The Breakdown - The Fed's Folly: From Moral Hazard to Business as Usual, Feat. Jesse Felder

Episode Date: June 17, 2020

Today on The Brief: An unexpectedly good retail sales report drives market confidence  Are we in for a second wave of white-collar layoffs?  The latest rumblings in central bank digital currencies Our main conversation: Jesse Felder is an independent financial analyst and one of the best financial curators on Twitter.  In this wide ranging conversation, he and NLW discuss: The Robinhood rally and what makes it both alike and different from previous manias  The illusion of American recovery and the disconnect between markets and fundamentals  The Federal Reserve’s role in increasing economic inequality  Why the dollar is significantly overvalued relative to other currencies  Why financial assets could be poised for a rough decade  Find our guest online: Twitter: @jessefelder Website: The Felder Report

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, Crypto, and Beyond. This episode is sponsored by BitStamp and CipherTrace. The Breakdown is produced and distributed by CoinDesk. And now, here's your host, NLW. Welcome back to The Breakdown. It is Tuesday, June 16th, and today's main topic is a conversation with Jesse Felder. Jesse is the founder of the Felder Report and a just brilliant market analyst. That is going to be a great conversation, but first, let's go to the brief.

First up on the brief today is the return of retail sales. So what happened? The Commerce Department released a report that said that retail sales, which includes both online and offline purchases, increased 17.7% between April and May of this year, and that is seasonally adjusted. This is much bigger than the predicted 7.7% increase that, economists were expecting. Now, it's still lower in total, obviously, than February. February saw 527.3 billion in sales as compared to 485.5 billion for May. But still, the fact that the growth was

10% higher even than predicted by economists suggests that there is more confidence perhaps in the markets than some leading experts thought. Why does this matter? Well, it's exactly that. It has to do with this question of confidence. Stocks are up on the news, and one of the key, questions coming out of the COVID-19 shutdowns is, what demand will be gone forever? How much can the economy bounce back? Will there be major structural barriers or just shifts in consumer behavior that make it impossible to get that V-shaped recovery that people are hoping for? This suggests that some economists may have over-predicted a shift in demand, at least in the short term. Still, I do think that it's worth being cautious and breaking down a layer to focus on the specifics. For example, while restaurants are

back 30% from April, they're still down 40% year over year, and I don't think anyone believes that we're going to see necessarily a quick return to the same demand that they were predicting before. The key question going forward is going to be jobs returning. If jobs return, everything else will follow. Clearly people are willing to spend money and have interest and demand to do so. The question is whether they're going to have the resources. This brings us to our second brief topic, which is job concerns remain. I wanted to point out two data points on this question of jobs and whether they're coming back. First, Hilton is cutting 22% of its corporate workforce. This represents about 2,100 jobs, and importantly, this is not the first wave of layoffs that were

people on the front lines, your low-level employees doing kind of the day-in, day-out customer-facing stuff. This is more executive-type positions, and this could represent part of a new wave of professional white-collar jobs that are being impacted by the second-order effects of changed long-term demand from COVID. Another example of an industry seeing some of those second-order effects is the advertising industry. WPP, which is the largest company in that space, expects that ad spending is going to dip 13% this year. That's opposed to predicted growth of 4%. Now, so far, this industry hasn't seen widespread layoffs, but it wouldn't be implausible when you have a 17-point gap between what you expected and what was actually possible, that you have to figure out how to get budgets in line.

There's also questions of how you plan for the next year. All of this is to say that this question of jobs remains really open. And I think this is why you saw in prepared remarks to Congress today, Jerome Powell, the Fed Chair, reiterated that this crisis could take a while to come back from. He has taken on this role of, on the one hand, trying to reassure markets with unlimited cash and all the things that he's promising, but at the same time trying to get maybe some of the irrational exuberance of the market tamped down. And really, to me, the key things that matters are, one, what happens with the disease and whether we keep seeing numbers go up, two, what happens with jobs, and whether we see people return to jobs as we hope, and three, what happens with

demand? Do we see people shift their behaviors to try to be more resilient, or do people just act the way that they did in January and February? Last up on the brief, two quick notes about central bank digital currencies. The first is that South Korea has taken the next steps on its CBDC journey. So in December, they had put together a task force that was really more or less designed to keep an eye on other countries, to see what they're doing, to start basically having some sense of what's going on in this space, but not really to be proactive. Well, it's going a little farther now, and they've set up a legal panel to advise on regulatory sticking points, so a lot more intentionality in that move. Another little detail, which is

not strictly speaking about central bank digital currencies, which relates, though, in a way, is that Facebook has finally turned on payments. They've rolled out payments via WhatsApp in Brazil, which is the second largest market for WhatsApp in the world at 120 million users. And Zuckerberg has been talking a lot more about where Libra might fit in the Facebook model and how ads and payments could come together. And so when you see them turn on a payments infrastructure, even if it's not technically Libra, in a huge market like Brazil, it's worth taking note of. But with that, let's shift to our main conversation with Jesse Felder.

I'm really excited to share this conversation. Jesse is a person I've been following for a long time on Twitter. He's one of those folks where I honestly believe that you could probably turn off most of the other accounts on FinTwit, and you'd still get a huge portion of what was going on in the conversation. He curates it really, really well. And Jesse's been in the finance industry for a long time. He started his career at Bear Stearns and co-founded a multi-billion dollar hedge fund and left that during kind of the height of the dot-com boom to go be independent and build an independent remote financial analysis business that's called the Felder Report and has been doing that ever since. I think Jesse brings a really human perspective to his discussions of markets and his discussions of markets get at really, really key issues.

By way of example, an important piece recently he wrote was called Fight the Fed. And to give you a little taste of what you're in for in this interview, I'm just going to start by reading an excerpt from that. Extreme monetary policy has not only artificially inflated capital, but has also greatly exacerbated the boom-bust cycle, leading to two once-in-a-generation economic crises in just over a decade. inflating asset prices and encouraging increasing indebtedness beyond what the natural economic cycle can support is not a sustainable way of trying to manage the economy.

Even former Fed Chair Janet Yellen lamented after the financial crisis, somehow we need to go to an economy that is using its resources, operating at full employment, but doing so in a way that isn't reliant on bubbles. The economy has only become far more dependent upon bubbles. in the capital markets since then. So without any further ado, here is my conversation with Jesse Felder. I hope you enjoy it. All right. I am here with Jesse Felder. Jesse, thanks so much for joining.

