WEBVTT - Zoltan Pozsar on His Next Big Move and the Coming Monetary Divorce 0:00:10.520 --> 0:00:13.880 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:13.960 --> 0:00:15.320 I'm Tracy Alloway. 0:00:15.080 --> 0:00:15.640 And I'm Joe. 0:00:15.720 --> 0:00:18.520 Why isn't thal Joe? Do you remember what we were 0:00:18.560 --> 0:00:19.840 doing this time last year? 0:00:21.440 --> 0:00:21.640 No? 0:00:22.320 --> 0:00:25.959 Yeah, I can barely remember two weeks ago. Yeah, but 0:00:26.040 --> 0:00:28.720 I actually I remember this one mostly because I looked 0:00:28.760 --> 0:00:32.120 it up right before we started doing this recording. But 0:00:32.159 --> 0:00:36.120 this time last year, we were preparing organizing our first 0:00:36.400 --> 0:00:41.839 live All Thoughts debate between Zultan Posar and Perry Maryland. 0:00:42.240 --> 0:00:43.000 That was really fun. 0:00:43.040 --> 0:00:44.000 We got to do that again. 0:00:44.200 --> 0:00:47.879 Yeah, So we were sort of frantically doing a lot 0:00:47.920 --> 0:00:50.519 of the sort of travel arrangements and things like that 0:00:50.560 --> 0:00:50.879 for that. 0:00:52.920 --> 0:00:56.040 Sorry, waking up early in the morning, like of the 0:00:56.120 --> 0:00:58.520 day of the debate, entering names into a database so 0:00:58.560 --> 0:00:59.840 that people could get into the Bloomberg. 0:01:00.920 --> 0:01:04.800 Yeah, yes too. It was fun, all right. But my 0:01:04.920 --> 0:01:08.720 point is it's been a while since we've spoken to 0:01:08.800 --> 0:01:09.600 Sultan Posar. 0:01:10.360 --> 0:01:13.240 It has been a while, and it's unfortunate because he 0:01:13.360 --> 0:01:15.720 is one of our most requested guests. People would listen 0:01:15.720 --> 0:01:17.680 to him every month if we interviewed him. 0:01:18.240 --> 0:01:21.560 I agree, in fact, I think we should do monthly 0:01:21.720 --> 0:01:25.680 or even quarterly interviews with Sultan. But I am very 0:01:25.720 --> 0:01:29.400 happy to say without further ado that Sultan is he's back. 0:01:29.640 --> 0:01:32.720 He's back and so right. So he was at Credit Sweeze, 0:01:32.800 --> 0:01:35.520 he left Credit Sweeze. He's been kind of silent. There 0:01:35.560 --> 0:01:38.440 has been this incredible mystery about what he's going to 0:01:38.520 --> 0:01:41.720 do next, and uh, we don't know. But he's coming 0:01:41.720 --> 0:01:43.680 out on the Odd Lots podcast, so let's find out. 0:01:43.760 --> 0:01:46.720 He's gonna tell us. Now, Sultan, welcome back to the show. 0:01:46.720 --> 0:01:48.080 We're so glad to have you back on. 0:01:48.360 --> 0:01:52.720 This is like when Lebron James announced on ESPN all 0:01:52.760 --> 0:01:54.880 those years ago what he was going to do next. 0:01:55.040 --> 0:01:58.880 So very nice, thanks for having all right, so what 0:01:59.000 --> 0:02:02.280 are you doing? Just jump right into it. Yeah, you 0:02:02.360 --> 0:02:05.360 were strategistic credits us as everyone knows at this point, 0:02:05.480 --> 0:02:06.800 and now what are you up to? 0:02:07.200 --> 0:02:10.400 Well, the next steps is I have founded my own 0:02:10.639 --> 0:02:16.280 macroeconomic consultancy. The name of the firm is Exlunoplurus, and 0:02:16.360 --> 0:02:21.000 I will be providing research to institutional investors and consult 0:02:21.080 --> 0:02:25.360 institutional investors about plumbing as I always have. 0:02:25.800 --> 0:02:29.040 Okay, meny questions, Well let's just start simple. What is 0:02:29.280 --> 0:02:29.720 X you know? 0:02:29.880 --> 0:02:35.800 Plurist man exlunopluris is the opposite of a plural busulum, 0:02:35.880 --> 0:02:38.200 which is this little motto that we can find on 0:02:38.240 --> 0:02:40.079 a great seal of the United States and on the 0:02:40.200 --> 0:02:44.760 dollar bill. It means in English, out of one many. 0:02:45.000 --> 0:02:47.720 It's meant to capture two ideas. The first idea is, 0:02:47.760 --> 0:02:50.680 you know that my retrospective on what I've been doing 0:02:50.760 --> 0:02:55.760 for a strategies for a decade is basically anticipating moments 0:02:55.800 --> 0:02:59.359 when prices fall apart in funding and rates markets. So 0:02:59.400 --> 0:03:02.800 the basic idea is that most of the time things 0:03:02.800 --> 0:03:05.120 straight on top of each other, you know, the industry 0:03:05.160 --> 0:03:08.680 structure is orderly, and then then something bad happens, whether 0:03:08.720 --> 0:03:12.440 it's panic or a pandemic or a balance sheet constraint 0:03:12.560 --> 0:03:16.560 or liquidity constraint, prices fall apart. So out of one price, 0:03:17.240 --> 0:03:19.960 you are dealing with many prices. And so that's basically 0:03:20.080 --> 0:03:22.920 the bread and butter of what a rate strategist and 0:03:22.960 --> 0:03:26.359 a rate strater is doing, anticipating those moments and being 0:03:26.400 --> 0:03:27.040 on the right. 0:03:26.880 --> 0:03:27.840 Side of those movements. 0:03:28.520 --> 0:03:32.440 And then the other idea is that you know global 0:03:32.480 --> 0:03:35.040 macro as such, I think it grew up as a 0:03:35.080 --> 0:03:38.120 concept and an asset price, if you will in the 0:03:38.240 --> 0:03:43.080 unicorn or moment where globalization was moving forward, the dollar 0:03:44.120 --> 0:03:49.480 was the undisputed global hegemonic currency, and so we were 0:03:49.520 --> 0:03:52.920 all kind of creating the global dollar cycle and going forward. 0:03:53.320 --> 0:03:55.320 As we discussed this in the context of bread in 0:03:55.520 --> 0:03:57.880 was three, that's no longer going to be the case. 0:03:57.920 --> 0:04:01.320 So it's kind of capturing the site PST. You know, 0:04:01.440 --> 0:04:07.480 China is trying to extract itself from the Western financial system, 0:04:07.560 --> 0:04:10.800 much like the Western real economy is trying to extract 0:04:10.800 --> 0:04:12.960 itself out of supply chains that. 0:04:12.880 --> 0:04:13.920 Are running through China. 0:04:13.960 --> 0:04:16.400 And so we are I think at the beginning of 0:04:16.440 --> 0:04:19.520 this era the next five ten years. 0:04:19.279 --> 0:04:21.480 At least, where we are going to go through this. 0:04:21.480 --> 0:04:24.920 Monitory divorce and you know, the dollars hegemony is going 0:04:24.920 --> 0:04:28.480 to be challenged by some geo financial moves that the 0:04:28.600 --> 0:04:33.679 chain is blooding, So out of one dominant reserve currency, 0:04:33.720 --> 0:04:36.080 we will have the world where we will have. 0:04:36.120 --> 0:04:37.920 Met That's a great name. 0:04:38.240 --> 0:04:42.719 So, you know, you mentioned moments in macro and I 0:04:42.760 --> 0:04:46.400 think last year when you released that Breton Woods three 0:04:46.520 --> 0:04:49.480 thesis that you talked about on the show and wrote 0:04:49.520 --> 0:04:54.440 a number of research notes about it, definitely demarketed a 0:04:54.640 --> 0:04:57.960 thing that seemed to be, you know, floating out there 0:04:58.000 --> 0:05:02.080 in people's minds, this idea that maybe finally some things 0:05:02.120 --> 0:05:06.520 were changing around dollar hegemony, as you just mentioned. Talk 0:05:06.560 --> 0:05:09.880 to us about that original thesis a little bit more 0:05:10.160 --> 0:05:13.080 and whether or not you think it's been born out 0:05:13.200 --> 0:05:17.160 over the course of the last I guess twelve to 0:05:17.200 --> 0:05:18.479 fifteen months or so. 0:05:19.440 --> 0:05:21.960 I think the concept is very healthy and it's alive. 0:05:22.279 --> 0:05:25.919 I personally see more and more signs that some of 0:05:25.960 --> 0:05:28.800 these teams that we have discussed on that first show 0:05:28.880 --> 0:05:31.840 when we talked about Bretton Woodstree or computer fruition, and 0:05:31.880 --> 0:05:34.560 also the conversation with bit Perry, I think we did 0:05:34.600 --> 0:05:37.560 a quick temperature check on the idea and at the 0:05:37.640 --> 0:05:40.880 conclusion I had there was that, you know, Bretton wood 0:05:40.920 --> 0:05:43.440 Tree is a healthy baby boy, so to speak. So 0:05:43.560 --> 0:05:47.280 it's throwing and development rapidly. Look a couple of things. 0:05:47.480 --> 0:05:52.160 The frame that my answer to that question is, I 0:05:52.240 --> 0:05:55.680 think it's becoming very obvious that when you talk to 0:05:55.800 --> 0:05:59.280 policy circles and investors in the West, I think the 0:06:00.080 --> 0:06:03.719 primary focus is on how do we, so to speak, 0:06:03.760 --> 0:06:07.280 de risk supply chains that are running through China. How 0:06:07.360 --> 0:06:11.120 do we become more you know self sufficient in terms 0:06:11.160 --> 0:06:13.720 of rare or the capital goods we need for energy, 0:06:13.760 --> 0:06:15.159 transition ships and so. 0:06:15.200 --> 0:06:15.920 On and support. 0:06:16.680 --> 0:06:19.559 And so the focus in the West is on making 0:06:19.640 --> 0:06:23.640 sure that the real economy is decoupled from the East, 0:06:23.760 --> 0:06:27.280 so to speak. And when you speak to market participants 0:06:27.279 --> 0:06:30.360 and policy makers in the East, the primary focus. 0:06:30.160 --> 0:06:32.480 There because they have all the supply chains and so 0:06:32.600 --> 0:06:34.520 they are in control of that part of the equation. 0:06:34.680 --> 0:06:37.560 There, the primary focus is on how do you expect 0:06:37.600 --> 0:06:40.440 yourself from the Western financial system and how do you 0:06:40.560 --> 0:06:44.120 de risk this relationship that you have financially with the 0:06:44.279 --> 0:06:49.279 US dollar and Western national institutions and financial centers in general. 