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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, I'm

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Speaker 1: a little worried that the next few years are going

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Speaker 1: to be kind of annoying. Annoying in what sense? Joe, Well,

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Speaker 1: you know, it's like we're coming on ten years since

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Speaker 1: the financial crisis, and so every day it's gonna be

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Speaker 1: another story about ten years since this went under, and

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Speaker 1: ten years since this went under, and everyone's gonna be

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Speaker 1: retelling war stories about where they were, and journalists are

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Speaker 1: gonna be talking about how they're in the office till

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Speaker 1: two am. I'm already kind of dreading it all a

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Speaker 1: little bit, really, But I mean, aren't those fond memories

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Speaker 1: as a financial journalist? You know? Two thousand seven, two

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Speaker 1: thousand eight, those were the sort of glory years. People

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Speaker 1: couldn't even keep up with the news flow. There was

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Speaker 1: so much happening. No, I see, I'm excited about telling

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Speaker 1: my stories. I just don't want to hear everyone else's.

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Speaker 1: You know, I'm just very selfish. I just I love

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Speaker 1: my memories. I just don't want to hear everyone else's stories. Well,

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Speaker 1: I applaud your honesty, Joe. Yeah, that being said, despite

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Speaker 1: the fact that you know, we're going to have all

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Speaker 1: of these anniversaries coming up over the next couple of years,

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Speaker 1: it has been obviously an extraordinary time, and I think

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Speaker 1: all of us have learned a ton about how markets

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Speaker 1: and economics work during this period. Yeah, you could definitely

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Speaker 1: say that. I guess you could also argue it the

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Speaker 1: other way and say that the financial crisis and the

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Speaker 1: period after it were so um special or so unprecedented

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Speaker 1: that we've all learned massively new things, right, like how

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Speaker 1: many people were really experts on quee before two thousand nine?

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Speaker 1: And I mean, I guess you could argue there aren't

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Speaker 1: that many people who truly understand it now, But in

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Speaker 1: any case, at least people know what it kind of is.

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Speaker 1: Maybe we've just exposed how little we know. A frame

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Speaker 1: me this way, because today we're going to be talking

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Speaker 1: to a long time industry veteran, someone who worked for

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Speaker 1: the I m F, who's involved in mutual funds, who's

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Speaker 1: been a global macro trader for several years, uh, and

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Speaker 1: someone who has uh you know, sort of catalogued all

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Speaker 1: of the things that we should have learned since the crisis,

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Speaker 1: and I think that his perspective and sort of what

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Speaker 1: he's observed has sort of been an extremely offering some

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Speaker 1: extremely important lessons from the last ten years. So, Joe,

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Speaker 1: I think I know who you're talking about. And if

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Speaker 1: it's who I think it is, I'm very excited. He's

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Speaker 1: the guy who's very active on Twitter and he has

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Speaker 1: a great blog as well, and we all read it. Yeah,

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Speaker 1: we're going to be talking to Mark dow He. Anyone

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Speaker 1: who's involved in finance Twitter has certainly seen him. He

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Speaker 1: has this awesome blog called Behavioral Macro where he talks

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Speaker 1: about big macro topics. He recently wrote a post about

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Speaker 1: fifteen things that every investor should have learned from the

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Speaker 1: financial crisis and it's aftermath, and we're going to be

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Speaker 1: talking through a few of those things. That sounds great,

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Speaker 1: Marked Out, thank you very much for joining us. Thanks

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Speaker 1: for having me. Guys, before we get started, you know,

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Speaker 1: many of us in media and finance Twitter have interacted

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Speaker 1: with you for a long time, read your stuff, read

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Speaker 1: your tweet, talked to you on TV or whatever. But

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Speaker 1: for those of the people who don't know who you

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Speaker 1: are yet, why don't you give us the very brief.

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Speaker 1: The brief bio. Yeah, the thumbnail sketch is. I started

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Speaker 1: my career at the Treasure Department as an international economist,

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Speaker 1: working on financial disasters and emerging markets primarily. That's where

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Speaker 1: they were then, UH. And then I moved to the

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Speaker 1: International Monetary Fund, where I worked on a lot of

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Speaker 1: different countries and the same kind of sustainability issues. After that,

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Speaker 1: I managed money to mutual fund for a number of

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Speaker 1: years fixed income, primarily emerging markets. And then I moved

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Speaker 1: to a global macro hedge fund for about seven years

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Speaker 1: UH and basically ran part of the book. You know.

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Speaker 1: I had my own portfolio where I ran risk and

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Speaker 1: all kinds of asset classes, primarily currency in emerging markets,

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Speaker 1: interest rates, commodities, that that kind of thing. And now

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Speaker 1: I run glorified private UH family office from from my

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Speaker 1: hometown in California. What strikes me is important about your

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Speaker 1: background before we get into the various lessons, is that

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Speaker 1: you've seen the eco side and the trading side, and

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Speaker 1: often the two sides can't really speak to each other

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Speaker 1: very well. A lot of traders can be very good,

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Speaker 1: but they don't really understand economics. A lot of economists

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Speaker 1: have a deep understanding of how things work, but they

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Speaker 1: have no idea how markets really work. As you describe

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Speaker 1: your career, you've really seen and bridged the two worlds.

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Speaker 1: This has been a massive advantage to me over my career.

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Speaker 1: You see a lot of shops, particularly big ones, where

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Speaker 1: there's a stark divide between thought leaders and risk takers,

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Speaker 1: and not that many people speak both languages. So the

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Speaker 1: thought leaders are great for framing things and providing frameworks

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Speaker 1: and backdrop ways to analyze issues and to communicate with

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Speaker 1: clients who want who want to understand the world better,

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Speaker 1: but they often don't have that market savvy, that psychological

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Speaker 1: dimension that makes a good risk taker. Uh, that defines

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Speaker 1: a good risk taker. Speaking of framing ideas, you did

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Speaker 1: pen this blog post about the fifteen things that investors

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Speaker 1: should have learned after the Financial Crisis, and one of

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Speaker 1: the ones that really struck me. Um, and these are

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Speaker 1: all you know their number, they're in bullet points, they're

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Speaker 1: relatively short, so we really want you to dig into

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Speaker 1: them a bit more. But one of the ones was

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Speaker 1: this idea that the interest rate sensitivity of economic activity

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Speaker 1: is less than what was previously believed to be the case.

