This is Master's in Business with very rid Holds on Bloomberg Radio.
This week on the podcast, I have an extra special guest. Juadmion publishes a fascinating macro advisory letter that is read by many of the most well known and influential investors on not just Wall Street, but around the world. He brings a fascinating approach and a bit of a outlier contrarian way of looking at the world that has allowed him to identify specific changes in what's taking place in the economy, in the markets, and essentially provide a helpful
sounding board to many of the world's best investors. I found our conversation to be absolutely fascinating, and I think you will also, so with no further ado stray reflections, Jawad me on, Welcome to Bloomberg.
Pleasure being in Berry.
So you and I exchange emails one hundred years ago, a long time ago, and you just surprised me by telling me I published your first published piece, which was essentially your resignation ladder. Let's start with that. Tell us a little bit about that.
So I've always had this admission to do my own thing, and I had a very unconventional background I saw my career as a bank donner, but fet in love with markets and read all the right books to get inspired. And I had this goal that I want to do my own thing by the time turning thirty, and if I have a few years of savings, I'll quit and
start writing. As I started practicing writing online and I looked up to you as the big picture of blog and I reached out to you with some of my work and you published then.
And by the way, for a young writer with not a lot of experience, your stuff was very tight and strong. You have a good voice.
So you effectively published my work before I launched a Reflections. And the last thing you published was my resignation letter, which is really the sort of inspirational, flowing words about why I'm leaving my job to unfold my personal legend as I was thinking about at that time, inspired by the Alchemist.
So let's talk a little bit about what Stray Reflections is today and who your clients are. Tell us a little bit about your research.
So so Reflections is a macro advisory and community that works with portfolio managers CIOs around the world. They rely on me to challenge their beliefs expand their knowledge to help them think about the world differently, and I do that through different ways. First, it's just my research, my writing, and I'm allowed to be reflective. I don't publish daily or weekly. I'm not reacting to events. I can be
deeply reflective about what's going on. So two three times a month, I'll write about some topic or theme that's interesting. We do that through online events, So I'll interview someone from the community about a particular topic. I don't claim to be an expert in everything, but if there's something interesting happening in biotech or in China or fed policy or AI, we'll have a salon, an online salon that we sort of discuss ideas. And I think core part
is just yearround events. I'll travel to New York and London, in Miami, in Hong Kong and Singapore, La San Francisco, Dubai every six weeks and we'll do a dinner or breakfast somewhere and we're all exchanging ideas. A core principle is all of us as motter than any of us, and I really lean into that, and so I learned
a lot from the community. And then the fourth element would be like a slack group where every sort of exchange ideas you know in real time, and the fifth and the most important element is just one on one conversations. I'm a big believer in building strong relationships, and that's kind of what develops the research idea of Flywheel. Understanding
from people, what they're thinking, what they're concerned about. That inspires me to like sort of focus on what I need to write about, and in a nutshell, that's what we do.
So we're going to get into specifics about secular bull and bear markets, what causes the zeitgeist that leads to bubbles. We'll talk about a bunch of really interesting things, what is and isn't reflected in market prices, and where the hell is that pesky recession that we've been waiting for
for so long. But for now, I want to stay with the fact that, unlike traditional strategists or macroeconomists, you bring a very specific philosophical bends to the world of strategy and analysis, which is something that I very much relate to. What motivated that sort of approach to writing about dry technical topics like the economy or the FED or AI.
I mean, some of the greatest writers have talents that are very odd with their experiences. If you think about you know, Hermin melv he couldn't stand life aboard his ship. He wrote Moby dick. Ernest Hemingway spent time away from the action in the Wars, but he became the greatest wartime writer ever. You know. Jack Kerouac was famous pneumatic that he wrote on the road at the home of his mother. Jane Austin remained single, but she became the
chronicle revered, chronicle of courtship, love and marriage. Emily Browntie, you know, liked to keep in her own company. But when she wrote Wuthering Heights, people thought that it's written by a man because he painted such a visually, viciously brutal world. And Emily Dickinson, you know, she liked being by herself. In her poetry. She enveiled the secrets of the universe. And so when I asked myself the question,
I might qualified to provide investment advice. But I realized was in all these instances, they're distance from the subject not undermine their credibility. It only allowed them to be more curious and examine it in ways that perhaps others wouldn't and so for the longest time, I actually thought that my unconventional background. I wasn't, you know, an Ivy League student, I didn't train at an interest bank. I was and working for a hedgehront I started my career
as a bank teer. For the longest time, I thought that unconventional and backgrounds are shortcoming. But what I realized over the years of the help and encouragement of the community, that's actually a core strength because I think view the world differently from the back majority of Western born and freennalists.
It's funny that you say the phrase view the world differently. There literally was just a Wall Street Journal article out recently that said ninety percent of the investment bank economists all went to the same six graduate schools, which means that as much as we'd like to think there's some variation of thought, essentially it's the same factory cranking out the same widgets. We can't be surprised that they all
more or less say the same thing. We'll talk about the forever coming but never seem to get here recession. But that seems to correlate very strongly that the same group of people with the same background are going to yield the same investment result is that more or less fair.
I can't speak to others.
I know, I that's very generous of you.
But it's certainly you. Look, when I launched the business, I realized I'm not unique in what I do, because there are lots of other people out there who are writing opinions about the market. But I am unique in who I am, And so I've made it a point to always write from a personal space and really cultivate, you know, the craft of writing and really examining markets objectively, becoming very agnostic in my analysis as opposed to ideological,
and empirical, as opposed to dogmatic. So I don't care to be consensus of countrary and bullish or bearish. I just want to be independent and come to the truth.
So in a lot of your writings you cite loud to Buddha, Confucius, Seneca. That's a broad assortment of influences. What led you to that group of thinkers? And how do the great philosophers affect how you think about market issues?
