The Compound and Friends - Unlimited Alpha

Episode Date: August 11, 2023

On episode 105 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Bob Elliott to discuss: Bob's time running money at Bridgewater, CPI, global macro, the labor market, why hedge funds are typically bearish, and much more! Thanks to Xtrackers by DWS for sponsoring this episode. Learn more about their range of ETFs at: https://etf.dws.com/en-us/etf-products. Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Oh my god. No. He wants it. I spoke to Ava about this. He wants it. There's no way. What if it's special order with the logo and everything? Yeah, real.

If Michael's in a Speedo, I'm calling the police. Red Holtz banana hammocks. It's not happening. An animal spirit Speedo? I'll literally call the police. All right. Where is this kid? He's coming.

So I gave her Starbucks Alphabet belonging to Dow. Oh, Starbucks. That's a good one. And then they need to add an energy company. Just put Exxon back in. Put Exxon back or put ConocoPhillips or something. What about a Phillips 69? And then they need to take out IBM, take out Intel.

Am I right? Yes. Good enough. Hey, comrades. Right? So, Bob, you've got... Stop. Stop when we're done.

You've got some head of hair. Thank you. I don't have many retinic qualities, but I do have a nice set of hair. It's like, it's like, it's like a porcelain doll. No, but it's dense. Dense.

Right? It's full coverage. Full coverage. So I used to have a head of hair like that. My dad's almost 80. Same exact thing. Oh, that's good.

That's a good sign. But doesn't it go by your mother's father? Yeah, no, it's not a good situation. Michael loves talking about hair. That's his icebreaker. Yeah.

If there's a, if we're on a Zoom call and there's another bald. Oh, I never realized that. He loves, if there's another bald, he goes, hey, hey. If it's a bald. On that note, Michael, can we get you any other color hat other than white? Yeah, sure. Yeah. Let's do that.

Okay. It's just very, very bright. Okay. Wait, you want to, he has to switch hats? Snap back? Oh, yeah, I'll wear that. No, no, I can't wear it. Nah.

You could, you could go without, you know to switch hats? Oh, yeah, I'll wear that. No, no, I can't wear it. Nah. You could go without, you know. I don't know what you said. I don't care. It's an unwritten rule. I guess he needs the hat on. Otherwise, the glare is even worse than the hat, right? I love this guy. No, but look how ridiculous this is.

No, it's not. Why are you so self-conscious about your head? You have a nice shaped head. You know how many people have no hair and have a terribly shaped head? I have a great shaped head. I'm not self-conscious. It looks weird. It looks like a elephant.

No, it really doesn't. Oh, oh, oh, oh. All right, cool guy style. That looks weirder. Now you look like a high school basketball coach. High school basketball coach. Oh, a comedian called me that. He called you a high school wrestling coach.

He got heckled from the comedian. I got heckled. Wait, and what was the context? He said you look like a high school wrestling coach. The guy was bombing him. Was I walking to the, I don't know. I got singled out. That's the risk.

All right. So is Portnoy the greatest dealmaker of our generation? He just – so let me lay this out for you. He sells his company for $500 million. Before taxes. Oh, yeah, you're right. Loser. They close the deal, and within a year of finishing the transaction,

they sell it back to him for a dollar because they need Disney and Disney wants, you know, nothing to do with Barstool. How about this? Let me posit you this. Is this a win-win-win? Like, didn't Penn win as well? I think everyone wins.

Yeah. I think Dave now can run this company the way he wants until he dies. He doesn't have to do anything ever again. Disney now is in the sports betting business. Now that Pornhub didn't lose, but he can't ever sell. And he can't have any sportsbook advertisers. No, he can sell.

If he sells, he owes half the proceeds to Penn. No, I'm not saying he can't, but now he won't. And he can't have any fan, no FanDuel, no DraftKings. Okay, fine. So he wins with the caveat. Penn wins because they're doing good with Disney. But he doesn't need the sports, he doesn't need the sportsbook he doesn't need the sports book advertisers because he's,

he could sell High Noon until the cows come out. I'm just making this up that that was probably the biggest advertiser. Pre-Penn. Fine. Agreed.

No, everyone wins. I feel like it's, At Portnoy, it looks like a genius. It's my one loser. Great deal. I think ESPN looks desperate. Oh yeah, thirsty.

They like, like why couldn't they start their own? Why do they have to buy one? Is this ESPN, Disney doing the how do you do fellow kids? I mean, I guess Thirsty. Like, why couldn't they start their own? Why do they have to buy one? Is this ESPN? Disney doing the How Do You Do, Fellow Kids? I mean, I guess they had no choice, but it's surprising that ESPN had to partner on this.

Draft Kings and FanDuel are a combined 70% of the market, which I didn't know until yesterday. And who is the other third? Like, MGM, Caesars? They're tiny, though. They're tiny, and they're burning money like there's no tomorrow. Does ESPN instantly become like 20% player just by virtue of the brand? I think there's going to be like betting into the TV.

Like with like the new TVs, there's going to be like in the remote. No, but think about it. ESPN can show an NBA game and bomb you with ads for ESPN bet in a way that nobody else can. Like FanDuel doesn't own a TV network. So I think overnight they're a player. Yeah. Oh, for sure. Plus all those ads just come right off the TV, right?

Instead of advertising on ESPN. That's a great point. They lose all that access, right? They lose – yes. Right. Where does FanDuel advertise now? Big Ten Network. Animal Spirits.

Or does ESPN have to allow them to advertise? Why? Is there some kind of anti-competitive? I don't know. I don't know. Maybe not. But doesn't that mean that all the sports leagues, the NFL and NBA, have ESPN by the balls now? Like, you can't.

When didn't they? Even worse, though, they have no negotiating leverage anymore because they're going to have to keep buying those contracts. Well, if you believe the press report—yeah, you're right. If you believe the press reports, one of those leagues is maybe going to take a stake in ESPN. That's smart. Like, they should actually sell a stake to the leagues. Like, 5%, something. But don't you think at some point, like, one of the other players is going to come in?

Like, Amazon's going to come in with, like, an over-the-top offer for NFL? They did. I mean, they stole Thursday Night Football. And you think that's the end of it? No. And you've never watched a Thursday Night game again, right? I mean, I'm still watching them. If they put my homes on, I'm going to watch it. I don't really care what channel it's on. So, the Thursday Night games used to be on NFL Network,

right? And now you have to watch it on Prime, right? Is that the deal? It was on NFL or? It was on NFL Network. I thought it was on NBC on Thursday nights. Are you sure? I mean, no. What night does NBC have football then? Sunday.

It's Sunday night. Okay. Who's Monday night? But they stole Al Michaels too in the process, Amazon. Listen, I think if you could sell your company for half a billion dollars and then buy it back for a dollar, the details don't matter. It's a short seller right there. Perfect short sale.

It's a perfect short sale. That's true. You sold it at the top, bought it back at zero. He round tripped Penn like perfectly. Like that's, you know, respect. Yeah. Anyway, congrats. All right.

How many minutes out are we? We looking good? Yeah, one minute. Okay. You seem more nervous than usual. You okay? I'm fine. Yeah?

You sure? John, what do you think? Is Duncan a little frantic today? It's been an exciting one. Bob, that ETF, nope. Do you know what the assets peaked at? He raised $65 million. It's not terrible. But it peaked lower than that because, of course, it lost 50%. So do you know about the assets peaked at? He raised $65 million. That's not terrible.

But it peaked lower than that because, of course, it lost 50%. So do you know about this, Josh? No. So is it Noble Absolute Return? That was the name of the ETF? Yeah, something like that. Launched and just really swung for the fences. It was shorting. Tesla maybe was long, like the SQs.

I think the fund fell. The return was like down 60 in nine months or something. He shut it down. Who is it? Whose fund is this? I don't know who it was. Oh, nope. George Noble.

I don't know who George Noble is. I read about this yesterday, but I never heard of these people. I mean, it was, he was going for it. Do we know anybody involved with this? I don't. How bad were the returns? I think it was down 60. Yeah, it was down 65% since the start of the year.

But they said like- Worst ETF of, it was down 65% since the start of the year. But they said like- Worst ETF of all ETFs down 65% at one point. Listen, as you know, it's all about timing. It is all about timing. And you can't control that. Right. You're either in it for the long game, and it's going to play out over three, four, five years.

Or you get lucky. Or you go all in on lucky. I'm also guessing losing 60% any cycle is probably not good. But is that what they said they were going to try to do? Lose 60%? No, they did not. No, that was not in the prospectus. They said, like, we're going to swing for the fences. The holders were nuts.

We're shooting for a capital loss right out of the gates. Right there, top line of the prospectus. The goal of this fund is to achieve capital. All right, let's do this. Let's go. All right. Right there. Top line of the prospectus. The goal of this fund is to achieve capital. All right, let's do this. Let's go. All right. All right. Thank you, John.

What episode is it today? Come on, friends. Episode 105. 105? Oh, my God. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be

relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Today's episode of The Compound and Friends is brought to you by X-Trackers. X-Trackers by DWS provides investors with innovation, access, and value to its established range of ETFs across FX hedged equities, dividends and factors, China, ESG across equities and fixed income, high yield, and now thematics. X-Trackers recently launched its first three U.S.-listed thematic ETFs focused on innovative growth trends of the future, like U.S. green infrastructure, semiconductors, and cybersecurity. To learn more, check out the link in the show notes. That's X-Trackers by DWS.

Hey, everybody. Welcome to an all-new episode of The Compound and Friends. My name is downtown Josh Brown. And boy, do we have a treat for you today. First things first, the regulars. John is here. Duncan is here. Nicole is here. Rob is here. Sean is here. Dude, is this your first sit-in?

Okay, for people who don't know who Sean is, he is the guy, these days, since Michael abandoned me, who makes me look really smart on television. I almost don't open my mouth without Sean supplying the information that I need so that I really sound as authoritative and as incredible as I do on TV. But that's mostly Sean these days, not Michael anymore, and only a little bit me. Is that why Michael reacted so badly to that chart this last quarter? That was some lazy ass shit. Not Michael anymore. And only a little bit me. Is that why Michael reacted so badly to that chart this last quarter? That was some lazy ass shit. I stand by that chart. Terrible garbage.

Sean is going to move to New York. He's going to be a rising star within this organization. And Michael's going to get really catty. You'll see. I've seen it before. I've seen it before. I love you, Sean. Hey, we're so lucky to have you, Sean. Welcome to the studio.

Ben Carlson's in the house tonight. Give it up for Ben. Very confident in my assertion. You should do your catchphrase. Do you have anything? What do you got? Wait, hold on. What is that?

