Interview With Mohamed El-Erian: Masters in Business (Audio)

thoughtful and articulate as Mohammed Hllarian is. I have been chasing him down for the better part of a year before I finally cornered him and managed to wrangle him into submission, and he couldn't have been more charming or delightful. We only had him for an hour, so this is going to be a relatively quick, uh podcast. It's less than an hour, but it is. I promise you will

listen to this more than once. It is full of insight and depth and really just just a tour to force conversation about the way to think about thinking about finance and investing. So, with no further ado, our conversation with Mohammed Larion. This is Masters in Business with Barry Ridholts on Bloomberg Radio. My special guest this week is Mohammed al Arian. He is the chief Economic advisor to Alliance. They're large insurance company with trillions and assets. They also

owned Pimco and a number of other significant assets. I'm only going to give you the short version of our guests uh CV because the whole version will take up the full first segment. Cambridge and Oxford ultimately ends up as Managing director at City Group in London. Spent fifteen years at the International Monetary Funds in Washington, d C. Where he served as Deputy Director uh chair of the

President's Global Development Council. Named to Foreign Policies, Top one hundred Global Anchors and one of the five most Powerful People on the planet. Named one of twenty five most Influential People's List to Investment Advisor's annual survey. Author of When Markets Collide, a New York Times in Wall Street Journal bestseller, the book one Financial Times Book of the Year, and the Goldman Sachs Book of the Year Award. His latest book, The Only Game in Town, Central Banks, Instability

and Avoiding the Next Collapse. Muhammad Alarian, Welcome to Bloomberg. Thank you. I'm delighted to be here. I'm I'm very excited to have you here. Also, um, there's so much stuff I want to go over, But I have to start with with your upbringing, which is really kind of fascinating. You're born in New York City, you spend some time in Egypt. Ultimately your father becomes ambassador to France and

you spend a number of years living in France. Given this international upbringing, how did that shape your view of the world. It had a very important influence on me because I got exposed two different cultures at a very early age. It wasn't easy. Changing not just friends and schools, but countries and languages was quite hard. You speak a number of languages, don't you. I speak some, um, But I tell you as I got older, UM, I found

it harder. And I asked my father ultimately to send me to boarding school because I couldn't change countries and languages and friends every two to three years. That's amazing, And given that background, I would have pegg you for a career in either public policy or international diplomacy. What what attracted you to finance? So that's why I started in terms of the international under refund. It was global,

it was policy oriented. Um, it was based on economics, and when I was turning forty, I realized that I had never tried to private sector, that I had spent fifteen years at the IMF, that I had never tried to private sector. So I took it to you leave from the IMF and I joined what was at the time Solomon Brothers that then became Solomon Smith Bonnie then became City and I wanted a taste of the private sector. And I can tell you barried was quite a change,

I can imagine, to say the least. So you were let's let's start with that public policy works. So you were the I m F for fifteen years. What were some of the biggest lessons you learned there? And what do you think the future role of the I m F should be in the global economy. So the amazing thing about the IMF is that at a very young

age you get exposed to policymaking. You're part of discussions in crisis economies, countries facing crises, and they have to make really difficult policy choices, and you realize very early on how difficult that is. These aren't academic debates where people are trying to figure out how many angels can dance on the head of a pin. These are real countries in the midst real either fiscal or other forms of crisis. How does that affect the process by which

policies are made? It seems like everything is an emergency footing, correct, and you don't want to get there. So the whole point of the I m F is to make sure that you don't get there, and you don't get there by having an annual checkup is called the article for surveillance. But at some point quite a few countries get there. And I was there when there were all sorts of crisis going on UM and I was lucky enough to have UM a front row seat in that, and you

learned very quickly that you have to make compromises. That a lot of the time policy makers are making decisions within complete information and they don't control the politics of it. So for me it was an amazing eye opener because I came from the academic world and I realized it's much more complicated in practice. So so you're dealing with real world conditions, you're dealing with politics, and that's before we even get to how do you assemble a policy

on that sort of footing? So what surprised you most of all the various emergencies, the I m I had to deal with. What what was the one thing that you witnessed that said, that's amazing. I never would have imagined either a this happening in the first place, or be this sort of response to it. So so what amazed me in the beginning is how misunderstood financial markets were. So I'll give an example. This is the mid eighties.

