Making Sense of Markets in a Post Election World | Grant Williams and Ben Hunt

[00:00:00] The business is the stock price these days. And once you do that, once you change this business to be about the stock price, you change every incentive that has been developed over hundreds of years of capitalism.

[00:00:13] A political utility is not where you want to put either your heart, and it's certainly not where you want to put, honestly, your wealth. It's a tool. It's a tool. It's not the foundation.

[00:00:30] But if you've been invested in markets for the last 10, 15, 20 years, you got rich. The next part is how do you stay rich?

[00:00:39] And then it kind of hit me like a ton of bricks, which was that, who's going to pay me?

[00:00:48] Welcome to Excess Returns, where we focus on what works over the long term in the markets. Join us as we talk about the strategies and tactics that can help you become a better long term investor.

[00:00:57] Matt Siegler is Managing Director at Sunpoint Investments.

[00:01:00] The opinions expressed in this podcast do not necessarily reflect the opinions of Sunpoint Investments.

[00:01:05] No information on this podcast should be construed as investment advice.

[00:01:09] Securities discussed in the podcast may be holdings of clients of Sunpoint Investments.

[00:01:12] Welcome to the Excess Returns YouTube channel. I'm your host today, Matt Siegler, sitting in for Jack Forehand and Justin Carbonneau.

[00:01:20] I'm calling this the emergency room. This is the ER on Excess Returns.

[00:01:25] And just like there's no fighting in the war room, you two, there's no emergency in this emergency room.

[00:01:31] We're going to perform some triage. This is Wednesday, the 13th of November, 2024.

[00:01:35] We're doing this. I could think of no better surgeons to have at my side between these two.

[00:01:40] First, Epsilon Deary's own doctor in residence, Mr. Charles Narrative Atlas himself, Dr. Ben Hunt.

[00:01:46] Say hello, Ben.

[00:01:48] Hello, Ben.

[00:01:50] And second, but second to none, the C&C Music Factory thing that always makes me go humming along.

[00:01:56] The Emile Smith row of this Craven ER cottage, Rand Williams.

[00:02:01] That's a good reference. Very niche, but very good.

[00:02:03] Hi, guys. How are you doing?

[00:02:04] We'll take the niche references anywhere we can, especially with that run of form.

[00:02:08] But we can't talk about that today.

[00:02:10] We're post-2024 election.

[00:02:11] And it's behind us now.

[00:02:13] So let's start back when we were so young and the world was still in front of us.

[00:02:17] Ben, you were hard, like Trump is going to win this after the bait.

[00:02:22] We've got the breaking news episodes to prove it.

[00:02:25] And then you saw some narratives changing in the run up right before.

[00:02:29] I was wondering if you could just talk about the giant narrative twist you saw with the Harris campaign in the closing hours of the election.

[00:02:36] And then what happened through election night?

[00:02:38] Take us to narrative land first.

[00:02:40] Oh, happy to.

[00:02:41] You know, I thought Harris would win.

[00:02:43] I did.

[00:02:44] I mean, I was obviously very wrong on that.

[00:02:48] And the reason I thought she would win was I saw the same things in the Harris campaign in those last few weeks that I saw in the Trump campaign in 2016,

[00:03:01] which is that there was she was able to put together crowds that had a lot of vibrancy and energy.

[00:03:11] And then there was a lot of, you call it earned media.

[00:03:15] Right.

[00:03:16] So, you know, mainstream media in the bag for the Harris campaign replayed those images of an excited crowd to the larger crowd, to all of us.

[00:03:28] And I thought that would make a difference in turnout.

[00:03:39] I thought that would make a difference in, yeah, on the margins, what I thought would be a close election.

[00:03:47] And I was so wrong on this.

[00:03:49] I was so wrong on this.

[00:03:50] And so I, you know, kind of looking back, you know, what did I get wrong?

[00:03:56] And I think I really missed three things.

[00:03:59] I think the first thing I missed was that Donald Trump has, and I should have known this from reading Rusty, my partner Rusty Gwynn's magisterial work on the American charismatic Pentecostal church.

[00:04:18] Right.

[00:04:19] What you would hear on CNN described as white evangelical Christians.

[00:04:25] Although Rusty's term is a lot more accurate.

[00:04:30] What I didn't take into account, or one of the things that I didn't take into account was that this voting bloc, and it's like 22% of the election.

[00:04:41] I mean, it's like 70 million Americans.

[00:04:43] It's a crazy, it's a, you know, say it's crazy.

[00:04:48] It's not crazy.

[00:04:48] It was unexpected to me how large of a group self-identifies in this way.

[00:04:57] And they voted 81% for Trump.

[00:04:59] Now, why is that important or why is that different from what I was thinking?

[00:05:02] They have their own crowd-watching-the-crowd media network that I am totally oblivious to.

[00:05:09] It's not part of my world.

[00:05:11] I'm oblivious to it.

[00:05:13] I should have paid closer attention to Rusty's work, which is all about that media network and how effective it is.

[00:05:22] That was one.

[00:05:24] Two was, you know, I think the – something we talk about in stock, the stock market, we talk about the difference between flows and levels or stocks, right?

[00:05:35] So it's, you know, what's the marginal impact and what's the underlying level of something?

[00:05:46] And I think that the crowd-watching the crowd effect is very much a flow thing as opposed to a stock thing, which will be familiar to a lot of people on this call.

[00:05:57] The third piece, and it gets back to your point, Matt, about how after that first debate, you know, it was a – people, you have no idea what an enormous shift this is in what we all know that we all know about the Biden presidency, which is that it's over.

[00:06:12] It's done.

[00:06:15] And that was – that event had legs far beyond what even I thought existed.

[00:06:24] So I really think that was the whole tipping point for all of this, that debate and the shift that happened with all of us where the Harris candidacy becomes a – you know, a side effect of that, frankly.

[00:06:46] So, yeah, I – it – the result surprised me.

[00:06:51] In retrospect, it shouldn't have surprised me because I should have been looking at these other media systems that we have and the profound impact that that debate had.

[00:07:01] Grant, what about you?

[00:07:02] Did you have a feeling just coming into the election how you thought it was going to go?

[00:07:06] Were you surprised at all or any twists in your logic?

[00:07:09] Yeah, I had a pretty dissimilar view of this to Ben.

[00:07:18] In fact, I kind of felt from quite a while back that Trump was going to win.

[00:07:24] I used the word handily when I was talking to people.

[00:07:26] I thought – I didn't think it would be the kind of landslide we saw, but I thought it was going to be a significant enough win that it would take any arguments,

[00:07:35] any kind of bitterness off the table about how close it was, or recounts, and all that kind of stuff.

[00:07:41] And there were only a couple of things that kind of gave me pause, and one of them was Ben,

[00:07:46] because, you know, when Ben talks about the crowd with the crowd, you know, I have so much respect for Ben

[00:07:52] and the way he views these things and the way he looks at this.

[00:07:58] That was one of the moments where I felt, oh, you know, maybe I'm wrong about this.

[00:08:04] The other one, I kind of had it dashed and then reconfirmed in the same conversation.

[00:08:13] I found myself in Montana at an event, and I was chatting with a fabulous guy, really, really nice man.

[00:08:20] We got him really, really well.

[00:08:20] He used to be Obama's ambassador to Argentina, very well connected in the DNC.

[00:08:27] And we just had a fantastic discussion about policies for the election.

[00:08:30] This was probably six weeks ago.

[00:08:33] And he was very thoughtful and open-minded, and, you know, we debated things back and forth,

[00:08:39] and he wasn't a, there's no way Trump's going to win this.

[00:08:42] It was all very thoughtful.

