get those companies and invest a lot more money in opportunities because the managers are all underinvestingand you can pick that up and capture that value and that will have a big impact on the value of the company and we use that publicly and privately to great benefit. do i think other guys have inside trading, sure, but i think it's small and not large and hard to account for everything that we have seen on inside trade. >> third myth in your book, investment opportunities in short supply. >> stagnation argument. i would say i look and i say, silicon valley is on fire, if you -- you don't need a lot of capital because there's a difference of do we need risk averse savings of the kind that comes as a result of the trade deficit. i don't think that economy has much need for it. i don't look at that and say there's shortage of investment opportunity but shortage of investment opportunities that needs that kind of savings, there's a different. not only is there shortage of investment opportunities that need that saving but surplus because of trade deficits and germany drives the interest rat

-- those opportunities are undervalued by the market even including lbo investors, and they're underinvested in. and if you buy them and invest in them, that can create an enormous amount of value. now, what held us back from just going to infellowshipty? the -- infinity? the amount of talent we could hire. we'd train and we'd teach them. first thing they'd do, go to the competitor, get paid more money. [laughter] so the costs of training these really talented guys is very, very expensive, because we get very few of them out of back end of the process. it's hard to get them to stay and continue to create value on our behalf. they go, i can just create that value on my own behalf. so i started to bump into the very things -- and the other thing i learned with ceos, you have to pay ceos a lot of money to take the risk. they take a lot less risk than you want them to take as an investor because they go disrupting the status quo is a very risky thing to do. the organization turns against me, and i have a hard time surviving. what i want to do is be the ceo for as long as i can possibly be. and t

they aren't underinvested in.if you buy them and invest in them that can create enormous amount of value. what held us back from going to infinity? the amount of talent we couldamo hire. we would train and teach them.n first thing, go to the competitor, yet paid more money. the cost of training these talented guys is very, very expensive because we get very few of them out of the back into the process. it's hard to get them to stay and continue to create value on our behalf. they go i can just create that value on my own behalf. i started to bump into the very things, and the other thing i saw with ceos. you have to pay ceos a lot of money, take the risk. they take a lot less risk than you wanted to take asset investor because a good got disrupting the status quo is a very risky thing to do. the organization turns against me at the height of -- i have a hard time surviving. going to do that is to minimize risk in my career as opposed to what an investor wants me to do, which is take a lot more risk in trying to im

a default strategy will fundamentally underinvested.work isn klein available online at brookings.edu. is at theque de rugy mercator center at george mason university. work is available online at mercatus center . we follow research issues at the site. host: if they want to follow you on twitter? we are focusing on donald trump and infrastructure spending. let's get to some callers. first, let's start with richard on the independents line. caller: good morning. to donaldn relates trump making reference to a cyber infrastructure plan. how is that different? -- anit be in alternative alternative or the same? in paying for it, i understand held by the federal government. it? if you privatized rivatize the paying for infrastructure -- specifically cyber infrastructure. is that part of the discussion now? host: richard, thank you for the call. veronique de rugy you want to follow up? guest: considering the hacking that has happened at the federal cyber security infrastructure -- it is always in the details. you mentioned something. the decisi

current residents willdents underinvest because they don'tus see the future generations using the same amount of infrastructure. on a national level i think we can all present our families will continue to be in the united states and at a national level we can set priorities and set the right level ofrategy investment. a default with strategy will fundamentally underinvest. >> host: aaron klein is a senior fellow at brookings. his work available online at brookings.edu. and veronique de rugy who was at the mercatus center at george mason university, works available online. what is that organization? >> guest: university-based research center and the focus on economic issues posted if people want to follow you on twitter? >> guest: it is -- time when we will get to your calls. our two guests will be to, and react we will start with richard, philadelphia, independent line. >> caller: good morning. the question comes to michael i think i heard make reference to a cyber infrastructure plan. and how that difference in say world ever stuck it relationship to -- [inaudible] would be an altern

