Spending with Stanley Druckenmiller: We’ve Got to Stop! We’re Drunk 11/01/23

Your data lives everywhere, on-prem, in the cloud, across apps. Bring it all together with EverPure, the platform that acts like a living system, delivering the latest in data performance, security, and innovation without ever slowing you down. Sophisticated enough to anticipate your ever-changing data needs, yet simple enough to feel like second nature. Tame your data chaos with EverPure and make storage and data management the simplest part of your business. Visit everpuredata.com to learn more. Not every sale happens at the register.

Before AT&T Business Wireless, checking out customers on our mobile POS systems took too long. Basically a staring contest where everyone loses. It's crazy what people will say during an awkward silence. Now transactions are done before the silence takes hold. That means I can focus on the task at hand and make an extra sale or two. Sometimes I do miss the bonding time. Sometimes.

AT&T Business Wireless. Connecting changes everything.

Bring in show music, please.

This is Squawk Pod, and I'm CNBC producer Cameron Costa. On today's episode, hedge fund titan Stan Druckenmiller.

We've got to stop, guys. We're drunk. We're digging this deep hole. What are we doing here?

The billionaire Wall Streeter is calling out U.S. debt. He says we're spending like drunken sailors, and we're digging deeper into our deficit hole.

Most Republicans are going on about, or at least some MAGA people, about wasting money in Ukraine. Are you crazy? Do you know how much we're going to have to spend if Putin wins in Ukraine?

Plus the other stories of the morning, a ruling in real estate, how brokerages conspired to inflate commissions for agents.

This is the only place where market forces don't come to bear.

And the final lap of Sam Bankman-Fried's fraud trial. We're gauging the vibe in the courtroom after his cross-examination.

There was nobody he had won over in the room.

It's Wednesday, November 1st, and Squawk Pod begins right now.

Stand Becky by in three, two, one. Cue, please.

Good morning and welcome to Squawk Box right here on CNBC. We are live from the Nasdaq MarketSite in Times Square. I'm Becky Quick, along with Joe Kernan and Andrew Ross Sorkin, and it is Decision Day for the Fed. While no action is expected to be taken this time around, the markets are going to be paying very close attention to Chairman Powell's news conference later this afternoon.

A federal jury ruling that could have huge implications across the country: the National Association of Realtors and several real estate companies conspired—that's what they decided—to artificially drive up commissions that home sellers pay to buyers' brokers. Now, defendants include Keller Williams, Berkshire Hathaway-owned HomeServices of America, and others. They all say they're going to appeal that verdict, which calls for $1.8 billion in class-action damages. The verdict followed a two-week trial in Kansas City where the case was drawing a lot of attention for challenging some very widely used real estate industry practices. Shares of real estate stocks all losing ground in a big way yesterday after that court decision.

The whole idea that you're going to pay... you know, the commission on the buyer side, commission on the seller side.

Three percent each time.

Three percent each time.

Six percent total. It's the business that, and I've sold something and bought something recently, and it is kind of mind-boggling when you see the numbers because it's the only industry left. And there's no negotiating. Everything else is one percent. Commissions are below that. Everything else is basis points except this. It's still six percent. What are you doing for me?

There's no negotiating. You can't say to the broker, you know, 'I'll do it. Will you do it for 1%? The other guy will do it for 3%.' There's none of that.

If you don't have your own broker, you still have to pay 6%. If you don't have your own agent, they're saying, 'Great, we'll take both.'

And the reason for that is because of these agreements that they all have, these interlocking agreements. And this is in one state.

And it locks up the MLS, too.

So think about what's going to happen around the country to this whole business. You can only hope.

Frankly, and I'm sure there's lots of real estate agents who are watching us saying, 'You can't only hope,' because it's probably not going to be very good for them. But Joe's right, it's the only—the only industry. They are classic when they come in here, you know, because the housing price is always going up when they come in here. And reminds me of the movie, Wall Street, when he—remember when he buys that really nice place? 'Oh my god, I—I mean, you better—you got to move on this quickly.' Uh, month later, he went to... So, it's like, 'Oh my god, there—there's no one.' It's always—it's...

