WEBVTT - Felix Zulauf Discusses the Evolution of Markets 0:00:02.240 --> 0:00:06.840 This is Master's in Business with Barry Ridholts on Bloomberg Radio. 0:00:09.600 --> 0:00:12.840 This week on the podcast, I have an extra special guest. 0:00:13.240 --> 0:00:16.040 His name is Philo Zulov. What can I tell you? 0:00:16.079 --> 0:00:20.520 He is a legendary investor whose career spans back to 0:00:20.600 --> 0:00:27.040 the late sixties. He has had numerous spectacular calls, very 0:00:27.080 --> 0:00:31.200 often contrarian and against the grain. They have the unique 0:00:31.200 --> 0:00:36.040 advantage of not only being um against the popular voice, 0:00:36.080 --> 0:00:40.040 but being correct. His long term track record has been wonderful. 0:00:40.159 --> 0:00:43.800 He's created an immense amount of wealth for his clients. 0:00:44.360 --> 0:00:48.760 UH in fact essentially retired from running other people's money 0:00:48.760 --> 0:00:52.200 to set up a family office to manage his own money. 0:00:52.360 --> 0:00:56.760 He currently is operating a consulting firm out of Zurich 0:00:56.920 --> 0:01:01.440 where he's advising all sorts of institute utians, governments, high 0:01:01.440 --> 0:01:06.560 net worth families about the economy, what they're what the 0:01:06.600 --> 0:01:11.280 global intervention by central banks and governments means for future growth, 0:01:11.360 --> 0:01:14.120 Why we need to be aware of the role of 0:01:14.200 --> 0:01:19.520 China going forward. UM. I have a UM really long 0:01:20.240 --> 0:01:25.160 term set of gratitude for to Felix. When I first 0:01:25.240 --> 0:01:29.479 began playing with the idea of UH. These longer form 0:01:29.560 --> 0:01:33.000 interviews He was one of the very first people I 0:01:33.080 --> 0:01:37.800 reached out to a mutual friend. UH introduced us and 0:01:37.920 --> 0:01:41.840 we did a conversation in two thousand and ten that 0:01:42.040 --> 0:01:46.440 really was UH the predecessor to Masters in business. So 0:01:47.080 --> 0:01:51.160 if if you enjoy these conversations, really you have Felix 0:01:51.240 --> 0:01:53.520 to think, he's the one who who sent me on 0:01:53.600 --> 0:01:56.680 the path for this. I could talk about his track 0:01:56.760 --> 0:01:59.120 record and all the other things he's done over his 0:01:59.200 --> 0:02:03.480 career endlessly, but rather than listen to me continuing to 0:02:03.520 --> 0:02:07.880 babble with no further ado my conversation with Felix Zulof. 0:02:11.919 --> 0:02:16.119 My special guest today is Felix Zulov. He is a 0:02:16.240 --> 0:02:20.000 legend in the asset management business. He began his career 0:02:20.040 --> 0:02:23.079 as a trader for Swiss Bank, moved up to research 0:02:23.160 --> 0:02:27.360 and portfolio management in New York, Zurich, and Paris. In 0:02:27.520 --> 0:02:30.720 nineteen seventy seven, he joined the Union Bank of Switzerland 0:02:30.720 --> 0:02:35.760 and Zurich managing global mutual funds, eventually heading the institutional 0:02:35.800 --> 0:02:40.320 portfolio management unit and becoming the global strategist for UBS. 0:02:40.840 --> 0:02:44.080 He founded his own hedge fund, zulof Asset Management, in 0:02:45.280 --> 0:02:50.320 which allowed him to independently practice his own investment philosophy. 0:02:50.480 --> 0:02:55.480 Felix also runs Zulof Consulting out of Zurich, Switzerland. I 0:02:55.520 --> 0:02:58.679 don't even know how much more of your your background 0:02:58.760 --> 0:03:01.480 I could read. You've a member of the Baron's round 0:03:01.520 --> 0:03:07.040 Table for thirty years, have developed just a legendary reputation, 0:03:07.200 --> 0:03:09.920 and you are also one of the people who inspired 0:03:10.000 --> 0:03:12.800 the idea for Masters in business. When we had an 0:03:12.840 --> 0:03:16.840 interview way back in two thousand and ten, Felix Zulof, 0:03:17.000 --> 0:03:20.560 Welcome to Bloomberg. Thank you very much, Berry. Great to 0:03:20.560 --> 0:03:23.320 to be get your guest here. And I I like 0:03:23.440 --> 0:03:27.160 to hear that I inspired you. You definitely did so. 0:03:27.160 --> 0:03:31.480 So I I gave that background of the early career 0:03:31.680 --> 0:03:36.520 of yours. Um, what motivated you into the investment business? 