The Breakdown - Why Money Is Losing Its Meaning, feat. Jared Dillian

Episode Date: April 17, 2020

Bitcoiners are particularly sensitive to Fed intervention in markets, but the degree to which the Fed is willing to print to backstop basically all risk is drawing the attention of even normal market participants.  On this episode of The Breakdown, NLW is joined by Jared Dillian, market analyst, contrarian, and editor of The Daily Dirt Nap. They discuss: What ‘safe haven’ means in today’s climate How Jared became a bitcoin believer after being a skeptic  Why in an MMT world, taxation policy will be driven by ideology not practicality  Why money is losing its meaning 

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The Breakdown is distributed by CoinDesk. Welcome back to The Breakdown. It is Friday, April 17th, and today we are talking about a topic that I think many of us can relate to. There was an op-ed from Bloomberg going around all week called Money is Losing Its Meaning. And the central thesis was that while the U.S. may not be on a Venezuela-style crash course to hyperinflation, it is risking faith and trust in government-backed money by just creating so much seemingly out of thin air. And this is not a perspective that's limited to bitcoins. This is infiltrating normies, where people start to ask these uncomfortable questions about markets and economy and money itself,

when the government can seemingly just make more of it for anything they need. The author of that piece, Money is Losing His Meaning, is Jared Dillian. Jared is the editor of the Daily Dirtnap, which is a markets and economy newsletter that has been publishing since 2008. Before he started writing this newsletter, Jared was actually a trader with Lemon Brothers. He has a really interesting and diverse background. And I wanted to bring him on to discuss what's happening in the markets right now. why money is losing its meaning and what it means for all of us. Now, Jared has an interesting story

vis-a-vis Bitcoin as well. I first came across him last year when he wrote a very interesting thread around how he was a former Bitcoin skeptic who has become a believer. Central to that point, and I'll let him describe it himself in the interview, but the key piece is that it was never skepticism of the underlying. It was about the bubble during 2017 and 2018. He ends that thread with a sentiment that I think many of us share, the need for stateless money has never been higher. This is a great interview, a really good conversation. We talk about everything from buybacks to market rallies, to the Fed, and so on. So I hope you enjoy it. And as always, long interviews are edited very, very lightly. So knowing that, let's dive in. All right, we were back with Jared.

Jared, thank you so much for hanging out today. Thank you for having me on. Glad to be here. Awesome. Just for context, I'd love you to share a little bit about your background and what formed your thinking you're writing. Now I know what you do primarily is writing and content creation. But tell us a little bit about how you got here for people who may not be as familiar with your work. Actually, I had a completely different path coming out of college. I went to the Coast Guard Academy. And I was an officer in the Coast Guard for five years after that. And while I was in the Coast Guard, I got my MBA part-time from the University of San Francisco, and I also got a job on the P. Coast Options Exchange as a clerk on the floor. So I got to see the whole dot-com bubble up close and personal.

And from there, I got a job at Lehman Brothers in New York. I was in the associate class of 2001. For seven years, I worked there. For the first three years, I traded index arbitrage. And the last four years, I ran the ETF trading desk. which was a really big job. When I took over, I think we were ranked like seventh or eighth

in terms of market share. I grew it significantly at the end. We had, I think we were ranked second in terms of market share. So that was a lot of fun. And after the bankruptcy, you know, the whole time I was at Lehman Brothers,

I was writing a lot of market commentary, just Bloomberg messages. And they kind of like, they went viral. This is before things went viral. So I had a pretty big list. and I started the Daily DirtNap, which is the newsletter I'm still writing 12 years later, which is a macro sentiment-based newsletter.

And it's grown about 10x over that time period. And that's what I do today. I do some other stuff. I write newsletters for Malden Economics. I used to write opinion pieces for Forbes. Now I write for Bloomberg opinion. Gosh, what else? you know, there's, and I have, I have another venture, which is a personal finance venture.

