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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: Welcome to the podcast. This week, my special guest is

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Speaker 1: Paul McCully. Paul has been chief Economists, bond desk manager,

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Speaker 1: a whole number of roles, UH, member of the investment community,

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Speaker 1: and perhaps the most important confidante of Bill Gross at

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Speaker 1: PIMCO for many, many years. He is now squasi retired.

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Speaker 1: He's in his um mid to late fifties, and I

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Speaker 1: believe he's gonna eventually find his way to some Ivy

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Speaker 1: League school UM as a professor. He's he's far too experienced, knowledgeable,

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Speaker 1: and and a great communicator to to just retire and

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Speaker 1: let those skills waste. He'll he'll find his ways to

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Speaker 1: a professorship somewhere. We have a long and and really

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Speaker 1: fascinating conversation about the Federal Reserve and the financial crisis,

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Speaker 1: the state of the global economy, what's going on in

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Speaker 1: inflation and deflation. We really talked about everything and anything,

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Speaker 1: and as you'll hear, he can wax eloquent on just

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Speaker 1: about any subject intremendous depth. I can re regale you

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Speaker 1: and recount some of the highlights, but I don't wanna

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Speaker 1: reveal any spoilers, So rather than me doing my usual

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Speaker 1: five minute babble to start the podcast, instead, I'm just

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Speaker 1: gonna say, without any further ado, my conversation with Pimco's

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Speaker 1: Paul McCulley. This is Masters in Business with Barry Ridholts

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Speaker 1: on Bloomberg Radio. My special guest this week is Paul McCulley.

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Speaker 1: He is probably best known as the chief economist and

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Speaker 1: Managing director at PIMCO, where he served from two thousand

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Speaker 1: and Tenna's that about right, with a little stint afterwards, UH,

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Speaker 1: sort of a return visit. Uh. Got his MBA from

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Speaker 1: Columbia Business School, headed pimco's short term bond desk, led

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Speaker 1: the cyclical economic forums, and was a member of the

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Speaker 1: Investment committee named to the Institutional All America Fixed Income

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Speaker 1: Research Team. That I get that right, I really. I

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Speaker 1: think of Paul as one of the most astute fed

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Speaker 1: watchers there is. He's often on the shortlist as a

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Speaker 1: potential f O m c role. McCully coined the term

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Speaker 1: Minsky moment in response to the Russian uh financial crisis,

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Speaker 1: and is rumored to have coined the phrase shadow banking system.

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Speaker 1: More than a rumor that you get full credit for that. Currently,

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Speaker 1: he's a member of the board of the Global Interdependent Center,

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Speaker 1: better known as g i C. It's a thin tank

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Speaker 1: in Philly, and pretty much what are doing these days

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Speaker 1: is thinking, writing, and speaking. Is that, uh, the way

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Speaker 1: you like to describe it? Yeah, it is. I'm first

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Speaker 1: gamefully unemployed, meaning that I'm retired, but I'm not retired

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Speaker 1: from the things that I love doing. Uh. And it

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Speaker 1: really comes down to global macro and I think about it,

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Speaker 1: I write about it, and I give about one lecture

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Speaker 1: or speech a months. So right now that's what I'm doing.

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Speaker 1: I'm getting more closely involved in the academic arena uh

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Speaker 1: and may end up in the next six months as

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Speaker 1: an adjunct professor at some esteemed institution, but that's still

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Speaker 1: in the works. But right now I like to uh uh,

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Speaker 1: to think and write and speak. And uh. I when

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Speaker 1: I speak for nonprofits and for academics, the prices zero,

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Speaker 1: and occasionally I speak for a for profit and the

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Speaker 1: price is a large number. So it's either zero are

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Speaker 1: large number. So we could describe you as gainfully retired exactly,

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Speaker 1: all right, And and you're in your fifties, you're not

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Speaker 1: a really a retirement age. You're looking to do something.

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Speaker 1: By the way, I forgot to say, Paul McCulley, welcome

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Speaker 1: to Bloomberg. Thanks good so so nice to have you here. UM.

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Speaker 1: So let's start out talking a little bit about your background.

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Speaker 1: I know you're you're a Virginia boy, right, is that

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Speaker 1: where you're from. I grew up in rural Virginia outside

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Speaker 1: of Stanton, Virginia, which is down in the General Valley

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Speaker 1: of Virginia, about three hours southwest of UH of Washington,

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Speaker 1: d CE, A beautiful area. I grew up there as

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Speaker 1: a Baptist minister's son and graduated from high school UH

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Speaker 1: in nineteen and seventy five, went to Grennell College out

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Speaker 1: in Iowa. So so from how green is your valley

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Speaker 1: to Iowa to New York City, that's kind of a surprising,

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Speaker 1: uh way to bounce around. Yeah, it is Grannelle. I'm

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Speaker 1: on the board of trustees at Grannelle and have been

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Speaker 1: so for a number of years. Is a special place

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Speaker 1: in my life and heart. And that they recruited me

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Speaker 1: uh in nineteen seventy five as a hit from Virginia. UH.

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Speaker 1: Grannelle is a small, private liberal arts college traditional liberal

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Speaker 1: arts education. Learned a lot about a lot of different

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Speaker 1: things and be able to use it in a variety

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Speaker 1: of applications. Learn how to think, not just be an

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Speaker 1: expert in a narrow space. Can we do UH an

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Speaker 1: infomercial for you for Grannell? I mean, that's that's what

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Speaker 1: That's what a good liberal arts education is about. UH.

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Speaker 1: And Grannell is a national college UH. And part of

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Speaker 1: their endeavor in recruiting UH is that they literally buy

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Speaker 1: the list from the S A T people who do

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Speaker 1: of students throughout the country who do well A and

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Speaker 1: B might need some financial help in order to go

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Speaker 1: to Grannell. Where were they when I was in high school?

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Speaker 1: So I came up on their meter on the SS

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Speaker 1: A T S of a kid from rural Virginia. Put

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Speaker 1: the two together, UH, and they started talking to me.

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Speaker 1: And then the third factor is that I was a

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Speaker 1: runner UH in UH in high school. I was six

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Speaker 1: in the state of Virginia my senior year in cross country,

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Speaker 1: and the cross country coach at Grannell College sitting maybe

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Speaker 1: we got a hat trick here? So how do you

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Speaker 1: go from Grennell to NBA at Columbia. That was just

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Speaker 1: an old fashioned sort of process, and that when I

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Speaker 1: was graduating UH from Grennell with a degree in economics,

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Speaker 1: I wanted to go to business school and looked at

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Speaker 1: the brand name business schools, and I was intrigued by

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Speaker 1: by Columbia. I had never been to New York City

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Speaker 1: before UH, and applied and for some reason I was accepted.

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Speaker 1: And I say for some reason, and that I was

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Speaker 1: twenty two and went straight from college to business, nothing

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Speaker 1: in between, nothing in between. And I understand that that

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Speaker 1: is just not done anymore. They want people to have

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Speaker 1: a year or two of real world experience. Yeah. I

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Speaker 1: think in my class at Columbia, ten of us were

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Speaker 1: the kids who went straight from college. So I got

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Speaker 1: out of UH of Columbia twenty four, relatively young to

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Speaker 1: have an m b A. And and to the world.

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Speaker 1: So a couple of questions about Columbia. A couple of

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Speaker 1: weeks ago, we had Leon Cooperman of Omega Advisors, and

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Speaker 1: he couldn't be more effusive in praise for his Columbia experience.

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Speaker 1: He still buds with some of his classmates, one in

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Speaker 1: particular Mario ga Belly also Art Sandberg, formerly of Pequad.

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Speaker 1: What really stood out to you about Columbia and any

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Speaker 1: people you're still tight with from back in those days.

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Speaker 1: I really enjoyed my two years at Columbia because it

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Speaker 1: gave me a chance to more from economics, and that's

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Speaker 1: really what I was about as an undergrad UH into

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Speaker 1: finance and markets. So I think my two years at

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Speaker 1: Columbia really gave me the melding of economics and finance,

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Speaker 1: which set me up nicely for what turned out to

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Speaker 1: be the rest of my career. You're listening to Masters

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Speaker 1: in Business on Bloomberg Radio. My special guest today Paul McCulley.

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Speaker 1: He was chief economist at PIMCO for UH, really fascinating

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Speaker 1: period of time, the dot com collapse, throughout the two thousands,

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Speaker 1: the financial crisis. One of the things I'm curious about is,

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Speaker 1: so you go to Columbia to get your m b A.

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Speaker 1: They're really known as a deep value shop on the

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Speaker 1: equity side, yet you end up running a bond desk

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Speaker 1: as well as doing the global macro How did that

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Speaker 1: come about? Columbia is known as a stockhouse when you

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Speaker 1: think in terms of the famous graduates. Uh. I'm a

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Speaker 1: macro economist who also loves finance and try to merge

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Speaker 1: the two, which ultimately was the reason I became such

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Speaker 1: a Minsky I, if you will, of macro and finance. Uh.

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Speaker 1: And I learned all the appropriate equity models, which was

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Speaker 1: a good thing while I was at Colombia. But actually

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Speaker 1: I did not get a job immediately on Wall Street

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Speaker 1: in nineteen eight one. Remember nineteen eight one was not

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Speaker 1: a really great time for Wall Street. I was a

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Speaker 1: twenty four year old kid with a deep Southern accent,

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Speaker 1: and I interviewed with all the major players because I

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Speaker 1: did well there and didn't get a job from Morgan

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Speaker 1: Stanley or Goldman Sachs or any of the major players. Uh.

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Speaker 1: So I took a job from my first two years

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Speaker 1: out of Columbia UH working for Concho, a division of

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Speaker 1: at that time DuPont UH. And my first two years

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Speaker 1: were at a speech writer for the executives of Kanaka. Really,

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Speaker 1: that's fascinating. That was the first thing I did was

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Speaker 1: actually as a ghostwriter for the executives, doing ahbeds and

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Speaker 1: speeches and that sort of thing. And I got my

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Speaker 1: first job on Wall Street and that teen and eighty

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Speaker 1: three at E. F. Hunton. Oh. Really, we've had plenty

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Speaker 1: of EF hunting people passed through here. In fact, IF

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Speaker 1: Hunton seems to have been a huge feeder, obviously the

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Speaker 1: spin out of Lehman Brothers, but also I know a

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Speaker 1: lot of people who ended up going from IF Hunton

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Speaker 1: to bear Sterns and EF Hunton to a number of

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Speaker 1: other shops. So how do you go from if Hunton?

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Speaker 1: Ultimately you between IF Hutton and Pimco, you find your

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Speaker 1: way to UBS, which I think was Warburg at the time. Yeah,

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Speaker 1: it was. It's kind of I haven't thought about my

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Speaker 1: CV in a long period of time. Got to updated.

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Speaker 1: It's a little skimpy, A little skimpy. Actually. The story

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Speaker 1: of of nineteen eighty three when I went to F Hutton,

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Speaker 1: uh Eddie Ardini had been the chief of of EF Hutton.

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Speaker 1: In fact, I had studied under Eddie when he was

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Speaker 1: an adjunct professor at Columbia, and it turned out he

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Speaker 1: had left and went to prove there's been a big

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Speaker 1: sort of movement at Proof for a long time. And

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Speaker 1: when he left E. F. Hutton there was an economist

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Speaker 1: in corporate finance there with the PhD from Hopkins named

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Speaker 1: Bob Barbera. So they put him into action as the

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Speaker 1: chief economist and he was looking for a number two

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Speaker 1: who understood finance because he was an energy economist. So

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Speaker 1: Bob and I worked together UH for four years, great

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Speaker 1: relationship between three and nine seven, and then I left

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Speaker 1: for three years to go work for Columbia Savings and

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Speaker 1: Loan in Beverly Hills, California for Tom Spiegel back during

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Speaker 1: the milk and days. Sure. UH worked there for three years,

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Speaker 1: not in junk bonds, but in running interest rate risk

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Speaker 1: for the SNL and then jump bonds blew it up.

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Speaker 1: And then I went to Pimco in nineteen So, so

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Speaker 1: did you first trip to California? Was that the first time?

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Speaker 1: First experience at West or had you been there previously?

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Speaker 1: I had traveled during my E. F. Hutton days to California,

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Speaker 1: But my move to California, UH, the first time was

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Speaker 1: in nineteen and eighty seven. I spent three years working

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Speaker 1: with Columbia in the Drexel Hub UH, and then Bill

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Speaker 1: Gross gave me a job when I was unemployed in

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Speaker 1: nineteen nine. So how long will you at Pimco Ford?

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Speaker 1: In total? I was two years there between ninety and

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Speaker 1: ninety two, UH, and then I got the job as

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Speaker 1: chief economists for U b S and I did that

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Speaker 1: for seven years until back to nine and Bill Gross

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Speaker 1: called me up and said, you're coming home, and I

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Speaker 1: came home. So, so let's talk a little bit about Bill,

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Speaker 1: because I he we've had him on the show. I

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Speaker 1: find him to be a fascinating guy. Um, what was

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Speaker 1: it like working with somebody who is, you know, larger

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Speaker 1: than life. Uh, he's supposed to be a tough character

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Speaker 1: to work for. I've known Bill for twenty five years,

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Speaker 1: and I've known him well for twenty five years. So

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Speaker 1: it's kind of hard to give you just a snapshot

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Speaker 1: of Bill because my life experience with Bill is a

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Speaker 1: movie from an unemployed kid in nineteen nine, uh to

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Speaker 1: literally last year when I suited up one more time

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Speaker 1: at his personal request as a personal friend for four

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Speaker 1: months last year. So it's a very long, uh movie

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Speaker 1: with me, A wonderful movie. Uh. He is a fascinating person.

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Speaker 1: Incredibly smart, uh sometimes incredibly stubborn, right I get that sense.

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Speaker 1: Also a absolute huge heart, but has it exceedingly well.

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Speaker 1: He told us some really interesting stories about walking around,

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Speaker 1: you know, Newport Beach in the nineties and the two

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Speaker 1: thousands and people asking him, Hey, Bill, what do we

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Speaker 1: do with our money, and he would stop and say,

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Speaker 1: look at this fun this is something that makes might

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Speaker 1: make sense to you. He seems very accessible to people,

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Speaker 1: very uh, very real. You also worked with him in

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Speaker 1: Muhammad Alarian. What's it like having to really smart outsized

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Speaker 1: personalities and you're kind of in the middle. How is

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Speaker 1: that as an experience? I know both men exceedingly well,

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Speaker 1: and both men are close personal friends of mine. They're

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Speaker 1: exceedingly different, and I think that's why there marriage and

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Speaker 1: that's what it was lasted for as long as it

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Speaker 1: did very effectively, uh, by any measure that was. I

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Speaker 1: know everybody focuses on the acrimonious divorce, but that was

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Speaker 1: a tremendously successful period in pimco's history. It really really was.

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Speaker 1: Mohammad came back from Harvard uh, and that was right

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Speaker 1: before we went into the men Sky moment. We were prepared, UH.

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Speaker 1: We had our risk management and order UH. And for

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Speaker 1: the following number of years. UH, it was truly Camelot.

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Speaker 1: So the one real important question I have to ask

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Speaker 1: about PIMCO. Their growth corresponded with a tremendous bond bull market,

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Speaker 1: a thirty plus year bond bull market, but every other

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Speaker 1: bond manager had the same wind that at their back.

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Speaker 1: What did PIMCO do that allowed them to capitalize on

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Speaker 1: that market so much better than just about everybody else?

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Speaker 1: Thank There a lot of factors. First and foremost is

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Speaker 1: the pure genius of the founders. And there were three founders,

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Speaker 1: not just Gross, but Jim Muzzy and Bill Podlick. Bill

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Speaker 1: Podlick was an amazing businessman, Jim Muzzy, they're all three alive.

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Speaker 1: Jim Muzzy is an amazing client man and marketing man,

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Speaker 1: and Bill Gross is an amazing investor. So from the

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Speaker 1: beginning of the firm, they had a division of labor

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Speaker 1: is you run the business, you run the clients, and

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Speaker 1: I run the money. Uh. And so therefore there was

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Speaker 1: a clear articulation of whose job was whose job, And

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Speaker 1: the three men who ran the place from the beginning

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Speaker 1: did an extraordinary job of doing their jobs and cooperating.

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Speaker 1: So I think the part of it is the genius

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Speaker 1: of the organizational structure, sure, and the three men who

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Speaker 1: were the founders. I think that's hugely important because I

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Speaker 1: look at a lot of other competitors and they've never

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Speaker 1: really quite grasp that it is a three part business,

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Speaker 1: and that you can be really good at one part

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Speaker 1: but maybe not the other two. So I think that

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Speaker 1: is a key factor, another factor, And here I simply

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Speaker 1: have to take my hat off to Bill Gross. Uh.

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Speaker 1: He's brilliant. Uh. He is a macro thinker. Uh. And

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Speaker 1: also he is a very good marketer. So in the

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Speaker 1: last minute we have, let me ask you this related question.

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Speaker 1: Did it become harder and harder to keep delivering the

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Speaker 1: sort of performance numbers the firm became known for as

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Speaker 1: the size uh continue to grow or was that just

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Speaker 1: something that had to be dealt with that everybody deals

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Speaker 1: with as they grow. Bill has spoken to this, and

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Speaker 1: I think you spoken the truth. By definition, it gets

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Speaker 1: harder the bigger you are. You're listening to Masters in

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Speaker 1: Business on Bloomberg Radio. My special guest this week is

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Speaker 1: Paul McCulley. He was chief economist and part of the

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Speaker 1: investment committee at PIMCO for quite a long time. Let's

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Speaker 1: talk a little bit about this global economy which seems

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Speaker 1: to be a little bit influx. First question, inflation, disinflation

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Speaker 1: or deflation from a global perspective of the predominant tail wind?

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Speaker 1: Is disinflation if not deflation. Describe the difference between the

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Speaker 1: two for listeners who may not pick up the nuances

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Speaker 1: between them. Disinflation is a slow down in the rate

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Speaker 1: of inflation, so rices are still rising, but rising at

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Speaker 1: a slower rate. Where deflation is actually a fall in prices.

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Speaker 1: And we're experiencing deflation and a lot of commodity with

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Speaker 1: everyone knowing about oil. That's deflation, whereas disinflation would be

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Speaker 1: just a very very slow and slower rate of increase,

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Speaker 1: slowing inflation as opposed to falling process. Perfect example, suppose

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Speaker 1: you've got a three percent raise last year and this

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Speaker 1: year you've got a one percent raise. You experience disinflation.

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Speaker 1: You went from a three percent raise to a one

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Speaker 1: percent raise. If your boss cut your pay by three percent,

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Speaker 1: you experienced deflation, actual deflation. So you you mentioned oil,

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Speaker 1: let's talk about it. Oil peaked last year at a

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Speaker 1: hundred and twelve dollars. It's now running in about forty

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Speaker 1: three dollars. That's a six decrease. So the two questions

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Speaker 1: that everyone wants to know, what are the causes of this?

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Speaker 1: I don't know if that's all that challenging of a question.

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Speaker 1: With the dollar rate multi year eyes, massive supplies come

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Speaker 1: online and softening of demand. The more important question is

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Speaker 1: what are the implications of this failing oil price? Oil price?

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Speaker 1: What does this mean to the US, What does it

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Speaker 1: mean to countries like China and the global economy? And

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Speaker 1: feel free to completely disagree with my causes, No, I

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Speaker 1: think I agree with your causes. I would put the

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Speaker 1: dollar at the low at the low end of my list.

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Speaker 1: At the highest end is the fact that at a

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Speaker 1: hundred dollar plus for oil and technology, you had an

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Speaker 1: incredible economic incentive to increase supply, and we did, and

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Speaker 1: huge we did, and huge and so and supply outstrip demand.

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Speaker 1: OPEC sucked it up, Saudi Arabia sucked it up and

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Speaker 1: kept the price up there. But ultimately the sheer force

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Speaker 1: of increased supply meant that if Saudi Arabia continued the

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Speaker 1: game and tried to defend it at a hundred, they

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Speaker 1: would not be in the all production business anymore. Uh.

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Speaker 1: So that was the underlying economics micro economics of that

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Speaker 1: is that a hundred didn't work. Uh And I don't

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Speaker 1: know if forty works, but clearly forty is more likely

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Speaker 1: to work than a hundred. And now we have my

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Speaker 1: ran coming online as well. How what's that going to

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Speaker 1: do to it? It's certainly is relative to where we

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Speaker 1: were going to increase supply. And global demand has been

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Speaker 1: exceedingly weak because global economic activity. Global agree demand has

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Speaker 1: been weak ever since the financial crisis for two thousand

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Speaker 1: and eight UM. And I think demand for oil really

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Speaker 1: is more a function of growth than it is the price. Uh.

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Speaker 1: And right now, the demand side is impacted negatively by

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Speaker 1: weak growth. And you've got supplies out of a flood.

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Speaker 1: So you put two and two together and you get

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Speaker 1: forty buck oil. There you go. And you know, when

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Speaker 1: you're growing robustly, it almost doesn't matter what the price

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Speaker 1: of oil is. We needed bring it in, but let's

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Speaker 1: just just get it in here knowing thinks twice about it. Yeah,

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Speaker 1: and walk terms uh And the short run, the demand

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Speaker 1: for oil is a whole lot more income elastic than

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Speaker 1: it is price elastic. So let's let's talk about So

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Speaker 1: we've seen, for lack of a bit of word punk

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Speaker 1: growth ever since the crisis. The US seems to be

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Speaker 1: leading in the recovery, behind US as Japan. Behind Japan

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Speaker 1: is Europe. What's it gonna take to see global growth returned?

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Speaker 1: To forget five percent of four percent, how about three

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Speaker 1: percent in the United States and three percent in Europe.

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Speaker 1: I'm not looking for a return to robust global growth

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Speaker 1: for a long long time, and there are several reasons

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Speaker 1: for that. First and foremost is my diagnosis of the

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Speaker 1: breaking growth going back to two thousand and eight and

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Speaker 1: the years prior to the financial crisis. You had a

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Speaker 1: financial sector boom. You had a private sector borrowing boom.

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Speaker 1: We all know about it in the housing sector here,

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Speaker 1: but also the Club Med countries in Europe had a

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Speaker 1: massive private sector boom and borrowing, so you were driving

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Speaker 1: growth with increased private leverage. Every since then, the private

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Speaker 1: sector has been de levering, either outright or slowing its

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Speaker 1: pace of debt accumulation. So you've had a negative from

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Speaker 1: the private sector because of de levering. Now, logic, good

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Speaker 1: old fashioned Keynesian logic from where I live and breede,

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Speaker 1: would suggest if the private sector is in force de levering,

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Speaker 1: the government sector should go the other direction in order

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Speaker 1: to maintain adequate aggregate demand. You're listening to Master in

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Speaker 1: Business on Bloomberg Radio. My special guest this week is

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Speaker 1: Paul McCulley. He served as chief economist, head of one

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Speaker 1: of the bond desks, and member of the investment committee

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Speaker 1: at PIMCO for many years. Earlier, we started talking about

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Speaker 1: Europe and that leads to the Federal Reserve. So let's

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Speaker 1: let's hold off on Europe and Japan for that matter,

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Speaker 1: and talk about the financial crisis here and the Federal

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Speaker 1: reserves response. So, first question, what did the FED get right?