[00:08:46] Until one moment in the conversation, and I said to him, I said, you know, the one thing that's really surprised me,

[00:08:54] I said, I get that the media in the U.S. is generally left-leaning.

[00:08:58] I get that.

[00:08:59] A lot of people would describe it in much harsher terms than that.

[00:09:02] I said, but, you know, we have similar in the U.K.,

[00:09:04] but we have probably more right-leaning outlets to counterbalance them than you perhaps do in the U.S.

[00:09:11] I said, so, you know, I expected the media to be, you know, pro-Harris, pro-Biden, whoever ended up running.

[00:09:18] I said, but I was shocked at just how, and I used the words, in the tank for Kamala,

[00:09:23] the media was once it was clear that Biden was out and she was the candidate.

[00:09:27] You could sense that it was like, okay, shoulders to the wheel.

[00:09:30] We've got some work to do here, guys.

[00:09:32] We really need to give her a push.

[00:09:34] And I talked about the Time magazine illustration cover of her, you know,

[00:09:38] kind of looking like this, looking almost like she was posing for a place on Mount Rushmore.

[00:09:45] And I said to him, I said, you know, I was really surprised just how in the tank they were for her

[00:09:50] and how overt the whole thing was.

[00:09:52] And I put that down to the time for a compressed time frame

[00:09:55] and perhaps a little bit of desperation after the way Biden exited.

[00:10:01] And he said, I don't know what you're talking about.

[00:10:05] What do you mean?

[00:10:05] And I thought he was kind of pulling my leg.

[00:10:08] And I kind of laughed.

[00:10:11] And he said, no, I don't think that's the case at all.

[00:10:14] I don't think the media's gone to bat for Kamala.

[00:10:20] And that was a real wake-up call for me.

[00:10:23] I thought to myself, OK, people who are very deeply entrenched in the DNC genuinely don't see this the way I do as an outsider.

[00:10:33] And I can't even vote in the election.

[00:10:35] So for someone to have an objective view, it's an Englishman or a Frenchman or a German.

[00:10:43] And a few weeks later, I found myself in California talking at another event.

[00:10:48] And I'm in the middle of California.

[00:10:50] It's a week before the election.

[00:10:52] And I'm asked to sit and talk about politics in the election, which is always nice.

[00:10:59] And so this was the first session of the day.

[00:11:02] And I set the table by saying to everybody, look, before we have this conversation,

[00:11:08] I just want to make sure everybody understands several things.

[00:11:11] At first, I can't vote in your election.

[00:11:15] I mean, I said I'm neither a Republican or a Democrat.

[00:11:18] In fact, I'm worse.

[00:11:19] I'm an Englishman.

[00:11:20] I said, we screwed this place up long before you ever got the chance to.

[00:11:23] He says, I can't vote.

[00:11:25] So anything I say doesn't matter at all.

[00:11:27] There's no bearing on the outcome whatsoever.

[00:11:30] And then I spent the next 58 minutes being as equal handed as I could and saying, look,

[00:11:36] I think both of them are very poor candidates, each in their own different ways.

[00:11:41] I think there are an awful lot of problems that need solving in America.

[00:11:45] I think whoever wins is going to inherit those problems and they'll deal with them in different

[00:11:49] ways.

[00:11:50] But I was as even-handed as I possibly could be, very consciously so.

[00:11:55] And it seemed to be going okay.

[00:11:56] And, you know, people were kind of chuckling in the right places.

[00:11:58] And so you think, all right, the crowds, they get what I'm talking about here.

[00:12:01] So we got to the end and I said, look, I want to try a little experiment here.

[00:12:05] I said, you've just heard me for the best part of an hour explain that I'm not a Republican

[00:12:10] or a Democrat.

[00:12:10] I can't vote.

[00:12:12] I think both sides are as abject as our politicians are in the UK and Australia and everywhere around

[00:12:18] the world.

[00:12:19] There are no good choices here.

[00:12:20] But if you put me in a booth today, pulled the curtain behind me, put a gun to my head

[00:12:24] and said, put a cross in one of those boxes, I'd vote Trump.

[00:12:30] And I've never heard air leave a room before until then, but I did.

[00:12:34] There was this, there was a gasp and a few people go, ooh, like this.

[00:12:39] And one woman, bless her, stood up and went, boo!

[00:12:43] Oh my gosh.

[00:12:44] Yeah.

[00:12:45] Yeah.

[00:12:45] Ben, you've seen me speak.

[00:12:46] I'm used to it by now.

[00:12:48] And so, anyway, so I kind of paused for a minute and let everything die down.

[00:12:54] And I said, look, did you all feel what happened there?

[00:12:57] We all know that I can't vote.

[00:13:00] That's just me picking what I feel is the least bad of two poor options in terms of the

[00:13:06] policies that are needed.

[00:13:08] Neither of them is perfect.

[00:13:09] But you all had a visceral reaction to it.

[00:13:12] And I finished the thing and I went and found the lady who booed me.

[00:13:16] And we stood and chatted for 10 minutes and she was perfectly lovely.

[00:13:20] But as she was talking to me, there was real intention in her words and her body language.

[00:13:25] It wasn't that she was trying to change my mind.

[00:13:29] It was that she'd obviously heard me talk and thought, okay, here's a guy.

[00:13:33] He's not an idiot.

[00:13:35] This can be deceptive sometimes.

[00:13:36] But she just couldn't grasp why, with all the things I'd laid out, I would go that way.

[00:13:44] And so, when it came down to the election day, Ben, you had me thinking towards the end, yeah,

[00:13:50] maybe Ben's right.

[00:13:51] The points you made about the crowd, watching the crowd, I thought were absolutely on point.

[00:13:56] But the thing that swung it for me was the fact that I'd seen so many clips of Carmela.

[00:14:04] My social media feed was filled with clips of Carmela.

[00:14:08] And I realized that I had not heard her say a single thing of substance.

[00:14:13] Nothing.

[00:14:14] I didn't hear any substantive commentary about anything.

[00:14:20] And I found that to be ultimately the thing that I thought, you know, whichever team you pick,

[00:14:26] even if you're dyed in the wool blue, it's going to be very hard to be impressed and feel like you're

[00:14:34] pulled towards that candidate.

[00:14:35] You might be pulling for your team, but I don't think it's going to get people to come and vote

[00:14:41] that you need to.

[00:14:42] And I certainly don't think it's going to sway people away from the red team.

[00:14:46] So that was kind of how I viewed it.

[00:14:49] As I say, I felt that Trump was going to be handily.

[00:14:52] It surprised me how big the victory was.

[00:14:55] And I think honestly, as tough as this is going to be for team blue, the fact that it

[00:15:00] was a comprehensive victory is really the only thing that America needed, whether it

[00:15:06] was a blue or a red, that we needed a comprehensive victory that couldn't get tied up in courts

[00:15:11] and couldn't get, you know, so someone had a mandate, whichever team had it.

[00:15:14] And now we have one and we wait to see.

[00:15:15] But look, everybody, we've made it through a week of Trump, you know, being the president

[00:15:21] elect.

[00:15:21] So if we can make it one week, you know, we can make it, I don't know, 208.

[00:15:27] You know, I think that is accurate, Grant, about that what we needed was, you know, a winner,

[00:15:34] a clear winner one way or another.

[00:15:36] I think it's very interesting, the reaction of the crowd to you saying about what you

[00:15:42] would do.

[00:15:43] Yeah.

[00:15:44] Because I've never said how I've ever would or did vote personally in any election.

[00:15:59] I've said I won't ever vote for Trump.

[00:16:02] I've said that very clearly.

