Guess Which Countries He Is Short? Rob Citrone Reveals His Global Strategies

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up everybody Our Guest today is Rob catrone the founder of Discovery Capital Management a macro hedge fund invests opportunistically all over the world across all asset classes emerging developed markets Rob got a start at Fidelity was also later a tiger gu based on his time working with Julian Robertson at the fame tiger Management in the 1990s he's also a fellow University of Virginia waho and a Minority owner of his hometown football team the Pittsburgh Steelers who happen to be playing my Denver Broncos this weekend Rob welcome to the show great to be here me thanks

for having me how you feeling about the Steelers this year for me it's been a long drought since the Manning era of the Broncos but what do you think 2024 we have a really competitive team and if we get reasonably good quarterback play we're going to have a chance to win it all What's your most memorable Steelers moment could be childhood could be recent well you know my daughter got engaged at the Stadium last year on the field right before the game playing the Raiders which was the 50th anniversary of the Immaculate Reception and uh

really sad in a sense that Franco Harris passed away a few days before that and Franco was a good friend my family was one of the founders of Franco's Italian Army so I used to go to the games as a Young kid in Italian army helmet and uh Franco was going to bring the ring out to her before the engagement so I get a little emotional about that but that was really a wow special time yeah you know one of my favorite pieces that you put out which you don't see too many macro hedge fund

managers last you know a decade in my world of public funds half of funds disappear and you guys just had your 25th anniversary so first of all Congratulations thank you very much we're very proud of that but the first two bullet points I thought were really thoughtful in this piece because it wasn't talking about here's my amazing trade here's why we've just crushed it over the de decades it was really about you know Investment Management as a business and entrepreneurial career path and kind of how you got your start talk to us a little bit

about how it feels to have survived any Battle Scars any Lessons Learned over doing this for that while well I think the first thing is you have to love it if you don't love it you're not going to last in this business for that long and uh the second thing is you have to have a competitive advantage and you have to know what that competitive Advantage is and you have to play to that strength it's hard to do sometimes but you I was very fortunate to learn from two of the best you know I worked

with tiger with Julian Robertson For almost 5 years and then I managed a lot of money for the Soros family and for Quantum and really for the first five or six years I would just manage whatever I could convince George to put in the book he called it the backbook and you know I would put $100 million position in the fund I'd put a$2 billion position in Quantum and I really learned a lot from both of them they're totally different kind of investors George is a Master Trader Julian is a fantastic Long-term investor and I

learned a couple things from them that I try to emulate and the first thing is that you know when you lose a little bit of conviction in any trade just get out don't take 20% off don't think it's going to get better just get out and the second thing they both did is they cross- referenced anything if I gave Julian an idea in Brazil he call all the four Partners we had in Brazil where he would try to talk to anybody thought Knew something about it and George did the same thing I remember sitting in

George's office one time in 2008 obviously was a really really tough year we had a big big year in 2007 2008 we were down in October and uh it was right after the Leman crisis and he said to me Rob you know you're down 25% how you going to make it back and I pointed out I said look we have a lot of positions that are money good credit that trades at 20 cents on the dollar that in two Years will be at par we're going to make a lot back and we you know made

a 75% year in 2009 but it was very interesting because he said what are you worried about I said well I'm really worried about Eastern Europe collapsing and if that collapses the Western European banks are going to collapse so the whole thing is just going to blow up and he said well what can you do about that and I said well the IMF has a program specifically They can lend into Eastern Europe but they need the Western European countries to support them in particular Western European Banks who owned a lot of the Eastern European Banks

they need to not take any Capital out and he said that's a fantastic idea he says let me get Gordon Brown on the line so two seconds later Gordon Brown is on the line and we're pitching the idea of what Europe needs to do to kind of stabilize the situation in Eastern Europe and two days Later it shows up in the financial times here's Gordon Brown's plan to save Eastern Europe and it worked and I'm glad it did and the rodex that Julian and George had to just contact people around the world on different ideas

was fantastic and we kind of developed that here at Discovery and over my years at Tiger and Fidelity as well so maybe not to that extent but especially in Emerging Markets we can kind of do that you see some of these Graphics nowadays Where they have like the ideal quarterback and maybe it's got you know pton Manning's brain and Brett Favre scrambling ability if you were to look at those guys and say all right I'm building the perfect macro manager and really pull out the Highlight what is the key trait that kind of defined your

