Glass Bulls: The U.S. Economy is no Safer From a Recession Today Than it Was Prior to 2008

As U.S. markets continue to surge to all-time highs both because of and in spite of the unexpected election of Donald Trump, I asked an experienced financial advisor some questions about the state of our economy heading into the new administration.

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In the aftermath of Donald Trump’s unexpected, narrow electoral victory I sat down with Nusheen Javadizadeh, a financial advisor with seventeen years of experience from Long Beach, California for a wide-ranging conversation on a variety of topics. For over an hour we discussed everything from corporate tax rates to Glass-Steagall and peak oil as we looked to the future of our economy heading into what promises to be one of the most unorthodox Presidential administrations of the modern-era.

Particularly concerning was her admission that our economy today is not necessarily any better or worse off, any more or less insulated from the sort of recession-caliber financial crisis that occurred in 2008 than we were in 2006. While she believes that regulations will likely prevent a similar crisis from occurring in the housing market with collateralized mortgage obligations or banks from becoming “too-big-to-fail” again, Nusheen said she recalled reading articles just prior to the 2008 crisis about how 1929 would never happen again because of Glass Steagall and other regulations. Additionally, the incentives are undoubtedly ripe for smart investors to let their greed get the best of them and make short-term gains at the risk of wreaking long-term havoc, especially with the prospect of potential deregulation under a Trump administration.

We also discussed how expectations may have begun to diverge from reality when it comes to what the markets seem to be assuming Trump will be able to do as President. Investors betting on lower tax rates is one thing, but to assume that huge infrastructure projects are looming while fiscal conservatives still wield considerable power on capitol hill might be wishful thinking. That wishful thinking could end up being costly, considering how much the value of raw materials, steel, and other industries which would stand to benefit from increased infrastructure spending have already been essentially “priced to perfection”.

Nusheen pointed out that when the institutional investors have been in it for a while, the end might be near — admitting in our interview a month ago that there has been talk the current run might be “overly blown”, however with the (arguably arbitrary) Dow Jones industrial average recently flirting with 20,000 and currently on a record run, things don’t seem to be slowing down just quite yet. Potential infrastructure which may or may not happen aside, Nusheen also asserted that one of the best things President Trump could do would be to lower our high corporate tax rate — something President Obama proposed but never saw realized, and the driving factor of corporate inversions which were a hot topic in the 2016 race.

One question I raised was regarding the concept I’d read about as ‘Hubbert’s Peak’, or what Nusheen described as ‘peak oil’ — the idea that there will be an inevitable global peak in oil production, both in terms of a peak price and a peak in overall production. I was surprised to hear her argue that she thinks we may have already reached a peak oil price at $110 a barrel, and that it very well may never go that high again. She did point out that natural gas and overall production is a different story, nevertheless the ramifications of humanity having already hit a peak oil price alone will prove to be massive in the future — particularly for resource cursed, oil rich nations who failed to diversify. On renewables and electric cars, she agreed that environmental concerns are genuine but was skeptical that large-scale change will take place in the next ten to fifteen years given the failure of companies like Tesla and Solar City to turn a profit, as well as the reality that most of the world is still powered primarily by fossil fuels.

Additionally, a dominant theme in our discussion was the prominent role that psychology tends to play in markets — evidenced particularly by the differing responses of stock markets to a potential ‘Grexit’, an unexpected Brexit, and the surprise election of Donald Trump. While Greece exiting the European Union wouldn’t exactly have sent financial tidal waves rippling throughout the global economy, the ramifications of Britain exiting as well as the variety of potential economic impacts a Trump administration could have stand to effect markets much more in the years to come. Yet despite markets responding disproportionately to Grexit based on the principle that it brought uncertainty and uncertainty is bad, investors have somehow been able to ‘reassure’ themselves through the uncertainty that comes along with Brexit and Trump — a reality which seems to defy logic and begs questions regarding the balance of actual analysis and pure psychology in determining valuations.

Below is a transcript of the bulk of my interview with Nusheen:

What do you do, in a nutshell?