Look, I think life in markets are intertwined. You know, the biggest risk in markets is ego. I would say the biggest risk in life is ego. The biggest virtue in markets and life is humility. I often say successful investing is only possible with knowledge of oneself. And so I think for me, when I started writing, it was as much a process of self inquiry as it was examining markets. And you start to see the overlap and similarities and the biases and the common mistakes that keep
coming up. You just have to keep cultivating a better version of yourself and keep working in progress. And I feel like there's a lot to be said about ancient wisdom. It's almost like everything's we've said before, but no one was listening, so it's being reported again and said again. So I benefit a lot from the virtues the wisdom from ancient stages for its philosophers. I think it helps
me see the world clearly. You know. I believe the more clarity we have internally, the more clarity we have in seeing things, and so all that all those people that you cite are helping me in terms of being a better person, you know, being aware of my biases and just yeah, being a much clearer thinker.
So let's talk about that ego and humility. All the best investors recognize their own fallibility, the fact that nobody bats a thousand, that we all frequently make mistakes. Ray Dalyio's book Principles is essentially a treatise on go try something, make a mistake, learn from that error incorporated into your process. Try again. But even saying it out loud, it still
sounds fairly radical. Why can't we accept the fact that investing is such a humbling art and requires humility of its practitioners.
The way I think about it, Barie, is again from a spiritual angle, all the profits made this particular prayer. Oh God, show us things as they are, and so for me, the objective is to see things as they are, not so much as how I want it to be. So I even watch myself when I use their words like should the market should behave this way? I think that hypocrisy. The market shouldn't behave one way or another.
It is what it is right. So I've got a particular view, You've got your view, and then there's a divine view or the market view. So how can you get close to that truth? Only by shedding yourself, shedding your ego, insisting that the market behave a particular way and I'm okay to be curious, you know, And that's a big difference.
I always think of various strategist, economist, traders. Whoever. It's like the I want to say John Saxony poem about the six blind men describing the elephant. Everybody captures a small aspect of it. Oh, this ropey thing is the tail, and here are the tusts. But very few people manage to see the entirety of the market because of their vantage point.
And I think that's where the community comes in, right, Because I don't claim to be a guru or a market expert. I'm just genuinely curious, and I'm happy to know and admit that I don't know everything. Frankly, that's been one of the greatest liberalizations in my life. If it's the fact I don't need to know everything, and I don't know everything, and I can rely and trust
other people within the community. So I don't have a particular strong opinion about a particular topic, I'll go look at the expert and have a conversation with him or her, and so I can lean on the community. Again, this idea that all of us are smarter than any of us, and I don't have a particular ego that needs to be presented and you know, articulated in a particular way. I'm happy to just say I don't know when I really don't know. Huh.
Really interesting. Let's talk about something you published last August, in the midst of the first double digit downturn for both stocks and bonds in the same year in just about forty years, you defined and discussed a secular ballmarkt and that very much resonated with me. Before we go further, let's just define it. What is a secular bull market?
So a secular bull market would be a period of a long period of above average equity returns where you have pullbacks but they're shorter in duration and magnitude than otherwise expected, and the recoveries are quick, and you've got rising risk appetite and valuations climb or expand. And a secular baar market would be the vice versa, right, the fact that you've got declining risk appetite, declines are prolonged deep, and valuations mean revert.
So let's take a couple of examples. Tell us about the post World War II secular bull market. How would you define and characterize that period.
So by nineteen fifty, the SMER five hundred was stuck at the twenty level on the index for about thirteen fourteen years. And in nineteen fifty is when you finally broke out. And between nineteen fifty to nineteen sixty eight, which is this first secular bull period, you had a gain of about four nine fifty percent. You had nineteen fifties, which is the best decade for stocks ever. We forget, but that's still That whole period actually had three recessions.
It had the Korean War, it had the Cuban missile crisis, it had the race riots, It had three corrections of over twenty percent. It had bonials that went from two point two percent to nearly six percent, and yet equities did well. That was a period of nineteen fifty to nineteen sixty eight. The second and what's interesting by that period, you know, is the fact that valuations actually peaked in nineteen sixty one, yet the market peak in nineteen sixty eight, So in.
Other words, despite falling multiples, the prices continue go high.
Yeah, so interesting valuations are EBB and flow. So the peak and valuations in nineteen sixty one at twenty two times multiple. But by nineteen sixty eight, even when the index made it stop, the PE was trading at eighteen times. And the reason that's important is because there's a lot of talkbout valuation now and I feel like we may have seen the valuations peak for this cycle in twenty twenty one at twenty three times four PE, but that
doesn't mean necessarily the secular board market is over. So this secular board market that we're in today began in twenty thirteen when we finally broke about the fifteen hundred level that was capping the index since two thousand, right, So that.
Was a thirteen year secular bear market that had huge rallies, huge selloffs, but you never got above that two thousand.
Peak, and the second board market began with a four PE of thirteen. We rose to twenty three last October. We bought them around fifteen in a bit, and we're at eighteen now. So again, this is thirteen to twenty three down to fifteen. We will not get to twenty three in my opinion, But can we get to twenty one? Sure? I think so.
So you mentioned the Korean War, you mentioned recessions, You wrote about the JFK assassination, the Cuban missile crisis, A lot of things happen. How do we contextualize an extraneous event like the pandemic. Does it should say to us, hey, this secular bull market is over. Or does it just cause a wabble and we go back to the prior trand So.
Every secular bill market usually has like this mid cycle crash.
Right. Seventy three seventy four was a bear market. Actually it was in the middle of the bear market. You're saying bull markets.
Even a secular bull market has like a mid cycle crash, right. So, for example, in the nineteen fifty to ninety sixty eight bull market, the mid cycle crash was the nineteen sixty one Kennedy beer market. The market fell down thirty percent. In the nineteen eighty two to two thousand market, you had the mid cycle crash. In the eighty seven crash.