you have many hedge fund managers that were underinvested going into the end of the year. you get this missing-out effect. that could take us to the inauguration. at that point all bets are off. i think that's the dynamic. >> prior to the election you want it to be risk-off? >> very cautious. >> almost saying you should be in cash. >> almost saying that. i did not say that. i said be very cautious. so i didn't expect that we would get a republican sweep. that is the huge difference that happened in the last 48 hours. >> constructive? >> you have to be. you have to be with the wall of money. >> i said there was no incentive for you to get long market ahead of the election. >> now what? what are you done? >> i bought spiders and edm. unless that trade starts to revert, i'm going to stay long with that. i think s&p can go higher. >> i sold some uri. this was delightful, manna from heaven. not one cinder block of the wall has been built yet. maybe it comes back a little bit. >> the market seems to be -- everything it could possibly do is being priced into the market now. we fo

this group is vastly underinvested in by mutual funds and hedge funds.sh to get in. we like jp morgan, we like wells, and we think the group is going to have a very good year next year after a very good fourth quarter. >> and, erin, in terms of style we have seen a dramatic shift in cheaper stocks, more cyclical stocks from growth and more stable ones. is that enduring or basically dependent on i guess how much more interest rates go up if at all? >> yeah, i think the value approach is more interest rate driven in a broader level. when you think about 2017 after we had a broad rally, the stocks that you want to focus on are the ones that will have earnings upwards in 2017. so it becomes a stock picker's market really as we look at the next several quarters. if you take the case of booz allen, for example, the defense spending will go from the current level which is about mid single digits to 14% over the next year. so there are opportunities in increased spending there, that is going to drive earnings upwards. there's an opportunity for you. so you reall

that this notion we overinvest in medical services and underinvest in social services. the work has really underscored this. i go to france. the french are number one in all these international measures. exposure to the french health system is bloody scruffy, i have to tell you. the reason they do well on every measure has nothing to do with medicare. it's because they walk, they drink red wine and get naked in the summer. nothing will keep your bmi down better than getting naked in the summer. [ laughter ] one final point on population health. the single biggest determinate of life expectancy is income. this is what we call a straight line. turns out a massive study by stanford and harvard researchers. turns out, if you're going to be poor. better to be poor in places that aren't darwinian. there are lessons. i'll skip to the doctor stuff. here is the punch line for you all. medicaid is massive. it's bigger than france. 72.6 million americans by last count, as far as i'm aware, that is unbelievable how big this program is. i think it's a challenge for the country. part

anger of working-class communities at the lack of investment, jobs come opportunities, and the underinvestmentusing and health services plays out two ways. they can either blame minorities, as with trump, as with the right all across europe. or they can look to the the left arevices offering, such as a huge support bernie sanders achieved in the united states and the enormous increase in labour party membership in this country. >> the u.k. is considering inviting president-elect donald trump to visit britain on an official state visit. have you asked to meet the president-elect? mr. corbyn: i will meet the president-elect and i will make it very clear that i absolutely and totally deplore the comments he made during his presidential campaign in respect to women, in respect to minorities and the way he saw to blame. hard-working mexicans dropped the country and -- throughout the country and very hard-working muslims. and also the idea can run it, -- race -- the grotesque levels of inequality that will bring about is not a way forward. i want to live in a world where we do not all go to war or l

confluence of instances really that is gaining support for financials, and, again, it goes back to underinvestment. mel, when you think about institutional ownership of financials, it is so below the bench mash that it had been previously because of the last six to seven years. >> i wouldn't cut back on the banks. i would cut back on schwab. i would cut back on lpla maybe, but not the banks. >> i hear a lot of optimism what you guys are saying regarding rate hikes. this premise that you go into financials and stay long through 2017, getting a series of rate hikes, let's all agree we're getting 25 bips in december. that may be it for 2017 unless you start to see all of this energy coming into the market. >> to steve's point, kevin, with the yield curve steepening, it's not a function necessarily of the expectation of the fed's increase in rates. >> this is a call i'm making that's going to be pretty controversial. i predict the financial sector will underperform the s&p in it 2017. just because when everybody is going in that direction and you make the assumption that you are going to get the back

that identifies for you how underinvested institutional money managers are right now. they're racing. they're scrambling. the next highest weighting is 15%. that's why the rally is occurring right now. that's your evidence why this is really the turn back. >> i don't agree. there's an optimism coming into the market, and the other 70% of the russell 2000 that feels that all of those companies that have been held back by an overregulated environment and overregulated market and just those animal juices that we're all talking about, that wonderful feeling of optimism that president trump has brought back into this market, even though people thought it wouldn't happen, that's why you are getting that action on the 2000. i think the russell 2000 is going to outperform the s&p next year, because it's going to unleash small business, which has been waiting for for years. >> i agree with kevin 100% on that. he is absolutely right. the russell is breaking out right now, and i think when you look forward over the next couple of years, i think it outperforms the other major s k

