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Speaker 1: This is Bloomberg Business Week with Carol Messer and Tim

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Speaker 1: Stenebeck on Bloomberg Radio.

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Speaker 2: Tim, no doubt about it. We're living in interesting economic

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Speaker 2: and market times. We're coming off a pandemic unprecedented, and

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Speaker 2: we're going to talk about that word, unprecedented. Stimulus and

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Speaker 2: easing to ensure the function of the financial system and

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Speaker 2: really to help protect the livelihoods of many.

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Speaker 3: The end result an.

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Speaker 2: Economy that stopped short then was revved up again big time.

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Speaker 2: But we got persistent inflation which has come down. But nonetheless,

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Speaker 2: it was an interesting time. It was the backdrop certainly

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Speaker 2: for the FED the last couple of years. But it's

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Speaker 2: a recovery too that wasn't felt by all, and that

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Speaker 2: was something that was coined the case shaped recovery by

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Speaker 2: our next guest.

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Speaker 4: And so with all of that going on and more,

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Speaker 4: we are so delighted to have with us in our

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Speaker 4: Bloomberg Interactive Broker's studio. Peter Atwater. He's adjunct Professor of

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Speaker 4: economics at William and Mary. He's a former banker and

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Speaker 4: someone who spent many years in financial services and in

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Speaker 4: the securitization of assets. He's been a financial consultant, and

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Speaker 4: he's also got a way forward for all of us

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Speaker 4: thanks to his brand new book. Out brand new book.

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Speaker 4: It came out this week. It's called The Confidence Map,

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Speaker 4: Charting a Path from Chaos to Clarity. It's a book

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Speaker 4: that our very own Mike Reagan says is a great beach.

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Speaker 3: Read, which is a big endorsement.

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Speaker 4: Welcome, Peter. It's good to have you in the studio,

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Speaker 4: and congratulations on the book.

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Speaker 1: Thanks so much, Tim and Carol. Great to be here.

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Speaker 3: Well, it's so great to have you here.

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Speaker 2: First up, we would be remiss if we didn't ask

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Speaker 2: you about the FED meeting and what you make of it,

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Speaker 2: anything unusual or telling, especially as you think about your book.

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Speaker 1: Yeah, it was the lack of unusual today. This was

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Speaker 1: like a dive that hit the water and there was

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Speaker 1: no splash. You know, Normally after a FED announcement there's

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Speaker 1: a lot of battling in social media and different takes.

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Speaker 1: There were no takes today.

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Speaker 3: It was kind of boring, right, it was beyond boring.

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Speaker 1: This was nothing about nothing today. And it's been interesting

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Speaker 1: because in the last couple of weeks we've seen investors

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Speaker 1: take everything off the worry list, and I think came

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Speaker 1: off the Worryless two. There is a sense that everything

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Speaker 1: is going to be okay. We're not worried about a recession.

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Speaker 1: Inflation looks like it's going to keep coming down or

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Speaker 1: is coming down to a reasonable level. And if I

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Speaker 1: have a take from today, it's this sense of where's

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Speaker 1: the shoe that's going to drop next?

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Speaker 4: Yeah, it's sort of like a complacency. I think it

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Speaker 4: was Tom Keen who was asking Diane Swank about parallels

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Speaker 4: to what we saw before the Nasdaq crash in the

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Speaker 4: early two thousands.

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Speaker 1: Yeah, this is what's been interesting on the NASTAQ front

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Speaker 1: is we've seen investors racing into all these abstract stocks

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Speaker 1: two years ago, the SPACs and that that NFT mania.

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Speaker 1: This year, they're charging into the stalwarts, the thoroughbreds that

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Speaker 1: are well tested, you know, Apple, the Magnificent seven, And

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Speaker 1: that to me is an indicator that we're not as

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Speaker 1: risk taking as we were a couple of years ago.

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Speaker 1: That were looking for certainty in the companies that we're

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Speaker 1: investing in, and too much possibility scares us.