[00:16:03] Right.

[00:16:04] But I've never said who I will vote for.

[00:16:07] I'll say who I think would win.

[00:16:10] But but but because it's interesting because I find it fascinating that reaction you got

[00:16:15] because I I haven't said it for exactly that reaction.

[00:16:20] Once once you say I would or will, you know, for the vote for someone, that's all people

[00:16:28] here.

[00:16:29] Yeah.

[00:16:29] And it's it's it's it's it's really fascinating to me.

[00:16:33] And I haven't quite figured it all out yet.

[00:16:36] But it's we've taken this act, which I really believe is, you know, probably the smallest

[00:16:48] act we can do in terms of our political participation.

[00:16:52] You know, we as an individual vote.

[00:16:55] For as one of whatever hundred and sixty million or whatever number of votes get cast.

[00:17:04] We people, we I'll say I was going to say people.

[00:17:08] But but the fact is, all of us, we take it as a signifier.

[00:17:13] Of that of the person.

[00:17:16] Yeah.

[00:17:17] You know, in a way, in a way, this just unpressive because I I mean, I.

[00:17:23] We've had these kind of conversations in the past or where somebody says, oh, I voted for

[00:17:30] so and so.

[00:17:30] It's like, oh, OK.

[00:17:32] But now it becomes this signifier of so much to so many people.

[00:17:41] And and that's when we talk about political polarization.

[00:17:46] It's not it's not just that we're split.

[00:17:49] That there's no middle anymore.

[00:17:52] It's that each side we all ascribe great import.

[00:18:02] On a personal level.

[00:18:04] Yeah.

[00:18:05] To a state, a personal statement like as a vote.

[00:18:08] It's just it's amazing to me.

[00:18:10] Well, and I agree.

[00:18:12] And I don't know because I couldn't vote.

[00:18:15] And so because it was purely a hypothetical exercise.

[00:18:18] My part.

[00:18:18] Right.

[00:18:19] That might change the quantum.

[00:18:21] But I think, you know, I'm a I'm a very simple man at my core.

[00:18:28] And there is nothing that any of my friends and acquaintances could do in a voting booth that would alienate them from me.

[00:18:37] I mean, I'm right.

[00:18:38] Reasonable enough to know that.

[00:18:39] Hey, that's your choice.

[00:18:40] And so I kind of go out into the world that same way.

[00:18:43] Sometimes that's a really bad idea.

[00:18:46] And who knows?

[00:18:48] Had I had I had a dog in this hunt, I probably wouldn't have said that because you're right.

[00:18:54] It just changes.

[00:18:55] I mean, nobody needs to know who I'm going to vote for.

[00:18:58] But I did it as an experiment just to see.

[00:19:02] The feeling of the audience, the conversation that we'd had, the the equanimity right through the whole thing.

[00:19:09] I just kind of wanted to see what would happen.

[00:19:13] And it was interesting.

[00:19:14] And actually, just as a postscript, this was the first session of the day.

[00:19:19] And, you know, and I was there with everybody.

[00:19:20] And throughout the day, everybody was lovely to me.

[00:19:23] I had so many conversations with people about politics and about what have you.

[00:19:27] But it was amazing how many people kind of sidled up to me.

[00:19:31] Sidled is exactly the right word.

[00:19:33] And just said, man, you're some bulls.

[00:19:35] I'm a Republican.

[00:19:36] I would never say that in this state.

[00:19:38] Great.

[00:19:38] It was a significant number of people.

[00:19:41] Yeah.

[00:19:41] And I found that wild, isn't it?

[00:19:43] Yeah.

[00:19:43] I found it incredibly sad that it means so much to people.

[00:19:49] And it's such a judgment is made about you just because you happen to think that one poor candidate is better than the other poor candidate.

[00:19:58] It's a real shame.

[00:19:59] But it's and I made the point to everyone in that room.

[00:20:02] I said, look, you guys need to understand everywhere in the world gets bombarded with U.S. political news.

[00:20:07] Everywhere in the world understands what's going on in this election.

[00:20:10] They know what's at stake.

[00:20:11] They know everything Trump says and everything Harris says.

[00:20:14] You don't see what the conservatives and the Labour Party are talking about or the liberals and the Labour Party in Australia or New Zealand or you don't see what's going on in France or Germany.

[00:20:23] But I can assure you it's the same thing in different shades all around the Western world.

[00:20:31] Everybody is going through this existential moment.

[00:20:33] And and nobody feels comfortable in talking about who they're voting for.

[00:20:39] And that's that's more of a commentary on the state of politics than it is the state of society, I think.

[00:20:45] So in the in the wake of this and this is where this is preamble is so important to talk about anything else, because this thing just happened.

[00:20:54] We're a week on from the event and number went up.

[00:20:59] There was a moment earlier this year when we were wee babies in Nashville, then with a bunch of people on stage at the Epsilon Connect conference where everybody listed all the problems of policy, all the things to be scared about this election and everything else.

[00:21:11] And at the end of this panel discussion, what do you guys think you should do, given all this horror?

[00:21:16] And every single person on the panel was like, get long S&P, stay long S&P.

[00:21:21] Yeah.

[00:21:22] And so we have this incredibly fractured system and the numbers all just went up.

[00:21:27] What?

[00:21:28] What?

[00:21:28] How?

[00:21:29] How do we even interpret just what's going on right now?

[00:21:32] Ben, you first.

[00:21:34] OK, I'll go first.

[00:21:36] So number go up prior to the election.

[00:21:43] Because these things are always overdetermined.

[00:21:45] There are lots of reasons for everything.

[00:21:46] But one of the reasons is that, this is my view, everyone in Washington, and that includes the press, that also includes the Federal Reserve, was in the bag for the Biden-Harris administration.

[00:22:05] Meaning that we got a 50 basis point rate cut.

[00:22:10] Meaning that the – and that matters.

[00:22:17] I mean, my strong view as markets have turned into a political utility is that – and we all feel this, we all know this – is that monetary policy takes on this enormously outside impact on whether the number goes up or not.

[00:22:37] So, you know, was the Fed's decision in – what was it, September politically motivated to cut 50 basis points?

[00:22:46] Of course it was.

[00:22:47] Of course it was.

[00:22:49] So leading up into the election, I think that we had every policy, every announcement, all the talk was designed to keep the number up.

[00:23:03] Because that's the sine qua non to have for Harris to, you know, to have a puncher's chance here.

[00:23:11] Right?

[00:23:12] You can't do anything about the inflation that has already occurred.

[00:23:16] What you can do is keep the number up, keep unemployment down.

[00:23:23] You just do everything to make the numbers so that, you know, people have got a job and so the stock market is up.

[00:23:31] Post-Trump?

[00:23:32] Look, I mean – I say this kind of in jest, but not really.

[00:23:38] I mean, if – the ability for regulatory arbitrage and capture, which is always there, that ability has just ballooned a million fold.

[00:23:56] Right?

[00:23:57] You know, any merger you want to do, go for it.

[00:24:01] You're a financial institution.

[00:24:02] You think that there's too much regulation or capital restriction on you, going away.

[00:24:08] Right?

[00:24:09] You're in whatever industry and you're worried about my taxes might be going up or, you know, I might be getting some regulatory burden.

[00:24:18] Put those concerns aside.

[00:24:20] Right?

[00:24:21] I mean, you see it most predominantly in crypto.

[00:24:24] I get it.

[00:24:25] Right?

[00:24:26] Because we're going to get stable coin legislation.

[00:24:30] Right?

[00:24:30] I mean, Howard Lutnick is, you know, huge in Tether.

