The Rise & Fall of Passive Investing w/Mike Green

hello and welcome to another edition of down the middle with d martino booth i am danielle d martino booth and it is my great pleasure and honor to have with us today mike green i first learned of mike's work i don't know why only about a year ago uh where have you been mike is my first question uh and it's it's so incredibly important that you listen to everything that michael has to say about the foundations of passive investing indexing what got us to that point there is a history there but first we're gonna start off with a bit of background on mike so uh it was our collective senior year in high school walk like an egyptian was the number one song i can i've still got every single lyric down walk like an egyptian every single one october let's see no august the 11th so we're just getting ready to go back to school a gentleman by the name of alan greenspan has his first day at work at the federal reserve so we go to school after labor day and uh come come sunday august excuse me come sunday october the 18th you're talking your parents into playing hooky the next day can you uh can you explain uh well in really simple terms it wasn't actually even playing hooky the next day it was as we woke up in the morning uh the news was that the market was crashing so i was in california so i had the advantage of a three-hour delay so by the time i'm awake at 6 30 in the morning there's an extraordinary event in play in new york city and i of course convince my parents that i'm running a fever and not feeling well and i'm gonna have to stay home from school both of them worked um and they were you know pretty much okay well you know you're 17 years old you know what you're doing um as long as you're not telling us it's test etc it was a monday so you know fairly reasonable hadn't been out drinking the night before or anything like that and um long story short i stayed home and watched the crash of 87 on on the tv and this is like it was day off but it's like mike green's day yeah exactly this is yes ferris bueller travels throughout chicago doing all sorts of interesting things mike green sits in front of the tv with a bowl of cereal and and watching the world fall apart it was just i mean it really was one of those things that you had to watch if you had any interest whatsoever in financial markets um and at that point i had already applied for early acceptance to the university of pennsylvania and so i kind of knew i was going to head off to wall street or you know at least to wharton at least initially and i just i couldn't miss the event and it was worth every you know every moment of that uh that that fake sore throat and fever i mean you could not have chosen had you engineered it homemade you could not have chosen a better time to go put four years in in school as 1987 turned out to be a moment not an event yeah how was it though going from a west coast i mean you grew up valley guy how was that transitioning over to pennsylvania yeah well for me actually it was weird because it felt very much the minute i walked onto the penn campus and and wharton uh school it literally felt like i was going home um you know i had always had kind of an intensity on the west coast that uh i would say is it's a more rel you know the west coast is much more relaxed in these components and and so i always had a relatively high level of intensity on either academic subjects or things that i was interested in hitting the east coast for the first time you come into contact with new yorkers and people from new jersey and you know all of a sudden there's kind of that intensity and speed that's missing when you're growing up on the west coast and surrounded by people who are into surfing and all sorts of stuff i certainly had my fair share of that but uh for me it was a very natural transition and i really didn't have any compelling reason to go back to california other than a period in the 1990s i moved back to california it started and ran a software company that i then sold in 99 but other than that brief window i never really spent any time in california moved back in 2017 and now i can actually sit back and enjoy a little bit more of the relaxed pace i'm sitting here without shoes on and uh enjoying myself and my my uh shelter at home uh office with a really cool background by the way i mean that's it's it's just an old map of uh san francisco bay so it's uh if if i were to put my my arm up you can basically find me right right up there so cool well um so let's go back further than that let's go back to no no we're not going to go back into it into the days that you you know you might have been drinking the night before no we're not going there um let's go back to the beginning of markets what was a market and when did the market that we refer to it today because if you're if you're talking to anybody and what would the market do today and they're talking about the stock market but that certainly was not always the case well it certainly wasn't the case so when you talk about markets i mean markets themselves think about you know the the most traditional form of it is just a you know you go to a souk right or you go to a market where people are selling wares you're effectively being bringing together uh those who have acquired goods and those who are seeking goods right um that's all a stock market is it's just a market that happens to be for pieces of paper that represent various corporate entities right and so most people tend to forget that history they don't they think of it as differently than going to the store because it is actually different right very few of us grew up in an environment where we had exposure to a souk or a you know a flea market sort of environment where there's negotiating and haggling that's going on but that's all the stock market is is it's effectively the meeting of people who want to haggle over the price of those pieces of the paper what we refer to as q and so the the data that we see on markets is actually just a history of transactions that have occurred in those markets right and that's kind of one of the important things to remember as we think about what markets are doing there's buyers and they're sellers we only see the inter the intersection of those two where a transaction actually occurs we don't have any data in terms of what was the market depth we don't know how deep was the market prior to the crash of 1987 we don't know how deep was the market prior to the crash in 1929 we don't know what the tipping point was in terms of those underlying components and for me that's the most interesting part about markets is trying to actually understand what happens when you step just outside of where that transaction occurred if it had gone another point if it had gone two more points was there depth that then would have created a discontinuity and that was really for me the most interesting thing that i've learned since coming out of the theoretical background in high school in college is all of the models that we we use and we assume when we think about markets when we talk about efficient market hypothesis or we talk about modern portfolio theory or we talk about the crash of 1987 and the assumptions that sat behind it the assumptions are one of a continuous market where you can always transact and what 1987 really was was a discontinuous market it was a market where the next transaction was so large that nobody was willing to stand in front of it so when did the modern stock market as we think of it is this is was was this a moment under a tree in new york uh in front of the new york stock exchange as we know it today did it precede that well there are there are histories of stock markets that go back to the early 1600s right so we have the examples of the dutch stock market with the dutch east india company etc so those have been around for four or 500 years but when we talk about a modern stock market right there's never a there's a contemporary stock market there's never a modern stock market right it's constantly undergoing evolution and so if you look back to the buttonwood tree and i think it was 1789 in terms of the founding of the new york stock exchange or what they label as the founding of the new york stock exchange you know you were trading claims on companies primarily fixed income there was some element of equity trading that was going on equity did not resemble what we talked about today they were in many situations full liability corporations so your analysis would have to include could you be sued or could you be held liable for the debts that were incurred by this entity over and above the capital that had been invested and those things have changed over the past 200 years right the rules of what we're transacting the definition of what we're transacting the obligations and rights associated with that have all changed in its most modern you know form to use the language that you you describe i would suggest that most of what we think of as the stock market today kind of began in the early 1980s with the introduction of products like futures with the introduction of liquid option markets and a tremendous growth of both fixed income and equity markets on exchanges that might not have existed prior to that right pink sheets for example were actually a real thing and there were many companies that were not actively traded on exchanges those rules began to change quite dramatically with the introduction of the dealer brokerage market the nasdaq right the national association of securities dealers