I have a radio show called the Jared Dillian Show, which is currently on five stations and trying to grow that syndicate. So that's kind of my, my other line of business right now. The life of an independent content creator, right? Yeah. Yeah. Put it out everywhere and kind of try to bring it back. But no, I love it. I mean, you know, I think a lot of folks, in the Bitcoin in crypto space are, you know, they get a lot of their information and perspective from this sort of class of independent conduct creators. So, you know, always excited to have kind of this type of voice on the podcast. So speaking of Bitcoiners, I know that you had kind of a journey with Bitcoin. And for a lot of the folks who know you in the Bitcoin community,

they got to know you through a thread from last year. But I'd love to hear just, again, for context for people who don't know as much about you, you know, you kind of shifted your perspective a little bit from, call it late 2017, early 2018 to towards the end of last year. So take us through that journey. Yeah. I mean, I never was in doubt of Bitcoin or the technology. My feeling in late 2017, early 2018 was that it was a massive bubble. I mean, this is, you know, when I invest or, you know, when I write, uh, my,

focus is on sentiment and I'm really, really good at spotting extremes and sentiment, whether it's extreme bearish or extreme bullish sentiment. And, you know, what I saw towards the end of 2017 was extreme bullish sentiment. I remember the thing that pushed me over the edge of the time. I had this, there was this woman I went to high school. In fact, we were, we were, she was my girlfriend in seventh grade, or maybe eighth grade. She was my girlfriend in eighth grade. And we're friends on Facebook. Now, she is. divorced two times. She lives off alimony and she's a piano teacher. Okay, that's her income. And she sent me a Facebook message asking me if she should buy Bitcoin. And I said, oh my God,

like this is, this is definitely the top. So I was like a very noisy Bitcoin bear. And I was, I was pretty public about it, like on Twitter. And there was a lot of Bitcoin. There was a lot of crypto people that were, you know, coming after me and it was a little bit ugly. But like I said, I never had any objections. I'm not anti-crypto or anything like that. I just felt that it was a huge bubble. And it's going to, it's going to sound like, you know, I'm calling tops and bottoms and showing off and like this is like an ego thing, but it's really not. But, you know, after after the price went down for a while, then I started really doing some work on it. And I said, you know, this is really interesting. And I started to warm up to it when it was around 4,000, but I didn't actually pull the trigger all the way until it was at 10,000.

But it was around that time that I wrote that tweet storm, which kind of went all over Twitter. So, you know, especially in this environment, you know, all the money printer go burr and all that stuff. Like everybody gets it. Like, you know, we are living in an MMT world right now. And I'm also a gold investor. So I have, you know, I probably have like 10 times as much money in gold as I do in Bitcoin because I'm a little bit old school. But still, like, you know, that's kind of when I started to warm up to it. Yeah, it's interesting.

And I think that you're right. This moment is having a lot of people kind of perk up and ask these fundamental questions about money that folks who are interested in Bitcoin tend to ask. right? And so it's interesting. One of the things that I wanted to do is your last three op-eds for Bloomberg have been really interesting. They've all been kind of in the larger context of the lockdowns and the coronavirus crisis from an economic standpoint. So the first one was from late March, and it was about just how weird safe havens are behaving. Now, that's evolved a little bit since then, obviously, in terms of how gold is performing. But, you know, what have you noticed in terms of in terms of this question of safe havens.

I saw a Wall Street Journal article today about how investors are freaked out because safe havens are going up at the same time as stocks are going up. Well, I mean, the focus of that piece was I was talking about how people's perception of safety has totally been turned upside down. You know, if you go back six months ago, if your mom walked into an Edward Jones office was $700,000. and told the Edward Jones guy, the financial advisor, that she wanted to be in something safe, he would have put her in stocks.

