Speaker 1: This is Master's in Business with Barry rid Holds on
Speaker 1: Bloomberg Radio.
Speaker 2: This week on the podcast, I have a special guest.
Speaker 2: His name is Peter Atwater and he is the author
Speaker 2: of several books, most recently The Confidence Map, Charting a
Speaker 2: Path from Chaos to Clarity. Peter has had a fascinating
Speaker 2: career in finance, JP Morgan, Bangwan, a few other large
Speaker 2: places where he got to see how people's sentiment and
Speaker 2: confidence levels affected their decision making. And this is everything
Speaker 2: from securitized credit cards to investing and beyond. I found
Speaker 2: this to be an absolutely fascinating conversation. We discussed everything
Speaker 2: from the shape of cars to January sixth, and how
Speaker 2: each of the events that we talked about or milestones
Speaker 2: in society reflect the confidence, life level and the degree
Speaker 2: of uncertainty that the population at large feels. These are
Speaker 2: things that can be measured, and from those measurements you
Speaker 2: could get a sense of what's likely to come next.
Speaker 2: I thought this discussion was absolutely fascinating, and I think
Speaker 2: you will also with no further ado my discussion with
Speaker 2: Financial Insights. Peter Atwater, Welcome to Bloomberg.
Speaker 1: Thanks so much, Barry.
Speaker 2: So let's talk a little bit about your background, which
Speaker 2: I find is kind of fascinating. You graduate William and
Speaker 2: Mary in eighty three. How did your career begin? Where
Speaker 2: did you go from college?
Speaker 1: Yeah? I have a very traditional finance background. Started at
Speaker 1: JP Morgan right out of school, went through their bank
Speaker 1: training program. Wanted a foreign assignment, and the next thing
Speaker 1: I knew, I was in Delaware. And what I was
Speaker 1: ended up doing, though, was the beginning of what we
Speaker 1: call asset back securities today, pulling to get other credit
Speaker 1: card loans for seers, for mbn A and first USA
Speaker 1: car loans. And if you remember your history, banks at
Speaker 1: that point were just beginning to compete with the big
Speaker 1: Wall Street firms and commercial paper and asset backed securities
Speaker 1: were the first securities that the FED gave banks permission
Speaker 1: to underwrite. And so suddenly we were having to compete
Speaker 1: with Solomon, with Bear, with the CSFB in their territory.
Speaker 1: And so my job basically became how do we outthink them?
Speaker 1: Because there was no way we could out muscle Marrow,
Speaker 1: and so we had to We had just had to
Speaker 1: be better at structuring, finding ways to make things less expensive,
Speaker 1: you know, bring something else to bear.
Speaker 2: So what years were this. When were you at JP Morgan.
Speaker 1: I was there from eighty three to ninety six.
Speaker 2: Okay, and then what ultimately, so you missed all the
Speaker 2: fun during the.
Speaker 1: I did I did. I planted the seeds.
Speaker 2: Although back then performing credit card debt wasn't quite the
Speaker 2: same as ninja loans being fed into mortgage.
Speaker 1: Back I mean square. And you know, I left JP
Speaker 1: Morgan to actually go work for First USA, one of
Speaker 1: the credit card companies, and and you know, part of
Speaker 1: that was this clear view of the trajectory that securitization
Speaker 1: was going to change the business. You know, little did
Speaker 1: I realize that a year later we'd get bought by
Speaker 1: Bank One because Bank One needed desperately to have a
Speaker 1: credit card business. And so my career made another pivot
Speaker 1: to go from the treasure of a startup credit card
Speaker 1: company to being the treasure of the eighth largest bank
Speaker 1: in the country.
Speaker 2: Eventually you rise to the role of CEO of Private
Speaker 2: Client Services at Bank One. Tell us a little bit
Speaker 2: about that job.
Speaker 1: Yeah, So Bank One had merged with for Chicago, the
Speaker 1: merger with Tumultis, and so the board ultimately brought in
Speaker 1: Jamie Diamond. I talk about it merging with Jamie, you know,
Speaker 1: because this combination was a terrible cultural fit. It was
Speaker 1: almost viewed as a Tiffany by his Walmart combination. The
Speaker 1: egos were not happy with it, and Jamie did a
Speaker 1: great job of sort of reminding people that the enemy
Speaker 1: was outside the business. But he quickly uncovered where the
Speaker 1: merger had not executed the way it meant to. One
Speaker 1: of those was in the client the wealth management area,
Speaker 1: where we had lots of great skills in terms of
Speaker 1: trust and private banking and all of these elements, but
Speaker 1: no general practitioner. It was like we were running a
Speaker 1: hospital with no folks who could who could look at
Speaker 1: the patient holistically. And so one of the first things
Speaker 1: I did in that job was to identify who can
Speaker 1: be the point person so that you can cross sell
Speaker 1: and deliver a much fuller array of products than just,
Speaker 1: you know, the single products we were offering.
Speaker 2: You know, it's fascinating because there's the practice of investing
Speaker 2: and then there's the business of investing, and there are
Speaker 2: two very different things. I would imagine it's very similar
Speaker 2: in banking. There's the practice of banking and then the
Speaker 2: business of running a bank. You're what you're describing where
Speaker 2: the folks at Bank one were better at the former
Speaker 2: than the latter. Is that a fair way to say
Speaker 2: it was?
Speaker 1: This was an organization that had grown by acquisition, and
Speaker 1: so the mindset was always buy revenue, cut expense by
Speaker 1: revenue cut expense, and so long as you can keep
Speaker 1: doing that, you leave some fundamentals un dealt with, right
Speaker 1: and when you stop the roll up, then you have
Speaker 1: to look at how do you how do you integrate
Speaker 1: it or in some cases spin things off. But I'll
Speaker 1: tell you my timing couldn't have been worse, Sperry. I
Speaker 1: took that job in early two thousand and basically rode
Speaker 1: the market down, and I'll tell you nothing teaches you
Speaker 1: more about how things work than watching them not work
Speaker 1: on the way down. And so it was really eye
Speaker 1: opening to see how overconfidence turns into panic as we
Speaker 1: went through the dot com bubble.
Speaker 2: So you're anticipating my next question. It was your first
Speaker 2: book was Moods and Markets, the second book is all
Speaker 2: about confidence. What led to this interest in that aspect
Speaker 2: of behavioral finance? Was it the asset backed securities, was
Speaker 2: it watching a roll up entity, or was it the
Speaker 2: dot com collapse that sent asset prices depending on where
Speaker 2: you were invested. I like to remind people, nastec fell
Speaker 2: pete to troth eighty one percent. It's a big, big whack.
Speaker 2: That's great depression level fall.
Speaker 1: Yeah. I would say that my interest didn't arise until
Speaker 1: the Great Financial Crisis. You know, I had left the industry.
Speaker 1: I turned forty five and my son said, halfway, your dad,
Speaker 1: you're halfway to ninety and not horrifying kind of a
Speaker 1: tough you know, punch to the gut. And the other
Speaker 1: way to look at it is all right. I man,
Speaker 1: at this far, it's so far, so good. So this
Speaker 1: was two thousand and six. For the first time in
Speaker 1: my adult life, I had the opportunity to move away
Speaker 1: from the trees and start to see the forest, and
Speaker 1: to see what was happening in the mortgage space to
Speaker 1: your point Ninja loans and the wildness there, and then
Speaker 1: to watch as sentiments started to fall, how things started
Speaker 1: to come apart. And I ended up advising some hedge
Speaker 1: funds because my background as a treasurer bank treasurer, I
Speaker 1: dealt with the rating agencies. I'd securitize stuff. I mean,
Speaker 1: I knew how things go bad. Having spent a lot
Speaker 1: of time in troubled banks at my time at JP Morgan,
Speaker 1: and so what interested me as Lehman collapsed and what
Speaker 1: was going on was this sense that the crisis isn't done.
Speaker 1: We're moving a lot of risk from the private sector
Speaker 1: to the public sector, but we have an eliminated risk.
Speaker 1: And at the same time, everybody's saying things are getting
Speaker 1: going to get worse, and now the market starts to
Speaker 1: turn up. And that combination of the crowd saying things
Speaker 1: are only going to get worse and the market going
Speaker 1: up was a game changer for me.
Speaker 2: It's like, well, the term capitulation means surrender. Yeah, right,
Speaker 2: so when everybody throws in the towel, you know, I
Speaker 2: love asking people, you know, if they're bullish or beersh as.
Speaker 2: The first question and then the second question is what
Speaker 2: was your last transaction in the market. And invariably, if
Speaker 2: they're bullish, they just bought something, and if their bears,
Speaker 2: they just sold something. And it's a chicken and egg issue.
Speaker 2: Are they bullish because they bought something or did they
Speaker 2: buy something because they're bullish? Sometimes it's hard to tease
Speaker 2: the two apart.
Speaker 1: It's entirely reflexive, and so I say a lot. Our
Speaker 1: confidence level, our stories, and our actions exist in equilibrium
Speaker 1: at all times. I don't care which is chicken or egg.
Speaker 1: I just know that if I talk to Barry Ritholtz
Speaker 1: and I know what you're doing, I know what your
Speaker 1: story is, and I know how you feel, and I
Speaker 1: can pick one of the three and pretty well deduce
Speaker 1: what the other two are likely to be.
Speaker 2: You know, the old trader's aphorism is news follows price,
Speaker 2: meaning when the price stocks are going up, the narratives
Speaker 2: are great, and when the prices are going down, the
Speaker 2: narratives are usually negative. Although I have a vivid recollection.
