1 00:00:11,039 --> 00:00:14,680 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,720 --> 00:00:19,000 Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, one 3 00:00:19,040 --> 00:00:21,880 Speaker 1: of the things that we've been talking about lately, uh, 4 00:00:21,880 --> 00:00:25,240 Speaker 1: and we really sort of drove it home in the 5 00:00:25,360 --> 00:00:29,319 Speaker 1: last episode was this idea of the entire market kind 6 00:00:29,360 --> 00:00:33,159 Speaker 1: of implicitly looking like it's one trade. So many things 7 00:00:33,200 --> 00:00:35,919 Speaker 1: seemed to go up and down together that while you 8 00:00:35,960 --> 00:00:39,839 Speaker 1: sort of think that, okay, investing should be some search 9 00:00:40,040 --> 00:00:45,159 Speaker 1: for interesting individualized opportunities, everything kind of looks like it's 10 00:00:45,159 --> 00:00:48,600 Speaker 1: it all trades is one. Yeah, that's exactly right. And 11 00:00:48,760 --> 00:00:51,839 Speaker 1: I think there's been quite a lot of discussion at 12 00:00:51,840 --> 00:00:55,200 Speaker 1: this point, including on that last episode, about how the 13 00:00:55,240 --> 00:00:59,120 Speaker 1: market is being generally driven by interest rates a k a. 14 00:00:59,800 --> 00:01:03,480 Speaker 1: The central banks. Right, So, the story that multiple multiple 15 00:01:03,600 --> 00:01:06,280 Speaker 1: guests have told us is that, well, we get into 16 00:01:06,319 --> 00:01:10,360 Speaker 1: this situation, you know, which growth is slow, perhaps due 17 00:01:10,400 --> 00:01:15,280 Speaker 1: to income inequality. That means that asset prices rather than 18 00:01:15,800 --> 00:01:18,679 Speaker 1: sort of actual demand, becomes a key vehicle of what 19 00:01:18,800 --> 00:01:22,440 Speaker 1: drives the economy. That means the central bank then is 20 00:01:22,760 --> 00:01:26,200 Speaker 1: ends up becoming more sensitive to asset prices when it 21 00:01:26,240 --> 00:01:30,840 Speaker 1: comes to easing policy. That few further fuels asset values 22 00:01:31,240 --> 00:01:35,480 Speaker 1: that further exacerbates the inequality problem, that further uh causes 23 00:01:35,480 --> 00:01:38,120 Speaker 1: weakness and growth, that further causes the central banks to 24 00:01:38,200 --> 00:01:41,200 Speaker 1: then act, and that we're like in this spiral that 25 00:01:41,400 --> 00:01:44,399 Speaker 1: you know, by some accounts maybe has gone on four decades. 26 00:01:44,920 --> 00:01:46,720 Speaker 1: And if that's the story, then I would say, you know, 27 00:01:46,760 --> 00:01:49,920 Speaker 1: it really feels like COVID right now is sort of 28 00:01:49,960 --> 00:01:54,160 Speaker 1: a accelerant of that whole process. Yeah, I think that's right, 29 00:01:54,200 --> 00:01:56,760 Speaker 1: And I think it gets to a theme that we 30 00:01:56,880 --> 00:01:59,160 Speaker 1: keep coming back to in all these episodes, which is 31 00:01:59,600 --> 00:02:05,360 Speaker 1: if we are slowly recognizing that the financialization of the 32 00:02:05,400 --> 00:02:08,200 Speaker 1: economy is not a good thing and we're trapped in 33 00:02:08,240 --> 00:02:10,800 Speaker 1: this sort of endless cycle, then how do you actually 34 00:02:11,080 --> 00:02:13,160 Speaker 1: break out of it? And we've had so many of 35 00:02:13,160 --> 00:02:18,440 Speaker 1: those discussions now with proposed solutions ranging from fiscal stimulus 36 00:02:18,480 --> 00:02:21,799 Speaker 1: to full employment policies and that sort of thing, right, 37 00:02:21,880 --> 00:02:24,200 Speaker 1: and you know, it sort of gets to this idea 38 00:02:24,320 --> 00:02:27,119 Speaker 1: or it's like, okay, if you know that every time 39 00:02:27,160 --> 00:02:29,760 Speaker 1: there's going to be a crisis, you know, like I 40 00:02:29,840 --> 00:02:31,840 Speaker 1: were saying before the crisis, and this is something that 41 00:02:31,880 --> 00:02:33,440 Speaker 1: you and I talked about a lot and You've written 42 00:02:33,440 --> 00:02:35,880 Speaker 1: about it a lot, the rise of private sector debt, 43 00:02:36,000 --> 00:02:40,880 Speaker 1: particularly corporate debt, share buy backs, corporate leverage, private equity, 44 00:02:41,240 --> 00:02:44,400 Speaker 1: uh leverage, you know, like people like, okay, but this 45 00:02:44,480 --> 00:02:46,720 Speaker 1: is all fine. But if there's a downturn, then this 46 00:02:46,800 --> 00:02:50,520 Speaker 1: all explode. But of course, if the you know, central 47 00:02:50,520 --> 00:02:54,280 Speaker 1: banks expand credit start buying bonds directly, then you can 48 00:02:54,320 --> 00:02:58,560 Speaker 1: have an economic downturn in theory without the financial market exploding. 49 00:02:58,600 --> 00:03:00,360 Speaker 1: And that's kind of what we saw up and in 50 00:03:00,440 --> 00:03:04,040 Speaker 1: March and then through now. Yeah, exactly, And I think, 51 00:03:04,080 --> 00:03:05,839 Speaker 1: I mean, this is one of the reasons why we're 52 00:03:05,840 --> 00:03:08,800 Speaker 1: talking about this right. People intuitively feel a little bit 53 00:03:08,919 --> 00:03:12,960 Speaker 1: uncomfortable about the real economy being in a terrible state 54 00:03:13,000 --> 00:03:18,440 Speaker 1: while financial assets are booming. Well, well they mind. Were 55 00:03:18,480 --> 00:03:20,160 Speaker 1: you going to say that they were booming up until 56 00:03:20,160 --> 00:03:24,000 Speaker 1: a few weeks ago, Yeah, I was. I was trying. 57 00:03:24,000 --> 00:03:26,080 Speaker 1: I'm trying to cave it just in case the market 58 00:03:26,280 --> 00:03:28,840 Speaker 1: crashes further over the next few days. Well, we are 59 00:03:28,840 --> 00:03:32,840 Speaker 1: recording this on Thursday, September. I think the episode will 60 00:03:32,880 --> 00:03:35,400 Speaker 1: be out in a week, so who knows. Either we 61 00:03:35,440 --> 00:03:37,280 Speaker 1: may have had a crash since then, or we may 62 00:03:37,280 --> 00:03:40,120 Speaker 1: be back to all time highs on the sp but 63 00:03:40,200 --> 00:03:43,840 Speaker 1: hopefully whichever way it is, or maybe's be flat hope, hopefully, 64 00:03:43,840 --> 00:03:47,800 Speaker 1: whichever way it is, I suspect that the conversation will 65 00:03:47,800 --> 00:03:50,880 Speaker 1: still be will still be useful, still be relevant. I agree, 66 00:03:51,080 --> 00:03:54,200 Speaker 1: I think so. Today we are joined by three guests 67 00:03:54,920 --> 00:03:57,760 Speaker 1: for all the the co authors of a new book. 68 00:03:58,480 --> 00:04:02,680 Speaker 1: It's called The Rise of Ry, The Dangerous Consequences of Volatility, 69 00:04:02,720 --> 00:04:07,880 Speaker 1: Suppression and the New Financial Order of Decaying Growth, Recurring Crisis. 70 00:04:08,560 --> 00:04:11,640 Speaker 1: That that last line, decaying growth and recurring crisis certainly 71 00:04:11,640 --> 00:04:14,440 Speaker 1: feels like a theme. And I'll do a quick bio, 72 00:04:14,960 --> 00:04:17,039 Speaker 1: quick intro of our guests. So we're going to be 73 00:04:17,320 --> 00:04:20,400 Speaker 1: The three authors are Tim Lee is the founder of 74 00:04:20,440 --> 00:04:24,680 Speaker 1: a PI Economics and has a long time study of 75 00:04:24,760 --> 00:04:29,320 Speaker 1: the field. Jamie Lee he worked for Jeremy Grantham, also 76 00:04:29,480 --> 00:04:33,680 Speaker 1: a long time expert, also an environment and environmental research 77 00:04:33,720 --> 00:04:37,240 Speaker 1: and volatility trading. And then Kevin cold Iron, a lecturer 78 00:04:37,560 --> 00:04:42,080 Speaker 1: in financial engineering at you see, Berkeley's host School of Business. 79 00:04:42,120 --> 00:04:44,120 Speaker 1: So we're gonna see how this goes. We're gonna see 80 00:04:44,160 --> 00:04:46,479 Speaker 1: what the Rise of carry is all about. Before we 81 00:04:46,480 --> 00:04:48,560 Speaker 1: bring them in, I was just you know, reading the 82 00:04:48,640 --> 00:04:52,000 Speaker 1: dust jacket again, and the questions at the beginning feel 83 00:04:52,040 --> 00:04:53,919 Speaker 1: like the questions that I really do think are on 84 00:04:54,040 --> 00:04:58,680 Speaker 1: everyone's mind. Why have markets risen and crashed so suspectacularly 85 00:04:58,760 --> 00:05:02,600 Speaker 1: over the past years. Why is the stock market outpacing 86 00:05:02,640 --> 00:05:05,960 Speaker 1: the growth of the economy. Why do companies buy back stocks? 