Speaker 1it's friday october 9th 2026 and i'm kevin muir i'm flying solo today as my international man of mystery partner is traveling to south america but have no fear we have a terrific guest to take patrick's spot it's my great pleasure to welcome to the show marvin barth he is the author of thematics markets his institutional grade research and seriously marvin his free non-consensus thoughts on markets and the global economy marvin thanks for making time for us
Speaker 2kevin thank you for having me back on i really enjoy your podcasts and i'm sorry sorry that i'm gonna miss miss miss patrick yes um so i
Speaker 1i want to start off and and for anybody who didn't have the pleasure to go and listen to your previous episode that you were on the show i highly suggest you go listen to it because at the time you made a call that seems so outrageous so non-consensus exactly that and i just want you to know that our listeners they're they're a smart bunch because when it happened when it surprised everyone everyone came back to me and said marvin called it marvin called it they all were there and they didn't forget and what i'm talking about of course is the fact that kevin warsh as fed chair now it seems so obvious and so clear but back then when you said that it was going to be a big deal for you going to happen he was what a one in 20 chance yeah being one in 10 very low right nobody thought he was there and you were insistent it's going to be kevin warsh you went out you stuck your neck out and it ended up being true walk us through that call why you were so confident and maybe that from there we'll leapfrog into what what it means for markets
Speaker 2going forward well yeah i think the the leapfrogging part is important because the evolution over the last three fed meetings has also been really interesting and while i nailed the june meeting i got the july meeting disastrously wrong and so it's like okay well what happened there marvin so first of all how you got it so let's so let's let's let's yeah to your point let's start with you know why was i so confident that kevin warsh was going to be the pick right um so some of this um will uh strain gradually of some of the more anti-trump uh listeners out there um but you know you you know me i try and um uh well i i think i seem to come across very pro-trump because many of my calls seem to agree with a lot of the things that are happening with him i i really honestly try to be an analyst and get the market call right so so it's really digging into okay how what makes this man tick what makes it think and i think we talked a bit about in the past how he is an absolute manifestation of andrew jackson and jacksonian populism so there's a very long american tradition of this i mean and it goes right down to his personality his personality is very much like andrew jackson and so whenever you have one of these conflicts where trump is saying this over here and saying this over here my sort of framework is what would jackson do right so you know what would jesus do well in this case wwjd is what would jackson do right and and because ultimately one i think he is instinctually jacksonian but two that is where his base is his base is is naturally jacksonian so whatever he's saying is a lot of rhetorical tricks or just you know frankly trump craziness sometimes um and go to your base case the sort of mean reversion is he's going to be that jacksonians are naturally conservative right and if you look at what trump's base wanted trump's base their top issue and this is really interesting this is going to be important for thinking about post midterms top two issues among trump voters in 2024 number one inflation number two the federal deficit and spending right so um i just you know one assumed he would despite his rhetoric he was ultimately always going to lean in favor of the person who was going to be a hawk and not only a hawk but the other thing what is jackson most famous for jackson is most famous for killing the second bank of the united states jacksonian populism is highly highly distrustful of centralized finance and they dislike um central banks in particular so if you think about actually yeah well
Speaker 1i'm sorry to interrupt but for those please um for those that are not as familiar and i'll include me in there as a what are you like
Speaker 2a canadian or something um
Speaker 1tell us a little bit about jackson and and and just give us because you say that you know trump is very jacksonian and he's a very jacksonian and he's a very jacksonian you know who was jackson when did he when was he president and what were the underlying you know tenets of his philosophy yeah
Speaker 2so andrew jackson um interestingly was the founder of the democratic party um he was the seventh president of the united states um uh he was president from um uh uh was it uh 1828 to 1836 um he ran in the 1830s and he ran in the 1830s and he ran in the 1830s 1824 election and what will sound very familiar he said that that election was stolen from him um which you know to be fair to him it was the only election in history where you actually had a three-way race between presidents nobody won a majority in the electoral college and it was that's the only election that was decided in the house of representatives and actually jacksonian had a fair claim that you know his adam's uh um colleagues did rob him of an election so you know but anyway so you start there yeah he was called the first populist in modern history he really was the pop um you know the common man president he rejected the bureaucracy in washington all this starting to sound familiar here he was crude he was lewd um everybody thought he was you know bringing the presidency down he had um after his inauguration a four-day open house at the white house where he invited literally anyone and anyone who wanted to come in and people were like peeing on the walls it was i mean it was exactly as you would expect um you know he was you know on on the bad side of the ledger like most people from you know uh white uh elite southerners from tennessee he was a slave owner okay but on the good side of the ledger he was the one who expanded suffrage yes he only expanded it to all white men but that was a huge step up from all white men landowners right so he was massively expanding the suffrage um uh during his his presidency as i mentioned earlier he was very much against centralized finance um he was very much against centralized finance um he was very much against the federal government um the u.s had what was called the second bank of the united states it was their um second attempt at a central bank it needed to come up for um rechartering uh and he vetoed it and blocked um you know he uh overrode the house and the senate uh i think twice actually and vetoed it they could not get a veto proof um uh um majority to overrule him so i had no idea
Speaker 1that the the federal reserve was like an wasn't the first
Speaker 2attempt this was not the first attempt i had no so yeah no america has a very long history of this and jackson was a critical player in this okay um and so uh there was a first bank of the united states alexander hamilton was behind that you know yeah of hamilton musical fame i can't remember how how that demised but then they created the second and um andrew jackson definitively killed it in i believe it was 1832 and so we didn't have a central bank until um the creation of the federal reserve federal reserve act 1913 it comes into existence in 1914 um but um so he was also by the way i mean this is a another really important thing about jacksonian he was very so there there's so many parallels with trump it's unbelievable like he was all about look the only person in all of america in the u.s system who is elected by every single american is the president of the united states yeah so that is the democratic voice of the whole country right and that voice is responsible look at the constitution the constitution vests the president with executive power not the executive branch the president because that's the person who's elected. So he was famous for like, like overruling his cabinet. He had the so-called kitchen cabinet, which was his informal group of advisors. And he'd run things out of the White House, very much like the Trump administration. And very distrustful of and contemptuous of the bureaucracy. Hey, you guys didn't get elected. I'm the guy who got elected. You work for me. You do what I tell you to. And then this whole thing about corruption, like this is actually what's really interesting. Jackson actually wasn't the originator of this quote. It was a senator who was aligned to him, whose name escapes me, but it defined Jacksonian's approach to this, which was to the winner of the spoils was the quote. And the idea was, is that corruption was okay as long as it was aligned with the voters, because that incentivized you to stay with the voters and to do what they wanted. Otherwise they're going to kick you out of office and take it away. And so if you think about all the corruption associated with, with Trump, the difference in my view, and I, and this may be a partisan view or otherwise, cause you know, I always have viewed the Democrats as very much the party of institutionalized corruption is that the difference is, you know, you had just as much corruption, my view under Obama, under Biden, under, under Clinton. No, absolutely. Absolutely. Like, but it's just institutionalized. It's hidden from you. The thing that's, that's unique about Trump and it's not unique. It is very Jacksonian is it, it it's in your face for a reason. It is supposed to be that way. Now, by the way, I don't agree with that philosophy. So let me make that very clear. I don't like any form of corruption. Right. But if I had to choose between corruption, that's hidden from you versus, you know, that's all about subsidies to this company or that group, which absolutely happened. I mean, look, we can go chapter and verse through Republicans and Democrats, frankly, pre-Trump were all doing this versus Trump's right in your face.
Speaker 1Like throwing it into his own genes. Like there's never been like someone that's come out of it. And yes. Presidents, you know, so Obama goes from being, being worth 5 million to a hundred million or whatever the number is, but it's kind of, you know, Trump's like basically in another league in terms of, but listen, let's not, let's not focus on that. Yeah. Yeah. No, I agree. But that gives you a sense of Jacksonianism. It's terrific. That's a great thing. So let's go back to your call and you said, so it's going to be worse. And why was it going to be worse?
