This meeting is being live streamed. What's up everybody? This is Tobias Carlisle, this is Value After Hours. Jake Taylor is out sick today, so it's just going to be me and our special guest Jonathan Treussard. Jonathan is a PhD. He's an economist, but he worked on a Bob Burton, worked for the ZIF family in New York during the global financial crisis, was partner and head of product management at research affiliates from 2014 to 2021. Now he's
launched his own firm Treussard Capital Management. Jonathan, welcome. How are you? I'm doing great. Thanks for having me. I appreciate it. Let's go back to the start. PhD in economics. What did you study? What's your area of focus? Well, it was really kind of a three chapter kind of deal. I've ever got to grad school. I went to UCLA on the grad and I studied under a guy whose name was Earl Thompson. He passed
away in 2010, unfortunately. I was at UCLA in 2001, 2002, as the tech bubble was bursting. So actually, my first love was studying the great bubbles in history and what they had to teach us about what had just happened with the tech bubble. That was really kind of... What are the great bubbles? Tulip bubble. Yeah. Tulip bubble, Mississippi bubble, the South Sea bubble, all of that. It's already real estate. California real estate. Yeah.
Tulip bubble. That's right. So just understanding what makes a market go wacky. What is it? Do you subscribe to that? What's the before the black swan that was the dragon king? Is the dragon king... Do you know what I'm talking about? I don't know the dragon king. I feel like I need to go look that up. But yeah, I mean, look, in the taxonomy of bubbles, a couple of ingredients are helpful. But you'll notice very often. And by the way, that goes back to the South Sea bubble and the Mississippi
bubble, so on and so forth. New technology tends to help. There's this new thing out there and whether it's traveling to colonies or the internet or AI or whatever it is, it's helpful to have that thing that gets your paradigm. The new paradigm. The new paradigm. Again, literally, if you think about the Mississippi bubble, the South Sea bubble, which were about, hey, there is this whole new place out there. And if we can get there, we can get the riches. You know, Tepadillo. Metaverse.
Yeah. It actually very quickly sounds familiar. So that was chapter one in my studies. But long and short of it is I have been a student of markets. And again, of that, what happens when markets go bunkers for a very long time. As an aside, again, I think there is the kind of narrow market dynamic part of it, which as I said, kind of new technology, new paradigm,
you know, plays a role. And then there is, you know, it doesn't, it doesn't, it doesn't hurt to have a, you know, a fertile ground from a, from a societal standpoint where something has changed in kind of, you know, the way we think about different kinds of people, kind of societally and, you know, wealth or distribution basically tends to play a role as well, whether it's intentional or unintentional. I went to, so I studied with Earl Thompson at UCLA.
I thought I was going to be a professor. I moved to Boston University to get my, my PhD. I absolutely loved, you know, game theory and making decisions under uncertainty type of thing. Kind of the intersection of strategy and like the world is this big unknown place. There's a, like this gets in the, in the weeds really quickly, but there's a kind of a very basic thing that you learn in your first year as a, as a PhD student called the
Arrow De Bro Economy. And it's like, hey, if you think about a world where like a bunch of things are uncertain, how do you price these uncertain kind of states of the world,
right? And I was all about it and I was really excited and it's kind of mathy. And then in my second year, I walked into the business school at BU and I met a guy by the name of Tsfi Bodhi who's changed my life in more ways than one, but the first way in which he changed my life was he said, everything you like about economics, all this stuff, we call
it investing. How about you do that instead? And so I started, you know, learning about option and option theory and that's how I ended up writing my dissertation on, you know, the application of option theory, which by the way, again, is about pricing, you know, uncertain states of the world. And ultimately, I got my first job as you mentioned working for Bob Merton out of firm that he and a couple of other people had started in the aftermath
of long term capital, a place called Integrated Finance Limited, which is no longer. In fact, it's been absorbed by a very large systematic, mutual fund group out of Austin, Texas. If that gives you a sense. But anyway, so I worked for Bob for a little bit. I still thought I was going to be a professor. Again, my life got a lot more interesting in a good way when I ended up taking a job for the ZIF family in New York. I joined in June of 8 in
risk management. And as you can imagine, and risk management, risk managers, all the best risk managers of French wise that. So I don't know if that's true. Well, risk managers of French. Yeah. So you're making that it might be a more accurate description. I think it has something to do with the fact that risk management is again inherently about uncertainty. And uncertainty is inherently about kind of having a kind
of a probabilistic statistical understanding of the future. The French put a very high premium in school on things like statistics and math and engineering. I mean, if you think about, again, you know, you and I come from different places around the world and we've been students of, you know, different cultures. I think each culture has its kind of hero. And in a lot of ways, the French hero figure is a scientist. You know, kind of an engineering.
I mean, if you think about, you know, the top school, they're not business schools. They're, you know, polytechnic and they're engineering schools and all of that. So I think it's just a lot of quantity, you know, brain set vehicles are spent very early on by French people. You know, it's quite risk management. Risk management is more like you need to understand
there's some dioxide, some downside. It's not captured in the mind. Wow. Maybe that's the other part, which is, you know, there's a, whatever you call it, there's a very new wave existential. You know, the French are very dark, right? They don't, you know, whatever, for every optimistic American, there is a, you know, a metaphysical Frenchman out there.