Had eighty seven, you had ninety seven, you had ninety eight. There were a number of really substantis, but.
We have an event that really shocks in nusters, right, just like eighty seven was very shocking, and the decline in the Kennedy beer market was very shocking. Happened very quickly, and the pandemic was something like that. It was a mid cycle crash in the way I perceive it. And so what's more important, I think, apart from this the technical conversation we're having around the inde season, the breakouts, the pandemic made a significant difference from a fundamental standpoint
because obviously fundamental underprintings to the secular bol market. You know, number one is the fact that the house was not in better financial conditions than they have been since you know, the GFC. But number two is form a demographic standpoint, Right, the millennials are now the largest generation in America, and if you think about the nineteen eighty secular ble market, ninety eighty one is when you had the baby Boomers begin to turn thirty five, entering their peak earning years.
The millennials started doing that in twenty sixteen, and the pandemic was important because after the pandemic, household well for millennials increased. So if you compare it in prison dollars, so when the boomer turned thirty five in ninety any one, his net worth was around one hundred and thirty six thousand dollars in comparable dollars today the millennials that won twenty eight thousand.
Dollars so comparable on compromation, just base absolutely.
And what's more interesting is that the pandemic I think created this psychological fear and anxiety about wanting financial safety and securing your financial future. So you've seen more home ownership interest and more stock participation because the pandemic was like this visceral death experience, wake up call, then you
want to and money is a proxy for safety. So you've seen this dynamic where millennials are increasingly taking participation in financial markets, in home ownership, and so home ownership has increased from thirty eight percent to forty six percent for millennials over the last seven years, and that's going to continue to increase. So they're entering the peak earning years, and that I think that's demographic impulse is still underappreciated.
Interesting. Let's talk about that eighty to two thousand bull market. Some people dated it nineteen eighty two. It depends if you looking at the DOW or the SMP. How did the SMP do over that twenty year period.
I think during that period we're probably up about seventeen hundred percent, I believe, and again.
Seventeen percent because I know that Dow was about one thousand percent. The SMP did even better.
Yeah, And I think what's interesting about that period is again, you had the eighty seven crash, you had the ninety ninety SNL crisis, you had the Gulf fur, the Latam crisis, the Asian crisis, the Russian default, the bond blood but you know blood path in ninety four, So you always have these events. And you still had three cructionits of about twenty percent. And so even the current secudable market
when you put it in context. The reason the context is important is because we've been in the second boll market. We're currently since twenty thirteen, the stocks up one hundred and seventy five percent, So we lack the upside. We haven't reached the sort of upside in terms of price, and not even terms of duration. So the previous bull markets were eighteen years long. We're like nine years in. So it's two thirds of the way through, I would
probably say. And so what's interesting is we've raised hundred and twenty five percent despite the US China trade war, despite the pandemic, despite unacceptably high inflation, the energy crisis, in your bank failures again despite all of that, and I think we're going to continue to power ahead because of structurally changes in the economy that again we're not appreciating fully.
So what do people misunderstand about cyclical versus secular well markets? And as long as we're talking about that, I have to ask, what's the significance of the twenty percent measure that the media seems to love for starting and finishing bull and bear markets?
Yeah, that's interesting, right, So I think the twenty percent measure there's nothing significant about it, but it's an interesting study that you can do around it, right. So what we looked was, let's segment the twenty percent decline between a secular bull market and a secular bear market, and what's the difference. What you realize is when you have a twenty percent decline plus in a secular bull market, the average decline is twenty seven percent and the recovery
to the highest nine months. In a secular bear market, the average decline is forty three percent, wow, and the recovery to the highest forty eight months.
Huge difference in both depth than duration.
So when people compare the current sort of bare cycle to two thousand and one and two thousand and eight. The reason I think that's flawed is because that was in a secular bear market.
And nineteen percent, and so, in other words, you're implying that the recovery to the pre twenty twenty two highs is not that far off?
Is not that far off?
Huh? That's really intriguing. Zoom out a little bit. What makes a secular bull market so strong, so perfasive, long lasting, and resilient.
I think I mentioned the demographic impulse. I think it's a significantly important one. I think the second is the household finances, which is also related to why we somehow skirted a recession so far, and the consumer spend.
Things all time highs. It's really robust.
You know. A question I'd like to ask is what is happening that shouldn't be or what is not happening that should be right? And given the sort of fat tightening and all the information we've received, it's surprising to see the markets hold up. Simple answer. Second level market, it's significant to see the housing market bounce back. Simple answer, demographics and why we aren't in a recession, you know, simple answer, I would say that rate sensitivity in the
US economy is historically low. And what I mean by that is post GFC, we had this beautifully leveraging that Bridgeworder talked about, but post pandemic has gotten even better because you have the boost to incomes and you have the further dropped interest costs. So if you look at household debt service to disposable income ration as below nineteen eighty levels when the data series began, that's pretty significant. So you can have a five percent fed funds rate
and the consumer is not stopping. At the same time, if you look at corporates, they extended their maturities for their liabilities from five years to seven years, their interst costs as a share of debt is three and a half percent, the lowes since nineteen fifty. And then you look at the mortgage market, that's another, you know, phenomenal backdrop. So the rate sensitivity to the US economy is historically low. So the house is in a much better position today
than they ever were. The reason, despite global tightening, we haven't seen a slowdown in sort of in a major slowdown in consumer spending is partly because of the fact that we had significant gains in savings, not just exis sittings, but total saving because of hours worked. So checking about this today, our fortune and dollars higher than they were pre pandemic. We're underappreciating the amount of money still in
the system and what that means for demand. The demand side of the economy because of the pandemic took a massive upward shock that I still don't think you know that we're fully getting our heads around.
