WEBVTT - 30: How Finance Took Over the World

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<v Speaker 1>But knowledge to work and grow your business with c

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<v Speaker 1>T dot com put Knowledge to Work. Welcome to add thoughts.

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<v Speaker 1>I'm Tracy Alloway, executive editor of Bloomberg Markets. My co

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<v Speaker 1>host Joe Wisenthal is away this week, but never fear

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<v Speaker 1>because his absence means we are about to geek out

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<v Speaker 1>on some of the most financing things of all things

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<v Speaker 1>in finance. So today joining me, we have a former

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<v Speaker 1>banker and corporate treasurer. He's also an all round derivatives expert.

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<v Speaker 1>He is the author of one of my all time

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<v Speaker 1>favorite finance books, Traders, Guns and Money. I am talking,

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<v Speaker 1>of course, about Showtujit das Uh. He actually has a

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<v Speaker 1>new book out, but you are going to be talking

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<v Speaker 1>about something much broader than that. The topic of today's

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<v Speaker 1>podcast was inspired by a recent column by my Bloomberg

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<v Speaker 1>colleague Noah Smith. His column was called How Finance took

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<v Speaker 1>Over the Economy. Dass has previously spoken about the financialization

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<v Speaker 1>of the world economy. Many of his books are full

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<v Speaker 1>of specific examples of this. But we are not just

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<v Speaker 1>going to talk about financialization of the economy. We are

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<v Speaker 1>also going to talk about the financialization in markets and

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<v Speaker 1>monetary policy, and that is of course one of the

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<v Speaker 1>big big questions for investors at the moment. So Das,

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<v Speaker 1>thank you so much for joining us today. It's my pleasure.

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<v Speaker 1>All right. Maybe just to begin, we should start by

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<v Speaker 1>defining our terms and talk about what we mean when

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<v Speaker 1>we say financialization. Well, that's a very very difficult question.

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<v Speaker 1>I think it's a bit like trying to define a smile,

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<v Speaker 1>because I think it was us who once said a

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<v Speaker 1>smile is the drawing back and slight lifting of the

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<v Speaker 1>corners of the mouth, which partially uncovered the teeth. So

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<v Speaker 1>I think financialization is a little bit like that, and

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<v Speaker 1>I have seen many people struggle with that. So I

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<v Speaker 1>actually tend to think about its manifestations, and I think

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<v Speaker 1>there's a few of them which are very important. One

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<v Speaker 1>which is obviously very topical, which is the use of

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<v Speaker 1>debt to drive financial and economic activity. The second is

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<v Speaker 1>which actually has become topical again is the size of

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<v Speaker 1>the financial sector and how large that is relative to

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<v Speaker 1>the real economy. And this is the whole idea, which

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<v Speaker 1>is a third point that instead of using traditional ways

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<v Speaker 1>to drive the economy, which is things like innovation, productivity,

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<v Speaker 1>new markets, we now start to use financial techniques or

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<v Speaker 1>financial engineering rather than real engineering to try to create growth,

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<v Speaker 1>wealth and prosperity. And the last one is an excessive

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<v Speaker 1>reliance I suppose on financial techniques and instruments, And maybe

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<v Speaker 1>underlying all of that is the increased emphasis on not

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<v Speaker 1>the real economy but just creating and trading financial claims

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<v Speaker 1>of different types on them. And the best way to

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<v Speaker 1>describe it as you and I are creatures of that

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<v Speaker 1>because at an earlier age we might have been useful

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<v Speaker 1>and worked in real industry instead of which we keep

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<v Speaker 1>talking about financialization. Oh wow, um, you went there. Okay, Well,

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<v Speaker 1>I'm going to turn this back on you. You have

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<v Speaker 1>a long career as a banker and a trader. Was

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<v Speaker 1>there a particular moment in time that you can remember

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<v Speaker 1>thinking that financialization was a thing, or that the finance

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<v Speaker 1>industry had grown too big, or that financial engineering was

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<v Speaker 1>starting to get a little bit weird? Well, I think

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<v Speaker 1>I think there was never one magic moment in all

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<v Speaker 1>of this, but I realized there was something very odd

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<v Speaker 1>when I used to be a corporate treasurer, and in

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<v Speaker 1>those days it was fashionable to run corporate treasuries as

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<v Speaker 1>profit centers. That's something that's fallen into disrepute recently. But

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<v Speaker 1>in a particular year, we made more money than the

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<v Speaker 1>real business, which was to me a sign of considerable

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<v Speaker 1>alarm in the sense that we were a transport company,

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<v Speaker 1>but the financial jiggery, pokery and pettifoggery that we were

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<v Speaker 1>doing was actually creating more wealth then the business of

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<v Speaker 1>shifting parcels around the world, which I didn't think was healthy.