That was loud. You have no idea what's going on here. Stop it. Give me your catchphrase. What's your thing? What do you say when you... Like, Michael goes, hello, hello. What do you do?

No, that's Boba Boop. Confident in my assertions? Very confident. My whole shtick is, like, there shouldn't be an intro for podcasts. And yet... I was about to say, Ben. Just start talking. You know this is a show, right?

We're working on minute seven of my intro here, so... How's it going so far? Ladies and gentlemen, our guest today... The star of today's show. The star of today's show. And we've been looking forward to this episode for a long time. Bob Elliott is here. Bob is the co-founder, CEO, and CIO of Unlimited Funds, an asset manager providing easier access to hedge fund strategies.

Bob was previously the head of Ray Dalio's research team at Bridgewater. Bob Elliott, welcome to the show. Thanks for having me, guys. How much of Bridgewater's returns do you want to take credit for now? All of the positive returns. Okay. Would Ray do what I just did for Sean? Would Ray ever do that for you?

Every once in a while, yeah. In what outlet? Like on the phone with you, maybe? Or we're going to do an airing of the grievances for him working at Bridgewater. We don't have all day. Actually, I missed something. Before we even get started, I want to give a shout out to Michael Sembelist, who was on the show a couple of weeks ago,

and he mentioned our show in his note, Eye on the Market, and he said, quote, I never do media appearances, but I didn't accept an invitation in July to speak on a video podcast. That's what we're called now, Duncan, a video podcast. He's a boomer. Called The Compound, which is moderated by money manager Josh Brown. The reason I accepted, it's a long-form 90-minute show that allows for in-depth discussion and debate that does not occur in any other media I've seen.

What a really nice- Isn't that nice? So nice. I listened to his podcast. He said he got a new mic because of this show. He's got a better mic now, stepping up his game. He was phenomenal. You know, nobody knows how he got it done,

but credit to you, Josh. For sure. Anyway, Bob, tell us how great our show is. Now, so let's start with who the hell are you? Because I used to be on Twitter and you didn't exist. And now you're the only thing anyone wants to talk about. You are like a superstar. You're like out of nowhere.

When did you like come to everyone's attention? Honestly, I started on Twitter about a year ago. That's why I didn't know. A little more than a year ago. Because, you know, when you're in the hedge fund space, you can't be out there talking about your positions and stuff. And I just, I started it. The basic idea was I just had some friends, some old colleagues. I was like, I'll just write down my, the stuff that's on my mind, just put it out there. So, you know, we could talk about it instead of it being over a text chat or something like that. And it started

getting picked up. People were like, oh, that seems pretty interesting. And still to this day, all I do is I wake up in the morning, write what's on my mind, commute home, write what's on my mind, that's it. What you're describing is literally the way that everybody we like and respect in this game got started. Like nobody that we like look up to, or nobody's like, I'm going to become an expert on

the market and sell my bullshit to the, yeah, on Twitter. Nobody, everyone that we like, including ourselves is like, you know what? I have stuff to say. I have no idea if anybody cares. I just feel the need to write it down and put it out there and let's see what happens. And that's like the most honest way I, into the business. So congrats on that. Thanks. I mean, I spent almost a decade writing. Bridgewater's got a very famous thing

called Daily Observations. I was writing them a couple times a week, which is basically the same spirit, but a more institutional capacity. And that's how I process markets. That's how I think about markets is just basically see what's going on, think about what are the questions, the topics, the trades, all that stuff that's on my mind, and then just put it down on paper.

And Twitter is such a great environment. Oh, yeah. It's amazing. I love it. It's efficient. It's efficient. You know, it's to the point. It's great for sharing information.

Yeah. And you'll hit it soon. Most of the people are pretty good. Stick around. You know? Make some like big jumps in your career from here. Like your unlimited funds gets to name a milestone. Oh, once you get to a billion, it's over for you.

And you'll see if you're still having as much fun. Sorry. So Bridgewater is not an easy place to get into. It's certainly not an easy place to rise in the ranks. Yeah, how did you get in there? It's like 150 employees. Well, back when I started, it was around 100 employees. And it was the challenger in the space.

People thought, you know, systemizing macro was kind of an oddball idea, right? Most of the macro was like Soros and big bets, big swings, speculative positions. And so, you know, Bridgewater was sort of on the outside looking in. And, you know, I was part of the small handful of investors that took Bridgewater from where it was then to being the incumbent, which was a great, I mean, what a great environment, great time to be trading markets. Was it your first job out of school? It was my first job out of school, yeah.

When did you start there? I'm guessing you did not go to Queens College like me. I did not go to Queens College, although our co-founder went to Queens College. In another generation, though. A whole other generation. Yeah, yeah. So a lot of respect for Queens College graduates, for sure. I'd done a lot of work in public health when I was in college and realized economics was what really drove public health outcomes globally. And so I was like, oh, I'll go there. I'll basically get a master's degree in economics.

They'll pay me for it, which is a pretty good deal. And yeah, I stuck around for almost 15 years. hedge fund to the pinnacle, like in terms of like performance, culture, like the renown that the firm, what was that like being on the inside of arguably the most successful hedge fund in history? Well, one of them, let's say top five. What was that like to witness and be a part of? Incredible growth, incredible time in markets, the financial crisis, European debt crisis. I mean, all of these

different experiences that I think shape a lot of how I think about the world, think about markets, being on the inside, essentially, when the financial crisis was happening, talking to regulators, banks, insurance companies, seeing how that played out. It was about as fast as you could learn about markets. That's a one in a million opportunity, maybe one in a billion opportunity. How is radical transparency for you? Fine. I think, you know, there's a lot of drama around it and sort of like intrigue about it. Like all it is is it's not that much difference.

It's overblown? Sorry, Bob is referring to the culture at Bridgewater, which notoriously is like something people from the outside like to make jokes about. Because it's said that like it's been reported that there are like baseball cards on employees and everybody's being graded and everything's recorded. Is that overblown or is that is there truth? Like at its core, it's just no different than any other high performing organization. When you get people in who are running money seriously, you sit there and you have direct conversations about what's going on, and you don't screw around. And whether you look at Netflix and what they write about or Bridgewater or other high-performing places, that's basically what it is.

Where it holds wealth. Let me read this to you. This is Matt Levine. I never understood how Bridgewater gets any investing done. But of course, there's a computer that does the investing. One stylized model for thinking about Bridgewater is run by the computer with absolute logic and efficiency. In this model, the computer's main problem is keeping the 1500 human employees busy so they don't interfere with its perfect rationality. So the the games of like grading each other and recording meetings is to make sure nobody accidentally touches something on a keyboard it's funny it's matt levine um but like take that apart it's not it's not obviously

not real i i would yeah there was there was a core of folks who who were running the money that you know you probably have seen i was part of that that group. And I hate to say it, but it was a whole lot less interesting than all of this intrigue that you read about on the internet. Imagine they start writing articles one day about like, if that's Bridgewater model, what's the model here? I guess nothing looks good if reporters or columnists are like deliberately trying to make fun of something for – Yeah, I mean what – how interesting would a story be? It's like a bunch of people working hard to try and figure out how to trade markets and –

Doing Excel all day. And doing that every day. Like that's not that interesting. It's not that interesting a story. But closer to the reality than – Is it everyone there a type A personality though? Is that really how it is or is it a wider range of people than you think? I wouldn't quite say that.

I think the thing that – the best people who are there are people who are just incredibly intellectually curious and just fascinated by how does the world work and not – I mean about markets and economies and all that stuff, but just broadly, you know, they're, they're broadly thinking about everything that's going on. And so that, that curiosity is what creates the questions, which creates the, you know, the differentiated insight, which you have to have in order to generate alpha. That that's really at the core. I want to start today with a global macro in general, as a, as an, I guess it's not an industry, it's a style of investing. Um, but it's also kind of like a, it's, it's kind general as a, as an, I guess it's not an industry, it's a style of investing.

But it's also kind of like a, it's, it's kind of like a, it's also a style of being on Twitter or being on social media or writing newsletters. It's just a, it's a persona. It's a persona almost. And you, you broke the mold. You're iconoclastic in this way. It seems to us, knowing very little from the inside, but from the outside looking in, most of the people who have this specialization in global macro seem to be bearish or pessimistic or overly focused on everything that probably will go wrong. Are we wrong in thinking that? From the inside? Are there many more people who are more pragmatic and optimistic? Or do we have that about right?

Like from your experiences. I think when you run money from a macro perspective, you have a lot of, you've studied every crisis, every hard time, every problem that could emerge, right? So even though of course, like in general, investing in assets should do you pretty well over time, every problem that could emerge, right? So even though, of course, like in general, investing in assets should do you pretty well over time, right? The big thing is to watch out for those key times when things aren't working. Well, that's when you make the most money. When you're most differentiated relative to traditional passive investing. And so I think

that's really the focus is how do you, you know, do fine in times when assets are going up and everything's kind of going up. But then when the chips are down and trouble emerges, how do you preserve the capital? How do you see it before it happens? And how do you preserve the capital? And so in that sense, I think there is like what might come across as a bearishness, a bearish perspective, what might come across as a bearishness. Oh, it's bearish. A bearish perspective or an angsty. What could go wrong? What could go wrong?

What am I seeing that no one else is seeing? My theory is 2008 broke a lot of brains. And so many people missed 2008 happening that they said that's never going to happen again. I'm never going to miss a crisis that big where the stock market falls 60%, the economy and financial system are teetering on the edge, and I'm going to call the next one.

Well, think about what it did for the people that did not miss it. Yeah, you became a celebrity. It's asymmetric. Michael Lewis wrote about you. They were goaded. They would be goaded forever. So, Bob, one of the things that I'm attracted to you about your Twitter account and your persona

is that you broke the mold with this because you seem to be objective. I don't categorize your, your views as pessimistic or optimistic. They're, they're objective, at least as objective as you could be. There's no agenda. And I think from the point of view of getting as a money manager, especially if you, if you have the ability to short or, or avoid corrections, if you miss it, you look like an idiot. How did you not see the risk coming? What am I paying you for? And if you're bullish and right, okay, whoop-dee-doo. I could just buy the spy. Why am I paying you? But if you miss a bear market, you're an idiot. Why am I paying you?

Yeah. Well, I think the main thing is the way, how do you generate long-term the way, how do you generate long-term high risk versus return capital or high return versus risk capital is by, you know, going with those times when things are buoyant, but not getting over your skis and leveraging all in and then protecting on the downside. And if you can, you know, if you can cap your losses to being even a third of what traditional index investing is, then you're going to be wildly successful over the long term, right? And that's really, if you look at what hedge funds in general do, like hedge funds are not, they have this sort of this view from the outside that they're like, you know, gunslinging, high vol people. They're like incredibly- Some are.