The way they... Well, the question is, like, what is a fair, you know, what is the right rate? What's the fair rate?

Well, 6% doesn't seem like the right rate. It should be negotiated.

These are big numbers, and it's not on the down payment or anything. It's on the equity. It's on what you're paying for the property.

No, but there are going to be instances where it's done in 10 seconds and no one has to do any work. And there's going to be instances where there's somebody who's going to have helped you for like five years to try to get that property. The person who's worked for you for five years for free, they should probably get their 3%. Maybe they should even get more.

More, potentially.

But I think that's the big issue, that it's sort of one number.

It should be a market-based situation, right? This is the only place where market forces don't come to bear.

Yeah, if you're going to go after Amazon for no transparency and earning too much, this is... Six percent. Nothing in the world is six percent.

On what is most families' biggest holding and investment that they have.

None of us are real estate agents.

We're always on the other side, so we obviously have that. Well, that's why I was also saying there are real estate agents that do work for you. Like, there are great real estate agents, actually, that do...

work oftentimes for years for free, thinking that they're going to get the business. And then, so there is a—there's an argument to be made that in certain cases they should get paid. There's even an argument to be made that if they move quickly and sell your house fast, that they should get paid a lot. If you're in a hurry to do it and I'm in a rush to do it, I will pay you X percent if you get me this amount of money. I will pay you X percent if you give me a lower point. I—I will pay you X amount, amount, if you can get rid of it in a month. You know, there should be incentives that you can build into it. There's also a difference if you're a real estate agent in Cincinnati,

Or if you're a real estate agent in Manhattan or Palm Beach.

Do the math.

People buy $10 million places constantly in Palm Beach. I mean, you work on that for a little while. You get 60%. I mean, you can make some serious—what is that? Is that $600,000? Cost of living is different, too. I understand that. But you get a couple of those deals in a year. It's a pretty good business. Then you're done. You know how many houses you got to sell out in Indiana? Nothing wrong with Indiana. No, not at all.

You can get a mansion for about 600 grand. But that's the point. What's the point? Meaning if you can get a mansion for $600,000, the real estate agent who doesn't sell the $10 million homes in Palm Beach can still live in a mansion in Indiana. Oh, can still live in it.

Yes. Still, I'd like it standardized. Like 1% across the board sounds good. Closing arguments set to begin today in the criminal trial of former FTX CEO Sam Bankman-Fried after the defense rested its case. This follows two days of cross-examination by the prosecution of Bankman-Fried, who stumbled, it says here, through questions over past tweets, balance sheets, text messages. Bankman-Fried faces a potential life sentence if convicted on fraud charges tied to the collapse of crypto exchange FTX and sister hedge fund Alameda.

I went down yesterday just to watch this final testimony on cross and then the recross.

Were you in it? You could get in the room?

No, they have multiple rooms now. So you're watching on this video. You're in a courtroom, but you're not in the courtroom with him. It was just interesting. First of all, it's a scene down there. But beyond that, the idea that—I mean, at least the room that I was in, he had not—there was nobody he had won over in the room, and it was sort of in a—you almost sort of just felt it like it was just—Did you see the jury? Did they have cameras on them, too? You could not see the jury. You could see him very, very well, and in some cases, you say, depending where you're sitting, not well because he's like a little person on a screen. But you're sitting in a room full of journalists, a lot of journalists who are—a lot of whom were very, very skeptical. But there was snickering and there was laughing, and, you know, if he doesn't—

so it's really it's very soon see what the jury said only that i don't like courts corporate is built edit it because i don't like when they're because it's usually for a ticket and i'm raised when you go in at nine o'clock right and you watch the wheels of justice

turn no about the way you want to go the wheels of justice turning in the most fast possibly efficient i'm sure that they would argue to efficient way yeah and i think there's some people thought this happened too quickly in this one this case first of all think about it and and jay clayton at the point this case has been it it's less than a year that this is all things even happened this thing's going to be over likely to the end of today And we'll go to a jury. Think about how quickly that's happened.

That is fast. But at the time, remember last year, "Why is it taking so long? This is such an obvious situation."

The A.D.D. nation that we live in.