[00:24:37] Jeff Yass is the sponsor for the DJT, you know, mean coin in stock.

[00:24:44] He's a huge investor in TikTok.

[00:24:48] Whatever you need, my friends, you're going to get it.

[00:24:54] Oh, you want Fannie and Freddie privatized?

[00:24:57] Sure.

[00:24:58] Why not?

[00:25:01] So, look, it's Katie bar the door in terms of whatever you need from a regulatory perspective to make money.

[00:25:12] And so people are.

[00:25:14] So people are.

[00:25:16] Anyway, that's my take on it.

[00:25:18] Leading up to it, it was the Fed saying we're going up.

[00:25:21] We're in the bag for Harris.

[00:25:22] We'll cut rates by 50 basis points.

[00:25:24] It's post-election.

[00:25:26] It's, you know, let the great looting begin.

[00:25:32] What about you, Grant?

[00:25:33] Where are you on this?

[00:25:34] How do you agree with this?

[00:25:36] Yeah, I think there's an awful lot to what Ben says.

[00:25:39] It's really hard to argue with.

[00:25:41] I think, you know, I saw a tremendous headline in, I think it was the Wall Street Journal last week.

[00:25:47] Just a newsflash that came up says, you know, Bank of England cuts rates, comma, warns of stickier than expected inflation.

[00:25:55] And that's.

[00:25:56] Right.

[00:25:56] Right.

[00:25:57] Right.

[00:25:57] Right.

[00:25:57] Right.

[00:25:57] That's that's kind.

[00:25:58] That's kind of where we are now.

[00:26:00] That's where we are.

[00:26:00] Right.

[00:26:01] And so I think I think the interesting thing to me is the problems are the same now that they were on November the 4th.

[00:26:13] We would have seen we would have seen a very different response from a Democrat administration.

[00:26:21] We would have seen, I suspect, a lot more largesse, a lot more spending, a lot more deficit spending, a lot more forgiveness of loans, et cetera, et cetera.

[00:26:30] All those kind of Democrat programs that they were talking about.

[00:26:34] Trump is a very route one low taxes growth die.

[00:26:38] I think it's so I don't think anybody should be surprised about what's happening.

[00:26:43] There would have been, I feel, a honeymoon period no matter what, as there tends to be after election results.

[00:26:50] The the interesting thing to me is that whichever side won and whichever policies they chose, both were likely to result in more inflationary pressure and more pressure on unemployment.

[00:27:05] And so it really remains to be seen when that starts to feed through what happens, because.

[00:27:12] Yeah, the CBO report a couple of months ago sees seven, eight, nine percent deficits as far as the eye can see.

[00:27:20] You know, we we can see where this is going.

[00:27:22] The question is, when will it matter if it ever matters?

[00:27:26] I think the movement in Treasury yields has been interesting, particularly after that after that cut.

[00:27:32] You know, the market is kind of repudiating that and they may play along here and there.

[00:27:37] But the market is very much repudiating that and telling you that we see where this is going.

[00:27:43] It's it's going to mean higher rates.

[00:27:46] And we're in that phase now after the after the election.

[00:27:50] Every 10 minutes, there's a there's an announcement on Twitter, one of those weirdly cut videos of Trump announcing what he's going to do to the education department and what he's going to do with this.

[00:27:59] And there's always that two or three awkward side cuts coming in.

[00:28:04] He's obviously there. We're going to have to do that again, Donald.

[00:28:08] And we don't know where this is going, but the amount of scrutiny over every single appointment that he's making.

[00:28:16] And some of the appointments, I think, seem to make sense.

[00:28:20] And some of them are awful and some of them are establishment picks that he swore would steer off.

[00:28:25] And then, you know, Musk is now involved.

[00:28:28] And I do love this idea that the Department of Government, Government Efficiency is going to co-chairs.

[00:28:33] I think that's that's just what you can't write in that sort of stuff.

[00:28:37] But we're in the kind of forensic piece of this where every single decision is being is being picked apart.

[00:28:44] And so the volatility that comes with that and the emotional volatility more than anything else.

[00:28:49] I think Ben's right is is emotionally geared to everything going up for the time being.

[00:28:54] And I think it will. I think things will scream into year end unless we get some horrendous numbers.

[00:29:00] You know, when I think about possible significant moves, I can.

[00:29:07] I mean, if I put myself in the in in the Trump orbit for me trying to bring Russia and Ukraine to the table, trying to bring Israel and Hamas to the table is probably the easiest, easiest win for him in terms of to be seen to be doing something meaningful.

[00:29:31] And that might buy him some time if things go badly in the economy.

[00:29:36] But like I said, I the sad thing for me is which whichever side won this, I think the problems they are inheriting are intractable at this point.

[00:29:44] And it's a question of triage and, you know, how would you like your pain?

[00:29:50] Would you like it slowly? Would you like it quickly?

[00:29:52] Would you like to believe you have control over how it's administered or do you want to give into it and see how the chips fall?

[00:29:57] Because I just think we're past the point where cutting taxes is going to solve these problems.

[00:30:05] I do. I mean, it's a sad place to be.

[00:30:07] But to Ben's point, in the meantime, there's a lot of numbers that are going to go up.

[00:30:12] And if you are a markets guy or a speculator, I think you've got several tremendous months ahead of you.

[00:30:22] Frame out. Ben, I'm going to kick this one back to you.

[00:30:26] I want to talk specifically about inflation and just the way we're talking about inflation now and the different ways this story might evolve in the months ahead of us.

[00:30:35] Really keying in on what Grant just said.

[00:30:38] We're in this forensic moment of analyzing all these things.

[00:30:42] And we know inflation was a major, major issue for voters in this election and the way it's being felt.

[00:30:48] The messaging around this story, I'm fascinated for your take on what's going on and what to watch.

[00:30:56] Well, the campaign's over.

[00:31:03] So we don't – what I think you can expect, you know, we don't have to keep telling – Rusty, you know, my partner did a funny tweet, you know, because somebody was talking about, oh, you know, massive tariffs.

[00:31:22] This actually makes economic sense, people.

[00:31:24] You've got to think about it.

[00:31:25] And of course it doesn't make economic sense to do massive tariffs.

[00:31:29] And the fact is I don't think we're going to have massive tariffs.

[00:31:33] I really don't.

[00:31:34] I really don't.

[00:31:35] I mean it's – to my mind, Trump saying, oh, we're going to, you know, get rid of income taxes and do massive tariffs on everything.

[00:31:46] It's like so much of what Trump does.

[00:31:48] It's just – he's just making it up.

[00:31:51] He's just making it up because there are some people who actually say, oh, that's great.

[00:31:56] I don't have to pay income taxes.

[00:32:01] None of this is going to happen.

[00:32:02] The campaign's over, people.

[00:32:03] We don't have to pretend anymore.

[00:32:05] We don't have to pretend this shit anymore.

[00:32:09] So I think there's going to be a lot of that.

[00:32:12] You know, but specifically on inflation, and this gets to Grant's point about, you know, it's already baked in the cake.

[00:32:19] So inflation is not some government CPI number.

[00:32:26] It's not.

[00:32:26] Inflation is the actual pricing and decision-making of households and businesses.

[00:32:36] And I got to tell you, when it's Katie bar the door on the stock market and crypto and everything like that, this is that phrase animal spirits, right?

[00:32:49] People raise prices.

[00:32:51] People raise prices.

[00:32:54] They – because they can.

[00:32:58] And so they will.

[00:33:00] And people will pay higher prices.

[00:33:03] So is inflation coming back?

[00:33:05] Of course inflation is coming back.

[00:33:07] You know, the genie was never stuffed back into the bottle.