Right. That makes sense. No. Maybe that's what it is. But yeah, so, but, but, but I has it, you know, when you said some of the best risk managers are French, not maybe true. I love my people. But, but I think there is something profoundly non-scientific about truly being the best risk manager because for all the math and for all the science, you can throw at it. It's about the thing that cannot be quantified. It's about the thing
that feels a lot more like liberal arts. You know, and so, and I think that's a, I think that's a different thing altogether, which is, you know, my, my first boss in this business outside of Bob, Alan Crawford, you know, always said, a failure of risk management is a failure of imagination. And I think it's profoundly true. Probably definitionally, so you don't know who the best risk managers are because they, yeah, yeah, I think it's going to happen.
No one ever rings the bell for the thing that didn't happen. It didn't blow you up, right? Which is exactly right. You know, it's, but, but again, I think there is a, there is a common thread to that. You know, whether it's risk management or just, you know, kind of handling crises, you know, that sort of thing. I mean, I'm, you know, it's like whatever. Like if, if you're a really great fire department and you put out all the fires, then you
are never written up in the newspaper as having a huge blaze in your town, right? So I was like, no one ever knows about utepidium. So you risk management through the global financial crisis. Yeah. Yeah. What was that experience like? It was, it was, it, honestly, it could not have been a better experience. One is it, it focuses the mind in a, in a
huge way. And it forces you to, particularly as, as kind of a young person, you know, when it's like, you're still kind of getting started in your career, all the abstraction becomes concrete, all of the events that don't happen actually start happening. That's exactly right. And the other part of it too is like, you don't get to be too shy to put your hand up. You know, I mean, I mean, it's like, hey, I saw this thing. It's worth talking
about. And I think that's really hard, right? For a lot of people kind of, I mean, going into any industry, but particularly in our profession where, you know, you kind of, there's, you know, the people that have authority and power tend to be, you know, a little bit further along and so on and so forth. It's not, you know, it's not Silicon Valley. It's not a bunch of, of 22 year olds changing the world in hoodies. And so you got a bunch
of guys in, in fancy suits on the other side of the table. And you, you feel like you're just a kid, but you're like, hey, no, this we really need to talk about. And I think that's, you know, that, that was super educational and look, I mean, the thing was, particularly to place like, Ziff Brothers investments at the time, all risks were relevant. It was just equity risk. It was commodity risk. It was, you know, the, the hedge fund next door
that had to deliver in a hurry. It was, you know, just, just every aspect of it was in play. I was just visiting New York last week and I was, and I was reminded that we shared the basically, you know, one of those public atrium type of places with MF Global, member MF Global. And it's like, whoa, what happened there? You know, you know, so it was just all
of that stuff. So that was really good. And on, and this is where, you know, you don't know how lucky you are in real time because you're probably too young and you lack, you know, the perspective to actually really appreciate it, but working for the Ziff family through it was incredible because it gave us, you know, as a position, a strength. It
was, it was, it was permanent capital. It was, it was, you know, people that were fully aligned, you know, they didn't hire you to, to, you know, have a bunch of yes men around. It was just, it was just a great culture, a great place to be. And so, you know, I got, I got stupidly lucky there early in my career. And then research affiliates, let's talk research affiliates first. Roba not has a, has an interesting take on why the fundamental indexes are not value. Do you want to? Yeah.
Well, so, that's, and by the way, I think it's very relevant to the markets we're seeing today. And again, I was the researcher affiliate for seven years. It was a partner and had a product I ran, you know, kind of strategy around the world for a number of years. And, and I love my former colleagues, whether it's Rob or, you know, our, our, my former CIO, Chris Brightman or, you know, my former CEO, Katie Shared, who's actually now an advisor
to my firm, which is just fabulous. But look, what do we know? Research affiliates, you know, very large quantitative asset manager, about 150 billion around the world as you noted a lot of it in a strategy called the fundamental index, which really is kind of
the, one of the early, uh, movers on, you know, the whole smart beta thing. And, and I would, I would, I think your description is correct, which is if you ask Rob, uh, is the fundamental index, which is a lot like a capitalization weighted index, except you remove the cap weights and you replace them with, you know, more stable things called fundamental weights that kind of sort of look like market capitalization weights, except they don't move
very much. Um, you know, to equate that strategy with a narrow value strategy, uh, in the, you know, index sense of the term like, you know, Russell value or something at all, you
know, I'm just picking one at random, uh, is very different. There, there's something different, and I, I, I, fun was not intended, but there was something fundamentally different about picking cheap stocks and then market cap waiting them versus picking, uh, you know, presumably more stocks and then anchoring them to something fairly stable and then rebalancing against those price movements to that stable anchor. They're both going to give you a value
tilt, right? But in a weird way, if all you do is you take the cheap stocks and then you kind of reassign to them their market capitalizations and if you have any, if you have any belief, right, this is the belief part. If you have any belief that there is like quote unquote a fair price out there, you just don't know what it is, but you know that