I am actually a money manager, or some people they call it a stock broker — some people call it a financial advisor, there’s different terms for it. Essentially what I do is I communicate with clients to set up a game plan for whatever their financial needs are and their investment goals so that we can meet those goals. If they want to retire in twenty years, for example, we have to come up with a game plan for how they’re going to retire, how they’re going to make enough money in those twenty years and put away enough money so that they’re going to have a comfortable lifestyle in retirement. And that’s assuming a lot of different variables including inflation and different variables, so in a nutshell that’s what I do. I do it for individuals, for companies, so if a company has multiple employees I do 401k plans for them. In some cases, I manage it completely where they give me the autonomy to do that, in other cases I may call the client and we discuss my idea — or their idea, if they have an idea and then we come to the decision of what we’re going to do.

Looking to the future, particularly in terms of potential policy changes — how do you think that might affect the markets? What do you make of everything?

Well, as of today which is about six weeks after the election approximately-

The electoral college just voted today.

Yeah, the 19th — so let’s say its six weeks out from the election, the market has already given you indications that he will reduce corporate tax rates which, they actually in my opinion need to be done because I don’t know how much you know about corporate tax rates –

Didn’t President Obama want to reduce corporate tax rates, if I recall correctly?

(In 2012 he proposed an overhaul of corporate taxes which would have lowered the rate from 35% to 28%)

Maybe, but I don’t think it was on the top of his agenda because it didn’t get done. So the background on corporate tax rates is that the U.S. has the highest corporate tax rate of any industrialized nation.

Doesn’t that encourage inversions?

It encourages inversions, which you know, all the candidates were upset about. But listen, if you don’t have a very nice policy here then it forces people to do other things because the bottom line is all of these companies want to make more money every year for their shareholders, that’s the goal. They won’t be able to do that if they have a competitive disadvantage against competitors in other countries. Let’s say there’s a U.S. based company and a U.K. based company and the tax rate is markedly different, the U.K. company is going to have a competitive advantage so if the whole goal is to be competitive then U.S. companies need to do something — that’s legal, it was totally legal, they just didn’t like it.

It’s just like tax rates, a lot of the really wealthy people in this country have left the country and have chosen to submit their U.S. passport, turned it in basically and became a resident of Monaco. Why? Because they don’t have any taxes there! If you keep doing this stuff to people, it forces them to alternatives and they do have alternatives. The same thing happens with companies and that’s why they do these inversions. Now whether it’s ethical or whatever, it doesn’t matter — it’s totally legal. They’re not doing anything illegal. So by reducing the corporate tax rate, it will make our companies more competitive with companies around the world, especially the industrialized countries like Japan, Ireland, Germany, etc. Because that is probably inevitable that he will reduce it, either to 15% or 20%, whatever that talked about number is — even at 20% that would be great, 15% would be extraordinary but I don’t know if he can go that far. Then the market realizes that these companies are going to make more money, therefore the prices have all really gone up in the past five or six weeks.

Same thing with infrastructure, he talked about infrastructure, so his talk is — whether he does it or not, doesn’t matter — his talk is that ‘I’m going to rebuild roads’ ‘I’m going to fix the bridges’ and all the things that are so ancient which, they are ancient, they do need to be redone. But they need bonds, voters have to approve these bonds, and no one ever wants to approve anything that costs money so they always get turned down. The same with schools, and all this other stuff — that’s why everything is in such bad repair because we leave it to the voter. Anyway, I don’t know what he can do but if he can do that, well there’s hope that he can do that, that would not only create jobs but it would also improve the companies that are involved directly with that. Crane operators and companies, Caterpillar, steel — all the raw materials have gone up a lot, copper and all these companies. But they already priced them to perfection.

That begs the question then, considering that tax cuts can at least be considered inevitable in this Republican Congress, but infrastructure — that’s hard to do — saying infrastructure is one thing but doing it is another. So if the market assumes this is going to happen and the prices start to reflect an anticipation of this coming infrastructure, could that mean the market is getting ahead of itself?