Hey, happy to be here, Nathaniel. Thanks for inviting me on the show. I'm really excited to have you here. As I was just saying to you, I feel like you're one of a small handful of people who I could completely ignore the rest of FinTwit and actually get all the relevant information that I needed. But it should be a really fun conversation. We're living through such a strange kind of moment of change in some ways. But for those who are unfamiliar with you, could you just share a little bit about your background and what you spend your time on? Sure, yeah. I've always been interested in finance and the markets. Actually, when I was eight years old, I think my dad got one of the first Apple personal computers. And you got me a game called Millionaire,

which was essentially a stock market simulator, and I was addicted to it. And so he got me a subscription to Barron's, and I started kind of paper trading when I was in like junior high. And ever since then, I've had just a passion for the markets. So I worked for Bear Stearns in L.A. and co-founded a hedge fund down there, did that for a few years, and before I moved to Bend, where I live now, and basically just write about the markets these days. Love it.

Yeah. You are ahead of the curve on the work remotely and kind of build an information business trend, I feel like. I guess so. I mean, you know, yeah, Ben has grown from, I don't think it was 40,000 people. When we moved here, it's just over 100,000 now, which is, I think it's in the top five or six cities in the state of Oregon now. So it's kind of a fast-growing rural, you know, community. But, yeah, I spend the vast majority of my time. You mentioned my Twitter feed. on Twitter, I basically share everything that I'm reading that I find of value.

And so I spend, you know, several hours every morning just kind of going through different feeds, you know, news feeds and looking for trends. And so I try and just kind of track those trends, kind of where, you know, up and coming trends, you know, trends that seem to be kind of waning and dying out. And, you know, because it really is these trends and narratives that drive markets, I think. And so to me, kind of understanding those narratives helps you understand what's going on. Couldn't agree more. I think we actually spent a lot of time here on narratives and how they shift and, you know, trying to understand kind of the meaning behind things because I often find that the way that we interpret financial information or market information is as relevant, particularly for driving future behavior as whatever the underlying principle of it is. So actually, that's a great segue too, to let's dive into something that's been obviously dominating the narrative cycle for the last week or so, which is this Robin Hood rally, right?

This emergence of this class of renegade, you know, R-slash Wall Street bets folks. What do you make of all this? I know you've been tracking this part of this story. Yeah, well, you know, it reminds me, like I mentioned before, I was at a hedge fund kind of during the peak, the last couple years of the, dot com mania and i was the head trader of the fund we had our own broker dealer and so i had kind of a front row seat to um you know to what was going on in the markets at the time we also had a couple of new york hedge funds that were trading through our broker dealer so um and it would you know would call me up and and place trades through me and and so i you know we also had a bunch

of individual investors that wanted to you know trade through our our broker dealer and i mean For example, I had one guy who was a retired stuntman. He retired because he made so much money day trading. But he was a stunt man in L.A. And, you know, had gotten a settlement from something he got injured or something like that. And so I had a big chunk of change. And he put it all into these dot-com stocks and, you know, tripled his money in six months and thought he was a genius. And, you know, that was just one example of millions of people who were, maybe not millions,

but tons and tons of people who were doing this and making the same decision. So to me, it's very similar to what we saw back then. You know, the difference is, I think it's, this time is mostly young people who weren't old enough to remember the dot-com mania. And they're trading in, you know, to me, the biggest difference between then and now is back then there was, you know, these internet stocks. and the internet was a brand new invention that was really, you know, going to change, change the economy, you know, make people more productive. It was a gold rush for the companies that were figuring out ways to monetize it. And so there was something real behind it.

But today you see, you know, like a lot of these young investors buying Hertz shares. And, you know, the Hertz offering came out today. And it explicitly says, you know, you're very likely to lose all of your money if you buy this offering. and people are still, you know, lining up to buy it. And so to me, what makes this even more extraordinary is this is the, you know, Jeremy Grantham recently pointed out, this is, you know, that we're in the top 10% of equity valuations in history. If you look at, you know, a thing like the Buffet Yardsick, we're in the top 1% of, you know,

valuations in stock market history. And we're in the top, you know, the bottom 1% worst economic outcomes this quarter right now. It's going to be the worst quarter of GDP we've ever. had in this country. So to me, you know, people are not buying into this kind of gold rush internet idea. They're buying into, in the midst of the worst recession in history. And in the middle of a global pandemic, that is only in its early stages. So to me, it's even more desperately euphoric than it was back then. Yeah, it's really interesting. And this was actually, you kind of jumped ahead to my follow-up question, which is there's obviously some aspect of this that is a mania story that we've

scene play out over and over again. And it's funny thinking about back to the dot-com boom and specifically this kind of Robin Hood moment. I remember and for some reason, well, one, I can't find very many people who remember it. I can't find any mention of it online. But I remember when E-Trade first came around and there was a, they had like a virtual stock market game in like 98, 99, 2000-ish. And it was literally like, it was, you know, fantasy football, but for stocks. And I remember all of my friends, we were in high school at the time and we got just totally obsessed with it. it. And we would like sneak into the library, you know, to the library computers in the middle of the afternoon. And I can only imagine that sort of same instinct, but now where you can actually

just open an account and start doing it, you know, it was very different then because it was still in that realm of fantasy. But the question that I had, which you kind of hinted at is, is the, what makes this different? So what makes this different than other kind of manias that we've seen in the past? Other of these kind of, you know, manic moments where people just flubes. into the market. And I guess you answered from the standpoint of just this fundamental disconnect between, well, this disconnect between fundamentals and the market, right? The economy and markets in some ways. But then I wonder if you find anything different about the participants and what their attitude or ethos is coming in, right? Is this just, you know, the latest wave or

the newest wave of, you know, younger people coming in trying to kind of take advantage of a crazy moment to make some money, or do you think that it reflects a larger sort of frustration with opportunity or desire to have some different type of mobility? Well, you know, I just come back to, you know, there are, you're absolutely right. There are things that make this time unique. There are things that, you know, make this time the same as every time before it. One of the quotes I think about is, you know, from J.P. Morgan, and I'm not going to get it exactly right, but he said something to the effect of.

nothing so undermines your financial judgment as seeing your neighbor get rich. And so, you know, that's a huge driving force for this as people have heard about all of those traders who have been buying the dip since 2009 and have been making tons of money in just buying the dip. And so there's this kind of, it's become a meme essentially now for a long, long time that that if you just buy the dip, you are guaranteed to make money. And so there's, that fear of missing the opportunity, that fear of missing out is what really drives, drove the housing bubble, it drove the dot-com mania, and it's driving this too. So, you know, that's kind of the same as previous times. So I think what is maybe different about this is the Fed has come to the

market's rescue so many times that people now believe the Fed will never let the stock market go down. It's a can't lose game. So I can even buy bankrupt companies and the Fed will make sure I don't lose money. As I think kind of the mindset that people have and that's different. You know, people weren't buying the market because of the Fed back in the dot-com mania or even buying housing because of the Fed, you know, during the housing bubble. But now the central bank has played such a huge role in propping of asset prices for so long that this moral hazard has reached a point where, you know, we're seeing risk taking on a totally new level like we haven't probably ever seen before in the financial markets.

