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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.

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Speaker 2: This week on the podcast Another Banger, Bill Bernstein, neurologist,

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Speaker 2: investor author, What a perfect time to talk to the

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Speaker 2: author of the Birth of Plenty, and of course a

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Speaker 2: splendid exchange about how trade has made us all so

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Speaker 2: much wealthier. Really, a person who dives deep into the

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Speaker 2: subject matter, understands it better than anybody else and could

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Speaker 2: put it into great historical context. I thought this conversation

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Speaker 2: was fascinating, and I think you will also with no

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Speaker 2: further ado, my discussion with Bill Bernstein of Efficient Frontier Advisors.

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Speaker 2: So you have such a fascinating career, I want to

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Speaker 2: get into some of the details before we start talking

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Speaker 2: about markets and investing. You practice neurology for twenty years.

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Speaker 2: That's kind of unusual to say I've had enough of that.

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Speaker 2: Let me start managing assets. Tell us about that transition.

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Speaker 3: Well, first of all, it kept me off the streets,

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Speaker 3: and secondly, I'm easily bored, so I do move from

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Speaker 3: thing to thing. And it occurred to me all about

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Speaker 3: forty years ago that I live in a country that

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Speaker 3: doesn't have a functioning social safety net, and so I

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Speaker 3: was going to have to invest and save on my

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Speaker 3: own account to accomplish that. And I approached it the

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Speaker 3: way I thought anyone with scientific training would do, which

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Speaker 3: is I consulted the peer review literature. I read the

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Speaker 3: basic texts, I collected data, I built models, and by

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Speaker 3: the time I had done all that, I realized I

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Speaker 3: had something that was useful to other small investors, and

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Speaker 3: so I began to write things up. And I just

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Speaker 3: that when you're writing about investing, one of the key

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Speaker 3: subjects that you have to nail down is the history

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Speaker 3: of finance. If you don't know the history, you're dead

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Speaker 3: in the water. You know. Can you spell long term

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Speaker 3: capital management?

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Speaker 1: Uh?

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Speaker 2: Just LTCM? Yeah, exactly, need to spell it.

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Speaker 3: Yeah, I mean, if you know, you can, you know,

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Speaker 3: solve differential equations as easily as most people brush teeth.

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Speaker 3: But if you don't know the history, you're going to

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Speaker 3: have your head handed to you, which is what happened

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Speaker 3: to them. So I discovered that I enjoyed writing history,

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Speaker 3: and so that's how I segued into into writing history.

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Speaker 2: And footnote Roger Lowenstein's When Genius Failed is so instructive,

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Speaker 2: not just because of the things you're referring to, failing

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Speaker 2: to learn from history, the danger of leverage and you know,

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Speaker 2: tiny inefficiencies, but it was also a cautionary tale that

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Speaker 2: was ignored a few years later led right to the

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Speaker 2: Great Financial Crisis, the same mistakes.

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Speaker 3: Yeah, there's a historian by the name of Robert Kaplan

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Speaker 3: who said that all of history is half geography and

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Speaker 3: half Shakespeare. And when I heard that, it resonated. I

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Speaker 3: realized that investing is the same way. It's half mathematics

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Speaker 3: and half Shakespeare, and you have to manage. You have

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Speaker 3: to master both of them. If you can't master both,

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Speaker 3: you're dead in the water.

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Speaker 2: Literally. My next question, you describe you describe it as

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Speaker 2: half mathematics, half Shakespeare. Some people would call that art

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Speaker 2: and science. But tell us why you need both compounding

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Speaker 2: and exponential mathematics and the Bard to be successful as

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Speaker 2: an investor.

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Speaker 3: Well, it gets to what I call the prom queen

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Speaker 3: theory of life, which is the different.

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Speaker 2: Wait, the prom queen theory of life.

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Speaker 3: Indeed, if you're the prom queen, then the most important

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Speaker 3: thing in the world is how you dress and how

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Speaker 3: you look, and that's how you judge other people. Brains,

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Speaker 3: athletic ability, political ability don't matter.

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Speaker 1: Well.

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Speaker 3: Financiers are exactly the same way. If the peak of

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Speaker 3: your skill set is your quantitative ability, that is how

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Speaker 3: you judge other people. And if other people can't understand

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Speaker 3: your models, then they're stupid, all right, getting you have

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Speaker 3: to you know, the conceit of finance is that basically

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Speaker 3: the math is all there is to it, and that

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Speaker 3: you don't have a limbic system. They deny the existence

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Speaker 3: of their emotions and their psychology, and that's what gets

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Speaker 3: them into trouble. They don't understand the history and now

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Speaker 3: how that feeds into mass fear and mass greed and

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Speaker 3: mass illusions, which is why I wrote that particular book.

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Speaker 2: Kind of reminds me of the Richard Feinemann quote imagine

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Speaker 2: how much harder physics would be if electrons had feelings?

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Speaker 3: Exactly?

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Speaker 2: Yeah, so interesting. So since we mentioned Shakespeare, I have

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Speaker 2: to ask the obvious question, what writers and investors have

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Speaker 2: influenced how you invest and how you write?

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Speaker 3: Oh, dear well, Jim Grant of course would be at

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Speaker 3: the top of anyone's list, and then the person who's

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Speaker 3: right at the top of that list was the was

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Speaker 3: a Scottish guy who lived almost two hundred years ago.

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Speaker 3: Charles Mackay who wrote Extraordinary Popular Delusions and The Madness

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Speaker 3: of Crowds are actually memoirs of Extraordinary popular Delusions and

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Speaker 3: the Madness of crowds, and he described all of the

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Speaker 3: things that we've been seeing, you know, over the past

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Speaker 3: couple of decades, more than two hundred years ago.

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Speaker 2: So those are two well known names. Jim Grant is

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Speaker 2: really best known as a macro analyst and a fixed

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Speaker 2: income investor. How has Grant influenced how you look at

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Speaker 2: the world of investing?

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Speaker 3: Well, he's also a historian. You know, he's written several

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Speaker 3: historically deep books, particularly about Bernard Baruk, but he certainly

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Speaker 3: you know, describes the historical episodes of manias and panics.

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Speaker 3: I guess the other one would be John Kenneth Galbraith,

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Speaker 3: whose history of nineteen twenty nine crash was non non prole.

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Speaker 3: I mean, it was just absolutely superb. You know, it's

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Speaker 3: one of those books that you just can't help but

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Speaker 3: you know, snickering out loud, you know, with every paragraph.

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Speaker 2: And he has probably coined more quotes and phrases that

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Speaker 2: other people unknowingly steal and don't credit him because they're

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Speaker 2: just the essence of truth and wisdom.

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Speaker 3: Yeah, especially you know, whenever anybody talks about innovation in finance,

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Speaker 3: he describes it as reinventing the wheel, only in slightly

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Speaker 3: more unstable form.

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Speaker 2: That's pretty that's pretty amusing. We briefly talked about if

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Speaker 2: it's in the headlines, if it's above the fold in

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Speaker 2: the paper, it's already in price. So you're a proponent

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Speaker 2: of modern portfolio theory and the efficient market hypothesis. How efficient?

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Speaker 2: How much do market prices truly reflect future discounted cash flow?

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Speaker 3: Well? Samuelson once wrote, I think in a private letter

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Speaker 3: that the markets were micro efficient but macro inefficient. And

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Speaker 3: what he meant by that by micro efficiency was that,

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Speaker 3: as the both of us know, it is brutally hard

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Speaker 3: and getting harder by the day to pick stocks in

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Speaker 3: time the market. If you don't know that, you're in

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Speaker 3: big trouble. But the markets are also can be macro inefficient.

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Speaker 3: So the overall markets can overshoot in one direction or

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Speaker 3: the other. It's very hard to almost impossible, to figure

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Speaker 3: out exactly when that's going to happen. You can look

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Speaker 3: at a market as abulian and frothy, and you can

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Speaker 3: say I know what's going to happen, I just can't

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Speaker 3: tell you when. So that to me is the best

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Speaker 3: explanation or the best description of macro and micro efficiency

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Speaker 3: there is. But you know, I mean, my message to

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Speaker 3: anybody who's is twenty years old or twenty five years

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Speaker 3: old and just coming out of their education and think

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Speaker 3: they're going to be the next Warren Buffett, the bad

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Speaker 3: news is you're trading against Warren Buffett.

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Speaker 2: That's right, that's right. I have been told that markets

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Speaker 2: can stay irrational longer than you can stay solvent.

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Speaker 3: Yeah, that's an apocryphal quote from right from Canes yet.

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Speaker 2: Right, but not really. I don't believe he ever said that. No,

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Speaker 2: he certainly never wrote it.

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Speaker 3: No, he never said it or wrote it.

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Speaker 2: So, speaking of apocryphal times, you have said investors should

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Speaker 2: build their portfolios for the worst two percent of market

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Speaker 2: conditions rather than normal times. Tell us why you believe that,

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Speaker 2: and how do we go about accomplishing that?

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Speaker 3: Well, that's that directly falls out of Charlie Munger's dictum,

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Speaker 3: which is that, yes, compounding is magic, but the first

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Speaker 3: rule of compounding is never to interrupt it unnecessarily, and

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Speaker 3: you're most liable to interrupt, compounding to panic and sell

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Speaker 3: during the worst two percent of times. So you design

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Speaker 3: your portfolio for the worst two percent of times, which

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Speaker 3: means that it should be more conservative then you think

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Speaker 3: it should be the other ninety eight percent of the time.

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Speaker 3: And it's a suboptimal allocation to have less stocks. A

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Speaker 3: suboptimal But what I like to say, is it a

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Speaker 3: suboptimal allocation you can execute is better than an optimal

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Speaker 3: one you can't execute.

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Speaker 2: No doubt about that. You mentioned someone twenty twenty five.

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Speaker 2: There are a number of people who have said, and

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Speaker 2: I've been swayed in this direction. Hey, when you're twenty

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Speaker 2: twenty five years old and you don't need this money

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Speaker 2: for thirty forty fifty years, do you really need bonds

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Speaker 2: to offset the volatility of equities. Shouldn't you be one

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Speaker 2: hundred percent equities at that age?

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Speaker 3: Theoretically yes, Practically no, because there are a few sentient

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Speaker 3: beings in this quadrant of the galaxy that can tolerate

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Speaker 3: one hundred percent stocks.

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Speaker 2: Huh really really interesting. So you mentioned half math, half Shakespeare.

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Speaker 2: Let's talk about the math side. So when you started

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Speaker 2: looking at investing and bringing a scientific rigor to the process.

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Speaker 2: You created your own set of asset class databases. This

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Speaker 2: is before CRISP and other widely available databases. Tell us

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Speaker 2: how you want about doing this?

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Speaker 3: Oh no, no, I stole it from them.

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Speaker 2: Oh you did?

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Speaker 3: Yeah? I mean I went out and spent full disclosure.

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Speaker 3: Yeah yeah, no, I mean, I mean what did I do?

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Speaker 3: I went out. I did what anybody would do in

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Speaker 3: that situation, which I spent ninety five dollars which seemed

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Speaker 3: like a king's ransom at the time, for the Ibbitson yearbook.

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Speaker 3: And I transcribed all you know, nine hundred and eighty

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Speaker 3: five data points into a spreadsheet which I had just

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Speaker 3: learned how to use, you know, sometime around nineteen ninety.

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Speaker 3: And then that was the start of my models. And

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Speaker 3: the other people provided me with data. Ken Fisher, bless

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Speaker 3: his soul, supplied me with a fair amount of data,

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Speaker 3: and I, you know, impersonated a professional investor at certain

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Speaker 3: large banks and was able to get data sits from

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Speaker 3: them as as well.

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Speaker 2: By the way, I find Ken Fisher to be one

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Speaker 2: of the more fascinating people in finance, because not only

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Speaker 2: did he bring a writer's perspective. I think he was

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Speaker 2: the longest running Forbes columnist at like forty three years,

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Speaker 2: some crazy number, writing a monthly column for them. But

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Speaker 2: he was both an investor and a very accomplished business

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Speaker 2: person in terms of like he was early in direct mail,

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Speaker 2: he was early in the Internet, he was early in

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Speaker 2: just as running a business, just throwing stuff against the wall,

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Speaker 2: seeing what stuck, and just ab testing, iterating on a

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Speaker 2: continual basis, long before Google started doing that online. He

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Speaker 2: was one of the early people who developed here's what

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Speaker 2: financial asset management marketing should look like.

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Speaker 3: Yeah, and he did all those things, and he's also

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Speaker 3: a superb writer and observer. I think you interviewed him

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Speaker 3: a couple of times, Yeah, once or twice, maybe once

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Speaker 3: memorably and well there was that sure, And you know,

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Speaker 3: he said something on one of your interviews that that

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Speaker 3: stuck with me, you know, for the past twenty years,

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Speaker 3: which is that he pays close attention to the headlines

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Speaker 3: because he knows that if something is above the fold,

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Speaker 3: it's already been impounded into prices and can be safely ignored.

