Speaker 1: This is Master's in Business with very rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, I have an extra special guest.
Speaker 2: Juadmion publishes a fascinating macro advisory letter that is read
Speaker 2: by many of the most well known and influential investors
Speaker 2: on not just Wall Street, but around the world. He
Speaker 2: brings a fascinating approach and a bit of a outlier
Speaker 2: contrarian way of looking at the world that has allowed
Speaker 2: him to identify specific changes in what's taking place in
Speaker 2: the economy, in the markets, and essentially provide a helpful
Speaker 2: sounding board to many of the world's best investors. I
Speaker 2: found our conversation to be absolutely fascinating, and I think
Speaker 2: you will also, so with no further ado stray reflections,
Speaker 2: Jawad me on, Welcome to Bloomberg.
Speaker 1: Pleasure being in Berry.
Speaker 2: So you and I exchange emails one hundred years ago,
Speaker 2: a long time ago, and you just surprised me by
Speaker 2: telling me I published your first published piece, which was
Speaker 2: essentially your resignation ladder. Let's start with that. Tell us
Speaker 2: a little bit about that.
Speaker 1: So I've always had this admission to do my own thing,
Speaker 1: and I had a very unconventional background I saw my
Speaker 1: career as a bank donner, but fet in love with
Speaker 1: markets and read all the right books to get inspired.
Speaker 1: And I had this goal that I want to do
Speaker 1: my own thing by the time turning thirty, and if
Speaker 1: I have a few years of savings, I'll quit and
Speaker 1: start writing. As I started practicing writing online and I
Speaker 1: looked up to you as the big picture of blog
Speaker 1: and I reached out to you with some of my
Speaker 1: work and you published then.
Speaker 2: And by the way, for a young writer with not
Speaker 2: a lot of experience, your stuff was very tight and strong.
Speaker 2: You have a good voice.
Speaker 1: So you effectively published my work before I launched a Reflections.
Speaker 1: And the last thing you published was my resignation letter,
Speaker 1: which is really the sort of inspirational, flowing words about
Speaker 1: why I'm leaving my job to unfold my personal legend
Speaker 1: as I was thinking about at that time, inspired by
Speaker 1: the Alchemist.
Speaker 2: So let's talk a little bit about what Stray Reflections
Speaker 2: is today and who your clients are. Tell us a
Speaker 2: little bit about your research.
Speaker 1: So so Reflections is a macro advisory and community that
Speaker 1: works with portfolio managers CIOs around the world. They rely
Speaker 1: on me to challenge their beliefs expand their knowledge to
Speaker 1: help them think about the world differently, and I do
Speaker 1: that through different ways. First, it's just my research, my writing,
Speaker 1: and I'm allowed to be reflective. I don't publish daily
Speaker 1: or weekly. I'm not reacting to events. I can be
Speaker 1: deeply reflective about what's going on. So two three times
Speaker 1: a month, I'll write about some topic or theme that's interesting.
Speaker 1: We do that through online events, So I'll interview someone
Speaker 1: from the community about a particular topic. I don't claim
Speaker 1: to be an expert in everything, but if there's something
Speaker 1: interesting happening in biotech or in China or fed policy
Speaker 1: or AI, we'll have a salon, an online salon that
Speaker 1: we sort of discuss ideas. And I think core part
Speaker 1: is just yearround events. I'll travel to New York and London,
Speaker 1: in Miami, in Hong Kong and Singapore, La San Francisco,
Speaker 1: Dubai every six weeks and we'll do a dinner or
Speaker 1: breakfast somewhere and we're all exchanging ideas. A core principle
Speaker 1: is all of us as motter than any of us,
Speaker 1: and I really lean into that, and so I learned
Speaker 1: a lot from the community. And then the fourth element
Speaker 1: would be like a slack group where every sort of
Speaker 1: exchange ideas you know in real time, and the fifth
Speaker 1: and the most important element is just one on one conversations.
Speaker 1: I'm a big believer in building strong relationships, and that's
Speaker 1: kind of what develops the research idea of Flywheel. Understanding
Speaker 1: from people, what they're thinking, what they're concerned about. That
Speaker 1: inspires me to like sort of focus on what I
Speaker 1: need to write about, and in a nutshell, that's what
Speaker 1: we do.
Speaker 2: So we're going to get into specifics about secular bull
Speaker 2: and bear markets, what causes the zeitgeist that leads to bubbles.
Speaker 2: We'll talk about a bunch of really interesting things, what
Speaker 2: is and isn't reflected in market prices, and where the
Speaker 2: hell is that pesky recession that we've been waiting for
Speaker 2: for so long. But for now, I want to stay
Speaker 2: with the fact that, unlike traditional strategists or macroeconomists, you
Speaker 2: bring a very specific philosophical bends to the world of
Speaker 2: strategy and analysis, which is something that I very much
Speaker 2: relate to. What motivated that sort of approach to writing
Speaker 2: about dry technical topics like the economy or the FED
Speaker 2: or AI.
Speaker 1: I mean, some of the greatest writers have talents that
Speaker 1: are very odd with their experiences. If you think about
Speaker 1: you know, Hermin melv he couldn't stand life aboard his ship.
Speaker 1: He wrote Moby dick. Ernest Hemingway spent time away from
Speaker 1: the action in the Wars, but he became the greatest
Speaker 1: wartime writer ever. You know. Jack Kerouac was famous pneumatic
Speaker 1: that he wrote on the road at the home of
Speaker 1: his mother. Jane Austin remained single, but she became the
Speaker 1: chronicle revered, chronicle of courtship, love and marriage. Emily Browntie,
Speaker 1: you know, liked to keep in her own company. But
Speaker 1: when she wrote Wuthering Heights, people thought that it's written
Speaker 1: by a man because he painted such a visually, viciously
Speaker 1: brutal world. And Emily Dickinson, you know, she liked being
Speaker 1: by herself. In her poetry. She enveiled the secrets of
Speaker 1: the universe. And so when I asked myself the question,
Speaker 1: I might qualified to provide investment advice. But I realized
Speaker 1: was in all these instances, they're distance from the subject
Speaker 1: not undermine their credibility. It only allowed them to be
Speaker 1: more curious and examine it in ways that perhaps others
Speaker 1: wouldn't and so for the longest time, I actually thought
Speaker 1: that my unconventional background. I wasn't, you know, an Ivy
Speaker 1: League student, I didn't train at an interest bank. I
Speaker 1: was and working for a hedgehront I started my career
Speaker 1: as a bank teer. For the longest time, I thought
Speaker 1: that unconventional and backgrounds are shortcoming. But what I realized
Speaker 1: over the years of the help and encouragement of the community,
Speaker 1: that's actually a core strength because I think view the
Speaker 1: world differently from the back majority of Western born and freennalists.
Speaker 2: It's funny that you say the phrase view the world differently.
Speaker 2: There literally was just a Wall Street Journal article out
Speaker 2: recently that said ninety percent of the investment bank economists
Speaker 2: all went to the same six graduate schools, which means
Speaker 2: that as much as we'd like to think there's some
Speaker 2: variation of thought, essentially it's the same factory cranking out
Speaker 2: the same widgets. We can't be surprised that they all
Speaker 2: more or less say the same thing. We'll talk about
Speaker 2: the forever coming but never seem to get here recession.
Speaker 2: But that seems to correlate very strongly that the same
Speaker 2: group of people with the same background are going to
Speaker 2: yield the same investment result is that more or less fair.
Speaker 1: I can't speak to others.
Speaker 2: I know, I that's very generous of you.
Speaker 1: But it's certainly you. Look, when I launched the business,
Speaker 1: I realized I'm not unique in what I do, because
Speaker 1: there are lots of other people out there who are
Speaker 1: writing opinions about the market. But I am unique in
Speaker 1: who I am, And so I've made it a point
Speaker 1: to always write from a personal space and really cultivate,
Speaker 1: you know, the craft of writing and really examining markets objectively,
Speaker 1: becoming very agnostic in my analysis as opposed to ideological,
Speaker 1: and empirical, as opposed to dogmatic. So I don't care
Speaker 1: to be consensus of countrary and bullish or bearish. I
Speaker 1: just want to be independent and come to the truth.
Speaker 2: So in a lot of your writings you cite loud
Speaker 2: to Buddha, Confucius, Seneca. That's a broad assortment of influences.
Speaker 2: What led you to that group of thinkers? And how
Speaker 2: do the great philosophers affect how you think about market issues?