which created markets for those etcetera so i like i kind of would put it back to that 1981 1982 time period which of course feels like the beginning of the the first you know great bull market which i might suggest has actually continued um but that would kind of be where i would start if you're starting to think about it and again i was just very fortunate to come into a theoretical understanding of that at a relatively young age you know kind of 12 years 10 years into the the modern market to again use the lexicon um so along those same lines uh when was when was the s p 500 when did that come about uh and in fact probably the next person i i interview after you gonna be a dear friend of mine howard silverblatt who's he's only been with s p for i think 43 or 44 years now um he's a walking talking spreadsheet it's just frightful uh and when when there's a shift in this index it's it's a monumental moment inside s p but how long has the spider you know dollar sign sbx how long has that existed so the s p itself was created in 1957. um at the time it had only 200 stocks in the index and then it was widened to 500 stocks in a tradable format there used to be a product referred to as in the initial introduction of futures there was something called the oex which was the s p 100 that was far more liquid in terms of trading activity than the s p 500 was in large part because the calculation intensity the ability to get a computer to very quickly run a replication or an arbitrage construction on 500 stocks was far more difficult than to do it on 100 stocks gives you some idea of the advances that have occurred in our lives frames used to take up entire rooms exactly i i very distinctly remember um sitting in a uh investment training course at spear leads in kellogg where i worked when i was at penn and you know a representative from merrill lynch came in and explained that the street now had a full pentabyte of information in terms of data that had been collected in terms of the total amount of information that was available on wall street right and you you stop and you think about how quaint that is today relative to you know we're all sitting around on our desktops at the time i think the ibm at had just come out and had a 30 megabyte hard drive right and so you know that's a small email attachment today um so the world has changed quite dramatically over that time period but the the spx began in 1957 it was introduced in futures forum in 1982. um you know we can talk through some of these components but you know one of my favorite uh references is actually going back to that point warren buffett in a 1982 commentary to the sec that actually was then published in business week magazine another somewhat archaic craft friends um in 19 after the crash in 1987 it was brought to light that warren buffett's commentary on futures was he could see a quote as i see logical risk-reducing strategy that involves shorting the futures contract i see no corresponding investment or hedging strategy whatsoever on the long side and so when you think about futures and and kind of the swashbuckling you know paul tudor jones of the 1980s what was really going on with futures throughout that entire time period is that they were the province of commodity traders they were the province of people who were either looking to hedge out their risk jim chanos famously started kinecos advisors using futures to offset the equity market exposure exposing his alpha for example but nobody really had a use for futures for another almost 14 years 13 years it wasn't really until the mid-1990s that we began to use them in something that resembles their current form where significant use was was created on the long side well that kind of brings us uh back in time i remember when i was on wall street and i first started to sense what the federal reserve was and the role it was playing but in your evolution as an investor in your evolution as a student of the markets and somebody's studying the structure when did the when did the federal reserve first come onto your radar screen because it was a lot later in life than october the 20th 1987 when alan greenspan put out an advisory that the federal reserve stood ready to back the banking and financial systems and within days and weeks was leaking information to wall street bond trading desks ahead of fed moves to inject liquidity in the system is it 1987 that the fed put was born but i didn't know squad about the fed until me personally that the run-up to the 90s uh that the dot-com days yeah so so people tend to forget that when alan greenspan came on as you pointed out he started in august and by october we had a crisis on our hands right so paul volcker was viewed as you know the greatest fed chair in history he had saved america from inflation now i obviously you know you may have heard me dispute that and i have some real questions about those dynamics but alan greenspan did step in in 1987 and did something really important it wasn't so much that he offered to bail out the banking system as what he really did was he facilitated the provision of lines of credit and made good the lines of credit for the market makers right the specialist firms so i mentioned spear leads in kellogg which was the largest specialist firm on the new york stock exchange at the time i actually traded commodities for them but the the challenge that you had as a market maker is that you used large amounts of leverage against a relatively small capital base to facilitate orderly transactions in a then manual order book where orders would come in and you would actually try to match a buyer and seller and if there was an inability to match that buyer and seller you would put your capital up against it and so in the crash of 87 the specialist firms had extended their capital and used borrowed money to buy stocks to try to facilitate a liquid market as the market fell out from under them the losses that they faced on those books made their bankers their banking relationships nervous they then pulled the credit lines for the specialist firms which destroyed the liquidity effectively there was no bid at that point and alan greenspan is in the air flying from dallas so you've got the head of the new york stock exchange i'm good friends with arthur cashion so i wasn't in the pits at the time but arthur cashion's walked me through that day but continue yeah i know so so art cashion actually is the gentleman responsible for getting a hold of alan greenspan and saying look this thing is going to go straight to zero unless you guarantee the specialist firms and get these lines of credit back open that was where greenspan stepped in and said okay listen we'll make you we'll make the banking system whole on any losses associated with specialist firms not being able to make good on these bets right and that's really what they were at that point is that they were bets that was kind of the first introduction of the fed put it played a significant role in halting the panic associated with 87 but interestingly enough i would actually say that that that wasn't really where the activist it may have been where it was born but that was kind of untouched for a period of time like the fed didn't really play that active of a role in markets at least on my analysis until we came to kind of the ltcm type dynamics and at that point at least the the the tequila crisis of mexico yep orange county went poof in the same year so but yes long-term capital management well with long-term capital management something changed on a structural basis right so the fed suddenly began focusing its interest rate activity its interest rate movements on not fighting inflation which is what it had done since basically the 1970s instead it shifted to trying to manage the expectations channel by preventing collapse of asset prices right so one of the challenges of the 1970s and the breakdown and so now you have to go all the way back you know to that time period if you think about the 1970s we kind of had this very simple mechanistic view which is you know this sort of keynesian or post-keynesian view that what we could manage demand by the government increasing taxes increasing spending we could keep unemployment low we could keep the economy going etc and in the 1970s many of those relationships broke down or at least indicated failure right so the phillips curve for example which is supposed to govern the relationship between unemployment and inflation we simultaneously had high unemployment and high inflation which is not supposed to happen right the demand component and so the fed very much had to shift to fighting inflation or at least what they thought they were doing was fighting inflation and that changed in 1998 and it became very clear in terms of the relationship of interest rates and asset prices that what had been a phenomenon of taking the punch bowl away to use the the warren miller reference the arthur miller i'm sorry um reference warren miller is a ski uh documentary maker um the uh you know you took away the the old reference was you would take away the punch bowl by raising interest rates and reducing speculation post 1998 it became when a negative financial event occurred i.e financial conditions tightened the fed would respond by cutting interest rates to try to facilitate borrowing to try to facilitate lending activity etc and that was a very substantive structural change that occurred in 1998 it's very clear in the data and in my view that's kind of the origin of much of what we refer to or bemoan as the activist fed