But it's also, look, Sam Bankman-Fried didn't do himself any favors because he was so... public and spoke so much that I think it made people feel like, "Okay, there's your case, figure it out." I think a lot of people felt like they knew more, more details about this than—than most situations that you have at that point. It's like there's a lot of stuff that goes on. It's just... it's been my experience when I'm trying to get, you know, get the thing out of the way, and it takes like six hours watching traffic. But you didn't feel like he did himself any favors yesterday?

He had a couple. There were some good answers, a bunch of good answers. It depends sort of how you... what your disposition is towards him to begin with. I think if you come to it skeptical, which I think most people do, I think he doesn't do himself any favors. I think if you're in the middle, maybe there's a couple of moments where you say, "Okay," but I don't know if it's enough to convince. I would be very surprised if a jury... I mean, there's, first of all, there's multiple counts.

Right.

So, you know, it's the idea that all, you know, there's a juror on there that's going to say no to everything. I think that's very hard.

How much do mesothelioma lawyers make?

Why, you want to go after them, too?

No, no, they make a lot more than 6%. Don't they get a third or something?

Oh, yeah, I think you're right.

So maybe real estate agents.

I'm just waiting to see if I've heard from any real estate agents.

But the thing about it, they get negotiated. Yes, it's negotiated. That's the point. Free market.

Ts will be next.

Coming up next on Squawk Pod, hedge fund titan Stan Druckenmiller. He made headlines this week at the Robinhood Investors Conference for slamming Treasury Secretary Janet Yellen for missing an opportunity to issue more long-dated Treasury bonds after the pandemic, when interest rates were near zero. Billionaire Druckenmiller is on our show today, explaining his reasoning and his perspective on debt and government spending. He says we're like drunken sailors.

Treasury will have you believe that the maturity of the debt is 72 months. That conveniently leaves out $8 trillion that is funded overnight in the repo market.

Every bold journey starts with a decision to go. And if you're ready, the Defender is too. This is a vehicle built for more, whether you're heading off the grid or just getting out of town for the weekend. Defender is a true icon reimagined for a new generation. Its rugged exterior is built from durable materials and tested in the toughest conditions. Inside, it's modern, functional, and refined with smart storage and premium touches that keep you comfortable wherever the road leads. It's packed with tech like 3D Surround Cameras, ClearSight Ground and Rear Views, driver assist features, and an intuitive infotainment system. With three models, the Defender 90, 110, and 130, there's a Defender for every kind of adventure, from city streets to remote trails.

This is a vehicle that, like you, is capable of great things.

It's smart to always have a few financial goals. And a really smart one you can set? Earning cash back on what you buy every day. And with Discover, you can. Get this: Discover automatically matches all the cash back you've earned at the end of your first year. Seriously, all of it. And we trust you to make smart decisions. After all, you listen to this show. See terms at discover.com/creditcard.

Trading at Schwab is now powered by Ameritrade, unlocking the power of thinkorswim, the award-winning trading platforms loaded with features that let you dive deeper into the market. Visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools, all while you uncover new opportunities with up-to-the-minute market news and insights. thinkorswim is available on desktop, web, and mobile to meet you where you are. It's built by the trading obsessed to help you trade brilliantly. Learn more at schwab.com/trading.

You're listening to Squawk Pod from CNBC.

Welcome back to Squawk Box right here on CNBC. We're live at the Nasdaq MarketSite in Times Square. I'm Andrew Ross Sorkin along with Becky Quick and Joe Kernan.

Hedge fund titan Stan Druckenmiller had some harsh words for Treasury Secretary Janet Yellen. Not issuing more long-dated Treasuries when interest rates were low could be the biggest blunder in the history of the Treasury. You even said all the way back to Alexander Hamilton, who founded the New York Post.

I can't get my head around that.

Here now to talk more about all this, Stanley Druckenmiller, Chairman and CEO of Duquesne Family Office. We just said you're liking bonds and welcome. Thanks for joining us in studio. I like the way you think about bonds. If we were inverted and we were at 100 basis points and the normal thing is the opposite way, 150 basis points, Isn't that the biggest no-brainer in the world? Just a short one and go along the other? That's kind of what you're doing, isn't it?