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<v Speaker 1>And the other thing I supposed was earlier in my

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<v Speaker 1>life when I used to work in banking, and I remember,

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<v Speaker 1>with some degree of shame, actually thinking that my bonus

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<v Speaker 1>in one year was more than the earnings that my father,

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<v Speaker 1>who was a mechanical engineer, had earned over probably really

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<v Speaker 1>a decade, or probably more than that. And I thought

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<v Speaker 1>there was something I suppose wrong with the world, which

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<v Speaker 1>actually looks at that type of evaluation relatives. Wow, this

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<v Speaker 1>podcast is turning into a big guilt trip for finance workers.

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<v Speaker 1>But tell me, how do you think we got to

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<v Speaker 1>this point in time where a trader, someone like yourself

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<v Speaker 1>can earn more than a mechanical engineer in a single year.

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<v Speaker 1>I think there's several aspects to it. I don't think

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<v Speaker 1>it's actually any one thing. I think you have to

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<v Speaker 1>go back to the seventies, and in the seventies, you

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<v Speaker 1>remember we had a period of stagflation, which is a

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<v Speaker 1>period of high inflation and high unemployment and low growth.

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<v Speaker 1>And at that point in time, I think the economic

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<v Speaker 1>policymakers and political leaders were experimenting with the different ways

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<v Speaker 1>of breaking out of the traditional Keensian dominated mixed economy,

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<v Speaker 1>and people like Milton Friedman and basically Frederick Hike became

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<v Speaker 1>very popular, mainly because politicians kept quoting them, despite the

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<v Speaker 1>fact that none of them had the slightest idea of

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<v Speaker 1>what their principles or policies or theories were. And what

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<v Speaker 1>that did was deregulate a number of key industries. And

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<v Speaker 1>one of those key industries that had actually deregulated was finance,

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<v Speaker 1>and that set off the whole series of things, including

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<v Speaker 1>the rise of the financial sector, the growth of debt,

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<v Speaker 1>and obviously the entire process of financial engineering that went on.

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<v Speaker 1>And I think that was very successful, and that grew

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<v Speaker 1>the economy. So that created that self reinforcing sort of dialectic,

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<v Speaker 1>which is that this must be good. And I think

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<v Speaker 1>that effectively started a process which has different sort of strands,

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<v Speaker 1>one of which is what Emmanuel Derman called the POWs,

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<v Speaker 1>the physicists on Wall Street. I actually called them actually

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<v Speaker 1>prisoners of Wall Street, because once you get there and

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<v Speaker 1>get paid that you can never lead. But essentially what

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<v Speaker 1>happened was industry was dying, the bell labs were shutting down,

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<v Speaker 1>some major science based projects were shutting down, to talent

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<v Speaker 1>basically moved away from real industry into the financial industry,

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<v Speaker 1>which was getting started. And the other thing which I

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<v Speaker 1>think people underestimate in terms of the importance of one

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<v Speaker 1>element of finance, which is actually drives financialization, is I

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<v Speaker 1>don't know if any industry in which you can actually

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<v Speaker 1>attribute earnings or at least choose to attribute earnings as

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<v Speaker 1>accurately to individual activities and therefore link directly rewards to

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<v Speaker 1>those achievements. And that's a huge element. If you work

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<v Speaker 1>for a large company building a motor car, there are

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<v Speaker 1>so many little bits to it, who actually takes credit

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<v Speaker 1>for it. But if you make a trade which makes

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<v Speaker 1>a lot of money, it's much more easily to attribute

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<v Speaker 1>the success to an individual. So it felt like we

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<v Speaker 1>did get close to a moment in two thousand and

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<v Speaker 1>eight where the world could have woken up and said,

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<v Speaker 1>wait a second, all this financialization, whether it be in

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<v Speaker 1>terms of products like derivatives or in terms of growth

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<v Speaker 1>generated through the accumulation of debt, this is not a

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<v Speaker 1>good thing, and it's bound to end in tears. But

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<v Speaker 1>it feels like we actually kind of moved away from that.

