We Have a Question for Jeff Bezos and Other Billionaires

Will you finally let your workers unionize?

As this was unfolding, most of Big Tech, including Amazon, sent white-collar workers home to “flatten the curve” and fight the pandemic. Tim saw company leadership go to great lengths to make sure this new system was working and actively seek feedback from the remote workers. Christy heard from a warehouse employee who said productivity targets made it difficult for workers to take a break even for hand washing without a mark on their record. Pay for warehouse workers starts at $15 an hour with minimal access to time off; in May Amazon ended the unpaid leave policy that for a few weeks allowed them to stay home if they had Covid-19 symptoms.The contrast in the treatment of knowledge and warehouse workers couldn’t be starker. Equally clear is the cause: One group has power, the other doesn’t.

Amazon’s decision to fire the activists was easy to make in the United States, where Amazon workers have no union and are left to fend for themselves. With no right to paid sick leave or protection from unfair dismissal, American workers are among the most vulnerable in the world to pressure from any employer, not just Amazon.

Union-represented Amazon workers in Spain, Italy, France and Germany initially failed to resolve their concerns through negotiation, but with court action, regulatory intervention and strikes, they got their needs addressed.

Let’s look at France: Unions there brought a civil case arguing that Amazon had taken inadequate steps to protect workers from infection risk and that it had sidestepped the unions’ statutory role. The court ordered Amazon to limit its sales to only “essential” items, or face harsh penalties until it could reach a safety agreement with the unions. Rather than negotiate, Amazon closed its French operations and appealed. But the appellate court also sided with the workers, who ultimately negotiated a settlement including mandatory union consultation over safety measures, union hiring of external experts to assess the measures’ effectiveness and a continued increase in workers’ hourly pay. The news from Europe shows that Amazon can work with unions and get good results.

Both of us want Amazon to share the wealth with workers and stop putting the relentless pursuit of revenue growth ahead of all other concerns. One way or another, this requires putting more power in the hands of workers. Regulation and legislation are part of the solution. But there’s no need to wait; power can be taken, not just given. That’s what unions are for.

Amazon is a data-driven company. It should recognize the evidence showing that countries with more collective bargaining have a stronger social fabric and better growth, and are more able to weather economic ups and downs. Businesses with collective bargaining relationships, including Auchan Retail and Carrefour, navigated the Covid-19 crisis with less disruption to their businesses and emerged with their reputations intact and even enhanced.

For its own future and the future of the global economy, Amazon should become more responsive to the women and men who’ve enriched shareholders and be willing to recognize and bargain with their representatives. When it comes to the rights of its workers, it should be a leader, not a laggard.

It’s not just Amazon: The need for more unionization is urgent across Big Tech. Amazon stands out because it combines the extraordinary profit margins of these companies with employing hundreds of thousands of front-line workers. There are fewer of these workers at the other iconic tech companies, but nevertheless their employees also deserve a voice over the issues that matter to them.

The question for Mr. Bezos and the billionaires of the world is: Are they ready to rise to the occasion? Will Big Tech listen to and work with its employees to help the world overcome the worst economic and social crisis in recent history?

A prophetic interview with Sir James Goldsmith in 1994

Sir James Michael “Jimmy” Goldsmith (26 February 1933  18 July 1997) was an Anglo-French financier. Towards the end of his life, he became a magazine publisher and a politician. In 1994, he was elected to represent France as a Member of the European Parliament and he subsequently founded the short-lived eurosceptic Referendum Party in Britain.
In this interview, Sir Goldsmith discusses the ramifications of free-trade agreements that were about to take place in 1994 (GATT), as you can retrospectively see, he correctly predicted many of the things that happened after that.

The Economic Undercurrent of a Rallying Stock Market (w/ Raoul Pal and Keith McCullough)

