The Biggest Lesson Investors Should Have Learned From the Crisis

to be kind of annoying. Annoying in what sense? Joe, Well, you know, it's like we're coming on ten years since the financial crisis, and so every day it's gonna be another story about ten years since this went under, and ten years since this went under, and everyone's gonna be retelling war stories about where they were, and journalists are gonna be talking about how they're in the office till

two am. I'm already kind of dreading it all a little bit, really, But I mean, aren't those fond memories as a financial journalist? You know? Two thousand seven, two thousand eight, those were the sort of glory years. People couldn't even keep up with the news flow. There was so much happening. No, I see, I'm excited about telling my stories. I just don't want to hear everyone else's. You know, I'm just very selfish. I just I love

my memories. I just don't want to hear everyone else's stories. Well, I applaud your honesty, Joe. Yeah, that being said, despite the fact that you know, we're going to have all of these anniversaries coming up over the next couple of years, it has been obviously an extraordinary time, and I think all of us have learned a ton about how markets and economics work during this period. Yeah, you could definitely

say that. I guess you could also argue it the other way and say that the financial crisis and the period after it were so um special or so unprecedented that we've all learned massively new things, right, like how many people were really experts on quee before two thousand nine? And I mean, I guess you could argue there aren't that many people who truly understand it now, But in any case, at least people know what it kind of is.

Maybe we've just exposed how little we know. A frame me this way, because today we're going to be talking to a long time industry veteran, someone who worked for the I m F, who's involved in mutual funds, who's been a global macro trader for several years, uh, and someone who has uh you know, sort of catalogued all of the things that we should have learned since the crisis, and I think that his perspective and sort of what he's observed has sort of been an extremely offering some

extremely important lessons from the last ten years. So, Joe, I think I know who you're talking about. And if it's who I think it is, I'm very excited. He's the guy who's very active on Twitter and he has a great blog as well, and we all read it. Yeah, we're going to be talking to Mark dow He. Anyone who's involved in finance Twitter has certainly seen him. He has this awesome blog called Behavioral Macro where he talks

about big macro topics. He recently wrote a post about fifteen things that every investor should have learned from the financial crisis and it's aftermath, and we're going to be talking through a few of those things. That sounds great, Marked Out, thank you very much for joining us. Thanks for having me. Guys, before we get started, you know, many of us in media and finance Twitter have interacted with you for a long time, read your stuff, read

your tweet, talked to you on TV or whatever. But for those of the people who don't know who you are yet, why don't you give us the very brief. The brief bio. Yeah, the thumbnail sketch is. I started my career at the Treasure Department as an international economist, working on financial disasters and emerging markets primarily. That's where they were then, UH. And then I moved to the International Monetary Fund, where I worked on a lot of

different countries and the same kind of sustainability issues. After that, I managed money to mutual fund for a number of years fixed income, primarily emerging markets. And then I moved to a global macro hedge fund for about seven years UH and basically ran part of the book. You know. I had my own portfolio where I ran risk and all kinds of asset classes, primarily currency in emerging markets,

interest rates, commodities, that that kind of thing. And now I run glorified private UH family office from from my hometown in California. What strikes me is important about your background before we get into the various lessons, is that you've seen the eco side and the trading side, and often the two sides can't really speak to each other very well. A lot of traders can be very good,

but they don't really understand economics. A lot of economists have a deep understanding of how things work, but they have no idea how markets really work. As you describe your career, you've really seen and bridged the two worlds. This has been a massive advantage to me over my career. You see a lot of shops, particularly big ones, where there's a stark divide between thought leaders and risk takers,

and not that many people speak both languages. So the thought leaders are great for framing things and providing frameworks and backdrop ways to analyze issues and to communicate with clients who want who want to understand the world better, but they often don't have that market savvy, that psychological dimension that makes a good risk taker. Uh, that defines

a good risk taker. Speaking of framing ideas, you did pen this blog post about the fifteen things that investors should have learned after the Financial Crisis, and one of the ones that really struck me. Um, and these are all you know their number, they're in bullet points, they're relatively short, so we really want you to dig into them a bit more. But one of the ones was this idea that the interest rate sensitivity of economic activity is less than what was previously believed to be the case.

