19:07Where 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 higheras it always does at the end of the cycle and companies continue to push out, guidingdown because of a proposed Chinese bean deal.Yeah, that could be your eye opener, is not that getting the T-minus three to six monthsfrom now, this thing should look a lot different than where it looks today without the yearto 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 massivenew issuance is coming the out of the Treasury, but that illiquidity, the Fed started printingmore 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’sa 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 feelingit.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 butone 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’thave enough buyers already and it’s widening.If one, God forbid, if one of these come through and get downgraded, the whole thing’s goingto 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 thepensions.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’scoming off basically a 15-year low relative to corporate profits, this is a period thatno money manager, certainly the ones that are illiquid and levered which would includeall 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 personshould like the 1980s and 1990s, irrespective of your political party affiliation, becausewe had very good relatively low cost of living, we had really economic growth and labor washigh and rising.Now, it’s been blasted to 15-year lows, again, put off paying the people, corporate profitswere 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 ageor 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 haveto face the reality of having to pay their people more and/or just getting lower qualityhigher 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 markedas a ring of fire, if you will, of companies that really aren’t “secular growers”, I cango off on that, but these are cyclical companies that have bloated cost structures to beginwith.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’snot quite as happy as people think they are.You look at the credit card borrowings, and then you look at the rates credit cards arecharging, which is the highest all-time rates, considering interest rates, and that’s thedata that goes back to 1990 or something and credit card rates are high not at 17% thanthey were back then when interest rates are 8%.It’s like, okay, there’s something going on here for people– the only reason they cando 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 youthink it plays out– and again, neither of us are interested in the politics of it butthe election side of it, it sounds like you don’t think that the administration can keepthe economy floated into the election.I’ve got different view that I don’t think they want to, I think they’d rather have arecession.I don’t think it’s as a shoo and that they really necessarily need to keep it in theway that it is.Because I thought today, Trump was very clearly again, blaming the Federal Reserve, it’s nothingto do with me, look how they screwed you.How do you think from a nonpolitical standpoint, how you’re seeing it play out?24:47KEITH MCCULLOUGH: My political lens is always explicitly affected by my quad outlook.24:52We are right on the screws.24:55I’m not a believer that any politician central planner or otherwise can part the heavens25:00and give us a new path underneath the seas of economic gravity.25:06The economy is going to continue to slow and if it continues to slow into what we call25:09Quad 4 which is the most damning of market conditions by Q2 of 2020, that’s the worst25:15place for Trump to be for a period of time.25:19Because that’s when Elizabeth Warren’s chances or Bloomberg or whoever’s are going to start25:23to rise and again, it’s more about the probabilities change.25:26There are very few money managers on Wall Street who actually, even if they hate the25:31guy like the Bourbonic Plague, they still believe in some way, shape or form, that Trump25:35has a good chance to be reelected.25:36RAOUL PAL: Almost everybody.25:37KEITH MCCULLOUGH: Yeah, if you don’t– like I have raging Democrats telling me that I25:40live in the state of Connecticut, I have plenty of exposure to them in non-money market, like25:44nonmarket people won’t have that view but if you’re running a portfolio today, you can’t25:48tell me that you expect the tax rates and the truncation of tax reform, which is the25:53biggest thing for corporate profits that the modern era has ever seen.25:57Like you can’t possibly say that that’s in the market.25:59I think that that is a big shift, too.26:02You get your zero percent handle on GDP in late January, the economy continues to deteriorate.26:07We take a look at Quad 4, the last two times the market’s taken a peek at Quad 4, not good26:11for Trump, not good for the stock market, which is one and the same thing.26:16It’s almost like I think that– and I think now Ferguson said this, if the market starts26:21to go down for real for once, God forbid, actually, it’s done it multiple times, but26:26again, if it goes down for real, her chances go up.26:28It’s the Soros reflectivity view, which is, again, the faster you go down, the higher26:34her chances, and you could wake up one day where people are right scared of that, and26:38Trump gets reelected just for that reason.26:39Then you get the mother of all rallies from a much lower point again.26:43Again, that’s way out there but I’m using my quads to instruct what the political and26:50reflexive human response would be to just negative economic conditions.26:54RAOUL PAL: Now, my view is somewhat different.26:57I think economically, we have the same view, but my view is on the Trump side, if you can27:01anger the American, the middle American, because they can’t be screwed over and if you can27:08blame it on the Federal Reserve and the Chinese and the Europeans, then if you are going to27:13a recession, first, you say I will save you with some MMC John Spinning package and secondly,27:18it gets them mobilized because they hate everybody else.27:22That’s a typical thing and Elizabeth Warren will use the same tactics, will say well,27:26it’s all his fault and blah blah blah.27:29It’s going to be a very interesting election and I never trade markets on elections but27:35it’s just interesting.27:36Talking about elections, what do you see in the UK?27:39KEITH MCCULLOUGH: Well, we see Quad 4 in the UK.27:42That’s where we started and again, seeing the UK through the lens of the quads and what27:47are the prevailing conditions of growth and inflation has been absolutely the way to trade27:52the UK from a gilt perspective, long gilts Quad 4.27:56RAOUL PAL: Yeah, you just ignore all of the noise and just look at the economics.27:58KEITH MCCULLOUGH: Yes, exactly.28:00Short the pound, Quad 4.28:02Now, the pound is actually trying to have a breakout here relative to the dollar, which28:06is interesting.28:07However, it’s based on a catalyst which is this expectation which I have zero edge on.28:12Plenty of things I had zero edge on but one of the big ones I’m certain of is the political28:17outcome in the UK and when this Brexit catalyst actually can be finalized, it’s just not what28:21I do, but the market is saying there’s a chance, like there’s– as long as there’s a catalyst,28:27it’s closer.28:28That catalyst is also aligned in terms of the quad timing that I have for the US economy28:32to slow at a faster pace, then that would be bearish for the dollar and bullish for28:35the pound anyway.28:37That’s an interesting one, because I’ve not been long the pound for a long time.28:39I’m long Canadian dollars against the US dollar for the first time in a while, but I’ve been28:43willing to go there in the UK but broadly, UK data is Quad 4.28:48RAOUL PAL: Talking about fiduciary