0:03:36.600 --> 0:03:39.480 What what drove you in that direction? You know, I 0:03:39.520 --> 0:03:45.800 was a college dropout actually, and my parents requested that 0:03:46.000 --> 0:03:51.440 I lawrened solid profession and that was the profession of 0:03:51.480 --> 0:03:53.760 a bank at that time. At that time, it was 0:03:53.760 --> 0:03:57.200 still a solid profession and and you didn't need a 0:03:57.240 --> 0:03:59.840 college degree for that. I didn't need a college degree 0:03:59.840 --> 0:04:02.640 for at and I went to a bank and worked 0:04:02.640 --> 0:04:05.760 for a bank as an intern. They educated me. It 0:04:05.880 --> 0:04:09.440 was very boring. Banking was very boring at that time, 0:04:09.840 --> 0:04:15.360 and once I went to the investment department, it became lively. 0:04:15.680 --> 0:04:19.080 You know, something started to move, and I was interested 0:04:19.160 --> 0:04:22.880 to see what made things move. And I asked the 0:04:22.960 --> 0:04:26.120 people there and I got so many answers, and I 0:04:26.160 --> 0:04:29.280 figured out very quickly that they had no clue. So 0:04:29.360 --> 0:04:33.120 I wanted to learn what made those things move. And 0:04:33.200 --> 0:04:36.040 there were no opinion leaders in Europe at that time. 0:04:36.680 --> 0:04:41.720 That was in the late sixties, early seventies. So I 0:04:41.760 --> 0:04:45.800 looked for the US because there were some opinion leaders 0:04:46.480 --> 0:04:50.279 and I read them and I made the decision that 0:04:50.440 --> 0:04:53.680 I wanted to be able to make those decisions like 0:04:53.800 --> 0:04:59.279 they and found my opinion on solid research. So this 0:04:59.360 --> 0:05:01.159 is how it happen. So so give us some of 0:05:01.200 --> 0:05:04.160 the names of the U s opinion leaders that attracted 0:05:04.160 --> 0:05:07.200 you in the late sixties and early you know, the 0:05:07.200 --> 0:05:11.000 one that inspired me the most was Bob Farrell. So, 0:05:11.120 --> 0:05:17.000 the legendary Bob Farrell, uh first technician at Merrill Lynch 0:05:17.520 --> 0:05:19.719 ran the research department. Am I am I getting his 0:05:19.800 --> 0:05:24.000 CV correct. He ran a market analysis department. It was 0:05:24.040 --> 0:05:28.520 a technical analysis department at that time, and I think 0:05:28.560 --> 0:05:32.240 he is the dean of technical analysis and had a 0:05:32.320 --> 0:05:35.159 department of about twenty people at that time. By the way, 0:05:35.520 --> 0:05:39.200 you're not the only person who have referenced Bob Farrell 0:05:39.400 --> 0:05:42.080 as a huge influence. I could give you a list 0:05:42.120 --> 0:05:45.040 of of a dozen people. What was it like working 0:05:45.080 --> 0:05:49.280 with Bob Farrell. Well, I spent a few weeks as 0:05:49.279 --> 0:05:53.680 an intern at Bob Farrell's department. He sent me right 0:05:53.720 --> 0:05:57.960 next to Bob practor at the desk. Really uh, and 0:05:58.440 --> 0:06:01.919 I heard about one, two, three, four, fives and and 0:06:02.000 --> 0:06:03.760 a b c s and things like that, and I 0:06:04.240 --> 0:06:07.640 wave and you don't strike me as an Elliott wave 0:06:07.640 --> 0:06:10.840 of technician. I I looked at it, and I learned it, 0:06:10.960 --> 0:06:14.560 and I read the books. And Bobby is still a 0:06:14.640 --> 0:06:18.040 colleague of mine. I visited him a few times at 0:06:18.080 --> 0:06:23.520 his home in Gainesville, Georgia. UM. But I figured out 0:06:23.640 --> 0:06:25.920 after some years that all of a sudden, you see 0:06:26.160 --> 0:06:29.960 threes and fives and abc s everywhere, and it pollutes 0:06:30.000 --> 0:06:32.479 your mind, you know, And it is there is a 0:06:32.520 --> 0:06:36.320 subjectivity to the to the theory. It can be very 0:06:36.320 --> 0:06:40.039 helpful at times, but it is one of many tools 0:06:40.800 --> 0:06:43.320 to say, to say the least, what did you learn 0:06:43.400 --> 0:06:49.000 from working with Bob foul Bob Farrell. Um, he's a 0:06:49.040 --> 0:06:53.520 modest man, a true gentleman, and a very good friend. 