Okay. Now, he would have put her in like, you know, high dividends stocks or value stocks, whatever, but he still probably would have given her an allocation in 100% stocks. And basically, you know, in the early part of this crisis, nothing was working. I mean, you had days when bonds weren't working, stocks weren't working. stocks weren't working, gold wasn't working, and everything that people thought was safe had been totally turned upside down. And now, you know, gold has rebounded a lot since then. Bitcoin has rebounded some. I mean, that's, you know, when you're talking about definitions of safety,

like that's what I think is definitions of safety, things that you can't print, things that you can't create out of thin air. So I would say, gosh, 30% of the my portfolio is in that type of stuff. So, yeah. Yeah, it's interesting. And we're seeing, you know, the numbers are starting to roll in with, I think, the highest percentage of cash in portfolios since September 11th. And, you know, so I guess I'm interested in your, in your kind of larger take right now of where we are in the life cycle of this crisis from a, from a market's perspective. Obviously, there's still a lot of pain in the kind of pure economic sector of people being out of work.

Yeah, I think from a market standpoint, I mean, I don't want to get too deep into the Federal Reserve, but they've, the Fed has effectively. This is the place if you do. Yeah, okay. Well, the Fed, I mean, the Fed is effectively backstopped, the credit markets, and by extension, the equity markets, and the bond market and the mortgage market.

And really like, you know, there's a lot of traders out there who are saying, well, we can retest, we can go down, we can go down to 1800. It's really, it's not possible. I mean, the Fed has spent about $4 trillion on this and this idea that they'll spend $4 trillion and not another trillion if they have to is kind of absurd. Like they've, you know, they're all in. And I think that, I mean, look, like one of the things, you mentioned my piece in the 10th man today about. about chaotic neutral and that kind of type of stuff. Like you just, your only choice is to play along.

As distasteful as you may find, if you are morally opposed to what the Fed is doing, that's fine, but you have to play along. Yeah, I loved your line. The last line of that piece was, yes, capitalism is ending before our very eyes. It is unspeakably awful. Might as well make some money off of it. Yep, exactly. No, I think it's, I think it's really interesting.

I think it's a refreshing perspective to be able to, to be able to hold agnosticism in terms of kind of how you engage with the markets and not have that be mutually exclusive from your principles in terms of the way that you think should be, right? But like, you only have so many vehicles and you're voting with your writing, right, your content in terms of those principles and in terms of those principles and in terms of, of what you stand for and the type of policies you want to see while also, you know, being kind of clear-eyed and like I said, you know, agnostic about what the actual context is. Yeah. I think you have to trade things not as they should be, but as they are. And that's really the crux of it. One of the things that I noticed also from that piece and or maybe it was an earlier piece of

yours. But you talked about buybacks. And one of the things that we saw sort of more at the beginning, right, before everyone got focused on the stimulus package, was that buybacks had started to become a, the kind of boogeyman, right? The blame factor for part of this. Do you see that continuing as we get kind of out of the immediate urgency? Do you think that we're going to have a different conversation about buybacks? Is that going to be a political football? basically. Yeah, it is. I mean, I think, I think a lot of things. First of all, we've known for a long time that buybacks were the source of most of the gains in the market. Torsten-Slock at Deutsche Bank put out some charts. This was back in like 16 or 17 and showed that pretty much all the gains in the stock

market were coming from buybacks. Okay. Now, in a lot of people, I was opposed to buybacks on the grounds that corporations trade their stocks incredibly badly. They buy them back on the highs, and then inevitably something bad happens, the stock goes down and they have to issue more stock on the lows. So they're buying stocks high and they're selling stocks low, and they destroy value all the time. And IBM is the perfect example of this. I mean, before the crisis, IBM had 140 billion market cap and they had spent 160 billion on buybacks more than the entire company was worth. So I think the political blowback here, you know, it was funny like AOC had a tweet on this and, you know, about the airlines, about the airline buybacks, how they spent