87 00:05:06,000 --> 00:05:09,000 Speaker 1: And this is a really big one. We should probably 88 00:05:09,040 --> 00:05:10,960 Speaker 1: question ourselves this a lot at the media. Why do 89 00:05:11,080 --> 00:05:13,800 Speaker 1: traders take every utterance of central banks is the word 90 00:05:13,839 --> 00:05:17,640 Speaker 1: of God? These are the questions that their book purports 91 00:05:17,680 --> 00:05:19,520 Speaker 1: to answer. So I think if we can answer all 92 00:05:19,520 --> 00:05:23,160 Speaker 1: of these questions in the next thirty minutes on this podcast, 93 00:05:24,080 --> 00:05:27,039 Speaker 1: listeners will have found a lot of value from that. 94 00:05:27,160 --> 00:05:30,680 Speaker 1: So Tim, Jamie and Kevin, thank you uh so much 95 00:05:30,720 --> 00:05:34,719 Speaker 1: for joining us. Thanks for inviting us our pleasure. Thanks. So, 96 00:05:34,760 --> 00:05:38,320 Speaker 1: why do we take central bankers word uh words is 97 00:05:38,360 --> 00:05:40,599 Speaker 1: the voice of God? That's a great question that I 98 00:05:40,640 --> 00:05:44,680 Speaker 1: think sometimes our listeners and viewers of TV, they're like, oh, 99 00:05:44,760 --> 00:05:46,359 Speaker 1: you guys sort of make such a big deal of 100 00:05:46,520 --> 00:05:50,240 Speaker 1: every random utterance from J Powell or regional Fed president. 101 00:05:50,680 --> 00:05:53,800 Speaker 1: What's the deal with that? So we're arguing in the 102 00:05:53,839 --> 00:05:58,440 Speaker 1: book that um, the main transmission of main transmission mechanisms. 103 00:05:58,480 --> 00:06:00,800 Speaker 1: Central bank policy has really been through at least over 104 00:06:00,839 --> 00:06:04,560 Speaker 1: the last years, has really been much more through their 105 00:06:04,600 --> 00:06:09,880 Speaker 1: actions in suppressing financial volatility. And Joey, you've already kind 106 00:06:09,880 --> 00:06:12,640 Speaker 1: of uh said quite a few things that we would 107 00:06:12,680 --> 00:06:14,200 Speaker 1: agree with in the book, that we seem to be 108 00:06:14,279 --> 00:06:19,200 Speaker 1: trapped in this sort of circle vicious cycle of markets 109 00:06:19,240 --> 00:06:22,680 Speaker 1: that rise for long periods, the economy seems to be 110 00:06:22,760 --> 00:06:25,839 Speaker 1: rather asset price dependent, and then you get these crashes 111 00:06:25,880 --> 00:06:29,240 Speaker 1: and central banks are sort of scrambling to support markets 112 00:06:29,360 --> 00:06:32,360 Speaker 1: and when we go into a news cycle, and and 113 00:06:32,800 --> 00:06:34,640 Speaker 1: we're agreeing with that really and and in the book, 114 00:06:34,680 --> 00:06:37,599 Speaker 1: we're sort of saying that is taking us into this 115 00:06:37,680 --> 00:06:40,880 Speaker 1: what we call it a carry regime, whereby markets have 116 00:06:41,040 --> 00:06:46,440 Speaker 1: become increasingly disconnected with the real economy. And I think 117 00:06:46,480 --> 00:06:49,080 Speaker 1: we've seen that kind of spectacularly this year, which is, 118 00:06:49,160 --> 00:06:51,839 Speaker 1: you know, since we since we finished the book. But 119 00:06:51,920 --> 00:06:55,080 Speaker 1: we're we're we're we're saying it's much less to do 120 00:06:55,279 --> 00:06:59,039 Speaker 1: really with the kind of traditional idea that central banks 121 00:06:59,040 --> 00:07:02,479 Speaker 1: are pumping money into the markets and kind of creating 122 00:07:02,480 --> 00:07:07,520 Speaker 1: this surplus of liquidity that can only go into asset markets. Uh, 123 00:07:07,680 --> 00:07:10,480 Speaker 1: it's it's it's much more to do with the fact that, um, 124 00:07:11,040 --> 00:07:13,600 Speaker 1: we've come into this what we call a carry regime 125 00:07:14,280 --> 00:07:20,920 Speaker 1: where a lot of financial structures, transactions trades across the 126 00:07:20,960 --> 00:07:24,000 Speaker 1: boarder even even including things like private equity, but certainly 127 00:07:24,000 --> 00:07:28,280 Speaker 1: including things like bier and property or various types of 128 00:07:28,280 --> 00:07:31,200 Speaker 1: structured finance currency carry trades, which is where we start 129 00:07:31,240 --> 00:07:33,800 Speaker 1: the board, because that's some more common type of carry trades. 130 00:07:33,840 --> 00:07:36,640 Speaker 1: These kind of these kind of trades, which were essentially 131 00:07:36,720 --> 00:07:40,880 Speaker 1: short volatility trades, have come to have come to dominate 132 00:07:41,040 --> 00:07:45,520 Speaker 1: markets and really be the primary drivers of asset prices, 133 00:07:45,520 --> 00:07:46,960 Speaker 1: even if we don't, you know, see that in an 134 00:07:46,960 --> 00:07:52,360 Speaker 1: obvious way they are. And then so that's associated with 135 00:07:52,400 --> 00:07:55,040 Speaker 1: more debt and more leverage, which kind of requires these 136 00:07:55,120 --> 00:07:58,520 Speaker 1: kind of trades because their liquidity providing and these structures 137 00:07:58,520 --> 00:08:02,640 Speaker 1: they provide liquidity to a system that needs liquidity. But 138 00:08:02,720 --> 00:08:04,800 Speaker 1: at some point you end up there's too much leverage 139 00:08:05,320 --> 00:08:07,760 Speaker 1: and there's too great to disconnect if you like, and 140 00:08:07,800 --> 00:08:11,480 Speaker 1: then you get a rapid crash and central banks step 141 00:08:11,520 --> 00:08:14,960 Speaker 1: in with all the measures that they do which suppress 142 00:08:15,080 --> 00:08:20,160 Speaker 1: volatility again and encourage a renewed growth in those same 143 00:08:20,200 --> 00:08:22,960 Speaker 1: sorts of carry trade. So we're sort of in this 144 00:08:23,320 --> 00:08:26,400 Speaker 1: carry regime where the market has become disconnected from from 145 00:08:26,440 --> 00:08:30,040 Speaker 1: the economy. And we argue further than that that as 146 00:08:30,080 --> 00:08:33,640 Speaker 1: you've already touched on you're you're talking, I think about 147 00:08:33,679 --> 00:08:36,720 Speaker 1: how all asset prices could have become seemed to be 148 00:08:36,840 --> 00:08:39,640 Speaker 1: rather the same thing we say in the book that 149 00:08:39,720 --> 00:08:42,680 Speaker 1: really has changed changed, changing the nature of money itself, 150 00:08:42,760 --> 00:08:46,400 Speaker 1: and that the low levels of volatility of a lot 151 00:08:46,440 --> 00:08:49,720 Speaker 1: of financial assets that should really be considered risky assets 152 00:08:49,760 --> 00:08:53,000 Speaker 1: in a normal world, you know, they're included in ETFs 153 00:08:53,080 --> 00:08:55,079 Speaker 1: and things like that, they suddenly seem to be too 154 00:08:55,080 --> 00:08:58,120 Speaker 1: many people much more money like because the central bank 155 00:08:58,240 --> 00:09:01,800 Speaker 1: is is standing behind in some sense, a lot of 156 00:09:01,800 --> 00:09:05,480 Speaker 1: financial assets of effectively become contingent liabilities of the central bank, 157 00:09:05,520 --> 00:09:10,920 Speaker 1: not just money being a liability. And so um. So 158 00:09:11,120 --> 00:09:14,880 Speaker 1: we've had this, this carry regime has been associated with 159 00:09:14,920 --> 00:09:19,400 Speaker 1: a kind of or the whole range of financial assets 160 00:09:19,440 --> 00:09:22,440 Speaker 1: appearing more money like, and then in the crashes that 161 00:09:22,720 --> 00:09:25,440 Speaker 1: those crashes appear as a kind of complete evaporation of 162 00:09:25,440 --> 00:09:29,319 Speaker 1: liquidity across the board. And I mean that central banks 163 00:09:29,320 --> 00:09:32,160 Speaker 1: feel they have no option but to take even more 164 00:09:32,240 --> 00:09:34,760 Speaker 1: drastic measures than he did the last time. Around. This 165 00:09:34,800 --> 00:09:38,280 Speaker 1: is really interesting, but I mean the argument here is basically, 166 00:09:39,120 --> 00:09:43,160 Speaker 1: as I understand that the growth of carry generates easier 167 00:09:43,200 --> 00:09:47,600 Speaker 1: financial conditions because financial assets become more liquid and more 168 00:09:47,679 --> 00:09:52,040 Speaker 1: credit becomes available. And then when the whole thing starts 169 00:09:52,080 --> 00:09:55,720 Speaker 1: to reverse, you see financial conditions tighten. And that's what 170 00:09:55,960 --> 00:09:59,280 Speaker 1: sparks or what encourages central banks to step in and 171 00:09:59,320 --> 00:10:01,040 Speaker 1: prop up the more ket because they don't want to 172 00:10:01,080 --> 00:10:04,719 Speaker 1: see credit and liquidity drying up for the real economy. 