19:07
Where will the Bs meet the Cs?
They will end up in the same place and it could be violently, it could be suddenly.
To me, that really is the point about corporate profits.
If corporate profits remain negative on a year over year basis, labor continues higher
as it always does at the end of the cycle and companies continue to push out, guiding
down because of a proposed Chinese bean deal.
Yeah, that could be your eye opener, is not that getting the T-minus three to six months
from now, this thing should look a lot different than where it looks today without the year
to date dynamics of people chasing the spreads.
RAOUL PAL: Yes, there’s a couple of things observations on that.
CCCs, there’s obviously this shenanigans going on in the funding markets right now.
There’s basically a lack of domestic liquidity in the funding market, because the massive
new issuance is coming the out of the Treasury, but that illiquidity, the Fed started printing
more money again to do it to try and alleviate some of that strain.
At the far end of the strain curve is the CCCs and they’re going, no, no, no, there’s
a problem here.
They’re not getting the funding they need so they’re blowing out.
The BBBs, because they’re supported still by the pension funds sector, are not feeling
it.
Meanwhile, there’s the corporate profit slowdown.
What’s in that bunch of BBBs?
Ford, GM, AT&T;, General Electric, and Dell.
Those five are enormous part of that market.
Any one of those and Ford one got downgraded, one of the agencies downgraded to junk but
one of those who actually falls becomes the fallen angel and falls into the CCC category.
The whole thing’s over.
Because the markets will seize up because they can’t– the junk bond market doesn’t
have enough buyers already and it’s widening.
If one, God forbid, if one of these come through and get downgraded, the whole thing’s going
to seize up.
KEITH MCCULLOUGH: What is the discussion in the boardroom to avoid that?
For all of them, it’s to fire people.
RAOUL PAL: Or usually, General Electric, the other one is equally as bad, restructure the
pensions.
KEITH MCCULLOUGH: Yes.
Somebody has to take a markdown.
RAOUL PAL: Someone’s going to get screwed.
It’s always the little guy, it won’t be the CEO.
It’ll be everybody else, those who get fired will lose the benefits.
KEITH MCCULLOUGH: Well, it’s interesting like GM.
If you look at GM, the last time they had their strike was in ’07.
Again, the dynamics are the same.
After you hit the peak in profitability, the people say, I want a piece.
Now, they’re going to get their piece.
If you get more and more of this into the election, the dynamics are real and labor’s
coming off basically a 15-year low relative to corporate profits, this is a period that
no money manager, certainly the ones that are illiquid and levered which would include
all of private equity, have had to deal with.
Again, every other cycle, labor has been high and rising.
That’s what always perpetuates a recession because the Fed can’t cut people’s wages,
and they certainly can’t fire people.
That’s what labor is going to do, but it was always high and rising.
1980s, 1990s, that’s why people like or at least they can, or at least a macro person
should like the 1980s and 1990s, irrespective of your political party affiliation, because
we had very good relatively low cost of living, we had really economic growth and labor was
high and rising.
Now, it’s been blasted to 15-year lows, again, put off paying the people, corporate profits
were big, fat and happy and labor’s rising from the ashes.
This is probably the most important secular turn in labor that certainly anybody our age
or older has seen.
You’ve never seen it before.
What could possibly go wrong?
Anyone who’s levered long assets that have people facing businesses are going to have
to face the reality of having to pay their people more and/or just getting lower quality
higher and seeing reduced corporate profit margins and reduced corporate profit margins,
negative year over year corporate profits is the catalyst to what you just year marked
as a ring of fire, if you will, of companies that really aren’t “secular growers”, I can
go off on that, but these are cyclical companies that have bloated cost structures to begin
with.
RAOUL PAL: Yeah, exactly right.
Also interesting in the margin is you see delinquencies in cars.
They come to new highs.
You’ve got– yeah, on 60 days, 60 days or more, delinquencies are at new all-time highs.
It’s like, okay, that’s something, that’s an interesting data point, the consumer’s
not quite as happy as people think they are.
You look at the credit card borrowings, and then you look at the rates credit cards are
charging, which is the highest all-time rates, considering interest rates, and that’s the
data that goes back to 1990 or something and credit card rates are high not at 17% than
they were back then when interest rates are 8%.
It’s like, okay, there’s something going on here for people– the only reason they can
do that is demand is high enough that people need the credit.
It’s the only source of credit they can get because they can’t get any other credit.
There’s something telling you, there’s bits creaking at the seams here, so how do you
think it plays out– and again, neither of us are interested in the politics of it but
the election side of it, it sounds like you don’t think that the administration can keep
the economy floated into the election.
I’ve got different view that I don’t think they want to, I think they’d rather have a
recession.
I don’t think it’s as a shoo and that they really necessarily need to keep it in the
way that it is.
Because I thought today, Trump was very clearly again, blaming the Federal Reserve, it’s nothing
to do with me, look how they screwed you.
How do you think from a nonpolitical standpoint, how you’re seeing it play out?
24:47
KEITH MCCULLOUGH: My political lens is always explicitly affected by my quad outlook.
24:52
We are right on the screws.
24:55
I’m not a believer that any politician central planner or otherwise can part the heavens
25:00
and give us a new path underneath the seas of economic gravity.
25:06
The economy is going to continue to slow and if it continues to slow into what we call
25:09
Quad 4 which is the most damning of market conditions by Q2 of 2020, that’s the worst
25:15
place for Trump to be for a period of time.
25:19
Because that’s when Elizabeth Warren’s chances or Bloomberg or whoever’s are going to start
25:23
to rise and again, it’s more about the probabilities change.
25:26
There are very few money managers on Wall Street who actually, even if they hate the
25:31
guy like the Bourbonic Plague, they still believe in some way, shape or form, that Trump
25:35
has a good chance to be reelected.
25:36
RAOUL PAL: Almost everybody.
25:37
KEITH MCCULLOUGH: Yeah, if you don’t– like I have raging Democrats telling me that I
25:40
live in the state of Connecticut, I have plenty of exposure to them in non-money market, like
25:44
nonmarket people won’t have that view but if you’re running a portfolio today, you can’t
25:48
tell me that you expect the tax rates and the truncation of tax reform, which is the
25:53
biggest thing for corporate profits that the modern era has ever seen.
25:57
Like you can’t possibly say that that’s in the market.
25:59
I think that that is a big shift, too.
26:02
You get your zero percent handle on GDP in late January, the economy continues to deteriorate.
26:07
We take a look at Quad 4, the last two times the market’s taken a peek at Quad 4, not good
26:11
for Trump, not good for the stock market, which is one and the same thing.
26:16
It’s almost like I think that– and I think now Ferguson said this, if the market starts
26:21
to go down for real for once, God forbid, actually, it’s done it multiple times, but
26:26
again, if it goes down for real, her chances go up.
26:28
It’s the Soros reflectivity view, which is, again, the faster you go down, the higher
26:34
her chances, and you could wake up one day where people are right scared of that, and
26:38
Trump gets reelected just for that reason.
26:39
Then you get the mother of all rallies from a much lower point again.
26:43
Again, that’s way out there but I’m using my quads to instruct what the political and
26:50
reflexive human response would be to just negative economic conditions.
26:54
RAOUL PAL: Now, my view is somewhat different.
26:57
I think economically, we have the same view, but my view is on the Trump side, if you can
27:01
anger the American, the middle American, because they can’t be screwed over and if you can
27:08
blame it on the Federal Reserve and the Chinese and the Europeans, then if you are going to
27:13
a recession, first, you say I will save you with some MMC John Spinning package and secondly,
27:18
it gets them mobilized because they hate everybody else.
27:22
That’s a typical thing and Elizabeth Warren will use the same tactics, will say well,
27:26
it’s all his fault and blah blah blah.
27:29
It’s going to be a very interesting election and I never trade markets on elections but
27:35
it’s just interesting.
27:36
Talking about elections, what do you see in the UK?
27:39
KEITH MCCULLOUGH: Well, we see Quad 4 in the UK.
27:42
That’s where we started and again, seeing the UK through the lens of the quads and what
27:47
are the prevailing conditions of growth and inflation has been absolutely the way to trade
27:52
the UK from a gilt perspective, long gilts Quad 4.
27:56
RAOUL PAL: Yeah, you just ignore all of the noise and just look at the economics.
27:58
KEITH MCCULLOUGH: Yes, exactly.
28:00
Short the pound, Quad 4.
28:02
Now, the pound is actually trying to have a breakout here relative to the dollar, which
28:06
is interesting.
28:07
However, it’s based on a catalyst which is this expectation which I have zero edge on.
28:12
Plenty of things I had zero edge on but one of the big ones I’m certain of is the political
28:17
outcome in the UK and when this Brexit catalyst actually can be finalized, it’s just not what
28:21
I do, but the market is saying there’s a chance, like there’s– as long as there’s a catalyst,
28:27
it’s closer.
28:28
That catalyst is also aligned in terms of the quad timing that I have for the US economy
28:32
to slow at a faster pace, then that would be bearish for the dollar and bullish for
28:35
the pound anyway.
28:37
That’s an interesting one, because I’ve not been long the pound for a long time.
28:39
I’m long Canadian dollars against the US dollar for the first time in a while, but I’ve been
28:43
willing to go there in the UK but broadly, UK data is Quad 4.
28:48
RAOUL PAL: Talking about fiduciary responsibility.
28:49
You’ve got a situation in the UK where the economics is relatively clear it’s Quad 4,
28:55
but you’ve got this huge overhang of something else, which of which you have no edge, is
29:01
the right answer to the [indiscernible], just keep out of it?
29:04
KEITH MCCULLOUGH: I just stay away.
29:06
Yeah.
29:07
RAOUL PAL: It makes no sense otherwise.
29:08
KEITH MCCULLOUGH: Yes.
29:09
I think that this is a point that you made earlier that’s critical to understand.
29:11
Wall Street isn’t like the person that’s watching this.
29:15
They aren’t like you and I.
29:16
We, until somebody removes it from us, maybe the CCP governs us and we can no longer have
29:22
any legal right to make our own decisions on our own free will, we can decide to buy
29:27
whatever we want, whenever we damn well please.
29:30
Wall Street is siloed into these are the people that trade the pound, these are the people
