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Being that you predicted the big short right in two thousand and eight, you kind of forecasted that do you see parallels in today's economy? I know that there's something that a lot of people are nervous about, as far as a recession is one thing, but perhaps even something bigger than that. That's what some people are actually, you know, predicting. Do you see parallels? And are you bearish now the same way you were bearished? Then?
Do I see some parallels? Sure? I see some parallels. Am I as barish as I was then? Not even close, I mean, not even the same universe. So let me just a little elaborate a little bit about that. Do I think that there could be a global trade war? Sure, it's possible. It's also possible so there won't be a global trade war. Do I think that a trade war would cause a recession? Absolutely? I think a trade war
would cause a recession. Do I think a recession that could happen because of the trade war would be a financial calamity on the same order as great financial crisis of two thousand and eight? Not even close, not even in the same universe. You know what happened in two thousand and eight. I mean, if you could boil down the financial crisis of two thousand and eight into a paragraph, it would be great financial crisis happened for four reasons.
Large financial institutions had way too much leverage. A big acid class subprime mortgages blew up. Those same large financial institutions owned a lot of subprime mortgages and derivatives. In particular, credit to fault swaps, which is a very technical financial instrument, tied the balance sheets of large financial institutions all over the globe into a spiderweb that was so complicated. Nobody knew where it began and where it ended. That's the cause of it. The reason why that was such a
caamity is. Look, if General Motors, God forbid, went bankrupt, let's just say, and the government didn't bail it out and it was liquidated, that would obviously be terrible for General Motors. It would be terrible for all the employees who got laid off, and all the companies that supply stuff to General Motors. Maybe some of them would go bankrupt. They would certainly have problems. Maybe that would cause a recession in the United States possible, but that's all that
would happen. But if you can't get your money out of the bank, if the financial if the large financial institutions go down, Planet Earth burns, that's the end. So where are we today? You know, post dot frank the leverage of large banks is literally less than half of what it was. It's probably almost two thirds less. That's enormous.
So for example, City Group, which used to be levered officially thirty five to one, but if he added up all the stuff that didn't officially show up on its balance sheet but they were responsible for, it was forty to one. Today it's twelve to one. Yeah, it's like the distance between Mercury and Pluto. You know, to blow up a bank that's levered forty to one, if I could use an analogy, it takes a pebble. Blow up a bank that's leverage twelve to one, takes a meteor.
So do I think that, you know, whatever President Trump is doing could potentially cause a global recession? Sure as possible. Do I think that would cause a financial crisis that would cause the banks to go down? Not at all?
Looking at the state of the economy now right, did we look at global trade? Didn't need to be changed? Yes, didn't need to be blown up. I mean, there's plenty of skeptics on that. I wonder when as you look at it, what do you think would have been the most effective way to get some some of these trade solutions from country to country or from a global standpoint?
This may be a little bit controversial. I don't completely disagree with what President Trump has done in terms of imposing towers to get the ball rolling, because I think if you went to any country and said, look, we don't like the terms of trade, let's talk, they'd laugh at you. They'd say go away. So the only way you're going to get people to change in terms of
trade is to put a bazuka to their heads. What I don't like is the chaos there we're in and we're out, We're out that we're in, We're here's our towers and then there's our towers. We're taking it away, we're putting it back. That that causes too much. That's that's that's not my that's not my strategy. You know, by President Trump loves loves chaos, but everybody, most people in the world don't. So that's where I would disagree.
If you were building or a bit short portfolio today, what's the one trade that looks almost inevitable to you that will pan out over the next four or five years.
I have no trade that I think would pan out within the next year. Okay, what about four to five? Four to five. I still think that most of the technology trades that people have, you know, whether it's Nvidia or Microsoft, any of the well known, will will be great because I think we are still in the very very early innings of AI. Very early innings were like
inning one. Yeah, so you know, between now and inning nine, it's going to be a bit of an adventure, but I think if you stick it out, you'll make a lot of money. What's going to happen within the next six months because of all the trade negotiations, I wouldn't have a clue, and I just would say you need to keep your risk lower. You wouldn't try to be I would not try and be a hero right now.
I don't think you know what would argue that the markets come down a lot, so valuations are better, and well, of course the market's lower, the evaluations look better. That's the tutology. The problem is that if you go into a global recession, all the arnings astments are going to come lower, so then it doesn't look so cheap. On the other hand, if most of the countries settle with the United States and then everything is fine, it will have been a great time to buy. But I can't handicap that.
How much risks are you keeping on the table?
If I may follow up in my own personal portfolio, I have about fifteen percent cash right now, okay, which is a lot for me. Are you going on very long term? What I have done is I've gone through my personal portfolio and any stocks where I said, do I really love this? Why do I really own this? Is there any thesis? Creep? Get rid of it. That was the first thing I did, and I took a lot of things just lower and but like I said, on long term, the problem was with like let's say,
liquidating your potfolio. If you wanted to go to an extreme, is you got to pay over thirty five percent capital gains taxes? So you know, do I think the market's going to go down thirty five percent? I mean it could. I mean if we have a global recession. It's not impossible, but it's a lot. So I'd rather just trim some risk and just sit on the sidelines and sit and wait until let's go and look if things get better.
If you miss the first five percent move, So what you know, if things if all the trade stuff gets settled one way or another, you know, it'll be a bull market again for years. So cares if you missed the first week?
Yeah, the dollar is I think I hit a three year low. Is that something that's concerned too?
You you know, let's let's do the doomsday scenario. That's some people like to paint. So the doomsday scenario would
be like the US deficit is too big. People are not going to see US bonds as the safety vehicles that they once were, so they're going to sell the US bonds, and that, of course causes a dollar to go down, and something else will replace the dollar as a reserve currency, and there goes the United States is a great empire, and it's armageddon and cats and dogs are lying together, and you know, whatever else happens in rmbage depending upon your religion. But I think what people don't.
And by the way, that thesis has only been around for forty years. So I remember in the nineties Pete Peterson, who had been one of the founders I think of KKR, was talking about how the deficits way too big and it's a disaster and God help us, etc. And I was in the nineties, and here we are twenty twenty five. We're all still pretty healthy. See what what I think people miss? And by the way, I can't talk with
what happens short term to the dollar. What happens short term for people training in bonds is not something that particularly interests me. So the fact that the dollar has sold off, as I think, got a lot more to do with you know, hedge funds, repositioning, de risking, you know, looking looking for save havens. But long term, what I think most people don't recognize that the financial the financial
system of planet Earth runs on treasuries. Banks, for example, lend to one another overnight and what's called the repo market, and the repo market is only trillions, and it's all at overnight treasures. So to make an argument that the dollar is going to lose its reserve status, I think you have to make an argument that is going to be some sort of substitute for treasuries, especially short term treasuries, and right now there's no substitute for short term treasuries.
I mean, banks are not going to park their money in Chinese bonds. They're not going to there's no eural bond of any real significance. There's no alternative. So as long as there's no alternative, it's not something I particularly worry about all that much, even though people like to talk about it on CNBC and you know, paint doom and Gloom was listen, I predicted doom and gloom once.
Once was enough. I'm not interested in predicting doom and gloom again, unless I really, really seriously thought it was possible.
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