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<v Speaker 1>It feels like, if anything, we've sort of continued with

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<v Speaker 1>our financial engineering. Well, I think fundamentally our problem is

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<v Speaker 1>a different one, which is we are addicted to growth

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<v Speaker 1>and we can't conceive of a world without growth. And

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<v Speaker 1>particularly after two thousand and eight, we had an additional problem.

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<v Speaker 1>We recognized that we had too much debt in the world,

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<v Speaker 1>and the only way you actually reduced debt in a

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<v Speaker 1>meaningful sense is through growth and inflation. So we needed

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<v Speaker 1>things which created that growth and inflation and the elements

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<v Speaker 1>of the real economy, because what lives growth really is

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<v Speaker 1>things like population, new markets, productivity, and innovation. Those things

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<v Speaker 1>are very difficult to engineer on demand, certainly within the

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<v Speaker 1>life of a political leader. And remember political processes have

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<v Speaker 1>quite short lifespans because you have to run for office regularly,

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<v Speaker 1>So everybody was looking around for something to do. And

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<v Speaker 1>essentially the financial leavers, which is budget deficits, let's get

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<v Speaker 1>interest rate, let's do que or move on to something

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<v Speaker 1>more adventurous like helicopter money, was far more I suppose

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<v Speaker 1>attractive to people with those shorter term horizons. And I

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<v Speaker 1>think that's what actually happened, and nobody really sat down

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<v Speaker 1>and looked very, very clearly at what the causes of

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<v Speaker 1>the problems of two thousand and eight are. I'll give

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<v Speaker 1>you one example. You know we talked about de leveraging

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<v Speaker 1>in terms of debt. Debt is increased by over fifty

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<v Speaker 1>seven trillion dollars between two thousand and seven and two

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<v Speaker 1>thousand fourteen. Now we know the world has actually grown

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<v Speaker 1>in terms of GDP as well, but if you take

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<v Speaker 1>it as a percentage of GDP, world debt has grown

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<v Speaker 1>by seventeen percentage points, and most alarmingly, places like China

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<v Speaker 1>have gone from seven trillion dollars in debt in two

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<v Speaker 1>thousand and seven to well over twenty eight trillion dollars

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<v Speaker 1>of debt today, and even despite the fact that their

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<v Speaker 1>economy has grown quite a lot during that period. It's

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<v Speaker 1>almost doubled as a percentage of GDP. So we went

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<v Speaker 1>for the easy solution, and and to some extent, I

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<v Speaker 1>can understand why people chose that, because they didn't want

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<v Speaker 1>a sudden curtailment of activity. But there's a problem with

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<v Speaker 1>debt driven growth, which is what they're trying to do,

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<v Speaker 1>which is that the moment you turn off the debt tabs,

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<v Speaker 1>growth stops as well. So this is the classic heroin addiction,

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<v Speaker 1>where you need to take larger and larger doses to

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<v Speaker 1>get the same effect, and that obviously traps you in

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<v Speaker 1>a number of things. For instance, now were now trapped

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<v Speaker 1>in a position where we can't actually increase interest rates

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<v Speaker 1>or normalize interest rates because that would bring the house

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<v Speaker 1>of cards down. So what we've seen is, I suppose

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<v Speaker 1>the financialization of economic policy with some I suppose problematic outcomes.