0:06:49.880 --> 0:06:52.320 And I would say that since we last spoke about 0:06:52.320 --> 0:06:55.359 this topic, there have been a number of news headlines 0:06:56.160 --> 0:06:58.760 you know, read out from state visits, what have you, 0:06:58.960 --> 0:07:02.320 where you know things like the rendmen b invoicing of 0:07:02.400 --> 0:07:06.200 commodities is moving ahead. We are reading about more and 0:07:06.360 --> 0:07:09.320 more stories where natural gas deals and oil deals are 0:07:09.400 --> 0:07:10.040 invoiced in. 0:07:10.640 --> 0:07:13.000 Redmond and not equest dollar. 0:07:13.760 --> 0:07:16.720 I have not talked about this aspect of breaton Woodstree, 0:07:16.800 --> 0:07:18.800 but I kind of uncovered the new aspect of it, 0:07:18.880 --> 0:07:22.160 which is the whole Central Bank digital currency topic and 0:07:22.280 --> 0:07:26.320 how all that fits into breadon wood tree. And you know, 0:07:26.360 --> 0:07:28.600 when you start digging in that domain, I think you 0:07:28.720 --> 0:07:32.160 uncover several things that are kind of eye opening. So 0:07:32.520 --> 0:07:35.200 let me just offer one for example, the real economy 0:07:35.240 --> 0:07:38.800 and real economy analog again is you know, in the US, 0:07:38.880 --> 0:07:41.080 for example, they don't allow Huawei. 0:07:40.800 --> 0:07:43.760 To build cell phone towers for obvious reasons. 0:07:43.800 --> 0:07:46.760 You know, there's a risk of beevesdropping and spionage, and 0:07:47.200 --> 0:07:50.840 you know, the Central Bank digital currencies are basically the 0:07:50.960 --> 0:07:55.040 same story. I have been kind of cursorially following CBDCs, 0:07:55.080 --> 0:07:58.200 but I couldn't truly put into an overall macro picture 0:07:58.200 --> 0:08:01.240 as to what are CBDCs about. You know, if you 0:08:01.320 --> 0:08:05.120 think about it, China has been quite busy trying to 0:08:05.240 --> 0:08:09.240 internationalize the rent, being it more for trade settlement purposes 0:08:10.040 --> 0:08:13.240 since the middle of the last decades. Around twenty fifteen 0:08:13.320 --> 0:08:16.120 is when they started, and then that process somehow stalled. 0:08:16.160 --> 0:08:18.600 And I think the reason why that process talled is 0:08:18.680 --> 0:08:22.960 that they recognize that it's pointless to internationalize your currency 0:08:23.080 --> 0:08:26.480 through a Western financial system, through London, through New York, 0:08:26.920 --> 0:08:30.320 and through the balance sheets of Western finational institutions when 0:08:30.360 --> 0:08:33.640 you basically do not control that network of institutions that 0:08:33.960 --> 0:08:36.760 your currency is running through for you to do something 0:08:36.880 --> 0:08:39.920 like that to basically knewed out a whole new correspondent 0:08:40.000 --> 0:08:43.680 banking system, Okay. And so you know, this is also 0:08:43.760 --> 0:08:47.520 the time when Russia annexed Ukraine, so the financial sanctions 0:08:47.679 --> 0:08:51.160 became a much more dominant topic in the financial press. 0:08:51.160 --> 0:08:52.520 So I think that was a wake up role for 0:08:52.679 --> 0:08:55.800 China that if they want to indeed internationalized rent fee, 0:08:56.360 --> 0:08:58.880 they need to start from scratch and they need to 0:08:58.920 --> 0:09:02.199 build a the noblestial network that they control. And so 0:09:02.320 --> 0:09:04.559 this is also the time when CBDC has become a 0:09:04.600 --> 0:09:08.280 hot topic. You know, CBDCs started in China, you know 0:09:08.360 --> 0:09:10.760 the ec and y. And the way I think about 0:09:10.840 --> 0:09:15.000 CBDCs and developments in net space today is that you 0:09:15.160 --> 0:09:19.000 basically need to imagine a world where five ten years 0:09:19.040 --> 0:09:22.000 from now, we are going to have the renmnty that's 0:09:22.080 --> 0:09:27.120 far more internationally used than today, but the settlement of 0:09:27.320 --> 0:09:30.400 international R and B transactions are going to happen on 0:09:30.520 --> 0:09:33.360 the balance sheets of central banks. So instead of having 0:09:33.400 --> 0:09:37.480 a network of correspondent banks, we should be thinking about 0:09:37.640 --> 0:09:41.560 a network of correspondent central banks and a world where 0:09:41.840 --> 0:09:43.920 you have a number of different countries. In each of 0:09:44.000 --> 0:09:47.320 those different countries have their banking systems using the local currency. 0:09:47.840 --> 0:09:50.439 But when country A wants to trade the country B 0:09:51.160 --> 0:09:55.120 you know, Thailand with China, for example, the effects needs 0:09:55.160 --> 0:09:58.280 of those two local banking systems are going to be 0:09:58.480 --> 0:10:01.439 met by dealings between two central banks. 0:10:01.800 --> 0:10:03.440 And so when you reimagine a. 0:10:03.480 --> 0:10:06.160 System like this, it's basically a state the state, and 0:10:06.200 --> 0:10:10.120 a central bank to central bank network that is completely 0:10:10.240 --> 0:10:14.840 independent of Western financial centers and the dollar. So there's 0:10:14.880 --> 0:10:17.040 a ton of development we can develop some time liter 0:10:17.160 --> 0:10:19.599 and show talk about this. So there's a ton of 0:10:19.640 --> 0:10:22.959 development on NetFront. And also the context here is that 0:10:23.880 --> 0:10:27.120 if you want to imagine an alternative to a dollar 0:10:27.160 --> 0:10:29.520 based system, you know, the single most important thing that 0:10:29.720 --> 0:10:32.319 makes the dollar so important is that ninety percent of 0:10:32.400 --> 0:10:36.199 ethics transactions any given day in the world use the 0:10:36.320 --> 0:10:40.040 US dollar as one leg of the transaction. Okay, So 0:10:40.720 --> 0:10:44.920 basically that's because we inherited the system where if you 0:10:45.120 --> 0:10:48.480 want to sell you know, if you want to settle 0:10:48.920 --> 0:10:52.160 a transaction between someone in Hungary in Thailand, okay, the 0:10:52.240 --> 0:10:54.240 way you will do that today is you would sell 0:10:54.240 --> 0:10:56.360 your Hungarian for it buy. 0:10:56.320 --> 0:10:59.480 Euros, sell the euro and buy the dollar and sell 0:10:59.520 --> 0:11:00.800 the US iBOT. 0:11:01.280 --> 0:11:04.720 So that's basically three different currency pairers, three market makers, 0:11:04.800 --> 0:11:09.559 three bid ask spreads. Incredibly inefficient. But again, if you 0:11:09.640 --> 0:11:13.040 go back to this concept of correspondent central banks as 0:11:13.040 --> 0:11:16.920 opposed to correspondent banks, this transaction just can settle between 0:11:17.200 --> 0:11:20.760 the local Bagarian banking system and the local tie banking system. 0:11:20.760 --> 0:11:24.280 We have to do central banks as dealers of less 0:11:24.320 --> 0:11:26.400 resorts in the FX markets. 0:11:26.600 --> 0:11:29.120 And so that that's the last piece I want to mention. 0:11:29.280 --> 0:11:31.559 In this part, which is that you know, in the 0:11:31.640 --> 0:11:34.480 West we are talking about this dealer of less resort 0:11:34.559 --> 0:11:36.839 thing a lot. And the context in which we talk 0:11:36.840 --> 0:11:39.160 about dealer of less resort in the West and in 0:11:39.240 --> 0:11:42.160 the US case specific, is that we need a dealer 0:11:42.200 --> 0:11:44.560 of less resort for the treasury market because the treasuring 0:11:44.640 --> 0:11:45.520 market is not liquid. 0:11:45.760 --> 0:11:46.800 That's where the focus is. 0:11:46.840 --> 0:11:48.559 And of course we need a dealer of less resort 0:11:48.640 --> 0:11:51.480 and the repo market and the FX pop market, but 0:11:51.600 --> 0:11:55.240 I think it's also time to start thinking about dealers 0:11:55.320 --> 0:11:58.839 of first resorts in terms of FX market making for 0:11:59.000 --> 0:12:02.000 the global East, and which is the Central Bank Salfurence, 0:12:02.000 --> 0:12:04.840 the Central Bank correspondent system that I'm describing. 0:12:21.400 --> 0:12:23.640 This is so interesting because I don't think i'd ever 0:12:23.840 --> 0:12:29.400 heard anyone talk about cbdc's within the context of like 0:12:29.600 --> 0:12:33.920 a new kind of plumbing, and you hear stuff about, Okay, well, 0:12:33.960 --> 0:12:36.240 you know, it's the twenty twenty first century and we 0:12:36.360 --> 0:12:38.000 need to be able to pay our stuff on our phones, 0:12:38.040 --> 0:12:40.280 which we already can do, or sometimes you hear about 0:12:40.280 --> 0:12:43.760 it in the context of privacy. I've always had this 0:12:43.960 --> 0:12:46.680 theory that CBDCs are just a way for central bankers 0:12:46.720 --> 0:12:49.640 to get invited to panels and yet and get really 0:12:49.760 --> 0:12:52.880 plush jobs after they leave the central banking world, like 0:12:53.080 --> 0:12:55.400 doing digital money for visa or something like that. So 0:12:55.600 --> 0:12:57.920 but this is like actually sort of like an interesting 0:12:58.040 --> 0:13:00.079 theory before we go a little bit further down on 0:13:00.120 --> 0:13:02.079 this road, because I want to talk more about it, 0:13:02.520 --> 0:13:04.439 but I'm still curious about the business. You know, you're 0:13:04.440 --> 0:13:07.040 going to be going out to, you know, be independent. 0:13:07.679 --> 0:13:10.520 What is your sort of vision for X you know pluris, 0:13:10.760 --> 0:13:12.839 which is again I think is a really clever name, 0:13:13.000 --> 0:13:15.640 the opposite of e plurbus union. What is your vision 0:13:15.679 --> 0:13:17.400 for like what kind of business who it will be? 0:13:17.679 --> 0:13:20.480 Is it going to be who are your clients like, 0:13:20.720 --> 0:13:22.280 talk to us a little bit about what your vision 0:13:22.400 --> 0:13:24.200 for your your firmat. 