Speaker 1: Look, I think life in markets are intertwined. You know,
Speaker 1: the biggest risk in markets is ego. I would say
Speaker 1: the biggest risk in life is ego. The biggest virtue
Speaker 1: in markets and life is humility. I often say successful
Speaker 1: investing is only possible with knowledge of oneself. And so
Speaker 1: I think for me, when I started writing, it was
Speaker 1: as much a process of self inquiry as it was
Speaker 1: examining markets. And you start to see the overlap and
Speaker 1: similarities and the biases and the common mistakes that keep
Speaker 1: coming up. You just have to keep cultivating a better
Speaker 1: version of yourself and keep working in progress. And I
Speaker 1: feel like there's a lot to be said about ancient wisdom.
Speaker 1: It's almost like everything's we've said before, but no one
Speaker 1: was listening, so it's being reported again and said again.
Speaker 1: So I benefit a lot from the virtues the wisdom
Speaker 1: from ancient stages for its philosophers. I think it helps
Speaker 1: me see the world clearly. You know. I believe the
Speaker 1: more clarity we have internally, the more clarity we have
Speaker 1: in seeing things, and so all that all those people
Speaker 1: that you cite are helping me in terms of being
Speaker 1: a better person, you know, being aware of my biases
Speaker 1: and just yeah, being a much clearer thinker.
Speaker 2: So let's talk about that ego and humility. All the
Speaker 2: best investors recognize their own fallibility, the fact that nobody
Speaker 2: bats a thousand, that we all frequently make mistakes. Ray
Speaker 2: Dalyio's book Principles is essentially a treatise on go try something,
Speaker 2: make a mistake, learn from that error incorporated into your process.
Speaker 2: Try again. But even saying it out loud, it still
Speaker 2: sounds fairly radical. Why can't we accept the fact that
Speaker 2: investing is such a humbling art and requires humility of
Speaker 2: its practitioners.
Speaker 1: The way I think about it, Barie, is again from
Speaker 1: a spiritual angle, all the profits made this particular prayer.
Speaker 1: Oh God, show us things as they are, and so
Speaker 1: for me, the objective is to see things as they are,
Speaker 1: not so much as how I want it to be.
Speaker 1: So I even watch myself when I use their words
Speaker 1: like should the market should behave this way? I think
Speaker 1: that hypocrisy. The market shouldn't behave one way or another.
Speaker 1: It is what it is right. So I've got a
Speaker 1: particular view, You've got your view, and then there's a
Speaker 1: divine view or the market view. So how can you
Speaker 1: get close to that truth? Only by shedding yourself, shedding
Speaker 1: your ego, insisting that the market behave a particular way
Speaker 1: and I'm okay to be curious, you know, And that's
Speaker 1: a big difference.
Speaker 2: I always think of various strategist, economist, traders. Whoever. It's
Speaker 2: like the I want to say John Saxony poem about
Speaker 2: the six blind men describing the elephant. Everybody captures a
Speaker 2: small aspect of it. Oh, this ropey thing is the tail,
Speaker 2: and here are the tusts. But very few people manage
Speaker 2: to see the entirety of the market because of their
Speaker 2: vantage point.
Speaker 1: And I think that's where the community comes in, right,
Speaker 1: Because I don't claim to be a guru or a
Speaker 1: market expert. I'm just genuinely curious, and I'm happy to
Speaker 1: know and admit that I don't know everything. Frankly, that's
Speaker 1: been one of the greatest liberalizations in my life. If
Speaker 1: it's the fact I don't need to know everything, and
Speaker 1: I don't know everything, and I can rely and trust
Speaker 1: other people within the community. So I don't have a
Speaker 1: particular strong opinion about a particular topic, I'll go look
Speaker 1: at the expert and have a conversation with him or her,
Speaker 1: and so I can lean on the community. Again, this
Speaker 1: idea that all of us are smarter than any of us,
Speaker 1: and I don't have a particular ego that needs to
Speaker 1: be presented and you know, articulated in a particular way.
Speaker 1: I'm happy to just say I don't know when I
Speaker 1: really don't know. Huh.
Speaker 2: Really interesting. Let's talk about something you published last August,
Speaker 2: in the midst of the first double digit downturn for
Speaker 2: both stocks and bonds in the same year in just
Speaker 2: about forty years, you defined and discussed a secular ballmarkt
Speaker 2: and that very much resonated with me. Before we go further,
Speaker 2: let's just define it. What is a secular bull market?
Speaker 1: So a secular bull market would be a period of
Speaker 1: a long period of above average equity returns where you
Speaker 1: have pullbacks but they're shorter in duration and magnitude than
Speaker 1: otherwise expected, and the recoveries are quick, and you've got
Speaker 1: rising risk appetite and valuations climb or expand. And a
Speaker 1: secular baar market would be the vice versa, right, the
Speaker 1: fact that you've got declining risk appetite, declines are prolonged deep,
Speaker 1: and valuations mean revert.
Speaker 2: So let's take a couple of examples. Tell us about
Speaker 2: the post World War II secular bull market. How would
Speaker 2: you define and characterize that period.
Speaker 1: So by nineteen fifty, the SMER five hundred was stuck
Speaker 1: at the twenty level on the index for about thirteen
Speaker 1: fourteen years. And in nineteen fifty is when you finally
Speaker 1: broke out. And between nineteen fifty to nineteen sixty eight,
Speaker 1: which is this first secular bull period, you had a
Speaker 1: gain of about four nine fifty percent. You had nineteen fifties,
Speaker 1: which is the best decade for stocks ever. We forget,
Speaker 1: but that's still That whole period actually had three recessions.
Speaker 1: It had the Korean War, it had the Cuban missile crisis,
Speaker 1: it had the race riots, It had three corrections of
Speaker 1: over twenty percent. It had bonials that went from two
Speaker 1: point two percent to nearly six percent, and yet equities
Speaker 1: did well. That was a period of nineteen fifty to
Speaker 1: nineteen sixty eight. The second and what's interesting by that period,
Speaker 1: you know, is the fact that valuations actually peaked in
Speaker 1: nineteen sixty one, yet the market peak in nineteen sixty eight,
Speaker 1: So in.
Speaker 2: Other words, despite falling multiples, the prices continue go high.
Speaker 1: Yeah, so interesting valuations are EBB and flow. So the
Speaker 1: peak and valuations in nineteen sixty one at twenty two
Speaker 1: times multiple. But by nineteen sixty eight, even when the
Speaker 1: index made it stop, the PE was trading at eighteen times.
Speaker 1: And the reason that's important is because there's a lot
Speaker 1: of talkbout valuation now and I feel like we may
Speaker 1: have seen the valuations peak for this cycle in twenty
Speaker 1: twenty one at twenty three times four PE, but that
Speaker 1: doesn't mean necessarily the secular board market is over. So
Speaker 1: this secular board market that we're in today began in
Speaker 1: twenty thirteen when we finally broke about the fifteen hundred
Speaker 1: level that was capping the index since two thousand, right,
Speaker 1: So that.
Speaker 2: Was a thirteen year secular bear market that had huge rallies,
Speaker 2: huge selloffs, but you never got above that two thousand.
Speaker 1: Peak, and the second board market began with a four
Speaker 1: PE of thirteen. We rose to twenty three last October.
Speaker 1: We bought them around fifteen in a bit, and we're
Speaker 1: at eighteen now. So again, this is thirteen to twenty
Speaker 1: three down to fifteen. We will not get to twenty
Speaker 1: three in my opinion, But can we get to twenty one? Sure?
Speaker 1: I think so.
Speaker 2: So you mentioned the Korean War, you mentioned recessions, You
Speaker 2: wrote about the JFK assassination, the Cuban missile crisis, A
Speaker 2: lot of things happen. How do we contextualize an extraneous
Speaker 2: event like the pandemic. Does it should say to us, hey,
Speaker 2: this secular bull market is over. Or does it just
Speaker 2: cause a wabble and we go back to the prior
Speaker 2: trand So.
Speaker 1: Every secular bill market usually has like this mid cycle crash.
Speaker 2: Right. Seventy three seventy four was a bear market. Actually
Speaker 2: it was in the middle of the bear market. You're
Speaker 2: saying bull markets.
Speaker 1: Even a secular bull market has like a mid cycle crash, right. So,
Speaker 1: for example, in the nineteen fifty to ninety sixty eight
Speaker 1: bull market, the mid cycle crash was the nineteen sixty
Speaker 1: one Kennedy beer market. The market fell down thirty percent.
