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Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.

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Speaker 1: I'm Tracy Alloway.

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Speaker 2: And I'm Joe. Why isn't thal Joe?

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Speaker 1: Did you see the jolts number that just came out?

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Speaker 2: We are recording this May thirty first, twenty twenty three.

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Speaker 2: I did job openings back up. You know. That's the thing,

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Speaker 2: like they keep thinking, oh, the labor market's going to cool,

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Speaker 2: it's going to cool, But here we are over ten

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Speaker 2: million job openings again.

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Speaker 1: Right, so job openings far exceeded I think any analyst

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Speaker 1: estimate ten million openings for the last month. And I

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Speaker 1: guess the question is the market seems to be of

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Speaker 1: two minds here, right, you have a lot of people

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Speaker 1: who seem to be talking about the inevitability of recession,

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Speaker 1: and yet you have the data that's still coming in

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Speaker 1: stronger than a lot of people are expecting. And of course,

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Speaker 1: you know those two things are related, because if data

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Speaker 1: keeps coming in stronger than expected, then maybe inflation doesn't

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Speaker 1: start to go down in the FED has to hike

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Speaker 1: even more and it pushes the economy into recession. But

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Speaker 1: it does feel like not only is there a lot

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Speaker 1: of doubt at the moment, but we're sort of heading

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Speaker 1: in two possible polar opposite directions.

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Speaker 2: Well, the thing that I keep coming back to is

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Speaker 2: striking is if you told someone, you know, at the

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Speaker 2: beginning of, you know, January twenty twenty two, you know,

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Speaker 2: when right towards zero, that by spring twenty twenty three,

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Speaker 2: we'd be at five and a quarter on the FED Fund, right,

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Speaker 2: Everyone's like, oh, you know, the market would have crashed,

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Speaker 2: we'd be in recession, et cetera. And yet here we

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Speaker 2: are with ten million, more than ten million job openings.

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Speaker 2: And something that we've talked a lot about is like,

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Speaker 2: you know, the entire twenty tens with sluggish growth, and

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Speaker 2: everyone's like, oh, this is the pickup, this is when

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Speaker 2: inflation is going to come back, and it doesn't. And

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Speaker 2: so far this decade it feels like, Okay, this is

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Speaker 2: finally when inflation is going to roll over, this is

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Speaker 2: when the recession is going to happen, et cetera. And

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Speaker 2: these expectations keep get kicked forward.

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Speaker 1: Absolutely, And I'm glad you mentioned interest rates just then.

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Speaker 1: And I mean the implication is kind of we've had

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Speaker 1: years of people warning about what that's going to happen

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Speaker 1: when interest rates rise is it going to lead to

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Speaker 1: an explosion in interest rate costs and things like that?

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Speaker 1: And you know, we have seen some bankruptcies, but we're

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Speaker 1: still sort of at this inflection point, it feels like.

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Speaker 1: So I'm very pleased to say that we have the

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Speaker 1: perfect guest for this episode. We are going to be

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Speaker 1: speaking with the man, the myth, the legend, Jim Grant,

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Speaker 1: the founder and editor of Grant's Interest Rate Observer and

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Speaker 1: a long time commenter of financial markets. I've been a

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Speaker 1: fan of his work for many years, so I'm so

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Speaker 1: glad we can finally have him on the show. Jim,

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Speaker 1: thank you for coming.

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Speaker 3: It is lovely to be here. And yes, interest rates

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Speaker 3: are a thing. I began to doubt the efficacy of

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Speaker 3: my business model.

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Speaker 2: People are observing, people want interest rates observe.

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Speaker 3: It is a good time for observation.

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Speaker 1: Well maybe that's a good starting place. But how would

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Speaker 1: you characterize the current period in markets versus you know,

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Speaker 1: the trajectory of history. You've been through and written about

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Speaker 1: many interest rates cycles at this point.

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Speaker 3: Well, first place, I would call it good copy journalistic.

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Speaker 3: This is all we like.

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Speaker 2: It doesn't matter up and down.

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Speaker 3: Just give us some good cop Yeah, we don't want

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Speaker 3: peace and quiet. Well, there are so many singular features,

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Speaker 3: and dogmatism has been I think, I hope has been

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Speaker 3: expunged from the conversation. It's hard to dogmatize after twenty twenty,

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Speaker 3: twenty one and twenty et cetera. What is new and

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Speaker 3: different is, for example, interest rates have gone from nothing

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Speaker 3: to five plus in the short end of the yield curve.

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Speaker 3: And wouldn't you suppose that the homebuilders would have taken

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Speaker 3: a big but instead the home builders are right behind

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Speaker 3: the video as the stocks and what you would think

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Speaker 3: that they produced computer chips, grath and two by fours,

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Speaker 3: But the homebuilders made new highs recently. And that you

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Speaker 3: know why, because rates have kind of put interest rate

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Speaker 3: handcuffs on people who are in possession of one of

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Speaker 3: these sweet mortgages. Beginning with the numbers two or three

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Speaker 3: or four. I think most of the homeowners now have

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Speaker 3: loans have something less than five. So people aren't moving

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Speaker 3: and there's no supply. Oh, I exaggerate slightly, but there's

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Speaker 3: a little supply, and the home builders are hot footing

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Speaker 3: it into that gap and they are coining money with

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Speaker 3: huge margins and great perplexity all around.

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Speaker 2: So you're speaking our language, like on multiple levels. You

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Speaker 2: mentioned semiconductors with Nvidia two by four's, we've talked lumber,

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Speaker 2: we've talked home building. So what is they say then

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Speaker 2: about our efforts to fight inflation? You know, we think

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Speaker 2: of housing as like the ultimate rate sensitive sector, and

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Speaker 2: yet here we have home builders close to all time

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Speaker 2: highs despite the surge. What does that say about I

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Speaker 2: don't know, perhaps the fed's toolkit in fighting this kind

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Speaker 2: of inflation.

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Speaker 3: Well, the FED, only about two weeks ago was propagating it.

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Speaker 3: All the central banks of the world for years and

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Speaker 3: years were bemoaning the fact they could not hit their

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Speaker 3: two percent arbitrary mind you, and the arbitrary two percent

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Speaker 3: inflation target, and the FED as recently as the jackson

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Speaker 3: Hole speech of what two thousand and twenty, that remote

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Speaker 3: jackson Hole conference chairman Palla said, you know, we are

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Speaker 3: going to search for a flexible inflation target, and if

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Speaker 3: it's too low, we will we will overshoot and thereby

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Speaker 3: bring the average over the cycles up to more than

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Speaker 3: two percent. Now that was it seems to me that

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Speaker 3: was kicking sand in the face of the fates. And

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Speaker 3: so there's there's a bureaucratic dogmatism in the FED. They've

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Speaker 3: got these algebraic models, like goodness, how formidable they look

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Speaker 3: on a blackboard, but they don't actually function very well

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Speaker 3: so far as the future is concerned. And the FED

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Speaker 3: was in fact dogmatic through two thousand and twenty one

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Speaker 3: into twenty twenty two, buying mortgages recently, I think as

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Speaker 3: March twenty two. So you asked about their inflation fighting tools,

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Speaker 3: they're rusty, Say.

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Speaker 1: Well, just on that note, I mean walk us through.

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Speaker 1: Why haven't the interest rate increases fed into the real economy?

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Speaker 1: More like, why are you not seeing house prices go down?

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Speaker 1: Why are you not seeing the much anticipated wave of

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Speaker 1: bankruptcies that people were warning about for you know, many

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Speaker 1: many years after the two thousand and eight financial crisis, Well.