0:06:54.320 --> 0:06:58.280 And I learned from him not only the modesty. I 0:06:58.360 --> 0:07:02.640 learned from him house sentiment changes over time. He gave 0:07:02.760 --> 0:07:06.599 me a booklet very early, uh, the One Way Pocket. 0:07:07.960 --> 0:07:12.440 That's a classic and very small, little, very small little 0:07:12.440 --> 0:07:17.000 booklet was written one hundred years ago in nineteen nineteen seventeen, 0:07:17.600 --> 0:07:22.280 and it describes what happened in the Wall Street brokerage 0:07:22.280 --> 0:07:27.360 firm by the action activity of the clients. And he 0:07:27.480 --> 0:07:30.840 chose how sentiment changes over a full cycle in the 0:07:30.920 --> 0:07:33.960 stock market, from the lows, the bottom to the peak 0:07:34.760 --> 0:07:39.200 and and and that really made a big impression on me. 0:07:39.400 --> 0:07:43.760 So I started to learn that. So around shortly after 0:07:43.840 --> 0:07:49.400 that time, nineteen seventy three, you identified markets as having 0:07:50.360 --> 0:07:53.400 been very toppy, and you short of the market broadly, 0:07:54.200 --> 0:07:57.760 pretty much right before the seventy three seventy four bear market, 0:07:58.160 --> 0:08:02.160 which was a fifty seven percent collapse in US equities. 0:08:02.840 --> 0:08:06.160 What led to that decision and what did you? Um, 0:08:06.280 --> 0:08:09.560 what was your thinking like back then? That was before 0:08:09.840 --> 0:08:13.360 I met Bob Farrell. Uh, And yes, I met an 0:08:13.360 --> 0:08:17.200 English gentleman, a good friend of mine when I worked 0:08:17.240 --> 0:08:21.480 at a brokerage firm in Paris, and he showed me 0:08:21.600 --> 0:08:25.640 technical analysis, pointed figures and cycles and all that stuff. 0:08:25.840 --> 0:08:28.640 And I did my analysis and I came to the 0:08:28.680 --> 0:08:32.400 conclusion that the market is due to top and to 0:08:32.520 --> 0:08:36.960 go into a bare market. That was before the first 0:08:37.040 --> 0:08:39.800 hike in oil prices and the first oil crisis hit, 0:08:40.559 --> 0:08:47.240 and I speculated my The owner of the shop asked 0:08:47.320 --> 0:08:52.280 me to to become a salesman at in Paris. I 0:08:52.400 --> 0:08:54.520 was an intern at that time. I was twenty three 0:08:54.600 --> 0:08:57.240 years old, and he said I should play with my 0:08:57.280 --> 0:08:59.080 own money, and I said I do, but I don't 0:08:59.120 --> 0:09:02.000 have enough. So he asked how much do you need 0:09:02.280 --> 0:09:05.160 and I said, UH, have a million. At that time 0:09:05.200 --> 0:09:08.320 that was a lot of money. And he gave me 0:09:08.360 --> 0:09:11.880 the half million and I started to build a short 0:09:11.920 --> 0:09:18.080 position on credit. Marchin UH and I wrote, I wrote 0:09:18.120 --> 0:09:21.120 the whole market down, and I was almost killed in 0:09:21.200 --> 0:09:24.680 the bear market really in UH in fall of nineteen 0:09:24.679 --> 0:09:28.720 seventy three. It was brutal from someone to fall. So 0:09:29.720 --> 0:09:32.200 I learned. I learned the business the hard way with 0:09:32.320 --> 0:09:36.400 my own money, right hardly hard way, and and painfully. 0:09:36.720 --> 0:09:38.680 Let's talk a little bit about the early days at 0:09:38.760 --> 0:09:43.360 at UBS. You started in the mutual fund and research department, 0:09:43.440 --> 0:09:46.360 you worked your way up to global strategists over the 0:09:46.400 --> 0:09:49.040 course of five years, and then you ran the institutional 0:09:49.280 --> 0:09:52.600 portfolio department a few years after that. That's a pretty 0:09:52.640 --> 0:09:56.480 quick rise to the top of a major bank. What 0:09:56.480 --> 0:09:58.480 what were you doing that had you stand out so 0:09:58.559 --> 0:10:00.840 much from your peers. Well, I think it was a 0:10:00.840 --> 0:10:04.840 different time than it is now, and I was ahead 