Speaker 2For two key reasons. So, you know, one, what his populist voters really wanted, which was inflation controlled and two, this, this dislike of central banks. So go out there and look at, well, who out there fits that profile? Well, there's this guy who literally resigned as a Fed governor over the Fed extending its balance sheet and getting more involved and becoming more centralized. And he said at the time, if you go back and read the, um, uh, the transcripts of those meetings, he, he warned the rest of the committee, this will come back and bite you politically. You do not want to do this. Right. So right there, he fits the Jacksonian profile. He has been consistently a hawk. This, this BS crap about how he's vacillated with, um, you know, whoever was presidency, that is completely erroneous. Um, uh, you know, coincidental data, go back and actually map those, those natural language processing, um, uh, of his speeches. It's not against who's president, but match it against GDP growth. Yeah. Perfect fit to GDP growth. It was when the economy was going downhill, he said, Hey, yeah, cut rates. When the economy was booming, he said, raise rates. The guy's a hawk. No question. So all of those things fit there. And then there's a third one, which is, and this is one of those ones that again, is going to incense, uh, a lot of people, but you know, Trump, whatever you want to say about him, he is very mafiosi and he is actually very loyal to people who are loyal to him. And Kevin Warsh has been loyal to him throughout. And he was from the very first days before the election was actually sealed. That was the guy Trump was talking about is going to be the, um, head of the central bank. So you put those three things together. It was no brainer that he was going to be the pick, right? Then fast forward to July or excuse me, the June meeting. We can talk about that.
Speaker 1Right. So let's do that. So, and by the way, I hope you nailed it on the polymarket or whatever, cause you could get really cheap. Um, but anyway, it's terrific call. And then I just want you to know that our listeners did not forget because you were, I don't think there was anybody out there that was like, literally it was, he was a long shot. Everyone was talking about who, you know, who was the leading time? Who was the leader at the time? It was Kevin Hassett. Kevin Hassett for a long time, I think. And then there was somebody else that was somebody, uh, Oh, Zervos was a joke for a while. God, but I, God, what a disaster that
Speaker 2would have been.
Speaker 1That's okay. Now he's helping El Besant. Um, all right. So let's talk a little bit about the current state of the federal reserve. Yeah. And the fact is, that the market, I think it's really interesting because if you talk to equity folks, they're actually very much of the opinion that Warsh is ultimately going to do Trump's bidding and be a dove. Like it's actually really, it's really funny. And then you have the fixed income folks that are, they go back and forth between, I sure hope he's as hawkish as he says, because that's actually what we need to control inflation. And so they get all excited. They buy the long end, they flatten the curve. Whenever he starts, talking a hawkish and then he comes and he's kind of all over the map. The next one, he doesn't raise rates. Like I personally believe that it was dumb to raise rates this last meeting. He should have raised them the previous meeting. Um, he had, he came out, he was more hawkish on the first meeting if you remember. So he does the first one surprises the market with, well, you know, talk about achieving target was 61 months since we've been on an inflation target. He's very hawkish. He then has a chance in what is that August or is it July? I don't know. I don't know. July meeting, July meeting where it's the second meeting. He just talked to hawkish. He could have gone and raised rates there and he should have. And to me, I was like, if you're going to raise rates, this is when you do it. You don't do it right in front of the midterms. You do it right now when you come out and you're hawkish and then you sit there and you step back and you have a look at, he doesn't raise rates. Then, then what happens is the worst things happen in that we get all this, you know, hot numbers and he has to raise, uh, rates in September. You say you got it wrong in terms of him raising rates. This last one, explain to me what you're thinking was, why you got it wrong and how you interpret what's going on at the fed and with, uh, Kevin Marsh.
Speaker 2Uh, so actually September, I didn't necessarily get wrong. I didn't have a high conviction call. I said, okay, depending on how CPI comes out, he'll, he'll probably do 25. Okay. So in that sense, I was like, I got, I got, I got, I got July totally wrong. Oh, you're seeing, oh, I'm sorry. Yeah. So, so you were with me that you
Speaker 1thought he was going to, raise rates in July.
Speaker 2Yeah. So, so go, go, go take a step back to your previous question about how I picked him. Remember going into the June meeting, everybody thought he was going to be to, you know, Elizabeth Warren's ridiculous comment, you know, uh, Trump sock puppet, which by the way, that was ridiculous. Like this guy is a young, good looking, super rich guy. Yeah. He's just going to do Trump's bidding. Oh no. He's interested in his, in his own reputation in history.
Speaker 1Like he's got seven years at the fed. He's going to have three under another president or whatever, four under another president. Yeah. No, I'm with you.
Speaker 2So, so it was no brainer to me. He was going to come out absolutely hawkish. Um, but his conundrum was that inflation at that, no question moving against them. Right. Right. And, and to my previous calls, you know, I've been highlighting this investment boom is way broader than AI and it, and AI just accentuated the U S economy. It was going to be on fire. Um, uh, inflation did start coming back at the beginning of the year, all these things. You look at that, it puts him in a quandary. He has to jump on this. And yet his big long-term goal is actually to, um, slim down the feds balance sheet and deregulate the, the bank industry. And he needs those other people on the committee to get him to do that. So he can't piss all these people off. He can't walk into the room and say, Hey, you guys created this total mess crap show out here with inflation. Now you guys just got to do whatever I say. So the real question was on one side, he knows that the best thing he could do in June is go in and hit the market with a 50 right away. immediately would flatten the curve. He would actually reestablish Fed credibility. Everything would be great. It was like, you know, you and as Marcus people would know, do the 50 right there, like get it done. Right. And he knew that, but he has this political problem on the other side. So the question was, is he going to do 50 or is this meeting going to be a consensus building meeting or is it 25 to split the difference? But it's definitely going to be very hawkish. Okay. So great. Comes out with the hawkishness, didn't do the rate hike. Okay. He's consensus building. Right. So July, I'm like, okay, now he's got to do the hike. Cause he cannot wait any longer. Right. And he doesn't, not only that worse, he votes with the doves. I know, you know, he has four people who are willing to do it and he votes with the doves. So why? So my only possible read, um, well, there's two is that one, I just like, he's not, as politically good. And I mean, small P politically good, like maneuvering people as I thought. And that I was impressed with, with the way he handled the June meeting in terms of being very deferential to his colleagues and, you know, really pulling them along. He's just not as good. That's one possibility. The other is, is that he was like, okay, I could get it through here, but I'm really going to burn a lot of bridges and I need these people. And so I'm going to, I'm going to go with the doves and continue to work to building, even though I'm costing us on inflation and costing us potentially, this is going to be work, more work for me in the future. And the evidence that maybe that is the case is that go look at what happened in September. He got a unanimous committee to vote with him, right? That was actually a massive achievement. So forget about what rates were. The fact that he went from an outsider, appointed by a president who is criminally investigating multiple members of that committee. And it was seen as Trump's guy and everybody's going to hate Trump's guy to get a unanimous vote. I would actually say is, is a pretty good.
Speaker 1But at the same time, at that point, it was pretty clear that they'd made a mistake by not raising rates. So I don't know if it was that hard to get a unanimous vote because the reality was that, you know, we had, in there a hot employment number, a hot CPI number. So, so like we just step back and think about what drives the Fed. There's just, there was no reason for them to not raise rates at that point. So. Well,
Speaker 2let me push, push back a little bit. People would describe that number as hot. When you actually look at it, it was just, it stopped falling at the rate it had been falling for the previous, um, two to three. Are you talking employment? No, the, uh, um, CPI, uh, CPI number. So the CPI number stabilized rather than continued to fall. Because remember what happened is you have this acceleration in core inflation going into the Iran war. Then the Iran war happened and you start to see this deceleration, that deceleration stopped and people call that hot. It wasn't hot. It was a deceleration.
Speaker 1I guess. So versus expectations, it was hot. They expected more. They had expected more deceleration than fair.
Speaker 2That said over the last two years, the rest of that committee has always taken the, um, dovish interpretation of any piece of data, even if it was one month step over and over and over.
Speaker 1I completely agree with you that, that, that, that, so like at the end, so he got them there. Right. So at the end of the day though, um, one of the things that I've been saying is that everyone's giving Warsh way too much credit in terms of how he can influence policy. It's still a committee. And it's absolutely. And not only that, it's the one, um, branch of, well, I wouldn't call it a branch, but, uh, one independent agency is the official team is actually being able to stand up to Trump and to do it and to be independent, right? Like it's probably the last branch of government or whatever you want to call it of that is independent, truly independent of Trump. So by the way,
Speaker 2on, on, on that, that sort of Jacksonian point, sort of small footnote there, that is really interesting thing. The Supreme court did side with Trump. Hey, you're actually right. You are the executive and everybody does work for you except that one place over there. I know that's absolutely correct.