[00:33:13] So it's out.

[00:33:17] We had the fastest rate hiking session in history to make up for it.

[00:33:24] And that at least got it to stop going back up.

[00:33:27] But we're at a much higher baseline level inflation.

[00:33:30] The genie's out.

[00:33:31] The genie's out, man.

[00:33:32] It's out in terms of what people require for their labor, for their work, and for what people decide that they can charge for their products and services.

[00:33:45] That's what inflation is.

[00:33:47] And if you're out there, if you talk to actual real people in the real economy, prices are going up.

[00:33:58] Because they will.

[00:34:00] So, you know, to your point, inflation's going up.

[00:34:03] And it's not going to be because, oh, we're doing some massive terrorist program.

[00:34:06] I mean, it'll get ascribed to those things.

[00:34:09] But inflation's going to go up.

[00:34:11] The real issue for me is whether the politicization of all of government now.

[00:34:22] Because that's the theme that runs through all of this.

[00:34:25] It runs through the appointing his defense secretary, a guy whose main thing is, oh, how woke the generals are.

[00:34:33] Or, you know, oh, we're going to have a fight because we've got to get rid of Jay Powell because we need the Fed to be like the Turkish central bank, you know, just to do whatever the president says.

[00:34:47] Or, you know, we're going to treat government basically as a meme.

[00:34:52] And, you know, we're going to have a doge outside agency that's going to cut all the, you know, waste and fat and fraud.

[00:35:02] It's the politicization of all of government.

[00:35:06] It's the unseriousness of all of government.

[00:35:12] And there will come a time, because it is baked in the cake, to Grant's point, whether it's inflation, whether it's real conflict with China, whether it's another public health crisis, which will come.

[00:35:29] And we will not respond.

[00:35:32] We will not respond well, because these very serious functions that we all need have been politicized past the point of cartoon.

[00:35:42] So, you know, is inflation coming back?

[00:35:45] Absolutely inflation is coming back, because that's what we humans do.

[00:35:49] Will there be a response to it?

[00:35:51] I mean, there'll be a cartoon response to it.

[00:35:54] But, I don't know.

[00:35:58] This is what I call the Great Ravine.

[00:35:59] We're going down into a period of time that's going to be no fun.

[00:36:10] But that's just where we are right now.

[00:36:13] Yeah.

[00:36:14] It just is what is.

[00:36:16] I think that idea of a cartoon response, Ben, it's so true, right?

[00:36:21] It's Roadrunner and Wally Coyote making all these grand gestures, you know, cooking up all these cockamamie schemes.

[00:36:27] And spending all this time thinking of this lever and that button.

[00:36:30] And I push this and I pull that rope.

[00:36:32] And when he crosses there, I'll get him.

[00:36:34] And it's great entertainment, but it never actually works.

[00:36:37] But this, you know, the inflation thing, I saw Jim Bianco posted something on Twitter the other day, which I just couldn't have applauded loud enough.

[00:36:48] It's this idea that inflation is two very different lines.

[00:36:55] You know, the line that the Fed looks at when they're thinking about inflation is this, right?

[00:36:59] It's a rate of change and they're trying to get the peaks lower.

[00:37:02] And they're trying to avoid the ones below the line.

[00:37:05] And they're trying to keep it very contained.

[00:37:07] But to everybody else who's infected by inflation, it's a horizontal line.

[00:37:14] It's a line of affordability.

[00:37:15] And once that 2% a year creeps up and if wages don't keep with them, you cross this line that's horizontal of affordability.

[00:37:23] And once you go past that line, and a lot of people have now, it doesn't matter if it's 2% or 20%.

[00:37:29] I can't afford it.

[00:37:30] I can't afford 2% more.

[00:37:33] I can't afford 20% more, but I can't afford 2% more.

[00:37:35] And that changes people's approach.

[00:37:38] And I think for a lot of people, we're past that line now.

[00:37:42] And I think that's why inflation was such an important part of this.

[00:37:45] You know, I'm here in Tampa.

[00:37:46] I just this morning bought my first $8 cappuccino until I signed for it.

[00:37:56] $8 for a cappuccino.

[00:37:58] It's insane.

[00:38:01] It's insane.

[00:38:02] I agree.

[00:38:03] I'm going to jump in.

[00:38:04] They're so right about that, you know, across that line and you're kind of done.

[00:38:10] This is, I think, a big part of what you meant about it's baked into the cake is we never go below that horizontal line without a recession slash depression.

[00:38:22] Right?

[00:38:22] Without number go down.

[00:38:24] Right.

[00:38:25] And number go down, that doesn't work for anybody.

[00:38:30] Right?

[00:38:31] Right.

[00:38:32] No, nobody's signing up for number go down.

[00:38:34] Yeah.

[00:38:34] So, you know, we're past the point of no return on so much of this and we end up with the cartoon responses.

[00:38:45] And I've got to say something here because, you know, because I feel strongly about the cartoon response of the incoming administration.

[00:38:52] The cartoon response of the last administration was, you know, I get it when you say, you know, we had two terrible candidates.

[00:39:00] And if I had to vote, to your point, I'd have voted for, you know, Trump.

[00:39:06] Well, I get that because the, the spleroticism, the, the inertia in a bad way.

[00:39:18] And the, and the, of, of the current group.

[00:39:21] I mean, you can't sign up for that either.

[00:39:25] Right.

[00:39:30] Think about this.

[00:39:30] And Grant, I want to start with you on this.

[00:39:32] So, and I really think the framing of how you just described inflation and our American condolences for the cost of your caffeine this morning.

[00:39:41] That's a real systematic problem here.

[00:39:44] Yeah.

[00:39:44] Um, this spills over and this spills over into global markets in some kind of profound ways.

[00:39:52] Cause we just saw a pretty wacky bond market.

[00:39:55] And I feel like we're going to see more wacky stuff probably in not just stocks and crypto, but probably in places like bonds, like FX, stuff like that.

[00:40:06] What are you thinking or hearing, hearing about this more on the global scale for, uh, what this American policy stance means and what you referenced before around the world?

[00:40:16] Well, I think what's interesting, um, you know, I've, in the last several months I've been, you know, I've been in probably a dozen countries and I hear the same things everywhere.

[00:40:26] So this inflation thing is a very real problem.

[00:40:29] Um, and everybody wants to talk about inflation and everybody wants to talk about politics in their own country.

[00:40:34] And, and so when you're in Spain and Italy and the UK and, and France, people will want to talk about the U S as well, but more for, you know, in a kind of passing, can you believe that this is what's going on in the U S but they want to talk about their own politics and they want to talk about European politics.

[00:40:53] But when it comes down to markets, the thing that's really struck me, uh, is that everybody wants to talk about markets.

[00:41:02] There is, there's no talk of time horizon here.

[00:41:07] It's all about what's going to happen next.

[00:41:11] It's not okay.

[00:41:12] You know, we think over the next five years, X and Y is going to happen.

[00:41:16] You just, you just don't hear that anymore.

[00:41:18] I mean, you might hear it from one or two people who are set up to, to, to, to, to make very long time horizon investment decisions.

[00:41:28] You know, I, I spent a few days, um, in Switzerland with Tony Deaton, uh, in the last week or so and talking to Tony who thinks about this very, very differently.

[00:41:38] And, and is really has extracted himself from markets in terms of having to even bother with what's happening on a daily basis with the Swiss franc or the yen or the bond market.

[00:41:49] Um, you know, here's someone who has built a collection of investments in companies that go about their business and their, their business is not their stock price, which is a very, uh, American, uh, way to do things.

[00:42:06] But it's also kind of crept into other parts of the world.