Mexico had almost declared bankruptcy. Latin America was hit and they decided to send a team of US to New York to talk to the financial sector. And, believe it or not, at the time, that was very, very unusual. So a group of US went and we went to see an asset manager and we asked the question, what's the first thing you did when you heard that Mexico was having difficulty facing and paying its debt? And that financial asset manager said something that was very surprising to me.

He said, I sold Chili. Now, as the economist in me, I thought, what a city thing to do. Why would you ever sell chili? Chili is a well managed economy out there. It is not Venezuela, it is not Argentina. You keep Chili, And I said, so I reacted, why would you do that? Thinking, wow, he are irrational markets, And he explained it in a way that makes total sense to me now having seen the market the market side, which is that he expected redemptions from his Latin American

funds because the Mexican news would lead to redemption. He needs to sell across the board and what hadn't been hit hard as yet was Chili. So he sold Chili. And for me, that was a realization that economists needed to understand the financial markets much better. I'm very hults. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is Muhammad Alarian. He is the economic advisor to Alians, a contributing editor to the FT,

and a calumnist Bloomberg View. Let's jump right into a phrase that you were coined back in oh nine, the new normal? What is the new normal? So the context was coming out of the crisis. PIMCO was in a much better position than others because we had navigated the crisis relatively well and had protected our clients assets, and we could look forward and ask the question what comes next? And starting in January, we realized that this was not

your typical cyclical crisis. This wasn't like an elastic band you stretched and comes back. That this was a structural and secular phenomenon. And we debated how best to communicate to our own people and to the outside world that this is not business as usual, that we have to think differently, And after lots of different permutation, we came up with the concept of the New Normal as a way of signaling that it not be a cyclical recovery, but instead we would face a prolonged period of low

growth and structural challenges. So there are a couple of other people who have described this era similarly. Larry Summers famously called it the secular Stagnation? Is that all that different from the New Normal? No, it's very much the same thing. I mean. The irony here Berry is that when we went public with it in May of two

thousand and nine, it got very little attraction. In fact, I remember a policymaker telling me it was an idiotic concept that the West lives cyclically and it's the emerging world that lives secularly and structurally. Makes sense with time when it became evident that we were having difficulty growing, when it became evident that the forecasts were all being revised one side downwards. This notion started to gain acceptance

in two thousand and fourteen. The I. M. F called it the new mediocre, and then familiar, and then um Larry Summers came up with the phrase this is seculist tegnation. But it speaks to the same thing, which is a prolonged period of low growth. The irony Berry is that now the conventional wisdom has gotten to the new normal. As I argue with my book, I don't think it's any more a powerful concept for describing what's ahead of us. I think we're going to tip one way or the other.

So in their book ran Hunt will go Off this time it's different. Eight centuries of financial folly. They talk about what is normal following a financial crisis subpart GDP, weak job creation, mediocre retail sales, but surprisingly pretty robust equity markets off of the lows. Um That seems pretty consistent with with new normal as well. How much of the new normal is a function of us living in a post financial crisis world a huge part, And there's

two elements to it. One, as as Ryan had and Rogoff pointed out when you have a massive balance sheet issue. It takes you time to work through it, and you basically have four choices. You can either default, which is very very costly. You can grow your way out of it. What that's really difficult. You can try and have a voluntary structuring. Alternatively, you can go through financial repression, and that is central banks pushing interest rates down in order

to tax creditors and subsidize theaters. And that's what we've had. We've had financial repression. We've had central banks use both interest rates and their balance sheets to push down interest um costs and try and promote risk taking in order to recapitalize the system. So you call this financial repression. Ray Dalio of Bridgewater calls it the beautiful deleveraging. There are some lightful phrases to describe what is a not so delightful era that that we've been coming out of.

And I have to ask, I know that something like sixty or sixty baby boomers are retiring every day, how much of this new normal and the secular stagnation is a question of just demographics. So part of it is there certainly are demographic elements to it, and they are also politicular elements, but there's lots of economics elements to it. I think the major issue, vary for anybody retiring or anybody at all, is that part of the response to the new normal has been to borrow growth from the

future and borrow financial returns from the future. As a result, as you point out, equity markets have done very well while fundamentals heaven. So we have a big gap. And the big question facing us today is two fundamentals, improve and validate asset prices and push them higher. Alternatively to to ask prices come down towards fundamentals and overshoot and pull the fundamentals down. That is the t junction facing us today as we navigate the consequences of having relied

too much on financial repression. So given that, what what's the biggest surprise of the post crisis financial repression era? What what has happened in the past let's call it eight years that stands out as nobody really expected that to occur. Oh, I can give you a whole list of improbables and unthinkable. I mean, think of the fact that we have negative nominal interest rates. How many people would have predicted that would have negative nominal interest rates.

