WEBVTT - Hugh Hendry On Why The World Still Can't Get Enough Dollar Assets 0:00:05.960 --> 0:00:10.200 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:10.240 --> 0:00:14.320 I'm Joe Wasn't and I'm Tracy Alloway. One of the questions, 0:00:14.480 --> 0:00:16.640 and of course that I would say, in part due 0:00:16.680 --> 0:00:19.599 to one of our recent episodes, that people are debating, 0:00:19.840 --> 0:00:23.040 is the role the future of the dollar, And of 0:00:23.079 --> 0:00:25.920 course people love to debate this for our entire live people, 0:00:26.239 --> 0:00:28.040 this is the dollar doomed. Just do you an going 0:00:28.080 --> 0:00:30.360 to replace it? It's going to be replaced by golder, 0:00:30.400 --> 0:00:34.199 big Klin or something. But with the sanctions, with Russia's 0:00:34.280 --> 0:00:37.080 loss of it loss of its FX reserves, I feel 0:00:37.120 --> 0:00:39.640 like this is a This debate has gotten new energy. 0:00:40.159 --> 0:00:43.560 I distinctly remember my dad sending me articles about Iraq 0:00:43.680 --> 0:00:47.720 switching to Euros for oil payments from many, many years ago. 0:00:47.840 --> 0:00:51.000 So yes, this is an ongoing debate, but you're entirely right, 0:00:51.440 --> 0:00:54.600 new life has been breathed into it. And you know, 0:00:54.680 --> 0:00:59.520 most recently we're recording this on March and just yesterday 0:00:59.560 --> 0:01:01.480 we Sawrussia is saying that it was going to start 0:01:01.520 --> 0:01:05.600 to demand gas payments in rubles. So there is there 0:01:05.640 --> 0:01:09.040 are things happening on this front. But even something like that, 0:01:09.560 --> 0:01:12.000 you see people portray it in two different ways. So 0:01:12.080 --> 0:01:14.200 on the one hand, there are people out there saying, oh, 0:01:14.240 --> 0:01:16.480 look this is the end of the petro dollar. Russia 0:01:16.520 --> 0:01:19.440 has kicked off this entire process. And then other people 0:01:19.440 --> 0:01:21.680 are saying, well, no, that's not what it is at all. 0:01:21.920 --> 0:01:24.480 In fact, this is a sign of you know, Russian weakness. 0:01:24.560 --> 0:01:26.920 Basically they can't get foreign currency at the moment, so 0:01:26.959 --> 0:01:29.440 they have to do this. So there's so much debate 0:01:29.560 --> 0:01:32.560 on this particular topic. Yeah, it's like a big I 0:01:32.560 --> 0:01:36.319 would say, it's also just a big ideas moment. Earlier 0:01:36.319 --> 0:01:39.600 in the week, we recorded that interview with Victor's Fantis 0:01:39.600 --> 0:01:42.640 talking about the world dividing into two. So it's kind 0:01:42.680 --> 0:01:47.840 of a moment for big picture sort of reassessments of everything. 0:01:47.840 --> 0:01:50.400 And the dollar is sort of the key icon of 0:01:50.440 --> 0:01:54.160 the existing world, the reserve currency, but all kinds of 0:01:54.200 --> 0:01:57.000 like it's a moment to sort of step back and 0:01:58.280 --> 0:02:00.680 think about sort of things that we take for granted 0:02:00.760 --> 0:02:03.440 and what could change. Yeah, and also I think whenever 0:02:03.480 --> 0:02:06.360 you get this level of uncertainty, people try to fit 0:02:06.400 --> 0:02:09.200 their own narratives onto it, and so things that they've 0:02:09.240 --> 0:02:11.480 been talking about for many, many years suddenly this is 0:02:11.520 --> 0:02:14.600 the thing that is going to propel those into existence 0:02:14.680 --> 0:02:18.120 or into life. But yes, big picture, big moments. So 0:02:18.200 --> 0:02:21.040 I'm very excited about our guest today, someone who has 0:02:21.160 --> 0:02:24.800 always had a very provocative ideas in the world of 0:02:25.120 --> 0:02:31.320 global macro all kinds of things, things related to currencies, China, gold, etcetera. 0:02:31.400 --> 0:02:33.840 One of the most interesting people in the space for 0:02:33.840 --> 0:02:36.720 a long time. We're gonna be speaking with Hugh Hendry. 