1 00:00:00,760 --> 00:00:02,760 Ladies and gentlemen, welcome to the business Brew. 2 00:00:02,800 --> 00:00:06,920 I am your host, Bill Brewster. As always, this episode features 3 00:00:06,920 --> 00:00:10,680 Andy Constant. Andy came on after I pinged him 4 00:00:10,680 --> 00:00:13,200 and I said would you be willing to do a podcast? 5 00:00:13,200 --> 00:00:17,320 I've followed Andy for a little while now and found him via Bill 6 00:00:17,320 --> 00:00:21,040 Wobufo told me he thought that Andy had a good sense of what 7 00:00:21,040 --> 00:00:23,440 was going on and I respect Bill's opinion. 8 00:00:23,920 --> 00:00:28,840 So I started following Andy and it's been fun to read about some 9 00:00:28,840 --> 00:00:32,240 of what he talks about it. I'm not a macro guy obviously, 10 00:00:32,240 --> 00:00:36,640 otherwise this would be a macro podcast, but I wanted to have a 11 00:00:36,640 --> 00:00:40,240 macro conversation with somebody and Andy was kind enough to say 12 00:00:40,240 --> 00:00:41,720 yes, and I'm really glad that he did. 13 00:00:42,440 --> 00:00:44,440 The conversation is very pleasant. 14 00:00:44,440 --> 00:00:47,480 He's a great guy. And you know what I would say is 15 00:00:47,480 --> 00:00:52,160 at the end that the big take away is don't do much and spend 16 00:00:52,160 --> 00:00:54,720 your time not worrying about things. 17 00:00:54,720 --> 00:00:58,120 So not not worrying about outperforming as much, right? 18 00:00:58,440 --> 00:01:02,080 Maybe worry about making your life better and just having the 19 00:01:02,080 --> 00:01:05,720 right beta exposures and being fairly passive about all of it. 20 00:01:05,720 --> 00:01:09,720 So the big reveal is that you're probably wasting your time 21 00:01:09,840 --> 00:01:13,280 listening to podcasts like mine. But anyway, I digress. 22 00:01:13,280 --> 00:01:14,960 I hope you enjoyed the conversation. 23 00:01:14,960 --> 00:01:17,040 I enjoyed having it. As always. 24 00:01:17,040 --> 00:01:19,280 Nothing on this is financial advice. 25 00:01:19,320 --> 00:01:22,240 Everything in this program is for entertainment purposes only. 26 00:01:23,040 --> 00:01:25,480 Please consult your financial advisor before making investment 27 00:01:25,480 --> 00:01:27,200 decisions. And as always, do your own due 28 00:01:27,200 --> 00:01:49,970 diligence. All right, ladies and gentlemen, 29 00:01:49,970 --> 00:01:52,330 thrilled to be joined by Andy Constant today. 30 00:01:52,640 --> 00:01:55,280 Andy, how are you? I'm very well, thanks for having 31 00:01:55,280 --> 00:01:57,000 me. Well, thank you for saying yes. 32 00:01:57,000 --> 00:02:00,880 I think I actually found you. You were interacting with Bill 33 00:02:00,880 --> 00:02:04,600 Wobufo some and I said, Bill, what do you think of Andy? 34 00:02:04,600 --> 00:02:08,400 And Bill said Andy's a sharp guy and he and I disagree on certain 35 00:02:08,400 --> 00:02:10,199 things, but I like how he sees the world. 36 00:02:10,199 --> 00:02:13,640 So started following you and appreciate what you share on 37 00:02:13,640 --> 00:02:15,520 Twitter. Thanks, I, you know, it's been 38 00:02:15,520 --> 00:02:18,960 an incredible journey for me. I just started tweeting about, 39 00:02:19,360 --> 00:02:22,360 well, I've been in this business for a very, very long time, but 40 00:02:22,600 --> 00:02:26,520 just started tweeting during COVID and went from 100 41 00:02:26,520 --> 00:02:30,960 followers to where I am now, which has been a great journey. 42 00:02:30,960 --> 00:02:34,480 And I've met some great people and got to interact with people 43 00:02:34,480 --> 00:02:39,240 I never would have in even in my reasonably privileged seat over 44 00:02:39,240 --> 00:02:41,720 the years at, you know, various firms. 45 00:02:42,320 --> 00:02:47,680 You were what at Bridgewater and and generally my take is that 46 00:02:47,680 --> 00:02:52,840 you are a a macro first person. Is that an accurate take or am I 47 00:02:52,840 --> 00:02:55,320 way on? You know, I started my career at 48 00:02:55,320 --> 00:02:58,720 Salomon Brothers as a well it was a corporate finance analyst, 49 00:02:58,720 --> 00:03:01,880 but my first trading responsibility was on the equity 50 00:03:01,880 --> 00:03:06,560 floor and convertible bonds. And I was worked there for 18 51 00:03:06,560 --> 00:03:11,240 years and really focused entirely on individual equities, 52 00:03:11,280 --> 00:03:15,080 index equities, equity derivatives and various 53 00:03:15,080 --> 00:03:19,400 arbitrage strategies around Vol. And then ran a big business 54 00:03:19,400 --> 00:03:23,240 there before I started my own hedge fund to do primarily 55 00:03:23,240 --> 00:03:26,680 equity relative value Vol trading and things like that. 56 00:03:26,960 --> 00:03:30,320 So I really have been that's half of my career. 57 00:03:30,320 --> 00:03:33,560 The other half of the career happened after the financial 58 00:03:33,560 --> 00:03:38,400 crisis when I decided to join Bridgewater and really started 59 00:03:40,040 --> 00:03:43,640 really my, my, you know, I'm always been aware of macro but 60 00:03:43,640 --> 00:03:47,000 never really understood it until I started working with 61 00:03:47,000 --> 00:03:49,840 Bridgewater and that's been the journey ever since. 62 00:03:50,480 --> 00:03:54,600 Knowing what you know now, your younger self was a stock picker. 63 00:03:54,600 --> 00:03:57,720 Now you understand macro better. Do you wish that your younger 64 00:03:57,720 --> 00:04:02,080 self understood the macro better and have you more evolved to 65 00:04:02,160 --> 00:04:05,200 looking at asset classes instead of individual securities? 66 00:04:05,200 --> 00:04:08,680 Or how is the understanding of macro evolved your process? 67 00:04:09,080 --> 00:04:11,400 Right. So again, I, well, back in the 68 00:04:11,400 --> 00:04:15,120 day I, I did, I didn't really pick stocks per SE, but I traded 69 00:04:15,120 --> 00:04:19,839 a lot of single names primarily using convertible bonds, the 70 00:04:19,839 --> 00:04:23,680 options and the underlying shares and trying to arbitrage. 71 00:04:23,680 --> 00:04:25,880 That makes sense. So most of my background comes 72 00:04:25,880 --> 00:04:28,280 from a relative value point of view. 73 00:04:28,280 --> 00:04:31,280 OK. And at the same time, living in 74 00:04:31,280 --> 00:04:34,880 an equity culture on the floor of Salomon Brothers equity 75 00:04:34,880 --> 00:04:38,960 business, I spent a lot of time understanding individual 76 00:04:38,960 --> 00:04:41,200 companies. And I guess that the way I would 77 00:04:41,200 --> 00:04:45,600 describe what I've learned is that I could never be a good 78 00:04:45,600 --> 00:04:50,480 equity single name stock picker. And it's not to say that I 79 00:04:50,760 --> 00:04:54,080 couldn't learn how to do it. And then maybe I could get good 80 00:04:54,080 --> 00:05:00,600 at it, But I don't get how people can believe that they can 81 00:05:01,360 --> 00:05:03,680 have an edge picking single names. 82 00:05:04,120 --> 00:05:07,560 And the reason is, is they're just a million people doing it. 83 00:05:08,840 --> 00:05:13,320 And they all do it basically the same way they try to get back 84 00:05:13,320 --> 00:05:16,920 when I was doing it, when I when I started, insider information 85 00:05:16,920 --> 00:05:18,880 was the way you made money in equities. 86 00:05:19,360 --> 00:05:22,600 Without a doubt. You know, that was a world in 87 00:05:22,600 --> 00:05:25,680 which people were going to jail for insider trading. 88 00:05:25,680 --> 00:05:31,440 And the form of information as it flowed from the company to 89 00:05:31,520 --> 00:05:37,400 Wall Street to research analysts to buy side clients from the 90 00:05:37,480 --> 00:05:43,720 investment bank to the trading floor and back, and even the way 91 00:05:43,720 --> 00:05:50,680 individual client orders were shared with other client orders 92 00:05:51,280 --> 00:05:54,880 told me that, man, this is a business in which you have to 93 00:05:54,880 --> 00:06:00,440 have an insider, legal or otherwise, edge to really have 94 00:06:00,440 --> 00:06:06,200 confidence in your trades. The concept of trying to make 95 00:06:06,200 --> 00:06:11,560 money by out thinking somebody about the underlying business is 96 00:06:11,560 --> 00:06:14,760 a good one. But there's so many people doing 97 00:06:14,760 --> 00:06:18,000 it and so many people have, you know, subject matter expertise 98 00:06:18,000 --> 00:06:21,120 in the businesses. And when they get so narrow and 99 00:06:21,120 --> 00:06:25,080 thinking about it, they then miss the bigger picture, which 100 00:06:25,080 --> 00:06:28,120 is they can pick a stock perfectly well, but then miss a 101 00:06:28,120 --> 00:06:32,440 sector or then miss the overall market and be forced to 102 00:06:32,440 --> 00:06:35,920 liquidate what may have been a good investment because of other 103 00:06:35,920 --> 00:06:38,680 factors. But from my standpoint, I've 104 00:06:38,680 --> 00:06:42,400 always tried to find a niche where I thought that by bringing 105 00:06:42,400 --> 00:06:46,320 together lots of different things, you could synthesize an 106 00:06:46,320 --> 00:06:50,520 edge and that you weren't as vulnerable to either macro 107 00:06:50,520 --> 00:06:56,640 forces, which is another lesson, or insider trading, or, you 108 00:06:56,640 --> 00:07:00,600 know, people that had more information than you had legally 109 00:07:00,600 --> 00:07:03,600 or illegally. And so I focused on relative 110 00:07:03,600 --> 00:07:07,400 value. And relative value is just an 111 00:07:07,400 --> 00:07:10,920 idea that you can look at a variety of securities, pick the 112 00:07:10,920 --> 00:07:14,240 cheap one, hedge it with the rich ones, and then over time 113 00:07:14,240 --> 00:07:17,280 that will converge to a some sort of Fair value. 