Pod Insights The Prof G Pod with Scott Galloway The State of Play: Markets, Economy, and Ukraine About this episode Liz Ann Sonders, the Managing Director and Chief Investment Strategist at Charles Schwab, joins Scott to discuss the state of the markets including several mixed signals she’s paying attention to, signs of a recession, and what investors should be thinking about. Follow Liz Ann on Twitter, @LizAnnSonders.
We open the show by bringing on Ian Bremmer to discuss the state of the war in Ukraine – roughly one year after Russia’s invasion began.
Algebra of Happiness: the best revenge.
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:18 Scott Galloway? Episode 239. 239 is the area code covering parts of southwestern Florida. In 1939, HP was founded by Bill Hewlett and Dave Packard in Palo Alto. And the first thin mint cookies were baked by Girl Scouts. My boy wants to be a Boy Scout. I want him to be an altar boy. He says if he's in the Scouts long enough, he gets to be an Eagle Scout. And I said, "That's nothing. If you're an altar boy long enough, you get to be a plaintiff." My boy wants to be a Boy Scout, and I suggested he become an altar boy. And he said, "How do I become an altar boy?" "Easy." "Oral." "Go!"
2:01 Scott Galloway? Welcome to the 239th episode of the Prof G Pod. Maybe we never see 240. In today's episode, we speak with Lizanne Saunders, who after hearing that joke will not come on the show again, the managing director and chief investment strategist at Charles Schwab. I like Lizanne a lot. I think she's got, I don't know, she strikes me as a responsible, measured economist. We discussed with Lizanne the state of the markets, including several mixed signals. She's paying attention to signs of recession and what investors should be thinking about. But first, we are bringing in our friend of Prof G, I think our six time guest, going to get an imaginary blazer, Ian Bremmer, to discuss the state of the war in Ukraine one year after Russia's invasion began. So Ian, give us the state of play one year in here.
2:45 Speaker 02 Sure. The United States is doing an enormously strong job at putting together and leading an alliance to, number one, defend the Ukrainians and number two, punish the Russians, probably in that order, since Russia's economy hasn't taken that much of a hit and it hasn't changed their behavior at all, obviously. I think if you ask how you'd grade Biden for the first year, especially on the back of what people thought about NATO at that time, on the back of what people thought about Biden at that time, especially after Afghanistan, you have to give him very high marks.
3:29 Speaker 02 The big question, of course, is can you maintain it going forward? I think it's getting harder. The Ukrainians are in comparatively good shape right now. They've been able to retake a lot of the territory that the Russians had taken. About 87% of Ukraine's total territorial integrity is presently occupied by Ukraine. That's significantly more than four or five months ago. And at the same time, Ukraine has been invited to join the European Union and as has Moldova by 27 EU countries voting unanimously. There's also a fair amount of commitment even for an eventual recon- Of Ukraine, I think they have a decent pathway to a few hundred billion dollars of support
4:13 Speaker 02 over the course of 10 years from the US, from the Europeans and from the multilaterals. So compared to what you would have thought was going to happen after the Russians invaded a year ago, right now, the Ukrainians, the West, President Biden, much better shape than people would have expected.
4:31 Scott Galloway? What is the state of play with respect to his allies, if you will? What has this done, if anything, to the relationship between Russia and China and Russia and India?
4:41 Speaker 02 Well, China and India aren't allies. They're strategic partners. And Iran is an ally, and they're becoming increasingly close. Belarus is an ally that's barely sovereign, if you can call them that. North Korea is a friend that's kind of becoming an ally. Those are the countries that are providing military support, intelligence coordination. The Chinese are not, the Indians are not. Now, you're right to ask, Scott, because of course, 20 days before the invasion started, Putin was in Beijing for the Olympics opening, and he stood on a stage with Xi Jinping. And Xi Jinping announced that Putin and Russia was his global friend without limits.
5:23 Speaker 02 And it turned out, of course, that there were lots of limits. And the Chinese have not provided military support for the Russians. They didn't want to be tarred with the pariah brush the way the Americans and Europeans and Asian allies have tarred Putin. So he's been cautious about that until very recently. And it's important to recognize that the decision of Wang Yi to travel to Moscow in preparation for what I expect will very soon be a Xi Jinping trip to Moscow, that's a big deal. That's very different than what we would have seen three, six months ago from the Chinese.
6:05 Speaker 02 Belarus President Lukashenko in Beijing for a state visit this week. That's very different from what we would have seen three, six months ago. And of course, the fact that the Chinese decided to see fit to put forward their own 12-point peace plan on Russia-Ukraine, which the Russians were briefed on in advance, the Ukrainians were not, the Russians aren't prepared to embrace it, but they, they do say they're prepared to work with the Chinese around it. That's also very different. And China historically never put their head over the parapet on an issue that they weren't as directly involved in. On Taiwan, sure, on South China Sea, sure, but on something like Ukraine, they wouldn't be putting out a global peace deal. Now they are.
