Druckenmiller on 2020 Outlook, Monetary Policy, U.S. Election

00:00
Stan how do you feel going into 2020
00:03
about demarco yeah my health at the
00:06
markets the economy we could talk about
00:07
your help too if you like what’s not
00:11
well you have very low unemployment here
00:15
you have fiscal stimulus in Japan you
00:19
have fiscal stimulus and a lot of
00:21
confidence coming to Britain we’re
00:23
running a trillion dollar deficit for
00:25
employment apparently we’re gonna have
00:27
some sort of green stimulus in Europe
00:30
and we have negative real rates
00:32
everywhere and negative absolute rates a
00:35
lot of places so with that kind of
00:39
unprecedented monetary stimulus relative
00:42
to the circumstances it’s hard to have
00:46
anything of a constructive view on the
00:48
markets risk and the economy
00:50
intermediate-term so that’s what I have
00:52
because everywhere you turn you’re being
00:57
encouraged to take more I don’t need to
01:01
take more I have enough but I just I’ve
01:06
always believed that expansions and
01:11
usually would type monetary policy or
01:14
credit problems and I think what we’re
01:17
doing is definitely borrowing from the
01:20
future and we’ll probably end badly as
01:23
the ou7 period did but you know that
01:29
could be years I’m 66 I might be dead by
01:32
the time what happens so the
01:33
intermediate term technicals are good
01:36
yet breathitt an all-time high economy’s
01:40
fine and if anything our biggest our
01:43
biggest problem going in once once the
01:49
Fed shifted away from their cutie and
01:51
tightening program our biggest problem
01:54
was obviously global trade and whereas
01:55
over global trade
01:58
and I’m not saying everything is all
01:59
peaches and roses now but certainly on a
02:03
rate of change basis I don’t see that
02:06
being if anything there’s a
02:08
de-escalation not an escalation there so
02:11
for now all systems go so your
02:14
constructive all systems go how you’re
02:15
expressing that in your portfolio well
02:19
I’m long equities I’m long some
02:23
commodities I’m short fixed income and
02:30
I’m long commodity currencies short the
02:35
end so all sort of for now betting on a
02:45
a benign economic outlook and a benign
02:48
market outlook but as you know Eric I
02:50
tend to change my mind so that’s for
02:52
today hopefully all last at least a
02:55
couple weeks let’s be a little more
02:57
specific if we can short the end
02:59
commodity currencies I’m assuming
03:01
Canadian dollar Australian dollar that’s
03:03
very good
03:04
anything else I’m missing there I have
03:07
some New Zealand lying around I even
03:10
have some Mexico lying around they’re
03:11
not they’re not big massive positions
03:16
but they’re enough to matter in my
03:18
non-competing world I might have more if
03:20
I’d still had clients commodities have
03:22
been unloved for an awfully long time
03:24
what do you own I own copper believe it
03:30
or not basically I think on the margin
03:34
as I just described particular with
03:36
fiscal stimulus and monetary easing at
03:38
the same time and a D munition of trade
03:40
worries global economy is going to be
03:43
better than the IMF thinks and copper
03:48
has a little extra kicker relative to
03:51
the other ones we think that V’s
03:53
probably add 0.5 percent a year in
03:57
demand and the supply it looks
03:59
challenged it become more challenged if
04:01
the Chile situation doesn’t clear up but
04:04
that’s not why we own it we don’t own
04:07
energy probably should but I just I just
04:14
think the demand outlook is so
04:15
challenged long-term
04:19
just not that interested if you like the
04:21
commodities short-term it kind of makes
04:24
the equities challenged because they’re
04:25
a long dated asset and hopefully we’ll
04:28
go greener and greener I’m on the board
04:31
and Environmental Defense Fund so I’m
04:33
perfectly happy if oil doesn’t go
04:35
anywhere and in the stock market
04:38
anything particular you like it’s
04:41
interesting when we met a year ago my
04:44
portfolio was heavily growth oriented
04:46
particularly the cloud it was serviced
04:49
now remember my oft yeah the the theory
04:52
being there’s like a ten-year runway and
04:55
these companies would grow very well in
04:58
a low nominal growth world I still own
05:02
that stuff but my mix has changed
05:05
dramatically to stuff that will do well
05:08
in a higher nominal growth world so I
05:10
have bank’s financials I own Japanese so
05:17
I wouldn’t call it a mix evaluated I
05:21
wouldn’t call it a mix dominated by
05:22
value but it it looks more like a normal
05:26
mix now it’s not just concentrated in
05:28
two companies that would do well in a
05:30
low nominal growth world and short fixed
05:33
income which I interpret is short the
05:35
Treasury market what a difference a year
05:37
makes yeah last year the Fed was on this
05:44
well about around this time they were
05:47
about to do a hike and Jerome Powell
05:51
also followed that up by saying
05:53
quantitative tightening shrinking the
05:56
balance sheet was all about pilot and I
05:58
think they’re dots called for for hikes
06:01
I think that you know how to here to us
06:03
right
06:05
I thought that those were inappropriate
06:09
and I think I looked at the transcript
06:12
from last show I think we were along
06:14
quite a few Treasuries so it’s it’s
06:16
almost the exact opposite view for the
06:18
exact opposite reason I don’t think
06:21
Jerome Powell will have the courage to
06:25
raise rates next year it’s a lot easier
06:28
to change your mind from a tightening to
