Jesse Felder (The state of the US economic malaise)

  • 00:00:25 How Jesse has redefined ‘value investing’ for himself?
  • 00:04:20 How momentum and trend investing has become so strong? Are contrarian investors able to tae advantage of the short cycles?
  • 00:07:43 Is the ‘Fed put’ real? Can we slowly depreciate out of the current mania?
  • 00:12:01 Are inflation expectations really rising? Is asset allocation broken?
  • 00:28:10 Is energy a good investment short term / long term?
  • 00:31:52 How Jesse deals with finding a catalyst for his investments?
  • 00:37:12 Jesse’s take on crypto currencies? Will a crypto mania create real economic growth?
  • 00:47:13 How does the financial industry cope with the enormous amount of disruption? Have hedge funds outsourced their thinking to algorithms?
  • 00:59:30 How humans will have to adopt to increasing complexity to stay ahead of AI in the financial industry?
  • 01:01:32 Are ‘Hedge Funds’ still able to build ‘money machines’?
  • 01:08:32 Will the dollar as the reserve currency survive the next 20 years?

You may watch this episode in Youtube – #83 Jesse Felder (The state of the US economic malaise).

Jesse Felder publishes the The Felder Report and also hosts and produces the Superinvestors and the Art of Worldly Wisdom podcast.

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So, Jesse, you published The Fellow Report and you also hosted the podcast, Super Investors. Welcome to the Judgement Call podcast. Thanks for coming here. Yeah, thanks for having me Torsten, I’m glad to be with you. Hey, absolutely. You know, when I looked at your investment philosophy, it’s something you describe that’s currently grounded in what Benjamin Graham and Warren Buffett are doing called value investing, right? And it’s something that seems to be under siege. It’s very difficult to find companies with low PE ratios. It seems like everything is already overvalued. How do you deal with this? How do you find investment opportunities? Well, yeah, I mean, I think the thing that really originally appealed to me about, you know, Ben Graham and Warren Buffett’s philosophy is the margin of safety concept that, you know, when you buy something at a discount to its fair value, that you’re really limiting your potential downside. I mean, I really like the idea of you can buy a dollar for 50 cents, if it turns out, you know, your analysis is wrong and it’s really only worth 50 cents, then how much really did you risk? And by the same token, if you can find things to buy at a 50% discount, when the market comes around to your way of thinking, you can double your money, you know, without having a fundamental change in the business. And so I do think, you know, the only areas of value in the market today are, and this is probably true regardless of, you know, the time that we’re talking about, but are things that are outside the purview of the most popular strategies of the day. So I think, you know, you mentioned my podcast, I started my podcast about 4 years ago, one of the first people I talked to was Steve Bregman, who’s done a ton of work on looking at, you know, passive investing’s impact on the stock market in general. And you know, he was one of the first people to kind of draw attention to the idea that in order to find value today, you have to look outside of what the indexes are doing. The stocks that have kind of been for whatever reason, you know, left behind, you know, that are not, don’t have good representation in the indexes. So that’s actually something I’ve started doing in the last few years is looking at, you know, different stocks and then how many ETFs or how many indexes, you know, are they represented within because you find things that aren’t well represented in the indexes. And that’s typically where you can find value. So another area today, I think one of the most popular areas or strategies might be ESG focused type of investing. And so, you know, last fall, I was just pounding the table bullish on the energy sector because this is one of ESG has just taken in so much money in the last few years and it’s just going exponential. And you know, I think across the board, you see most of these strategies, you know, shun traditional energy. And so those stocks got incredibly cheap last fall. And I think they’re still very cheap. And that’s really one of the only areas where we’ve seen, you know, a significant degree of insider buying with, you know, a guy like Harold Ham, who’s buying, you know, was buying continental resources stock, his company stock, just hand over fist last fall and saying, I’m going to continue to buy $10, $20 million, you know, a week, a month as long as the stock stays here. Yeah, I mean, those are the types of things that I’m looking for, but you’re right, they’re few and far between. Yeah. I mean, from what I understand, you’re a contrarian, and it’s good to have those. And the question is, are we, and I consider myself a contrarian too, are we just there to kind of watch the circus and kind of reign in the complete craziness? Because when we look at the stock market, and maybe I’m too young to really know much about it, but when I look at the last 20 years, what happened in the stock market, it seems to be this trend following, we go where the trend is, seems to go from one sector to the next, to the next, and it never stops, and then the extreme seems to have gotten more extreme. That’s, you know, I don’t want to sound like an old person, basically says everyone is crazy, but that’s how it seemed to me as an investor, the buying opportunity that I was waiting for may end of this March last year, right? I was like, well, it’s went down, but the real economy is in Daldrum, so it should go down even further, but my buying opportunity never arrived. So is that something where you feel like we end this like a super cycle, and we all just going crazy for a while, and then people will forget about stocks, or no, we have to redefine value investing? You know, I don’t think, you know, we need to redefine it. I think the problem is the way that it has come to be known in the last 10 years. And I think you make a really good point that there are so many different systematic strategies that work in the markets now, and, you know, whether it’s short volatility or factors or any of these things, you see them just go and they start working, and then they attract more capital and, you know, it becomes a self fulfilling, you know, positive reinforcement, you know, cycle until it blows up like we saw Volmageddon, you know, blow up in early 2018, I think, you know, value has come to be defined as a factor. And that’s really not how, you know, Warren Buffett ever considered it or wrote about it, or even Ben Graham, you know, I don’t think you can look at value as a factor and truly call yourself a value investor, because investing, you know, just the definition of investing the way I think of it means you have to analyze on an individual security basis, whether your principle is protected, and whether you get that security is going to generate a decent rate of return that, you know, that comes from Ben Graham. And there’s really no way of doing that, I think, on a factor basis. You can’t look at, you know, the 10% cheapest securities in the market and say, my principle is protected if I buy, you know, the 10% cheapest price to book value, or what have you. And so I really do think as a factor, value doesn’t make, doesn’t really qualify as value investing in the way that Ben Graham and Warren Buffett have, you know, defined it or laid it out. And so I think that’s really the failure of value investing over the last 10, 20 years is you look at that cheapest decile of the market today, the 10% cheapest, however you want to define it, and it’s more expensive than it’s ever been in history. So if you are relying on value as a factor, then, you know, you are buying, you know, yes, the cheapest decile of the market, but you’re still spending the highest valuation for those securities ever in history. And so I think to truly be a value investor, you got to look, you can’t use it as a factor, you have to look at a security by security basis. Yeah. There’s someone like Mike Green makes that argument that says, well, we are all kind of over invested into the stock market. And what happens is if the stock market drops, we kind of need the Fed to jump in because otherwise all our retirement savings are gone, the whole country stops working, right? We entered this enormous deflation before when the stock market would drop down, it had an impact, but it wasn’t like that we would all lose 50% of our money, right? But now everyone is in, right, that the whole society has bought into stocks can only go up in the long term. We came to this point, Drew, the Fed really has no choice. We need to at least have a slight appreciation or no stock depreciation of the stock market or this American society comes to an end, that’s what people put out there. Do you share this? So we kind of have this, this inbuilt put and defend has no other choice but to inflate out of it. Well, I think, yes, I mean, the Fed has boxed itself into a corner here with, you know, I think it really, I mean, you could go back to Greenspan after the 87 crash, and you know, that was kind of the, you know, origination of the Fed put, if you will. But I think it goes back to, you know, Bernanke through the financial crisis and him saying, you know, we are going to do this quantitative easing in order to