I'm kind of disappointed, maybe it's my fault, that that statement has sort of taken over the more important narrative.

No, we're going to get to that, but we introed you with that, so I wanted to say...

It was just a small piece of a litany of stuff that's been going on for 13 years, but... I'd rather get it in the sequence. Okay, we'll do it in that sequence. But we introed it with you liking bonds. I don't want people just to think that all of a sudden you're bonds. I know the media loves one-sentence stuff, and maybe it was the most radioactive thing I said that day, but it definitely... was just one piece of a big puzzle.

The most radioactive thing you've said in recent history is a 10-year flat stock market, which you said at Delivering Alpha. And we'll get to that, too. And it's all actually starting to happen. We're watching it. Let's talk about Janet Yellen, and that's what we'll do. Everyone and their brother termed out, except for the Treasury.

I promise I'll talk about it in a few minutes, if that's okay. Okay. Look, I'd like to go back to actually 2011. Okay, your college tour. Two things were going on at that time. A, I was going on a college tour, 15 universities, because I was terrified about the federal debt situation, particularly from 2025 to 2035. What I was looking at is entitlements had grown from 30% to over 60% of the budget, but more importantly, baby boomers like me were going to be turning 65 in the near future, and we were going to have a gray boom starting in 2020, so the payments to that cohort were going to go up while workers shrunk. And that gave sort of a dire forecast looking forward to the federal budget. Something else was going on at the same time.

Chairman Bernanke at the Federal Reserve embarked upon QE2. If you've known my past, I was very much supportive in favor of QE1. It was a brilliant policy in an emergency state. QE2 was when they put QE in the toolkit of monetary policy. I think it's been a disaster and it's led to fiscal recklessness. But if you remember when Bernanke introduced it, he assured us when the Fed balance sheet was 800 billion that this was a temporary measure. We weren't going to monetize the debt. There's no way this would be increasing the balance sheet over the long term. Here we are 13 years later, the balance sheet has just shrunk from 9 trillion to eight trillion, all right? So, that to me, that monetary policy, which was then followed up by Janet Yellen as Fed Chair, led to all kinds of fiscal recklessness because it disallowed the markets check on fiscal behavior because when rates are zero, you think you can spend forever and there was this MMT rage, the whole thing.

The Mnuchin-Trump administration did something that had never been done before in history. They ran a full-employment, trillion-dollar deficit, 5% of GDP. I love the way Trump uses the term RINO. Trump is the true RINO. What kind of Republican administration would run a trillion-dollar deficit in full employment? Okay, the next thing that happened is COVID. So when COVID happens, the Trump administration and the Fed go into high gear because we have another emergency like '08, '09—very different, but it's definitely an emergency. And to be frank with you, none of us knew, particularly me, whether we were going to a black hole, what was going to happen. So the monetary and the fiscal response at that moment, like QE1, to me was totally appropriate.

Then the problem started. It became apparent very soon that we weren't going into a black hole. Worldwide supply chains were challenged, the economy—we, we had a vaccine confirmation by October of that year. The economy, to me, was very clearly booming, and this was going to be more like we had a heart attack, then we had cancer. So much so, if you remember, I came on your show right after I wrote an editorial in the Journal in April of '21 to say, 'Look, this monetary policy has got to change. This is crazy, having zero rates and buying bonds with what's going on.' Um, the next thing that happened, Trump loses the election and Biden comes in, and now we have Bidenomics. Okay, so you take the Trump-Mnuchin running full-employment deficits, and Biden comes in and we're still doing QE,

And rates are still zero, and the economy's booming. So he doubles down, and the spending goes absolutely nuts: the $2 trillion deficit.

Or more.

More. Yes. But again, with unemployment now, you know, under 4%. Under the Biden-Yellen administration—we've moved on now from Trump-Mnuchin to Biden-Yellen—they grow the federal deficit, the federal debt, $4.7 trillion, all right, while nominal GDP over that period, three years, grows 25%. It's like crazy. The economy's booming. We never had deficits of any kind of meaningful magnitude before Trump, and the spending is going on. So you increase the deficit, the debt, $4.7 trillion. By the way, the Fed is monetizing in a way, and it's happening with GDP growing—I'm sorry, nominal GDP growing at 25%. All right, now we're gonna get to what you're salivating over, Joe.