6:49 Speaker 02 So China's playing a much more significant role today in this conflict than they were even a week ago. And the fact that the Americans and allies are putting the Chinese on notice, don't you dare provide military support for the Russians or else, I think is a very, very significant move.
7:10 Scott Galloway? How would you describe or compare and contrast the support amongst the general population across Europe and the US for the war? And then the support or morale or lack thereof among the Russian population for the war?
7:24 Speaker 02 Well, let me start with the one you didn't ask about, which is the rest of the world. And I think it's important to note that if you didn't know that that Chinese peace plan was written by Chinese, by the Communist Party, it could have easily been written by India or South Africa or Indonesia or Brazil. They, they have virtually the same view on what should happen in this war. And that is a problem for the US and its allies. There is a growing gap between the view of the West and the view of the so-called global South. The Chinese are trying to play a leadership role on that, on that global South, because they view it as very useful and constructive for them going forward.
8:04 Speaker 02 While the Americans, Europeans are not engaged in negotiations and are providing more weapons to Ukraine, global South sees that as demanding further escalation, leading to further escalation. So that's important. Now, the US and the Europeans are very, very aligned on this war. They view it as illegal. They view it as a threat to the NATO alliance, to the transatlantic relationship, to democracy. And that's why you've seen 10 rounds of sanctions supported by the Europeans, all 27 countries. It's why you've seen the willingness of the US and the Europeans to freeze Russian sovereign assets, hundreds of billions of dollars of sovereign assets. No one had ever considered that would happen before.
8:49 Speaker 02 That's a Taliban Afghanistan-style measure coming from the US and its allies against the G20 economy, 2% of global GDP. Now, it's true that you're starting to see the Russians, the Americans, become more divided on this issue. And I think it's very meaningful that on the back of Donald Trump going to East Palestine, Ohio, and saying, "Where's Biden? He's in Kiev, while I'm here caring about Americans." And then Ron DeSantis, who in the last few years has been a strong supporter of the US providing more military support to Ukraine, has flipped and is now saying, "No, I'm with America first. We should be doing less for Ukraine. We should be focusing more on America."
9:33 Speaker 02 So I do see more division coming forward, where the Russians, the other point you asked about, I mean, they control the information environment in their country. They also feel humiliated by the West for decades now that no one wanted to integrate them into NATO, them into the EU, kind of the way the Turks feel that no one wanted to integrate them into the EU. You know, never invite someone to join a club or visit a club. You have no intention of letting them in. And that is the broad feeling of the Russians. And they generally do support Putin pretty strongly, even though this war has been pretty disastrous so far.
10:11 Scott Galloway? This just feels like such a winner for Biden. Because let's just assume that the Republican Party and those who plan to run against Biden for the 2024 nomination or for president, you know, short of... If he says advocates for X, they're just going to advocate for Y. Full strength. Let's just assume that.
10:29 Speaker 02 Generally, yeah.
10:30 Scott Galloway? But it just feels to me like, I mean, we are winning a war with no boots on the ground. And what feels like with very little, you know, 5% I think of our military budget, depending on how you calculate it. This just feels like such a winner in that when DeSantis, who was in the service and was pro European aid, as you or Baltic egg, as you pointed out, all of a sudden becomes anti this war and this war continues to go our way. I can't imagine a better winning issue for Biden than the war in Ukraine and his steadfast support of it. Where do I have that wrong? Granted, there's an X factor because we don't know what's going to happen in 2023, but this just feels like a winner so far for him.
11:13 Speaker 02 Well, so far it has been, and that's why when you see McConnell and McCarthy say that they're on Team Biden when it comes to Russia, Ukraine, that's a pretty big deal. There aren't many issues that they're on Team Biden. But the point is that Ron DeSantis disagrees with you, Scott. And he's tactically not stupid at all. So we have to ask ourselves, why has he made that decision? It can't just be about Trump. There's got to be something else. And I think there are a couple of things. The first is that this is a significant war for Europe. It's very far away for the United States. So I think that the view that Americans are going to get tired of this over the next six, 12 months,
11:57 Speaker 02 as it starts to cost more and as the Ukrainians are not likely to be seen as winning as easily as they are presently, and that you're at the high watermark right now of both what perhaps the Ukrainians can accomplish, but also what the Americans are willing to send. That might be DeSantis wanting to get on board early with what he thinks is going to increasingly be a loser issue for Biden. That's number one. Number two is the question of whether or not the Ukrainians are going to be able to continue to fight as effectively as they have. And I think that that is honestly, that is a challenging one to make a call. There's no indication whatsoever that Putin's slowing down on it.
