Hi, I'm Keith McCullough. Welcome back to another Real Conversation with one of my favorites. Dr Pippa Malmgren, who's also the founder of the DRPM advisory group. She's the founder of H-Robotics, which is pretty cool. She wrote a great book in 2015 and I think I heard that you have another book coming out in the fall, Pippa, so welcome and I'm looking forward to that.
Thank you. Yes, I do. It's about leadership in the 21st century.
Oh Great. I mean I. do we all have to lead with the twitter handle or is it going to-
It's really more about how everything's changed. All the skills you used in the 20th century are very different from the ones that are going to need in the 21st. it's a bit of a wake-up call for today's leaders and an invitation for tomorrow's.
which is pretty much right in line with how, I mean almost everything you write your, you know, I call them phase transitions and you're going to call them what you're going to call them. I call them phase transitions as well, but big tectonic shifts, big change, you know, whether it be world order, whether it be the impact of social media. So I want to hit on, on some of those, like right up the middle of the first one on international world order.
So many people have so many thoughts of trade wars, tweets, Trump, etc. Like how would you characterize where we are today? Uh, you know, Chinese, Russian, maybe those two topics specifically.
Well, here's the bottom line, and I wrote about this book Signals. There is a challenge to the post war international economic order of the institutions like world bank, the imf, the world trade organization, the rules of the game that they represent and lot of nations, China, Russia, but many nations are kind of thinking, is this still serving us are the rules really fair, even unbalanced or they resulting in the right outcome.
So there's a huge challenge and the question is, will we survive this period of challenging the rules of the game and the institutions? Obviously we got the president of the united states outright log all of that. This is the real question, but inevitably you'll end up with something. There's always some kind of construct. So the question is what it going to look like?
And I think the Chinese take the view that whatever the american led structures have been in the past, they're unlikely to accommodate their needs. So they're creating their own institutions like the asian infrastructure investment bank. Um, the russians are trying to create their own institutions. For example, when we kicked them out of SWIFT, they said, fine, we'll just create our own payment system that's separate.
So we're now at a period where there's just a lot of competition for what are the rules game going to be and people don't like that uncertainty, but on the other hand, these things are not guaranteed. They take time and effort and commitment keep them stable and sound and now we're in a time of testing and challenging them.
Do you think, I mean, it's a hard answer obviously when I ask a question about volatility, but do you think that they perpetuate short term volatility in search of longer term stability in terms of how they might think about it?
Yeah. I don't know. I think that also government policy makers, uh, they, I think they don't really understand how business and the really economy of participants respond to this. They both overestimate the impact and say, you know, any change to the trading system and its rules, that's a mores will be so disruptive as destroy the world economy, which I don't think is true. It's amazing how quickly businesses adapt and they change.
If their supply chain is threatened by a rule change, they start looking elsewhere for that supply chain. And also they tend to underestimate the, uh, the agility of business to swing around anyway. I just think, okay, it's a challenging time of difficult, but we'd been through trade wars before and we've survived it and I suspect we'll survive this too.
Well, I mean the, at the, at the core of it. And I mean really it's a question of central planning versus what the private sector actually does, which is builds things, innovates and seeks profits. I mean at a bare minimum. And that to me when I watch, you know, it's, it's hard to watch frankly.
I mean the macro tourism of it all, if you want to call it that, people just jumping from headline the headline, you know, trump's obviously perpetuating that component of it to a degree, but all the while you've got this U.S. business cycle that's just chugging along actually at record pace, uh, eight consecutive quarters in a row of accelerating gdp growth. The biggest headline, gdp number four point one that we've seen in a long, long time.
You know, it isn't that the tapestry that's underneath it, that's always been there, that you actually don't need these governments and institutions.
I love that term. Macro tourism. I'm going to take that. I'll quote you on that. but yeah, you're right, and so getting caught up in all this short term headline it. This is really for the voyeurs. The real player are out there building real companies that make real things or offer real software or real innovation and I'm in that space - in technology.
I see extraordinary innovation going on and not by big companies all the time where we also have maybe what I could call them, micro innovation, little tiny companies of four or five people that can totally disrupt an entire sector and eat the market share of massive companies. So this is what needs to investing in. This is what's giving you those amazing numbers in the u. S economy, but also elsewhere in the world and it's the bit that policymakers always underestimate.
They just can't believe the tiny little company with a handful of people can change the world. And yet what was apple? What was facebook? YoU know, we just got to get another wave of these extraordinary success stories.
There's, there's obviously a romanticism to that too. I mean, everybody's gonna have a trillion dollar company now coming in. So obviously there's a bazillion garages. They all, they always start in garages. Mine didn't start in a garage. I think it probably started in my bathroom or something. Uh, but at the end of the day like this, this, this, this, um, you know, it's new, therefore it should take over, the establishment. I often think about Cryptocurrency in that regard.
What are your thoughts on crypto? We've never talked about that.