Speaker 1: In the nineteen eighty two to two thousand market, you
Speaker 1: had the mid cycle crash. In the eighty seven crash.
Speaker 2: Had eighty seven, you had ninety seven, you had ninety eight.
Speaker 2: There were a number of really substantis, but.
Speaker 1: We have an event that really shocks in nusters, right,
Speaker 1: just like eighty seven was very shocking, and the decline
Speaker 1: in the Kennedy beer market was very shocking. Happened very quickly,
Speaker 1: and the pandemic was something like that. It was a
Speaker 1: mid cycle crash in the way I perceive it. And
Speaker 1: so what's more important, I think, apart from this the
Speaker 1: technical conversation we're having around the inde season, the breakouts,
Speaker 1: the pandemic made a significant difference from a fundamental standpoint
Speaker 1: because obviously fundamental underprintings to the secular bol market. You know,
Speaker 1: number one is the fact that the house was not
Speaker 1: in better financial conditions than they have been since you know,
Speaker 1: the GFC. But number two is form a demographic standpoint, Right,
Speaker 1: the millennials are now the largest generation in America, and
Speaker 1: if you think about the nineteen eighty secular ble market,
Speaker 1: ninety eighty one is when you had the baby Boomers
Speaker 1: begin to turn thirty five, entering their peak earning years.
Speaker 1: The millennials started doing that in twenty sixteen, and the
Speaker 1: pandemic was important because after the pandemic, household well for
Speaker 1: millennials increased. So if you compare it in prison dollars,
Speaker 1: so when the boomer turned thirty five in ninety any one,
Speaker 1: his net worth was around one hundred and thirty six
Speaker 1: thousand dollars in comparable dollars today the millennials that won
Speaker 1: twenty eight thousand.
Speaker 2: Dollars so comparable on compromation, just base absolutely.
Speaker 1: And what's more interesting is that the pandemic I think
Speaker 1: created this psychological fear and anxiety about wanting financial safety
Speaker 1: and securing your financial future. So you've seen more home
Speaker 1: ownership interest and more stock participation because the pandemic was
Speaker 1: like this visceral death experience, wake up call, then you
Speaker 1: want to and money is a proxy for safety. So
Speaker 1: you've seen this dynamic where millennials are increasingly taking participation
Speaker 1: in financial markets, in home ownership, and so home ownership
Speaker 1: has increased from thirty eight percent to forty six percent
Speaker 1: for millennials over the last seven years, and that's going
Speaker 1: to continue to increase. So they're entering the peak earning years,
Speaker 1: and that I think that's demographic impulse is still underappreciated.
Speaker 2: Interesting. Let's talk about that eighty to two thousand bull market.
Speaker 2: Some people dated it nineteen eighty two. It depends if
Speaker 2: you looking at the DOW or the SMP. How did
Speaker 2: the SMP do over that twenty year period.
Speaker 1: I think during that period we're probably up about seventeen
Speaker 1: hundred percent, I believe, and again.
Speaker 2: Seventeen percent because I know that Dow was about one
Speaker 2: thousand percent. The SMP did even better.
Speaker 1: Yeah, And I think what's interesting about that period is again,
Speaker 1: you had the eighty seven crash, you had the ninety
Speaker 1: ninety SNL crisis, you had the Gulf fur, the Latam crisis,
Speaker 1: the Asian crisis, the Russian default, the bond blood but
Speaker 1: you know blood path in ninety four, So you always
Speaker 1: have these events. And you still had three cructionits of
Speaker 1: about twenty percent. And so even the current secudable market
Speaker 1: when you put it in context. The reason the context
Speaker 1: is important is because we've been in the second boll market.
Speaker 1: We're currently since twenty thirteen, the stocks up one hundred
Speaker 1: and seventy five percent, So we lack the upside. We
Speaker 1: haven't reached the sort of upside in terms of price,
Speaker 1: and not even terms of duration. So the previous bull
Speaker 1: markets were eighteen years long. We're like nine years in.
Speaker 1: So it's two thirds of the way through, I would
Speaker 1: probably say. And so what's interesting is we've raised hundred
Speaker 1: and twenty five percent despite the US China trade war,
Speaker 1: despite the pandemic, despite unacceptably high inflation, the energy crisis,
Speaker 1: in your bank failures again despite all of that, and
Speaker 1: I think we're going to continue to power ahead because
Speaker 1: of structurally changes in the economy that again we're not
Speaker 1: appreciating fully.
Speaker 2: So what do people misunderstand about cyclical versus secular well markets?
Speaker 2: And as long as we're talking about that, I have
Speaker 2: to ask, what's the significance of the twenty percent measure
Speaker 2: that the media seems to love for starting and finishing
Speaker 2: bull and bear markets?
Speaker 1: Yeah, that's interesting, right, So I think the twenty percent
Speaker 1: measure there's nothing significant about it, but it's an interesting
Speaker 1: study that you can do around it, right. So what
Speaker 1: we looked was, let's segment the twenty percent decline between
Speaker 1: a secular bull market and a secular bear market, and
Speaker 1: what's the difference. What you realize is when you have
Speaker 1: a twenty percent decline plus in a secular bull market,
Speaker 1: the average decline is twenty seven percent and the recovery
Speaker 1: to the highest nine months. In a secular bear market,
Speaker 1: the average decline is forty three percent, wow, and the
Speaker 1: recovery to the highest forty eight months.
Speaker 2: Huge difference in both depth than duration.
Speaker 1: So when people compare the current sort of bare cycle
Speaker 1: to two thousand and one and two thousand and eight.
Speaker 1: The reason I think that's flawed is because that was
Speaker 1: in a secular bear market.
Speaker 2: And nineteen percent, and so, in other words, you're implying
Speaker 2: that the recovery to the pre twenty twenty two highs
Speaker 2: is not that far off?
Speaker 1: Is not that far off?
Speaker 2: Huh? That's really intriguing. Zoom out a little bit. What
Speaker 2: makes a secular bull market so strong, so perfasive, long lasting,
Speaker 2: and resilient.
Speaker 1: I think I mentioned the demographic impulse. I think it's
Speaker 1: a significantly important one. I think the second is the
Speaker 1: household finances, which is also related to why we somehow
Speaker 1: skirted a recession so far, and the consumer spend.
Speaker 2: Things all time highs. It's really robust.
Speaker 1: You know. A question I'd like to ask is what
Speaker 1: is happening that shouldn't be or what is not happening
Speaker 1: that should be right? And given the sort of fat
Speaker 1: tightening and all the information we've received, it's surprising to
Speaker 1: see the markets hold up. Simple answer. Second level market,
Speaker 1: it's significant to see the housing market bounce back. Simple answer,
Speaker 1: demographics and why we aren't in a recession, you know,
Speaker 1: simple answer, I would say that rate sensitivity in the
Speaker 1: US economy is historically low. And what I mean by
Speaker 1: that is post GFC, we had this beautifully leveraging that
Speaker 1: Bridgeworder talked about, but post pandemic has gotten even better
Speaker 1: because you have the boost to incomes and you have
Speaker 1: the further dropped interest costs. So if you look at
Speaker 1: household debt service to disposable income ration as below nineteen
Speaker 1: eighty levels when the data series began, that's pretty significant.
Speaker 1: So you can have a five percent fed funds rate
Speaker 1: and the consumer is not stopping. At the same time,
Speaker 1: if you look at corporates, they extended their maturities for
Speaker 1: their liabilities from five years to seven years, their interst
Speaker 1: costs as a share of debt is three and a
Speaker 1: half percent, the lowes since nineteen fifty. And then you
Speaker 1: look at the mortgage market, that's another, you know, phenomenal backdrop.
Speaker 1: So the rate sensitivity to the US economy is historically low.
Speaker 1: So the house is in a much better position today
Speaker 1: than they ever were. The reason, despite global tightening, we
Speaker 1: haven't seen a slowdown in sort of in a major
Speaker 1: slowdown in consumer spending is partly because of the fact
Speaker 1: that we had significant gains in savings, not just exis sittings,
Speaker 1: but total saving because of hours worked. So checking about
Speaker 1: this today, our fortune and dollars higher than they were
Speaker 1: pre pandemic. We're underappreciating the amount of money still in
Speaker 1: the system and what that means for demand. The demand
Speaker 1: side of the economy because of the pandemic took a
Speaker 1: massive upward shock that I still don't think you know
Speaker 1: that we're fully getting our heads around.