And I want to tie that in with another one, which is the idea that, uh, the economic channel of monetary policy and the financial channel of monetary policy, uh kind of might be operating and existing separately. Can you walk us through those points for me? That might be the most important portion of the post really from a

policy a policy standpoint. I wrote this because I was a little frustrated I had from given my background, I'd climbed into so many central banks all over the world, I had seen so many things, like you know, a doctor in the e R with a lot of experience that I was kind of a hit of the curve on a lot of a lot of these issues, just because you've seen financial crisis and money printing and all

these things before. But when it came to the when it came to the US, a lot of people who were really deeply steeped in nineties economics had a very fixed view of of of money supply and interest rates and economic activity. And what we know really is what the element that was lacking was behavior. The models that were taught in the eighties and were perpetuated throughout really until the Great Financial Crisis was a very rational way

of looking at it. A lower price for money means more borrowing, both in the fin in the in the financial sector and in the real economy, and higher rates means less. And if you just look at what happened before and after the crisis, you'll see that this doesn't really hold that. The other factors that are that are more important. You know, from two thousand and four to two thousand and seven or so, people were borrowing like crazy,

and the said funds rate was around five. Everyone wanted to borrow, everyone wanted to lend, everybody was on the money. Supply was scoring rapidly because thanks were lending and people were borrowing. After the crisis, for a long period of time, rates were zero and nobody was lending. Nobody was borrowing. Uh. And this isn't just a US phenomenon. You see it around the world. So you have to ask yourself, you know, why is that and why aren't we more sensitive to interest?

It's and the simple answers risk appetite. Uh, people were We're much more sensitive to our risk appetite whether we feel secure in our jobs than we are to the interest rate. If you're securing your job and you know you've got a good income for the next ten years, you're more likely to go out and buy that house even if the interest rate is five instead of three. Uh. That's just the way human nature works. So I think that's why people overstated the sensitivity of economic activity uh

to to interest rates. UH. And if you factor that in, if you look more at people's risk appetite, then you'll you'll get a better picture of of what's going to happen, you know, to the transmission of monetary policy into the economy or into finance. Now, with respect to the two different channels, if you just think about it, uh, the financial channel happens fast. These are liquid positions that you

can get out of, very sensitive often to the funding rate. Right, you can leverage something that yields three if you're if you're funding rate is one. Uh. So the financial channel tends to uh react quickly. Interest rates are quicker. On the economic side, you need a much higher higher level of risk appetite to build that factory or to set up a new shop or new branches because you're gonna be stuck with that investment for quite some time. It just requires a lot more confidence. So that can be

even stickier. UM in response, so it's it's just it really maps back to a behavioral uh just uh, a behavioral phenomenon uh. And for a policymaker, it's super important because you can have points in time when the financial channel has responded sufficiently and even excessively, but the economic channel is still inching its way up the curve. And in fact, I would argue, now we're in that kind of situation where the financial channel has responded quite well,

pretty fully. I wouldn't say it's gone crazy, but it's it's respond responded well, and the economic side is just you know, we're still not seeing robust investment, and we're still not seeing wages, and we're still not seeing people are still getting to that mind that where they want to take risk and propulse maker, what do you do when the financial channel is too far ahead of the

economic channel. Now, it's my belief that the way recessions happen in the modern world is we get too optimistic in the financial channel, and we also get too optimistic in the economic channel, and at some point we have

a financial disruption from kind of shock. It can be a small one, but it triggers a sell off in the financial markets, and that forces a retrenchment or a rethink of people in the real economy about how extended they are with respect to risk, and they start laying people off and cutting back on investment, which has a multiplier effect throughout the economy, leading to more layoffs and more cutbacks and investment, and you get a real recession.