173 00:10:06,360 --> 00:10:10,079 Speaker 1: I'm wondering, could you maybe give us a concrete example 174 00:10:10,400 --> 00:10:15,520 Speaker 1: of how you see a particular carry trade generating liquidity 175 00:10:15,559 --> 00:10:17,600 Speaker 1: and credit in the real economy. It sort of walk 176 00:10:17,679 --> 00:10:21,400 Speaker 1: us through the steps of how you see it working. Yeah, 177 00:10:21,800 --> 00:10:24,800 Speaker 1: so currency carry trades are the most obvious case because 178 00:10:24,840 --> 00:10:28,320 Speaker 1: you're you're the currency carry trader is borrowing in a 179 00:10:29,000 --> 00:10:31,440 Speaker 1: you know, very liquid funding markets. Say, well, in the 180 00:10:31,440 --> 00:10:33,440 Speaker 1: case of the dollar funded carry trade, which has become 181 00:10:33,480 --> 00:10:36,840 Speaker 1: the dominant one at a low interest rate and then 182 00:10:37,120 --> 00:10:40,319 Speaker 1: um providing those funds. In a sense, Turkey would be 183 00:10:40,320 --> 00:10:43,960 Speaker 1: the obvious example now because Turkey is kind of liquidity 184 00:10:44,080 --> 00:10:46,360 Speaker 1: deficient if you like, they've been in a continuing kind 185 00:10:46,400 --> 00:10:51,360 Speaker 1: of rolling crisis. Provides those um that that liquidity too 186 00:10:52,200 --> 00:10:55,400 Speaker 1: to the higher interest rate economy. But I mean we're 187 00:10:56,520 --> 00:10:58,480 Speaker 1: we touch on in the book, how you know, it's 188 00:10:58,480 --> 00:11:01,120 Speaker 1: hard to sustinguish sometimes between liquidity in the sense of 189 00:11:01,160 --> 00:11:06,439 Speaker 1: economists use it and liquidity in the sense that financial 190 00:11:06,440 --> 00:11:10,240 Speaker 1: market participants use it, meaning, um, you know, the ease 191 00:11:10,280 --> 00:11:17,000 Speaker 1: of transacting in a financial asset and carry trades are 192 00:11:17,160 --> 00:11:19,800 Speaker 1: particularly important I think for that latter case. And in 193 00:11:19,840 --> 00:11:22,880 Speaker 1: the book we have quite a lot on volatility selling 194 00:11:22,920 --> 00:11:25,800 Speaker 1: trades in the stock markets, say which which those kind 195 00:11:25,840 --> 00:11:28,960 Speaker 1: of those kind of trades simply a simple one would 196 00:11:28,960 --> 00:11:31,080 Speaker 1: just be writing put options, but or you know, you 197 00:11:31,080 --> 00:11:34,840 Speaker 1: have shorting Vicks futures or a whole variety of ways 198 00:11:35,000 --> 00:11:37,480 Speaker 1: ways that you can short volatility in the stock market. 199 00:11:37,800 --> 00:11:41,559 Speaker 1: They essentially provide or buying the dip, as we say, 200 00:11:41,600 --> 00:11:45,040 Speaker 1: to which their equivalent. They essentially kind of kind of 201 00:11:45,040 --> 00:11:49,480 Speaker 1: like market making trades. They make it easier for level 202 00:11:49,600 --> 00:11:53,720 Speaker 1: traders or those are a bit overexposed to exit the trades. 203 00:11:53,760 --> 00:11:55,480 Speaker 1: And you could say the same. And I'm sitting in 204 00:11:55,520 --> 00:11:58,360 Speaker 1: the UK where you know, by to rent properly or 205 00:11:58,400 --> 00:12:00,240 Speaker 1: by to letters we call it. Here has been such 206 00:12:00,240 --> 00:12:05,400 Speaker 1: a big factor in the property market. Bye, let's investors 207 00:12:05,440 --> 00:12:08,120 Speaker 1: in the property market. That's the carry trade too, because 208 00:12:08,559 --> 00:12:10,880 Speaker 1: they make it easier for properties pople want to sell 209 00:12:10,920 --> 00:12:29,120 Speaker 1: to sell their property. Just zooming bag for one second. 210 00:12:29,200 --> 00:12:32,719 Speaker 1: And for people who maybe aren't familiar with the terminology, 211 00:12:33,280 --> 00:12:36,199 Speaker 1: how would you, to an average person, define what a 212 00:12:36,360 --> 00:12:39,800 Speaker 1: carry trade is? And then you know, I still think 213 00:12:39,800 --> 00:12:43,440 Speaker 1: it's probably not intuitive to people, how to say, buying 214 00:12:43,480 --> 00:12:47,000 Speaker 1: the dip in the stock market is sort of economically 215 00:12:47,160 --> 00:12:51,480 Speaker 1: equivalent to buying a house with the intention of renting 216 00:12:51,480 --> 00:12:54,480 Speaker 1: it out to someone. So explain what carry is, and 217 00:12:54,520 --> 00:12:56,679 Speaker 1: then how sort of you cannot you know, sort of 218 00:12:56,720 --> 00:12:59,560 Speaker 1: the logistics of how that ends up being the same 219 00:13:00,000 --> 00:13:03,960 Speaker 1: the same trade to So one definition we given the book, 220 00:13:04,120 --> 00:13:07,240 Speaker 1: which maybe is a bit out of the ordinary, but 221 00:13:07,320 --> 00:13:09,800 Speaker 1: we think it's quite useful, is that carry trades are 222 00:13:09,840 --> 00:13:14,439 Speaker 1: trades that use liquidity to provide liquidity, and so a 223 00:13:14,520 --> 00:13:17,600 Speaker 1: bye to rent house is a very good example. I mean, 224 00:13:17,800 --> 00:13:21,120 Speaker 1: anyone who does bite almost anyone is almost certainly going 225 00:13:21,120 --> 00:13:23,199 Speaker 1: to be taking out a mortgage to do it because 226 00:13:23,240 --> 00:13:25,959 Speaker 1: they're enormous tax bunch doing it, and because how it's 227 00:13:26,080 --> 00:13:30,240 Speaker 1: too expensive to buy without leverage. Now, so you're using leverage, 228 00:13:30,559 --> 00:13:34,120 Speaker 1: but you're doing so to become an active participant who'll 229 00:13:34,120 --> 00:13:38,160 Speaker 1: be alp liquidity to future house trade is as as 230 00:13:38,200 --> 00:13:41,359 Speaker 1: Tim was saying. And and also you know you're converting 231 00:13:41,440 --> 00:13:44,920 Speaker 1: the extremely long duration house into a bunch of one 232 00:13:44,960 --> 00:13:49,480 Speaker 1: months or one year short term the sassets. Either way, 233 00:13:49,520 --> 00:13:52,520 Speaker 1: you're liquefying the market, but in the process of doing so, 234 00:13:52,559 --> 00:13:55,960 Speaker 1: you're taking on liquidity risk yourself. You can even think 235 00:13:56,000 --> 00:13:59,079 Speaker 1: of it in a much more simpler way, where it's 236 00:13:59,080 --> 00:14:03,000 Speaker 1: a trade that makes money when nothing happens. Right. So 237 00:14:03,040 --> 00:14:05,840 Speaker 1: the classic example that we've talked about is, you know, 238 00:14:05,960 --> 00:14:08,480 Speaker 1: you you borrow in the end of finance and position 239 00:14:08,480 --> 00:14:12,079 Speaker 1: in the Australian dollar. That's a positive yield trade if 240 00:14:12,080 --> 00:14:15,439 Speaker 1: the if the currency doesn't change, that that makes money. 241 00:14:15,800 --> 00:14:18,360 Speaker 1: And the same thing of um, you know, if you're 242 00:14:18,640 --> 00:14:21,440 Speaker 1: like an insurance type of trade where you're selling puts 243 00:14:22,120 --> 00:14:25,960 Speaker 1: that has an income, a premium income, and as long 244 00:14:26,000 --> 00:14:27,920 Speaker 1: as the market doesn't change, as long as the world 245 00:14:28,000 --> 00:14:31,880 Speaker 1: stays pretty much the same, you're the trades profitable. So 246 00:14:32,080 --> 00:14:37,640 Speaker 1: carry trades in all forms generate kind of this consistent income. 247 00:14:37,920 --> 00:14:41,800 Speaker 1: And then there's these occasional sharp drawdowns and that that's 248 00:14:41,840 --> 00:14:45,160 Speaker 1: quite important because what we're saying is as these trades 249 00:14:45,240 --> 00:14:49,000 Speaker 1: kind of work their way across the financial system, the 250 00:14:49,840 --> 00:14:53,920 Speaker 1: stock market and the overall economy is starting to basically 251 00:14:53,960 --> 00:14:56,680 Speaker 1: show the same characteristics of carry trades, which are steady 252 00:14:56,720 --> 00:15:00,600 Speaker 1: profits but occasional crashes. So it's no accident and that 253 00:15:00,680 --> 00:15:03,800 Speaker 1: we've had these big crashes over the last you know, 254 00:15:03,880 --> 00:15:07,760 Speaker 1: ten years, it's it's because they the underlying nature of 255 00:15:07,760 --> 00:15:11,880 Speaker 1: the risk is is kind of mirroring carry trades, right, 256 00:15:11,920 --> 00:15:14,400 Speaker 1: so this is kind of the picking up pennies in 257 00:15:14,600 --> 00:15:18,320 Speaker 1: front of a steamroller idea. And the example that jumps 258 00:15:18,360 --> 00:15:21,080 Speaker 1: out to me is what happened in the treasury market 259 00:15:21,320 --> 00:15:23,200 Speaker 1: in March of this year, where we had a bunch 260 00:15:23,240 --> 00:15:27,120 Speaker 1: of hedge funds that were arbitraging these tiny differences between 261 00:15:27,400 --> 00:15:31,520 Speaker 1: cash treasuries and the futures contract for treasuries funded in 262 00:15:31,680 --> 00:15:35,200 Speaker 1: overnight market, so they were basically borrowing liquidity and the 263 00:15:35,280 --> 00:15:39,040 Speaker 1: trade worked really well as long as nothing happened in 264 00:15:39,080 --> 00:15:41,080 Speaker 1: the treasury market. But then in March we got a 265 00:15:41,120 --> 00:15:44,640 Speaker 1: bunch of volatility. Everything went haywire, and some of these 266 00:15:44,680 --> 00:15:49,040 Speaker 1: hedge funds suffered really big losses. If one of the 267 00:15:49,080 --> 00:15:53,800 Speaker 1: hallmarks of carry trades is this idea of steady profits 268 00:15:53,880 --> 00:15:56,720 Speaker 1: and then a big blow up. What does it actually 269 00:15:56,760 --> 00:16:00,520 Speaker 1: mean for investors and players in the mark. It doesn't 270 00:16:00,520 --> 00:16:03,880 Speaker 1: mean that the people who are able to continuously survive 271 00:16:04,000 --> 00:16:07,360 Speaker 1: those blow ups and continuously keep tapping liquidity are going 272 00:16:07,400 --> 00:16:11,440 Speaker 1: to be the ones that that keep going. That's so 273 00:16:11,480 --> 00:16:14,040 Speaker 1: we actually talked about that in the book, and there 274 00:16:14,160 --> 00:16:17,400 Speaker 1: there's some people, I mean, ideally without you know, in 275 00:16:17,440 --> 00:16:19,840 Speaker 1: a kind of totally free market, it would be the 276 00:16:20,080 --> 00:16:24,240 Speaker 1: people with the very strong balance sheets who would um 277 00:16:24,320 --> 00:16:26,800 Speaker 1: you know, be natural providers of carry and some some 278 00:16:26,960 --> 00:16:31,200 Speaker 1: level of carriers important. As Jamie said to liquefy markets. 