Some are, but you know, there's 3,000 of them. You put them together and the median manager is incredibly boring, risk managing, and trying to generate that 7, 8, 9, 10% return without too much volatility. Well, the thing is though, the outliers are the ones that cross over into mainstream or pop culture.

Like Ackman is not boring. Soros is not boring. Einhorn is not boring. They speak. They write. They appear places. They do selfies. But that's what the – so when you – you talk to people that don't know anything.

You say hedge fund manager. That's who they see. Of course. But those are 10 people trying to be famous out of 3 000 right out of 3 000 that are you know incredibly although ray doesn't run away from the camera i mean you know so it's one of the things about bridgewater the testament to bridgewater's culture and why i've come around and i like not that i ever didn't believe but like why I actually do believe

that there's something special there. Can you think of another hedge fund where the main guy left and the successor stepped in and things actually stayed good or got better? I don't know where you stand on the criminology of the whole thing, the politics, but like Greg Jensen did not f*** it up. The Fresh Prince when they changed moms.

Yeah. That's a great example. So that's a really good example, not a hedge fund. Vivica? I don't know if you want to like really answer that, but like I'm kind of onto something. Is there another fund where that transition has happened and the world didn't fall apart?

I mean, I haven't been there in five years, so I don't know all the palace entry. Sure, forget all that. Just the results. It's still standing. Part of what I'd say is that the benefit of approaching things systematically really does help in that process right which is well the all-weather portfolio that's about as boring i mean that's an index boring-ish portfolio for sure for sure yeah the all-weather portfolio is very say that shit now and then it's 1937 and you're gonna be really glad that you you had that boredom. It's going to be the right kind of thing. That's what I'm

saying though. Like you mentioned the gunslinger thing, like the all weather, if you, I mean, people pay more attention to the macro portfolio, I think, but that, that's a pretty, that's a allocation based, broadly diversified, rebalanced. I mean, it's pretty simple. Yeah. I mean, the basic idea there is, look, build a strategic portfolio that doesn't take a whole lot of effort to manage, right? That's going to protect you in a lot of different environments. And Bridgewater is running the all-weather portfolio. There's RPAR, the ETF.

Is all-weather the largest fund at Bridgewater? I don't know. I have no idea. Okay. But it's like – it's the flagship, right? Pure Alpha is the flagship, right? Pure Alpha is the macro fund. That one's probably more fun. People are looking at the Alpha fund. That one's probably more fun.

People are looking at the Alpha fund. Let's talk markets. We got CPI report today. This is a great chart from Bespoke that I think – I don't want to say I think I knew this. Inflation had been falling year over year, but I didn't realize that it was like really an outlier in terms of the consecutive number of months

where the year-over-year reading was lower than the previous month. It's a full year. 12 months. It ended today, but pretty unbelievable. Bob, you tweeted today, maybe a good jumping off point for this, elevated inflation will persist as long as nominal wage growth significantly outpaces productivity growth. Wage growth data today shows 5% to 6% wage growth on a matched basis among those with the highest propensity to spend, too high for inflation to durably fall to target. Wow, that's pretty boring, isn't it? Unpack this for us.

Look at this engagement, though. Look at this. Bob, what do you define as elevated? Like, do you think 3% is elevated? Well, I think the Fed's target's 2. So anything above that? You know, anything above that, you know, they have room to move to 2.5 and stuff like that. But, like, look, the Fed needs to make sure that inflation is not 3, 4, or 5.

Because the thing, if you look at, I got data going back to 1914. And you can see, sorry, I don't have it up there. But back in the 20s and 30s, the historical long-term average over 110 years is 3.3. Right. So that's like the law. So why do people think that 3% is so high? Because at 3%, you start to get the trouble with 3% and the trouble with moving above 3% is that you start to get two main problems, which is one, it increases the volatility of inflation, which increases the uncertainty about forward investment and reduces long-term productivity, right? Medium-term productivity, which is really what the Fed's focused on.

That's why the inflation mandate's there. So you think if it's above three, it's harder to control the volatility? It is harder to control the volatility. But why does that – can you unpack how that impacts productivity? Well, because a critical component of long-term investment is having a good sense of what your cash flow is. Can you define productivity for the audience? Yeah, productivity. It's just – it's basically investment that creates a certain amount of output per unit of a person's time.

Yeah. Right? And so that means factories. That means roads. That means intellectual property, all sorts of stuff. And in order to figure out, I mean, look, there's like thousands, tens of thousands of these analysts sitting around in their spreadsheets figuring out, like, here's what the cash flow is going to – I'm going to spend my RRR. I'm going to spend a million bucks today, and here's what my cash flows are going to be in the future. Well, it's a whole different story if you don't really know what the cash flows are going to be in the future, if there's volatility there.

If it was 5% forever, we'd be fine with that. If it was 5% and certain to be 5% forever, then we'd be fine with it. The problem is that when you move from a volatility around 1.5% to 2.5% to, say, 3%, well, 3% can become 5% or 6% or seven. The uncertainty. And that uncertainty is what creates the harm to the economy, the long-term drag on productivity. You can't budget. You can't figure out what to pay people. Right. You almost could become frozen stiff. Like, I'm not investing in, name it, CapEx, inventory, whatever, until I feel better about

what's going on. I mean, essentially what happens is the risk premium of all projects rises, which means projects that would have otherwise been, made a lot of sense in a low stable inflation environment. Now- They look riskier. They look riskier, right?

Because you have to factor in that. So your cost of capital, your hurdle rate, all of that stuff goes up. That means that you're doing less investment, which means that, you know, the economy is less productive. But isn't nominal wage growth, John, chart back on, please. Isn't nominal wage growth coming down maybe not as quickly as you would like it to or the Fed would like it to?

Well, I mean, take a look at that chart. Like, has it come down? Yeah, it's not at six and a half. This is median wage growth, smooth three-month average. It's still pretty. So it's still well above. So this is what, five and a half percent? Five and a half percent.

And this is the Atlanta Fed wage tracker. There's a bunch of different things. Dude, median wage growth, 5.5% is disruptive to business. This is where the normal person on the street looks at us and says, you guys are nuts. I want higher wages. So explain to like the regular person. They want higher wages until they go lease a car.

Right. And see what that shit costs. And then it's like, oh, maybe this isn't great. The average car is $730 for a new rental. Can we admit, though, that higher inflation has caused a positive? You saw the UPS thing this week. They're giving $170,000 plus with benefits. Yes.

Like, haven't we had some positives from a volatile situation? Yes, but the money, the cost is somewhere else. It's tradeoffs. Yes. I'm okay with those tradeoffs. Well, I think the main issue is that the prices have risen faster than the wages. Yes. That's why people are still not happy.

And so people are actually meaningfully worse off today than they were three years ago. And that's totally normal. Anytime you have one of these inflationary cycles, the prices rise. And then it takes a while for the wages to rise. Right. The wages don't start. Have you guys raised all your wages for everybody in the building? Don't get started.

Yeah, come on. Come on. What are we doing here? No, it's not you, Bob. No, wait. But real wage growth just went positive. But I'm guessing if you were to do it cumulatively, it's definitely lagged. That's right.

For sure. That's right. And that part, just important to recognize that the level of prices, particularly food and energy and things like that, most significantly impacts the lowest wage earners because they're spending on those goods, right? And they can't change, you know, whether you buy a $700 a month car or $600 a month car, you got wheels that takes you where you need to go. If you got to buy your food, buy your gas to get to your job, like, you don't have a choice. And so that's why it's – there's no more regressive tax than inflation.

But this time, the lowest income workers – Regressive meaning there is no tax in the economy that more specifically hits the lowest income earners. Exactly. But wasn't this time unusual in the sense that the lowest income workers actually had the biggest nominal wage growth? Sure, but after being held back for years, plus the fact that the prices have still meaningfully affected. You're saying this is every time though. This is the cadence of it. Always, right? Because those people who are most sensitive to price rises are those people who have to spend on a certain basket of goods. You see how the UAW opened up negotiations last week with the automakers?

They said, let's start with a 40% wage hike. That's their opener. And then a 5% rise every year for the next four years or something. Yeah, it reminds me of the good old days in Detroit. It's like punch them in the face as your first negotiating tactic. That's right. That's right. And that gives you a sense.

Like, that's all catch-up, right? Everyone's still facing the rising costs and they need – the wages need to catch up. And so when we look at that inflation chart and we tick 3%, well, just think about all of the additional negotiations that we have. All the people who haven't had their wages rise, right? All the people who, you know, they need a year or two years or three years for those wages to rise. In pop culture, all the great movies about labor took place in the 70s. Not that they didn't come out in the 70s, but like mid-70s to early 80s. It's not coincidental.

Like that's, and let's put up this Jeff Klein chart, John. He says, it's funny how history rhymes. You're looking at US CPI year over year change, 1966 to 1982 versus today, 2013 through 2023. And he's basically overlapping them. And it could be an identical rise and fall. I'll take the under on this one. You'll take the under on what? It's not going to look like this? No. Well, in the mid-70s, you had this monstrous spike, and then it came down, and then it reaccelerated. What do you think would have to happen for inflation to reaccelerate? I think probably, I mean, what happened here, which I think is somewhat-

Specific. This is oil-related. This is somewhat indicative, is we didn't have the second oil shock until that 78 and 79 acceleration. I think the most interesting point is the 76 and 77 period where you did see that bounce up in inflation and it was stable at too high, right? It wasn't surging. It wasn't extreme. The absolute levels are way higher there.

This is an oil embargo. This is an oil embargo. This is an oil embargo. This is specifically the Saudis and the Iranians holding back oil from the market because of a war with Israel. But then that kicks off something bigger in the economy. But it's like it had a root cause in the same way that we were going to have inflation no matter what this time. But what really kicked it into gear was Russia invading Ukraine. Like undeniable. Do you know what oil prices would have to go to to match the 70s on a magnitude level?

300. So in the 70s, it went from 2 to 34. So to match that now, it would have to go like 60 to 1,000. $2 to $34? That was the 70s. So we'd have to go to $1,000 a barrel to match the 70s. The levels aren't the same. But I think the dynamic is the same in the sense of once you get that inflationary impulse into the economy, what you get is people start to reset their wages, negotiate for the higher wages. And spirals are not a thing.