Really really quite intriguing. Let's talk a little bit about how markets for people. What is it that makes investors so susceptible to being fooled? And why do investors seem to love the bearish argument? Why is that so compelling? What makes mister market so able to convince us of one thing and then he goes off and does something else.
It's interesting. A question I've been asking is what if the greatest trick the market ever pulled was convincing industrials that were still in a bear market? Right?
A variation of the old Devil quote from I don't know if that's New Testament old Testament, but so lots of people are negative, lots of people are bearish. It's not quite as bad as my recollection of twenty ten, eleven twelve. But coming out of the financial crisis, people stayed bearish despite the fifty six percent collapse in the SMP. You would think that should be enough to say, Okay, we got our bearish reset. Last year was pretty modest,
down nineteen percent. Yeah, bonds were down fifteen percent. But everybody seems to think that's it, it's over.
It is a difficult business, though, ry right, if you think about it, it seems so obvious now that we should be owning Microsoft and Apple and Amazon and Google and Facebook, and so obvious. But I would argue ten years ago it wasn't so obvious. Ten years ago. You had the top academics, economists, investors in America writing a letter to the Fed in twenty ten saying, hey, stop que you're going to create hyperinflation and debate the dollar.
In twenty eleven, you had the debt ceiling crisis, the credit rating got downgraded, the dollars at a fifty year low, so you did not have policy or political leadership that was very inspiring. In twenty twelve, Facebook went public. The IPO flopped, that's right, from thirty two dollars to like, I think sixteen or eighteen dollars. In twenty fifteen, carled Icons sold all his Netflix stick because it was too expensive. Netflix was the best performing stock last decade. He sold
half his Apple stock in twenty fifteen. In twenty fifteen, Bill Gurley at Benchmark were saying silicon values in a bubble. So it's just interesting to do this exercise the fact that it seems so obvious today, but it wasn't obvious to hold on to these companies. It wasn't so obvious that America will be the investment destination that's going to matter.
And so it's curious that I think we need to just remind ourselves of this, the fact that it isn't always easy, and what can we be missing, you know, right now in the present. I always say my job is not to predict the future. It's to see the present clearly.
Which is much harder than it sounds. Let's talk a little bit about something that people seem to have a hard time recognizing, and that's each decade a theme emerges, and yet this tends to come with some problems.
It's an opportunity if you think about it, because in nineteen seventy. Like every decade, something happens, So in nineteen seventy it was in the nineteen seventies it was the nineteen seventy one breakdown of Beckenwoods, and that led to inflation and the goldibul market. But nineteen eighty onwards, you want to avoid gold. The zeitgeist of the nineteen eighties was Japan's sticking over the world. So you want to be long Japanese equities and Japanese real estate. It was
Japanese management techniques that were being passed around. They were you have your children were learning Japanese. Japanese were the villains in American movies. Japanese were buying real estate in New York. But nineteen eighty nine onwards, that was a disaster. The zycast of the nineteen nineties was the Internet. You want to belong Nasdaq March two thousand onwards stopped working. It's really interesting how they're literally a calendar decade. Barry.
The Zey Catches of two thousands was China's entrance into the World Trade Organization in June two thousand and one. So suddenly you can have the build out of the world secondlargest economy. You will be long em and commodities. The zeitgeist of the twenty tens was best articulated by Mark Drisen in twenty eleven in a Wall Street Journal article Software's hitting the world. So what you're seeing now is the unraveling of that zeitgeist. So twenty twenty one
was the peak of that zeitgeist. It was all about software and cloud. And the question is now the software zitegeast is over. What's the zeitgeist for this decade? And what we've been writing about in discussing in the community is that we believe climate is a zeitgeist for this decade. Now that climate change.
Just starting now, not peaking now, starting.
In starting in twenty three, So from the twenty twenty to twenty thirty, just like software was from twenty ten to twenty twenty, from twenty twenty to twenty thirty, the zeitgeist is climate.
Is that an investible thesis? Is that something people can put money into? Because when sure, you can look at the low carbon funds and things, but are there a way to say I want to participate in ems and lithium and wind power and battery technology and all the things that are going to drive the next decade. How does an investor participate in that?
So the interesting thing with climate is there are multifaceted ways to play different sectors, different communities from a bottoms up standpoint as well. And again, now that it's become a global economic and political priority, it's become a solution for spending as opposed to a risk. You can see higher capex this decade, so that benefits certain sectors. I think the simplest expression would be the EV revolution In many ways, I think the China EV I think BYD
would be a key asset to own this decade. I think that could be the simplest expression of what goes on. I think I don't believe you're in a commodity super cycle, but I do believe certain commodities will win. And the way to think about commodities is nicely as it relates to the energy transition. But more specifically, it's not related
to China growth. It's related to China climate. What I mean by that is that most likely no Western government will meet their climate targets, the Chinese will meet their climate targets because for them it's an existential issue. Air pollution is a crisis what's the point of common prosperity if you're going to get sick. And so China's old growth model was one in which they increase production capacity in a lot of base metals because they want to
create employment. That no longer makes sense. So for example, you know, China became two thirds of the global aluminum market. They're going to start to reduce capacity within that to reduce emissions because they're importing our materials to produce that. So they're probably emitting sixteen to seventeen ton carbon proton compared to what let's say someone like Alcoa is doing, you know, two or three. And so you're going to see China rationalize its industry. It's capacity in certain key
based metals aluminum and steel amongst them. And I think you want to monitor what they're doing on their climate front to understand which commodity is to be long not across the board, and so certain commodities will do well as part of the energy transition. I think China ev
story works. You know a lot of it is just retrofitting, and you know, you know, like buildings, and you know the role ACS play in emissions and read retrofiting that and there's a lot of companies sitting in Japan and Korea and Taiwan that are mid gap engineering names that sort of benefit from that. You know, higher capacks like I mentioned, you know who benefits from that, and so what you'd realize as you look deeper and deeper into this, it's not so much a US centric story. It's so
much more global story. So you could argue you can see non US markets begin to upperform.
