Listen sorry to interrupt but it really is important for us if you can just hit the like And subscribe button that allows us to bring you the very best financial intelligence and the best guests on the planet anyway appreciate it like And subscribe Scott welcome to real Vision good thanks for having me Ash I have to tell you we're so excited to have you with us today I got a message From our CEO and co-founder Ral pal this morning saying oh my God how did you manage to book Scott he is a true legend in
the hedge funds based words I know that he doesn't use lightly this conversation we're just excited to have it with you we're going to talk about markets of course everything that's happening on the macro front uh but first we also want to talk about your career and all the wisdom you've gained over your decades as an investor you've Had a storyed career in the space tell us a little bit about how you got started what first interested you in marketing sure so I I don't know if it's wisdom I I think a lot of it
is probably scars and you know some unfortunate muscle memory you I I tell my team we try to make this not to make the same mistakes but we will always make new mistakes uh yes so I I I was fortunate enough to identify And get into the hedge fund business really in its infancy I I got to I was very interested in both writing and computer science and I did a summer internship with George service's original partner Jim Rogers and it occurred to me that investing especially in this nent hedge fund fashion for for me
was you know a wonderful combination of you know you you created a narrative and then could You apply some kind of quantitative techniques uh to it to turn it into an investment so I began with that summer internship with Jim Rogers and they had a a few training courses in between then and walked in the door at Soros fund Management in 1988 as a sub-advisor and then in 199 Stan dren Miller asked me to join the team and you know I I think what is interesting you know in macro there are a lot of different
models you know There's the and you know if you think about kind of the the lineage there is the kton commodity support model there is you know a lot of fixed income RV models you know brevan Howard Chris Ros which obviously turned into much more directional and then there's what I would call the Soros Duane model which uh all of us actually began as equity research people and you know we have a saying the micro drives the macro and you we we we never thought we were Better at constructing you know what what are non-farm
payrolls going to be you know is core pce going to round up round down uh we spoke to a lot of companies in the real economy observed what was going on and then constructed a mental model of the macro environment and I think for all of us it then turned into something bigger and you know I I could tell you is if I look back at my career other than this year So far I I've made the most money in foreign exchange and followed by equities followed by fixed income followed by Commodities and I would
say a lot of My Success in foreign exchange has been thinking like a corporate you know what would make the you know a cash-rich corporation move money in and out of a country you know across uh National boundaries what would you know what what Would make you not want to hold a currency what would make you you the be be inclined to not repatriate earnings so you know I I was very fortunate I I had some great mentors you know I I would say Stan dren Miller the great probably maybe the greatest money manager of
all time uh never a down year and you incredible human being Wonder wonderful thinker amazing Trader and you know for well one of the richest people in the world is Still at his desk loves the Every Morning by six loves the game is I I can't remember how old he is now but still still as engaged as ever so you know I I think that I was very fortunate not only to have people who gave me great training but who had a great Love of the Game you know it it it's a Michael Jordan uh
you know idea I think Michael Jordan might have been the first in NBA player to actually have a clause in his contract that he could go And play pickup basketball because he loved basketball so much and you I I think that there's a group of us who you know we we I I I think we all think you we would maybe intellectually emotionally maybe even physically atrophy if we weren't somehow engaged in in the markets every day and ever wanted to explore the world of online trading but haven't dared try the Futures Market is more
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been on real Vision so as Jim Rogers many times you mentioned the idea of the models that you use let's unpack a little bit about that I talk about those three models that you mentioned how you can came to land on the one that you use and how you apply it in your investing framework sure so you know I I I have a a saying We we study history we observe the present and we try to imagine the future so I I actually taught economic history and Market structure at Yale and you know one of
my sayings is is Never Say Never and never say always and you that that's been very very helpful in some of the the bigger wins in my career and keeping me out of trouble uh but the the way we go about our business is uh we observe what's going on and we're looking for Anomalies or systems that are either accelerating or could break down and so you know I I would say every Monday I I come in and you know I have a lot of theories you know I I am very loath to say and
I I dislike people in the social sciences who try to compare social sciences to hard Sciences uh because I think that's like the certainty is where we all get in a lot of trouble and um but I I do think that there is a process one can follow so we Have a theory then can we gather enough data and prove it empirically and then how do we want to frame that is you what what's our theory of the case is our framing correctly are we looking at this the right way and then so Step One