Speaker 2: Really really quite intriguing. Let's talk a little bit about
Speaker 2: how markets for people. What is it that makes investors
Speaker 2: so susceptible to being fooled? And why do investors seem
Speaker 2: to love the bearish argument? Why is that so compelling?
Speaker 2: What makes mister market so able to convince us of
Speaker 2: one thing and then he goes off and does something else.
Speaker 1: It's interesting. A question I've been asking is what if
Speaker 1: the greatest trick the market ever pulled was convincing industrials
Speaker 1: that were still in a bear market? Right?
Speaker 2: A variation of the old Devil quote from I don't
Speaker 2: know if that's New Testament old Testament, but so lots
Speaker 2: of people are negative, lots of people are bearish. It's
Speaker 2: not quite as bad as my recollection of twenty ten,
Speaker 2: eleven twelve. But coming out of the financial crisis, people
Speaker 2: stayed bearish despite the fifty six percent collapse in the SMP.
Speaker 2: You would think that should be enough to say, Okay,
Speaker 2: we got our bearish reset. Last year was pretty modest,
Speaker 2: down nineteen percent. Yeah, bonds were down fifteen percent. But
Speaker 2: everybody seems to think that's it, it's over.
Speaker 1: It is a difficult business, though, ry right, if you
Speaker 1: think about it, it seems so obvious now that we
Speaker 1: should be owning Microsoft and Apple and Amazon and Google
Speaker 1: and Facebook, and so obvious. But I would argue ten
Speaker 1: years ago it wasn't so obvious. Ten years ago. You
Speaker 1: had the top academics, economists, investors in America writing a
Speaker 1: letter to the Fed in twenty ten saying, hey, stop
Speaker 1: que you're going to create hyperinflation and debate the dollar.
Speaker 1: In twenty eleven, you had the debt ceiling crisis, the
Speaker 1: credit rating got downgraded, the dollars at a fifty year low,
Speaker 1: so you did not have policy or political leadership that
Speaker 1: was very inspiring. In twenty twelve, Facebook went public. The
Speaker 1: IPO flopped, that's right, from thirty two dollars to like,
Speaker 1: I think sixteen or eighteen dollars. In twenty fifteen, carled
Speaker 1: Icons sold all his Netflix stick because it was too expensive.
Speaker 1: Netflix was the best performing stock last decade. He sold
Speaker 1: half his Apple stock in twenty fifteen. In twenty fifteen,
Speaker 1: Bill Gurley at Benchmark were saying silicon values in a bubble.
Speaker 1: So it's just interesting to do this exercise the fact
Speaker 1: that it seems so obvious today, but it wasn't obvious
Speaker 1: to hold on to these companies. It wasn't so obvious
Speaker 1: that America will be the investment destination that's going to matter.
Speaker 1: And so it's curious that I think we need to
Speaker 1: just remind ourselves of this, the fact that it isn't
Speaker 1: always easy, and what can we be missing, you know,
Speaker 1: right now in the present. I always say my job
Speaker 1: is not to predict the future. It's to see the
Speaker 1: present clearly.
Speaker 2: Which is much harder than it sounds. Let's talk a
Speaker 2: little bit about something that people seem to have a
Speaker 2: hard time recognizing, and that's each decade a theme emerges,
Speaker 2: and yet this tends to come with some problems.
Speaker 1: It's an opportunity if you think about it, because in
Speaker 1: nineteen seventy. Like every decade, something happens, So in nineteen
Speaker 1: seventy it was in the nineteen seventies it was the
Speaker 1: nineteen seventy one breakdown of Beckenwoods, and that led to
Speaker 1: inflation and the goldibul market. But nineteen eighty onwards, you
Speaker 1: want to avoid gold. The zeitgeist of the nineteen eighties
Speaker 1: was Japan's sticking over the world. So you want to
Speaker 1: be long Japanese equities and Japanese real estate. It was
Speaker 1: Japanese management techniques that were being passed around. They were
Speaker 1: you have your children were learning Japanese. Japanese were the
Speaker 1: villains in American movies. Japanese were buying real estate in
Speaker 1: New York. But nineteen eighty nine onwards, that was a disaster.
Speaker 1: The zycast of the nineteen nineties was the Internet. You
Speaker 1: want to belong Nasdaq March two thousand onwards stopped working.
Speaker 1: It's really interesting how they're literally a calendar decade. Barry.
Speaker 1: The Zey Catches of two thousands was China's entrance into
Speaker 1: the World Trade Organization in June two thousand and one.
Speaker 1: So suddenly you can have the build out of the
Speaker 1: world secondlargest economy. You will be long em and commodities.
Speaker 1: The zeitgeist of the twenty tens was best articulated by
Speaker 1: Mark Drisen in twenty eleven in a Wall Street Journal
Speaker 1: article Software's hitting the world. So what you're seeing now
Speaker 1: is the unraveling of that zeitgeist. So twenty twenty one
Speaker 1: was the peak of that zeitgeist. It was all about
Speaker 1: software and cloud. And the question is now the software
Speaker 1: zitegeast is over. What's the zeitgeist for this decade? And
Speaker 1: what we've been writing about in discussing in the community
Speaker 1: is that we believe climate is a zeitgeist for this decade.
Speaker 1: Now that climate change.
Speaker 2: Just starting now, not peaking now, starting.
Speaker 1: In starting in twenty three, So from the twenty twenty
Speaker 1: to twenty thirty, just like software was from twenty ten
Speaker 1: to twenty twenty, from twenty twenty to twenty thirty, the
Speaker 1: zeitgeist is climate.
Speaker 2: Is that an investible thesis? Is that something people can
Speaker 2: put money into? Because when sure, you can look at
Speaker 2: the low carbon funds and things, but are there a
Speaker 2: way to say I want to participate in ems and
Speaker 2: lithium and wind power and battery technology and all the
Speaker 2: things that are going to drive the next decade. How
Speaker 2: does an investor participate in that?
Speaker 1: So the interesting thing with climate is there are multifaceted
Speaker 1: ways to play different sectors, different communities from a bottoms
Speaker 1: up standpoint as well. And again, now that it's become
Speaker 1: a global economic and political priority, it's become a solution
Speaker 1: for spending as opposed to a risk. You can see
Speaker 1: higher capex this decade, so that benefits certain sectors. I
Speaker 1: think the simplest expression would be the EV revolution In
Speaker 1: many ways, I think the China EV I think BYD
Speaker 1: would be a key asset to own this decade. I
Speaker 1: think that could be the simplest expression of what goes on.
Speaker 1: I think I don't believe you're in a commodity super cycle,
Speaker 1: but I do believe certain commodities will win. And the
Speaker 1: way to think about commodities is nicely as it relates
Speaker 1: to the energy transition. But more specifically, it's not related
Speaker 1: to China growth. It's related to China climate. What I
Speaker 1: mean by that is that most likely no Western government
Speaker 1: will meet their climate targets, the Chinese will meet their
Speaker 1: climate targets because for them it's an existential issue. Air
Speaker 1: pollution is a crisis what's the point of common prosperity
Speaker 1: if you're going to get sick. And so China's old
Speaker 1: growth model was one in which they increase production capacity
Speaker 1: in a lot of base metals because they want to
Speaker 1: create employment. That no longer makes sense. So for example,
Speaker 1: you know, China became two thirds of the global aluminum market.
Speaker 1: They're going to start to reduce capacity within that to
Speaker 1: reduce emissions because they're importing our materials to produce that.
Speaker 1: So they're probably emitting sixteen to seventeen ton carbon proton
Speaker 1: compared to what let's say someone like Alcoa is doing,
Speaker 1: you know, two or three. And so you're going to
Speaker 1: see China rationalize its industry. It's capacity in certain key
Speaker 1: based metals aluminum and steel amongst them. And I think
Speaker 1: you want to monitor what they're doing on their climate
Speaker 1: front to understand which commodity is to be long not
Speaker 1: across the board, and so certain commodities will do well
Speaker 1: as part of the energy transition. I think China ev
Speaker 1: story works. You know a lot of it is just retrofitting,
Speaker 1: and you know, you know, like buildings, and you know
Speaker 1: the role ACS play in emissions and read retrofiting that
Speaker 1: and there's a lot of companies sitting in Japan and
Speaker 1: Korea and Taiwan that are mid gap engineering names that
Speaker 1: sort of benefit from that. You know, higher capacks like
Speaker 1: I mentioned, you know who benefits from that, and so
Speaker 1: what you'd realize as you look deeper and deeper into this,
Speaker 1: it's not so much a US centric story. It's so
Speaker 1: much more global story. So you could argue you can
Speaker 1: see non US markets begin to upperform.
