Good morning, Brian.
Hey. Good morning, Danny. Great to be with you.
Yeah. Nice to see you. How are you doing today?
I am excellent. I'm in Colorado instead of Illinois, which makes a huge difference in your freedom. So I'm happy to be free in the mountains.
That's nice. It's also a Green Day in the markets.
Yes. Exactly-- and that helps, too.
Yeah, for sure. Well, I wanted to, first of all, welcome and thank all my clients from RBC Dominion Securities and RBC Wealth Management, Dan Osachoff Wealth Management specifically. And from there, I wanted to introduce you. So your introduction can be done very quickly in the fact that seeing you're the most followed analyst in the US is probably all I would need to say.
But furthermore, I might say a few other things. For example, that you are a member of the Academic Advisory Council of the Federal Reserve Bank of Chicago. You're a Fellow of that George W. Bush Presidential Center in Dallas. You're also very consistent in magazines, newspapers, blogs, as well appearing on Fox, Bloomberg, CNBC, BNN Canada as well.
In 1995, 1996, you served as the Chief Economist for the Joint Economic Committee of the US Congress. And you were also ranked as the number one economic forecaster in 2001 by The Wall Street Journal, as well the USA Today ranked you as one of the nation's top 10 forecasters in 2004. So without further ado, welcome to Canada, and thank you very much for being with us today.
Great to be with you, Danny. Great to be with you.
Yeah. Well, I appreciate this. Maybe just first off we can get started with a very general question. Can you maybe give us an update on the pandemic and the current economic situation that we're looking at right now?
Sure. I mean, so I'm going to be a little bit US-centric, because-- not completely, but that's obviously we're overwhelmed with data from every state, and I do look at data from all over the world. But we all know that when governments shut down the economy, the data was going to get bad. And so I'll just use that off the tip of my tongue all the numbers that I know are US-centric, but they look very, very similar around the world.
We have a 14.7% unemployment rate. Retail sales fell 16% in April. Industrial production fell 11%. We expect second quarter GDP to be down 30%. And all of these numbers, you literally have to go back to the Great Depression to see anything like it. However, what I constantly remind people about is that these monthly data and especially the quarterly data are lag.
So we got-- early May, we had the unemployment rate for April, but that's actually from April 12, really, that week. And so that's how long they're delayed. We won't get second quarter GDP until the end of July. And so we should be able to see things turn in the economy way before we get this lagged data.
And so what we do at First Trust is we are watching-- and other people are doing this as well-- what we call high-frequency data. And you could do this in almost any country, but we get some data, for example, on a daily basis. This would be the Transportation Security Administration, TSA checkpoint data at airports. They count how many people come through every single day. And that bottomed at about 80,000 people and it is now right now up to about 250,000 people.
We get rail traffic and steel production. We get movie theater ticket sales, box office receipts. We get retail sales, all of those things on a weekly basis. And just about every single one of them has bottomed. And maybe one of the key ones-- and I know Canada really thinks about this, is-- I mean, remember when oil prices went negative? Well, one of the things that was happening is, the demand for gasoline in the United States at the worst-- this was kind of the end of March, early April-- was down 50% from a year ago.
And that's when-- I think that one day when we went negative, it was a fluke. It was partly because a lot of trading systems couldn't handle negative numbers, but we do know that the tanks were full. Like we-- and demand was down, production had still not slowed a lot, but now production has slowed a ton. But also, the demand for gasoline is up significantly in the past few weeks. And now we're only down 20% from a year ago.
So what I call these is some green shoots. As states open up, as the economies open up, allow more activity, we should begin to see some economic growth, and that's exactly what we're seeing in the daily data and the weekly data. And Danny, I just want to caution everybody, we are still operating in some cases at 10% or 15% of where we were a year ago because the shutdowns are still happening. But we do see some green shoots, and that means growth-- we'll start to see some better numbers in the third and fourth quarter.
When you mentioned gasoline, is that more of the retail consumer?
It is. That's-- yeah. That's exactly what we look at. It's kind of an interesting thing. If you really dig into the stats, they call it the supply of gasoline, but it's really deliveries to gas stations. So that would be demand. So when gas stations start taking more, that means their tanks are being drawn down and the demand for gasoline is picking up.
Just as a quick-- this is anecdotal and I don't always like anecdotal information, but I'm now out in Colorado and I was in Denver, and it was the first traffic jam. I mean, a four-lane highway packed to a stop. I saw that two days ago. I haven't seen one of those in two months. So clearly mobility-- people are moving more than they have in months.
