2025: What’s Really Going to Happen

John Norris (00:37):

What I’m going to do over the next 30 to 35 minutes thereabouts, is give you three predictions for 2025, and this is from our Investment Committee. It’s also incorporated in our quarterly analysis called Macro & Market Perspectives, which you can find under the Thought Leadership tab at Oakworth.com.

I’ll talk a little bit about the health of the U.S. consumer and the labor markets in the U.S. economy here in 2025. Then talk about the accumulated debt and what its impact could be for the U.S. economy. I’m not going to be able to hit on everything that’s going on right now. Absolutely impossible to talk about every single aspect of a $30 trillion economy.

(01:27):

There is a lot going on. Nothing I say here should be considered or otherwise construed as an offer to buy or sell investment services or products. Anything that you do or any action you might take based on anything that you hear today, you do so of your own volition.

All right, now with that being said, as promised, I’m going to give you three predictions.

1. The Bureau of Labor Statistics and the Bureau of Economic Analysis will make negative revisions to the employment and gross domestic product data that it released last year. Neither will end up being as strong as originally announced and a lot of people will call it some kind of conspiracy. I’ll touch on that a little bit more in just a second.
2. Second one, combined internet semiconductors software and computer stocks make up well in excess of 40% of the S&P 500. While that is where the growth is and where the growth will be in the U.S. economy and moving forward, the yawning gap between technology and large cap growth stocks and value stocks will have to converge at some point in the not so distant future.
3. And then finally our third prediction for this year is this: At the end of 2024, the Fed had telegraphed that it had two more 25 basis point rate cuts by the end of 2025. That’s fine, well and good, however, by the middle of the year, the Fed will have the data it needs to make additional cuts should it so desire.

Alright, those are three predictions, and building off that last one—the idea that the Fed will have ample capacity to make further rate cuts if it chooses—it won’t necessarily have to, but it will have enough leverage to lower the overnight lending target to around 3.5% before concluding this easing cycle.

(03:30):

And the reason why I said that is because when I take a look at the U.S. consumer, I’m kind of wondering what can it possibly do for an encore in 2025, this after a surprisingly strong 2024 and end of 2023. Actually, I’ve made a couple of podcasts out there in Charlotte and elsewhere with some people that are far more nationally recognized than I am, and they had a very negative economic outlook for last year. One fellow up in Charlotte put negative signs in front of the GDP gross domestic product forecast for the first two quarters of last year, and I felt almost Pollyannaish by having a 1.5% call. So in the first quarter of last year, GDP increased at 1.6%, second quarter is up 3% and then in the third quarter of 3.1% driven by really strength across the board.

(04:29):

Gross Domestic Product

However, in that last quarter for which we have the Gross Domestic Product (GDP) debt, it showed that what we spent on durable goods was up a shockingly strong 7.6% and what businesses spent on equipment was up around 11%. And then finally what the government purchased. And that’s important, it’s what the government purchases, not just the fact that we’re running deficits.

What the government purchased was up around 5.1%. Absolutely no way in my crystal ball (and I do have a crystal ball in my office) that we are going to continue to see that kind of strength. And let me talk a little bit about that consumer. I kind of wonder what the consumer can do for an encore because when I take a look at things, I’m kind of getting a feeling here that perhaps the consumer is feeling the pinch here that might be running out of fuel, gas, whatever, some things that I have read that suggest that upwards of 90% of Americans fuel concerned about the cost of groceries.

(05:29):

Personal Savings Rate

That’s kind of disturbing. Also, want to take a look at the personal savings rate.  In November, it was at 4.4% and January of last year was 5.5%. Now that 4.4% number is not historically disastrous at all. Matter of fact, it’s about average, maybe a little bit less than average, but what we’re seeing is it’s going down as opposed to going up. Plus also with what we’re seeing in terms of income inequality and wealth inequality in the U.S., if it’s only 4.4%, you can imagine that most of that, the preponderance of that savings, is actually in the upper income quartile, meaning that the bottom three quartiles – the bottom 75% of households –  probably aren’t getting too far ahead. And when you take a look at the CPI data, consumer price index data, you can come to that. I mean it’s pretty easy to come to that conclusion.