And it's directly because the Fed is encouraged precisely that. Yeah, it's actually really interesting that you kind of locate that as one of the key differences. Obviously, one of the embodiments of this as well as leaders of it and champions of it has been Dave Portnoy from Barstville Sports. And it's been fascinating to watch his journey from at the very beginning. beginning when he got it. I mean, like many, I think, or at least this is the characterization, there weren't sports to focus on. There wasn't sports gambling to focus on. And so he shifted attention, right? And there had been, interestingly, you know, paying attention to financial and other types of media. A lot of people who have been like, when are we going to see barstool for

finance, right? And this kind of hunger for a different type of attitude in financial media. And he just stepped into this void like a tornado. And I remember at the beginning, you know, He's subsequently taken on this mantle of I'm the greatest day trader alive, right? But at the beginning, it was all almost coming to grips with what you were just saying, right? Him paying attention to the Fed for the first time and not being able to believe the numbers that he was seeing thrown around, right? Obviously, being kind of a, we focus on that type of thing a lot here. And I remember posting some of his early rants about how the Fed was turning the dollar into shrewd bucks, right? Kind of referencing office space. And so it's been fascinating to see you can almost map what you were just saying in the journey of this one person. Yeah. And I think, you know, I haven't paid super close attention to him. But I do think he is representative of a whole group of traders. And he certainly has one and a half million followers or whatever it is, people that are listening to what he says. But I mean, this idea that, you know, buy the dip, you have to buy the dip because the Fed, you know, stocks never go down, you know, something that he's been tweeting, you know, that he's going to. going to make infinity money by just, you know, continuing to just buy stocks. These things have become such powerful memes that, you know, I was talking with Rana Furuhar, who writes for the Financial Times. And she's two or three weeks ago, she said her, I think 12 year old son approached

her about opening a Robin Hood account because you have to buy the dip. And I said, wait, where did he hear this at 12 years old? And she said, it's all over their social media. You know, it's all the different platforms, you know, that the kids are on, you know, you just see these memes that you have to buy the dip. And so to me, yeah, it's gone, it's gone so extreme and because, you know, such a, such a meme among the younger crowd. You know, there's another guy that I follow on Twitter who said, you know, his 10-year-old son tells him he can't play Fortnite during the trading hours anymore because all of his, you know, his teammates, Fortnite teammates have quit Fortnite. at least during trading hours, because they're playing the Robin Hood game on their phones. So, yeah, I mean, it's when you have 10-year-olds that, you know, have given up gaming for the new hot game that tells you how far we've come. Yeah, well, and it's wild, too, because then you, like, what do you expect, you know, when you have this whole new set of actors who is completely convinced it's a game,

and that traditionally the game has been rigged to try to find different points of leverage that no one else thought, you know, and just go. wild with it, right? Like this whole bankruptcy trade. I mean, it's not a, it's not a justification for it or an argument that it's smart. It's more just like you're going to see some wild and wacky things when you introduce this entirely different set of actors who have almost no interest in the fundamentals. Absolutely. I mean, that's why we're seeing these things that we've literally never seen before. This offering by Hertz is the first time a company that's essentially, you know, in the, you know, position of debtor and possession. Essentially, the, the debt holders are in possession of the company.

They're in control of the company. And they're selling stock in the open market. It's never happened before in history because nobody would ever, you know, in their right mind, go buy a stock offering from a bankrupt company. Because literally, you know, most of these people clearly, I mean, maybe they do understand it. I don't know. But the, you know, this company, the debt holders are raising money to pay themselves back. All this money is, you know, going to go directly to pay the debt holders.

And there's, you know, it's very, very likely that there will be $0 left for the equity holders. And so I think there's certainly a lot of people that don't understand that. But I think they're probably traders too. I think Jim Kramer pointed out that probably what's going on here too is you have institutions or maybe probably even just algorithms that are gaming these Robin Hood stocks. So they see that, you know, Hertz is maybe the most popular stock on Ramadanhood today. So tomorrow morning, they're going to go bid up the shares in the pre-market and get Robin Hood traders even more excited about buying Hertz.

So then they push the stock up even higher, algos or whoever it is, liquidates. And it's really kind of like a pump and dump type of strategy. And this is also a classic thing that's happened on the dot-com mania. There was message boards. There was this guy, Tokyo Joe on the message boards who'd just basically like promote these penny stocks or what have you. he'd buy them before he promoted him. His followers would push the price up. He'd sell and, you know, it was a front running scam.

He eventually got, you know, sued by the SEC. So I think we'll probably see something similar come out of this, where there is somebody front running this. This is not just retail getting excited about bankrupt stocks. This is, whether it's, you know, institutional actors acting with discretion or it's just algorithms that they've programmed to try. I mean, everybody knows. knows that Robin Hood sells their order flow to Citadel and to what have you. So the

algos know where there is interest in the stock market by these traders. And now that there's millions of them trading on Robin Hood, it's even more lucrative for these algos to try and game it. So it's really interesting time. But I do think, you know, it's probably time to look at these things and see how these traders are being manipulated and potentially probably prosecute somebody for, you know, for, I guess, exacerbating the whole thing. Yeah, it is interesting because, you know, the crypto community has watched this whole thing go down with interest in almost a bit of deja vu from the 2017-2018, you know, initial coin offering madness. And there was a term then that some people used called the shit coin waterfall. And basically the idea was,

these projects would pre-sell their tokens to the most reputable or highest brand. Actually, it's a better way to put it. Highest brand value investors at a 90% discount on what they were going to offer it for at the ICO. And then when they got that first round of high brand investors, maybe they'd sell it to another round of investors at a 50% presale, all the way on down to the actual kind of token sale, which is all of a sudden is just dumped on retail. And often there weren't any lockups. And so those investors could just sell their, you know, their shares that they bought, you know, at 10 cents on the dollar for the full retail price. And for a little while, the retail people were happy with it, too, because anything that had news that it was going to be listed on Coinbase or something like that would shoot up.

And it was just this madness, right? And it was a flash in the pan when all of a sudden done. It lasted less than a year. And it was over. And, you know, the SEC is still kind of working its way through the offenders to find the most egregious. but there's always someone at the end of the musical chairs line that is left holding the bag, and it is never the institutions that maybe they missed the trade at the beginning, right? Yeah, I mean, I was explaining it to my son.

My son's 20 years old. He's stationed on an air base in Turkey, and he called me last week to tell me how many of his friends on the base are bragging about the money they're making, trading $1 stocks on Robin Hood. And I started explaining it to him, you know, they're buying J.C. Penny and hurts and in these things and they're bankrupt the stock prices are worthless they're they're they're almost guaranteed that they're you know these things are going to go to zero over the next several months but they're trying to make money in the meantime and so he said oh so you're telling me it's a pyramid scheme I said exactly right that's exactly what it is it's a pyramid scheme that you need

to get people interested in this you know you're going to buy it and you have to get people interested in it to push the price higher for you to make money and get out you know it's literally no different than a pyramid scheme. What's going on in some of these stocks right now. So, yeah, the SEC is going to look into it. And it's always, you know, a few years after the fact that, you know, these prosecutions happen. It's wild. Thanks for your son for a service, by the way. But the thing that I want to ask you about is I want to come back to this idea of the Fed and the Fed's role in this and this kind of identification of the Fed won't let anything fail. But first, I want to talk a little bit about this disconnect or this potential disconnect between the stock market and the underlying economy.