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Speaker 2: That's exactly right. I thought you were going in a

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Speaker 2: different direction the first time quick digression. The first time

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Speaker 2: I interviewed him right in the studio. He was kind

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Speaker 2: enough to do an interview with me in the first

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Speaker 2: year of the podcast, which was, you know, admittedly pretty terrible.

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Speaker 2: I was very rough around the edges, and it was

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Speaker 2: very formal and rigorous and tell us about small cap

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Speaker 2: and tell us about emerging market value. And it was

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Speaker 2: really on the you know, just kind of straight down

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Speaker 2: the line and really boring. And afterwards we're having a

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Speaker 2: conversation as the new firm going pretty good, we're a

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Speaker 2: few hundred million dollars, blah blah blah. You know, we

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Speaker 2: come in second very often on some of these big households.

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Speaker 2: And he said to me, wait till you're five years

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Speaker 2: old and a billion dollars in assets under management, and

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Speaker 2: the world will open up to you, because no one

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Speaker 2: with real money wants to give, you know, a small

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Speaker 2: firm with no history a big chunk of cash. And

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Speaker 2: we just started talking about how the business ran and

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Speaker 2: how he delegated authority and how he built stuff. And

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Speaker 2: I'm sitting there listening to them, listening to him, and

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Speaker 2: saying to myself, idiot, this is the conversation, not the

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Speaker 2: small cap nonsense. You just spent an hour chatting about

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Speaker 2: And when he finished schooling me, I said, can you

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Speaker 2: come back one day and we'll discuss that because this

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Speaker 2: is fascinating and he goes, sure, anytime. So a year

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Speaker 2: later we came back and had the conversation we should

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Speaker 2: have had. He has always impressed with me with how

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Speaker 2: insightful and unique his perspective is. I mean, we're all

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Speaker 2: a little neurodivergent. He has his issues, I have mine,

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Speaker 2: but I just find him to be an absolutely fascinating guy.

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Speaker 3: I mean, if we can get into just a little

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Speaker 3: bit of neurophysiology here, there's something called the well.

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Speaker 2: You happen to be a neurologist, so let's have at it.

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Speaker 3: There's something called the default mode network, which is a

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Speaker 3: part of your brain that becomes electrically active when you're

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Speaker 3: at rest and which turns itself off when you're doing

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Speaker 3: any focused task. And it turns out you can locate

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Speaker 3: it anatomically on imaging studies, and people who have well

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Speaker 3: developed anatomically well developed default mode networks tend to be

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Speaker 3: very good at reading other people and have good emotional intelligence.

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Speaker 3: The opposite of that is in people who are on

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Speaker 3: the spectrum who have small default mode networks and are

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Speaker 3: not good at reading other.

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Speaker 2: People, and so he kind of blunt by the way,

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Speaker 2: the firm is done fine. They've recovered from his stumble.

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Speaker 2: I don't know if it was even pre pandemic. And

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Speaker 2: I thought he kind of got slagged by a lot

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Speaker 2: of people unfairly. The guy has been a public figure

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Speaker 2: for forty five years. He's been at least writing in

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Speaker 2: public for all that time. You know, sometimes stuff happens,

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Speaker 2: and in a sort of social media gotcha environment.

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Speaker 3: To say nothing of being a spectacularly effective environmentalist.

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Speaker 2: So on our last interview with him, we talked about

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Speaker 2: all the trees and woods that he has purchased and

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Speaker 2: put into permanent conservation. He's done giant studies on sequoias

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Speaker 2: and redwoods. I think he's one of the leading experts

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Speaker 2: in a specific type of tree known in the Pacific Northwest.

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Speaker 2: He's really like a wildly fascinating guy, and I hope

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Speaker 2: people don't judge him for that. I mean, I don't

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Speaker 2: know what to call it. That politically incorrect snafu. I

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Speaker 2: think he meant it in any other way, and it,

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Speaker 2: you know, they kind of had to reel him in

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Speaker 2: a bit. But the farm is doing fine. His farm

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Speaker 2: is doing fine. And there was like about a five

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Speaker 2: billion dollar outflow. But when you're one hundred and five

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Speaker 2: or one hundred and ten billion dollars, all right, you

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Speaker 2: got to dance with who brought you there? He built

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Speaker 2: it up to that. But I find him to be

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Speaker 2: really an interesting guy.

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Speaker 3: Yeah, and he has the address here on Lexington, so

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Speaker 3: he knows where to send the chocolates.

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Speaker 2: I think I'm going to begin with a quote that

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Speaker 2: I stole from Bill to start a chapter of my

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Speaker 2: new book. To the extent you succeed in finance, you

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Speaker 2: succeed by suppressing the limbic system, your system one, the

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Speaker 2: very fast moving emotional system. If you cannot suppress that,

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Speaker 2: you are going to die poor. I love that quote.

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Speaker 2: Is it an exaggeration or is it accurate?

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Speaker 3: No, it's it's extremely accurate. Let me tell you a

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Speaker 3: personal story. I have a good friend who is a

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Speaker 3: wealthy person, and that has enabled this person to have

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Speaker 3: a career in public service, and she's done very very well.

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Speaker 3: And one day, after I'd known her for many, many years,

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Speaker 3: she told me that her sister was poor. All right?

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Speaker 3: Or did not have a lot of money. And I said,

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Speaker 3: I don't understand this. Was she disinherited? Did she make

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Speaker 3: the family angry? And she looked at me straight in

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Speaker 3: the eye and she said no, she was afraid of stocks.

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Speaker 3: Really yeah, And so that's the difference. If you can

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Speaker 3: suppress that fear, you will do very well, and if

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Speaker 3: you can't suppress the fear, then you probably will die poor.

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Speaker 2: So it's so fascinating you said that you must have

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Speaker 2: a similar situation. I live in liberal New York. You

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Speaker 2: live in liberal Oregon, right, But we have clients that

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Speaker 2: are on the left and the right. And so anytime

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Speaker 2: you put out a commentary on current affairs, not only

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Speaker 2: because you don't want to offend half your clients, but

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Speaker 2: because it's a good analytical strategy to try and go

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Speaker 2: down the middle. Be objective and fact based. But whatever

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Speaker 2: your personal bias is, keep it, keep it out of it.

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Speaker 2: And I wrote something up about what are the best

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Speaker 2: and worst case scenarios about the tariffs, And we'll talk

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Speaker 2: a ton later about tariffs. But the fascinating thing is

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Speaker 2: when you look at history, and you look at a

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Speaker 2: chart of everything that's happened, go back one hundred years,

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Speaker 2: go back to nineteen twenty six. There's always a reason

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Speaker 2: to sell stocks year in, year out. There's always some

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Speaker 2: spectacularly crazy news that says this is gonna be terrible.

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Speaker 2: I want to sell. And if you're selling in response

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Speaker 2: to headlines, you know, and you're gonna wait for the

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Speaker 2: dust to clear by that it's too late. You've missed

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Speaker 2: most of the recovery. How do we deal with that

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Speaker 2: never ending threat that persists? This time is different since

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Speaker 2: and carent affairs the headlines today? Does it feel like

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Speaker 2: the tariffs are different? Or is this no different than

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Speaker 2: the Great Financial Crisis, the pandemic, the dot com implosion,

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Speaker 2: go down the list to say nothing of the Kennedy

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Speaker 2: assassination nine to eleven, Like there are endless reasons to

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Speaker 2: be panicked about what's going on in the world.

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Speaker 3: Yes, this time certainly was different. Never before in American

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Speaker 3: history has a colossally incompetent American president tried to creator

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Speaker 3: the economy. And that's it's very different.

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Speaker 2: Do you think that was his purpose? Is he like, hey,

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Speaker 2: we cause the recession rates come down and that's good

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Speaker 2: for real estate?

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Speaker 3: Or I think we've talked about this one. The Rosetta

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Speaker 3: Stone of Donald Trump is a call in show he

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Speaker 3: did with Howard Stern along with his daughter and his

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Speaker 3: son Junior, And Howard looked at him and said, quick,

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Speaker 3: multiply six times seventeen. All right. None of the three

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Speaker 3: of them could do itred two. Well, that's the whole point.

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Speaker 3: And you know, Don Junior laughed, he thought it was funny.

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Speaker 3: Ivankas said, oh no, you don't have to be able

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Speaker 3: to do math.

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Speaker 2: To do real estate or investing for that math.

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Speaker 3: But the most interesting response was Donald's. He said, no,

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Speaker 3: it's one hundred and twelve, and he argued with Howard

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Speaker 3: Stern about whether it was one hundred and two or

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Speaker 3: one hundred and twelve.

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Speaker 2: Six times ten is sixty six times seven is forty two,

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Speaker 2: sixteen forty two. I mean that's how I do math

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Speaker 2: in my head. I don't know how you do it.

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Speaker 3: Yeah, yeah, there's yeah, that's one way to do it.

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Speaker 3: Or you might know that three times seventeen is fifty one, okay,

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Speaker 3: and you could double it, double it exactly. And so

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Speaker 3: this is a math problem that you know, a reasonably

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Speaker 3: bright middle school student can handle. None of the three

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Speaker 3: Trumps could do it, okay, and so this is the

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Speaker 3: guy who's now directing our economy. So that's different. All right, Well,

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Speaker 3: how different was that from nine to eleven? All right,

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Speaker 3: nine to eleven was sure different.

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Speaker 2: I mean, arguably, Jeorge H. W. Bush is in the

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Speaker 2: sharpest tool in the in the box. Barack Obama had

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Speaker 2: no national experience whatsoever, had no idea how really the

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Speaker 2: national apparatus worked. You could do this on both sides

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Speaker 2: to some degree. You're saying this time really.

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Speaker 3: Oh yeah, yeah, yeah, this is this is this, this

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Speaker 3: is completely there were there were adults in the room

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Speaker 3: during the Bush presidency, and there were adults in the

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Speaker 3: room during the first Trump presidency. They're all gone now.

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Speaker 2: And yet the market continued to go higher during the

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Speaker 2: first Trump presidency regardless of who was president.

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Speaker 3: Because they took him literally but not seriously.

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Speaker 2: Other way around, Yeah, seriously but not literally. Yeah, this

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Speaker 2: time I think we should be taking him literally but

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Speaker 2: not seriously.

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Speaker 3: Yeah. Yeah, that's right, got it reversed exactly.

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Speaker 2: Yeah, the great So we talked earlier about the efficient

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Speaker 2: market hypothesis. So to be fair to the president, he's

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Speaker 2: been talking about Tariff's whole adult life. He says, Tariff

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Speaker 2: is the most beautiful word in the dictionary. He says,

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Speaker 2: I'm tariff man. Why were the markets so surprised by

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Speaker 2: Liberation Day when here's a guy who has told you,

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Speaker 2: I'm going to implement big, beautiful tariffs in my second term.

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Speaker 2: Why did the market have to adjust revenue and earnings

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Speaker 2: expectations down substantially after April second if the market's so efficient.

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Speaker 3: Well, I think that the reason why is because he

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Speaker 3: didn't do ninety percent of the other things he said

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Speaker 3: he was going to do. He was going to repeal

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Speaker 3: Obamacare and give us a big, beautiful healthcare system. He

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Speaker 3: was going to redo our infrastructure. He was going to

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Speaker 3: establish peace in the Ukraine on day one.

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Speaker 2: And I think that his breaking and the price of eggs, yeah.

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Speaker 3: Exactly, And I think that his I think that his

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Speaker 3: promise on tariff's just got put in the bin with

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Speaker 3: the rest of the stuff. He obviously wasn't going to

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Speaker 3: do it and didn't do.

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Speaker 2: But I think people did take him seriously. They did expect,

402
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Speaker 2: you know, the sort of muscular US foreign policy and

403
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Speaker 2: take tough you know, a tough stance with the Middle East,

404
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Speaker 2: a tough stance with the Russia Ukraine War, and he's

405
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Speaker 2: going to bring prices down. That's why I believe most

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Speaker 2: of his non hardcore supporters voted him. I think a

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Speaker 2: lot of people were kind of surprised by what he's done.

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Speaker 2: Are you suggesting that we should not be long term

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Speaker 2: investors and step aside or do we just have to

410
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Speaker 2: ride this out?

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Speaker 1: No?

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Speaker 3: I think that it's this time is different in the

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Speaker 3: same way that all the other times were were different.