Spirals are a thing in emerging market crises. In developed economies, spirals aren't a thing. The wage price spiral. You don't think that that's a real phenomenon? It's not a phenomenon in terms of what's going on in the U.S. But don't think that that's a real phenomenon? It's not a phenomenon in terms of what's going on in the U.S. But doesn't that make the 70s unique, though? That was like the only time that happened. Well, what I'd call it is like maintenance of elevated prices, right? What happens is prices rise, people negotiate for higher wages, and then when they

negotiate for higher wages, they increase their nominal spending. And it maintains, this is a maintenance of elevated inflation. And so you see that chart of the wages at five. And to be clear, you have to compare it to productivity, right? So the wages are at five, but productivity has been as weak as it's been in decades. So productivity has been zero. Do we have a measuring problem with productivity? Well, I don't think so. We're not counting the right stuff. Well, I think, first of all, a lot of us, they're not even counting tweets. A lot of us, right, have, a lot of us enjoy a better, maybe a better life experience. Who knows? The hedonistic adjustment, what is that called? Well, no, no, it's consumer surplus.

Hedonic? That's the thing is we mostly experience consumer surplus, right? We're not actually – I write a lot of tweets. It's like nobody is paying me for it. I'm waiting for my check from Elon. I'm getting my five million engagements a month and no check in my inbox here. Are you a Twitter Blue subscriber? I am. So you should be getting paid.

I'm waiting for it. I'm waiting for my hundred bucks to go buy a sandwich, right? But I'm not getting paid for it. So you all are enjoying the benefits of insights and knowledge. It's entertaining. And how much GDP have we established as a result of that? None. Zero.

There's a little bit of GDP with those Cheech and Chong gummies that are on advertisements. That actually might be detracting from GDP. But I think, yeah, probably. But so there's activity that's not necessarily economic activity. Which is consumer surplus activity. Beneficial, we all are better off for it. But who is paying what for it? And that's the real issue.

So I would like to ask your take on wages. I would defer to you, obviously. But in my estimation, most of the wage gains are behind us. The reason why I say that is because, or the lion's share. When you look at the chart of, I think the Cleveland Fed might do this, job switchers versus job stayers, and you deconstruct the wage gains. The job switchers chart is, was it the Great Resignation? Whatever it was.

The job switchers chart went parabolic. And then it came all the way back down. So what would cause now they might, they might stay elevated, but what would cause again, a potential reacceleration? Like haven't employers digested most of that? We're going to have these, the quiet quitting stuff continue or the jolt spikes. Hey, guess what? Guess what? So my train today was packed. Packed, packed, packed. WeWork is going out of business. Amazon just put out a really, not nasty,

a pretty aggressive letter to come back to the office. A lot of these office property REITs are doing pretty well off the lows. People are coming back to work. Yeah, sure. Well, isn't the biggest difference between now and the 70s

that there was way more union power back then? And sure, there's some union power being exerted right now by some big companies and that's happening. But nowhere near what we saw back then. It's not the Irishman. We're not blowing up taxi cabs. Yeah, yeah. But that's – inflation was in the high double digits. Yeah, yeah, yeah.

So I think the question is can we see persistent 5% wage growth in this sort of environment? That's what you're asking, right? Until you start to see significant labor market weakness. And I think the answer is like, yes. Like, why wouldn't, what about, and this is what, when you get these inflationary shocks, right? The thing that determines whether there's persistence is whether labor markets are tight.

And labor markets are tight. Any of you who read my tweets on a week. Secularly tight. Secularly tight. Every Thursday, labor market's secularly tight. Totally, I'm a fan. But my point is, if employees were going to go to their employers and say, listen, I can't afford to live. Okay, hasn't most of that been done? Here's an analogy. But look at the level of real wages. It's down from where it was before. People are still behind.

Understood. But employees, so we spoke all last year about how it was actually a good thing that for the first time in decades, labor had the upper hand over capital. That dynamic is changing with not that any employees go into their employer, hey, headline CPI is 9%. I want more money. But with inflation coming down significantly, they don't have the same leverage that they did a year ago. I mean, I think, first of all, the levels matter. They're still behind. And so they're still negotiating. And that takes time, years to flow through.

Yeah, I'm not saying it's over. And number two is, I think people are often confused about the labor market. Like, we had a labor market 18 months ago that was like the equivalent of a labor market that was like a 2% unemployment rate. I mean it was so hot, right? It was scorching hot. And so now we're looking at a labor market that's like hot, right? Tight.

Right. Not 2022. Not 2022, which was the most extreme, tight, hot labor market we've ever seen. So still too hot but not extreme. Still too hot but not as extreme. And I think people are confusing the difference between those two levels. The labor market today looks nothing, you know, is so much better than what it looked like.

There might be economists that think somebody takes the CPI report and waves it in their boss's face, theoretically, but in practice, I don't think that's the thing that happens. So I don't think that you'll get like – it'll remain tight for that reason. I just think the demography, we have no immigrants, legal or illegal, for six years. It's a really important component of the service industry whether we want to admit it or not. Yet a whole bunch of people die and get really sick. You have the boomers not –

They're retiring. But then you see labor force participation rate uptick in the July report meaningfully. And you know who it is? I know. I'm asking, do you know? Well, most of the people who are coming to the market are the prime age, right? No. Who's rejoining the labor force? Yeah, it's women. It's f***ing women 25 to 34. joining the labor force. Yeah, it's women. It's f***ing women 25 to 34. They have kids, and because of remote work, they can also work. It's not prohibitive anymore. It's an amazing thing. It's great. I think it's great for America that not only is the labor force participation rate ticking up, people are coming back to work. It's people that a generation ago could not have

come back to work because they have a five-year-old at home. And now it's not that way. So there are, to your point, there are silver linings of a really hot labor market and really high wage growth. I have a market question for you on this. So I agree with you behind the psychology of inflation. Just the longer it's here,

the harder it's going to be to get rid of. Why doesn't the bond market care? The 10-year is still at 4%. That seems high relative to two years ago, but relative to history, 4% is still very low. Like, why is the bond market not cared yet? Well, I think there's this basic sense that inflation is going to go back to 2%, right? Like, real yields have moved up a reasonable amount. So you think they're giving a lot of credit to the Fed or faith in the Fed here? Well, I think, you know, everyone talks about the bond market as the smart money. And I'm reminded of the bond market dynamics in 2009 and 2010. I

don't know if you guys remember that as vividly as I do. But in that period, the bond market basically said, look, we're going to get a return. We're going to get a normal cyclical bounce coming out of the financial crisis. And right. Instead, we had 10 years of very weak balance sheet recession, right? A balance sheet, a traditional balance sheet recession, a deleveraging as it's sometimes called. And the bond market basically priced in. We're just going to go back to what we've always expected. Right. And it took a lot. It took years for that set of expectations to reset. And I think we're basically seeing the same thing happen today in the bond market, which is, you know, I joke that all the bond traders have typed in 2% into their Excel models for,

you know, break-even inflation. And then now they're trying to remember, oh, yeah, actually, that's a thing that moves around, right? That combined with the supply-demand dynamics puts together something that's creating that upward pressure on bonds. So is that a big risk to the market then? If we see like the 10-year and 30-year go crazy? I know they've been going up and down in the last couple of weeks and they took off and came back in. Well, the 30-year is now at four and a quarter. We're steepening. We're getting a bear steepening. But is that a long-term trend where if you saw the 30-year and the 10-year really move meaningfully higher and start to price in higher inflation expectations, that's a big risk to the market? I think so, yeah.

And I think part of it is not just a risk to the market. Part of it is that that's what's required to cool down the economy, right? Because the first – what we have right now, the economy is too hot. The Fed is tightened, but basically they've said we're out for the next six months. So how, but nonetheless, you know, Atlanta Fed GDP, which is probably overstated, is running at, you know, is running at 4%, right? We have incredible, you know, the unemployment rates at three and a half percent. Yeah. The Atlanta Fed GDP. Why do we care about the Atlanta Fed GDP now? What is different? I know it's higher frequency

and they're trying to capture more real time versus lagging indicators. Fed GDP now? Why do we care about the Atlanta Fed GDP now? I know it's higher frequency and they're trying to capture more real-time versus lagging indicators. Yeah. I mean, mostly it's just like if you do this right, what you do is you look at all the different stats that come out and you kind of from that infer what growth is going to look like. And the Atlanta Fed just kind of does a decent job of it for you. All right. So tell us where this stands right now. I mean, 4%, which is, it's early in the quarter. Real, say, real. 4%. 4%, real.

Real GDP estimate. Real GDP estimate. It's early in the quarter, it's overstated. But nonetheless, like, remember, the neutral rate of growth in the U.S. right now is one and a quarter percent. What does that mean? That means basically the rate of U.S. growth

that doesn't require people to come into the labor market. They can be met essentially with the existing – without the unemployment rates going down. So how do you jump to four? What are the things happening above and beyond that that get you there? Well, the thing that's super interesting about what's going on in the economy right now is we're actually seeing a bit of reacceleration of those cyclical parts of the economy. So what you had was interest rates rose, the cyclically sensitive sectors like manufacturing and housing cooled.

Basically all the hot, the froth in those markets came right off. And then we all sort of settled down, everything settled down. And people realized that actually 7% mortgage rates, given the tightness of housing supply, is not the end of the world. And builders have come back into the market.

Prices have started to rise again. Two-thirds of— Demand didn't disappear. It was supposed to. Yeah, demand slowed. But because there's so little supply, the home builders are able to continue to produce homes, which is the GDP element that you're seeing in there. Plus, you have the fact that prices are growing up. Prices reached new highs in two-thirds of MSAs in the most recent period.

So that's a very strong picture. And then, of course, we have to talk about the fact that there's a big fiscal impulse in the economy as well, which is extraordinarily unusual, running deficits the way that we're running in an environment where unemployment rate is secularly low. Well, it's for COVID. But isn't that the biggest predictor of future inflation? It's like the demographics and all that stuff, you could see inflation coming back down and rates coming back down.

But if the government keeps spending money, then that's like the big tell for inflation, is it not? Is the Inflation Reduction Act the most stimulative thing that the government has done in 10 years? Yeah, well, certainly the- That's funny, right? The act was definitely not- Disinflationary. Disinflationary, right? Building infrastructure is the opposite of disinflationary. Maybe someday down the line, but building new roads at 3.5% unemployment is incredibly inflationary. And that's exactly what we're seeing. And then all the impetus to build, you know,

non-housing investment, right? In order, the CHIPS Act and all that stuff, which is creating a huge amount of fixed investment into, you know, business fixed investment associated with that, stimulated by the government. You put all those things together, and we're basically getting a cyclical, like a cyclical easing, Yeah. Right. It's crazy.