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Speaker 1: What did they do right that a lot of people

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Speaker 1: don't seem to really understand. I think the Fed has

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Speaker 1: done a huge amount of things that are right every

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Speaker 1: since the financial crisis. I can argue with some of

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Speaker 1: the technical details of this, that or the other, but

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Speaker 1: the broad thrust of monetary policy every since the financial

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Speaker 1: crisis has been spot on. So zero interests policy, quantitative easing,

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Speaker 1: all of the regulation they've put in the place, stress

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Speaker 1: tests for the banks. You're you like all of that. Yeah,

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Speaker 1: I'm a big believer that they did a mosaic of

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Speaker 1: good things. And remember, the regulatory side of things is

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Speaker 1: not just the Federal Reserve. You know, Frank, you have SEC,

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Speaker 1: you have a whole bunch of other the f D,

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Speaker 1: I see, there a whole bunch of other regulatory agency yeah, exactly.

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Speaker 1: We now have an f sock. So therefore we have,

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Speaker 1: you know, this collection of regulatory agencies and the FEDS

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Speaker 1: part of that. But from pure monetary policy, I think

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Speaker 1: they have been spectacular. And I want to speak to

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Speaker 1: quantitative easing UM. And quantitative easing has two impacts. One,

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Speaker 1: which is what the market tends to focus on, is

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Speaker 1: the sheer supply demand effect that the balance sheet balance

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Speaker 1: their buying duration out the marketplace, which was you know,

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Speaker 1: the uh uh, the notion that somehow they're gonna bloom

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Speaker 1: their balance sheet and we're gonna have you know, hyper inflation,

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Speaker 1: those ups of the dollar, hyper inflation, five thousand dollar gold,

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Speaker 1: all of that nonsense. And that's the only thing I

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Speaker 1: can say politely about it. That we heard six years

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Speaker 1: ago was nonsense. And those who were spouting it, oh

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Speaker 1: the world and apology and they old Ben Bernankee personally,

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Speaker 1: an apology. When you're in a liquidity trap, uh, you

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Speaker 1: go to zero for interest rates, nothing much happens in

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Speaker 1: the private sector because the private sector is delevering. So

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Speaker 1: you do what's next, which is quantitative easing, which has

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Speaker 1: an impact in directly pulling down UM long term interest rates.

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Speaker 1: But the bigger impact or quantitative easing is a commitment

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Speaker 1: device for forward guidance. Because forward guidance is a new

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Speaker 1: tool that the FED has been using. Word zero and

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Speaker 1: we're gonna stay at zero for an extended period of

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Speaker 1: time or until we do this quote. That was literally

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Speaker 1: the language that the US so because the bond market

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Speaker 1: is nothing more than a forward curve on expected Fed

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Speaker 1: policy plus a risk premium. So therefore forward guidance is

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Speaker 1: reinforced by quantitative easing. And if there was ever any

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Speaker 1: question about that, it was last year with the whole

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Speaker 1: taper UH issue and the Fed said, well, we're thinking

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Speaker 1: about tapering, and the market went crazy and said, the

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Speaker 1: next thing that's gonna happen is the Fed is gonna

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Speaker 1: hike short term interest rates UH, And the Fed had

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Speaker 1: to do a great deal of communications work to say no,

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Speaker 1: we're still at zero. Taper means tapering off the purchases

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Speaker 1: of bonds, not tapering away from zero. Right. But but

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Speaker 1: the fact that we had that experience underscores the notion

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Speaker 1: that the power for me anyway of que was as

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Speaker 1: a commitment device. As long as we're doing que que,

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Speaker 1: there is zero discussion of getting off for zero. So

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Speaker 1: the moment they said we're gonna taper, que people said,

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Speaker 1: well now we need to start contemplating when they're gonna

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Speaker 1: get off a zero. And the FED had the massage

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Speaker 1: the market psychic on the whole thing. So I think

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Speaker 1: zero is right. I think Quee was right. I think

428
00:28:26,240 --> 00:28:29,720
Speaker 1: the regulatory things they did were right. Working in tandem

429
00:28:29,800 --> 00:28:34,199
Speaker 1: with Treasury on TARP was right. Uh, they saved us

430
00:28:34,240 --> 00:28:37,280
Speaker 1: from another great depression? Is your position? Absolutely? And I

431
00:28:37,440 --> 00:28:41,120
Speaker 1: hear by the way, I hear heads exploding all over

432
00:28:41,200 --> 00:28:44,800
Speaker 1: the audience listening. Um, So let me ask you two

433
00:28:44,880 --> 00:28:47,800
Speaker 1: questions and see if those people can settle down that

434
00:28:47,840 --> 00:28:51,320
Speaker 1: are related to this. First, we have the September meeting

435
00:28:51,360 --> 00:28:53,600
Speaker 1: coming up. Should we still be at zero today? Should

436
00:28:53,600 --> 00:29:00,720
Speaker 1: we have moved off of zero? Previously hard question. I

437
00:29:00,800 --> 00:29:05,080
Speaker 1: don't know what the FOMC is gonna do in September.

438
00:29:05,280 --> 00:29:08,920
Speaker 1: The case for getting off of zero is not because

439
00:29:09,080 --> 00:29:13,120
Speaker 1: we have an incipient inflationary problem. It is simply not.

440
00:29:13,880 --> 00:29:18,960
Speaker 1: I look at getting off zero as declaring victory and

441
00:29:19,200 --> 00:29:23,880
Speaker 1: getting out of the liquidity trap, or put differently, a

442
00:29:24,160 --> 00:29:29,880
Speaker 1: valedictory of graduating UH. With the FED being at the

443
00:29:30,000 --> 00:29:36,200
Speaker 1: top of the class getting out off of zero uh uh.

444
00:29:36,480 --> 00:29:41,120
Speaker 1: And actually I think the FED should get extraordinary applause

445
00:29:41,560 --> 00:29:44,360
Speaker 1: for getting us out of a liquidity trap, because the

446
00:29:44,520 --> 00:29:47,680
Speaker 1: textbook that I studied and you studied set in a

447
00:29:47,760 --> 00:29:52,000
Speaker 1: liquidity trap when the private sector is delevering, you should

448
00:29:52,080 --> 00:29:56,920
Speaker 1: use physical policy, uh to stimulate aggregate demand. That that

449
00:29:57,120 --> 00:30:01,120
Speaker 1: was the argument that since Congress had abandoned their traditional role.

450
00:30:01,800 --> 00:30:04,840
Speaker 1: You look at the two thousand two thousand one recession,

451
00:30:05,600 --> 00:30:08,600
Speaker 1: there was a huge fiscal stimulus, huge task cutch, huge

452
00:30:08,640 --> 00:30:12,120
Speaker 1: spending increases. They were a wall. The FED was pretty

453
00:30:12,160 --> 00:30:14,479
Speaker 1: much the only game in town, weren't they They were

454
00:30:14,560 --> 00:30:17,600
Speaker 1: the only game in town, and they didn't want to be.

455
00:30:18,600 --> 00:30:20,520
Speaker 1: But if you're the only game in town and you

456
00:30:20,680 --> 00:30:24,880
Speaker 1: have a congressional mandate to avoid another depression, you do

457
00:30:25,320 --> 00:30:29,040
Speaker 1: what you can do. It doesn't mean that you like it.

458
00:30:29,400 --> 00:30:32,000
Speaker 1: I don't think Ben Bernanke liked doing some of the

459
00:30:32,120 --> 00:30:34,840
Speaker 1: things that he had to do, but effectively it was

460
00:30:34,920 --> 00:30:39,040
Speaker 1: the only thing that he could do consistent with his mandate.

461
00:30:39,360 --> 00:30:43,880
Speaker 1: So let's take the counter factual on that. Assume Bernanke

462
00:30:44,160 --> 00:30:46,960
Speaker 1: listened to people who said the FED was going to

463
00:30:47,040 --> 00:30:50,200
Speaker 1: cause hyperinflation. Collapse of the dollar and five thousand dollar gold.

464
00:30:50,560 --> 00:30:53,000
Speaker 1: Assume he said they were right, and say, you know what,

465
00:30:54,320 --> 00:30:56,560
Speaker 1: Taylor rule says, we should be at two and a

466
00:30:56,600 --> 00:30:59,360
Speaker 1: half or three and a half percent UM fed funds

467
00:30:59,440 --> 00:31:02,440
Speaker 1: rate and there's no quee. What would have happened then,

468
00:31:03,680 --> 00:31:08,000
Speaker 1: Who've had a modern day depression similar to the thirties nine.

469
00:31:08,720 --> 00:31:10,720
Speaker 1: I don't know if it'd be similar to the thirties.

470
00:31:10,760 --> 00:31:14,280
Speaker 1: That's why I said modern day because the dominant thing

471
00:31:14,400 --> 00:31:17,920
Speaker 1: back during the thirties is we didn't have deposit insurance,

472
00:31:17,960 --> 00:31:21,040
Speaker 1: so we had a total collapse of the banking system.

473
00:31:21,120 --> 00:31:25,880
Speaker 1: But it would have been a modern day depression that

474
00:31:25,960 --> 00:31:29,840
Speaker 1: would have been self feeding and would have had elements

475
00:31:29,920 --> 00:31:33,480
Speaker 1: of what's been going on UH in the last five

476
00:31:33,720 --> 00:31:38,680
Speaker 1: or seven years. And Southern Europe so are unemployment rate

477
00:31:38,760 --> 00:31:42,440
Speaker 1: peaked at around ten percent or underemployment rate peaked at

478
00:31:42,480 --> 00:31:48,080
Speaker 1: around the Great Depression unemployment? What would have happened this

479
00:31:48,240 --> 00:31:51,880
Speaker 1: time around UM had there been no Zerpa, no quee.

480
00:31:52,440 --> 00:31:55,040
Speaker 1: And again, those of you whose heads are about to explode,

481
00:31:55,560 --> 00:32:03,080
Speaker 1: I apologize again. The counter fact is really difficult. Unemployment

482
00:32:03,160 --> 00:32:10,440
Speaker 1: would have been dramatically higher. No problem with that whole notion,

483
00:32:10,520 --> 00:32:15,520
Speaker 1: because when we were at the depths of our recession,

484
00:32:16,320 --> 00:32:20,800
Speaker 1: we were not self correcting, we were self feeding. It

485
00:32:20,960 --> 00:32:25,360
Speaker 1: took meaning it's a vicious cycle down exactly. And remember

486
00:32:25,840 --> 00:32:32,840
Speaker 1: the FED went to zero uh and started que four months,

487
00:32:32,960 --> 00:32:37,320
Speaker 1: five months before the stock market finally found a bottom

488
00:32:38,120 --> 00:32:42,720
Speaker 1: uh in March of nine. Uh. So I mean, normally,

489
00:32:42,720 --> 00:32:44,880
Speaker 1: do you think in terms of Wall Street responds quitting

490
00:32:45,000 --> 00:32:47,400
Speaker 1: pretty quickly to you know, warm and fuzzies from the

491
00:32:47,480 --> 00:32:51,080
Speaker 1: Central Bank. But if it takes that long for Wall

492
00:32:51,160 --> 00:32:55,120
Speaker 1: Street to recognize they've been given a gift, uh, it

493
00:32:55,200 --> 00:32:59,240
Speaker 1: tells you something is seriously wrong with the underlying economy.

494
00:32:59,360 --> 00:33:02,720
Speaker 1: So it's that plus the panic that was there really

495
00:33:02,840 --> 00:33:05,840
Speaker 1: fed upon Yeah, it was. It was you know, it

496
00:33:06,640 --> 00:33:13,520
Speaker 1: was truly a nefarious downward spare that the private sector

497
00:33:13,800 --> 00:33:18,360
Speaker 1: simply did not have the ability to deal with itself.

498
00:33:18,600 --> 00:33:21,480
Speaker 1: The thing that stood out to me at that time

499
00:33:21,640 --> 00:33:25,360
Speaker 1: is when you have the CEOs of companies like General

500
00:33:25,400 --> 00:33:29,240
Speaker 1: Electric and Walmart and Ford calling the White House saying

501
00:33:29,520 --> 00:33:32,040
Speaker 1: we're not going to make payroll because our credit sources

502
00:33:32,120 --> 00:33:35,480
Speaker 1: have disappeared. You got to do something that is a

503
00:33:35,560 --> 00:33:39,240
Speaker 1: pretty serious situation. Yeah, it's it's it had elements if

504
00:33:39,320 --> 00:33:43,000
Speaker 1: you will, of what happened during the Great Depression UH

505
00:33:43,200 --> 00:33:46,240
Speaker 1: in the money market sector, because remember one of the

506
00:33:46,320 --> 00:33:51,240
Speaker 1: programs that UH the Federal Reserve did was the commercial

507
00:33:51,320 --> 00:33:55,440
Speaker 1: paper Funding Facility. The commercial paper market, which is where

508
00:33:55,560 --> 00:33:58,560
Speaker 1: big companies and small companies in a great deal of

509
00:33:58,560 --> 00:34:01,800
Speaker 1: the shadow banking system as well, was funding itself literally

510
00:34:02,560 --> 00:34:07,080
Speaker 1: shut down UH and GE is one of the biggest

511
00:34:07,200 --> 00:34:12,239
Speaker 1: issuers of commercial paper at that juncture and existence. So

512
00:34:12,400 --> 00:34:15,800
Speaker 1: when you shut down the commercial paper market, you're talking

513
00:34:15,840 --> 00:34:20,480
Speaker 1: about shutting down access to working capital, which is payroll,

514
00:34:21,280 --> 00:34:24,239
Speaker 1: which is very similar to what happened back in the

515
00:34:24,320 --> 00:34:26,880
Speaker 1: nineteen and thirties. So rather than having a run on

516
00:34:27,040 --> 00:34:30,360
Speaker 1: the conventional banking system, we had a run on the

517
00:34:30,480 --> 00:34:33,560
Speaker 1: shadow banking system, and the FED had to stop it

518
00:34:33,719 --> 00:34:35,920
Speaker 1: or else they would have continued to self feed us

519
00:34:35,960 --> 00:34:38,120
Speaker 1: into a depression. So if you want to hear our

520
00:34:38,200 --> 00:34:42,240
Speaker 1: conversation continue, be sure and check out our podcast extras

521
00:34:42,320 --> 00:34:46,520
Speaker 1: on Bloomberg dot com, SoundCloud and Apple iTunes. Check out

522
00:34:46,640 --> 00:34:50,160
Speaker 1: my daily column on Bloomberg View dot com and follow

523
00:34:50,200 --> 00:34:53,960
Speaker 1: me on Twitter at Rid Halts. I'm Barry Ridhults. You're

524
00:34:54,000 --> 00:34:58,040
Speaker 1: listening to Masters in Business on Bloomberg Radio. Welcome to

525
00:34:58,160 --> 00:35:01,320
Speaker 1: our podcast extras. I'm very Holton my guest today. I

526
00:35:01,440 --> 00:35:04,600
Speaker 1: say this every week, but it's really true. My special

527
00:35:04,719 --> 00:35:08,759
Speaker 1: guest this week is Paul McCulley. Paul and I um

528
00:35:09,719 --> 00:35:13,760
Speaker 1: first met actually up in Maine on a fishing trip.

529
00:35:14,280 --> 00:35:16,400
Speaker 1: I want to say a decade ago. Is that right?

530
00:35:16,640 --> 00:35:20,600
Speaker 1: Sounds right? I don't know if you recall that particular meeting,

531
00:35:21,320 --> 00:35:23,480
Speaker 1: but we were not feeling a whole lot of pain,

532
00:35:23,760 --> 00:35:27,720
Speaker 1: you especially, and um, let's see if I can refresh

533
00:35:27,760 --> 00:35:31,200
Speaker 1: your recollection with this. You had mentioned you only went

534
00:35:31,280 --> 00:35:34,000
Speaker 1: to a couple of conferences each year, that one in

535
00:35:34,120 --> 00:35:37,640
Speaker 1: Jackson Hole, and you gave me a reason why, which

536
00:35:37,680 --> 00:35:41,320
Speaker 1: had something to do with a trillion dollars worth of bonds.

537
00:35:41,400 --> 00:35:44,560
Speaker 1: And my answer to you was, yeah, but it's fixed income.

538
00:35:44,680 --> 00:35:49,040
Speaker 1: That stuff runs itself, and you exploded at me. I

539
00:35:49,400 --> 00:35:52,600
Speaker 1: can't remember what my wives acre response was, but I'm

540
00:35:52,640 --> 00:35:56,040
Speaker 1: sure I had one. It's Scott Scott Frew at Rockingham Capital.

541
00:35:56,239 --> 00:35:59,279
Speaker 1: Can can probably fill in the blanks, but I've I've

542
00:35:59,400 --> 00:36:03,120
Speaker 1: known you ever since then. It's always, uh, it's always educational,

543
00:36:03,160 --> 00:36:06,239
Speaker 1: it's always fun, um speaking with you. I always learned

544
00:36:06,280 --> 00:36:09,440
Speaker 1: something new before the break and in the last I

545
00:36:09,480 --> 00:36:12,560
Speaker 1: shouldn't say before the break. In the last section on radio,

546
00:36:12,680 --> 00:36:15,560
Speaker 1: we were talking about the FED and what the FED

547
00:36:15,680 --> 00:36:18,919
Speaker 1: got right and what the FED got wrong. And there

548
00:36:19,000 --> 00:36:24,279
Speaker 1: are a lot of people who really are infuriated at

549
00:36:24,360 --> 00:36:28,040
Speaker 1: what the FED has done. And they're promising, promising us

550
00:36:28,600 --> 00:36:31,600
Speaker 1: for now, for five or six years, but it's coming.

551
00:36:32,000 --> 00:36:34,200
Speaker 1: Just because it hasn't happened yet doesn't mean it's not

552
00:36:34,239 --> 00:36:38,840
Speaker 1: gonna happen. They're promising us a giant disaster. Why are

553
00:36:38,880 --> 00:36:44,799
Speaker 1: they wrong? Lots of economic reasons that they're wrong. Uh,

554
00:36:45,080 --> 00:36:51,279
Speaker 1: notably that monetary expansion as well as zero interest rates

555
00:36:51,920 --> 00:36:54,840
Speaker 1: are not going to have a huge stimultive effect on

556
00:36:54,880 --> 00:36:57,160
Speaker 1: the economy and liquidity trap. So I can give you all.

557
00:36:57,200 --> 00:36:59,440
Speaker 1: And that's the same reason why there's no hyper inflation.

558
00:37:00,280 --> 00:37:03,280
Speaker 1: Wages are flat to fall in commodity prices are falling.

559
00:37:03,760 --> 00:37:06,479
Speaker 1: The time to think about inflation was when the dot

560
00:37:06,560 --> 00:37:09,080
Speaker 1: from oh one to oh eight. I have a chart

561
00:37:09,160 --> 00:37:11,960
Speaker 1: up on the website I've I've posted this like every

562
00:37:12,000 --> 00:37:15,719
Speaker 1: other year for ten years. From oh one to oh eight,

563
00:37:15,800 --> 00:37:21,799
Speaker 1: the US dollar fell for coincidentally, apparently oil went from

564
00:37:22,320 --> 00:37:25,560
Speaker 1: one fifty, food went through the roof milk meat. Everything

565
00:37:25,680 --> 00:37:30,040
Speaker 1: went crazy in a collapsing dollar environment. Now the dollar

566
00:37:30,239 --> 00:37:33,880
Speaker 1: is the cleanest shirt in the hamper. I think that

567
00:37:34,040 --> 00:37:37,560
Speaker 1: was Bill's uh phrase. So, how are you going to

568
00:37:37,640 --> 00:37:40,759
Speaker 1: have hyper inflation in that environment? You simply are not

569
00:37:41,239 --> 00:37:45,200
Speaker 1: forget hyperinflation. How you gonna have the FEDS struggling to

570
00:37:45,320 --> 00:37:48,719
Speaker 1: get up to its two percent target? So as a

571
00:37:48,880 --> 00:37:54,160
Speaker 1: as an economist, I've always been fuddled, quite frankly at

572
00:37:54,280 --> 00:37:58,759
Speaker 1: those at the uh extreme and I call them the extreme.

573
00:37:59,480 --> 00:38:04,000
Speaker 1: Uh I guess it's probably grounded in monitorism. You print money,

574
00:38:04,040 --> 00:38:07,440
Speaker 1: there's going to be inflation without understanding the context in

575
00:38:07,560 --> 00:38:12,120
Speaker 1: which you are printing money. Uh So, it's really befuddled

576
00:38:12,200 --> 00:38:15,800
Speaker 1: me as an economist that other side of the of

577
00:38:15,880 --> 00:38:20,320
Speaker 1: the divide. As a money manager, it was delightful because

578
00:38:20,400 --> 00:38:22,880
Speaker 1: you just knew the guy was categorically wrong. Created a

579
00:38:22,960 --> 00:38:27,280
Speaker 1: lot of opportunities. Absolutely so your personal portfolio, not old

580
00:38:27,360 --> 00:38:30,239
Speaker 1: gold and silver miners that we're telling me you want

581
00:38:30,280 --> 00:38:32,320
Speaker 1: a lot of physical goal, don't you? You have bars

582
00:38:32,600 --> 00:38:36,759
Speaker 1: stacked away, not not any no, no programs, no, no,

583
00:38:39,440 --> 00:38:44,480
Speaker 1: not a uh so uh so, actually just see I

584
00:38:44,520 --> 00:38:47,759
Speaker 1: could feel the hate mail coming and we're not even live,

585
00:38:48,400 --> 00:38:52,080
Speaker 1: so I so economically, I've never been able to understand

586
00:38:52,440 --> 00:38:56,920
Speaker 1: that camp. But thinking in terms of human nature, some

587
00:38:57,200 --> 00:39:01,800
Speaker 1: may call it, you know, behavioral economics. UM I do

588
00:39:02,000 --> 00:39:05,600
Speaker 1: have a thesis, let's hear it, which is that people

589
00:39:05,760 --> 00:39:12,400
Speaker 1: looked at the huge expansion in the Federal reserves balance sheet.

590
00:39:13,080 --> 00:39:16,319
Speaker 1: We also those charts with a giant hockey stick, they

591
00:39:16,400 --> 00:39:19,640
Speaker 1: went from a trillion to four trillion dollars. That they

592
00:39:19,719 --> 00:39:23,759
Speaker 1: look at that chart as the moral equivalent of a

593
00:39:23,960 --> 00:39:28,680
Speaker 1: fat man in speedos. It's just wrong. It's just wrong.

594
00:39:28,960 --> 00:39:31,680
Speaker 1: I can't tell you why it's wrong, but it's just wrong.

595
00:39:33,120 --> 00:39:37,280
Speaker 1: The fat man in speedos. I resemble that remark, although

596
00:39:37,520 --> 00:39:41,399
Speaker 1: although I'm quite sure you would be shot by your

597
00:39:41,480 --> 00:39:43,719
Speaker 1: family if you ever showed up in speedos, and I

598
00:39:43,760 --> 00:39:45,480
Speaker 1: would too. By the way, if when you go to

599
00:39:45,600 --> 00:39:49,400
Speaker 1: beaches in the Mediterranean in Europe, like at least in

600
00:39:49,480 --> 00:39:53,640
Speaker 1: the United States, people where the surfer shorts over there,

601
00:39:53,840 --> 00:39:58,560
Speaker 1: it's speedos and those guys apparently, UH have a FED

602
00:39:58,600 --> 00:40:00,759
Speaker 1: balance sheet of her own to worry about. So so

603
00:40:00,920 --> 00:40:04,280
Speaker 1: let's get back to what these guys are are getting wrong.