I'm gonna let you do it. You go in the sequence you want. I just—they intro'd it like that. Go ahead.

So at this point, In 2021, in the second half. Yes. All right. Interest rates on the 10 year are like 1.1. On the 30 year, despite having been corrected in a tweet and I was right to be corrected, it was not 70 basis points under the under the Biden administration. It was, let's use one, 1.1. That's a more reasonable estimate. By the way, the tweet that correct me on the 30-year is incorrect. It was trading at 166 as a low that period, and it was under 1.8 plenty of the time. The tweet that said that Treasury has never managed the maturity of debt is also historically incorrect. As most of you probably know, the Treasury Department suspended 30-year auctions in 2001 because term premium was high, the yield curve was steep, and they thought it was a useless use of money.

So they were reinstated five years later. One more thing on this issue: in terms of the maturity of the debt, Treasury will have you believe, and the tweet used this, that the maturity of the debt is 72 months. That conveniently leaves out $8 trillion that is funded overnight in the repo market. That's the Fed balance sheet.

$8 trillion. That's the Fed balance sheet. We at Duquesne use the consolidated government debt, because we're looking at what the taxpayers are on the hook for. In fact, when the Fed was making profits, they remitted the money to Treasury. So why you would leave out, in terms of government debt, $8 trillion? Under that, the maturity of the debt, which was 63 months pre-COVID, is now 57 months. So the statement by the Treasury Department and others that the maturity of the debt has increased since pre-COVID is absolutely incorrect.

All right. That's like we created 12 million. That's the same kind of...

The question I have, putting aside the Yellen, Mnuchin... I want to get to his answer, though. My one question is, do you believe that there would be a market for selling much longer-term duration bonds, either many more 30s or going up to 50s or 100s? And the reason I ask is that was the implication, I think, of what you were saying. I made a bunch of calls yesterday, and I know then I started reading all these studies and other things that folks inside the Treasury Department, including under Mnuchin, looked at doing that 50-year. In fact, I looked and found an interview that Mnuchin had done with me at a DealBook thing years ago where he wanted to do it, but then realized or thought that he couldn't do it because he didn't think that there was...

Enough of a market and that it would actually, it would sort of pervert the rest of the market otherwise?

Currently, no. I think that market would be very challenged in the current environment. Don't forget, pre-COVID, we were spending 20%. The federal government was 20% of GDP in spending. It's now 25% of GDP. As outlined in the Wall Street Journal editorial this morning, my father told me, 'If you're in the hole, stop digging, Stan.' All right, so I was actually happy to see when the announcement, the support for Ukraine and Israel, $106 billion, and I was waiting to hear what the offset was gonna be. Was it gonna be entitlements? Where were the cuts gonna be? And the next thing I knew, two days later, there was not only no offset, there was $56 trillion in emergency spending. I have kids. I have grandkids.

Childcare is not emergency spending. It's a priority that maybe should be on the table or not. But we are spending like drunken sailors. OK, so...

So do you agree with the House Republican plan, which puts forth spending for Israel but cuts it in the IRA through funding to the IRS? Is that an appropriate offset in your mind?

Becky, I want to go after entitlements. It's where the money is.

At some point it's going to happen. I'm going to give you some numbers to tell you why it's going to happen no matter what. Anyway, getting back to the question, and then I really want to leave it. OK. That's something that's in the past. We can't fix it. We missed a once-in-a-century opportunity, and let's just not discuss it.

Everybody else, turns out, that's your point.

Everybody you know, extended mortgages. No, so here's the thing. Yesterday, Steve Leisman said, I wanted Treasury to trade like a hedge fund, okay? I do not want Treasury to be trading and messing around in the treasury of debt. All I'm saying is in 2021, Jenny Yellen, okay, and Mnuchin before her, we spent $5 trillion. The idiots were lined up out there wild to buy treasury debt at 182%, whatever you want to call it. Let's not play gotcha on this one, okay? Or 1.1%, with nominal GDP growing at 10%, 10%. Okay, so look. It's not like it took Stan Druckenmiller to figure out that you're at like a 700 year low in interest rates. Okay, nominal GDP is growing 10%. That the risk reward of issuing debt at 1.1% in the 10 year is off the charts.