12:41 Speaker 02 There's no indication that the toughest sanctions that have ever been put on a G20 economy is changing his view whatsoever, which means that this war is likely to go on for a long time. And yet you do see the Chinese now coming in with their so-called peace plan. You do see some Europeans like Berlusconi in the Italian coalition governing party saying, why are we doing this? Why are we spending all of this money? We should be working more closely to try to end the war. There are a lot of voices quietly in Europe that are moving in that direction, not frontline states, but certainly in Germany and France and Italy and Spain.
13:21 Speaker 02 And so I think that plus the numbers, the numbers in the US, Republican support for spending a lot of money on this war has declined precipitously in the last six months. It's declined moderately for independents. It's declined only marginally for Democrats. And DeSantis is making a bet that that is going to continue. That's a problem. It's a problem for Biden. It's a problem for the US. It's a problem for Europe. It's a problem for democracy. But that is the, that seems to be the bet that DeSantis is making, which is very different from Trump, who's already, you know, very strongly pot committed on these issues.
13:59 Scott Galloway? So take us out of here, if you can, bucket different scenarios in 12 months, recognizing no one has a crystal ball here, but if there were two or three scenarios that you thought might play out, bucket them and then put percentages on each.
14:14 Speaker 02 I think there are two different types of scenarios. The first is what happens on the ground in Ukraine. And there's a wide variety of scenarios that you can imagine. With the most positive for Ukraine is they're able to get all the ammunition they need. They're fighting like hell, really well trained. The Russians have internal fights between the Wagner Group, paramilitary and the defense guys. They start falling apart. The Ukrainians break the land bridge between Russia and Crimea. The Ukrainians are plausibly threatening supply chain to Crimea. And Putin faces a very significant situation at home.
14:57 Speaker 02 And he's got to think about whether he wants to escalate in terms of use of weapons of mass destruction. Just to try to keep Crimea from falling down the road. That's the best possible scenario for Ukraine. Also could lead to the Russians being willing to more strongly accept peace talks led by the Chinese. Moderate scenario there is the Ukrainians get their additional support. They get the additional troops. They start their counteroffensive. They take some additional land, but not much. In six months' time, it kind of looks like it does now. Western coalition is starting to get weaker. And then the Americans behind the scenes start telling the Ukrainians, we really need to start talking about talking. That gets leaked to the press.
15:42 Speaker 02 The polls are really upset. The bals are really upset. The coalition starts to fragment. The Russians start feeling stronger. The Chinese have a more dominant role internationally. That's a second scenario. Third scenario is that the Ukrainians take no additional territory. The Russians get more troops on the ground. And now Zelensky's starting to panic. He's working with the Americans, working with others. The West is coalescing, but Zelensky might be under a lot of domestic pressure internally. Those are very different scenarios, right? But here's the most important point, is that in each of those three scenarios, Putin remains a pariah for the G7.
16:25 Speaker 02 There is no road back for Putin to start working with NATO, or sending gas to the EU, or getting his sanctions on his oligarchs unfrozen, or his assets unfrozen. There's no way back for that to happen. And, and so Putin is going to start behaving, and you and I have talked about this before, more like Iran, but on the global stage, towards Europe, towards NATO countries. And that's the truly dangerous thing is, that's a horribly dangerous place to be. A guy who is as isolated as Putin is from not only international news, but even within his own country, within his own government. So I, I'm deeply concerned about what this means for, for geopolitics heading forward.
17:10 Speaker 02 It's incredibly dangerous stuff.
17:13 Scott Galloway? Ian Bremmer is the president and founder of Eurasia Group. He joins us from Boca Raton, Florida. Ian, as always, we really appreciate your time.
17:22 Scott Galloway? We'll be right back for our conversation with Lizanne Saunders.
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19:46 Scott Galloway? Welcome back. Here's our conversation with Lizanne Saunders, the Managing Director and Chief Investment Strategist at Charles Schwab.
19:54 Scott Galloway? Lizanne, where does this podcast find you?
19:56 Speaker 03 Naples, Florida.
19:58 Scott Galloway? You're seriously the most impressive person I know who lives in Naples. Hands down. You are the most impressive person I know who lives in Naples.
20:06 Speaker 03 There's a lot of wonderful, impressive people here.
20:09 Scott Galloway? And still working. Isn't the average age... Wait, the average age in Naples is, let me think, dead, right? Isn't the average age dead?
20:17 Speaker 03 So, we bought our house here in 09, and I'd say particularly in the last few years, call it pandemic forward, the age of incoming people has gotten lower and lower. Either that, or I'm getting older and catching up to a still-high average. I may just be doing the math in my head.
