Niels Kaastrup-Larsen & Cem Karsan - Global Macro Series - August 24th, 2022

[00:00:00] Cem

These are places where money’s going to be flowing and it’s at the mouth of the river. Go to the mouth of the river and invest in those businesses. I think there’s (just like any other time to change) tremendous opportunity. This is not, “Oh, markets are going to be tough, hole up in a corner and keep your money in cash.

No, I think this is a time of an inflection point in markets and I think you’re going to see some very huge opportunities in terms of active management being in the right place – long the right place, and short the right place. I think those are ultimately tremendous opportunities. 

[00:00:42] Intro

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Here’s your host, veteran hedge fund manager, Niels Kaastrup-Larsen.

[00:01:36] Niels

Welcome, and welcome back to this week’s edition of the Global Macro Series with Cem Karsan and I, Niels Kaastrup-Larsen, where today we wanted to create a different episode compared to our usual format, namely without a guest, but instead a conversation just between Cem and I. For those of you who are regular listeners to the global Macro series, you know that both Cem and I have concerns about where the world and the financial markets are heading.

In fact, many of the issues we face today, like the high inflation and rising interest rates, are topics that we have flagged on this podcast for more than two years, when no one else really was talking about it. Unfortunately, the list of challenges we face today has grown a lot. So there should be plenty to talk about today, and we very much look forward to sharing some of our views with you in perhaps a more conversational, freestyle, free flowing format than usual, instead of just asking the questions.

But first, before we dive into all of this, let me say hi to you, Cem. It’s great to be back with you today, and how are you doing? How are things in the Windy City?

[00:02:44] Cem

Wonderful. It’s nice to not have a guest today. I’m looking forward to diving in and having a conversation with you.

[00:02:52] Niels

Yeah, I couldn’t agree more. Now, I wanted to ask you, to begin with maybe, a little bit about all the conversations that we’ve had so far in the Global Macro Series, with some truly amazing guests, I would like to add. What are some of the things and some of the people perhaps that have made the biggest impression on you, and perhaps even shifted some of your views that you had before when it comes to global macro topics?

[00:03:22] Cem

Yeah, it’s been a tremendous list of guests. I’ve definitely learned probably as much, if not more than the guests have. It definitely has helped give me conviction in some ways on certain ideas, and definitely bend some of my views on others. 

Peter Zeihan obviously was an awesome episode. He’s really out there pushing some important ideas. Particularly his views on China I thought really were very different than a lot of ideas I held. I’ve definitely bent more his way. I think we’re seeing more of that happening particularly as it relates to demographics and their weakness in terms of commodities.

Obviously he was out there talking about these things before the dollar strength we saw, so I think that was very telling. He’s been fairly right so far on a lot of these topics, including about Russia. I really enjoyed our recent conversation with MacroAlf and Andreas Steno, partially because they really disagree a lot with my inflationary views and it’s made me test and have a bit more conviction.

It’s always good to hear the alternative view and to really test yourself, and that’s, I think, been really interesting. Loved our conversation with Peter Atwater and the socioeconomics piece, which I thought was very in line with a lot of my views in some ways, but also really helped take it a step further on several levels.

There’s so many others: Grant Williams, Pippa Malmgren, the Fed Guy (Joseph Wang), and Adam Rozencwajg. Adam Rozencwajg, as well, was actually one that I think I got a lot out of in terms of energy, and some of the history of energy, and what that has meant for the world in the past, and what that’s likely to mean in the bigger picture. I think that’s very important, especially given where we are in history. So just a couple, but yeah, I mean there’s so much in there to tear apart and dive into, and it definitely has informed a lot of my views. 

What about you? 

[00:05:38] Niels

Yeah, I agree and obviously some of the guests you mentioned there, I think they also made a big impact. I think, again, I would say, what did it for me with Peter Zeihan, and of course he’s someone who has this wonderful way of being quite certain about a world that is full of uncertainty, and I love that.

What he helped me do is actually piece together some of the challenges that have been in my wheelhouse, which has been the trend following world. We did have a five year spell, 2015 to 2020, where things were much more challenging than what we have seen. A lot of people were saying trend following is dead and all that.

Actually, his recount of how we got to where we are [was interesting], also combined with the conversation that we had with Kevin Coldiron (you and I didn’t have that), or that I had with Kevin Coldiron, who’s obviously doing a lot of the conversations we have now in the Ideas Lab series. But his book that he co-authored, The Rise of Carry; that, combined with Peter’s framework from what happened post the Second World War, and all of that, then the Rise of Carry, that regime, and how he also believes that it’s falling apart at the same time as Peter Zeihan is saying we’re deglobalizing. Which is the same as saying the stable world that we have lived in is coming to an end. That helped me a lot actually to frame the strategy that I work with and how it all fits together. That was very, very useful. I agree with you in terms of the other guests, all the other guests have been fantastic.

There’s something in each of the conversations that is worth revisiting from time to time. Of course we will be revisiting some of these topics with the guests themselves. I think we have Adam on next month already. This will be an incredibly interesting part as well as of our journey to follow up and hold them a little bit accountable like we are with our performance. 

It’ll be good. Anyways, I appreciate you for sharing that. Now, some of the things that I would like to cover with you today are things like the role of central banks today, both their current and potential future politics and the implications of them. Are we going for a hard landing or soft landing, a crash? Who knows. Also the kind of flation we are facing. Is it going to be inflation, stagflation, deflation? Things like that. Also, I would love to hear your thoughts on some of the many asset classes that we touch in our lives and maybe some specific markets. 

Lots of people, of course, are thinking about whether we are experiencing a kind of short squeeze, or bear market rally, or whether this is the beginning of the next bull market. I would love to hear your ideas around that. 

We definitely need to talk about positioning for an uncertain future – what your thoughts are. And maybe, to round things off, we shouldn’t leave out the good old geopolitics, and maybe even some demographics, maybe we throw in a bit of crypto. We did talk to Nathaniel about crypto as well. Who knows. So it’ll be fun, it’ll be unpredictable. But I think we have a lot of things to talk about.

So perhaps we can start with the Fed, and this, of course, applies to more than just the U.S. Federal Reserve. What are your current thoughts on the Fed? Maybe you could also start out with building the historical framework that we might need. 

[00:09:31] Cem

Yeah. I think the Fed is the right place to start. So few people appreciate how central the Fed is and how central monetary policy has been, not just to the economy, but broadly to geopolitics, broadly to these issues of inequality, and the fabric of technological development and globalization.

