Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lats podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 4: Racy, you know, it's.
Speaker 2: Sort of giving me a little bit of anxiety these days.
Speaker 3: Just I feel like that's a dangerous question to ask
Speaker 3: your coworker.
Speaker 4: But go on, I mean, it does seem right, It
Speaker 4: could be anything. It's not personal.
Speaker 2: It does seem like across many industries evs, etc. Like
Speaker 2: Chinese firms either because they're doing very well organizationally, technologically
Speaker 2: or whatever, or cost competitively or like really killing it
Speaker 2: in a lot of industries. And it is an American who,
Speaker 2: you know, on to the thriving US economy watching say,
Speaker 2: like on the same day, like the day after Boeing
Speaker 2: is experiencing some new investigation, and then the next day
Speaker 2: seeing some headline about the COMAC is like expanding its factories.
Speaker 4: It's like, like, what's been on here?
Speaker 3: Yeah, I know what you mean. I feel like evs
Speaker 3: are sort of a microcosm for I guess a lot
Speaker 3: of anxiety over the Chinese economy. So first of all,
Speaker 3: the idea that China is sort of going to leap
Speaker 3: frog America in one way or another in terms of technology,
Speaker 3: renewable technology as we've sort of seen in solar panels,
Speaker 3: but also the idea that to some extent, China has
Speaker 3: a lot of policy levers to pullah in a way
Speaker 3: that the US sometimes struggles with. So President Chichiping can
Speaker 3: go out and say we want China to make massive
Speaker 3: investments in things like evs or in things like semiconductors,
Speaker 3: and to some extent the entire economy sort of turns
Speaker 3: that way and starts doing it.
Speaker 2: And just to be clear, like, I think it's good
Speaker 2: that more countries around the world world are getting richer
Speaker 2: and more competitive and.
Speaker 4: Able to like.
Speaker 2: So I don't see the world as some sort of
Speaker 2: zero sum type thing. But if the US is embarking
Speaker 2: on this sort of renewed industrialization push, if we think
Speaker 2: it's valuable, if we think it's important that certain types
Speaker 2: of batteries and cars, etc. Are manufactured here, which we
Speaker 2: seem to have prioritized, also chips, then the question is like, well,
Speaker 2: will any of this be competitive globally cost competitive effective
Speaker 2: similar technology technology to what competitors overseas are doing.
Speaker 3: But also just to ease your anxiety a little bit,
Speaker 3: because that's what I'm here for. There are a lot
Speaker 3: of question marks around the direction of the Chinese economy
Speaker 3: at the moment. There's speculation over a un devaluation. Interest
Speaker 3: rates are already pretty low, You're struggling to boost economic growth.
Speaker 3: So you have these sort of twenty things happening at
Speaker 3: the same time.
Speaker 2: No, I, China unambiguously has its host of issues. That
Speaker 2: being said, you know, I do think that for as
Speaker 2: long as I been paying attention to markets, economic stuff
Speaker 2: like that, one of the overriding questions is like, well,
Speaker 2: when is the crash? When is the financial core? And
Speaker 2: it hasn't really happened. Like, There's been some issues now
Speaker 2: and obviously they sort of on purpose to some extent
Speaker 2: prick to the real estate bubble, but by and large
Speaker 2: some sort of like big Chinese disaster the likes of
Speaker 2: which many people have been expecting for a long time
Speaker 2: of not materialized.
Speaker 3: I think this goes back to the command economy policy
Speaker 3: lever idea, and if you have those types of levers,
Speaker 3: you can kind of pull them and buy yourself time.
Speaker 3: And that's what we've seen over and over again. You
Speaker 3: do have these disasters that happen in the Chinese economy,
Speaker 3: like the three red lines proposition for real estate that
Speaker 3: led to a housing crash. But on the other hand,
Speaker 3: you have sort of measures that can offset some of that,
Speaker 3: and I guess extend and pretend for a.
Speaker 4: While totally well.
Speaker 2: I am really excited about our guests. We've had him
Speaker 2: on the show once and before, although now he's in
Speaker 2: studio with us, which is always a lot more fun.
Speaker 2: Someone who has been covering this story for years. I
Speaker 2: first discovered him probably in two thousand and eight or
Speaker 2: two thousand and nine, watching his YouTube videos where he
Speaker 2: was in China looking at these gigantic I think the
Speaker 2: term at the time was called ghost cities, where there
Speaker 2: are tons of skyscrapers and apartments and at the time
Speaker 2: no one was ever living in them, and had sort
Speaker 2: of raised all these questions about misallocation, all these questures. Anyway,
Speaker 2: we are speaking to the acid capitalist himself, former hedge
Speaker 2: fund manager, now all around cool guy who lives in
Speaker 2: Saint Barts, but he graced us with his presence here
Speaker 2: in New York City. Hugh Hendry, thank you so much
Speaker 2: for coming back on odd Laws.
Speaker 5: It is an absolute pleasure and you know, for the
Speaker 5: folks at home, if you want to see the future,
Speaker 5: you got to get high.
Speaker 4: Yeah, why is that? Why?
Speaker 3: Let's just leave it there.
Speaker 4: Let's not leave it there. Why do you need to
Speaker 4: get high to see the future?
Speaker 5: What I mean, I like me. So what that means is,
Speaker 5: so I'm on a mission to try and give the
Speaker 5: indication that the science of finance should be left alone
Speaker 5: and we should actually embrace the arts of the future. Yeah,
Speaker 5: that is a creative flow, and you're not going to
Speaker 5: get there just by clocking up hours, wearing a suit
Speaker 5: and staring at a spreadsheet. Yeah, you've got to get
Speaker 5: a little bit kind of creative with it. And so
Speaker 5: I'm kind of trying to put out my career. I've
Speaker 5: got my book coming out later this summer, and it's
Speaker 5: it's a different path. There are many paths. Yeah, we
Speaker 5: only get presented the path with the guy. You know,
Speaker 5: they're always guys, Whereas there are all those guys, you know,
Speaker 5: and they got the ties and they don't see the future,
Speaker 5: but they get a lot of air time.
Speaker 3: For listeners who can't see you. Right now, I can
Speaker 3: confirm that he is not, in fact wearing a tie.
Speaker 3: But Hugh here's something I want to ask. I feel
Speaker 3: like you might have the answer to this. Have you
Speaker 3: ever stared and EXCEL spreadsheet while on acid? What happens?
Speaker 5: You certainly don't stare at spreadge. I've stared at walls.
Speaker 5: I mean at Saturday night, there was a wall that
Speaker 5: really came alive. So I'll give it back to you
Speaker 5: on that try that.
Speaker 3: You should try it like new patterns or like when
Speaker 3: you do you realize something.
Speaker 2: The next time you go back and look at that spreadsheet,
Speaker 2: you see something there that wasn't there before.
