 A number of years ago, Jack Askev, he and Bill Bernstein could do an informal chat as part of the agenda. We all know what Jack wants Jack against. So it's become a regular part of our conference agenda ever since. It's now affectionately known as the Farside Chat. Jack is here, but Jack's companion for the Farside Chat is a retired neurologist who helped co-pound deficient frontier advisors. He's written a number of best-selling titles on both finance and economics history. He owns both the PhD in chemistry and in the M.D. Please welcome one of the smartest guys I know. When we started in, Steve Dunn told us a lovely story. So I'm going to tell a little bit of a story out of school, because I had the lunch I had with a representative from another large, passively-paced, mutual-funded company that has, I think it's no secret, a succession problem. This company has excellent management. This management has no succession issues at all. They have a great deep bench and advert card. But their problem is ownership. They've got two owners. And the owners want to get their justified, when they're just deserts out of it. And there's, in their eyes, really only two ways to do this. One is to have an initial public offering, which would be bad news. And then the other solution would be to sell to a larger financial corporate entity, which would be even worse news. And so I've suggested to them multiple times that they vanuverize, which is basically to sell themselves to their shareholders so that after 10 years or so, they wind up being owned by their shareholders like they do. And they looked at me and said, well, Jack Bogle did this. How much did he charge? And I said, zero gave your way to the fring. And they said, well, why would he do that? And you have to know me. I kind of blurt things out. I said, well, because he's a Mitch. So of course, they're not going to listen to me. But I thought I'd start off, Jack, and ask you about your personal feelings about the recent Nobel Prize. Lord, it's not going to ask you that handsomely because he's. And so I'll ask you about what you think the legacy of Schiller and Thommi is, what you've learned from them, where you've disagreed from them. And their work is not entirely consistent with each other. To say the least. Yeah. And so I'd like your opinion on that, too. Well, I talked a little bit about this, I think, where you got here, Bill, but let me just kind of reiterate what I think. One is, I don't see how efficient markets can even be on hypothesis. Because it's sometimes right, and sometimes wrong. Hypothesis is not how it holds, unless there's cheese in it. And I think the one place that both Schiller and Thommi agree is that in the long run, the markets are a lot more efficient than they are in the short run. And I would totally endorse that. The data are crystal clear that they tend to move toward it, if you want to call it an equilibrium. I want to use two high power, highfalutin phrases, because that's just not my style and not my preference. But it's efficient markets, however, has nothing to do with zero, not with my creation of the index funds. I never heard of Fama then, as you all know. And I didn't believe in efficient markets. And I spent a lot of time in my books saying, there is a quantitative school. Guys out of Wells Fargo were very good. And they ran some money for us for a while. Didn't work that well for about 15 years, then didn't work out any more. And then sort of asset allocation stuff. They're all launched deeply into trying to prove the market is efficient. The Samsonite, well-known pension plan, it was the first pension account to do this. And it failed, because they picked the wrong index. I take some pride in the fact that they finally picked the right index after Fingard 500 came out. And I don't necessarily follow if they needed a good index and they picked the right one. So the efficient markets never had anything to do with my idea. My idea was that, this is what I mentioned before, and I'll mention it again, is what you need is the CNH, which is a consistent cost-matters hypothesis. And that is true under any momentary time period or any internal time period. And that is the less cost you pay than where your share of the market returns goes up when the market is efficient or inefficient long-term, short-term, whatever it is. So I think efficient markets is overrated, but not as bad as Schiller says, which has done more damage to economic thinking than any idea in the history of economic thought. Or some understatement like that. And he really did say that in one of his books. And so they disagree. And I think it's kind of interesting. And in a way, I like it when they award the Nobel Prize to two people who think exactly the opposite of one another. As to Bob Schiller, he's very creative, very smart. I like the idea of an ease of the 15-year movement, earnings starting to calculate the PDA. It's a long way from perfect, but it's probably better than using the last year or the next year pumped up with expectations. And so, and he's a good thinker. He has some very complicated ideas, which I think are oversimplified, for example. He wants to create a whole bunch of new financial instruments to protect us from problems that are home mortgages and that kind of thing. And the problem with any aggregator of any kind of asset class, or whatever you want to call it, or any kind of derivative, is they cost money. The system takes money out. So it works less well for investors of the group that does when it's on paper, because they don't count, they do the pricing. They don't count the intermediary share. So are they both worthy of the Nobel Prize? I would have no idea, but in fact, the Nobel Prize Committee has been all over this news how they are. So I salute them, but that doesn't mean I have to follow every word that they have. And I am, so really surprised you, totally unintimidated by the idea of taking them both on a little bit, which I did in that Wall Street Journal letter, which may or may not ever get published. And it's such a good letter, and we hated it, Michael hated it. And the more they hated it, the more I wanted to. I did try and adjust to what they said, being a little bit kind of smack of the