try and push people into riskier securities, push the prices of those up to try and create a wealth effect. This was, you know, trickle down economics on a monetary level. And you know, Bernanke was very clear about this, that we want to make people feel wealthier by pushing up the value of assets so that they go spend more and this should trickle down to the rest of the economy. Now, I wrote about, I started writing about this in maybe 2014, 2013, something that, you know, this creates a problem that if the stock market ever starts going down, you risk a reverse wealth effect, right? You risk those people starting to feel, okay, well, my net worth is going down now and I’m going to, yeah, and so, you know, rain in my spending and, you know, put that puts a damper on the economy. And so, yeah, the Fed is essentially, like I said, box themselves into a corner to where they have to, you know, to the extent that they allow asset prices to go down, that, you know, is counterproductive to their goals in terms of wealth effects and quantitative easing. But I do believe that, you know, we are at a turning point here where now the Fed is saying inflation’s been too low for too long and we need to allow inflation to run hot. And now inflation is, I mean, by, you know, CPI and things that haven’t started, you know, really recording it yet, you know, PCE would be the Fed’s preferred measure, but all signs point to rising inflationary pressures right now. And the Fed is saying, we are going to allow inflation to run hot. If they do that, that risks, you know, undoing everything that, you know, Paul Volcker set in motion 40 years ago, which is this inflationary trend that was, you know, accompanied by falling inflation expectations. And that was, you know, those are kind of self reinforcing also. So it looks to me like there’s a real risk of inflation expectations now reversing higher. If that’s the case, then inflation will prove to be much more than transitory, like the Fed is saying. And at some point, they’ll be forced to start fighting inflation again. And that’s the point at which, you know, the Fed is going to be faced with, okay, if we raise interest rates too much, the markets will crash. Maybe if we raise interest rate at all at this point, the markets will, you know, discount rates go up and asset prices have to fall. And so the Fed will, you know, be forced out of this, you know, supporting the market at all costs by inflation. So, you know, yeah, we are approaching all of these things are coming to a head, I think very soon. And so it’s very interesting to watch. Yeah, I have the same impression. And I mean, we, we talked to you on the show quite a bit about the old zombie companies that are being supported by the Fed, right? Because we have these extremely low interest rates, but they go to obviously the idea is that they go to alien companies make life better, but the reorganization might have been a better idea. And you know, I’m also going to tech, which doesn’t need 0% interest rates, they would be fine at 50% interest rates, right? And the question I think is, we’ve seen the scenario of play out for quite some time now Japan has been printing trillions for quite some time for 20 years. We haven’t seen crazy inflation until now. Why do you think that is a set? Because it all went into these asset bubbles and they absorbed all that money. I find it staggering that, you know, as an entrepreneur, we see all these 0% loans, 0.1% loans. I’m like, are we really having such low expectations of the future that we basically just expect to get our money back and it’s probably destroyed by inflation, but some inflation that was always there. Anyways, where did that all come from? That seems to be not an economic strategy that makes any sense. It’s not an efficient asset allocation. Yeah, I think, you know, there are obviously, you know, the inflation question is the main question facing the markets today and it’s, you know, confounded, you know, all of the top PhDs at the Fed for a very long time. So, you know, but I do think to the difference, you know, we didn’t have inflation coming out of the great financial crisis because it was all monetary policy. It wasn’t fiscal policy, married with monetary. And so we were just seeing quantitative easing, you know, which is money that obviously just went into the markets. It didn’t really make its way into the real economy. Today, I think we’re seeing something dramatically different where fiscal policy has, you know, really taken the lead and monetary policy is just facilitating fiscal to a degree. You know, I really do think we’re already seeing modern monetary theory at work. I do think there was a change in monetary policy that we saw back in late 2019, you know, well before the pandemic when, you know, the Trump corporate tax cuts led to rising deficits during an economic expansion for the first time, you know, since the 1960s. And I think, you know, that increased treasury issuance was not being absorbed by the market very well. I think, you know, probably most of it was being absorbed by the basis trade hedge funds, which were, you know, borrowing, you know, in the repo markets in order to buy tons of, you know, treasury bills, but as soon as they couldn’t borrow in the repo markets, we saw, you know, things start happening, you know, crazily. And the Fed had to step in and basically rescue the repo markets. And to me, that was the point at which the Fed had to start funding the government directly because there wasn’t the natural demand to soak up all this new supply of treasuries. So then we lead into the pandemic, the, you know, federal government decides to spend trillions of dollars to support the economy and the Fed has to ramp up the printing presses because there’s just, like I said, there’s not the natural demand. And so that, that to me is a clear shift towards fiscal dominance, where the federal government is saying we are doing X and the monetary authorities have to do whatever it takes to support fiscal. So that is a huge shift. And I really do think it risks, you know, undermining faith in the dollar, faith in, you know, the independence of the Fed, all of these things that we’ve taken for granted for so long, really, since Paul Volcker established, you know, Fed credibility 40 years ago. And I think it’s why, you know, we see money pouring into cryptocurrencies and all these things because everybody, you know, who pays any attention to this kind of stuff immediately realizes and you look at M2 is, you know, the money supply is screaming higher. And so all of these things point to inflation. And I think that that was a change in late 2019 and it’s only gotten much more serious, more significant of a change towards fiscal dominance, you know, in whatever it is, you know, two years almost since then. Yeah. Just so people understand monetary and fiscal fiscal is the policy of the government, right? And they hand out money, that means fiscal. So we handed out the unemployment benefits or whatever means they find and monetary is when the Fed changes the way they set interest rates and the way they, well, QE was kind of we reduce interest rates even lower. No, we actually wanted to bring them up, right? That was the idea of QE. Well, quantitative easing was, you know, ostensibly to support, you know, yeah, to prevent longer term it to support the bond market, but also to lower the risk free rate of return and to create this wealth effect. Like I said, so I think, you know, Bernanke and the Fed thought, if we go buy up, you know, longer term, whatever it is, five year, 10 year, 30 year treasuries, we are going to as my friend John Husman calls it, you create a hot potato type of scenario. So whoever was holding those treasuries now, you know, has cash and they don’t want to hold cash because there’s money printing going on and I can’t go reinvest in treasuries because yields are now too low. So what do I do? I have to go buy corporate bonds, junk bonds, equities, those types of things. So that was, I think, quantitative easing in the wake of the financial crisis. I think quantitative, it’s not so much quantitative easing today to try and create a wealth effect. It’s if the Fed doesn’t buy this many treasuries, interest rates are going to go up because there isn’t the natural demand for these securities. And so I think it’s a change in tone or that we’ve seen over the last 18 months, really in Fed policy. Yeah, we’re talking about monetary policy, Fed policy on the one hand, fiscal policy or what the Treasury is doing, the government and the Treasury are doing on the other hand. One argument a lot of people make and had at Britannia, we kind of went down to rabbit hole. We have more and more industries that kind of get eaten by software or they get eaten by technology. And that software eats the world and it happens, right, and one of the economics of software is you create product once, but you can sell it or you can use it basically for three billions of times like what we do with the Google index, literally, it’s hard to create and it’s expensive. But once you do have it, that’s like AI has the same characteristics. Once you do have the solution to that problem, it’s basically free for everyone. You can give it away. So we have all these internet business models that basically rely on giving things away because it’s so cheap on the long tail. But if that happens to all kinds of industries, we now see, I just looked today at a company here in Auckland that