Speaker 2: In the beginning, if they war, oil prices had spiked
Speaker 2: the same day US accidentally bombed and important mosque, and
Speaker 2: that was a headline, U Air Force accidentally destroys mosque,
Speaker 2: causing oil prices to spike. By the end of the day,
Speaker 2: oil prices had come back down and got negative. So
Speaker 2: the online headlines were US bombs my mosque accidentally, oil
Speaker 2: prices fall. It's like, well, which was it? Or maybe
Speaker 2: you're these just wholly unrelated things and we're trying to
Speaker 2: create a story.
Speaker 1: Yeah, I always feel sorry for the daily news writers
Speaker 1: when you see major market reverses, because to watch them
Speaker 1: contort themselves to create a comfortable narrative, it's humorous.
Speaker 2: Right, It's all hindsight bias and narrative fallacy and storytelling.
Speaker 2: So one of the things I was surprised to learn
Speaker 2: as I was reading your background, and you say you
Speaker 2: build on the insights of Robert Prector's work in socioeconomics, socioonomics, socioonomics,
Speaker 2: I've always pronounced that wrong. So a long time ago
Speaker 2: I read Prector's perspectives and was very influenced by his
Speaker 2: concept of the long cycle. You come out of World
Speaker 2: War Two, all these gis are returning to the US.
Speaker 2: There's the GI bill sending him to college, where building
Speaker 2: out suburbia, the rise of car culture, the rise of
Speaker 2: just the middle class, and that cycle seems to go
Speaker 2: a long time and last a while. How did Prector's
Speaker 2: work affect you?
Speaker 1: So in twenty ten he did an interview for an
Speaker 1: organization called Minionville. Oh sure, Tod Harrison and I had
Speaker 1: been writing for Minionville, and I listened to Bob talk
Speaker 1: and he said something that I had not paid much
Speaker 1: attention to before or which was a reversal in causality,
Speaker 1: which is we tend to look at events causing us
Speaker 1: to change our feelings. Bob's recommendation and the foundation for
Speaker 1: socionomics is look at the mood before things happen. And
Speaker 1: suddenly it made so much sense to me that of
Speaker 1: course we act as we feel, and if I could
Speaker 1: then figure out what is consistent in those actions and
Speaker 1: connect them to feelings, then that might be something really useful,
Speaker 1: as whether it was in consulting or trading, to be
Speaker 1: able to connect preferences to the choices we make and
Speaker 1: how we feel.
Speaker 2: So how does one go about measuring mood? How can
Speaker 2: you measure the sentiment of the public. It's not especially uniform.
Speaker 2: It seems to fluctuate, and as we've learned, we can
Speaker 2: always trust what people say.
Speaker 1: Yeah, so I look at it very qualitatively, because mood
Speaker 1: is a feeling, and so the qualitative pieces matter more
Speaker 1: than the data to us data. We always have to
Speaker 1: interpret data, and so our feelings determine how we interpret.
Speaker 1: You know, sixty five degrees can feel both warm and cool.
Speaker 1: But what I try to do is to look at
Speaker 1: the stories, and stories are a great indicator of how
Speaker 1: we feel because our imagination of the future, the stories
Speaker 1: we tell perfectly mirror how we feel. Confidence is forward looking,
Speaker 1: and so my imagination of what's coming is going to
Speaker 1: be a reflection on my mood right now. And the
Speaker 1: media does a great job of letting me know what
Speaker 1: those stories are. Twitter and social media does a spectacular job.
Speaker 1: So does Google, I mean Google searches. I'm a big
Speaker 1: user of Google trends. It helps me to see what's
Speaker 1: the crowd interested, what are the stories we tell, and
Speaker 1: the word choices. So recently I see the word relentless
Speaker 1: being applied to the rise and interest rates as we're
Speaker 1: coming to an end of the third quarter of twenty
Speaker 1: twenty three. Well, relentless is a word that doesn't show
Speaker 1: up in stories until it's beginning to feel like something
Speaker 1: significant is about to happen.
Speaker 2: Right, And if we're going to be objective and put
Speaker 2: some numbers on it, as much as we all would
Speaker 2: prefer lower rates, we've had eighteen nineteen months of rising rates,
Speaker 2: and rates are now back to where they've averaged over
Speaker 2: the past fifty years. So if you're being bloodless about it, hey,
Speaker 2: rates have returned to normal fairly quickly, and yet it
Speaker 2: doesn't feel that way.
Speaker 1: But I can also look at the behavior of bond
Speaker 1: investors and look at the stampede that took place two
Speaker 1: years ago into negative yielding bonds and the stories that
Speaker 1: and along that, and the confidence that investors had.
Speaker 2: And meaning at the very peak of the bond bull
Speaker 2: market just before the reversal took place.
Speaker 1: Yeah, I mean you could. You could see this sense
Speaker 1: of permanence and power that that you know, nothing was
Speaker 1: going to be able to raise interest rates at that point,
Speaker 1: and so you had a story that perfectly aligned with
Speaker 1: negative interest negative yielding interest rates that was overlooked because
Speaker 1: of the the excitement that was happening in the markets
Speaker 1: and bond prices at record highs.
Speaker 2: So, so how do you tease out of these broad
Speaker 2: events in society? What what the underlying nugget of important
Speaker 2: signal is? Uh, you had a tweet that cracked me up.
Speaker 2: I want to share when confidence is low, cars are round.
Speaker 2: So I started to think about that, and you have
Speaker 2: some of these ugly old citrones and the qt VW beetle,
Speaker 2: and then later on the pacer there have been some
Speaker 2: pretty round and not necessarily beautiful cars over the years.
Speaker 2: What's the correlation?
Speaker 1: So I have to give credit to Mark Elishski, who
Speaker 1: works with Bob Prector on socioomis, because because Mark did
Speaker 1: this fabulous study that shows that cars are soft, they're round,
Speaker 1: their colors are bland, even though the woody. You know,
Speaker 1: if you think about sure, that's another low confidence indicator.
Speaker 1: And then you go to the other extreme and you
Speaker 1: have chrome, very.
Speaker 2: Angulag war e type just long, beautiful.
Speaker 1: Wide, you know, big engines. You know, you look at
Speaker 1: the Hummer, that was a classic, you know, that would
Speaker 1: be an indicator of of huge.
Speaker 2: Sentiment, really really interesting. You know what.
Speaker 1: The Mayback is one of my favorite indicators because it
Speaker 1: sort of comes and goes at these extraordinary moments in history.
Speaker 2: Is that how you think about cars like the Hummer
Speaker 2: or the Maybach as just votes of confidence as to
Speaker 2: the near future.
Speaker 1: Yeah, you know the Phaeton from Volkswagen. Again I recall
Speaker 1: terribly timed.
Speaker 2: B twelve big long seven series competitor.
Speaker 1: You know, the car companies want to deliver uber luxury
Speaker 1: to everybody at the top. I mean I spend a
Speaker 1: lot of time looking at LVMH because I think there's
Speaker 1: no better real time indicator for the financial elite.
Speaker 2: People give me grief because I track Rolex and Protect
Speaker 2: prices and Ferrari and Porsche prices. There are a bunch
Speaker 2: of services that track that. It's like, why are you
Speaker 2: so obsessed on watchers and cars. No, I'm obsessed with
Speaker 2: what the top one or ten percent does because what
Speaker 2: they do is going to trickle down to the rest
Speaker 2: of I don't mean trickle down in Oregan sense, but
Speaker 2: their behavior has a huge impact on the rest of
Speaker 2: the economy. Absolutely, talk about that a little bit.
Speaker 1: Yeah, So there are indicators to me to all levels
Speaker 1: of the economy. So if I want to look at
Speaker 1: the upper middle class, I'll look at a Carnival cruise line.
Speaker 1: Because travel requires us to plan, to have again a
Speaker 1: strong imagination of the future. We're going to admit some
Speaker 1: money we're committing. It's not an insignificant amount of money,
Speaker 1: and so that that becomes a great bell weather for
Speaker 1: me in terms of how how are those that are
Speaker 1: not you know, the one percent, but those that are
Speaker 1: doing well, how are they faring?
Speaker 2: So I'm glad you mentioned carnival cruise lines because there's
Speaker 2: something that's been perplexing me and I don't want to
Speaker 2: just dumb it down to explain it, but sometimes dumbing
Speaker 2: it down does explain it. On the one hand, when
Speaker 2: we look at sentiment measures of the US population never
Speaker 2: been more negative, worse than nine to eleven, worse than
Speaker 2: the financial crisis, worse than the pandemic. People are super negative.
Speaker 2: And yet at the same time we have record boat
Speaker 2: sails pleasure craft. I don't mean like Carnival Corps line.
Speaker 2: I mean twenty twenty five thirty forty foot boats. If
Speaker 2: you're gonna go out and buy a boat, you're spending
Speaker 2: a lot of money. The boat is the cheapest part
Speaker 2: of boating, slip, the winter rising, the maintenance, They're just
Speaker 2: boating is not a cheap hobby. I don't understand why
Speaker 2: so many people are saying they're negative and yet so
Speaker 2: many people are going out and buying boats. Or are
Speaker 2: these just two different demographic cohorts.
Speaker 1: So I think there are multiple demographic cohorts, and I
Speaker 1: wouldn't discount that today.
Speaker 2: I bet this is a big overlap though that's my sense.
Speaker 2: When I see the like the Maga Armadas, everything is
Speaker 2: terrible with the Maga signs on their boats. It can't
Speaker 2: be that bad if you're in a forty foot yacht
Speaker 2: on the lake.