96% of their free cash flow on buybacks and now they were getting a bailout. And I looked at the tweet and I was like, son of a bitch, like I actually agree 100% with, AOC on this. Like she absolutely nailed it. And, you know, a lot of the buybacks were, you know, explicitly for the purpose of enriching management, for sure, you know. So I think, I think the smart thing to do would be like if we were in a 1980s Reagan Volker world, we would eliminate taxes on dividends and make dividends and buybacks equal from a tax treatment standpoint. So then companies would pay more dividends. But really where we are right now is where we're moving towards getting rid of buybacks

and also discouraging companies from paying dividends, anything that reward shareholders at all. If you look at dividend swaps in the United States, we're projecting that dividends are going to be down 40% in a year. So it's actually not just buybacks. It's dividends as well. Yeah, it's interesting. I mean, this gets into another conversation a little bit, which is what the political will to make any of these real changes is going to be after this, right, in the wake of this. Like, let's say we get the economy back to something that's turned on. And we're actually looking to elections. Like, it's hard for me to imagine exactly where the will is going to come from for anything that isn't just the easiest soundlight or tries to find someone easy to blame, you know? Well, I think in the case of buybacks, I mean, I think I understand where you're coming from.

Like, you know, there was a point, there was a point in time in our history back before about 1983, I think, where companies couldn't do buybacks because it was considered manipulation. And I actually, I wouldn't be really that sad if buybacks went away. So, you know, it's a knee-jerk, stupid, you know, political reaction. to what happened. In this case, I would actually sort of agree with it. Like I said, I think there's better ways to do it. But if, you know, if tomorrow we decided to make buybacks illegal, like I actually wouldn't be sad about it. So, yeah, no, I think that that's right that it's, it could be the instance of that sort of reactive or hyper-reactive instinct working, you know, working out ultimately. I was thinking about this also, though, in the context,

of your, I think it's the middle of these last three pieces, the coming tax bill will be large and ideological. And effectively, kind of where you're landing is that in an MMT world, as you've put it, which would be interesting for you to define a little bit, just the way that you see that, tax rates will be driven entirely by ideological concerns rather than practical concerns, such as revenue collection. And I thought it was interesting, particularly in the context of Ray Dalio tweeted yesterday, I believe that after the coronavirus subsides, we will begin to talk about how we will pay the multi-trillion dollar bill for the stimulus package and who should get what in this new world order. That will be a defining moment because we will see, then see if we can do it

with mutual consideration and sacrifice, or if we can't and we'll fight instead. If we can do it together smartly with consideration, it will be great. If we can't, it will be terrible. And it's just hard for me. I read that. My first instinct was like, are we really going to have that conversation? it feels like we're just going to not. We're going to kick that ball down the field. But yeah, I'd love to hear more about kind of this take of yours about living in an MMT world. Well, I mean, basically, you know, with the two, so our budget, we were, we had about a $5 trillion budget and we were collecting about $4 trillion in revenue.

So we had a $1 trillion deficit. So that deficit is about 5% in GDP, which is high, but not, I mean, was much higher during the Obama years during the financial crisis. So it was high, but still sort of manageable. So we just spent $2 trillion on the stimulus. Trump tweeted that he wants to do $2 trillion on an infrastructure package. My guess is we're going to come back to the student loan issue at some point. That's $1.6 trillion.

My guess is also that we're going to do another stimulus package at some point. That seems in the cards. So you could actually have, 2020, you could have $10 trillion in spending and $4 trillion in revenue for the government. And there's no amount of taxes that you could possibly collect that could pay for that. It's not an issue of taxes. In fact, tax collection in that scenario is incidental to financing the government. And how the government is financing itself is by issuing debt that the Federal Reserve buys with printed money. So in effect, in an indirect way, the Fed is directly financing the federal government.

and that is the definition of MMT. So in an MMT world, if the government is sort of freed from these constraints and they no longer have to depend on tax revenue to finance themselves, if they're all doing it through the central bank, then you could set tax revenues wherever you want. You could set them at zero. You could set them in 100 percent. You could set them at 50 percent. And so in that world, the whole discussion on where taxes are is going to become purely ideological

because in ordinary times, there's practical concerns. If you raise taxes too high, then people avoid taxes and there's distortions. If you lower taxes too much, then you don't collect enough revenue. But all of these practical concerns go out the window in all of our discussions about taxes going forward are going to be about inequality and economic justice. It's interesting because, and I think this bridges into the last piece, which is the thing that I've been wanting to invite you on for a while, but when I read this last piece, it's like, I've got to get you in right away.