But you really, if you don't have the real economy extended, the real that that channel very optimistic if you need a much bigger financial impulse to push the economy into recession. And I think that's where we are right now. And this is why my view all along has been as long as I've been on Twitter long the We're gonna have the longest and slowest expansion you know, uh shallow and slow Uh that that that we've ever seen. Because people are still looking in the mirror, even on the

financial channel. I would argue, when we get excited, uh, we we kind of check ourselves and say, no, no, no, this is a bubble. I mean, we hear people talking about bubbles all the time. We're afraid of getting caught out. When I talk to guys right now, big investors, the

word you hear is caution, Something's gonna happen. We don't know what this is long in the two those kinds of things, and it's funny after and that's through the financial channel, which is the one that's more sensitive uh to uh to the stimulative policies that we've had for for for so long. So that tells me that the economic channel is just not there and it's gonna it would take a much bigger financial shock other things equal

to push us into recessions. So the odds of recession are still uh in my mind's I'm very very low, even though don't expect robust girls. So for a policymaker,

it's these two different channels. Is something people haven't dealt with because the FED in particular and most and most central banks more broadly, their mandate is key to the economic channel, and the FED only only over the past ten years have started to really think about how the financial channel feeds back into monetary policy and in their formal modeling, Mark, I feel like that answer explained so much about what we've seen in the you know, obviously

that's the whole point of this in terms of lessons, but you know, you said, this is a really big one, and you know, just all this stuff about oh, we're in a bubble, or all these macro hedge fund managers who think that the FED has behaved irresponsibly by keeping interest rates low and are you know, causing all kinds of distortions. I feel like if they had all listened

to that answer, you know, several years ago. Unfortunately it's too late for them now in seventeen, a lot of mistakes would have been avoided on this theme of the gap between the financial channel and the real channel. Another one of your lessons is commodity markets, and you point out that they're driven first by speculation and that that overwhelms fundamentals. What's the lesson there? Two different things. One is just the market market structure, So the story of

commodities was in right around them. They would electronic so you didn't have to be in the pits and know all the secret handshakes uh to trade them. You could trade them electronically from your office UH and then now from from from home UH. And that allowed people to to get involved in a way they hadn't been easily

able to before. UM. And then around two three, two and four there were there were a lot of there were academics talking about diversified the divers supplying properties of owning commodities as an asset class, and that gained a lot of traction. At the same time, you had the emerging markets plugging into the grid. China joined the w t O and that whole emerging markets theme, you know, the paradigm is changed, were starting to take off, and

people associated that with commodities. So we we moved into a world where you know, China was going to take over that We're gonna eat all our commodities, uh and mL dousing way and uh, therefore you had to own it. So as consultants were peddling the story about diversifying through commodities as an asset class, commodities were going up. And when guys are pitched a story about an asset class that's going up rapidly, it makes them want to get

more involved faster. So we we kind of had this boom in investment speculation whatever you want to call it, in in commodities from two thousand and three until really until two thousand and you could argue two thousand and eleven, um and Mark, I want to interrupt you real quickly. We're gonna do something. I want to do something really special. So for listeners, we are recording this episode on August

four in the morning. It's am on a Friday. That means we're about, let's just under four minutes away from the monthly non farm payrolls report, which is of course the most important economic data point of the month. So we're gonna do something a little different. We're gonna take

a little interlude from the podcast. Will return to the lessons in a moment, but we are going to talk through the jobs report as it comes out, because I think this is very exciting, the chance to be talking to a sort of experienced macro trader about a report as it's coming out. It's coming out in um just over three minutes now, and so we'll look at the data, we'll talk about it, we'll talk about the market reaction.

People will get this snapshot of how you see things, how you interpret the data, and then of course we can come back to it. But ahead of the data, we just about a little less than three minutes. You have any sort of early thoughts about the data, I should just note the economists are looking for k jobs for July, the unemployment rates to fall to four point three percent, and two point four percent wage growth. What

are you looking at in the minutes ahead of the release. Well, the way I tend to approach these things is I look at where the areas in which the market is heavily positioned, what are the trends that have been working uh, and what kind of data would would be required to trigger either a shakeout or reversal of these Of the of the recent trends, and the biggest recent trend has has been short dollar, both against the funding currencies like the euro and the pound UH and swissy UH, and

against the risk currencies for emerging markets have done quite well. The answer antipodeans in New Zealand and the Key. We are always somewhere in the middle between those two the two camps. But because dollar has been on a on a run in in a negative way, I'm going to call it that. It wouldn't take much one data, one strong number could could trigger a shakeout that could last a day or two or three or a week or whatever.