06:30
an easing mode but I definitely don’t
06:32
think I don’t think they’ll be easing
06:35
it’s kind of absurd when you look at
06:40
where a nominal growth and real growth
06:42
in this country are and you look at
06:45
unemployment and you look at all the
06:48
other circumstances to have rates at one
06:52
and a half percent if I came down from
06:55
Mars and you showed me the broad
06:58
landscape and asked him where Fed Funds
06:59
would be I probably would guess three
07:01
and a half somewhere in there so if you
07:04
don’t think you’ll have the courage to
07:05
raise rates next year should I imply
07:09
that your short position is a little
07:11
further out on the curve yeah we’re
07:14
we’re short the long end because I just
07:17
think these rates for these economic
07:19
circumstances are inappropriate I
07:22
thought they were inappropriately high
07:23
last year or particularly that
07:26
quantitative tightening and I think
07:27
they’re an appropriately easy this year
07:30
it’s actually quite remarkable because
07:34
the Fed has continued to talk about this
07:37
mid to late 90s period where they were
07:40
doing insurance cuts I remember running
07:43
quantum at Soros and in 98 credit
07:47
completely dried up with Russia and it
07:52
looked like the financial the Asian
07:55
financial crisis could spill over in
07:57
America Greenspan cut three times twice
08:00
in October on what’s in November stock
08:03
market went to a new high took off
08:07
and since he was insuring against the
08:10
Asian financial crisis he took back the
08:13
insurance by the way he had cut rates
08:17
three times from five and a half to four
08:19
seventy-five and then he started hiking
08:21
so the most fascinating thing about the
08:25
recent press conference and the one
08:28
before it was some reporter I don’t
08:30
think it was a Bloomberg reporter but
08:32
some reporter cited this period and them
08:35
using the insurance cuts as a model and
08:37
said Chair Powell what happens if the
08:42
trade war d escalates and it’s no longer
08:46
that big of a worry and what if breaks
08:48
it is solved would you raise rates and
08:51
he said absolutely not and the guy said
08:55
well why you that’s why you cut them he
08:58
said that was insuring against this and
09:00
he said well because the inflation rate
09:03
is much lower now and we didn’t have the
09:07
risk of deflation back then and Eric
09:10
that didn’t sound right to me because I
09:12
remembered distinctly that period
09:15
Greenspan running the the great
09:16
experiment with a blooming economy with
09:19
no inflation I look back and the core
09:21
PCE was one-and-a-half in 98 and 99 when
09:27
Greenspan started raising rates again
09:28
from 475 it’s currently 1:7 and he’s got
09:34
them at one and a half I mean honestly I
09:37
don’t get these guys last year when we
09:40
meant no credit had been issued for a
09:43
month the stock market was down ten
09:46
percent economic conditions were a
09:49
meltdown and they hiked and they leave
09:51
cutey automatic pilot
09:53
now credit conditions are booming we
09:56
have a new IPO every day the stock
09:59
market’s an all-time high employments at
10:01
three and a half percent confidence is
10:03
picking up and we just did three cuts so
10:07
it’s like these guys are pretty hard to
10:10
figure
10:11
I want to ask you some more questions
10:13
about the Fed but before I do we haven’t
10:16
talked about your favorite currency we
10:19
along the pound heading into the British
10:21
election I was it is my favorite
10:25
currency and I just you know I’m very
10:30
good friends with johanna Rupert and he
10:33
had told me he calls her Mrs T and
10:36
that’s Margaret Thatcher and he said you
10:40
know when I met with mrs. tea she said
10:42
never underestimate the common sense of
10:45
the British people and I just I just
10:49
felt that they were not going to go for
10:52
socialism and frankly when I look at
10:56
what’s going on in Europe and then I
10:59
look at what’s going on in Britain
11:02
I was always sort of a brexit ear
11:05
because they did perfectly find for 500
11:08
years without that union of countries
11:11
down there who seemed all hate each
11:13
other and they can’t make a decision on
11:15
anything so I think this is going to be
11:18
actually very good for the British
11:20
economy I separate myself from most on
11:23
that I think Boris Johnson is sort of a
11:27
smarter version of Trump without some of
11:31
the the antics to go along with it and I
11:35
would expect investments to fly into
11:38
that country and I think they’ll do it I
11:42
think they’ll do very well there so you
11:44
know it’s funny if you look at it what
11:47
if I were to tell you there was a
11:49
Republican president but a better
11:51
version and you had two-thirds
11:55
Republican majorities in both houses of
11:58
Congress and you had a deficit to GDP of
12:04
two not four and a half and you had a
12:07
debt to GDP lower than the United States
12:10
and twelve times earnings in a four
12:12
percent yield it sounds like a decent
12:15
place to invest to me so we not only had
12:17
the pound and still do we had the
12:20
British financials the banks we have
12:23
some Barclays Lloyds that kind of stuff
12:26
flying around which just lying around
12:29
well I don’t take big positions anywhere
12:32
I’ve become a coward since I stopped
12:35
competing but uh enough that it gave me
12:37
a smile on Friday let’s go back to the
12:40
Fed you’re a frequent critic of the Fed
12:42
have been over time for reasons you’ve
12:45
