The Pomp Podcast - #1205 Cullen Roche | The Disastrous 2023 US Economy Explained

Episode Date: June 1, 2023

Cullen Roche is the founder & CIO of Discipline Funds. In this conversation, we talk about the macro economy, inflation, interest rates, debt ceiling, Fed policy, savings rate, credit card debt, banking crisis, and much more. ======================= Pomp writes a daily letter to over 235,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Cullen Roche is the founder and CIO of Discipline Funds.

In this conversation, we talk about the macro economy, inflation, interest rates, debt ceiling, Fed policy, savings rate, credit card debt, banking crisis, and much, much more. I always enjoy talking to Cullen, and I think that you guys will enjoy this conversation as well. Here is my conversation with Cullen Roche. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments.

You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. All right, guys. Bang, bang. Colin, I thought a great place to start this conversation was around inflation.

You and I previously have talked about inflation and kind of, was it actually higher than the official numbers? Now, maybe people are thinking it might be lower than the official numbers. Just give us kind of your perspective. What is inflation today? And what are you paying attention to when people start talking about that specific metric? The main reason why I think anybody probably knows who I am in the first place is because during the financial crisis, I was hyper-focused on a lot of this stuff because I manage money

for other people. And I was trying to get... really didn't care about like the the political narratives around this or how to solve the problem so much as much as I really wanted to understand what's going on at sort of an operational level so that I can then try to navigate this knowing kind of this baseline foundation of how does the system work and how does this stuff really work at like an operational level so like the analogy that I use a lot of the time is like understanding how a car works when you understand how just like an internal combustion engine works and like the pedals and the gear

shifters work you can then begin to build sort of a framework for what are the parameters within which that that automobile can actually operate you know like can it go 300 miles an hour you know because you hear a lot of these sort of crazy narratives about this stuff where it's like well wait a minute like that's not actually how this works the car can't actually go 300 miles an hour is literally functionally not capable of doing that in this sort of an environment. And so, you know, the the thing that makes finance and economics so sort of cool and interesting is that you have a driver in that car. So it's not just the automobile.

It's like you've got like sometimes you've got crazy people inside driving the car and it's like, OK, well, this thing's only capable of doing certain things, but also it could do irrational things because you've got, you know, stupid people or just people that are overreactive and hyper emotional steering that vehicle. So I went back like during the financial crisis. And, you know, when everything was starting to really get crazy, and I'm researching how the monetary system works at like a very operational level. And it's crazy to think like back, you know, 1314 years ago online, there just was not a lot of information about how the system works at like a very sort of baseline operational level, like people weren't explaining what is

quantitative easing? How does it work? How does fiscal policy work? How does government spending interact with quantitative easing? And so I was sort of kicking the tires on all this stuff and building a framework for trying to understand it. And so from a very sort of baseline understanding, I think it's crucial to understand how the government thinks about a lot of this stuff, because the government's the one that obviously sets all the policies. So their definitions and their parameters for how a lot of this stuff works is what matters the most in my view. And so from an inflationary perspective, inflation is basically a continuous increase in the price of a basket of goods.

And so the Bureau of Labor Statistics will go out and they put together a basket of basically all different items that they think is reflective of like the average household's purchases. And this thing, they update it. it changes all the time. The methodologies are, I think, flawed at best, wrong at worst, you know, so and, and, you know, to be fair to them, that's true of probably most inflation metrics. I mean, you're not ever, because everyone's inflation experience is different, for instance, I mean, like my inflation experience is totally different from somebody who lives in Texas, or, you know, in a foreign country or, I mean, literally everybody. So it's very hard to pin this down.

And so we're talking about flawed metrics that are averages on, you know, for the majority of the population. And the Bureau of Labor Statistics is just trying to give us, I think, an idea of where prices are in general. And so, you know, the last few years were super, super interesting in large part because, I mean, COVID was just such a strange, it was such a strange event. And I think I remember talking to you in 2020, talking about how inflation was likely to be higher than people expected and how the Fed was going to get caught off guard by it. And a big part of that is that the way that they measure this stuff is inherently sort of either it's rear view mirror looking, or at best, they're looking, you know, they're looking out

the side mirrors, you know, they kind of see a lot of what's going on around them. But they're not in a position where they're really trying to drive this vehicle primarily by looking through the windshield, basically. And as an asset manager, I can't afford to be driving the vehicle by looking at the rear view mirror stuff. I have to be trying to understand what's coming down the pike here. And so COVID was really crazy because COVID in a lot of ways was very different

from my experience with the great financial crisis where a lot of people know me from the financial crisis as being a deflationist and basically really vocally saying that everything that's going on in the financial crisis was inherently deflationary because it was what economists would call a debt deflation, meaning that basically people bought so much debt

in the pre-crisis period that when asset prices started to fall, people started to pay back all of their loans. And we can kind of get into money supply dynamics if you want to later, but basically in a really general framework, the way that the money supply in a fiat monetary system increases and decreases is that loans create money,

loans create deposits. So when people are borrowing a lot, the money supply is increasing a lot. The government can also increase the financial asset supply. We can talk about that too later. But when people repay loans, that destroys money. So it's inherently this deflationary or disinflationary, meaning a falling rate of inflationary process. And so the financial crisis was inherently deflationary because you had balance sheets were all shrinking, basically. And the kicker with this is that the Fed responded with a great big bazooka. And the Fed primarily operates through rescuing banks, basically. The Fed is a bank for banks. So everything they do kind of filters through the banking system. So they did

a bang-up job of saving all their buddies at the banks. But the problem was really at the consumer level. And consumers were suffocating from basically a balance sheet depression. And the big difference with COVID is that during the financial crisis, there was not a big fiscal policy response. So there wasn't a huge amount of government spending that came out of that. There was, we passed like an $800 billion rescue package, if you remember. But in the grand scheme of things, it seemed big at the time, but it really wasn't that big, especially compared to COVID. And I think that was really the big lesson coming out of COVID was when I started seeing the size of these packages that were coming out, it was like, well, wait a minute, we're going to do

a $2 to $3 trillion deficit this year, which means basically they're spending more than they're taxing. And that extra deficit spending in my framework is best thought of as, you can call it deficit money printing, I think, in essence, because the government is issuing super safe money-like instruments when they run a deficit. So deficits are money printing. And the size of the deficits were so big in COVID. I mean, they ended up, God, I mean, after we talked, they did like two more huge packages so this like kept going and going by the time that by i mean the by the beginning of 2022 it was like seven trillion dollars of deficits inside of like a two and a half year period which is i mean we're talking colossally huge numbers here