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Speaker 3: House prices have in fact gone down. Is this phrase

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Speaker 3: existing house prices, that is, the ones that are not imaginary,

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Speaker 3: So existing house prices or down new house prices are

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Speaker 3: down from their peaks, you know, eight ten percent of

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Speaker 3: memory serves. But the point is well taken, Tracy, that

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Speaker 3: you know the phrase I think something will break right,

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Speaker 3: And I was of the view, am of the view

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Speaker 3: that try as J Powell might emulate Paul Volker. Mister

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Speaker 3: Powell is not working with Paul Volker's economy. It's much

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Speaker 3: more dead therefore much more fragility. You know, people are

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Speaker 3: head over heels over private credit. They can tend that

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Speaker 3: this is is a not quite Navidia quality breakthrough in

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Speaker 3: the history of finance, but it's up there. But you know,

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Speaker 3: the private credit is a manifestation of the seeming imperative

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Speaker 3: to build leverage, whether it's on the federal level or

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Speaker 3: the corporate level, not quite so much recent years on

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Speaker 3: the individual level. So there's a lot of leverage. And

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Speaker 3: I would say Tracy that with respect to the paradox

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Speaker 3: of nothing breaking much yet, just be patient. I expected

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Speaker 3: that much.

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Speaker 1: It's coming. Where do you see vulnerabilities? You mentioned fragilities?

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Speaker 3: Private equity is one. I think private credit will be

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Speaker 3: shown to be rather oversold as a breakthrough. I don't

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Speaker 3: think it's any such thing.

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Speaker 2: How do you actually how do people think about Why

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Speaker 2: do people think that there's something special about private credit?

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Speaker 3: Well, I think the story goes that the vendors of

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Speaker 3: private the lenders of private credit, are more flexible. They

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Speaker 3: have commitments by their limited partners who supply funds. They

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Speaker 3: are not constrained by banking regulations. They are kind of

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Speaker 3: a new breed, so the story goes. But you know,

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Speaker 3: they are lending, to an important extent, to software companies,

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Speaker 3: which famously lack gap profitability. They are lending to the

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Speaker 3: very same people that the public credit markets are lending to,

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Speaker 3: but they're doing it at a somewhat cheaper rate. They're not

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Speaker 3: doing it on a rated basis. So Moody's is not

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Speaker 3: getting a ratings business it did. I don't know. The

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Speaker 3: whole private credit business sounds to me as if it

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Speaker 3: were the same wine in slightly more presentable bottles.

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Speaker 1: Just on this topic, there's a line that you wrote

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Speaker 1: many years ago now and it kind of lives for

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Speaker 1: free in my head, and it's slightly random, but it's

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Speaker 1: basically Invaliant of financialized age has produced a financialized pharma company.

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Speaker 1: And I used to think about that quite a lot.

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Speaker 1: In the context of Valiant. Of course, you know, they

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Speaker 1: borrowed a lot from market cheaply. They bought a lot

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Speaker 1: of companies. They used interesting accounting techniques such as adbacks

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Speaker 1: to boost their valuation so that they could keep borrowing.

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Speaker 1: And I wonder how much that type of financialization, in

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Speaker 1: your opinion, is reflected across the market and across the economy,

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Speaker 1: not just a valiant specific type thing.

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Speaker 3: Well, I would say that it is rather endemic. I

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Speaker 3: guess we ought to define it. What I mean by

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Speaker 3: tracy is the finance for the sake of finance, not

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Speaker 3: for the sake of making a better product, but finance

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Speaker 3: for the sake of making money through structure, through fees

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Speaker 3: and the like. That's financialization. And you see it again

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Speaker 3: in private equity. There's this thing called adas. Ad Backs

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Speaker 3: are a form of sly manipulation of cost structure. So

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Speaker 3: you do a deal by a company and you say

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Speaker 3: we will lever it, meaning we will encumber it with

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Speaker 3: debt to the extent of six and a half times

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Speaker 3: ebit DA. That's a kind of non gap measure of earnings.

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Speaker 3: And the reason it's six point five and not nine

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Speaker 3: point five is because we project savings through the great

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Speaker 3: managerial improvements that private equity invariably introduces.

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Speaker 1: To it, synergyes sergies everywhere.

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Speaker 3: To its portfolio companies. And don't you know that S

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Speaker 3: and P does an annual ad back study. That's that's

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Speaker 3: the age in which we live. There is an ad

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Speaker 3: back study from that you can look wait for every year,

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Speaker 3: and it shows that most of these promised savings Tracy

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Speaker 3: don't be shocked at, don't materialize, but the fees surrounding

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Speaker 3: them are paid. So that's an example, one micro example

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Speaker 3: of financializations. And I think it's all over the place.

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Speaker 2: Since you mentioned in Nvidia twice already, I feel like

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Speaker 2: the Nvidia chart would make very a lot of sense

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Speaker 2: to me in the year twenty twenty one or maybe

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Speaker 2: twenty eight, twenty nineteen, you know, during the sort of

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Speaker 2: like zerp heyday when we associated low interest rates with

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Speaker 2: booming tech stocks. But here we have the chart. It's

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Speaker 2: not Zerp anymore. We're at five and a quarter percent,

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Speaker 2: and yet that hasn't extinguished this sort of like animal

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Speaker 2: spirits of the market to pile into some like really

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Speaker 2: hot area because you know, AI is really exciting. What

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Speaker 2: does that say about, you know, some of our assumptions

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Speaker 2: about the relationships between investment and animal spirits and speculation

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Speaker 2: and rates. When we see this sort of activity at

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Speaker 2: a time of five and the quarter interest rates.

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Speaker 3: You know, the wonderful thing about financial markets is that

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Speaker 3: we keep on stepping on the same rake there's in science,

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Speaker 3: you know, progress is kulative, stantles shoulders a giants, but

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Speaker 3: financial history is invariably cyclical and recurrent, which helps a

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Speaker 3: lot if you can recognize patterns. Scott McNeely, who's the

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Speaker 3: CEO of Sun Microsystems, that gave the terrific little speech,

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Speaker 3: I guess on Twitter. Maybe it was an exasperated and

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Speaker 3: rueful expression. It was kind of a post mortem of

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Speaker 3: the of the dot com bubble, which now is so

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Speaker 3: deep in the historical miss But the Sun was trading

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Speaker 3: that at ten times earnings, and mister McNeely said, what

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Speaker 3: do you have to do right? Sorry revenue? Of course.

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Speaker 2: Understand that's the laugh line.

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Speaker 3: Or so what you would what he would have to do?

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Speaker 3: What you have to break even with at ten times revenue? Well,

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Speaker 3: of course ten years I would have to send you

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Speaker 3: every single so no more R and D, no more

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Speaker 3: salaries for the employees, no taxes, oops, no taxes, etcetera.

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Speaker 3: So so he went through this exercise and he said,

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Speaker 3: and at the end he said, why did you pay

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Speaker 3: ten times revenues? Okay, the video is like thirty five

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Speaker 3: times revenue, so it's thirty five years of.

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Speaker 2: That, no cause, no employ I read no capax, no

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Speaker 2: R and D. I read text.

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Speaker 3: I read somewhere that Navidio is introduced AI, which is

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Speaker 3: tan about in fact equal to yeah, equal to tanaa,

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Speaker 3: the invention of fire.

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Speaker 2: It's a new fire, tam On. That's got to be huge.

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Speaker 1: That's always the warning sign, right, tam when people start

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Speaker 1: talking about total addressable market size. I have a slightly

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Speaker 1: personal question, but I've always wondered this, do you consider

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Speaker 1: yourself more of a journalist or more of a financial analyst?

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Speaker 3: Journalist journalist?

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Speaker 1: And how does that influence Evan Lorenez.

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Speaker 3: He's the great financial and.

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Speaker 1: He's great, he's very good. But how does that inform

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Speaker 1: your your own work?

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Speaker 3: Evan? Well, I started not quite a one man It

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Speaker 3: was never exactly a one man band. This is our

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Speaker 3: fortieth year, but for many a year there was no Evan.

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Speaker 3: There was often someone to lend a hand. Yeah, there

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Speaker 3: were a lot of help. I have gravitated to journalism,

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Speaker 3: I think more than the really deep diving financial analysis.

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Speaker 3: I'm interested in history as well. Have read a lot,

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Speaker 3: written some.

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Speaker 1: And wrote a book on Badget right, Yes.