Oh, the market always gets ahead of itself. So in a market it’s kind of like the story of Goldilocks — the porridge is either too hot or too cold and it’s rarely just right. That’s the same thing that happens with the market, it gets overly exuberant which it is right now, it’s pricing it like they’ve already done all these projects when they haven’t even started, they anticipate. They can get overly pessimistic too, I’m trying to think of cases, like for example when Greece was failing — well Greece doesn’t matter to us. They export olive oil and they are high on tourism, they rely on tourism dollars. If Greece didn’t exist anymore it wouldn’t matter to the U.S. But depending on what time these things happen and what the market environment is, sometimes they will let it impact the markets when it’s not really rational too.

Do you think there was a disproportionate amount of hype in the responses to the Greece problem and Brexit in terms of the actual effects they might have? Did markets really respond to Brexit in a significant way? It seems like they freaked out a lot more over Greece.

They did. I think it was just the psychology at the time in the market and the sentiment, like I said it doesn’t matter if Greece exports olive oil or not it won’t make a difference to us. They don’t make a difference. In fact, not to go on a tangent but they are a member of the European Union and I tend to think that they never should have been included because you are only as strong as your weakest member. They are by far the weakest member, so they never should have been included because they just pull down the whole group.

That’s a side note — but back to Brexit, the reason the market reacted so strongly to Brexit, just like the election is that it was so unexpected. The polls all said that they weren’t going to exit and they did. Same thing with Donald Trump, he wasn’t going to win and he won.

So the market freaks out initially — didn’t it almost bottom out after Trump won?

Yeah, election night the futures did but then by the morning it was already back so you didn’t even have a chance to react to it.

That’s weird. That’s a weird thing.

It is weird, I think maybe that people were thinking that this is like Brexit. If you go back to Brexit which was in June, because it was unexpected our market also was effected — well we’re more independent, they’re an important member, they’re not like Greece they do have a lot of exports and imports, it matters to us — within a week the U.S. markets recovered all that they lost from the Brexit. It was the hugest buying opportunity ever. But this is what happens with the market, just psychology in general of a market, when it hurts in the pit of your stomach because you see this thing is plunging like crazy and you almost want to throw up — I don’t want to say that — but when I’m doing this job, that’s what my dad always said, my dad does this job too and he’s been in it for a long time.

He said to me, “they’re never going to ring the bell at the top and they’re never going to ring the bell at the bottom to tell you to buy.” There’s no bell. So he said, “The only gauge you can count on is your feelings.” Now I’m pretty resilient, I don’t get emotional about investing I just look at all the numbers and facts then I make my decision, so I’m — most women are very emotional — I could be at certain times but in this particular instance I’m very rational and I have no emotion about anything. Just take it all out. That’s the only way you can make a good decision in this case, I have people calling me saying “I can’t stand Wal-Mart. I’m not going to buy them, they put my parents out of business.” You know, their little mom and pop store, and I’m like okay but it could be a great investment. You’re going to let your emotions keep you from making money. That’s why I try to steer people off of this stuff, but if they’re really adamant I say fine there’s always other opportunities but you might miss out on one really good one — you know it may not be Walmart, I’m just saying as an example.

So the only way you can tell it’s time to buy, by my gauge, is if you feel like you’re going to throw up on your desk and I hate to say that but it’s true. It takes a lot for me to have to do that, and I’ve only ever felt that way — I’ve been doing this for seventeen years — even before I did it for other people I still did it myself because I had an interest from a really young age so I’m aware of it. But I never really had that feeling that I was so sick to my stomach except maybe only twice. That was the 2001 dot-com crash, even though I didn’t have any of it but I just saw that these things were getting wiped out like crazy and then of course the financial crisis. By far that was the worst. Then when you feel really good and you start adding up all the accounts, how much they’re making and everything, that’s exactly when you should sell. I’ll tell you, it’s almost there because things have gone up so much in six weeks. The market is like a tide, okay, it doesn’t go straight up and it doesn’t go straight down. There might be little periods of time where it does, but in general its like a tide — the tide goes in, the tide goes out, and it may retrace the same ground but eventually it is going much higher. There are times to unload or lighten up and then times to buy, but that’s if you’re a real trader and I don’t really propose that to people because it’s very hard to time that.