In the midst of an economy that's about as strong as it's been in, you know, 20 years and a labor market that's as tight as it's been in 75 years. So what does the Fed do? What are they supposed to do? A different Fed chair might be more aggressive in talking to the White House and being like, okay, maybe no more new programs until we put this fire out. It's normal if you go back to the 70s, not as extreme. It's normal for – to get some fiscal stimulus, although this is pretty extreme given how good the economy is overall. I mean the reality is that the Fed doesn't control the spending in Washington and they

have one thing that they can do, which is that they can tighten monetary know, tighten monetary policy. But Ben's question, though, I think that's the right question. It just, from like not looking at the data, it just appears that the things that we do on the fiscal side have a much bigger multiplier effect than what the Fed is doing. And quicker. Of course. Of course. In both directions. That was the whole problem. The whole problem in the 2000s, in the 2010s, was that the Fed was trying their best, right? They were just dumping money into the streets. All they needed was stimmies.

But you can't pull the punch bowl away because what are they going to do? Raise taxes? No, that's like, that's the solution probably to fiscal policy, but there's no way in hell that's ever going to happen.

Also, fiscal policy, other than tax cuts, is rarely going to go predominantly to millionaires. Fed stimulus goes to millionaires. And what do they do with it? They just buy more treasuries. They don't need to spend it.

If they raise taxes to get money out of the hands of millionaires to dampen their spending, it wouldn't matter because actually it's a good segue to a chart that Bob has about, there's such a disconnect. We keep talking about how strong the economy is

and how people feel about the economy still. So Bob, you tweeted, most economists and coastal finance folks, you see that, Josh? Finance? Coastal finance. I mean, I got to say finance. Well done.

Got recession calls wrong because they didn't understand the strength of middle American Main Street. These small businesses are a big chunk of the U.S. economy and the latest hard data

from the NFIB continue to show pretty good outcomes. So the chart that we're showing is soft data, which is basically surveys, versus what is actually happening. Not how you feel, what is actually happening. And this is about as wide a gap as you've seen, especially when the economy is strong. What the hell is going on?

Well, NFIB, remember, small businesses. National Federation of Independent Businesses, right? Small businesses in America are like 50% of the economy. Yeah. And a lot of the hiring too. And a lot of the hiring, a lot of the employment, things like that. And so everyone focuses on the earnings, but like this is what matters for how tight the labor markets are because, you know, tight labor markets are in Peoria, not in New York.

So let's tell people what this looks like. The soft data fell off a cliff in 2021. That's inflation. And kept falling. And that's people being pessimistic because of inflation and supply channel. Was that double bottom? Joe Weisenthal on his-

But the hard data kept rising, kept ticking, or didn't fall off as much. So they survey people. They survey businesses. I'm sure you go into these small businesses that have that NFIB sticker. I love this survey. They mail people physical surveys every month.

Do they really? They really do. To 10% of their members. This is why we're anti-survey. And they're filling out the bubbles. And they basically ask two different sets of questions, which is the first is – and what you see in the top line is basically have you hired more people? Are you making more money? Are you raising wages?

That's the hard data. That's the hard data because it's basically like, just tell me literally what you're doing over the last three months. And then they also ask a set of questions, which is basically like, do you hate Biden? How do you feel? Et cetera. And there's political bias. You look in 16, it goes straight up

and then down. Joe Weisenthal mentioned your chart on his newsletter the other day. Yeah, that's exactly right. He basically said, can we really trust the survey data anymore if the people answering are so politically biased that they don't— what they say does not match what they do. Well, this is don't tell me what's in your—don't tell me how you feel. Show me what's in your portfolio. That's a Taleb thing. Right.

It's so true. I don't care what you say. Just show me what's in your portfolio. Do you think most of the people filling out these surveys are filling them out because they're mad politically, and that's why they'll fill it out? I'll show you. I'll show you. I'll show you. Five star, one star.

No, that's a stretch. But the type of people that are inclined to answer these surveys probably lean a certain way. Or, I mean, this cohort is more conservative in nature. Yeah, sure. It's middle America. That's well known. This is the cohort that's buying gold for their IRAs from Fox Business. I was at—

Forget it. I don't want to say what I was saying. Gold coins. Hey, what do you mean coastal? Where'd you grow... Forget it. I'm not saying that. Gold coins. Hey, what do you mean coastal? Where'd you grow up? Detroit. Oh, you've missed a guy. I'm in Grand Rapids.

I live in Detroit. You're from Grand Rapids? You couldn't tell by his accent? Another Midwest snob. See? These coastal elitists, we're the fire states. Another northern Midwest elitist.

People have never walked on Main Street. They have no idea what it's like. Exactly. Right? They think these shiny offices is how the rest of the world lives. You have never walked on Main Street. They have no idea what it's like. Exactly. Right? They think these shiny offices is how the rest of the world lives. You know? That's just Josh. Not me.

So, you know, the one thing I learned living in Detroit area is one thing is they taught me how to drive because people drive way faster there. And that if you drove a Ford car there, you're getting run off the road. Like, I drove a Ford Tourist there because I had to. How about this bullshit that you're a Honda Accord guy? I don't believe it for a second. What's that highway toward the Aurora Hills Mall? What is that? Yeah, well, there's a point where like six highways come together.

Okay, that's what I want to talk about. This is Josh trying to pretend that he's a man of the people. No, no. I drove on that not knowing anything. In a Ferrari. No. Dude, seriously? I was 19.

I told my driver to take a left. I was visiting my girlfriend in college in Michigan. No, no, seriously. I was 19. I was visiting. I told my driver to take a left. I was visiting my girlfriend in college in Michigan. No, no, no. It's a five lane highway and everyone on it is doing 120 miles an hour. It's crazy. Yes. In pickup trucks. That's right.

It's like, it's like the Midwest Autobahn. It was one of my favorite drives I've ever done. I moved back to the other side of the state. My wife goes, you learned how to drive. I was in a Ford Explorer. I was, I think I, I think I maxed it out at like 90 and people were blowing by me on that road. So Bob, I think the economy is pretty simple, not to figure out or forecast, but just today it's pretty simple. People are spending money

because people are employed, right? And until something breaks in that dynamic, we're going to be in this sort of regime. So you have a chart showing the slowing of consumer credit has put a slight drag on spending, but it never mattered much to cycle. By the way, I want to talk about consumer credit and the credit crunch that never came. What will make or break consumer spending is nominal income growth. All right. So we're talking, we're talking about the same thing over and over. It's pretty simple. It's pretty simple. It comes down to whether or not people are still making wages, right? Whether wage growth continues. If wage growth continues, we're basically kind of stuck in this equilibrium. Wasn't the Fed saying that they needed a recession

and for people, they were kind of implying though that they needed a recession to cool off prices and now it turns out they didn't. So did they get it right but still get it wrong? Like gas prices went from $5 a gallon to $3 a gallon. That helps. Had nothing to do3 a gallon. That helps. Had nothing to do with the Fed. That's right.

Right? You had some supply chain resolution, et cetera. Also outside their control. Nothing to do with the Fed. The structure – and this is the trouble is the structural inflation pressures, which are connected to how much are we paying people versus how much they're producing. That hasn't changed much. Yeah.

Right? I mean, it's come down. It was, you know, we saw in that first chart, that Atlanta wage chart, it went from 7% wages to 5% wages. So, you know, that's better than it would have been otherwise. But it's not like they've resolved that core issue. The tightening of monetary policy hasn't done enough to deal with that structural problem. And so what we'll see is we'll see, like, there's enough

nominal income, enough nominal spending that it'll kind of pop out in various places, right? So measured inflation, yeah, sure, you know, used car will go down in price, but then I'll spend more on my hotels or airfares will go down and I'll spend more on other services, right? Because what will determine the trend of inflation is that gap much more so than the nitty gritty nuances of how exactly we account for this price versus that price. Like people have plenty of money, right? People are spending too much. The economy is too hot.

We see it in a lot of different ways relative to what's needed for the Fed to meet its mandate. Well, your point about the inflation maintenance is, I think, a good one because I was rereading this book lately called A Piece of the Action by Jonas Sera. It's from like the mid-'90s. And he talks about – it's basically how the middle class became like this powerful force and a consumer. Got access to credit. Yes, but his point about the 70s was,

you would have thought that the 70s inflation happened and people started pulling back. And he said, no, no, no, no. People figured it out. So more women came into the workforce and then people went into credit card debt and they decided like,

and they also said, well, why would I not take on more debt? Because inflation is good for eroding debt. So that the seventies in a weird way made people want to spend more money. And that mindset when inflation came down, it's interesting helped cause the eighties. But it was, it was interesting to hear that, that people just at a certain point said, screw it. I'm just going to keep spending through this. Yeah. My debt will get wiped away by the inflation. And that's why credit card debt really ramped up then because people said, I don't care,

I'm going to keep taking on more and more debt and keep spending. And I think that mentality, I think, right, that unless people start losing their jobs, it's going to be hard to get people to stop spending at all because they get a taste of it now. It's like, well, wait, I took 18 months off of spending. I want to keep it going even longer.

I think our version of that right now, like when you go to high-end resorts in the Caribbean or you try to book like hotel rooms in South Florida for Christmas, like just anecdotes of my own life. Everything's packed. Everything's booked. You can't go out to dinner in Manhattan anywhere. People that have cash and no debt are making more money than ever passively. Like you have – you just have T-bills. You have CDs. You have – you just have – your money is gushing more money.

Selling Nvidia calls. Well, you had – I was going to talk about this later, but you had – But that fuels more spending. Yes. And that fuels – so it's actually counterproductive to bringing down a certain type of inflation. And you had a point a couple weeks ago that was basically like, we've had a handoff from low rates before and the people who took out that debt and fixed it to high yields now.

And you said they basically offset each other, right? Like the money people are making now in their yields. Is that kind of like the sophisticated way of saying what I was trying to say? With data, you know, data, charts. I do stories. A little boring in terms of tone, you know, nerdy. No, but like that's a real phenomenon.

Fewer Caribbean resorts. That handoff. That's right. That's right. Yeah, I mean, that's the basic idea. Now, of course, the households who have the two different, who have the debt may be a little bit different than those who have the assets.

But like recognize that the people who have the high cost, the high notional value mortgages, like, recognize that the people who have the high cost, you know, the high notional value mortgages, right, are the people who have lots of other assets, right? So, when you think about that picture, like, there are a lot of folks who have a lot of, you know, liquid assets, borrowed at 2%, locked that in. And for them, you know, times could not be better, right? Wages are growing at or 6%. Their debt cost is fixed for their most, you know, the thing that matters the most. And their investments, their investments, their stocks are going up a ton, right? They're getting yield on their assets. I mean, pretty much the only thing that's a problem is the cars, but they're generally not financing the cars when they're doing that. And so

it's fine. And this kind of goes to the overall picture in terms of the credit story, which is like, this isn't a credit cycle, right? Credit is not driving demand. Income is driving demand. So it's fine. Interest rates rise, but it's not that big a deal because you have more than enough income in one form or another to pay for your $700 a month auto payment. Yeah, it's really hard to have unsustainable debts right now when everybody is working. Everyone's working and their wages are going up

at the rates that they are. Where do you want to go next? Let's talk about what the market is pricing. We did a lot of econ stuff. All right, so you said, what is the likelihood 2024 will have 12% earnings growth? Now, that's just analyst estimates, what they're expecting. And five rate cuts.