and so you know the interesting thing with in concordance with like quantitative easing was that, well, we did all the same stuff in 2008 with quantitative easing. The Fed ramped up their balance sheet in a huge way. Everybody called it money printing. But the difference between COVID and the GFC was that the government spent a hell of a lot more money. And so to me, that was sort of the big aha moment when I started to see really the size of the government package and the composition of it. It wasn't so much, oh, the Fed is doing a lot of stuff because the Fed did a lot of stuff back in the GFC. And it, you know, inflation never really like got out of control or it never really got high. It actually for the next 10 years basically continued to go down,

down, down until we, you know, we ended up with basically permanent zero interest rates because inflation was so low. And so, but following the GFC or sorry, following the COVID pandemic, The policies were so huge. And at the same time, the government is basically saying, stay home, don't work, don't make anything. Here's a bunch of money. So it was like the perfect recipe for inflation 101, where the government prints a ton of money. You get supply constraints, not only because governments are telling people not to go to work, but because of all these other quirky problems with COVID. And so you get more money chasing fewer goods, and here we are. So that's kind of the transition of what's happened over the course of the last two, three years. So there's a brand new book or relatively new over the last couple of years by Edward Chancellor called The Price of Time. And it talks about interest rates. And I actually enjoy the first half of the book better because it goes back over the history of interest and interest rates. And one of the stories that they tell in there is John Law and the Mississippi Company. And basically, it was a guy who had this whole economic theory that you could go and do a whole bunch of experimentation and you wouldn't actually drive inflation, etc.

Now, short story is, at one point, he was the richest man in history, he claimed. And then he ended up broke because the entire company fell apart. But what came out of that was, as they were trying to create paper currencies and print money and kind of do all these experimentations, inflation exploded. And so I use that as an example. We're talking centuries ago. We have that example. And we've seen it time and time and time again throughout history where inflation occurs when they print money. why is it that we haven't learned the lesson?

Is it because we want to kind of address the short-term pain and don't care about the long-term costs at the moment? Or is there something else going in there that humans are just really stupid and we don't learn history? Like, what's going on? You know, so the way that we print money is it's nothing new, really.

I mean, fiat money, Like a lot of people talk about fiat money as if it's like something that, you know, really just started to exist in like, you know, the 1970s or something or got out of control in the 1970s. And really, like the way I like to think of it is that money, money is inherently credit. Any financial system, I think, it will inherently turn into a credit-based system where even in the oldest of old monetary systems, like the Code of Hammurabi talks about how farmers would create credit contracts where, you know, one farmer basically would have a lot of seeds and another farmer needed seeds to plant his farm. And so the rich farmer says, you know, hey, poor farmer, here's 10 seeds. You can go and you can multiply this into your new farm. Oh, but here's a contract where you owe me 11 seeds next year as repayment. And that contract, essentially, it's a credit contract, but that contract is functionally

money-like. And that's become, as sort of economies have evolved over time, those contracts that we think of as credit have evolved into money. So, like in a modern monetary system, the majority of the money that we all use is bank deposits. And bank deposits primarily come from loan creation. So, you know, I go out, I borrow money to get a mortgage, to purchase a home, and that loan creates a deposit. And that deposit, you know, in the Hammurabi days, that contract was probably, it was worthless except between the two farmers. But in a modern system, that contract has become money, basically, in the sense that anybody can now take that contract and go anywhere and use it as money because it's exchangeable for basically anything. It's not just exchangeable for seeds now.

You can go into, you know, Home Depot and Walmart and, you know, go on Amazon and use those deposits, that contract basically, to buy whatever you want because it's moneyness. You know, I like to use the term moneyness in the sense that every instrument we use, whether it's Bitcoin or, you know, bonds or 30-year treasury bonds or gold or all these different instruments have a certain degree of moneyness. But bank deposits have, I would argue, if not an extraordinarily high level of money, it's the absolute highest moneyness. And so all of these loans that create deposits are now money in the sense that you can go out and they're fungible for basically anything. And so in a modern monetary system, the creation of credit, I think, is sort of the natural evolution of just the way that all markets have, all financial markets have always worked across

time because you always have people that have demand for money and you always have people that either have more assets or more money that are willing to say, hey, you know what? I don't need this. I'll give you a little bit and maybe you can go out and you can do something good with it and you can repay me with a little bit more in the future. And so in a weird sort of sense, You know, you don't want to I don't want to call it a like a pyramid scheme or Ponzi like because the system does really rely on a perpetual sort of increase of credit over time. But the there's a Ponzi like aspect to it when you're not creating the when you're not creating the seeds. If that farmer just goes out and you create this contract and the other farmer just goes out and takes a dump in the piece of paper and buries it in the dirt and forgets about it, well, that's the part where this all gets really problematic because when you're just sending money out to people and no one's doing anything, no one's building anything, that becomes Ponzi-like in the sense that you're not creating the real resources that actually support that contract. because that contract is only viable if the farmer actually plants the seeds and produces

that 11th seed to be able to repay back to the original farmer. It's the thing that makes the whole system work. And so I always like to say that the creation of debt is on a balance sheet level. It's the creation of an asset and a liability. There's nothing really inherently good or bad about that. It depends on how it's being used. And a lot of the times, you know, debt is used in really good ways. Like people borrow money all the time to build great companies or build homes. And I mean, actually, building homes is the primary thing that we do with debt is we go out and we build useful, big blocks of wood that are, you know, real resources. And so when you're doing things like that, I don't think there's anything necessarily

problematic about the creation of more money over time because you're creating things that give that money value. They back that money. Whereas when you're just doling out money and people are just sitting around having Zoom calls for fun and playing video games and crap like that, it's like, well, of course that's inflationary. You're not creating the real resources that actually support the money in the first place. So, and I think, you know, that's a really contentious discussion because you get into like these political discussions about, well, oh, well, you know, these, this group of people, they don't have enough. So, you know, why can't we, we take some money and redistribute it to these people or, you know, and then, you know,

a lot of the times the people that have the money will say, well, you know, why I worked hard for this, you know, I borrowed money when I was young and poor and I built something great. Like, why should I have to give up what I've produced and earned over time and potentially harm my family and my future generations and offspring just to benefit somebody else? You get into all these contentious political debates about how this works. And so a lot of the times the government just comes in and says, you know what? Screw having to try to tax rich people or whatever it is. We'll just print the money and give it to this group of people that need it for whatever purpose. So what's fascinating to me about this is we have on one side of this like debt GDP equation is the debt.

And I think a lot of people are focused there. Obviously, we have the debt limit crisis that has started to get a lot of attention. Hopefully, that's being averted. We have the national debt kind of hitting these absurd numbers. It probably will hit another all-time high as soon as the debt limit is increased and they just keep on borrowing. But there is like the GDP side and the economic growth side. And so what is fascinating to me is two things. One, when you go and you look in history, what you find is that there's actually been economic growth during deflationary times.