articulated well you see you can’t
12:48
figure these guys out but do you feel
12:50
Stan any more confident about the
12:53
direction of monetary policy today than
12:54
you did a year ago
12:56
no I feel much worse first of all if you
13:01
remember a lot of the bait a year ago
13:03
was about quantitative tightening and
13:05
despite the fact that at least the seven
13:09
or eight previous times we had done QE
13:13
bonds had gone down and stocks had gone
13:16
up John Williams and some others there
13:19
said that QE QT had no impact on markets
13:24
and frankly we switched from cutie to QE
13:29
and what happened bonds are going down
13:31
in price and equities are are going up
13:35
but you know it was just lucky eight out
13:37
of eight
13:38
but I just first of all the editorial
13:45
cabinet I wrote we said don’t raise
13:47
rates for now this was back in December
13:50
of yes our interview was the day before
13:52
the hike we wouldn’t raise rates for now
13:55
we weren’t saying to cut them and one of
13:57
the things we’ve said in our interview
13:58
is if you hike now you may get really
14:04
scared and have to start cutting and do
14:05
something drastic the next year which of
14:09
course they’ve done I’m not sure why but
14:13
you know I think it’s it’s always easy
14:15
to be easing and things are great and
14:19
you just feel like you’re the cat’s meow
14:22
you’ll remember Bernanke claiming
14:25
victory and o4 with the Great Moderation
14:27
and Greenspan was a maestro but I will
14:31
go to my grave believing that that
14:33
financial crisis happened because the
14:36
bubbles created by easy money and I just
14:39
don’t understand why we need interest
14:43
rates where they are now we normalize
14:45
we’re trying to normalize okay things
14:47
got too tight you should back off but
14:51
you don’t need to go the other way to
14:52
the extent we’ve had and then this crazy
14:55
president saying we need negative rates
14:57
to compete with negative rates in
14:59
countries where they clearly aren’t
15:01
working they’re not growing as well as I
15:02
do it’s the most anti-capitalist idea I
15:05
could ever dream up and he’s pushing
15:07
Palin you know I didn’t want to believe
15:10
this but it’s pretty clear now that he’s
15:12
had an effect on pal and of course the
15:14
media is gone all he’s really standing
15:16
up to him well with verbage not an
15:18
action in action he’s been cutting and
15:20
doing the president is bidding he hasn’t
15:22
gone negative god help us some people
15:26
say he deserve high marks whether it’s
15:28
the media or others deserve high marks
15:31
for resisting some of that pressure from
15:33
the White House kind of grade would you
15:35
give Jay palace Fed Chairman not a good
15:40
one I don’t think he’s resisted anything
15:43
he just well rate him against Yellen
15:46
Bernanke Greenspan
15:53
he’s a weaker version of Yellen without
15:57
the monetary framework Bernanke and I
16:01
philosophically disagree about easy
16:04
money and helicopter money but the man
16:07
had conviction and he controlled the
16:09
room which i think is really important
16:13
in a Fed chair and I don’t see that here
16:16
and of course let’s not compare him with
16:20
my true hero Paul Volcker who the late
16:24
great Paul Volcker yes who he cited as
16:28
hers and I couldn’t agree more and it’s
16:30
too bad we don’t have some of that kind
16:32
of courage at the Fed today you brought
16:35
up your friend Kevin wash with whom you
16:36
wrote the op-ed arguing for the Fed to
16:40
pause and not raise rates as it
16:42
subsequently did that is raised rates in
16:44
December of 2018 Kevin is considered a
16:47
candidate for the job of governor the
16:50
Bank of England you think he’ll get it I
16:52
don’t know whether he’ll get it and I
16:54
don’t know whether he wants it I don’t
16:56
know anything about this but I hope for
16:59
my sake it’s not true because he’s been
17:01
a trusted advisor Claude who knows not
17:06
me Stan tell me what you think of
17:09
Christine Lagarde is the new ECB
17:10
president it’s early days yet she’s a
17:14
lawyer I think it’s way too early to
17:19
judge her I’m a little taken aback by
17:23
linking climate change with monetary
17:26
policy I am on the board of a montemagno
17:30
fence so I’m a greeny but you know I
17:34
think there’s other buckets to execute
17:37
climate change through and it shouldn’t
17:38
have anything to do with monetary policy
17:40
but who knows how strongly she feels
17:42
about that but it’s early days and I
17:44
think we should give her the benefit out
17:46
and asked me in a year if we’re still
17:48
here
17:49
central bankers whether it’s policy
17:53
makers at the ECB or for that matter
17:57
members of the FOMC seemed determined at
18:00
whatever cost to bring inflation back to
18:03
two percent in Europe it’s met negative
18:06
rates here they’re now beginning to talk
18:08
about inflation averaging would be a
18:12
catch-up period if it hasn’t met the 2%
18:15
target for a period of time my question
18:18
to you is in whether negative rates
18:20
necessarily work or whether averaging
18:22
inflation is necessarily a good idea
18:23
you’re free to answer both but first I
18:27
want to know whether you think inflation
18:28
matters anymore
18:30
well first of all there’s 14 recognized
18:34
measures of inflation twelve of them are
18:37
above two percent their preferred
18:39
measure the core PCE E is at 1.7 percent
18:44
the risks they are taking with regard to
18:49
miss allocation of resources
18:51
bubbles all that stuff because something
18:54
is at 1.7 as opposed to two and now