does housing 3D printed. So it’s prefab 3D printed houses are really cheap. Well, if you get the land cheap, not happening in San Francisco, but it’s happening a little bit outside of Auckland. And once you take that software effect to more and more industries, isn’t inflation gone forever because prices cannot rise because you only create a thing once and then you can use it a billion times. Well, that might be true for those software based companies. But I think if you look at most of the companies that are coming public today, which we’ve seen a huge surge in IPOs, software can only make up so much of the economy. I think what we’re seeing today, one of the things, this is one of the trends that’s created a dissipation over the last 40 years is the trend towards globalization. We have become less a manufacturing based economy here in the US and become more of a software based services based economy. The way we’ve been able to do that is by shipping all these manufacturing jobs over to China and things where the jobs are much cheaper over there. But now part of this inflationary surge that we’re seeing today are these supply constraints. And a lot of those supply constraints have come from the fact that we’ve switched to just in time manufacturing, no inventories and shipping jobs overseas. So this is creating all of these supply constraints we’re seeing today and really turning people against these types of supply chain management decisions that have been made. I think we saw that when we were trying to get PP&E for the pandemic, there were shortages of everything in masks and whatnot because we couldn’t make these things in the United States and we stopped making them a long time ago. So I think, yes, if we were to continue to just shift toward services and continue to be able to shift manufacturing and things overseas, then yes, that that disinflationary trend could probably continue. But what we’re seeing today is auto companies are probably a really good example, right? There’s shortage of microchips. So they all have to shut down manufacturing. So what are they doing to deal with that? Well, they’re talking about bringing manufacturing back home. They’re starting to stockpile microchips. They’re trying to do everything they can to, and it’s really a reversal of this just in time manufacturing to now where they’re hoarding, now they’re realizing, okay, maybe shipping all of this production overseas is not such a great idea. And so to the extent that we’re going to shift from globalization to deglobalization or reshoring of labor, reshoring of manufacturing, that is a shift from a major disinflationary trend to an inflationary trend. And I think that’s probably something that a lot of companies are realizing, and not just companies, politicians are realizing, semiconductors are potentially a national security issue. We cannot afford as a nation to have all of our microchips and semiconductors produced overseas. And so I think we’re seeing a lot of push both politically and from the companies themselves to produce microchips again here in the United States. And that’s probably representative of a lot of other products that we need, physical products that we need. And so to the extent that that shift is happening from globalization to deglobalization, I think that represents a major inflationary paradigm shift. No, I know where you’re getting from. I think it’s definitely a political desire to, it’s kind of, think about Germany pre war. We need to make sure it can source all the materials it needs for a war that wasn’t even on the drawing board yet. In Germany’s heads, yes, but nobody else knew about it. So I think this is a political desire, especially with China and US, we see that. But I think the economics haven’t changed. So when you build a chip plant, literally building the chip plant is expensive, a few billion dollars, but then you just need electricity, you need sand, and you need a bunch of people, not even that many. You can literally, every chip is free that you make. The first chip is the most expensive, but every other chip after that is almost free. And what I find stunning, and then obviously we have the semiconductor shortage, which it’s difficult to plan this stuff, right? Because you setting up these major investments, a few billion dollars, and creating the plant, you can’t do it overnight. It takes a few months, at least, probably a couple of years. But we’re funded stunning. I had Brian on the show, and we were talking about hardware startups, and he’s like, I was under the impression, never do a hardware startup in Silicon Valley, because it’s a scale as well, the margins are crappy, you don’t want to be in that place. He said, yeah, well, that used to be true. But I went to China, and I told him I wanted an iPad, because he has a device, like a picture frame that is from two years ago, right? It’s not the newest iPad, but it’s exactly the same thing, no touch screens, it’s a little simplified. And it used to be $600, right? Or $700, whatever the iPad was. And he’s like, no, you know what it costs now? It’s $20. So it came from this, and I mean, you can still use and buy, you know, Craxxus for an iPad two years ago, it’s cheaper. But the massive deflation of that technology made a product that he thought is going to be all hardware and has no margin, to be basically has huge margin, he could give it away for free, $20 is nothing, and just a software product. So what I’m trying to say is, yes, software has a limit, but so many sectors are now touched by software, and are getting better and more efficient, we see this in healthcare, at least we’re hoping for it, I don’t know if it’s actually going to happen. And then suddenly, you can, it’s like 10x cheaper or 20x cheaper, like it’s an enormous amount cheaper that you reach once software runs through an industry, and we’re hopefully going to see it with driving. And that’s what I’m trying to say, like when we think of inflation, it’s 2%, maybe 5%, but actually we’re talking about 10x, 20x. And if this rolls through all the industries that we are hoping for, what hasn’t happened yet, but construction could be next, then we’re looking at a house that used to cost a million, you can now have $400,000, and you still make a healthy margin on this. So that’s what I’m trying to change. All these economies are changing fundamentally, and this is in motion, and Politicoville or economists can’t really do much about it, right, because it’s already in motion. Do you share this, or do you feel like this is overblown, technology is alive? I don’t think it’s overhyped at all. I think it’s fantastic, and obviously technology has been an important disinflationary force. And yeah, I think it’s exciting to see the innovations in all those things, and I’m a huge believer in it in every aspect. But I do think we’re also seeing, let’s just look at EVs, for example. We want, politically and for the environment, and things we want to shift from traditional combustion engine vehicles to EVs. Now in order to do that, if we want even a third of the cars on the road to be EVs over the next 10 years, the demand for copper is going to go up 10 fold, and there’s no way the demand is going to go up 10 fold without the price going up at least that much. And so I do think to the extent that these technologies and things are going to be very important to how we evolve as a species over the next several decades. There are the limited supplies that we have in terms of commodities that we’re dealing with that can end up undoing some of the benefits of the software. So I think it’s a super complex issue, of course. Yeah, I talked with Robert Zubrin about his book, Asteroid Mining, and he’s like, well, Asteroid Mining obviously makes a lot of money because it’s almost, we’re at that stage where we can go there and bring it back in and make money if it’s full of platinum and gold. But here’s the problem, once we bring that much platinum or gold back here, then the price of gold will be very different, right? It will be $100 instead of $2,000 just because we have so much more supply. So it’s not that easy just because we can find more supplies, kind of with oil, right? Maybe 10 years is just, we’re going to run out of oil. And then 10 years later, we’re like, oh, well, we found so much more oil because it was slightly more expensive and technology improved, and now we can run this for another 100 years or so, right? The oil reserves seem to always just 10 years away from depletion. And then 10 years later, we’re like, oh, actually, it went up and the demand also went up. So something is strange with this, right? These forecasting, these demand curves are extremely difficult. Yeah, absolutely. And to me, the best use for these forecasts is for sentiment signals, right? Because it was, what was it, 2000, about 10 years ago, they were predicting pink oil. Like you said, we were going to run out of oil at some point. And very recently, a year ago, unless there was a lot of talk about peak fossil fuel demand, that we’ve already reached peak demand and that we’re going to be a wash in a surplus of oil from here to eternity. And to me, that was a wonderful time 10 years ago to say, hey, energy stocks and things are probably overpriced, the oil price is too high. Once you get this buy in, everybody believing that peak oil is a thing, that is a sentiment signal, that the bullish sentiment towards traditional energy has gone too far. And vice versa, when you have everybody believing