Speaker 2: And that's already happened the past eighteen months. Developed xus
Speaker 2: has done better than the US markets have done going
Speaker 2: back to let's call at the end of twenty one.
Speaker 2: So that's following what a ten or fourteen year period
Speaker 2: of US outperformance, So not unexpected. Let me throw a
Speaker 2: quote of yours at you and have you describe it.
Speaker 1: Quote.
Speaker 2: It's more valuable to consider why we aren't in a
Speaker 2: US recession rather than nervously dreading one.
Speaker 1: Explain again, that's the point of you know, staying in
Speaker 1: the present. And I think the reason why we're not
Speaker 1: is the fact that I think rate sensitivity is historically low,
Speaker 1: the fact that rate sens intustrate sensitivity for the US
Speaker 1: economy is historically low. So you can actually have five
Speaker 1: percent interust rates and the consumer doesn't stop because we're
Speaker 1: not fully adjusting for how strong the household finances are.
Speaker 1: But more important than that, based on I think more
Speaker 1: recent conversations, I would argue, maybe you've already had a
Speaker 1: recession and the only indicator that hasn't cracked yet is
Speaker 1: the labor market, and that's what everybody is sort of
Speaker 1: focused on now. And my view there is also sort
Speaker 1: of contentious because I don't expect the labor market to crack.
Speaker 1: I actually believe the labor market is in a secular tightness.
Speaker 1: Let me explain. In the past, recessions have basically destroyed demand.
Speaker 1: You've seen job losses in goods producing sectors, manufacturing, auto construction.
Speaker 1: Job openings take years to recover. The pandemic was different
Speaker 1: because the disruption happened in labor supply and on the
Speaker 1: demand side, we actually created a huge positive demand shock.
Speaker 1: So it's complete reverse of what we've ever experienced. So
Speaker 1: you've seen a positive demand shock when labor supply got hit,
Speaker 1: and now you've seen a situation where you still have
Speaker 1: high job openings and the service sector, which comes up
Speaker 1: with eighty percent of the jobs, is still looking to hire.
Speaker 1: So how are you going to see the unemployment reygo
Speaker 1: from three and a half percent to five percent in
Speaker 1: that dynamic. Let me give you specific examples. Last year
Speaker 1: bad year for single family housing overall, you know, conditions
Speaker 1: were pretty poor for housing. Construction employment last year was
Speaker 1: a record. There's still a shortage of construction workers. Job
Speaker 1: openings in the construction industry today are twice what they
Speaker 1: were doing the mid two thousands boom. If you think
Speaker 1: about construction specifically, since the construction activity peaked in mid
Speaker 1: two thousand and six, it took eighteen months for unemployment
Speaker 1: in the construction industry to go up. Today, the order
Speaker 1: clo is bigger, it's gonna take more time. The labor
Speaker 1: shortage is worse because you've got early retirements and lower immigration,
Speaker 1: and so I would argue you can see the economy weaken,
Speaker 1: even the hazard market weaken, without an increase in joblessness
Speaker 1: across the board. The only sector of the economy that
Speaker 1: overhired was tech, right, and that's where you're seeing layoffs.
Speaker 1: But if the construction unemployment doesn't pick up for the
Speaker 1: reasons that I've outlined, you've got auto demand that remains
Speaker 1: robust they're not letting go of people. Manufacturing seems to
Speaker 1: be bottoming with ism where it is right now. So
Speaker 1: who's actually going to let go of workers here?
Speaker 2: Nobody? So let's talk about some of the factors that
Speaker 2: are driving that labor scarcity. You mentioned immigration. Legal immigration
Speaker 2: has been trending lower since the Gulf War. In two
Speaker 2: thousand and three, we change the rules as to who
Speaker 2: could stay in the country following coming here for college.
Speaker 2: We basically eliminated a lot of the most capable, most
Speaker 2: qualified immigrants. That's twenty years in the making. You mentioned COVID,
Speaker 2: A lot of people still suffering from long COVID disability
Speaker 2: has been on and upward trends for twenty years. And
Speaker 2: on the mail side of the labor force participation rate
Speaker 2: that's been trending down for decades. Also, why would anyone
Speaker 2: imagine we're going to have access labor supply anytime soon
Speaker 2: in the United States?
Speaker 1: So I think you're seeing improving immigration trends, not just
Speaker 1: in the US, with globally, and I think that's a
Speaker 1: structural team that we should pay more attention.
Speaker 2: To improving immigration trends. Does that mean we're going to
Speaker 2: see more legal immigrants in the United States by substantial numbers.
Speaker 1: I mean, it's very difficult to quantify, but I think
Speaker 1: it's a trend, a structural trend globally, not just in
Speaker 1: the US. Like even countries that are not historically very
Speaker 1: friendly to immigration realized for a demographic standpoint, they need
Speaker 1: to open up, and so we're going to see that.
Speaker 1: So again, for me, it's like on the margin, what
Speaker 1: can happen in the future that well, positively surprise and
Speaker 1: negatively surprised. But I think in a world right now
Speaker 1: where everybody's asking it's so easy to think about what's
Speaker 1: wrong with the world, Barry, it's more difficult to think
Speaker 1: about what's right with the world. And usually when you
Speaker 1: ask that question, people shift in their seats because they're
Speaker 1: not used to think about what's right with the world.
Speaker 1: It's more difficult to point out oftentimes. But I think
Speaker 1: immigration is one of those trends that's what's right with
Speaker 1: the world. Because if you look at just working as
Speaker 1: population growth in the US can be sixty basis points
Speaker 1: this year, this decade, But the real upside is that
Speaker 1: it come from productivity. And and so I say, I
Speaker 1: still think immigration is at a sort of do some
Speaker 1: improve from here, I should say, going forward on the
Speaker 1: on the labor side, and then we still have record
Speaker 1: employment in the US, right, Like you know, we've had
Speaker 1: the primates participation rate recover, were suddenly realizing that early
Speaker 1: retirements wasn't a thing, and you know, people are coming
Speaker 1: back to the labor before. So it's very difficult given this,
Speaker 1: which is why I'm saying I think we can actually
Speaker 1: have a secular tightness in the labor market. The concern
Speaker 1: amongst investors is that they fear stackflation, and I don't
Speaker 1: see a future that's stackflationary. A stackflationary future would destroy
Speaker 1: your fixed income and equity portfolios. Right. The future that
Speaker 1: I'm seeing is one of productivity lead growth, and this
Speaker 1: is the look back period. That's important because when you
Speaker 1: think about dead ceiling, you think about two hundred and eleven.
Speaker 1: When you think about the regional banking crisis, you THINKBO
Speaker 1: two hundred eight, you think about inflation thing about seventies,
Speaker 1: So we don't have memory of anything that remotely, you know,
Speaker 1: resembles a productivity lead growth era. But that was the
Speaker 1: nineteen fifties, So you could have secular tightness in the
Speaker 1: labor market. The AI boom is coming at the right
Speaker 1: time where you can see wages profits rising simultaneously, where
Speaker 1: inflation is relatively contained. Because even if wages that were
Speaker 1: growing at four four and a half percent, if activity
Speaker 1: grows at two percent, your overall infiction pictures not that bad.
Speaker 1: You know, labor costs aren't going to crush your margins.
Speaker 1: So I think the real, you know, possibility is one
Speaker 1: that the future is not stackflinationary, but one of productivity
Speaker 1: lead growth, which is extremely bullish for nominal growth in equities.
Speaker 2: Huh, really quite fascinating. So let's talk a little bit
Speaker 2: about some of the other ways you find interesting ideas
Speaker 2: and get a sense of what's going on in the
Speaker 2: here and now. Tell us a little bit about the
Speaker 2: one on ones you have and the dinner salons you
Speaker 2: have and what comes from those.
Speaker 1: So we do about ten dinners a year in different cities,
Speaker 1: and I travel according to what's happening in the world.
Speaker 1: So that's more timely and interesting from a conversational standpoint
Speaker 1: and benefits the whole community. Tongue in cheek, I call
Speaker 1: these dinners the most interesting dinner in the world. So
Speaker 1: I really set expectations very high. I found the best
Speaker 1: gathering at about ten people. Everybody's requested to bring a
Speaker 1: chart to discuss. It could be a chart, a chart,
Speaker 1: it could be a stock It could be something that
Speaker 1: they are interested in and they'd like to share with
Speaker 1: the group. It could be a picture of your dog.