Speaker 1: Yeah, and gallup. And you know, the University of Michigan,
Speaker 1: everybody's looked at the political impact on sentiment surveys.
Speaker 2: A lot of it's just partisans. It's partisan.
Speaker 1: And in fairness that this has been the case for
Speaker 1: quite a while, I.
Speaker 2: Mean, but it's gotten much much worse.
Speaker 1: It's gotten far worse. You know, the last time the
Speaker 1: parties felt the same was really the Great Financial Crisis.
Speaker 1: Coming out of that, you saw recovery on the part
Speaker 1: of Democrats, but no recovery whatsoever among Republicans.
Speaker 2: Which in terms of sentiment, in terms of.
Speaker 1: Sentiment, and so you know when people talk about, well,
Speaker 1: where did Donald Trump come from? When you look at
Speaker 1: consumer sentiment by political category, it becomes very evident what
Speaker 1: was behind that. You know, eight years of of Republicans
Speaker 1: feeling the same way they felt the weekend Lehman Brothers collapsed.
Speaker 2: So let's talk about that for a second. Chris, I've
Speaker 2: heard this and I just don't get it. When Lehman
Speaker 2: collected and I'm not a believer that Lehman caused the
Speaker 2: financial crisis, it was merely the first trailer in the
Speaker 2: trailer park that the tornado took, but everybody had eaten
Speaker 2: the same bad food at the buffet. To mix metaphors,
Speaker 2: there were genuine moments of terror, Like I was in
Speaker 2: New York City. People were very frightened. I remember the
Speaker 2: head of my firm saying, you gotta stop spiking the
Speaker 2: football because there's blood in the streets and everybody's really
Speaker 2: not doing well. And that was a moment of like
Speaker 2: just genuine financial panic, which by the way, kept going
Speaker 2: for another six months until the market made their lows
Speaker 2: in March of two thousand and nine. That was September
Speaker 2: of two thousand and eight. And then you look around
Speaker 2: today and listen, nobody is thrilled with the state of
Speaker 2: Nobody likes either of the two leading candidates, Biden or Trump,
Speaker 2: to record negatives. You have all sorts of problems in
Speaker 2: the country, but can you really compare the state of
Speaker 2: the economy and three point something percent unemployment to unemployment
Speaker 2: over ten percent. People are concerned the ATM isn't going
Speaker 2: to work. How is that comparable to what's going on today?
Speaker 1: It isn't if you measure it in terms of economic conditions.
Speaker 1: But confidence is about vulnerability, relative vulnerability, and I think
Speaker 1: that there are a lot of Americans who feel especially vulnerable.
Speaker 1: They feel culturally vulnerable, they feel religiously vulnerable, they feel
Speaker 1: in terms of issues of gender, and so I think
Speaker 1: that what a lot of our quote unquote economic confidence
Speaker 1: indicators are picking up is vulnerability that is far more
Speaker 1: fundamental to people's lives. And I think one of them
Speaker 1: is stakes the economists have been making is they're attributing
Speaker 1: too much of these indicators to economic connections rather than
Speaker 1: to the social and political connections that we're seeing that
Speaker 1: are quite profound.
Speaker 2: So let's stay with that theme of political disenfranchisement and
Speaker 2: fear and nervousness about changes in society. When I look
Speaker 2: around at the sociological and demographic changes that have been
Speaker 2: taking place recently, they're the end of product of trends
Speaker 2: that have been around for decades. So the US has
Speaker 2: becoming increasingly diverse. Right, you and I are a bunch of
Speaker 2: old white males. We used to be the dominant majority.
Speaker 2: Then now we're a plurality, and eventually we're going to
Speaker 2: be a large minority. That trend has been in place
Speaker 2: for decades. The country kind of swings back and forth
Speaker 2: between the left and the right. I think what's happened
Speaker 2: is the younger generations have always been more progressive, but
Speaker 2: now the younger generations are you know, the sixties and seventies.
Speaker 2: Generations from those decades are in their forties, fifties, sixties, seventies,
Speaker 2: and very often are in charge of organizations. Isn't a
Speaker 2: lot of what's going on just the culmination of things
Speaker 2: that are a long time coming. And I'm not saying
Speaker 2: people shouldn't be unaware of it. It just seems funny that,
Speaker 2: you know, post pandemic. Okay, now it's here and we
Speaker 2: all need to freak out.
Speaker 1: Yeah. I look at the roots of this as having
Speaker 1: been sown in a comparable tumultuous time in the late
Speaker 1: nineteen sixties, early seventies.
Speaker 2: Half a century ago.
Speaker 1: Yeah, and so you had, I mean, think about the
Speaker 1: concerns that folks had in the early nineteen sixties. You
Speaker 1: have issue of civil rights, you have stonewall.
Speaker 2: Gay rights, civil rights, women's rights rights straight down the list.
Speaker 1: And so you have those who have felt vulnerable for
Speaker 1: a prolonged period of time saying I've had enough.
Speaker 2: But the groups that seem to be making and maybe
Speaker 2: this is my So I'm college educated, I went to
Speaker 2: grad school, I live in a major East Coast city.
Speaker 2: I make a decent living. So I don't think of
Speaker 2: myself as the typical middle American, and so I will
Speaker 2: own up to Hey, that's my You know, I love
Speaker 2: the Woody Allen line from Annie Hall elitist New York
Speaker 2: Jewish socialist summer camp. Like that funny, funny line. But
Speaker 2: I know I don't see the world like a middle American.
Speaker 2: But that said, a lot of the folks who seem
Speaker 2: most upset about what's going on, none of this is new.
Speaker 2: If you're in West Virginia and used to work in
Speaker 2: the coal mine, Hey, is it a surprise that coal
Speaker 2: is going away? Am I Am? I to glib when
Speaker 2: I say that, or.
Speaker 1: Yes, I think you are. Because if I think about
Speaker 1: those that are feeling vulnerable, they have clear senses of scarcity.
Speaker 1: They have job scarcity, they have relative health scarcity, they
Speaker 1: have mobility scarcity. I mean the abundance that those who
Speaker 1: have gained over the past fifty years they now see
Speaker 1: as having come at their expense. And this is something
Speaker 1: that we see a lot. When confidence is low. We
Speaker 1: acquire what I call zero some thinking where I now
Speaker 1: attribute my misfortune to your gain. That's interesting that you
Speaker 1: somehow benefited at my expense.
Speaker 2: So we saw something very similar to this in the
Speaker 2: eighties and nineties as a lot of manufacturing jobs when overseas,
Speaker 2: and at the same time, the finance world, the banks,
Speaker 2: the private equity, the venture firms that were essentially financing
Speaker 2: these changes did exceedingly well. And so if you were
Speaker 2: if you worked in a clothing factory or a furniture factory,
Speaker 2: or even a steel or auto plant in the seventies, eighties, nineties,
Speaker 2: a lot of those jobs were shipped to cheaper labor
Speaker 2: overseas and entirely different group of people benefited. Is that
Speaker 2: some of the underlying animis absolutely across political, although it's
Speaker 2: hard to tell because a lot, very often it's almost
Speaker 2: like Russian nesting dolls, that it's not a clear Venn
Speaker 2: diagram of this blue circle and that yellow circle. There's
Speaker 2: a lot of green overlap in the middle.
Speaker 1: Yeah, And I say to my friends in politics that
Speaker 1: the biggest divide is not left right, it's up down.
Speaker 2: And I have said that for decades and felt like
Speaker 2: I was a lonely voice it's not left versus right.
Speaker 2: It's who owns the means of production and what your
Speaker 2: role is. Are you a capitalist owner or are you
Speaker 2: a wage slave? And not to again not to be
Speaker 2: too glib, but that's what's determined the winners and losers
Speaker 2: in our economy.
Speaker 1: Yeah, and the pandemic only heightened that. You know you
Speaker 1: mentioned you know, the case shaped recovery because that phrase
Speaker 1: is a evolution of something that I started writing about
Speaker 1: in March of twenty twenty, which was the work from
Speaker 1: home confidence divide. Talk about an awkward mouthful, but you
Speaker 1: could see even before the month was out. Did those
Speaker 1: who could work in an office and migrate to home.
Speaker 2: Meaning you had a computer at home, you had access
Speaker 2: to high speed internet, and you had a space where
Speaker 2: you could physically work. That's not everybody.
Speaker 1: It's a very small populace. When you look at if.
Speaker 2: You're if you're in a rural area that doesn't have broadbands,
Speaker 2: if you're in an inner city where you might not
Speaker 2: have forget internet, you might not have a computer. Big
Speaker 2: swaths of the population did not have access to work
Speaker 2: from home.
Speaker 1: No, and we have a delivery system today that is
Speaker 1: extraordinarily enabling of that from Amazon to instacart, those at
Speaker 1: the top, the pandemic became an inconvenience. But let's talk
Speaker 1: about those that were serving those at the top.
Speaker 2: Meaning medical people, delivery people, restaurant workers, food supermarket staff, transportation,
Speaker 2: food prep.