in peak demand because EVs are going to take over the world in the next 10 years, that to me is a terrific signal that the bearishness towards traditional energy has gone way too far. So yeah, those things can be, those forecasts probably best used as sentiment signals, I think. Yeah, that’s a good idea. What do you think of, my grandfather always talked about that idea of free energy, right? We have whatever technology, obviously it was nuclear fission at the time, but that’s the way we have technology has changed. But clearly we are limited in space exploration, whatever we do on this earth by generating electricity is still kind of in the stone age, so to speak. It’s not that much different than it was 100, 200 years ago. We blow up slightly different things to do that, but it’s still very inefficient, it seems. Do you think there is a big revolution coming that we bring energy prices way down, right? That’s the big innovation. It’s still energy, but the kilowatt hour will drop, I don’t know, equally by a factor of 10. Oh, we will see them slowly rise like in Europe and all the green revolutions, they’ve risen a lot. They’re probably 3, 4, 5 times what we pay in the US. Yeah, I think the thing that I really pay attention to in those sectors and in basically any kind of commodity based sector is however much capital goes in, the returns in that sector go down. And so yes, we’re pouring a ton of money today into green energy. And so the investment returns are going to go down, but also the cost, I think that was one of the things we saw, it was a wonderful result of the dot com mania and the internet bubble was so much capital went into building out the internet that investors lost their shirts. We saw the NASDAQ go down 90% over a two year, three year timeframe, but there was so much fiber optic cable and things that were laid that ended up being a wonderful thing for the internet even though it was terrible for investors. And I think that’s probably the same thing we’re seeing with the green revolution today is that everybody wants to invest in these EV companies and green energy and all this kind of stuff. So there’s tons of capital going into the sector, which is going to be a good thing for the economy because it’s going to bring down the cost of that energy production. But it’s not going to be a very good thing for investors because there’s just too much capital chasing it right now. Conversely, right now, like I was mentioning ESG and the popularity of it is really starving traditional energy of capital today. And what that necessarily means in my view is that traditional enterprise of oil natural gas, these things are probably going to be much higher three to five years from now because we’re not investing. It was just the exact opposite of what happened in the wake of the financial crisis. So the wake of the financial crisis we had, the cost of capital came way down. All of these fracking companies were able to borrow money so cheaply and invest in shale oil in the United States. And it really created a huge boom in oil production in the United States. So what happened? So much capital went into the industry, the price of oil crashed in 2014 and has been essentially crashing since then. Because too much capital went in, too much investment. I think what we’ve seen over the last few years is the opposite where there’s been almost no investment in building out new energy sources or even the existing shale sources over the last two, three years. And what that’s going to mean is the price of new green energy is going to come down while the price of traditional energy sources are going to probably go up over the next three to five years. Yeah, that makes a lot of sense. When you invest as contrarian as you do, how do you get the timing right? I guess for a lot and myself included, it’s really difficult to see these manias develop, right? You see, you have this fear of missing out or not stiffy, you’re really missing out. We just started with Dodgecoin. I had a bunch of Dodgekind sold it and now it’s like 10X and I’m like, oh my gosh. It’s difficult in the social environment, especially if it’s driven by daily news or if you have this Twitter phenomenon and it involves us emotionally. And when you are so contrarian, I know you have to wait out long cycles, maybe five years, maybe 10 years. How do you deal with this, that nothing happens to your investment or no catalyst happens and everyone else enjoying a 10X? Isn’t it really difficult? It’s not difficult. I mean, I think a lot of people don’t know that I was buying Bed Bath and Beyond last year at the March lows at $3 a share. And it was just like GameStop, it went up 10 fold in January. And so GameStop went up whatever it was, 100 fold, something like that. So yeah, if you were looking for those types of opportunities, they’re out there. But you raise a good point that in being a contrarian, in being a value investor, you’re at danger of being on the wrong side of the trend. Things that are out of favor can continue to stay out of favor and get more out of favor. And vice versa, if you’re looking to short sell and you’re looking to sell things that are have a good momentum to the upside, that you really need to pay attention to just to precisely that, the momentum. Because I do think 15, 16 years ago, one of the best things that happened to me, I met Tom DeMarc, who you maybe you’ve heard of, DeMarc indicators, Tom has for the past 25 years, he’s been essentially on staff with whoever’s run the most the biggest, most successful heads front at the time. So he’s essentially been on staff with Paul Tudor Jones or Steve Cohen or you know, whoever it is has been. And that’s that’s because he is has come up with some brilliant ways to study momentum and trends, and really to help time these turning points. And so the his TV sequential indicators, one I use across multiple timeframes to look for trend exhaustion. So you know, I look at typically monthly and weekly timeframes, and you know, that’s very helpful when you get clusters of signals across different timeframes, you know, that can help you understand when the trend might be nearing its end in reversing. And you know, by the same token, it was maybe a couple years ago, three, four years ago, I met Michael Oliver, who’s another just fascinating, you know, trader who came up with maybe, you know, 30 years ago, a way of isolating price momentum and looking at momentum, specifically charting momentum, and looking at momentum structures. And you know, that can be very powerful too, and I think when it doesn’t take a genius to look, and when you see momentum gaining and, you know, increasing, that’s not, you know, a sign that the trend is near its end, it’s a sign that the trend is very strong and probably very near the middle of a trend rather than near the end and what you want to look for, you know, in these, these trend reversals are signs that, you know, these types of exhaustion signs, you know, that the mark signals can be helpful with. And then also signs of waning momentum, so, you know, back, you know, with energy, I think, you know, peak downside momentum was several years ago, you know, we had, like I said, the oil price crashed in 2014 and has had several, you know, more, you know, price declines, but last year in March when it had that, you know, pretty deep decline, actually, oil prices went negative, what was interesting was that momentum was not, you know, continuing lower along with prices and so that to me is a very bullish sign when you see, you know, market participants pushing prices to new low, but momentum is actually starting to improve and so downside momentum is not quite as strong as it was. Those are the types of things I look forward to say, okay, now it’s safe to maybe start getting interested in this area because the downside momentum is waning, which is kind of a, you know, an early sign that the trend might be ready to reverse higher. Yeah, that’s really smart and I guess buying oil, but it was negative was another smart call. Hopefully you got in on that trade. It was only for a few hours, I think. Well, I don’t trade the commodity directly, but yeah, I mean, like I said, a lot of these oil and gas producers, you know, became, you know, very, very cheap last year. That’s why, you know, Carl Icahn was buying Occidental Petroleum and like I said, Harold Hamm was buying a ton of continental resources last fall, you know, those are the other signs I try and look for too, you know, really smart insiders that are saying, no, Jesse, you’re not an idiot. Your idea of value here is, you know, we’re validating it too. We’re putting our own money where our mouths are. Yeah. Yeah, I got into oil too, probably way too late, but it’s good to understand. So I’m really happy about it. What you were, you wrote this note and I read it, it’s don’t ask me about Bitcoin. I think what you wanted to say is, and you got, it was highly received, highly critical by, by the Bitcoin volts right out there, pump is one of those. And we, we see that on one hand, we have all these political feelings that people associate with Bitcoin, battle or wars, and the founders of Bitcoin, Satoshi apparently had that too. It’s this, this, this liberal agenda of freedom of, we can control our own currency, we can do our own set, our own deflation or inflation rates are not just like the fact who kind of does it in a weird system, Soviet system, that nobody knows how it actually works. It seems to be very random and