Yeah, for sure. So oil is a big topic for Canadians. We are underweight typically oil in the portfolios, which has been a good place to be. Can you give us an idea-- your opinion with things like hybrid cars, electric? How could that maybe affect the oil industry longer-term?
Yeah. I mean, I think it clearly will have an impact, especially if we could figure out how to make these things that, I mean, efficient enough to not need subsidies in order to sell, because a lot of these electric cars, we have to subsidize them in order to get people to buy them. Also, don't forget-- well, I know you don't, but just in general, we all shouldn't forget that you need energy, you need a natural gas or coal or something to make the electricity.
And then what's interesting is if oil is going to be in the $30, $40, $50-a-barrel range, it makes it pretty hard to compete against, especially because batteries don't last that long. I mean, the technology is really cool, it's getting better, and I guess in the long-run, we'll find out. I just don't-- it's-- like, I don't know. And it's sort of like in a way, solar power and wind power, we know the costs of those things have come down, but without subsidies, would those industries continue to grow? Are they a real threat to petroleum?
And I'm not ready to say that yet, because petroleum, we're finding better and more efficient ways to pull it out of the ground, the costs keep dropping, and as a result it's getting harder to compete against. So I know that sort of like all over the place, but you get my point, I'm pretty sure. And that is that we just have to watch all those things happen. Right now, I don't know how electric cars compete at $30-- $33 a barrel. It just got a lot harder for electric cars to compete.
Yeah. And renewables is a very hot topic, especially here in British Columbia here, and British Columbia is a fairly green province. Do you have any opinion on the future of the renewable energy sector?
Yeah. It all depends-- I mean-- and I'm-- in the US-- and I look at Germany and I've looked at Canada before, that without subsidies, most of the activity-- the building of new windmills, the putting up of solar fields would slow down precipitously, which tells me that it's only those subsidies that are really letting them grow right now.
Now, we also have seen the cost curve come down. The cost curve per megawatt-hour of solar, the cost per megawatt-hour of wind. We're improving. And so if we were to stay on these trends, eventually that would be the way to produce energy. But right now they are such a small portion of all the energy output in the world that we just aren't-- I mean, I get it. If you're green, you want this, you believe in it, you think it's going to happen, but we just don't know yet.
And one of the things I do warn people about is that if we're going to subsidize something, because we want it. Like we're green, we want to save the world, we believe in climate change, whatever those things are, we have to realize that subsidy means we're taking money from somewhere else in the economy.
And so this idea that somehow green jobs are-- that we're going to create more jobs by shifting resources from one sector to another, that's not really true. We have to-- I would like people in that arena to actually admit that taking money from profitable companies and individuals through taxes and then subsidizing things that might not happen without the subsidy actually costs us jobs in the long-run-- or in the short-run.
Now eventually, if they're right and the price of solar and wind falls way below that of petroleum-based energy production, then they're right. They win and the subsidies were worth it. But we aren't there yet. So I just caution everybody, it could-- Germany has run into real problems because the cost of the subsidies was so great to reach their goals that they began to cut them back and it was hurting their budget. And so we'll just have to wait and see.
Right now it isn't that cost-effective. I know a lot of people play with a lot of different numbers, but right now it's not going to replace petroleum, at least where today's prices are.
Sure. Can you maybe touch on the reopening that you're seeing and any kind of forecast on how that might look? Any challenges that we'll probably face like a new spike in pandemic numbers?
Yeah, sure. And let me just kind of quickly-- I'm not an epidemiologist, I don't play one on TV. I'm not trying-- I'm not trying to be one. But here's a couple of my thoughts. There is-- 30 years ago there was a book written in the US about the Bay of Pigs, which was when John F. Kennedy decided to send Cubans into Cuba and they were going to invade. And it was one of the biggest disaster decisions of all time.
And the studies go back and they go, what happened? How did all these smart people make such dumb decisions? And they ended up calling it groupthink. And I believe we have some of that going on today. I am not saying the coronavirus is isn't dangerous. I'm not saying it's not contagious. I'm not saying it doesn't kill people. I get all of that.
But we have come to this conclusion that the only way to fight it is to lock people down. And if you go outside of that kind of thinking, then you're a denier, you are-- you're-- they kind of shun you. They don't want to hear your comments, your thoughts. And I believe that's a mistake.