mentors Partners there I think it was conviction in their ideas and their beliefs they didn't let you know positions that might go against them in The short term they didn't let that deter them if they had strong conviction in it I can remember you know positions with tiger the first day I walked in it was during the Mexican crisis in 95 and we put on two shorts Mexican toll road companies and construction companies and they both end up going bankrupt in fact when I left 5 years later we still had one of them still shorten

the book at different points in time those trades were against us by 50 60% and Julian Said look as long as you have conviction and your thesis is still there you're going to stay with it I think it's that I think they're really great Risk Takers they're not afraid of risk you have to manage risk you got to take risk you can't run from risk and I think today in today's world what I see a lot of investors that are just afraid to take any risk and so they have very mediocre returns and try to

have very low Vol strategies but you really can't build Any long-term wealth with that kind of strategy in my view Julian's obviously passed away but if you were to ask people they say what's Rob's investing superpower similar same idea what have you honed over the past two decades I think I do have the ability to take risks that both of them have and take it in a calculated way but really put down the pedal when the opportunity is there so it comes around every 10 years an idea that's just really stands out and I Can

remember calling George in 2013 in the fall and saying George shorting the Yen and going along the dollar is the best trade I've seen in a decade and I'll tell you why the Central Bank governor was leaving in 2014 and I had met with him a number of times shirao was his name he really felt he was like a bundis banker and he ran the tightest monetary policy in the world he didn't realize how tight it was because rates were very low but the real rate Was very high so the nominal rate was low but

the real rate was very high and he wanted to meet me because he spoke great English and he was always interested in what's happening in the rest of the world so I would talk about emerging markets in the US and everything and so we had some great meetings so but I knew the new Central Bank Governor would be much easier policy and they'd have reflist policy now we got a little bit lucky that a Came in as the Prime Minister and he was really kind of goose it up even more but you know we made

a billion dollars shorting the end and George made a billion dollar shorting the end so those things come around every 10 years and I think there's a trade today like that and that's Argentina I've been to that country 57 times over the years starting first time in 1991 I've seen the ups and downs we made money in the long and the short side but this guy is revolutionary In what he's doing and uh he has the support of the person on the ground and the person in the street which is rare you don't have big

reform programs like this where the average person supports them so it's not going to be an easy task but he's off to a great start asset prices are incredibly cheap there's a lot of Runway there and so I think equities can be up four or fivefold over the next couple years already kind of doubled so far bonds you know which Yield 25% in dollars will be down to sub 10 this is really a once in a decade kind of opportunity so when you have those opportunities you have to take an outside position in them and

do it in a thoughtful way and keeping liquidity is very helpful so in Argentina as an example we have some debt we have some local currency stuff we have some equities and we do it in a way that we can be as liquid as possible but yet have a fair amount of risk on and we did The same thing with the dollar Yen where part of the position was in forwards but a big part was in options because we couldn't take that big a position and take the risk and not have the downside so we

put a lot of it in option form it's a very liquid option market and the balls are really low so there's different ways to do it in different markets and different opportunities but these come around every 10 years and if you don't take advantage of them then It's very difficult to deliver outsize returns over a long period of time which we think we've done let's stick on Argentina for a second because you know I think particularly mostly American investors over the past 15 years have been warm cozy fat and happy hanging out in the S&P

but you know that's not always the case and talk to us a little bit about you know this Argentina opportunity one of the things you mentioned in your 25 notes was being Able to draw on that experience and you mentioned going to Argentina over 50 times over the years and being able to kind of look at this infinite menu of investing opportunities and say okay you know this is getting interesting because right now I mean if you look at the Argentina I think there's one ETF left that invests in Argentina and most investors if you

were to say how could you even invest in Argentina they're like I have no idea at what point Point Did it start to become interesting to you and then at what point you know was the new president was he really the fulcrum kind of moment or was it building over the past two three four five years well it's really been building over the last kind of 18 months or so we took the view that Argentina was in in disarray and we felt that the new president coming in would change and had much better policies we

didn't know who would win and we thought Malay would Have the best policy it was also the highest risk you we get the people support would he be able to get things through Congress what would he be able to do and people thought he was very radical he's turned out to be you know just a great politician convicted in his ideas a great economic team he put in place he really has gone beyond what we would even imagine so in a way just like when AB came in that Juice the dollar Yen mle and his

success so far has now reduced the risk in Argentina has increased the return opportunity I had a great chance to have a meeting with President Malay Mike milin and myself out at the milin conference and uh we spent an hour together and I was so impressed by the president's conviction of his ideas and how clear his thought was and he and Mike had a really special relationship and you know I never forget when we First sat down Mike said to the president Mr President you know that Argentina has suffered through the last 100 years it's