Speaker 1: You know, all the factory you know, the chicken factories
Speaker 1: in Delaware, they didn't close. And so it's to me,
Speaker 1: it's not a surprise at all that where we're seeing
Speaker 1: work stoppages and strikes and protesters are highly constituted in
Speaker 1: people who felt intensely vulnerable during the pandemic and saw
Speaker 1: the rest of the world living a life that was
Speaker 1: unattainable to them. And so what concerns me, Barry, is
Speaker 1: not the depth of consumer confidence falling, it's the duration
Speaker 1: of it. You know, you can hold your breath underwater,
Speaker 1: whether it's ten feet or one hundred feet, you know,
Speaker 1: for a short period of time, but eventually you gotta breathe,
Speaker 1: And so all of the focus and sentiment is missing
Speaker 1: the compounding effect of duration. And I talk a lot
Speaker 1: about this notion of stacked vulnerabilities, where it's not one
Speaker 1: thing those at the bottom are struggling with, it's multiple things.
Speaker 1: One on top of the next, on top of the next,
Speaker 1: on top of the next. And so when you look
Speaker 1: at the social movements like Black Lives Matters that occurred
Speaker 1: when confidence was terribly low, you have this triggering event
Speaker 1: on the surface was relatively minor. I mean, we'd seen
Speaker 1: so many instances people being was but how many young
Speaker 1: black men were murdered over by cops over the best.
Speaker 2: The difference is everyone has iPhones now, and so there
Speaker 2: was video of a lot of this, and everybody was
Speaker 2: already feeling stacked vulnerabilities, one on top of the next.
Speaker 2: So let me push back a little bit economically on this,
Speaker 2: and I just want to take the other side of
Speaker 2: the argument to flesh this out. So we have the
Speaker 2: Great Financial Crisis, so eight o nine, and essentially the
Speaker 2: banks were rescued, the average American not so much. Rates
Speaker 2: were taken down to zero, and that helped anything priced
Speaker 2: in dollars or credit. So owners of capital and owners
Speaker 2: of stocks, bonds, in real estate they did great. The
Speaker 2: average American not so much. And you could see that
Speaker 2: in the data. Mediocre recovery from nine to let's call
Speaker 2: it fourteen fifteen week GDP subpart job creation, little wage gains,
Speaker 2: consumer spending was mediocre, and by the way, the bulk
Speaker 2: of the government action was monetary. We're going to drive
Speaker 2: rates low, fiscal stimulus really mild. Then comes the pandemic.
Speaker 2: You have the biggest fiscal stimulus in US history, over
Speaker 2: ten percent of GDP, bigger than on a relative basis
Speaker 2: than the start of World War two, two point two
Speaker 2: trillion under Trump, then another eight hundred billion under Trump,
Speaker 2: then another nine hundred billion under Biden, and then all
Speaker 2: the Biden programs, the semiconductors, the infrastructure, the Inflation Act.
Speaker 2: So suddenly we go from all monetary, no fiscal, to
Speaker 2: all fiscal and some monetary. And as it turns out,
Speaker 2: the fiscal stimulus falls into the hands of the middle
Speaker 2: class and the lower class. Their savings rates go up,
Speaker 2: their spending goes up, inflation goes up. Aren't these two
Speaker 2: very different sets of circumstances, the post financial crisis and
Speaker 2: the post pandemic era. Isn't the middle and lower class
Speaker 2: better off? I think unemployment during the lockdown peaked in
Speaker 2: June of twenty one at one point six trillion dollars,
Speaker 2: a crazy number, Whereas the average American had to fen
Speaker 2: for themselves post financial crisis. Why are people more upset
Speaker 2: now than they were? I mean, what was Occupy Wall Street?
Speaker 1: What was that?
Speaker 2: Six months a year and it was forgotten about?
Speaker 1: Yeah, but again was it occurred at a major low
Speaker 1: in confidence. Again, these spontaneous social movements are wonderful pinpoint
Speaker 1: moments that highlight when consumer confidence is low.
Speaker 2: So I'm focusing on the economics, but what you're really
Speaker 2: saying is, despite the rescue plan, it hasn't really moved
Speaker 2: the needle on the confidence level.
Speaker 1: No, and part of that is to those at the bottom.
Speaker 1: It was a necessary oxygen mask. But think about where
Speaker 1: that money went. It went to rent, It went to car.
Speaker 2: Payments, basic basic survival things, food, medicine, rent, But that
Speaker 2: was it.
Speaker 1: And it went through energy. It went through them. It
Speaker 1: didn't stay with them. It allowed them to catch their breath.
Speaker 2: Allowed them to survive, for everybody was out of a job,
Speaker 2: but those.
Speaker 1: At the bottom were under no illusion that it was temporary.
Speaker 2: Yeah, No, that makes perfect sense. I want to get
Speaker 2: to the book. But before I get to the book,
Speaker 2: I got to ask a political question, which is what
Speaker 2: was the impact of the January sixth attack on the
Speaker 2: capital on the confidence of the nation because everybody kind
Speaker 2: of forgets the first days after that, I think everybody
Speaker 2: was really taken up, and then the story kind of changed.
Speaker 1: I'd look at January sixth a little differently. January sixth
Speaker 1: is what happens when a large group sees a sense
Speaker 1: of powerlessness and uncertainty and feels defeated and needs to act.
Speaker 2: Well, let's address that. Because a large group is defeated
Speaker 2: every four years, and normally they go back to their
Speaker 2: jobs and say we'll get them next time. This group
Speaker 2: did not feel that way, and if you watch the video,
Speaker 2: it's pretty clear they're hell bent on stopping the transition
Speaker 2: transition of power. This was very unusual. So what led
Speaker 2: to that.
Speaker 1: Let's keep the politics out of it. I'm just looking
Speaker 1: at sentiment. To me, no one should have been surprised
Speaker 1: by what happened, really, yeah, and why because there are
Speaker 1: five natural reactions that we have in those moments. Flight
Speaker 1: and flight we're familiar with for sure, the other follow
Speaker 1: and there was a lot of that going on, for sure,
Speaker 1: Freeze and there was a little bit of that, and
Speaker 1: then the last one, if you'll pardon my French is
Speaker 1: the F word where we just say it and so
Speaker 1: We should have been expecting all of that to manifest
Speaker 1: in that moment. The groups had been primed for it.
Speaker 2: Huh.
Speaker 1: I mean you go back and look at the messaging.
Speaker 2: The message boards were on fire. The FBI has subsequently revealed, Yeah, No,
Speaker 2: there was a lot of chatter.
Speaker 1: Stories, feelings, actions exist in equilibrium, Berry, and that was
Speaker 1: absolutely a situation where the stories and feelings naturally manifested
Speaker 1: in that behavior. I look at that moment not any
Speaker 1: different than I look at other spontaneous social events, you know,
Speaker 1: the Arab Spring. You know, this is what happens free
Speaker 1: by something that's relatively insignificant in that and so your point,
Speaker 1: then confidence fell. It depended on which side of the
Speaker 1: political spectrum you were on, because at that moment you
Speaker 1: had confidence among Republicans being impacted by the failed attempt.
Speaker 1: At the same time you had Democrats feeling vulnerable because
Speaker 1: of this underlying sense of threat. And so you saw
Speaker 1: in the data. You know, January twenty twenty one is
Speaker 1: not a pretty sentiment indicator of mood, just given.
Speaker 2: What was happening, quite fascinating. So let's talk a little
Speaker 2: bit about the confidence map. Essentially, your argument is a
Speaker 2: hidden factor driving both human decision making and broad economic
Speaker 2: decision making. Is confidence? That thesis seems like a big lift.
Speaker 2: Explain it.
Speaker 1: Yeah, it is a big lift. But I think first
Speaker 1: of all, we have to come up with an accurate
Speaker 1: definition of confidence, okay, because we end up getting caught
Speaker 1: up in a lot of confidence theater, you know, the
Speaker 1: appearance of you know, entertainers and sports figures, sort of
Speaker 1: the bravado of culture, and we also mix it with
Speaker 1: self esteem and self confidence. That's not what I'm talking about.
Speaker 1: I'm talking about our feeling relationship with the world around
Speaker 1: us and in.
Speaker 2: The meaning how confident we are about our ability to survive, thrive,
Speaker 2: et cetera in the world around us.
Speaker 1: Yeah, to navigate what's ahead. So if we think about that,
Speaker 1: then it becomes what does that really mean? And to
Speaker 1: be successful in that, I need to feel that things
Speaker 1: are predictable, that there is a sense of certainty to
Speaker 1: what will happen next. And that could be because I
Speaker 1: can extrapolate from the past, but I need to have
Speaker 1: a vision of a clear road ahead of me.
Speaker 2: Why is that so important? Because they think about through
Speaker 2: most of human history everything has been uncertain. You know,
Speaker 2: you didn't have local police or a military. You never
Speaker 2: knew when the next tribe over was going to come
Speaker 2: and take your food and your women and chop your
Speaker 2: head off and go on with their lives. Why is
Speaker 2: certainty so important.
Speaker 1: Because we abhor randomness. To not have a sense of
Speaker 1: predictability means that everything is potentially random, which means that
Speaker 1: I have to be on alert and that's.
Speaker 2: Exhausting, stressful, tiring. Just yeah, I could see that.
Speaker 1: Yeah, So you're having to just survey the landscape all
Speaker 1: the time. And you know, COVID is a great example
Speaker 1: where the visibility that people had was negligible, and so
Speaker 1: knowing what's coming next, or at least thinking we do,
Speaker 1: is vital. The second piece of that is a sense
Speaker 1: of control that I have the skills, the resources, the prepper,
Speaker 1: the training, whatever I need to be able to succeed.
Speaker 1: So having a clear road is great if I'm behind
Speaker 1: the wheel, but knowing how to drive is as important. Sure,
Speaker 1: And so the only way we're confident is when those
Speaker 1: two feelings coincide. When I feel that I know it's
Speaker 1: coming and I've got it. Those feelings are what give
Speaker 1: me a sense of confidence.