And I wanted to ask whether you think that any part of this reflects a larger issue of that kind of growing chasm between kind of fundamentals and the traditional reasons for valuation of stocks and just other assets and what's going on in the economy. Well, yeah, I mean, that's a huge question. It's a good one. But there's there's so much, you know, going on there. You know, part of it is, you know, the Fed has explicitly targeted asset prices as a way to try and boost the economy. It's really backwards, right? I mean, they're really trying, since Ben Bernanke's time, the Fed explicitly tried to boost the prices of risk gases to create a wealth effect. And they didn't hide that. They said, we're going to literally try it. We're going to buy up treasuries, buy up these risk free assets, push interest rates to zero to try and push people out the risk curve. So they have to buy corporate bonds.

They have to buy stocks. These types of things, because when the prices of those go up, people are going to feel wealthier, then they'll go spend more. And it's trickle down economics, essentially, you know, from a monetary side of things rather than from the fiscal, you know, side of things. So, you know, by targeting asset prices, you're by definitely. finition going to create financial bubbles where you just where prices get disconnected from their underlying fundamentals and when you look at you know like my favorite chart to represent this is you know household net worth relative to GDP and they probably you know household debt worth should grow in line with the economy over time it's really not possible for it to grow faster than

the economy but what we've seen since you know uh The late 90s, you know, when Alan Greenspan first basically, you know, established the foundation for the Fed put by riding to the stock markets rescue in 1987, even though the economy was fine. You know, he cut interest rates a ton to try and prevent any type of recession. And he did again in 1998 when the economy was doing fine. We have long-term capital management, you know, potentially going to bring down the financial system. But the economy was okay. He cut interest rates again and then put liquidity into the system. heading into the Y2K potential technological debacle.

And that was the blow off in the NASDAQ. So through that process, the Fed has explicitly divorced asset prices from their fundamentals, attempted to do so. And I think this is why we see these huge booms. We've seen bubbles and busts. We saw the dot-com bubble and a painful bust afterwards. So a housing bubble. Alan Greenspan explicitly tried to create the house. housing bubble. Okay, where the stock market's going to crash, where it's going to create a pain for the

economy. If I lower interest rates and encourage people to take on, you know, adjustable rate mortgages and these types of things and encourage speculation in real estate, that'll maybe save us from the pain of the dot-com bust. And then let's create a wealth effect in the stock market after the, you know, financial crisis. So there's just this pattern where the Fed has targeted asset prices. And really no other central bank on the planet has done it anywhere to the degree the Fed has done it. And so, I mean, that's one part of it, you know, that's not just this euphoric speculation. It's the Fed explicitly spending 20 years at least trying to do this. How did you read Powell's comments last week or as answer to the question about whether the Fed had had any role in exacerbating inequality?

Well, I mean, it's completely disingenuous, right? I mean, you can't say we're trying to create a wealth effect, but we're playing. no role in wealth inequality, right? If you say you know that, you know, it's only a minority of households own financial assets, the vast majority of households own no financial assets. We're going to try and push up the prices of those. You're saying we know we're going to create wealth inequality. So for them to say, you know, we have, you know, we play no part at all is, you know, it's the Fed trying to tell a lie enough times that people will blow. believe it, to bungle a Danny Conman quote. You know, he said that Danny Conman, terrific behavioral

economist, brilliant guy, has said that, you know, people in power, whether you're, you know, Fed chair, president, you know, even a marketer, you know, marketer with a position of being able to tell stories to people. They all know that in order to get somebody to believe something, just repeat it over and over. And I think that's what the Fed is hoping to do right now. But I really do think it's failing because they keep getting asked this question. We keep seeing, you know, wealth, disparity grows, you know, worse and worse every year. And it's even grown much worse as a part of this, you know, economic crisis created by the pandemic. So, you know, I don't think J. Powell believes it when he says it, but he's trying to get other people to believe it.

And it's interesting, too, because we're living through a moment, obviously, where there's unbelievable social unrest, and whatever the catalyst for that was, it's happening at a scale where it brings up almost definitionally these larger questions of inequality, right? And I think one of the problems to your point about why just repeating this particular lie isn't holding water as well as they might hope is that it's just so clearly untrue. And there's all these evangelists now for the fact that this is a huge part of what's happened. Right? It's like throwing a dartboard at which chart you want to show the relationship

between this sort of artificial growth and asset prices and inequality. Yeah. You know, there's a lot going on. But I do believe certainly that a lot of the protesting and stuff is obviously it's ostensibly about Black Lives Matter and it really should be. There's a great deal of change that needs to happen there. because we've seen so much tragedy in that area. But, you know, at the same time, I think there are a lot of people feeling disenfranchised.

Wealth inequality is just one part of it. You know, you look at, you know, real incomes over my lifetime. I'm 46 years old. Real incomes over my lifetime have gone nowhere. You know, that is a problem. And when you parse that out, you see that, you know, CEO pay has, gone, you know, through the roof and pay for the average workers actually down in real terms. And so, you know, there are a lot of those dynamics at play that are making people, I think,

more empathetic for what's going on in specific certain circumstances like, you know, Black Lives Matter and people being disenfranchised. So, you know, it just resonates with people more when you feel like you've been disenfranchised in ways, too, that are clearly, not fair. Yeah, and it's interesting. I feel like the, we've obviously seen over the last, you know, four years in particular, but really over the last 10 years, the emergence of populist strands on both sides of the aisle, right? The kind of left populism and right populism. And it's kind of useful, actually, for people in power to keep that division, because then they fight with each other. But there's a growing sort of space or a growing shared sense of

underlying fundamental argument. And I guess I wonder, how much do you think that some of these sort of economic policies, which would have been unimaginable five or ten years ago, things like UBI or MMT are now predestined or now inevitable? I mean, are they just based on where politics overlaps with economic policy? Do you see those coming down the line? Well, I think we already have MMT. MMT started back in the fall when we had the repo issues. You know, the repo issues essentially came from too much, this is my perspective on it, is that we had a trillion dollar deficit.

And the federal government mostly funds, it likes to fund deficits generally with short-term debt treasury bills. And so we had massive treasury bill issuance in the fall. to start funding this trillion-dollar deficit, which I don't think a lot of people appreciate either, that this is the first time we've had a real fiscal deficit during an economic expansion. It's really 1968 was the only other time. If you look back through history, my friend John Hussman has pointed this out over the last year or two. 1968 was the only other time where we saw a real significantly widening.

