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Speaker 2: Being that you predicted the big short right in two
Speaker 2: thousand and eight, you kind of forecasted that do you
Speaker 2: see parallels in today's economy? I know that there's something
Speaker 2: that a lot of people are nervous about, as far
Speaker 2: as a recession is one thing, but perhaps even something
Speaker 2: bigger than that. That's what some people are actually, you know, predicting.
Speaker 2: Do you see parallels? And are you bearish now the
Speaker 2: same way you were bearished? Then?
Speaker 3: Do I see some parallels? Sure? I see some parallels.
Speaker 3: Am I as barish as I was then? Not even close,
Speaker 3: I mean, not even the same universe. So let me
Speaker 3: just a little elaborate a little bit about that. Do
Speaker 3: I think that there could be a global trade war? Sure,
Speaker 3: it's possible. It's also possible so there won't be a
Speaker 3: global trade war. Do I think that a trade war
Speaker 3: would cause a recession? Absolutely? I think a trade war
Speaker 3: would cause a recession. Do I think a recession that
Speaker 3: could happen because of the trade war would be a
Speaker 3: financial calamity on the same order as great financial crisis
Speaker 3: of two thousand and eight? Not even close, not even
Speaker 3: in the same universe. You know what happened in two
Speaker 3: thousand and eight. I mean, if you could boil down
Speaker 3: the financial crisis of two thousand and eight into a paragraph,
Speaker 3: it would be great financial crisis happened for four reasons.
Speaker 3: Large financial institutions had way too much leverage. A big
Speaker 3: acid class subprime mortgages blew up. Those same large financial
Speaker 3: institutions owned a lot of subprime mortgages and derivatives. In particular,
Speaker 3: credit to fault swaps, which is a very technical financial instrument,
Speaker 3: tied the balance sheets of large financial institutions all over
Speaker 3: the globe into a spiderweb that was so complicated. Nobody
Speaker 3: knew where it began and where it ended. That's the
Speaker 3: cause of it. The reason why that was such a
Speaker 3: caamity is. Look, if General Motors, God forbid, went bankrupt,
Speaker 3: let's just say, and the government didn't bail it out
Speaker 3: and it was liquidated, that would obviously be terrible for
Speaker 3: General Motors. It would be terrible for all the employees
Speaker 3: who got laid off, and all the companies that supply
Speaker 3: stuff to General Motors. Maybe some of them would go bankrupt.
Speaker 3: They would certainly have problems. Maybe that would cause a
Speaker 3: recession in the United States possible, but that's all that
Speaker 3: would happen. But if you can't get your money out
Speaker 3: of the bank, if the financial if the large financial
Speaker 3: institutions go down, Planet Earth burns, that's the end. So
Speaker 3: where are we today? You know, post dot frank the
Speaker 3: leverage of large banks is literally less than half of
Speaker 3: what it was. It's probably almost two thirds less. That's enormous.
Speaker 3: So for example, City Group, which used to be levered
Speaker 3: officially thirty five to one, but if he added up
Speaker 3: all the stuff that didn't officially show up on its
Speaker 3: balance sheet but they were responsible for, it was forty
Speaker 3: to one. Today it's twelve to one. Yeah, it's like
Speaker 3: the distance between Mercury and Pluto. You know, to blow
Speaker 3: up a bank that's levered forty to one, if I
Speaker 3: could use an analogy, it takes a pebble. Blow up
Speaker 3: a bank that's leverage twelve to one, takes a meteor.
Speaker 3: So do I think that, you know, whatever President Trump
Speaker 3: is doing could potentially cause a global recession? Sure as possible.
Speaker 3: Do I think that would cause a financial crisis that
Speaker 3: would cause the banks to go down? Not at all?
Speaker 1: Looking at the state of the economy now right, did
Speaker 1: we look at global trade? Didn't need to be changed? Yes,
Speaker 1: didn't need to be blown up. I mean, there's plenty
Speaker 1: of skeptics on that. I wonder when as you look
Speaker 1: at it, what do you think would have been the
Speaker 1: most effective way to get some some of these trade
Speaker 1: solutions from country to country or from a global standpoint?
Speaker 3: This may be a little bit controversial. I don't completely
Speaker 3: disagree with what President Trump has done in terms of
Speaker 3: imposing towers to get the ball rolling, because I think
Speaker 3: if you went to any country and said, look, we
Speaker 3: don't like the terms of trade, let's talk, they'd laugh
Speaker 3: at you. They'd say go away. So the only way
Speaker 3: you're going to get people to change in terms of
Speaker 3: trade is to put a bazuka to their heads. What
Speaker 3: I don't like is the chaos there we're in and
Speaker 3: we're out, We're out that we're in, We're here's our
Speaker 3: towers and then there's our towers. We're taking it away,
Speaker 3: we're putting it back. That that causes too much. That's
Speaker 3: that's that's not my that's not my strategy. You know,
Speaker 3: by President Trump loves loves chaos, but everybody, most people
Speaker 3: in the world don't. So that's where I would disagree.
Speaker 2: If you were building or a bit short portfolio today,
Speaker 2: what's the one trade that looks almost inevitable to you
Speaker 2: that will pan out over the next four or five years.
Speaker 3: I have no trade that I think would pan out
Speaker 3: within the next year. Okay, what about four to five?