That phenomenon of how the markets have reacted to these extreme events, they seem to dip and then they reassure themselves — I feel like that gets at a lot of the psychology that’s involved in it. Do you think markets will always reassure themselves regardless of — I mean is there a limit to that? They say they like stability, certainty, and there’s a lot of uncertainty in, say, trade deals that haven’t been renegotiated, yet the markets have already decided the results of Brexit. Or Trump has yet to take office, but the markets have already decided the results of his election. Will the markets just reassure themselves no matter what happens?

Well, there will come a point — and there is a little talk that since this has had such a big run and nothing has happened, there’s no infrastructure projects since he hasn’t even started, there is some talk that this might be overly blown. The valuations of things are getting really pricey so people are not as excited about jumping in at this point. Because this is what happens, most of the institutional investors which are the mutual fund companies and the professional people that manage big chunks of money for pension plans and stuff like that, for all of the IBM employees or all of the teachers, that are the smart money. That is the money that jumps on these things quickly and they’ve been in it for a while. The retail investor who has, you know, a $60,000 IRA or something, who is emotional, again — emotional and even if I as the advisor try to make them un-emotional it’s hard to do because I have to be sensitive. It depends, like some people get nervous when things go bad but I’m like listen you’re in IBM it’s not going to go away. And they’ll say “but it’s down 30%” — yeah because it’s a terrible market, but if you stick with the quality and you just be patient and don’t panic — panic is everything — all the money’s going to come back and more. Just give it time.

I had a couple people, right when the crisis was happening in 2008, they were nervous-nelly people. Now some people are not cut out for the market, they should not be in the market and I tell them that. I say if you’re super nervous and you don’t sleep well at night because you own Chevron, or whatever and it can go up and down, then you have no business being in the market. Go put your money under a mattress, go put your money in the bank, whatever you want to do to make you feel good — sorry but you’re not going to make any money. But if you’re okay with that and you sleep well then maybe that’s better than making money for them, I don’t want it to kill them you know. I don’t want them to have a heart attack over it! So a couple people called [during the 2008 crisis] and they were so panicked, no matter what I said to try to talk them off the cliff, they decided they wanted to sell everything. And let me tell you this, they never came back in the market. They have missed almost 13,000 DOW points. That’s why timing is really hard and you shouldn’t time.

What about bonds?

Just so you have a 101 on bonds, bond prices are inversely related to interest rates.

So because the interest rates are so low –

If you buy a bond you’re almost guaranteed to lose money by holding it right now, at this point. But if interest rates in the future are at 10% or 5%, you don’t know if they’re going to go up or down so a bond may be an okay investment. At the moment they don’t pay very much and you’re guaranteed to lose money.

Considering that interest rates are so low, do you think that the Fed will keep hiking them in the near future — at least through the rest of Yellen’s term? Do you think that’s important to do during times of growth as a means of recharging that weapon to prevent recession?

Yeah, it’s a fine line. There’s a very fine line with how fed moves work. First of all, she only has one year left –

Isn’t she in until 2018?

I think it’s the beginning of 2018, I think.

So do you think that might change with a new appointment then?

Could be, it depends on who it is. But what I’m going to say is — when they make a change to the interest rate, either up or down, it is not reflected in the real economy for nine months.

Isn’t that a recommendation too — isn’t it set in terms of a range?

Yeah, they do. And they used to raise it or lower it sometimes a quarter, to a half a point. But now that we’re so low, a quarter is more like the norm. So anytime they raise it again before nine months and they haven’t seen what it’s done to the economy, they have a risk of possibly stalling it out and turning back to a recession. There’s a couple of factors they have to consider, one you have to consider inflation. At the moment — inflation is really measured in a bad way, I think because they make it seem like there’s no inflation now and there hasn’t been for years but I know that every single thing I buy is higher and I haven’t done anything to cause that. Most things are higher, right –

Paul Volcker didn’t just fix inflation.

