 In your presentation, the assets where Vanguard really took off and spiked and just let Fidelity in the trail, happened about 2007. And another thing happened in 2007, and I wonder what the correlation is. That was the founding of the local head toward God. Well, I'm glad to answer your question. Alright, without further ado, a number of years ago, Jack asked if he could have a chat with Phil Bernstein, an informal non-political chat. And we all know the way Jack wants Jack gets, and it's become known as the Farside Chat. So without further ado, I'd like to introduce Jack's companion for the Farside Chat. He's a retired neurologist who helped co-found the fishing frontier advisors. He's written another best-selling title in both finance and economic history. He holds both a PhD in chemistry and an MD. Please welcome one of the smartest guys I know, Dr. Bill Bernstein. Well, since you made sure that you made this comment, I'm going to start with Keynes v. Haydn. For those of you who aren't quite familiar with the big Keynes that you can address, you can on my okay now? Yeah. Okay, is that okay? Yeah. Yeah, all right. Welcome, sir. Good to see you. So, you know, for those of you who aren't familiar with Keynes, it basically says that the rest of Central Bank is necessary to bring out the punch bowl from a necessary to take it away when necessary, and Haydn said that, you know, you won't be encouraged to booms and busts, and you'll get hard on inflation. And of course, this became relevant in 2009 when the Fed brought out not just the punch bowl, but the whole liquor store. And, you know, we haven't seen inflation, but there's still the risk of booms versus busts. I've seen booms getting thrown from all the equipment. I wanted to interject on what you wrote about that. Let me say, again, with that perspective, that reminds me of Mao Zedong, the Chinese leader. Mao Zedong and the Chinese leader, I guess, look better. He was asked about the implications of the French Revolution. And Mao Zedong said, it's too soon to tell. I think that's pretty wise. I'd say any Keynes has been, importantly, vindicated by this last go-round national system. What would have happened if it were smaller to some extent, and the converse to some extent. Back in those days, the converse did things. Oh, I'm not supposed to say that. And they pumped them up. They pumped and they're still really stopped pumping, but they're not taking up any of the well. And I think that helps to explain why we have all the industrialized companies in the world. I've had the best recovery. Switzerland, maybe, ahead, but against Italy. I'll be a grease-out. The United Kingdom has been stronger. And I give the Fed a lot of credit for that. Particularly since this time, the Fed is operating with, with regard to the economy is operating, the conventional economic wisdom policy, such as the Fed does, a fiscal policy, you need to spend more. And we have not done very well on the fiscal policy side at all, so how this will all be, have those huge assets on the Fed. Everybody expects them to unwind, but maybe those will be the same for a while. And I think probably the most important guess is these low-interest rates are going to last for quite a while. The smart money is saying, I, consistent with my personality, would say if the smart money is all betting, no rise in rates, I'd better not rise in rates. But I think that the smart money so far, remember exactly what it is, is about right. So I think King's got this one pretty much right in an imperfect world. I studied it back in college for his help on understanding the markets. And that's essentially where this, he called it enterprise versus speculation for long-term yield on the asset versus the price that the investors are willing to pay for it. And that's the fundamental. I think the most fascinating and vivid data related to that is that if you subtract the long-term tips yield from the long-term treasury, you'll get an imputed inflation rate over the next 30 years of 1.6%. You know, if you want to make an economic historian laugh, you can tell him that figure if you remember that figure. All right, well, if you turn your soul after the second martini to the left. I only had one. I only had one. But those are the best ones, aren't they? And you told me that you own the International Bond Fund. Well, yes, it was in your retirement plan. No, no, I'm sorry. That has a misunderstanding about what I said. Actually the way the conversation went was that I decided to move to get a little more conservative. I wanted to move right into it in your retirement account at Vanguard to have a limited list of funds and includes total bond market fund, which for reasons I've said over and over again, it's 70% governments. I wanted to go to an intermediate term, Bond Index Fund, which is about 35% or 40% or 45% or 50% governments. And I would like it to be even lower than that run just like an index fund. Are not eligible choices. So what I was complaining to Bill was, why are they offering that as a choice when they could offer something that would make a lot more sense for 90% of all investors? So it's a small misunderstanding with that. I wouldn't want to do that. Well, you've got to be kidding me. How did you have your opportunity to tell me why I was still wrong about international investment? Well, first, let's talk about the first one that I'll give you. Well, international, my thesis is so clear in my mind. My thesis is so clear in my mind. I can even hear that echo, so I know I'm doing okay now. And that is, first of all, if you invest in the S&P 500, you will own an internet from outside the U.S. So it's