Yeah, so it's real. It's not going away. Last time I looked, there were 1,170 or more cryptocurrencies. So this idea that it's only big pine or it's only a theory on this is not right. There are many, many players in that space. So bottom line is as a phenomena, it's real. It's not going away. Plus government is going to enter this space. The Chinese were talking about issuing or own national fiat cryptocurrency.
In other words - taking together electronic money in conjunction with blockchain, which is basically like a timestamp that, uh, indicates when and where every transaction took place. This is where governments are going, uh, now, whether every individual cryptocurrency, the alive now will be alive in future. Most of them will probably fall by the wayside at some point. Most of them will find themselves up against the wall of regulation, but some of them will persist.
And that's basically because the way the internet works, it's creating its own money. It's creating its own mechanisms for transmitting money and therefore we have to adapt to this massive technological change. It's just not going to go away.
So now if you take the technology of crypto and you bridge with this ever changing world that you talk about in the new world order, you know, how do you think about that in terms of how the chinese might perpetuate a cryptocurrency or how the world might look like in the future state?
Well, I think, look, crypto is part of a bigger issue which is governments are figuring out they can use technology to manage the society. Now some of them want to do this in ways that are potentially positive and some there are questions about. the chinese approach is to gather as much data as possible about every individual and use that to manage the society. Uh, it's kind of not so consistent with what we like in a democratic process, but that's the road they're on.
So they like crypto because a national fiat version of it because in that way they can let you track every single transaction that a citizen is engaged in. It kills the black economy. It makes everything totally transparent. We're doing it in the west as well, by the way.
Governments like electronic money in conjunction with blockchain because that gives total transparency over every transaction that's praying, the economy to the point that I think that at some point we don't even need to actually fIle your tax return. They'll just automatically deducted at the point of transaction. So this is a very powerful event in the world economy.
this shift into a new form of money, a brand new technology, which is money that's not only electronic, but it's tagged to you and your specific behaviors.
That's a great answer and is a unique one actually mean a lot of people, you know, just by nature of where crypto came from in bitcoin and in particular, I mean, lots of libertarian thought, obviously tremendous amount of antigovernment thought, but uh, neil howe, who's our demographer will often say, well, isn't it ironic that it's going to go back to the government who can only perpetuate it, make it trustworthy, et cetera. They're going to steal it from these libertarians.
a, by the way, I'm a libertarian, I sort of. So I mean, I don'T take offense to that. I just think it's ironic that very thoughtful people like yourself are actually coming to the same conclusion.
Yeah, I love neil howe and his work. Uh, uh, yeah. So what's interesting is all these people who thought they could escape government oversight by no in various ways or like I'll buy 10 cans and I'll live upstream and you know, how my own food and I'll have my own electronic currency.
I'm like, but you realize that any electronic item you use this tracking your use of it, and now every time the way you happen, swipe on the phone is identifying what you don't think they know your bitcoin password. I mean really at some point the only person who isn't gonna know your bitcoin password is you.
That's a great travesty of the early bitcoin miners said they, they actually lost the, they lost their codes or their, their pass keys. Um, so that's, that's interesting. But if it, let's just blow this up a little further. Like how do you think amazon, google, facebook, and the the whole social social meeting of it all. How do you think that that's going to continue to change alongside this new payment processing platform and, and, and a new world order that you often talk about?
Uh, so, and I have a big chapter in my, in my new book on leadership about this to help people understand What this looks like. So imagine when we talk about cambridge analytica and they gathered roughly 5,000 data points on 81 million people Based on facebook likes alone. Imagine if you had that silo of data, which was enough to potentially influence political positions, right? You can sell anybody anythIng, a refrigerator, a political position.
Once you have enough data, imagine if you added to that the information about your emotional reaction to the films you're watching, which is now captured by the cameras embedded in every screen that you look at on the cinema to your phone. What have you also had the data about your physical movement in the shopping mall because every time you stopped To look at the counter, it's capturing that it's you.
And if I have enough money, if I'm big enough company, I can buy all those different silos of data or if I'm a government, I can access those different silos of data. And now artificial intelligence connects the dots between the silos. So now I have a huge amount of information about you and specifically you. So to the point that I've made the case, so we're gonna need. You know, in the past we had insider trading laws.
We're going to need insight-er trading laws because people will know so much. They'll have so much insight into your emotional reaction to things, but they can sell you anything and I would strongly recommend people look at the chinese company called sense time. It's the most valuable artificial intelligence startup in the world it's worth $4,000,000,000 now and all they can recognize your emotional reaction out of a crowd of 10,000 people.
They can look at a screen like we're on right now and a ceo comes on and talks about his company or her company. It can identify the micro facial movements that you're lying and set the algorithms, the short your stock immediately. That's the world that we're in. Imagine all the data points and come into kind of almost like a holographic sphere of information. We're going to learn how to navigate, how to conjure forth answers. It's literally like a crystal ball.
How do you conjure fourth answers from this data sphere? How do you look when you're perceived through it? Um, what knowledge and you've gained to help you sell whether you're a government or a political position or a business? Uh, you know, a product, it is a totally different economy.