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Speaker 1: And I want to tie that in with another one,

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Speaker 1: which is the idea that, uh, the economic channel of

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Speaker 1: monetary policy and the financial channel of monetary policy, uh

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Speaker 1: kind of might be operating and existing separately. Can you

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Speaker 1: walk us through those points for me? That might be

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Speaker 1: the most important portion of the post really from a

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Speaker 1: policy a policy standpoint. I wrote this because I was

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Speaker 1: a little frustrated I had from given my background, I'd

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Speaker 1: climbed into so many central banks all over the world,

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Speaker 1: I had seen so many things, like you know, a

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Speaker 1: doctor in the e R with a lot of experience

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Speaker 1: that I was kind of a hit of the curve

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Speaker 1: on a lot of a lot of these issues, just

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Speaker 1: because you've seen financial crisis and money printing and all

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Speaker 1: these things before. But when it came to the when

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Speaker 1: it came to the US, a lot of people who

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Speaker 1: were really deeply steeped in nineties economics had a very

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Speaker 1: fixed view of of of money supply and interest rates

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Speaker 1: and economic activity. And what we know really is what

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Speaker 1: the element that was lacking was behavior. The models that

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Speaker 1: were taught in the eighties and were perpetuated throughout really

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Speaker 1: until the Great Financial Crisis was a very rational way

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Speaker 1: of looking at it. A lower price for money means

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Speaker 1: more borrowing, both in the fin in the in the

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Speaker 1: financial sector and in the real economy, and higher rates

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Speaker 1: means less. And if you just look at what happened

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Speaker 1: before and after the crisis, you'll see that this doesn't

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Speaker 1: really hold that. The other factors that are that are

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Speaker 1: more important. You know, from two thousand and four to

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Speaker 1: two thousand and seven or so, people were borrowing like crazy,

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Speaker 1: and the said funds rate was around five. Everyone wanted

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Speaker 1: to borrow, everyone wanted to lend, everybody was on the money.

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Speaker 1: Supply was scoring rapidly because thanks were lending and people

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Speaker 1: were borrowing. After the crisis, for a long period of time,

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Speaker 1: rates were zero and nobody was lending. Nobody was borrowing. Uh.

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Speaker 1: And this isn't just a US phenomenon. You see it

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Speaker 1: around the world. So you have to ask yourself, you know,

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Speaker 1: why is that and why aren't we more sensitive to interest?

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Speaker 1: It's and the simple answers risk appetite. Uh, people were

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Speaker 1: We're much more sensitive to our risk appetite whether we

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Speaker 1: feel secure in our jobs than we are to the

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Speaker 1: interest rate. If you're securing your job and you know

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Speaker 1: you've got a good income for the next ten years,

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Speaker 1: you're more likely to go out and buy that house

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Speaker 1: even if the interest rate is five instead of three. Uh.

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Speaker 1: That's just the way human nature works. So I think

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Speaker 1: that's why people overstated the sensitivity of economic activity uh

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Speaker 1: to to interest rates. UH. And if you factor that in,

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Speaker 1: if you look more at people's risk appetite, then you'll

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Speaker 1: you'll get a better picture of of what's going to happen,

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Speaker 1: you know, to the transmission of monetary policy into the

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Speaker 1: economy or into finance. Now, with respect to the two

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Speaker 1: different channels, if you just think about it, uh, the

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Speaker 1: financial channel happens fast. These are liquid positions that you

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Speaker 1: can get out of, very sensitive often to the funding rate. Right,

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Speaker 1: you can leverage something that yields three if you're if

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Speaker 1: you're funding rate is one. Uh. So the financial channel

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Speaker 1: tends to uh react quickly. Interest rates are quicker. On

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Speaker 1: the economic side, you need a much higher higher level

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Speaker 1: of risk appetite to build that factory or to set

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Speaker 1: up a new shop or new branches because you're gonna

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Speaker 1: be stuck with that investment for quite some time. It

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Speaker 1: just requires a lot more confidence. So that can be

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Speaker 1: even stickier. UM in response, so it's it's just it

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Speaker 1: really maps back to a behavioral uh just uh, a

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Speaker 1: behavioral phenomenon uh. And for a policymaker, it's super important

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Speaker 1: because you can have points in time when the financial

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Speaker 1: channel has responded sufficiently and even excessively, but the economic

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Speaker 1: channel is still inching its way up the curve. And

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Speaker 1: in fact, I would argue, now we're in that kind

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Speaker 1: of situation where the financial channel has responded quite well,

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Speaker 1: pretty fully. I wouldn't say it's gone crazy, but it's

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Speaker 1: it's respond responded well, and the economic side is just

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Speaker 1: you know, we're still not seeing robust investment, and we're

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Speaker 1: still not seeing wages, and we're still not seeing people

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Speaker 1: are still getting to that mind that where they want

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Speaker 1: to take risk and propulse maker, what do you do

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Speaker 1: when the financial channel is too far ahead of the

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Speaker 1: economic channel. Now, it's my belief that the way recessions

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Speaker 1: happen in the modern world is we get too optimistic

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Speaker 1: in the financial channel, and we also get too optimistic

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Speaker 1: in the economic channel, and at some point we have

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Speaker 1: a financial disruption from kind of shock. It can be

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Speaker 1: a small one, but it triggers a sell off in

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Speaker 1: the financial markets, and that forces a retrenchment or a

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Speaker 1: rethink of people in the real economy about how extended

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Speaker 1: they are with respect to risk, and they start laying

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Speaker 1: people off and cutting back on investment, which has a

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Speaker 1: multiplier effect throughout the economy, leading to more layoffs and

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Speaker 1: more cutbacks and investment, and you get a real recession.

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Speaker 1: But you really, if you don't have the real economy extended,

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Speaker 1: the real that that channel very optimistic if you need

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Speaker 1: a much bigger financial impulse to push the economy into recession.

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Speaker 1: And I think that's where we are right now. And

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Speaker 1: this is why my view all along has been as

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Speaker 1: long as I've been on Twitter long the We're gonna

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Speaker 1: have the longest and slowest expansion you know, uh shallow

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Speaker 1: and slow Uh that that that we've ever seen. Because

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Speaker 1: people are still looking in the mirror, even on the

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Speaker 1: financial channel. I would argue, when we get excited, uh,

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Speaker 1: we we kind of check ourselves and say, no, no, no,

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Speaker 1: this is a bubble. I mean, we hear people talking

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Speaker 1: about bubbles all the time. We're afraid of getting caught out.

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Speaker 1: When I talk to guys right now, big investors, the

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Speaker 1: word you hear is caution, Something's gonna happen. We don't

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Speaker 1: know what this is long in the two those kinds

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Speaker 1: of things, and it's funny after and that's through the

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Speaker 1: financial channel, which is the one that's more sensitive uh

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Speaker 1: to uh to the stimulative policies that we've had for

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Speaker 1: for for so long. So that tells me that the

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Speaker 1: economic channel is just not there and it's gonna it

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Speaker 1: would take a much bigger financial shock other things equal

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Speaker 1: to push us into recessions. So the odds of recession

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Speaker 1: are still uh in my mind's I'm very very low,

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Speaker 1: even though don't expect robust girls. So for a policymaker,

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Speaker 1: it's these two different channels. Is something people haven't dealt

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Speaker 1: with because the FED in particular and most and most

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Speaker 1: central banks more broadly, their mandate is key to the

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Speaker 1: economic channel, and the FED only only over the past

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Speaker 1: ten years have started to really think about how the

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Speaker 1: financial channel feeds back into monetary policy and in their

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Speaker 1: formal modeling, Mark, I feel like that answer explained so

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Speaker 1: much about what we've seen in the you know, obviously

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Speaker 1: that's the whole point of this in terms of lessons,

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Speaker 1: but you know, you said, this is a really big one,

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Speaker 1: and you know, just all this stuff about oh, we're

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Speaker 1: in a bubble, or all these macro hedge fund managers

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Speaker 1: who think that the FED has behaved irresponsibly by keeping

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Speaker 1: interest rates low and are you know, causing all kinds