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Speaker 3: Yeah, Welder Badget is the kind of the muse of

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Speaker 3: contemporary central banking. They invoke his dictum about in a crisis,

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Speaker 3: they will say the contemporary central bankers will lend freely

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Speaker 3: to everybody, which is a very much a paraphrase of

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Speaker 3: Badget's lend at a high rate against against suitable banking

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Speaker 3: collateral to solved institutions, et cetera.

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Speaker 2: I just want to say, I thought you must be

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Speaker 2: have been exaggerating when you said the thirty five times revenue.

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Speaker 2: But you're like, I was like, that cannot be right.

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Speaker 2: It can't be thirty ex revenue. But no, fiscally, your

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Speaker 2: twenty twenty four for in video revenues forty billion. It's

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Speaker 2: a trillion dollar company. And so yeah, we're basically.

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Speaker 3: It looks like a typo. Yeah we publish published last night,

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Speaker 3: and I say, no, let's please, let's even.

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Speaker 2: Like, look at fiscally your twenty twenty seven currently on

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Speaker 2: the Bloomberg. I found this seventy seven billion. So even

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Speaker 2: like you go out to twenty seven, you're still like

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Speaker 2: a fifteen twenty twenty seven or fourteen next twenty twenty seven.

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Speaker 3: Revs Lumberg, which can get anyone on the phone auto

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Speaker 3: call up Scott McNeely and say, what.

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Speaker 2: Now, let's do that. Let's do that. That's a that's

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Speaker 2: a really good idea. Scott's really those earnings calls back

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Speaker 2: and that they were really fun. Can I ask a question?

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Speaker 2: You know, you mentioned dogma, You mentioned the FEDS rusty

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Speaker 2: inflation fighting tools, which you know, maybe understandably because for

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Speaker 2: the previous decade or really even longer, maybe the the

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Speaker 2: impulse was reflation, and why are we missing on the downside,

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Speaker 2: et cetera. What did that period teach you as a

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Speaker 2: historian of financial market as a student and someone who's like,

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Speaker 2: what did the period of like two thousand and nine

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Speaker 2: through twenty twenty in which we had large deficits, we

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Speaker 2: had this exploding size of the FED to balance sheet,

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Speaker 2: and yet this sort of inability to generate inflation? Like

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Speaker 2: what was your sort of like looking back on that decade?

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Speaker 3: It end well, it was very humbling for me. What

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Speaker 3: I took away from it is that the inevitable is

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Speaker 3: always certain, but not always punctual. I look back in

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Speaker 3: some of my work there, I was rather impatient for

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Speaker 3: the inevitable difficulties and crises attending upon on you know,

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Speaker 3: this credit creation jag I thought, certainly it was going

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Speaker 3: to happen like Tuesday or so. But so it's like

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Speaker 3: the elapsed time between the first signs of a house

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Speaker 3: price is going way above trend on the one hand,

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Speaker 3: and the onset of the housing related credit difficulties of

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Speaker 3: two thousand and seven, eight and nine, that period of

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Speaker 3: six years was approximately twenty years in journalistic time. If

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Speaker 3: you were a little bit too insistent upon Yeah.

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Speaker 1: Well, just on this point, let me ask a sort

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Speaker 1: of devil's advocate question, because I had, you know, a

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Speaker 1: similar trajectory sort of I wouldn't compare myself to you, obviously,

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Speaker 1: but you know, post two thousand and eight, I wrote

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Speaker 1: a lot about excesses in the corporate bond market, and

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Speaker 1: it seemed very clear to me that eventually this would

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Speaker 1: blow up. It didn't really, and you know, we could

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Speaker 1: argue that maybe the time is coming for some of

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Speaker 1: those excesses to get flushed out of the market. But

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Speaker 1: it does feel like the solution to a lot of

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Speaker 1: financialization is more financialization, or at least it has been

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Speaker 1: so far. So for instance, with corporate bonds, when there

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Speaker 1: was stress in the market, the central bank comes in

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Speaker 1: props up the corporate bond market through the bond buying program?

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Speaker 1: Why can't that continue forever? And like, what is the

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Speaker 1: tipping point at which financial solutions to financial problems is

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Speaker 1: no longer viable?

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Speaker 3: A tipping point was six years ago my impatient clock.

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Speaker 3: It was a long time ago, but it did not tip.

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Speaker 3: So why can't it go on for a r I

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Speaker 3: know they're always these excesses do crop up, they are

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Speaker 3: met with additional stimulus, intervention, manipulation, and still we go on.

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Speaker 3: Who was it who said there is a deal of

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Speaker 3: ruin in a country? Because it was Adam Smith, And

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Speaker 3: there's a great deal of ruin so to speak, in

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Speaker 3: finance and manipulated finance. And one are the singularities of

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Speaker 3: the present time is the is the American position in

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Speaker 3: international finance? You know this is countries emits the reserve currency,

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Speaker 3: which means that we consume much more than we produce.

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Speaker 3: We finance the difference with dollar bills that only we

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Speaker 3: can lawfully print at a most reasonable price of like nothing,

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Speaker 3: and we remit the dollars to our creditors, mainly in

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Speaker 3: Asia SA and those dollars don't leave the country because

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Speaker 3: they come back in the shape of treasuries and moreages

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Speaker 3: purchased for the portfolio interests of our crowders. So if

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Speaker 3: that is kind of a new thing in the long

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Speaker 3: historical it's not. It's not so new in terms of years,

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Speaker 3: but in terms of phenomena, it's it's the reserve currency

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Speaker 3: country being a chronic big debtor. It's kind of a

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Speaker 3: different thing, reserve currency country living on the highness of strangers,

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Speaker 3: so to speak. That's that's not exactly writ So the

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Speaker 3: more one learns, the less dogmatic one becomes about timing.

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Speaker 2: Certainly, well, well that actually leads to the exact next question,

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Speaker 2: which is, you know, obviously, currently today in twenty twenty three,

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Speaker 2: there's yet another round of most the dollar going to

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Speaker 2: lose some its global status. But we've been hearing that forever, right,

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Speaker 2: Like we you know, we heard that certainly after the

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Speaker 2: Great Financial Crisis, I think, you know, pre Greade financial crisis,

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Speaker 2: there was a lot to talk about the euro and

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Speaker 2: we've talked about the show and like, you know, who

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Speaker 2: is the model that flashed euros on the This is

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Speaker 2: not a new thing. So when you think about like okay,

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Speaker 2: like timing is really tough with this stuff, Like does

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Speaker 2: it feel new? Does this moment feel different than past

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Speaker 2: times when people had dollars datus anxiety?

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Speaker 3: Well, some of the rhetorics the same, you know that.

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Speaker 3: I guess by definition, the excesses are greater. The US

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Speaker 3: International Financial Position, which is a piece of data that

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Speaker 3: comes out every year at this time, ever, shows a

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Speaker 3: deepening deficit between what we own of other countries' securities

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Speaker 3: and businesses versus what they own of our securities and

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Speaker 3: businesses and other security and public security. So the deficits deepen.

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Speaker 3: But you know, so, what's the competition? Turkey is mad

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Speaker 3: at US and wants a different currency Iran, Ditto, China

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Speaker 3: and the Russia the same. But I don't see those

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Speaker 3: as strong competitors for an alternative currency. I see gold

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Speaker 3: as a perennial option. Unfortunately, too few people share my

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Speaker 3: enthusias for that.

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Speaker 2: I wish perhaps everyone else who's wrong.

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Speaker 3: Perhaps bloomber could help along those lines as well.

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Speaker 1: Well, just on this note, I mean, we were talking

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Speaker 1: about Nvidia. When you see markets react like that, what

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Speaker 1: do you think is happening there? What is the thought

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Speaker 1: process of an investor who says I'm going to buy

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Speaker 1: in VideA when it's up forty percent in three weeks.