[00:42:09] But wherever I go, when talk turns to markets, all people want to know is, okay, so what's the next trade?

[00:42:16] No one's talking about investment.

[00:42:19] Nobody's talking about, you know, I think this company is a great long-term hold.

[00:42:25] And I haven't seen that translate into volatility yet, which is interesting because everything I hear in those conversations screams that people are all in, but ready to get out of the top of a hat.

[00:42:38] I just don't think they've seen whatever it is they need to get out.

[00:42:43] But we, we turned investment into speculation very deliberately on in many cases, we've sucked as many people as we can into this orgy of speculation and glorified the kind of numbers you can make from speculation.

[00:43:04] And that in a number gap environment is a very attractive proposition.

[00:43:07] And you can point to any one of a number of success stories and say, look, look how easy it is.

[00:43:12] This guy, you know, I, my Twitter feed is inundated these last few days with people who took, you know, $10,000 and turned it into a million with, uh, zero day options on Tesla this last week.

[00:43:23] How great is that?

[00:43:24] Um, so I, I, I kind of mourned the, the, the change in capital markets as a means to allocate capital over the longterm to productive use that will provide a steady longterm return on capital and will help grow a business.

[00:43:47] That's what this was all about when I got into it 40 years ago.

[00:43:52] And I don't recognize it anymore.

[00:43:53] I don't recognize, I don't have any of the conversations today that I had 20 years ago, 30 years ago, 40, none.

[00:44:04] All people want to know about is the stock price.

[00:44:06] And that comes down also to CEOs of companies, you know, the, the, the business is the stock price these days.

[00:44:14] And once you do that, once you change this business to be about the stock price, you change every incentive that has been developed over hundreds of years of capitalism about how to build a sustainable business, how to reinvest profits, um, and grow a business.

[00:44:33] And so this has, you know, Ben writes so brilliantly about this so often, this has become a mean world.

[00:44:39] It's become a cartoon world.

[00:44:40] And, and there are millions of people who call themselves investors who are nothing of the sort.

[00:44:48] They're purely speculators.

[00:44:49] And I've, I've written about this and spoken about this this last year because it's become so apparent.

[00:44:54] It's so important to me.

[00:44:55] If you think you're an investor, but you're a speculator or vice versa, ultimately you're setting yourself up for failure because what you're trying to do and the methods which you're using to try and achieve that aim are incongruous.

[00:45:09] So it's, um, yeah, I find it, I find it, um, very difficult to be honest right now to, to, to, to, to do anything but try to remove myself as much as possible from the daily noise.

[00:45:23] I think that's the only way I watched war games recently.

[00:45:26] Again, it just happened to be on at some stupid hour in the morning when I was a jet lag and you get to the end and, you know, we all know the end.

[00:45:33] The only way to win is not to play.

[00:45:34] And I, I really do feel that way at the moment.

[00:45:38] Boy, Grant, I just wrote down your point about how you don't have any of the same conversations today that you did 20 or 30 years ago.

[00:45:47] I feel that too.

[00:45:49] But I think that's, you know, I, I care so much about language and the, the words we speak and read and hear.

[00:45:59] And that's exactly right.

[00:46:01] The stories we used to tell each other about the meaning of markets.

[00:46:07] Yeah.

[00:46:07] Those stories are gone.

[00:46:09] Those stories are gone.

[00:46:11] There are new stories.

[00:46:12] There always are.

[00:46:13] But the, the old stories, they don't, they're just, they're just gone.

[00:46:19] They're just gone.

[00:46:20] And, and I, I feel the same way that you do, Grant, about that, that my reaction is to withdraw.

[00:46:30] That's difficult for you and me because we're also out there, right?

[00:46:35] Yeah.

[00:46:35] We, we are, we are public facing.

[00:46:38] And so there's a real tension here because inwardly I want, I withdraw.

[00:46:45] I see, I see, I think I see very clearly where this is all going.

[00:46:51] Right.

[00:46:52] To, to Matt's point earlier, that doesn't mean that I'm saying, you know, oh my God, sell everything and go to go.

[00:46:58] Right.

[00:47:00] I see.

[00:47:00] And, you know, my advice is like Chuck Prince said before the GFC, when the music's playing, you got to get up and dance.

[00:47:08] And brothers, the music is playing.

[00:47:12] The music is playing.

[00:47:15] But like you, Grant, I, the, the, the, my faith, it is like a, it's like the, the stories I would tell myself about what are the purpose of markets.

[00:47:26] Yeah.

[00:47:27] To get capital into the hands of real world companies doing real world things, that story, it doesn't exist anymore.

[00:47:36] I think then the question is, okay, when does it stop?

[00:47:39] When does it end?

[00:47:40] When does this story, when does the story break?

[00:47:46] And I think there are three things that can break it.

[00:47:51] And by break it, I mean that three things that can happen that our core belief that the central bank will bail us out if there's a problem.

[00:48:09] I think there are, there are three things that can happen where that may not be true.

[00:48:15] So you ask kind of when or what, you know, waiting for the story to break.

[00:48:18] I, I think one is a war that can break it.

[00:48:26] And by war, I mean like with China.

[00:48:29] Yeah.

[00:48:29] I think that can break it.

[00:48:30] I think another plague could do it.

[00:48:35] I, I think, cause I, look, our trust in our institutions of public health is broken.

[00:48:43] It's gone.

[00:48:44] Absolutely gone.

[00:48:46] And that was absolutely, and you know, I'm a big believer in science and the vaccines and masks and everything else.

[00:48:57] Because Tony Fauci, he, he ruined, I mean, the destruction of trust in public health.

[00:49:05] It's, it's something we never get over.

[00:49:07] It's something we never get over because the next plague, and there will be another plague, we will not respond.

[00:49:15] We, the government, we, the people, we will not respond.

[00:49:19] And that, we will resist.

[00:49:21] Worse, we will resist.

[00:49:23] Actively resist.

[00:49:24] We actively resist.

[00:49:25] A hundred percent.

[00:49:26] And I get it.

[00:49:27] Right.

[00:49:28] I get it.

[00:49:30] Um, and the third thing that breaks the world is interest rates hit 6% on their way to 8%.

[00:49:38] Yep.

[00:49:39] 8%, 8%, 10 year, the world ends.

[00:49:43] It's, so all those things break the world, break this world that we have right now.

[00:49:49] Um, but they break in different ways.

[00:49:52] Right.

[00:49:52] I mean, it's a, it's a different path, but that's, that's what I think changes it.

[00:50:01] Well, Ben, you know, you, the work you and Rusty do, um, with Epsom Truth, you know, this idea of make, protect, teach, that, that, that kind of approach to this.

[00:50:12] Because you can set aside the fact that, as you say, the music's playing, you've got to get up and dance.

[00:50:16] Um, but within that, within the cacophony of the band, and, and even if you're standing right next to the speaker and you can't hear anything around you but the music, there is still people out there like you and Rusty who, who, who can sit there and say, look, I get that.

[00:50:38] But you're also going to want to understand this because there, there will come a time when the band, you know, the police show up and they tell you that the band, they got to stop playing.

[00:50:48] And when the band stops playing and it all goes quiet, you need something to fill that void.

[00:50:54] And it better be the kind of knowledge that will help you in the next phase of this, which is not number go up.

[00:51:01] It's not number go up.

[00:51:02] And so how do you, how do you maintain and stick to that?

[00:51:08] Stay true to that, that belief, that dedication to trying to help people learn the tools they're going to need in the future?

[00:51:19] Because the stories change, the stories change, but there are always fundamental truths, you know, and a lot of people turn to the Bible for their fundamental truth and they go back to that.