Sweden did not shut down. They didn't shut down schools, they didn't shut-- people did social distance. If you look at mobility data, it shows that people slowed down their travel, but people were still going to restaurants and bars, and all of that stuff was left open. And so people were left to make their own decisions. And even their curves are going like that. So they went up, and now they're coming down.
And so this idea that a shutdown actually works, I think about the US. I can go to the grocery store. In some states I can go to restaurants. But I could always, even in the major shutdown, I could go to the grocery store, the gas station, and the drugstore. Well, tell me I can't get it there. And so really-- and if you listen to the experts, the shutdown was all about flattening the curve so we wouldn't overwhelm the hospitals. Well, we never did. And so that's why we should be opening up.
What's crazy is New York City-- I mean, their deaths are-- I need to look at the actual numbers, I'm going to say a 10th, a 50th of what they were at the peak right now. Their curve went up and straight down, and yet they still won't open. And then you start hearing things like, well, we're going to have another spike in cases. But I look around the world and I haven't seen a single one that has opened up and had a spike-- if that were true, Sweden would have just gone straight up exponentially, never stopped growing, and it didn't.
And so this virus looks to me-- I'm not saying it doesn't kill people, but it has a bell-shaped curve wherever it is, almost however it's taken care of. In the US we have 50 different states, 50 different ways of dealing with things, 50 different timelines of when we shut down, and they're all-- all the data is showing this bell-shaped curve. Whether they opened up, didn't close down. Montana has let kids go back to school.
And so we're going to have great experiments in-- one of the things I think that's happened is, is if you're under 65 and you don't have another disease, a comorbidity, the odds of you actually dying from coronavirus are about the level of the flu. We know who to protect, and as a result, I think we've gone overboard.
And then-- and I know you didn't ask this, but you can't just shut an economy down and then turn it back on. It doesn't work that way. We've lost millions and millions of small businesses. Money didn't get to them fast enough. Supply chains, like, for example, eggs that go to restaurants and cafeterias, that's a completely different supply chain than the one that goes to grocery stores. And they've been euthanizing chickens. And you can't snap your finger and have a chicken pop up here and start laying eggs again.
So all of this shutdown damage is going to take time to recover from, and I think we're going to look back at this and say it was a mistake, because the numbers never got anywhere near where those early models suggested. And that's true in states that didn't shut down and states that did and countries like Sweden that didn't shut down. All the models overestimated, and therefore, I think our economic reaction has been and overestimated response, too.
Can I maybe jump to something a little different? Sports. I'm an athlete, a former athlete, and really, for morale, first of all, but also economically, my fear is that baseball-- now we've got hockey, basketball, the major North American sports are all on pause. Football coming up soon. Do you have an opinion on where that might go even though I know those leagues don't know yet?
--do open, what would that look like for the economy? If they don't, how detrimental would that be?
Yeah. So here in the US, NASCAR is a big deal. And that was, I guess, the first sport, although you're not getting crunched or trying to be faster-- well, you're punching the pedal fast--
I've been before. It's a sport.
Yeah, yes, OK. You sweat a lot in those cars.
But they have actually had 6.3 million viewers on TV with no crowd in the stands. And so, I mean-- and so-- here's-- I'm actually going to back up and I'll come right back to sports. It's been my belief that once one state opens up in the US, that that will put pressure on the neighboring states. And then as that pressure builds, even if you're a stubborn governor-- for whatever reason. We have all these conspiracy theories, it's all politics, it's all-- it's Bill Gates. I mean, it's like all this crazy stuff, and I do not wear a tin foil hat and I do not want to call people names. They just don't want to open up their state. They're scared, whatever it is.
But, as other states around them open up, their citizens are going to put pressure on them. If I'm allowed to open up a company in Indiana, then that means that my competitor in Michigan is going to scream and yell at their politicians to open up. We saw it happen with Elon Musk and Tesla. Detroit opened up car plants and California wouldn't let him and he said, I'm leaving. And guess what? They did. They let him open up.
And so what's fascinating is that that pressure is going to build. And then one more quick comment and I'll come back to sports. There's peer pressure, too, to get back to normal. And so if your neighbors on both sides of you go off on a vacation next month or two months from now, and a month later after they come back they're talking about how great it was and nobody's sick and everybody's fine, guess what? Your kids and your spouse are going to scream at you to go on a vacation, too, because your peers have done it.