604
00:40:04,880 --> 00:40:09,440
Speaker 1: So it's not economically defendable. We haven't seen it in

605
00:40:09,520 --> 00:40:13,920
Speaker 1: the real world. Are we is that theory? Is that thesis?

606
00:40:14,000 --> 00:40:16,760
Speaker 1: And I'm asking you an impossible question. Is that thesis

607
00:40:17,239 --> 00:40:22,320
Speaker 1: gonna just eventually fade away? Or are these guys consistently

608
00:40:22,960 --> 00:40:25,520
Speaker 1: you know, the gold pops up every twenty years as

609
00:40:25,520 --> 00:40:28,440
Speaker 1: an investment and then goes away for a while. But

610
00:40:28,560 --> 00:40:32,720
Speaker 1: if you catch it right, it's a fantastic trade. Actually,

611
00:40:33,320 --> 00:40:37,759
Speaker 1: I think they will be perpetually wrong in their forecast

612
00:40:37,880 --> 00:40:41,399
Speaker 1: of nefarious consequences. But I do think there's something that's

613
00:40:41,480 --> 00:40:47,120
Speaker 1: important and this public discussion, if you will, which is

614
00:40:47,280 --> 00:40:53,480
Speaker 1: the role of monetary policy in the mosaic of government

615
00:40:54,280 --> 00:41:00,000
Speaker 1: and the role of monetary policy relative to fiscal policy

616
00:41:00,120 --> 00:41:05,440
Speaker 1: see in microeconomic uh fine tuning. So so I think

617
00:41:05,440 --> 00:41:09,560
Speaker 1: I think there's a lot of substance there. Uh. In fact,

618
00:41:09,640 --> 00:41:14,880
Speaker 1: two of the very long ad plus page scholarly papers

619
00:41:14,960 --> 00:41:17,960
Speaker 1: I wrote during my retirement years while I was at

620
00:41:18,000 --> 00:41:21,800
Speaker 1: the g i C. We're on particularly this issue of

621
00:41:21,880 --> 00:41:25,719
Speaker 1: the monetary physical policy mixing a liquidity trap. So I

622
00:41:25,840 --> 00:41:31,799
Speaker 1: think I do understand, uh, a sense of resentment, if

623
00:41:31,920 --> 00:41:38,279
Speaker 1: you will, that this institution that is ostensibly a political

624
00:41:39,080 --> 00:41:44,399
Speaker 1: was the only game in town, uh and therefore had

625
00:41:44,480 --> 00:41:48,200
Speaker 1: to play the role it did. Now I actually think

626
00:41:48,360 --> 00:41:51,840
Speaker 1: that if I did a wonderful job of playing the

627
00:41:52,040 --> 00:41:56,520
Speaker 1: role that was foisted up on them. Uh so those

628
00:41:56,560 --> 00:41:59,520
Speaker 1: who were forecasting the opposite, we were wrong. But I

629
00:41:59,600 --> 00:42:04,680
Speaker 1: hate the issue of where does monetary policy fit in

630
00:42:04,840 --> 00:42:10,439
Speaker 1: the mosaic of overall government policy? Says, a legitimate source

631
00:42:10,520 --> 00:42:18,320
Speaker 1: of discussion. So so let's let's talk about Lord Kens

632
00:42:19,000 --> 00:42:22,919
Speaker 1: and his findings and why so many people don't seem

633
00:42:23,000 --> 00:42:27,279
Speaker 1: to have learned the lessons he taught. And I look

634
00:42:27,320 --> 00:42:32,080
Speaker 1: at it as a willful misunderstanding of Kings. I speak

635
00:42:32,120 --> 00:42:33,839
Speaker 1: to a lot. I have a lot of conservative friends

636
00:42:33,880 --> 00:42:38,960
Speaker 1: who insist the budget deficit is caused by KINSI and economics.

637
00:42:40,280 --> 00:42:42,719
Speaker 1: And my answer is, well, yeah, if you only listen

638
00:42:42,800 --> 00:42:45,239
Speaker 1: to the first half of it. The second half of

639
00:42:45,320 --> 00:42:48,280
Speaker 1: it says, hey, in an expansion, the government should step

640
00:42:48,320 --> 00:42:50,279
Speaker 1: out of the way and let the private sector take

641
00:42:50,640 --> 00:42:53,800
Speaker 1: That's when you raise taxes, lower spending, balance the budget,

642
00:42:54,000 --> 00:42:56,520
Speaker 1: and get out of the way. The politicians, though, don't

643
00:42:56,560 --> 00:43:01,120
Speaker 1: want to do that. No, no they don't. But I've

644
00:43:01,160 --> 00:43:05,160
Speaker 1: spent a lot of time, uh trying to figure out

645
00:43:06,600 --> 00:43:10,480
Speaker 1: why Keynes is still a four letter word in a

646
00:43:10,600 --> 00:43:16,640
Speaker 1: lot of circles, UH, when Keynesian policies have been precisely

647
00:43:16,800 --> 00:43:20,400
Speaker 1: what ultimately have been employed to get us out of

648
00:43:20,520 --> 00:43:25,160
Speaker 1: the liquidity trapping or shell being employed. And I have

649
00:43:25,280 --> 00:43:28,520
Speaker 1: a thesis on this verry is that I think a

650
00:43:28,640 --> 00:43:31,279
Speaker 1: lot of people, unfortunately, a lot of people in our

651
00:43:31,440 --> 00:43:39,359
Speaker 1: business don't understand the difference between micro economics and macro economics.

652
00:43:40,000 --> 00:43:42,120
Speaker 1: I think a lot of people in our business look

653
00:43:42,280 --> 00:43:49,960
Speaker 1: at macro economics as simply the summing up of microeconomics.

654
00:43:50,040 --> 00:43:55,000
Speaker 1: Micro economics being you know, old fashioned supply demand transaction

655
00:43:55,160 --> 00:43:58,719
Speaker 1: on a transaction by transaction basis, the commodity pits you

656
00:43:58,800 --> 00:44:02,600
Speaker 1: know in Chicago, the ultimate you know, micro economics. They

657
00:44:02,640 --> 00:44:05,520
Speaker 1: haven't been replaced by algos yet, are they still? Actually

658
00:44:06,120 --> 00:44:08,680
Speaker 1: I think they were done. Maybe they are. I haven't

659
00:44:08,760 --> 00:44:10,719
Speaker 1: actually been on the pit in a long long time.

660
00:44:10,920 --> 00:44:12,759
Speaker 1: But I think a lot of people think in terms

661
00:44:12,960 --> 00:44:17,800
Speaker 1: of macro is simply the summing up of of micro.

662
00:44:18,320 --> 00:44:21,440
Speaker 1: A whole lot more than that. And macro is not

663
00:44:21,800 --> 00:44:25,560
Speaker 1: the summing up of micro. It is an entirely different,

664
00:44:26,280 --> 00:44:33,840
Speaker 1: UH discipline, And macro is defined by the paradox of aggregation.

665
00:44:34,640 --> 00:44:37,600
Speaker 1: And I'm getting wonky here, but this is hugely important.

666
00:44:37,800 --> 00:44:40,880
Speaker 1: So listen. We have a wonky audience. If they're with

667
00:44:41,120 --> 00:44:44,279
Speaker 1: us this latent to the podcast, they'll appreciate it. So

668
00:44:44,560 --> 00:44:48,880
Speaker 1: explain what people don't understand about macro and explain what

669
00:44:49,239 --> 00:44:53,000
Speaker 1: Keen's got right, and white people should listen to him. Okay,

670
00:44:53,280 --> 00:44:57,400
Speaker 1: you have forty five minutes begin Actually I have a

671
00:44:57,440 --> 00:45:03,560
Speaker 1: three R lecture on this one. But um, the key

672
00:45:03,680 --> 00:45:08,600
Speaker 1: difference between micro and macro is what is rational for

673
00:45:08,760 --> 00:45:14,200
Speaker 1: the individual. If all individuals do so at the same time,

674
00:45:14,880 --> 00:45:19,680
Speaker 1: is irrational for the community, such as the paradox of thrift.

675
00:45:19,760 --> 00:45:22,880
Speaker 1: The paradox of thrift is the textbook one that you

676
00:45:22,920 --> 00:45:27,480
Speaker 1: would explain. It's that, Um, that is quite okay for

677
00:45:27,600 --> 00:45:30,680
Speaker 1: you to rationally say I need to spend less and

678
00:45:30,840 --> 00:45:34,839
Speaker 1: save more in balance my budget, etcetera, etcetera, etcetera. In fact,

679
00:45:34,920 --> 00:45:37,040
Speaker 1: most of us have preached this to our children at

680
00:45:37,120 --> 00:45:40,800
Speaker 1: some juncture. You know the you know the virtues of thrift.

681
00:45:40,920 --> 00:45:43,000
Speaker 1: You know God and all this sort of thing. The

682
00:45:43,120 --> 00:45:47,319
Speaker 1: virtues of thrift. However, it is a fact that one

683
00:45:47,400 --> 00:45:51,480
Speaker 1: man spending as another man's income. So therefore, if we

684
00:45:51,640 --> 00:45:55,640
Speaker 1: all decide to spend less and save more at the

685
00:45:55,800 --> 00:46:01,640
Speaker 1: same time, we collectively kill our elective income, which is

686
00:46:01,719 --> 00:46:06,760
Speaker 1: the fountain from which savings flow. Another example, that's perfectly rational.

687
00:46:06,800 --> 00:46:09,400
Speaker 1: Who could disagree with that? But people don't want to

688
00:46:10,480 --> 00:46:14,799
Speaker 1: go to that logical conclusion because then you were saying, well,

689
00:46:14,920 --> 00:46:21,000
Speaker 1: are you saying that thrift is a bad thing? Economic thrift,

690
00:46:21,200 --> 00:46:24,920
Speaker 1: not virtuous thrift, not and not biblical thrift. We're talking

691
00:46:24,960 --> 00:46:30,040
Speaker 1: about exactly, and and quite frequently religion and economics get

692
00:46:30,440 --> 00:46:33,800
Speaker 1: uh melded. Quite quite frequently. Economics is a religion, and

693
00:46:33,880 --> 00:46:38,440
Speaker 1: it becomes a problem, absolutely absolutely, which brings us to

694
00:46:38,560 --> 00:46:42,600
Speaker 1: the naked hatred of Kine's How did that come about?

695
00:46:43,239 --> 00:46:46,480
Speaker 1: I don't understand it. He seems to make sense. So wait,

696
00:46:46,600 --> 00:46:49,879
Speaker 1: when the economy slows down enough and aggregate demand is weak,

697
00:46:50,320 --> 00:46:53,960
Speaker 1: the government replaces private sector spending. And when the opposite happens,

698
00:46:54,320 --> 00:46:56,800
Speaker 1: the government steps out of the way and allows private

699
00:46:56,840 --> 00:46:59,759
Speaker 1: sector spending to do what if it wants that his

700
00:47:00,040 --> 00:47:04,759
Speaker 1: reas shown us, that's a pretty reasonable model to operate under.

701
00:47:05,160 --> 00:47:09,720
Speaker 1: The more the older I get, the more I accept

702
00:47:09,800 --> 00:47:15,200
Speaker 1: the proposition that self evident truths are frequently not self

703
00:47:15,280 --> 00:47:18,879
Speaker 1: evident to the masses. Well, write a book, but that's

704
00:47:18,920 --> 00:47:21,400
Speaker 1: that's that's absolutely true. Write a book and you're like, Okay,

705
00:47:21,440 --> 00:47:24,720
Speaker 1: this is now resolved, And the biggest frustration of writing

706
00:47:24,719 --> 00:47:29,080
Speaker 1: a book is now that I've settled this question, discovering

707
00:47:29,160 --> 00:47:33,040
Speaker 1: that you really haven't settled that question. I've only written

708
00:47:33,280 --> 00:47:35,440
Speaker 1: one book in my lifetime, and I don't think I

709
00:47:35,520 --> 00:47:38,239
Speaker 1: will write another one. That was actually around the time

710
00:47:38,280 --> 00:47:40,440
Speaker 1: I met you in two thousand and six, which was

711
00:47:41,120 --> 00:47:43,480
Speaker 1: when I had an incredible day job, so it was

712
00:47:43,560 --> 00:47:45,279
Speaker 1: quite a task to try to produce a book at

713
00:47:45,320 --> 00:47:48,200
Speaker 1: that juncture. So I don't anticipate writing another one. Now

714
00:47:48,280 --> 00:47:49,719
Speaker 1: you have all the spare time in the world, you

715
00:47:49,800 --> 00:47:52,040
Speaker 1: should be cranking at a book a year. Our friend

716
00:47:52,120 --> 00:47:54,359
Speaker 1: John Wolden writes a book a month. You should keep

717
00:47:54,440 --> 00:47:58,799
Speaker 1: up with John. I have no desire to do that whatsoever.

718
00:47:58,880 --> 00:48:03,000
Speaker 1: And I think in terms of of I think the

719
00:48:03,320 --> 00:48:10,440
Speaker 1: single best evangelist for right thinking in macro huh is

720
00:48:10,480 --> 00:48:15,640
Speaker 1: Paul Krugman. And Paul does an absolutely fantastic job of

721
00:48:15,800 --> 00:48:20,719
Speaker 1: trying to explain the difference between micro and macro, trying

722
00:48:20,760 --> 00:48:23,719
Speaker 1: to explain the I S l M model, and Paul

723
00:48:23,840 --> 00:48:29,839
Speaker 1: is incredibly articulate and prolific, and he pulls his hair

724
00:48:30,040 --> 00:48:35,480
Speaker 1: out trying to convert the un convertible. See we've had

725
00:48:35,560 --> 00:48:37,800
Speaker 1: Paul as a guest. I don't think he pulls his

726
00:48:37,920 --> 00:48:40,239
Speaker 1: hair out. I think he understands this. By the way,

727
00:48:40,360 --> 00:48:44,000
Speaker 1: send your hate mail to Paul McCulley at pimco dot com.

728
00:48:44,600 --> 00:48:47,919
Speaker 1: That's Paul McCulley at pimco dot com. Actually it will

729
00:48:47,920 --> 00:48:54,080
Speaker 1: be rejected. Oh no, it's Paul dot McCulley at pimco

730
00:48:54,200 --> 00:48:58,520
Speaker 1: dot com. So, um, look, I mean, if Paul Krugman

731
00:48:58,719 --> 00:49:03,880
Speaker 1: can't make handway in explaining the obvious, that I have

732
00:49:04,080 --> 00:49:07,759
Speaker 1: to bow to the impossibility of doing it. Because there's

733
00:49:07,880 --> 00:49:12,520
Speaker 1: nobody better at the pen than Paul. So so you know,

734
00:49:12,880 --> 00:49:15,760
Speaker 1: we were at an event once and we were talking.

735
00:49:16,320 --> 00:49:19,320
Speaker 1: I do the weekly column. I do to two personal

736
00:49:19,400 --> 00:49:22,480
Speaker 1: finance columns a month for the Washington Post. He does

737
00:49:22,560 --> 00:49:25,400
Speaker 1: two columns a week for the New York Times. And

738
00:49:25,480 --> 00:49:27,840
Speaker 1: I asked him how much time do you put in

739
00:49:28,040 --> 00:49:30,239
Speaker 1: each column, thinking he's gonna say an hour or two,

740
00:49:30,400 --> 00:49:33,399
Speaker 1: so because I eight to twelve hours, and I fell

741
00:49:33,440 --> 00:49:35,480
Speaker 1: off my chair and I'm like, I got a lot

742
00:49:35,560 --> 00:49:38,800
Speaker 1: of work to do. So he when the reason he

743
00:49:39,160 --> 00:49:43,440
Speaker 1: his columns are as tight and well written and he

744
00:49:43,760 --> 00:49:48,120
Speaker 1: really pounds away on less than a thousand words, and

745
00:49:48,160 --> 00:49:51,000
Speaker 1: he's spending twelve hours on him. It's it's amazing to me.

746
00:49:51,239 --> 00:49:56,480
Speaker 1: It is much more difficult to write. I apologize for

747
00:49:56,520 --> 00:49:59,000
Speaker 1: the length of the letter. I didn't have time. Yeah,

748
00:49:59,040 --> 00:50:01,920
Speaker 1: it's it's absolutely case. So since we're in in the

749
00:50:02,040 --> 00:50:06,840
Speaker 1: wonky phase of the show, what's the difference between Kinsianism

750
00:50:07,080 --> 00:50:11,040
Speaker 1: and neo Kinsianism For people who may not understand the

751
00:50:11,160 --> 00:50:21,920
Speaker 1: nuances there, including me, neo kinesian Ism, it's simply Kin's

752
00:50:22,320 --> 00:50:28,239
Speaker 1: updated for new information, new techniques of analysis. There's not

753
00:50:28,360 --> 00:50:31,879
Speaker 1: a whole lot of difference. I'm sure that you could

754
00:50:31,920 --> 00:50:34,840
Speaker 1: have an academic to debate. You know, Smith is the

755
00:50:34,920 --> 00:50:38,160
Speaker 1: guy to fine tune this, to define tune the whole

756
00:50:38,239 --> 00:50:41,279
Speaker 1: third thing is, you know what constitutes a fat man

757
00:50:41,360 --> 00:50:43,520
Speaker 1: and speed us. I mean, I'm sure you could have

758
00:50:43,640 --> 00:50:46,000
Speaker 1: people debate the whole issue. But you know, I kind

759
00:50:46,040 --> 00:50:49,200
Speaker 1: of know when when I see one that that that

760
00:50:49,400 --> 00:50:53,360
Speaker 1: is the same definition that we had of of pornography.

761
00:50:53,719 --> 00:50:57,279
Speaker 1: So um, so we let's bring this back to the

762
00:50:57,560 --> 00:51:01,439
Speaker 1: to the fed um or or even more interestingly, let's

763
00:51:01,480 --> 00:51:06,080
Speaker 1: let's talk about the financial crisis. Why what should have

764
00:51:06,239 --> 00:51:09,480
Speaker 1: been the response from Congress, and the counter argument to

765
00:51:10,440 --> 00:51:14,040
Speaker 1: saying we we didn't have a Keensian response. You had

766
00:51:14,080 --> 00:51:18,240
Speaker 1: an eight hundred billion dollar TARP, you had all sorts

767
00:51:18,320 --> 00:51:21,480
Speaker 1: of bailouts for different entities, You had the f D

768
00:51:21,600 --> 00:51:25,719
Speaker 1: I C and the FED working over time. Can can

769
00:51:25,760 --> 00:51:28,880
Speaker 1: you make the argument that we had a traditional Keensian response,

770
00:51:30,120 --> 00:51:35,000
Speaker 1: you had elements of a Kensian response. Actually in the

771
00:51:35,040 --> 00:51:38,200
Speaker 1: phiscal stimulus package. TARP was not part of the piscal stimulus,

772
00:51:38,600 --> 00:51:42,320
Speaker 1: so it's tart plus and and Krugman has argued that

773
00:51:42,760 --> 00:51:46,200
Speaker 1: the stimulus was too low by an order of magnitude,

774
00:51:46,280 --> 00:51:49,040
Speaker 1: and I certainly agree with him on that. I mean,

775
00:51:49,360 --> 00:51:53,640
Speaker 1: Larry Summers used to you know, talking temporary, uh timely

776
00:51:53,800 --> 00:51:58,279
Speaker 1: and targeted the three t s uh and and this

777
00:51:58,480 --> 00:52:00,960
Speaker 1: was none of that. It may have been timely, but

778
00:52:01,120 --> 00:52:04,760
Speaker 1: unfortunately it was temporary. I'm not sure it was particularly

779
00:52:04,800 --> 00:52:10,800
Speaker 1: well targeted. Uh So it's better than nothing, just barely,

780
00:52:11,080 --> 00:52:14,520
Speaker 1: but but just barely. And then in two thousand and

781
00:52:14,600 --> 00:52:17,840
Speaker 1: ten we went the other direction when the Tea Party

782
00:52:18,000 --> 00:52:22,160
Speaker 1: hijacked the country. So, yeah, the sequester we had, which

783
00:52:22,360 --> 00:52:25,600
Speaker 1: was you know, absurdity square, But isn't that what's going on?

784
00:52:25,800 --> 00:52:30,120
Speaker 1: Today in in Europe. Aren't adity squared? That's all I

785
00:52:30,160 --> 00:52:35,759
Speaker 1: can say. Man, so absolutely no since whatsoever? And that

786
00:52:36,000 --> 00:52:40,200
Speaker 1: you know, it's recommending a starvation dot for an anorexic.

787
00:52:40,400 --> 00:52:42,720
Speaker 1: But it makes no sense. It's working out for Greece,

788
00:52:42,920 --> 00:52:45,800
Speaker 1: isn't it is? Aren't they doing fantastic? I mean, Greece

789
00:52:45,920 --> 00:52:49,520
Speaker 1: is doing well right that they're on their third bail out.

790
00:52:49,920 --> 00:52:52,920
Speaker 1: They only have unemployment. It's not the worst thing in

791
00:52:52,960 --> 00:52:56,359
Speaker 1: the world. And um, their GDP has been what down

792
00:52:56,840 --> 00:52:59,840
Speaker 1: their GDP? This is fascinating to me. The g d

793
00:53:00,040 --> 00:53:02,880
Speaker 1: HE of Greece is now worse than the GDP of

794
00:53:02,880 --> 00:53:04,800
Speaker 1: the United States in the twenties and thirties, in the

795
00:53:05,200 --> 00:53:08,680
Speaker 1: in the Great Depression, post crash Great Depression. Someone said

796
00:53:08,719 --> 00:53:11,000
Speaker 1: that I haven't verified it, but I don't doubt it

797
00:53:11,040 --> 00:53:15,440
Speaker 1: for a second. We don't need any more data to

798
00:53:15,600 --> 00:53:21,560
Speaker 1: support the thesis that austerity and all liquidity trapp is stupid. Uh,

799
00:53:22,080 --> 00:53:25,040
Speaker 1: you're letting facts get in the way of a narrative.

800
00:53:25,120 --> 00:53:28,000
Speaker 1: And and those people don't really care. Um, I mean,

801
00:53:28,640 --> 00:53:30,719
Speaker 1: you know, maybe you know, we just have to go

802
00:53:30,840 --> 00:53:33,719
Speaker 1: back to you know, Forrest Scump. You know, stupid is

803
00:53:33,760 --> 00:53:38,400
Speaker 1: a stupid dues. So if you could get the e

804
00:53:38,600 --> 00:53:40,719
Speaker 1: c B, if you were speaking to the e c B,

805
00:53:40,960 --> 00:53:42,640
Speaker 1: what would you say to them? Actually, I had no

806
00:53:43,000 --> 00:53:48,560
Speaker 1: particular problem with the ECB doing what they're doing right now. Uh.

807
00:53:48,640 --> 00:53:51,319
Speaker 1: The e c B is what about Angela Merkel? Then?

808
00:53:51,640 --> 00:53:54,560
Speaker 1: Is she the one you need to chastise because people

809
00:53:54,600 --> 00:53:56,520
Speaker 1: thought Bush was giving a massage, but I think he

810
00:53:56,600 --> 00:54:00,279
Speaker 1: was trying to strangle her. Got no comment on that.