With all of these things, which are so important to all of our lives, the driving factor (in my view) has been the Federal Reserve. I’ll start at the very beginning. Here in the United States, the US was created in opposition to a king. We created a structure that was very much about equality, and justice, and liberty.

Our founding fathers here created a constitution, which itself affected many other constitutions and governments around the world. That had lots of checks and balances, and that was purposely to help protect and safeguard these issues of equality and justice from the power; the corrosiveness of power.

I’m starting there because I think it’s important to understand that the Federal Reserve was… In the US because laws are hard to pass. Now it’s true for a lot of other democracies. We had many, many business cycles and a lot of crises along the way. We essentially needed crises in order to pass new laws. That was on purpose. We didn’t want laws to be passed without unanimity in the system. But people got sick of that. After some time people said “Well, we don’t want crises all the time.” So, we created an extra governmental power called the Federal Reserve.

I think it’s important to understand that this Federal Reserve was meant to smooth out the business cycle, but crises are, ultimately, very critical to the functioning… Cycles matter. You need relieving of stress, and you don’t want to hold up the business cycle too much, because if you do, the crises build, and build, and build and performance doesn’t happen, and change doesn’t happen. 

I think that’s something that’s not talked about enough. It’s a very important thing that has happened here. The Federal Reserve, after Nixon took us off the gold standard, became dramatically more powerful in a world of fiat.

They can do unlimited things. They’re no longer bound by some force, some ultimate value. That central bank power, starting in ‘72, grew exponentially. I think that over the last 50 years the role of the Fed and its power has ultimately defined almost everything that we see around us.

So yes, you have to start with the Fed. What has it done? We’ve gone to monetary policy dominance essentially, almost exclusively, that the central bank has controlled the economy. They have very limited tools. They have one tool, monetary policy, essentially.

They have only two objectives. It’s a very simple structure. The government didn’t want to hand over the purse strings, obviously. They wanted to give it some checks and balances, but instead we’ve created something that’s completely in control of the economy, that is unable to fully control it properly. Nor does it look at the big picture and control things like inequality and other issues. You give incentives and you see the results. So, these are the incentives that have been laid out from the Fed. It’s a bunch of academics that are trying to maintain price stability and maximum employment.

These are very simple objectives and a very complicated economy with monetary policy. What do you get if that’s the dominant thing? You don’t get any governmental reform, you don’t get new laws, you don’t get people worrying about the issues of inequality and other issues that we’ve talked about.

So you go to free market economics on steroids, and the response is always more free market economics, more oxygen, more money into this system to control any time that there’s a pullback. Ultimately that leads to all that. 

What is monetary policy? Monetary policy goes to the top. Monetary policy: who borrows money? Wealthy people borrow money. People at the bottom don’t borrow money to the extent they do. It’s a very small portion. There is some that goes to the rest of the economy for sure, but it really is supply side economics. You’re giving money to capital, you’re giving unlimited resources.

What has that caused? That’s caused in growth, the duration trade, obviously for 50 years has been dominant. It has created technological revolution. Again, we’ve talked about this on the show before. During my time growing up, I grew up with the Jetsons and 1984, and the 2000 Space Odyssey.

The future never came soon enough. It was always way further than you’d ever expect. Then all of a sudden, in the last 20, 30 years, we’ve seen this massive acceleration where the future that you expect in a year happens in three months. That’s been because of unlimited monetary policy.

We have completely created technological revolution here. Most people would say, that’s great, that’s wonderful, look how much that’s improving our lives. Sure, but the more you send money, there’s cost to this as well. The more you send money to capital, the more we get inequality, the more the people at the top make more money. Labor power reduces because of technology, because of globalization, because of corporations becoming more efficient. You send money to corporations, they’re profit maximizing, they’re going to create an incredibly efficient system, raw tooth and claw. That’s what nature does, devoid of the average human beings needs. That’s where government should come in, in some form or another. 

This is a long-winded kind of intro, but I just wanted to lay the groundwork for how important it’s been for where we’ve gone. In the 1960s and 1970s (now, a little bit of history that’s not necessary, just Federal Reserve) government (and before that) was broadly much more active. During that time the Great Society Program, by LBJ, was introduced. 

Much like we had an impetus recently to a populist policy, they had an impetus that JFK had all these ideas. He was a young, vibrant, popular president, but couldn’t get them passed. When he got assassinated, in the mid 1960s, LBJ had a broad initiative from the whole country. That was the spark, much like COVID was the spark, now. That kind of set off this Great Society Program. There was a demand for it to begin with. Once it finally started, and both sides bought in, unanimity took over and it was very popular. Once you start addressing inequality, you send money to people, people start buying more goods. It’s a demand side economic response. 

That demand side economic response created less labor. People are making more money. They don’t want to work for the same terms. They start getting more union power, which we got a lot of during that time.

You also go from a geopolitical (this is how geopolitics comes into it) cooperation game (where everybody’s working together towards profit maximization and globalization) to a period of much more geopolitical competition. We’ve seen that throughout periods of inflation and fiscal policy dominance.

That’s what we saw during that time with Vietnam, the OPEC crisis. A lot of these things people think are separate things. They point to them as the cause for the inflation, but what people don’t realize is they all cluster. When you start to get inflation, you actually get more populism, you get more geo nationalism, you get more xenophobia, you get more global conflict, and you really are in more of a negative feedback loop of of competition.

So, it’s not a surprise that what we saw during that time echoes in so many ways across so many different vectors in this period. It really is about rebalancing and about this idea of rebuilding a middle class, lowering inequality. Again this is a story as old as time. Here we are with historic inequality in the world after 40 plus years of monetary policy dominance, and we’re doing the same things of that period.

The Fed is supposed to control price stability and maximum employment. They can easily do that through the control of inflation by doing more monetary policy as long as they’re not worried about something like inequality. If there aren’t people in the system, we’re just going to maximize GDP and create technological innovation. That’s deflationary on its own, then you do more. That ultimately drives the economy forward and its optimal positive feedback loop.

If you are going to deal with fairness, and justice, and these things that are not natural constructs, and give people in the middle some level of equality and fairness, that is ultimately going to short circuit that benevolent cycle. The Fed, in that situation, really can’t control inflation.

This is structural inflation. There are two forms. There’s structural inflation and there’s the psychological piece that makes it worse. We’ve broadly been told that structural inflation is not really an issue. It happens here and there, but then it’s really the psychological piece.