18:58
they’re talking about a make up period
18:59
first of all monetary policy is supposed
19:02
to look forward not backward so why are
19:04
we looking backward and if there’s a
19:06
make up period after inflation was 10%
19:09
in the 70s why didn’t we have a target
19:12
of minus 10 a year in the 80s and we’re
19:16
talking about decimal points here about
19:18
something Eric that you can’t even
19:21
really measure so and I’d like to remind
19:25
everyone because now they’ve turned it
19:27
into a mandate there is no mandate for
19:30
2% the mandates states very clearly
19:32
price stability and full employment in
19:35
this country yes well I live in this
19:38
country and so does the Fed and I don’t
19:41
know how 1.7 percent is not like the
19:44
greatest success ever if we’re talking
19:47
about price stability so this thing
19:50
about it’s the greatest challenge of our
19:51
time to get out from 1.72 to when we
19:55
don’t even know whether it’s 1 or 3 it’s
19:57
just you know the measurements are so
19:59
random
19:59
I just find it astonishing
20:02
we’re living in a time of technological
20:05
advancement all kinds of new innovations
20:08
that are creating deflationary pressures
20:10
surely reflected in that one-point-seven
20:13
whether you think it’s adequately or
20:15
accurately measured where does that fit
20:19
into your thinking about the importance
20:22
of inflation at all I’m glad you asked
20:24
because you know when the last big
20:29
technological revolution was it was the
20:31
late 1800s and we had three percent
20:34
deflation and eight percent real growth
20:36
for ten years so I remember talking to a
20:39
central banker so medical is 19% of GDP
20:46
here what have you found a way either
20:51
through co-payments or whatever to get
20:53
the consumer to respond to price and
20:56
then you used our technological
20:58
wunderkind so let’s just call it for no
21:01
better term what if we Amazon the whole
21:04
medical system and you drove the costs
21:07
of medicine not medicine of healthcare
21:09
down as countries from say 19 to 13 it’s
21:12
11 in most other countries would the Fed
21:15
then panic because it sends the CPI
21:17
under zero is this some horrible thing
21:20
that we’re gonna it’s going to be the
21:21
greatest crisis for our time and have a
21:23
huge response to know and I would say
21:27
the same thing about all this stuff for
21:29
at large you have these magnificent
21:31
productivity increases going on right
21:34
now at the corporate level because of
21:35
cloud content and so forth
21:37
there’s nothing pernicious about
21:40
inflation if it’s driven deflation if
21:43
it’s driven from the supply side I don’t
21:46
see people walking around oh my god I’m
21:48
not gonna buy a car this month because
21:50
it might be cheaper in three months and
21:51
by the way we haven’t even had deflation
21:53
it’s just sort of this imaginary thing
21:55
that it’s not up to there two percent
21:58
arbitrary target for the time being
22:00
anyway this obsession if we can call it
22:03
that with inflation has driven these
22:05
insurance cuts and helped once again to
22:08
reflate financial assets 2019 was an
22:11
extraordinary year for investors how did
22:14
you do
22:14
not as well as I like I just got into
22:17
double digits
22:18
last week I wasn’t even able to say that
22:21
I’m just too conservative on my old age
22:23
I was I was well-positioned but very
22:27
timidly I’ll leave it at that
22:30
why are you timid we got nothing to lose
22:35
I have a lot to lose that’s that’s what
22:38
other he doesn’t timid I don’t know when
22:40
I was competing and managing other
22:43
people’s money
22:44
I just I’m a very competitive person and
22:47
I felt the compulsion to take risks I’m
22:50
still a competitive person but it’s
22:53
either that or something about my age I
22:56
don’t trust myself or the last year in
22:59
particular I’ve just never trusted this
23:06
administration not to do something that
23:11
would preclude me from taking positions
23:15
that I just felt were safe and secure
23:17
and all in risk and I think
23:19
unfortunately a lot of people probably
23:21
felt the same way as you know people
23:23
have actually sold equities and put them
23:25
into bonds this year I didn’t do that I
23:27
was just timid about what I did do but
23:30
this administration with wondering about
23:34
where the hell the next bomb is coming
23:37
from just doesn’t allow me to take some
23:40
of the positions I’ve taken historically
23:42
where I just thought it was a one-way
23:43
bet to me this was always binary in a
23:46
two-way bet it’s not just policy
23:51
uncertainty it’s something how would you
23:54
describe you call it policy uncertainty
23:57
is a great term
24:01
one of the reasons I’m pretty sanguine
24:04
right now is I think we’re close enough
24:07
to the election at least we can breathe
24:09
for a few months that I think I don’t
24:13
expect any dramatic policy that can
24:16
overwhelm the favorable backdrop of
24:18
monetary stimulus in a decent economy
24:21
you describe yourself as being timid
24:24
maybe we’ll use the word cautious in
24:28
part because you’re no longer competing
24:30
there are still lots of people who are
24:32
competing and yet many of the greatest
24:35
fund managers we’ve seen in our
24:37
lifetimes are struggling to generate
24:39
good returns why well if you’re talking
24:45
about the macro community where the
24:46
biggest problem has been they’re just
24:50
not the opportunities that were in the
24:52
1890s because with central bank’s
24:54