Speaker 2: So I'm not necessarily disagreeing with you, but I want
Speaker 2: to point out maybe the exceptions. In my world, people
Speaker 2: are confident about things they shouldn't be. They see certitude
Speaker 2: in things that are random. They claim to understand what's
Speaker 2: coming next, when reality is they have with the slightest idea,
Speaker 2: how do you transfer studying societal confidence to a field
Speaker 2: like investing When my definition is investing as a probabilest
Speaker 2: exercise using unreliable information about an inherently unknowable future, meaning
Speaker 2: wherever you look there's no certitude, lack of predictability. How
Speaker 2: do you apply confidence to the world of investing.
Speaker 1: Yeah, so I teach a class in financial economics at
Speaker 1: William and Mary. In the first day of class, what
Speaker 1: is it about finance that makes its difference? It's, you know,
Speaker 1: it's decision making where the outcome is to be determined.
Speaker 1: So whether I'm lending, borrowing, investing, and so anytime I'm
Speaker 1: doing that, I am deluding myself if I do feel confident,
Speaker 1: because all investment decisions are made in an environment where
Speaker 1: I have control but no certainty. In my book, I
Speaker 1: call that the launch pad.
Speaker 2: It's control but no certainty.
Speaker 1: Okay, And so if I'm talking to a group of investors,
Speaker 1: I'm challenging them with their belief that they should be
Speaker 1: confident in the first place. So, what's the story you're
Speaker 1: telling yourself, Barry. If you're buying something, well, now you're
Speaker 1: imagining the future. Now you're creating this vivid picture of
Speaker 1: what the future looks like, and to the extent that
Speaker 1: you're really certain. What's that's saying to me is you're
Speaker 1: risking being delusional, both if you're certain it's going to
Speaker 1: be unicorns and rainbows or if it's going to be
Speaker 1: the depths of hell. So when you're making an investment decision,
Speaker 1: it's okay to plan for the future that you imagine,
Speaker 1: but you need to be prepared for the future that
Speaker 1: you can't imagine, but to appreciate that you're making a
Speaker 1: decision in an environment that is not confidence.
Speaker 2: So I don't disagree with any of the things you're saying.
Speaker 2: How can we use the general lack of certainty? How
Speaker 2: can we evaluate what at least what people say about
Speaker 2: their confidence level, their certitude to help us make investment decisions.
Speaker 1: Yeah, the more certain the crowd, the less likely the outcome.
Speaker 1: If I look at extremes in sentiment, there is not
Speaker 1: only a certainty of what's coming, the expectation is prolonged.
Speaker 1: It's powerful, it's unstoppable. You know, the word unstoppable is
Speaker 1: one that always catches my breath. You know when when
Speaker 1: Time magazine put unstopped, you know, can Hillary Clinton be stopped?
Speaker 1: It was like, no, She's done. So I appreciate that
Speaker 1: these these narratives, there's force to them. There's a real
Speaker 1: strong energy to the narratives that is mirrored in decision
Speaker 1: making and action. That reflects this unbridled disregard for any
Speaker 1: kind of risk management because I know what's coming. That
Speaker 1: the headlines around SPACs in early twenty twenty one were
Speaker 1: extraordinary in terms of this cornucopia of clear certainty of
Speaker 1: what was ahead.
Speaker 2: That's pretty fair. In fact, the there's rarely consensus in
Speaker 2: the marketplace, but when there is, I always like to
Speaker 2: point out it's right before a major reversal. So early
Speaker 2: two thousand, hey, it was pretty clear that trees grow
Speaker 2: to the sky, go to March oh nine, it's clear
Speaker 2: the market's going to zero, right, who's ever going to
Speaker 2: be on the other side of your trade? The consensus
Speaker 2: when everybody agrees is okay, who's left to sell at
Speaker 2: that point, right.
Speaker 1: And there's another angle to it, which is you're an
Speaker 1: idiot if you don't agree.
Speaker 2: That comes a little earlier though, but there's like, think
Speaker 2: about the fomo trade in crypto that have fun being
Speaker 2: poor whoor yeah, right, that was forty fifty not quite
Speaker 2: sixty thousand, but it was close. It was on the
Speaker 2: way up.
Speaker 1: And so you see these same behavioral trades, same narratives,
Speaker 1: over and over and over, and in my book, what
Speaker 1: makes them so wonderful is I can put a pin
Speaker 1: in it. I can identify, oh, we're around here, just
Speaker 1: based on the stories the actions.
Speaker 2: So let's talk about something you mentioned, the COVID pandemic.
Speaker 2: In the book. You have like a six year chart
Speaker 2: of the corporate mentions of the word unprecedented, and essentially
Speaker 2: it's the bottom of the chart. It's just scooping along
Speaker 2: the bottom for years, and then by the time you
Speaker 2: get to June July of twenty twenty, it spikes and
Speaker 2: stays up for the better part of the next year
Speaker 2: or so. And ironically, as COVID nineteen might have been
Speaker 2: unprecedented in the modern era, a century earlier we had
Speaker 2: a national influenza pandemic a respiratory illness COVID wasn't as
Speaker 2: unprecedented as people thought.
Speaker 1: No, and there's nothing unprecedented about the nature of our response,
Speaker 1: the nature of our stories, the nature of our feelings.
Speaker 1: It was history rhyming in so many ways. Beauty of
Speaker 1: the word unprecedented is it became shorthand for almost whatever
Speaker 1: we wanted it to mean. For executives, it became this
Speaker 1: universal get out of jail free cart because.
Speaker 2: Our earnings and revenues stink because of this unprecedented.
Speaker 1: How could I have been expected to be prepared for this?
Speaker 1: And we see this over and over and over, and
Speaker 1: a few pages later I put up the chart that
Speaker 1: shows the same terminology was used during two thousand and
Speaker 1: eight during the financial crisis. Suddenly you know, once again,
Speaker 1: we have this unprecedented catastrophe, and we accept that because
Speaker 1: it mirrors the way we feel. At the same time.
Speaker 2: Ray Dalio has this wonderful definition of unprecedented. He says,
Speaker 2: unprecedented means you're too young to have remembered. It hasn't
Speaker 2: happened in your lifetime, but if you look at history,
Speaker 2: it certainly has happened before. Nothing is under the.
Speaker 1: Sign No, the means at which we express our level
Speaker 1: of vulnerability or euphoria may change, but the actions and
Speaker 1: the underlying nature of the behaviors, the preferences are all
Speaker 1: the same.
Speaker 2: Quite amazing. So let's talk a little bit about launch pad.
Speaker 2: You mentioned the launch pad environment. Explain what that means.
Speaker 1: Yeah, So there are four environments that I highlight in
Speaker 1: my book that relate to our mix of certainty and control.
Speaker 1: The comfort zone where we have both of them, the
Speaker 1: stress center where we have neither of them.
Speaker 2: And when you say certainty in control ones, the X
Speaker 2: axis ones of ys that you have four quadrants of
Speaker 2: either high certainty and high control, low certainty and low control,
Speaker 2: and then one or the other.
Speaker 1: And so most people when they think about confidence, think
Speaker 1: about those two.
Speaker 2: Boxes high certainty, high control.
Speaker 1: And low certainty low control. It's like a buy one,
Speaker 1: get one free. But the reality is that our lives
Speaker 1: give us moments where we have one but not the other.
Speaker 1: If you've taught your kids to drive, that's an environment
Speaker 1: where you have certainty but no control, and then suddenly
Speaker 1: it can go from feeling really good in the passenger
Speaker 1: seat to feeling terrifying. It's the same thing on an airplane,
Speaker 1: I call it the passenger's seat. For that reason, the
Speaker 1: launch pad is an environment where we have control but
Speaker 1: no certainty. You could think about this as a rock
Speaker 1: climber rising up a cliff side, and so that the
Speaker 1: issue is do I plummet to my death back into
Speaker 1: the stress center, or do I safely navigate it into
Speaker 1: the comfort zone. It's the classic hero's journey is comfort zone,
Speaker 1: stress centers, launchpad back into the comfort zone. The launch
Speaker 1: pad is important because a lot of our decision making
Speaker 1: is there anytime we set off on a journey, anytime
Speaker 1: we're investing, we're making choices without knowing what's ahead, and
Speaker 1: organizations go back and forth between liking those environments and not.
Speaker 1: Entrepreneurs love that environment, you know, give them a steering
Speaker 1: wheel and they'll put the car in forward, reverse, you know,
Speaker 1: whatever it takes. They love that area.
Speaker 2: So let's take this to the ten thousand foot view.
Speaker 2: Can we look at historic economic cycles and see how
Speaker 2: confidence waxes and wanes, and can we use that to
Speaker 2: extrapolate forward from where we are currently.
Speaker 1: Yeah, So I think of us as going on this
Speaker 1: trolley car ride from the peak of the upright corner
Speaker 1: of the comfort zone to the bottom of the lower
Speaker 1: left side of the of the stress center, and that
Speaker 1: we just go back and forth. In terms of economists
Speaker 1: think of that as cycles. I think of it in
Speaker 1: this sort.
Speaker 2: Of well moving it's a sign wave.
Speaker 1: And if it's the quatran, you're back and forth, just
Speaker 1: back and forth, and you can see it. And one
Speaker 1: of the easiest ways to see it Berrier is in
Speaker 1: our preferences, because.
Speaker 2: What sort of preferences give us.