Right, so they keep saying that the inflation rate right now is 1% or something really low, less than that. The reason they would need to raise rates at a faster clip would be to prevent inflation from getting carried away if it goes to say, 5% or 10% or something ridiculous because that would be really bad. They have a fine line to tow, they have to do it in a way that they’re kind of fighting against the inflation so that forces them to raise it faster but if they raise it too fast they can put you in a recession. And it’s really hard to go back, you don’t raise and then lower the next meeting because that tells the market –

That you don’t know what the hell you’re doing.

Yeah, that you don’t know what you’re doing. So that’s another thing is the impression that the market gets and they weigh on every single word that the Fed says. When they read the minutes, they say “oh they added this word this time” and I’m like really? Technically, this is another factor to consider, the rest of the world is not in as good of shape as we are because we kind of suffered the recession first and then they suffered it a couple years later so they’re kind of trailing behind us. If you look at the E.U. and how they set their interest rates, they’re still in a mode of lowering it or not changing it. I think they’ll stay that way for a while because they still have higher unemployment, we’ve got it lower — below five at 4.6% or something like that, that’s also deceptive though –

Because of labor participation rates, right?

And because it could be somebody who is working part-time but wants to work full-time, but they’re counted as employed — which is not good.

Has that always been the case in figuring out unemployment?

Yes.

So it’s always been deceptive in that way then?

Yes, all of these numbers are deceptive!

And you don’t like the way we measure inflation?

No, and I don’t like the way they measure unemployment either. Because you have a part-time job and you’re dying to get a full-time job but there is no full-time job and you’re employed? You’re not employed to the point that you want to be employed, but you’re counted as employed. So this is the problem, since Germany and all those other countries are still behind us in terms of the recession they’re not going to raise their interest rates. In fact, for a little bit of this year Germany had a negative interest rate and Japan has had a negative interest rate most of the year. If you go to Japan and open a bank account, you have to pay them to hold your money. It’s a weird concept and I was never taught this in school –

Seems like something we just made up.

Kind of, I never really thought that it could go below zero. But it has. So if we raise our interest rate, meaning that we’re going to start paying interest to people holding money at a bank in the United States demand for the dollar rises, so people who own Yen or Euro want to convert it to dollars, put it in a U.S. bank and get interest. Now when the dollar is stronger this poses a problem, because then all your exports become more expensive to other countries — it’s just a domino effect, it snowballs. This is why when I say you have to tow the line really carefully on the Fed, you do. Because you don’t know what’s going to happen for nine months, the dollar will get stronger, and all of your companies will have a hard time selling exports — which we already have such a huge trade deficit with China that we don’t want to make it worse. You really have a fine line, because not every country is in sync with where we are. This is really hard, I mean it’s a headache and a half.

So you’ve got a lot of moving parts, there’s no silver bullets and if you think you’ve got one, it’s probably because you’re ignoring some potential consequences elsewhere, essentially?

Exactly, and if they get runaway inflation because they’re not raising it enough and the economy is actually really strong — I have a feeling it’s more likely the inflation is going to get out of hand. I think they should have raised it in September. Now, not necessarily saying that they missed one, but September would have been a better sign and then leave December alone because maybe then in March you can start to see some effect. But now, they’ll meet again in March and probably raise it again and that’s too soon because you don’t know what this did. This is my theory, if I was doing it I think they waited too long — maybe it was because of the election –

Maybe they thought it was going to go the other way, even though they’re supposed to be non-partisan.

Right, they’re supposed to be non-partisan –

But it’s hard to resist the conventional wisdom.

Exactly, I mean they’re voters at the end of the day. They vote in an election. But they’re supposed to be impartial.

Now there’s been talk, even during the financial crisis that the Fed should be eliminated, that there shouldn’t be a Fed. Well –

That’s a little absurd, right?