(06:24):

I write in a weekly newsletter. It’s called Common Cents. You can also find it at Oakworth.com underneath the Thought Leadership deck. And I wrote a piece a couple of weeks ago talking about how the cost of living is going up much more rapidly than the cost of living it up. Historically, the opposite has been true, but when you take a look at things like car insurance being up 11.3% last year, going to the mechanic up 6.3% last year, the rental equivalency of primary residents up 4.8% last year, what we spent for natural gases going through the roof up over 4%, it’s all these what your e-comm professor in college are called inelastic services and goods. They’re going up much more rapidly, which gives the U.S. consumer a lot less ammunition, a lot less money with which to purchase those things that they want to buy and those things which might arguably have a bigger multiplier effect on the overall economy.

(07:24):

So when I take a look at the personal savings rate going down like that, juxtapose it with the inflation data, I come up with a consumer that is heavily focused on paying the monthly bills and not a lot more, then I have to take a look at that consumer credit. If Americans are feeling good about their prospects of just making more money, they will go out and borrow money and they will go out and get it and they will pay it back as those big bucks come start rolling in. And we saw that in 2021, 2022, 2023, we saw Americans tack on of a lot of additional debt. However that slowed last year and the reason why it slowed is pretty straightforward. It got real expensive. And so consumer credit only increased about $65 billion or thereabouts for the first 11 months out of the year.

(08:23):

That’s about half what it was in 2023, which was less than what it was in 2022. And so when I take a look at that, I’m going, okay, savings rate is going down, credit’s going down, and then oh yeah, by the way, the financing has gone through the roof. If you have a credit card, you already know this that I’m just going to give you some pain anyhow. And during the third quarter of last year, the average rate on credit cards was close to 23%. If you borrowed money to buy a car from a bank, your average rate was around 8.4%. If you have a personal line of credit, it’s about 12.3%. So while the prices for cars might be going down or stagnant according to the Bureau of Labor Statistics Financing, that car has gone through the roof, meaning that while the car is cheaper, your overall note is that much more expensive.

(09:18):

And one of the things that the inflation data doesn’t do a good job with is reflecting increased financing costs.

So lower personal savings rate, consumers not borrowing as much money, the money that they borrow is cost a heck of a lot more money. So I’m looking at a consumer going, I got to get some more money somehow. I’ve got to figure this one out. And to that end, when I take a look at median real household income, what the median household in the United States makes at the end of 2023 for 2023, it was about $80,000 and that was an increase over the previous year. However, it’s important to note it was almost $82,000 in 2019, meaning that over the previous four years, the U.S. consumer actually did not get out ahead. And maybe that’s a huge chunk of the reason why in the last year’s election a lot of people said it’s the economy, stupid, I’m just not getting ahead.

(10:23):

Labor Markets

And so how do they get ahead? By job creation. And so when I take a look at job creation, listen, it was much better than what I thought it was going to be. However, some of the data that the government has been giving us has been very head scratching. If you pay attention to the Employment Situation Report, which comes out the first Friday of every month with some exceptions, you’ll see that the U.S. economy created 250,000 payroll jobs last month. The unemployment rate is 4.1% and all these things suggest that my goodness, businesses are hiring with great aplomb. And that’s kind of true until you start peeling back layers of the onion. Is the labor market as hot as it was a couple years ago? And everything that I consider would be a resounding no. First and foremost, there’s something called the job openings and Labor Turnover survey, which comes out every month and right now there’s about 8 million jobs open in the U.S. economy.

(11:20):

That’s great, pretty good. However, a couple years ago there was over 12 million jobs. So we’ve seen the number of jobs go down by a significant amount in 24 to 36 months. However, within that report, within that jobs report, there’s something called the quit spread. And that’s the number of American workers that have quit their jobs to go get another job. It’s as the name implies.