And back then, we saw the deficit grow to two and a half percent. of GDP during an economic expansion. And what happened afterwards, we got inflation and problems with having to break. It was 1971. Nixon had to break the dollar's convertibility into gold and these types of things. So there were problems that creeped up pretty quickly afterwards. This time we've seen the deficit grow to 5% of GDP, not just 2.5. During an economic expansion, now that we're in recession, we're going to push 18, 20% of GDP. And so, But my point was back in the fall, essentially the Fed had to step in and start funding that treasury issuance because there was too much treasury bill issuance and not enough demand to buy those securities. And so the Fed had to come in under the guise of rescuing repo, but they had to start funding, directly funding the federal government is my interpretation of that.

And so these measures they're doing now are just the same thing. This is not QE to boost asset prices anymore, which is what it was for the past decade. This is QE to fund the government because the government cannot pursue these fiscal programs, the sending people checks, the PPP, you know, these types of programs that they're doing. They have to issue debt and there's not enough buyers of that debt to get it done. Interest rates would go to the moon. And so the Fed is literally just stepping into monetize that debt because they have to. And that's a huge distinction.

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what we perceive to be these massive injections of liquidity, or at least that's the popular narrative from, you know, Money Printer Go Burr, right? That's the meme encapsulation of this. When I think your point has been that you have to contextualize that with what the Treasury is actually spending. Yeah, well, I think there's, you know, two different implications for, what's going on in terms of monetary policy right now. The first is this is QE that is not to boost the markets. This is QE that's a product of fiscal dominance essentially. They're issuing so much

debt. The Fed has to come in and buy it. Otherwise, we could potentially see a debt spiral. That's important. That's a huge distinction in QE that, you know, this is totally a different type. But when it comes to the financial markets, yeah, there's a lot of people that say, well, look, the Fed is printing money. Whenever they've done this in the past, it's been good for the stock markets. You have to buy stocks. Well, when you look back at QE1, two, three, you can go back and look and see that the, you know, the buying that the Fed was doing amounted to X dollars. And treasury issuance amounted to Y dollars. When you do X minus Y, you either have a net liquidity coming into the market or, you know, coming out. And so QE1 Fed starts buying up treasuries.

creating net liquidity and stock prices go up. They stop stock prices correct. The correlation between the money printing and stock prices is so great that everybody's come to believe now that when they print money, it's time to buy stocks. But especially over the last, you know, several years, when the Fed has been buying, you know, Treasury issuance has not been, you know, that great until last fall. But now, the Fed's, you know, just expanded its balance sheet, $3 trillion. People think, oh, my God, it's the greatest liquidity injection in history. It is. But when you compare it to Treasury issuance and look at net liquidity, it's actually turned negative already.

Last week, the Fed's balance sheet grew by, I think, $3 billion. And Treasury is issuing, you know, about $200 billion a week right now. And so you're having, you know, back in March, April, Fed was purchasing $500 billion a week. That is the biggest short-term liquidity injection we've ever seen. And when the Treasury is only issuing $50 billion, that's net $450 billion liquidity. And it goes directly into risk assets and these types of things that boost stock prices. But now that positive $2, $400 billion of weekly net liquidity is turning to a negative $300 billion for, you know, as far as the I can see.

So the Fed is still printing a ton of money, but Treasury issuance is swamping that money printing. That's a really important distinction that Stan Drucken Miller pointed out a couple of weeks ago. And I think most investors just think, oh, they're printing money, we've got to buy. Well, net liquidity. I mean, they're printing because they have to, but they're still not even printing enough to be positive for the stock market. What are the implications of that particular type of printing, right? if we have a kind of a mental model for what it looks like when real liquidity is injected as it relates to asset prices, what does it mean to basically be monetizing this debt?

Well, it eventually means that, you know, from the way I look at it, that the currency is going to bear the brunt of this, that the Fed is, you know, has talked about yield curve control, basically saying we will not allow interest rates go up across the curve, whether you're talking about overnight rates, one month, three-month treasury bills all the way out to the 30-year bond, we're not going to let interest rates go up. We're going to cap them at a certain rate, which means if there is selling of those securities and, you know, pushing interest rates higher, the Fed has to come up and buy all of that supply, that selling in order to, you know, keep the interest rate at a certain level. You know, they can make that promise. I think they probably

will, especially if the economy doesn't recover. as fast as most people hope. And the pandemic kind of stays with us. We see a second wave. You know, the economy is going to, you know, people are going to get very discouraged and the Fed's going to have to do something more than they've already done. But if the Fed is committed to yield curve control, you know, they might face a situation where, yeah, the government has a $3 trillion deficit. So we have to print $3 trillion a year, essentially, for as far as the eye can see. At some point, you know, overseas investors, you know, mainly Chinese, you know, Japanese investors are going to see, hey, we're getting paid, what is it, 50 basis points,

half a percent to buy a 10-year treasury note, and they're expanding the money supply at 20 percent a year. You know, that means we're losing 19 and a half percent a year on our investment in 10-year treasury notes, nobody is going to sit around and say, all right, I'll hold that security. So what happens? They start selling those securities. The Fed is forced to buy more to keep the interest rate at half a percent. And the selling of those securities comes, you know, comes out of dollars, goes back into yen or Chinese yuan. And those currencies are already undervalued versus the dollar. So the dollar could have a very major bear market, I think, over the next

several years. Yeah, that's where I wanted to go next is what's your take on. on, you know, there's a lot of different theories of the dollar that are floating around. We've had Brent Johnson on, who talked obviously about the dollar milkshake. We've had Jeffrey Snyder, who's, you know, kind of talked about how impotent the Fed is ultimately in the face of the, you know, kind of shadow bank in Eurodollar market. You are a bear. You think the dollar is overvalued relative to everything else and that even with the comparative forces, like the relative strengths, the dollar could be in for a rough time.