it shows you how defensive, how underinvested people got. now they're back in. now the bond market sell-off has really prodded money from bond proxies into other areas. i think the leadership profile of the stock market looks pretty good with the banks, with the cyclicals, with the semiconductors. do we have enough stored up. >> and to see what happens with the yields. so again, just everybody is aware, the ten-year benchmark yield hit a high of about 2.35s are. it's a little bit below that right now. these are huge moves. >> yeah. >> the question is do they keep going? >> i think they do. i think through the year end, i think it would take something dramatic happening for the equity market not to go a bit higher and for bond yields to go lower. the momentum right now -- >> you don't think it's gone too far too fast? >> no, i am not saying people are right or wrong about what the growth is going to be next year, but there's been a fundamental shift where consensus was the ten-year bond yield be at 2% for the rest of my lifetime. and there will be gdp growth, bes

market saw that she conceded, it was an all clear sign to run up and buy the stocks they felt underinvested industrials and financials. >> coincidental or not, the dow did go up about 80 points while she was talking. >> the market now, looking forward to opec, looking forward to rfnc. this was a major event. the market told us that. anybody keeping score at home, the market said this is what they were concerned with. the way it was bought last night means the bulls are are in charge. >> very good. thanks, steve. kelly? >> thank you, guys. house speaker paul ryan holding a post-election briefing in wisconsin earlier today expressing his thoughts on the republican win. >> our house majority is bigger than expected. we won more seats than anyone expected, and much of that is thanks to donald trump. donald trump provided the kind of coattails that got a lot of people over the finish line so that we could maintain our strong house and senate majorities. now we have important work to do. >> so what does a trump presidency and republican congress mean for your money? joining us now on a first-time

increased should not be confused withing a no -- agnosticism and whether there is currently an underinvestment. >> terrific, thanks very much. to those of you watching online, just a quick reminder, you can send me questions and we'd love to hear from you so go on line to sli.do and enter the code "aei event." you type in the question and submit it and if you're lucky -- if you're lucky i will figure out how to use this technology. [ laughter ] i want to zero in, robert, on a point you made which is incontrovertible which is the productivity situation. if you go back four or five years ago -- and what i think is interesting here is that this is not a purely united states phenomenon. it's a global phenomenon. the imf forecasts were found to be systematically overestimated. but their employment forecast is underest mated. so if you look at a country like uk, for example, which has outperformed every country on employment and underperformed on gdp. we know as an accounting matter this tells us productivity is why. and there's a healthy debate about whether it's demand or supply. by demand i mean

have to be reminded of it this notion that we overinvest in medical services in this country and underinvest in social services. the work has really underscored this. i go to france. the french are number one in all these international measures. an exposure to the medical system is bloody scruffy, i have to tell you. the reason they do well on every measure has nothing to do with medicare. it's because they walk, they drink red wine, and they get naked in the summer. nothing will keep your bmi down better than getting naked in the summer. [ laughter ] >> and just one final point on population health. the single biggest determinate of life expectancy is income. this is what we call a straight line. turns out a massive study by stanford and harvard researchers. turns out, if you're going to be poor, better to be poor in places that aren't darwinian. there are lessons. i'll skip to the doctor stuff. here is the punch line for you all. medicaid is massive. it's bigger than france. 72.6 million americans by last count, as far as i'm aware. that is unbelievable how big this program is. i think it'

that this notion we overinvest in health services in this country and underinvest in social services. the great elizabeth bradley's work has really underscored this. i go to france. the french are number one in all these international measures. after an exposure to the french health system, it is bloody scruffy, i have to tell you. the reason they do well on every measure has nothing to do with medicare. it's because they walk, they drink red wine, and walk and get naked in the summer. nothing will keep your bmi down better than getting naked in the summer. [laughter ] ian: one final point on population health. the single biggest determinant of life expectancy is income. this is what we social scientists call a straight line. was a massivehis study by stanford and harvard researchers. turns out, if you're going to be poor, it is better to be poor with a bunch of rich liberals in your neighborhood than in places that are more darwinian. there are lessons. i'll skip to the doctor stuff. here is the punch line for you all. medicaid is massive. it's bigger than france. 72.6 million americ