base sort of thing. But ending against us thinking about these issues, and particularly issues, and I've always had a lot of time on issues that are opposed to what I say. I think it's much more valuable. Bill knows this. And by the way, what an honor it is for me to be with this guy right off the hospital bed. I ain't making me look like a biker. I hate that. And so, anything that makes you think, maybe I'm wrong. And I've been known to think that for a moment or two. And so you try and learn, you try and keep up with the academic journals. And I can say this about, Taylor mentioned, is cited for the journal News Story and Op-Ed on Monday. The efficient markets had nothing to do with my creation of the index fund. But it's worthwhile to look at that hypothesis, to challenge it. And I'm pretty good at that, but I just want to add that there was an article from a Nobel Prize winner that in fact did inspire my creation of a first index fund. And that would be Paul Samuels's article in the first edition of the Journal of Bullying Management called Challenge to Judgment. And Paul Samuels, and he's in my group, he doesn't get into efficient markets right now. He says, show me the brute evidence that managers can win. And no one ever showed him any brute evidence that managers could win. And they haven't shown him yet. So he and I were, he's the inspiration for me, not Gene Plum. And so, like I said that for the Wall Street Journal in Paul's, if someone like Paul Samuels said, it turns out to be one of the nicest guys you'll ever meet, he's just so brilliant, he's so embarrassed to be in the same room with him, but I get over it. He's a very, in a lot of ways, humble guy, not like academics. He maybe has a touch of arrogance, but I know a particular person who's not an academic who has a touch of arrogance too, I'm not going to identify him. He's right in front of me, and I'm not talking about him at all. So I think he should get his credit, because it really did help me sell the idea next month to the board. I'd done all the data myself, line by line, calculator by calculator, in 1975 before that was the first thing I did was bring that index fund to the board of directors after Vanguard started in May. And it was on their desk, I think, September, August or September, and they didn't know what to do about it. It was being managed, but not actively managed. That was a hurdle. The data was a hurdle, but when you have full seconds, you've got a pretty potent weapon. It shows you're not nuts. It may be all it shows, but that was enough. Yeah, the limit to very fast observations, and then I'll segue into another question. The first observation is that when I fall face first into my mashed potatoes, I will not want per lack of medical attention in this audience. The second is, we're serious, I think Schiller is one of the most brilliant. He has a peculiar intellect, a peculiar personality that makes the gifts in his brilliant element sort of a very dissociated way of looking at the world. And he's one of the few people whose macroeconomic analysis and financial terms I listened to, because he's so rationally, so divorced from popular thinking. But a lot of the ideas that he has are truly bad ideas. And one of the ones is the one that Jack just mentioned, which is dramatizing housing markets. Theoretically, they can be used to hedge. Wonderful. So can most other derivatives be used to hedge, but you know that's not what they're gonna be used for. You know they're gonna be used to destabilize the system and not to stabilize it, or to use it respectfully. With that said, I wanna come up with something and talk about something else that Gene Fonda has said, which gets off the reservation. I think it's extremely important, which is that one thing I think we've learned over the past several years, and we didn't know it already, is how important banks are. All right? You know, first there's police stations and courts, then there's banks, then there's hospitals, because we don't have banks in a lot of hospitals. And we have an unstable banking system. One of Gene Fonda's ideas, Jack, is that about a quarter of bank capitalization should be equity. All right? What he can be loaned. It's not gonna be idle money sitting there. It's money to give out a profit for the owners. And it's kind of an IEV idea, but at the same time it has a certain appeal and also a certain support. It isn't some of the most serious members of the banking industry. So I wanna know what you think about our banking structure in general and also what you think about the Pricercom as a suggestion. Okay, well on the banking system, I even go beyond that Bill and say, you know, what's happening to the world of capitalism. And I think the most worrisome trend is growing concentration everywhere, larger and larger. And the banks say, listen to Jamie Dimon, listen to anybody else in the banking area. We have to be large because our clients are so large, our customers, our borrowers and the lenders are so large we have to be able to accommodate them. And that is true. So I don't know how to get out of this mess, but to have the concentration on our banking system is in fact larger, I think the top five banks have over 50% of the deposits of all banks now. And it's probably 40% of what happens when these little banks and smaller banks don't have little banks at all. Smaller banks, they merge into a big one and that concentration gets worse and worse and every corporate merger makes the clients get bigger and bigger and demanding of more and more big banking service. And in the long run, we get a whole system of oligopoly, untroubled by the fact that it's also happening as I've said before. In the mutual fund industry, where the top five firms have almost 50% of the assets and they're all index firms. I mean, you like diversity in capitalism, corporate America, and diversity, I'm not talking about all those gender stuff, just in terms of the number of participants in the system. The greater number of participants in the market system, the more you're likely to get efficient markets. And it's all dwindling and getting larger and larger. I don't know what to do about that. It's well known. I haven't done any research on this, but I