0:10:04.880 --> 0:10:09.040 of my peers because I didn't go to university. I 0:10:09.080 --> 0:10:12.920 worked it up the hard way. I was a speculator 0:10:12.920 --> 0:10:16.800 and a practitioner, and I read probably more books than 0:10:16.880 --> 0:10:21.080 those guys who went to university teaching business and learning 0:10:21.120 --> 0:10:25.240 business and economics. So I was way ahead of that 0:10:25.480 --> 0:10:30.440 in terms of knowledge and practice experience. When I was 0:10:30.480 --> 0:10:34.960 in my upper twenties and I ran, I ran mutual 0:10:35.000 --> 0:10:39.120 fund at UBS, US equity mutual fund by the way, 0:10:39.280 --> 0:10:43.120 and I I outperformed. I did very well. I was 0:10:43.160 --> 0:10:47.120 an aggressive young man at that time. Then they merged 0:10:47.600 --> 0:10:51.680 research and mutual funds and I had to be on 0:10:51.800 --> 0:10:53.960 top of being a mutual fund manager, I had to 0:10:54.000 --> 0:10:57.559 be a research analyist, which I which I hated. Really, 0:10:57.640 --> 0:11:00.880 I I didn't like it because I'm not the stock 0:11:00.880 --> 0:11:05.680 picker and company analyst, although I I did produce research, 0:11:05.880 --> 0:11:08.920 research reports and things like that, but I I was 0:11:08.960 --> 0:11:12.520 in love with macro and that is my field of 0:11:12.679 --> 0:11:17.439 expertise and that's where I feel home. And so I 0:11:17.480 --> 0:11:21.080 was given the position of the global strategist at an 0:11:21.120 --> 0:11:25.560 age of thirty virtually, and I was the global strategies 0:11:25.679 --> 0:11:29.680 for the whole group worldwide when I was thirty, and 0:11:30.000 --> 0:11:32.679 that was way ahead of my peers at that time. 0:11:33.080 --> 0:11:37.000 And you sort of described this as being unburdened by 0:11:37.000 --> 0:11:42.680 a classical education as an advantage. Absolutely, I think I 0:11:42.760 --> 0:11:46.800 learned the business from the practical side and not from 0:11:46.840 --> 0:11:51.440 the theoretical side. I read and started the theory near 0:11:51.840 --> 0:11:55.080 next to it, but it was not the driving force. 0:11:55.960 --> 0:11:58.920 I was a practitioner, and I wanted to learn the 0:11:58.920 --> 0:12:02.800 theories behind what makes the world moving and what makes 0:12:02.880 --> 0:12:07.120 markets moving. But it was not that the theories that 0:12:07.200 --> 0:12:10.920 the world is moving like this and therefore stocks or 0:12:11.080 --> 0:12:14.439 bond prices have to do this or that. You know it. 0:12:14.640 --> 0:12:17.040 I started from the other way around, so you you 0:12:17.080 --> 0:12:20.880 didn't have any bad ideas to unlearn, That's right, you know, 0:12:21.040 --> 0:12:24.640 I have the best stock picker I know in in 0:12:24.679 --> 0:12:30.280 Europe with an outstanding track record. He's a dentist by education, 0:12:31.000 --> 0:12:35.760 and he then went into consulting business consulting and learned 0:12:35.800 --> 0:12:40.200 all that, but he was never biased by learning the 0:12:40.200 --> 0:12:43.800 theories early on in his career. And so I think 0:12:43.840 --> 0:12:46.359 this is an advantage, or it can be an advantage. 0:12:46.360 --> 0:12:49.040 In my case, it was you've been doing the Baron's 0:12:49.240 --> 0:12:53.079 round Table for thirty years and you announced this year 0:12:53.280 --> 0:12:55.840 is going to be your last. Tell us the thinking 0:12:55.960 --> 0:12:58.840 behind that, what what led them to invite you, and 0:12:58.880 --> 0:13:02.720 what did you decide? Okay, three decades is plenty. I 0:13:02.880 --> 0:13:07.480 visited Barons in early nineteen six, and I did so 0:13:07.600 --> 0:13:10.760 because I was asked to do so from the bank. 0:13:10.960 --> 0:13:13.960 The bank wanted to have a better saying and the 0:13:14.160 --> 0:13:17.559 better world in the world of investments, and so they 0:13:17.600 --> 0:13:21.800 sent me on a mission to see the media, etcetera. 