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Speaker 3: I mean, you know October nineteenth, you know nineteen eighty seven, Boy,

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Speaker 3: that was sure different. We've never seen that before and

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Speaker 3: we've never seen it since. And the smart thing to

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Speaker 3: do on October twentieth of nineteen eighty seven was to

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Speaker 3: buy stocks.

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Speaker 1: Right.

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Speaker 2: So when you say so, not that you had time

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Speaker 2: like I was hoping, we would be down. I don't

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Speaker 2: get excited about down eight to ten percent, but down

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Speaker 2: twenty percent, you've got my attention. I want to start

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Speaker 2: legging into more equities. We never quite got there on

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Speaker 2: the SMP, right, I think, well we down eighteen percent,

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Speaker 2: seventeen percent.

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Speaker 3: Yeah, And it's the same thing with you know late

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Speaker 3: March of twenty twenty, Boy, that was fast.

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Speaker 2: Thirty four percent seventeen days. So if you were looking

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Speaker 2: for down twenty You got it. You just only had

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Speaker 2: a day or two to react.

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Speaker 3: Yeah, I don't, you know. I try to stay away

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Speaker 3: from correction ten percent bear market twenty percent. To me,

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Speaker 3: that's numerology.

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Speaker 2: There's no difference one hundred you and I know, you know,

436
00:24:39,960 --> 00:24:43,040
Speaker 2: I find the base ten like what you have ten

437
00:24:43,080 --> 00:24:45,800
Speaker 2: fingers and ten toes. So twenty percent is a bear market.

438
00:24:46,560 --> 00:24:48,520
Speaker 2: There's just no data that supports that.

439
00:24:48,680 --> 00:24:51,080
Speaker 3: No, there's no difference between the market being down nineteen

440
00:24:51,119 --> 00:24:55,080
Speaker 3: percent and down being down twenty one percent. It behaves

441
00:24:55,119 --> 00:24:56,320
Speaker 3: the same way in both cases.

442
00:24:56,440 --> 00:24:59,919
Speaker 2: Arguably. If so, maybe I should make our rebalance BA

443
00:25:00,400 --> 00:25:03,680
Speaker 2: instead of being down twenty percent, maybe it's down sixteen percent.

444
00:25:04,080 --> 00:25:06,600
Speaker 2: So you get executed and then add a second one

445
00:25:06,680 --> 00:25:07,840
Speaker 2: down twenty four percent.

446
00:25:07,920 --> 00:25:12,360
Speaker 3: Yeah, until you get to you know, March of nine,

447
00:25:12,480 --> 00:25:15,439
Speaker 3: and there you've rebalanced. You've thrown all your cash in

448
00:25:15,520 --> 00:25:16,600
Speaker 3: three different times.

449
00:25:17,160 --> 00:25:19,560
Speaker 2: And but you know, if you've thrown away your cash,

450
00:25:19,760 --> 00:25:23,080
Speaker 2: it kind of works out. The really the really strange

451
00:25:23,119 --> 00:25:27,440
Speaker 2: thing about bear markets, and I'm my frame of reference

452
00:25:27,520 --> 00:25:31,000
Speaker 2: is not just twenty to twenty thirteen, but the Dow

453
00:25:31,240 --> 00:25:35,200
Speaker 2: kisses one thousand in nineteen sixty six and it doesn't

454
00:25:35,200 --> 00:25:38,080
Speaker 2: get over and on a permanent basis till nineteen eighty two.

455
00:25:38,880 --> 00:25:43,119
Speaker 2: And if you just continued to dollar cost average for

456
00:25:43,200 --> 00:25:47,880
Speaker 2: those sixteen years, or from twenty to twenty thirteen, when

457
00:25:47,960 --> 00:25:52,240
Speaker 2: the market finally got over all its previous highs, that's

458
00:25:52,280 --> 00:25:54,399
Speaker 2: when you start to make a ton of money because

459
00:25:54,760 --> 00:26:00,400
Speaker 2: that next cyclical I'm sorry, that next secular move. Those

460
00:26:00,400 --> 00:26:03,480
Speaker 2: bad buys you've made over the past ten years, suddenly

461
00:26:03,520 --> 00:26:04,320
Speaker 2: they start flower.

462
00:26:05,080 --> 00:26:08,840
Speaker 3: Yeah, there's this academic parlor game we're both aware of,

463
00:26:09,240 --> 00:26:12,439
Speaker 3: which is the argument is do stocks get riskier with

464
00:26:12,440 --> 00:26:16,840
Speaker 3: a longer time horizon? And the correct academic answer is yes,

465
00:26:17,119 --> 00:26:19,680
Speaker 3: they do. But the assumption there is that you're a

466
00:26:19,720 --> 00:26:22,480
Speaker 3: buy and hold investor, all right, But there are other

467
00:26:22,560 --> 00:26:25,280
Speaker 3: kinds of investors besides buy and hold investors. If you

468
00:26:25,440 --> 00:26:30,800
Speaker 3: are a periodic savory, you're a young person who's putting

469
00:26:30,800 --> 00:26:33,520
Speaker 3: money away, then stocks are really not all that risky

470
00:26:33,560 --> 00:26:37,440
Speaker 3: for the reason you just gave. On the other hand,

471
00:26:37,480 --> 00:26:39,960
Speaker 3: if you're a retiree and you have no more human

472
00:26:40,119 --> 00:26:45,240
Speaker 3: capital left than stocks are three mile Island dangerous? You are?

473
00:26:45,600 --> 00:26:48,240
Speaker 2: You know, you have to explain what that means to a.

474
00:26:48,280 --> 00:26:51,320
Speaker 3: Young Yeah, there was a nuclear There was a nuclear

475
00:26:51,359 --> 00:26:53,639
Speaker 3: accident which was sort of the junior early version of

476
00:26:53,680 --> 00:26:57,720
Speaker 3: Chernobyl at three Mile Island outside Harrisburg, Pennsylvania. There was

477
00:26:57,720 --> 00:27:00,880
Speaker 3: a movie that was that was parody of all Yeah, yeah,

478
00:27:00,880 --> 00:27:05,800
Speaker 3: the China syndrome. That's right, uh and and and so

479
00:27:06,080 --> 00:27:08,840
Speaker 3: the point being that if you're an older person, stocks

480
00:27:08,920 --> 00:27:11,840
Speaker 3: are are risky. And you could say, if you're you know,

481
00:27:11,920 --> 00:27:14,160
Speaker 3: like me, you don't have a lot of human capital left, well,

482
00:27:14,440 --> 00:27:18,080
Speaker 3: five out of six times, uh, stocks have higher returns

483
00:27:18,080 --> 00:27:20,400
Speaker 3: in bonds. So even in retirement, I should have plenty

484
00:27:20,760 --> 00:27:23,240
Speaker 3: of stocks. And that's like saying that when you play

485
00:27:23,320 --> 00:27:25,320
Speaker 3: Russian roulette five out of six times you win.

486
00:27:27,240 --> 00:27:30,000
Speaker 2: I guess five out of six times. But that said

487
00:27:30,200 --> 00:27:33,200
Speaker 2: that that six time is a doozy, isn't it exactly?

488
00:27:33,200 --> 00:27:36,000
Speaker 3: It's it's it's all about asymmetric consequences. It's if you're

489
00:27:36,000 --> 00:27:39,240
Speaker 3: if you're invested too heavily in bonds and you should

490
00:27:39,280 --> 00:27:41,040
Speaker 3: have been invested in stocks, well you don't get to

491
00:27:41,040 --> 00:27:43,359
Speaker 3: fly first class, you don't get to buy the beamer.

492
00:27:43,880 --> 00:27:44,120
Speaker 1: Uh.

493
00:27:44,160 --> 00:27:46,879
Speaker 3: But on the other hand, if you invest too heavily

494
00:27:46,920 --> 00:27:50,480
Speaker 3: in stocks and you're wrong, then you're bunking with your kids.

495
00:27:50,920 --> 00:27:53,239
Speaker 2: Right, if you're an older investor and you don't have

496
00:27:53,240 --> 00:27:56,040
Speaker 2: that time horizon, right. Yeah, someone someone said to me,

497
00:27:56,080 --> 00:27:59,760
Speaker 2: can you really look through the next four years if

498
00:27:59,760 --> 00:28:02,840
Speaker 2: you're not retiring for ten or twenty years, or if

499
00:28:02,880 --> 00:28:05,720
Speaker 2: your kids five twenty nine, they're not going to school

500
00:28:05,760 --> 00:28:10,400
Speaker 2: for ten fifteen years. That's the easy question. The challenge

501
00:28:10,440 --> 00:28:13,679
Speaker 2: is what happens if you're retiring in twenty five, twenty six,

502
00:28:13,840 --> 00:28:18,160
Speaker 2: twenty seven, right in the next three years. You know,

503
00:28:18,240 --> 00:28:22,480
Speaker 2: that sequence of returns problem is really thorny. I think

504
00:28:22,480 --> 00:28:24,240
Speaker 2: it was Bill Sharp said, it's one of the most

505
00:28:24,240 --> 00:28:27,040
Speaker 2: difficult problems in all of finance. How much do you

506
00:28:27,160 --> 00:28:30,240
Speaker 2: draw down each year? We all use four percent as

507
00:28:30,240 --> 00:28:32,640
Speaker 2: an average, but how much do you draw down each

508
00:28:32,680 --> 00:28:35,560
Speaker 2: year if your first couple of years of retirement is

509
00:28:35,720 --> 00:28:37,919
Speaker 2: down five, down, ten, down, twenty percent?

510
00:28:38,160 --> 00:28:41,040
Speaker 3: Yeah, there's this one or wonderful little bit of quantitative

511
00:28:41,080 --> 00:28:43,280
Speaker 3: work done by Mike Kitsis. And wait, foul about you

512
00:28:43,320 --> 00:28:47,360
Speaker 3: know the reversel glide slope, which is you actually raise

513
00:28:47,400 --> 00:28:51,080
Speaker 3: your equity allocation the further into retirement you get, and

514
00:28:51,080 --> 00:28:53,040
Speaker 3: that just if you think about it logically, it just

515
00:28:53,080 --> 00:28:55,600
Speaker 3: falls right out of that your first your first five

516
00:28:55,640 --> 00:28:58,080
Speaker 3: ten years of retirement, you want to be fairly conservative

517
00:28:58,200 --> 00:29:00,280
Speaker 3: just for that reason. And then when you're eight years

518
00:29:00,320 --> 00:29:02,040
Speaker 3: old and you know you'll be pushing up the daisies

519
00:29:02,840 --> 00:29:05,479
Speaker 3: in five or ten years, then you can be more

520
00:29:05,520 --> 00:29:09,480
Speaker 3: aggressive because you don't need that much of a liability

521
00:29:09,520 --> 00:29:11,000
Speaker 3: match in portfolio at that age.

522
00:29:11,360 --> 00:29:14,640
Speaker 2: Huh really really interesting. So you wrote a short book

523
00:29:14,680 --> 00:29:19,200
Speaker 2: called Deep Risk talking about different types of risk. Explain

524
00:29:19,360 --> 00:29:21,560
Speaker 2: what is deep risk? What is shallow risk?

525
00:29:22,000 --> 00:29:24,400
Speaker 3: Well, shallow risk is the way we normally think about risk.

526
00:29:24,440 --> 00:29:28,320
Speaker 3: There's this theoretical finance dogma that risk is the same

527
00:29:28,360 --> 00:29:34,320
Speaker 3: as variance or standard deviation. And the problem with that

528
00:29:34,520 --> 00:29:38,440
Speaker 3: is that's only true in the short term short term volatility,

529
00:29:38,720 --> 00:29:41,840
Speaker 3: and short term volatility is not of any real importance

530
00:29:41,880 --> 00:29:44,960
Speaker 3: to the long term investor. The real risk of long

531
00:29:45,040 --> 00:29:48,320
Speaker 3: term investing is not having enough assets to pay for

532
00:29:48,360 --> 00:29:53,720
Speaker 3: your living expenses five, ten, fifteen, twenty thirty years from now.

533
00:29:53,840 --> 00:29:55,959
Speaker 3: So what are the things? What are the what are

534
00:29:55,960 --> 00:30:01,720
Speaker 3: the events that can that can impair that? Big ones? Inflation? Inflation?

535
00:30:01,960 --> 00:30:05,760
Speaker 3: Hyper inflation in particularly is extremely common. It is almost

536
00:30:05,840 --> 00:30:09,880
Speaker 3: the rule rather than the exception. Really, sure, you look,

537
00:30:10,040 --> 00:30:12,720
Speaker 3: all you have to do is ask yourself, what unit

538
00:30:12,760 --> 00:30:15,479
Speaker 3: of currency that would buy yourself something in the year

539
00:30:15,560 --> 00:30:17,920
Speaker 3: nineteen hundred can still buy yourself something today? Well, the

540
00:30:17,960 --> 00:30:21,120
Speaker 3: US dollar can still buy yourself something, okay, can buy

541
00:30:21,160 --> 00:30:24,840
Speaker 3: you something. A Japanese yen sure can and it can't.