Well, in the short term, you know, if the stock market rolls over again, we could see another pop higher and the dollar just does a safety trade. I mean, that's just a reflex that traders do. Stuff starts going down, you know, stuff starts going sideways around the world. We got to buy dollars. So in the short run, yes. But in the longer term, if you look at, to me, there's two fundamentals for the dollar. One is the fiscal situation. If you look at the, the dollar over the last 25 years, it's very closely followed the federal deficit as a percent of GDP. So we had a fiscal surplus in the late 90s, you know, into the, into 2000, and the dollar was very, very strong. Then the dot-com bubble burst. We started seeing having some deficits, you know,

from the fiscal side trying to deal with recession and stave off recession through, you know, tax cuts or what have you. And the dollar rolled over in 2002, three, into a major bear market that didn't end until 2009. And that was, you know, if you look at the trend of deficits over that time in the dollar, they're very closely related. In 2010 or 11, we saw, you know, the deficits that were part of the financial crisis start to recede and kind of go back from whatever it was, I think, 8% of GDP, you know, back up to, you know, to 3% of GDP, which was, very bullish for the dollar. We had a really good strong bull run for the dollar in, you know, 13, 14, even into 15. But when the deficit started widening again, uh, under the, you know,

after the Trump tax cuts, the corporate tax cuts and tax cuts for the wealthy created this 5% of GDP deficit, that immediately became a huge anchor to me around, around the neck of the dollar. And we saw the dollar peak in, what was it, late 15, early 16 and roll over pretty hard. It rallied since then, but it really hasn't made new highs, at least in terms of the dollar index. And, you know, the fundamentals are deteriorating rapidly in terms of the deficit. So that's a longer term, very bearish thing for the dollar. The other fundamental that I look at is something like purchasing power parity, which is, you know, how far, you know, how much does a dollar buy you versus a euro versus a, you know. And a good shorthand for that is the Big Mac index that the economist tracks.

and they track all the ingredients that go into a Big Mac and what it would cost you in different currencies. And purchasing power parity or the Big Mac Index shows that the dollar is overvalued relative to every other currency on the planet, anywhere from 20 to 40 percent overvalued against Euro, yen, Chinese yuan. And so, you know, not only is it overvalued, but the fundamentals are deteriorating rapidly. So to me, that is something I, you know, I have to be bearish on for that reason. Do you think that the, well, I guess actually there's kind of two questions wrapped into one, one that's the follow on and then one that's kind of a new topic. But there are a number of speculations around how the kind of post-COVID world might reorganize itself economically, right? I would be surprised if we didn't see reshoring show up as a buzzword by the end of this year. As people talk about, you know, shifting supply chain. and, you know, there's obviously also the larger context of a trade war with China, or at least

trade intrigue. How does this play into this question of what the dollar does, or does it, I guess, in your estimation? Well, I do think it plays into that because, you know, globalization probably was one of the factors that, you know, I guess solidified use of the dollar worldwide, you know, shipping jobs and factories and things overseas means that those companies and what have you can do, you know, essentially do business in dollars over there, borrow money and dollars. And so, and then use of the dollar as currency and trade just becomes much, much more, I guess, ingrained in the process. But, you know, this idea of de-globalization is so important.

I do think that we saw peak globalization, you know, around a decade ago, maybe over a decade ago, just before the financial crisis was maybe the peak in globalization. And since then, we've seen a trend towards de-globalization. And this is going to be exacerbated by the pandemic, that we see what are the risks of shipping production of, you know, health care supplies to China? those are major, major risks. And, you know, risks to company supply chains, you know, it's a problem. And so I do think we're going to see that shift. But there's much bigger implications than just for the dollar. You know, to me, the dollar, right, part of this de-globalization,

maybe the biggest single effect of globalization over the past 40 years or whatever is disinflation, right? We've been able to ship jobs overseas, lower costs, and that's brought down the inflation rate. So when you look at de-globalization, what does that mean? That means this trend of disinflation driven by shipping, you know, offshoring of labor and what have you, has probably come to an end, and that single most powerful disinflationary force is in the process of reversing to more of an inflationary force. And that has huge implications. And that has huge implications for, you know, the economy, of course, right? If we're moving from disinflation to inflation over, you know, I'm talking about a long-term time frame, that's a big deal. But it also

that globalization was probably the single biggest factor to in corporations being able to raise their profit margins and capital essentially winning at the expense of labor over a 30, 40-year period. So, you know, de-globalization probably means falling profit margins and a return of labor share of income, growing labor share of income for the first time in a long time, which is probably not great for corporate profit margins and thus for valuations for equities and things like that. I mean, it's interesting when you kind of put it that way. And I think about this a lot as it relates to the questions of globalization and de-globalization. It's, you know, there's always

winners and losers in these scenarios. But, you know, are any of this, do you think that any of the sort of painful processes catalyzed or at least accelerated by this, you know, the shutdowns that we've seen are, net net, leave us better off than we are now, right? Is it a, is it a healthy thing to return to, you know, having a higher labor share of profits? Or is that, is it going to be so painful on the way that it's hard to even think like that? No, I think it's something that has to happen. In fact, you know, I wrote about this recently. Warren Buffett wrote about this back in right around 2000, where he was making the case that equity valuations were too high. People are going to be disappointed. Part of that was because he thought

corporate profit margins were already too high and that they would have to come down. That labor share was too low back then. And that if labor share didn't rise and corporate profits didn't come down, that there would be political problems. And so he thought we wouldn't get that that labor share would have risen by now. And so we would have avoided these political problems. But what the exact opposite has happened, labor share has sunk to new lows and profit margins to record highs. And I'm really, when I say profit margins,

I'm talking about corporate profits as a percent of GDP. That's like the inverse of labor share. So it's either capital takes a certain amount of the income or labor takes a certain amount of the income. Capital's been taking a much, much greater share for 25 years now. And so I think this really helps to explain the, quote, political problems that we're seeing today. And so, you know, I think it's way, way, way overdue that labor takes back some of that share that, you know, we've been way too capital focused. And, you know, I wrote about it in the context, too, of, you know, the Fed's role by targeting asset prices has really perpetuated this, has not really allowed.

labor share to come back. And so, you know, the Fed's dual mandate is stable prices and full employment. Part of their mandate is to target laborers to try and help labor through full employment. But they do that through the capital markets. And so you cannot really help labor by propping up capital, which is exactly what they're trying to do. And so, you know, this is going to happen in other ways. It's going to happen through the political process because now that it's gone on for so long that labor share has been so low that, you know, a lot of the political movements that we're seeing now are going to, you know, lead to the things that do give labor share, you know, a boost. And it's, like I said, it's long overdue. Yeah, it's

interesting. I wonder, or I guess I'm always worried about political capture, right? Like, what you just described is an important phenomenon that has, you know, basically, right? And I guess, right versus left get layered onto that. But it's an important thing. But it feels like it's going to get so wrapped up and politicized, right, and just by the nature of our discourse. Well, it is. But, you know, this is why we're seeing the rise of populism on the left and the right. You know, this is why we see Donald Trump and Bernie Sanders get more attention than any other candidates because, you know, they are the populist on the right and the populist on the left. And people are tired of they're not going to vote for middle of the road politicians.

You know, yeah, we might have Joe Biden, you know, as the Democratic nominee, the most probably middle of the road candidate there was. But, you know, that's the Democratic Party trying to hold on to, you know, vestiges of, you know, Bill Clinton and Barack Obama and these type of middle of the road candidates. But you're seeing Biden have to go more and more left than he's clearly comfortable going because he knows if he doesn't, he's not going to win the election. And he'll probably have to pick a running mate that represents this more populist left part of the party in order to kind of. I mean, he's already said it's really, where are the Bernie bros, right?