20:36 Scott Galloway? The answer's yes. Where I live in Delray Beach, it used to be that where I live or have a home in Gulfstream, it was all seasonal, whatever they call it.
20:46 Speaker 03 Snowbirds.
20:46 Scott Galloway? People come down. Yeah, so people come around from November to May, and houses got so expensive that anybody who can afford to buy a house needs to live there full-time. And it's gotten much younger. The schools are packed. And anyways, enough of those migration patterns. Elizabeth is one of my favorite guests. Let's bust right into it. In a recent post for Schwab, you wrote, "Mixed Signals. They have been a cornerstone of the current cycle across both economic and market-based metrics." So let's start there. What mixed signals are you seeing and what do they tell us about the current state of affairs in the economy?
21:18 Speaker 03 Well, I think it's tied to the really unique nature of this cycle that is unlike any other cycle because of the vagaries of COVID. And it's tied to the thesis I've had for a while now, which is amidst the debate of recession versus soft landing, I think that misses the nuances of what's going on, which is that weakness in the economy is occurring on a rolling basis. So you've got recessions in areas like certain segments of consumer goods, certainly in housing, but we've had the more recent offsetting strength in services. And because services is a larger employer in the US, that's helped
22:00 Speaker 03 keep the labor market afloat. Not to mention, we are also dealing with the demographics of labor shortages, and that's not just a US phenomenon, that's a global phenomenon, which suggests that the prior models aren't really effective at trying to gauge where we are in the cycle, what it means for Fed policy, will it ultimately be declared an official recession or not? How quickly can inflation come down? I just think we maybe don't rip up the historical playbook, but take a lot of it with a grain of salt because it's just different this time. And it's not dangerous to say that in this cycle.
22:37 Scott Galloway? So I'll put forward a thesis, and I want you to tell me, or push back on it, or tell me if you agree. If you hadn't been reading the media every day for the last six quarters about the impending recession... Where would you see data that supports a recession? Where is it?
22:53 Speaker 03 Um, well, housing, you've seen it.
22:55 Scott Galloway? After a historic run-up though, right?
22:57 Speaker 03 Well, yeah, so maybe not yet in, um, price depreciation. But you, you have seen it in things like, you know, sales volumes of existing homes. You've also seen it arguably more on the soft economic data side versus the hard economic data side. Whether it's things like consumer confidence, CEO confidence, consumer sentiment, even something like the NAHB Housing Market Index, which is a home builder's sentiment index. But where you have seen recession-type weakness outside of those survey-based data is either in the case of something like housing, is directly interest rate sensitive.
23:41 Speaker 03 Or just the aftermath of the massive surge, stimulus-filled surge that occurred coming out of the lockdown, uh, phase of the pandemic and the natural kind of reversion off of that, um, era of incredible pent-up demand. That demand was sated. That became the breeding ground of the inflation problem we're still dealing with, largely concentrated on the good side of the economy. Now we're in disinflation on the good side. We're in very weak growth territory on the good side, if not recession. But again, we have now the offsetting strength in services. And you're seeing it in the labor market too, you know, lots of high-profile layoff announcements.
24:23 Speaker 03 But they're top-down in the sense that it is up the income spectrum, up the wage spectrum, into the managerial cra- uh, class, the supervisory class. That is the mirror image of what tends to happen in contraction periods. So, uh, it's just, everything is, is different i- in this cycle.
24:43 Scott Galloway? Let's talk a little bit about inflation. So inflation down seven months in a row. If you think of inflation as too much money facing too few goods, on the demand side, interest rates going up, that should dampen demand. On the supply side, China coming back online, the supply chain getting ungunked. Shouldn't inflation continue to come down? What's your view on inflation?
25:05 Speaker 03 Yeah, I think it does continue to come down, maybe not in a straight line. I think you get you get some volatility along the way. The so the recent uptick and some of the shorter term inflation expectations. But I think in general, the trend is still lower. I think the real question, though, is are we heading back to the era of the so called great moderation, where for essentially two decades plus, the last thing we ever paid attention to or worried about were CPI reports and PPI reports. There was no breathless reporting when they were reported at 8:30 in the morning. I think the the factors that generated the era of the great moderation are largely behind us. I've been using the acronym GEL. Everything
25:48 Speaker 03 kind of gelled in that 20 plus year period leading into the pandemic, because not just the US, but the world had access to cheap goods, cheap energy, cheap labor. And I just don't think we have that. So I think we have to rethink what the next sort of secular cycle looks like. And I don't think we can assume we're going back to the environment of the of the two decades leading into the pandemic.