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Speaker 3: Take us to the confidence quadrant.

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Speaker 2: Then all right, this is your book and explain this,

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Speaker 2: because there's stress center versus comfort zone, passenger seat versus

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Speaker 2: launch pan. But I love this and you, as you write,

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Speaker 2: can kind of apply to anything and everything. So take

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Speaker 2: us to is should we be in the stress center

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Speaker 2: a comfort zone right now? Because it does feel like

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Speaker 2: there's so much growth in terms of optimism, whether it's

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Speaker 2: S and P strategists or economist saying no recession to

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Speaker 2: help us out.

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Speaker 1: Yes, So for the benefit of your listeners, this is

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Speaker 1: a book that looks at the impact of certainty and

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Speaker 1: control and the choices we make because we use the

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Speaker 1: word confidence all the time and we don't know what

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Speaker 1: it means. And so what I tried to do was

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Speaker 1: to really dig into it. And those two things are

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Speaker 1: really important. I need to know what's coming and I

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Speaker 1: need to feel like I'm prepared for that. That's what

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Speaker 1: creates confidence. And I would say that if I.

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Speaker 3: Look at it, so a lot of musk confidence, No.

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Speaker 1: That's confidence theater, that's that's and that's you know, and

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Speaker 1: we see a lot of that and maybe too much

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Speaker 1: of it, and I and I worry that a lot

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Speaker 1: of people think that that's what you need to be confident.

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Speaker 1: It's like no, no, no, that that's an act that's a

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Speaker 1: show that people put on really well.

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Speaker 4: So can you explain the framework that you developed here

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Speaker 4: and what to do if you find yourself basically in

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Speaker 4: the wrong quadrant.

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Speaker 1: Yeah, So the framework takes confidence and or takes certainty

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Speaker 1: and control and puts them on two axes. It's a

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Speaker 1: simple four box chart, and none of them is inherently

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Speaker 1: good or bad, but they but we feel very different

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Speaker 1: in them. And I would say today most investors feel

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Speaker 1: like they're in the comfort zone. Things feel easy, it's

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Speaker 1: like they've been they're driving on a clear highway on

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Speaker 1: a clear day. And that's both good and bad. Because

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Speaker 1: the more confident we are, the less we think, the

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Speaker 1: less we pay attention, and so that's a big risk,

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Speaker 1: and we also take more risk than we should and

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Speaker 1: that's the potential consequence that we need to consider. But

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Speaker 1: I also then look at the consumer and there are

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Speaker 1: a lot of consumers in the stress centry today, particularly

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Speaker 1: those who are trying to buy a house or buying

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Speaker 1: a car, because interest rates have been very punitive to

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Speaker 1: those at the bottom. Those at the top, it's been wonderful.

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Speaker 1: Cash is now earning four percent five percent, But for

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Speaker 1: those at the bottom, there's been a real, a real

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Speaker 1: headwind that's come about because they're on a payment they

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Speaker 1: paid by month, and these heights and interest rates have

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Speaker 1: made their lives far more expensive.

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Speaker 2: So why is it important, though, to understand kind of

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Speaker 2: where you are, whether you're too complacent or you're comfortable,

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Speaker 2: or whether you're stressed out?

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Speaker 3: Like why is it important?

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Speaker 2: And I think about you know, when you think about stress,

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Speaker 2: we've been there a lot, as in a market environment,

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Speaker 2: in an economic environment where it's the pandemic nine to eleven,

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Speaker 2: the Great Financial crisis.

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Speaker 3: Right, like help me out here.

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Speaker 1: Yeah, So we forget that. Real life moves us around

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Speaker 1: so we can be in the stress center in one

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Speaker 1: moment and then be in the comfort zone the next.

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Speaker 1: But we forget that when we're in the stress center.