542
00:30:24,840 --> 00:30:27,640
Speaker 3: An English pound can, and a Swiss franc maybe can

543
00:30:27,680 --> 00:30:29,320
Speaker 3: buy you a candy bar if you find the right

544
00:30:29,360 --> 00:30:36,880
Speaker 3: store in Geneva or more likely burn and so you

545
00:30:36,920 --> 00:30:39,320
Speaker 3: know those, you know, they're the case of the yen

546
00:30:39,400 --> 00:30:42,320
Speaker 3: and the French franc and the German lera are much

547
00:30:42,320 --> 00:30:45,680
Speaker 3: more common than the US dollar and the Swiss frank

548
00:30:45,760 --> 00:30:46,680
Speaker 3: and the English pound.

549
00:30:46,720 --> 00:30:49,280
Speaker 2: Those German deutsch Mark, Italian lera.

550
00:30:49,240 --> 00:30:53,560
Speaker 3: Exactly exactly, Yeah, I mean you start with, you know,

551
00:30:54,680 --> 00:30:57,080
Speaker 3: a reich mark in the year nineteen twenty and you

552
00:30:57,120 --> 00:30:59,400
Speaker 3: know by nineteen twenty three, late nineteen twenty three, you

553
00:30:59,400 --> 00:31:02,640
Speaker 3: were down to one trillionth of its personal purchasing power.

554
00:31:02,920 --> 00:31:05,560
Speaker 3: That's hyper inflation. So that's the rule. So that's the

555
00:31:05,600 --> 00:31:08,240
Speaker 3: most common thing that you have to worry about, and

556
00:31:08,280 --> 00:31:11,520
Speaker 3: that is, relatively speaking, the easiest one to defend against. Now,

557
00:31:11,520 --> 00:31:14,160
Speaker 3: there are other three other things that can well.

558
00:31:14,040 --> 00:31:15,840
Speaker 2: Wait before you go to the other three things. How

559
00:31:15,880 --> 00:31:16,920
Speaker 2: do you defend against that.

560
00:31:18,160 --> 00:31:20,160
Speaker 3: Well. First of all, in the US, we have these

561
00:31:20,360 --> 00:31:23,959
Speaker 3: marvelous instruments called tips, and all you have to do

562
00:31:24,080 --> 00:31:26,960
Speaker 3: is worry about, you know, the Department of Labor rejiggering

563
00:31:28,080 --> 00:31:31,280
Speaker 3: the inflation adjustment, which is something to worry about. But

564
00:31:32,200 --> 00:31:34,400
Speaker 3: of all the worries you can have, that's a relatively

565
00:31:35,040 --> 00:31:35,640
Speaker 3: small one.

566
00:31:35,800 --> 00:31:39,000
Speaker 2: We went through that with Michael Boskin already rejiggered how

567
00:31:39,040 --> 00:31:42,160
Speaker 2: we calculate, right, of course, the living adjustments. Rather than

568
00:31:42,920 --> 00:31:46,880
Speaker 2: debating this like adults politically, they just made some I'm

569
00:31:46,920 --> 00:31:50,320
Speaker 2: not a big fan of substitution or hedonic adjustment. When

570
00:31:50,520 --> 00:31:55,760
Speaker 2: when steak gets too pricey and you substitute chicken, that

571
00:31:55,920 --> 00:31:58,360
Speaker 2: just means I've been priced out of steak. Not that

572
00:31:58,440 --> 00:31:58,840
Speaker 2: this is.

573
00:31:58,760 --> 00:32:01,800
Speaker 3: The equivalent, Yeah, exactly, I mean it is. It is

574
00:32:01,840 --> 00:32:06,320
Speaker 3: a problem. But of all of the asset classes that

575
00:32:06,400 --> 00:32:10,240
Speaker 3: protect you with the greatest charity against the decrement in

576
00:32:10,320 --> 00:32:13,800
Speaker 3: your future consumption, loss of your future consumption, tips do

577
00:32:13,840 --> 00:32:15,719
Speaker 3: it better than anything else I can think of. All.

578
00:32:15,800 --> 00:32:18,240
Speaker 2: Right, stock, really interesting stocks.

579
00:32:18,600 --> 00:32:21,920
Speaker 3: Do a relatively good job of it. You know. Elroy

580
00:32:22,000 --> 00:32:24,040
Speaker 3: Dimson likes to point out that stocks are an inflation

581
00:32:24,160 --> 00:32:27,400
Speaker 3: head simply because of their high returns, but they're also

582
00:32:27,400 --> 00:32:31,720
Speaker 3: a claim when real assets. You know, companies own real estate,

583
00:32:31,760 --> 00:32:35,040
Speaker 3: they own equipment, they have human capital, and those retain

584
00:32:35,240 --> 00:32:36,040
Speaker 3: real value.

585
00:32:36,360 --> 00:32:42,480
Speaker 2: Plus stocks are their revenue and profits are in dollars,

586
00:32:42,760 --> 00:32:45,640
Speaker 2: so at least in the US, so if there's inflation,

587
00:32:46,480 --> 00:32:49,280
Speaker 2: the cost of their goods go up and their total dollars,

588
00:32:49,600 --> 00:32:52,680
Speaker 2: maybe their profits get squeezed, but everything seems to rise

589
00:32:53,040 --> 00:32:56,040
Speaker 2: in an inflationary environment on the equity side, right.

590
00:32:55,920 --> 00:32:58,160
Speaker 3: Right, And then there's certain kinds of stocks that are

591
00:32:58,280 --> 00:33:01,600
Speaker 3: especially good at protecting you inst inflation. Value stocks do

592
00:33:02,160 --> 00:33:06,240
Speaker 3: why because they tend to be overly leveraged, and with inflation,

593
00:33:06,520 --> 00:33:10,520
Speaker 3: their debts tend to get inflated away and so that

594
00:33:10,560 --> 00:33:12,960
Speaker 3: flows to their bottom line. So if you look, for example,

595
00:33:12,960 --> 00:33:15,560
Speaker 3: at the period that we just talked about from sixty

596
00:33:15,600 --> 00:33:19,960
Speaker 3: six to eighty two, value stocks actually perform the market

597
00:33:20,040 --> 00:33:24,760
Speaker 3: by an inflation by a very good margin. And then finally,

598
00:33:24,760 --> 00:33:30,080
Speaker 3: there are commodities producers in an inflation environment, the petroleum stocks,

599
00:33:30,160 --> 00:33:34,360
Speaker 3: gold stocks, base metal producers are all going to do

600
00:33:34,840 --> 00:33:39,040
Speaker 3: fairly well, at least relatively well to the market. And

601
00:33:39,080 --> 00:33:41,800
Speaker 3: then finally, you know, on the bond side, for God's sakes,

602
00:33:42,320 --> 00:33:45,400
Speaker 3: keep your maturity short. As we found out in twenty.

603
00:33:45,120 --> 00:33:48,040
Speaker 2: Two, I noticed when you talked about real assets, you

604
00:33:48,080 --> 00:33:51,960
Speaker 2: did not discuss real property. How does real property do

605
00:33:52,080 --> 00:33:54,520
Speaker 2: as an inflation hedge over time?

606
00:33:54,880 --> 00:33:57,000
Speaker 3: It's pretty good. But what I like to say about

607
00:33:57,200 --> 00:33:59,920
Speaker 3: real estate is that it's not an investment. It's a job.

608
00:34:00,440 --> 00:34:00,640
Speaker 2: Yeah.

609
00:34:00,760 --> 00:34:03,200
Speaker 3: If you, if you, if you, if you enjoy dealing

610
00:34:03,200 --> 00:34:07,760
Speaker 3: with drug addle tenants and fixing toilets, then be my guest.

611
00:34:08,640 --> 00:34:12,040
Speaker 2: Okay, I wasn't. I wasn't thinking of rental properties. I

612
00:34:12,200 --> 00:34:16,040
Speaker 2: was thinking of the various roots and offices and paying

613
00:34:16,080 --> 00:34:19,600
Speaker 2: a professional to manage it. So you're not getting the

614
00:34:19,680 --> 00:34:21,760
Speaker 2: two am call that the toilet is overflow.

615
00:34:21,840 --> 00:34:23,719
Speaker 3: Yeah, but then by the time you're investing in public reads,

616
00:34:23,760 --> 00:34:25,400
Speaker 3: you're back in the stock market again.

617
00:34:25,200 --> 00:34:29,719
Speaker 2: Right, So there's no difference. Really really really really interesting.

618
00:34:30,120 --> 00:34:33,120
Speaker 2: I was kind of fascinated by a data point you

619
00:34:33,239 --> 00:34:37,959
Speaker 2: shared talking about old Master paintings. Imagine if you bought

620
00:34:37,960 --> 00:34:42,400
Speaker 2: a Rembrandt for one hundred bucks, and three hundred and

621
00:34:42,440 --> 00:34:45,280
Speaker 2: fifty years later you sold it for ten million dollars

622
00:34:45,840 --> 00:34:48,239
Speaker 2: the return was a little over three percent a year.

623
00:34:48,760 --> 00:34:53,840
Speaker 2: That that's astonishing. All these paintings look like they've appreciated

624
00:34:53,920 --> 00:34:58,960
Speaker 2: so much. Tell us about the math behind these paintings

625
00:34:58,960 --> 00:35:01,000
Speaker 2: that go for ten twenty thirty million dollars.

626
00:35:01,480 --> 00:35:04,600
Speaker 3: Well, it's really it's really not about finance or math.

627
00:35:04,719 --> 00:35:08,799
Speaker 3: What it's about is human neuropsychology. We are particularly bad

628
00:35:08,840 --> 00:35:12,600
Speaker 3: at exponential calculations. And you know, it's the old thing

629
00:35:12,600 --> 00:35:15,400
Speaker 3: that even the the they knew back in the in

630
00:35:15,440 --> 00:35:19,880
Speaker 3: the Far East, that you know, the emperor asks the

631
00:35:20,000 --> 00:35:22,799
Speaker 3: artisan or the farmer what he wants. We'll put one

632
00:35:22,840 --> 00:35:25,200
Speaker 3: grain of rice on the first square in the of

633
00:35:25,239 --> 00:35:27,200
Speaker 3: the chessboard. And by the time you get, of course

634
00:35:27,239 --> 00:35:29,560
Speaker 3: to the to the square, but by the time you

635
00:35:29,600 --> 00:35:31,960
Speaker 3: get to the sixty fourth square, he's the wealthiest person

636
00:35:32,640 --> 00:35:35,520
Speaker 3: on the planet. Human beings are not good at that.

637
00:35:35,600 --> 00:35:38,239
Speaker 3: And that's all that. That's a demonstration of. Now, if

638
00:35:38,239 --> 00:35:42,280
Speaker 3: you want to get into the academic finance of it,

639
00:35:42,280 --> 00:35:47,800
Speaker 3: it's that art has value in investment, has investment value,

640
00:35:47,800 --> 00:35:50,719
Speaker 3: but it also has a complementary value, which is a

641
00:35:50,800 --> 00:35:55,680
Speaker 3: syesthetic return. And Bill Bommel did the research on this,

642
00:35:55,760 --> 00:35:58,719
Speaker 3: the late Bill Bommel. Then Yu did the research on

643
00:35:58,760 --> 00:36:02,040
Speaker 3: this and figured out out that art had a much

644
00:36:02,280 --> 00:36:06,879
Speaker 3: lower return than stocks or bonds simply because of its

645
00:36:07,080 --> 00:36:08,200
Speaker 3: esthetic return.

646
00:36:08,880 --> 00:36:10,839
Speaker 2: Makes a lot of sense. And that's before we get

647
00:36:10,880 --> 00:36:14,839
Speaker 2: to the whole survivorship bias that you only see the

648
00:36:14,880 --> 00:36:18,120
Speaker 2: most famous paintings in the world and their price tag.

649
00:36:18,600 --> 00:36:21,800
Speaker 2: The tens of thousands of other paintings that aren't auctioned

650
00:36:21,840 --> 00:36:24,840
Speaker 2: off each year, we don't see their returns.

651
00:36:24,440 --> 00:36:27,359
Speaker 3: So to say nothing of the maintenance and insurance and

652
00:36:27,400 --> 00:36:30,160
Speaker 3: security costs of keeping the art as well.