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Speaker 1: of distortions. I feel like if they had all listened

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Speaker 1: to that answer, you know, several years ago. Unfortunately it's

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Speaker 1: too late for them now in seventeen, a lot of

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Speaker 1: mistakes would have been avoided on this theme of the

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Speaker 1: gap between the financial channel and the real channel. Another

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Speaker 1: one of your lessons is commodity markets, and you point

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Speaker 1: out that they're driven first by speculation and that that

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Speaker 1: overwhelms fundamentals. What's the lesson there? Two different things. One

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Speaker 1: is just the market market structure, So the story of

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Speaker 1: commodities was in right around them. They would electronic so

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Speaker 1: you didn't have to be in the pits and know

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Speaker 1: all the secret handshakes uh to trade them. You could

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Speaker 1: trade them electronically from your office UH and then now

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Speaker 1: from from from home UH. And that allowed people to

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Speaker 1: to get involved in a way they hadn't been easily

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Speaker 1: able to before. UM. And then around two three, two

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Speaker 1: and four there were there were a lot of there

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Speaker 1: were academics talking about diversified the divers supplying properties of

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Speaker 1: owning commodities as an asset class, and that gained a

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Speaker 1: lot of traction. At the same time, you had the

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Speaker 1: emerging markets plugging into the grid. China joined the w

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Speaker 1: t O and that whole emerging markets theme, you know,

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Speaker 1: the paradigm is changed, were starting to take off, and

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Speaker 1: people associated that with commodities. So we we moved into

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Speaker 1: a world where you know, China was going to take

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Speaker 1: over that We're gonna eat all our commodities, uh and

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Speaker 1: mL dousing way and uh, therefore you had to own it.

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Speaker 1: So as consultants were peddling the story about diversifying through

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Speaker 1: commodities as an asset class, commodities were going up. And

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Speaker 1: when guys are pitched a story about an asset class

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Speaker 1: that's going up rapidly, it makes them want to get

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Speaker 1: more involved faster. So we we kind of had this

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Speaker 1: boom in investment speculation whatever you want to call it,

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Speaker 1: in in commodities from two thousand and three until really

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Speaker 1: until two thousand and you could argue two thousand and eleven,

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Speaker 1: um and Mark, I want to interrupt you real quickly.

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Speaker 1: We're gonna do something. I want to do something really special.

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Speaker 1: So for listeners, we are recording this episode on August

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Speaker 1: four in the morning. It's am on a Friday. That

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Speaker 1: means we're about, let's just under four minutes away from

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Speaker 1: the monthly non farm payrolls report, which is of course

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Speaker 1: the most important economic data point of the month. So

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Speaker 1: we're gonna do something a little different. We're gonna take

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Speaker 1: a little interlude from the podcast. Will return to the

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Speaker 1: lessons in a moment, but we are going to talk

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Speaker 1: through the jobs report as it comes out, because I

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Speaker 1: think this is very exciting, the chance to be talking

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Speaker 1: to a sort of experienced macro trader about a report

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Speaker 1: as it's coming out. It's coming out in um just

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Speaker 1: over three minutes now, and so we'll look at the data,

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Speaker 1: we'll talk about it, we'll talk about the market reaction.

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Speaker 1: People will get this snapshot of how you see things,

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Speaker 1: how you interpret the data, and then of course we

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Speaker 1: can come back to it. But ahead of the data,

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Speaker 1: we just about a little less than three minutes. You

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Speaker 1: have any sort of early thoughts about the data, I

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Speaker 1: should just note the economists are looking for k jobs

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Speaker 1: for July, the unemployment rates to fall to four point

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Speaker 1: three percent, and two point four percent wage growth. What

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Speaker 1: are you looking at in the minutes ahead of the release. Well,

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Speaker 1: the way I tend to approach these things is I

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Speaker 1: look at where the areas in which the market is

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Speaker 1: heavily positioned, what are the trends that have been working uh,

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Speaker 1: and what kind of data would would be required to

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Speaker 1: trigger either a shakeout or reversal of these Of the

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Speaker 1: of the recent trends, and the biggest recent trend has

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Speaker 1: has been short dollar, both against the funding currencies like

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Speaker 1: the euro and the pound UH and swissy UH, and

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Speaker 1: against the risk currencies for emerging markets have done quite well.

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Speaker 1: The answer antipodeans in New Zealand and the Key. We

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Speaker 1: are always somewhere in the middle between those two the

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Speaker 1: two camps. But because dollar has been on a on

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Speaker 1: a run in in a negative way, I'm going to

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Speaker 1: call it that. It wouldn't take much one data, one

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Speaker 1: strong number could could trigger a shakeout that could last

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Speaker 1: a day or two or three or a week or whatever.

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Speaker 1: I still think the longer term trends for the dollar

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Speaker 1: is down because we're in that phase of the cycle.

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Speaker 1: You know, the US has recovered, valuations are fairly full.

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Speaker 1: Let's move further out the risk of the spectrum to

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Speaker 1: places that haven't been fully fished out, and that's where

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Speaker 1: people that's why people have gravitated to emerging markets in Europe. Tracy,

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Speaker 1: are you excited about the number we're about to get

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Speaker 1: in less than sixty seconds? I'm very curious to hear

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Speaker 1: Mark's sort of play by play, a minute by minute analysis.

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Speaker 1: Mark really really quickly, because it's less than a minute. Now,

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Speaker 1: would you try to trade around the immediate jobs report

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Speaker 1: or do you just try to, you know, think about

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Speaker 1: the implications for your portfolio. It depends on what I'm

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Speaker 1: what I'm thinking. If there's a situation where the position

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Speaker 1: is really offside and I don't think it would take

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Speaker 1: much to trigger a reversal, I might drive something. Often.

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Speaker 1: I like to see the market react before jumping in

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Speaker 1: if it's a trade. I also do investments, which is

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Speaker 1: a different different story, but from the trading side, I can.

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Speaker 1: I can be active right now. I have some short

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Speaker 1: dollar positions. I've paired back a little bit to get

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Speaker 1: my size and right make sure I don't get hurt.

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Speaker 1: I've had a nice run. Here we go, numbers out,

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Speaker 1: O Wow, two hundred nine K jobs so that's a

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Speaker 1: beat versus eighty k last month. Last month revised up

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Speaker 1: from two twenty two to to thirty one case of

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Speaker 1: very nice. Unemployment rate falls to four point three percent

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Speaker 1: from four point four percent. That's in line with expectations.

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Speaker 1: And UH average really earnings growth at two point five percent,

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Speaker 1: that's a little bit ahead of the expectations of two

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Speaker 1: point four percent. And the labor force participation rate, which

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Speaker 1: is many people would argue has been one of the

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Speaker 1: weak spots of concerning long term trend up to sixty

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Speaker 1: two point nine percent. We are seeing rates pick up,

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Speaker 1: tenure yield a little bit higher, not dramatically, from two

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Speaker 1: point to three to two point to five percent. Mark

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Speaker 1: give us your take. So I take is this is

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Speaker 1: that kind of shakeout the bondswork position and short dollars

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Speaker 1: were position, so now we get we get a test

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Speaker 1: of that shakeout. These aren't massively strong numbers, but they're

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Speaker 1: definitely stronger than what people were looking for. I think

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Speaker 1: what will stand out at average hourly earnings that that's up.