responsibility.28:49You’ve got a situation in the UK where the economics is relatively clear it’s Quad 4,28:55but you’ve got this huge overhang of something else, which of which you have no edge, is29:01the right answer to the [indiscernible], just keep out of it?29:04KEITH MCCULLOUGH: I just stay away.29:06Yeah.29:07RAOUL PAL: It makes no sense otherwise.29:08KEITH MCCULLOUGH: Yes.29:09I think that this is a point that you made earlier that’s critical to understand.29:11Wall Street isn’t like the person that’s watching this.29:15They aren’t like you and I.29:16We, until somebody removes it from us, maybe the CCP governs us and we can no longer have29:22any legal right to make our own decisions on our own free will, we can decide to buy29:27whatever we want, whenever we damn well please.29:30Wall Street is siloed into these are the people that trade the pound, these are the people29:34that do the UK, these are the people that do the US consumer.29:37These are the people to do US healthcare.29:40They have to have a view.29:42All of the time, think about how hard that must be.29:46In fact, it’s rendered itself useless.29:48There’s an oversupply of money managers, and you’ve basically made everybody a silo expert29:54of nothing.29:55What I intend to do is I’ll wait and watch.29:59I wouldn’t been able to tell you a year ago that I’m going to be long cattle and cocoa30:02today.30:03Are you kidding me?30:05We’ve seen negative supply dynamics, I see the volatility of the volatility of volatility,30:09the signal changing within the commodity space.30:12I see two dynamic situations that wow, this is perfect.30:15The crowd’s definitely not there and that’s when I go.30:18As opposed to feeling like I have to have a view that the crowd is having fumble on,30:22or tweeting about, or God forbid, reading CNBC view of every day.30:26RAOUL PAL: Spinning a bit more around the world and then we’ll come back, we’re going30:30to come to the dollar later.30:32There’s two markets that we’ve all looked at and thought at some point, they’re going30:36to enter trouble; Canada and Australia.30:40Where are we with those?30:41Is everything in the same sink right now?30:42Is everything in that Quad 3, moved into Quad 3?30:44KEITH MCCULLOUGH: No.30:46Well, in Canada, in particular, we have back to back Quad 2s coming.30:51If there is a country that looks like inflation accelerating, it’s Canada, and they are the30:56recipient of it, like within the Toronto Stock Exchange Composite Index, the heavyweights31:00are Quad 2 exposures, which include energy companies and the banks.31:05Canada for the first time, if only for six months, and the Canadian currency for that31:09matter, that’s why I’m long it, because it’s hard to find.31:12First of all, Canada only has twos because they’re comparing against borderline recessionary31:17Quad 4s that they’re coming out of.31:18That’s why you have that, but you also have the dynamics that they are hooked to headline31:23US inflation’s acceleration and the broader breakout in commodities.31:27Canada to me, it looks like we’ve been long it since the beginning of October.31:31It’s a relatively new position, but it’s the same position that I have across the board.31:35I bought TIPS instead of being as long as I was of duration.31:38I flipped the Dalio move and flipped into some of that.31:41It’s a cheater.31:42He knows it, that’s why he created it.31:45If you want to outperform people that are permanently long duration, let’s have a different31:50thing to be long while they’re still long duration and inflation accelerates.31:54TIPS.31:55It’s like the old adage, just you don’t have to outrun the bear, you just have to outrun31:58your friend.31:59Again, I’m just trying to isolate that view of inflation accelerating particularly North32:04American inflation accelerating, so it’s long energy, which is I think the most concerned32:08position that we have in equities, long Canadian energy, long Canadian equities, broadly long32:13the Canadian currency, and like I said, long the proteins, long lumber, which is another32:17way to double up on our– RAOUL PAL: You’ve got the full on reflation trade on?32:21KEITH MCCULLOUGH: Yeah.32:22Yeah.32:23Well, there’s no mincing words about that.32:25I’m short the consumption curves and software, which are, it’s a very– I have a higher beta32:31setup than I’ve had for a year.32:34Because I’m long things that are classically what I call phase transition coming out of32:38bearish trend, Quad 4, do not buy energy, do not buy commodities, short both to buying32:43what I was short, which can be somewhat unnerving, but exciting.32:48On the same token, consumer staples, which was a long, we’re shorting though.32:52RAOUL PAL: There’s a psychology that’s difficult here.32:55Your prevalent view is that we’re in the downside of the cycle, but what we’ve got is not faced33:02within a down cycle.33:06You have to trade against your view, which I don’t ever do.33:09It’ll either the out or outsize it so I could just sit with the longer term view, just different33:15way, different time horizon.33:16I find it particularly difficult to trade against my own view, that personal view.33:21If I know there’s some confusion, I just bail it, but you’re doing it.33:26How do you do that?33:27How do you find your plan still with that?33:29KEITH MCCULLOUGH: Well, my model, the way that my model is set up is not A or B, there33:33are four different economic outcomes.33:35It’s an explicit bet on what we call Quad 3.33:37RAOUL PAL: No, I understand that.33:38KEITH MCCULLOUGH: Yeah.33:39That is a six -month view.33:42That’s not against my view.33:43That’s my view for six months.33:45The hardest part will be to get back to the– RAOUL PAL: You are in the down cycle of which,33:51that goes on longer than that.33:52It’s based on your view and it’s all about time horizon.33:56KEITH MCCULLOUGH: Yeah.33:57If I only go back and look at how could I have traded ’08 better?34:03Crushed it in ’08 by just staying with the view that we’re in the down cycle.34:06How could I have done better?34:09Well, I would have bought commodities in the early parts of Bernanke going dovish, and34:13stayed long– RAOUL PAL: That whole correction that we had, the reflation correction we had34:17in the middle of 2008.34:18It was brutal.34:19KEITH MCCULLOUGH: It helped my consumer shorts, which is where I made all my money in ’08.34:23I just kept shorting every bounce in every story stock, every loved, broadly held story34:27stock, consumption oriented shorts.34:30That’s where my, I guess, my formal training came as a hedge fund analyst and then a PM34:35in the consumer space.34:36If I could do it all over again, I would have been long crude futures on top of that, that34:41the alpha is manifest when you have the cost curve piece on for that six-month period of34:48time.34:49It is an explicit view of stagflation.34:51Every time– like, again, for me, and God willing, I get to live through a couple more34:55cycles.34:56I might be 90 years old at this point if they keep [indiscernible], but it is classic late35:01cycle, where labor and you get that final push of inflation.35:04You can make money on the long side of that while you maintain your bearish view on the35:09consumption curve or the proper, as you said, the down cycle.35:12RAOUL PAL: From my perspective, I’m not so short as long term correction.35:17I’ve looked at the history of, of these moves in the down cycle and there’s two which makes35:22it somewhat complicated.35:24There’s one and I look at it through the lens of Eurodollars you and I’ve talked about.35:28That’s been a big thing for me at the moment because for me, I find it’s the best way of35:32trading the down cycle as well as– the up cycle tends to be equities and commodities35:36better.35:37The down cycle tends to be rates, which is why you’re not short rates right now