the production or the performance
of the economy and the performance of inflation. We know,
we know, we've seen it work in countries, and we've
(22:47):
seen it not work. We've seen the problems that come
up when we've seen that that independence has been compromised
in countries. It doesn't work. We've got lots of history
on our side.
Speaker 1 (22:58):
So in thirty seconds, because we're gonna break for the news,
what do you see coming up in October and December.
Speaker 2 (23:05):
My view is, first of all, it's a little bit uncertain,
but my view is that the Fed will cut rates
in October and will cut rates in December. Depends on
the data, depends on the numbers we see, although nobody's
going to be seeing many numbers. But I think that's
going to be the outcome based on what I've seen
so far. So I think the Thil Reserve will reduce
rates in October, we'll reduce dates rates in December. We'll
(23:27):
reduce rates one time at least one time in twenty
twenty six and one time in twenty twenty seven. Let's
call it a guest not a forecast.
Speaker 1 (23:36):
And that's good news for the markets. We're going to
come back after the news and talk about that. How
do you look at this from an investor perspective? What
does this all mean to your portfolio? Thanks to Hugh
Johnson for being with us, Stay with us for the
second half. We'll be back right after the news and
we are back. Welcome back to Life Happens. I'm Lou Piro,
(23:56):
your host with this morning, and Pier O'Connor and Strauss
as your sponsor for this show. We are very fortunate
today to have Hugh Johnson on, who is a noted economist,
and Hugh, you are coming to us from your home
up in uh Maine.
Speaker 2 (24:12):
No.
Speaker 1 (24:12):
I mean Vermont, Vermont, ok, Oh, Dorset. I played paddle
tennis at the Dorset Club up there. So the weather here, Hugh,
is just spectacular. We used to call this Indian summer,
but I think every year the September and early October
become more summer like every year, and it's it's not
(24:35):
Indian summer anymore. It's just an extension of summer. How
is the weather up there in Vermont?
Speaker 2 (24:40):
It looks it steals and looks like summer. I mean,
the sun is about to come out and the weather,
the temperature is supposed to get up to almost seventy today,
maybe even a little higher, so it kinda is very
summer like. And we don't have much turning of the
leaves yet. We have some, but not much. So it's
(25:00):
much more summer like than October like.
Speaker 1 (25:02):
Well it's interesting you say that, because in this area
leaf peeping they call it, are coming up and staying
for a weekend and going out and enjoying the vibrant
colors of the leaves. You don't get those until you
get a frost and it snaps and you get the
real gold and reds to deep breads. So that hasn't
quite hit yet.
Speaker 2 (25:21):
No, no, not yet. We're hoping crossing our fingers on that.
Speaker 1 (25:26):
And so the weather's been warm, but the stock market
has been hot. What is your take on that and
how long can we expect that these kinds of returns continue?
Speaker 2 (25:40):
I wish I knew the answer, Loo. I will say this,
We've had twenty four bow markets since eighteen ninety, and
we've had twenty three bear markets that have been accompanied
by recession. Sooner or later, this bow market will end.
It's gotten past what has been the long term average.
(26:01):
Even though it's gotten past the long term average for
bow market durations and magnitude, keep in mind that there
are plenty of bull markets that do go past the average,
and they could last a pretty long time. The average
being about good, go another day, three years, We don't
know right now. It's being driven by positive economic conditions.
(26:25):
They're not great. I've mentioned the labor market, and the
labor market is starting to struggle, but nevertheless, it looks
as though we're going to have positive employment conditions as
we look a little bit further out. That's number one.
Number two looks like real gross domestic product, which is
our scoreboard for the economy, is going to continue to
(26:48):
be positive. I'm looking at two point eight percent in
the third quarter of the current quarter versus three point
eight percent in the second quarter. And importantly for investors,
and I think they see this, is that earnings, the earnings,
corporate earnings well for twenty twenty five, twenty six, and
twenty seven are likely to be double digit and positive.
(27:10):
So if those earnings come through, if the Federal Reserve
reduces interest rates and longer term interest rates decline in
response to the Federal Reserve reducing short term interest rates,
get interest rates down, you get earnings doing better. The
investors see that, and as a result, they're buying stocks now.