Not every time, but there has been growth at certain points, which would pull into question this idea of like you need inflation in order to spur economic growth. But the second thing is that there's a bunch of things that we do in society, whether it is taking on more debt in the nature that we do, whether it's some of the stock buyback stuff, whatever, where we are doing things that create the illusion of wealth, but it doesn't necessarily drive more economic growth. And so it calls into question kind of like how well do we actually understand the relationship between debt and economic growth? Yeah. It's part of what makes especially periods like the COVID experience relatively frightening because I really don't think anybody understands like what is the limit here? You know, what is the point where inflation turns into something that, you know, is just sort of, like, I like

to think of something like a zero to 2% rate of inflation is generally not that problematic. It's not, I mean, you can have zero to 2% inflation, and living standards can increase. I mean, that's basically the experience of the United States over the last, you know, 100 or so years. I mean, inflation, you know, you look at a chart of like the purchasing power of the dollar, you know, it's just gone, you know, down 97% or whatever. But the kicker with this is that living standards haven't fallen. I mean, American living standards objectively by most metrics have increased despite this purchasing power decline. And that's in large part because we are a hugely productive economy. We create the goods and the resources that despite the

decline in the dollar's purchasing power, we're better off in terms of our real resources. I mean, if you'd invested $100 in the S&P 500 back in 1900, it would have turned into something like $40,000 by now versus if you'd left your money in the mattress, now it's purchasing power, And that's in real terms, you know, so inflation adjusted terms, you'd left your money in the mattress, and you'd been the person that produced nothing, you know, your purchasing power fell by 97%. So that's the difference between using money in a productive manner versus just letting it sit around and basically lose purchasing power over time. So, you know, it's this weird sort of situation where I think that some level of small inflation is not necessarily bad for long-term living standards. But the thing that's disconcerting in all of this is that we don't really know the level where you reach kind of like an escape velocity on this. And it becomes really problematic where, you know, you get to like 4 percent inflation and then 10 percent inflation. And when does 10 percent inflation then start to sort of, you know, reach an escape velocity where you get 20, 30, 40 percent inflation?

And then then your economy is really, really effed. And we don't you know, the evidence is so it's so different across different regimes. I wrote a paper in 2011 where I identified that basically most hyperinflations occur under very, like, fairly specific regimes. It's usually a catastrophic loss of production for some reason, a war, and government regime changes. And so when you get these very sort of seismic shifts in geopolitical events, you oftentimes get a very, very high rate of inflation. And so, you know, typically, at least in the last 50 years, there has not been a hyperinflation in a credit based monetary system without one of those big problems occurring at the same time. And so but at the same time, we really don't know the level where, you know, like you could argue that if the government had continued to print three, four trillion dollars every year and just telling people to stay home, you would have at some point during all of this, you would have had a catastrophic decline in production because people would have been like, you know, F it. I'm not going to make anything. I'm getting a check every month in the mail from the government.

So I'm just going to stop producing stuff. And at some point, you would have gotten, the deficit would have caused this catastrophic decline in production that probably would have resulted in, if not a much higher rate of inflation than we got, something like a hyperinflation. But we really, it's, inflation is still such a, it's so economically specific to the way each, I think, country operates, and the way each government works as well, that it's very, very hard to pin down what's the causation here exactly, and what's the point where this becomes really problematic. And it's super kind of disconcerting when you understand this from like the Fed's perspective or the government's perspective, because, dude, I don't think they

have any idea either. Like they, this 2% inflation target that they have, that's like a, it's a number that some politician in Australia mentioned in the media like 10 years ago. And then all the other central bankers were like, hmm, yeah, that seems like a pretty reasonable number. Let's all use that. Like that's literally how the 2% inflation target came to be. So nobody knows, which is really, it is one of the things that's really disconcerting. What's fascinating about this is Paul Volcker, who obviously stepped in and jacked up interest rates to fight inflation in the 80s, he actually has come out and said nowhere in his textbooks was 2% in there, and he thinks it's a stupid rule, right? Or kind of a stupid guiding measurement.

It also brings into going back to Chancellor's book, Goodhart's Law, which is like anything that was a measure that now becomes a goal ceases to be a good measure. And so if you are actually looking at this, the inflation kind of issue, you mentioned that the central bankers may not know. And I do think that this is somewhat interesting because central banking is a confidence game. If all of a sudden we all woke up tomorrow and we're like, we have zero confidence in them to do this, a lot of things would change. People would change their behaviors obviously we saw with silicon valley bank and some of these banks we went and withdrew money very quickly um and so the system changes things break whatever

but by being human and having the unknowable future as part of what you're trying to underwrite and then also having to admit that you're using backwards looking data to make current decisions and try to predict what the future impact is going to be it's impossible and so what do you think the solution could be in toronto every arrival is a statement and nothing says it better than this cadillac optic was the number one selling luxury ev in canada for 2025 find your rhythm across a seamless 33 inch display and an immersive 19 speaker akg surround audio system this city demands agility and optic delivers with precision to make every drive extraordinary let's take the cadillac find out more at cadillac canada.ca luxury sales claim based on s&p global

mobility canadian new vehicle total registrations for calendar year 2025 for the cadillac definition of luxury the other crazy thing about this is that especially with the fed the fed is super data dependent so the fed you know they're beholden to treasure to congress basically and so when they do stuff they they don't have the ability to to have a lot of discretion in the same way that like I do managing a portfolio, in large part, because they have to be able to look at evidence, and they have to be able to go to explain to Congress, hey, we did this for this reason, like, look, look at the data at this moment in time. And we knew that this is what was going on. And so this is what we decided to do. And so they have to be able to

justify all this stuff. And so like right now is a really interesting time because a lot of Fed officials are looking at like the 1970s as the playbook for what might happen. And they're not considering necessarily that this is a completely unknown environment, completely different from anything we've ever experienced because of what just happened with COVID. But they're using this like 1970s playbook to manage the risks potential going forward. And so they're very worried about like an Arthur Burns moment where like, you know, the Fed eases up and then inflation takes off again. And you get this policy error that results in, you know, basically a lost decade of super high inflation. But a lot of that is based on, you know, not just rear view looking historical

data, but the fact that right now, they're being super cautious with the way that they're moving forward in large part, because they're, they're looking at current indicators, basically. And they're saying, well, inflation is still high relative to our target rate. And in order to manage the risk there, we have to, we don't want to do anything too extreme. So they're cautious about moving really aggressively, because they're, they also know the experience of the, you know, the financial crisis, where a lot of the stuff that was going on then obviously was deflationary. So they're looking at all this basically coincident indicators, and they're saying, okay, well, inflation right now based on our readings is like 5%, let's say. So we're going