will get into it one day. Thanks, Michael. You ready? But the number of stocks that we used to have at Wilshire, 5,000, and it's now cool, but the total stock market index, I guess it's now Jones or whoever does it, and that it got up to 7,000 stocks in the year 2000. Now it's going, that's way above the 5,000 that originally began with. And now it's down to, I think, 3,200. Over half of the stocks that were in it at the market high are going. And some of that is by Berger, some of that is because the tech stocks came and then they went. And it's interesting to me, it's a vital intellectual question, and where did those companies go? And what happened to them? And it's the extent of their mergers. Why do we do all those mergers? Now I happen to be real, this is really going to surprise you, a real cynic about these corporate mergers. I think they're done for one of two reasons, or maybe both of them at the same time, that is one, bigger corporations pay their executives bigger salaries. The CEO wants to do a merger. He thinks he knows everything, the board thinks he knows everything, and they pay him a lot of money for doing pretty much nothing, I think. What do we say in the street? Well, maybe look at the record. And so that's one part and the other part is, it muddies the accounting waters. You do a merger and nobody knows pro forma, this pro forma, that. And all of a sudden the shoddy record and it looks like a good record. And in terms of earnings per share, they're just basically not credible and not believable. But we take anything that is quantified, that we can, it's the perils of numeracy on the talks I gave all over again. And reminding me of the thing in Einstein's office, which Bill knows well, I'm sure. And that is there's a sign, it's said to be a sign in Albert Einstein's office, a former office at the Princeton Institute of Advanced Study saying there's some things that can't be counted and there's some things that can be counted that don't count. And you know, and here I am, a big math guy, beta mobile, a data devil. And skeptical about the idea that we can quantify everything. And that's why I'm pleased to have gotten this article in the Financial Analytics Journal, where my guesses about the course of transaction course, about advisory course, about cash drag, aren't just estimates, but it's better to have the estimates there, up or down, do what you can go with it, if anybody can change the math, and then ignore these huge costs that come along with the expense funds and the fund expense ratios. So I'll be glad to have that out of the way, but on banking, I had a chapter in my book called The Battle of the Soul of Capital, it's not a chapter, but I take out one of the chapters called Ringback Glass-Degel, and that's what we should have done. But we couldn't do that, so we get the Volcker rule, which is, I think 198 pages in the Glass-Degel Act, 65 pages, because you're trying to fuss around the edges of the system, and it still hadn't gotten anywhere, it still hadn't been implemented. So you get a lot of people, banks, I mean, these get into the big issues in front of the American Republic today, and that is the power of money in the system, but banks are out there with these high-paid lobbyists fighting every comma, every paragraph, everything they can with all their might, and they can, of course, outpink the civil servants, the SEC, and so on, and it's not putting down the SEC, it's just, they've gotten into such a complicated mess, but you tell me that Jamie Nunman can take you through the annual report, JP Morgan, and explain every item to you, and I'll say, I'm not hanging by my thumbs in the ladder, that's it. Yeah, that actually raises a couple of subsidiary questions, first of which is, if you're a libertarian, you blame so-and-so accident for a decrease in the number of public retrieved companies, do you think that's valid argument? I'd like to look at the data, but I doubt it very much, it's an easy out, it's so demanding to be a public company and I'll be a private company. First place, it's much easier said than done to do that, and second to a certain level, when you get to really big corporations that are going private, it's impossible. I mean, I think one of the challenges of long-term investment management business is as our investment with universe shrinks, and it's the kind of things built of very few people that you are even thinking about, and that's why we need you. I'm not sure it needs me these days, except my granddaughter. Well, that leads me to actually a very leading question, which is the quality of financial regulation during the most current administration. We had a woman who wasn't the SEC chairman, who as far as I can see did not have great accomplishment. She went from one job in a quasi-private regulatory agency in which she had a seven-finger salary and now she's going through the revolving door into another job with an eight-finger salary and one should not be surprised or might not be surprised if she didn't do great things. I'm wondering what your view of her tenure was. Now this is, who's tenure? Mary Shapiro. Well, first of all, I empathized with Mary Shapiro. She was trying her best to the right thing and the industry ganked out of me. Some of it was irresponsible and disgraceful, like Union Station, the SEC is now right next door. And all these signs saying down with asset value, floating asset value in money market funds, basically arguing with the SEC and with the people that are walking in out of the SEC doors every day. I don't think we need to stoop to that. There's a rational argumentation that we should use and not a sensationalist orientation. But she was right on money market funds. She was right on a lot of things and basically ended up getting very, very little done because this industry mobilizes. I mean, this is a powerful lobbying industry and I think it should look to its own interests more than obviously a complete conflict of interest in the fund industry. It's being what they call the Investment Company Institute and it's the Investment Managers Institute. That's a big difference. I don't see any evidence they're looking at to the interest of fund shareholders. It's run by the managers and the