GM85: What If the Real Risk Isn’t Recession — But Reinvention? ft. Steven Bell - Top Traders Unplugged

Episode Transcript
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(00:00):
Will it make America greatagain? Well, I thought America was
pretty great before DonaldTrump came in. The more dramatic

(00:31):
impact is going to be AI.Thequestion is, will those people
find jobs or will we end upwith higher unemployment? And my
guess is that in jurisdictionslike the United States, you will
find another job. There willstill be jobs. Thequestion is, will
you get the same pay? Andprobably not. But in some areas you'll
bid up and ultimately therewards will be shared across society.
But there will be winners and losers.
Imagine spending an hour withthe world's greatest traders. Imagine
learning from theirexperiences, their successes and

(00:57):
their failures. Imagine nomore. Welcome to Top Traders Unplugged,
the place where you can learnfrom the best hedge fund managers
in the world so you can takeyour manager due diligence or investment

(01:27):
career to the next level.Beforewe begin today's conversation,
remember to keep two things inmind. All the discussion we'll have
about investment performanceis about the past and past performance
does not guarantee or eveninfer anything about future performance.
Also, understand that there'sa significant risk of financial loss
with all investment strategiesand you need to request and understand
the specific risks from theinvestment manager about their products
before you make investmentdecisions. Here's your host, veteran
hedge fund manager Niels Kaastrup-Larsen.
Welcome and welcome back toanother conversation in our series
of episodes that focuses onmarkets and investing from a global

(01:53):
macro perspective. This is aseries that I not only find incredibly
interesting as well asintellectually challenging, but also
very important given where weare in the global economy and the

(02:17):
geopolitical cycle. Wewant todig deep into the minds of some of
the most prominent experts tohelp us better understand what this
new global macro-driven worldmay look like. We want to explore
their perspectives on a hostof game changing issues and hopefully
dig out nuances in their workthrough meaningful conversations.
Pleaseenjoy today's episodehosted by Alan Dunne.
Thanks for that introduction,Niels. Today I'm delighted to be
joined by Steven Bell. Stevenhas recently retired from The City

(02:37):
after a long and distinguishedcareer. He clocked up over five decades
in the markets as an economistand money manager. He was most recently
Chief Economist at ColumbiaThreadneedle Asset Management. Earlierin
his career he has been anEconomic Advisor at the UK Treasury,
Head of Global MarketsResearch and Chief Economist at Deutsche
Bank's Investment Bank, Headof Multi Asset at Morgan Grenfell,
and also has been a successfulglobal macro hedge fund manager.
So, Steven, great to have youwith us today. How are you?

(03:00):
I'm very well, thank you.
Good stuff. So, you'veobviously transitioned, in your career,
into retirement but you'restill being pretty active by the
looks of things. Maybe, justto kick off, we always like to get
a sense of our guest’sbackground in markets. How did you
get interested and involved ineconomics and markets in the first
place?

(03:20):
I fell in love with economicsat an early stage. I was 13 and struggling
at a rather good school and Ijust started doing economics and
loved it, fell in love andthat hasn't changed. And I was delighted
to discover that I could go togood universities and study it, and
then that I could get a careerout of it. And it obviously led me

(03:44):
into investing, and that'sreally something I enjoy. I like
analyzing things, and that'sbeen a constant source, and I'll
continue to do that.
Yeah. And you've obviouslyworked in different roles but all
kind of economic and marketsrelated, you know. Any highlights
as you look back over your career?
Well, I started at theTreasury and the month I started

(04:17):
was the peak of public privatewages in the UK, never regained.
I actually got paid more as acivil servant than anybody else graduating

(04:52):
from the LSE which, by theway, has the highest paid graduates
of any UK university. So thosedays are long gone. I wouldn't recommend

(05:26):
going to the Treasury for ahigh pay now. Andthe good thing
at the Treasury, as a junioreconomist, was to be involved in
areas that were disastersbecause that's where the policy goes.
It's not good to be Chancelloror a Senior Civil Servant. But I
worked on foreign exchangewhen we were going to the IMF, cap
in hand. Iworkedon monetarypolicy when interest rates were raised
by three percentage points onthe basis of my money supply forecast,
which was wrong by the way,but it was too low, not too high.
We worked on fiscal policyrules, so it was a fantastic time
- a mini university, but wherethe output was policy. Andthen I
moved to The City, to MorganGrenfell, because it had a reputation
for economics. And I stayedthere as it became Deutsche Morgan
Grenfell, Deutsche Bank MorganGrenfell Asset Management. Ihaven'tchanged
jobs more than a couple oftimes, but the company's changed
its name. And I ran a macrohedge fund successfully but, unfortunately,
the firm I was working atclosed. I moved to continue the strategy
at a firm called F&C AssetManagement which got taken over twice
and was most recently ColumbiaThreadneedle Investments. So, that's
really been my career in a snapshot.
Very good. Fascinating. So,obviously it goes back quite a number

(05:55):
of decades. Imean,from theperspective of today, it always feels
like much has changed, butmuch is similar in markets. I mean,
what's your perspective hasmuch changed in terms of the challenge
of forecasting economics?
I actually don't think thechallenge of forecasting has gotten

(06:16):
any greater. I remembertalking to the Deputy Chair actually
of the FOMC If I could justdrop a title, if not a name, Don

(06:57):
Cohen it was. And he said Ihate to write. He wrote the Minute.

(07:20):
And he said, I don't likesaying, it's particularly uncertain,
it'll be clear in a fewmonths, because it's always particularly

(07:54):
uncertain. Whatis clearthough is we've had a collapse of
a consensus in politics,notably in the United States, but
also within Europe with therise of right-wing parties and, of
course, no more so than in theUK with Brexit and so forth. So,
what used to be called theWashington Consensus has broken down.
But there have always beenenormous crises, and traumas, and
so forth. Theone that reallyhit home to me was the equity crash
in 1987, which many of thepeople listening to this weren't
even born in. But that was thefirst big stock market crash. And
I remember nearly beinglynched when I went into an equity
meeting and said this was ahealthy correction given that these
people were, quite rightly,expecting to lose their job. But
that was the first one sincethe Great Depression and subsequently
we've had lots of them, so wehave much more experience of that.
Andthe other thing about theUnited States is, the first time
I went to Congress youcouldn't tell the difference between
the Republicans and theDemocrats. First of all, they're
nearly all men with silverhair and well dressed. Quite a contrast
in British House of Commonswhere they're also nearly all men
but badly dressed. Andthatschism between the Democrats and
Republicans is quite dramaticand has effectively produced a breakdown
in the legal consensus and allthis sort of stuff. And that is quite
an extraordinary development.But on the macro side, I don't think
the changes are necessarily asgreat that would influence investment.
Okay. I mean, one theory onthat that we heard, I think, in the
last decade was around thelongevity of the economic cycle and
that, because we've orientedto a service economy, we shouldn't
expect so many recessions.Obviously, we had Covid, which came,
I guess, as an exogenousfactor, but do you think the economic

