WEBVTT - Ray Dalio Live (Replay) with Barry Ritholtz (Podcast) 0:00:02.200 --> 0:00:06.800 This is Masters in Business with Barry Ridholts on Bloomberg Radio. 0:00:07.480 --> 0:00:12.520 This week we have a bonus Masters in Business. Addition, 0:00:12.960 --> 0:00:17.240 it is our premier episode of Masters in Business Live. 0:00:17.840 --> 0:00:21.639 We recorded a live show in the Bloomberg headquarters. It 0:00:21.760 --> 0:00:24.799 was in front of a live audience broadcast live on 0:00:24.880 --> 0:00:28.440 television and radio. People ask me, weren't you nervous about 0:00:28.520 --> 0:00:31.320 doing this? And to be honest, I didn't have time 0:00:31.320 --> 0:00:34.760 to get nervous. I just jumped right into our questions. 0:00:35.080 --> 0:00:40.240 My guest was Ray Dalio of Bridgewater and dear Lord, 0:00:40.280 --> 0:00:44.680 he was just spectacular. He knows exactly what he thinks. Uh. 0:00:44.720 --> 0:00:48.400 He understands his own philosophy, and he knows how to 0:00:48.520 --> 0:00:53.360 articulate it in a way with tremendous clarity and transparency. Uh. 0:00:53.400 --> 0:00:56.279 He spoke for about an hour, or at least two 0:00:56.360 --> 0:00:58.560 questions for me for about an hour. Then we opened 0:00:58.600 --> 0:01:00.960 it up to the audience and we did another thirty 0:01:00.960 --> 0:01:03.240 minutes of Q and A. And I gotta give Ray 0:01:03.840 --> 0:01:07.200 huge kudos. He sat and signed a copy of his 0:01:07.280 --> 0:01:10.200 book for every single person who was in the audience 0:01:10.240 --> 0:01:12.319 that were over a hundred people there. He didn't have 0:01:12.360 --> 0:01:15.039 to do that. It was just charming and delightful. I 0:01:15.080 --> 0:01:18.120 could ramble about how much fun that day was. But 0:01:18.480 --> 0:01:21.840 rather than listen to me, Babel, why don't we simply 0:01:21.920 --> 0:01:27.800 say the premier episode of Masters in Business Live with 0:01:27.880 --> 0:01:35.000 Bridgewaters Ray Dalio, This is Masters in Business with Barry 0:01:35.080 --> 0:01:39.520 Ridholts on Bloomberg Radio. So I have to admit to 0:01:39.880 --> 0:01:43.280 cheating a little bit when when we first proposed the 0:01:43.319 --> 0:01:47.720 idea of Masters in Business Live, Alan Dave were very 0:01:47.760 --> 0:01:50.280 supportive and I said, I'm going to bring in a 0:01:50.400 --> 0:01:53.520 ringer with Ray Dalio. So I really don't have a 0:01:53.520 --> 0:01:56.600 whole lot of work to do. I assume most of 0:01:56.720 --> 0:02:01.480 the viewing and audience present knows who read value is. 0:02:01.560 --> 0:02:05.040 But let me just give you a quick version of 0:02:05.080 --> 0:02:08.160 his background. He is the founder, co chairman and co 0:02:08.320 --> 0:02:12.240 c i oh of Bridgewater Associates the world's largest hedge fund, 0:02:12.440 --> 0:02:15.720 managing over a hundred and sixty billion dollars in assets 0:02:15.720 --> 0:02:20.880 for institutional clients. According to Forbes, Bridgewater has made more 0:02:20.919 --> 0:02:25.200 money for their clients than any other funds in history. 0:02:25.320 --> 0:02:27.960 Uh He is the author of the New York Times 0:02:28.080 --> 0:02:32.600 best selling book Principles for Life and Work, and most recently, 0:02:32.840 --> 0:02:37.480 his new book is principles of big debt crises. Ray 0:02:37.600 --> 0:02:40.040 dally Out, thank you for being our first guest on 0:02:40.280 --> 0:02:46.600 Masters in Business Live. Let's start with the reboot of Bridgewater, 0:02:46.760 --> 0:02:50.480 which you describe in great detail in the first book, 0:02:51.040 --> 0:02:55.280 which came about after a not so great two for you. 0:02:55.320 --> 0:02:59.360 In fact, you just subscribe it as disastrous. What happened 0:02:59.400 --> 0:03:02.600 in too well, you know, I I formed Bridgater in 0:03:02.680 --> 0:03:06.760 seventy two, is like seven years later. That's the reboot. Yeah, 0:03:06.840 --> 0:03:13.480 that's the reboot, right, um. And I had in I 0:03:13.480 --> 0:03:17.880 had calculated that America, that American banks had went way 0:03:17.880 --> 0:03:20.839 more money to emerging countries in those countries were gonna 0:03:20.880 --> 0:03:24.040 pay back and it was about two of their bank capital, 0:03:24.440 --> 0:03:27.400 and so we were going to have a big banking crisis. 