As long as the Fed comes in and short circuits that long-term inflation expectation, things will go back to normal. That ignores the very important kind of 40 year plus cycles we’ve seen where there are structural causes, which is really addressing inequality and populism, and that’s such an important thing that’s not discussed and not broadly understood.

So people believe, because over the last 40 years the Fed has this credibility and control that they can do anything, because they broadly have been able to with monetary policy dominance when inequality wasn’t a problem. But when populism builds it causes fiscal response, which causes inflation, which causes more (ironically), more populism.

These are pent up things that you can’t solve 40 years of inequality in a year or two. Honestly, the more the Fed gets involved, the worse they’re going to make it. That’s what happened in the sixties and seventies, because the more you turn it into a crisis… We talked about how the lack of crises is not solving problems.

The more we have crises, because the Fed needs to cause it to trim inflation by raising interest rates, the more the response by the government is going to be more fiscal response. That’s what we’ve seen in the sixties. That’s what price controls are. Price controls are more fiscal policy.

People probably don’t understand this. We’re seeing it, you and I have talked about this quite a bit, but we’ve been calling for it the last two years. Those policies, one after another, keep happening. People are almost amazed, doesn’t the government understand that fiscal policy causes inflation? Why are they doing this? Because people, for 40 years, have dealt with inequality and they want it fixed. Now, we’re having to deal with that. This is what fiscal policy is. Yeah we may not want inflation, but guess what? We want more equality, and that’s more important to the people.

I think that’s the thing we’re missing. Long winded answer to your question, but I feel like that’ll set us off at least on the right trajectory. 

[00:21:10] Niels

Yeah, no, that’s great. History is always incredibly useful to understand these issues, because, as I think most people would agree with, we tend to repeat the same mistakes we’ve made before. So why not now? Seems as good as time as any. That’s very useful. 

When I hear you say all of this, the question is… Another thing by the way that I always found interesting is that the people (at least that’s how it seems to be in the public domain), the people who cause the crisis are also the ones that are commissioned to fix the crisis that they created. It usually doesn’t happen like that in the private sector. They seem to quickly find new people to do so. 

But it almost sounds like it’s an impossible task in a sense that they have. As I mentioned in our introduction, we think their role (to a large extent) is to steer the flation, and ideally to a steady and predictable level of inflation.

Then, I can’t remember exactly when, but someone came up with this 2% inflation target, which I think they just took out of thin air. But that’s really become what we all expect. As you rightly say, we very often think about, when will we go back to how things used to be? I think most of us, of our generation and younger, would say that’s the 2% inflation target. That’s the norm, even though, as you rightly say, if you go back in history that may not actually be the norm. 

But this kind of Goldilocks idea that central banks can control inflation and maybe unemployment as well, how much control do they really have? Could we argue that these are just cycles that happen, and we’ve seen this before, it’ll happen again, and there really isn’t that much they can do to change the cause of where these steering tools are going.

[00:23:16] Cem

Yeah, I think they have a very hard time controlling secular trends. I think obviously in the short term, they can cause crises, they can remove capital from the system altogether, especially from very high levels of capital being deployed, and cause a major drop in the markets, and cause malinvestment to be liquidated and all the things that have happened over 50 years. But the secular trends which are political, which are about people… If they were thinking more about the long term they would’ve not done this much monetary policy. They would’ve found a way to work with government.  But when you’re in the middle of a crisis, and the world turns to the Fed and says, “You save the markets,” and they have one tool, they’re going to do more of the same. That’s just going to create longer term problems. 

It’s really this short-termism, this stopping any potential short-term problems, and that builds pressure in a system. You can’t solve all the problems, and optimize to current GDP growth, and not take something… not cause a bigger problem.

People like to think that, “Oh, the Fed.” Janet Yellen said, “We’ve eliminated the business cycle.” Sure, in the short-term, but you’ve just created a bigger cycle and bigger problems down the road. I think that’s the big takeaway.

[00:24:55] Niels

I should have added maybe to my question, something that you wrote about in your recent newsletter. I guess what I was trying to say is that you sometimes go through periods where actually these Fed chairmans, they do the same thing, but the result that they get is very different. I think you know where I’m going with that.

[00:25:16] Cem

I think that’s super important. You hear so much. The narrative is about the Feds (starting with Volcker, almost). You don’t hear about the Fed before that, that much. Which I find to the extent you do, it’s almost like, “Oh, those guys, they didn’t know what they were doing. They were asleep at the wheel.” That narrative makes a ton of sense for the Fed trot out there, because Volcker was the one who regained the credibility of the Fed. The Fed, largely for 15 years, was not credible because they could not control inflation.

The long end of the curve exploded higher because they could not do anything about it. They tried. That’s the part that is not discussed. We talk about the 2.5%, 3% that we’re raising rates here as if it’s some colossal, huge thing that the Fed’s doing. 

William McChesney Martin, in 1967, raised interest rates 7.5% when inflation was at 5.5%, 6%, actually lower than it is now. He took real rates considerably negative and caused a very mild recession. You would’ve thought it would’ve caused a much worse recession, at the time, but it was a go-go period of hot demand (similar to now) and the demand and fiscal policy that was going into the economy was such that they couldn’t even really slow inflation. Inflation came down 1.5%, 2% amid a mild recession. They held real rates fairly positive for some time. They took the Fed funds rate above inflation for quite some time, and eventually they pivoted, and inflation skyrocketed higher because the secular driving forces of inflation were incredibly strong (like we talked about).

This happened again with Arthur Burns. Arthur Burns raised in ‘74, ‘75, raised interest rates 10.5%, from 3% to 13.5%, to battle runaway inflation again. It caused the next biggest recession since the Great Depression. So, it caused a major, major downturn in the economy, it was incredibly unpopular. What was the response? More fiscal policy. 

Eventually, if you get a massive recession, something that is the next biggest after the Great Depression, people are not going to put up with it for long. Eventually he pivoted. That’s what I assume the Fed would do, because it’s what they’ve done every other time too. If they raise rates 10.5%, and we get a massive multi-year recession they’re going to pivot. He pivoted, and inflation skyrocketed again. 

The dialogue is… the narrative that you hear out there is that they were asleep at the wheel. They didn’t do anything. Volcker did the same thing essentially, and he didn’t think he would succeed because it didn’t work before. If you read his books, and you hear his interviews, he was surprised it worked as well. But it was like they had tried everything and so they were just going to do more.