0:13:25.280 --> 0:13:28.200 Well, thanks for coming back to that. I mean, look, 0:13:28.360 --> 0:13:29.120 I figure you're. 0:13:28.960 --> 0:13:31.559 Going to announce the decision, the big decision here on 0:13:31.679 --> 0:13:34.240 odd lots happy, I like, I'm actually also just I'm 0:13:34.320 --> 0:13:35.720 very curious about how this world works. 0:13:35.880 --> 0:13:37.679 Okay, So look, I have a lot for two streams 0:13:37.720 --> 0:13:40.920 of publications in terms of research. The first one there 0:13:40.960 --> 0:13:44.360 will be money, Banks and Bases. This would be the 0:13:44.440 --> 0:13:48.079 publication that that most people kind of you know, identify 0:13:48.200 --> 0:13:50.480 me with. So I'd be looking at the fifty largest 0:13:50.520 --> 0:13:52.600 balan hips in the world with a lot of attention, 0:13:52.720 --> 0:13:54.120 you know that what the big banks are up to, 0:13:54.240 --> 0:13:55.920 what the gesips are up to, what are they doing 0:13:55.960 --> 0:13:59.400 in their portfolios or the balanceships constraints. And it's going 0:13:59.480 --> 0:14:02.439 to be based on a research piece about the day 0:14:02.480 --> 0:14:05.280 to day working of the dollar system as we know 0:14:05.400 --> 0:14:09.400 it today. And then the parallel publication will be Money 0:14:09.480 --> 0:14:12.439 and World Order, which is going to keep track of 0:14:12.840 --> 0:14:16.920 how Breton Bookstree is evolving because you know these topics 0:14:17.000 --> 0:14:22.080 of the dollarization, the remodetization of gold, you know, using 0:14:22.160 --> 0:14:25.680 central bank digital currencies to build out to knit out, 0:14:25.920 --> 0:14:29.240 you know, the novo financial system, you know, the petrol 0:14:29.360 --> 0:14:32.040 you want, and the rending be invoicing of commodities and 0:14:32.240 --> 0:14:33.800 created goods going forward. 0:14:33.880 --> 0:14:36.040 I think these are basically. 0:14:35.720 --> 0:14:40.160 The two lenses through which one should be following dollar 0:14:40.240 --> 0:14:43.560 funding and dollar rates markets going forward, because you know, 0:14:43.720 --> 0:14:45.280 the day to day we just have to live with, 0:14:45.480 --> 0:14:49.640 but then we absolutely cannot lift our eyes off all 0:14:49.680 --> 0:14:53.280 the geopolitical realities and challenges that that the dollar will 0:14:53.320 --> 0:14:56.320 be facing. So these will be the two publications that 0:14:56.400 --> 0:14:59.360 subscribers will get. As I said, you know, it's a 0:14:59.600 --> 0:15:02.200 it's a price side, so you know, the target audiences 0:15:02.320 --> 0:15:06.520 institutional investors exclusively and that and not retail investors, and 0:15:06.560 --> 0:15:10.200 so I will be completely behind the paywall and subscribers 0:15:10.240 --> 0:15:13.360 will be able to chat with me and the conference 0:15:13.400 --> 0:15:15.880 calls and meetings, And that's basically the simple vision. 0:15:16.880 --> 0:15:19.960 I was actually going to circle back to that towards 0:15:20.040 --> 0:15:24.440 the ends, but since you guzumped me, let me ask 0:15:24.520 --> 0:15:27.360 a question that sort of squares these two thoughts, like 0:15:27.440 --> 0:15:31.320 the new business and the Breton Woods three vision. So 0:15:31.560 --> 0:15:34.560 one of the criticisms that we sometimes hear about, you know, 0:15:35.280 --> 0:15:40.720 big bold predictions about changes in the overall financial system 0:15:40.960 --> 0:15:45.040 is that it's hard to actually invest money based on them. 0:15:45.360 --> 0:15:47.440 So I guess the question is, you know, if someone 0:15:47.480 --> 0:15:52.840 hears Breton Wood's three new central bank digital currencies, four 0:15:53.000 --> 0:15:57.880 x lenders of first resort, things like that, what's actionable 0:15:58.120 --> 0:16:01.200 about those ideas? What is it actually mean for investors? 0:16:02.520 --> 0:16:03.440 I think it means a lot. 0:16:03.600 --> 0:16:05.880 So Number one, I think if you are looking at 0:16:05.920 --> 0:16:11.600 a whole new plumbing where you know, let's back up 0:16:11.640 --> 0:16:13.680 for example, I mean we are used to thinking about 0:16:13.720 --> 0:16:17.000 a world where there is either a dollar shortage in 0:16:17.120 --> 0:16:19.680 some regions or dollar surplus in other regions, and then 0:16:19.720 --> 0:16:22.920 these surfaces get recycled either in the FX swap market 0:16:23.680 --> 0:16:27.960 or in the rate market. And you know, I think 0:16:28.040 --> 0:16:31.640 if we end up in a world where countries are 0:16:31.680 --> 0:16:35.600 now going to have several options, for example, as to 0:16:36.040 --> 0:16:40.800 how they pay for commodities, and let's take oil for 0:16:40.920 --> 0:16:45.320 an example. You know, people hold dollars many reasons. One 0:16:45.680 --> 0:16:48.320 reason why people hold dollars is because oil it has 0:16:48.400 --> 0:16:52.000 been historically priced in dollars. So if you are a 0:16:52.120 --> 0:16:55.320 poor country that needs to import oil on the margin, 0:16:55.400 --> 0:16:58.160 you need to have dollars to be able. 0:16:58.000 --> 0:16:58.320 To do that. 0:16:58.480 --> 0:17:00.880 Now, if you are going to live a world where 0:17:02.280 --> 0:17:05.840 you can pay dollars for oil, but you can also 0:17:05.960 --> 0:17:09.240 pay rendmin b or oil. But if you are a 0:17:09.320 --> 0:17:12.280 gold miner, you can also pay for oil to gold 0:17:12.960 --> 0:17:16.879 like Gone for example. You know, that's basically three options 0:17:16.920 --> 0:17:20.040 you're looking on at a screen, and so you will 0:17:20.119 --> 0:17:24.560 just choose whichever one is cheaper. And that picture gets, 0:17:24.680 --> 0:17:27.399 you know, further complicated by the fact that there is 0:17:27.640 --> 0:17:31.320 oil blowing west, which is one price, and oil blowing east, which. 0:17:31.200 --> 0:17:32.119 Is another price. 0:17:32.240 --> 0:17:36.400 So it's not just again out of one many it's 0:17:36.480 --> 0:17:38.359 not just one price anymore, but it's a bunch of 0:17:38.440 --> 0:17:41.560 prices and a bunch of currencies, and choose whichever works 0:17:41.680 --> 0:17:44.040 best for you. So and also if you go into 0:17:44.080 --> 0:17:48.040 a world where trade is not dominantly invoiced in dollars, 0:17:48.240 --> 0:17:51.280 so people don't have to borrow dollars to import stuff 0:17:51.320 --> 0:17:55.680 and the exporters don't earn dollars exclusively, then it's no 0:17:55.840 --> 0:17:58.840 longer a machinery where you know the dollars are getting 0:17:58.880 --> 0:18:01.440 created on the margin, that dollars are getting accumulated on 0:18:01.520 --> 0:18:04.000 the margin, and the question is how do you recycle 0:18:04.119 --> 0:18:07.920 the earned dollars back into funding and rates markets. So 0:18:08.040 --> 0:18:11.119 if that world splits into you know, we are now 0:18:11.200 --> 0:18:13.080 doing half of this in rendment B and the other 0:18:13.200 --> 0:18:16.600 half we are doing it in dollars, then naturally, for 0:18:16.720 --> 0:18:19.720 example the fxplop market, the landscape of the fx pop 0:18:19.800 --> 0:18:21.320 market is going to get redrawn. 0:18:22.000 --> 0:18:22.800 The following way. 0:18:23.320 --> 0:18:26.000 There will be regions that used to be short dollars, 0:18:26.760 --> 0:18:29.119 but now they are not because they can you know, 0:18:29.560 --> 0:18:32.640 source rendmen be through the rentman b spoplanes from the PBOC, 0:18:33.200 --> 0:18:36.200 So dollars shortages and certain regions are going to disappear. 0:18:36.720 --> 0:18:39.920 Then there will be regions that used to recycle dollar 0:18:40.040 --> 0:18:42.840 surpluses into the fx splop market. You know, maybe the 0:18:43.440 --> 0:18:46.560 Reserve Bank of Australia putting in the fx pop market 0:18:46.600 --> 0:18:50.080 and then you know, some Japanese investor picking those dollars 0:18:50.200 --> 0:18:53.560 up in the fx pop market. You has their treasury portfolios, 0:18:53.600 --> 0:18:56.200 but have you you know, if Australia ends up, you know, 0:18:56.320 --> 0:18:59.600 earning only half as much dollars then as they used 0:18:59.600 --> 0:19:01.640 to in the past, and the other half is now 0:19:02.240 --> 0:19:04.880 in renomn B, then the dollar recycling is going. 0:19:04.760 --> 0:19:05.560 To suffer as well. 0:19:05.640 --> 0:19:09.000 So you know, the supply of dollars in fx pop 0:19:09.080 --> 0:19:11.440 markets and the demand for dollars in the fx pop 0:19:11.520 --> 0:19:14.200 market is going to get redrawn, and I think there 0:19:14.280 --> 0:19:16.359 will be some regions that are going to turn that 0:19:16.440 --> 0:19:18.359 are going to be turned on their head, you know. 0:19:18.560 --> 0:19:22.040 So there will be positive trust currency bases that will 0:19:22.119 --> 0:19:24.679 turn negative, and there will be negative trust currency bases 0:19:24.760 --> 0:19:27.440 that will turn positives. So it's just one example for 0:19:27.560 --> 0:19:30.399 example in terms of fxpops, and then in terms of 0:19:30.800 --> 0:19:33.080 you know, the rest of the world's demand for treasuries, 0:19:33.119 --> 0:19:36.280 which is a big question again. Dollars you historically need 0:19:36.359 --> 0:19:38.680 because you need to import a bunch of things which 0:19:38.760 --> 0:19:42.000 have been exclusively invoiced in dollars. But if you have 0:19:42.119 --> 0:19:45.000 a world where things are being invoiced half in dollars 0:19:45.040 --> 0:19:48.640 and have rende, you know, that need to accumulate dollar. 0:19:48.560 --> 0:19:50.120 Reserves doesn't exist there. 