0:02:36.800 --> 0:02:41.040 He was the founder of Eclectic Asset Management and now 0:02:41.080 --> 0:02:44.160 he is a luxury hotelier on the island of St. 0:02:44.160 --> 0:02:46.720 Barts and he seems to be living a life that's 0:02:46.840 --> 0:02:50.240 much better and more interesting than ours. His website, Uh, 0:02:50.280 --> 0:02:52.640 you know, go check it out. Hugh, Thank you so 0:02:52.720 --> 0:02:54.960 much for coming out. What have you been up to? 0:02:55.080 --> 0:02:58.360 Because I first became aware of you, you know, probably 0:02:58.600 --> 0:03:01.160 over a decade ago watching years you made on YouTube 0:03:01.160 --> 0:03:03.520 about Chinese ghost cities. But what do you what have 0:03:03.560 --> 0:03:06.359 you been up to? Hey, hey guys, to be on 0:03:06.639 --> 0:03:10.280 Thank you. I have been I've been recovering. I've been 0:03:10.400 --> 0:03:16.000 rehabilitating my my weary mind. You know, I had had 0:03:16.120 --> 0:03:21.680 many years of active intellectual combat. The Eclectic Macro Fund 0:03:22.120 --> 0:03:26.799 ran for fifteen years en yere that I achieved. It's 0:03:26.840 --> 0:03:29.200 not the tenure you get as a professor at some 0:03:29.240 --> 0:03:33.480 of these Bologna economic universities where you can you can 0:03:33.480 --> 0:03:37.680 proclaim whatever and never be called for it. But fifteen years. 0:03:37.720 --> 0:03:41.360 But at the end, and the end was I was exhausted. 0:03:42.000 --> 0:03:43.600 I mean, the thing you have to remember is we 0:03:43.680 --> 0:03:49.080 have this amazing organ inside our head, this brain, um. 0:03:49.120 --> 0:03:53.120 But the thing is it lives in a dark chamber. 0:03:53.200 --> 0:03:56.400 There ain't no light getting into that brain, and it 0:03:56.520 --> 0:04:00.240 relies on the idiot on the on the outside to 0:04:00.360 --> 0:04:04.120 tell what's going on. And I spent I swear I 0:04:04.160 --> 0:04:09.000 spent fifteen years thinking I was gonna die. Not every day, 0:04:09.160 --> 0:04:13.040 not every day, but there are moments in investment campaigns 0:04:13.440 --> 0:04:16.400 and you think, oh my god, you remember I was 0:04:16.720 --> 0:04:20.440 I see things, um. And it's a curse because I 0:04:20.520 --> 0:04:23.960 normally see things before other people. I've got to deal 0:04:23.960 --> 0:04:27.960 with other people catching up. Um. And as a consequence, 0:04:28.720 --> 0:04:31.560 there are days when you're out of sync with the 0:04:31.600 --> 0:04:34.880 world and your P and l B leads and you 0:04:35.000 --> 0:04:39.360 can since your brain brain doesn't know, and your brains like, 0:04:39.360 --> 0:04:41.200 oh my god, we're like you know, this is a 0:04:41.200 --> 0:04:44.799 flight moment, and you get flooded with all this toxic 0:04:45.040 --> 0:04:48.679 chemistry to get you out of the hole. So fifteen 0:04:48.760 --> 0:04:53.200 years of all that nasty chemical reaction I needed. I 0:04:53.240 --> 0:04:57.039 needed five years to or yeah, five years to recuperate. 0:04:57.360 --> 0:04:59.560 And what a what a better place I can't think 0:04:59.560 --> 0:05:02.799 of any are than this beautiful island in the middle 0:05:02.839 --> 0:05:06.320 of nowhere, this tiny little volcanic rock where it's a 0:05:06.360 --> 0:05:09.880 bit like golf clutches where all the successful people come in. 0:05:09.920 --> 0:05:12.360 They're like peacocks, Like, look at the size of my 0:05:12.440 --> 0:05:16.559 super yacht. You know, Yeah, I'm making hay And I said, 0:05:16.600 --> 0:05:22.039 I watch it. I accommodate it. I built beautiful, beautiful 0:05:22.120 --> 0:05:25.880 villas for for rental under the brand Long Blue. And 0:05:25.880 --> 0:05:30.479 then since the body snatching alien invasion, the v in 0:05:31.800 --> 0:05:35.120 and I don't have access to the dear old beloved 0:05:35.240 --> 0:05:38.760 Bloomberg terminal, but I tell you it's in the air 0:05:38.760 --> 0:05:43.719 waves or somewhere because I'm drawing down stuff. And I'm 0:05:43.760 --> 0:05:48.600 glad to say that. Invigorated, I began shading again. And 0:05:48.640 --> 0:05:53.919 so I have podcasts. I'm on Instagram in my swimsuit. Um, 0:05:54.120 --> 0:05:57.800 and what am I doing? Yeah, and doing podcasts, etcetera. 