Speaker 5: I just don't look at the spreadshe some has to
Speaker 5: have someone else look. Someone has to look at the spreadsheets.
Speaker 5: So actually what I did was, I mean the wonderful
Speaker 5: Bloomberg and the graphics package. There was a function for
Speaker 5: game I can't remember the name now, but I would
Speaker 5: load like the S and P five hundred and I'd
Speaker 5: have my designated kind of the images in terms of
Speaker 5: the moving averages and what have you, and i'd sign
Speaker 5: maybe ten seconds stage tart because it's like five hundred,
Speaker 5: and I'd watch and I'd see patterns, and for me,
Speaker 5: I was becoming like a paranoid schizophrenic because the charts
Speaker 5: would create voices in my head, and with those voices
Speaker 5: and the pattern recognition, and they were spread and concentrated
Speaker 5: on particular industries.
Speaker 2: Did you ever see the movie Pi? Yeah, that's one
Speaker 2: of my Have you seen that trace?
Speaker 5: And I haven't.
Speaker 4: I've always wanted to.
Speaker 2: Do an episode on that, which is basically like they're
Speaker 2: an old like Darren Aronovski movie, or this guy like
Speaker 2: is convinced he kind of has like a psychic breakdown,
Speaker 2: but he's sort of convinced that he sees the entire
Speaker 2: hire pattern of the stock market and can predicted second
Speaker 2: to second through like numerology and kablo and Jewish mysticism
Speaker 2: and all this stuff.
Speaker 4: It's a great movie.
Speaker 3: When I have mental breakdowns, I just eat ice cream
Speaker 3: and can't get out of bed in the morning. But
Speaker 3: other people unlock the secrets of financial markets much more productive.
Speaker 5: Well, I got paranoid because I was risking other people's
Speaker 5: precious capital using these voices in my head. But the
Speaker 5: paranoid is a good thing, and that's when I had
Speaker 5: to call for the spreadsheets. So don't get me wrong.
Speaker 5: I listened to music and I was kind of separate
Speaker 5: from my team, but there was a fusion where I had,
Speaker 5: like the CIA, I had an intelligence operation, and I said,
Speaker 5: I'm crazy, challenge me. Let's see if we can find
Speaker 5: a synthesis. So I take a position. I take a
Speaker 5: small risk position. But when we got or if we
Speaker 5: could get confirmation, then we would build and we'd lean
Speaker 5: into it. So you know, I don't mean just to
Speaker 5: be a circus free. You know there's more too.
Speaker 3: So speaking of challenging yourself, one of the things you're
Speaker 3: doing right now on your sub stack is you are
Speaker 3: publishing all the old letters from your hedge fund Eclectica,
Speaker 3: And I'm curious, what was What's the goal of doing that?
Speaker 3: Is it sort of self reflection? Is it seeing how
Speaker 3: your investment vcs have stacked up, you know, two decades
Speaker 3: or whatever it is later?
Speaker 5: Yeah, I mean it is the diary of a long
Speaker 5: period of my life. And for I guess, you know,
Speaker 5: I take a different step perhaps from the rest of
Speaker 5: the community, and I gave everything. I mean, it became
Speaker 5: like a mouse trap. Like people liked it because it
Speaker 5: was a little bit zany. And then the challenges each
Speaker 5: month You've got to redesign the mouse trap. So I
Speaker 5: was always late. I had to be the very last
Speaker 5: day before I could actually get the thing written. But
Speaker 5: there's a lot happened over that period. We're talking about
Speaker 5: the period from October two thousand and two to October
Speaker 5: twenty seventeen. And you know, at leisure it comes at
Speaker 5: you know, my or my sub stock, and you get
Speaker 5: to see it and it resonates that I'm playing with
Speaker 5: language and you can then it's nice. It's like a
Speaker 5: game where you can actually I'm predicting. I'm trying to
Speaker 5: predict the future, and you can actually determine with your
Speaker 5: coffee if I got it right what my hit ratio
Speaker 5: is so and it becomes kind of fun. I hope.
Speaker 4: What have you learned about yourself?
Speaker 2: I mean when you go back and read those two
Speaker 2: thousand and two some of the over twenty years now,
Speaker 2: are there things that you look back at your own
Speaker 2: thinking you're like, oh, this was these ideas weren't fully formed,
Speaker 2: or things that you later changed your mind about or
Speaker 2: had new perspectives, Like what have you learned rereading your
Speaker 2: old hedge fund letters?
Speaker 5: Heavens? Yeah, what did I learn? I mean, the I
Speaker 5: tell you what I'm most proud about. It was a
Speaker 5: form of deduction which I had write at the beginning,
Speaker 5: because right at the beginning, this is before the Zukenbergs
Speaker 5: and you know, the Amazons, where you have a platform,
Speaker 5: it goes global and like you're the richest person on there,
Speaker 5: like Elon, etc. And back then, the highest return intellectual
Speaker 5: capital was to be a hedge fund manager, you know,
Speaker 5: like two and twenty if not more. And so by
Speaker 5: logical deduction, you got to think you're up against the
Speaker 5: smartest minds on the planet. And of course when you
Speaker 5: meet some of these guys and girls, maybe not, but
Speaker 5: you know, but it kind of stands up. Yeah, And
Speaker 5: I kind of concluded that it actually didn't make any
Speaker 5: sense to twine out smart the smartest people. Yeah, like
Speaker 5: you're going to fail, Okay, And so I reverse engineered
Speaker 5: and I said, why is it in this like musical
Speaker 5: chair game that we call the markets, why is it
Speaker 5: that it's not enough to be super super smart, Because
Speaker 5: let's face it, everyone out there and listening to this,
Speaker 5: everyone's got like a really high threshold level of intelligence.
Speaker 5: And so that's why, you know, we come back into
Speaker 5: my acid capitalist. Yeah brand, it sounds like cute and stuff,
Speaker 5: it actually had a function, you know, and you know
Speaker 5: when people would throw up their arms, So who were
Speaker 5: to fast forward into horror story of late two thousand
Speaker 5: and eight and Liman goes by and crabs and we've
Speaker 5: all seen the movie, you know, the Big Short. I
Speaker 5: mean I knew all those guys. I was the London
Speaker 5: operation of that. But yeah, when the suit guys throwing
Speaker 5: their hands up and they're saying, who would have guessed that? Well,
Speaker 5: littleal me. You know, I made fifty percent in the
Speaker 5: month of the two.
Speaker 3: So one thing we wanted to talk to you about
Speaker 3: is obviously China. And I feel like going back and
Speaker 3: reading over some of your own your old notes. Uh, directionally,
Speaker 3: you got the China call right, but timing has sort
Speaker 3: of been an issue here and maybe it goes back
Speaker 3: to those policy levers that we were talking about in
Speaker 3: the intro. But walk us through the China thesis in
Speaker 3: sort of the early mid two thousands and how it
Speaker 3: panned out.