I still think the longer term trends for the dollar is down because we're in that phase of the cycle. You know, the US has recovered, valuations are fairly full. Let's move further out the risk of the spectrum to places that haven't been fully fished out, and that's where people that's why people have gravitated to emerging markets in Europe. Tracy, are you excited about the number we're about to get

in less than sixty seconds? I'm very curious to hear Mark's sort of play by play, a minute by minute analysis. Mark really really quickly, because it's less than a minute. Now, would you try to trade around the immediate jobs report or do you just try to, you know, think about the implications for your portfolio. It depends on what I'm what I'm thinking. If there's a situation where the position is really offside and I don't think it would take

much to trigger a reversal, I might drive something. Often. I like to see the market react before jumping in if it's a trade. I also do investments, which is a different different story, but from the trading side, I can. I can be active right now. I have some short dollar positions. I've paired back a little bit to get my size and right make sure I don't get hurt. I've had a nice run. Here we go, numbers out, O Wow, two hundred nine K jobs so that's a

beat versus eighty k last month. Last month revised up from two twenty two to to thirty one case of very nice. Unemployment rate falls to four point three percent from four point four percent. That's in line with expectations. And UH average really earnings growth at two point five percent, that's a little bit ahead of the expectations of two

point four percent. And the labor force participation rate, which is many people would argue has been one of the weak spots of concerning long term trend up to sixty two point nine percent. We are seeing rates pick up, tenure yield a little bit higher, not dramatically, from two point to three to two point to five percent. Mark give us your take. So I take is this is that kind of shakeout the bondswork position and short dollars were position, so now we get we get a test

of that shakeout. These aren't massively strong numbers, but they're definitely stronger than what people were looking for. I think what will stand out at average hourly earnings that that's up. People have been very sensitive to labor labor inflation here, um, so all the all everything is skewed towards stronger than expected, but not massively. So so this is a decent test for the short dollar thesis and for the long bond thesis.

What I would do in a case and what I will do in a case like this, I just stand back and let it play out. And if I want to add to my positions, I wait until I think that this shakeout is over. But it's really the thing you have to feel your way through. You never know.

I mean, this is a behavioral animal, this market, and you have to stand back and and and watch it and see how it plays out, and look for correlations breaking down, and look for weakness and in volume and other signs that the story is getting tired before trying to take it on. So, Mark, I think you mentioned that you had some short dollar positions. Would this be enough for you to reconsider those No, particularly in the

emerging markets, where my positions are more important. Because even though this is so, I mentioned earlier the distinction between risk currencies and and and funding currencies. This is bad for the funding currencies, but not necessarily bad for the emerging markets because strong U S data, uh, it's good for risk in a certain sence. You see, equity markets aren't down right so the risky currencies trade off of risk and the trade off of bonds, whereas the funding

currencies trade mostly off of bonds. And to your point about you know, sort of US equities, we mentioned that all the dollar is up, rates were up, but we haven't seen a sell off in US futures at this moment. We still see risk assets rising up, not not much out. So you know the which if you were to take a maquar ree from all of this, you would say, Okay, people say the numbers a little bit stronger, but it's not going to change the FEDS terminal rate which has

been coming down. Right, It's not going to make rate hikes come that much sooner necessarily, but it might not be dubbish forever the way people have been had been pricing in. So it's a modestly strong number that we'll shake some people out of their funding currency shorts. I would suspect the Japanese en um is a on one. Euro is another that's had a nice run, But I don't think it's going to hit the emerging markets that hard.

One of the fears in emergency markets emerging markets has been that, you know, the FED will have to raise rates, and we know when raising when they when they raise rates, it hurts emerging markets. I think that's a backwards looking view. In fact, one of the points and in the blog

was emerging markets are structurally UH different. Now. I don't think that the Fed's gonna raise rates all that much, first of all, but more importantly, even if they did, the emerging markets are in a much better position to weather it because they have a lot less dollar denominated debt hanging over hanging over their heads, particularly the sovereigns UH then then used to be then used to be the case, so it shouldn't be too bad for her.