653
00:36:30,760 --> 00:36:33,600
Speaker 2: No doubt, no doubt about that. It's funny because you

654
00:36:33,600 --> 00:36:37,160
Speaker 2: have this whole group of investing books and then you

655
00:36:37,239 --> 00:36:41,840
Speaker 2: also have this separate group of really fascinating historical books

656
00:36:41,880 --> 00:36:47,000
Speaker 2: about markets and the economy and global trade. Let's start

657
00:36:47,000 --> 00:36:52,680
Speaker 2: with the splendid exchange. It's so perfect for the moment

658
00:36:52,800 --> 00:36:57,399
Speaker 2: we're in. What is the history of trade and how

659
00:36:57,480 --> 00:37:00,960
Speaker 2: has it helped raise everybody standard of living?

660
00:37:01,520 --> 00:37:05,880
Speaker 3: Well, it just gets down to Adam Smith's concept of specialization.

661
00:37:06,120 --> 00:37:12,200
Speaker 3: Nations specialize, and nations have and people have an intrinsic

662
00:37:12,960 --> 00:37:15,600
Speaker 3: tendency too, as he put it, truck and barter. They

663
00:37:15,600 --> 00:37:19,400
Speaker 3: want to trade one thing for another. So you know,

664
00:37:19,440 --> 00:37:22,840
Speaker 3: the one of the great luxury commodities of the seventeenth

665
00:37:22,920 --> 00:37:25,240
Speaker 3: century was the pineapple. If you look at the coats

666
00:37:25,280 --> 00:37:28,680
Speaker 3: of arms of all these European aristocrats, about third or

667
00:37:28,680 --> 00:37:30,680
Speaker 3: a quarter of them have a pineapple on them. Why

668
00:37:30,760 --> 00:37:33,040
Speaker 3: because they came from the New World. They were incredibly

669
00:37:33,120 --> 00:37:38,799
Speaker 3: precious and they were delicious. Everybody in Europe wanted a

670
00:37:38,840 --> 00:37:43,719
Speaker 3: pineapple because they don't grow pineapples in Europe. And so

671
00:37:44,080 --> 00:37:52,200
Speaker 3: different nations have different geographical and intellectual and technological endowments.

672
00:37:52,280 --> 00:37:55,760
Speaker 3: And it's if you improve everybody's standard of living by

673
00:37:55,880 --> 00:37:58,640
Speaker 3: trading among nations the things that other nations aren't good at.

674
00:38:00,160 --> 00:38:03,040
Speaker 2: That seems fair. And we all specialize and we all

675
00:38:03,080 --> 00:38:06,840
Speaker 2: do different things. It makes sense as the US developed

676
00:38:06,880 --> 00:38:10,479
Speaker 2: computer technology and software that we're not going to make

677
00:38:10,680 --> 00:38:15,400
Speaker 2: furniture or fabrics or sneakers or those sorts of things.

678
00:38:16,080 --> 00:38:19,680
Speaker 2: But at what point does globalization go too far? At

679
00:38:19,719 --> 00:38:23,319
Speaker 2: what point have we hollowed out the middle class by

680
00:38:23,400 --> 00:38:28,000
Speaker 2: outsourcing manufacturing to China and other low cost countries.

681
00:38:28,280 --> 00:38:30,759
Speaker 3: That's a really good question, and it was highlighted by

682
00:38:30,800 --> 00:38:34,080
Speaker 3: a series of patients. Again, it was highlighted by a

683
00:38:34,120 --> 00:38:37,840
Speaker 3: series of papers by an economist named David Otter auto

684
00:38:38,000 --> 00:38:42,560
Speaker 3: R And his colleagues, and it showed just how badly

685
00:38:43,120 --> 00:38:49,200
Speaker 3: communities that were affected by Chinese competition were hollowed hollowed out. Now,

686
00:38:49,400 --> 00:38:53,399
Speaker 3: the problem with free trade is that its harms are

687
00:38:53,440 --> 00:38:57,319
Speaker 3: concentrated and obvious, as David Order found out, but its

688
00:38:57,320 --> 00:39:01,279
Speaker 3: benefits are diffuse. So a world in which we have

689
00:39:01,320 --> 00:39:03,880
Speaker 3: to make our own shirts and our own furniture is

690
00:39:03,920 --> 00:39:07,520
Speaker 3: a world in which the other three hundred and fifty

691
00:39:07,560 --> 00:39:11,640
Speaker 3: million Americans who don't make those things are taxed very heavily.

692
00:39:11,680 --> 00:39:13,799
Speaker 3: So instead of paying fifteen dollars for a shirt, you're

693
00:39:13,800 --> 00:39:17,240
Speaker 3: paying thirty five dollars for a shirt. Instead of paying,

694
00:39:17,320 --> 00:39:18,799
Speaker 3: you know, two and a half dollars for a head

695
00:39:18,840 --> 00:39:21,760
Speaker 3: of lettuce, you've got to pay seven dollars for ahead

696
00:39:22,160 --> 00:39:24,520
Speaker 3: of lettuce. And so that's a world in which everyone

697
00:39:24,600 --> 00:39:28,239
Speaker 3: else is impoverished, but in which those costs are much

698
00:39:28,239 --> 00:39:31,160
Speaker 3: harder to see than the out of work auto worker

699
00:39:31,400 --> 00:39:33,760
Speaker 3: or out of work furniture manufacturer.

700
00:39:34,360 --> 00:39:39,200
Speaker 2: So we certainly have problems in the United States. There's

701
00:39:39,239 --> 00:39:42,840
Speaker 2: wealth inequality, there's income inequality. I think the worst of

702
00:39:43,560 --> 00:39:48,839
Speaker 2: the pandemic inflation is behind us, but we have these

703
00:39:48,920 --> 00:39:53,960
Speaker 2: real problems with which a lot of people are blaming

704
00:39:54,719 --> 00:39:59,960
Speaker 2: on trade and globalization. What's wrong with that thesis.

705
00:40:00,960 --> 00:40:05,200
Speaker 3: The analogy I like to use is Churchill's comment about democracy,

706
00:40:05,560 --> 00:40:07,799
Speaker 3: which is it's the worst form of government that's ever

707
00:40:07,840 --> 00:40:09,719
Speaker 3: been tried, except for all the others that have been

708
00:40:09,760 --> 00:40:12,239
Speaker 3: tried from time to time. I think that's close to

709
00:40:12,280 --> 00:40:17,680
Speaker 3: the exact route. And so the alternative to free trade

710
00:40:17,719 --> 00:40:22,240
Speaker 3: is protectionism, and protectionism, as we found out during the thirties,

711
00:40:23,280 --> 00:40:27,880
Speaker 3: is a disaster in multiple dimensions. What happens when you

712
00:40:27,960 --> 00:40:31,120
Speaker 3: raise tariffs is what we're seeing now, is in the

713
00:40:31,160 --> 00:40:36,080
Speaker 3: first place, prices go up. You know, automakers, automakers have

714
00:40:36,160 --> 00:40:40,719
Speaker 3: to pay more for their steel. You know, people who

715
00:40:40,760 --> 00:40:43,719
Speaker 3: are making agricultural products and processing food have to pay

716
00:40:43,719 --> 00:40:50,280
Speaker 3: more for their imported basic inputs, and so domestic prices

717
00:40:50,320 --> 00:40:52,520
Speaker 3: go up. You get inflation, and we're already starting to

718
00:40:52,560 --> 00:40:55,600
Speaker 3: see the expectation of inflation going up. I think the

719
00:40:55,640 --> 00:40:58,880
Speaker 3: media and expectation is now six point seven percent in

720
00:40:59,000 --> 00:41:02,680
Speaker 3: survey data. And once you see the expectation of inflation

721
00:41:02,800 --> 00:41:05,160
Speaker 3: going up, then inflation goes up, because that's how inflation

722
00:41:05,560 --> 00:41:10,320
Speaker 3: is driven. Then you see retaliation, which we're already seeing

723
00:41:10,800 --> 00:41:14,640
Speaker 3: in spectacular fashion, and you see trade wars. But that

724
00:41:15,120 --> 00:41:19,000
Speaker 3: is not even the worst costs cost of protectionism, because

725
00:41:19,040 --> 00:41:23,319
Speaker 3: what happens with that is that it inflames international relations.

726
00:41:23,920 --> 00:41:28,600
Speaker 3: And it was apparent to people in nineteen forty five

727
00:41:29,120 --> 00:41:31,680
Speaker 3: that one of the causes of the Second World War

728
00:41:32,640 --> 00:41:37,439
Speaker 3: was the protectionism of the nineteen thirties, and that gave

729
00:41:37,600 --> 00:41:42,320
Speaker 3: rise to the new world order that we put in place.

730
00:41:42,320 --> 00:41:45,799
Speaker 3: Basically in nineteen forty five, you know, with the what

731
00:41:46,040 --> 00:41:48,800
Speaker 3: came in what became the World Trade Organization, the IMF

732
00:41:49,760 --> 00:41:54,680
Speaker 3: and Breton Woods, and they said, never, never again, this

733
00:41:54,760 --> 00:41:57,360
Speaker 3: is never going to happen again. Why did the Japanese

734
00:41:57,360 --> 00:41:59,800
Speaker 3: attack Pearl Harbor r It was because we embargoed oil,

735
00:42:00,600 --> 00:42:03,440
Speaker 3: all right, and they knew what would happen if we

736
00:42:03,560 --> 00:42:07,120
Speaker 3: cut off their oil supplies. And I fear the same

737
00:42:07,160 --> 00:42:11,200
Speaker 3: thing would happen today. Imagine, for example, an inverted naval

738
00:42:11,280 --> 00:42:14,640
Speaker 3: encounter in the Straits of Taiwan between US and Japanese

739
00:42:15,200 --> 00:42:18,879
Speaker 3: naval vessels. The difference between a peaceful and a non

740
00:42:18,920 --> 00:42:21,920
Speaker 3: peaceful outcome may very well be the state of mind

741
00:42:22,360 --> 00:42:27,560
Speaker 3: of the policymakers on both sides, whose emotions have been

742
00:42:27,560 --> 00:42:29,400
Speaker 3: inflamed by the trade RUCKUS.

743
00:42:29,920 --> 00:42:35,920
Speaker 2: Huh really interesting. So PAX Americana eighty years of growth

744
00:42:35,960 --> 00:42:42,600
Speaker 2: and economic success, much of which accrued to the benefit

745
00:42:42,640 --> 00:42:46,799
Speaker 2: of the US. Are you implying that that is now

746
00:42:46,840 --> 00:42:47,239
Speaker 2: at risk?

747
00:42:47,640 --> 00:42:51,560
Speaker 3: Yes. Absolutely. There is a man, very fairly well known

748
00:42:51,600 --> 00:42:54,600
Speaker 3: economists by the name of Albert Hirshman, who has a

749
00:42:54,600 --> 00:42:58,680
Speaker 3: fascinating biography. He was Jewish, he was raised in Berlin.

750
00:43:00,280 --> 00:43:02,560
Speaker 3: Not only was he Jewish, but he was also a socialist.

751
00:43:03,560 --> 00:43:07,360
Speaker 3: So he fled the Nazi persecution, fought in the French

752
00:43:07,440 --> 00:43:10,320
Speaker 3: army against the Germans, then wound up in Marseille, spiriting

753
00:43:10,360 --> 00:43:16,000
Speaker 3: people like Hannah Arendt out of Marseille into the United

754
00:43:16,600 --> 00:43:21,879
Speaker 3: into the United States. And he saw quite clearly that

755
00:43:22,120 --> 00:43:26,600
Speaker 3: World War II was enlarged part triggered by the trade

756
00:43:26,760 --> 00:43:30,400
Speaker 3: frictions of that period. For example, you know, one of

757
00:43:30,440 --> 00:43:32,479
Speaker 3: the things that inflamed the Germans so much was because

758
00:43:32,520 --> 00:43:34,480
Speaker 3: they couldn't pay their way out of the World War

759
00:43:34,520 --> 00:43:36,520
Speaker 3: One reparations, because they couldn't export.

760
00:43:37,760 --> 00:43:41,680
Speaker 2: And Lord quad Amat's book goes into great detail about that.

761
00:43:41,760 --> 00:43:45,080
Speaker 3: Yeah, and so he wrote about that in nineteen forty five,

762
00:43:45,120 --> 00:43:47,399
Speaker 3: and he says, we have to establish a world order

763
00:43:47,400 --> 00:43:48,680
Speaker 3: in which that doesn't happen again.