Speaker 1: I really don't care, but you have to become prepared.
Speaker 1: I feel like when people are thoughtful about what they
Speaker 1: want to come and share, it's more interesting than just
Speaker 1: rambling conversation. I make it. Make sure that we've got
Speaker 1: certain rules, no egos, no business cards, no, you know,
Speaker 1: try to really set the tone.
Speaker 2: And that really limits who can participate. You've cut it,
Speaker 2: You've cut it down radically.
Speaker 1: You know, So really be very intimate and it's not
Speaker 1: me pitching something. I'm more curious and just facilitating conversation,
Speaker 1: learning from everybody. And the last rule is no one
Speaker 1: leaves without a hug, you know. So it's ten people,
Speaker 1: usually CIOs, portfolio managers from different sort of hedge funds,
Speaker 1: long olyfunds, family offices, you know, pension CIOs. So it
Speaker 1: really varies again based on what I think is topical
Speaker 1: and interesting, you know. So we do those eighty ten
Speaker 1: times a year and then we'll do bread first, which
Speaker 1: are more easier to organize, and I tongue in cheek,
Speaker 1: I call them the breakfast, the moderately interesting breakfast, because
Speaker 1: again it's early in the morning, you haven't had your
Speaker 1: coffee black sleep, so just moderately interesting ideas are enough
Speaker 1: to share with each other.
Speaker 2: Huh, that's interesting. I'll tell you the two. So we've
Speaker 2: been hosting these dinner salons for the past, going back
Speaker 2: to the financial crisis, and the two interesting things I've
Speaker 2: kind of learned. The first is it's a little bit
Speaker 2: like you're right about the size eight to ten is
Speaker 2: as big as you get as you want, and even
Speaker 2: there you still end up with these side conversations, and
Speaker 2: you want everybody talking about the same subject in the
Speaker 2: middle of the table, not three groups of two, three, four.
Speaker 1: So I have a rule, no side conversations.
Speaker 2: No side We have the same rule. And then we
Speaker 2: did something I don't remember when this was. It was
Speaker 2: a couple of years ago, and I try and remember
Speaker 2: to do it every dinner, but it's really fascinating. At
Speaker 2: the end of the dinner, I want everybody to recommend
Speaker 2: the most interesting book they've read over the past year,
Speaker 2: and you get some fantastic, eclectic, wildly unexpected book recommendations
Speaker 2: from people, because I think that's all people want is
Speaker 2: give me a really interesting book to read, and I'm
Speaker 2: happy for thirty forty hours. You've just made me happy
Speaker 2: with that. So you hold these You mentioned after the
Speaker 2: China first quarter you did something in Singapore. If there's
Speaker 2: a big FED meeting coming up, do you do that
Speaker 2: in DC? Do you do that in New York? Where
Speaker 2: would you hold something like that?
Speaker 1: I found New York is the best place for like
Speaker 1: FED centric conversations.
Speaker 2: Why is that?
Speaker 1: I don't know, It's just part of the culture. You know.
Speaker 1: The macro guys are very obsessed with They're all here, yeah,
Speaker 1: the one. They're all here also pay right close attention
Speaker 1: to what the FED is saying, what the FED is doing,
Speaker 1: your rates and effects matter, you know, matters a lot.
Speaker 1: And so every city actually has its own interesting like
Speaker 1: Hong Kong Dinners, we write China centric poor is very
Speaker 1: pure macro because you've got a good Asian pulse, but
Speaker 1: you also have some funds there that are really plugged
Speaker 1: into what's happening in the US and Europe and the
Speaker 1: europe The London Dinners will be a mixture, you know,
Speaker 1: still annoyed with Brexit and EU policy and other sort
Speaker 1: of interesting themes come up from there.
Speaker 2: Well, unforced eras get everybody upset, right, It's just why
Speaker 2: did you do that? That was silly? Let me ask
Speaker 2: you about Singapore on my list of places to go
Speaker 2: never been. I have been told from a wide variety
Speaker 2: of people that it is absolutely the best food destination
Speaker 2: in Asia.
Speaker 1: I'm not a foodie, so I can't say if it's
Speaker 1: the best food destination. It's certainly a city that I love.
Speaker 1: Mm hm. Just it's such a especially from a macro
Speaker 1: community standpoint, like you've got everybody there walking distance. It's
Speaker 1: just fun. And I think what I've learned from my
Speaker 1: Singapore conversations again because it's East and west good mixture
Speaker 1: is probably some of the best conversations I've had in
Speaker 1: around the world in Singapore.
Speaker 2: Yeah, what where else besides London? Do you do you
Speaker 2: like to host these in Europe?
Speaker 1: Uh? Just London so far?
Speaker 2: Really?
Speaker 1: Yeah? I mean, so it's London, New York, Miami, Hong Kong, Singapore.
Speaker 2: What do you think in Miami? A city I'm always
Speaker 2: I'm always every time I go to Miami. I want
Speaker 2: to like it, and Miami always manages to disappoint me somehow,
Speaker 2: including Michelin star rated restaurants that won't serve decaf after dinner.
Speaker 1: I'm not that opinionated, you know. I mean, I don't,
Speaker 1: I don't. I mean I don't have a strong judgment
Speaker 1: on cities and people and and so I go and
Speaker 1: usually again I've got I've got young children, so I'm
Speaker 1: usually going for like a day, three days, aldays, you know.
Speaker 1: So I'm just going, you know, meeting clients who are
Speaker 1: also friends and doing the dinner and coming back. So
Speaker 1: I'm not usually spending a lot of time in Miami
Speaker 1: checking out the city, the food scene. I love windwind Walls.
Speaker 1: One of my favorite people is in Miami, Peter Tunney,
Speaker 1: We'll have to spend time with. So I feel like
Speaker 1: in every city, I've got someone deep that I connect
Speaker 1: with or something about that place I say that I'm
Speaker 1: dying to visit and hosted dinner is actually Boston. Because
Speaker 1: of my love for Ralph wald Emerson, I haven't visited it.
Speaker 1: I just want to go and be a tribute to
Speaker 1: him and Colegia Brown actually as well. Who's Boston? Who
Speaker 1: was living in Boston for very long.
Speaker 2: I was gonna recommend some restaurants in Boston.
Speaker 1: But they must have a round table. That's the other rule.
Speaker 1: I only do roundtables in a private room.
Speaker 2: Well, the private room, otherwise you can't hear. But there
Speaker 2: are a lot of places where you end up with
Speaker 2: a rectangle. But it's hard. It's hard, right that lends
Speaker 2: itself to those side coms.
Speaker 1: Exactly.
Speaker 2: So, without revealing any confidences, and I'm assuming everything is,
Speaker 2: you know, off the record private, you're not repeating the
Speaker 2: last salon you held. Tell us about some of the
Speaker 2: conversations that took place. Who said what, and I mean
Speaker 2: this economist, this PM without naming names, what sort of
Speaker 2: topics came up.
Speaker 1: I'll tell you what surprised me because the last dinner
Speaker 1: we did was in Singapore, and I was surprised at
Speaker 1: the man of conversation time spent discussing the EU's economy
Speaker 1: and the consensus about a recession.
Speaker 2: Which has been going on for eighteen months now.
Speaker 1: Not something that I would expect in Singapore. Oh really,
Speaker 1: you know so it almost felt as though news here
Speaker 1: was infecting there in terms of the fact that it's
Speaker 1: inevitable or it's ever present. It's almost like a foregone conclusion, right,
Speaker 1: So that was something that was unexpected. But again because
Speaker 1: those views are also coming from people that I love
Speaker 1: and respect, and so that makes me think twice about
Speaker 1: my view and makes me go back and do more
Speaker 1: work on what am I missing and what are they
Speaker 1: getting right? And so's a So that was my lesson.
Speaker 1: It force me to thing deeper and I've come back looking,
Speaker 1: you know, so focus on My focus on the labor
Speaker 1: market was party as a function of mute ending that
Speaker 1: dinner and hearing that from the community to make sure
Speaker 1: that what am I missing on the labor market? You know,
Speaker 1: how can I get more robust in my analysis the
Speaker 1: labor market? And I've come away thinking that actually, yeah,
Speaker 1: you know, I still stand by my view that the
Speaker 1: liber market will remain diet, secular, fashion, one crack the
Speaker 1: way people expect. And now it's you know, my job
Speaker 1: to share that with the community and get feedback. And
Speaker 1: so that's kind of how the process works, the research
Speaker 1: idea discovery flywheel works.