They're not coming to, you know, his rallies. And he's having a hard time kind of, you know, getting that part of the vote out. So, you know, I do think it's going to be politicized. but we're going to see just populism on the left and the right. And I do think when at the end of the day, if you were to take true populist candidates on the left and the right, they probably have more in common with each other than differences with each other, although the parties like to, you know, and the media loves to emphasize their differences. You know, if we have, if we just go back and forth through the next 12 years of, you know, populist on the left,

populace on the right, you're probably going to trend kind of in the same direction in terms of policy. Well, that's interesting. A lot of people have made that point around how fast, you know, Republicans in Congress and the Senate joined the call for emergency stimulus measures, right? How quickly that Overtin window on things like universal basic income shifted or started to shift at least. Yeah. And I mean, they were super quick to send the checks out and Donald Trump signed the checks, right? He's not supposed to sign the checks. So clearly he was very, very supportive of what was a, you know, a policy from, you know, Andrew Yang, which was, you know, even too, you know, too progressive for most Democrats to talk about. And then all of a sudden, you know, Trump's on board with it. So, you know, I think, you know, there's a lot of like politicizing of it, but both parties on the left and the right, you know, populists want an infrastructure package. They want to use MMT to get what they want. You know, I think there's more, like I said, there's more, a lot more similarities

than differences. Yeah, I think one of the great counterfactuals of history, probably for novelists more than historians at some point, will be what if COVID had hit American shores about a month or a month and a half earlier in terms of the Democratic primaries, how different it might have looked. But neither here nor there, I suppose. Well, you know, it's, to me, it's very interesting that, you know, Bernie was essentially screwed out of the nomination last time, right? And it looks like, you know, he might have been this time, too. You know, Biden so badly fumbled the, you know, all of the debates. You know, the way, you know, the political, there are a lot of problems with our political process, right? I mean, you know, there's a quote that it's the, it's the best of, you know, a lot of bad,

bad choices. So there, there are problems with it, but, you know, it's very clear to me that the Democratic Party is moving towards Bernie Sanders, AOC, it's moving in that direction. And, you know, either the party's going to get on board with it or, you know, they're going to get abandoned by their, you know, that we're going to see more independent candidates. Because really, any kind of enthusiasm that there was out there was really around, you know, Bernie and Elizabeth Warren, there really wasn't much enthusiasm out there, at least from my perspective for other candidates. No, I think you're right. So let me shift gears just a little. This year we've seen a lot of our sacred cows, things we wouldn't have anticipated or we couldn't have believed, you know, just a few months earlier become normalized in some way. And I wonder if you think that there are others that are on the horizon that you would make bets on. So for example, do you think we'll see negative interest rates? But that's just an example. I'm interested in your take on what, economic orthodoxies might be on their way out the door.

Well, gosh, I mean, you know, the ones that we've seen already are things that we thought we'd never see, right? You know, the money printing on this kind of a scale, you know, there have been a couple of economists. You look at just the expansion in M2. This is something we've never seen in the United States, really in any developed nation. It's really only Argentina and, you know, Zimbabwe and, you know, our money supply is expanding that fast. It's really something that's never been seen before in a developed economy. So those are the types of things that we thought, that I thought, you know, there's no way the powers that B would ever let that happen, right? Because the risks of, you know, inflation spiraling at a hyperinflation and massive currency,

evaluations are just too big, right? The risks far outweigh the reward, the short-term rewards you get from, you know, propping up the stock market or whatever for a short period of time outweigh the potential risks that we're going to see. So, you know, I do think we're going to see some major change. I, you know, I'm not a, you know, huge fan of Steve Bannon, but he did call attention to Neil Howe's book, The Fourth Turning. And I do think Steve Bannon is a person. I don't agree with all this politics, but I do think he's a brilliant person. And, you know, the idea that we're in the midst of a fourth turning is a very compelling one that every hundred years or so we see a major, you know, social revolution. And it represents, you know, it's manifest

in a change in our politics and our society in a lot of different ways. I think we are literally in the midst of that right now with the Black Lives Matter, you know, movement, really, you know, just gaining traction with most Americans wanting a change in policing, which probably means a change in, you know, gun laws and, you know, things that we thought, well, that's just not going to happen, you know, during our lifetimes. But it's also going to be a change in our politics like we are talking about. So I think we're going to see major, major change in labor share going forward, focus more on that. I think, you know, to me, those are the major trends that I'm paying attention to that we're already seeing in the early stages of. But these things are like freight trains.

They're not going to stop. They're only going to gain more and more traction with people so long as they feel disenfranchised as a result of a lot of these things we've been talking about, these trends. And so we're going to see a lot of change. It's inevitable. And we're in one of those periods where that's happening. It's playing out right now. And it's hard to see it in real time. But when people write the history books, you know, 50 years from now, they're going to say, look back and say that 2020's time was a time of great upheaval and major change. What's your take? You know, there's a lot of talk about V-shaped versus W-shape versus U-shape versus pick-your-letter shape recoveries. How do you see the recovery playing out from here?

And is it just totally dependent on what happens with the virus? Yeah, I think it is dependent on what happens in the virus to some extent. You know, in terms of the shapes, you know, you could say we're seeing a V and an upside-down V. You know, my friend Peter Atwater, used the term the K-shaped recession because you see, you know, people who are making a lot of money and can work remotely, and they're doing fine, right? And in fact, the stock market's up, so they, you know, their retirement accounts are doing great. People who don't own assets who are in jobs that you can't do remotely, these people are hurting, right? we have these lines at food banks and things. And so we already have a K-shaped recovery that is exacerbating these inequalities that we've been talking about.

But I do think, too, that we're going to see, you know, one of the things I worry about is that people who think that we're going to have a V-shaped recovery are, you know, I want some of what they're drinking, right? Because it makes no sense to me at all that, you know, restaurants, right? we've reopened. Restaurants are still down 78, 80% year over year. You know, all the travel-related stuff is just not coming back. And that's a huge, huge part of the economy. So, you know, people who think we're V-shaped, you know, there's no way that that stuff's going to come back to 100% and tell people, until we have a vaccine. That is if we get a vaccine at some point in the future. And so, you know, the economic damage is real. And it's going to be lingering.