And if you look at the Mexican page, so it's still up on the day, the Brazilian realities flat for for for so far in the futures UH. The ones getting hit and not even massively is the euro UH and UH and the pound and the end right the funding currency. So this is a pretty good number. We want to see the economy continued. We've had some week data here and there. UM. It's also worth noting that the last last month stuff got got revised, revised stuff

a little bit, so that's not bad. So you know, we've had some soft stuff with the autos and other areas. And uh, it's it's nice to see a little a little counterweights to that. But this doesn't nothing, and this doesn't anything earth shaking. Uh, this isn't something's gonna it's gonna rock our worlds. Let's return to the lessons we all should have learned, Tracy, do you want to pick another lesson from Mark's list for us to go? I

was going to ask the oil question. Yeah, we'll get okay, let me I'll finis to the commodities and then come onto oil. So the trading was enabled to trying to trading was enabled. The asset class was being pitched as a diversifier. At the same time, emerging markets were kind of plugging into the grid, and this led to a

lot of enthusiasm and commodities at the beginning. You know, if you go back and that point in time, the breakdown and people trading oil, for example, was uh, you know, the people were financial, uh, and seventy of the people were commercial. That is to say, they were hedging either their needs for for oil or their production of oil.

Now that numbers roughly reversed. It's like the people involved in oil are trading it and are the commercial guys just because there's so many more people have gotten involved over over the years, and that means that the asset is gonna be wilder, it's gonna do crazier things, it's gonna be left linked to fundamentals for longer periods of time. Uh. And I think we've we've we've seen a lot of that.

And the extremes have feedback effects, you know, the the extreme buying of oil, a lot of which interestingly was blamed on low FED rates. Even though we we got two hundred fifty dollars in barrel with FED funds five percent back in two thousand and whatever thou eight or so um. Uh, it's lead to are incentivized. A lot of the shale production was coming on online because they didn't care about interest rates, these guys because they were

looking to make fortyfold on their investment. And if you want to make forty fold in your investment, if you don't care if you're funding rates, three and seven is the same number, right. Uh. They were borrowing because the price of oil was high, and it went to a much higher rate than ever otherwise would have been the case. Because of the amount of speculation UH and investment in commodities as as a theme. So I think that's a

super important point. The second important point to make about commodities is that over time we find ways, technology finds ways. The substitute for commodity consumption. Our oil consumption, and this relates to the oil point is one in the home home homeowner basket is one less than a half of what it was in the in the eighties. Our consumption of oil UH is less than half of what it used to be UH in the household level. And that's

true of all commodities to some degree. People don't have gold teeth, people don't use copper as much as that is to over time we find substitution UM the things to substitute for our commodity consumption because it's cleaner, because it's cheaper, because it's better UH, and commodities should go down in real terms over time. Right, So you have, on the one hand, speculation that leads to larger swings that have predominantly been to the upside over the past

fifteen years, and you have less of a fundamental UH driver. Yes, you have the emerging markets plugging into the grid, and they're less less commodity efficient. But I met you the new houses in China are using PVC and not copper for the most part when when they're being built out. Yeah, to some extent, human progress is the story of making fewer commodities to maintain the standard. In a very real way.

It's kind of the inverse of commodities, kind of the inverse of technology, right, shorten commodities are it's a uh pro technology that. Now you know the case with oil if you remember, you know people were saying when oil fell dramatically from over two thousand and fourteen and two US and fifteen. Uh, they said, oh, this is really bad. This is first of all, it was misdiagnosed as demand. People.

One of the mistakes that we make in markets is we read way too much fundamental information uh to two moves to price moves. So people were saying, oh, no, this isn't demand story. The US is going to have a recession, etcetera, etcetera. But it was a lot of guys that got the shale producers and other guys that got excited about a high price of oil, and they got caught. They got caught out speculating. Now, the people who were bullish, uh, of the US economy in general.