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Speaker 1: People have been very sensitive to labor labor inflation here, um,

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Speaker 1: so all the all everything is skewed towards stronger than expected,

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Speaker 1: but not massively. So so this is a decent test

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Speaker 1: for the short dollar thesis and for the long bond thesis.

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Speaker 1: What I would do in a case and what I

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Speaker 1: will do in a case like this, I just stand

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Speaker 1: back and let it play out. And if I want

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Speaker 1: to add to my positions, I wait until I think

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Speaker 1: that this shakeout is over. But it's really the thing

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Speaker 1: you have to feel your way through. You never know.

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Speaker 1: I mean, this is a behavioral animal, this market, and

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Speaker 1: you have to stand back and and and watch it

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Speaker 1: and see how it plays out, and look for correlations

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Speaker 1: breaking down, and look for weakness and in volume and

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Speaker 1: other signs that the story is getting tired before trying

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Speaker 1: to take it on. So, Mark, I think you mentioned

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Speaker 1: that you had some short dollar positions. Would this be

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Speaker 1: enough for you to reconsider those No, particularly in the

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Speaker 1: emerging markets, where my positions are more important. Because even

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Speaker 1: though this is so, I mentioned earlier the distinction between

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Speaker 1: risk currencies and and and funding currencies. This is bad

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Speaker 1: for the funding currencies, but not necessarily bad for the

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Speaker 1: emerging markets because strong U S data, uh, it's good

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Speaker 1: for risk in a certain sence. You see, equity markets

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Speaker 1: aren't down right so the risky currencies trade off of

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Speaker 1: risk and the trade off of bonds, whereas the funding

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Speaker 1: currencies trade mostly off of bonds. And to your point

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Speaker 1: about you know, sort of US equities, we mentioned that

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Speaker 1: all the dollar is up, rates were up, but we

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Speaker 1: haven't seen a sell off in US futures at this moment.

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Speaker 1: We still see risk assets rising up, not not much out.

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Speaker 1: So you know the which if you were to take

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Speaker 1: a maquar ree from all of this, you would say, Okay,

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Speaker 1: people say the numbers a little bit stronger, but it's

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Speaker 1: not going to change the FEDS terminal rate which has

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Speaker 1: been coming down. Right, It's not going to make rate

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Speaker 1: hikes come that much sooner necessarily, but it might not

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Speaker 1: be dubbish forever the way people have been had been

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Speaker 1: pricing in. So it's a modestly strong number that we'll

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Speaker 1: shake some people out of their funding currency shorts. I

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Speaker 1: would suspect the Japanese en um is a on one.

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Speaker 1: Euro is another that's had a nice run, But I

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Speaker 1: don't think it's going to hit the emerging markets that hard.

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Speaker 1: One of the fears in emergency markets emerging markets has

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Speaker 1: been that, you know, the FED will have to raise rates,

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Speaker 1: and we know when raising when they when they raise rates,

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Speaker 1: it hurts emerging markets. I think that's a backwards looking view.

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Speaker 1: In fact, one of the points and in the blog

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Speaker 1: was emerging markets are structurally UH different. Now. I don't

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Speaker 1: think that the Fed's gonna raise rates all that much,

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Speaker 1: first of all, but more importantly, even if they did,

401
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Speaker 1: the emerging markets are in a much better position to

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Speaker 1: weather it because they have a lot less dollar denominated

403
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Speaker 1: debt hanging over hanging over their heads, particularly the sovereigns

404
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Speaker 1: UH then then used to be then used to be

405
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Speaker 1: the case, so it shouldn't be too bad for her.

406
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Speaker 1: And if you look at the Mexican page, so it's

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Speaker 1: still up on the day, the Brazilian realities flat for

408
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Speaker 1: for for so far in the futures UH. The ones

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Speaker 1: getting hit and not even massively is the euro UH

410
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Speaker 1: and UH and the pound and the end right the

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Speaker 1: funding currency. So this is a pretty good number. We

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Speaker 1: want to see the economy continued. We've had some week

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Speaker 1: data here and there. UM. It's also worth noting that

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Speaker 1: the last last month stuff got got revised, revised stuff

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Speaker 1: a little bit, so that's not bad. So you know,

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Speaker 1: we've had some soft stuff with the autos and other areas.

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Speaker 1: And uh, it's it's nice to see a little a

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Speaker 1: little counterweights to that. But this doesn't nothing, and this

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Speaker 1: doesn't anything earth shaking. Uh, this isn't something's gonna it's

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Speaker 1: gonna rock our worlds. Let's return to the lessons we

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Speaker 1: all should have learned, Tracy, do you want to pick

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Speaker 1: another lesson from Mark's list for us to go? I

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Speaker 1: was going to ask the oil question. Yeah, we'll get okay,

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Speaker 1: let me I'll finis to the commodities and then come

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Speaker 1: onto oil. So the trading was enabled to trying to

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Speaker 1: trading was enabled. The asset class was being pitched as

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Speaker 1: a diversifier. At the same time, emerging markets were kind

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Speaker 1: of plugging into the grid, and this led to a

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Speaker 1: lot of enthusiasm and commodities at the beginning. You know,

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Speaker 1: if you go back and that point in time, the

431
00:22:58,280 --> 00:23:02,879
Speaker 1: breakdown and people trading oil, for example, was uh, you know,

432
00:23:04,160 --> 00:23:08,080
Speaker 1: the people were financial, uh, and seventy of the people

433
00:23:08,119 --> 00:23:10,800
Speaker 1: were commercial. That is to say, they were hedging either

434
00:23:11,040 --> 00:23:16,000
Speaker 1: their needs for for oil or their production of oil.

435
00:23:16,359 --> 00:23:19,840
Speaker 1: Now that numbers roughly reversed. It's like the people involved

436
00:23:19,840 --> 00:23:23,520
Speaker 1: in oil are trading it and are the commercial guys

437
00:23:23,600 --> 00:23:26,600
Speaker 1: just because there's so many more people have gotten involved

438
00:23:26,680 --> 00:23:30,439
Speaker 1: over over the years, and that means that the asset

439
00:23:30,520 --> 00:23:32,720
Speaker 1: is gonna be wilder, it's gonna do crazier things, it's

440
00:23:32,720 --> 00:23:36,320
Speaker 1: gonna be left linked to fundamentals for longer periods of time. Uh.

441
00:23:36,320 --> 00:23:38,159
Speaker 1: And I think we've we've we've seen a lot of that.