particularly,35:42but you are long commodities because you’re in the reflation.35:44Anyway, so I look at this and both 2001 and 2007, both had 70 basis point pullbacks in35:55Eurodollars, which were the gut check reflation trade.36:00They didn’t last that long, they lasted three months, which is where we are now.36:08Then in 2008, and 2001, late 2001 going into 2002, before the 9/11 were these huge pullback36:17in rates, which was the Fed have done enough, the cycle’s over, oh no, it’s not phase.36:24I don’t know which one of those we’re in.36:26I feel like it’s too early for the bigger one, which will be the sixmonth, nine-month36:30trade but I hear what you’re saying and also can see that okay, maybe it’s a hybrid.36:37I don’t know.36:38It’s very interesting for me but I’m staying in the short end and just hiding out there36:41waiting because I was in a long time ago, and something we talked about before is if36:46you’re not doing monthly mark to market or even annual, then it doesn’t really matter,36:51you’d look at what price do I buy it, at what price do I sell it?36:54KEITH MCCULLOUGH: 100%.36:55RAOUL PAL: The entire world’s gone mad because they don’t even think about it.36:58When I was running a hedge fund, literally, it didn’t matter what price I bought anything37:01or I sold it at.37:02It was how much money I made that month.37:04If I was going to lose money that month, had to change, get rid of the position even though37:08I’ve made for x in it.37:09It’s crazy.37:10KEITH MCCULLOUGH: Yeah, well, great example and you absolutely nailed that was obviously37:14the Eurodollar trade, by the way, everybody a year later agrees with you because the net37:18long position there is like one and a half million contracts.37:21Net interest [indiscernible] just epic.37:23RAOUL PAL: But all the other problems are short.37:25That’s a part of it.37:26KEITH MCCULLOUGH: On that piece, that’s actually the point I was going to make, which is on37:29the short end of the curve, which is I like to think of, okay, we got into short term37:35treasuries on October the 17th of 2018.37:40That’s good.37:41We like that cost basis, but when do I go big again?37:44When do I grow set position up again?37:47That clock because I’m making a T-minus six months call on inflation accelerating, I’m37:51not willing to run the clock up six months, because the GDP number is T-minus four months.37:57That’s the January number.37:59I think that that’s the beginning of the Fed, because again, the short end of the curve38:02is what the Fed does, the long under the curve is what the market thinks the cycle’s doing.38:07If the Fed actually sees that and goes to where Fed Fund Futures are, their dot plot38:13is as wide as it’s ever been going back 12 years since the inception of the dots, and38:18again, a highly inaccurate dots of process or whatever you want to call that forecasting38:22process to do that, but they will have to acknowledge at some point that their dot’s38:26going up this way in terms of economic expectations have to come down.38:31That’s where I think I cannot, you cannot be big enough on the short end of the curve38:36into that.38:37RAOUL PAL: No, when that happens, it becomes the crisis trade.38:40KEITH MCCULLOUGH: Because you can take the 2-Year Yield down 100 basis points from where38:43it is today, which is a monster move relative to the long end of the curve.38:45RAOUL PAL: Yeah, and the leverage you can take in something like that is enormous, too.38:48KEITH MCCULLOUGH: Yes.38:49I’ve spent a lot of time with clients, and we can talk about it later but clients are38:53all asking, okay, what is it?38:54Should I use swaptions?38:55Should I do use this?38:56Should I use that?38:57Eurodollars, they do see it as having been a little bit more crowded than they would39:02like, that’s the discussion within this discussion but it’s pretty simple.39:06If we’re right on the economic projections the Fed is going to have to at some point39:10in early 2020, look like they are actually completely politicized relative to the Trumpia.39:16RAOUL PAL: I just think that the yield curve is telling us something.39:21Now, the yield curve goes negative into recession, we’ve seen.39:25The swaps curve got to zero, which is the same as it did every single, actually went39:30negative which was actually rare for the swaps curve 2s, 10s, and it seemed to steepen.39:34The prerequisite for a recession is steepening curve.39:38Everyone thinks it’s the negative curve.39:40It’s not, it’s the steepening curve.39:41KEITH MCCULLOUGH: Post the inversion?39:42RAOUL PAL: Post the inversion.39:43Yes.39:44Which it’s now doing, which plays into, as we’re both saying, somewhere within Q1, Q2,39:51it’s going to start getting ugly again.39:52KEITH MCCULLOUGH: Yeah.39:53Well, that steepening is just based on the Fed catching up to our view.39:56They’re the last one to figure it out.39:59Once they do, they steepen the curve by cutting the short end out and I think that if they40:05don’t do that, then they perpetuate having to do more when they finally do do that.40:10They are the catalysts for their own panic if they don’t acknowledge it soon enough.40:15That’s why I do think that that GDP number if we’re right on the headline, in conjunction40:20with profits slowing and jobless claims rising, there is no case to be made for jobless claims40:24rising for the first time in a decade for the Fed to not go incrementally dovish, and40:28probably aggressively so if I’m right on that.40:31Again, that would just be washing through Q4’s earnings season into the Q1 of 2020 outlook,40:37where the street is way outsized on earnings expectations.40:40They’re actually looking for earnings to be up 5%, 6%, 7% in the first quarter of 2020,40:44which I think is mathematically impossible.40:46RAOUL PAL: Yeah.40:48They’re just looking at, they just want a hockey stick up every time.40:51They just don’t want to believe the fact that things can trend lower.40:57Where are you most excited about in the world?40:59Is there anything you see different that’s not in the same cycle?41:03Because that’s the key thing.41:04Because most of the world, give or take is in the same cycle, some leads, some lags.41:08Is there any way you would say a great thing about this is just entirely different.41:13It’s a breath of fresh air.41:14KEITH MCCULLOUGH: Well, on the short side, yeah.41:17I’m feeling it’s not– I shouldn’t say feeling, if I ever say that again to you, Raoul, just41:21take me off Real Vision.41:22RAOUL PAL: Basically, there’s nothing in it.41:24KEITH MCCULLOUGH: There’s no feelings, there are cycles.41:29I think this software bubble that built within the cycle is potentially like this thing that41:34can almost make you giggle, or things trade at 15 to 20 times revenues with these TAMS41:40as far as the eye could see.41:43They’re seeing rate of change slowdowns in revenue growth, and massive, bloated cost41:48structures.41:49That’s like, in short selling space, that is easily bee– by the way, the software stocks41:55are down depending on what day you’re looking at them, they’re down 8% to 10% already since42:00July.42:01I like it when the movie already starts and the index doesn’t agree with that setup.42:06Actually, consumer discretionary, broadly, is the other one that’s down since the July42:11highs.42:12You have this concept of secular growers which has never happened before.42:16It’s only something Wall Street could make up, a secular grower is something that’s never42:23seen a cyclical slowdown.42:24Great.42:25To me, that like from a short seller’s perspective, because let’s be clear, you’ll find them at42:30Real Vision, but the art of short selling has been shot for dead.42:34That, to me, is the most exciting thing.42:36Having an independent research team with 40 different analysts.42:39We’re finding some really interesting shorts and very