26:15 Scott Galloway? So let's talk about where if you attempt to read the tea leaves or just look at different data points, how if and how that impacts your investment strategy. If we think that there's a chance that inflation, there's a better than 50% chance inflation moderates or actually goes down, would this not be a good time to? Think about increasing your allocation to bonds.
26:38 Speaker 03 I think the conundrum facing a lot of investors right now, or maybe even to some degree, some misunderstanding is we get it all the time. Why wouldn't I invest in a, you know, one year treasury yielding 5%? Why would I lock in out the duration spectrum in a 10 year that's a little less than 4%? That may make sense depending on your time horizon, but there's also the rollover risk. What happens in a year when, you know, the 5% treasury goes kaput? And you have to roll over. The question is, what's the outlook beyond the very near term? And that's one of the reasons why we've been suggesting maybe lengthen duration when you get to
27:22 Speaker 03 kind of this 4% range on that tenure to sort of lock that in for an extended period of time. But even more, Scott, with fixed income, I think than with equities, allocation decisions, the amount in the asset class, what you do within the asset class. The answer to any question around that should never be cookie cutter. Like, who's the investor? Are they young? Are they old? What's your time horizon? Risk tolerance? Is it a nest egg on which they need to live on the income associated with it? Or are they more interested in capital appreciation? You know, are you using it as some sort of inflation hedge? So I just think there's, there's never one right answer, especially on the fixed income side of things for, you know, what should an investor do or hold or how much?
28:06 Scott Galloway? And are there specific sectors in the equity markets you look at and think that they're better poised than others?
28:12 Speaker 03 You know, financials on a number of different metrics look more attractive than others. However, we've been essentially sector neutral for about the past year with much more of an emphasis on factors than sectors. And the factors we have had a bias to and continue to have a bias to really relate to what is lacking. And from a macro perspective, what's dear? So, you know, we're in a, we're in a declining earnings revision environment. Look for stocks that have positive earnings. Revisions, positive earnings, surprises. We're in a rising interest rate environment. Look for companies that have strong balance sheets with ample cash and low debt. Look for companies that are self-funding.
28:56 Speaker 03 They don't need to come to the capital markets or the traditional or even shadow banking system to fund their operations in a higher yielding environment. Look not just for dividend payers, but dividend growers. In a constrained pricing environment, look for companies with pricing power and don't put blinders on in terms of where you look for those opportunities. It's consistent with why we don't make recommendations, you know, overweight, underweight to growth and value because I view growth and value as characteristics. A lot of people view growth and value as sort of these preconceived or predetermined index constituents. And oftentimes when people say growth, they think, you know, tech.
29:39 Speaker 03 Just as an example, you know, S and P did their mid-December rebalancing and as of right now, the top 10 stocks in their pure growth index. S and P's regular growth and value indexes, there can be overlap, there can be stocks that exist in both. But in the S and P pure growth index, the top 10 stocks, not a single one, is tech or communication services or consumer discretionary. Five of them are energy. Three of them are materials and two of them are healthcare. That's the pure growth index right now. That's where the growth is. That's where the characteristic of growth is.
30:21 Scott Galloway? Macro factor or secular shift I've been thinking a lot about and I'm curious if you have a view on it is population decline. I've just been really stunned by some of the numbers that China is now officially in population decline and if current trends hold, it's going to be something like 600 million people from 1.4 billion at the turn of the century that in the US at the turn of the century, their population of people over the age of 80 would go up eightfold and the number of kids under five would be cut in half. It just feels as if we're, we're just not going to have enough. Young people working, much less innovating or creating. It just strikes me as an enormous issue that we're not talking about. And whenever I talk about it, I get pushed back because people think I'm saying that women
31:04 Scott Galloway? have an obligation to have kids, which is not what I'm saying. Or that I'm some sort of climate terrorist and that we need fewer people to save the earth, which is an entirely different talk show. But as population decline, does it play into, does it play into your models? Do you see it as a threat? Am I overreacting here?
31:21 Speaker 03 Well, depends on how you define a threat. I see it as a force. There's no question about it. There's no denying it. You could just look at, at the numbers, look at the math. You pointed out China, just this year, India surpassed China in terms of population. And I think I saw an estimate of maybe within 10 years, China's population could actually drop to under a billion. Um, you know, their demographics are, are sort of irreparable, other than maybe if we're talking multiple generations from now, they really can't turn the ship. The United States is, is also not in a great position, but relative to a lot of other
32:00 Speaker 03 developed market countries, our demographics are not as dire as places like China, Japan, even someplace like Germany. There are places in the world that are essentially the opposite of that. Um, you know, India is an example of that. Um, large swaths of Africa. And I think that's one of the reasons why they're sort of not so much growing in importance in terms of the global economy, but they're getting more attention, certainly by investors that maybe see that better demographic profile as an opportunity. It's also an interesting, I don't know if you know who, you know, Peter Zeion is, but
32:40 Speaker 03 one of his thesis around his tremendous amount of work that he's done on demographics and certainly in China, is he very emphatically says that. The reason why, in his mind, China would never invade Taiwan is because they can't afford to lose that many working age men. And I had not thought about demographics in one country as such a direct line to a concern that is still out there to a significant degree. But one overarching thing that I think we're starting to see come into play is whereas
33:20 Speaker 03 in the last 20 years or so, you saw labor as a share of kind of GDP, not just in the US but globally, go down in many cases to record lows, whereas, you know, profits and capital jumped to, in many cases, all time highs. I think that is starting to reverse. And I think labor in the globe is starting to gain more power. And I don't mean that from a political, from a unionization perspective. It's just the simple math of demographics, as you point out. And I think it's, it needs to get more attention because it's not reversing and it has far-reaching implications from a macro perspective and across the globe.