been up and down there's been no consistency and there been one crisis after another but there's been people in history that can change history and he said I think you're one of the people that can change history I think you can change history for Argentina but not only for Argentina if your ideas and what you're doing works It's going to help Latin America it's going to help the United States it's going to help all Global because this is a great model this libertarian model is a great model that we could all learn from and he

said to him but the number one thing you got to do is you really got to focus on the human capital of the Argentine people you have great human capital in Argentina they're well educated they're very very talented people and you have to focus on that and President M said well Mr milin that's fascinating because you probably never heard of this guy but this guy Gary Becker is my mentor and I have a big painting in my house 4x4 painting of him and it turns out I I don't know who Gary Becker was Gary Becker

is kind of the father of economics with regards to human capital and Mike said to him well Mr President actually he was my partner for 45 years and I knew him very well and I spoke at his funeral and by the Way I have a lot of pictures with him and a lot of other things memorabilia I'm going to send it to you and literally president Malay Tears start to come down his face I mean it you know there's some meetings in your lifetime you sit and you say I'll just remember that forever I will

remember that meeting forever it was really special and also I don't have to say anything I'm just going to be a fly in the wall we talk a lot about global investing and The US is 2third of World Market Cap now and I tell investors who always say well it was obvious you should have put all your money in the US back in 1899 and Argentina is often the one that I use as the counter example I say look if you were sitting around drinking champagne toasting tea and New Year is 1899 you probably would

have considered Argentina to be equally as good of a bet as this fledgling US country but as mentioned a few different Leaders a few different Crossroads and the path becomes a totally Choose Your Own Adventure future 100% I mean and that's kind of the secret especially Emerging Market investing the economics will come through but the politics are the key and politics are management so analyzing a country is like analy ing a company you know politics and who's the leader in Management's number one issue the second thing then you get a balance sheet you have an

income statement just Like you do in a company what's happening to the external balances what's the fiscal balances what's the debt level in the country a number of things so but politics and management is the key and you it's very interesting because you know when I went to Argentina in the early 90s Malay worked for a gentleman that I used to go see all the time who's one of the leading Economist and so I used to see all the reports and stuff that mle did but I Never met him so we had a nice little

laugh about that cuz the guy that he worked for was quite a character and we always had some funny funny discussions so we were kind of linked but had never met each other before yeah well Argentina is definitely on my bucket list for some skiing oh my God it's fantastic and you know you can ski there and what's our summer so it's fantastic if you even look at the equity Market it's done Quite well on dollar terms the last couple years and then I pulled up the ETF which you know again is only the biggest

stocks there but PE ratio still pretty darn low for a market that's had quite a run yeah you're buying stocks at very reasonable multiples if even low at trough earnings so that's the ultimate what you want to buy in a market like that so you know there's only a couple places in the world that we're really bullish on one Of them is Argentina the other one is India and those have been two stalwarts for us we've liked Mexico a lot but this recent presidential election is made it a little bit more uncertain we'll have to

see what the new president whether she can break away from Amo which we think she will and we're going to go down and meet with her in a month or so but it's not clear there I mean us is still an amazing Market to invest in long term but we are at pretty lofty Valuations the equity risk premium Now is one of the lowest levels in 100 years and you know when you look at ownership in the US Equity Market you retail owns higher percentage of their ownership of assets than they've ever had so it's

over owned it's expensive the premium is very low so there's a lot of risk to the US market here and I think the next 10 years are going to be very different from the last 10 years and we're expecting fairly low returns and lots of Volatility we really believe we'll have another crash sometime in the next 10 years and I Define that as down more than 25 in the S&P in less than a month I'm always conflicted when I see that chart that you mentioned about how much retail owns as a percentage of their net

worth and equities and what percentage own equities because it is the best contra indicator at Peaks as to you know S&P movements but at the same time I'm like I want 100% stock ownership in the US and so I want that Trend to be higher but damn it if it hasn't been amazing at being able to predict at least on the interim period the last two times it's been up at this level was 1969 the next 10 years were a disaster and then 99 to 2009 we obviously had the great financial crisis you also had

the collapse of the dotom and you also had the corporate fraud in that period so 99 to 2009 was a very difficult time for the equity market and The last time good time for macro hedge fund managers great time for us right now yeah and then too one of the things that you mentioned briefly you know you're talking about India talked about Mexico you know we mentioned Argentina with their leaders how often you know of the macro equation are the sort of geopolitics playing a major role you know meaning versus because I know you do