low short interests, which reflects42:45the broad interest that people have in story stocks, or in these TAMS, these total addressable42:50market stories.42:51It’s all about stories, and again, as they become cyclical, I think that that’s probably42:55the most exciting thing in terms of opening the envelope to the downside because we’re42:59already seeing that actually in this earning season in particular.43:02RAOUL PAL: Just a side story to that, it does worry me, because obviously a bunch of hedge43:08funds are more than skilled at short selling, but there’s the short sellers, people like43:14Marc Cohodes and stuff that we all know and love, are very skilled at this but it’s a43:18very, very skilled business, particularly if you’re fraud hunting, as opposed to trading43:24a directional view based economic views or whatever it is.43:28We saw that the amount of tourists, short selling tourists, I think more than Macro43:32Tourist, they all flooded into Tesla.43:36Then people have lost fortunes in stuff like this.43:39There’s a whole bunch of these stocks that they were like, they’re definitely going to43:42zero, they’re definitely going to zero.43:44It’s all a fraud, because they became market vigilantes.43:49A lot of them came out of the gold crowd, the same vigilante stuff.43:53It really concerns me that people have been pushed into stuff like that, because they43:56don’t really understand that short selling as you know is not easy.43:59KEITH MCCULLOUGH: If you don’t have, and I know that this is going to ruffle feathers,44:04and maybe the first time I’ve ever done so, but if you don’t have a macro process to overlay44:10when the cycle is in your favor as a short seller, I think you need to really rethink44:14that.44:15If you think about– RAOUL PAL: Well, unless you’re an expert short seller who writes a44:18whole thesis on the thing and everything else, because it’s so difficult.44:22KEITH MCCULLOUGH: Even that, when the cycles not on your side, and I don’t need to name44:26names, but they lost their hedge fund.44:29Since the financial crisis in ’09, I think 50% of hedge funds that launched on the Goldman44:36system are gone, because people start with shorting valuation.44:43Valuation is not a catalyst.44:45The cycle slowing is the catalyst and expensive stocks within a slowing cycle is the ultimate44:52short seller’s dream.44:53It made many short sellers famous, those that have ignored the economic cycle.44:582017 is a great example.45:00I was born a short seller.45:01The first thing I learned how to do is short a stock because my first job on the buy side45:04was in 2001.45:06I come to my boss, John Dawson, I said, well, they’re going to miss again.45:10They’re going to what?45:11They’re going to miss again.45:12I just listened to what they said at the conference.45:13I put it in the spreadsheet.45:14Their margins are going to be down.45:16The revenues are going to slow.45:18He’s like, short it.45:19Like, okay, this is cool.45:20Short it.45:21I thought it was just like buying something.45:22I thought that’s what you did.45:23Because it’s when I was born into the business that mattered.45:27Anyone who’s done something well over time can tell you that.45:30There is a significant amount of luck in terms of when you were put in that seat to do a45:34certain thing.45:35RAOUL PAL: You have a boss.45:36KEITH MCCULLOUGH: Yes.45:37Okay.45:38Then the rate of change went bullish in 2002 of all the shorts, I come back to John and45:41I say, well, they’re going to beat it for the first time since I’ve worked for you.45:44They’re going to what?45:46Cover that short, we’re going to buy that stock and lo and behold, growth was accelerating45:50from obviously late ’02 all the way until 2007.45:54I think most people that got blown up in the story socks high multiple.45:58Again, there’s some epic things that have gone on, we weren’t fully loaded Tesla’s Elon46:03storytelling, but people were shorting them into the 2017 tax reform acceleration and46:08top line growth that perpetuated these multiples.46:11Software growth, software CapEx, for example accelerated all the way into the end of last46:17year, into the end of– and into actually the first quarter of this year, of 2019.46:22There was no backdrop to short sell software stocks in rate of change terms until this46:26year.46:27RAOUL PAL: How did you guys get on with Tesla, because you guys were Tesla shorts in that46:31period as well?46:32KEITH MCCULLOUGH: Yeah.46:33Well, we came into it literally, Jay Van Sciver came into it rate as it was topping.46:36He was looking– and I’ve taught all my analysts, if you can’t show me the rate of change slowdown46:41in their business within three to six months, this is not going to have a hedge on name46:45on it.46:47You can argue till you’re blue in the face but the batting averages are very low.46:51If you tell me you found a fraud, like our analysts, Kevin Kaiser did with multiple MLPs46:57and by the way, those frauds weren’t revealed until oil blew up.47:00RAOUL PAL: Yeah, same reason, micro, macro changes.47:03KEITH MCCULLOUGH: That’s when it was easier to get loud on deflation Quad 4 type theme.47:09I have an analyst who’s super buried up on a bunch of frauds in the MLP space.47:14Go.47:15I think that timing part, I’d humbly submit that that’s a part when I say the art of short47:18selling has been shot for dead.47:20It’s because you haven’t had the macro meets micro.47:24The rate of change now, your timing’s good.47:26Now, your batting averages are going to go up.47:28If you show me a software company, we found one that basically filed an S1 with two years47:33lookback in terms of revenues when the revenues have only gone this way up.47:37Post tax reform, through tax reform.47:39It’s a 20-year old IT services company.47:41It’s like hello, McFly, you slowed every single time we had a cycle but you’re not showing47:46the lookback.47:47These are the kinds of things that Wall Street underwrote.47:49This is why you know short selling now in a lot of these high multiple stocks is a much47:54more appropriate time, high multiple stock prevailing condition is slowing as opposed47:58to accelerating.47:59RAOUL PAL: Right.48:00You just been out seeing clients that’s why you were in a suit and tie.48:04KEITH MCCULLOUGH: It’s the only time I wear it.48:06RAOUL PAL: What are you hearing?48:09What are people doing?48:11What are they thinking?48:12Where are the pain points?48:13Where are they– I don’t think it’s been a straightforward year for many.48:16KEITH MCCULLOUGH: No, but if you’re having a good year, the happiness factor is back.48:21I do have clients that are macro aware.48:23They’ve been on the right side of the cycle.48:26Generally speaking, I’d say that the clients that if they’re paying us, they’re aware of48:30the view that we’ve had, certainly the Quad 4 views, their batting averages on the short48:34side have gone up tremendously if they are of that ilk.48:37If they’re long only they’ve been leaning on proxy, which they’re quite happy about,48:41but I’d say that, like, in particular, this last couple weeks of meeting, there’s the48:45markets punch to new highs throughout earnings season.48:49There’s an uneasiness to it.48:52It’s like– RAOUL PAL: That’s my opening question, uneasiness or uneasiness.48:55KEITH MCCULLOUGH: Uneasiness.48:56RAOUL PAL: Yeah, hence my opening question to you when we started this is nobody really49:00knows quite what’s going on.49:01KEITH MCCULLOUGH: Happiness becomes uneasiness when you start to underperform the bench.49:07That’s what’s happening.49:08Peak happiness was coming out of the October lows in the S&P; 500 or August and October,49:13our clients would be doing fine because the things that they’re long were going up and49:17their shorts are going down.49:18Now, everything’s going up.49:19In fact, the things that have gone down a lot are