Inflation is no longer well-anchored, to use [Federal Reserve Chairman Ben S.] Bernanke's term. This is going to be felt much more today than it was in the 1970s, partly because of how companies interact with their employees. In the 1970s, companies were willing to pay their employees a few percentage points more to beat inflation. But today in the era of downsizing and outsourcing, this has not happened.
What is your forecast for U.S. economic growth? On Christmas Day, will the economy be higher or lower than it is today?
My prediction is the economy will be growing at the same rate as today, about 1 percent. I don't see what will push the economy higher. We will still be under pressure from similar forces that won't be completely worked out yet. We have to take into account rising energy prices, which act like another tax.
What should our energy policy be?
We need a policy that takes our reliance off oil. Clean coal plants are one suggestion. There is also a slew of other alternatives: geothermal, solar, nuclear, and even a hydrogen car is being made.
Government should give incentives to entrepreneurs who are experimenting with new, clean technologies. ...We have moved to too much dependence on oil and too many geopolitical problems.
How do you think the stock market will perform in the next six to 12 months?
The market hasn't fully discounted the hit to corporate profits that the one-two punch has dealt. ... But, at worst, I believe the Dow can sink another 5 percent to 10 percent or so from current levels. At best, it will stay flat, always looking over its shoulder for bad news. We will continue to have plenty of days when the Dow is down 1 percent to 2 percent, and then up the same amount.
How about individual asset allocation? How should the intelligent investor allocate his assets?
I've always believed that a person should have the same amount as his or her age invested in fixed-income securities. And by fixed income I mean government bonds. If you are aged 70, you should have 70 percent of your wealth invested in bonds.
What effects do you expect the national elections will have on the economy?
I believe the differences between the candidates in this election are as great as the differences between conservative Ronald Reagan and liberal Jimmy Carter in 1980.
Historically, the economy performs better when a Democrat is in the White House than when a Republican is president.