okay well i'll have to send you a very boring paper i did about 1998 and long-term capital management when i was inside the fed if you can get through compliance at the federal reserve it's not going to be too it won't keep you up so okay um so 1998 uh at that time where was vanguard where was passive investing where was there even an etf back then i don't think so um but but take us back to 1998 1995 that era so if you go back to that point and and you know if you're thinking about the growth of passive investing or where vanguard was right so circa 1994 1995 vanguard and all other index providers are less than two percent market share right so very small relative to the overall investment universe vanguard was obviously the leader even at that point but two important things happened in that time period the first was in 1994 the levitt administration of the sec uh did a giant study on derivatives because the challenge that you had had prior to that point was that mutual funds were restricted from using leverage in most situations by the investment company act of 1940 they were also prohibited from buying securities they could have a first claim on assets effectively leveraged which included derivatives and in derivatives are also included futures so the levitt administration did a giant study in 1994 evaluating the risk of allowing mutual funds to use derivatives as in particular futures is really what they were focused on less on puts and calls as we think of derivatives and the reason that this appears to have had a lot of impetus is tied to the challenges that vanguard and others even at that small size were having in maintaining their index providers focus right so they began to experience what's called tracking error where you know you would issue an s p 500 fund you're supposed to very closely track the index but if you're not using futures to track that index you're forced to go out and try and buy every individual security some of those securities are much less liquid than others and by participating in that manner you're influencing the price of those securities in your portfolio relative to the index that then means that you have tracking error and that's the kiss of death for an index provider strategy so that whole sec investigation of derivatives in 1994 appears to have been done to facilitate index providers beginning to use futures and address this issue of tracking error and when that happened it led to an explosion of the utility of futures right so as a equity market participant in the late 1990s while most people were very focused on the dot-com dynamics the single most interesting thing that was actually happening was the explosion of volume that was going through futures and beginning to go into index funds which grew rapidly from kind of two percent to about 10 over the next couple of years so um so that would be if you will that watershed moment was that was that the big bang for passive investing or was there more market history to come it was was passive investing was there a moment later in time that it became the end-all be-all because it i and and actually at the time i mean one of my biggest clients at the time was trading massive spider futures just massive hedging his portfolio i mean the world was blowing up i mean because i was on wall street during the late 1990s and you've got this other guy slinging it around with with spys every day in and out but was there a different catalyst was there a big bang moment for passive investing so that was one of the key catalysts right so so that period 95 96 the beginning of what greenspan referred to as a rational exuberance in my analysis this is largely tied to the growth of passive investing in the use of those futures and and just very quickly the reason why that happened was because the indices were improperly constructed at the time they were built on what's called a market cap weighted basis which means that you're trying to buy shares in proportion to the total shares outstanding the unique feature of the 1990s was that you had a number of large market cap low float companies that had what we used to refer to as high levels of insider ownership and so these would be companies like walmart and microsoft and cisco and dell right when the index providers were trying to buy these in proportion to their market cap relative rather than the float adjusted weightings that were available the actual shares that you could have purchased it meant in companies like microsoft or dell that you were trying to buy twice as many shares as were actually available if you try to buy twice as much of something you're going to cause it to outperform that led to the dot-com cycle now i sat outside this as a as a you know value manager and and basically watched some components of this similar to what we're seeing today that construction of indices led to dramatic underperformance of value investing because you were not you know basically benefiting from this so they tended to be older companies that had all of their shares outstanding etc right and they also did not fall into the technology space so there became some very serious disconnects that occurred um that was kind of the first part of the growth of index investing was the the facilitation of that the second thing that happened was in 2004 2005 they changed the structure of the indices and then a very important but you know somewhat um innocuous change was made in the 401k space which was the introduction of what were called qualified default investment alternatives and this is part of the pension protection uh i think it's called the pension protection act of 2005. the idea was very simple that up to that point if you went to work for a company and you received a 401k and you saved money into a 401k there were two things that people were worried about one was relatively low levels of participation in 401ks that was a function of you as an employee had to make a decision when you joined a company that you were going to participate in the 401k so it was an active choice um in 2005 they changed that they turned it into a passive or the default choice so that when you work went to work for a company you were automatically enrolled in a 401k unless you refused to to do so so that single change was huge in terms of participation the second thing that happened was when you used to go to work for a company and get a 401k you had to actively choose what products you would invest in if you didn't make a choice it would just go into a money market fund and so your money effectively would not be invested in 2005 that changed with the introduction as i said of qdia's qualified default investment alternatives which meant that your corporate hr manager was selecting a fund that became the default and almost inevitably that became some form of balanced or passive vehicle and that was then further changed in 2012 with additional regulatory changes under the bureau of labor the department of labor that switched it almost exclusively to target date funds and so target date funds have been by far the fastest growing space in the industry they've gone from non-existent in 2003 they literally did not exist prior to 2003. by 2012 they became the default and today nearly 80 percent of all dollars going into 401ks are flowing into target date funds 80 80 um the really crazy statistic is in excess of 60 of 401ks now only have a single vehicle in them which is the target date fund okay since i left the federal reserve i've been doing my own investing so i'm i'm really happy i don't know about these innovations shall we say no um before moving on because i i want to get to a congressional testimony uh that janet yellen gave a few years ago which i just shocked me because she was aware of etfs so that that was the first part that shocked me but when we hear the word passive uh you know you you think of something as as being the opposite of assertive active aggressive but explain in just just consider me to be a monkey so explain how passive investing is not passive so just to very quickly define what people refer to when they typically talk passive versus active a passive product is one whose investment scheme the approach that it takes to investing has been built into an index or into a methodology that does not change over time and almost when i refer to passive i'm referring to things that are float weighted or market cap weighted not attempting to make a distinct bet in terms of what are the best companies what are the worst companies etc right no fundamentals no you don't care about fundamentals you are accepting the information that you're receiving from the market in terms of the last price is the right price right the rationale for passive investing is tied back to the efficient market hypothesis which is the idea that as any individual you can't outguess everybody else you can't figure out information better than everyone else and so in aggregate all of the active managers those who are making active decisions in their portfolios will give you the same results as the passive exposure because you're buying the market price and therefore you're better off going with a passive investment that can charge lower fees because it's not actually trying to do any quote-unquote work it's simply riding off of everybody else's work all right the challenge with that is that if you look at the theoretical underpinnings of that model that theoretical model that passive investing can piggyback on it's built on the work of a gentleman called bill sharp who won the nobel prize in finance for his