• This number, the quits rate about 18 months ago was around 3.3%.
• At its most recent reading it was at 1.9%.

So what that tells me doing what I do for a living is the average American worker doesn’t feel as good about their prospects of getting a job elsewhere as they did in the not so distant past, which suggests that maybe the labor markets are a little bit softer in that regard. So that’s one thing I feel a little bit nervous about.

(12:18):

Another thing I feel nervous about is just how that payrolls number, it’s been so different than a lot of other data that we’ve had. You have to understand in the Employment Situation Report, again that report that comes out the first Friday of every month, there’s two surveys within it. The first one is the Establishment Data and the second one is the Household Data. It’s kind of as the name implies for both. The Establishment Data is when the Bureau of Labor Statistics will call up employers and ask them how many people they’ve hired and they do that there in the first two weeks of every month and then they do their mathematics and come up with a number for the month. So it’s an imperfect science at best. So that’s the first one. The second one is they just call up people at the house and say, Hey man, you working?

(13:00):

You got a job? Okay, cool, what are you doing? And so these two reports, talking to HR departments and talking to households, well there’s never been a bigger divide between these two surveys that I can remember in my career. Historically, these two data sets aren’t on top of one another. However, they at least moved directionally in the same direction, move directionally in the same direction. Last year they didn’t, if I go back 30 years and take a look at those two data sets, there’s like a 0.99 correlation to it. Positive correlation. Meaning that they are one and the same almost. Over the last 15 months, the correlation has fallen down to about 0.21, that’s a relatively short timeframe. I get it. But even so what you see when you take a look at that is last year the BLS tells us we created 2.5 million payrolls, some crazy number.

(13:54):

Conversely, we created about 400,000 jobs according to the household debt. There’s about a 1.7/ 1.8 million worker gap between the two surveys that has to be accounted for somehow. We can’t just have this out there. And the Federal Reserve has kind of taken a look at this and it did its math and according to the St. Louis Fed, at least through the second quarter of last year, there was about a 1.2 percentage point gap in between what the BLS, the Bureau of Labor Statistics has been reporting and what the Fed has been tracking. Now I got to tell you, I’m kind of maybe thinking that the Fed might be onto something here and if they are onto something, then that means that the BLS has overstated the number of payroll jobs to the tune of about a million to 1.2 million over the last 12 through the four quarters ending in the second quarter of last year.

(14:51):

At the end of March, the BLS will come out with a data set that says that they’re going to make negative revisions. You might remember last fall they did this and the revision was negative 812,000 or something like that. The number is going to be comparable this go around when they revise it again, meaning that all those payroll jobs that they said that they had, probably really didn’t even exist. So when we take a look at things, alright, people aren’t quitting their jobs quite as much, there aren’t as many job openings, although there still are plenty, the BLS is probably going to reduce the number of payrolls from the previous amounts. You kind of take a look at it and going, alright, okay, this doesn’t feel quite as good. And then you just have to really kind of take a look anecdotally. There’s so many anecdotes out there about a slowing labor market that it can’t be all anecdotal, pun intended.

(15:45):

I like to tell the story about my son who just graduated from Auburn this past May got a job working for Riverbank and Trust out of Prattville, great firm, very proud of him to do this, did it all on his own. I tried to get a bunch of interviews and I did, but I guess I’m not as well liked as I thought. And so he went out and got this job on his own and he got it probably in about March of this year and I asked him, man, he was beating his brains against the wall to get this job so happy he got it. Loves the firm. And I asked him, I said, son, I’m really proud of you. You went out there and did this on your own. Let me ask you this, how many of your pledge brothers have a job or are going to graduate school?