(08:16):
cycle is longer, more stablenow? Or it's just that we went through
a period there where we had avery long expansion? What are your
thoughts?
I think that maybe you'reright about services. Most of the

(08:45):
volatility in GDP relates toinventory corrections. Demand goes
down a bit, warehouses buildup, and they bring the factory up

(09:21):
and say, cut production.Orders go to zero for the inputs
and you get a downturn. Well,obviously you don't do that for hotels

(10:02):
and restaurants in quite thesame way. So, I think that's really

(10:23):
quite relevant.Moreimportant, though, is that the
great success of central bankindependence, which may well be edging
the wrong way, notably in theUnited States, has produced a credibility
consistency of inflationmanagement that was provided by the
Bretton Woods system.Theproblem is the Bretton Woods
system is that when you gotinto trouble, you had to slash spending
and all the rest of it, andthat promoted more recessions. So,
I think that the 2% inflationtargeting has been a fantastic macro
success. AndI give exampleswhere, when I was at the Treasury,
I say I worked at monetarypolicy when the Chancellor set interest
rates. When I moved into TheCity, one of the key decisions you
had to make on forecastingbase rates was, is there a party
political conference comingup? Youknow, the Chancellor famously
stitched up Neil Kinnock whenhe was on the train coming back from
his party conference, when wejoined the RM. Similarly, the probability
of a base rate cut when thebudget was happening was like five
times any other period.So,it's become much more stable
and predictable. It's based oneconomics, not politics. So, that's
been good for the cycle. Butat the end of the day, what matters
for equity investment is theearnings cycle, not the economic
cycle. And that is stillsubject to the same vagaries as it
ever was.

(10:43):
And obviously you say it's asdifficult or no easier, no more difficult
on the economic side, I mean,you've obviously worn two hats. You've
been an economist and a moneymanager. I mean, on the money management
side, was it easier back inthe day?
Well, I'd say the following.When I first joined The City, I'd

(11:30):
go along to our investormeeting and tell them, from the macro

(12:18):
data, what was happening toretail sales and so forth. Well,

(13:01):
that's not happening. I’dgoalong there, and they tell me on
a Monday what the footfall wasover the weekend. They can even tell
me, you know, what particularbuying, which region. So, the data
from the stock market and fromother sources is unbelievably high
quality… well, unbelievablyrapid. Analyzingthat data is quite
a challenge. It's quiteinteresting that during Covid we
got all this data on opentable reservations, Google searches,
and so forth and they werefantastically useful when GDP was
moving around 5%, up ¼, and10% down, and all this sort of stuff.
But now some information isguided from that. Themacro data
has almost certainlydeteriorated in quality, subject
to structural change as peopleface to face interviews, and people
are much less willing toanswer a survey. You get a phone
call, saying, hi, I'm from thegovernment, I want to ask you about
your wages. It's going to goclick. So,there is a problem with
the data, but ultimately, Ithink there are pluses and minuses
on it. Research is a loteasier. Youknow, we used to send
students off to, what is now,the Office for National Statistics,
and they’d get the pressrelease, because there'd only be
a headline on Reuters, andwe'd have to read out paragraphs
over the phone. Then we gotmobile phones. So, information is
much more available. But ofcourse, investing, in many ways,
is a zero sum game. You'vejust got to have an edge over your
competitors in analyzing thatdata. Andobviously we already have
systems where annual reportscan be analyzed in seconds, and conclusions
can be driven to driveimmediate movements in stock prices.
And all the AI stuff is verysignificant. Butfor me the macro
theme is very powerful indeedfor the bond market, for the currency
market - basically monetarypolicy - because all those economists
largely (it's not all, butlargely economists) who are determining
interest rates, all went tothe same universities and read the
same articles as I did and,effectively, are predicting what
you would do if you were intheir shoes. So, in the equity market
it's obviously much morecompany specific and it's a different
sort of skill set. But for thebond market, the FX market, and interest
rates, I think it's stillmacro driven.
Yeah. And I mean it's achanged environment now. We've got

(13:23):
social media, and X, and allof this stuff. As you say, not only
does information getdisseminated very quickly, but there's

(13:44):
a momentum built around it orpeople kind of give their opinion
very quickly. It seems tocreate, arguably, more hurting, more

(14:04):
sentiment, more extremereactions. Imean,I'm thinking back
to the last year, August oflast year, when we had the Sahm rule
got triggered, and the equitymarket dropped, and it felt very
much like a crisis. Peoplewere calling for 75 basis points
in cuts and emergency Fedmeetings just on the back of a slightly
weaker than expected non-farmpayrolls number. Imean,is that
your perspective as well?Obviously, markets have always been
volatile and emotional, but doyou think that level of emotion and
volatility or hysteria hasincreased over time?
There's no doubt that therewere a number of financial markets

(14:29):
that used to virtually shutdown when things were bad. I mean

(14:50):
Deutsche Bank, which I used towork for, dominated the bund market

(15:12):
many years ago. And when bundswere weak, there's just no trading.

(15:33):
Prices would gradually sink.And I know traders who used to say,

(15:54):
there's only one Reutersscreen in the whole of the Deutsche’s
dealing desk. They're not evenrealizing what's going on. We'll

(16:31):
go short bunds and then bundswill fall. Thatdisjointedness is
pretty much gone. It's notcompletely gone but it's a global
world and people are lookingat stuff. I would trade Korea in
the middle of the night. Iremember walking outside the golf
course Hotel at 2 o'clock inthe morning trading Korean equities.
So, the ability to do thesethings may have changed but fundamentally
what social media does, in afunny way, is you mentioned herding,
it creates separate herds.So,if you happen to listen to a
podcast series, you know, theall-in podcast dominated by Trump
supporting tech billionaires,you get a very different perspective
than if you tune into onedominated by, you know, left leaning
economists. So, you can avoidthe consensus view if you stick to
that media. Butwhen it comesto the financial markets dominated
by Bloomberg and similarorgans, and the Financial Times,
Wall Street Journal, they'reall still very important, Reuters.
But Bloomberg dominates as ananalytical and news device and everybody's
watching and listening to verymuch the same thing. So,I think
that the herding, in a sense,for the investment community (the
professional investmentcommunity) is no different. It's
just global where it was verymuch national before. It's a much
more integrated global market.AndI think the retail investor is
the one where, particularlyUnited States, the retail sector
seems to have been buying thestock market when the institutional
investor has been a bit morecautious. And they've driven the
stock market higher andthey're communicating on these trading
platforms in a way that theysimply couldn't. They would call
up their stockbroker, back inthe old days, and that's a very different
environment that you just needto take account of.
Yeah, and from an economicperspective, you know, the question
is always are there parallelswith the past? But obviously, the