764
00:43:49,200 --> 00:43:52,600
Speaker 2: Huh. So here's the best case scenario. And I want

765
00:43:52,600 --> 00:43:55,440
Speaker 2: to talk a little bit about this because splendid Exchange

766
00:43:55,480 --> 00:43:57,759
Speaker 2: and Birth of plenty are sort of two sides of

767
00:43:57,800 --> 00:44:02,319
Speaker 2: the same coin. Best case scenario, this is just a

768
00:44:02,360 --> 00:44:05,840
Speaker 2: negotiating tactic. We're going to cut all these side deals

769
00:44:06,200 --> 00:44:09,320
Speaker 2: and all this brew Haha, Hey, you took him literally,

770
00:44:09,360 --> 00:44:12,400
Speaker 2: we should have taken him seriously. Is there a way

771
00:44:12,480 --> 00:44:17,640
Speaker 2: out that doesn't destroy the post World War two order

772
00:44:17,719 --> 00:44:21,480
Speaker 2: that has accrued so much wealth to the United States?

773
00:44:21,760 --> 00:44:24,840
Speaker 3: It is possible. I don't think at this point it

774
00:44:24,920 --> 00:44:28,200
Speaker 3: is probable. I think that so much damage has been done.

775
00:44:28,680 --> 00:44:32,680
Speaker 3: I don't think that any any foreign power is ever

776
00:44:32,719 --> 00:44:37,760
Speaker 3: going to trust us again. You know, Donald Trump renegotiates

777
00:44:37,840 --> 00:44:42,120
Speaker 3: andn after we get the USMCA.

778
00:44:41,920 --> 00:44:45,560
Speaker 2: His new treaty in Trump one, in Trump one.

779
00:44:45,480 --> 00:44:48,759
Speaker 3: And then he repudiates that. And you know, let's say

780
00:44:48,760 --> 00:44:53,719
Speaker 3: that the Democrat gets elected into in twenty twenty eight.

781
00:44:53,800 --> 00:44:56,080
Speaker 3: Let's assume that you know that he not only he

782
00:44:56,200 --> 00:44:59,000
Speaker 3: or she not only gets the presidency but also gets

783
00:44:59,000 --> 00:45:03,359
Speaker 3: a democratically dominated Congress. The other nations of the world

784
00:45:03,360 --> 00:45:04,640
Speaker 3: are going to look at us and say, yeah, but

785
00:45:04,680 --> 00:45:06,400
Speaker 3: we don't know who's going to be elected in twenty

786
00:45:06,400 --> 00:45:08,640
Speaker 3: thirty two or twenty thirty six. We can't trust these

787
00:45:08,640 --> 00:45:09,279
Speaker 3: people ever.

788
00:45:09,400 --> 00:45:12,640
Speaker 2: Again, that sounds like a worst case scenario.

789
00:45:12,960 --> 00:45:14,680
Speaker 3: I think that's the most I don't think that's the

790
00:45:14,719 --> 00:45:17,200
Speaker 3: worst case scenario. I can think of worst case scenarios

791
00:45:17,280 --> 00:45:19,440
Speaker 3: than that which I've just I described previous to that

792
00:45:19,520 --> 00:45:22,160
Speaker 3: in front of geopolitics, But I think that's the most

793
00:45:22,200 --> 00:45:24,960
Speaker 3: probable scenario. I don't think that anyone is ever going

794
00:45:25,000 --> 00:45:26,400
Speaker 3: to trust the United States again.

795
00:45:27,320 --> 00:45:30,480
Speaker 2: So I'm an optimist because I was fortunate to be

796
00:45:30,680 --> 00:45:33,720
Speaker 2: born when I was where I was, into the family

797
00:45:33,800 --> 00:45:36,680
Speaker 2: I was. I know that shapes how I see the world.

798
00:45:37,239 --> 00:45:42,240
Speaker 2: I'm kind of hopeful that the twenty twenty six Congress

799
00:45:42,320 --> 00:45:46,800
Speaker 2: changes hands, the tariff power is retaken back by Congress,

800
00:45:46,880 --> 00:45:49,880
Speaker 2: which is within their authority to do, and that whoever

801
00:45:50,000 --> 00:45:53,440
Speaker 2: gets elected in twenty eight, regardless of which side of

802
00:45:53,440 --> 00:45:57,759
Speaker 2: the aisle, just does a global goodwill tour and kind

803
00:45:57,840 --> 00:46:00,959
Speaker 2: of rolls back the past four years. Am I being

804
00:46:01,400 --> 00:46:06,319
Speaker 2: pollyannish about this? Am I too sanguine about the potential

805
00:46:06,440 --> 00:46:10,839
Speaker 2: to repair the worst damage that you're suggesting?

806
00:46:11,120 --> 00:46:14,520
Speaker 3: Well, you and I are engaging in a forecasting exercise.

807
00:46:14,560 --> 00:46:18,240
Speaker 3: Which is well beyond computational impass Human beings, as Philip

808
00:46:18,280 --> 00:46:22,000
Speaker 3: Tatlock described, don't forecast very well, even even the best experts.

809
00:46:23,000 --> 00:46:26,120
Speaker 3: My judgment, my forecast would be that your scenario is

810
00:46:26,200 --> 00:46:30,400
Speaker 3: possible but less probable than mine. But I wouldn't be surprised,

811
00:46:30,440 --> 00:46:34,200
Speaker 3: and I would hope that you're right. But if you

812
00:46:34,640 --> 00:46:37,560
Speaker 3: want a worst case scenario, which I think is as

813
00:46:37,640 --> 00:46:43,080
Speaker 3: probable as yours, the current ructions trashing the treasury market,

814
00:46:43,080 --> 00:46:46,800
Speaker 3: I see rates rising, and I see us falling into

815
00:46:47,680 --> 00:46:49,719
Speaker 3: a debt spiral, and away we go.

816
00:46:50,640 --> 00:46:54,640
Speaker 2: So Ben Hunt of Epsilon Theory wrote a piece a

817
00:46:54,680 --> 00:46:58,440
Speaker 2: week or two ago called the car Crash of Pak's

818
00:46:58,480 --> 00:47:03,080
Speaker 2: Americana and lays out that exact case. Nobody wants to

819
00:47:03,080 --> 00:47:05,319
Speaker 2: buy our treasuries, so how do we finance our debt?

820
00:47:05,760 --> 00:47:09,440
Speaker 2: The dollar, our exorbitant privilege, The dollar as the world's

821
00:47:09,480 --> 00:47:14,200
Speaker 2: reserve currency, is replaced with a basket of euro, yen, wan,

822
00:47:14,400 --> 00:47:19,600
Speaker 2: things like that, and people just start to realize how

823
00:47:19,600 --> 00:47:23,680
Speaker 2: good they had it and frittered it away on a

824
00:47:23,800 --> 00:47:27,000
Speaker 2: very ill advised policy that the last time we tried

825
00:47:27,040 --> 00:47:32,400
Speaker 2: it in nineteen thirty, Smooth Hawley didn't work out well. Either.

826
00:47:32,800 --> 00:47:36,319
Speaker 2: So if that's the case, why would I want to

827
00:47:36,360 --> 00:47:40,440
Speaker 2: own a dollar denominated US assets? Isn't that an argument

828
00:47:40,520 --> 00:47:42,200
Speaker 2: for head for the hills?

829
00:47:42,560 --> 00:47:47,120
Speaker 3: Why? Indeed, and that is certainly an argument for international diversification.

830
00:47:47,719 --> 00:47:50,680
Speaker 3: To invest in countries whose economies are run by adults.

831
00:47:51,560 --> 00:47:54,760
Speaker 2: So once you buy it, the exchange rate no longer matters.

832
00:47:54,760 --> 00:47:59,680
Speaker 2: If you're purchasing Europe, and if you're purchasing Japan or

833
00:47:59,719 --> 00:48:03,320
Speaker 2: in or wherever, and there is inflation in the US

834
00:48:03,360 --> 00:48:06,480
Speaker 2: and there is a decrease in the value of the dollar,

835
00:48:07,080 --> 00:48:09,000
Speaker 2: it doesn't matter after you've made the purchase.

836
00:48:09,440 --> 00:48:12,400
Speaker 3: Yeah, there will be damage on a global scale no

837
00:48:12,440 --> 00:48:14,880
Speaker 3: matter where you invest, but you will mitigate the damage

838
00:48:15,200 --> 00:48:19,120
Speaker 3: by investing abroad. That's the argument for international diversification. It

839
00:48:19,160 --> 00:48:21,440
Speaker 3: hasn't had a lot of fans the past fifteen years,

840
00:48:21,880 --> 00:48:23,960
Speaker 3: but it's coming back into fashion.

841
00:48:24,719 --> 00:48:29,600
Speaker 2: So yeah, No, you've definitely seen this year to date overseas,

842
00:48:29,680 --> 00:48:33,200
Speaker 2: especially Europe and even some of the emerging markets start

843
00:48:33,239 --> 00:48:36,600
Speaker 2: to do much better than they have. What's fascinating about

844
00:48:36,680 --> 00:48:42,200
Speaker 2: splendid exchange is you trace the rise of trade and

845
00:48:42,239 --> 00:48:47,120
Speaker 2: the benefits of an interrelated economy back to the plague,

846
00:48:47,160 --> 00:48:51,359
Speaker 2: the Black Death tell us how the plague led to

847
00:48:52,480 --> 00:48:53,920
Speaker 2: changing up trading patterns.

848
00:48:54,160 --> 00:49:00,359
Speaker 3: Well, it's a fairly well established economic historical subject, which

849
00:49:00,400 --> 00:49:02,920
Speaker 3: is that what the plague did is it overvalued labor.

850
00:49:03,600 --> 00:49:05,960
Speaker 3: A third half of the population of Europe disappeared, and

851
00:49:06,000 --> 00:49:10,680
Speaker 3: so that greatly empowered workers. It drove prosperity, and it

852
00:49:10,719 --> 00:49:14,239
Speaker 3: also probably you know, a century a century and a

853
00:49:14,239 --> 00:49:18,960
Speaker 3: half later, drove the voyages of discovery to the Indies.

854
00:49:18,960 --> 00:49:21,040
Speaker 3: What were people looking for in the Indies. Well, they

855
00:49:21,040 --> 00:49:25,160
Speaker 3: were looking for this really important economic commodity, which was nutmeg,

856
00:49:25,200 --> 00:49:29,319
Speaker 3: mace and clothes, which were great luxuries, and it's what

857
00:49:29,440 --> 00:49:32,160
Speaker 3: made Portugal wealthy early on, and then drove the wealth

858
00:49:32,320 --> 00:49:35,520
Speaker 3: of the Dutch and then finally the English.

859
00:49:36,120 --> 00:49:40,359
Speaker 2: Huh, that's really interesting. So one of the things you

860
00:49:40,400 --> 00:49:44,319
Speaker 2: wrote in Exploded Exchange is trade almost always benefits the

861
00:49:44,440 --> 00:49:47,799
Speaker 2: nations that engage in it, but only averaged over the

862
00:49:47,920 --> 00:49:52,160
Speaker 2: entire national economy. There's always a minority that is hurt

863
00:49:52,200 --> 00:49:56,920
Speaker 2: by evolving trade patterns, and they always call for protection.

864
00:49:57,480 --> 00:50:01,520
Speaker 2: That was very pressing in observation. Is that coming true

865
00:50:01,560 --> 00:50:04,440
Speaker 2: now in what you see for the people who are

866
00:50:04,480 --> 00:50:10,560
Speaker 2: demanding protection from international trade and globalization in the current administration.

867
00:50:10,880 --> 00:50:16,160
Speaker 3: Yeah, when when trade opens up, then someone is hurt.

868
00:50:16,280 --> 00:50:19,480
Speaker 3: If you're making furniture in the United States and people

869
00:50:19,560 --> 00:50:25,040
Speaker 3: in China can make it more cheaply then you can,

870
00:50:25,239 --> 00:50:28,640
Speaker 3: then you're going to be hurt as a furniture maker.

871
00:50:28,680 --> 00:50:30,680
Speaker 3: On the other hand, if you're a consumer of furniture

872
00:50:30,960 --> 00:50:34,520
Speaker 3: and there are you know, thousands and thousand times more

873
00:50:34,640 --> 00:50:37,279
Speaker 3: consumers of furniture than there are makers furniture, then you

874
00:50:37,440 --> 00:50:43,200
Speaker 3: benefit greatly from that. But trade always produces losers and winners.