34:05 Scott Galloway? Yeah, and I'm trying to forward engineer into companies that are going to suffer at what I believe is an overdue raise of lower income people. And you've seen, I think you've seen wages at the lower income level accelerate faster than any other.
34:20 Speaker 03 By far.
34:21 Scott Galloway? Yeah, which is overdue, right? They haven't been raised in 40 years. But does that mean you want to avoid companies that are highly dependent upon cheap labor, whether it's, you know, Walmart or McDonald's? Does that, are they going to see their profit margin shrink as all of a sudden, you know, first time in 40 years, people can demand a near living wage?
34:42 Speaker 03 So it, you know, depends on what your overall cost structure is and if you've got a sort of perpetually higher cost structure associated with labor, are there other areas where you can find to cut costs in order to at least maintain profit margins, or maybe just prevent them from sinking further? We have to keep in mind that we've just, we've just moved off of a record high in profit margins. So there arguably is still room to go on the downside where profit margins in relative terms, if you look at a long history, are still in decent shape. But it all depends on operating leverage and whether your cost
35:23 Speaker 03 structure is heavily biased toward labor or other areas where there might be through, you know, efficiency, through investments in technology, that you can find cost savings. But I think two things will increasingly be in the spotlight at a more micro level, at the company level, especially during things like earnings season, are obviously profit margins and, you know, operating leverage. But embedded in these much stronger labor market numbers in conjunction with not great GDP numbers is not a very healthy productivity story. And I'd say, you know, the combination of productivity and unit labor costs, which are the sort of dual
36:03 Speaker 03 releases that come out once a month, I wouldn't be surprised if attention shifts a bit away from the unit labor cost piece of it as we start to worry a little bit less about inflation and more toward the productivity piece of this. And if what we're seeing in the labor market is accurate in terms of what it suggests about productivity, that's, I think, a story that isn't being sufficiently told.
36:31 Scott Galloway? We'll be right back.
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38:13 Scott Galloway? And is there anything, are there any risks out there, or factors, or metrics that you look at that you think people are missing as it relates to trying to figure this all out?
38:22 Speaker 03 Yeah, there's always, as I said, there's always the black swan, but inherently, by definition, they're not things that you can anticipate. I do worry that there's maybe a little too much kind of whistling past the graveyard of the debt ceiling fight this time. Not that I'm a... You know, perpetual worry ward on this subject and feel the necessity of, you know, fire in a crowded theater, but it just makes me think back to 2011 and even as late as the end of April, the perspective was, no biggie, we do this all the time, nothing to see here. And then by the time we got to August, there had been, you know, maybe
39:07 Speaker 03 not legitimate concern, but ample concern, widespread concern about a default. And then, of course, the downgrade by S and P of US debt. And interestingly, and maybe, maybe just coincidentally, the makeup of Washington was the exact same as it is right now. And so I, I think that's one of those known risks that could have a volatility impact that is being underestimated right now if things unfold in a manner similar to what happened in 2011.
39:41 Scott Galloway? So whenever I look at a company and I try and value it, I basically say, okay, the enterprise value is the equity value plus the debt minus the cash. And if the debt keeps going up, it squeezes the equity value down. At what point does our national debt become a thing? It just feels as if we complain about it. Everyone's scared of it. Everyone highlights very rational reasons for why it's out of control. But at what point does it become a real threat to our, to our economy?
40:14 Speaker 03 So it depends on how you define a threat. If you define it broadly, inclusive of things like the pace at which an economy can grow, I think that we're already facing that and have been for quite some time, similar to what Japan has been facing for, you know, a gazillion years, if I'm rounding. So the, the high and riding, rising burden of debt.
40:42 Speaker 03 Suppresses economic growth. It's
40:45 Scott Galloway? And is that because is that because it takes away discretionary income that the government could be using to invest in growth?