People were forecasting rising rates, hyperinflation, and collapse of the dollar. None of that came. None of that came to. Who would have predicted that this frustration with low growth would lead to the emergence of non establishment and an anti establishment, non traditional political forces on both side of the Atlantic, and that we see it. We see it in America clearly, the Trump Sanders phenomena is reaction to something that's going on,

no doubt about that. And in Europe, and we see it in Europe with the emergence of UK with the emergence of the various parties in Germany, and of course the natural front in France. Who would have predicted that we'd have a lot of risk taking in finance and very little risk taking in corporations. Corporations are still sitting on a massive amoun amount of cash even though it's earning zero and now they're being forced to give it

back rather than invested. Who would have thought that we'd have this big divergence, and yet we have the list of unthinkable Who would have thought we would have such a worsening in income, wealth, inequality, so that at least to an inequality of opportunity. I can give you the whole list of unthinkables and improbables that have occurred because we've been living this artificial world. But I stress it's coming to an end. I'm very Ridhults. You're listening to

Masters in Business on Bloomberg Radio. My special guest today is Muhammad Alarian. He is an economic consultant to financial giant Alliance, a contributing editor to the FT, writes a column where I do also at at Bloomberg View dot com, and has has really been named one of the hundred most important or influential global thinkers by Foreign Policy and and generally an all around eloquent person describing the complex

and occasionally chaotic world of finance. And I wanna use that eloquence to jump right in to your current book. The only game in town central banks instability and avoiding the next collapse. So let's talk about the FED. Are they the only game in town? Yes, they are, as is the ECB, the Bank of Japan, the People's Bank of China. The list is long. Um central banks have

taken on enormous responsibility. The first phase made sense whether they had to step in and normalize very dysfunctional financial markets. But then starting in the case of the FED and in the case of the e c V, they took on the responsibility for delivering macroeconomic outcomes, and they did so not by choice, but by necessity because other policymakers weren't stepping up to the plate. You know, Nixon famously said, we're all Keynsians now, and that has led to a

pretty standard manual for what to do. Following a recession, private sector demand plummets, the government steps in with some sort of fiscal stimulus, whether it's repairing bridges and roads or some other big policy statement. The government steps in that substitutes for a short period of time that missing demand, and then eventually the private sector catches up and the public sector can step out of the way. That seems to be missing this cycle is that part of the

reason you say the federal Reserve had no choice. So it happened, but it didn't happen big enough, and most importantly, it happened isolation of three other things that needed to happen, and therefore it was not as effective and you didn't get the handoff that you're talking about. So what was missing? First, we invested in the wrong growth models, go back ten to fifteen years we somehow fell in love with finance and believed that it could promote economic growth. We even

changed the name. We used to call it the financial service industry because we had this notion that it served the real economy. But then ten to fifteen years ago we changed this notion and it became a standalone. I remember people talking that it was the next level of capitalism, agricultural industry, manufacturing services, and if you're really lucky, you get to financial services. So we invested in the wrong growth model, and we stopped investing in infrastructure, in pro growth,

tax reforms, in labor retooling. The second problem is we didn't deal with the lessons of past debt crisis. You mentioned Ryan Hard and Rogoff earlier. They point out that when you start with excessive indebtedness, if you don't deal with it quickly, not only does it crush those who are over indebted, but it stops new capital from coming and you get no new oxygen, fresh oxygen into the system.

And then finally we forgot how in the dependent the world we live in is, and we didn't step up with global policy coordination, except for one instant in April two thousand and nine at the London G twenty. So the problem is that while we had a stimulus, it wasn't big enough, and most critically, it wasn't accompanied by these three other things, and therefore the handoff never occurred, which pulls central banks deeper and deeper into taking on

too many policy obligations with too few instruments. So so let's bring this back to the only game in town, um the new book, and we'll talk a little bit about the FED. In the book, you point out something that I found fascinating, Matt O'Brien writes in the Washington Post, and he did a I love this word count way of looking at FED transcripts to figure out what they're talking about. And in two thousand and eight, as we were heading to the crisis, was the FED worried about