114 00:07:17,760 --> 00:07:20,800 And so that was most of what I did from the first half of my 115 00:07:20,800 --> 00:07:25,800 career and now how it relates to what I would have told my old 116 00:07:25,800 --> 00:07:28,320 self. And I tell myself this all the 117 00:07:28,320 --> 00:07:38,280 time nowadays, which is I failed a few times, I failed in 199495, 118 00:07:38,800 --> 00:07:42,400 I failed in. What do you mean by fail in 90? 119 00:07:43,080 --> 00:07:45,480 Five very bad trading year. OK. 120 00:07:46,080 --> 00:07:50,600 Pursued my same strategy that I did in all the other years but 121 00:07:50,600 --> 00:07:53,760 failed to but lost money. Yeah. 122 00:07:54,600 --> 00:08:00,440 The fund I was with in 2000 and seven, 2008 and even in 2004 123 00:08:00,800 --> 00:08:04,680 took some losses, not enough to offset the gains we were making 124 00:08:04,680 --> 00:08:07,360 in other businesses, but took some losses. 125 00:08:07,360 --> 00:08:10,800 And then when the financial crisis hit, I noticed that what 126 00:08:10,800 --> 00:08:15,000 was happening in 2008 as very consistent with some of the 127 00:08:15,040 --> 00:08:17,320 other things that had happened in the past. 128 00:08:17,800 --> 00:08:22,600 By the way, 97 and 98 were another good example of if you 129 00:08:22,600 --> 00:08:29,520 want aware of what was going on, relative value strategy suffered 130 00:08:29,680 --> 00:08:34,760 and why. So what it turned out that I had 131 00:08:34,760 --> 00:08:38,440 not really understood well and now understand much, much better 132 00:08:38,960 --> 00:08:42,720 is that relative value strategies, convertible bond 133 00:08:42,720 --> 00:08:46,960 arbitrage, risk arbitrage, fixed income arbitrage, mortgage 134 00:08:46,960 --> 00:08:51,920 arbitrage, all of these things that are very often the buying 135 00:08:51,920 --> 00:08:56,560 of an illiquid mispriced asset. And then the selling, and by the 136 00:08:56,560 --> 00:09:01,280 way, long short equity selling of something rich but or fair 137 00:09:01,520 --> 00:09:07,480 that might be very liquid, all act in exactly the same way in 138 00:09:07,480 --> 00:09:13,480 certain circumstances, and they as a group all fail at the same 139 00:09:13,480 --> 00:09:16,120 time. That makes sense in a way. 140 00:09:16,160 --> 00:09:18,680 So which which goes first? I would assume the illiquid 141 00:09:18,680 --> 00:09:21,880 stuff goes first. Well, what typically happens is 142 00:09:21,880 --> 00:09:26,880 that there's some pocket of the financial market that could be 143 00:09:27,040 --> 00:09:32,560 the mortgage folks in 94 were the OR long term capital and 144 00:09:32,560 --> 00:09:40,160 some emerging markets in 98 or the banks themselves in 2008 in 145 00:09:40,160 --> 00:09:44,560 which they get in stress and began begin to de lever. 146 00:09:45,080 --> 00:09:50,360 And when they de lever, the buyers that buy the stuff they 147 00:09:50,360 --> 00:09:54,480 sell don't really want it, you know, they have to get a lot of 148 00:09:54,480 --> 00:10:00,720 concession to buy it. And when they to the extent that 149 00:10:00,720 --> 00:10:06,520 the delevering of 1 entity then results in losses because of the 150 00:10:06,520 --> 00:10:10,640 marking, the marking down of prices, losses by another entity 151 00:10:10,640 --> 00:10:14,640 who had similar positions but may have been stronger or less 152 00:10:14,640 --> 00:10:17,440 leveraged forces them to delever. 153 00:10:17,720 --> 00:10:22,280 And you have what is called a systemic deleveraging event. 154 00:10:22,520 --> 00:10:24,640 And we saw those in the years I mentioned. 155 00:10:25,040 --> 00:10:28,600 And when does that happen? It happens when the rates of 156 00:10:28,600 --> 00:10:34,040 returns on all types of strategies have been squeezed to 157 00:10:34,240 --> 00:10:41,120 to thin and in order to extract an acceptable equity rate of 158 00:10:41,120 --> 00:10:46,840 return, people lever up more and then some stress causes a broad 159 00:10:46,840 --> 00:10:49,920 deleveraging. And so macro helps you 160 00:10:49,960 --> 00:10:53,080 understand when those conditions are occurring. 161 00:10:53,440 --> 00:10:57,160 And I tell my old self, you're not really that smart. 162 00:10:58,080 --> 00:11:02,440 Your RV trades are just always good trades until there's a 163 00:11:02,440 --> 00:11:06,800 deleveraging event and then you lose, you know, 125% of your 164 00:11:07,160 --> 00:11:12,280 prior earnings. And that would be useful to know 165 00:11:12,280 --> 00:11:16,360 if you could see the signs of when potential deleveraging 166 00:11:16,360 --> 00:11:21,200 events are going to occur. And so I think macro is really 167 00:11:21,200 --> 00:11:25,080 built around, you know, what are the financial conditions, what 168 00:11:25,080 --> 00:11:30,040 are policy makers doing that could then impact financial 169 00:11:30,040 --> 00:11:37,400 conditions that can either ease a deleveraging, extend a 170 00:11:37,440 --> 00:11:45,120 levering up, force a delevering or offset a very bad 171 00:11:45,120 --> 00:11:49,520 deleveraging. And so when I think about macro, 172 00:11:49,520 --> 00:11:51,680 that's, you know, where I'm really focused. 173 00:11:52,520 --> 00:11:56,880 Interesting. So I mean, when I think about 174 00:11:57,080 --> 00:12:00,360 and my perception can be way off, so please correct anything 175 00:12:00,360 --> 00:12:03,320 that I, I'm saying. But when I think about what the 176 00:12:03,320 --> 00:12:10,080 current U.S. policy is, it's, it seems to me that we're maybe 177 00:12:10,080 --> 00:12:14,200 entering an administration that wouldn't mind a little less 178 00:12:14,200 --> 00:12:16,680 financial levering. I do think they want some 179 00:12:16,680 --> 00:12:18,160 leverage in the corporate sector. 180 00:12:18,160 --> 00:12:21,240 I think they want to encourage banks to lend a little bit more 181 00:12:21,680 --> 00:12:25,480 and whatnot, but it seems to me that that they don't love the 182 00:12:25,480 --> 00:12:28,480 amount of leverage in the financial system and how sort of 183 00:12:29,440 --> 00:12:31,480 financialized we are. Sure. 184 00:12:31,760 --> 00:12:33,400 Is it is at least what I hear them say? 185 00:12:33,400 --> 00:12:35,160 I don't know. My interpretation is correct. 186 00:12:36,840 --> 00:12:40,600 I mean, any politician would like everything to work out. 187 00:12:41,480 --> 00:12:43,040 Yes. Why not? 188 00:12:43,280 --> 00:12:47,280 Yeah, But I think the Trump administration, you know, I'm 189 00:12:47,280 --> 00:12:51,320 not a political expert, but you know, I have had of some 190 00:12:51,320 --> 00:12:54,800 experience and so I'll just tell you what I think, which is that 191 00:12:54,800 --> 00:12:59,480 the Trump administration has decided to advance really for 192 00:12:59,480 --> 00:13:06,400 policy arms 1 is and why they have is a more complicated thing 193 00:13:06,400 --> 00:13:10,760 and I probably not qualified to say, but it does come back to 194 00:13:10,760 --> 00:13:14,440 something about populism. It does come back to some point 195 00:13:14,440 --> 00:13:18,960 thing about the experience post COVID of a desire to reassure 196 00:13:18,960 --> 00:13:22,720 manufacturing, to ensure that we don't have another supply shock, 197 00:13:23,000 --> 00:13:27,920 some nationalist pride, a lot of things, but who cares what the 198 00:13:27,920 --> 00:13:30,480 reason is? And obviously the inflation that 199 00:13:30,480 --> 00:13:33,720 we all experienced. And so the Trump administration 200 00:13:33,720 --> 00:13:36,080 seems to be focused on a few things. 201 00:13:36,440 --> 00:13:41,880 One is securing our borders. There has been a significant 202 00:13:41,880 --> 00:13:46,040 increase in both legal and illegal immigration during the 203 00:13:46,040 --> 00:13:48,720 COVID period during the Biden administration. 204 00:13:48,840 --> 00:13:51,720 And that's been actually a pretty good thing for the 205 00:13:51,720 --> 00:13:56,240 economy in that it provides more workers when we need more 206 00:13:56,240 --> 00:14:01,560 workers, which provides more output, which keeps inflation at 207 00:14:01,600 --> 00:14:04,200 Bay. But we've may have we've gone 208 00:14:04,280 --> 00:14:07,920 more farther than the electorate wants and farther than even 209 00:14:07,920 --> 00:14:11,960 Biden wanted, who started restricting both types of 210 00:14:11,960 --> 00:14:16,080 immigration before the election. Trump is enforcing that policy 211 00:14:16,080 --> 00:14:20,360 and certainly is shrinking the available future pool of 212 00:14:20,360 --> 00:14:26,200 workers, which is an anti growth, inflationary policy by 213 00:14:26,200 --> 00:14:28,120 its nature. It has its benefits. 214 00:14:28,120 --> 00:14:32,160 Obviously, we get less immigrants, and that means that 215 00:14:32,160 --> 00:14:36,760 jobs for people that are here already are less likely to be 216 00:14:36,920 --> 00:14:38,840 threatened by immigration anyway. 217 00:14:38,840 --> 00:14:40,120 There's lots of politics on that. 218 00:14:40,440 --> 00:14:41,600 Yeah. And then the next. 219 00:14:41,720 --> 00:14:44,840 But ultimately, the economic outcome of the policy decision 220 00:14:44,840 --> 00:14:47,640 is likely a higher inflationary environment. 