0:05:57.880 --> 0:06:01.839 So I'm telling like it is, well, I mean, I 0:06:01.839 --> 0:06:04.920 gotta say, it's it's raining and cold here in New York, 0:06:05.080 --> 0:06:09.080 so hearing about um, your very glamorous life in St. 0:06:09.080 --> 0:06:12.159 Barts UM isn't helping this morning. But I'm glad you've 0:06:12.160 --> 0:06:17.160 recuperated in terms of what you're seeing right now. I mean, 0:06:17.200 --> 0:06:20.880 you are still very much paying attention to what's going 0:06:20.920 --> 0:06:23.920 on in markets and the world more broadly. It seems 0:06:23.920 --> 0:06:26.520 like just looking at your Twitter feed and your videos 0:06:26.720 --> 0:06:29.640 and things like that, what are you seeing right now? 0:06:29.800 --> 0:06:31.520 You know, lots of people are talking about this as 0:06:31.680 --> 0:06:35.240 a turning point in world history and possibly in the 0:06:35.279 --> 0:06:38.200 economic order. As Joe and I were discussing in the intro, 0:06:38.600 --> 0:06:41.320 what do you see? Oh my goodness, how long do 0:06:41.400 --> 0:06:47.680 you have speed? Wait? I see confusion. I see talking 0:06:47.680 --> 0:06:51.400 about what they would like UM and kind of failing 0:06:51.440 --> 0:06:55.360 to understand um. And that sounds very pompous. And let 0:06:55.360 --> 0:07:00.640 me be more even more pompous. Very few people I 0:07:00.680 --> 0:07:03.440 mean and encourage, I want to say, But like with 0:07:03.560 --> 0:07:06.920 one hand, I I start to struggle to use digits 0:07:07.000 --> 0:07:10.680 once I reached the fifth digit. When I nominate the 0:07:10.840 --> 0:07:16.680 people that actually understand money right, and that includes economists, 0:07:16.680 --> 0:07:20.720 that includes the biggest hedge fund managers, the bankers, and 0:07:21.240 --> 0:07:26.720 it's bluff includes the Federal Reserve. So few people understand 0:07:27.000 --> 0:07:30.080 the concept of money. And and so when we get 0:07:30.520 --> 0:07:34.680 these dreadful political moments that we're seeing with the invasion 0:07:35.040 --> 0:07:39.600 in Ukraine and of course the greatest tragedy, the loss 0:07:39.640 --> 0:07:43.040 of life, the change of dramatic change and lifestyles being 0:07:43.120 --> 0:07:47.080 dragged eighty years back into the past. It's horrible, but 0:07:47.320 --> 0:07:50.560 it's it creates this energy where people kind of dust 0:07:50.600 --> 0:07:54.080 off prejudice. And so I'm there on Twitter, as you say, 0:07:54.080 --> 0:07:56.400 and I'm kind of just trying to bay but a 0:07:56.480 --> 0:08:00.560 straight ball and just like keep it logical and and take, um, 0:08:00.840 --> 0:08:03.840 take the narrative kind of closer to I can't say 0:08:03.880 --> 0:08:06.000 the truth, but just try and kind of educate people. 0:08:06.240 --> 0:08:08.760 Like this thing about money. So dollar dollar, dollar, dollar 0:08:08.880 --> 0:08:15.040 doll change, and I think we're within the proximity of change. 0:08:15.600 --> 0:08:18.640 Changes is sweeping. You know, the kind of description that 0:08:18.680 --> 0:08:22.640 you gave it, this pivot in history. Um, it ain't 0:08:22.720 --> 0:08:26.680 gonna come in a linear manner, and it ain't going 0:08:26.720 --> 0:08:30.600 to be forecast by the street. Okay, It's gonna come 0:08:30.720 --> 0:08:34.480 at you from weird angles and it's going to confuse 0:08:34.520 --> 0:08:37.000 you okay, and I want to put it. If there 0:08:37.080 --> 0:08:39.240 is going to be changed, we have to put it 0:08:39.720 --> 0:08:45.199 in historical context. And there have been three previous changes. 0:08:45.600 --> 0:08:47.720 And and as I say, I think we're close to 0:08:47.880 --> 0:08:52.560 a force the changes. And what I'm talking about really 0:08:52.720 --> 0:08:59.079 how sovereign nations choose to regulate their external affairs, their 0:08:59.160 --> 0:09:04.040 commerce with each other, you know. And up until the 0:09:04.120 --> 0:09:09.280 late nineteen twenties, those the affairs of major sovereigns were 0:09:09.320 --> 0:09:13.840 regulated by the transfer of gold. And then gold acted 0:09:13.840 --> 0:09:18.000 as high powered money and it allowed for it facilitated 0:09:18.080 --> 0:09:22.079 the private banking sector to create money or to take 0:09:22.120 --> 0:09:26.319 money away. Okay. And no system is perfect, and the 0:09:26.360 --> 0:09:32.400 flaw of the gold system was exposed, the frailties were exposed. 