work on things like modern portfolio theory the cap-m model sharp ratios etc um and his paper in 1991 called the arithmetic of active management made a very simple declaration of what passive investing was which is that a passive investor is one who never transacts they simply maintain exposure to the market right that was the rationale behind it the problem is is that that doesn't fit the actual implementation of passive because when you think about somebody who's trying to have exposure to the market the only way that you can get that exposure is by buying or selling and the minute you do that it makes you an active investor you yourself become a participant who are now influencing market prices that history of transactions that i described is what a market represents or market prices represent you've now participated in it you've joined that stampede in one form or another and the perverse aspect of passive investing is that they are actually the most motivated players because they have the world's simplest algorithms did you give me cash if so then buy did you ask for cash if so then sell there's no consideration in that for what price should i buy at what valuation should i buy at should i maybe hold cash for a better opportunity no you can't do any of those things your money is literally just being forced into the market regardless of the underlying conditions so i mean you know to me what you're describing sounds like trillions and trillions and trillions of dollars and we can pop a slide up at some point where we can see the growth of indexing which has been pretty extraordinary but but what you're describing is trillions of dollars of investors putting in a bunch of orders at the market which we were told was kind of risky behavior because that you were going to get somebody else's uh price not the price you necessarily needed to make sure that you got for your client but it just sounds like buy at the market sell at the market and i mean this can go on until you hit infinity so it's not quite that extreme but but yes and really you know to simplify yes that is you know i in no i do not think that vanguard or blackrock is behaving in a uh irresponsible manner trying to plow those dollars to work into the market they are absolutely seeking best execution within the market i have complete faith that they're doing that but what is being fit what people are failing to consider and what our research really focuses on is the cumulative impact of continual buying with no consideration for fundamentals and more importantly actually and this is where our research is somewhat unique is that we've focused on the dynamics of what happens when you transition between different investor types when you move away from the discretionary investor who's thoughtful about what does valuation mean if you fire them and give money to passive investments that simply assume whatever price is the right price you're going to change the market itself you're actually going to change the way the market behaves you're going to change the the values at which markets transact you're going to change the value of cash right so under an active manager or a discretionary manager framework cash can be viewed as a drag but it also creates extraordinary optionality because uniquely among the assets that i hold it gives me the ability to buy something without having to sell something else right optionality you get optionality when you move to a passive strategy that holds no cash you lose that optionality right and so that's a big chunk of what you're actually giving up you effectively are turning cash into a toxic asset and if we saw this in the oil market for example just this year where if you have a toxic asset you eventually may be forced to pay people to get to take it from you right oil prices went negative because nobody could find storage to store this toxic product cash is functionally the same to a passive investor um so walk us through why so i'm gonna give a good friend of mine jim bianco i'm not sure if you know jim but a good friend of mine jim bianco um gave me a few statistics this was in january i was actually out in your neck of the woods i was i i was in california at the time at a double line event and when we were there he said and i checked with them this morning the us has more than 12 000 investment advisory firms they employ more than 400 000 people offering investment advisory services more than 35 million investors use investment advisors whose assets recently topped 70 trillion 88 percent of investment advisors currently use or recommend etfs for their clients no other investment vehicle has a higher usage not even cash yeah so that's if if i've understood some of your prior comments that is not necessarily there's probably overlap but that is not necessarily one in the same that 70 trillion dollar pile with 401k investing not at all and so the the the vast majority of 401ks are actually managed now within corporations using out you know outsourced service providers uh you know examples would be like voyo financial or others right they will offer a limited menu of investment vehicles you can choose in many situations to opt out and self-do what's called self-direct your 401k that requires many additional steps in order to go through that process and so it's one that very few people take advantage of but that tends to be an asset pool that is separate and distinct from what you're referring to when you talk about registered investment advisors registered investment advisor space has been another area of growth and part of the reason why that growth has occurred is the general pressure on fees in this industry and that in part can be thought of as a byproduct of the just the disappearance of high interest rates right so you can afford to pay somebody one percent of your assets or two percent of your assets when your cash is earning six percent right when that hurdle rate is effectively there when your cash is earning zero those costs become very adverse to your portfolio and so there's just been tremendous pressure on fees in the industry both at the portfolio manager level and the portfolio management company level and also at the registered investment advisor level and so there's been an extraordinary adoption of etfs and index funds that can be offered by registered investment advisors at effectively no fees while they themselves are then able to charge you know typically a one percent type fee on their clients assets and so their clients are getting a quote-unquote reasonably priced dynamic but the other thing that you're hitting on this is that this is actually a big industry it has a lot of people that work in it those people are often lambasted for working against their client interests i'll be honest with you that's the exception in my experience rather than the rule the vast majority of people really do want the best for their clients but we've been somewhat hamstrung by the idea that the industry can't add value right that effectively like why would you do anything other than buy the s p 500 or you know buy the nasdaq right and part of that i would actually argue is it is an unfortunate byproduct of money flowing into those strategies right so if a market is not frictionless and money is flowing into a strategy it's going to raise the price of the securities that are in that strategy that increase in price is what we call a return right that's a capital gain and so we actually see out performance that is being created by these very dynamics the problem of course is what happens when people try to exit the system and what are the false signals that are received on an economic basis from prices that are increasingly detached from fundamentals um so have there been any moments in the past few years that you've seen stress in the passive space stress it was maybe quashed but are there have there been times that you've kind of seen cracks start to erupt in the system yes very clearly i mean so the the two most obvious ones three most obvious ones that i would point to and they tend to be a byproduct of the same thing that that you hear me referring to which is effectively crowded strategies right so when a strategy becomes crowded it works great until people try to get out or an exit needs to be obtained right and then you suddenly discover and warn buffet lexicon you know who's swimming naked right right um the the the events that i would point to um you know we had actually there's there's a couple of them but uh we had the february 2018 event that's referred to as valmageddon which was the collapse of the xiv and related vixx etf strategies that was one where the size of the short volt trade associated with the inverse of the vix the xiv and related product svxy there were a couple of them actually had become so large that it was completely dominating the market for what are referred to as vic's futures or ux futures and when an event occurred that required that to be exited on any normal day those products were taking up 70 of the liquidity when you had a significant event that caused a general de-risking and caused people to try to unwind those trades suddenly the requirement for liquidity jumped to somewhere in the neighborhood of 400 to a thousand percent of what was actually available in the market and exactly as we saw in 1987 transactions just stopped the market makers stepped away they had no contractual obligation to do so and the product was able to fall in an unconstrained fashion that then turned around and bled into the s p itself because people had to hedge out