Speaker 5: Yeah, I mean, I am the pig on the Chinese
Speaker 5: column and China. China has been has been the formative
Speaker 5: energy and force for my career and the career of
Speaker 5: all speculators, and really over the last forty years, the
Speaker 5: rise and rise of China has actually, I think been
Speaker 5: responsible for the what is now the preposterous rise and
Speaker 5: rise in asset prices. Not trying to explain that, but
Speaker 5: you know, back at the beginning, when I was listening
Speaker 5: to the she I was seeing the sheet music on
Speaker 5: my Bloomberg terminal, I was seeing the chart formations. What
Speaker 5: was I seeing? I was seeing the most ugly old
Speaker 5: industrial businesses that no one had wanted to own for
Speaker 5: twenty years. Everyone was in services and drugstocks, et cetera.
Speaker 5: I was seeing the worst businesses and they were coming alive.
Speaker 5: I trapped you.
Speaker 2: Through what's example that when you say that one of
Speaker 2: the worst businesses and they're coming.
Speaker 5: Up, Oh, they would be like smelters, Yeah, you know,
Speaker 5: like I mean, just insanely ugly business is. Yeah, they
Speaker 5: had not earned an appropriate return on capital for the
Speaker 5: longest time, and they were coming alive. And so I
Speaker 5: used a lot of like you know, like people on
Speaker 5: Twitter and stuff in Bloomberg they throw around charts and
Speaker 5: they look at a three month charm me one is
Speaker 5: a three month chart. I want ingredient show me everything.
Speaker 5: So I'm looking at forty years and I'm seeing things
Speaker 5: which stop falling and then One of the other key
Speaker 5: determinerts that I was using was things go right, stocks
Speaker 5: and risk positions. They go right relative to their peer
Speaker 5: group before they actually go right in absolute terms, and
Speaker 5: so you've got to lean in there. So I was
Speaker 5: beginning to say this immense relative performance. I mean, let
Speaker 5: me give you an example with regard so like another
Speaker 5: like really dumb thing, which is gold. I know that
Speaker 5: inflames people, but you know gold had had what twenty
Speaker 5: five horrid years. It peaked at eight hundred and ten
Speaker 5: bucks in nineteen eighty and it was like two hundred
Speaker 5: and seventy bucks by the time the British Treasury got
Speaker 5: through selling it at the very very bottom in two
Speaker 5: thousand in two thousand and two, who are they selling
Speaker 5: it to? I was buying it my first I got
Speaker 5: fifteen years of this blessed thing we call speculation, because
Speaker 5: my first calendar year I made fifty percent. I'm not glory.
Speaker 5: What I'm meaning by that is the failure rate in
Speaker 5: hedge funds. It's like a restaurant. Most restaurants fail, yeah,
Speaker 5: and the return to the survivor is really high. And
Speaker 5: I got happen as there was times, so I didn't
Speaker 5: think I was gonna make it, but I was absurdly
Speaker 5: long gold. And again, if you're like a wanna be
Speaker 5: new hedge fund manager, like I got it, tariously, you
Speaker 5: ain't gonna make it in your first year if you're
Speaker 5: not making money, and you ain't gonna make it if
Speaker 5: you're like making six or seven percent and trying to
Speaker 5: tell people your sharp ratio is really good. You're gonna
Speaker 5: make it if you find like and you concentrate and
Speaker 5: you take leverage in a rising asset class and it's volatile,
Speaker 5: and you you chase the dragon. And that was gold
Speaker 5: back then. And I'd got gold because gold did nothing, okay,
Speaker 5: but we'd had the NASDA crash stop markets had collapsed.
Speaker 5: Gold had done nothing, And so when you look at
Speaker 5: the relative performance of the two, Gold was saying, baby,
Speaker 5: I'm coming by, and you know that, and that was good.
Speaker 5: Why why was all this happening was happening because back then,
Speaker 5: China was the size today of the Turkish economy. Yeah,
Speaker 5: today is the size of the European economy. And the
Speaker 5: markets and my prices were telling me that this long
Speaker 5: journey was beginning to pick up base and their desire,
Speaker 5: you know, like they laid down more concrete, They used
Speaker 5: more steal, et cetera in like ten years than the
Speaker 5: US economy did in the twentieth century. You know, it
Speaker 5: was big, and that's what I was seeing, and I
Speaker 5: was long in.
Speaker 2: I understand, Like, Okay, you can point to specific commodities
Speaker 2: like obviously copper and some of these old industry you
Speaker 2: mentioned the smelters coming alive with the industrialization and rise
Speaker 2: of the Chinese economy. Zoom at a little bit further,
Speaker 2: because what you said is that China has been the
Speaker 2: biggest story in asset markets period and that the incredible
Speaker 2: rise and valuations and boom and ascid prices, it all,
Speaker 2: in your views sort of come back to China.
Speaker 4: How does that work?
Speaker 5: Because it's a cheap charter. Sorry to say it, but
Speaker 5: so you know, there's this thing that triff and dilemma. Yeah,
Speaker 5: you know, they don't have an independent munchro policy. They've
Speaker 5: kind of cut onto the coattails of the mighty US dollar, right,
Speaker 5: they have a dirty float, they have a close capital account. Now,
Speaker 5: so economics, which is a dire dollars subject, but economics
Speaker 5: at its heart is really the investigation and the study
Speaker 5: of how something in chaos kind of tries to return
Speaker 5: and find equilibrium and clear. Yeah and so, and it
Speaker 5: can be the opposite. It is an equilibrium and it's
Speaker 5: going to pull apart, you know. And that's like what
Speaker 5: people like me were kind of watching that and the rise.
Speaker 5: They've done amazing things. Yeah, they've industrialized. Yeah, and the
Speaker 5: reward in economics is you get richer for doing so
Speaker 5: the benefits. And they've not done that. They've not now
Speaker 5: and it's kind of like the frog, like boiling the frog.
Speaker 5: And like we've warmed up the Chinese citizens, we brought
Speaker 5: them into these conurbations. We've given them amazing factories. The
Speaker 5: rise in productivity from taking someone off a field and
Speaker 5: putting them in a semiconductive fab is insane. Yeah. And
Speaker 5: so they're getting paid like ten x what their grandparents
Speaker 5: got paid. They're like, hey, you know, this feels good.
Speaker 5: The thing is they should be getting paid more. And
Speaker 5: really where it should be represented is in the exchange rate.
Speaker 5: The remember, forgive me, I call it the red cabbage.