(16:56):
Trump policies are verydifferent. We haven't seen this level
of tariffs In, I guess, eventhe 50 years you've been in markets,
I'm guessing. Imean,have youseen anything like this? Is there
anything to compare to thecurrent administration's approach
to policy?
Well, the first thing to noteis that for the last 70 years tariffs

(18:22):
have been coming down, And,far more important, before Trump,

(19:15):
were non-tariff barriers. Andthey've been coming down. I mean

(20:08):
there's no higher tariff thana ban, right? That's more than 100%

(21:11):
tariff. It's an infinitepercent tariff. So,we ban imports
of hormone treated beef,although they don't clean their chickens
with chlorine, apparently,whatever they clean them with… So
that's a ban. And there areall sorts of areas where you had
exchange controls, capitalcontrols, which basically, largely
have gone. Within the EuropeanUnion, the single market is a fantastic
source of reduced non-tariffbarriers. Andin the United States,
in some ways, they had moreinternal barriers than the European
Union. Now, of course, theEuropean Union has lost one of its
biggest members in the UK.We've left of course. And there are
other moves going on there.But fundamentally, it is a massive
break from the past, and noparallel with the Smoot-Hawley tariffs.
Ialsothink that a lot ofpeople are saying, well, why would
anyone make a decision whenthey don't know what the tariff's
going to be? I think it'sbecoming fairly clear, up to a point
I should say, what's going tohappen and that is that the baseline
tariff is probably going to be15%. I don't think… Whocomes after
Trump? I'm assuming he doesn'tchange the Constitution to make him
lifetime president. Even ifit's a Democrat, is he or she going
to reverse these tariffs? Imean Biden didn't, and all the vested
interests that we'll gain fromthe tariffs we’ll start complaining

(21:31):
about them. So,I think thesetariffs are here to stay. I'm not
sure that there'll be muchretaliation in terms of other people
putting tariffs on. What youdo have is an intense antipathy towards
the US government which hasshown up in things like a big decline
in tourist numbers. I'mgoingto have to watch the Augusta Masters,
next year, without my wife whorefuses to go to the United States.
How long will that last? Idon't know. The snowbirds, the famous
Canadian snowbirds who fly toFlorida, they're going to be 20%
lower this year. Will thatpersist? I don't know. Butthese
tariffs, I think it's going tobe 15%, not 10%. I think we're going
to have, still, 25% on autos,still penal tariffs on China, etc.,
etc. But the proportion ofgoods, the USMC, you know, NAFTA
2.0, that has a big exemption.So, I think there'll be a high level
of tariffs on goods, but, sofar, not on services, where the US
has a surplus. And a lot ofthe tariffs could be shifted if manufacturers
shifted more to the serviceside. It'samazing that Japanese
export prices of cars fell 20%in last three months and they've
absorbed, effectively, all ofthe tariff increase. Auto parts have
not fallen in price at all.So, if you buy your Toyota, made
in Japan (assuming it is madein Japan) you'll pay this tariff.
But when you come to theservice, and it needs replacements,
they'll be more expensive.There'll be other methods that will
be used, as well, to reducethe price of the goods. I mean, a
maintenance contract, forexample, is that subjected to a tariff?
I don't know. So, I wouldexpect more of that. Not,in various
ways to attenuate it, but sofar most of the tariffs have been
absorbed by the exporter andthe importer. I think that's going
to lead to furtherpass-through, but for now it's been
a margin hit. There have beensome increases in prices, as we've
seen in the CPI report thisweek, but they're not dramatic. So,
that is quite a radicalchange, and I don't think it's reversible.
Itcertainly increasesuncertainty. It's bad news for industrial
CapEx, but there will be someonshoring in the United States. There
will be benefits from importsubstitution. But effectively, I
think the idea that thesetariffs may be temporary, forget
it.
Yeah, so taking that as thebaseline, then, that they're here
to stay at the levels you'vementioned. I mean, you talked about
the example of the Japaneseauto exporters and you referenced,

(21:52):
obviously, we're starting tosee a little bit more of an impact
this week in CPI. But still,you know, there are mixed views as
to whether this will besomething we'll see with the lag.
You know, it could be moreinto next year even, or not. I mean,
so, from your perspective,what's the economic impact going
to be? How is it going to playout both on the growth and the inflation

(22:15):
side?
Well, one of the first thingsthat any central banker will tell

(22:41):
you is they look throughone-off movements in prices. And

(23:02):
although I'm saying tariffsare going to go up, they're not going

(23:26):
to go up beyond 15% to 30%.He’ll threaten them, no doubt, when

(23:53):
he's feeling in that mood. ButI think that's the number. And I

(24:19):
think that the key elementthere is wage inflation. Andone
of the interestingdevelopments is that US wage inflation
has fallen significantly andsteadily and is already, arguably,
at a level consistent with the2% target. Bear in mind that applies
to the CPI, to this personalconsumers expenditure deflator. So,
the CPI is about 2% and a bit.Wage inflation is 4%. The Atlanta
Fed wage tracker came out as4% and it's sort of stabilized at
that level. Productivity isnearly that nearly 2%. So that's
consistent. So,as we getweaker data, and we could actually
get the odd very low payrollnumber, unemployment is a different
concept, obviously, frompayrolls. And because of the dramatic
decline in immigration (it was4 million in one 12 month period
and they could be in the labormarket in the payroll figures), that's
fallen dramatically. So thatcould lead to a significant reduction.
So,I think wage inflationalready would allow the Fed to ease.
They don't ease too much, ortoo quickly, while inflation is going
up and inflation expectationsare going up. But I think they will
ease. I'mmuch more confident,funnily enough, about Fed easing
over the next year than thebank of England, who are going to
cut rates next month. It's abig mistake. The ECB are already
on track to cut rates andthey're so low there's not much further
to go. So,I think that's,from the US economy point of view,
when asked to make adistinction between the stock market
and the economy, I think theUS economy is actually going to be
okay in 2026 after a wobblytime this year, and rates are coming
down. The yield curve willsteepen in response to that. But,
actually, I think, in contrastto most of my bond market specialist
friends, I actually think thelong end of the US bond market is
reasonably attractive - bigsteep curve there.
Yeah, I mean, a couple ofthings on that. I mean, obviously

(24:48):
you have the one-off impact oftariffs. I mean, from a bigger picture,
longer term perspective, whatseems to be the idea is that the
US will re-industrialize. Theywant to have more manufacturing,

(25:14):
so they want to produce lotsof stuff which was previously manufactured
overseas. But obviously, thelabor market, as you say, is not
growing the way it was andunemployment's already at 4%. So,I
mean will there be an impactfrom that reorientation of the economy
if they do start to seegreater production? I mean to hire
those workers, will you seekind of wages shooting up in some
sectors and kind of relativevalue effects? Okay,obviously economists
will say to look through thatto the broader price level. But do
you expect to see meaningfuleconomic impacts either from greater
manufacturing in the UK orforeign companies relocating, or
do you think people will justlive with the 15% tariff?