Money has no meaning anymore. Money is losing its meaning. So the interesting thing that I've noticed is as the forms of engagement from the Fed get increasingly more exotic is the way that one Bitcoin investor has put it, you're seeing this really interesting thing happen where people are asking questions like, well, if, they can just do that, right? If they can just authorize billions and billions, trillions of dollars for seemingly anything they want, why the hell are we paying taxes? And by the way, why not student loans and why not mortgage it? Why does anyone pay for anything? Right. And it's this intellectual,

slippery slope for people that, you know, as folks in the, folks in the Bitcoin community are slapping their hands on the table and being like, see, this is what I've been screaming about like a crazy person. But for a lot of folks, there is this, there's new, the Overton window on what the hell money is is opening in a big, big way. I'd love to hear what inspired this money. Money is losing its meaning post because I think that really hit the nail on the head. Well, part of it was just the big numbers. I mean, part of it was, you know, and we kind of went through this in 2009. In 2009, the Obama administration under Larry Summers passed the $780 billion stimulus, which was massive at the time, an $800 billion stimulus. And here we passed a $2 trillion stimulus.

And basically, the first thing that came to mind was these numbers are becoming so large that they are not really having any meaning. And pretty soon we're not going to be talking about trillion. we're going to be talking about quadrillions. I mean, it just becomes, and like you said, it's a slippery slope. It just becomes all imaginary. So that was sort of the genesis for that piece. Yeah, it is a really interesting. I mean, I guess where, what do you think from a, the piece and maybe I'm putting words in

your mouth, but it felt to me like your first order concern in the immediate term wasn't the USA turning into Venezuela, right, hyperinflating. It was more the, the, the, the, the loss of faith in in the money system, right, in the currency as a whole. Is that accurate? Yeah, a lot of people focused on the Venezuela part of the piece and they, you know, because I said there's, you know, we are not going to turn into Venezuela for sure. Like I've, I've known some Venezuelan expats. We've had this discussion. The U.S. has much stronger institutions. I mean, yeah, we could get there, but it would take 50 to 100 years. So that's not really

irrelevant discussion. But yeah, I think I think the piece, it's really just the loss of confidence in money. And this is, there was an interview with Paul Volker. I can't remember who did it. It was PBS. PBS did an interview with Paul Volker like back in the 80s. And Paul Volker basically said that one of the government's primary jobs is to instill confidence in money.

That's one of the things that the Federal Reserve is supposed to do. And I think the thing that motivated that piece was we are at the early stages of a loss in confidence in dollars. We're at the very early stages of it. And that's what motivated that piece. How do you think that that, because it feels like we have this weird two kind of conflicting forces going on right now. On the one hand, the whole world is desperately trying to get into dollars.

so much so that we're even seeing in the crypto space, you know, billions flowing into USD stable coins, right? But on the other hand, you have all of these conditions, which to your point are creating the context for people to lose faith. How do you know, how do you see that battle playing out? Or is it just impossible to tell because we're in such a new territory? Yeah. I mean, there's a group of people out there who are really bullish on the dollar.

They talk about a shortage of dollars and they talk about capital flows and stuff like that. I'm not really an expert on those types of issues. And it's it's it's not just that I mean, there's a lot of reasons that the dollar would appreciate versus other G10 currencies in this environment. So I guess from a trading standpoint, I mean like being long the dollar is not unreasonable. But I'm just talking about a loss of confidence in the Fiat money system in general. I mean, this is something that crypto people have been talking about, like you said, for years. And like now it's actually happening. So one of the really interesting things we've been doing on the show is it's kind of trying to keep track of second order and third order impacts, right?