279 00:16:31,200 --> 00:16:34,640 Speaker 1: Part of what we're arguing is that when central banks, 280 00:16:34,880 --> 00:16:37,480 Speaker 1: you know, because of their role as a lender of 281 00:16:37,560 --> 00:16:41,720 Speaker 1: last resort, come in and truncate volatility, they truncate the 282 00:16:41,800 --> 00:16:45,640 Speaker 1: left hand side of distribution, they truncate losses. That does 283 00:16:45,640 --> 00:16:49,640 Speaker 1: two things. One it you know, kind of makes the 284 00:16:49,880 --> 00:16:52,960 Speaker 1: balance sheet of the people who were natural carry traders 285 00:16:53,000 --> 00:16:56,680 Speaker 1: even stronger, so sort of reinforces their existing advantage and 286 00:16:56,800 --> 00:16:59,960 Speaker 1: to it encourages people who maybe don't have the balot 287 00:17:00,040 --> 00:17:03,520 Speaker 1: cheat like the hedge funds you revenue referenced earlier to 288 00:17:03,800 --> 00:17:07,040 Speaker 1: enter the trade, and therefore the carry regime, as we've 289 00:17:07,040 --> 00:17:11,680 Speaker 1: talked about it expands over time because carrie looks more 290 00:17:11,720 --> 00:17:14,760 Speaker 1: profitable than it probably should have been, given the fact 291 00:17:14,840 --> 00:17:18,639 Speaker 1: that central banks kind of truncated the volatility, they suppressed it, 292 00:17:18,680 --> 00:17:21,960 Speaker 1: they stopped some of the losses. So that's not necessarily 293 00:17:22,000 --> 00:17:26,520 Speaker 1: blaming central banks. They're acting to backstop the markets, but 294 00:17:26,600 --> 00:17:29,480 Speaker 1: that has this kind of quite important second order effect 295 00:17:29,520 --> 00:17:33,600 Speaker 1: of encouraging the growth of carry trades through time. So, 296 00:17:33,960 --> 00:17:36,320 Speaker 1: you know, one of the things that people have pointed out, 297 00:17:36,680 --> 00:17:39,879 Speaker 1: and I think there's a corollary between the sort of 298 00:17:39,880 --> 00:17:42,480 Speaker 1: real economy on the market here, which is that we 299 00:17:42,560 --> 00:17:45,399 Speaker 1: used to have like sort of recessions where there will 300 00:17:45,400 --> 00:17:47,840 Speaker 1: be some inventory cycle and the economy would go in 301 00:17:47,840 --> 00:17:51,600 Speaker 1: a downturn, and then companies would maybe layoff workers and 302 00:17:51,720 --> 00:17:55,320 Speaker 1: celter their recessions, celter their inventory, and then over time 303 00:17:55,920 --> 00:17:57,399 Speaker 1: maybe they would need to build it back and re 304 00:17:57,480 --> 00:17:59,439 Speaker 1: higher workers than we'd come out of our recession. And 305 00:17:59,480 --> 00:18:02,320 Speaker 1: we also use to have bear markets where maybe the 306 00:18:02,359 --> 00:18:04,720 Speaker 1: market we just traded sideways or down for a few 307 00:18:04,800 --> 00:18:07,199 Speaker 1: years and then there will be some new regime. And 308 00:18:07,240 --> 00:18:10,480 Speaker 1: it feels like maybe since like two thousand one or so, 309 00:18:10,600 --> 00:18:13,280 Speaker 1: in the last few downturns, we don't really seem to 310 00:18:13,280 --> 00:18:16,919 Speaker 1: have recessions or arguably even bear markets anymore. We just 311 00:18:16,920 --> 00:18:20,199 Speaker 1: seem to have crashes. And I'm curious if sort of 312 00:18:20,200 --> 00:18:24,480 Speaker 1: what we saw with the Great Financial Crisis and then uh, 313 00:18:24,480 --> 00:18:26,920 Speaker 1: sort of what we saw very briefly is sort of 314 00:18:27,119 --> 00:18:29,399 Speaker 1: the new model as long as we're in this regime, 315 00:18:29,440 --> 00:18:32,440 Speaker 1: that we don't have these sort of slow rolling downturns, 316 00:18:32,800 --> 00:18:35,240 Speaker 1: it's just a crash because the moment the income starts 317 00:18:35,240 --> 00:18:38,480 Speaker 1: to dry up, at the moment the asset prices start 318 00:18:38,560 --> 00:18:42,520 Speaker 1: to go down, everything on ravels until very very quickly 319 00:18:42,640 --> 00:18:45,600 Speaker 1: under the carry regime, until the sort of central bank 320 00:18:45,640 --> 00:18:48,960 Speaker 1: steps in. Yeah, I mean, that's that's what we're saying. 321 00:18:48,960 --> 00:18:50,959 Speaker 1: I think perhaps the point we haven't emphasized enough so 322 00:18:51,000 --> 00:18:54,560 Speaker 1: far is that the way we define carry trades in 323 00:18:54,560 --> 00:18:57,119 Speaker 1: the book is that the liquidity providing, as we said that, 324 00:18:57,520 --> 00:19:00,600 Speaker 1: but also the level they're always leveled. You know, they 325 00:19:00,680 --> 00:19:03,440 Speaker 1: involve leverage. If they don't involve leverage, they're not already 326 00:19:03,480 --> 00:19:06,520 Speaker 1: carry trades under our definition, and they have that this 327 00:19:07,400 --> 00:19:10,160 Speaker 1: they they kind of make money if nothing changes, If nothing. 328 00:19:10,200 --> 00:19:11,560 Speaker 1: You know, if you don't have a lot of volatility, 329 00:19:11,640 --> 00:19:13,280 Speaker 1: you don't have a problem. They make money, then you 330 00:19:13,320 --> 00:19:15,720 Speaker 1: do have a problem they suddenly lose, and I think 331 00:19:15,720 --> 00:19:18,520 Speaker 1: they also carry trade also always has a kind of 332 00:19:18,520 --> 00:19:21,040 Speaker 1: target asset at the back of it, a currency carry trade. Obviously, 333 00:19:21,040 --> 00:19:22,760 Speaker 1: if you kind of borrow U S dollars now and 334 00:19:23,000 --> 00:19:25,080 Speaker 1: put it into a Turkish mirror bond or something, your 335 00:19:25,119 --> 00:19:28,639 Speaker 1: target assets are Turkish lirror and and and the bond. 336 00:19:29,040 --> 00:19:31,200 Speaker 1: And you're saying, you know, by to buy to let 337 00:19:31,200 --> 00:19:34,159 Speaker 1: property I was talking about earlier here, although they're aimed 338 00:19:34,600 --> 00:19:39,600 Speaker 1: um ostensibly at at extracting income the yield pick up 339 00:19:39,680 --> 00:19:43,240 Speaker 1: or the premium for the volatility short you know, writing 340 00:19:43,280 --> 00:19:45,440 Speaker 1: insurance to also is another form of carry trading, and 341 00:19:45,760 --> 00:19:47,760 Speaker 1: credited fault swaps. These kinds of things your ain't your 342 00:19:48,040 --> 00:19:50,000 Speaker 1: The primary aim is to pick up the income, but 343 00:19:50,720 --> 00:19:53,280 Speaker 1: the the if there's an effect on the asset price 344 00:19:53,320 --> 00:19:58,240 Speaker 1: which which will rise generally, and then the rise in 345 00:19:58,280 --> 00:20:04,040 Speaker 1: the asset price creates as an economist I would call imbalances. 346 00:20:04,160 --> 00:20:06,439 Speaker 1: You know, Turkey was a very good example of that, 347 00:20:06,480 --> 00:20:09,119 Speaker 1: which we discussed in the book, where you have capital 348 00:20:09,119 --> 00:20:12,280 Speaker 1: flows going into Turkey that were lever to some extent, 349 00:20:12,480 --> 00:20:16,440 Speaker 1: and often those were actually Turkish entities, you know, Turkish 350 00:20:16,520 --> 00:20:21,760 Speaker 1: businesses borrowing dollars overseas to invest locally rather than hedge 351 00:20:21,760 --> 00:20:24,840 Speaker 1: funds or something. But that made the Turkish leery become 352 00:20:24,880 --> 00:20:27,480 Speaker 1: progressively overvalued over time, and so Turkey had a huge 353 00:20:27,480 --> 00:20:29,800 Speaker 1: current account deficit when you have a debt. Once you 354 00:20:29,800 --> 00:20:33,480 Speaker 1: have that deficit between spending and income, you need continued 355 00:20:33,560 --> 00:20:36,600 Speaker 1: carry trades to keep the whole thing going. So you 356 00:20:36,640 --> 00:20:41,119 Speaker 1: get the double effect of imbalances very often and also 357 00:20:41,200 --> 00:20:44,440 Speaker 1: the growth in leverage, and at some point that becomes unsustainable, 358 00:20:44,960 --> 00:20:46,840 Speaker 1: and then you get the you know what you might 359 00:20:46,880 --> 00:20:50,360 Speaker 1: call the margin call effect. That, yeah, the as Tracey said, 360 00:20:50,359 --> 00:20:52,520 Speaker 1: picking up pennies in front of steam rollers. The steamroller 361 00:20:52,640 --> 00:20:54,760 Speaker 1: arrives and everyone has to get out at the same time. 362 00:20:54,800 --> 00:20:57,880 Speaker 1: And as we you know, we we try to explain 363 00:20:57,920 --> 00:21:02,320 Speaker 1: that the liquefying nature of carry trade. When when you 364 00:21:02,400 --> 00:21:06,960 Speaker 1: get that the crash, it means liquidity evaporates, and as 365 00:21:07,000 --> 00:21:10,400 Speaker 1: surprises crash liquidity evaporates, all asset prices seem to become 366 00:21:10,440 --> 00:21:12,600 Speaker 1: highly correlated. They all seem to become the same thing. 