875
00:50:43,239 --> 00:50:45,440
Speaker 3: Now is part of the fun of writing Splendid Exchange

876
00:50:45,480 --> 00:50:48,640
Speaker 3: was identifying who the losers were three and four hundred

877
00:50:48,719 --> 00:50:51,200
Speaker 3: years ago, and two hundred years ago, and one hundred

878
00:50:51,320 --> 00:50:54,040
Speaker 3: years ago, four hundred years ago, the big losers with

879
00:50:54,160 --> 00:50:56,840
Speaker 3: trade were the people who grew sugar on the island

880
00:50:56,880 --> 00:51:00,520
Speaker 3: of Madeira, which was a sugar producing eye and from

881
00:51:00,520 --> 00:51:04,360
Speaker 3: about the fifteenth century or actually the fourteenth century on,

882
00:51:04,600 --> 00:51:07,320
Speaker 3: and they made a lot of money until people started

883
00:51:07,320 --> 00:51:10,920
Speaker 3: growing sugar in the Caribbean and in Brazil and Madeir

884
00:51:10,960 --> 00:51:14,440
Speaker 3: and sugar producers got clobbered. And did they demand and

885
00:51:15,000 --> 00:51:18,000
Speaker 3: get protection, Yes, they did because they were losers in

886
00:51:18,040 --> 00:51:21,880
Speaker 3: the system. And in the nineteenth century the big losers,

887
00:51:22,000 --> 00:51:24,959
Speaker 3: and they drove a protection as you still see today,

888
00:51:24,960 --> 00:51:28,440
Speaker 3: were European farmers, and was all the fault of Henry Bessemer,

889
00:51:28,760 --> 00:51:33,480
Speaker 3: who learns how to produce or develops a process for

890
00:51:33,520 --> 00:51:37,520
Speaker 3: producing high quality steel which goes into steel rails, which

891
00:51:37,640 --> 00:51:41,440
Speaker 3: enables the grain exporters of the American Midwest and of

892
00:51:41,600 --> 00:51:46,200
Speaker 3: Argentina and of the Ukraine to export vast quantities of

893
00:51:46,440 --> 00:51:52,080
Speaker 3: cheap grain, which bankrupted European farmers who demanded and got protection,

894
00:51:52,200 --> 00:51:54,879
Speaker 3: and they have protection even to this day because of that.

895
00:51:55,480 --> 00:51:58,600
Speaker 2: And then let's talk about the birth of plenty. What

896
00:51:58,880 --> 00:52:02,799
Speaker 2: is the relationship of trade to all the abundance that

897
00:52:02,800 --> 00:52:05,600
Speaker 2: we seem to be enjoying, or at least up until recently.

898
00:52:06,160 --> 00:52:09,800
Speaker 3: Well, yeah, it's the same basic thing. It's the ability

899
00:52:09,880 --> 00:52:14,160
Speaker 3: to purchase things more cheaply than would be available to

900
00:52:14,239 --> 00:52:18,960
Speaker 3: be available to you from domestic producers. It's that simple.

901
00:52:19,000 --> 00:52:21,960
Speaker 3: The birth of plenty was really, really though about the

902
00:52:22,080 --> 00:52:27,200
Speaker 3: four basic preconditions for strong economic growth, which are property

903
00:52:27,280 --> 00:52:32,920
Speaker 3: rights and capital markets and scientific rationalism and modern transport

904
00:52:32,960 --> 00:52:36,480
Speaker 3: and communications systems. And so it's not until you see

905
00:52:36,520 --> 00:52:38,839
Speaker 3: those four things come together that you see the sort

906
00:52:38,880 --> 00:52:42,680
Speaker 3: of modern economic growth that's really only been present for

907
00:52:42,719 --> 00:52:45,840
Speaker 3: the past two hundred years. It really wasn't until relatively

908
00:52:45,880 --> 00:52:48,120
Speaker 3: early in the nineteenth century that this idea that the

909
00:52:48,120 --> 00:52:51,400
Speaker 3: economy grew per capita GDP grew at one or two

910
00:52:51,440 --> 00:52:54,960
Speaker 3: percent per year became a reality. Before eighteen hundred, per

911
00:52:54,960 --> 00:52:56,799
Speaker 3: capita GDP growth was zero.

912
00:52:57,280 --> 00:53:01,240
Speaker 2: Wow, that's amazing. So before we get to our speed round,

913
00:53:01,719 --> 00:53:04,440
Speaker 2: let's talk about your next book. What are you writing now?

914
00:53:04,480 --> 00:53:05,239
Speaker 2: What are you working on?

915
00:53:06,960 --> 00:53:08,840
Speaker 3: I'm still working on it, and whether or not I

916
00:53:08,840 --> 00:53:13,319
Speaker 3: get a publisher for it is open to question. I'm

917
00:53:13,520 --> 00:53:18,640
Speaker 3: interested in two basic subjects. One is the radius of

918
00:53:18,680 --> 00:53:23,000
Speaker 3: trust and societal radius of trust that feeds into the

919
00:53:23,000 --> 00:53:27,879
Speaker 3: strength of institution's rule of law property rights. Why did

920
00:53:27,960 --> 00:53:31,799
Speaker 3: modern prosperity or prosperity of the modern sort arise in

921
00:53:31,840 --> 00:53:36,120
Speaker 3: Northern Europe and England, and in Scandinavia and in Germany

922
00:53:36,120 --> 00:53:39,880
Speaker 3: Weltz because those societies have high radiuses of trust. You

923
00:53:39,960 --> 00:53:42,319
Speaker 3: tend to trust strangers, and the origins of that are

924
00:53:42,719 --> 00:53:47,000
Speaker 3: just extremely, extremely interesting, having to do with prohibitions on

925
00:53:47,120 --> 00:53:50,800
Speaker 3: cousin marriage. It's way too complicated to get into. And

926
00:53:50,840 --> 00:53:53,560
Speaker 3: then the other subject that I'd love to write about

927
00:53:53,640 --> 00:53:56,760
Speaker 3: is something that I call the paradox of religion, which

928
00:53:56,840 --> 00:54:00,239
Speaker 3: is that it is very well established that religiosity is

929
00:54:00,320 --> 00:54:04,560
Speaker 3: beneficial to the individual. People who are religious live longer,

930
00:54:05,760 --> 00:54:09,799
Speaker 3: they are healthier psychologically, they have better social connections, They're

931
00:54:09,800 --> 00:54:12,960
Speaker 3: healthier and happier in every way you'd want to measure.

932
00:54:13,400 --> 00:54:15,480
Speaker 3: On the other hand, when you look at the national level,

933
00:54:15,680 --> 00:54:20,440
Speaker 3: religiosity is inversely correlated with the health of a society.

934
00:54:20,800 --> 00:54:25,080
Speaker 3: So you know, obviously the most religious places on Earth, Somalia,

935
00:54:25,200 --> 00:54:29,120
Speaker 3: the Indian subcontinent, you know, sub Saharan Africa, are also

936
00:54:29,160 --> 00:54:33,040
Speaker 3: the poorest nations on Earth. The richest nations on Earth

937
00:54:33,080 --> 00:54:36,080
Speaker 3: are the ones that are the least religious. What I

938
00:54:36,120 --> 00:54:37,840
Speaker 3: like to talk about is what I call the Somalia

939
00:54:37,880 --> 00:54:42,560
Speaker 3: Sweden scale of religiosity. And there's a concept in economics

940
00:54:43,239 --> 00:54:46,319
Speaker 3: called the paradox of thrift which we're all familiar with,

941
00:54:46,360 --> 00:54:48,640
Speaker 3: which is thrift is good for the individual, it's bad

942
00:54:48,680 --> 00:54:53,839
Speaker 3: for the society. And what you see with religion is

943
00:54:54,000 --> 00:54:57,279
Speaker 3: that it's the same way. Religion is good for the individual,

944
00:54:57,760 --> 00:55:02,400
Speaker 3: but religion is bad for the society overall for obvious reasons.

945
00:55:02,440 --> 00:55:03,520
Speaker 3: You get religious conflict.

946
00:55:04,080 --> 00:55:08,160
Speaker 2: Well, well, let's break that down my savings, my thrift

947
00:55:08,880 --> 00:55:12,759
Speaker 2: is your laws sales, So that's pretty easy to into it.

948
00:55:13,480 --> 00:55:18,680
Speaker 2: Why would my improved psychology and happiness and whatever you,

949
00:55:18,920 --> 00:55:23,160
Speaker 2: as a religious person, end up making the whole country

950
00:55:24,360 --> 00:55:27,440
Speaker 2: more poor less wealthy if everybody's.

951
00:55:26,920 --> 00:55:33,680
Speaker 3: Religious, because because it accentuates religious difference, religious and personal differences.

952
00:55:34,400 --> 00:55:36,640
Speaker 3: If you are deeply religious, you tend to be more

953
00:55:36,880 --> 00:55:41,880
Speaker 3: distrustful of people of different religions. So the societal radius

954
00:55:41,880 --> 00:55:45,520
Speaker 3: of trust is highest in the least religious societies because

955
00:55:45,520 --> 00:55:47,400
Speaker 3: there's less reason for personal conflict.

956
00:55:48,040 --> 00:55:51,960
Speaker 2: And tell us about what is this radius of trust

957
00:55:52,120 --> 00:55:55,200
Speaker 2: you keep referring to give us a little flesh that

958
00:55:55,239 --> 00:55:55,879
Speaker 2: out if you would.

959
00:55:56,520 --> 00:55:58,560
Speaker 3: Well, the best example I can think of, sort of

960
00:55:58,560 --> 00:56:03,440
Speaker 3: the most pungent example is what Jared Diamond talks about

961
00:56:03,600 --> 00:56:06,319
Speaker 3: in his field work in New Guinea, which is that

962
00:56:06,400 --> 00:56:11,520
Speaker 3: when two New Guinea highlanders from different valleys meet, the

963
00:56:11,560 --> 00:56:14,759
Speaker 3: first thing they do is they try and figure out

964
00:56:14,760 --> 00:56:17,279
Speaker 3: how they're related. Okay, do you know this person you

965
00:56:17,400 --> 00:56:21,760
Speaker 3: that person, this person your call that Jewish geography judar. Yes,

966
00:56:22,120 --> 00:56:25,080
Speaker 3: and so you figure that out, and the first person

967
00:56:25,200 --> 00:56:27,759
Speaker 3: figures out, oh my god, this person on the other

968
00:56:28,080 --> 00:56:31,920
Speaker 3: side of me doesn't know anything about me, turns around

969
00:56:31,920 --> 00:56:33,920
Speaker 3: and runs like hell because he knows if the other

970
00:56:33,920 --> 00:56:36,600
Speaker 3: person figures that out, he's going to try and kill him. Okay,

971
00:56:36,920 --> 00:56:39,759
Speaker 3: So this is a society where where people are so

972
00:56:39,880 --> 00:56:43,800
Speaker 3: mistrustful of people from different tribes that murder is often

973
00:56:44,120 --> 00:56:48,640
Speaker 3: the result. All right. Now, in Western societies, you get

974
00:56:48,680 --> 00:56:50,920
Speaker 3: at it by what's called the trust question, which is,

975
00:56:51,080 --> 00:56:54,640
Speaker 3: and it's a very very very common question in sociological surveys,

976
00:56:54,680 --> 00:56:57,120
Speaker 3: which is, do you generally believe that other people can

977
00:56:57,200 --> 00:56:59,719
Speaker 3: be trusted or do you endorse the statement that you

978
00:56:59,760 --> 00:57:02,319
Speaker 3: can be too careful about who you trust? And you

979
00:57:02,320 --> 00:57:06,480
Speaker 3: can measure societal radius of trust that way. And a

980
00:57:06,480 --> 00:57:10,560
Speaker 3: society in which people say, yes, most people can be

981
00:57:10,600 --> 00:57:13,120
Speaker 3: trusted and very few people say you can't be too

982
00:57:13,160 --> 00:57:16,880
Speaker 3: trusting of people, those tend to be much wealthier places. Okay.

983
00:57:16,920 --> 00:57:18,680
Speaker 3: Those are the places where you leave your wallet on

984
00:57:18,720 --> 00:57:21,160
Speaker 3: the sidewalk by mistake and it gets returned to you.

985
00:57:21,200 --> 00:57:24,720
Speaker 2: Sure, Japan is notorious for that sort of thing exactly.

986
00:57:24,800 --> 00:57:29,200
Speaker 2: So let me ask you an odd question. Can both

987
00:57:29,240 --> 00:57:31,960
Speaker 2: of those things be true at once?

988
00:57:32,120 --> 00:57:32,520
Speaker 1: Can you?

989
00:57:33,160 --> 00:57:37,560
Speaker 2: Hey, we're social primates. This is how we evolved and adapted,

990
00:57:38,000 --> 00:57:41,360
Speaker 2: and so we want to cooperate, but maybe we need

991
00:57:41,400 --> 00:57:43,960
Speaker 2: to be a little less gullible about people selling us

992
00:57:44,040 --> 00:57:47,760
Speaker 2: crappy financial products. Are those two things compatible?

993
00:57:48,800 --> 00:57:51,560
Speaker 3: Yeah, I mean there certainly are exceptions. No matter how

994
00:57:51,600 --> 00:57:57,480
Speaker 3: trusting you are, you have to be very suspicious of

995
00:57:57,480 --> 00:58:00,640
Speaker 3: the people who calls you from a non identified phone number.