So things that are triggered because of this. So a couple that I've noticed you discussing that I'd love your take on just because I think everyone right now is trying to make, like we've gotten to the point of acceptance that this thing is real, you know, the impact is going to be significant. and now people I think we're trying to make sense of and process how, right? So, so two that I noticed, one had to do with savings and spending habits. So you tweeted something to the effect of, you think that consumption patterns are going to be permanently altered. Do you think that that's, do you think that this has been enough of an impact that people will start to actually save in a different way? Yeah. I mean, our savings rate right now is 8%, which is low by historical standards, but it's not the lowest. The lowest it got was 2% in 2006. But still our savings rate is pretty low.

And, you know, look like we've all been living inside for the last month. So my consumption patterns have changed. I look at my credit card bills month over month and they're down 60 to 70%. And everybody I talk to is the same thing. And what people actually like my brother, who I would characterize as a free spender, he really likes to spend money. He called me up the other day and he's like, he's like, you know what? Like, I'm saving money and I like it. Like I'm actually putting money away. And I think for the first time in a long time, people are seeing what it's like to save money. So I don't think we can expect that, you know, after the lockdown ends and everybody goes back to normal, that those consumption levels are going to return to what they were before. I think we're going to get to 70% of what they were before. And the economic impact is going to be massive. I mean, people have estimated that, you know, out of all the restaurants that have closed down to the

U.S., 100,000 of them are going to stay closed. And it's, you know, it's absolutely true. Yeah, I think that's one of the things that we're radically underestimating is the number of small businesses and sectors that are just going to get wiped out because they just couldn't deal with how long this went for. Or, you mean, maybe they were teetering already and decided to pack it in, you know. It's, it's, I think there's going to be a lot of carnage in that space that I don't know if we're pricing in, at least on kind of a mental level yet. So the other, the other second order effect that I noticed a discussion of, from, from you on

Twitter, has to do with colleges. This is something that we've talked a lot about on this show as well. It's hard to imagine the university system returning to anything that looks similar to what it was before. Yeah, I mean, and colleges and universities have been very poor stewards of capital. I mean, it's been a big bull market in higher education. And they haven't, you know, except for the schools with big endowments, I mean, most colleges are completely unprepared for this.

They haven't put anything away. They don't have any reserves. And, you know, I was discussing this today with my wife. She works in higher education. You know, there is going to be a little bit of a factor. where some kids do go to school or stay in school because their job prospects coming out of the crisis are going to be pretty bleak. And that happened in the financial crisis. The number of people enrolled in colleges actually went up. But from a long-term perspective, in terms of just the actual act of learning

in a classroom, I mean, that has just changed forever. And if you think about this, like when people think about how they're going to spend money on education, and they can spend $10,000 on the University of Phoenix or $80,000 on Stanford for the same product, which is basically an online education. And by the way, University of Phoenix is better at it because they've been doing it for years. Like the whole economic calculus just totally changes. I think one of the things that you're going to see is almost like a depackage. in some way of college where you won't think about it as this one potential purchase item, but it's like, where are, there's a learning aspect, there's a credentialing aspect of it,

and there's a social aspect of it, right? And those things can actually be unbundled to some extent. You know, like, I think that you're seeing, you're seeing so much activity over the last 10 years in terms of, you know, professional networks, distributed professional networks that do a lot of that networking where you used to only have your college or your alma mater, right? You have cities just playing the role of that social impact for a lot of people. And then you have the credentialing, but the part of the problem, I think, fundamentally with the university business model over the last 30 years is that everyone was sold that basically the middle and lower tier of colleges sold the same value proposition that the top did when it's just not the case from a credentialing standpoint. You're not going to get that value that return on investment.