to leave the overnight rate at 5% until we get a better idea of what's going on. I mean, they're going to wait. They're so data dependent because they're beholden to Congress that they have to wait on all this data to come out like they're going to wait for this week's labor report the the employment reports coming out um tomorrow it's we're recording this on a thursday so it's coming out on a friday morning and this data which first of all it's completely rearview mirror looking too because this is these are surveys from last month and these are surveys that they get updated multiple multiple times in the future so you could get like a you can get a reading tomorrow of like 250,000 jobs created, and the government will come out in like six months and say, oh, yeah,

you know, that May reading, it wasn't actually 250,000. It was actually minus 250,000 after all of our revision. And so it's this crazy sort of system where they're looking at either coincident data or, you know, rear view looking mirror data to make current decisions rather than using some sort of model that is at least somewhat forward-looking. When we start thinking about the Fed's activities, I remember this quote that Jerome Powell had kind of in the height of inflation really starting to take off. So it was already over 5%. And the only reason I remember this is because I think I spent like two hours ranting about it one day. But somebody asked him, like, you know, are you worried about the impact on economic inequality given how high inflation

is going? And he basically said something which, again, I want to be fair to him, like I think it was kind of like an offhand comment but when put into print it sounded really bad and he was like like no one's come into my office and told me uh that like you know they're falling behind and you know we went on this huge rant and like dude what do you want people to like show up to your office and like navigate the halls of the fed like you know like come on it's like a ridiculous thing but put aside for a second like all the comedy and and like the hilariousness of the question and the the answer um the health of the consumer is actually like a pretty important part of this right? Like they're not blind to the fact that, yes, they're trying to address inflation. They're

trying to address some of this stuff. They claim to not really care that much about asset prices themselves, but I do think they probably pay attention to it. We right now are seeing savings rate completely depleted. We're seeing credit card debt spike to, you know, near all time highs. Interest rates on that credit card debt is spiking pretty high. How do you think about the health of the consumer in light of, you know, Fed policy, inflation and some of this interest rates though? It's worrisome in large part because I've talked about this in a lot of recent interviews that I've done where what's going on right now is it's playing out. When you think of credit cycles, the basic way that a credit cycle works is you get, so in 2008, we get

this big bust. Balance sheets compress. The Fed gets super easy. They reduce interest rates. The government spends a little bit of money, puts money in people's pockets. The economy slowly starts to recover. The unemployment rate falls a lot. And as demand sort of picks up, you start to get more and more people coming into the labor force. And people then start borrowing more and more. Companies start borrowing more to build more, whatever it is. And all of this is this very sort of cyclical thing where then for 10 years, you had people borrowing at very, very low interest rates and, you know, adding to other people's incomes because borrowing adds to other people's incomes when people spend that borrowing. And the credit cycle then is recovering. People

are people are borrowing more. The economy is growing modestly. And then COVID happens and all the craziness there you got in the government basically like said, OK, now everybody here's here's money for you and you and you and you and go out and go crazy and live your life and stay home and don't build anything. And so you got this crazy jump in prices at the same time that the government technically was issuing a huge amount of credit. And all of this results in this high rate of inflation that we're seeing now. And then the problem is that the Fed then wakes up to it. And the Fed says, well, wait a minute. Inflation is way too high. And now we need to slam the brakes on all this. So they raise rates faster than they've ever raised rates in

history. Coming off of zero, going to five, it's never happened as fast as they did it. And it causes all sorts of problems in like more, your average mortgage payment went from like, like the old rule for financial planning used to be, you spend like 28% of your income on shelter. And now the cost of a mortgage is basically equal to like 50% of income. So incomes haven't gone up that much. And the Fed has made things so expensive from a credit market perspective that being able to afford credit now is, I mean, you have in the last few years, there's like 50 million people that have been completely priced out of the housing market just because of the mortgage rate situation and the Fed's jacking of interest rates so quickly. So you've got this, we're in

this weird sort of like Wile E. Coyote moment where, you know, we've jumped off the cliff and now we're up there and people are trying to maintain their living standards relative to where COVID placed everything, because COVID repriced everything in such a way where now people are basically forced to borrow more to maintain their living standards because incomes haven't risen at the same rate of inflation. And so it's a really sort of problematic environment because the question now is, how long can this go on? How long can people continue to borrow at the rate that they're borrowing and continue to sustain the economy in a way where you either don't get a recession or at, you know, like my view basically has been that the economy

is decelerating and was going to just be like, I've called it a muddle through basically. It's not going to be, you're not going to have like a crisis period coming out of this, but you're also definitely not going to have like a boom period. And so it's going to be just sort of this period of struggle where people's real disposable income is struggling to keep up with their ability to actually continue to buy the things that not just are necessities, but the things that are luxuries. And so it's this weird sort of environment where I would argue that the longer the Fed stays really, really aggressive trying to fight all this, the more that creates the risk of probably a downside event, maybe not like a

2008, but something that is, you know, at minimum a recession, at worst, probably a, you know, a credit event that occurs. Who knows whether it's in the commercial real estate market or the consumer market, we're obviously already seeing it happen in the banking system to some degree. But, you know, at some point things start to, if not break completely, they start to crack a lot in this sort of an environment because you have this discrepancy between the way that the overnight interest rate works and the availability of credit versus what people have become accustomed to. And that's a big part of this is that people, the whole economy spent 10 years getting used to 0% interest rate. So you have an entire economy that was financed at 0% basically, or very low interest rates that

now has to refinance everything going forward at 5, 6, 7, 8%. That's a messy process. I keep coming back to this idea that pretty much anyone under the age of 40, give or take, majority of their career, if not their entire career, has been in that zero interest rate environment. There is a good portion of the current capital allocators, business owners, uh you know founders etc they've never had to think about this other world they have no experience in this other world and that doesn't mean that they're not smart and uh kind of can iterate quickly and learn it and talk to people read books you listen to podcasts whatever and like get up to speed it's just that like their experience is rooted in that very very low interest rate environment and so

maybe we return back to that and like it's okay it was just like hey a one or two year period where they had to kind of figure it out but if we stay in an elevated interest rate environment you basically gotta re-teach an entire generation right of people how to build businesses and allocate capital given that interest rate being at a higher level it's and it's much much harder to operate in that sort of an environment than it is in the easy money environment where anybody you know or not not anybody but you know a lot more people were able to obtain financing and credit in that environment i mean i i feel horrible for a lot of people who wanted to buy homes over the course of the last five years who now you know after the huge price surge in real

estate combined with the the jump in mortgage rates i mean these people who knows when they're going to be able to afford to buy a home. I mean, my basic view going forward is that I think that the modern system and the way that the credit structure of the entire macroeconomy is built from the last 10 years, it's not sustainable to just jump up to 7% mortgage rates and then say, okay, this is the new normal. I think at some point something has to happen or things return at least to a somewhat more normal environment where you end up with, you know, will they go to zero again? I don't think the Fed will. I think the Fed's going to be hesitant to go to zero unless something really, really frightening happens in the next few years.