811
00:54:01,080 --> 00:54:06,400
Speaker 1: What I will say is that the German perspective that

812
00:54:06,600 --> 00:54:11,960
Speaker 1: everybody should be just like in Germany is a paradox

813
00:54:12,040 --> 00:54:16,640
Speaker 1: of aggregation, because if everybody was just like in Germany,

814
00:54:17,560 --> 00:54:20,000
Speaker 1: then we would start to have to trade with Mars

815
00:54:20,719 --> 00:54:27,880
Speaker 1: because Germany runs chronically a surplus on trade everybody else

816
00:54:28,480 --> 00:54:32,200
Speaker 1: and double entry bookkeeping requires. If one person runs a surplus,

817
00:54:32,680 --> 00:54:35,840
Speaker 1: somebody else has got to run. It's a zero sum games,

818
00:54:35,960 --> 00:54:38,800
Speaker 1: a zero sound games. So if Germany says everyone should

819
00:54:38,800 --> 00:54:41,879
Speaker 1: be like us, I want to know where the other

820
00:54:42,000 --> 00:54:48,680
Speaker 1: side of the trade is. Uh. Germany actually absorbs global

821
00:54:48,760 --> 00:54:53,200
Speaker 1: aggregate demand as opposed to contributing to it. The theory

822
00:54:53,320 --> 00:54:55,560
Speaker 1: that's been out there for a while is that the

823
00:54:55,760 --> 00:54:59,920
Speaker 1: Eurozone and the euro have essentially worked to the ben

824
00:55:00,000 --> 00:55:05,719
Speaker 1: benefit of Germany. Um, someone called it Berlin's revenge, and um,

825
00:55:07,280 --> 00:55:09,600
Speaker 1: you know, as much as their heart on Greece, this

826
00:55:09,719 --> 00:55:13,880
Speaker 1: has really been something that was constructed by and for

827
00:55:14,280 --> 00:55:18,359
Speaker 1: the Germans more than anything else. I think the better

828
00:55:18,480 --> 00:55:21,080
Speaker 1: part of valor would for me, would be not to

829
00:55:21,320 --> 00:55:28,120
Speaker 1: comment on that. What I will say is that the

830
00:55:28,360 --> 00:55:33,560
Speaker 1: Euro is a lot weaker then would be the case

831
00:55:33,960 --> 00:55:37,680
Speaker 1: if the club Med countries were not in the Euro,

832
00:55:38,680 --> 00:55:41,279
Speaker 1: which euro is weaker. So, in other words, if we

833
00:55:41,440 --> 00:55:45,000
Speaker 1: lose Italy, Greece, excuse me, that the Euro would be

834
00:55:45,040 --> 00:55:48,239
Speaker 1: a lot stronger than it is right now. And so

835
00:55:48,440 --> 00:55:53,680
Speaker 1: Germany benefits from the fact that its currency is drugged

836
00:55:53,800 --> 00:55:59,360
Speaker 1: down by its neighbors. So the exporting machine called Germany

837
00:56:00,800 --> 00:56:04,320
Speaker 1: benefits in some respects because there are other people in

838
00:56:04,440 --> 00:56:07,799
Speaker 1: the house, uh, that are making their currency weaker than

839
00:56:08,160 --> 00:56:10,839
Speaker 1: would otherwise be the case. You know, and I think

840
00:56:10,960 --> 00:56:15,000
Speaker 1: we've all played, you know, the counterfactual game in our brain.

841
00:56:15,080 --> 00:56:19,040
Speaker 1: Suppose you had, you know, the weaker countries of the

842
00:56:19,160 --> 00:56:21,560
Speaker 1: Euro exit and that's not a forecast. I don't think

843
00:56:21,560 --> 00:56:25,640
Speaker 1: they're gonna happen period, not even Greece. No, that would

844
00:56:25,640 --> 00:56:29,359
Speaker 1: not be my base case scenario. But uh, if they

845
00:56:29,400 --> 00:56:33,399
Speaker 1: were to exit and effectually the euro became the mark,

846
00:56:33,880 --> 00:56:36,799
Speaker 1: how much stronger would it be in The answer is much,

847
00:56:37,200 --> 00:56:39,800
Speaker 1: a lot much, and that would not be great for

848
00:56:39,880 --> 00:56:43,799
Speaker 1: Germany's export business exactly, although you know that's the only

849
00:56:43,840 --> 00:56:45,520
Speaker 1: thing I would say is I think they are the

850
00:56:45,640 --> 00:56:51,160
Speaker 1: beneficiaries of a weaker currency than would be the case

851
00:56:51,440 --> 00:56:56,360
Speaker 1: in the absence of the problems down south. So so,

852
00:56:56,520 --> 00:56:59,040
Speaker 1: how does let's stay in Europe? So how does the

853
00:56:59,160 --> 00:57:03,640
Speaker 1: European problems play out? What does grease ever a cover?

854
00:57:04,200 --> 00:57:06,560
Speaker 1: Is there ever gonna be The real question is is

855
00:57:06,600 --> 00:57:08,960
Speaker 1: there ever gonna be a haircut for the lenders to

856
00:57:09,040 --> 00:57:13,480
Speaker 1: these insolvent nations that will or a default that allows

857
00:57:13,560 --> 00:57:18,240
Speaker 1: them to move You know, Argentina, South America, Mexico. You

858
00:57:18,320 --> 00:57:21,240
Speaker 1: look at all the defaults we've seen over the decades.

859
00:57:22,000 --> 00:57:25,680
Speaker 1: It's the first step to healing yourselves. All Right, we

860
00:57:25,760 --> 00:57:27,360
Speaker 1: get rid of these debts. Now we're gonna have to

861
00:57:27,400 --> 00:57:29,560
Speaker 1: pay more to borrow, but at least we're out from

862
00:57:29,640 --> 00:57:32,800
Speaker 1: under that. Let's reboot, let's start over. Is that a

863
00:57:32,840 --> 00:57:36,880
Speaker 1: possibility in Greece or are they just saddled with more

864
00:57:36,960 --> 00:57:38,800
Speaker 1: debt than then? I wish I could come up with

865
00:57:38,960 --> 00:57:43,800
Speaker 1: a good scenario for Greece, I really do. Um, greg'sit

866
00:57:44,000 --> 00:57:47,160
Speaker 1: and the dragma, that's that's my scenario. Yeah, and I

867
00:57:47,280 --> 00:57:49,720
Speaker 1: think we've all you know, run that through our brains

868
00:57:49,840 --> 00:57:52,560
Speaker 1: and say, you know it's it's it's held between you know,

869
00:57:52,680 --> 00:57:54,240
Speaker 1: for the next two years to get there, because you

870
00:57:54,280 --> 00:57:57,600
Speaker 1: would actually take two years to re establish a currency

871
00:57:58,000 --> 00:57:59,960
Speaker 1: in a banking system and all that sort of stuff

872
00:58:00,000 --> 00:58:02,080
Speaker 1: will be a two year period of hell. But on

873
00:58:02,160 --> 00:58:05,040
Speaker 1: the other side there may be a story of redemption.

874
00:58:05,080 --> 00:58:08,720
Speaker 1: But I don't think that no, no, no one makes

875
00:58:08,800 --> 00:58:11,240
Speaker 1: it pain. And I don't think there would be quote

876
00:58:11,280 --> 00:58:17,280
Speaker 1: unquote a an official type of default because that would

877
00:58:17,320 --> 00:58:21,040
Speaker 1: be too much embarrassment for too many people. Um So

878
00:58:21,200 --> 00:58:26,160
Speaker 1: I think it's uh more of a round about type

879
00:58:26,200 --> 00:58:29,320
Speaker 1: of default. And any example, suppose when you graduated from

880
00:58:29,400 --> 00:58:34,280
Speaker 1: college you had a buddy who owed you two hundred bucks. Uh,

881
00:58:34,520 --> 00:58:37,360
Speaker 1: you could declare an event of default and say, hey, pal,

882
00:58:37,440 --> 00:58:39,880
Speaker 1: you owe me two hundred bucks. Were graduating, we're out

883
00:58:39,920 --> 00:58:41,640
Speaker 1: of here, give me my two hundred bucks. And if

884
00:58:41,640 --> 00:58:44,480
Speaker 1: you're not, I'm gonna take your car. You know, that

885
00:58:44,520 --> 00:58:47,960
Speaker 1: would be declaring an event of default. I can say Harry,

886
00:58:48,000 --> 00:58:50,080
Speaker 1: you know, when you got the two hundred bucks, you know,

887
00:58:50,280 --> 00:58:52,440
Speaker 1: give it back to me. You know, at your thirty

888
00:58:52,600 --> 00:58:56,760
Speaker 1: year reunion, Harry gives you the two hundred bucks. Now,

889
00:58:56,960 --> 00:59:00,080
Speaker 1: was there a default there, Well, technically yes, but was

890
00:59:00,160 --> 00:59:03,960
Speaker 1: eventually repaid it. It was worth the tenth of what

891
00:59:04,080 --> 00:59:07,360
Speaker 1: it started. Yeah, exactly. So therefore Harry kept his car.

892
00:59:08,200 --> 00:59:11,320
Speaker 1: There was no embarrassment, you know, and you you know,

893
00:59:11,520 --> 00:59:13,880
Speaker 1: had a loan, you know, for thirty years for turner back.

894
00:59:14,280 --> 00:59:19,560
Speaker 1: The lenders had. The lenders absorbed the loss just over time,

895
00:59:19,680 --> 00:59:24,720
Speaker 1: just over Yeah. But but but they save face by

896
00:59:24,800 --> 00:59:29,960
Speaker 1: doing it this way. Economically, we always conclude, well, let's

897
00:59:30,000 --> 00:59:32,240
Speaker 1: just you know, quit the pretense game and get here.

898
00:59:32,920 --> 00:59:37,600
Speaker 1: But in the political world, pretense there's a currency. Uh.

899
00:59:38,080 --> 00:59:45,800
Speaker 1: Interests is a currency. So so pretense has to be managed, exploited,

900
00:59:46,680 --> 00:59:51,080
Speaker 1: uh and practiced. Uh. And you see it there. We

901
00:59:51,160 --> 00:59:53,200
Speaker 1: actually see it a little bit south of here, down

902
00:59:53,320 --> 00:59:56,720
Speaker 1: in uh Washington, d C. I mean, when you see

903
00:59:56,760 --> 01:00:00,800
Speaker 1: a corgnressman stand up and say about some buddy on

904
01:00:00,920 --> 01:00:04,960
Speaker 1: the other side of the out my good friend, what

905
01:00:05,080 --> 01:00:07,520
Speaker 1: do you think, Barry? I don't think they're really friends.

906
01:00:07,720 --> 01:00:12,600
Speaker 1: That's that's my take. Um, you know, the old joke

907
01:00:12,800 --> 01:00:15,440
Speaker 1: is a conservative is a liberal who got mugged. A

908
01:00:15,600 --> 01:00:17,919
Speaker 1: cynic is an optimist who's been around for a while.

909
01:00:18,560 --> 01:00:21,040
Speaker 1: So the same thing. So let's shift a little bit.

910
01:00:21,160 --> 01:00:25,840
Speaker 1: Let's talk about Japan. Uh, the United States have wrapped

911
01:00:25,920 --> 01:00:29,320
Speaker 1: up our que program. It's now more or less running off,

912
01:00:29,440 --> 01:00:31,640
Speaker 1: which is a question I keep getting from people. For you,

913
01:00:31,720 --> 01:00:35,440
Speaker 1: I'm gonna say, come back to that. What so Japan

914
01:00:36,000 --> 01:00:41,240
Speaker 1: after gee, it seems like decades it has been began

915
01:00:41,360 --> 01:00:45,760
Speaker 1: a quee program and their economy started to tick up,

916
01:00:45,800 --> 01:00:49,520
Speaker 1: their infrash inflation rate in a tiny manner, ticked up.

917
01:00:49,560 --> 01:00:53,240
Speaker 1: Their stock market has moved substantially higher. What is going

918
01:00:53,320 --> 01:00:55,960
Speaker 1: on with Japan and qwee? And and what do we

919
01:00:56,160 --> 01:00:59,040
Speaker 1: think the end game is gonna look like for Japan

920
01:00:59,120 --> 01:01:02,160
Speaker 1: over the next few years? Is I think the end

921
01:01:02,280 --> 01:01:06,720
Speaker 1: game now is no end just kwei forever could very

922
01:01:06,800 --> 01:01:10,880
Speaker 1: well be and I think that would be appropriate for Japan. Um.

923
01:01:12,120 --> 01:01:16,720
Speaker 1: The irony of history here is it was only less

924
01:01:16,760 --> 01:01:19,920
Speaker 1: than two decades ago that the Bank of Japan got

925
01:01:20,000 --> 01:01:25,600
Speaker 1: its political independence, And conceptually, you want a independent central

926
01:01:25,680 --> 01:01:29,480
Speaker 1: bank to cut off the fat tale of inflation Japan

927
01:01:29,560 --> 01:01:32,360
Speaker 1: has been living in the fat tale of deflation for

928
01:01:32,480 --> 01:01:35,920
Speaker 1: all of our adult lifetime, assuming our adult lifetime has started,

929
01:01:35,960 --> 01:01:40,560
Speaker 1: of course. And uh, well let's just say, yeah, the

930
01:01:40,640 --> 01:01:46,160
Speaker 1: last twenty five years, uh, and the Bank of Japan

931
01:01:46,920 --> 01:01:49,880
Speaker 1: for a long period of time until the current administration

932
01:01:50,000 --> 01:01:53,160
Speaker 1: set not our problem, not our problem. Uh. And now

933
01:01:53,280 --> 01:02:00,120
Speaker 1: you actually have a forceful Knesian type of approach whatever

934
01:02:00,280 --> 01:02:06,440
Speaker 1: it takes, with monetary policy being subservient to physical policy. There.

935
01:02:06,920 --> 01:02:11,080
Speaker 1: So I think they're doing the right things. Um, but

936
01:02:11,160 --> 01:02:13,640
Speaker 1: I'm not sure you're gonna have you know, any sort

937
01:02:13,680 --> 01:02:16,760
Speaker 1: of you know, bell ringing positive results. Besides the equity

938
01:02:16,800 --> 01:02:18,760
Speaker 1: market that was that was one of the free trades

939
01:02:18,840 --> 01:02:21,360
Speaker 1: of the century when they did that on the equity market.

940
01:02:21,480 --> 01:02:24,560
Speaker 1: We should never confuse equity markets with the main street. Uh,

941
01:02:24,960 --> 01:02:27,840
Speaker 1: two completely different things. What speaking of which, what about

942
01:02:27,920 --> 01:02:31,440
Speaker 1: that consumption text they put into effect which really seemed

943
01:02:31,480 --> 01:02:34,600
Speaker 1: to derail But then but but then the next one

944
01:02:34,640 --> 01:02:36,200
Speaker 1: they said, you know, we're not going to do the

945
01:02:36,320 --> 01:02:41,560
Speaker 1: next one. Uh. And so actually I think Japan has

946
01:02:41,640 --> 01:02:46,919
Speaker 1: a challenge unlike the United States, Europe has a little

947
01:02:46,960 --> 01:02:49,920
Speaker 1: bit of it, which is a demographic challenge. They're getting

948
01:02:50,200 --> 01:02:56,200
Speaker 1: old very very fast and has a monster challenge. And

949
01:02:56,320 --> 01:02:59,360
Speaker 1: the other thing is they don't have immigration at all

950
01:03:00,080 --> 01:03:04,120
Speaker 1: zero Like there are very very few non Japanese in Japan.

951
01:03:04,440 --> 01:03:07,840
Speaker 1: So actually, I can, you know, put in the best

952
01:03:08,000 --> 01:03:13,160
Speaker 1: macro Kansian policies possible, but if you've got a shrinking population,

953
01:03:13,280 --> 01:03:16,840
Speaker 1: it's very difficult and your pass some element of that.

954
01:03:17,320 --> 01:03:22,000
Speaker 1: Whereas United States doesn't have a shrinking rate of the

955
01:03:22,040 --> 01:03:25,280
Speaker 1: industrial we have a good birth rate. And also we

956
01:03:25,440 --> 01:03:32,640
Speaker 1: have an open UH perspective about immigration imrants and UH

957
01:03:33,240 --> 01:03:35,800
Speaker 1: is it a million legal immigrants a year or something

958
01:03:35,880 --> 01:03:39,640
Speaker 1: like that, And actually, you know, on I'm not forecasting

959
01:03:39,800 --> 01:03:44,360
Speaker 1: it UM as a nearby outcome, but actually I think

960
01:03:44,840 --> 01:03:51,000
Speaker 1: and lightens immigration reform in the United States, where we

961
01:03:51,200 --> 01:03:56,680
Speaker 1: have robust immigration not just on the historical model of family,

962
01:03:57,200 --> 01:04:01,400
Speaker 1: but on the concept of skill set, is UH could

963
01:04:01,440 --> 01:04:05,440
Speaker 1: actually increase the potential growth rate of our economy. One

964
01:04:05,480 --> 01:04:08,480
Speaker 1: of the biggest post non eleven mistakes that was made,

965
01:04:08,520 --> 01:04:11,680
Speaker 1: and there were many, was the shutting down of the

966
01:04:12,040 --> 01:04:17,680
Speaker 1: HB one viasas for really qualified UM technology grad student

967
01:04:17,720 --> 01:04:21,720
Speaker 1: in people don't realize half of the C suite population

968
01:04:22,000 --> 01:04:26,400
Speaker 1: in Silicon Valley are far and born and we attract

969
01:04:27,120 --> 01:04:29,880
Speaker 1: we at least we used to the best and brightest

970
01:04:29,960 --> 01:04:32,880
Speaker 1: of these folks to come here for for the opportunities,

971
01:04:33,160 --> 01:04:36,400
Speaker 1: and it's been an enormous economic boom, enormous positive for

972
01:04:36,440 --> 01:04:39,360
Speaker 1: the United States. I mean, one of the ironies is

973
01:04:39,520 --> 01:04:44,040
Speaker 1: that one of the the U S products that is

974
01:04:44,240 --> 01:04:49,320
Speaker 1: universally sold around the world that is wonderful is our

975
01:04:49,800 --> 01:04:53,960
Speaker 1: educational system you call it, you know, higher education, being

976
01:04:54,040 --> 01:04:57,120
Speaker 1: one of our most profound exports. Even though we actually

977
01:04:57,280 --> 01:05:01,480
Speaker 1: do it here, we're selling the product to the foreign customer.

978
01:05:01,720 --> 01:05:05,880
Speaker 1: The foreign customer comes here exceedingly well, and then we

979
01:05:05,920 --> 01:05:08,400
Speaker 1: won't let him stay and keep a job here. It

980
01:05:08,520 --> 01:05:12,320
Speaker 1: makes absolutely no sense. So this is a political issue.

981
01:05:12,440 --> 01:05:15,680
Speaker 1: It's a political issue, and I do understand the political issue,

982
01:05:16,080 --> 01:05:21,640
Speaker 1: which is that our immigration policy has been based historically

983
01:05:21,800 --> 01:05:27,000
Speaker 1: on family connections. You can bring family members over based

984
01:05:27,200 --> 01:05:32,560
Speaker 1: on economics. We are a nation of immigrants. Uh. We

985
01:05:32,680 --> 01:05:35,320
Speaker 1: can all trace our you know, origins back you know,

986
01:05:35,480 --> 01:05:37,640
Speaker 1: to this country or the other. You know. My dad

987
01:05:37,760 --> 01:05:41,440
Speaker 1: was scotch Irish, my mom was German. Uh, So there's

988
01:05:41,520 --> 01:05:45,800
Speaker 1: the that historical issue that uh, you earned the right

989
01:05:45,920 --> 01:05:49,240
Speaker 1: by birth to be in the United States. Uh. And

990
01:05:50,040 --> 01:05:54,320
Speaker 1: I think enlightened immigration reform is to is to preserve

991
01:05:55,360 --> 01:06:00,560
Speaker 1: that legacy, which is a treasure for us, but also

992
01:06:00,840 --> 01:06:06,600
Speaker 1: recognizing that we can have immigration policy that includes UH

993
01:06:07,240 --> 01:06:11,960
Speaker 1: having skilled people bring economic value to our country as well.

994
01:06:12,680 --> 01:06:14,800
Speaker 1: So it's not to me it's not one or the other.

995
01:06:15,720 --> 01:06:20,640
Speaker 1: It should be both. But anytime we talk about reform

996
01:06:20,960 --> 01:06:25,000
Speaker 1: of immigration, it seems like the political system is, well,

997
01:06:25,120 --> 01:06:27,160
Speaker 1: this is if we do this, then we have to

998
01:06:27,240 --> 01:06:29,880
Speaker 1: stop doing that. I think a blend of the two

999
01:06:30,400 --> 01:06:33,080
Speaker 1: could be a very positive, uh sort of thing for

1000
01:06:33,120 --> 01:06:36,280
Speaker 1: the country, and probably for the first time this month,

1001
01:06:36,520 --> 01:06:39,920
Speaker 1: this week, this year. I may even sound like a Republican.

1002
01:06:39,960 --> 01:06:42,640
Speaker 1: God forgive me. So why haven't we been able to

1003
01:06:42,720 --> 01:06:46,640
Speaker 1: get this done? Why can't we get a rational? I mean,

1004
01:06:46,720 --> 01:06:48,560
Speaker 1: we all know what the answer is, but why can't

1005
01:06:48,600 --> 01:06:51,560
Speaker 1: we get a rational? This is something that both sides

1006
01:06:51,600 --> 01:06:55,160
Speaker 1: of the aisle they have an interest in. B. There's

1007
01:06:55,160 --> 01:06:57,760
Speaker 1: a huge overlap. I won't I won't say they agree on,

1008
01:06:58,440 --> 01:07:01,320
Speaker 1: but that ven diagram has a lot of common area.

1009
01:07:01,680 --> 01:07:04,880
Speaker 1: We'll put Ben diagram. I don't know. I wish I

1010
01:07:05,080 --> 01:07:09,120
Speaker 1: knew the answer to that question, because you'd like to

1011
01:07:09,200 --> 01:07:13,400
Speaker 1: believe even though democracy is supposed to be in efficient

1012
01:07:13,440 --> 01:07:16,920
Speaker 1: so I don't complain too much about any efficiency in Washington,

1013
01:07:17,000 --> 01:07:20,000
Speaker 1: because that's how it was designed to be and efficient.

1014
01:07:20,320 --> 01:07:24,200
Speaker 1: But sometimes there's things that are so singularly obvious that

1015
01:07:24,360 --> 01:07:28,479
Speaker 1: should be done UH, that you would think they would

1016
01:07:29,360 --> 01:07:32,160
Speaker 1: get done. And actually after nine eleven there was one,

1017
01:07:32,520 --> 01:07:38,560
Speaker 1: which is outsourcing UH airport protection to private companies. We said, no,

1018
01:07:38,680 --> 01:07:41,640
Speaker 1: why we should actually have to government function? You know

1019
01:07:41,720 --> 01:07:44,400
Speaker 1: what I spoke to. We had Less Gelb as a

1020
01:07:44,520 --> 01:07:47,800
Speaker 1: guest recently, and um, one of the things he said

1021
01:07:47,840 --> 01:07:52,600
Speaker 1: that was really fascinating. So he here's a guy, incredibly

1022
01:07:52,640 --> 01:07:58,240
Speaker 1: storied background, UM working for Senator Jacob Javitt's a traditional

1023
01:07:59,360 --> 01:08:05,520
Speaker 1: liberal Northeast Republican center. Right, Well, the Javits Javits is

1024
01:08:05,560 --> 01:08:09,000
Speaker 1: no longer with us. That that that's completely gone, you know.