0:03:27.440 --> 0:03:30.160 And I thought that was going to happen, and I 0:03:30.240 --> 0:03:34.280 got a lot of attention for for that, um. And 0:03:34.320 --> 0:03:40.080 then in August two, Mexico defaulted and there was a 0:03:40.120 --> 0:03:43.000 sequence of other defaults and there was a big dead crisis, 0:03:43.800 --> 0:03:46.680 and I thought that that was going to cause an 0:03:46.680 --> 0:03:50.600 economic crisis. And I couldn't have been more wrong. That 0:03:50.720 --> 0:03:54.080 was the exact bottom of the stock market when Mexico defaulted. 0:03:54.720 --> 0:03:57.960 And anyway, I received tension. At the time, I was 0:03:58.000 --> 0:04:01.760 on Wall Street week and was on as to testify 0:04:01.800 --> 0:04:06.480 to Congress, and and I was wrong and I had 0:04:06.680 --> 0:04:09.000 I think at the time, maybe eight people who work 0:04:09.040 --> 0:04:11.520 for me. I had to let them all go, and 0:04:11.560 --> 0:04:14.360 I lost money for me, I lost money for clients. 0:04:14.400 --> 0:04:18.440 I had to um I borrow four thousand dollars from 0:04:18.480 --> 0:04:21.520 my dad because I didn't have really enough money even 0:04:21.560 --> 0:04:23.520 to take care of my family at that point. And 0:04:23.640 --> 0:04:27.000 it was very painful, but it was the most valuable 0:04:27.040 --> 0:04:29.599 thing probably that happened in my life, certainly one of those, 0:04:29.800 --> 0:04:33.520 because it changed my approach to thinking, because it made 0:04:33.520 --> 0:04:35.920 me start to think, you know, how do I know 0:04:36.120 --> 0:04:39.440 I'm right? How do I continue to take risk and 0:04:39.520 --> 0:04:43.360 not go through these mistakes? And it made me change 0:04:43.400 --> 0:04:45.440 a lot. Like I wanted to find the smartest people 0:04:45.440 --> 0:04:47.760 I could would disagree with me. I wanted to build 0:04:47.760 --> 0:04:52.640 an idea meritocracy in which independent thinkers would challenge each other. 0:04:53.240 --> 0:04:56.839 And I wanted to deal with risk. How do I 0:04:57.160 --> 0:05:00.839 um maintain the returns but diversive I and do certain 0:05:00.839 --> 0:05:03.360 things to deal with risk. And it was from that 0:05:03.440 --> 0:05:07.120 point really on that everything started to change. So that 0:05:07.200 --> 0:05:09.960 was my terrible experience. And I think that that's, by 0:05:09.960 --> 0:05:12.279 the way, one of those lessons. Like there was a 0:05:12.320 --> 0:05:15.480 book that my son gave me in two thousand fourteen, 0:05:15.880 --> 0:05:19.680 Joseph Campbell here over thousand faces, and he describes about 0:05:19.920 --> 0:05:23.480 how that crashing occurs and that changes. Do you have 0:05:23.520 --> 0:05:27.960 a metamorphosis? So the whole approach to learning from mistakes 0:05:27.960 --> 0:05:30.360 and painful mistakes and making the most out of them 0:05:30.560 --> 0:05:34.599 and writing principles down um in other words, recipes for 0:05:34.760 --> 0:05:37.360 how do you deal with the circumstances learn the lesson 0:05:37.440 --> 0:05:40.080 write those principles down. This is the thing that I 0:05:40.120 --> 0:05:43.320 would recommend to you know, everybody, write them down. And 0:05:43.360 --> 0:05:46.120 I learned also that by being able to write them 0:05:46.120 --> 0:05:49.160 down clearly enough that they could be expressed in what 0:05:49.200 --> 0:05:53.120 were then called equations, are now algorithms that allowed me 0:05:53.240 --> 0:05:56.240 to make decisions and us to make decisions in a 0:05:56.760 --> 0:06:00.760 in a very powerful way. So that experience is really 0:06:00.800 --> 0:06:03.720 the turning point, and that's very abstract. I want to 0:06:03.720 --> 0:06:08.520 describe some of the ideas and products that came out 0:06:08.560 --> 0:06:12.560 of that. Post eight two. You describe in your early 0:06:13.520 --> 0:06:16.760 history some of the products that you had a role 0:06:16.839 --> 0:06:20.800 in the creation of, tips, the inflation protected treasury bonds, 0:06:21.400 --> 0:06:26.600 the US dollar futures Index, the entire concept of risk parity. 