suppressing interest rates there has not
24:59
been sort of the one way high risk
25:01
reward bet there were I you know I
25:05
remember when the Japanese when me a
25:09
know inappropriately tightened after a
25:11
big bubble I bought Japanese bonds at 7%
25:15
okay and I mean a lot of them when I was
25:18
at Soros okay are you gonna go plow into
25:22
the 10-year at 190 or whatever it is no
25:26
but you might think rates are going down
25:27
so you just take lesser of a position I
25:30
also think a lot of them seem to be led
25:33
around by the nose with the by the Fed
25:35
and the Fed you know they talk about the
25:39
dots and they obsess over this I always
25:42
made my money when I felt differently
25:45
the Fed and I went in the other
25:46
direction because once the Fed changes
25:49
you make money and the feds have been
25:51
very wrong on the economy and on the
25:55
markets and on policy and I think those
25:58
that followed them that’s a problem the
26:00
other thing has happened obviously is
26:01
you’ve suppressed currencies but there
26:04
are plenty of great young money managers
26:06
who are killing it now
26:09
they’re mainly in technology stocks they
26:11
were long the disrupter and short the
26:12
disrupted we’ll see what happens now if
26:15
the world is changing the way I think it
26:17
is but off yeah I think that’s those are
26:21
some reasons who impresses you among the
26:23
current generation of young inventor not
26:27
say because someone asked me that seven
26:31
years ago and I think I cursed the
26:34
people I answered so but let me say this
26:38
I think one of the reasons I had the
26:42
record I did I was the only person in my
26:45
class in 75 who went to the securities
26:49
business at Bowdoin and there were of
26:52
the higher schools in Bowdoin I don’t
26:56
think anybody at the end of a seven or
26:58
eight year bear market was going to Wall
27:00
Street so the level of competence I was
27:04
competing against in the 80s and early
27:07
90s made me look quite good once once
27:13
you’ve been through 20 years of bear
27:15
market these kids that all come in the
27:17
industry in late 90s and 2000 not to
27:20
mention the quants like Jim Simons and
27:22
all those guys they’ve all got like 50
27:24
IQ points on me so you know I just think
27:28
one of the reasons it’s tougher is a lot
27:31
of really really talented human capital
27:34
has been brought in and with the
27:36
internet a lot of the old trade secrets
27:38
that I had that were in my head about
27:42
what leads and lags markets now that
27:44
Davis is sending like five emails a day
27:46
telling if this happens and that happens
27:48
you just don’t I think a lot of these
27:50
investors don’t have the edge we had
27:54
back then I was extremely fortunate to
27:57
come into the business particularly the
28:00
macro business when I did from both an
28:03
opportunity set and who I was competing
28:06
against well you’ve told me before
28:08
quants have changed the game for
28:10
fundamental investors and people like
28:12
you need to adapt yes we do so how are
28:15
you adapting
28:17
well I think we talked about this last
28:20
year but one of my big things and you
28:24
got beat up for it a little bit that’s
28:26
okay
28:27
one of my big things in investing was
28:31
price action versus news and gathering
28:34
price signals from the market and I
28:37
think those price signals versus news
28:40
were very effective for 20 or 30 years
28:45
now with the quants who respond to a
28:48
different set of variables and then we
28:52
used to back then I used to want to buy
28:54
a stock maybe and what I would call the
28:56
second inning when something’s gone that
29:00
much their models may have figure out
29:02
that it’s gonna go back to the first
29:03
inning before proceeds on its merry way
29:06
what I’ve tried to adapt to is having a
29:09
fundamental belief and if they’re
29:13
creating volatility in the markets using
29:15
the volatility rather than getting
29:17
abused by the volatility but Eric I’m
29:20
not that secure in my fundamental
29:21
beliefs I liked it better when I could
29:24
just use price signals but you know I’ve
29:27
tried to adapt it you know I’m doing all
29:29
right
29:29
I’m gonna hold you accountable to
29:31
something else you told me a year ago
29:32
you said at the time you thought we’d
29:34
been in a global bear market for a year
29:36
yeah not a correction in a secular bull
29:39
market yes and was gonna be hard to
29:41
escape was that the wrong diagnosis or
29:44
are we still in a global bow market
29:46
absolutely the wrong diagnosis for it
29:49
weren’t new highs 12 months later I’m
29:53
proud of the fact that I pivoted before
29:55
the force mattered but I couldn’t have
29:58
been more wrong but I would say until
30:00
the last month or so the US was about
30:05
the only one that continued in this kind
30:08
of markets but uh no question that was
30:11
wrong the question is how long is this
30:12
going to last the answer is I don’t know
30:16
nobody long enough that I’m maybe Jim
30:20
Simons knows I’m not sure Jim Simons
30:23
knows but I bet his machine they’d had
30:25
created knows where he can sleep at
30:26
night and the thing makes money for him
30:28
God talk about their bono so it’s
30:32
awfully hard of course to predict when
30:34
the next downturn is going to come do
30:36
you have any idea Stan particularly as
30:39
someone who’s made more money in bear
30:40
markets than in bull markets what will
30:42
trigger it yeah if if there’s a
30:48
political event change of leadership in
30:51