0:09:32.480 --> 0:09:36.240 Its lack of kind of flexibility and response function to 0:09:36.360 --> 0:09:38.600 the near bo to the bankruptcy of the US banking 0:09:38.640 --> 0:09:42.640 system in the in the nineteen thirties, meant that it 0:09:42.760 --> 0:09:45.760 ceased to exist. It wasn't a solution, you know, It 0:09:45.880 --> 0:09:51.280 had created um a depression, and therefore it was rejected 0:09:51.480 --> 0:09:53.920 by the many. It was then, and it takes a 0:09:53.920 --> 0:09:56.760 long time to replace the system, and the system was 0:09:56.960 --> 0:09:59.920 ultimately replaced about fifteen years later, with bread and wood, 0:10:00.400 --> 0:10:04.040 which was essentially a kind of Ledger reconciliation of the 0:10:04.160 --> 0:10:07.720 Second World War. But and of course it was still 0:10:08.160 --> 0:10:11.199 it still had gold in its in its lexus and 0:10:11.600 --> 0:10:13.880 it and it used the dollar as a kind of 0:10:14.400 --> 0:10:21.679 as the mechanism around gold and then unheralded and unnoticed 0:10:21.679 --> 0:10:26.559 by the many, but around the Laate the mid nineteen sixties, 0:10:27.120 --> 0:10:31.160 the bread and woods system came to pass, and it 0:10:31.240 --> 0:10:34.800 came to be replaced by the euro dollar system. You know, 0:10:34.960 --> 0:10:40.960 in the run about British banks began to allow customers 0:10:41.000 --> 0:10:43.679 to borrow in dollars. When you get a loan from 0:10:43.720 --> 0:10:47.080 a bank, a bank is creating money. And for the 0:10:47.120 --> 0:10:51.320 first time run about that date, banks outside the regulation 0:10:51.400 --> 0:10:54.400 and the domand of the Federal Reserve of America began 0:10:54.480 --> 0:10:58.199 to create U s dollars um And then that really 0:10:58.240 --> 0:11:03.199 exploded when we had the petrol crisis, the petrol currency crisis, 0:11:03.240 --> 0:11:07.960 because effectively that created a huge amount of deposits which 0:11:07.960 --> 0:11:11.480 were put on the accounts of these overseas banks, and 0:11:11.559 --> 0:11:14.640 deposits a reliability and those banks needed an asset, which 0:11:14.679 --> 0:11:16.800 is a loan, and so they really took off in 0:11:16.960 --> 0:11:22.000 terms of dollar printing, making loans in US dollars, and 0:11:22.280 --> 0:11:27.640 that system has prevailed and it reached its apex in 0:11:27.679 --> 0:11:31.280 the years two thousand and four to two thousand and six, 0:11:31.320 --> 0:11:34.840 two thousand and seven, but it was mortally wounded with 0:11:35.000 --> 0:11:38.800 the housing crash in the United States in two thousand 0:11:38.880 --> 0:11:41.280 and eight. I want to say it died. And we've 0:11:41.280 --> 0:11:45.920 been operating ever since without a proper and and certainly 0:11:45.920 --> 0:11:50.520 a well understood means of regulating the affairs of sovereigns, 0:11:50.520 --> 0:11:54.800 and because we've not had a properly functioning means of 0:11:54.880 --> 0:11:58.720 exchange ever since two thousand and eight, the global economy 0:11:58.760 --> 0:12:02.680 has been subject and in operating under the confines of 0:12:02.760 --> 0:12:06.480 a depression. Not a great depression, it's called it a 0:12:06.520 --> 0:12:10.600 mild depression, but a depression. It's remarkable how we do 0:12:10.720 --> 0:12:14.720 not see that word in print. Now. What is the depression? 0:12:15.120 --> 0:12:19.760 My definition of a depression is when the recovery in 0:12:19.880 --> 0:12:24.559 g d P failed to take out the previous trend 0:12:24.600 --> 0:12:28.679 line in GDP growth. We have failed in a spectacular 0:12:28.760 --> 0:12:31.280 manner across the world, and I want to say the 0:12:31.280 --> 0:12:35.240 world is missing, very true and all it's worth of value, 0:12:35.440 --> 0:12:38.600 if you will, which is why we're creating this animosity. 