(25:40):
So, there will undoubtedly bemore on-shoring and less offshoring.

(26:33):
I think it's very interestingthe CHIPS act led to, you know, some

(27:42):
semiconductor factories beingbuilt in the United States. They

(28:29):
are shipping over Taiwanesefamilies. There'sa culture in Taiwan
that you work in thesefoundries and you're on call 24 hours
a day. There's a huge cultureabout it that is not the case anywhere
else. So yes, they'll bephysically in the United States and
they will employ some workers. Imeanconstruction of these things
definitely employs workers,most of whom, by the way, are of
South American origin, Mexicanand South American origin. So, there
will be shifting. Will it makeAmerica great again? Well, I thought
America was pretty greatbefore Donald Trump came in. Youknow,
there’s a very high income percapita. The more dramatic impact
is going to be AI. I mean, forheaven's sake, you can't have a sentence,
a paragraph without mentioningit. But it is a dramatic innovation.
Actually,when ChatGPT firstcame about, just before our company
banned it in the office, Iasked them to write a report on financial
markets. Now it had to be abit out of date because I think it
was only trained up to 2022.It was very good. It wouldn't be
very difficult to get macroreports written. I mean best-selling
authors… I reckon you couldwrite an Ian Fleming book with artificial
intelligence. So, that's aproductivity improvement. But the
speed of that improvementcould be rather greater. Ialwayspoint
out to people, some of whomcan remember who are nearly as old
as me, that you used to go tothe bank once a week and stand in
a queue, write out a chequethat was given to somebody over a
counter who counted out your30 pounds and then the check was
physically processed. And allthat employment, thousands of jobs
have gone. And they aren'tunemployed, they're doing other things.
Thepace of AI, which hasalready affected graduate recruitments,
accounting firms, is reallyquite dramatic and I think we will
see big changes in wages. Imean programming, for example, your
bog standard programmer isalmost obsolete, but your senior
programmer, who's what used tobe called system design, systems
analyst, they are worth a lotmore and they're more productive
in the same way as lawyershave become more productive because
they can just use Word torewrite the same contract by changing
the company name. Iknowafriend of mine got a draft prospectus
and they hadn't removed theundo facility and he saw the same
fund with a different namewhen he clicked undo a few times.
So, that's in productivityimprovement. The question is, will
those people find jobs or willwe end up with higher unemployment?
Andmy guess is that injurisdictions like the United States,
you will find another job.There will still be jobs. The question
is, will you get the same pay?And probably not. But in some areas
you'll bid up pay andultimately the rewards will be shared
across society. But there willbe winners and losers.

(28:57):
I'm going back to seeinginflation questions. I know the official
line from the Fed is that, Ithink, in the most recent minutes,
I mean, a number of the FOMCmembers are concerned about inflation

(29:21):
being more long lasting.Obviously,you've got a camp like
Chris Waller, who is very muchin the one-off adjustments kind of
camp. But I mean, for the restof the committee, what do you think
they're looking at in terms ofthat risk of more prolonged impact?
Well, bear in mind thatinterest rates have come down a long

(29:59):
way and, when you try andmeasure financial conditions, you

(30:28):
don't know how tight monetarypolicy is until maybe five years

(31:01):
later. And even then, it's abit uncertain, but it's a lot less

(31:39):
tight than it was. There's apositive real interest rate, that's

(32:11):
for sure. Butit's not thecase that the stock market's collapsing.
It's surveys like the SmallBusiness Survey, the NFIB, are showing
credit's not a problem. So,there isn't a suggestion that monetary
policy is really tight. Therisk of the one-off rises in inflation
being embedded in inflationexpectations are worth thinking about,
but I think they're modest.Andbecause we've got this pressure
on margins in the UnitedStates, you will have further downward
pressure on wages. Andalthough the price level people will
be saying, well, that's a realwage cut, it's lower than inflation.
Ithinkwage inflation isalready at the right level. I think
rates will come down andthey'll be precipitated probably
by a weak payroll report, someweak data. Trumpthreatening to sack
J. Powell is just bad formorale, bad for credibility. By the
way, Reagan did this. Well,Reagan didn't do it explicitly, but
members of his administrationdid when Paul Volcker was in charge.
And the rates were a lot, lotmore volatile and high in those days,
but he resisted it. Butsuchis the power, the perceived power
and willingness to just breakthe rules of Trump that it's a lot
of pressure on Jay Powell, wholoses his job anyway. He's not going
to be reappointed as chair, Ithink his governor terms a bit longer,
but he'll stand down.Theinterview process for the candidates
would be quite interesting.What's your view about the right
level of interest rates, Mr. Xor Mrs. Y? Oh, I think they should
be 3% lower. Then that's goingto be a dovish Fed Chair. And I think
that also lines into theweaker dollar series scenario because
every time they get an abilityto influence the Fed, it will be
to a dovish direction.Inaddition, my previous firm, Columbia
Threadneedle, a guy there,Gary Smith, wrote a terrific article.
He's an expert on foreignexchange and banks. And he was saying,
10-10-10 there'll be a 10%shift out of the dollar, into 10
different currencies, over 10years. And that was before Trump
was elected. Well, that'sgoing to happen, I think. So,the
dollar with lower rates in theUS, a shift in central bank reserves,
who are huge players in the FXmarket, that will weaken the dollar
as well in the United States.And any credibility issues related
to the central bank will justmake people, oh, we'll sell the dollar.
Okay. You mentioned beingoptimistic on the outlook for the
long end of the US curve,given the kind of backdrop of expected
Fed tightening. I mean, theother aspect that the market has
been talking about, althoughwe haven't had a big reaction, obviously
the big beautiful bill andthen the ever rising deficits. I

(32:34):
mean, you've been in markets along time. If you go back to the
‘90s to talk about the bondvigilantes back then, but the debt
was only 40% back then. Thedeficits were maybe 4%. Now deficits
are 100% and debt is 100% anddeficits are 7% or 8%. I mean, do
deficits matter or not? Ordoes that not worry you about being

(32:54):
a bull at the end of the curve?
Okay. When I was at theTreasury and monetary policy had

(33:22):
basically failed, We weregoing to switch to a debt strategy

(33:47):
and I was asked to come upwith good macroeconomic arguments.