Speaker 1: Example, so what we want when confidence is low is
Speaker 1: all about me here now. So if there's a problem,
Speaker 1: if I'm feeling vulnerable, there's a bear outside my tent,
Speaker 1: the only thing that now matters is me in this moment,
Speaker 1: right here, and that has a big bearing on the
Speaker 1: choices that I make.
Speaker 2: I'm not so personal, local and present.
Speaker 1: And present right now. So my decision making is impulsive,
Speaker 1: maybe tactical, but it's sure not strategic. It's reactive. It
Speaker 1: is focused on what's good for me, and if it's
Speaker 1: bad for you, too bad. If it's bad for tomorrow,
Speaker 1: too bad.
Speaker 2: I'm right now, I'm dealing with a bet.
Speaker 1: I'm dealing with what I got.
Speaker 2: But whether it's a real bear or a market bear,
Speaker 2: it doesn't matter.
Speaker 1: It doesn't matter, right. So, and there's another element to it,
Speaker 1: which is I need things to be concrete. That that
Speaker 1: psychologists use the term hypotheticality. I hate that word. But
Speaker 1: everything I want when confidence is low has to be
Speaker 1: really concrete. It's why we it's why we hoard physical cash.
Speaker 1: We get the water from Costco. We know, we.
Speaker 2: Want talking maslow hierarchy of needs like food, shelter, you know, uh, heat, energy,
Speaker 2: just real basics stuff.
Speaker 1: And it's here that the cash in the bank isn't
Speaker 1: close enough. So to your point, you know, why are
Speaker 1: you going to the atm on that day Lehman collapse
Speaker 1: because the bank that was around the corner is too
Speaker 1: far away from you. I want the cash in the mattress.
Speaker 1: In fact, during that Greek.
Speaker 2: And who knows if the bank is even gonna work.
Speaker 1: On Yeah, I mean in the Greek crisis, they were
Speaker 1: selling mattresses with pre installed safety.
Speaker 2: Come on, no really, but but.
Speaker 1: But so let's think about our preferences today. We have
Speaker 1: a whole industry geared towards me here now, preferences, Netflix,
Speaker 1: cuic all of the I phone, iPod you know, everything
Speaker 1: is geared to deliver what I want when I want now.
Speaker 2: I can't wait for instant gratification. I need it sooner,
Speaker 2: right and so Amazon New York City same hour delivery.
Speaker 1: Twitter is another, I mean, talk about me here now,
Speaker 1: manifestations of decision making.
Speaker 2: It's called X now excuse me, but it's the same thing.
Speaker 2: It's that instant dopamine hit. I want it right now,
Speaker 2: I want.
Speaker 1: It right now.
Speaker 2: Huh.
Speaker 1: And so we're You know, if I look at our culture,
Speaker 1: it's incredibly me here now environment. And if I look
Speaker 1: at its impact take pre and post pandemic. We go
Speaker 1: from just in time supply chain delivery to just in
Speaker 1: case to nearshoring. So suddenly I want my warehouses, my manufacturing.
Speaker 1: You know, you look at Europe. You know, during the
Speaker 1: energy crisis last summer, suddenly national energy po es, national
Speaker 1: manufacturing policies, national security policies, that the the our willingness
Speaker 1: to rely on complex global systems evaporates. In a crisis.
Speaker 1: We want to be sure that what we need is
Speaker 1: available within arm's length.
Speaker 2: How much of this is just generals fighting the last war? Listen,
Speaker 2: just in time inventory clearly proved itself to be problematic,
Speaker 2: and near shoring or even building plants here in the
Speaker 2: US is a solution to that. But it always feels
Speaker 2: like anybody who looked at this issue knew this was
Speaker 2: a problem. Nobody believed it until after a crisis.
Speaker 1: Right, And that's that's always the nature of it. So
Speaker 1: so we build bigger, wider, further distributing, you know that
Speaker 1: the change we create this complexity. We saw this in
Speaker 1: the in the mortgage world, where you know, we wertgage going.
Speaker 2: From here to there, video square and on and on.
Speaker 1: And at the same time it's it's like a Jenga tower.
Speaker 1: Whereas we're building it taller and taller, we're also taking
Speaker 1: pieces out because we think we can create even greater
Speaker 1: and greater efficiency. And I joke a lot that our
Speaker 1: level of scrutiny and our confidence levels are inversely related.
Speaker 1: The more confident I am, the less I have to focus,
Speaker 1: so the less I do focus.
Speaker 2: So let's address me here. Now, what's the opposite of
Speaker 2: that is that we there later.
Speaker 1: What I say, us everywhere forever.
Speaker 2: Us everywhere forever. So when does confidence signal us everywhere?
Speaker 2: For was that a late two thousands then? Because confidence
Speaker 2: was so so in the late two twenty twenties also.
Speaker 1: So a lot of futuristic investing, and I would say
Speaker 1: early twenty twenty one we saw a one wonderful bubble
Speaker 1: of it in terms of EVS and space and SPAX.
Speaker 2: And what about today with AI and large language models?
Speaker 2: Is that a very long distance confidence sort of thing.
Speaker 2: It is.
Speaker 1: But what's so interesting to me, Berry is our picks
Speaker 1: of the companies that we're interested in. So in twenty
Speaker 1: twenty one, are intrigued with futuristic technology led us to
Speaker 1: buy startups, you know, companies that didn't even exist at
Speaker 1: that point. Today we're buying shares of Amazon and Google and.
Speaker 2: Apple, that the thorough magnificent seven.
Speaker 1: And to me, that's a real telling indicator that we're
Speaker 1: not as confident today as we were, because.
Speaker 2: It's very interesting. In other words, the focusing on the biggest, best,
Speaker 2: most well established companies is a sign of a lack
Speaker 2: of self confidence, whereas the remaining four hundred and ninety
Speaker 2: three companies in the S and P five hundred we're ignoring.
Speaker 2: And that's a sign of that, that lack of future expectation.
Speaker 1: Yes, I mean, you look at the gap between you know,
Speaker 1: the small cap index and the.
Speaker 2: Megans large as it's ever ever been, and that.
Speaker 1: That is us our natural preference for, you know, certainty
Speaker 1: in cash flow and earnings, and you know, we know
Speaker 1: those brands and those products, and so that's fascinating.
Speaker 2: So I had recalled during the pandemic lockdown the first
Speaker 2: few months, I went back and looked at some history,
Speaker 2: because when you see the pandemic and the thirty four
Speaker 2: percent market drop, you know, you go back and look
Speaker 2: at history for non market related, non economic issues, terrorist
Speaker 2: attacks and wars and presidential assassinations and you know, tsunamis
Speaker 2: and just something that comes from outside the financial system.
Speaker 2: You know, I jokingly said, the asteroid that destroyed the
Speaker 2: dinosaurs had the same impact. Historically, you could look at
Speaker 2: about a four dozen of these. What happens is markets
Speaker 2: wobble and then they continue doing what they were doing before.
Speaker 2: So when nine to eleven happened, markets were falling beforehand,
Speaker 2: they wobble and then they continued to fall. When the
Speaker 2: pandemic happened, markets were rising, they wobbled, and then they
Speaker 2: really recovered very rapidly. So I wrote a column for
Speaker 2: Bloomberg that unfortunately has published April first, April Fool's Day,
Speaker 2: of twenty twenty. Don't assume the pandemic has ended the
Speaker 2: bull market. I have never gotten more hate mail for
Speaker 2: anything I've written since before or since. And the irony
Speaker 2: is I wasn't saying go buy him. I was just saying,
Speaker 2: don't assume it's over, because here's what history came before.
Speaker 2: And by the way, that turned out to be correct.
Speaker 2: And we got a lot of pushback from clients. I
Speaker 2: understand my dry cleaner's closing, the local movie theater shut,
Speaker 2: the local retailer shut. Yeah, but those guys aren't in
Speaker 2: the s and P five hundred. Look at what's in
Speaker 2: the s and P five hundred. Microsoft, Apple, Hey you
Speaker 2: could work from home. Netflix and docu Sign and Peloton
Speaker 2: and all of those companies did really well. And the
Speaker 2: ones that survived were the ones that continued to operate
Speaker 2: after the pandemic. So Teledoc and Peloton and docu Sign
Speaker 2: and to some degree Netflix, they all got shellacked after
Speaker 2: we reopened. But the big tech companies have held up well.
Speaker 2: How much of this is just their addressing the market
Speaker 2: versus concern about uncertainty. So we're going to stick with
Speaker 2: the tried and true.
Speaker 1: I think that we saw a major peak in early
Speaker 1: twenty twenty one in terms of enthusiasm. All the speculative bubble, right,
Speaker 1: we're seeing a less robust peak.
Speaker 2: People are running, people are running out of savings. All
Speaker 2: the pandemic large ass is now fading that biggest through
Speaker 2: the python.
Speaker 1: We've also connected mood between stocks and bonds. One of
Speaker 1: the things that was so interesting to me about early
Speaker 1: twenty twenty one is we had a reasonably coincident peak
Speaker 1: in bond prices and stock enthusiasm at the same time you.
Speaker 2: Had a forty year bullmarket and bonds that came to
Speaker 2: an end. You know, you had that ice. Blame fiscal
Speaker 2: but there are a lot of other theories for why
Speaker 2: inflation spiked and started that tightening round by the Fed.
Speaker 2: But there's no doubt a bond market ended around the
Speaker 2: same bull market ended around the same time the post
Speaker 2: pandemic bull market slowed.