It’s a little extreme, and I’m thinking well if there’s not a Fed…then what?

Well if there’s not a Fed, how would 2008 played out?

Exactly. But they did make a new rule, and I didn’t read it in detail, it said something to the effect of the government will not bail-out anyone anymore. They sort of put a ban on what they already did, so I’m like if you’re going to ban that then the Fed really doesn’t have a lot of power, it kind of stunts their powers and if we had something like that crisis again then we’re as good as not having it because they’re the only ones that have those tools.

Can you see it having gone any way other than all-out depression had we not bailed out the banks?

I was already telling people watch out, because there’s going to be pitch-forks in the street and soup lines. It was that close.

Do you think we’re more or less insulated from that sort of collapse now? Are we any better or worse off than we were in say, 2006?

You know, that’s an interesting question. Because before that happened, if I go back, I recall vividly reading articles that 1929 would never happen again because of this Glass-Steagall thing and they separated all this stuff. I had this false confidence that was correct, so when that happened I was like “wait a minute” you know, I thought I read that this can’t happen. But of course when they did all of those crazy things like collateralized mortgage obligations basically, they call them CMOs, so you have a mortgage on this house and everybody in this neighborhood has a mortgage on their house. Usually it all belongs to one bank, instead the banks sold off all their mortgages and they put it in a product so like everyone’s mortgage was in a basket and then they divvied it up into a million pieces and sold them to people like a bond or something. But they didn’t really own one mortgage, they owned millions of little pieces of mortgages that they only had a slice of, so it was impossible to know what you owned and when people stopped paying because they lost their job or something then the whole thing blew up. They sold these collateralized mortgage obligations to like, the Norwegian teacher’s fund or something and they bought it.

The problem also stemmed from, and you probably know this, it was just like a house of cards because you could go and get a mortgage — I had a client who, he was a doctor, but he called me up and said “gosh, this mortgage company just called me and said I could get refinanced at some really low rate and I should probably do that right? I don’t even have to give them my taxes, my pay stubs, anything” well that’s crazy, first of all that’s irresponsible lending — so what happened is the pendulum swung all the way to the extreme and when all this happened they put so many regulations that the pendulum swung all the way to the point where I’m so over-regulated right now it’s not even funny. When Hillary Clinton and Bernie Sanders say that Wall Street needs more regulation, totally wrong — because they’re not in the business. I’m in the business and I can tell you I have three regulators coming at me from all sides, they’re all competing with each-other, and I’m the sandwich in the middle.

What can we do to prevent it from happening again? Isn’t that at least the intention of the regulators?

The regulators are not very good at what they do, but there’s a lot of them. They hire people who have no industry experience –

A quantity over quality issue?

Yes, in my opinion, my first hand experiences, I have a lot of people who come to me and they’re young, they’re auditors. They come to me and they ask me questions that are so simple, it just shows that they don’t have any idea how this business works. They’re just reading a book, memorizing the rules, and they’re like a parrot they just ask me “Well you don’t have blah blah blah”, well if there were four ways to do that I’d tell you the way that we prefer to do it, but there’s only one way to do it and it’s obvious.

Then there’s something to the fact that every administration, Democrat and Republican, inevitably ends up hiring people who used to work on Wall Street?

They have to, they’re the smartest people. You know what, if you’re smart you should get rewarded. Now if they’re smart but in a tricky way, like doing these collateralized mortgage obligations, they created that and it was financial engineering and financial genius but it actually –

It was too short-sighted?

Well, they were doing it to just make money. Short-sighted, yes. They didn’t worry what the consequences could be, they just knew that if they sold those they could make a lot of money. So they’re short-sighted, and they’re greedy.

You mentioned it earlier — I just wanted to ask, what do you think of all the Glass-Steagall, Dodd-Frank stuff? Do you think it matters? Is it a red herring, could there ever really be a way for government to prevent bubbles?