bottom up you do thematics how does that kind of really guide your Decision-making framework on something as binary as a political election we kind of think globally but invest locally so the local politics are incredibly important and predicting elections is very difficult thing and the election here in the US is going to be very difficult to figure out what's going to happen and we don't know but once the elections kind of occur if you do your homework you can kind of figure out what kind of policies they're Going to run and are they going to

be successful or not you can put some probabilities around and that really creates the opportunities and there's also usually around elections a lot of volatility and a lot of uncertainty and that also creates some opportunities but it can be long or short I mean I would say the politics in China are very difficult right now and I think that g just doesn't have the same priorities that The prior leaders of China had leading up to him you know his is is about unifying uh China with Taiwan bringing Taiwan in it's about keeping power of the

Communist party it's it's not about growth it's not about return to the econ it's not about having good returns for investors at all he doesn't quite frankly care about any of that so we think it's going to be a very difficult time in the next decade in China and uh that's going to be one of The Hallmarks and when I look geopolitically today it's more problematic than in my lifetime and uh I think when the crash occurs I think it's going to be geopolitics that creates it and it's going to come out of nowhere and

we don't know exactly what that is but could be in Taiwan we think we don't think they invade Taiwan we think they just blockade Taiwan they don't need to invade it and there's not much we think the US can do about that so but there's Other issues you know whether you look at the Russian or the Middle East or other places it's really you've got a situation where it's a cold war but it's not just the US and Russia or it's Russia China and Iran against the west and this is deteriorating rapidly in our view

so you know one of the things that has historically been a constant in markets as you mentioned is Crisis you know you've lived through tequila rubal Asian Tech GFC covid whatever's coming Next any of these specifically stick out in your mind I mean is there anyone that's particularly the most memorable of all these because there's been a bunch well it's the scariest one but the great financial crisis in the US is the most memorable because that was really the mother of all crisises CU it was at the heart of the major economy in the world

and you know I slept in the office for I think three or four months during 2008 It was really scary and we took total leverage out of our fun we had everything cash position we had all our positions in vaults we were very nervous and if tarp hadn't happened we'd all had our deposits Frozen we' have had a major major depression so that was a really scary time and I don't think we're going to see that in my lifetime again to that extent but we could see a global war we've had peace for many years

and we really not at peace anymore and that's a Big problem and I do think if China strangles Taiwan takes it over in a sense I think you'll get a global crash and a global recession of very big magnitude it'll make the pandemic look like a small event so this is a big risk and you know X has said that he's going to unify Taiwan and he tends to do what he says so we don't know the timing but we would you know put a high probability of the next decade that's going to happen is

that a scenario that for Anyone that still invests in Emerging Markets we joke most Americans listening to this they're like not even disgust anymore they just forgotten Emerging Market they just like oh God I don't even want but but China despite being down quite a bit is still a pretty large percentage of emerging market indices is that something that when you look at kind of the geopolitics of China do you just say look I don't even want to touch it or is it something you're like no There's some opportunities or maybe even short parts of

it um how do you think about something when there's such a massive geopolitical Cloud over what could happen we think that there's a geopolitical risk and then there's a change in the philosophy of the country and it's not about returns anymore and you know in fact she has said we're not going to have excess returns in any Industries in our country they going to have to share it with a Common good so we think China is a wonderful shorting opportunity and we've been short for the last three years and it's down about 50% at the

low it's come back a little bit we adjust our position at higher levels we were larger than we are today but I really believe it's going to fall another 50% and you know when I was at Tiger in 95 to 99 the real key and actually for the whole kind of decade was Julian basically figured out that you wanted to be short Japan and Asia in general and long the US and the west and that was the big trade we did some great stock selection as part of that but really that was the heart of

the trade and that was very successful so I think we're looking at a decade and we're already three years into it where it's long the west and short China and other parts of Asia and I think that's a fantastic trade it'll be volatility around it but that being said there'll be some opportunties in China on the Long side but I think there'll be few and far between there was a tweet we did not too long ago or maybe in the last year or two I don't even remember but it was a blank chart and had

two dots a blue and a red one from I think it was 1990 and then a blue and a red one from recently and they were the blue and the red series was inverted and I was like could anyone guess what these are and it was valuation of Japan and American stocks in 1990 and then whatever it was 2023 and I said if you could have just made one decision and you know sell Japan buy us just make it a career like just forget about it and then now kind you know maybe the reverse maybe