is Theory step two can we prove it and come up with frame in and then step three is we go back to the street un unlike most people we don't begin our process with something from the city from Wall Street uh but we do use it as the final check So you know we we may have this elaborate Theory and may turn out you when when we go to the street everybody else is in agreement with us you know the positioning is is high uh we may think we split an atom and somebody who's been
thinking of this for three or six months uh it may show you know in opt option skew that the you know it's already priced in and we're very happy to put our work up on the shelf and come back to it so you know I I would say a Lot of what we do is we we compile the research and then we don't trade and you know Ash to to your question I I would say that a lot of this process it results in being patient which I'm 61 now and I I I think my
job with my team and even myself is to still be Dr no that that idea is not unimportant but it's not undiscovered or it's not really a big idea you know like what are we playing for here what do we Know that others don't know what what is our we try to have an inferential Edge because you know in the market today you can't really get a data Edge uh you probably don't want an information Edge and but in terms of your framing how are you thinking about it maybe in a different way than everyone
else hi R here listen I think we've got until 2030 before the economic Singularity arrives now it might not be The exact date but it's around then so we have about six years to figure out how to unfuck our future I've put together a report to help you called prepare for 2030 it's going to help you take the first steps in that journey to make sure you're secure past 2030 so just click on the link below and start your journey now it's got talking about thinking about things in a different way uh and the legendary
background that you have one of the trades that often comes Up in real Vision as one of the great legendary hedge fund trades of all time of course is the black Wednesday 1992 Sterling crisis that you were involved with that Stan drucken Miller was involved with at Soros talk a little bit about that story since it's one that is just so ingrained in the annals of hedge fund history yes so you know again I it you know I I think that we had a framing advantage on this is you we we had the Belief and
we were a able to you know my my small contribution was backing it up with data you st Stan dren Miller correctly analyzed the the risk reward in in terms of the you the ERM at that point was a a series of quarters that currencies had to stay in and the the governments central banks as as always tend to think in very linear Fashions so um you know if there was a 2 and a half% quarter on either side of the British pound versus the deuts mark they Could if the British panel was very weak
it would go to the top of the quarter up two and a half percent if it excuse me if it's very strong go to the top of the quarter and up 2 and a half% is very weak 2 and a half% below the the central level so there's 5% range there and you know what stand correctly identified was we could push the bank of England up against the bottom of the band and they had to buy an unlimited amount of Sterling uh my my small contribution and I think this goes back to framing is we
believed that the market didn't understand how fragile the British economy was or how geared the British economy was to short-term rates so Margaret Thatcher had come in in the 80s and made the the UK a home owning Society uh UK mortgages unlike long-term us mortgages floated the with the overnight rate so Bank of England raised rates on Wednesday on on Friday you the Mr Mrs Homeowner got a notice that your mortgage had gone up so we were of the belief that as the bank of England can raise R to stabilize the currency they were actually
destroying the British housing market which was the most important component of the British economy and you know that that proved true and I I can't remember which day it was U leading up until what we like to call White Wednesday and the Emancipation uh of the the British Economy the British people um that that there was a point where the UK government raised rates or the bank of England and the chancellor raised rates and the pound went down and you know I think that's when the UK to stay and you know like if we were
to go back you know you you just ended up with structure was full the beginning a lot of times these FL structures always take longer to break down than you think and at at the end where the the UK Government wisely uh stopped supporting the pound you know I mean look it it was a loss for the UK treasury it was a loss for the bank of England but it could have been much bigger if they had continued trying to support the failed policy you know Stan drug and Millers talked about this with kol soov
on real Vision that's on YouTube if you guys would like to go check it out but boy I I think two things about that Scott that really uh are true Milestones the first Is this uh this view as you described there uh that markets uh have the power to uh impact sovereigns in a way that sovereigns can no longer control that large industrialized nations like the United Kingdom simply they just get away from it uh they just can't hold on to the policy that they want and second perhaps a a truly um enormous moment in
finance where a hedge fund had the ability to uh apply these Real World Market forces in a way that contradicted The Narrative of the bank of England indeed of the British government just an astonishing moment for people in the hedge fund space yeah well look I I think it really just a power acceleration it was it it was never going to work it it just brought forward the moment and you know you know Ash obviously wasn't a single hedge fund it was you know a wave the of Market forces it was a wave of banks