Maybe, it might be — it’s very hard. I think the Dodd-Frank thing had some good points but it’s a little overkill. In terms of regulatory, in my perspective, Dodd-Frank has mandated that we as a private company have to have accounting done on an annual basis that is for publicly traded companies. Makes no sense, right? Not only that, it’s expensive, there’s only certain accountants that have this designation so even a CPA may not have that designation. They have to be a CPA plus have the special designation and it’s like five initials — I can’t remember exactly — but anyway, it cost us quadruple our normal cost to do our annual financials. And there’s no reason for it, even the accountant that does it says “I’m embarrassed to charge you this, I have to because it costs me a lot to have the license and it costs me a lot to have the software to do what is required, but it’s really a stupid rule — it shouldn’t apply to you.”

So there’s always political will to put in place regulations which will prevent things, but actually doing it is a lot harder?

Yeah.

Doesn’t that come back to the question then, that we really aren’t any better off now in terms of preventing something catastrophic?

No it still can happen, but it’s going to be something else. This time it won’t be collateralized mortgage obligations because they regulated them, now what it’s going to be I don’t know it’ll be hard to tell. But the whole thing started from these lenders not asking for income verification from people, when you give a loan to someone that’s over-inflated in terms of the price and you’re going to give them a loan and you don’t even know if they have money to pay for it. I mean that’s just asking for trouble right? And the Glass-Steagall thing, okay so that’s separating banks from investments like the brokerage side, but like now what’s going on — Merrill Lynch and Bank of America are owned by the same company, well that’s not right, maybe. I have some people who have an account at Wells Fargo in checking and a Wells Fargo investment account with their Wells Fargo advisors and they just told me the other day that they automatically linked their checking account to their brokerage account but they weren’t asked if they wanted that, it just automatically happened. Then someone was trying to embezzle money out of their brokerage account from a wire through the bank at Wells Fargo and I was like that would never happen here because I don’t have a bank, okay, and that shouldn’t be co-mingled because that’s just asking for fraud to happen.

Does the concept of too-big-to-fail worry you, what with the Fed saying they won’t bail out banks again?

Yeah, you know, they have put a lot of handcuffs on these banks since that, so the too-big-to-fail thing I don’t know is necessarily going to happen anymore because they’re kind of boring investments, to be honest. They used to be profitable and be able to trade their own accounts, make big money and stuff like that. Now they have so many rules and regulations that they’re sort of handcuffed — I mean the Fed went as far as to say they can’t pay dividends to their shareholders, they regulated the dividends and how much they could pay. So for the longest time Citigroup only paid one cent a quarter, which was nothing, but the Fed mandated and controlled their dividends. It’s kind of like they had two hands and now they have one tied behind their back so they can’t really do much, but it’s probably good. So the too-big-to-fail thing doesn’t really happen, I think it’s going to be something else — what it’s going to be, I don’t know.

One thing I’ve read about is the Hubbert Peak theory, the idea that there is an inevitable global peak in oil production based on the reality that there is a finite amount of natural gas in the world, so we’ll either run out or decide politically to stop using it eventually. What do you make of that?

Well, if you look at oil — which that question also includes natural gas and there are other factors that are energy related but let’s just say oil. Oil peaked at, I think it was $110 a barrel like three and a half years ago, if I remember right. Will we see $110 a barrel ever again? Probably not. That’s probably peak oil.

You think that very well might be the peak then?

In my opinion, I think that was the peak. We may not see $110 again, but will we see $80 or $90? Yeah possibly.

So there’s still money to be made?

Yes, and even though there’s these alternatives like Tesla and Solar City and all these other things, they’re all subsidized. So without subsidies none of these are profitable –

Elon Musk is good at making cars but not money?

Right, now I know that oil isn’t good. We all know that. But the bottom line is, I do not think there is a real replacement for it in the next ten to fifteen years. Even though Tesla exists and other electrical vehicles, things like that, I don’t see that as a big threat. Now there are certain regions of the world where oil is coming out of the ground at less volume every year, one of them is in the North Sea above Scotland kind of between Norway and Scotland –

Where Norway gets a lot of their oil. But they’ve tapered off in production –

They’ve tapered off a lot, so that region is sort of slowly drying up. But then there’s other regions they haven’t even discovered yet and when they do there’s tons of it. So maybe that makes up for the –

Or maybe we take the sanctions of Russia and they start selling more oil.