I find it hard to believe they're going to go to zero again. But I think the Fed wants to be at like a two to three percent overnight interest rate, which that's equivalent to like probably like a 5% mortgage rate, which to me, if inflation is falling to like, let's say inflation comes down to like anything even remotely close to their target, 2% to 3%, something like that, I think then they can start to justify reducing interest rates a little bit. And then things start to normalize. And at least then in that environment, you've got, things are still obviously a lot more difficult in credit markets than they were with 0% interest rates. But it's not this situation where, I mean, they've really nuked the housing market for tens of millions of Americans.

And so I don't think they want that. I think they just know that it's a necessary evil to go through the process of bringing inflation down. They're trying to reduce demand for credit and new money issuance in a way where you do it long enough, eventually either the economy, we get this so-called soft landing, or you get a situation where something breaks and if something breaks you know they're gonna they're gonna reduce interest rates and bring things back down to that situation much much faster than they otherwise would how does the banking crisis play into all of this like obviously that

seems to be in some ways a corralled kind of uh acute situation if you talk to another crowd of people they're like no this is literally every bank is insolvent and like we're screwed unless the Fed steps in and continues to be persistent, which is inflationary, like, how do you just see that banking crisis playing into all this? So it's kind of two things. I think part of it is that it's, it's evidence of the bigger problem, where the banks are, the banks are having trouble adjusting to this new normal where, I mean, three, four years ago, a bank could, you know, borrow at zero and lend at three. And that was the basic business model. And again, they went through 10 years of building their balance sheets off of that model. Whereas all of a sudden,

within a year, the Fed goes from zero to five. And now that banking model is broken to a large degree. Because now banks, in order to maintain that same margin, what they're trying to do is they're borrowing at five and they're trying to lend at eight. And the problem is, is there's not a lot of people out there that want that 8% rate or people that can afford that 8% rate. And so what's happening now is that banks have losses on all the assets that they own that were interest rate sensitive. They've got, you know, hundreds of billions of dollars. I think the last number I saw was something like $500 billion across the banking system, just in terms of the assets that are underwater right now. And what they're trying to do is either get rid of those assets,

or they're trying to update their loan book in a way where they're evolving the loan book away from the 3% loan that they were earning. And they're getting hopefully a 7% or 8% loan that replaces that. And that way, their net interest margin can maintain the same margin. They can just go on doing their, you know, their business the way they always have it. You know, the old joke is, you know, borrow at three, lend at six, and be on the golf course by three. You know, that's what banks want to do. Banks aren't like trying to do something real sexy. They're not trying to operate the world-killing business like, you know, a big, you know, high-flying tech company would be. They're trying to run a very, very simple business model. And that simple

business model is broken right now because there just isn't a lot of demand at 8% to make that model sustainable. So this is especially true. I think the big banks have a lot less trouble with this, especially because the cost of their liabilities is very different than a small bank. Like I leave, I only bank with Bank of America because I basically know like the government will never let bank of America fail. And all my money that I leave in the bank account, I try not to leave a lot of money in the bank, but you know, the money that I do leave in the bank, it's earning zero. So the cost of my liabilities to bank of America is zero. So it's this, it's this weird situation though, where, you know, I also have, I have these golden handcuffs that a lot

of people talk about where we refied at like, I mean, God, I refied at like two and a half percent back in 2020 or whatever. It's just an insane number. And people talk about how this is good for the homeowners. And yeah, it's great for me. But somebody owns that. Somebody owns that 2.5% interest-bearing paper that in an inflationary environment is underwater by, earlier this year, it was underwater by 7%, 8%. So there's a flip side to this. And the banks are on the flip side of all of this where they own or other financial institutions own that two and a half percent paper from millions of people like me who refied back then. And, you know, that business model doesn't hold up unless you're a Bank of America or one of these big sort of globally systemically important

banks that the government has really explicitly said, OK, you know, you're safe, you're safe, you're safe, you're safe. There's like eight of them. And the problem is there's 4,500 banks in the United States. And a lot of those banks are really, really small banks. And so those really small banks, they don't have the same luxury that Bank of America does. They have to be able to go to the depositors and say, you know, hey, will you please stay with us? We'll offer you a 4% rate on your short-term deposits. And the net interest margin on that sucks, but hey, it's better than us going underwater. And so to me, what's going on in the banking system is it's evidence of this just much broader problem. The good news as it pertains to a banking panic and the Fed is that

the Fed went through all of this in 2008. So the Fed kind of has this toolkit that is sitting on the shelf where when something happens with like an SVB or some sort of liquidity problem, they say, oh, yeah, we remember, you know, this four letter acronym that saved this group of the banking system. Let's just reenact that. And that's to a large degree. That's what the Fed is designed to do. The Fed is designed to be an independent intermediary. They are literally the central bank. They're not just the central bank of the United States. They're the central bank for all the banks. So they're the intermediary that when all of the other banks break, if let's say every bank in the financial system breaks, the Fed comes in and says, okay, look, there's

going to be a lot of collateral damage from this if Bank of America doesn't settle payments with JP Morgan. Let's say that I'm purchasing stuff from Anthony, and Anthony and I bank at different banks. Well, our businesses could be great businesses that have no exposure to any downturn in the economy or anything like that. We're just running these gangbuster businesses. But then all of a sudden, our payments might not clear between each other because Bank of America and JP Morgan run bad businesses. And what the Fed is really designed to do is the Fed's designed to sit in the middle of this and say, look, we're going to clear the payments between these two entities, even though these two entities suck. And that way, we'll shield Anthony and Cullen from having

their own economic problems. Like, I'll never forget the story where back in 2008, one of my very best friends called me, and he always relied on a short-term line of credit from, I think it was Washington Mutual. And he called me up and he was like, dude, my business, I might not be able to meet payroll this week because Washington Mutual won't process my payments. And this guy's running a business that in a financial crisis actually does really well. So it was strange because I knew this guy's business was doing really well, but his business was at risk of failing potentially, just because Washington Mutual was a crappy bank. And that's the main goal. The Fed does lots of dumb stuff that's sort of tangential to this. But as a core function,