not exactly for higher risk adjusted return or something like that. On U.S. stocks and U.S. stocks, we've read for many years, long time ago, 15 years ago, we read about 35% or 40%. And now it's about 85%. In these last couple of years, it may be 95%. I wish you don't get that thing that people say has value that I don't believe has value. But whatever it is that's going on. Is that too Pennsylvania Dutch and expression for you? So that is, and this is the way I've kind of run all my yet. So in concept, that gives you more companies, whatever you want to say. But I look forward to see what's in it. And the largest, the largest, the largest holding is France. So the U.K., the scene over there, they still had more of several ways of going on tourism as kind of a yesterday thing. Not so much to be said about Britain. Japan, every once in a while, is tsunami. What's so high about that? None of that's on the ground. Oh, France. Oh, France. Do you know they don't work there anymore? They were supposed to go with $35 a week when they went on strike. 35 hours a week. Hey, who works? Does anybody in the room work only 35 hours? Or when others step on these dollars, I spend my money in dollars. I save my money. That's my money in dollars. I am the most productive economy in the world. How is that going to improve my returns? Now, I just don't see the merit of any of it. Why take a currency risk? Yes, it can be hedged with a cost of a lot of money. And when you get the international bonds, I'll sneak back on that one, Bill. The international bond yields about 1.3%. And the U.S. bond yields, depending on how you want to calculate it, to 1.5 or 3%. And the today's yield is what determines your future return on the bond. Now, it doesn't seem to me to be looking good and bad. I don't want to worry about foreign currencies. I also know that with the exception, maybe, of Switzerland institutions, financial institutions in the United States are the most established in the world. The protection of shareholder rights is the most established in the world. There isn't any possibility of currency controls getting in the way of mining. So, and my final icing on the cake is when Warren decided to leave its 90% of his wife's estate that he's leaving to her in the S&P 500 index fund, he obviously wasn't thinking about $100 in the index business with like this. And then Warren's fees because like this and that. Just like the book thing. I'm sure he'll think of something. But then I know what's saying. So take that. Just think about what you're really trying to accomplish there. Performance. It would not be amazing to see the performance reversed in the U.S. and that's been going on for a while. The long run is a message I was trying to say in the data I showed you this morning. It's determined by the strength of the economy. The stock market has nothing to do with stocks and non-U.S. stocks. Look a little bit undervalued relative to the U.S. maybe even up to the U.S. in terms of dividend yields and P.E. mortgables will go over. But maybe that's because they're riskier. I don't see the need for it. And then I would finally say supposing I'm wrong, we'd do better by say 2% next 10 years. I think so. But it's not going to matter whether you have 2% a year difference. It's going to be very large. But in the long long shot, I think. And you put that on compared to zero. And you just get a very small increase in return. In which you put whatever in your logical case. That could be wrong. Now I do what I'm saying. I guess I have to reverse the old expression. I do not eat my own cooking. I don't do internet. Lousy forecasters means a lot. We do have lousy forecasters. We're going to admit it. An awful pattern in the crowd for a lousy forecaster, which is I haven't been proven right yet. All right. Well, the next question I suppose I have. That has to do with ETS. It's how many people in this audience own ETS? I think it's not the job, but it's close to. Can I ask a second? Can I ask a second? That's my point. And so you might think that a lot of if not most small investors don't trade them. It's cheaper or more fashionable substitutes for ETS. And so my question is don't you think that the turnover figures for the ETS are skewed probably by institutional investors who trade their things for their own reasons? What is an institutional trading business divided half into people that are trading them with some activity and people that are buying and trading them very rarely? They said they can no longer do that. So we switched to an ETS. $100 spider. The turnover this year marks the institution. And they're going long, they're going short. Sometimes they're hedging on this early speculation. But it is the most widely traded stock in the world every single day in terms of the dollar value. This is the piece I'm writing for the next limo's journal on this very subject. I was the most really nice man. I'm worth talking about as the basis for months to be bought and held and of course consulted with. I mean I'm such a man. Leaving on the State Street it turns out I like to have been the founder not only of the first ETS, a lot of people will tell you that shows how stupid I am. The ability to stand in principle instead of market share. I'm honestly very pleased with my decision. I have no run party institutional business. Both of these State Street funds have 63%. 