0:06:26.720 --> 0:06:29.359 You're very humble and saying you had only a little 0:06:29.360 --> 0:06:32.359 bit to do with the Chinese stock market creation, but 0:06:32.400 --> 0:06:35.200 I know you consulted with very senior people there and 0:06:35.279 --> 0:06:38.640 help that come about. And what I think is the 0:06:38.720 --> 0:06:42.040 least known thing about you, but the most fascinating, You 0:06:42.120 --> 0:06:47.400 helped to engineer chicken McNuggets. Explain that to us, because 0:06:47.440 --> 0:06:52.520 it's absolutely intriguing. Well, I traded commodities then back then. 0:06:52.640 --> 0:06:54.239 I mean that was my big thing, and I really 0:06:54.640 --> 0:06:59.920 uh learned, you know, how to make chicken. And I'm 0:07:00.040 --> 0:07:05.240 much feed what what a chick cost, how uh soybeans 0:07:05.240 --> 0:07:08.000 were grown, how they competed with cotton and corn, and 0:07:08.040 --> 0:07:11.440 that hole mechanics. I liked that whole mechanical thing. Um 0:07:11.520 --> 0:07:15.040 and at the time that and and McDonald's was a 0:07:15.080 --> 0:07:17.800 client of mine at the time, and they wanted to 0:07:17.960 --> 0:07:21.600 uh come out with this chicken McNuggets, but it was 0:07:21.680 --> 0:07:24.040 very volatile. Prices were volatile at the time, and they 0:07:24.080 --> 0:07:27.760 were worried about whether they can get stable menu prices 0:07:27.840 --> 0:07:30.200 or they would have the volatility and that being disrupted. 0:07:30.760 --> 0:07:35.320 Um and I had a chicken processing UH producer was 0:07:35.480 --> 0:07:37.600 I think at the largest at the time, and a client, 0:07:38.280 --> 0:07:43.480 and I could engineer UM the ability to lock in 0:07:43.960 --> 0:07:47.200 the feed prices because it basically the cost of a 0:07:47.280 --> 0:07:50.559 chick is not much relative to the cost of the feed, 0:07:50.640 --> 0:07:53.280 and you have futures contracts on that, and I was 0:07:53.320 --> 0:07:56.840 able to work a deal so that UM that chicken 0:07:56.840 --> 0:08:00.880 producer could get the McDonald's contract and McDonald's could get 0:08:00.920 --> 0:08:04.320 a stable price by engineering how they could do the 0:08:04.400 --> 0:08:06.960 hedge to be able to do that. So that was 0:08:07.040 --> 0:08:09.520 what I did. The word engineering comes up a lot 0:08:09.600 --> 0:08:14.200 for a person who's not an engineer UM, and I 0:08:14.880 --> 0:08:17.400 was very much reminded of that in one of the 0:08:17.440 --> 0:08:22.640 first long form videos you did, how the Economic Machine Works. 0:08:23.120 --> 0:08:27.880 So first, what's the engineering background for the overall economy 0:08:27.960 --> 0:08:31.480 and what motivated you to put that together in a 0:08:31.600 --> 0:08:34.360 video and release it to the world. Well, the one 0:08:34.400 --> 0:08:36.720 thing that I learned over the years is you know, 0:08:36.800 --> 0:08:40.600 like everything has it's every effect, Everything that happened has 0:08:40.640 --> 0:08:44.079 a reason that happened, cause effect relationships, and these things 0:08:44.160 --> 0:08:48.080 happen over and over again. So whenever I got surprised 0:08:48.240 --> 0:08:51.640 by something UH, it was usually because of something that 0:08:51.679 --> 0:08:54.960 didn't happen in my lifetime before, but it happened, you know, 0:08:55.040 --> 0:08:58.000 like these financial crisis is and so on. And what 0:08:58.120 --> 0:08:59.840 I did is I went back and I saw I 0:09:00.040 --> 0:09:03.160 started to see that. If you start to see everything 0:09:03.720 --> 0:09:06.800 is happening over and over again, and then you study 0:09:06.880 --> 0:09:10.280 the cause effect mechanics behind that at a nitty grady level, 0:09:10.559 --> 0:09:14.120 you learn how reality works, and then you can write 0:09:14.120 --> 0:09:17.840 your principles for dealing with reality, which are the recipes 0:09:17.960 --> 0:09:22.600 essentially for making good decisions. So to me