1025
01:08:09,320 --> 01:08:12,480
Speaker 1: But what he said was there were enough people who

1026
01:08:12,680 --> 01:08:17,760
Speaker 1: in the Senate that regardless of politics that he didn't

1027
01:08:17,760 --> 01:08:21,920
Speaker 1: say ven diagram, but that same ven diagram where you

1028
01:08:22,040 --> 01:08:24,760
Speaker 1: and I may degree about issue, disagree about issues one

1029
01:08:24,800 --> 01:08:27,960
Speaker 1: to three, four, five, but gee, we totally agree about

1030
01:08:28,000 --> 01:08:30,839
Speaker 1: six through ten. So let's hold one through five aside

1031
01:08:30,880 --> 01:08:33,080
Speaker 1: and get six through ten done and then we can

1032
01:08:33,080 --> 01:08:34,840
Speaker 1: see what we can figure out with one through five.

1033
01:08:35,320 --> 01:08:37,760
Speaker 1: According to him, that's gone away. And that's why this

1034
01:08:37,960 --> 01:08:42,040
Speaker 1: Congress has become such a do nothing congress, and it's

1035
01:08:42,120 --> 01:08:45,040
Speaker 1: why brings it back to the FED. They became the

1036
01:08:45,080 --> 01:08:48,599
Speaker 1: only game in town. Nothing was done that's normally done.

1037
01:08:48,680 --> 01:08:51,760
Speaker 1: I'm not saying anything radical or new needed to be done.

1038
01:08:52,280 --> 01:08:56,200
Speaker 1: All of the traditional post crisis fiscal things that you

1039
01:08:56,320 --> 01:08:59,479
Speaker 1: expect that happened as recently as two thousand just did

1040
01:08:59,600 --> 01:09:02,479
Speaker 1: not have been this time around. Yeah, it's um as

1041
01:09:02,560 --> 01:09:05,720
Speaker 1: a citizen, which I am first and foremost these days

1042
01:09:05,760 --> 01:09:11,719
Speaker 1: as a retired man, I I'm discouraged about the fact

1043
01:09:11,760 --> 01:09:14,600
Speaker 1: that Venn diagram as you speak of, she's just not

1044
01:09:14,800 --> 01:09:18,040
Speaker 1: really working in obvious sort of places. I don't think

1045
01:09:18,160 --> 01:09:21,840
Speaker 1: Congress could agree on velveta on white bread as a

1046
01:09:22,120 --> 01:09:25,080
Speaker 1: lunch sandwich anymore. I mean, worse it works at a

1047
01:09:25,120 --> 01:09:29,280
Speaker 1: debate about that, it's uh. The question is is it

1048
01:09:29,360 --> 01:09:32,400
Speaker 1: a self correcting mechanism? Is it gonna get so extreme?

1049
01:09:33,000 --> 01:09:35,880
Speaker 1: Is it gonna get so bad that the throm the

1050
01:09:36,080 --> 01:09:39,960
Speaker 1: throw the bums out response is gonna give us a

1051
01:09:40,160 --> 01:09:43,280
Speaker 1: fresh start? I don't know people who don't think it is.

1052
01:09:43,400 --> 01:09:45,880
Speaker 1: Some people think that it has to get worse before

1053
01:09:45,920 --> 01:09:49,840
Speaker 1: it gets better. Yeah, And actually that's one where I

1054
01:09:49,960 --> 01:09:53,519
Speaker 1: really don't have an informed opinion. The older I get,

1055
01:09:53,600 --> 01:09:56,000
Speaker 1: the more I recognize there are some areas I just

1056
01:09:56,160 --> 01:10:01,840
Speaker 1: won't ever be able to understand. Sausages make Washington. Uh,

1057
01:10:02,080 --> 01:10:04,800
Speaker 1: some things I was just never understand. It is what

1058
01:10:05,000 --> 01:10:08,720
Speaker 1: it is. So, speaking of being a retired man, you

1059
01:10:09,240 --> 01:10:14,280
Speaker 1: give a speech a month, that's retired. You're not publishing.

1060
01:10:15,080 --> 01:10:19,400
Speaker 1: I know that you like to bowl, What what else

1061
01:10:19,439 --> 01:10:23,240
Speaker 1: are you doing? I travel a fair amount. Yeah, with

1062
01:10:23,400 --> 01:10:26,360
Speaker 1: with with g I C. There seems to be events

1063
01:10:26,600 --> 01:10:29,439
Speaker 1: constantly all around the world. And and I traveled with

1064
01:10:29,479 --> 01:10:32,120
Speaker 1: the g I C occasionally, But in our speech a

1065
01:10:32,240 --> 01:10:36,680
Speaker 1: month actually involves a trip a month usually. Uh. And

1066
01:10:36,800 --> 01:10:38,800
Speaker 1: now that I'm retired, it's not just to go in

1067
01:10:39,720 --> 01:10:42,760
Speaker 1: uh and uh, give the speech and go back to

1068
01:10:42,840 --> 01:10:45,040
Speaker 1: the airport for instantly. You know. Was it? Last fall?

1069
01:10:45,520 --> 01:10:48,439
Speaker 1: I had a speech down in Argentina and spent five

1070
01:10:48,560 --> 01:10:52,960
Speaker 1: days in Argentina. That's fun, that's fun. Uh. Actually, I

1071
01:10:53,040 --> 01:10:56,720
Speaker 1: have not been back to China since I've retired. During

1072
01:10:56,800 --> 01:11:02,599
Speaker 1: my active career, I went to China on business twenty

1073
01:11:02,680 --> 01:11:06,920
Speaker 1: six times really starting in nineteen ninete. So you've seen

1074
01:11:06,960 --> 01:11:11,320
Speaker 1: insane changes, and I've seen insane changes since nineteen But

1075
01:11:11,400 --> 01:11:16,599
Speaker 1: what I haven't seen, actually is the wall? Really? Twenty

1076
01:11:16,640 --> 01:11:18,920
Speaker 1: six trips never so you need it, You need a

1077
01:11:19,000 --> 01:11:21,479
Speaker 1: tourist trip to change. Yeah. I heard I was shooting

1078
01:11:21,479 --> 01:11:24,000
Speaker 1: The Breeze with Bill Gross about it and I said, Bill,

1079
01:11:24,040 --> 01:11:26,960
Speaker 1: I've been to China twenty six times and yet to

1080
01:11:27,040 --> 01:11:29,960
Speaker 1: see the wall. And he looked at me like, how

1081
01:11:30,080 --> 01:11:33,280
Speaker 1: is that possible? How is that possible? And then I said, Bill,

1082
01:11:33,360 --> 01:11:35,720
Speaker 1: I was working for your company. Oh, now I get it,

1083
01:11:36,760 --> 01:11:39,040
Speaker 1: you know, in and out. So actually, the next time

1084
01:11:39,200 --> 01:11:42,960
Speaker 1: I get a invitation to a group that I want

1085
01:11:43,000 --> 01:11:45,720
Speaker 1: to speak to in China, I'm want to see that wall.

1086
01:11:45,880 --> 01:11:48,200
Speaker 1: So you'll you'll build in an extra week of some

1087
01:11:48,439 --> 01:11:52,120
Speaker 1: tourist activities. Speaking of Bill Gross, so we talked a

1088
01:11:52,160 --> 01:11:55,439
Speaker 1: little bit about him professionally. But you guys are really budds.

1089
01:11:55,479 --> 01:11:59,320
Speaker 1: You hang out. Yeah, yeah, we do, particularly over the

1090
01:11:59,479 --> 01:12:05,679
Speaker 1: last Um you're eighteen months uh time at my home.

1091
01:12:06,520 --> 01:12:09,800
Speaker 1: You're in Newport Beach, Calibania, which, by the way, for

1092
01:12:09,920 --> 01:12:12,160
Speaker 1: those of you who haven't been there, I'll put your

1093
01:12:12,240 --> 01:12:14,680
Speaker 1: dress up on the website so people can stop by.

1094
01:12:14,800 --> 01:12:17,720
Speaker 1: But I found Newport Beach to be one of the

1095
01:12:17,880 --> 01:12:22,640
Speaker 1: I gave a speech at the Newport Beach Public Library

1096
01:12:23,360 --> 01:12:27,600
Speaker 1: PIMCO series. I found Newport Beach to be one of

1097
01:12:27,760 --> 01:12:30,679
Speaker 1: the most beautiful places I've ever been to in my life.

1098
01:12:31,080 --> 01:12:33,600
Speaker 1: It's spect you know what it is. It's the Hampton's

1099
01:12:33,720 --> 01:12:38,120
Speaker 1: meets Fire Island. It's these big, gorgeous houses, but instead

1100
01:12:38,160 --> 01:12:41,160
Speaker 1: of being on two acre estates with giant hedges, it's

1101
01:12:41,200 --> 01:12:43,679
Speaker 1: like Fire Island there shoulder or shoulder right on the water.

1102
01:12:44,280 --> 01:12:46,360
Speaker 1: And what is the beach right on the other side

1103
01:12:46,439 --> 01:12:49,360
Speaker 1: of the body of water that's there. The there's a

1104
01:12:49,479 --> 01:12:55,000
Speaker 1: public park over there, something with a b bar. Balboa

1105
01:12:55,120 --> 01:12:58,920
Speaker 1: Island which is also lovely. Yeah. In fact, my home

1106
01:12:59,040 --> 01:13:02,400
Speaker 1: is actually on Leado Island, which is off of Balboa

1107
01:13:02,600 --> 01:13:08,400
Speaker 1: or off of actually the Newport Harbor has uh seven islands. Uh.

1108
01:13:08,760 --> 01:13:12,719
Speaker 1: Balboa is a beak one that's also a tourist place

1109
01:13:12,840 --> 01:13:16,639
Speaker 1: with lots of commercials. Uh. Leedo is strictly residential. There's

1110
01:13:16,680 --> 01:13:19,880
Speaker 1: not nothing commercial on Leedo. And then there's Harbor Island.

1111
01:13:19,920 --> 01:13:21,880
Speaker 1: There's seven islands. Can you drive to that or doesn't

1112
01:13:21,880 --> 01:13:25,200
Speaker 1: take a there's a bridge so you can drive. There's

1113
01:13:25,240 --> 01:13:28,960
Speaker 1: one bridge to get onto. Uh, actually both islands. Um,

1114
01:13:29,680 --> 01:13:33,479
Speaker 1: there is a ferry to Balboa Island that it took

1115
01:13:33,560 --> 01:13:37,880
Speaker 1: three minutes. There's not a ferry to Leado. Bill actually

1116
01:13:37,960 --> 01:13:40,920
Speaker 1: lives doesn't live in Newport Beach. He lives in Laguna Beach,

1117
01:13:42,080 --> 01:13:46,400
Speaker 1: which is you know, it's actually the other direction, and

1118
01:13:46,600 --> 01:13:51,080
Speaker 1: in a beautiful home overlooking uh the ocean. Uh. And

1119
01:13:51,240 --> 01:13:54,000
Speaker 1: he and actually bowled together in neither place. We bowl

1120
01:13:54,080 --> 01:13:58,280
Speaker 1: together and Fountain Valley, which has the best bowling alley

1121
01:13:58,320 --> 01:14:00,880
Speaker 1: in the in the area. So you're telling me people

1122
01:14:01,000 --> 01:14:03,800
Speaker 1: walk into a bowling league and there's Bill Gross and

1123
01:14:03,840 --> 01:14:07,960
Speaker 1: Paul McCulley bowling, it wouldn't be a leg. But if

1124
01:14:07,960 --> 01:14:11,320
Speaker 1: you come by out on a Tuesday afternoon at three o'clock,

1125
01:14:11,400 --> 01:14:14,680
Speaker 1: you can very well run into me and Bill bowling. Yeah. Um,

1126
01:14:15,479 --> 01:14:19,040
Speaker 1: are you a good buller? I'm a pretty good bowler. Uh.

1127
01:14:19,600 --> 01:14:22,040
Speaker 1: It's one of my things I like to do. I

1128
01:14:22,160 --> 01:14:24,960
Speaker 1: like to fish, I like to bowl, I like to

1129
01:14:25,080 --> 01:14:28,720
Speaker 1: ride my bike, and I bowled a lot more in

1130
01:14:28,920 --> 01:14:31,760
Speaker 1: recent years. I'm probably about a one NINETI average something like.

1131
01:14:32,520 --> 01:14:36,519
Speaker 1: Is he a good bowler? Bill is a very good athlete. Really,

1132
01:14:37,120 --> 01:14:42,560
Speaker 1: he's not bowling, has never been his particular sport. But

1133
01:14:42,680 --> 01:14:46,599
Speaker 1: when he started bowling with me, uh, he got progressively better.

1134
01:14:46,720 --> 01:14:50,439
Speaker 1: And and I wouldn't venture what he uh would roll

1135
01:14:50,520 --> 01:14:52,439
Speaker 1: on an average because we don't roll enough that he

1136
01:14:52,520 --> 01:14:56,519
Speaker 1: would because I go to or three times a week. Yeah,

1137
01:14:56,640 --> 01:15:00,320
Speaker 1: and not in Bill and I go occasionally. Uh. But

1138
01:15:00,479 --> 01:15:04,800
Speaker 1: he's a very very good athlete. Uh. And actually uh,

1139
01:15:04,920 --> 01:15:08,080
Speaker 1: this goes back about five months ago. We actually went

1140
01:15:08,160 --> 01:15:10,080
Speaker 1: once with his wife too. We had a great time,

1141
01:15:10,760 --> 01:15:16,120
Speaker 1: uh when Sue went with his bowling, but once Bill

1142
01:15:16,240 --> 01:15:18,800
Speaker 1: just shot good an athlete, he is made the six

1143
01:15:19,520 --> 01:15:23,200
Speaker 1: seven ten split. I've been bowling for thirty years and

1144
01:15:23,240 --> 01:15:26,000
Speaker 1: I've only made it three or four times. And he

1145
01:15:26,439 --> 01:15:29,280
Speaker 1: as a rare bowler. I don't think he bowled, you

1146
01:15:29,360 --> 01:15:31,160
Speaker 1: know much. And you know, since you know his kids

1147
01:15:31,200 --> 01:15:35,560
Speaker 1: were a little made the six seven ten splits. So

1148
01:15:36,360 --> 01:15:38,080
Speaker 1: you know, if you ever see him, just say, what

1149
01:15:38,200 --> 01:15:40,400
Speaker 1: did it feel like to make the six seven ten split.

1150
01:15:40,880 --> 01:15:43,280
Speaker 1: It's a nice feeling. Let me tell you, I'm still

1151
01:15:43,640 --> 01:15:46,040
Speaker 1: holding one sort of thing. I'm still I'm still it's

1152
01:15:46,080 --> 01:15:48,160
Speaker 1: it's kind of like a holding one. I'm still wrapping

1153
01:15:48,360 --> 01:15:52,439
Speaker 1: my head around the the two of you bowling. That

1154
01:15:52,640 --> 01:15:56,479
Speaker 1: that's that's a hard that's a hard um image to

1155
01:15:56,840 --> 01:15:58,840
Speaker 1: to get on him. So that's a picture that would

1156
01:15:58,840 --> 01:16:02,800
Speaker 1: make Bloomberg if someone to it, absolutely would make Bloomberg.

1157
01:16:02,840 --> 01:16:06,720
Speaker 1: There's no doubt in my mind. It is a just Um,

1158
01:16:09,520 --> 01:16:15,080
Speaker 1: I'm I'm struck somewhat uh speechless. So so clearly your

1159
01:16:15,120 --> 01:16:18,720
Speaker 1: relationship goes way back. Would you consider to consider Bill

1160
01:16:18,800 --> 01:16:25,000
Speaker 1: Gross a mentor of yours? Yeah? I would, uh tell

1161
01:16:25,080 --> 01:16:27,560
Speaker 1: us about the early days when you said he's a

1162
01:16:27,600 --> 01:16:31,000
Speaker 1: guy who hired an unemployed kid? What what was that

1163
01:16:31,120 --> 01:16:34,360
Speaker 1: experience like? What was it like starting a job with

1164
01:16:34,520 --> 01:16:38,240
Speaker 1: a guy. Even then he was fairly storied. People were

1165
01:16:38,560 --> 01:16:42,160
Speaker 1: starting to know who he was. This is nineteen ninety. Um,

1166
01:16:43,520 --> 01:16:51,560
Speaker 1: I think he engenders beer. Mm hmm. Supposed to be

1167
01:16:51,600 --> 01:16:53,840
Speaker 1: a tough guy if you're just a kid out of school,

1168
01:16:54,000 --> 01:16:56,120
Speaker 1: supposed to be a tough guy to work for. He

1169
01:16:56,360 --> 01:16:59,439
Speaker 1: is a tough guy to work for. He has uh

1170
01:16:59,640 --> 01:17:04,839
Speaker 1: low tolerance for beating around the bush. What doesn't suffer fools? Gladly,

1171
01:17:05,040 --> 01:17:06,800
Speaker 1: that's another way of putting it. If he asked you

1172
01:17:06,880 --> 01:17:11,519
Speaker 1: a question, he wants one of two things, A detailed, complete,

1173
01:17:11,560 --> 01:17:15,120
Speaker 1: accurate answer or I don't know, sir, I'll be back

1174
01:17:15,160 --> 01:17:18,240
Speaker 1: to you tomorrow morning. If you can't give him one

1175
01:17:18,240 --> 01:17:21,439
Speaker 1: of those two answers but are somewhere in between, you

1176
01:17:21,560 --> 01:17:26,960
Speaker 1: have a problem. There's no problem saying Bill, I don't know.

1177
01:17:28,080 --> 01:17:30,320
Speaker 1: I will have a memo on your desk tomorrow morning

1178
01:17:30,479 --> 01:17:32,800
Speaker 1: with a complete answer. You better have the memo onning

1179
01:17:32,880 --> 01:17:35,200
Speaker 1: is ask tomorrow morning with a complete answer. That's a

1180
01:17:35,280 --> 01:17:39,160
Speaker 1: fine answer. If you have the answer in detail when

1181
01:17:39,240 --> 01:17:41,880
Speaker 1: he asked you, that's a great thing. What's not a

1182
01:17:41,960 --> 01:17:45,400
Speaker 1: good thing is to try to bluff him with bull stuff.

1183
01:17:46,200 --> 01:17:48,599
Speaker 1: And I don't I take him as a guy who's

1184
01:17:48,960 --> 01:17:51,160
Speaker 1: a pretty good poker player, you probably don't want to

1185
01:17:51,160 --> 01:17:56,800
Speaker 1: bluff him. You don't want to bluff him. Uh. And

1186
01:17:57,120 --> 01:18:00,680
Speaker 1: also he has um. This is an interesting aspect of

1187
01:18:01,200 --> 01:18:04,720
Speaker 1: Bill that very few people know. I mean, he's known

1188
01:18:04,920 --> 01:18:08,120
Speaker 1: as you know, a tough boss, and he is tough

1189
01:18:08,200 --> 01:18:11,680
Speaker 1: I think fair but also a very tough boss and

1190
01:18:11,760 --> 01:18:13,920
Speaker 1: you know, a very close but he still you know,

1191
01:18:14,439 --> 01:18:16,599
Speaker 1: you know, in in the latter years of my career,

1192
01:18:16,680 --> 01:18:19,080
Speaker 1: would go off on me sometimes and I could go

1193
01:18:19,200 --> 01:18:21,280
Speaker 1: off back at him. That's a big difference because we've

1194
01:18:21,320 --> 01:18:26,040
Speaker 1: reached that stage of of friendship. Um. But he's still

1195
01:18:26,240 --> 01:18:29,600
Speaker 1: to this day, believes that all of his success is

1196
01:18:29,680 --> 01:18:34,400
Speaker 1: the function of the client, and he's absolutely marvelous with clients.

1197
01:18:34,680 --> 01:18:39,479
Speaker 1: He's not gruff. And actually he is amazingly receptive to

1198
01:18:39,600 --> 01:18:43,400
Speaker 1: the fact that I'm rich because I'm delivering what the

1199
01:18:43,560 --> 01:18:46,200
Speaker 1: client wants. And if I don't know what the client wants,

1200
01:18:46,680 --> 01:18:49,679
Speaker 1: I shut up and I listened. Uh. So, actually, Build

1201
01:18:49,720 --> 01:18:53,800
Speaker 1: is an amazingly good listener to clients uh and is

1202
01:18:53,880 --> 01:18:58,000
Speaker 1: very good with clients. UH. And Uh He's different with

1203
01:18:58,200 --> 01:19:01,640
Speaker 1: employees who uh are trying to blow smoke up his

1204
01:19:01,760 --> 01:19:05,400
Speaker 1: back side, but with clients he's amazingly good. Um. Who

1205
01:19:05,479 --> 01:19:13,400
Speaker 1: else would you count as as mentors? Uh? Obviously I

1206
01:19:13,520 --> 01:19:17,640
Speaker 1: never knew either John Maynard Keynes or Hyman Minsky, but

1207
01:19:17,760 --> 01:19:24,400
Speaker 1: they had a profound impact on me intellectually. Uh. Bill Miller,

1208
01:19:25,240 --> 01:19:30,519
Speaker 1: of like Mason fame U, is a close personal friend

1209
01:19:30,800 --> 01:19:37,920
Speaker 1: and mentored me. Uh. And being able to fluently move

1210
01:19:38,080 --> 01:19:42,240
Speaker 1: back and forth between valuation in the bond market and

1211
01:19:42,479 --> 01:19:47,000
Speaker 1: valuation in the equity market. So I learned a great

1212
01:19:47,160 --> 01:19:49,559
Speaker 1: deal from Bill Miller. I don't you ever had Bill

1213
01:19:49,760 --> 01:19:53,000
Speaker 1: on one of your guests short, you know what make

1214
01:19:53,080 --> 01:19:56,280
Speaker 1: the introduction. I would love to to have a conversation

1215
01:19:56,320 --> 01:20:00,040
Speaker 1: with him. He's a fascinating, fascinating guy. People. Don't you

1216
01:20:00,080 --> 01:20:02,519
Speaker 1: know who else I know who is tight with him

1217
01:20:02,640 --> 01:20:07,200
Speaker 1: is Michael Mosa mom Mobisan of Colombia and now um

1218
01:20:07,920 --> 01:20:10,920
Speaker 1: formerly of Credit Swiss, and or is he now Credit Swiss,

1219
01:20:10,960 --> 01:20:13,400
Speaker 1: formerly of like Mason, But he's someone else who worked

1220
01:20:13,439 --> 01:20:16,320
Speaker 1: with Miller. Everything I've read about the guy. First of all,

1221
01:20:16,400 --> 01:20:20,519
Speaker 1: the streak is unpressed fifteen consecutive. He is a beating

1222
01:20:20,520 --> 01:20:25,200
Speaker 1: the SMB. Some people are going to insist it's just random,

1223
01:20:25,360 --> 01:20:28,160
Speaker 1: but I don't know that that's just there are too

1224
01:20:28,240 --> 01:20:30,840
Speaker 1: many fund managers for it to be one guy for

1225
01:20:31,000 --> 01:20:35,439
Speaker 1: fifteen years. That that's really amazing. I he obviously was

1226
01:20:35,520 --> 01:20:39,760
Speaker 1: on the wrong side of the Minsky moment um, but

1227
01:20:40,040 --> 01:20:44,120
Speaker 1: now is living a story of redemption and doing exceedingly

1228
01:20:44,280 --> 01:20:47,320
Speaker 1: well the fund. At least there's the you know, the

1229
01:20:47,920 --> 01:20:51,280
Speaker 1: two thousd the the crisis year has hurt. His long

1230
01:20:51,439 --> 01:20:55,400
Speaker 1: term total track record is batting average, but the past

1231
01:20:55,439 --> 01:20:59,960
Speaker 1: five years has been pretty darn good for him. A. Yeah,

1232
01:21:00,080 --> 01:21:04,519
Speaker 1: they have. And the word mentor is a very special

1233
01:21:04,600 --> 01:21:07,240
Speaker 1: word for me that I would not, you know, want

1234
01:21:07,320 --> 01:21:10,519
Speaker 1: to burden A lot of people with are saying you've

1235
01:21:10,520 --> 01:21:12,439
Speaker 1: been There's been a lot of people who have been

1236
01:21:13,240 --> 01:21:18,599
Speaker 1: influential uh in my thought process that I know personally. Uh.