shifting a little bit but Japan's interesting but again I still think there's better markets yeah well you mentioned India so let's talk about that how much of that is Modi driven how much of it is just this ascendant economy that is seemingly pretty Innovative and Entrepreneurial and free market oriented what's the idea there well I think it starts with Modi and when Modi came in he really started the revolution of more market-driven economy you know they had all the elements of growth there and he just has Unleashed it so he's a big part again it's

management he's a big part of it and it looks like he's at least in for another four years I think that's comforting we like it and the growth is there going to supplant China as the Global leader in growth already has there's a lot of companies in India that we're investing a lot of midcaps so there's a lot of interesting opportunities we spent a lot of time on India next to Argentina it's our second largest exposure that we have so it also is a very local dominated Market you know the foreigners have a less influence

on India than almost any Market in the world and the locals are underweight equities so they own a lot Of gold they own a lot of property they own a lot of fixed income but they've never been traditionally INE equi so we're seeing I think it's something like 53 the last 56 months locals have bought the market no matter what's happening in the world so in a way it's a bit of a diversification around the rest of the world and it's driven by local investment and U we see that just continuing so to us it's

from a perspective of being low correlation With really potentially High returns we think it stands out when you talk about something like India you know for a macrom manager like yourself the menu is not just equities but bonds credit currencies which you've talked a lot about how much of it when you look at something like India are you doing a thematic all right I want exposure to all four of those are you analyzing each one individually how do you kind of approach it we look at each asset class Individually and what the return can be

and the risk we're taking so it happens in India that we do like the currency because we think it's highly undervalued they've been intervening a lot to keep it from strengthening so most countries intervene to keep it from weakening but they've been keeping it from strengthening so it's artificially kept lower than it should be the bonds We Like Short Term because they're going into the global Bond index for the first Time and there's like $5 billion each month for the next 6 months going to be bought by foreigners foreigners only own 2% of the bond

market domestically there so it's an attractive entry point so we do like it so we do have some fixed income exposure we generally don't have much fixed income exposure ever in India so this the one exception but it's driven by this particular entrance into the index and it reasonable valuations and like I said we like the currency but We don't hedge our equities and then we do a little bit on hedging our bonds so we're taking the currency Risk by not hedging but we take decision each country whether we hedge or not the currency Argentina

is one where we have a higher waiting to fixed income than we do at equities we have that because we think the risk reward is a little bit larger and you get such big outsize returns in both the domestic debt and the external debt as you talk about Currencies what's the dollar look like I know it's against every pair but in general is the dollar something that should I be maximizing all of my Global Travel right now you probably should be yes the dollar is very strong and probably not going to be as strong going

forward the dollar has been an amazing bull market if I look for the next 10 or 15 years the dollar probably still is the place to be but for the next couple years you could see some reasonable Weakness in the dollar I think our economy is going to continue to slow I'm not sure we're going to go into recession but we have pretty big deficits both fiscally and current account and I think the dollar is at a very high level and the premium we get for interest rates is going to decline relative to other countries

so I think the dollar is going to come under some pressure the next few years years so a good time to get out and travel now one Of the things we really haven't mentioned much thus far is Europe which you know currently has adjacent or involved in a few conflicts and what do Europe in general look like we generally are net short Europe in equity space and we are currently we have a lot of midcap names in Germany for instance and some of the auto and Auto Parts suppliers we think Germany could be in recession

or near recession for multiple years it really Is in a difficult spot Visa China I mean they compete against China in so many areas and uh we think the Chinese are going to undercut them with a lot of subsidies and just low costs and uh so we're very concerned about that you throw in the Ukraine and Russia situation which nobody pays attention to anymore but it really is a big issue that could flare up in a really negative way you could see gas prices again Spike they're already pretty high it's kept Them very high still

but so competitively it's very difficult you're seeing plants shut down in Germany for the first time in many years we're very concerned about it there are some individual opportunities we are in the alongside in Europe but in general we're short the market there relative to what we see in in other places and then the currency we've been short the EUR for a long time but I think now there might be one more kind of gap down in in the Euro Three or four Euros but I think a year from now the Euro will have a