(16:32):

And he said, dad, right now probably about 40%, about 40% of my friends, my pledge brothers have a job or locked in for graduate school starting in the fall. I said, 40%, that doesn’t sound like that high of a number. I said, well how about two years ago when you were a sophomore, how many seniors did? And he said, dad, that number was 100% by Christmas. And it’s true. And when you take a look at this, there’s still a lot of job openings, but a lot of employers are looking for unicorns. We all know that if you have 10 years worth of experience willing to work 80 hours a week for 45,000 hours a year in pay, you can find a job. However, for the average person, it’s not as easy as it once was. So when I take a look at all of this, I’m going, alright, how’s the consumer?

(17:20):

And we have to remember our consumer represents between two thirds and 70% of the overall gross domestic product ablation. If the consumer is running out of fuel in terms of lower savings rates, not borrowing as much money, the money costs a heck of a lot more and the job market is not stalling, but maybe not as strong as what the government has to say, then gee whiz, how are they going to be as strong in 2025 as they were in 2024? They’re not.

Matter of fact, we’re probably going to see the unemployment rate tick up a little bit and it’s really just math. The unemployment rate is really just kind of an equation. How many people are looking for a job and how many people are unemployed? And that’s important. You have to be looking for a job. If you aren’t looking for a job, if you’re just sitting on the couch eating chips and playing Xbox, then guess what?

(18:16):

You’re not part of the equation. Matter of fact, we could have every American doing that. I would imagine a lot of people go, that sounds like a pretty good idea. We could have every American out there doing that and we could have an unemployment rate of zero. All right, last month in December, there’s something called the labor force participation rate. These are the number of people that are actually looking for work. Non-institutionalized Americans over the age of 25. No kidding. And so what labor force participation rate 62.5%. Well in June of last year it was 62.7 in February of 2020, right before we shut everything down and the economy is at 63.3. Now that 80 basis points eight tenths of a percentage point between where we were in February of 2020 and where we are now might not sound like a lot. However, if we had the same labor force participation rate in December as we had back then, the unemployment rate would be around 5.5%.

(19:14):

Matter of fact, if we had the same number of Americans looking for work in December as we had really at the end of the second quarter of last year, the unemployment rate would be about 4.5 to 4.6%. And so I throw that out there and I talk a little bit about the weakness of the consumer because I don’t see how the labor force participation rate keeps shrinking given the pressures that are on so many American households. You’re simply going to have to see more Americans go out there and try to find employment in order just to pay for the necessities if you catch my drift. And when more Americans start looking for work, the unemployment rate is going to tick back up a little bit. So what does that mean for the Fed? It means that hey, if the consumer’s running out of money, that means demand will go down.

(20:04):

And if supply remains constant going back to your Econ 101 class, whenever the demand for something goes down, the price of it will as well. So we are going to look at sluggish consumer growth during the first half of the year, which will lead, should lead, to an overall decrease in prices throughout the economy. And then we’re also going to see the unemployment rate tick up a little bit due to maybe slightly lesser job growth, but then also more Americans looking for work. We are not going to see labor force sophistication rate go from 62.5 to 63.3. But if it just ticks up to 62.7, we’re looking at a pretty decent increase in the unemployment. You add those two things together… regardless of what the Fed has telegraphed and regardless of the markets, think right now there will be enough ammunition if the Fed so desires to take the overnight lending target below 4%.

(21:01):

And right now that remains to be seen. If it doesn’t happen in 2025, it’ll happen at the beginning of next year. So all told you, add this all up, everything that I’ve had to say, this is sort of a forecast that I’ve been telling all of our clients, anyone that wants to listen, the economy will start off the year kind of sluggish. Consumer expenditures will slow largely be offset by businesses still feeling pretty good about things. The National Federation of Independent Business Small Business Optimism Index is up over 105 right now despite being in the nineties, low nineties in October, right before the election, big increase in optimism for a lot of small businesses and then in the second half of the year, something great is going to happen. All the rate cuts that we’ve already had, the hundred basis points of rate cuts that we’ve already had and the possibility for even more.