it, you know, 0:09:22.800 --> 0:09:25.400 history has shown like the same things happen over and 0:09:25.440 --> 0:09:27.960 over again for the same cause effect relationships. So that 0:09:28.080 --> 0:09:30.560 debt book that you're referring to, you know, it's a 0:09:30.600 --> 0:09:35.760 good example. Um, if we don't spend time understanding the 0:09:35.840 --> 0:09:41.360 mechanics and the cause effect relationships, we just argue with 0:09:41.400 --> 0:09:43.400 each other about what should be done. And it's like 0:09:43.440 --> 0:09:47.160 two doctors who have not spend time understanding and agreeing 0:09:47.200 --> 0:09:51.160 on how the body works, arguing about, you know, what 0:09:51.240 --> 0:09:53.560 should be done for the body. And so the reason 0:09:53.640 --> 0:09:56.880 I did that video how the economic machine works, and 0:09:56.880 --> 0:09:58.600 the reason that I did the book and the reason 0:09:58.720 --> 0:10:02.120 that I wrote principles is to put on the table. 0:10:02.520 --> 0:10:05.679 What I think that those cause effect relationships are so 0:10:05.720 --> 0:10:10.240 we can understand the timeless and universal mechanics behind it. 0:10:10.520 --> 0:10:13.679 And that's been invaluable to me because once I understand 0:10:13.720 --> 0:10:16.559 that mechanics and we could test it, we could test 0:10:16.600 --> 0:10:18.520 it in all time frames, we could test it in 0:10:18.640 --> 0:10:21.360 all countries, and we could understand it. And then with 0:10:21.480 --> 0:10:24.240 that framework, we know how to deal with it. And 0:10:24.280 --> 0:10:27.319 but nowadays being able to deal with it with algorithms 0:10:27.320 --> 0:10:29.800 and technology means you can deal with it all over 0:10:29.840 --> 0:10:32.800 the world. And it's been a powerful force. So it's 0:10:32.880 --> 0:10:35.960 evolved from those experiences, like I remember the first time 0:10:36.160 --> 0:10:37.719 I was clerking on the floor of the New York 0:10:37.760 --> 0:10:43.480 Stock Exchange UM in UM. I was just between college 0:10:43.520 --> 0:10:48.080 and going to business school and the stock and uh, 0:10:48.520 --> 0:10:53.000 we have a dollar crisis. We can't pay for our goods, 0:10:53.000 --> 0:10:59.200 and you if nobody's accepting dollars and UM On August fifteen, uh, 0:10:59.440 --> 0:11:03.360 Richard Nick's and gets on the television and he basically says, 0:11:03.520 --> 0:11:07.400 we're severing the connection between dollars and gold. Back then, 0:11:08.120 --> 0:11:11.440 money was like a check and then checking the checkbook 0:11:11.480 --> 0:11:15.320 has no value. It only what the money is has value. 0:11:15.600 --> 0:11:18.920 And so it would get you money, would get you gold, 0:11:18.960 --> 0:11:20.560 and that was and it was a breakdown. So it 0:11:20.600 --> 0:11:23.640 was a default. And I remember thinking, um, when I 0:11:23.679 --> 0:11:25.760 was going to walk in on Monday morning to the 0:11:25.760 --> 0:11:28.640 New York Stock Exchange, this is a big crisis. And 0:11:28.679 --> 0:11:31.320 I thought the stock market would fall a lot. And 0:11:31.400 --> 0:11:34.920 the stock market went through the roof and I and 0:11:35.000 --> 0:11:39.320 I realized, I said, well, did you have currency breakdowns before? 0:11:39.840 --> 0:11:43.839 And then I was. I studied h currency breakdowns that 0:11:43.960 --> 0:11:47.680 happened in this system, and I realized why when you 0:11:47.880 --> 0:11:50.280 value the currency it's bulls and how that whole thing 0:11:50.320 --> 0:11:54.520 works that I didn't understand. So it's that perspective about mechanics. 