Speaker 2: So you mentioned something earlier I want to circle back
Speaker 2: to talking about the expectation of recession, and you said
Speaker 2: that there is a tendency for people to ignore good
Speaker 2: news and focus on bad news. Let me throw this
Speaker 2: out there. From an evolutionary perspective, isn't threats and security
Speaker 2: risks and bad news an existential risk versus is good news?
Speaker 2: Is just hey, we're all doing a little better.
Speaker 1: From a spiritual perspective, right, I would say, I'm I'm
Speaker 1: born to be grateful, Okay, so I always see the
Speaker 1: bright side of things.
Speaker 2: I'm with you. I'm a glass half full guy. Also
Speaker 2: mathematically half of zero zero, so there's no such thing
Speaker 2: as a half empty glass. But you know, the Morgan
Speaker 2: Housel wrote this really interesting piece that said, following the
Speaker 2: first flight of Kitty Hawk, it took newspapers twenty years
Speaker 2: to start talking about flight, but the first instant there's
Speaker 2: any sort of trouble, it's headline news. My curiosity is,
Speaker 2: how Darwinian is this? How much of your spirituality is
Speaker 2: not the traditional state of human psyche? We are seem
Speaker 2: like we were built to over anticipate threats.
Speaker 1: Perhaps my philosophy or not is simply the more we
Speaker 1: look at others, the more neglectful we've become looking at ourselves.
Speaker 2: So let's talk about that, because some of some of
Speaker 2: your thoughts on knowing yourself? How could you be a
Speaker 2: good investor if you don't understand yourself? Let let's let's
Speaker 2: let's delve into that. How important is self awareness and
Speaker 2: self enlightenment in managing capital and risk?
Speaker 1: I don't know what enlightenment, but self awareness certainly is
Speaker 1: I think very important.
Speaker 2: Is there that much of a distinction? Or am I
Speaker 2: am I using overly broad terms like I think of
Speaker 2: self enlightenment and self awareness as part of the same spectrum.
Speaker 1: Right, I think awareness is important? Right? What's the motivation?
Speaker 1: Why are you in this business? Just asking a simple
Speaker 1: questions like why do you care so much about investing?
Speaker 2: You want to ask me?
Speaker 1: Or just general yeah, just diving deeper into a person, right,
Speaker 1: why do you care some aout investing? What is it
Speaker 1: doing for you? You know? Like for example, you I think
Speaker 1: I've read somewhere recently or I heard that you don't
Speaker 1: know why you're drinking until you stop drinking, Okay, right,
Speaker 1: so that's fair. You don't know why you're trading until
Speaker 1: you stop trading. So like what is our underlying motivators?
Speaker 1: You know? In the industry, and a lot of people
Speaker 1: struggle with ego and identity, and you know, like, so,
Speaker 1: what are your underlying motivators? You're just geting to know
Speaker 1: who you are while you're doing what you're doing. You know,
Speaker 1: how do you become more flexible in your thinking? Adaptable?
Speaker 1: I often say the biggest risk you need to manage
Speaker 1: is yourself. It's not a position, it's not what the
Speaker 1: Fed is saying, it's not a political event. It's yourself
Speaker 1: because you're going to react to a particular news story
Speaker 1: or particular event. Right, So, the biggest risk you need
Speaker 1: to manage yourself. So if you don't know yourself, it's
Speaker 1: pretty it's pretty difficult.
Speaker 2: One of the comments you had had written about was
Speaker 2: the obsession we have with things that we can't control.
Speaker 2: You can't control the economy, we can't control inflash, we
Speaker 2: can't control what the FED does, we can't control what
Speaker 2: Congress does. But to your points, you can control yourself
Speaker 2: and your own reaction. Given that, are we spending too
Speaker 2: much time focusing on news when we really should be
Speaker 2: focusing more on things that are within our p number
Speaker 2: of being able to manage, modify, and control.
Speaker 1: Perhaps, But again it depends on what you're doing. Right.
Speaker 1: So I certainly do that. I can't speak to other people,
Speaker 1: but not the luxury of doing that, because that's partly
Speaker 1: why I get to do what I do, is because
Speaker 1: I can zoom out, I can disconnect to come back
Speaker 1: with certain reflective, deep refreshing thoughts that will sort of
Speaker 1: help the community, the client base in a particular way.
Speaker 1: But obviously if you're macro PM you can't disconnect. You know,
Speaker 1: if you're a CIO of a pension fund, You're always
Speaker 1: thinking about your employees and your portfolio and the band sponsors.
Speaker 1: So I have a luxury, I think, barry, to design
Speaker 1: my life set in a particular way that gives me
Speaker 1: an edge that I appreciate that not everybody does.
Speaker 2: All right, So let me throw you a curveball question.
Speaker 2: I got to ask, you write all the time, why
Speaker 2: write a book? Tell us what motivated you to turn
Speaker 2: stray reflections into a bound, printed book.
Speaker 1: So I didn't write the book. What actually happened was,
Speaker 1: like I mentioned earlier, I wrote from the very beginning,
Speaker 1: from a very personal space. So at the end of
Speaker 1: every issue there'd be a personal reflection. It could be
Speaker 1: my daughter being born, my grandmother dying, meeting a friend
Speaker 1: reading a book some travel experience, so I'd always made
Speaker 1: sure I ended on a personal note. I realized when
Speaker 1: I started writing there was a lot of reservations, will
Speaker 1: I have something meaningful to say on a regular basis?
Speaker 1: And something Roomy said struck with me, and he said,
Speaker 1: words are just a pretext. What connects one person to
Speaker 1: another is that inner bond, not words. So I realized,
Speaker 1: I want to write from a very personal space. I
Speaker 1: want to write from the heart. There's too much brain intelligence,
Speaker 1: you know, in our industry, Like, let's connect a person level.
Speaker 1: So the book is simply a collection of all those
Speaker 1: personal reflections that I've been writing since the beginning of
Speaker 1: the publication. So I didn't write a book separately. It
Speaker 1: was you know, I held this conference in twenty eighteen
Speaker 1: in the desert, and I was trying to think of
Speaker 1: a way to give a thoughtful gift, and this idea
Speaker 1: came about. So we just assembled all the reflections into
Speaker 1: a book that you can just order on Amazon. But
Speaker 1: back then we just printed it and gifted it to
Speaker 1: all our clients, and there's a lot of people would
Speaker 1: ask for it, and I'm glad that it's just available
Speaker 1: for anybody to sort of pick it up or for
Speaker 1: me to keep gifting it. I'd much rather meet a
Speaker 1: client and instead of giving them a presentation about housing
Speaker 1: or this or that, just leave a copy of my
Speaker 1: book on the desk.
Speaker 2: Huh. Really interesting. So we only have you for a
Speaker 2: little while longer. Let me jump to my favorite questions
Speaker 2: that we ask all of our guests, starting with tell
Speaker 2: us what you're paying attention to these days in terms
Speaker 2: of entertainment? What are you listening to in terms of
Speaker 2: podcast or are there any Netflix or Amazon shows that
Speaker 2: have caught your attention? What's entertaining the family?
Speaker 1: I actually don't get bored to feel the need to
Speaker 1: be entertained, So I actually don't listen to music or
Speaker 1: watch movies. I've got three young daughters, and I love
Speaker 1: spending time with them.
Speaker 2: Do they watch TV? Do they watch listen to music?
Speaker 1: They watch cartoons? So we'll have a movie time every
Speaker 1: weekend with them, So they'll watch some children's movie and
Speaker 1: I'm just present with them.
Speaker 2: You're along for the ride.
Speaker 1: So so.
Speaker 2: Okay, so Pixar, Disney, all the usual suspects.
Speaker 1: But I find myself doing you know, one of my
Speaker 1: goals last year, for example, Barry was I want to
Speaker 1: work fewer hours and get more done. So that's when
Speaker 1: I started cutting out distractions right again, deep work is
Speaker 1: something that I really believe in, and so I would say,
Speaker 1: if I have any doubt, I'm actually listening to a
Speaker 1: book as opposed to watching a movie or listening to music.