(34:11):
And second only to theNetherlands, we have the longest

(34:34):
history of government debt.It's been all over the place - 350%

(35:01):
of GDP, 0%, 150%, 250%, 0%.It's been all over the place. And,

(35:30):
ignoring wars and theimmediate aftermath, I looked at

(35:50):
the relationship between thelevel of debt and the level of growth

(36:17):
and inflation over the nextfive years - no link at all. The

(36:47):
correlation was zero. So,whatdeficits mean is that the government
is absorbing a huge share ofresources, pushing inflation higher
via aggregate demand. But, youknow, that's the increase in the
deficit. So,my view is thatwhilst debt… The only fiscal discipline,
in recent years, has been theGerman Constitutional Court and even
they have been rode back a bitwith the new rules. So, I think,
effectively, there's more andmore debt. Japan's going to be issuing
more debt in the new election.Thefiscal rules, under Rachel Reeves,
well, they'll be observed inthe breach more than anything else.
So, there's a lot of debt. AndI think, if you're going to invest
in fixed income, you want totry something other than govies,
you know, swaps, credit,supras, all of those will be attractive
alternatives. But I don't buythis analysis that says the old bond
equity correlation is brokendown. Thiscomes back to another
point which is, equities areexpensive, but they typically go
up when they're expensive, inthe near term. In the longer term
they go down. Well, hang on asecond, how can that be? And our
answer is, when you get arecession expensive equities fall
further. So, the way toprotect against that is to make sure
you have a reasonable bondportfolio if you're an institutional
investor. But be careful aboutholding too many govies. Andone
asset that I think isparticularly attractive, partly because
of its great name, iscatastrophe bonds. I mean, no one
could be accused of missselling an investment called catastrophe
bonds, and they offer aterrific spread. They're cash based,
not bond based. You don't getduration. And they're a very attractive
investment. And there's beenhuge issuance. And, of course, insurance
companies are under pressureto mitigate these rising risks. But
I think they're a very goodsource of diversification because
they're basically uncorrelatedwith your other assets. So,portfolio
construction, your strategicasset allocation is the single biggest
decision you make. Itdominates your returns. And I, actually,
quite like equities, I quitelike bonds, and I quite like catastrophe
bonds and gold, which we’lltalk about another time. You can't
be overweight everythingunless you are leveraged. So,what
are you going to be,underweight? And I think you should
be overweight equities, butdon't sell all your bonds. Andwithin
your bond portfolio, I thinkone of the things to remember is,
although I've spent my careerdoing this, the duration call (which
is all about bond yields goingup and down), that's very hard. If
you're really good, you mighthave an information ratio of 0.3.
Focus much more on the spreadtrade, the relative value trade,
the yield curve trade, crossmarket and all that sort of stuff.
The gilt trade, so, SouthAfrican gilts versus UK gilts, that's
an instinct trade. Allofthose aspects mean that an actively
managed bond portfolio can addvalue. It's a more difficult search
in the equity market. I'veworked with people, particularly
those I've worked withrecently, that I would definitely
think have talent at addingvalue, but don't go passive in bonds
would be my advice, basically.
We might come back to theasset allocation maybe from the big
picture perspective again in alittle bit. But I mean, you talked

(37:07):
about the Fed independencebeing under threat and, obviously,
people draw the parallels. Youwould have been in the markets, you
talked about Reagan and hiscohorts, but most would point to
the 1970s and Arthur Burns.And then I think Bill Miller came

(37:30):
in as Fed Chair as well for awhile. It does look like a distinct
possibility that we will havea more dovish Fed Chair. Now,some
people will say, well, itdoesn't matter that much, obviously
there's a whole committee, butpresumably the Fed Chair will be
still very influential. So,how messy do you think this will
get, over time, with a kind ofa more politically sensitive Fed
Chair?
So, I think there's two thingshere. First of all, there's the correct

(38:35):
academic intellectual argumentabout whether 2% target is the right

(39:13):
number. And I think, if theywere making the decision again, knowing

(40:00):
what we know now, theeconomics community would go for

(40:38):
3%. Whywas two chosen? Well,it's close enough to zero to call
it price stability, but it'sfar enough above zero that rates
are not going to go into theeffective lower bound and deflation
territory. And that'ssomething that was expected to happen
maybe once or twice a century.Well, it's happened twice this century.
So,we need more breathingspace to aggressively cut interest
rates when the next mega shockturns up. And 2% is not enough. However,
nobody, no central bank isgoing to change it to 3%, because
if you change it to 3%, whynot 4%, why not 5%? So, you lose
all that credibility. So,whatI think is actually happening is
they are effectively targetingsomething above 2%. To coin the Bundesbank
and early days ECB phrase,close to but above 2%. And nowhere
more so than the bank ofEngland, who have had only one month,
in the last four years, whereinflation has been below target.
And they are forecastinginflation to go down to 2% in two
years time. It's 2027, by theway, when it's going to happen. Well,they've
been doing that consistently,and they have to, because if they
don't expect inflation to godown to 2%, they have to raise rates.
So, it's a complete nonsense.And I think the bank of England is
seriously at risk of losingcredibility. They certainly, I think,
are under pressure to supportthe government's fiscal rules. Andbear
in mind, it’s not like thebank of England is independent. The
governor's appointed by thegovernment, and actually, the bank
of England members wouldstruggle to be appointed under serious
Treasury opposition. And theexternal members are effectively
appointed as well. So,although it's independent, it's not
totally… No central bank'stotally independent from the legislature.
Soanyway, what I'm trying tosay is that the Bank of England is
pursuing a target, by revealedpreference, of more like 3%. The
Fed, which was flirting withthis idea of averaging inflation
after years of under 2%, isactually going to implement that
with, you know, cutting rateswhen inflation risks… It's all about
risk management, whereinflation is more likely to be a
bit above 2% than a bit below.So,I think we should really be looking
at 1% above target in the UK,50 basis points above target in the
US, and maybe a little bitabove target in Europe. Bear in mind
that Europe has been cuttingrates when they've raised their inflation
forecast on a consistent basis.
Now, obviously that's a fairpoint. And I mean, coming back to
the idea of the Fed Chairbeing under political persuasion,

(40:59):
and Trump has already saidrates should be 3% lower. So, we're
not talking about a 25 basispoints cut here. Imean,do you think
whoever comes in, have you anythoughts on who that might be? Do
you think we could seesomething more radical and more coordination
between fiscal and monetarythan we've seen in recent years?
Well, let's imagine that wedid get a three percentage point

(41:20):
cut out of the FOMC. Imaginethey said, oh, sorry, we agree with
Trump, he's wonderful. Rateswould fall at the front end, there'd
be a steepening yield curve,growth would pick up, inflation would
pick up, and we'd end up withnot minus 1.5% real, but minus 3%,

(41:47):
4%, 5% real. I mean, we'veseen that happen. Hecould appoint
Erdogan as Central BankGovernor (from Turkey) who believes
high interest rates causeinflation, and he's, you know, had
100% inflation. So, I think weunderstand what would happen.
I guess the question is, howlikely is that, do you think?
Well, you know, I'd like tocome back as the bond market said
Carville, didn't he?
Exactly, yes.
So, the bond marketvigilantes, I feel that, you know,