systemic risk? Well, according to O'Brien, and you passed this along, Uh, they were much more concerned with inflation. And if you think about the June meeting, the word count four hundred and sixty eight mentions of inflation, only thirty five of either systemic risk or crisis. In August, that ratio was three two to nineteen and then the September six, two thousand and eight, meaning and let me point out this

was immediately after the collapse of Lehman Brothers. It was still a hundred and twenty nine mentions of inflation for US is just four of either systemic risk or crisis. What does this tell us about the FED? So I think it tells you something much bigger and and and I ended up by going along and looking at behavioral science to understand decision making and why it is that we tend to frame things in a backward looking manner,

because that's what the FED did. It tells it it's very hard to pivot your thinking from what you're comfortable with to what is happening and is new, and it's understandable. We don't like doing it. We we as humans don't like doing it. We have an inclination to always go back to comforting things. So either we are in denial the so called blind spots, or we reframe um issues so that we are more comfortable. And that's what the FED was doing. I'm very helps you're listening to Masters

in Business on Bloomberg Radio. My special guest today is Muhammad Alarian. He is the economic consultants and adviser to global financial giant Alliance UH and writes for both the Ft and Bloomberg View. You know, in the previous segment, we were discussing UH some of the more fascinating impacts of of the FED fighting the last last battle, and I have a quote that I have to start this segment off with you. What all of this speaks to is the repeated ability of central banks to decouple asset

prices from fundamentals. What does that mean. It's very simple. If you have a printing press in the basement and you're willing to use it, and you're willing to engage in asset purchases, you can have any immediate influence on asset prices. It's that simple. And that's why we say, you say asset prices decouple from fundamentals, correct for quite a while. You can decouple asset prices by increasing the demand and by changing risk preferences, and that's what central

acts have done. Now, this is a bet that makes sense if you also manage to trigger better fundamentals so that ultimately the fundamentals validate the asset prices. If you don't, you cannot maintain for whatever this wedge between artificially high financial assets and sluggish fundamentals. So here we are on the first quarter of six and it looks like stock prices are coming down to weak fundamentals. We're gonna get into the issue of what else can be done to

stimulate the fundamentals. But but let's talk a little bit about the global state of the economy. Why did market suddenly discover it seems like after having ignored the fundamentals for a number of years, why did they suddenly decide that maybe we have to pay attention to a weak economic growth because of the perfect storm? You know, there's notion of a perfect storm is three things come together and what you get is not just a holatility, but to get the improbable as well. So what has been

the perfect storm? The elements of the perfect storm. First, we are questioning like never before global economic fundamentals. We are worried about China. We are worried about the slowdown that's happening around in emerging the emerging world. Europe has cut its growth forecast. There's even talk of the possibility of a recession in the US. So suddenly, the first element of the perfect storm is concerns about fundamentals. The second element about of the perfect storm is the last

of trust in central bank effectiveness. Two reasons for that. One is we have divergent monetary policies. Now central banks are no longer on the same side. We have the FED that has exited Quei and that has started hiking interest rates, so it is taking its foot off the accelerator. Meanwhile, the e c B, the People's Bank of China, and

the Bank of Japan are going the other way. This divergent central bank context, it's very different from what we've had before, and it has raised doubts about the effectiveness of central banks in repressing volatility. And then the third element is the lack of patient capital. There is no big balance sheet with quote permanent capital that can step in now and act countercyclically. In fact, liquidity is challenged because the broken dealer's appetite for countercyclical risk has has

been reduced. So put these three things together and you get this volatility, enormous volatility um that then causes its own dynamic. Now, the good news bery is that so far this has been a financial event, It hasn't contaminated the wheel economy and that is the major call for two thousands sixteen. Will this continued financial volatility contaminate the real economy? Or is the real economy resilient enough to be able to continue it's gradual healing process. That's that's

quite fascinating. Let's let's talk about this divergence amongst central banks, because if you look at it in a chronological order, it doesn't so much look like they're diverging as much as they're out of phase. The US under Ben Bernanki was very aggressive in the O eight oh nine crisis, zero interest rate policy, quantitative easing, operation twist. They threw a lot of stuff and it had an impact. Europe was a little more stand or office and Japan had

been trying all sorts of things over the years. It looks like Japan saw the US was succeeding and said, okay, we'll try quantitative easing as well. And then a few years after that Europe finally said, well everything else we've tried, this austerity thing ain't working. It looks like the US and Japan's QUEI is working on don't we follow them? Are they as much divergence as just kind of out of phase, out of out of step with each other.