0:19:50.760 --> 0:19:52.800 China, I think is a very important example in this 0:19:52.960 --> 0:19:56.080 regard because one reason why China has so many fex 0:19:56.119 --> 0:19:59.280 reserves because that's kind of like your life insurance policy, 0:19:59.400 --> 0:20:03.800 because all the commodities and foodstuffs that they need to import. 0:20:04.080 --> 0:20:05.840 I mean, I think the big five commodities that the 0:20:05.920 --> 0:20:10.440 import is natural gas, oil, soybeans, copper, gut knows what 0:20:10.600 --> 0:20:13.640 else but you know, the annual bill for those imports 0:20:13.720 --> 0:20:16.360 is running the five hundred billions, you know, so if 0:20:16.359 --> 0:20:20.560 you don't have the dollars to pay for those, your toast. 0:20:20.640 --> 0:20:22.320 So you have to have a lot of dollar reserves. 0:20:22.440 --> 0:20:25.240 But if you end up in a world where you 0:20:25.320 --> 0:20:29.760 can now force commodity exporters to accept your currency for 0:20:29.960 --> 0:20:33.120 those commodity imports and not the US dollar, you basically 0:20:33.200 --> 0:20:37.040 have gained sovereignty from a monetary perspective, and so again 0:20:37.560 --> 0:20:39.760 you will not have to run with as much effects reserves. 0:20:39.800 --> 0:20:41.920 And so you know, this is going to have feedback 0:20:41.960 --> 0:20:45.520 effect on you know, demand for treasuries in general and 0:20:45.640 --> 0:20:47.639 on the margin. You know, things are always in the 0:20:47.680 --> 0:20:50.480 margin devidance. So I think if these teams are going 0:20:50.520 --> 0:20:52.400 to play out over the next five to ten years 0:20:52.440 --> 0:20:55.240 on the margin, you know, demand for treasuries and the 0:20:55.320 --> 0:20:58.919 recycling of dollars in the front end, then an affect 0:20:59.000 --> 0:21:00.919 and the upgrades market, I think, is going to get 0:21:00.960 --> 0:21:01.560 pushed around. 0:21:02.200 --> 0:21:04.680 Would you anticipate in you know, or do you have 0:21:04.760 --> 0:21:06.920 some timing Like we talked about this on a recent 0:21:06.960 --> 0:21:10.600 episode with Karthik centerund But they will see, you know, 0:21:10.720 --> 0:21:13.119 there are a lot of countries around the world that 0:21:13.280 --> 0:21:16.320 float dollar bonds for one reason or another. Do you 0:21:16.359 --> 0:21:21.680 anticipate that we'll see if rinmand B internationalization continues, that 0:21:21.840 --> 0:21:25.760 we will see various ems float more rinman B bonds 0:21:25.920 --> 0:21:29.080 or would that be a crucial aspect towards a successful 0:21:29.359 --> 0:21:31.320 internationalization of R and B. 0:21:32.840 --> 0:21:35.560 I think it can be a part of our MBA internationalization. 0:21:35.680 --> 0:21:38.720 I mean, you know, it's just the way of kind 0:21:38.760 --> 0:21:41.200 of raising offshore R and B that's out there, and 0:21:41.440 --> 0:21:44.920 you can either tap swaplights with the PBOC. You know, 0:21:45.000 --> 0:21:47.200 that's a very important aspect of it. I mean, BBOC 0:21:47.320 --> 0:21:50.040 has swap lined with way more countries than the USA 0:21:50.080 --> 0:21:53.000 swop lines for example, So there is you know, when 0:21:53.040 --> 0:21:55.600 you kind of look at the topography of that EBOC 0:21:55.720 --> 0:21:58.280 spopline network and when you look at the topography of 0:21:58.320 --> 0:22:02.720 the central banks that are actively planning to have a 0:22:02.800 --> 0:22:05.639 CBDC or they actually have a CBDC pilot up and 0:22:05.760 --> 0:22:07.760 running already, I mean, there's a perfect overlap. 0:22:07.840 --> 0:22:07.960 You know. 0:22:08.119 --> 0:22:10.639 So if you think about the swaps as the funding 0:22:10.680 --> 0:22:13.240 angle to the RENVP that you don't have in the 0:22:13.320 --> 0:22:16.080 system get and then if you look at the CBDC 0:22:16.280 --> 0:22:19.359 as the kind of swapping and clearing of existing local 0:22:19.480 --> 0:22:21.760 currencies in the system. I mean you basically have a 0:22:21.800 --> 0:22:25.879 spot effects market and a funding market infrastructure around it. 0:22:26.000 --> 0:22:28.600 So you know, you can internationalize the rendom be that way, 0:22:29.080 --> 0:22:32.560 you can internet nationalize it by you know, em compries 0:22:32.640 --> 0:22:37.640 raising r and bonds to raise term RMB liquidity. But again, 0:22:37.840 --> 0:22:40.000 I think the most important thing here is that we 0:22:40.119 --> 0:22:44.400 are starting to see evidence that more and more commodity 0:22:44.480 --> 0:22:49.240 trades are being settled in rendmen b. And also over 0:22:49.280 --> 0:22:52.360 the past year, the renminb's share of trade and ends 0:22:53.240 --> 0:22:56.639 has increased tremendously. I think it has increased from barely 0:22:56.720 --> 0:22:59.320 one percent to five percent in a twelve month period 0:22:59.800 --> 0:23:03.159 and now it's at far with the euro's share of tradements. 0:23:03.480 --> 0:23:06.160 And again, if that one twelve month period is any sign, 0:23:06.240 --> 0:23:08.800 you know, you project that five ten years out you 0:23:08.920 --> 0:23:09.879 can have a lot of ground. 0:23:09.960 --> 0:23:12.399 That's the rent if you can gain you know. 0:23:12.480 --> 0:23:17.240 Sultan, you mentioned changes in structural demand for treasuries and 0:23:17.359 --> 0:23:19.440 I wanted to ask you about this because this is 0:23:19.520 --> 0:23:22.639 one of the I guess the last research notes that 0:23:22.760 --> 0:23:25.800 you wrote at Credit Swiss. I think it was in January, 0:23:25.880 --> 0:23:28.399 so definitely not the final one. But you were talking 0:23:28.440 --> 0:23:31.240 about at some point the Fed's going to need to 0:23:31.400 --> 0:23:36.160 come in and support the treasury market once again because 0:23:36.520 --> 0:23:39.159 you have all these natural buyers of bonds who are 0:23:39.800 --> 0:23:43.040 starting to step away. And I think you talked about 0:23:43.080 --> 0:23:46.720 potentially the FED having to restart asset purchases as soon 0:23:46.760 --> 0:23:49.640 as the summer. Is that something that you still see. 0:23:49.640 --> 0:23:54.480 On the table, Well, it's the summer. Yeah, So let's 0:23:54.480 --> 0:23:56.520 put it this way. I mean, we have now the 0:23:56.640 --> 0:23:59.280 offer on buyback program that's up and running. You can 0:23:59.320 --> 0:24:02.960 find that mistake and correct yep, you're right, yeap, Okay, 0:24:03.040 --> 0:24:05.639 so there is that, and then we had, you know, 0:24:05.720 --> 0:24:08.800 the problems around SVP and some other banks. 0:24:08.840 --> 0:24:10.200 So let's just put it this way. 0:24:10.400 --> 0:24:13.280 I think that when we think about these what is 0:24:13.320 --> 0:24:15.119 the government going to have to do to step in 0:24:15.200 --> 0:24:17.720 on the margin to calm things down? You know, I 0:24:17.840 --> 0:24:20.400 always tell you that the answer is always the longest spectrum. 0:24:20.640 --> 0:24:23.000 So I think we are in the ante room of something. 0:24:23.560 --> 0:24:26.679 You know, we are dealing with illiquidity with the buybacks. 0:24:27.359 --> 0:24:32.920 So far, so good. We have dealt with underwater bank portfolios. 0:24:33.119 --> 0:24:37.640 I mean the bank term funding program effectively your ability 0:24:37.760 --> 0:24:41.919 to raise at you know, to value underwater bonds at 0:24:41.960 --> 0:24:45.280 the FED at bar and raise liquidity that way if 0:24:45.320 --> 0:24:47.840 you have to. I think that's a pretty that's a 0:24:48.160 --> 0:24:51.480 pretty big support to market functioning. 0:24:51.560 --> 0:24:53.600 So I think, you know, things are happening on the. 0:24:53.640 --> 0:24:56.639 Margin, which kind of points to the FED and the 0:24:56.720 --> 0:25:01.600 Treasury building scaffolding around the treasury market to deal with 0:25:02.440 --> 0:25:05.960 the illiquidity issues and this lack of marginal buyer issues 0:25:06.040 --> 0:25:07.280 that we have been talking about. 0:25:07.720 --> 0:25:07.879 You know. 0:25:08.000 --> 0:25:10.040 The other point here is that you know, in the 0:25:10.080 --> 0:25:11.920 front end there is a ton of liquidity, and so 0:25:12.240 --> 0:25:15.000 all these issue and that the Treasury has been doing 0:25:15.080 --> 0:25:17.359 and will be doing is going to be front and heavy, 0:25:18.040 --> 0:25:21.240 you know. So that's another way of dealing with treasury 0:25:21.320 --> 0:25:23.680 market functioning. I mean, you have two trillion dollars in 0:25:23.760 --> 0:25:26.920 our fy viacility. You're just going to issue where you 0:25:27.040 --> 0:25:29.320 can most likely soak up a lot of liquidity without 0:25:29.359 --> 0:25:29.960 any glitches. 0:25:30.320 --> 0:25:34.080 But again, I think this underlying issue that we are talking. 0:25:33.880 --> 0:25:36.320 About that the world is probably going through a split 0:25:36.440 --> 0:25:39.359 where demand for treasuries from the rest of the world 0:25:40.040 --> 0:25:42.840 is probably not going to be what it wants was. 0:25:43.400 --> 0:25:45.280 It's going to be an issue and as these issues 0:25:45.320 --> 0:25:47.400 pop up, we are going to be dealing with them 0:25:48.080 --> 0:25:50.040 in a step by step passion. But again, I think 0:25:50.119 --> 0:25:53.040 these illiquidity problems are present and we are dealing with 0:25:53.200 --> 0:25:54.560 them as they pop up. 0:26:11.560 --> 0:26:14.320 I want to get you know, your take further on 0:26:14.440 --> 0:26:16.480 like some of the banks and particularly the aftermath of 0:26:16.680 --> 0:26:18.560 SVB et cetera. But before we do, you know, going 0:26:18.640 --> 0:26:22.600 with thinking back a year ago, this conversation or versions 0:26:22.640 --> 0:26:26.000 of this conversation might have been much more commodity centric. 