0:13:22.040 --> 0:13:24.840 And I you in New York at the time. I 0:13:24.880 --> 0:13:27.760 was in Switzerland at the time, and I visited Barns 0:13:27.840 --> 0:13:30.240 and I gave an interview and the title of the 0:13:30.360 --> 0:13:34.600 interview was Investors Hell and Traders Paradise, and that's what 0:13:34.679 --> 0:13:37.240 I said. It was in early eighty six and I 0:13:37.280 --> 0:13:39.680 said the market would move sideways, up and down and 0:13:39.800 --> 0:13:43.400 up and down. Great for traders, but horrible for investors. 0:13:43.960 --> 0:13:46.960 And I said in that interview that the Soviet Union 0:13:47.120 --> 0:13:51.280 was bankrupt and would decay, and as a result of that, 0:13:51.400 --> 0:13:54.840 interest rates would decline, inflation would decline, interest rates would 0:13:54.840 --> 0:13:57.800 decline for many years to come. And Ellen Abels and 0:13:57.880 --> 0:14:01.840 then wrote me a letter and invitational letter to join 0:14:02.160 --> 0:14:04.840 the Baron's round Table. And that's how it happened. And 0:14:04.920 --> 0:14:09.679 then thereafter was eighty seven when I was running the 0:14:09.720 --> 0:14:13.800 institutional portfolio management at UBS and Zurich, and I did 0:14:13.880 --> 0:14:18.240 something that probably nobody ever did before or after. I 0:14:18.280 --> 0:14:23.520 went to zero equities and we were unloading equities for 0:14:23.760 --> 0:14:27.360 weeks and weeks and weeks. And I was criticized by 0:14:27.720 --> 0:14:31.520 general management for doing that, but it was because in 0:14:31.560 --> 0:14:35.760 the early eighties eighty two, I increased or I pushed 0:14:35.800 --> 0:14:40.040 the bank to increase equity to sixty, which at that 0:14:40.200 --> 0:14:45.000 time was unheard aggressive for a continental European to be 0:14:45.040 --> 0:14:49.080 a fifty fifty. Absolutely, absolutely, and then I wanted to 0:14:49.120 --> 0:14:53.440 cut back in in summer of eighty seven. By the way, 0:14:53.560 --> 0:14:55.680 in the summer of eighty seven, the S and P 0:14:55.880 --> 0:14:59.200 five hundred was up about thirty five percent year to date. 0:14:59.280 --> 0:15:02.120 That that was up a is that a fair number. 0:15:02.440 --> 0:15:05.200 I think it was not from the bottom or from 0:15:05.320 --> 0:15:09.280 the year from year date before the crash, it was 0:15:09.480 --> 0:15:13.360 mid thirties and maybe even not tell you. I cannot 0:15:13.360 --> 0:15:16.000 tell you the exact number, but it was way up. 0:15:16.040 --> 0:15:18.400 It was huge way. It was way up. And I 0:15:18.480 --> 0:15:21.920 wanted to cut back, and the investment committee followed, and 0:15:22.640 --> 0:15:26.360 we decided to cut back, and then general management intervened 0:15:27.240 --> 0:15:31.320 and uh, and I thought they should care about their business, 0:15:31.360 --> 0:15:34.840 and we did the investment side. And I that's why 0:15:35.080 --> 0:15:39.160 I made an extreme example a statement that we go 0:15:39.320 --> 0:15:42.640 to zero, and I ordered all my portfolio managers to 0:15:42.760 --> 0:15:46.440 go to zero equities. But I explained them why. I 0:15:46.720 --> 0:15:48.960 explained them the reason. I didn't know that the crash 0:15:49.040 --> 0:15:54.040 was coming. I expected declined for the next six months 0:15:54.160 --> 0:15:58.320 or so, as opposed to in a day and picked 0:15:58.360 --> 0:16:01.920 the trough almost four almost The market went just about 0:16:01.960 --> 0:16:05.200 flat on the year after the crash. Is that about right? 0:16:05.560 --> 0:16:08.000 I really do not know. I'm gonna I'm gonna say 0:16:08.000 --> 0:16:11.600 that's ballpark that maybe that maybe, but we did very well. 0:16:11.880 --> 0:16:14.680 We we were up a lot markets down a lot, 0:16:14.840 --> 0:16:18.880 and unlike the US market, the European markets kept going 0:16:18.920 --> 0:16:22.880 down for another month after the crash. And interestingly, in 0:16:22.880 --> 0:16:26.640 in Switzerland, where you had registered chairs and barrel shares, 0:16:27.200 --> 0:16:30.640 registered chairs could not be bought by foreigners. So a 0:16:30.760 --> 0:16:36.840 clever smart