(42:10):
they've hung up theirholsters, retired to their sheep
farms, but they will comeback. And they did come back for
a while and Scott Bessent, whois the guy who understands these

(42:40):
things, you know, they didcause some retrenchment by the government.
Andof course, the fundingcost of treasuries is dependent directly
on treasury yields. And,whilst there'll be a rally in the
front end, there'd clearly bea steepening. I think it could be
a bear steepening or a pivot,basically a pivot, but a steepening
and high yields. And that willbe a discipline. If he does that,
it would be very disruptive.It would be bad news for the stock
market, and I think they rowback from it quite quickly.
Yeah, I was going to ask thatabout the impact on the stock market,
because I think we naturallykind of expect these things, because
they're opposed to whatstandard economic theory would tell

(43:01):
you to do, would be negative.But in the short term, could the
stock market benefit on thekind of a euphoria trade of that
Trump is going to prime theeconomy with lower rates and, obviously,
he's already got a large deficit.
Well, I wouldn't buy the stockmarket on that news. If someone secretly

(43:34):
revealed to me they're goingto sell… I mean, I might find a stock
I might buy but I’d certainlysell the dollar of course. No, I

(44:12):
think sell the bond market.So,he threatens these things. I
don't know, I can't reallypredict Trump very well but he seems
to threaten X, and if he doeshalf X he says, well that's half
what I said before. So, Idon't think anyone seriously thinks…
Imeanthe regional bankpresidents, many of whom are more
Republican, I don't know howmany of them are mega MAGA types,
but they are able to voteagainst FOMC moves, and Bernanke's
rules that he kind of semiinvented, which said only one regional
bank president can dissent orsomething like that. I think the
consensus would be so stronglyagainst that, but you know, we'll
see.
Any thoughts on who's the mostlikely replacement for Powell?
No. I was interviewed by theBBC's Chief Economics Editor about
whether Volker would bereappointed. I said yes. And after

(44:36):
he walked out the door,because he came to my office to do
it, the thing came acrossReuters, Volker resigns, Greenspan
appointed. And he came back into ask me about Greenspan. I was
very complimentary aboutGreenspan and all my reasons why

(45:00):
Volker was going to beretained were edited out into appreciations
of his career. So,myforecasting success in this area
is minus one. So, I wouldleave it to other people to come
up with.
Well, you mentioned Greenspanand obviously there are some parallels

(45:21):
now between now and the late‘90s. Obviously, you had Greenspan's
new paradigm productivity boomand now we're in the midst of AI,
as you say. I meanproductivity growth, as you say,

(45:43):
is 2%. So, it was very weak.Now it's bounced back. So, it hasn’t
been exceptionally high. Imeanthere is a view out there that
we could be in a productivityboom for the next few years driven
by AI as well as some of theproductivity initiatives we've already
had. It sounds like you'reoptimistic on the impact of AI. Do
you think it'll be thattransformative in the near term?
Yes, I think so. I think thatthere's huge scope for productivity

(46:25):
gains in the service sector. Imean just the job that we do, you

(47:01):
know, if you're writing aresearch piece, analyzing stuff,

(47:24):
it's, you know, type it intoGoogle, do it. I used to have to

(47:59):
walk around libraries gettingacademic articles and you know, go

(48:25):
to bookshops, and ring peopleup, and so forth. Imeanit's already
happened a lot, and that willcontinue. A lot of it isn't in the
statistics, by the way. Youknow, your iPhone consists of a map,
a torch, a radio, abroadcasting device. These really
don't get reflected in GDP,the price you pay for your iPhone,
or any services it uses. But alot of those benefits aren't captured
but are there and enableproductivity growth in other areas.
Fewpeople turn up to thewrong restaurant like they used to
do, in the old days. Icertainly experienced that. But I
think in terms of the servicesector productive, there are massive
gains, and there are massivepotential gains, in the NHS, for
example. I'm a big fan of theNHS app. Ihadthe experience of
my mother and mother-in-lawbeing in hospital trying to get a
blood sample, which was verydifficult for elderly people. Well,
if it's on the app, they'donly get the blood sample. My mother-in-law
was admitted to a hospital.She was discharged from the same
hospital in the morning. Ittook them two hours to get a blood

(48:45):
test. So,whilst they're notquoted companies, there is scope
for public sectorproductivity, very significant scope.
So, I think that I do… To someextent, this is the continuation
of a trend that's been goingfor many, many years. WhenI joined
The City there were nopersonal computers and our IT department
was actually the biggestdivision in the Merchant Bank. And
I bought the first Apple PC,it was the first Apple PC in the
building and that improved ourproductivity. So, that growth is
enormous. Technologyin theCity has improved productivity massively,
but headcount's actually goneup because international financial
services are a very stronggrowth area. But a point I'm trying
to make is that it has been atech driven growth in productivity.
Thespeed with which AI can bedisseminated, you know, you download
DeepSeq or ChatGPT, 100million can do it in a day. And the
issue of implementing that isquite complicated and is taking longer
even than people forecasted,you know, a few months ago. But it
will be big. It'sbigger,faster than previous innovations
because of the nature of thechange, but more service sector orientated
and, ultimately, morepowerful. Very, very powerful indeed,
I do think so.
And obviously, the marketimpact, to date, has been on the
infrastructure spend inrelation to this. So Nvidia has benefited
from the spending on theirchips. The second order impact presumably
then is the service sectorwill see larger margins because they
can cut costs, is that it?

(49:06):
Yes, yes, basically.
Presumably that won't beevident in the data in kind of a
one to two year, but it mightbe evident over kind of a four to
five year time horizon.
It will build. It will build.
Just taking that view, I mean,obviously, we've got a number of

(49:32):
different, you know, currentsat the moment. There's AI, as you
mentioned. There's risingyields, as I mentioned. And there's

(49:58):
also this breakdown in theWashington consensus, the end of
the neoliberal era. So,Imean, one of the things, if you look
back through your career inthe markets, markets go through regimes.
You had the ‘70s that wereinflationary, prior to that was a
lot of fiscal demandmanagement, ‘80s, ‘90s, disinflation,
20s, the first decade was alost decade and 2010s secular stagnation.
Now we've moved into a newregime which has taken shape., higher
interest rates, more volatile. Imean,if you were to try and paint
out a picture for the next 10years, if you could, that might inform
asset allocation. Big picture,do you think it'll be stronger growth
driven by AI or what would bethe defining feature, more volatile
interest rates because ofdeficits? What would your guess be?
So, I think that’s a very goodquestion. First of all, the end of

(52:27):
the disinflation era.There'sa great book by Charles Goodhart
and Pradhan, I think his nameis, that really caught this very
well. A lot of people in thebond market, in particular, have
only experienced fallinginterest rates until recently, and
they're anchoring on lowerrates. So, I think rates will, not
too dissimilar from currentlevels, as I say, I think US rates
come down a bit.Inflationtargeting means that inflation
is probably going to be alittle bit above 2%, as opposed to
2% or below, which is what ithas been. That's not a big change.
And I don't think thevolatility is going to be dramatically