[00:51:29] And I was with someone recently who reads the Bible every year and he's, you know, he's not an in your face Bible bachelor.

[00:51:35] He says, I just, I start on January 1 and I read a little bit every day and I go back to my foundations of the foundations of my faith, whether it's facing God, faith in markets, facing your family, whatever it may be.

[00:51:47] You need to find a way to preserve those stories that you will go back to when the cartoon environment that we've described, the meme world that we've, we've talked about reveals itself for what it is unsustainable.

[00:52:02] And something that far from provides nourishment for you or the world, it actually sucks it away in the end.

[00:52:10] So how do you, how do you continue to hold those two diametrically opposed things in your head and have the courage and the fortitude to continue to teach?

[00:52:22] I'm really wrestling with that grant because it's really hard right now.

[00:52:25] And I want to tell a story to kind of illustrate that.

[00:52:27] So it was in September of 08, it was the day that Lehman went out.

[00:52:36] So I was sitting there in my office.

[00:52:42] I was short everything, had credit default swaps at the right places.

[00:52:49] Lehman was no longer a counterparty for me.

[00:52:52] So, and, you know, my portfolio, we were up and we were basically market neutral, maybe even a little net long.

[00:53:03] We were up 5% that day when Lehman went out.

[00:53:07] And I remember, you know, four o'clock, ding, ding, ding.

[00:53:10] Sitting there, I was sitting there, that was a good day.

[00:53:12] That was a good day.

[00:53:14] And I felt a little bad because, you know, I'd had some calls from my friends and friends, you know, at Lehman.

[00:53:21] I was up 5% that day.

[00:53:23] That's a good day.

[00:53:25] And then it kind of hit me like a ton of bricks, which was that who's going to pay me?

[00:53:34] Right.

[00:53:34] Right.

[00:53:35] So, I mean, so Lehman's out.

[00:53:36] So what's next?

[00:53:38] What's next?

[00:53:39] And I bring that story up because we talk about this, the cartoon world we're in being unsustainable and the things that can break it, like interest rates at 8%, like a war with China, like another plague.

[00:53:57] And I think, okay, yeah, that could break it.

[00:53:59] And so do I prepare for it?

[00:54:01] But what comes after that?

[00:54:03] Because when you've changed the whole system, when it's an everything bubble, which basically we have, it's an everything bubble.

[00:54:12] When that bubble bursts, that's different from, oh, the commercial banking system, there's a bubble that bursts there.

[00:54:19] And, you know, U.S. home prices, there's a bubble that bursts there.

[00:54:22] Those are contained bubbles.

[00:54:24] Those aren't bubbles of everything.

[00:54:26] What do you do?

[00:54:30] I don't know how you prepare for the bursting of the bubble of everything.

[00:54:38] I don't know.

[00:54:41] So it's your question is the right one to ask, Grant.

[00:54:45] And I'm really wrestling with it because if this current system deteriorates the way I think it inevitably will, those aren't things that you kind of invest through.

[00:55:03] The other side of that is – I can't see through the other side of that.

[00:55:15] Yeah.

[00:55:16] Yeah.

[00:55:16] Yeah.

[00:55:16] I think, you know, when I look at this, I keep coming back to this idea of trust.

[00:55:23] You know, the importance of trust in society as a whole, but particularly in financial markets, is so underappreciated because we reach these extremes where everybody just trusts everything naturally.

[00:55:36] And what I've watched happen – two years ago, I put together a presentation about this, about this idea of trust and how trust was being eroded.

[00:55:46] And what's amazing to me to see is we have this situation where trust in politics has gone, essentially.

[00:55:55] That's broken.

[00:55:57] And with it has gone trust in institutions.

[00:56:01] That's gone.

[00:56:03] And because of the political contention for a lot of people, trust in their neighbors has gone.

[00:56:11] People just don't trust anymore.

[00:56:13] That's it, Grant.

[00:56:14] That's it.

[00:56:14] And yet, and yet, the thing that amazes me, the one place it seems people are still willing to trust blindly is number go up.

[00:56:25] And we trust – even though I can't trust my neighbor, I can't trust the government, I can't trust the regulators, I can't trust the banks, I can't trust anybody or anything.

[00:56:36] Because I'm making money, I'm willing to put my trust that the number's going to go up.

[00:56:40] And that last piece, when the number stops going up, it's like pulling – Ben, you and I are old enough to remember the game Kaplunk.

[00:56:51] It's like pulling that last straw out, and all the marbles that have been just desperately trying to fall to the bottom fall out.

[00:56:59] And it troubles me greatly that this last plank of trust is trust in the fact that no matter all that, we're going to make money still.

[00:57:10] And I find that really hard to deal with.

[00:57:14] I got to tell you, Grant, you're giving me a path forward, right?

[00:57:19] Because just how you started our conversation here today when you said who I would vote for and the air goes out of the room and you felt all of a sudden there was a distrust of you personally for saying that.

[00:57:36] Right?

[00:57:38] And that's what we've lost.

[00:57:42] And it's been taken from us, the trust in our neighbors and each other, from these political signifiers that actually signify nothing.

[00:57:52] So it's reclaiming that trust in our neighbors and our pack and not having to be replaced with the trust in number go up.

[00:58:04] That was really well said, Grant.

[00:58:06] I think about that a lot.

[00:58:07] That's fantastically well said.

[00:58:09] I want to ask then this question because the practical implications of this are where my heart is feeling tugged by this conversation.

[00:58:18] The practical implication, you're an investor, you're an allocator, you're an advisor, you're a person in this world whose life gets better, like Ben Post-Leman, when the number goes up.

[00:58:30] But what I'm really, really feeling here is just like how important it is to lengthen that time horizon and broaden that aperture.

[00:58:37] You got to figure out how to get that in your life.

[00:58:39] Are there any other practical implications for us living in this world to take this forward?

[00:58:45] Grant, in your mind?

[00:58:46] Yeah, I think there are.

[00:58:48] I think they're very, very difficult for people to do intellectually because if we go back to late 21 when interest rates started to go up, at that point, if you could take a step back far enough and just think about that in isolation, not what it meant for your portfolio the next day.

[00:59:14] But this idea that we are now in a rising rate environment where the pressure is on rates to go higher.

[00:59:23] If you could step back and look at that as a construct, you immediately were faced with the realization that everything that has worked for 40 years is probably not going to work for however long this next part of the cycle works.

[00:59:41] And that's a really difficult thing for people to face because it means that all the things that have happened to them that have been great and they've made a lot of money and things have worked.

[00:59:49] And we always, my friend Rick Rule always has this great line, don't confuse brains with a bull market.

[00:59:55] He's absolutely right.

[00:59:57] There's a fundamental shift that has to happen here if you're going to survive for the long term.

[01:00:04] And again, this comes back down to this idea of whether you're an investor or a speculator.

[01:00:08] If you're a speculator, as Ben said earlier and Chuck Prince said, the band's playing, you've got to keep dancing, but you want to be doing the mashed potato closer and closer to the door.

[01:00:19] But there's a whole bunch of smart people doing the same thing.

[01:00:22] And if you don't make it out the door, you're going to get punched by a stray arm going at you.

[01:00:26] If you're an investor and you find a way to give yourself the time and the space to be thoughtful and not get caught up in the noise, whether it's political noise, market noise, central bank press conferences,

[01:00:42] all this stuff that ultimately is filtered and fed into the number, i.e. what did they say, what did they do, and what does it mean for the number?

[01:00:52] If you can sit back and say, okay, what are my objectives for the next five years, 10 years?