market capitalization probably swings too far in both directions, right? When something gets spooky and scary, people run away, uh, and so your market cap falls further than
it should. And of course, when people get really enamored with something, you know, the market cap kind of goes too far in the other direction, you get a sense that you're basically leaving value nests on the table, if you will, by using market cap weights because the ones that are real value, they have a tiny weight because their market cap is too small
relative to what they should be. Uh, and so I think that's what Rob is trying to say when, when, you know, people hear, hear it the way you're describing it, which is all the fundamental way it's due, uh, is they give you a stable anchor, uh, against which to rebalance. And when a stock creators, and it becomes deep value, you're going to end up having to buy more of it to go back to that stable anchor. And as a result of that, you're
kind of dumbling up on your value exposure. So it's, you know, it's, again, I'm not a research affiliate anymore. I'm not trying to give you the line, but the distinction is between kind of what you wouldn't want to describe as a static value versus dynamic value. Uh, that's the way to think about it. Let me, uh, let me just give a quick shout out to all the folks who've dialed in from around the world, uh, all up from Senator Mingo, Dominican
Republic, how you Toronto, dead cat, Gully. Still we're still in the Gully. I'm going to get that bounce sometimes soon. Okay. I told Montenegro, Toronto Chapel Hill, Valparaisa, London, Abu Dhabi, rimsby in Ontario, Canada, how I, Durham, Stockholm, Sweden, two times Tallahassee, Hamburg, Germany, London, Nashville, uh, Cuba, Estonia, no French, Guatemala, Istanbul, Turkey, Belfast, Sydney, Jupiter, Florida, congrats. You've made it. Um, Jonathan
and you've now launched your own firm. What, what, what, what do you do at your firm? What's the focus there? Um, trussard capital management is a, is a boutique wealth management firm. Uh, and it, and it really is one, the expression of, you know, everything we just talked about, which is 20 years of being in the markets, thinking about markets, uh, in a, in a, in a very real way. Uh, and now delivering that to, you
know, clients, which, uh, who, you know, really have three distinct attributes. One is they want an investment professional. Uh, you know, I say to people, look, if you want, if you want to stick dinner and golf outing, I'm sure you can do a lot better than me. Uh, and that's, and that's unequivocally true. Uh, to someone who's going to be on your set at the table, you know, through, I run a fiduciary firm, uh, in three, someone who's
going to empower you with knowledge. Um, whether I like it or not, again, I thought I'd be a professor. Um, I, I believe in the power of, of sharing what you know, uh, and hopefully might clients, you know, who tend to be, uh, high performing, uh, professionals in their own field can take that knowledge and carry it with them in, in their own professional lives. Um, the other thing that I say because it really is part of this energy that I,
I just, I just carry with me. And by the way, that I inherit from research affiliates, which is about, you know, kind of testing, uh, and pushing back on the status quo for the benefit of investors, uh, is, you know, I say, look, I help people and organizations, uh, discape the wealth management industrial complex. Um, and, and I think people get that, you know, it's, it's a good kind of chuckle line. Um, and, uh, and, and, and that's what I do.
Um, so it's, it's been a huge amount of fun and it feels so good to be, um, you know, delivering a distinctly different experience to people in wealth management. So philosophically, what, what do you believe? What, what are you, um, trying to express few clients in their portfolios? Uh, so there is, there is what I would, someone like you, someone like me would describe as narrowly investment beliefs and we can get to that in
a second. Uh, but before we get to investment beliefs, it's really have to do with, again, how do you think markets work, right? Um, uh, you know, my belief as far as, as, as wealth management is concerned, is it really kind of revolves around three principles, attention,
intention and purpose. Attention is like, Hey, is someone actually staring at your stuff and making sure it's clean, uh, you know, is someone doing the basic, you know, house keeping, uh, house cleaning and, and, and, and a lot of cases, unfortunately, you find that it's not true. Intention, which starts to bleed a little bit closer to investment
beliefs, uh, is about, Hey, asking the question, what is this money for? Uh, and when you know, once you know what this money is for, then you can actually leverage, again, some of the knowledge that, that you and I were just talking about things like, uh, in, you know, in the, if you're going to use jargon, you know, financial engineering, but a huge, a huge amount of it is just structuring. Um, Hey, if you want money in 2026, don't mess around
with, you know, Markowitz mean variance. That's ridiculous. Go buy a bond that matures in 2026. Uh, you know, I just kind of that, that kind of structuring aspect of it. Uh, and then, you know, I talk about purpose, which is forget what the money is, is for. Let's,
let's start talking about what is this money about? Uh, and, and I find that in a lot of cases, particularly people that have been very fortunate in this world to, you know, I grew a lot of wealth fairly quickly, you know, they don't want, they don't want their
money to define them and, and the best way to do that is to define it. Uh, if you turn it around, you know, people get a sense of like, okay, this is, this is where it fits, uh, in my life, uh, as opposed to like this, you know, I psych, um, whatever you call it, kind of the winners curse. But when it comes to investment beliefs, um, you know, and, again, I, I believe that investment believes that's a lot of believing in one sense. Um, uh,
you know, I, I'm always wary of being dogmatic. And so I, I continue, I continue to test my own investment beliefs. Um, I think sincerely that because as I told you, I started in this world, thinking about bubbles and all of that markets are susceptible to, to behavioral biases. And in the worst of cases, you know, real behavioral successes, uh, to the upside