piling on and the other thing too is it it was a wave of Corporates trying to get out is you know because at the same time it'll it'll devalued few months later they did not leave the ERM because the exchange rate mechanism that was in place yes yes so so they didn't leave the the bands they recalibrated within the bands because they had probably come in at the wrong or they' obviously come in at the wrong rate so you know again you you you were trying to create this unified currency Uh in where capital is
very mobile but economies are structured very differently right and and there was also in the US if I think back to the 80s there's the energy bust there's a record number of U-Hauls that went from Texas to Ohio and you know kind of Vice Versa right now is you know so there's complete mobility of Labor there was a Cal government that could smooth over and like you know this doesn't didn't Exist so uh back back to systems that accelerate systems that break down it was a flawed system and then as the economies diverged it became
more apparent Scott I know you say you played a small role uh but this was a huge bet for the firm at the time uh and everything that I know of Mr Dr Miller he did not make that move without the extensive data that you provided yeah but but again you know it was the Asymmetry of of the risk reward know if we if we look back o over some of the great trades or Investments of all time it's it's really the asymmetric nature if if we go back to know John polson's famous subprime trade
is you know he had structured it with a CDS portfolio so know investors knew I can't remember what the negative carry was I'm going to say it's 5% it was 5% perom it was a five-year fund you could lose 25% and that if the housing market cracked which it did then you could make 250 350% so I think what you're getting at is you know how do you identify asymmetries and you know they don't they don't come along often and you you've got to have an open mind that that that goes back to Never Say
Never and never say always like you know if you go back I I remember during the housing trade or The leading into the GFC there was a a mantra in the US the US housing market has never had a down National year California's been down Arizona's been down New York but in in general it had never happened before well we had never had a national banking system we had never had a CDO machine being being spun out like Wall Street had before we never had such a high level of subprime L so you know it
it's it's it's always Very interesting to me like you know that that's kind of you know red red meat for us when someone said oh this this could never happen this has never happened this will never happen or to say well you know it's always okay and you know we we could talk a little about you know the developed Market debt you know a little later maybe we'll talk about develop Market debt well you know it's it's always okay the US is reserved currency nothing can go wrong Or um China has complete control of their
economy there's no way that they could have an economic meltdown this idea this notion of asymmetry the idea that you have disproportionate reward per unit of risk is I think a fascinating one and one that I'd love to explore in the context of what you're doing right now at your work at Key Square group to talk a little bit about the current macro Picture what you see uh you touched on some of those points with China uh with the United States with debt levels for sovereigns in aggregate around the world let's just talk about it
as you see the picture right now what are some of those assumptions that people are saying are always baked in things that are never going to happen that you see those potential asymmetric reward opportunities on yeah and as if it's all right I'll just go back to 2016 2017 because a lot of of the a cemetery sometimes the institutions can set you up for a cemetery as the bank of England did as the bundus bank did you know as with with the abenomics the bank of Japan and the prime minister's office did but other times
it becomes behavioral and you know like if I think back to 2016 you the the world was shocked that brexit happened and so you know That happened there was a a weekl long meltdown in markets and bond yields and you know somehow the UK not being the EU was going to destroy the financial markets is so the on brexit night I was at a macro big macro conference in in vades day uh with every everyone you know you've probably interviewed a lot of the people and you know then the next morning the room was in
a complete panic and there were only three of us who thought everything would be Okay and one myself Sir Richard dear love who was former head of MI6 and ion hery Ali Neil Ferguson's wife who was seeing you know so many the crazy things happen in her life and you know in in her world that you know like I I I think she thought so so what compared to you know her life story and then you know a week two weeks later things settled down and the the world didn't end fast forward to November of
16 and I Wasn't sure Donald Trump was going to win but I thought he could win and I thought the mark wasn't pricing that in then they he it was announced he had one and the market crashed that night and the snps went limit down and um I I I was sitting there thinking this is this could be the most Pro bus president for a hundred years I'm not sure why this is happening so you we we were able to accumulate a very large position in that move forward to The French elections in April May
of 2017 and this is where it becomes behavior is if you're a fund manager you got brexit wrong you got Trump wrong you're not taking any chances that Marine lepen is going to be the president of the Republic of France and the the French you know one one of the things the French are very good at is polling so there was very robust polling that showed that Emanuel macron was going to win against Marine lepin at The the French have a blackout period I can't remember it's one two weeks before the election so you went
into this blackout period that just turned into like the The Little Shop of Horrors for everybody's imagination that oh the polls are wrong just like with Trump there are reluctant withen voters who are lying to the pollsters so you I remember like it was yesterday I think the French vote on Sunday the Friday before the Election the Euro was at 105 versus the dollar the 90 puts so that the Euro was going to move 15 big figures in a month had never been so big like the skew was out of the park the one 112