the White House that goes to some of the
30:56
anti capitalists I would think that
30:59
would definitely trigger a bear market
31:02
whether it would permanently end the
31:05
bull market I don’t know but that would
31:06
trigger it the other thing that would
31:08
obviously trigger it is if by the end of
31:11
this year we started to get enough
31:14
inflation that the feds start tightening
31:17
and then of course the other thing is if
31:19
we had a credit event and if you look at
31:23
the credit markets it’s very obvious
31:27
that you’ve got a really lot of bad
31:29
apples out there that are not being
31:32
exposed because the interest costs are
31:34
so low by the way one of them being the
31:36
US government we’re running a trillion
31:40
dollar deficit why because we can affect
31:43
a lot of these new professor geniuses
31:45
think this is just a free lunch but I
31:49
would think it’s one of those three
31:51
events a political be change in Fed
31:57
policy because you know who knows when
32:02
inflation turns you can come up with a
32:04
theory why it would turn I kind of
32:06
believe the secular forces will hold it
32:07
down but I’ve been wrong before and I’ll
32:09
be wrong and in the future and then the
32:11
third one is and this is more what
32:14
happened in oh seven oh eight
32:16
the the bubble just collapses on itself
32:20
because things have just gotten so
32:23
ridiculous I don’t think we’re anywhere
32:25
near there but I’ve been wrong before
32:29
and you know these things seem to happen
32:33
after elections in fact when I first
32:36
came in the business my first boss told
32:38
me just by two years after the election
32:41
and then sell the election and then that
32:44
worked like every four year period it
32:47
worked until Bush tried to extend the
32:50
cycle and for the whole four years and
32:53
we blew up is that what you’re going to
32:56
try heading into this election what’s
32:59
not is that what you’re going to try
33:00
heading into this election what so I
33:04
don’t know what I’m gonna do I’m only
33:07
gonna sell when I start to see the signs
33:10
to say good so I can have all these
33:12
great long term to pontificating but as
33:16
a practitioner you know I can’t really
33:20
think about the long long term but I
33:21
need to be aware of it so that I can
33:24
pull the trigger to go that way let me
33:26
go back to your point about anti
33:28
capitalists would an Elizabeth Warren
33:29
presidency really be that bad in your
33:31
view in what respect
33:34
well are we talking about markets are we
33:37
talking about the United States what are
33:38
we talking about mm well let’s start
33:40
with the markets because that’s how we
33:43
got on to the point and then you can
33:44
expand well with regard to the markets
33:48
let me just put it this way every
33:52
consultant that ever studied Duquesne
33:54
said I have a negative correlation of
33:57
the SP and I do very well in bear
33:59
markets I think a Warren presidency
34:02
would be very good for my business but
34:04
not necessarily good for America
34:07
is there a Warren hedge well let’s see
34:14
if it happens first but yeah you just
34:17
sell it you could just short stocks is
34:19
not real complicated and you probably
34:21
sell the dollar I mean there’s all kinds
34:23
of stuff but I’m kind of on the other
34:27
side and this is not just one of all
34:31
this rhetoric out there including the
34:34
business community about failed
34:36
capitalism and we need to improve
34:38
capitalism and capitalism as a failed
34:41
experiment so you’re on the other side
34:44
meaning what I think capitalism
34:48
I’m a dyed-in-the-wool capitalist who
34:51
believes in free markets and believes in
34:54
creative destruction and leaves us so I
34:56
just I’m a little offended by the
35:02
narrative in the media not that it’s
35:04
anti-capitalist everyone’s entitled to
35:07
their own opinion I don’t have a
monopoly on the truth but on the facts
so I don’t think most people are aware
let’s just take poverty in the United
States it was 26 percent a few decades
ago it was 16 percent in the financial
crisis and it’s 13 percent now it’s at
an all-time low
it’s 13 percent of poverty right low
enough absolutely not and it’s something
we have to work on but do you think 99
percent of Americans would guess too
high or too low on what had happened to
the change in the poverty rate the last
15 or 20 years much less the last five
years or let’s look at globally
you’ve got since 1999
when you had a billion seven people in
the world and extreme poverty number
today is 700 million so 1 billion people
have been lifted out of extreme poverty
in the last 20 years
why because obviously India and China
adopted a free-market model and with
regard to all this other talk about
billionaires and so forth so during that
same period you’ve created 2,500
billionaires but you’ve brought a
billion people out of poverty so that
means for every billionaire you’ve
created 400 thousand to 1 have limited
have exited extreme poverty ok now you
can be for capitalism or you not be for
capitalism but I object to the fact that
out there which are simply incorrect I
gave you another one and as you know I’m
not a great fan of the president but the
fact of the matter is this income
inequality talk it really doesn’t stand
up to the facts the middle class and the
poor are doing very well in fact they’re
doing better and then they’ve done in
quite some time are they doing well
enough No
are they doing as good as Jeff Bezos no
but on an absolute basis they’re
definitely improving relative to where
they were five or ten years ago and