Speaker 5: You almost need a red cabbage. So the back when
Speaker 5: we had the NAFTA agreement with Mexico and Canada, they
Speaker 5: devalued their currency to six point three, and where's the
Speaker 5: currency today versus the dollar? So you needed six point
Speaker 5: three red cabbage and today you need like seven point three,
Speaker 5: which is to say you need more red cabbage. So
Speaker 5: they've got poorer now that that doesn't make sense, right,
Speaker 5: And then you were talking about your anxiety. I'm here,
Speaker 5: I've got a bill, I've had a chill pill for you. Okay,
Speaker 5: because again, right, so we what we're seeing in ev right,
Speaker 5: we saw it initially at the turn of this century.
Speaker 5: Again back to my like my letters and stuff. Biggest
Speaker 5: company in the world for a moment was Nokia. I
Speaker 5: mean those kids like listening saying Nokia was Nokia? Right?
Speaker 5: Nokia used to make televisions, and then they pivoted into
Speaker 5: mobile phones, right. And then Apple of course came ba
Speaker 5: at the turn of the century, biggest company on earth,
Speaker 5: and you had ericson and these guys control you, your G,
Speaker 5: your network, your five G, et cetera. Chinese came in
Speaker 5: and said, wow, that's kind of dope. We want that, okay,
Speaker 5: and now they own it and that's why you had
Speaker 5: all that.
Speaker 2: Yeah, how do you pronounce it's coming?
Speaker 5: It's coming, it's coming, right, Okay? And if you look
Speaker 5: at Ericson and Nochia today, those prices fell ninety five
Speaker 5: percent and just they've stayed in the graveyard. Okay. Then
Speaker 5: the Chinese came in, they said the same thing with solar,
Speaker 5: and now they've come in and they've said the same
Speaker 5: thing with ev What are they doing. They're saying, we
Speaker 5: don't need to make money like we allocate in America
Speaker 5: in the free world with the sharp jagged knife of
Speaker 5: you got to make it if you want to. We
Speaker 5: want to stay in the game. China doesn't. That's one
Speaker 5: of the implicit subsidies. Now, so where where do we
Speaker 5: see that? Where do we get that? I mean, maybe
Speaker 5: that's just cute, okay, But what China does, it's very
Speaker 5: good at creating GDP, but not wealth. So look at
Speaker 5: the stock market, right the stock market's flat flat for
Speaker 5: twenty five years, and the currencies is weakening. And that's
Speaker 5: the problem. And so what happens is with our savings model,
Speaker 5: all of it, all of it, and again, to maintain
Speaker 5: those advantages, they have to push all of their capital
Speaker 5: into risk free US treasuries. Okay, And unfortunately, only until
Speaker 5: the last two three years the US we were fiscally conservative,
Speaker 5: we should have been running huge deficits, but I was like,
Speaker 5: oh no, you can't do that. We should have been
Speaker 5: running huge deficits, and the Chinese would have funded the
Speaker 5: role out of the best like fast trains, the best education,
Speaker 5: the best healthcare, the best cities, you know, ships that
Speaker 5: don't crash into bridges and bring it all tumbling down.
Speaker 5: And instead, whenever we did something, we did a stupid
Speaker 5: tax cut. And right at the very end of this process,
Speaker 5: you're the Great Inflation Reduction Act, which is, hey, listen,
Speaker 5: we're going to pay you money to bring great technology
Speaker 5: and make it in the United States. That's working, and
Speaker 5: so what's happening today, the fascination and the drama of
Speaker 5: today is the fiscal policy is working and the US
Speaker 5: has been transformed into the economic locomotive for the rest
Speaker 5: of the world. Now, this dollar standard, the mighty dollar.
Speaker 5: It was not conceived on the basis that the US
Speaker 5: would be the chief. It wasn't conceived that the US
Speaker 5: would be at five and a half percent, And the
Speaker 5: ramifications of that are coming through the Japanese yet incredibly
Speaker 5: has lost forty percent.
Speaker 3: This is exactly what I wanted to ask you about,
Speaker 3: which is just to add to Joe's anxiety, but be
Speaker 3: panicking about a currency crisis right now?
Speaker 5: Yeah, absolutely so, Like again, heaven is, We've got to
Speaker 5: go back to nineteen ninety seven ninety eight, and we
Speaker 5: had the Asian Sovereign Tiger crisis. Countries like Thailand they
Speaker 5: had too many debts denominated in dollars and they had
Speaker 5: to they had to default. I mean, they're currency fell
Speaker 5: forty percent. Like the end, I mean, why no one's
Speaker 5: talking about the move in the end is terrifying. And
Speaker 5: through this period, the really what I wanted, like what
Speaker 5: you're to concentrate on is at the end, it was
Speaker 5: like an eighteen month period and at the end Taiwan
Speaker 5: right now, Taiwan had no dollar borrowings really tightly like Singapore,
Speaker 5: really well managed economy, and right at the end Taiwan devalued.
Speaker 5: And everyone's like what what are you doing? And it's
Speaker 5: the esorpient fable of the scorpion on the frog, like
Speaker 5: he gets the frog's like I ain't taken. It's like no, no, no,
Speaker 5: you're you're cool, You're cool. And they get halfway over
Speaker 5: and the scorpion like zaps and it's like whoa what
Speaker 5: year we talking about here, we're talking about nineteen ninety eight, okay,
Speaker 5: in Taiwan, right, And so the point is that why
Speaker 5: did Taiwan.
Speaker 3: Devalue in its nature?
Speaker 5: That's what they do. They weren't gonna leave a legacy
Speaker 5: of their neighbors having devoured by forty percent. So the
Speaker 5: big elephant in the room, and you touched upon it
Speaker 5: in your intro, is what if the Chinese come around
Speaker 5: and go boom and they devour you? Right, that would
Speaker 5: be profe I would call that mad max deflation. Now,
Speaker 5: one of the incentives for them to do it is
Speaker 5: the quantitative easy in the United States. I actually think
Speaker 5: it was sabotage for the Chinese because the very polite
Speaker 5: request was listen, you gotta revowl. Your currency should be rising.
Speaker 5: And why is that a good thing? Because one point
Speaker 5: for bailing Chinese people will be richer visa via the
Speaker 5: rest of the world, and they'll buy our things. You might,
Speaker 5: I mean, the dreamliners may have some problems just now,
Speaker 5: but they'll buy more, you know, and we'll work it out.
Speaker 5: And the Chinese stubbornly used to do that. And so
Speaker 5: if you can't revalue the external price, I think I
Speaker 5: actually quantitative easing coming out of the States and elsewhere,
Speaker 5: revaluate the acid prices domestically in China. And so now
Speaker 5: did they prick the bubble. They've got the biggest dun
Speaker 5: bubble of all time, sixty trillion dollar valuation, and what
Speaker 5: do you do with that? It's a lot easier if
Speaker 5: you devalue in dollars as opposed to the local currencies
Speaker 5: that all the people feel like they're still the frogs
Speaker 5: and the jacuzzi.