221 00:14:47,800 --> 00:14:52,440 Assuming because literally there are fewer people that can make 222 00:14:52,440 --> 00:14:57,000 stuff, the growth and more relevantly the growth of people 223 00:14:57,560 --> 00:15:02,360 to that make stuff slows, which means the growth of stuff slows 224 00:15:03,080 --> 00:15:08,080 and because the demand for stuff may not change, the price goes 225 00:15:08,080 --> 00:15:10,880 up. So that's how it's anti growth 226 00:15:10,880 --> 00:15:12,840 and disinflationary inflationary. 227 00:15:13,560 --> 00:15:17,160 Then I think a very clear mandate, sorry, very clear 228 00:15:17,160 --> 00:15:20,640 priority for the Trump administration has been to 229 00:15:20,640 --> 00:15:24,440 shrink the size of the US government. 230 00:15:24,960 --> 00:15:27,920 And you know, the size of the US government is, you know, it is 231 00:15:27,920 --> 00:15:32,160 what it is. It's about mid 20s percentage of 232 00:15:32,160 --> 00:15:40,680 the overall production GDP of the country and it has grown a 233 00:15:40,680 --> 00:15:45,600 few percent. And the mandate has been to 234 00:15:45,960 --> 00:15:50,600 reduce that. And what that means is we spend 235 00:15:50,600 --> 00:15:55,400 about $7 trillion on a combination, mostly on goods and 236 00:15:55,400 --> 00:15:59,440 services provided to the private sector, but also interest which 237 00:15:59,440 --> 00:16:03,800 we can come back to and presumably some of that can be 238 00:16:03,800 --> 00:16:05,520 cut. You know, there's been a very 239 00:16:05,880 --> 00:16:11,320 political stuff around Doge, which is, you know, initially 240 00:16:11,320 --> 00:16:15,360 was focused on, well, initially was supposed to be $2 trillion 241 00:16:15,360 --> 00:16:21,280 out of that $6 trillion per year, which was obviously a 242 00:16:21,280 --> 00:16:24,800 complete joke. Yeah, that seemed all you had to 243 00:16:24,800 --> 00:16:27,360 do is some basic math to realize that was marketing. 244 00:16:27,720 --> 00:16:32,440 But nonetheless, there is waste and legitimate fraud, not the 245 00:16:32,440 --> 00:16:36,240 kind you hear them talk about in headlines, but waste and fraud. 246 00:16:36,840 --> 00:16:39,120 And that's, you know, let's reduce that. 247 00:16:39,680 --> 00:16:42,520 And then there's actual expenditure cuts. 248 00:16:42,520 --> 00:16:48,200 We give money to the government pay, pays money to people to 249 00:16:48,440 --> 00:16:52,040 help them who are poor, who receive Medicaid. 250 00:16:52,680 --> 00:16:55,160 And Medicaid is simply the government paying your medical 251 00:16:55,160 --> 00:17:02,280 bills or food stamps or income assistance when you are poor. 252 00:17:02,760 --> 00:17:07,720 And those have been put on the chopping block for expenditure 253 00:17:07,720 --> 00:17:12,040 cuts. The House says 1 1/2 trillion 254 00:17:12,040 --> 00:17:17,960 dollars over the next 10 years. So that's $150 billion per year 255 00:17:17,960 --> 00:17:21,400 roughly. And maybe DOGE finds $150 256 00:17:21,400 --> 00:17:24,480 billion, which is an outside estimate, but possible. 257 00:17:24,839 --> 00:17:28,960 That's 300 billion out of the 600 billion, six, six trillion 258 00:17:29,240 --> 00:17:33,840 of of expenditures. OK, fine. 259 00:17:34,800 --> 00:17:40,040 The government is going to shrink at a rate of of that 300 260 00:17:40,040 --> 00:17:45,960 bill, 300 billion / 6 trillion, which is a 5% reduction in GDP. 261 00:17:46,920 --> 00:17:50,360 So that's anti growth. Now it's possible that some of 262 00:17:50,360 --> 00:17:55,440 those that money gets recycled into the economy in a way that 263 00:17:55,440 --> 00:18:00,120 can grow the other aspects of GDP, but that doesn't happen 264 00:18:00,120 --> 00:18:02,920 overnight. So it's clearly anti growth. 265 00:18:02,920 --> 00:18:07,800 And because the people that lose those benefits don't can't spend 266 00:18:07,800 --> 00:18:09,840 as much, it's also disinflationary. 267 00:18:10,360 --> 00:18:14,200 So unlike immigration, which was inflationary, this one's 268 00:18:14,200 --> 00:18:16,560 disinflationary, but they're both anti growth. 269 00:18:17,800 --> 00:18:22,760 And then the last, well, then we'll talk about one pro growth 270 00:18:22,760 --> 00:18:25,920 policy before we get to the one that everyone's talking about. 271 00:18:25,920 --> 00:18:30,920 We've got deregulation, right? Deregulation Deregulation is a 272 00:18:30,960 --> 00:18:35,320 boost to productivity because either you spend less in paying 273 00:18:35,320 --> 00:18:39,800 regulator people to regulate your business or you are freer 274 00:18:39,800 --> 00:18:42,960 to cut corners. Some might say what that 275 00:18:42,960 --> 00:18:46,720 deregulation allows for people to cut corners depends on your 276 00:18:46,720 --> 00:18:50,400 politics, but deregulation allows the same person to make 277 00:18:50,400 --> 00:18:52,360 more stuff. You know, there was just 278 00:18:52,360 --> 00:18:55,200 tangentially there was recently an odd lots with somebody that 279 00:18:55,200 --> 00:18:56,920 came out. I guess he oversaw the chips 280 00:18:56,920 --> 00:18:58,520 act. He had an interesting that was 281 00:18:58,520 --> 00:19:01,440 an interesting episode of people are curious about some of the 282 00:19:01,440 --> 00:19:03,640 regulatory apparatus. I mean, there's definitely 283 00:19:03,640 --> 00:19:05,280 something that can be done there. 284 00:19:05,800 --> 00:19:07,920 There's no doubt about it. And the question is, you know, 285 00:19:08,760 --> 00:19:13,040 we know we need some regulation. Yeah, we want it to be the Wild 286 00:19:13,040 --> 00:19:17,480 West for corporations to, you know, to not protect their works 287 00:19:17,560 --> 00:19:21,360 worker safety in the factory and to hire children. 288 00:19:21,360 --> 00:19:24,360 And you know, there's lots of good regulation, no doubt. 289 00:19:24,840 --> 00:19:29,000 And I like my meat free of insects, for instance. 290 00:19:29,720 --> 00:19:33,760 But at the same time there's can be that can the ball can go too 291 00:19:33,760 --> 00:19:36,480 far. And so there is they're going to 292 00:19:36,480 --> 00:19:40,280 deregulate and that's pro growth and disinflationary. 293 00:19:41,440 --> 00:19:44,480 The one last thing is tariffs and that's really in the context 294 00:19:44,480 --> 00:19:47,520 of a bigger conversation, which is the Trump administration 295 00:19:47,520 --> 00:19:54,120 wants to meaningfully shift the relationship that we have with 296 00:19:54,120 --> 00:19:58,600 other countries around trade and the implementation through 297 00:19:58,600 --> 00:20:00,640 tariffs. And we we don't know what 298 00:20:00,640 --> 00:20:03,480 they'll be, but the implementation through tariffs 299 00:20:03,680 --> 00:20:09,520 is anti growth and inflationary potentially in a change in level 300 00:20:09,520 --> 00:20:12,960 versus a change in. An ongoing inflationary. 301 00:20:13,040 --> 00:20:15,240 Yeah. So potentially a step up rather 302 00:20:15,240 --> 00:20:19,240 than like a new trajectory. But nonetheless, short term anti 303 00:20:19,240 --> 00:20:22,840 growth. And so I think that's what the 304 00:20:22,840 --> 00:20:28,960 Trump administration is trying to do, and that's the where the 305 00:20:29,120 --> 00:20:33,280 where the macro comes out. The interesting thing is, and 306 00:20:33,280 --> 00:20:35,520 now I'm really getting outside of my circle of competence, but 307 00:20:35,520 --> 00:20:40,600 I read Stephen Moran's paper with Nouriel Roubini and they 308 00:20:40,600 --> 00:20:43,160 were talking about the, I believe they referred to it as 309 00:20:43,160 --> 00:20:47,760 the activist treasury issuance. And how if you were to term out 310 00:20:48,160 --> 00:20:53,040 the debt right now, I think that they thought it would be like 311 00:20:53,040 --> 00:20:56,200 A50 basis point increase in rates, if I recall correctly. 312 00:20:56,200 --> 00:20:58,560 But then they thought it would settle down to around 30 basis 313 00:20:58,560 --> 00:21:01,040 points. But you know, I saw you tweeting 314 00:21:01,040 --> 00:21:04,040 today about they're terrified of the long end of the curve. 315 00:21:04,480 --> 00:21:08,080 Seems like rates are going up on us without the ACT, without the 316 00:21:08,080 --> 00:21:10,960 Treasury issuing longer dated paper, because I think we're 317 00:21:10,960 --> 00:21:13,720 still issuing a decent amount of bills, right? 318 00:21:14,000 --> 00:21:15,000 Sure. Yeah. 319 00:21:15,000 --> 00:21:18,560 Let me briefly talk about that. You know, the the price, the 320 00:21:18,760 --> 00:21:21,640 yield that you get on a very short term Treasury, like a 321 00:21:21,640 --> 00:21:25,840 Treasury bill really depends on what the Fed is going to set 322 00:21:25,840 --> 00:21:28,360 interest rates are at during the term. 323 00:21:28,600 --> 00:21:31,440 The expectation of what the Fed is going to set interest rates 324 00:21:31,440 --> 00:21:36,080 at. Now that has some basic economic 325 00:21:36,360 --> 00:21:42,720 drivers to it in that the FED's more likely to cut if we suffer 326 00:21:42,720 --> 00:21:46,480 a growth slowdown and more likely to hike if we suffer A 327 00:21:46,600 --> 00:21:51,040 inflation speed up. And so it has macroeconomic 328 00:21:51,600 --> 00:21:55,800 consequences, but it's also extended extremely low risk 329 00:21:55,800 --> 00:21:58,920 investment for people to have, you know, they can keep their 330 00:21:58,920 --> 00:22:04,360 money in a money market or the bank if or in their mattress. 