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Speaker 3: Well, I think a couple of things. First of all,

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Speaker 3: again under the heading of you never know, which I

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Speaker 3: have come to embrace as a sound journalistic and life principle,

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Speaker 3: There is a possibility at this time it is the

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Speaker 3: invention of fire apart two, so one holds mind share

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Speaker 3: for that. I think more likely is that this is

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Speaker 3: part of the muscle memory of a generation of zero

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Speaker 3: percent interest rates and all you can eat credit. The

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Speaker 3: great all you can eat credit buffet table was open

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Speaker 3: for business for ten years. Interest rates fell from nineteen

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Speaker 3: eighty one until a couple of actually a couple of

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Speaker 3: weeks ago. It's called forty years. So that's a lot

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Speaker 3: of muscle memory. Central banks have intervened predictably until fairly

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Speaker 3: recently when markets shuttered. Look what happened in twenty nineteen,

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Speaker 3: or the repull market. This obscure recondite thing caught a

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Speaker 3: head cold in September and the Fed resumes QWED didn't

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Speaker 3: called QW it's a qwi. Yeah, it was QWI. So

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Speaker 3: naturally people assume that the upside is the side to

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Speaker 3: be on. It takes a true contrarian, most bloody minded

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Speaker 3: contrarian this to butt one's head against that, But it's

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Speaker 3: a living So why do people do it? Because A

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Speaker 3: because cyclical memories are short and cycles are recurrent, and

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Speaker 3: b because it has worked. Quote that phrase out to

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Speaker 3: be in quoted.

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Speaker 2: It's funny, you know you talk about like the memory

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Speaker 2: of ZIRP or the memory of forty years of declining

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Speaker 2: interest rates. Right before you walked in, Tracy and I

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Speaker 2: were talking about, like, you know, the real estate market

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Speaker 2: and I've sort of been looking at maybe buying a place,

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Speaker 2: and the one thing you always hear from people is like, oh, well,

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Speaker 2: like rates are high now, but maybe you'll be able

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Speaker 2: to refinance lower in a few years. And when every

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Speaker 2: time I hear that, I'm like, I mean that would

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Speaker 2: be nice, but like there's no guarantee of mean reversion.

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Speaker 2: And you know what were they like eighteen percent in

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Speaker 2: the nineteen eighties, Like could we go back there? Could

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Speaker 2: I see teens fed rates in my life?

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Speaker 3: Yes? You could. There's a property about interest rates that

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Speaker 3: I find intriguing. My interest is not widely shared, but

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Speaker 3: here is my reading of the question, the great question

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Speaker 3: whether rates are a mean reverting So what was what

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Speaker 3: characterizes interest rate movements is their generation length phasing, not

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Speaker 3: necessarily cycles where there are the interest rates fell for

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Speaker 3: the last quarter of the nineteenth century, rose to the

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Speaker 3: first twenty years of the twentieth, fell from nineteen twenty

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Speaker 3: forty six rows from forty six to eighty one, fell

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Speaker 3: from eighty one to call it twenty twenty one. So

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Speaker 3: at each juncture there was some mark of excess on,

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Speaker 3: some mark of speculative excess blow off, Like certainly nineteen

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Speaker 3: eighty one, you know, a twenty percent plus funds rate

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Speaker 3: seemed excessive. A fourteen percent yield in nineteen eighty four

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Speaker 3: long bond when the CPI was printing it four or

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00:24:32,880 --> 00:24:35,680
Speaker 3: five that seemed excess. If ten percentage points are really yield,

433
00:24:35,680 --> 00:24:40,440
Speaker 3: that seemed a lot. So I would I speculate that

434
00:24:40,520 --> 00:24:43,720
Speaker 3: we are embarked on a long cycle of rising rates.

435
00:24:44,440 --> 00:24:46,639
Speaker 3: And I say that, first of all, for reasons of

436
00:24:46,720 --> 00:24:48,840
Speaker 3: pattern recognition. There is no theory behind it. But I

437
00:24:48,920 --> 00:24:52,200
Speaker 3: observed that in not twenty and twenty and twenty one,

438
00:24:52,480 --> 00:24:56,920
Speaker 3: some unimaginably large number of debt securities were priced to

439
00:24:56,960 --> 00:25:00,119
Speaker 3: yield less than nothing. Bloomberg keeps this particular figure, and

440
00:25:00,320 --> 00:25:02,440
Speaker 3: I bet still perhaps you could check me. I bet

441
00:25:02,520 --> 00:25:05,440
Speaker 3: still there's like one hundred billion dollars of bonds price

442
00:25:05,480 --> 00:25:08,320
Speaker 3: to yield, less than nothing worldwide. But they were eighteen trillion.

443
00:25:08,359 --> 00:25:11,879
Speaker 3: I think at the peak the most extraordinary expression of

444
00:25:12,760 --> 00:25:16,359
Speaker 3: unqualified bullishness on an asset class because it had the

445
00:25:16,440 --> 00:25:19,600
Speaker 3: name of bonds which had been falling in yield, rising

446
00:25:19,680 --> 00:25:23,080
Speaker 3: and price. So no, it would not surprise me at

447
00:25:23,080 --> 00:25:26,560
Speaker 3: all if we were embarked on something resembling a generation

448
00:25:26,720 --> 00:25:31,600
Speaker 3: length bear market and bonds meaning rising yields and falling prices,

449
00:25:31,720 --> 00:25:33,040
Speaker 3: that would fit the form.

450
00:25:34,280 --> 00:25:38,280
Speaker 1: Could you get you mentioned the idea of a embarking

451
00:25:38,280 --> 00:25:41,959
Speaker 1: on a long cycle of higher rates. Could that happen

452
00:25:42,119 --> 00:25:45,159
Speaker 1: even with a recession in the States, because this seems

453
00:25:45,160 --> 00:25:47,560
Speaker 1: to be the bet that everyone's making right that inflation

454
00:25:47,680 --> 00:25:49,439
Speaker 1: isn't coming down, and so the Fed's going to have

455
00:25:49,440 --> 00:25:51,920
Speaker 1: to hike and inevitably that will lead to recession.

456
00:25:52,240 --> 00:25:56,960
Speaker 3: Well starting yeah, cuts, yeah. Starting in nineteen fifty eight,

457
00:25:57,040 --> 00:25:59,280
Speaker 3: something strange happened and people at the time remarked on it,

458
00:25:59,320 --> 00:26:02,879
Speaker 3: which is that in a recession, prices did not fall

459
00:26:03,040 --> 00:26:06,720
Speaker 3: or subside, and that marked the what proved to be

460
00:26:06,800 --> 00:26:10,680
Speaker 3: the beginning of the age of inflation, so fast forward

461
00:26:10,680 --> 00:26:14,399
Speaker 3: to the seventies seventies. It's kind of a trite historical marker,

462
00:26:14,480 --> 00:26:16,679
Speaker 3: you know, it's never going to repeat exactly, but for

463
00:26:16,720 --> 00:26:20,679
Speaker 3: what it's worth, in the seventies, interest rates did fall

464
00:26:20,720 --> 00:26:25,240
Speaker 3: and rise as the business cycle changed, but inflation came

465
00:26:25,560 --> 00:26:31,160
Speaker 3: and rose and subsided in three different phases. It wasn't

466
00:26:31,200 --> 00:26:33,480
Speaker 3: a straight line. So yeah, we could have a we

467
00:26:33,480 --> 00:26:36,720
Speaker 3: could have recession and rates pulled back and then they

468
00:26:36,720 --> 00:26:38,919
Speaker 3: resumed the rise. So the cycle long.

469
00:26:38,840 --> 00:26:41,600
Speaker 1: Term path would be upwards in terms of interest rates,

470
00:26:41,640 --> 00:26:42,919
Speaker 1: but not linearly.

