rick we hear this i was going out with a halloween youve talked about that the goblin of demand destruction are we facing demand destruction so in some places there is i mean pricing you know companies have what is extraordinary pricing power today you know because the demand function economy is so strong i mean were looking at some numbers as you were saying you know you think about during this two year period there had been almost two year period of covid where consumers have actually underspent relative to what they have historically been david ingles outside have underspent i took that note we took those numbers and looked at it relative to what the 2 trillion stimulus that came in the demand is extraordinary thats out there but companies now have pricing power and youre seeing prices move significantly higher youre seeing places like energy where theres a supply demand imbalance a significant portion driving energy prices higher so we will denigrate some of this demand youre seeing in housing very clearly that that market tends to slow down people people stop buying houses just slow down for a period for a period of time that is some demand destruction taking place some parts of consumer durables when you get significant prices increase because supply chain shocks or energy or input cost shock so there is some demand to get denigration that being said you know i think what happens over time is that some of this inflation starts to come down and some of the supply chains reopen youll get backs youre seeing rig counts go up youre seeing productivity increases as an energy you bring down some of that inflationary impulse similar what the fed has described and i think the demand is incredible and will continue but there is definitely some what people describe as stagflation i think is is miss oriented the demand is tremendous but no doubt people will hold back in some areas because they anticipate prices coming down and its not just of course for goods and services also for workers i mean because a lot of job openings are out there its come down a little bit its still up near record levels what about that whats going to correct that situation david i mean i think ive studied this back through world war 1 ive never seen i dont think weve ever have had a hotter jobs market and i think you know you look at just the sheer some magnitude of the hiring the amazons the walmarts hundred thousand hundred and fifty thousand jobs or people theyre looking for to fulfill these roles and then you look at biotech and you look at technology i think we go through extraordinary thinking to see historic levels of low unemployment because theres just not enough people that are out there and its interesting i watch whats happening in hospitality restaurants which is oftentimes the frictional job thats out there tends to be not the highest paying job and i think its hard to bring a lot of those workers back because theres so many jobs available in other areas so i quite frankly im not watching the payroll data as closely as i am some of the job openings data the jolts data et cetera and its gonna be high for a period time by the way you see more people retiring recently and thats taking a lot of people out of the workforce so i think i think theres a supply of human capital that shortage thats going to be there for a for an extended period of time thatll keep wages buoyant and by the way not just direct wages but benefits and other other forms of of accommodation to workers that are going to be i think historic so as a worker you say you pay more attention to this point to the open jobs than say unemployment youre in good company because the san francisco fed is you know did a study on this and basically said instead of looking at unemployment you figure out if theres labor slack when youre at addressing the question of potential inflation you should be looking at the ratio of unemployment tell job open jobs if you look at that that might indicate we may have some wage inflation coming totally agree and by the way i also look it quits to layoffs so you look at the number of people why are they why are quits the layoffs at historic highs its because mobility job mobility is on an extreme level because there are so many jobs available that pay higher wage or better benefits etc so i think those metrics are much more important today and so you know looking at the whole suite you know people say oh my god you know like last month that was a slower jobs number the economy must be slow its just actually absolutely misplaced its the demand its high its trying to get that supply moving into the right place i think youll see more and more people come a come out of retirement be joining the workforce and by the way its missing that the benefits that people received you know that expire largely expired i mean the immense number that expired in august september and so thatll cause them and reentered in the labor force but theres still not enough people available for them for the job so im watching those openings and equates to layoffs in a series of those metrics to see where were going but theres no doubt in my mind wages will be well be well be strong for a period of time and this all necessarily leads back into questions about rates as a practical matter and youve said you expect nominal rates to go up at the same time with inflation were talking about real yield is really staying surprisingly low how concerned should we be about because ive read some macro economics that say if you have real deal really low its hard to have the productivity gains so listen i think looking at real yields exley exclusively as is is an archaic concept in a number of ways and less real yields are moving real rates are moving to extremes like you go back to the 70s and yet inflation you had to have real rates that came down significantly listen i think theres something thats really important i look at the companies return on invested capital versus their weighted average cost of capital that drives financial transmission that drives investment and today companies return on invested capital is extremely high youre seeing companies are 15 20 25 percent our return on equity and our weighted average cost of capital is really low the cost of equity because i dont how the stock market is across equities cheap and the way they finance themselves the real rates that the treasury market trades that its not really relevant its where they finance themselves and today on the debt and the debt market and the equity market theres a historic bid for yield in a market thats not going away anytime soon somewhat because that demographic so because of what the fed did so as long as that weighted average cost of capital stays reasonable and we think it will rachel move up a bit from here i still think front end short end interest rates are going to move up a bit but boy as long as companies continue and the demand continues to be what it is in the economy im not that concerned about small moves in real rates you know listen if inflation moves dramatically higher and the nominal interest rate moves significantly higher forcing up companies cost to borrow thats significant but i think were far far from that so rick you invest an awful lot of money on behalf of a whole hell of a lot of people give us some investment advice here im looking at your specific stocks or bonds but tell us about what we should do with all youve said in terms of investment im thinking because youre on both sides you swing both ways he heard you were here right you handle both the fixed income and the equity side what does all that tell us about for example the balance between fixed equity and fixed income sorry in equities so first off i think you got to look at companies operating leverage and think about what this means do i want to be a lender i do want to buy their bonds sort of buy their stock so what happens when when you get inflation higher and if companies have pricing power in their business and they could price it through many of their expenses are fixed leading by design long term leases thats a fixed expenses not subject to inflation a number of their expenses are fixed so what happens is that you get pricing power and some portion of your expense is fixed and so all youre doing is your variable costs go up youre actually benefiting so meaning what do you do with all that equities are a whole lot more attractive there and you know given what we described around around real rates are historically low they can move up a bit and inflation may push interest rates a bit and the fed pulling back a bit and i think going to raise rates in 2022 and so you know your return on a lot of the fixed income is not that interesting some of the credit markets some of the real estate markets commercial mortgages residential mortgage financing asset backed financing thats interesting if you get enough spread and there are some places to do that today but otherwise i think equities make a whole lot more sense i think the equity market is going higher and then you hold some cash and then in fixed income where are you getting enough yield to me that makes sense relative to where where interest rates where the risk free rate is where the treasury rate is and there are still a number of places to do that but i will tell you your returns will be driven from equity private equity venture capital and thats where i think the real upside is over the next certainly over the next year or so so i just want to come back and hit one point here as you said overall doesnt want fixed incomes that are attractive but there are sources you said credit and it was a high yield where were the opportunities you think the actually a fixed income yeah im not getting too nuanced around where around specific areas but know places like the european high yield rates are backed up significantly recently and credit spreads are backed up so theres some opportunities there i think the high yield market generally because rates have moved up and and in high yield assets have cheapened up somewhat less i think theres some opportunities in high yield the more interesting place for us today is actually to finance you know its some of the less liquid assets in residential real estate commercial real estate where you can actually if youre willing to take some risk and a bit of illiquidity thats been more attractive