And that's already happened the past eighteen months. Developed xus has done better than the US markets have done going back to let's call at the end of twenty one. So that's following what a ten or fourteen year period of US outperformance, So not unexpected. Let me throw a quote of yours at you and have you describe it.
Quote.
It's more valuable to consider why we aren't in a US recession rather than nervously dreading one.
Explain again, that's the point of you know, staying in the present. And I think the reason why we're not is the fact that I think rate sensitivity is historically low, the fact that rate sens intustrate sensitivity for the US economy is historically low. So you can actually have five percent interust rates and the consumer doesn't stop because we're not fully adjusting for how strong the household finances are.
But more important than that, based on I think more recent conversations, I would argue, maybe you've already had a recession and the only indicator that hasn't cracked yet is the labor market, and that's what everybody is sort of focused on now. And my view there is also sort of contentious because I don't expect the labor market to crack. I actually believe the labor market is in a secular tightness. Let me explain. In the past, recessions have basically destroyed demand.
You've seen job losses in goods producing sectors, manufacturing, auto construction. Job openings take years to recover. The pandemic was different because the disruption happened in labor supply and on the demand side, we actually created a huge positive demand shock.
So it's complete reverse of what we've ever experienced. So you've seen a positive demand shock when labor supply got hit, and now you've seen a situation where you still have high job openings and the service sector, which comes up with eighty percent of the jobs, is still looking to hire. So how are you going to see the unemployment reygo from three and a half percent to five percent in
that dynamic. Let me give you specific examples. Last year bad year for single family housing overall, you know, conditions were pretty poor for housing. Construction employment last year was a record. There's still a shortage of construction workers. Job openings in the construction industry today are twice what they
were doing the mid two thousands boom. If you think about construction specifically, since the construction activity peaked in mid two thousand and six, it took eighteen months for unemployment in the construction industry to go up. Today, the order clo is bigger, it's gonna take more time. The labor shortage is worse because you've got early retirements and lower immigration, and so I would argue you can see the economy weaken, even the hazard market weaken, without an increase in joblessness
across the board. The only sector of the economy that overhired was tech, right, and that's where you're seeing layoffs. But if the construction unemployment doesn't pick up for the reasons that I've outlined, you've got auto demand that remains robust they're not letting go of people. Manufacturing seems to be bottoming with ism where it is right now. So who's actually going to let go of workers here?
Nobody? So let's talk about some of the factors that are driving that labor scarcity. You mentioned immigration. Legal immigration has been trending lower since the Gulf War. In two thousand and three, we change the rules as to who could stay in the country following coming here for college. We basically eliminated a lot of the most capable, most qualified immigrants. That's twenty years in the making. You mentioned COVID, A lot of people still suffering from long COVID disability
has been on and upward trends for twenty years. And on the mail side of the labor force participation rate that's been trending down for decades. Also, why would anyone imagine we're going to have access labor supply anytime soon in the United States?
So I think you're seeing improving immigration trends, not just in the US, with globally, and I think that's a structural team that we should pay more attention.
To improving immigration trends. Does that mean we're going to see more legal immigrants in the United States by substantial numbers.
I mean, it's very difficult to quantify, but I think it's a trend, a structural trend globally, not just in the US. Like even countries that are not historically very friendly to immigration realized for a demographic standpoint, they need to open up, and so we're going to see that. So again, for me, it's like on the margin, what can happen in the future that well, positively surprise and
negatively surprised. But I think in a world right now where everybody's asking it's so easy to think about what's wrong with the world, Barry, it's more difficult to think about what's right with the world. And usually when you ask that question, people shift in their seats because they're not used to think about what's right with the world. It's more difficult to point out oftentimes. But I think immigration is one of those trends that's what's right with
the world. Because if you look at just working as population growth in the US can be sixty basis points this year, this decade, But the real upside is that
it come from productivity. And and so I say, I still think immigration is at a sort of do some improve from here, I should say, going forward on the on the labor side, and then we still have record employment in the US, right, Like you know, we've had the primates participation rate recover, were suddenly realizing that early retirements wasn't a thing, and you know, people are coming back to the labor before. So it's very difficult given this, which is why I'm saying I think we can actually
have a secular tightness in the labor market. The concern amongst investors is that they fear stackflation, and I don't see a future that's stackflationary. A stackflationary future would destroy your fixed income and equity portfolios. Right. The future that I'm seeing is one of productivity lead growth, and this is the look back period. That's important because when you think about dead ceiling, you think about two hundred and eleven.
When you think about the regional banking crisis, you THINKBO two hundred eight, you think about inflation thing about seventies, So we don't have memory of anything that remotely, you know, resembles a productivity lead growth era. But that was the nineteen fifties, So you could have secular tightness in the labor market. The AI boom is coming at the right time where you can see wages profits rising simultaneously, where
inflation is relatively contained. Because even if wages that were growing at four four and a half percent, if activity grows at two percent, your overall infiction pictures not that bad. You know, labor costs aren't going to crush your margins. So I think the real, you know, possibility is one that the future is not stackflinationary, but one of productivity lead growth, which is extremely bullish for nominal growth in equities.
Huh, really quite fascinating. So let's talk a little bit about some of the other ways you find interesting ideas and get a sense of what's going on in the here and now. Tell us a little bit about the one on ones you have and the dinner salons you have and what comes from those.