So you're absolutely right about the super and sing absolutely right, and you're absolutely right that each country was pursuing its domestic objectives taking into account its domestic conditions. The problem is we live in an interdependent world. So let me give you the image of an orchestra. You have the different sections in the orchestra. They have music, and they decide to play from different parts of the music, and then they look up and there was in a conductor.

On a stand alone basis, each section will sound okay, but you're not listening to it on a standalone basis. You're listening to the whole orchestra, and the whole orchestra is incoherent. And that's why I went earlier in our discussions. I said, I've never seen such low level of global policy coordination. So yes, it's true that it's been sequential. It's true that every country has responded to domestic conditions.

The problem is that we live in a world that's very interconnected in the deependent, so it has to add up and so and and it's not adding up of the lack of conductor being an issue. Who do you see as playing that role? Is it the leaders of the United States, is that the I m F. Is it the U N who should step in and help to coordinate global central bank monetary policy. It should be the I m F for both positive and negative reasons.

The positive reason is that it has universal membership, hunting in eight eight countries, It has amazing staff, very high expertise, and it has the mechanism to consult with different countries um. The negative reason is is that nothing else works. The G seven is no longer representative of the global economy, the G twenty doesn't have a permanent secretariat, and the G one The United States has been so inward focused because of our dysfunctional politics that it's not playing the

role of conductors. So for both positive and negative reason, it needs to be the IMF. But for that to happen, you need to deal with some pretty legitimate I m F credibility and governance issues. Is there any likelihood that we're going to see that happen. They've been criticized for some of their less UH president forecast, They've been criticized about some of the emergency measures they've put in place.

Can the I m F fulfill that role? So I think it can if Europe is willing to give up some of its historical entitlements, particularly when it comes to voting power and representation on the board and and and provide that to the emerging world. Until that happens, countries like China will build little pipes around the I m F and the World Bank. We've seen them do this with the Asian Infrastructure Investment Bank and with various bilateral swap arrangements. So you really do need to deal with

governance issues. Let's let's shift gears a little bit and talk about oil. So you have oil now at about thirty dollars a barrel. That's down from well over a hundred less than two years ago. It's a drop. What's the impact of this on the economy and what does this suggest about future growth? Is this just a supply issue or is this also a demand issue. It's a supply issue, it's a demand issue. And what has caused the overshoot? In other ways, I'm saying that oil prices

today cannot be justified by just supplying demand issues. If they were, oil will be higher. What has caused the overshoot is that oil has changed operating modalities. It no longer can rely on OPEC as a swing producer on the downside, and the minute you take the safety net away, oil will overshoot. And we are right now overshooting on the downside. And it's going to take time for the old market to find its footing because it has lost

its swing producer. Um the irony we we talked about improbables. If I was sitting with you two years ago and told you oil, what prices will collapse? You would say to me, and I would have said you, that's great for the economy. That's right, because it is an immediate tax cut. It leaves cash in the pocket of people, and it is particularly beneficial for lower income people who have a higher modinal propensing to consume. But ironically, oil, the low oil price is viewed as a negative thing.

It has gone from a blessing to a curse. Why. The only good reason is because the US now also produces energy. The bad reason is that oil market volatility is being blamed as a course for equity market volatility. People not don't realize that the two are due to something much bigger, which is this change in in in the perfect storm that we talked about earlier. But it is ironic that the biggest tax cut is being viewed

as a curse and not a blessing. We've been speaking with muhammadal Ayan of ALIAS of Financial Times and Bloomberg View. If you enjoy this conversation, be sure and hang around for our podcast extras, where we keep the tape rolling and continue the conversation. You could check out more of Mohammed's writings at both FT and Bloomberg View dot com. His most recent books, which I'm holding right here, uh, When Markets Collide was named FT and Goldman Sachs Book

of the Year. The new one is Mohammed Allarians The Only game in Town, Central Banks, Instability and Avoiding the Next Collapse. Mohammedarian, thank you so much for for hanging around with us. This has been terrific, great pleasure. Thank you very much. Be sure and check out my daily column on Bloomberg View dot com. Follow me on Twitter at Rid Halts. I'm Barry Ridhults. You've been listening to Masters in Business on Bloomberg Radio. Mohammed, thank you so

much for doing this. This is uh my great pleasure, really fascinating. I have to tell you my my head of research is Mike bat Nick, and he has called you the most eloquent thinker on financial matters. He says, no matter what he is talking about, it always comes across as just interesting and erudite and makes you enjoy debating abstract financial discussions. He's very kind, and this is his book, which you're going to sign a sign for