367 00:21:13,240 --> 00:21:16,840 Speaker 1: And because the economy, the U s economy particularly, but 368 00:21:17,080 --> 00:21:20,160 Speaker 1: British economy, other economies to have become very as surprise dependent. 369 00:21:20,280 --> 00:21:23,960 Speaker 1: You then end up with an economic crash. Two. That's 370 00:21:24,240 --> 00:21:26,600 Speaker 1: what we argue that, And I think Kevin said that 371 00:21:26,600 --> 00:21:29,879 Speaker 1: that the pattern of the economy has become like the 372 00:21:29,960 --> 00:21:32,720 Speaker 1: pattern of the classic carry trade pattern of the saw 373 00:21:32,760 --> 00:21:37,520 Speaker 1: tooth pattern of the steady rise and then the sudden crash. 374 00:21:37,680 --> 00:21:41,360 Speaker 1: But over time it's still being profitable, partly because central 375 00:21:41,359 --> 00:21:46,240 Speaker 1: banks have you know, truncated the crashes, and so carry 376 00:21:46,280 --> 00:21:49,800 Speaker 1: traders over time have the crash wipes out quite a 377 00:21:49,800 --> 00:21:52,320 Speaker 1: few carry traders, but central banks rescue a lot of them, 378 00:21:52,359 --> 00:21:57,080 Speaker 1: and particularly the big guys, and they make money over time. 379 00:21:57,119 --> 00:22:00,399 Speaker 1: But there's also an awareness of the risk. So you 380 00:22:00,520 --> 00:22:03,320 Speaker 1: kind of get that's the the carry trade itself becomes 381 00:22:03,320 --> 00:22:06,879 Speaker 1: sort of higher risk and high return because the carry trader, 382 00:22:08,359 --> 00:22:13,919 Speaker 1: a carry trader not only provides liquidity is levied and 383 00:22:13,920 --> 00:22:16,520 Speaker 1: provides liquidity, but the carry trader has to accept the 384 00:22:16,520 --> 00:22:20,080 Speaker 1: crash risk to some degree and and relies ultimately on 385 00:22:20,119 --> 00:22:39,480 Speaker 1: the central banks. So I want to ask, I guess 386 00:22:39,800 --> 00:22:42,680 Speaker 1: the big question, which we already touched upon in the intro, 387 00:22:42,960 --> 00:22:46,880 Speaker 1: but if we recognize that we are in this cycle, 388 00:22:47,560 --> 00:22:49,399 Speaker 1: then how do we break out of it? How do 389 00:22:49,440 --> 00:22:52,720 Speaker 1: you actually break out of the carry regime, given that 390 00:22:52,800 --> 00:22:55,160 Speaker 1: it's gone on for quite some time at this point, 391 00:22:55,640 --> 00:22:59,840 Speaker 1: and if anything seems to be intensifying in We're a 392 00:22:59,840 --> 00:23:05,600 Speaker 1: bit pessimistic in the book, Really we needed we We 393 00:23:05,720 --> 00:23:08,440 Speaker 1: kind of suggest at the end that maybe we've gone, 394 00:23:08,600 --> 00:23:10,600 Speaker 1: you know, we've gone past the point of no return, 395 00:23:10,680 --> 00:23:15,520 Speaker 1: and unultimately we will see the demese of central banking 396 00:23:15,520 --> 00:23:17,879 Speaker 1: in one way or another, either a crash that cannot 397 00:23:17,880 --> 00:23:20,000 Speaker 1: be contained like sort of two thousand and eight, but 398 00:23:20,119 --> 00:23:24,280 Speaker 1: even worse, or m m T type measures which perhaps 399 00:23:24,320 --> 00:23:26,920 Speaker 1: we could argue have already been happening, that that will 400 00:23:27,000 --> 00:23:29,719 Speaker 1: ultimately create a lot of inflation and lead to the 401 00:23:29,800 --> 00:23:32,800 Speaker 1: kind of demise of feat money and then and then 402 00:23:32,800 --> 00:23:37,479 Speaker 1: the appearance of alternative forms of money. And you know, 403 00:23:38,040 --> 00:23:41,080 Speaker 1: perhaps some people point to cryptocurrencies, where we argue that 404 00:23:41,280 --> 00:23:43,639 Speaker 1: current cryptocurrencies, we only touch on them briefly and not 405 00:23:43,720 --> 00:23:48,400 Speaker 1: really not really kind of legitimate enough perhaps to become 406 00:23:48,400 --> 00:23:50,679 Speaker 1: a new form of money now, but something similar or 407 00:23:50,840 --> 00:23:53,000 Speaker 1: some improved form could become a new form of money. 408 00:23:53,040 --> 00:23:55,159 Speaker 1: So we could just be going to we may not 409 00:23:55,280 --> 00:23:57,520 Speaker 1: there may not be a solution other than the end 410 00:23:57,760 --> 00:24:01,320 Speaker 1: of the monetary regime that we've become used to just 411 00:24:01,520 --> 00:24:04,399 Speaker 1: on the mm T think we've been as we've been 412 00:24:04,440 --> 00:24:07,879 Speaker 1: seeing obviously massive deficits and a lot of inflation bears, 413 00:24:07,920 --> 00:24:10,440 Speaker 1: at least in market commentary, if not in the markets themselves. 414 00:24:11,000 --> 00:24:14,080 Speaker 1: We you know, we explicitly identify the carry regime with 415 00:24:14,200 --> 00:24:18,919 Speaker 1: deflationary pressure for various reasons. But the one I like 416 00:24:19,040 --> 00:24:22,919 Speaker 1: post is to do with the linking of options selling 417 00:24:22,960 --> 00:24:26,560 Speaker 1: strategies and market making as the kind of basic form 418 00:24:26,600 --> 00:24:29,080 Speaker 1: of carrying. You know, the world in which which was 419 00:24:29,119 --> 00:24:31,639 Speaker 1: inflating very heavily is a world in which there's tons 420 00:24:31,640 --> 00:24:34,320 Speaker 1: of cash on the sidelines, and in which people are 421 00:24:34,320 --> 00:24:36,280 Speaker 1: willing to sit on the bidding ask and willing to 422 00:24:36,320 --> 00:24:38,560 Speaker 1: sell options for free or less than free. So in 423 00:24:38,560 --> 00:24:42,639 Speaker 1: in and in a highly inflationary world, volatility buyers rather 424 00:24:42,640 --> 00:24:46,000 Speaker 1: than sellers will systematically make money. And of course perhaps 425 00:24:46,040 --> 00:24:48,040 Speaker 1: we've already been seeing over the last couple of years. 426 00:24:48,440 --> 00:24:51,320 Speaker 1: So talk a little bit about this further. Let's say, 427 00:24:51,400 --> 00:24:55,520 Speaker 1: from the perspective of a financial professional or someone who's 428 00:24:55,560 --> 00:24:59,320 Speaker 1: a trader, how has the rise of the carry regime 429 00:25:00,200 --> 00:25:04,040 Speaker 1: just changed, say to the day to day nature of 430 00:25:04,080 --> 00:25:07,400 Speaker 1: the job of an investor of a trader. Um, how 431 00:25:07,520 --> 00:25:10,240 Speaker 1: is this sort of this the way this is version 432 00:25:10,359 --> 00:25:14,120 Speaker 1: sort of essentially changed the way people have to approach 433 00:25:14,160 --> 00:25:18,400 Speaker 1: their roles. One thing, it's done and I actually want 434 00:25:18,480 --> 00:25:20,560 Speaker 1: this kind of goes back to a question that Tracy 435 00:25:20,600 --> 00:25:24,040 Speaker 1: asked earlier, like what are the implications for investors. It's 436 00:25:24,119 --> 00:25:28,200 Speaker 1: made it very clear that there's much more skewness and 437 00:25:28,359 --> 00:25:32,879 Speaker 1: asset prices, asset returns and than people expected. So and 438 00:25:32,920 --> 00:25:35,439 Speaker 1: there's what we're saying in the book is there's compensation 439 00:25:35,520 --> 00:25:38,320 Speaker 1: for that skewness. That skewness risk is compensated. So one 440 00:25:38,359 --> 00:25:42,400 Speaker 1: of the reasons the SMP has UM done so well 441 00:25:42,680 --> 00:25:44,919 Speaker 1: is that you're you're kind of collecting some of this 442 00:25:45,520 --> 00:25:48,440 Speaker 1: liquidity premium that's built into it, but at the same 443 00:25:48,480 --> 00:25:52,840 Speaker 1: time you have to accept this uh skewness risk. And 444 00:25:53,160 --> 00:25:56,600 Speaker 1: UM that probably should mean that people allocate less to 445 00:25:56,760 --> 00:26:00,480 Speaker 1: the SMP five they kind of normally would so that 446 00:26:00,520 --> 00:26:03,760 Speaker 1: they can survive. I think it's also increased the demand 447 00:26:03,800 --> 00:26:06,600 Speaker 1: for protection, which is why the skew and options prices 448 00:26:06,720 --> 00:26:11,840 Speaker 1: is has gotten more extreme over time. UM and again 449 00:26:11,880 --> 00:26:14,240 Speaker 1: you know, like I I ran a you know, a 450 00:26:14,359 --> 00:26:18,520 Speaker 1: levered hedge fund strategy for many years, and