331 00:22:04,480 --> 00:22:07,680 And one way or the other, they're sure they have the money 332 00:22:08,800 --> 00:22:12,960 or they can buy a one year bill and they have to wait a year to 333 00:22:12,960 --> 00:22:15,600 get their money back, but they're going to get 100 cents 334 00:22:15,600 --> 00:22:17,960 on the dollar when they need it a year later. 335 00:22:19,320 --> 00:22:24,600 And so there's essentially infinite demand for T-bills. 336 00:22:25,160 --> 00:22:27,120 On the other hand, and people disagree. 337 00:22:27,120 --> 00:22:30,880 I think it's pretty clear. On the other hand, the 30 year 338 00:22:30,880 --> 00:22:38,560 bond fell 35% in 2022. And so if you bought it at on 339 00:22:38,560 --> 00:22:41,680 January, in January of 20. 20 tough mark to look at when 340 00:22:41,680 --> 00:22:43,760 you're earning what at that time. 2 and a. 341 00:22:43,760 --> 00:22:44,680 Half percent. Or. 342 00:22:44,680 --> 00:22:49,800 Something maybe it was 222 1/2 and you lose 35% year over year 343 00:22:49,800 --> 00:22:52,240 when you need your money a year later. 344 00:22:52,280 --> 00:22:55,680 Yeah, you know, that's a real price risk. 345 00:22:55,720 --> 00:22:58,840 And so there's just limited demand for that sort of thing. 346 00:22:59,160 --> 00:23:03,040 And So what the Treasury attempts to do and gets lots of 347 00:23:03,040 --> 00:23:09,000 advice from the, the a group called the T back, which is the 348 00:23:09,000 --> 00:23:12,720 Treasury Borrowing Advisory Committee, which is people by 349 00:23:13,280 --> 00:23:19,560 institutional buy side, traders, investors, let's say people like 350 00:23:19,840 --> 00:23:26,720 that, like that are at Bridgewater or Blackstone or not 351 00:23:26,720 --> 00:23:33,800 Blackstone, Black Rock rock, Black Rock, sorry, and Fidelity 352 00:23:33,800 --> 00:23:37,040 and all those sort of people and the sell side who are, you know, 353 00:23:37,040 --> 00:23:39,800 conducting the auctions, the primary dealers conducting the 354 00:23:39,800 --> 00:23:43,520 auctions and, and facilitating buying and selling. 355 00:23:43,520 --> 00:23:48,680 And they conceptually have an idea of how much demand there is 356 00:23:49,040 --> 00:23:55,920 for each piece of paper from bills to 30 year bonds, from 357 00:23:56,240 --> 00:23:59,960 nominal bonds to inflation linked bonds to floating rate 358 00:23:59,960 --> 00:24:01,880 bonds. And they give the Treasury 359 00:24:01,880 --> 00:24:06,120 advice and the Treasury says, OK, we'll take your advice and 360 00:24:06,120 --> 00:24:11,480 we'll try to match our issuance needs, what we have to borrow to 361 00:24:11,480 --> 00:24:14,960 fund the deficit with that demand. 362 00:24:15,040 --> 00:24:20,600 And if you do that well, the clearing price should be fair, 363 00:24:21,400 --> 00:24:23,760 fair to the seller, fair to the buyer. 364 00:24:24,800 --> 00:24:30,360 So let's assume you had that fair and then you wanted to 365 00:24:30,360 --> 00:24:35,680 manage monetary policy and you knew that long term interest 366 00:24:35,680 --> 00:24:41,960 rates had a pretty big impact on the cost of financing of new 367 00:24:41,960 --> 00:24:49,960 projects, equities and other. And also the value of bonds 368 00:24:50,000 --> 00:24:54,240 which benefit from low interest rates has an impact through the 369 00:24:54,240 --> 00:24:59,760 wealth effect on the economy. And you at Treasury wanted to 370 00:25:00,080 --> 00:25:02,080 stimulate the economy for whatever reason. 371 00:25:02,080 --> 00:25:07,160 Well, in that case what you'd want to do is offer less long 372 00:25:07,160 --> 00:25:13,320 term treasuries which have so you don't satisfy the demand 373 00:25:14,840 --> 00:25:17,800 which suppresses. Oh, that makes sense. 374 00:25:17,800 --> 00:25:21,480 So you're you're all you're like Ferrari's concept of a issue. 11 375 00:25:21,480 --> 00:25:23,720 fewer than people want, so they keeping the. 376 00:25:23,720 --> 00:25:25,560 Price. What happens is the price stays 377 00:25:25,560 --> 00:25:29,840 higher and the yield stays lower and that stimulates the economy. 378 00:25:29,920 --> 00:25:31,560 And then you say to yourself, well, there's. 379 00:25:31,640 --> 00:25:33,960 You have, but you have to have a place to issue because you 380 00:25:33,960 --> 00:25:36,560 really do need the money. It's not like a Ferrari where 381 00:25:36,560 --> 00:25:39,600 they can make one less car. Yeah, you have to issue. 382 00:25:39,640 --> 00:25:43,640 So then you issue short that has theoretically infinite demand. 383 00:25:43,840 --> 00:25:47,320 Right. And so, and even if it's not 384 00:25:47,320 --> 00:25:51,040 infinite demand, the difference between the yield of that you 385 00:25:51,040 --> 00:25:54,200 could sell everything you want versus the yield you could sell 386 00:25:54,480 --> 00:25:56,960 pretty much everything you want is very, very little. 387 00:25:57,240 --> 00:25:59,840 Yeah. And so I don't know there, you 388 00:25:59,840 --> 00:26:02,400 know, there's a lot of people and Roubini and Moran and 389 00:26:02,400 --> 00:26:04,520 Moran's now in the administration. 390 00:26:05,080 --> 00:26:08,160 And I know Steve well from Twitter and in person. 391 00:26:08,160 --> 00:26:12,920 So his conjecture was this was done to stimulate the economy 392 00:26:12,920 --> 00:26:19,480 and to take away monetary policy from the Fed and manage monetary 393 00:26:19,480 --> 00:26:24,320 policy at the Treasury by choosing to issue less bonds. 394 00:26:24,800 --> 00:26:26,480 Now, I don't care about the politics. 395 00:26:26,840 --> 00:26:28,800 I just know what happened. Yeah. 396 00:26:29,360 --> 00:26:34,760 And what happened is that despite cut way past Covid's 397 00:26:34,760 --> 00:26:39,080 bottom, where the economy was roaring, where inflation was 398 00:26:39,360 --> 00:26:47,040 hot, the Treasury issued 50% bills for the entire last two 399 00:26:47,040 --> 00:26:50,520 years of their total issuance needs. 400 00:26:51,120 --> 00:26:56,600 And normally they would issue 15%. 401 00:26:57,760 --> 00:27:00,360 OK. So that's what happened. 402 00:27:00,720 --> 00:27:03,680 Is that likely a function of there just weren't a whole lot 403 00:27:03,680 --> 00:27:08,040 of people that wanted to take 30 year price risk given the the 404 00:27:08,040 --> 00:27:11,320 circumstances on the ground, you would have had to issue quite a 405 00:27:11,320 --> 00:27:13,480 bit higher? It's possible that they were 406 00:27:13,480 --> 00:27:19,240 given guidance that that they were accurately fulfilling all 407 00:27:19,240 --> 00:27:24,880 demand for 30 year bonds and that any additional supply of 30 408 00:27:24,880 --> 00:27:29,440 year bonds would get would occur at a very disadvantageous price. 409 00:27:30,000 --> 00:27:34,200 Or it's possible that they were trying to stimulate the economy. 410 00:27:35,160 --> 00:27:37,160 What I fail to understand is how? 411 00:27:37,160 --> 00:27:40,240 How would you stimulate the economy by leaning towards more 412 00:27:40,240 --> 00:27:42,840 bills that I don't fully under? I don't understand. 413 00:27:42,840 --> 00:27:47,640 Well, if I told you that your mortgage was 25 basis points 414 00:27:47,640 --> 00:27:50,800 lower, which is priced off 10 year notes, the wealth of bills, 415 00:27:51,080 --> 00:27:53,360 not the wealth effect. OK, not the wealth effect. 416 00:27:53,960 --> 00:27:55,600 OK. You're going to buy a house. 417 00:27:56,240 --> 00:27:57,640 Yeah, my actual payment is. Low. 418 00:27:57,640 --> 00:28:00,240 You're going to compare it to the rent that you're paying now 419 00:28:00,600 --> 00:28:02,800 and you're going to say, what's my interest rate? 420 00:28:03,240 --> 00:28:06,080 And the lower that interest rate is, the more likely you're going 421 00:28:06,080 --> 00:28:09,000 to buy the house then you're going to continue to rent. 422 00:28:09,440 --> 00:28:13,800 Yep, OK. And that's how it's that's 423 00:28:13,800 --> 00:28:16,920 that's a cost of financing version of it being stimulative. 424 00:28:17,280 --> 00:28:20,760 But the other thing is it may Jack up people's savings 425 00:28:20,760 --> 00:28:25,400 accounts, people's four O 1 KS. That's the wealth effect, yeah. 426 00:28:26,160 --> 00:28:31,040 And again, how much that matters to the economy is, you know, 427 00:28:31,360 --> 00:28:33,200 anybody's guess. I try to. 428 00:28:33,240 --> 00:28:36,800 I think it matters more than it used to and doesn't. 429 00:28:36,800 --> 00:28:40,520 Isn't the entire thing that matters for an economy is this 430 00:28:40,520 --> 00:28:43,360 combination of financing costs and wealth effect? 431 00:28:44,320 --> 00:28:47,440 Well, one, one thing it seems to me is, is there's more bonds in 432 00:28:47,440 --> 00:28:51,240 the economy like like the private sector private savings 433 00:28:51,320 --> 00:28:54,440 goes higher as the government runs deficits, right. 434 00:28:54,960 --> 00:28:59,520 So to the extent that there is a higher interest rate, the income 435 00:28:59,520 --> 00:29:02,400 from the private savings actually increases quite a bit. 436 00:29:02,400 --> 00:29:05,760 So I kind of I kind of see a quasi stimulative. 