Speaker 1That's the one part that he's, and it must frustrate the shit out of Trump. Okay. So let's, let's talk about what you think. Um, cause you mentioned that, that Warsh has two guiding, uh, kind of, uh, goals. And I thought that was interesting. And it's something important to think about when we're trying to, you know, imagine what the Fed's going to do. One is going to be to reduce the balance sheet and two is going to be to do regulation. Let's just start with regulation. Cause I think that one's going to be pretty easy. I don't think anyone's going to have any pushback. Just give me the argument there and what that means for markets. And then we'll go to the balance sheet.
Speaker 2They're actually intricately intertwined. You can't separate one from the other. Fair enough. Okay. This, this is, this is what is critical. And this is one of the reasons why you will, and it's actually critical politically too, because this is what will unite the never Trump or traditional Republicans with the MAGA Republicans, right? So the MAGA Republicans are these Jacksonians who just, I don't like a powerful central bank that, you know, owns, you know, 6 trillion in treasuries. No, get rid of that. The traditional Republicans are like, that's fine. They're Hamiltonian or Hamiltonians, right? They like centralized finance. They love that stuff. So they're like, why would you want to do that? But Basel three accords and which were implemented in the United States as the Dodd-Frank act, why does the Fed have a large balance sheet? The Fed has a large balance sheet. You can talk about QE and all that, but the Fed has a large balance sheet. But why has it, each time it tries to reduce its balance sheet, it runs into this problem, even at higher and higher levels of treasury ownership that, you know, the banking sector flips out and says, wait, you can't do that. And, you know, SOFR rates start to move and all of this. Well, it's because those regulations require banks to hold tons of so-called high quality liquid bonds. And they could use treasuries. But then the Fed, in its examination, these guys says, yeah, under the legislation, treasuries are just as good as a reserve, but a reserve is immediately transferable. A treasury has T plus two settlement. So we want you to use reserves. Okay. So the banks have to have tons and tons of reserves. Reserves are a liability to the bank. That means you have to have a corresponding asset on the other side. That means the Fed has to have a large balance sheet. So the only way you can reduce the Fed's balance sheet is to remove those regulations that, by the way, the banks would love, because the banks would rather lend money to you and me at higher interest rates than to the U.S. government in high quality liquid assets. So this is a massive win-win-win for literally everybody involved in that you, and by the way, people want to talk about, oh, but you can't slim down the balance sheet. That's going to be horribly recessionary. Really? If you free up the banks to go lend lots of capital, that's going to be horribly recessionary? Hell no. Right? So it all fits together.
Speaker 1Okay. So your argument is that we reduce the balance sheet in terms of the Federal Reserve. Yes. But at the same time, we free up banks to go and do what they previously did. So in essence.
Speaker 2And their marginal cost is still the Fed funds.
Speaker 1So they're like, fine. Right. So like this is Jamie Dimon complaining about this forever. Exactly. Yeah. Okay. So what practically needs to be done in that? And does the Fed really. Who is the one, I guess, forgive my ignorance, but who is the one telling the banks that they have to abide by Basel III? Is that the Federal Reserve? Or is that the Treasury?
Speaker 2Well, yeah. So it gets very complicated in the United States. So you have the Comptroller of the Currency, you have the FDIC, and you have the Federal Reserve. And those three effectively regulate the banks together. The FDIC and the Comptroller of the Currency are controlled by the executive branch. Those are executive appointments. So those are already aligned. And you can see that the Treasury Secretary is very well aligned with this. He's been talking about this exact same thing, slimming down the balance sheet, deregulating the banks. This all is in alignment with what they're doing. The remaining piece is the Federal Reserve. And the Federal Reserve is critical for several different reasons. One is it's actually their banking examiners who go in and do all the stress tests, all of those things. And the other is the literal examiners. Like, as I said, the law actually says you could use a treasury just as well as a reserve. But the bank examiner from the Fed comes in and says, yeah, that's not good enough for me. It has to be a reserve. Right. So the Fed is very important there. But here's the here's the really critical issue about the Fed. And this is why when everyone thinks about Trump's battle against the Fed and it's all about interest rates and, you know, fiscal dominance. No, it's not about that, because, I mean, first of all, like think about the fiscal dominance argument. You've got an administration that is officially arguing for a smaller central bank balance sheet. That seems pretty much the opposite of fiscal dominance to me. But more importantly, it is about that bank deregulation. And this is really what the battle over the Federal Reserve is, because the Dodd-Frank Act actually gives there are four. We won't go. Let's not go into it because it gets horribly complicated and it takes too long. But there are four critical ratios in the Basel III Accords, the leverage ratio, the risk weighted capital ratio. I can't remember what the liability ratio is called. And then you've got the liquidity coverage ratio, which is the one that forces them to have these high quality liquid assets. All four of those are at the disposal of the Fed. And so, you know, the Fed can literally turn all of them to zero. Oh, I didn't know that. Yes. This is why the whole the Fed is the entire battle.
Speaker 1OK, so let's just imagine tomorrow that he convinces the Fed to turn them down. They're not going to zero, but let's just say they're dramatically reduced. So one of the worries, though, that I have is as you run down the balance sheet, so then you assume, OK, he says, I'm going to go, I'm going to reduce the banks thing and then I'm going to go and I'm going to run down the balance sheet. Now, do you foresee him just letting it mature off or would he actually sell treasuries? And then what happens when he goes to that point of minimum level of reserves? Like, how do you get around that? Because there is listen. You know, Powell did try to reduce the balance sheet. They did hit a point where the market started to come down. And then he said, OK, I'm going to go and I'm going to reduce the banks and that there is a certain amount of reserves that are needed in the system. So what you're arguing is that, yes, he's going to try to get the balance sheet down, but at the same time, someone else needs to do this and there needs to be adjustments. So it could be a bumpy process regardless of whether you think ultimately it's better or worse for the economy or better for the economy. Yeah, so
Speaker 2there's definitely room for for bumpiness in there. And by the way, I would say this is like going you could we could go down a very long rabbit hole about how monetary policy implementation actually works in terms of changing reserves in the banking system. But pre 2008, the Fed operated under a scarce reserves environment where, you know, you every single day go into the market and feed the banks exactly the amount of reserves that they need to meet whatever payments or whatever. And so you don't have those. Those blips that we had in 2019 or in 2024 when the bank was or the Fed was trying to slim down balance sheet and had, you know, SOFR rates and repo rates starting to misbehave because why did they misbehave? Oh, there was, you know, a massive options clearing day that day and they needed a lot of liquidity. The old Fed would have dumped a ton of reserves on you that day and taken them out the next day. Right. Simple as that. Right. So are you advocating for a return
Speaker 1to the scarce
Speaker 2reserves or do you think Warsh is more important? I think he's more agnostic. I expect that that's where they will end up. Really? Yeah. We're going back to scarce reserves. Yeah. I mean, I mean, it's it's what is the problem with the scarce reserves environment? Like, like, listen, I'm with you.
Speaker 1Like, ultimately, the reason they did, scarce reserves was because they hit the zero bound and they couldn't and they needed to expand the balance sheet. And if you don't believe the balance sheet is something that should be used as a tool, then you can return to the scarce reserves. But if you believe that the balance should be should be permanently large like it is now, then you can't have scarce reserves. Right. Like to get.