managers are paying the dues and the managers have their own lobbyists. So I'm not bothered by her accession. I should say this, I come to a background before she took over the chairmanship, a big pre-skeptical of Mary Shapiro and I ended up being kind of a Mary Shapiro booster and maybe I'm just a sucker for someone who's trying to do the right thing and gets it thrown back in their face. I know a lot about that subject. Well, to shift gears ever so slightly, as soon as this year is going to be, it won't be quite as interesting as Die Hard 8 was in 2008, which I think was about two weeks or one week post-alignment. We almost got there though. So that's my next question, which is the view from the precipice, which we just stopped short of and the view over the precipice. What do you think the long run down, which was done in the financial system with the most recent Groville in Washington and what could have happened? So those are, I guess I was gonna say, questions above my pay grade, but let me just give you a couple of reflections. And I began, which turns out had to be totally true with our idiotic statesmen, list and statesmen-like elected officials. And that is, I began with Churchill's statement that Americans always do the right thing, but only after they've tried everything else. And we came, I mean, I'm not sure, I didn't get a chance to read the morning papers yet, but we probably came within an hour to get President Obama's signature on that bill, an hour in the actual report. I think it was done before midnight, pretty much had to be, maybe Congress often sets the clock back and so it makes everything, it's illegal, legal. But it's, to me, incredible how people can get so dug in with their own personal agenda that they can fail to see what is obviously good for the nation. And they can fail to see, I mean, I don't wanna get into too much politics here, but I might have mentioned this word before, but the president cannot be held hostage, cannot have hostages held and said, you do this if you wanna ever see your cousin again or your wife again. That's just not the right way to negotiate it. There's a big difference between negotiating over the right things and negotiating in a hostage situation. And it's just about every government and every corporation that's found out, you just can't finally negotiate out of people who are holding hostages. There's no final way to win seat is say, do what you will and then get as many bodies in there at BI, whatever it might be, to try and undo the situation by intervention of some kind that's a risky thing to do. So, as we're gonna see, I guess in Captain Phillips, I haven't seen that yet, those kind of hostage-taking things are not the right way to do it, so we're trying to negotiate and so I'm not. And what I have been amazed at honestly, Phil, is true to my trying to keep against all odds, a balanced viewpoint about the political system. I read the journal, Wall Street Journal as well as the New York Times, and the journal has been so much more scathing in the New York Times about how the Republicans, basically the journal's constituency, got themselves into such a losers game, a mess, that it's really tough in the Republican Party. Everybody knows that they finally give up because they're losing in the court of public opinion, but that brings up the worst point in the effects of the political system. And that is these safe boroughs, we used to call them rotten boroughs in England, like Bigville, in the old days, along the old days, but these safe seats that, you know, kind of the more strident, the less reasonable you are, the more likely you are to be re-elected. And if you're even a moderately conservative person, you're probably gonna be confronted in the next primary with someone who's just off the wall on the right side of things. There doesn't seem to be a contravening force on the left. Well, I think the journal would say that the labor unions are such a force. Not sure they have that much power, but there we are, and we just own on that one. So that's a real problem, that these basically locked-in seats, the care, that are so safe that they may be around for a long time, and I heard this data the other day, and I'm not sure I'm gonna get it right, but as everybody knows, the House of Representatives is round number 6048 Republican. But the votes cast for the House of Republicans are roughly 6040 in favor of Democrats. Think about that. So when these people say we're representing the people, they're representing this minority of people, and not the majority of the people. On their mind, if I can give you one more of the better quotes of the day, not a current one, but a quote that will indicate that a Benjamin Franklin was done without some wisdom about the long term, he came out of the Constitution Convention Independence Hall down here when the deal had been signed. The Constitution had been approved by the Constitutional Convention going out to the states, and a woman comes up to him and says, what have you given us, Dr. Franklin? And he said, we have given you a republic if you can keep it. And I think we're in nature in that, and I think that's a very, very serious, if totally unquantifiable risk. But we get to the second question, Jeff, which is, what do you think would have happened? And what would have happened, do you really think, had all of our countries? I think it would have resulted in such financial chaos all over the world that we would have thrown ourselves new, not a very deep, very deep recession. And there's no way to know that. Thank God there's no way to know it. But when you think about the dollar being the international rule of currency, basically currency for the world right here, that would go into those circumstances, I think. But to think about this powerful nation, the most powerful, and except for from a financial standpoint, nation on earth, unable to pay or not willing to pay its interest, and that gets to the interest on its debt, and that gets to the idiocy, the utter idiocy of a debt limit. The debt limit is basically a way saying, we're gonna spend X, and we're not gonna charge any taxes for it, and if you end up, so you're gonna borrow money, but we're gonna tell you how much you can