We're saying, gospel oil falling is gonna be really good for the consumer, and I was making the point, uh, quite strongly, that it won't help very much because it's become such a small share of our overall basket. The oil intensity of our GDP has declined significantly over the past twenty or thirty years. So it just doesn't matter. Uh, it just doesn't matter so much. It's not going to

turn that. It's not going to turn the dial. And in fact it didn't in the same way, it didn't hurt consumption very much when it with you know, up to a hundred hundred and fifty. So as oil becomes a smaller share of of our consumption, it's oscillations are are are going to help us less? Help us and

hurt us less and less. The real problem is people, you know, in markets, we say we look at something new and have to process it, and we look backwards first and say, what looks vaguely similar to this in history? And the first thing that they they'll find when they look back in oil and consumption is the early eighties and the late seventies, and those data and they end up anchoring on that reality and those coefficients no longer

obtained for the reasons uh we just discussed. So Mark is very energetically and very eloquently connecting all the dots in all his lessons for post crisis investors. So let me see if I can get in there with one more that I think is connected to all of this. And that's your very first lesson about potential growth and

developed economies being lower than it was before the crisis. Well, go back to the ear the early eighties, and we had a situation where we have four factors really that we're driving growth in a really positive way, creating significant pail winds. One with demography, baby boomers were plugging into the grid. Uh. And the labor force was growing at a rapid rate. And as we know, your potential potential growth is a function of the growth in your labor

force and a productivity number. You know, how productive that labor in the capital that you bring in with it is. So that was going for us. On top of that, we had a secular factor of women joining the working the workforce. That's kind of a one off. Now women can join it, come, you know, they can join and they can uh and leave just like a men used to. But at that time female participation in labor force was was very low, and they spent the eighties and nineties

coming on online. I think it peaked in probably or ninety seven or ninety nine according to the artistics. So it became normalized then. So it is what it is. It oscillates with with everything else. But over that period when they were coming in, it created effectively a growth uh in the labor force much faster than what the actual labor force growth suggested. So that was another tale wind. On top of that, very powerfully, we had a decline

in interest rates and a decline in inflation. Remember the eighties had a very high inflation, uh. And that means that people had clean balance sheets. No one had borrowed anything because the rates were just too high and we could borrow, so people borrow more. When rates come down, people borrow more. When inflation is more is more stable, and when people don't have any debt on the balance sheets. And then the fourth point is we adopted with Reagan

deregulatory mindset. And you know, people complain a lot about regulation. I mean people always do, but uh, you know lately, it's been a boogeyman for a lot of things, but people forget that back in the seventies, we had real obstacles. We uh, really regulatory obstacles. There were price controls, there were wage controls. We were rationing gasoline. We had to buy every other day depending on your license plate. I mean, you guys are probably too young to remember this, but

I was a little boy. I remember waiting with my dad, uh, you know, in line for to buy to buy guests. So we had a lot of the relationship between labor and capital was very different, so they need to regulatory mindset led to a lot of financial innovation. Consumers and businesses had clean balance sheets so we can borrow. So you had rapid credit deepening along with these labor force phenomena.

Let the really rapid growth that kind of ended, or at least the demographic portions slowed down by the end of the of the nineties and stopped being a tail wind. The credit, though, continue to deepen, and so we didn't see the underlying weakness in demography because we had this credit deepening for a long time, giving us this and you know, we had stagnating income. But it didn't feel

like that because everybody could borrow. We were getting more credit cards and we were buying uh cars and houses and and everything on credit. So that papered over. Um. Really the change in the in the demographic headwinds that all got exposed when the when the when the GFC hit us. Uh, that crisis meant, okay, the credit machine, the credit tail wind is done. It's over. Now it's a headwind. So now we've uncovered the demographic weakness and we have a credit headwind. Uh. This is labor force

is growing at a slower rate. We don't have the benefit of women structurally coming into the labor force. Uh and uh, we no longer have the credit machine on. That's why we have to grow lower. So at first after the crisis, it was cyclical. We had to work our way out from the credit boom and the typical cyclical problems. But on top of that, we structurally have

a slower growth rate. And this is what you know Mohammed Hilarion calls the new normal and what at the same actually around the same time, I was referring to it as reversion to a different meed back at my firm. But it's the same phenomenon, UH, and recognizing this has been super important. UH. Policymakers always want to believe they can do more uh to change the growth break than they can because that's what they have to sell. Right.