0:26:26.600 --> 0:26:30.080 And obviously oil has fallen quite a little bit. There 0:26:30.160 --> 0:26:32.920 was a lot of stress a year ago about the 0:26:33.440 --> 0:26:37.320 European electricity costs, which have come down significantly. Generally, there's 0:26:37.359 --> 0:26:39.920 been a lot of easing there. But I'm curious, like, 0:26:40.840 --> 0:26:43.520 was that just a sort of like a one time 0:26:44.000 --> 0:26:47.280 reset in terms of maybe post pandemic shocks and of 0:26:47.359 --> 0:26:51.040 course the invasion of Ukraine and that things are settled 0:26:51.240 --> 0:26:56.840 or will sort of like commodity fragility, commodity volatility, anxiety 0:26:56.880 --> 0:27:00.600 about sourcing energy be sort of a permanent or semi 0:27:00.680 --> 0:27:04.040 permanent condition over the next several years as part of 0:27:04.119 --> 0:27:06.400 this sort of Bretton Wood's three point zero vision. 0:27:07.840 --> 0:27:10.520 Yeah, so, you know, to be intellectually honest to ourselves 0:27:10.560 --> 0:27:12.680 and to the listeners, yes, we did talk about you know, 0:27:12.760 --> 0:27:18.920 commodities creating a bigger goal in you know, reserve management practices. 0:27:18.760 --> 0:27:21.919 And whatnot, among many other teams. So I would say that. 0:27:23.640 --> 0:27:27.480 For me, what survives that commodity aspect of the Breton 0:27:27.520 --> 0:27:31.800 would three pieces is that I think gold is definitely 0:27:32.640 --> 0:27:35.879 something that's coming back as a theme. I mean, just 0:27:35.960 --> 0:27:37.800 to give you a very good example, when I saw 0:27:38.440 --> 0:27:41.600 I think Barry Ikagreen was a co author on that paper. 0:27:41.960 --> 0:27:45.960 The IM published a paper about gold and the title 0:27:46.000 --> 0:27:50.000 I think was a barbarous relic no More and it 0:27:50.119 --> 0:27:52.960 was co authored by Barry Ikongreen. So I'll hide behind 0:27:53.000 --> 0:27:57.840 it a little bit, but I think it's noteworthy when 0:27:57.920 --> 0:28:02.639 someone like Barry ikongreenews probably the official biographer of the dollar, 0:28:03.359 --> 0:28:05.359 rites of paper like that, and I think we are 0:28:05.400 --> 0:28:07.760 seeing the more and more in the data that especially 0:28:07.880 --> 0:28:12.080 the countries that are not geopolitically aligned to the US 0:28:12.280 --> 0:28:16.040 are shunning treasuries and shunning the dollar and they are 0:28:16.119 --> 0:28:18.960 buying gold instead. I think there is also a number 0:28:19.000 --> 0:28:21.680 of other headlines which I think are important to keep 0:28:21.680 --> 0:28:24.760 an eye on because individually they might not sum up 0:28:24.800 --> 0:28:27.200 too much. But I think in the fatality of these 0:28:27.280 --> 0:28:32.520 things probably point a trend. You know, Ghana and Russia 0:28:32.600 --> 0:28:37.600 basically had an oil for gold deal whereby Russia ships 0:28:37.880 --> 0:28:41.200 oil to Ghana and Ghana pays gold for. 0:28:41.360 --> 0:28:42.720 The oil that they receive. 0:28:42.760 --> 0:28:44.640 I mean, the basic idea was that a country that 0:28:44.680 --> 0:28:49.120 has prepidy and offex reserves US dollars mostly that also 0:28:49.280 --> 0:28:51.200 minds a lot of gold is going to pointless for 0:28:51.320 --> 0:28:55.280 them to spend their precious dollars on oil when they 0:28:55.360 --> 0:28:58.200 can just swap gold for oil and kind of get 0:28:58.240 --> 0:29:00.400 their oil de band and they have you know, effects 0:29:00.440 --> 0:29:06.160 reserves left for other stuff pharmaceuticals for example. Again, geopolitics 0:29:06.240 --> 0:29:08.280 is at the angle here, but you know, Russia and 0:29:08.400 --> 0:29:12.080 Iran are establishing a special economic zone along the CASP 0:29:12.240 --> 0:29:14.920 and c where the trade is going to be settled 0:29:15.480 --> 0:29:19.960 in a gold act digital token. Forget which country it was, 0:29:20.040 --> 0:29:22.840 but you know there's another gold rich African country which 0:29:22.880 --> 0:29:26.960 is playing with this idea of a gold bag digital token. Again, 0:29:27.160 --> 0:29:30.120 I think these are interesting developments, but again some of 0:29:30.200 --> 0:29:32.560 the last ones that I mentioned are probably on the fringes. 0:29:32.600 --> 0:29:34.800 But again you know in the IMF data and in 0:29:34.880 --> 0:29:38.560 the data Gold Council, we see this massive increase in 0:29:38.720 --> 0:29:42.400 foreign central banks purchases of gold, so that gold aspect 0:29:42.520 --> 0:29:45.960 definitely survives. And yes, you know, energy markets have gone 0:29:46.040 --> 0:29:48.040 up and they have come down, but again I think 0:29:48.080 --> 0:29:50.840 it's just hard to escape the reality that you know, 0:29:50.960 --> 0:29:55.000 Saudi Arabia is not exactly falling over backwards to increase 0:29:55.040 --> 0:29:57.280 oil production, but in fact that there is this stug 0:29:57.360 --> 0:29:59.840 of war where I think the Cran Prince has the 0:30:00.080 --> 0:30:03.280 stic economic agenda. It needs oil prices to trade between 0:30:03.560 --> 0:30:06.000 one hundred dollars a barrel for them to pull up 0:30:06.040 --> 0:30:10.440 that quite ambitious domestic and regional and also geopolitical agenda. 0:30:11.000 --> 0:30:13.120 And I think there is a stug of war between 0:30:13.600 --> 0:30:17.000 the oil consumers and the oil producers where you know, 0:30:17.080 --> 0:30:19.600 things haven't really breaken out into either side, but I 0:30:19.680 --> 0:30:22.480 think that pullback is basically given us a body language 0:30:22.480 --> 0:30:25.280 where you know, if there's not enough demand for oil 0:30:25.320 --> 0:30:28.200 and oil prices are falling, we need our revenue, so 0:30:28.280 --> 0:30:30.760 we're just going to not supply such that prices don't 0:30:30.800 --> 0:30:33.520 pull too much. So again I think the commodity shortage 0:30:33.520 --> 0:30:35.080 and this, you know, I think the team that I 0:30:35.200 --> 0:30:38.440 used was our commodity your problem. I think it's definitely 0:30:38.520 --> 0:30:42.520 there in oil again, you know, Russian oil. Surprisingly, I 0:30:42.600 --> 0:30:45.360 think it all found a way to alternative markets. So 0:30:46.040 --> 0:30:48.120 you know, tanker rates are up. You know, we talked 0:30:48.120 --> 0:30:50.520 about this a year ago, that tanker rates being the 0:30:50.600 --> 0:30:53.800 balance sheet for you know, the real economy balance sheet 0:30:53.840 --> 0:30:56.280 equivalents in the oil market, and the tanker rates are 0:30:56.320 --> 0:30:58.720 through the rule because these shadow fleets had to be 0:30:58.800 --> 0:31:01.160 a sampled to find those pternative markets. 0:31:00.880 --> 0:31:03.000 For Russian oil. And I think, you know, the supply 0:31:03.160 --> 0:31:04.320 chains are probably. 0:31:04.040 --> 0:31:06.880 Getting more caught up in this team involving you know, 0:31:07.160 --> 0:31:09.880 energy transition, you know, getting the lifting and all these 0:31:09.920 --> 0:31:10.560 things that are. 0:31:10.480 --> 0:31:12.560 Needed for that. So I would say that the commodity 0:31:13.160 --> 0:31:15.720 aspect is a mixed bag, except for goal. 0:31:16.120 --> 0:31:18.720 That other African country I think it was Zimbabwe doing 0:31:18.880 --> 0:31:22.440 all digital token So I guess make of that what 0:31:22.600 --> 0:31:22.920 you will. 0:31:23.080 --> 0:31:25.760 But I wanted to go back, well, make makeup well, 0:31:25.800 --> 0:31:27.080 I just wanted to say, you can make up that, 0:31:27.160 --> 0:31:29.280 but you Bill and perhaps a lot of countries that 0:31:29.320 --> 0:31:32.600 people mention on this conversation are going to be the 0:31:32.720 --> 0:31:33.760 sanctioned countries. 0:31:33.520 --> 0:31:35.880 Let's put it that way. But I think that's precisely 0:31:36.200 --> 0:31:37.480 I mean, you know, these are not not. 0:31:37.600 --> 0:31:40.320 The countries that you think about when you're talking on 0:31:40.400 --> 0:31:43.000 the financial press about things. But I think the underlying 0:31:43.080 --> 0:31:46.200 team here is very much one where if you look 0:31:46.360 --> 0:31:49.400 look at this unicorn or world that we are, you know, 0:31:49.960 --> 0:31:52.760 talking about whether it's supply chains or whether it's the 0:31:52.840 --> 0:31:57.160 monster regimes, whether it's you know, foreign policy alignments between 0:31:57.200 --> 0:31:59.560 East and West, you know, two great powers and a 0:31:59.600 --> 0:32:02.800 bunch of on a life, non alive countries. I think 0:32:02.840 --> 0:32:06.000 it's important to pull in these fringe countries because you know, 0:32:06.680 --> 0:32:09.640 there is powering numbers and like, yeah, one country's GDP 0:32:09.800 --> 0:32:11.480 is not much, but you know when you kind of 0:32:11.920 --> 0:32:14.640 plump them all together and they kind of sign into 0:32:14.720 --> 0:32:17.600 one system as opposed to another system, these things are 0:32:17.640 --> 0:32:19.520 going to be meaningful on the market. So I think 0:32:19.920 --> 0:32:23.120 that's why it's important to think about best case countries, 0:32:23.240 --> 0:32:26.440 so to speak. But that's why that's why we mentioned Yeah. 0:32:26.320 --> 0:32:29.160 And I mean US dollar transactions I think are a 0:32:29.240 --> 0:32:33.240 pretty big thing in Zimbabwe, so you know the fact 0:32:33.240 --> 0:32:36.920 that they're experimenting with a new type of thing to 0:32:37.120 --> 0:32:40.720 try to maybe get away from that is interesting. But 0:32:40.840 --> 0:32:43.000 I wanted to go back to what we saw in 0:32:43.080 --> 0:32:47.640 the banking system because everyone who knows your origin story, 0:32:47.880 --> 0:32:51.440 probably knows that you know, started out working at the 0:32:51.520 --> 0:32:54.760 New York FED. There was the famous shadow banking chart 0:32:55.320 --> 0:32:58.520 that you did before the financial crisis, sort of laying 0:32:58.640 --> 0:33:03.080 out how this is entire system actually worked. What do 0:33:03.160 --> 0:33:07.680 you make of the most recent banking crisis? And I 0:33:07.800 --> 0:33:10.520 know some people take issue with actually labeling a crisis. 