So we do about ten dinners a year in different cities, and I travel according to what's happening in the world. So that's more timely and interesting from a conversational standpoint and benefits the whole community. Tongue in cheek, I call these dinners the most interesting dinner in the world. So I really set expectations very high. I found the best gathering at about ten people. Everybody's requested to bring a
chart to discuss. It could be a chart, a chart, it could be a stock It could be something that they are interested in and they'd like to share with the group. It could be a picture of your dog. I really don't care, but you have to become prepared. I feel like when people are thoughtful about what they want to come and share, it's more interesting than just
rambling conversation. I make it. Make sure that we've got certain rules, no egos, no business cards, no, you know, try to really set the tone.
And that really limits who can participate. You've cut it, You've cut it down radically.
You know, So really be very intimate and it's not me pitching something. I'm more curious and just facilitating conversation, learning from everybody. And the last rule is no one leaves without a hug, you know. So it's ten people, usually CIOs, portfolio managers from different sort of hedge funds, long olyfunds, family offices, you know, pension CIOs. So it really varies again based on what I think is topical
and interesting, you know. So we do those eighty ten times a year and then we'll do bread first, which are more easier to organize, and I tongue in cheek, I call them the breakfast, the moderately interesting breakfast, because again it's early in the morning, you haven't had your coffee black sleep, so just moderately interesting ideas are enough to share with each other.
Huh, that's interesting. I'll tell you the two. So we've been hosting these dinner salons for the past, going back to the financial crisis, and the two interesting things I've kind of learned. The first is it's a little bit like you're right about the size eight to ten is as big as you get as you want, and even there you still end up with these side conversations, and you want everybody talking about the same subject in the middle of the table, not three groups of two, three, four.
So I have a rule, no side conversations.
No side We have the same rule. And then we did something I don't remember when this was. It was a couple of years ago, and I try and remember to do it every dinner, but it's really fascinating. At the end of the dinner, I want everybody to recommend the most interesting book they've read over the past year, and you get some fantastic, eclectic, wildly unexpected book recommendations from people, because I think that's all people want is give me a really interesting book to read, and I'm
happy for thirty forty hours. You've just made me happy with that. So you hold these You mentioned after the China first quarter you did something in Singapore. If there's a big FED meeting coming up, do you do that in DC? Do you do that in New York? Where would you hold something like that?
I found New York is the best place for like FED centric conversations.
Why is that?
I don't know, It's just part of the culture. You know. The macro guys are very obsessed with They're all here, yeah, the one. They're all here also pay right close attention to what the FED is saying, what the FED is doing, your rates and effects matter, you know, matters a lot.
And so every city actually has its own interesting like Hong Kong Dinners, we write China centric poor is very pure macro because you've got a good Asian pulse, but you also have some funds there that are really plugged into what's happening in the US and Europe and the europe The London Dinners will be a mixture, you know, still annoyed with Brexit and EU policy and other sort of interesting themes come up from there.
Well, unforced eras get everybody upset, right, It's just why did you do that? That was silly? Let me ask you about Singapore on my list of places to go never been. I have been told from a wide variety of people that it is absolutely the best food destination in Asia.
I'm not a foodie, so I can't say if it's the best food destination. It's certainly a city that I love. Mm hm. Just it's such a especially from a macro community standpoint, like you've got everybody there walking distance. It's just fun. And I think what I've learned from my Singapore conversations again because it's East and west good mixture is probably some of the best conversations I've had in around the world in Singapore.
Yeah, what where else besides London? Do you do you like to host these in Europe?
Uh? Just London so far?
Really?
Yeah? I mean, so it's London, New York, Miami, Hong Kong, Singapore.
What do you think in Miami? A city I'm always I'm always every time I go to Miami. I want to like it, and Miami always manages to disappoint me somehow, including Michelin star rated restaurants that won't serve decaf after dinner.
I'm not that opinionated, you know. I mean, I don't, I don't. I mean I don't have a strong judgment on cities and people and and so I go and usually again I've got I've got young children, so I'm usually going for like a day, three days, aldays, you know. So I'm just going, you know, meeting clients who are also friends and doing the dinner and coming back. So I'm not usually spending a lot of time in Miami checking out the city, the food scene. I love windwind Walls.
One of my favorite people is in Miami, Peter Tunney, We'll have to spend time with. So I feel like in every city, I've got someone deep that I connect with or something about that place I say that I'm dying to visit and hosted dinner is actually Boston. Because of my love for Ralph wald Emerson, I haven't visited it. I just want to go and be a tribute to him and Colegia Brown actually as well. Who's Boston? Who was living in Boston for very long.
I was gonna recommend some restaurants in Boston.
But they must have a round table. That's the other rule. I only do roundtables in a private room.
Well, the private room, otherwise you can't hear. But there are a lot of places where you end up with a rectangle. But it's hard. It's hard, right that lends itself to those side coms.
Exactly.
So, without revealing any confidences, and I'm assuming everything is, you know, off the record private, you're not repeating the last salon you held. Tell us about some of the conversations that took place. Who said what, and I mean this economist, this PM without naming names, what sort of topics came up.
I'll tell you what surprised me because the last dinner we did was in Singapore, and I was surprised at the man of conversation time spent discussing the EU's economy and the consensus about a recession.
Which has been going on for eighteen months now.
Not something that I would expect in Singapore. Oh really, you know so it almost felt as though news here was infecting there in terms of the fact that it's inevitable or it's ever present. It's almost like a foregone conclusion, right, So that was something that was unexpected. But again because those views are also coming from people that I love and respect, and so that makes me think twice about my view and makes me go back and do more work on what am I missing and what are they
getting right? And so's a So that was my lesson. It force me to thing deeper and I've come back looking, you know, so focus on My focus on the labor market was party as a function of mute ending that dinner and hearing that from the community to make sure that what am I missing on the labor market? You know, how can I get more robust in my analysis the
labor market? And I've come away thinking that actually, yeah, you know, I still stand by my view that the liber market will remain diet, secular, fashion, one crack the way people expect. And now it's you know, my job to share that with the community and get feedback. And so that's kind of how the process works, the research idea discovery flywheel works.