and the downside. When you start from that premise, and then very quickly, you're forced to, to the B kind of value centric or value oriented because the whole idea of, of human psychology, pushing markets too far, you know, too far to the, the upside or too far to the downside is, well, when the stuff is really blown up and no one wants to touch it, that's going to be a pretty good price. Uh, and of course, when this, you know, when everybody's enamored with it,
and, uh, you know, prices are starting to be, um, objectively high. Um, the data tell you, uh, that expected returns going forward are inherently lower. Uh, so, you know, being a student of bubbles and being a student of just, uh, behavioral excesses and markets, very quickly gets you to a place of value, uh, and just being sensitive to prices. And, and I think, you know, again, I think that's all you can say is, do you actually
look at the prices of the things you buy? Because if you don't, then that's going to have implications. Uh, and so that's, you know, we have performed. Well, uh, you've done much better. So talk about when you, when you look at the current investment landscape, what psychopithology, D, Diagnosed, D, C, S has been closer to bubble territory or the other end. Um, or where I guess,
so what do we know? Uh, so, so I am on bubble watch. And I think, um, you know, I think it's helpful to anchor yourself to some numbers because otherwise you're just, you're just letting your own got kind of run. Um, given where Cape ratios are particularly in the US, uh, you know, long term P.E. ratios, it's hard to argue the stuff is cheap, right? So now it's not as crazy expensive as it was
back in 1999, early 2000. And then it's not even nearly as expensive as where we were a couple of years ago, which speaks to the fact that, uh, you know, the earning set of things, uh, on a, on an overall basis really is caught up. Uh, so I think it's hard to say, uh, you know, five, uh, alarm, fire on bubble front, but bubble ish, no question. Um, and, and then again, I mean, you know, it's one of the things where, um, you then have to ask yourself, what's going on here? What are the dynamics
that are causing this thing to kind of play out the way it's playing out? And, and as I just describe to you, I tend to look at markets from a behavioralist standpoint, uh, for lack of a better description. And yet I am, I'm led to, to consider to think that what we're seeing is a lot more of a, um, efficient markets type of risk premium right now, as opposed to a behavioral risk premium, which by the way, uh, Rob are not with described as a fear premium, right? Well,
we're seeing now doesn't seem to be a fear premium. And that's the whole point. Uh, that's why people like you and me are asking questions like, is this a bubble? Uh, we're not seeing a lot of fear, but I think what we're seeing is the expression of a lot of risk getting printed every day that the bad thing we're all waiting for doesn't happen. Uh, and whether it's, you know, the fact that everybody was predicting a recession last year and it didn't happen. Uh, but honestly, I think
there's something even more kind of fundamental, uh, going on as you reframe capital markets. And in particular, the US equity market today, uh, from what I would describe to you as again, this kind of efficient market risk premium lens, uh, you know, we do we're talking about Earl Thompson earlier, uh, who was, you know, really the first guy who taught me anything about economics and we were sitting in his office at UCLA and he said, you know, why California
realized it keeps going up, right? And I don't know anything. I'm 19. What do you want from me? Um, and you said the reason it keeps going up is because we haven't had an earthquake today. And every day that we don't have an earthquake, the holders of the stock of California real estate have to be compensated for bearing that risk. Uh, and I think that's what's going on here. And by the way, I'm not saying that's we don't have certainty around these things, right? But
that was Earl's interpretation of why California real estate outperforms. Um, or, you know, has outperformed historically. I kind of hate it when people use the present tense like it becomes like a law of physics. It's a quality of it. Yeah. Yeah. Yeah. Yeah. Yeah. You know, like, no, all you know is what's happened. Not, uh, um, and I guess my point to you is if you think about what's going on here with US capital markets, and I'm just going to start with, you know, the AI
stocks. Uh, I think there's this huge thing. Yes, you know, there's kind of the excitement, the frothiness, the bubble mentality of AI is the future. And I'll pay anything for this damn thing. Um, but I think there's something more fundamental going on here, which is, um, AI one still very much feels like a non fundamental human need. So if things go really badly from an economic standpoint, my guess is we'll choose food over computer chips. Uh, there is the other part of it, which is
who's going to be buying the computer chips? Well, my suspicion is we have a pretty high appetite for them. And by we, I mean, the US and, you know, the West call it, but we know that a huge amount of the demand, demand for them is going to be coming from China. And we're, it's not, I don't, by the way, again, this is, this is the stuff I don't know. But I wouldn't be surprised if some of the prices we're seeing today are reflective of some kind of premium for getting these chips into
China, right? But what happens if like we really get divorced from China and all of a sudden Nvidia, which, you know, thought had a truly global market really doesn't. Uh, and so the point is I think if you're the shareholder in one of these companies that is, uh, squarely at the intersection of, you know, the, the new Cold War dynamics, uh, every day that, you know, the rug isn't totally
pulled out from under you, uh, is a good day. And, and you require a compensation for that. So it's a very long way around the block to say, I don't know that we're in a bubble, but I think we're like living in a world that we haven't lived in in a very long time, which is one in which