a half 115 calls nobody wanted except for us and you know again I couldn't have 99% confidence that mron was going to win but I the market was paying me to take the risk then even on the night when he won the the Euro only went from 105 to 107 A2 108 so we could Buy a lot more Euros so you know a lot of it is behavioral so you know you ask a good question now is I think we're at a very interesting point now uh in in macro because the opportunity set is very
rich and a portion of it is government policy but a big portion is how are people inter intereting the behavior around the government policies is there there is a substantial decoupling going on between the US and China I think that to a lot of people It's unimaginable and you know we we don't know where where this is going uh I I would say I am less worried about a kinetic War than most people are kinetic War over Taiwan but I am much more worried about the global economy the US economy that the US economy or
the US government is dependent on external financing so you know you try to imagine a state of the world one year two years Three years out on you know where where are we with with the the US and China is you would China have done a big devaluation have they U flooded the market you know as we're seeing they've gone from wanting to be the sweat shop of the world to the machine tool shop of the world and now they are exporting you high they moved up the value chain and if you think if they're
moving up the value chain for these products what's the business model for Korea at that Point if there's a big overlap with a a giant manufacturer that's exporting deflation what's the business model for Germany you know if that happens so you know I I I think with with China you know I I think the US China it just gets very very difficult uh for people to imagine how ugly this could get in the decoupling and you know I think it it would probably accelerate under Trump you know I don't have any particular information we we
could see What some of his advisers are saying but you you're also seeing it under Biden and you know I I think the Biden Administration has been firmer on a lot of the export banss than I would have expected I think that they are quite tenative right now I blinkin was in China secretary of state blinkin was in China this week he put down a red line for the Chinese government over supporting Ukraine the Chinese told him to get lost so uh my my sense is that The US will not enforce the red line before
the election but that after the election anything's possible uh in in terms of what kind of sanctions the Biden Administration might put on China so you know there there's really if we think about going into November 5th this thing could really accelerate what are some of the gauges that you're looking at on your screen to understand those stresses in China to understand this potential decoupling Because this is a significant not only Global Financial but geopolitical story that you're looking at yeah so you know we're we're looking at all all the Chinese trade balances their trade
with the developed World versus what's now called the global South uh you know what what is is being you know exported repackaged and and sent you know what are the this the sanctioning that the the US continues to do on Technology what is happening with the Chinese Central Bank uh interest rates in China had been quite low the the bond market reflected the deflation that's going on uh now it looks like they're trying to steepen the yield curve for some reason uh so you know we're we're looking at internal stress external indicators and then fund
flows and you know and and again if I go back and I think like a corporate one one thing Trump ad Administration has Done or did the Biden Administration has done if you are a Us corporate or you are a G20 corporate would you ever build a factory in China now so you know there there can be portfolio inflows and outflows you know Bridgewater came out and said they're bullish on Chinese equities and you know sure Chinese equities could bounce but in terms of foreign direct investment What would make a long-term investor put money in
China right now you know if you think you if you think about the Chinese currency it really is exist in two different equilibrium one is it may actually be cheap they've done a big internal devaluation they pushed down the cost of Labor you know they are they've deflated some some of the assets they are experiencing deflation disinflation that's turned into deflation so the the Currency could be cheap on a normal the if you're looking at normal equilibrium but what is the equilibrium for not getting your money back and clearly the the Chinese the signals that
Xi Jinping is sending and the signals that the US is encourag in people to think about is you know is there a 5 10 20% chance that if if you have R&B that your assets will be frozen or that you have the equivalent in Chinese equities Of a day like you had in Russian equities when everything went to zero those are some truly material tail risk and it's interesting to hear you talk about FDI capex as a metric of what people might want to do uh if they did not have the ability to have liquidity
in a market where you can enter and exit the position quickly yeah and and look uh you know Chi China especially China venture capital China private Equity was the flavor dour or you know the flavor The decade for 10 years now you know I think a lot of us institutions are finding themselves in a very uncomfortable position now and you know these private Equity Funds and these Venture Capital funds there's there's a robust secondary market for those and some of these funds are trading at 40 50 60 maybe even one at a 70% discount to