6,000%, 600% a year and bank guards in one sector to another. It's not kind of a use. Even if they turn over the velocity shares, the market is going up for 2 trillion percent or something, I don't know what it is. So each seeking, so there's a lot of junk out there and these guys have velocity shares as a turnover of shares of 10,000 3 and it's only 7% institutional ownership. Those in retail are a lot smaller than the others. The largest in a bunch is about $100 billion. ETS are clearly the new way to speculate. ETS is almost as great as trading in individual stocks. So we know that's going on, but there is another business going on and a useful ETS strategy, a little bit cynical is fine just so long as you don't trade them. Investors is not an asset, it is a liability. And when you see that, they won the market with 1,000 points, I don't know, half an hour or something. A lot of ETS traded a ridiculous price of maybe discounts of 50 or 60 or 70% for the rest of the day. There are some sharp scissors who bought them up and people sold them and they said they had open sale water and maybe the ETS was selling at 20 and they said I want to sell it at 19 but if it goes from 20 to 3, they sell it at 3. And that is actually happening. So we need to think about the structure of the ETS and the stock market. You know, open stock orders without open sellers without a range of stocks and things of that nature. But there is a business there that I had to guess. I'd say the ETS business is probably 65% institutional, 35% individual and I'd say maybe a quarter of the individual total because people are using ETS in the right way or in the wrong way. That's a good guess. Someday we'll find out. Just the world. Any executive, if I'm the executive who brings out a leverage or an interest fund should learn and I'll be just smooth. All right. Well, let's shift gears a little bit. The Center for Retirement Research in the Lawson Foundation knows it's a great deal at risk index for retirement risk index every year. It was about 30% 30% of people were over at risk 30 years ago and now it's gone up to 51% by any increases over the year by about a percent or two. In a lot of other ways, it's very conservative. They assume that you take all of your retirement assets and militize it and by the way reverse mortgage your house. Which means that the real percentage of people who are actually at risk is probably much higher. So do you think there's a retirement cost and what should you do about it? A crisis in all three legs of the retirement school. What are social security? And it would be so easy to fix if we had the political will to do it with very small changes in retirement age in contributions in maybe limiting withdrawals to people who have reached a certain level of other income. There are all kinds and basically it would be not noticeable in the short run. But it's also politically charged. We can't get anybody to summon the will power. So if we don't do something where everybody knows this number and then it's by 2023 I think it is. Unless we do something, social security will be paying out and it's taking in and it's easy to avoid that. We just don't have any political will to do anything in Washington. We have a lot of intelligent things like fixing social security and it'll get politicized like everything else even like that fiduciary duty standard fixed on optimistic that all of the common sense will prevail. Pension plans. Pension plans on the corporate side declining. Pension plans on the state and local side very strong and they are all assuming 7.5% future returns. They're about 62% funded on average so that's going on a 7.5% return to balance the books over the next 25 years. They're not going to get 7.5%. You've got to be kidding me when they accept that the future returns in the market will be maybe that 4% will be low maybe it's a lot low who knows maybe it's even high who just don't know but if you want to assume 5 you can't get in the balance portfolio anything like 7.5%. So what the state and local funds are doing it seems is saying okay the index fund their money is coming in index fund still when they look at it they say this just will not do let's say Pogo is right buyer returns well let's get a couple of good hedge fund managers and let's get which one do you pick common standard and they use these terms like macro and this and that I don't understand really what those various categories of hedge funds are. I do understand that very few other hedge funds like my son actually runs an actual hedge fund and he's 50% short 40 long stocks 40 short stocks if he's long in the auto field he'll be short in the auto field he can't be more conservative he has a beta of 5% or 6%, 70% returns year after year so that's a hedge fund what they do is unusual strategies enormous fees compensation strategy and not an investment strategy so called hedge funds they're not going to get it out of that one pension plan can not it's the other thing you want to do when you go to 5% let's say which is probably still on the job today this way and let a successor get stuck with the problem think this way, I mean they're business men but a private pension system is going to be in shambles it's going to be a serious economic problem the 401 is a very simple and fundamental to massage them all the things you would obviously do in a retirement plan you would obviously not do in a thrift plan let people take their money you can take money out cap a lot of your social security account whenever you want but that makes any sense at all but there has to be a very stern discipline for the time you retire so there has to be much less flexibility that's what a retirement plan would do the thrift plan we're on about 15 minutes later on the agenda we're going to take a 20 minute break we'll catch up shortly Q&A about 15 minutes with the experts and we'll get back on schedule take a break now, thank you Bill thank you Jack