as the intermediary who clears payments, the Fed actually is, the Fed's really, really good at that. They don't get credit for it because nobody sees it because the payment system processes trillions of payments every day. And people just know that it works, even as like, you know, archaic as it might be, or as slow as it might be, it works. And even in a period like 2008, it doesn't stop working. So it doesn't cause all this collateral damage to people that had nothing to do with the financial crisis. When you start looking at how these consumers are behaving, and then we start talking about real estate and homes, it makes me think about the commercial real estate market and not only the commercial real estate market in terms of the financial like kind of engineering

that's gone on. But one of the big differences, I think, between 2020 and today compared to the global financial crisis was if you looked at the world before the global financial crisis and you looked at the world maybe a year or two after the global financial crisis, the only thing that really change was the financial markets right but people still went to the same jobs people still went and did all these different things like their life didn't change what they wanted to do didn't really change if you look now before covid hit everyone went into an office now all of a sudden remote work is dominant if you look at the geopolitical uh kind of fallout between russia and ukraine like there's a war that then disrupted all these supply chains and commodity prices and

like like there's fundamental changes to the world outside of just the changes in the financial markets. And so how do you think about a central bank or others having to not only underwrite financial markets and the decisions they're making on the impact of those markets, but they also basically have to now become like geopolitical experts. They have to become like labor force, you know, migration experts. And there's all these other moving targets outside of just like, okay, prices were high, prices crash, we step in, prices go back, and like all is good in the world. It feels like this is much more complex of a situation than maybe 2008 was. Yeah. And it's, you know, it's crazy because, you know, especially with a lot of the like

political activism and stuff, like I read something, I can't remember exactly what it was a few months ago about how the, the fed was starting to think about an ESG mandate and the way that they manage policy. And it's like, dude, you, you can change the size of your balance sheet and you can change interest rates. You're really not going to have the capability. Your tools are so blunt. You're not going to have a meaningful impact on climate change, you know? And I'm not like against trying to, you know, you know, maintain a healthy climate or anything. It's just that this is, this is not the right entity through which we should be trying to do something like that. And so in a lot of ways, like, the system has become so interconnected, so globalized

that and you see this with the way that the Fed intervenes in crises where like, you know, like the euro dollar market has become a humongous market. It's, you know, by some measures, $12 trillion. This huge global dollar system, though, exists. And the Fed is to a large degree responsible for maintaining liquidity in that market. And they do this through typically by issuing what are called swap lines, basically, which are like synthetic dollars to other foreign banks. But basically, you know, they become so interconnected in all of this that I think in a lot of ways, we almost ask too much of them that, like, in a perfect world for me, what would the Federal Reserve be, the Federal Reserve would be a clearinghouse. It would be almost basically like

an automated clearinghouse that they primarily serve that core function of settling payments between Bank of America and JP Morgan. And just for people who don't fully understand this, the way that banking basically operates is that we bank at banks and banks bank at the Fed. And so when banks clear payments, you know, it's not just, I don't just send my deposits directly to Anthony. The way that that payment actually clears if Anthony works or operates at a different bank is the banks actually send reserves to one another. So they send central bank reserves. So they send their deposits at the central bank to another bank. But from a, so from a clearing perspective, the Fed's very good at that.

And it's a mostly automated process. They don't have to get involved and, you know, make a lot of discretionary decisions or anything, whereas things like quantitative easing and changing interest rates are much more discretionary. It is literally, you know, 12 people sitting at a table having a meeting saying, you know, talking about their, you know, the glory days of the 1970s inflation or whatever it was and, you know, stuff like that. And then deciding, hey, where should the interest rate be? And this sort of discretionary interest rate management, I think it just it doesn't work very well because you the driver of the vehicle is just too involved in trying to steer everything. And if you can create a system that's much more systematic, in my view, you take a lot of these responsibilities off of the Fed's plate where, you know, you could easily automate interest rate management. You could I mean, hell, you could you could stick interest rates at three percent and just leave them forever. if you wanted to, really. That's not necessarily my view, but that's how simple the system could

be. Some people, I know like the MMT people, they want to put interest rates at zero and leave them at zero forever. So there's automated ways of doing this. You could implement what's called a Taylor rule, which is the systematic equation to just set interest rates in a very automated way. I kind of like something like that. I'd sort of buffer it so that the Taylor rule tends to have a lot of volatility in it. Like the Taylor rule would have taken interest rates to like 10% back in 2021, which, I mean, frankly, I think that would have nuked the economy and the credit markets in a way that, yeah, it wouldn't have caused or it would have snuffed out the inflation faster than we did, but it also might have caused something really, really catastrophic with that

sort of an extreme jump from zero to 10. Like you think banks are effed going from zero to five If we'd gone from zero to 10 in a year, the banks would all, I mean, it wouldn't even be a question of whether they're insolvent. They would all be insolvent in that environment on a mark-to-market basis. So, you know, my preference is that we automate a lot more of this. We stop worrying about, like, God, like when I watch one of these Jerome Powell pressers, I'm just like, kill me. This is brutal. Like, why are we sitting around waiting on this guy whose entire career experience is mostly like the 60s and 70s economies, who maybe doesn't even have any really solid understanding of things like cryptocurrency markets and, you know, AI and new technologies and geopolitical events that are having really, really big impacts on the way that all of this works? Rather than just automating a lot of this stuff in a way where it's systematic, non-discretionary, not necessarily perfectly decentralized, but at least decentralized in a way where we're decentralizing it away from 12 people who just have PhDs in economics and sit around and theorize about where this may or may not go.

So to answer the question, I just I think we ask way too much of the Fed. They have super blunt instruments. There's no way they can manage all the geopolitical risks and the climate risks and all the political stuff that, you know, we demand from them. And so I would if I was king of the United States, I would probably one of the first things I'd probably do is go into the Fed and say, you know, whittle down, you know, hey, how much of this can we can we reduce to the point where this is basically, you know, like chat GPT is basically running monetary policy. When you start looking at things like Bitcoin, as an example, right, which don't have that human led monetary policy. Again, there's a whole bunch of other things that go into Bitcoin, but just take as one thing that it does have is programmatic monetary policy versus human led. Whether it is the Bitcoin programmatic monetary policy or chat GPT or, you know, name your way to get there. Is there an argument to be made that actually that would be better than the human led policy? Oh, I think 100 percent.