How off the charts was that risk-reward? 80% of American households, 80% refinanced their mortgage. They lengthened the maturity, the average maturity of mortgage debt from 3.5 years to eight years. As a consequence, it's going to take five years for that maturity to go up, to get back to like four and a half. So it's just huge in terms of what they saved. So I told my office, just for fun, let's run a hypothetical. Let's give Mnuchin a pass, because like Bernanke, he canceled all note issues, by the way, in late 2020. All right? Obviously, in hindsight, if you're a hedge fund, but I gotta be honest, none of us knew what was gonna happen in 2020. So let's give him a pass for not issuing any notes and just issuing bills.

And for the same reason, let's give Janet Yellen a pass for the first half of 2021. Let's start the meter in July of '21. And then let's do the following. Let's, instead of going ahead with what we did, let's do the opposite of what Mnuchin did. And instead of issuing notes, all right, let's issue—I'm sorry. He suspended the issue of notes and only issued bills. So let's suspend the issue of bills and only do notes for a year. All right? We took every auction where the 10-year was. And this is squishy, and I'll get why it's squishy. How much would the government have saved per year if they had done that relative to if they had to pay 5%? Had to pay the rates we paid then and then 5% until now, the end of 10 years.

Andrew, you want to guess? I don't even want to try. A trillion two. 120 billion a year. a hundred twenty billion a year it's squishy because if we had sold ten years okay maybe they go to rise is going to be higher right but you get the point it was a it was a missed opportunity that's all i was saying i don't want to talk about it anymore okay i i want to move forward but but let's talk about something really positive and that is that where we're going to be in terms of debt to equity by two thousand so so So here's the problem. So I was looking at entitlements back in 2011. Now we have a monster bigger than entitlements. It's called interest expense. And that interest expense, it's just incredible what happens.

If you go and you assume interest rates are going to be 5% going forward, which one could argue is low, one could argue it's high. But that's where they are, so let's just say where we are. Right now, revenues to discretionary expenditures—that's all, that's everything but entitlements—are 41%. Right. Okay?

now we have two thousand thirty three at five percent i'm sorry interest expenses for this in two thousand thirty three that number goes to eighty two percent of all discretionary expenditures in two thousand forty three it goes to a hundred forty four percent of all discretionary expenditures anything entitlements is off the table everything defense childcare whatever you want to talk about uh... even economic statistics the whole thing The constant assertions by both parties, and I kind of blame Trump and Hillary for taking it off the table, that we're not going to cut entitlements. It's just, it's a lie. It's not going to happen. Because interest expense alone is going to wipe out everything but entitlements, so entitlements are going to get cut.

That's—

For people at home, for people who are not as experienced in some of these things, it's like looking at credit card debt, which has now jumped—the interest expense on that—above 20%. Try to continue to be able to live your life with 20% interest if you're not stopping the credit card spending.

Yeah. So far, Becky, because households termed out their mortgages—you pointed out it's the biggest asset of households this morning—it really mitigated the effects, but the stuff you're talking about with the higher rates is gonna start to bite. But it's interesting because it's not gonna bite nearly as hard on the private sector as the public sector because corporations refinanced, the public refinanced. So here's another unfun fact. By 2030, interest expense for the, for the public is going to go up to six percent of disposable income. Okay, that's, that's not too bad, Becky. It's only up from like four now. Yeah, the government, which is a little less than 10, is going to go up to 30 percent because they didn't refinance and their, and their debt is so much bigger.

That's it. It's very interesting. 30%. When I started Duquesne, rates were 12%. And that number was 15%. So we're going to be at 30% with rates materially lower than 12%, obviously.

By when?

2030. 2030. It just, the chart is frightening. It just goes like this. All this stuff is ahead of us because we didn't extend the maturity of our debt. So all this debt is going to roll over in four or five years and you're going to replace the 1% stuff with like 5%.