it's not we're underinvesting, we're creating costs today. the second thing is how are we going to bring new technologies into these systems across the board whether the transportation, energy, water, communications, there are a whole set of new technologies that creates new opportunities and challenges? i spent a whole lot on this year on connected vehicles that will transform how we think about surface transportation systems and that's a fundamental question that we need to tackle. it's not just about pumping more money. it's how are we going to use that money effectively? and the third is addressing the needs from a changing climate. our transportation sector is an enormous consumer of energy and enormous emitter of carbon emissions. it's not just changing vehicle technologies to fuel economy standards. there's a natural interaction between the choices that people and businesses are able to make and our ability to drive down emissions over time. you have to be able to give people more choices than just getting into a vehicle that burns oil

we have had a generation of underinvestment. there's a huge backlog. agree that maintenance has th best bang for the buck. americans are bleeding cash out of their pocket every year. there's one study that showed the average motorist in the urban or suburban area spends about $70 a year an extra car repairs because writing on potholes and substandard roads. these things at the it's a silent tax. there's a way to deal to do a large infrastructure package that would create jobs, booster economic productivity and help working families. that's a different question than is that is the package that congress is going to neck of the president is going to propose. there's a win-win to be had. >> host: from "usa today" yesterday, for those listening in the car, maybe stuck in traffic or preparing to head out for the thanksgiving holidays, this is a story of the opinion page point that americans spending 6.9 billion thankfulness hours in traffic are presently some of this will help ease traffic congestion. the question is how to pay for it. one of the issues is t

working-class communities at the lack of investment, the lack of jobs, the lack of opportunities, and the underinvestmentth services plays that two ways. they can either blame minorities as with trump and marine le pen, and the right across europe, with a can look to the communities that the left are offering, such as the huge support with bernie sanders in the united states. in the enormous increase in labour party membership in this country. -- on u.k. is considering the subject of recent elections, is considering inviting president-elect donald trump to british -- visit britain on official state visit. have you asked to meet the president-elect? >> i will need the president-elect and i will make it very clear that i absolutely and totally deplore the comments he made during his presidential campaign in respect to women, it in respect to minorities and the way in which he sought to blame very hard-working mexicans throughout the whole country, very hard-working muslims throughout the whole country, for an economic ills anybody suffers. and the idea that you can run an economy on the basis of a race to

when you are seeing is people get into things like industrials that were underinvested in, financialst leaning towards a more cyclical outlook that there might be reason for the economy to grow faster than 2%. i think it will maybe grow faster than that 2017. i think the stock market is dealing with this the right way. the stock market likes what could happen, but it is focusing on what is likely to happen over the next 12 months. vonnie: was the 10 year yield up 2.3% or so, are dividend paying stocks over? scott: that is certainly part of what has been happening. if you look at it, and i mention that february 11 low in the s&p --, really dividend stocks that play is that over virtually since february 11. i think we don't want our clients being defensive at some point in the future we want them to get defensive again. that play was ever quite a while ago and it think it is over for the new year term -- near-term. david: we are focusing on who donald trump will pick for his cabinet. what difference does it treasury secretary make for the u.s. economy? scott: you want somebody that has

that this notion we overinvest in medical services and underinvest in social services.he work has really underscored this. i go to france. the french are number one in all these international measures. exposure to the french health system is bloody scruffy, i have to tell you. the reason they do well on every measure has nothing to do with medicare. it's because they walk, they drink red wine and get naked in the summer. nothing will keep your bmi down better than getting naked in the summer. [ laughter ] one final point on population health. the single biggest determinate of life expectancy is income. this is what we call a straight line. turns out a massive study by stanford and harvard researchers. turns out, if you're going to be poor. better to be poor in places that aren't darwinian. there are lessons. i'll skip to the doctor stuff. here is the punch line for you all. medicaid is massive. it's bigger than france. 72.6 million americans by last count, as far as i'm aware, that is unbelievable how big this program is. i think it's a challenge for the country. partly