Speaker 2Yeah. But but there's no reason. Who is the person out there who. So this is the interesting circularity here. Yeah. And and and it gets to an important point that you talked about the bumps along the way, which is there's no economic justification for a large balance sheet. I mean, I know that Governor Waller, who's, you know, never dealt with actual Fed funds himself, you know, says, oh, it's silly for a major central bank to be looking for change in the couch cushions. Well, you know, anybody who worked on the New York Times New York Fed trading desk pre 2008 would be so offended by that statement. Like, you idiot. This is not hard. We do this every freaking day. It's not looking for a change in the couch cushions. And oh, by the way, on the few days we screw up. Yeah. Fed funds goes 30 percent for one day. And by the way, nothing happened in markets. Nobody cared because it was normal. Right. I think it
Speaker 1would go to 100 percent on certain days for a day like that
Speaker 2would be the spikes. So, OK. But hold on a second, because this gets to that bump point that you had. We have now been operating in an excess reserves environment since 2009. And we've had a Federal Reserve president who famously bragged that he didn't even have a Bloomberg terminal, never get one because he doesn't care about markets. The Money Center's Federal Reserve Bank, the New York Fed, their president didn't give a damn about markets. And by. Oh, yes, he did. He didn't say I don't give a damn about markets. He bragged about not having a Bloomberg terminal because it wasn't important to follow markets. OK, that is who's been running the Federal Reserve Bank of New York for how many years now. And you go talk to anyone who's in the Federal Reserve system. He has absolutely decimated the market staff. So the problem, they're going to actually face in terms of bumps in the road is, yeah, they may conclude that we really need to go back to a scarce reserve system. Who the hell on the desk knows how to do that
Speaker 1anymore? They're all gone. Literally, they are. OK, but do you. So. Would you agree that that the abundant reserves has made financial risk assets more buoyant? I know what I will.
Speaker 2Well, the way I would put it is that it has made it has expanded risk tolerance in the sense that people don't feel they need to worry about those spikes in Fed funds and things like that. The reason why markets could handle those things in the past and why they all freaked out when SOFR rises by five basis points now is. That, you know, they have taken on way more risk because they expect excessive stability in in there. They expect, you know, Fed funds to instead of trade like a financial instrument, trade like Chinese GDP. Right. That's no variability.
Speaker 1I completely agree with you. And so I think we're on the same page that there's that has encouraged risk taking. So therefore, if we do have a return of risk being priced, we're going to have a return of risk being priced. More appropriately, that will mean lower asset prices. Do you agree?
Speaker 2On the margin, that has to be the marginal effect.
Speaker 1So how do you square the fact that that maybe Walsh believes that that is the way we should go? And I think he probably does or he might. I'm not exactly sure, but he might. But his boss definitely doesn't. So I think
Speaker 2the way to think about that is that that is a trend effect. That is really about people's perceptions of risk and willingness to take risk. And that's unless we have some sort of crisis event. You know, when we have a crisis event, risk tolerance changes dramatically in minutes. Right. And that's what causes the massive change in asset prices. When you have a change in philosophy, you know, you have a change in philosophy around risk. That tends to be a slow moving thing that nobody's ever actually noticed. You and I may if we could run parallel universes and compare prices a year later in one universe versus the other, where we had the scarce reserves and the abundant reserves, we would notice a difference. But it's like slow boiling the fog. Would you actually notice? And then remember that there is this offsetting effect that you are not going to notice. You're not going to notice the loss. You're going to notice You're telling them, go out, take a bunch of more risky loans.
Speaker 1Yeah. No, I understand that aspect, and it's definitely changing who's taking the risk. Like in the past, the government's took the risk, or sorry, in the last 20 years, the government's took the risk and it's going to move it back to the private sector. So I completely agree. And not only that, I think you already have seen the change in attitude in terms of the front end of the stir curve. Like you go look at it, the SOFR curve, you go look at it for the first time, there's positive carry in like owning, you know, front end stuff because the reality is that you don't know what the Fed's going to do. There is some risk there, and that is how the market should be.
Speaker 2And by the way, term premium out the curve. So it's not just at the front end of the curve. Everybody wants to say that this is like, you know, just frankly, the fiscal situation actually hasn't deteriorated that much since the buyout. What's happened is Trump has provided greater uncertainty over both fiscal policy and you coincidentally have greater uncertainty over monetary policy. Hey, you should have a term premium for this stuff.
Speaker 1Well, I might push back on that and say that what changed under Trump is that for the first time in a long time, the rest of the world is willing to spend and that you have deficits going on around the world. So I take Canada, for example, because I like to talk about, you know, I know our country. We were running, you know. Under the Biden years, you know, Biden was running an 8% deficit to GDP. Everyone, if you would ask most, you know, Americans or most market participants, what do you think Canada is? And they would be like, well, the U.S. is running 8%. Canada is a socialist country. They must be running 10s or 15s. The reality is we were running two. We were running two. Now, all of a sudden, with all the talk, the rhetoric, you know, 51st state, whatever, and all this stuff, we're like, oh, geez, we better take care of ourselves and we better do some things. And listen, I happen. I believe that Trump was was in some ways the greatest thing that ever happened to Canada. We are we are going in. We are changing things to the better. We're we're finally, you know, making pipelines so that we can sell our oil to somebody other than you guys. We are doing pro tax stuff. We are. There's a million different things. But my point is we've gone from a 2% deficit to a 5% deficit. And the whole world is doing this. And that's the part that I think that people are are missing is that for the first time, there's competition. For capital and that everyone else is spending. So I happen to believe that it is somewhat of a of a a worldwide phenomenon. But the thing about it, the reason the U.S. is getting the attention is because you guys are the biggest spender. You have the biggest deficit. And so the term premiums there. OK, so let's let's you know, we talked a lot about the plumbing and the finance. Can I just just
Speaker 2one comment on that? Yeah, 100 percent agree. In fact, I wrote this little piece about a decade ago, literally a decade ago this month. The politics of rage forecasting all these populist movements. And one of my key conclusions was you would get increased competition for capital as we increase rather than having consolidated, globalized production in certain places. Everybody's going to start producing their individual stuff. Investment demand is going to go up everywhere. Defense spending is going to go up everywhere and you're going to get higher real interest rates. So I made that prediction 10 years ago. Yeah, you're like me. Just a little early. Yes, yes, exactly.
Speaker 1OK, so let's talk about, you know, I hate to do this because we try not to talk about politics, but it is so important right now, the midterms. And you were mentioning before the show that a lot of people are reaching out to you and asking your opinion about what's going to happen in the midterms of what that and more importantly, what it means for markets. So give me your opinion about what's going to happen in the midterms and is there a trade there?
Speaker 2Yeah, well, I think there's definitely a trade there. So I'm in the middle of writing a piece should come out next week. So about the time that this podcast come.
Speaker 1Oh, no, we turn ours around real quick, Marvin. This is coming.
Speaker 2OK, wow. OK, wow. Wow. OK, so you're asking me to front run my own research here. OK, fine. So look, so one, why is that? Why? Have people been scrambling for me to I did correctly call the 2016, the 2020 and the 2024 elections. And what was critical about that is I was able to do statistical analysis to identify the size and magnitude of polling bias that was in all of those polls and adjust the polls correctly to say, actually, Trump's probably winning on electoral college count in 2016. Trump is losing in 2020, but by a far narrower margin than anyone expects. And we'll be biting our nails the next day. And then in 2024, I said he's going to win the popular vote and he's going to have coattails in the House and Senate. And it was all based on an analysis of polling errors. And so I've been working on that. And, you know, you know, the headline conclusions from what I have so far is absolutely. There are still very significant polling errors. In these polls right now. So the polls are not nearly as in favor of Democrats as people think. But as you know, you know, this we're in a midterm election. So a few different variables come in there. One is that, you know, voter participation is very different in a midterm versus. So we don't know how that polling bias turns into voters who show up at the polls versus otherwise. Interestingly on that, one of the things I find is that when you do break down and look actually of the people polled, which is really critical because the whole point of polling bias is you're missing a bunch of people who will show up to the voting booth who are not there. But of the people polled, actually the Republican people who are voting Republican are actually highly engaged. So there's a good likelihood they come to the polls. But then there's this other issue beyond it being the midterms, which is you've had this phenomenon where Trump has gone through and systematically purged people in the Republican Party who were thorns in his side. Who weren't playing ball, so to speak, for him. Now, this has really important implications because right now for the election, what's happened is he's put in place loyalists who actually are not as popular or are seen as more extreme. And so in a place like North Carolina, right, like, you know, pushing out Tillis, this is really costly. That could have been a layup seat instead. This is a seat that looks like it could very well go for the Democrats. Texas is a competitive race because of Paxton, all of these things. So he's gambling big here. And it is classic Trump, right? Like he is always, you know, all on 42 black. Right. You know, whatever. Yeah, exactly. Like he's going to absolutely clean up if he wins the bet. But man, this is. This is going to be a big thing. So that's what makes this very risky. The polls may be closer, but he has also chosen a lot of candidates that may, even with the polling bias, still lose him the election. Here's the interesting part. If he wins the election, my prediction is he will actually be more powerful in his in the second half of his term, unlike the usual lame duck practice. Then in the first half. And in fact, we'll be the most powerful lame duck president in US history because all of those people are people who owe him their seat and also know that whether this guy, even if forget about whether it's lackeys, just think about the political incentives for everyone around the table, even the people he didn't is like this guy, whether he runs for president again. I mean, you know, there's still this debate as to whether he's going to change the call, whatever. Who knows? But he will probably still be alive and he will still be out there advocating his things. Do you want to stand up to this guy who has successfully purged everybody he didn't like? OK. You don't want to do that.