40:51 Speaker 03 That's a large part of it. It also tends to correspond to environments of lower productivity. And and people say, well, Zan, you know, the the leaving aside the pandemic era, which is, you know, funky in so many ways. People would say, well, it clearly hasn't had an impact on here. We we had prior to the pandemic, we had the longest economic expansion in U.S. history, which that's right. If you're only looking at duration, it was the longest in history. It was also the weakest in history and not just by a small margin. It was the weakest in history by far.
41:31 Speaker 03 I think there were other contributing factors aside from just debt, but I put that on the list. Now, in terms of when it starts to bite in the current environment, particularly given that we're in the most aggressive, you know, monetary tightening cycle at at least forty years. For now, anyway, we've had, you know, growth in the denominator in GDP. So we can look at the dollar amount of interest expense and it's quite alarming. As a share of GDP, it's doesn't look as alarming. But if we if we start to sort of either lose that power of GDP or if debt growth continues at a pace higher than economic growth,
42:13 Speaker 03 then we run into much more significant problems. We there's no way to turn this ship around overnight. First of all, it would be nice, and I I say this from the perspective of a registered independent. So I always say that I'm an equal opportunity critic of of Washington. It would be nice if some adults could get in the room and have an honest conversation about this. And I think it doesn't really come to the fore unless constituents start to care a lot about it. And I hear about it a lot from from our, you know, high net worth clients, but that doesn't represent necessarily the rest of the the country.
42:58 Scott Galloway? It feels like it reminds me of radon. Remember the radon scares and that there's a small percentage of the population that is cognizant of it, installs radon sensors, but the majority of us think it's an excess, you know, it's something that I just don't worry about until I'm, until, you know, you hear about the Jones family down the street that doesn't wake up one morning. Like, it's just not an issue until it is. And we've had sort of what feels like 40 years of constant increases in debt and no one's really had to pay, it doesn't feel like anyone's really had to pay a price yet. When, I'm a glass half empty kind of guy. So this is a strangely optimistic statement. And that is, or question, who's doing better than us? We're bringing inflation down. I'm
43:41 Scott Galloway? living in London right now and food prices are up 16%. Inflation's up double digits. And so our inflation appears to me to be less bad than anywhere in the world and our economy's growing again and no one's lining up for Chinese or Russian vaccines. Best and brightest still want to come here. If you were looking at Chinese stocks while they bounced back, I mean, the equivalent of their Dow's been cut in half, right? Like, so let me ask this in a positive negative way. Who is less bad than America right now?
44:11 Speaker 03 I think maybe catbird seed is a little too optimistic. I've certainly been a glass half empty person in the last year or so, but long-term, I'm absolutely a glass half full. You know, to quote the founder of my company, Charles Schwab himself, Chuck has always said that, you know, investing is inherently an act of optimism. And, and I think there's no reason not to be a long-term optimist as it relates to the United States. All the things that you mentioned, when you think in the context of even demographics where our situation is less dire than so many other places, not to mention in the
44:49 Speaker 03 context of the war and what is being fought for in terms of natural resources and boundaries and the protection associated with it and self-sufficiency, either from an energy perspective or a food perspective, friendly borders for them. Most part from a political, you know, from a military perspective, there aren't many places that are better than the United States. And I don't think we're we're sort of through the shorter term struggles inclusive of the vagaries of the pandemic and working through the extremes, both on the upside and the downside
45:28 Speaker 03 there. But one of the things that I think probably comes out of this as we look to the next cycle, the next sort of true cycle, not not COVID impacted cycle is I wouldn't be surprised if we become more of an investment driven economy and less of a discretionary consumption driven economy, certainly not a debt fueled discretionary consumption driven economy. There's the necessity of it. Stuff is really old. And I think it's as much the private sector and the need, willingness, desire and necessity of boosting infrastructure and structures and intellectual property.
46:10 Speaker 03 And you're right, the best and brightest either are still here or or want to come here. Many times, you know, we find a way to kind of muck that up in the short term, but that's where I sort of see brighter skies when I think beyond the very near term.
46:26 Scott Galloway? Brighter skies. Lizanne Saunders is the Managing Director and Chief Investment Strategist at Charles Schwab. She's been named Best Market Strategist by Kiplinger's Personal Finance and one of Smart Money Magazine's Power 30. She's also been named the Most Interesting Person in Naples by the Prop G Media Empire. Let's be honest, Lizanne, you get a lot of invites to cocktail parties, right? I can't imagine, I would imagine you are so popular down there. Who should we invite? What about Liz? What about that Chief Investment Strategist Lizanne? I bet your your Dan's calendar is full. Anyways, that was a rhetorical statement. Barron's has named her to its 100 most influential women in finance list for the third consecutive year, and Investment Advisor has included her on its list of the 25 most
47:08 Scott Galloway? important people in and around the financial advisory profession. She's also been very generous for the time and is a regular guest here on Prop G. She joins us from her home in Naples, Florida. Dad, we are two of the most famous people in Florida, Lizanne. Let's, I'm announcing here and now, the junior and senior senators from the great state of Florida, Lizanne Saunders and Scott Galloway. That's, that's how we're gonna fix this mess, Lizanne. Thanks so much for your time, as always, Lizanne.