437 00:29:05,920 --> 00:29:09,160 It's a complicated thing. The way I think about the 438 00:29:09,160 --> 00:29:13,480 deficit is in a closed economy, we can ignore European 439 00:29:13,480 --> 00:29:16,600 foreigners for the moment, but in a closed economy, if a 440 00:29:16,600 --> 00:29:23,400 government decides to spend more than it collects in taxes, all 441 00:29:23,400 --> 00:29:30,560 it is doing is forcing savers to lend money, it private sector 442 00:29:30,560 --> 00:29:37,640 savers to delay consumption for the benefit of the money that 443 00:29:37,640 --> 00:29:42,800 the government sends the private sector beneficiary of spending. 444 00:29:43,360 --> 00:29:48,120 So if you have somebody who is receiving a Social Security 445 00:29:48,120 --> 00:29:52,280 benefit and Social Security is not the best one, but anyway, 446 00:29:52,360 --> 00:29:56,360 let's get some benefit. Let's make it even better. 447 00:29:57,160 --> 00:30:00,120 It's a. Something like Medicaid, right? 448 00:30:00,120 --> 00:30:02,600 That that is spent on medical, yeah. 449 00:30:02,600 --> 00:30:05,120 OK, that's good. So Medicaid. 450 00:30:05,120 --> 00:30:09,520 So the person gets to have a, a medical procedure done because 451 00:30:09,520 --> 00:30:13,960 they have Medicaid and that medical procedure is paid for by 452 00:30:13,960 --> 00:30:16,120 the government. What happens to that money? 453 00:30:16,240 --> 00:30:19,160 And there's a chicken and the egg thing and it's really just a 454 00:30:19,440 --> 00:30:21,640 circle of life. The way is what I call it. 455 00:30:22,200 --> 00:30:26,040 The person who receives that money is the doctor and the 456 00:30:26,040 --> 00:30:29,600 doctor's practice. And it's, and, and a little bit 457 00:30:29,600 --> 00:30:34,960 goes to the insurance companies and all, and to the people that 458 00:30:34,960 --> 00:30:38,160 produce the medical equipment that was sold to use to generate 459 00:30:38,160 --> 00:30:42,520 the procedure and the nurses and the cleaning staff of the 460 00:30:42,520 --> 00:30:45,200 hospital. And all that money that was 461 00:30:45,200 --> 00:30:49,480 given to a person who needed a medical procedure then becomes 462 00:30:49,560 --> 00:30:52,880 income for all those other people. 463 00:30:53,680 --> 00:30:57,440 And that income, some of that is saved. 464 00:30:57,520 --> 00:31:01,280 The rest of that income is spent the purse. 465 00:31:01,280 --> 00:31:06,120 The nurse goes to a local bar and has a drink, or gets their 466 00:31:06,120 --> 00:31:11,200 groceries or buys a car. Yeah, taxes are the only thing 467 00:31:11,200 --> 00:31:13,840 that take the money back in from the system, right? 468 00:31:15,120 --> 00:31:18,760 That is always coming out, yeah. And ultimately the direction I'm 469 00:31:18,760 --> 00:31:24,480 going is ultimately all that income gets brought through each 470 00:31:24,480 --> 00:31:30,520 time a little bit being saved until finally all the money is 471 00:31:30,520 --> 00:31:35,880 saved. Now that savings must buy the 472 00:31:35,880 --> 00:31:39,080 Treasury that was issued to fund the whole thing. 473 00:31:39,080 --> 00:31:43,240 Yeah, yeah, that makes sense. And so that's how what you said 474 00:31:43,240 --> 00:31:47,960 about the private sector deficit spending is private spectre 475 00:31:47,960 --> 00:31:49,880 savings. That's how it actually works 476 00:31:49,880 --> 00:31:51,280 through the system. Yep. 477 00:31:51,600 --> 00:31:56,040 And So what, what do we have that we have a beneficiary 478 00:31:56,040 --> 00:32:00,320 getting a medical procedure and a saver getting a government 479 00:32:00,320 --> 00:32:02,680 bond. That's all that happened. 480 00:32:03,280 --> 00:32:06,160 Yeah. And so that can happen infinite 481 00:32:06,160 --> 00:32:12,720 amount of times because the savings is created by the 482 00:32:12,720 --> 00:32:14,040 spending. Yeah. 483 00:32:14,720 --> 00:32:17,200 With the constraint being I guess. 484 00:32:17,240 --> 00:32:20,440 I mean this is like the MMT thought, but would be inflation 485 00:32:20,440 --> 00:32:21,640 right? Would be the. 486 00:32:21,920 --> 00:32:25,000 Maybe, yeah. So let's talk about what happens 487 00:32:25,000 --> 00:32:28,280 though. So the government hadn't spent, 488 00:32:29,880 --> 00:32:33,560 the procedure couldn't have been done and so that unit of private 489 00:32:33,560 --> 00:32:35,760 sector GDP would not have occurred. 490 00:32:35,840 --> 00:32:39,320 And so the growth in the economy would have been weaker. 491 00:32:39,360 --> 00:32:46,720 And if the spending occurs and there's no capacity, they're not 492 00:32:46,720 --> 00:32:49,720 enough doctors around, there's not enough equipment around to 493 00:32:49,800 --> 00:32:54,840 accommodate the the number of procedures that are being 494 00:32:55,120 --> 00:32:59,480 demanded because of the spending that can push up the price. 495 00:33:00,080 --> 00:33:07,280 So spending is depending on the conditions of the labor force of 496 00:33:07,280 --> 00:33:12,080 the of physical commodities, of the productivity of our people. 497 00:33:12,440 --> 00:33:16,120 Government spending is pro growth and and inflationary. 498 00:33:16,120 --> 00:33:21,640 So increasing the deficit, that circle of life is pro growth and 499 00:33:21,640 --> 00:33:27,320 inflationary. And if the money is spent on 500 00:33:27,440 --> 00:33:32,560 instead of being handed to people who who may consume, it 501 00:33:32,600 --> 00:33:35,880 is handed to people who may. And this is where the Chips Act 502 00:33:35,880 --> 00:33:37,760 comes in. Yeah, who may save it? 503 00:33:39,560 --> 00:33:45,960 Hand it to people who invest it in future productive assets that 504 00:33:45,960 --> 00:33:49,200 actually increase the aggregate supply of goods. 505 00:33:50,040 --> 00:33:52,640 Yeah, then it's not as inflationary as supply 506 00:33:52,640 --> 00:33:54,840 increases. A deficit can be pro growth and 507 00:33:54,840 --> 00:33:57,640 disinflationary, yeah. Yeah. 508 00:33:58,320 --> 00:34:01,080 But it's Matt. It's the form and the conditions 509 00:34:01,080 --> 00:34:05,080 of the spending that matter. But the important aspect, which 510 00:34:05,160 --> 00:34:08,600 people, by the way, the MMT guys, they got the plumbing 511 00:34:08,600 --> 00:34:10,840 right. Yeah, but that's right. 512 00:34:10,840 --> 00:34:12,800 But that's what Bill told me. He's like, if you want to know 513 00:34:12,800 --> 00:34:15,440 how the plumbing works, read the MMT. 514 00:34:15,440 --> 00:34:19,239 Guys, he said, don't like, take the political conclusions as 515 00:34:19,239 --> 00:34:22,000 facts, but the way that they describe how the system works is 516 00:34:22,000 --> 00:34:23,520 accurate. Absolutely. 517 00:34:23,520 --> 00:34:28,520 And so we can finance as much of that as we want because we're 518 00:34:28,520 --> 00:34:33,600 financing it from ourselves. We're just choosing to, instead 519 00:34:33,600 --> 00:34:38,480 of taxing people today, we're choosing to not tax them today 520 00:34:38,760 --> 00:34:41,239 and tax them in the future. Yeah. 521 00:34:42,080 --> 00:34:45,800 And that's a political choice in which we can conceptually do 522 00:34:45,800 --> 00:34:50,480 infinite amount of times. And so this whole idea of debt 523 00:34:50,480 --> 00:34:53,920 sustainability is mostly garbage from that context. 524 00:34:54,040 --> 00:34:56,719 Now there's a market clearing price in which you have to 525 00:34:56,719 --> 00:35:01,400 extract the next person and there's also the potential to 526 00:35:01,440 --> 00:35:03,600 invest to make that savings decision. 527 00:35:03,880 --> 00:35:07,080 And there's also sort of a squeezing out that's can be 528 00:35:07,080 --> 00:35:11,640 talked about regarding some of that savings going into private 529 00:35:11,640 --> 00:35:16,040 sector investments. But that's a really narrow 530 00:35:16,040 --> 00:35:19,760 point. The point being is that we are 531 00:35:20,720 --> 00:35:23,480 the the coming back to what's happening is the Trump 532 00:35:23,480 --> 00:35:28,440 administration has decided that there's too much of that, for 533 00:35:28,440 --> 00:35:32,360 whatever reason. So the interesting thing to me, 534 00:35:32,400 --> 00:35:37,440 I mean you've been fairly vocal about, I don't know, it almost 535 00:35:37,440 --> 00:35:39,880 looks like an iron Condor to me, but I could be wrong. 536 00:35:39,960 --> 00:35:46,080 You're like basically trading like a range bound S&P and it is 537 00:35:46,080 --> 00:35:49,520 some of what's going on with your with your overall thinking 538 00:35:50,080 --> 00:35:54,320 just that a lot of a lot of the policies are are going to be a 539 00:35:54,320 --> 00:35:57,200 break on growth. Yeah. 540 00:35:57,560 --> 00:36:02,320 So I'll talk about my market outlook in January. 541 00:36:02,320 --> 00:36:07,880 I called for a extreme and I was early in calling for a growth 542 00:36:07,880 --> 00:36:11,000 slowed down. There's a variety of reasons we 543 00:36:11,000 --> 00:36:15,320 have gotten that growth slowed down and I've been able to 544 00:36:15,320 --> 00:36:19,280 evolve my book into something that is that took a lot of 545 00:36:19,280 --> 00:36:22,560 profits. And So what I'm left with is 546 00:36:23,680 --> 00:36:27,080 could change literally today. It may in fact change today 547 00:36:27,520 --> 00:36:29,320 given what's happening in the markets today. 