him later. So let's let's go through a few questions which we didn't get to, and then I want to ask you some of my standard questions I asked all my guests. So your colleague at PIMCO, Paul McCulley, is a friend. I go fishing with him every summer up in Maine in August, and he was a big timan Minsky fan. Obviously, the book refers the mention of instability, refers to Minsky's great thesis, which is stability breeds instability. So he's a Minsky fan, you're a Minsky fan. I'm

curious as to how this developed internally. Who influenced too? So I think we both influenced each other. And Paul has had a huge influence on me um and his friendship is something at I have valued enormously. You know, Paul has this ability two translate complex issues into simple phrases that are very powerful. The Minsky moment is Pouls. The shadow banking system is Paul, and both of us love a particular chapter in Kiness General Theory, and that

is chapter twelve. Chapter twelve is very different from the rest of the general theory as this chapter twenty two because it speaks about human behavior. He speaks about what tends to happen um, and this whole concept of animal spirits and overshoots, and that was really at the origin of Minsky and this notion that you can get instability from stability. It makes perfect sense. People start to become complacent, they start to be more greedy and less fearful, and

that leads to further instability. Yes it does. And and also policymakers become more complacent. And I think we saw this um. You know, go back to the mid two the mid nineties, the mid two thousand's, when when policymakers became convinced that we no longer had cycles, the great moderation right, that it was goldilocks, and that the financial system could regulate itself. And we know we know how

well that came worked out. Let's let's talk a little bit about currencies which seemed to be in turmoil whereat something like twelve year highs for the dollar despite all the predictions of a collapsing dollar. What does the turmoil in currencies tell us about the economy and what does it tell us about central banks actions? So we are going through an important transition in currencies. Up to the beginning of February, currencies were basically reflecting differential monetary policy.

So when the US embarked on its que, first the dollar weakened, the euro strong strengthened, and then when the Eurozone and Japan embarked on their que the opposite happen, and as you point out, the dollar strengthened. But we have switched regimes, and it'll be interesting to see how long we switched regimes. Now that there's question marks about the effectiveness of central bank policies, we are seeing currencies start to reflect more fundamental So look at the end.

The end has tryngthened, notably against the dollar in February. Why because people have stopped wearying about negative interest rates in Japan and about quei and have started looking at the balance street of Japan. Very strong about the ability of the private sector to repatriate capital and a pretty good current account situation. So we are on the cusp of a transition in paradigms, and the question is going

to be whether that that continues or not. Let's let's go to some of my favorite questions, because I know I only have you for a little while longer. Um, who are some of your earlier mentors? So my father played a very important role, and there was a particular moment um we were in Paris, and I questioned why it is that we got four different newspapers every day. I thought that that was a complete waste of money.

And why did we get what else? We got? Lament the fig we got Francis, and then we got one from the right, which will come back to me in a second. Oh no, we got Luin lumin from the left. And I asked him why is it that we need his phone newspapers? After all, news is news news reporting, his news reporting. Why are we wasting our money on phone newspapers? And he said to me, you've got to understand that people interpret things differently, and you've got to

be open to different interpretations. No one has a monopoly over the right interpretation. And by encouraging you to read four different newspapers every day, you will realize that different people interpret the same facts differently, and you've got to understand that. And that for me was very influential, and it has helped me keep an open mind at a time when it's been very easy to slip back into the familiar. That's that's quite fascinating. Um. How about some

favorite books other than your own? What are some of your favorite reads over the years. So my own are not favorites. In fact, I do not read what I've written. I'm neither too. Will I listen to this podcast, believe it or not? No, No, I I really don't enjoy

doing that, um at all. You know, I've been influenced by by loss and loss of books, and I've been lucky for the last few years to be on the financial time jury for book of the Year, which exposes me to books that I don't have the discipline to read otherwise. That's why I keep on doing it. Um. I'm very struck recently by books that talk about fundamental transformations, but that the ability of disruptors to disrupt you even though they don't know much about your sector. Airbnb I'll

give you a simple statistic. Berry, it took Hilton a hundred years to provide seven hundred thousand rooms to its clients. It took ABNB six years to provide a million rooms, and a BnB didn't build a single hotel. They don't manage a single hotel, and they do with six hundred people. Look what Uber has done to that. I am fascinated by these disruptions. And there's been a number of books written about the disruptors, especially in the music industry. The