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<v Speaker 1>All right, we're going to take a quick break for

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<v Speaker 1>a word from our sponsor. But knowledge to work and

0:11:28.440 --> 0:11:31.760
<v Speaker 1>grow your business with c i T from transportation to

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<v Speaker 1>healthcare to manufacturing. C i T offers commercial lending, leasing,

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<v Speaker 1>and treasury management services for small and middle market businesses

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<v Speaker 1>learn more at c I T dot com put knowledge

0:11:42.440 --> 0:11:47.319
<v Speaker 1>to work. We are back with shot Das. We are

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<v Speaker 1>talking about the financialization of the economy, of markets, of

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<v Speaker 1>monetary policy. So Das, I'm wondering, you know, policymakers were

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<v Speaker 1>in a tough spot after two an eight. I know

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<v Speaker 1>they used quie and we can argue that that increase

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<v Speaker 1>the debt burden and it hasn't been successful at least

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<v Speaker 1>yet in terms of generating inflation. Have there been any

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<v Speaker 1>benefits to those sorts of medicines. Sure it bought time,

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<v Speaker 1>and I think the crucial thing was that politically nobody

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<v Speaker 1>could accept the actual sort of collapse of demand and

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<v Speaker 1>activity that may take place as a result of just

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<v Speaker 1>called turking the cure, I suppose. But the problem with

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<v Speaker 1>buying time is you have to use it properly. And

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<v Speaker 1>there's a very famous line in Shakespeare and Richard the

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<v Speaker 1>third I think it is I wasted time, and now

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<v Speaker 1>time wastes me. And so we wasted that time because

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<v Speaker 1>we did not look at the real issues of re

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<v Speaker 1>engineering our economies away from financialization, away from debt, focusing

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<v Speaker 1>on the things we actually needed to do. And so

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<v Speaker 1>that opportunity has now been wasted, and during problem we've

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<v Speaker 1>multiplied the debt and all sorts of other issues, which

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<v Speaker 1>leads us now down a path which is very difficult

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<v Speaker 1>to reverse. And that's the real issue. So yeah, there

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<v Speaker 1>were benefits, but ultimately I don't think that was the

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<v Speaker 1>right decision. I'll give you an idea of how ridiculous

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<v Speaker 1>the argument gets. We're not talking about negative interest rates,

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<v Speaker 1>which is kind of a strange, surreal world. And let's

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<v Speaker 1>have a look at if you want to have negative

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<v Speaker 1>interest rates, the kind of arguments you put up in

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<v Speaker 1>support of it. Now, first thing, low interest rates haven't works.

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<v Speaker 1>I'm not quite sure why negative interest rates will necessarily

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<v Speaker 1>work much better. But then what happens is if you

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<v Speaker 1>have negative interest rates, look at the sort of side

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<v Speaker 1>effects of that. What is you undermine the profitability of

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<v Speaker 1>the banking system. And what happens is people just take

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<v Speaker 1>their money out, because why would you leave money in

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<v Speaker 1>and lose some of it? You take it out and

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<v Speaker 1>keep it at home. Incidentally, home safes, particularly places like Japan,

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<v Speaker 1>and so it's all and have gone through the roof

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<v Speaker 1>in terms of sales. So you take the money out.

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<v Speaker 1>But that destroys the funding base off the bank. And

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<v Speaker 1>one of the reasons for basically having negative interest rates

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<v Speaker 1>is to encourage lending. But if you don't have a

0:14:11.760 --> 0:14:13.880
<v Speaker 1>funding base, how the hell is that can occur? And

0:14:13.920 --> 0:14:17.360
<v Speaker 1>then you get into an absurd situation. And I've noticed

0:14:17.840 --> 0:14:21.720
<v Speaker 1>that several luminaries have now been enlightening us on the

0:14:21.720 --> 0:14:27.280
<v Speaker 1>pages of different publications saying how bad cash is for crime. Now,

0:14:27.560 --> 0:14:29.360
<v Speaker 1>you know, money has been around for a long period

0:14:29.400 --> 0:14:31.280
<v Speaker 1>of time, and crime has been around for a long

0:14:31.320 --> 0:14:34.920
<v Speaker 1>period of time. But I'm now discovered that these large

0:14:35.000 --> 0:14:37.040
<v Speaker 1>notes are the cause of crime, which has something I've

0:14:37.080 --> 0:14:40.200
<v Speaker 1>never really understood before. But the problem here is the

0:14:40.200 --> 0:14:43.440
<v Speaker 1>truth lies somewhere else. And Andrew Haldane from the Bank

0:14:43.440 --> 0:14:46.560
<v Speaker 1>of England actually outlined there is very very clearly. He said,

0:14:46.680 --> 0:14:49.440
<v Speaker 1>when the next crisis comes, and it will come, we're

0:14:49.440 --> 0:14:51.680
<v Speaker 1>going to have to cut interest rates and they're very low,

0:14:51.720 --> 0:14:54.240
<v Speaker 1>so we're going to have to go into massive negative territory.