0:12:38.880 --> 0:12:41.160 You know, one section of society is fighting the other. 0:12:41.280 --> 0:12:43.479 The gains are on the even they're not being distributed 0:12:43.520 --> 0:12:45.960 as we would hope. The pie is not as big 0:12:45.960 --> 0:12:48.960 as it should be. And that's because we've not been 0:12:48.960 --> 0:12:52.959 creating money. And into that, into that theater comes the 0:12:53.040 --> 0:12:56.800 absurd comes that you know, comes the Wizard of Oz, 0:12:57.280 --> 0:13:02.640 the Federal Reserve, and it's bombascity. They're like, hey, we're 0:13:03.080 --> 0:13:06.440 creating money. Hey over yere, Hey you want dollars, We're 0:13:06.480 --> 0:13:09.360 create Hey seven two we and dollars, No problem. You know, 0:13:09.720 --> 0:13:13.640 Bank of Japan, same thing, ECB, same thing. Okay, they're 0:13:13.679 --> 0:13:17.920 creating laundry, matt tokens. They're not creating money, right the 0:13:18.800 --> 0:13:23.240 Federals there, it is illegal. It cannot print money. Private 0:13:23.240 --> 0:13:28.640 sector agents create money through creating loans. US loan growth 0:13:28.840 --> 0:13:32.160 has been far supedia in the fifteen years or so 0:13:32.240 --> 0:13:36.080 since two thousand and eight. But for Supedia means like 0:13:36.360 --> 0:13:41.040 five six compound growth in Europe is like to right, 0:13:41.320 --> 0:13:44.520 that's the missing module. So I mean, I think you know, 0:13:44.920 --> 0:13:47.240 the point that you make about the missing money I 0:13:47.240 --> 0:13:50.080 think is well put. And and we've seen those charts 0:13:50.120 --> 0:13:52.760 of the pre two thousand eight trend line continuing to 0:13:52.760 --> 0:13:56.280 shoot up in this sort of extremely anemic. In the US, 0:13:56.400 --> 0:13:58.000 as you say, it was better off than many, but 0:13:58.160 --> 0:14:02.520 globally there's very anemic recovery. Now we're seeing arguably the opposite, 0:14:02.559 --> 0:14:06.240 and arguably some would say, well, having learned the lessons 0:14:06.360 --> 0:14:09.800 of two thousand and eight two thousand nine, governments didn't 0:14:09.840 --> 0:14:14.120 just rely on central banks this time fiscal expansion. And 0:14:14.200 --> 0:14:16.640 now we have some trend lines that are breaking the 0:14:16.679 --> 0:14:20.400 old trend lines, at least the pre trend lines. So 0:14:20.800 --> 0:14:23.880 talk to us a little bit about this shift, because okay, 0:14:23.920 --> 0:14:26.840 maybe the old system in a way, per your view, 0:14:27.040 --> 0:14:30.000 died in two thousand seven or two thousand eight. Now 0:14:30.040 --> 0:14:32.760 we see this other ship. What is the now? Help me? 0:14:32.920 --> 0:14:37.119 Help me, because you know, I it's funny, I I 0:14:37.120 --> 0:14:41.960 I've always been called a Contranian throughout my career, and 0:14:42.080 --> 0:14:46.240 yet I'm a trend follow where I seek the legitimacy 0:14:46.280 --> 0:14:49.240 of market prices, you know, by things going up nicely 0:14:49.320 --> 0:14:52.120 all things going down. Okay, so trends of any important 0:14:52.160 --> 0:14:55.280 to me. So it was rather provocative. What what trends 0:14:55.320 --> 0:14:58.040 are changing? Well, if you just look at something like 0:14:59.080 --> 0:15:03.440 US GDP or nominal GDP or nominal spending seemed to 0:15:03.440 --> 0:15:07.200 be on this sort of mediocre growth but upward to 0:15:07.240 --> 0:15:11.600 the right going up to February basically, and we got 0:15:11.640 --> 0:15:14.640 a huge plunge. Obviously it's the world shut down. And 0:15:14.680 --> 0:15:17.560 then this v that is now seems to at least 0:15:17.560 --> 0:15:20.160 by some measures, gone the other way and not just 0:15:20.240 --> 0:15:23.320 returned to trend, but shooting above it. Do you think so? 0:15:23.800 --> 0:15:27.720 I just like just some lines I've seen, these are 0:15:27.800 --> 0:15:30.720 kind of you know, like, yeah, I'm a data junkie. 