borrow when the mathematics of that equation are established the moment you undertake the expenditure. You gotta pay for it, it may be difficult to do. Gotta hire taxes, gotta get rid of tax loopholes, whatever you wanna say. And that gets me to another of my favorite, I don't know if I should be talking politics here, I know I shouldn't, but it is arrogance for the disgrace of these hedge funds getting capital gains taxes on their incentive fees is just so moronic and so unfair, and it's just, I call it a national disgrace. Why should that be? Why should the people that have more than anybody else in America pay lower taxes? And that's because Senator Schumer, who has to be a director, is head of the Senate Finance Committee, and he's not gonna let it happen, his constituency that down there in Wall Street mostly, is not gonna let it happen. And of all the simple reforms, and the only argument I've ever heard against it is it would affect some other things, I don't know how that would be, and the other one would be, it doesn't raise a lot of money. Well damn it, if it's wrong, it's wrong. If it raises five cents, or even to do it right loses five cents, I couldn't care less. But there is such a thing as moral absolutism, and there is such a thing as right and wrong. And sometimes they're very difficult to see, and sometimes I think I see it a little more clearly than fact is, I'll admit that. But we just gotta have more of it, more of it thought about what's good for this great nation, and what's gonna keep us getting in even more trouble right now than we're having now. I was intrigued by the identification of the big fund companies, that have been involved in the development of black rock band mode as financially significant, systemically important financial institutions, cities. And I could see how AIG and layman did student stuff, student stuff, and got themselves in the financial system into trouble. What kind of student stuff could band mode fidelity and black rock do with the financial system into trouble? When usually trouble comes, or if I know it's from leverage, you've got obligations you can't meet, and interest payments do on the money you borrowed, and that's what banking is all about, of course, finally. And you don't have those kind of issues in sci-fi. What do you call sci-fi? Ciphi. Sci-fi sounds better, science fiction. And you don't have the borrowing issue. But I do think that we are, in fact, systematically important financial institutions. The concentration in this business has gotten bigger, the gotten more narrow, the five firms require, I must have mentioned this before, half of all the mutual fund assets. And I don't think that's a pretty healthy thing, but I can put my finger on precisely what's wrong. But the things I would look first to is, supposing there is a run of redemptions, what you're going to say, or somebody with a huge bill on it, is going to say, well, if you get too many predictions, there'll be a lot of sales, and the market will find this intersection, and they'll go down, and then the client will come in, and that's just lightning the marketplace. And in some of these scares we've had in the last few years, that short-term malfunction in the marketplace, darn well, they're going to be corrected pretty quickly. Maybe in a day, and investors care about that, but only very foolish investors care about that. It's going to be all come out in the relationship of price to value, and whether there's a bubble or not. So it's not easy to say what the consequences of it are, even as I say absolutely, these five firms control, let me say 20% of all the stock in America, and if you had another 10 firms, it's probably 50%, 10 firms controlling 50% of the stock in America. There's something you ought to be concerned about. The fact that you don't particularly know what you should be concerned about doesn't mean you should raise a little more to me, and alert everybody, await the ICIs, compassion response, stay out of our business, and I do particularly worry about on the municipal bond side and particularly for Vanguard, because we're the dominant force in the muting market. Everybody knows it's not particularly liquid, and I might talk a little bit about this earlier. So maybe some kind of an idea of having a reasonable amount of reserves to meet demand, to meet revolutions in that business would be a good idea. I hope we still do what I don't know, and if the concentration grows, and there's no science doing part of it growing, and at some point it's just too much concentration, but we never know how much is too much, and it's like you write down a number, and I don't think that does it. I think what captures it is basically a little bit like corporate America, a concentration of economic power, and we're systematically important, because we can tell any corporation in America a mutual benefit, as you can. What we want them to do, we can tell them how much to pay their CEOs, we can tell them anything we wish to, and we don't do any of that, that's a whole other issue, but that means you're systematically important. It doesn't mean there's any terrible risk coming with it, although I think there is the liquidity idea of risk, and that's all I can honestly come up with to think about something nearby, but I'm glad to have the government look at it that way. 31 pages long, I've read it, because I read that kind of stuff, and I didn't see anything to really worry, but they have the same kind of numbers that I'm doing every day, concentration of the largest firms and things like that, but it's a pretty good report, they don't come out with any conclusions, but I think the idea that we are systematically important basically has to be technologically correct, you know, if you own as mutual funds through about 32% of all the stock in America, and that in itself, not to get you into this any deeper than you want to be, but it's only the tip of the iceberg, when you look at these 25 largest mutual fund firms, every single one of them also has a pension management ability, and if you take the two of them together, their pension funds and their mutual funds, they own, I think it's 55% of all the stock in America. These are powerful institutions, and the