29:34
that do the UK, these are the people that do the US consumer.
29:37
These are the people to do US healthcare.
29:40
They have to have a view.
29:42
All of the time, think about how hard that must be.
29:46
In fact, it’s rendered itself useless.
29:48
There’s an oversupply of money managers, and you’ve basically made everybody a silo expert
29:54
of nothing.
29:55
What I intend to do is I’ll wait and watch.
29:59
I wouldn’t been able to tell you a year ago that I’m going to be long cattle and cocoa
30:02
today.
30:03
Are you kidding me?
30:05
We’ve seen negative supply dynamics, I see the volatility of the volatility of volatility,
30:09
the signal changing within the commodity space.
30:12
I see two dynamic situations that wow, this is perfect.
30:15
The crowd’s definitely not there and that’s when I go.
30:18
As opposed to feeling like I have to have a view that the crowd is having fumble on,
30:22
or tweeting about, or God forbid, reading CNBC view of every day.
30:26
RAOUL PAL: Spinning a bit more around the world and then we’ll come back, we’re going
30:30
to come to the dollar later.
30:32
There’s two markets that we’ve all looked at and thought at some point, they’re going
30:36
to enter trouble; Canada and Australia.
30:40
Where are we with those?
30:41
Is everything in the same sink right now?
30:42
Is everything in that Quad 3, moved into Quad 3?
30:44
KEITH MCCULLOUGH: No.
30:46
Well, in Canada, in particular, we have back to back Quad 2s coming.
30:51
If there is a country that looks like inflation accelerating, it’s Canada, and they are the
30:56
recipient of it, like within the Toronto Stock Exchange Composite Index, the heavyweights
31:00
are Quad 2 exposures, which include energy companies and the banks.
31:05
Canada for the first time, if only for six months, and the Canadian currency for that
31:09
matter, that’s why I’m long it, because it’s hard to find.
31:12
First of all, Canada only has twos because they’re comparing against borderline recessionary
31:17
Quad 4s that they’re coming out of.
31:18
That’s why you have that, but you also have the dynamics that they are hooked to headline
31:23
US inflation’s acceleration and the broader breakout in commodities.
31:27
Canada to me, it looks like we’ve been long it since the beginning of October.
31:31
It’s a relatively new position, but it’s the same position that I have across the board.
31:35
I bought TIPS instead of being as long as I was of duration.
31:38
I flipped the Dalio move and flipped into some of that.
31:41
It’s a cheater.
31:42
He knows it, that’s why he created it.
31:45
If you want to outperform people that are permanently long duration, let’s have a different
31:50
thing to be long while they’re still long duration and inflation accelerates.
31:54
TIPS.
31:55
It’s like the old adage, just you don’t have to outrun the bear, you just have to outrun
31:58
your friend.
31:59
Again, I’m just trying to isolate that view of inflation accelerating particularly North
32:04
American inflation accelerating, so it’s long energy, which is I think the most concerned
32:08
position that we have in equities, long Canadian energy, long Canadian equities, broadly long
32:13
the Canadian currency, and like I said, long the proteins, long lumber, which is another
32:17
way to double up on our– RAOUL PAL: You’ve got the full on reflation trade on?
32:21
KEITH MCCULLOUGH: Yeah.
32:22
Yeah.
32:23
Well, there’s no mincing words about that.
32:25
I’m short the consumption curves and software, which are, it’s a very– I have a higher beta
32:31
setup than I’ve had for a year.
32:34
Because I’m long things that are classically what I call phase transition coming out of
32:38
bearish trend, Quad 4, do not buy energy, do not buy commodities, short both to buying
32:43
what I was short, which can be somewhat unnerving, but exciting.
32:48
On the same token, consumer staples, which was a long, we’re shorting though.
32:52
RAOUL PAL: There’s a psychology that’s difficult here.
32:55
Your prevalent view is that we’re in the downside of the cycle, but what we’ve got is not faced
33:02
within a down cycle.
33:06
You have to trade against your view, which I don’t ever do.
33:09
It’ll either the out or outsize it so I could just sit with the longer term view, just different
33:15
way, different time horizon.
33:16
I find it particularly difficult to trade against my own view, that personal view.
33:21
If I know there’s some confusion, I just bail it, but you’re doing it.
33:26
How do you do that?
33:27
How do you find your plan still with that?
33:29
KEITH MCCULLOUGH: Well, my model, the way that my model is set up is not A or B, there
33:33
are four different economic outcomes.
33:35
It’s an explicit bet on what we call Quad 3.
33:37
RAOUL PAL: No, I understand that.
33:38
KEITH MCCULLOUGH: Yeah.
33:39
That is a six -month view.
33:42
That’s not against my view.
33:43
That’s my view for six months.
33:45
The hardest part will be to get back to the– RAOUL PAL: You are in the down cycle of which,
33:51
that goes on longer than that.
33:52
It’s based on your view and it’s all about time horizon.
33:56
KEITH MCCULLOUGH: Yeah.
33:57
If I only go back and look at how could I have traded ’08 better?
34:03
Crushed it in ’08 by just staying with the view that we’re in the down cycle.
34:06
How could I have done better?
34:09
Well, I would have bought commodities in the early parts of Bernanke going dovish, and
34:13
stayed long– RAOUL PAL: That whole correction that we had, the reflation correction we had
34:17
in the middle of 2008.
34:18
It was brutal.
34:19
KEITH MCCULLOUGH: It helped my consumer shorts, which is where I made all my money in ’08.
34:23
I just kept shorting every bounce in every story stock, every loved, broadly held story
34:27
stock, consumption oriented shorts.
34:30
That’s where my, I guess, my formal training came as a hedge fund analyst and then a PM
34:35
in the consumer space.
34:36
If I could do it all over again, I would have been long crude futures on top of that, that
34:41
the alpha is manifest when you have the cost curve piece on for that six-month period of
34:48
time.
34:49
It is an explicit view of stagflation.
34:51
Every time– like, again, for me, and God willing, I get to live through a couple more
34:55
cycles.
34:56
I might be 90 years old at this point if they keep [indiscernible], but it is classic late
35:01
cycle, where labor and you get that final push of inflation.
35:04
You can make money on the long side of that while you maintain your bearish view on the
35:09
consumption curve or the proper, as you said, the down cycle.
35:12
RAOUL PAL: From my perspective, I’m not so short as long term correction.
35:17
I’ve looked at the history of, of these moves in the down cycle and there’s two which makes
35:22
it somewhat complicated.
35:24
There’s one and I look at it through the lens of Eurodollars you and I’ve talked about.
35:28
That’s been a big thing for me at the moment because for me, I find it’s the best way of
35:32
trading the down cycle as well as– the up cycle tends to be equities and commodities
35:36
better.
35:37
The down cycle tends to be rates, which is why you’re not short rates right now particularly,
35:42
but you are long commodities because you’re in the reflation.
35:44
Anyway, so I look at this and both 2001 and 2007, both had 70 basis point pullbacks in
35:55
Eurodollars, which were the gut check reflation trade.
36:00
They didn’t last that long, they lasted three months, which is where we are now.
36:08
Then in 2008, and 2001, late 2001 going into 2002, before the 9/11 were these huge pullback
36:17
in rates, which was the Fed have done enough, the cycle’s over, oh no, it’s not phase.
36:24
I don’t know which one of those we’re in.
36:26
I feel like it’s too early for the bigger one, which will be the sixmonth, nine-month
36:30
trade but I hear what you’re saying and also can see that okay, maybe it’s a hybrid.
36:37
I don’t know.
36:38
It’s very interesting for me but I’m staying in the short end and just hiding out there
36:41
waiting because I was in a long time ago, and something we talked about before is if
36:46
you’re not doing monthly mark to market or even annual, then it doesn’t really matter,
36:51
you’d look at what price do I buy it, at what price do I sell it?
36:54
KEITH MCCULLOUGH: 100%.
36:55
RAOUL PAL: The entire world’s gone mad because they don’t even think about it.
36:58
When I was running a hedge fund, literally, it didn’t matter what price I bought anything
37:01
or I sold it at.
37:02
It was how much money I made that month.
37:04
If I was going to lose money that month, had to change, get rid of the position even though
37:08
I’ve made for x in it.
37:09
It’s crazy.
37:10
KEITH MCCULLOUGH: Yeah, well, great example and you absolutely nailed that was obviously
37:14
the Eurodollar trade, by the way, everybody a year later agrees with you because the net
37:18
long position there is like one and a half million contracts.
37:21
Net interest [indiscernible] just epic.
37:23
RAOUL PAL: But all the other problems are short.
37:25
That’s a part of it.
37:26
KEITH MCCULLOUGH: On that piece, that’s actually the point I was going to make, which is on
37:29
the short end of the curve, which is I like to think of, okay, we got into short term
37:35
treasuries on October the 17th of 2018.
37:40
That’s good.
37:41
We like that cost basis, but when do I go big again?
37:44
When do I grow set position up again?
37:47
That clock because I’m making a T-minus six months call on inflation accelerating, I’m
37:51
not willing to run the clock up six months, because the GDP number is T-minus four months.
37:57
That’s the January number.
37:59
I think that that’s the beginning of the Fed, because again, the short end of the curve
38:02
is what the Fed does, the long under the curve is what the market thinks the cycle’s doing.
38:07
If the Fed actually sees that and goes to where Fed Fund Futures are, their dot plot
38:13
is as wide as it’s ever been going back 12 years since the inception of the dots, and
38:18
again, a highly inaccurate dots of process or whatever you want to call that forecasting
38:22
process to do that, but they will have to acknowledge at some point that their dot’s
38:26
going up this way in terms of economic expectations have to come down.
38:31
That’s where I think I cannot, you cannot be big enough on the short end of the curve
38:36
into that.
38:37
RAOUL PAL: No, when that happens, it becomes the crisis trade.
38:40
KEITH MCCULLOUGH: Because you can take the 2-Year Yield down 100 basis points from where
38:43
it is today, which is a monster move relative to the long end of the curve.
38:45
RAOUL PAL: Yeah, and the leverage you can take in something like that is enormous, too.
38:48
KEITH MCCULLOUGH: Yes.
38:49
I’ve spent a lot of time with clients, and we can talk about it later but clients are
38:53
all asking, okay, what is it?
38:54
Should I use swaptions?
38:55
Should I do use this?
38:56
Should I use that?
38:57
Eurodollars, they do see it as having been a little bit more crowded than they would
39:02
like, that’s the discussion within this discussion but it’s pretty simple.
39:06
If we’re right on the economic projections the Fed is going to have to at some point
39:10
in early 2020, look like they are actually completely politicized relative to the Trumpia.
39:16
RAOUL PAL: I just think that the yield curve is telling us something.
39:21
Now, the yield curve goes negative into recession, we’ve seen.
39:25
The swaps curve got to zero, which is the same as it did every single, actually went