Will I will caution everybody that although that's really a
(27:34):
good scenario, I think the stock market is in my view,
and everybody answers this question differently. I don't know. Some
will be right, some will be wrong. I think we're
a little bit pricing now or overvalued, maybe by as
much as nine percent. We're at the level we're likely
to end twenty twenty six AD, but we're above the
(27:56):
level we should have or it should average in the
fourth quarter of twenty twenty five. So pricey now. Short term,
we might have a little gim in the stock market,
but all within the context of as I see it,
an ongoing bull market driven by good earnings and a
reasonably okay economy, and certainly by interest rate reductions by
(28:19):
the reserve, and it decline in long term interest rates.
That's very complex, very hard to follow, but I hope
you get sort of the drift at least this is
my view. Who knows, So let's.
Speaker 1 (28:30):
Peel that back a little bit more, because there's a
lot to digest in looking at all of these factors.
The stock market, I don't disagree, has has a mind
of its own, and that's based, I think largely now
on those corporate earnings that you just talked about. And
you know, the labor market statistics can go down, inflation
(28:50):
could tick up. But what's driving corporate earnings, I think
are two things. One, and it's kind of a revolution,
is the AI revolution and the ability of companies to
produce more with less and to just do things on
so much more efficient basis. And I don't know what
(29:12):
the productivity numbers look like right now, but I'm guessing
that productivity worker productivity has gone up tremendously.
Speaker 2 (29:19):
The actually the productivity numbers have kicked in a little bit,
but the stock market is discounting reflecting a much bigger
gain in productivity than we've seen already in two thousand
and twenty twenty five. So, if you're asking what really
is driving a lot of investors, what is driving in
(29:41):
part of the marketing. Remember, the economy is a function
of the growth rate of the labor force and employment
on the one hand, and the growth of the productivity
of that labor force on the other hand. One of
the problems we're facing is that the growth rate of
the labor force and employment has been hurt or has
been curtailed by the deportation and immigration restrictions coming out
(30:07):
of the Trump administration in Washington. Now that's not good news.
That's affected or hurt or curtailed the growth of the
labor force. Eventually, though, we're going to see hopefully the
growth of the labor force maybe be to some extent restored.
But the real driver is, just as you mentioned, is
(30:29):
the expectations or forecasts or the impact of artificial intelligence
on the economy. And it would appear to many investors,
savvy investors, that the market has not entirely discounted or
reflected the strong growth in productivity that we're likely to
see twenty twenty six, twenty seven and beyond. Maybe it's
(30:52):
even as high, and maybe it's even two thousand and thirty,
who knows. But I think that you've mentioned what's really
the big driver. Product It is going to be a
big driver. And I might add that it's not just productivity,
but we've seen a very strong growth in consumer spending
over the course of twenty twenty five so far, and
(31:12):
that's particularly true of the current quarter. The third quarter,
surprisingly strong consumer.
Speaker 1 (31:18):
Spending, and that's always a big part of our economy
because our economy is a consumer driven economy. So the
question becomes, then if jobs are being cut, and I'm
going to throw maybe a kind of a straw man
argument out there, and this is a replacement theory for jobs,
and that is that AI will someday take tens of
(31:42):
millions of jobs and put people on the street. And
the one that used to be talked about a lot,
but it hasn't really panned out. I'm going back now
three four five years ago, is the driverless vehicles and
the ability to have trucks that can transport themselves across
the country without those and I think the number was
sixteen million people make their living driving and if that
(32:05):
wore't happen, if we were to automate automobiles and put
driverless cars on the road, that would have a shockwave
throughout the system. And I think there are many jobs
that could have that kind of impact. Is this reality?
Is this something that will happen but not for ten years?
What do you see in that?
Speaker 2 (32:23):
I wish I knew, Lou. That's a great question, and
unfortunately everybody's got a different answer, and I don't have
the answer, but I will say that it's extremely important.
Keep in mind, though the history of the US economy,
and I say this because I'm just sort of a
a genital defect optimist, and that is when we went
(32:44):
from an agriculture delivered driven economy to an industrial economy
in nineteen twenty and beyond, we were very worried about
the replacement the loss of jobs in the agriculture sector
of the US economy, and indeed those jobs were lost.