Speaker 1: And so we have this declining confidence in stocks and
Speaker 1: bonds at the same time.
Speaker 2: And which is the last time we had that was
Speaker 2: forty years ago.
Speaker 1: Yeah, And people look at their diversified pie charts and
Speaker 1: see all these different asset classes. I look at those
Speaker 1: pie charts differently to say how's the sentiment aligning with
Speaker 1: all of these because we have a lot of cooling
Speaker 1: sentiment in many, many pieces of the pie at the
Speaker 1: same time.
Speaker 2: Huh really, that's quite fascinating. So the world isn't black
Speaker 2: and white. There's a lot of subtlety and nuance, a
Speaker 2: spectrum of choices, but we all tend to reduce everything
Speaker 2: to yes, no, up, down, black or white choices. How
Speaker 2: can you look at confidence? How can you look at
Speaker 2: sentiment to help you make decisions when there's so many
Speaker 2: shades of gray?
Speaker 1: Yeah, So if I'm an investor, I think it's useful
Speaker 1: to look at the crowd sentiment rather than your own.
Speaker 1: We're not always good judges of our own behavior, and
Speaker 1: we can be more honest judges of others sometimes, you know,
Speaker 1: painfully honest. But market crowds tend to be almost like
Speaker 1: a middle school environment where it's it's very social. I
Speaker 1: joke that, you know, financial markets are social networks with
Speaker 1: money instead of likes. We put money in and take
Speaker 1: it out.
Speaker 2: It's a popularity. It's a peculiarity, but no thumbs up.
Speaker 2: It's just cash.
Speaker 1: It's just cash, and and that becomes a useful way
Speaker 1: to look at where's the crowd putting money, where's the
Speaker 1: crowd excited? Where's the crowd you know, Oh, you wore
Speaker 1: that you you're a you know, you can't sit with us,
Speaker 1: And so that that sort of middle school arrangement in
Speaker 1: the markets becomes a pretty honest sense of where the
Speaker 1: crowd broadly is. Are their managers who are on the
Speaker 1: other side of those trades. Absolutely, when I think about
Speaker 1: the market's mood, the market is a pretty quick, deciding,
Speaker 1: homogeneous blob that is of average middle school intelligence. It
Speaker 1: cannot do system too thinking to borrow from connoment. It's
Speaker 1: only capable of system when thinking, So you shouldn't try
Speaker 1: to you know, don't try to be too smart, just
Speaker 1: try to think. You know, how is the high school
Speaker 1: student thinking about this?
Speaker 2: So you're reminding me of the famous Benjamin Graham quote.
Speaker 2: In the short run, the market is a voting machine,
Speaker 2: but in the long run it's a weighing machine. So
Speaker 2: you get sentiment in the beginning, but later on things
Speaker 2: should return to what their actual values are.
Speaker 1: Yeah, I mean, we're going to overshoot, and particularly when
Speaker 1: confidence is low, we're likely to be much more impulsive,
Speaker 1: more emotional than we might otherwise be. I think that
Speaker 1: was one of the lessons that people missed with meme stocks.
Speaker 2: It wasn't about the stocks, it was about the mood
Speaker 2: at the moment, the.
Speaker 1: Mood and the willingness of people to jump into the crowd.
Speaker 1: You know, nothing attracts a crowd like a crowd in
Speaker 1: the markets, and so we should not be surprised if
Speaker 1: what goes up like that also comes down like that.
Speaker 2: Huh really really quite interesting. So let's talk a little
Speaker 2: bit about some recent market moods. We were talking about
Speaker 2: meme stocks. You know, the old timers like myself looked
Speaker 2: at the various meme stocks and kind of snickered to
Speaker 2: ourselves and said, I've seen this movie before, I know
Speaker 2: how it's going to end. And yet still those meme
Speaker 2: stocks did their thing. They exploded higher before ultimately they
Speaker 2: crashed and burned. Where's amc now? Down ninety eight percent?
Speaker 2: A lot of the big meme stocks games stop also
Speaker 2: way off its eyes when you see this starting during
Speaker 2: the lockdown? What are your thoughts about these memestocks? What
Speaker 2: does that triggering you?
Speaker 1: Two things? It's sort of an interesting combination of both
Speaker 1: extremes and mood because you have the nihilism that naturally
Speaker 1: comes with low confidence, and so you have folks who
Speaker 1: have cash to actually execute that nihilism and buy lottery tickets.
Speaker 1: Is kind of what was going on. But you also
Speaker 1: have the novice and naive, and they're a crowd I
Speaker 1: like to follow because they're always the last to the
Speaker 1: party and they're a great tell. In fact, more recently
Speaker 1: we had a little flurry of memestock behavior in the
Speaker 1: summer of twenty twenty three. It's a great indicator that
Speaker 1: we're reaching a climax in mood when it's amateur hour.
Speaker 2: Meaning to the upside or to the downside both, Oh
Speaker 2: really yeah.
Speaker 1: Because sadly the novice and naive are the last to buy,
Speaker 1: they're also the last to sell, the last to capitulate.
Speaker 2: Someone's got to be on the wrong side of the train.
Speaker 1: And so they buy at the extreme and they sell
Speaker 1: at the low and are just brutally punished as a result.
Speaker 1: But it's useful because bubbles unwind on a lipho basis
Speaker 1: last and first, last in, first out. So no surprise
Speaker 1: that the meme stocks and companies like Peloton have just
Speaker 1: been pummeled the shots at the top and then they
Speaker 1: leave via a high story window.
Speaker 2: You know, if you've lived through this before. And I
Speaker 2: remember watching Tealdoc and Docu Sign and Peloton all the
Speaker 2: work from Homestocks, and I remember specifically saying, I know
Speaker 2: these are going to be moonshots, and I know they're
Speaker 2: going to be disasters. I'm not sure I'm confident enough
Speaker 2: that I'm going to get the timing right. And I
Speaker 2: got to think a lot of other people looked at
Speaker 2: it similarly. Someone made a ton of money on the
Speaker 2: way up, and someone made a ton of money on
Speaker 2: the way.
Speaker 1: Down, and it may be the same people. Uh huh,
Speaker 1: I mean, sadly, I think those that wrote it up
Speaker 1: also wrote it.
Speaker 2: Down crushed on the way down.
Speaker 1: And we've seen the same thing in crypto, that sense
Speaker 1: that it's going to come back, It's definitely going to
Speaker 1: come back, and.
Speaker 2: That muscle memory fades after about a year of beating yep,
Speaker 2: and finally you just stop buying the dips. That just
Speaker 2: goes away. So let's now roll this into the twenty
Speaker 2: twenty three fourth quarter. Environment politics generally has become darker
Speaker 2: and negative, But I don't ever recall a period in
Speaker 2: American history where the leading candidates for the two major
Speaker 2: parties are both widely disliked not only by the population
Speaker 2: at large, but their own parties aren't big as fans.
Speaker 2: The Democrats say Biden's too old. The Republicans say Trump,
Speaker 2: who's only what two and a half years younger than Biden,
Speaker 2: isn't fit. You have both parties wishing for alternatives. When
Speaker 2: was the last time that happened?
Speaker 1: So you can go back to the early nineteen eighties.
Speaker 1: I think it was John Anderson.
Speaker 2: I recall helped Clinton get elected.
Speaker 1: It would not surprise me if both Biden and Trump
Speaker 1: are not on the ballot a year from now.
Speaker 2: Really yeah, because you go to the bedding sites, they
Speaker 2: seem to think it's a head to head.
Speaker 1: Absolutely, But watch how we use the term old. You know,
Speaker 1: the old can mean wives experience or resilient. It can
Speaker 1: also mean decrepit, it can meet out of touch. And
Speaker 1: if you think about Joe Biden's career, he came into
Speaker 1: office as the young buck against an aging group of
Speaker 1: politicians on a national level.
Speaker 2: On a national level, we have once.
Speaker 1: Again and we are back to that, both parties, House, Senate,
Speaker 1: even the Supreme Court. We have a lot of people
Speaker 1: who are, let's just politely say, AARP members. Yeah, and
Speaker 1: I don't I don't think we have seen yet the
Speaker 1: kind of grassroots political leader who rises from within, and
Speaker 1: and I think that that is a real possibility. What's
Speaker 1: what's interesting with both parties is that we have these
Speaker 1: figures who are seeking to control from above.
Speaker 2: Right.
Speaker 1: History suggests that in times of turmoil we choose from within,
Speaker 1: that leaders that come sort of unexpectedly from below and
Speaker 1: not the ones that we expect. I mean, I look
Speaker 1: at somebody like Zelensky, who no one believed would be
Speaker 1: a credible leader, and yet from my perspective, had all
Speaker 1: the traits of a great crisis leader. You know, can
Speaker 1: read the room, is you know.
Speaker 2: Just on his feet, relatively intelligent.
Speaker 1: And and I don't know if it's the case for him,
Speaker 1: but you know a lot of comedians suffer from depression,
Speaker 1: and you know, if you're in a crisis, you know,
Speaker 1: uncertainty and powerlessness is called Tuesday. My friend Asergami has
Speaker 1: written a wonderful book on leader crises in the relationship
Speaker 1: to to mental illness. But it would not surprise me
Speaker 1: berry to see young local politicians, governors, mayors who upend
Speaker 1: the rhetoric and surprise on both sides of the party.
Speaker 2: Huh, that's interesting. We've touched very briefly on social media.