their exposure to volatility in one form or another but that was a very clear example we had a similar event in the fourth quarter of 2018 where um a variety of products also in the short volatility space what was referred to as an iron condor type strategy that was a less risky version of some of the short vol that had been in place those began to unwind in significant size at the same time that we began to see the first impacts in terms of flow of baby boomer retirements right so when a when you hit 70.5 these rules have changed slightly so it's important to understand that but when you hit 70.5 you have to start taking distributions from your 401ks and iras 2018 was kind of the first time we really saw that happen in size and so it you know a market event was created around these dynamics right go ahead and i mean i think it's just important to to contextualize what you're what you're describing right because uh february the 5th 2018 was jay pal's first day in office and the dow jones fell over a thousand points and he was he was much more of the paul volcker philosophical backstopping markets type not you know not on my watch and a few days later he gave his first congressional testimony and said it's not the fed's job to backstop markets at which point armageddon went poof and at the same time you know as what you're talking about demographics finally starting to play out you'll remember uh you'll remember because we're coming right up to the two year anniversary of general electric's debt being downgraded on halloween 2018 of that year and within 14 days you know there was no there was no issuance for 41 days the jungle market froze so that was a separate illiquidity event that it was exacerbated by what you're describing going on in the background and of course led up to christmas eve yeah and so you know if you if you remember um and one of my friends uh a gentleman by the name of vincent gillard at fcx stone has just written an interesting piece that highlights you know the dates and the dynamics of when the markets have bottomed on these last several events right so february the february 5th event um you know had a recovery off of it and and you know you actually um before we move off of that i actually would highlight i would actually say that the fed had a bigger role in those events than people are aware of there was a change to what's called the c car provisions right the capital adequacy provisions that occurred on february 2nd where they changed a loophole that it existed for shortfall positions so the risk capital that needed to be held against an equity loan was set so that um the risk off event for an equity loan was a instantaneous 30 percent decline in the s p 500 right a repeat of the 1987 style events the equivalent risk in terms of capital required to hold a short volatility position in the vix products was a 10 point increase in the vix right now that's those are nowhere near the same right that's the equivalent of saying there is no risk in short vole there's extraordinary risk in owning equities guess what happened prior to february 2nd 2018 large short vol positions built up relative to long equity positions which of course led people to look at equity positions say oh it's not extended there's no real risk here etc but all the risk was actually in the short vol products that blew up when those c car provisions were changed and suddenly the street had to go out and seek significant hedging against the outstanding vol positions so you know that's the sort of thing where i would actually say it was much less passive it was a function of crowding and a fed being unaware of what that change that somewhat obscure change in c-car provisions might set off well the the the 59 trading days where the vix closed in 2017 south of 10. it might have been a little bit of a flag for uh for for the feds and for regulators in general but that that's wha i i was on the inside and right after the crisis when they were starting to you know put extra provisions on banks at the same time that liquidity was coming down in the bond market and i'm like you can't combine those two that's like that ghostbusters scene you're gonna cross the streams don't do it and then poof the bond market inventory blip anyways um no it won't be the last time that regulators don't quite understand the plumbing and you've done a better job i think of anyone else of highlighting that you know i've gone on record as saying for the most part i think the people at the federal reserve are very well intentioned but there's a huge disconnect between the academic literature and the practitioner literature right and i wouldn't even say literature practitioner dynamics and we know you can't step into a market with billions of dollars and not influence that market but that's the explicit assumption that underlines most of the models right they tend to treat these things i mean as you know not having a phd in economics i don't either we're basically taught that markets are occupied by people who make constant mistakes against an expected value type model right a very simplistic model and so if you're trained to assume that fluctuations in financial markets are a byproduct of people constantly making mistakes it doesn't become particularly hard philosophically to say oh i'm going to step in and fix people's mistakes because this is a mistake right i'm going to correct them in a you know very professorial or stentonian centaurian tone right um if that's your viewpoint if you think that fluctuations are caused by mistakes as compared to simply people with different objective functions different ages different utility functions if i want to buy a house today my need to sell is much greater than somebody who might need to buy a house 10 years from now right and not taking into account those disparate motivations as being quite distinct i think sets you up to interfere in a market in a potentially unproductive way on a long term basis feels good as you do it right everyone seems at least somewhat happy well and i think uh you know i'm obviously not on the inside anymore but the the the shock of the coronavirus and it was a black swan event it was a shock but at the height of the great financial crisis uh corporate debt non-financial debt to gdp was 74 we entered 2020 with 78 percent so we entered with corporate america's balance sheet more levered up than it had ever been coming out of this not qe era because the fed absolutely had to get reserves into the system there was something very wrong with the plumbing in september of 2019 and people who were in the trenches knew it knew it um but there was there was something that felt very orchestrated about march 23rd you know it i you know and again i was not on the inside but the coordination and the the detailed aspects of what the fed did tell me that at least somebody at the new york markets desk came up with the game plan after you know kind of the christmas eve bloodbath that prompted the powell pivot where he apologized on january the 4th 2019 forever making these comments about qe when he was a rookie in 2012 but something tells me that the fed knew the dangers and had started studying it when janet yellen made comments in front of congress that she had some concerns about the collateral backing exchange traded high-yield funds and it's a whole different whole different dynamic if you wouldn't mind getting into kind of crossing that other rubicon it's not just the s p 500 now we've delved into exchange traded funds that are backed by investment grade bonds high yield bonds leverage loans for heaven's sake so i this again is one of the things and and i want to be clear when i say this that i don't think that everything sits you know passive isn't behind everything but it is a huge huge player in this and so particularly when you talk about fixed income markets i would actually suggest that we are seeing tremendous growth by you know in the the share gain for passive bond indices is actually even more rapid than the share gain that occurred for equities and part of that is a function of the market position and distribution channels of players like blackrock and vanguard who are able to negotiate preferential access to any number of savings programs etc and if you're a registered investment advisor you know vanguard and blackrock can afford to take you out golfing while the vast majority of people no longer really can right and so there's again not just cast aspersions on the raas because that's not what they're actually doing they believe the research that says these are the best products but part of the challenge that is created when you have these passive vehicles that have this really simple algorithm says if you give me cash then buy and the construction of the indices particularly within the fixed income space is such that they are market value weighted which means that a company gets greater representation or a debt security gets greater representation in the index the larger the issue is so the more debt that is outstanding and the second is the higher the price is right and so perversely we all know that fixed income instruments will only return a fixed amount over their lives but paradoxically the construction of these fixed income indices are such that if a bond is trading at 150 it is 50 more attractive than a bond that's trading at par right 100. now that's insane we know that's insane but that's how these indices are constructed right and it also drives an underlying dynamic where if you are a issuer if you're a corporation that's issuing debt