(21:53):

Couple that with maybe some of this deregulation that the administration has promised, all these things will be tailwinds for the economy in the second half of the year. So the first half of the year, relatively sluggish, lots of tailwinds in the second half of the year. You add the two together, you’re looking at an economy probably growing around two and a half percent for the year, but the two halves being very disparate. Alright, it’s kind of the forecast. Let me talk a little bit about the accumulated debt, and tell you what its probable. Impact is going to be on the economy moving forward In case you didn’t know it, the U.S. Treasury has not been a very good steward of our money.

(22:48):

If you go to publicdebt.com or whatever the website is, you will see it’s very depressing. You’ll see that our accumulated debt is around $36 trillion. Not all of that is marketable, but a lot of it is. $36 trillion. Now, the previous administration, if you’d gone to the website and pulled down its budget, the estimate for the next decade, you would’ve seen if you’d gone to table S3, and I know everyone goes to table S3, at the drop of a hat, you take a look at that budget, you’ll see that if the Biden administration was predicting that we were going to run up an additional $19 trillion worth of debt over the next decade, another 19, that would take us to 55 trillion bucks. And that’s a lot of money. But what are we going to do about it? How are we going to shrink that? Well here to tell you, we have five primary line items in the federal budget.

(23:43):

And again, it’s right there on table S3. You’re welcome to go to the White House and try to find it. I’m not sure if the Trump administration has put up a new one, but you can find that stuff out there. Here are the five primary individual line items that are delineated:

• The Department of Defense,
• Social Security,
• Medicare,
• Medicaid, and
• Servicing the national debt.

What do you want to cut? You want to cut the Department of Defense right now? Anyone really want to cut Social Security? Hey, when I was in my early twenties, I’m like, I don’t care about social security. I’m never going to get it so they can cut that bad boy all they want now. Now I’m in my, well, let’s just say mid-fifties, they better not cut my social security and I vote. So I don’t think that’s a lot of political will out there to make a lot of changes to social security and by association Medicare at this time. Want to cut Medicaid?

(24:35):

Seems kind of mean spirited really. We probably don’t spend enough on that. And then servicing the national debt, got to tell you, with higher interest rates and even more debt, this is going up. Excuse me, this is going up and we got to do it. We got to pay it. If the government doesn’t service its debt, doesn’t pay its bills, guess what happens? Bad stuff. It means that we get to automatically reprice treasury debt, maybe 70 cents on the hour, 80 cents on the dock. And due to the inverse relationship between bond prices and interest rates, when bond prices fall, interest rates go up and when interest rates go up, the economy slows down. And when all of a sudden you see those bond prices go down, I’m talking bank capital evaporates. So when bank capital evaporates, banks go out of business, when banks go out of business, the money supply shrinks.

(25:25):

So when the money supply shrinks, bad stuff happens. So we’re going to service our debt. So those are the five primary delineated line items. There’s something else called “other mandatory programs,” which makes up a huge chunk of it. These are all promises that Washington has made that it intends to fulfill, which leaves us with discretionary expenditures, non-defense, discretionary expenditures. And this is everything else. Everything else that the government does with talking about the Justice Department aid to other countries, National Park Service, National Endowment for the Arts, Education, all of it, Veterans Affairs, all of it. We could just eliminate all that, just get rid of it, essentially get rid of the  federal government. But for those areas that are already listed, and we would still run roughly $1 trillion deficits over the next decade, meaning that we’re going to have to do something a little bit different.

(26:26):

And the only sure way of increasing government tax receipts is to grow the economy.

All those numbers I just gave you are using a GDP forecast of 2.4% over the next decade. If we increase it to 3%, we get to shave about 500 billion off of every year, $500 billion to $600 billion off every year. If we can come up with ways to squeeze out of efficiency, maybe go can figure it out. We can squeeze $500 billion out, just be more efficient with how we spend money. And all of a sudden we don’t have as big a problem as we thought we did. We’re not going to be paying down the debt, but it’s not as big a problem. We’ll be increasing the economy about the same amount as we’re increasing our debt. And that’s not bad. But what is all this debt going to do to overall economic activity in the U.S.?