going up more., so you’ll have that49:22uneasiness.49:23There’s an absolute consensus to not be able to fade Trump’s tweets.49:29Therefore the value or the resurgence of these PMIs and ISMs a bottom trade.49:36They’ll wait to see the data point until they believe that the cycle is properly continuing49:40to slow.49:42There’s an uneasiness about that.49:44There’s always an uneasiness about your compensation.49:47A lot of people– RAOUL PAL: It’s always a difficult time of year because you’ve got49:52six weeks to make a decision.49:53Do I do anything else or do I not do anything else?49:55KEITH MCCULLOUGH: Yes.49:56There are plenty of money managers long only and long short that have set their yearend50:01in September, October, November, those months for that reason because they didn’t want to50:08be beholden to chasing the ace into yearend markups.50:12It’s an interesting one, but again, don’t forget that the S&P; 500 stock going up in50:15November of ’07, it didn’t wait till the end of December.50:19There’s an uneasiness associated with that as well.50:21The more macro where you are, the more ’07 questions I’m starting to get, which doesn’t50:26have to mean we’re going to have an ’08 but that’ll certainly– if it doesn’t make you50:29feel uneasy to some degree, I think it absolutely should.50:32RAOUL PAL: The hedge funds themselves, what is the appetite for risk now?50:37Are they gun shy?50:38Because they’ve had, yeah, it’s been a flip flop year.50:41It’s been one of those years where they came in short of equities, equities rallied, okay.50:46Anybody who got the bond trade got it sorted out, then it flips again later in the year.50:50It’s been a complex year for many people.50:52How are they feeling in this?50:54KEITH MCCULLOUGH: The better the research teams and most specifically on the short side,51:00the better they are doing right now.51:02Don’t forget, just like the high yield index or where high yield spreads are is not where51:06the rest of the market is.51:08You have multiple blow ups going on.51:11Think of some epic story stocks imploding and for the valuation oriented short seller51:17that got the timing right, I think that the batting average is going up their– or building51:23a confidence that wow, I have the benchmark index SPYs at the all-time high and I can51:28make money on my shorts at the same time with the president trying to trump up the bench.51:33Like it’s almost like licking the chops times for this– somebody who’s had a successful51:38career short selling across cycles, not somebody who’s just getting lucky.51:43RAOUL PAL: Final question, the dollar.51:47You’re, I think, majorly negative the dollar right now, do you think the dollar cycle is51:52turned for good, or is this part of the reflation in Quad 3 theme?51:59Where do you stand on the whole dollar view?52:01It is crucial to a lot of things.52:03KEITH MCCULLOUGH: Yep.52:04If you take the trade weight of dollars at a 20-year high, again, back in 2001, same52:09point, what could possibly go wrong?52:12Sustainably strong dollar is also one of the many negatives to corporate earnings growth52:17for the fourth quarter and the first quarter, so it’s the same sixmonth outlook.52:21No longer buying dollars– RAOUL PAL: Okay.52:22It’s off the same– it’s not a separate construct for the dollar.52:26KEITH MCCULLOUGH: No.52:27Quad 4 is where the dollar goes up, so the next time I’ll buy the dollar is when I think52:30the market’s setting up the price in another Quad 4, so I have a six-month window, might52:34be four.52:35RAOUL PAL: When do they start– when did the clock starts here?52:38KEITH MCCULLOUGH: October.52:39That’s when dollar– RAOUL PAL: End of December, January, February, March.52:41KEITH MCCULLOUGH: Yeah, our call was it’s pretty straightforward, it’s hashtag peak52:45dollar.52:46I don’t mince words.52:47The dollars peak, but again, the dollar– RAOUL PAL: The peak dollar sounds to me secular,52:51but you’re saying cyclical?52:52KEITH MCCULLOUGH: Yeah, it’s just my six-month pivot.52:56Again, I want to cancel– RAOUL PAL: That’s what I wanted to ask you about it.53:00My thinking, I’m a much longer term person so I was thinking okay, if you’re saying that53:04you think the entire dollar construct has now changed for the world, okay, that’s very53:09different than the view I have which is like okay, and this has been trading accordingly53:14to your view, it may had broken down or broken up but it’s– KEITH MCCULLOUGH: It made it–53:18it’s been like literally right on the screws played out in our playbook and this doesn’t53:22happen all the time obviously.53:24When it does, you like to know just like a good golfer makes a birdie putt, you expect53:28to make the putt, you hit three good shots on a par four, well done.53:32That’s what the process say.53:34When Quad 4 is you’re in the thralls of Quad 4, the dollar should rally to new highs, which53:38it did, Quad 4 ended in Q3.53:40Now, we’re not in Quad 4, the dollar should start to make lower highs for six months.53:47That’s pretty much it.53:48I don’t think that it’s like some big bang call.53:50I still do think that there’s some asymmetry to the Fed waking up to that GDP number in53:54February, and then cutting their dots.53:57I think that that’ll probably be wherever the dollar corrects to, that’d be the beginning54:02of the end of the negative dollar view.54:05Then I go back to being long the dollar in start of second quarter.54:08RAOUL PAL: Final, final question, when you’re looking at the rate of change to assess where54:13you are in in your framework within the quads, you’re looking at the rate of change, are54:17you looking at the rate of change of asset prices, rate of change the economic data or54:20a bunch of both?54:21KEITH MCCULLOUGH: Both, and that’s what I call my AB test.54:25A is various in the research team constantly measuring and mapping the rate of change data54:29across 50 different countries.54:32RAOUL PAL: Economic data.54:33KEITH MCCULLOUGH: Economic data, and then there’s me, that is measuring and mapping54:36the rate of change of price, volume and volatility, the relationship of all three, especially54:41the volatility of volatility is what I really care on, and something like that.54:45Like we just saw what I call phase transition in oil volatility for example.54:48Oil volatility or the vol of vol has now gone from bullish volatility, very negative for54:53the price to now bearish volatility, which is very short term bullish for the price.54:58We’re starting to see that too.55:00It’s classic.55:01I think, Bridgewater, Dalio to a degree, assets flow towards falling volatility, assets low55:08the rising volatility, and that’s why I spend so much time on that.55:11It’s the most humbling of experiences as it was for Mandelbrot when you had Big Blue,55:16the machine measuring and mapping cotton prices in all historical prices, because you have55:22to wait for a moment where that signal becomes real, because there’s lots of Brownian motion.55:27If you’re looking at it like I do, and measuring and mapping the volatility of volatility daily,55:33Brownian motion 101, there is nothing to do until there’s something to do, because volatility55:38will cluster and then become a new trend.55:42That’s what I’m essentially on the lookout.55:44RAOUL PAL: Because it’s interesting.55:45We’ve just interviewed John Bollinger.55:47I haven’t seen the interview yet, but Bollinger Bands, the technical analysis.55:50It’s basically based around the same concept.55:53KEITH MCCULLOUGH: Really?55:54RAOUL PAL: Yeah.55:55It looks like it basically looks at the volatility of an asset and if the volatility is increasing,56:00the band’s increasing, if it’s decreasing and usually when it decreases after a while56:04and you get a breakout, you’ve got to change your volatility regime.56:07KEITH MCCULLOUGH: Well, that’s right.56:08Bollinger Band