0:11:54.520 --> 0:11:57.480 Do we understand? Can we agree on the mechanics of 0:11:57.520 --> 0:12:00.120 how it works? Because once you can do that, you 0:12:00.160 --> 0:12:02.720 know how to deal with it. So you mentioned Principles 0:12:02.720 --> 0:12:05.120 before we talk about big debt crisis. Let's talk about 0:12:05.600 --> 0:12:08.120 the book a bit. He came out last year. It 0:12:08.160 --> 0:12:11.720 became a New York Times bestseller and you kind of 0:12:11.760 --> 0:12:15.679 went on a not quite world tour on the book. 0:12:16.120 --> 0:12:20.360 You said that experience was really educational. What did you 0:12:20.480 --> 0:12:25.440 learn speaking to people about the book Principles? Well, I 0:12:25.520 --> 0:12:28.880 didn't like I didn't like. I never liked being in 0:12:29.200 --> 0:12:32.960 above the U, in the press, above the radar. You 0:12:33.000 --> 0:12:36.840 don't do a lot of media historically, although you're beginning 0:12:36.840 --> 0:12:39.400 to flower now that you're an author. I'll do that, 0:12:39.480 --> 0:12:42.719 I'll do that. I'll do this in my face. I'm 0:12:42.720 --> 0:12:46.559 in a phase of life which is a transition from 0:12:46.559 --> 0:12:50.520 my second phase to my third phase. And so the 0:12:50.520 --> 0:12:53.000 way I look at it is uh, in the first 0:12:53.040 --> 0:12:57.080 phase of life, one is dependent on others, one is learning, 0:12:57.120 --> 0:13:01.000 one's basically a student. Um in set and phase of life, 0:13:01.400 --> 0:13:04.719 one is working, others are dependent on them, and one 0:13:04.800 --> 0:13:08.400 is trying to be successful. As you get to my 0:13:08.520 --> 0:13:10.920 stage in life, which is a transition from the second 0:13:10.960 --> 0:13:13.640 to third stage, the way I think it is, the 0:13:13.800 --> 0:13:17.560 joy is no longer as much to be successful as 0:13:17.600 --> 0:13:19.760 to pass along what you've learned that has helped you 0:13:19.960 --> 0:13:22.640 be successful, the joys and seeing other people be successful. 0:13:23.160 --> 0:13:26.440 And because these principles have been written down over a 0:13:26.440 --> 0:13:29.560 long period of time and they have kind of the recipes, um, 0:13:29.920 --> 0:13:31.800 I wanted to pass those a log and that's what 0:13:31.840 --> 0:13:34.480 I'm in the process of doing, and then I'll phase out. 0:13:34.559 --> 0:13:37.520 But to answer your question in terms of the surprises. Like, 0:13:37.720 --> 0:13:40.520 I thought that was going to be a very uncomfortable experience. 0:13:40.559 --> 0:13:44.160 I thought even the communications would be bad. And I 0:13:44.280 --> 0:13:48.760 have found such a joy in the interactions that I've 0:13:48.800 --> 0:13:52.400 had with people in the in the public and and 0:13:52.480 --> 0:13:58.040 so on. Um So it's been a really pleasurable good experience, 0:13:58.120 --> 0:14:01.920 a sense of relationships, and a think people are now 0:14:02.640 --> 0:14:06.320 looking for principles, and I want to emphasize forget my principles. 0:14:06.360 --> 0:14:08.400 They don't have to be my principles. But I do 0:14:08.600 --> 0:14:13.720 think that everybody would benefit enormously by being crystal clear 0:14:13.720 --> 0:14:16.760 about their principles. I want to pass this this thing along. 0:14:16.840 --> 0:14:19.720 Number one, I will pass this along that if every 0:14:19.720 --> 0:14:25.880 time you're encountering your situation, um at that moment or 0:14:26.000 --> 0:14:28.920 right after you write down the court the criteria for 0:14:29.080 --> 0:14:33.160 making your decisions in words, and that allows you to 0:14:33.200 --> 0:14:37.400 communicate with others, allows you to clarify your decision making, 0:14:37.680 --> 0:14:39.880 and you could take in from others what the best 0:14:39.880 --> 0:14:44.040 criteria is for those circumstances in the future. That is 0:14:44.080 --> 0:14:48.120 invaluable because in all your relationships with people, know people 0:14:48.120 --> 0:14:51.520 will know what your principles are, how you will interact 0:14:51.560 --> 0:14:54.000 with them and why, and then you can go even 0:14:54.040 --> 0:14:57.480 beyond that to convert those into equations and help them 0:14:57.520 --> 0:14:59.680 make the decision that I think that's a powerful thing 0:14:59.680 --> 0:15:03.000 in the future. And so I wanted to pass along mind. 0:15:03.000 --> 0:15:05.840 But I also wanted to more importantly pass along the 0:15:05.880 --> 0:15:08.600 importance of other people doing that. And that's what I'm 0:15:08.600 --> 0:15:10.560 in the phase of. There are two things. So I 0:15:10.600 --> 0:15:13.600 did the Life