all you care about is that you get vanguard or blackrock or one of the index providers to buy your debt because they're not going to do any analysis on the covenants they're not going to do any analysis on your ability to repay etc they're going to assume everybody else has done that work and as a result if the wall of money is going into people who assume that everyone else has done the work you end up with debts that are priced as if they're flawless right and they're distinctly flawed many of these securities that occupy these indices no longer have the covenants associated with them they're what referred to as cub light or no covenant in many situations those aren't debt securities right debt securities actually give you a preferential right to direct management once the asset value has fallen below a certain level if you have no covenants to enforce that you've just bought really terrible equity but that's how these these funds and these indices are constructed yeah if um i i actually just did a deep dive into recovery rates and because we've got quietly in the background we have bankruptcies running at the highest since 2009. uh and recovery is running well below them right i mean that's recoveries were 79 cents on the dollar uh and that was as bad as they got on leveraged loans right now they're 47 cents and and high yield bond recoveries are 15 cents on the dollar i mean the lowest we got last time i think was 22 cents under all i mean these are i i can't even wrap my head around this stuff stop and think about this we literally just had saber energy which was a high yield issuer in the energy space their bonds went no recovery goldman sachs had to take the bonds because there was no bid for the assets yes right i mean i i i don't think i've ever seen that happen for a publicly traded security before but that's exactly what you would expect to happen when the only buyer is an index provider that assumes that whatever price it was able to come out at is the right price which sets up an incentive structure for me as a participant in the underwriting to say okay well i can dump it off to vanguard as long as i know that it's going to go into this index the corporation gains extraordinary leverage the management team gains extraordinary leverage because they're able to construct this with no covenants etc right and as a result we're getting exactly what you would expect an incredible mispricing of the worst quality debt we've ever seen i mean when we came into when we came into 2020 morgan stanley did just the back of the envelope that said 42 of the investment grade universe on planet earth should have been rated junk and was not and that's why i say that it feels like there was such a script behind what the fed was doing because they backstopped grandfathered in and backstopped anything that was downgraded as a fallen angel from investment grade to high yield after march the 22nd and now he's had record fallen angels and we just i feel like we are still in the process of whistling past the graveyard and i mean my final question to you which i'm not going to get to yet is has has to do with what can break this dynamic but first i want to ask you a little bit more of a philosophical question uh because there has been something of an outgrowth of a combination of indexing and don't fight the fed and you know not to be there's no hyperbole here but but have we returned to a sort of robber uh robber baron era in the united states where in the way markets are structured feeds into the growth of some of the largest companies along with this idea of don't fight the fed you just need to be long well so i i um yes i think that we are in a new robber baron era and i do think that the structure of the markets particularly the dynamics of passive investing facilitates the accumulation of capital at the highest levels right and so just very quickly i referred to the financial to the fixed income bond uh index construction where market value determines how much money goes into a into an issue or into a company we have the same thing as it relates to equities right so they are float weighted or market cap weighted in terms of their construction that means that if they go up in price the next dollar that comes in puts more money in on a relative basis right and so it creates momentum and that's exactly what we've seen has been the dominance of momentum strategies over value strategies which would require people to make a discretionary choice of is this a good value or is it a bad value right and so what we've done is we've taken money away from those making those discretionary choices given it to those who only make momentum choices and we've created a continued inflow of capital because of the dominance of passive vehicles and things like 401ks so while we talk about passive share being somewhere in the neighborhood of 50 of managed assets about 40 percent of us equity assets overall about 25 of us fixed income assets that's a very poor characterization of the actual structure of the market because the younger generations those who are actively saving as compared to those who are withdrawing their capital they're over 90 passive all right so all the money that's coming in more than 100 of the flows into the market is coming into passive vehicles that have these momentum weights and what of course that means is is that each incremental dollar more of it goes to an apple or to a google or to a microsoft than it does to other securities and in our analysis at least that creates a disparate impact that that creates a reinforcing loop on that type of momentum behavior and the only way that ends is when money starts to come out of those types of strategies um well we'll again hold that thought for just another uh but is there a difference between kind of blindly having most of your of your proceeds most of what you're saving on your behalf flowing into a 401k and actively building a diversified portfolio of etfs so you've got each i mean you've got etfs everywhere i think they're more etfs now than there are mutual funds uh but but are are there certain venues are there certain uh portfolios where you can build out kind of a traditional think about the efficient frontier a traditional well-diversified portfolio of etfs um so one of the interesting things is while there's been a massive proliferation of etfs um there's i personally track somewhere in the neighborhood of 1500 etfs right so i know there's more than that but that's the cutoff basically of that 1500 which are the largest etfs in the us markets only 50 are gaining assets right so the etf space in aggregate is really dominated by a few small players like voo the vanguard etf vbr which is a another you know vanguard type products blackrock type products state steep street type products some invesco products just completely dominate the growth that's occurring in the industry those account for more than 100 of the flows that are going into the etf space and so the kind of you know interesting thematic sort of thing like you know a robot etf or a green energy etf those will occasionally capture people's attention but they don't really fit into the very simple asset allocation models that many registered investment advisors and financial advisors are choosing for their clients they kind of treat it as like well that's play money right you can put a little bit into those but at your core should be the vanguard total market index a vanguard bond index you know a uh vanguard international exposure and a vanguard maybe a small cap or a vanguard uh you know uh tax advantaged uh bond type fund right whether that's tips or anything else right super simple portfolios that's what everybody is looking for they want simplicity and the etfs play into that but only in a very narrow space so um how how does the fed and qe play into how and i'm speaking i'm speaking more about the actual level of purchases made on a on a monthly basis all of that money pouring into the financial system how does that make its way through to bolstering liquidity helping put a floor underneath markets well i think that's one of the things that's so fascinating is is this idea of a fed put or this idea that the fed will step in to bail out investors and and is there to protect investors that's really only a narrative that occurs amongst discretionary managers right i mean no one who is 25 years old who's participation in their the stock market is tied to their 401k at work where their employer has a three percent match and you know they're automatically routed into let's say they're 25 years old so they'll turn 65 you know sometime in 2070 give or uh yeah 20 20 75 they're gonna be in a target date fund that is tied to that maturity right that end of their working you know life nowhere in that strategy does it say hey do you think the fed is going to increase interest rates or lower interest rates uh at the next meeting right that participation isn't involved in any way shape or form nor is it incorporated into the behavior of these target date funds that now represent the vast majority of the money that is going into these types of products where the discretion occurs is on the part of the active manager who says i think the fed is going to step in therefore there's very little risk therefore i don't need to hold cash or i might even lever my portfolio to gain increased exposure to try to keep up with the benchmarks right that that i think is where that dialogue of don't fight the fed etcetera exists and we see this and the risk on risk-off behavior which is often a