Legendary investor Bogle urges 'economics' not 'emotions'

Full interview: John C. Bogle on the economy_00000000
Full interview: John C. Bogle on the economy_00000000


    Full interview: John C. Bogle on the economy


Full interview: John C. Bogle on the economy 16:40

Story highlights

  • John C. Bogle, founder of the Vanguard Group, talks with CNN's Michael Smerconish
  • The 87-year-old said he thinks wealth inequality is bad for the economy, society
  • However, Bogle said he thought capitalism was still "the best way to run an economy"

(CNN)Legendary investor John C. Bogle, founder and former chairman of the Vanguard Group, gave his verdict on the state of the markets Saturday, urging Americans to put their faith in "economics" rather than "emotions."

Asked by CNN's Michael Smerconish about why the disconnect exists between today's strong markets and the unstable political climate, the 87-year-old Bogle said the answer is simple.
"I think the answer to that is it's driven by near-term hopes for big budget cuts and big tax cuts, particularly corporate tax cuts, which will automatically raise corporate earnings, and the market likes that," he said.
    There's also, Bogle suggested, "a feeling of bullishness in the air."
    "Don't ask me quite why but when the feelings are out there, when the emotions are out there, they override the economics in the market," he explained.
    However, the investing guru emphasized, "in the long run" it's "100% economics in the stock market and zero percent emotions."
    "The record of the last century shows exactly that. It 'reverts to the mean,' as we say," he added.
    As for how President Trump has performed so far regarding the economy, Bogle seemed unimpressed, despite the President's frequent tweets that appear to take credit for market gains.
    "I'm not sure he's quite comfortable with what he's doing, to be honest," Bogle said.
    He emphasized, "I don't think presidents can control the economy. "
    "They may think they can," Bogle continued, "And if it does well, believe me, they will take the credit."
    But if the economy does badly, he said, it will become "someone else's fault."
    "I've never seen a president take the blame for a recession," he noted wryly.
    Asked by Smerconish about his biggest concerns for the country going forward, Bogle answered that "political disunity" posed the greatest threat. He even thought, he added, that though "it might sound funny," the United States is becoming "too much of a democracy."
    "Our founding fathers created a republic, where the people that knew more, could help more, had more of a public spirit, were better educated, were the ones that were elected to fill those various posts and various competitions," he explained.
    "Now it's more like a democracy, where the people speak. And sometimes that can be very unfortunate."
    A good example of this, he explained, was the Brexit vote.
    "I think it was a terrible mistake," he told Smerconish.
    "I think the price will be paid for decades, if not even longer," he added.
    The gap between the rich and poor in the United States also troubles him, Bogle offered, telling Smerconish that wealth inequality was, in the long run, "bad for our economy and society."
    But, despite this, he insisted that he still believes in capitalism.
    "It is the best way to run an economy," he explained, even if it does demand a "free-market system that bestows its blessings very unevenly."
    As for how Bogle keeps his financial instincts sharp at the grand old age of 87, the veteran investor told Smerconish his secret was "simply hard work."
    "The spirit is definitely willing," he said, though admitted that "the flesh is getting a little bit weak."
    And for his best piece of advice to any aspiring finance mavens?
    "First rule: Get out of bed in the morning. Because if you don't, not much is gonna happen," he said.