Speaker 3: Joe, I remember this from do you remember Dick Beauvay. Oh, yeah,
Speaker 3: the banking analyst. But he used to write about Qi
Speaker 3: as a currency war. It's like an underappreciated currency war.
Speaker 3: And this would have been in like twenty ten, twenty eleven.
Speaker 3: I still remember that.
Speaker 2: So let's take it to today, and I guess there
Speaker 2: is still this anxiety out there of a Chinese devaluation.
Speaker 2: We have seen them basically purposefully prick their own real
Speaker 2: estate bubble, and there's been a lot less speculation that
Speaker 2: seems like it's done. They're trying to The bet is
Speaker 2: that they can sort of make up for that with
Speaker 2: a lot of exports in advanced technologies, vehicles being the
Speaker 2: one we talk a lot about these days, but that
Speaker 2: basically it can be an industrial exporting powerhouse. And of
Speaker 2: course you know people always talk have talked about Chinese exports,
Speaker 2: but I think you know, the real growth driver was
Speaker 2: domestic investment.
Speaker 4: Now it feels like selling to the rest of the world.
Speaker 4: What happens here? Can it work?
Speaker 2: Can they make this pivot from a sort of inward investment,
Speaker 2: real estate focused economy to one where exports really lift
Speaker 2: everyone up.
Speaker 5: No? No, And it's back to your anxiety. Right. The
Speaker 5: biggest industry in Europe is automobiles. Yeah, yeah, And I
Speaker 5: mean listen to ELI. It's like the Chinese where they are,
Speaker 5: they wipe you out. You're gone, okay, right, So like
Speaker 5: you think Europ's going to sit there and go, hey,
Speaker 5: we're open, we're friendly. Common wipe is out right. That
Speaker 5: avenue is over the proportion of exports to the Chinese economy,
Speaker 5: the proportion of exports to the global g We're at
Speaker 5: levels where it's intolerable for the rest of the world
Speaker 5: to accept it. The bigger issue is, so here we are.
Speaker 5: I mean, I've been invested for like thirty five years
Speaker 5: and I'm saying to you, China going from the size
Speaker 5: of Turkey to Europe, and the avalanche of money and
Speaker 5: liquidity is why every asset price in America is high.
Speaker 5: And I think we're now at the I call it
Speaker 5: the o bay Yashi Maroo moment. If you remember from
Speaker 5: Star Trek, when it's a no when it's a no
Speaker 5: win scenario, there's no win because we got five and
Speaker 5: a half percent rates in the US, We've got a
Speaker 5: currency which is rising, and the rest of the world
Speaker 5: is like, I'm out of here, I'm checking out. And
Speaker 5: so the flow that is coming more and more into
Speaker 5: the US. Now the FED sitting there and it's listening
Speaker 5: to It's like the Bank of England in nineteen twenty
Speaker 5: seven when they were like over vowed on the gold
Speaker 5: standing like we're at four and I'm like, we're going
Speaker 5: to be overthrown by the Communist unless we can bring
Speaker 5: interest rates down. And so we went to the Fed
Speaker 5: and he said, the only way we can bring down
Speaker 5: is if you cut. Remember Benjamin Strong the cooped whiskey
Speaker 5: and he takes a cut. And what happened. The US
Speaker 5: stock market like went to the moon. It bred instability.
Speaker 5: So the big drama this year is the Koreans, the Japanese,
Speaker 5: and I think the Chinese are saying, you got to
Speaker 5: you actually got to subjugate the domestic strength of the
Speaker 5: US economy and you got to bail us out. Now
Speaker 5: if the FED, that's a no win. If the FED
Speaker 5: does that, like buy ten thousand call strikes on the SMB,
Speaker 5: it's not gonna be there in two months. But that's
Speaker 5: where it's going ahead really rapidly, because that's what happened
Speaker 5: by I get back again to nineteen nineteen ninety eight. Yeah,
Speaker 5: remember LTCM, So we had sovereign crisis. The US economy
Speaker 5: in the third quarter of twenty nineteen ninety eight grew
Speaker 5: at five point six percent, and what did the FED do?
Speaker 5: They cut rays and people are like, you guys are clowns. Okay,
Speaker 5: I'm buying stocks, and stocks again went to the moon.
Speaker 5: We're at a point where if the FED, so I
Speaker 5: think the FED actually Fed only ever cuts when something breaks,
Speaker 5: and the rest of us saying, we're kind of at
Speaker 5: that point. Okay, So if the if something breaks, the
Speaker 5: Fed's cutting is going to subjugate the strength of the
Speaker 5: United States economy like the interests of it and asset
Speaker 5: prices will become intoxicatingly like at levels. We've got to remember,
Speaker 5: trees grow tall, but they don't grow to the sky,
Speaker 5: and we're getting close to the sky.
Speaker 3: Why doesn't China try to boost domestic consumption if the
Speaker 3: rest of the world is like closed off to it,
Speaker 3: Why is it still so focused it seems on manufacturing,
Speaker 3: even though it's moving from you know, manufacturing TVs or
Speaker 3: whatever to semiconductors.
Speaker 5: Yeah, I mean, you know, I wish to remain polite,
Speaker 5: but it's it's not a democracy, you know, the civil
Speaker 5: liberties are I mean, you know, I don't think as
Speaker 5: a contentious thing. You don't really have much in the
Speaker 5: way of civil liberties. Again the quid pro cause, look
Speaker 5: at your life. You're so much richer than your grandparents,
Speaker 5: and we just asked for a bit of talmerance. Like
Speaker 5: so you were saying again your anxiety about the Chinese
Speaker 5: and they're going to overtake us. They took the wrong bet. Yeah,
Speaker 5: because I was talking to someone like but what about
Speaker 5: the Chinese? Thousands upon thousands of PhDs, I'm like, yeah, Like,
Speaker 5: I'm sorry again, forgive me, but if you just completed
Speaker 5: a PhD, my god, you just chose the wrong moment
Speaker 5: in history. Why because we got AI, we got the
Speaker 5: AI and the PhD thing, by laws is the left
Speaker 5: hemisphere of your brain. If you're listening to this now
Speaker 5: the future, and if you want to be rewarded again,
Speaker 5: you've got to be kind of like an acid capitalist
Speaker 5: is right hand side of the brain. All that PhD
Speaker 5: thing has been made redundant.
Speaker 4: But they had hurt.
Speaker 2: The AI companies all have to hire PhDs, so some
Speaker 2: of them get jobs.
Speaker 5: Now now they just they invest in more. AI has
Speaker 5: become circular like PhDs.
Speaker 2: I talked to a founder this week, basically Tracy by
Speaker 2: the way, who says that all code will be written
Speaker 2: by a let's talk more about this idea. Okay, the
Speaker 2: FED is not going to cut until something breaks. You
Speaker 2: think the thing that will break will not be like
Speaker 2: a domestic thing, but will be like on the international front,
Speaker 2: walgust through like where we're at risk.
