We are in a secular stagnating market where the S&P is full of mega-bureaucratic companies that are no longer playing to win, Tyler Neville told Real Vision during today’s Daily Briefing.

He said the Fed’s impact isn’t spurring growth. Instead, it is entrenching calcified companies, allowing them to suck up all the bank capital, and is leading to lower productivity.

Neville said the Fed needs an innovative engine to keep the economy going and that right now that’s happening in the private markets, where smaller, more nimble companies that are not even on the Russell 2000 are creating real growth.

He said that investors should bet on the divergent thinkers because the supply of new ideas is small but the capital out there is abundant. “Bankruptcies could skyrocket and the fundamentals could be horrible, but the safest place may be in private corporations that are at least growing users,” he said. “They are going to be the future.”

Another dynamic of secular stagnation Neville discussed is his view that the market has shifted from providing capital to great ideas, to existing essentially as a giant refinancing mechanism. Every time aggregate corporate bonds and high yield go up in value, he said it allows Boomers to borrow against it, buy riskier things like rentier assets, and slowly raise the price of housing, which can undercut innovation and growth of the economy.

Neville wrapped up the conversation with a discussion of pensions. With average funding at about 70%, and the difficulty of squeezing states or individual employees for more funding, Neville said he expects to see more pensions move into private equity.

Because they’re not getting returns from the bond market, Neville expects they’re going to go super risk-on and maybe start using leverage.