120 or more higher handle on it Rob is officially the first person on the podcast that covered a trade while on the recording we weren't recording yet so listeners I'm not telling you what it is but you know it's funny cuz short sellers in general you know and most people when you say short sellers they think just Equity right like they're shorting specific names the chos kind of Mindset of the world but they're I don't want to say almost extinct but there's less of them and in general it feels like a job skill that is

more rare these days days you know and particularly people that you haven't taken out to the Woodshed at some point talk to us a little bit about how you guys think about shorting any of the major pitfalls to avoid and how much time do you spend on it relative to the long side of the Book I probably spent a little bit more time on short side than I do on the long side actually and especially in these kind of markets where the last couple years our net exposure has been very low so if you have

a low net exposure you need to have and even' been net short in some cases the last couple years up to 25% in equities and short current currencies and fixed income as well it takes skill to do it you have to be careful especially shorting equities Especially shorting individual equities so we keep a discipline of how large we're going to be in any one position and we really have to have in anything that's going to be over three or 4% we have to have a real Competitive Edge in it and a massive conviction in it

so we only have a few of those ideas in individual things but when you think of like China for instance and we basically a focus more on the financials like insurance companies Banks property Companies they're having 2008 now in China they're having a very substantial crisis in property and their property Market's much bigger than relative to the economy than ours was wealth in the US was about 25 or 30% in property in the 2008 crisis in China it's 75% today it is a big issue and I don't think they have fully grasped how much and

how big the problem is so they haven't eased enough so we're going to continue to see I think derating and declines and Earnings and stocks in China on that side but you know shorting is you're right I mean it's a lost art I learned from two of the best in George and Julian Julian with mainly individual stocks and George with macro I think that one of the most exciting trades I think that I've ever had was when I was a tiger we shorted the tibot and I was responsible for that and we had a $5

billion short in it and I done a lot of work on the country and they were losing A lot of reserves the big problem was that the financial system was in really and it was a property crisis again a lot of money was in property they they levered it up the banks were in significant trouble and I was just watching the central bank's balance sheet and they were having to fund the banks every month and they were saying everything's fine and obviously it wasn't the banks couldn't fund themselves so we knew that they couldn't Withstand

higher interest rates and they had a fixed exchange rate essentially against a Bann tight band and they intervened and we put a $5 billion position on and the key was though that having done this many times in Emerging Markets I knew you had to fund yourself out more than a month or so so we went out 6 months to a year so they couldn't squeeze us so when rates went up to 1,000% overnight a few times we were completely protected in fact you know we Actually made money cuz the Fords blew out but it was

again an example of keeping High conviction because they fought against people like ourselves and they lowered the lower part of the band to strengthen the currency briefly so we had a $200 million loss at one time in the position and Julian just said Robbie you still have high conviction I said Julian this is going to go they can't keep it it's going to devalue massively and then on July 1st of 97 30 % and you Know I'm only 5'6 but I think I hit my head on a 20ft ceiling of the room when it came

out that night how long did that trade take to play out about three months about three and a half months oh man how much sleep did you get during that period well cuz it was happening at night in Thailand so not very much the return was astronomical and it was probably the most exciting thing that we've ever done actually you know people say the evil speculators you know tiger And Soros and but actually you know the country needed to to adjust and change and it actually was a big positive thing for the country long term

little bit of pain short term but they did the right thing they went to a floating exchange rate and Thailand's done much better since then I consistently say on Twitter which I don't know why I still even get into it but you know short sellers have such a bad reputation I say look everyone almost has it wrong I said like They're the immune system of financial markets I'm like you think the government or people particularly when it comes to equities and fraud and bad behavior I said you think anyone else is going to unearth this

like you're crazy well we think in this environment particularly going forward for the next decade or so being able to have a short selling ability and a lot of skill in that is just going to pay off in Spades you were talking on one of your notes About the average age at an investment firm was 34 years old and not to give you youngans a hard time but you know one of the challenges of markets is everyone expects them to play out over the next hour the next day the next quarter of the year but

these regimes can often last when I say regime I mean like a very long Trend can last a really long time yeah George used to always say the currencies will go much longer and much further than you ever think so once The trend starts it's going to go much longer and much further than you can ever imagine yeah to the young on listening and by the way you mentioned the word Rolodex earlier yeah young listeners that used to be a index card Carousel where you would write down everyone's name and phone number now it's obviously

all on your iPhone phone but talk to us a little bit about you know this regime we've had a very specific Market you talked a lot about QE and kind of loose money and some of your pieces if things do kind of change at some point in the future you know what do you think are the most likely ways they could change or potential Catalyst for why they might I think after the crisis in 2008 we went to the easy money policy led by QE and then it was reinforced with the pandemic in 2020 and

so you know I think the regime change is just shifting now we got a little taste for it in 22 where you saw What happened when a lot of liquidity was pulled out of the system and now we have every country including Japan doing QT some form of it I think we're now shifting to the new regime and I think this regime is going to be more normal in the sense that there's going to be a lot more volatility with a little bit less returns and maybe you know actually very low returns for the next