And now it's like-- and so I think it starts to spread. And so that's why I brought up NASCAR, because that will put pressure on other sports, because they're losing revenue from TV and other things. Now I'm not convinced we're going to have fans right away, but I do believe that over time-- this last two months has been maybe the strangest time almost in human history. I don't-- I mean, I know a lot of human history, maybe you have to go back to the Dark Ages, Genghis Khan and raids of villages or-- I mean, to find a time that was so disturbing or something.
But I just don't believe that this is the way people will live for the rest of their lives. And like after 9/11, gosh, I flew on the first day you could fly after 9/11. And I will never forget. There were a bunch of guys and we were in the waiting area before we boarded the plane, they're like, are you on an aisle? Like all right, we're going to save our plane if somebody does something.
And I haven't had that conversation in 10-- 20 years now. We had it for the first three or four flights, and then everybody-- and then and last year we had more people flying than ever before. And so after World War II we got back to normal. World War I, the Spanish flu. And my belief is that this is no different.
Now, it may take a couple of years, but I do expect to see absolutely full stadiums again in the next couple of years. At first they might be every other city, and then they-- I don't know what they're going to do exactly, but I think people want to get back to normal. There may be some that never do. But I think a vast majority of people, just like after 9/11 and World War II, will get back to normal.
And-- yeah. We have TSA now and we have locked cockpit doors, and so something might change at least for a while, but I think once the danger passes, which it will-- it's a virus, it passes eventually-- that we will get back to normal. And we won't be scared of another one of these things is coming every other day.
Sure. And so that was a-- I appreciate some questions that were sent to me, and one was, what would the new normal look like? Because you would have never guessed that you would have to take your shoes off for an airplane and bring little bottles and everything else with you. That was a permanent change. What might permanently change from this?
Yeah. OK, I'll start with the scariest stuff first. And what would scare me the most is if we permanently made the human race, if you will, what we have done with these shutdowns standard operating procedure. And one of the problems that we have and-- I want to be careful here, because I'm not besmirching anyone. I'm not trying to-- I believe that the pandemic expert-- so here in the US it's Fauci and Burke. They were on TV every day with President Trump. They don't want a pandemic. They don't want people to die. That's not what I'm saying.
But, if you kind of look at their careers, that's what they planned for their entire life. And so of course, it's easy for them to go there. They've done all the models, the circles keep growing and the lines go around the world, and it spreads, and it's like the movies. I think there was a movie called Pandemic.
And in their brains, that's what's going on. So they see-- when they see something start, they always go to an extrapolated, exaggerated position. And these models almost always overestimate. They did with HIV/AIDS, they did with MERS, they did with SARS, they did with the Swine flu, and they did it this time, too.
And so if we make it standard operating procedure to let the models cause economic shutdowns, we're going to have permanently lower growth. Because would you start a restaurant knowing that three years from now you could just be shut down? Like closed? And then if you're a bigger business, you're going to have to hold a lot more cash, because if you have to last during a shutdown-- so what that means is you're going to make less investment over time.
And so if this becomes the new normal, that we shut down the economy any time some new virus or health threat emerges, that's going to be a permanent change that's not good. Then we come back to this other thing, the way I would think about it, and that is we get these about once every 100 years. And so it's kind of like 100-year flood-- and I know people always joke, well, we've had three 100-year floods in the last 10 years-- and I believe that because I live in Wheaton, Illinois and we flood all the time.
But the point I'm getting to is if we really can get some perspective on this and realize that the Spanish flu is in 1918, this was in 2019, '20, it's not going to happen again for a long time, and we have a couple of year period where there is some difference. More people wear masks, you kind of social distance naturally, they cut down the size of restaurants and they keep middle seats open in airplanes. But slowly but surely, people get more and more comfortable, we see less and less cases.
And I think some people will change permanently. But I still believe in the human spirit and our desire to be free and to interact with each other. And as a result, I expect us to go back to pretty darn normal life. And I don't think-- I think we'll wash our hands more. I still shake hands. Like maybe we won't. Maybe people won't shake hands, but I will. And if you don't want to with me, I won't hold it against you.
But it's-- and I think that we'll all learn to live with each other. Somebody that wants to wash their hands 10 times a day, somebody that wants to shake hands and not do that and somebody that doesn't care sitting next to somebody at a bar. And I think a peer pressure will sort of make people get back to normal. It will look more normal.