The reason it worked is not because he did more per se, because he did it twice. Okay, fine, he did it twice. It’s because populism had run its course. There had been 15 years of it at that point. At that point the middle class had grown. People weren’t calling for more populous stimulus. They were actually starting to say, listen, we’ve had enough of this stimulus. We’ve had enough of this populism and it’s time to move to these other types of policies. There were lots of policies that were being forced. The change came from crisis, much like it always does, and things evolved to a much  better place. 

We had the beginning of globalization, we had the beginning of a much, much better oil supply because we’ve had supply side responses over that period. We can go on and on. The war in Vietnam came to an end, which is an important factor. But all these things cluster, like I was saying, and when they start to turn, the clouds part.

Yes, Volcker did the right thing in stopping that long-term inflationary expectation, which had taken hold because that was the truth. Long-term inflation was going higher and expectations were higher because the Fed couldn’t control long-term inflation. But at some point he came in at the right time and did it again and finally broke the back of that psychological piece. But the secular inflation had died. That’s why it worked. That’s just not discussed. Everybody just assumes that the psychological part (and that’s the narrative) is all that matters, which couldn’t be further from the truth at the beginning of a populous move and inflationary structural push.

We actually don’t have that inflationary mindset, not even close now. Again, we’ve seen the Fed’s ability to just crank down the long end of the curve. People don’t realize, broadly in my opinion, how structural this inflation is. We’re seeing that in the data, underlying data, sticky price inflation is actually continuing to go up higher – labor, rents, all the things that are more domestically driven. Core CPI is actually incredibly strong in the face of this. 

This market response here, and we can get more detail, more granular to where we are now, has been very interesting because it really is… There’s this psychology narrative that the Feds put out there that we’re still in this last 30, 40 year period where they’re dominant, and they’re credible, and they can do whatever. It’s just psychological inflation that needs to be taken care of. In the short-term, they’re winning that battle. They’re going to lose the war. 

[00:31:01] Niels

Yeah, absolutely. I mean I’m a big believer in cycles, market cycles, and it strikes me from time to time how little we, as a whole, pay attention to this, because you can go back and you can find them.

As you rightly say, if you do something at the right time, it has an effect. But if you do it at the wrong time, it usually doesn’t. It’ll be interesting to see, but of course, as some people would argue (one of them I’ll come to in a second), it is very likely that we’ve just seen the change in the 40 year interest rate cycle and which probably then had its low in, in 2021. So, we’re one year into the next cycle and already people are talking about that the Fed is about to lower interest rates and go to zero. It’s interesting. 

But anyway, we recently published a fascinating conversation, I think, with Edward Chancellor, who is, perhaps as some people call him, the best financial historian out there. Of course he’s very current at the moment because he just came out with a new book called The Price of Time, and in it he writes about the conversation he had with Kevin Coldiron, on the Ideas Lab series. One of the points that we’re talking about is obviously the consequence of the ultra-low interest rates.

So now we’re back to the ultra-low interest rates that we’ve seen, which are ( I hate the word), but they are really unprecedented (when you look at it from a historical point of view) in terms of how low they went. Do you yourself have any views in terms of the potential consequences of these ultra-low interest rates?

Of course, a lot of people talk about the fact that it creates speculation bubbles and all sorts of bad behavior in the financial markets. But is there anything you’ve thought about when you do your big picture thinking? 

[00:33:09] Cem

Yeah, absolutely. To go back to what we were saying before too, doing the same thing at the wrong time that worked at the right time can actually have a massively negative feedback loop.

People think, “It worked for Volcker. Just try it again. What do we have to lose?” It could make things worse. I think that’s the thing people don’t realize. One, there’s likely to be more fiscal response, which will actually push a quicker inflationary response, which could make things much more out of control – ‘A’. but ‘B’ (to your question, your point about malinvestment), if you’ve gone so far down a cycle, the most dangerous thing you can do is try and pop that bubble.

This is something that we didn’t mention, but I think is very important. We’ve had five periods here in the US where unemployment has gone over 9% in the last 150 years. Two of them were reactions to actions, by the Fed, to deal with inflation. Those were the ones I referenced in the 1960s and 1970s.

Another two of the five were bubbles that were created by ultra-low interest rates which they had to pop, and pop that bubble, which then created a massive recession and massive unemployment. They have never had to deal with a time where they had a massive bubble and valuation issue based on low interest rates, where they’ve also had to deal with inflation.

That is much harder. In the sixties and seventies, we were not at evaluation level. Malinvestment was not incredibly high. We did not have a massive potential give-back on some of those issues and risks that were correlated with popping that bubble at the same time as inflation.

It’s important to note this is a very volatile situation. Much more volatile than the sixties and seventies, I would argue, because of those ultra low interest rates in that malinvestment that you discussed. 

How does malinvestment work? Again, most people broadly understand this, but I think it’s important to put a little basic model out there. My mental model (it’s a very toy model), is the whole economy is basically a real estate investment. You can put 25% down if you borrow on an investment property. If interest rates are at 6% and that property or cash on cash yields 6%, you’re probably not going to do it.

You’re just going to buy the property and get your cash 6% yield. But if interest rates go to 4%, yeah, you’re going to borrow, it’s a no brainer. You’re going to go put 25%, you’re going to go buy four times as many properties, and you’re going to make 2% on each of the 25% pieces that you borrow. So 2%, 2%, 2%, equals 6% plus the 6% yield you had on the other amount – 12%. All of a sudden your price to earnings ratio just doubled. Your price earnings ratio, your value of your cash flows, has just gone up. People just look at PE and say, “Oh we’re at average or just above average price to earnings ratios. This is great. 

They completely don’t look at the leverage under the hood. The fundamental economy hasn’t changed. All that’s changed is there are lower interest rates. That’s fine, okay. As long as those interest rates stay low. Sure you’re getting that cash flow, that’s great.

But when interest rates do go higher and people have to refinance, those mortgages or whatever, that’s a problem. That’s level one. Level two is what happens when interest rates go to four? Everybody can go buy four times as much property and prove. Guess what? They start being okay with 5% yielding properties because there’s more money out there chasing these returns. They can still make 5%, 1%, 1%, 1%, equal 8%. They were making 6% before. It’s better than it was before. That’s malinvestment, again, a basic model, but that’s what’s happening in the economy.

We’ve lowered interest rates to zero. Guess what? Over 40 years, lowering interest rates to zero creates a lot of leverage and a lot of malinvestment. We’re seeing record corporate leverage by significant margins. There’s almost twice as much leverage in the system on the corporate side. 