and Work Principles, and now I'm working 0:15:13.640 --> 0:15:17.200 on Economic and Investment Principles. That will be the third 0:15:17.440 --> 0:15:20.680 third book in the series. So middle one was sort 0:15:20.680 --> 0:15:23.720 of an accident. Well, we'll get to the middle one 0:15:23.720 --> 0:15:26.240 in the moment. Before we leave principles, I have to 0:15:26.320 --> 0:15:31.280 ask about what I think is the most interesting approach 0:15:31.320 --> 0:15:35.120 you bring to managing a firm, which you call being 0:15:35.280 --> 0:15:42.320 radically open minded, having radical transparency, and bringing about thoughtful disagreement. 0:15:42.880 --> 0:15:46.080 Tell me how that developed, because that doesn't seem to 0:15:46.080 --> 0:15:50.280 be the way most of corporate America operates. That's our edge. 0:15:50.920 --> 0:15:57.480 Your edge is thoughtful. Okay, yeah, um okay, So let 0:15:57.480 --> 0:15:59.840 me give you one one sentence. I want an idea 0:15:59.840 --> 0:16:02.480 of meritocracy. In other words, I want the best ideas 0:16:02.520 --> 0:16:04.920 to win as opposed to where it comes from. Right, 0:16:05.000 --> 0:16:06.680 I don't have to be. It doesn't have to come 0:16:06.720 --> 0:16:10.040 from me. I just want the best decisions to be made, UM, 0:16:10.160 --> 0:16:12.880 and I want to What I want is to have 0:16:13.040 --> 0:16:17.720 meaningful work and meaningful relationships. A meaningful work meaning you're 0:16:17.760 --> 0:16:21.360 on a mission together. And those relationships are are deep 0:16:21.360 --> 0:16:24.280 and meaningful in their high quality, there a reward in 0:16:24.320 --> 0:16:28.240 and of themselves, and they make an organization more effective. 0:16:28.360 --> 0:16:31.360 So uh, an idea meritocracy, I'll get it out of 0:16:31.360 --> 0:16:35.040 one sentence. An idea meritocracy which the goals are meaningful 0:16:35.040 --> 0:16:40.479 work and meaningful relationships through radical truthfulness and radical transparency. 0:16:40.800 --> 0:16:44.560 Radical truthfulness means say what you're thinking and others will 0:16:44.600 --> 0:16:47.920 say the same, and let's get away from the behind 0:16:47.920 --> 0:16:50.600 the scenes and the politics of it. And the radical 0:16:50.680 --> 0:16:53.840 transparency means most people can see most everything so that 0:16:53.880 --> 0:16:56.640 they can form the opinions of what's going on themselves, 0:16:56.800 --> 0:17:00.160 independent thinking, and that builds trust. First of all, it 0:17:00.200 --> 0:17:07.520 cuts through the notion of politics and bureaucracy. UM. By 0:17:07.520 --> 0:17:11.119 everybody being able to see most things, you, you build 0:17:11.119 --> 0:17:14.280 trust you and you're dealing with most things without the 0:17:14.320 --> 0:17:17.680 blur of hiding stuff that's in people's heads. And in 0:17:17.800 --> 0:17:21.760 the investment business, UM, I think it's a particularly special important. 0:17:21.800 --> 0:17:25.199 I think it's also an entrepreneurs it's especially important because 0:17:25.480 --> 0:17:29.479 you you have to have the independent thinking in the markets. Um, 0:17:30.160 --> 0:17:33.760 the markets discount the consensus, so whatever the consensus is 0:17:33.760 --> 0:17:36.399 is in the price. So in order to be successful 0:17:36.440 --> 0:17:39.520 in the markets, you have to think differently than from 0:17:39.560 --> 0:17:42.719 the consensus, and you have to be right. And in 0:17:42.840 --> 0:17:45.320 order to have that, you have to have independent thinkers. 0:17:45.720 --> 0:17:48.639 And when you have those differences in independent thinkers, if 0:17:48.680 --> 0:17:52.639 you can work that through through thoughtful disagreement, you have 0:17:52.720 --> 0:17:55.520 the art of thoughtful disagreement. If you work that through, 0:17:56.000 --> 0:17:59.160 you raise your probabilities of getting at the best answer. 