Just wrapping a system and a process around like, I mean for a long time, 20 years ago when I was first, when I first came into the hedge fund business, we studied kinesics, you know, the study of lying, the art of lying kind of hand signals tips people will give you and um, you know, then when I went to Carlisle, we're interviewing different fbi agents in terms of interrogation processes, but these were all people heavy.
So we would have to, you'd have to first of all, you know, read all the books. Second of all, have your own opinion. It wasn't systematically imputed into some kind of a chip that could recognize and scale. I mean, that, that isn't, isn't where we're at, just that we're taking a bunch of things that we knew, but we're finally putting them into a scalable process, a technological process that, that w that we can use
like everything else in automating the judgment about humans. Yeah. And this one of the problems I have with this internet driven world that we've now entered because the internet is very good at quantifying, but it's not very good at dealing with the qualitative. So we like to measure people. Uh, but you know, I always think, how do you, how do you put a number on moxie or panache, you know, for any of these qualities that aren't subject to a number.
And if we don't, we're going to lose those qualities.
Uh, it's, it's, it's hard to say where this all ends.
Obviously, you know, if it was so early, uh, you, you already mentioned a couple of companies you could, you could invest in, you know, there are plenty of private companies by the way, that people can't invest in a. I know you have thoughts on that too, but what, what do you think in the next six to 12 months will become a readily available, um, investment idea that everybody is already applying in, in, in this regard, in terms of systematically understanding and capitalizing on human behavior?
Oh, it's interesting. I definitely think that private is the new public, that that's where the big money is looking for. The biggest returns is not in publicly listed firms anymore. It's private equity world. I think look at the application of artificial intelligence to every single business because it cuts costs, it increases the productivity, it allows them to do things they never did before and it's not specific to one sector. So almost everything in the equity market will benefit from this.
So that's another reason I'm bullish on the equity market for many reasons. I think I'm the only one left who is bullish in the equity markets, uh, but you know, I, I still think, look, we still have $20,000,000,000,000 in the system that not gone anywhere. The fed could raise rates a few times, it's not going to make a darn bit of difference. Um, it takes it's like taking a cup of water out of the atlantic ocean. We have record levels of defense spending.
The chinese are spending 5 trillion on global connectivity, not just the belt and road initiative, but the digital aspect of it. All. This is hugely beneficial. The equity market. And now let's just overlay that with these remarkable innovations and artificial intelligence frankly, and then had a little inflation which is telling people I got to get out of cash, I got to get into something that's real.
So all that tells me, the equity markets are generally going to benefit from the application of artificial intelligence to whatever they're doing.
No, it's a much more appropriate and broad answer to the question. You're applying all these technologies to existing businesses which makes them more productive and god forbid we actually get productivity too, uh, you know, there's so many companies I've seen little to no productivity for so long because they're so slow to evolve. But we are seeing the pace pickup. We're actually seeing productivity in the us in particular pickup. So it is interesting.
Yeah. And you know, I'm in this space. I know I'm a manufacturer of commercial drones and it's amazing. I still talk to the recently I was talking to the royal air force search and rescue. I said, so, you know, using drones to go, yeah, one of the guys on the team has a toy and we use that. now and again, it's really fun. I'm like, you don't have to search and rescue with industrial strength drones yet. I mean, imagine productivity gains are going to come.
We're at the bare beginning of what Goldman Sachs calls a $100,000,000,000 market in drones and that's just one tiny little area.
And drones. I mean, hey, . My kids can from a, from your lips to my ears, I know exactly what you're talking about. Four kids at home, they got drones and uh, the neighborhood and the neighbors know they have drones and it makes the neighbors nervous. Maybe that's the last question.
How much of this, you know, really makes people nervous in so many people, you know, privacy is the number one, if not one of the top issues, uh, you know, how much of the nervousness of it all could actually stall the, uh, I guess, you know, technological transformation that we're talking about.
Well, I think people haven't understood the half of how much privacy they've already lost anymore because they, they're shocked when I tell them that their vacuum cleaner is broadcasting their movements or that their refrigerator is, you know, capturing images of them. They're like, wait, what? I didn't know that. So here's the bottom line.
Facebook has a real issue is people understand suddenly what privacy story is about because after all, if you're not paying for it then you are the product and, and people don't quite get that. The next layer of this is what happens with them, the application of that intelligence, real businesses. So I think people will have a heart attack on the retail front and they'll appreciate all that on the business front to you.
And I mean, so the companies that are retail consumer facing and you are definitely at the beginning of an uphill battle here.
Okay. That's a, we're going to look forward to hearing more and more of your thoughts on that. Definitely. Uh, and, and, and your book, you know, I can't wait to effectively, I have a funny feeling here that everything that you've just kind of grazed the surface on, you have a beautiful book that will make it all make sense to all of us like you did with that first signals book in 2015. So I do, I do. Well, thanks for the conversation.
We always appreciate it and thanks for very unique and original and accurate thoughts. She's Pippa Malmgren and I'm Keith Mccullough. You can find us both on twitter. That's where we're at. Thanks.