I think it’s gone from 30% to about 50%, 52%, in the last 25, 30 years. Again, this is not the sixties and seventies. We’re in a much more leveraged, much more malinvestment period, higher malinvestment. When interest rates go higher then you have what’s called creative destruction, you destroy that malinvestment.

All these ideas and things like sending people to Mars and mining asteroids, or whatever. These future ideas, which may be cash flow positive at 0% interest rates. Over the long run they have a positive expectancy. There may be great ideas and great technologies that you’ve developed, but they disappear, or have to be purchased by somebody else who has real cash flows. The value of cash flows matter again. 

Anyway, this is my mental model. I think that’s where we are. The Fed is now trying to navigate inflation and interest rates coming up, with the risk of popping a historic bubble. Again, people just look at price to earnings and say, “Ah, it’s not that big. It’s not a bubble. What do you mean it’s a bubble?” Price to sales are at record levels. Why? Because leverage makes margins lower and the globalization that it’s pushed, then the technological innovation that it’s pushed, all these things are related. That’s why we’re at record high margins.

Those margins are going to revert if interest rates go higher. As a result technological innovations are going to slow. Deglobalization’s going to continue, and the cost of money’s going to go up. You’re going to get the washing of malinvestment, creative destruction, the despair margins are going to collapse like we saw in the sixties and seventies.

By the way, people keep talking about recession. I don’t think that recession, looking at GDP, is really the issue here. The issue is earnings are going to collapse. I actually think price to sales is going to come back in line. We’re likely to have strong revenue growth. If you look at the sixties and seventies, it was actually way above trend – real economic growth. It was a demand side, economic push. The economy’s going to do quite well. 

People on the bottom are going to do much better than they have over the last 40 years. But that doesn’t mean the market’s going to do well. That means you’re likely to get multiple contractions. You’re likely to get margin compression. I think that’s the story, I think that’s not talked about. Everybody’s talking about recession, and everybody’s talking about a slowdown of GDP. I think we’re going to get earnings recessions over the next 15, 20 years. I think that’s important.

[00:40:02] Niels

Yeah, absolutely, you’ve moved on to an area that I wanted to talk to you about in any event, and that is maybe looking at some of the various asset classes and markets. Obviously the guests that we have in the series, some of them are very specialized in certain areas, and some are more broad based.

But I think it would be fun to run through some of these asset classes and hear your views. You already started, so let’s stay with bonds and interest rates. To some degree, you can expand on it a little bit more. I’d love to hear a little bit about what you think in terms of where they are heading both in the US, but also if you follow European rates.

It could be interesting to see what your views are, maybe in terms of the differences. I’m going to throw in a few things at you now and then you can pick up what you want. I’m also interested in that you also wrote about the yield curve inversion.

I’d love to hear what you think that’s telling us at the moment. Obviously we know what the populous opinion is in terms of what yield curve inversion means, but let’s hear what you think about that. I’m curious. What does this all mean? Given the fact that QT hasn’t really even started, the way they implement these programs, it takes a long time before you get real balance sheet reduction and through QT programs. I think that’s an interesting area as well. 

We were speaking about ultra-low interest rates before, but I think we also have to take into account the fact that now they’re raising them at an ultra-fast pace, much faster than what we’ve seen. What does that mean?

Anyway, these are just some ideas. I’m sure you’ll forget some of them.

[00:41:52] Cem

Yeah, steer me back when I go off on the wrong fork. But let’s start with the inversion of the yield curve. That’s probably the best place to start. 

For 40 years, every single bond trader who’s ever traded, every algo that’s ever looked at data for any reasonable amount of time (that’s been profitable) when the Fed starts increasing in interest rates at the rates they do, the models say, hey long-term interest rates are going to cause a recession. That is what has happened every other time.

That, by extension, will drive interest rates lower, it will drive markets down, and will drive people into safety. So, the models assume that. That means you have to crank down interest rates. The best trade, at that point, is to go buy very short duration as a hedge, or sell as a hedge, and divert the curve. That’s what’s happening. 

If you listen to bond traders, or people who have been in that market for quite some time, that’s the simple argument. It’s not any more complex than that. That’s MacroAlf’s, and Andreas Steno’s argument. We’ve had this conversation in our interview with them and listen, they’re bond traders. Like I respect it. I’m not. I get it. It’s important to hear that. But it’s 40 years of data, and how do you say, all of a sudden, how do you break down and say maybe the Fed raising interest rates isn’t actually going to slow long-term inflation? It’s just going to slow short-term inflation, which is what happened in the sixties and seventies. When there’s no recent data for that, ‘A’. 

‘B’, how do you say (if we get a recession), that it can’t be an inflationary period at the same time? This idea of stagflation breaks down all those models and we haven’t seen stagflation for 45 years, really. Again, my argument is for stagflation, I think that’s what’s coming. I think it’s not massive, like 15% inflation with us in recession. It’s probably more like 4.5% inflation with us in a slow GDP – a small, shallow recession where earnings really get hit. Wages don’t come down dramatically. 

In that scenario, which again, is not in the data, the actual worst thing you want on is short the twos, long the tens. I think you’re getting a 45 basis point credit right now to own the 10 year at 2.75% or 2.8%, or wherever it is right now. (The yield at 2.8%, I’m sorry, I keep talking yields and switching back and forth.) But I think that’s an incredible opportunity right now. You get positive carry. Can a ten your, in a short-term, the yield declined at two and a half, two and a quarter, even two? Sure. But you’re getting enough of a credit here. 

I think the long-term secular trend is very much in place. I think people are discounting the power and importance of politics, and populism, and what, actually, the reaction function behind the markets looks like. That piece I think is critical. That’s not a data set, or something, that people run models on. 

Broadly, models are saying follow the historic kind of path. But again people are like, “Don’t fight the bond market. The bond market’s usually right.” Up until last year, sure. It wasn’t right six, nine, months ago. It couldn’t have been more wrong. I think the Fed’s telling you the same thing. Again, the Fed’s more aware of this stuff than the average public is. They look at the big picture, they know the history. They’re trying to control the narrative and do the best they can.

The Fed’s been out very vocally saying, listen, that 10 year inflation expectations you guys have, and what you’re expecting for our battle here is dramatically underestimating things. The pivot that the market’s pricing right now is (not just in my opinion, but the Fed’s opinion) saying you should probably listen to the Fed on that.