471
00:26:43,119 --> 00:26:46,680
Speaker 3: Yeah. For example, from nineteen forty six to fifty six,

472
00:26:47,359 --> 00:26:50,320
Speaker 3: the movement up in the long data treasury was one

473
00:26:50,400 --> 00:26:53,280
Speaker 3: hundred basis points one percent. That it went from three

474
00:26:53,320 --> 00:26:55,440
Speaker 3: and a half basically from sorry, two and a half

475
00:26:55,440 --> 00:26:57,719
Speaker 3: to three and a half over ten years. So this

476
00:26:57,800 --> 00:26:59,840
Speaker 3: is this is this is rather glacial. This is kind

477
00:26:59,840 --> 00:27:05,000
Speaker 3: of geologic. Yeah, so that's why one can forecast these

478
00:27:05,040 --> 00:27:07,920
Speaker 3: long cycles with especially if one of seventy six and

479
00:27:08,000 --> 00:27:11,639
Speaker 3: a half years old, without any anxiety about being after

480
00:27:11,640 --> 00:27:12,520
Speaker 3: that less.

481
00:27:12,920 --> 00:27:14,600
Speaker 2: But to your point, I mean it makes sense. I mean, look,

482
00:27:14,800 --> 00:27:18,399
Speaker 2: as you mentioned that forty year cycle basically through I

483
00:27:18,440 --> 00:27:21,000
Speaker 2: don't know, two dozen whatever. It's not like it was

484
00:27:21,040 --> 00:27:22,879
Speaker 2: only down. I mean we had up cycles in the

485
00:27:22,920 --> 00:27:26,159
Speaker 2: eighties and the nineties. Oh yes, It's just that the

486
00:27:26,200 --> 00:27:30,119
Speaker 2: long term trend was lower highs easies time, and so

487
00:27:30,320 --> 00:27:32,199
Speaker 2: potentially the idea here is okay, I mean, we do

488
00:27:32,240 --> 00:27:34,600
Speaker 2: get a cutting cycle on a year, but it's lower less.

489
00:27:34,960 --> 00:27:37,160
Speaker 3: Yeah, so what happed? So the rates peaked in nineteen

490
00:27:37,200 --> 00:27:38,960
Speaker 3: eighty one and nineteen eighty four, there was what the

491
00:27:38,960 --> 00:27:42,440
Speaker 3: technicians called a retest of those highs and yields, and

492
00:27:42,680 --> 00:27:44,879
Speaker 3: everyone on Wall Street who was anyone was on the

493
00:27:44,920 --> 00:27:46,800
Speaker 3: side of saying that rach will go back up again.

494
00:27:47,280 --> 00:27:49,320
Speaker 3: And the long bond did go to fourteen percent in

495
00:27:49,400 --> 00:27:52,000
Speaker 3: nineteen eighty four when inflation was less than I think

496
00:27:52,280 --> 00:27:56,640
Speaker 3: less five percent. So it's I think. I think one

497
00:27:56,640 --> 00:28:00,639
Speaker 3: of the least appreciated forces in markets are factors they

498
00:28:00,640 --> 00:28:04,119
Speaker 3: would say is simple condition, behavior or muscle memory.

499
00:28:05,280 --> 00:28:07,760
Speaker 1: So just on that note, I was thinking back. I

500
00:28:07,880 --> 00:28:10,680
Speaker 1: used to have a grandparent who lived through the Great

501
00:28:10,800 --> 00:28:15,520
Speaker 1: Depression and had food hoarding problems because of this, because

502
00:28:15,560 --> 00:28:17,359
Speaker 1: she hadn't had a lot of food when she was

503
00:28:17,400 --> 00:28:19,840
Speaker 1: growing up, and so in her later years when she

504
00:28:19,880 --> 00:28:22,399
Speaker 1: had access to food she would buy a lot of

505
00:28:22,440 --> 00:28:27,399
Speaker 1: it and store it our markets. I'm assuming markets are

506
00:28:27,440 --> 00:28:30,320
Speaker 1: ill equipped to deal with this kind of generational shift.

507
00:28:30,359 --> 00:28:33,160
Speaker 1: You have people Joe and I certainly you know, for

508
00:28:33,160 --> 00:28:37,080
Speaker 1: forty years have been striving for any sort of return,

509
00:28:37,240 --> 00:28:41,280
Speaker 1: any sort of field. We've only recently started earning like

510
00:28:41,480 --> 00:28:44,760
Speaker 1: significant bank interest on our savings accounts.

511
00:28:44,800 --> 00:28:46,600
Speaker 3: This pleasant, it's so nice.

512
00:28:46,920 --> 00:28:49,800
Speaker 1: It's lovely being a wrench money for nothing.

513
00:28:49,920 --> 00:28:51,600
Speaker 2: Make a lot of it. You can make some money

514
00:28:51,880 --> 00:28:55,440
Speaker 2: if we like plug which online banking, But don't do it.

515
00:28:55,440 --> 00:28:57,160
Speaker 2: We got to get I'm not going to until they

516
00:28:57,160 --> 00:28:59,160
Speaker 2: pay us. We're not going to say right, hold out

517
00:28:59,160 --> 00:29:00,560
Speaker 2: for that exactly right.

518
00:29:00,600 --> 00:29:02,600
Speaker 1: And I'm aware that you know the real return is

519
00:29:02,640 --> 00:29:05,680
Speaker 1: still negative, but it's still nice. But how would you

520
00:29:05,720 --> 00:29:08,880
Speaker 1: expect markets to adapt to this shift?

521
00:29:09,480 --> 00:29:11,560
Speaker 3: Well, if it's slow enough, they could adapt easily. The

522
00:29:11,600 --> 00:29:13,760
Speaker 3: great shift of higher races I mentioned it took ten

523
00:29:13,840 --> 00:29:16,440
Speaker 3: years to get started. I remember my first job on

524
00:29:16,480 --> 00:29:18,240
Speaker 3: Wall Street. I just got of the Navy and I

525
00:29:18,320 --> 00:29:20,160
Speaker 3: was a foe, went to college. I was a clerk

526
00:29:20,200 --> 00:29:22,200
Speaker 3: on a Wall Street trading disc and I came home

527
00:29:22,480 --> 00:29:25,880
Speaker 3: and the New York telephone long dated sixties, the sexy

528
00:29:26,040 --> 00:29:29,560
Speaker 3: sixes of they call it. And I told my father this,

529
00:29:30,360 --> 00:29:33,560
Speaker 3: What everyone says, Dad, is that these six percent yields,

530
00:29:33,760 --> 00:29:36,040
Speaker 3: this is something special, and you have to avail yourself.

531
00:29:36,760 --> 00:29:39,320
Speaker 3: So I'm not sure where the New York telephones were

532
00:29:39,520 --> 00:29:41,320
Speaker 3: in the year nineteen eighty one, but they were not

533
00:29:41,360 --> 00:29:46,320
Speaker 3: at six percent. So you have to pace yourself. But

534
00:29:46,400 --> 00:29:48,920
Speaker 3: there's often plenty of time to adapt. But you know,

535
00:29:48,920 --> 00:29:52,920
Speaker 3: there's opportunities in the non adaptation. In a great bond

536
00:29:52,960 --> 00:29:55,320
Speaker 3: bear market, all sorts of strange things happen. For example,

537
00:29:55,360 --> 00:29:58,320
Speaker 3: call protection goes for free because no one expects race

538
00:29:58,400 --> 00:30:00,760
Speaker 3: to go back up again, so you can buy call

539
00:30:00,800 --> 00:30:02,560
Speaker 3: protection without any premium.