0:33:10.720 --> 0:33:13.640 We can call it a banking drama or whatever. But 0:33:14.000 --> 0:33:16.000 is the drama over for now? 0:33:16.920 --> 0:33:19.040 Well, it feels like, let me tell you this, It 0:33:19.120 --> 0:33:22.560 feels very different from two thousand and eight. Obviously, I 0:33:22.640 --> 0:33:25.840 mean there it was an existential moment and you know, 0:33:26.000 --> 0:33:29.280 the central nervous system of the global dollar system was 0:33:30.360 --> 0:33:32.080 at risk, you know, the big banks, So the big 0:33:32.120 --> 0:33:36.280 banks were a source of strength this time rapping. I 0:33:36.320 --> 0:33:40.000 would say that we basically have three institutions that became 0:33:40.120 --> 0:33:45.160 collateral damage either to crypto or the tech inclosion or 0:33:45.960 --> 0:33:48.760 you know, your inability to make to underpride you know 0:33:48.880 --> 0:33:53.000 mortgages intelligently, so you know, signature bank is crypto related. 0:33:53.280 --> 0:33:56.360 SPB I think is a very unique case because what 0:33:56.480 --> 0:33:58.920 it kind of tells you is that it is important 0:33:59.040 --> 0:34:02.320 for a bank to be diversified both in terms of 0:34:02.400 --> 0:34:04.520 its lending portfolio and also. 0:34:04.360 --> 0:34:08.400 Its deposit mixed. You know, when I was following the 0:34:08.560 --> 0:34:11.239 SVV the backle the. 0:34:12.840 --> 0:34:14.719 Thing that came to mind for me was, I don't 0:34:14.760 --> 0:34:17.120 know if you remember his tracy, but bear Sterns used 0:34:17.120 --> 0:34:20.040 to have to hatch funds, which were the first hetch 0:34:20.080 --> 0:34:20.440 funds to. 0:34:20.440 --> 0:34:22.520 Blow up in Yeah. 0:34:23.360 --> 0:34:25.680 I forget what they were called, but they had I 0:34:25.719 --> 0:34:28.799 think the bear Sterns Enhanced Leverage fund or whatever they 0:34:28.840 --> 0:34:31.839 were called. You know, those hedge funds were the first 0:34:31.880 --> 0:34:34.560 ones to blow up because they had the worst assets 0:34:34.600 --> 0:34:39.200 imaginable and they had the worst live of the structure imaginable. 0:34:39.440 --> 0:34:39.640 Yeah. 0:34:39.640 --> 0:34:43.080 I think they were like really high yield structured credit 0:34:43.320 --> 0:34:43.960 or something like that. 0:34:44.800 --> 0:34:48.040 Yes, high yield structure credit, you know cdo so that 0:34:48.200 --> 0:34:51.600 stuff on the asset side, you know, overnight funding, so 0:34:51.760 --> 0:34:52.480 pickled funding. 0:34:53.080 --> 0:34:53.239 You know. 0:34:53.640 --> 0:34:56.680 SVB, I would say, is a case where on the 0:34:56.719 --> 0:34:59.920 liability decide. I mean, we know who the big deposit 0:35:00.040 --> 0:35:02.360 the school, the clients were. They were reading about some 0:35:02.520 --> 0:35:05.400 of them in the financial press. But basically, you know, 0:35:05.440 --> 0:35:08.760 if you think about the tech sector, venture capital sector, 0:35:08.800 --> 0:35:11.600 where all the valuations have basically taken a big nose 0:35:11.680 --> 0:35:15.960 dive after tech stocks corrected. You basically had a depositor 0:35:16.040 --> 0:35:19.600 base that was liquidity constraints. So they basically pulled money 0:35:20.080 --> 0:35:23.359 from one bank where a lot of tech entrepreneurs kept 0:35:23.560 --> 0:35:26.400 their cash and so that's a liquidity drain and it 0:35:26.520 --> 0:35:31.680 wasn't diversified on the asset side. SVB had a lot 0:35:31.719 --> 0:35:35.160 of duration. I mean, you know, you guys know that 0:35:35.280 --> 0:35:37.000 my bread and butter is you know, going through all 0:35:37.040 --> 0:35:40.040 the cold reports of the biggest institutions and you know, 0:35:40.080 --> 0:35:43.120 I mean, very few banks have as big a share 0:35:43.160 --> 0:35:47.680 of their agebre a portfolio in strips stripped port respect 0:35:47.680 --> 0:35:49.719 securities as they did. But you know, they had a 0:35:49.760 --> 0:35:51.640 lot of coupon explore, they had a lot of principal 0:35:51.680 --> 0:35:53.920 exposure there. They had a lot of duration in these 0:35:53.960 --> 0:35:57.239 portfolios and they didn't hedge them properly. They also had 0:35:57.280 --> 0:36:00.640 a lending book where they were lending to the same 0:36:01.080 --> 0:36:03.319 you know, customers that were pulling funds away from them. 0:36:03.400 --> 0:36:06.600 But again, the collaboral on that landing book was tex related, 0:36:06.760 --> 0:36:08.879 so you had valuation issues. So that was just kind 0:36:08.880 --> 0:36:12.359 of a perfect storm. Systemic absolutely not, but it's hurt them. 0:36:12.440 --> 0:36:14.680 And you know, first Republic, I mean, I have to 0:36:14.719 --> 0:36:16.759 say I. I have a friend in New York who 0:36:16.920 --> 0:36:20.279 once texted me when First Public was going under, saying, 0:36:20.920 --> 0:36:22.800 I didn't realize I got such a great deal on 0:36:22.880 --> 0:36:26.040 my mortgage that it's the end the first problem. And 0:36:26.080 --> 0:36:27.560 I said, you know, I told him that, Well, next 0:36:27.600 --> 0:36:29.399 time you get a mortgage that's too good to be true, 0:36:29.400 --> 0:36:33.520 you should also short the bank. Maybe the mortgage is 0:36:33.520 --> 0:36:36.320 going to pay it stuff up faster then you anticipate. 0:36:36.440 --> 0:36:38.960 So so again, I think this is basically the story 0:36:39.040 --> 0:36:41.880 of these three the three banks that got into difficulties. 0:36:42.160 --> 0:36:44.759 The solution that the FAT crafted for some of these 0:36:44.840 --> 0:36:48.400 licurity problems, I think they were extremely powerful. I was surprised, 0:36:48.480 --> 0:36:51.440 even shocked when I saw the terms of the BDFP. 0:36:52.200 --> 0:36:54.400 When I talked to my context. You know, there were 0:36:54.480 --> 0:36:58.160 two types of responses to this BDFP program. Number one, yes, 0:36:58.320 --> 0:37:01.440 that's the right move, because the letter and spirit of 0:37:01.520 --> 0:37:05.719 Basal Tree says that treasuries and Genie Maison reserves are 0:37:05.840 --> 0:37:07.760 level one assets, no haircut. 0:37:08.320 --> 0:37:11.000 But again that assumes that you also have the brains 0:37:11.080 --> 0:37:13.080 to hedge the interstraight exposure there. 0:37:13.480 --> 0:37:15.360 And also, I mean, you know, you can put some 0:37:15.480 --> 0:37:17.920 of these bonds that are underwater into a whole maturity 0:37:18.000 --> 0:37:21.760 portfolio where if you are sitting on huge market market losses, 0:37:21.800 --> 0:37:23.800 it doesn't hit your bank's activity and you don't have 0:37:23.880 --> 0:37:25.160 to book those losses. 0:37:24.920 --> 0:37:26.640 And it doesn't hit your capital. 0:37:26.920 --> 0:37:30.480 But again, that assumes that your deposit base is sticky 0:37:30.880 --> 0:37:33.200 and so you're not going to lose deposits in the 0:37:33.239 --> 0:37:35.560 aggregate to the point where you actually have to liquidate 0:37:35.920 --> 0:37:38.440 these underwater bonds. And you know, it was not the 0:37:38.520 --> 0:37:42.279 case for SVV, its case for other banks like Bank 0:37:42.320 --> 0:37:45.120 of America for example. You know, and the other response 0:37:45.160 --> 0:37:47.920 to the BTFB is that you know this is this 0:37:48.000 --> 0:37:52.239 should not have happened because it basically euthanizes the need 0:37:52.440 --> 0:37:55.680 for interest rate risk management in bank portfolio. So it 0:37:55.800 --> 0:37:58.439 was a kind of a polar response. But again, what's 0:37:58.480 --> 0:38:00.880 done is done. I think it's a part of the system. 0:38:01.000 --> 0:38:01.200 Now. 0:38:01.280 --> 0:38:03.680 I think the BTFB is going to be there as 0:38:03.719 --> 0:38:07.240 a standard feature of the system, much like standing people 0:38:07.320 --> 0:38:10.680 facility and spoplanes are there. So you know, these facilities 0:38:10.800 --> 0:38:14.520 tend to be born and slip around. But it's again 0:38:14.560 --> 0:38:17.440 it's the part of the scaffoldings that we have. I mean, imagine, 0:38:18.000 --> 0:38:20.759 imagine the treasury market coming under strain because some of 0:38:20.840 --> 0:38:23.320 these banks have to meet, you know, bitterly short balls, 0:38:23.320 --> 0:38:27.520 and then instead of pledging to the fat off market 0:38:28.200 --> 0:38:30.400 to be at liquidity, you basically have to dump it 0:38:30.480 --> 0:38:33.560 on the dealers. And imagine what that would have done 0:38:33.600 --> 0:38:37.360 the treasury market. Nothing, So we just basically kept this 0:38:37.520 --> 0:38:39.040 treasure is off the great so to speak. 