442
00:23:38,480 --> 00:23:41,000
Speaker 1: And the extremes have feedback effects, you know, the the

443
00:23:41,080 --> 00:23:44,359
Speaker 1: extreme buying of oil, a lot of which interestingly was

444
00:23:44,359 --> 00:23:46,520
Speaker 1: blamed on low FED rates. Even though we we got

445
00:23:46,560 --> 00:23:49,000
Speaker 1: two hundred fifty dollars in barrel with FED funds five

446
00:23:49,000 --> 00:23:51,639
Speaker 1: percent back in two thousand and whatever thou eight or

447
00:23:51,680 --> 00:23:57,840
Speaker 1: so um. Uh, it's lead to are incentivized. A lot

448
00:23:57,880 --> 00:24:00,719
Speaker 1: of the shale production was coming on online because they

449
00:24:00,720 --> 00:24:03,200
Speaker 1: didn't care about interest rates, these guys because they were

450
00:24:03,200 --> 00:24:05,679
Speaker 1: looking to make fortyfold on their investment. And if you

451
00:24:05,680 --> 00:24:07,520
Speaker 1: want to make forty fold in your investment, if you

452
00:24:07,520 --> 00:24:10,280
Speaker 1: don't care if you're funding rates, three and seven is

453
00:24:10,320 --> 00:24:13,399
Speaker 1: the same number, right. Uh. They were borrowing because the

454
00:24:13,760 --> 00:24:15,639
Speaker 1: price of oil was high, and it went to a

455
00:24:15,720 --> 00:24:18,240
Speaker 1: much higher rate than ever otherwise would have been the case.

456
00:24:18,800 --> 00:24:23,000
Speaker 1: Because of the amount of speculation UH and investment in

457
00:24:23,040 --> 00:24:25,560
Speaker 1: commodities as as a theme. So I think that's a

458
00:24:25,600 --> 00:24:27,680
Speaker 1: super important point. The second important point to make about

459
00:24:27,680 --> 00:24:32,520
Speaker 1: commodities is that over time we find ways, technology finds ways.

460
00:24:32,640 --> 00:24:36,400
Speaker 1: The substitute for commodity consumption. Our oil consumption, and this

461
00:24:36,840 --> 00:24:41,120
Speaker 1: relates to the oil point is one in the home

462
00:24:41,520 --> 00:24:45,800
Speaker 1: home homeowner basket is one less than a half of

463
00:24:45,800 --> 00:24:49,080
Speaker 1: what it was in the in the eighties. Our consumption

464
00:24:49,119 --> 00:24:52,080
Speaker 1: of oil UH is less than half of what it

465
00:24:52,160 --> 00:24:55,120
Speaker 1: used to be UH in the household level. And that's

466
00:24:55,160 --> 00:24:57,240
Speaker 1: true of all commodities to some degree. People don't have

467
00:24:57,280 --> 00:24:59,840
Speaker 1: gold teeth, people don't use copper as much as that

468
00:25:00,080 --> 00:25:03,640
Speaker 1: is to over time we find substitution UM the things

469
00:25:03,680 --> 00:25:07,119
Speaker 1: to substitute for our commodity consumption because it's cleaner, because

470
00:25:07,119 --> 00:25:11,040
Speaker 1: it's cheaper, because it's better UH, and commodities should go

471
00:25:11,160 --> 00:25:14,840
Speaker 1: down in real terms over time. Right, So you have,

472
00:25:14,880 --> 00:25:17,880
Speaker 1: on the one hand, speculation that leads to larger swings

473
00:25:17,880 --> 00:25:20,560
Speaker 1: that have predominantly been to the upside over the past

474
00:25:20,880 --> 00:25:25,360
Speaker 1: fifteen years, and you have less of a fundamental UH driver. Yes,

475
00:25:25,359 --> 00:25:27,080
Speaker 1: you have the emerging markets plugging into the grid, and

476
00:25:27,119 --> 00:25:29,600
Speaker 1: they're less less commodity efficient. But I met you the

477
00:25:29,600 --> 00:25:32,119
Speaker 1: new houses in China are using PVC and not copper

478
00:25:32,440 --> 00:25:35,200
Speaker 1: for the most part when when they're being built out. Yeah,

479
00:25:35,240 --> 00:25:38,960
Speaker 1: to some extent, human progress is the story of making

480
00:25:39,040 --> 00:25:42,120
Speaker 1: fewer commodities to maintain the standard. In a very real way.

481
00:25:42,200 --> 00:25:44,600
Speaker 1: It's kind of the inverse of commodities, kind of the

482
00:25:44,600 --> 00:25:49,400
Speaker 1: inverse of technology, right, shorten commodities are it's a uh

483
00:25:49,520 --> 00:25:53,000
Speaker 1: pro technology that. Now you know the case with oil

484
00:25:53,280 --> 00:25:57,119
Speaker 1: if you remember, you know people were saying when oil

485
00:25:57,160 --> 00:25:59,880
Speaker 1: fell dramatically from over two thousand and fourteen and two

486
00:26:00,080 --> 00:26:04,320
Speaker 1: US and fifteen. Uh, they said, oh, this is really bad.

487
00:26:04,359 --> 00:26:07,080
Speaker 1: This is first of all, it was misdiagnosed as demand. People.

488
00:26:07,280 --> 00:26:09,040
Speaker 1: One of the mistakes that we make in markets is

489
00:26:09,080 --> 00:26:12,920
Speaker 1: we read way too much fundamental information uh to two

490
00:26:12,920 --> 00:26:16,199
Speaker 1: moves to price moves. So people were saying, oh, no,

491
00:26:16,280 --> 00:26:18,000
Speaker 1: this isn't demand story. The US is going to have

492
00:26:18,040 --> 00:26:21,119
Speaker 1: a recession, etcetera, etcetera. But it was a lot of

493
00:26:21,160 --> 00:26:23,359
Speaker 1: guys that got the shale producers and other guys that

494
00:26:23,440 --> 00:26:25,840
Speaker 1: got excited about a high price of oil, and they

495
00:26:25,840 --> 00:26:30,280
Speaker 1: got caught. They got caught out speculating. Now, the people

496
00:26:30,320 --> 00:26:34,720
Speaker 1: who were bullish, uh, of the US economy in general.

497
00:26:34,760 --> 00:26:37,720
Speaker 1: We're saying, gospel oil falling is gonna be really good

498
00:26:37,720 --> 00:26:41,480
Speaker 1: for the consumer, and I was making the point, uh,

499
00:26:41,640 --> 00:26:44,160
Speaker 1: quite strongly, that it won't help very much because it's

500
00:26:44,160 --> 00:26:47,159
Speaker 1: become such a small share of our overall basket. The

501
00:26:47,320 --> 00:26:52,320
Speaker 1: oil intensity of our GDP has declined significantly over the

502
00:26:52,320 --> 00:26:55,520
Speaker 1: past twenty or thirty years. So it just doesn't matter. Uh,

503
00:26:55,720 --> 00:26:57,320
Speaker 1: it just doesn't matter so much. It's not going to

504
00:26:57,440 --> 00:26:58,800
Speaker 1: turn that. It's not going to turn the dial. And

505
00:26:58,800 --> 00:27:02,359
Speaker 1: in fact it didn't in the same way, it didn't

506
00:27:02,440 --> 00:27:05,560
Speaker 1: hurt consumption very much when it with you know, up

507
00:27:05,560 --> 00:27:09,119
Speaker 1: to a hundred hundred and fifty. So as oil becomes

508
00:27:09,119 --> 00:27:12,879
Speaker 1: a smaller share of of our consumption, it's oscillations are

509
00:27:12,920 --> 00:27:15,359
Speaker 1: are are going to help us less? Help us and

510
00:27:15,440 --> 00:27:18,200
Speaker 1: hurt us less and less. The real problem is people,

511
00:27:18,520 --> 00:27:20,600
Speaker 1: you know, in markets, we say we look at something

512
00:27:20,600 --> 00:27:22,760
Speaker 1: new and have to process it, and we look backwards

513
00:27:22,760 --> 00:27:25,800
Speaker 1: first and say, what looks vaguely similar to this in history?