39:30
negative which was actually rare for the swaps curve 2s, 10s, and it seemed to steepen.
39:34
The prerequisite for a recession is steepening curve.
39:38
Everyone thinks it’s the negative curve.
39:40
It’s not, it’s the steepening curve.
39:41
KEITH MCCULLOUGH: Post the inversion?
39:42
RAOUL PAL: Post the inversion.
39:43
Yes.
39:44
Which it’s now doing, which plays into, as we’re both saying, somewhere within Q1, Q2,
39:51
it’s going to start getting ugly again.
39:52
KEITH MCCULLOUGH: Yeah.
39:53
Well, that steepening is just based on the Fed catching up to our view.
39:56
They’re the last one to figure it out.
39:59
Once they do, they steepen the curve by cutting the short end out and I think that if they
40:05
don’t do that, then they perpetuate having to do more when they finally do do that.
40:10
They are the catalysts for their own panic if they don’t acknowledge it soon enough.
40:15
That’s why I do think that that GDP number if we’re right on the headline, in conjunction
40:20
with profits slowing and jobless claims rising, there is no case to be made for jobless claims
40:24
rising for the first time in a decade for the Fed to not go incrementally dovish, and
40:28
probably aggressively so if I’m right on that.
40:31
Again, that would just be washing through Q4’s earnings season into the Q1 of 2020 outlook,
40:37
where the street is way outsized on earnings expectations.
40:40
They’re actually looking for earnings to be up 5%, 6%, 7% in the first quarter of 2020,
40:44
which I think is mathematically impossible.
40:46
RAOUL PAL: Yeah.
40:48
They’re just looking at, they just want a hockey stick up every time.
40:51
They just don’t want to believe the fact that things can trend lower.
40:57
Where are you most excited about in the world?
40:59
Is there anything you see different that’s not in the same cycle?
41:03
Because that’s the key thing.
41:04
Because most of the world, give or take is in the same cycle, some leads, some lags.
41:08
Is there any way you would say a great thing about this is just entirely different.
41:13
It’s a breath of fresh air.
41:14
KEITH MCCULLOUGH: Well, on the short side, yeah.
41:17
I’m feeling it’s not– I shouldn’t say feeling, if I ever say that again to you, Raoul, just
41:21
take me off Real Vision.
41:22
RAOUL PAL: Basically, there’s nothing in it.
41:24
KEITH MCCULLOUGH: There’s no feelings, there are cycles.
41:29
I think this software bubble that built within the cycle is potentially like this thing that
41:34
can almost make you giggle, or things trade at 15 to 20 times revenues with these TAMS
41:40
as far as the eye could see.
41:43
They’re seeing rate of change slowdowns in revenue growth, and massive, bloated cost
41:48
structures.
41:49
That’s like, in short selling space, that is easily bee– by the way, the software stocks
41:55
are down depending on what day you’re looking at them, they’re down 8% to 10% already since
42:00
July.
42:01
I like it when the movie already starts and the index doesn’t agree with that setup.
42:06
Actually, consumer discretionary, broadly, is the other one that’s down since the July
42:11
highs.
42:12
You have this concept of secular growers which has never happened before.
42:16
It’s only something Wall Street could make up, a secular grower is something that’s never
42:23
seen a cyclical slowdown.
42:24
Great.
42:25
To me, that like from a short seller’s perspective, because let’s be clear, you’ll find them at
42:30
Real Vision, but the art of short selling has been shot for dead.
42:34
That, to me, is the most exciting thing.
42:36
Having an independent research team with 40 different analysts.
42:39
We’re finding some really interesting shorts and very low short interests, which reflects
42:45
the broad interest that people have in story stocks, or in these TAMS, these total addressable
42:50
market stories.
42:51
It’s all about stories, and again, as they become cyclical, I think that that’s probably
42:55
the most exciting thing in terms of opening the envelope to the downside because we’re
42:59
already seeing that actually in this earning season in particular.
43:02
RAOUL PAL: Just a side story to that, it does worry me, because obviously a bunch of hedge
43:08
funds are more than skilled at short selling, but there’s the short sellers, people like
43:14
Marc Cohodes and stuff that we all know and love, are very skilled at this but it’s a
43:18
very, very skilled business, particularly if you’re fraud hunting, as opposed to trading
43:24
a directional view based economic views or whatever it is.
43:28
We saw that the amount of tourists, short selling tourists, I think more than Macro
43:32
Tourist, they all flooded into Tesla.
43:36
Then people have lost fortunes in stuff like this.
43:39
There’s a whole bunch of these stocks that they were like, they’re definitely going to
43:42
zero, they’re definitely going to zero.
43:44
It’s all a fraud, because they became market vigilantes.
43:49
A lot of them came out of the gold crowd, the same vigilante stuff.
43:53
It really concerns me that people have been pushed into stuff like that, because they
43:56
don’t really understand that short selling as you know is not easy.
43:59
KEITH MCCULLOUGH: If you don’t have, and I know that this is going to ruffle feathers,
44:04
and maybe the first time I’ve ever done so, but if you don’t have a macro process to overlay
44:10
when the cycle is in your favor as a short seller, I think you need to really rethink
44:14
that.
44:15
If you think about– RAOUL PAL: Well, unless you’re an expert short seller who writes a
44:18
whole thesis on the thing and everything else, because it’s so difficult.
44:22
KEITH MCCULLOUGH: Even that, when the cycles not on your side, and I don’t need to name
44:26
names, but they lost their hedge fund.
44:29
Since the financial crisis in ’09, I think 50% of hedge funds that launched on the Goldman
44:36
system are gone, because people start with shorting valuation.
44:43
Valuation is not a catalyst.
44:45
The cycle slowing is the catalyst and expensive stocks within a slowing cycle is the ultimate
44:52
short seller’s dream.
44:53
It made many short sellers famous, those that have ignored the economic cycle.
44:58
2017 is a great example.
45:00
I was born a short seller.
45:01
The first thing I learned how to do is short a stock because my first job on the buy side
45:04
was in 2001.
45:06
I come to my boss, John Dawson, I said, well, they’re going to miss again.
45:10
They’re going to what?
45:11
They’re going to miss again.
45:12
I just listened to what they said at the conference.
45:13
I put it in the spreadsheet.
45:14
Their margins are going to be down.
45:16
The revenues are going to slow.
45:18
He’s like, short it.
45:19
Like, okay, this is cool.
45:20
Short it.
45:21
I thought it was just like buying something.
45:22
I thought that’s what you did.
45:23
Because it’s when I was born into the business that mattered.
45:27
Anyone who’s done something well over time can tell you that.
45:30
There is a significant amount of luck in terms of when you were put in that seat to do a
45:34
certain thing.
45:35
RAOUL PAL: You have a boss.
45:36
KEITH MCCULLOUGH: Yes.
45:37
Okay.
45:38
Then the rate of change went bullish in 2002 of all the shorts, I come back to John and
45:41
I say, well, they’re going to beat it for the first time since I’ve worked for you.
45:44
They’re going to what?
45:46
Cover that short, we’re going to buy that stock and lo and behold, growth was accelerating
45:50
from obviously late ’02 all the way until 2007.
45:54
I think most people that got blown up in the story socks high multiple.
45:58
Again, there’s some epic things that have gone on, we weren’t fully loaded Tesla’s Elon
46:03
storytelling, but people were shorting them into the 2017 tax reform acceleration and
46:08
top line growth that perpetuated these multiples.
46:11
Software growth, software CapEx, for example accelerated all the way into the end of last
46:17
year, into the end of– and into actually the first quarter of this year, of 2019.
46:22
There was no backdrop to short sell software stocks in rate of change terms until this
46:26
year.
46:27
RAOUL PAL: How did you guys get on with Tesla, because you guys were Tesla shorts in that
46:31
period as well?
46:32
KEITH MCCULLOUGH: Yeah.
46:33
Well, we came into it literally, Jay Van Sciver came into it rate as it was topping.
46:36
He was looking– and I’ve taught all my analysts, if you can’t show me the rate of change slowdown
46:41
in their business within three to six months, this is not going to have a hedge on name
46:45
on it.
46:47
You can argue till you’re blue in the face but the batting averages are very low.
46:51
If you tell me you found a fraud, like our analysts, Kevin Kaiser did with multiple MLPs
46:57
and by the way, those frauds weren’t revealed until oil blew up.
47:00
RAOUL PAL: Yeah, same reason, micro, macro changes.
47:03
KEITH MCCULLOUGH: That’s when it was easier to get loud on deflation Quad 4 type theme.
47:09
I have an analyst who’s super buried up on a bunch of frauds in the MLP space.
47:14
Go.
47:15
I think that timing part, I’d humbly submit that that’s a part when I say the art of short
47:18
selling has been shot for dead.
47:20
It’s because you haven’t had the macro meets micro.
47:24
The rate of change now, your timing’s good.
47:26
Now, your batting averages are going to go up.
47:28
If you show me a software company, we found one that basically filed an S1 with two years
47:33
lookback in terms of revenues when the revenues have only gone this way up.
47:37
Post tax reform, through tax reform.
47:39
It’s a 20-year old IT services company.
47:41
It’s like hello, McFly, you slowed every single time we had a cycle but you’re not showing
47:46
the lookback.
47:47
These are the kinds of things that Wall Street underwrote.
47:49
This is why you know short selling now in a lot of these high multiple stocks is a much
47:54
more appropriate time, high multiple stock prevailing condition is slowing as opposed
47:58
to accelerating.
47:59
RAOUL PAL: Right.
48:00
You just been out seeing clients that’s why you were in a suit and tie.
48:04
KEITH MCCULLOUGH: It’s the only time I wear it.
48:06
RAOUL PAL: What are you hearing?
48:09
What are people doing?
48:11
What are they thinking?
48:12
Where are the pain points?
48:13
Where are they– I don’t think it’s been a straightforward year for many.
48:16
KEITH MCCULLOUGH: No, but if you’re having a good year, the happiness factor is back.
48:21
I do have clients that are macro aware.
48:23
They’ve been on the right side of the cycle.
48:26
Generally speaking, I’d say that the clients that if they’re paying us, they’re aware of
48:30
the view that we’ve had, certainly the Quad 4 views, their batting averages on the short
48:34
side have gone up tremendously if they are of that ilk.
48:37
If they’re long only they’ve been leaning on proxy, which they’re quite happy about,
48:41
but I’d say that, like, in particular, this last couple weeks of meeting, there’s the
48:45
markets punch to new highs throughout earnings season.
48:49
There’s an uneasiness to it.
48:52
It’s like– RAOUL PAL: That’s my opening question, uneasiness or uneasiness.
48:55
KEITH MCCULLOUGH: Uneasiness.
48:56
RAOUL PAL: Yeah, hence my opening question to you when we started this is nobody really
49:00
knows quite what’s going on.
49:01
KEITH MCCULLOUGH: Happiness becomes uneasiness when you start to underperform the bench.
49:07
That’s what’s happening.
49:08
Peak happiness was coming out of the October lows in the S&P; 500 or August and October,