Speaker 3: Because a year ago the thing that was.
Speaker 5: I mean, it ain't gone away. Yeah, extend and pretend
Speaker 5: and all that thing. So I mean, you know, not
Speaker 5: wishing to name and chane, but an organization like Bank
Speaker 5: of America you know, has and like like a peer
Speaker 5: group has an enormous treasury portfolio, which it doesn't mark
Speaker 5: to market, and that is an inducement by the US
Speaker 5: Treasury to ensure that people are there to buy the treasuries. Okay,
Speaker 5: and so they've got they've got unmarked losses right which
Speaker 5: are this are the same magnitude as their equity. Okay, now,
Speaker 5: and where we are just now is that we started
Speaker 5: this year and we were going to get four, five,
Speaker 5: six interest rate cuts. And when you get that, the
Speaker 5: bonds normally kind of come off their ass and kind
Speaker 5: of rise and value and like their viability gets better. Okay,
Speaker 5: that ain't happened. If anything, you're the domestic consying, we
Speaker 5: need higher interest rates. Where's where's the tenure today? Like
Speaker 5: it was four and a half, we were heading close
Speaker 5: to to five before the weaker GDP statistics comes out,
Speaker 5: So that's still there. There's fragility there four point four two.
Speaker 5: And look when we get backhuntings. I mean, if we've
Speaker 5: got any banking analysts listened to this, can you do
Speaker 5: your job like rather than it's blowing smoke up the CEO,
Speaker 5: can you say, hey, listen, can you tell me what
Speaker 5: is the size of your unmarked treasury portfolio. What is
Speaker 5: the loss of it? What are you doing if you
Speaker 5: shifted the duration? Can you just talk to the street
Speaker 5: about it? No one asks, no one Like bad news
Speaker 5: comes out you really really, it comes out really really slow,
Speaker 5: and then it stings you. Let's let's ask the questions.
Speaker 5: So that's there, that's out there.
Speaker 3: But okay, just on the bank, So what when when
Speaker 3: we say that, Okay, if you marked the bonds to market,
Speaker 3: it would just blow a massive hole in banks equity.
Speaker 3: That is terrifying on the one hand, But on the
Speaker 3: other hand, part of me is like I find it
Speaker 3: hard to believe that the banking system is going to
Speaker 3: be ruined by investing into many US treasuries.
Speaker 5: Okay, I mean what is that? Just is a blind faith?
Speaker 5: I mean the numbers are like really big.
Speaker 3: I guess it's blind relativism. It's like US treasuries are
Speaker 3: the safest asset out there then until they're not.
Speaker 5: This is true, So I tell you, So what we're
Speaker 5: doing is we're flying high without a safety net. Okay,
Speaker 5: so we've we've been there. We had the again, I
Speaker 5: can't believe this is happening. The entire global bank king
Speaker 5: universe went bankrupt. In two thousand and eight, they were
Speaker 5: gone gone, right, but the US Treasury was it like
Speaker 5: sixty percent debt to GDP and these they stood in
Speaker 5: and like, you know what, we got it all right,
Speaker 5: We're gonna we've got these fun tokens. We're gonna issue
Speaker 5: lots of these fun tokens, and you're gonna come back. Okay,
Speaker 5: what happens? And that was your safety net. Where's the
Speaker 5: safety net now? Like if they tried that that maneuver again,
Speaker 5: people like me, people like get out of here. We're
Speaker 5: we're getting out of like we're not owning these silly
Speaker 5: securities because you're tapped out. Like so the US Treasury
Speaker 5: now is not the safety net. If there is folly
Speaker 5: and if there was an incident in the financial sector,
Speaker 5: it's top tout. It doesn't have the resource. So we're
Speaker 5: on our on That's scary. And so again that's why
Speaker 5: the next move for people is to consider, well, what
Speaker 5: if they what if they cut and they have to
Speaker 5: I actually think it could get so bad that we
Speaker 5: will go back to the notion of zero interest rates.
Speaker 5: And I think that treasuries, I mean, I've been so
Speaker 5: hideously bad. I've been owning leaps on the TLT. The
Speaker 5: long duration now leaps options. Like if I got a
Speaker 5: million dollar portfolio, I've been spending like fifty thousand dollars
Speaker 5: and then topping it up as I lose money on them,
Speaker 5: and just keeping a lot of time on it. So
Speaker 5: I've probably spent a tenth of my portfolio. You know,
Speaker 5: I'm underwater, but I own that because I think we're
Speaker 5: at the end of the most incredible bill market and treasuries,
Speaker 5: which again absolutely coincided with China and who came in
Speaker 5: to preserve their currency and believe it undervoured. They had
Speaker 5: to put money into risk grey US treasuries and they
Speaker 5: bid it higher. Okay, but the booll market and treasuries,
Speaker 5: it was a double bottom in price terms between nineteen
Speaker 5: eighty two and nineteen eighty four. If we put it
Speaker 5: into yield perspectives, the ten year peaked at sixteen percent.
Speaker 5: But in nineteen eighty four, as the economy came back,
Speaker 5: I found vigor. You went you you know the notion
Speaker 5: recency biases bisis. So the recency biases was strong economy,
Speaker 5: inflation and people sold the bones again. So in nineteen
Speaker 5: eighty four years peaked at fourteen and then that was it,
Speaker 5: you know, and of course they went to where they
Speaker 5: went to, like forty basis points during the COVID. I
Speaker 5: think the end of this boom market is in the
Speaker 5: next eighteen months, and I think the treasuries, I don't
Speaker 5: think they'll yield forty basis points, but I think they
Speaker 5: could get down to like one point two one point
Speaker 5: five years and that and then that's like and then
Speaker 5: sell them and get out, because we'll have to redraw
Speaker 5: and we'll have to examine and try and create a
Speaker 5: new monetary order.
Speaker 4: Exciting.
Speaker 2: I'm sure we'll have plenty of good episodes about that
Speaker 2: redrawing of the monetary order.
Speaker 4: Back to China. Didn't all those.
Speaker 2: Ghost cities that you toured and showed on YouTube end
Speaker 2: up getting filled? Because I feel like now there's one
Speaker 2: hundred what they call Tier two and Tier three cities
Speaker 2: that none of us know the names of that have
Speaker 2: like ten million people and with glstening subway systems and
Speaker 2: whatever else, like in your view, what happened to those
Speaker 2: what happened to those cities?
Speaker 5: Thank you for that? Because I was dead wrong okay, wrong, wrong, right?
Speaker 5: But can I tell you why? So? I like you
Speaker 5: get value investors, growth investors. I'm a time investor, would
Speaker 5: you believe? Okay? And I it was only really very
Speaker 5: recently I came to understand the Chinese like what do
Speaker 5: you call it? Like your horoscope and like the pursuit
Speaker 5: and the investigation of heavenly bodies around the sun, right,
Speaker 5: you like like Pisces and all that kind of stuff
Speaker 5: we use. We use the rotation of the ass rotation
Speaker 5: around the sun. Ya. Yeah, and I believe that takes
Speaker 5: a year.