The National Debt

(27:23):

They’re kind of two schools of thought. There are some firms out there that think it’s going to be economic rack and ruin. We are going to have a depression at the end of this decade, first part of the next decade that’s going to make the 1930s look like a cakewalk. I’ve read their stuff and if you take a look at it and read it, yeah, I mean I get it. I can make that argument too. It’s kind of scary how easy that they make it, but that’s certainly a worst-case scenario. Best-case scenario is we keep on chugging along like we did in 2023 and 2024, spending a whole bunch of money that we didn’t have have, I think, my goodness, we borrowed 2 trillion bucks and generated an additional trillion dollars in economic activity. Not a real good use of leverage.

(28:14):

So that’s probably the best-case of best-case scenarios is that. So you have worst-case scenarios and best-case scenarios and then you have something called a probable-case scenario, which is something in between, which means that more than likely all this debt overhang will have a depressing impact on overall economic output, but it’s not going to be that doom and gloom worst-case scenario either. A little analogy I like to use is, and it’s pretty silly, but I think it really is pretty apt. Now you can take a look at me at least look up my headshot. You can imagine what the rest of me looks like and it’s not pretty, but I’m a man of a certain age. Now think about me now, think about Usain Bolt, the world’s fastest man and my Lord is fastest man ever. Alright, now Norris versus Bolt.

(29:07):

Now Bolt and I are going to go out. I don’t care if we go to Homewood High School, John Carroll High School, Hoover High School, Vestavia. I don’t care what high school we go to, Bolt and I are going to run the a hundred meter dash against each other, mano e mono, head to head, lose or leave town. You guys have to bet a hundred bucks of your own money on who’s going to win this. Even odds, I don’t get any headstart. It’s a hundred meter dash. Who do you take? If anyone takes me, You’re foolish. Now would you take me with Bolt having five pound ankle weights? Assuming all other things being equal, he’s not going to blow out an ACL with all my silly examples, five pound ankle weights. You’re still probably not going to take me. Probably not going to take me with a 10 pound ankle weights, probably not even 15 pound ankle weights. At 20 pound ankle weights, some folks might go, I don’t know, maybe.

And now 20 pound ankle weights on each ankle and carrying a teenager on his back all of a sudden I look pretty good. Now when you think about it, I can probably run the a hundred meter dash and I’m not going to do it. So no one tempt me. I could probably run it around 17, 18 seconds, man. I’d be huffing and puffing. It’d be probably pretty hilarious to watch. So that’s the speed Bolt can run at nine and a half seconds when he’s unfettered. You put all that stuff on, the 20 pound ankle weights, the teenager on the back, he’s running at 17 to 18 seconds.

(30:40):

See the analogy? That’s kind of what we’re doing to Bolt. And the Bolt here is an analogy for the US economy. If left unfettered, man, we should be crushing it, absolutely crushing it. We’re the most innovative, most dynamic economy and the history of mankind. No argument we should be growing 3% plus every year if left to our own devices. No problems, no worries. However, we throw all this stuff on government, on the economy and it slows it down. Every regulation, every dollar of debt is a cost to the overall economy. And so we do all that to our economy. It’s going to slow down from nine and a half seconds for a hundred meters down to about 17 seconds. You do the math on it. You kind of go, well, what’s the math on it? It’s probably going to take around 50 basis points a year off of the overall GDP equation.

(31:43):

And I’ll get there a couple of different ways. First thing is think about going back to your econ 101 class equation for gross domestic product or how we calculate the economy, something called C plus I plus G plus or minus net exports. G is what the government purchases, not just what it overspends because social security checks all that stuff that all ends up in the C is the consumer. G is just what the government purchases. And if the government is having to spend that much more on social security, that much more on servicing the national debt, it’s going to have to, well probably buy less, probably spend less. We’ll probably see fewer things like the Inflation Reduction Act, maybe not the best name for a program. Probably going to see a lot less fiscal policy or fiscal stimulus coming out of Washington over the 10 years when compared to the previous 15 or thereabouts since at least the financial crisis.