decade so I think we're right at that point right now it doesn't mean that markets can't Go up in the near term it doesn't mean that you know everything is going to be negative it's just going to be a very difficult lower return environment with much higher volatility so the attractiveness of just being long stocks is going to be a lot less than it used to be and not just stocks but private equity and credit and private credit and so I see a lot of Institutions that have lots of exposures in all those areas with

very little protection and I think That's going to be a problem going forward they need to find Alternatives where you can make some returns but you also can be protected on the downside well and everyone has always counted on you know bonds to be the Savior and I think I've seen you mention this too before but everyone assumes that bonds are the negatively correlated crisis Alpha and then you can look back antie ilmanen has this great chart in one of his books it shows draw downs and stocks And kind of really bad events and you

know for the first part of the 20th century bonds almost never helped which if you're counting on something like that is going to be a pretty rude awakening if and when you know 2022 that was kind of the play book right bonds and stocks got hammered yeah the correlations have shifted now they were positive and you know it's turning back a little bit now as inflation's come down a fair amount but it's not clear That inflation is completely dead and uh I know that fiscal policy become a big issue around the world among the leaders

when you get Central Bank Governors together or you get Finance ministers the fiscal situation is really dire globally as we talk about countries right big top down one of the things that a lot of investors in the US they'll say a lot of things they'll make a lot of excuses not to invest internationally you know the US has Large percentage of revenues from abroad I don't feel comfortable the rule of law look what just happened in Russia but one of the things they also say is the sector composition is different which of course it will

be everywhere how do you sort of tease out when you're doing the top down bottom up and you get attracted to a country like India are you thinking oh actually we're most interested in materials and energy or is it bottom up or we find a lot of opportunity in Tex Or midcap or is it just you're going anywhere looking and find out what you may we will look at all the different areas but in certain countries you're not going to invest in India for Commodities as an example normally I mean there have a couple of

good companies in that area but that's not as special you're going to look at the consumer maybe a little bit of technology in Argentina you can look at Commodities you can look at oil you can Other things there agriculture so it depends on the country and what their strengths are so we really try to go where the strengths are but again you know you want to find good managements that have a great business plan and are priced reasonably and so that can be in all kind of different sectors I'm not advocating that people invest abroad

in passive indices at all I mean as you just pointed out the EM Equity index is horrible I mean because it's so heavily Weighted towards China so you don't want to be in that you need to find active managers who can be both long and short inem and globally these days I think but the opportunity space when you can access you know for instance there's some opportunity in Nigeria and people say Nigeria well I've been looking at Nigeria for 35 years and this is the first serious government in 35 years that's really trying to do

the right things and they just had a big Devaluation of the currency it's interesting time to go in and buy the currency you can buy bills at 35% yields with a relatively stable maybe a small devaluation of the currency but you're net return is going to be probably in the 20s even with some devaluation and then there's a couple of equities there that serve the consumer and mobile and payments that are very interesting at three times earnings so there's some opportunities there we go They're not Going to have a huge position in Nigeria but it

can be an important contributor to our return for the next couple of years so there's so many interesting Ecuador there's so many interesting places to go that having a tool in a lot of tool boxes like we do is really a big Advantage for us i' love to see when things line up looking at history and some of the cinamon indicators are obviously squishy but when you see things like the only Nigeria ETF shuts Down to me like that's almost like a contrary signal I'm like oh that's interesting absolutely no one cares about this we

talked on the show we did this whole series on Startup investing in Africa because I started seeing maybe four or five years ago a lot of really interesting startups in not just Africa but in India and surrounding sort of Bangladesh and Pakistan where you're like look at these companies or say wow they're seeing very real traction and Eventually that leads through to public companies at some point I mean all the population growth in the world now is in Africa in the Middle East and know Nigeria is kind of leading the pack it's a very great

consumer Market moving forward what's been the most afar Equity Market that you've dipped your toe in in sort of a Jim Rogers sort of way is we've mentioned some that most people consider to be pretty Frontier already but are there any others where you're Most would be surprised to hear you've had positions we've had positions in Ukraine we've had positions in Colombia Indonesia Malaysia just about almost any country you can think of Morocco so we've done a lot in a lot of different places I think I've traveled about 50 countries over the 35 years of