0:38:39.360 --> 0:38:42.680 When when SVB failed, there were sort of two conversations 0:38:42.760 --> 0:38:45.800 that sprung up right afterwards. One had to do with 0:38:46.040 --> 0:38:49.000 like the sort of like, okay, all deposits in the 0:38:49.120 --> 0:38:52.160 US are do we just accept that they're all implicitly 0:38:52.560 --> 0:38:56.279 guaranteed regardless of what the formal FDI C cap is. 0:38:56.640 --> 0:38:58.680 And then there's also a conversation about, you know, five 0:38:58.760 --> 0:39:00.680 thousand banks in the US would which is like I think, 0:39:00.719 --> 0:39:03.400 probably the most banked country in the world. Do we 0:39:03.560 --> 0:39:06.880 just sort of, you know, does anything change with the 0:39:06.960 --> 0:39:09.520 business model of banking or do we just sort of 0:39:09.640 --> 0:39:13.400 accept that there are these contradictions and these tensions but 0:39:13.520 --> 0:39:15.800 we sort of we don't talk about them, and we 0:39:15.920 --> 0:39:19.319 just sort of let these issues go on and occasionally 0:39:19.440 --> 0:39:22.200 we have to clean up a mess. But by and large, 0:39:22.440 --> 0:39:24.760 there's some of these structural questions about the banking system. 0:39:24.800 --> 0:39:27.520 We just sort of kicked the can and let them persist. 0:39:28.800 --> 0:39:31.200 Well, look, I mean I don't think the blanket deposit 0:39:31.320 --> 0:39:34.440 insurances in the cards, but I think again, you know, 0:39:34.600 --> 0:39:37.279 other than the BTFB, we have this other tool, which 0:39:37.400 --> 0:39:40.080 is the FDIC steps in between the PLAT and the 0:39:40.160 --> 0:39:41.600 troubled institution. 0:39:41.719 --> 0:39:43.200 And so there's a capital buffer. 0:39:43.280 --> 0:39:45.840 So you know, it's some of the it's some of 0:39:45.960 --> 0:39:49.120 the same playbooks in a different fashion that we have 0:39:49.239 --> 0:39:51.279 seen in two thousand. You know that that always has 0:39:51.320 --> 0:39:54.239 to be secure through its satisfaction that it's planting, you know, 0:39:54.560 --> 0:39:57.040 but always wants to eliminate credit risk. And you know, 0:39:57.080 --> 0:39:59.839 the FDIC standing has it been plus a special loan 0:40:00.640 --> 0:40:03.400 that the FAT extends. Trouble institutions serve exactly that purpose. 0:40:03.440 --> 0:40:06.240 So I think we will be dealing with whatever problems 0:40:06.360 --> 0:40:08.760 we will be dealing with on a case by case basis. 0:40:09.400 --> 0:40:13.799 Again, I think SVB. You know, the conceptually, the problem. 0:40:13.520 --> 0:40:17.400 Of underwater security portfolios we kind of dealt with commercial 0:40:17.560 --> 0:40:19.760 real estate is going to be a slow burning problem. 0:40:20.360 --> 0:40:23.799 Perry Merton likes to say a bank can be insolvent 0:40:23.960 --> 0:40:27.640 but liquid, but it cannot be solvent, and in liquid 0:40:28.280 --> 0:40:31.120 you know, for as long as the pass don't run, 0:40:31.400 --> 0:40:32.520 we will be able. 0:40:32.320 --> 0:40:34.000 To deal with these issues. 0:40:34.080 --> 0:40:38.200 You know, interest on reserves is manna from heaven. You know, 0:40:38.360 --> 0:40:41.440 it's providing banks to steady stream of interesting income. So 0:40:41.600 --> 0:40:44.440 if you have capitalization issues, that's going to be a 0:40:44.560 --> 0:40:47.799 back door way of kind of refilling your capital base. 0:40:48.120 --> 0:40:50.279 You know, back during the early nineteen eighties when the 0:40:50.440 --> 0:40:53.040 bulbul curve was in charge and we had Latin American 0:40:53.120 --> 0:40:56.560 death crisis and Thanks for underwater and had their capital issues, 0:40:56.680 --> 0:40:59.399 you know, the FED had to generate the steep yield 0:40:59.440 --> 0:41:02.600 curve in the system, which was a way to recapitalize 0:41:02.640 --> 0:41:05.080 the banks, you know, with interest from deserves. You know, 0:41:05.160 --> 0:41:09.239 that's no longer necessary, so it's actually easier. So I 0:41:09.320 --> 0:41:11.839 think the banking system is fine for now. I think 0:41:11.920 --> 0:41:15.880 we had a scare and you know, we are definitely 0:41:16.000 --> 0:41:19.120 going to be dealing with issues in credit portfolios. We 0:41:19.200 --> 0:41:22.080 are going to be dealing with cr lending books. There 0:41:22.160 --> 0:41:27.120 will be consolidation across the banking system. But there are 0:41:27.200 --> 0:41:30.719 many levers that the that can who to help clean 0:41:30.800 --> 0:41:31.120 things up. 0:41:31.280 --> 0:41:31.440 You know. 0:41:31.560 --> 0:41:35.480 JP Morgan, for example, was an institution that came in 0:41:35.520 --> 0:41:38.120 as a healthy hand because I'd like to remind people 0:41:38.160 --> 0:41:40.520 haven't written about as far agoing. 0:41:40.239 --> 0:41:40.759 A long time. 0:41:40.840 --> 0:41:44.399 But you know, don't forget now, You can't thank now. 0:41:44.480 --> 0:41:47.600 I can you know that bank is still under an 0:41:47.680 --> 0:41:50.200 asset cap. You know, it has a ton of unused 0:41:50.239 --> 0:41:53.000 balance sheet capacity, So you know, that's a lot of 0:41:53.120 --> 0:41:56.640 balance sheet capacity to want chain if you need a 0:41:56.760 --> 0:42:00.360 healthy private hand to clean up some stuff in I mean, 0:42:00.640 --> 0:42:02.759 some of the banks that are already very big, and 0:42:02.800 --> 0:42:07.879 we're big beneficiaries of dislocations and banking crisis in recent times, 0:42:07.960 --> 0:42:09.759 are probably not going to be able to add much 0:42:10.400 --> 0:42:13.960 to their balance because they are already too big. But 0:42:14.040 --> 0:42:16.719 you know, I think Wells Fargo is another kind of 0:42:17.200 --> 0:42:19.239 case in the back pocket of the TAT that could 0:42:19.280 --> 0:42:20.800 be pulled out if need be. 0:42:20.960 --> 0:42:22.479 So I think the system is fine. 0:42:22.560 --> 0:42:24.759 I think we're just going to be dealing with these 0:42:26.040 --> 0:42:30.160 microL dislocations here and there, you know, regional bank here, 0:42:30.280 --> 0:42:33.000 regional bank there, treasury market. But again, people will be 0:42:33.000 --> 0:42:35.160 dealing to these things. But you know the name of 0:42:35.239 --> 0:42:39.040 the game is to anticipate this and the appropriate positions. 0:42:39.680 --> 0:42:42.520 Well, can I ask one more question, just going back 0:42:42.640 --> 0:42:46.480 to your sort of shadow banking origins, but the expectation 0:42:46.840 --> 0:42:50.640 now seems to be that, you know, if banks maybe 0:42:50.920 --> 0:42:54.919 have to hold even more capital or maybe d lever 0:42:55.200 --> 0:42:57.400 in one way or another, that a lot of that 0:42:57.640 --> 0:43:01.840 activity is going to end up being pushed into shadow 0:43:01.880 --> 0:43:05.880 banks essentially, so private equity perhaps or some sort of 0:43:06.080 --> 0:43:09.239 non bank lender. And to some extent, this is what 0:43:09.360 --> 0:43:12.040 we've seen since the two thousand and eight financial crisis 0:43:12.120 --> 0:43:16.040 by design of the financial regulators. There is some concern 0:43:16.160 --> 0:43:19.200 that even more starts to get pushed out now and 0:43:19.400 --> 0:43:24.080 maybe if you have interest rates that remain substantially higher, 0:43:24.520 --> 0:43:26.560 that's going to be a big hit for both corporate 0:43:26.640 --> 0:43:32.200 credit and commercial real estate. Should we worry about exposure 0:43:32.400 --> 0:43:35.000 to those sectors in non banks. 0:43:36.040 --> 0:43:38.440 Yes, because I think credit has yet to have its 0:43:38.480 --> 0:43:41.640 threckoning and commercial real estate has yet to have its thckoning. 0:43:42.520 --> 0:43:47.000 But again, it's better to suffer those losses in non 0:43:47.120 --> 0:43:51.640 banks that banks, because you know, banking crises are very 0:43:51.760 --> 0:43:55.160 nasty things. But if these losses get booked and absorbed 0:43:55.360 --> 0:43:58.799 in balance sheets that are I don't want to say 0:43:58.840 --> 0:44:01.239 not levered, because they all are. But you know that 0:44:01.440 --> 0:44:04.440 leverage doesn't really have much to do with money markets. 0:44:05.080 --> 0:44:10.320 That's orders of magnitude better to deal with than dealing 0:44:10.440 --> 0:44:13.920 with a lot of these concentrated exposures in the banking system. 0:44:14.880 --> 0:44:18.240 Regarding that shuttle banking question that you also asked, Tracy, 0:44:18.680 --> 0:44:19.200 I think. 0:44:19.280 --> 0:44:22.840 Where we started this conversation that you know, world trade 0:44:23.120 --> 0:44:27.480 trading of commodities is going to get invoiced in currencies 0:44:27.560 --> 0:44:30.200 other than just the dollar, you know, rent fee and 0:44:30.280 --> 0:44:33.840 all these central bank digital currency market making and EFX markets, 0:44:34.640 --> 0:44:37.960 you know, migrating to the balance sheets of central banks 0:44:38.000 --> 0:44:41.520 and instead of correspondent banks, you should be imaginating correspondent 0:44:41.640 --> 0:44:45.640 central banks. If that pisis is true, I think over 0:44:45.760 --> 0:44:48.600 time that's going to provide balance sheet lead to all 0:44:48.680 --> 0:44:54.000 the jesuves because e FX market making credit lines exclusively 0:44:54.080 --> 0:44:57.000 provided into US dollars to oil and cover and other 0:44:57.080 --> 0:44:59.759 commodities around. You know, that's the bread and butter to 0:44:59.800 --> 0:45:02.319 main of JP, Morgan, Bank of American and City Bank. 0:45:03.200 --> 0:45:05.120 You know, if you kind of moved to this world 0:45:05.280 --> 0:45:09.120 that I'm describing, you know, that's going to provide balangy 0:45:09.239 --> 0:45:11.800 really for the big US banks on the market. You 0:45:11.920 --> 0:45:14.400 can use that for other things, you know, as the 0:45:14.480 --> 0:45:17.680 shot banks are licking their wounds because they are suffering 0:45:17.719 --> 0:45:20.040 their credit and real estate problems. You know, the banking 0:45:20.080 --> 0:45:22.960 system is going to be potentially a source of strength 0:45:23.040 --> 0:45:25.239 in a sense that not only do you have the 0:45:25.320 --> 0:45:27.439 capital to land, but you also have the balent sheet 0:45:28.000 --> 0:45:30.200 to do so. I think so, I think things are 0:45:30.239 --> 0:45:32.440 going to work themselves out. I think it's a good 0:45:32.520 --> 0:45:34.720 thing that things are happening in the shadow banking system. 