fact that they aren't exercising that power is either A, an actual disgrace, or B, an actual asset, and you don't have to tell me which is which. You don't have to tell me which. Okay, well, I think what I'll next do, and perhaps close it out, at least in terms of the formal buyers I'll chat here, is let's chat and ask questions for me, which is that he is, and with a personal finance question, which is, I don't know, Wade Fowles in the audience, he is, raise your hand, Wade. There you go, hey, Wade, he hasn't, you haven't presented your paper yet, have you? Okay, great. Wade, Wade has done very important piece of work, which bears on the glide path of asset allocation throughout age, or at least in retirement, and correct me if I'm wrong, Wade, but the rule of 100 serves pretty well, I think it's a pretty good rule. Starting point. Yeah, pretty good starting point, and Wade has come up with something different. It's a very fine analysis that shows that if you start retirement with a given allocation, you're actually better off if you raise that allocation throughout retirement, as you get older. And I think, he's done an excellent analysis, I think he's right, and I can even come up with some narrative stories and explain why he's right. But I'm wondering what you think of that idea, in other words, you should really be 80 or 90% stuck. That's all I would say, whatever. There's one thing about mathematical analysis, which depends on a whole lot of hypotheses about future returns will be, all of which are uncertain, even the great bubbles, that's in quotes, are uncertain. And you wanna really be careful of extending your ideas into somebody's actual living class. You do not want to ignore the behavioral problem. You would like to ignore it, you should ignore it. Investors should ignore it, but you're building kind of a world there where you're asking for the impossible. So I'm gonna be interested in hearing Wade's thing, but before we end this, I hope I can just push the bill a little bit. If he's up to it after getting out of the hospital, oh my God, what a miracle. And you're making me look bad, man. But talk a little bit about your three books, your three chapters on the investor. Okay, well, for those of you who haven't yet bought all three of my e-books, I have a series which is called Investing for Adults. When I say by adults, I mean people who know all the things that just about everybody or everybody in this audience knows about active management, about there's no stock picking fairies, there's no market timing fairies, there's no risk theory. And so the first book we looked at Lifecycle Investing was somewhat in ruin actually with the paper that Wade did, as well, that Wade held me with it. And it just looks at life cycle throughout age and it takes a somewhat different point of view from rule of 100, I say it's a good place to start. But at the end of the day, I default back, the retirement really is in two bucket territory, that it's nice to have one bucket and think of one portfolio throughout the rest of your life. But when your human capital runs out or is about to run out, what really matters to you most is your liability matching portfolio, that is the portfolio you need, the money you need in addition to whatever pensions and social security you've got to make sure that you're not diving the dumpster, and maybe have a living standard which is closer to what you might be. And beyond that, you can invest in very, very risky assets. Well, if you think about what happens as your retirement progresses, you start at age, if you're a global head, 48. And you have no human capital left because you're bouncing your grandkids on your date, you're spending all your time in Florence. And so you have this liability matching portfolio that's pretty large that you need. You probably don't have a lot of money left over from that. Well, as, so that's a low stock allocation, that's a high bond stock allocation. Well, as you get in advance slowly into Giezerhood, what happens is, is that you need less and less of a liability matching portfolio. And if you're reasonably disciplined and you're a global head, your risk portfolio gets larger. Okay, now, unfortunately in the United States, most people don't get anywhere near having a liability matching portfolio, but then again, this is an alternative universe in this room. So we're not really talking about that. The second book really wasn't aimed at this audience. It was a book called Skating Where the Puck Was and it's about alternatives. And basically, alternatives weren't a bad idea 20 and 10 years ago. H-1's actually didn't have a positive alpha 15, 10 years ago. They don't anymore. And that's simply because David Swenson went through the head of the buffet table and he got the sirloin and the lobster tail and the guys who were, you know, who came through, you know, behind him got the chopped hamburger. And unfortunately, David Swenson then went and tried to go through the line a second time. He got mac and cheese. From 2007 until 2012. And that's what that book is about. It's why alternatives in the modern era, that is, you know, the past five or 10 years are simply a terrible idea because there's far too many people chasing far too many alternatives, including one that might be important to discuss in this audience and that's commodities. I have two words about commodities, which is stay away. Or at least commodities, futures, funds. A more sympathetic towards commodities producers. The third book was a book called Deep Risk. And Deep Risk is about the two different kinds of risk. Which you can, you know, and I don't mean to denigrate shallow risk. Shallow risk is, you know, temporary stock market falls which can be a very high magnitude eventually or fairly quickly recovered. And I don't mean to denigrate shallow risk because if you are someone with very little or no human capital event, shallow risk is really important, all right? And in fact, you shouldn't even be concerned about Deep Risk at all. But if you're 23 years old and you have no investment capital and you have a large amount of human capital that you should be very concerned with Deep Risk. And one of the Deep Risks as well, I list them there. Inflation, deflation, confiscation