514
00:27:26,200 --> 00:27:27,879
Speaker 1: And the first thing that they they'll find when they

515
00:27:27,880 --> 00:27:32,000
Speaker 1: look back in oil and consumption is the early eighties

516
00:27:32,000 --> 00:27:34,719
Speaker 1: and the late seventies, and those data and they end

517
00:27:34,760 --> 00:27:38,800
Speaker 1: up anchoring on that reality and those coefficients no longer

518
00:27:38,840 --> 00:27:42,800
Speaker 1: obtained for the reasons uh we just discussed. So Mark

519
00:27:42,960 --> 00:27:46,520
Speaker 1: is very energetically and very eloquently connecting all the dots

520
00:27:46,640 --> 00:27:50,560
Speaker 1: in all his lessons for post crisis investors. So let

521
00:27:50,560 --> 00:27:52,400
Speaker 1: me see if I can get in there with one

522
00:27:52,440 --> 00:27:54,840
Speaker 1: more that I think is connected to all of this.

523
00:27:55,040 --> 00:27:58,520
Speaker 1: And that's your very first lesson about potential growth and

524
00:27:58,520 --> 00:28:04,240
Speaker 1: developed economies being lower than it was before the crisis. Well,

525
00:28:04,359 --> 00:28:07,479
Speaker 1: go back to the ear the early eighties, and we

526
00:28:07,520 --> 00:28:11,000
Speaker 1: had a situation where we have four factors really that

527
00:28:11,040 --> 00:28:15,080
Speaker 1: we're driving growth in a really positive way, creating significant

528
00:28:15,080 --> 00:28:19,040
Speaker 1: pail winds. One with demography, baby boomers were plugging into

529
00:28:19,080 --> 00:28:23,040
Speaker 1: the grid. Uh. And the labor force was growing at

530
00:28:23,040 --> 00:28:26,600
Speaker 1: a rapid rate. And as we know, your potential potential

531
00:28:26,640 --> 00:28:28,800
Speaker 1: growth is a function of the growth in your labor

532
00:28:28,840 --> 00:28:31,840
Speaker 1: force and a productivity number. You know, how productive that

533
00:28:31,920 --> 00:28:34,199
Speaker 1: labor in the capital that you bring in with it is.

534
00:28:34,600 --> 00:28:36,840
Speaker 1: So that was going for us. On top of that,

535
00:28:37,200 --> 00:28:40,520
Speaker 1: we had a secular factor of women joining the working

536
00:28:40,680 --> 00:28:43,840
Speaker 1: the workforce. That's kind of a one off. Now women

537
00:28:43,920 --> 00:28:45,560
Speaker 1: can join it, come, you know, they can join and

538
00:28:45,600 --> 00:28:49,040
Speaker 1: they can uh and leave just like a men used to.

539
00:28:49,160 --> 00:28:52,160
Speaker 1: But at that time female participation in labor force was

540
00:28:52,160 --> 00:28:54,640
Speaker 1: was very low, and they spent the eighties and nineties

541
00:28:54,680 --> 00:28:58,080
Speaker 1: coming on online. I think it peaked in probably or

542
00:28:58,160 --> 00:29:00,880
Speaker 1: ninety seven or ninety nine according to the artistics. So

543
00:29:00,960 --> 00:29:03,960
Speaker 1: it became normalized then. So it is what it is.

544
00:29:04,000 --> 00:29:07,000
Speaker 1: It oscillates with with everything else. But over that period

545
00:29:07,040 --> 00:29:09,720
Speaker 1: when they were coming in, it created effectively a growth

546
00:29:09,920 --> 00:29:14,200
Speaker 1: uh in the labor force much faster than what the

547
00:29:14,280 --> 00:29:17,600
Speaker 1: actual labor force growth suggested. So that was another tale wind.

548
00:29:17,960 --> 00:29:20,360
Speaker 1: On top of that, very powerfully, we had a decline

549
00:29:20,360 --> 00:29:23,320
Speaker 1: in interest rates and a decline in inflation. Remember the

550
00:29:23,360 --> 00:29:27,200
Speaker 1: eighties had a very high inflation, uh. And that means

551
00:29:27,240 --> 00:29:29,800
Speaker 1: that people had clean balance sheets. No one had borrowed

552
00:29:29,800 --> 00:29:34,000
Speaker 1: anything because the rates were just too high and we

553
00:29:34,040 --> 00:29:37,040
Speaker 1: could borrow, so people borrow more. When rates come down,

554
00:29:37,080 --> 00:29:40,800
Speaker 1: people borrow more. When inflation is more is more stable,

555
00:29:41,080 --> 00:29:43,120
Speaker 1: and when people don't have any debt on the balance sheets.

556
00:29:43,160 --> 00:29:45,760
Speaker 1: And then the fourth point is we adopted with Reagan

557
00:29:46,120 --> 00:29:49,720
Speaker 1: deregulatory mindset. And you know, people complain a lot about regulation.

558
00:29:49,760 --> 00:29:52,480
Speaker 1: I mean people always do, but uh, you know lately,

559
00:29:52,480 --> 00:29:54,600
Speaker 1: it's been a boogeyman for a lot of things, but

560
00:29:55,480 --> 00:29:58,520
Speaker 1: people forget that back in the seventies, we had real obstacles.

561
00:29:58,920 --> 00:30:03,000
Speaker 1: We uh, really regulatory obstacles. There were price controls, there

562
00:30:03,000 --> 00:30:05,640
Speaker 1: were wage controls. We were rationing gasoline. We had to

563
00:30:05,640 --> 00:30:08,080
Speaker 1: buy every other day depending on your license plate. I mean,

564
00:30:08,080 --> 00:30:09,720
Speaker 1: you guys are probably too young to remember this, but

565
00:30:09,760 --> 00:30:12,120
Speaker 1: I was a little boy. I remember waiting with my dad, uh,

566
00:30:12,120 --> 00:30:15,400
Speaker 1: you know, in line for to buy to buy guests.

567
00:30:15,520 --> 00:30:18,720
Speaker 1: So we had a lot of the relationship between labor

568
00:30:18,720 --> 00:30:21,320
Speaker 1: and capital was very different, so they need to regulatory

569
00:30:21,360 --> 00:30:24,360
Speaker 1: mindset led to a lot of financial innovation. Consumers and

570
00:30:24,400 --> 00:30:26,920
Speaker 1: businesses had clean balance sheets so we can borrow. So

571
00:30:26,960 --> 00:30:31,360
Speaker 1: you had rapid credit deepening along with these labor force phenomena.

572
00:30:31,800 --> 00:30:34,320
Speaker 1: Let the really rapid growth that kind of ended, or

573
00:30:34,320 --> 00:30:37,400
Speaker 1: at least the demographic portions slowed down by the end

574
00:30:37,440 --> 00:30:40,600
Speaker 1: of the of the nineties and stopped being a tail wind.