540
00:30:03,320 --> 00:30:07,160
Speaker 2: Right when you look at these long shifts, these multi

541
00:30:07,200 --> 00:30:10,840
Speaker 2: decade moves, how much is it about maybe politics or

542
00:30:10,880 --> 00:30:13,120
Speaker 2: just shifting ideas? And so you know, I'm thinking, like,

543
00:30:13,640 --> 00:30:16,160
Speaker 2: part of the reason I think many people would say

544
00:30:16,240 --> 00:30:19,080
Speaker 2: we had such a powerful and aggressive physcical response to

545
00:30:19,120 --> 00:30:22,320
Speaker 2: the COVID shock was the memory of the weak recovery

546
00:30:22,440 --> 00:30:24,600
Speaker 2: coming out of two thousand and eight, two thousand and nine,

547
00:30:24,800 --> 00:30:26,960
Speaker 2: and this sort of like years of slow growth. So

548
00:30:27,000 --> 00:30:28,520
Speaker 2: it's like, Okay, we're not going to like make this

549
00:30:28,560 --> 00:30:31,040
Speaker 2: mistake again, make another one we'll make, we'll go we're

550
00:30:31,040 --> 00:30:33,560
Speaker 2: going to overshoot in the different direction. And so how

551
00:30:33,640 --> 00:30:35,440
Speaker 2: much of like these like when you look at sort

552
00:30:35,440 --> 00:30:38,640
Speaker 2: of like long shifts and obviously like that vulgar era

553
00:30:38,680 --> 00:30:40,600
Speaker 2: and some of those ideas, some of the supply side

554
00:30:40,640 --> 00:30:43,280
Speaker 2: ideas from the early eighties, like those are ancient. Those

555
00:30:43,280 --> 00:30:45,160
Speaker 2: are old memories, like people forgot it and now that

556
00:30:45,160 --> 00:30:47,200
Speaker 2: people have different ideas and now people talk about like

557
00:30:47,560 --> 00:30:50,800
Speaker 2: state capitalism and public investment. How much do these like

558
00:30:50,920 --> 00:30:55,959
Speaker 2: long cycles sort of correspond with like essentially ideas that

559
00:30:56,000 --> 00:30:56,760
Speaker 2: are in vogue.

560
00:30:56,920 --> 00:31:01,600
Speaker 3: You have to wonder whether the direction of causeation. Richard Russell,

561
00:31:01,720 --> 00:31:05,000
Speaker 3: who was a marvelous technician and thinker about Marcus who

562
00:31:05,120 --> 00:31:07,720
Speaker 3: was no longer with us, it was the author of

563
00:31:07,840 --> 00:31:13,640
Speaker 3: the of the epigram, markets make opinions, and there's I

564
00:31:13,640 --> 00:31:16,440
Speaker 3: think there's something to the idea that that phases of

565
00:31:16,480 --> 00:31:20,720
Speaker 3: economic life, whether it be markets or nine to five

566
00:31:20,800 --> 00:31:23,479
Speaker 3: world of actually producing things as it were, that the

567
00:31:23,480 --> 00:31:27,960
Speaker 3: background music of enterprise kind of conjures ideas. I'm not

568
00:31:27,960 --> 00:31:31,840
Speaker 3: sure if ideas, cause maybe might these ideas are recurrent.

569
00:31:32,000 --> 00:31:35,320
Speaker 3: I mean, I'm told that the generation what's comes after z.

570
00:31:35,720 --> 00:31:39,800
Speaker 2: A whatever my daughter. I don't know. I got to

571
00:31:39,800 --> 00:31:40,560
Speaker 2: find out what that is.

572
00:31:40,640 --> 00:31:46,560
Speaker 3: They're socialists apparently, so we invent that one again. I've

573
00:31:46,600 --> 00:31:49,880
Speaker 3: given you a very poor answer to an excellent question, Joe.

574
00:31:50,280 --> 00:31:54,080
Speaker 1: Well, just on the notion of these long term cycles

575
00:31:54,120 --> 00:31:57,440
Speaker 1: maybe starting to shift. It does feel like, you know,

576
00:31:57,800 --> 00:32:01,440
Speaker 1: previous decades were about the sort of lower interest rates,

577
00:32:01,640 --> 00:32:05,960
Speaker 1: and during those previous decades, we basically built the financial

578
00:32:06,040 --> 00:32:10,720
Speaker 1: system around the assumption that government bonds are the safest

579
00:32:10,720 --> 00:32:16,280
Speaker 1: thing out there. Yeah, bonds, you know, the yields don't

580
00:32:16,280 --> 00:32:19,680
Speaker 1: move around that much. And yet in the previous year

581
00:32:19,720 --> 00:32:22,880
Speaker 1: we have seen big question marks around the safety of

582
00:32:22,960 --> 00:32:26,240
Speaker 1: government bonds and the stability of yields, which have resulted

583
00:32:26,280 --> 00:32:29,800
Speaker 1: in a few things. Breaking to your earlier point, you know,

584
00:32:29,840 --> 00:32:33,000
Speaker 1: we saw troubles at the bank, the FED reporting and

585
00:32:33,080 --> 00:32:36,120
Speaker 1: accounting loss on its own balance sheet. What does it

586
00:32:36,280 --> 00:32:39,640
Speaker 1: mean for the financial system as we move into potentially

587
00:32:39,680 --> 00:32:44,000
Speaker 1: a higher rate environment or a higher vall environment for rates.

588
00:32:44,280 --> 00:32:49,760
Speaker 3: I think one of the ideas that has sustained markets

589
00:32:49,760 --> 00:32:53,080
Speaker 3: over the past, call it generation, is the idea of

590
00:32:53,960 --> 00:32:58,000
Speaker 3: federal reserve competence, the notion that people have fed and

591
00:32:58,080 --> 00:33:00,480
Speaker 3: know what they're doing and can make things happened there.

592
00:33:00,600 --> 00:33:04,400
Speaker 3: They are weather makers in finance, and they're responsible for

593
00:33:04,440 --> 00:33:08,360
Speaker 3: the great moderation. They're responsible earlier for Paul Volker responsible.

594
00:33:08,360 --> 00:33:10,080
Speaker 3: So it started with Paul Volker and his mastery of

595
00:33:10,080 --> 00:33:14,200
Speaker 3: the inflation problem. And so I think that the FED

596
00:33:14,280 --> 00:33:17,760
Speaker 3: will be revealed as a bunch of well intended people

597
00:33:17,800 --> 00:33:21,880
Speaker 3: who are involved in a kind of pseudoscience. And people

598
00:33:21,880 --> 00:33:24,120
Speaker 3: will wake up one day and say, I've noticed that

599
00:33:24,160 --> 00:33:26,360
Speaker 3: my weather app is accurate for a day or two,

600
00:33:26,360 --> 00:33:28,320
Speaker 3: but at ten days, I wouldn't chuch. I wouldn't bet

601
00:33:28,320 --> 00:33:31,800
Speaker 3: my dog's life on it. And yet we listened patiently,

602
00:33:31,960 --> 00:33:35,960
Speaker 3: even reverentially, to the economists at the FED, to talk

603
00:33:36,000 --> 00:33:38,040
Speaker 3: about what's going to happen next month or next year.

604
00:33:38,120 --> 00:33:41,520
Speaker 3: They know nothing. I mean, the future is a closed book.

605
00:33:42,600 --> 00:33:46,880
Speaker 3: The screenwriter named Goldman. Butch Cassidy and the Sundance Kid,

606
00:33:46,920 --> 00:33:50,720
Speaker 3: Now they're such great And you said apropos of Hollywood's

607
00:33:50,920 --> 00:33:55,480
Speaker 3: forecasting ability. Nobody knows anything, said William Goldman, correct. Correct

608
00:33:55,560 --> 00:33:58,840
Speaker 3: as to the fashion of future. The difference is that

609
00:33:58,880 --> 00:34:02,160
Speaker 3: the FED thinks it knows something, and thought it knew

610
00:34:02,160 --> 00:34:04,880
Speaker 3: something in twenty twenty when it was going to try

611
00:34:04,920 --> 00:34:08,480
Speaker 3: a little harder to produce more inflation, and thought it

612
00:34:08,560 --> 00:34:12,239
Speaker 3: knew something in twenty twenty one by insisting that the

613
00:34:12,400 --> 00:34:15,400
Speaker 3: problem in front of its eyes was transitory, et cetera.