548 00:36:29,520 --> 00:36:34,760 My outlook is that the Trump policies remain the way I 549 00:36:34,760 --> 00:36:41,480 describe them, and tariffs have become a shiny object that's 550 00:36:41,480 --> 00:36:48,000 creating high degrees of uncertainty and rapid price 551 00:36:48,000 --> 00:36:50,320 changes. You know, we had the biggest one 552 00:36:50,320 --> 00:36:54,920 day move in a long time when Trump delayed the tariff 553 00:36:54,920 --> 00:36:57,600 implementation front by to 90 days. 554 00:36:58,560 --> 00:37:01,640 We're no, we're not higher than that yet. 555 00:37:02,160 --> 00:37:05,240 And we came right back down soon after. 556 00:37:05,680 --> 00:37:08,160 And so there's a high degree of uncertainty. 557 00:37:08,160 --> 00:37:13,640 And so while I expect next quarter to be a real growth 558 00:37:13,640 --> 00:37:16,480 slowdown, not just a growth scare, but a real growth 559 00:37:16,480 --> 00:37:20,200 slowdown, markets are priced better for that. 560 00:37:20,240 --> 00:37:26,600 And so timing, which is hard enough already is extra hard. 561 00:37:27,120 --> 00:37:30,680 And so I would describe my risk as being relatively low. 562 00:37:30,920 --> 00:37:38,000 I benefit most if we drift down, I don't know, call it 7 or 8% 563 00:37:38,000 --> 00:37:41,440 over the course of the next month or two, but I don't really 564 00:37:41,440 --> 00:37:46,520 give up much if we rally. And so it's a relatively tame 565 00:37:46,520 --> 00:37:49,320 position. The same thing applies to the 566 00:37:49,320 --> 00:37:53,280 bond market, where we don't know whether the Fed is going to cut 567 00:37:53,320 --> 00:37:57,000 a lot because we have a meaningful growth slowdown, or 568 00:37:57,000 --> 00:38:01,480 not cut at all because we have a, you know, a significant 569 00:38:01,480 --> 00:38:04,560 reversal in a variety of the Trump policies. 570 00:38:04,720 --> 00:38:08,400 In particular, we don't cut expenditures and we don't 571 00:38:08,400 --> 00:38:11,000 implement tariffs. The Fed's going to be on hold 572 00:38:11,000 --> 00:38:11,800 for a long time. Yeah. 573 00:38:12,160 --> 00:38:17,160 Yeah. So at this very moment, I think 574 00:38:17,160 --> 00:38:23,320 the main themes remain growth slow down, which favors stocks 575 00:38:23,320 --> 00:38:26,960 over bonds over stocks. But in order to have any 576 00:38:26,960 --> 00:38:34,160 movement on that, the otherwise pretty strong data, rearview 577 00:38:34,160 --> 00:38:39,080 mirror data has to actually turn into slowing data and that 578 00:38:39,080 --> 00:38:41,360 hasn't happened yet. So I think you actually, I do 579 00:38:41,360 --> 00:38:44,320 expect it. And so I'm positioned short 580 00:38:44,320 --> 00:38:48,160 equities for that reason, but I'm not super aggressive on it 581 00:38:48,160 --> 00:38:50,960 because the next phase actually has to be a slowdown. 582 00:38:51,520 --> 00:38:56,480 And in bonds, you know, again, it's we're at a fairly coin flip 583 00:38:56,480 --> 00:38:59,360 sort of thing. I think a growth slowdown is 584 00:38:59,360 --> 00:39:01,640 going to occur. When it does occur, I think the 585 00:39:01,640 --> 00:39:06,200 Fed is going to cut 50 basis points the first time, not 25. 586 00:39:06,680 --> 00:39:08,480 They're going to get aggressive quickly. 587 00:39:08,880 --> 00:39:14,560 And I think we could have 150 basis points of cuts in 202425, 588 00:39:15,120 --> 00:39:16,480 but we also may not have any at all. 589 00:39:17,800 --> 00:39:21,960 And so we're priced to have roughly 75 basis points of cuts. 590 00:39:22,480 --> 00:39:24,120 It's different from that right now, but whatever. 591 00:39:24,600 --> 00:39:28,040 And so that's coin flip on what, whether your slowdown's going to 592 00:39:28,040 --> 00:39:29,400 occur or not. And by the way, the 593 00:39:29,600 --> 00:39:32,680 administration couldn't cause that coin to flip in a certain 594 00:39:32,680 --> 00:39:35,360 way. So it's just not a good bet 595 00:39:35,360 --> 00:39:38,040 right now. The one thing that is the other 596 00:39:38,040 --> 00:39:41,720 theme and I think it's a reasonable theme, but can 597 00:39:41,720 --> 00:39:49,280 reverse, is that the last going back to COVID when the United 598 00:39:49,280 --> 00:39:54,640 States aggressively stimulated and used quantitative easing 599 00:39:55,440 --> 00:40:00,520 versus every other nation, our recovery was much stronger. 600 00:40:01,280 --> 00:40:08,840 Add into it the AI miracle, which is a real thing, and 601 00:40:08,840 --> 00:40:12,840 you've got a period of time in which US equities massively 602 00:40:12,840 --> 00:40:16,000 outperformed the rest of the globe, and US bonds did pretty 603 00:40:16,000 --> 00:40:19,840 well too. Because conditions were so easy 604 00:40:19,840 --> 00:40:24,600 and money was flowing in both into stocks but into bonds as 605 00:40:24,600 --> 00:40:28,200 well versus everywhere else on the earth, on earth and the 606 00:40:28,200 --> 00:40:33,160 dollar was strong. And when you have a Fed that's 607 00:40:33,160 --> 00:40:40,760 on pause and a fiscal policy that looks like it is 608 00:40:40,760 --> 00:40:46,040 contractionary from a growth standpoint, and you compare that 609 00:40:46,160 --> 00:40:51,440 to Germany, which is the the Europe in general, but Germany 610 00:40:51,440 --> 00:40:54,760 in particular in which they are about to embark in aggressive 611 00:40:54,760 --> 00:41:02,200 fiscal expansion and the ECB is much easier than the Fed and 612 00:41:02,200 --> 00:41:04,360 still cutting. That's a better place to have 613 00:41:04,360 --> 00:41:06,520 capital. And if you look at the 614 00:41:06,520 --> 00:41:11,200 valuations of their bonds and their stocks, it's just more 615 00:41:11,200 --> 00:41:16,560 attractive than US bonds, both the monetary and fiscal policies 616 00:41:16,560 --> 00:41:20,400 and the pricings and more protect. 617 00:41:20,400 --> 00:41:24,600 Perhaps more relevantly, the holdings are underweight Europe 618 00:41:24,880 --> 00:41:28,600 and underweight Japan and underweight China and 619 00:41:28,600 --> 00:41:30,640 underweight EM. Broadly, though that's not my 620 00:41:30,640 --> 00:41:34,480 specialty. Underweight the UK and 621 00:41:35,000 --> 00:41:39,520 overweight the US. And the US is not the place to 622 00:41:39,520 --> 00:41:42,440 have capital. Where in which it's going to be 623 00:41:42,440 --> 00:41:46,680 treated well, all the rest of the world has a better is, is 624 00:41:46,800 --> 00:41:50,040 has monetary and fiscal policy that is more attractive for 625 00:41:50,040 --> 00:41:52,680 capital to flow. And so you're getting some of 626 00:41:52,680 --> 00:41:57,640 that as well, which is people who have US assets want to sell 627 00:41:57,640 --> 00:42:02,360 those US assets. People who buy those assets have 628 00:42:02,360 --> 00:42:07,000 to get a real discount to accept them because they see the flow 629 00:42:07,000 --> 00:42:09,720 of money. And so they are the price maker. 630 00:42:09,840 --> 00:42:14,040 The price taker is trying to get out of the United States. 631 00:42:14,320 --> 00:42:18,120 And So what happens is the dollar depreciates and the asset 632 00:42:18,120 --> 00:42:21,400 markets depreciate relative to the rest of the world. 633 00:42:21,680 --> 00:42:23,480 And I think that's a continued theme. 634 00:42:24,840 --> 00:42:27,280 Interesting it. Doesn't go straight. 635 00:42:27,360 --> 00:42:31,280 It doesn't go in a straight line, but it's a continued and 636 00:42:31,600 --> 00:42:39,640 principally because of the long the the accumulation of value in 637 00:42:39,640 --> 00:42:44,480 the market portfolio toward US assets, which has created a big 638 00:42:45,000 --> 00:42:49,920 risk weighting of the market portfolio to US conditions which 639 00:42:49,920 --> 00:42:53,760 people are going to look at and say maybe I'll be underweight, 640 00:42:54,400 --> 00:42:56,320 but not everyone can be underweight. 641 00:42:56,320 --> 00:43:00,600 In fact, no always everyone has to be equal weight in aggregate. 642 00:43:00,600 --> 00:43:05,240 That's the way macro works, and so prices have to change. 643 00:43:07,080 --> 00:43:08,520 That would that makes sense to me. 644 00:43:09,880 --> 00:43:16,680 So is is part of is part of the concern with the the long end of 645 00:43:16,680 --> 00:43:21,840 the curve going higher. If that goes higher at the same 646 00:43:21,840 --> 00:43:27,320 time that some of these policies are at a minimum less 647 00:43:27,320 --> 00:43:31,920 accommodative and possibly restrictive, you have it's like 648 00:43:31,920 --> 00:43:34,080 the old R -, G in the denominator. 649 00:43:34,080 --> 00:43:38,280 You could have growth really slow your rate required rate of 650 00:43:38,280 --> 00:43:42,240 return goes higher and then your multiples can can get. 651 00:43:42,600 --> 00:43:43,360 Right. Yeah. 652 00:43:43,520 --> 00:43:48,560 The the, the combination of higher interest rates and lower 653 00:43:48,560 --> 00:43:52,200 earnings is bad for stocks. Yeah. 654 00:43:52,480 --> 00:43:54,360 And that I think that's the direction we're heading. 655 00:43:54,840 --> 00:43:56,560 Again, we've repriced quite a bit. 656 00:43:56,800 --> 00:43:59,120 You know, we're at one point we're down. 657 00:43:59,120 --> 00:44:03,600 I don't know, 1000 points on the S&P close to 20%. 658 00:44:04,000 --> 00:44:07,320 You know, that's a fair amount. Now we've bounced and so now you 659 00:44:07,320 --> 00:44:10,480 have to look at it and say, you know what's happening and 660 00:44:11,520 --> 00:44:15,280 earnings growth for the next 12 months versus the prior 12 661 00:44:15,280 --> 00:44:22,360 months is still 11% growth. 