So you mentioned something earlier I want to circle back to talking about the expectation of recession, and you said that there is a tendency for people to ignore good news and focus on bad news. Let me throw this out there. From an evolutionary perspective, isn't threats and security risks and bad news an existential risk versus is good news? Is just hey, we're all doing a little better.
From a spiritual perspective, right, I would say, I'm I'm born to be grateful, Okay, so I always see the bright side of things.
I'm with you. I'm a glass half full guy. Also mathematically half of zero zero, so there's no such thing as a half empty glass. But you know, the Morgan Housel wrote this really interesting piece that said, following the first flight of Kitty Hawk, it took newspapers twenty years to start talking about flight, but the first instant there's any sort of trouble, it's headline news. My curiosity is, how Darwinian is this? How much of your spirituality is
not the traditional state of human psyche? We are seem like we were built to over anticipate threats.
Perhaps my philosophy or not is simply the more we look at others, the more neglectful we've become looking at ourselves.
So let's talk about that, because some of some of your thoughts on knowing yourself? How could you be a good investor if you don't understand yourself? Let let's let's let's delve into that. How important is self awareness and self enlightenment in managing capital and risk?
I don't know what enlightenment, but self awareness certainly is I think very important.
Is there that much of a distinction? Or am I am I using overly broad terms like I think of self enlightenment and self awareness as part of the same spectrum.
Right, I think awareness is important? Right? What's the motivation? Why are you in this business? Just asking a simple questions like why do you care so much about investing?
You want to ask me?
Or just general yeah, just diving deeper into a person, right, why do you care some aout investing? What is it doing for you? You know? Like for example, you I think I've read somewhere recently or I heard that you don't know why you're drinking until you stop drinking, Okay, right, so that's fair. You don't know why you're trading until you stop trading. So like what is our underlying motivators?
You know? In the industry, and a lot of people struggle with ego and identity, and you know, like, so, what are your underlying motivators? You're just geting to know who you are while you're doing what you're doing. You know, how do you become more flexible in your thinking? Adaptable? I often say the biggest risk you need to manage is yourself. It's not a position, it's not what the
Fed is saying, it's not a political event. It's yourself because you're going to react to a particular news story or particular event. Right, So, the biggest risk you need to manage yourself. So if you don't know yourself, it's pretty it's pretty difficult.
One of the comments you had had written about was the obsession we have with things that we can't control. You can't control the economy, we can't control inflash, we can't control what the FED does, we can't control what Congress does. But to your points, you can control yourself and your own reaction. Given that, are we spending too much time focusing on news when we really should be focusing more on things that are within our p number of being able to manage, modify, and control.
Perhaps, But again it depends on what you're doing. Right. So I certainly do that. I can't speak to other people, but not the luxury of doing that, because that's partly why I get to do what I do, is because I can zoom out, I can disconnect to come back with certain reflective, deep refreshing thoughts that will sort of help the community, the client base in a particular way.
But obviously if you're macro PM you can't disconnect. You know, if you're a CIO of a pension fund, You're always thinking about your employees and your portfolio and the band sponsors. So I have a luxury, I think, barry, to design my life set in a particular way that gives me an edge that I appreciate that not everybody does.
All right, So let me throw you a curveball question. I got to ask, you write all the time, why write a book? Tell us what motivated you to turn stray reflections into a bound, printed book.
So I didn't write the book. What actually happened was, like I mentioned earlier, I wrote from the very beginning, from a very personal space. So at the end of every issue there'd be a personal reflection. It could be my daughter being born, my grandmother dying, meeting a friend reading a book some travel experience, so I'd always made sure I ended on a personal note. I realized when I started writing there was a lot of reservations, will I have something meaningful to say on a regular basis?
And something Roomy said struck with me, and he said, words are just a pretext. What connects one person to another is that inner bond, not words. So I realized, I want to write from a very personal space. I want to write from the heart. There's too much brain intelligence, you know, in our industry, Like, let's connect a person level. So the book is simply a collection of all those personal reflections that I've been writing since the beginning of
the publication. So I didn't write a book separately. It was you know, I held this conference in twenty eighteen in the desert, and I was trying to think of a way to give a thoughtful gift, and this idea came about. So we just assembled all the reflections into a book that you can just order on Amazon. But back then we just printed it and gifted it to all our clients, and there's a lot of people would ask for it, and I'm glad that it's just available for anybody to sort of pick it up or for
me to keep gifting it. I'd much rather meet a client and instead of giving them a presentation about housing or this or that, just leave a copy of my book on the desk.
Huh. Really interesting. So we only have you for a little while longer. Let me jump to my favorite questions that we ask all of our guests, starting with tell us what you're paying attention to these days in terms of entertainment? What are you listening to in terms of podcast or are there any Netflix or Amazon shows that have caught your attention? What's entertaining the family?
I actually don't get bored to feel the need to be entertained, So I actually don't listen to music or watch movies. I've got three young daughters, and I love spending time with them.
Do they watch TV? Do they watch listen to music?
They watch cartoons? So we'll have a movie time every weekend with them, So they'll watch some children's movie and I'm just present with them.
You're along for the ride.
So so.
Okay, so Pixar, Disney, all the usual suspects.
But I find myself doing you know, one of my goals last year, for example, Barry was I want to work fewer hours and get more done. So that's when I started cutting out distractions right again, deep work is something that I really believe in, and so I would say, if I have any doubt, I'm actually listening to a book as opposed to watching a movie or listening to music. And I'm a big audible fan. Again, with young girls, it's more difficult to like sit and pick up a
bookcause they jumping on you. So you're driving, when you're cleaning or just going for a walk, you can listen to a book. And something that listened to recently was Screw Tape Letters by C. S. Lewis read by John Cleese, which is a masterpiece. I don't know if you're familiar with the book, but it's basically a senior devil writing a letter to a junior devil talking about how to corrupt the patient, which is humans, and keep him away
from the enemy, which is God. And even though people think that The Fourth Turning is the most important book of our time, I would say C. S. Lewis the Screw Tape Letters is the most important book of our time. The letter it explains a lot with what's going on.