investing and you know 25 years here at Discovery how do you evaluate kind of I don't want to call them new assets but different Opportunities I know you have invested in crypto before as someone who's more of a discretionary macro instead of a systematic trendall or something how do you think about including new investments into the toolkit as they come online yeah I mean I think in crypto we got a little bit lucky because there was a great vehicle in the ETF gray scale Bitcoin ETF which went to a 50% discount and so you were

basically buying Bitcoin at 50% off and we did Some work on the legal aspect of it and then when the case came out in the judges in the discussion it was obvious that they were going to win and the discount was going to go away and so when you have a 50% discount you make like 60% return on that so and Bitcoin had been beaten up pretty badly so to us it was just a fantastic way to invest and we we limited it to us to 5% and it grew over time and we kind of

kept it until the discount went and then we Reduced our position and so we have a much smaller position today I do think there is a place for Bitcoin I don't know about the other ones but I think Bitcoin has won the battle I think it is the kleenex of tissues or the coke of sodas so I think there's a room for that in a portfolio but again in modest size at this level but I think we got lucky that there was a great vehicle to invest were able to figure out and comfortable that that

discount would go away you've Talked about a few we like to ask investors if you sit down at a table of your peers so let's call it the macro crew you're down in Ecuador surfing or maybe in Argentina drinking some red wine having a steak and you know you guys sit down to have a conversation and this is more of a framework investment belief but what's an investing belief that Rob has if he says out loud most so let's say like 2third three4 of your friends would be like I don't agree with That you're crazy

dude what would you contribute I'm going to say that the next 10 years is going to be the decade of Latin America and it's going to be a very difficult time in Asia so you know especially em investors but Global Investors that really focus more on Asia and Latin America has been kind of the step sister and I think Latin America is going to really shine does that include Brazil too well I think ultimately the next couple years might be difficult Under Lula's regime but there's so many good entrepreneurs so many good companies in Brazil

and it really is a great population of human capital that I think Brazil will be very successful so I think we need better leadership there we need better management so today we don't have much in Brazil but I think over the next decade it could be a great opportunity but I do think Mexico I do think Venezuela is going to turn around maduro's out I think that's the next Frontier that's going to be very interesting we're very interested in what's happening there we own some of the debt there and it's six seven cents on the

dollar I think we'll make four or five times our money on that in the next couple of years and it's just going to be regime change against management change and we don't know when it's going to happen but we think it will happen in the next few years and it could even happen the next six months so I think It's going to be the decade of Latin America and uh the Lost decade for emerging Asia including I mean it's crazy how much impact some of these world leaders can have you can see what's going on

with El Salvador you can see what's going on in Argentina a lot of places Salvador is a great example as well both positive and negative yep no absolutely and we played El Salvador when the bonds got down to 40 cents and UK's done an amazing job there it was About Law and Order yeah and U Better economic policies but Law and Order was really the key I went down before he was around and it definitely was probably one of the more uncomfortable places I've traveled to I'd like to go back such a beautiful country all

right so you may have mentioned it already so if you have you have to give me the number two but we wind these down by asking people most memorable doesn't have to be the best most memorable investment you Made in your career and you mentioned the Tai bot so if that's it you got to give me number two that was the most memorable it has to be the dollar in 2013 I talked a little bit about that already but you know that was one where the downside was so well protected because they were intervening in

the currency at 102 we knew theyd have a inflationist policy he had significant positive carry it was probably the best risk reward trade of my lifetime and uh We put on in size and you know for a fund it's reasonable size make a billion dollars is pretty meaningful so I think that was the best trade and actually there was one moment of that trade that was very interesting so it was actually the day of Sandy Hook being in Connecticut was a very tragic day but basically sold a billion dollars of apple and bought a billion

dollars of dollar Yen and apple went down for the next nine months pretty substantially in Dollar Yen went up dramatically so one of the best I think single day trades that we ever did the Yen also and Japanese fixed income in general has for a long time been a macro Battleground I think we just went over to Japan when the in was right around 160 so I think we got the timing right we'll see where it goes from here you did I think dollar Yen's going to come down a little bit more but I really

do think over the next 5 or 10 years dollar Yen will see 200 Rob it's been a blessing we've had a lot of fun canvasing the world today congratulations on the 25 years and thanks so much for joining us thank you very much and good luck to your Broncos but not too much this week little more than minus three points that's the line I think podcast listeners will post show notes to today's conversation at mefa.org Podcast if you love the show if you hate it shoot us feedback at the mebf show.com we love to read

the reviews please review us on iTunes and subscribe the show anywhere good podcasts or found thanks for listening friends and good investing [Applause]