0:15:30.720 --> 0:15:32.600 I can give me more and more, okay, Like so 0:15:32.880 --> 0:15:34.640 when I when I see one year, I want to 0:15:34.640 --> 0:15:37.520 see in the context of twenty years, Like, look, we 0:15:37.560 --> 0:15:40.800 had an alien body invasion, right, you took the economy 0:15:40.840 --> 0:15:45.000 when we suspended global weekend all make activity for the 0:15:45.000 --> 0:15:48.200 best part of eighteen months, right um, and then when 0:15:48.240 --> 0:15:50.560 it switched back on, like on a base of like 0:15:50.760 --> 0:15:54.680 minus minus minus, the recovery was positive, positive positive, right. 0:15:54.880 --> 0:15:58.640 And and then before the supply destructions, that's clearly been 0:15:59.160 --> 0:16:02.080 a degree of overordering just to kind of get inventories 0:16:02.120 --> 0:16:06.840 back into situate as chaos as chaos just now, so 0:16:07.480 --> 0:16:11.800 I see no sign. I see no sign that the 0:16:11.840 --> 0:16:18.160 economy is doing anything, anything distinct from the trends that 0:16:18.200 --> 0:16:21.960 we observed post two thousand and eight, except it's just 0:16:22.040 --> 0:16:27.600 been amplified by this, you know, remarkable intervention from outer space, 0:16:27.640 --> 0:16:29.680 if you will. I want to go back to the dollar, 0:16:29.800 --> 0:16:32.400 but before we do, just one question based on that, 0:16:32.520 --> 0:16:35.760 what do you think about central banks, specifically the Federal 0:16:35.800 --> 0:16:40.440 Reserve now getting ready to raise interest rates given your 0:16:40.440 --> 0:16:43.920 assertion that you know, the economy isn't necessarily as good 0:16:43.920 --> 0:16:46.480 as it looks because of all the confusion and disruption 0:16:46.520 --> 0:16:50.480 that we've experienced. Hey, listen, it's not it's not my assertion. 0:16:50.720 --> 0:16:54.840 I'm simply commenting on the observations that I see daily. 0:16:55.640 --> 0:17:01.000 I'm commenting on the genius of the enormous treasury market. Right, 0:17:01.560 --> 0:17:05.159 this is an unprecedented situation in terms of where the 0:17:05.320 --> 0:17:09.000 fixed income markets have priced for the Fed to begin 0:17:09.560 --> 0:17:12.439 raising rates that the treasure markets going. Guys, don't see it, 0:17:12.640 --> 0:17:15.199 don't see it. Don't see it. You know, And you 0:17:15.240 --> 0:17:18.560 know what our record is like ten ten better than yours. 0:17:18.600 --> 0:17:21.639 Like you know, you always get it wrong. We always 0:17:21.640 --> 0:17:24.520 get it right. I mean, you do not need First 0:17:24.560 --> 0:17:29.520 of all, the principle function of the Federal Reserve is 0:17:29.720 --> 0:17:33.080 as a bank regulator for the for those with a 0:17:33.200 --> 0:17:36.719 license to operate in the United States. Okay, it's record 0:17:36.800 --> 0:17:39.920 in terms of being able to see the future, I'm 0:17:39.960 --> 0:17:44.720 afraid is not very good. And so they require enormous bluster. 0:17:45.200 --> 0:17:52.719 They invest in immensely in the almighty posturing of their institution. Okay, 0:17:53.000 --> 0:17:58.159 it's nothing versus the majesty of thousands, if not hundreds 0:17:58.200 --> 0:18:01.359 of thousands of small are and maybe not so smart 0:18:01.600 --> 0:18:05.000 people engaging with each other. And and it gets more 0:18:05.040 --> 0:18:07.520 and more interesting as you go out in time where 0:18:07.560 --> 0:18:11.800 people are kind of thinking about themselves, their businesses and 0:18:11.840 --> 0:18:16.000 how to protect themselves, how to prosper, and that brings 0:18:16.000 --> 0:18:20.000 in the role of hedging. And and it's the hedging, 0:18:20.480 --> 0:18:24.000 and it's the thousands of decisions taking which aligne and 0:18:24.080 --> 0:18:27.320 create market prices, and they create interest rate levels, They 0:18:27.359 --> 0:18:31.119 create expectations of where we will be, and those expectations 0:18:31.359 --> 0:18:42.160 are distinct and at odds with the federal result. Let's 0:18:42.200 --> 0:18:45.760 talk about the dollar. You sort of describe the sort 0:18:45.800 --> 0:18:49.479 of post Briton Wood system is having been broken since 0:18:49.880 --> 0:18:52.800 uh since two thousand seven or since two thousand eight, 0:18:52.800 --> 0:18:57.680 but nothing has clearly replaced it. There's no obvious new regime. 