One of the points that you made to me is that American exceptionalism has a lot to do with being the reserve currency, obviously. And I don't know whether you think that's going to continue, whether you think that's at risk. I don't know how long it would take for the dollar. But also, we've led in every technological innovation that this country has. If this country is only, if all our capital is being used to service debt, we're not going to lead in anything in the future.

Well, I talked about this in a speech at USC last May, which has been memorialized in The International Economy. It's a piece I wrote called 'The Coming Fiscal Horror Show.' And the first thing I led with, unfortunately, it was a little too prescient, was if you're spending all the money on this stuff, it squeezes out the ability to do things: defense spending to take on your adversaries. It squeezes out money for people who want to do climate change. It squeezes out money for people who want to do disadvantaged. And then exactly, Joe, I pointed out that we led the world in PC revolution. We led the world in the internet. We led the world in companies that distributed the internet through these great products like Uber, other things.

We led the world in the cloud. We're leading the world in AI. If you look at Japan—I think we've all forgotten, unless you've read Chip War recently—they were a technological innovator like you would not believe through 1990. Nvidia, nobody ever heard of it, I don't think it had even been started yet, but America did not lead the world in semiconductors back in 1990. Once Japan went down this route that they've gone, which basically, the government spending take over everything, they've just been kind of a zombie place. And that's my great fear, is if you contribute more and more money to the public sector, and especially to interest rates, you crowd out the great innovative machine in this country.

Look, I don't think it's gonna stop. It just worries me that we lose that over time if we become a zombie nation in terms of what we're funding and what we're not funding.

Are you still, in terms of a secular view of the stock market, are we only in year two of what could be flattish returns? Do you not want to talk about that?

No, I'm happy to talk about it because I think it's important, but this... What we're talking about is one of the reasons I was so concerned, that and the fact that multiples were high. Look, we're at 20 times Duquesne's estimates for next year. In a pre-QE world, 15 was about normal. When I got in the business, it was eight. Those were the days it was like going into a candy box. It seems that bonds are adjusting to a post-QE world, but for some reason equities haven't. So that's part of the problem. I think given everything I just talked about and given the geopolitical situation and everything else, I don't think it's unreasonable to think that we're not going to continue to sell at 20 times earnings over a long period of time.

And then again, this crowding out of the government sector into the stock market and innovation. But look, I think they're going to be great companies and great stocks, like a lot to do, a stock picker's market. A lot of people made money in the stock market in the '70s. It's just not going to be like surfing with a hurricane behind your back. You're going to have to really do work and figure out which equities are great and which are not. Not, frankly, unlike what's happened in the last year. Stock market hadn't gone much of anywhere, but... It's funny, the one thing I'm not very good at, but I got young partners who are very good at it on a relative basis to my other skill sets, is picking stocks.

And we've done fine in our shorts this year. We've done good in our longs. The problem is I didn't believe it, so I didn't have a big allocation like I should have because I never imagined. In some ways, being right on the bond market which i was and being right on earnings which i was made me completely wrong on the stock market and i was completely wrong because if you had told me and it happened that rates were going to be where they are now january first and earnings would be flat and you told me the s&p was up what is up twelve or thirteen percent i mean that's just that's not part of my process so yeah i Joe, I still have a long-term forecast. By the way, I've been wrong on a lot of things, and 10-year forecasts, they are what they are.

But that's our working assumption. But it's also a working assumption that with all the innovation going on and all the disruption, it's gonna be a stock picker's market, and you're gonna be able to make money in stocks.

But is there any way around monetizing these debt levels? Is there any way inflation is not here to stay?

Yeah, we could have a... Long term? Look, I don't have to worry about the long term in my day job, but I will say this. We could have an event. I don't know whether, hopefully it's not a... a war of major powers that bring us together, and you get sacrificial behavior like we got after the Depression and World War II, we could have a financial crisis due to everything I've been talking about. And finally, my generation, I think Paul Jones made the point, we've given nothing. We've given nothing. And now we want to screw our grandchildren. Finally, we get the memo. So no, I'm not that pessimistic. And I'll say the other thing I'm optimistic about. The election? No, Jerome Powell normalizing interest rates.