If you like that. Have you ever read Mark Twain's Letters from Earth? No, it's literally that the Devil comes to Earth and or a demon comes to Earth, and it's writing letters back to a devil explaining what's going on with the humans and why they're so hard to corrupt. Of course they're already corrupted. It's really quite fascinating. I haven't read it in a long time, but you've given me. We're going to circle back to books in a bit.
Let's talk about your mentors who helped shape your career and turn you into the person you are today.
In the twenties, I searched for a mentor and I couldn't find one, So I spent my twenties learning and dreaming. In the book that got me to dream was The Alchemist. But I only don't like.
It's not that I don't like it, it's that the books that are parables that sort of rely on magic to reach their conclusion I find annoying.
The concept that resonated with me in the book was this idea of the personal legend. So I've spent my twenties dreaming that I'm going to unfold my personal legends. So for me, the twenties were spent learning and dreaming. I would say when I launched Fair Affections, you know the first five years that I was very lucky to meet someone called Steve Drobney out of Santa Monica who
runs Clocked tour group. Every time I was thought of quitting in the first few years because I couldn't figure out the business model, I wasn't making enough money, he was on the other side of the phone saying, just hang in there. You know, a path would open up. And I remember his words. He said, Joe, this will be your only job for the rest of your life. Be patient and wise words and I realized, you know what actually surviving is succeeding and the universe opened its path.
And so he was influential and remains a very close friend. And I would say in the last five years, the most impact that I've had is from a coaching relationship. And I speak with my coach every week and she's indispensable to me.
Huh, that's really that's really interesting. The idea that you're not ready for this and the universe will open up to you when you are is frustrating prospectively, but when you're looking backwards, it's like Oh that turned out to be pretty Uh. You hate it in the advance, but looking backwards, it's like, maybe it's a coincidence. But that seemed to come along at the exact right time, didn't it.
Absolutely that's been my experience.
So we've mentioned two books so far, three books, Letters from Earth, the Alchemist, and the C. S Lewis Book. Tell us some other books you're reading. What are some of your all time favorites.
I love everything written by Ralph wald Emerson, C. S. Lewis, as well as Roomy, who I'm a big fan of. What I'm reading more recently is actually something John Authors recommended. I was having a conversation with him and I was asking for advice on writing and the craft, and he suggested that the most influential person in his life was Professor Readman from Columbia, and he's written a bunch of books. So I went and looked through his books and the one that really appealed to me was Letters to a
Young Journalist. And I'm reading that and I'm fascinated because again I look at what I do is writing, and I want to read improve that craft to be, you know, a creative thinker, and looking at the world and observing things differently.
So Roomy, give me a book of Roomy that.
The mus Nui. The muth Nui is the the big sort of collection of poems that he's written, would be the one that Reynald Nicholson has the best translation in my opinion. Okay, it's anything that Reynold Nicholson has translated room Me would be the best, all right.
And by the way, you know, there's only two secrets to good writing, right you're aware of this, no reveal. I'm not sharing anything that hasn't been revealed many times. First, read really good writing. You're already doing that. And Second, write regularly and relentlessly. And the more you write, the better you get. It's just a muscle that has to be exercised. I hate that metaphor, but it's true. If you write regularly, you'll find you just get especially if
you have access to a decent editor. Also, you'll just start to get better and better and better. I've watched this arc with people over and over again, and every now and then someone will say, oh, I hate my early stuff, but now I'm pretty comfort was it? But that's the path. You have to travel, that route.
As someone who has struggled with the imposter syndrome. I think what really helped me alongside was reading the book The War of Art by Steven Pressfield, and he talks about turning pro and so, you know, an amateur waits for inspiration and then he goes to the room and starts writing. The pro takes his craft seriously and shows up and exactly, and this, this concept of turning pro, I'm a professional, made a big difference, just mentally psychologically
that you know, take it seriously. That made a huge difference.
My buddy David Nottig and I have this ongoing debate about imposter syndrome, which is a problem for him, and I have just no understanding of it. My defense is that I'm oblivious. He says, I'm a sociopath and therefore, but I don't really feel like a sociopath. Although sociopaths probably don't feel like sociopaths. But I think I have
a pretty decent defense on that. So our last two questions, A recent college grad came up to you and said, I'm thinking about a career in finance, writing a newsletter or a macro advisory paper for investors. What sort of advice. Would you give them?
Roomy jumps to mind, and he says, let the beauty of what you love be what you do. There are a thousand ways to kneel and kiss the ground. That's the first thing. The other thing I'd say also comes from roomy, which is be with those who help your being. So surround yourself with good people.
To say the very least, and our final question, what do you know about the world of macro analysis, investing, economic data, etc. Today That you wish you knew twenty years or so ago when you were first getting started.
The world is not the way to tell you it is. That's a classic opening line from The Money Game, And I wish I knew that the world is not the way they tell you it is.
Adam Smith The Money Game another classic book that is absolutely worth worth reading. Jawad, thank you so much for being so generous with your time. This was absolutely fascinating. We have been speaking with Joadman. He is the editor and publisher of Stray Reflections, a macro advisory research commentary. I would be remiss if I did not thank the crack team that helps put these conversations together each week. Paris Wald is my producer. Sean Russo is my researcher.
Rob Bragg is my audio engineer. Attika v Albron is our project manager. I'm Barry Ritoltz. You've been listening to Masters in Business on Bloomberg Radio.