We had a tremendous decline in the number of people
(33:06):
working in the agriculture industry, and that was offset by
a lot of innovation and creativity, and an expansion of
the industrial economy which offset the losses in the agriculture economy.
There are many now that say that the losses that
will be created by the introduction of AI to the
(33:27):
US economy will be offset by the equal amount of
innovation which will create new jobs and opportunities. I don't
see that yet. I'm not smart enough to know or
to forecast that that's going to happen. But that's the hope, dreams,
let's call it, maybe even fantasy of those of us
that are watching the economy and hoping that that's going
(33:50):
to be a part of the explanation of the outcome.
And that's integrated in now, it's being integrated into a
forecast made by investors collect actively in a rising stock.
Speaker 1 (34:02):
Market, right, And that's a great historical perspective. And I
think there's maybe one other phenomenon, which was the Internet,
which when that came in, people thought the Internet was
going to take thousands or millions of jobs away. But
the Internet became a tool and it became a tool
for people to use. But are we at a precipice
where the Internet in AI together with AI now thinking
(34:28):
for us and I think that's the difference between going
from an agricultural job to an industrial job to a
technological job. If that job is not doesn't need your
brain to do it. If AI is replacing the thought
process that goes through and does the menial tasks today
that are like robotics inside of a warehouse or something
(34:50):
like that, now take it to the next level and
they're doing more meaningful jobs without the necessity of the
human brain. And I think that might be a paradigm
shift in this AI phenomenon.
Speaker 2 (35:05):
You're raising issues which again no answers. Unfortunately, I want
everybody to take right down the name of a book
this time is It's Different, and the name of it
that's written by Reinhardt and Rogoff, two professors at Harvard,
and it's been criticized, widely criticized, but nevertheless, there are
parts of that book which are worth reading simply to
(35:30):
get at or try to get at the issue. You
just bring up this time it's different. And every time
we say that this time it's different, you know, it
turns out that it's not that different. In other words,
history repeats itself, well, maybe it rhymes, and it doesn't
repeat it so as we've heard so often, but nevertheless,
(35:52):
maybe we'll be lucky enough that there will be the
creation of a whole new panoply of jobs or things
that and we have to worry about that for our grandchildren.
I have two grandboys, grandsons, and believe me, when I
wake up at night, in the middle of the night,
I think about things like this.
Speaker 1 (36:12):
And there's another factor that comes with this that you know,
it doesn't really play into some of the things we're
talking about now, but that is income and wealth disparity.
When the people that have resources and are able to
benefit from stock market increases and technology increases and the
values of their companies doesn't necessarily trickle down and there's
(36:32):
a word that we haven't talked about yet, those in
those gains don't trickle down to the working class, to
the people who are you know, going to work one job,
getting out of that job, going to the next job,
going home raising kids. That there is a shift and
that that's been going on now for probably forty years
(36:53):
where we have a concentration of wealth and income and
how does that play into this from a public policy perspective,
and should we be thinking about that.
Speaker 2 (37:04):
You hit the nail on the head when you said
public policy. The issue is primarily an issue of public policy.
And the One Big, Beautiful Bill did one thing. It
extended the tax cuts, as you know, Lou and you
know better than anybody. It extended the twenty seventeen tax
reductions beyond twenty twenty five when they were going to sunset.
(37:29):
And embedded in the two thousand seventeen tax reductions was
the income disparity that you've been referring to, and that's
primarily a function of public policy. It's very troubling for
those that are not on the right side of the
political aisle, those that are on the left side and beyond.
(37:52):
It's very troubling. But it has its troubling for very
good reasons. And there is that income disparity and then
hopefully will over time change as it becomes better understood.
But you absolutely hit the nail on the head. You're
asking questions, You're bringing up issues which are very difficult
for economists or even thinkers people that are listening to
(38:14):
this program to really answer. And this is these are
really important issues.
Speaker 1 (38:20):
I think this is why people need to get involved
at a grassroots level, because these will be the issues
of our day. What world will our children live in?