Speaker 2: Let's talk about media generally and social media on a
Speaker 2: related basis. There's been so much misinformation, there's been so
Speaker 2: much problems being able to have trustworthy sources. How can
Speaker 2: we look at centiment and confidence as a way to
Speaker 2: deal with these issues.
Speaker 1: Yeah, So when confidence is high, we go to the center.
Speaker 1: We watch three networks, you know, ABC, CBS, NBC.
Speaker 2: Still is that still no?
Speaker 1: But my point is that in the nineteen sixties, as
Speaker 1: confidence was peaking, we're all watching the same news stories
Speaker 1: from the same.
Speaker 2: We've been totally bulkanized since then, and there's a thousand channels.
Speaker 1: Yeah, and the Balkanization that takes place today can be instantaneous.
Speaker 1: So as your mood changes, very if I create a
Speaker 1: more resonant deliverer and you could watch this on the
Speaker 1: right with Fox the News Mix than on. As republic
Speaker 1: and confidence change, you will find the provider of news
Speaker 1: that is most me here now you and the Internet
Speaker 1: and social media enables that, like there's no tomorrow, and
Speaker 1: and we forget that familiarity and truthiness are much more
Speaker 1: appealing to us than the truth.
Speaker 2: We're all confirmation bias and less fact checking than we
Speaker 2: want to admit.
Speaker 1: To, particularly when confidence is low.
Speaker 2: But let let's stick with oh really, particularly.
Speaker 1: When because if I've if I've got all these other
Speaker 1: things to focus on, I don't have the cognitive bandwidth
Speaker 1: that's fair to do the fact checking.
Speaker 2: So let's apply the same left right analysis that we
Speaker 2: were talking about with economics before, and it's more up
Speaker 2: down than left right. When I look at both social
Speaker 2: media and and mainstream media, I often find people who
Speaker 2: are arguing left right or missing the point. It's usually
Speaker 2: more what's more sensationalistic, what's more clickbaity, what's more hair
Speaker 2: on fire, and what's more structurally here's the horse race,
Speaker 2: So let's not talk about policy. Who's ahead right now?
Speaker 2: It's always what's the easiest way to generate eyeballs than
Speaker 2: it is to provide more heat than light, so to speak.
Speaker 1: Yeah, So to our media focus is intensely about resonance, relevance,
Speaker 1: and that creates several problems. One is the media has
Speaker 1: to follow its audience as opposed to lead its audience.
Speaker 1: The media also has to create even greater excitement. So
Speaker 1: I joke often that we've gone from the circus Barker's
Speaker 1: promoting a two headed lady. You know, the lady now
Speaker 1: has to have about fifteen heads to capture attention, and
Speaker 1: that becomes unsustainable. One of the things if you think
Speaker 1: about our culture of followership, the goal is dependence. And
Speaker 1: so whether I'm a politician, a member of the media,
Speaker 1: a pundit at large, the goal is permanent dependence. You
Speaker 1: have to keep coming back to me. And what I'm
Speaker 1: looking for, Barry, are leaders who are talking about empowerment
Speaker 1: that send a message. And again this could be. This
Speaker 1: is where I think up down may matter. Is if
Speaker 1: I send a message of empowerment to those at the bottom,
Speaker 1: you could easily draw together a court from both the
Speaker 1: left and the right that generates this grassroots movement.
Speaker 2: Pardon me for personalizing this, but you seem fairly optimistic
Speaker 2: that in this time of uncertainty and partisanship and negative
Speaker 2: sentiment and just general disarray, you seem fairly optimistic that
Speaker 2: we're going to come out of this.
Speaker 1: Okay, I guess I would say I am optimistic that
Speaker 1: we will tire of the uncertainty. We will tire of
Speaker 1: the powerlessness, and groups will seek to regain or gain
Speaker 1: in depending on the situation, certainty and control in their lives.
Speaker 1: How that struggle plays out, I don't know, but there
Speaker 1: is no question in my mind that the uncertainty will end.
Speaker 1: It may be chaotic, you know, it could be civil
Speaker 1: war as groups fight for what is what does certainty
Speaker 1: mean for you versus what it means for me? But
Speaker 1: we don't endure this, well, the.
Speaker 2: One hundred years War doesn't. The reason we haven't had
Speaker 2: one sense is who wants to be at war for
Speaker 2: one hundred years? Yeah? Huh? Really quite interesting. And let's
Speaker 2: jump to our favorite question, starting with what are you
Speaker 2: streaming these days? Tell us what you're either watching or
Speaker 2: listening to.
Speaker 1: So we're streaming murders in the building. My wife assesses
Speaker 1: and trains autistic adults, and so we've been watching Love
Speaker 1: on the Spectrum, which is a really heart warmings you know,
Speaker 1: I watch what my wife's organization does to transform autistic
Speaker 1: adults lives and even more their parents' lives, and so
Speaker 1: it's really heartwarming to see that there's there are so
Speaker 1: many opportunities that we ignore otherwise.
Speaker 2: Huh, really really interesting. Tell us about some of your
Speaker 2: early mentors who helped to shape your career.
Speaker 1: I think of some of the mentors I had at
Speaker 1: JP Morgan, particularly a guy named Dave Wakefield. You know,
Speaker 1: going into an organization like JP Morgan when I did,
Speaker 1: it was an organization that was about to undergo mammoth transformation,
Speaker 1: and what I sow value was the wisdom of what
Speaker 1: we might refer to now as old heads. You know,
Speaker 1: the world of finance is typically filled with young, aggressive
Speaker 1: You had these folks who would like yes, and you know,
Speaker 1: to your point, they'd seen it before. There was nothing
Speaker 1: new under the sun. And I really feel like a
Speaker 1: lot of organizations miss that sense of judgment, and so
Speaker 1: I feel really blessed to have had that.
Speaker 2: Huh, very interesting. Let's let's talk about books. What are
Speaker 2: some of your favorites. What are you reading now?
Speaker 1: Yeah, so interestingly very one. Reading is very difficult for me,
Speaker 1: But I spend so much of my day reading because
Speaker 1: I'm trying to capture what's going on in politics and
Speaker 1: economics and finance all at the same time that by
Speaker 1: the end of the day I want to go pull
Speaker 1: weeds in vegetable garden. I want to you know, reading
Speaker 1: is I'm embarrassed to say it, but it just it
Speaker 1: takes me a couple of days on vacation before I can.
Speaker 2: Crack a b That's my favorite place to read is
Speaker 2: on vacation, read a book on vacation, or when I'm
Speaker 2: prepping for a podcast. So let's go to our final
Speaker 2: two questions. What advice would you give to a recent
Speaker 2: college grad who is interested in a career in either
Speaker 2: finance or studying sentiment, So in.
Speaker 1: The in the world of finance, I would say, don't
Speaker 1: feel beholden to New York. I think there's a lot
Speaker 1: of folks who come out of college with that. You know,
Speaker 1: if I don't make it in New York, you know.
Speaker 1: And what I love so much about finance today is
Speaker 1: that there are opportunities in so many different angles of
Speaker 1: it in so many different places.
Speaker 2: Boston, Charlotte, Chicago, San Francisco, the number of Atlanta, the
Speaker 2: number of financial hubs have expanded dramatically, and there is
Speaker 2: pretty active. You know, venture capital used to be just
Speaker 2: San Francisco. There are a number of venture hubs all
Speaker 2: over the country.
Speaker 1: And to your question about sentiment, I think a lot
Speaker 1: of economists and finance professionals focus a lot of energy
Speaker 1: on what we do poorly, what we do wrong, and
Speaker 1: I think we need more attention on what do we
Speaker 1: just do? You know, if our objective is to change
Speaker 1: people's behavior, we need to understand what do we do
Speaker 1: that's unscripted. And I feel like the reason I wrote
Speaker 1: this book is to say this is what we just do.
Speaker 1: And if I understand that better, then I can start
Speaker 1: to make better decisions.
Speaker 2: And our final question, what do you know about the
Speaker 2: world of finance, investing sentiment confidence today? You wish you
Speaker 2: knew thirty or so years ago when you were first
Speaker 2: getting started.
Speaker 1: That what I think doesn't matter. To be successful, I
Speaker 1: need to understand how others think and feel because at
Speaker 1: the end of the day, my price is a function
Speaker 1: of their behavior.
Speaker 2: In other words, the crowd determines market price, the crowd
Speaker 2: determined sentiment. It's all about the wei, not the me.
Speaker 2: Absolutely huh, really fascinating, Peter, Thank you for being so
Speaker 2: generous with your time. We have been speaking with Peter Atwater,
Speaker 2: author of the Confidence Map, charting a path from Chaos
Speaker 2: to Clarity. If you enjoy this conversation, well, be sure
Speaker 2: and check out any of the previous five hundred such
Speaker 2: discussions we've had over the past nine years. You can
Speaker 2: find those at Apple Podcasts, Spotify, YouTube, wherever you get
Speaker 2: your favorite podcasts. Sign up for my daily reading list
Speaker 2: at rid Halts dot com. Follow me on Twitter at
Speaker 2: Rid Halts or on X at Barry Underscore Rid Halts.
Speaker 2: Follow all of the Bloomberg Family of podcasts at podcast
Speaker 2: I would be remiss if I did not thank our
Speaker 2: crack team that helps put these conversations together each week.
Speaker 2: Sarah Livesey is my my audio engineer. Anna Luke is
Speaker 2: my producer. A Teak of Albron is our project manager.
Speaker 2: Sean Russo is my researcher. I'm Barry Uholtz. You've been
Speaker 2: listening to Masters in Business on Bloomberg Radio.