and devastation. All right? And inflation is the single most important one. And if you look at the long-term returns of stocks and bonds in multiple countries over the past century, almost 10 or quarter, what you find is inflation is a much bigger risk to bonds than to stocks. If you have inflation for a period of 30 or 40 or 50 years, that's a very high magnitude, you can actually have real stock returns, real stock returns, all right? Which happened in a number of countries, most particularly Israel and Chile. And even the nations that you think of as having awful inflation, like Argentina and Brazil, over 20 and 30 years, at least had zero real returns. He didn't lose real purchasing power. I was amazed to find that during the Weimar Inflation of the 1920s, the wheelbarrow phase, stocks actually had a positive real return because they were viewed as a positive store as a real store of the Italian. Bonds, on the other hand, get absolutely hammered that you lose all your money in bonds. So if you're concerned about deep risk, you really do want to invest in stocks for the long run. I don't view deflation in the fiat money era, now that we're off the gold standard as being a serious issue, because it just doesn't exist anymore, okay? Japan really hasn't had, people talk about Japan having deflation. During the past 10 or 12 years, I think they've had 2% total deflation, all right? Ireland and Hong Kong had, I think, double digits for relatively short period of time. That's it, three countries out of, you know, 200 to so many countries in the world. They've really, really had deflation. You know, confiscation, you can move a block, you can walk with that, you can play Giroir, Deborah, Jim, you can become a Russian citizen. And, you know, when you talk about devastation in this day and age, you can, you know, buy an interstellar space around. And so, that's what the book is really about, is how you think about portfolio management in terms of those books, in terms of those risks. One thing I like about what Bill has done, and I thought the same thing about Peter Bernstein, is I am looking at myself in the kind of join us, why not kind of a one-trick pony. But, Peter Bernstein, a much greater extent, Bill, has such a range of interests, and I love it when investment people, you can sell to trained investment people, and have a lot of other interests. And he's written these books about the history of the world of plenty, it's called, or something close to that, the growth of plenty. Birth of plenty. Birth of plenty. And then, his newest one is about communications, is that a fair way to describe it. Communications technology. And human communications technology, and others about world trade, called a splendid exchange. I'm plugging in here, Bill. Thank you. I'll hold that for one second. But it's the broad gauge view that I think finally is, in a way, a counterpoint to what I do. I'm very happy with what I do. I'm sure it's right, because it's a simple man, but if you're gonna go beyond that, listen to someone like Bill, it's such a broad range of experience, and such a, not too embarrassing, but such intellectual brilliance. And it's a little bit like Paul Saga, so I'll put you in his camp. And that is, I love to be associated with people who are hell ones, martyrs, and it's amazing how much you can learn. If you just take a minute to think, take a minute to think of ideas in particular, that are not those that you hold dear, but maybe even counter-opposing ideas. And one of the issues, and I hope that Bill can have a minute to comment on this, is when you get the asset allocation. It seems to me quite apparent, I don't know how to do it, but quite apparent, the way you look at asset allocation depends on the relationship, oversimplified statement, but it'll make the point, on the relationship between bond yields and stock yields, and back in the Paul Voker era, the 10-year treasury was 16%, or at least 15%, and it got to add to 1.5%. So what rule might have applied when you had that kind of option to protect your money? And in the 19, early 19s, I guess early 1970s, when bond yields were so generous, and they were generous for years and years, and that's why we have a bull market in bonds with the returns going down as interest rates go down. The returns were good for those that held it, and then probably when you get back into the treasury, just by a principle-only treasury bond, there could have been no better investment than the U.S. treasury. You know what you saw at the time, but that's, I think, because they couldn't do the math, and I'm afraid I even, I didn't think about it enough at the time. But my question, I guess, Bill, is, what do you think about, conceptually, the idea of taking into account, when you're talking about safety in bonds and growth in stocks, if you will, but taking into account the yield differential that exists sometimes greatly in favor of bonds, sometimes cut it today, I would call it more or less neutral, maybe a little bit better in bonds, but not much, I've been taking that into account conceptually, and then the much more difficult question is, when you come to grips with it conceptually, assuming you think there's some reason to it, how the hell do you implement it and when? Well, that's a very interesting question, Jack. I'll tell another story out of school here. First of all, that was a little older dash. When people ask me, it usually gets people from, you aren't from New York asking me, because my last name is Bernstein, I was related to Peter, and I always say two things, number one is I wish, number two is one who was he, so I want to be when I grow up. But I can, I mean, I learned at the feet of the master, Jack, you know, you taught me the three step for estimating stock returns and comparing them to bond returns, and of course it matters. And now I'll tell you another school story, which is I had dinner with you some years ago, some now, not too long, too far from 2000. I was getting nervous. And I waited until he would drink, I think it was your dry martini, before I asked you this question, yes, just one, and I had finished my beer, because I needed to screw up my courage. And I said, well, Jack, you know, tips