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Speaker 1: If you go back to the COVID, we were catastrophizing

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Speaker 1: that the end of the world was here, and we

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Speaker 1: forget that as we're moving into the stress center and

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Speaker 1: panics occurring. Panic is almost God's way of telling us

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Speaker 1: the worst is behind us, and certainly that's proven over

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Speaker 1: and over in the markets, but we fall victim to it,

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Speaker 1: and we respond impulsively and emotionally rather than stepping back

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Speaker 1: to say, oh, panic means we're nearing a low in confidence,

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Speaker 1: and rather than throwing the baby out with the bath water,

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Speaker 1: we should be preparing for what's coming next, because it's

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Speaker 1: going to surprise everybody.

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Speaker 4: So how do we do that right now in the

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Speaker 4: context of this run up that we've seen in the markets?

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Speaker 4: How does an investor use these tools?

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Speaker 1: I think investors need to look and see that our

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Speaker 1: preferences have changed. We're getting more conservative behind the scenes,

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Speaker 1: even though the indices are moving to record highs. So

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Speaker 1: you want to recognize that while we're in the comfort zone,

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Speaker 1: we're nowhere near as craving possibility and abstraction as we

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Speaker 1: were two years ago, and also appreciate that there's an

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Speaker 1: enormous disconnect between market confidence today and main street confidence,

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Speaker 1: and with wealth so concentrated in so few hands, that

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Speaker 1: tension will certainly play out if the economy turns down.

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Speaker 1: You know, I always think if we're in the comfort zone,

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Speaker 1: we don't anticipate a recession, and that becomes really dangerous

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Speaker 1: when we all think that moment has passed.

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Speaker 2: Well, it's so interesting that you say that, because I

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Speaker 2: think about how much we talk about consumer sentiment, our

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Speaker 2: consumer confidence, our business sentiment and business confidence. Right, these

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Speaker 2: things can certainly shape our actions, and certainly as investors

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Speaker 2: are expectations of kind of where assets should go.

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Speaker 1: Yeah, they how we fine, how we feel shapes our

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Speaker 1: actions also shapes the stories we tell. And so the narrative,

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Speaker 1: the narrative. The narrative is simply a reflection on how

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Speaker 1: we feel. And here again the narrative today is the

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Speaker 1: coast is clear, relax If there's going to be a recession,

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Speaker 1: it's going to be shallow, if at all. Inflations come

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Speaker 1: down considerably from where we were, And so we're investors

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Speaker 1: are looking out ahead and not appreciating that risks come

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Speaker 1: out of nowhere.

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Speaker 2: Well that's what I was going to say, And well

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Speaker 2: we've got to do a little bit of news. But

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Speaker 2: you know, when you're in the comfort zone and you're

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Speaker 2: kind of relaxed, I mean, this is when all of

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Speaker 2: a sudden there's a regional bank problem or there's a

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Speaker 2: cryptic collapse, right like those are. So it feels like

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Speaker 2: what you're saying is we can kind of anticipate, maybe

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Speaker 2: not exactly what's going to go wrong, but that's so things.

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Speaker 3: Going to wrong go wrong, absolutely and we can kind

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Speaker 3: of figure it out.

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Speaker 2: Could we anticipate that a burning made off was gonna happen?

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Speaker 1: Yeah, because the more confident we are, the less we scrutinize,

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Speaker 1: and we fall a victim to content at both extremes

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Speaker 1: financial fomo fomo and at loads in confidence, we follow

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Speaker 1: the wrong people.

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Speaker 2: I want to get right back to Peter Attwater his

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Speaker 2: new book The Confidence Map, Charting a Path from Chaos

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Speaker 2: to Clarity. A professor at William and Mary so I said,

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Speaker 2: unprecedented events being unprecedented, you know that they are entirely predictable.

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Speaker 3: Is that true? Even black swans are entirely predictable.

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Speaker 1: If you look at the backdrop of how people feel,

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Speaker 1: they're much more predictable than we realize. The means may change,

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Speaker 1: but extremely vulnerable people always do the same five things.