0:14:54.920 --> 0:14:58.760
<v Speaker 1>So to make that policy work, we have to ban cash.

0:14:59.080 --> 0:15:01.800
<v Speaker 1>Now it's not only banned cash, he didn't go to

0:15:01.840 --> 0:15:04.760
<v Speaker 1>this extent, but you have to also ban capital flows

0:15:04.800 --> 0:15:07.640
<v Speaker 1>between countries because otherwise people would take money out of

0:15:07.640 --> 0:15:09.640
<v Speaker 1>a country with negative interest rates and get to somewhere

0:15:09.640 --> 0:15:13.720
<v Speaker 1>with positive interest rates, which is a completely dysfunctional reversal

0:15:14.160 --> 0:15:18.480
<v Speaker 1>of the precise objectives that we actually are trying to

0:15:18.520 --> 0:15:21.080
<v Speaker 1>achieve and some of the things we believe in, which

0:15:21.080 --> 0:15:23.600
<v Speaker 1>is free capital flows. And one of the things that

0:15:23.680 --> 0:15:27.480
<v Speaker 1>really troubles me about this spirit of history is that,

0:15:28.160 --> 0:15:30.520
<v Speaker 1>you know, Winston Churchill once book is very elegantly when

0:15:30.520 --> 0:15:32.520
<v Speaker 1>he said, you know, no no matter how beautiful the strategy,

0:15:32.920 --> 0:15:35.600
<v Speaker 1>one should occasionally look at the results. And I don't

0:15:35.600 --> 0:15:38.640
<v Speaker 1>think anybody's looking at the results. Well, what is the solution?

0:15:38.680 --> 0:15:40.960
<v Speaker 1>Then it seems like we're sort of at our wits end.

0:15:41.000 --> 0:15:44.680
<v Speaker 1>In terms of monetary stimulus. It doesn't seem like fiscal

0:15:44.760 --> 0:15:48.600
<v Speaker 1>stimulus is on the way anytime soon, and it's unclear

0:15:48.640 --> 0:15:51.800
<v Speaker 1>whether or not that would even really solve the problem

0:15:51.800 --> 0:15:54.720
<v Speaker 1>that we're talking about. You're right, and I think there's

0:15:54.720 --> 0:15:58.000
<v Speaker 1>basically three scenarios which now stretch out in front of us.

0:15:58.720 --> 0:16:02.240
<v Speaker 1>One of which is is what I call the Lazarus economy,

0:16:02.280 --> 0:16:05.640
<v Speaker 1>which is that things miraculously suddenly get better for all

0:16:05.680 --> 0:16:09.320
<v Speaker 1>sorts of reasons. I'm personally personally looking for the Martians

0:16:09.360 --> 0:16:12.800
<v Speaker 1>or some extraterrestrial intelligent life to visitors and solve our problems.

0:16:13.280 --> 0:16:16.760
<v Speaker 1>And that's some major technological advance, right, Yeah, and it

0:16:16.760 --> 0:16:19.200
<v Speaker 1>could be a technological advance. You never can say never.

0:16:19.320 --> 0:16:23.040
<v Speaker 1>I mean, if somebody was to basically find infinite energy

0:16:23.240 --> 0:16:26.120
<v Speaker 1>solve the problems of cold fusion, you would get certain

0:16:26.160 --> 0:16:29.880
<v Speaker 1>things that would happen. But that's not something you can

0:16:29.920 --> 0:16:33.320
<v Speaker 1>bank on. But the more likely case is a period

0:16:33.400 --> 0:16:36.880
<v Speaker 1>of prolonged stagnation. And this is very much the Japanese

0:16:36.920 --> 0:16:40.040
<v Speaker 1>and what's becoming the European model, which as we can

0:16:40.120 --> 0:16:43.720
<v Speaker 1>solve the problems, so we will use monetary morphine to

0:16:43.800 --> 0:16:47.040
<v Speaker 1>keep the process going for as long as we can do,

0:16:47.560 --> 0:16:52.920
<v Speaker 1>and hope over that period we can gradually deliver the economy.