So again, it’s always dangerous to disagree with the market. I hear you on that. But every bond trader out there is saying the same thing. That makes me feel pretty good when very few people are agreeing with my view, because I actually think what’s happening here is very basic. Every argument is the same, which is this, “Hey, the Fed’s going to raise interest rates and that’s going to cause a recession. By extension, that means, long-term rates and yields have to come down.” 

That’s the simple argument. I disagree with a lot of parts of that argument. I think the Fed will slow the economy eventually, if they’re very aggressive. But I think ultimately secular inflation is here to stay.

If anything that means the two year inflation yield should stay there, or come down. I’m okay with that, but I think they got the wrong part of the curve. Their pricing of the 10 year on out yield is going to actually trend higher.

I would expect it to steepen and to really take hold in the next year. I think when that happens, I think we’re going to see a general loss of credibility at the Fed. That’s what I’m actually looking for here in the next year or so, this loss of faith that the Fed can actually control long-term inflation.

[00:47:53] Niels

Yeah, no, absolutely I think that I think that’s universal, not just for the Fed. I think, the loss of faith in central banks could be the major shoe to drop, so to speak, in the next couple of years. That’s going to create market behavior that I don’t think any of us can really imagine.

I think for me what I’m taking away from the last couple of years in the market is just this thing about, I think we’ve lost, collectively, our imagination of what markets can do. I think we all expect them to somehow fall back into line, if I can put it that way. I think there’s way too little being priced into the unimaginable really, and things not panning out the way everyone expects.

Time will tell. Just the fact that obviously we’ve had a pandemic. We now have a war in Europe and we have many other crises. Then at the same time we are seeing the fastest pace in terms of rate hikes happening. At some point, maybe also some serious QT if they deliver on their promise.

All of these things to me, in itself, should indicate that the markets, they’re not going to react like we just want them to or expect them to. There’s going to be some big surprises along the way,

I want to move on because obviously we can go on for a long time and we don’t have that unlimited amount of time today. I want to touch on a couple of other asset classes. The other one that I’m just curious about is of course equities. It’s such a big part of everybody’s portfolio and people tend to focus on that probably more so than fixed income, even though fixed income is a much bigger market.

Of course you are the expert in volatility and I wonder how far out can volatility  guide you in terms of your views on equity markets? Also what other factors play a role, in your view, on the future of stocks? I know none of us, we’re not trying to predict where the Dow Jones is going to be at the end of the year, or anything like that, but just broadly speaking what you think might happen.

[00:50:22] Cem

I like to start, when I think about these things five plus years out, think about the big trend. Those trends often have very little to do with what happens the next quarter or month, much less week or day. But they do matter. I like to work my way back from these things.

Again, I’m giving you my broad view on five year interest rates. What does that mean for equities? Let’s talk about that. If you look at ‘68 to ‘82 (the last time we had secularly increasing interest rates), if I believe that interest rates (which have gone from the top left to the bottom right for 40 years) now have a much higher probability, at the very least, of going bottom left to top right, what does that mean?

Again, I don’t think that’s discussed enough, I think. What does that mean for everything? Historically the last data set we have is ‘68 to ‘82, that kind of general period. What did stocks do in the US, nominally? Nominally they went nowhere for 14 years. It’s hard for people to imagine we’ve had 15% nominal appreciation per year in the last 30 years or so.

So, going nowhere for 14 years is a big deal. That’s nominally, to be clear. Real performance was that you would’ve lost 70% of the value of your money over that 14 years if you were in markets, never mind the volatility you saw along the way. On a risk adjusted basis that doesn’t look so good.

Passive investment, people think it’s like a new innovation. It’s crazy that they didn’t think about passive investment before, 30 years ago. No, it’s not crazy, it’s because market didn’t work. People didn’t passively invest because it didn’t make any sense.

That was the golden age of active investment, because you needed an edge, alpha mattered. Fundamentals actually mattered because cash flows mattered. 

Again, I’ve talked about this, but fundamentals don’t really matter if money is free. What matters is long-term, having a better idea and winning over the long run if interest rates are low. Fundamentals on a cash flow basis. Money’s worthless. Cash flow doesn’t matter. It’s market share. It’s power. 

When interest rates go up, those cash flows are much more valuable, much more important because they mean that you can survive, that you can buy back your stock, you can buy other corporations and ideas. You can develop things because the Fed’s not giving away that money. So fundamentals matter more. Active management it’s a much more important thing during periods like that. You could have done very well in stocks that period if you own the right stocks, and the right businesses.

So in my view we’re at record price to sales. Margins are at record levels. Because of all the reasons I’ve extolled, we’re likely to see a real difficult time ahead. Long-term, 10 years forward, for markets on a nominal basis and with interest rates rising, bonds won’t be a place to hide.

Broadly it’s a tough thing to do. Active management, finding an edge, figuring out what that edge is: whether it’s fundamentals, whether it’s again, trend following, whether it’s volatility trading, some type of edge that has a real substance to it. Be in things that are cash flow positive in real real terms. 

Real businesses that make money will do well. But you’re going to get multiple contractions. That’s what we see during periods of inflation. You’re going to see the death of the duration trade, because money’s not free. People have to make money in the short-term. You’re going to see margin compression along the way, particularly for entities that are relying on labor input and commodity inputs. That’s going to be a problem. You’re going to see a slowing of technological innovation I think in the next 10, 15 years.

It doesn’t happen overnight. But you’re going to see a lot of malinvestment get liquidated along the way. Generally these things start, we saw 45% (I think) decline in the markets at the beginning of the inflationary period in the sixties and seventies. You saw multiple 75%, 80% rallies. So, it’s not like the market just sits and goes sideways and volatility dies. You see a very volatile, active market with lots of crises. We had two major recessions over the course of five, six years. Again, a lot of geopolitical strife, a lot of internal strife here in the US and globally as well.

So I would expect a very difficult period. You talk to people who are baby boomers who are around, in their prime, in the sixties and seventies, and they thought the world was going to end. JFK got shot and Martin Luther King Jr. got shot in the US. Again, I’m more US centric, but this is true globally as well. It was a time of incredible geopolitical strife, but it caused lots of change. That’s, I think, the important thing. 

I don’t want to come across… I think we’ve come across this so negative all the time. I want to be clear that these are actually things that need to happen to cause positive change. You look at World War II, it was an awful thing. The world almost came apart at the seams. But look what that created and look at the peace and growth and things that it created over the long run. Look at the sixties and seventies and all the strife that we saw there. But guess what it led to, in the US and other places, more quality, more growth and expansion that came after it.