stated nav people just want out so let's talk a little bit here about some things that you touched on Earlier and that you brought into the China discussion uh debt here in the United States and also your viiew about what secretary anel and chair poell are doing at the moment uh in terms of their view of the macroeconomic outlook for the United States the yield curve inflation and growth right so if we look at Market signals what is what is gold telling us here we're we're we've been very constructive on Gold for A long time
you know you you mentioned my good friend and neighbor in the Bahamas kol sakoff who again have been an incredible mentor to me in terms of how to think about really the the long-term tectonic shifts in in the world and then you know incredible thing about Stan dren Miller is he thinks about tectonic shifts and ticks i' say they and um what's the difference well Kol would say we are going from A to B in gold and I don't really care what happens in between you know I we we're we're on a rocket ride and
it it it's going to oscillate uh Stan is really knows when to size it up you know is like a big tail recently for gold was real rates started going up in the US nominal rates started going up which is normally e even in an uptrend for gold is a signal that you're going to get a 5 10 could be 15% pullback instead gold Went up 15% so that that tells you that there is some kind of an accumulation going on whether it's foreign central banks Chinese keep buying what the members of the Shanghai cooperation
organization what we call the global South seem to be buying and US consumers are buying so you know you that I I'm a big believer in the the vox populi and Costco is selling a hundred to $200 million dollar of gold a month in the tiny little bars so you've got The second biggest Central Bank in the world pboc buying and you've got Mom Moms and Pops going into Costco and buying so you know that there is some kind of a big change here and I think a lot of it is holders of assets understand
that we are reaching some tsquare name of my firm denotes the final move in a the chess match when there's only Kings and pawns left and there's one square you can go to and the game's over and I Think we are getting close to the point in this uh combination of monetary and fiscal policy where the game is almost over and the the markets don't want to finance this and you that from our point of view we have to figure out what the release valve will be my my guess is that it's going to eventually
be the dollar it could initially be rates and Um you know gold versus the dollar done very well it it's outperformed the S&P since you gold out performed the S&P since 2000 if you take out dividends which which is cheating but if you take out dividends the price appreciation of gold in the S&P since 1967 are are the same but Ash to answer your question I I think the markets have now realized the precarious state of the Largest economy in the world we are running a 7% budget deficit with the no financial crisis no recession
and no war this has never happened before and you it's inexplicable to me why we're doing it well it's not inexplicable is the yet Yellen is trying to Goosey economy she's a political Appo and you know I I would say she has gone from public servant to apparat and um she is playing a lot of games and The you know she has shortened the debt maturity so not only do we have these gigantic deficits what would you what what is exactly the wrong thing to do is to move the maturities to the short end so
now that the US is becoming like an Emerging Market we are rolling 90-day treasury bills and this this goes back to I I believe that she and pal thought that they would be cutting rates now and you know obviously this Was a terrible miscalculation uh you know the FED failed the American people with the great inflation of 21 and 22 they were very late getting the getting the to hiking rates and kind of kind of in the ultimate absurdity is they were doing QE right up until the month before the First Rate hike so but
anyway that that was a long way of saying I I think the Markets we're seeing this backup in yields uh we've seen gold move up versus the dollar and you know we we we are getting we are we are in a very unstable position now because that for this year just just see interest on the US debt will be $1.1 trillion to to put that into perspective the defense budget is about 900 billion so we are going into probably the Hottest geopolitical situation whether it it's it's Russia Ukraine China Middle East Venezuela since the Cold
War and we are spending more on interest than we are on defense uh mechanically because so much debt is at the front end and the maturities have been brought in mechanically if interest rates are not cut this year the US will spend $1.6 trillion doll on interest so you know it is something something's going to have to give here and uh The other thing too was in the fall uh Yellen through the quarterly refunding announcement announced that there's going to be fewer coupon bonds issued and more bills issued which you know again Goose The Market
loosened Financial conditions and then Jerome poell at the November and the December press conferences the the actual fomc statement was quite anod and then he felt the need to loosen Financial conditions and say that we Were on course for a rate cut so you ended up with this massive easing of financial conditions that it sent the stock market up 25% the tightened high yield spreads and you has you know I think reignited the economy especially on the higher and consumer side you talk about this uh idea of release valve all of these macro Frameworks that
you lay out uh the Change in the internal debt Dynamics the treasury some of the things that are happening in monetary policy of course one of the challenges is finding the mechanism to express that in a trade as you said earlier talking about what the negative carry on a trade is do you think at Key Square group about getting your head around how you actually Implement uh the thesis in a way uh that the carry is manageable and that has that asymmetric payoff potential that You discussed yeah so you know I I'm friendly with the