2025 earnings, just the the, the 662 00:44:22,360 --> 00:44:27,360 actual realized 2025 earnings analysts are beginning to reduce 663 00:44:27,360 --> 00:44:34,520 them from 270 per S&P share to now down to 258. 664 00:44:36,080 --> 00:44:38,320 That's a decline. That's you know what it is 12 665 00:44:38,320 --> 00:44:41,240 points on 270. It's, you know, it's 50 percent, 666 00:44:41,240 --> 00:44:44,680 5% and that should come right off the price of equities. 667 00:44:45,520 --> 00:44:50,320 But that would mean that another 5% must be a multiple 668 00:44:50,320 --> 00:44:52,920 contraction. And well, that seems OK. 669 00:44:52,920 --> 00:44:57,600 So now we're instead of being at 22 PE, we're at 21 PE. 670 00:44:57,920 --> 00:45:03,280 Yeah, forward. PE Yeah, still not cheap so. 671 00:45:03,280 --> 00:45:08,760 The question one has to ask is, is it realistic to pay that sort 672 00:45:08,760 --> 00:45:13,640 of valuation for equities while earnings are being revised 673 00:45:13,640 --> 00:45:17,880 lower? Typically, it is useful to buy 674 00:45:17,880 --> 00:45:21,960 equities at high PES when earnings revisions have been 675 00:45:22,040 --> 00:45:24,400 revised down. Yeah, that may, yeah. 676 00:45:24,800 --> 00:45:27,680 You're bottoming in a cycle, theoretically in that. 677 00:45:27,680 --> 00:45:29,440 Scenario, we're not anywhere near that. 678 00:45:29,440 --> 00:45:32,080 So I think there's still quite a bit of downside in equities 679 00:45:32,080 --> 00:45:37,240 relative to bonds. But again, the right policies 680 00:45:37,320 --> 00:45:42,080 and you could get a high growth, high inflation environment 681 00:45:42,080 --> 00:45:47,480 again, spend more, increase expenditures, lower taxes, 682 00:45:47,960 --> 00:45:52,080 cancel tariffs, let immigrants into the country. 683 00:45:52,840 --> 00:45:55,720 All of those things, if they were to occur, would be much 684 00:45:55,720 --> 00:45:58,360 better for stocks than bonds, terrible for bonds. 685 00:45:58,960 --> 00:46:01,320 And that could, you know, all those things could change on a 686 00:46:01,320 --> 00:46:02,920 dime. I don't think they will. 687 00:46:02,920 --> 00:46:08,720 I think Trump 1.0, which had policies like that, growing 688 00:46:08,720 --> 00:46:14,240 deficit, growing expenditures, falling taxes, he kept the 689 00:46:14,240 --> 00:46:19,400 borders more secure, but not as secure as he is now and modest 690 00:46:19,400 --> 00:46:21,920 tariffs. You know, we're very positive 691 00:46:21,920 --> 00:46:26,760 for equities that went from a 16 PE to an to a 19 PE during his 692 00:46:27,040 --> 00:46:32,000 pre COVID administration. But here we are at 20 and the 693 00:46:32,000 --> 00:46:34,520 policies are not Trump one point O. 694 00:46:35,080 --> 00:46:38,560 Now if they turn into Trump, one point O again, anything's 695 00:46:38,560 --> 00:46:40,160 possible. Yeah. 696 00:46:40,840 --> 00:46:44,280 But if they do, is it still a good buy to buy equities here? 697 00:46:45,320 --> 00:46:47,520 Probably not. And it's not a good place to buy 698 00:46:47,520 --> 00:46:49,760 bonds if he turns into Trump 1.0. 699 00:46:50,120 --> 00:46:53,880 Yeah. Well, sounds like the US 700 00:46:53,880 --> 00:46:56,600 generally had a nice run and maybe it's time to look 701 00:46:56,600 --> 00:46:57,800 elsewhere. Would be your your. 702 00:46:57,920 --> 00:47:01,040 Yeah, I mean, I think it's important people are doomy about 703 00:47:01,040 --> 00:47:04,720 all this type of stuff. End of American exceptionalism, 704 00:47:04,880 --> 00:47:07,480 you know, that's the Main Street is going to work. 705 00:47:07,480 --> 00:47:10,960 Try to be productive. Do does what it does. 706 00:47:11,480 --> 00:47:15,120 Private sector investors are trying to find the best new 707 00:47:15,120 --> 00:47:17,040 thing. I don't think our exceptionalism 708 00:47:17,640 --> 00:47:20,000 has changed. I don't think our regulatory 709 00:47:20,640 --> 00:47:24,680 improvements, I don't think are certainly not our geographic 710 00:47:24,680 --> 00:47:27,840 advantage. That's not changing as far as I 711 00:47:27,840 --> 00:47:29,760 can tell. I look outside, I can see the 712 00:47:29,760 --> 00:47:31,560 ocean. It ain't moving. 713 00:47:31,840 --> 00:47:33,720 Yeah. So there's still a lot of good 714 00:47:33,720 --> 00:47:38,640 things about the United States, but not the prices. 715 00:47:38,640 --> 00:47:40,520 The prices suck. Yeah. 716 00:47:40,760 --> 00:47:44,520 The prices of our assets are too high relative to everybody 717 00:47:44,520 --> 00:47:47,480 else's assets, and everybody else already owns them. 718 00:47:48,800 --> 00:47:51,400 Yeah, yeah. And so it's not a change in our 719 00:47:51,800 --> 00:47:56,400 in, in, It's not a change. It's just a change in the 720 00:47:56,400 --> 00:47:57,680 prices. Yeah. 721 00:47:57,720 --> 00:48:01,840 The change in the prices is due. Yeah, Yeah, That makes sense. 722 00:48:01,840 --> 00:48:03,520 Yeah. I I Yeah, that's right. 723 00:48:03,960 --> 00:48:06,440 Do we would get more clicks if we said it was the end of 724 00:48:06,440 --> 00:48:10,200 America? But but alas, that's a that's a 725 00:48:10,200 --> 00:48:13,280 different type of a business and strategy to get attention. 726 00:48:15,040 --> 00:48:18,560 Interesting. So I mean, just generally, what 727 00:48:18,560 --> 00:48:20,280 do you think is going on with gold? 728 00:48:20,280 --> 00:48:23,760 I mean, is this like a rush out of nobody? 729 00:48:23,760 --> 00:48:27,080 You know, I guess the hyperbolic take is nobody wants dollars. 730 00:48:27,080 --> 00:48:29,440 The dollar is going to collapse. You got to go to gold. 731 00:48:29,440 --> 00:48:33,480 I think a more nuanced take is probably countries are looking 732 00:48:33,480 --> 00:48:36,960 to and individuals are looking to, to diversify a little bit 733 00:48:36,960 --> 00:48:38,360 from the dollar and gold's got a bid. 734 00:48:38,360 --> 00:48:40,320 Also, it's running so people buy what's hot. 735 00:48:40,640 --> 00:48:44,200 Right. You know I learned about gold 736 00:48:44,200 --> 00:48:50,640 really from a Co worker who actually painted a a gold brick 737 00:48:51,800 --> 00:48:55,360 black and used it as a doorstop as his secret stash. 738 00:48:55,640 --> 00:49:00,080 I always thought it was nuts, but OK, fine. 739 00:49:00,920 --> 00:49:04,600 But I really learned about gold from Bridgewater And ever since 740 00:49:04,600 --> 00:49:07,680 I've been a beta, I've it's been a meaningful position in my beta 741 00:49:07,680 --> 00:49:13,560 portfolio because it does have unique properties as the long 742 00:49:14,520 --> 00:49:19,200 established store of value through many centuries, 743 00:49:19,560 --> 00:49:23,440 Millennium. And because of that, it can and 744 00:49:23,440 --> 00:49:28,480 its limited quantity, it can be like anything of that nature can 745 00:49:28,480 --> 00:49:31,160 be collected as a store of value. 746 00:49:32,160 --> 00:49:34,400 And that's something nice to have in a portfolio, 747 00:49:34,400 --> 00:49:39,080 particularly when Fiat money is grows. 748 00:49:39,720 --> 00:49:42,880 Yeah. And at the same time, it doesn't 749 00:49:42,880 --> 00:49:48,400 pay any interest and it's hard to store, it's even harder to 750 00:49:48,400 --> 00:49:52,040 safeguard. And So what do you mean by that? 751 00:49:52,680 --> 00:49:54,680 It's a pal. What do you mean by harder to 752 00:49:54,680 --> 00:49:56,880 safeguard? Well, you have to put it in a 753 00:49:56,880 --> 00:50:00,760 vault, and you have to have somebody who you trust promise 754 00:50:00,760 --> 00:50:02,800 to give it back to you when you want it. 755 00:50:03,120 --> 00:50:04,920 Yeah. And then should you be holding 756 00:50:04,920 --> 00:50:07,320 it for the doomsday scenario, you got to be able to keep it. 757 00:50:07,800 --> 00:50:08,920 Right. If you're holding it for the 758 00:50:08,920 --> 00:50:12,320 doomsday scenario, I think you really need to have an army too. 759 00:50:12,600 --> 00:50:17,120 Yeah, that's right. Because I know I won't say how 760 00:50:17,120 --> 00:50:20,840 many guns I have, but it's not enough if they come to take my 761 00:50:20,840 --> 00:50:24,800 gold because somebody else is going to have more guns. 762 00:50:25,360 --> 00:50:28,480 So forget the doomsday. It's just a decent store of 763 00:50:28,480 --> 00:50:31,760 value. Now at the same time it, as I 764 00:50:31,760 --> 00:50:34,560 said, it pays no interest to cost money to store and guard. 765 00:50:35,160 --> 00:50:39,560 And that makes real investments attractive. 766 00:50:39,560 --> 00:50:43,040 And So what has happened is there's been a huge disconnect 767 00:50:43,040 --> 00:50:50,520 in the value of of global real interest rates to this thing 768 00:50:50,560 --> 00:50:54,280 that pays no interest. Recently there's been a rally 769 00:50:54,280 --> 00:50:57,360 relative to the dollar, but that's by and large been 770 00:50:57,400 --> 00:51:00,800 everything else like the yen has rallied a lot. 771 00:51:01,000 --> 00:51:04,200 So is gold. And so there definitely is a 772 00:51:04,440 --> 00:51:08,320 exit the dollar trade going on and it's consistent with that 773 00:51:08,320 --> 00:51:11,480 get out idea that I just described One of the 774 00:51:11,480 --> 00:51:15,680 beneficiaries of people leaving dollar denominated assets is 775 00:51:16,040 --> 00:51:19,840 other countries assets, but also gold and crypto and so on. 776 00:51:20,520 --> 00:51:24,480 And so that's happening, but it seems dislocated and certainly 777 00:51:24,640 --> 00:51:27,760 parabolic. I went short it a few days ago 778 00:51:27,760 --> 00:51:33,320 and got out with my, you know, a few 100 point gain and thank God 779 00:51:33,360 --> 00:51:36,600 I'm out because it's very hard to trade. 