So these things, these crises are actually needed to reform and to cause change. If you don’t have them there are actually bigger problems. That’s like the silver lining. I do think the equity market, though, is going to have a very difficult time. To be clear, if you’re in cash, you’re going to just do just as poorly but less volatility.

So it’s just a difficult time to invest. Bonds, if we go from 2.75% in the 10 year to 12%, or something crazy, over the course of a decade you’re going to get destroyed. There aren’t a lot of places to hide. There are places you can do okay, and again, that’s focused on fundamentals and cash flow, which again, is a crazy thing.

People, you say that now, just cash flow, and people laugh because 40 years is a long time, but that stuff matters again. Knowing what you own and making sure it’s a business that can outpace inflation, that’s low leverage, or that doesn’t need to reroll their leverage, those types of things. That’s the guiding light in a difficult period for equities. 

[00:57:04] Niels

I agree with you, of course. I don’t have a crystal ball, but that’s what it looks like to me as well. I did see some people talk about when markets retrace from a bear market more than 50%, that’s already a sign that we’re into a new bull market.

We may be, who knows? But just for the record I did look up a little bit of historical examples of this, and some of it is the S&P, and some of it is the Dow Jones, but maybe just to mention to our listeners. 

In 1937 we retraced, within 3% of the high that was in October of 1937 before we pushed down to new record lows. In 1973, it went within 6% of the high from November 1st, 1973, before we headed into what turned out to be the ultimate bear market. In 2000, some people will remember 2000. We got in within 2% from the high of March 24th, 2000 before we started the real bear market that lasted until, I think, March of 2002 or something like that. Then, of course, in 2008 we were within 8% of the high from November 10th, 2007 before we moved into the bear market that ended in March, 2009. These things happened. I want to add one thing, and I should give credit where credit is due because I was listening to Stephanie Palmboy.

One of the things she mentioned, we already talked about that the Fed doesn’t want to be caught sleeping at the wheel. But one other profession seems to be having the same flashback to 2008, and that is the corporate rating agencies. She mentioned that they have flipped corporate credit ratings from two to one in favor of upgrades in January of this year. Now we are at two to one in favor of downgrades. Definitely things are changing. 

Now, before we wrap up completely, there are a couple of things I just wanted to ask you further, a little bit about. Obviously there’s been a lot of talk about currencies, in particular the dollar. You already mentioned the dollar.

Some people are looking for a certain milkshake situation where the dollar will suck up all the liquidity and just continue to get stronger. The crypto space has, at least as far as I can tell, for a while have been predicting the complete opposite. The demise of the dollar as a reserve currency and significantly lower dollar from here.

Just very quickly Cem where do you stand on this if you have an opinion? 

[00:59:50] Cem

Yeah, this is one of those places where Peter Zeihan has definitely shifted my view on this, and luckily he did it early. Look, the US again, I grew up all over the world, so I don’t want you to take this as an American centric nationalistic thing.

America has a lot of strengths that are immutable, and those are, we have commodity independence (obviously very important during this time), we’re an island on the other side of the world that doesn’t have as much geopolitical risks of war, et cetera. (obviously there’s always risks), the biggest military in the world, largest economy in the world, all of these things, and most importantly, rule of law. 

This idea that if we’re a very litigious society, and that causes lots of problems. But you better believe that if you make an investment somewhere that, for the most part, I guess as long as you don’t break the laws in some other way (like Russia has), that you’re going to get that money back. Whereas I don’t think that’s true in China. I don’t think that’s true in a lot of other third world countries.

Given all of these things, America’s not going away tomorrow. At least in a geopolitical time of stress, where can you put your money? Where can you be safe? I think that view is clearly on the biggest, strongest ship out there with unlimited fuel and with the largest cannons and and actually a system where it’s not perfect. I’m not sitting here saying America is perfect. There are lots of problems here internally. But it’s probably the safest place on the planet. We don’t know, is Bitcoin safe or is it not safe? Is gold ultimately going to be a store of value or not?

Sure. You could argue that it has been historically, and those are reasonable places to hide out. But I think the most confidence you can probably have is in America, in power and strength, especially in a time of great volatility and great potential kleptocratic nature of market leverage.

I think we know that in this world there’s more money than there’s ever been, with more leverage than there’s ever been, and fewer places to hide. I do think dollar strength is secularly here to stay. 

I think there are a few other places, obviously given the commodity issues in Europe, and some of the structural issues of Southern versus Northern countries, and whatnot there are some doubts there. I think, in the long run, Europe will be a very good place to hide as well – Swiss franc. There are other currencies of broadly developed economies that are, somehow, commodity secure, and increasingly are probably the best place to be.

[01:02:57] Niels

Yeah I don’t necessarily disagree with that. I’m always a little bit concerned when there’s too many things that line up, as with all of this happening for the US and the US dollar, it has to get stronger, right? I’m always a little bit concerned about that.

Of course, Pippa Malmgren, in our conversation, or maybe it was Peter Zeihan, I don’t know, didn’t put much credence to my thesis about a strike by submarines from the East and West by China and Russia on the US coast. But anyways hopefully that definitely won’t happen. 

[01:03:32] Cem

To be clear, if we go to war, like real world war, yeah, there will be war on our shores as well. Yeah, we are not fully secure.

[01:03:39] Niels

This is the thing, I’m just thinking that there are so many signs that things are changing. Again, going back to this point about expecting the unexpected. Everybody says, as you say, the US is an island, nothing can happen.

We hear about Russia having torpedoes that can run 10,000 miles straight into the US. Anything can happen. 

[01:04:03] Cem

Absolutely, absolutely.

[01:04:04] Niels

Anyways, I want to start to wrap up. I still have so many other things we could talk about, but we’ll do that in the not too distant future.

But maybe to wrap things up a little bit, let’s put everything together. We have an energy crisis, we have a food crisis. You mentioned gold. We have the whole geopolitical situation. We have demographics. We have something that you and I have talked about also, this idea of a fourth turning taking place right now.

I guess what investors really want to do, or want to hear, is just a little bit about how we deal with this? How do we invest? How do we position ourselves for a future like that? So maybe to wrap up, just your big picture thoughts in terms of what investors should be considering at this point in time.

[01:05:01] Cem

So, hard assets, things of real fundamental value, ideally something that yields something on top of that fundamental value [should be considered]. That’s not a new idea in terms of inflation, but that can be companies (to be clear).