and that 451 00:26:18,520 --> 00:26:21,360 Speaker 1: that skewness and that liquidity risk should mean that kind 452 00:26:21,400 --> 00:26:24,240 Speaker 1: of overall leverage levels you know, should be lower. But 453 00:26:24,359 --> 00:26:26,760 Speaker 1: I don't actually think that that's happened. I think people 454 00:26:26,760 --> 00:26:31,040 Speaker 1: have just relied more on kind of dynamically managing their 455 00:26:31,119 --> 00:26:35,919 Speaker 1: risk and portfolios, which kind of actually reinforces the demand 456 00:26:35,960 --> 00:26:40,280 Speaker 1: on the other side for liquidity provision. So I think 457 00:26:40,359 --> 00:26:43,360 Speaker 1: that that's why you get these much more sudden drawdowns 458 00:26:43,400 --> 00:26:46,280 Speaker 1: in hedge fund strategies than we saw before. So instead 459 00:26:46,320 --> 00:26:50,720 Speaker 1: of running and kind of structurally lower leverage, they're managing 460 00:26:50,720 --> 00:26:56,080 Speaker 1: their leverage um much more aggressively day to day um, 461 00:26:56,119 --> 00:26:58,120 Speaker 1: which puts more prices on the on the people who 462 00:26:58,119 --> 00:27:00,680 Speaker 1: are on the other side of that trade, or pressure 463 00:27:00,680 --> 00:27:03,040 Speaker 1: on people on the other side that tally. So I 464 00:27:03,080 --> 00:27:06,120 Speaker 1: forget which one of you mentioned it before, but it's 465 00:27:06,160 --> 00:27:09,680 Speaker 1: sort of a common dictum and market that in crisis 466 00:27:09,800 --> 00:27:13,560 Speaker 1: all correlations go to one. Things are bad, you gotta 467 00:27:13,600 --> 00:27:16,160 Speaker 1: sell everything, whether it's the chair that you're sitting on, 468 00:27:16,280 --> 00:27:18,879 Speaker 1: or stock or a bond or whatever. Are we in 469 00:27:18,920 --> 00:27:21,520 Speaker 1: the in the carrier regime are we seeing the same 470 00:27:21,560 --> 00:27:25,080 Speaker 1: thing apply except to booms, where essentially in the good 471 00:27:25,119 --> 00:27:28,120 Speaker 1: times all correlations go to one in the same way, 472 00:27:28,160 --> 00:27:31,520 Speaker 1: in a way that wasn't really the case in previous 473 00:27:31,600 --> 00:27:35,439 Speaker 1: up cycles. You know, the part of the suppression of volatility. 474 00:27:35,600 --> 00:27:39,920 Speaker 1: We're arguing that central bank suppressing volatility is ultimate driving 475 00:27:39,960 --> 00:27:42,840 Speaker 1: force of some of these increasingly strange features. Were saying, 476 00:27:43,359 --> 00:27:45,320 Speaker 1: but one of the ways in which you can get 477 00:27:45,880 --> 00:27:48,879 Speaker 1: kind of market wide volatility down is by increasing dispersion, 478 00:27:49,560 --> 00:27:53,000 Speaker 1: by by decreasing correlation. It should be the case that 479 00:27:53,119 --> 00:27:56,280 Speaker 1: the boom periods of extremely low volatility are marked by 480 00:27:56,520 --> 00:28:00,879 Speaker 1: relatively low correlation most of the times. So I have 481 00:28:00,960 --> 00:28:03,800 Speaker 1: a weird question. But every once in a while I 482 00:28:03,840 --> 00:28:08,639 Speaker 1: see analysts make the connection between suppressed volatility in markets 483 00:28:08,760 --> 00:28:15,679 Speaker 1: and social instability or discontent in wider society. So this 484 00:28:15,760 --> 00:28:19,080 Speaker 1: idea of chaos and populist anger and things like that. 485 00:28:19,800 --> 00:28:21,600 Speaker 1: And I think it was a week or two ago 486 00:28:21,680 --> 00:28:24,800 Speaker 1: there was a Deutsche Bank note where they touched on 487 00:28:24,800 --> 00:28:27,720 Speaker 1: this topic, and I actually have it in front of 488 00:28:27,720 --> 00:28:30,200 Speaker 1: me because I thought it was relevant to this conversation. 489 00:28:30,840 --> 00:28:34,880 Speaker 1: They wrote that quote, asset price volatility is a powerful 490 00:28:35,000 --> 00:28:37,600 Speaker 1: energy and when it is suppressed in the market due 491 00:28:37,600 --> 00:28:40,280 Speaker 1: to central bank liquidity or buy backs, it needs to 492 00:28:40,320 --> 00:28:43,160 Speaker 1: find a home, and that can be outside the market 493 00:28:43,240 --> 00:28:47,800 Speaker 1: in society, especially in a very inequitable society. The vicious 494 00:28:47,840 --> 00:28:51,440 Speaker 1: loot can then turn back into asset prices. So I 495 00:28:51,480 --> 00:28:53,400 Speaker 1: remember when that note out, quite a few people were 496 00:28:53,400 --> 00:28:55,960 Speaker 1: making fun of it, saying it's crazy how central banks 497 00:28:55,960 --> 00:29:00,960 Speaker 1: get blamed for everything nowadays, even populous content and things 498 00:29:01,000 --> 00:29:04,000 Speaker 1: like that. But I'd be curious to get your take 499 00:29:04,120 --> 00:29:08,440 Speaker 1: on this. Can the suppression of volatility in financial markets 500 00:29:08,440 --> 00:29:12,200 Speaker 1: and financial asset prices have an impact not just on 501 00:29:12,240 --> 00:29:16,320 Speaker 1: the broader economy but society as a whole. Yeah, well, 502 00:29:16,320 --> 00:29:17,880 Speaker 1: maybe I'll start on that. I think we probably could 503 00:29:17,880 --> 00:29:19,479 Speaker 1: all speak on that, But I mean we we very 504 00:29:19,520 --> 00:29:21,200 Speaker 1: much say that in the book. I mean, the last 505 00:29:21,200 --> 00:29:24,600 Speaker 1: part of the book is on that on that topic, 506 00:29:25,160 --> 00:29:29,400 Speaker 1: we were very much in agreement with that that this 507 00:29:29,600 --> 00:29:35,440 Speaker 1: whole we call carry regime, that um that we that 508 00:29:35,440 --> 00:29:42,280 Speaker 1: we're describing is associated with rising inequality and deteriorating real growth. 509 00:29:42,360 --> 00:29:45,880 Speaker 1: So the wealthy benefit of the expense of those those 510 00:29:45,920 --> 00:29:50,680 Speaker 1: who are not and um that does translate into we 511 00:29:51,040 --> 00:29:52,680 Speaker 1: say in the book, I think at the very beginning 512 00:29:52,760 --> 00:29:57,240 Speaker 1: undermining the social fabric, you know. But the question is 513 00:29:58,040 --> 00:30:01,000 Speaker 1: we do we do lean towards blay central banks, But 514 00:30:01,480 --> 00:30:05,720 Speaker 1: we rather say that in some sense, it's really all 515 00:30:05,760 --> 00:30:09,880 Speaker 1: about the structure of power in society, and central banks 516 00:30:10,240 --> 00:30:12,880 Speaker 1: put it. To put it in its simplest forms, central 517 00:30:12,880 --> 00:30:17,160 Speaker 1: banks are really agents of that structure of power. So 518 00:30:17,200 --> 00:30:21,840 Speaker 1: we are we are height say, but we are basically 519 00:30:21,880 --> 00:30:24,240 Speaker 1: saying that central banks put it very bluntly. May think 520 00:30:24,240 --> 00:30:28,040 Speaker 1: they're acting on behalf of America or Britain or wherever 521 00:30:28,080 --> 00:30:29,920 Speaker 1: they are, but they're really not. They're acting on behalf 522 00:30:29,920 --> 00:30:33,000 Speaker 1: of the wealthy and the powerful and the influential. It's 523 00:30:33,040 --> 00:30:35,880 Speaker 1: curious we think that the carriage and yeah, it's inherently 524 00:30:35,960 --> 00:30:39,800 Speaker 1: inequalizing because the wealthy benefit from it much much more. 525 00:30:39,840 --> 00:30:42,520 Speaker 1: They have the balance sheets which enable them do things 526 00:30:42,560 --> 00:30:46,600 Speaker 1: like I buy to let roperties or short volatility, you know, 527 00:30:47,120 --> 00:30:50,000 Speaker 1: just one last thing or what one last sort of 528 00:30:50,200 --> 00:30:52,600 Speaker 1: thought I have that I'm curious about. It's sort of 529 00:30:52,680 --> 00:30:55,520 Speaker 1: when I listened to this discussion, particularly when people think 530 00:30:55,520 --> 00:31:00,640 Speaker 1: about housing, or when people think about say, make buying, uh, 531 00:31:00,800 --> 00:31:03,680 Speaker 1: the dip and the stock market. People don't think of 532 00:31:03,720 --> 00:31:07,080 Speaker 1: themselves as like participating in a carry trade per se. 533 00:31:07,120 --> 00:31:10,080 Speaker 1: They don't think of themselves as doing the same thing 534 00:31:10,320 --> 00:31:14,240 Speaker 1: as say someone borrowing in and investing in Turkish lyraor 535 00:31:14,320 --> 00:31:17,239 Speaker 1: or Australian dollars. And sort of I'm curious off, like, 536 00:31:17,280 --> 00:31:19,680 Speaker 1: you know, thinking about like the millions of sort of 537 00:31:19,800 --> 00:31:23,040 Speaker 1: unwilling or or carry traders that don't know it in 538 00:31:23,080 --> 00:31:26,160 Speaker 1: the way like to the degree to which asset prices 539 00:31:26,680 --> 00:31:31,000 Speaker 1: become a societal value, because so many people livelihoods and 540 00:31:31,040 --> 00:31:36,160 Speaker 1: lives essentially become more tied to asset