0:16:53.320 --> 0:16:58.320
<v Speaker 1>And that basically means transferring wealth from the savers to

0:16:58.360 --> 0:17:00.560
<v Speaker 1>the borrowers. And that's what's going to happen to be done,

0:17:00.840 --> 0:17:02.920
<v Speaker 1>and you're trying to stretch out that adjustment over a

0:17:02.920 --> 0:17:04.959
<v Speaker 1>long period of time, and Japan shows that you can

0:17:05.040 --> 0:17:07.640
<v Speaker 1>do it under certain conditions, at least for a long

0:17:07.680 --> 0:17:10.080
<v Speaker 1>period of time. But the problem with all of that

0:17:10.320 --> 0:17:13.960
<v Speaker 1>is that once people realize that the outcome, the last

0:17:13.960 --> 0:17:19.199
<v Speaker 1>option comes into play. Which is everybody panics and starts

0:17:19.240 --> 0:17:21.880
<v Speaker 1>to try to get out of this game, as it were.

0:17:22.480 --> 0:17:25.199
<v Speaker 1>And the crucial thing he remember is this game is

0:17:25.280 --> 0:17:31.560
<v Speaker 1>underpinned by essentially an act of heroic faith in central bankers.

0:17:32.080 --> 0:17:36.120
<v Speaker 1>And remember, in the old times, priests intermediated between rulers

0:17:36.119 --> 0:17:39.560
<v Speaker 1>and their gods. These days we have economic gods, and

0:17:39.680 --> 0:17:43.480
<v Speaker 1>the alchemists or the priests are the central bankers and

0:17:43.520 --> 0:17:47.440
<v Speaker 1>the economic policy mandarins, and they intermediate between the body

0:17:47.520 --> 0:17:51.239
<v Speaker 1>politic and these economic forces. And there's a lot of

0:17:51.280 --> 0:17:55.480
<v Speaker 1>faith in them. And everybody has suspended disbelief and wants

0:17:55.520 --> 0:17:57.920
<v Speaker 1>to believe that this will work. But at some point

0:17:57.960 --> 0:17:59.719
<v Speaker 1>in time, and I'm starting to see signs of that

0:17:59.840 --> 0:18:03.360
<v Speaker 1>or ready that there will be a moment when they say, well, actually,

0:18:03.680 --> 0:18:07.000
<v Speaker 1>you know, they don't know what they're doing, or what

0:18:07.040 --> 0:18:10.199
<v Speaker 1>they're doing can't work, or they don't have the tools

0:18:10.200 --> 0:18:14.280
<v Speaker 1>to do this, and that sets off a horrible process. Now,

0:18:14.960 --> 0:18:16.840
<v Speaker 1>you know, I've worked in financial markets for a very

0:18:16.920 --> 0:18:19.439
<v Speaker 1>very long time, and the one thing I do know

0:18:20.119 --> 0:18:23.960
<v Speaker 1>is when people panic in financial markets, it's never a

0:18:24.080 --> 0:18:27.840
<v Speaker 1>very pretty side, and everybody wants to be first to

0:18:27.920 --> 0:18:31.400
<v Speaker 1>get out. And the reason is very simple. If you're

0:18:31.400 --> 0:18:33.880
<v Speaker 1>the first. It's you don't call it panic, it's very

0:18:33.880 --> 0:18:37.280
<v Speaker 1>sensible trading. And everybody is looking at each other saying,

0:18:37.280 --> 0:18:40.800
<v Speaker 1>how long can we continue this game where we suspend disbelief.