(32:45):

I don’t see any way around this. So if that’s 20% of the equation and we go from 5% like we were in the third quarter of last year down to about 1%, one and a half percent, you just do the math 0.2 times 0.03, that works out to be what about 60 basis points? There you have it. That’s one way of getting at it. Another way of getting at it is: because we have all this debt that’s going to be out there, someone’s got to buy it. And if they don’t buy it, we’re going to have to increase the yield on it, which means decrease the price. And so as a result, I anticipate longer-term interest rates remaining higher for longer just due to the sheer supply of debt that Washington’s going to release. And if the cost of money is that much more expensive than it would be ordinarily in the U.S. economy, that means that it’s going to be a drag on overall expenditures due to increased financing costs.

(33:44):

It’s not going to be that death scenario. And if interest rates start going through the roof, what the treasury or what the Federal Reserve will likely do is stop shrinking its balance sheet first and then threaten quantitative easing or adding to the balance sheet, buying bonds. And if that doesn’t work, they’ll probably add just a few bonds back to their portfolio, which will be just enough to give the overall bond market sort of a Federal Reserve put, makes people feel comfortable about going back into the markets, which will keep interest rates more subdued than they would be ordinary.

You add all this up and that’s kind of what the debt is going to do to the economy. Slow it down, but it’s not going to cause it to shrink.

It is certainly not going to cause economic rack and ruin. And if it does shame on us because we’ve seen this thing coming like a freight train.

(34:40):

We can get off the tracks if we so desire. One more thing that I’d like to mention is at the end of this decade, something wonderful happens, haven’t read too much about it, more than likely, but you will moving forward. And that is starting in 2029, but really in 2030, more people hit the age of 35 than hit 65 for the first time in like three decades. Think about that. That’s a good thing because we’ll have more potential workers hitting the peak of their career and hitting the peak of their earnings capabilities will have more of those throughout the entire next decade than we’ll have people retiring and thereby taking out, and although they’ve paid for it, it’s still money going out.

(35:41):

You have more people paying in and fewer people as a percentage or least in terms of growth rate taking out, that’s virtuous. You always want to have more people paying in than people taking out. Doesn’t matter what you’re doing that’s going on. And then something also happens at 2030. The first of the baby boomers, the largest generation in our nation’s history, hits 85. So what well, if you know an actuary, they might say something along the lines of, well, starting at the end of this decade, five years, the largest generation in our nation’s history starts hitting its actuarial ceiling at a much more rapid rate. And so we will see the baby boomers start shrinking just as all that echo generation starts paying more and more money into it. And we’ll be able to somewhat write our financial problems coming out of Washington if we have the political will to do so. And if we can grow the economy that much more rapidly.

(36:42):

So next decade should be a wonderful decade in terms of overall economic growth. If only we can figure out a way from here to there without blowing everything up. And the best way of not blowing things up is to grow the economy as rapidly as possible. That means cutting corporate tax rates, that means cutting back on regulations and that is what the hope is going to be to fuel the back half of the year, this stronger economy than we have at the beginning of the year. So let me rehash. I told you a very silly story about me running, doing a foot race against Usain Bolt. We all know the ultimate outcome on that. Prior to that, I talked a little bit about the consumer and the labor markets and why both of those are going to be slightly weaker at the beginning of the year, which will give the Federal Reserve enough ammunition if it says desires to cut the overnight rate more than what anyone’s currently thinking.

(37:45):

And I started off with three predictions.

1. First one is large cap growth stocks will start to take a little bit of a breather. We saw that yesterday and large cap value stocks should start to outperform the Bureau of Labor Statistics and the BEA, the Bureau of Economic Analysis.
2. We’ll revise downward a lot of the robust economic data it gave us last, last year.
3. And then finally, as I’ve already mentioned by the middle of the year, the Federal Reserve will have enough data or enough ammunition to be more aggressive in cutting the overnight rate should it so desire. So there you have it.