Q: Everybody fights the last war. Our grandparents never stopped
                  worrying about the next depression. We spent our formative years in gas
                  lines.
                  A: Yes, yes, yes. Inflation is the wrong bogeyman. I also believe that the
                  oil-price drop is not a positive for this market, but a negative.

               Q: Are you smoking something funny out there in California? How can
                  paying less at the pump be a negative?
                  A: One, the news of the oil-price drop is already in the market; we all know
                  it. Two, the magnitude of the drop can't be explained simply by the excess
                  supply. So lack of demand has obviously played a major role in this price
                  decline. My argument is that a lack of demand means a slowing global
                  economy -- and how do you support stock prices in a slowing global
                  economy? I think a lot of people have been diverted by OPEC's squabbling
                  and overlooked the lack of demand. My final point is, what's likely to happen
                  to oil prices in the future? While it may not happen, we have created the
                  incentive for OPEC to find a way to limit supply.

                                   Q: But they never get along for long.
                                      A: Maybe so, but low oil prices are already
                                      factored into the stock market. So suppose OPEC
                                      were successful in getting the price of oil up 40%
                                      from here. Is that in the market? I think the answer
                                      is no. So your risk parameters with oil are very
                                      poor. The good news is out. And it's masking the
                                      slowdown in demand and also the potential for
                                      OPEC to limit supplies in a way that increases the
                                      price of oil at a time when the economy is slowing
                                      -- which could be a real double whammy. It's
                                      always the things that people don't take into
                  account that get the market. If we all know something exists, it has been
                  discounted in the market and it's not that big an issue.

               Q: None of this sounds very healthy for a market trading at historically
                  high valuations. Then again, they've been off the charts for years now.
                  A: Valuations only matter in a critical sense at a certain place in the cycle.
                  You can have high valuations in a rapidly expanding economy -- and they may
                  be sustained for a long time by the combination of that rapid expansion and
                  the bullishness that it creates. People's attitudes toward the news create this
                  driver to valuations that allows them to sustain themselves -- perhaps
                  unreasonably -- but for a long time. To me, the critical issue of valuation
                  comes into play when there is a divergence in the economic trend relative to
                  the valuation level. Meaning that when stocks are very depressed and the
                  economy picks up, they have nowhere to go but up. Or, in this case, I'd argue
                  that it matters that valuations are at all-time highs now -- even though it didn't
                  a couple of years ago -- because the economic trend is starting to deteriorate,
                  and so these valuations can't be sustained. They now discount any potential
                  good news completely.