you’ll probably be astonished to know
that if you take income after government
transfer payments and negative taxes
which I think we all agree it should be
total competition the top quintile has
had the same percentage increase as a
bottom quintile now I’m not going to
phony facts appear for you the 1% have
done better because they all own stocks
but in terms of the lower middle class
for the first time
they’re actually improving relative to
the upper quintile here’s how I would
put it to you in terms of political risk
at the end of the day Stan does it
matter
of course the data do matter but does it
matter to those people who feel screwed
38:23
or feel like they’re getting screwed
38:25
what the data show to them all that
38:28
matters is how they feel and how they
38:31
feel why do things what they’re gonna
38:32
track they feel that the votes at the
38:34
ballot box why do they feel that way one
38:36
of the reasons because your profession
38:38
goes out and validates that feeling with
38:41
a Mis statement of facts on a daily
basis how many times have you heard how
the poor and the middle class are
getting screwed of course they’re
getting screwed relative to just Jeff
Bezos but you know what again
to me that’s capitalism and I’d rather
have a rising tide where one group is
not rising as fast as another group then
I would have them all sinking I would
39:12
also posit that it’s not a binary choice
39:15
between capitalism and raising taxes on
39:19
billionaires which is clearly what some
39:22
people running for the Democratic
39:23
nomination want to do well since most
39:27
billionaires own stocks and assets it’s
39:34
hard to believe they didn’t okay I’m all
39:37
for raising taxes on billionaires
39:40
because as you know for years including
39:44
when I ran hedge funds I’ve said I
39:48
wanted to normalize capital gains that
39:51
we should be paying just as high rate as
39:53
a plumber is paying I’ve been against
39:55
carried interest then against
39:57
pass-throughs all that stuff to me
40:00
inside the tax code now that’s not well
40:04
I guess it is officially raising capital
40:05
gains but that’s not officially raising
40:07
taxes but what it will do it
40:10
we’ll raise taxes on the wealthy I would
40:13
also say there’s another false narrative
40:15
how they’ve cut taxes on all the writ
40:17
for the rich with with the Trump tax
40:20
plan I don’t know you live in New York I
40:23
don’t know about you my tax is one up
40:24
they didn’t go down I got a tiny cut in
40:27
my rate and I can’t deduct state and
40:29
local so my taxes went up I’m not
40:31
complaining again I’m just stating facts
40:34
here I don’t object to the other side’s
40:39
argument I disagree with it but I don’t
40:41
object to it again I don’t have monopoly
40:42
on the truth but I really object to a
40:45
Mis statement of facts out there do you
40:48
think cat and I think it’s feeding this
40:51
feeling you’re talking about getting
40:52
screwed that may very well be true
40:54
but at this point heading in to November
40:59
of 2020 do you genuinely believe that
41:03
capitalism as we know it is is in
41:06
question or at risk or is it just an
41:09
argument around the edges of I think the
41:12
system we have I think we need more
capitalism less to me when you have a
president as states who put hundreds of
billions in tariffs and then goes and
picks and chooses individual economic
actors who pay those tariffs and who
don’t depending on leaders and losers
exactly it might as well be the
Politburo when you have monetary policy
around the world with negative rates and
you cannot have capitalism you don’t
have a hurdle rate for investment so we
41:47
don’t really have the markets at
41:49
allocating capital the way they would
41:51
under a capitalist model that that’s
41:55
another version of it you know it’s
41:57
funny because Trump
if if things if Trump gets reelected and
things implode in the second term
capitalism will get a very bad name in
my opinion and we’ll probably have a big
political response but it will be under
someone who’s sort of the antithesis of
42:23
capitalism then you’ve got the other
42:29
side who want to villainize billionaires
42:34
which is okay but their view is if I
42:39
take money away from this billionaire
42:41
that means the lower the lower income
42:47
levels are going to rise Eric that’s not
42:50
the way it works
42:51
that’s like Trump’s trade thing with a
42:53
zero-sum game if China loses we win no
42:57
you can both lose it’s the same thing of
43:00
the economy
43:00
if you screw Jeff besos and he decides
43:04
to take his his entrepreneurship and go
43:07
home okay this man has created 657
43:10
thousand jobs if you take out the whole
43:12
foods acquisition all right and you know
43:16
all this innovation all this stuff going
43:18
on and you reverse the economic will we
43:21
can both lose yeah you can punish Jeff
43:23
Bezos but how do you really hurt the
43:26
poor in the middle class bad economic
43:28
policy that’s how you hurt them one of
43:32
the things you’ve been doing for years
43:34
already in an effort to maybe counter
43:37
bad economic policy is give your money
43:39
away what have you been doing with your
43:41
money lately stand and do you think
43:43
DeLand through P has as bright a future
43:46
in this country as its as it’s had the
43:49
past several years well first of all I
43:52
want to be clear I don’t give my money
43:54
away because
43:58
a bad economic policy I give my money
44:00
away because I can it it’s hard to
44:03
explain but I was unbelievably lucky to
44:08