614
00:34:16,719 --> 00:34:18,279
Speaker 3: I don't mean to ask too much of them, but

615
00:34:18,360 --> 00:34:22,480
Speaker 3: I would ask of them the confession that they really

616
00:34:22,560 --> 00:34:27,320
Speaker 3: don't know. So we will, I think, have that fact,

617
00:34:27,360 --> 00:34:30,879
Speaker 3: that simple, humble fact, presented to us in a way

618
00:34:30,920 --> 00:34:35,520
Speaker 3: we can't deny. Not so long ago, I remember it vividly,

619
00:34:35,640 --> 00:34:38,360
Speaker 3: nineteen eighty eighty one, when you should have been interested

620
00:34:38,400 --> 00:34:42,600
Speaker 3: in owning these There's something called lions and tigers. These

621
00:34:42,600 --> 00:34:46,160
Speaker 3: are trade names for a zero coupon treasury securities priced

622
00:34:46,200 --> 00:34:52,200
Speaker 3: to yield twelve thirteen, fourteen, fifteen percent internal compounding, no

623
00:34:52,280 --> 00:34:55,800
Speaker 3: reinvestment risk for thirty years. Seemed like a good investment. However,

624
00:34:56,840 --> 00:35:00,200
Speaker 3: such was the burden of accumulated loss and the loathing

625
00:35:00,920 --> 00:35:05,840
Speaker 3: that people felt towards this unrepaying, brutally punit of asset class.

626
00:35:05,920 --> 00:35:11,400
Speaker 3: It was Certificates of confiscation was the phrase that bonds acquired.

627
00:35:11,520 --> 00:35:15,920
Speaker 3: That was the people hurling anathemas at the bond market

628
00:35:16,000 --> 00:35:20,160
Speaker 3: and at the Fed. And now did I tell you

629
00:35:20,200 --> 00:35:24,800
Speaker 3: mentioned the Fed's broke. Now it is a hypothetical theoretical insolvency,

630
00:35:24,880 --> 00:35:28,000
Speaker 3: but to me it is a symbolic It is a

631
00:35:28,080 --> 00:35:33,120
Speaker 3: symbolic fact of not a little importance. You know. The

632
00:35:33,640 --> 00:35:36,600
Speaker 3: only thing that looks more like the Silicon Valley balance

633
00:35:36,640 --> 00:35:38,719
Speaker 3: sheet and Silicon Valley is the Fed's balance sheet. And

634
00:35:38,760 --> 00:35:42,640
Speaker 3: they earn at two and they pay at five these

635
00:35:42,719 --> 00:35:46,160
Speaker 3: days and every week they lose a little bit more

636
00:35:46,160 --> 00:35:48,440
Speaker 3: of their capital in the form of a promise to

637
00:35:48,480 --> 00:35:51,800
Speaker 3: the Treasury to one day make it up. People gloss

638
00:35:51,800 --> 00:35:54,040
Speaker 3: over this, say, oh, it's a FED can print money

639
00:35:54,440 --> 00:35:59,000
Speaker 3: but can't print net worth, right, So that's not going

640
00:35:59,000 --> 00:36:01,760
Speaker 3: to go out of business because it is insolvent, unlike

641
00:36:01,800 --> 00:36:05,279
Speaker 3: some of its charges the banks. But the fact that

642
00:36:05,600 --> 00:36:08,920
Speaker 3: shouldn't the FED be maybe shouldn't it be held to

643
00:36:09,040 --> 00:36:14,800
Speaker 3: the same accounting and regulatory standards as the private banks?

644
00:36:14,960 --> 00:36:18,200
Speaker 3: Wouldn't that have forced all the excesses of ZERP.

645
00:36:18,120 --> 00:36:20,200
Speaker 1: And can it can set its own stress test?

646
00:36:20,360 --> 00:36:24,319
Speaker 3: Right? Perhaps Jamie Diamond could write a stress test for

647
00:36:24,360 --> 00:36:25,000
Speaker 3: the FED.

648
00:36:26,680 --> 00:36:27,839
Speaker 2: The ultimate recipe I.

649
00:36:27,800 --> 00:36:29,840
Speaker 3: Heard I heard myself going off on rather a sermon.

650
00:36:30,120 --> 00:36:32,600
Speaker 2: I will still no, not at all. I want to Actually,

651
00:36:33,120 --> 00:36:35,759
Speaker 2: you mentioned how like if you had bought in, like

652
00:36:36,040 --> 00:36:37,840
Speaker 2: you know, at some point in the late seventies or

653
00:36:37,880 --> 00:36:41,560
Speaker 2: early eighties, some of these long dated zero coupon bonds,

654
00:36:41,560 --> 00:36:44,919
Speaker 2: they would have done fantastically well over some length of time,

655
00:36:44,960 --> 00:36:47,359
Speaker 2: like some of the greatest investments evers. But you had

656
00:36:47,400 --> 00:36:49,520
Speaker 2: to deal with those first few years, and maybe you

657
00:36:49,520 --> 00:36:52,840
Speaker 2: took some serious sustained losses. And I was thinking about

658
00:36:52,960 --> 00:36:56,239
Speaker 2: your point about like contrarianism. This is I mean, this

659
00:36:56,360 --> 00:36:59,920
Speaker 2: been devils everyone in the financial industry. The challenge of like, well,

660
00:37:00,080 --> 00:37:02,680
Speaker 2: how do you maintain some sort of out of consensus

661
00:37:03,040 --> 00:37:05,919
Speaker 2: position in a period, especially if you're at well there's

662
00:37:05,920 --> 00:37:09,920
Speaker 2: two there's multiple things, but A there's the psychological battle

663
00:37:09,960 --> 00:37:12,880
Speaker 2: of like, well am I wrong? Is the market wrong? See?

664
00:37:13,040 --> 00:37:14,560
Speaker 2: Like be like you want to make money, and see

665
00:37:14,560 --> 00:37:16,600
Speaker 2: you might if you're managing someone else's money, you might

666
00:37:16,640 --> 00:37:18,799
Speaker 2: not have a very long leach to lose money. What

667
00:37:18,880 --> 00:37:21,720
Speaker 2: is sort of like you're thinking about like that process

668
00:37:21,760 --> 00:37:24,040
Speaker 2: of like okay, like this might be you don't know

669
00:37:24,080 --> 00:37:26,200
Speaker 2: the exact timing of when it's going to work, and

670
00:37:26,239 --> 00:37:28,560
Speaker 2: like reconciling these challenges.

671
00:37:28,120 --> 00:37:31,960
Speaker 3: Well, I have some experience in this mine is it

672
00:37:32,200 --> 00:37:35,480
Speaker 3: is a you know, journalists don't get margin calls. Friends

673
00:37:35,480 --> 00:37:37,080
Speaker 3: of mine who do this for a living. That is

674
00:37:37,120 --> 00:37:40,920
Speaker 3: to say this meaning, identify something that is not in

675
00:37:40,960 --> 00:37:46,640
Speaker 3: favor or in phase, research it, gain conviction, and hold

676
00:37:46,719 --> 00:37:50,239
Speaker 3: it in spite of the scorn and the vitriol of

677
00:37:50,280 --> 00:37:54,359
Speaker 3: those positions. Otherwise, that's the kind of the game. Journalistically,

678
00:37:54,440 --> 00:37:57,720
Speaker 3: all you have to do is have a hard shell.

679
00:37:58,160 --> 00:38:01,040
Speaker 3: If you're doing it in real time with real money,

680
00:38:01,120 --> 00:38:04,600
Speaker 3: you either have to have a very very loyal base

681
00:38:04,760 --> 00:38:10,160
Speaker 3: of limited partners or investors or be managing your own money.

682
00:38:10,760 --> 00:38:14,840
Speaker 3: It's hard. I mean, it's wearing. It is not life enhancing,

683
00:38:15,920 --> 00:38:17,840
Speaker 3: but when it's right, it's really sweet.

684
00:38:19,920 --> 00:38:22,239
Speaker 1: Yeah, you got to do the victory laps well, Jim.

685
00:38:22,320 --> 00:38:23,799
Speaker 1: On that happy note, We're going to have to leave

686
00:38:23,840 --> 00:38:25,400
Speaker 1: it there, but thank you so much for coming on.

687
00:38:25,440 --> 00:38:28,360
Speaker 3: All thoughts really sure are entirely welcome. Tracy both, thank you.

688
00:38:28,400 --> 00:38:30,719
Speaker 2: That's incredible. That's such a true I really appreciate you

689
00:38:30,800 --> 00:38:32,280
Speaker 2: coming back on delight.