function of the active discretionary managers changing their direction or their loadings and so that's what we really saw in the spring of 2020 there was no change until the layoffs began in march there was no change to contributions in 401ks there was nothing nothing changed right and yet suddenly the active managers got cold feet and they said oh my gosh this is really really terrible we need to sell and so they tried to raise cash and discovered that their lowering prices in order to facilitate that didn't attract additional buyers right that same 25 year old doesn't get an alert from their 401k that says hey prices are down 5 versus yesterday would you like to buy more right it just doesn't happen and as a result when they went to try to sell on that risk-off event there were no more buyers prices collapsed now in terms of the fed behavior and kind of this 23rd date i think there's a couple of different components that go into that one is absolutely the fed stepped in with some very targeted actions for example supporting bond funds through blackrock right hiring blackrock to allocate capital is kind of the ultimate example to me of you know giving the fox control of feeding the hens right the second thing though that happened and this is one of those weird market structure things that people tend not to be aware of and again i mentioned the work of my friend vincent the 23rd is roughly the date at which a target date fund would have to look at their portfolio and say okay we are supposed to have a balance between equities and bonds the bonds have risen the equities have fallen so much so what am i going to do i'm going to sell bonds and i'm going to buy equities right that's what they have to do contractually in their in their target date fund structure well there's a ready buyer for bonds because the fed just announced that they're going to increase the quantity of bonds that they're going to buy right so selling those bonds is easy and going out and buying the equities starts to drive the price of the equities higher and immediately everyone says oh guess what it was because of fed qe that stock prices went up that's i think there's some truth to that but i actually think that it has much more to do with the systematic dynamics and those dynamics have governed the last four events march 23rd 2018 which was the bottom associated with vol again december 24th on 2018 it would have been the 23rd if that hadn't been a sunday so the 24th is is the next day that's available to you then again we had it occur in september 23rd of 2000 uh it was 2019 that it was september 23rd and then we had march 23rd again in 2020 these are after option experience these are at the point that the target date funds have to start the rebalancing is the fed aware of this i mean i've had conversations with them i think they're starting to be aware of it and so they may there may be some coordination of okay now would be a really good time because it allows us to pretend that we're actually doing this but i'm a little skeptical that the fed is actually fully aware of this so what what is the magnitude of versus let's say the 70 trillion that i brought up before with rias that are 88 flowing into these etfs what is the magnitude of target date funds kind of just a broad versus this 70 trillion dollar kind of monster out there well so it's quite small relative to that 70 trillion monster but remember that that 70 trillion monster incorporates all global assets right so when you talk about the size of these products particularly for younger generations in equities they become pretty meaningful so total market cap in the united states is around three trillion on any given day you're going to see kind of you know tens to hundreds of billions of dollars worth trade but remember that the difference on that is quite small right so if apple trades two billion dollars worth of shares in a day but the price only moves by a penny that tells you that you had a pretty tight balance between the buyers and the sellers if the price goes up a dollar or down a dollar right then that actually is telling you that there was an imbalance in one direction or another right and so when the the target date funds are stepping in as they did on march 23rd of 2020 and buying because of an underweight of like 10 you're potentially talking somewhere in the neighborhood of 100 to 200 billion dollars worth of equity buying that has to occur that's giant yeah on any on any given trading day absolutely yes so you know it was interesting that right before his death that vogel said that passive had become too big and he was starting to make some rumblings almost as if he'd been talking on the phone with you uh about passing this 50 line in the sand uh and what the implications would be if passive was really no longer passive anymore because it was so big yeah so i i think bogel had a different had a difficult place in history because unquestionably his products are adopted and used by millions of americans and have created a tremendous amount of wealth but his relationship with his the firm he founded vanguard actually became quite strained in the late 1990s as vanguard began to capitalize on its market position and introduce products that made him nervous right so things like etfs things like active rebalancing he was generally opposed to that and as you mentioned as of kind of may 2017 he gave a speech in which he said you know if everyone were to go passive it would be complete disaster markets would fail right most people tend to think that's way off into the future and the reason that they think that is because they assume that markets are truly liquid transparent relatively frictionless etc the data increasingly just doesn't support that right the the the participation in in a strategy can very rapidly crowd a market even one as large as the s p 500 or the u.s equity markets so uh you're you're ending this perfectly and uh demographically is one aspect fundamentally is another i mean from my perch following the macroeconomy we're seeing permanent joblessness rise we're seeing joblessness climb up the income ladder into white collar uh we're also seeing what looks to be uh not necessarily a second wave of the virus but a full-blown second wave of layoffs and bankruptcies which had tamp down in august and september look to be picking back up in october and i think if a lot of companies feel that the last few months of 2020 aren't going to be this massive rebound that had been factored in and priced in so where do demographics play into passive investing and do will fundamentals ever matter because again what you're describing and listening to i don't listen to it i keep it on mute but when when bloomberg's on in the background there is a lot of talk about the idea of qe infinity in fact fed policymakers are saying that qe is going to be a permanent fixture going forward and i think that that has the potential to provide reassurance to people that status quo as it is today with markets just generally speaking having hiccups along the way but but rising steadily is what what could upset that dynamic well i mean there's a variety of things that can upset the dynamic demographics of course is one of them because we have a large accumulated stockpile of assets associated with the boomers and those older than the boomers that need to be liquidated right so when we talk about iras or 401ks combined they're about 17 and a half trillion dollars in assets as they are increasingly managed by things like target date funds or robo advisor type frameworks it says you should have x amount in the s p 500 x amount in small cap x amount in international stocks et cetera as that becomes more and more a function of pre-programmed ages right and people are looking for these very simplistic rather than idiosyncratically composed portfolios for all their flaws at least people were doing somewhat different things right but when you have this sort of demographic dynamic associated with the baby boomers that ultimately need to sell those assets in order to fund their retirements to fund their consumption the real risk that you have is the increase in fragility that's created by these super simplistic algorithms that simply say if you give me cash then buy and likewise if you ask for cash then sell well what price should i sell whatever price i can get right and that suggests to me that what we're likely to see is this type of behavior where equities continue to become more volatile fixed income continues to become more volatile as the process of price discovery is increasingly impaired by these actors because you're you're saying sell at whatever price there is out there so put in a market sell well and and the perverse dynamic is so the boston fed a friend of mine at the boston fed um an individual i respect a lot put out a piece recently talking about passive investing and does it represent systematic risk right and one of the things that they highlight about things like etfs is that potentially they reduce liquidity demands because instead of being sold for cash they could theoretically be returned in kind right so instead of you having to sell your hyg and receiving cash for it at a distressed price well they could just give you the underlying bonds right and i look at that and i go that's the most insane thing i've ever heard right like what is the average american going to do with a low-grade bond that was suddenly deposited into their account when they asked for cash they're going to sell it without any form of professional trader who's trying to find