Speaker 4: Twelve years. There you go, that's a very I hadn't heard.
Speaker 4: That's a very good like men.
Speaker 3: You have heard that before because we talked about this
Speaker 3: exactly the last.
Speaker 4: Yeah, but no, that's a good one.
Speaker 5: It is. And then like so when I was peak
Speaker 5: peak bearish, I was twelve years out literally it was
Speaker 5: twenty eleven. I launched a credit for I'd have made
Speaker 5: a billion box, a billion box if I had been
Speaker 5: twelve years in the future. You know, So I was wrong,
Speaker 5: But I want to tell you my time piece was
Speaker 5: twelve years out. Okay, and the time is now.
Speaker 3: When was the last time you were in China?
Speaker 5: I ain't rushing to go back to China.
Speaker 3: Yeah, well, I was kind of curious if you've been
Speaker 3: back recently seen some of the changes, or.
Speaker 5: I've been invited by some funky people to go to
Speaker 5: Mongolia and August. I would go August, but I think
Speaker 5: I'd rather be an Ibitha. But you know, yeah, so
Speaker 5: my last I tell you in terms of again formative
Speaker 5: and with the investment letters mark not the last time.
Speaker 5: But March two thousand and eight, I took a slow
Speaker 5: train from Wuhang to Beijing. It was quite grim.
Speaker 3: Not the high speed trend, No, it was.
Speaker 5: Really quite I liked struggling slow. It was really grim.
Speaker 5: I should have been buying the S and P. The
Speaker 5: S and P had fallen sixty five percent in March
Speaker 5: two thousand and nine, and instead I was and you know,
Speaker 5: and Wuhan, where was I am Muhan. I was in
Speaker 5: the wet market where the whole COVID thing. I should
Speaker 5: have been buying the SVP.
Speaker 2: Just in general, I mean, I am struck by this
Speaker 2: fact that like we hear all these different people and
Speaker 2: it's like diversification and international stocks and all this stuff
Speaker 2: and exotic things.
Speaker 4: In the end, we should have just all been buying
Speaker 4: the S and P had like gone and lived our lives.
Speaker 5: Right, absolutely, and like they're still peddling emerging Marcus, Like,
Speaker 5: how many? How many years does it work?
Speaker 4: I am curious because there's been a ton of growth
Speaker 4: over since. And this is always the thing. It's like,
Speaker 4: there's a lot of growth everywhere.
Speaker 2: What has been the fatal flaw of the international diversification
Speaker 2: slash em thesis that has been very popular and people
Speaker 2: are always repackaging and reselling.
Speaker 5: Again, I think it's my accent. You know you're not
Speaker 5: hearing me. They are not They are magnificent. These countries
Speaker 5: are magnificent at creating GDP growth, hm, right, incredible, right,
Speaker 5: But it's GDP growth at the expense of wealth, right,
Speaker 5: So let me get So, Let's say we've got a bridge.
Speaker 5: It's going to cost us a billion dollars. We're going
Speaker 5: to link to communities. And let's say it's in America
Speaker 5: and there's like and it's in the Bay Area, and
Speaker 5: the average per capital income of the two cities is
Speaker 5: one hundred and fifty thousand dollars, right, and so and
Speaker 5: you're going to cut like fifteen twenty minutes in the
Speaker 5: daily commute of all those people, people with that level
Speaker 5: of wealth cutting time is good, it's productive, it's going
Speaker 5: to add utility to their lives. Okay, And it's got
Speaker 5: a it's an NPV positive, it has net present value. Okay.
Speaker 5: So the value of the billion that you spend maybe
Speaker 5: it's maybe it's two billion. Okay. Now, if you join
Speaker 5: up two Chinese communities and the average per capital consumption
Speaker 5: is eight thousand dollars, if you're on eight thousand dollars,
Speaker 5: you ain't in a hurry. You ain't in a hurry, right,
Speaker 5: But you spend a billion, and what happens is you've
Speaker 5: not created wealth. So the if you were, if you
Speaker 5: actually had, if you were a corporation, you'd have to
Speaker 5: market because let's say you're taking a you're taking a token,
Speaker 5: it's a toll bridge, okay, And you do the DCF,
Speaker 5: you're going to quickly work out that your MPV is
Speaker 5: like half a billion, so you're in a half a
Speaker 5: billion deficit. That the half a billion deficit doesn't get
Speaker 5: measured in GDP. You measure the billion. And so this
Speaker 5: is why the strategy doesn't work because sure you get GDP,
Speaker 5: but where's the stock market? Right? And where's the stock
Speaker 5: market in America? Because what do we do. We actually
Speaker 5: go hey re'ch on on capital pause the MPV. We're
Speaker 5: in it to win it, right, and so we get
Speaker 5: less GDP, but we get the best stocks and the
Speaker 5: best stock market. That's the fundamental flaw.
Speaker 3: So one of the reasons we enjoy talking to you
Speaker 3: is because we get to live vicariously and pretend that
Speaker 3: we're talking Macro on a beach in Saint Bart's instead
Speaker 3: of talking Macro in an office in midtown. And you've
Speaker 3: been in St. Bart's for many, many years now, and
Speaker 3: I'm curious what changes have you seen over the years.
Speaker 3: And one of the reasons I ask is because I
Speaker 3: went to this, say Shells, which is on the other
Speaker 3: side of the world, but I guess it is a beach.
Speaker 3: And I went to the Seychelles last year. I was
Speaker 3: kind of surprised by like the number of Russians that
Speaker 3: I saw there, Just so much Russian money and coming
Speaker 3: from the US economy at a time when you know,
Speaker 3: it was all about sanctions, all about European energy crisis,
Speaker 3: things like that. It was kind of surprising to me
Speaker 3: to see that level of wealth externally.
Speaker 5: Well, I mean, you know that Paul McCartney wings is
Speaker 5: banned on the run. I mean it's the Russians on
Speaker 5: the run. Yeah, I mean they're fleeing go to Dubai.
Speaker 5: And it's the same thing. You know. I tell from
Speaker 5: the beginning when I was writing those letters, like you
Speaker 5: want to solve Russia because that's the time of the
Speaker 5: emerages of the Oligarks, I was like, you want to
Speaker 5: solve Russia, you want to bring freedom. I mean, it's
Speaker 5: not for us to solve Russias, for them to solve it, right,
Speaker 5: but if we want to stop them and pinging and
Speaker 5: being annoying, being noisy neighbors, the number one thing you
Speaker 5: do is you say, all the rich oligarchs, no visus.