would be a Gaussian standard deviation and when the volatility changes,56:15the standard deviation of vol comps change.56:17RAOUL PAL: Essentially, yes.56:18KEITH MCCULLOUGH: Actually, that’s a good example of what I call our risk range process.56:22I published daily risk ranges and people are like, wow, I can’t survive without it and56:26I’m like, no shit.56:27I couldn’t do– I couldn’t trade without it.56:30Again, when I see the volatility of volatility rising, what happens is my probable range56:35widens.56:36RAOUL PAL: Of course.56:37KEITH MCCULLOUGH: Similarly, when the range is starting to tighten, what that means is56:40that the volatility is starting to go away, or potentially undergo phase transition, plenty56:45of head fakes.56:47Again, when I take the AB test, this is critical.56:50The signal is always raw, front running the quad, the market signal’s going to get it56:55before the quad does.56:57If my quad outlook reflects what the market sees, and it’s a change of face- – RAOUL PAL:57:02The problem is that the market also does a lot of false signals, just keeps reading for57:06something different, and it gets it wrong, and it reverts.57:08KEITH MCCULLOUGH: 100%.57:09RAOUL PAL: That’s endlessly testing the narrative, the markets or indices, so yes, it’s the test57:15between the two is dead right.57:16You can’t do it without the other.57:17KEITH MCCULLOUGH: Which is why my hair is grayer and I’m getting fatter because I have57:20to do this.57:21That’s what I signed up for, like Hedgeye, I don’t get to have days off from Brownian57:27motion.57:28I have to deal with that damn thing every day.57:30Moreover, I have to try to explain it, which is unexplainable some days, but it certainly57:35makes– it’s made the experience of what I do, and trying to teach what I do, if only57:41I’m teaching myself actually, I’m sure people have realized that, wow, this guy’s not as57:46dumb as he used to be.57:48It’s a rate of change.57:49If you have to teach yourself through your mistakes publicly, every day, you will get57:53less dumb.57:54God forbid, you get a little bit better at it and better and better at it, but you’re57:57quite right.57:58The amount of head fakes, they’re just manifest.58:01RAOUL PAL: Yeah, that’s a lot of filtering.58:03Keith, super interesting.58:05I think it’s been– you’ve had a great year so well done.58:08Hands down to you.58:09KEITH MCCULLOUGH: Thank you.58:10RAOUL PAL: Let’s see what next year brings because it’s going to be another really interesting58:14macro and the great thing for us, for both of us is it’s a macro world and macro world58:19is the most interesting of all, because that’s what I find the big returns lie.58:23This whole period of time, we have low volatility, choosy, well, the grinding high prices and58:28that’s never the easiest to make money.58:30Well, you can’t easily make money if it’s never exciting.58:33Let’s see how it pans out.58:34Thank you ever so much for coming and do this.58:36KEITH MCCULLOUGH: Yes and congrats to you, you had a great year as well.58:38I appreciate you having me on.58:39RAOUL PAL: Yeah, and it’s all good.
Did we ever really escape the financial crisis of 2008 or did we kick the can down the road and quadruple the problem? We certainly didn’t solve anything and are likely on the brink of one of the largest societal changes in modern history as the entire system faces a reset that could reshape our political climate and social experience. These types of events are not unusual, and there’s always a possibility of extending the issue once again, but eventually it will crash.
Jim Rogers has been fascinated by China since he drove his motorcycle across the country in the 1980s. The investing legend joins Real Vision to give his view of the rising Asian superpower and, more broadly, on rising Asia in general. Rogers provides his views on the Hong Kong crisis and the simmering trade war. He also weighs in on whether the era of US dollar primacy has passed — especially now that the United States has become, in Rogers’ view, “the largest debtor nation in the history of the world.” Filmed on September 10, 2019 in Singapore.
You know the rest of the story, you know what happened there, but Mr. Trump is smarter than
history so we don’t have to worry.
Mr. Trump knows he can handle history and none of us should worry, because he’s smarter
Even though people say trade wars are bad, and often lead to shooting wars, don’t worry,
I’m smarter than history.
MATT MILSOM: He does seem to be able to just move to the next person once he’s had– go
at somebody then it slackened off, just goes to next target is going to be Europe, once
he’s done with China, even though nothing’s actually resolved.
JIM ROGERS: The problem, Matt, is that when things get bad, so far the American economy
has held up well because of a lot of money printing, out of government spending, cut
taxes, everything possible to hold up the American economy has held it up.
When things get bad in America as they will, Mr. Trump is not going to say, “It’s my fault.
I got it wrong.”
Donald Trump is going to say those evil Germans, those Koreans, those Canadians, and he’s going
to come back hard with more and more whatever you want to call it.
The situation, we’re going to have the worst bear market in my lifetime.
I can tell I’m older than you, so it’s going to be the worst in your lifetime, too.
What I suggest you do is watch Real Vision, and you’ll get educated, and you will see
how bad things are.
Then you’ll get there.
Most people will turn on the internet or turn on the TV, say, “Wow, look at this.
Things are great.”
Mr. Trump tells you every day, if you watch American TV, he will explain you things are
really, really very good.
You don’t worry.
Maybe you need somebody crying wolf, maybe you need somebody saying, “Wait a minute,
guys, wait a minute.
Look at this.”
Maybe Real Vision is the last vision for all of us.
MATT MILSOM: You think he gets back in?
JIM ROGERS: Get back into what?
MATT MILSOM: Trump 2020?
JIM ROGERS: I got to respect you, what I think it’s– I know it’s very hard to dislodge a
sitting president in America for many, many reasons.
I would suspect that’s the same to this time.
Now, we got rid of Coolidge, and Hoover.
We got rid of Hoover because the market collapsed but we don’t have much time for that because
the election is only, what, 13-14 months away now.
If the market really collapses in the next 13 or 14 months, then I would change my view,
but there are enough things he can do, which is why it’s hard to get rid of sitting presidents.
They’ll prop things up long enough to get through the election.
I would, if I were betting and I’m not a betting man, but if I were, I would bet that Trump
will be reelected.
MATT MILSOM: A lot of speculation that he might actually start to swerve the Fed and
play the currency markets himself for the Treasury.
JIM ROGERS: What, Trump will start buying what?
US dollars or renminbi?
What’s he going to buy?
MATT MILSOM: He’s going to be selling dollars.
JIM ROGERS: He could do that.
Yes, and he might.
He cannot force the Fed to do it.
No, but he could, he could browbeat him.
He can certainly force the Treasury to do that, to sell US dollars.
First of all, I’m not sure the market would put up with it, it would for a while, obviously,
it would for a while, but eventually, the market, as I said to you before, I mentioned
the market’s going to say to these guys, “We’re not going to play this game anymore.
This is an absurd, ludicrous game.
It’s never happened before.
We know it’s not going to work.
We’re not going to play anymore.”
Okay, maybe we’ll try.
I don’t think it’s enough.
Maybe it’s enough to save the election, I said to you before.
It’s so difficult to dislodge a sitting president.
There are lots of things he can do.
If he needs votes in that state, he spends a lot of money in that state.