there are these massive risks, cracks, whatever you want to call them, under our feet. And every day that we get to skip over these things, we just kind of cheer on and get compensated, but all it will take is for us to, for us to kind of trip or fall through one of the cracks, uh, and all of a sudden, you know, that massive compensation you've gotten for unrealized risk, uh, won't look all that great. So that's the way I think about it. So just, just, uh, to pick up on something we were
talking about before. So I said, the Dragon King, um, was the early form of the black swan, and the Dragon King was an idea of Didio Sonets. Not the same idea that there were these tail risks that weren't accurately. There was more, more, um, probability in the tails than we, than we thought. And so, you know, the way that Tollab expresses it is he sells near the money puts or sells near the money
options buys the tails and that helps you pay for a little bit. One of the things that Didio Sonet had this idea of the, the Sonet wave, which was the every, every initially, the wave is quite big
and every dip is bought. And then they, they, I think I think they can fit some sort of, I'm not entirely sure what the, uh, the algorithm they can fit to it is, but it's, you know, they're pretty, that you can, you can see these waves when you can recognize these waves when you see them each dip, basically each dip is bought at an earlier and earlier point until it sort of reaches this,
um, singularity, I guess, in which point it's sort of all fall to part. I was wondering if that's, it sort of does describe a little bit what we're looking at where each dip is bought increasingly aggressively and you get this sort of ski jump effect, it's fun. Now, and so if you look at that, to me Bitcoin looks like one of these sort of ski jump shapes right now because Bitcoin's just hit an all time high. Now, and then you can look at the price, the price, the sales of the tech
similarly has this sort of ski jump. Now, affect to it. Have you, have you ever come across Didier Sonet stuff before? I hadn't, uh, and it's interesting, but I, but again, I think it's very descriptive. One is I, if I'm understanding you correctly, I, I, I would, I would agree with it. Um, and by the way, again, it is very descriptive. It is consistent with what I'm describing to you as, um,
you know, this buying the dip thing or whatever it is. Um, and what I'm describing as, hey, there are these kind of cracks in the, in the sidewalk and we keep kind of, you know, skipping over them. And so every time, every time you land on the other side of it, you know, again, like, go nuts, right? Go buy, you know, go buy the dip, you know, do all these things. And so there is a, there is a, um, uh, whatever, happy go lucky quality to buying the dips and, and all of this type of activity.
Um, and the question becomes when does the singularity moment happen where, hey, actually like that behavior that's been rewarded over and over again, uh, isn't right. Um, type of thing. Um, again, on the Bitcoin card of it, um, paint me, uh, a huge Bitcoin skeptic, uh, on a variety of, of dimensions. One is, uh, I don't know what this thing is. I don't know what this thing does. Uh, no one's ever been able to make a coherent argument for what it is to me.
Um, writing settings, you know, yeah, it's just, it's, it's, it's, it's, uh, but then, uh, if, even if, even if, even if you just kind of say, oh, maybe there is like this, I don't know, there's something fundamental here, which, you know, people like Trissard, you know, it's not getting, but it's there. Then it's hard not to, it's hard just not to see this as, as a huge exercise. Again, in what I would describe as, as wealth redistribution. And I don't think we've seen
the half of it yet. I think people are going to really get her before this thing is over. One very interesting thing about Bitcoin, as opposed to sort of other bubble assets that, I tend to have their one moment and then they disappear. You know, so not to pass, cast shade on Kathy Wood, but I kind of had it run up to 2021 and it's not really been able to capture the zeitgeist again and probably not having Nvidia or not having the AI type stocks.
It's, you know, it is fatal or it should be fatal for, for a strategy like that. And then, Tesla had a pretty good run up Tesla sort of not got back anywhere near where it was in 2021. Bitcoin seems to be able to have these, it's had, I don't know, how many runs at a new all-time it's like a cat has nine lives or whatever. No, I agree. So I think it doesn't, again, I think, you know, I'm always reminded, well, I can't wait for the hate mail. I'm always reminded of,
you know, when you get these, and I think this is an honest description of it. So I don't think this is an insensitive description, but you know, the Nigerian scam emails, right? And when someone like you or I receive the Nigerian scam email, it is so far fetched, right? That our natural instinct is, well, this is madness. Let's just delete it, right? But you know, that's a feature, that's not a bug, right? Because what they want is to is to kind of zero in on the most
goalable as quickly as humanly possible, right? If you answer, if you respond to the first thing that's like misspelled and has a crazy story behind it, and if you only send me 10 grand, then, you know, my billionaire son will be able to, you know, reward you in America. Like, you've got the audience that you want it all along. And so I think the thing that the Bitcoin story is so far fetched is actually helping in kind of creating this forever stream of goalability for lack
of a better description. That's step one. I think step two is, again, I think it is hard to think of Bitcoin as having anything but an insider class and an outsider class. And every step of the way seems to be an exercise in giving an opportunity to the insider class to sell and the outsider class to buy. I don't know about you, but you know, launching 40 act funds in spot Bitcoin seems to
fit that story. And so I just think there's a lot of that. These kids, what's created the rally, the fact that the ETFs have launched this some demand through the ETFs. You know, there are two ways price, there are two ways price is move in the market, right? One is expectation and the other one is supply and demand. This has components of both, right? There is now that there is this thing you can expect that there's going to be even more demand in the future.