That sounds tough. What do you think? Yeah, that is what is currently implied by the short rate and stock market. Soft landing, both 100% priced in. The market is pricing in what? Oh, five cuts next year. So both things can't possibly... There's no way. There's no way these two things will...

A soft landing and five rate cuts next year? You can't have both? No, you can't. 12% earnings throughout the S&P 500 and five rate cuts. How would that even happen? So which one is more wrong? Well, the bond market is smart money.

I don't know. I don't know about that. Well, you know, that's what they say. Yeah. I've heard that before, but I've also met people that are in the bond market, and I can't square those two things. So, all right. What do you think about this?

No, I mean, the basic idea here is you can't have the type of strong growth that's being priced in and these type of rate cuts. Because why would they be doing the cuts? Because why would they cut? And I think there's some folks who think that in a soft landing environment, you're going to have the Fed cutting. If inflation, we have immaculate disinflation, the Fed will cut into that. It's like the Fed is not going to cut interest rates when unemployment is at 3.5%. Not going to happen. Right? I mean, why? So what ends? What would be 3.5%. Not going to happen, right? I mean, why would- So what ends?

What would be the goal? What would be the goal, right? We want to hit 1%? Right, exactly, exactly. Like there's no reason to further stimulate an economy at secular low unemployment. And so basically what this is showing is that one or both of those things is likely wrong. I think probably both of them are wrong in the sense of it's a little too bullish in terms of what's likely to happen on the equity side, on the earnings and growth side, and

probably a little too bearish on the bond side. Have we ever had something like this before, though? No. No. It's unprecedented. No, there's no, you know, we're not going to have something. But this is so emblematic of bond investors and stock investors. The pessimists and the optimists.

Exactly. Right? Well, if you're investing in stocks, you have to lean to the optimistic side. Otherwise, what are you doing? Why are you taking risk if you don't think it's going to work out? Is this just saying, though, that the yield curve is telling us that they think short-term rates are going to come down? Like the inverted yield curve, is that all the bond market is saying is that we're predicting short rates are going to fall eventually? Well, yeah.

Just important to recognize. All an inverted yield curve is just pricing. There's nothing more magical about an inverted yield curve other than the bond market is basically saying there's going to be cuts, meaningful cuts, in terms of monetary policy in the future. And that seems pretty unlikely. monetary policy in the future. And that seems pretty unlikely. And I think the interesting thing for a 60-40 investor, when you look at this, is that this is bad all around for a 60-40 investor. Because if that growth doesn't come for an equity investor, stocks won't perform as,

you know, stocks will underperform. And if those cuts don't come, bonds are going to underperform, right? Because what's being- Underperform what? Are going to sell off, right? Because if what ends up happening is the Fed doesn't ease the way that's currently priced in, bond prices are going to go down, right? Yields are going to rise, prices are going to go down. And so what you're seeing is actually a combination of dynamics that are particularly bad for the 60-40 investor. But isn't the 40 in T-bills right now, and that's the best place to be? I mean, sure. Some people might be- For a while. But isn't that-

But how many real money managers are out there saying, let me tell you, 4% bonds, Right. Never seen anything like it in my career. Best deal out there. One way trade. Right. Only going to only going to return you a T-bill is five, five, five spot, seven, five. What it's funny to me is that talking historically, people are saying, if you look at stocks relative to bonds, stocks look expensive because bond yields are four percent to what I say is four percent is still low. Like throughout the 90s, the average was like 6.5% in the 10 year, right? And so I don't think investors think about it that way

in terms of relative attractiveness between stocks and bonds and say, 4%, I can get that. Why wouldn't I put all my money in here? I don't think allocation decisions are made like that. Yeah, well, I think what's happening is that people, this goes back to what we were talking about before related to the bond market and the risks of a sell-off, is 4% is high relative to what you've seen over the

last 15 years. So if you're using recency bias, then it is high. But that's what the bond market is doing, right? And if you hadn't lived through what the bond market did in 10 and 11 and saw how badly the bond market mispriced the depression, it wouldn't be in your mind to then say, well, look, they can just very badly misprice a long-term inflation. What do you think about this dynamic? They, not on purpose, but they turned the short-term treasury market into almost like a retail investor market. So the only people excited about a 4% 30-year bond are insurance companies.

They're locking in an offset to a liability that they know is coming due every year. That makes sense. Why aren't they taking the six? They don't want the world risk. They'll just take the four. They know it's there, period, end of story. The six-month T-bill between 5.5% and 6%, we're now creating apps or existing apps are creating retail products, getting people excited and marketing T-bills. That's something I've never seen in my career. And I was around in the 90s when rates were much higher. That's a new phenomenon.

And I don't know if it means anything in terms of the pricing in the bond market, but it's definitely a new participant. It's also a demographic thing though, right? The boomers who are retiring have craved this yield for 15 years and it's finally here and they're going, give me all that I could take, right? There's an interesting dynamic going on at the other end of the curve, the long end. Bill Ackman came out last week and said that he was short in 30s, meaning he's expecting yields to continue to go up. There's a great chart from Bloomberg showing investor types, John Chardon, please. Investor types have wildly different bets on maturities. I'm sorry, different bets on treasuries.

Hedge funds, short, longer maturity notes, asset managers long. This is an interesting tug of war. So the pink is asset managers, pros. So professional bond managers are buying all of it. And hedge funds are saying,

you dumbasses, you're about to get run over. Oh, that's exactly right. Now, there's always some risks in the futures market that you're not getting a holistic sense of what's going on. But this data does align with what we do at Unlimited is we basically infer using technology how hedge funds are positioned. And we're seeing exactly the same thing, which is that hedge funds are basically as short bonds as they have been in a long time, underweight duration. And the reason why that is, is they're looking at this confluence of dynamics that we're

talking about, the existing pricing and saying, you know, in one way or another, we're likely to see higher bond yields first before we get to a point where the economy tips over and we get into a recession. So they're betting on this picture. You know, the smart money is basically saying we're going to have higher yields. The other money. The other money. I don't want to piss off too much money here.

So hedge funds are bearish. I mean, so you have a great chart showing. So they're bearish because, well, this chart shows that they're betting on the 30-year rising. Yep. Which actually is interesting because that can be maybe a forecast of economic strength, but whatever. These are extremes though. You said asset managers took taking their own net bullish positions on the long bond to an all-time high. Is that right?

That's in Bloomberg. Yeah. Yeah, yeah. I mean that's what the data shows in terms of contracts. And I think that that's right because if you – I mean you ever flip on Bloomberg and you get a bond person in there, they say 4% yield, best yield we've seen in ages. Tough to beat that 4% yield. I mean, they just like line them up. They just all come in.

So just for the audience, going from 4% to 5% on that with that much duration would be messy. Traumatic. Pretty messy. It would be tough. Yeah. So not only are hedge fund managers bearish on bonds, but they're bearish on stocks. You've got a great chart showing you overlay the S&P 500 cumulative drawdown versus the 12-month hedge fund beta to equities. And you said with the current equity beta of 0.2, hedge funds are about as bearish on stocks now as they have ever been.

Right. Yeah, yeah. I mean, that's what, you can essentially look at the gold line here is how sensitive hedge fund returns are to equity market returns. And so the lower the sensitivity, the less equity market risks that they're taking on. And this kind of goes back to our earlier conversation, like hedge funds perform well

because what they know how to do is to cut equity risk when times are tough. And that's exactly what you see in the 2000 cycle, as well as the 2008 cycle. But times are not tough right now. Well, wait a minute. These are two major bottoms. The last time hedge funds got this negatively exposed to stocks. Stocks went down 35%, 40%. Right. But then that's the beginning of 03, it looks like. And it's 2018, just as the Fed is about to pivot.

So based on these last two charts, what you're saying is hedge funds are positioned for a replay of 2022. In several ways, yes. That's exactly right. A bond sell-off leads to a stock sell-off. The bond sell-off leads to the stock sell-off. The bond sell-off leads to the stock sell-off. Matt, do we get that shit again? What's that? I'm not doing that. I'm going out of town.

I'm not doing that again. It's enough already. No, listen, I don't... That's exactly how they're positioned. But a big part of why they're positioned that way is because, again, connected to what's priced in. Right? Because they're not... It's not just a momentum trade. It's saying what's priced in is a perfect soft

landing, strong growth, low inflation, cuts in interest rates. And so even if we get moderately OK growth, if we get OK growth, it'll disappoint on the stock side and it'll put pressure on the bond market as the Fed doesn't hike. And that's why I say, go to that 60-40. If you're sitting there with a 60-40 portfolio today, you're basically, this constellation of dynamics puts you back to that 2022-type dynamic. Which brings us to Liquid Alts. First of all, thank you for all that. Let's take like a two-second, let's take a beat and explain to us what you're doing at Unlimited. And just let's, we'll talk liquid alts in general, because that dynamic that you just brought out is why the wealth management industry has never been more excited about having something else in the portfolio that's not 60-40. So they all want to be now, I don't know, 50-30 and then something.

And in the old days, it would just be a commodity sleeve because it was easy. And it didn't work. But now it's a much higher level discussion with even fairly unsophisticated RIAs. Everyone's all in on alts. So it's good timing. So tell us about Unlimited and where you guys play. Yeah, yeah. Unlimited and where you guys play. Yeah, yeah. Unlimited. Yeah, I mean, I spent my career basically in the 2 and 20 business. 2 and 20 meaning

2% fixed fees, 20% of carry, which is typically how hedge funds, private equity, venture capital is structured. And I basically looked at that and my co-founder Bruce from Queens College, we basically looked at it and we said, look, we, from Queens College, we basically looked at it and we said, look, we've got a lot of experience in this business. I bet we could create technology that allows us to look over the shoulder of the managers, see what they're doing, hedge fund managers, venture capitalists, private equity investors, see what they're doing in close to real time, take that understanding, translate it into long and short positions, package that in an ETF, and essentially make that available to any investor, right?

Because if you're a small advisor running $100 million with dozens of clients, you don't have million-dollar checks to invest in the top hedge funds in the world, right? You just don't have access to those sorts of investors. Personal argument against it and talking to clients like, if I can get you into hedge funds, they're probably not the right ones. They're not, right?