are now yielding 4% and stocks look like they're priced to yield a real return of 2%. This was in the day, that one, you know, yields were 1% back in the early 2000s or late 1990s. And I said, doesn't that impact your asset allocation just a little bit? And you said, yeah, I'll probably own 5% less stocks. And of course, you know, not too long after that, Jack, you know, I think I went to my first bull heads and he flips up the slide, and he projected negative real returns, not real returns, excuse me, nominal returns, negative nominal returns for the next 10 years for stocks and everybody guessed, because you brought in mean reversing, which was something that I wasn't even willing to think about. The inner version of the PE. Yes, the inner version of the PE. So, you know, what's it look like in 2013? Well, you can do the math as well as I can. Stocks, excuse me, bonds act as zero return, pretty much, certainly a zero real return. Stocks are priced to yield, you know, positive 3.5% return, real return, real return. So, all right, maybe you should own, you should own more stocks now. But then what happens, Jack, if we get re-reversion of PEs? Well, that gets to it, and I talked a little bit, just maybe before you got here, about where the PE is today, and there's so many ways of calculating, and I went through that earlier, and I won't take you through it again, but I'd say they are within the bounds of reason in terms of the future. I don't think, I mean, the PEs go from, and I'm using a range of 20 for the report earnings, past report earnings, and about 15 for the future earnings, so-called, counting only, operating earnings, the lower earnings, the higher earnings figure. And so let's just use 17 just for the hell of it, you gotta start somewhere. And, you know, if you went to 20, that would have very little impact on your return to PE of 20 from there. If you went from 15, that would have very little positive impact. And not enough, and since they're all guesses, I'd say not enough to change your course of action. So, I don't see a lot of mean reversion there. Although there's a reality, and I think I might have it. Do I have this in the John Wasek's book? Michael, the reversion of the PE, I think it said, I think I put it before I wrote to John's book, and that is what we know about past experience, which is not without utility here, is that if the PE is over 20, the odds are about 85%, so we'll go down in the next 10 years, by the end of the next 10 years, that the PE's are under 12, the odds are also about 85%, it will go up in the next 10 years. So you have a little bit of that going for you, a little bit of knowledge about some kind of reversion that's more likely to take place than not. Not mathematical purity or precision at all, but when you get through it all, you know, the dividend yield was pretty precise, and it's highly unlikely to be cut again for a long time, but it could be, of course. Earnings growth is gonna have something to do with the GDP, earning growth is slower, as everybody should know, but there should be earnings growth in some dimension. And the one thing I'd be interested in, what you think about this bill is, is that I assiduously calculate nominal stock returns and then take out some inflation numbers, so two discrete numbers that lead to the real return. I'm very uncomfortable with numbers that don't have that kind of a split where they build CPI into maybe earnings growth from nominal earnings growth to real earnings growth. First, I'm not sure where it hit or should come out of there, I'm not sure how to handle that, but I like the knowledge that I can make my own inflation adjustment looking at and not be wrapped up in somebody else's. So I can take each step of this way, and what I like about this surprise, I like one of my own ideas. But what I like about my, it's very discreet. You can not argue about the dividend yield. You can argue about the earnings growth, but only within limits. I mean, I think we all know it's not gonna be 15%, and we all assume it's not gonna be zero. So you pick your own number very good. That's two thirds of the equation, ain't known and highly likely. And the PE, when you get that there, you know the probabilities. So it takes a lot of the mystery out of stock returns and it focuses on doing anything less than 10 years. Oh, they still ask me, Maria Bargaromo still says, how do you feel about today's market? Yeah, okay, well, Mel just told me this stomach is really starting to grow out. I don't know if I'm gonna solve it this time, yeah. You're right. Well, that's a great, great room for thought. People probably want to put some food in their stomach. Okay, yes. So I had a feeling that was that much. Jack, you earlier quoted Ben Franklin, and Ben Franklin has another famous saying that I like to quote, and that's a penny saved is a penny earned. So we thought there's been dropping busts so it's appropriate because you saved investors trillions of pennies and billions of dollars. Please accept this as a reminder of the 2015 Boat Race Conference. And I remind you of all the money you've saved, professor. Oh, look at that. I've been in this with Boat, and even with the help of Bernstein, to bail me out at the end, he was quite remarkable. You should know that I've received, I think, four of these. Along that four of these things, I've got Independence Hall, I've got the Los Statue, and one other, they all sit right on my mantelpiece in my den, and this will go next to him. But something's gonna have to go on with it now. Jack, promise, I know you said that, but we just thought this was so appropriate. Oh, this is perfect. This will be the last one, is that it? Oh, I don't want to hear about the last any time. That's really the last hurrah. Oh, you're out of space, and you're dead, so. Well, thank you all very much, and I, now you can handle this much, because it was beyond my comprehension, but you're going very generous. You're going, when my wife says, well, she's kind of, doesn't do it anymore, she says, how does the speech go? And I say, well, I don't really have any idea, but I do know this. When I laugh, they laugh. When I cry, they cry. And when I sat down, they applaud it. Ha! Thank you all very much.