who I I think is the greatest basketball coach and general manager of all times Pat Riley and he has this great saying keep the main thing the main thing so we we always try to like Focus what is the trade where where is the fulcrum and and we we try to keep it very simple it it was you know like during the ab nomics trade it was just we're going have a gigantic short Position the Y and stocks are probably going to go up too and I don't really need to mess around in the jgb
market because I don't know what the jgb market could do J Japanese government bonds s yeah Japanese government bonds so you know it it it was just two things seemed quite boring and you know I like boring I'm boring I look for my portfolio to be boring I like to do easy things is I I remember a couple of derivatives people came in and George Soros was in the Meeting and you know some like well you know I've done this and I've got a swaption here and that and George would look at him does that
mean you think it's going up or down so one one of my former partners uh used to be able to keep his R ran a gigantic leverage ball and used to be able to keep his whole portfolio on an index card you know I I've got 800% of this couple hundred Perc of that and that that's life and and look you know the the the negative that is you don't always get it right is you know we we've gotten we we've been very right on our analysis of the underlying Japan uh we have been wrong
this year is I thought it would result in Yen strength rather than Yen weakness and um we had a position pull the chart of the Yen just so because I want to show folks that this has been a pretty extraordinary Period if we could look at first The Five-Year chart of the Yen and then the one-year chart uh what you're seeing there is dollar strength Yen weakness uh these unprecedented levels on the end uh what do you make of this how do you explain it yeah well I I think it's a I think it's a
combination is and to go back you know we we own Japanese equities and that should have just been our Pure Play is that Japan's Replating there was a 10year lag in or eight nyear lag in corporate governance and the Nik is going to go to new High let me just contextualize this for folks who may not be following the Japanese stock market one of the things that's been true the entire time I've been following financial markets is uh the n 225 hit a high in 1989 that it hadn't taken out for decades uh that high
has been taken out trading now on the nk225 38,45 on my screen right now uh but just A huge multi- deade High uh swing if you were along this position you did extremely well yeah and and look it is I I remember in 2011 um one of our Consultants called me said there there's this guy named AB he used to be the Prime Minister he's going to run for prime minister again he wants to bring Japan out of deflation and you know again it it was back to well that could never happen is The they
they they have declining population they got a lot of debt and well voila 10 years on here here we are and there's been an incredible sea change but Ash back to your point on Japanese yen is that is a scary chart I would say it it's 40% undervalued but as you know in currencies valuation never matters I have been surprised that the Japanese government has been willing to let it go this far they Intervened they intervened two nights ago uh in in the currency when it went through 160 I think that the weakness of the
Japanese Yen I would expect that prime minister kushida will no longer be in office in about two months and um you know th thus far you know when I when I think about our kind of mental models or signpost we we rely on people doing rational things and his popularity just continues to sink as the Yen continues To sink like if you were to Overlay pida the popularity with the the Yen they're they're pretty tied together but you know he he he's chosen not to do anything uh I I am not a believer that the
yen is going to spiral out of out of control because you know I I would would say that our Divergent view here is that interest rate hikes are actually stimulative to Japan so huge amount of personal savings large corporate savings it it's it's really uh a a very Interesting setup that if the bank of Japan would get into a hiking cycle I actually think that they will stimulate the economy so I don't think that they are that they have to fall prey to fiscal dominance and fiscal dominance is just the government is unable to raise
rates because the size of the debt is so large which it which we're which we're flirting with here in the US yeah I was going to say it sounds like in your thesis we hear Echoes of That here in the United States yeah well look in the in the United States if I were to show a a a chart of how how do we fund our debt you know like the debts doing this and you know it's being funded from overseas so we've got to rely on the kindness of strangers uh the Japanese could always
bring a lot of money home I know I'm jumping around here a little bit there's just so many things I want to talk to you about uh I could Talk to you for hours but I I wanted to just talk about something you mentioned your neighbor Carol salov uh in the Bahamas perhaps one of your more less illustrious neighbors as folks can see over my shoulder there the Sam bankman freed uh book that I co-wrote with Arthur osinski and Elizabeth Bachmann uh you and I had a short call yesterday where we talked a little bit
about something I'd never heard uh spoken about anywhere else before talk to us a Little bit about your interactions with Sam bankman freed yeah and look I I I know what my bias is against this creep is I've been fortunate enough to be part of an American family but we've been multi-generational guest in the baham they have four generations and you know I I I love the people of the baham you know after the US my favorite country uh and the the people of the Bahamas through this crypto initiative we really trying to create a