In a more optimistic, then, new world, what opportunities do you see in the market now? For example, just very macro, sectorial--
Right. Yeah. So this is a great question. I mean, a lot of people say, how could the stock market to be doing so well when the economy is doing so bad? And I think there's one of the key answers to that, is that companies, once they make it to the index, they become public, they're pretty well-run companies.
I mean, not-- I'm not saying there's not some of them that have too much debt, that are on the edge, it might declare bankruptcy, but for the most part, these are pretty darn good companies and they're important to society and they're well-run. So again, this is more US-centric and you'll have to apply that to Canada stocks, if you will.
But the McDonald's, Home Depot, Costco, Walmart, they were all allowed to stay open. And then there's the telecommunications companies and the tech companies-- Apple, Microsoft, Amazon-- that win in this kind of environment, because they're how we're doing this right now, talking over Zoom. It's just-- it's amazing what we can get done.
And so they're the winners at first, because not only did-- like for example, Walmart got to stay open because it was an essential service, but a lot of their competitors, who were small businesses, were forced to close, which means Walmart wins, and that's one of the reasons why the stock market has done so well.
However, we have also left sectors behind. I believe financials have been left behind. I believe energy companies have been left behind, and I do expect energy to-- energy prices to improve, and that's going to help some of these commodity stocks and energy stocks. I also think inflation is going to pick up.
Also, once we open up, the cyclical companies will return as well. So industrials. We're now opening up auto companies. And even if things don't get back to normal right away, it initially it's kind of a V-shaped bounce. When you go down 99% on the number of people flying and then you bounce back 20%, even though you're still way below where you were last year, the growth rate is tremendous.
And so at the margin, you're going to see improvements in profits and prices happen even though we're still way below what we call normal or what used to be normal a year ago. So I'm now-- this rally so far has been mostly tech, mostly health care. I think it's going to begin to broaden. Out smaller-cap stocks, financials, energy companies, industrials, and cyclicals I think are going to start to catch up with the others.
I'm not trying to say that tech is overvalued, because boy, if you look at the growth that they've experienced in-- we needed them. Imagine if this would have happened 20 years ago, what would we have done? Because, I mean, in a way, tech kind of saved us. And so they're going to be permanently more valuable. I'm not saying they won't have volatility, they won't go up and down, but they have rallied a lot, and now I'm looking for other sectors to catch up.
So as you touched on inflation. Can you maybe elaborate a little bit more on that, including maybe the risk of tax increases in the future?
Interest rates, et cetera?
Yep. So the number one thing that I worry about-- so at first, right now we're having deflation. So, I mean, when there's 5% of the people flying and you have to have-- there's all kinds of weird rules in the world. So in order-- if you have a daily flight between two airports, if you're not doing at least one, you lose your gates. I don't understand why they can't change those rules in the middle of a pandemic, but they have it.
And so there's planes flying with nobody in them. And so they're willing to sell tickets at like $50 a pop when it's normally a $300 ticket. And so at first we had deflation. But now, there's a lot fewer flights, and they're getting more and more full, and they're charging more for it. We saw oil down in the teens, $14, $15, $16 a barrel. Now it's in the mid $30s. And I believe a lot of this is because the money supply is exploding. That's the number one cause of inflation.
And in the US, the money supply is up 70% in the last three months at an annualized rate. So if this continued for a full year, it would-- I've never seen the money supply ever, in all my life as an economist, in every bit of my reading of history, never seen money supply growth numbers like this.
And that means inflation-- we're going to have deflation at first, because we just-- we had excess. And then I think we're going to see inflation pick up. Now it's going to be interesting, because if you're only allowed to have half the seats in your restaurant, you can't pay the same lease or rent for that restaurant.
And so I think some sectors will get hurt. Like for example, office buildings probably and some-- like restaurant leases. So this would be-- maybe shopping malls. At first they're going to get hurt. If we get back to normal, they'll pick up and we'll go back to normal. But right now with that inflation coming, I do expect interest rates to rise in the future. But central banks right now are all holding interest rates at 0, and that makes it really hard for interest rates to go up.
So it's going to take at least a year before that inflation really raises interest rates. But I do think also, with that burst of money, that that's one thing that's lifting financial assets like stocks as well. They're not overvalued yet. This is not a sugar high, all a fake recovery just because of money. But it's helping stocks go up, and I think it will continue because this money supply growth is going to continue.