Actually, we’re going to have above trend (this is GDP growth). I think revenue growth is going to be great. I think margins are going to… and it’s not going to go in a straight line. I’m not saying in the next year, I’m really talking about the next decade. But I do think we’re going to get more and more demand side economics, demand side policy – globally.

That’s because we’re going to have more unrest. That’s because we have more populism. That’s because that’s what the people are going to call for. I think we will see more change. I think that change will ultimately be very good. We’re going to rebalance. There’ll be deleveraging, this is a period of deleveraging.

But in the meantime [focus on] hard assets ideally with long term duration leverage. Go buy some real estate, even at these interest rate levels, especially something where rents will increase. We didn’t talk about demographics here in the US, but we have a millennial bubble here in the US. This is true in a lot of other countries as well. That’s increasing demand that has seen very slow household formation. There’s pent up demand coming, and that’s the party, the entity that’s going to get the most fiscal stimulus going forward. Go to the root of what those people want. Sell them things. They are going to be the ones with the money. It’s a demand side economy. 

Go to the seat of government. I’ve mentioned this before. We’ve seen throughout history these cycles where broadly people trust in capital markets to be the best allocator of money. Then we go through periods where we say, listen, that’s not fair, the government needs to be an allocator of capital for a more fair policy. When that happens (which is broadly, I think, where we are), whether we rationally think about it that way or not, you want to go to what government is going to spend money on. Now, what is government spending money on?

Just go look at the budget. It’s healthcare. I think we’re going to revolutionize healthcare. I think it’s been underinvested in for quite some time, not just in the US but globally. I think the power of technologies, the ultimate science, that should be way further along if you look at where other sciences are, not just in terms of health outcomes, but also how it operates and how inefficient it is. 

I think healthcare and defense. I think that’s a major spending point that’s been growing for some time. I think that’s a great place. [Then there is] housing and urban development, infrastructure. These are places where money’s going to be flowing and it’s at the mouth of the river. Go to the mouth of the river and invest in those businesses. I think there’s (just like any other time to change) tremendous opportunity. This is not, “Oh, markets are going to be tough, hole up in a corner and keep your money in cash.

No, I think this is a time of an inflection point in markets and I think you’re going to see some very huge opportunities in terms of active management being in the right place – long the right place, and short the right place. I think those are ultimately tremendous opportunities.

[01:08:28] Niels

Maybe to add to your view. I don’t know if you want to take this on. Not sure how I feel about it anyways, but I’m going to throw it out there anyways. Maybe it ties into this idea of a fourth turning, but I did notice a Bloomberg headline today talking about Michael Burry from The Big Short, that he had sold all his equities and had only one equity left. That’s prisons, a company that invests in prisons in the US. So, maybe that is the ultimate hedge against what may be coming. 

[01:09:05] Cem

Yeah there’s always the argument that, why buy gold, buy guns. That guns versus gold trade. But yeah, I think defense stocks a great place to be, a pretty growing secular trend, for example. That sounds very apocalyptic. I don’t think it plays out in that way over the long-term. I think it’s going to feel that way and the narrative will be there, so that will also help those stocks. 

[01:09:40] Niels

I think, from my point of view, I’m not going to go into any sort of particular details. I think people know that I love the asset class that I work with every day. I’m sure you do the same, but I will say one thing that you mentioned earlier, that I actually think is really important, and that is this flip from what people believe now is the way to invest, and that’s passive, to what I think will be the way to invest in the future, and that’s active. 

You mentioned natural resources, or hard assets. I just know how hard that is to invest in from a long-only point of view. Actually, most commodities, in a 30 year odd cycle, will go down for 20 of those years and only up for about 10 of those years.

So I think being active will be really important in the world we are heading into and probably for the next couple of decades, even though nobody has a crystal ball for that long. But I just think there’s fundamentally something changing in that area. 

[01:10:44] Cem

Yeah, and as a volatility manager, I do want to say, I think a broad trend that’s not talked about is, I think internal volatility to markets, meaning the rotation around different ideas, and themes, and places of strength and weaknesses, true, and bond market true, and the equity market, and true FX. I think vol of the entities, dispersion vol, is going to do incredibly well for an extended period of time. It’ll have really strong periods of performance. That said, I think broad equity volume… in the short-term I think we’ll get some. In the next year and a half, I think we’re going to have this kind of leg down and this rebalancing. But broadly, you have to remember 6%, 7% annual, whatever it ends up being for the next five, 10 years (maybe it’s a little lower), inflation is a credit to downside every year. If we think GDP is going to grow at a relatively strong clip, you’re also getting a credit every year to the downside in terms of cash flow.

So I think broadly, again, if you look at data from ‘68 to ‘82, there were 14 years where the market went nowhere. I think, long term, we’ve never actually seen a time with options and inflation, really. Options were really released in the late seventies, and really not used until the eighties. I think there is this skew in the market and I think it will continue to underperform on broad equities.

In equity markets, I think you’ll get some declines and some rallies. I think there’ll be periods where you’ll do very well in just broad vol. But I think, cross asset vol, rates vol, FX vol, there are a lot of places where you’re going to get really kleptocratic outcomes.

But it’ll be really interesting to see how the broad market performs. I think everybody’s focused on hedging that broad market risk because they’re thinking about 2008, 2009. I think, in the short term, vol will do quite well. There’ll be less structural upside in the market for extended periods of time. I do think that’s an interesting trend that’s not being talked about.

[01:12:55] Niels

Yeah, exactly. I think for me, it comes down to this thing about the end of the carry regime, which, in another way, you could say it’s the end of the convergent market regime. It’s this introduction or return to a divergent market regime, which is exactly what you talk about. Of course we all know there are only a few strategies that are actually well designed for that. But there we are. 

Cem, let’s wrap up our fun now. I know you’ll be back in a few weeks in any event. Just want to thank you for doing this. I think this was fun. Maybe if people like what they heard today, maybe we should do this kind of format a few times a year.

It’s nice to also be able to share views rather than just ask the questions of course. Maybe that will be something that we will return to. If anyone out there likes what they heard today, of course one way of showing it is to leave a rating and review. It only takes five minutes and it’s a good way to show that you love the show and a way for people to find the show much easier. 

Alan is back next week with a great conversation with a $50 billion plus pension plan CIO, and I can assure you it’s a great conversation because it’s already recorded so I know what’s in it, so you don’t want to miss that one. From Cem and me, thanks ever so much for listening.

We look forward to being back with you next week. Until next time, take care of yourself and take care of each other. 

[01:14:31] Ending

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