0:18:59.280 --> 0:19:01.320 As I said in intro and his lot, you know, 0:19:01.400 --> 0:19:03.080 people are like, okay, this is the end, this is 0:19:03.119 --> 0:19:05.399 the start. People are going to find some alternative because 0:19:05.400 --> 0:19:09.320 they don't like seeing that FX reserves can suddenly disappear. 0:19:09.640 --> 0:19:12.800 What is Is there something new? I mean, what is 0:19:12.800 --> 0:19:15.800 is is there a threat to the existing order? Is 0:19:15.840 --> 0:19:18.760 something new? You're going to replace it? Okay? So classification 0:19:19.040 --> 0:19:22.920 bread and woods, I said, began to be the unwound 0:19:22.960 --> 0:19:26.320 in a kind of somewhat private like undisclosed manner, by 0:19:26.359 --> 0:19:31.080 the emergence of the euro dollar market. Yes, yes, the 0:19:31.160 --> 0:19:32.800 end of the year. Yes, sorry, the end of the 0:19:32.800 --> 0:19:36.119 euro dollar regime, as you say, began to break in 0:19:36.520 --> 0:19:38.520 two thousand and seven. But what we can say is 0:19:38.560 --> 0:19:40.600 we can say that you know, originally we had a 0:19:40.640 --> 0:19:44.240 gold system and then we kind of dialed that back 0:19:44.560 --> 0:19:48.080 after the mass of the nineteen thirties that we have 0:19:48.320 --> 0:19:51.240 increasingly deployed U S dollars, So it was U S 0:19:51.280 --> 0:19:54.160 dollars with gold, you know, with the ability to redeem 0:19:54.200 --> 0:19:58.639 and receive gold um and then it became essentially a 0:19:58.880 --> 0:20:03.359 dollar based collap That is what the eury dollar system is. 0:20:03.400 --> 0:20:05.800 It's a dollar based collateral. So it's a dollar it's 0:20:06.000 --> 0:20:09.679 a dollar system, so whatnot. And it's and that is 0:20:09.760 --> 0:20:18.080 still the prevailing system. The problem, however, is profound conservatism 0:20:18.160 --> 0:20:23.000 on the part of banks, right because they messed up, right, 0:20:23.200 --> 0:20:27.600 they took too much juice from the fountain in the 0:20:27.640 --> 0:20:31.720 early two thousand's and they kind of they went busted. 0:20:31.880 --> 0:20:35.800 It wasn't for the extreme financial intervention, which I welcome 0:20:36.240 --> 0:20:38.880 by the Federal Reserve, we would have been talking great 0:20:38.880 --> 0:20:41.760 depression too. As it is, we're talking about a mild depression. 0:20:41.880 --> 0:20:45.199 So the problem you have is that that facility is 0:20:45.240 --> 0:20:51.120 still there, but it's encumbered by profound conservatism. And let 0:20:51.119 --> 0:20:53.800 me take that in. Let me take that into this 0:20:53.880 --> 0:20:58.480 weird tangent. I believe ext markets are not in a bubble, 0:20:58.680 --> 0:21:00.600 or if I was to caveat, i'd say, I want 0:21:00.640 --> 0:21:05.320 to say, like of listed stocks are not in a bubble, 0:21:06.000 --> 0:21:10.920 and even those which have profoundly high valuations, and there 0:21:11.080 --> 0:21:14.480 are not many, but the pinnacle of it would be Apple. 0:21:14.840 --> 0:21:17.320 You know, two and a half trillion dollars. You know, 0:21:17.440 --> 0:21:20.119 a few weeks ago was three trillion dollars, which is 0:21:20.160 --> 0:21:25.080 to say, was capitalized greater than the market capitalization of 0:21:25.080 --> 0:21:27.720 all German stocks, you know, the the notion that we 0:21:27.760 --> 0:21:30.919 have those kind of five fang stocks, you know, without 0:21:31.000 --> 0:21:35.560 the Ali Baba greater than the value of Japan, So 0:21:36.080 --> 0:21:41.520 stock single US corporations trading greater than the value of 0:21:41.640 --> 0:21:45.200 the stock markets of great sovereigns. And even then, I 0:21:45.600 --> 0:21:48.600 still want to say, I struggle to say that that's 0:21:48.640 --> 0:21:50.800 a bubble, and I want to relate that to the 0:21:50.800 --> 0:21:54.159 euro dollar market, because what it's saying is it is 0:21:54.200 --> 0:21:59.399 the pinnacle of this conservatism. Um. Like I say, a 0:21:59.520 --> 0:22:05.040 mild