Speaker 1OK, so this is why I think the midterm is actually massively critical. OK. And so I guess the markets would probably like it if he ends up doing better. The Republicans end up doing better than the market expects. Like, don't you think? OK, so this is a
Speaker 2really interesting question. I do think so. Yes. If we want to just go to the headline answer. Yeah. But this midterm is very different. So in general, markets like the whole, you know, divided government thing because.
Speaker 1Oh, yes. The reality is that the one beautiful bill is actually designed to have fiscal come off at the, you know, post midterm. Exactly. Like, so I, I, I push back to anyone who tells me divided government. Is good. I, I'm calling BS. And not only that, if. Yeah. Like if the, if the Democrats end up winning the house, like I've been talking about this the reality is they control a lot of those committees and the ability to, to subpoena people. And I, you know, we'll obviously get to that, but, so you think though that a Republican, like the, the three of like, let's say, imagine he somehow wins the house, right? Like somehow. If he keeps the house in Senate, let's just imagine that.
Speaker 2You don't think the stock market rallies.
Speaker 1I think the stock market flies.
Speaker 2No, that's what I said. I said, the headline is, I do think that it does. And, and the, the reason for that is, so I was referring to, yes, the normal idea is well divided government means that the government isn't going to mess with us. So it's good for business. In this case, exactly to your point, you have two big issues that are really negative for markets. If the Democrats take over the house and Senate, the first is they are clearly far. They have aligned themselves with the anti AI movement, which means there's going to be, a big movement against AI that has been an important driver of investment, even though as much as I've claimed, it's not as big as everybody says in relative terms, there is a whole other set of investment going on. It is a big deal. There's no question. And it's been a big driver of equity markets. So that's one part. But the second part is exactly what you mentioned. If you have a government that is now not divided, so it doesn't get anything done, but actively fighting with each other, that's not, that's not a good thing for markets, right? Because, Oh, we're going to go punish your firms cause you're punishing our firms and backwards and forwards. That is not a good thing. So I absolutely agree.
Speaker 1Okay. One of the, I guess one of the like worst cup secrets in, in Washington is the fact that the Trump administration is hiring every single lawyer in every single battleground state in terms of being able to fight the contest, the elections. Yeah. There's no doubt about it. That if he loses, there's going to be some legal challenges and stuff. So I think the market is like expecting that. The real question is, is there something that Jared, that, uh, Stephen Miller and the crew have dreamt up that's even more aggressive than that. And do you like, like if you remember back to that, that point was they refused to certify that one member that was, you know, for the Epstein file, there was a point where, where they were waiting to get this vote through and the, and the, and, uh, the, uh, whatever the guy that runs the, the, the house, he refused to, to seat the house so that they would certify the results or get that one person in. So there's like, you know, there's some smart people that have speculated that there's, there's going to be more than just legal challenges, that there's going to be something that is going to be, you know, Trump is a disruptor. Trump changes the world. Um, is he going to do something more extreme is my question to you?
Speaker 2Um, I, I, I doubt it. Um, extreme game, but
Speaker 1ultimately you won't,
Speaker 2well, it's, it's no, no, no, no. I think you're doing stuff, but you're operating within the lane. So, you know, Trump has this, um, reputation for, um, you know, disregarding the law. And, um, I would argue the evidence is not in, in favor of that at all. Um, that, um, if you look at all of his executive orders, if you look at all of his conflicts with the courts and other things, he actually has scrupulously followed the law. His legal briefs are actually extraordinarily detailed in his battles with the courts. When they have put an injunction, he has stopped. He's then gone in and fought them in the courts. And otherwise there have been a few instances. I can't think of them off the top of my head where he, um, uh, has ignored the courts on certain things, but it's typically because there's a precedent for doing so. And this goes back to this Jacksonian principle, which, um, one of the other things that, um, Jackson was famous for, um, was, uh, the so-called Indian removal act, which is yes, every bit as bad as it sounds. And what had happened is the Congress, you know, house and Senate had voted this act to expel native Americans from, uh, what is now Alabama and, and Mississippi and push, push them further West. And, um, the Supreme court by a five to one, um, vote, um, uh, said, no, that, that, that's illegal. And, um, uh, president Jackson said, well, um, let the chief justice enforce his call. And his point was, um, that the U S constitution is, is actually unclear on this point. You have divided government among three branches. No, all three of those branches are exactly equal in their constitutional power and in their authority to say what is constitutional. That is absolutely the way the constitution is written. And Jackson's point is you've got two branches of government, at least right now, while I'm in office, the executive and the legislative that say this is constitutional and legal. I don't give a damn what you, the third branch, two out of three wins.
Speaker 1But aren't you making my point then? Like, cause in essence, what you're arguing is that the, the, the Supreme court has no ability to go and enforce this decision. And back to your point as the president is the one that is the only truly democratically elected one with all the power. So he can tell, say what is right and what is wrong.
Speaker 2But he, but, but, he does have to actually have the house and Senate agree with him on these things. Right? So that's why I said where he has violated things. It's been over, Hey, we have a different interpretation of the law and two out of three branches wins, wins here. So if you can tell me what the scenario is, where the house and Senate are both agreeing with what he's doing, then yeah, I can completely imagine that's going to take place. If you're going to tell me that, you know, they're going to, you know, violate the law and the house and Senate are not on board with this or the Senate is, is not on board with this, but you know, um, uh, Mike Johnson in the house is trying to push it through. I struggled to see that one happening. I'm not, I'm not going to rule it out, but I struggled to see it happen.
Speaker 1Fair enough. Understood. Um, one of the things that's confused me is remember that, um, primetime address when, when you should not do those things, by the way. So I have a question for you about this because, um, the primetime address at the time we were, you know, or the U S was fighting, uh, the Iran war, and it looked like it might be an escalation. That is typically why you do a primetime addresses to, to get the public ready for, you know, uh, uh, protracted legal, you know, uh, uh, military battle. Um, but in this case he came out and he also just spent, you know, an hour ranting about, you know, election fraud and stuff. And the ironic part about it is that we stopped and think about the elections that he claimed that he got stolen on the one that he won. Obama was in charge. The one that he won in 2024, Biden was in charge. Somehow the one he got stolen on, he was actually in charge. So I, so we'll just stop. And like, you know, put aside logic for a second, but why do that primetime address? If you're not setting the stage for something forward to me, there's only one reason to do that. And that is just to set the stage going
Speaker 2forward. So, um, well one minor correction is that elections are run at a local level. So he wasn't actually in charge. So, okay. But I take your point. So on that, I think there, there's two explanations. One is like, you know, I've never said Trump is not like impulsive and, you know, just erratic about things. Right. I do see a broader strategy in the sort of trend, but that doesn't mean there's not a lot of crazy noise that comes with it. So some of that, and it, and it is very associated with his, you know, personality and sense of dignity that he has been somehow offended or wronged or whatever. And this is clearly one of those issues where he still thinks he was offended and wrong. So it could just be that fair enough. What I think, but let's take your point that actually, and I think it's fair. I think with Trump, you don't know what is the erratic part and what is the strategic part, right? This is always, this is the problem with analyzing him.