1237
01:21:18,920 --> 01:21:21,519
Speaker 1: And so I'm not suggesting that that that they're you know,

1238
01:21:22,000 --> 01:21:27,280
Speaker 1: not others as well. I have benefited enormously over a

1239
01:21:27,360 --> 01:21:32,120
Speaker 1: long period of time, uh from um, from from Paul

1240
01:21:32,160 --> 01:21:38,559
Speaker 1: Krugman's work and Kens Krugman, Minsky, Bill Miller, Bill Gross

1241
01:21:39,280 --> 01:21:41,960
Speaker 1: That that's a murders row right there. That's that's that's

1242
01:21:41,960 --> 01:21:43,960
Speaker 1: a pretty good group of people. Let's let's talk about

1243
01:21:44,000 --> 01:21:46,720
Speaker 1: Minsky a little bit, because I don't think people really know,

1244
01:21:47,040 --> 01:21:51,080
Speaker 1: especially late people don't know who Himan Minsky was. He

1245
01:21:51,280 --> 01:21:56,160
Speaker 1: unfortunately passed away before his work started to be really

1246
01:21:56,280 --> 01:21:59,840
Speaker 1: recognized as as seminal as it is. And I'm gonna

1247
01:22:00,000 --> 01:22:05,800
Speaker 1: coming up in a quick sentence, which is stability begets instability.

1248
01:22:06,600 --> 01:22:09,400
Speaker 1: Let's describe that discussed that because you've written more about

1249
01:22:09,439 --> 01:22:14,160
Speaker 1: Minsky and you've probably done more to bring Minsky to

1250
01:22:14,320 --> 01:22:17,800
Speaker 1: the mainstream of economics than just about anybody else out there.

1251
01:22:18,320 --> 01:22:22,320
Speaker 1: Thank you. I really appreciate that Minsky built upon what

1252
01:22:22,720 --> 01:22:28,519
Speaker 1: Kines did. Uh. In fact, I can find most of

1253
01:22:28,760 --> 01:22:32,880
Speaker 1: what Minsky wrote about in chapter twelve of the general theory.

1254
01:22:34,240 --> 01:22:36,400
Speaker 1: That's one of my fund sort of things to ask people.

1255
01:22:36,560 --> 01:22:40,160
Speaker 1: What is your favorite chapter of the general theory? Uh?

1256
01:22:40,280 --> 01:22:45,120
Speaker 1: Mine is obviously chapter twelve. We're effectively founded behavioral economics

1257
01:22:45,280 --> 01:22:52,960
Speaker 1: and Minsky uh financial instability apothesis is very straightforward, which is,

1258
01:22:53,040 --> 01:22:58,040
Speaker 1: as you put it, stability breeds instability because it changes behavior,

1259
01:22:58,360 --> 01:23:02,760
Speaker 1: changes people's risk efforts, risk appetite. UH. So I would

1260
01:23:02,800 --> 01:23:06,720
Speaker 1: say he's one of the founders of behavioral economics. Uh.

1261
01:23:07,080 --> 01:23:10,760
Speaker 1: In contrast to the Chicago school that every decision or

1262
01:23:10,840 --> 01:23:14,480
Speaker 1: every transaction you make is based upon a full calculus

1263
01:23:14,560 --> 01:23:19,559
Speaker 1: of rationality. UM, I don't know anybody of that nature.

1264
01:23:20,120 --> 01:23:24,240
Speaker 1: That your decisions are a function or path dependent or

1265
01:23:24,280 --> 01:23:28,080
Speaker 1: a function of what has happened previously, and that human

1266
01:23:28,200 --> 01:23:34,040
Speaker 1: beings tend to put an extraordinary amount of focus on

1267
01:23:34,439 --> 01:23:38,800
Speaker 1: bad things having happened. So therefore, if nothing bad has

1268
01:23:38,840 --> 01:23:42,679
Speaker 1: happened for a while, life has been stable, nothing bad

1269
01:23:42,800 --> 01:23:47,200
Speaker 1: is happening, then they ramp up their risk. But interestingly,

1270
01:23:47,280 --> 01:23:50,360
Speaker 1: when they're ramping up their risk, that means they're barring

1271
01:23:50,439 --> 01:23:54,920
Speaker 1: more money and driving up asset prices, so that everyone says, well,

1272
01:23:54,920 --> 01:23:58,320
Speaker 1: that was really smart. More leverage is good, so therefore

1273
01:23:59,439 --> 01:24:03,200
Speaker 1: you know lad rents and repeat. Uh So, essentially a

1274
01:24:03,360 --> 01:24:10,000
Speaker 1: Minsky journey is essentially lather, rinse, and repeat until something

1275
01:24:10,160 --> 01:24:15,360
Speaker 1: goes wrong. And when something goes wrong, it goes disaster

1276
01:24:15,680 --> 01:24:18,240
Speaker 1: ly wrong. And Minsky had a nice phrase for it

1277
01:24:18,840 --> 01:24:22,000
Speaker 1: is when essentially the guy who has become the most

1278
01:24:22,200 --> 01:24:27,720
Speaker 1: risk seeking has to sell book to make book. Now

1279
01:24:27,880 --> 01:24:31,639
Speaker 1: describe that. In other words, a person is highly leveraged

1280
01:24:31,680 --> 01:24:35,160
Speaker 1: and assets that are suddenly no longer going up and

1281
01:24:35,320 --> 01:24:38,519
Speaker 1: generates either a margin call or some other factors that

1282
01:24:38,720 --> 01:24:42,880
Speaker 1: leads to there were a buyer, now they're a leverage buyer,

1283
01:24:43,439 --> 01:24:46,080
Speaker 1: and now they're a de leveraging seller. Yeah, and I

1284
01:24:46,479 --> 01:24:48,560
Speaker 1: guess around what we were talking about fire sales. But

1285
01:24:48,720 --> 01:24:52,280
Speaker 1: it's always love that Minsky phrase. You have to sell

1286
01:24:52,439 --> 01:24:57,280
Speaker 1: book to make book, satisfy your margins. In order to

1287
01:24:57,320 --> 01:25:00,120
Speaker 1: stay solvent, you have to start liquidating positions. And then

1288
01:25:00,160 --> 01:25:03,080
Speaker 1: you get into the paradox of aggregation of everybody is

1289
01:25:03,120 --> 01:25:09,080
Speaker 1: selling book to make book. Where's the bid? Where the bid? So?

1290
01:25:09,439 --> 01:25:12,920
Speaker 1: So that's it's funny because I love how different people

1291
01:25:13,000 --> 01:25:15,720
Speaker 1: I speak to. It's the six blind men describe the

1292
01:25:15,840 --> 01:25:20,240
Speaker 1: elephant where you end up with a very very different

1293
01:25:21,360 --> 01:25:24,920
Speaker 1: perspective of some aspect of Wall Street. But you're really

1294
01:25:25,640 --> 01:25:28,960
Speaker 1: saying the same thing, So you know, Rob are not right.

1295
01:25:29,360 --> 01:25:31,600
Speaker 1: So Rob Rob was one of our earliest guests, and

1296
01:25:31,680 --> 01:25:35,040
Speaker 1: one of the things he describes when when you're looking

1297
01:25:35,320 --> 01:25:41,000
Speaker 1: at a market, if you're actually if you're actually in

1298
01:25:41,160 --> 01:25:47,960
Speaker 1: a traditional market cap based index, what happens, courtesy of

1299
01:25:48,080 --> 01:25:52,680
Speaker 1: Minsky towards the end of that bull cycle is everybody

1300
01:25:52,840 --> 01:25:56,400
Speaker 1: is piling in and they're piling into fewer and fewer names,

1301
01:25:56,840 --> 01:25:59,080
Speaker 1: and so what happens in the end of that cycle

1302
01:25:59,240 --> 01:26:02,800
Speaker 1: is you have this use huge spasm up and then

1303
01:26:02,880 --> 01:26:07,200
Speaker 1: this giant collapsed down, and because you're in cap weighted equities,

1304
01:26:07,800 --> 01:26:11,840
Speaker 1: you end up having a much worse down draft than

1305
01:26:11,960 --> 01:26:16,160
Speaker 1: you would have if that index was created not cap cap.

1306
01:26:16,520 --> 01:26:19,080
Speaker 1: It's a genius and I used the word on purpose

1307
01:26:19,200 --> 01:26:23,840
Speaker 1: genius of what Rob has done with his fundamental indexes. Oh,

1308
01:26:23,960 --> 01:26:27,080
Speaker 1: I forget you guys. So for those of you who

1309
01:26:27,120 --> 01:26:31,000
Speaker 1: haven't listened to the r No Interview, strongly recommend go

1310
01:26:31,120 --> 01:26:34,120
Speaker 1: to iTunes. Pull it down. It's really fascinating. But not

1311
01:26:34,320 --> 01:26:38,200
Speaker 1: only does his models run a hundred plus or maybe

1312
01:26:38,240 --> 01:26:41,880
Speaker 1: it's closer to two plus billion dollars now based on

1313
01:26:42,160 --> 01:26:45,519
Speaker 1: his models, but he also was running almost a hundred

1314
01:26:45,560 --> 01:26:49,280
Speaker 1: billion dollars of pimco um assets. I don't know what

1315
01:26:49,600 --> 01:26:51,479
Speaker 1: what what that number is now. Maybe it was eighty

1316
01:26:51,560 --> 01:26:55,520
Speaker 1: million if I remember correctly using his math and Pimco's

1317
01:26:55,520 --> 01:27:01,280
Speaker 1: assetmag Actually, he's expanded his relationship with pim since I

1318
01:27:01,439 --> 01:27:04,640
Speaker 1: retired the second time, So I actually don't exactly the

1319
01:27:04,760 --> 01:27:07,559
Speaker 1: nature of it. It's he does a lot of asset

1320
01:27:07,600 --> 01:27:12,439
Speaker 1: allocation as well as his fundamental indexes. Very very smart

1321
01:27:12,720 --> 01:27:15,640
Speaker 1: man and actually one of I've known Rob for a

1322
01:27:15,840 --> 01:27:19,600
Speaker 1: long long time. Uh we go back to you know,

1323
01:27:20,400 --> 01:27:23,400
Speaker 1: I know, twenty years or something of that nature. You know,

1324
01:27:23,600 --> 01:27:26,439
Speaker 1: just his fellow wants and even when he and I

1325
01:27:26,800 --> 01:27:31,080
Speaker 1: vehemently disagree on something, we enjoy having a discussion because

1326
01:27:31,120 --> 01:27:33,639
Speaker 1: we learn from each other and that's the fun part

1327
01:27:33,840 --> 01:27:37,240
Speaker 1: of this business. I describe him as a rational conservative.

1328
01:27:38,680 --> 01:27:42,840
Speaker 1: That's a very very good way of putting it, because

1329
01:27:42,880 --> 01:27:46,240
Speaker 1: he's data driven. You may disagree with him about something,

1330
01:27:46,720 --> 01:27:49,000
Speaker 1: but you're never gonna say, ah, this guy's a wing nut.

1331
01:27:49,080 --> 01:27:51,920
Speaker 1: He's just making stuff up. When I disagree with Rob

1332
01:27:52,000 --> 01:27:54,519
Speaker 1: about something, it forces me to go back and say,

1333
01:27:55,080 --> 01:27:57,400
Speaker 1: let me think about this, because if he's saying this,

1334
01:27:58,200 --> 01:28:00,840
Speaker 1: there's gonna be some data underneath, and there's going to

1335
01:28:00,920 --> 01:28:03,719
Speaker 1: be an analysis, and then you have to find either

1336
01:28:03,920 --> 01:28:06,880
Speaker 1: where he's off a little bit in his trajectory and

1337
01:28:07,000 --> 01:28:09,160
Speaker 1: that's what sent him down the wrong road, or where

1338
01:28:09,200 --> 01:28:12,400
Speaker 1: your belief system has a flaw in it. And not

1339
01:28:12,560 --> 01:28:15,400
Speaker 1: a lot of people can do that in a way

1340
01:28:15,520 --> 01:28:18,559
Speaker 1: that is, oh, you know, there's got to be something

1341
01:28:18,640 --> 01:28:21,360
Speaker 1: to that. In fact, the longer we are in this

1342
01:28:21,800 --> 01:28:25,960
Speaker 1: business probably also reflected age as well. Speak for yourself,

1343
01:28:26,040 --> 01:28:32,439
Speaker 1: I'm not age seven all day long. Um. The more

1344
01:28:33,680 --> 01:28:39,240
Speaker 1: from the standpoint of debate and discussions is it's all

1345
01:28:39,360 --> 01:28:45,719
Speaker 1: about wanting to gather with people who help you think.

1346
01:28:46,560 --> 01:28:49,080
Speaker 1: It's not a matter whether or not they're right or wrong,

1347
01:28:49,800 --> 01:28:54,760
Speaker 1: but who challenge your intellectual horsepower. We see that with

1348
01:28:54,840 --> 01:28:57,479
Speaker 1: the guys we hang out with Fishing, you know, over

1349
01:28:57,560 --> 01:29:01,760
Speaker 1: the years and we have vehement agreements. But part of

1350
01:29:02,080 --> 01:29:05,439
Speaker 1: having a disagreement is it forces you to think, did

1351
01:29:05,520 --> 01:29:08,200
Speaker 1: I miss something. I'll tell you something. I'll tell you

1352
01:29:08,320 --> 01:29:12,519
Speaker 1: two guys. Well, there's a whole run of guys up

1353
01:29:12,560 --> 01:29:15,920
Speaker 1: at Camp Kotalk. I mean, I'm friends with Rosie for years,

1354
01:29:16,439 --> 01:29:18,760
Speaker 1: and he and I are often on the opposite sides

1355
01:29:18,800 --> 01:29:22,840
Speaker 1: of stuff, but he forces me like it's he makes

1356
01:29:22,920 --> 01:29:25,360
Speaker 1: my arguments better because he forces me to go back

1357
01:29:25,920 --> 01:29:28,640
Speaker 1: and come up with specific responses what about this? What

1358
01:29:28,760 --> 01:29:31,840
Speaker 1: about that? And he's also a walking inside. You could say,

1359
01:29:32,280 --> 01:29:34,960
Speaker 1: what was the non farm payrolls in October, you know,

1360
01:29:35,120 --> 01:29:38,640
Speaker 1: two thousand and three and he'll answer so so that

1361
01:29:38,760 --> 01:29:41,680
Speaker 1: becomes a real challenge to debate him because he can

1362
01:29:41,760 --> 01:29:46,120
Speaker 1: pull stuff like like nobody uh. Stut Taylor of Advance

1363
01:29:46,240 --> 01:29:50,519
Speaker 1: is another one who I've never enjoyed disagreeing with someone

1364
01:29:50,640 --> 01:29:54,760
Speaker 1: more than Stu because we're often on the opposite sides

1365
01:29:54,800 --> 01:29:58,120
Speaker 1: of stuff, and he'll lay out an argument and it's

1366
01:29:58,200 --> 01:30:01,920
Speaker 1: not just you know, the global warming guys are crazy

1367
01:30:02,000 --> 01:30:04,880
Speaker 1: and there everything they said the assumption is built in

1368
01:30:05,840 --> 01:30:09,280
Speaker 1: are all factually wrong, and it's just you can you know.

1369
01:30:09,360 --> 01:30:11,640
Speaker 1: I love the famous quote never try and teach a

1370
01:30:11,680 --> 01:30:13,320
Speaker 1: pick to sing it waste your time and a noise

1371
01:30:13,400 --> 01:30:17,560
Speaker 1: to pick. Hold that aside when when I disagree with

1372
01:30:17,840 --> 01:30:22,559
Speaker 1: stew Taylor or Dave Rosenberg or Doug cass is another one.

1373
01:30:22,640 --> 01:30:25,759
Speaker 1: Doug and I are almost always on the opposite sides

1374
01:30:25,800 --> 01:30:28,960
Speaker 1: of the equity trade. But he makes me go back

1375
01:30:29,200 --> 01:30:34,080
Speaker 1: and defend the position because now sometimes we're just looking

1376
01:30:34,080 --> 01:30:38,120
Speaker 1: at different timelines, but other times he's making an argument. Hey,

1377
01:30:38,200 --> 01:30:41,320
Speaker 1: here's where the sentiment is. You're you're bullish, embarish, look

1378
01:30:41,360 --> 01:30:43,080
Speaker 1: at this, look at that, and you have to really

1379
01:30:43,160 --> 01:30:48,280
Speaker 1: go back and very carefully take those arguments apart. It's

1380
01:30:48,320 --> 01:30:52,520
Speaker 1: fascinating and there's no doubt my mind, rob are not absolutely.

1381
01:30:53,200 --> 01:30:57,040
Speaker 1: I've begotten to known over the years a little bit

1382
01:30:57,280 --> 01:31:02,880
Speaker 1: Cliff Fastness, who is another like raw, brilliant guy, brilliant mathematician,

1383
01:31:03,360 --> 01:31:06,679
Speaker 1: but also can speak English in a coherent fashion, which

1384
01:31:06,760 --> 01:31:09,800
Speaker 1: is relatively again the ven diagram of those two, that's

1385
01:31:09,800 --> 01:31:14,040
Speaker 1: a smaller overlap. He's another guy that I disagree with him.

1386
01:31:14,320 --> 01:31:17,280
Speaker 1: But if Aston says something that I disagree with, man,

1387
01:31:17,400 --> 01:31:20,560
Speaker 1: I have to go back and say, um gee, what

1388
01:31:20,680 --> 01:31:24,040
Speaker 1: am I doing here that he disagrees with? What assumptions

1389
01:31:24,120 --> 01:31:26,920
Speaker 1: do I have? Where is the model wrong? Where is

1390
01:31:26,920 --> 01:31:31,000
Speaker 1: the conclusion not supported by the data? Because he doesn't

1391
01:31:31,200 --> 01:31:34,439
Speaker 1: just on a whim say something. There is always a

1392
01:31:34,720 --> 01:31:39,000
Speaker 1: massive amount of research and data underlying what what he does.

1393
01:31:39,520 --> 01:31:42,240
Speaker 1: But you know, that's what makes the market different people

1394
01:31:42,840 --> 01:31:46,160
Speaker 1: see things from different perspectives. And the guys we really

1395
01:31:46,240 --> 01:31:49,920
Speaker 1: respect are the ones who make you defend yourself and

1396
01:31:50,040 --> 01:31:54,680
Speaker 1: make you make better arguments to agree with you wholeheartedly.

1397
01:31:55,439 --> 01:32:02,320
Speaker 1: Of it as intellectual fellowship. Absolute. I like the word fellowship. Uh.

1398
01:32:02,560 --> 01:32:05,519
Speaker 1: And that you're not having a fight, You're not having

1399
01:32:05,640 --> 01:32:10,519
Speaker 1: an argument, You're having an intellectual fellowship. You know it's uh.

1400
01:32:10,880 --> 01:32:13,439
Speaker 1: And that you know you can be fishing, you could

1401
01:32:13,439 --> 01:32:15,720
Speaker 1: be bowling, whatever the case may be, or you know,

1402
01:32:15,880 --> 01:32:19,599
Speaker 1: I'll find meal uh. And that you enjoy each other's company.

1403
01:32:19,680 --> 01:32:23,400
Speaker 1: It's not about the process of you know, tip for tat,

1404
01:32:23,479 --> 01:32:25,040
Speaker 1: I got this one right, you've got that and wrong.

1405
01:32:25,120 --> 01:32:28,360
Speaker 1: It's just do we enjoy each other's fellows? Do you

1406
01:32:28,479 --> 01:32:31,679
Speaker 1: appreciate the qualities of their minds? And that? And that's

1407
01:32:31,720 --> 01:32:35,080
Speaker 1: a really UM interesting thing. Let's let's go over some

1408
01:32:35,240 --> 01:32:39,840
Speaker 1: of my favorite UM questions before we uh lose what's

1409
01:32:39,920 --> 01:32:42,840
Speaker 1: left of our our listeners. Although I get emails all

1410
01:32:42,840 --> 01:32:44,960
Speaker 1: the time that people say, you know, I drive back

1411
01:32:45,040 --> 01:32:47,000
Speaker 1: and forth to Boston, I listened to the podcast in

1412
01:32:47,040 --> 01:32:49,600
Speaker 1: each direction, or I spend an hour each day on

1413
01:32:49,640 --> 01:32:53,479
Speaker 1: the on the treadmill, and you've made my UM life easier.

1414
01:32:53,560 --> 01:32:56,880
Speaker 1: But these are some of the questions UM that I

1415
01:32:56,960 --> 01:32:59,439
Speaker 1: ask every guest, and some of them you've asked answered.

1416
01:32:59,479 --> 01:33:03,120
Speaker 1: You've answered, what you did before you with PIMCO. Who

1417
01:33:03,240 --> 01:33:07,360
Speaker 1: your early mentors were. I think we know what philosophers

1418
01:33:07,400 --> 01:33:13,080
Speaker 1: and economists affected your approach to UM economics. What investors

1419
01:33:13,920 --> 01:33:20,040
Speaker 1: you mentioned Bill Miller's what investors affected your investing philosophy?

1420
01:33:21,840 --> 01:33:23,880
Speaker 1: And I guess we can include Knes in that because

1421
01:33:23,960 --> 01:33:26,639
Speaker 1: he was running money, wasn't Yeah, he was running college.