be born in this country I think the odds
44:11
were twenty three to one the day I was
44:14
born then whether I would being born in
44:15
America and I can talk to myself about
44:18
how I’d pulled up my bootstraps or this
44:20
or that but I could have been born in
44:21
North Korea or Iran or one I’m kind of
44:25
guessing I wouldn’t have had the
44:26
economic success I’ve had then the other
44:29
thing I would say in our in our system I
44:32
have a skill set my mother-in-law says
44:34
I’m an idiot savant I was not in the top
44:37
10% of my high school class but I’m very
44:39
good at compounding money and I just get
44:42
a real pleasure both emotional of just
44:50
trying to make sure other individuals
44:52
have the same shot I had I was in a bad
44:56
school district my father moved me you
44:59
know I had an opportunity how’d he not
45:01
moved me I don’t think I’d be sitting
45:03
here today and I see so it’s not a bad
45:07
economic policy it’s a lot of help
45:10
people who haven’t been as lucky as you
45:12
I’m helping myself too I love giving
45:14
money away it gives me pleasure and to
45:17
me it’s a privilege I think a lot of
45:18
people would do it if they had the kind
45:20
of resources I have it gives me a thrill
45:23
to be at Memorial Sloan Kettering and
45:25
see them moving the needle on on cancer
45:28
it really gives me a thrill to see that
45:31
we’re providing kids in Harlem and
45:32
others the same shot or at least a
45:35
better shot at the American dream so we
45:39
you know one of the things we emphasize
45:41
and we like to give to is economic
45:43
mobility there’s a lot of very cool
45:46
stuff going on
45:48
I’d say my latest
45:51
and most passion of his experience is
45:53
with blue Meridian when during my Harlem
45:59
Children’s Zone well I’m still those
46:01
days are continuing but when we founded
46:04
Harlem Children’s Zone Jeff and I there
46:07
was a woman at mo McConnell Clark named
46:09
Nancy Roop and they helped us set up our
46:12
original business plan and she did the
46:16
due diligence on us for 20 years and
46:18
believe me when you’re on the other side
46:20
of strong due diligence you get to learn
46:23
how Telenet someone is so when Nancy
46:25
told me that the Clark foundation wanted
46:30
to liquidate and she wanted to set up
46:32
this thing to satisfy the MIT’s match
46:35
between all the wealth that’s been
46:38
created today and then there’s this
46:41
whole incredible group of young on
46:44
social entrepreneurs out there who want
46:46
to deal with the problem but the money’s
46:48
kind of stuck here and the supply of
46:52
talent is here and her concept was to
46:55
transfer the money in there you’ve got
46:58
stuff going on like The Giving Pledge
47:00
and all this stuff that shows an intent
47:04
unfortunately there’s not a there’s not
47:08
a lot of movement yet but I’m pretty
47:11
optimistic given the tent and also given
47:15
the talent that’s out there on the
47:16
social entrepreneurs sector what were I
47:18
talked about talent being drawn in the
47:21
financial sector
47:22
it’s amazing the talents been drawn into
47:25
this social entrepreneur sector I think
47:26
it’s a sign of our times and everything
47:28
we’re talking about
47:30
so I’m hopeful enthusiastic excited that
47:35
a platform like blue Meridian that
47:39
brings these funders together with these
47:42
practitioners is going to work and deal
47:44
with some of the problems what problems
47:47
in particular economic mobility I think
47:49
is the biggest one so live already and
47:52
is funding
47:54
place-based strategies like Harlem
47:56
Children’s Zone funding
47:58
nurse family partnerships which is you
48:03
know
48:03
early life because obviously kids if not
48:08
properly attuned to their first two or
48:11
three years don’t have the vocabulary
48:13
and the chance but you know just help
48:15
helping mothers single mothers give the
48:18
same kind of attention to their baby
48:20
that our children might but there
48:24
there’s a number of organizations across
48:26
the board but the idea is if you take
48:31
great leaders and you identify them I
48:34
was lucky enough to meet Jeff Canada and
48:38
you invite us aim investment principles
48:41
I’ve used in my lifetime and investing
48:45
which is find a winner back them scale
48:49
them up don’t sell them ride the winner
48:51
keep investing with them as long as
48:53
they’re innovating and that’s the
48:55
concept here so we’re we’re making big
48:59
big bets putting the dream out there of
49:02
a hundred to two hundred million dollars
49:03
of funding for organizations that we
49:05
think can be scaled up that will solve
49:07
the economic mobility problem or and not
49:09
solve it but put a big dent in it and
49:11
give others a chance of the American
49:13
dream so perhaps little timid with
49:17
investing but not so timid in your
49:18
philanthropy definitely not timid in the
49:21
philanthropy and hugely excited about
49:25
what might what might lie ahead in this
49:28
in this country for it and you know I
49:31
don’t mean to be honest Oh box about
49:33
this thing but I know there’s been some
49:35
commentary about billionaires and their
49:38
pets I can just say that I think using
49:43
the private sector
49:46
to encourage innovation with these
49:50
social entrepreneurs and then if the
49:51
model work then plowing the money in
49:54
there that’s a lot more exciting to me
49:57
than giving the money to Mitch McConnell
49:58
or Nancy Pelosi
50:00
I’d much rather give it to Jeff Canada
50:03
or some of these other organizations
50:04
these entrepreneurs