Both Hillary Clinton and Donald Trump were promising four percent growth, different ways to get there, but that's what they were promising. But recognizing that policy can't do that much about it, and that all developed economies are probably going to have the same demographic phenomenon and similar structural credit headwinds or at least no longer the tail winds is a is a very important observation when you're thinking globally about where

to allocate uh your risk. All Right, Mark, I'm gonna ask you one more question, and it's going to be really unfair because I'm going to ask you the most controversial question. But we all we have to do like a speed round. Okay, So I'm gonna make you we This is a question we probably could have done a whole episode on, but we're gonna have it's gonna have to be very short. Number thirteen. I'm fascinated by you say.

Very few investors can disentangle their political preferences from economic analysis. What's the story there. It's just people re Daniel cannonman. I mean, we we get so deep into our own narratives, and the confirmation bias is so strong. I mean, look at how many guys became bullish when Donald Trump became president, and how many people turned barrassed when he became president, and how many people have objected or were fighting the stock markets for the whole period under Obama because they

didn't like his policies. Uh, and how many people like the policies. Right, So this is what you see, and you see it time and time again, and the season investor just kind of gets past that. I didn't think Trump was gonna get elected and definitely someone I don't I don't think is suited for the for the job. That's my personal, my personal view. But I didn't think he was going to cause a recession. But a lot

of guys. I saw a lot of guys fall into that trap, and a lot of people have been embarrassed for eight years. He saw them flip the switch and say, oh, I'm bullish now, and they mumbled something about tax cuts that have materialized. But we can see now in the data that you know what really happened is we went into the election coiled right. Everyone was ready to take risk, and uh, it played out a little bit differently than

most people thought. But you know, the economy underlying economy is doing okay, and the fact that Trump's policies didn't materialize and we're still holding up is a sign that that that things are okay. All right, Mark, phenomenal conversation. Gotta leave it there. Uh, great talking to you. I loved how we did that jobs report thing. That was really cool. I feel like I learned a lot there. Really appreciate you coming on my pleasure. It was great

talking to you guys, Tracy. I thought that was really fun. Mark obviously knows way more about so many things than you know, sort of we do, or even a lot of uh, you know, typical people in finance do. I thought that was a pretty cool conversation. Yeah, And I thought the way he put this idea of um sort of the financial world and the real economy running at two different speeds. The way he framed that is really

really useful. And it kind of amazes me now that it feels like others, and in particular the Federal Reserve, are only just beginning to think of it in that way, but uh, it seems like a pretty big deal. Yeah, And I think that that's sort of like the underlying theme of all of this, which is that human behavior.

I mean, his blog is called Behavioral Macro, and so the sort of traditional macro ignores what he you know, these sort of behavioral things that humans do things because we're animals and we run in herds and we have fear and greed that don't necessarily correspond with supply and demand. But that trying to really like suss out which of those uh, you know, factors are driving what has sort of been a key aspect of understanding the post crisis period. Yeah.

And also the idea that human beings have a tendency to cling on to um their previously understood notions of how they were old works is really important. So, I know, we were talking about the financial crisis anniversary coming up. I remember when I first started writing about quantitative easing in two thousand nine, you know, writing analysis about how this was going to push up financial asset prices through a substitution effect. And I remember people getting really really

outraged about that idea, And now it's just common knowledge, right. Well, and also it's like everyone just assumed that it was hyper inflationary, like all these sort of deep seat oh printing money, that's gonna cause Weimar, just like all these things that we you know, Mark refer to as like we anchor on certain periods. So when it comes to money creation, we might anchor on some hyper inflationary period.

When it's oil, we might think about the late seventies and just without very little thoughts, sort of draw that one thing we know to the current thing. And of course, uh, you know, history is never quite the same as the first time rove. Yeah, human beings are we weak entities flawed And on that note, that's the perfect way to uh you know, sort of set the stage for the next few years. Just a reminder that we're week week flawed entities. All right. Uh well, this has been another

episode of the All Thoughts podcast. You can follow me on Twitter at Tracy Alloway and you can follow me on Twitter at the Stalwart, and you can follow Mark Dow on Twitter at Mark Dow. You should also check out his blog marked out dot tumbler dot com and follow our producer Sarah Patterson Sarah Pett with two teas,