What will this look like twenty thirty, forty fifty years
from now? Are we leaving them in a better place?
And we're going to come back and look more closely
at tariffs and the OBBA, and then look at the
(38:40):
current government shutdown. What's causing it? Why are we shut
down right now? What are the policy differences? In this
view brings us back to the public policy issues, and
we're going to come back for our last segment. Stay
with us, Hugh Johnson, Loupiro. You're listening to Life Happens
Radio every Saturday morning at nine am on Talk Radio WGY.
We'll be right back and we're back. So, Hugh, how
(39:05):
do we get here? And then how do we get
out of it?
Speaker 2 (39:10):
Well, you're getting back to the same thing, which is
the important policy differences between the Democratic Party and the
Republican Party. And how do you get out of it? Well,
first of all, you've got to get just different parties Democrats,
Republicans and the Light House to sit down and talk
(39:31):
and compromise. Compromise has not been a big part of
the policy process in Washington, as we both know. And
so how you get out of it. You don't get
out of it unless there's compromise, and that means on
both the side of the Democratic side of the aisle,
if that's the way to say it, as well as
(39:52):
the right Republican side of the aisle. I'm not particularly optimistic,
but you're getting right at the issue. It's a example,
especially when you talk about Medicare and Medicaid and the
desire of the Democratic Party to revive the Medicare and
Medicaid for those that need it. Those and there are
plenty of people that need it, but you're not You're
(40:15):
not going to resolve it if Schumer and the Democratic
Party stay stuck on insisting that we revive or get
recover the problems with health care. And so there's got
to be compromise, and Loua, if you know how to
get compromise in Washington, I'm going to vote for you
(40:37):
today and send you directly to Washington and turn you loose,
because that's what's that's what's missing.
Speaker 1 (40:44):
Well, if I could, I would. That's not a job
that anyone could take lightly or do easily. But I
think the real battle here was waged back in June,
and that was the debate over the cuts in the OBBA,
the Big Beautiful Bill and the healthcare cuts and the
(41:06):
tax cuts, and it was there wasn't very little compromise
in that it was a party line vote and a
very narrow vote, and that's where we got to today.
The OBBBA is what brought us the healthcare cuts. The
Democrats are trying to use leverage that is the shutdown,
(41:27):
and it's a blame game. I blame the President, I
blame the Republicans. The Republicans blame the Democrats. But this
is a fundamental public policy issue, Hugh, that we can't
resolve I think, on a legislative basis anymore, because there
is no dialogue and there is no compromise. And the
compromise should have come in the OBBBA, but that's the
(41:49):
law today.
Speaker 2 (41:52):
It's unfortunate, and you're getting right at it. I mean,
it's the problem is the lack of compromise. And you've
got the midterm elections coming up, and everybody's got their
eye on what they do or say or stand for
and how what's going to be the impact on the
midterm elections. As you know, Lou And I'm not saying
(42:13):
this because I'm a Democrat or a Republican. I'm a
registered independent and I'm going to sort of stay there.
But nevertheless, as you know that it's a big issue now,
and historically there's a change of our leadership or parties
a majority in the House of Representatives based on the
historical outcomes of midterm elections. We'll see. I don't see
(42:35):
that yet, but it's going to be very, very important.
And me, I know we can't wait until the midterm
elections in order to find the compromise that reopens the
federal government. We don't have that much time. We can't
do that. We can't afford that kind of time. We've
got to have compromise right now. But the midterm elections,
(42:59):
it's not for They're also weighing very heavily on the
positions of both parties on this debate.
Speaker 1 (43:06):
I've always felt that the government functioned better when you
had divided houses, when you had the Republicans and one
maybe the Senate and the Democrats had the House. To me,
that forced compromise because one house couldn't put a bill
out without the other house supporting it. And right now
you've got they've run the table, they've got the House,
(43:30):
the Senate, the Presidency, and some would say the Supreme
Court to lean in one direction, and so we don't
have that balance that forces compromise. I belong to an
organization that I've talked about on this show numerous times,
and we're down. We're about fourteen years old now. It's
called No Labels. And I had one of your fellow
(43:51):
economists on this show a couple of times by the
name of David Walker, and he was the Controller General
of the United States, the country's accountant under Bill Clinton
when he and New Gingrich balanced the budget. David Walker
was part of that process, and that's something that we
just can't get back to for whatever reason. And Clinton
(44:13):
and Gingrich and their parties and the people working in
government balanced the budget, which today is not even thought about.