Any hedge fund that'll take a million dollar check is not a hedge fund you want to invest in. So, okay. That's all there is to it, right? Because the good ones don't need your money. So the space has evolved. It started with fund to funds, this idea. And then like Skybridge kind of came along and said to Merrill Lynch, yes, your clients are dentists, but dentists deserve Stevie Cohen.

And that was a really great pitch and it worked and they raised a ton of money. But now it's evolving and you guys are doing this with ETF wrappers and you're eliminating a lot of layers of fees and a lot of friction. Right. I mean, most of the funds that folks who are advisors have access to are negative selection, rack rate fees because you're a small-scale investor. Often there's additional fees on top of it. Platform fees. Platform fees. Marketing fees. All that stuff. Fees on top of fees on top of fees.

Commissions to brokers. Right, exactly. Yeah. And so, you know, so there's been like a lot of increase in access to alternatives, but in a way that is actually bad for investors because they're getting access to bad products and they're paying through the nose for it. And so what we said is— Let me stop you, though. Before you say what—how do you define bad? Bad meaning the prior track record wasn't good? No, bad meaning investors for most products in this like access to alternatives push that has happened are worse for investors.

Investors are worse off for having those products available in the market than not having them available. Because of the specific funds they could access. Because of the specific funds they could access. Because of the funds that they can access and the fact that they're paying extremely high fees. And because they're taxable, they're paying high taxes in those structures. On top of it all. On top of it all.

Insult and injury. Right? And so, I mean, take, say you invest in a product that has a 10% expected return. The manager takes two and 20. The platform takes one. The advisor 20. The platform takes one. The advisor takes. The advisor takes one.

Trading costs. And don't forget, you know, the government takes half of your profits. And now we've gone from a 10% returning asset.

Everyone has been paid, right? Except for the investor who is getting 2%. Yeah. Literally 2% net of taxes and fees. So he gets to walk around his backyard barbecue

and tell his friends that he's investing in hedge funds. That's right. You're missing the experiential part of it. But then why? Well, it's the Yogi Bear. I would never join a club that would have me as a member. I worked in the endowment space for a number of years, and I was under like a billion-dollar fund.

And even at that level, we could not get access to the best hedge funds. And if you're not in the top, maybe number 20% or whatever it is, you're right. It's pointless to be in them. So you guys saw that conundrum and said what? And we basically said, look, we've managed money and we've built the proprietary strategies in these funds. We know what they're doing. We can build technology. And it's been a lot of advancement in terms of the technology that we can build to allow us to look over the shoulder of the managers, see what they're doing in close to real time.

And then we can take that and translate it into long and short positions in liquid securities that can back an ETF. And the benefit of that is, one, we can charge a lot less, right? Because we're using technology instead of having to charge two and 20. John, chart on aggregate AUM by fee. These are wild charts. This is crazy shit.

And number two is we can do it also in the ETF wrapper, which, you know, I probably don't have to convey to all of you why the ETF wrapper is the way to go. Tax efficient, liquid, transparent. So you're replicating existing strategies or existing managers? That's right. We're replicating. Inside of an ETF wrapper.

We're replicating the gross of fees returns of the, you know, we're seeking to replicate the gross of fees returns of the aggregate hedge fund industry. That's the mission. And that's the mission. So that's the tracking error that you're trying to minimize. Exactly. Exactly. And that's the thing is, you know, hedge fund managers are pretty good, right?

Before fees. Before fees, before taxes. So what are we looking at here? Well, so here's the thing is, you know, I'm sure many advisors who might be listening to this, their eyes glaze over like, thank you for talking about liquid. Not my audience. Those products. My audience is, they want to hear their shit. Those products in general have sucked.

Yeah. Right? Yeah. You know, decades of sucky product. Yeah. And let's just boil down to why we've only written a thousand collective collectively a thousand blog posts. Do you think that's do you think the biggest part of that is not just the fees that it's hard to for some of

these funds to quantitatively track those or do you think that. Well, I think there's a couple issues. One, the fees are way too high. Yeah. Right. This is crazy that the fees— Let's describe this. You're saying most liquid alt fees are too damn high, but there are good ones if you look for low fees and high alpha share. Oh, why didn't I think of that? Low fees and high alpha? Yeah, that's what I should— But so, Mark, most of the fees are paying 3.5%.

Is that fixed or is that all in? Fixed plus amortized load. But it's hard to find high alpha, and even harder to find it that's not 3 and 30. Like, it's hard. That's right. But here's the problem is if you're charging 300 basis points of effective fees for the small investor. That's insurmountable. That's insurmountable.

You can't get – no matter how good the manager is, you can't – But wait, there's more. And to be clear, the managers are bad too. And the reason why that is, let me just make it, you know, boil it down. If you were good enough, most of these strategies are proprietary strategies. They're not replication strategies. They're people making their own bets, right? And if you were good enough to make bets in markets, why would you be running a mutual fund?

No, you'd be running your own money. You'd be running your own equity-long short fund, charging 2 and 20. So we've got the worst of active managers charging these ridiculous fees. And the outcome is that you get very bad outcomes for the investor. The thing that's incredible about it is no one seems to connect the skill of the manager to the fees, right? And that's because most of these products that have been successful have basically been marketing schemes. So here, I mean, the top chart basically shows you gross alpha. So that's basically just saying how much, you know, how much are these managers delivering

relative to just investing passively in the markets? That's on the x-axis. On the y-axis is the fees. You would expect good managers to earn higher fees. Unrelated. That's wild. It's all over the place. Have you seen Michael's numbers?

I'm just saying. There's something good taking place. It's all over the place. So then you also show the best managers should also have the highest AUM, but it's totally related. Totally unrelated. It's crazy. Totally unrelated. And I can appreciate if you're an advisor.

I need another axis that's like Irisone speaking gigs. But wait, just for the audience, we're looking at AUM versus alpha of a 60-40 net, and there's nothing. There's nothing there. There's no signal. There's no relationship. But imagine you're a small-scale advisor.

How do you figure out who the good advisors are? Because the BlackRock person walks into your office and says, hey, I got a fund that's got $5 billion in it. Isn't this a good idea? It must be great. It must be great. $5 billion. But, you know, like— You can't.

It's charging 300 basis points and delivering no net output. All the firms have this issue. Like JP Morgan wants to give hedge fund-like product access, wants to give their investors, if they want it, access to alternatives, liquid alternatives. And it's noble to want to do that. Absolutely. It's risk. Like they torture themselves to do this.

So it's not like it's all upside. So they want to do that. The thing is, in order to do that at scale, it's going to have to be a $30 billion hedge fund. That's right. Highbridge. Now, you might take that same hedge fund and look back 15 years and it has an amazing track record.

Most of that track record was built when it was $300 million. Yeah, yeah. I mean, we could go on on that. How many of these multi-manager funds claim to have two sharp ratios, zero beta? Yeah. Yeah. I mean, we could, we could go on on that. Like how many of these multi-manager funds claim to have two sharp ratios, zero beta, you know, earn them at the current size and earn them with a $500 million track record. I mean, and now they got $50 billion in them. We're not going to name names, but that track record is irrelevant. So Bob, it's a, it's a difficult

space. I think even the people in the space would agree. I mean, you can't disagree. So your mousetrap though, um, like your, your, your idea is if we get the fees low enough that they're not insurmountable and we replicate what the better funds you're doing to the best of our ability, it's not perfect, but it's way better than the industry standard. That's exactly right. but it's way better than the industry standard. That's exactly right. Okay. You should hire me to explain this to people. Exactly, exactly. I like it.

I like it. Yeah, I mean, there's no more durable alpha than being cheap. When did you launch? October. Okay, now when you do start crushing it, are you going to raise fees? No.

Okay, so this is going to be the product. No, no. I mean, my goal would be that we should actually be bringing fees down. Don't do that. Not yet. As we – You've got to hire more people, though.

Give yourself a runway. Seriously, if it works – No, I know. But, I mean, that's the idea is that if you start to get to scale – if this is a $10 billion type – How much money is in traditional hedge funds right now? Three? Five trillion.

Five trillion. Five trillion. To your point, the best hedge funds that get to that level and then they have all this asset, they have scale and they should be able to lower fees,

but they never would because they have the track record. They never will. Also, in that world, lowering fees denotes lack of quality. Right. You don't want to send

that signal to your investors. Is that a Griffin good or a Giffen good or a something good? A Veblen good. That's a Ken Griffin good. That's a Ken Griffin good. That's a Ken Griffin good. Look at you.

This guy's clever. All right. We got to move because I can't believe how fast the time went. We're going to keep him longer? No, I mean, we already kept him. All right. Let's do this real quick. I can keep going.

Let's do this real quick. 13% of crypto hedge funds have shut down so far this year. Understandable. of crypto hedge funds have shut down so far this year. Understandable. The reasons for the closures, weak performance, and difficulties in accessing banking services, both true. Furthermore, crypto funds generated on average about 15% returns in the first half of 2023. Bitcoin is up 77% over the same period. I mean, what do they do in 2022? I don't know, but probably not great considering how many lawsuits

and arrests there have been. I'll just guess. No, I'm just saying returns. It wasn't their best year ever. I'm just saying returns. It's tough. 97 of the 700 existing crypto hedge funds

tracked have closed in 2023. The FTX collapse obviously played a big role in that. The ones with the market neutral strategies performed the worst, generating a 6.8% return for half of this year. This thing with the hedge funds, my point is it's remarkably consistent

across asset classes. Even in crypto, the industry is delivering 15%. You could have just bought Bitcoin. Like it's the same. You could say it with credit. You could say it with stocks. You could say it with stocks. It's just a tough business

to try to outsmart the markets all the time. I mean, you're trying to outsmart everybody. It's hard. Whatever the hell it is, it's hard. It's always going to be very hard. I know something that everybody else is mispricing. It's tough. Repeatedly.

Yeah, it's tough. Repeatedly. Yeah, for sure. Okay. I wanted to… Market neutral in crypto just sounds like a… Market neutral in crypto is what do you even... I don't know.

What is the point of life? I don't... That's an oxymoron. I don't get that. You don't have to like have a strong opinion about this. I thought this Wall Street Journal story about Two Sigma was interesting. And it's two founders that have been at war with each other, but neither one will leave.

And you probably... you're laughing as though you know some inside stuff here. I don't know anything about them in particular. I get it. I don't know the guys personally at all. It's a $7 billion fund. A $60 billion fund. They mint money. The two founders have the two votes.