Speaker 3: Four to five. I still think that most of the
Speaker 3: technology trades that people have, you know, whether it's Nvidia
Speaker 3: or Microsoft, any of the well known, will will be
Speaker 3: great because I think we are still in the very
Speaker 3: very early innings of AI. Very early innings were like
Speaker 3: inning one. Yeah, so you know, between now and inning nine,
Speaker 3: it's going to be a bit of an adventure, but
Speaker 3: I think if you stick it out, you'll make a
Speaker 3: lot of money. What's going to happen within the next
Speaker 3: six months because of all the trade negotiations, I wouldn't
Speaker 3: have a clue, and I just would say you need
Speaker 3: to keep your risk lower. You wouldn't try to be
Speaker 3: I would not try and be a hero right now.
Speaker 3: I don't think you know what would argue that the
Speaker 3: markets come down a lot, so valuations are better, and well,
Speaker 3: of course the market's lower, the evaluations look better. That's
Speaker 3: the tutology. The problem is that if you go into
Speaker 3: a global recession, all the arnings astments are going to
Speaker 3: come lower, so then it doesn't look so cheap. On
Speaker 3: the other hand, if most of the countries settle with
Speaker 3: the United States and then everything is fine, it will
Speaker 3: have been a great time to buy. But I can't
Speaker 3: handicap that.
Speaker 2: How much risks are you keeping on the table?
Speaker 3: If I may follow up in my own personal portfolio,
Speaker 3: I have about fifteen percent cash right now, okay, which
Speaker 3: is a lot for me. Are you going on very
Speaker 3: long term? What I have done is I've gone through
Speaker 3: my personal portfolio and any stocks where I said, do
Speaker 3: I really love this? Why do I really own this?
Speaker 3: Is there any thesis? Creep? Get rid of it. That
Speaker 3: was the first thing I did, and I took a
Speaker 3: lot of things just lower and but like I said,
Speaker 3: on long term, the problem was with like let's say,
Speaker 3: liquidating your potfolio. If you wanted to go to an extreme,
Speaker 3: is you got to pay over thirty five percent capital
Speaker 3: gains taxes? So you know, do I think the market's
Speaker 3: going to go down thirty five percent? I mean it could.
Speaker 3: I mean if we have a global recession. It's not impossible,
Speaker 3: but it's a lot. So I'd rather just trim some
Speaker 3: risk and just sit on the sidelines and sit and
Speaker 3: wait until let's go and look if things get better.
Speaker 3: If you miss the first five percent move, So what
Speaker 3: you know, if things if all the trade stuff gets
Speaker 3: settled one way or another, you know, it'll be a
Speaker 3: bull market again for years. So cares if you missed
Speaker 3: the first week?
Speaker 2: Yeah, the dollar is I think I hit a three
Speaker 2: year low. Is that something that's concerned too?
Speaker 3: You you know, let's let's do the doomsday scenario. That's
Speaker 3: some people like to paint. So the doomsday scenario would
Speaker 3: be like the US deficit is too big. People are
Speaker 3: not going to see US bonds as the safety vehicles
Speaker 3: that they once were, so they're going to sell the
Speaker 3: US bonds, and that, of course causes a dollar to
Speaker 3: go down, and something else will replace the dollar as
Speaker 3: a reserve currency, and there goes the United States is
Speaker 3: a great empire, and it's armageddon and cats and dogs
Speaker 3: are lying together, and you know, whatever else happens in
Speaker 3: rmbage depending upon your religion. But I think what people don't.
Speaker 3: And by the way, that thesis has only been around
Speaker 3: for forty years. So I remember in the nineties Pete Peterson,
Speaker 3: who had been one of the founders I think of KKR,
Speaker 3: was talking about how the deficits way too big and
Speaker 3: it's a disaster and God help us, etc. And I
Speaker 3: was in the nineties, and here we are twenty twenty five.
Speaker 3: We're all still pretty healthy. See what what I think
Speaker 3: people miss? And by the way, I can't talk with
Speaker 3: what happens short term to the dollar. What happens short
Speaker 3: term for people training in bonds is not something that
Speaker 3: particularly interests me. So the fact that the dollar has
Speaker 3: sold off, as I think, got a lot more to
Speaker 3: do with you know, hedge funds, repositioning, de risking, you know,
Speaker 3: looking looking for save havens. But long term, what I
Speaker 3: think most people don't recognize that the financial the financial
Speaker 3: system of planet Earth runs on treasuries. Banks, for example,
Speaker 3: lend to one another overnight and what's called the repo market,
Speaker 3: and the repo market is only trillions, and it's all
Speaker 3: at overnight treasures. So to make an argument that the
Speaker 3: dollar is going to lose its reserve status, I think
Speaker 3: you have to make an argument that is going to
Speaker 3: be some sort of substitute for treasuries, especially short term treasuries,
Speaker 3: and right now there's no substitute for short term treasuries.
Speaker 3: I mean, banks are not going to park their money
Speaker 3: in Chinese bonds. They're not going to there's no eural
Speaker 3: bond of any real significance. There's no alternative. So as
Speaker 3: long as there's no alternative, it's not something I particularly
Speaker 3: worry about all that much, even though people like to
Speaker 3: talk about it on CNBC and you know, paint doom
Speaker 3: and Gloom was listen, I predicted doom and gloom once.
Speaker 3: Once was enough. I'm not interested in predicting doom and
Speaker 3: gloom again, unless I really, really seriously thought it was possible.
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