I mean, any sort of systematic approach to this, I think, would be superior to, I mean, a lot of this is my experience, not just in having, you know, talked to either policymakers or policy theorists and macro economists about a lot of this stuff, but also coming at this from a market perspective. I know. I mean, look, I think I'm a pretty smart guy. I think I've spent my entire adult life trying to understand financial markets and the macro economy. And I'll be the first person to tell you, I know so much less than I thought I did back when I started this adventure. It's almost like the more you learn, the more you realize how complex all of this is to the point where it's like, holy shit, does anybody really understand how any of this stuff works? Because, I mean, especially when you start talking to lay people, it's like, you know, as soon as you start talking about things like quantitative easing and, you know, central bank reserves, it's like, they're like, I'm sorry, what are you speaking Mandarin to me? Like, you know, so that the experts or the so-called experts know that this stuff is it's so extraordinary complex to the point where I think we worry that, like, we don't even understand exactly what's going on. That I kind of know, especially with portfolio management, like the more you can take the human element out of this stuff, the better it operates.

And so like, I mean, like we run an ETF that is, it's a pure algorithm. I have, I built the algorithm, but like, you know, that fund, it involves zero of me going, you know, which direction is GDP going to go this year? There is nothing involved in that. It's just a programmatic model that the model has data that goes in, it spits out data, and that is the asset allocation that we use. And I think that's sort of a systematic approach, not only to to investing, but to monetary policy especially is it's so much more efficient because you take out you take out the tail risk really in the human decision making process where, you know, going back to the car analogy, you take out the risk of, you know, oh, the human looks down at their phone for one second and all of a sudden they're driving into a telephone pole. You know, you take out that asymmetric risk of, you know, hey, I made one bad decision that was a pretty minor decision in the grand scheme of things that had a catastrophic outcome. And just non-discretionary systems, I think, just in general, they reduce a lot of that, the human tail risk error that a lot of us see either in managing our own finances or, you know, managing policy over time. When you start to look at moving forward, what do you think is, other than some sort of programmatic type monetary policy, what do you think could be done to improve the lives of individuals and also maybe the business environment? Like one of the things I'm very focused on is how do we regenerate economic growth? How do we make sure that people continue to your point?

You know, the quality of life continues to increase. What could be done or what are you looking at? What would you like to see done in kind of a macro environment that would be conducive to that stuff occurring? That's a really, really hard question. In terms of are you talking like government policy? it could be government policy it could be treasury and fed related it could be um maybe it's actually the opposite maybe it's like get rid of a bunch of policy and legislation like it you know i always come at this from um all of these things we're talking about even monetary policy in my mind is

a carrot and a stick right in some cases obviously ultra low uh interest rates is very much a carrot it's like hey come on in right bring all the people come borrow come come and do this but then there's the stick capability, which kind of, if you look at it, Jerome Powell going from zero to 5% interest rates, like he was kind of smacking everyone and saying, hey, knock it off. Right. And so you can go across kind of the economy and maybe even a larger society and say, there are all these carrots and sticks that can be used for incentives. One of the most direct examples, I think, is this idea of kind of the opportunity zones in real estate. Like, guess what they did is they opened up opportunity zones. What did people do? They said, thank you very much. And

they went they poured capital into those areas you can debate whether they should have done it not done it you could debate where they pick the areas whatever uh you know how long the time period was what the treatment of the taxes like all that stuff's up for debate but it is very clear that they created a new rule that new rule had the impact that they wanted which was they got capital into these areas and so if we look at okay what we want to occur in the economy or in society like what are the things what are the levers we can pull right as carrots or sticks to actually incentivize that stuff to happen? Gosh, so, I mean, you're asking for like my presidential platform.

Sure. Which, by the way, I left D.C. 20 years ago, and I'm in San Diego now, and I hope I never have to go back for any policy-related reason ever. But, God, I mean, going back to Fed policy, That's the that's sort of the one that's always just so front and center because the Fed is so involved in everything in the media. Like, I think you could you could automate so much of Fed policy that there's you need people. You need boots on the ground in the Fed to some degree because there's just, you know, people need to be involved in, you know, the policies to some degree. Um, so you can't fully make it non-discretionary, but I think you could, I think you could remove

a huge amount of the discretion by making things relatively systematic. Um, I mean, in terms of policy, like, or other policies, like, um, I would simplify a ton of government policy. Like, um, we were talking before we jumped on that, like, I, I was super involved in building my own home. And like I was putting on a work belt every day, like because my day basically ends at like two or three o'clock, because the markets close early here. And, you know, back when I was building my house, I was basically I was putting on a work belt every single day, you know, and I was I was jumping on the roof. And I was, you know, I was ruining new boots every month. And

I was super involved. But one of the lessons from that was that the permitting process working with the government on it was it was brutal and like my wife is super super liberal and and I'm pretty moderate for the most part I try to I'm actually like I don't know I'm I'm almost like a chameleon in the sense that like as the environment changes I kind of view myself as someone who you know typically when the economy's booming I become more conservative and when the economy busts I tend to become a little bit more of a Democrat, typically. So on average, because booms are the majority of what we experience, I tend to probably lean maybe a little bit more conservative on average, but I am sort of a chameleon in a political perspective. But I mean, going through

that permitting process, it was brutal. And the rules are the red tape. There's so much, they make things so difficult and so unnecessarily difficult that and you see this in things like like man the tax code the tax code in this country is a friggin disaster it's so much more complex and they keep adding on new rules thinking that like you know oh we need a wealth tax now and i think politicians think of this as like innovation this is like their way of like doing things that are like innovative and hey we came up with this great new idea and it's like dude you're not making anyone's life easier, like all this stuff, like, what are we going to do with a wealth tax, we can have IRS agents go to everybody's house and say, that painting is worth $20,000. You know, that chair

you're sitting in is worth $1,000. Like, it's just, it's an absurd concept when you think of it at like an operational level. And I think a lot of these things have become so much more complex than they need to that. I mean, you could probably roll back tons of these rules and simplify things that would make people's lives massively easier because that's, I mean, that's part of the problem with modern life is that, you know, I see it now with two young kids. It's really, it's a lot. There's just, the world has become so complex and a lot of that is just our own doing that like we demand too much from ourselves and parents demand too much from their kids.

And, you know, you put a lot of pressure on ourselves to to do things that we we just frankly shouldn't. But at the same time, I think the government makes a lot of this more difficult because the the red tape and the regulations have become so hard to overcome. And we're trying to solve so many problems with like blunt instruments that it's it's become really counterproductive. So I would probably I would roll back out of tons of regulations across different industries and and try to just simplify things the best that we could, because life is getting more difficult. It's going to become more difficult, especially as like, you see this a lot with like the technological changes that like people are going to have a lot of trouble adapting to this new world where like, you know, we're in, I mean, God, when my kids are adults, they're probably going to have, you know, Robot James is going to be making their dinner for them in the kitchen using, you know, an AI based understanding of what's going on in the kitchen. And it's like, you know, things like that, the world is about to become even more complex, even more interconnected. People are trying to like, I think, de-globalize the world. And it's like, to me, it's like, this is a one-way train where you can't de-globalize all of this because it's becoming so much more interconnected in large part through technology that it's an inescapable reality of our future. And that just makes everything much more complex. So the degree to which we can simplify the way that the government is involved in all of this, I think would massively improve living standards. Because right now, a lot of the stuff they're doing is just, I think it's making things so much more complex, which makes it just more difficult for everybody to navigate what is already an increasingly complex world. I tend to agree with you.