That’s true, that’s true.

If Rex gets past the Senate, that is.

That’s right, but you know Russia really was — Russia was really on the brink. I mean the ruble, if you look at the price of the ruble, at one point this year I think it was down like 80% from it’s high, don’t quote me on that number. Why? Because they’re so dependent on oil exports for their income and the Saudis were really trying to squeeze Russia so they kept pumping oil and not cutting production. Think about it, Saudi Arabia, the cost of producing oil for them is probably the lowest of any OPEC nation in the world because they basically, I’m simplifying it but –

They stick a straw in the ground and oil comes out.

They stick a straw in the sand and it comes out, so the cost is the cost of the straw and the person putting it in, it’s next to nothing. Versus the Norwegians, or let’s say the Russians, where in Siberia there’s tons of really ancient oil wells and they’re so old that when they’re trying to pull it out of the ground if they decide to stop it, if they stop the machine it’s so ancient it would probably never start again and I’m not kidding you. So they were forced to keep pumping and they were losing money on it because maybe it cost forty dollars to take it out of the ground and they were only getting like twenty-seven. They were getting killed, and that’s why the Ruble got so bad.

Now natural gas is crazy, if you look at the natural gas prices, they plunged. It really went down and the reason is, especially in this country, there’s unlimited natural gas. There really isn’t a limit, so we can just keep getting it. Now there’s positive and negatives to each thing, so there’s a lot of fleet vehicles like buses and stuff that are running now on natural gas and other things, but there is some danger to those things because they can blow up and stuff like that. I mean, they don’t regularly but they can. There’s pros and cons to each fuel method, and even with these electric cars my friend wanted to buy one, she asked what I think and I said “well, I wouldn’t buy one” and this was seven, eight years ago. I said I wouldn’t buy one now because you’re paying a premium price because it’s an electric car so all the money you would have saved in gas just went to the dealer, and when you want to go sell it in seven or eight years you’re going to have old technology because that battery is likely going to be improved upon.

It’s like buying a laptop.

Then who wants to buy it from you? You paid a premium price and you’re going to get a sub-premium price when you sell it, so no — bad investment, I know you’re trying to be green –

What about now though, Teslas are so nice — with a Tesla maybe you’re paying a luxury price for a luxury product too at least?

That’s true you could do that, but remember they were enticing people by giving free charging, now they’re charging I heard so it’s like okay well I could be buying gas or electricity, it’s supposed to be greener for the environment but maybe it’s not. Maybe the battery when you dispose of it is just as bad as-

Maybe they have to mine the nickel for it or whatever halfway across the world-

Exactly, so I don’t really buy all this-

Utopian thinking?

Yeah, they want it to be but it’s not. But the problem with Tesla as a stock is that they’re pricing it as if each car they’ve ever sold cost like a million dollars. That’s how over-priced the stock is.

Do you think a lot of new, tech stocks are similarly overpriced?

Yeah, now if someone’s going to promise me that one of these days they’re going to make money, which is what most of these companies do, you can only borrow money for so long because after a while a bank won’t want to lend you money because they’re going to say “can we get more money, because we want to develop a new factory to build cars?” and the bank will say “well, show us your numbers. Oh, you’re still losing money — how many times have you borrowed from us?” Now, that’s why they’re publicly traded, why? So they can issue more shares and then people like a Tesla owner will go “Oh my gosh, I love that company” and they don’t even look at the valuation –

So not to generalize, but there’s a lot of emotional Tesla stock owners?

Yes. It’s like a momentum stock, it doesn’t have any — there’s no real reason to own it. Would you buy a pizza parlor to start a business that existed but the person showed you the books and they were losing money every year? Why would you want to buy it?