better future for Themselves and for their children and for their nation and Sam bankman freed tried to ruin that and um there there was a meeting with him with probably the seven highest ranking officials in the Bahamian government a lot of off Island investors and you know it it was clear to me a after 10 minutes that I wasn't buying what he was selling as as an Adjunct professor in financial history the you w weather it it was Charles Ponzi or Bernie Midol I I this this guy was sending alarm Bells off in my head
and I was shocked that other investors you didn't question what this guy was saying is how did you know so quickly when so many of silicon Valley's Elite uh Venture capitalists were uh not able to see it coming was it something about his demeanor was it the way he was speaking was there something about the Way he engaged that just immediately set off those belts yeah it it it was he immediately with without a line of questioning he immediately went to saying that he could hold all the customer so this is February of 2011 22
but that this was in January Fe Ary before FTX blew up in the fall right and he just struck me as highly highly agitated and agitated personally P personally agitated and he was you know without prompting he Felt compelled to tell the room that he you know that he had invented a new model and that the old model that the old custodial model was wrong and you know look the custodial model exists for fail safes and to prevent fraudsters like him and you know he started he he he was doing a trade on Robin Hood
the app you know while while he's talking to uh you know investors and government officials and you know dropping F bombs kind of every 30 seconds and you know is That this F E effing app Robin Hood I've got to go through five other in companies and I don't need to I don't need to effing do this and I can hold the customer funds I can be the exchange I can be my own risk engine I can do my own risk management and there was one of those well Sam nobody asked him and then you
know I I kind of stopped his the tie rate at a point Sam can I ask you four questions I ask him four Questions about how he's doing business he told me that I didn't know questions sorry it was just it was about the how robust was the system what would he do if there was a run on his bank and and you know he he basically told me I don't know what the f you're talking about I don't think you know what the f you're talking about I know what the f I'm talking about
I I teach a course in it at Yale you look like a US Bank in 1907 Without A lender of Last Resort buddy and um let's see what happens then I tried to Pivot the conversation to something more productive and ask him you have the seven most important people in the Bahamas here what can they do for you and his answer was they can effing legalize Uber we're having trouble getting home at night I me it just like off the rails but you know Ash To to your point is we always try to be skeptical
I I think that the more credential someone is the more you have to examine them that you I I I I went to Y and I I I don't believe in credentials on a podcast in October I actually came out and said I would never hire Harvard undergraduate again I I think it is a failed credential so yeah and but back to your point how did all these people fall for it I I Think it was the high status of his parents you know if you were to look at the investment memos they were saying
oh his parents are Stanford law professors it's this it's that you whereas if if his father had been a truck driver from Ohio he wouldn't have gotten the same pass you know I think it's shocking that Michael Lewis who really made his career or started his career lampooning the excesses of Wall Street And liars poker you know completely felt hookline and sinker for what Sam bankman freed was selling and you know look I I think it's Michael Lewis probably needs to leave Berkeley California go back to New Orleans for a little while and get in
touch with the street you know not the not the Berkeley PhD program well that it it's just extraordinary story uh about s bankman freed one I'd never heard before and I I literally co-wrote a book about him yeah And look I you as I told you yesterday I I think it would have been very very amusing if Michael Lewis's kind of slathering Praise had come out and then FTX had collapsed you know like again for what for whatever reason Michael Lewis was going down with the ship even after the guilty verdict and you know one
one thing I will add on this verdict and I I've been in the Press saying you know I think he should Get a long sentence when when people said it was a victimless crime it's not a victimless crime 400,000 people in the Bahamas suffered the investors suffered and you know the investors deserve what they got right the the the people who did business with FTX you know they they've obviously lost out on this cryp cryto these crypto gains and you know look what what I I I haven't done a lot in crypto much to my
chagrin my my 14-year-old seems to make 10 times his money every three months uh trying to figure out how 14-year-old without a passport has a binance account um but I I if you were to you know to get away from the investment business and just into kind of societal things you know I I'm very worried about what this generation has seen of capitalism you know seen a series of market failures and you know what they construe as capitalism really isn't capitalism you Know they're seeing the worst of crony capitalism they're seeing like government interventions they're
seeing you know right now like the green New Deal is crowding young people out of the housing market because you know this government spending is keeping rates high so you know I I do think that one of the great things about crypto is it it's getting young people involved in markets and it is restoring their faith that you know there is a way to make Money that you they they've U been willing to embrace the new new thing and you know that many older people haven't so you know people say to me well you know