49:13
our clients would be doing fine because the things that they’re long were going up and
49:17
their shorts are going down.
49:18
Now, everything’s going up.
49:19
In fact, the things that have gone down a lot are going up more., so you’ll have that
49:22
uneasiness.
49:23
There’s an absolute consensus to not be able to fade Trump’s tweets.
49:29
Therefore the value or the resurgence of these PMIs and ISMs a bottom trade.
49:36
They’ll wait to see the data point until they believe that the cycle is properly continuing
49:40
to slow.
49:42
There’s an uneasiness about that.
49:44
There’s always an uneasiness about your compensation.
49:47
A lot of people– RAOUL PAL: It’s always a difficult time of year because you’ve got
49:52
six weeks to make a decision.
49:53
Do I do anything else or do I not do anything else?
49:55
KEITH MCCULLOUGH: Yes.
49:56
There are plenty of money managers long only and long short that have set their yearend
50:01
in September, October, November, those months for that reason because they didn’t want to
50:08
be beholden to chasing the ace into yearend markups.
50:12
It’s an interesting one, but again, don’t forget that the S&P; 500 stock going up in
50:15
November of ’07, it didn’t wait till the end of December.
50:19
There’s an uneasiness associated with that as well.
50:21
The more macro where you are, the more ’07 questions I’m starting to get, which doesn’t
50:26
have to mean we’re going to have an ’08 but that’ll certainly– if it doesn’t make you
50:29
feel uneasy to some degree, I think it absolutely should.
50:32
RAOUL PAL: The hedge funds themselves, what is the appetite for risk now?
50:37
Are they gun shy?
50:38
Because they’ve had, yeah, it’s been a flip flop year.
50:41
It’s been one of those years where they came in short of equities, equities rallied, okay.
50:46
Anybody who got the bond trade got it sorted out, then it flips again later in the year.
50:50
It’s been a complex year for many people.
50:52
How are they feeling in this?
50:54
KEITH MCCULLOUGH: The better the research teams and most specifically on the short side,
51:00
the better they are doing right now.
51:02
Don’t forget, just like the high yield index or where high yield spreads are is not where
51:06
the rest of the market is.
51:08
You have multiple blow ups going on.
51:11
Think of some epic story stocks imploding and for the valuation oriented short seller
51:17
that got the timing right, I think that the batting average is going up their– or building
51:23
a confidence that wow, I have the benchmark index SPYs at the all-time high and I can
51:28
make money on my shorts at the same time with the president trying to trump up the bench.
51:33
Like it’s almost like licking the chops times for this– somebody who’s had a successful
51:38
career short selling across cycles, not somebody who’s just getting lucky.
51:43
RAOUL PAL: Final question, the dollar.
51:47
You’re, I think, majorly negative the dollar right now, do you think the dollar cycle is
51:52
turned for good, or is this part of the reflation in Quad 3 theme?
51:59
Where do you stand on the whole dollar view?
52:01
It is crucial to a lot of things.
52:03
KEITH MCCULLOUGH: Yep.
52:04
If you take the trade weight of dollars at a 20-year high, again, back in 2001, same
52:09
point, what could possibly go wrong?
52:12
Sustainably strong dollar is also one of the many negatives to corporate earnings growth
52:17
for the fourth quarter and the first quarter, so it’s the same sixmonth outlook.
52:21
No longer buying dollars– RAOUL PAL: Okay.
52:22
It’s off the same– it’s not a separate construct for the dollar.
52:26
KEITH MCCULLOUGH: No.
52:27
Quad 4 is where the dollar goes up, so the next time I’ll buy the dollar is when I think
52:30
the market’s setting up the price in another Quad 4, so I have a six-month window, might
52:34
be four.
52:35
RAOUL PAL: When do they start– when did the clock starts here?
52:38
KEITH MCCULLOUGH: October.
52:39
That’s when dollar– RAOUL PAL: End of December, January, February, March.
52:41
KEITH MCCULLOUGH: Yeah, our call was it’s pretty straightforward, it’s hashtag peak
52:45
dollar.
52:46
I don’t mince words.
52:47
The dollars peak, but again, the dollar– RAOUL PAL: The peak dollar sounds to me secular,
52:51
but you’re saying cyclical?
52:52
KEITH MCCULLOUGH: Yeah, it’s just my six-month pivot.
52:56
Again, I want to cancel– RAOUL PAL: That’s what I wanted to ask you about it.
53:00
My thinking, I’m a much longer term person so I was thinking okay, if you’re saying that
53:04
you think the entire dollar construct has now changed for the world, okay, that’s very
53:09
different than the view I have which is like okay, and this has been trading accordingly
53:14
to your view, it may had broken down or broken up but it’s– KEITH MCCULLOUGH: It made it–
53:18
it’s been like literally right on the screws played out in our playbook and this doesn’t
53:22
happen all the time obviously.
53:24
When it does, you like to know just like a good golfer makes a birdie putt, you expect
53:28
to make the putt, you hit three good shots on a par four, well done.
53:32
That’s what the process say.
53:34
When Quad 4 is you’re in the thralls of Quad 4, the dollar should rally to new highs, which
53:38
it did, Quad 4 ended in Q3.
53:40
Now, we’re not in Quad 4, the dollar should start to make lower highs for six months.
53:47
That’s pretty much it.
53:48
I don’t think that it’s like some big bang call.
53:50
I still do think that there’s some asymmetry to the Fed waking up to that GDP number in
53:54
February, and then cutting their dots.
53:57
I think that that’ll probably be wherever the dollar corrects to, that’d be the beginning
54:02
of the end of the negative dollar view.
54:05
Then I go back to being long the dollar in start of second quarter.
54:08
RAOUL PAL: Final, final question, when you’re looking at the rate of change to assess where
54:13
you are in in your framework within the quads, you’re looking at the rate of change, are
54:17
you looking at the rate of change of asset prices, rate of change the economic data or
54:20
a bunch of both?
54:21
KEITH MCCULLOUGH: Both, and that’s what I call my AB test.
54:25
A is various in the research team constantly measuring and mapping the rate of change data
54:29
across 50 different countries.
54:32
RAOUL PAL: Economic data.
54:33
KEITH MCCULLOUGH: Economic data, and then there’s me, that is measuring and mapping
54:36
the rate of change of price, volume and volatility, the relationship of all three, especially
54:41
the volatility of volatility is what I really care on, and something like that.
54:45
Like we just saw what I call phase transition in oil volatility for example.
54:48
Oil volatility or the vol of vol has now gone from bullish volatility, very negative for
54:53
the price to now bearish volatility, which is very short term bullish for the price.
54:58
We’re starting to see that too.
55:00
It’s classic.
55:01
I think, Bridgewater, Dalio to a degree, assets flow towards falling volatility, assets low
55:08
the rising volatility, and that’s why I spend so much time on that.
55:11
It’s the most humbling of experiences as it was for Mandelbrot when you had Big Blue,
55:16
the machine measuring and mapping cotton prices in all historical prices, because you have
55:22
to wait for a moment where that signal becomes real, because there’s lots of Brownian motion.
55:27
If you’re looking at it like I do, and measuring and mapping the volatility of volatility daily,
55:33
Brownian motion 101, there is nothing to do until there’s something to do, because volatility
55:38
will cluster and then become a new trend.
55:42
That’s what I’m essentially on the lookout.
55:44
RAOUL PAL: Because it’s interesting.
55:45
We’ve just interviewed John Bollinger.
55:47
I haven’t seen the interview yet, but Bollinger Bands, the technical analysis.
55:50
It’s basically based around the same concept.
55:53
KEITH MCCULLOUGH: Really?
55:54
RAOUL PAL: Yeah.
55:55
It looks like it basically looks at the volatility of an asset and if the volatility is increasing,
56:00
the band’s increasing, if it’s decreasing and usually when it decreases after a while
56:04
and you get a breakout, you’ve got to change your volatility regime.
56:07
KEITH MCCULLOUGH: Well, that’s right.
56:08
Bollinger Band would be a Gaussian standard deviation and when the volatility changes,
56:15
the standard deviation of vol comps change.
56:17
RAOUL PAL: Essentially, yes.
56:18
KEITH MCCULLOUGH: Actually, that’s a good example of what I call our risk range process.
56:22
I published daily risk ranges and people are like, wow, I can’t survive without it and
56:26
I’m like, no shit.
56:27
I couldn’t do– I couldn’t trade without it.
56:30
Again, when I see the volatility of volatility rising, what happens is my probable range
56:35
widens.
56:36
RAOUL PAL: Of course.
56:37
KEITH MCCULLOUGH: Similarly, when the range is starting to tighten, what that means is
56:40
that the volatility is starting to go away, or potentially undergo phase transition, plenty
56:45
of head fakes.
56:47
Again, when I take the AB test, this is critical.
56:50
The signal is always raw, front running the quad, the market signal’s going to get it
56:55
before the quad does.
56:57
If my quad outlook reflects what the market sees, and it’s a change of face- – RAOUL PAL:
57:02
The problem is that the market also does a lot of false signals, just keeps reading for
57:06
something different, and it gets it wrong, and it reverts.
57:08
KEITH MCCULLOUGH: 100%.
57:09
RAOUL PAL: That’s endlessly testing the narrative, the markets or indices, so yes, it’s the test
57:15
between the two is dead right.
57:16
You can’t do it without the other.
57:17
KEITH MCCULLOUGH: Which is why my hair is grayer and I’m getting fatter because I have
57:20
to do this.
57:21
That’s what I signed up for, like Hedgeye, I don’t get to have days off from Brownian
57:27
motion.
57:28
I have to deal with that damn thing every day.
57:30
Moreover, I have to try to explain it, which is unexplainable some days, but it certainly
57:35
makes– it’s made the experience of what I do, and trying to teach what I do, if only
57:41
I’m teaching myself actually, I’m sure people have realized that, wow, this guy’s not as
57:46
dumb as he used to be.
57:48
It’s a rate of change.
57:49
If you have to teach yourself through your mistakes publicly, every day, you will get
57:53
less dumb.
57:54
God forbid, you get a little bit better at it and better and better at it, but you’re
57:57
quite right.
57:58
The amount of head fakes, they’re just manifest.
58:01
RAOUL PAL: Yeah, that’s a lot of filtering.
58:03
Keith, super interesting.
58:05
I think it’s been– you’ve had a great year so well done.
58:08
Hands down to you.
58:09
KEITH MCCULLOUGH: Thank you.
58:10
RAOUL PAL: Let’s see what next year brings because it’s going to be another really interesting
58:14
macro and the great thing for us, for both of us is it’s a macro world and macro world
58:19
is the most interesting of all, because that’s what I find the big returns lie.
58:23
This whole period of time, we have low volatility, choosy, well, the grinding high prices and
58:28
that’s never the easiest to make money.
58:30
Well, you can’t easily make money if it’s never exciting.
58:33
Let’s see how it pans out.
58:34
Thank you ever so much for coming and do this.
58:36
KEITH MCCULLOUGH: Yes and congrats to you, you had a great year as well.
58:38
I appreciate you having me on.
58:39
RAOUL PAL: Yeah, and it’s all good.