Speaker 1Yeah. Everyone told me on the tariffs, there's no way he's going to do it. It's just negotiation tactics. And I'm like, the guy loves tariffs. I don't know what you're talking about. And then he came out with his King Cove postcard of all that. And everyone was like, Holy shit, he's actually doing the tariffs. I'm like, he told you he's doing the tariffs. He told you he was. To me, a little bit of this midterms issue is that he's telling you that he's setting the stage. So that's what I worry about.
Speaker 2So to take that, that side, what I would say is that is prep for all those legal battles on the ground. So that's all necessarily some, I would think so. By the way, there's another whole thing here which suppose that you, do think and let's let's just take him at face value that he actually honestly believes this stuff that you know this election was was stolen um from him and that it there were you know tons of people who shouldn't have been voting who were voting there were lots of you know ballot fraud whatever okay if you actually honestly believe that then um and by the way this happens to align with what your voters were asking for in the first place um when you expel all sorts of illegal immigrants you're taking away a lot of potential fraud votes that were in that and so i actually think the one of the under appreciated things that may be going on in this election and is that um a lot of the ice activity is actually preparing for this election so whether you agree that there were illegal aliens voting or not if you accept that the person in charge thinks that there were then what would his natural action be it would be to go remove illegal aliens especially from close
Speaker 1districts yeah i realize i did a shitty job as an interviewer here because we you talked about your um conclusion and we and we got too quickly i went on i heard you know the the the republicans might do better and we jumped on to what the stock market might do what is your actual prediction in terms of is it just that it's going to be tighter the the midterm election than expected or do you actually think that there is a good chance that the republicans keep the house and surprise everyone so i
Speaker 2so one i haven't finished my analysis what i can say definitively is is definitely tighter okay and so on the basis of that i would say yes people are definitely underestimating like especially recently if you look at these these polling numbers for like the generic housing poll or generic national house poll it shows you know it's a big surge and i think you know real clear politics has it like that you know the average democrat margin across houses is something like nine ten percent right now yeah and i say okay but that's a generic thing across the nation that actually doesn't matter what matters because you know there are going to be seats in in new york and california that are going to go 70 80 percent democrat right who cares right what you care about is those marginal seats where it's a 50 50 choice in those districts what's happening right and in those actually the the the polling is much thinner on that but it looks like it's actually a much closer race and then you add in the polling bias then actually that does suggest the republicans are in a position to potentially hold the house amazingly enough so i'm not saying they will i haven't finished my analysis i'm just saying what i've seen so far is that actually that's a very reasonable uh assumption for you to make that they might actually just scrape by holding holding the house and senate um what i think is interesting and maybe i'm you know predicting your next question is we talked about the market reaction but what happens in terms of policy if you have whether you want to call them lackeys or just you know people who have now seen that the mafia don is in control and you'd better not cross him in in the house in the senate i here you want my big out of consensus call yep my big out of consensus call is that that's when you're finally going to start to get fiscal consolidation because if you yeah so you actually um previewed this when you talked about oba the one big beautiful bill yeah one big beautiful bill um you know everyone wanted to focus on the extension of the previous tactics that was going to happen anyway so figure out so look at actually what was the delta between you know 2024's budget in 2025's fiscal budget right and the the delta was the following one that for only the third time in the data that we have back to the 1960s real spending by the federal government fell not nominal spending but real spending in real terms actually fell for one of only three times so there was actually some fiscal restraint built in there and that's with them increasing the defense department budget um the second thing was the only tax cuts that were in there if you just assume the other stuff was actually going to be passed anyway and that was just you know classic um uh congressional gamesmanship over this 10-year budgeting frame that they have um was the stuff he promised in the election cuts on overtime cuts on tips and cuts on social security it was exactly what he promised promises made
Speaker 1promises kept right
Speaker 2promises made promises kept but most importantly who are those people those are the new you know maga republican coalition it is actually your working class not your you know um rockefeller who are republicans from from the past right who wanted the tax cuts on the top so go back to my jacksonian principle that they are whatever the noise your your mean reversion should be what are the jacksonian principles what was after inflation federal spending and the deficit so i and if you go back to statements that both trump and you know his his most sort of outspoken um nut job cabinet member lutnik um uh said in the first year both of them talked about look it is crazy that we don't tax the rich more and we don't make it easier for for the other people they don't say this but by the way there's an implicit offset for the tariffs that fall more heavily on the working class well that's what i was
Speaker 1going to bring up but you brought it up
Speaker 2exactly they explicitly talked about raising taxes on the top to um lutnik said this specifically and then trump said something very similar i can't remember to use the exactly to provide zero income taxes for the bottom 90 percent and i just did some back of the envelope calculations when they said this and actually you can have with a a reasonable rise in in taxes on the top 10 you actually can fully fund that cut and taxes on the on the bottom yeah because especially if you have
Speaker 1tariffs that ends up being a vat tax eggs exactly so i like an island exactly caribbean
Speaker 2island so i do think that you should look for if they do win yeah you should look for two things one that tax policy will be um tilted to be far more progressive on the income tax side and as you say you know there's an offset there with the um uh tariffs that being regressive on on on the working class but that they would view as an industrial policy action right and two they will get much more serious about cutting spending they may even put entitlements on the table um which i know is just like you know the the third rail but whether they do it or we get into the next presidential election the next presidential election will have to deal with entitlements because social security starts to go into deficit in the next administration and so this third rail that everybody has not wanted to touch and has been able to kick the can down on the road in the next administration we cannot so over the next six years we are definitely moving towards significant fiscal consolidation in the united states by necessary fact my out of consensus call is that it may we may get the the initial steps in that in the second term if the republicans keep the house and senate
Speaker 1and does that mean that bonds are screaming by with real rates at all-time highs here or not all-time highs you know
Speaker 2this is the really really interesting thing we talked about this this rise in term premia and and all this and and you know from our our previous conversations i've been you know very bullish on the u.s economy and the underlying investment-led growth and where this is going and what that means for our star and so in um so or the neutral real interest rate and so um you know i wrote this piece back in 2023 where i said look based on my views this is what the the fair market value of of the u.s treasury curve should look like if you build it up from you know a two to two and a half percent real um uh neutral interest rate and you bring back term premia of similar periods um from the 1980s or 1990s in terms of where you are in the cycle and the fiscal situation things like that and productivity issues you would get this treasury curve amazingly as we went into september other than the fact that they still have fed funds down here which you know one year one year fours are telling you it's going to go up here the entire curve was literally converging on a forward basis to five percent the top was coming down the bottom was coming up it was all converging and it looked like literally the exact curve that i um uh set out after the strong numbers we've seen the term premium start to rise the french issues coming off all of that have started to do it but yes i do think that we are now getting to a point where the fixed income curve actually start for the first time in multiple years i can look at it and say actually i think that's a reasonable buy here and indeed the long end stuff as i said you've seen the rise again in the term premium the last few things i would absolutely you post-election if it is a republican congress especially on a long short u.s versus europe basis where there's no plan for consolidation i would absolutely harvest that term premium on the u.s as a as a long versus a um short on uh european long-dated debt all right so
Speaker 1you brought up uh europe there and i think this is a great chance to segue into something else recently you were mentioning that all with your podcast the thematic edge podcast you actually talk with your partner mark farrington is that his name i gotta write mark mark farrington of the global watchtower right so
Speaker 2he's a he's a long time old old client one of the best currency traders ever in in history as far as i can see and you know i was at two of the biggest currency houses in the world i dealt with all mark is amazing we'll have
Speaker 1to get him on the show so you you should invite for me um you talked about europe being isolated uh yes and how it's going to play out in the future i think it's going to play out in the future i think it's going to play out in the future i think it's going to play out in the future i think it's going to play out in the future i think it's going to play out in the future they are actually the ones that are in trouble here in the new geopolitical order i would love for you to expand on that