His opponent cannot do that, the opponent can say look, what a terrible person he is.
He’s spending money in your state.
The people say, thank you, thank you spend more money in my state.
We’ll vote for you.
MATT MILSOM: He can almost play the Fed to his own fiddle, I guess at the same time.
He can blame them if it goes– JIM ROGERS: He certainly can blame them, whether he can
He seems to be persuading them now is another question, but sure.
That’s what I mean, if he goes in there and threatens them, or does x or does y, sure
That’s the problem when you’re the president, or the advantage when you’re the president.
MATT MILSOM: I see Powell’s having a bit more backup by myself.
I just think he’s his own guy.
Really, he’s not a PhD Economics.
He’s a– JIM ROGERS: That’s the best news.
I believe PhDs, which is bad news.
MATT MILSOM: I could see that arising a bigger conflict there, you think between Powell and–
JIM ROGERS: No, I can see a huge conflict and that’s going to– the Federal Reserve,
its debt went up by five, six times in 10 years.
If I had said to you 20 years ago, a major central bank in the world is going to increase
the debt on its balance sheet by 500% in 10 years, you’re going to say, “Get out of here.
We’re not going to talk to you anymore.
You’re not even smart enough to talk on TV.
What are you talking about?”
It’s inconceivable that it could have happened, but it’s happened.
Sure, they have a problem, too.
How far can they go?
How far can any of us go?
MATT MILSOM: It surprised me the volatility’s so cheapened right now.
JIM ROGERS: The debt worldwide is the highest in world history.
Interest rates are the lowest in world history.
In 2008, we had a big debt problem.
China, which had a lot of money saves for a rainy day, started spending the money and
helped save the world, but even China now has debt.
China can’t save the world anymore.
The central bank came riding in with its printing presses, helped save the world.
That’s getting late for all the printing presses in the world.
It’s getting late in the day.
MATT MILSOM: Is the rate of change as well as a debt in China that’s extraordinary just–
JIM ROGERS: Oh, no, I know.
To repeat, ports in China has said we’ll let them go bankrupt.
I don’t think they will.
Not that they’re lying, I think they believe that they’re going to let people go bankrupt
but they haven’t had this problem in decades.
They’re bureaucrats and they’re academics, haven’t felt the pressure of people calling
up saying, “You must save Chinese civilization.
This is Chinese history, our image our integrity.”
No, they haven’t had that gigantic pressure from everybody in the country, they’re saying,
“Save Chinese civilization.”
What they really mean it save me.
They haven’t had that yet.
MATT MILSOM: Xi as a link leader seems to be much more of a Maoist than ever before,
JIM ROGERS: I’m not sure Maoist, but they’re certainly closing off in that sense.
Deng Xiaoping started opening up and Deng Xiaoping said you open the windows, you’re
going to get some flies, but you’re going to get fresh air and sunshine, and the fresh
air and the sunshine are worth the flies.
He seems to be saying we don’t want flies and the last 40 years, much of the progress
has been 18-year-olds in a garage doing crazy things on the computer.
Alibaba, Microsoft, the names go on, and on and on.
These were just kids doing wild, crazy things on the internet, which was open and free to
You start closing these things off, and it’s going to slow progress, it’s going to slow
things now, whether we like it, history is always showing that.
You close off and you go into decline.
It does seem to be happening not just in China, even in the US, but it does seem to be happening
more and more, so maybe we’re in for the dark ages again.
MATT MILSOM: I don’t know.
It’s almost that you think about where you’re going to head or what currency you need to
get into, where you’re going to be safe.
Do you know what I mean?
You start thinking about– JIM ROGERS: That’s not what I mean.
I don’t have a job.
I can’t figure out a way to save myself.
MATT MILSOM: You made the move to Asia on the back of those thoughts, I guess that that’s
going to be a Pacific centuries.
JIM ROGERS: Well, I moved here you because I know that the 20th century is Asia, 21st
century is Asia.
I wanted my children to know Asia and to speak Mandarin.
That’s the best preparation I can give them for the 21st century.
That’s why I’m here.
Of course, Asia is continuing to develop and boom and head of the rest of the world.
There is some debt in Asia, but nothing like in the West.
Most of the Western countries are really broke, especially when you pull into pension plans.
Europe’s got gigantic pension, US too, gigantic pension obligations, which they’ll never able
MATT MILSOM: Yeah.
Demographically, where does that end up?
JIM ROGERS: It’s already starting to ruin a lot of people.
Asia has probably– will have problems but nothing like some that are rising in the West.
I can’t bear for my kids.
MATT MILSOM: The world of agricultural investment view is still a– JIM ROGERS: Yeah, agriculture
has been a disaster for 35 years or so.
The average age of farmers in America is 58.
More people in America study public relations and study agriculture.
The highest rate of suicide in the UK is agriculture.
Of Japan, the average age of farmers is 68.
Nobody becomes a farmer, you go to Japan now, there’re huge stretches of land, they’re just
They can’t find anybody to farm them.
Farmers have died, the kids have gone to Osaka.
There’s nobody to farm that land.
If you want to be a former, go to Japan.
You can get a lot of land cheap.
Australia, Canada, all of these countries have very, very aged old farmers, men and
It’s millions of Indian farmers have committed suicide, as I’m sure you know.
No, no, agriculture is a disaster.
The Chinese have a word, you know the Chinese word weiji?
It means disaster and opportunity are the same and they are.
If you can survive the disaster, you’re going to make a lot of money with the opportunity.
MATT MILSOM: I guess the commodity complex per se, are softer on their knees-ish for
the last five years.
They’re actually doing okay in the States.
JIM ROGERS: Yeah, yeah.
Things like sugar, sugar is down over 80% in the last 40 years, what do you notice down
80% in the last 40 years?
Other than that, there’s not much that has declined, that deteriorated like some of the
MATT MILSOM: Difficult bet to make given the climate change, too?
JIM ROGERS: Well, yeah, climate change is taking place, is taking place for thousands
Go back and look at trees, and soil layers and iceberg layer, we see that climate change
has always been taking place one way or the other, and it seems to be happening again.
Of course, that’s going to be great for some farmers, disastrous for other farmers.
The key is to be the farmer that it’s great for, not to be a farmer that gets wiped out
because of climate change.
The Sahara Desert, which is the size of the continent with 48 states, used to be a huge
Pigs, cows, wheat, corn, everything, huge, huge.
We had climate change.
We had ecological change, you know the rest of that story.
If you were a farmer in Algeria 2000 years ago, you probably didn’t do very well.
You should have moved to Iowa 2000 years ago.
MATT MILSOM: Would it be too much to ask your asset allocation now?
JIM ROGERS: You can ask, I don’t know.
I don’t sit around.
I don’t have a committee met.
I don’t have anybody to answer to.
I know I can still pay my bills.
I do own some gold and silver.
I do own a lot of US dollars, I’ve told you about.
I’m short some junk bonds, short the ETF, Russia, China.
I don’t own a lot of shares anywhere right now.