47:35 Speaker 03 It's always a pleasure to be here. You're one of my favorites.
47:38 Scott Galloway? Go.
47:49 Scott Galloway? Algebra of happiness, revenge, revenge. How do you seek an exact revenge on somebody? I know that sounds like an aggressive thing to say. I struggle with anger. It has gotten in the way of my success. And my anger, something or someone triggers me. I get angry and angry at this thing or this person, and I get angry at myself, and it's like acid running through my veins. And then a couple days later, that acid takes a toll, and I get kind of numb and depressed. It's been a real hindrance for me. And it's inherited. When my mom and dad split up, I used to have to wait outside on the weekends, on my dad's weekend. My dad got every other weekend with me. And my mom hated my dad so much, she refused to wait
48:34 Scott Galloway? out front of our apartment building for the handoff. And so I would sit out there for sometimes 15 or 30 minutes, LA traffic, you didn't know when your dad was gonna show up. By the way, I got very good at picking out cars by the shape of their headlights. Anyways, my dad would pull up in his Gran Torino, and I would get in, and there'd be some perfunctory questions. And slowly but surely, I would see my dad start talking to himself. And sometimes the dialogue with himself would get heated and elevated. And what I realized was that he was not talking to himself. He was role playing and talking to someone probably at work or something. I would see him get physically angry at whoever he was talking to in the car, in the 405 headed into the valley.
49:16 Scott Galloway? And my dad just has always struggled with anger and I've inherited that. And it helps to know it's not quote unquote entirely my fault. But anyways, doesn't make it any less damaging. So when someone does you wrong, and I've had, that's gonna happen to you. You're gonna have people that for whatever reason don't like you and treat you like shit or don't give you a certain level of respect. There's a few things that I have employed for behavioral modification that have helped me deal with my anger and kind of release me from the burden of anger, at least made it something that's not an obstacle in my career. The first is grace, and that sounds very passe, but it's true. And that is, I used to walk around the world with a scorecard that if anyone did anything wrong to me or was rude to me or that the bartender didn't make eye contact with me
50:01 Scott Galloway? and get me my Makers and Ginger within 10 minutes, i.e. last night here at the Faina Hotel. I mean, at some point I said, hey, I trust at some point I'll actually get a drink here. Like, I don't need to say that bullshit. I still say it, but you don't know what's going on with that person. They're probably not trying to do anything wrong. When someone cuts you off in traffic, when someone says something rude to you or says something at your expense, I'm not saying be a doormat, but if the world is out of balance because someone doesn't show you the respect you've shown them in small doses, everyone's gonna be fine. There doesn't need to be an exact equilibrium in how you are treated. Demonstrate some grace. The second, the second, is I cast them into the darkness. What does that mean?
50:46 Scott Galloway? I've had some people professionally, I think, be really unfair to me. And what I do is I decide, you know what? I'm going to, I've never been able to meditate. I've tried. The notion of clearing your mind of everything and everybody is supposed to be very good for you, it's impossible. It's an impossibility for me. What I can do... Is I imagine someone and I imagine my issue with them and I try and process them. I love what Lynn Alden said that think of your enemies as people, let them think of you as their enemy, try and learn from it and move on. But I literally take that person physically and mentally and I shrink them and I forget about them. I literally cast them into the darkness. I never think about them again because quite frankly, incredible revenge against people
51:28 Scott Galloway? is indifference, just not to care about them or pay any attention to what they've done or let them live rent free in your mind. And also finally, finally, the best revenge against anyone or any society that has damaged or hurt you, the best revenge is to live a much better life. This episode was produced by Caroline Shager and Jennifer Sanchez is our associate producer and Drew Burrows is our technical director. If you like what you heard, please follow, download and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn, and on Monday with our weekly markets show, which is booming. Oh my God.
52:13 Scott Galloway? The rest of the Prop G franchise is feeling insecure because the markets product is kicking the shit out of everyone else. Too much?
52:29 Scott Galloway? So fine. It's me. It's me.
52:36 Scott Galloway? Cocaine bear. Gun show. Gun show.
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Previous The Future of Work Part 2: Talk About Money Next No Mercy / No Malice: Taking Affection Back Page updated September 30, 2026 · transcript and summary are machine-generated