Or, you know, some version of that is, would be the story, right? And then of course, that creates demand now, which is the much more mechanical way in which, you know, prices move in markets. So it would be hard for me to believe that Bitcoin would be back to wherever it would be where it is today, 69,000 or whatever the price is. It's to me, that seems ridiculous to talk about a price for like a price for what. But, you know, if you're warrant for that, for that quote unquote,
innovation, what about the idea that it's like short fit? So you're the more money printing that goes on in the central banks around the world, and there's sort of some finite number of Bitcoin out there. So you're always getting denominated in more and more fit. I look, this is where like, you have to, you know, nihilism has to have a limit. It's, you know, it's like, hey, I don't believe in this thing. So I'm going to like go with this thing that has no basis for belief. You know,
that's the way I, it's like, okay, you can't convince me of that. It's like, there's only 21 million Bitcoin. So something like that. I think that's something you can do something with them. So if a client comes to you and says in this market, what do you do? Do you look, do you look internationally? Do you look at different asset classes? Yes. And so again,
I don't want to be clear. What I, you know, given the given the, you know, the line of work that I'm in, every client has different circumstances, every client has different preferences, you know, a huge amount of it is to meet people where they are and, and, you know, where their needs are and so on and so forth. So this is not an exercise in having, you know, unconditional beliefs and
everybody gets an equal serving of them. That's number one. That being said, yeah, you look at, you know, you look at where prices are and by the way, most people have a lot of US equity in their diet, right? So they probably don't need more of it from me if, if I can help it at the margin. It's pretty clear that international equities are relatively more attractive.
That's true. In Europe to some degree, it certainly is true of Japan, particularly when you start thinking about not just the coreprits, but you're also thinking about the currency aspect. It's, you know, then you start thinking about asset classes, outside of equities. Clearly, we haven't seen interest rates at these levels in a long time. So you have to ask yourself, where is the value? Well, you know, in many circumstances and many applications, you know,
that's kind of the thing I was telling you about before, what is this money for, right? Which is kind of the fundamental question. But hey, treasuries are a pretty attractive tool right now, but, you know, it's not just treasuries. It might be, you know, high coupon government-insured mortgages. You haven't seen those prices in a long time. And by the way, again, this is where, you know, the French, Matthew, PhD guy comes back to the surface. You know what a mortgage is,
right? I mean, it's basically, but I'm talking mortgages as in, you know, fanny and that sort of thing. It's basically a US treasury on which you've sold a call option because if rates come down, of course, people will refinance. And so then you have to ask yourself, well, when you sell an option, which is effectively what a mortgage is, is this option well priced or is it badly priced? Well, we know that when volatility is high, the price of the option is higher. And so it's probably
all things considered a better time to sell that option. We know that interest rate volatility is, you know, like through the roof right now. So you think through that quickly and you think yourself, maybe there's value there. You know, it's harder to argue that there is value in things like high yield. It's harder to argue simply because, you know, the spreads are tight. And again, we haven't seen a lot of the catastrophe kind of stuff realized that would focus the attention.
So that's just kind of the knowledge and analysis that I bring to each conversation. But then it really is a function of, you know, where people are. You know, if someone says, I get it and I'm happy to really veer off the main, you know, the main lane, then, you know, you explore these things more or less, you know, completely. And then if someone, you know, is very US-centric, then, you know, you do, you do the things you can to put a little bit of guard rails around it.
So just to take you back there a little bit, the way you think about a mortgage is your longer treasury and you sold coal against it. That's because it's co-loable at the, I thought, mortgage. Correct. So if rates, right, if rates come down, right, the value of your bond goes up. And there's a level at which that bond is worth calling is the way, you know, to think about repayment risk. Right. So there's high interest rate volatility at the moment, so that means you want
it. So this is a good time to buy a mortgage in that case. It's up to be a holder. I'll let you make it a bit of a termination, but that's the way to think about it. That's interesting. So when you look across the, where you might invest right now, what is interesting besides sort of mortgages, US equities are expensive, international equities
might be more interesting. Japanese equities are interesting because they've put that for all of the Japanese companies for people who don't know, have to get their book value up to, they have to get their rice up to book value. I don't know what the penalty is if you don't do that, do listening supposedly, but they're trying to get their rice to book value to book value.
And there's a variety of ways that they're doing that buying back style, contaking themselves under and doing various things, but it has a little fire under Japanese equities a little bit at the moment. They've crossed over their 30 year old high watermark. It's a difficult environment as you sort of alluded to earlier because we've got rates are rates are high. Everybody I think is holding equities in the holding US equities in the idea that rates are going to drop at some time this year,
and that'll push equities in and higher. But it seems that equities have really sort of ignored rates for the last year or so. Yeah, again, I mean, it's and look, these are unknowable things, right? So you can only have opinions, but it does, again, to your point, like the fact that US equities have kind of become whatever, I don't want to say divorced, that seems aggressive, but they're not moving in a way that would be consistent with one's prior in any way that you can come up with.
Forces you to either kind of exposed, factual, rationalized things. I mean, one of the things that I heard recently, which didn't sound crazy, I just don't know that it's not crazy, it's not the same as true, is, well, it makes sense that the tech stocks have been rallying with rates because the tech companies are sitting on a bunch of cash, and therefore they're going to be earning more on the cash on the balance sheet.
And I'm like, okay, but what happened to the thing you were saying last week about the fact that these are a long duration asset, and so it's like, there's all of that stuff. So now we're like squarely in the realm of kind of attaching stories to things that have already happened, which is not helpful. But I do think, again, there's this distinct possibility,
I mean, you mentioned Nassim Talib, so I guess I'll go there for a second. I think Nassim, by the way, I encourage you to Google Trusard Talib when you have a second. And you had an exchange for this. Well, you know, you know how those things go. And by the way, I think he's right on more things
than he's wrong. But one of the things that I think Nassim mentions in the book is, you know, the Turkey thing, right, which is every day the Turkey gets a little fatter, and if you're the Turkey, you don't know that at the end of the fattening season, there's a thing called Thanksgiving. And that's what I'm worried about when it comes to some of the more expensive asset classes that have been on a, you know, steady diet of gains recently.