The Japanese market, I sold out of.
I used to own a lot of Japanese shares, sold out completely.
MATT MILSOM: Why was that?
JIM ROGERS: I bought them so well.
It’s not often I get it right so I’m going to brag for a minute.
The Japanese market was very, very cheap and I started by and then the tsunami.
Remember the tsunami?
Everything collapsed, I bought a little, gone up a lot, it tripled since then.
I could see wasabi and the toll got stronger and stronger and stronger.
They’d already printed lots of money.
The central bank said we’ll print as much as we have to.
That’s what they said.
They said it out loud.
Not some crazy guy saying it.
I said what else can happen?
What else can go right?
They’ve spent a lot of money on infrastructure.
They bought a lot of securities, so I sold out.
So far, I’m right, but don’t worry, I make plenty of mistakes.
MATT MILSOM: I guess, it changed your beast, don’t even trade anymore, eh, because there’s
JIM ROGERS: Nothing to trade, why would you buy them?
Who’s going to buy them, except a central bank?
MATT MILSOM: They have to keep going?
JIM ROGERS: I told you I have.
I’m going to Japan tomorrow, there’s been a best seller saying, “A Warning to Japan.”
If they keep going– MATT MILSOM: That’s a book?
JIM ROGERS: Yeah.
MATT MILSOM: Sorry, I didn’t know that.
JIM ROGERS: No, it’s the number one bestseller.
MATT MILSOM: Congratulations.
JIM ROGERS: I’m shocked.
I’ve made two number one bestsellers.
MATT MILSOM: What was the other one?
JIM ROGERS: I forget that, it was some Japanese.
It was something like, “A Warning to Japan.”
MATT MILSOM: But this is a specific for that market, or they were– JIM ROGERS: Two books
They were translated, my English was translated into Japanese.
Two books in 2019 have been number one bestsellers by me.
This is a shock.
How could this happen?
I’m more surprised than anybody.
They called me up, that smarty say you got to come to Tokyo.
I said why?
He said your books have won bestseller.
I forgot about the book.
The book resulted from some reporters coming here and interviewing me like you.
We’re out for several hours.
I said we’re going to publish this.
Okay, go ahead.
I don’t care.
Forgot about it.
MATT MILSOM: You got a book tour now?
JIM ROGERS: Yeah, I’m leaving tomorrow.
I’m going tomorrow for a book tour in various cities of Japan, promoting, “A Warning to
MATT MILSOM: What was the essence of that?
Was that demographics or that– JIM ROGERS: If you’re 10 years old, you better get out.
If you’re 10 years old, you better get an AK47 and learn how to use it.
These are not– it’s simple.
I say to them, they will say, of course, he’s a foreigner.
The Japanese don’t like foreigners, and so they will just say, he’s a– whenever they
say they don’t like somebody, they say he’s a foreigner so you don’t have to listen to
I say to them, yeah, okay, I’m a foreigner, but this is arithmetic.
It’s addition, the debt goes up every day.
That’s simple addition and it’s subtraction, the population goes down every day.
Central bank has been printing huge amounts of money.
This is just simple addition and subtract.
Forget that I’m foreigner and for some reason, both of them became number one bestsellers.
I guess it’s because nobody in Japan ever says things like this.
I don’t know why I became, but listen, I’m shocked.
MATT MILSOM: Do you have any views on Softbank?
JIM ROGERS: So far, they’ve made a lot of money but I don’t know enough to say much
more than that.
I read that problems are developing, but I have no knowledge, enough knowledge to say
anything other than that.
MATT MILSOM: I guess WeWork is the speculation for those issues there, for the float.
JIM ROGERS: WeWork is not their only asset at Softbank.
What I read about WeWork, WeWork may be one of those things.
You remember in 1999?
I think it was called pets.com or something.
It was one of those things that was when people talk about the end of the bull market or the
signal, or the sign that it was over, that may be WeWork now.
They were printed out in 1999.
That’s the one that people often bring up, I was not sure.
I wish I had but they bring that one up.
Now, if you look at the current bull market, maybe someday in 10 years, we’re all going
to look back and say, “They rang that bell.
That bell was called WeWork.
That was the sign that we were coming to the end.”
It’s always something that people look back on that it may be WeWork.
MATT MILSOM: The amount of questioning that browned the IPO pricing makes you think that
the greater fool game may have just come to a grinding halt.
JIM ROGERS: I’ve never read the Prospectus but I’ve read a lot in the papers about the
story, the company, that IPO, the CEO, etc.
Just I’m sure you have too.
I read it and I say this is 1929, this is 1999.
This has all happened before.
MATT MILSOM: They have nines in them.
JIM ROGERS: Yeah.
See, 1899– well, anyway, you read, I read this stuff and I’d say oh, yeah, this has
I remember reading about things like this in previous bull markets, previous bubbles.
MATT MILSOM: What brings you to an investment then?
Is there a sector or there is an idea or somebody pitches to you?
JIM ROGERS: No, it’s usually– the nature of who I am, I’m always looking or I’m always
If I stumble on something, I’m not out looking like I used to, but if I stumbled on something,
I often do homework and then I’m in this Russian stock that I’m buying, I stumbled on it.
The more homework I do, the more I buy.
I continue but it’s usually I will stumble on something.
MATT MILSOM: Public, is it a public stock?
JIM ROGERS: Yeah, it’s a public company.
MATT MILSOM: Sector?
Which sector would have been?
JIM ROGERS: You’re a very good reporter, but I’m not going to tell you because if I told
you, you would know exactly what I’m buying.
MATT MILSOM: Okay.
I’m sure it wouldn’t be that easy to spot.
JIM ROGERS: There are plenty of disasters in Russia.
Everybody hates Russia now, so Russia’s on my list.
Anyway, I will probably buy Russian government bonds and rubles again soon.
I own Russian government bonds in rubles.
The yield is very, very high.
The ruble is hated.
The Russians are hated, et cetera.
MATT MILSOM: Any other markets that are particularly hated that you fancy?
JIM ROGERS: Well, I told you Venezuela but you and I cannot do it.
I cannot do anything in Venezuela.
Zimbabwe, I bought a few shares of Zimbabwe, some of the North Korea but that’s illegal,
I’m looking, but part of the problem is there are few markets that are hated so much.
I mean I am buying Russia, it’s still hated.
Most markets, even Germany.
Look at Germany hit peak, what, two years ago.
Been going out since but it’s not cheap.
It’s not hated.
Germany still a very large and [indiscernible] economy.
No, I don’t see many now that jumps off the page to me and says, oh my God, you got to
buy this disaster.
I would love to find something like that, but I’m too lazy.
MATT MILSOM: I’m thinking there’s probably a good places to stop.
JIM ROGERS: I’m too lazy.
Very good places to stop buying, I commend laziness to all of you.
Watch Real Vision and get lazier and lazier, and lazier.
MATT MILSOM: Jim, thanks for having us and thanks very much for coming on.
JIM ROGERS: My delight, my pleasure.