Speaker 2thought yeah so you know if you if you read like the uh financial times or your illustrious um prime minister speeches um you would you would you would have the distinct impression that the u.s is the odd man out with trump and that uh you know the u.s is increasingly isolated and otherwise and i think it's going to play out in the future i think it's going to play out in the future i look at the actual chess pieces on the global chess board and i'm like no jack is europe that's that's isolated and i would even say from canada despite mark corny's uh um statement so we come back to that point but just look around the world so if you look around the world north asia the other industrialized major industrialized economies outside outside of europe 100 in alignment with the u.s economically industrially defense and even politically at this point they are they are like perfectly in sync with with the u.s you look up up and down through the americas with the exception of canada and again let's come back to that just as we saw in in the latest brazilian uh election latin america is completely lining up with with the u.s here you um uh look at the gulf yeah there's lots of um uh gnashing of teeth and upset over what's going on with the war but absolutely the gulf is completely aligned with the u.s on this one or at the very minimum see that they need to have u.s alignment with them they need to be on board with them and they are wholly contemptuous of europe i mean extremely contemptuous of europe actually it's getting very straightforward in their way of thinking about what's going on with the war and what's going on with their rhetoric at at this point you look at africa africa is not necessarily a particularly important point but it is a source of minerals and it is a a source of europe's problems in terms of immigration africa is very much um lining up either chinese or american china you know first point is one of the lessons of the last year is after venezuela and iran is that everybody around the world has learned that it can never count on china for anything right um but the other is is that the europeans are themselves seeing yeah china's going to eat our lunch they are they are not somebody we can count on or or work with they're clearly not aligned with russia that's a big issue and so that leaves you with india okay india um is the epicenter of the non-alignment movement and is still very much you know a non-aligned country yes they've signed a new trade pact with with europe but that's mostly about providing an outlet for indian labor anything else there's not a a big um bonus for um europe in any other sense so you look around the world europe doesn't have resources it is increasingly short on alliances in anywhere that are all lining up with the country it keeps insulting the united states and the only um country out there that seems to be aligning with them is india and they're not aligned with the united states they're not aligned with the united is canada now let's look at what canada is there was a great article this week by doomberg where he looks at um uh mark carney and i will say up front and it'll be very apparent in my comments about mark carney i find him to be one of the personally most loathsome disgusting individuals in history um i i absolutely detest that man um because he personally destroyed a friend of mine on live television for no other reason than to advance himself as bank of england governor at that november 2014 meeting when he um absolutely destroyed the chief dealer of of the bank of england mark carney will say and do anything to save his own political skin he is a terrible terrible person okay but look at tell me how you really feel barb if somebody did that to your friend on national television completely destroyed somebody without evidence the person's never been convicted of anything and just fired and destroyed this man's life i think you might have
Speaker 1some work meanwhile the guy you're defending trump he never does something like that he's never done anything untoward or or or or in poor taste and attack
Speaker 2people i i i never said that yeah i've never said i like trump's personality
Speaker 1okay go on though let's talk anyway no but this but this
Speaker 2duberg thing he makes this fantastic point and you actually just alluded to i don't know if you saw his his latest piece but where he's talking about how um you know mark carney despite being from the center-left party that has all these green goals and you know had justin trudeau is absolutely opening the floodgates to every single energy and resource but this has been my
Speaker 1point about canada for a while is that when we had pierre polly ever barb carney and i was like there's no difference they're both we have no choice but to go out and open the floodgates and actually you know compete and do some things that are positive for our economy for the first time and forever and so here here's here's where i'm gonna blow your mind but i'd rather he be two-faced and actually doing
Speaker 2something no no so i am super bullish on canada for exactly this reason so as super bullish because he is doing these things and the other thing here's where i'm gonna really blow your mind i would say other than you know his um very you know without using the name but very obvious speeches where he criticizes the u.s and trump administration if you were in the white house today is there anything that you would um change in mark carney's policies everything he's doing is exactly what the u.s. wants every last i
Speaker 1disagree with that why listen going and and making a pipeline is the is is like to me america had it great we were a like a crb america does have it great in terms of no with with our relationship with us and the fact that he's going after us in terms of canada was one of the dumbest things like he talks about the hollowing out of mid-america right go let's go and talk about the canadian trade deficit take out energy which is a global commodity and stuff like that and look at us we buy more manufactured goods from you guys than we sell we are not the reason that the mid-american guy has lost his job that is all china and the reality is that we were so stupid and got played and we were absolute idiots and fools for believing that we should only send our oil to you guys we should have had pipelines forever like i'll be honest we i have christopher friedland is is my is in my district she's like i i vote in her district back in the day she would come to my door and i would like sit there lecturing her about pipelines and like doing my best to try to convince them to do pipelines that like it has been foolish that we haven't had this before and so to think that we were the enemy and to come after us we could have been together going after china we have the same problem even worse than you guys we have no manufacturing, our middle Canada, our middle, our manufacturing is stuck coming after us has been just the like foolish and it doesn't help you guys you've made all of your commodities more expensive and yes you're hurting us no doubt about it you're hurting us like you're in in the grand scheme of things it hurts us more than it hurts you guys because you guys are such a large economy completely get it but we could have been together and fighting the things that were truly wrong with how the world is set up and i think that that's the part that that is being sad and and disappointing and and and just truly tragic but anyways listen let's go back to wait wait you're a preach preach
Speaker 2like i i i love it but actually i think there's a really important point on that one so i fully agree with you that exactly you know that the the u.s has gotten a great deal and by the way it's going to take a while to put it into words but i think it's going to take a while to put it into words but i think it's going to take a while to put it into words but i think it's going to take a while to put it into words but i think it's going to take a while to put it into words but i think it's going to take um to build those pipelines so you know for at least the next four or five years the u.s still gets a great deal on that canadian heavy oil it's
Speaker 1like that said the japanese proverb when's the best time to plant a tree 20 years ago what's the next best time today that that that said first
Speaker 2thing all of that hatred towards america is what is allowing um mark carney to get all this stuff he would have wanted to he would have never been able to get it done so that's one point number two is great the u.s is going to lose a closed small source of supply but it's going to get an expanded source of supply that is now also going to be able to um uh fuel its allies um in uh the western pacific japan and korea as well as china yeah sure but if there's ever a conflict with china do you think the u.s is going to let you export a single drop of oil or gas out of british columbia hell no if you think about but you're kind of u.s grand
Speaker 1strategy arguing that they've done this 3d chess and that this is really where where they want it to go i i will push
Speaker 2back on that no it's not 3d chess it's literally what the national strategy um document says they want the allies to have you know more defense more industrialization pick up more of the weight themselves and produce more energy and have it centered in the western hemisphere it literally says all four of those
Speaker 1things okay and by the way i just want to make it clear we have no hatred for americans we have hatred for the the guy who who is exactly so in four in four
Speaker 2years or eight years or however many it is canada will be way more productive will produce way more oil and we'll still love america and oh by the way like the old mexican proverb so far from god so close to the u.s you're tied to us so yeah i listen in the long run it's a good thing for the
Speaker 1u.s that it was one of the greatest things that ever happened to canada like because i think that we finally you know woke up to it so like let's go back to europe so europe is screwed i guess is the end result and you think that like this france the widening of the oath spread and things like that is this just uh the start of something much more large and potentially catastrophic yes i'm
Speaker 2actually very concerned about that um uh for a few different reasons one um and you know you mentioned this uh podcast i did with mark farrington that um you know mark and i both have been for the last few years like look the the disaster that is just waiting to happen is europe because literally everything is coming together in a way that is incredibly harmful so europe has pursued ridiculous energy policies that make their energy costs on the order of five to seven times um what uh they are for um uh u.s or chinese manufacturers and consumers right so they are just not um competitive and they can't become competitive at those prices not just in manufacturing like that's why you know germany in particular has been going through this malaise they are just they cannot be competitive with with those energy prices in manufacturing but now the whole game is is ai so the whole future thing what you were going to go into next that is 100 energy energy energy energy all of that and so it doesn't matter if it's coming out of eco polytechnique in uh paris doesn't matter if they have no energy to do that compute on who cares right it's like does does
Speaker 1a tree falling in the forest make any sound they're just gonna end up at the jp morgan desk on in london anyways trading forwards we know that which is why they
Speaker 2do exactly because they don't actually have a real job back in france it doesn't exist right so you know they're Europe has this serious growth problem in that all of their potential paths to growth are foreclosed. The return on capital is terrible. And debt dynamics are entirely about real growth versus your real interest payments. So Europe as a whole is actually not low debt. They actually have extraordinarily high debt. What happened is that you had a few really good balance sheets. The French wasn't terrible 10 years ago. It was just moderately bad. And then you had this great balance sheet in Germany. And what does Friedrich Merz do? Hey, let's screw the one asset Europe had.