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Speaker 1: People who are extremely confident have a similar series of

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Speaker 1: things that they do. And so if I know how

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Speaker 1: people feel, I'm not not going to be nearly as

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Speaker 1: surprised by what they do. And I live this with

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Speaker 1: my class. As COVID was beginning to take hold, and

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Speaker 1: we would every week we would say is confidence higher

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Speaker 1: or lower? And if we got lower and lower and

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Speaker 1: each week they would say, so if since it's lower,

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Speaker 1: what are people going to do next? And as we

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Speaker 1: approached March, they were the ones who told me, professor,

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Speaker 1: you need to pack everything up for spring break, and

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Speaker 1: because we're not going to come back if confidence continues

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Speaker 1: to fall. And so we tend to overlook that is

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Speaker 1: confidence is changing. Our choices change, and there are clear

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Speaker 1: connections between what we want and what we feel, and

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Speaker 1: we look at events as being the event, not the

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Speaker 1: decisions made moment before the event. If I think about

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Speaker 1: nine to eleven, we would say that caused American confidence

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Speaker 1: to fall, But if you look at the back drop,

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Speaker 1: confidence in them add least was really low, and so

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Speaker 1: you could understand why people who are feeling hopeless might

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Speaker 1: undertake that. Samely with the Arab spring.

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Speaker 4: So a skeptic of your framework might say, it's very

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Speaker 4: easy to connect the dots when you look back, but

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Speaker 4: how do we look forward and use this framework to

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Speaker 4: predict the future.

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Speaker 1: So that's what I try to do with investors in

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Speaker 1: real time, with corporate executives, in trying to help them

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Speaker 1: to realize that the choices are changing quickly based on

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Speaker 1: how we feel. And I found myself in COVID working

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Speaker 1: with corporations trying to rejigger their messages because when we

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Speaker 1: lack confidence, we need simplicity, We crave nostalgia, and so

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Speaker 1: you can if we can watch as people are changing

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Speaker 1: their mood, we can better anticipate what to do in response.

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Speaker 1: And that was one of the things that emergency room

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Speaker 1: doctors and first responders really showed me that these are

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Speaker 1: things you can prepare for and train to anticipate how

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Speaker 1: to behave in a crisis.

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Speaker 3: Right there.

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Speaker 2: Many of them were prepared for trauma, right so in

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Speaker 2: that when it came so okay, I'm thinking people are

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Speaker 2: at home, or they're driving, or they're going to download

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Speaker 2: this podcast or download this later as a podcast, and

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Speaker 2: they're like, okay, So how do I apply that to

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Speaker 2: investing and how should I be thinking it about it

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Speaker 2: in today's market environment.

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Speaker 1: So one of the things I think investors need to

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Speaker 1: be careful about today is the historical relationship between stocks

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Speaker 1: and bonds seems to have broken down. That we think

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Speaker 1: of this in terms of a diversified pool, that owning

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Speaker 1: stocks helps you because they do better when stocks do worse.

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Speaker 1: And the reality is that not that long ago confidence

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Speaker 1: in both stocks and bonds was staggeringly high. We had

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Speaker 1: trillions of dollars worth of negative yielding bonds at the

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Speaker 1: same time time we're stampeding into crypto and all of

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Speaker 1: these crazy things, and we didn't realize that every piece

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Speaker 1: of that pie, that diversified pie, was piping hot. So

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Speaker 1: you need to think about not historical correlations, but how

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Speaker 1: do investors feel about what you own? Because you want

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Speaker 1: to own people, you want to own hopeless at the

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Speaker 1: same time, you want to own things that we're excited

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Speaker 1: because it's tomorrowland and having a mix of moods in

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Speaker 1: your portfolio, because that's where the real benefit of diversification

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Speaker 1: comes from, a.

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Speaker 3: Mix of moods.

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Speaker 1: A mix of moods.

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Speaker 3: It's interesting like that.