oppression. Commercial risk it's scary if you're a banker, 0:22:05.440 --> 0:22:08.159 is something that can bite you in the proverbio's you 0:22:08.200 --> 0:22:11.119 can it can affect your career. And so there is 0:22:11.160 --> 0:22:15.960 a crowding in two businesses which are perceived to be 0:22:16.160 --> 0:22:20.359 devoid of commercial risk, and now nothing is devoid. But 0:22:20.400 --> 0:22:23.840 then we have again, we have this remarkable incident of 0:22:23.880 --> 0:22:28.600 the virus where we have, you know, an unprecedented plunge 0:22:29.040 --> 0:22:32.600 in economic activity. And so that reveals again it's like 0:22:32.600 --> 0:22:35.240 the tide goes down and you're like, wow, these guys, 0:22:35.240 --> 0:22:38.959 their their profits were intact, their profits were up, Like 0:22:39.040 --> 0:22:42.280 all that happens. These guys just don't have risk. So 0:22:42.560 --> 0:22:46.639 what happens where is when when you can conceive of 0:22:46.680 --> 0:22:52.600 a business as being risk less, it becomes price less. 0:22:52.920 --> 0:22:56.720 You know, there is no upper bound to the valuation 0:22:57.000 --> 0:23:00.280 of such businesses. And it's the same phenomena when we 0:23:00.320 --> 0:23:03.920 had treasuries yielding forty basis points and of course negative 0:23:03.960 --> 0:23:07.440 basis points with the European sovereigns that I'm really really 0:23:07.440 --> 0:23:10.000 going to hack all for your listeners because again I'm 0:23:10.040 --> 0:23:12.680 going to go against all the propaganda. They get stuff 0:23:12.720 --> 0:23:15.160 done on every single day that is not a cause 0:23:15.200 --> 0:23:19.199 of the Federal Reserve or central banks buying treasuries. Okay, Um, 0:23:19.640 --> 0:23:22.439 there's there's no need for them to buy. The private 0:23:22.480 --> 0:23:26.160 sector can't get enough of those damned treasuries. And why 0:23:26.160 --> 0:23:28.240 does it need the treasuries because it needs the treasuries 0:23:28.359 --> 0:23:31.520 for the collateral to support and to create money. So 0:23:31.720 --> 0:23:34.399 that's why there's been a log jam. No, no, no, 0:23:34.600 --> 0:23:40.320 So Russia reserves okay, so reserves Okay. And again, if 0:23:40.320 --> 0:23:45.280 I haven't annoyed or aggravated your listeners enough, hey, I'm 0:23:45.320 --> 0:23:47.080 going to stay. I feel like you have a low 0:23:47.119 --> 0:23:51.840 opinion of our listeners. They're gonna yeah, keep going. People 0:23:51.880 --> 0:23:53.800 on Twitter. And when I say the B words, the 0:23:54.760 --> 0:23:57.800 screw light up. Now what is the B word? Don't worry? 0:23:57.800 --> 0:24:02.800 Don't worry. Uh. Let so let's preface it. The US 0:24:03.000 --> 0:24:07.520 makes lots, makes a ton of damn stupid mistakes. It 0:24:07.600 --> 0:24:11.199 gets careless, um it has you know, hey, like we 0:24:11.280 --> 0:24:15.840 all have dumb as politicians, um and and they make 0:24:15.920 --> 0:24:20.840 some you know, dumb unwise decisions and and sometimes that's 0:24:20.960 --> 0:24:27.240 militarily and it's overreach um and and wrong. Okay, But 0:24:27.880 --> 0:24:31.480 despite all of that, I'm gonna say that the US 0:24:31.720 --> 0:24:36.280 is like an empire, and it's a benevolent empire. The 0:24:36.480 --> 0:24:42.359 empires that have duration that persist, they persist owing to 0:24:42.640 --> 0:24:47.440 a form of benevolence. Right now, it's a self interesting 0:24:47.440 --> 0:24:49.760 you know that, it's a you know, it's we can 0:24:49.840 --> 0:24:52.760 keep in all of our Scottish economists and whatever in 0:24:52.760 --> 0:24:56.399 our invisible hand. Um is benevolence, which is on the 0:24:56.400 --> 0:24:58.880 basis that we will possiper from this. But for us 0:24:58.920 --> 0:25:04.720 to prosper we have to invest and encourage prosperity with 0:25:04.800 --> 0:25:08.080 our neighbors. So priming you know. The prime example, you know, 0:25:08.119 --> 0:25:11.080 the Second World War. We have the Marshall Plan and 0:25:11.160 --> 0:25:15.280 the US funds direct and guess the region back on 0:25:15.400 --> 0:25:19.720