And it's because the Fed and the central banks around the world are buying government debt. They're truly monetizing the debt. This is one of the things that causes inflation everywhere and always around the world and throughout history. And then tax rates are going to go up in the future. I don't I can't imagine that they won't. We have just added to our government budget debt, and our kids and grandkids are going to have to pay for it.
It is-- either that or we change our spending patterns and take away Social Security, Medicare and Medicaid. And I'm not predicting that, I'm just saying that the easier alternative is to raise tax rates. And so that will slow the economy down in the future and cause more inflation as well.
Did you see this pandemic repatriating more companies into, for example, their own country, whether it's US or Canada?
Absolutely. The US-- China is-- they're hurt horribly, I mean, by this. It is-- it's just beginning. Don't quote me on these numbers, but I think they're pretty close. You read so much. I do know this number's right. Apple's moving $40 billion of production from China to India, and I believe the same number to be about $40 billion to Vietnam. That's huge. China loses. We're going to bring back pharmaceuticals.
And so, again, I'm not trying to be US-centric or something like that, but it's the way I've been talking and thinking about this. My view is is that Canada, the US, and Mexico, I think the UK is going to come into our trade deal, I think Australia and New Zealand, I think some of the other Asian countries-- Indonesia, Vietnam Taiwan, Japan. I think those are the country-- the countries in a way that we can trust, you know?
And so I just think about the North American-- it's not called-- the USMCA, and then bringing-- I think the UK is coming closer and closer and closer to Canada, Mexico-- to North America than ever before. And so I really expect some huge victories there now. I guess Trump is the one that screaming the most about this, and I don't want to make this political, but there is no possible way that we can bring all our production back to the United States.
Trade is good. There is nothing wrong with trade. And I want to-- even though I don't have much up here, I run a trade deficit with my barber every month. My barber doesn't buy anything from me. And so it's good. And so-- except the last couple of months I have been able to get a haircut, but nonetheless, you get my point.
Trade is good. Even if you run a deficit, deficits aren't bad in and of themselves. And so Trump's wrong about that. He's been right about China, and I think the whole world now sees it, but we can't-- there's no possible way-- we were at 3 and a 1/2% unemployment. How are we going to build everything here? We don't have enough people. It's impossible. And so we all have to work together. And I think those countries that I just mentioned-- India, I left out India. I want to include them. I think we're all going to win as a result of this.
I look at Europe, I feel bad for Europe. I mean, their economies have grown slow for decades. They have socialized medicine-- and I know Canada does, too, but their systems, they have under invested in health care forever. And if you look at Italy, France, Spain, the death rates and the toll were just horrendous. And I blame a lot of that on their big governments. And I think the EU, as a result of this, is in trouble. So I'm not predicting a breakup, but I think it is in trouble.
And so I would say North American and non-China Asia as sort of my investment focus right now. I don't want to be in Europe in a big way, I definitely don't want to be in China, and I like North America because I think we're going to win out of this as we bring things back to North America and work more closely with the UK.
So that ties into a client question, which was about a potential five-year global recession that--
--read about. Is the global economy at greater risk than, for example, North America or specifically the US?
It's a good question. I do not-- this is not a normal recession. This is a pandemic shutdown, fear-led recession. So it's nothing like anything in the past. And when we open up, the economy will recover. The question is, how rapidly? But we went so deep in the hole that it's going to take us a while to climb out, but it won't be a recession, it will be growth.
And so if you want to call a recession kind of getting back to where we were, if you want to call the whole thing a recession, which isn't normally true. Normally the recession is the down part and the recovery is the up part. It may take us-- it may take us five years to get back to normal, to where we were.
It might-- I'm now looking more at two to two and a half years, but I might be too optimistic, especially if they shut us down again. If there is a fall resurgence and everybody freaks out about it, and I just don't know that. But I don't believe we're going to have that five-year recession. I think there are winners. I want investors to have patience today.
I'd look back-- if you take the gain in the stock market that we had in 2019 and then add the negative numbers that we might have this year, the NASDAQ and the US is up about 8% so far this year. The S&P is still down, but you can subtract that from last year. If you would have bought on December 31, 2018, held all the way through today, you're still up 21% on the S&P 500. You're up more in the NASDAQ because that has all the big high tech names that have done so well, but the point I'm getting to is investors that remain even through the plague, as President Trump calls it, or the worst pandemics since the Spanish flu, you think about the returns in the market, they're incredible.