575
00:30:41,280 --> 00:30:44,640
Speaker 1: The credit, though, continue to deepen, and so we didn't

576
00:30:44,680 --> 00:30:49,320
Speaker 1: see the underlying weakness in demography because we had this

577
00:30:49,400 --> 00:30:51,400
Speaker 1: credit deepening for a long time, giving us this and

578
00:30:51,520 --> 00:30:53,600
Speaker 1: you know, we had stagnating income. But it didn't feel

579
00:30:53,600 --> 00:30:55,520
Speaker 1: like that because everybody could borrow. We were getting more

580
00:30:55,560 --> 00:30:59,000
Speaker 1: credit cards and we were buying uh cars and houses

581
00:30:59,040 --> 00:31:03,040
Speaker 1: and and everything on credit. So that papered over. Um.

582
00:31:03,040 --> 00:31:06,960
Speaker 1: Really the change in the in the demographic headwinds that

583
00:31:07,080 --> 00:31:09,520
Speaker 1: all got exposed when the when the when the GFC

584
00:31:10,400 --> 00:31:13,840
Speaker 1: hit us. Uh, that crisis meant, okay, the credit machine,

585
00:31:13,880 --> 00:31:16,200
Speaker 1: the credit tail wind is done. It's over. Now it's

586
00:31:16,200 --> 00:31:20,520
Speaker 1: a headwind. So now we've uncovered the demographic weakness and

587
00:31:20,640 --> 00:31:24,280
Speaker 1: we have a credit headwind. Uh. This is labor force

588
00:31:24,360 --> 00:31:26,080
Speaker 1: is growing at a slower rate. We don't have the

589
00:31:26,080 --> 00:31:29,360
Speaker 1: benefit of women structurally coming into the labor force. Uh

590
00:31:29,400 --> 00:31:32,640
Speaker 1: and uh, we no longer have the credit machine on.

591
00:31:33,040 --> 00:31:35,120
Speaker 1: That's why we have to grow lower. So at first

592
00:31:35,360 --> 00:31:38,120
Speaker 1: after the crisis, it was cyclical. We had to work

593
00:31:38,120 --> 00:31:40,240
Speaker 1: our way out from the credit boom and the typical

594
00:31:40,280 --> 00:31:43,080
Speaker 1: cyclical problems. But on top of that, we structurally have

595
00:31:43,120 --> 00:31:45,000
Speaker 1: a slower growth rate. And this is what you know

596
00:31:45,040 --> 00:31:47,920
Speaker 1: Mohammed Hilarion calls the new normal and what at the

597
00:31:47,920 --> 00:31:50,600
Speaker 1: same actually around the same time, I was referring to

598
00:31:50,600 --> 00:31:54,080
Speaker 1: it as reversion to a different meed back at my firm.

599
00:31:54,080 --> 00:31:58,080
Speaker 1: But it's the same phenomenon, UH, and recognizing this has

600
00:31:58,120 --> 00:32:02,080
Speaker 1: been super important. UH. Policymakers always want to believe they

601
00:32:02,080 --> 00:32:04,760
Speaker 1: can do more uh to change the growth break than

602
00:32:04,760 --> 00:32:06,640
Speaker 1: they can because that's what they have to sell. Right.

603
00:32:07,040 --> 00:32:10,600
Speaker 1: Both Hillary Clinton and Donald Trump were promising four percent growth,

604
00:32:11,040 --> 00:32:13,280
Speaker 1: different ways to get there, but that's what they were promising.

605
00:32:13,480 --> 00:32:16,280
Speaker 1: But recognizing that policy can't do that much about it,

606
00:32:16,760 --> 00:32:19,360
Speaker 1: and that all developed economies are probably going to have

607
00:32:19,400 --> 00:32:23,840
Speaker 1: the same demographic phenomenon and similar structural credit headwinds or

608
00:32:23,840 --> 00:32:26,120
Speaker 1: at least no longer the tail winds is a is

609
00:32:26,120 --> 00:32:28,720
Speaker 1: a very important observation when you're thinking globally about where

610
00:32:28,720 --> 00:32:32,240
Speaker 1: to allocate uh your risk. All Right, Mark, I'm gonna

611
00:32:32,240 --> 00:32:34,240
Speaker 1: ask you one more question, and it's going to be

612
00:32:34,280 --> 00:32:36,240
Speaker 1: really unfair because I'm going to ask you the most

613
00:32:36,280 --> 00:32:39,120
Speaker 1: controversial question. But we all we have to do like

614
00:32:39,160 --> 00:32:41,680
Speaker 1: a speed round. Okay, So I'm gonna make you we

615
00:32:41,920 --> 00:32:43,840
Speaker 1: This is a question we probably could have done a

616
00:32:43,880 --> 00:32:47,240
Speaker 1: whole episode on, but we're gonna have it's gonna have

617
00:32:47,320 --> 00:32:51,280
Speaker 1: to be very short. Number thirteen. I'm fascinated by you say.

618
00:32:51,440 --> 00:32:56,600
Speaker 1: Very few investors can disentangle their political preferences from economic analysis.

619
00:32:56,920 --> 00:33:02,000
Speaker 1: What's the story there. It's just people re Daniel cannonman.

620
00:33:02,160 --> 00:33:04,600
Speaker 1: I mean, we we get so deep into our own narratives,

621
00:33:04,600 --> 00:33:06,760
Speaker 1: and the confirmation bias is so strong. I mean, look

622
00:33:06,760 --> 00:33:10,160
Speaker 1: at how many guys became bullish when Donald Trump became president,

623
00:33:10,520 --> 00:33:12,880
Speaker 1: and how many people turned barrassed when he became president,

624
00:33:13,320 --> 00:33:16,120
Speaker 1: and how many people have objected or were fighting the

625
00:33:16,120 --> 00:33:18,360
Speaker 1: stock markets for the whole period under Obama because they

626
00:33:18,360 --> 00:33:22,200
Speaker 1: didn't like his policies. Uh, and how many people like

627
00:33:22,320 --> 00:33:25,680
Speaker 1: the policies. Right, So this is what you see, and

628
00:33:25,720 --> 00:33:27,480
Speaker 1: you see it time and time again, and the season

629
00:33:27,560 --> 00:33:29,959
Speaker 1: investor just kind of gets past that. I didn't think

630
00:33:30,000 --> 00:33:32,480
Speaker 1: Trump was gonna get elected and definitely someone I don't

631
00:33:32,560 --> 00:33:35,400
Speaker 1: I don't think is suited for the for the job.