values than um 541 00:31:36,360 --> 00:31:40,840 Speaker 1: than their income. Yeah, exactly, And we try to towards 542 00:31:40,880 --> 00:31:44,040 Speaker 1: the end of the book also we try to discuss 543 00:31:44,120 --> 00:31:47,840 Speaker 1: that kind of the the kind of evolutionary aspects, if 544 00:31:47,840 --> 00:31:50,080 Speaker 1: you like, in a financial sense of the carry regime, 545 00:31:50,160 --> 00:31:53,120 Speaker 1: the fact that it's sort of change the way that 546 00:31:53,280 --> 00:31:55,240 Speaker 1: really people think a little bit, if you you know, 547 00:31:55,320 --> 00:31:59,200 Speaker 1: compared to say forty years ago that we've become used 548 00:31:59,240 --> 00:32:02,720 Speaker 1: to um, you know, particularly here in the UK again, 549 00:32:02,720 --> 00:32:04,480 Speaker 1: we're by to let property such a big thing. By 550 00:32:04,520 --> 00:32:07,040 Speaker 1: to rent property is such a big thing. People assume 551 00:32:07,120 --> 00:32:09,280 Speaker 1: their house prices will always be rising over time, and 552 00:32:09,320 --> 00:32:12,080 Speaker 1: you know, you they don't really, they don't see themselves 553 00:32:12,120 --> 00:32:14,800 Speaker 1: as being doing a similar thing to people who write 554 00:32:14,840 --> 00:32:18,280 Speaker 1: put options or or or do things in you know, 555 00:32:18,320 --> 00:32:20,400 Speaker 1: the credit default swap market or something they don't, but 556 00:32:21,120 --> 00:32:24,800 Speaker 1: it's it's and and we we argued that really the 557 00:32:24,840 --> 00:32:28,120 Speaker 1: way that even financial analysts or those involved in in 558 00:32:28,280 --> 00:32:31,560 Speaker 1: you know, the financial industry think has been changed because 559 00:32:31,600 --> 00:32:36,440 Speaker 1: this is changed to kind of accommodate this idea of 560 00:32:36,480 --> 00:32:39,840 Speaker 1: the Carrey regime becoming the sort of normal and the 561 00:32:39,880 --> 00:32:42,240 Speaker 1: way things are the sort of the norm. I think 562 00:32:42,280 --> 00:32:45,400 Speaker 1: that we see that in you know, a much greater 563 00:32:45,920 --> 00:32:49,800 Speaker 1: acceptance in the conventional wisdom in financial markets, you know, 564 00:32:50,160 --> 00:32:53,680 Speaker 1: much greater acceptance of large scale intervention than there would 565 00:32:53,720 --> 00:32:56,200 Speaker 1: have been, you know, thirty forty years ago. I mean, 566 00:32:56,240 --> 00:32:58,480 Speaker 1: I remember very well when I and my formative period 567 00:32:58,480 --> 00:33:01,200 Speaker 1: of the nineteen eight is when the dollar at the 568 00:33:01,200 --> 00:33:03,480 Speaker 1: beginning beginning of the nine, when the dollar was in 569 00:33:03,480 --> 00:33:06,040 Speaker 1: a big bubble, you know, the dollar was getting overly strong, 570 00:33:06,520 --> 00:33:09,200 Speaker 1: and the Bunder's bank, uh, you know, try to do 571 00:33:09,240 --> 00:33:11,560 Speaker 1: a bit of intervention. And I was kind of learning 572 00:33:11,560 --> 00:33:15,400 Speaker 1: the learning at that at that time, and people, I think, 573 00:33:15,440 --> 00:33:17,200 Speaker 1: I think they were kind of intervening in a scale 574 00:33:17,280 --> 00:33:19,120 Speaker 1: like two to three billion and it seemed a lot, 575 00:33:19,200 --> 00:33:21,800 Speaker 1: you know, and I remember being told by my mentors that, 576 00:33:21,880 --> 00:33:24,000 Speaker 1: you know, it's hopeless. They can't defeat the market. The 577 00:33:24,040 --> 00:33:26,480 Speaker 1: markets are much more powerful than any central bank. But 578 00:33:26,600 --> 00:33:29,760 Speaker 1: you know, people then we're thinking in terms of central banks, yeah, 579 00:33:29,800 --> 00:33:32,400 Speaker 1: being a little part of the market and being kind 580 00:33:32,400 --> 00:33:34,880 Speaker 1: of trivial, trivial in that respect in the in the 581 00:33:35,160 --> 00:33:38,280 Speaker 1: bigger picture, now there's a kind of the conventional wisdom 582 00:33:38,320 --> 00:33:40,880 Speaker 1: is really that central banks pretty much control the market 583 00:33:40,920 --> 00:33:44,240 Speaker 1: if they want to. It's very very different mindset that 584 00:33:44,360 --> 00:33:47,800 Speaker 1: people who are involved in markets. Oh, I would say 585 00:33:47,800 --> 00:33:53,040 Speaker 1: beyond that and generally have um And I think that 586 00:33:53,200 --> 00:33:56,360 Speaker 1: is that this kind of this rise that you know 587 00:33:56,480 --> 00:33:58,480 Speaker 1: the books called the rise of carry, is the rise 588 00:33:58,520 --> 00:34:00,720 Speaker 1: of carry has changed the way that people think without 589 00:34:00,760 --> 00:34:03,520 Speaker 1: people even realizing it, and it goes beyond financial markets. 590 00:34:03,560 --> 00:34:05,440 Speaker 1: I mean, that's a big part of what we're trying 591 00:34:05,440 --> 00:34:08,360 Speaker 1: to say at the end of the book. To step 592 00:34:08,360 --> 00:34:10,279 Speaker 1: back a little, I mean, obviously the world is a 593 00:34:10,280 --> 00:34:12,160 Speaker 1: lot older than before, at least in the West. There 594 00:34:12,160 --> 00:34:14,480 Speaker 1: are a lot more people who are at retirement or 595 00:34:14,520 --> 00:34:18,320 Speaker 1: near retirement and dependent on the assets or the living 596 00:34:18,600 --> 00:34:21,600 Speaker 1: than they ever have been in the past Joe. If 597 00:34:21,600 --> 00:34:24,319 Speaker 1: you're if you're looking for a an example of just 598 00:34:24,400 --> 00:34:28,680 Speaker 1: how far buying the dip is spread. I was, I've 599 00:34:28,680 --> 00:34:30,920 Speaker 1: got a sixteen year old son, and a couple of 600 00:34:30,920 --> 00:34:33,160 Speaker 1: months ago, it's eleven at night to go into his room. 601 00:34:33,239 --> 00:34:35,520 Speaker 1: I say, you know, time to go to bed, and 602 00:34:35,520 --> 00:34:37,560 Speaker 1: he said, well, just one second, I gotta put my 603 00:34:37,600 --> 00:34:40,600 Speaker 1: limit orders in for tomorrow morning. And I was like, 604 00:34:41,040 --> 00:34:44,359 Speaker 1: you're what he said, yeah, limit orders. You I've got 605 00:34:44,360 --> 00:34:47,239 Speaker 1: a couple of core positions, but you know, um, if 606 00:34:47,239 --> 00:34:49,279 Speaker 1: they fall a couple of percent, I'd buy the dip. 607 00:34:49,960 --> 00:34:52,680 Speaker 1: And you know, I've never told him that where he 608 00:34:53,400 --> 00:34:56,040 Speaker 1: figured it out, you know, buying the dip. You asked 609 00:34:56,120 --> 00:34:58,200 Speaker 1: this earlier. And you know, if I've got a lever 610 00:34:58,360 --> 00:35:02,600 Speaker 1: position in the market right and the market falls, then um, 611 00:35:02,640 --> 00:35:06,080 Speaker 1: I need to adjust my position or else, Um, you know, 612 00:35:06,120 --> 00:35:09,120 Speaker 1: my leverage gets away from me. So people who are 613 00:35:09,160 --> 00:35:13,719 Speaker 1: buying the dip, they're providing liquidity to to leverage traders. 614 00:35:13,840 --> 00:35:16,239 Speaker 1: And so that that's why we draw the equivalence of 615 00:35:16,880 --> 00:35:19,640 Speaker 1: buying the dip as as being like a you know, 616 00:35:19,719 --> 00:35:22,200 Speaker 1: capturing some of the short volatility premium, being like a 617 00:35:22,280 --> 00:35:27,759 Speaker 1: Carrie trade by delta hedging arguments. We argue that you know, 618 00:35:27,760 --> 00:35:30,759 Speaker 1: whole forms, whether you're short fixed futures, short options, or 619 00:35:31,080 --> 00:35:33,759 Speaker 1: even yes, just physically say buying the SMP every time 620 00:35:33,840 --> 00:35:36,160 Speaker 1: is down over the last twenty four hours. All of 621 00:35:36,200 --> 00:35:41,120 Speaker 1: these trades are highly analogous and highly correlated to actually 622 00:35:41,160 --> 00:35:44,960 Speaker 1: market making, actually running a continuous h frequency trade market making. 