Speaker 5: You can't come to same Bars. You can't go to Seychelles,
Speaker 5: you can't go skiing in the Swiss Alps. Were in America, enjoy,
Speaker 5: enjoy the motherland. Okay, talk to the boss. I mean
Speaker 5: you sort it out. You know what, We'll look at
Speaker 5: your visit again. And that's so they do. They can't
Speaker 5: come to they can't come I'm gonna say they can't
Speaker 5: come to same Boss. But actually I'm thinking my my
Speaker 5: Christmas client actually is Russian. So some of them can
Speaker 5: get in, but Abramovich he came in and he laid
Speaker 5: down eighty million dollars in two in February two thousand
Speaker 5: and eight, and didn't put the same boss on the map.
Speaker 5: But you know that was like a huge investment, and
Speaker 5: property prices are absord you know, really absurd. I just
Speaker 5: got divorced and I had to do evaluation on the
Speaker 5: on the Portfolium. I mean, it's just it's insane. Same
Speaker 5: bars is kind of like Bobby Digital. I just forgive me.
Speaker 5: I call bitcoin Bobby Digital. It's goots, not a Bobby
Speaker 5: brother or something.
Speaker 2: What is you know, One of the things and we've
Speaker 2: talked about it a little bit on the show, is
Speaker 2: like the extreme concentration of ultra wealth in places like Dubai, Miami,
Speaker 2: et cetera.
Speaker 4: Like what is driving is it?
Speaker 2: I mean I sort of get it from the Russian perspective,
Speaker 2: wanting to get money out of the country being on
Speaker 2: the run. As you put in, what do you think,
Speaker 2: like what is the source of anxiety among the ultra
Speaker 2: wealthy that they're you know that they congregate in cities
Speaker 2: like Dubai or elsewhere to sort of get away from
Speaker 2: messi countries, Whether it's Messi democratic countries or Messi autocratic countries.
Speaker 5: Yeah, I mean that the Miami thing is is the
Speaker 5: same things. It's South America, you know, it's it's taking
Speaker 5: all of your all of your wealth and and really
Speaker 5: they're kind of robber barrons. It's the confiscation of other
Speaker 5: of the good folks money and getting it out of
Speaker 5: places like Venezuela and it resides might that's Miami. I'm
Speaker 5: an La person because I was gonna say La is
Speaker 5: a real place, which is kind of as you know,
Speaker 5: but I mean it's real in the sense that you've
Speaker 5: not got capital on the run, You've not got robber
Speaker 5: barrons like they're the Dubai and the Seychelles. It only
Speaker 5: exists because the US Treasury and the administration are looking
Speaker 5: the other way. I don't know why they look the
Speaker 5: other way. I really they don't because it's against the rue.
Speaker 5: It's like, look, you know, there's there's a war. We're like,
Speaker 5: we're kind of funding the Ukrainians against it, and we
Speaker 5: should be really tight and should be no slippish, and
Speaker 5: yet we let them, you know, we let them slip
Speaker 5: into Turkey, into into Dubai and into the status I
Speaker 5: would like again, you're staying, you're staying in Russia, call
Speaker 5: me when you're you're more polite to your neighbors.
Speaker 2: Hugh Hendry always great to catch up. Live vicariously a
Speaker 2: life that's much more colorful, perhaps than ours here in
Speaker 2: the Midtown office.
Speaker 4: But thank you so much for coming back on oline.
Speaker 5: Have been absolute pleasure. Let's do.
Speaker 4: That was a lot of fun tracing.
Speaker 3: It's always fun talking to Hugh. One thing I was thinking,
Speaker 3: I kind of do you think Bloomberg would let us
Speaker 3: expense the twenty five thousand dollars that it costs for
Speaker 3: like a VIP package to the Acid Capitalist summer camp Part.
Speaker 4: Yeah, for sure, for sure, I think so there's no culie.
Speaker 4: I think it's worth Yeah, let's go.
Speaker 2: I don't necessarily feel chilled or relaxed. I mean the
Speaker 2: idea that like something is going to happen at the
Speaker 2: treasury market, yields are going to go back down to
Speaker 2: one two percent doesn't make me relax.
Speaker 5: No.
Speaker 3: Also, the time to panic about the currency war line
Speaker 3: isn't exactly reassuring. The other thing I was thinking, I
Speaker 3: think the thing that will stand out to me is
Speaker 3: the idea about a lot of emerging markets being good
Speaker 3: at generating GDP growth but not wealth. I feel like
Speaker 3: that encapsulates, certainly a lot of the story around China
Speaker 3: right now, and the question over why not boost domestic
Speaker 3: consumption versus manufacturing and sort of repeating the same thing
Speaker 3: you've been doing for decades now?
Speaker 4: No, I mean I think that is it just true?
Speaker 2: Right, Like there's been incredible growth of some of these companies.
Speaker 2: I mean even if you look like I was looking
Speaker 2: at the chart of like BYD the other day, which
Speaker 2: is like everyone knows now, is like this like global behemoth,
Speaker 2: you know, arguably by some measures, bigger than Tesla. Like
Speaker 2: that Stuck is the same that was where it was
Speaker 2: in twenty twenty. But if you actually if you go
Speaker 2: back to even like twenty ten, or if you go
Speaker 2: back to like two thousand and nine, it's only up
Speaker 2: like threefold since it's peak.
Speaker 4: In two thousand nine.
Speaker 2: I mean, this is a company that was literally nothing
Speaker 2: and now at the forefront of like probably one of
Speaker 2: the biggest industries in the world.
Speaker 4: Like it's not amazing. You don't get paid very much
Speaker 4: to own.
Speaker 3: The less than Domino's Pizza, I suppose, yeah, exactly, But
Speaker 3: this is the other thing I was thinking about. So
Speaker 3: there are pros and cons to the command economy model, right,
Speaker 3: and the idea that you can pull all these policy
Speaker 3: levers because on the one hand, like yes, China can
Speaker 3: direct huge amounts of capital to whatever project it deems
Speaker 3: strategically important at any one period of time. But on
Speaker 3: the other hand, you get misallocation of capital, and then
Speaker 3: you get the uncertainty that's sort of hanging over investors
Speaker 3: where they can't predict what China is going to care
Speaker 3: about next. So going back to you know, the real
Speaker 3: estate crash, the three Red Lines program, and then the
Speaker 3: crackdown on consumer internet companies, like those are real expressions
Speaker 3: of the uncertainty of that particular aspect of the economy.
Speaker 3: Shall we leave it there?
Speaker 4: Let's leave it there, all right.
Speaker 3: This has been another episode of the Authoughts podcast. I'm
Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 2: I'm Joe Wisenthal. Follow me at The Stalwart. Follow Hugh Henry.
Speaker 2: He's on Twitter at Henry Hugh. Follow him on Instagram.
Speaker 2: Be very jealous of his life, check out his substack
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