music industry has been disrupted beyond anything. Any standout books you want to mention by title, so um I would The one book I would mention in particular is The Disruptive Role of Robots um is by Martin Ford. It is a very provocative book. You may or may not agree with his policy recommendations, but you better realize that we are in the next phase of a transformation. Machine

learning is an incredibly powerful disrupter. This is rise of the robots, right, This is like number three in my queue. I want to move it up, move it up. Really, it's it's right, But then I'll be right behind Sapiens is number one, and like you, what, what else? Stands out as an interesting book. You mentioned Um Keynes clearly, so Kanes. For me. I was lucky enough to go to Cambridge for for my undergraduate and I never opened

a textbook. Really, they didn't use textbooks. We always have all iPods, right, it was, it was we all went to the library and went to the original work and I read Canes also that has had a huge influence on me. Um and chapter twenty two and chapter twelve, as we mentioned before, in particular Um John Robinson UM has had a huge influence on me. Herold And and the various biographies of Kines have had a huge influence on me. Um. So I put that, but but I

wouldn't recommend, and that necessarily to two young people. Recommend, for example, the book How Music Got Free? Okay, again, encourage people to think differently, be willing to question conventional wisdom because we're going through massive transformations. Joan Robinson stands out because there's a quote of hers that I just adore and use all the time, which is we study economics not to learn about the economy, but so as to not be fooled by the economists. And I find

that quite quite fascinating. Perspectives. So let me give you my my wake up call. Um. I was asked for an interview at Cambridge, and my teacher at school gave me a book that had just come out and said, read this book, and I don't care what you do, but mentioned it in an interview because they're going to be really impressed that you read it. I knew my interview was forty five minutes. I went up there in in minute forty two. I hadn't had an opportunity to

mention the book, and I was panicking. At that point, I pivoted completely from what we were talking about and said, oh, this reminds me of the book. I was being interviewed by two people, one person who had been taking notes and the other person had been asking the question. Suddenly the person taking notes smiled, and I should have realized that that was a warning sign. Put down his note

and asked me tell me about the book. And I went very into a perfectly prepared monologue, and my confidence was rising, and I finished thinking this is great, I've nailed it. And then he asked me a single question that demolished the whole thesis of the book, and I was speechless. He then got up. It was his room, went to his bookshelf, pulled off an off print and gave it to me. It was his review of the book. And he said to me, Mohammed, just because it's published,

it doesn't mean it's right. And then I realized, it's not what you think, but how you think. And for me, that was a really important moment. That's that's quite a lesson. So in the last few minutes, I have two favorite questions I love to ask because we always get fascinating answers. The first is, if you were speaking to a millennial or a recent college grad and they asked you for

some career advice, what would you tell them. I would tell them sequence your career correctly, take risks early on, because as you get older you'll find it harder to take risk. Be willing to join startups. There's a lot of exciting things happening. Be willing to fail because most of the people who have succeeded in life did that after failing. Right, and don't go into a conventional career too early. Sounds like very good advice. My last question

is sort of related. What do you know today about investing or finance or industry, or or anything really that you wish you knew when you started your career thirty years ago. So I wish I had questioned earlier on the conventional wisdom that cash has no role to play in asset allocation. That is a conventional wisdom that cash has absolutely no role to play. But when you enter into artificial world, an artificial world where central banks are not just your referee, but they also on the field,

cash gives you three things that are most valuable. One resilience you can afford to make mistakes elsewhere you will not be forced out of positions that quickly. Second, it gives you optionality. You can change your mind. With liquidity diminishing, optionality becomes really important. And thirdly, it gives you agility. Because when you get volatility, you get price contagent, you get price overshoots, and good companies get hammered by what's

happening to bad companies. So the one thing I would say, and I would say today, is is this conventional wisdom that cash has no part to play in an acid allocation should be we visited. And I wish I had realized that earlier. On fascinating fascinating stuff Mohammed, thank you so much for being so generous with your time. UH, be sure and if you enjoy this conversation, be sure and look up an inch or down an inch on Apple iTunes and you could see the other seventy eight

or so such conversations we've had. I would be remiss if I failed to thank Mike bat Nick, uh, my head of research, and Charlie Volmer, my recording engineer for the day, as well as Tella Riggs, who produces and books the show. I'm Barry Ridholts. You've been listening to Masters in Business on Bloomberg Radio.