And I believe that patient investors over the next couple of years are going to be really rewarded. If you look back to the last 16, 17 months, it's been true. And I think if you look at the next 18 to 24 months, it will be true as well. Maybe not as big of gains as we had in 2019, but we're going to end up at above the peaks that we already have seen. It's going to take a while, but patience wins. Patience pays off.
Are there any specific events coming up soon, fairly soon that could maybe be presenting a better opportunity if you're sitting on cash? Anything that stands out to you?
Yeah. So-- I mean, this is-- the way I look at data, the way we run our models of equity markets and valuations I think work. Predicting dips and turns and how to trade markets I have never been able to do. It's kind of like a fish story. It's like-- because if you can hit it once, you may not hit it the next time. And so-- and I just don't know anybody that's been really lucky or really good at trading consistently over a long time.
And I guess here's the risk. I mean, I-- and everybody has different risk profiles. Right now, I do not have a lot of cash sitting on the sidelines-- hardly any. And the reason is, I believe the market is still undervalued. Now that doesn't mean that if we have another surge in cases and then we see shutdowns extended, that that won't hit us again. I do believe we are not going to go back to our old lows. I just don't buy that. Because I think we have enough data out there to realize who's at risk, and it's not people under 65. It's just not.
And as a result, I think we're going to be more-- if you really want to talk about science, we're going to be more scientific about the shutdown. So it's not going to be as draconian as we've already seen. And as a result, I don't think we're going to test. If you believe that we're going to have another surge, I just don't. I think viruses die out, and every country I look at around the world, every state, they all look the same way. They have that bell-shaped curve right now.
And we'll have to see, but I just don't think we're going to have the same seriousness and the same fear. That's my opinion. If you believe that we will, then keep some powder dry, because you'll get another opportunity. But what I would do right now is-- let's say you sold at the bottom, and you said, that's it, I'm done, I'm out-- and that happens a lot, right? That's why it's a bottom, because people just give up. And you're not back in yet, what do you do?
And my answer to that is, go back in slowly, dollar cost average in. When the market is down, like we had a down market yesterday, buy a little bit more. When the market's up, buy a little bit less. Because we will have volatility, but I really do suggest people get back in. We're still undervalued. The recovery will happen even if it's slow, and then you just have to be patient and just-- I mean, the week before Easter, four-day trading week, one of the best weeks ever in the history of the market, and no one saw it coming. It was just like, boom, it happened.
Monday, the Dow was up 900 points, and it was all on this vaccine. And there's no way you could have known last Thursday that that was going to happen on Monday. And so I just think it's impossible to trade. And what I do is I look at the bigger macro picture, and it says we're undervalued. And the economy will come back, and therefore, I want to stay optimistic and have patience for it, too.
I appreciate that. I know that you don't talk a ton about specifically the market or the economy and things like that.
Can I ask about government debt? Is that something that could change credit ratings?
Yeah, it could, definitely. Especially at the state level. I would-- I'm sure Canadians don't buy US municipal bonds, but I tell everybody here in the US, I wouldn't touch an Illinois municipal bond with a 50-foot pole. I mean, it's like-- we're a disaster. But for the US, Canada, the UK, we have so many assets in our economy. Yes, we have government debt, but we have so many assets. In the US we have $300 trillion of assets, and now-- we used to have $22 trillion in debt, now we have about $24 or $25 trillion, $26 trillion in debt.
But compared to $300 trillion in assets, it's still too small to tip us over. We're not Greece, we're not Puerto Rico. Now I'm not saying we can't get there, but it's going to take a long, long time. So I do not-- Canada went through a downgrade in its credit rating. You were able to cut spending and boom, get your credit rating back. And that was one of the most amazing-- I mean, disciplined, political reactions I've ever seen to that, because most countries, they just ignore it. And you actually made those positive changes. Brilliant. That was like awesome. I wish the US would do something like that.
But, I mean, one of the reasons we don't is that people keep buying our debt, and we're not paying a lot to them to do that. And it's because we still have so many assets backing up the debt that people aren't worried we're going to go bankrupt. And so not until it gets to that point, but I think that point's 20 years down the road if we don't fix things.
OK. Can you maybe just touch on a few things that maybe we haven't covered that you think are of interest for this call?