996
00:58:01,800 --> 00:58:04,080
Speaker 2: Really interesting, even if you're.

997
00:58:03,920 --> 00:58:06,440
Speaker 3: A trusting Midwesterner from Peoria, you still have to have

998
00:58:06,480 --> 00:58:07,120
Speaker 3: your guard up.

999
00:58:08,120 --> 00:58:10,439
Speaker 2: So I only have you for a short period of time,

1000
00:58:10,480 --> 00:58:13,600
Speaker 2: and you've done the favorite question so many times, I

1001
00:58:13,640 --> 00:58:16,560
Speaker 2: feel like they're redundant. So rather than go through all

1002
00:58:16,600 --> 00:58:19,680
Speaker 2: of those, I just want to ask you, tell us

1003
00:58:19,680 --> 00:58:23,000
Speaker 2: what you're reading now, what are some of your favorite books?

1004
00:58:23,000 --> 00:58:25,560
Speaker 2: And what's keeping you occupied right here and now?

1005
00:58:26,200 --> 00:58:28,160
Speaker 3: Well, the person I think who I've read more of

1006
00:58:28,200 --> 00:58:30,600
Speaker 3: in the past year than anyone else is a man

1007
00:58:30,640 --> 00:58:35,280
Speaker 3: by the name of Robin Gunbar who is an evolutionary

1008
00:58:37,280 --> 00:58:44,000
Speaker 3: psychologist and an evolutionary biologist at Oxford. And what he

1009
00:58:44,040 --> 00:58:47,800
Speaker 3: did was he figured out that the size of primate

1010
00:58:47,880 --> 00:58:51,000
Speaker 3: social groups was directly related to the size that basically,

1011
00:58:51,040 --> 00:58:54,440
Speaker 3: the size of their brains the size of their neocortexes.

1012
00:58:54,240 --> 00:58:58,880
Speaker 2: Meaning the more the larger your evolutionary brain has developed

1013
00:58:59,320 --> 00:59:02,320
Speaker 2: the biggest circle of friends you could keep clear in

1014
00:59:02,000 --> 00:59:07,439
Speaker 2: your head. We're talking primates up to and including humans.

1015
00:59:07,120 --> 00:59:09,520
Speaker 3: Is that right, Well, yeah, up to and including humans.

1016
00:59:09,560 --> 00:59:09,720
Speaker 2: Now.

1017
00:59:09,840 --> 00:59:13,440
Speaker 3: Dunbar's number for human beings who have the largest neocortex

1018
00:59:13,560 --> 00:59:15,840
Speaker 3: is the largest brain sizes, if you will, it is

1019
00:59:15,840 --> 00:59:19,280
Speaker 3: about one hundred and fifty all right, And so you

1020
00:59:19,320 --> 00:59:21,640
Speaker 3: and I can keep about one hundred and fifty people

1021
00:59:21,800 --> 00:59:24,040
Speaker 3: straight and be able to read them and be able

1022
00:59:24,080 --> 00:59:27,040
Speaker 3: to interact with them and have a good social and

1023
00:59:27,080 --> 00:59:33,360
Speaker 3: trusting social relationship with them. And that's the natural size

1024
00:59:33,360 --> 00:59:35,720
Speaker 3: of a human band. So for example, when you look

1025
00:59:35,720 --> 00:59:40,240
Speaker 3: at church congregations, when a church congregation gets to be

1026
00:59:40,240 --> 00:59:43,080
Speaker 3: beyond one hundred and fifty, say towards two hundred, towards

1027
00:59:43,120 --> 00:59:45,280
Speaker 3: two hundred or two hundred and fifty people, it splits

1028
00:59:45,640 --> 00:59:48,440
Speaker 3: because the group can't cohere, it can't keep itself, it

1029
00:59:48,440 --> 00:59:52,320
Speaker 3: can't keep itself together. What is the basic military unit

1030
00:59:52,360 --> 00:59:54,520
Speaker 3: that you see around the world in all militaries, Well,

1031
00:59:54,520 --> 00:59:56,960
Speaker 3: it's the company. Okay, that's one hundred and twenty, one

1032
00:59:57,040 --> 01:00:03,160
Speaker 3: hundred and forty soldiers. That's dune Bars number. And chimpanzees

1033
01:00:03,200 --> 01:00:05,160
Speaker 3: have a Dunbar's number because they have smaller brains of

1034
01:00:05,160 --> 01:00:08,040
Speaker 3: about fifty that's the size of a chimpanzee tribe or

1035
01:00:08,080 --> 01:00:11,760
Speaker 3: a chimpanzee clan. Lemmurs have very small brains. You can't

1036
01:00:11,840 --> 01:00:16,480
Speaker 3: keep more than two lemurs together. Really, Yeah, And so

1037
01:00:18,120 --> 01:00:20,680
Speaker 3: Dunbar has immersed himself of the world of how we

1038
01:00:20,800 --> 01:00:24,880
Speaker 3: keep our social interactions straight, how we juggle them all,

1039
01:00:25,600 --> 01:00:28,400
Speaker 3: and how we're able to do it. And it turns out,

1040
01:00:28,520 --> 01:00:30,840
Speaker 3: for example, that there are some people who have great

1041
01:00:30,840 --> 01:00:35,640
Speaker 3: emotional intelligence who can who probably have Dunbar's number of

1042
01:00:35,640 --> 01:00:37,520
Speaker 3: two hundred or two hundred and fifty or three hundred.

1043
01:00:37,680 --> 01:00:40,160
Speaker 3: That was probably Bill Clinton. You know, Bill Clinton had

1044
01:00:40,160 --> 01:00:43,200
Speaker 3: this ability to read people. When what was said of

1045
01:00:43,240 --> 01:00:45,400
Speaker 3: Bill Clinton that you know, when you were talking with him,

1046
01:00:46,480 --> 01:00:48,959
Speaker 3: it wasn't just he was taught. He was talking only

1047
01:00:49,000 --> 01:00:51,280
Speaker 3: to you. You were the only person in the room, right,

1048
01:00:51,440 --> 01:00:53,960
Speaker 3: And that's a person with a high Dunbar's number, also

1049
01:00:54,000 --> 01:00:56,360
Speaker 3: with a very high with a very large size to

1050
01:00:56,400 --> 01:01:00,400
Speaker 3: full mode network, which we talked about earlier, which is

1051
01:01:00,440 --> 01:01:02,920
Speaker 3: the part of your bane that maintains your social intelligence.

1052
01:01:03,360 --> 01:01:06,440
Speaker 3: So Dunbar has a series of books out. One is

1053
01:01:06,520 --> 01:01:10,760
Speaker 3: called Friends, which I can't recommend highly enough. And then

1054
01:01:10,760 --> 01:01:14,480
Speaker 3: the other is called The Evolution of Religion, which has

1055
01:01:14,560 --> 01:01:19,560
Speaker 3: to do with with religious groups and how religious groups

1056
01:01:19,600 --> 01:01:21,840
Speaker 3: go here, and how it has to do with his

1057
01:01:22,760 --> 01:01:25,960
Speaker 3: with his number. Both absolutely, both books are just complete

1058
01:01:25,960 --> 01:01:28,360
Speaker 3: and total brain candy feasts.

1059
01:01:28,520 --> 01:01:30,160
Speaker 2: Really all right, I'm going to put those on my

1060
01:01:30,240 --> 01:01:30,960
Speaker 2: list for sure.

1061
01:01:31,320 --> 01:01:33,080
Speaker 3: And and then and then of course the person who

1062
01:01:33,120 --> 01:01:34,480
Speaker 3: I you know that the other two people who I

1063
01:01:34,520 --> 01:01:37,800
Speaker 3: read read repeatedly, over and over again are Joe Henrik,

1064
01:01:38,440 --> 01:01:43,360
Speaker 3: who's the head of theoretical biology at Harvard. He's the

1065
01:01:43,360 --> 01:01:45,320
Speaker 3: guy who wrote the weird book you know, w E

1066
01:01:45,440 --> 01:01:49,720
Speaker 3: I R D. Oh sure, w I W E I

1067
01:01:49,840 --> 01:01:56,440
Speaker 3: R D. Western educated, industrialized, rich and democratic, And it

1068
01:01:56,480 --> 01:01:58,919
Speaker 3: turns out that most human societies are not weird, most

1069
01:01:59,000 --> 01:02:01,880
Speaker 3: human societies, you're true additional societies, and that we in

1070
01:02:01,920 --> 01:02:03,760
Speaker 3: Western societies are the weird ones.

1071
01:02:04,280 --> 01:02:04,440
Speaker 2: Huh.

1072
01:02:05,320 --> 01:02:08,080
Speaker 3: And and he's also the one who's written about how

1073
01:02:08,160 --> 01:02:13,640
Speaker 3: radius of trust evolved, uh, you know, through the prohibitions

1074
01:02:13,640 --> 01:02:16,920
Speaker 3: against cousin marriage. It's the Hendrick hypothesis, which is just

1075
01:02:16,960 --> 01:02:19,360
Speaker 3: a fascinating hypothesis. So those are the kinds of people

1076
01:02:19,400 --> 01:02:20,120
Speaker 3: I enjoy reading.

1077
01:02:20,400 --> 01:02:21,520
Speaker 2: Hut.

1078
01:02:21,800 --> 01:02:25,720
Speaker 3: And then and then fiction Nick Harkaway, Uh, I don't

1079
01:02:25,720 --> 01:02:31,080
Speaker 3: know the name. He's the pseudonym of of Jean Le Carrey.

1080
01:02:32,360 --> 01:02:34,440
Speaker 3: Jehan La Carey, of course is also a pseudonym.

1081
01:02:35,000 --> 01:02:35,120
Speaker 2: Uh.

1082
01:02:35,480 --> 01:02:38,760
Speaker 3: And he's taken up the Smiley series and he it's

1083
01:02:38,800 --> 01:02:40,840
Speaker 3: hard to make you don't want to read it, because

1084
01:02:40,880 --> 01:02:43,240
Speaker 3: who wants to read a book by the son of

1085
01:02:43,320 --> 01:02:45,520
Speaker 3: a great novelist. He's better than his.

1086
01:02:45,600 --> 01:02:48,320
Speaker 2: Father, no kidding? Yeah, wow, that wrote book.

1087
01:02:48,360 --> 01:02:51,200
Speaker 3: Carlo's choice, which is you won't be able to.

1088
01:02:51,200 --> 01:02:53,320
Speaker 2: Put down Carlos joints.

1089
01:02:53,720 --> 01:02:55,360
Speaker 3: Kay. If you know, if you're a Smiley fan, you

1090
01:02:55,440 --> 01:02:57,440
Speaker 3: know who carl is k A r l A all right,

1091
01:02:58,320 --> 01:02:58,880
Speaker 3: Russian spy.

1092
01:02:59,360 --> 01:03:02,040
Speaker 2: Huh sounds like fun. Bill, Thank you for being so

1093
01:03:02,200 --> 01:03:05,880
Speaker 2: generous with your time. We have been speaking to Bill Bernstein,

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01:03:06,160 --> 01:03:09,600
Speaker 2: author of so many fascinating books, The Intelligent Investor, Four

1095
01:03:10,040 --> 01:03:11,400
Speaker 2: Pillars of Investor.

1096
01:03:11,600 --> 01:03:12,040
Speaker 1: On and on.

1097
01:03:12,280 --> 01:03:16,040
Speaker 2: His most recent book is on the Delusions of Crowds.

1098
01:03:16,640 --> 01:03:19,160
Speaker 2: If you enjoy this conversation, well, be sure and check

1099
01:03:19,200 --> 01:03:22,080
Speaker 2: out any of the previous five hundred or so we've

1100
01:03:22,160 --> 01:03:24,439
Speaker 2: done over the past ten years. You can find those

1101
01:03:24,560 --> 01:03:29,320
Speaker 2: that Bloomberg, iTunes, Spotify, YouTube. Be sure and check out

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01:03:29,480 --> 01:03:33,120
Speaker 2: my new book, How Not to Invest The ideas, numbers,

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01:03:33,240 --> 01:03:36,520
Speaker 2: and behaviors that destroy wealth and how to avoid them.

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01:03:36,840 --> 01:03:38,440
Speaker 2: I would be remiss if I did not thank the

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01:03:38,480 --> 01:03:42,439
Speaker 2: crack team that puts these conversations together each week. John

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01:03:42,520 --> 01:03:45,800
Speaker 2: Wasserman is my audio engineer. Anna Luke is my producer.

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01:03:46,200 --> 01:03:50,320
Speaker 2: Sean Russo is my head of research. I'm Barry Richolts.

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01:03:50,600 --> 01:03:54,240
Speaker 2: You're listening to Masters in Business on Bloomberg Radio.