780 00:51:36,600 --> 00:51:38,960 It's like Coco when it went moon shot. 781 00:51:39,720 --> 00:51:43,200 It's going to come back. It there isn't value relative to 782 00:51:43,280 --> 00:51:52,280 its as these flows calm down again, it's I think a great 783 00:51:52,280 --> 00:51:55,400 thing to have in the portfolio. I would always want it for a 784 00:51:55,400 --> 00:51:57,760 pass. I always have it for a passive 785 00:51:57,760 --> 00:52:00,520 portfolio and a fair degree of waiting. 786 00:52:00,880 --> 00:52:04,840 But you know, if it if I woke up and it was down 15% tomorrow, it 787 00:52:04,840 --> 00:52:08,520 wouldn't surprise me at all. Yeah, that's interesting. 788 00:52:09,160 --> 00:52:11,000 How rigorous are your portfolio rules? 789 00:52:11,000 --> 00:52:13,560 You seem to have a pretty good. You got like good risk 790 00:52:13,560 --> 00:52:18,520 parameters and how you talk. It's all about it's there's two 791 00:52:18,520 --> 00:52:20,520 things. One, it's all about your own 792 00:52:20,520 --> 00:52:24,960 personal situation. And so my personal situation is 793 00:52:24,960 --> 00:52:28,480 1 in which, you know, I'm happy. I live in a nice place, I have a 794 00:52:28,480 --> 00:52:32,520 nice family, I'm growing my wealth for myself and my heirs 795 00:52:32,560 --> 00:52:37,040 and really just preserving capital. 796 00:52:37,600 --> 00:52:42,800 And so it's relatively low risk. It's diversified across multiple 797 00:52:42,800 --> 00:52:45,840 assets. It's supposed to do well in all 798 00:52:45,840 --> 00:52:47,880 form. It's very similar to the all 799 00:52:47,880 --> 00:52:50,240 weather portfolio at Bridgewater where I worked. 800 00:52:50,520 --> 00:52:52,840 Yeah. And the idea is just to preserve 801 00:52:52,840 --> 00:52:56,440 wealth, preserve purchasing power through time and grow. 802 00:52:57,280 --> 00:53:02,440 Yeah, but very conservative. On top of that, I layer a alpha 803 00:53:02,440 --> 00:53:06,600 portfolio and that's my expression of short term market 804 00:53:06,600 --> 00:53:10,960 timing trades based on my understanding of macro and even 805 00:53:10,960 --> 00:53:15,560 that's pretty conservative. My targeted return is 10% of in 806 00:53:15,560 --> 00:53:21,000 excess of cash. So that's like 15% per year and 807 00:53:21,000 --> 00:53:26,360 I've mostly achieved that and it levers my beta returns. 808 00:53:27,640 --> 00:53:30,800 And the question becomes how much of that do you have? 809 00:53:31,200 --> 00:53:34,720 And for most people I would say very you want very little of 810 00:53:34,720 --> 00:53:38,680 that in your portfolio. You don't have alpha, I don't. 811 00:53:38,720 --> 00:53:41,560 I don't know if I have alpha. I don't know if I can beat the 812 00:53:41,560 --> 00:53:43,200 market. In fact, I think I can't. 813 00:53:43,320 --> 00:53:45,520 It's very, very hard. Most people can't do it. 814 00:53:45,800 --> 00:53:50,520 I work, I've worked 150,000 hours over 39 years trying to 815 00:53:50,520 --> 00:53:53,520 beat the market and I'm still not sure I can. 816 00:53:53,520 --> 00:53:56,960 And so I know most of your listeners, they can't beat the 817 00:53:56,960 --> 00:53:59,320 market And so you better not it's better. 818 00:53:59,320 --> 00:54:03,840 You're better off not trying and just tailor your long only 819 00:54:03,960 --> 00:54:10,400 passive cheap to implement meaning low fee portfolio at the 820 00:54:10,480 --> 00:54:14,320 appropriate level of risk for your risk tolerance, income, 821 00:54:14,320 --> 00:54:17,600 age, all those sort of things and not let it be. 822 00:54:18,280 --> 00:54:22,320 But most of your listeners want to add this market speculation 823 00:54:22,320 --> 00:54:25,840 part. I have a fair amount despite 824 00:54:25,880 --> 00:54:28,400 everything I just said in which I'm not sure I have any alpha at 825 00:54:28,400 --> 00:54:29,800 all. I'm willing to bet that I do. 826 00:54:29,800 --> 00:54:35,120 And so while My Portfolio, my alpha portfolio is fairly 827 00:54:35,120 --> 00:54:39,520 conservative, it is not in it can literally by construct it 828 00:54:39,520 --> 00:54:44,080 can't experience more than a 10% drawdown in in any environment 829 00:54:44,080 --> 00:54:46,680 whatsoever with the existing position. 830 00:54:46,680 --> 00:54:50,960 So there's no shock that it can experience a greater than 10% 831 00:54:50,960 --> 00:54:54,960 drawdown A1 off shock. Of course, if I keep doubling 832 00:54:54,960 --> 00:54:58,440 down or play some martingale strategy, of course it can lose 833 00:54:58,440 --> 00:55:01,840 more than that, but that has other controls in place. 834 00:55:02,640 --> 00:55:04,680 And so it's relatively conservative. 835 00:55:04,800 --> 00:55:08,880 And again, I try to make 10 or 15% a year every year grinding 836 00:55:08,880 --> 00:55:11,320 it out. And I have a fairly high 837 00:55:11,320 --> 00:55:15,440 allocation of my in that activity because I have a fair 838 00:55:15,440 --> 00:55:19,240 amount of confidence that the bet, if not that I have alpha, 839 00:55:19,640 --> 00:55:21,960 at least it's worth betting that I have alpha. 840 00:55:22,400 --> 00:55:24,920 And so that's how I manage My Portfolio. 841 00:55:24,920 --> 00:55:29,880 I also have been at work with a couple of funds who implement My 842 00:55:29,880 --> 00:55:33,840 Portfolio for as sleeves in their portfolio. 843 00:55:34,000 --> 00:55:36,400 And so I have some leverage into that. 844 00:55:37,000 --> 00:55:38,600 It's, you know, it's a living I guess. 845 00:55:38,720 --> 00:55:42,040 Yeah, no, it's. I, I appreciate, I appreciate 846 00:55:42,040 --> 00:55:43,640 what you share. And I, like I said, I've, I've 847 00:55:43,640 --> 00:55:47,480 enjoyed, you know, perusing that your, your Twitter feed and, and 848 00:55:47,880 --> 00:55:52,280 I'm trying to learn, you know, and I think, I think for a long 849 00:55:52,280 --> 00:55:58,120 time, the macro environment was so benign that, you know, the 850 00:55:58,600 --> 00:56:01,000 people were like, well, you don't even need to, it's a waste 851 00:56:01,000 --> 00:56:02,720 of time, right? And. 852 00:56:02,920 --> 00:56:06,720 Right. I think it's right that most of 853 00:56:06,720 --> 00:56:11,440 the time ignore diversification benefit which we just sort of 854 00:56:11,440 --> 00:56:13,400 dealt with that. It's good to have some alpha 855 00:56:13,400 --> 00:56:17,400 just for a diversifier that most of the time what you need is to 856 00:56:17,400 --> 00:56:21,880 do just sit on your hands, own a portfolio of assets and like, 857 00:56:22,320 --> 00:56:25,760 don't listen to podcasts, don't listen to me on Twitter. 858 00:56:26,120 --> 00:56:31,120 Go out, earn more money so that you can invest more and save 859 00:56:31,120 --> 00:56:36,160 more and live your life. But it is true that on occasions 860 00:56:36,160 --> 00:56:42,240 like today, people who have uncorrelated alpha and unders, 861 00:56:42,360 --> 00:56:44,480 and that's important. It has to be uncorrelated. 862 00:56:44,480 --> 00:56:47,080 Like, there are lots of guys that have alpha that really 863 00:56:47,080 --> 00:56:50,360 just, you know, are perfectly correlated to equities. 864 00:56:51,280 --> 00:56:53,040 Yeah. And that's not much. 865 00:56:53,040 --> 00:56:55,920 That's not very helpful. But macro tends to be 866 00:56:55,920 --> 00:56:58,760 uncorrelated. And so during periods of time in 867 00:56:58,760 --> 00:57:02,960 which will actually the worst thing that can happen is 868 00:57:02,960 --> 00:57:06,720 somebody who doesn't pay attention to macro starts 869 00:57:06,720 --> 00:57:12,960 getting a drawdown, searches the web for their macro guru, finds 870 00:57:12,960 --> 00:57:17,840 the guy. The guy has been short, making 871 00:57:17,840 --> 00:57:25,200 great returns, joins up, follows the guy's trades, pukes all of 872 00:57:25,200 --> 00:57:29,680 his equities. Yeah, yeah, then you then you 873 00:57:29,680 --> 00:57:31,840 got like the wrong style drift at the exact. 874 00:57:33,080 --> 00:57:39,480 What I recommend is learn about markets continuously and stay 875 00:57:39,480 --> 00:57:44,200 long beta and don't find a macro guru when you are down. 876 00:57:45,040 --> 00:57:47,320 Acquire them when you're up. Yeah. 877 00:57:47,320 --> 00:57:49,080 And just don't take them too seriously. 878 00:57:49,560 --> 00:57:54,160 Just learn from them, Yeah. And then see if they offer some 879 00:57:54,160 --> 00:57:56,640 diversification. And you're going to be happy 880 00:57:56,640 --> 00:57:59,640 that you had them when an environment like this occurs. 881 00:57:59,640 --> 00:58:02,760 But it's too late if you're if you're finding a macro person 882 00:58:02,880 --> 00:58:06,400 now. Yeah, I like it. 883 00:58:06,800 --> 00:58:10,360 Well, thank you. I think I, I enjoyed the 884 00:58:10,360 --> 00:58:12,520 conversation. I appreciate you laying out kind 885 00:58:12,520 --> 00:58:15,280 of where we are and how you think and thank you for saying 886 00:58:15,280 --> 00:58:17,360 yes. Pleasure and anytime. 887 00:58:17,880 --> 00:58:19,560 Alrighty, have a good one. You too, man.