When Pete Buttigieg Was One of McKinsey’s ‘Whiz Kids’

Among the hoops that candidates for plum consulting jobs at McKinsey & Company had to jump through in late 2006 was a bit of play acting: They were given a scenario involving a hypothetical client, “a business under siege,” and told they would be meeting with its chief executive the next day. How would they structure the conversation?

One contender stood out that year: a 24-year-old Rhodes scholar named Pete Buttigieg.

“He was the only one who put all the pieces together,” recalled Jeff Helbling, a McKinsey partner at the time who was involved in recruiting. Mr. Buttigieg soon won the other candidates over to his approach.

[Read: Pete Buttigieg vs. Bernie Sanders and Elizabeth Warren on tuition-free college.]

“He was very good at taking this ambiguous thing that he literally had no background on and making sense of it,” Mr. Helbling said. “That is rare for anyone at any level.”

The preternatural poise that got Mr. Buttigieg hired at McKinsey has helped him rise from obscurity to the top tier of the 2020 Democratic primary presidential contest.

On the way there, he ticked all the boxes. Harvard. Rhodes scholar. War veteran. Elected mayor of a midsize city before age 30.

Mr. Buttigieg sells his candidacy, in large part, on his mayoralty of South Bend, Ind., and a civic revitalization there rooted in the kind of data-driven techniques espoused by McKinsey. His nearly three years at “the firm” set him apart from many of his campaign rivals, underpinning his position as a more centrist alternative to progressive front-runners like Senators Bernie Sanders and Elizabeth Warren.

Yet Mr. Buttigieg’s time at the world’s most prestigious management-consulting company is one piece of his meticulously programmed biography that he mentions barely, if at all, on the campaign trail.

As Mr. Buttigieg explains it, that is not a matter of choice. For all of his efforts to run an open, accessible campaign — marked by frequent on-the-record conversations with reporters on his blue-and-yellow barnstorming bus — McKinsey is a famously secretive employer, and Mr. Buttigieg says he signed a nondisclosure agreement that keeps him from going into detail about his work there.

But as he gains ground in polls, his reticence about McKinsey is being tested, including by his rivals for the Democratic presidential nomination. Senator Warren, responding last month to needling by Mr. Buttigieg that she release more than the 11 years of tax returns she already had to account for her private-sector work, retorted, “There are some candidates who want to distract from the fact that they have not released the names of their clients and have not released the names of their bundlers.”

Beyond Mr. Buttigieg’s agreement with McKinsey, this is something of an awkward moment to be associated with the consultancy, especially if you happen to be a Democratic politician in an election year shadowed by questions of corporate power and growing wealth inequality. The firm has long advocated business strategies like

  • raising executive compensation,
  • moving labor offshore and
  • laying off workers to cut costs.

And over the last couple of years, reporting in The New York Times and other publications has revealed episodes tarnishing McKinsey’s once-sterling reputation: its work advising Purdue Pharma on how to “turbocharge” opioid sales, its consulting for authoritarian governments in places like China and Saudi Arabia, and its role in a wide-ranging corruption scandal in South Africa. (All of these came after Mr. Buttigieg left the firm.)

Just this week, ProPublica, copublishing with The Times, revealed that McKinsey consultants had recommended in 2017 that Immigration and Customs Enforcement cut its spending on food for migrants and medical care for detainees.

After a campaign event on Wednesday in Birmingham, Ala., Mr. Buttigieg remarked on the latest revelations. “The decision to do what was reported yesterday in The Times is disgusting,” he said. “And as somebody who left the firm a decade ago, seeing what certain people in that firm have decided to do is extremely frustrating and extremely disappointing.”

The Buttigieg campaign says he has asked to be let out of his nondisclosure agreement so he can be more forthcoming about that formative time in his life. A McKinsey spokesman said Mr. Buttigieg “worked with several different clients” during his time with the firm, but “beyond that, we have no comment on specific client work.”

But interviews with six people who were involved in projects that Mr. Buttigieg worked on at McKinsey, along with gleanings from his autobiography, fill in some of the blanks.

Mr. Buttigieg was recruited by McKinsey at Oxford. The company seeks out Rhodes scholars like him, banking that their intellects will make up for their lack of M.B.A.s from traditional recruiting grounds like Harvard Business School.

Yet even during the recruitment process, Mr. Helbling recalled, Mr. Buttigieg made it known that, like many applicants, he saw the business experience on offer at McKinsey as a good job “in the near term,” in his case an asset on the way to a career in public service.

The work he did in his first year and a half at the firm — nearly a 10th of his adult life — is effectively a blank slate, though tax records give some hints. In 2007, his first year with the company, he filed tax returns in Illinois, where he worked out of the Chicago office, as well as in his home state of Indiana. But he also filed in Michigan, and in the city of Detroit, where he worked on a McKinsey project. In 2008, he filed a return in Connecticut (McKinsey has an office in Stamford). The next year, he filed in Connecticut and in California.

In early 2009 Mr. Buttigieg was spending his days, and many nights, in a glass-walled conference room in suburban Toronto. He was analyzing Canadian grocery prices, plugging the numbers into a database running on a souped-up laptop his colleagues nicknamed “Bertha.” PowerPoint slides and spreadsheets crept into his dreams.