0:18:41.520 --> 0:18:44.880
<v Speaker 1>And that's a very dangerous situation to find yourself in

0:18:45.359 --> 0:18:48.919
<v Speaker 1>because the consequences are not only economic. This is not

0:18:48.960 --> 0:18:52.960
<v Speaker 1>an economic problem ultimately, this is actually a social problem

0:18:53.000 --> 0:18:56.639
<v Speaker 1>and a political problem. All economic problems ultimately more as

0:18:56.680 --> 0:19:00.720
<v Speaker 1>we saw in the nineties and nineteen thirties, into political problems.

0:19:00.960 --> 0:19:03.560
<v Speaker 1>And we're seeing signs of that in terms of extreme

0:19:04.480 --> 0:19:07.160
<v Speaker 1>um movements of the right and left in different parts

0:19:07.200 --> 0:19:10.720
<v Speaker 1>of the world, the rise of some interesting populist politicians,

0:19:11.160 --> 0:19:14.640
<v Speaker 1>and those pressures are going to start to actually play out.

0:19:14.720 --> 0:19:17.840
<v Speaker 1>I mean, the most interesting thing about the Republican potential

0:19:17.880 --> 0:19:21.640
<v Speaker 1>candidate is he's repudiating things like free trade and all

0:19:21.680 --> 0:19:24.240
<v Speaker 1>sorts of things that we believed in. And he's openly

0:19:24.280 --> 0:19:27.520
<v Speaker 1>flagged the idea that perhaps not repaying your debt is

0:19:27.560 --> 0:19:30.000
<v Speaker 1>not such a bad idea, which are things that are very,

0:19:30.119 --> 0:19:34.840
<v Speaker 1>very dangerous in the way we've structured our financial system. Uh,

0:19:35.440 --> 0:19:39.679
<v Speaker 1>let's leave our listeners with some actionable advice in terms

0:19:39.680 --> 0:19:42.119
<v Speaker 1>of the rush for the exits that everyone seems to

0:19:42.119 --> 0:19:44.760
<v Speaker 1>be worrying about and has been worrying about for so long.

0:19:45.119 --> 0:19:46.600
<v Speaker 1>What do you think is going to be the key

0:19:46.680 --> 0:19:49.439
<v Speaker 1>thing to look out for. I think in terms of

0:19:49.440 --> 0:19:52.000
<v Speaker 1>asset classes, the key asset classes which will take the

0:19:52.000 --> 0:19:55.080
<v Speaker 1>pressure of currencies. I know there's no currency war going

0:19:55.080 --> 0:19:57.360
<v Speaker 1>because I listened to central bankers, but I can assure

0:19:58.080 --> 0:20:00.720
<v Speaker 1>you that there is a currency war going on because

0:20:00.760 --> 0:20:03.600
<v Speaker 1>everybody is trying to devalue their way to prosperity. That's

0:20:03.640 --> 0:20:06.120
<v Speaker 1>the first thing. That's one of the asset classes which

0:20:06.160 --> 0:20:09.240
<v Speaker 1>will take enormous train. The other thing is I think

0:20:09.280 --> 0:20:13.800
<v Speaker 1>political and policy developments are going to be crucial in that,

0:20:13.880 --> 0:20:16.639
<v Speaker 1>so you have to monitor what these people do. But

0:20:16.720 --> 0:20:19.240
<v Speaker 1>the other thing is in terms of investment, I think

0:20:19.280 --> 0:20:23.880
<v Speaker 1>you need to understand some very very simple rules, and

0:20:24.119 --> 0:20:27.000
<v Speaker 1>I always look at investments in terms of three criteria.

0:20:27.119 --> 0:20:31.040
<v Speaker 1>One is basically the capital the return of the capital.

0:20:31.080 --> 0:20:34.520
<v Speaker 1>The American comedian Will Rodgers once said very elegantly, it's

0:20:34.560 --> 0:20:36.919
<v Speaker 1>the return of my capital rather than the return on

0:20:37.040 --> 0:20:40.199
<v Speaker 1>my capital that I worry about. The second thing is

0:20:40.240 --> 0:20:43.760
<v Speaker 1>the income, and the last thing is the capital gains. Now,

0:20:43.760 --> 0:20:46.080
<v Speaker 1>historically in the last thirty years, we've reversed the order

0:20:46.119 --> 0:20:50.359
<v Speaker 1>of importance. I think maintaining capital and getting a bit