[01:00:58] Because it may take us that kind of time to get through this and out to the world that Ben and I struggle to comprehend.

[01:01:06] But we know it's there because mankind's been through this and to that before.

[01:01:12] And so try to understand that you're going from a world where zero day options are your instrument of choice to trying to think of something that you might want to own for 10 years is an extraordinarily difficult mental exercise for people to do.

[01:01:30] But I think a very, very valuable one.

[01:01:33] And so, you know, in 10 years time, are we going to need zero day options?

[01:01:42] I doubt it very much.

[01:01:44] I think from what I've seen in the last 40 years of my career, that will at some point do the kind of damage that makes people swear off ever touching zero day options again.

[01:01:56] Will we need copper and iron ore?

[01:02:01] We will.

[01:02:01] We will need these things.

[01:02:03] It becomes a question of need.

[01:02:06] Will we need to own companies who are all about the promise they offer for the future?

[01:02:13] Well, if you understand that the future is going to be very different to the present, then companies that are really based on a promise of an extrapolated future are probably not going to be much good to you.

[01:02:25] But businesses that have been around for a long time, you know, I'm just pulling out the top of my head here, the Nestle's of the world, companies that produce things that people consume.

[01:02:40] Full disclosure, I have no position in Nestle.

[01:02:42] Right.

[01:02:43] You know, those are the things that you're going to want to focus on.

[01:02:47] But you're not going to have the dopamine hit.

[01:02:50] Again, that Ben writes so well about, about checking your IRA every month, that it's up another couple of percent.

[01:02:55] You're going to have to buy things that you have confidence in, that they are well-run businesses.

[01:03:00] And no matter what happens, the business is going to still be there through the other side of this.

[01:03:06] And the business is something which we will need on the other side of this.

[01:03:10] And invest in a completely different way that prioritizes resilience and stability and longevity as opposed to profits and growth and all the things that have attracted all these speculators to it in the first place.

[01:03:27] And it's a very difficult shift for people to make mentally because the way things have been, have been so profitable and so successful for everybody.

[01:03:34] But as I've said before, you know, if you've been invested in markets for the last 10, 15, 20 years, you got rich.

[01:03:41] The next part is how do you stay rich or how do you at least give back as little as possible?

[01:03:47] Because we're all going to give some back.

[01:03:49] How do you hang on to as much of it as you can?

[01:03:52] That's very much the way I look at it anyway.

[01:03:55] Ben, same question for you.

[01:03:57] What do you think?

[01:03:58] What's the individual, the allocator, the advisor, the person trying to protect?

[01:04:03] Do they broaden their aperture?

[01:04:04] Do they extend their time horizon?

[01:04:07] What do they need to know?

[01:04:11] Well, first I'll start by just seconding everything that Grant said.

[01:04:14] So that makes it kind of easier.

[01:04:15] I'm really glad Grant went first.

[01:04:17] I think what I would add to that, and it is an addition, is recognizing that capital markets have been transformed into a political utility since the great financial crisis.

[01:04:34] Right?

[01:04:35] And what that means is that so long as we have political, I'll call it stability, right?

[01:04:45] The number will go up.

[01:04:48] That's what it means to be a political utility.

[01:04:51] It means that the state recognizes that the number must continue to go up for the social fabric to remain intact.

[01:05:08] So neither Grant nor I are saying, oh, well, you know, get out of that.

[01:05:17] We're not.

[01:05:18] We're not saying to get out of it.

[01:05:20] We're saying to recognize what it is and that so that you know the game you're playing.

[01:05:31] And what I think Grant is also saying, and I want to suggest also, is that a political utility is not where you want to put either your heart,

[01:05:46] and it's certainly not where you want to put, honestly, your wealth.

[01:05:53] It's a tool.

[01:05:55] It's a tool.

[01:05:56] It's not the foundation.

[01:05:58] Amen.

[01:05:59] The foundation is, in my advice to everyone, and it's advice I have a hard time taking myself, right?

[01:06:09] When you say, oh, people shouldn't be online so much.

[01:06:12] My God, I'm hooked to this thing.

[01:06:15] I mean, it's terrible.

[01:06:17] It's like any addiction, and it's something that I'm really trying to break, but I'm not talking down to anybody.

[01:06:27] I wrestle with this very much personally.

[01:06:32] But what I'll say is that, you know what?

[01:06:34] I don't have a personal account.

[01:06:37] You know, I'm not involved, you know, doing the market.

[01:06:41] I have a retirement account, which is in the political utility.

[01:06:47] But my, not just wealth, what little there is, but my attention, my energy, my heart is in three investments.

[01:07:00] Right?

[01:07:01] I am levered long to my children's education, my home, my principal residence, and my business.

[01:07:12] That's it.

[01:07:14] Yep.

[01:07:15] That's it.

[01:07:15] I'm not spending any more time and heart and attention on trading this market.

[01:07:28] So, in this case, I really do practice what I preach, and my preach is develop your own expertise and invest in that.

[01:07:42] Right?

[01:07:43] Invest in that expertise and those people who you meet, who you trust.

[01:07:49] Invest in that.

[01:07:50] Invest your money, and most of all, invest your heart.

[01:07:54] So, that's my addition to what Grant's saying.

[01:07:59] No.

[01:08:01] I'm going to let everybody go, and remind you to take notes.

[01:08:03] I took plenty of my own notes.

[01:08:05] I got to say this.

[01:08:06] I'm going to skip over the parts where I ask you about, are these animal farm spirits or animal house the movie spirits?

[01:08:12] But that's a question for a follow-up episode.

[01:08:15] I have to point out, Grant, you saying this whole thing of we need faith and trust, but just emphasis on the faith and what you said.

[01:08:23] And, you know, George Michaels, after the wham, that's where you need the faith.

[01:08:27] I want to put it in there.

[01:08:28] And just the same way.

[01:08:29] Post wham faith.

[01:08:29] Post wham faith is something we need.

[01:08:32] And similarly with Ben, today was a good day.

[01:08:35] The Lehman Day.

[01:08:35] Extra, extra ice cube in that.

[01:08:37] Today was a good day, but then we had a long way.

[01:08:39] Boys in the Hood and then Friday.

[01:08:41] It's a long way to get to the comedy on the other side of this thing.

[01:08:44] And, like, what's next?

[01:08:47] This is the question.

[01:08:48] Whatever you're doing out there, you have to be asking yourself, what's next?

[01:08:50] Is it freedom?

[01:08:52] Is it Fridays?

[01:08:53] Is it just the faith and trust?

[01:08:54] Is it just the focus on your kids, your home, your business?

[01:08:58] Man, if you could just have an opinion on that stuff and where you wanted to go, how do you invest in the long term?

[01:09:03] Take it back to some stuff you guys said earlier.

[01:09:05] The business is not the stock price.

[01:09:08] Your job is not your identity.

[01:09:10] The markets are political utilities right now.

[01:09:14] So what are you going to do?

[01:09:15] You're going to ask those questions.

[01:09:16] What can I make?

[01:09:16] What can I protect?

[01:09:17] What can I teach?

[01:09:18] Because the future is yours.

[01:09:20] You got to take and you got to hold that ownership of it for the long term.

[01:09:25] Grant, Ben, thank you so much for your time today.

[01:09:28] An absolute pleasure.

[01:09:29] Love to talk to you guys.

[01:09:30] Thank you.

[01:09:31] It was great.

[01:09:32] This is Justin again.

[01:09:33] Thanks so much for tuning in to this episode of Excess Returns.

[01:09:36] You can follow Jack on Twitter at Practical Quant and follow me on Twitter at JJ Carboneau.

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[01:09:50] We appreciate it.