My last question for you is, what are you doing from an investment allocation standpoint? Are there changes that you're making? Are there specific focuses? Like when somebody asks you kind of, you know, what do you own, right? How do you think about your portfolio today? Yeah, I mean, this is obviously like a super personal question.

I tend to work with, I mean, most of my clients are really conservative people. So tend to be older retiree types that they come to me because I don't do anything super sexy. Like I'm not, I'm not, I mean, I'm personally involved in like VC and crypto, but like for my clients, they're people that really, they don't really want to be involved in anything. They don't want to be involved in anything that's doing this, you know?

So like for, for my business and my clients right now, I mean, God, I can remember back 20 years ago, this is the first time where you could buy treasury bills. We can buy treasury bills right now for five and a half percent, which you couldn't do that at any point in the last 20 years. I remember when my career was starting, that was basically the last time that you could do that. And so you're finally getting I know treasury bills are like the least sexy instrument in the world. But I mean, geez, if you're you got a million bucks, you put it all in treasury bills, you're making $50,000 a year for doing nothing. I mean, not that you should necessarily put all your money in treasury bills, but as an asset allocation component, you know, cash right now is as sexy as it's been in decades.

But in terms of like actual asset allocation, I really like to think really in time horizons. I build my portfolio in a very specific temporal perspective, meaning that I typically think of things like Bitcoin in my model is it's a multi-multi-decade instrument. It's hyper volatile, but in the long run, it's likely to generate value, but you've got to be super, super patient with it. Stocks are basically the same sort of thing where if you look at stocks on like a multi-decade period, in over a 20-year period, in my model, stocks are basically an 18-year instrument that will generate something like 5% to 7% per year. So you can think of them almost like a super long-duration bond that generates a much better yield than, say, like a

30-year treasury bond. And then you've got all these other instruments that are kind of intermediate. Treasury bills are, you know, they're super short-term instruments. They're cash-like equivalents basically that generate right now they generate five which is phenomenal and then you've got all this stuff in you know the intermediate instruments that are like you know whether it's intermediate corporate bonds or whatever and so I've kind of blocked my portfolio in a very specific way where I cover what are essentially my future expected liabilities where I try not to hold too much cash or short-term stuff but I also know like you know I've got young kids that are, you know, they're both, the second one's going to daycare in two weeks,

and that daycare is, it's expensive. So I've blocked out, you know, a year's worth of basically cash to cover, you know, both of my kids' daycare needs over the course of the next year. And I do that across everything to the point where, you know, like for my retirement money, my retirement money is, it's technically, it's super aggressive. So it's more like, you know, it's more like VC or crypto or I own a huge allocation in the equity markets. But it's all blocked in a very specific temporal framework where I'm protected, not just from an asset allocation and diversification perspective, but I'm really planning across specific time horizons where I've blocked things in this very sort of specific manner where I kind of know like over the course of the next 30,

40 years i've got money for all time horizons so it's a it's not just i not only think of it as like an all weather approach meaning that like it it has components that are able to weather all environments whether it's inflation or deflation or whatever it is it's it i call it all duration investing specifically because it covers all time horizons and to me i mean that just gives me a lot of, it gives me a lot of certainty. So I sleep well at night because I just know, hey, I've got, if the shit hits the fan tomorrow, I know that I've got, you know, a million bucks sitting in treasury bills that are there. And I don't have to worry about being able to afford stuff for the next, you know, three years. So that's kind of how I think about an

asset allocation framework, which is a little different from like what people would call like a modern portfolio theory where they sort of just, most asset managers kind of like take, they take a pool of assets and they try to figure out basically the best way that all these assets kind of work in tandem with each other to generate the most efficient return. And I don't really care how efficient, you know, on a, you know, on some sort of modern portfolio theory perspective, my portfolio is, I want to know, do I have money for this time horizon? And are these assets likely to grow? You know, the, are the longer duration instruments likely to grow in a way where I've got money when I get to that time horizon? I think very similarly to you in that there's

an amount of money and I want to be able to cover expenses for a period of time. Then there's like a risk bucket. And that obviously is things that I want to buy and hold for a really long time. And then there's things that I kind of want to take a little bit of risk, but I want to be able to access on a shorter time horizon. And it makes you feel a little bit more bulletproof, I think, right? Of just like you have optionality and you're prepared for a lot of different situations. Yeah. You know, and the thing is, is it, you know, I use this term behaviorally robust investing a lot where you want to make your portfolio super behaviorally robust, where like there are really strong arguments for being like, you know, 100 percent Bitcoin or 100 percent stocks, you know,

in the long run. And the problem with that is that, you know, life life is a time problem and we all have to navigate the short term. And the problem is when you create a portfolio that is ultra, ultra aggressive, you create an asset liability mismatch. You create basically a temporal mismatch. And that's if, I mean, it's funny talking about the banks in this situation, because that's exactly what the banks did. The banks bought super long duration bonds, and then they found out when interest rates went up, well, in a one or two year time horizon, that portfolio is way underwater. And then on a mark to market basis, they don't have the liquidity they need to be able to meet outflows or whatever it is they need. And they had this

massive asset liability mismatch. And they just, they didn't manage the time horizon of their portfolio well. And now that's the worst thing that can happen to an investor is you get forced out of a position. You never want to be forced out of a position against your will. You never want to be forced to sell your 20 year stock position because you bought more than you could afford to manage your short-term liabilities. You never want to be forced out of a position. That's a great place for us to end. Cullen, I always enjoy talking to you. I learn so much. Where can we send people to find you on the internet or find out more about Discipline Funds? Yeah, I'm on Twitter at Cullen Roach and disciplinefunds.com. I write a newsletter

at Discipline Alerts and we talk about things that are going on in the macroeconomy. I talk a lot about the guts of how the system works and, you know, kind of similar to what we were talking about today, trying to explain things from more of a little bit of a first principles perspective where it's like, okay, you know, what is the debt ceiling? Does it make sense? Should you freak out about it and sell all of your financial assets? Or, you know, is this, you know, is this a better understanding and a better framework to understand this so you can put this in perspective so that You understand kind of the potential risks of different outcomes. I think that's a great place for people to go check it out.

You're a fantastic follow on Twitter. I always appreciate you putting content out there, and we will definitely do this again in the future. Yeah, you too, for sure, Anthony. Appreciate you, man.