0:20:50.400 --> 0:20:54.359
<v Speaker 1>of income will actually be crucial. And I think this

0:20:54.480 --> 0:20:56.720
<v Speaker 1>is a world in which you can't actually look at

0:20:56.720 --> 0:20:59.399
<v Speaker 1>the past in any meaningful way. And I'll tell you

0:20:59.480 --> 0:21:01.119
<v Speaker 1>an example all of that, which is one of my

0:21:01.200 --> 0:21:05.320
<v Speaker 1>great mistakes. A friend of mine who used to trade

0:21:05.440 --> 0:21:08.080
<v Speaker 1>JGBS or who's actually a fund manager Japanese government and

0:21:08.200 --> 0:21:11.080
<v Speaker 1>g GBS were around three. He asked me a question.

0:21:11.200 --> 0:21:14.919
<v Speaker 1>He said, to me, is it actually good value? And

0:21:14.960 --> 0:21:18.160
<v Speaker 1>I said, you know, you're looking at twenty years. Three

0:21:18.200 --> 0:21:20.840
<v Speaker 1>percent does not seem to me the right record for

0:21:20.880 --> 0:21:24.439
<v Speaker 1>that period. He ignored my advice entirely, and he loaded

0:21:24.520 --> 0:21:27.040
<v Speaker 1>up on every long day to j g B that

0:21:27.119 --> 0:21:31.000
<v Speaker 1>he could actually find. And history shows that g GBS

0:21:31.000 --> 0:21:33.920
<v Speaker 1>had never flirated with those sorts of levels. Again, so

0:21:34.359 --> 0:21:37.680
<v Speaker 1>what we thought was in the past reasonable and what

0:21:37.760 --> 0:21:39.560
<v Speaker 1>we may need to live with are going to be

0:21:39.640 --> 0:21:44.119
<v Speaker 1>fundamentally different. So being agile and actually going back to

0:21:44.200 --> 0:21:48.120
<v Speaker 1>some very very simple principles will serve people much much

0:21:48.240 --> 0:21:51.600
<v Speaker 1>better than trying to be clever in this sort of environment.

0:21:52.480 --> 0:21:54.840
<v Speaker 1>All right, I think that is some excellent advice for

0:21:54.880 --> 0:21:58.119
<v Speaker 1>all the investors out there. Show us. One of my

0:21:58.240 --> 0:22:01.400
<v Speaker 1>all time favorite finance authors. He has a new book

0:22:01.400 --> 0:22:04.199
<v Speaker 1>out called The Age of Stagnation, Why perpetual growth is

0:22:04.240 --> 0:22:07.440
<v Speaker 1>unattainable and the global economy is in peril. If you're

0:22:07.680 --> 0:22:11.720
<v Speaker 1>looking for some uplifting reading over the weekend. Thank you

0:22:11.800 --> 0:22:18.600
<v Speaker 1>so much for joining us. It's my pleasure. Tracy. All right,

0:22:18.680 --> 0:22:22.480
<v Speaker 1>that was shortage at das UM talking about the financialization

0:22:22.600 --> 0:22:26.680
<v Speaker 1>of everything, pretty much the economy, markets, monetary policy, and

0:22:26.880 --> 0:22:30.639
<v Speaker 1>leaving us with some quite depressing thoughts. To be honest,

0:22:31.400 --> 0:22:34.240
<v Speaker 1>thank you so much for joining this episode of Odd Blots.

0:22:34.960 --> 0:22:42.480
<v Speaker 1>Joe Wisenthal will be back next week. Put Knowledge to

0:22:42.560 --> 0:22:45.160
<v Speaker 1>work and grow your business with c i T from

0:22:45.160 --> 0:22:50.280
<v Speaker 1>transportation to healthcare to manufacturing. C i T offers commercial lending, leasing,

0:22:50.359 --> 0:22:54.000
<v Speaker 1>and treasury management services for small and middle market businesses.

0:22:54.200 --> 0:22:56.880
<v Speaker 1>Learn more at c I T dot com. Put Knowledge

0:22:56.920 --> 0:23:00.520
<v Speaker 1>to Work t