maybe needs to be random. And on the other hand, there is this strange accumulation of Bitcoin prices, which seems like a mania to everyone from the outside, not maybe not from the inside, it’s probably looks still way too cheap. And I think what you pointed on, that was really interesting. You said, well, we only look at one Bitcoin, but we don’t look at all the forks and all the other cryptocurrencies, most of them are not doing anything. They don’t, they don’t rise up 100%, only very few do, and that’s the one we hear about when we read in a mass tweet. Yeah, you know, I think I probably was a little insensitive when I, when I wrote that, you know, I didn’t, you know, I guess what I probably should have expressed is I have a deep sympathy for the sentiments that are behind the cryptocurrency boom, you know, I think absolutely, you know, like I mentioned, you know, the reason cryptocurrencies are booming, I believe this is that everybody recognizes the money printing for what it is and realizes they desperately need to protect themselves somehow. And so I absolutely agree with those sentiments. The major problem that I have with cryptocurrencies and Bitcoin included is this, you know, store of value and scarcity argument. I don’t, that’s the part of it that I just don’t buy into. Like my friend Diego Perilla has said, you know, supposedly there’s only going to be 21 million Bitcoins ever mined. But there’s 21 million cryptocurrencies potentially that can be created out of nothing. And you know, there is a, there are, you know, several risks related to that. One is that, you know, it seems like Ethereum, you know, lately is dramatically outperforming Bitcoin and that could be because the Ethereum blockchain is potentially more efficient and you know, a better platform than the Bitcoin platform. So there is this risk, this idea that potential, that Bitcoin is the my space and along will come, you know, the Facebook, which will essentially make Bitcoin obsolete. You know, there’s also the risk, you know, that, and I do believe this is a much bigger risk than people, you know, give it credit for, I mean, every central bank on the planet is already talking about implanting, you know, a central bank digital currency. And there’s no way that central banks, you know, will ever give up seniority. And that is, you know, the ability to print and control the currency and profit from the creation of currency. Obviously, it costs the Fed nothing to create a dollar out of thin air and it’s a dollar of essentially profit to the central bank when they do that, and they’re doing it to the tune of hundreds of billions of dollars every single month, 120 billion, to be exact. And so, you know, yes, I do agree people need to protect themselves from that. I just think that, you know, the way to do that historically through 5000 years plus of history is to invest in real assets. And I don’t consider cryptocurrencies real assets, I consider only real things, real assets like real estate, commodities, gold, and these types of things. And so, for me, you know, I, cryptocurrencies don’t fit into my, into that framework. Yeah, I understand where you’re coming from. And I feel like I never understood when I first heard about Bitcoin back in 2013, why it is so bad. I thought when we have an internet based currency and that was always missing from the internet, right? We had PayPal and PayPal was kind of going this way, but it had a really struggle in the beginning to make this work because there was so much fraud in the system. I always feel if you find an internet currency, then it should behave like the internet should be immediate, you know, 200 milliseconds, maybe or less transaction times should be fraud free and it should be very easy to use and Bitcoin is the opposite, right? It’s a thought model and it works, but it has nothing to do with what I want out of the transactional currencies. I completely rejected it, but that I think is not being fixed, right? That’s finally coming in with a new generation of cryptocurrency because it gets so much effort and it was always more like a bucket in the future. It didn’t, it wasn’t supposed to be slow, but on Bitcoin, you can easily wait an hour for transaction, even if you pay a really high fee. So it has, it’s 3% transaction fees. It takes forever. There’s no real time communication like, what is this, right? So obviously it’s because it’s decentralized and that was difficult to pull off when it was created, but it failed the mission that it set out, but it created for whatever reason that political spark and I think once we see now and we fix those problems and I think Ethereum too and Dogecoin especially, they fix all these issues. So maybe it’s been like the internet, right? So we actually think it’s something, but then we put all our money in because we know it’s a short thing and then we realize, oops, it wasn’t a real thing, but then actually some people, the technocrats in that industry, they built a real plumbing and then it worked out and something great comes out of it. I think this is what I think happens with Bitcoin too. The original mania will go away and it will all drop 80, 90%, but in the way something really beautiful is going to happen and that’s hopefully what we always wanted, right? It’s this real time, unlimited and not controllable, the currency system, which I think it’s a real problem. We have this amazing amount of privacy intrusions and just blocking someone for making transactions is so easy. You literally call master card visa dynamics and then you’re off writing your debt, you can’t even take an Uber anymore and that’s not how it’s supposed to be and when we have an independent currency or at least an alternative currency, we would fix that problem. I think there’s a lot to it. Yeah, I think I would just take issue with one thing that you said, which is all of these transactions can be monitored and actually blocked on piece of mastercard and things like that. You said that’s not how it’s supposed to be. That’s not maybe how we would desire it to be, but I think that’s the way that sovereign governments want it and will always require it to be. You look at what the Chinese central bank digital currency intends to do, what it intends to increase the surveillance of the populace to a degree that they’ve never had before. And I think other central banks are looking at that and saying, yes, a central bank digital currency gives us so much more control, but I am very excited about the underlying technologies. I think one of the things I’ve heard proposed obviously recently in the wake of the Robinhood fiasco during the GameStop craze in January. Was that we could settle stock trades, trades of anything, using some form of the blockchain that might potentially be able to speed up so that we don’t have two or three day settlement like we have anymore that we could settle in real time. Would be a very exciting way to utilize the technology and there’s a myriad of potential ways to use it like that. Anything that’s, I think if you find an application that you don’t trust the other person to fully control it. And I think payments is one system, but there’s three speech, there’s all these things in our daily lives where we control is gotten so cheap before it was always controllable. I grew up in Eastern Germany and you could control the population, but it was expensive. So at some point you just give up and you’re like, okay, let’s have people, they have satellite dish, whatever, they can watch some other countries TV, which wasn’t misdemeanor at the time. But at one point the enforcement was given up because it was just, you don’t want to go hunt for satellite dishes, there were no drones or helicopters, it’s a lot of pain. And so you just let it go. But I feel like when we now see we have all these, the enforcement of all these technologies is so easy, right? Google can just drop your name and it takes them a second to do it and you will never appear on Google again. And I think that’s where all these, this crypto comes in is that it’s independently, I think it’s the level of enforcement, how easy it’s gotten, people underestimate that on financial markets, but also anybody that’s touched by software enforcement is like push up a button unless people come up with a layer that kind of hides the facts from that software, but it’s getting increasingly more difficult. Yeah, I mean, I’ve been, I deleted my Facebook account in 2012, 13, I stopped three, four years ago using Google search and using Gmail. And it’s one of the reasons why I had Roger Magnum on my podcast a few years ago, he’s one of the first investors on Facebook and really brought it up to Mark Zuckerberg and Michelle Sandberg, how this company was kind of changing from truly a way for people to connect online into something that’s more sinister. And really the creation of the surveillance economy in over the past few years has been something that’s very disheartening in my personal opinion and so I’ve looked for ways personally to kind of remove myself to any, without too much effort, but it was a lot of effort to stop using Gmail and a lot of these services, it takes effort. And so absolutely, I sympathize with the desire to create these independent platforms and I do think it would be a wonderful thing to be able to decentralize a lot of the world of finance and tons of these other industries. I just think that the desires of the people to decentralize are directly contradicted by these big powerful