investment bank or he created warrants on registered chairs, 0:16:36.920 --> 0:16:40.120 and those warrants all had a premium of up to 0:16:41.680 --> 0:16:46.200 running for another year to two years. And I, for myself, 0:16:46.240 --> 0:16:49.200 I shorted all those warrants because at that time you 0:16:49.320 --> 0:16:54.320 could shorten on in the future on margin. So all 0:16:54.360 --> 0:16:57.720 those warrants were down about or so I had a 0:16:57.720 --> 0:17:00.880 good year, to say the least. Let's talk a little 0:17:00.920 --> 0:17:05.879 bit about the Great Financial Crisis, because you said some 0:17:06.000 --> 0:17:10.560 really interesting things both before and after, and I wanna 0:17:10.800 --> 0:17:13.879 discuss that a little bit. Heading into the crisis, you 0:17:14.000 --> 0:17:17.080 were fairly bearished. Tell us, Uh, tell us what the 0:17:17.119 --> 0:17:20.720 thought process was in the early two thousand's before the 0:17:20.760 --> 0:17:25.240 financial crisis, well before we had the Asian crisis in 0:17:25.280 --> 0:17:31.040 the nineteen late nineteen nineties, and we had Ellen Greenspan 0:17:31.160 --> 0:17:35.239 running the FED. And I knew Alan Greenspan before he 0:17:35.320 --> 0:17:39.960 became FED chairman. Uh. He was an advisor to UBS 0:17:40.119 --> 0:17:44.240 at that time, and we met Davis were months to 0:17:44.400 --> 0:17:49.360 discuss the world affairs, and his focus will not that appropriate, 0:17:49.760 --> 0:17:55.720 but he is a great historian. And I detected because 0:17:55.720 --> 0:17:58.640 it was the time of the late seventies early eighties 0:17:59.119 --> 0:18:03.199 when we went from rising inflation to declining inflation, and 0:18:03.280 --> 0:18:07.040 I asked some lots of questions about deflationary processes, and 0:18:07.119 --> 0:18:12.479 he was very concerned about another traumatic nineteen thirties and 0:18:12.600 --> 0:18:14.800 from then on, and you can really go back into 0:18:14.840 --> 0:18:19.679 statistics from nineteen eight seven on, that trauma sort of 0:18:19.760 --> 0:18:24.280 guided monetary policy. It was always too easy for way 0:18:24.320 --> 0:18:28.679 too long, and this led to the excesses that we 0:18:28.760 --> 0:18:32.440 have seen before. First the Asian crisis, then we had 0:18:32.840 --> 0:18:36.560 Night with a big decline in the market, and then 0:18:36.800 --> 0:18:43.360 we have we have LTCM and and all that and recovery. 0:18:43.400 --> 0:18:46.800 And due to his fear, he flooded the markets, you know, 0:18:46.840 --> 0:18:51.359 he flooded the system and and that created the excesses thereafter. 0:18:51.920 --> 0:18:56.080 And the excesses was monumental. You had a simple telephone 0:18:56.119 --> 0:18:59.280 stocks trading at hunter times earnings and things like that. 0:18:59.440 --> 0:19:04.119 I very specifically remember because of the White two K fears, 0:19:04.720 --> 0:19:10.760 the FED flooded the system with liquidity in October and 0:19:10.840 --> 0:19:14.639 over the next six months the NASDAC doubled gain in 0:19:15.000 --> 0:19:19.200 six months. All that traces back to easy al Yeah, 0:19:19.359 --> 0:19:23.880 that and and so you had excessive valuations, and then 0:19:23.920 --> 0:19:26.919 you had rising inflation and rising interest rates, and that 0:19:27.200 --> 0:19:30.480 broke the market, no doubt. The early two thousands, everything 0:19:30.560 --> 0:19:34.920 priced in dollars or credit spiraled out of control, that's right. 0:19:35.040 --> 0:19:38.480 And then we had that crisis, and that crisis again 0:19:38.600 --> 0:19:42.920 triggered the next stimulation, you know, support of the system, 0:19:43.200 --> 0:19:48.840 the next stimulation. And then you had also the economic 0:19:48.880 --> 0:19:53.440 policy of making housing available for every American even if 0:19:53.480 --> 0:19:56.560 they cannot afford them, and and all that, and that 0:19:56.640 --> 0:20:00.480 created the next big excess, which was the land cycle. 