(52:52):
increased. Idothink, if andwhen we get the next recession, and
I don't see a recession in thenext year in the US or anywhere else,
then I think because equitiesare expensive in most cases, the
equity market will struggle.And that's why bonds are still an
important part of yourportfolio. So,by the way, I do this
podcast on LinkedIn, and I'vecriticized the government for lifestyling
forcing private investors,wealth managers, to put their clients
largely into bonds. And Ithink that is a mistake. ButI'm
talking about the moreinstitutional portfolios, where I
do think you need bonds as ahedge against the recession. But
I would not characterize forfinancial markets, for the next five
years as a burst ofvolatility. I don't see that at all.
We'vecertainly had,particularly for individual stocks,
a surge in volatility becauseof Trump, and not much else. But
I think that overall, I thinkyou mentioned economic cycle. I think
the economic cycles aretending to be smoother, shorter,
longer. AndI think that's theoutlook from my point of view. I
think equities willoutperform. I'm not sure they'll
do 5% or 6% on average, morethan bonds, quite frankly. But I
think they will outperform.And I think that that is a theme
that we will see.Productivitygrowth fell in OECD
countries every decade after1950. And I think that may be slightly
reversing. The boom inproductivity in the dot com period
was largely about computersand a little bit more. So, we may
have an end to the fall inproductivity growth and a slight
rise but we're not going to goback to 4% productivity growth in
the developed economies. It'smore like an extra 50 basis points,
which is still a massive change.
Now, obviously, equities arealready expensive, at least in the
US the S&P 500 PE is whatever,22, 23, something like that I think.
So, is that just the scenario?Equities do fine, they stay expensive

(53:18):
but do fine. And then we seeyou get opportunities? Imeanoverseas
there's a lot of talk aboutthat we haven't talked… I mean you
have touched on a bearish viewon the dollar. So, I guess is that
the way to play this is non-US equities?
No, I think that first of all,for example if you buy the FTSE,

(54:00):
you know, most of thoseearnings are in dollars. So, you

(54:27):
think you're hedged becauseit's quoted in sterling, but you're

(54:51):
not. And equities, in manyways, are also hedged. But I think

(55:21):
that I am bearish with thedollar going down further. So is

(55:50):
everybody else. It's not goingto be the thing that's going to make

(56:22):
your year, selling the dollar. Ithinkthat the question of the
US… It's interesting thatthere's a silly process in the US
where analysts have optimisticexpectations for earnings that they
cut just before the reportingseason, allowing companies to beat
earnings on a consistent basiseven when earnings are constant.
Now at the beginning of theyear there is normally a 5% to 10%
bias. Adjusting for that,there hasn't been a reduction in
US earnings relative to thenorm if you can follow that gobbledygook.
However, within that there'sbeen virtually no reduction in the
tech earnings, the Mag 7, anda big reduction in the rest. So,what
you've got is an increasedmargin squeeze on the 493 and small
cap which is a big feature ofthe declining pressures on inflation,
by the way, and that reflectsthe enormous competition in that
area. So, the tech theme Ithink is alive and well. Pick your
tech company properly. I meanI'm not a stock picker and the guys
at my previous firm areextremely good at this and I just
used to follow what they say.But anyway, generally speaking that
theme I think is intact. IthinkUS exceptionalism is still
intact and I don't think I'dwant to be underweight US equities
simply because I'm a bitcautious about the dollar. A lot
of these companies have a lotof overseas earnings. I think it's
30% for the S&P and more forsome of these tech companies. So
that would be my theme. Imean,what happened? A lot of European
investors pulled their moneyfrom the US and stuck it in Europe.
Well, if you take $100 millionout of the US stock market, it doesn't
really matter. Put it in theSTOXX 50, it's actually a much bigger
percentage. And I think thatpushed European equities up to quite
high levels. So,I don't thinkthere's a regime change where you
should underweight the US. Ipersonally still quite like the US,
particularly the tech sector.And there are lots of costs. Onetheme
that I think is interesting iselectricity prices should fall in
Europe and the UK relative tothe United States over the next few
years. And that's actuallypriced into the futures market. I'm
not sure it's priced intoother forms, but that would be my
theme. Volatility from the US,political uncertainty, but from macroeconomic
terms, somewhat higherinflation, wobbly growth in the US.
2026, I think, will be a goodyear for US growth and Europe will
continue to muddle through asit normally does.
Well, you touched on theconsensus bearish view on the dollar.
So, I'm curious how you'venavigated that through your career

(56:44):
as an economist and moneymanager. Because obviously not all
economists are very good atthe markets. They're good at describing
the economic situation butthen ask them to trade and it becomes
a different scenario. You'veobviously done both successfully.
Yeah, good question. So, myinvestment philosophy was to look

(57:30):
for value where marketssentiment is stretched and news flow

(58:01):
is turning. Now I said valueis a very poor predictor of equity

(58:42):
markets, so I would never usethat for the aggregate equity position.

(59:20):
And basically, I'd go long orshort at extremes. And I was more

(01:00:01):
confident in buying equitieswhen they were in a bear market.
Ididgo long equities inearly 2009, driven by the fact that,
I mean, I was bearish. Becauseearnings expectations, after Lehman
went bust, were plus 25% in Q12009. It was clearly bonkers. And
by the time we got to March,they were minus 25% and that was
too low. And there were otherthings, TARP, and the rate cut, the
Fed move, and all the rest ofit. But anyway, so, that was a cheap

(01:00:23):
market by my valuationmetrics. Butin terms of the dollar
and currencies, you don't wantto be too extreme when you agree
with everybody. So, what youwant to do is find that contrarian
approach. Most of my investorshad portfolios in CTAs and that's
a trend following system.So,we were the opposite of that.
We were a good diversifier.And the one thing, when you're an
active trader, the keychallenge is actually not picking
winners, it's dealing withyour losers. And the biggest lesson
that I learned, running myhedge fund, was to change the way
I did my stop losses. I'venever been a fan of trailing stop
losses. Trailingstop lossesbasically make you a trend follower.
And that's great, that's fine,people make money out of it. But
that's not me. I'm afundamental investor. And we had
these hard stops that werecliff edge. And we blasted through
some stops on some occasions,notably with libel issues. So, what
we changed it to was a dynamicde-gearing. So, we had a stop loss
and when we got to maybe minus1.5% on the trade, we'd halve the
risk limit. And then when wegot to 1.75, we'd halve it again.
And what that meant was wenever broke through two. Moreimportantly,
it cleared your mind becauseif you put a trade on, because you
like it, and it goes wrong,you lose confidence, you're unhappy.
But maybe the reasons are justas great. You cannot detach yourself
from that misery anddepression of getting it wrong. And
everybody gets it wrong, eventhe best. So, this dynamic de-gearing
is the single biggest riskmanagement gain that I learned. Andof
course, what you must alwaysremember about risk management, the
number one rule is to makesure you quantify your risk. The
number two rule is don'tbelieve any of those numbers because
they're based on, you know,matrices of correlations that are
not stable. Never mind thediagonal vol, the off diagonals are
not so... So, but you mustquantify it. But you must be careful
thinking that tells youeverything. So that'd be my single
biggest rule. Iusedto tradefutures, not only equities, bonds
and FX. And I went throughphases where I made all my money
in in rates, nothing in FX,and then I ended up making all my
money in FX. And I used tomake steady earnings in equities
with a quant model, and thenthat stopped working. So, there's
no such thing, in my opinion,of a totally discretionary investor
who doesn't look at anything quant.
Yes.
Similarly, there's no suchthing as a machine does at all. Somebody
designs the machine, turns itoff, changes the machine. So, there's