There's basically two votes. So there's no tie breaker here. One of them's going through a divorce. The wife is going to get billions of dollars and maybe the vote. I don't really fully understand the issue. But just generally speaking, we were talking about the culture of Bridgewater before. They've now lasted long enough where they're like one of the older firms in the industry. This firm has been around for a while too. Somehow it keeps going.

I keep hearing about how important culture is. Here you have a firm that actually had an SEC filing telling the government and investors, quote, we are unable to make basic management decisions. And yet the portfolio is fine. The fund is fine. Nobody's leaving. So maybe like culture is not the most important thing

if something like this could exist. I think – Thoughts? The benefits of a systematic approach, right? It's another systematic firm. It's another systematic firm. And when you do that, there can be a lot of drama on the outside. And as long as the people who are responsible for running the money are sitting there making sure the trades get done and the money gets managed appropriately.

So they're systematic on the inside and on the outside? It almost doesn't matter. It can be chaos, right? Okay. Who gets the 3% mortgage in this divorce? It used to be stay together with the kids. Isn't it stay together for the 3% mortgage now? I don't know.

They seem to be ticking along. This has been going on for a long time and no issues. So maybe systematic is the way to go after all. What do you think? I think, you know, it takes a lot of – I don't know if it's a good or a bad thing because it also means you can spend a lot of – people can spend a lot of time on the drama and the conflict. Yeah, it's systematic. Because it's systematic.

There's plenty of time for political infighting. Right. So you can waste a whole heck of a lot of time doing that stuff. Fair enough. Did you have fun on the show today? It was great. All right, I thought you crushed it.

We're going to turn on the recording in a little while. I just wanted you to warm up a little bit and just get a sense of, you know, the give and take. But you feel good now? I feel great.

I could do this for another hour. We do this thing called favorites to end the show where we tell the listeners what they might be missing. Books, TV shows, movies. Let me start. Podcasts. Michael, why don't you start? So I listened to Animal

Spirits yesterday. That's a podcast. That's a podcast for me and Ben. His favorite is his own podcast. Hang on. I haven't listened to our show. Do you still listen every week? Occasionally. There's no way you'll be playing that. I haven't. I used to listen for the first like five years.

I listened to every single episode and I haven't listened in like a year. Maybe. We're pretty good. That's unbelievable. We're pretty good. Have you ever in your life encountered anything like this?

It's a good podcast. It's fun. I had fun. So I recommend that if you haven't listened. Michael recommends himself. Have you heard the editing on it? I mean, yeah. The editing is top notch.

The editing is amazing. Okay, but in all seriousness, and I am serious about Animal Sports, Amazon Prime has a documentary called Destination NBA, a G League story. Oh, I want to watch that. Which is great. Did you watch the whole thing? Yeah, it's an hour and a half. Scoot Henderson is heavily involved. This is guy Gabe York who is struggling to make it to the

league and it's just... Is this Bill Simmons? He was an executive producer. If you're a basketball fan, sports fan, it was great. Are you a basketball fan at all? Last time I was into basketball was the bad boys. The bad boys in the 90s. Oh, the bad boys. Yeah.

Wow. Not even Ben Wallace. One of the most underrated teams in history. They got sandwiched in between the Lakers and the Celtics and the Bulls. I know. They beat Jordan. They beat Magic. They beat Larry.

They beat everybody. They could have had They beat Larry. They beat everybody. They could have had three or four titles. They were great. But they didn't. Ben, have you brought us a favorite today? So, wife and I finished Outer Range on Amazon Prime. I'm a big Josh Brolin guy going back to his Goonies days. Yeah, yeah.

And it's Yellowstone meets sci-fi. Okay. Yellowstone Star Trek. Where do you watch this? It's on Amazon Prime. It gets a little weird. Say it again. Outer Range? Out-fi. Okay. Yellowstone Star Trek. Where do you watch this? It's on Amazon Prime. It gets a little weird. Say it again. Outer range?

Outer range. Okay. Outer space, right? It's Yellowstone with a sci-fi element, and it's bizarre, but in a good way. Okay. We finished the first season, and I can't wait for the second season

now that the first season's done. When did it originally come out? It's a while. Like, over a year ago. It just took a while. What's your favorite Brolin performance outside of Goonies? He's been in a lot of good shit in the last 10 years.

Gotta be No Country for Old Men, right? No Country for Old Men. He's like the best part of the movie. He plays a kind of a similar character. Oh, in Sicario. Yeah. He's great. He's good.

But the way he rode the bike in Goonies when he's holding onto the side of the car, right? Yeah, he saves the day. He's the man. They would never have found one-eyed Willie's treasure without the heroics of Josh Brolin. Was Josh Brolin in Wall Street with Shia LaBeouf? Yeah, right? Yeah, he was.

He was a bad guy. Yeah, he was a bad guy. He's the best part of one of the worst movies ever made. Pretty bad. All right. Well done. Bob, have you a favorite for us? I guess.

I mean, this is going to be pretty nerdy, right? We'll see. I'll be the judge of that. This American Life. Okay. NPR? Pretty nerdy, right? We'll see. I'll be the judge of that. This American Life. Okay. NPR? Pretty nerdy, right? Well, you're Midwestern.

Isn't that a Midwestern thing? This American Life? That's right, from Chicago. Yeah. You know, driving around in the old Pontiac Bonneville. Was there a specific episode? With my dad? Yeah.

Two episodes ago, I Just Can't Quit You, it was about a guy who was trying to quit smoking. Amazing, amazing story. The intersection of science. There's all this pop science about how to quit smoking. I'm rooting for tobacco in this situation. People have— Wait, how did he quit? Did he die?

No, well— He lost. He struggled. He struggled, but it's pretty amazing. So it's an uplifting— It's a really uplifting tale about how if you about that experience uh and about how pseudoscience can make lots of money and is just totally useless okay feels like a speaking speaking of in a similar vein one of my favorite albums to come

out this year uh post malone's new record came out two weeks ago that's about as cool as this american life so i think he's trying i think he's gonna kill himself i'm really i'm like oh this is the album this is the album cover i know some of this is is stick oh you think we have any more or there's no need really oh there we go yeah so he lost a lot of weight which is great uh i saw him live in austin last fall and he was awesome on stage there's no dj there's no band it's just him on stage in a spotlight and the crowd loved it and he has so many hit songs like maybe 20 hit songs that everyone in the audience knows every word to he's like really his music though has gotten very self-destructive So he put out like 17 songs on this album. Every one of them is about

like smoking butts till the sun comes up and drinking and falling on the floor and being hung over. And I'm like mildly, I'm a little bit concerned unless it's all performative. And he's like at, at a Jamba Juice, you know, all day. So, but the music is great. And I thought, like, maybe it's just all an act and he's not quite as far gone as it makes him sound. So here's to – any reaction at all from anyone? Sure, I'll jump in. I don't know much about Post Malone, but – I know you don't listen to a lot of music that's come out since 1991.

Right, that's true. No, no, 1998 was my cutoff date. But I heard Post Malone, he was on Howard Stern a couple of years ago doing Nirvana and he was f***ing amazing. Like super talented.

I want to mention the Jones Beach Amphitheater. Have you ever come to a show at Jones Beach yet? No, but he showed me it before. I've seen it. I texted Josh on Saturday. I said, how was the show?

And he goes, it was good. The weather was great too. And I said, I meant the CNBC show. Yeah. So I don't... Who did you see? I'm not a Goo Goo Dolls fan. Yeah, that's okay. Dude, no shame. Admit it. No, I'm really not. Slide. You love Slide. I left early. It's really not my thing.

But my wife and all her friends, you know, they love it. No offense. That's super lame. They have really good songs, but it's not my scene you're checking out match box yeah that's a nostalgia show it's not a show yeah no that's 100% what it is but it's the important part is we're all in our late 30s uh to late 40s our wives love it to see them have as much fun as they're having who gives a shit get get past yourself that's what i tell myself in

the mirror are you playing this to show? No! So it was cool, but the amphitheater is the star. It doesn't matter who's on stage, honestly. That's a good idea. It's really beautiful. Like, we went, it was 75 degrees, it was breezy, there was no humidity, the moon is out, there's waves crashing

all around, there's boats in the background, and it's, they get huge acts. So, I just, I thought I'd throw that out there. Oh, there it is. Let me see. That's boats in the background and they get huge acts. So I just, I thought I'd throw that out there. Oh, there it is. Let me see. That's where we live. So I was sitting right,

literally right there. Can you pull your jet ski up right there? You can't. They rope it off. It's in Zax Bay, but you can't get that close with a boat or a jet ski. That's an amazing view.

It's just like police in the water. But they get, like we saw last summer, we saw Chris Stapleton there. They had like 100,000 people. Almost nobody had tickets. I saw Live and Bush. They just were walking around.

Together. I've seen Aerosmith here. I've seen like big stuff. Anyway. I saw Zeppelin there. Shout to Jones Beach. All right, that's it for me. Hey guys,

make sure if you love the show, ratings, reviews, on your favorite podcast platform. What do you got? We have one. We have a good review. Let's do it.

It's from Word Scammed. I'm about to turn into a pumpkin, so. They were one of the three best podcasts of any genre. I've tried over a dozen financial podcasts and countless podcasts of other genres. Almost all financial podcasts are hard to listen to because they're boring. TCAF and its sister podcast, Animal Spirits, are different.

You see that in my sister podcast. What's up? They are entertaining while being educational. The Compound and Friends and Animal Spirits are the two best

financial podcasts bar none. Told you. They are both fantastic. Did I not say it? They say it a lot more, but I'm going to skip to the end. The last thing they say is,

I listen to many podcasts and am constantly looking for more to add to my rotation. There are only three podcasts in all genres that I've religiously listened to for years. I love this guy. Bill Simmons, Animal Spirits, and The Compound and Friends. They are my Mount Rushmore of podcasts. I can't express how much I appreciate the effort these guys put into the show. Thank you so much. All right we're going to let Bob get out of here but I just want to tell you, you have been an incredible guest. Thanks for having me. This is fun.

Will you come back? Yeah, of course. What are you doing tomorrow? Bob, you're awesome, and I want to wish you all the best of luck with Unlimited. I love the idea of what you're doing. HFND. I'll shout it out. Check it out. Yeah. I'm going to dive in and learn more about it, but just thank you so much for coming by. Awesome. Thanks for having me.

We really appreciate it. Ben, thank you, man. You going out for a show with Michael tonight? I'm going to see some comedy. Comedy Cellar. A little comedy? Yes. We're actually going to the Fat Black Pussycat, but same thing.

All right. That's enough of that. All right. Listen, hey, Compounders, make sure ratings, reviews, like us, tell your friends. We appreciate you. See you next week. All right. Wow, what a show.