Speaker 1: And I'm a big audible fan. Again, with young girls,
Speaker 1: it's more difficult to like sit and pick up a
Speaker 1: bookcause they jumping on you. So you're driving, when you're
Speaker 1: cleaning or just going for a walk, you can listen
Speaker 1: to a book. And something that listened to recently was
Speaker 1: Screw Tape Letters by C. S. Lewis read by John Cleese,
Speaker 1: which is a masterpiece. I don't know if you're familiar
Speaker 1: with the book, but it's basically a senior devil writing
Speaker 1: a letter to a junior devil talking about how to
Speaker 1: corrupt the patient, which is humans, and keep him away
Speaker 1: from the enemy, which is God. And even though people
Speaker 1: think that The Fourth Turning is the most important book
Speaker 1: of our time, I would say C. S. Lewis the
Speaker 1: Screw Tape Letters is the most important book of our time.
Speaker 1: The letter it explains a lot with what's going on.
Speaker 2: If you like that. Have you ever read Mark Twain's
Speaker 2: Letters from Earth? No, it's literally that the Devil comes
Speaker 2: to Earth and or a demon comes to Earth, and
Speaker 2: it's writing letters back to a devil explaining what's going
Speaker 2: on with the humans and why they're so hard to corrupt.
Speaker 2: Of course they're already corrupted. It's really quite fascinating. I
Speaker 2: haven't read it in a long time, but you've given me.
Speaker 2: We're going to circle back to books in a bit.
Speaker 2: Let's talk about your mentors who helped shape your career
Speaker 2: and turn you into the person you are today.
Speaker 1: In the twenties, I searched for a mentor and I
Speaker 1: couldn't find one, So I spent my twenties learning and dreaming.
Speaker 1: In the book that got me to dream was The Alchemist.
Speaker 1: But I only don't like.
Speaker 2: It's not that I don't like it, it's that the
Speaker 2: books that are parables that sort of rely on magic
Speaker 2: to reach their conclusion I find annoying.
Speaker 1: The concept that resonated with me in the book was
Speaker 1: this idea of the personal legend. So I've spent my
Speaker 1: twenties dreaming that I'm going to unfold my personal legends.
Speaker 1: So for me, the twenties were spent learning and dreaming.
Speaker 1: I would say when I launched Fair Affections, you know
Speaker 1: the first five years that I was very lucky to
Speaker 1: meet someone called Steve Drobney out of Santa Monica who
Speaker 1: runs Clocked tour group. Every time I was thought of
Speaker 1: quitting in the first few years because I couldn't figure
Speaker 1: out the business model, I wasn't making enough money, he
Speaker 1: was on the other side of the phone saying, just
Speaker 1: hang in there. You know, a path would open up.
Speaker 1: And I remember his words. He said, Joe, this will
Speaker 1: be your only job for the rest of your life.
Speaker 1: Be patient and wise words and I realized, you know
Speaker 1: what actually surviving is succeeding and the universe opened its path.
Speaker 1: And so he was influential and remains a very close friend.
Speaker 1: And I would say in the last five years, the
Speaker 1: most impact that I've had is from a coaching relationship.
Speaker 1: And I speak with my coach every week and she's
Speaker 1: indispensable to me.
Speaker 2: Huh, that's really that's really interesting. The idea that you're
Speaker 2: not ready for this and the universe will open up
Speaker 2: to you when you are is frustrating prospectively, but when
Speaker 2: you're looking backwards, it's like Oh that turned out to
Speaker 2: be pretty Uh. You hate it in the advance, but
Speaker 2: looking backwards, it's like, maybe it's a coincidence. But that
Speaker 2: seemed to come along at the exact right time, didn't it.
Speaker 1: Absolutely that's been my experience.
Speaker 2: So we've mentioned two books so far, three books, Letters
Speaker 2: from Earth, the Alchemist, and the C. S Lewis Book.
Speaker 2: Tell us some other books you're reading. What are some
Speaker 2: of your all time favorites.
Speaker 1: I love everything written by Ralph wald Emerson, C. S. Lewis,
Speaker 1: as well as Roomy, who I'm a big fan of.
Speaker 1: What I'm reading more recently is actually something John Authors recommended.
Speaker 1: I was having a conversation with him and I was
Speaker 1: asking for advice on writing and the craft, and he
Speaker 1: suggested that the most influential person in his life was
Speaker 1: Professor Readman from Columbia, and he's written a bunch of books.
Speaker 1: So I went and looked through his books and the
Speaker 1: one that really appealed to me was Letters to a
Speaker 1: Young Journalist. And I'm reading that and I'm fascinated because
Speaker 1: again I look at what I do is writing, and
Speaker 1: I want to read improve that craft to be, you know,
Speaker 1: a creative thinker, and looking at the world and observing
Speaker 1: things differently.
Speaker 2: So Roomy, give me a book of Roomy that.
Speaker 1: The mus Nui. The muth Nui is the the big
Speaker 1: sort of collection of poems that he's written, would be
Speaker 1: the one that Reynald Nicholson has the best translation in
Speaker 1: my opinion. Okay, it's anything that Reynold Nicholson has translated
Speaker 1: room Me would be the best, all right.
Speaker 2: And by the way, you know, there's only two secrets
Speaker 2: to good writing, right you're aware of this, no reveal.
Speaker 2: I'm not sharing anything that hasn't been revealed many times. First,
Speaker 2: read really good writing. You're already doing that. And Second,
Speaker 2: write regularly and relentlessly. And the more you write, the
Speaker 2: better you get. It's just a muscle that has to
Speaker 2: be exercised. I hate that metaphor, but it's true. If
Speaker 2: you write regularly, you'll find you just get especially if
Speaker 2: you have access to a decent editor. Also, you'll just
Speaker 2: start to get better and better and better. I've watched
Speaker 2: this arc with people over and over again, and every
Speaker 2: now and then someone will say, oh, I hate my
Speaker 2: early stuff, but now I'm pretty comfort was it? But
Speaker 2: that's the path. You have to travel, that route.
Speaker 1: As someone who has struggled with the imposter syndrome. I
Speaker 1: think what really helped me alongside was reading the book
Speaker 1: The War of Art by Steven Pressfield, and he talks
Speaker 1: about turning pro and so, you know, an amateur waits
Speaker 1: for inspiration and then he goes to the room and
Speaker 1: starts writing. The pro takes his craft seriously and shows
Speaker 1: up and exactly, and this, this concept of turning pro,
Speaker 1: I'm a professional, made a big difference, just mentally psychologically
Speaker 1: that you know, take it seriously. That made a huge difference.
Speaker 2: My buddy David Nottig and I have this ongoing debate
Speaker 2: about imposter syndrome, which is a problem for him, and
Speaker 2: I have just no understanding of it. My defense is
Speaker 2: that I'm oblivious. He says, I'm a sociopath and therefore,
Speaker 2: but I don't really feel like a sociopath. Although sociopaths
Speaker 2: probably don't feel like sociopaths. But I think I have
Speaker 2: a pretty decent defense on that. So our last two questions,
Speaker 2: A recent college grad came up to you and said,
Speaker 2: I'm thinking about a career in finance, writing a newsletter
Speaker 2: or a macro advisory paper for investors. What sort of advice.
Speaker 2: Would you give them?
Speaker 1: Roomy jumps to mind, and he says, let the beauty
Speaker 1: of what you love be what you do. There are
Speaker 1: a thousand ways to kneel and kiss the ground. That's
Speaker 1: the first thing. The other thing I'd say also comes
Speaker 1: from roomy, which is be with those who help your being.
Speaker 1: So surround yourself with good people.
Speaker 2: To say the very least, and our final question, what
Speaker 2: do you know about the world of macro analysis, investing,
Speaker 2: economic data, etc. Today That you wish you knew twenty
Speaker 2: years or so ago when you were first getting started.
Speaker 1: The world is not the way to tell you it is.
Speaker 1: That's a classic opening line from The Money Game, And
Speaker 1: I wish I knew that the world is not the
Speaker 1: way they tell you it is.
Speaker 2: Adam Smith The Money Game another classic book that is
Speaker 2: absolutely worth worth reading. Jawad, thank you so much for
Speaker 2: being so generous with your time. This was absolutely fascinating.
Speaker 2: We have been speaking with Joadman. He is the editor
Speaker 2: and publisher of Stray Reflections, a macro advisory research commentary.
Speaker 2: I would be remiss if I did not thank the
Speaker 2: crack team that helps put these conversations together each week.
Speaker 2: Paris Wald is my producer. Sean Russo is my researcher.
Speaker 2: Rob Bragg is my audio engineer. Attika v Albron is
Speaker 2: our project manager. I'm Barry Ritoltz. You've been listening to
Speaker 2: Masters in Business on Bloomberg Radio.