I mean, that certainly seems to have reflected in, but I just saw the chart today was Lizense, so I'm just tweeted it up that showed P ratios for text stocks or price-to-sales ratios for text stocks. I think that's the past, they're all time high in 2000. Look, I'm not, again, this is massive back of the envelope stuff, right? And you're infinitely more of a fundamental analyst than I. So give me a pass on, you know, the fact that this
is fuzzy on a good day. But if you think about what happened within video last, you know, whatever, two weeks ago, right, they beat estimates by $2 billion, right, in a quarter. Is that correct? I don't know exactly, but yeah, like, some version of that, right? Which even if you give credit for a full year, that's $8 billion of beat, right? The market cap went up $250 billion, right? So $250 divided by $8 is some
version of 30 years, right? So they just got credit for 30 years worth of beating, quote-unquote, and, you know, the course of a couple of trading sessions. I think that's kind of, it rhymes with what you're saying, you know, Lizense just put out and all of that. There's just, there seems to be this leverage effect on fundamental V price.
It seems to me that it's stretched, but I tend to be, I tend to think these things are stretched early that most people say they seem to run on a lot further than anybody can possibly. And again, I think the way you resolve that, and by the way, again, this may just be, it makes you feel better about it, it makes you feel better about being wrong, longer type of thing. But I think part of it is that the efficient markets risk premium thing, which is it'll run
until there's a real bad event. And that's when people stop and say, wait a minute, what is this thing actually worth? And then the answer isn't super awesome, and then, you know, people move fast. So I think that's the way you kind of explain. And I don't know if that's irrational. I mean, what do you remember that famous line from the global financial crisis? You know, you don't stop
dancing until the music stops. But what choice do people have? Are they going to elect to stop dancing because you can be sitting on your butt for a long time? We've got a comment here that Bitcoin stands 7% on the session, the top or another buying opportunity for turkeys. It certainly does seem to have that sort of increasingly aggressively bought, every dip is increasingly aggressively bought until it sort of reaches that singularity,
in which point it falls apart. I mean, that from John Husman, he's written about them before, not for a little while, but it's kind of interesting. So as a PhD in economics, do you look at the macro, what are your macro thoughts? I do. I do, though, again, I'm not a macro economist by training. I'm much more of a financial economist, which of course means a risk economist. But I look at the macro, picture. One is because I do think that it will dictate a lot of what happens on a go-forward
basis. Two is because that ultimately is where we all live. Financial markets are like the metaphors to the real economy, which is the IRL thing. And when you look at where we are today, and because I am a financial economist, I can't help but think probabilistically about these things. You're looking at the data, and you went into this year with three distinct scenarios. One is soft landing, which we all know what that means at this point, which seemed like the predominant
scenario going into this year. The most popular scenario, the most likely when you said predominant. Well, I think both. I think when December 31 closed, I think it was both the most popular, but it was one of those things where it didn't sound crazy. And you had to have a truly differentiated view to say, well, I think the people that are arguing for soft landing
are crazy. I think it felt like the most probable, which of course there's a long way for most probable to guarantee, a.k.a an infinite road, because you can never guarantee anything. And if I thought going into this year that the other two scenarios, where it would be second in line, would be some version of a harder landing, because the economy had already kind of punched into face a lot with rate hikes and so on and so forth.
And then third in line was ultimately what I think we're seeing now, which is this re-acceleration. And the re-acceleration, while it felt improbable going into this year, seems like it's happening. And again, unfortunately, I don't think you can re-accelerate, you know, to infinity. And that's going to be the one that that bites. And I know, I don't like to be in conversations where it goes something like this,
no, you're right. No, you're right. I think it's good to disagree, but I think you and I probably both read what Jeremy Granton writes and pay attention to what he says. And I think he said it well, which is until the AI craze started, we were well in our way to kind of slowly, gently deflating. And this thing just kind of lit a fire under. So maybe that's your, maybe that's your wave thing, maybe that's your, you're by the dip thing and the singularity has
only been pushed out a little bit. But anyway, when I look at the macro, if I think right now, we are seeing this re-acceleration, a couple of friends. What do you think? So there's this idea that the, the bubbles at former sort of notness, other symptoms of the core of the illness and the illness itself is sort of untreated. I think that the potentially the cause of the re-acceleration is the deficit spending, just massive deficits being run under the guise of the inflation
reduction act and so on. If you push that, you know, we're like eight or, we're like record deficits outside of a, what was it an additional trillion and a hundred days or something? I mean, one or two trillion real money at some point in the economy of this size. Yeah, what do you, what's the, you know, a billion year of billionaires? They're quickly, it's real money, you know.