0:17:59.600 --> 0:18:03.280 And and that's been a very very powerful thing. And 0:18:03.320 --> 0:18:07.119 it also builds trusts and it builds better relationships because 0:18:07.320 --> 0:18:11.159 trust comes from you know, opting, operating an organizations and 0:18:11.240 --> 0:18:14.040 have this politics. It's all behind the scenes. Everybody gives 0:18:14.040 --> 0:18:15.920 them high fives and they're all happy and so long, 0:18:15.960 --> 0:18:19.280 and they talked behind each other's back. So that's been um, 0:18:19.320 --> 0:18:21.960 it's been a big deal for us. That that's your edge. 0:18:22.200 --> 0:18:24.800 So let's some Let's go forward to the new book 0:18:24.840 --> 0:18:29.399 which just came out, Navigating Big Dead Crises. You mentioned 0:18:29.480 --> 0:18:32.520 you decided to write that because a couple of folks 0:18:32.600 --> 0:18:36.240 ask you to put it together. Ben Bernanke, Tim Geithner, 0:18:36.640 --> 0:18:41.000 other people. I really like the way the book is assembled. 0:18:41.040 --> 0:18:45.000 It's broken into three parts. The template for what the 0:18:45.040 --> 0:18:49.639 big debt cycles look like. Then you use three detailed cases, 0:18:49.960 --> 0:18:54.040 the Great Financial Crisis, the Great Depression in the Weimar Republic, 0:18:54.400 --> 0:18:57.600 and then you you put together forty eight case studies 0:18:57.640 --> 0:19:00.800 from the past century. So let let's start with the 0:19:00.840 --> 0:19:04.920 first one to template what makes all of these very 0:19:05.080 --> 0:19:09.880 different crises follow the same mechanical sort of cycle. How 0:19:09.960 --> 0:19:13.640 how is that even possible? Well, everything's got these cause 0:19:13.680 --> 0:19:17.400 effect relationships and the way you know, in a nutshell, 0:19:17.880 --> 0:19:23.280 I'll try to make it simple. Um, there's productivity over 0:19:23.320 --> 0:19:25.920 a period of time, our living standards rise because we 0:19:26.040 --> 0:19:28.520 learn how to do things better, and the output per 0:19:28.560 --> 0:19:32.520 man hour work increases, and that moves at a fairly 0:19:33.160 --> 0:19:35.520 um it'll go up and down its pace. But by 0:19:35.720 --> 0:19:39.560 nine and large it's not what causes volatility and around 0:19:39.600 --> 0:19:42.680 that we have to debt cycles. We have a short 0:19:42.800 --> 0:19:45.760 term debt cycle, which we understand because that's the business cycle. 0:19:46.119 --> 0:19:51.160 You know, you're in a recession. Central banks E's monetary policy. 0:19:51.200 --> 0:19:54.639 They changed the relationship between short term interest rates, long 0:19:54.720 --> 0:19:58.600 term interest rates, asset prices, but liquidity in and then um, 0:19:58.680 --> 0:20:03.639 you have debt grow. The credit is spending power. So 0:20:03.680 --> 0:20:07.960 when you extend credit, you are extending spending power and 0:20:08.000 --> 0:20:10.560 when and that's good for the economy when that credit 0:20:10.600 --> 0:20:13.320 can be paid back. And what it does, of course, 0:20:13.520 --> 0:20:17.320 is it pushes asset prices up while levels of debt 0:20:17.480 --> 0:20:21.479 continue to increase. And at that part of the cycle, 0:20:21.840 --> 0:20:26.399 people and everybody sort of um conservative about that and 0:20:26.480 --> 0:20:30.239 it pays back. But asset prices when you mean, the 0:20:30.280 --> 0:20:33.040 barrowers have the ability to service that debt even as 0:20:33.080 --> 0:20:36.440 asset prices right, that's right, and everybody wins, and that's 0:20:36.440 --> 0:20:39.600 good credit growth and it's a wonderful thing. Um. Then 0:20:39.640 --> 0:20:42.440 as you get later in the cycle, it's a very 0:20:42.440 --> 0:20:47.080 self reinforcing cycle because as asset prices go up, you 0:20:47.280 --> 0:20:51.760 have more collateral. People are more confident, they believe asset 0:20:51.800 --> 0:20:54.840 prices will continue to rise. They become a little bit 0:20:55.119 --> 0:20:57.800 less careful in terms of that kind of lending. They 0:20:57.840 --> 0:21:02.239 extrapolate that into the future. It and then um and 0:21:02.320 --> 0:21:06.520 of course as um, then there's the shadow banking system. 