Yeah, and a lot of the, a lot of the middle and lower tier schools actually had the same price point as the higher tier schools, which is the thing that's kind of strange. The unbundling is absolutely true. I mean, a lot of people were going to school for the social experience. I mean, they were going for the fancy dorms and the swimming pool and the climbing wall and, you know, all the luxury gym and all that stuff. And, you know, once you unbundle that and you can say, okay, this is the, this is the, this is how much I'm spending for the, the education piece, and is it really worth the extra $70,000 for all the rest of it? I think people are going to come to the conclusion that it's not. So, I mean, when you talk about, I mean, if I were to put a number on the number of colleges

and universities that would actually fail in this environment, I would say it would be 20 to 30%. Yeah, I think it pushes a lot of places over the edge. And then I think actually in some ways, like, just the idea of a university failing will probably trigger a lot to actually think about it. That's like an unthinkable thing right now. But again, I feel like that's one of those Overton window shifts where all of a sudden people will not just assume that all these universities that have been there forever will be there forever.

Yeah, I mean, there's a lot of these discussions are being had in every school in the country right now. And basically, these budgets were on a razor's edge before. And they're looking at this and they're saying, okay, like, even. if our enrollment is flat, we're going to be down X number of millions of dollars just because of all the revenue we lost at the end of the spring semester. So, but, you know, enrollment is probably not going to be down. Enrollment is probably going to be lower. And then you have to think about places to cut costs. And there's like easy places and hard places. And it's, you know,

they're going to have to look at athletics, which people haven't looked at in the past. They're going to have to look at administration, which they haven't looked at in the past. So even for the ones that survive, it's going to be very, very hard. You're, you know, a big part of your job is to sit back and try to observe everything and understand how they all, how all these factors come together. Are there other parts of the market that have been particularly interesting to you or more of these second order effects that you're thinking about kind of going forward? Or is it more just day-to-day trying to understand the latest developments? Well, I will say that, um, I don't know about second order effects.

I can tell you that what the Fed is doing in the credit markets is kind of at the front of my mind right now. I mean, it's explicit support of the credit markets. And, you know, this isn't the first time this has happened in history. I don't remember, I think it was like 2014 or 15 that the ECB started buying corporate bonds and people thought that this was this temporary liquidity facility. And guess what? Like six years later, they're still buying corporate bonds. actually it was longer than that. It was like 2012. And so they went from the European financial crisis all the way to Greek bonds trading in negative yields. Right. So what the Fed is doing right now is not going to be over in six months. It's not going to be over in a year. They're going to be buying credit for years out into the future. And if you, you know, I think those distortions that like what the ECB caused are going to happen in the U.S. And I just. think it's, I think that's really the easiest trade out there is to be long credit.

What do you think for those who are just trying to wrap their head around this, how does this shake out in terms of what do the distortions look like? I guess it's a way to ask the question. Well, I mean, going into this, you know, high yield spreads were so low. Your typical high yield bond, your double B bond was trading in about three and a half or four percent, which was incredibly low and then in the early stages of the crisis they got out to about 10%. I mean, it'll get back to those previous levels and lower. Like the Fed's support of the credit markets is unconditional and it's going, it's, you know, it's like with QE. I mean, we started QE in 2008 and we didn't end it until 2017. And along the way, it created a huge amount of distortions. You know, one of the things

that people were talking about with QE back then was that how it created inequality, because Basically, QE made asset prices go up. And the people that owned assets were people who had money. So it actually, QE was the primary driver of inequality. That was one of the major distortive effects. And, you know, there's going to be distortions that come out of this that I can't even comprehend right now. In all this, you know, because I think a lot of folks share some of these concerns,

what has you right now most pessimistic and most optimistic? looking forward? I think what has me most pessimistic is the arguments that we're having about the shutdown. And it's like anything else, like it falls along political lines. Like there's a lot of people who are clamoring for an end to the shutdown. They tend to be conservatives. There are lots of people who want the shutdowns to continue longer. those tend to be liberals. And there's not a lot of common ground there. And I'm sort of like looking