Do you have a view? Is that feasible? Is that possible that idea that it's, it's, it's fiscal, even though there's monetary tightening going on, well, there's the rates are high, the feds draining its balance sheet a little bit, but there's so much spending coming on out of the federal government that sort of, no, I mean, yes. I mean, again, I think,
I think we're having a hard time. I mean, unfortunately, you know, again, I don't like to, to knock on the fed, I think, whether they're competent or not, I don't think they're out to screw up, you know what I mean? I think they're, they're well intended and they might be wrong nonetheless. I think one of the issues we're having is we're not going about governing
ourselves very well when it comes to, you know, our elected officials. And I think what you're seeing is, is a symptom of that, which, you know, again, we're, we're spending, we're spending in a, it's like revenge spending. It's like, it's not like we have a plan. It's like we're just like, ah, you know, whatever. And it's like, if it's my turn to say what we're going to spend on, then we're going to do it my way, you know, there's just no compact. It's not partisan either,
just in case anybody I always get this. No, no, one party's it, but it's, it's both sides and there's not a solution. And I, and I hope you heard my comment in the same tenor. I think it's just, we just don't know what a governor sells anymore. And by the way, again, this goes back to, um, I hate to harp on it, but it's one of my interpretations of like, you know, what's going on
with the US, the US is just like against all odds. And I still standing type of thing, you know, I mean, uh, and, and it has some of that like, well, gee, I wonder what kind of falls apart, um, quality to it, you know, and so, so yeah, I think part of it is deficits, you know, which is kind of a gentle, a gentle, uh, slow death, you know, type of thing, but there's just a
lot of that going on. So, um, it locked a, um, yeah, you see it now in PCE inflation and all of that, I mean, it's pretty, it's pretty clear that, uh, until, until like a really bad thing happens, like inflation isn't coming down much more. Housing is where it is. And by the way, no one seems to be in, in any mood to pay less for a home or accept a lower price on their home when they sell.
Um, you know, basic commodities, you know, crude oil, whatever, like they're done kind of normalizing, there's a lot of, uh, geopolitical risk around the world, which explains some of that. And then the other stuff is, you know, it's like, okay, great. Like the price of eggs has stopped, you know, going up like 157 percent a minute, you know what I mean? But it's like, is that like, have we solved the problem? And by the way, that's not a real statistic. Um,
uh, but you get the point. You know, commodities had that, had that, the, the pigment through the snake, they all had that bump where they had, I think to where it calls it, uh, they were, they were shorted just followed by glots. Right. Well, the thing with commodities, right? It's, I mean, and again, this is where, um, um, commodities are tricky and commodities are interesting all at once. Um,
the, the, the promise of commodities, right? I mean, you were just talking about what I would, I guess someone would call the promise of Bitcoin, which is fixed supply versus infinite supply of yours dollars is the best version of that argument. Uh, the, the, the promise of commodities has always been, hey, the supply is kind of sort of fixed, uh, in the short term. Uh, but, you know, the demand is, is really all. And so that becomes your inflation hedge and all of those types of
things. But of course, the last 40 years have been a story of technological surprises to the upside, where we've always found a way to get more of everything. And I don't care if it's more oil or more natural gas or just more things out of our agricultural, uh, sector is just, you know, technology has been this incredibly disinflationary, um, force, right? Um, um, this is a, the big long commodities is being short human ingenuity. And that's been
bad. That's fine. More and we use it more efficiently when we find it. Fabulous, fabulous summary, right? Um, and I'm, and I would, um, I would caution us against, um, betting against humanity, because that bet has been met and lost many times. And I also think, uh, we can't afford for that to happen. So it's a little bit, you know, it's like, um, again, I, you know, uh, in a world I don't buy the same token. I don't think we can afford for America to not be America on the
world stage. You know, I mean, it's just all these things. All these things are like, hey, if the thing you're worried about happens really does happen, like you got bigger problems. Um, so, yes. So I think commodities are tricky, but we seem to be increasingly capable of, uh, shooting ourselves into foot on that note. Do you know, the thing we're coming up on full time, uh, folks want to follow along with what you're doing or get in touch how they go about doing that. Sure. Uh, so please go
to my website, uh, trussard.com, Tiazontamis, R-E-U, double S as in Sam, ardiazendavid.com. Uh, and again, I look, if you're, if you are curious, uh, about what it looks like to work with me, uh, in a wealth management capacity, then, you know, please, uh, reach out. There's a contact us button on the website. Otherwise, my email address is Jonathan at trussard.com. That's g-o-n-a-t-h-a-n, at trussard.com. And, and maybe you can, you can share that, uh, through your, your notes as well. But
but importantly, um, again, I think about this stuff all day long. I love to share my thoughts, uh, and I have a newsletter that I, I send out probably once or twice a month. Um, I try to be a light, spammer. Uh, so it won't be overwhelming. But if you go to my website and you go down to the bottom of any page, um, there's a, you know, a, a form to fill out, a box to fill out. You put your, your email address in and you'll automatically get my, my newsletter once or twice a month in
your inbox. So I'd love for you to do that. Uh, anybody's welcome to do that. Again, it's, it's just a way to, to keep hearing, you know, the way I think about things. Um, and, uh, and again, much like it was a real pleasure to share my thoughts with you and, and your audience today. Um, if all we do in this world is, is help educate and help people think a little more, uh, constructively and aggressively about, about, you know, mystifying things like markets and the
economy than, and I think we're all better off. So, you know, that was great. Thanks for your time, Jonathan. Folks, we'll be back next week. It's, uh, hopefully, Jake's back on deck. He's feeling a little bit better than, and we'll have Chris Bloom strand to talk about his, uh, his annual opus.