We now have a hurdle rate for investment in this country. So I think the allocation of capital, ironically, if we don't go the zombie route and if we don't continue the drunken ship. Ironically, I think it could be a force for good because instead of funding a bunch of nonsense and bubble stuff, the capital gets more properly allocated. So, look, I'm open-minded to a really bad outcome, and I'm open-minded to a decent outcome. But we need to get tough. We need to cut entitlements. I'm here today not to talk about Janet Yellen. I'm here today, 'Guns and Butter' this morning, I could have written it. By the way, I didn't. We've got to stop, guys. We're drunk. We're digging this deep hole. What are we doing here?

So what's more important, that we come up with aid for Israel, Ukraine, and the rest, or that if it's not offset, do you think we shouldn't spend it, if it's not offset properly?

No, no, we have to spend it, Becky, because if we don't spend it, if Russia wins, okay, we're going to be spending so much more uh... down the road i hate the dissent this argument worries going on about uh... defense and and ukraine and most republicans are going on about or or at least MAGA people about wasting money in Ukraine are you crazy do you know how much we're gonna have to spend if put if putin wins in ukraine it's madness so in terms of the approaching entitlements how would would to stand up in the working for the day how would you do it That's about how long I'd be king because it will take a one-term president to do what I'm talking about. This generation has got to take a cut.

And everybody says, oh my God, how can you do that? I said, well, right now current seniors are going to get 100 cents on the dollar. future seniors might get five or ten cents on the dollar is it not unreasonable for us to go to eighty five or ninety cents on the dollar how would you i guess i'm saying how would you do that meaning would would you push out this is this is not a security story this is the i mean and by the way you and i agree that doesn't screw our grandchildren more i'm okay with it for them you know for the spending no i would i would i would cut I would cut not just the first thing you should do. The first no brainer is freeze the colas. We had an elegant opportunity here with Social Security and the payment went up nine point eight percent in the in the big inflation year.

Right. No, I would, I would do stuff that would get you thrown out of office, but I would do it.

Well, you only—this happens like once every year or two when it has to happen. So we'll look back on all these things in a year or two. Can we do that? I'm booking you a year or two from now. If we're both still around, can you come back and we'll revisit?

I can't make any promises on that. Yeah, I hope I'm not here because I only seem to get here when something ignites me. Last week it was the $55 billion in emergency spending on top, and then Secretary Yellen saying the preposterous statement that interest rates were not up because of the debt crisis, they were up because the economy was good. I must have gotten awfully lucky because I made a lot of money this year betting on bonds going down because of the debt. It had nothing to do with the economy. If anything, I was wrong on the economy.

Right, and it still happened. Well, if you'll come on whenever you're triggered, maybe I'll book you for next week because I'm sure there'll be something... You just take care of that lovely dog. Forget about me. I'm going to. I'm going to have to visit the loan officer to do that operation. Stan, thank you. Thank you.

Pleasure to see you guys again, particularly in person.

Always.

Enjoyed it. Explore California in one of Toyota's 21 hybrid and electrified models. Score deals on the 50 MPG Corolla Hybrid in the Camry. Or get 0% APR plus finance cash on the all-electric BZ. Toyota. Let's go places. Click the banner or visit toyota.com for details.

This episode is brought to you by Schwab Market Update, an original podcast from Charles Schwab. Join host Keeve Landis for this information-packed daily market preview delivered in 10 minutes or less, including projected stock updates, monetary policy decisions, and key results and statistics that may impact your trading. Download the latest episode and subscribe at schwab.com/marketupdatepodcast or find Schwab Market Update wherever you get your podcasts.

That's the podcast for today. Thank you for tuning in. If you liked this episode, scroll down a little bit. Check out the other interviews on our podcast that you might have missed, like a conversation about AI with Black Eyed Peas' will.i.am and the inventor of Segway, or a conversation about Israel with former WeWork CEO Adam Neumann while he was in Saudi Arabia. And make sure you hit that follow button so whoever we interview next will land right in your feed automatically. Our three-hour live TV broadcast, Squawk Box, is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. Tune in weekday mornings on CNBC starting at 6 to catch them. We'll meet you back here tomorrow.

We are clear. Thanks, guys.

The Summer of Audi Sales Event is here. The finesse, the precision, and the power. We know the sound of performance when we hear it. Game recognizes game.