platform companies which make a profit on centralizing and who also have a lot of pull in the political systems around the world. So yeah, I really applaud it and I’m for it, it’s just, it’s definitely an uphill battle. Yeah, I want to talk about something else, the investment world, the way you see it changing. We know that banks are basically with crypto, maybe their business model is definitely threatened. We know that even investment banks are rethreatened, but just computer algorithms, right? So there’s a lot you can do with algorithms and AI. You still need a few people designing them, but you don’t have to have that same manpower. How do you see the financial world evolving? What’s that major disruption right now? One thing that I just noticed is for companies like Brex, who’s the sponsor of this show, they basically just encoded anything that like Business Bank account would do, put it in some piece of software and now it’s just running wild, right? So there’s no additional people that they necessarily need, they obviously need some customer service assistance, but all this stuff usually would do at the bank. It’s all known coded in software. How is the financial industry really responding to that? I think they’re absolutely responding to it. I think all the major banks are looking at how to utilize blockchain. I think what another thing maybe people don’t appreciate well enough is the Federal Reserve is owned by the largest banks in the United States. To the extent that those banks are going to be cut out of any area, their purview in the world of finance, they’re going to be lobbying Congress and they’re going to be lobbying Jerome Powell to prevent that from happening. And so I do think, yes, we are probably going to see a lot of these technologies implemented by the major banks, but it’s going to be on their terms. They’re not going to be cut out of lending and all of these trading and all these things. They’re going to find a way to implement blockchain so that it serves their business model. And I think that’s what we’re seeing and I think that’s really the purpose behind this central bank digital currency that the Fed is looking into now. It’d be something to preserve the fractional banking system and preserve the power of the central bank to control the currency. But isn’t that like an offline university competing against online universities? Yes, they might have a bit of runway, but ultimately they’re doomed for 99% of the students. Some will remain and some will find it worth the money. Maybe the Ivy League, but all the other universities are doomed basically on a cost factor basis because you can give the knowledge out for free and still make some money off subscriptions. Isn’t that the same what’s going to happen to most financial companies right now? They can obviously resist it and develop and they will use all the political tools, but at some point they’ll just eat down on money. I think that’s true in a system where you don’t have a sovereign power that sees it in its interest to prevent people from utilizing a new system. There’s been a problem with the fractional banking system has been problematic for a long time. To the extent that we deregulate the financial system, we get more financial crises. That’s just history. The more you let Wall Street and the big banks do whatever they want to do, the more problems there are for society. We should, regulation is extremely important in all of these things, but in your analogy, we’re talking about online education versus in person education. I do believe the future is moving online, but in that scenario, you have an all powerful sovereign entity that’s going to say, to the extent you want to disrupt this, we are going to make it that illegal. I do think that is a risk to the DeFi movement is that whatever is going to disrupt the central bank and central bank, that means the fractional banking system, whatever is intending to disrupt that, will be made illegal. That’s just my belief. You’d have to create a new sovereign entity that believes DeFi is the foundational. There’s always one country who will say, okay, this is all good with us, and how do you actually enforce it? All you need is a debit card and then you can access your money in, I don’t know, Estonia. It’s very difficult for the US to enforce this unless they really want to go down to the lowest level and check in on where did your money come from. It’s possible, but it’s really intrusive. I don’t know if we really want to do this because the benefits are obviously huge. I agree, we will see more volatility, if you make this all DeFi, people will go crazy, volatility will rise up for sure. I guess it just comes down to a philosophical belief, which is you could look at it like, I hate to make this comparison, but with the attack on the capital, there are people that want to disrupt our voting system and our political system and create it and rebel against that. There’s no way the federal government is going to just sit back and say, okay, we’re going to allow you guys to create a new voting system or a new political system that completely disrupts and dismantles everything that we’ve created for 200 plus years. I just don’t see that happening. A sovereign entity is never going to allow its power to be undermined. That’s just my belief, but we’ve totally ventured outside of my area, expertise has just got into philosophy and we’ll come back, that’s okay. I was curious about, it’s a bit abstract, but it’s coming back to the financial world. Do you think information is becoming less or more valuable? I’m asking this because I see you run a newsletter, you sell information, but you also invest based on this information. But we’ve had this rise of information, it’s this theme that we say, well, it’s becoming more important because we have more leverage because there’s social media, you put the wrong information out there and then we immediately influence the whole planet. But on the other hand, we also know that people now realize, oh, it’s fake news and there’s lots of stuff and systems are complex, so information may be becoming less valuable because there’s so much noise around it, so it’s impossible for the outsider to figure out what is actual noise and what is real value, real information I should put some value to. Well, how do you feel about this? Do you think information, especially the financial world is becoming more important or less important? I definitely think information is becoming commoditized and I think that it is becoming less valuable. What I do think is becoming more valuable is thinking. Actually thinking about this information because I do think, like we see it with algorithms in the markets all the time, a headline will hit, it will come across the Bloomberg screen, red highlighted thing and the market will just algorithms will automatically just react and move prices. A lot of times those movements are ridiculous or undone in a period of time. I do think we are outsourcing a lot of thinking right now, whether it’s in the market, like I mentioned before, to these systematic strategies. I think what happened with GameStop and Bed Bath and Beyond is a wonderful example of this where I do believe a lot of these short based hedge funds were essentially creating systematic strategies for hedging, I mean for selling short, these stocks. When I was looking, part of my thesis for buying Bed Bath and Beyond was not just the stock was incredibly cheap and momentum and things started turning positively, but also that similar to GameStop, almost 100% of the float was sold short. Now as a short seller, I was the cofounder of a hedge fund firm back in the 1990s, we had a short only hedge fund. There’s nobody in their right mind when you think about it, whatever sell short of stock that has almost 100% of the float sold short because the risk of the market going against you and just not being able to cover your short is way too great and we saw that with Melvin Capital get absolutely caught on the short side, being short GameStop, but more than 100% of the float was sold short, so clearly nobody who is short GameStop was doing any thinking at all about the risks involved with shorting GameStop and I do think that’s just representative of so much that is going on, not just in the markets, but beyond. I think we talked a little while ago about passive investing, how many people are thinking about what Mike Green has been talking and writing about with the risks that are created, risk to financial stability by the popularity of passive investing and almost nobody is thinking about these things and so I do think yes, information has been commoditized and actually has become devalued because it’s become so easily accessible, but at the same time I think we’re doing a lot less thinking about what that information means, how to use that information and we’re kind of outsourcing a lot of thinking to algorithms across a lot of industries and I think that creates opportunities, creates problems and creates opportunities for people who really do want to do the thinking about how these things really could potentially play out. Yeah, I remember these stock screeners right when I think they’re very popular with value investors where they basically look at the balance sheet and what’s the growth rate of that company, but I think what you just described is basically the layers of screeners that people have for their decision making, right? Kind of like we go and I always compare this to