Speaker 2 (44:21):
You, well, you've got you have. It comes down to people,
and it comes the kinds of people that are at
the it should be at the negotiating table. And I'm
going to try to avoid saying what I want to say,
but if it's if the people that are part of
the process only care about the outcome for themselves and
(44:44):
their political lives, which we certainly see with with some
of the political representatives that we have in Washington. I
guess I'm being careful. If they care only about themselves
and their political lives, only care about themselves, you're never
going to get there. You have to have people like
(45:05):
Tip O'Neil. I think you probably remember people that would
walk across the aisle, sit down, talk, compromise and an
important word, compromise and reach agreements. It's a function of
the people, and we don't have the right people.
Speaker 1 (45:22):
It's just that when Ronald Reagan got shot, Tip O'Neil
was the first person at the hospital in the room.
That's right, because they had a friendship that overcame their
political differences. And we have to be able to debate, dialogue, discuss,
and at the end of the day reach a decision,
and then both sides have to get behind that decision.
(45:44):
And that's hard to do because it may be against
your fundamental beliefs, but it may be the best thing
going forward. And the government has certain responsibilities education, healthcare,
things that people take for granted in some cases, but
we can't take them for granted anymore because each of
those institutions is being significantly impacted. And healthcare is something
(46:09):
we deal with on a day to day basis for
our clients. And I can tell you from the perspective
of an attorney representing a lot of people going through
the healthcare system and having gone through the system myself recently,
it has some significant problems. And the cost of healthcare
in America is just so far out of control that
the government, Medicare, Medicaid, private insurance, they just can't keep pace.
Speaker 2 (46:36):
You're hitting nails on the head continuously, and it's unfortunate.
And unless they're significant change, political change, new people in Washington,
I don't see how this is going to get resolved
anytime soon, particularly the current administration. Some of the people
in the current administration clearly clearly don't really care whole
(47:00):
lot about the proper distribution of all of the good
things about this country. They care primarily about their own
political fortunes. And that's that's just never going to work.
Speaker 1 (47:13):
Yeah, And you know, as we say, it cuts both ways.
There are certainly people on both sides looking to get
their own economic interest and political interests satisfied through their
positions in the government. As I said, the pendulum has
swung way over in one side at some point, and
(47:34):
this is something that everyone should remember. The pendulum will
swing back, and it could swing back harder the other
way at some point in time. It's just a matter
of time.
Speaker 2 (47:42):
It could it could do. A president Ford once said,
He once said, the pendulum has now come full circle.
Speaker 1 (47:51):
You sure it wasn't Yogi bear?
Speaker 2 (47:54):
He said that, And that was one of the many
things that he said that was pretty entertaining. That useful,
but entertaining.
Speaker 1 (48:01):
And I like you, I am a registered independent. I
grew up in a Republican household. I myself was a
Republican for many, many years. But I just saw this
polarization and the need to create a new middle class
politically of people who are willing to look at issues
and not say I have to be right every time
(48:25):
or I'm going to be wrong. Well, right and wrong
are our relative terms when you're talking about public policy. Yes,
and so we got about a minute left, and I
want to give you the last word. Where should where
should people be putting their money? Is the stock markets
still safe?
Speaker 2 (48:43):
You? Yeah?
Speaker 1 (48:45):
You know.
Speaker 2 (48:46):
To answer that question, I look at two things. I
look at the performance of the markets themselves, because investors
collectively generally get it right, and the markets have been
bullish or sending us bullish signals or signals that are
optimistic about prospects for the economy or the foreseeable future.
Maybe that only means two thousand and twenty six and
(49:08):
twenty seven, but nevertheless, the message of the markets has
been positive. And I also do a lot of number
crunching on the economic numbers that we get and that
I see to try to determine what's going to be
the results.
Speaker 1 (49:23):
That is the last word. Thank you, have a great week,
and you too,
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