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Speaker 4: I mean, what does a mix of moods look like?

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Speaker 4: Obviously it depends on your age and your risk tolerance.

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Speaker 4: But how do you take a mood and apply that

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Speaker 4: to an ETF or to a fond or to a stock.

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Speaker 1: Well, price is a great way to discover it, because

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Speaker 1: I think prices market prices are a barometer of mood.

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Speaker 1: So you could have looked at the of natural gas

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Speaker 1: last summer and scene that you know, we were we

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Speaker 1: were terrified that there was going to be enormous scarcity,

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Speaker 1: and now there's immense complacency in that in that sector

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Speaker 1: that there's views of abundance forever. And so you want

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Speaker 1: to be thinking about where is there intense scarcity, where

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Speaker 1: are people stampeding in and where they stampeding out?

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Speaker 2: All right, I'm going to go dark for you, charting

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Speaker 2: a path from chaos to clarity. I feel like climate

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Speaker 2: change is one of those This is an existential question

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Speaker 2: for all of us in situation.

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Speaker 3: So how do you think about that?

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Speaker 1: So climate change is a very abstract concept, and if

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Speaker 1: you look at our eagerness to address climate change, it

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Speaker 1: migrates with our level of confidence. And what you'll find

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Speaker 1: is that when confidence is high, we want to tackle

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Speaker 1: climate change proactively, that our focus is prevent the problem,

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Speaker 1: and and confidence falls our response to climate changes we

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Speaker 1: need to deal with the consequences of having not dealt

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Speaker 1: with it. And so if confidence falls, I think you'll

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Speaker 1: start to see that our interest in solving it is

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Speaker 1: swapped out for our need to address the fact that

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Speaker 1: we didn't. And so that's that's a behavioral change, because

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Speaker 1: we move from abstract possibility to immediate need and vulnerability.

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Speaker 3: I just because it's just it's all I think about,

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Speaker 3: but that a.

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Speaker 4: Lotability affects different people depending on where they live, if

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Speaker 4: they live. And I think maybe one thing that changed

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Speaker 4: was when you know, the skies over so much of

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Speaker 4: this part of the country turned red a few months

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Speaker 4: ago because of Canadian wildfires. I mean, we're in an

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Speaker 4: area that's not traditionally affected by wildfires, but we're seeing

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Speaker 4: the effects of that.

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Speaker 1: Yeah, So we need abstract vulnerabilities to become real. Think

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Speaker 1: about COVID. COVID did not become real for most Americans

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Speaker 1: until March eleventh, the night that Tom Hanks and Rudy

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Speaker 1: Gobert were the.

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Speaker 4: Headlines and the NBA.

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Speaker 1: Yeah yeah, and suddenly that was the tipping point and boom,

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Speaker 1: we all felt it and you could see it. It

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Speaker 1: was like a wildfire of a shift in sentiment.

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Speaker 3: It's so true.

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Speaker 2: For so long, we're like, it's not going to be

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Speaker 2: our problem. It's not going to be our problem.

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Speaker 1: It's all the stories went along with that.

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Speaker 2: Yeah, And I have to say, as a journalist or

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Speaker 2: you know, it felt kind of stupid, like on the

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Speaker 2: other side, like.

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Speaker 3: How did we miss this when we're thinking.

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Speaker 2: How could this not impact us? Thank you so much,

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Speaker 2: Peter Atwater, Thank you so much. Such a treat to

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Speaker 2: have you in studio. The book is the Confidence Map,

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Speaker 2: charting a path from chaos to clarity. I'm actually heading

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Speaker 2: to a beach, so I'm taking this with me because

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Speaker 2: I've just done a little bit of reading.

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Speaker 3: But I want to read it.

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Speaker 4: Well, it just came out, Carols.

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Speaker 2: I know.

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Speaker 3: Peter, thank you, good luck with it. Come back soon.

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Speaker 3: This is Bloomberg