He knew this wasn’t his calling.

“And so it may have been inevitable that one afternoon, as I set Bertha to sleep mode to go out to the hallway for a cup of coffee, I realized with overwhelming clarity the reason this could not be a career for very long: I didn’t care,” Mr. Buttigieg wrote in his autobiography, “Shortest Way Home.”

It was the only experience at McKinsey that Mr. Buttigieg wrote about in any detail. His next act at the firm didn’t merit a single complete sentence in the book. But it was a radically different, and for him far more interesting, public-spirited project: More than four years before he would be deployed as a Navy Reserve officer, he was heading to Iraq and Afghanistan.

McKinsey’s focus in Iraq during the latter part of George W. Bush’s presidency and the early years of Barack Obama’s was to help the defense department identify Iraqi state-owned enterprises that could be revived. The idea was to provide employment for men who might otherwise join the insurgency against the American-led occupation.

The McKinsey consultants on the ground in 2006 and 2007 were almost exclusively military veterans like Alan Armstrong, who flew fighters for the Navy and had an M.B.A. from the Wharton School at the University of Pennsylvania. Mr. Armstrong, in an interview, said that while the reasoning behind the program was sound, the ongoing insurgency and a crippled infrastructure — electricity, for example, was spotty or nonexistent — made execution very difficult.

But the program was popular among the top brass at the Pentagon. In 2006, the defense secretary, Donald H. Rumsfeld, met with the team in Iraq and asked about the “whiz kids” from McKinsey, which struck Mr. Armstrong as an obvious parallel to the Vietnam War era, when whiz kids of an earlier generation had worked for another defense secretary: Robert S. McNamara.

“McKinsey was more than willing to play along — they were being paid extraordinary rates to keep playing,” Mr. Armstrong said.

Another former McKinsey consultant who worked in Iraq recalled a surreal moment preparing a PowerPoint presentation while on a convoy to a shuttered food-processing factory, under the watchful eye of a burly private security guard. “It felt like we were completely half-assing everything — it wasn’t particularly effective,” he said.

Other former McKinsey consultants who worked on the Iraq project, Task Force for Business and Stability Operations, have a more positive recollection of the firm’s work.

“Over all I’m very proud of it,” said one consultant, who had met Mr. Buttigieg in Washington, where most of the McKinsey consultants assigned to the project worked when not visiting Iraq. Four of the six former McKinsey employees spoke on the condition that their names not be used, citing confidentiality agreements or the press policies of their current employers.

ImagePete Buttigieg’s living quarters in Baghdad, where he recalls spending two nights in 2009.
Credit…Buttigieg campaign

By 2009, the security situation in Baghdad was stable enough that McKinsey allowed in some nonveterans like Mr. Buttigieg, who had studied Arabic at Harvard. He went to Iraq aware of the stark similarities between the American experiences there and in Vietnam decades earlier.

At Harvard, his senior thesis had drawn parallels between the United States’ seeking to “save” Vietnam from “godless Communism,” and the 17th-century Puritan ministers who had come to America to civilize “savage lands.” In his autobiography and in an interview that has drawn charges of out-of-touch elitism from some quarters, he reflected on that history by quoting a passage from “The Quiet American” by Graham Greene: “Innocence is like a dumb leper who has lost his bell, wandering the world, meaning no harm.”

“I had protested the Iraq war,” Mr. Buttigieg said in an interview with The Times. “But I also believed that it was important to try to do my part to help have good outcomes there.” He found echoes, he said, of “the stories I had studied about well-intentioned Americans sometimes causing as many problems as they addressed.”

Mr. Buttigieg recalled spending only two nights in Baghdad, where McKinsey consultants were quartered in a building near the Tigris River, and “going to a ministry.” He never left the city during his time there, he said.

“Remember I’m like the junior guy, kind of new,” Mr. Buttigieg said. “It’s not like I was the one whose expertise was needed to sort out what was going on in the provinces.

“Eventually I knew what I was doing a little more and was more useful by the time I got to the Afghan side.”

Mr. Buttigieg spent more time in Afghanistan. While Iraq had a fairly well-educated populace, a modern road system and large oil revenues, Afghanistan was far less developed. But the mission was similar: identify small and medium-size businesses to nurture so that they could employ Afghans, providing an attractive alternative to joining the Taliban while fueling economic growth.

Citing his nondisclosure agreement, Mr. Buttigieg declined to specify in the interview what he had worked on, though he mentioned having looked at opportunities in the agricultural industry — onions, tomatoes, olive oil — as well as paint manufacturing.

“They had some things to work with,” he said, “but would have benefited from support on things like business planning, more resources on how to plug in and eventually connections to markets too.”

In the years after Mr. Buttigieg left McKinsey, that program came under criticism from the Special Inspector General for Afghanistan Reconstruction. McKinsey had been awarded $18.6 million for the project, but the watchdog wrote in an April 2018 report that it had been able to find just one piece of related work product: a 50-page report on the economic potential of the city of Herat.

A former McKinsey consultant who worked in Afghanistan described a more extensive McKinsey presence there, involving work in the mining industry and a government transparency project, along with the Herat study.

“One of those sounds just exactly like what I was doing,” Mr. Buttigieg said. When asked which one, he said, “I can’t think of a way to answer that without getting in trouble with the N.D.A.”

Mr. Buttigieg’s work on the Afghanistan project ended in late 2009, close to the time he was commissioned as an officer in the Navy Reserve. And that October, when he was still several months from leaving McKinsey, he set in motion the next phase of his life: He registered as a candidate for office with the State of Indiana.

The next year, he lost a bid for state treasurer, after emphasizing his McKinsey experience during the campaign. (He recounted at one campaign event that after his Rhodes scholarship, “I came back and went into business, and I worked for a company where my job was to do math. I’m a card-carrying nerd.”) In 2011, at age 29, he was elected mayor of South Bend.

Mr. Buttigieg at a campaign event in Iowa last month.
Credit…Tamir Kalifa for The New York Times

The full range of Mr. Buttigieg’s work at McKinsey isn’t clear, though in his autobiography he says that he worked on other projects, including “energy efficiency research” to help curb greenhouse-gas emissions for a client he didn’t name. He also found time in the summer of 2008 to travel to Somaliland, the autonomous region in the Horn of Africa. He went as a tourist, but while there talked to local officials and wrote an account of his experience for The International Herald Tribune.

Mr. Buttigieg has been asked on the presidential campaign trail about his time at McKinsey and, in several interviews this year, has sought to reconcile the company’s recent troubles with his own work there.

For Mr. Buttigieg, the solution to McKinsey’s ethical pitfalls may come in a rethinking of the rules that business abides by. Maximizing shareholder value, the North Star of modern American capitalism, has a downside when the rules of the game leave many people worse off, he said.

“The challenge is that’s not good enough at a time when we are seeing how the economy continues to become more and more unequal, and we are seeing the ways in which a lot of corporate behavior that is technically legal is also not acceptable in terms of its impact,” he said. “There has got to be a higher standard.”

Mark Blyth – A Brief History of How We Got Here and Why

This lecture is part of the McMaster Department of Philosophy’s Summer School in Capitalism, democratic solidarity, and Institutional design https://www.solidaritydesign2019.com
This lecture sets out a brief history of two versions of capitalist software. The first drove the capitalist hardware during the period known as the Great Compression—1945 to 1980. The second did the same for the period many refer to as the era of neoliberalism—1980 to 2008. This lecture describes the bug in the system that crashed the first version of the capitalist software and the subsequent design of the neoliberal software. It also describes the bug that led to the 2008 Great Recession, landing us in the current transitional period that we might describe as the era of neonationalism or Global Trumpism. A key idea is that the emergence of contemporary populist politics, both left-wing and right-wing Trumpist variants, are attempts to rewrite the software of capitalism once again.

Trump Finds a Brawler for His War on Workers

America’s working class is in desperate shape, and its longtime protectors — unions — have lost much of their power.

President Trump talks a good game about helping American workers but has pursued arguably the most anti-labor agenda of any modern president. Now he has doubled down by choosing for secretary of labor a corporate lawyer who has spent his career battling workers.

This is a bit like nominating Typhoid Mary to be health secretary.

The official mission of the Labor Department emphasizes the promotion of “the welfare of the wage earners,” but Trump’s mission has been to promote the exploitation of wage earners.

So Eugene Scalia is a perfect fit. Scalia, a son of the late Supreme Court Justice Antonin Scalia who has fought unions on behalf of Walmart and other companies, is a talented and experienced litigator who upon assuming office will be in a position to disembowel labor.