623 00:35:45,200 --> 00:35:52,200 Speaker 1: Trust you, well, you know, that was a fascinating conversation, Tim, 624 00:35:52,320 --> 00:35:55,680 Speaker 1: Jamie and Kevin. Really appreciate the three of you coming on. 625 00:35:55,680 --> 00:35:57,960 Speaker 1: One thing I just want to say before you guys go, 626 00:35:58,920 --> 00:36:00,920 Speaker 1: is that, you know, one thing it's really interesting to 627 00:36:01,000 --> 00:36:04,320 Speaker 1: me is how much what some of you the themes 628 00:36:04,360 --> 00:36:06,840 Speaker 1: of what you're talking about, they're not that different in 629 00:36:07,200 --> 00:36:09,200 Speaker 1: a sense from a lot of the sort of MMT 630 00:36:09,400 --> 00:36:12,880 Speaker 1: friendly people that we often have on this podcast about 631 00:36:12,920 --> 00:36:16,840 Speaker 1: the sort of destructive nature of an economy that's so 632 00:36:16,960 --> 00:36:20,600 Speaker 1: driven by asset prices, so need for central banks. So 633 00:36:21,000 --> 00:36:23,680 Speaker 1: you know, there there's some there's some synthesis out there 634 00:36:24,160 --> 00:36:27,160 Speaker 1: that like between the sort of slightly more like fiscally 635 00:36:27,239 --> 00:36:32,319 Speaker 1: oriented view and this view. You know, we'll we'll find it. 636 00:36:32,400 --> 00:36:36,360 Speaker 1: Between these conversations. There's I believe that there's less daylight 637 00:36:36,680 --> 00:36:39,560 Speaker 1: than perhaps people think from your framework, and I really 638 00:36:39,600 --> 00:37:00,400 Speaker 1: enjoyed listening to Thanks. Thanks a lot, Thanky Thanks. You know, 639 00:37:00,480 --> 00:37:02,560 Speaker 1: like I said there at the end, you know, I 640 00:37:02,600 --> 00:37:08,000 Speaker 1: think that this sort of description volatility suppression sort of 641 00:37:08,040 --> 00:37:11,600 Speaker 1: bottling up a potential crisis. It's a different way of 642 00:37:11,640 --> 00:37:14,799 Speaker 1: talking about a problem that I think a lot of 643 00:37:14,800 --> 00:37:18,120 Speaker 1: people are recognizing, even who I come at the market 644 00:37:18,160 --> 00:37:21,920 Speaker 1: from multiple angles. Yeah, I think that's right, and I 645 00:37:21,920 --> 00:37:25,400 Speaker 1: think our previous guest, Jared Woodard, he spoke about this 646 00:37:25,480 --> 00:37:28,520 Speaker 1: as well. But it's that notion that when you are 647 00:37:28,560 --> 00:37:31,520 Speaker 1: in a sluggish growth environment, you kind of have to 648 00:37:31,600 --> 00:37:36,680 Speaker 1: engineer profits in different or more creative ways, and I 649 00:37:36,680 --> 00:37:39,680 Speaker 1: think that's often where the carry trades come in. The 650 00:37:39,719 --> 00:37:42,160 Speaker 1: other thing I was thinking about was the mention of, 651 00:37:42,680 --> 00:37:47,080 Speaker 1: or the discussion of, the change in investor behavior, which 652 00:37:47,120 --> 00:37:50,279 Speaker 1: I think is really striking. So we spoke about by 653 00:37:50,320 --> 00:37:53,279 Speaker 1: the dip or this idea that whenever stocks go down, 654 00:37:53,400 --> 00:37:56,160 Speaker 1: people eventually come in and start buying on the assumption 655 00:37:56,200 --> 00:37:59,239 Speaker 1: that the central bank is going to come in and 656 00:37:59,280 --> 00:38:03,640 Speaker 1: stabilize everything. But I was also thinking about remember that 657 00:38:03,920 --> 00:38:07,480 Speaker 1: that other saying from around the same time, which was 658 00:38:07,840 --> 00:38:11,200 Speaker 1: bad news is good news, bad news is good news 659 00:38:11,280 --> 00:38:14,160 Speaker 1: meant that whenever you had bad economic news, the central 660 00:38:14,160 --> 00:38:18,080 Speaker 1: bank was going to step in with additional liquidity. So actually, 661 00:38:18,080 --> 00:38:21,239 Speaker 1: if you had bad economic data, sometimes you'd see risk 662 00:38:21,280 --> 00:38:24,919 Speaker 1: assets go up. And if you think about it, it's 663 00:38:25,000 --> 00:38:28,720 Speaker 1: just such a perverse way of looking at the overall 664 00:38:28,760 --> 00:38:32,839 Speaker 1: economy and the financial markets relationship to it. The fact 665 00:38:32,840 --> 00:38:36,200 Speaker 1: that people are thinking that that bad news can be 666 00:38:36,239 --> 00:38:39,520 Speaker 1: good news, bad economic news can be good news for 667 00:38:39,719 --> 00:38:43,280 Speaker 1: risk assets, that should be a huge red flag that 668 00:38:43,280 --> 00:38:47,040 Speaker 1: that something is off in that relationship. I think it's 669 00:38:47,080 --> 00:38:50,759 Speaker 1: super interesting too, exactly that coming from the perspective of 670 00:38:50,880 --> 00:38:52,919 Speaker 1: like say, even the US home owner they were talking 671 00:38:52,920 --> 00:38:55,600 Speaker 1: about by the lent and the idea of buying a 672 00:38:55,640 --> 00:38:58,480 Speaker 1: house with the idea of immediately turning into a rental property. 673 00:38:59,200 --> 00:39:02,120 Speaker 1: But think about, Okay, in the US, for decades, we've 674 00:39:02,160 --> 00:39:05,880 Speaker 1: prized homeownership as being really important, right, And you know 675 00:39:05,960 --> 00:39:10,719 Speaker 1: the implication of that is like, obviously, as mortgage rates 676 00:39:10,840 --> 00:39:14,319 Speaker 1: go down, which tends to happen every time there's an 677 00:39:14,360 --> 00:39:18,040 Speaker 1: economic downturn with this sort of ongoing multi decade decline 678 00:39:18,040 --> 00:39:21,719 Speaker 1: and more, you know, people can refinance their mortgages and 679 00:39:21,800 --> 00:39:24,160 Speaker 1: that sort of like turns into a win for them 680 00:39:24,239 --> 00:39:26,240 Speaker 1: in some sense, Like there are a lot of people 681 00:39:26,719 --> 00:39:28,880 Speaker 1: who like it's been there's been a massive year for 682 00:39:29,320 --> 00:39:32,319 Speaker 1: refives of the last several years. So, you know, I 683 00:39:32,360 --> 00:39:34,400 Speaker 1: think there is like this sort of like very weird 684 00:39:34,520 --> 00:39:39,000 Speaker 1: thing where we turn a bunch of people into economic actors. 685 00:39:39,560 --> 00:39:42,239 Speaker 1: One of the big things that will sort of drive 686 00:39:42,280 --> 00:39:44,799 Speaker 1: their economic well being is the decline of interest rates, 687 00:39:45,800 --> 00:39:49,320 Speaker 1: right absolutely, And of course we haven't seen significant wage 688 00:39:49,320 --> 00:39:52,600 Speaker 1: growth either. So you're basically telling people that one of 689 00:39:52,640 --> 00:39:55,279 Speaker 1: the few ways to get wealthy at the moment is 690 00:39:55,360 --> 00:39:58,239 Speaker 1: to invest in the stock market or some sort of 691 00:39:58,360 --> 00:40:01,840 Speaker 1: financial asset like how purchase that you would expect to 692 00:40:01,840 --> 00:40:05,600 Speaker 1: go up in value. And again, it seems to me 693 00:40:05,640 --> 00:40:10,239 Speaker 1: it's almost inevitable that that impacts how policymakers think and 694 00:40:10,280 --> 00:40:13,240 Speaker 1: how they view the real economy. This idea that maybe 695 00:40:13,280 --> 00:40:16,360 Speaker 1: the stock market is the economy at least for people 696 00:40:16,520 --> 00:40:20,000 Speaker 1: who have a significant proportion of their wealth tied up 697 00:40:20,040 --> 00:40:24,680 Speaker 1: in financial assets. Yeah, totally, no, I think you know, 698 00:40:24,800 --> 00:40:27,360 Speaker 1: there's a lot here and this sort of question of 699 00:40:27,560 --> 00:40:30,040 Speaker 1: is there a way out maybe through more aggressive fiscal 700 00:40:30,080 --> 00:40:32,560 Speaker 1: policy probably the best hope, but something like that to 701 00:40:32,680 --> 00:40:35,600 Speaker 1: sort of get out of the cycle in which not 702 00:40:35,800 --> 00:40:40,040 Speaker 1: only is policy supersensitive it seems to financial assets, but 703 00:40:40,640 --> 00:40:44,719 Speaker 1: each cycle sort of perpetuates the cycle and it gets bigger. Yeah, 704 00:40:44,840 --> 00:40:49,359 Speaker 1: fiscal policy or I guess in this case, after this 705 00:40:49,400 --> 00:40:52,920 Speaker 1: particular discussion, you could also be thinking about macro prudential 706 00:40:53,000 --> 00:40:57,320 Speaker 1: policy and ways to plant down on particular carry trading 707 00:40:57,360 --> 00:41:00,560 Speaker 1: behavior in the market. Right. That sort of what they 708 00:41:00,600 --> 00:41:03,120 Speaker 1: were getting at with the market structure argument. But yes, 709 00:41:03,719 --> 00:41:08,839 Speaker 1: really interesting discussion, I think. Okay, shall we leave it there? Yep? 710 00:41:09,320 --> 00:41:12,719 Speaker 1: This has been another episode of the Odd Lots Podcast. 711 00:41:12,840 --> 00:41:15,640 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 712 00:41:15,680 --> 00:41:18,680 Speaker 1: Tracy Alloway and I'm Joe Wisn't Though. You can follow 713 00:41:18,719 --> 00:41:21,640 Speaker 1: me on Twitter at the Stalwart and check out our 714 00:41:21,640 --> 00:41:25,640 Speaker 1: guest book, The Rise of Carry, The Dangerous Consequences of Volatility, 715 00:41:25,680 --> 00:41:28,640 Speaker 1: Suppression and the New Financial Order of the Cane Growth 716 00:41:28,680 --> 00:41:32,480 Speaker 1: and Recurring Crises. Are the authors. Our guests were Tim Lee, 717 00:41:32,920 --> 00:41:35,800 Speaker 1: Jamie Lee, and Kevin cold Iron. And be sure to 718 00:41:35,840 --> 00:41:39,960 Speaker 1: follow our producer Laura Carlson at Laura and Carlton, follow 719 00:41:40,000 --> 00:41:43,600 Speaker 1: the Bloomberg head of podcast Francesco Leavy at Francesco Today, 720 00:41:44,040 --> 00:41:46,879 Speaker 1: and check out all of our podcasts at Bloomberg Onto 721 00:41:46,920 --> 00:42:03,880 Speaker 1: the handle at podcasts. Thanks for listening to