0:20:00.960 --> 0:20:04.200 And in the center of that cycle was housing, primarily 0:20:04.359 --> 0:20:07.800 US housing, but also housing in Spain or wherever in 0:20:07.840 --> 0:20:10.919 the world around the world. Global boom and uh. And 0:20:11.000 --> 0:20:16.280 it's always important to see what's the driving factor and 0:20:16.400 --> 0:20:19.600 the driving theme in the cycle ease. So in the 0:20:19.680 --> 0:20:23.879 last cycle it was housing, really state, and in the 0:20:23.920 --> 0:20:27.520 current cycle it's China. That's that's fascinating. Now you have 0:20:27.600 --> 0:20:31.480 a reputation as a perma bear. But in March of 0:20:31.560 --> 0:20:34.520 two thousand and nine you came out and said, hey, 0:20:34.560 --> 0:20:39.359 we're overdue for a substantial rally. Thirty I believe is 0:20:39.400 --> 0:20:42.160 what you had said. And you were pretty much within 0:20:42.320 --> 0:20:45.159 days of the low, weren't you. I think it was 0:20:45.280 --> 0:20:48.840 one day away from the low. Uh. And it is 0:20:48.880 --> 0:20:52.359 in print in Barrens. I said, now the next six months, 0:20:52.359 --> 0:20:57.000 we'll see twenty five to rally, and then we'll see 0:20:57.200 --> 0:21:00.359 he could fall back once again. But I'm not sure. 0:21:00.680 --> 0:21:04.200 We have to assess it as as as we see it. 0:21:04.200 --> 0:21:06.760 It's happened. So that raises the question in my mind, 0:21:07.240 --> 0:21:11.760 from whence does this reputation as a perma bear come from. 0:21:11.840 --> 0:21:16.480 That's not a very bearish statement from yeah, and I'm not. 0:21:16.880 --> 0:21:19.680 I'm not the perma bear. But the label was given 0:21:19.720 --> 0:21:24.119 to me after the eight seven crash because I called 0:21:24.160 --> 0:21:28.800 that downturn, and I made very statements, and unlike most 0:21:28.920 --> 0:21:33.200 others in the industry who are reluctant to make very statements, 0:21:33.480 --> 0:21:38.440 I call them as I see him. So whenever everybody 0:21:38.480 --> 0:21:42.879 else who might be bearish is reluctant to speak up, 0:21:43.359 --> 0:21:47.120 I do. And and that gave me that label, which 0:21:47.200 --> 0:21:50.359 is absolutely wrong. In the early nineteen eighties, you know, 0:21:50.520 --> 0:21:53.280 I was going around as a raging bull. It was 0:21:53.320 --> 0:21:57.000 a time when you could buy a blue cheap type 0:21:57.000 --> 0:21:59.720 of stocks, like a union level. You could buy at 0:21:59.720 --> 0:22:03.360 the that was lower than the dividend yield, and nobody 0:22:03.440 --> 0:22:06.200 wanted to turn bullish because everybody was sitting in money 0:22:06.240 --> 0:22:10.600 market that was so high returns at their time, and 0:22:10.640 --> 0:22:13.320 I was pounding the table and nobody was listening. So 0:22:13.480 --> 0:22:16.359 I do not get the reputation of a raging bull. 0:22:16.520 --> 0:22:19.399 I got the reputation of a bear because of the 0:22:19.560 --> 0:22:22.720 eight seven experience. I believe. Let's talk a little bit 0:22:22.720 --> 0:22:25.919 about the current environment, which seems to be giving a 0:22:26.000 --> 0:22:29.800 lot of people, especially on the hedge fund side fits. 0:22:30.640 --> 0:22:35.720 What makes today such a different era than than what preceded, 0:22:35.840 --> 0:22:39.159 And I'm not saying it's different today, I'm saying what 0:22:39.359 --> 0:22:42.880 is what is the you mentioned earlier? Every cycle has 0:22:42.920 --> 0:22:46.920 a different driving force. What's the driving force in this cycle? Well, 0:22:46.960 --> 0:22:49.480 the driving force in this cycle is China. But the 0:22:49.560 --> 0:22:54.879 cycle is somewhat different from previous cycles because we have 0:22:55.440 --> 0:22:59.119 after Night, after two thousand and nine, we have really 0:22:59.320 --> 0:23:04.320 entered central planning in a way, because the central banks 0:23:04.320 --> 0:23:08.640 have taken over to manipulate financial markets to the degree 0:23:08.720 --> 0:23:12.800 that they move prices where they want to have them, 0:23:12.840 --> 0:23:16.120 and that is a new element, and that is distorting 0:23:16.560 --> 