1422
01:33:26,680 --> 01:33:29,439
Speaker 1: I think he was running money for their endowment. Yeah,

1423
01:33:29,640 --> 01:33:37,599
Speaker 1: I UM in that category, it wouldn't be a large

1424
01:33:37,640 --> 01:33:40,560
Speaker 1: group of people. And and Bill Gross would be so

1425
01:33:41,600 --> 01:33:44,240
Speaker 1: much in a leg He's the Sun, and there's a

1426
01:33:44,320 --> 01:33:47,920
Speaker 1: bunch of other planets. There's a bunch of other planets. Uh,

1427
01:33:48,720 --> 01:33:51,479
Speaker 1: And you could do us and Bill Gross and and

1428
01:33:52,120 --> 01:33:57,640
Speaker 1: Bill's general philosophy. And I'm sure he's you know, he's

1429
01:33:57,680 --> 01:34:00,360
Speaker 1: been public about it. I'm not talking out of school. What's, however,

1430
01:34:01,479 --> 01:34:06,240
Speaker 1: is it's a bit like you know, gambling, and I

1431
01:34:06,600 --> 01:34:11,559
Speaker 1: simply want to win more than I lose. I don't

1432
01:34:11,600 --> 01:34:15,439
Speaker 1: have the objective of winning all the time, and I

1433
01:34:15,640 --> 01:34:21,040
Speaker 1: want to calculate the odds in real time. Uh. And

1434
01:34:21,360 --> 01:34:26,920
Speaker 1: also I want to avoid gambler's run. Never that a

1435
01:34:27,160 --> 01:34:33,680
Speaker 1: mistake take you out of the game. Longevity matters, and

1436
01:34:33,760 --> 01:34:38,240
Speaker 1: that philosophy um is a humbling philosophy because you can

1437
01:34:38,280 --> 01:34:41,240
Speaker 1: say this one, I know I got this one, but

1438
01:34:41,720 --> 01:34:44,760
Speaker 1: never make a mistake that can take you about the game.

1439
01:34:45,120 --> 01:34:48,360
Speaker 1: And Bill Gross was the guy who fundamentally drove that

1440
01:34:48,479 --> 01:34:52,879
Speaker 1: into my head just in sizing of bets, of sizing

1441
01:34:53,000 --> 01:34:57,880
Speaker 1: in a portfolio. Uh. And no tears that if you

1442
01:34:58,320 --> 01:35:01,439
Speaker 1: should have made it bigger. No, you shouldn't have made

1443
01:35:01,439 --> 01:35:03,680
Speaker 1: it bigger because that because if you were wrong, it

1444
01:35:03,800 --> 01:35:06,560
Speaker 1: had taken you out. He discussed that extensively when he

1445
01:35:06,640 --> 01:35:09,799
Speaker 1: was here. It was quite quite fascinating. And you wouldn't

1446
01:35:09,800 --> 01:35:13,880
Speaker 1: think a guy running fixed income would be really that.

1447
01:35:14,160 --> 01:35:16,400
Speaker 1: You know, if you're running managed futures, those guys blow

1448
01:35:16,479 --> 01:35:20,960
Speaker 1: up pretty regularly. You read Education of a Speculator, uh n,

1449
01:35:21,439 --> 01:35:25,320
Speaker 1: ninder Hoffer is blown up, you know a number of times.

1450
01:35:25,720 --> 01:35:29,479
Speaker 1: It's really surprising coming from the fixed income side. Well,

1451
01:35:29,920 --> 01:35:33,519
Speaker 1: a key issue on the fixed income side is that

1452
01:35:33,680 --> 01:35:39,200
Speaker 1: you're playing for a small alpha versus the benchmark. You

1453
01:35:39,320 --> 01:35:44,200
Speaker 1: can't get ten baggers in fixed income very right. So Actually,

1454
01:35:44,840 --> 01:35:46,479
Speaker 1: it's not like you're gonna be taken out of the

1455
01:35:46,520 --> 01:35:50,200
Speaker 1: game because you lost all of your clients money. It's

1456
01:35:50,320 --> 01:35:55,600
Speaker 1: if your alpha shrinks, then in your next competition to

1457
01:35:55,720 --> 01:35:59,280
Speaker 1: get a client, you're not going to be as successful.

1458
01:36:00,040 --> 01:36:03,040
Speaker 1: And also there's a very pragmatic matter is defending your

1459
01:36:03,120 --> 01:36:08,320
Speaker 1: fees as a function of the alpha. And so therefore,

1460
01:36:09,080 --> 01:36:12,240
Speaker 1: in fixed income, your alpha is your potential alpha is

1461
01:36:12,320 --> 01:36:16,200
Speaker 1: not huge to begin with, UH, and so therefore there's

1462
01:36:16,240 --> 01:36:18,599
Speaker 1: a lot of risks to both the growth of your

1463
01:36:18,640 --> 01:36:23,760
Speaker 1: business and your profit margins UH if you actually don't

1464
01:36:23,920 --> 01:36:28,560
Speaker 1: size your bets right. So the philosophy of gameras of

1465
01:36:28,760 --> 01:36:32,439
Speaker 1: gammeras run holes even though the stakes are different, because

1466
01:36:32,520 --> 01:36:37,439
Speaker 1: the stakes UH are idiosyncratic to that business, makes a

1467
01:36:37,520 --> 01:36:42,720
Speaker 1: lot of sense. Um. You mentioned the general theory. What

1468
01:36:42,880 --> 01:36:47,320
Speaker 1: other books do you find to be UM influential. What

1469
01:36:47,439 --> 01:36:50,519
Speaker 1: are the key books that you you've that have affected

1470
01:36:50,600 --> 01:36:54,960
Speaker 1: you when you've read them. Peter Bernstein Against the Gods

1471
01:36:56,520 --> 01:37:02,200
Speaker 1: would be right at the very top of my must

1472
01:37:02,400 --> 01:37:06,640
Speaker 1: read list when young graduates are asking. And Peter was

1473
01:37:06,680 --> 01:37:09,680
Speaker 1: a dear personal friend of mine. We lost him a

1474
01:37:09,760 --> 01:37:13,760
Speaker 1: few years ago, UH and amazing sweet harbor Man and

1475
01:37:14,080 --> 01:37:20,200
Speaker 1: brilliant uh so and essentially his he had the best.

1476
01:37:20,960 --> 01:37:24,680
Speaker 1: He's a wonderful writer. He also uh that book is

1477
01:37:24,720 --> 01:37:29,479
Speaker 1: consistently on the everybody yeah top, so I would put

1478
01:37:29,600 --> 01:37:34,639
Speaker 1: that that book uh in there along with Ken's general

1479
01:37:34,720 --> 01:37:39,840
Speaker 1: theory of theory, and obviously you know Minsky's work, which

1480
01:37:39,880 --> 01:37:45,000
Speaker 1: Minsky book, uh, Stabilizing the Unstable Economy. That's what I'm

1481
01:37:45,040 --> 01:37:46,920
Speaker 1: gonna end up doing for those of you listening to this,

1482
01:37:47,439 --> 01:37:49,680
Speaker 1: I'll put this up in the on the on the

1483
01:37:50,600 --> 01:37:52,360
Speaker 1: blog post. Then I'll have the list of all the

1484
01:37:52,400 --> 01:37:55,240
Speaker 1: books you mentioned. So we have Keynes, we have Minsky,

1485
01:37:55,400 --> 01:37:59,400
Speaker 1: we have Berns Bernstein, and I'll give you a fourth.

1486
01:38:00,280 --> 01:38:05,240
Speaker 1: And it's a very recent addition to my list. It's

1487
01:38:05,360 --> 01:38:11,000
Speaker 1: literally in the last six nine months. And it's not

1488
01:38:11,200 --> 01:38:19,559
Speaker 1: about economics per se. It's former Congressman Barney Frank's autobiography. Really,

1489
01:38:20,360 --> 01:38:27,720
Speaker 1: it is an amazing treatise on understanding Washington, d c.

1490
01:38:28,960 --> 01:38:34,000
Speaker 1: Over the last thirty years of the wise and the

1491
01:38:34,120 --> 01:38:39,920
Speaker 1: wherefores of outcomes that have always left us scratching our head.

1492
01:38:41,439 --> 01:38:45,400
Speaker 1: If you haven't read Barney's book, you gotta get it. Uh.

1493
01:38:46,200 --> 01:38:50,439
Speaker 1: Life in Politics from Great Society, The Same Sex Marriage no,

1494
01:38:50,640 --> 01:38:52,760
Speaker 1: can this just came out in March of this year

1495
01:38:53,880 --> 01:38:56,720
Speaker 1: that that's really quite amazing. So that's a movie and

1496
01:38:57,640 --> 01:39:00,760
Speaker 1: you're you're saying that it's not so much out the

1497
01:39:00,880 --> 01:39:03,519
Speaker 1: political battles, it's about the process in DC and how

1498
01:39:03,600 --> 01:39:05,439
Speaker 1: it's changed. Yeah, I mean, I mean, you and I

1499
01:39:05,520 --> 01:39:07,560
Speaker 1: could write a book about you know, Wall Street for

1500
01:39:07,640 --> 01:39:10,760
Speaker 1: the last thirty years, because we lived it were You're

1501
01:39:10,760 --> 01:39:12,479
Speaker 1: a little younger than I am, but you know, not

1502
01:39:12,560 --> 01:39:16,439
Speaker 1: a whole lot. But you know, I work for a living.

1503
01:39:16,520 --> 01:39:19,400
Speaker 1: That's the difference. You're gain fully retire what what what

1504
01:39:19,520 --> 01:39:21,800
Speaker 1: do you like? You're four years older than me. That's

1505
01:39:22,080 --> 01:39:25,519
Speaker 1: you are, So you're five years old in them. So

1506
01:39:25,840 --> 01:39:29,160
Speaker 1: that is a new gym that I would recommend to

1507
01:39:29,520 --> 01:39:33,880
Speaker 1: anybody who wants to to consider themselves informed in what

1508
01:39:34,160 --> 01:39:37,760
Speaker 1: makes Washington work? Wow that or not? As the case

1509
01:39:37,880 --> 01:39:42,880
Speaker 1: or so? Now, So the Frank book discusses what's changed

1510
01:39:42,960 --> 01:39:45,760
Speaker 1: in d C over the thirty years. Let let me

1511
01:39:45,840 --> 01:39:47,719
Speaker 1: ask you the book that you're not going to write,

1512
01:39:48,320 --> 01:39:52,120
Speaker 1: how has Wall Street and finance and the practice of

1513
01:39:52,280 --> 01:39:58,120
Speaker 1: investing money changed over that same time period. Ah. It

1514
01:39:58,240 --> 01:40:02,280
Speaker 1: really the profound shame since I came to Wall Street profound.

1515
01:40:03,080 --> 01:40:09,240
Speaker 1: I guess that the one that's most significant when because

1516
01:40:09,280 --> 01:40:12,080
Speaker 1: I've thought a lot about this when I first got

1517
01:40:12,240 --> 01:40:14,719
Speaker 1: in the business and again I came to Wall Street

1518
01:40:14,760 --> 01:40:21,240
Speaker 1: in eight three. Um, being on the cell side of

1519
01:40:21,400 --> 01:40:24,600
Speaker 1: the street was the cats me out. Really that's a

1520
01:40:24,800 --> 01:40:28,360
Speaker 1: that's a huge change. And the by side were you know,

1521
01:40:28,800 --> 01:40:31,640
Speaker 1: the great on washed you know. And for people who

1522
01:40:31,720 --> 01:40:35,040
Speaker 1: may not understand the difference between the terms, if you're

1523
01:40:35,080 --> 01:40:37,200
Speaker 1: on the sale side, you're a broken dealer, you're a

1524
01:40:37,200 --> 01:40:41,639
Speaker 1: commissioned person. The bye side are hedge funds, mutual funds,

1525
01:40:41,680 --> 01:40:47,360
Speaker 1: asset managers who are buying assets for clients who they're

1526
01:40:47,479 --> 01:40:50,680
Speaker 1: charged with running their money, versus let's say, brokers who

1527
01:40:50,720 --> 01:40:55,680
Speaker 1: are selling client assets either two institutions or individuals. It's

1528
01:40:55,720 --> 01:40:58,920
Speaker 1: a subtle but important distinction. Yeah, you know, and I

1529
01:40:59,040 --> 01:41:01,760
Speaker 1: think back to you know, the mid eighties. You know,

1530
01:41:02,000 --> 01:41:08,479
Speaker 1: your your average sell side bond salesman what make maybe

1531
01:41:08,680 --> 01:41:11,960
Speaker 1: three hundred thousand dollars a year, whereas the guy that

1532
01:41:12,080 --> 01:41:15,559
Speaker 1: he was selling the bonds to will be making ninety

1533
01:41:15,600 --> 01:41:18,679
Speaker 1: five thousand dollars a year. And that's completely shifted since

1534
01:41:18,720 --> 01:41:22,840
Speaker 1: so so essentially it was the the guy who was

1535
01:41:22,920 --> 01:41:25,639
Speaker 1: selling the bonds was making the big bucks. The guy

1536
01:41:25,680 --> 01:41:28,000
Speaker 1: who was buying the bonds was considered to be a

1537
01:41:28,080 --> 01:41:32,519
Speaker 1: necessary nuisance. That's pretty funny. So so the guy buying

1538
01:41:32,560 --> 01:41:35,559
Speaker 1: the bonds is Bill Gross, the guys selling the bonds

1539
01:41:35,640 --> 01:41:38,920
Speaker 1: is whoever covered him at Goldman Morrigan, Meryl whoever, and

1540
01:41:39,040 --> 01:41:42,679
Speaker 1: the salespeople were making more than the portfolio man. Whereas

1541
01:41:42,800 --> 01:41:46,599
Speaker 1: now actually hedge funds were you know, thirty years ago.

1542
01:41:46,720 --> 01:41:51,000
Speaker 1: And a hand for the joke is the hundred hedge

1543
01:41:51,000 --> 01:41:53,920
Speaker 1: funds that existed thirty years ago are still around. They're

1544
01:41:53,960 --> 01:41:56,920
Speaker 1: just the ones creating alfit today. Not a bad joke,

1545
01:41:57,240 --> 01:42:00,360
Speaker 1: It has an element of truth to it. Uh. But

1546
01:42:00,640 --> 01:42:03,439
Speaker 1: now it's the guy on the by side who had

1547
01:42:03,520 --> 01:42:06,960
Speaker 1: this chance to shoot the moon financially, and the guy

1548
01:42:07,080 --> 01:42:08,880
Speaker 1: on the cell side has been replaced by one of

1549
01:42:08,960 --> 01:42:13,320
Speaker 1: those machines over there. Because remember this, Uh back thirty

1550
01:42:13,439 --> 01:42:17,879
Speaker 1: years ago, you actually had the you know, the direct lines,

1551
01:42:18,800 --> 01:42:23,920
Speaker 1: and you didn't have electronic trading, you didn't have price discovery. Uh.

1552
01:42:24,120 --> 01:42:26,680
Speaker 1: It was you know, Harry, I want to buy you know,

1553
01:42:26,960 --> 01:42:29,160
Speaker 1: five million of you know, the A T. T s

1554
01:42:29,479 --> 01:42:31,640
Speaker 1: were there trading other ninty eight ninety eight and a

1555
01:42:31,680 --> 01:42:35,200
Speaker 1: half alright, Phil, get them done. Whereas now you know,

1556
01:42:36,000 --> 01:42:38,479
Speaker 1: thanks to the terminals, you don't need to talk to

1557
01:42:38,560 --> 01:42:40,679
Speaker 1: Harry about where the A T. T s are trading.

1558
01:42:41,080 --> 01:42:43,479
Speaker 1: I know, and I can hit a button and Harry

1559
01:42:43,560 --> 01:42:47,479
Speaker 1: doesn't make dollars a year anymore, not in business anymore.

1560
01:42:48,000 --> 01:42:50,000
Speaker 1: The guys that are still in business, the commissions have

1561
01:42:50,080 --> 01:42:53,120
Speaker 1: come down from the fifteen cents a share now it's

1562
01:42:53,160 --> 01:42:56,840
Speaker 1: a penny or two, and half of them have have disappeared.

1563
01:42:56,880 --> 01:43:01,320
Speaker 1: That that business has has completely changed. And so so. Actually,

1564
01:43:01,960 --> 01:43:03,519
Speaker 1: back when we were young, that would be the question

1565
01:43:03,600 --> 01:43:10,040
Speaker 1: of where's the customer's yacht? Yep them anymore? That's the

1566
01:43:10,120 --> 01:43:12,080
Speaker 1: famous book that was written in the I want to

1567
01:43:12,120 --> 01:43:15,880
Speaker 1: say thirties or or forties. I'm trying to remember. And

1568
01:43:15,960 --> 01:43:19,240
Speaker 1: I could see the guy's name right in front of me.

1569
01:43:19,760 --> 01:43:22,880
Speaker 1: So over my career, the customers got in the yacht

1570
01:43:23,560 --> 01:43:28,040
Speaker 1: and the broker hails a cab and and that's a

1571
01:43:28,160 --> 01:43:30,320
Speaker 1: huge I know that's good or bad. That's just an

1572
01:43:30,320 --> 01:43:32,800
Speaker 1: observation that that's a huge change, you know, the old

1573
01:43:32,960 --> 01:43:35,360
Speaker 1: the old. The other old joke was Wall Street is

1574
01:43:35,360 --> 01:43:39,000
Speaker 1: the only place where you know, millionaires talk to people.

1575
01:43:39,520 --> 01:43:42,880
Speaker 1: People who take rolls Royce's to work, talk to people

1576
01:43:43,040 --> 01:43:47,160
Speaker 1: take subways to work, and that's a French sweat. I

1577
01:43:47,240 --> 01:43:50,400
Speaker 1: could not access that name that by the way, that

1578
01:43:50,640 --> 01:43:53,559
Speaker 1: is literally I've been on Wall Street for a hundred years.

1579
01:43:53,920 --> 01:43:56,360
Speaker 1: That is literally the next book in my que to read.

1580
01:43:56,439 --> 01:43:59,640
Speaker 1: I have never read that book, and people just in

1581
01:44:00,320 --> 01:44:02,479
Speaker 1: it's hilarious. In the life, I have not read anything.

1582
01:44:02,680 --> 01:44:07,599
Speaker 1: It's supposed to be wonderful and it it's on your list. Well,

1583
01:44:07,640 --> 01:44:10,040
Speaker 1: I've read the same point of you know what, kids,

1584
01:44:10,080 --> 01:44:14,080
Speaker 1: I've got to read and many so so you know,

1585
01:44:14,520 --> 01:44:16,679
Speaker 1: Minsky was a big contributor to that book. By the way,

1586
01:44:16,880 --> 01:44:19,880
Speaker 1: I have a very close friends imus. Oh, I didn't

1587
01:44:19,880 --> 01:44:23,960
Speaker 1: know that. That's fascinating. And Minsky wrote a huge biography

1588
01:44:24,040 --> 01:44:26,240
Speaker 1: of Kane's. Yes he did. Is that Is that something

1589
01:44:26,360 --> 01:44:28,240
Speaker 1: that's on your list or is it a little too wonky?

1590
01:44:28,520 --> 01:44:32,560
Speaker 1: It is just read General Employment Theory. You have to

1591
01:44:32,600 --> 01:44:36,439
Speaker 1: be an affectionado. Okay, you can get really deep into

1592
01:44:36,479 --> 01:44:42,000
Speaker 1: the weeds. There's if you like really deep in the weeds. Uh,

1593
01:44:43,880 --> 01:44:47,560
Speaker 1: that's fine, but I wouldn't recommend men that too. Stabilizing

1594
01:44:47,600 --> 01:44:51,439
Speaker 1: and Unstable Economy is would be the one book on Minsky.

1595
01:44:52,200 --> 01:44:56,120
Speaker 1: There was an interesting book I read some time ago. Um,

1596
01:44:57,320 --> 01:44:59,519
Speaker 1: is it Keen's Way to Wealth. It's something like that.

1597
01:45:00,040 --> 01:45:03,840
Speaker 1: It's about Keens the investor, not Keens the economist. And

1598
01:45:03,920 --> 01:45:09,000
Speaker 1: it turned out he's really, for his day, an extremely successful,

1599
01:45:09,160 --> 01:45:13,680
Speaker 1: buffet like investor who just completely turned around. I think

1600
01:45:13,760 --> 01:45:16,000
Speaker 1: it's King's College. Yeah he did, Yeah he did, and

1601
01:45:16,400 --> 01:45:20,280
Speaker 1: he um gets back to chapter twelve of his famous book.

1602
01:45:20,880 --> 01:45:24,840
Speaker 1: He was a behavioral economist. He understood that markets are

1603
01:45:24,920 --> 01:45:29,920
Speaker 1: not always rational, and the beauty contest is a perfect

1604
01:45:30,920 --> 01:45:35,880
Speaker 1: is a perfect one? Uh? And uh he had the

1605
01:45:35,920 --> 01:45:38,640
Speaker 1: ability and he actually lost some money sometimes being a

1606
01:45:38,720 --> 01:45:43,600
Speaker 1: little bit early or wrong. Uh, well that's as traders know,

1607
01:45:43,800 --> 01:45:48,200
Speaker 1: early is gonna be wrong. Essentially saying, you know, when

1608
01:45:48,479 --> 01:45:52,840
Speaker 1: bad news is fully discounted, and I hear about it

1609
01:45:52,880 --> 01:45:55,280
Speaker 1: from the guy who shines my shoe at the bus station,

1610
01:45:56,080 --> 01:45:59,000
Speaker 1: probably it's time to go the other direction makes sense.

1611
01:46:00,439 --> 01:46:04,280
Speaker 1: Our last two or last three favorite questions. So, given

1612
01:46:04,320 --> 01:46:08,360
Speaker 1: these major changes that we've seen over the past three decades,

1613
01:46:08,560 --> 01:46:10,360
Speaker 1: what are the next couple of changes that we're going

1614
01:46:10,400 --> 01:46:17,679
Speaker 1: to see? Uh? Coming up first and foremost, I think

1615
01:46:18,640 --> 01:46:23,960
Speaker 1: is producaries. You know, whether it's endowments or to find

1616
01:46:24,439 --> 01:46:28,360
Speaker 1: benefit pension schemes or colleges? Do we want to call

1617
01:46:28,439 --> 01:46:32,080
Speaker 1: them define benefit schemes? Is that the rights they call them,

1618
01:46:32,120 --> 01:46:35,479
Speaker 1: you know, to find benefit plans? Yeah? Maybe, I just

1619
01:46:35,680 --> 01:46:37,320
Speaker 1: you know, PIMCO, we had to. I was around the

1620
01:46:37,320 --> 01:46:42,479
Speaker 1: British too often. Schemes. That's a British phrase, right, it

1621
01:46:42,560 --> 01:46:45,599
Speaker 1: doesn't have the same kind of right. It's a strange

1622
01:46:45,640 --> 01:46:48,760
Speaker 1: standard word there here it means something the farious. Yeah,

1623
01:46:48,840 --> 01:46:54,200
Speaker 1: ye as absolutely um and it's likely. Remember one of

1624
01:46:54,240 --> 01:46:57,599
Speaker 1: the British phrase that struck me is frequently when something

1625
01:46:57,760 --> 01:47:00,800
Speaker 1: is good around, they would say brilliant, right. I mean

1626
01:47:01,000 --> 01:47:03,639
Speaker 1: here in America we've reserved brilliant for you know, special

1627
01:47:03,720 --> 01:47:05,920
Speaker 1: sort of things. Right now, brilliant is oh that's good.

1628
01:47:06,080 --> 01:47:08,320
Speaker 1: How was your I'll bring it right now. I've never

1629
01:47:08,400 --> 01:47:10,720
Speaker 1: described an ice t is brilliant. Oh you haven't had

1630
01:47:10,800 --> 01:47:16,320
Speaker 1: my ice t. It's fantastic. It's it's brilliant, it's brilliant.