ahead to an environment where there's, you know, there's a showdown between the federal government and the states. And it just, that makes me very pessimistic. The part that I'm optimistic on is, you know, I think that we will find, you know, one of the things I said in one of my 10th man pieces was that the PPE that hospitals needed. They were, were going to get the PPE that they needed, the free market, the invisible hand, provides whatever people need at low cost. And that's happening. You saw all types of entities creating masks and stuff like that. So that fixed. The same thing is going to happen to the vaccine. I think we're going to get a vaccine earlier than expected. I'm sort of optimistic as to how the virus is

going to play out longer term. It's interesting. One of the, we've talked about the, we've talked about there's a lot in the past few weeks, but one of the things that's really, I think, optimistic for me too, is that in this context where there's more reliance in some ways, at least from the markets, on the government than ever before, you're not really seeing people necessarily just kind of like turnover and like slide, slouch into dependency culture. You're actually seeing the opposite effect for a lot of folks where they're finding this resilience and investing in community and figuring things out because they just can't wait, you know? And I think that there's a lot of people who are going to come away changed from that and do interesting things.

Yeah, for sure. And, you know, this is, none of this is being centrally planned. Like, you know, Trump is not a dictator. This is, none of what's happening is being directed by one person anywhere. This is, it's, it's the market. It's happening collectively. And it, like you said, people acting individually to serve their own best interests. And that's how we're getting through this. Where can people find more of your ideas that they want to keep track of all this? You can follow me on Twitter at Daily DirtNap. I'm a contributor at Bloomberg opinion. You can read my editorials there. My newsletter is called the Daily DirtNap. I've been publishing it since 2008. You can find that at www.dailydirtnap.com.

And if you want to subscribe, you can reach out to me there. Love it. I guess actually one last question since you've been writing this since 2008. Do you have, I mean, it might be so hard to tell, but how does your gut sense or feel of this crisis differ from 2008? Man, you know, it was funny because when I was at Lehman Brothers, I ran a proprietary trading book. and I was part of a group of people that was, you know, I was actually betting against the housing market. I was, you know, buying, I was like shorting the subprime lenders and doing all that stuff. But I vastly underestimated how bad it would get.

And I remember there was a moment when I was sitting in my office on 3rd Avenue when I just started my newsletter. And I had my business bank account at one of the banks. and I looked at my Bloomberg and I looked at the stock price at the bank and immediately I thought to myself, my money is actually not safe in the bank, right? And that was like, that was a terrifying experience. That was an absolutely terrifying experience that absolutely nothing was safe. Now, we went through this a couple of weeks ago, but I think we're out of it now. But, you know, the financial crisis started in the summer of 2007 and it ended, you know, the stock market bottomed in March of 2009.

I mean, there were stretches of weeks and months of that kind of fear. And it seemed like it went on forever. And this is a little, this is different. I mean, the difference today is that, you know, back then with the financial crisis, we knew, we kind of knew how it was going to play out. We knew that there was too much leverage in the system and we had to de-leverage. But this is something totally new. We've never dealt with this before.

There's no model for it. And there's a lot of unknown. so I think that makes this a little bit more scary. Jared, I really appreciate you hanging out. I'm sure the audience did. Thank you so much. Thanks. You're a great host.

Thanks for having me on. One of the things that I appreciate most about Jared's perspective is the dispassionate analysis, the ability to hold simultaneously extremely principled positions, but also not get swept up in them. I think it's a really important way to look at what's happening right now. because people need to be nimble. We need people to be able to act. And if we get caught up too much in our ideology, it can be slow moving for us, right?

It can actually impede us. I think that it's often unpopular to not push forward with your kind of extreme points of view in social media. I hope you enjoyed that perspective from Jared. I know I did. It's Friday, guys. I hope that even though the days have sort of lost meaning for a lot of us, that you're looking forward to the weekend. You're going to spend it with people you love.

So until next week, be safe and take care of each other. Peace.