Speaker 1Let's blow out our balance sheet too. Not only that, listen, a lot of those transfers are hidden in the target two imbalances. So the reality is it's worse than people realize already.
Speaker 2So this is what makes this terrible. You have an unsustainable debt situation across Europe as a whole. You now have lost the one fiscal anchor in Europe and you spent it all on, if you look at what they lost the debt break for, it was literally on all sorts of green energy programs. They said it was about defense. The defense stuff has to be green. It was actually in the constitution. Go look at what the. To get the green party to agree to this. I mean, it's literally the most insane, stupid thing. Friedrich Merz should burn in history. He's lucky that Adolf Hitler is the only person who can actually make himself look worse. No, no, no. I'm not. Wait, let me be very clear exactly to your point. I'm not comparing that. I'm just saying it's hard. You can't say you're the worst chancellor in history when you have Adolf Hitler. Fair enough. Okay. I'm not saying that, right?
Speaker 1I am a good buddy, by the way, who might or might not be listening, but he would give you a huge run for your money with, he would claim that Merkel is the worst that has ever existed.
Speaker 2Fair point. Fair point. I agree. Look, but Friedrich Merz, I mean, really, that was unbelievable. So you have all of those things coming together and then you have, that it's fracturing politically. So, you know, this immigration issue and these populist parties rising everywhere are creating real political instability. And then you have things like, you know, the Sanchez government, which looks like it's going to be voted out of power. You know, they do all these immigration hijinks. All your partners start to say, hey, we're pulling out of Schengen because of this. You know, you add, okay, we don't have growth. We are not fiscally sustainable. We don't have a lot of money. We can't be economically competitive. And now we're going to fracture political unity as well. My goodness, this is, this is a disaster waiting to happen. And unlike 2011, 2012, where again, you had that German balance sheet that could back the ECB to go in and solve the fiscal problem. Who is credibly going to stop this run now? You can say the ECB will go out there and buy, but why is the ECB credible? If it doesn't have a German balance sheet, that's credible behind it.
Speaker 1Marvin, this is being so much fun. And I'm, I'm glad that you've come on as an American being pro-Trump and shit all over Europe. Come on. I was not pro-Trump.
Speaker 2I just said, and let me be very clear again on that, that, that, that you're right. I should never mention the Hitler. My only point was that Friedrich Marx. No, no. Well, you clarified it.
Speaker 1You don't worry about it.
Speaker 2I mean, please do not say that I said that it merits equivalent to Hitler. Absolutely not. Yeah.
Speaker 1All right. Listen, so before we let you go, this has been so much fun, by the way, it's been an absolute blast chatting with you and I always love hearing the other side. So it's great having you on because me as a little bit pro Carney and little left-leaning, I have to, I have to hear what your side is thinking as well. As I said,
Speaker 2I'm very happy with what
Speaker 1Carney's doing. I have a lot in terms of that. So like, I guess we only disagreed about like whether it was actually who cares we got to the right spot okay so we're gonna end with something fun um we're gonna do the best concert you ever went to and then the concert you would have wanted to be there for uh okay
Speaker 2so best concert ever no question um Paco de Lucia um uh the late uh flamenco guitarist um I actually went to two of his concerts um one in Washington DC one in Malaga Spain where he's from um unbelievable though in some sense I would say the one in Washington DC um which was in a closed room versus the open air environment was even more amazing because it was like have you ever been in one of these situations like I'm sure you've been in situations where you can feel tension in a room you can actually feel it in the air have you ever been at a concert where you can feel the intensity of the musicians and all of this like not just the music like you literally feel how intense those musicians are in your core and in the air of the room that was Paco de Lucia I mean unbelievable never had an experience like that in my life before so when was it what year was that uh let's see that would have been probably 99 2000 somewhere around there fair enough um uh and then in terms of what I miss I'm split on this one okay because and one I have to admit is not so much for the music although the music was great and I really wish I could have seen it but it's more the experience I kind of really wish I would have gotten to be able to go to Woodstock right like I mean what an experience like come on can you do better than that yeah
Speaker 1but for the pure guy and like the 12
Speaker 2years old at Woodstock like I'm my goodness amazing but
Speaker 1the boomers had it good at least for that right we have to be jealous because you're a gen x like me right yes yeah so the boomers had it good in terms of that you know they
Speaker 2did the the break from like you know the conformist because that's what's the beauty of it is that you you were breaking from conformity so there was still like a you know safe low crime uh community where people still respected rules and behaved so you know you you weren't going to expect you get 70,000 22 year olds together and there's like going to be like crazy stories of all sorts of bad things happening they actually behaved it was just wow this is a new thing so the baby boomers to your point had it but the thing the musical event okay but before
Speaker 1you go to your your musical one by the way the what is it Altamont the the the one in California oh that with that that was the
Speaker 210 miles for 10 miles from from where I grew up in Tracy California wow I didn't realize that
Speaker 1I grew up right next to that because that was the end of the pre-love and then like it was a completely and you know what's interesting about it I've heard people say that it was really they you know up at like Woodstock everyone was smoking you know grass or whatever and then the cocaine came and it just changed everything oh I
Speaker 2wonder whether it was cooking because I was I I started to anticipate what you were going to say there because you remember that the problem was that the Rolling Stones hired the Hells Angels right for security and the Hells Angels I don't know if if you know this or if your audience knows this but certainly in those days I don't know if this is still true I you know I'm not a big drug user but um uh the um Hells Angels had the monopoly on the PCP trade oh maybe it's PCP I don't know
Speaker 1yeah it changed and they and then when you go look at the you know the historic music historians will talk about the end of the hippie free love was that concert and that was the start of the dark era okay so I so we so we sorry to interrupt what is the music concert that you would have like for pure music um so um well by the way
Speaker 2can I just add one little thing about the the altamont yeah um so while I was growing up there was a concert that was a concert that was a concert that I don't know over the intervening you know uh uh you know 10-15 years after that all disaster at the altamont concert they somehow started stacking up tires there and while I was in high school somehow they caught on fire oh my god they had this massive fire and you know you can't yeah like like it was I think it was like months they could not put it out like the tire that site is just a disaster just stay away from it okay anyway um so musically um I am actually a big opera fan as you know from the last time I was on you asked me a music question my tastes are extraordinarily diverse if I could do any any single concert uh other than Woodstock for the music I would want to go see Maria Callas um do Tusca my favorite opera and she has a particularly famous one um there was a recording from it 1953 at La Scala so 1953 La Scala Maria Callas as as Tusca so so
Speaker 1that was a quite a uh a barbell a barbell call there all right listen before we let you go why didn't you tell people about your uh institutional product your free product like give us the whole
Speaker 2spiel okay so um thematic market which is my main business is um uh institutional grade research that covers the global political economy and markets um so I took a you know a very integrated approach looking at politics geopolitics um fundamental economic analysis and financial analysis um of all global markets I'm a one-man band so that doesn't mean I cover everything all the time I go to what looks interesting and find anomalies that most people seem to be missing um one of the other problems with being a one-man band is that I have way more ideas than I have time to finish which I think is a similar problem uh for you yeah and so uh at my wife's suggestion I created a free product called seriously Marvin so you can you always say but you don't use the right intonation okay seriously Marvin yes no exactly and that is the way she said it and it's like and it is exactly that it is my unconventional views on uh you know sort of markets and economics um and uh policy issues um that I haven't had time to fully research and so I'm just sort of throw throwing out there and sometimes I come back to them in my my thematic markets research but some it's just you know there so but that's free you can reach both on substack or you can um get them directly from my website thematicmarkets.com um you can also follow me on my website thematicmarkets.com um I'm uh you know uh active posting on x um and um uh substacks notes and on LinkedIn
Speaker 1great Marvin this has been a lot of fun thank you very much for your time buddy
Speaker 2hey thank you for having me on I very much enjoyed it and uh I look forward to coming on again it's always fun to be on your podcast really fantastic as
Speaker 1good as last time buddy hopefully let's let's let's hope so repeat it thanks again let's hope so thank you
Speaker 2Thank you, bye.
PodcastTranscript AI