690
00:38:32,320 --> 00:38:32,640
Speaker 3: Thank you.

691
00:38:32,840 --> 00:38:36,080
Speaker 2: We'll have you back on in twenty years. Let's see

692
00:38:36,120 --> 00:38:39,240
Speaker 2: read the interest rate cycle, Let's see what fed funds

693
00:38:39,239 --> 00:38:39,800
Speaker 2: and the teams.

694
00:38:39,840 --> 00:38:41,880
Speaker 3: Yeah, I hope I'll be here LifeWise.

695
00:38:55,160 --> 00:38:56,879
Speaker 1: Joe that conversation was really fun.

696
00:38:57,239 --> 00:38:59,359
Speaker 2: That was a lot of fun. I mean we've both

697
00:38:59,400 --> 00:39:04,240
Speaker 2: read gym stuff for years. It's always educational, always historically fulfilling.

698
00:39:04,239 --> 00:39:05,640
Speaker 2: It is great getting to talk in person.

699
00:39:05,800 --> 00:39:08,439
Speaker 1: Also, I love that he can just throw out anecdotes like, oh, yeah,

700
00:39:08,800 --> 00:39:10,560
Speaker 1: this one set of bonds from.

701
00:39:10,640 --> 00:39:12,360
Speaker 2: Yeah, well there's the thing. We could talk for like

702
00:39:12,400 --> 00:39:14,560
Speaker 2: three or four hours, you know about like what was

703
00:39:14,600 --> 00:39:17,279
Speaker 2: it like, you know, buying corporate bonds for like you know,

704
00:39:17,320 --> 00:39:19,640
Speaker 2: AT and T bonds or New York telephone bonds. It's

705
00:39:19,640 --> 00:39:21,719
Speaker 2: six percent and to that, you know, like there's so

706
00:39:21,800 --> 00:39:23,880
Speaker 2: many stories. It would be fun to go down with.

707
00:39:24,200 --> 00:39:26,520
Speaker 1: Absolutely, but the point that stood out to me was

708
00:39:26,560 --> 00:39:31,040
Speaker 1: that muscle memory idea. And I do think I think

709
00:39:31,080 --> 00:39:34,239
Speaker 1: what's happened is it's not just it's not just buy

710
00:39:34,280 --> 00:39:36,320
Speaker 1: the dip because the Fed's going to do something and

711
00:39:36,600 --> 00:39:38,680
Speaker 1: save everyone. It's also that I think a lot of

712
00:39:38,680 --> 00:39:42,200
Speaker 1: people have figured out that momentum is a thing, and

713
00:39:42,360 --> 00:39:44,839
Speaker 1: even though something looks like a bubble, if you can

714
00:39:44,840 --> 00:39:47,080
Speaker 1: get out early enough, you can still make money. So

715
00:39:47,360 --> 00:39:51,120
Speaker 1: instead of running away from bubbles, people kind of run

716
00:39:51,160 --> 00:39:51,719
Speaker 1: towards them.

717
00:39:51,719 --> 00:39:51,919
Speaker 3: Now.

718
00:39:52,840 --> 00:39:56,560
Speaker 2: Absolutely, I also just think that, like I mean, I

719
00:39:56,640 --> 00:39:59,400
Speaker 2: definitely feel this these days, where it's like the memes

720
00:39:59,480 --> 00:40:02,680
Speaker 2: tuck the zerp era of the fang ero so recently

721
00:40:03,120 --> 00:40:05,120
Speaker 2: that it's like, oh, yeah, that's normal. That little dip

722
00:40:05,120 --> 00:40:07,400
Speaker 2: that we had in twenty twenty two and people shunned

723
00:40:07,520 --> 00:40:09,920
Speaker 2: tech that was the aberration. But yeah, you see in

724
00:40:10,000 --> 00:40:12,239
Speaker 2: video and AI you gotta go back to that. And

725
00:40:12,280 --> 00:40:14,839
Speaker 2: then I think this gets back to like the rates thing,

726
00:40:15,080 --> 00:40:17,839
Speaker 2: which is that like five percent or like a six

727
00:40:17,920 --> 00:40:22,360
Speaker 2: percent mortgage feels really high to people after fifteen years

728
00:40:22,360 --> 00:40:24,480
Speaker 2: of or whatever, but it's not right, Like it's not

729
00:40:24,520 --> 00:40:27,160
Speaker 2: high at all, like six percent, and they were much

730
00:40:27,239 --> 00:40:29,960
Speaker 2: higher throughout much the entirety of the nineties, and they

731
00:40:29,960 --> 00:40:33,560
Speaker 2: were much much higher throughout entirely the eighties. But you know,

732
00:40:33,680 --> 00:40:36,720
Speaker 2: for a lot in the entire generation, their entire lives

733
00:40:36,760 --> 00:40:40,080
Speaker 2: of like potentially home buying lives is like basically the

734
00:40:40,160 --> 00:40:40,560
Speaker 2: zerp era.

735
00:40:40,800 --> 00:40:43,719
Speaker 1: I do wonder if the novelty of earning interest on

736
00:40:44,200 --> 00:40:46,120
Speaker 1: bank savings is ever going to wear off for me.

737
00:40:46,280 --> 00:40:49,120
Speaker 1: You know, it's been almost forty years of not earning

738
00:40:49,160 --> 00:40:52,200
Speaker 1: anything and now it's just amazing to get a few

739
00:40:52,200 --> 00:40:52,919
Speaker 1: percentage points.

740
00:40:53,040 --> 00:40:56,000
Speaker 2: I'm so like poisoned by the last decade. I can't

741
00:40:56,000 --> 00:40:58,160
Speaker 2: be bothered to like click the buttons to move over

742
00:40:58,239 --> 00:40:58,759
Speaker 2: for how much?

743
00:40:59,560 --> 00:41:02,120
Speaker 1: Yeah, you can have my money money for nothing and

744
00:41:02,280 --> 00:41:03,919
Speaker 1: negative real return. That's great.

745
00:41:04,600 --> 00:41:04,960
Speaker 3: All right.

746
00:41:05,000 --> 00:41:05,759
Speaker 1: Shall we leave it there?

747
00:41:05,840 --> 00:41:06,480
Speaker 2: Let's leave it there.

748
00:41:06,520 --> 00:41:06,800
Speaker 3: Okay.

749
00:41:06,960 --> 00:41:09,680
Speaker 1: This has been another episode of the Audlots podcast. I'm

750
00:41:09,680 --> 00:41:13,360
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway.

751
00:41:13,040 --> 00:41:15,760
Speaker 2: And I'm Jill Wisenthal. You can follow me on Twitter

752
00:41:15,880 --> 00:41:19,279
Speaker 2: at the Stalwart, follow our producers at Carmen Rodriguez at

753
00:41:19,360 --> 00:41:22,120
Speaker 2: Carmen Arman and dash Oll Bennett at dashbot. And check

754
00:41:22,120 --> 00:41:25,919
Speaker 2: out all of the Bloomberg podcasts under the handle at podcasts,

755
00:41:26,000 --> 00:41:28,799
Speaker 2: and for more odd Loots content, go to Bloomberg dot

756
00:41:28,840 --> 00:41:31,440
Speaker 2: com slash odd Lots, where we have transcripts, a blog,

757
00:41:31,480 --> 00:41:35,080
Speaker 2: and a newsletter. And check out the discord Discord dot

758
00:41:35,160 --> 00:41:38,239
Speaker 2: gg slash odd Lots. Listeners are in their twenty four

759
00:41:38,239 --> 00:41:40,319
Speaker 2: to seven and talk about all these episodes and things

760
00:41:40,320 --> 00:41:42,600
Speaker 2: we talk about. I hang out there a lot, Tracy's

761
00:41:42,600 --> 00:41:43,439
Speaker 2: and there are a lot.

762
00:41:43,600 --> 00:41:44,319
Speaker 3: It's a lot of fun.

763
00:41:44,520 --> 00:42:02,360
Speaker 2: Thanks for listening in