There's going to be permanent job loss. And so I think we're really in a time right now that reminds me of, you know, late 2007, even early 2008, where people thought, okay, stock market went down 10%, you know, 15%, something like that. We, you know, had, you know, Bear Stearns failed, but, you know, that's probably the extent of it. We're going to be okay. You know, market's going to come back. economy is going to come back. And then, you know, wasn't very much longer that people realized, wait a second, no, this is spiraling into something much bigger. And I think it's already spiraling. I think we just, you know, we probably just popped the biggest corporate debt bubble in history,

which, you know, if you understand how cycles work, the credit cycle just turned. And you can't just turn it back on once you start having these delinquencies, downgrades, defaults. This is a process where credit's going to just get tighter and tighter going forward, which causes more and more problems for companies that are kind of on the verge of going bankruptcy. We're going to have record bankruptcies. There's all kinds of repercussions of this. So I'm not bullish at all about the economy. In fact, I think it's probably, you know, at best going to be a swoosh, you know, where we see this huge down draft this quarter and a very slow climb back that, you know, just like the whatever, it was a congressional budget office said, it's going to take 10 years to get back to where we were last

year. I think that's probably the most realistic forecast I've seen. How do you think about positioning yourself in that type of context? Well, you know, I always say, you know, for me, I never let my macro concerns get in the way of taking advantage of micro opportunities. So when I find cheap stocks in the market, I'm going to buy those. And then if I'm, if I have macro concerns, I'm going to hedge those.

And so, um, you know, I have a very significant net short position on right now because I do think the stock market's going to at least test its march lows. To me, that would be a best case scenario. If we tested the march lows and then rallied off of those,

that would be best case. Uh, much more likely is I think we take out the march lows and go significantly lower, um, you know, as a fun of, of falling profits and falling revenue growth and and what have you. So, uh, and when you see a credit cycle turn, Hyman Minsky did some, you know, great work about this. What happens is not only do

people tighten credit banks and, uh, and companies, they have to start de-levering their balance sheets, de-levering. And so they have to start selling off assets. That creates a spiral of falling prices, which feeds on itself. And I think we, that, that process already starts. The markets just aren't quite aware of it yet. But I do think that probably most important thing for the average investor, I think, is to just be conservative, right? When there's nothing to do in the market, do nothing. And that's the hardest thing to do, too, is to do nothing. But there really isn't much opportunity in the stock market.

There's not much opportunity in really any markets that they look at. Like I said, the 10-year Treasury note paying a half a percent. that, you know, after inflation, that's a guaranteed negative rate of return. But you also, I don't want to hold a bunch of cash when M2 is growing at, you know, the fastest rate in history. They're debasing the, you know, devaluing the currency as rapidly as they've ever done. And so it's very important to have some type of exposure to real assets. To me, my favorite is gold. I think it's the most proven over the long term. It's the easiest to trade and hold. But probably all real assets, over the next 10 years are going to perform much, much better than financial assets.

It's kind of a bleak, if realistic outlook for the economy, you know, going forward. But I guess within that, what keeps you or do you find sources of sort of optimism about the changes we're going through? Oh, I absolutely do. I think you have to, you know, to me, it's, you think about any major change that you've made in your own life, right, for the better. It's usually a product of getting to a very painful place where you've had a very bad experience. You've been extremely disappointed, maybe even embarrassed in, you know, something that you did.

You had to get to a place where you were in such, you know, pain that you were forced to make a change in your life. And I do think that's where we are with the, you know, in terms of our society, with the Black Lives Matter and a lot of these other iniquities that. we've been talking about, but I do think, too, what I'm most hopeful of as, you know, a capitalist and somebody who makes us living in the markets is that I think we're going to get to a place we're going to realize this has been a, this monetary experiment of the last 25 years is going to prove to be a massive failure. And we're going to need to make a change, a real significant change to our monetary framework. This is our third central bank that we've had in this country. the first two failed and we vowed we would never ever allow another central bank in this country again.

Then in the early 1900s, we decided J.P. Morgan can't come to the banking systems rescue by himself every time. We need somebody else to do it. So we created the Fed in order to be the lender of last resort during a banking crisis. Now, that morphed into something much, much bigger than what it was really originally intended to be, which is always the problem with these things. we have, you know, well, wait a second, maybe then just instead of just, you know, rescuing us in danger, maybe you can actually work to make us, make things better. And in the process, they make things much, much more, more difficult and worse. And so I do think we're heading towards a time where it's going to become obvious to everyone that the monetary framework that has been employed not only here, but in Japan and Europe is a disaster. And we're going to, we're going to go back to a system that makes, you know, that's much. much more sustainable, it creates a much healthier foundation for the economy. So I am, I am optimistic about that. Well, it's great to hear and it's great to hear so many insights on so many

different topics. Jesse, I really appreciate your time. I know my listeners have as well. And I'd love to have you back again sometime to get even deeper on some of these big issues of our day. Well, this is great. I enjoyed it. And yeah, I'd be happy to do it again. Great. Well, thanks so much and I'll talk soon. I was listening to an interview earlier this week with Joseph Nye on Hidden Forces. And Joseph Nye is a famous political scientist. He was one of the theorists that came up with this idea of soft power. And his new book is about the moral dimension of power, how morality influences political affairs.

And there is a school of thought that says when it comes to foreign policy, it's really just about national interest. And then politicians give it kind of a little moral window dressing to sell it to the public. And the thesis of his book is that that's simply not true. And he looks at presidents between Truman and today to kind of make his point that the particular moral compass and moral decision-making of each of those individual leaders has a demonstrable impact on the decisions that they made. And I was thinking about that in the context of my conversation with Jesse today in the sense that markets like to pretend that there is no dimension to them other than the pure capitalist impulse, the pure allocation. of capital outside, of, and around any values and morality. And I'm not talking about ESG stocks or anything like that, but this is kind of the story, the narrative of capitalism. But of course, capitalism is not divorced from the context in which it operates, and markets have specific political regimes in which they operate as well. And they are, despite what they would like sometimes,

responsive to changes in those political regimes and changes in the values of those political regimes. And right now we are living through this moment of upheaval where one of the major underlying questions, perhaps the underlying question, has to do with inequality. And that inequality has a huge number of dimensions. Obviously, the most pronounced part of this in these protests right now is racial inequality and what that might mean. But there's another dimension of inequality which has to do with wealth, which has to do with economic opportunity. And there are more and more people asking what the real cause of economic inequality is in America, and going beyond kind of the boilerplate answers and going beyond, I think, even the

sectarian party lines of the Democratic and Republican parties to really try to understand this in more complex economic terms. Jesse obviously talked a lot about that in this conversation and in the piece I started off with, this fight the Fed idea. It's amazing to me to watch more and more people who aren't necessarily paying attention to economics the way that we are, if you're a listener of this show, who are asking the same question and saying, why am I getting farther and farther behind and looking for answers and are attracted to understanding the dimension that our monetary policy actually plays in this? So I don't know if this is optimistic or pessimistic or some combination, but I will note that

there is a growing conversation, a growing Overton window, to use a term that I use way too much, around the idea that the Fed does have an impact and monetary policy does have an impact. And these theoretically impervious forces do have an impact on the way that people's lives play out and that we might want something better and we might be able to and in fact should request something more. So something to chew on as you go off about your week. But until tomorrow, guys, I appreciate you listening and be safe and take care of each other. Peace.