openpolitics.com

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

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