GPS, right? When we go somewhere new, we always trust the GPS, if we go somewhere where we kind of know the route and we would rather stick to our own route very many times and I think we’ve explored the risk, I think we know what risk means in that subsector of thinking and then we make better decisions than AI and I think this is going to be the big battle over the next 30 years is to stay ahead of AI and for this you need to be extremely focused and you need to be lucky maybe sometimes, but you need to get ahead of these algorithms that are on a different decision making algorithm so that other people use because they don’t know enough and they use it and apply it, that’s obviously more abstract than it should be, right? There’s edge cases, kind of when you make a new law, it’s always an edge case where it doesn’t really work and then what do you do? You just give it to a judge or change the law, it’s now never perfect. I think this is what we all have to rise up to be, we become this pattern recognition animals aided by AI and then we just have to get better and better at this. Maybe that’s what we’re doing already, but I feel like we now have a better layer to describe all this, what we’ve been doing for the whole time. Yeah, and I love that you brought up the example of value investing because I talked about how value is a factor, has taken value investing somewhere where it was never intended to go and I think outsourcing the thinking about securities to create algorithms that however, search up screen for stocks or those types of things, you lose what makes value investing valuable in the first place, which is actually thinking and analyzing the individual securities and so that can be applied to so many different examples where we aren’t doing enough thinking about things and don’t get me wrong. Algorithms have been a wonderful innovation in so many areas of our lives. Things like GPS and things that make our lives so much easier, it would totally take for granted today and made us more efficient and productivity has gone through the roof, but I do think it’s gone so far that people have become too reliant potentially on them in some areas and for those of us who do want to spend the time actually thinking about the cost benefit in some of those areas, it can be pretty profitable. When you think back to LTCM, that hedge fund and bank bankrupt in 1998, the first crisis of the fact that they tried to rescue everyone with the policy that the Greenspan put, what they described is we’re looking for money machines, so literally things they’ve seen once, maybe in just sub market and then they tried to install a machine and one of the bets was the European interest rates convergence, but they were so short about a billion dollars on something they’ve tested, they back tested it, but it wasn’t a long term data. They had, from what I know, I haven’t been working for LTCM at the time, but what it seemed to me, they really made a calculated bet in the sense of we know that it works and then we just blow it out of proportion and then we really just hang on for dear life and hope that it still works. Do you think that’s still what’s going on in most banks and hedge funds to trade on such money making machines? Yeah, and I think probably what happens is, I mean, we’re seeing, I think it’s called Gresham’s law, which is, as soon as you use an indicator or a metric or something as a target, it loses its benefit as an indicator because you start manipulating it and I think maybe short volatility was a really good example of this, where if you look through the history of the VIX, you could create a strategy that says, every time volatility does X and rises by this month, if you start to sell VIX futures, you would have profited this amount, but that history doesn’t take into account that nobody was able to short volatility during that period. So once you start shorting volatility, nobody really realized that, okay, well, selling volatility actually makes volatility go down, which once it gets big enough and then that going down, volatility going down makes the algorithm sell more and which makes volatility go down and becomes a self fulfilling prophecy. But then short volatility gets so big that you start having, just like we saw in GameStop, volatility goes up and it doesn’t come down again, well then what happens? You start selling more, selling more, selling more to the point where you’re massively short volatility and if it doesn’t go down at that point, then you’re going to be wiped out. That’s very similar to long term capital. And then you’re forced to, okay, we’re going to be wiped out if we don’t start unwinding this trade. Well, now you have such a huge short position that in unwinding the trade, you’re going to push volatility higher than it’s ever gone before. And so I think it’s probably a very good example of how we look at creating these strategies, economic based strategies without considering how the strategy itself in utilizing it, putting it to work can create problems and passive investing may be the next one that we reveals. Okay, we look at the history of you just investing passively over this time period, you’ve done phenomenally well, but now more than 50% of the markets is invested passively and that’s never happened before in history. So what are the consequences of that? And some people are doing some fascinating work and starting to think about it, but we’re still not doing enough. Yeah, one thing when you mentioned short volatility, the Fed seemingly always makes money by going by shortening volatility, right? So whenever the Fed goes in and it’s being rescued, volatility has spiked up already typically. Maybe it’s just in the process of going up. But when we draw it a long term average volatility like the companies they bought was an IEG, this big reinsurer that they basically bought or that the US government bought with the help of the Fed. And it seemed like if you have that amount of capital and the Fed obviously isn’t short of capital, well, there is a limit, but it’s a lot. You will always make money going short volatility. When you look back the last 300 years or whatever, thousands of years sooner or later this society comes together, at least from what we remember, we haven’t wiped ourselves out. Society comes together, produces a certain amount of progress, then we fight a little and then it just boom and there’s a crash. But I felt like this is the best policy ever. I would be anywhere close to the Fed. I would just go in like the Fed and just shorten volatility in this time of crisis. You know, the big description is 40, 50, 60, and this is to always work. I don’t know if nobody ever looked at that. I don’t know if the Fed itself is actually shorting volatility to try and make a ton of money. Yeah. I mean, they are not learning from money, right? But it seems like this can’t go wrong. I mean, maybe five years, 10 years, you might be out of liquidity, you might not be able to hold on to your margin called for just in theory, I felt this cannot go wrong if you have a five year investment horizon. You know, I think you’re right, I mean, you know, the Fed, there is no limit to what how much money the Fed has can spend. You know, the only limit that I see is the value of the dollar that so long as faith in the dollar around the world is remains, then the Fed can go spend as much money as they want, print as much money as they want. As soon as that faith begins to erode in the value of the dollar, then that limits the amount that the Fed is able to print, to buy securities, to buy whatever it is, short volatility. And so that’s why I’ve said since, you know, I think January of 2020, you know, before the pandemic and kind of it was after that, you know, repo fiasco that I mentioned, I said, you know, the most important chart in the world is going to be the chart of the dollar because if the dollar starts to break down again, to me, that’s the real sign. That people are starting to lose faith. And that is really what, you know, my friend Bill Fleckenstein said at some point, the bond market is going to take the printing press away from the Fed. It may not be the bond market, you know, the Fed might be able to implement yield curve control. So we’re going to print enough money to prevent interest rates from rising across the entire curve. Well, then it might be, you know, the currency that takes the printing press away from the dollar and that in that scenario. And so that’s why, you know, watching the chart of the dollars is probably the most important one that’s been on my radar for, you know, the last couple of years. I fully agree. This is the limit, right? So if nobody buys the dollar anymore, then the Fed’s printing doesn’t make any difference. But here’s the thing. It’s that there isn’t a real big working model out there in the world. I was talking to Pablo the other day and Dubai is obviously a model for economic freedom, but, you know, it’s a tiny little spec and has its own problem. Singapore, Hong Kong, not so much anymore. What I’m trying to say is we need, in order to improve ourselves, we need an enemy in the sense of it can be a role model, doesn’t have to be someone we go to war with like China. But in China is a little bit in that, in that sphere where it become a real competitor. But the US doesn’t have enough competitors. That’s kind of my thesis. That’s what we have. This is my laser of low interest rates and low productivity growth. If you would have some real competitors