There’s a larger issue: The relentless assault on labor has gained ground partly because, over the last half-century, many Americans — me included — became too disdainful of unions. It was common to scorn union leaders as corrupt Luddites who used ridiculous work rules to block modernization and undermine America’s economic competitiveness.

There’s something to those critiques. Yet it’s now clear that the collapse of unions — the share of employees belonging to unions has plunged to 10 percent in 2018 from 35 percent in the mid-1950s— has been accompanied by a rise of unchecked corporate power, a surge in income inequality and a decline in the well-being of working Americans.

For all their shortcomings, unions midwifed the birth of the middle class in the United States. The period of greatest union strength from the late 1940s through the 1950s was the time when economic growth was particularly robust and broadly shared. Most studies find that at least one-fifth of the rise in income inequality in the United States is attributable to the decline of labor unions.

Unions were also a formidable political force, and it’s perhaps not a surprise that their enfeebling has been accompanied by a rise in far-right policies that subsidize the wealthy, punish the working poor and exacerbate the income gap.

“Labor unions, and their ability to create a powerful collective voice for workers, played a huge role in building the world’s largest, richest middle class,” notes Steven Greenhouse in his superb, important and eminently readable new book about the labor movement, “Beaten Down, Worked Up.”

“Unions also played a crucial role,” Greenhouse adds, “in achieving many things that most Americans now take for granted: the

  • eight-hour workday,
  • employer-backed health coverage,
  • paid vacations,
  • paid sick days,
  • safe workplaces.

Indeed, unions were the major force in ending sweatshops, making coal mines safer, and eliminating many of the worst, most dangerous working conditions in the United States.”

Greenhouse, who covered labor for 19 years for The Times, acknowledges all the ways in which labor unions were maddening and retrograde. But he notes that corporations run amok when no one is minding them.

Union featherbedding and rigid work rules have been real problems. Yet without unions to check them, C.E.O.s engage in their own greedy featherbedding and underinvest in worker training, thus undermining America’s economic competitiveness.

Sure, it’s frustrating that teachers’ unions use political capital to defend incompetent teachers. In New York City, the union hailed its defense of a teacher who passed out in class, her breath reeking of alcohol, with even the principal unable to rouse her.

It’s also true that states with strong teachers’ unions, like Pennsylvania and Vermont, have far better student outcomes than states with feeble unions, like South Carolina and Mississippi. Teachers’ unions have also been heroic advocates for early childhood education, and Red for Ed strikers forced states like West Virginia, Oklahoma and Arizona to improve their school systems.

Remember, too, that manufacturing workers in Germany are unionized and earn $10 more an hour than their American counterparts. Mercedes-Benz autoworkers earn $67 an hour in wages and benefits, and German workers are guaranteed a presence on corporate boards. Unions don’t detract from Germany’s economic system and competitiveness but are a pillar of it.

The bigger picture is that America’s working class is in desperate shape. Average hourly wages are actually lower today, after inflation, than they were in 1973, and the bottom 90 percent of Americans have seen incomes grow more slowly than the overall economy over the last four decades. The reasons are complex, but one is the decline of unions — for unions benefit not only their own members but also raise wage levels for workers generally.

So I’ve come to believe that we need stronger private-sector unions — yet the Trump administration continues to fight them. Greenhouse notes that nearly 20 percent of rank-and-file union activists are fired during organizing drives, because the penalties for doing so are so weak: A corporation may eventually be fined $5,000 or $10,000 for such a wrongful dismissal, but that is a negligible cost of doing business if it averts unionization.

That’s why we need a secretary of labor who cares about laborers. Trump campaigned in 2016 as a voice for forgotten workers, but he consistently sides with large corporations against workers, and his nomination of Scalia would amplify the sad and damaging war on unions.

Yes, America Is Rigged Against Workers

No other industrial country treats its working class so badly. And there’s one big reason for that.

The United States is the only advanced industrial nation that doesn’t have national laws guaranteeing paid maternity leave. It is also the only advanced economy that doesn’t guarantee workers any vacation, paid or unpaid, and the only highly developedcountry (other than South Korea) that doesn’t guarantee paid sick days. In contrast, the European Union’s 28 nations guarantee workers at least four weeks’ paid vacation.

Among the three dozen industrial countries in the Organization for Economic Cooperation and Development, the United States has the lowest minimum wage as a percentage of the median wage — just 34 percent of the typical wage, compared with 62 percent in France and 54 percent in Britain. It also has the second-highest percentage of low-wage workers among that group, exceeded only by Latvia.

All this means the United States suffers from what I call “anti-worker exceptionalism.”

Academics debate why American workers are in many ways worse off than their counterparts elsewhere, but there is overriding agreement on one reason: Labor unions are weaker in the United States than in other industrial nations. Just one in 16 private-sector American workers is in a union, largely because corporations are so adept and aggressive at beating back unionization. In no other industrial nation do corporations fight so hard to keep out unions.

The consequences are enormous, not only for wages and income inequality, but also for our politics and policymaking and for the many Americans who are mistreated at work.

To be sure, unions have their flaws, from corruption to their history of racial and sex discrimination. Still, Jacob S. Hacker and Paul Pierson write of an important, unappreciated feature of unions in “Winner-Take-All Politics”: “While there are many ‘progressive’ groups in the American universe of organized interests, labor is the only major one focused on the broad economic concerns of those with modest incomes.”

As workers’ power has waned, many corporations have adopted practices that were far rarer — if not unheard-of — decades ago:

  • hiring hordes of unpaid interns,
  • expecting workers to toil 60 or 70 hours a week,
  • prohibiting employees from suing and instead forcing them into arbitration (which usually favors employers), and
  • hamstringing employees’ mobility by making them sign noncompete clauses.

America’s workers have for decades been losing out:

  • year after year of wage stagnation, i
  • ncreased insecurity on the job,
  • waves of downsizing and offshoring, and
  • labor’s share of national income declining to its lowest level in seven decades.

Numerous studies have found that an important cause of America’s soaring income inequality is the decline of labor unions — and the concomitant decline in workers’ ability to extract more of the profit and prosperity from the corporations they work for. The only time during the past century when income inequality narrowed substantially was the 1940s through 1970s, when unions were at their peak of power and prominence.

Many Americans are understandably frustrated. That’s one reason the percentage who say they want to join a union has risen markedly. According to a 2018 M.I.T. study, 46 percent of nonunion workers say they would like to be in a union, up from 32 percent in 1995. Nonetheless, just 10.5 percent of all American workers, and only 6.4 percent of private-sector workers, are in unions.

But this desire to unionize faces some daunting challenges. In many corporations, the mentality is that any supervisor, whether a factory manager or retail manager, who fails to keep out a union is an utter failure. That means managers fight hard to quash unions. One study found that

  • 57 percent of employers threatened to close operations when workers sought to unionize, while
  • 47 percent threatened to cut wages or benefits and
  • 34 percent fired union supporters during unionization drives.

Corporate executives’ frequent failure to listen to workers’ concerns — along with the intimidation of employees — can have deadly results. On April 5, 2010, a coal dust explosion killed 29 miners at Massey Energy’s Upper Big Branch coal mine in West Virginia. A federal investigation found that the mine’s ventilation system was inadequate and that explosive gases were allowed to build up. Workers at the nonunion mine knew about these dangers. “No one felt they could go to management and express their fears,” Stanley Stewart, an Upper Big Branch miner, told a congressional committee. “We knew we’d be marked men and the management would look for ways to fire us.”

The diminished power of unions and workers has skewed American politics, helping give billionaires and corporations inordinate sway over America’s politics and policymaking. In the 2015-16 election cycle, business outspent labor $3.4 billion to $213 million, a ratio of 16 to 1, according to the nonpartisan Center for Responsive Politics. All of the nation’s unions, taken together, spend about $48 million a year for lobbying in Washington, while corporate America spends $3 billion. Little wonder that many lawmakers seem vastly more interested in cutting taxes on corporations than in raising the minimum wage.

There were undoubtedly many reasons for Donald Trump’s 2016 victory, but a key one was that many Americans seemed to view him as a protest candidate, promising to shake up “the system” and “drain the swamp.” Many voters embraced Mr. Trump because they believed his statements that the system is rigged — and in many ways it is. When it comes to workers’ power in the workplace and in politics, the pendulum has swung far toward corporations.

Reversing that won’t be easy, but it is vital we do so. There are myriad proposals to restore some balance, from having workers elect representatives to corporate boards to making it easier for workers to unionize to expanding public financing of political campaigns to prevent wealthy and corporate donors from often dominating.

America’s workers won’t stop thinking the system is rigged until they feel they have an effective voice in the workplace and in policymaking so that they can share in more of the economy’s prosperity to help improve their — and their loved ones’ — lives.