0:21:06.560 --> 0:21:09.119 There's always a shadow banking system really, not just a 0:21:09.200 --> 0:21:12.280 way or nine. All the time, there's always a shadow 0:21:12.280 --> 0:21:15.320 banking system. There's a shadow banking system now. Um In 0:21:15.359 --> 0:21:19.400 other words, there's a banks and they're regulating controlled within 0:21:19.440 --> 0:21:22.640 their parameters. And then outside of those banks are other 0:21:22.800 --> 0:21:26.679 kind of new forms of lending and capital markets and 0:21:26.680 --> 0:21:29.399 and so on, or it could be online, could have 0:21:29.400 --> 0:21:33.200 different forms, and the there's a pressure to develop that 0:21:33.320 --> 0:21:36.920 outside of the systems shadow banking because the more regulated, 0:21:36.960 --> 0:21:40.560 more controlled one doesn't make as much money and so on, 0:21:40.720 --> 0:21:43.400 and so by being at the periphery, you can use 0:21:43.480 --> 0:21:47.399 higher amounts of leverage, you can do certain things, and 0:21:47.440 --> 0:21:51.000 so that grows. So you develop the shadow banking system 0:21:51.000 --> 0:21:53.879 which is not regulated. And also investors want to go 0:21:53.920 --> 0:21:56.159 to because they'll give you a bit higher return. Like 0:21:56.240 --> 0:21:58.600 I mean, even think about how the money market funds 0:21:58.640 --> 0:22:02.119 developed because by comparison to banks and so on, and 0:22:02.160 --> 0:22:06.280 so that develops outside and it becomes so self reinforcing 0:22:06.320 --> 0:22:08.879 because everybody makes money at it, and also they believe 0:22:08.920 --> 0:22:12.160 it because when things go up, you know, everybody thinks 0:22:12.320 --> 0:22:14.960 things will go up. So so less regulation, more risk, 0:22:15.080 --> 0:22:17.959 better return, that's right, and that's late in the cycle, 0:22:18.080 --> 0:22:20.800 and then what happens, and of course what that does 0:22:20.920 --> 0:22:25.560 is all that demand and liquidity causes rates to come down, 0:22:26.000 --> 0:22:28.679 liquidity go out, So like we see in this cycle, 0:22:29.200 --> 0:22:33.040 um last cycle, we brought interest rates basically down to zero, 0:22:33.480 --> 0:22:37.359 practically down. That wasn't good enough, So central banks brought 0:22:37.520 --> 0:22:41.840 fifteen trillion dollars of assets, push the asset prices up, 0:22:41.880 --> 0:22:45.639 push liquidity into the system, and so asset prices go 0:22:45.760 --> 0:22:48.280 up and people extrapolate. And the funny thing about it 0:22:48.320 --> 0:22:51.000 is as you get to later in the cycle, when 0:22:51.040 --> 0:22:53.680 there is more debt and you know that you're coming 0:22:53.720 --> 0:22:56.520 closer to the end of the cycle, there is more 0:22:56.560 --> 0:22:59.760 of an extrapolating in the market prices of that moving on. 0:22:59.800 --> 0:23:01.520 So if you look at what the discount of growth 0:23:01.640 --> 0:23:04.320 rates are laid in the cycle, they become high, they're 0:23:04.320 --> 0:23:06.800 difficult to meet, and then you get the changing, you 0:23:06.880 --> 0:23:10.679 get the tightening of monetary policy. Tightening, and monetary policy 0:23:10.800 --> 0:23:13.480 has its effect first on asset prices, and then it 0:23:13.520 --> 0:23:18.040 becomes a self reinforcing effect. And that's the normal business cycle, 0:23:18.320 --> 0:23:21.199 a normal sort of debt cycle, because debt is credit 0:23:21.280 --> 0:23:24.520 and credit is buying power, and economy runs on that 0:23:25.119 --> 0:23:28.400 um then you have this longer term debt cycle, which 0:23:28.480 --> 0:23:32.560 is the accumulation of those other cycles. Because the world 0:23:32.680 --> 0:23:36.000 wants to be long. The world wants to be leverage long. 0:23:36.240 --> 0:23:38.800 They want everything to go up, said we all, do 0:23:38.920 --> 0:23:42.960 you know central banks better times? Assets go up, businesses, activity, 0:23:43.240 --> 0:23:46.479 and so on, and there's a strong desire to push credit. 0:23:46.880 --> 0:23:50.400 And so the limitations that start to encounter is when 0:23:50.440 --> 0:23:52.960 you get close to zero interest rates, like we had 0:23:53.040 --> 0:23:56.600 zero interest rates, that changes the game. And when you 0:23:56.680 --> 0:24:00.240