0:45:34.719 --> 0:45:37.960 The shadow banking system we are talking about today, it's 0:45:38.080 --> 0:45:41.560 very different from the shadow banking system I have. I 0:45:41.680 --> 0:45:44.160 didn't come up with the sexy definition of shadow banking. 0:45:44.239 --> 0:45:47.560 That's very early who said that shadow banking is money 0:45:47.600 --> 0:45:51.080 market funding of capital market landing. And I think the 0:45:51.200 --> 0:45:54.520 general understanding about shadow banking these days is that anything 0:45:54.600 --> 0:45:57.719 that happens outside of a bank that involves credit is 0:45:57.760 --> 0:45:58.440 shadow banking. 0:45:58.840 --> 0:46:01.640 That's not true too to me, at least, because you. 0:46:01.680 --> 0:46:04.040 Know, you have to have a very strong mind market component, 0:46:04.360 --> 0:46:07.800 which is what appifies things, and so that shuttle banking 0:46:07.960 --> 0:46:11.080 is fine and if you will, you know, basically a 0:46:11.200 --> 0:46:16.000 lot of traditional bread and butter Western financial market making, 0:46:16.120 --> 0:46:21.960 credit provisioning, financing functions migrating to the balance sheet of 0:46:22.040 --> 0:46:27.120 central banks cbdc's different currencies. I think that's the new 0:46:27.200 --> 0:46:30.400 shuttle banking terrain that we need to be focusing that 0:46:30.520 --> 0:46:32.840 I will be focusing on, and I will be mapping 0:46:32.920 --> 0:46:35.960 and thinking about because I think that's the frontier that's 0:46:36.040 --> 0:46:39.200 going to drive rate some Tonic markets going forward. 0:46:39.600 --> 0:46:43.360 All Right, Sulton, I have one last, very tiny question, 0:46:43.600 --> 0:46:46.000 and I'm only asking this really because I need to 0:46:46.120 --> 0:46:48.320 know it for the outro of the episode. 0:46:48.600 --> 0:46:49.640 Are you going to join Twitter? 0:46:50.760 --> 0:46:53.279 I will not be doing Twitter, really, I will not 0:46:53.400 --> 0:46:56.640 do social media. Really. Maybe we can say this at 0:46:56.640 --> 0:46:58.680 the end. I will say the name of my website 0:46:58.719 --> 0:46:59.920 where people can go and look. 0:47:00.440 --> 0:47:07.280 Wow, incredible. That's an incredible restraint. It's an incredible restraint. 0:47:07.840 --> 0:47:09.000 I'm very impressed by. 0:47:09.080 --> 0:47:11.799 Is that a good thing? I think it's a good thing. 0:47:12.160 --> 0:47:15.160 I mean, it would make you very scarce, but it's 0:47:15.160 --> 0:47:17.520 an incredible restraint, So I'm impressed. 0:47:18.440 --> 0:47:22.160 No, I will be strictly behind the payball, and probably 0:47:22.239 --> 0:47:26.279 this would be my last public appearance and then I 0:47:26.320 --> 0:47:27.200 would just disappear. 0:47:30.120 --> 0:47:31.560 Okay, well, this is a gift. 0:47:32.640 --> 0:47:32.920 Thank you. 0:47:33.000 --> 0:47:36.040 It was, thank you, it was it was a pleasure. 0:47:36.280 --> 0:47:37.440 Thank you very much for having me. 0:47:37.880 --> 0:47:40.680 All Right, well, thanks so much, Sultan, and the website, 0:47:40.760 --> 0:47:45.560 the new website is expluris dot h U. You should 0:47:45.600 --> 0:48:01.400 definitely check that out, Joe. I love talking to Sultan 0:48:01.800 --> 0:48:04.759 me too. That's such a treat. The quote about like 0:48:04.880 --> 0:48:07.160 we are in the ante room of something. I'm going 0:48:07.200 --> 0:48:11.439 to steal that, yeah, for coverage, but I thought, I mean, look, 0:48:11.480 --> 0:48:13.359 every time we talked to him, there are a number 0:48:13.400 --> 0:48:16.279 of really interesting big picture points. The one thing I 0:48:16.320 --> 0:48:19.000 would say is, I remember when the Breton Woods three 0:48:19.200 --> 0:48:21.440 thesis came out last year. Yeah, there were a lot 0:48:21.480 --> 0:48:23.680 of people saying that this was never going to happen, 0:48:24.000 --> 0:48:27.360 and many of those people now have sort of tweaked 0:48:27.960 --> 0:48:31.520 that statement to oh, you know, it may happen, but 0:48:31.680 --> 0:48:32.560 not for a long time. 0:48:33.040 --> 0:48:33.960 You Know what I think is a. 0:48:34.040 --> 0:48:38.080 Really interesting point that I don't think gets discussed enough 0:48:38.440 --> 0:48:41.440 in this which I appreciated Sultan bringing up, was you know, 0:48:41.520 --> 0:48:43.440 people look at this from a very sort of like 0:48:44.400 --> 0:48:47.279 financial angle, or they talk about China specifically. But I 0:48:47.480 --> 0:48:50.920 liked that he brought up you know, all these other countries, 0:48:51.000 --> 0:48:55.000 the sort of non aligned countries, they matter to a 0:48:55.080 --> 0:48:57.800 significant degree, particularly when added up and sort of the 0:48:58.000 --> 0:49:02.480 politics of on theline countries who don't necessarily see the 0:49:02.600 --> 0:49:04.920 world through the same lens as the US, or have 0:49:05.040 --> 0:49:09.480 the same perspective on many of these global trends. Obviously, 0:49:09.560 --> 0:49:12.000 some of the bricks nations, et cetera, like I just 0:49:12.120 --> 0:49:15.680 the pure like you know, geopolitics sort of gets trotted 0:49:15.719 --> 0:49:18.239 out too much, but they're sort of like the sovereignty 0:49:18.520 --> 0:49:21.200 and the impulses and desires of all these other countries. 0:49:21.560 --> 0:49:22.359 They really matter. 0:49:22.800 --> 0:49:25.799 And as their wealth grows and there as their need 0:49:25.920 --> 0:49:29.960 to grow, what they do economically and who they trade 0:49:30.000 --> 0:49:32.640 with is going to sort of be determinative to some 0:49:32.800 --> 0:49:34.839 extent about who rises and fall. 0:49:35.120 --> 0:49:35.239 Well. 0:49:35.280 --> 0:49:37.840 The other thing I thought was really interesting was this 0:49:38.040 --> 0:49:42.560 idea of maybe outsourcing more dealer functions to the central bank. Yes, 0:49:43.120 --> 0:49:46.040 and if you were to do that, it could potentially 0:49:46.200 --> 0:49:48.960 solve some of the concerns that you just outlined, but 0:49:49.200 --> 0:49:53.640 also free up some balance sheet for big banks to 0:49:53.840 --> 0:49:57.800 do other types of activities, maybe more like non market 0:49:57.840 --> 0:50:01.759 making activities, more loans like that. I hadn't really considered that. 0:50:02.120 --> 0:50:04.920 Yeah, that's a really it's a really interesting point, and 0:50:05.239 --> 0:50:07.400 no one else has really talked about that. But you know, 0:50:07.480 --> 0:50:10.040 we do sort of live in this era in which 0:50:10.120 --> 0:50:14.040 sort of like state capitalism or state directed capitalism is 0:50:14.120 --> 0:50:16.840 such a big thing, right, and so the extent to 0:50:16.960 --> 0:50:21.399 which central banks become bigger sort of active dealers rather 0:50:21.520 --> 0:50:24.640 than just sort of behind the scenes supporters of private 0:50:24.760 --> 0:50:27.600 banks is something to takes seriously. And maybe there is 0:50:27.640 --> 0:50:31.400 a context there in which the sort of the CBDC 0:50:31.560 --> 0:50:34.600 or digital currencies could sort of have like a natural 0:50:34.680 --> 0:50:35.720 fit in that framework. 0:50:35.920 --> 0:50:38.520 Yeah, we need a new map, Yeah we really do, 0:50:38.719 --> 0:50:41.680 don't we. Well, maybe Sultan will publish at his new 0:50:41.760 --> 0:50:44.239 research firm. Shall we leave it there? Let's leave it there? 0:50:44.320 --> 0:50:47.080 All right? This has been another episode of the All 0:50:47.120 --> 0:50:49.880 Thoughts podcast. I'm Tracy Alloway. You can follow me on 0:50:50.000 --> 0:50:51.360 Twitter at Tracy Alloway. 0:50:51.520 --> 0:50:54.360 And I'm Joe Wisenthal. You can follow me on Twitter 0:50:54.600 --> 0:50:59.040 at the Stalwart. Our guest, Sultan Poster, is not on Twitter, 0:50:59.200 --> 0:51:02.200 but you should go check out his brand new website 0:51:02.520 --> 0:51:08.120 xunopluris dot hu. I certainly will be follow our producers 0:51:08.200 --> 0:51:11.680 Carmen Rodriguez at Carmen Arman and dash Ol Bennett at 0:51:11.800 --> 0:51:15.000 dashbot and check out all of our podcasts under the 0:51:15.080 --> 0:51:18.239 handle at podcasts and for more odd Laws content, go 0:51:18.320 --> 0:51:21.759 to Bloomberg dot com slash odd Lots, where we have transcripts, 0:51:21.840 --> 0:51:24.800 a blog, a new newsletter, and you can chat twenty 0:51:24.880 --> 0:51:27.680 four to seven with fellow listeners about all of these topics. 0:51:27.719 --> 0:51:29.520 I'm sure there's going to be a lot of discussion 0:51:29.600 --> 0:51:32.840 about this one in there on the odd Lots discord 0:51:33.000 --> 0:51:36.759 at discord dot gg slash odd Lots. It's a lot 0:51:36.800 --> 0:51:37.080 of fun. 0:51:37.200 --> 0:51:39.960 I go in there a lot and aud lots listeners. 0:51:40.080 --> 0:51:43.640 If you enjoy these podcasts, if you like listening to 0:51:43.719 --> 0:51:46.880 the guests that we have on, like Sultan Posear, please 0:51:47.320 --> 0:51:49.880 go and leave us a review on any of the 0:51:49.920 --> 0:51:53.759 big podcast platforms. If you like us, please let us know. 0:51:54.080 --> 0:51:55.800 Thanks so much, thanks for listening 0:52:01.320 --> 0:52:01.360 In