0:23:20.159 a lot of things that used to work well in 0:23:20.240 --> 0:23:23.720 previous cycles and do not work as well in the 0:23:23.760 --> 0:23:27.399 current cycle. So that's a distortion. And the question is 0:23:27.440 --> 0:23:31.600 whether this is a permanent distortion that will be with 0:23:31.680 --> 0:23:34.800 us forever in the future, or whether this is a 0:23:34.840 --> 0:23:40.640 temporary distortion. My my understanding is that it is probably 0:23:40.720 --> 0:23:44.399 a permanent distortion. So so here's the pushback to that, 0:23:44.440 --> 0:23:49.040 because we've heard variations of that argument from from many quarters. 0:23:49.119 --> 0:23:52.680 And the other side of the argument is, hey, we've 0:23:52.720 --> 0:23:56.840 always had the government sticking its fingers into markets. Following 0:23:56.880 --> 0:24:00.240 the Great Depression, well it wasn't the central Bank. We 0:24:00.400 --> 0:24:04.920 rolled out FDIC insurance for depositors, and the new SEC 0:24:05.160 --> 0:24:08.880 was introduced. You had a huge set of policies after 0:24:08.920 --> 0:24:12.080 World War Two to stimulate the economy, and then in 0:24:12.119 --> 0:24:16.280 the seventies we went off the gold standard. So arguably 0:24:16.440 --> 0:24:18.879 the government has always been sticking its fingers where it 0:24:18.920 --> 0:24:23.240 doesn't belong. That's absolutely right. But it sticks more and 0:24:23.400 --> 0:24:27.399 more of its fingers into where it doesn't belong, and 0:24:27.480 --> 0:24:31.320 this is a trend, and the trend is then reflected 0:24:31.440 --> 0:24:34.760 that the government share of our economies is on the 0:24:34.920 --> 0:24:38.639 rise as as a trend, and the interference is on 0:24:38.680 --> 0:24:41.760 the rise, and the free markets are on a decline. 0:24:42.359 --> 0:24:44.600 And and this is the change. I think it's a 0:24:44.680 --> 0:24:49.400 structural secular trend change that we have seen. It started 0:24:49.840 --> 0:24:54.159 very slowly in eighties, after seven with the central banking 0:24:54.240 --> 0:25:01.880 becoming more biased to asymmetric expansionary policy. And after oh 0:25:02.000 --> 0:25:06.120 nine it was two more steps forward in that process. 0:25:06.160 --> 0:25:09.200 And I think central banks cannot go back to where 0:25:09.240 --> 0:25:12.560 it was because if they tried, they would break the system. 0:25:12.800 --> 0:25:17.520 You knew Alan greenspand personally, he very famously was an 0:25:17.560 --> 0:25:21.840 iron rand acolyte. He believed in free markets. How is 0:25:21.880 --> 0:25:25.840 it that this free market libertarian economist put us on 0:25:25.880 --> 0:25:29.399 such a track to government management of markets. You know, 0:25:29.480 --> 0:25:35.399 it's one thing to commentate and in theory what should 0:25:35.400 --> 0:25:38.199 be done and what's right and what's wrong. It's another 0:25:38.280 --> 0:25:42.520 thing to be the guy who pulls the trigger, makes 0:25:42.560 --> 0:25:45.840 the decision, and is responsible for that decision. And as 0:25:45.880 --> 0:25:50.520 soon as you are responsible, you move more slowly, more cautiously, 0:25:50.840 --> 0:25:54.800 and you rather air on the side of making it 0:25:54.920 --> 0:25:59.240 better for the world, not worse or less painful, not 0:25:59.400 --> 0:26:03.080 more pain And unfortunately that is true for the short term, 0:26:03.320 --> 0:26:06.600 but in the long run the outcome is exactly the opposite. 0:26:06.920 --> 0:26:09.879 You make it less painful in the short run, but 0:26:10.000 --> 0:26:12.760 you make it more painful in the long run. So 0:26:12.800 --> 0:26:16.160 at the most recent Barrens round table, you said, today 0:26:16.240 --> 0:26:20.879 seems a lot like late nine. Are you implying that 0:26:20.960 --> 0:26:23.119 we're in a bubble? Are you implying we're about to 0:26:24.160 --> 0:26:28.680 enter another ten year period of wandering in the wilderness? 0:26:28.720 --> 0:26:33.560 What does late in that contact? Late nine means that 0:26:33.600 --> 0:26:36.879