worthwhile competitors, not like Japan and the European Union, who do the same thing, you know, Warsaw, then we are terms, at least like a bombing league, maybe to have higher life, living quality or quality of life. Do you feel like we have a competitor rising presented, dollar would really be in trouble, right? If another block, economic block or another country really figures out how to play this game well, and we are on the losing end. Well, you know, I do think China is already making steps to try and replace the dollars, the world’s reserve currency. You know, whether the successful or not will depend on, you know, how people start to feel about, you know, investing in China and owning, you know, owning the currency, but it’ll also depend on, you know, what we do from a fiscal and monetary side, you know, here in the United States. And, you know, you mentioned, you know, if the dollar goes down, you know, people won’t be using it anymore. I think the bigger risk, you know, to the Fed is if the dollar does go down dramatically. You know, that is a sign in the changing inflation expectations, and it creates, you know, imported inflation, right? The prices of everything that we need, we’ve deglobalized so massively, you know, over the last 30, 20, 30 years, that the value of the level of the currency has become more important than ever. So that if the dollar goes up, that’s deflationary for, you know, prices in the United States, dollar goes down, is inflationary. And so, you know, as I mentioned, you know, at some point, the Fed might be forced to start tackling inflation would be bad for the asset markets. And so that’s part of the reason why I’m watching the dollar too, because if the dollar starts really going down, that means these inflationary forces that we’re already seeing are going to be exacerbated by currency based types of inflation and an overall sign that people are losing faith in the dollar and inflation expectations are going up. All of those things together create a scenario for the Fed where they have to turn their perspective towards fighting inflation and those inflationary expectations. And so that’s why, to me, the currency is the number one indicator for paying attention to those trends. Yeah, I think you’re onto something. One thing do I notice when I travel, I’ve been traveling over the last 12 months too, because I had to, I feel like the dollar has gotten, at least for now, more valuable. You go, wherever you went, it feels like, whoa, it’s much cheaper than the last time I was here. Like, you remember going to Australia 20 years ago was kind of cheap, and 10 years ago was like, man, this is so expensive, breakfast is $40 for one person, and it’s not even big breakfast, right? So, but now you go back and it’s like, whoa, it’s, everything is becoming more affordable. That could be because, you know, everyone is in distress, but restaurants in the US haven’t changed price as much, maybe a little bit on delivery apps. But in general, I feel like in the US, we do have inflation for sure. But if you go outside the US, it feels like there’s huge deflation, but it might be just in my mind that economic indicators might not support this. But anecdotal evidence, wherever I show up, I feel like, whoa, this is only half the price it used to be. You know, these are obviously flights and hotels and then food. Columbia is one of those places, maybe that’s because I select them, right? There’s places that haven’t changed so much, but I didn’t have the impression in the last 10 years even, with exceptions, maybe Australia, there’s a few exceptions, but generally I feel like whenever you go abroad, the dollar has gotten more valuable, maybe that’s just me thinking that, but that’s kind of my impression that I had. Yeah, and I mean, there’s been a huge dollarable market for the past 10 plus years. I think I can’t exactly remember when it was when the dollar bottomed. It was kind of in the late 2000s when, and it was, there were these terrific sentiment signals when Jay Z filmed a music video where he was throwing wads of euros in the air. And Giselle, Tom Brady’s wife said that going forward, she will not allow anybody to pay her in dollars, only euros. And that was kind of at the end of a big dollar bear market that began in about 2001, lasted eight or nine years in the 2009, but right at that time when we saw Jay Z and Giselle saying, Euro, Euro, Euro, the dollar bottomed. And since then it’s had a huge run higher, especially in 2013, 14, 15, we saw a big run higher in the dollar. And that’s one of the things, one of the reasons why the Fed hasn’t been forced, wasn’t forced during the last cycle to really raise interest rates of tons because that was ended up being a disinflationary force with the rising dollar. So now, dollar really peaked back 2015, 2016, as to me has been potentially entering a new bear market. And so if that’s the case and the dollar breaks down again, I’d be curious to see if the dollar breaks down again below last year, late last year, early this year’s lows. That would be the sign to me that, okay, we’re entering into, this is a new dollar bear market and that is going to put additional pressure on the Fed on top of all these other inflationary pressures they’re seeing already. Only one last question for you. If you can draw as a worst case scenario, obviously if you’ve been talking of opportunities and risk and it’s not all negative, but if you feel like this Fed policy is coming to an end and entering a new paradigm, if you’re having much higher inflation, a lot of people think about stack inflation right now because economic growth stays low too, will we, are we talking about the market, the stock market maybe loses 80%, are we, there’s a broad market decline, when you look about the, maybe not worst case, but worst case realistic scenario that you would expect for the next couple of years, what are we talking about? Is it inflation 10% or inflation 100%? You know, it’s impossible to forecast, I just think that the Fed is saying we want inflation above our 2% target and I think they’re going to get it. I think we might see CPI hit 5, 6, 7% over the next few months. More importantly, we’ll see core inflation, you know, pick back up and you know, that’s without food and energy prices. You know, whether that affects the markets or not, you know, I don’t know, I think it depends on, you know, really what the Fed does, I think that’s what everybody’s looking at. We saw Janet Yellen, you know, this week suggests that interest rates might need to go up and that’s spooked the markets and so that’s just kind of a signal that that’s literally what everybody’s paying attention to. When is the Fed going to start talking about tapering? When are they going to start talking about raising interest rates because that’s really all that matters. Now, in terms of risks to the stock market, you know, I wrote a piece today or just published a blog post today that showed, you know, the traditional, you know, Buffett yardstick, the market cap to GDP for the United States is 30% higher today than it was at the peak of the dot com mania. So what that means is stock prices would need to fall 40% overnight to just be as expensive as they were at the peak of the greatest bubble, you know, the widely, you know, acknowledged greatest bubble in modern history. But it’s all tax stocks, right? So that’s like, that’s literally 10 companies that would have to fall by 80% and would be there because the rest hasn’t moved that much. Yeah, I mean, you know, it’s the market is all, you know, Apple, Amazon, you know, Facebook and Google. And so, yeah, you’re going to need those companies to drop in order to see that type of a drop in the market. But you know, something I’ve been writing about for four or five years now. And really why I wanted to talk to Roger Magnum is because sentiment is changing. And I think it’s a part of this Bitcoin boom is this anti surveillance economy. We’re seeing this now as a bipartisan issue. Republicans and Democrats both believe that these companies have gotten too much power. And when you see, you know, it’s almost like, you know, replay of kind of the gilded age, you know, when we saw monopolies rise in the early 1900s, and then governments stepped in to regulate them. And I think that’s probably the biggest risk to these companies today, you know, I even read a piece today, where California is talking about regulating them like utilities and basically, you know, limiting the amount of profit that they’re even allowed to legally make. You know, California obviously can’t do it themselves, but they can tax their activities in the state. European Union is also looking at, you know, taxing the platforms, you know, in ways that limit their ability to profit from their monopoly powers. And so, yeah, I mean, that’s just one of the risks. But from just a risk standpoint, I do believe that, you know, it’s pretty astounding to just think that our prices would have to fall 40% today, just to match the peak of the last major bubble. Yeah. Well, maybe there is really a better future. And the stock market is just predicting that. Let’s hope for this. That would be the best case scenario. Let’s see if it happens. Jesse, thank you so much for coming out. I really enjoyed it. It was awesome. That was, yeah. It was a great discussion, Tarsten. Thank you. Hope to see you again. Talk soon. Bye bye. Take care, Jesse, talk soon. Bye.

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