Yeah, sure. I mean, I am worried about literally this time. In 2008, Canada did not do quantitative easing. Just amazing. And I still-- I love you guys for that. But we did. However, it never turned in-- the Federal Reserve's, all that money-printing never really turned into the money supply. And it went into what we call excess reserves. And this is getting a little down in the weeds about monetary policy, but as a result, it didn't really expand the money supply. All that worry about hyperinflation never happened.
This time, the money supply is increasing. And partly it's because of the government's boosting loans to businesses, using banks to do that, but the money supply is exploding. That is one of the biggest differences of this time versus 2008. And then having said that, the other thing is that right now, the US stock market-- and I have not done these numbers for the Canadian market, but the US stock market is expecting-- when we use valuations and models, expecting a 50% decline in corporate profits. And we think that this year, the S&P 500 is going to have about a 25% decline.
So the market is still undervalued, and we're printing all of this money, and that tells me that the risk right now being in equities is pretty low. I'm not saying it's going to go up every day, but-- and we're going to have volatility, but when you're printing that much money and the market is undervalued, it tends to rise.
And that's what I think has shocked a lot of people in the last few weeks. How can this be happening? I'm like, well, hey, we were at the bottom, we were anticipating an 80% decline in profits, way too much, and the Fed was printing all this money. I'm like, so the market's super undervalued, we're riding on a sea of liquidity, you gotta be in stocks. And they're like, no way, the economy-- unemployment's going to go 15%. I'm like, everybody knows that. Whether it's 18% or 15% or 20%, who cares? We all know we shut the thing down, the data is going to get real bad.
What I'm saying is is that the market's overpriced in and there's this sea of liquidity. So with those two things, I just look at the equity markets as right now not as dangerous as a lot of people think. And then finally, the bond market isn't very attractive with these low yields. There's some-- higher-yield, corporate debt, that kind of stuff where spreads are really good. But if inflation's coming, those interest rates are going to go up. And I'm not saying don't be in bonds at all, but I tilt right now toward equities over bonds because of how much money the Fed is printing.
And dividends, what do you feel about-- obviously balance sheets are important for each--
With this changing the way a lot of businesses are run, is it almost easy now for a company to say we're going to cut our dividend back, whereas maybe before there was a reputation risk against that?
Sure, absolutely. No doubt. I mean, I think-- this is not where all my expertise lies, nodes and all this data about the markets. But I think I heard-- I'm pretty sure this is correct, that this year, more companies have cut dividends than at any other period of time in history. And so there's no doubt. Once one does that, once 10 do it, it's a lot easier for you to do it and everybody understands why. And--
Peer pressure, the opposite--
--the opening. Yeah.
Absolutely. Exactly. And so, what's interesting about that is that it doesn't really hurt you, it helps you save cash. And then-- and this comes back to one of the things I said before, and that is if we get worried that it's standard operating procedure to shut the economy down any time we get some virus, then companies are going to pay a lot less dividends and hold a lot more cash. And the growth rate of the economy is going to slow because people will be willing-- they won't take as much risk.
Because hey, I mean, like I said, would you open a restaurant knowing that you could just be shut down? And the answer is mostly no unless I can-- unless it's fast food and I can use delivery or something like that. But the bottom line is, it's going to change-- so if that's what people start thinking, I would not look for these dividends to come back rapidly at all.
If we do-- if it takes us a couple of years, we get back to normal, I think dividends will come back. One of the things I wish we would do in here is instead of just throw money at the problem, look at ways to increase incentives for investment. So lower capital gains tax rates, do the payroll tax deduction to help hiring and help bring people back to-- in other words, things that help us get back to more normal. I just don't know if we're going to do that or not. So yeah, we've had massive cuts in dividends. I bet you some of these companies, tech companies increased their dividends, but the cuts are going to be way more than the increases.
And that makes-- that just makes it hard. If you want income in your older years and dividends were one of the key places that you were getting that from, it just made your life harder. And so we just have to-- I think we have to depend more on capital gains rather than all dividends, at least for the next couple of years.
That's good insight. Anything else before we wrap up?
No. What I want to do is I want to thank you for having me with you. It's been a great conversation. I mean, it's just been so natural, great questions. I hope everybody enjoys it. I've enjoyed being with you, Danny.
OK, I appreciate that. So Brian Wesbury, the Chief Economist with First Trust Advisors, and a very well-respected, well-known man. Thank you very much. Myself and the clients of Dan Osachoff Wealth Management appreciate this.
Yeah. Thank you very much, Dan.
OK. Thank you.
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