632
00:33:35,640 --> 00:33:38,400
Speaker 1: That's my personal, my personal view. But I didn't think

633
00:33:38,400 --> 00:33:40,120
Speaker 1: he was going to cause a recession. But a lot

634
00:33:40,120 --> 00:33:41,480
Speaker 1: of guys. I saw a lot of guys fall into

635
00:33:41,480 --> 00:33:43,240
Speaker 1: that trap, and a lot of people have been embarrassed

636
00:33:43,280 --> 00:33:45,320
Speaker 1: for eight years. He saw them flip the switch and say, oh,

637
00:33:45,320 --> 00:33:47,880
Speaker 1: I'm bullish now, and they mumbled something about tax cuts

638
00:33:47,920 --> 00:33:50,440
Speaker 1: that have materialized. But we can see now in the

639
00:33:50,520 --> 00:33:52,479
Speaker 1: data that you know what really happened is we went

640
00:33:52,520 --> 00:33:56,640
Speaker 1: into the election coiled right. Everyone was ready to take risk,

641
00:33:57,160 --> 00:34:01,000
Speaker 1: and uh, it played out a little bit differently than

642
00:34:01,080 --> 00:34:04,560
Speaker 1: most people thought. But you know, the economy underlying economy

643
00:34:04,600 --> 00:34:07,320
Speaker 1: is doing okay, and the fact that Trump's policies didn't

644
00:34:07,320 --> 00:34:10,759
Speaker 1: materialize and we're still holding up is a sign that

645
00:34:10,760 --> 00:34:14,759
Speaker 1: that that things are okay. All right, Mark, phenomenal conversation.

646
00:34:14,960 --> 00:34:18,440
Speaker 1: Gotta leave it there. Uh, great talking to you. I

647
00:34:18,480 --> 00:34:21,160
Speaker 1: loved how we did that jobs report thing. That was

648
00:34:21,239 --> 00:34:23,680
Speaker 1: really cool. I feel like I learned a lot there.

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00:34:23,920 --> 00:34:26,560
Speaker 1: Really appreciate you coming on my pleasure. It was great

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00:34:26,560 --> 00:34:39,920
Speaker 1: talking to you guys, Tracy. I thought that was really fun.

651
00:34:40,120 --> 00:34:44,839
Speaker 1: Mark obviously knows way more about so many things than

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00:34:45,080 --> 00:34:47,680
Speaker 1: you know, sort of we do, or even a lot

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00:34:47,719 --> 00:34:51,560
Speaker 1: of uh, you know, typical people in finance do. I

654
00:34:51,560 --> 00:34:54,319
Speaker 1: thought that was a pretty cool conversation. Yeah, And I

655
00:34:54,360 --> 00:34:57,680
Speaker 1: thought the way he put this idea of um sort

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00:34:57,719 --> 00:35:00,799
Speaker 1: of the financial world and the real economy running at

657
00:35:00,800 --> 00:35:03,680
Speaker 1: two different speeds. The way he framed that is really

658
00:35:03,680 --> 00:35:06,919
Speaker 1: really useful. And it kind of amazes me now that

659
00:35:07,200 --> 00:35:10,360
Speaker 1: it feels like others, and in particular the Federal Reserve,

660
00:35:10,440 --> 00:35:13,520
Speaker 1: are only just beginning to think of it in that way,

661
00:35:13,560 --> 00:35:17,200
Speaker 1: but uh, it seems like a pretty big deal. Yeah,

662
00:35:17,239 --> 00:35:20,400
Speaker 1: And I think that that's sort of like the underlying

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00:35:20,520 --> 00:35:24,320
Speaker 1: theme of all of this, which is that human behavior.

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00:35:24,360 --> 00:35:27,319
Speaker 1: I mean, his blog is called Behavioral Macro, and so

665
00:35:27,520 --> 00:35:31,440
Speaker 1: the sort of traditional macro ignores what he you know,

666
00:35:31,480 --> 00:35:34,200
Speaker 1: these sort of behavioral things that humans do things because

667
00:35:34,400 --> 00:35:37,319
Speaker 1: we're animals and we run in herds and we have

668
00:35:37,440 --> 00:35:41,560
Speaker 1: fear and greed that don't necessarily correspond with supply and demand.

669
00:35:41,840 --> 00:35:44,440
Speaker 1: But that trying to really like suss out which of

670
00:35:44,440 --> 00:35:47,160
Speaker 1: those uh, you know, factors are driving what has sort

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00:35:47,200 --> 00:35:51,680
Speaker 1: of been a key aspect of understanding the post crisis period. Yeah.

672
00:35:51,719 --> 00:35:54,680
Speaker 1: And also the idea that human beings have a tendency

673
00:35:54,800 --> 00:35:59,319
Speaker 1: to cling on to um their previously understood notions of

674
00:35:59,360 --> 00:36:02,480
Speaker 1: how they were old works is really important. So, I know,

675
00:36:02,560 --> 00:36:06,879
Speaker 1: we were talking about the financial crisis anniversary coming up.

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00:36:07,280 --> 00:36:11,280
Speaker 1: I remember when I first started writing about quantitative easing

677
00:36:11,360 --> 00:36:15,439
Speaker 1: in two thousand nine, you know, writing analysis about how

678
00:36:15,480 --> 00:36:18,839
Speaker 1: this was going to push up financial asset prices through

679
00:36:18,840 --> 00:36:22,560
Speaker 1: a substitution effect. And I remember people getting really really

680
00:36:22,640 --> 00:36:27,759
Speaker 1: outraged about that idea, And now it's just common knowledge, right. Well,

681
00:36:27,760 --> 00:36:29,960
Speaker 1: and also it's like everyone just assumed that it was

682
00:36:30,040 --> 00:36:33,440
Speaker 1: hyper inflationary, like all these sort of deep seat oh

683
00:36:33,480 --> 00:36:36,439
Speaker 1: printing money, that's gonna cause Weimar, just like all these

684
00:36:36,480 --> 00:36:38,520
Speaker 1: things that we you know, Mark refer to as like

685
00:36:38,560 --> 00:36:40,759
Speaker 1: we anchor on certain periods. So when it comes to

686
00:36:41,160 --> 00:36:44,480
Speaker 1: money creation, we might anchor on some hyper inflationary period.

687
00:36:44,520 --> 00:36:47,960
Speaker 1: When it's oil, we might think about the late seventies

688
00:36:48,280 --> 00:36:50,759
Speaker 1: and just without very little thoughts, sort of draw that

689
00:36:51,000 --> 00:36:54,840
Speaker 1: one thing we know to the current thing. And of course, uh,

690
00:36:54,920 --> 00:36:56,920
Speaker 1: you know, history is never quite the same as the

691
00:36:56,920 --> 00:37:01,319
Speaker 1: first time rove. Yeah, human beings are we weak entities

692
00:37:02,080 --> 00:37:07,080
Speaker 1: flawed And on that note, that's the perfect way to

693
00:37:07,239 --> 00:37:09,560
Speaker 1: uh you know, sort of set the stage for the

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00:37:09,560 --> 00:37:12,600
Speaker 1: next few years. Just a reminder that we're week week

695
00:37:12,800 --> 00:37:18,160
Speaker 1: flawed entities. All right. Uh well, this has been another

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00:37:18,200 --> 00:37:21,040
Speaker 1: episode of the All Thoughts podcast. You can follow me

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00:37:21,200 --> 00:37:24,480
Speaker 1: on Twitter at Tracy Alloway and you can follow me

698
00:37:24,719 --> 00:37:28,040
Speaker 1: on Twitter at the Stalwart, and you can follow Mark

699
00:37:28,160 --> 00:37:31,440
Speaker 1: Dow on Twitter at Mark Dow. You should also check

700
00:37:31,440 --> 00:37:34,839
Speaker 1: out his blog marked out dot tumbler dot com and

701
00:37:35,000 --> 00:37:39,280
Speaker 1: follow our producer Sarah Patterson Sarah Pett with two teas,