the best execution price they're just going to dump it into the market this is this is a complete disaster if that's what you think is providing liquidity and they have to like they know this they have to know that's the case but there's an extraordinary amount of effort that is being put out by organizations that people think are working in their interest right vanguard has a great story about how they're out there for the small investor etc and the crazy part is i think they actually believe it it's very cult-like behavior there but at the end of the day that's not a solution and we saw this you know many vanguard bond etf products i would highlight something like bnd for example that went to a that went to a seven percent discount to its nav in the events of march 2020. right now that's 70 treasuries so what that's telling you is is that the corporate bond component of it which is all investment grade had to be trading at a 21 discount like that's not a liquid product under those conditions and that's why i would argue that the fed stepped in so aggressively to try to mitigate those risks on a short-term basis but exactly as you said they separated us from the fundamentals which continue to deteriorate many of those situations well there was a time in the days that preceded that the long bond itself was not trading in asian and trading in the middle of the night so i mean yeah there are lots of challenges associated with that it was just not what it used to be no it is definitely and i think it's important for people to remember that liquidity doesn't always mean what we think it means so when the fed adds liquidity it doesn't mean that they're actually out there facilitating the transaction of the securities that you happen to own what they're actually saying when they provide liquidity is is that they are allowing people who want to trade to borrow and post collateral so that they can execute right and by the same token we're not seeing commercial and industrial loans go up you know the revolvers were initially drawn down and now the reserves are just banks are piling into more and more and more treasuries every day they're not they're not making new loans well and and we see not just that we also see you know that tends to come through as various forms of misinformation right so when a cni uh loan is taken down or when a more importantly a line of credit right a revolver is taken down that money flows into a money market mutual fund and that then gets reported to the public as oh look cash balances have exploded right and there's tons of tons of cash on the sidelines well there's a huge difference between cash that was raised by individuals in their brokerage accounts and cash that was created because lines of credit or revolvers have been drawn down in advance of the event those can't be used to buy stocks right and those ultimately have to be repaid there's a subsequent withdrawal of that liquidity that is approaching and when that occurs i would expect to see further stress in the credit markets yeah and you've already heard banks say that they're they're already taking losses on some of the retailers who drew down those lines and are no longer with us absolutely um any last words on on fundamentals i i know that's not kind of your your specialty if you will but but i'd be curious to hear what your views are given this extraordinary macroeconomic backdrop not just here in the united states but heck globally well so i would actually highlight that the united states tends to be our focus for the very simple reason that it's the largest most liquid market and people tend to focus on the fact that the united states is disadvantaged because we have to go to the rest of the world to satisfy many of our consumption needs right so we run large trade deficits for example right well part of the problem with that is what you're actually saying with the trade deficit is is that we're interested in consuming things like you know trinkets from china or semiconductors or iphones or various other things but we're actually providing the aggregate demand to the rest of those countries around the world right so if we step away you know i have this conversation with people regularly if we step away where does china turn to meet its consumption needs it's certainly not china because china has a shrinking population and labor force at this point right europe is the exact same japan is the exact same the only place around the world that has a growing market for consumption goods is the united states and if we can't afford to do that because of adverse outcomes here then the rest of the world takes it much worse in my analysis and so as bad as things are here i think we sometimes do ourselves a disservice by not paying attention to what's happening to the rest of the world the other thing that that you're highlighting is that the cares act and the paycheck protection program effectively bought us time and turned many forms of labor into a cost plus exercise right so we will lend you money that we expect to forgive that allows you to pay your employees and you can keep 40 of it to cover other costs like the rent of your unit right in many situations small business people took advantage of both didn't pay the rent didn't hold reserves to ultimately repay the loans that they've taken out with the expectations they're going to be forgiven effectively kept their employees on but allowed the real options to expire and i would suggest that we've seen a lot of this we've seen people that have delayed paying their rents that have now accumulated rents there's no prospect of getting current on people who have delayed paying their mortgage there's no prospect of getting current on those mortgages right people have delayed it on commercial properties as a result you're going to see a large number of businesses that have cleared out their inventory and sold it off just go away right and all of those things are in process right now to me it's actually quite distressing to watch what's happening because the last part is policy makers tend to look to the expectations channel going back to that 1970s discussion they tend to look to the expectations channel to tell them how urgent it is that they do something and so when equity markets and bond markets are trading at all-time highs they look at it and say well it's not that urgent whereas in march with markets down dramatically oh my gosh it's the second great depression we have to move very very quickly we have to have giant amount of stimulus etc now you're seeing everyone basically saying yeah not that urgent right exactly the opposite it's i would argue it's the exact opposite i think it was incredibly urgent in march um what i've highlighted for people is that i think we've made almost every possible mistake we could in the interim period and instead of getting our economy back to work we chose that to use that largess to shut it down and you know further cement kind of the permanent damage that that you're highlighting so effectively well i hope that we can come together uh in you know in another six months or so and look back on 2020 and uh and and not have other other things that end with aged to talk about i'm not sure how this is going to go but uh but i do appreciate all of your time you do a great service explaining something that for most people is a passive thought so uh whereas they they need to be much more active in fact the first thing i'm going to do is is tell my friends with big 401ks that if they jump through a bunch of hoops that they can self-direct them so that's what i think that's important and i think one of the real challenges unfortunately is that your audience and my audience people that pay attention to this sort of stuff are actually naturally prone to being thoughtful about it right it's the people that aren't listening that tend to be you know for many of the people that are in our audience there's frustration because it's not clear what you should do but there's an awareness that something needs to be done at least that's the first part of the battle vast majority of people they just aren't thinking about this well i hope we've changed that to some degree today hope so i hope so this will be a broader audience than what you're used to excellent well thank you very much danielle thank you take good care uh enjoy living out there in that perfect weather while the rest of us descend into winter and for valuetainment this is danielle dimartino booth and thank you so much for joining today well that might have been more than most people can wrap their heads around in an hour and a half but i learned a lot i hope that you learned a lot listening to mike green uh this is danielle dimartino booth with down the middle with dimartino booth and i hope you join me next time and if you happen to have missed my discussion with brigadier general robert spalding you can catch that right here i look forward to your comments thank [Music] you

Channel: Valuetainment Economics

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Keywords: leland miller, danielle dimartino booth, valuetainment economics, valuetainment, quill intelligence, leland miller china, china beige book, Mike Green, Stock market, Passive money, Passive cashflow, Passive vs active investing, What passive investing is, S&P, Stock market crash, Stock market king, Understanding the stock market, Valeutainment, PatrickBetDavid, Patrick Bet-David, Valuetainment Danielle, Thiel Macro, Peter Thiel

Id: 4JUEC93O8A4

Length: 82min 32sec (4952 seconds)

Published: Fri Nov 13 2020