William Bernstein on stocks, bonds, and the economy

07/18/23 • 57 min

These are confusing times for the economy and for financial markets—and for the relationship between the economy and financial markets.

At the moment the economy is doing well. The labor market is still creating hundreds of thousands of jobs each month. Unemployment is low. Inflation has come down over the past year. And economic growth has been stronger than a great many economists and others had forecast heading into the year.

But that’s just how the economy is doing right now. What about six months from now? Or a year? Forecasting is always hard, and it may well be impossible. But economists sometimes look at “leading indicators” that are meant to give at least a sense of where the economy is headed. And some of those are flashing red, suggesting we might be headed for a recession in the near future. Then again, those same indicators have looked bad for a while now, and still the recession is nowhere in sight, so who knows.

Meanwhile, look at the US stock market. It collapsed last year. But it’s come roaring back this year—and this despite the Federal Reserve continuing to raise interest rates aggressively. Is the stock market now overpriced, too expensive? Is it underpriced, a good time to get in? And what happens if we do go into recession?

What about bonds and other markets? What happened to crypto and all those meme stocks?

Returning to the show to discuss all this and more is William Bernstein. Bill is the author of no fewer than three of Cardiff's favorite books on finance and the economy, including “The Four Pillars of Investing”, which just came out in a second edition roughly two decades after the first. It has all new updated information, data, and charts, plus the lessons learned in the intervening years.

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These are confusing times for the economy and for financial markets—and for the relationship between the economy and financial markets.

What about bonds and other markets? What happened to crypto and all those meme stocks?

Related links:

Hosted on Acast. See acast.com/privacy for more information.

Previous Episode

The economics of innovation

Within economics, there's a semi-famous quote from the economist Paul Krugman: “Productivity isn't everything, but in the long run, it's almost everything.”

Krugman’s point is that ultimately, how much productivity climbs each year—roughly speaking, how much more efficient an economy’s workers become at producing goods and services—is also what determines how much our living standards also rise from year to year. And so in the long run, there really is almost nothing that matters more.

Unfortunately, since about the early 1970s productivity has climbed much more slowly than in the earlier postwar decades. We have been stuck in a period that economists have labeled The Great Stagnation. And a big reason why is that the pace of innovation—the kind of scientific and technological innovation that leads to fast productivity growth—has also been slow.

But now, there’s now a lot of people—including Cardiff!—who are optimistic that maybe the Great Stagnation is ending. That we’ll get back to the faster productivity growth of the past. Among other reasons why:

The economy in the last few years has become more dynamic. There’s been a boom in the number of startups that entrepreneurs launch every month.
There has been quite a bit of experimentation in the workplace for how to get things done, most obviously the rise of remote work.
Incredible new technologies like mRNA vaccines have emerged. These also include things like GPT-4 and other language learning models, suggesting that artificial intelligence could soon have a noticeable effect on the economy.
And finally, an intellectual shift, partly brought on by higher inflation, has compelled many people (including policymakers) all across the ideological spectrum to really emphasize the importance of expanding the economy’s capacity for growth, and to figure how best to do that.

Which policies and institutional designs can best lead to new technologies and innovations? How do we reform public institutions like the National Institutes of Health, with its $47 billion budget, to fund the kind of science research and development that leads to transformative new technologies? What have we learned about the way science is actually done now?

In other words, how do we get right the economics of innovation?

That effort is where today’s two guests come in. Heidi Williams is an economist and the director of science policy at the Institute for Progress, a think tank. Caleb Watney is the co-founder and co-CEO of the Institute for Progress.

They discussed with Cardiff not only the Great Stagnation, but also recent industrial policies passed by the US government, like the Chips and Science Act (which is aimed at developing a domestic semiconductor industry) and the Inflation Reduction Act (which will spend money to develop new clean technologies, among other things).

And they discussed new ideas for how the country’s existing scientific institutions—its commercial labs, universities, and public bodies—should approach the process of scientific discovery.

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Next Episode

How Vince McMahon built an entertainment empire

We're sharing another episode of a podcast we think you might like. It's called The Closer and it's hosted by executive producer of The New Bazaar, Aimee Keane. In each episode, Aimee speaks to dealmakers and insiders about landmark financial deals that have changed our lives in some way. In this episode, Aimee speaks to writer Abraham Josephine Riesman about Vince McMahon's influential dealmaking career. McMahon took over his father’s regional wrestling business in the 1980s, and made it into an international media and entertainment juggernaut valued at billions of dollars. This is the story of how McMahon cleverly bulldozed competitors, acquired rivals and capitalized on the public’s hatred of his tactics. Find The Closer here or by searching for the show on your podcast app of choice.

Hosted on Acast. See acast.com/privacy for more information.