1631
01:47:17,200 --> 01:47:22,479
Speaker 1: So so what I think is having expectations, uh, bringing

1632
01:47:22,520 --> 01:47:28,559
Speaker 1: down expectations to what logically can they be expected over

1633
01:47:28,640 --> 01:47:32,639
Speaker 1: the next ten to twenty years on returns more modest numbers,

1634
01:47:32,680 --> 01:47:37,280
Speaker 1: more modest returns, Yeah, more modest returns. Uh. And the

1635
01:47:37,400 --> 01:47:40,599
Speaker 1: difficulty of doing that is the rear view mirror effect.

1636
01:47:41,120 --> 01:47:44,400
Speaker 1: And the last five or seven years have been absolutely

1637
01:47:44,479 --> 01:47:48,760
Speaker 1: glorious investment spectacular. And by the way, the people who

1638
01:47:48,840 --> 01:47:51,080
Speaker 1: are you mentioned earlier who are on the wrong side

1639
01:47:51,120 --> 01:47:54,880
Speaker 1: of that, this is once in the lifetime, maybe twice

1640
01:47:54,920 --> 01:47:57,519
Speaker 1: in a lifetime sort of market run. And if you

1641
01:47:57,640 --> 01:47:59,840
Speaker 1: missed it, well, don't worry, it'll be another one coming

1642
01:47:59,880 --> 01:48:02,840
Speaker 1: to round in forty years or so. That this was

1643
01:48:03,200 --> 01:48:08,720
Speaker 1: all about having to use monetary policy alone to get

1644
01:48:08,760 --> 01:48:11,240
Speaker 1: out of a litquidter D trap, which means that there's

1645
01:48:11,240 --> 01:48:16,080
Speaker 1: a revaluation of all long D long duration assets, with

1646
01:48:16,160 --> 01:48:19,880
Speaker 1: equities being the longest. Uh. And so it has been

1647
01:48:19,920 --> 01:48:25,000
Speaker 1: an absolute marvelous time to be in the markets because

1648
01:48:25,080 --> 01:48:29,719
Speaker 1: you've been revaluing assets. Now you simply have lofty asset prices.

1649
01:48:30,040 --> 01:48:32,519
Speaker 1: We've been revalued. What does that mean going forward? It

1650
01:48:32,600 --> 01:48:36,439
Speaker 1: means theoretically, and I know Rob or Not is also

1651
01:48:36,520 --> 01:48:39,800
Speaker 1: in this camp, theoretically lower returns over the next as

1652
01:48:39,880 --> 01:48:43,360
Speaker 1: is Cliff Fastness. All the quants basically are in the

1653
01:48:43,880 --> 01:48:46,160
Speaker 1: camp of Hey, the odds are that you're gonna see

1654
01:48:46,240 --> 01:48:49,960
Speaker 1: lower than average returns. You've just had higher than average returns,

1655
01:48:50,000 --> 01:48:52,559
Speaker 1: at least over the past six years. I mean, I mean,

1656
01:48:52,960 --> 01:48:55,840
Speaker 1: suppose you buy a stock that has one dollars worth

1657
01:48:55,880 --> 01:48:58,000
Speaker 1: of earnings at ten times, so you pay ten bucks

1658
01:48:58,040 --> 01:48:59,920
Speaker 1: for the stock. That's a good that's a good event

1659
01:49:00,000 --> 01:49:02,160
Speaker 1: has been problems. It's actually not a bad investor. I

1660
01:49:02,200 --> 01:49:05,800
Speaker 1: supposed five years later it's still making one dollar, but

1661
01:49:05,920 --> 01:49:08,800
Speaker 1: now it's but but the markets decided it's worth a

1662
01:49:09,160 --> 01:49:14,639
Speaker 1: thirty multiple. Still just making one Dollar's gone from ten

1663
01:49:14,720 --> 01:49:18,320
Speaker 1: dollars to thirty dollars. Are you a genius should do

1664
01:49:18,400 --> 01:49:22,280
Speaker 1: by more thirty? The if you're a momentum investor, you're

1665
01:49:22,320 --> 01:49:25,200
Speaker 1: all over, and if you're a value guy, you're probably

1666
01:49:25,240 --> 01:49:27,640
Speaker 1: a seller, not a buyer at that point exactly. And

1667
01:49:27,760 --> 01:49:30,439
Speaker 1: but it's really hard to say, I bought it at

1668
01:49:30,520 --> 01:49:35,160
Speaker 1: ten and now it's at thirty, so therefore it double wow.

1669
01:49:35,240 --> 01:49:37,719
Speaker 1: I made a potload of money over the last five years.

1670
01:49:37,920 --> 01:49:40,960
Speaker 1: I can't possibly sell this stock, and it's gonna go

1671
01:49:41,040 --> 01:49:43,880
Speaker 1: to sixty and there's gonna go to ninety. Human nature

1672
01:49:44,240 --> 01:49:48,400
Speaker 1: is to extrapolate that simple. Leon Kooperman tells the story

1673
01:49:48,560 --> 01:49:52,800
Speaker 1: that so another value guy from Colombia that and put

1674
01:49:52,920 --> 01:49:56,400
Speaker 1: up tremendous, tremendous numbers. They have a target. When they

1675
01:49:56,520 --> 01:49:59,360
Speaker 1: hit their targets, they sell. Some of his clients come

1676
01:49:59,400 --> 01:50:02,479
Speaker 1: to him and say, listen, Lee, we have a need

1677
01:50:02,600 --> 01:50:07,400
Speaker 1: for a tax sensitive portfolio. So he structures same basic

1678
01:50:07,560 --> 01:50:11,200
Speaker 1: underlying thing, only when it hits his target, he doesn't sell.

1679
01:50:11,320 --> 01:50:13,920
Speaker 1: He lets it run because they're not looking for It's

1680
01:50:13,920 --> 01:50:17,880
Speaker 1: got to be a certain length. He said. The returns

1681
01:50:17,960 --> 01:50:23,840
Speaker 1: on the tax sensitive portfolio are actually better then the

1682
01:50:23,960 --> 01:50:28,080
Speaker 1: returns on the tax insensitive portfolios because it forces you

1683
01:50:28,200 --> 01:50:31,200
Speaker 1: to hold things far beyond where left your own devices

1684
01:50:31,280 --> 01:50:35,439
Speaker 1: you might and his numbers are just ridiculous. So I

1685
01:50:35,560 --> 01:50:37,400
Speaker 1: know I can't keep you forever. Let me get to

1686
01:50:37,520 --> 01:50:42,559
Speaker 1: my favorite last two questions. Um. The first, so someone's

1687
01:50:42,600 --> 01:50:45,320
Speaker 1: graduating college or a millennial or whatever we want to

1688
01:50:45,360 --> 01:50:49,320
Speaker 1: call this generation. What advice does Paul McCully give to

1689
01:50:49,479 --> 01:50:52,479
Speaker 1: those kids coming out of school right now if they're

1690
01:50:52,560 --> 01:50:57,639
Speaker 1: thinking about a career in finance. Let's take a long

1691
01:50:57,760 --> 01:50:59,559
Speaker 1: walk around the block and see if you can think

1692
01:50:59,560 --> 01:51:05,640
Speaker 1: of another industry. Really, Um, I remember I have my

1693
01:51:05,760 --> 01:51:09,200
Speaker 1: son is twenty six years old and not going into

1694
01:51:09,240 --> 01:51:12,640
Speaker 1: the family business. No, he's not going into finance. He

1695
01:51:12,960 --> 01:51:18,000
Speaker 1: uh is in the technology business. He's a gamer and

1696
01:51:18,160 --> 01:51:22,439
Speaker 1: a programmer. Uh. And you think this technology stuff is

1697
01:51:22,439 --> 01:51:28,960
Speaker 1: going to catch on. What I do know, UH, is

1698
01:51:29,439 --> 01:51:35,320
Speaker 1: there's a lot of America that hasn't gotten, hasn't exploited

1699
01:51:35,960 --> 01:51:40,559
Speaker 1: the technology that we have where and in the area

1700
01:51:40,600 --> 01:51:42,800
Speaker 1: that my son's in, which I think is really a

1701
01:51:42,880 --> 01:51:48,360
Speaker 1: growth industry, is just taking what technology we have now

1702
01:51:49,560 --> 01:51:54,880
Speaker 1: and applying it to core businesses, whether it's education, the

1703
01:51:55,040 --> 01:51:59,719
Speaker 1: medical care system, the d MB, all sorts of areas,

1704
01:52:00,640 --> 01:52:05,040
Speaker 1: information management. Now sitting here in Bloomberg's building, obviously you

1705
01:52:05,160 --> 01:52:09,320
Speaker 1: have the best of it all on technology. So this

1706
01:52:09,520 --> 01:52:11,479
Speaker 1: floor that you're standing on, I don't know if if

1707
01:52:11,520 --> 01:52:14,840
Speaker 1: you ever see them take the floor apart. There's nothing

1708
01:52:14,960 --> 01:52:18,120
Speaker 1: but fiber optic cables as thick as your leg running

1709
01:52:18,120 --> 01:52:22,960
Speaker 1: through here. The building was built pre wired for nothing

1710
01:52:23,040 --> 01:52:27,480
Speaker 1: but information technology. But this is the exception. Most industries

1711
01:52:28,000 --> 01:52:31,200
Speaker 1: are not this tech forward looking, and I think, I mean,

1712
01:52:31,360 --> 01:52:35,519
Speaker 1: I think that is a huge growth industry. The medical

1713
01:52:35,560 --> 01:52:40,360
Speaker 1: profession is an area that's it's it's nice, it is

1714
01:52:40,479 --> 01:52:44,920
Speaker 1: right for it, government itself, transportation, lots of areas. So

1715
01:52:45,000 --> 01:52:50,120
Speaker 1: I think the application of technology in a general h

1716
01:52:50,360 --> 01:52:53,479
Speaker 1: economic sense is where their growth is. But actually know

1717
01:52:53,600 --> 01:52:55,920
Speaker 1: that you know the really you know wise, you know

1718
01:52:56,360 --> 01:52:58,519
Speaker 1: guys who can figure out, you know, what to make

1719
01:52:58,600 --> 01:53:02,439
Speaker 1: my my uh my smartphone do uh though I reach

1720
01:53:02,560 --> 01:53:06,479
Speaker 1: it reaches its limitations. I think that's a function of

1721
01:53:06,600 --> 01:53:10,280
Speaker 1: us being old guys. Yea. The younger kids don't, don't

1722
01:53:10,320 --> 01:53:13,320
Speaker 1: They don't get saturated the way. And I kind of

1723
01:53:13,360 --> 01:53:17,639
Speaker 1: have a foot in each camp. Um tech oriented enough

1724
01:53:17,720 --> 01:53:21,880
Speaker 1: to really like all my toys and my phones, but

1725
01:53:22,120 --> 01:53:24,800
Speaker 1: I sort of see myself the people older than me

1726
01:53:25,680 --> 01:53:28,439
Speaker 1: are utterly saturated sooner, and the people younger than me

1727
01:53:28,840 --> 01:53:31,240
Speaker 1: are wholly immersed in it with no end in sight.

1728
01:53:31,960 --> 01:53:35,120
Speaker 1: It's fascinating to watch that. So you wouldn't send people

1729
01:53:35,240 --> 01:53:39,519
Speaker 1: into finance all that that quickly? Yeah, And if you

1730
01:53:39,600 --> 01:53:43,479
Speaker 1: know a kid wanted to go into finance, where I

1731
01:53:43,560 --> 01:53:49,760
Speaker 1: would say is over the next thirty years, Asia in

1732
01:53:49,840 --> 01:53:54,080
Speaker 1: particular China. But I think the emerging markets at large,

1733
01:53:54,320 --> 01:53:59,240
Speaker 1: if they're going to shift to more domestic demand, are

1734
01:53:59,280 --> 01:54:06,800
Speaker 1: gonna have to to construct a household sector finance, uh

1735
01:54:07,080 --> 01:54:10,960
Speaker 1: sector that is meaningful and uh so that would be

1736
01:54:11,120 --> 01:54:13,959
Speaker 1: the area you think in terms of here in America,

1737
01:54:14,080 --> 01:54:17,400
Speaker 1: So be prepared to travel, be prepared to and also

1738
01:54:17,479 --> 01:54:22,559
Speaker 1: think in terms of bringing credit effectively to the growing

1739
01:54:22,720 --> 01:54:26,680
Speaker 1: middle class of the emerging market. She think in terms

1740
01:54:26,760 --> 01:54:30,040
Speaker 1: of market, it's a huge market and and it's got

1741
01:54:30,160 --> 01:54:34,480
Speaker 1: to happen over the next thirty years. It's it's underserved

1742
01:54:34,520 --> 01:54:37,360
Speaker 1: in partmer costs of barriers to entry. But that is

1743
01:54:37,400 --> 01:54:40,960
Speaker 1: a frontier for a kid a thirty year a career.

1744
01:54:41,800 --> 01:54:46,040
Speaker 1: Uh is to be the king of consumer finance. Go

1745
01:54:46,160 --> 01:54:49,680
Speaker 1: to Brazil, to an emerging emerging market where, of course

1746
01:54:49,720 --> 01:54:51,360
Speaker 1: you mean thinking now here in America. You know, if

1747
01:54:51,440 --> 01:54:53,920
Speaker 1: somebody gets out of college, he's probably already got a

1748
01:54:54,040 --> 01:54:56,160
Speaker 1: college loan, he gets a loan or at least on

1749
01:54:56,240 --> 01:54:58,680
Speaker 1: a car. You know, he borrows money from his dad

1750
01:54:58,760 --> 01:55:00,680
Speaker 1: for a down payment on a house. Else So we

1751
01:55:00,840 --> 01:55:06,920
Speaker 1: think in terms of of essentially borrowing forward income as

1752
01:55:06,960 --> 01:55:09,040
Speaker 1: a young person and paying it back as you get

1753
01:55:09,120 --> 01:55:12,360
Speaker 1: older and your income goes up. Yes, that's a concept

1754
01:55:12,800 --> 01:55:16,040
Speaker 1: that will get roots and the emerging markets over the

1755
01:55:16,160 --> 01:55:19,200
Speaker 1: next two to three decades. And there's a lot of

1756
01:55:19,280 --> 01:55:25,000
Speaker 1: money being to be made in that space. So Argentina, Chili, Vietnam,

1757
01:55:25,120 --> 01:55:28,040
Speaker 1: where would you send a kid today? You know, first

1758
01:55:28,080 --> 01:55:31,680
Speaker 1: of you depend upon which language facility for language. So

1759
01:55:31,800 --> 01:55:34,879
Speaker 1: actually the advice let's go back four years you're in college,

1760
01:55:35,520 --> 01:55:40,600
Speaker 1: learn to speak Portuguese, Spanish, man's are in exactly else exactly? Uh,

1761
01:55:41,040 --> 01:55:43,080
Speaker 1: Latin is really cool, but I don't know very many

1762
01:55:43,080 --> 01:55:45,360
Speaker 1: people who transact in Latin these right. You can become

1763
01:55:45,400 --> 01:55:48,400
Speaker 1: a monk, you can go to the original stuff and

1764
01:55:48,840 --> 01:55:51,880
Speaker 1: they brew fantastic beer. So but I don't know that

1765
01:55:51,880 --> 01:55:54,200
Speaker 1: if that's really counts as a career in finance. Okay,

1766
01:55:54,880 --> 01:55:58,480
Speaker 1: last question, all right, and this is my favorite. What

1767
01:55:58,560 --> 01:56:01,600
Speaker 1: do you know about investing today that you wish you

1768
01:56:01,720 --> 01:56:07,160
Speaker 1: knew when you began all those years ago? I love

1769
01:56:07,280 --> 01:56:17,040
Speaker 1: the thoughtful, pregnant pause too, your most precious asset. It's

1770
01:56:17,160 --> 01:56:20,440
Speaker 1: time I knew you were going to go there. Elucidate,

1771
01:56:20,560 --> 01:56:27,920
Speaker 1: expand on that to the con I can make more

1772
01:56:28,000 --> 01:56:30,880
Speaker 1: money if I need to make more money. I can't

1773
01:56:31,000 --> 01:56:34,520
Speaker 1: make more time. You can. You can. You can chant

1774
01:56:34,640 --> 01:56:38,640
Speaker 1: trade time for money, but you can't change trade money

1775
01:56:38,680 --> 01:56:42,720
Speaker 1: for time. Is the James Taylor layer, exactly. And that's

1776
01:56:43,640 --> 01:56:49,320
Speaker 1: what I deeply appreciate now. And I you know, I'm not,

1777
01:56:49,440 --> 01:56:54,600
Speaker 1: you know, beating myself up on it, but I looking back,

1778
01:56:54,720 --> 01:56:58,360
Speaker 1: I wish I'd had a deeper appreciation for that at

1779
01:56:58,520 --> 01:57:02,400
Speaker 1: a younger age. Is there any rational reason that a

1780
01:57:02,480 --> 01:57:05,680
Speaker 1: man has been to Beijing twenty six times and not

1781
01:57:05,840 --> 01:57:10,200
Speaker 1: seeing the wall. I have a friend whose company. I

1782
01:57:10,280 --> 01:57:12,560
Speaker 1: have a friend whose company in the mid nineties was

1783
01:57:12,640 --> 01:57:16,400
Speaker 1: bought by Yahoo worked out really well for him, and

1784
01:57:17,920 --> 01:57:21,960
Speaker 1: a conversation like this. He said something similarly. I go,

1785
01:57:22,400 --> 01:57:24,480
Speaker 1: do you travel all over the country, all of the

1786
01:57:24,520 --> 01:57:27,080
Speaker 1: world for ya who? That must be so much fun.

1787
01:57:27,160 --> 01:57:30,600
Speaker 1: You must see so many places? And his answer was, yeah,

1788
01:57:30,640 --> 01:57:33,280
Speaker 1: I could tell you what every major airport, every every

1789
01:57:33,320 --> 01:57:37,040
Speaker 1: major hotel, every major conference facility is like. But I

1790
01:57:37,120 --> 01:57:39,560
Speaker 1: have no idea what those countries are like. So when

1791
01:57:39,600 --> 01:57:42,560
Speaker 1: you're traveling for business, you don't get to sight. So

1792
01:57:42,720 --> 01:57:48,080
Speaker 1: you know, we had, um, we had somebody in here.

1793
01:57:48,200 --> 01:57:51,280
Speaker 1: Oh my god, I'm drawing a blank. Uh. Byron Ween.

1794
01:57:51,640 --> 01:57:54,320
Speaker 1: We had Byron who's still in his eighties and still

1795
01:57:54,520 --> 01:57:59,480
Speaker 1: travels constantly for work, which is he's at at um

1796
01:58:00,440 --> 01:58:04,560
Speaker 1: black Rock, still constantly traveling for work, but he takes

1797
01:58:04,640 --> 01:58:07,400
Speaker 1: his wife along. He builds a week into the trip,

1798
01:58:07,920 --> 01:58:10,400
Speaker 1: so he goes to China and then he cites these

1799
01:58:10,480 --> 01:58:13,360
Speaker 1: for a week. He goes to the Philippinans and then

1800
01:58:13,400 --> 01:58:17,680
Speaker 1: he cites he was describing having more fun now working

1801
01:58:18,120 --> 01:58:20,920
Speaker 1: because he sees the world. Then you know, then he

1802
01:58:21,000 --> 01:58:24,080
Speaker 1: did you know the decades of Morgan Stanley. It was

1803
01:58:24,160 --> 01:58:26,680
Speaker 1: the same situation. You may be in China twenty six

1804
01:58:26,800 --> 01:58:29,640
Speaker 1: times but never having seen the wall. Yeah, yeah, I

1805
01:58:29,680 --> 01:58:32,080
Speaker 1: guess you know, to use a you know, a cliche

1806
01:58:32,240 --> 01:58:36,160
Speaker 1: about the whole thing. Um, when you're a young person

1807
01:58:37,360 --> 01:58:40,560
Speaker 1: and immortal, you're immortal at those ages. Yeah. Actually you

1808
01:58:40,600 --> 01:58:42,520
Speaker 1: don't think in terms of, you know, the fact that

1809
01:58:42,560 --> 01:58:44,360
Speaker 1: you may get old, because you know that's the way

1810
01:58:44,400 --> 01:58:47,160
Speaker 1: off from the future. Finite lifespan. Is that theoretical, it's

1811
01:58:47,200 --> 01:58:51,200
Speaker 1: not really is the the concept of work life balance

1812
01:58:51,960 --> 01:58:57,680
Speaker 1: is but a concept which actually financially works out well

1813
01:58:57,800 --> 01:59:01,120
Speaker 1: for you because all you do is work right, But

1814
01:59:01,360 --> 01:59:06,560
Speaker 1: with tim uh and maturity uh, you recognize that time

1815
01:59:06,680 --> 01:59:11,280
Speaker 1: is your most valuable asset and that I've never seen

1816
01:59:11,400 --> 01:59:15,080
Speaker 1: a tombstone that d I wish I had put more

1817
01:59:15,240 --> 01:59:18,960
Speaker 1: hours in at the office. Speaking of time, thank you

1818
01:59:19,040 --> 01:59:22,760
Speaker 1: Paul McCulley for being so generous with your time. This

1819
01:59:22,960 --> 01:59:27,680
Speaker 1: has been absolutely fascinating. We've been speaking with Paul McCulley.

1820
01:59:27,800 --> 01:59:31,560
Speaker 1: He is the former chief economist at Pimco and has

1821
01:59:31,680 --> 01:59:36,120
Speaker 1: a long and storied history on Wall Street. If you

1822
01:59:36,480 --> 01:59:39,960
Speaker 1: enjoyed this conversation, and I sure no I did, look

1823
01:59:40,080 --> 01:59:41,960
Speaker 1: up an inch or down an inch on the Apple

1824
01:59:42,040 --> 01:59:47,000
Speaker 1: iTunes and you'll see our other almost five dozen uh

1825
01:59:47,200 --> 01:59:51,960
Speaker 1: previous Masters in Business series. I want to thank the

1826
01:59:52,080 --> 01:59:54,960
Speaker 1: people who helped put this interview together. My head of

1827
01:59:55,040 --> 02:00:00,800
Speaker 1: research is Michael Batnick. My producer, for lack of a

1828
02:00:00,880 --> 02:00:03,800
Speaker 1: better word, is the head engineer uh at here at

1829
02:00:03,800 --> 02:00:08,520
Speaker 1: Bloomberg is Charlie Vollmer. And my recording engineer is Matt

1830
02:00:09,480 --> 02:00:11,800
Speaker 1: Matt Ryan. I know his name is Matt. I can't

1831
02:00:11,840 --> 02:00:14,360
Speaker 1: remember last names. There's a lot of work that goes

1832
02:00:14,400 --> 02:00:17,240
Speaker 1: into putting these together, and I'm always grateful for all

1833
02:00:17,320 --> 02:00:20,880
Speaker 1: the assistance that that takes to make this happy. UH.

1834
02:00:21,560 --> 02:00:24,600
Speaker 1: Be sure and go to Apple iTunes if you enjoy this,

1835
02:00:24,840 --> 02:00:29,840
Speaker 1: and review the various Masters in Business series we've done,

1836
02:00:29,960 --> 02:00:33,560
Speaker 1: and catch us next week. I'm Barry Ridhults. You've been

1837
02:00:33,600 --> 02:00:36,480
Speaker 1: listening to Masters in Business on Bloomberg Radio.