crypto doesn't have any value it doesn't have this and you know look I can tell you that when people agree on a means of exchange it has value is a friend of mine's grandmother in 1998 the Russian economy collapsed and they went into this hyperinflation she went out and bought 18 bicycles and kept them in Her apartment and sold them off because bicycles were her inflation hedge so so you know you you never know what the inflation hedge is going to be but you know I I'll put in the the plug for gold again I
and I just keep coming back to kind of big and small uh agree that that is the Hedge you know it's interesting you said something and it's a very casual way where you said If s bankman Freed's parents had been if his father had been A truck driver he probably wouldn't have gotten a pass Scott there's something about that that I think Americans right now at this moment in history feel so viscerally you can see that anger and frustration on the left and the right perhaps the one thing uh that folks across the Spectrum agree
upon uh that the system uh certainly uh seems to be unfair yeah look I I'm very very concerned about that I I gave a a talk the the other day and you I I said we we Are failing the bottom 50% % of our you know of our wage earners because you know if you if you think about it right now in the US there there's us there there two kinds of people there's us and you either own assets or you have debt and and and look it's easy to snife at the FED it's easy
to snife at Jerome Powell but I do think that there is a colossal failure here that is exact Exacerbating what's happened because by theing asset prices which is what he did when he eased Financial conditions you know it's making the top 20% better off and you know we we know that I think the top 20% accounts for 40% of consumption and then the bottom 50% you know they they have debt they you you're you're starting to see there's an article in theic American Banker last week that credit card delinquencies are now the highest That they've
been the Philadelphia fed measured of this credit card delinquencies are the highest that they've been since they've been started measuring them in 2012 so uh n Nancy Lazar Cornerstone macro wrote a great piece called the bifurcated economy and that's really what you've got you either have assets or you have debt and I can tell you that you it bothers me that this bottom percent is you know they they they have A voice and they have you know they're gonna have their time at The Ballot Box and you know if you know I I could imagine
in 2028 that the candidates are AOC and JD Vents and they are you know to to your notion on this left right agreeing you they are both quite populist and nobody on Wall Street is going to like what they have to say is you know like I'm not sure whether I agreeing with him or not but you know Senator Vance wants to Get rid of stock BuyBacks we we we know what AOC wants Scot for for a a young man or young woman who might be listening to this conversation today uh and hearing maybe some
of the things that they feel emotionally explain to you in a very clear narrative based on quantitative analysis what would you say to them what advice would you have for them what mental models have you used in your life that have enabled you to experience the Kind of success that you've had that they might be able to implement in their own yeah well uh one is you got to be willing to take a risk is I I I always tell everyone I've said in a couple of other interviews it seemed terrible at the time and
it it was but during my childhood my my my dad went bankrupt twice I think 1277 so I you know I I the status quo was not something that I could stick with you is I you it was for me I was willing to take a risk and you know I I almost and we we've been quite the um we we've been quite prosperous before he he decided to leverage up um so you know I I kind of wanted that lifestyle back but I you know I was also I didn't think I had to go
a conventional way you know I I didn't want to do a two-year banking program I didn't want to go into a bank training program so you as Ash as you you teased out the beginning of the Interview I saw this thing called hedge funds and I and well you know was this idea you know no no one used to take 15 or 20% of the profits and you know I thought boy that that's a good that's a good idea that that's better than working in a trust company for a 1% management fee so I I
would say one be willing to take risk and you think how how much risk are you willing to take uh two what what is changing like where can you get yourself In front of the big Trend you know like I I I often think I get in front of the big hedge fund Trend I've been successful I probably should have been a lot more successful given how I I identified that Trend but you know what is you know what what are the mega Trends here is you know I I I spoke at a university the
other day and I said you know if if I were 28 I might go to Japan could be very interesting Is you know I I would say big Mega Trend I don't I don't know where all this AI is going to go but I I do know is people going to have a lot more free time so what can you do is it is it gaming is it you know what kind of leisure activities can you get in front of I mean look you know look look at the multiples on these professional sports teams so
the you what what can you do to kind of satisfy if people are going to have more downtime are they going want To travel more are they so you know the the real advice is be willing to take a risk know how much risk you're willing to take don't get tied down with too many fixed obligations and try to get it in front of a big Trend it it you can make a you know I I made a ton of mistakes in my career if you're in a big Trend the the big Trend covers up
a lot of the mistakes it's got truly extraordinary conversation right here on real Vision I Hope you'll come back and do this with us again soon good they I i' love to Ash this is a great Forum thanks thank you so much for joining us and thank you for watching thank you for listening hey thanks for sticking around to the end uh look if you enjoyed it hit the Subscribe button and check out the video here on the right hand side I'm sure you'll enjoy that one as well and if you're ready for more go
to real.com jooin I'll see you there