(01:00:43):
always a spectrum. And I thinkone of the key judgments you've got
to make, I think it may beJohnny Cash, ‘know when to fold them,
know when to hold them’. Idon't know about this, ‘don't count
your money while sitting atthe table’ or whatever that was.
But anyway, that's animportant feature. You've just got
to know when you're wrong andyou should get out, or whether they're

(01:01:04):
wrong and you shouldn't. Andit's true about a quant model as
much as anything else.
Pretty good. Well conscious,we're coming up in time. Now, I was
going to ask you about advicefor money managers, but it sounds
like you've already given ussome very good advice there. But
I do want to get your thoughtsand advice for people coming into
the markets, either earlystage investors, or economists. Reflecting

(01:01:27):
on your career, you know, whathas been influential? What would
you suggest to people to do orto read if they want to get better
at macro?
So, I find the quality ofmacro research output is staggering.

(01:02:06):
I mean I used to publishresearch and people would tell me

(01:02:38):
you can't talk about thenatural rate of unemployment, the

(01:03:05):
Sahm rule. I mean, the ideathat I could actually put that in

(01:03:40):
a headline. So, theeducational level of the market has

(01:04:07):
gone up. And the quality ofstuff from Goldman Sachs, Pantheon

(01:04:37):
Macro… Just two people that Iread quite a lot… Deutsche Bank.

(01:05:09):
I mean, the quality of inputis amazing. Of course, everyone's

(01:05:39):
got that access to that.So,your skill is in finding the
nugget that's interesting andyou've just got to look for it. And
for me it's got to fit into atheme of macroeconomics that I understand
and there are bits that I justdon't understand. Imeantechnical
analysis, chartism, call itwhat you will, is important intraday
but I don't see the mechanismand I've got experience and evidence
that it doesn't work. So, Idon't bother with that at all. And
that's a resource gain becauseyou don't have to spend all your
time looking at these 20 yearcharts and, I don't know, triple…
head and shoulders, orwhatever. So, I think that's something
that's, that's quiteimportant. Thecapitulation trade,
which when I was running myhedge fund, there's a guy, Lawrence
Staden, whose real specialtywas the capitulation trade. I could
never do that. It was onemonth where I lost 6% in the month
and he, sitting just acrossthe room, made 8%, and we were trading
the same universe. I mean, Icouldn't get that. But that is something
where everybody's the same wayaround and some trigger is going
to produce forced selling. Imean,I got it during the global
financial crisis. Not that Ianticipated the breakdown of the
financial system, but I justthought things were getting worse
incrementally. And again, Iwas privileged to get all sorts of
information during the Covidcrisis. There was a conference call,
actually my colleague was on,where the chief medical advisor to
the Wellcome Trust said 40% ofthe world's going to get Covid. I
said, well sell everythingthen. And that made us negative.
Andthen Dame Sarah Gilbert,as she now is, said, my vaccine might
not work, but one of themwill. And I thought, wow, you get
people being optimistic abouttheir own research area or product.
But she was saying thecompetitor might work. So, I was
bullish about vaccines andthought the whole idea… So, you've
got to be flexible and nimble.Interms of promoting your career,
choose the best university.It's not necessarily something that
I think is necessary. Irecruit people from all universities.
But to get past theapplication sifting process, much
of which is done by the way bymachines and not by the people, even
when people do it, that aregoing to actually hire you, you've
got to have a good universityand a good degree and techniques
are important. People used tosay reading and writing and arithmetic
are what you need in order tolearn other stuff. Well, it's true,
but more in the technicalsense. Interms of choosing the right
firm, you want to go for a bigsuccessful firm, even if they fire
you, you'll get another goodjob. And choose your boss carefully,
and be in a sector that'sexpanding. It's pretty obvious really.
I'mnot very good at tellingyou which of the sectors that expand
anymore. One of the problemswith The City is that there used
to be always new entrants ornew markets. The Japanese came in,
the Americans came in, theEuropeans came in, there was derivatives,
emerging markets, all the restof it. I'm not really sure what the
growth is, quite frankly, on afive year view. But in terms of your
career, think very carefullyabout the fact that different parts
of the same firm are verydifferent. So,for example, if you
go into, I don't know, fixedincome fund management at Columbia
Threadneedle, it'll be quitesimilar to the same job in Schroders
and more different than doingequities. So, it's kind of different.
And in investment banking,trading and sales, totally different
client relationships, verydifferent. So,get something that
suits your skill set and yourpersonality is undoubtedly the right
thing to do.
Very good. Well, you, I knowyou've retired formally, but if people
want to follow you, I thinkyou are still posting videos on LinkedIn,

(01:06:02):
is that right?
Yes, I do. I’m quiteinterested how many people ask to
follow me and how many hits Istill get, rather more than I did
before. But yeah, I do most ofmy stuff on LinkedIn. I still get
lots of people contacting mefor advice and I'm going to do some
seminars later in the yearwith a firm, Room 501. So, I'm still

(01:06:25):
as interested. And as long aspeople are interested in hearing
from me, then I'll keep going.
Good stuff. Well, great tohave you on Steven. It'sbeen fascinating
to get your perspective onfive decades in markets and, and
everything you've learned andall of that quality advice. So, yeah,
stay tuned. Obviously, feelfree to follow Steven's content on

(01:06:46):
LinkedIn. And for all of ourguests and listeners here on Top
Traders Unplugged, stay tunedand we'll be back soon with more
content.
Thanks for listening to TopTraders Unplugged. If you feel you
learned something of valuefrom today's episode, the best way
to stay updated is to go onover to iTunes and subscribe to the
show so that you'll be sure toget all the new episodes as they're

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released. We have some amazingguests lined up for you. And to ensure
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GM85: What If the Real Risk Isn’t Recession — But Reinvention? ft. Steven Bell

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}GM85: What If the Real Risk Isn’t Recession — But Reinvention? ft. Steven Bell